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Edison to Seal Nuclear Units

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Edison International (EIX - Free Report) has finally decided to permanently shut down Units 2 and 3 of its San Onofre Nuclear Generating Stations (“SONGS”) in California, following a year-long debate on whether or not to return both the nuclear reactors to service.

Edison International unit, Southern California Edison (“SCE”), stated that the closure of the nuclear reactors at the plant came in the wake of mounting maintenance charges along with regulatory impediments and investigations faced by the company.

SCE will eventually have to cut staff at San Onofre over the next one year, from 1,500 to about 400, with the majority expected by 2013.

Located near the ocean 60 miles (96 kilometer) southeast of Los Angeles, San Onofre units were shut down safely from Jan 2012 following a minor radioactive leak discovered in tubes inside a steam generator. The generator was manufactured by the Japanese engineering firm Mitsubishi Heavy Industries.

With the permanent retirement of both the units, SCE will record a charge of $450 million to $650 million before taxes, or $300 million to $425 million after tax, during the second quarter of 2013. However, the shares of Edison International witnessed a 2.7% gain on the New York Stock Exchange on Jun 7, closing at $47.61, owing mainly to the relief from regulatory uncertainties. SCE will likely recover damages from Mitsubishi Heavy Industries and pursue some recovery from insurance.

The permanent shutdown of the twin reactors is considered the most significant in the last five decades in the U.S. The nuclear industry is witnessing a difficult year given the availability of low-priced natural gas and the government-subsidized wind sector. This twisted power-market dynamics not only constricts margins but also makes pricey maintenance extravagant for some nuclear operators.

San Onofre’s two reactors follow two more nuclear shutdowns earlier in the year. In February, Duke Energy Corp. (DUK - Free Report) said that it will permanently put the shutters down on the 860 megawatt (“MW”) Crystal River Nuclear Plant (“CR3”) located in Citrus County, Florida. Again, in May, Dominion Resources Inc. (D - Free Report) revealed that it planned to seal its 566 MW Kewaunee nuclear power plant in Wisconsin. The decision was prompted by an absence of a suitable buyer for the plant with the advent of low natural gas and power prices.

The closure of the San Onofre units will put the Diablo Canyon plant on the Central Coast as California's lone nuclear plant. California is striving to meet the 33% renewable energy mandate by 2020 and needless to say the reactors have consistently supported the grid. The shutdown would thus impede the company's goals.

SCE holds a 78% stake in San Onofre while San Diego Gas and Electric, a unit of Sempra Energy (SRE - Free Report) , has a 20% interest and a minor interest held by the city of Riverside, California.

Edison International currently retains a Zacks Rank #3 (Hold).

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