# EDISON INTERNATIONAL (EIX) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from EDISON INTERNATIONAL's 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/827052/000082705222000006/eix-20211231x10k.htm Accession: 0000827052-22-000006 Filing date: 2022-02-24 Report date: 2021-12-31 Extracted from a later financial-section MD&A body after the formal Item 7 span was a short reference. Confidence: high Company profile: /company/EIX/ All MD&A years: /company/EIX/mda/ Next year: /company/EIX/mda/fy2022/ (FY 2022) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion related to the results of operations and changes in financial condition for 2020 compared to 2019 is incorporated by reference to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in Edison International's and SCE's combined Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC in February 2021. MANAGEMENT OVERVIEW Highlights of Operating Results Edison International is the ultimate parent holding company of SCE and Edison Energy. 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 is engaged in the competitive business of providing integrated decarbonization and energy solutions to commercial, institutional and industrial customers. Edison Energy's business activities are currently not material to report as a separate business segment. [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","2021 vs. 2020","\u200b","\u200b","\u200b"],["(in millions)","","\u200b","2021","","\u200b","2020","","\u200b","Change","","\u200b","2019"],["Net income (loss) attributable to Edison International","","\u200b","","","\u200b","","","\u200b","","","\u200b"],["SCE","\u200b","$","829","\u200b","$","810","\u200b","$","19","\u200b","$","1,409"],["Edison International Parent and Other","\u200b","","(70)","\u200b","","(71)","\u200b","","1","\u200b","","(125)"],["Edison International","\u200b","","759","\u200b","","739","\u200b","","20","\u200b","","1,284"],["Less: Non-core items","\u200b","","","\u200b","","","\u200b","","","\u200b"],["SCE","\u200b","","\u200b","\u200b","","\u200b","\u200b","","","\u200b","","\u200b"],["2017/2018 Wildfire/Mudslide Events claims and expenses, net of recoveries","\u200b","","(919)","\u200b","","(899)","\u200b","","(20)","\u200b","","(157)"],["Wildfire Insurance Fund expense","\u200b","","(155)","\u200b","","(242)","\u200b","","87","\u200b","","(109)"],["Sale of San Onofre nuclear fuel","\u200b","","7","\u200b","","108","\u200b","","(101)","\u200b","","8"],["Disallowed historical capital expenditures in SCE's GRC decision","\u200b","","(47)","\u200b","","\u2014","\u200b","","(47)","\u200b","","(123)"],["Re-measurement of tax assets and liabilities","\u200b","","\u2014","\u200b","","18","\u200b","","(18)","\u200b","","88"],["Edison International Parent and Other","\u200b","","","\u200b","","","\u200b","","","\u200b"],["Settlement of 2007 \u2013 2012 California tax audits","\u200b","","115","\u200b","","\u2014","\u200b","","115","\u200b","","\u2014"],["Customer revenues for EIS insurance contract","\u200b","","17","\u200b","","\u2014","\u200b","","17","\u200b","","\u2014"],["Sale of Vidalia lease","\u200b","","\u2014","\u200b","","96","\u200b","","(96)","\u200b","","\u2014"],["Goodwill impairment","\u200b","","\u2014","\u200b","","(25)","\u200b","","25","\u200b","","(18)"],["Re-measurement of tax liabilities","\u200b","","\u2014","\u200b","","(3)","\u200b","","3","\u200b","","\u2014"],["Total non-core items","\u200b","","(982)","\u200b","","(947)","\u200b","","(35)","\u200b","","(311)"],["Core earnings (losses)","\u200b","","","\u200b","","","\u200b","","","\u200b"],["SCE","\u200b","","1,943","\u200b","","1,825","\u200b","","118","\u200b","","1,702"],["Edison International Parent and Other","\u200b","","(202)","\u200b","","(139)","\u200b","","(63)","\u200b","","(107)"],["Edison International","\u200b","$","1,741","\u200b","$","1,686","\u200b","$","55","\u200b","$","1,595"]] [[/GREPCENT_TABLE]] ​ 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, 4 Table of Contents 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 2021 earnings increased $20 million, driven by an increase in SCE's earnings of $19 million and a decrease in Edison International Parent and Other losses of $1 million. SCE's higher net income consisted of $99 million of higher non-core losses and $118 million of higher core earnings. The increase in SCE's core earnings was due to higher revenue from the 2021 GRC final decision, higher FERC revenue and income tax benefits from the settlement of 2007 – 2012 California tax audits, partially offset by lower insurance benefits and higher property taxes. Edison International Parent and Other lower losses consisted of $64 million of higher non-core earnings and $63 million higher core losses. The increase in core losses in 2021 was primarily due to higher preferred dividends as a result of preferred equity issuances in 2021. Consolidated non-core items for 2021 and 2020 for Edison International included: [[GREPCENT_TABLE]] [["\u25cf","Charges of $1.2 billion ($919 million after-tax) recorded in 2021 and $1.2 billion ($889 million after-tax) recorded in 2020 for 2017/2018 Wildfire/Mudslide Events claims and expenses, net of expected recoveries from FERC customers. See \"Notes to Consolidated Financial Statements\u2014Note 12. Commitments and Contingencies\" for further information."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Charges of $215 million ($155 million after-tax) recorded in 2021 and $336 million ($242 million after-tax) recorded in 2020 from the amortization of SCE's contributions to the Wildfire Insurance Fund. See \"Notes to Consolidated Financial Statements\u2014Note 12. Commitments and Contingencies\" for further information."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Gains of $10 million ($7 million after-tax) recorded in 2021 and $150 million ($108 million after-tax) recorded in 2020 for SCE's sale of San Onofre nuclear fuel."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","An impairment charge of $79 million ($47 million after-tax) recorded in 2021 related to disallowed historical capital expenditures in SCE's 2021 GRC final decision."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","An income tax benefit of $115 million for Edison International Parent and Other recorded in 2021 related to the settlement of the 2007 \u2013 2012 California tax audits with the California Franchise Tax Board (\"FTB\")."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Earnings of $24 million ($17 million after-tax) for Edison International Parent and Other recorded in 2021 related to customer revenues for EIS insurance contract. See \"Notes to Consolidated Financial Statements\u2014Note 18. Related-Party Transactions\" for further information."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","A gain of $132 million ($96 million after-tax) recorded in 2020 for Edison International Parent and Other's sale of an investment in a lease of a hydroelectric power plant in Vidalia, Louisiana."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","An impairment charge of $34 million ($25 million after-tax) recorded in 2020 for Edison International Parent and Other related to Edison Energy's goodwill."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","An income tax benefit of $18 million and income tax expense of $3 million recorded in 2020 for SCE and Edison International Parent and Other, respectively, due to re-measurement of uncertain tax positions related to the 2010 \u2013 2012 California state tax filings."]] [[/GREPCENT_TABLE]] See "Results of Operations" for discussion of SCE and Edison International Parent and Other results of operations. 5 Table of Contents Electricity Industry Trends 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. If California is to meet its 2030 and 2045 climate change goals, the state must quadruple its annual rate of greenhouse gas reductions by adopting market-transforming policies and incentives that address historical inequities within the next one to two years. 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. 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 2021, approximately 42% of SCE's customer deliveries came from carbon-free resources. SCE remains well-positioned to meet its 2030 and 2045 RPS and carbon-free power goals and interim targets. In addition, Edison International is committed to achieving net-zero GHG emissions by 2045, in alignment with economy-wide climate actions planned by California. This commitment covers the power SCE delivers to customers and Edison International's enterprise-wide operations. The current federal administration has shown an enhanced and renewed desire to respond to climate change through numerous regulatory and Executive Order actions including for the development of more robust fuel efficiency and vehicle emission standards. Many of these actions align with internal company goals and efforts to address and mitigate climate change. Additionally, Congress passed historic infrastructure legislation that provides significant new funding to electrify the economy. Edison International believes these actions complement its industry-leading efforts to equitably transition to a decarbonized economy. 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 approximately 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 demonstrated strong long-term support of transportation electrification as shown by the approval of SCE's Charge Ready 2 program and the Governor's September 2020 Executive Order banning sales of new gas vehicles by 2035. However, SCE believes that more state policy support, along with public and private investment, is needed to enable California to reach its 2030 GHG reduction targets. 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. SCE is undertaking projects and programs to accelerate economy-wide electrification. To support system reliability, SCE is investing $1.0 billion in utility owned storage capacity in 2022. See "—Capital Program" for further details. SCE also continues to implement its transport electrification programs and as of December 31, 2021, SCE had completed 6 Table of Contents construction at 151 sites to support 2,759 charge ports under its suite of light duty Charge Ready Programs, and 27 sites to support the electrification of 311 medium and heavy-duty vehicles through its Charge Ready Transport program. To address a portion of the expected outcome gap to achieving California's 2030 goals, in December 2021, SCE filed a $677 million Building Electrification Program Application for a four-year program (2024 – 2027) to incentivize replacing 250,000 gas-fueled water and space heaters with efficient electric heat pumps and to upgrade the electrical infrastructure for 65,000 homes to support electrification. The proposed program includes $200 million for customer-side electrical infrastructure upgrades for which SCE has requested inclusion as a regulatory asset in rate base and $69 million in capital expenditures. The remaining $408 million of operations and maintenance expense includes heat pump incentives, program administration, and implementation costs. 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 integrated decarbonization and 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. 2021 Cost of Capital Application In August 2021, SCE filed an application with the CPUC for authority to establish its authorized cost of capital for utility operations for 2022 and to reset the related annual cost of capital mechanism. SCE filed its application pursuant to the cost of capital mechanism's provision that the utilities have a right to file a cost of capital application at any time upon an extraordinary or catastrophic event that materially impacts their respective cost of capital and/or capital structure and affects them differently than the overall financial markets. SCE believes the COVID-19 pandemic and accompanying government stimulus efforts constitute such an extraordinary event because they have led to a decrease in interest rates but an increase in SCE and other utilities' cost of equity, disrupting the traditional relationship between debt and equity assumed in adopting the cost of capital mechanism. In October 2021, the CPUC consolidated SCE's, PG&E's and SDG&E's cost of capital proceedings and ordered the utilities to file all materials that would have normally been required in advice letters filed as a result of triggering the cost of capital mechanism (see "Business—SCE—Overview of Ratemaking Process" for further information on the adjustment mechanism). SCE provided this information in November 2021. In December 2021, the CPUC granted SCE's motion to establish a memorandum account to record the difference in the revenue requirements from rates in effect beginning January 1, 2022 and the rates adopted in the proceeding. In December 2021, the CPUC also set an initial phase for the proceeding to determine whether extraordinary circumstances warrant a departure from the cost of capital mechanism for 2022 and, if so, whether the CPUC should leave the cost of capital components at pre-2022 levels for the year 2022 or open a second phase to consider alternative proposals. SCE served opening testimony in January 2022 in support of suspending operation of the cost of capital mechanism's formula adjustment mechanism and leaving cost of capital components at pre-2022 levels for 2022. If the CPUC ultimately finds that the cost of capital mechanism adjustment should have been implemented effective January 1, 2022, SCE's revenue requirements for 2022 would reduce by $179 million due to adjustments to SCE's authorized weighted average cost of capital. 7 Table of Contents SCE is required to file its regularly scheduled cost of capital application in April 2022 for rates effective in 2023. Capital Program Total capital expenditures (including accruals) were $5.4 billion in 2021 and $5.5 billion in 2020. SCE's year-end rate base was $37.9 billion at December 31, 2021, compared to $34.7 billion at December 31, 2020, after excluding rate base associated with AB 1054 Excluded Capital Expenditures. SCE's capital expenditure forecast reflects planned CPUC-jurisdictional spending including WCCP and other programs outlined in SCE's WMP and above amounts authorized in the 2021 GRC, CPUC-approved utility owned storage expenditures and planned FERC capital expenditures. Potential capital spending variability associated with future regulatory requests based on management judgment, potential for permitting delays and other operational considerations is reflected in the range case below. The completion of projects, the timing of expenditures, and the associated cost recovery may be affected by permitting requirements and delays, construction schedules, availability of labor, equipment and materials, financing, legal and regulatory approvals and developments, community requests or protests, weather and other unforeseen conditions. SCE's 2021 recorded and 2022 – 2023 forecast for capital expenditures are set forth in the table below: [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Total"],["(in billions)","","2021","","2022","","2023","","2022 \u2013 2023"],["Traditional capital expenditures","","\u200b","","","\u200b","","","\u200b","","","\u200b"],["Distribution1","\u200b","$","3.6","\u200b","$","4.5","\u200b","$","3.6","\u200b","$","8.1"],["Transmission","\u200b","","0.5","\u200b","\u200b","0.5","\u200b","\u200b","0.6","\u200b","","1.1"],["Generation","\u200b","","0.1","\u200b","\u200b","0.1","\u200b","\u200b","0.2","\u200b","","0.3"],["Subtotal","\u200b","","4.2","\u200b","","5.1","\u200b","","4.4","\u200b","","9.5"],["Wildfire mitigation-related capital expenditures","\u200b","","1.2","\u200b","","1.1","\u200b","","1.1","\u200b","","2.2"],["Total capital expenditures","\u200b","$","5.4","\u200b","$","6.2","\u200b","$","5.5","\u200b","$","11.7"],["Total capital expenditures using range case discussed above","\u200b","\u200b","*","\u200b","$","6.0","\u200b","$","5.2","\u200b","$","11.2"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["1","Includes forecast expenditures for utility owned storage. For further information see below."]] [[/GREPCENT_TABLE]] *      Not applicable SCE expects to make additional CPUC capital expenditures, the recovery of which will be subject to future regulatory approval. This includes expenditures from track 4 of the 2021 GRC, the 2025 GRC and non-GRC programs including the Building Electrification Program. These capital expenditures and expected FERC capital expenditures, excluded from the table above, are expected to be approximately $0.2 billion in 2023 and in a range of approximately $10.4 billion to $12.8 billion between 2024 and 2025. In October 2021, SCE contracted for the construction of utility owned storage at three sites in SCE's service territory with an aggregate capacity of 537.5 MW. These storage projects are expected to result in $1.0 billion of capital expenditures through the anticipated in-service date in the summer of 2022. In December 2021, the CPUC approved recovery of these expenditures and establishment of a balancing account for the associated revenue requirement, to be reflected in rates beginning in the first quarter of 2022. SCE's authorized CPUC-jurisdictional rate base is determined through the GRC and other regulatory proceedings. Differences between actual and CPUC-authorized capital expenditures are addressed in subsequent GRC or other regulatory proceedings. FERC-jurisdictional rate base is generally determined based on actual capital expenditures. Reflected below is SCE's weighted average annual rate base for 2021 – 2023 incorporating authorized CPUC-jurisdictional expenditures including utility owned storage, planned FERC capital expenditures, and planned non-GRC 8 Table of Contents projects or programs. The table below does not reflect the $1.6 billion of AB 1054 Excluded Capital Expenditures. The table below reflects the July 2021 reduction in rate base from a $400 million payment from a third party for the 30-year use of a portion of the West of Devers transmission project. [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in billions)","","2021","","2022","","2023"],["Rate base for expected capital expenditures","\u200b","$","35.3","\u200b","$","38.7","\u200b","$","41.3"],["Rate base for expected capital expenditures (using range case described above)","\u200b","\u200b","*","\u200b","$","38.5","\u200b","$","41.2"]] [[/GREPCENT_TABLE]] *     Not applicable Including programs outlined in SCE's WMP subject to future cost recovery proceedings, rate base associated with wildfire restoration capital expenditures subject to future CEMA applications, and planned expenditures from track 4 of the 2021 GRC and the 2025 GRC, SCE's weighted average annual rate base could be up to $41.8 billion in 2023, and between $43.8 billion and $46.0 billion in 2024 and between $46.6 billion and $49.4 billion in 2025. For further information regarding the capital program see "Liquidity and Capital Resources—SCE—Capital Investment Plan." COVID-19 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 and SCE's supply chain has faced constraints, but the pandemic has not had a pervasive impact on SCE's or Edison International's ability to operate their businesses (see "Risk Factors" for further information). However, the total impacts of the COVID-19 pandemic on Edison International and SCE will depend on numerous factors that continue to evolve and which Edison International and SCE are unable to accurately predict at this time, including the impact of any legal requirements or company policies for mandatory COVID-19 vaccination, or testing, on SCE's ability to retain its workforce. As a result of actions taken in response to the pandemic and increased estimates of uncollectible expenses, largely related to the economic impacts of the pandemic on SCE's customers, SCE has incurred $303 million of incremental costs, net of savings, as of December 31, 2021, of which $94 million has been deferred to memorandum accounts for CPUC reasonableness review and $197 million has been transferred to balancing accounts pending recovery. In July 2021, California's state assembly passed legislation to authorize, fund and implement the CAPP, which reduced SCE's 2020 and 2021 customer arrearages for certain residential customers. SCE received $185 million of CAPP funds on behalf of customers in January 2022. To the extent SCE's uncollectible expenses against qualified arrearages were offset by the CAPP, no recovery will be sought through other mechanisms. The legislation also prohibited certain customer disconnections for non-payment during the period that the California Department of Community Services and Development reviews the allocation of CAPP funds, SCE expects to be able to recommence disconnections of customers for non-payment in mid-2022. In September 2021, SCE requested recovery of $57 million of incremental operation and maintenance expenses tracked in a CEMA related to COVID-19 in 2020. Incremental expenses deferred to the COVID-19 Pandemic Protections Memorandum Account of $47 million are subject to CPUC reasonableness review in annual ERRA review proceedings, with a decision on the 2020 balance expected in mid-2022. For further information see "Liquidity and Capital Resources—SCE—Regulatory Proceedings—2021 CEMA Application." In January 2022, the CPUC approved SCE's application to recover $78 million of incremental residential uncollectible expenses subject to balancing account recovery in customer rates over a 36-month period starting March 2022. Remaining amounts subject to balancing account recovery will be recovered over a 12-month period beginning in the first quarter of 2022. 9 Table of Contents For further information see "Notes to the Consolidated Financial Statements—Note 11. Regulatory Assets and Liabilities" and "Risk Factors." Southern California Wildfires and Mudslides California has experienced unprecedented weather conditions in recent years due to climate change. The worsening weather and fuel conditions across California increase the likelihood of wildfires, including those where SCE's equipment may be alleged to be associated with the fire's ignition, and SCE's service territory remains susceptible to additional wildfire activity in 2022 and beyond. In response to worsening conditions and increased wildfire activity over the past several years, SCE has developed and is implementing its 2020 – 2022 WMP to reduce the risk of SCE equipment contributing to the ignition of wildfires. In addition, California has increased its investment in wildfire prevention and fire suppression capabilities. In addition to the investments SCE is making as part of its WMP, SCE also uses its PSPS program to proactively de-energize power lines as a last resort to mitigate the risk of catastrophic wildfires during extreme weather events. Wildfires in SCE's territory in December 2017 and November 2018 caused loss of life, substantial damage to both residential and business properties, and service outages for SCE customers. Edison International and SCE have incurred material losses in connection with the 2017/2018 Wildfire/Mudslide Events. SCE's equipment has been, and may further be, alleged to be associated with several wildfires that have originated in Southern California subsequent to 2018. Edison International and SCE expect that any losses incurred in connection with those fires will be covered by insurance, subject to self-insured retentions and co-insurance, or third-party receivables, and expect that any such losses after recoveries will not be material. 2017/2018 Wildfire/Mudslide Events Multiple lawsuits and investigations related to the 2017/2018 Wildfire/Mudslide Events have been initiated against SCE and Edison International. As of December 31, 2021, in addition to the Local Public Entity Settlement, the TKM Subrogation Settlement and the Woolsey Subrogation Settlement, SCE had entered into settlements with approximately 5,000 individual plaintiffs in the 2017/2018 Wildfire/Mudslide Events litigation under which it has agreed to pay an aggregate of approximately $2.0 billion. In addition, in October 2021, SCE and the SED executed the SED Agreement to resolve the SED's investigations into the 2017/2018 Wildfire/Mudslide Events and three other 2017 wildfires for, among other things, aggregate costs of $550 million. The $550 million in costs is comprised of a $110 million fine to be paid to the State of California General Fund, $65 million of shareholder-funded safety measures, and an agreement by SCE to waive its right to seek cost recovery in CPUC-jurisdictional rates for $375 million of third-party uninsured claims payments (the "SED Excluded Losses"). The SED Agreement provides that SCE may, on a permanent basis, exclude from its ratemaking capital structure any after-tax charges to equity or debt borrowed to finance costs incurred under the SED Agreement. The SED Agreement also imposes other obligations on SCE, including reporting requirements and safety-focused studies. SCE did not admit imprudence, negligence or liability with respect to the 2017/2018 Wildfire/Mudslide Events in the SED Agreement. The CPUC approved the SED Agreement in December 2021 but its approval has been legally challenged by The Utility Reform Network. SCE's obligations under the SED Agreement will only commence after CPUC approval of the SED Agreement is final and non-appealable. Through December 31, 2021, Edison International and SCE have recorded total pre-tax charges of $7.5 billion, recoveries from insurance of $2.0 billion and expected recoveries through FERC electric rates of $300 million related to the 2017/2018 Wildfire/Mudslide Events. The after-tax net charges to earnings recorded through December 31, 2021 have been $3.8 billion. 10 Table of Contents As of December 31, 2021, SCE had paid $5.7 billion under executed settlements and had $131 million to be paid under executed settlements related to the 2017/2018 Wildfire/Mudslide Events. In addition, SCE's obligations under the SED Agreement will commence after CPUC approval of the SED Agreement is final and non-appealable. As of December 31, 2021, SCE had recovered $2.0 billion through insurance and $135 million through FERC-jurisdictional electric rates. After giving effect to all payment obligations under settlements entered into through December 31, 2021, Edison International's and SCE's best estimate of expected losses for remaining alleged and potential claims related to the 2017/2018 Wildfire/Mudslide Events and for the SED Agreement was $1.6 billion. As of the same date, Edison International and SCE had assets for expected recoveries through FERC electric rates of $165 million on their consolidated balance sheets and had exhausted expected insurance recoveries related to the 2017/2018 Wildfire/Mudslide Events. Estimated losses for the 2017/2018 Wildfire/Mudslide Events litigation are based on a number of assumptions and are subject to change as additional information becomes available. Actual losses incurred may be higher or lower than estimated based on several factors, including: the uncertainty in estimating damages that have been or may be alleged, the ability to reach settlements through the ongoing claims mediation processes, uncertainties related to the litigation processes, uncertainty as to the legal and factual determinations to be made during litigation, including uncertainty as to the contributing causes of the 2017/2018 Wildfire/Mudslide Events, the complexities associated with fires that merge and whether inverse condemnation will be held applicable to SCE with respect to damages caused by the Montecito Mudslides, and the uncertainty as to how these factors impact future settlements. SCE will seek rate recovery of prudently-incurred, actual losses realized in connection with the 2017/2018 Wildfire/Mudslide Events in excess of available insurance, other than for CPUC-jurisdictional rate recovery of the $375 million of SED Excluded Losses if the CPUC's approval of the SED Agreement becomes final and non-appealable. SCE believes that, in light of the CPUC's decision in a cost recovery proceeding involving SDG&E arising from several 2007 wildfires in SDG&E's service area, there is substantial uncertainty regarding how the CPUC will interpret and apply its prudency standard to an investor-owned utility in wildfire cost-recovery proceedings for fires ignited prior to July 12, 2019. Accordingly, while the CPUC has not made a determination regarding SCE's prudency relative to any of the 2017/2018 Wildfire/Mudslide Events, SCE is unable to conclude, at this time, that uninsured CPUC-jurisdictional wildfire-related costs are probable of recovery through electric rates. For further information, see "Business— Southern California Wildfires," "Risk Factor," "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" in this report. ​ 11 Table of Contents RESULTS OF OPERATIONS SCE SCE's results of operations are derived mainly through two sources: [[GREPCENT_TABLE]] [["\u25cf","Earning activities \u2013 representing revenue authorized by the CPUC and the FERC which is intended to provide SCE a reasonable opportunity to recover its costs and earn a return on its net investment in generation, transmission and distribution assets. The annual revenue requirements are comprised of authorized operation and maintenance costs, depreciation, taxes and a return consistent with the capital structure. Also, included in earnings activities are revenues or penalties related to incentive mechanisms, other operating revenue and regulatory charges or disallowances."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Cost-recovery activities \u2013 representing CPUC- and FERC-authorized balancing accounts which allow for recovery of specific project or program costs, subject to reasonableness review or compliance with upfront standards, as well as non-bypassable rates collected for SCE Recovery Funding LLC. Cost-recovery activities include rates which provide recovery, subject to reasonableness review of, among other things, fuel costs, purchased power costs, public purpose related-program costs (including energy efficiency and demand-side management programs), certain operation and maintenance expenses, and repayment of bonds and financing costs of SCE Recovery Funding LLC. SCE earns no return on these activities."]] [[/GREPCENT_TABLE]] Impact of 2021 GRC The table below reflects the 2020 GRC authorized revenue adjusted for revenue requirements from the WEMA and GS&RP approvals in 2020, which included revenue requirements for expenditures incurred from 2018 – 2020. Revenue requirements of $497 million for operation and maintenance expense and depreciation incurred in 2020 are not included in the table as they remain subject to approval in track 3 of the 2021 GRC. The 2021 GRC final decision resulted in a non-core impairment of utility property, plant and equipment of $79 million ($47 million after-tax) related to disallowed historical capital expenditures of pole replacements the CPUC determined were performed prematurely. The 2021 GRC final decision determines the amount of revenue that SCE is authorized to collect from customers to recover anticipated costs, including return on rate base. The 2021 GRC final decision approved an authorized revenue requirement of $6.9 billion in 2021, an increase of $1.0 billion over amounts authorized in the 2018 GRC and an increase of $331 million over revenue requirements authorized for 2020 including the 2018 GRC and subsequent WEMA and GS&RP approvals. 12 Table of Contents This table sets out the authorized revenue and costs of service for revenue requirements authorized in 2020 as discussed above and the 2021 GRC final decision through December 31, 2021: [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in millions)","","\u200b","2020 Authorized Revenue","","\u200b","Non-GRC Adjustments to Authorized Revenue in 2020","","\u200b","2020 Adjusted Authorized Revenue","","\u200b","2021 Final Decision Authorized Revenue1","\u200b","\u200b","Increase (Decrease)"],["Authorized revenue","\u200b","$","5,898","\u200b","$","645","\u200b","$","6,543","\u200b","$","6,874","\u200b","$","331","\u200b"],["Cost of service:","\u200b","","","\u200b","","\u200b","\u200b","","","\u200b","","","\u200b","","","\u200b"],["Operation and maintenance","\u200b","","1,676","\u200b","","595","\u200b","","2,271","\u200b","","2,229","\u200b","","(42)","2\u200b"],["Depreciation","\u200b","","1,759","\u200b","","17","\u200b","","1,776","\u200b","","1,903","\u200b","","127","3\u200b"],["Property and payroll taxes","\u200b","","360","\u200b","","2","\u200b","","362","\u200b","","396","\u200b","","34"],["Income taxes","\u200b","","138","\u200b","","\u2014","\u200b","","138","\u200b","","199","\u200b","","61"],["Authorized return","\u200b","","1,965","\u200b","","31","\u200b","","1,996","\u200b","","2,147","\u200b","","151","4\u200b"],["Total","\u200b","$","5,898","\u200b","$","645","\u200b","$","6,543","\u200b","$","6,874","\u200b","$","331"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["1","Reflects SCE's GRC authorized revenue as filed in SCE's September 2021 GRC implementation advice letter."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["2","2020 Adjusted Authorized Revenue includes $381 million of 2018 \u2013 2019 wildfire insurance and wildfire mitigation expenditures, primarily operations and maintenance, that were authorized for recovery in 2020."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["3","Authorized revenue for depreciation increased due to updated depreciation rates."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["4","Authorized revenue for return increased due to authorized rate base growth."]] [[/GREPCENT_TABLE]] Authorized revenue increased $331 million in 2021 compared to 2020, which was comprised of an increase of $200 million in authorized revenue for earning activities and $131 million in authorized revenue for cost recovery activities. The following tables summarize SCE's results of operations for the periods indicated. The presentation below separately identifies earning activities and cost-recovery activities. In the 2021 GRC final decision, the CPUC approved balancing accounts for cost recovery of vegetation management and wildfire insurance costs. As a result, SCE classified revenues and costs associated with these programs as cost recovery activities in 2021. Previously, SCE classified the recovery of actual costs incurred under these programs as earnings activities. The reclassification of revenues and costs had no impact on earnings. 13 Table of Contents Years ended December 31, 2021, 2020 and 2019 The following table is a summary of SCE's results of operations for the periods indicated: [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","2021","","2020","","2019"],["\u200b","\u200b","\u200b","\u200b","Cost-","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Cost-","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Cost-","\u200b","\u200b","\u200b","\u200b"],["\u200b","Earning","\u200b","Recovery","\u200b","Total","\u200b","Earning","\u200b","Recovery","\u200b","Total","\u200b","Earning","\u200b","Recovery","\u200b","Total","\u200b"],["(in millions)","Activities","","Activities","","Consolidated","","Activities","","Activities","","Consolidated","","Activities","","Activities","","Consolidated"],["Operating revenue","$","7,872","\u200b","$","7,002","\u200b","$","14,874","\u200b","$","7,468","\u200b","$","6,078","\u200b","$","13,546","\u200b","$","6,678","\u200b","$","5,628","\u200b","$","12,306","\u200b"],["Purchased power and fuel","","\u2014","\u200b","","5,540","\u200b","","5,540","\u200b","\u200b","2","\u200b","\u200b","4,930","\u200b","","4,932","\u200b","","\u2014","\u200b","\u200b","4,839","\u200b","","4,839","\u200b"],["Operation and maintenance","","2,015","\u200b","","1,573","\u200b","","3,588","\u200b","\u200b","2,280","\u200b","\u200b","1,243","\u200b","","3,523","\u200b","","2,073","\u200b","\u200b","863","\u200b","","2,936","\u200b"],["Wildfire-related claims, net of insurance recoveries","","1,276","\u200b","","\u2014","\u200b","","1,276","\u200b","\u200b","1,328","\u200b","\u200b","\u2014","\u200b","","1,328","\u200b","","255","\u200b","\u200b","\u2014","\u200b","","255","\u200b"],["Wildfire Insurance Fund expense","","215","\u200b","","\u2014","\u200b","","215","\u200b","\u200b","336","\u200b","\u200b","\u2014","\u200b","","336","\u200b","","152","\u200b","\u200b","\u2014","\u200b","","152","\u200b"],["Depreciation and amortization","","2,209","\u200b","","7","\u200b","","2,216","\u200b","\u200b","1,965","\u200b","\u200b","\u2014","\u200b","","1,965","\u200b","","1,727","\u200b","\u200b","1","\u200b","","1,728","\u200b"],["Property and other taxes","","462","\u200b","","\u2014","\u200b","","462","\u200b","\u200b","435","\u200b","\u200b","\u2014","\u200b","","435","\u200b","","396","\u200b","\u200b","\u2014","\u200b","","396","\u200b"],["Impairment and other expense (income)","","69","\u200b","","\u2014","\u200b","","69","\u200b","\u200b","(150)","\u200b","\u200b","\u2014","\u200b","","(150)","\u200b","","159","\u200b","\u200b","\u2014","\u200b","","159","\u200b"],["Other operating income","","(2)","\u200b","","\u2014","\u200b","","(2)","\u200b","\u200b","(1)","\u200b","\u200b","\u2014","\u200b","","(1)","\u200b","","(4)","\u200b","\u200b","\u2014","\u200b","","(4)","\u200b"],["Total operating expenses","","6,244","\u200b","","7,120","\u200b","","13,364","\u200b","","6,195","\u200b","","6,173","\u200b","\u200b","12,368","\u200b","\u200b","4,758","\u200b","","5,703","\u200b","\u200b","10,461","\u200b"],["Operating income (loss)","","1,628","\u200b","","(118)","\u200b","","1,510","\u200b","","1,273","\u200b","","(95)","\u200b","\u200b","1,178","\u200b","\u200b","1,920","\u200b","","(75)","\u200b","\u200b","1,845","\u200b"],["Interest expense","","(785)","\u200b","","(6)","\u200b","","(791)","\u200b","","(757)","\u200b","","(11)","\u200b","\u200b","(768)","\u200b","\u200b","(738)","\u200b","","(1)","\u200b","\u200b","(739)","\u200b"],["Other income","","109","\u200b","","124","\u200b","","233","\u200b","","149","\u200b","","106","\u200b","\u200b","255","\u200b","\u200b","119","\u200b","","76","\u200b","\u200b","195","\u200b"],["Income before income taxes","","952","\u200b","","\u2014","\u200b","","952","\u200b","","665","\u200b","","\u2014","\u200b","\u200b","665","\u200b","\u200b","1,301","\u200b","","\u2014","\u200b","\u200b","1,301","\u200b"],["Income tax expense (benefit)","","17","\u200b","","\u2014","\u200b","","17","\u200b","","(277)","\u200b","","\u2014","\u200b","\u200b","(277)","\u200b","\u200b","(229)","\u200b","","\u2014","\u200b","\u200b","(229)","\u200b"],["Net income","","935","\u200b","","\u2014","\u200b","","935","\u200b","","942","\u200b","","\u2014","\u200b","\u200b","942","\u200b","\u200b","1,530","\u200b","","\u2014","\u200b","\u200b","1,530","\u200b"],["Preferred and preference stock dividend requirements","","106","\u200b","","\u2014","\u200b","","106","\u200b","","132","\u200b","","\u2014","\u200b","\u200b","132","\u200b","\u200b","121","\u200b","","\u2014","\u200b","\u200b","121","\u200b"],["Net income available for common stock","$","829","\u200b","$","\u2014","\u200b","$","829","\u200b","$","810","\u200b","$","\u2014","\u200b","$","810","\u200b","$","1,409","\u200b","$","\u2014","\u200b","$","1,409","\u200b"],["Net income available for common stock","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","829","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","810","\u200b","","\u200b","\u200b","\u200b","\u200b","\u200b","$","1,409","\u200b"],["Less: Non-core expense","","","\u200b","","","\u200b","","(1,114)","\u200b","","","\u200b","","","\u200b","","(1,015)","\u200b","","","\u200b","","","\u200b","","(293)","\u200b"],["Core earnings1","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","1,943","\u200b","","","\u200b","","","\u200b","$","1,825","\u200b","","","\u200b","","","\u200b","$","1,702","\u200b"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["1","See use of non-GAAP financial measures in \"Management Overview\u2014Highlights of Operating Results.\""]] [[/GREPCENT_TABLE]] Earning Activities Earning activities in 2021 compared to 2020 were primarily affected by the following: [[GREPCENT_TABLE]] [["\u25cf","Higher operating revenue of $404 million is primarily due to:"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","An increase in CPUC-related revenue of $369 million primarily due to an increase in authorized revenue of $331 million, $200 million of which impacted earning activities, and $217 million of lower incremental tax benefits (offset in income taxes below)."]] [[/GREPCENT_TABLE]] The $200 million change in authorized revenue impacting earnings included an increase of $352 million in GRC revenues from the 2021 GRC final decision offset by lower non-GRC authorized revenue of $152 million from the approval of the GS&RP balancing account in the third quarter of 2020. [[GREPCENT_TABLE]] [["","\u25cf","An increase in FERC-related revenue and other operating revenue of $35 million primarily due to $35 million from FERC rate base growth and a $10 million increase in 2021 due to a change in estimate under the FERC formula rate mechanism, partially offset by a decrease of $17 million due to expected recoveries from customers in 2021 compared to 2020 for the FERC portion of wildfire-related claims and expenses. See \"Notes"]] [[/GREPCENT_TABLE]] 14 Table of Contents [[GREPCENT_TABLE]] [["","","to Consolidated Financial Statements\u2014Note 12. Commitments and Contingencies\u2014Contingencies\u2014Southern California Wildfires and Mudslides.\""]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Lower operation and maintenance expenses of $265 million primarily due to the following:"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Lower expenses of $170 million related to 2020 wildfire insurance and vegetation management costs which were recovered in authorized revenue in 2020. In 2021 these costs are presented in cost recovery activities as a result of balancing accounts authorized in the 2021 GRC final decision."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Lower employee benefit expense of $19 million from short-term incentive compensation."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Lower expenses of $18 million related to the COVID-19 pandemic, primarily customer uncollectibles now reported in cost recovery activities, as a result of CPUC authorized cost recovery of residential uncollectible costs."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Lower other expenses of $58 million. These lower expenses were primarily related to lower expenses subject to balancing account treatment, transmission and distribution expenses, environmental remediation costs, legal expenses, and worker's compensation costs. Those reductions were partially offset by higher wildfire mitigation related expenses including a 2020 adjustment to 2018 \u2013 2019 regulatory deferrals as a result of CPUC approval for SCE's track 2 of the GRC proceeding."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Charges of $1.3 billion recorded in both 2021 and 2020 for wildfire-related claims and expenses related to the 2017/2018 Wildfire/Mudslide Events. Also included in the charges are $10 million and $31 million recorded by SCE in 2021 and 2020, respectively, primarily associated with self-insured retention expenses related to other wildfires. See \"Notes to Consolidated Financial Statements\u2014Note 12. Commitments and Contingencies\u2014Contingencies\u2014Southern California Wildfires and Mudslides.\""]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Lower Wildfire Insurance Fund expense of $121 million due to the change in the estimated life of the Wildfire Insurance Fund which increased the amortization period of SCE contributions in 2021. See \"Notes to Consolidated Financial Statements\u2014Note 1. Summary of Significant Accounting Policies\" for further information."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Higher depreciation and amortization expense of $244 million primarily due to increased plant balances in 2021 and the change in depreciation rates from the adoption of the 2021 GRC final decision."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Higher property and other taxes of $27 million primarily due to higher property assessed values in 2021."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Higher impairment and other expense (income) of $219 million primarily due to an impairment charge of $79 million recorded in 2021 related to disallowed historical capital expenditures in SCE's 2021 GRC final decision as discussed above, and $140 million decrease in gains from the sale of San Onofre nuclear fuel."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Higher interest expense of $28 million primarily due to increased borrowings, partially offset by lower interest expense on balancing account overcollections and lower insurance benefits."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Lower other income of $40 million primarily due to lower insurance benefits and lower interest income on balancing account undercollections."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Lower income tax benefit of $294 million primarily due to the impact of higher pre-tax income, lower flow-through tax benefits as a result of the adoption of the 2021 GRC final decision for certain property-related items and an adjustment as a result of an IRS private letter ruling SCE received regarding the scope of the deferred tax normalization requirements and the computations required to comply with the average rate assumption method, partially offset by higher tax benefits from the re-measurement of uncertain tax positions, including $36 million of"]] [[/GREPCENT_TABLE]] 15 Table of Contents [[GREPCENT_TABLE]] [["","core earnings benefit recorded in the fourth quarter of 2021 from a settlement with the FTB for tax years 2007 \u2013 2012. See \"Notes to Consolidated Financial Statements\u2014Note 8 Income Taxes.\""]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Lower preferred and preference stock dividends of $26 million primarily due to the redemption of preferred securities in 2020 and the related loss on the redemption."]] [[/GREPCENT_TABLE]] Cost-Recovery Activities Cost-recovery activities in 2021 compared to 2020 were primarily affected by the following: [[GREPCENT_TABLE]] [["\u25cf","Higher purchased power and fuel costs of $610 million primarily driven by higher power and gas prices, including from extreme weather in 2021, partially offset by a CAISO generation surcharge of $59 million incurred in 2020."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Higher operation and maintenance expenses of $330 million due to:"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Vegetation management costs of $200 million which were reported in cost recovery activities due to the balancing account approved in the 2021 GRC final decision."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Uncollectible costs of $83 million which were reported in cost recovery activities due to authorization to recover costs through residential uncollectibles balancing account in 2021."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","A CAISO transmission refund received in 2020 for $66 million related to the CAISO generation surcharge mentioned above."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Increase in other costs subject to cost recovery of $40 million, primarily CEMA drought-related costs authorized for recovery in 2021."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Wildfire insurance costs decreased by $59 million due to the 2020 approval to recover 2018 and 2019 wildfire insurance expenses that had been deferred."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Higher other income of $18 million primarily driven by higher net periodic benefit income related to the non-service cost components for SCE's other post-retirement benefit plans. See \"Notes to Consolidated Financial Statements\u2014Note 9. Compensation and Benefit Plans\" for further information."]] [[/GREPCENT_TABLE]] Supplemental Operating Revenue Information SCE's retail billed and unbilled revenue (excluding wholesale sales) was $13.5 billion, $12.5 billion, and $11.4 billion for 2021, 2020 and 2019, respectively. The 2021 revenue increase is primarily related to the authorization for cost recovery as part of the GRC implementation through various balancing accounts and higher cost-recovery activities related to higher purchased power and fuel costs driven by higher power and gas prices. See "—Cost-Recovery Activities" and "—Earnings Activities" for further details. As a result of the CPUC-authorized decoupling mechanism, the price of SCE's services depends on amounts authorized for recovery through SCE's GRCs and other regulatory proceedings and SCE earnings are not affected by changes in retail electricity sales (see "Business—SCE—Overview of Ratemaking Process"). Income Taxes SCE's income tax benefit decreased by $294 million in 2021 compared to 2020. The effective tax rates were 1.8% and (41.7)% for 2021 and 2020, respectively. SCE's effective tax rate is below the federal statutory rate of 21% for 2021 and 2020 primarily due to the CPUC's ratemaking treatment for the current tax benefit arising from certain property-related and other temporary differences, which reverse over time. The accounting treatment for these temporary differences 16 Table of Contents results in recording regulatory assets and liabilities for amounts that would otherwise be recorded to deferred income tax expense. The effective tax rate increase in 2021 is primarily due to the impact of higher pre-tax income, non-tax deductible portions of the SED Agreement, an adjustment as a result of an IRS private letter ruling discussed above, lower flow-through tax benefits as a result of the adoption of the 2021 GRC final decision for certain property-related items discussed above, partially offset by higher tax benefits from the re-measurement of uncertain tax positions, including the impacts of a settlement with the FTB for tax years 2007 – 2012. See "Notes to Consolidated Financial Statements—Note 8. Income Taxes" for a reconciliation of the federal statutory rate to the effective income tax rates. Edison International Parent and Other Results of operations for Edison International Parent and Other includes amounts from other subsidiaries that are not significant as a reportable segment as well as intercompany eliminations. Loss from Operations The following table summarizes the results of Edison International Parent and Other: [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Years ended December 31,"],["(in millions)","","2021","","2020","","2019"],["Edison Energy Group and subsidiaries","\u200b","$","(15)","\u200b","$","(35)","\u200b","$","(24)"],["Corporate expenses and other subsidiaries","\u200b","","5","\u200b","","(36)","\u200b","","(101)"],["Edison International Parent and Other net loss","\u200b","$","(10)","\u200b","$","(71)","\u200b","$","(125)"],["Preferred stock dividend requirement","\u200b","\u200b","60","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014"],["Edison International Parent and Other net loss attributable to common stock","\u200b","$","(70)","\u200b","$","(71)","\u200b","$","(125)"]] [[/GREPCENT_TABLE]] The net loss attributable to common stock from operations of Edison International Parent and Other decreased $1 million in 2021 compared to 2020 primarily due to: [[GREPCENT_TABLE]] [["","\u25cf","An income tax benefit of $110 million recorded in 2021 related to the settlement of the 2007 \u2013 2012 California tax audits with the FTB. See \"Notes to Consolidated Financial Statements\u2014Note 8 Income Taxes.\""]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Earnings of $24 million ($17 million after-tax) recorded in 2021 related to customer revenues for EIS insurance contract. See \"Notes to Consolidated Financial Statements\u2014Note 18. Related-Party Transactions\" for further information."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","An impairment charge of $34 million ($25 million after-tax) recorded in 2020 related to Edison Energy's goodwill."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","A gain of $132 million ($96 million after-tax) recorded in 2020 for the sale of an investment in a lease of a hydroelectric power plant in Vidalia, Louisiana."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Higher preferred dividends of $60 million as a result of Edison International's preferred equity issuance in 2021."]] [[/GREPCENT_TABLE]] LIQUIDITY AND CAPITAL RESOURCES SCE 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 17 Table of Contents 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, regulatory and legal matters. 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. SCE expects to issue bonds to finance or refinance eligible sustainable projects. Eligible sustainable projects include categories such as renewable energy, clean transportation, energy efficiency and carbon reduction, climate change adaptation, and socioeconomic advancement and empowerment. SCE maintains processes to ensure that proceeds from the sale of the bonds are only used for projects that are aligned with the Edison International sustainable financing framework issued in June 2021. SCE also expects to issue additional debt for general corporate purposes and to finance payments for future resolutions of claims related to the 2017/2018 Wildfire/Mudslide Events. At December 31, 2021 SCE had invested all $1.6 billion of the required AB 1054 Excluded Capital Expenditures and SCE expects to finance these amounts by issuing securitized bonds. SCE issued securitized bonds in the amounts of $338 million in February 2021 and $533 million in February 2022. SCE expects to securitize the remaining balance of AB 1054 Excluded Capital Expenditures based on the timing of the CPUC approval of those expenditures and related financing costs. For further information, see "—Regulatory Proceedings—Wildfire Related Regulatory Proceedings." SCE expects to extend a $1.2 billion term loan due in May 2022 as necessary prior to full settlement from the proceeds of the securitized bonds. 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. See "—Regulatory Proceedings" and "Notes to Consolidated Financial Statements—Note 11. Regulatory Assets and Liabilities" for further information. The following table summarizes SCE's current, long-term issuer credit ratings and outlook from the major credit rating agencies: [[GREPCENT_TABLE]] [["\u200b"],["\u200b","","Moody's","","Fitch","","S&P"],["Credit Rating","\u200b","Baa2","\u200b","BBB-","\u200b","BBB"],["Outlook","\u200b","Stable","\u200b","Stable","\u200b","Stable"]] [[/GREPCENT_TABLE]] 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. 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 and environmental remediation obligations would require SCE to pay related liabilities or post additional collateral if SCE's credit rating were to fall below investment grade. 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. For further information see "Management Overview—2021 Cost of Capital Application." 18 Table of Contents Available Liquidity At December 31, 2021, SCE had cash on hand of $279 million and $2.6 billion available to borrow on its $3.4 billion revolving credit facility. The credit facility is available for borrowing needs until May 2025. At December 31, 2021, SCE had $601 million outstanding commercial paper, net of discount, at a weighted average interest rate of 0.45% supported by the $3.4 billion revolving credit facility. The aggregate maximum principal amount under the SCE revolving credit facility may be increased up to $4.0 billion, provided that additional lender commitments are obtained. For further details, see "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements." 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." Debt Covenant 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, 2021, SCE's debt to total capitalization ratio was 0.55 to 1. At December 31, 2021, SCE was in compliance with all financial covenants that affect access to capital. Regulatory Proceedings 2021 General Rate Case The 2021 GRC consists of four separate tracks. Track 1 was similar to previous GRCs and addressed revenue requirements for the three-year period of 2021 – 2023. Tracks 2 and 3 address the reasonableness of 2018 – 2019 and 2020 wildfire mitigation costs that were incremental to amounts authorized in the 2018 GRC, respectively. Track 4 will address the revenue requirement for 2024. SCE is scheduled to submit its testimony for track 4 in May 2022. In January 2021, the CPUC approved a settlement between SCE and all the parties to track 2 of the 2021 GRC proceeding, for further information on track 3 see "—Wildfire Related Regulatory Proceedings." Track 1 In August 2021, the CPUC approved a final decision on track 1 of the 2021 GRC, which resulted in a base rate revenue requirement of $6.9 billion in 2021, an increase of $1.0 billion over amounts authorized for 2020 in the 2018 GRC. This represented an increase of $331 million over revenue requirements authorized for 2020 through the 2018 GRC and subsequent WEMA and GS&RP CPUC approvals. The CPUC has approved the establishment of a memorandum account making the authorized revenue requirement changes effective January 1, 2021. Under the final decision, the increase in January 2021 to September 2021 authorized revenues of $722 million are being collected over a 27-month period beginning October 1, 2021. The final decision authorized $4.9 billion of capital expenditures for 2021. Included in the authorized capital expenditures is $2.4 billion of capital expenditures to install 4,500 miles of covered conductor between 2019 and 2023 as part of SCE's WCCP. See "Results of Operations—SCE" and "Notes to Consolidated Financial Statements—Note 11. Regulatory Assets and Liabilities" for further information. 19 Table of Contents Wildfire Related Regulatory Proceedings In response to the increase in wildfire activity, and faster progression of and increased damage from wildfires across SCE's service territory and throughout California, SCE has incurred wildfire mitigation, wildfire insurance and wildfire and drought restoration related spending at levels significantly exceeding amounts authorized in its 2018 GRC. The 2021 GRC decision authorized the establishment of balancing accounts for expenses for vegetation management, wildfire insurance, and the WCCP program, with expenditures up to certain thresholds approved for cost recovery. SCE may submit subsequent reasonableness review applications for any spending in excess of these thresholds. During the 2021 – 2023 GRC period, SCE expects to incur vegetation management expenses and capital expenditures for WCCP in excess of thresholds established in the 2021 GRC. SCE also expects to incur costs in excess of amounts authorized in the 2021 GRC related to other wildfire mitigation activities, including inspections and maintenance and PSPS. SCE will track these incremental amounts in memorandum accounts which will be subject to approval in future regulatory proceedings. For more information see "Business—SCE—Overview of Ratemaking Process." The following table presents changes in deferred wildfire-related and wildfire and drought restoration expenses during 2021: [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b"],["(in millions)","\u200b","\u200b"],["Balance at December 31, 2020","$","1,465"],["Regulatory deferral","\u200b","728"],["Less: transfer to BRRBA, GRC wildfire mitigation balancing accounts and securitization for approved recovery","\u200b","(438)"],["Balance at December 31, 2021","$","1,755"]] [[/GREPCENT_TABLE]] These deferred wildfire-related and wildfire and drought restoration expenses include $401 million of operations and maintenance expense authorized for recovery in the GRC track 2 proceeding in January 2021. In January 2022, the CPUC approved SCE's request to recover these costs in customer rates over a 36-month period starting March 2022. Wildfire Mitigation Plan Memorandum Account 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 updates to its 2020 – 2022 WMP with the CPUC and OEIS in February 2021 and February 2022, respectively. Due to the requirement to file annual updates to the WMP, many, but not all, of the programs and activities described in SCE's 2020 – 2022 WMP including the 2021 and 2022 updates, are part of SCE's 2021 GRC, which was originally filed on a forecast basis in 2019. The WMP memorandum account is used to track costs of WMP activities in excess of amounts authorized in SCE's GRCs. SCE tracked $133 million and $229 million of expenses in the WMP memorandum account during 2021 and 2020, respectively. WMP capital expenditures not authorized in the 2021 GRC, 2018 GRC or contemplated in the GS&RP proceeding were $114 million and $190 million during 2021 and 2020, respectively. Expenses from 2020 are subject to reasonableness review through track 3 of the 2021 GRC, described below. Expenses from 2021 and subsequent years are subject to reasonableness review, which SCE expects to be conducted through annual proceedings. SCE plans to file an application for recovery of expenses incurred in 2021 that were above authorized amounts in 2022. Fire Hazard Prevention Memorandum Account The FHPMA was established to record the costs incurred related to fire hazard prevention in compliance with decisions 20 Table of Contents from the CPUC. Prior to 2021, SCE used the FHPMA to track incremental vegetation management activities undertaken to reduce the risk of fires. In 2021, SCE recorded vegetation management expenses to the vegetation management balancing account established by the 2021 GRC. During 2021, there were no costs recorded in FHPMA. Expenses from 2018 and 2019 are being recovered in accordance with the GRC track 2 settlement. During 2020, SCE recorded expenses of $252 million in the FHPMA, which are subject to reasonableness review through track 3 of the 2021 GRC, described below. 2021 General Rate Case Wildfire Mitigation Memorandum Account Balances The 2021 GRC decision provided balancing accounts for cost recovery of up to 115% of authorized vegetation management expenses. SCE has recorded $229 million of 2021 vegetation management expenses above 115% of 2021 GRC authorized levels and tracked in the vegetation management balancing account. Such expenses from 2021 and subsequent years are subject to reasonableness review, which SCE expects to be conducted through annual proceedings. For further information, see "Notes to Consolidated Financial Statements—Note 11. Regulatory Assets and Liabilities." In March 2021, SCE made its 2021 GRC track 3 filing with the CPUC. In its filing, SCE requested reasonableness review of approximately $1.2 billion of wildfire mitigation costs incurred prior to 2021, consisting of $497 million of incremental operations and maintenance expenses and other costs, and $679 million of incremental capital expenditures. The track 3 expenditures predominantly related to grid hardening, vegetation management, PSPS activities and enhancements to grid operations. The capital expenditures included $502 million of GS&RP capital expenditures not previously subject to settlement. The $679 million in incremental capital expenditures to be reviewed by the CPUC in track 3 are AB 1054 Excluded Capital Expenditures. After receipt of a final decision in track 3, SCE intends to seek a financing order from the CPUC to securitize these expenses if such expenses are deemed reasonable by the CPUC. The CPUC schedule for SCE's 2021 GRC includes a proposed decision on track 3 in the first quarter of 2022. Wildfire Expense Memorandum Account SCE tracks insurance premium costs related to wildfire liability insurance policies as well as other wildfire-related costs in its WEMA. In December 2020, SCE filed a 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 current WEMA proceeding that would allow these costs to be recovered in rates beginning in 2022. 2020 Emergency Wildfire Restoration Multiple wildfires occurred during 2020 which caused damage within SCE's service territory and to SCE's Big Creek hydroelectric facility. Restoration work is ongoing in relation to these wildfires. SCE expects to file CEMA requests for recovery of approximately $220 million of operation and maintenance expenses and approximately $345 million of capital expenditures incremental to authorized revenue requirements related to these restoration efforts, the majority to be filed in 2022. 2019 CEMA Application In July 2019, SCE filed a CEMA application with the CPUC to seek recovery of $79 million of operation and maintenance expenses related to 2017 – 2018 drought mitigation efforts and $8 million of revenue requirement 21 Table of Contents associated with $60 million of capital expenditures and capital related expenses related to six 2017 wildfires. In August 2021, the CPUC issued a decision that authorized full recovery of requested drought restoration costs and approved a revenue requirement of $81 million. However, the final decision denied without prejudice SCE's application to recover a revenue requirement of $8 million for all six 2017 wildfires on the basis that SCE did not demonstrate that it was prudent in relation to the Thomas and Rye fires and that SCE had failed to segregate the costs attributable to the other four fires. Of the $8 million revenue requirement that was denied, $6 million was for the Thomas and Rye fires. The decision allows SCE to submit additional applications with the CPUC to recover the costs associated with the Thomas and Rye fires, does not specify a deadline for any such applications and directs that SCE must prove it was prudent in relation to the Thomas and/or Rye fires, as applicable, in any such future applications. As required by the final decision with respect to the other four fires, SCE filed supplemental testimony in November 2021 segregating the restoration costs attributable to each such fire. SCE's updated revenue requirement for these fires is $1.5 million. As of December 31, 2021, SCE has $186 million recorded in property, plant and equipment in relation to restoration costs related to the 2017/2018 Wildfire/Mudslide Events, which require future regulatory filings before recovery may be allowed. These assets would be impaired if permanently disallowed by the CPUC in future cost recovery proceedings and are currently excluded from authorized rate base, pending further regulatory action. 2021 CEMA Application In September 2021, SCE filed a CEMA application with the CPUC requesting a revenue requirement of $132 million related to various 2018 – 2020 events, which includes revenue requirements of $69 million related to incremental drought mitigation operation and maintenance expenses incurred from 2019 – 2020 and $58 million related to incremental operation and maintenance expenses related to COVID-19. ERRA Proceeding SCE's cost-recovery mechanism for its fuel and purchased power-related costs is primarily facilitated in two main balancing accounts, the ERRA and the PABA. SCE sets rates based on an annual forecast of the costs that it expects to incur during the subsequent year. At December 31, 2021, the ERRA was undercollected by approximately $760 million due to higher gas and power prices. The undercollection in ERRA at September 30, 2021 resulted in SCE triggering an established mechanism requiring SCE to file an application to advise the CPUC that SCE's undercollections had exceeded the trigger amount and request a rate change (See "Business—Overview of Ratemaking Process," for further information). In January 2022 the CPUC approved inclusion of the rate increase with a scheduled rate change in March 2022. SCE expects to finance power procurement-related costs using commercial paper, its credit facilities and other borrowings until rates are adjusted. 2022 FERC Formula Rate Annual Update SCE filed its 2022 annual update with the FERC in November 2021, with the proposed rate effective January 1, 2022. The update reflected an increase in SCE's transmission revenue requirement of $326 million, 30.0% higher than amounts included in the 2021 annual rates. The increase is primarily due to the portion of charges for wildfire-related claims recorded in 2020 subject to recovery from FERC customers, increased plant in service and recovery of prior year undercollections. CSRP In April 2021, SCE implemented a new customer service system, which replaced a majority of SCE's customer systems. During the initial months of post-implementation stabilization of CSRP, SCE experienced operational issues, including delayed customer billings, generally in line with forecasted operational issues. These operational issues are expected to return to normal by the end of third quarter of 2022. SCE has tracked the cost of the CSRP system implementation in a 22 Table of Contents memorandum account. Expenditures for the CSRP project were significantly higher than originally projected, approximately $546 million in capital and $63 million in operations and maintenance expenses from inception through 2021. In July 2021, SCE filed an application with the CPUC requesting approval of $483 million of capital expenditures and $40 million of operations and maintenance expenses recorded in the CSRP memorandum account through April 2021 resulting in revenue requirements of $411 million from 2021 to 2024. SCE plans to seek recovery of costs from May to December 2021 in a future application anticipated to be filed in the second quarter of 2022. The recorded CSRP incremental memo account expenses and capital during 2022 – 2024 will be included for cost recovery in the 2025 GRC Application. Capital Investment Plan Major Transmission Projects A summary of SCE's most significant transmission and substation construction projects during the next two years is presented below. The timing of the projects below is subject to timely receipt of permitting, licensing and regulatory approvals. [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","","Direct","","\u200b","\u200b","","\u200b","\u200b"],["\u200b","\u200b","Project","\u200b","Expenditures","\u200b","Inception to Date","\u200b","Scheduled In-","\u200b"],["Project Name","","Lifecycle Phase","","(in millions)1","","(in millions)1","","Service Date"],["Mesa Substation","","Construction","\u200b","$","661","\u200b","$","587","","2022","\u200b"],["Riverside Transmission Reliability","","Licensing","\u200b","","584","\u200b","","25","","2026","\u200b"],["Alberhill System2","","Licensing","\u200b","","486","\u200b","","46","","\u2014","2\u200b"],["Eldorado-Lugo-Mohave Upgrade","","Construction","\u200b","","247","\u200b","","183","","2023","\u200b"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["1","Direct expenditures include direct labor, land and contract costs incurred for the respective projects and exclude overhead costs that are included in the capital expenditures forecast discussed in \"Management Overview\u2014Capital Program.\""]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["2","Includes the original estimated project cost for Alberhill. In January 2020, SCE submitted a supplemental analysis to the CPUC which included alternative projects as well as an update to the original project cost. SCE is unable to predict the timing of a final CPUC decision, the corresponding in-service date, and what the final project costs will be for the Alberhill System Project."]] [[/GREPCENT_TABLE]] 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 the first energization of the new substation. SCE plans to have the 500 kV substation in service in the second 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 will 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. 23 Table of Contents In September 2020, SCE obtained approval from the FERC for abandoned plant treatment for the 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. SCE plans to begin construction in the second quarter of 2022. Alberhill System The Alberhill System Project consists 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 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 April 2018 and July 2018, the CPUC issued a proposed decision and an alternate proposed decision, both denying SCE's ability to construct the Alberhill System Project based on a perceived lack of need. SCE filed comments on both proposed decisions requesting that the CPUC grant the certificate of public convenience and necessity ("CPCN") for the Alberhill System Project. 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 alternatives to the proposed project as well as an update to the original project cost. A final decision on the Alberhill System Project remains pending. 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 $55 million of capital expenditures, including overhead costs, as of December 31, 2021, of which approximately $39 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 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 the second quarter of 2023. SCE has revised the commercial operation date from 2022 due to delayed construction start date pending approvals from the Bureau of Land Management and the National Park Service, and due to shortages of foam insulation material caused by production delays within the United States resulting from the COVID-19 pandemic and extreme winter conditions in early 2021. 24 Table of Contents Other Capital Investment Projects and Programs For a discussion of utility owned storage and Grid Development Electrification Programs, see "Management Overview—Capital Program" and "— Electricity Industry Trends." For a discussion of Grid Development for Wildfire Mitigation, see "—Regulatory Proceedings—Wildfire Related Regulatory Proceedings." Decommissioning of San Onofre 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. Under federal law, the DOE is responsible for the selection and construction of a facility for the permanent disposal of spent nuclear fuel and high-level radioactive waste. The DOE has not met its contractual obligation to accept spent nuclear fuel. Extended delays by the DOE have led to the construction of costly alternatives and associated siting and environmental issues. Two Independent Spent Fuel Storage Installations ("ISFSI") store nuclear fuel at San Onofre. The first primarily stores nuclear fuel from Unit 1 ("ISFSI 1") and the second stores nuclear fuel from Units 2 and 3 ("ISFSI 2"). In March 2022, SCE will submit an application to the CCC to amend SCE's CDP for Unit 1 to extend the permit from November 2022 to November 2035. SCE's CDP for ISFSI 2 extends through 2035. Decommissioning of San Onofre Unit 1 began in 1999 and the transfer of spent nuclear fuel from Unit 1 to dry cask storage in ISFSI 1 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 two ISFSIs was completed in August 2020. In October 2019, the CCC approved SCE's application for a CDP, the principal discretionary permit required to start major decommissioning activities at San Onofre Units 2 and 3. In August 2020, SCE commenced, and is currently conducting, major decommissioning activities in accordance with the terms of the permit. The CCC's issuance of the permit was challenged in December 2019 and an October 2021 Los Angeles Superior Court ruling upholding the validity of the permit has been appealed. In the third quarter of 2021, 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 $2.6 billion) in 2021 dollars. The decommissioning cost estimate included costs through the expected decommissioning completion date, currently estimated to be in 2053 for San Onofre Units 2 and 3. SCE will file its updated decommissioning cost estimate with the CPUC by May 2022. Decommissioning cost estimates are subject to 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, 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's share of the San Onofre Units 2 and 3 decommissioning costs recorded during 2021 were $236 million (in 2021 dollars). The CPUC conducts a reasonableness review of recorded decommissioning costs. SCE had nuclear decommissioning trust funds for San Onofre Units 2 and 3 of $2.8 billion as of December 31, 2021. Based upon the resolution of a number of uncertainties, including the uncertainties of decommissioning discussed above, 25 Table of Contents 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, delays in performance by the contractor, elevated levels of inflation, or permitting delays, among other things, could cause SCE to materially overrun the decommissioning cost estimate and could materially impact the sufficiency of trust funds. In December 2021, the CPUC approved disbursements from SCE's nuclear decommissioning trusts to cover forecasted 2022 decommissioning costs for San Onofre Units 2 and 3, of which SCE's share is $290 million in 2022 dollars. SCE Dividends 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." Certain amounts, including the impact of SCE's contributions to the Wildfire Insurance Fund under AB 1054, are excluded from the measurement of SCE's CPUC-jurisdictional authorized capital structure. For further information, see "Business—Southern California Wildfires." The CPUC authorized capital structure differs from the capital structure calculated based on GAAP due to certain exclusions allowed by CPUC. 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 and SCE anticipates filing another application for waiver of compliance with its equity ratio requirement in April 2022. Under the CPUC's rules, SCE will not be deemed to be in violation of the equity ratio requirement while the waiver application is pending resolution. While the exclusion is in place, 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. 26 Table of Contents SCE's ability to declare and pay common dividends may be restricted under the terms of its outstanding series of preference stock. For further information see "Notes to Consolidated Financial Statements—Note 14. Equity." 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 24, 2022, 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. Margin and Collateral Deposits 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, 2021 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, 2021, 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 or upon significant increases in market prices. Furthermore, SCE may also be required to post up to $50 million in collateral in connection with its environmental remediation obligations, within 120 days of the end of the fiscal year in which the downgrade occurs. 27 Table of Contents [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b"],["(in millions)","","\u200b","\u200b"],["Collateral posted as of December 31, 20211","\u200b","$","266"],["Incremental collateral requirements for purchased power and fuel contracts resulting from a potential downgrade of SCE's credit rating to below investment grade2","\u200b","","96"],["Incremental collateral requirements for purchased power and fuel contracts resulting from adverse market price movement3","\u200b","","43"],["Posted and potential collateral requirements","\u200b","$","405"]] [[/GREPCENT_TABLE]] 1      Net collateral provided to counterparties and other brokers consisted of $201 million in letters of credit and surety bonds and $65 million of cash collateral, of which $16 million was offset against derivative liabilities and $49 million was reflected in "Other current assets" on the consolidated balance sheets. 2      Represents potential collateral requirements for accounts payable and market-to-market valuation at December 31, 2021. Requirement varies throughout the period and is generally lower at the end of the month. 3      Incremental collateral requirements were based on potential changes in SCE's forward positions as of December 31, 2021 due to adverse market price movements over the remaining lives of the existing power contracts using a 95% confidence level. Edison International Parent and Other In the next 12 months, Edison International expects to fund its net cash requirements through cash on hand, dividends from SCE, and equity issuances 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. At December 31, 2021, Edison International Parent had cash on hand of $52 million and $1.5 billion available to borrow on its $1.5 billion revolving credit facility. The credit facility is available for borrowing needs until May 2025. At December 31, 2021, Edison International Parent did not have any outstanding commercial paper. The aggregate maximum principal amount under the Edison International Parent revolving credit facility may be increased up to $2.0 billion, provided that additional lender commitments are obtained. In 2021, Edison International issued $2.0 billion of preferred securities, containing approximately $1.0 billion of equity content as viewed by rating agencies, to enable SCE to issue debt to finance payments for resolution of wildfire claims related to the 2017/2018 Wildfire/Mudslide Events, while allowing Edison International and SCE to maintain investment grade credit ratings. Edison International does not expect further issuances of equity securities to support financing the resolution of wildfire claims contemplated in its loss estimates for remaining alleged and potential claims related to the 2017/2018 Wildfire/Mudslide Events at December 31, 2021. However, an increase in estimated losses for remaining alleged and potential claims related to the 2017/2018 Wildfire/Mudslide Events could result in increased equity needs. In order to fund SCE's growth, Edison International expects to issue securities containing up to $250 million of equity content annually, on average from 2022 through 2025. In 2022, Edison International expects to issue securities containing $300 to $400 million of equity content to support SCE's capital investment needs and SCE maintaining the common equity component of its capital structure, after CPUC allowed exclusions, at 52% on a weighted average basis over the Capital Structure Compliance Period. For further information, see "—SCE—SCE Dividends." The higher-than-average equity content expected in 2022 is driven by the anticipated capital expenditures associated with SCE's utility owned storage projects. For further information see "Management Overview—Capital Program." 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 28 Table of Contents 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's ability to declare and pay common dividends may be restricted under the terms of the Series A and Series B Preferred Stock. For further information see "Notes to Consolidated Financial Statements—Note 14. Equity." 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, 2021, Edison International's consolidated debt to total capitalization ratio was 0.61 to 1. At December 31, 2021, Edison International Parent was in compliance with all financial covenants that affect access to capital. The following table summarizes Edison International Parent's current long-term issuer credit ratings and outlook from the major credit rating agencies: [[GREPCENT_TABLE]] [["\u200b"],["\u200b","","Moody's","","Fitch","","S&P"],["Credit Rating","\u200b","Baa3","\u200b","BBB-","\u200b","BBB"],["Outlook","\u200b","Stable","\u200b","Stable","\u200b","Stable"]] [[/GREPCENT_TABLE]] ​ 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. 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. Net Operating Loss and Tax Credit Carryforwards Edison International has approximately $2.9 billion of tax effected net operating loss and tax credit carryforwards at December 31, 2021 (after offsetting $277 million of unrecognized tax benefits and $223 million of Capistrano Wind net operating loss and tax credit carryforwards), which are available to offset future consolidated tax liabilities. See "Notes to Consolidated Financial Statements—Note 8. Income Taxes" for further information regarding taxes payable to Capistrano Wind. Edison International expects to utilize its net operating loss and tax credit carryforwards through 2029 based on currently enacted tax laws. Historical Cash Flows SCE [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in millions)","","2021","","2020","","2019"],["Net cash provided by (used in) operating activities","\u200b","$","158","\u200b","$","1,427","\u200b","$","(91)"],["Net cash provided by financing activities","\u200b","","5,218","\u200b","","3,699","\u200b","","4,771"],["Net cash used in investing activities","\u200b","","(5,152)","\u200b","","(5,094)","\u200b","","(4,678)"],["Net increase in cash, cash equivalents and restricted cash","\u200b","$","224","\u200b","$","32","\u200b","$","2"]] [[/GREPCENT_TABLE]] ​ ​ 29 Table of Contents Net Cash Provided by (Used in) Operating Activities The following table summarizes major categories of net cash provided by (used in) operating activities as provided in more detail in SCE's consolidated statements of cash flows for 2021, 2020 and 2019: [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Years ended December 31,","\u200b","Change in cash flows"],["(in millions)","","2021","","2020","","2019","","2021/2020","","2020/2019"],["Net income","","$","935","","$","942","","$","1,530","","\u200b","","","\u200b"],["Non-cash items1","\u200b","","2,534","\u200b","","1,840","\u200b","","1,782","","\u200b","","","\u200b"],["Subtotal","\u200b","","3,469","\u200b","","2,782","\u200b","","3,312","","\u200b","687","","\u200b","(530)"],["Contributions to Wildfire Insurance Fund","\u200b","","(95)","\u200b","","(95)","\u200b","","(2,457)","","\u200b","\u2014","","\u200b","2,362"],["Changes in cash flow resulting from working capital2","\u200b","","(705)","\u200b","","(136)","\u200b","","298","","\u200b","(569)","","\u200b","(434)"],["Regulatory assets and liabilities","\u200b","","(720)","\u200b","","(1,799)","\u200b","","(1,278)","","\u200b","1,079","","\u200b","(521)"],["Wildfire related claims3","\u200b","\u200b","(2,648)","\u200b","\u200b","(56)","\u200b","\u200b","(101)","\u200b","\u200b","(2,592)","\u200b","\u200b","45"],["Proceeds from Morongo Transmission LLC4","\u200b","\u200b","400","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","400","\u200b","\u200b","\u2014"],["Other noncurrent assets and liabilities5","\u200b","","457","\u200b","","731","\u200b","","135","","\u200b","(274)","","\u200b","596"],["Net cash provided by (used in) operating activities","\u200b","$","158","\u200b","$","1,427","\u200b","$","(91)","\u200b","$","(1,269)","\u200b","$","1,518"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["1","Non-cash items include depreciation and amortization, allowance for equity during construction, impairment and other, Wildfire Insurance Fund amortization expense, deferred income taxes and other."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["2","Changes in working capital items include receivables, inventory, amortization of prepaid expenses, accounts payable, tax receivables and payables, and other current assets and liabilities."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["3","2021 amounts include $3.9 billion settlements on 2017/2018 Wildfire/Mudslide Events claims, partially offset by an increase of estimated loss of $1.3 billion. The 2020 and 2019 amounts were primarily related to payments of $1.5 billion and $360 million for 2017/2018 Wildfire/Mudslide Events, respectively, partially offset by an increase of $1.3 billion and $232 million in liabilities for the 2017/2018 Wildfire/Mudslide Events, respectively."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["4","Represents $400 million proceeds from Morongo Transmission LLC for use of a portion of the West of Devers transmission line in 2021."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["5","Includes changes in wildfire-related insurance receivables. Also includes nuclear decommissioning trusts. See \"Nuclear Decommissioning Activities\" below for further information."]] [[/GREPCENT_TABLE]] Net cash provided by operating activities was impacted by the following: Net income and non-cash items increased in 2021 by $687 million from 2020 primarily due the impact of adopting the 2021 GRC final decision and higher FERC revenue, partially offset by lower insurance benefits and higher property taxes. Net cash used in operating activities was also impacted by cash outflow of $95 million related to SCE's contributions to the Wildfire Insurance Fund in both 2021 and 2020. See "Business—Southern California Wildfire" for further information. Net cash outflow for working capital was $705 million and $136 million in 2021 and 2020, respectively. Net cash outflow for working capital increased in 2021 mainly due to increases in unbilled revenue and customer receivables of $700 million in 2021 and $357 million in 2020, respectively. The net cash outflow in 2020 was partially offset by an increase in payables of $255 million. Net cash used in regulatory assets and liabilities, including the increase in net undercollections of balancing accounts, was $720 million and $1,799 million in 2021 and 2020, respectively. SCE has a number of balancing and memorandum 30 Table of Contents 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: 2021 [[GREPCENT_TABLE]] [["\u25cf","Net undercollections of BRRBA increased by $227 million primarily driven by adoption of the 2021 GRC final decision, including 2021 authorized revenue requirements to be collected over a 27-month period starting October 2021, and CEMA drought authorized revenue requirement to be collected over a 12-month period starting October 2021. The undercollections are partially offset by current year overcollection due to higher sales volume, and recovery of prior year undercollections, including WEMA and GS&RP being collected over a two-year and one-year period, respectively, starting October 2020."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Undercollections of $364 million were related to wildfire-related expenses that are probable of future recovery from customers. See \"Notes to Consolidated Financial Statements\u2014Note 11. Regulatory Assets and Liabilities\" for further information."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Undercollections of CEMA accounts decreased by $62 million as a result of approval to recover drought restoration costs, which was transferred to BRRBA for recovery, partially offset by additional restoration costs due to wildfire events in 2020."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Net undercollections for ERRA, PABA and the New System Generation Balancing Account (\"NSGBA\") increased by $251 million primarily due to current year undercollections as a result of higher gas and power prices, partially offset by higher sales volume, and recovery of prior PABA and NSGBA undercollections."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Undercollections from COVID-19-related memorandum and balancing accounts decreased by $82 million due to transfer of $182 million to ERRA and public purpose programs, partially offset by additional customer uncollectible expenses."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Undercollections of $98 million in the CSRP memorandum account were related to CSRP implementation costs."]] [[/GREPCENT_TABLE]] 2020 [[GREPCENT_TABLE]] [["\u25cf","Net undercollections of BRRBA were $622 million at December 31, 2020, compared to net overcollections of $328 million at December 31, 2019. Net undercollections increased by $950 million primarily due to refunds of prior overcollections (including incremental tax benefits and overcollections of distribution revenue that are being refunded over an 18-month period, starting in July 2019, as part of SCE's 2018 GRC decision), reclassification of approximately $500 million in undercollections from WEMA to be collected over a two-year period, starting October 2020, and the CPUC approval of $140 million GS&RP spending to be collected over a one-year period, starting October 2020, partially offset by current year overcollections due to higher distribution revenue primarily driven by higher residential usage."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Undercollections of $356 million were related to wildfire-related expenses that are probable of future recovery from customers, including wildfire risk mitigation costs and insurance premiums, partially offset by an approximately $500 million reclassification to BRRBA as discussed above."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Undercollections of $241 million were related to service restoration and damage repair costs that were tracked in CEMA accounts, primarily due to wildfire events incurred in 2020 and drought restoration costs."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Net undercollections of FERC balancing accounts were $12 million at December 31, 2020, compared to net overcollections of $127 million at December 31, 2019. Net overcollections of FERC balancing accounts decreased by $139 million primarily due to a refund of prior year overcollections, expected recoveries from FERC customers"]] [[/GREPCENT_TABLE]] 31 Table of Contents [[GREPCENT_TABLE]] [["","related to 2017/2018 Wildfire/Mudslide Events and higher expenses related to wildfire mitigation and vegetation management, partially offset by overcollections due to current year billing at a higher ROE than approved in the 2019 Formula Rate Settlement."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Net undercollections for ERRA, PABA and the New System Generation Balancing Account decreased by $201 million primarily due to recovery of prior ERRA and PABA undercollections, partially offset by undercollections in 2020 due to higher than forecasted power purchase price due to warmer than expected weather in the second half of the year."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Undercollections of $176 million were related to incremental costs associated with COVID-19, primarily related to customer uncollectibles, sequestering certain SCE employees and coordination of SCE's response to the emergency."]] [[/GREPCENT_TABLE]] Cash flows (used in) or provided by other noncurrent assets and liabilities were primarily related to the insurance recovery of $708 million and $1.0 billion in 2021 and 2020, respectively. See "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies" for further information. Cash flows (used in) or provided by other noncurrent assets and liabilities also includes net loss of $31 million and net earnings of $25 million from nuclear decommissioning trust investments in 2021 and 2020, respectively and SCE's payments of decommissioning costs ($238 million and $223 million in 2021 and 2020, respectively). See "Nuclear Decommissioning Activities" below for further discussion. Net Cash Provided by Financing Activities The following table summarizes cash provided by financing activities for 2021, 2020 and 2019. Issuances of debt and capital contribution from Edison International Parent are discussed in "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements" and "—Note 14. Equity." [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in millions)","\u200b","2021","","2020","","2019"],["Issuances of long-term debt, including premium/discount and net of issuance costs","\u200b","$","5,411","\u200b","$","2,676","\u200b","$","2,306"],["Long-term debt repaid or repurchased","","\u200b","(1,037)","\u200b","\u200b","(699)","\u200b","\u200b","(82)"],["Short-term debt borrowed","","\u200b","2,654","","\u200b","2,194","","\u200b","750"],["Short-term debt repaid","","\u200b","(2,255)","\u200b","\u200b","(326)","\u200b","\u200b","(750)"],["Commercial paper financing, net","\u200b","\u200b","(124)","\u200b","\u200b","175","\u200b","\u200b","(171)"],["Capital contributions from Edison International Parent","","\u200b","1,633","","\u200b","1,432","","\u200b","3,250"],["Redemptions of preferred and preference stock","","\u200b","\u2014","","\u200b","(308)","","\u200b","\u2014"],["Payment of common stock dividends to Edison International","","\u200b","(975)","","\u200b","(1,332)","","\u200b","(400)"],["Payment of preferred and preference stock dividends","","\u200b","(106)","","\u200b","(118)","","\u200b","(121)"],["Other","","\u200b","17","","\u200b","5","","\u200b","(11)"],["Net cash provided by financing activities","\u200b","$","5,218","\u200b","$","3,699","\u200b","$","4,771"]] [[/GREPCENT_TABLE]] ​ Net Cash Used in Investing Activities Cash flows used in investing activities are primarily due to capital expenditures and funding of nuclear decommissioning trusts. Cash used in capital expenditures were $5.5 billion, $5.5 billion and $4.9 billion for 2021, 2020 and 2019, respectively, primarily related to transmission and generation investments. SCE had a net redemption of nuclear decommissioning trust investments of $256 million and $197 million in 2021 and 2020, respectively. See "Nuclear Decommissioning Activities" below for further discussion. 32 Table of Contents Nuclear Decommissioning Activities SCE's statements of cash flows include nuclear decommissioning activities, which are reflected in the following line items: [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in millions)","","2021","","2020","","2019"],["Net cash used in operating activities:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net (losses) earnings from nuclear decommissioning trust investments","\u200b","$","(31)","\u200b","$","25","\u200b","$","67"],["SCE's decommissioning costs","","\u200b","(238)","","\u200b","(223)","","\u200b","(172)"],["Net cash provided by investing activities:","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b"],["Proceeds from sale of investments","\u200b","\u200b","3,961","\u200b","\u200b","5,927","\u200b","\u200b","4,389"],["Purchases of investments","","\u200b","(3,705)","","\u200b","(5,730)","","\u200b","(4,283)"],["Net cash impact","\u200b","$","(13)","\u200b","$","(1)","\u200b","$","1"]] [[/GREPCENT_TABLE]] 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 ($238 million and $223 million in 2021 and 2020, respectively) and reimbursements to SCE from the nuclear decommissioning trust ($225 million and $222 million in 2021 and 2020, respectively). Edison International Parent and Other The table below sets forth condensed historical cash flow from operations for Edison International Parent and Other, including intercompany eliminations. [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in millions)","","2021","","2020","","2019"],["Net cash used in operating activities","\u200b","$","(147)","\u200b","$","(164)","\u200b","$","(216)"],["Net cash provided by financing activities","","\u200b","227","","\u200b","28","","\u200b","132"],["Net cash provided by investing activities","","\u200b","1","","\u200b","123","","\u200b","\u2014"],["Net increase (decrease) in cash and cash equivalents","\u200b","$","81","\u200b","$","(13)","\u200b","$","(84)"]] [[/GREPCENT_TABLE]] ​ Net Cash Used in Operating Activities Net cash used in operating activities decreased in 2021 by $17 million from 2020 due to: [[GREPCENT_TABLE]] [["\u25cf","Outflows of $147 million and $164 million from operating activities in 2021 and 2020, respectively, due to payments and receipts relating to interest and operating costs."]] [[/GREPCENT_TABLE]] 33 Table of Contents Net Cash Provided by Financing Activities Net cash provided by financing activities were as follows: [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in millions)","","2021","","2020","","2019"],["Dividends paid to Edison International common shareholders","\u200b","$","(988)","\u200b","$","(928)","\u200b","$","(810)"],["Dividends paid to Edison International preferred shareholders","\u200b","\u200b","(35)","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014"],["Dividends received from SCE","","\u200b","975","","\u200b","1,332","","\u200b","400"],["Capital contributions to SCE","","\u200b","(1,633)","","\u200b","(1,432)","","\u200b","(3,250)"],["Issuance of common stock","","\u200b","32","","\u200b","912","","\u200b","2,391"],["Issuance of preferred stock, net of issuance costs","\u200b","\u200b","1,977","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014"],["Long-term debt issuance, net of discount and issuance costs","","\u200b","\u2014","","\u200b","397","","\u200b","1,390"],["Long-term debt repayments","","\u200b","\u2014","","\u200b","(400)","","\u200b","\u2014"],["Commercial paper financing, net","","\u200b","(130)","","\u200b","129","","\u200b","(1)"],["Other","","\u200b","29","","\u200b","18","","\u200b","12"],["Net cash provided by financing activities","\u200b","$","227","\u200b","$","28","\u200b","$","132"]] [[/GREPCENT_TABLE]] ​ Net Cash Provided by Investing Activities 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. Contractual Obligations and Contingencies Contractual Obligations SCE and Edison International Parent and Other have various contractual obligations, which are recorded as liabilities in the consolidated financial statements. Other items, such as certain purchase commitments and other executory contracts, are not recognized as liabilities in the consolidated financial statements but are required to be disclosed in the footnotes to the financial statements. For details on long-term debt, see "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements." Certain power purchase agreements which SCE entered into with independent power producers are treated as operating or finance leases. In addition, SCE has other operating lease obligations primarily related to vehicles, office space and other equipment. For further discussion, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies" and "—Note 13. Leases." SCE also has other purchase obligations primarily related to maintaining reliability and expanding SCE's transmission and distribution system and nuclear fuel supply contracts. For further discussion, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies." Edison International Parent and Other and SCE have estimated contributions to the pension and postretirement benefits other than pension ("PBOP") plans. These amounts represent estimates that are based on assumptions that are subject to change. See "Notes to Consolidated Financial Statements—Note 9. Compensation and Benefit Plans" for further information. Edison International and SCE have a total net liability recorded for uncertain tax positions. Edison International and SCE cannot make reliable estimates of the cash flows by period due to uncertainty surrounding the timing of resolving these 34 Table of Contents open tax issues with the tax authorities. See "Notes to Consolidated Financial Statements—Note 8. Income Taxes" for further information. For details on derivative obligations and asset retirement obligations, see "Notes to Consolidated Financial Statements—Note 6. Derivative Instruments" and "—Note 1. Summary of Significant Accounting Policies," respectively. Contingencies Edison International's and SCE's contingencies are discussed in "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies." Off-Balance Sheet Arrangements 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 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." Environmental Developments For a discussion of environmental developments, see "Business—Environmental Considerations." MARKET RISK EXPOSURES 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." Interest Rate Risk Edison International and SCE are exposed to changes in interest rates primarily as a result of 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" 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: [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in millions)","","\u200b","Carrying Value","","\u200b","Fair Value","","10% Increase","","10% Decrease"],["Edison International:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["December 31, 2021","","$","25,247","","$","27,718","\u200b","$","26,920","\u200b","$","28,565"],["December 31, 2020","","","20,337","","","23,824","\u200b","","23,132","\u200b","","24,557"],["SCE:","","","","","","","\u200b","","","\u200b"],["December 31, 2021","","\u200b","22,110","","\u200b","24,375","\u200b","\u200b","23,603","\u200b","\u200b","25,196"],["December 31, 2020","","","17,204","","","20,365","\u200b","","19,700","\u200b","","21,071"]] [[/GREPCENT_TABLE]] 35 Table of Contents Commodity Price Risk 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. Fair Value of Derivative Instruments The fair value of derivative instruments is included in the consolidated balance sheets unless subject to an exception under the applicable accounting guidance. Realized gains and losses from derivative instruments are expected to be recovered from or refunded to customers through regulatory mechanisms and, accordingly, changes in the fair value of derivative instruments have no impact on earnings. SCE does not use hedge accounting for these transactions due to this regulatory accounting treatment. For further discussion on fair value measurements and the fair value hierarchy, see "Notes to Consolidated Financial Statements—Note 4. Fair Value Measurements." The fair value of outstanding derivative instruments used to mitigate exposure to commodity price risk was a net asset of $44 million and $108 million at December 31, 2021 and 2020, respectively. The following table summarizes the increase or decrease to the fair values of the net asset of derivative instruments included in the consolidated balance sheets, if the electricity prices or gas prices were changed while leaving all other assumptions constant: [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,"],["(in millions)","","2021","","2020"],["Increase in electricity prices by 10%","\u200b","$","13","\u200b","$","18"],["Decrease in electricity prices by 10%","\u200b","","(13)","\u200b","","(18)"],["Increase in gas prices by 10%","\u200b","","20","\u200b","","9"],["Decrease in gas prices by 10%","\u200b","","(20)","\u200b","","(9)"]] [[/GREPCENT_TABLE]] Credit Risk Credit risk exposure from counterparties for power and gas trading activities is measured as the sum of net accounts receivable (accounts receivable less accounts payable) and the current fair value of net derivative assets (derivative assets less derivative liabilities) reflected on the consolidated balance sheets. SCE enters into master agreements which typically provide for a right of set-off. Accordingly, SCE's credit risk exposure from counterparties is based on a net exposure under these arrangements. SCE manages the credit risk on the portfolio of counterparties based on credit ratings and other publicly disclosed information, such as financial statements, regulatory filings and press releases, to guide it in the process of setting credit levels, risk limits and contractual arrangements, including master netting agreements. Based on SCE's policies and risk exposures related to credit, SCE does not anticipate a material adverse effect on their financial statements as a result of counterparty nonperformance. At December 31, 2021, SCE's power and gas trading counterparty credit risk exposure was $45 million, all of which is associated with entities that have an investment grade rating of A or higher. SCE assigns a credit rating to counterparties based on the lower of a counterparty's S&P or Moody's rating. For more information related to credit risks, see "Notes to Consolidated Financial Statements—Note 6. Derivative Instruments." 36 Table of Contents CRITICAL ACCOUNTING ESTIMATES AND POLICIES The accounting policies described below are considered critical to obtaining an understanding of Edison International's and SCE's consolidated financial statements because their application requires the use of significant estimates and judgments by management in preparing the consolidated financial statements. Management estimates and judgments are inherently uncertain and may differ significantly from actual results achieved. Management considers an accounting estimate to be critical if the estimate requires significant assumptions and changes in the estimate or, the use of alternative estimates, could have a material impact on Edison International's results of operations or financial position. For more information on Edison International's accounting policies, see "Notes to Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies." Rate Regulated Enterprises Nature of Estimate Required.   SCE follows the accounting principles for rate-regulated enterprises which are required for entities whose rates are set by regulators at levels intended to recover the estimated costs of providing service, plus a return on net investment, or rate base. Regulators may also impose penalties or grant incentives. Due to timing and other differences in the collection of revenue, these principles allow a cost that would otherwise be charged as an expense by an unregulated entity to be capitalized as a regulatory asset if it is probable that such cost is recoverable through future rates; conversely the principles allow creation of a regulatory liability for amounts collected in rates to recover costs expected to be incurred in the future or amounts collected in excess of costs incurred and refundable to customers. In addition, SCE recognizes revenue and regulatory assets from alternative revenue programs, which enables the utility to adjust future rates in response to past activities or completed events, if certain criteria are met, even for programs that do not qualify for recognition of "traditional" regulatory assets and liabilities. Accounting principles for rate-regulated enterprises also require recognition of an impairment loss if it becomes probable that the regulated utility will abandon a plant investment, or if it becomes probable that the cost of a recently completed plant will be disallowed, either directly or indirectly, for ratemaking purposes and a reasonable estimate of the amount of the disallowance can be made. Key Assumptions and Approach Used.   SCE's management assesses at the end of each reporting period whether regulatory assets are probable of future recovery by considering factors such as the current regulatory environment, the issuance of rate orders on recovery of the specific or a similar incurred cost to SCE or other rate-regulated entities, and other factors that would indicate that the regulator will treat an incurred cost as allowable for ratemaking purposes. Using these factors, management has determined that existing regulatory assets and liabilities are probable of future recovery or settlement. This determination reflects the current regulatory climate and is subject to change in the future. SCE also considers whether any plant investments are probable of abandonment or disallowance. Effect if Different Assumptions Used.   Significant management judgment is required to evaluate the anticipated recovery of regulatory assets and plant investments, the recognition of incentives and revenue subject to refund, as well as the anticipated cost of regulatory liabilities or penalties. If future recovery of costs ceases to be probable, all or part of the regulatory assets, plant investments and/or liabilities would have to be written off against current period earnings. At December 31, 2021, the consolidated balance sheets included regulatory assets of $9.4 billion and regulatory liabilities of $9.6 billion. If different judgments were reached on recovery of costs and timing of income recognition, SCE's earnings may vary from the amounts reported. Accounting for Contingencies Nature of Estimates Required. Edison International and SCE record loss contingencies when management determines that the outcome of future events is probable of occurring and when the amount of the loss can be reasonably estimated. Gain contingencies are recognized in the financial statements when they are realized. 37 Table of Contents Key Assumptions and Approach Used. The determination of an accrual for a loss contingency is based on management judgment and estimates with respect to the likely outcome of the matter, including the analysis of different scenarios. Liabilities are recorded or adjusted when events or circumstances cause these judgments or estimates to change. In assessing whether a loss is a reasonable possibility, Edison International and SCE may consider the following factors, among others: the nature of the litigation, claim or assessment, available information, opinions or views of legal counsel and other advisors, and the experience gained from similar cases. Edison International and SCE provide disclosures for material contingencies when there is a reasonable possibility that a loss or an additional loss may be incurred. Effect if Different Assumptions Used. Actual amounts realized upon settlement of contingencies may be different than amounts recorded and disclosed and could have a significant impact on the liabilities, revenue and expenses recorded on the consolidated financial statements. For a discussion of contingencies, guarantees and indemnities, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies." Application to Southern California Wildfires As discussed in "Management Overview," 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. 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. Any potential liability of SCE for damages related to wildfires depends on a number of factors, including whether SCE is determined to have substantially caused, or contributed to, the damages and whether parties seeking recovery of damages will be required to show negligence in addition to causation. Final determinations of liability for wildfire events, including determinations of whether SCE was negligent, would only be made during lengthy and complex litigation processes. Management judgment was required to assess whether a loss contingency was probable and reasonably estimable for the 2017/2018 Wildfire/Mudslide Events. Based on SCE's internal review into the facts and circumstances of each of the 2017/2018 Wildfire/Mudslide Events and consideration of the risks associated with litigation, Edison International and SCE have incurred material losses in connection with the 2017/2018 Wildfire/Mudslide Events. Edison International and SCE accrued charges, before recoveries and taxes, of $1.3 billion, $1.3 billion and $232 million for the 2017/2018 Wildfire/Mudslide Events in the years ended 2021, 2020 and 2019, respectively. Edison International and SCE recorded expected recoveries from insurance of $2.0 billion for 2017/2018 Wildfire/Mudslide Events during 2018. Edison International and SCE also recorded expected recoveries through FERC electric rates of $67 million, $84 million and $14 million in the years 2021, 2020 and 2019, respectively. The net charges to earnings recorded were $894 million, $874 million and $157 million after-tax in 2021, 2020 and 2019 respectively. Estimated losses for the 2017/2018 Wildfire/Mudslide Events litigation are based on a number of assumptions and are subject to change as additional information becomes available. Actual losses incurred may be higher or lower than estimated based on several factors, including: the uncertainty in estimating damages that have been or may be alleged, the ability to reach settlements through the ongoing claims mediation processes, uncertainties related to the litigation processes, uncertainty as to the legal and factual determinations to be made during litigation, including uncertainty as to the contributing causes of the 2017/2018 Wildfire/Mudslide Events, the complexities associated with fires that merge and whether inverse condemnation will be held applicable to SCE with respect to damages caused by the Montecito Mudslides, and the uncertainty as to how these factors impact future settlements. 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 previously 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. Each reporting period, management reviews its loss estimates for remaining alleged and potential claims 38 Table of Contents related to the 2017/2018 Wildfire/Mudslide Events. The net result of management's 2021 reviews, including a review of information obtained as a result of achieving key milestones in the litigation process, including settlement activity to date and the expiration of some statutes of limitations, was a $1.3 billion increase in estimated losses for the 2017/2018 Wildfire/Mudslide Events during the third quarter of 2021. Recovery of SCE's actual losses realized in connection with the 2017/2018 Wildfire/Mudslide Events in excess of available insurance is subject to approval by regulators. Under accounting standards for rate-regulated enterprises, SCE defers costs as regulatory assets when it concludes that such costs are probable of future recovery in electric rates. SCE utilizes objectively determinable evidence to form its view on probability of future recovery. The only directly comparable precedent in which a California investor-owned utility has sought recovery for uninsured wildfire-related costs is SDG&E's requests for cost recovery related to 2007 wildfire activity, where the FERC allowed recovery of all FERC-jurisdictional wildfire-related costs while the CPUC rejected recovery of all CPUC-jurisdictional wildfire-related costs based on a determination that SDG&E did not meet the CPUC's prudency standard. As a result, while SCE does not agree with the CPUC's decision, it believes that the CPUC's interpretation and application of the prudency standard to SDG&E creates substantial uncertainty regarding how that standard will be applied to an investor-owned utility in wildfire cost-recovery proceedings for fires ignited prior to July 12, 2019. SCE will continue to evaluate the probability of recovery based on available evidence, including judicial, legislative and regulatory decisions, including any CPUC decisions illustrating the interpretation and/or application of the prudency standard when making determinations regarding recovery of uninsured wildfire-related costs. While the CPUC has not made a determination regarding SCE's prudency relative to any of the 2017/2018 Wildfire/Mudslide Events, SCE is unable to conclude, at this time, that uninsured CPUC-jurisdictional wildfire-related costs are probable of recovery through electric rates. SCE would record a regulatory asset at the time it obtains sufficient information to support a conclusion that recovery is probable. Through the operation of its FERC Formula Rate and based upon the precedent established in SDG&E's recovery of FERC-jurisdictional wildfire-related costs, SCE believes it is probable it will recover its FERC-jurisdictional wildfire and debris flow-related costs and has recorded expected recoveries within the FERC balancing account. Over the course of the various investigations and litigation processes associated with each of the 2017/2018 Wildfire/Mudslide Events, new facts may emerge as to the cause, extent and magnitude of potential damages. The amount of the expected loss and recorded receivables are subject to change based on new or additional information. Income Taxes Nature of Estimates Required.   As part of the process of preparing its consolidated financial statements, Edison International and SCE are required to estimate income taxes for each jurisdiction in which they operate. This process involves estimating actual current period tax expense together with assessing temporary differences resulting from differing treatment of items, such as depreciation, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within Edison International's and SCE's consolidated balance sheets, including net operating loss and tax credit carryforwards. Certain estimates and assumptions are required to determine whether deferred tax assets can and will be utilized in future periods. Edison International expects that $7 million in loss and credit carryovers set to expire in 2022, will go unutilized and established a valuation allowance against this asset during 2021. Based on currently enacted tax laws, Edison International expects to generate sufficient taxable income beginning in 2023 to fully utilize all loss and credit carryovers set to expire beyond 2022. Edison International and SCE take certain tax positions they believe are in accordance with the applicable tax laws. However, these tax positions are subject to interpretation by the Internal Revenue Service, state tax authorities and the courts. Edison International and SCE determine uncertain tax positions in accordance with the authoritative guidance. Key Assumptions and Approach Used.  In determining whether it is more likely than not that all or some portion of net operating loss and tax credit carryforwards can be utilized, management analyzes the trend of U.S. GAAP earnings and 39 Table of Contents then estimates the impact of future taxable income, reversing temporary differences and available prudent and feasible tax planning strategies based on currently enacted tax laws. Accounting for tax obligations requires management judgment. Edison International's and SCE's management use judgment in determining whether the evidence indicates it is more likely than not, based solely on the technical merits, that a tax position will be sustained, and to determine the amount of tax benefits to be recognized. Judgment is also used in determining the likelihood a tax position will be settled and possible settlement outcomes. In assessing uncertain tax positions Edison International and SCE consider, among others, the following factors: the facts and circumstances of the position, regulations, rulings, and case law, opinions or views of legal counsel and other advisers, and the experience gained from similar tax positions. Edison International and SCE evaluate uncertain tax positions at the end of each reporting period and make adjustments when warranted based on changes in fact or law. Effect if Different Assumptions Used.  Should a change in facts or circumstances, including a change in enacted tax legislation, lead to a change in judgment about the ultimate realizability of a deferred tax asset, Edison International and SCE would record or adjust the related valuation allowance in the period that the change in facts and circumstances occurs, along with a corresponding increase or decrease in the provision for income taxes. Actual income taxes may differ from the estimated amounts which could have a significant impact on the liabilities, revenue and expenses recorded in the financial statements. Edison International and SCE continue to be under audit or subject to audit for multiple years in various jurisdictions. Significant judgment is required to determine the tax treatment of particular tax positions that involve interpretations of complex tax laws. Such liabilities are based on judgment and a final determination could take many years from the time the liability is recorded. Furthermore, settlement of tax positions included in open tax years may be resolved by compromises of tax positions based on current factors and business considerations that may result in material adjustments to income taxes previously estimated. For a discussion of current and deferred taxes, net operating losses and tax credit carryforwards, accounting for uncertainty in income taxes, unrecognized tax benefits, and tax disputes, see "Notes to Consolidated Financial Statements—Note 8. Income Taxes." Nuclear Decommissioning – Asset Retirement Obligation Key Assumptions and Approach Used.   San Onofre Units 1, 2 and 3 decommissioning cost estimates are updated in each Nuclear Decommissioning Cost Triennial Proceeding ("NDCTP") and when there are material changes to the timing or amount of estimated future cash flows. Palo Verde decommissioning cost estimates are updated by the operating agent, Arizona Public Services, every three years and when there are material changes to the timing or amount of estimated future cash flows. SCE estimates that it will spend approximately $6.3 billion undiscounted through 2080 to decommission its nuclear facilities. The current ARO estimates for San Onofre and Palo Verde are based on: [[GREPCENT_TABLE]] [["\u25cf","Decommissioning Costs. The estimated costs for labor, material, equipment and other, and low-level radioactive waste costs are included in each of the NRC decommissioning stages: license termination, site restoration and spent fuel storage. The liability to decommission SCE's nuclear power facilities is based on a 2020 decommissioning study to be filed as part of the 2021 NDCTP for San Onofre Unit 1, 2 and 3 and a 2019 decommissioning study for Palo Verde, with revisions to the cost estimate in 2020."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Escalation Rates. Annual escalation rates are used to convert the decommissioning cost estimates in base year dollars to decommissioning cost estimates in future-year dollars. Escalation rates are primarily used for labor, material, equipment and low-level radioactive waste burial costs. SCE's current estimates are based upon SCE's decommissioning cost methodology used for ratemaking purposes. Average escalation rates range from 1.7% to 7.5% (depending on the cost element) annually."]] [[/GREPCENT_TABLE]] 40 Table of Contents [[GREPCENT_TABLE]] [["\u25cf","Timing. Cost estimates for Palo Verde are based on an assumption that decommissioning will commence promptly after the current NRC operating licenses expire. The Palo Verde 1, 2, 3 operating licenses currently expire in 2045, 2046 and 2047, respectively. Initial decommissioning activities at San Onofre Unit 1 started in 1999 and at Units 2 and 3 in 2013. Cost estimates for San Onofre Units are currently based on completion of decommissioning activities by 2053."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Spent Fuel Dry Storage Costs. Cost estimates, including the impact of escalations, are based on an assumption that the U.S. Department of Energy will begin to take spent fuel from the nuclear industry in 2031 and will remove the last spent fuel from the San Onofre and Palo Verde sites by 2051 and 2078, respectively."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Changes in Decommissioning Technology, Regulation and Economics. The current cost studies assume the use of current technologies under current regulations and at current cost levels."]] [[/GREPCENT_TABLE]] See "Liquidity and Capital Resources—SCE—Decommissioning of San Onofre" for further discussion of the plans for decommissioning of San Onofre. Effect if Different Assumptions Used.  The ARO for decommissioning SCE's nuclear facilities was $2.4 billion as of December 31, 2021, based on the decommissioning studies performed and the subsequent cost estimate updates. Changes in the estimated costs, execution strategy or timing of decommissioning, or in the assumptions and judgments by management underlying these estimates, could cause material revisions to the estimated total cost to decommission these facilities which could have a material effect on the recorded liability. The following table illustrates the increase to the ARO liability if the cost escalation rate was adjusted while leaving all other assumptions constant: [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b"],["\u200b","","Increase to ARO and"],["\u200b","\u200b","Regulatory Asset at"],["(in millions)","","December 31, 2021"],["Uniform increase in escalation rate of 1 percentage point","","$","582"]] [[/GREPCENT_TABLE]] The increase in the ARO liability driven by an increase in the escalation rate would result in a decrease in the regulatory liability for recoveries in excess of ARO liabilities. Pensions and Postretirement Benefits Other than Pensions Nature of Estimate Required.   Authoritative accounting guidance requires companies to recognize the overfunded or underfunded status of defined benefit pension and other postretirement plans as assets and liabilities in the balance sheet; the assets and/or liabilities are normally offset through other comprehensive income (loss). In accordance with authoritative guidance for rate-regulated enterprises, regulatory assets and liabilities are recorded instead of charges and credits to other comprehensive income (loss) for its postretirement benefit plans that are recoverable in utility rates. Edison International and SCE have a fiscal year-end measurement date for all of their postretirement plans. Key Assumptions of Approach Used.   Pension and other postretirement benefit obligations and the related effects on results of operations are calculated using actuarial models. Two critical assumptions, discount rate and expected return on assets, are important elements of plan expense, and the discount rate is important to liability measurement. Additionally, health care cost trend rates are critical assumptions for postretirement health care plans. These critical assumptions are evaluated at least annually. Other assumptions, which require management judgment, such as rate of compensation increases and rates of retirement and turnover, are evaluated periodically and updated to reflect actual experience. As of December 31, 2021, Edison International's and SCE's pension plans had a $4.2 billion and $3.7 billion projected benefit obligation, respectively, and total 2021 expense for these plans was $48 million and $44 million, respectively. As 41 Table of Contents of December 31, 2021, the accumulated benefit obligation for both Edison International's and SCE's PBOP plans were $1.9 billion, and total 2021 expense for Edison International's plan were $1 million, and no expense for SCE's plans. Annual contributions made to most of SCE's pension plans are currently recovered through CPUC-approved regulatory mechanisms and are expected to be, at a minimum, equal to the related annual expense. Pension expense is recorded for SCE based on the amount funded to the trusts, as calculated using an actuarial method required for ratemaking purposes, in which the impact of market volatility on plan assets is recognized in earnings on a more gradual basis. Any difference between pension expense calculated in accordance with ratemaking methods and pension expense calculated in accordance with authoritative accounting guidance for pension is accumulated as a regulatory asset or liability, and is expected, over time, to be recovered from or returned to customers. As of December 31, 2021, this cumulative difference amounted to $70 million, meaning that the ratemaking method has recognized less in expense than the accounting method since implementation of authoritative guidance for employers' accounting for pensions in 1987, which was more than offset by a regulatory liability for the current funding level of SCE's pension plan. Edison International and SCE used the following critical assumptions to determine expense for pension and other postretirement benefit for 2021: [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","\u200b","","Postretirement"],["\u200b","\u200b","Pension","\u200b","Benefits Other"],["(in millions)","\u200b","Plans","\u200b","than Pensions"],["Discount rate1","\u200b","2.38","%","2.67","%"],["Expected long-term return on plan assets2","","5.50","%","4.00","%"],["Assumed health care cost trend rates3","","\u200b","*","6.50","%"]] [[/GREPCENT_TABLE]] *     Not applicable to pension plans. [[GREPCENT_TABLE]] [["1","The discount rate enables Edison International and SCE to state expected future cash flows at a present value on the measurement date. Edison International and SCE select its discount rate by performing a yield curve analysis. This analysis determines the equivalent discount rate on projected cash flows by matching the timing and amount of expected future benefit payments to the corresponding yields from the Wills Towers Watson RATE: Link 10th \u2013 90th percentile yield curve model on the measurement date."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["2","To determine the expected long-term rate of return on pension plan assets, current and expected asset allocations are considered, as well as historical and expected returns on plan assets. A portion of PBOP trusts asset returns are subject to taxation, so the 4.0% rate of return on plan assets above is determined on an after-tax basis. Actual time-weighted, annualized returns on the pension plan assets were 9.3%, 11.2% and 10.5% for the one-year, five-year and ten-year periods ended December 31, 2021, respectively. Actual time-weighted, annualized returns on the PBOP plan assets were 6.7%, 9.3% and 9.4% over these same periods. Accounting principles provide that differences between expected and actual returns are recognized over the average future service of employees."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["3","The health care cost trend rate gradually declines to 5.0% for 2029 and beyond."]] [[/GREPCENT_TABLE]] As of December 31, 2021, Edison International and SCE had unrecognized pension gains of $321 million and $383 million, respectively, and unrecognized PBOP gains of $885 million and $886 million, respectively. The unrecognized pension and PBOP gains primarily consisted of the cumulative impact of the increased discount rates on the respective benefit obligations and the cumulative difference between the expected and actual rate of return on plan assets. Of these deferred gains, $395 million of SCE's pension gains and $886 million of SCE's PBOP gains are recorded as regulatory liabilities, respectively, and are expected to refund over the average expected future service of employees. Edison International's and SCE's pension and PBOP plans are subject to limits established for federal tax deductibility. SCE funds its pension and PBOP plans in accordance with amounts allowed by the CPUC. Executive pension plans have no plan assets. 42 Table of Contents Effect if Different Assumptions Used.   Changes in the estimated costs or timing of pension and other postretirement benefit obligations, or the assumptions and judgments used by management underlying these estimates, could have a material effect on the recorded expenses and liabilities. The following table summarizes the increase or decrease to projected benefit obligation for pension and the accumulated benefit obligation for PBOP if the discount rate were changed while leaving all other assumptions constant: [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Edison International","\u200b","SCE"],["\u200b","\u200b","Increase in","\u200b","Decrease in","\u200b","Increase in","\u200b","Decrease in"],["\u200b","\u200b","discount rate","\u200b","discount rate","\u200b","discount rate","\u200b","discount rate"],["(in millions)","","by 1%","","by 1%","","by 1%","","by 1%"],["Change to projected benefit obligation for pension","\u200b","$","(392)","\u200b","$","475","\u200b","$","(354)","\u200b","$","430"],["Change to accumulated benefit obligation for PBOP","","\u200b","(255)","","\u200b","325","","\u200b","(254)","","\u200b","324"]] [[/GREPCENT_TABLE]] ​ A one percentage point increase in the expected rate of return on pension plan assets would decrease Edison International's and SCE's current year expense by $40 million and $38 million, respectively, and a one percentage point increase in the expected rate of return on PBOP plan assets would decrease both Edison International's and SCE's current year expense by $27 million. Contributions to the Wildfire Insurance Fund Nature of Estimates Required. At December 31, 2021, Edison International and SCE have a $2.4 billion long-term asset and a $204 million current asset reflected as "Wildfire Insurance Fund contributions" in the consolidated balance sheets for the initial $2.4 billion contribution made during 2019 and the present value of annual contributions SCE committed to make to the Wildfire Insurance Fund, reduced by amortization. At December 31, 2021, a long-term liability of $620 million has been reflected in "Other deferred credits and other long-term liabilities" for the present value of unpaid contribution amounts. Contributions were discounted to the present value at the date SCE committed to participate in the Wildfire Insurance Fund using US treasury interest rates. Management concluded it would be most appropriate to account for the contributions to the Wildfire Insurance Fund similar to prepaid insurance, ratably allocating the expense to periods based on an estimated period of coverage. Key Assumptions and Approach Used. The Wildfire Insurance Fund does not have a defined life. Instead, the Wildfire Insurance Fund will terminate when the administrator determines that the fund has been exhausted. In 2021 management estimated that the Wildfire Insurance Fund will provide insurance coverage for a period of 15 years. The determination of the correct period in which to record an expense in relation to contributions to the Wildfire Insurance Fund depends, among other factors, on management's assessment of: the future occurrence and magnitude of wildfires; the involvement of SCE, or other electrical corporations which could access the Wildfire Insurance Fund, in the ignition of those fires; the probable future outcomes of CPUC cost recovery proceedings for wildfire claims, which may require reimbursement of the fund by electrical corporations; and the use of the contributions by the administrator of the Wildfire Insurance Fund. Further information regarding these factors may become available due to the actions of the fund administrator, or other entities, which could require management to reassess the period of coverage. In estimating the period of coverage, Edison International and SCE used Monte Carlo simulations based on seven years (2014 – 2020) of historical data from wildfires caused by electrical utility equipment to estimate expected loss. The details of the operation of the Wildfire Insurance Fund and estimates related to claims by SCE, PG&E and SDG&E against the fund have been applied to the expected loss simulations to estimate the period of coverage of the fund. The most sensitive inputs to the estimated period of coverage are the expected frequency of wildfire events caused by investor-owned utility electrical equipment and the estimated costs associated with those forecasted events. These inputs are most affected by the historical data used in estimating expected losses. Using a 15-year period of historical data, with average annual statewide gross claims 43 Table of Contents of $4.3 billion, compared to $7.6 billion for the eight-year historical data, would increase the period of coverage to 25 years. Based on information available in the first quarter of 2022 regarding catastrophic wildfires during 2021, SCE reassessed its estimate of the life of the Wildfire Insurance Fund. Using eight years of historical data (2014 – 2021) of wildfires caused by electrical utility equipment to create Monte Carlo simulations of expected loss, the expected life of the Wildfire Insurance Fund remained 15 years from the date SCE committed to participate in the Wildfire Insurance Fund. Effect if Different Assumptions Used. Changes in the estimated life of the insurance fund could have a material impact on the expense recognition. NEW ACCOUNTING GUIDANCE New accounting guidance is discussed in "Notes to Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies—New Accounting Guidance." RISK FACTORS RISKS RELATING TO EDISON INTERNATIONAL Edison International's liquidity and ability to pay dividends depends on its ability to borrow funds, access to bank and capital markets, monetization of tax benefits held by Edison International, and SCE's ability to pay dividends and tax allocation payments to Edison International. Edison International is a holding company and, as such, it has no material operations of its own. Edison International's ability to meet its financial obligations, make investments, and to pay dividends on its common stock is primarily dependent on the earnings and cash flows of SCE and SCE's ability to make upstream distributions. If SCE does not make upstream distributions to Edison International and Edison International is unable to access the bank and capital markets on reasonable terms, Edison International may be unable to continue to pay dividends to its shareholders or meet its financial obligations. Prior to paying dividends to Edison International, SCE has financial and regulatory obligations that must be satisfied, including, among others, debt service and preference stock dividends. Further, SCE and Edison International cannot pay dividends if California law requirements for the declaration of dividends are not met. For information on CPUC and California law requirements related to the declaration of dividends, see "Liquidity and Capital Resources—SCE—SCE Dividends" in the MD&A. SCE may also owe tax-allocation payments to Edison International under applicable tax-allocation agreements. Edison International's ability to obtain financing, as well as its ability to refinance debt and make scheduled payments of principal and interest, are dependent on numerous factors, including its levels of indebtedness, maintenance of acceptable credit ratings, financial performance, liquidity and cash flow, and other market conditions. In addition, the factors affecting SCE's business will impact Edison International's ability to obtain financing. Edison International's inability to borrow funds from time to time could have a material effect on Edison International's liquidity and operations. See "Risks Relating to Southern California Edison Company" below for further discussion. RISKS RELATING TO SOUTHERN CALIFORNIA EDISON COMPANY Regulatory and Legislative Risks SCE's financial results depend upon its ability to recover its costs and to earn a reasonable rate of return on capital investments in a timely manner from its customers through regulated rates. 44 Table of Contents SCE's ongoing financial results depend on its ability to recover its costs from its customers, including the costs of electricity purchased for its customers, through the rates it charges its customers as approved by the CPUC and FERC. SCE's financial results also depend on its ability to earn a reasonable return on capital, including long-term debt and equity. SCE's ability to recover its costs and earn a reasonable rate of return can be affected by many factors, including the time lag between when costs are incurred and when those costs are recovered in customers' rates and differences between the forecast or authorized costs embedded in rates (which are set on a prospective basis) and the amount of actual costs incurred. The CPUC or the FERC may not allow SCE to recover costs on the basis that such costs were not reasonably or prudently incurred or for other reasons. Further, SCE may incur expenses before the relevant regulatory agency approves the recovery of such costs. For example, SCE expects to incur wildfire mitigation expenses and increased labor and material costs due to supply chain constraints and elevated levels of inflation before it is clear whether such costs will be recoverable from customers. Also, the CPUC may deny recovery of costs incurred by SCE, including uninsured wildfire-related costs and costs related to its new customer service system, if the CPUC determines that SCE was not prudent. In addition, while SCE supports California's environmental goals, it may be prevented from fully executing on its strategy to support such goals by regulatory delay or lack of approval of cost-recovery for the costs of such strategic actions and electrification programs from the relevant regulatory agencies. SCE's authorized return on investment is established by multiplying an authorized rate of return, determined by the CPUC in standalone cost of capital proceedings, by SCE's authorized CPUC rate base. SCE's CPUC-authorized cost of capital is subject to potential adjustment should interest rates move substantially in years between cost of capital proceedings. For further information on the cost of capital mechanism see "Management Overview—2021 Cost of Capital Application" in the MD&A. SCE's capital investment plan, increasing procurement of renewable power and energy storage, inflation, commodity price volatility, increasing environmental regulations, currently leveling demand, and the cumulative impact of other public policy requirements, collectively place continuing upward pressure on customer rates. If SCE is unable to obtain a sufficient rate increase or modify its rate design to recover its costs (and an adequate return on capital) in rates in a timely manner, its financial condition and results of operations could be materially affected. SCE is subject to extensive regulation and the risk of adverse regulatory and legislative decisions, delays in regulatory or legislative decisions, and changes in applicable regulations or legislation. SCE operates in a highly regulated environment. SCE's business is subject to extensive federal, state and local energy, environmental and other laws and regulations. Among other things, the CPUC regulates SCE's retail rates and capital structure, and the FERC regulates SCE's wholesale rates. The NRC regulates the decommissioning of San Onofre in addition to the local and state agencies that require permits. The construction, planning, and siting of SCE's power plants, energy storage projects, and transmission lines in California are also subject to regulation by the CPUC and other local, state and federal agencies. SCE must periodically apply for licenses and permits from these various regulatory authorities, including environmental regulatory authorities, and abide by their respective orders. Should SCE be unsuccessful in obtaining necessary licenses or permits or should these regulatory authorities initiate any investigations or enforcement actions or impose fines, penalties or disallowances on SCE, SCE may be prevented from executing its strategy and its business could be materially affected. The process of obtaining licenses and permits from regulatory authorities may be delayed or defeated by opponents and such delay or defeat could have a material effect on SCE's business. To the extent the Wildfire Insurance Fund and other provisions of AB 1054 do not effectively mitigate the significant risk faced by California investor-owned utilities related to liability for damages arising from catastrophic wildfires where utility facilities are a substantial cause, not achieving a more comprehensive solution could have a detrimental effect on SCE's business and financial condition. The effectiveness of AB 1054 to mitigate the wildfire-related risk faced by SCE is conditioned in part on the performance of OEIS and various entities formed under AB 1054 and related legislation to, 45 Table of Contents among other things, administer the Wildfire Insurance Fund, approve WMPs, issue safety certifications, oversee and enforce compliance with wildfire safety standards, and develop metrics to reduce risk and measure compliance with risk reduction. In addition, CPUC approval is required to recover the costs SCE is incurring to strengthen its wildfire mitigation and prevention efforts described in SCE's WMPs. See "Business—Southern California Wildfires" and "Liquidity and Capital Resources—SCE—Regulatory Proceedings——Wildfire Related Regulatory Proceedings" in the MD&A. In addition, existing regulations may be revised or re-interpreted and new laws and regulations may be adopted or become applicable to SCE, or its facilities or operations, in a manner that may have a detrimental effect on SCE's business or result in significant additional costs. In addition, regulations adopted via the public initiative or legislative process may apply to SCE, or its facilities or operations, in a manner that may have a detrimental effect on SCE's business or result in significant additional costs. SCE's energy procurement activities are subject to regulatory and market risks that could materially affect its financial condition and liquidity. SCE obtains energy, capacity, environmental credits and ancillary services needed to serve its customers from its own generating plants and through contracts with energy producers and sellers. California law and CPUC decisions allow SCE to recover, through the rates it is allowed to charge its customers, reasonable procurement costs incurred in compliance with an approved procurement plan. Nonetheless, SCE's cash flows remain subject to volatility primarily resulting from changes in commodity prices, including as a result of gas supply constraints. Additionally, significant and prolonged gas use restrictions may adversely impact the reliability of the electric grid if critical generation resources are limited in their operations. For further information, see "Business—SCE—Purchased Power and Fuel Supply." SCE is also subject to the risks of unfavorable or untimely CPUC decisions about the compliance with SCE's procurement plan and the reasonableness of certain procurement-related costs. SCE may not be able to hedge its risk for commodities on economic terms or fully recover the costs of hedges through the rates it is allowed to charge its customers, which could materially affect SCE's liquidity and results of operations, see "Market Risk Exposures" in the MD&A. Operating Risks Damage claims against SCE for wildfire-related losses may materially affect SCE's financial condition and results of operations. Prolonged drought conditions and shifting weather patterns in California resulting from climate change as well as, among other things, buildup of dry vegetation in areas severely impacted by years of historic drought and lack of adequate clearing of hazardous fuels by responsible parties have increased the duration of the wildfire season and the risk of severe wildfire events. Severe wildfires and increased urban development in high fire risk areas in California have given rise to large damage claims against California utilities for fire-related losses alleged to be the result of utility practices and/or the failure of electric and other utility equipment. Catastrophic wildfires can occur in SCE's service territory even if SCE effectively implements its WMPs. California courts have previously found utilities to be strictly liable for property damage, regardless of fault, by applying the theory of inverse condemnation when a utility's facilities were determined to be a substantial cause of a wildfire that caused the property damage. The rationale generally stated by these courts for applying this theory to investor-owned utilities is that property losses resulting from a public improvement, such as the distribution of electricity, can be spread across the larger community that benefited from such improvement. However, in November 2017, the CPUC issued a decision denying an investor-owned utility's request to include in its rates uninsured wildfire-related costs arising from several 2007 fires, finding that the investor-owned utility did not prudently manage 46 Table of Contents and operate its facilities prior to or at the outset of the 2007 wildfires. An inability to recover uninsured wildfire-related costs could materially affect SCE's business, financial condition and results of operations. For example, if SCE is found liable for damages related to catastrophic wildfires, including the 2017/2018 Wildfire/Mudslide Events, and is unable to, or believes that it will be unable to, recover those damages through insurance, the Wildfire Insurance Fund (which is only available for fires ignited after July 12, 2019) or electric rates, or access the bank and capital markets on reasonable terms, SCE may not have sufficient cash or equity to pay dividends or may be restricted from declaring such dividends because it does not meet CPUC or California law requirements related to the declaration of dividends. For information on the California law requirements on the declaration of dividends, see "Liquidity and Capital Resources—SCE—SCE Dividends" in the MD&A. Also see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Southern California Wildfires and Mudslides." Edison International's and SCE's costs of accessing capital markets has increased due to the risks associated with wildfires in Southern California. Edison International's and SCE's access to the bank and capital markets could also be constrained and/or the costs of accessing those markets could increase further as a result of wildfire risk, including if Edison International's and/or SCE's credit ratings are downgraded or placed on negative watch due to concerns about Edison International and/or SCE's financial health as a result of wildfires. SCE's insurance coverage for wildfires arising from its ordinary operations may not be sufficient. Edison International has experienced increased costs and difficulties in obtaining insurance coverage for wildfires that could arise in connection with SCE's ordinary operations. Edison International, SCE and its contractors may experience coverage reductions and/or increased wildfire insurance costs in future years. No assurance can be given that losses will not exceed the limits of SCE's or its contractors' insurance coverage. SCE may not be able to recover uninsured losses and increases in the cost of insurance in electric rates. Losses which are not fully insured or cannot be recovered through the Wildfire Insurance Fund or electric rates could materially affect Edison International's and SCE's financial condition and results of operations. For more information on wildfire insurance risk, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Southern California Wildfires and Mudslides." SCE may not effectively implement its wildfire mitigation plans. SCE will face a higher likelihood of catastrophic wildfires in its service territory if it cannot effectively implement its WMPs. For example, SCE may not be able to effectively implement its WMPs if it experiences unanticipated difficulties relative to sourcing, engaging, and retaining effectively trained contract workers or procuring materials it needs to fulfill its mitigation obligations under the WMPs. In addition, if SCE does not have an approved WMP, SCE will not be issued a safety certification from the CPUC and will consequently not benefit from the presumption of prudency or the AB 1054 Liability Cap. The CPUC may assess penalties on SCE if it finds that SCE has failed to substantially comply with its WMP. In addition, SCE may be subject to mandated changes to, or restrictions on, its operational PSPS practices, regulatory fines and penalties, claims for damages and reputational harm if SCE does not execute PSPS in compliance with applicable rules and regulations or if it is determined that SCE has placed excessive or unreasonable reliance on PSPS. SCE establishes the criteria under which it implements PSPS in its territory. To the extent SCE's criteria for implementing PSPS are not sufficient to mitigate the risk of wildfires during high wind events, SCE does not fully implement PSPS when criteria are met due to other overriding conditions or SCE's regulators or others mandate changes to, or restrictions on, its criteria or other operational PSPS practices, SCE will face a higher likelihood of catastrophic wildfires in its territory during high wind events. 47 Table of Contents For more information on AB 1054, see "Business—Southern California Wildfires—Recovery of Wildfire-Related Costs—2019 Wildfire Legislation. " SCE will not benefit from all of the features of AB 1054 if the Wildfire Insurance Fund is exhausted. Catastrophic wildfires could rapidly exhaust the Wildfire Insurance Fund and SCE will not be reimbursed by the Wildfire Insurance Fund or benefit from the AB 1054 Liability Cap if the fund has been exhausted as a result of damage claims previously incurred by SCE or the other participating utilities. For more information on AB 1054, see "Business—Southern California Wildfires and Mudslides—Recovery of Wildfire-Related Costs—2019 Wildfire Legislation." Climate change exacerbated weather-related incidents and other natural disasters could materially affect SCE's financial condition and results of operations. Weather-related incidents, including storms and events caused, or exacerbated, by climate change, such as wildfires and debris flows, and other natural disasters such as earthquakes can disrupt the generation and transmission of electricity, and can seriously damage the infrastructure necessary to deliver power to SCE's customers. Climate change has caused, and exacerbated, extreme weather events and wildfires in southern California, and wildfires could cause, among other things, public safety issues, property damage and operational issues. In addition, the risk of debris flows occurring as a result of rain may be heightened. For example, the 2017/2018 Wildfire/Mudslide Events resulted in, among other things, loss of life, property damage and loss of service. For more information on the impact of the 2017/2018 Wildfire/Mudslide Events on SCE and Edison International, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Southern California Wildfires and Mudslides." Extreme heat events can lead to prolonged widespread outages due to, among other things, state-wide capacity supply shortages or equipment failure. Extreme weather events can also lead to use of PSPS. Weather-related events, such as debris flows and melting of significantly higher than normal snow pack, and earthquakes can cause over-topping or failure at an SCE dam resulting in a rapid release of water that could cause, among other things, public safety issues, property damage and operational issues. Weather-related incidents and other natural disasters can lead to lost revenue and increased expense, including higher maintenance and repair costs, which SCE may not be able to recover from its customers. These incidents can also result in regulatory penalties and disallowances, particularly if SCE encounters difficulties in restoring power to its customers on a timely basis or if fire-related losses are found to be the result of utility practices and/or the failure of electric and other utility equipment. In addition, these occurrences could lead to significant claims for damages, including for loss of life and property damage. These occurrences could materially affect SCE's business, financial condition and results of operations, and the inability to restore power to SCE's customers could also materially damage the business reputation of SCE and Edison International. The generation, transmission and distribution of electricity are dangerous and involve inherent risks of damage to private property and injury to employees and the general public. Electricity poses hazards for employees and the general public should they come in contact with electrical current or equipment, including through energized downed power lines or if equipment malfunctions. In addition, the risks associated with the operation of transmission and distribution assets and power generating and storage facilities include public and employee safety issues and the risk of utility assets causing or contributing to wildfires. Injuries and property damage caused by such events can subject SCE to liability that, despite the existence of insurance coverage, can be significant. In addition, SCE may be held responsible for the actions of its contractors. No assurance 48 Table of Contents can be given that future losses will not exceed the limits of SCE's or its contractors' insurance coverage. The CPUC has increased its focus on public safety with an emphasis on heightened compliance with construction and operating standards and the potential for penalties being imposed on utilities. Additionally, the CPUC has delegated to its staff the authority to issue citations to electric utilities, which can impose fines of up to $100,000 per violation per day (capped at a maximum of $8 million), pursuant to the CPUC's jurisdiction for violations of safety rules found in statutes, regulations, and the CPUC's General Orders. The CPUC also can issue fines greater than $8 million outside of the citation program. Such penalties and liabilities could be significant and materially affect SCE's liquidity and results of operations. SCE's financial condition and results of operations could be materially affected if it is unable to successfully manage the risks inherent in constructing, operating, and maintaining its facilities and workforce. SCE's infrastructure is aging and could pose a risk to system reliability. SCE is also constructing utility owned storage on an accelerated basis to mitigate possible state-wide capacity shortages in 2022 and later years, and any delays in construction may result in those facilities being unavailable to reduce the impact of any capacity shortages in summer 2022. In addition, as described above, wildfires in SCE's service territory can cause significant public safety issues, property damage and operational issues. In order to mitigate these risks, SCE is engaged in a significant and ongoing infrastructure investment program. This substantial investment program elevates operational risks and the need for superior execution in SCE's activities. SCE's financial condition and results of operations could be materially affected if it is unable to successfully manage these risks as well as the risks inherent in constructing, operating, and maintaining its facilities, the operation of which can be hazardous and important for system reliability. SCE's inherent operating risks include such matters as the risks of human performance, workforce capabilities, contractor management, data and records accuracy, public opposition to infrastructure projects, delays, environmental remediation and mitigation costs, difficulty in estimating costs or in recovering costs that are above original estimates, system limitations and degradation, maintaining physical security of workforce and assets, maintaining cybersecurity of data and assets, and delays and interruptions in necessary supplies, including key components necessary for the timely construction of utility owned storage. SCE's financial condition and results of operations could also be materially affected if SCE is unable to attract, train and retain a qualified and diverse workforce, including due to the constrained labor market in California and nationally, SCE's relations with its unionized workforce and actions SCE takes or is required to take in response to the COVID-19 pandemic. There are inherent risks associated with owning and decommissioning nuclear power generating facilities and obtaining cost reimbursement, including, among other things, insufficiency of nuclear decommissioning trust funds, costs exceeding current estimates, execution risks, potential harmful effects on the environment and human health and the hazards of storage, handling and disposal of radioactive materials. Existing insurance and ratemaking arrangements may not protect SCE fully against losses from a nuclear incident. SCE funds decommissioning costs with assets that are currently held in nuclear decommissioning trusts. Based on current decommissioning cost estimates, SCE believes that further contributions to the nuclear decommissioning trusts' assets may be required to pay the costs of decommissioning. If additional contributions to the nuclear decommissioning trust funds become necessary, recovery of any such additional funds through electric rates is subject to the CPUC's review and approval. The costs of decommissioning San Onofre are subject to reasonableness reviews by the CPUC. These costs may not be recoverable through regulatory processes or otherwise unless SCE can establish that the costs were reasonably incurred. In addition, SCE faces inherent execution risks including such matters as the risks of human performance, workforce capabilities, public opposition, permitting delays, and governmental approvals. Decommissioning costs ultimately incurred could exceed the current estimates and cost increases resulting from contractual disputes, delays in performance by the contractor, elevated levels of inflation, or permitting delays, among other things, could cause SCE to materially 49 Table of Contents overrun current decommissioning cost estimates and could materially impact the sufficiency of trust funds. See "Liquidity and Capital Resources—SCE—Decommissioning of San Onofre" in the MD&A. Even though San Onofre is being decommissioned, the presence of spent nuclear fuel still poses a potential risk of a nuclear incident. Federal law limits public liability claims from a nuclear incident to the amount of available financial protection, which is currently approximately $13.5 billion for Palo Verde and $560 million for San Onofre. SCE and other owners of San Onofre and Palo Verde have purchased the maximum private primary insurance available of $450 million per site. In the case of San Onofre, the balance is covered by a US Government indemnity. In the case of Palo Verde, the balance is covered by a loss sharing program among nuclear reactor licensees. There is no assurance that the CPUC would allow SCE to recover the required contribution made pursuant to this loss sharing program in the case of one or more nuclear incidents with claims that exceeded $450 million at a nuclear reactor which is participating in the program. If this public liability limit of $13.5 billion is insufficient, federal law contemplates that additional funds may be appropriated by Congress. There can be no assurance of SCE's ability to recover uninsured costs in the event the additional federal appropriations are insufficient. For more information on nuclear insurance risk, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Nuclear Insurance." SCE's distribution of water and propane gas on Catalina Island involves inherent risks of damage to private property and the environment and injury to employees and the general public. SCE owns and operates the water distribution system that serves Catalina Island, California and a propane gas distribution system that serves the City of Avalon on Catalina Island, California. Production, storage, treatment and distribution of water for human use and the transportation, storage, distribution and use of gas can be hazardous, and can cause damage to private property and the environment and injury to employees and the general public if equipment fails or does not perform as anticipated. For example, the risks of operating a water distribution system include the potential for burst pipes and water contamination and the risks of operating gas distribution system include the potential for gas leaks, fire or explosion. The risks related to SCE's operation of its water distribution system may be exacerbated due to aging infrastructure. In addition, SCE may have to pay fines, penalties and remediation costs if it does not comply with laws and regulations in the operation of the water and gas distribution systems. An inability to recover costs associated with any such damages or injuries or any fines, penalties or remediation costs, from insurance or through electric rates, could materially affect SCE's business, financial condition and results of operations. Financing Risks As a capital-intensive company, SCE relies on access to the capital markets. If SCE were unable to access the capital markets or the cost of financing were to substantially increase, its liquidity and operations could be materially affected. SCE regularly accesses the capital markets to finance its activities and is expected to do so by its regulators as part of its obligation to serve as a regulated utility. SCE's needs for capital for its ongoing infrastructure investment program are substantial. SCE's ability to obtain financing, as well as its ability to refinance debt and make scheduled payments of principal and interest, are dependent on numerous factors, including SCE's levels of indebtedness, maintenance of acceptable credit ratings, financial performance, liquidity and cash flow, and other market conditions. In addition, the actions of other California investor-owned utilities and legal, regulatory and legislative decisions impacting investor-owned utilities can affect market conditions and therefore, SCE's ability to obtain financing. SCE's inability to obtain additional capital from time to time could have a material effect on SCE's liquidity and operations. 50 Table of Contents Competitive and Market Risks SCE's inability to effectively and timely respond to the changes that the electricity industry is undergoing, as a result of increased competition, technological advances, and changes to the regulatory environment, could materially impact SCE's business model, financial condition and results of operations. Customers and third parties are increasingly deploying DERs, such as solar generation, energy storage, energy efficiency and demand response technologies. California's environmental policy objectives are accelerating the pace and scope of industry change. This change will require modernization of the electric distribution grid to, among other things, accommodate two-way flows of electricity and increase the grid's capacity to interconnect DERs. In addition, enabling California's clean energy economy goals will require sustained investments in grid modernization, renewable integration projects, energy efficiency programs, energy storage options and electric vehicle infrastructure. If SCE is unable to effectively adapt to these changes, its business model, its ability to execute on its strategy, and ultimately its financial condition and results of operations could be materially impacted. Customer-owned generation and load departures to CCAs or Electric Service Providers each reduce the amount of electricity that customers purchase from utilities and have the effect of increasing utility rates unless customer rates are designed to allocate the costs of the distribution grid across all customers that benefit from its use. For example, some customers in California who generate their own power are not currently required to pay all transmission and distribution charges and non-bypassable charges, subject to limitations, which results in increased utility rates for those customers who do not own their generation. If regulations aren't changed such that customers pay their share of transmission and distribution charges and non-bypassable charges or the demand for electricity reduces so significantly that SCE is no longer effectively able to recover such charges from its customers, SCE's business, financial condition and results of operations will be materially impacted. In addition, the FERC has opened transmission development to competition from independent developers, allowing such developers to compete with incumbent utilities for the construction and operation of transmission facilities. For more information. See "Business—SCE—Competition." Cybersecurity and Physical Security Risks SCE's systems and network infrastructure are targets for physical and cyber attacks, intrusions or other catastrophic events that could result in their failure or reduced functionality. Regulators such as NERC and U.S. Government agencies, including the Departments of Defense, Homeland Security and Energy, have increasingly stressed that threat sources continue to seek to exploit potential vulnerabilities in the U.S. national electric grid and other energy infrastructures, and that such attacks and disruptions, both physical and cyber, are highly sophisticated and dynamic. Several U.S. Government agencies have highlighted the increasing risks related to ransomware attacks and cybersecurity risks related to the electric sector, including its supply chains, and that the risks may escalate during periods of heightened geopolitical tensions. SCE's operations require the continuous availability of critical information technology systems, sensitive customer and employee data and network infrastructure and information, all of which are targets for malicious actors. New cyber and physical threats arise as SCE moves from an analog to a digital electric grid. For example, SCE's grid modernization efforts and the move to a network-connected grid increases the number of "threat surfaces" and potential vulnerabilities that an adversary can target. SCE depends on a wide array of vendors to provide it with services and equipment. Malicious actors may attack vendors to disrupt the services they provide to SCE, or to use those vendors as a cyber conduit to attack SCE. Additionally, the equipment and material provided by SCE's vendors may contain cyber vulnerabilities. A compromise of equipment 51 Table of Contents and/or exfiltration of SCE data, whether by physical or by electronic means, could result in loss or changes to confidential or sensitive electronic data, loss of intellectual property and interruption of business processes. While some of SCE's vendors have experienced cybersecurity incidents, such incidents have not, to SCE's knowledge, resulted in a material impact to SCE to date. SCE's systems have experienced, and will continue to experience, cybersecurity incidents involving attacks of malicious codes, unauthorized access attempts, and other illicit activities, but to SCE's knowledge it has not experienced a material cybersecurity or data breach to date. Though SCE actively monitors developments in this area and is involved in various industry groups and government initiatives, no security measures can completely shield its systems and infrastructure from cyber attacks, intrusions or other catastrophic events that could result in their failure or reduced functionality. If SCE's information technology and operational technology systems' security measures were to be breached, or a critical system failure were to occur without timely recovery, SCE could be unable to fulfill critical business functions, such as delivery of electricity to customers, and/or sensitive confidential personal and other data could be compromised, which could result in violations of applicable privacy and other laws, material financial loss to SCE or to its customers, loss of confidence in SCE's security measures, customer dissatisfaction, and significant litigation and/or regulatory exposure, all of which could materially affect SCE's financial condition and results of operations and materially damage the business reputation of Edison International and SCE. RISKS RELATING TO EDISON INTERNATIONAL AND SOUTHERN CALIFORNIA EDISON COMPANY Edison International's and SCE's financial condition and results of operations could be materially impacted by events, like the COVID-19 pandemic, that cause significant disruption to workforces, supply chains, economies, or societies on a regional, statewide, national or global basis. Edison International and SCE could be materially and adversely impacted by events, such as the widespread outbreak of a communicable disease, that result in, among other things, significant disruption to supply chains, economies, societies or workforces on a regional, statewide, national or global basis. The global spread of COVID-19, which was declared a pandemic by the World Health Organization in March 2020, has created significant uncertainty, volatility and disruption globally and has impacted the operations of Edison International and SCE. The total impacts of the COVID-19 pandemic on Edison International and SCE are still evolving, and the extent to which the pandemic affects Edison International's and SCE's business, operations, cash flows, liquidity and financial results will depend on numerous evolving factors that Edison International and SCE are unable to accurately predict at this time, including, without limitation: the duration and scope of the pandemic; the availability, efficacy and use of vaccinations, governmental, business and individual actions that have been and continue to be taken in response to the pandemic, including vaccine and testing requirements; the impact of the pandemic on economic activity; and the impact of the pandemic on Edison International's and SCE's employees, customers, contractors, insurers and service providers. Many of the risks and uncertainties identified in this Form 10-K are, and will be, exacerbated by the impacts of the COVID-19 pandemic and the actions being taken by governmental entities, businesses, individuals and others in response to the pandemic. Some examples follow. Similar to other companies, a large portion of Edison International's and SCE's workforce, including employees of their contractors, may be unable to perform their job functions effectively due to illness, family illness, quarantine requirements, and other impacts of the COVID-19 pandemic. In addition, as a result of actions being taken in response to the pandemic, SCE's supply chain has faced constraints and SCE anticipates additional disruptions and delays may occur in 2022. SCE has also faced challenges from local permitting authorities. If a significant portion of SCE's workforce cannot effectively perform their job functions, SCE is unable to attract and retain qualified talent due to vaccine or test requirements, SCE is unable to procure required materials, SCE does not timely obtain any required permits and/or local authorities prohibit SCE from conducting previously permitted work, SCE will likely be unable to effectively and timely complete planned work and projects, including its WMP, utility owned storage, and other capital projects. Further, SCE may be unable to effectively execute its PSPS program due to, 52 Table of Contents among other things, requests from local and State authorities not to shut off the power during the pandemic, and thereby may increase the risk of SCE equipment being associated with the ignition of wildfires. In addition, impacts of the COVID-19 pandemic on SCE's customers and third parties could also result in SCE facing, among other things, significant reductions in demand for electricity and payment delays and/or defaults from customers which could result in significant under-collections. Edison International and SCE could also face payment delays and/or defaults from insurers and other counterparties. Furthermore, capital markets were impacted by the pandemic in early 2020 and, at the time, this did increase Edison International's and SCE's costs of accessing those markets. Edison International's and SCE's access to the bank and capital markets could also be constrained and/or the costs of accessing those markets could increase as a result of the pandemic, including if Edison International's and/or SCE's credit ratings are downgraded, or placed on negative watch due to concerns about Edison International and/or SCE's financial health as a result of the impacts of the pandemic. SCE may also incur significant incremental costs as a result of actions it is taking in response to the pandemic, including costs being incurred to maintain its operations and assist its employees who are required to telework or are otherwise impacted by the pandemic and costs that may be incurred to test employees for the COVID-19 virus. SCE could also face delays in important legal and regulatory proceedings. These impacts, among others, could materially and adversely impact Edison International's and SCE's business, operations, cash flows, liquidity and financial results. For more information on see "Management Overview—COVID-19." Edison International's and SCE's business activities are concentrated in one industry and in one region. Edison International's and SCE's business activities are concentrated in the electric utility industry. EIX's principal subsidiary, SCE, serves customers only in southern and central California. As a result, Edison International's and SCE's future performance may be affected by events and economic factors unique to California or by regional regulation, legislation or judicial decisions. For example, California courts have applied strict liability to investor-owned utilities in wildfire and other litigation matters. See "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Southern California Wildfires and Mudslides." ​