Edison International (EIX) 10-Q2021 Q3 Quarterly report

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect Edison International's and SCE's current expectations and projections about future events based on Edison International's and SCE's knowledge of present facts and circumstances and assumptions about future events and include any statements that do not directly relate to a historical or current fact. Other information distributed by Edison International and SCE that is incorporated in this report, or that refers to or incorporates this report, may also contain forward-looking statements. In this report and elsewhere, the words "expects," "believes," "anticipates," "estimates," "projects," "intends," "plans," "probable," "may," "will," "could," "would," "should," and variations of such words and similar expressions, or discussions of strategy or plans, are intended to identify forward-looking statements. Such statements necessarily involve risks and uncertainties that could cause actual results to differ materially from those anticipated. Some of the risks, uncertainties and other important factors that could cause results to differ from those currently expected, or that otherwise could impact Edison International and SCE, include, but are not limited to the:

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Additional information about risks and uncertainties, including more detail about the factors described in this report, is contained throughout this report and in the 2020 Form 10-K, including the "Risk Factors" section. Readers are urged to read this entire report, including information incorporated by reference, as well as the 2020 Form 10-K, and carefully consider the risks, uncertainties, and other factors that affect Edison International's and SCE's businesses. Forward-looking statements speak only as of the date they are made and neither Edison International nor SCE are obligated to publicly update or revise forward-looking statements. Readers should review future reports filed by Edison International and SCE with the SEC. Edison International and SCE post or provide direct links to (i) certain SCE and other parties' regulatory filings and documents with the CPUC and the FERC and certain agency rulings and notices in open proceedings in a section titled "SCE Regulatory Highlights," (ii) certain documents and information related to Southern California wildfires which may be of interest to investors in a section titled "Southern California Wildfires," and (iii) presentations, documents and information that may be of interest to investors in a section titled "Presentations" at www.edisoninvestor.com in order to publicly disseminate such information. The reports, presentations, documents and information contained on, or connected to, the Edison investor website are not deemed part of, and are not incorporated by reference into, this report.

The MD&A for the nine months ended September 30, 2021 discusses material changes in the consolidated financial condition, results of operations and other developments of Edison International and SCE since December 31, 2020 and as compared to the nine months ended September 30, 2020. This discussion presumes that the reader has read or has access to Edison International's and SCE's MD&A for the calendar year 2020 (the "2020 MD&A"), which was included in the 2020 Form 10-K.

Except when otherwise stated, references to each of Edison International, SCE, or Edison Energy Group mean each such company with its subsidiaries on a consolidated basis. References to "Edison International Parent and Other" mean Edison International Parent and its consolidated competitive subsidiaries and "Edison International Parent" mean Edison International on a stand-alone basis, not consolidated with its subsidiaries. Unless otherwise described, all the information contained in this report relates to both filers.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT OVERVIEW

Highlights of Operating Results

Edison International is the parent holding company of SCE and Edison Energy Group. SCE is an investor-owned public utility primarily engaged in the business of supplying and delivering electricity to an approximately 50,000 square mile area of southern California. Edison Energy Group is a holding company for Edison Energy which is engaged in the competitive business of providing data-driven energy solutions to commercial, institutional and industrial customers. Edison Energy's business activities are currently not material to report as a separate business segment.

Edison International's earnings are prepared in accordance with GAAP. Management uses core earnings (losses) internally for financial planning and for analysis of performance. Core earnings (losses) are also used when communicating with investors and analysts regarding Edison International's earnings results to facilitate comparisons of the company's performance from period to period. Core earnings (losses) are a non-GAAP financial measure and may not be comparable to those of other companies. Core earnings (losses) are defined as earnings attributable to Edison International shareholders less non-core items. Non-core items include income or loss from discontinued operations and income or loss from significant discrete items that management does not consider representative of ongoing earnings, such as write downs, asset impairments and other income and expense related to changes in law, outcomes in tax, regulatory or legal proceedings, and exit activities, including sale of certain assets and other activities that are no longer continuing.

Edison International's third quarter 2021 losses increased $53 million from the third quarter of 2020, resulting from an increase in SCE's losses of $20 million and an increase in Edison International Parent and Other's losses of $33 million. SCE's higher losses consisted of $45 million of higher core earnings and $65 million of higher non-core losses. Edison International's earnings for the nine months ended September 30, 2021 increased $23 million from the nine months ended September 30, 2020, resulting from an increase in SCE's earnings of $35 million and an increase in Edison International

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Parent and Other's losses of $12 million. SCE's higher earnings consisted of $106 million of higher core earnings and $71 million of higher non-core losses.

The increase in SCE's core earnings for the three months ended September 30, 2021 from the same period in 2020 was primarily due to higher revenue from the 2021 GRC final decision and higher FERC revenue, partially offset by increased wildfire mitigation expenses due to the timing of regulatory deferrals in the third quarter of 2020.

The increase in SCE's core earnings for the nine months ended September 30, 2021 from the same period in 2020 was primarily due to higher revenue from the 2021 GRC final decision, higher FERC revenue and lower operation and maintenance expenses, partially offset by lower insurance benefits and higher property taxes.

The increase in Edison International Parent and Other's net loss for the three months and nine months ended September 30, 2021 was due to higher core losses of $33 million and $40 million, respectively, and lower non-core losses of $28 million for the nine months ended September 30, 2021. Edison International's increase in core losses was primarily due to higher preferred dividends as a result of a preferred equity issuance in 2021.

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Consolidated non-core items for the nine months ended September 30, 2021 and 2020 primarily included:

See "Results of Operations" for discussion of SCE and Edison International Parent and Other results of operations.

2021 General Rate Case

The 2021 GRC consists of four separate tracks. Track 1 is similar to previous GRCs and addresses revenue requirements for the three-year period of 2021 – 2023. Tracks 2 and 3 address the reasonableness of 2018 – 2019 and 2020 wildfire mitigation costs that were incremental to amounts authorized in the 2018 GRC, respectively. Track 4 will address the revenue requirement for 2024. SCE is scheduled to submit its testimony for track 4 in May 2022. For further information on tracks 2 and 3 see "Liquidity and Capital Resources—Regulatory Proceedings."

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Track 1 - Revenue Requirements

In August 2021, the CPUC approved a final decision on track 1 of the 2021 GRC, which resulted in a base rate revenue requirement of $6.9 billion in 2021, an increase of $1.0 billion over amounts authorized for 2020 in the 2018 GRC. This represented an increase of $331 million over revenue requirements authorized for 2020 through the 2018 GRC and subsequent WEMA and GS&RP CPUC approvals. The final decision provided balancing accounts for cost recovery of authorized wildfire insurance expenses and up to 115% of authorized vegetation management expenses. The final decision also allows SCE to seek recovery of wildfire insurance expenses above authorized levels and vegetation management expenses above 115% of authorized levels through reasonableness review applications. SCE expects vegetation management costs to exceed authorized levels due to increased labor rates required by California state law beginning October 2019. For more information see "—Wildfire Mitigation, Wildfire Insurance and Restoration Expenses."

The final decision allows operation and maintenance expenses to be escalated for 2022 and 2023 through the use of various escalation factors for labor, non-labor and medical expenses and escalation of wildfire capital additions based on forecast spending for both 2022 and 2023. This escalation methodology results in approved revenue requirements of $7.3 billion in 2022 and $7.7 billion in 2023.

In the absence of a 2021 GRC final decision, SCE recognized revenue in the first quarter and second quarters of 2021 based on the 2020 authorized GRC revenue requirement. The revenue requirements in the 2021 GRC final decision are retroactive to January 1, 2021. SCE recorded the prior period impact of the 2021 GRC final decision in the third quarter of 2021, which increased earnings by $129 million primarily due to the application of the 2021 GRC final decision to revenue, operation and maintenance expenses, depreciation expense, property and payroll taxes expense and income tax expense and a non-core impairment of utility property, plant and equipment of $79 million ($47 million after-tax) related to disallowed historical capital expenditures of pole replacements the CPUC determined were performed prematurely.

The CPUC has approved the establishment of a memorandum account making the authorized revenue requirement changes effective January 1, 2021. Under the final decision the increase in January 2021 to September 2021 authorized revenues of $722 million will be collected over a 27-month period beginning October 1, 2021.

Track 1 - Capital expenditures

The final decision authorized $4.9 billion of capital expenditures for 2021. Included in authorized capital expenditures is $2.4 billion of capital expenditures to install 4,500 miles of covered conductor between 2019 and 2023 as part of SCE's Wildfire Covered Conductor Program ("WCCP"). The final decision also approved a balancing account to track the difference between actual WCCP costs and amounts authorized. If spending is less than authorized, SCE will refund those amounts to customers. If spending exceeds authorized, SCE will recover spending up to 110% of the authorized amount from customers. SCE would be eligible to submit a subsequent reasonableness review application for any spending in excess of 110% of authorized amounts.

See "Results of Operations—SCE" and "Notes to Consolidated Financial Statements—Note 11. Regulatory Assets and Liabilities" for further information.

Capital Program

Total capital expenditures (including accruals) were $3.7 billion for the first nine months of both 2021 and 2020.

SCE's capital expenditure forecast has been updated since the filing of the 2020 Form 10-K to reflect planned CPUC jurisdictional spending as informed by the 2021 GRC final decision, expected utility owned storage expenditures and expected FERC capital expenditures.

Potential capital spending variability associated with future regulatory requests based on management judgment, potential for permitting delays and other operational considerations is reflected in the range case below. The CPUC-jurisdictional capital

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spending forecast is in line with authorized spend over the 2021 GRC track 1 cycle. The completion of projects, the timing of expenditures, and the associated cost recovery may be affected by permitting requirements and delays, construction schedules, availability of labor, equipment and materials, financing, legal and regulatory approvals and developments, community requests or protests, weather and other unforeseen conditions.

SCE's 2021 – 2023 forecast for major capital expenditures is set forth in the table below:

In July 2021, the California Governor issued an Emergency Proclamation related to accelerating construction of new energy capacity ahead of possible summer 2022 shortfalls. Subsequently, in October 2021, in response to a CPUC emergency reliability rulemaking proceeding, SCE contracted for the construction of utility owned storage at three sites in SCE's service territory with an aggregate capacity of 537.5 MW. These storage projects are expected to result in $1.0 billion of capital expenditures, through the anticipated in-service date in the summer of 2022, which will be included in rate base (reflected in the weighted average annual rate base forecast table below). In October 2021, SCE filed an advice letter requesting recovery of these expenditures and seeking balancing account treatment for the associated revenue requirement, to be reflected in rates beginning in the first quarter of 2022. Work on these projects will commence prior to approval of the advice letter. A CPUC decision on the advice letter is expected prior to the end of January 2022. SCE may terminate the contract for these projects for convenience, including if regulatory approval is not obtained. If SCE terminates the contract for convenience in January 2022, SCE could incur costs estimated to be approximately $500 million.

SCE expects to make additional CPUC capital expenditures, the recovery of which will be subject to future regulatory approval. These expenditures include WCCP capital expenditures exceeding amounts authorized in the 2021 GRC, and expenditures to be included in track 4 of the 2021 GRC and the 2025 GRC. These capital expenditures, excluded from the table above, are expected to be approximately $0.4 billion in 2023 and in a range of approximately $10.4 billion to $12.8 billion between 2024 and 2025.

SCE's authorized CPUC-jurisdictional rate base is determined through the GRC and other regulatory proceedings. Differences between actual and CPUC-authorized capital expenditures are addressed in subsequent GRC or other regulatory proceedings. FERC-jurisdictional rate base is generally determined based on actual capital expenditures.

Reflected below is SCE's weighted average annual rate base for 2021 – 2023 incorporating CPUC capital expenditures authorized in the 2021 GRC final decision, expected utility owned storage expenditures, expected FERC capital expenditures, and expected non-GRC projects or programs. The table below does not reflect the $1.6 billion of AB 1054 Excluded Capital Expenditures. The table below reflects the July 2021 reduction in rate base from a $400 million payment from a third party for the 30-year use of a portion of the West of Devers transmission project.

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Including the additional CPUC capital expenditures described above and rate base associated with 2020 wildfire restoration capital expenditures subject to future CEMA applications, SCE's weighted average annual rate base could be up to $42.3 billion in 2023, $46.0 billion in 2024 and $49.4 billion in 2025.

For further information regarding the capital program see "Liquidity and Capital Resources—SCE—Capital Investment Plan."

2021 Cost of Capital Application

In August 2021, SCE filed its application with the CPUC for authority to establish its authorized cost of capital for utility operations for a three-year term beginning in 2022 and to reset the related annual cost of capital mechanism. SCE was not required to file a full cost of capital application until April 2022 for rates effective in 2023. However, SCE filed its application pursuant to the cost of capital mechanism's provision that the utilities have a right to file a cost of capital application at any time upon an extraordinary or catastrophic event that materially impacts their respective cost of capital and/or capital structure and affects them differently than the overall financial markets. SCE believes the COVID-19 pandemic and accompanying government stimulus efforts constitute such an extraordinary event because they have led to a decrease in interest rates but an increase in SCE and other utilities' cost of equity, disrupting the traditional relationship between debt and equity assumed in adopting the cost of capital mechanism. SCE filed a joint motion with PG&E and SDG&E to consolidate all three utilities' cost of capital applications given the overlapping issues of law and fact, which was granted in October 2021.

In its application, SCE seeks a return on common equity of 10.53%, compared to its current CPUC ROE of 10.30%, an embedded cost of long-term debt of 4.32%, and an embedded cost of preferred equity of 5.90%. SCE also seeks to maintain its current capital structure of 52% common equity, 43% long-term debt, and 5% preferred equity. Based on the capital structure and cost factors discussed above, SCE's weighted average return on rate base would be 7.63% for 2022.

Based on SCE's 2021 GRC, including the post-test year ratemaking mechanism, SCE's request would be rate neutral for SCE's customers in 2022 relative to SCE's current cost of capital.

In the alternative, SCE requests in its application that the CPUC suspend any adjustment to its CPUC-authorized ROE in 2022 based on the cost of capital mechanism currently in place. Should the CPUC grant this alternative relief, SCE would adjust its cost of long-term debt and preferred equity for 2022, resulting in a reduction in SCE's revenue requirement of approximately $50 million compared to the current authorized cost of capital, and file a cost of capital application by April 2022 for rates effective beginning January 2023.

The cost of capital mechanism requires that in any year where the difference between the current 12-month October through September average Moody's utility bond rates and the mechanism’s benchmark exceeds a trigger of 100-basis points, as occurred in 2021, an advice letter is filed on October 15 of such year to implement an adjustment to the utilities' ROE. In October 2021 the CPUC ordered the utilities to file all materials that would have been included in the October 15 advice letters within the consolidated cost of capital proceeding.

If the cost of capital mechanism adjustment is triggered SCE's CPUC-authorized ROE would be adjusted down for 2022 from 10.30% to 9.72%. SCE's costs of long-term debt and preferred equity would also be adjusted for 2022 to reflect the then current embedded costs and projected interest rates. If the cost of capital mechanism adjustment is triggered, revenue requirements for 2022 are expected to reduce by $179 million. See "Liquidity and Capital Resources—SCE" for further details.

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Southern California Wildfires and Mudslides

California has experienced unprecedented weather conditions in recent years due to climate change, and SCE's service territory remains susceptible to additional wildfire activity in 2021 and beyond. 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. In response to worsening conditions and increased wildfire activity over the past several years, SCE has developed and is implementing its 2020 – 2022 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.

In addition 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 catastrophic wildfires during extreme weather events. SCE may be subject to mandated changes to, or restrictions on, its operational PSPS practices, regulatory fines and penalties, claims for damages and reputational harm if SCE does not execute PSPS in compliance with applicable rules and regulations or if it is determined that SCE has placed excessive or unreasonable reliance on PSPS. In June 2021, the CPUC issued a final decision which, among other things, will reduce future authorized revenue for the volumetric reductions in electricity sales resulting from PSPS events initiated after June 2021 until the CPUC determines that improvements in the PSPS program have been made.

Wildfires in SCE's territory in December 2017 and November 2018 caused loss of life, substantial damage to both residential and business properties, and service outages for SCE customers. Edison International and SCE have incurred material losses in connection with the 2017/2018 Wildfire/Mudslide Events.

SCE's equipment has been, and may further be, alleged to be associated with several wildfires that have originated in Southern California subsequent to 2018. Edison International and SCE expect that any losses incurred in connection with those fires will be covered by insurance, subject to self-insured retentions and co-insurance, or third-party receivables, and expect that any such losses after recoveries will not be material.

2017/2018 Wildfire/Mudslide Events

As discussed in the 2020 Form 10-K, multiple lawsuits related to the 2017/2018 Wildfire/Mudslide Events have been initiated against SCE and Edison International.

As of September 30, 2021, in addition to the Local Public Entity Settlement, the TKM Subrogation Settlement and the Woolsey Subrogation Settlement (all defined below), SCE has entered into settlements with approximately 4,000 individual plaintiffs in the 2017/2018 Wildfire/Mudslide Events litigation under which it has agreed to pay an aggregate of approximately $1.5 billion.

In addition, in October 2021, SCE and the SED executed an agreement (the "SED Agreement"), subject to CPUC approval, to resolve the SED's investigations into the 2017/2018 Wildfire/Mudslide Events and three other 2017 wildfires for, among other things, aggregate costs of $550 million. The $550 million in costs is comprised of a $110 million fine to be paid to the State of California General Fund, $65 million of shareholder-funded safety measures, and an agreement by SCE to waive its right to seek cost recovery in CPUC-jurisdictional rates for $375 million of third-party uninsured claims payments (the "SED Excluded Losses"). The SED Agreement provides that SCE may, on a permanent basis, exclude from its ratemaking capital structure any after-tax charges to equity or debt borrowed to finance costs incurred under the SED Agreement. The SED Agreement also imposes other obligations on SCE, including reporting requirements and safety-focused studies. SCE's obligations under the SED Agreement commence after CPUC approval of the SED Agreement is final and non-appealable. In the SED Agreement, SCE did not admit imprudence, negligence or liability with respect to the 2017/2018 Wildfire/Mudslide Events or the three other 2017 wildfires.

Each reporting period, management reviews its loss estimates for remaining alleged and potential claims related to the 2017/2018 Wildfire/Mudslide Events. The net result of management's third quarter 2021 review, including a review of information obtained as a result of achieving key milestones in the litigation process, including settlement activity to date and

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the expiration of some statutes of limitations, was a $1.3 billion increase in estimated losses for the 2017/2018 Wildfire/Mudslide Events as of September 30, 2021. As a result, Edison International and SCE also recorded expected recoveries through FERC electric rates of $67 million against the charge, and the resulting net charge to earnings was $1.2 billion ($894 million after-tax). The estimated losses for the 2017/2018 Wildfire/Mudslide Events as of September 30, 2021 reflect the impact of the SED Agreement.

Through September 30, 2021, Edison International and SCE have recorded total pre-tax charges of $7.5 billion, expected recoveries from insurance of $2.0 billion and expected recoveries through FERC electric rates of $300 million related to the 2017/2018 Wildfire/Mudslide Events. The after-tax net charges to earnings recorded through September 30, 2021 have been $3.8 billion.

As of September 30, 2021, SCE had paid $5.2 billion under executed settlements and had $84 million to be paid under executed settlements related to the 2017/2018 Wildfire/Mudslide Events. As of the same date, SCE had recovered $2.0 billion through insurance and $137 million through FERC-jurisdictional electric rates.

After giving effect to all settlements entered into through September 30, 2021, Edison International and SCE's best estimate of expected losses for remaining alleged and potential claims related to the 2017/2018 Wildfire/Mudslide Events was $2.2 billion. As of the same date, Edison International and SCE had assets for expected recoveries through FERC electric rates of $162 million on their consolidated balance sheets and had exhausted expected insurance recoveries related to the 2017/2018 Wildfire/Mudslide Events.

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, the ability to reach settlements through the ongoing claims mediation processes, uncertainties related to the litigation processes, 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.

SCE will seek rate recovery of prudently-incurred, actual losses realized in connection with the 2017/2018 Wildfire/Mudslide Events in excess of available insurance, other than for CPUC-jurisdictional rate recovery of the $375 million of SED Excluded Losses. SCE believes that, in light of the CPUC's decision in a cost recovery proceeding involving SDG&E arising from several 2007 wildfires in SDG&E's service area, there is substantial uncertainty regarding how the CPUC will interpret and apply its prudency standard to an investor-owned utility in wildfire cost-recovery proceedings for fires ignited prior to 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 are probable of recovery through electric rates.

Current Wildfire Insurance Coverage

SCE has approximately $1.0 billion of wildfire-specific insurance coverage for events that may occur during the period July 1, 2021 through June 30, 2022, subject to $50 million of self-insured retention and up to approximately $75 million of co-insurance, which results in net coverage of approximately $875 million. Various coverage limitations within the policies that make up SCE's wildfire insurance coverage could result in additional material self-insured costs, for instance in the event of multiple wildfire occurrences during a policy period or with a single wildfire with damages in excess of the policy limits. SCE believes that its insurance coverage for the July 1, 2021 through June 30, 2022 period meets its obligation to maintain reasonable insurance coverage under AB 1054.

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2019 Wildfire Legislation

In July 2019, AB 1054 was signed by the governor of California and became effective immediately. The summary of the wildfire legislation in this report is based on SCE's interpretation of the legislation and is qualified in its entirety by, and should be read together with, AB 1054 and companion Assembly Bill 111.

AB 1054 Prudency Standard

Under AB 1054, the CPUC must apply a new standard when assessing the prudency of a utility in connection with a request for recovery of wildfire costs for wildfires ignited after July 12, 2019. 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.

Wildfire Insurance Fund

AB 1054 also provided for the Wildfire Insurance Fund to reimburse a utility for payment of certain third-party damage 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 AB 1054. Through September 30, 2021, the participating investor-owned utilities, PG&E, SCE and SDG&E, have collectively contributed approximately $8.1 billion to the Wildfire Insurance Fund and have not sought reimbursement of wildfire claims from the fund.

Participating investor-owned utilities will be reimbursed from the Wildfire Insurance Fund for eligible claims, subject to the fund administrator's review. Utilities participating in the Wildfire Insurance Fund are not required to reimburse the fund for amounts withdrawn from the fund that the CPUC finds were prudently incurred and can recover such prudently incurred wildfire costs through electric rates if the fund has been exhausted. 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 AB 1054 Liability Cap. A utility will not be eligible for the AB 1054 Liability Cap if it does not maintain a valid safety certification or its actions or inactions that resulted in the wildfire are found to constitute conscious or willful disregard of the rights and safety of others. Based on SCE's forecasted weighted-average 2021 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 Insurance Fund for eligible claims disallowed in 2021 would be capped at approximately $3.2 billion. SCE will not be allowed to recover borrowing costs incurred to reimburse the fund for amounts that the CPUC disallows. The Wildfire Insurance Fund and, consequently, the AB 1054 Liability Cap, will terminate when the administrator determines that the fund has been exhausted.

Safety Certification and Wildfire Mitigation Plan

Under AB 1054, SCE can obtain an annual safety certification upon the submission of certain required safety information, including an approved WMP. On September 17, 2020, SCE obtained a safety certification that will be valid for 12 months. Notwithstanding its 12-month term, if SCE requested a new safety certification by September 13, 2021, then its current safety certification would remain valid until the OEIS acts on SCE's request for a new safety certification. SCE requested a new safety certification on September 13, 2021 and expects the OEIS to act on its request by December 13, 2021.

SCE submitted its 2020 – 2022 WMP in February 2020. In June 2020, the CPUC ratified the OEIS's conditional approval of SCE's 2020 – 2022 WMP. The approval was conditioned on SCE providing requested information to the OEIS, including additional descriptions of how SCE is implementing, and will implement, certain requirements imposed by the OEIS. SCE submitted updates to its 2020 – 2022 WMP in February 2021 to, among other things, report on implementation of its plan in 2020 and describe new and ongoing wildfire mitigation activities. In June 2021, SCE submitted revised updates to its 2020 –

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2022 WMP in response to a revision notice received from the OEIS. In August 2021, the OEIS issued a resolution approving SCE's updates, and an action statement requiring SCE to remedy certain specified issues, including by reevaluating the scope and pace of its covered conductor program and providing additional clarity and consistency on risk mitigation analysis. As required under the action statement, SCE submitted a report regarding its progress on remedying these issues on November 1, 2021 and is required to submit an additional report in its 2022 WMP update.

Capital Expenditure Requirement

Under AB 1054, approximately $1.6 billion of spending by SCE on wildfire risk mitigation capital expenditures made after August 1, 2019, cannot be included in the equity portion of SCE's rate base. SCE can apply for irrevocable orders from the CPUC to finance these AB 1054 Excluded Capital Expenditures, including through the issuance of securitized bonds, and can recover any prudently incurred financing costs. In November 2020, the CPUC issued an irrevocable order permitting SCE to finance approximately $340 million, comprised of AB 1054 Excluded Capital Expenditures incurred in connection with GS&RP and prudently incurred financing costs, through the issuance of securitized bonds. As of September 30, 2021, SCE had spent all of the approximately $1.6 billion in AB 1054 Excluded Capital Expenditures.

SCE issued securitized bonds in the amount of $338 million in February 2021. In June 2021, SCE filed an application with the CPUC requesting to finance up to $1.0 billion of wildfire mitigation and customer uncollectible costs and associated financing costs through the issuance of securitized bonds. The $1.0 billion request included approximately $518 million of AB 1054 Excluded Capital Expenditures, comprised of $219 million approved in the 2021 GRC track 2 settlement and $299 million incurred in 2021 and approved in track 1 of the GRC. In October 2021, the CPUC issued a decision which allows SCE to issue recovery bonds to recover the AB 1054 Excluded Capital Expenditures approved in tracks 1 and 2 of the 2021 GRC, but denied SCE's application to securitize the operations and maintenance expenditures approved in the GRC track 2 settlement and incremental residential uncollectible expenses. The decision directed SCE to recover the remaining costs in CPUC customer rates by submitting an advice letter to determine the amortization schedule and presumes that a three-year amortization period is reasonable.

SCE expects to seek additional irrevocable orders from the CPUC to finance the remaining AB 1054 Excluded Capital Expenditures. See "Liquidity and Capital Resources—SCE—Regulatory Proceedings—Financing Order" for further details.

For further information, see "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" in the 2020 Form 10-K and "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Southern California Wildfires and Mudslides" in this report.

CSRP

In April 2021, SCE implemented a new customer service system, which replaced a majority of SCE's customer systems. The project is referred to as the Customer Service Re-Platform (CSRP). During the post-implementation stabilization of CSRP, SCE has experienced operational issues, including delayed customer billings, generally in line with forecasted operational issues. SCE has tracked the cost of the CSRP system implementation in a previously approved memorandum account. Forecasted expenditures for the CSRP project are approximately $540 million in capital and $90 million in operations and maintenance expenses from inception through 2021.

In July 2021, SCE filed an application with the CPUC requesting approval of $483 million of capital expenditures and $40 million of operations and maintenance expenses recorded in the CSRP memorandum account through April 2021 resulting in revenue requirements of $411 million from 2021 to 2024. SCE expects to seek recovery of costs subsequent to April 2021 in a future application anticipated to be filed in 2022.

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COVID-19

As discussed in the 2020 Form 10-K, the COVID-19 pandemic is having a significant impact on global society and economies. As a result of the pandemic, Edison International and SCE have experienced increased costs, but the pandemic has not had a pervasive impact on SCE's or Edison International's ability to operate their business. However, the total impacts of the COVID-19 pandemic on Edison International and SCE are still emerging, and the extent of the impacts will depend on numerous evolving factors that Edison International and SCE are unable to accurately predict at this time, including the impact of any legal requirements or company policies for mandatory COVID-19 vaccination, or testing, on SCE's ability to retain its skilled workforce.

As a result of the pandemic and increased estimates of uncollectible expenses, largely related to the economic impacts of the pandemic on SCE's customers, SCE has recognized $310 million of incremental costs as of September 30, 2021, of which $86 million has been deferred to memorandum accounts for future CPUC reasonableness review and $224 million has been transferred to balancing accounts pending recovery. In addition to the increases in expected uncollectible accounts, SCE has incurred incremental costs associated with sequestering certain SCE employees at essential work locations and coordination of SCE's response to the emergency.

In April 2021, the CPUC issued a decision to adopt a COVID-19 disconnection moratorium for medium-large commercial and industrial electric customers and established a memorandum account to track, and seek recovery of, the resulting costs.

In September 2021 SCE requested a revenue requirement of $58 million for incremental operation and maintenance expenses recorded to a CEMA related to COVID-19. For further information see "Liquidity and Capital Resources—SCE—Regulatory Proceedings—2021 CEMA Application."

In October 2021, the CPUC issued a decision which denied SCE's application to securitize up to $78 million of incremental residential uncollectible expenses and directed SCE to recover the expenses in customer rates. See "Liquidity and Capital Resources—SCE—Regulatory Proceedings—Financing Order" for further details.

In July 2021, California's state assembly passed legislation to authorize, fund and implement the CAPP, which is expected to reduce SCE's 2020 and 2021 customer arrearages for certain residential customers by up to $200 million. To the extent SCE's total uncollectible expenses are offset by the CAPP, no recovery will be sought through other mechanisms. See "Liquidity and Capital Resources—SCE—Regulatory Proceedings—Financing Order" for further details.

For further information see "Notes to the Consolidated Financial Statements—Note 11. Regulatory Assets and Liabilities" in this filing and "Management Overview—COVID-19" and "Risk Factors" in the 2020 MD&A.

Wildfire Mitigation, Wildfire Insurance and Restoration Expenses

As discussed in the 2020 Form 10-K, in response to the increase in wildfire activity, and faster progression of and increased damage from wildfires across SCE's service territory and throughout California, SCE has incurred wildfire mitigation, wildfire insurance and wildfire and drought restoration related spending at levels significantly exceeding amounts authorized in its 2018 GRC. Although the 2021 GRC decision authorized the establishment of balancing accounts for expenses for vegetation management, wildfire insurance, and the WCCP program, balancing accounts were not established for other wildfire mitigation activities including inspections and maintenance and PSPS. Additionally, during the 2021 – 2023 GRC period, SCE expects to incur vegetation management expenses in excess of 115% of authorized amounts and capital expenditures for WCCP in excess of 110% of authorized amounts. Therefore, SCE expects to continue to incur wildfire mitigation expenses exceeding amounts authorized in its 2021 GRC and track these incremental amounts in various memorandum accounts.

As of September 30, 2021, SCE has recognized approximately $1.1 billion of regulatory assets related to incremental wildfire mitigation expenses, including depreciation expense from $2.5 billion of wildfire mitigation capital expenditures. The

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regulatory assets include $401 million of operations and maintenance expense authorized for recovery in the GRC track 2 proceeding in January 2021. The CPUC denied SCE's request to securitize this amount and SCE will include the costs in customer rates as soon as practicable. See "Liquidity and Capital Resources—SCE—Regulatory Proceedings—Financing Order" for further details.

Additionally, SCE has recognized $287 million of regulatory assets associated with drought and wildfire restoration and $212 million of regulatory assets related to incremental wildfire insurance expenses. While SCE believes such costs are probable of future recovery, there is no assurance that SCE will collect all amounts currently deferred as regulatory assets.

As a result of balancing accounts established under the 2021 GRC track 1 decision, SCE transferred wildfire mitigation memorandum account balances of $163 million and wildfire insurance expenses of $163 million to corresponding balancing accounts. See "Notes to Consolidated Financial Statements—Note 11. Regulatory Assets and Liabilities" for further information.

In August 2021, the CPUC issued a decision that authorized full recovery of requested drought restoration costs and approved a revenue requirement of $81 million. However, the decision rejected recovery of the $8 million revenue requirement associated with all $60 million of requested wildfire restoration costs related to 2017 wildfires, but would allow SCE to submit subsequent cost recovery applications for those costs. For additional information, see "Liquidity and Capital Resources—SCE—Regulatory Proceedings— Wildfire Related Regulatory Proceedings—2019 CEMA Application."

For additional information, see "Liquidity and Capital Resources—SCE" and "Liquidity and Capital Resources—SCE—Regulatory Proceedings—Wildfire Related Regulatory Proceedings."

RESULTS OF OPERATIONS

SCE

SCE's results of operations are derived mainly through two sources:

Impact of 2021 GRC

In the absence of a 2021 GRC final decision, SCE recognized revenue in the first and second quarters of 2021 based on the 2020 authorized GRC revenue requirement. Upon receipt of the 2021 GRC final decision in August 2021, SCE recorded the first and second quarter retroactive impact, which increased core earnings by $129 million and resulted in a non-core

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impairment of utility property, plant and equipment of $79 million ($47 million after-tax) related to disallowed historical capital expenditures of pole replacements the CPUC determined were performed prematurely.

The 2021 GRC final decision determines the amount of revenue that SCE is authorized to collect from customers to recover anticipated costs, including return on rate base. The 2021 GRC final decision approved an authorized revenue requirement of $6.9 billion in 2021, an increase of $1.0 billion over amounts authorized in the 2018 GRC and an increase of $331 million over revenue requirements authorized for 2020 including the 2018 GRC and subsequent WEMA and GS&RP approvals.

The table below reflects the 2020 GRC authorized revenue adjusted for revenue requirements from the WEMA and GS&RP approvals in 2020, which included revenue requirements for expenditures incurred from 2018 – 2020. Revenue requirements of $497 million for operation and maintenance expense and depreciation incurred in 2020 are not included in the table as they remain subject to approval in track 3 of the 2021 GRC.

This table sets out the authorized revenue and costs of service for revenue requirements authorized in 2020 as discussed above and the 2021 GRC final decision for the nine months ended September 30:

Authorized revenue increased $116 million for the nine-month period ended 2021 compared to the same period in 2020, which was comprised of an increase of $137 million in authorized revenue for earning activities and a decrease of $(21) million in authorized revenue for cost recovery activities. GRC revenue recognition for the first and second quarters of 2021 was based largely on 2020 GRC authorized revenue currently in rates.

The following tables summarize SCE's results of operations for the periods indicated. The presentation below separately identifies earning activities and cost-recovery activities. In the 2021 GRC final decision, the CPUC approved balancing accounts for cost recovery of vegetation management and wildfire insurance costs. As a result, SCE classified revenues and costs associated with these programs as cost recovery activities in 2021. Previously, SCE classified the recovery of actual costs incurred under these programs as earnings activities. The reclassification of revenues and costs had no impact on earnings.

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The following table is a summary of SCE's results of operations for the periods indicated.

Three months ended September 30, 2021 versus September 30, 2020

Earning Activities

Earning activities were primarily affected by the following:

The change in authorized revenue included an increase of $258 million in GRC revenues from the 2021 GRC final decision offset by lower non-GRC authorized revenue of $121 million from the approval of the GS&RP balancing account in the third quarter of 2020.

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Cost-Recovery Activities

Operating revenue and the corresponding operating expenses in cost-recovery activities were primarily affected by the following:

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Nine months ended September 30, 2021 versus September 30, 2020