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Morningstar | Wildfires Introduce Potential Liabilities for Edison

We think Edison International is well positioned to increase its earnings and dividend faster than most U.S. utilities. With the potential for $5 billion of annual capital investment and good regulatory support, we think Edison can increase earnings and the dividend by 6% annually for the foreseeable future.But this growth could be lumpy as regulatory delays and changing policies lead to shifts in spending and cost recovery. 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 are possible, too, although SCE could face liabilities related to recent wildfires in its service territory.We expect regulators to support SCE's $13.7 billion capital investment during its 2018-20 general rate case period. However, regulators often are behind schedule when they are considering utilities' large investment plans, so we wouldn't be surprised if these numbers shift slightly from year to year.Edison will have to continue its operating cost discipline to avoid large customer bill increases that support this spending. Incremental cost savings could be difficult to find, putting pressure on Edison to prove its investment will bring benefits to ratepayers. But Edison has a good record of winning support from state regulators for its proposed investments during the past decade, and most of the state energy laws and policies work in its favor. Wildfire costs and liabilities are a concern, but not nearly as much as for PG&E.Edison has removed virtually all of its past overhangs, such as its decision to close the San Onofre nuclear plant in 2013 and its merchant power generation business. 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.