(The following statement was released by the rating agency)
NEW YORK, January 08 (Fitch) Fitch Ratings has revised Edison
(EIX) Rating Outlook to Positive from Stable. Fitch has also
ratings of EIX and its core utility operating subsidiary,
Edison (SCE), as follows:
--Long-term Issuer Default Rating (IDR) at 'BBB';
--Short-term IDR at 'F2';
--Senior unsecured at 'BBB'.
--Long-term IDR at 'A-';
--Short-term IDR at 'F1';
--Senior secured at 'A+';
--Senior unsecured at 'A';
--Senior secured pollution control revenue bonds at 'A+';
--Senior unsecured pollution control revenue bonds at 'A';
--Preferred at 'BBB+';
--Commercial paper at 'F1';
--Short-term secured at 'F1'.
The Rating Outlook for SCE is Stable.
Approximately $11.2 billion of EIX and SCE long- and short-term
as of Sept. 30, 2013 is affected by the rating actions.
Key rating drivers for EIX and SCE include:
--Uncertainty regarding claw-backs in Edison Mission Energy's
--The balanced regulatory compact in the state of California and
the ability to
timely recover prudently incurred costs in rates;
--Strong projected utility operating cash flows, earnings and
--SCE's tiered rate structure and long-term concerns around
from alternative energy supply.
The Positive Rating Outlook at EIX reflects the meaningful
improvement to its
consolidated creditworthiness as greater clarity emerges during
While the timing of the acquisition of EME by NRG Energy,
Inc.(NRG), targeted by
NRG to close by the end of first quarter 2014, is uncertain, the
acquisition, in Fitch's view, moves EME closer to resolution of
restructuring in bankruptcy. Fitch believes a reasonable outcome
claw-back efforts by certain EME creditors later this year would
improving EIX credit ratings and a potential equalization of EIX
and SCE's IDRs
over time in a reasonable worst-case scenario.
Future adverse developments in the EME bankruptcy from an EIX
point-of-view cannot be ruled out and are a source of
uncertainty for investors.
Nonetheless, a reasonable solution to pending claw-back issues
is a likely
catalyst for future EIX credit rating upgrades and supports the
revision to Positive at EIX.
The affirmation of EIX and SCE's ratings primarily reflects the
profile of the holding company's core operating electric utility
The utility benefits from a balanced state and federal
that includes, among other credit-supportive features, revenue
forward test years in regularly scheduled general rate cases
of cost-of-capital proceedings from GRCs, pre-approval of capex,
and riders for
recovery of key expense items outside of GRC proceedings.
The balanced regulatory compact in California mitigates concerns
large capex program, which is expected to be approximately $18
billion during 2013-2017. Fitch estimates that EIX and SCE's
and debt-to-EBITDA ratios will be better than 7.0x and 3.0x,
Fitch's 2013 and 2014 estimates reflect revenue increases
approved by the
California Public Utilities Commission (CPUC) in SCE's 2012 GRC.
In addition to
a test-year rate increase of $272 million, the CPUC's final
decision in the 2012
GRC approved attrition-year rate increases of $358 million and
respectively, in 2013 and 2014.
In its final 2012 GRC decision, the CPUC approved total rate
2012-2014 representing approximately 54% of the utility's
Going forward, Fitch assumes that the final decision in SCE's
pending 2015 GRC
will be generally consistent with the balanced outcome in the
Fitch notes that an unexpected, significant deterioration in the
compact in California that would result in debt-to-EBITDA
weakening to 3.4x or
worse on a sustained basis would likely trigger future credit
for SCE. Fitch believes a material deterioration in California
regulation is a
low probability event in the near- to intermediate-term.
The utility and its parent company's credit ratings reflect
risks associated with California's strong commitment to low
carbon energy policy
and technologies. In this regard, Fitch believes that enactment
of A.B.327 is a
The legislation provides authority to the CPUC to adjust
residential rates and
implement fixed charges, among other things, to address
cost-shifting issues and provide appropriate incentives to
balance the interests
of customers and the investor-owned utilities (IOU).
Fitch's ratings for SCE and EIX consider the utility's
investment in the retired
San Onofre Nuclear Generating Station (SONGS) and the
commission's pending order
instituting investigation (OII) to consider related cost
recovery issues. Fitch
believes precedent in the state supports full recovery of SCE's
incurred costs related to the utility's investment in SONGS.
operating issues are not expected by Fitch to trigger future
Fitch notes that SCE recorded a pre-tax impairment charge of
$575 million ($365
million after tax) in second quarter 2013 due to the early
retirement of SONGS
and its reclassification as a deferred asset.
The retired nuclear facility represents approximately $1.2
billion of rate base
and $2.1 billion of net investment, which compares to a year-end
SCE rate base of more than $20 billion and total assets as of
Sept. 30, 2013 of
SCE announced its decision to permanently retire SONGS Units 2
and 3 in June
2013 due to unexpected heat transfer tube wear in replacement
generators at both
units. SONGS had been out-of-service since January 2012 when a
tube leak was
discovered in Unit 3.
The ratings for EIX and SCE also consider CPUC regulations that
and cash distributions from the utility to EIX. EIX relies on
dividends from SCE
and benefits from its tax-sharing agreement to meet its
obligations. There are
no cross defaults, inter-company loans or guarantees between EME
and either EIX
Greater clarity with regard to EIX's exposure to the EME
bankruptcy could result in an upgrade for EIX.
The following might lead to a downgrade:
Conversely, significant deterioration in the regulatory compact
could result in credit rating downgrades at EIX and SCE. In
unexpected change in EIX management strategy that tilted toward
diversification and/or shareholder-friendly actions, including
repurchases, could lead to future credit downgrades. In the
increasing competitive pressure from alternative technologies
could result in
future credit downgrades.
Philip W. Smyth, CFA
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology: Including short-Term Ratings
Subsidiary Linkage' Aug. 5, 2013;
--'Recovery Ratings and Notching Criteria for Utilities' Nov.
--'Rating North American Utilities, Power, Gas, and Water
Companies' May 16,
--'Short-Term Ratings Criteria for Non-Financial Corporates',
Aug. 5, 2013.
Applicable Criteria and Related Research:
Short-Term Ratings Criteria for Non-Financial Corporates
Rating North American Utilities, Power, Gas, and Water Companies
Recovery Ratings and Notching Criteria for Utilities
Corporate Rating Methodology: Including Short-Term Ratings and
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