Edison International's Regulatory Environment to Spur Growth - Analyst Blog

We have issued an updated research report on Edison InternationalEIX on Apr 14, 2015.

With a strong portfolio of regulated utility assets and well-managed merchant energy operations, Edison International presents a lower risk profile compared to its utility-only peers. Edison International's chief unit - Southern California Edison ("SCE") - operates in a supportive regulatory environment of California.

Focus on transmission and distribution infrastructural development programs along with expansion of its operations will help Edison International to boost its top line. Last year, it invested around $3.91 billion as capital expenditure. Its prime affiliate SCE intends to invest $11.8-$13.4 billion between 2015 and 2017, including an allocation of $3.6-$4.1 billion for 2015, mainly focusing on expanding distribution and transmission facilities, replacement of infrastructure and investment to improve reliability as well as energy storage capacity.

Between 2014 and 2017, SCE targets 7-9% average annual rate base and earnings growth driven by these systematic investments.

The company's transmission projects currently include the ones in Tehachapi, Coolwater-Lugo and West of Devers. Its infrastructure improvement programs mainly focus on system reliability, strategic acquisitions and smart grid technology. The latter involves programs like SmartConnect and Solar Photovoltaic Program which are in compliance with California's renewable energy regulations.

By 2030, California has a target of drawing 50% of the state's electricity from renewable sources, reducing the use of fossil fuel in cars and trucks by 50% and doubling the efficiency of existing buildings. Going forward, Californian fundamentals will likely allow the utility to grow to stronger levels with an improvement in the economic environment.

It is worth mentioning over here that the SoCore Energy acquisition would boost the company's rooftop solar installations for commercial and industry customers.

On the flipside, Edison International's operations are subject to federal, state and local legislative requirements, as well as extensive environmental regulations, relating to emission of greenhouse gases and waste management. Edison International expects to incur significant costs related to compliance both with existing and future environmental laws.

The company also generates more than 80% of its revenues from regulated utility assets. Hence, its performance is subject to approvals from regulatory bodies like California Public Utilities Commission or CPUC and Federal Energy Regulatory Commission or FERC. Any adverse decision on a GRC will greatly affect the utility's earnings growth.

Edison International currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the utility space are Alliant Energy Corp. LNT , DTE Energy Corp. DTE and NextEra Energy, Inc. NEE , all three carrying a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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