Southern California Edison's own filings describe a wildfire-risk model that treated a 29-mph breeze the same as the 50-mph winds forecast ahead of the Eaton Fire.
The research argues Edison did not consider de-energizing four 220-kV transmission circuits in Eaton Canyon on January 7, 2025, the same corridor that county and state fire investigators later concluded started the blaze. Muddy Waters, which has disclosed a short position in Edison International that it intends to largely or fully close upon publication, contends the utility knew about the model's wind-speed blind spot for years before the fire and now faces liability that could run from roughly $4.3 billion to more than $20 billion.
Ticker: EIX (Edison International)
Research Firm: Muddy Waters
Report URL: https://muddywatersresearch.com/research/2026/oct-13/?ref=shortreport.fyi
Position Disclosure: Muddy Waters states it is short Edison International securities or derivatives linked to them as of publication, but intends to cover a substantial majority, and possibly all, of its short position upon publication.
Thesis
Muddy Waters alleges Southern California Edison consciously disregarded public safety by relying on a known-deficient wildfire model and failing to consider shutting off the circuits later tied to the Eaton Fire.
- Model Blind Spot: Edison's February 2022 Wildfire Mitigation Plan Update acknowledged that its Fire Potential Index capped fire-potential scores at 17 and weighted wind, weather, fuel moisture, and green-up "essentially the same," despite stating that wind "should have a higher weighting."
- 29 MPH Ceiling, 50 MPH Winds: FPI assigned its maximum wind-speed value at sustained winds of 29 mph, while roughly 50-mph winds were forecast for January 7, 2025, allegedly leaving the model unable to register the extreme conditions.
- Unconsidered Shutoff: Edison allegedly did not consider de-energizing the four 220-kV circuits in Eaton Canyon, Eagle Rock-Mesa, Goodrich-Gould, Mesa-Vincent No. 1, and Mesa-Vincent No. 2, on the night the fire ignited.
- Fire Origin Tied to Corridor: The August 4, 2026 CAL FIRE and Los Angeles County Fire Department investigation concluded that the transmission corridor containing those four circuits started the Eaton Fire.
- Uncapped Liability Threat: If the California Wildfire Fund Administrator finds Edison acted with "conscious or willful disregard of the rights and safety of others," an allegation of serious misconduct under Cal. Pub. Util. Code §3292(h)(3)(A), the reimbursement cap would not apply and Edison could owe more than roughly $20 billion, about $20 per share on Muddy Waters' discounted, post-tax estimate.
- Imprudence Floor: Even absent that finding, Muddy Waters estimates Edison will likely be found imprudent and face roughly $4.3 billion in liability, the statutory cap equal to about 20% of SCE's transmission-and-distribution equity rate base for 2025, or about $6.50 per share discounted and post-tax.
Catalysts
- Wildfire Fund disregard determination: California Wildfire Fund Administrator's determination on whether Edison's conduct constituted "conscious or willful disregard"; no date given, and an affirmative finding removes the statutory liability cap.
- Prudence finding in Eaton Fire proceeding: Prudence/imprudence determination in the Eaton Fire proceeding; no date given, and it sets whether Edison reimburses the Wildfire Fund up to the approximately $4.3 billion cap.
- Final loss and liability assessments: Finalization of Eaton Fire loss and liability assessments is ongoing following the Wildfire Fund Administrator's August 15, 2026 annual report citing Milliman's $13.7 billion to $22.8 billion insured-loss estimate; the final claims total will anchor the ultimate liability figure.
Company Response
The source report does not describe a request for comment to Edison International or Southern California Edison, and no company response to Muddy Waters' allegations is included in the report.
Notable Details
- Edison's Fire Potential Index traces back to a model developed by San Diego Gas & Electric, which Edison adopted in 2018 and began using for Public Safety Power Shutoff decisions in 2019.
- The Wildfire Fund Administrator's August 15, 2026 annual report cites Milliman's estimate of $13.7 billion to $22.8 billion in Eaton Fire insured losses and loss-adjustment expenses.
- Muddy Waters' $20 billion liability estimate is built on a modeled payment stream of $5 billion in year five, $1 billion annually in years six through fifteen, and a further $5 billion in year fifteen, discounted at 8% to 9% from 2026.
- Muddy Waters disclosed it expects to cover a substantial majority, and possibly all, of its Edison short position upon publishing the report.
"In other words, Edison knew that FPI could not distinguish between a 29 mph breeze and the 50 mph winds forecast for January 7, 2025."
This line appears in the report's summary and captures Muddy Waters' central allegation that Edison knowingly relied on a wildfire model unable to account for the extreme winds preceding the Eaton Fire.
FAQs
What liability does EIX face over the Eaton Fire, according to Muddy Waters?
Muddy Waters estimates a range from roughly $4.3 billion, the statutory cap if Edison is found imprudent, to more than $20 billion if regulators find "conscious or willful disregard of the rights and safety of others." The higher figure is Muddy Waters' own estimate, informed by Milliman's $13.7 billion to $22.8 billion Eaton Fire loss estimate cited in the Wildfire Fund Administrator's August 15, 2026 annual report.
What is Edison International's Fire Potential Index and why does it matter?
The Fire Potential Index, or FPI, is the model Southern California Edison, Edison International's utility subsidiary, uses to help decide which circuits to consider for Public Safety Power Shutoffs. Per Edison's own February 2022 Wildfire Mitigation Plan Update, the model capped fire-potential scores at 17 and its wind-speed input topped out at 29 mph, which the report says prevented it from distinguishing that level from the roughly 50-mph winds forecast before the Eaton Fire.
What does Muddy Waters allege about Southern California Edison's conduct before the Eaton Fire?
Muddy Waters alleges that Edison failed to consider de-energizing four 220-kV transmission circuits in Eaton Canyon on January 7, 2025, despite knowing since at least 2019 that its FPI model could not properly weight extreme wind. This is an allegation, not a regulatory finding; Muddy Waters frames it as grounds for a potential "conscious or willful disregard" determination.
What started the Eaton Fire?
A joint investigation by CAL FIRE and the Los Angeles County Fire Department, released on August 4, 2026, concluded that the transmission corridor running through Eaton Canyon started the fire. That corridor contains the four circuits, Eagle Rock-Mesa, Goodrich-Gould, Mesa-Vincent No. 1, and Mesa-Vincent No. 2, identified in Edison's own January 2025 PSPS Post-Event Report.
Has Southern California Edison responded to these allegations?
The report does not indicate that Edison International or Southern California Edison were asked for comment, and it includes no company response to the allegations.
Is Muddy Waters still short Edison International stock?
Muddy Waters disclosed a short position in Edison International securities or related derivatives as of the report's publication but stated it intends to cover a substantial majority, and possibly all, of that position upon publication.
What is the California Wildfire Fund and how does it affect Edison's liability?
The California Wildfire Fund is a state-administered fund from which Eaton Fire claims and utility reimbursement obligations may arise. Under California Public Utilities Code §3292, a utility found imprudent reimburses the fund up to a capped amount (about $4.3 billion for SCE in 2025, per Edison's April 2026 Business Update), while a finding of "conscious or willful disregard" removes that cap entirely.
How much per share is Edison International's potential liability, based on this report?
Muddy Waters calculates roughly $20 per share, discounted and post-tax, tied to its approximately $20 billion worst-case estimate, and roughly $6.50 per share tied to the $4.3 billion imprudence-cap scenario. Both figures use the 384,813,979 EIX shares outstanding as of July 23, 2026, per Edison International's Q2 2026 Form 10-Q.
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