EDISON INTERNATIONAL

CPUC

Revenue authorized by the CPUC through GRC proceedings is intended to provide SCE a reasonable opportunity to recover its costs and earn a return on its net investments in generation and distribution assets and general plant (also referred to as "rate base") on a forecast basis. Revenue is authorized through quadrennial GRC proceedings where the CPUC sets an annual revenue requirement for the test year which is made up of the operation and maintenance costs, depreciation, taxes and a return consistent with the authorized cost of capital (discussed below). In the GRC proceedings, the CPUC also generally approves the level of capital spending on a forecast basis. Following the test year, the revenue requirements for the remaining three years will be set by a methodology established in the GRC proceeding, which has generally, among other items, included annual allowances for escalation in operation and maintenance costs and additional changes in capital-related investments.

SCE's 2025 GRC authorized revenue requirements for 2025, 2026, 2027 and 2028 of $9.7 billion, $10.2 billion, $10.7 billion and $11.2 billion, respectively, with adjustments to the post-test years' revenue requirements, allowing the application of an attrition index to operation and maintenance expenses, tied to the Consumer Price Index and capped at five percent each year, along with budget-based wildfire mitigation capital additions and zero escalation for all of SCE's non-wildfire related capital additions in the attrition years. For further discussion of the 2025 GRC, see "MD&A—Results of Operations—Impact of 2025 GRC."

Beginning with the 2029 GRC, SCE will be required to include affordability metrics in GRC applications where the revenue increase is estimated to exceed one percent of currently authorized revenues systemwide. The CPUC has defined affordability as the degree to which a representative household is able to pay for an essential utility service charge, given its socioeconomic status.

By May 15 in the year preceding each GRC application filing date, SCE is required to file a Risk Assessment and Mitigation Phase ("RAMP") application with the CPUC to provide information about SCE's assessment of its key safety risks and its proposed programs and spending for mitigating those risks. SCE plans to file its RAMP application for the 2029 GRC in May 2026. The information developed during the RAMP informs SCE's proposed projects and funding requests in the subsequent phase of the GRC.

The CPUC regulates SCE's cost of capital, including its capital structure and authorized rates of return. SCE's currently authorized capital structure is 43% long-term debt, 5% preferred equity and 52% common equity. SCE’s authorized capital structure is subject to certain exclusions, for example the waiver of certain expenses and debt related to the 2017/2018 Wildfire/Mudslide Events. For further information on the exclusion related to the 2017/2018 Wildfire/Mudslide Events, see "Notes to Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies—SCE Dividends."

SCE's currently authorized cost of capital for 2026 consists of: cost of long-term debt of 4.71%, cost of preferred equity of 6.89%, and ROE of 10.03%. Based on these cost factors and the capital structure discussed above, SCE’s weighted average return on rate base will be 7.59% for 2026. The cost of capital adjustment mechanism set by the CPUC provides for an adjustment to SCE's authorized cost of capital. The cost of capital adjustment mechanism's benchmark beginning January 1, 2026, is the 12-month, October 1, 2024 through September 30, 2025, average Moody's Baa utility bond yield of 5.94%. If the difference between the benchmark and the average of the same index for the 12-month period from October 1, 2025 to September 30, 2026 exceeds 100-basis points, SCE's CPUC-authorized ROE will be adjusted for 2027 by 20% of the amount of the difference (up or down).

CPUC rates decouple authorized revenue from the volume of electricity sales so that SCE receives revenue equal to amounts authorized. Differences between amounts collected and authorized levels are either collected from or refunded to customers, and, therefore, such differences do not impact operating revenue. Accordingly, SCE is neither benefited nor burdened by the volume of retail electricity sales.

Cost-recovery balancing accounts track the difference between actual expenditures associated with the account, revenue authorized for recovery by the CPUC (authorized revenue requirement), and the actual revenues collected within customer rates to cover those specific expenditures. These balancing accounts are used to track and recover, among other things, SCE's decoupled costs of fuel and purchased power, as well as certain operation and maintenance expenses. SCE earns no return on these activities and although differences between forecasted and actual costs do not impact earnings, such differences do impact cash flows and can change rapidly. SCE also has capital-related balancing accounts on which it earns a return, such as the grid hardening balancing account. Costs tracked in balancing accounts are not subject to after-the-fact reasonableness review unless the balancing accounts are one-way balancing accounts or otherwise subject to a cost cap. SCE also has memorandum accounts, which track costs above authorized levels eligible for cost recovery upon a future reasonableness review. To the extent SCE does not have a tracking mechanism, SCE cannot recover expenses that exceed authorized amounts. However, every subsequent GRC allows SCE to reflect its prior actual investment in plant as a part of the forecast for the next test year.

The 2025 GRC final decision authorized capital expenditures of approximately $1 billion during 2025 - 2028 to support 212 miles of the wildfire mitigation targeted undergrounding ("TUG") program, along with the deployment of 1,653 circuit miles of covered conductors in high fire risk areas. The final decision authorized a two-way Grid Hardening Balancing Account to track the difference between actual TUG costs and Rapid Earth Fault Current Limiter costs up to the approved mile limit and the authorized amounts, with spending in excess of 110% of authorized amounts subject to reasonableness review. SCE is also authorized to record incremental costs that exceed the approved scope in the existing Wildfire Mitigation Plan Memorandum Account, with cost recovery subject to reasonableness review.

SCE's cost-recovery mechanism for its fuel and purchased power-related costs is facilitated in three main balancing accounts, the ERRA, the PABA, and the new system generation balancing account ("NSGBA"). For all three accounts, SCE sets rates based on an annual forecast of the costs that it expects to incur during the subsequent year. In addition, the CPUC has established a "trigger" mechanism for the ERRA and the PABA. The trigger mechanism requires SCE to request an expeditious rate change if the sum of the ERRA balance and the bundled service customers' pro-rata share of the PABA balance exceeds 4% of SCE's prior year generation rate revenue and SCE does not expect the aggregate overcollection or undercollection to fall below 5% of SCE's prior year generation rate revenue within 120 days. For 2026, SCE estimates the 4% and 5% trigger amounts to be approximately $183 million and $229 million, respectively.

For 2025, the 4% and 5% trigger amounts were approximately $234 million and $292 million, respectively. As of December 31, 2025, the ERRA was overcollected by approximately $829 million, the PABA was undercollected by approximately $1.4 billion, and the NSGBA was overcollected by approximately $23 million. In December 2025, the CPUC approved SCE incorporating these year-end balances into customer rates in January 2026.

The majority of fuel and purchased power procurement-related costs eligible for recovery through cost-recovery rates are pre-approved by the CPUC through specific decisions and a procurement plan with predefined standards that establish the eligibility for cost-recovery. If such costs are subsequently found to be non-compliant with this procurement plan, then this could negatively impact SCE's earnings and cash flows. In addition, the CPUC retrospectively reviews outages associated with utility-owned generation and SCE's power procurement contract administration activities through the annual ERRA review proceeding. A CPUC finding that SCE was unreasonable or imprudent with respect to its utility-owned generation outages and contract administration activities, could negatively impact SCE's earnings and cash flows. The ERRA review proceeding is also used as a venue to review costs in various memorandum and balancing accounts including the Grid Hardening Balancing Account.

FERC

Transmission capital and operating costs that are prudently incurred, including a return on its net investment in transmission assets, are recovered through revenue authorized by the FERC. Since 2012, SCE has used a formula rate to determine SCE's FERC transmission revenue requirement, including its construction work in progress revenue requirement. Under operation of the formula rate, transmission revenue will be updated to actual cost of service annually. The transmission revenue requirement and rates are updated each December, to reflect a forecast of costs for the upcoming rate period, as well as a true up of the transmission revenue to actual costs incurred by SCE in the prior calendar year on its formula rate.

The FERC ROE is currently fixed at 10.3% and does not separately reflect any adders. The FERC ROE would only change if a different ROE is approved by the FERC in a new proceeding. For further information on the FERC formula rates, related transmission revenue requirements and rate changes, see "MD&A—Liquidity and Capital Resources—SCE—Regulatory Proceedings—2026 FERC Formula Rate Annual Update."

Retail Rates Structure and Residential Rate Design

To develop retail rates, the authorized revenue requirements are allocated among all customer classes (residential, commercial, industrial, agricultural and street lighting) on a functional basis (i.e., generation, distribution, transmission, etc.). Specific rate components are designed to recover the authorized revenue allocated to each customer class.

SCE has a two-tier residential rate structure. The first tier is priced below the average rate and is intended to cover the customer's essential electricity needs. The second tier is priced at 29% more than the first tier. SCE's current default rate is the time of use ("TOU") structure, which incorporates the two-tier structure through a baseline credit applied to approximately 300 kWh a month. Under a TOU rate structure, rates are based on the time of day and the season. TOU rates are typically lower early in the day, overnight, and on the weekends when energy resources are less in demand. As of December 31, 2025, approximately 60% of residential customers are on TOU rates. To recover fixed costs that SCE incurs to serve a residential customer regardless of the customer’s usage, SCE assesses both a minimum charge of $10 per month ($5 for low-income customers) and a fixed charge.

In May 2024, the CPUC authorized a residential class Basic Service Charge (i.e., fixed charge) with three levels dependent on participation in income-qualified programs. Customers enrolled in the California Alternative Rates for Energy (CARE) and Family Electric Rate Assistance (FERA) programs receive Basic Service Charges that are respectively 25% and 50% of the $24.15 fixed charge applicable to all other residential customers. SCE began including the new Basic Service Charge on residential customer bills in the fourth quarter of 2025. For information on residential rates for customers with renewable generation systems, see "—Competition" below.