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Edison International (EIX), PG&E Corporation (PCG), NRG Energy Inc (NRG): Beware of the Rooftop Solar Market

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America’s utilities are starting to be supplemented by rooftop solar systems. Instead of facing competition from a select number of other large utilities, now utilities are facing millions of potential competitors. Some utilities are working proactively to deal with these challenges, but others should be avoided.

The utilities
Edison International (NYSE:EIX) is a traditional utility that actively competes with solar through its Southern California Edison subsidiary. California’s relatively high electricity costs and healthy amount of sunshine make rooftop solar systems quite attractive. In addition to fighting rooftop solar, Edison International (NYSE:EIX) is dealing with the estimated $4.1 billion bill to dismantle the Onofre nuclear power plant, and it is still not clear how much of the bill Edison International (NYSE:EIX) will be stuck paying.

Edison International (NYSE:EIX)

Edison International (NYSE:EIX) bought the rooftop solar developer SoCore Energy. It is important to note that Edison did not simply buy a collection of solar panels out in the desert; it bought a piece of the distributed generation market. With Edison’s experience and its BBB debt rating, it will be able to funnel relatively cheap capital to boost SoCore’s operations. Rooftop solar systems mean the destruction of the status quo where demand for Edison International (NYSE:EIX)’s electricity grew in a steady and dependable fashion, but Edison can use SoCore to recoup some of its lost profits.

Challenges with the Onofre nuclear plant will put a dent in Edison’s earnings. The company is big, but a $4.1 billion price tag is still a hard pill to swallow. Also, the growth of distributed generation is forcing the company to lay down $17.8 billion to $20.3 billion in capital expenditures from 2013 to 2017, mainly in distribution and transmission upgrades. Do not expect a large amount of earnings growth in the coming years. Thanks to these costs it is expected to earn around $3.38 per share in 2013, $0.46 less than what it earned in 2010.

PG&E Corporation (NYSE:PCG) is the other big Californian utility with a situation very similar to Edison International (NYSE:EIX). PG&E Corporation (NYSE:PCG) owns part of the Onofre nuclear plant, and it is stuck in the middle of the decommissioning debate. With more than 4 million natural gas accounts it has some income to help decrease the impact from distributed generation, but PG&E Corporation (NYSE:PCG) is still in a challenging situation. It is stuck with big grid upgrades, making its $1.85 billion investment in its distribution upgrades the largest item in its 2013 capital expenditures budget.

Don’t expect PG&E Corporation (NYSE:PCG)’s earnings growth to be very strong. Thanks to network upgrades and rising energy prices, its expected 2013 EPS of $2.63 is a full $0.24 less than what it earned in 2010.

NRG Energy Inc (NYSE:NRG) is a large utility with over 46 gigawatts of generational capacity, and it has a strong interest in the renewable rooftop market. Through its NRG Energy Inc (NYSE:NRG) solar subsidiary it has helped more than 141,000 homes install rooftop solar systems. NRG’s willingness to embrace rooftop solar along with traditional utility scale solar installations is encouraging, because it shows that the company is willing to work with the market. It is important to remember that a full 46.8% of NRG Energy Inc (NYSE:NRG)’s generational capacity is on the East Coast, where relativity low solar radiation makes distributed solar less threatening.

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