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How Will Weather Affect Edison International’s 4Q15 Earnings?

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Earnings expectations

The Californian utility Edison International (EIX) is set to report its quarterly earnings on February 23, 2016. According to Wall Street analysts’ estimates, Edison International is expected to earn $0.60 per share in the fourth quarter of 2015. In the fourth quarter last year, it reported earnings of $1.07 per share.

Edison International’s management team has provided 2015 full-year earnings guidance of $3.77 to $3.87 per share.

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EIX’s earnings drivers

In September 2015, Californian power regulators issued a decision that supported Edison International’s capital spending plan. They proposed a revenue requirement of $5.1 billion, which could positively impact earnings in the near future. Utilities collect their revenue from customers based on the formal rates approved by regulators.

Weather is one of the most important factors that drive utilities’ earnings. In most of the United States, we saw milder weather during the fourth quarter of 2015. But in California, temperatures were pretty much the same as they were in the fourth quarter last year. Edison International may report lower sales due to lower electricity usage per customer, driven by warmer weather in the fourth quarter of 2015.

Edison International reached a settlement in October last year with an insurance carrier. It will receive $400 million for its San Onofre nuclear power plant in San Diego. The plant retired in 2013.

California’s focus on clean energy

Californian utilities may see a severe decline in power sales due to the 50% clean energy target by 2030. This trend could increase capital spending from traditional utilities (XLU) to expand their renewable (PBW) assets. Along with Edison International, Sempra Energy (SRE) and Pacific Gas & Electric Corporation (PCG) operate in California. EIX is the smallest utility by market capitalization of these three Californian companies.

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