SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1994
---------------------------------------
OR
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
---------------- -----------------
Commission File Number 1-9936
SCEcorp
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-4137452
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2244 Walnut Grove Avenue
(P.O. Box 999)
Rosemead, California
(Address of principal 91770
executive offices) (Zip Code)
818-302-2222
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class Outstanding at May 9, 1994
- - -------------------------- --------------------------
Common Stock, no par value 447,798,244
<PAGE>
<PAGE>
SCEcorp
INDEX
<TABLE>
<CAPTION>
Page
No.
----
Part I. Financial Information:
Item 1. Consolidated Financial Statements:
Consolidated Statements of Income--Three
<S> <C>
Months Ended March 31, 1994, and 1993 2
Consolidated Balance Sheets--March 31, 1994, and
December 31, 1993 3
Consolidated Statements of Cash Flows--Three Months
Ended March 31, 1994, and 1993 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 10
Part II. Other Information:
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security
Holders 16
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
<PAGE>
<PAGE>
SCEcorp
PART I--FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF INCOME
In thousands, except per-share amounts
<TABLE>
<CAPTION>
3 Months Ended
March 31,
---------------------------------
1994 1993
----------- -----------
(Unaudited)
<S> <C> <C>
Electric utility revenue $1,676,679 $1,700,971
Diversified operations 52,067 83,990
---------- ----------
Total operating revenue 1,728,746 1,784,961
---------- ----------
Fuel 192,352 214,803
Purchased power 489,515 460,849
Provisions for regulatory adjustment
clauses -- net (8,906) 22,238
Other operating expenses 321,920 340,302
Maintenance 84,176 90,601
Depreciation and decommissioning 235,922 227,261
Income taxes 90,828 75,215
Property and other taxes 54,557 61,188
---------- ----------
Total operating expenses 1,460,364 1,492,457
---------- ----------
Operating income 268,382 292,504
---------- ----------
Provision for rate phase-in plan (32,646) (33,350)
Allowance for equity funds used
during construction 3,924 5,016
Other nonoperating income -- net 31,797 24,202
---------- ----------
Total other income (deductions) -- net 3,075 (4,132)
---------- ----------
Income before interest and other expenses 271,457 288,372
---------- ----------
Interest on long-term debt 125,082 127,073
Other interest expense 18,393 13,479
Allowance for borrowed funds used
during construction (4,090) (4,002)
Capitalized interest (10,309) (7,524)
Dividends on subsidiary preferred stock 10,020 10,471
---------- ----------
Total interest and other expenses -- net 139,096 139,497
---------- ----------
Net income $ 132,361 $ 148,875
========== ==========
Weighted-average shares of common stock
outstanding 447,799 447,737
Earnings per share $ .30 $.33
Dividends declared per common stock $.355 $.35
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
SCEcorp
CONSOLIDATED BALANCE SHEETS
In thousands
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
----------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Utility plant, at original cost $18,602,311 $18,436,134
Less -- accumulated provision for
depreciation and decommissioning 7,321,831 7,138,289
----------- -----------
11,280,480 11,297,845
Construction work in progress 894,403 857,225
Nuclear fuel, at amortized cost 136,791 148,012
----------- -----------
Total utility plant 12,311,674 12,303,082
----------- -----------
Nonutility property -- less
accumulated provision for
depreciation of $77,884 and $73,169
at respective dates 1,286,446 1,276,471
Nuclear decommissioning trusts 839,133 788,575
Investments in partnerships and
unconsolidated subsidiaries 1,215,657 1,162,452
Investments in leveraged leases 499,051 497,469
Other investments 21,103 20,577
----------- -----------
Total other property and investments 3,861,390 3,745,544
----------- -----------
Cash and equivalents 431,579 420,510
Receivables, including unbilled
revenue, less allowances of
$17,842 and $18,669 for uncollectible
accounts at respective dates 809,686 880,758
Fuel inventory 120,789 120,859
Materials and supplies, at average cost 107,468 104,092
Accumulated deferred income taxes -- net 171,196 204,119
Prepayments and other current assets 72,731 117,758
----------- -----------
Total current assets 1,713,449 1,848,096
----------- -----------
Unamortized debt issuance and
reacquisition expense 377,149 381,781
Rate phase-in plan 334,480 364,209
Unamortized nuclear plant -- net 248,305 273,837
Income tax-related deferred charges 1,845,357 2,016,194
Other deferred charges 490,505 445,799
----------- -----------
Total deferred charges 3,295,796 3,481,820
----------- -----------
Total assets $21,182,309 $21,378,542
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
SCEcorp
CONSOLIDATED BALANCE SHEETS
In thousands
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
----------- ------------
(Unaudited)
CAPITALIZATION AND LIABILITIES
Common shareholders' equity:
Common stock (447,799 shares
<S> <C> <C>
outstanding at each date) $ 2,691,605 $ 2,691,605
Retained earnings 3,239,364 3,265,976
----------- -----------
5,930,969 5,957,581
Preferred stock:
Not subject to mandatory redemption 358,755 358,755
Subject to mandatory redemption 275,000 275,000
Long-term debt 6,240,866 6,459,195
----------- -----------
Total capitalization 12,805,590 13,050,531
----------- -----------
Other long-term liabilities 302,412 266,595
----------- -----------
Current portion of long-term debt
and redeemable preferred stock 363,746 348,896
Short-term debt 849,122 655,344
Accounts payable 354,648 373,092
Accrued taxes 466,517 410,612
Accrued interest 123,104 101,360
Dividends payable 162,822 162,818
Regulatory balancing accounts -- net 38,824 57,932
Deferred unbilled revenue and other
current liabilities 710,429 741,334
----------- -----------
Total current liabilities 3,069,212 2,851,388
----------- -----------
Accumulated deferred income
taxes -- net 3,969,055 4,168,719
Accumulated deferred investment
tax credits 448,774 455,574
Customer advances and other
deferred credits 587,266 585,735
----------- -----------
Total deferred credits 5,005,095 5,210,028
----------- -----------
Commitments and contingencies
(Notes 1 and 2)
Total capitalization and liabilities $21,182,309 $21,378,542
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
SCEcorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
<TABLE>
<CAPTION>
3 Months Ended
March 31,
--------------------------------
1994 1993
--------- -----------
(Unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income $ 132,361 $ 148,875
Adjustments for noncash items:
Depreciation and decommissioning 235,922 227,261
Amortization 29,189 31,687
Rate phase-in plan 29,729 29,373
Deferred income taxes and investment tax
credits 909 (7,469)
Equity in income from partnerships and
unconsolidated subsidiaries (3,394) (18,608)
Other long-term liabilities 35,817 (114,870)
Other -- net (45,817) 10,043
Changes in working capital components:
Receivables 72,190 44,391
Regulatory balancing accounts (19,108) 25,439
Fuel inventory, materials and supplies (3,306) (7,823)
Prepayments and other current assets 47,325 68,823
Accrued interest and taxes 73,306 96,038
Accounts payable and other current
liabilities (49,361) 127,854
Distributions from partnerships and
unconsolidated subsidiaries 11,846 22,112
--------- -----------
Net cash provided by operating activities 547,608 683,126
--------- -----------
Cash flows from financing activities:
Issuances of long-term debt 45,999 919,074
Repayment of long-term debt (213,762) (1,098,950)
Nuclear fuel financing -- net (1,457) (21,383)
Proceeds from sales of common stock -- 141
Short-term debt financings -- net 141,158 (94,205)
Dividends paid (158,969) (156,708)
--------- -----------
Net cash used by financing activities (187,031) (452,031)
--------- -----------
Cash flows from investing activities:
Additions to property and plant (277,903) (248,463)
Nuclear decommissioning trusts (50,558) (36,605)
Investments in partnerships and
unconsolidated subsidiaries (70,359) (99,450)
Other -- net 49,312 (7,977)
--------- -----------
Net cash used by investing activities (349,508) (392,495)
--------- -----------
Net increase (decrease) in cash and
equivalents 11,069 (161,400)
Cash and equivalents, beginning of period 420,510 496,338
--------- -----------
Cash and equivalents, end of period $ 431,579 $ 334,938
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
SCEcorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management's Statement
In the opinion of management, all adjustments necessary to present a fair
statement of the financial position and results of operations for the
periods covered by this report, including recurring accruals, have been
made.
SCEcorp's significant accounting policies were described in Note 1 of
"Notes to Consolidated Financial Statements" included in its 1993 Annual
Report on Form 10-K filed with the Securities and Exchange Commission.
SCEcorp follows the same accounting policies for interim reporting
purposes. This quarterly report should be read in conjunction with
SCEcorp's 1993 Annual Report.
Certain prior-period reclassifications have been made to conform to the
March 31, 1994, financial statement presentation.
Note 1. Regulatory Matters
Mohave Outage Review
In 1986, the California Public Utilities Commission (CPUC) began
investigating a 1985 steam-pipe rupture at the Mohave Generating Station.
Edison, plant operator and 56% owner, incurred costs of approximately $90
million, after insurance recoveries, to repair damage and provide
replacement power during the six-month outage. In 1991, the CPUC's
Division of Ratepayer Advocates (DRA) alleged that Edison contributed to
the piping failure by imprudently operating the plant and recommended the
disallowance of all accident-related expenditures. Edison believes the
accident was caused by a manufacturing defect in a seam weld and filed
testimony contesting the allegations. A CPUC decision issued on March 9,
1994, agreed with the DRA's allegations and ordered a second phase of this
proceeding to quantify the disallowance. The probable effect on net
income cannot be determined at this time, but SCEcorp believes it will not
materially affect its financial position.
Palo Verde Nuclear Generating Station Outage Review
In March 1989, Arizona Public Service Company, operating agent for Palo
Verde, removed Units 1 and 3 from service for modifications required by
regulatory agencies. As required by state law, the CPUC conducted an
investigation, and ordered the authorized revenue collected during the
outages be subject to refund. The units resumed operation in December 1989
and July 1990.
During 1992, the CPUC consolidated its reasonableness review of
replacement power costs from several Unit 2 outages in 1989 and 1990 with
the investigation of Units 1 and 3. The DRA initially recommended a
disallowance valued at $169 million, including: $63 million of revenue
collected during the outages (including interest); $5 million for capital
projects deemed unnecessary; $50 million in replacement power costs; and
$51 million in penalties for environmental effects of replacement power
and the outages' effect on the regional energy market. Edison filed
testimony that its costs were reasonably incurred.
In September 1993, Edison and the DRA agreed to settle these disputes for
$38 million (including $29 million for replacement power costs, $2 million
<PAGE>
<PAGE>
SCEcorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for capital projects and $7 million for interest), subject to CPUC
approval. The effect of the settlement has been fully reflected in the
financial statements. A CPUC decision is expected in mid-1994.
Research, Development and Demonstration (RD&D) Cost Review
In Edison's 1992 general rate case, the CPUC deferred a decision (pending
additional information from Edison) on the recovery of $56 million in
capitalized RD&D costs. Edison refiled, requesting that $35 million be
included in rate base and $17 million be classified as RD&D expense.
Subsequently, additional adjustments of $11 million were recorded. In
August 1993, the DRA filed its position on Edison's RD&D capital refiling,
recommending further disallowances of about $15 million. Edison is
contesting the DRA's recommendation. A CPUC decision is expected in 1994.
The probable effect on net income cannot be determined at this time, but
SCEcorp believes it will not materially affect its results of operations
or financial position.
Resale Rates
Resale revenue related to pending rate proceedings is subject to refund
with interest if subsequently disallowed by the Federal Energy Regulatory
Commission. SCEcorp believes any refunds from pending rate proceedings
will not materially affect its results of operations or financial
position.
Note 2. Contingencies
Conservation Expenditures Tax Issue
The Internal Revenue Service (IRS) has challenged how gas and electric
utilities deduct energy conservation expenditures. It has taken the
position that certain demand-side management (DSM) expenditures should not
be treated as a current income tax deduction. The IRS claims that DSM
programs create a future benefit by delaying the cost of building
additional power plants. The utility industry believes that energy
conservation expenditures constitute ordinary and necessary business
expenses, which, under current provisions of the Internal Revenue Code,
are deductible in the year incurred or accrued. Federal legislation has
been introduced, which, if adopted, will clarify that DSM expenditures
currently are deductible under existing tax code provisions. SCEcorp
believes the IRS' position is contrary to the nation's energy and
environmental policy goals and will continue to take steps to vigorously
defend its position.
In March 1994, the CPUC approved Edison's request to establish a
memorandum account to track the prospective income tax effect that would
result if a change in the method of deducting these expenditures were
imposed. Such amounts would be recovered through customer rates, subject
to reasonableness reviews. The probable effect on net income of the
outcome of this matter cannot be determined at this time.
Environmental Protection
SCEcorp is subject to numerous legislative and regulatory
environmental-protection requirements. To meet these requirements, SCEcorp
will continue to incur substantial costs to operate existing facilities,
<PAGE>
<PAGE>
SCEcorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
construct and operate new facilities, and mitigate or remove the effect
of past operations on the environment.
SCEcorp has identified 45 sites for which it is, or may be, responsible
for remediation under environmental laws. SCEcorp is participating in
investigations and cleanups at a number of these sites and has recorded
a $60 million liability for its estimated minimum costs to clean up
several sites. Additional costs may be incurred as progress is made in
determining the magnitude of required remedial actions, as SCEcorp's share
of these costs in proportion to other responsible parties is determined,
and as additional investigations and cleanups are performed.
On May 4, 1994, the CPUC approved an incentive mechanism for rate recovery
of certain environmental cleanup costs. This mechanism allows Edison to
recover 90% of cleanup costs through customer rates. Shareholders will
fund the remaining 10%, with the opportunity to recover these costs
through insurance. Accordingly, Edison has recorded a regulatory asset
representing 90% of the estimated minimum costs to remediate sites covered
by this mechanism.
The probable effect on net income of these environmental-protection
matters cannot be determined at this time, but SCEcorp believes it will
not materially affect its financial position.
Nuclear Insurance
Federal law limits public liability claims from a nuclear incident to $9.3
billion. Edison and other owners of San Onofre Nuclear Generating Station
and Palo Verde have purchased the maximum private primary insurance
available ($200 million). The balance is covered by the industry's
retrospective rating plan that uses deferred premium charges. Federal
regulations require this secondary level of financial protection.
Insurance for San Onofre Unit 1 remains in effect pending Nuclear
Regulatory Commission approval to discontinue the coverage. The maximum
deferred premium for each nuclear incident is $79 million per reactor, but
not more than $10 million per reactor may be charged in any one year for
each incident. Based on its ownership interests, Edison could be required
to pay a maximum of $218 million per nuclear incident. However, it would
have to pay no more than $28 million per incident in any one year. Such
amounts include a 5% surcharge if additional funds are needed to satisfy
public liability claims and are subject to adjustment for inflation.
Property damage insurance covers losses up to $500 million, including
decontamination costs, at San Onofre and Palo Verde. Decontamination
liability and property damage coverage exceeding the primary $500 million
also has been purchased in amounts greater than federal requirements.
Additional insurance covers part of replacement power expenses during an
accident-related nuclear unit outage. These policies are issued primarily
by mutual insurance companies owned by utilities with nuclear facilities.
If losses at any nuclear facility covered by the arrangement were to
exceed the accumulated funds for these insurance programs, Edison could
be assessed retrospective premium adjustments of up to $34 million per
year. Insurance premiums are charged to operating expense.
Palo Verde Nuclear Generating Station
After a March 1993 steam tube rupture occurred at one of the three Palo
Verde units, an investigation revealed cracking in additional steam
<PAGE>
<PAGE>
SCEcorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
generator tubes. Arizona Public Service (APS), operator of Palo Verde,
reduced power at all three units to 85% in late 1993 in order to prevent
further tube degradation until investigations are completed. In April
1994, some cracking was found at a second unit. APS expects inspections
to be completed on this unit by June 1994. At that time, the unit is
expected to be restarted at 86% power; however, all three units may be
removed from service for mid-cycle inspections in late 1994. APS is
considering several remedial actions that would allow the units to be
operated at lower temperatures without appreciably reducing their power
output. APS cannot currently predict when one or more of the units will
be returned to full power.
Note 3. Decommissioning
Decommissioning of Edison's nuclear generating facilities is expected to
cost an estimated $1.1 billion in current-year dollars (based on site-
specific studies performed in 1990 for San Onofre and 1989 for Palo
Verde). Decommissioning costs are accrued and recovered in rates over the
useful life of the nuclear facility through charges to depreciation
expense. Amounts collected from customers are placed in trusts, which,
together with accumulated earnings, will be utilized solely for
decommissioning. These amounts are invested in high-grade securities and
reported at market value in accordance with a new accounting standard for
certain debt and equity securities implemented in January 1994. These
investments are classified as available-for-sale.
Edison expects to decommission its nuclear facilities by prompt removal
or decontamination at the end of their useful lives. Decommissioning at
San Onofre and Palo Verde is scheduled to begin in 2013 and 2024,
respectively. San Onofre Unit 1, which shut down in 1992, will be
decommissioned with the other San Onofre units. The estimated costs to
decommission Unit 1 have been recorded as a liability.
Decommissioning expense was $35 million and $139 million for the three and
twelve months ended March 31, 1994, respectively, and $37 million and $134
million for the three and twelve months ended March 31, 1993,
respectively. The accumulated balance of these costs ($831 million at
March 31, 1994, $797 million at December 31, 1993, and $692 million at
March 31, 1993) approximates amounts funded. The market value of the
trusts (based on quoted market prices) was $839 million, $853 million and
$733 million at March 31, 1994, December 31, 1993, and March 31, 1993,
respectively. Net earnings on these funds, included as a component of
depreciation expense, were $11 million and $43 million for the three and
twelve months ended March 31, 1994, respectively, and $13 million and $38
million for the three and twelve months ended March 31, 1993,
respectively. Approximately 87% of the trust fund contributions were tax-
deductible.
In its 1995 general rate case filing, Edison requested to revise its
authorized decommissioning costs based on updated site-specific studies
(1993 for San Onofre and 1992 for Palo Verde), and adjustments to its
authorized escalation rates and after-tax rate of return on the trust
funds. If approved by the CPUC, current fund contribution levels would
be virtually unchanged. A CPUC decision is expected in late 1994. Edison
believes the amounts collected in rates are adequate to meet estimated
decommissioning.
<PAGE>
<PAGE>
SCEcorp
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
First Quarter 1994 vs. First Quarter 1993
Earnings
SCEcorp's earnings per share for the first quarter of 1994 were 30 cents,
compared with 33 cents in the first quarter of 1993. Southern California
Edison Company's earnings were 29 cents per share, down 1 cent from 1993,
primarily due to a lower authorized return on common equity. The Mission
companies' earnings of 1 cent per share, down 2 cents from 1993, reflect
lower operating revenue at Mission Energy. Mission Energy discontinued
recording earnings from five geothermal projects in late 1993 due to the
reduced value of its investments, and will continue to forgo recording
earnings through the 10th year of each contract. This will not affect the
expected cash flow from each contract, but will significantly impact
Mission Energy's earnings for 1994 and possibly beyond. Additionally,
first quarter 1993 earnings reflect the one-time benefit of implementing
a new accounting standard for income taxes.
All per-share amounts have been restated to reflect the two-for-one common
stock split effective June 1, 1993.
Operating Revenue
Electric utility revenue decreased, mostly due to a 3% decrease in
Edison's sales volume, partially offset by a 1% increase in average rates.
Retail rates which result in over 98% of electric revenue, are regulated
by the California Public Utilities Commission (CPUC). Wholesale rates are
regulated by the Federal Energy Regulatory Commission. Revenue from
diversified operations decreased 38%, mainly due to Mission Land's first
quarter 1993 cumulative adjustment to consolidate partnerships previously
accounted for under the equity method and Mission Energy's previously
discussed geothermal projects.
Operating Expenses
Fuel expense decreased 10%, primarily due to a 7% decrease in Edison's
power generation and lower average fuel costs.
Purchased-power expense increased, due to a greater volume of federally
required purchases by Edison from nonutility generators. These purchases
were made under contracts with CPUC-mandated pricing, which generally
exceed those for other sources.
The provisions for regulatory adjustment clauses minimize rate
fluctuations by adjusting for differences between estimated and actual
kilowatt-hour sales or energy costs. These differences are accumulated
in balancing accounts for subsequent rate adjustment. Prior-period rate
adjustments are also reflected in these provisions. The decrease in the
provision was mostly due to authorized estimates exceeding Edison's actual
kilowatt-hour sales.
Income tax expense increased 21%, mainly due to the benefit in 1993 from
implementing a new accounting standard for income taxes.
<PAGE>
<PAGE>
Other Income and Deductions
The provision for rate phase-in plan reflects a CPUC-authorized, 10-year
rate phase-in plan for the three Palo Verde Nuclear Generating Station
units. Phase-in plans minimize the effect on customer rates of placing
newly constructed plants in service by gradually implementing rate
increases. Palo Verde's plan deferred $200 million of revenue for each
unit during the first four years of operation. The deferred revenue,
including interest, is being collected evenly over six years ending in
1996 for Units 1 and 2, and in 1998 for Unit 3. The provision is a non-
cash offset to the collection of deferred revenue.
Interest Expense
Other interest expense increased 36%, primarily due to regulatory
balancing account adjustments made in the first quarter of 1993 to reflect
Edison's CPUC-approved purchased-power settlement.
Capitalized interest increased 37%, mainly due to increased construction
activity at Mission Energy.
FINANCIAL CONDITION
SCEcorp's liquidity is primarily affected by debt maturities, dividend
payments and capital expenditures. Although SCEcorp is committed to a
strong dividend, recent CPUC decisions (see Regulatory Matters) may affect
its ability to raise or retain current dividend levels. Capital resources
include cash from operations and external financings.
Cash Flows from Operating Activities
Net cash provided by operating activities totaled $548 million in the
first quarter of 1994 and $683 million in the first quarter of 1993.
SCEcorp continues to meet most of its capital requirements with cash from
operations.
Cash Flows from Financing Activities
Edison's short-term debt is used to finance fuel inventories, balancing
account undercollections and general cash requirements. The Mission
companies' short-term debt is used mainly for construction projects until
long-term construction or project loans are secured. Long-term debt is
used mainly to finance capital expenditures. Edison's external financings
are influenced by market conditions and other factors, including
limitations imposed by its articles of incorporation and trust indenture.
As of March 31, 1994, Edison could issue approximately $6.1 billion of
additional first and refunding mortgage bonds and $3.9 billion of
preferred stock at current interest and dividend rates.
SCEcorp has lines of credit of $1.9 billion - $1.4 billion for short-term
debt and $500 million for the long-term refinancing of Edison's variable-
rate pollution-control bonds. Of the $1.4 billion for short-term debt,
the Mission companies have $600 million to finance general cash
requirements.
California law prohibits Edison from incurring or guaranteeing debt for
its nonutility affiliates. Additionally, the CPUC regulates Edison's
capital structure, limiting the dividends Edison may pay SCEcorp. These
restrictions are not expected to affect SCEcorp's ability to meet its cash
obligations.
<PAGE>
<PAGE>
Cash Flows from Investing Activities
The primary uses of cash for investing activities are additions to
property and plant, the Mission companies' investments and Edison's
contributions to nuclear decommissioning trusts. Decommissioning costs
are accrued and recovered in rates over the useful life of each nuclear
generating facility through charges to depreciation expense. Edison
expects to spend approximately $7.9 billion to decommission its nuclear
facilities, primarily between 2013-2035. This estimate is based on
Edison's current-dollar decommissioning costs ($1.1 billion), using a 7.7%
escalation rate and an earnings assumption on trust funds ranging from
5.25% to 6.0%. These amounts are expected to be funded from independent
decommissioning trusts (see Notes to Consolidated Financing Statements).
Edison contributes approximately $96 million per year to decommissioning
trusts. Trusts contributions will continue until decommissioning begins.
Cash used for the Mission companies' investing activities was $51 million
for the first three months of 1994.
Capital Requirements
SCEcorp's projected capital requirements for the years 1994 through 1998
are:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C> <C>
Construction expenditures $1,310 $1,327 $1,168 $1,143 $1,355
Maturities of long-term debt 136 264 290 566 520
------ ------ ------ ------ ------
Total $1,446 $1,591 $1,458 $1,709 $1,875
====== ====== ====== ====== ======
</TABLE>
REGULATORY MATTERS
The CPUC increased Edison's authorized revenue by $232 million, or 3.2%,
for 1994. The increase includes a $275 million increase for fuel and
related costs and an $82 million increase for higher operating costs,
partially offset by a $108 million decrease for the lower costs of debt
and equity.
In its 1994 cost-of-capital decision, the CPUC approved Edison's request
to increase its equity ratio from 46% to 47.25%. The increase reflects
the CPUC's recognition of Edison's need to reduce debt to levels more in
line with other utilities and the competitive environment. The CPUC also
authorized Edison an 11.0% return on common equity for 1994. Authorized
return on common equity was 11.8% for 1993. This decision is expected to
reduce 1994 earnings by approximately 6 cents per share.
The CPUC is reviewing Edison's costs (approximately $90 million) related
to a 1985 steam-pipe rupture at the Mohave Generating Station. On March
9, 1994, a CPUC decision stated that Edison had contributed to the piping
failure by imprudently operating the plant and recommended the
disallowance of all accident-related expenditures. The CPUC also ordered
a second phase of this proceeding to quantify the disallowance. The
probable effect on net income cannot be determined at this time, but
SCEcorp believes it will not materially affect its financial position.
The CPUC is also reviewing extended outages at Palo Verde. The CPUC's
Division of Ratepayer Advocates (DRA) initially recommended a disallowance
valued at $169 million. In September 1993, Edison and the DRA agreed to
settle these disputes for $38 million, subject to CPUC approval. The
effect of the proposed settlement has been fully reflected in the
financial statements. A CPUC decision is expected in mid-1994.
<PAGE>
<PAGE>
In its 1995 general rate case filing, Edison requested a $117 million
revenue increase to recover the higher costs of operations (excluding
fuel) resulting from inflation and new capital investments. Adjusted for
inflation, this increase represents a 7.2% reduction from Edison's 1992
authorized revenue. In addition, Edison filed a proposal for a
performance-based rate-making mechanism that would determine most of
Edison's revenue (excluding fuel) from 1995-2000 (see Competitive
Environment). On March 14, 1994, as a response to the general rate case
filing, the DRA recommended that Edison be denied funds to continue
operating San Onofre Nuclear Generating Station Units 2 and 3 after 1998,
or that an alternative formula of offering a fixed price per kilowatt-hour
generated be implemented. Edison believes the continued operation of the
nuclear units would benefit its customers by providing reliable and non-
polluting energy. Hearings on both matters are currently being conducted.
A CPUC decision is expected in late 1994.
COMPETITIVE ENVIRONMENT
Electric utilities operate in a highly regulated environment in which they
have an obligation to provide electric service to their customers in
return for an exclusive franchise within their service territory. This
regulatory environment is changing. The generation sector has experienced
competition from nonutility power producers and Edison expects even
greater competition in the generation sector over the next decade.
Due to this changing environment, Edison requested in its 1995 general
rate case filing a performance-based rate-making mechanism. The filing
asks for a revenue-indexing formula that combines operating expenses and
capital-related costs into a single index. This is a departure from the
traditional utility model that links potential earnings levels with
capital investment. It would provide stronger incentives for efficient
utility operations and investment and allow for a better alignment of
customer and shareholder interests.
On April 20, 1994, the CPUC issued a proposal for restructuring
California's electric utility industry. Under the proposal, large
electric customers would have the option for "direct access" to a range
of generation providers, including utilities, beginning in 1996. As
proposed, eligibility would expand gradually, until all customers have the
option for direct access to this competitive generation market beginning
in 2002. Edison would continue to provide transmission and distribution
service to all customers in its service territory. Performance-based
regulation would replace traditional cost-of-service regulation for all
transmission and distribution services. The proposal also states that
utilities should be entitled to recover all of their investments in
generation developed under traditional cost-of-service regulation even if
a portion is uneconomic under current conditions. A hearing on the
proposal is currently scheduled for June 1994. The CPUC anticipates
issuing a policy statement in August 1994 and initiating a formal
investigation on direct-access pricing in September 1994. Edison is
currently analyzing the CPUC's proposal; however, until the CPUC
establishes more detailed valuation and pricing criteria for its direct-
access proposal, Edison cannot predict the effect of the proposal on its
results of operations or financial position.
In the event that recovery of costs through rates becomes unlikely or
uncertain, whether due to competition or regulatory action, Edison's
accounting policies applicable to rate-regulated electric utility
operations may no longer apply to all of such operations. The financial
effects of discontinuing application of these policies could be
significant.
<PAGE>
<PAGE>
Mission Energy, one of the nation's largest independent power producers,
is well positioned to participate in the changing regulatory environment
for electric power. Further, international markets present an even
greater opportunity for growth and earnings. Mission Energy currently
owns 1,861 megawatts of generating capacity, enough power to serve a
population of over one million.
ENVIRONMENTAL PROTECTION
Costs to protect the environment continue to grow due to increasingly
stringent laws and regulations.
SCEcorp has identified 45 sites for which it is, or may be, responsible
for remediation under environmental laws. SCEcorp is participating in
investigations and cleanups at a number of these sites and has recorded
a $60 million liability for its estimated minimum costs to clean up
several sites. Additional costs may be incurred as progress is made in
determining the magnitude of required remedial actions, as SCEcorp's share
of these costs in proportion to other responsible parties is determined,
and as additional investigations and cleanups are performed. On May 4,
1994, the CPUC approved an incentive mechanism for rate recovery of
certain environmental cleanup costs. This mechanism allows Edison to
recover 90% of cleanup costs through customer rates. Shareholders will
fund the remaining 10%, with the opportunity to recover these costs
through insurance. Accordingly, Edison has recorded a regulatory asset
representing 90% of the estimated minimum costs to remediate sites covered
by this mechanism.
The 1990 federal Clean Air Act requires power producers to have emissions
allowances to emit sulfur dioxide. Power companies receive emissions
allowances from the federal government and may bank or sell excess
allowances. Edison expects to have excess allowances under Phase II of
the Clean Air Act (2000 and later). The act also calls for a five-year
study of regional haze in the southwestern U.S. In addition, the U.S.
Environmental Protection Agency is conducting a study of the effect of air
contaminant emissions on visibility in Grand Canyon National Park. The
potential effect of these studies on sulfur dioxide emissions regulations
for the Mohave Coal Generating Station is unknown.
Edison's projected capital expenditures to protect the environment are
$1.3 billion for the 1994-1998 period, mainly for placing overhead
distribution lines underground and reducing nitrogen-oxides emissions from
gas-fired electric generators. Local regulations may lower Edison's
projected capital expenditures (up to $330 million by 1998) to reduce
nitrogen-oxides emissions.
The possibility that exposure to electric and magnetic fields (EMF)
emanating from power lines, household appliances and other electric
sources may result in adverse health effects has received increased
attention. The scientific community has not yet reached a consensus on
the nature of any health effects of EMF. However, an administrative law
judge's proposed decision provides for a rate-recoverable research and
public education program conducted by California electric utilities, and
authorizes these utilities to take no-cost or low-cost steps to reduce
EMF in new electric facilities. Edison is unable to predict when or if
the scientific community will be able to reach a consensus on any health
effects of EMF, or the effect that such a consensus, if reached, could
have on future electric operations.
The probable effect on net income of these environmental matters cannot
be determined at this time, but SCEcorp believes it will not materially
affect its financial position.
<PAGE>
<PAGE>
NEW ACCOUNTING STANDARDS
On January 1, 1994, SCEcorp adopted a new accounting standard which
requires the accrual of certain postemployment benefits provided to former
or inactive employees, prior to retirement. Edison has recorded balance
sheet adjustments of $10 million representing the additional liability for
these postemployment benefits, and expects to recover these costs in
rates. Also, on January 1, 1994, SCEcorp adopted a new accounting
standard which requires that certain debt and equity investments be
reported at fair value. Accordingly, nuclear decommissioning trusts are
now reported at market value. Adoption of these new standards did not
have a material effect on results of operations or financial position.
CONTINGENCIES
The Internal Revenue Service (IRS) has challenged how gas and electric
utilities deduct energy conservation expenditures. It has taken the
position that certain demand-side management (DSM) expenditures should not
be treated as a current income tax deduction. The IRS claims that DSM
programs create a future benefit by delaying the cost of building
additional power plants. The utility industry believes that energy
conservation expenditures constitute ordinary and necessary business
expenses, which, under current provisions of the Internal Revenue Code,
are deductible in the year incurred or accrued. Federal legislation has
been introduced, which, if adopted, will clarify that DSM expenditures
currently are deductible under existing tax code provisions. SCEcorp
believes the IRS' position is contrary to the nation's energy and
environmental policy goals and will continue to take steps to vigorously
defend its position. The probable effect on net income of the outcome of
this matter cannot be determined at this time.
After a March 1993 steam tube rupture occurred at one of the three Palo
Verde Nuclear Generating Station units, an investigation revealed cracking
in additional steam generator tubes. Arizona Public Service (APS),
operator of Palo Verde, reduced power at all three units to 85% in late
1993 in order to prevent further tube degradation until investigations are
completed. In April 1994, some cracking was found at a second unit. APS
expects inspections to be completed on this unit by June 1994. At that
time, the unit is expected to be restarted at 86% power; however, all
three units may be removed from service for mid-cycle inspections in late
1994. APS is considering several remedial actions that would allow the
units to be operated at lower temperatures without appreciably reducing
their power output. APS cannot currently predict when one or more of the
units will be returned to full power.
<PAGE>
<PAGE>
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Antitrust Matters
Transphase Systems, Inc. filed a lawsuit on May 3, 1993, in the United
States District Court for the Central District of California against
Edison and San Diego Gas & Electric Company. The complaint alleges that
Transphase was competitively disadvantaged because it could not directly
access the demand side management funds Edison collects from its
ratepayers to fund conservation and demand management activities, and that
the utilities willfully acquired and maintain monopoly power in the energy
conservation industry. The complaint sought $50 million in damages before
trebling. On October 7, 1993, the District Court dismissed the case and
denied plaintiffs the opportunity to replead. Transphase appealed to the
Ninth Circuit Court of Appeals and oral argument was heard on May 3, 1994.
Edison expects a decision in August 1994.
This matter was previously reported under the heading "Antitrust Matters"
in Part I, Item 3, of SCEcorp's Annual Report on Form 10-K for the year
ended December 31, 1993.
Environmental Litigation
On March 14, 1994, five individuals filed a complaint against Edison and
certain other defendants in Orange County Superior Court. Plaintiffs
allege, among other things, that certain of the plaintiffs developed
cancer as a result of electric magnetic fields emitted from Edison
facilities. Plaintiffs request compensatory and punitive damages,
although no specific damage amounts are alleged in the complaint. Edison
has not yet been served with a copy of the complaint, but believes that
the allegations are without merit. Edison intends to vigorously defend
itself, if served.
Item 4. Submission of Matters to a Vote of Security Holders
Election of Directors
At SCEcorp's Annual Meeting of Shareholders on April 21, 1994,
shareholders elected seventeen nominees to the Board of Directors. The
number of broker non-votes for each nominee was 74,205,795. The number
of votes cast for and withheld from each Director-nominee were as follows:
<TABLE>
<CAPTION>
Name Number of Votes
---- -------------------------------------
For Withheld
----------- ---------
<S> <C> <C>
Howard P. Allen 350,604,327 7,592,268
Norman Barker, Jr. 351,354,314 6,842,281
John E. Bryson 350,608,240 7,588,355
Camilla C. Frost 351,407,144 6,789,451
Walter B. Gerken 351,608,204 6,588,391
Joan C. Hanley 351,692,483 6,504,112
Carl F. Huntsinger 351,722,719 6,473,876
Charles D. Miller 351,704,747 6,491,848
Luis G. Nogales 351,307,605 6,888,990
J. J. Pinola 351,552,464 6,644,131
James M. Rosser 351,528,014 6,668,581
Henry T. Segerstrom 351,571,413 6,625,182
E. L. Shannon, Jr. 351,649,111 6,547,484
Robert H. Smith 351,648,771 6,547,824
Daniel M. Tellep 351,679,178 6,517,417
James D. Watkins 351,433,545 6,763,050
Edward Zapanta 351,541,941 6,654,654
</TABLE>
<PAGE>
<PAGE>
Shareholder Proposal
At SCEcorp's Annual Meeting of Shareholders on April 21, 1994,
shareholders did not approve a shareholder proposal regarding executive
officer and director compensation. The number of affirmative and negative
votes, abstentions and broker non-votes with respect to the matter were
as follows:
<TABLE>
<CAPTION>
Broker
Affirmative Negative Abstentions Non-Votes
----------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Common Stock 44,329,732 232,171,460 10,817,642 74,205,795
</TABLE>
Item 5. Other Information
Construction Program and Capital Expenditures
Construction expenditures for the 1994-1998 period are estimated (as of
April 14, 1994, the date of SCEcorp's latest approved budget) as follows:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 Total
---- ---- ---- ---- ---- -----
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Electric generating plant $ 352 $ 326 $ 269 $ 266 $ 499 $1,712
Electric transmission lines and substations 184 133 157 176 254 904
Electric distribution lines and substations 476 548 517 546 552 2,639
Other expenditures 223 208 130 112 92 765
Nonutility expenditures 105 156 138 86 1 486
------ ------ ------ ------ ------ ------
Total 1,340 1,371 1,211 1,186 1,398 6,506
Less--Allowance for funds used during construction 30 44 43 43 43 203
------ ------ ------ ------ ------ ------
Funds required for construction expenditures $1,310 $1,327 $1,168 $1,143 $1,355 $6,303
====== ====== ====== ====== ====== ======
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCEcorp
(Registrant)
By R. K. BUSHEY
---------------------------------
R. K. BUSHEY
Vice President and Controller
By W. J. SCILACCI
---------------------------------
W. J. SCILACCI
Assistant Treasurer
May 11, 1994
