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The Impact of the Weather on Edison International’s 1Q16 Revenue

Vincent Kruger

Can Edison International Outperform California Peers in 1Q16?

Edison International’s earnings guidance

The California utility Edison International (EIX) is set to report its first quarter results on May 2, 2016. The company’s management has provided earnings guidance of $3.91 per share as a midpoint for 2016. Let’s look now at Edison’s expected 1Q16 revenues.

Revenue drivers

Unfavorable weather had a lower impact on California utilities in 4Q15 compared to the Midwest and the South. It significantly dented earnings for Midwest and Southern utilities (FUTY). For 1Q16, favorable weather could boost revenues for Edison International and other peer utilities.

For 2016, climate experts have projected normal temperatures in the United States, which could ultimately have a positive impact on revenues for utilities (XLU). Edison International could also see improved revenues in 2016 due to its pending general rate case decision.

California’s power demand has continued to fall since 2008, driven by energy efficiency and recession. However, during weaker times, California utilities are supported by healthy regulatory policies such as decoupling. Decoupling allows utilities to fetch revenues based on estimates rather than actual sales.

California’s ambitious target of 50% clean energy by 2030 may bode well for Edison International’s future growth. Clean energy penetration means more energy development, which needs to be transmitted and distributed to end users. So EIX is actively spending on infrastructure to provide capable transmission and other supporting distribution lines. The additional spending is expected to improve its rate base significantly, which could later be recovered from customers through rate cases.

Edison International is the smallest utility by market capitalization in California. Pacific Gas & Electric (PCG) and Sempra Energy (SRE) have a more dominant presence in California.

In the next part of the series, we’ll look at the regulatory environment for California utilities such as Edison International.

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