Edison International

views updated

Edison International

2244 Walnut Grove Avenue
Rosemead, California 91770
U.S.A.
Telephone: (626) 302-1212
Toll Free: (800) 302-2517
Fax: (626) 302-2517
Web site: http://www.edison.com

Public Company
Incorporated: 1909 as Southern California Edison Company
Employees: 15,038
Sales: $11.4 billion
Stock Exchanges: New York
Ticker Symbol: EIX
NAIC: 22111 Hydroelectric Power Generation; 221112 Fossil Fuel Electric Power Generation; 221113 Nuclear Electric Power Generation; 221119 Other Electric Power Generation; 221121 Electric Bulk Power Transmission and Control; 221122 Electric Power Distribution; 551112 Offices of Other Holding Companies

Edison International, formerly known as SCEcorp, acts as a holding company for Southern California Edison, one of the largest public utilities in the United States. Edison’s other subsidiaries include: Edison Mission Energy, an independent power producer; Edison Capital, a unit that provides financing for energy-related projects and affordable housing; Edison Enterprises, a firm that oversees Edison’s International’s retail companies; and Edison O&M Services, a company that offers services related to increasing power plant efficiency. With operations in nine countries, Edison International maintains a power generation portfolio of over 28,000 megawatts and has assets exceeding $33 billion. California’s deregulation and subsequent energy crisis nearly forced the company into bankruptcy in 2001. Edison International avoided insolvency by focusing on paying off debt and recovering costs related to the crisis.

Regional Growth Sparks the Need for Power

In the first three decades of the 20th century, the population of California grew four-and-a-half times as quickly as the total population of the United States. This growth meant a giant leap in the area’s need for power, a need that was reflected in the expansion of public utilities there. By 1909 Edison Electric Company of Los Angeles was already a sizable utility concern. Over several years, Los Angeles Edison had acquired and consolidated the generating and distributing capabilities of 13 pioneer utility companies in and around Los Angeles. Southern California Edison was organized in August 1909 to acquire all of Edison’s properties. In the next several years, Edison made only one minor acquisition, the Downey Light, Power and Water Company in 1914, and rather than expanding, it concentrated primarily on developing the existing electric properties and eliminating its gas properties, which were bringing in only about 6 percent of the company’s gross revenues.

The most important expansion in Edison’s early years occurred in 1917, when the company acquired all of the assets and business of Pacific Light & Power Corporation and a controlling interest in Mount Whitney Power & Electric Company. Pacific was a rapidly growing power company controlled by H.E. Huntington and Los Angeles Railway Company and operating in the same service area as Edison. Mount Whitney was operating in the nearby agricultural area of Tulare County and had no competitors there. These acquisitions left Edison firmly in control of the electricity business in the region. Also in 1917, the city of Los Angeles purchased Edison’s distribution system inside the city, and began to buy power wholesale from Edison for its municipal plant.

By adding the facilities formerly belonging to Pacific, Edison more than doubled its generating capacity. Shortly after the acquisition, Edison embarked on a decade-long construction project in the area of Pacific’s Big Creek hydroelectric station, transforming it from a plant capable of generating about 63,700 kilowatts of power to a huge system that included 3 reservoirs, 8 concrete dams, and 41 miles of tunnels, and that could generate more than 373,000 kilowatts of power. Through 1928, the area’s population was growing so rapidly that Edison had no problem using this greatly increased capacity. Because overall use of electricity was accelerating, especially in industry and agriculture, Edison found no need to seek new business.

Edison’s gross revenues grew each year during the 1920s, and as the 1930s began the company continued to do well in spite of a general downturn in industry. By the end of 1930, revenues had reached $41 million, and the balance Edison had achieved between hydroelectric and steam generation helped protect the company against fluctuating earnings due to weather problems or fuel-price hikes. For instance, when low-water conditions hindered hydroelectric generation, emphasis could be shifted to steam. In addition, Edison’s steam plants were capable or running on either oil or natural gas, so costs could be minimized by taking advantage of price fluctuations between the two types of fuel. The drop in industrial power use was largely offset by great increases in residential use. More households during this period were beginning to use electric appliances such as washers, refrigerators, space heaters, and water heaters. Agricultural use of electricity also was rising quickly. Pumping plants for irrigation, previously powered by other means, were converted to electricity, and by 1930 these irrigation plants accounted for roughly one-eighth of Edison’s total connected load. In 1930 the company changed its name to Southern California Edison Company Ltd. The “Ltd.” was dropped in 1947.

Edison’s output, revenues, and service area continued to expand through the 1930s. In 1930 construction began on the Boulder Dam—later renamed Hoover Dam—project. Built on the Colorado River about 300 miles northeast of Los Angeles, the dam’s power stations initially were capable of generating nearly 750,000 kilowatts of electricity. The dam was constructed and run by the U.S. government, and contractual agreements were made with several power companies and municipal systems concerning the use of the power it generated. Edison’s share of the power was to be 7.2 percent of the total output, although the company was obligated to absorb up to 14.4 percent more of the total if the states of Nevada and Arizona did not use their shares. The company spent more to purchase Boulder Dam power than it did to generate power at its most efficient steam plant.

Postwar Expansion

Population growth of Edison’s service area continued to outpace by far that of the United States as a whole in the 1940s, increasing by 80 percent compared to the national rate of 15 percent. This statistic was reflected in the growth of company revenues. While the national average during this decade for privately owned electric utilities was an 83 percent increase in gross operating revenues, Edison’s figure was 135 percent. While Edison’s rates continued to be significantly lower than the national average through the first half of the decade, this situation began to change over the next several years as the national average began to drop rapidly. One reason for the company’s increase in electric rates relative to the national average was an increasing emphasis in the post-World War II years on steam-generated power, which cost the company up to twice as much to produce as hydroelectric.

By the early 1950s Edison was the fifth-largest investor-owned power company in the United States. Its service area covered 18,500 square miles and contained about 225 communities with a combined population of almost three million. The company’s customers numbered more than one million by 1952, twice the count for 1940, and were very diverse in nature. Of the power sales in its territory, 25 percent was to industrial concerns, 34 percent to residential, 10 percent to agricultural, and 21 percent to commercial. The region had proven in many ways to be nearly ideal for a utility company: the climate was excellent, agriculture was widespread and booming, and industries were thriving and greatly varied. The only major drawback of the area seemed to be the competition provided by cheap and readily available natural gas, which could be used for many appliances.

From the end of World War II through 1953, Edison spent about $500 million on construction, and by 1954 the company’s 24 hydroelectric plants and five steam stations had a capacity of 1.6 million kilowatts. Most of the postwar expansion went toward steam generating which, while more expensive than hydroelectricity, was not hampered by water shortages. The largest cost increases the company experienced during this period were due to jumps in the prices of gas and oil—required to run the steam plants—that occurred during the Korean War. Still, Edison’s sources of power were both diverse and geographically separated, thereby spreading the risk of property damage and offering protection from droughts. Half of the company power came from its steam plants in the Los Angeles area; 35 percent came from its own hydroelectric properties fed by the western slopes of the Sierra Nevadas; and 15 percent was purchased, mainly from the Hoover Dam.

Edison’s revenues nearly doubled during the 1960s, rising gradually from $369 million in 1960 to $721 million in 1970. The company continued to stay ahead of most others within its industry in such statistics as net income, revenues, and kilowatt-hour sales, largely due to the fact that California’s population continued to grow faster than any other state’s. Jack K. Horton, an important figure at Edison during this decade, became president in 1959, chief executive officer in 1965, and chairman of the board in 1968.

Company Perspectives:

Moving beyond the basics, while never losing focus of our core strengths. That’s a key business value for Edison International. And because nothing in today ‘s energy, financing, and retail service markets remains static, Edison International pursues opportunity wherever it can. Change can be good. Progress is better.

New Trends in the 1960s–70s

The period from 1960 to 1968 was defined by three trends: the acquisition of several smaller utilities, a shift from oil to natural gas to fuel the steam plants, and a gradual decrease of electricity rates. All three of these trends ceased after 1968. Edison’s minor burst of expansion during the period included the 1962 acquisition of all the utilities—gas, electric, and freshwater services—on Santa Catalina, an island about 25 miles off the coast of southern California; the 1963 acquisition of California Electric Power Company; the purchase in 1965 of Desert Electric Cooperative, Inc., which involved 2,600 customers and 600 miles of distribution line near Twentynine Palms, California; and the 1966 purchase of most of the physical assets belonging to Valley Power Company, which served a small number of Nevada customers.

The shift from oil to natural gas is reflected in the following fuel-mix statistics. In 1960 almost half of Edison’s power output was fueled by natural gas, more than one-third by oil, and the rest primarily hydroelectric. By 1968 the balance was 74 percent gas and only 12 percent oil. This trend began to reverse itself in the next couple of years, however, as the availability of natural gas decreased. By 1970 when the share fueled by natural gas was down to 56 percent, the company began to enter long-term oil supply contracts in anticipation of this reversal continuing.

Utility costs per unit of power generally declined well into the 1960s, and accordingly Edison’s rates dropped by 16 percent from 1960 to 1968. In the late 1960s and early 1970s, however, the company saw huge jumps in the costs of fuel, construction, and interest. Also, around this time both public and government agencies started to become more concerned about the environment, and utility companies faced greater difficulties getting approval for the construction of new power plants. This was especially true for Edison because of its location in the southern California “smog belt.” By the early 1970s approval from roughly 30 different agencies was required before a new plant could be built; and in 1972 a referendum was overwhelmingly passed requiring any who wanted to undertake major development along the California coastline to first seek approval from the California Coastal Zone Construction Commission. One way in which Edison dealt with California’s environmental regulation was to build out of state. Two coal-burning plants were started in joint ventures with other companies. The two plants, located in New Mexico and southern Nevada, accounted for 12 percent of the company’s total capacity in 1973. By 1973 Edison ranked behind only New York’s Consolidated Edison, Chicago’s Commonwealth Edison, and the Southern Company of Atlanta, Georgia in gross revenues for electric companies, bringing in nearly $1 billion. The company had 7.5 million customers in a 50,000 square-mile area, and more than $3 billion in assets.

The oil embargo of 1973 created difficulties for many utility companies, including Edison, and the price of electricity increased throughout the United States. Excluding increases in the cost of fuel, however, Edison’s rates rose more slowly than the industry average through the remainder of the 1970s. Edison’s electricity prices went up about 6.7 percent annually, while prices nationally grew at the rate of about 9 percent per year.

Alternative and Renewable Energy Sources: 1980s

In 1980 William R. Gould became chairman and chief executive officer of Edison, marking an important change in approach for the company. Gould had joined Edison in 1948 as a mechanical engineer, working his way up to vice-president in 1963, senior vice-president in 1973, and president in 1978. Within a few months of being named chairman in 1980, Gould unveiled a plan calling for a major commitment to alternative and renewable energy sources in the coming years. In 1981 oil, gas, and coal supplied the fuel for 70 percent of the company’s 15.5-million kilowatt capacity. Under Gould’s plan, however, one-third of the company’s new power needs during the 1980s would come from nontraditional sources such as solar, geothermal, and wind power. The plan also entailed increasing the purchase of alternative forms of power from third-party sources, thereby decreasing the company’s reliance on power from large, centralized generating stations, which were no longer as economical to run as they once were. In 1980 Edison began generating 3,000 kilowatts with a wind-powered turbine at San Gorgino Pass near Palm Springs, California. In 1981 it purchased the steam required to produce about 10,000 kilowatts of power from a geothermal well operated by Union Oil Company of California. Construction on a pilot solar facility was begun in the Mojave Desert that year as well.

In 1984 Howard p. A1len became chief executive officer of Edison, inheriting Gould’s expansive network of energy suppliers, which together represented nine different sources of power. Although not all of these sources were as cost-efficient as oil, this diversified approach made the company less vulnerable to the volatile world oil market. By 1985 oil accounted for only 2 percent of the company’s fuel needs, down from 60 percent ten years earlier. In the mid-1980s, the emergence of cogeneration by nonutility companies began to erode the earnings of some electric utilities, including Edison.

One way that Allen and Edison battled this trend was by reducing the rates charged to large industry, which accounted for about one-fifth of Edison’s revenues, in order to encourage them to stay within Edison’s system. Another strategy employed by the company was to start its own cogenerating subsidiary, Mission Energy.

By 1987 Edison was the second-largest electric-generating company in the United States, earning a company record $789 million that year. One-tenth of its power came from cogeneration and alternative sources, and 20 percent came from the San Onofre nuclear facility.

Key Dates:

1909:: Southern California Edison is organized to acquire all of Edison Electric Company’s properties.
1917:: The firm acquires Pacific Light & Power Corporation and a controlling interest in Mount Whitney Power & Electric Company.
1930:: The company changes its name to Southern California Edison Company Ltd.
1980:: Edison begins to focus on alternative and renewable energy.
1988:: SCEcorp is formed as a holding company for Edison and new subsidiary The Mission Group.
1996:: SCEcorp changes its name to Edison International; deregulation begins in California’s energy sector.
2001:: Edison faces bankruptcy during its home state’s energy crisis.

In 1988 SCEcorp was formed as the holding company for Edison, and a newly formed subsidiary called The Mission Group. The Mission Group—eventually known as Edison Mission Energy—in turn became a holding company for SCEcorp’s nonutility subsidiaries. Edison stockholders received shares of SCEcorp stock, and operations continued essentially as before. Also in 1988 a merger was proposed between SCEcorp and San Diego Gas & Electric Company. The merger was approved by the shareholders of both companies the following year, but after two years of review it was rejected by the California Public Utilities Commission (CPUC).

Howard Allen retired in 1990, and was replaced as chairman and chief executive of both SCEcorp and Edison by John Bryson. Bryson, a former head of the CPUC, had joined Edison in 1984 as chief financial officer. Company records were set in 1990 in both earnings and revenue. Two trends that had begun in the 1980s had continued into the 1990s: the movement toward cogeneration continued to the degree that 57 percent of the new generating capacity built in the United States in 1990 was built by nonutility companies; and the trend toward zero consumption of oil as a generating fuel reduced SCEcorp’s oil use to three million barrels in 1990 from a peak of 58 million barrels in 1977.

Deregulation Leads to Crisis: Mid-1990s and Beyond

SCEcorp and Southern California Edison traditionally benefited from the advantages of their location; advantages that were grounded in demographic, economic, and environmental factors. Although California’s rate of growth did not assure the health of its utility companies forever, SCEcorp’s willingness to adapt to the demands of the global economy and the global environment appeared to put it in a envied position. This would soon change however, as future deregulation promised to significantly change the utility landscape in California.

Before deregulation took place, Edison and its subsidiaries were focused on expanding business. The company’s financing arm, Edison Capital, began investing in affordable housing projects and in 1993 started to provide financing to the Dutch national rail authority. Edison Mission Energy entered the international scene when it became involved in the Roosecote project in England. This unit also branched out into Australia and Northern Wales and by 1997 had interests in Indonesia, Italy, Turkey, the Philippines, and Thailand.

To prepare for deregulation, Edison began to sell off its oil and gas power plants in 1996 due to changes in laws that made it illegal for utilities to own both power generation and distribution operations. That year the company adopted Edison International as its new corporate moniker and with a new name in place, continued to restructure its operations successfully.

California’s market opened up to competition in 1998, which marked the beginning of a chaotic period for California’s citizens, the state’s utilities companies, the government, and investors around the world. Rates were frozen that year, which proved to be problematic for Edison. From December 1999 into 2001, the company experienced a 900 percent rise in its power purchasing costs as demand increased. According to an August 2000 Los Angeles Business Journal article, there had been excess capacity in the industry during the mid-1990s. “Utilities were wary about adding capacity because of uncertainty about deregulation,” the article claimed. “That didn’t matter during the recession of the early to mid-1990s. But since the economy has come roaring back, demand has soared.” This demand eventually began to outweigh supply, leaving many California residents in the dark.

Edison and its competitors stood in an unfavorable position. The public utilities had to purchase additional power, but were unable to pass on those costs to customers due to the rate freeze. From May 2000 to June 2001, the cost of unregulated wholesale power greatly exceeded what Southern California Edison collected from its customers. By 2001, costs had risen to $4.7 billion, and the company faced impending bankruptcy. In January of that year, the state began purchasing power for Southern California Edison so it could continue to supply its customers.

In October 2001, Edison reached an agreement with the CPUC in which it was allowed to recover $3.6 billion in costs by passing along a surcharge to its power customers. The plan was highly controversial and met with opposition from The Utility Reform Network (TURN), a consumer group that claimed the surcharge violated California’s deregulation laws. The case was slated to go before the California Supreme Court in the summer of 2003.

During 2002, Edison focused on reducing debt and recovering costs related to the energy crisis. Meanwhile, the CPUC continued to revamp certain aspects of California’s utilities industry to encourage infrastructure investment in an attempt to head off any future crises. Southern California Edison resumed its purchasing function in early 2003 and Edison planned to restore its dividend payment to shareholders—a payment it had made from the start of its history until it was suspended in 2000—by year end. Edison’s financial turnaround however, was contingent upon success in the aforementioned case.