EIX: Edison Energy Services (EES): Molehill trying to become an anthill with potential to become a hillock; we like approach but endgame’s murky

At present, EES is inconsequential to EIX and its shareholders and looks to remain that way:
By 2019 yearend, EIX expects EES to be breakeven:
The strategy behind EES for EIX is simple to explain:
Proof of concept by yearend 2019:
Absolutely, no additional capital investments in the next 18-months:
Conclusions: We believe that EIX will be successful …
Risk, like most things, is in the execution:

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EIX 2Q2017 Earnings Note: EIX Quarter was disappointing but raising guidance in show of confidence

Quarter was disappointing but raising guidance in show of confidence || Strong 1Q17 results were partially offset by weaker than expected 2Q17, but management is showing confidence by raising 2017FY AEPS guidance by about $0.09. Entered into settlement discussions for 2018 GRC, but dual-tracking litigation process. Strong execution, strategic evolution and focus on core strengths makes for attractive investment. Strategically, we like focus on utility projects with minimal distractions. Final decision on cost of capital proceedings were reasonable with ROE of 10.30% down 0.15%. Renewable integration’s challenging but no big surprises, yet. DC tax plan should be favorable: Likely both direct and indirect benefits. High growth likely to continue beyond 2020. Dividend payout ratio has caught up to earnings power of SCE logging-in at some 51%. We look for continued high capex spending on transmission, distributed generation, electric vehicle (EV) infrastructure, select renewable generation, energy storage, energy efficiency and grid modernization. LT investments should drive LT AEPS CAGR above 7%-9% forecast range, in our opinion. We’d support decision to sell SoCore Energy, and like expansion of energy advisory and service business at Edison Energy.

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Preliminary Decision from ALJ on CA IOU’s Cost of Capital Proceeding is Largely in Tact with Two Relatively Benign Changes to the Settlement

On May 10, 2017, two assigned Administrative Law Judges (ALJ) issued a proposed decision (PD) in the cost of capital (COC) proceeding pending final decision (FD) by the California Public Utility Commission (CPUC)
The PD upholds the settlement agreement but for the following two modifications that was submitted by Southern California Edison (SCE), PG&E (PGE), San Diego Gas & Electric (SDG&E), and Southern California Gas (SCG) – all four combines (CA-IOUs) – CPUC Office of Ratepayer Advocates, and The Utility Reform Network on February 7, 2017
Instead of requiring the next COC application in two years to April 22, 2019 for 2020, the PD would require the next COC application to be filed on March 22, 2018 for 2019
The PD left open the possibility of reducing PG&E’s return on equity until recommendations made by the NorthStar Consulting Group which are adopted by the CPUC are implemented in the second phase of the CPUC’s safety culture investigation
The earliest the CPUC would promulgate a FD is June 15, 2017

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EIX 1Q2017 Earnings Note

Despite strong beat EIX maintains guidance, which may be prudent ||

Even though 1Q17 results were better by $0.21 vs. ours and consensus estimate, we feel 2017E AEPS guidance of $4.04-$4.24 should be kept for now, given that the majority of the beat was due a tax benefit. Strong execution, strategic evolution and focus on core strengths makes for attractive investment. Strategically, we like focus on utility projects with minimal distractions. Preliminary decision of cost of capital proceedings were pulled and awaiting final decision. Overall objectives and thesis intact. Renewable integration’s challenging but no big surprises, yet. DC tax plan should be favorable: Likely both direct and indirect benefits. High growth likely to continue beyond 2020. Dividend payout ratio has already largely caught up to earnings power of SCE nearing close to 50%. We look for continued high capex spending on transmission, distributed generation, electric vehicle (EV) infrastructure, select renewable generation, energy storage, energy efficiency and grid modernization. LT investments should drive LT AEPS CAGR above 7%-9% forecast range, in our opinion. So, we look for ST upside valuations move.

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EIX 4Q2016 Earnings Note

EIX continues to strategically impress and execution is strong ||

We feel 2017E AEPS guidance of $4.04-$4.24 is light, but delays in regulatory approvals may be making management conservative. Strong execution, strategic evolution and focus on core strengths makes for attractive investment. Strategically, we like focus on utility projects with minimal distractions. Energy Services’ focus on advisory/consulting for C&I customers is right approach from our view. Future CAGR slips some with delayed approvals, but overall objectives and thesis intact. Exit from water business is positive, while prognosis for competitive transmission projects is disappointing, in our view. Renewable integration’s challenging but no big surprises, yet. DC tax plan should be favorable: Likely both direct and indirect benefits. High growth likely to continue beyond 2020. Dividend payout ratio has already largely caught up to earnings power of SCE nearing close to 50%. We look for continued high capex spending on transmission, distributed generation, electric vehicle (EV) infrastructure, select renewable generation, energy storage, energy efficiency and grid modernization. LT investments should drive LT AEPS CAGR above 7%-9% forecast range, in our opinion. So, we look for ST upside valuations move.

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EIX 3Q2016 Earnings Note

EIX: We remain constructive on the stock; future looks bright ||

EIX believes it’d beat upper-end of its narrowed 2016 AEPS guidance based on lower operating/ financing costs. Management seemed positive on its California strategy, but development of Energy Services appears more costly than previously thought. Not surprisingly, higher future growth expectations, and continued high levels of capex spending relative to maintenance capex well beyond 2020 looks to accelerate valuations. Dividend payout ratio has already largely caught up to earnings power of SCE nearing close to 50%. We look for continued capex spending on transmission, distributed generation, electric vehicle (EV) infrastructure, select renewable generation, energy storage, energy efficiency and grid modernization. We feel SB32’d add to or increase capital spending, potentially in the $Bs. More spending on EV infrastructure, transmission and renewable energy sector or support of renewable energy sector should drive LT AEPS CAGR above 7%-9% forecast range, in our opinion. So, we look for valuations to move to upside over ST.

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EIX 2Q2016 Earnings Note

EIX: We remain constructive on the stock; future looks bright ||

2Q16 wasn’t what we expected, but EIX believes it’d achieve upper-end of its unchanged 2016 AEPS guidance based on lower operating/financing costs. Management was cautious on its strategy outside California, if any; however, it reiterated that it’d not do AEPS or growth dilutive acquisitions, which, in our opinion, leaves open possibility of acquiring Energy Future Holdings’ T&D assets. Not surprisingly, higher future growth expectations, and continued high levels of capex spending relative to maintenance capex looks to accelerate valuations. Dividend payout ratio has already largely caught up to earnings power of SCE nearing close to 50%. We look for continued capex spending on transmission, distributed generation, electric vehicle (EV) infrastructure, select renewable generation, energy storage, energy efficiency and grid modernization. More spending on EV infrastructure, transmission and renewable energy sector or support of renewable energy sector should drive LT AEPS CAGR above 7%-9% forecast range, in our opinion. So, we look for valuations to move to upside over ST. Ted Craver, CEO, and Jim Scilacci, CFO to retire 9/30. In our view, they have done very well for shareholders and wish them best.

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EIX: The Scope of the Reopening of the SONGS Settlement is Narrow

Much to our relief, it seems that the scope of the reopening of the San Onfre Nuclear Generating Station (SONGS) settlement agreement is limited to two issues:
Did the alleged ex parte communications between the former president of the CPUC and SCE in anyway shape the SONGS settlement agreement, particularly in a manner that is illegal, immoral or in favor of one party or another?
How did the $25MM university research grant on the study of greenhouse gas emissions come about and why was it part of the settlement agreement?
In both regards, we are of the belief that there was nothing untoward and that there were no hidden benefits to SCE at the expense of rate payers.

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EIX 1Q2016 Earnings Note

EIX: Long-term growth likely to be better than currently advertised ||

Unsurprisingly, higher future growth expectations, and continued high levels of capital spending relative to maintenance capex looks to be accelerating valuation. Dividend payout ratio has already largely caught up to the earnings power of SCE approaching close to 50% payout ratio. We look for continued capex spending on transmission, distributed generation, electric vehicle (EV) infrastructure, select renewable generation, energy storage, grid modernization, and energy efficiency. Additional spending on EV infrastructure, transmission and the renewable energy sector or support of the renewable energy sector should drive LT APES CAGR above the 7%-9% forecast range, in our opinion. Acquisitions of utilities may be dilutive to valuations due to higher expected growth at SCE versus many utilities outside of California. Therefore, we look for valuations to move to the upside over the ST.

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EIX 4Q2015 Earnings Note

EIX: Valuations anchored by growth capex ||

Continued high levels of capital spending relative to maintenance capex should accelerate valuation. Dividend payout ratio has already largely caught up to the earnings power of SCE approaching close to 50% payout ratio. We look for continued capex spending on transmission, distributed generation, electric vehicle (EV) infrastructure, select renewable generation, energy storage, grid modernization, and energy efficiency. However, the 2015 GRC was somewhat disappointing, although successor net energy metering (NEM) tariff is constructive. We believe that GHG regulations will have little to no impact on EIX. We are also heartened by the fact that EIX is investing in renewable power and competitive transmission projects, but dismayed at its entry into water desalination and waste-water treatment. Acquisitions of utilities may be dilutive to valuations due to higher expected growth at SCE versus many utilities outside of California. Decommissioning of SONGS appears to be on schedule and the nuclear decommissioning trust fund (NDTF) appears to be adequate for now. Therefore, we look for valuations to move to the upside over the ST.

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