NEW YORK--()--Fitch Ratings has assigned an 'A+' rating to Southern California Edison Company's (SCE) $400 million 3.90% coupon first and refunding mortgage bonds, series 2013 A, due 2043. The proceeds from the bond offering will be used either to repay commercial paper or for general corporate purposes. The Rating Outlook is Stable.
KEY RATING DRIVERS
--Strong and relatively predictable utility earnings and cash flows.
--A balanced regulatory compact in the state of California.
--Effective execution of SCE's large capex program and timely recovery of related costs in rates.
--Recovery of costs related to the ongoing outage at units 2 and 3 of the San Onofre Nuclear Generating Station (SONGS).
The rating and Stable Outlook reflect SCE's strong, projected earnings and cash flows, relatively low debt leverage, a balanced regulatory/political environment in California and strong projected credit metrics. The rating also recognizes the challenges associated with the utility's ongoing outage at SONGS and large capital expenditure program.
FINAL 2012 GRC DECISION
The California Public Utilities Commission (CPUC) issued a final decision in SCE's 2012 general rate case (GRC) in November of last year. The CPUC final decision granted SCE rate increases totaling $986 million during 2012 - 2014, approximately 60% of the company's $1.6 billion rate increase request. In 2013 and 2014, Fitch estimates that SCE's EBITDA-to-interest will exceed 7x and that debt-to-EBITDA will be better than 3x.
Fitch expects SCE to file its 2015 GRC with the CPUC in the fourth quarter 2013, with rates anticipated to be effective Jan. 1, 2015. SCE capex was $3.9 billion in 2012, basically flat with 2011 levels due to uncertainty associated with the utility's 2012 GRC. With the 2012 GRC behind it, capex at SCE is likely to climb in 2013 and 2014.
The ongoing outage at units 2 and 3 of SONGS is a concern, in Fitch's opinion. The ultimate impact of the outage on credit quality will turn on the magnitude of costs and the ability of such costs to be recovered in rates. Fitch believes outage related costs will be recovered and that the outage will prove manageable within the current rating category.
--A rating upgrade at SCE currently seems unlikely considering
SCE's large capex program, higher-than-industry-average rates, tiered rate structure, and secular concerns regarding competitive inroads from alternative energy suppliers.
--An unexpected deterioration in the California regulatory environment, including an adverse outcome in the pending SONGS order instituting investigation (OII) or other prospective rate proceedings could lead to future credit rating
--The inability of SCE to effectively execute its large capex program and fully recover costs in a timely manner could also result in adverse credit rating actions
SCE is a subsidiary of Edison International (IDR 'BBB', Outlook Stable).
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Recovery Ratings and Notching Criteria for Utilities' (Nov. 12, 2012);
--'Rating North American Utilities, Power, Gas and Water Companies' (May 16, 2012);
--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012).
Applicable Criteria and Related Research
Parent and Subsidiary Rating Linkage
Corporate Rating Methodology
Recovery Ratings and Notching Criteria for Utilities
Rating North American Utilities, Power, Gas, and Water Companies