Shares of Rosemead-based Edison International have tumbled 15% over the last couple of weeks, thanks to a double-dose of unwelcome news related to the destructive Eaton Fire in January 2025.

In Edison’s quarterly earnings conference call late last month, Chief Executive Pedro Pizarro warned that if state lawmakers don’t enact significant reforms to reduce the wildfire liability of investor-owned utilities before the session ends this month, credit rating agencies could further downgrade the company’s credit rating, which already has been lowered to just-above junk-bond status. That in turn could make future borrowing much more expensive, resulting in less money returned to shareholders.

Following on Aug. 4, L.A. County and state fire investigators released their long-awaited report confirming what nearly everybody – including Edison executives – had long suspected. The Eaton Fire was caused by sparking from Southern California Edison equipment along a long-dormant power line in Eaton Canyon above Altadena.

Still, there’s one more big shoe to drop: large portions of the report were redacted due in part to an ongoing investigation by the office of L.A. County District Attorney Nathan Hochman into whether Southern California Edison behaved in a criminally negligent manner about wildfire mitigation efforts.

As a result of these developments, Edison shares fell to $68.32 on Aug. 5 from a near 52-week high of $80.38 on July 22, a drop of 15%.

On July 30, Edison reported second quarter earnings results. Core earnings were $592 million, or $1.54 per share, compared to core earnings of $374 million, or $0.97 per share, in the second quarter of last year. (Core earnings exclude non-core items such as wildfire-related expenses.) The company cited the state Public Utilities Commission’s adoption of Edison’s general rate case last fall as the primary reason for the earnings increase. The commission authorized a cumulative rate increase of nearly $1.7 billion that took effect last Oct. 1, translating into customer rate hikes ranging between 9% and 13%.

Eaton Fire investigation

The fire began in Eaton Canyon above Altadena on the evening of Jan. 7 of last year, amid one of the fiercest windstorms the region had seen in years and following eight months with no measurable rain. Over the next week, the fire burned through more than 14,000 acres, destroying more than 9,400 structures – including more than 6,000 homes – and causing at least 19 deaths. The monetary damage from the fire is widely estimated to be in the tens of billions of dollars, though it will likely take years to measure fully.

Within weeks, two investigations were launched: an internal one by Edison and a joint investigation by CalFire and the Los Angeles County Fire Department.

From the outset, a leading theory on the cause of the fire emerged, based on observations of a small area of flame near the base of a Southern California Edison transmission tower. According to the theory, electrical current from an active line arced and “induced” electric current in a nearby power line that had been dormant for nearly 50 years. With each passing quarter, Edison executives became slightly more definitive in their assessment of the cause, noting the lack of any other plausible alternative. In its most recent second-quarter earnings report, Edison said, “Absent additional evidence, SCE believes that it is likely that its equipment was associated with the ignition of the Eaton Fire.”

But the company always stopped short of saying outright that its equipment triggered the fire, saying the investigations had to reach their conclusions before such a definitive statement could be made.

The joint county and state fire investigation report concluded that the fire was indeed caused by flaming material that fell from a Southern California Edison transmission tower along that dormant power line “into the dry receptive fuel bed below,” and it cited two “arcing events” as the trigger for that flaming material.In comments on LAist radio’s Air Talk program on Aug. 5, Pizarro said that while the general sequence of events was known, the portions of the report that were made available did not provide details on the how and why.

“The reality is we don’t fully understand what the mechanism was that led to that potential sparking,” Pizarro said in his interview, adding that he hoped that more details would be forthcoming in the redacted portions and unreleased attachments to the report. He also suggested the full details may never be known. “Not sure we will ever understand,” he said.

Investors had a relatively mild reaction to the report’s release, sending shares down only 3% in the trading session that followed.

Attorneys representing fire victims welcomed the release of the report. “L.A. County’s own investigators have confirmed exactly what we said: Edison started this fire,” said Doug Boxer, attorney for L.A. Fire Justice, a coalition of wildfire attorneys, insurance experts and community members seeking justice for victims of preventable wildfires. “Now Edison needs to be held to account for the destruction of over 9,000 structures and the deaths of 19 people.”

District Attorney investigation

The bigger concern for investors could be the ongoing investigation by District Attorney Hochman’s office. Besides facing any criminal charges that might emerge from that investigation, it also poses a huge financial risk. That’s because one of the provisions of the $21 billion state Wildfire Fund that was enacted following the Thomas, Woolsey and Camp fires of 2017-18 states that an investor-owned utility can only tap into that fund to pay fire claims if the PUC determines the utility behaved in a “prudent” manner about wildfire prevention efforts. If not, then Edison itself would have to pick up the tab and at least some of that burden would fall on shareholders.

Edison has steadfastly maintained that it behaved prudently in trying to mitigate wildfire risk related to the circumstances surrounding the Eaton Fire. When asked on the LAist program about the frequency of brush clearance around that dormant power line, Pizarro stuck to that position. He also noted that the frequency of brush clearance is tied in large part to the level of funding for that purpose allowed by the PUC.

No matter how frequently the brush is cleared or other steps are taken, he said, it’s not possible to bring the wildfire risk to zero.

The District Attorney’s office has given no timetable for when it expects to conclude its investigation and potentially file charges against Edison and its executives.

Compensation program

Edison has also updated progress under its Wildfire Compensation Program launched last fall. That program provides a way for Eaton Fire victims to receive payouts more quickly than by filing legal claims. Claimants can go through the evaluation process and still keep their option to file lawsuits, but once they accept Edison’s offer, they surrender their right to sue the utility. The fund was designed by Kenneth Feinberg and Camille Birosis, who were also instrumental in designing the compensation fund for those impacted by the 9/11 terrorist attacks.

Plaintiff’s attorneys have been urging fire victims not to opt for these payouts, holding out the promise that the victims will get higher payouts through legal settlements later on in the process.

As of July 30, more than 4,000 claims had been submitted under the program, consisting of over 12,300 individuals, trusts and legal entities, according to a July 31 press release from Edison. As of that date, the program had extended more than 2,200 offers to nearly 5,500 claimants totaling more than $775 million. And more than 2,400 claimants had been paid out through the program, adding up to more than $375 million.

However, in the July 31 earnings conference call, Pizarro admitted that more than 30,000 legal claims had been filed against Southern California Edison, a figure many times higher than the claims under the utility’s compensation program.

Legislative reforms?

Edison investors are nervous about state lawmakers, who last week returned for a month-long stretch before this year’s legislative session ends at the end of this month.

Under legislation enacted last year that added $18 billion to the state’s Wildfire Fund, the state was to conduct a study into a new long-term framework for handling the cost of wildfires and other climate change-related occurrences. The study was also tied to a broader goal of tackling the state’s property-owner insurance crisis.The state’s investor-owned utilities – including Southern California Edison, PG&E Corp. subsidiary Pacific Gas & Electric and Sempra Energy subsidiary San Diego Gas & Electric – have been pushing for a repeal of the state’s inverse condemnation law that holds them directly liable for damage caused by their infrastructure regardless of their degree of negligence.

The study, released in April, recommends replacing inverse condemnation with a negligence-based standard common in most other states. If the Legislature were to adopt this approach, it would still require voter approval. The credit rating agencies have stated that without this or similar reforms by the end of this legislative session, further credit downgrades for the utilities will likely be forthcoming. In its latest report on Edison, Fitch Ratings even had a phrase for this reform: “Better socializing catastrophic risk.”

Edison’s credit rating currently stands at BBB at Fitch. After a downgrade last fall, S&P Global Ratings gave Edison a BBB- rating, which is one notch above junk-bond territory. The prospect of further credit downgrades was a major topic during Edison’s earnings call.

In response to one such question, Pizarro said, “That could be a significant cost impact
to the cost of debt that gets passed through to SCE customers if we don’t have a framework in the next four weeks that is credit-supportive for our utility.”