10-Q: Edison International Q3 Earnings Surge Amid Wildfire Settlements

Edison International reported a significant increase in third-quarter and year-to-date earnings, driven by favorable regulatory decisions and wildfire cost recoveries, despite new wildfire-related losses and a credit rating downgrade.

Summary

• Edison International's net income available to common shareholders increased by $316 million to $832 million for Q3 2025, and by $1,667 million to $2,611 million for the nine months ended September 30, 2025, compared to the same periods in 2024.
• Southern California Edison (SCE) saw its net income available to common stock rise by $323 million to $925 million for Q3 2025, and by $1,745 million to $2,935 million for the nine months ended September 30, 2025.
• SCE's core earnings increased by $327 million for Q3 2025 and $349 million for the nine months ended September 30, 2025, primarily due to higher revenue from the 2025 General Rate Case (GRC) final decision.
• The California Public Utilities Commission (CPUC) approved a final decision on the 2025 GRC in September 2025, establishing a base rate revenue requirement of $9.7 billion for 2025, an increase of $880 million over the adjusted 2024 authorized revenue.
• The 2025 GRC decision is retroactive to January 1, 2025, leading to $661 million of increased authorized revenue for SCE for the nine months ended September 30, 2025.
• SCE recorded $300 million in losses in Q3 2025 related to the Eaton Subrogation Settlement for the January 2025 Eaton Fire, with expected recoveries of $279 million from customer-funded self-insurance and $21 million from FERC electric rates.
• California Senate Bill 254 (SB 254), effective September 19, 2025, expanded the Wildfire Insurance Fund with a new Continuation Account potentially providing up to $18 billion in additional funding.
• SCE's total capital expenditures for the nine months ended September 30, 2025, were $4.7 billion, up from $4.0 billion in the same period of 2024.
• Forecasted total capital expenditures for 2025-2028 are $29.3 billion, with the rate base projected to grow from $47.4 billion in 2025 to $57.5 billion in 2028.
• SCE's 2025 CPUC-authorized Return on Equity (ROE) is 10.33%, and it is seeking an ROE of 11.75% for 2026.
• S&P downgraded Edison International and SCE's long-term issuer credit ratings to BBBwith a negative outlook following the passage of SB 254.

Sentiment

Score: 7

Explanation: The financial results show strong growth in net income and core earnings, largely due to favorable regulatory decisions on rate cases and wildfire cost recovery. Significant capital investments are planned for grid modernization and wildfire mitigation. However, the ongoing Eaton Fire litigation with probable material losses, the S&P credit rating downgrade, and the non-recoverable nature of some SB 254 contributions introduce notable financial and operational uncertainties. The overall sentiment is positive due to strong financial performance and regulatory support for cost recovery, but tempered by persistent wildfire risks and associated financial exposures.

Positives

• Significant increase in net income and core earnings for both Edison International and SCE, driven by regulatory approvals.
• CPUC's final decision on the 2025 GRC provides a substantial increase in authorized revenue ($9.7 billion for 2025, an $880 million increase over 2024), retroactive to January 1, 2025.
• Authorization for SCE to recover 60% (approximately $1.6 billion) of the $2.7 billion in losses from the 2017/2018 Wildfire/Mudslide Events through the TKM Settlement Agreement, with securitization approved.
• SB 254 establishes a Continuation Account within the Wildfire Insurance Fund, potentially providing up to $18 billion in additional funding for future wildfire liabilities.
• SCE's customer-funded self-insurance program provides $1.0 billion in coverage for 2025 wildfires, including the Eaton Fire.
• CPUC approval of the WMCE settlement agreement allows recovery of $702 million in capital expenditures and $308 million in O&M expenses.
• SCE successfully issued $3.0 billion in first and refunding mortgage bonds during the nine months ended September 30, 2025, demonstrating continued access to capital markets.
• Edison International Parent issued $550 million of 6.25% senior notes due 2030, strengthening its liquidity.
• SCE monetized approximately $231 million in investment tax credits and $29 million in nuclear production tax credits for $236 million in Q3 2025, with proceeds expected to be passed to customers.
• SCE remains in compliance with debt covenants, with a debt to total capitalization ratio of 0.58 to 1 (covenant <= 0.65 to 1).

Negatives

• SCE recorded $300 million in losses in Q3 2025 related to the Eaton Subrogation Settlement for the January 2025 Eaton Fire, with additional material losses probable.
• S&P downgraded Edison International and SCE's long-term issuer credit ratings to BBBwith a negative outlook, increasing borrowing costs and potentially impacting access to capital.
• SCE recorded net charges of $76 million ($39 million after-tax) in Q3 2025 due to impairment of utility property, plant, and equipment associated with historical capital expenditures disallowed in the 2025 GRC final decision, primarily related to the rooftop solar photovoltaic program.
• SCE filed an application for rehearing with the CPUC regarding the disallowance of $65 million in O&M expenses and $36 million in capital expenditures from the 2021 GRC Wildfire Mitigation Memorandum Account Balances.
• The 225 MW utility-owned energy storage project is disputed, with SCE objecting to Ameresco's claim of in-service status in May 2025.
• SCE's contributions to the SB 254 Continuation Account ($143.6 million annually, plus potential $373.2 million annually contingent contribution) are not recoverable through electric rates and are excluded from the capital structure.
• The Woolsey Settlement Agreement, if approved, would only allow SCE to recover 35% (approximately $2.0 billion) of approximately $5.6 billion in losses, and SCE waived recovery of an additional $157 million in pre-AB 1054 losses.
• The ongoing internal review for the Eaton Fire suggests SCE equipment may have been associated with the ignition, and the range of potential losses is currently not estimable.
• Increased interest expense for Edison International Parent and Other contributed to a higher core loss for the three and nine months ended September 30, 2025.

Risks

• Ability of SCE to recover costs through regulated rates, including uninsured wildfire-related and debris flow-related costs, and costs for wildfire restoration and mitigation.
• Cybersecurity of critical information technology systems and physical security of critical assets and personnel.
• Risks associated with the operation and maintenance of electrical facilities, including worker/public safety, utility assets causing wildfires, equipment failure, and cost/availability of spare parts.
• Impact of affordability of customer rates on SCE's ability to execute its strategy, including obtaining regulatory approval for cost recovery and capital investment projects, and increased costs due to supply chain constraints, tariffs, inflation, and rising interest rates.
• Ability of SCE to update grid infrastructure to maintain system integrity, reliability, and meet electrification needs.
• Challenges in implementing operational and strategic plans, including the Wildfire Mitigation Plan (WMP), target energization times, and capital investment program, due to project site identification, public opposition, environmental mitigation, construction, permitting, contractor performance, and governmental approvals.
• Regulatory or legislative restrictions limiting SCE's ability to implement wildfire risk mitigation measures (e.g., PSPS, fast curve settings).
• Ability of SCE to obtain safety certifications from the Office of Energy Infrastructure Safety (OEIS).
• Risk that AB 1054, SB 254, or other California legislation does not effectively mitigate significant exposure to wildfire-related liability, including the longevity of the Wildfire Insurance Fund and CPUC's interpretation of prudency standards.
• Ability to attract, manage, develop, and retain a skilled workforce.
• Decisions and actions by regulatory bodies (CPUC, FERC, NRC, California legislature) affecting authorized rates of return, cost recovery, wildfire safety certification, and electrification programs.
• Governmental, statutory, regulatory, or administrative changes affecting the electricity industry, including market structure rules and environmental priorities.
• Potential for penalties or disallowances for non-compliance with laws and regulations, including fines related to wildfires.
• Extreme weather-related incidents (wildfires, debris flows, flooding, droughts, high winds, extreme heat, earthquakes) causing safety issues, property damage, outages, and unanticipated costs.
• Risks associated with the decommissioning of San Onofre, including safety, public opposition, permitting, governmental approvals, on-site spent nuclear fuel storage, delays, contractual disputes, and cost overruns.
• Risks of cost allocation resulting in higher rates for utility bundled service customers due to bypass or departure for other electricity providers (CCAs, Electric Service Providers).
• Actions by credit rating agencies to downgrade credit ratings or place them on negative watch/outlook.
• Ability to borrow funds and access bank and capital markets on reasonable terms.
• Changes in tax laws and regulations or their application, affecting deferred tax assets/liabilities, effective tax rates, and cash flows.
• Changes in inflation rates (and whether regulatory adjustments are commensurate) and interest rates, and potential adjustments to SCE's ROE based on Moody's utility bond rate index.
• Availability and creditworthiness of counterparties and effects on liquidity in power/fuel markets.
• Cost of fuel for generating facilities and related transportation, if not recovered through regulated rates.
• Uncertainty in estimating damages and settlement outcomes for ongoing wildfire litigation (e.g., Eaton Fire, Saddle Ridge Fire).
• Risk of CPUC finding SCE's conduct related to wildfire ignitions not prudent, leading to disallowances or reimbursement obligations to the Wildfire Insurance Fund.
• Potential for material losses in excess of accrued amounts for 2017/2018 Wildfire/Mudslide Events and Other Wildfire Events.

Future Outlook

Edison International and SCE anticipate continued capital investments in grid infrastructure, wildfire mitigation, and electrification. SCE expects to file its 2026 annual transmission revenue requirement update with FERC by December 1, 2025, proposing a $1.5 billion requirement. The company is seeking an increased Return on Equity of 11.75% for 2026. SCE plans to launch its Wildfire Recovery Compensation Program for the Eaton Fire in the fall of 2025. The Wildfire Insurance Fund administrator will report on new natural catastrophe mitigation models by April 1, 2026, and determine if Continuation Account contributions are required by December 31, 2028. SCE expects to be subject to the 15% corporate alternative minimum tax from 2026.

Management Comments

• SCE's internal review into the facts and circumstances of the Eaton Fire is complex and ongoing. SCE's review includes ongoing inspections of its facilities and records and of third-party information and testing. While SCE has not conclusively determined that its equipment caused the ignition of the Eaton Fire, concerning circumstantial evidence suggests that a de-energized idle SCE transmission facility in the preliminary area of origin may have been associated with the ignition of the fire. Additionally, while SCE has not determined the mechanism of ignition of the Eaton Fire, it is not aware of evidence pointing to another possible source of ignition. Absent additional evidence, SCE believes that it is likely that its equipment could be found to have been associated with the ignition of the Eaton Fire and is pursuing settlement of claims through its Wildfire Recovery Compensation Program.
• Based on the information it has reviewed as of October 28, 2025, SCE believes that it would be able to make a good faith showing that its conduct with respect to its transmission facilities in the preliminary area of origin was consistent with the actions of a reasonable utility.
• Edison International intends to maintain its target payout ratio of 45% 55% of SCE's core earnings.

Industry Context

The filing reflects the ongoing challenges and regulatory responses within the California utility sector, particularly concerning wildfire liabilities and climate change impacts. The establishment of the SB 254 Continuation Account and the ongoing GRC proceedings highlight the state's efforts to stabilize the financial health of utilities while addressing public safety and affordability. The significant capital expenditure forecasts for grid hardening and electrification align with broader industry trends towards infrastructure modernization and decarbonization. However, the credit rating downgrade by S&P underscores the persistent financial risks associated with California's unique regulatory and environmental landscape, potentially making capital access more expensive compared to utilities in less wildfire-prone or more stable regulatory environments. The shift towards customer-funded self-insurance and securitization of wildfire costs indicates a move away from traditional commercial insurance markets for these specific risks.

Comparison to Industry Standards

• The S&P downgrade of SCE's long-term issuer credit rating to BBBplaces it at the lower end of investment grade, indicating higher perceived risk compared to many other large U.S. utilities that typically maintain A-range ratings. For example, NextEra Energy (NEE) often holds A-range ratings (e.g., Afrom S&P), reflecting a more stable risk profile.
• SCE's requested ROE of 11.75% for 2026 is higher than the average authorized ROE for many U.S. utilities, which often fall in the 9-10% range. This higher request likely reflects the elevated operational and regulatory risks associated with operating in California, particularly wildfire exposure. For instance, utilities in less risky jurisdictions might have authorized ROEs closer to 9.5%.
• The substantial capital investment plan of $29.3 billion for 2025-2028, particularly for wildfire mitigation (e.g., undergrounding 212 miles and deploying 1,653 circuit miles of covered conductors), is a direct response to California's unique wildfire crisis. This level of dedicated wildfire-related capital spending is significantly higher than that of utilities in regions not facing similar catastrophic wildfire risks. For example, a utility like Duke Energy (DUK) would have a much smaller proportion of its capital plan dedicated to wildfire-specific hardening.
• The use of securitized bonds for wildfire cost recovery (e.g., $1.6 billion for TKM Settlement) is a specific regulatory mechanism employed in California to manage large, unforeseen liabilities, which is not a standard practice across the broader U.S. utility industry for routine cost recovery.

Management Changes

Corporate Governance

Legal Proceedings

• Approximately 100 individual plaintiffs' claims and certain public entity plaintiffs' claims (including CAL OES) remain outstanding related to the 2017/2018 Wildfire/Mudslide Events.
• SCE has settled all fire suppression and subrogation plaintiffs' claims related to the 2017/2018 Wildfire/Mudslide Events.
• 12 pending unsettled lawsuits representing 32 individual plaintiffs related to Thomas and Koenigstein Fires and Montecito Mudslides.
• 30 pending unsettled lawsuits representing 70 individual plaintiffs related to the Woolsey Fire.
• Trials set for January, April, and May 2026 for individual plaintiffs in TKM litigation.
• Trial set for CAL OES in March 2026 and one damages-only trial for an individual plaintiff in July 2026 for Woolsey Fire litigation.
• Approximately 500 pending lawsuits representing 6,500 individual plaintiffs, subrogation lawsuits, and public entity lawsuits (including United States of America, County of Los Angeles, City of Pasadena, City of Sierra Madre) related to the January 2025 Eaton Fire.
• A bellwether jury trial for the Eaton Fire has been set for January 2027.
• An inverse condemnation bench trial in the Saddle Ridge Fire litigation has been set for March 2026; material loss is reasonably possible, but the range of reasonably possible losses cannot be estimated at this time.
• A jury trial in the Fairview Fire individual plaintiff litigation has been set for June 2026.
• The SED issued a citation for approximately $2 million for violations of rules and regulations related to the Fairview Fire.
• SCE has 18 identified material environmental remediation sites with a recorded estimated minimum liability of $223 million (including $150 million related to San Onofre).
• It is reasonably possible that cleanup costs for identified material and immaterial environmental sites could exceed SCE's recorded liability by up to $90 million and $2 million, respectively.

Related Party Transactions

• In Q1 2025, Edison Insurance Services, Inc. (EIS), a wholly-owned subsidiary of Edison International, incurred $50 million in wildfire insurance expense, and SCE recorded a corresponding insurance recovery from EIS.
• Expected insurance recoveries from EIS included in SCE's condensed consolidated balance sheets were $226 million at September 30, 2025, down from $303 million at December 31, 2024.

Stakeholder Impact

• Shareholders: Positive impact from increased net income and core earnings, but potential negative impact from credit rating downgrade, ongoing wildfire liabilities, and non-recoverable contributions to the Wildfire Insurance Fund. The stock repurchase program aims to offset dilution.
• Customers: Increased rates due to 2025 GRC final decision and cost recoveries for wildfire mitigation and other programs. Benefits from customer-funded self-insurance for wildfire claims and proceeds from monetized tax credits being passed through.
• Employees: Changes to the Executive Retirement Plan and Director Compensation Schedule. Workforce reductions in 2024 resulted in severance costs.
• Creditors: S&P credit rating downgrade to BBBwith a negative outlook could increase borrowing costs and impact access to capital markets. Compliance with debt covenants is maintained.
• Regulatory Bodies: Ongoing engagement with CPUC, FERC, OEIS, and CAL FIRE regarding rate cases, wildfire mitigation plans, cost recovery, and investigations into wildfire ignitions.

Next Steps

• SCE expects to launch its Wildfire Recovery Compensation Program for the Eaton Fire in the fall of 2025.
• SCE expects to file its 2026 annual update with FERC by December 1, 2025, with proposed rates effective January 1, 2026.
• The CPUC is expected to issue a proposed decision on SCE's 2026 cost of capital application in Q4 2025.
• The Wildfire Insurance Fund administrator will submit a report to the California legislature and governor by April 1, 2026, evaluating new models for natural catastrophe mitigation.
• The Wildfire Insurance Fund administrator will determine, on or before December 31, 2028, whether contributions to the Continuation Account are required.
• An inverse condemnation bench trial in the Saddle Ridge Fire litigation is set for March 2026.
• A trial for CAL OES in the Woolsey Fire litigation is set for March 2026.
• A jury trial in the Fairview Fire individual plaintiff litigation is set for June 2026.
• A damages-only trial for an individual plaintiff household in the Woolsey Fire litigation is set for July 2026.
• A bellwether jury trial for the Eaton Fire is set for January 2027.
• SCE will continue to evaluate the probability of recovery for uninsured wildfire costs based on available evidence and regulatory decisions.
• SCE will apply the FASB's new accounting standard for income tax disclosures beginning in its annual filing for the year ended December 31, 2025.
• Edison International and SCE are evaluating the impact of new FASB guidance on disaggregated expense disclosures (effective December 31, 2027) and practical expedient for credit losses (effective January 1, 2026).
• Edison International and SCE are evaluating the impact of new FASB guidance on internal-use software (effective January 1, 2028).

Key Dates

Recommendation

While Edison International reported strong Q3 2025 earnings driven by favorable regulatory outcomes and wildfire cost recoveries, significant uncertainties persist. The S&P credit rating downgrade to BBBwith a negative outlook signals increased risk and potential for higher borrowing costs. The ongoing Eaton Fire litigation, with probable material losses and an unestimable range, represents a substantial contingent liability. Furthermore, SCE's non-recoverable contributions to the SB 254 Wildfire Insurance Fund and the partial recovery under the Woolsey Settlement Agreement highlight continued financial exposure to wildfire risks. The company's robust capital investment plan and regulatory support for cost recovery are positive, but these are balanced by the inherent risks of operating in a high-wildfire-risk region with complex regulatory oversight. A 'hold' recommendation reflects the current balance of positive financial performance and strategic investments against the backdrop of persistent and material wildfire-related financial and operational risks. Investors should monitor the progress of wildfire litigation, future regulatory decisions on cost recovery, and the impact of credit rating changes.

Keywords

Edison International, Southern California Edison, Utility, Electric Power, Wildfires, Eaton Fire, SB 254, AB 1054, Wildfire Insurance Fund, GRC, General Rate Case, CPUC, FERC, Capital Expenditures, Rate Base, Earnings, Financial Results, Credit Ratings, Risk Mitigation, Energy Storage, California, Renewables, Electrification, Regulatory Affairs, Investment, 10-Q