EUR 850.00 For Business Accounts Only

Morningstar | California Wildfire Legislation Mitigates Future Risk for Edison Shareholders

We expect Edison International will always struggle to escape the shadow of its larger, troubled peer, PG&E, and the political risk associated with operating in California. But at its core, Edison has growth opportunities that would make most utilities jealous.With the potential for $5 billion of annual capital investment and good regulatory support, we think Edison can average 6% annual earnings growth for the foreseeable future. But this growth trajectory will be lumpy as regulatory delays, wildfire issues, and California energy policy changes lead to shifts in spending and cost recovery. Dividend growth might lag earnings in the near term.Growth opportunities at Southern California Edison address California's aging infrastructure, renewable energy mandates, and support for next-generation energy services such as electric vehicles, distributed generation, and energy storage. Investments to harden the system against fires could top $1 billion during the next two years.Regulators have shown support for much of SCE's $15 billion capital investment plan in 2019-21. Edison has a clear path to monetize those investments after regulators approved the 2018-20 general rate case. However, another round of regulatory delays could impact near-term earnings when negotiations for 2021-23 rates begin next year. Wildfire costs and liabilities are a concern, but new legislation and Edison's solid financial position mitigate that risk.Operating cost discipline will be critical to avoid large customer bill increases related to its investment plan. Edison likely will face more regulatory scrutiny to prove its investments are producing customer benefits. But Edison has a good record of winning support from state regulators and most of the state energy laws and policies work in its favor.We expect Edison to retain a small share of unregulated earnings, but those are more likely to come from low-risk customer-facing or next-generation energy management businesses wrapped into Edison Energy.