Edison International Financial Model

Southern California Edison (SCE)

• Revenue driver formula: (Average Rate Base x Authorized Rate of Return) + Recoverable Operating Expenses + Depreciation + Taxes.
• Historical growth rate: 6 to 8% annual rate base growth, driving similar underlying revenue requirement growth.
• Key growth levers and headwinds: Growth is driven by grid hardening (covered conductors, undergrounding), electrification mandates, and the Advanced Metering Infrastructure (AMI 2.0) rollout. Headwinds include customer affordability limits and regulatory lag in cost recovery.
• Pricing dynamics: Fully regulated by the CPUC and FERC. SCE operates under a revenue decoupling mechanism, meaning revenue is driven by authorized requirements rather than volumetric electricity sales.
• Revenue recognition notes: Over-collected or under-collected revenues are recorded in balancing accounts (regulatory assets/liabilities) and trued up in subsequent periods.
• Seasonality: While physical electricity delivery peaks in the third quarter due to summer cooling demand, the decoupling mechanism smooths financial revenue recognition across the year.

Edison International Parent and Other (Trio)

• Revenue driver formula: Advisory hours x Billing rate + Project milestone fees.
• Historical growth rate: 5 to 10% (immaterial to consolidated results).
• Pricing dynamics: Competitive market pricing for corporate sustainability consulting.

• Total assets: Approximately $80 to $85 billion.
• Key asset categories: Utility Plant (Net) is the largest asset, representing the physical grid. Regulatory Assets are also massive, representing deferred costs (like wildfire mitigation and under-collected revenues) approved for future recovery.
• Goodwill & intangibles: Minimal, as growth is organic and rate-base driven.
• Working capital profile: Often negative or highly fluctuating. The company uses balancing accounts to manage timing differences between incurred costs and customer billings.
• PP&E: Consists of transmission and distribution infrastructure. Useful lives range from 30 to 50 years.
• Wildfire Fund Contribution: An asset representing SCE's contributions to the California AB 1054 Wildfire Fund, amortised over time.

• Capex as % of revenue: 35 to 45% (highly capital intensive).
• Maintenance capex vs. growth capex: The majority is classified as growth or safety/reliability capex (grid modernisation, electrification).
• Major capex programmes: The 2026 to 2030 capital plan is $38 to $41 billion. This includes over $1.5 billion for the AMI 2.0 application and extensive covered conductor deployment.
• Capitalised software: Material for grid management systems and the AMI 2.0 rollout.
• M&A pattern: Purely organic grower. No material acquisitions.

• Total debt: Approximately $35 to $40 billion consolidated.
• Credit rating: BBB- (S&P downgraded EIX in late 2025 due to concerns over the depletion of the Wildfire Fund following the Eaton Fire).
• Key debt instruments: First mortgage bonds at SCE, unsecured notes at the holding company, and securitisation bonds (e.g., TKM and Woolsey recovery bonds).
• Interest rate profile: Heavily fixed, but holding company floating-rate debt and new issuances are sensitive to current rates.
• Authorized Capital Structure (SCE): 52% Common Equity, 43% Long-Term Debt, 5% Preferred Equity.
• Share repurchase programme: None. The company has stated it has no planned equity issuance needs through 2030 either.
• Dividend policy: Target payout ratio of 45 to 55% of SCE core earnings. The 2026 annualised dividend is $3.51 per share.

• Operating cash flow conversion: Strong underlying cash generation from rate recovery, but frequently interrupted by large cash payouts for wildfire settlements.
• Free cash flow margin: Consistently negative. The company spends $7.5 to $8 billion annually on capex, far exceeding operating cash flow.
• Major non-cash items: Depreciation, amortisation of regulatory assets, and deferred income taxes.
• Working capital cash flow impact: Balancing accounts can cause massive year-over-year swings in OCF depending on the timing of CPUC recovery authorisations.
• Funding the gap: The negative free cash flow is funded via incremental debt (projected $9 to $12 billion from 2026 to 2030) and securitisation proceeds.

1. Assumptions: Hardcoded inputs for rate base growth, authorized ROE, capital structure, capex plan, and debt costs.
2. Rate Base & Revenue Requirement: Roll-forward of SCE's rate base (Beginning Balance + Capex - D&A) and calculation of authorized revenue.
3. Income Statement: Consolidated view with a clear split between SCE Core Earnings, Parent & Other Core Losses, and Non-Core Items (wildfire charges).
4. Balance Sheet: Standard utility format highlighting Utility Plant, Regulatory Assets, and Wildfire Fund assets.
5. Cash Flow Statement: OCF, Investing (Capex), and Financing (Dividends, Debt Issuance, Securitisation proceeds).
6. Debt & Interest Schedule: Tracking SCE first mortgage bonds, Parent unsecured debt, and securitisation debt, calculating weighted average interest.
7. Wildfire Liability & Recovery: A bespoke schedule tracking estimated claims (Eaton, Woolsey), insurance recoveries, AB 1054 fund access, and CPUC-authorized securitisation.
8. Valuation (DCF & DDM): Dividend Discount Model (highly relevant for utilities) and a standard Unlevered DCF based on regulated asset base terminal value.

1. `SCE Rate Base (End of Year) = SCE Rate Base (Beginning of Year) + Capital Expenditures - Depreciation - Deferred Taxes`
2. `SCE Authorized Equity Return = Average Rate Base x 52% (Equity Thickness) x 10.03% (Authorized ROE)`
3. `SCE Authorized Debt Return = Average Rate Base x 43% (Debt Thickness) x Cost of Debt`
4. `Total SCE Revenue Requirement = Authorized Equity Return + Authorized Debt Return + Authorized Preferred Return + Recoverable O&M + Depreciation + Taxes`
5. `Core EPS = (GAAP Net Income - Non-Core Wildfire Charges - Preferred Redemption Costs) / Diluted Shares Outstanding`
6. `Parent & Other Core Loss = Parent Interest Expense + Trio Operating Income - Parent Taxes`
7. `Consolidated Core EPS = SCE Core EPS + Parent & Other Core EPS`
8. `Dividends Paid = Diluted Shares Outstanding x Annualised Dividend Per Share`
9. `Free Cash Flow = Operating Cash Flow - Capital Expenditures`
10. `Incremental Debt Required = Dividends Paid - Free Cash Flow`

The Assumptions sheet dictates the capex profile, which feeds the Rate Base & Revenue Requirement sheet. The calculated revenue requirement drives the top line of the Income Statement. Net Income and Depreciation flow to the Cash Flow Statement. The massive capex outflows on the Cash Flow Statement trigger a cash deficit, which forces debt issuance on the Debt & Interest Schedule. This new debt generates interest expense, which flows back to the Income Statement (creating a circular reference that must be managed with an interest circuit breaker). The Wildfire Liability & Recovery sheet acts as a parallel module, injecting non-core charges into the Income Statement and cash outflows into the Cash Flow Statement.

• Revenues, Assets, and Equity are positive.
• Expenses (O&M, D&A, Interest) are positive in their specific build-up schedules but subtracted when calculating net income.
• Capital Expenditures are positive in the PP&E roll-forward but negative on the Cash Flow Statement.
• Debt issuance is positive on the Cash Flow Statement; debt repayment is negative.

• Confusing GAAP and Core EPS: EIX guides strictly to Core EPS. The model must explicitly separate non-core items (like the $5.03 per share non-core variance in 2025) to accurately project management's 5 to 7% growth target.
• Mismodelling volumetric risk: SCE is decoupled. Revenue should be modelled based on the authorized revenue requirement and rate base, not by multiplying forecasted kilowatt-hours by a rate.
• Ignoring the holding company drag: EIX Parent & Other consistently generates a core loss (e.g., a $1.02 per share drag in 2025) due to holding company debt. Valuing SCE alone will overstate the consolidated equity value.
• Incorrect capital structure weights: The CPUC authorizes a specific capital structure for ratemaking (52% equity, 43% debt, 5% preferred). Applying the consolidated market capitalisation weights to the rate base return calculation will break the revenue model.
• Mishandling securitisation: Cash received from securitisation bonds (like the TKM settlement) provides immediate liquidity but is serviced by a dedicated customer surcharge that passes through the income statement.
• Wildfire Fund depletion: The model must track the remaining capacity of the AB 1054 fund. If the fund drops below critical levels, the cost of debt will spike due to credit rating downgrades.

• "SCE Authorized ROE must equal exactly 10.03% for 2026 based on the final CPUC decision."
• "Rate base CAGR from 2025 to 2030 must calculate to approximately 7%."
• "Consolidated Core EPS must fall within management guidance of $5.90 to $6.20 for 2026 and $6.25 to $6.65 for 2027."
• "Dividend payout ratio must remain between 45% and 55% of SCE Core Earnings."
• "Total capital expenditures for the 2026 to 2030 period must sum to between $38 billion and $41 billion."
• "Free Cash Flow must remain negative in all projected years due to the heavy capex burden."
• "Balance sheet must balance: Total Assets = Total Liabilities + Equity in every period."

• Filings: Edison International SEC EDGAR page (2025 Form 10-K, Q4 2025 Earnings Release).
• Regulatory Data: California Public Utilities Commission (CPUC) docket for SCE's 2025 General Rate Case and 2026 Cost of Capital proceedings.
• Peers for Benchmarking: PG&E Corporation (PCG), Sempra (SRE), Consolidated Edison (ED).
• Industry Data: Edison Electric Institute (EEI) financial reviews for allowed ROE benchmarks and rate base growth trends.

• Edison International Q4 2025 Earnings Release and Teleconference Presentation (February 18, 2026).
• Edison International 2025 Annual Report on Form 10-K.
• S&P Global Ratings Downgrade Report on Edison International (September 17, 2025).
• Edison Electric Institute (EEI) 2024 Financial Review.