EDISON INTERNATIONAL

Pre-AB 1054 Cost Recovery

California courts have previously found investor-owned utilities to be strictly liable for property damage, regardless of fault, by applying the theory of inverse condemnation when a utility's facilities were determined to be a substantial cause of a wildfire that caused the property damage. The rationale stated by these courts for applying this theory to investor-owned utilities is that property damages resulting from a public improvement, such as the distribution of electricity, can be spread across the larger community that benefited from such improvement through recovery of uninsured wildfire-related costs in electric rates. The CPUC has resolved only one litigated proceeding addressing the extent to which inverse condemnation-related costs are recoverable in electric rates for fires pre-dating the passage of AB 1054. That decision, issued in November 2017, denied SDG&E's request to include in its rates uninsured wildfire-related costs arising from several 2007 wildfires, finding that SDG&E did not meet the prudency standard because it did not prudently manage and operate its facilities prior to or at the outset of the 2007 wildfires. In July 2018, the CPUC denied both SDG&E's application for rehearing on its cost recovery request and a joint application for rehearing filed by SCE and PG&E limited to the applicability of inverse condemnation principles in the same proceeding. The California Court of Appeal, the California Supreme Court and the United States Supreme Court denied SDG&E's petitions for review of the CPUC's denial of SDG&E's application.

California Wildfire Legislation

In July 2019, AB 1054 provided for a revised prudency standard and the initial account to fund the Wildfire Fund for the benefit of the three California investor-owned utilities participating in the fund, PG&E, SCE and SDG&E. In September 2025, SB 254 supplemented the Wildfire Fund by establishing a new Continuation Account within the Wildfire Fund, which may provide up to $18 billion of additional funding for the Wildfire Fund. The summary of the wildfire legislation below and elsewhere within this report is based on SCE's interpretation of AB 1054 and SB 254.

Clarified Prudency Standard

The CPUC must apply a revised framework when assessing the prudency of a utility in connection with a request for recovery of wildfire costs for wildfires ignited after July 12, 2019. The CPUC is required to find a utility to be prudent if the utility's conduct related to the ignition was consistent with actions that a reasonable utility would have undertaken under similar circumstances, at the relevant point in time, and based on the information available at that time. Prudent conduct is not limited to the optimum practice, method, or act to the exclusion of others, but rather encompasses a spectrum of possible practices, methods, or acts consistent with utility system needs, the interest of ratepayers, and the requirements of governmental agencies. The CPUC may determine that wildfire costs may be recoverable, in whole or in part, by taking into account factors within and outside the utility's control, including winds, humidity, temperature, emergency response, evacuation timing and availability of firefighting resources. Further, utilities with a valid safety certification will be presumed to have acted prudently related to a wildfire ignition unless a party in the cost recovery proceeding creates serious doubt as to the reasonableness of the utility's conduct, at which time, the burden shifts back to the utility to prove its conduct was prudent. If a utility does not have a valid safety certification, it will have the burden to prove, based on a preponderance of evidence, that its conduct was prudent. The new prudency framework will survive the termination of the Wildfire Fund.

Utilities participating in the Wildfire Fund that are found to be prudent are not required to reimburse the fund for amounts withdrawn from the fund. Participating utilities can request recovery of wildfire costs through electric rates if the fund has been exhausted.

Wildfire Fund

The California Wildfire Legislation provides for the Wildfire Fund to reimburse a participating utility for payment of third-party damages claims arising from certain wildfires that exceed, in aggregate in a calendar year, the greater of $1.0 billion or the insurance coverage required to be maintained under the California Wildfire Legislation. The Wildfire Fund is available for claims related to wildfires that are determined by the responsible government investigatory agency or a court to have been caused by a utility or are asserted to have been caused by a utility and result in a court-approved dismissal resulting from the settlement of third-party damage claims. The Initial Account is available for claims related to wildfires ignited after July 12, 2019 and the Continuation Account may become available for claims related to wildfires ignited after the SB 254 Effective Date.

SCE and SDG&E collectively made initial contributions totaling approximately $2.7 billion (SCE share is $2.4 billion) to the Initial Account in September 2019. Upon its emergence from bankruptcy, on July 1, 2020, PG&E made its initial contribution of approximately $4.8 billion to the Initial Account. PG&E, SCE and SDG&E are also collectively expected to make aggregate contributions of approximately $3.0 billion (SCE share is $950 million) to the Initial Account through annual contributions to the fund over a 10-year period by no later than January 1 of each year, of which they have made seven annual contributions totaling approximately $2.1 billion (SCE share is approximately $665 million). In addition to PG&E's, SCE's and SDG&E's contributions to the Initial Account, PG&E, SCE and SDG&E are expected to collect $6.1 billion, $6.1 billion and $1.3 billion, respectively, from their customers over a 15-year period through a dedicated rate component. The amount collected from customers may be directly contributed to the Wildfire Fund or used to support the issuance of up to $10.5 billion in bonds by the California Department of Water Resources, the proceeds of which would be contributed to the fund. In addition to funding contributions to the Wildfire Fund, the amount collected from utility customers will pay for, among other things, any interest and financing costs related to any bonds that are issued by the California Department of Water Resources to support the contributions to the Wildfire Fund.

In September 2025, the Wildfire Fund was supplemented by establishing the Continuation Account to potentially provide up to $18 billion of additional funding. As described below, the Continuation Account will be funded contingent upon certain conditions. Once all claims under the Initial Account are resolved and no further claims are anticipated, any remaining assets in the Initial Account will be transferred to the Continuation Account.

If the administrator of the Wildfire Fund determines, on or before December 31, 2028, that annual contributions to the fund are required and the CPUC subsequently extends the non-bypassable charge imposed on customers until January 1, 2046, the Continuation Account will be funded by a combination of contributions from customers and the three participating investor-owned utilities.

Upon the CPUC's decision to extend the non-bypassable charge, PG&E's, SCE's, and SDG&E's customers will be required to contribute an aggregate of $9 billion through a dedicated rate component. The dedicated rate component collected from customers will be directly contributed to the Continuation Account or used to support the issuance of up to $9 billion in bonds by the California Department of Water Resources, the proceeds of which would be contributed to the fund. In addition to funding contributions to the Continuation Account, the amount collected from utility customers will pay for, among other things, any interest and financing costs related to any bonds that are issued by the California Department of Water Resources to support the contributions to the fund.

In addition to customer contributions, PG&E, SCE, and SDG&E have agreed, if required, to contribute an aggregate of $300 million annually (SCE's share is $143.6 million) from 2029 through 2045 for a total aggregate contribution of approximately $5.1 billion. In addition, if the administrator determines that the Continuation Account requires additional contributions, PG&E, SCE, and SDG&E will contribute an additional $780 million annually (SCE's share is $373.2 million) over a five-year period for a total aggregate additional contribution of approximately $3.9 billion (the "Contingent Contribution"). If the administrator terminates the Continuation Account prior to the final installment of the Contingent Contribution, one-half of the remaining unpaid installment payments will be credited to customer rates.

SCE's contributions to the Wildfire Fund are not recoverable through electric rates and will be excluded from the measurement of SCE's CPUC-jurisdictional authorized capital structure. SCE will also not be entitled to cost recovery for any borrowing costs incurred in connection with its contributions to the Wildfire Fund. For information on the accounting impact of SCE's contributions to the Wildfire Fund see "Notes to Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies—Wildfire Fund " in this report.

Reimbursement from Wildfire Fund and Liability Cap

Until the fund administrator determines that the fund will be terminated, participating investor-owned utilities are expected to be reimbursed from the Wildfire Fund for eligible claims, on a first come, first served basis, subject to the fund administrator's review. SCE will reimburse the fund for any withdrawn amounts if SCE receives payment of such amounts under an indemnification agreement or from an insurance provider or other third-party. SCE will also be required to reimburse the fund for withdrawn amounts that the CPUC disallows, subject to the Liability Cap. If the utility has maintained a valid safety certification and its actions or inactions that resulted in the wildfire are not found to constitute conscious or willful disregard of the rights and safety of others, theaggregate requirement to reimburse the fund over a trailing three calendar year period is capped at 20% of the equity portion of the utility's transmission and distribution rate base for the year of ignition. The California Wildfire Legislation also permits reimbursement obligations for disallowed costs to be offset with SCE’s contributions to the Continuation Account, but not the Initial Account. Based on SCE's weighted-average 2025 transmission and distribution rate base, excluding general plant and intangibles, and using the equity portion of SCE's CPUC authorized capital structure of 52%, SCE's requirement to reimburse the Wildfire Fund for fires ignited in 2025, i.e. the Eaton Fire, is capped at approximately $4.3 billion.

SCE will not be allowed to recover borrowing costs incurred to reimburse the fund for amounts that the CPUC disallows. The Wildfire Fund and, consequently, the Liability Cap will terminate when the administrator determines that the fund has been exhausted.

Excluded Capital Expenditures

As required by California Wildfire Legislation, SCE has excluded approximately $1.6 billion of spending on wildfire risk mitigation capital expenditures made after August 1, 2019 from its rate base and also expects to exclude approximately $2.9 billion of wildfire risk mitigation capital expenditures approved on or after January 1, 2026. SCE can apply for irrevocable orders from the CPUC to finance these capital expenditures, including through the issuance of securitized bonds, and can recover any prudently incurred financing costs.

Securitization of Amounts that Exceed Initial Account

For fires ignited between January 1, 2025 and September 19, 2025, if the Initial Account is exhausted, participating utilities may, before seeking a prudency review, directly apply for a CPUC financing order to authorize the recovery of eligible claims that exceed amounts available in the Initial Account through fixed recovery charges. However, if the CPUC determines that the costs were not prudently incurred, participating utilities will be required to return any amounts recovered back to customers over a period that matches the remaining duration of the financing instrument through credits to customer rates.

Subrogation Settlements

For wildfires ignited on or after the SB 254 Effective Date that destroy 1,000 or more structures, property insurers must first offer subrogation rights to the utility before selling to third parties. The utility has 30 days to respond. If accepted, the insurer must release further claims against the utility for that fire.