EIX 1Q2018 Earnings (05/01/2018): Focus on 2018 GRC; we don’t expect ungainly impact from wildfires

EIX remains depressed from investor fears natural disasters may lead to outsized liabilities from CA’s inverse condemnation (IC)
But, given EIX’s dividend maintenance, we feel EIX is confident potential liabilities from natural disasters would not be debilitating to investors
Also, political climate appears to be shifting towards just treatment of California’s utilities. Therefore, we believe EIX is currently highly undervalued.
But, until there’s more clarity surrounding the liabilities, we believe EIX would continue to languish
EIX maintains silence re: its 2018E AEPS guidance until FD on 2018 GRC: FD likely in 2Q2018
Strong execution, strategic evolution, focus on core strengths and regulated investments make for attractive investment. Strategically, we like focus on utility projects with minimal distractions. Capex and rate base forecasts remain stable.

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EIX 4Q2017 Earnings (02/22/2018): Focus on 2018 GRC; EIX doesn’t seem to be suffering from PCG ills

EIX is under pressure from investor fears natural disasters would lead to outsized liabilities from CA’s inverse condemnation
However, given EIX has not only declared a dividend but also raised it, it suggests to us that EIX is confident that potential liabilities from natural disasters would not be debilitating to shareholders
Therefore, we believe EIX is severely undervalued at present
EIX is withholding its 2018E AEPS guidance until it gets decision on its 2018 GRC: FD likely in 2Q2018
Strong execution, strategic evolution, focus on core strengths and high regulated investments make for attractive investment. Strategically, we like focus on utility projects with minimal distractions, but capital expenditures reduced by $1B.
LT investments should drive LT AEPS CAGR above 7%-9% forecast range, in our opinion
We lowered our ST-Target to $86/share from $100/share, while our NIV/share increased to $180 from $168.

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Auvila Flash (EIX: 01/31/2018): Son Onfre Nuclear Generating Station (SONGS) Revised Settlement Agreement (RSA)

Southern California Edison (SCE), electric utility subsidiary of Edison International (EIX), reached a settlement agreement with all of the involved parties with regards to the closure of the SONGS
The long and the short of it is that the write-of amount from the RSA is hardly any different than the one reached in the prior settlement agreement in November 2014, which the CPUC had already approved

The after-tax write-off amount in the RSA is estimated by SCE at $448MM vs. $437MM from the prior settlement agreement an increase of only $11MM or about 2.5%

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2018 Industry Update: Economic growth should favor commodities-driven businesses in 2018

Warmer than normal winter:
Weak gas prices:
However, 4Q2017 and 1Q2018 power gross profit could be better than expectations:
Similarly, we’d expect natural gas infrastructure businesses to perform well for 4Q2017 and 1Q2018:
We expect economic growth to surpass 4% for 2018:
Strong economic performance should lead to strong power sector performance:
Commensurately, we expect natural gas infrastructure businesses to perform well:
Adjusted for seasonality, we expect natural gas prices to creep up throughout 2018 and, given normal weather, we’d expect natural gas prices to average at or just below $3.50 for 2018 with an exit price of some $3.65-$3.75:
Conclusion: Going into 2018, we believe that natural gas prices will stage a moderate recovery, but power margins should do better benefiting from accelerating economic activity. Individually, we continue to like… . However, the real star may be … . Among the utility names, we like … due to their growth prospects. We also look for … to outperform as … .

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EIX 3Q2017: Strong 3Q17 performance lifts guidance; Focus on 2018 GRC

Management is showing confidence by again raising 2017FY AEPS guidance this time by about $0.05
Waiting on PD for 2018 GRC; FD unlikely in 2017
Strong execution, strategic evolution and focus on core strengths makes for attractive investment
Strategically, we like focus on utility projects with minimal distractions
Renewable integration’s challenging but no big surprises, yet.
Dividend payout ratio has caught up to earnings power of SCE logging-in at some 51%
LT investments should drive LT AEPS CAGR above 7%-9% forecast range, in our opinion

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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, SRE, PCG: 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 Initiation Report

EIX: Growth capital should drive valuations higher ||

Continued high levels of capital spending relative to maintenance capex should accelerate valuation and drive dividend payout back to normalized range of 45%-55% from current levels of about 33%. We look for continued capex spending on transmission, distributed generation, electric vehicle (EV) infrastructure, select renewable generation, energy storage, grid modernization, energy efficiency, recovery of remaining investment balance of San Onofre Nuclear Generating Station (SONGS), and recovery of underbalance in power purchase costs. In addition, we look for a positive impact from the 2015 General Rate Case. 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 another power subsidiary, but based on renewables not fossil-fueled plants. 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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