Edison International (EIX) FY2025 Earnings Quality Report

Grade: F — Major Red Flags

Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles

Data: SEC EDGAR 10-K (Filed 2026-02-18) + Yahoo Finance

Auditor: PricewaterhouseCoopers LLP — Clean opinion (1 critical audit matter: recoverability and settlement of regulatory assets and liabilities)

One-line verdict: Edison International, parent of Southern California Edison (SCE), had a transformative FY2025 driven by wildfire-related claims reversals. Net income tripled from $1.5B to $4.7B, with $1.96B in net wildfire claims recoveries recorded in FY2025 compared to $652M in charges in FY2024 — a $2.6B swing. Stripping out wildfire items, the underlying utility performance is stable: operating revenue grew 9.8% to $19.3B, and CFFO rose 14.3% to $5.8B (though $6.2B was generated and then partially offset by wildfire-related claims outflows of $607M). The F grade reflects three structural fails (negative FCF, cash vs debt, post-acquisition FCF). The genuine complexity here is wildfire accounting: SCE participates in California's Wildfire Fund under AB 1054, and $2.9B in wildfire risk mitigation capital expenditures approved after January 1, 2026 will be excluded from rate base under SB 254. The M-Score of -2.70 confirms no manipulation.

Business: Southern California Edison and Wildfire Risk

Edison International's primary subsidiary is Southern California Edison (SCE), which serves approximately 5 million customer accounts in a 50,000 square mile service territory in southern California.

The Wildfire Accounting Landscape

The most distinctive feature of EIX's financials is the wildfire overlay. The 10-K shows three significant line items:

The -$1,959M in FY2025 represents net insurance recoveries and claims reversals — meaning SCE received $1.96B more in recoveries than it paid out in new claims. This is a massive swing from FY2024's $652M in net charges. This single line item accounts for most of the $3.2B increase in net income.

SCE Income Statement (from 10-K)

Excluding wildfire items, FY2025 operating income would be approximately $5.1B — still a meaningful improvement from FY2024's $3.6B (also adjusted).

Revenue and Income

The gross margin swing of +7.1pp triggered the B4 watch flag. This is entirely driven by the wildfire claims reversal, not by underlying operational improvement.

GRC Authorized Revenue Requirements (from 10-K)

From the 10-K: "SCE's 2025 GRC authorized revenue requirements for 2025, 2026, 2027 and 2028 of $9.7 billion, $10.2 billion, $10.7 billion and $11.2 billion, respectively."

This provides visibility into revenue growth for the next three years — a 5% CAGR in authorized revenue through 2028. The GRC also includes "budget-based wildfire mitigation capital additions and zero escalation for all of SCE's non-wildfire related capital additions in the attrition years."

Excluded Capital Expenditures

A critical detail from the 10-K: "Approximately $1.6 billion of spending on wildfire risk mitigation capital expenditures are not included in rate base under the terms of AB 1054. Further, SCE expects that it will be required to exclude $2.9 billion of wildfire risk mitigation capital expenditures approved on or after January 1, 2026 under the terms of SB 254."

This means $4.5B in wildfire-related capital spending does not earn a regulatory return — it is essentially a shareholder-funded cost of doing business in California's wildfire environment.

Cash Flow: Strong Underlying Generation

Cash Flow Statement Detail (from 10-K)

The -$3,445M swing in regulatory assets/liabilities is the largest working capital item. This reflects the reclassification of wildfire-related recoveries and the interplay between rate case authorized amounts and actual billings. Despite this massive working capital absorption, CFFO still reached $6.2B.

Capital expenditures of $6.5B, partially funded by $4.6B in new long-term debt issuances, drove -$715M FCF.

The 18-Point Screening

Revenue Quality

Revenue quality is strong. The 17-day DSO improvement and 32.5% AR decline are dramatic — this likely reflects collection of previously deferred wildfire-related receivables and the 2025 GRC-authorized revenue increases.

Expense Quality

Cash Flow Quality

Balance Sheet

D1: Zero goodwill — EIX has not grown through acquisitions. This is the cleanest goodwill position alongside CMS.

D2: Leverage of 3.9x is the best in this batch, tied with ATO. This is remarkable given the wildfire-related capital requirements and reflects the substantial earnings boost from wildfire recoveries.

Acquisition & Manipulation

PwC Critical Audit Matter: Regulatory Asset/Liability Recoverability

PwC's CAM focused on "management's assessment of the recoverability and settlement of existing and new regulatory assets and liabilities." PwC has served as EIX's auditor since 2002.

This is particularly significant for EIX because the regulatory asset/liability accounting interacts with wildfire-related costs, GRC authorized amounts, and the Wildfire Fund. The -$3.4B swing in regulatory assets/liabilities on the cash flow statement demonstrates the materiality of these balances.

Key Risks

1. Wildfire liability — ongoing and structural. Despite the $1.96B net recovery in FY2025, wildfire risk is permanent for SCE's Southern California territory. Future wildfires could create new multi-billion dollar liabilities.

2. January 2025 wildfires. The 10-K covers through December 31, 2025. The catastrophic January 2025 wildfires in Los Angeles (Palisades, Eaton) occurred within the 10-K reporting period and will materially affect FY2025 results when their full impact is accounted for.

3. Excluded capital spending. $4.5B in wildfire mitigation CapEx excluded from rate base under AB 1054 and SB 254 represents shareholder-funded investment that does not earn a regulatory return. This drag on returns is permanent under current legislation.

4. Uncollectible accounts. From the 10-K: "the change in the provision of uncollectible accounts for the year ended December 31, 2025, was driven primarily by consumer protection programs that limit disconnections for nonpayment, and higher write-offs in 2025 was a result of lower collections in 2024." SCE's allowance for uncollectible accounts was $354M at end of FY2023 and has been growing.

Altman Z-Score and F-Score

Both the F-Score and M-Score confirm no manipulation. The M-Score of -2.70 is well below the -2.22 threshold despite the dramatic earnings swing, because the swing was driven by a single identifiable item (wildfire claims reversal) rather than systematic accounting distortion.

Summary

Grade: F — structural fails plus wildfire-driven earnings volatility.

EIX's F grade is driven by three structural fails (FCF, cash vs debt, post-acquisition FCF) with no genuine accounting red flags. The B4 watch for gross margin swing (+7.1pp) is entirely attributable to the $1.96B wildfire claims reversal, a one-time event. Underlying utility fundamentals are sound: 9.8% revenue growth, zero goodwill, 3.9x leverage (tied for lowest in batch), and M-Score confirming no manipulation.

The critical EIX-specific risk is the structural wildfire exposure. SCE operates in the most fire-prone utility service territory in the United States. The $4.5B in wildfire CapEx excluded from rate base represents a permanent shareholder cost. The January 2025 Los Angeles wildfires are a near-term overhang. Despite the FY2025 earnings triumph, the wildfire risk makes EIX's earnings inherently more volatile than any other utility in this batch.

**Disclaimer**: This report is based on Edison International's FY2025 10-K (SEC EDGAR, filed 2026-02-18) and public financial data. This is NOT investment advice.

Data: SEC EDGAR 10-K (Filed 2026-02-18) + Yahoo Finance

Auditor: PricewaterhouseCoopers LLP (Unqualified opinion, 1 critical audit matter)