SOUTHERN CALIFORNIA EDISON (SCE-PN) 10-K2020 FY Annual report

Southern California Edison Company meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format allowed under that General Instruction.

This is a combined Form 10-K separately filed by Edison International and Southern California Edison Company. Information contained herein relating to an individual company is filed by such company on its own behalf. Each company makes representations only as to itself and makes no other representation whatsoever as to any other company.

The following terms and abbreviations appearing in the text of this report have the meanings indicated below.

This Annual Report on Form 10-K 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:

Additional information about risks and uncertainties, including more detail about the factors described in this report, is contained throughout this report. Readers are urged to read this entire report, including information incorporated by reference, 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 other information that may be of interest to investors in a section titled "Events and Presentations" at www.edisoninvestor.com in order to publicly disseminate such information.

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.

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 2020 earnings decreased $545 million, driven by a decrease in SCE's earnings of $599 million, partially offset by a decrease in Edison International Parent and Other losses of $54 million. SCE's lower net income consisted of $722 million of higher non-core losses, partially offset by $123 million of higher core earnings.

Consolidated non-core items for 2020 and 2019 for Edison International included:

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

Wildfires in SCE's territory, including those where SCE's equipment may be alleged to be associated with the fire's ignition, have caused loss of life and substantial damage in recent years. Multiple factors have contributed to increased wildfire activity and faster progression of wildfires across SCE's service territory and in other areas of California. These include the buildup of dry vegetation in areas severely impacted by years of historic drought, lack of adequate clearing of hazardous fuels by responsible parties, higher temperatures, lower humidity, increased incidence of dry lightning, and strong Santa Ana winds. At the same time that wildfire risk has been increasing in Southern California, residential and commercial development has occurred and is occurring in some of the highest-risk areas. Such factors can increase the likelihood and extent of wildfires. SCE has determined that approximately 27% of its service territory is in areas identified as high fire risk.

California has experienced unprecedented weather conditions in recent years and SCE's service territory remains susceptible to additional wildfire activity in 2021 and beyond. The worsening 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 weather and fuel 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 suppression capabilities.

In addition to the investments SCE is making through its WMP, SCE also uses its PSPS program to proactively de-energize power lines to mitigate the risk of catastrophic wildfires during extreme weather events. SCE initiated PSPS 12 times in 2020 as part of its wildfire mitigation efforts, impacting an aggregate of approximately 140,000 unique customers. In January 2021, the President of the CPUC sent SCE a letter expressing her concern regarding SCE's execution of PSPS in 2020 and notifying SCE that it must implement a PSPS action plan to reduce the impacts of PSPS on the customers and communities it serves. On a risk-informed basis, SCE is making efforts to reduce the frequency and impacts of PSPS in 2021 as compared to 2020, assuming that weather patterns in 2021 are similar to those experienced in 2020. 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 reliance on PSPS.

Edison International and SCE have incurred material losses in connection with the 2017/2018 Wildfire/Mudslide Events described below. Several wildfires have originated in Southern California subsequent to 2018, however, Edison International and SCE expect that any losses incurred in connection with these fires will be covered by insurance, subject to self-insured retentions and co-insurance, and expect that any such losses after insurance recoveries will not be material.

Edison International and SCE accrued estimated losses of $1,328 million in 2020 for wildfire-related claims, net of expected insurance recoveries. The 2020 charge consists of an increase in estimated losses for claims related to the 2017/2018 Wildfire/Mudslide Events of $1,297 million, against which SCE has recorded expected recoveries through FERC electric rates of $84 million. The resulting charge was $1,213 million ($874 million after-tax). The 2020 charge also includes $31 million ($21 million after FERC recovery and after-tax) of expenses primarily associated with self-insured retention related to the 2019/2020 Wildfires.

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. The investigating government agencies, the VCFD and California Department of Forestry and Fire Protection ("CAL FIRE"), have determined that the largest of the 2017 fires in SCE's territory originated on December 4, 2017, in the Anlauf Canyon area of Ventura County (the investigating agencies refer to this fire as the "Thomas Fire"), followed shortly thereafter by the Koenigstein Fire. The December 4, 2017 fires eventually burned substantial acreage in both Ventura and Santa Barbara Counties. The largest of the November 2018 fires in SCE's territory, known as the Woolsey Fire, originated in Ventura County and burned acreage in both Ventura and Los Angeles Counties.

In March 2019, the VCFD and CAL FIRE jointly issued separate reports finding that the Thomas Fire and the Koenigstein Fire were each caused by SCE equipment. At this time, based on available information, SCE has not determined whether its equipment caused the Thomas Fire. Based on publicly available radar data showing a smoke plume in the Anlauf Canyon area emerging in advance of the start time of the Thomas Fire indicated in the Thomas Fire report, SCE believes that the Thomas Fire started at least 12 minutes prior to any issue involving SCE's system and at least 15 minutes prior to the start time indicated in the report. SCE has previously disclosed that SCE believed its equipment was associated with the ignition of the Koenigstein Fire. SCE is continuing to assess the extent of damages that may be attributable to the Thomas Fire and the Koenigstein Fire.

SCE has received a non-final redacted draft of a report from the VCFD which states that the VCFD investigation team determined that electrical equipment owned and operated by SCE was the cause of the Woolsey Fire. Absent additional evidence, SCE believes that it is likely that its equipment was associated with the ignition of the Woolsey Fire.

Multiple lawsuits related to the Thomas and Koenigstein Fires and the Woolsey Fire have been initiated against SCE and Edison International. Some of the Thomas and Koenigstein Fires lawsuits claim that SCE and Edison International have responsibility for the damages caused by the Montecito Mudslides that occurred in January 2018 based on a theory alleging that SCE has responsibility for the Thomas and/or Koenigstein Fires and further alleging that the Thomas and/or Koenigstein Fires proximately caused the Montecito Mudslides.

Under the terms of the TKM Subrogation Settlement that Edison International and SCE entered into in the third quarter of 2020, all of the TKM Subrogation Plaintiffs' collective claims arising from the Thomas Fire, Koenigstein Fire or Montecito Mudslides have been resolved. Under the terms of the TKM Subrogation Settlement, SCE has paid the TKM Subrogation Plaintiffs an aggregate of $1.2 billion and also agreed to pay $0.555 for each dollar in claims to be paid by the TKM Subrogation Plaintiffs to their policy holders on or before July 15, 2023, up to an agreed upon cap. In 2020 SCE also entered into settlements with individual plaintiffs in the 2017/2018 Wildfire/Mudslide Events litigation under which it agreed to pay an aggregate of approximately $300 million to those individual plaintiffs.

At December 31, 2019, Edison International and SCE were unable to determine a best estimate of expected losses within a reasonably estimated range and therefore Edison International's and SCE's consolidated balance sheets included estimated losses, established at the lower end of the reasonably estimated range of expected losses, of $4.5 billion for the 2017/2018 Wildfire/Mudslide Events. In light of the TKM Subrogation Settlement and increased settlement activity with individual plaintiffs in the 2017/2018 Wildfire/Mudslide Events litigation, among other things, management established a best estimate of expected potential losses for alleged and potential claims related to the 2017/2018 Wildfire/Mudslide Events litigation in the third quarter of 2020. As a result, Edison International and SCE recorded a charge of $1.3 billion in September 2020 related to the 2017/2018 Wildfire/Mudslide Events, against which SCE recorded expected recoveries through FERC electric rates of $84 million. The resulting net pre-tax charge to earnings was $1.2 billion ($874 million after-tax).

Through December 31, 2020, Edison International and SCE have recorded total pre-tax charges of $6.2 billion, expected recoveries from insurance of $2.0 billion and expected recoveries through FERC electric rates of $233 million related to the 2017/2018 Wildfire/Mudslide Events. The after-tax net charges to earnings recorded through December 31, 2020 have been $2.9 billion.

As of December 31, 2020, SCE had paid $1.8 billion under settlements related to the 2017/2018 Wildfire/Mudslide Events, of which $1.3 billion has been recovered through insurance and $144 million has been recovered through FERC-jurisdictional electric rates.

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. Under AB 1054, 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. 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 reasonable. 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 standard will survive the termination of the Wildfire Insurance Fund (described below).

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.

AB 1054 provided for the Wildfire Insurance Fund to reimburse a utility for payment of 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. The Wildfire Insurance Fund was established in September 2019 and is available for claims related to wildfires ignited after July 12, 2019 that are determined by the responsible government investigatory agency to have been caused by a utility.

SCE and SDG&E collectively made their initial contributions totaling approximately $2.7 billion to the Wildfire Insurance Fund 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 Wildfire Insurance Fund. PG&E, SCE and SDG&E are also collectively expected to make aggregate contributions of approximately $3.0 billion to the Wildfire Insurance Fund through annual contributions to the fund over a 10-year period, of which they have made two annual contributions totaling approximately $600 million. In addition to PG&E's, SCE's and SDG&E's contributions to the Wildfire Insurance Fund, 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 Insurance 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 Insurance 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 Insurance Fund.

Through December 31, 2020, SCE has contributed approximately $2.6 billion to the Wildfire Insurance Fund and has committed to make eight annual contributions of approximately $95 million per year to the fund, by no later than January 1 of each year. Edison International supported SCE's initial contribution of $2.4 billion to the Wildfire Insurance Fund by raising $1.2 billion from the issuance of Edison International equity. SCE raised the remaining $1.2 billion from the issuance of long-term debt. SCE's contributions to the Wildfire Insurance Fund will not be 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 Insurance Fund.

Participating investor-owned utilities will be reimbursed from the Wildfire Insurance Fund for eligible claims, 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, in some instances, 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 rate base 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.

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 requests a new safety certification prior to the expiration of its current safety certification, then its current safety certification will remain valid until the WSD acts on SCE's request for a new safety certification.

Under AB 1054, SCE is required to submit a WMP to the CPUC at least once every three years for review and approval. Beginning in 2020, each such plan was required to cover at least a three-year period. SCE filed its 2020 – 2022 WMP in February 2020. In June 2020, the CPUC ratified the WSD's conditional approval of SCE's 2020 – 2022 WMP. The approval is conditioned on SCE providing requested information to the WSD, including additional descriptions of how SCE is implementing, and will implement, certain requirements imposed by the WSD. SCE filed an update to its 2020 – 2022 WMP on February 5, 2021 to, among other things, report on implementation of its plan in 2020 and describe new and ongoing wildfire mitigation activities.

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 December 31, 2020, SCE has spent $1.3 billion on AB 1054 Excluded Capital Expenditures and expects to spend the remainder of the AB 1054 Excluded Capital Expenditures in the first quarter of 2021. SCE issued securitized bonds in the amount of $338 million in February 2021 and expects to seek additional irrevocable orders from the CPUC to finance the remaining AB 1054 Excluded Capital Expenditures.

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" and "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Southern California Wildfires and Mudslides."

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. Edison International and SCE have taken steps to mitigate the impacts to operations, with all employees who, in the companies' assessment, can work remotely and perform their job functions effectively, directed to do so. Employees and contract workers designated by California as essential workers continue to work at SCE facilities or in the field to maintain operations and perform critical work to protect public safety and reduce the risk of wildfires. Edison International and SCE have modified work practices, provided personal protective equipment and provided additional employee benefits, among other measures, to reduce the impacts of the pandemic on their workforce.

In March 2020, the governor of California announced a statewide emergency as part of the state's response to address the COVID-19 pandemic. As a result, SCE established memorandum accounts with CPUC approval, effective March 2020, to track incremental costs associated with the emergency for recovery, subject to CPUC reasonableness reviews.

As a direct result of the pandemic, as of December 31, 2020, SCE has recognized net incremental costs of $191 million primarily related to increased estimates of customer uncollectibles, sequestering certain SCE employees at essential work locations and coordination of SCE's response to the emergency, $176 million has been deferred to memorandum accounts for future CPUC reasonableness review and $15 million has been transferred to balancing accounts pending recovery.

For further information see "Notes to the Consolidated Financial Statements—Note 11. Regulatory Assets and Liabilities" and "Risk Factors." Legislation was passed in California in September 2020 allowing for securitization of revenue shortfalls associated with the economic effects of the COVID-19 pandemic, subject to approval of a financing order by the CPUC.

The 2021 GRC consists of four separate tracks. Track 1 is similar to previous GRCs and addresses revenue requirements for the three-year period 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. In January 2020, a CPUC decision introduced a third attrition year in current and future GRCs. As a result, track 4 will address the revenue requirement for 2024. SCE is scheduled to submit its testimony for track 4 in May 2022.

In January 2021, the CPUC approved a settlement between SCE and all the parties to track 2 of the 2021 GRC proceeding (collectively, the "Track 2 Parties"). As a result of the CPUC approval of the GRC track 2 settlement, an additional $41 million ($29 million after-tax) of operations and maintenance expenses were deferred in the fourth quarter of 2020 as probable of recovery. The revenue requirement under the settlement was $391 million. For more information on tracks 2 and 3 of the 2021 GRC, see "Liquidity and Capital Resources—SCE—Regulatory Proceedings—Wildfire Related Regulatory Proceedings—2021 General Rate Case Wildfire Mitigation Memorandum Account Balances."

In the 2021 GRC, SCE has requested a test year revenue requirement of $7.6 billion, an approximately $1.3 billion increase over the 2020 revenue requirement authorized in the 2018 GRC as updated for post test-year ratemaking changes. SCE's request proposes post test-year increases in 2022 and 2023 of $452 million and $524 million, respectively. SCE's request excludes the revenue requirement associated with the approximately $1.6 billion of AB 1054 Excluded Capital Expenditures.

SCE's requested increase to its revenue requirement in the 2021 GRC application is largely due to SCE's efforts to reduce wildfire risk. Certain of SCE's key wildfire mitigation forecast expenditures are subject to significant potential volatility. As a result, SCE has proposed establishing two-way balancing accounts for wildfire mitigation-related enhanced vegetation management, inspection activities and grid hardening, as well as for insurance premiums.

The capital programs requested in SCE's 2021 GRC include the infrastructure and programs necessary to implement California's ambitious public policy goals, including wildfire mitigation, de-carbonization of the economy through electrification and integration of distributed energy resources across a rapidly modernizing grid. See "—Capital Program" for further details.

In an amendment submitted in February 2020, SCE removed its CSRP implementation costs from the 2021 GRC. SCE will continue to track the cost of the CSRP implementation in a memorandum account previously approved in the 2018 GRC and seek recovery of the CSRP implementation costs in a future application to be filled with the CPUC.

In April and May 2020, intervenors to the 2021 GRC proceeding, including the CPUC Public Advocates Office ("Cal Advocates") and The Utility Reform Network ("TURN"), submitted testimony in response to SCE's August 2019 application as revised and amended. Cal Advocates proposed reductions to 2021 operation and maintenance spending of $423 million or 15% of the total, and reductions to 2021 capital spending of $445 million or 9% of the total. TURN proposed reductions to 2021 operation and maintenance spending of $556 million or 17% of the total, and reductions to 2021 capital spending of $714 million or 14% of the total. The reductions to capital expenditures proposed by both parties included significant proposed reductions to SCE's Wildfire Covered Conductor Program. If adopted, the proposals of Cal Advocates and TURN would result in a 2021 revenue requirement of approximately $6.9 billion and $6.7 billion, respectively.

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 is currently incurring wildfire mitigation, wildfire insurance and wildfire and drought restoration related spending at levels significantly exceeding amounts authorized in its 2018 GRC. Several regulatory mechanisms exist to allow SCE to track and seek recovery of these incremental costs through customer rates, or issuance of securitized bonds for AB 1054 Excluded Capital Expenditures. In accordance with the accounting standards applicable to rate-regulated enterprises, SCE defers costs as regulatory assets that are probable of future recovery from customers. For certain wildfire mitigation and wildfire insurance expenses SCE performs its assessment of future recovery after its year to date spending exceeds the amounts authorized for the full calendar year under its current revenue requirement.

As of December 31, 2020, SCE has recognized $886 million of regulatory assets related to incremental wildfire mitigation expenses, including depreciation expense from $1.6 billion of total incremental wildfire mitigation capital expenditures. Additionally, SCE has recognized $356 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. In 2020, the CPUC has approved recovery of certain incremental wildfire mitigation and wildfire insurance expenses through SCE's GS&RP and WEMA proceedings. The following table presents changes in wildfire-related and wildfire and drought restoration memorandum account balances in 2020:

At December 31, 2020, the balance includes $405 million of expense approved for recovery in the GRC track 2 proceeding. In February 2021, SCE indicated its intent to seek a financing order from the CPUC to securitize the approved expense. In the event these costs are not authorized for securitization, SCE will include the costs in customer rates as soon as practicable.

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

The electric power industry is undergoing transformative change driven by technological advances, such as customer-owned generation, electric vehicles and energy storage, which are altering the nature of energy generation and delivery. California is committed to reducing its GHG emissions, improving local air quality and supporting continued economic growth. The state set goals to reduce GHG emissions by 40% from 1990 levels by 2030 and 80% from the same baseline by 2050. Additionally, the state is aiming to be carbon neutral by 2045. State and local air quality plans call for substantial improvements. In the most polluted areas of the state this includes reducing smog-causing nitrogen oxides 90% below 2010 levels by 2032. While these policy goals cannot be achieved by the electric sector alone, the electric grid is a critical enabler of the adoption of new energy technologies that support California's climate change and GHG reduction objectives. Therefore, California has set RPS targets which require California retail sellers of electricity to provide 60% of energy sales from renewable resources by 2030. California also requires sellers of electricity to deliver 100% of retail sales from carbon free sources by 2045. In 2020 approximately 43% of SCE's customer deliveries came from carbon-free resources. SCE anticipates it will meet California's requirements through 2045.

The new federal administration has also signaled support for increased measures to respond to climate change and to achieve carbon neutrality by 2050 by having the United States rejoin the Paris Agreement in January 2021 and by issuing executive orders that aim to electrify federal fleets and set electric vehicle charging goals.

Edison International believes that California's 2045 goals can be achieved most economically through emissions reductions from using clean electricity serving 100% of retail sales, electrifying 76% of light-duty vehicles, 67% of medium-duty vehicles, 38% of heavy-duty vehicles, 85% of buses and 70% of buildings and using low-carbon fuels for technologies that are not yet viable for electrification. California has shown strong long-term support of transportation electrification. as shown by the approval of SCE’s Charge Ready 2 program and the Governor of California's September 2020 Executive Order banning sales of new gas vehicles by 2035.

To support these goals, Edison International’s vision is to lead the transformation of the electric power industry and the company is focused on opportunities in delivering clean energy, advancing efficient electrification, building a modernized and more reliable grid, and enabling customers' technology choices. SCE is focused on improving the safety, reliability and resilience of the transmission and distribution network and enabling increased penetration of DERs, electric transportation, building electrification and energy efficiency programs. SCE's ongoing focus to drive operational and service excellence is intended to allow it to achieve these objectives safely while controlling costs and customer rates. SCE's focus on the transmission and distribution of electricity aligns with California's policy supporting competitive power procurement markets. For more information on the grid development, see "Liquidity and Capital Resources—SCE—Capital Investment Plan—Grid Development—Wildfire Mitigation" and "Liquidity and Capital Resources—SCE—Capital Investment Plan—Grid Development—Transportation Electrification."

Changes in the electric power industry are impacting customers and jurisdictions outside California as well. Edison International believes that other states will also pursue climate change and GHG reduction objectives and large commercial and industrial customers will continue to pursue cost reduction and sustainability goals. Edison Energy provides data-driven energy solutions to commercial, institutional and industrial customers who may be impacted by these changes. Edison Energy aims to provide energy solutions that address cost, carbon and complex choices for their customers.

To better engage in this broader transformation and provide a view of developments outside of SCE, Edison International has made several minority investments in emerging companies in areas related to the technology changes that are driving industry transformation and may make additional investments in the future. These investments are not financially material to Edison International.

Total capital expenditures (including accruals) were $5.5 billion in 2020 and $4.8 billion in 2019. SCE's year-end rate base was $34.7 billion at December 31, 2020 compared to $32.6 billion at December 31, 2019, after excluding rate base associated with AB 1054 Excluded Capital Expenditures of $875 million at December 31, 2020 and $252 million at December 31, 2019.

In connection with the 2021 GRC, SCE forecasts capital expenditures of $14.7 billion to $16.2 billion for 2021– 2023. In the absence of a 2021 GRC decision, SCE has developed, and is executing against, a 2021 capital expenditure plan that will allow SCE to meet what is ultimately authorized in the 2021 GRC decision while minimizing the associated risk of unauthorized spending.

The table below reflects capital expenditures for 2021 based on planned CPUC jurisdictional spending and current management expectations of FERC- jurisdictional spending. CPUC jurisdictional spending includes amounts requested in the

2021 GRC, updated in rebuttal testimony, spending associated with SCE's wildfire mitigation-related capital expenditures under the GS&RP and WMP, and other non-GRC CPUC capital spending. The CPUC jurisdictional capital spending in 2022 and 2023 will be dependent upon the amount approved in a final 2021 GRC decision. Forecasted expenditures for FERC capital projects are subject to change due to timeliness of permitting, licensing, regulatory approvals, and contractor bids.

SCE's forecasted capital expenditures for 2021 include approximately $113 million of capital spending on the CSRP project. Total forecasted capital expenditures for the CSRP project are approximately $540 million from inception through 2021. In the 2021 GRC, SCE provided a cost estimate to the CPUC of $308 million in capital expenditures for the CSRP program. In February 2020, SCE filed an update with the CPUC to exclude CSRP implementation costs from rate base and capital expenditures of the 2021 GRC application and to defer review of the reasonableness of the capital expenditures to a future regulatory proceeding SCE expects to file in 2021.

Based on management judgment using historical precedent of previously authorized amounts and potential permitting delays and other operational considerations, a range case has been provided reflecting a 10% reduction on the total capital forecast over the three-year period, 2021 – 2023. 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.

The following table sets forth a summary of capital expenditures for 2020 actual spend and a forecast for 2021 – 2023 on the basis described above:

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 2020 – 2023 incorporating CPUC capital expenditures authorized in the 2018 GRC final decision, expected FERC capital expenditures, capital expenditures included in the 2021 GRC request and approved non-GRC projects or programs. The table below does not reflect the $1.3 billion of AB 1054 Excluded Capital Expenditures to December 31, 2020 or the planned $0.3 billion of such expenditures in 2021. The table below does not reflect rate base associated with non-GRC projects or programs that have not yet been approved by the CPUC, including CSRP and wildfire restoration costs. Inclusion of these in rate base will depend on the timing of regulatory approval. In addition, a third-party holds an option to invest up to $400 million in the West of Devers Transmission project at the estimated in-service date in May 2021. The rate base in the table below is reduced to reflect this option.

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

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

Earning activities were primarily affected by the following:

Cost-recovery activities were primarily affected by the following:

SCE's retail billed and unbilled revenue (excluding wholesale sales) was $12.5 billion, $11.4 billion and $11.7 billion for 2020, 2019 and 2018, respectively.

The 2020 revenue increase is primarily related to the 2018 GRC decision's escalation mechanism, the approval of the GS&RP balancing account, higher FERC revenue due to expected recoveries for the FERC portion of wildfire-related claims and higher cost-recovery activities related to authorization to recover 2018 – 2020 wildfire insurance costs that had been deferred as regulatory assets increasing expenses. See "—Cost-Recovery Activities" and "—Earnings Activities" for further details.

As a result of the CPUC-authorized decoupling mechanism, SCE earnings are not affected by changes in retail electricity sales (see "Business—SCE—Overview of Ratemaking Process").

SCE's income tax benefit increased by $48 million in 2020 compared to 2019. The effective tax rates were (41.7)% and (17.6)% for 2020 and 2019, respectively. SCE's effective tax rate is below the federal statutory rate of 21% primarily due to the CPUC's ratemaking treatment for the current tax benefit arising from certain property-related and other temporary differences, which reverse over time. The accounting treatment for these temporary differences results in recording regulatory assets and liabilities for amounts that would otherwise be recorded to deferred income tax expense. The effective tax rate decrease in 2020 is primarily due to the impact of lower pre-tax income, partially offset by the absence of tax benefit from the adoption of the 2018 GRC final decision and the absence of the 2019 changes in the allocation of deferred tax re-measurement between customers and shareholders that resulted from a CPUC resolution.

See "Notes to Consolidated Financial Statements—Note 8. Income Taxes" for a reconciliation of the federal statutory rate to the effective income tax rates.

Results of operations for Edison International Parent and Other includes amounts from other subsidiaries that are not significant as a reportable segment as well as intercompany eliminations.

The following table summarizes the results of Edison International Parent and Other:

SCE's ability to operate its business, fund capital expenditures and implement its business strategy is dependent upon its cash flow and access to the bank and capital markets. SCE's overall cash flows fluctuate based on, among other things, its ability to recover its costs in a timely manner from its customers through regulated rates, changes in commodity prices and volumes, collateral requirements, interest obligations, dividend payments to and equity contributions from Edison International, obligations to preference shareholders, and the outcome of tax and regulatory matters.

SCE's costs of accessing capital markets has increased due to the risks associated with wildfires in California. Wildfire activity and the COVID-19 pandemic may cause narrower access to, or further increased costs of accessing, bank and capital markets. For further details, see "Management Overview—COVID-19" and "—Available Liquidity."

In the next 12 months, SCE expects to fund its cash requirements through operating cash flows, capital market financings, and equity contributions from Edison International Parent, as needed. SCE also has availability under its credit facilities to fund cash requirements.

At December 31, 2020 SCE had spent approximately $1.3 billion of the total approximately $1.6 billion of AB 1054 Excluded Capital Expenditures, SCE expects to finance these amounts by issuing securitized bonds. In February 2021 SCE issued securitized bonds in the amount of $338 million. SCE expects to securitize the remaining balance of AB 1054 Excluded Capital Expenditures based on the timing of the CPUC approving wildfire mitigation capital expenditures and related financing costs. For further information, see "Management Overview—Southern California Wildfires and Mudslides." Prior to issuance of such bonds, SCE is using a term loan of $475 million and floating rate first and refunding mortgage bonds of $900 million to finance AB 1054 Excluded Capital Expenditures. Additionally, SCE has several credit facilities available to support its AB 1054 Excluded Capital Expenditures. For further information, see "—Available Liquidity."

SCE expects to issue additional debt to finance payments for future resolutions of claims related to the 2017/2018 Wildfire/Mudslide Events that exceed insurance. To enable SCE to issue the necessary debt and to allow Edison International and SCE to maintain investment grade credit ratings and based on SCE's best estimate of expected losses for remaining alleged and potential claims related to the 2017/2018 Wildfire/Mudslide Events, Edison International anticipates issuing securities with up to $1.0 billion of equity content to invest in SCE, during 2021.

In the third quarter of 2020, SCE redeemed $120 million of cumulative preferred stock, which were all of the outstanding shares of SCE's preferred stock, and $180 million of SCE's Series G Preference Stock. For further details, see "Notes to

Consolidated Financial Statements—Note 14. Equity." The redemption reduces the preferred equity component of SCE's capital structure from 9% to 5%, bringing it in line with the capital structure authorized in the 2020 Cost of Capital decision.

In January 2021, SCE issued $750 million and $150 million in first and refunding mortgage bonds due in 2051 and 2030, respectively. The proceeds were primarily used to repay SCE's commercial paper borrowings and for general corporate purposes.

SCE's long-term issuer credit ratings are at investment grade levels. However, during the third quarter of 2020, the S&P rating outlooks for all three investor-owned utilities in California were revised to negative due to unprecedented wildfire activity throughout California in August and September of 2020. SCE's ratings outlook from Moody's and Fitch has remained stable despite 2020 wildfire activity due to the reduced financial risk that wildfires pose to SCE following enactment of AB 1054. For further information, see "Management Overview—Southern California Wildfires and Mudslides."

SCE's credit ratings may be further affected if, among other things, regulators fail to successfully implement AB 1054 in a consistent and credit supportive manner or the Wildfire Insurance Fund is depleted by claims from catastrophic wildfires. The broad economic impacts of the COVID-19 pandemic may also affect SCE's credit ratings. For further information see "Management Overview—COVID-19" and "Risk Factors." Credit rating downgrades increase the cost and may impact the availability of short-term and long-term borrowings, including commercial paper, credit facilities, bond financings or other borrowings. In addition, some of SCE's power procurement contracts would require SCE to pay related liabilities or post additional collateral if SCE's credit rating were to fall below investment grade. Incremental collateral requirements for power procurement contracts resulting from a potential downgrade of SCE's credit rating to below investment grade are $31 million as of December 31, 2020. In addition, if SCE's credit rating falls below investment grade, it may be required to post up to $50 million in collateral in connection with its environmental remediation obligations, within 120 days of the end of the fiscal year in which the downgrade occurs. Furthermore, if SCE was downgraded below investment grade, counterparties may also institute new collateral requirements for future transactions. For further details, see "—Margin and Collateral Deposits."

The cost of capital mechanism set by the CPUC could impact SCE's results of operations and cash flows. The benchmark value for the current mechanism is the 12-month, October 1, 2018 through September 30, 2019, average Moody’s Baa utility bond yield of 4.5%. If the difference between the benchmark and the average of the same index for the 12-month period to September 30, 2021 exceeds 100-basis points, SCE's CPUC-authorized ROE will be adjusted for 2022 by half the amount of the difference (up or down). If the mechanism is triggered SCE's costs of long-term debt and preferred equity will also be adjusted for 2022 to reflect the then current embedded costs and projected interest rates. The average Moody's Baa utility bond yield between October 1, 2020 and January 31, 2021 was 3.17%. SCE is required to file its next cost of capital application by April 2022 for rates effective beginning January 2023. For further information see "Business—SCE—Overview of Ratemaking Process."

At December 31, 2020, SCE had cash on hand of $55 million.

The following table summarizes the status of SCE's credit facilities at December 31, 2020:

SCE may finance balancing account undercollections and working capital requirements to support operations and capital expenditures with commercial paper, its credit facilities or other borrowings, subject to availability in the bank and capital markets. As necessary, SCE will utilize its available liquidity, capital market financings, other borrowings or parent company contributions to SCE equity in order to meet its obligations as they become due, including costs related to the 2017/2018 Wildfire/Mudslide Events. For further information, see "Management Overview—Southern California Wildfires and Mudslides."

SCE's credit facilities and term loan require a debt to total capitalization ratio as defined in the applicable agreements of less than or equal to 0.65 to 1. At December 31, 2020, SCE's debt to total capitalization ratio was 0.51 to 1.

At December 31, 2020, SCE was in compliance with all financial covenants that affect access to capital.

Grid Safety and Resiliency Program

In April 2020, the CPUC approved a settlement agreement between SCE and certain parties to SCE's GS&RP proceeding. Under the settlement, SCE is authorized to spend approximately $599 million ($476 million capital) between 2018 and 2020. Upon approval by the CPUC in July 2020, SCE established a balancing account to track the difference between actual GS&RP costs and amounts authorized. SCE included the authorized revenue requirement, other than for $304 million of AB 1054 Excluded Capital Expenditures, in rates on October 1, 2020 and securitized the portion of AB 1054 Excluded Capital Expenditures. For further information, see "—SCE."

GS&RP capital expenditures through 2020 were $978 million, of which $502 million was above the authorized amount and will be subject to reasonableness review in track 3 of the 2021 GRC, described below. GS&RP incremental operations and

Wildfire Mitigation Plans

SCE's WMPs describe strategies, programs and activities that are in place, being implemented or are under development by SCE, including associated cost estimates, to reduce the risk of SCE equipment contributing to the ignition of wildfires.

SCE filed its 2020 – 2022 WMP and its 2021 update to its 2020 – 2022 WMP with the CPUC in February 2020 and February 2021, respectively. Many, but not all, of the programs and activities described in SCE's 2020 – 2022 WMP and the 2021 update are part of SCE's 2021 GRC requests or GS&RP application. For further information, see "Management Overview—Southern California Wildfires and Mudslides."

SCE recorded $229 million and $307 million of expenses in the WMP memorandum account during 2020 and 2019, respectively. WMP capital expenditures not authorized in the 2018 GRC or contemplated in the GS&RP proceedings were $190 million and $335 million during 2020 and 2019, respectively.

Expenses from 2018 and 2019 will be recovered in accordance with the GRC track 2 settlement. Expenses from 2020 are subject to reasonableness review through track 3 of the 2021 GRC, described below.

Fire Hazard Prevention Memorandum Account

The FHPMA was established to record the costs incurred related to fire hazard prevention in compliance with decisions from the CPUC. SCE has used the FHPMA to track incremental vegetation management activities undertaken to reduce the risk of fires. SCE recorded expenses of $252 million and $167 million during 2020 and 2019, respectively in the FHPMA.

Expenses from 2018 and 2019 will be recovered in accordance with the GRC track 2 settlement. Expenses from 2020 are subject to reasonableness review through track 3 of the 2021 GRC, described below.

2021 General Rate Case Wildfire Mitigation Memorandum Account Balances

SCE's GRC track 2 expenditures predominantly related to enhanced overhead inspections, an expanded vegetation management program and expert consultant contract labor costs supporting SCE's wildfire mitigation activities. The majority of these expenditures were recorded in the WMP memorandum account and the FHPMA described above.

In October 2020, SCE and the Track 2 Parties filed a motion with the CPUC seeking approval of a settlement among the Track 2 Parties regarding all issues in track 2. The settlement, approved by the CPUC on January 14, 2021, deemed all requested capital expenditures of $302 million and $401 million of operations and maintenance expenditures as reasonably incurred. The CPUC approval of the GRC track 2 settlement led to a $41 million adjustment to regulatory deferrals for 2018 – 2019. The revenue requirement under the settlement was $391 million, after adjusting for flow through taxes. Due to the determination that the AB 1054 Excluded Capital Expenditures associated with the GS&RP were reasonably incurred they were eligible for recovery through securitization, and were not part of the settlement revenue requirement. Securitization of the GS&RP capital expenditures subject to the settlement was completed in February 2021. For information on AB 1054 Excluded Capital Expenditures, see "Management Overview—Southern California Wildfires and Mudslides—2019 Wildfire Legislation—Capital Expenditure Requirement" and "Notes to Consolidated Financial Statements— Note 1. Summary of Significant Accounting Policies."

Incremental wildfire mitigation costs from 2020, including the $502 million of GS&RP capital expenditures above settled amounts, are to be reviewed in track 3 of the 2021 GRC proceeding, which will be filed in March 2021. The schedule for SCE's 2021 GRC includes a proposed decision on track 3 in the first quarter of 2022.

Wildfire Expense Memorandum Accounts

SCE tracks insurance premium costs related to wildfire liability insurance policies as well as other wildfire-related costs in its WEMAs. In September 2020, the CPUC approved SCE's WEMA application to recover $478 million in wildfire insurance premium costs to June 30, 2020 incurred in excess of premiums approved in the 2018 GRC and corresponding financing costs. The decision authorized SCE to collect a total revenue requirement of $505 million over a two-year period. SCE included the authorized revenue requirement in rates in October 2020 and the related costs previously deferred in WEMA were transferred to the BRRBA for collection from customers.

In December 2020, SCE filed a second WEMA application with the CPUC to seek recovery of $215 million of costs recorded in WEMA at December 31, 2020. The costs primarily related to incremental wildfire insurance premium expenses and

associated costs for wildfire liability insurance policies that provide coverage for the last six months of 2020. SCE has requested a final decision in the second WEMA proceeding that would allow these costs to be recovered in rates beginning in 2022.

Catastrophic Emergency Memorandum Accounts - Drought and 2017 Wildfires

In July 2019, SCE filed an application to recover $79 million in incremental operations and maintenance drought costs incurred from 2017 – 2018 and $8 million of wildfire restoration costs associated with 2017 wildfires. A CPUC decision is expected in the summer of 2021. SCE has continued to incur incremental costs associated with California's drought and at December 31, 2020, SCE has recorded $153 million in a CEMA in relation to these events, including amounts subject to the current proceeding.

2020 Emergency Wildfire Restoration

In June 2020, the CPUC issued a final decision on the first phase of the ongoing proceeding Order Instituting Rulemaking to Consider New Approaches to Disconnections and Reconnections to Improve Energy Access and Contain Costs ("Disconnections OIR"). This decision applies only to SCE's residential customers and requires the creation of an arrearage management program to forgive a portion of certain low income customers' past arrears as long as they remain current on monthly billing, prohibits use of establishment of credit or reestablishment of service deposits, and caps SCE's disconnection rate. SCE's disconnection rate will be capped at 8% in 2020 and will reduce by 1% each year until 2024.

The decision required SCE to establish a two-way balancing account to reflect the actual costs of disconnections in customer rates and to establish a memorandum account to track the costs of implementing the decision.

In November 2020, the CPUC approved SCE's residential uncollectible balancing account ("RUBA") and the residential disconnections implementation cost memorandum account resulting from the OIR to be effective beginning in June 11, 2020. In December 2020 the CPUC approved the arrearage management plan in line with proposals from SCE, PG&E and SDG&E to include costs for forgiven arrearages in the RUBA and collected through annual updates to customer rates.

The CPUC uses an energy efficiency incentive mechanism called the Efficiency Savings and Performance Incentive Mechanism ("ESPI") to promote energy efficiency programs through California's investor owned utilities. The ESPI is comprised of performance and savings rewards and management fees based on actual energy efficiency expenditures and does not contain any provisions for penalties. The ESPI schedule anticipates payments of the incentive rewards occurring between one and two years after the relevant program year.

SCE requested an award of approximately $10 million in incentives for activities in program years 2018 and 2019. The request was approved in February 2021. This will be the last award before the CPUC directed moratorium on energy efficiency incentive award earnings becomes effective for all IOUs starting in 2021, as the CPUC considers reforming the program for the goals of its current energy efficiency policy.

As a component of SCE's energy efficiency programs, from 2017 – 2019, SCE administered the Upstream Lighting Program, part of a statewide program administered by investor-owned utilities that offered discounted energy efficient light bulbs to customers through incentives to lighting manufacturers. The CPUC began investigating the programs administered by the investor-owned utilities based on reports that investor-owned utilities, including SCE, shipped a significant number of bulbs under the program that could not be tracked to customers. Beginning in January 2020, the CPUC has sought comments on remedies related to SCE's implementation of the Upstream Lighting Program from 2017 through 2019 program years. SCE undertook an independent investigation of bulbs shipped to retailers categorized as grocery and discount businesses during the 2017 to 2019 program years and found that there was overstocking of bulbs and program management shortcomings. Incentives paid to manufacturers for bulbs shipped to grocery and discount businesses during the relevant period, including those that were sold to customers, were approximately $91 million.

In January 2021, the Public Advocates Office and The Utility Reform Network provided comments to the CPUC arguing that SCE imprudently managed the program and requesting a total of $265 million refund to address the findings. For further information, refer to "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Upstream Lightening Program."

In September 2020, the FERC approved a settlement of SCE's formula rates for the 2019 Formula Rate case ("2019 Formula Rate Settlement"). The settlement establishes SCE's FERC transmission revenue requirement for the 2019 FERC Settlement Period. SCE is permitted to request a new formula rate after December 31, 2021, the end of the 2019 FERC Settlement Period. The settlement provides for a total ROE of 10.30% inclusive of CAISO and transmission incentive adders. The settlement also provides that SCE's capital structure for purposes of its formula rate will reflect the higher of SCE's actual equity ratio or 47.50%. The transmission revenue requirement and rates that have been billed to customers prior to the implementation of the 2019 Formula Rate Settlement utilized a base ROE of 11.97%. SCE expects to refund the excess amounts billed to customers through the operation of the Formula Rate in 2021 and 2022. SCE had been recognizing revenue based on the expected outcome of this settlement and the impact of recording the settlement was not material.

SCE filed its 2021 annual update with the FERC in November 2020, with the proposed rates effective January 1, 2021. The update reflects an increase in SCE's transmission revenue requirement of $124 million or 12.9% higher than amounts included in 2020 annual rates. The increase is primarily due to growth in rate base and the effect of refunds from the annual FERC Formula Rate true-up mechanism on 2020 rates.

A summary of SCE's most significant transmission and substation construction projects during the next three years is presented below. The timing of the projects below is subject to timely receipt of permitting, licensing and regulatory approvals.

The West of Devers Project consists of upgrading and reconfiguring approximately 48 miles of existing 220-kV transmission lines between the Devers, El Casco, Vista and San Bernardino substations, increasing the power transfer capabilities in support of California's renewable portfolio standards goals.

In January 2021, SCE notified the CAISO and Morongo Transmission LLC, of an estimated in-service date of May 15, 2021. SCE expects Morongo Transmission LLC to exercise an option to invest in the project within 30 days of the in-service date, subject to regulatory approvals. SCE expects to receive up to $400 million in the second or third quarter of 2021 as a result of the investment, which will reduce SCE's rate base as reflected in SCE's rate base forecast. For further details see "—Management Overview—Capital Program."

Mesa Substation

The Mesa Substation Project consists of replacing the existing 220-kV Mesa Substation with a new 500/220-kV substation. The Mesa Substation Project will address reliability concerns by providing additional transmission import capability, allowing greater flexibility in the siting of new generation, and reducing the total amount of new generation required to meet local reliability needs in the Western Los Angeles Basin area. In October 2019, SCE achieved first energization of the new substation. The remaining phases of construction will be put out for competitive bid and SCE expects that costs associated with the project may change as a result of the competitive bidding process. SCE anticipates project completion in the first quarter of 2022.

Riverside Transmission Reliability

The Riverside Transmission Reliability Project is a joint project between SCE and Riverside Public Utilities ("RPU"), the municipal utility department of the City of Riverside. While RPU would be responsible for constructing some of the project's facilities within Riverside, SCE's portion of the project consists of constructing upgrades to its system, including a new 230-kV Substation; certain interconnection and telecommunication facilities and transmission lines in the cities of Riverside, Jurupa Valley and Norco and in portions of unincorporated Riverside County. The purpose of the project is to provide RPU and its customers with adequate transmission capacity to serve existing and projected load, to provide for long-term system capacity for load growth, and to provide needed system reliability.

In October 2018, the CPUC issued an environmental report that identified a new route alternative, as the environmentally preferred project and proposed an additional underground section of the proposed 220-kV power line. In March 2020, the alternative project with revised scope and an updated cost of $584 million was approved by CPUC. The scheduled in-service date of the project has been extended from 2024 to 2026.

In June 2020, SCE filed a petition with the FERC seeking authorization to recover SCE's prudently incurred costs if the project is cancelled or abandoned for reasons beyond SCE's control, and inclusion of 100% of the project's network transmission Construction Work In Progress in transmission rate base during the construction period. In September 2020, the FERC issued orders granting SCE's requests. SCE is allowed to seek recovery of 100% of all prudently incurred costs after September 17, 2020 and 50% of prudently incurred costs prior to that date.

Alberhill System

The Alberhill System Project would consist of constructing a new 500-kV substation, two 500-kV transmission lines to connect the proposed substation to the existing Serrano-Valley 500-kV transmission line, telecommunication equipment and subtransmission lines in unincorporated and incorporated portions of western Riverside County. The project was designed to meet long-term forecasted electrical demand in the proposed Alberhill System Project area and to increase electrical system reliability and resiliency. In August 2018, the CPUC issued a decision that did not deny or approve the Alberhill System Project but directed SCE to submit supplemental information on the Alberhill System Project including but not limited to a load forecast and cost benefit analysis of several alternatives to the proposed project. Ongoing capital spending has been deferred as a result of the CPUC request for additional information. In January 2020, SCE submitted a supplemental analysis to the CPUC for the Alberhill System Project including several system alternatives to the proposed project as well as an update to the original project cost. A final decision on the Alberhill System Project is pending based on the supplemental analysis. Given the uncertainty associated with the resolution of the permitting process, potential revisions to the project have not been reflected in total direct expenditures. SCE continues to believe a system solution is needed for the project area but is unable to predict the timing of a final CPUC decision in connection with the Alberhill System Project proceeding.

Approximately 48% of the Alberhill System Project costs spent to date would be subject to recovery through CPUC revenue and 52% through FERC revenue. In October 2017, SCE obtained approval from the FERC for abandoned plant treatment for the Alberhill System Project, which allows SCE to seek recovery of 100% of all prudently incurred costs after the approval date and 50% of prudently incurred costs prior to the approval date. Excluding land costs, which may be recovered through sale to a third party, SCE has incurred approximately $50 million of direct capital expenditures, including direct division overhead costs, as of December 31, 2020, of which approximately $36 million may not be recoverable if the project is cancelled.

Eldorado-Lugo-Mohave Upgrade

The Eldorado-Lugo-Mohave Upgrade Project will increase capacity on existing transmission lines to allow additional renewable energy to flow from Nevada to southern California. The project would modify SCE's existing Eldorado, Lugo, and Mohave electrical substations to accommodate the increased flows from Nevada to southern California; increase the power flow through the existing 500-kV transmission lines by constructing two new capacitors along the lines; raise transmission

tower heights to meet ground clearance requirements; and install fiber optics on the transmission lines to provide communications between existing SCE substations. In April 2019, as directed by the CPUC, SCE filed an amended application for a certificate of public convenience and necessity ("CPCN") with the CPUC for project costs totaling $257 million. A subsequent change to the project work scope reduced the project total cost to $247 million, a decrease of $10 million as compared to when the amended application was filed. In August 2020, the CPUC approved the CPCN for the project. Construction for the project began in November 2020 and the project is expected to be operational in June 2022. On January 20, 2021, the Secretary of the Interior issued a suspension order that effectively placed a 60-day hold on any new project construction on federal land. The new order may delay when the project becomes operational.

See "—Regulatory Proceedings—Wildfire Related Regulatory Proceedings."

Charge Ready Programs

In January 2016, the CPUC approved SCE's $22 million Charge Ready Pilot, which allowed SCE to install light-duty electric vehicle charging infrastructure, provide rebates to offset the cost of qualified customer-owned charging stations, and implement a supporting marketing, education and outreach campaign. In December 2018, the CPUC approved Charge Ready Bridge, an additional $22 million of bridge funding to continue electrification efforts while the application for Charge Ready 2 was pending. As of December 31, 2020, SCE completed construction at 81 sites to support 1,301 charge ports under Charge Ready Pilot, and 63 sites to support 1,419 charge ports under Charge Ready Bridge.

In August 2020, the CPUC approved SCE's Charge Ready 2 program. The final decision authorized a budget of $436 million ($314 million capital) in 2018 dollars for a four-year program to support approximately 37,800 light-duty electric vehicle charging ports through an infrastructure program, rebates for charging infrastructure in new multi-unit dwelling construction, and marketing, education, and outreach. The program is expected to add approximately $400 million to SCE's rate base by 2026.

Medium- and Heavy-Duty Vehicle Transportation Electrification

In January 2017, SCE filed an application with the CPUC requesting approval of transportation electrification programs to accelerate the adoption of electric transportation, which is critical to California's climate change and GHG reduction objectives. In May 2018, the CPUC issued a final decision approving a five-year program to install charging infrastructure to support the electrification of 8,490 medium- and heavy-duty electric vehicles at 870 sites, which must be fully contracted for by 2024. The final decision includes an approved five-year budget of $356 million ($242 million capital) in nominal dollars. SCE expects to propose additional programs and pilots in the future.

The decommissioning of a nuclear plant requires the management of three related activities: radiological decommissioning, non-radiological decommissioning and the management of spent nuclear fuel. SCE has engaged a decommissioning general contractor to undertake a significant scope of decommissioning activities for Units 1, 2 and 3 at San Onofre. The decommissioning of San Onofre is expected to take many years.

Decommissioning of San Onofre Unit 1 began in 1999 and the transfer of spent nuclear fuel from Unit 1 to dry cask storage in the Independent Spent Fuel Storage Installation ("ISFSI") was completed in 2005. Major decommissioning work for Unit 1 has been completed except for certain underground work.

Decommissioning of San Onofre Units 2 and 3 began in June 2013 and the transfer of spent nuclear fuel from San Onofre Units 2 and 3 to dry cask storage in the ISFSI was completed in August 2020. In October 2019, the California Coastal Commission approved SCE's application for the Coastal Development Permit, the principal discretionary permit required to start major decommissioning activities at San Onofre Units 1 and 2. In August 2020, SCE commenced major decommissioning activities at San Onofre in accordance with the terms of the permit. In 2021, SCE will continue major decommissioning activities in accordance with the terms of the permit, subject to any court rulings in a proceeding brought in December 2019 to challenge the California Coastal Commission's issuance of the permit.

In December 2018, SCE updated its decommissioning cost estimate for decommissioning activities to be completed at San Onofre Units 2 and 3 to $3.4 billion (SCE share is $2.5 billion) in 2017 dollars. That decommissioning cost estimate included costs through the expected decommissioning completion date, then estimated to be in 2051 for San Onofre Units 2 and 3. SCE anticipates updating its decommissioning cost estimate for San Onofre Units 2 and 3, including expected

decommissioning completion dates, in 2021. Decommissioning cost estimates are subject to a number of uncertainties including the cost of disposal of nuclear waste, cost of removal of property, site remediation costs as well as a number of other assumptions and estimates, including when the federal government will provide for either interim or permanent off-site storage of spent nuclear fuel enabling the removal and transport of spent fuel canisters from the San Onofre site, as to which there can be no assurance. Cost estimates are subject to change as decommissioning proceeds and such changes may be material.

SCE had nuclear decommissioning trust funds for San Onofre Units 2 and 3 of $2.9 billion as of December 31, 2020. Based upon the resolution of a number of uncertainties, including the cost and timing of nuclear waste disposal, the time it will take to obtain required permits, cost of removal of property, site remediation costs, the financial performance of the nuclear decommissioning trust fund investments, as well as the resolution of a number of other assumptions and estimates, additional contributions to the nuclear decommissioning trust funds may be required. If additional contributions to the nuclear decommissioning trust funds become necessary, SCE will seek recovery of such additional funds through electric rates and any such recovery will be subject to a reasonableness review by the CPUC. Cost increases resulting from contractual disputes or significant permitting delays, among other things, could cause SCE to materially overrun the decommissioning cost estimate and could materially impact the sufficiency of trust funds.

CPUC holding company rules require that SCE's dividend policy be established by SCE's Board of Directors on the same basis as if SCE were a stand-alone utility company, and that the capital requirements of SCE, as deemed to be necessary to meet SCE's electricity service obligations, shall receive first priority from the Boards of Directors of both Edison International and SCE. In addition, the CPUC regulates SCE's capital structure which limits the dividends it may pay to its shareholders.

Effective January 1, 2020, the common equity component of SCE's CPUC authorized capital structure was increased from 48% to 52% on a weighted average basis over the January 1, 2020 to December 31, 2022 compliance period. For further information, see "Business—SCE—Overview of Ratemaking Process." Under AB 1054, the impact of SCE's contributions to the Wildfire Insurance Fund are excluded from the measurement of SCE's CPUC-jurisdictional authorized capital structure. For further information, see "Management Overview—Southern California Wildfires and Mudslides."

In May 2020, the CPUC issued a decision on SCE's application to the CPUC for waiver of compliance with its equity ratio requirement, that allows SCE to exclude from its equity ratio calculations (i) net charges accrued in connection with the 2017/2018 Wildfire/Mudslide Events and (ii) debt issued for the purpose of paying claims related to the 2017/2018 Wildfire/Mudslide Events up to an amount equal to the net charges accrued in connection with the 2017/2018 Wildfire/Mudslide Events. The temporary exclusion will lapse on May 7, 2022 or when a determination regarding cost recovery for the 2017/2018 Wildfire/Mudslide Events is made, whichever comes earlier. If the CPUC has not made a determination regarding cost recovery by May 7, 2022, SCE is permitted to file another application for a waiver of compliance with its equity ratio requirement. In the interim, SCE is required to notify the CPUC if an adverse financial event reduces SCE's spot equity ratio by more than one percent from the level most recently filed with the CPUC in the proceeding. The last spot equity ratio SCE filed with the CPUC in the proceeding did not exclude the then $1.8 billion net charge and was 45.2% as of December 31, 2018 (at the time the common equity component of SCE's CPUC authorized capital structure was required to remain at or above 48% on a weighted average basis over the applicable 37-month period). SCE's spot equity ratio on December 31, 2018 would have been 48.7% had the $1.8 billion net charge at December 31, 2018 been excluded, therefore SCE will notify the CPUC if its spot ratio drops below 47.7% in any quarter. For further information, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Southern California Wildfires and Mudslides."

SCE monitors its compliance with the CPUC's equity ratio requirement based on the weighted average of the common equity component of SCE's CPUC authorized capital structure over the Capital Structure Compliance Period using its actual capital structure from the beginning of the Capital Structure Compliance Period through the reporting date together with forecasted performance and expected financing activities for the remainder of the Capital Structure Compliance Period. SCE expects to be compliant with its CPUC authorized capital structure at December 31, 2022.

As a California corporation, SCE's ability to pay dividends is also governed by the California General Corporation Law. California law requires that for a dividend to be declared: (a) retained earnings must equal or exceed the proposed dividend, or (b) immediately after the dividend is made, the value of the corporation's assets must exceed the value of its liabilities plus

amounts required to be paid, if any, in order to liquidate stock senior to the shares receiving the dividend. Additionally, a California corporation may not declare a dividend if it is, or as a result of the dividend would be, likely to be unable to meet its liabilities as they mature. Prior to declaring dividends, SCE's Board of Directors evaluates available information, including when applicable, information pertaining to the 2017/2018 Wildfire/Mudslide Events, to ensure that the California law requirements for the declarations are met. On February 25, 2021, SCE declared a dividend to Edison International of $325 million.

The timing and amount of future dividends are also dependent on a number of other factors including SCE's requirements to fund other obligations and capital expenditures, its ability to access the capital markets, and generate operating cash flows and earnings. If SCE incurs significant costs related to catastrophic wildfires, including the 2017/2018 Wildfire/Mudslide Events, and is unable to recover such costs through insurance, the Wildfire Insurance Fund (for fires after July 12, 2019), or from customers or is unable to access capital markets on reasonable terms, SCE may be limited in its ability to pay future dividends to Edison International and its preference shareholders.

Certain derivative instruments, power and energy procurement contracts and other contractual arrangements contain collateral requirements. In addition, certain environmental remediation obligations require financial assurance that may be in the form of collateral postings. Future collateral requirements may differ from the requirements at December 31, 2020 due to the addition of incremental power and energy procurement contracts with collateral requirements, if any, the impact of changes in wholesale power and natural gas prices on SCE's contractual obligations, and the impact of SCE's credit ratings falling below investment grade.

The table below provides the amount of collateral posted by SCE to its counterparties as well as the potential collateral that would have been required as of December 31, 2020 if SCE's credit rating had been downgraded to below investment grade as of that date. The table below also provides the potential collateral that could be required due to adverse changes in wholesale power and natural gas prices over the remaining lives of existing power and energy procurement contracts.

In addition to amounts shown in the table, power and fuel contract counterparties may also institute new collateral requirements, applicable to future transactions to allow SCE to continue trading in power and fuel contracts at the time of a downgrade. Furthermore, SCE may also be required to post up to $50 million in collateral in connection with its environmental remediation obligations, within 120 days of the end of the fiscal year in which the downgrade occurs.

SCE's cash flows are affected by regulatory balancing and memorandum accounts overcollections or undercollections. Overcollections and undercollections represent differences between cash collected in current rates for specified forecasted costs and the costs actually incurred. With some exceptions, SCE seeks to adjust rates on an annual basis or at other designated times to recover or refund the balances recorded in its balancing accounts. Undercollections or overcollections in these balancing and memorandum accounts impact cash flows and can change rapidly. Undercollections and overcollections generally accrue interest based on a three-month commercial paper rate published by the Federal Reserve.

In the next 12 months, Edison International expects to fund its net cash requirements through cash on hand, dividends from SCE, and capital market and bank financings. Edison International may finance its ongoing cash requirements, including common stock dividends, working capital requirements, payment of obligations, and capital investments, including capital contributions to subsidiaries, with short-term or other financings, subject to availability in the bank and capital markets.

Edison International's costs of accessing capital markets has increased due to the risks associated with wildfires in California. Wildfire activity and the COVID-19 pandemic may cause narrower access to, or further increased costs of accessing, bank and capital markets. For further details, see "Management Overview—COVID-19."

At December 31, 2020, Edison International Parent had cash on hand of $32 million and $1.4 billion available to borrow on its $1.5 billion revolving credit facility. The credit facility is available for borrowing needs until May 2024, and may be extended for one additional year with the lenders' approval. Under certain circumstances, the aggregate maximum principal amount under the credit facility may be increased up to $2.0 billion, provided additional lender commitments are obtained.

Edison International Parent and Other's liquidity and its ability to pay operating expenses and pay dividends to common shareholders are dependent on access to the bank and capital markets, dividends from SCE, realization of tax benefits and its ability to meet California law requirements for the declaration of dividends. Prior to declaring dividends, Edison International's Board of Directors evaluates available information, including when applicable, information pertaining to the 2017/2018 Wildfire/Mudslide Events, to ensure that the California law requirements for the declarations are met. For information on the California law requirements on the declaration of dividends, see "—SCE—SCE Dividends." Edison International intends to maintain its target payout ratio of 45% – 55% of SCE's core earnings, subject to the factors identified above.

Edison International Parent expects to make further capital contributions to SCE in 2021 to increase the common equity component of SCE's capital structure, after CPUC allowed exclusions, to 52% on a weighted average basis over the Capital Structure Compliance Period. For further information, see "—SCE—SCE Dividends."

SCE expects to issue additional debt to finance payments for future resolutions of claims related to the 2017/2018 Wildfire/Mudslide Events that exceed insurance. To enable SCE to issue the necessary debt and to allow Edison International and SCE to maintain investment grade credit ratings, Edison International anticipates issuing securities with up to $1.0 billion of equity content to invest in SCE, during 2021.

Edison International Parent's credit facility requires a consolidated debt to total capitalization ratio as defined in the applicable agreements of less than or equal to 0.70 to 1. At December 31, 2020, Edison International consolidated debt to total capitalization ratio was 0.59 to 1.

At December 31, 2020, Edison International Parent was in compliance with all financial covenants that affect access to capital.

Edison International Parent's long-term issuer credit ratings are at investment grade levels. However, during the third quarter of 2020, the S&P rating outlooks for all three investor-owned utilities in California were revised to negative due to unprecedented wildfire activity throughout California in August and September of 2020. Edison International Parent's ratings outlook from Moody's and Fitch has remained stable despite 2020 wildfire activity due to the reduced financial risk that wildfires pose to SCE following enactment of AB 1054. For further information, see "Management Overview—Southern California Wildfires and Mudslides."

The following table summarizes Edison International Parent's current long-term issuer credit ratings and outlook from the major credit rating agencies:

Edison International Parent's credit ratings may be further affected if, among other things, regulators fail to successfully implement AB 1054 in a consistent and credit supportive manner or the Wildfire Insurance Fund is depleted by claims from catastrophic wildfires. The broad economic impacts of the COVID-19 pandemic may also affect Edison International's credit rating. For further information see "Management Overview—COVID-19" and "Risk Factors." Credit rating downgrades increase the cost and may impact the availability of short-term and long-term borrowings, including commercial paper, credit facilities, note financings or other borrowings.

Edison International has approximately $1.8 billion of tax effected net operating loss and tax credit carryforwards at December 31, 2020 (after offsetting $270 million of unrecognized tax benefits and $218 million of Capistrano Wind net operating loss and tax credit carryforwards), which are available to offset future consolidated tax liabilities. See "Notes to Consolidated Financial Statements—Note 8. Income Taxes" for further information regarding taxes payable to Capistrano Wind. Edison International expects to utilize its net operating loss and tax credit carryforwards through 2028.

The following table summarizes major categories of net cash provided by (used in) operating activities as provided in more detail in SCE's consolidated statements of cash flows for 2020, 2019 and 2018:

Net cash provided by (used in) operating activities was impacted by the following:

Net income and non-cash items decreased in 2020 by $530 million from 2019 primarily due to recognizing a net $1.2 billion charge ($874 million after-tax) related to wildfire-related claims in September 2020, partially offset by higher CPUC-related revenue due to the escalation mechanism as set forth in the 2018 GRC decision.

Net cash used in operating activities was also impacted by cash outflow of $95 million and $2.5 billion related to SCE's contributions to the Wildfire Insurance Fund in 2020 and 2019, respectively. See "Notes to Consolidated Financial Statements—Note 12. Commitment and Contingencies" for further information.

Net cash (outflow) inflow for working capital was $(136) million and $298 million in 2020 and 2019, respectively. Net cash outflow for working capital increased from 2019 to 2020 primarily due to increases in receivables from customers and accrued unbilled revenue of $(357) million in 2020 and $(73) million in 2019, respectively, partially offset by net tax refunds of $50 million and $164 million in 2020 and 2019, respectively. Net cash for working capital in both periods was impacted by insurance premium payments of $(496) million and $(471) million in 2020 and 2019, respectively, primarily for wildfire-related coverage, partially offset by increases in payables of $255 million in 2020 and $237 million in 2019.

Net cash used in regulatory assets and liabilities, including changes in net under collections of balancing accounts, was $1,799 million and $1,278 million in 2020 and 2019, respectively. SCE has a number of balancing accounts, which impact cash flows based on differences between timing of collection of amounts through rates and accrual expenditures. Cash flows were primarily impacted by the following:

2020

2019

Cash flows provided by other noncurrent assets and liabilities were primarily related to an increase of $1.3 billion and $232 million in liabilities for the 2017/2018 Wildfire/Mudslide Events related claims in 2020 and 2019, respectively. Also impacted by payments of TKM Subrogation Settlement and individual settlement of $1.5 billion in 2020, and the Local Public Entity Settlements payment of $360 million in 2019, each offset by the subsequent insurance recovery of $1.0 billion and $290 million in 2020 and 2019, respectively.

Cash flows provided by other noncurrent assets and liabilities also includes net earnings from nuclear decommissioning trust investments ($25 million and $67 million in 2020 and 2019, respectively) and SCE's payments of decommissioning costs ($223 million and $172 million in 2020 and 2019, respectively). See "Nuclear Decommissioning Activities" below for further discussion.

The following table summarizes cash provided by financing activities for 2020, 2019 and 2018. Issuances of debt and preference stock and capital contribution from Edison International Parent are discussed in "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements" and "—Note 14. Equity."

Cash flows used in investing activities are primarily due to capital expenditures and funding of nuclear decommissioning trusts. Capital expenditures were $5.5 billion, $4.9 billion and $4.5 billion for 2020, 2019 and 2018, respectively, primarily related to transmission and generation investments. SCE had a net redemption of nuclear decommissioning trust investments of $197 million and $106 million in 2020 and 2019, respectively. See "Nuclear Decommissioning Activities" below for further discussion.

SCE's consolidated statements of cash flows include nuclear decommissioning activities, which are reflected in the following line items:

Net cash used in operating activities relates to interest and dividends less administrative expenses, taxes and SCE's decommissioning costs. Investing activities represent the purchase and sale of investments within the nuclear decommissioning trusts, including the reinvestment of earnings from nuclear decommissioning trust investments.

Funds for decommissioning costs are requested from the nuclear decommissioning trusts one month in advance. Decommissioning disbursements are funded from sales of investments of the nuclear decommissioning trusts. The net cash impact reflects timing of decommissioning payments ($223 million and $172 million in 2020 and 2019, respectively) and reimbursements to SCE from the nuclear decommissioning trust ($222 million and $173 million in 2020 and 2019, respectively).

The table below sets forth condensed historical cash flow from operations for Edison International Parent and Other, including intercompany eliminations.

Net cash used in operating activities decreased in 2020 by $52 million from 2019 due to:

Net cash provided by (used in) financing activities were as follows:

Net cash provided by investing activities included a cash inflow of $132 million from the sale of a lease investment in Vidalia, Louisiana in 2020. See "Notes to Consolidated Financial Statements—Note 13. Leases" for further information.

As of December 31, 2020, Edison International Parent and Other and SCE's contractual obligations for the years 2021 through 2025 and thereafter are estimated below.

For a discussion of SCE's environmental remediation liabilities, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Environmental Remediation."

SCE has variable interests in power purchase contracts with variable interest entities and a variable interest in unconsolidated Trust II, Trust III, Trust IV, Trust V and Trust VI that issued $400 million (aggregate liquidation preference) of 5.10%, $275 million (aggregate liquidation preference) of 5.75%, $325 million (aggregate liquidation preference) of 5.375%, $300 million (aggregate liquidation preference) of 5.45% and $475 million (aggregate liquidation preference) of 5.00%, trust securities, respectively, to the public. In the third quarter 2020, SCE Trust II redeemed $180 million of its trust securities from the public, from its issued trust securities of $400 million. See "Notes to Consolidated Financial Statements—Note 3. Variable Interest Entities."

For a discussion of environmental developments, see "Business—Environmental Considerations."

Edison International's and SCE's primary market risks include fluctuations in interest rates, commodity prices and volumes, and counterparty credit. Derivative instruments are used to manage market risks including market risks of SCE's customers. For further discussion of market risk exposures, including commodity price risk, credit risk and interest rate risk, see "Notes to Consolidated Financial Statements—Note 6. Derivative Instruments" and "—Note 4. Fair Value Measurements."

Edison International and SCE are exposed to changes in interest rates primarily as a result of its financing, investing and borrowing activities used for liquidity purposes, and to fund business operations and capital investments. The nature and amount of Edison International's and SCE's long-term and short-term debt can be expected to vary as a result of future business requirements, market conditions and other factors. Fluctuations in interest rates can affect earnings and cash flows. Changes in interest rates may impact SCE's authorized rate of return for the period beyond 2021 through a CPUC cost of capital adjustment mechanism, see "Liquidity and Capital Resources—SCE" in the MD&A and "Business—SCE—Overview of Ratemaking Process" for further discussion. The following table summarizes the increase or decrease to the fair value of long-term debt including the current portion, if the market interest rates were changed while leaving all other assumptions the same:

SCE and its customers are exposed to the risk of a change in the market price of natural gas, electric power and transmission congestion. SCE's hedging program is designed to reduce exposure to variability in market prices related to SCE's purchases and sales of electric power and natural gas. SCE expects recovery of its related hedging costs through the ERRA balancing account or CPUC-approved procurement plans, and as a result, exposure to commodity price is not expected to impact earnings but may impact timing of cash flows. As part of this program, SCE enters into energy options, swaps, forward

arrangements and congestion revenue rights ("CRRs"). The transactions are pre-approved by the CPUC or executed in compliance with CPUC-approved procurement plans.

The fair value of outstanding derivative instruments used to mitigate exposure to commodity price risk was a net asset of $108 million and $86 million at December 31, 2020 and 2019, respectively.

The following table summarizes the increase or decrease to the fair values of the net asset of derivative instruments included in the consolidated balance sheets, if the electricity prices or gas prices were changed while leaving all other assumptions constant: