Research Update:

Edison International And Subsidiary Ratings

Affirmed, Off Watch; Outlook Stable
July 26, 2019

Rating Action Overview

PRIMARY CREDIT ANALYST
- On July 25, 2019, Southern California Edison Co. (SCE), a subsidiary of Edison International, Gabe Grosberg
notified the California Public Utilities Commission (CPUC) of its commitment to contribute to an New York
insurance fund and announced that it will finance the initial contribution in a balanced manner. (1) 212-438-6043
At the same time, SCE received its valid safety certification from the CPUC. gabe.grosberg
@spglobal.com
- We affirmed our ratings on Edison and SCE, including the 'BBB' issuer credit ratings. We
SECONDARY CONTACT
removed the ratings from CreditWatch, where we placed them with negative implications on
Evan Harris
Jan. 21, 2019. The outlooks are stable.
New York
- The stable outlook reflects our expectations that Edison and SCE will benefit from the + 1 (212) 438 2157
credit-supportive measures within California's state Assembly Bill (AB) 1054, which over the evan.harris
@spglobal.com
medium term offset the risks of its increased susceptibility to catastrophic wildfires due to
climate change and California courts' interpretation of inverse condemnation. Under our base
case, we expect financial measures, including funds from operations (FFO) to debt in the
15%-18% range, to be consistent with the financial risk profile benchmarks.

Rating Action Rationale

SCE's decision, based on recently passed AB 1054, to select the insurance fund and its receipt of a
valid safety certificate from the CPUC is supportive to credit quality. In our view, Edison and SCE
will benefit from various credit-supportive measures under the new law that should enhance its
regulatory construct and reduce its credit risks related to California's wildfires and the state's
courts' interpretation of the legal doctrine of inverse condemnation.

Under AB 1054, we expect that Edison and SCE's credit quality will benefit from the use of the
insurance fund as a source of liquidity, a predetermined cap that limits SCE's liability, and revised
standards of a utility's reasonable conduct that we believe will increase the likelihood that SCE
will recover future wildfire costs from ratepayers.

While we expect that the measures within AB 1054 will protect credit quality over the medium
term, and support the company's business risk profile, longer-term risks exist. Such longer-term
risks include the lack of an automatic replenishing mechanism and the depleting nature of the

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Research Update: Edison International And Subsidiary Ratings Affirmed, Off Watch; Outlook Stable

insurance fund whenever there is a catastrophic wildfire caused by a participating investor-owned

electric utility. If the fund becomes fully depleted, Edison loses the credit benefit of using the
insurance fund as a source of liquidity and more importantly loses the credit protection of the
liability cap. Accordingly, over the longer term, rating upgrades or downgrades will likely be
influenced by the degree and severity of future catastrophic wildfires caused by a participating
California investor-owned electric utility. Another risk deals with the uncertainty as to how the
CPUC, which is responsible for implementing much of the new law, will interpret AB 1054. If the
commission does not implement AB 1054 in a credit-supportive manner then much of the new
law's credit-supportive elements related to the revised standards of a utility's reasonable conduct
could potentially be negligible.

We assess Edison and SCE's financial risk profiles using our medial volatility table. Under our
base-case scenario, we assume a balanced financing of Edison's initial $2.4 billion insurance fund
contribution, about $5 billion of annual capital expenditures that includes the company's wildfire
mitigation plan, a $410 million attrition rate increase in 2020, continued formula rate increases
under the Federal Energy Regulatory Commission, contingent wildfire liabilities, and annual
common and preferred dividends of about $1 billion. We anticipate that Edison's consolidated
financial measures will be around the middle of the range for its financial risk profile category.
Specifically, we expect the company's FFO to debt be in the 15%-18% range.

Outlook
The stable outlook on Edison and SCE reflects SCE's decision to choose the insurance fund under
AB 1054 and its receipt of a valid safety certification from the CPUC. We expect that Edison and
SCE will benefit from the credit-supportive measures within AB 1054, which offset the risks of its
increased susceptibility to catastrophic wildfires due to climate change and California's courts'
interpretation of inverse condemnation. In our view, credit-supportive measures within AB 1054
include enhanced liquidity through the use of the insurance fund, a liability cap even if the utility is
found to be imprudent, and revised standards of a utility's reasonable conduct. Under our base
case, we expect consolidated financial measures around the middle of the range for the financial
risk profile category, reflecting FFO to debt in the 15%-18% range.

Downside scenario
We could lower the ratings on Edison and SCE within the next 18 months if California's
investor-owned electric utilities participating in the insurance fund are found to be the cause of
catastrophic wildfires, which would incrementally deplete the insurance fund. We believe that as
the insurance fund fully depletes all participating investor-owned electric utilities lose the
credit-supportive benefit of the liability cap, thereby weakening credit quality. We could also lower
ratings if FFO to debt weakens to consistently below 15%.

Upside scenario
We view an upgrade within the next 12 months as unlikely. We expect to continue to assess the
new regulatory paradigm and could raise ratings at a later point if California's investor-owned
electric utilities consistently improve their operations such that they are not found to be the cause
of a catastrophic wildfire.

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Research Update: Edison International And Subsidiary Ratings Affirmed, Off Watch; Outlook Stable

Company Description
Edison is a large electric utility providing electricity to about 5 million customers within Central,
Coastal, and Southern California.

Liquidity
Edison has adequate liquidity since its liquidity sources could cover its uses by more than 1.1x for
the next 12 months, even if its consolidated EBITDA declines by 10%. Under our stress scenario,
we do not expect Edison will need to access the capital markets to meet its liquidity needs over
the next 12 months. Our assessment also reflects the company's generally prudent risk
management, sound relationships with its banks, and generally satisfactory standing in the credit
markets.

Principal liquidity sources:

- Cash on hand of about $300 million;

- Credit facility availability of about $4.1 billion; and

- Estimated FFO of about $4 billion.

Principal liquidity uses:

- Long-term debt maturities of about $500 million in 2020;

- Capital spending of about $5 billion; and

- Common and preferred dividends of about $1 billion.

Environmental, Social, And Governance

Because climate change has intensified the severity and frequency of wildfires in California,
environmental factors have become an integral part of our credit analysis on the state's electric
utilities. Inverse condemnation exacerbates the operational and financial risks that climate
change introduces for the company. Furthermore, the company's service territory has already
faced catastrophic wildfires in both 2017 and 2018, demonstrating its susceptibility and exposure
to wildfires and climate change. As such, we believe the company is more exposed to
environmental risk compared to many of its peers.

In our view, the company's social risks are also high reflecting its communities' susceptibility to
wildfires and the potential for higher customer bills in the future due to the need to invest in
wildfire mitigation, system hardening, and technology.

Issue Ratings - Subordination Risk Analysis

Capital structure
Edison's capital structure consists of approximately $17.6 billion of total debt, of which about
$14.2 billion is outstanding at its subsidiary SCE.

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Research Update: Edison International And Subsidiary Ratings Affirmed, Off Watch; Outlook Stable

Analytical conclusions
- We rate Edison's unsecured debt issues 'BBB-', which is one notch lower than our issuer credit
rating on the company. This is due to the significant proportion of priority debt at the company's
subsidiary.

- We rate SCE's first mortgage bonds (FMB) 'A-', two notches above the issuer credit rating (ICR).
The FMB benefit from a first-priority lien on substantially all of the utility's real property owned
or subsequently acquired. Collateral coverage of over 1.5x supports a '1+' recovery rating.

- We rate SCE's unsecured debt issues 'BBB', the same as the issuer credit rating, reflecting
unsecured debt issues of a qualifying investment-grade regulated utility.

- We rate SCE's preferred stock 'BB+', two notches below the issuer credit rating. This reflects
the preferred stock's deferability and subordination.

- Our short-term rating on Edison and SCE is 'A-2', which is based on our long-term ICR on the
company.

Ratings Score Snapshot

Issuer Credit Rating: BBB/Stable/A-2

Business risk: Strong

- Country risk: Very low

- Industry risk: Very low

- Competitive position: Satisfactory

Financial risk: Significant

- Cash flow/Leverage: Significant

Anchor: bbb

Modifiers

- Diversification/Portfolio effect: Neutral (no impact)

- Capital structure: Neutral (no impact)

- Financial policy: Neutral (no impact)

- Liquidity: Adequate (no impact)

- Management and governance: Satisfactory (no impact)

- Comparable rating analysis: Neutral (no impact)

Stand-alone credit profile: bbb

Group credit profile: bbb

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Research Update: Edison International And Subsidiary Ratings Affirmed, Off Watch; Outlook Stable

Related Criteria
- General Criteria: Group Rating Methodology, July 1, 2019

- General Criteria: Hybrid Capital: Methodology And Assumptions, July 1, 2019

- Criteria | Corporates | General: Corporate Methodology: Ratios And Adjustments, April 1, 2019

- Criteria | Corporates | General: Reflecting Subordination Risk In Corporate Issue Ratings, March
28, 2018

- General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017

- Criteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Dec. 16, 2014

- Criteria | Corporates | Utilities: Key Credit Factors For The Regulated Utilities Industry, Nov. 19,
2013

- Criteria | Corporates | General: Corporate Methodology, Nov. 19, 2013

- General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013

- General Criteria: Methodology: Industry Risk, Nov. 19, 2013

- Criteria | Corporates | Utilities: Collateral Coverage And Issue Notching Rules For '1+' And '1'
Recovery Ratings On Senior Bonds Secured By Utility Real Property, Feb. 14, 2013

- General Criteria: Methodology: Management And Governance Credit Factors For Corporate
Entities, Nov. 13, 2012

- General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009

Ratings List

Ratings Affirmed; Outlook Action

To From

Edison International

Southern California Edison Co.

Issuer Credit Rating BBB/Stable/A-2 BBB/Watch Neg/A-2

Ratings Affirmed; Off CreditWatch

To From

Edison International

Senior Unsecured BBB- BBB-/Watch Neg

Commercial Paper A-2 A-2/Watch Neg

Southern California Edison Co.

Senior Unsecured BBB BBB/Watch Neg

Preferred Stock BB+ BB+/Watch Neg

Commercial Paper A-2 A-2/Watch Neg

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Research Update: Edison International And Subsidiary Ratings Affirmed, Off Watch; Outlook Stable

Ratings Affirmed; Off CreditWatch; Recovery Rating Unchanged

To From

Southern California Edison Co.

Senior Secured A- A-/Watch Neg

Recovery Rating 1+ 1+

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors,
have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such
criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings
information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating
action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search
box located in the left column.

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Research Update: Edison International And Subsidiary Ratings Affirmed, Off Watch; Outlook Stable

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