Executive Summary / Key Takeaways

• Edison International, primarily through its utility Southern California Edison (SCE), is executing a substantial capital investment program ($26.6B-$31.5B forecast for 2025-2028) driven by the critical need to modernize aging infrastructure, enhance grid resilience against wildfires and extreme weather, and expand capacity to meet accelerating load growth, underpinning confidence in a 5-7% core EPS CAGR through 2028.
• SCE is a leader in physical grid hardening technology, notably deploying over 6,400 miles of covered conductor and targeting nearly 90% hardening of high fire risk distribution lines by the end of 2025, a key operational differentiator and risk mitigation strategy that reduces reliance on disruptive measures like Public Safety Power Shutoffs.
• Recent regulatory progress, including the CPUC's approval of the TKM wildfire settlement authorizing $1.6 billion in cost recovery and ongoing recovery of costs through memo accounts ($4.5B recovered since 2021, ~$2B expected through 2025), is significantly strengthening SCE's balance sheet and liquidity, providing financial flexibility despite substantial capital needs.
• While the recent Eaton Fire introduces uncertainty and the probability of material losses, the AB 1054 framework, including the $21 billion Wildfire Insurance Fund, safety certification presumption of prudence, and liability cap (20% of equity T&D rate base), is designed to provide financial stability and liquidity for claims, mitigating the balance sheet impact compared to pre-AB 1054 events.
• EIX maintains a competitive position with the lowest system average rate among major California IOUs, strategically positioning it to manage affordability concerns while pursuing necessary grid investments to facilitate California's clean energy transition and capitalize on accelerating load growth trends.

Fortifying the Grid Amidst Shifting Sands

Edison International (NYSE: EIX), through its principal subsidiary Southern California Edison (SCE), operates at the nexus of California's evolving energy landscape. As an investor-owned public utility serving a vast 50,000 square mile area, SCE is tasked with the monumental challenge of delivering reliable, affordable, and increasingly clean electricity while confronting the escalating risks posed by climate change, particularly wildfires. Edison International's strategic narrative is one of transformation – moving from a period heavily impacted by legacy wildfire liabilities to focusing intensely on grid modernization, risk mitigation through technological innovation, and enabling the state's ambitious clean energy transition, all within a complex regulatory environment.

The company's history provides crucial context for its current strategic imperatives. The devastating 2017-2018 wildfire season underscored the vulnerability of utility infrastructure to extreme weather and the significant financial liabilities that can arise. This period catalyzed a fundamental shift in focus towards proactive risk management and ultimately led to the passage of California's landmark AB 1054 legislation in 2019. This law, which established a wildfire insurance fund and clarified the prudency standard for cost recovery, forms the bedrock of the current regulatory framework governing wildfire risk for California utilities. EIX's strategic response has been deeply shaped by these events, prioritizing investments that enhance grid resilience and safety while working within the established regulatory and financial guardrails.

In the competitive landscape, SCE operates as a regulated monopoly within its service territory, but faces comparisons and competitive pressures from other California investor-owned utilities like PG&E Corporation (PCG) and Sempra Energy (SRE), as well as indirect competition from distributed energy resources and evolving energy service models offered by entities like NRG Energy (NRG) or Duke Energy (DUK) in broader utility comparisons. While direct head-to-head competition for customers is limited by service territories, performance is often benchmarked on metrics like reliability, safety, customer rates, and operational efficiency. SCE currently holds a competitive advantage in affordability, boasting the lowest system average rate among major California IOUs. Furthermore, SCE is leading its California peers in the quantifiable metric of physical grid hardening, having completed more hardened miles in high fire risk areas than all other California IOUs combined. This operational achievement is a direct result of its strategic investment in advanced mitigation technologies.

A cornerstone of SCE's strategy and a key technological differentiator is its aggressive physical grid hardening program, particularly the deployment of covered conductor and targeted undergrounding. Unlike traditional bare wire, covered conductor significantly reduces the risk of ignition from vegetation contact or clashing lines, which are common causes of wildfires. This technology provides tangible benefits: it is a permanent, physical solution that demonstrably lowers ignition risk, contributing to an estimated 85-88% reduction in wildfire risk compared to pre-2018 levels. By July 2024, SCE had deployed approximately 5,900 miles of covered conductor, reaching 84% completion of its plant hardening efforts. The company targets approaching 90% of total distribution lines in high fire risk areas being hardened by the end of 2025. This focus on physical hardening also reduces the need for disruptive operational measures like Public Safety Power Shutoffs (PSPS) or overly sensitive fast trip settings, which impact customers. While specific quantitative metrics on the cost advantage or efficiency gains of covered conductor versus alternatives or traditional bare wire were not detailed, the strategic emphasis and extensive deployment highlight management's belief in its effectiveness as a risk mitigation tool. Beyond wildfire mitigation, SCE is also investing in technological upgrades like the NextGen Enterprise Resource Planning (ERP) system and Advanced Metering Infrastructure (AMI) 2.0, seeking regulatory approval for approximately $1.1 billion in capital for the ERP system alone. These initiatives aim to enhance operational efficiency, improve customer service, and support future grid capabilities, though specific quantifiable benefits or timelines for these newer technologies were not provided.

Financially, Edison International's performance reflects the dynamics of its regulated utility operations and the impact of wildfire-related costs and recoveries. For the first quarter of 2025, Edison International reported net income of $1,436 million, a significant increase from a net loss of $11 million in the prior-year quarter. However, this GAAP comparison is heavily influenced by non-core items, particularly wildfire-related claims and recoveries. A more representative view comes from core earnings, which were $528 million ($1.37 per share) in Q1 2025, up from $438 million ($1.13 per share) in Q1 2024. This core earnings increase was primarily driven by SCE's improved results, benefiting significantly from interest expense relief related to cost recoveries authorized under the TKM settlement agreement. SCE's operating revenue decreased by $262 million in Q1 2025, largely due to lower pass-through expenses compared to the prior year. Operation and maintenance expenses saw a substantial decrease of $329 million, primarily reflecting lower deferred wildfire mitigation and restoration costs authorized for recovery, offset partially by shareholder-funded mitigation costs. Wildfire-related claims, net of recoveries, decreased by a dramatic $1,969 million, mainly due to the large recoveries authorized under the TKM settlement in 2025 compared to significant charges recorded in 2024 for both 2017-2018 and Other Wildfire Events. Interest expense at SCE decreased by $154 million, driven by the TKM recovery benefit. Overall, SCE's net income available to common stock surged to $1,567 million in Q1 2025 from just $65 million in Q1 2024, reflecting the impact of the TKM settlement. Edison International Parent and Other saw an increased net loss, mainly due to higher interest expense and wildfire claims insured by an internal subsidiary. Looking back, the company achieved full-year 2024 core EPS of $4.93, exceeding the midpoint of its guidance range and continuing a two-decade track record of meeting or exceeding annual guidance.

Liquidity appears sound, with SCE holding $1.1 billion cash and $3.3 billion available on its $3.4 billion credit facility as of March 31, 2025.

Edison International Parent had $224 million cash and $1.5 billion available on its $1.5 billion facility. The company remains in compliance with its debt covenants (SCE debt/cap 0.58, EIX consolidated debt/cap 0.65).

The outlook for Edison International is anchored by its substantial capital investment plan and the progression of key regulatory proceedings. Management forecasts total capital expenditures for SCE to range from $26.6 billion to $31.5 billion between 2025 and 2028, driving weighted average annual rate base from $48.1 billion to $60.6 billion over the same period. This significant investment is crucial for system reliability, wildfire mitigation, and accommodating accelerating load growth, with the 10-year load growth forecast now 35% higher than projected in 2022. This accelerated demand, fueled by commercial development, transportation electrification, and new housing, presents both an opportunity and a necessity for increased grid investment, potentially offering upside to the current capital plan through additional distribution enhancements and over $2 billion in FERC transmission spending.

Management is confident in its ability to meet its 2025 core EPS guidance range of $5.94 to $6.34 and deliver a 5-7% core EPS CAGR through 2028, translating to a 2028 EPS range of $6.74 to $7.14. This confidence is bolstered by the anticipated outcome of the 2025 General Rate Case, expected in the first half of 2025, which will solidify authorized revenue requirements and capital levels. The recent CPUC approval of the TKM settlement, authorizing $1.6 billion in recovery, is expected to provide approximately $0.44 of total upside to 2025 core EPS and an ongoing annual benefit of $0.14 beyond 2025, further supporting the growth trajectory. SCE is also seeking regulatory approval for its 2026-2028 cost of capital, requesting an 11.75% ROE and an 8.50% weighted average return on rate base for 2026, which, if approved, would increase revenue requirements by ~$382 million. Despite these investment needs, SCE projects system average rate increases through 2028 to be closely aligned with local inflation (~2.6% projected CAGR), balancing affordability by offsetting increases with historical costs rolling out of rates and rising electricity consumption.

However, the investment thesis is not without significant risks. The most prominent remains wildfire liability, particularly highlighted by the recent Eaton Fire. While the investigation is ongoing and SCE has not conclusively determined its equipment caused the fire, it acknowledges a possible link and the probability of incurring material losses. The complexity of estimating damages and determining causation makes quantifying the potential loss range currently impossible. While SCE has $1 billion in customer-funded self-insurance for 2025 and access to the AB 1054 Wildfire Insurance Fund for losses exceeding that, the ultimate recovery from the fund is subject to administrator approval, fund capacity (~$21 billion initially shared by three utilities), and a CPUC prudency determination. Although SCE held a safety certification at the time of the Eaton Fire, providing a presumption of prudence under AB 1054, the CPUC has not yet applied this framework in a cost recovery proceeding, introducing regulatory uncertainty. Litigation for legacy fires (2017-2018 and Other Wildfire Events) also continues, with potential for material losses in excess of current accruals, although expected insurance and regulatory recoveries are anticipated to mitigate the net impact for most post-AB 1054 events. Regulatory risk extends beyond wildfire recovery to the outcome of the 2025 GRC and future cost of capital proceedings, where authorized returns and capital levels directly impact earnings and the ability to fund necessary investments. Credit rating agencies continue to monitor climate risk exposure, with S&P maintaining a negative outlook on EIX, which could impact borrowing costs and liquidity. Environmental remediation liabilities also represent a long-term risk, with potential costs exceeding current estimates, although regulatory mechanisms are expected to allow for recovery.

Conclusion

Edison International stands at a pivotal point, leveraging a strengthened regulatory framework and significant technological investments to address the fundamental challenges of grid modernization, wildfire risk, and the clean energy transition. The core investment thesis is underpinned by SCE's substantial, regulatorily supported capital program, driven by essential infrastructure needs and accelerating load growth, which is expected to fuel consistent core EPS growth through 2028. The company's leadership in physical grid hardening, particularly covered conductor deployment, provides a tangible operational advantage in mitigating wildfire risk, a critical factor in California. While the recent Eaton Fire introduces renewed uncertainty regarding potential liabilities, the AB 1054 framework offers crucial financial protection and liquidity mechanisms designed to limit shareholder exposure and maintain utility stability. Successful navigation of the ongoing GRC and other regulatory proceedings will be key to realizing the projected capital deployment and earnings growth. Despite facing inherent risks associated with operating in a high fire risk territory and a complex regulatory environment, EIX's strategic focus on resilience, affordability, and clean energy, combined with its track record of operational execution and regulatory engagement, positions it to deliver on its financial commitments and play a central role in California's energy future. Investors should monitor the outcomes of the Eaton Fire investigation and related litigation, the final decision in the 2025 GRC, and the implementation of the AB 1054 prudency standard in future cost recovery proceedings as critical indicators of the company's trajectory.