8-K: Edison International Addresses Wildfire Liability, Eaton Fire Settlement

Edison International reports on new California wildfire legislation (SB 254) establishing an $18 billion fund and a settlement for the 2025 Eaton Fire litigation.

Summary

• The California Legislature approved Senate Bill (SB) 254, which is expected to be signed into law by the Governor, creating an $18 billion wildfire fund.
• The new fund will be financed 50/50 by customers and Investor-Owned Utilities (IOUs), with IOUs contributing $300 million annually from 2029-2045 and customers contributing $900 million annually from 2036-2045.
• Southern California Edison's (SCE) share of the IOU contribution is estimated at 47.85%, or approximately $145 million per year starting in 2029.
• SB 254 modifies the wildfire fund framework, making the new fund available for wildfires ignited after its effective date, while the original Wildfire Fund covers prior ignitions.
• The legislation enhances the liability cap, basing it on the year of ignition, and allows IOUs to issue securitized bonds for claims from covered wildfires ignited between January 1, 2025, and SB 254's effective date if the original Wildfire Fund is exhausted.
• IOUs are also expected to securitize $6 billion of wildfire mitigation capital spending, with SCE's share being approximately $2.9 billion.
• SCE entered into a Subrogation Settlement for the 2025 Eaton Fire litigation, agreeing to pay the Subrogation Claimant $0.52 for each dollar in claims paid or to be paid to its policyholders, up to an agreed cap.
• As of July 31, 2025, the Subrogation Claimant had paid approximately $500 million to its policyholders related to the Eaton Fire.
• No admission of wrongdoing or liability was made in the Eaton Fire settlement, and the Subrogation Claimant released SCE and Edison International from all related claims.
• SCE believes the Eaton Fire is a covered wildfire for the Wildfire Insurance Fund and anticipates seeking reimbursement from the fund for future eligible claims.

Sentiment

Score: 8

Explanation: The legislative approval of SB 254 provides a significant positive framework for managing future wildfire liabilities, enhancing financial stability and predictability. The resolution of the Eaton Fire litigation, while involving a payout, removes a specific uncertainty and allows for potential fund reimbursement. These developments are largely constructive for the company's outlook.

Positives

• SB 254 creates an $18 billion wildfire fund, providing a structured mechanism for managing future wildfire liabilities.
• The new legislation enhances the framework for liability caps, basing them on the year of ignition, which improves certainty for financial planning.
• SB 254 allows IOUs to issue securitized bonds for certain wildfire claims, offering a financing mechanism if the original Wildfire Fund is exhausted.
• The legislation includes securitization of $6 billion in wildfire mitigation capital spending, which can help manage capital costs.
• The Eaton Fire Subrogation Settlement resolves a significant litigation claim without admission of wrongdoing or liability, providing clarity on a specific financial exposure.
• SCE anticipates seeking reimbursement from the Wildfire Insurance Fund for Eaton Fire claims, potentially mitigating the financial impact of the settlement.

Negatives

• IOUs, including SCE, will have ongoing financial contributions to the new wildfire fund, with SCE's share estimated at $145 million per year starting in 2029.
• The securitization of $6 billion in wildfire mitigation capital spending, while beneficial for managing costs, represents a substantial financial commitment.
• The Eaton Fire settlement involves a payment of $0.52 for each dollar in claims, indicating a significant payout for claims already totaling approximately $500 million as of July 31, 2025.

Risks

• Ability of SCE to recover its costs through regulated rates, including uninsured wildfire-related costs and costs not recoverable from the Wildfire Insurance Fund.
• Cybersecurity of critical information technology systems and physical security of assets and personnel.
• Risks associated with the operation and maintenance of electrical facilities, including utility assets causing or contributing to wildfires.
• Impact of customer rate affordability on SCE's ability to execute its strategy and obtain regulatory approval for expenses and capital projects.
• Ability of SCE to update grid infrastructure to maintain system integrity and reliability and meet electrification needs.
• Challenges in implementing operational and strategic plans, including the Wildfire Mitigation Plan and capital investment program, due to various factors like public opposition, permitting, and governmental approvals.
• Regulatory or legislative restrictions that could limit SCE's ability to implement wildfire risk mitigation measures like Public Safety Power Shutoffs (PSPS).
• Risk that California Assembly Bill 1054 (AB 1054) or other new legislation does not effectively mitigate exposure to catastrophic wildfire liability, including the longevity of the Wildfire Insurance Fund.
• Ability to attract, manage, develop, and retain a skilled workforce.
• Decisions and actions by regulatory bodies (CPUC, FERC, NRC) and governmental authorities, including those related to authorized rates of return, cost recoverability, and wildfire safety certifications.
• Potential for penalties or disallowances for non-compliance with applicable laws and regulations, including fines related to wildfires.
• Extreme weather-related incidents and natural disasters, which could cause safety issues, property damage, outages, and unanticipated costs.
• Risks associated with the decommissioning of San Onofre, including safety, public opposition, permitting, and cost overruns.
• Risks associated with cost allocation resulting in higher rates for utility bundled service customers due to customer bypass or departure for other electricity providers.
• Actions by credit rating agencies to downgrade Edison International or SCE's credit ratings.

Future Outlook

The California Governor is expected to sign SB 254 into law, which will establish a new $18 billion wildfire fund and modify the framework for wildfire liability. The California Earthquake Authority (CEA) is tasked with performing a comprehensive assessment on new models or approaches to socialize natural catastrophe risk, with a report due to the Legislature and Governor by April 1, 2026. SCE anticipates seeking reimbursement from the Wildfire Insurance Fund for eligible claims arising from the Eaton Fire.

Management Comments

• Management believes SB 254 is a key action demonstrating support for IOU financial stability and its importance for customer affordability.
• Management recognizes that climate-driven natural catastrophe costs exceed what customers or shareholders can bear, necessitating broad reforms across numerous sectors and stakeholders.
• Management emphasizes that solutions should ensure IOUs are accountable for safety while maintaining financial health to attract low-cost capital for customers.

Industry Context

This announcement is highly relevant to the California utility sector, which has faced significant financial and operational challenges due to increasing wildfire risks exacerbated by climate change. SB 254 represents a legislative effort to stabilize the financial health of Investor-Owned Utilities (IOUs) like Edison International and SCE by creating a new, substantial fund and refining liability frameworks. This aims to ensure continued investment in grid safety and reliability while addressing the escalating costs of natural catastrophes. The focus on securitization and a shared funding model reflects a broader industry trend towards socializing climate-related risks to maintain utility viability and customer affordability.

Comparison to Industry Standards

• The establishment of a dedicated $18 billion wildfire fund and the securitization of wildfire mitigation capital spending are specific to the unique and severe wildfire challenges faced by California's Investor-Owned Utilities (IOUs). This approach is not a standard global benchmark but rather a tailored legislative response to a localized crisis.
• While other utilities globally face climate-related risks, the scale and legislative intervention seen in California with AB 1054 and now SB 254 are distinct. For instance, utilities in regions prone to hurricanes or floods might have different insurance and recovery mechanisms, but few have a state-mandated, multi-billion dollar fund specifically for utility-caused natural disasters.
• The requirement for the California Earthquake Authority (CEA) to assess new models for socializing natural catastrophe risk by April 1, 2026, indicates an ongoing, proactive effort by California to develop innovative risk management solutions that may eventually serve as a model for other regions facing similar climate-driven challenges, though no direct comparable companies or projects are mentioned in the filing.

Legal Proceedings

• SCE entered into a Subrogation Settlement with an insurance claimant in the 2025 Eaton Fire litigation, agreeing to pay $0.52 for each dollar in claims paid or to be paid by the Subrogation Claimant to its policy holders, up to an agreed cap. No admission of wrongdoing or liability was made.

Stakeholder Impact

• **Shareholders:** Increased financial stability and predictability due to the new wildfire fund and enhanced liability cap framework, potentially reducing long-term wildfire-related financial risks. The securitization of capital spending also provides a financing mechanism.
• **Customers:** Will contribute to the new wildfire fund ($900 million/year from 2036-2045) through rates, but the legislation aims to ensure affordability and reduce costs caused by fiscal uncertainty.
• **Policyholders (Eaton Fire):** The Subrogation Claimant's policyholders have received or will receive payments, with SCE contributing to these claims through the settlement.
• **Regulatory Authorities:** The California Public Utilities Commission (CPUC) will be involved in approving securitized bonds and interpreting actions under AB 1054 and SB 254.

Next Steps

• The California Governor is expected to sign Senate Bill (SB) 254 into law.
• Edison International management will use the information regarding SB 254 in meetings with institutional investors and analysts and at investor conferences.
• The attached presentation (Exhibit 99.1) will be posted on www.edisoninvestor.com.
• SCE will advise the administrator of the Wildfire Insurance Fund that it believes the Eaton Fire is a covered wildfire and anticipates seeking reimbursement from the fund for future eligible claims.
• The California Earthquake Authority (CEA) will perform a comprehensive assessment on new models or approaches to socialize risk of damage from natural catastrophes, with a report due to the Legislature and Governor by April 1, 2026.

Key Dates

Recommendation

The approval of SB 254 is a significant positive development for Edison International and Southern California Edison, providing a robust legislative framework to manage future wildfire liabilities and enhance financial stability. The establishment of an $18 billion fund, improved liability caps, and mechanisms for securitization significantly de-risk the company's long-term outlook regarding wildfire exposure. The resolution of the 2025 Eaton Fire litigation, while involving a payout, removes a specific uncertainty and allows for potential reimbursement from the Wildfire Insurance Fund. These combined factors reduce a major overhang on the stock, making it a more attractive investment for long-term growth and stability in the utility sector.

Keywords

Wildfire Liability, SB 254, Eaton Fire, Subrogation Settlement, Wildfire Insurance Fund, Southern California Edison, Edison International, Utility Regulation, California Legislation, Securitization, Risk Mitigation, Financial Stability