SOUTHERN CALIFORNIA EDISON Co

California has experienced unprecedented weather conditions in recent years due to climate change. The worsening weather and fuel conditions across California increase the likelihood of wildfires, including those where SCE's equipment may be alleged to be associated with the fire's ignition, and SCE's service territory remains susceptible to additional wildfire activity in 2024 and beyond.

Wildfires in SCE's territory have caused loss of life, substantial damage to both residential and business properties, and service outages for SCE customers. SCE's equipment has been, and may further be, alleged to be associated with wildfires that originate in Southern California.

In response to worsening conditions and wildfire activity in its territory in the recent past, SCE has developed and is implementing its WMP to reduce the risk of SCE equipment contributing to the ignition of wildfires. In addition, California has increased its investment in wildfire prevention and fire suppression capabilities. Further to the investments SCE is making as part of its WMP, SCE also uses its PSPS program to proactively de-energize power lines as a last resort to mitigate the risk of significant wildfires during extreme weather events.

Multiple lawsuits and investigations related to the 2017/2018 Wildfire/Mudslide Events have been initiated against SCE and Edison International and SCE has incurred material losses in connection with the 2017/2018 Wildfire/Mudslide Events.

SCE has previously entered into settlements with a number of local public entities and subrogation plaintiffs in the TKM and Woolsey litigations and under the SED Agreement. In addition, SCE has also entered into settlements with approximately 12,000 individual plaintiffs in the 2017/2018 Wildfire/Mudslide Events litigation.

In 2023, SCE accrued estimated losses of $630 million for remaining alleged and potential claims related to the 2017/2018 Wildfire/Mudslide Events. As a result, SCE also recorded expected recoveries through FERC electric rates of $37 million against the charge, and the resulting net charge to earnings was $593 million ($428 million after-tax).

Through December 31, 2023, SCE has accrued estimated losses of $9.4 billion, recoveries from insurance of $2.0 billion, all of which have been collected, and expected recoveries through FERC electric rates of $413 million,

$376 million of which has been collected, related to the 2017/2018 Wildfire/Mudslide Events claims. The after-tax net charges to earnings recorded for claims related to the 2017/2018 Wildfire/Mudslide Events through December 31, 2023 have been $5.1 billion.

Estimated losses for the 2017/2018 Wildfire/Mudslide Events litigation are based on a number of assumptions and are subject to change as additional information becomes available. Actual losses incurred may be higher or lower than estimated based on several factors, including the uncertainty in estimating damages that have been or may be alleged. For instance, SCE receives additional information with respect to damages claimedas the claims mediation and trial processes progress. Other factors that can cause actual losses incurred to be higher or lower than estimated include the ability to reach settlements and the outcomes of settlements reached through the ongoing claims mediation processes, uncertainties related to the sufficiency of insurance held by plaintiffs, uncertainties related to the litigation processes, including whether plaintiffs will ultimately pursue claims, uncertainty as to the legal and factual determinations to be made during litigation, including uncertainty as to the contributing causes of the 2017/2018 Wildfire/Mudslide Events, the complexities associated with fires that merge and whether inverse condemnation will be held applicable to SCE with respect to damages caused by the Montecito Mudslides, and the uncertainty as to how these factors impact future settlements.

As of December 31, 2023, SCE had paid $8.7 billion under executed settlements and had $78 million to be paid under executed settlements, including $62 million to be paid under the SED Agreement, related to the 2017/2018 Wildfire/Mudslide Events. After giving effect to all payment obligations under settlements entered into through December 31, 2023, Edison International's and SCE's best estimate of expected losses for remaining alleged and potential claims related to the 2017/2018 Wildfire/Mudslide Events was $637 million. Edison International and SCE may incur a material loss in excess of amounts accrued in connection with the remaining alleged and potential claims related to the 2017/2018 Wildfire/Mudslide Events.

SCE will seek CPUC-jurisdictional rate recovery of prudently-incurred losses and related costs realized in connection with the 2017/2018 Wildfire/Mudslide Events in excess of available insurance and FERC-jurisdictional recoveries, other than for any obligations under the SED Agreement. Based on Edison International's and SCE's current best estimate of expected losses for the 2017/2018 Wildfire/Mudslide Events, SCE currently expects to seek CPUC-jurisdictional rate recovery of approximately $6.4 billion of uninsured claims by filing applications with the CPUC. In August 2023, SCE filed the first of such cost recovery applications to seek rate recovery of $2.4 billion of prudently incurred losses related to the Thomas Fire, the Koenigstein Fire and the Montecito Mudslides, consisting of $2.0 billion of uninsured claims and $0.4 billion of associated costs, including legal fees and financing costs. In its filing, SCE is also seeking capital recovery of approximately $65 million in restoration costs. SCE has requested that the CPUC issue a proposed decision on its application in February 2025. SCE targets the third quarter of 2024 for the filing of its application to seek rate recovery of approximately $4 billion of uninsured claims related to the Woolsey Fire. In its application, SCE will also seek associated costs, including legal fees, financing costs and restoration costs. SCE's plans with respect to this filing may be delayed or modified. Because the CPUC's decision in a cost recovery proceeding involving SDG&E arising from several 2007 wildfires in SDG&E's service area is the only directly comparable precedent available, SCE believes that there is substantial uncertainty regarding how the CPUC will interpret and apply its prudency standard to an investor-owned utility in wildfire claims related cost-recovery proceedings for fires ignited prior to the adoption of AB 1054 on July 12, 2019. Accordingly, while the CPUC has not made a determination regarding SCE's prudency relative to any of the 2017/2018 Wildfire/Mudslide Events, SCE is unable to conclude, at this time, that uninsured CPUC-jurisdictional wildfire-related costs related to the 2017/2018 Wildfire/Mudslide Events are probable of recovery through electric rates.

2017 Creek Fire

In addition to the Thomas, Koenigstein and Woolsey Fires, there were several other wildfires ignited in 2017 and 2018 that impacted portions of SCE's service territory, including the 2017 Creek Fire that ignited near Sylmar, California.

Based on pending litigation, it is reasonably possible that SCE will incur a material loss in connection with the Creek Fire, but the range of reasonably possible losses that could be incurred cannot be estimated at this time. SCE has not determined that losses in connection with the Creek Fire are probable and consequently has not accrued a charge for potential losses relating to the Creek Fire. SCE’s wildfire insurance for the period in which the Creek Fire was ignited has been almost fully exhausted as a result of the TKM litigation.

Post-2018 Wildfires

Several wildfires have significantly impacted portions of SCE's service territory after 2018, including the 2019 Saddle Ridge Fire, the 2020 Bobcat Fire, the 2022 Coastal Fire and the 2022 Fairview Fire.

In 2023, SCE recorded a $184 million increase in estimated losses for claims related to the Post-2018 Wildfires and recorded $149 million in expected insurance recoveries against the charge. As a result, SCE also recorded expected recoveries through electric rates of $2 million against the charges accrued related to the Post-2018 Wildfires. The resulting net charge to earnings was $33 million ($24 million after-tax).

Through December 31, 2023, SCE has recorded total estimated losses of $880 million and expected recoveries from insurance and third parties of $622 million related to the Post-2018 Wildfire claims. As a result, SCE also recorded expected recoveries through electric rates of$168 million against the charges accrued related to the Post-2018 Wildfire claims. The after-tax net charges to earnings recorded through December 31, 2023 have been$65 million.

As of December 31, 2023, SCE had paid $204 million under executed settlements related to the Post-2018 Wildfires, and Edison International's and SCE's estimated losses for remaining alleged and potential claims(established at the low end of the estimated range of reasonably possible losses)related to the Post-2018 Wildfires was $676 million. As of the same date, SCE had assets for expected recoveries through insurance and third parties of $512 million and through electric rates of $154 million on its consolidated balance sheets related to the Post-2018 Wildfire claims.

While Edison International and SCE may incur material losses in excess of the amounts accrued for certain of the Post-2018 Wildfires, Edison International and SCE expect that any losses incurred in connection with any such fire will be covered by insurance, subject to self-insured retentions and co-insurance, and expect that any losses after expected recoveries from insurance and through electric rates will not be material.

In light of the prudency standard the CPUC is required to apply under AB 1054 to utilities holding a safety certificate at the time a wildfire ignited after July 12, 2019, SCE has concluded, at this time, that both uninsured CPUC-jurisdictional and uninsured FERC-jurisdictional wildfire-related costs related to the Post-2018 Wildfires that it has deferred as regulatory assets are probable of recovery through electric rates. SCE will continue to evaluate the probability of recovery based on available evidence, including regulatory decisions, including any CPUC decisions illustrating the interpretation and/or application of the prudency standard under AB 1054, and, for each applicable fire, evidence that could cast serious doubt as to the reasonableness of SCE's conduct relative to that fire.

For further information on Southern California Wildfires and Mudslides, see "Business— Southern California Wildfires," "Risk Factors," "Notes to Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies—Initial and annual contributions to the wildfire insurance fund established pursuant to California Assembly Bill 1054" and "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Southern California Wildfires and Mudslides" in this report.