8-K: Edison Secures $2B Woolsey Fire Settlement Approval

Southern California Edison reaches a settlement agreement to recover 35% of Woolsey Fire losses, totaling approximately $2.0 billion, pending CPUC approval.

Summary

• Southern California Edison (SCE) will file a motion on September 19, 2025, seeking approval of a settlement agreement for the 2018 Woolsey Fire with the California Public Utilities Commission (CPUC).
• If approved, SCE will be authorized to recover 35%, or approximately $2.0 billion, of approximately $5.6 billion in losses related to the Woolsey Fire.
• These losses consist of approximately $1.6 billion in uninsured claims paid as of May 31, 2025, and $0.4 billion in legal costs paid as of May 31, 2025, and estimated financing costs.
• SCE will also be authorized to recover 35% of losses paid after May 31, 2025.
• The settlement also authorizes SCE to recover approximately $71 million of approximately $84 million in restoration costs incurred (85% recovery).
• SCE waived its right to seek recovery of $250 million of uninsured claims and related financing costs for the Woolsey Fire under a previous agreement with the CPUC Safety and Enforcement Division.
• SCE also waived its right to seek recovery of approximately $157 million in uninsured losses for pre-AB 1054 wildfires (ignited prior to July 12, 2019).
• Approval of the settlement would allow SCE to permanently exclude after-tax charges to equity associated with disallowed or waived costs and related debt from its CPUC regulatory capital structure.
• Combined with the previously approved TKM settlement, this agreement would result in the recovery of 43%, or approximately $3.6 billion, of 2017/2018 Wildfire/Mudslide Events costs above insurance and FERC recoveries.

Sentiment

Score: 8

Explanation: The settlement provides significant cost recovery for a major wildfire event, improves financial metrics, and offers regulatory certainty, which are strong positives despite the non-recoverable portions. This resolution removes a significant financial and regulatory overhang.

Positives

• Authorization to recover approximately $2.0 billion (35%) of Woolsey Fire losses, providing significant financial relief.
• Authorization to recover approximately $71 million (85%) of Woolsey Fire restoration costs.
• Permanent exclusion of after-tax charges to equity and associated debt from SCE's CPUC regulatory capital structure for disallowed/waived costs, improving financial health.
• Expected improvement in credit metrics by approximately 90 basis points FFO-to-Debt.
• Anticipated annualized interest expense benefit of approximately $0.18 per share.
• Marks a significant milestone towards fully resolving 2017/2018 Wildfire/Mudslide Events, reducing uncertainty.
• Helps reduce excess financing costs for customers.

Negatives

• SCE will only recover 35% of approximately $5.6 billion in Woolsey Fire losses, meaning approximately $3.6 billion is disallowed.
• SCE waived its right to seek recovery of $250 million of uninsured claims and related financing costs for the Woolsey Fire.
• SCE waived its right to seek recovery of approximately $157 million in uninsured losses for pre-AB 1054 wildfires.
• Only 85% of restoration costs are recoverable, with approximately $13 million disallowed.

Risks

• Ability of SCE to recover its costs through regulated rates, timely or at all, including uninsured wildfire-related and debris flow-related costs.
• Cybersecurity of Edison International's and SCE's 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 affordability of customer rates on SCE's ability to execute its strategy and obtain regulatory approval for cost recovery.
• Ability of SCE to update its grid infrastructure to maintain system integrity and reliability, and meet electrification needs.
• Ability of SCE to implement its operational and strategic plans, including its Wildfire Mitigation Plan and capital investment program.
• Risks of regulatory or legislative restrictions that would limit SCE's ability to implement operational measures to mitigate wildfire risk, such as Public Safety Power Shutoff (PSPS).
• Ability of SCE to obtain safety certifications from the Office of Energy Infrastructure Safety (OEIS).
• Risk that California Assembly Bill 1054 (AB 1054) or other new California legislation does not effectively mitigate the significant exposure faced by California investor-owned utilities related to liability for damages arising from catastrophic wildfires.
• Ability of Edison International and SCE to effectively attract, manage, develop, and retain a skilled workforce.
• Decisions and other actions by the CPUC, the Federal Energy Regulatory Commission, and the United States Nuclear Regulatory Commission, the California legislature, and other governmental authorities.
• Governmental, statutory, regulatory, or administrative changes or initiatives affecting the electricity industry.
• Potential for penalties or disallowances for non-compliance with applicable laws and regulations.
• Extreme weather-related incidents (including events caused, or exacerbated, by climate change), such as wildfires, debris flows, flooding, droughts, high wind events, and extreme heat events.
• Risks associated with the decommissioning of San Onofre.
• Risks associated with cost allocation resulting in higher rates for utility bundled service customers because of possible customer bypass or departure for other electricity providers.
• Actions by credit rating agencies to downgrade Edison International or SCE's credit ratings or to place those ratings on negative watch or negative outlook.

Future Outlook

SCE anticipates a final decision on the Woolsey Settlement Agreement within 36 months. Following approval, a separate application to issue securitized bonds is expected to take 6 months for CPUC approval, with proceeds anticipated by the end of 2026. If SCE's anticipated application for securitization is denied, the authorized amounts will be recovered in rates over five years, financed using long-term debt.

Management Comments

• The settlement marks a significant milestone and one step closer toward fully resolving 2017/2018 Wildfire/Mudslide Events.
• The result of constructive negotiations benefits the financial strength of the utility and reduces costs for customers, supporting long-term affordability.

Industry Context

This settlement reflects the ongoing challenges faced by California investor-owned utilities regarding wildfire liabilities and cost recovery. The structured recovery mechanism, including securitized bonds, is a common approach in California to manage large, unexpected costs while mitigating immediate ratepayer impact and supporting utility financial stability, especially in the context of AB 1054. The permanent exclusion of certain charges from the regulatory capital structure is a significant regulatory concession aimed at improving the utility's financial health post-wildfire events, setting a precedent for how such liabilities are managed within the regulated utility sector.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• SCE filed an application with the California Public Utilities Commission (CPUC) in October 2024 to seek cost recovery for the 2018 Woolsey Fire.
• On September 19, 2025, SCE will file a motion in this cost recovery proceeding seeking approval of a settlement agreement (Woolsey Settlement Agreement) between SCE, the Public Advocates Office at the CPUC, the Energy Producers and Users Coalition, and Small Business Utility Advocates.
• The settlement, if approved, resolves a significant portion of the financial liabilities related to the Woolsey Fire, providing a structured path for cost recovery.

Stakeholder Impact

• **Shareholders**: Positive impact due to significant cost recovery, improved credit metrics (90bps FFO-to-Debt benefit), and an annualized interest expense benefit of approximately $0.18 per share, leading to greater financial stability and certainty regarding legacy wildfire liabilities.
• **Customers**: Will bear a portion of the costs through rates (estimated $1.24/month for Woolsey WEMA costs, assuming securitization), but the securitization mechanism is designed to reduce excess financing costs compared to traditional recovery methods.
• **Regulators (CPUC)**: The settlement represents a negotiated outcome that balances utility recovery with ratepayer protection, potentially streamlining the regulatory process for these specific wildfire costs and providing a framework for future wildfire liability management.

Next Steps

• Parties to the proceeding have 30 days to comment on the settlement agreement, with reply comments due 15 days later, unless the comment period is shortened by the Administrative Law Judge (ALJ).
• SCE anticipates a final decision from the CPUC on the settlement agreement within 36 months.
• Following CPUC approval of the settlement, SCE will file a separate application to issue securitized bonds, which is expected to take 6 months for CPUC approval.
• SCE anticipates receiving proceeds from the securitized bonds by the end of 2026, assuming securitization is approved.

Key Dates

Recommendation

The settlement provides significant clarity and a substantial recovery of approximately $2.0 billion for the Woolsey Fire, a major legacy liability. This, combined with the TKM settlement, resolves a large portion of 2017/2018 wildfire costs. The positive impact on credit metrics (90bps FFO-to-Debt benefit) and annualized interest expense benefit ($0.18/share) are strong financial positives. The permanent exclusion of disallowed costs from the regulatory capital structure further strengthens the utility's financial position and reduces future regulatory risk. This resolution removes a significant overhang, improving the company's risk profile and financial outlook, making it an attractive investment.

Keywords

Edison International, Southern California Edison, SCE, Woolsey Fire, Settlement Agreement, CPUC, California Public Utilities Commission, Wildfire Liability, Cost Recovery, Securitized Bonds, Utility Regulation, Financial Reporting, 8-K Filing, EIX, Wildfire Mitigation, Regulatory Capital Structure, TKM Settlement, AB 1054