Edison International Faces Regulatory Crossroads as LA Fire Probe Drags On

The Eaton Fire, which ravaged Southern California in January 2025, has become a pivotal moment for Edison International (NYSE: EIX). The company’s CEO, Pedro Pizarro, recently stated that the investigation into the fire’s cause could take “a year or more” to resolve—a timeline that underscores the prolonged regulatory and financial uncertainty facing the utility. With liability risks still unresolved and recovery efforts in full swing, investors must weigh the company’s long-term growth plans against the lingering shadow of wildfire-related liabilities.

The Investigation Stands at a Crossroads

The Eaton Fire, which killed 18 people and caused over $250 billion in economic damage, is suspected to have originated from a dormant SCE power line. While preliminary findings point to SCE equipment as the likely cause, no definitive conclusion has been reached. Pizarro emphasized that litigation and regulatory proceedings remain unresolved, leaving the utility exposed to “material losses” that are “not estimable” at this stage.

This ambiguity creates a high-stakes balancing act. If the fire is definitively linked to SCE’s equipment, Edison could face liability exceeding $21 billion—the cap of California’s Wildfire Insurance Fund (WIF). As of December 2024, the WIF held just $14.7 billion, raising concerns about its capacity to cover claims. A worst-case scenario could force Edison to pay out billions in shareholder funds, particularly if found “imprudent” under California’s AB 1054 framework.

Regulatory Tailwinds vs. Headwinds

Edison’s financial stability hinges on regulatory approvals that offset wildfire-related costs. Two key developments stand out:

1. TKM Settlement: This agreement allowed Edison to recover wildfire-related expenses, contributing $0.30 to Q1 2025 core EPS.
2. Wildfire Mitigation Settlement: A pending CPUC decision could enable 100% recovery of wildfire-related capital expenditures, reducing cash flow pressures.

However, critical uncertainties remain:
- The 2025 General Rate Case (GRC) outcome will determine revenue recognition for infrastructure investments.
- The Wildfire Safety Certification from California’s Office of Energy Infrastructure Safety is a prerequisite for full cost recovery under AB 1054.

Financials: A Mixed Picture

Edison’s Q1 2025 results highlighted both resilience and vulnerability:
- Core EPS rose 21% to $1.37, driven by regulatory recoveries and reduced interest expenses.
- Non-core charges totaled $2.36 per share, reflecting wildfire litigation expenses and asset impairments.

Despite reaffirming its 2025 core EPS guidance ($5.94–$6.34), the stock has underperformed, down 26% year-to-date as of April 2025. This reflects investor skepticism about liability risks and regulatory delays.

Long-Term Growth vs. Immediate Risks

Edison’s strategy to modernize its grid and meet California’s climate goals offers a silver lining. The company plans $38–43 billion in infrastructure investments through 2028, targeting grid hardening, electrification, and wildfire mitigation. These projects could support a 5–7% CAGR in core EPS through 2028, assuming regulatory approvals materialize.

Yet risks loom large:
- Wildfire Fund Depletion: S&P downgraded Edison’s credit outlook to “negative,” citing risks to the WIF.
- Litigation Outcomes: Lawsuits, including one alleging SCE prioritized profits over safety, could strain resources.
- Legislative Uncertainty: California’s 2025 legislative session may tighten wildfire liability rules, adding costs.

Conclusion: A High-Wire Act for Edison

Edison International sits at a critical juncture. Its Q1 results and regulatory wins suggest resilience, but the Eaton Fire’s unresolved liability and pending decisions—particularly the GRC and safety certification—create significant tailwinds and headwinds.

Investors should note:
- Wildcard: WIF’s Capacity: With $14.7B in the fund versus potential $21B liabilities, Edison’s fate hinges on the investigation’s outcome.
- Regulatory Safeguards: AB 1054’s liability protections remain intact unless SCE is deemed “imprudent,” a designation that could trigger $4B in repayment to the WIF.
- Stock Valuation: EIX trades at a 30% discount to its 2024 peak, reflecting market anxiety—a potential buying opportunity if regulatory risks abate.

While Edison’s long-term growth plans align with California’s energy transition, the next 12–18 months will test its ability to navigate a treacherous regulatory landscape. For now, the Eaton Fire’s shadow looms large—a reminder that wildfire risks are as much about liability management as they are about grid resilience.