Edison International (EIX)

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Edison International (EIX) provides electricity to millions of customers around the nation. Southern California Edison (SCEDM), EIX's largest subsidiary by revenue, serves over 13 million people throughout Southern California,^[1] while its other subsidiary, Edison Mission Group (EMG) sells electricity to other electric utility companies that have need of excess capacity. SCE and EMG, combined, own 14,000+ megawatts (MW) of electrical generation capacity.^[2], enough electricity to power over 10 million homes.^[3]

Electric utility companies are under increasing legislative pressure to adopt cleaner electricity generation methods while maintaining competitive prices. Southern California Edison has been a leader in moving to cleaner sources of electricity generation with nearly 17 percent^[4] of its energy mix coming from wind, solar, biomass, small hydropower and geothermal resources. SCE does not disappoint in the nuclear department either, with 17 percent of energy delivered to customers originating from a nuclear source.^[5]

[edit] Business Financials

Edison International has demonstrated steady revenue and net income growth over the past three years. Electric utility revenue increased by $812MM in 2006 when compared to 2005, mainly due to rate increases. In addition, record heat in the third quarter of 2006 combined with customer growth helped to boost the amount of electricity delivered throughout the Edison system while increasing revenue.

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[edit] Business Segments

Southern California Edison - SCE (Electric Utility)
Southern California Edison is the largest electric utility in California, serving more than 13 million people via 4.8 million customer accounts in a 50,000 square-mile area of Southern California.^[8] SCE is regulated by the California Public Utilities Commission meaning that rates are mandated rather determined through the free market.

Edison Mission Group - EMG (Nonutility Power Generation)
Edison Mission Group consists of owned or leased interests in 29 domestic operating power plants with an aggregate electrical generating capacity of 10,473MW.^[9] EMG's power plants are located throughout the United States from where the electricity is sold or traded to regional utility companies that need purchase electricity to serve their customer base.

EMG owns one of the largest portfolios of wind energy projects in the U.S., with 19 projects currently in operation or under construction.

Edison Capital (Financial Services)
Edison Capital has investments worldwide in energy and infrastructure project which include power generation, electric transmission and distribution, transportations and telecommunications.

[edit] Key Trends/Forces

[edit] Shielded by Fossil Fuel Price Volatility

Unlike other utility companies such as American Electric Power Company (AEP), EIX's Southern California Edison has remained largely unaffected by the rising cost of fossil fuel prices over the 2005-2006 time period. SCE's electrical generation mix has diversified away from traditional fossil fuels such as coal towards cleaner burning natural gas. Nuclear and renewable energy sources also comprise a significant portion of the energy mix which, characteristically, has a very steady and predictably cost basis.

To other utilities, fuel input costs will remain volatile as the booming overseas growth from industrializing counties such as China and India have pushed fossil fuel demand and prices new to new heights.

[edit] Nuclear Power & Electricity Generation

^[10]

The key difference between nuclear and fossil plants is the cost structure. Nuclear plants require very large capital investments (to construct the plant) but little expenditure for fuel because it takes relatively little uranium to power a plant. On the other hand, fossil fuel plants require relatively little capital investment but have high fuel costs because they require large amounts of coal, oil or gas. In the past, low fossil fuel prices gave given fossil fuel plants a cost advantage over nuclear plants. The cost advantage, compounded by the stigmas of nuclear energy (the not in my backyard phenomenon) has prevented new nuclear construction for almost 30 years.^[11] Record fossil fuel prices have begun to reverse this trend. The possibility and implications of peak oil may reinforce this reversal. Already, nuclear utilities such as Exelon, Entergy and Duke Energy Corporation (DUK) have begun filing for permits for construction of new nuclear plants. As of January 2008, EIX has not filed permits to build any additional nuclear plants. Southern California Edison operates the San Onofre Nuclear Generating Station which provides nearly 20% of the electrical power to the residents of Southern California.

[edit] California, Global Warming and Environmentalism

Over the past few years, global warming has moved from the fringes to become one of the single greatest single challenges facing the world today. A growing body of scientific evidence ties carbon dioxide emissions to rising temperatures. As a result of growing popular awareness of the risks of global warming, many large corporations have stepped up their efforts to project greener images. Additionally, many expect the U.S. government to enact more stringent legislation limiting carbon emissions. Environmental awareness is another key trend driving the renaissance of nuclear energy. Compared to their fossil fuel peers, nuclear energy plants have negligible emissions.

California, EIX's main operating region, continuing in its tradition of environmental leadership by enacting aggressive renewable energy goals. The California Renewables Portfolio Standards requires electric utilities to provide 20% of their electricity from renewable sources by 2010 and 33% by 2020. ^[12] On August 1, 2007, Southern California Edison issued a report stating that 16.1% of their power is derived from a renewable source.^[13]

[edit] Weather

Weather can have a material impact on EIX's business. Warmer than expected winters can lead to lower demand for heating energy, whereas a cooler than expected summer can lead to lower energy demand for cooling.

According to EIX's 2006 annual report, unseasonably warmer weather in the third quarter of 2006, as compared to 2005, resulted in larger electricity sales.^[14]

[edit] Government Regulation of Prices

The U.S. government plays a critical role in the financial performance of the highly regulated energy sector since the government sets the price of electricity. Electricity is considered as a necessary service, and with regulation in place, the government can guarantee that adequate service at an affordable price will be rendered to all who apply for it. How are prices set? Federal agencies that supervise the utilities ensure that it is affordable and that it provides utilities a "fair" return on their investment without earning excessive profits. How "fair" returns on investment and excessive profits are determined has been subject of much controversy. The subjective nature of regulation and price mandates has spurred the movement for increased transparency through deregulation and market-based pricing.

Each of EIX's utility businesses face a variety of challenges and potential benefits that may arise from changes in legislation and regulatory schemes.

[edit] Recent Regulatory News

• December 14, 2007 - Southern California Edison signed two new contracts that could provide the utility's customers with more than 185MW of power. The 20-year agreements, subject to approval by the California Public Utilities Commission, are for geothermal and wind generation.^[15]

[edit] Competition

 Edison International

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Company	Data From	HydroElectric/Wind Generation Capacity in Watts	Owned Generation Capacity in Watts	Total Electricity Sales	Retail Sales	Electricity Sales to Residential Customers	Electricity Sales to Industrial Customers	Electricity Sales to Commercial Customers	Electricity Sales to Other Electric Utilities
American Electric Power Company (AEP)	2007	722M[31]	37B[32]	$12.1B[33]	Add	$3.99B[33]	$2.67B[33]	$2.91B[33]	$192M[33]
Edison International (EIX)	2006	1.15B[34]	5.11B[34]	$9.9B[35]	Add	$3.86B[36]	$750M[36]	$4.23B[36]	$3.7M[36]
Entergy (ETR)	2006	70M[37]	Add	$9.06B[38]	Add	$3.19B[38]	$2.63B[38]	$2.32B[38]	$612M[38]
Xcel Energy (XEL)	2007	Add	Add	$7.85B[39]	N/A	$2.28B[39]	$4.1B[39]	Add	$118M[39]

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[edit] References

1. ↑ Southern California Edison Corporate Profile
2. ↑ EIX's 2006 Annual Report (Pg 18 & 29)
3. ↑ Power of Electricity
4. ↑ SCE - Renewable Energy
5. ↑ EIX's 2006 Annual Report (Pg 19)
6. ↑ EIX's 2006 Annual Report (Pg 7)
7. ↑ EIX's 2006 Annual Report (Pg 7)
8. ↑ Southern California Edison Corporate Profile
9. ↑ Reuters EIX Profile
10. ↑ Electricity Sources: NEI Report
11. ↑ Scientific American (9/26/07) - Nuclear Power Reborn
12. ↑ California Renewables Portfolio Standard
13. ↑ California's Renewable Energy Progress
14. ↑ EIX 2006 10-k (pg. 50)
15. ↑ New Southern California Edison Renewable Energy Contracts
16. ↑ EIX's 2006 Annual Report (Pg 7)
17. ↑ AEP's 2006 10-k (Pg A-45)
18. ↑ DUK's 2006 10-k (Pg 40)
19. ↑ EIX's 2006 Annual Report (Pg 18 & 29)
20. ↑ AEP's Investor Page)
21. ↑ DUK's Energy Business Segments
22. ↑ EIX's 2006 Annual Report (Pg 17)
23. ↑ AEP's Investor Page)
24. ↑ DUK's Energy Business Segments
25. ↑ EIX's 2006 Annual Report (Pg 19)
26. ↑ AEP's 2006 Annual Report (Item 2)
27. ↑ DUK's 2006 10-k (Pg 11)
28. ↑ EIX's 2006 Annual Report (Page 15)
29. ↑ AEP's 2006 10-k (Pg A-45)
30. ↑ DUK's 2006 10-k (Pg 40)
31. ↑ AEP,2007,10-K, Pg-na ,item 2
32. ↑ AEP, 2007 10-K Report, Item2: Properties
33. ↑ ^{33.0 33.1 33.2 33.3 33.4} AEP,2007,10-K, Pg-na ,item 1
34. ↑ ^{34.0 34.1} EIX,2006,AR-2006,pg-19
35. ↑ EIX,2006,AR-2005,pg-18
36. ↑ ^{36.0 36.1 36.2 36.3} EIX,2006,AR-2005,pg-17
37. ↑ ETR,2006,10-K,page-173,item na
38. ↑ ^{38.0 38.1 38.2 38.3 38.4} ETR,2006,10-K,page-47,item na
39. ↑ ^{39.0 39.1 39.2 39.3} XEL,2007,10-K,page27,item 1