EDISON INTERNATIONAL

Nature of Estimates Required. Edison International and SCE record loss contingencies when management determines that the outcome of future events is probable of occurring and when the amount of the loss can be reasonably estimated. Gain contingencies are recognized in the financial statements when they are realized.

Key Assumptions and Approach Used. The determination of an accrual for a loss contingency is based on management judgment and estimates with respect to the likely outcome of the matter, including the analysis of different scenarios. Recorded liabilities are adjusted when events or circumstances cause these judgments or estimates to change. In assessing whether a loss is probable, reasonably possible, or remote, Edison International and SCE may consider the following factors, among others: the nature of the litigation, claim or assessment, opinions or views of legal counsel and other advisors, and the experience gained from similar cases. For material contingencies when there is areasonable possibility that a loss or an additional loss may be incurred, Edison International and SCE disclose the nature of the contingency and an estimate of the possible loss or range of loss or a statement that such an estimate cannot be made.

Effect if Different Assumptions Used. Actual amounts realized upon settlement of contingencies may be different than amounts recorded and disclosed and could have a significant impact on the liabilities, revenue and expenses recorded on the consolidated financial statements. For a discussion of contingencies, guarantees, and indemnities, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies."

Application to Wildfires

As discussed in "Management Overview," wildfires in SCE's service area have caused loss of life, substantial damage to both residential and business properties, and service outages for SCE customers.

The extent of legal liability for wildfire-related damages in actions against utilities depends on a number of factors, including whether the utility substantially caused or contributed to the damages and whether parties seeking recovery of damages will be required to show negligence in addition to causation. Final determinations of legal liability for wildfire events, including determinations of whether SCE was negligent, would only be made during lengthy and complex litigation processes and settlements may be reached before determinations of legal liability are ever made.

Edison International and SCE may be unable to estimate a reasonably possible loss or range of losses that could be incurred in connection with a wildfire, including those where a loss is probable, due to the complexities associated with estimating damages, such as making judgments for which no reasonably substantive basis exists and which require significant speculation about the conduct of litigation counterparties. The large number and varying types of claims, including individual claims, subrogation claims, and claims from public entities, and the interrelationship among these claims, for example, levels of insurance held by claimants, can create additional estimation complexity and uncertainty. Management's ability to develop a reasonable estimate improves as information about the scope of the loss becomes more fully developed, key factual and legal issues are resolved, and as additional information becomes available through settlement and litigation processes.

Estimated losses for wildfire events are based on a number of assumptions and are subject to change as additional information becomes available. Those assumptions include volume of claims, damages asserted and associated loss, opinions of counsel regarding litigation risk, the status of and developments in the course of litigation, prior experience litigating and settling wildfire litigation claims, the amount of insurance that may offset losses, and estimating contributory liabilities from third parties who may be responsible for portions of loss. 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 will receive additional information with respect to damages claimed as 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 and trial processes, uncertainties related to the sufficiency of insurance held by plaintiffs and potential 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 certain wildfires, and the uncertainty as to how these factors impact future settlements.

For more information related to the loss contingencies of the wildfires, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Southern California Wildfires and Mudslides."