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Edison Int'l Sets Date for SONGS Settlement, Hits High

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Shares of Edison International (EIX - Free Report) attained a 52-week high of $54.35 during intraday trading on Friday, Mar 21, finally closing a trifle lower at $53.87, after it unveiled talks related to its closed San Onofre Nuclear Generating Station (“SONGS”) in California.

Edison set March 27 for negotiations of costs related to its shuttered SONGS unit in California. The state regulatory body, The Utility Reform Network, a customer group, as well as the partial owner of the unit Sempra Energy (SRE)’s San Diego Electric & Gas are expected to participate in the event for the settlement of costs. The company said that if a settlement is reached Edison’s Southern California unit will likely record a charge of $100 million after-tax in the first quarter of 2014.

In June last year, Edison decided to permanently shut down Units 2 and 3 of SONGS in California, following a 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.

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.

The permanent shutdown of the twin reactors has been considered the most significant in the last five decades in the U.S. The nuclear industry witnessed a difficult time in 2013 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.

The closure of the San Onofre units is a positive for Edison as it has been a prime risk factor for the stock. An amicable settlement of costs and liabilities will lift a major overhang on the stock.

Recently, the company posted fourth quarter 2013 earnings that came in ahead of the Zacks Consensus Estimate by 24.6%. With its strong portfolio of regulated utility assets and well-managed merchant energy operations, Edison International presents a lower risk profile compared to its utility-only peers.

We note that SCE operates in a supportive regulatory environment of California. The company is also implementing infrastructure improvement programs, focusing mainly on system reliability, smart grid technology and compliance with California’s renewable energy mandate through programs like SmartConnect and Solar Photovoltaic Program.

Edison International holds a Zacks Rank #2 (Buy). Stocks that are also worth considering in the space are Zacks Ranked #1 (Strong Buy) Exelon Corporation (EXC - Free Report) , Otter Tail Corporation (OTTR - Free Report) and Public Service Enterprise Group Inc. (PEG - Free Report) .

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