Fitch cuts Edison International outlook on wildfire reform stall

Fitch Ratings has lowered the outlook for Edison International and Southern California Edison Company to negative from stable due to the ongoing stall on wildfire reform legislation. Both entities maintain a BBB long-term and F3 short-term rating. The legislative session concluded without substantial progress in addressing wildfire liabilities, which burdens investor-owned utilities financially.

The legislature's refusal to build on Senate Bill 254 and the fire fund administrator's study highlight California's complex regulatory landscape. Provisions limiting equity returns, reduced return on equity in cost-of-capital proceedings, and continuous legislative efforts to further decrease ROE exacerbate credit concerns. Without addressing wildfire costs and bolstering utility creditworthiness, further rating downgrades are anticipated.

A report released on August 4, 2026, by the Los Angeles County Fire Department found that the Eaton Fire's cause was electrical arcing at an out-of-service SCE transmission tower, resulting in 9,418 destroyed structures and $1.6 billion in losses for SCE as of June 30, 2026. Courts have previously deemed utilities strictly liable for property damage under inverse condemnation.

SCE's third-party liabilities exceeding $1 billion are projected to be funded from the $21 billion initial fund, potentially straining SCE and other participating investor-owned utilities (IOUs). The $18 billion continuation fund aims to alleviate this credit concern. The California Public Utilities Commission reduced SCE's authorized return on equity to 10.03% from 10.75% in recent cost-of-capital proceedings, viewing the exclusion of $6 billion in wildfire mitigation investments under SB 254 as an adverse credit event. Edison International's financial leverage was 3.8x in 2025, projected to average 4.4x in 2026-2030.