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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 June 30, 1995
---------------------------------------
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 August 8, 1995
-------------------------- -----------------------------
Common Stock, no par value 446,047,074
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SCEcorp
INDEX
Page
No.
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Part I. Financial Information:
Item 1. Consolidated Financial Statements:
Consolidated Statements of Income--Three and Six
Months Ended June 30, 1995, and 1994 2
Consolidated Balance Sheets--June 30, 1995, and
December 31, 1994 3
Consolidated Statements of Cash Flows--Six Months
Ended June 30, 1995, and 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 11
Part II. Other Information:
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 23
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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 6 Months Ended
June 30, June 30,
------------------------ -----------------------
1995 1994 1995 1994
---------- --------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Electric utility revenue $1,737,838 $1,746,438 $3,459,612 $3,423,117
Diversified operations 122,999 131,277 223,259 201,638
---------- ---------- ---------- ----------
Total operating revenue 1,860,837 1,877,715 3,682,871 3,624,755
---------- ---------- ---------- ----------
Fuel 138,998 202,190 303,462 397,959
Purchased power 549,730 537,346 1,036,822 1,026,861
Provisions for regulatory adjustment
clauses -- net 16,693 (30,532) 45,454 (39,439)
Other operating expenses 348,518 381,850 664,797 705,250
Maintenance 84,830 88,309 182,725 172,481
Depreciation and decommissioning 253,218 236,311 496,551 475,601
Income taxes 104,822 109,177 216,549 200,007
Property and other taxes 53,588 52,802 108,378 107,359
---------- ---------- ---------- ----------
Total operating expenses 1,550,397 1,577,453 3,054,738 3,046,079
---------- ---------- ---------- ----------
Operating income 310,440 300,262 628,133 578,676
---------- ---------- ---------- ----------
Provision for rate phase-in plan (28,090) (31,580) (57,865) (64,226)
Allowance for equity funds used
during construction 4,999 3,565 10,523 7,489
Interest income 15,596 10,972 30,072 20,251
Minority interest (11,443) (12,404) (23,094) (21,805)
Other nonoperating income -- net 14,233 15,142 18,778 37,027
---------- ---------- ---------- ----------
Total other income (deductions) -- net (4,705) (14,305) (21,586) (21,264)
---------- ---------- ---------- ----------
Income before interest and other expenses 305,735 285,957 606,547 557,412
---------- ---------- ---------- ----------
Interest on long-term debt 129,485 127,656 258,228 252,735
Other interest expense 23,266 22,276 46,904 40,670
Allowance for borrowed funds used
during construction (3,796) (3,715) (7,990) (7,804)
Capitalized interest (14,432) (12,083) (27,569) (22,392)
Dividends on subsidiary preferred
securities 11,339 10,020 23,556 20,040
---------- ---------- ---------- ----------
Total interest and other expenses -- net 145,862 144,154 293,129 283,249
---------- ---------- ---------- ----------
Net income $ 159,873 $ 141,803 $ 313,418 $ 274,163
========== ========== ========== ==========
Weighted-average shares of common stock
outstanding 446,813 447,799 447,206 447,799
Earnings per share $.36 $.32 $.70 $ .61
Dividends declared per common share $.25 $.25 $.50 .605
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SCEcorp
CONSOLIDATED BALANCE SHEETS
In thousands
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Utility plant, at original cost $19,455,895 $19,121,964
Less -- accumulated provision for
depreciation and decommissioning 8,129,802 7,710,227
----------- -----------
11,326,093 11,411,737
Construction work in progress 832,665 906,766
Nuclear fuel, at amortized cost 124,559 98,044
----------- -----------
Total utility plant 12,283,317 12,416,547
----------- -----------
Nonutility property -- less
accumulated provision for
depreciation of $118,916 and $101,093
at respective dates 1,954,108 1,977,069
Nuclear decommissioning trusts 1,090,764 919,351
Investments in partnerships and
unconsolidated subsidiaries 1,448,373 1,200,927
Investments in leveraged leases 565,937 555,564
Other investments 63,299 39,584
----------- -----------
Total other property and investments 5,122,481 4,692,495
----------- -----------
Cash and equivalents 593,899 533,957
Receivables, including unbilled
revenue, less allowances of
$24,499 and $23,934 for uncollectible
accounts at respective dates 947,485 975,064
Fuel inventory 127,738 116,929
Materials and supplies, at average cost 161,644 129,109
Accumulated deferred income taxes -- net 326,711 271,308
Prepayments and other current assets 18,241 107,731
----------- -----------
Total current assets 2,175,718 2,134,098
----------- -----------
Unamortized debt issuance and
reacquisition expense 349,282 356,557
Rate phase-in plan 189,465 240,730
Unamortized nuclear plant -- net 119,808 171,071
Income tax-related deferred charges 1,814,766 1,816,414
Other deferred charges 580,749 562,335
----------- -----------
Total deferred charges 3,054,070 3,147,107
----------- -----------
Total assets $22,635,586 $22,390,247
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SCEcorp
CONSOLIDATED BALANCE SHEETS
In thousands, except share amounts
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------- -----------
(Unaudited)
CAPITALIZATION AND LIABILITIES
Common shareholders' equity:
Common stock (446,316,974 and 447,799,172
<S> <C> <C>
shares outstanding at respective dates) $ 2,682,835 $ 2,691,574
Retained earnings 3,525,365 3,451,842
----------- -----------
6,208,200 6,143,416
Preferred securities of subsidiaries:
Not subject to mandatory redemption 371,255 446,255
Subject to mandatory redemption 275,000 275,000
Long-term debt 6,884,357 6,347,188
----------- -----------
Total capitalization 13,738,812 13,211,859
----------- -----------
Other long-term liabilities 339,017 311,063
----------- -----------
Current portion of long-term debt 44,381 231,370
Short-term debt 604,683 845,514
Accounts payable 289,380 412,930
Accrued taxes 553,319 530,163
Accrued interest 116,148 99,770
Dividends payable 114,011 115,803
Regulatory balancing accounts -- net 113,613 55,710
Deferred unbilled revenue and other
current liabilities 994,484 865,758
----------- -----------
Total current liabilities 2,830,019 3,157,018
----------- -----------
Accumulated deferred income
taxes -- net 4,086,851 4,059,372
Accumulated deferred investment
tax credits 418,689 432,265
Customer advances and other
deferred credits 631,532 616,110
----------- -----------
Total deferred credits 5,137,072 5,107,747
----------- -----------
Minority interest 590,666 602,560
----------- -----------
Commitments and contingencies
(Notes 1 and 2)
Total capitalization and liabilities $22,635,586 $22,390,247
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SCEcorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
<TABLE>
<CAPTION>
6 Months Ended
June 30,
--------------------------
1995 1994
--------- ----------
(Unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income $313,418 $ 274,163
Adjustments for non-cash items:
Depreciation and decommissioning 496,551 475,601
Amortization 24,676 77,542
Rate phase-in plan 51,265 57,991
Deferred income taxes and investment tax
credits (39,037) (18,680)
Equity in income from partnerships and
unconsolidated subsidiaries (44,786) (41,505)
Other long-term liabilities 27,954 35,978
Other -- net (32,724) (52,030)
Changes in working capital:
Receivables 27,579 (47,802)
Regulatory balancing accounts 57,903 (68,358)
Fuel inventory, materials and supplies (43,344) (29,502)
Prepayments and other current assets 89,490 101,782
Accrued interest and taxes 39,534 102,680
Accounts payable and other current
liabilities (41,718) 29,220
Distributions from partnerships and
unconsolidated subsidiaries 61,758 35,158
--------- ---------
Net cash provided by operating activities 988,519 932,238
--------- ---------
Cash flows from financing activities:
Long-term debt issued 807,940 97,379
Long-term debt repayments (500,261) (230,040)
Redemption of preferred stock (75,000) --
Repurchases of common stock (24,716) --
Nuclear fuel financing -- net 20,189 (13,816)
Short-term debt financing -- net (150,831) 319,321
Dividends paid (225,486) (317,937)
--------- ---------
Net cash used by financing activities (148,165) (145,093)
--------- ---------
Cash flows from investing activities:
Additions to property and plant (476,013) (546,122)
Funding of nuclear decommissioning trusts (72,557) (75,987)
Investments in partnerships and
unconsolidated subsidiaries (216,800) (112,683)
Other -- net (15,042) 67,948
--------- ---------
Net cash used by investing activities (780,412) (666,844)
--------- ---------
Net increase (decrease) in cash and
equivalents 59,942 120,301
Cash and equivalents, beginning of period 533,957 420,510
--------- ---------
Cash and equivalents, end of period $ 593,899 $ 540,811
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SCEcorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management's Statement
In the opinion of management, all adjustments have been made that are
necessary to present a fair statement of the financial position and
results of operations for the periods covered by this report.
SCEcorp's significant accounting policies were described in Note 1 of
"Notes to Consolidated Financial Statements" included in its 1994 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 1994 Annual Report.
Certain prior-period amounts have been reclassified to conform to the June
30, 1995, financial statement presentation.
Note 1. Regulatory Matters
1995 General Rate Case Proposed Settlement Agreement
In 1994, Edison and the California Public Utilities Commission's (CPUC)
Division of Ratepayer Advocates (DRA) filed a settlement agreement related
to Edison's 1995 general rate case. The settlement, which requires CPUC
approval, includes a $67 million reduction in Edison's 1995 non-fuel
revenue and, beginning February 1, 1996, accelerated recovery (by 2003,
instead of 2012) of Edison's remaining investment in San Onofre Nuclear
Generating Station Units 2 and 3, with an incentive pricing plan for
future operating costs. The $67 million revenue reduction has been
included in 1995 rates. This reduction may change depending on the CPUC's
final decision expected in late 1995.
Edison's unrecovered investment in Units 2 and 3 (approximately $2.7
billion) would be collected over an eight-year period earning a reduced
rate of return of 7.78%, compared to the current 9.8%. Under the
incentive pricing plan, which would replace traditional regulation and
rate recovery, Edison will receive approximately 4 cents per kilowatt-
hour to cover its portion of San Onofre's ongoing operating and
incremental capital expenditures during the eight-year period. At the end
of this period, customers would bear no further obligation for the units,
except certain costs associated with decommissioning and permanent
closure. Edison would then sell power generated by San Onofre under
prices, terms and conditions which conform to any then-existing regulatory
procedures.
In April 1995, the DRA filed supplemental testimony recommending a 0.25-
cent-per-kilowatt-hour decrease to the incentive prices originally agreed
to in the settlement agreement. The DRA claims the decrease is based on
"new information" obtained after the settlement was negotiated, but prior
to the hearings. On May 8, 1995, Edison filed rebuttal testimony showing
that the "new information" does not form the basis for any change to the
agreement and requesting that the CPUC adopt the original settlement.
Hearings concluded on May 24, 1995. A CPUC decision is expected in
October 1995.
CPUC Restructuring Proposals
Since April 1994, the CPUC has been considering its proposal for
restructuring California's electric utility industry, seeking to lower
energy prices and provide customers with a choice of generation suppliers
(direct access). As part of these proceedings, Edison filed a proposal
with the CPUC in November 1994 recommending implementation of a
competition transition charge mechanism beginning in 1998, for full
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SCEcorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
recovery of utility investments and obligations incurred to serve
customers under the existing regulatory framework. In its filing, Edison
estimates its potential transition costs through 2025 to be approximately
$9.3 billion (net present value), based on an assumed 1998 market price
of four cents per kilowatt-hour. The potential transition costs are
comprised of: $4.9 billion from Edison's qualifying facility contracts,
which are the direct result of legislative and regulatory mandates; $600
million from costs pertaining to certain generating plants; and $3.8
billion from regulatory commitments consisting of costs incurred to
provide service to customers whose recovery has been deferred. Such
commitments include deferred taxes, postretirement benefit transition
costs, accelerated recovery of nuclear plants, nuclear decommissioning and
certain other costs. At June 30, 1995, these commitments included
recorded generation-related regulatory assets of approximately $850
million.
On May 24, 1995, the CPUC issued for public comment two policy proposals
on restructuring. Although the proposals differ, they both recommend
moving to a restructured competitive electric industry within two years
and generally endorse recovery of costs incurred under prior regulatory
rules. The majority's proposal, supported by three of the four
commissioners, recommends a power pool that would commence operation by
the beginning of 1997. Under this proposal, an independent system
operator would coordinate a competitive bidding process that would
determine which generating plants supply power to the pool based on
demand. Edison and other utilities would obtain power from the pool for
distribution to their customers. After the initial two years of
operation, if market power, stranded cost recovery, and jurisdictional
issues were resolved, consumers would be allowed to buy electricity
directly from generators. Under this proposal, utilities would provide
transmission and distribution services under a performance-based rate-
making model.
One commissioner offered an alternate proposal that would provide for
"retail wheeling." Under this proposal, customers could enter into
individual agreements with power producers, and use Edison's and other
utilities' lines to transmit the power beginning January 1998. This
proposal calls for the immediate sale or spin-off of all utility-owned
generation facilities, and may allow utilities to recover only 90% of the
uneconomic portion of their generating assets.
On July 24, 1995, Edison filed comments supporting the majority proposal
because it believes this proposal will be more successful at achieving the
goals the CPUC originally set in April 1994 for a restructured electric
industry in California. Hearings on both proposals have been scheduled
for mid- to late August 1995. A final CPUC decision is expected in late
1995; however, the state legislature has requested the CPUC to withhold
implementation of any restructuring plan until its impact can be evaluated
by the legislature and governor.
FERC Restructuring Proposal
In March 1995, the Federal Energy Regulatory Commission (FERC) proposed
rules which would require utilities to provide wholesale open access to
the nation's interstate transmission grid, while allowing them to recover
stranded costs associated with open transmission access. To help insure
that wholesale open access promotes competition, the FERC proposed
development of industry-wide real-time information networks that would
require utilities to provide simultaneous information to all parties
trading wholesale electric power. The proposal defines stranded costs as
legitimate, prudent and verifiable costs incurred by a utility to provide
service to customers that would subsequently become unbundled wholesale
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SCEcorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
transmission service customers of the utility. Edison supports the FERC's
proposal and filed comments on August 7, 1995. A final FERC decision is
expected in mid-1996.
Accounting for the Effects of Regulation
Edison currently applies accounting standards that recognize the economic
effects of rate regulation. If rate recovery of generation-related costs
becomes unlikely or uncertain, whether due to competition or regulatory
action, these accounting standards may no longer apply to Edison's
generation operations and the $850 million in recorded regulatory assets
would be a non-cash charge against earnings. Additionally, Edison may
have write-offs associated with its potential transition costs if these
costs are not fully recovered through a competition transition charge or
other mechanism. Until the CPUC establishes more definitive valuation
and pricing criteria for its restructuring proposal, including a recovery
mechanism for the transition charges, Edison cannot predict the effect of
the proposal on its results of operations.
A new accounting standard, effective January 1996, requires impairment
losses on long-lived assets to be recognized when an asset's book value
exceeds its expected future cash flows (undiscounted). The current
standard bases impairment losses on the probability of recovery of an
asset's book value. The new standard also imposes stricter criteria for
retention of regulatory-created assets. Due to the regulatory
uncertainties mentioned above, Edison cannot predict the effect of the
new accounting standard on its generation-related assets; however, the
timing of potential impairment losses for regulatory-created assets may
be affected.
Mohave Generating Station
A 1994 CPUC decision stated that Edison was liable for expenditures
related to a 1985 accident at the Mohave Generating Station. The CPUC
ordered a second phase of this proceeding to quantify the disallowance.
SCEcorp believes that the final outcome of this matter will not materially
affect its results of operations.
Note 2. Contingencies
In addition to the matters disclosed in these notes, SCEcorp is involved
in legal, tax and regulatory proceedings before various courts and
governmental agencies with regard to matters arising in the ordinary
course of business. SCEcorp believes that the final outcome of these
proceedings will not materially affect its results of operations.
Environmental Protection
SCEcorp is subject to numerous environmental laws and regulations, which
require it to incur substantial costs to operate existing facilities,
construct and operate new facilities, and mitigate or remove the effect
of past operations on the environment.
SCEcorp records its environmental liabilities when site assessments and/or
remedial actions are probable and a range of reasonably likely cleanup
costs can be estimated. SCEcorp reviews its sites and measures the
liability quarterly, by assessing a range of reasonably likely costs for
each identified site using currently available information, including
existing technology, presently enacted laws and regulations, experience
gained at similar sites, and the probable level of involvement and
financial condition of other potentially responsible parties. These
estimates include costs for site investigations, remediation, operations
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SCEcorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and maintenance, monitoring and site closure. Unless there is a probable
amount, SCEcorp records the lower end of this reasonably likely range of
costs (classified as other long-term liabilities at undiscounted amounts).
While SCEcorp has numerous insurance policies that it believes may provide
coverage for some of these liabilities, it does not recognize recoveries
in its financial statements until they are realized.
At June 30, 1995, SCEcorp's recorded estimated minimum liability to
remediate its 62 identified sites was $114 million. The ultimate costs
to clean up SCEcorp's identified sites may vary from its recorded
liability due to numerous uncertainties inherent in the estimation
process, such as: the extent and nature of contamination; the scarcity of
reliable data for identified sites; the varying costs of alternative
cleanup methods; developments resulting from investigatory studies; the
possibility of identifying additional sites; and the time periods over
which site remediation is expected to occur. SCEcorp believes that, due
to these uncertainties, it is reasonably possible that cleanup costs could
exceed its recorded liability by up to $215 million. The upper limit of
this range of costs was estimated using assumptions least favorable to
SCEcorp among a range of reasonably possible outcomes.
SCEcorp expects to clean up its identified sites over a period of up to
30 years. Remediation costs in each of the next several years are
expected to range from $4 million to $8 million.
SCEcorp's identified sites include several sites for which there is a lack
of currently available information, including the nature and magnitude of
contamination and the extent, if any, that SCEcorp may be held responsible
for contributing to any costs incurred for remediating these sites. Thus,
no reasonable estimate of cleanup costs can be made for these sites at
this time.
The CPUC allows Edison to recover environmental-cleanup costs at 24 of its
sites, representing $90 million of SCEcorp's recorded liability, through
an incentive mechanism (Edison may request to include additional sites).
Under this mechanism, Edison will recover 90% of cleanup costs through
customer rates; shareholders fund the remaining 10%, with the opportunity
to recover these costs through insurance and other third-party recoveries.
Edison has settled insurance claims with several carriers, and is
continuing to pursue additional recovery. Costs incurred at Edison's
remaining 34 sites are expected to be recovered through customer rates.
Edison has recorded a regulatory asset of $104 million for its estimated
minimum environmental-cleanup costs expected to be recovered through
customer rates.
SCEcorp's 62 identified sites consist of 58 Edison sites and four Mission
Energy sites. In 1994, Edison utilized an estimating technique to
quantify its potential liability for environmental cleanup in an effort
to obtain a reasonably possible objective and reliable estimate of
environmental cleanup. Mission Energy is in the process of conducting a
similar review of its sites, which is expected to be completed in 1995.
This review could result in an increase to SCEcorp's number of identified
sites and/or its estimated minimum liability.
Based on currently available information, SCEcorp believes it is not
likely that it will incur amounts in excess of the upper limit of the
estimated range and, based upon the CPUC's regulatory treatment of
environmental-cleanup costs, SCEcorp believes that costs ultimately
recorded will not have a material adverse effect on its results of
operations or financial position. There can be no assurance, however,
that future developments, including additional information about existing
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SCEcorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
sites or the identification of new sites, will not require material
revisions to such estimates.
Nuclear Insurance
Federal law limits public liability claims from a nuclear incident to $8.9
billion. Edison and other owners of San Onofre and Palo Verde Nuclear
Generating Station 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. The
Nuclear Regulatory Commission exempted San Onofre Unit 1 from this
secondary level, effective June 1994. 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 $158 million per nuclear incident. However, it would have to
pay no more than $20 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 $45 million per
year. Insurance premiums are charged to operating expense.
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SCEcorp
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
Earnings
SCEcorp's earnings per share for the three- and six-month periods ended
June 30, 1995, were 36 cents and 70 cents, respectively, compared with 32
cents and 61 cents for the year-earlier periods. Southern California
Edison Company's quarterly earnings were up 4 cents per share and
year-to-date earnings increased 6 cents per share, primarily due to a
higher authorized return on common equity for 1995 and improved operating
efficiencies, partially offset by employee severance costs. The Mission
companies' quarterly earnings were unchanged while the year-to-date
earnings increased 3 cents per share reflecting Mission Energy's higher
returns on oil and gas investments, favorable fuel prices, and improved
results at its energy projects.
A 1993 Mission Energy decision to discontinue recording earnings from five
geothermal projects, due to the reduced value of these investments,
negatively affected 1994 earnings by 3 cents per share and is expected to
continue to affect earnings in 1995 and possibly beyond.
Operating Revenue
Electric utility revenue remained virtually unchanged for the three- and
six-month periods ended June 30, 1995, compared with the same periods in
1994, as a 2.6% California Public Utilities Commission (CPUC)-authorized
rate increase was offset by a decline in energy usage caused by milder
weather in 1995. Over 98% of electric utility revenue is from retail
sales. Retail rates are regulated by the CPUC and wholesale rates are
regulated by the Federal Energy Regulatory Commission (FERC).
In March 1995, Edison announced that it intends to freeze average rates
through 1996 for residential, small business and agricultural customers
and announced a five-year goal to reduce system average rates by 25%
(after adjusting for inflation), subject to CPUC approval. Edison also
urged the CPUC to re-examine certain rate design issues, including
possible elimination of the kilowatt-hour sales balancing account, which
adjusts utility revenue for differences between CPUC-authorized and actual
base-rate revenue. In July 1995, Edison filed expanded rate options and
requested that the CPUC expedite the filing in order to offer these
services by 1996. Edison does not anticipate that these proposals will
have a material effect on future earnings trends; however, if the
balancing account mechanism were to be revised or eliminated, the seasonal
variability of Edison's earnings could be affected.
Revenue from diversified operations decreased 6% for the quarter, compared
to the year-earlier period, as Mission Land sold an apartment complex in
the second quarter of 1994. Excluding this sale, revenue from diversified
operations increased in both periods, compared to the year-earlier
periods, mainly from an increase in Mission Energy's electric revenue from
its Roosecote project, which was out of service for slightly more than
three months of the comparable periods in 1994 due to a transformer
failure and scheduled maintenance. Improved operating performance at a
number of Mission Energy's domestic projects, primarily from lower fuel
prices, also contributed to the year-to-date increase.
Operating Expenses
Fuel expense decreased 31% and 24% for the three- and six-month periods
ended June 30, 1995, compared to the year-earlier periods. Fuel expense
decreased at Edison, primarily due to lower electric demand in the second
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quarter of 1995 caused by milder weather, an increase in hydro generation
due to greater rainfall in 1995, and lower overall gas prices. Fuel
expense increased at Mission Energy due to the transformer failure and
scheduled maintenance at its Roosecote project in 1994, partially offset
by favorable fuel prices.
Provisions for regulatory adjustment clauses increased as CPUC-authorized
fuel and purchased-power cost estimates exceeded Edison's actual energy
costs, due to lower than estimated gas prices, lower energy usage and an
increase in Edison's hydro generation.
Other Income and Deductions
The provision for rate phase-in plan reflects a CPUC-authorized, 10-year
rate phase-in plan, which deferred the collection of revenue during the
first four years of operation for the Palo Verde Nuclear Generating
Station. Revenue previously deferred (including interest) will be
collected by the end of 1996 for Units 1 and 2, and 1998 for Unit 3. The
provision is a non-cash offset to the collection of deferred revenue.
Interest income increased 42% and 48%, respectively, for the three- and
six-month periods ended June 30, 1995, compared to the year-earlier
periods, primarily due to higher interest rates and higher investment
balances. The higher investment balances reflect the decline in dividend
payments, which began in June 1994, and an increase in Mission Energy's
loans to new projects. The first quarter of 1995 also includes interest
income from Mission Energy's receivable related to termination of its
investment in the Carbon II project in Mexico. No comparable income was
recorded in the first quarter of 1994.
Other nonoperating income decreased for the second quarter of 1995,
compared to the same period in 1994, primarily due to Mission Energy's
receipt of insurance proceeds in 1994 related to the transformer failure
at its Roosecote project, partially offset by an increase at Edison from
a CPUC-authorized program to accelerate amortization of certain energy
conservation programs in 1994. The year-to-date decrease reflects a $5
million CPUC-authorized incentive award received in the first quarter of
1994 related to nuclear plant performance and a 1994 benefit resulting
from the effect of a drop in SCEcorp's stock price on Edison's stock
option plan.
Interest Expense
Other interest expense increased 15% for the six-month period ended June
30, 1995, compared to the year-earlier period, mainly due to rising
interest rates on short-term borrowings and higher balances in the
regulatory balancing accounts.
Capitalized interest increased 19% and 23%, respectively, for the three-
and six-month periods ended June 30, 1995, compared to the year-earlier
periods, mainly from increased construction activity at Mission Energy's
Australian projects.
Dividends on subsidiary preferred securities increased 13% and 18%,
respectively, for the three- and six-month periods ended June 30, 1995,
compared to the year-earlier periods, due to Mission Energy's issuance of
$87 million in preferred securities in the fourth quarter of 1994 as
partial funding for the equity requirements for its Loy Yang B project.
FINANCIAL CONDITION
SCEcorp's liquidity is primarily affected by debt maturities, dividend
payments, capital expenditures and investments in partnerships and
unconsolidated subsidiaries. Capital resources include cash from
operations and external financings.
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In June 1994, SCEcorp lowered its quarterly common stock dividend by 30%,
as the result of uncertainty of future earnings levels arising from the
changing nature of the electric utility industry, intensified by recently
proposed changes in California utility regulation.
In January 1995, SCEcorp authorized the repurchase of up to $150 million
of its common stock during 1995. SCEcorp has repurchased 1,866,598 shares
($31 million) through August 4, 1995, funded by dividends from SCEcorp
subsidiaries.
Cash Flows from Operating Activities
Net cash provided by operating activities totaled $989 million for the
six-month period ended June 30, 1995, compared with $932 million for the
comparable period in 1994. Cash from operations exceeded capital
requirements for all periods presented.
Cash Flows from Financing Activities
SCEcorp and its subsidiaries have lines of credit totaling $2.1 billion.
The holding company has a line of credit of $100 million for short-term
debt. Edison has lines of credit of $900 million for short-term debt and
the Mission companies have lines of credit of $600 million to finance
general cash requirements. Edison also has lines of credit of $500
million for the long-term refinancing of its variable-rate pollution
control bonds.
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 June 30, 1995, Edison could issue approximately $6.3
billion of additional first and refunding mortgage bonds and $3.7 billion
of preferred stock at current interest and dividend rates.
In April 1995, Mission Energy completed negotiations for financing of the
Paiton power project in Indonesia. Mission Energy has firm commitments
and contingent obligations to make equity contributions of $230 million
and $115 million, respectively. Equity contributions are expected to be
made over the four-year construction period. Mission Energy believes it
will have sufficient liquidity to meet these equity requirements from cash
provided by operating activities, funds available from Mission Energy's
revolving line of credit and additional corporate borrowings. Mission
Energy intends to issue $63 million in preferred securities in August
1995.
In June 1995, Mission Energy and its partner signed a twenty-year power
purchase agreement with Italy's state electricity corporation for its ISAB
power project in Italy. The project has received financing proposals in
excess of the project's approximately $1 billion cost. Financing is
expected to close in the fourth quarter of 1995.
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.
Cash Flows from Investing Activities
The primary uses of cash for investing activities are additions to
property and plant, the Mission companies' investments in partnerships and
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unconsolidated subsidiaries, and funding of nuclear decommissioning
trusts. Decommissioning costs are accrued and recovered in customer rates
over the term of each nuclear generating facility's operating license
through charges to depreciation expense. Edison estimates that it will
spend approximately $12.7 billion to decommission its nuclear facilities,
primarily between 2013-2070. This estimate is based on Edison's
current-dollar decommissioning costs ($1.8 billion), escalated using a
6.65% rate and an earnings assumption on trust funds ranging from 5.50%
to 5.75%. These amounts are expected to be funded from independent
decommissioning trusts (see Notes to Consolidated Financial Statements),
which receive Edison contributions of approximately $100 million per year
(until decommissioning begins). The Financial Accounting Standards Board
is reviewing current accounting practices for removal costs, including
decommissioning of nuclear power plants. If current industry accounting
practices are revised, Edison may be required to report its estimated
decommissioning costs as a liability, rather than recognize these costs
over the term of each facility's operating license. SCEcorp does not
believe that such changes, if any, would have an adverse effect on its
results of operations due to its current and expected future ability to
recover these costs through Edison's customer rates.
Cash used for the Mission companies' investing activities was $324 million
for the six-month period ended June 30, 1995, compared to $119 million for
the same period in 1994.
SCEcorp's risk management policy allows the use of derivative financial
instruments only to mitigate risk. Mission Energy has mitigated the risk
of interest rate fluctuations by arranging for fixed rate financing or
variable rate financing with interest rate swaps or other hedging
mechanisms for the majority of its projects. As Mission Energy continues
to expand into foreign markets, fluctuations in foreign currency exchange
rates will continue to affect the amount of Mission Energy's equity
contributions to, distributions from, and results of operations for its
foreign projects. Mission Energy has hedged and will continue to hedge
the majority of its exposure to fluctuations in foreign exchange rates
through financial instruments and other means.
Projected Capital Requirements
SCEcorp's projected capital requirements for the next five years are:
1995--$1.2 billion; 1996--$1.0 billion; 1997--$1.0 billion; 1998--$1.4
billion; and 1999--$1.1 billion.
Long-term debt maturities and sinking fund requirements for the five
twelve-month periods following June 30, 1995, are: 1996--$28 million;
1997--$231 million; 1998--$634 million; 1999--$788 million; and 2000--
$400 million.
REGULATORY MATTERS
Edison's 1995 CPUC-authorized revenue increased $193 million, or 2.6%,
primarily due to a $192 million increase for fuel and purchased power
($167 million for federally required purchases), a $121 million increase
for higher costs of debt and equity, a $64 million decrease for 1993
postretirement benefits other than pensions (collected in 1994 rates) and
a $67 million decrease for a pending settlement agreement with the CPUC's
Division of Ratepayer Advocates (DRA) related to Edison's 1995 general
rate case (see 1995 General Rate Case below).
The CPUC's 1995 cost-of-capital decision authorized an increase to
Edison's equity ratio from 47.25% to 47.75%, and an increase to Edison's
return on common equity from 11% to 12.1% in 1995. This decision,
excluding the effects of other rate actions, would increase 1995 earnings
by approximately 14 cents per share. In its 1996 cost-of-capital
proceeding, Edison requested to increase its common equity ratio from
47.75% to 48% with no change to its authorized return on common equity.
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On July 31, 1995, the DRA recommended a decrease to Edison's 1996 return
on common equity from 12.1% to 11.15%. This recommendation, if adopted,
could reduce 1996 earnings by about 11 cents per share. A CPUC decision
is expected in November 1995.
A 1994 CPUC decision stated that Edison was liable for expenditures
related to a 1985 accident at the Mohave Generating Station. The CPUC
ordered a second phase of this proceeding to quantify the disallowance.
SCEcorp believes that the final outcome of this matter will not materially
affect its results of operations.
In October 1994, the CPUC authorized Edison to accelerate recovery of its
nuclear plant investments by $75 million per year, through 2011. The rate
impact of this accelerated cost recovery is offset by a corresponding
deceleration in recovery of transmission and distribution facilities
through revised depreciation estimates over their remaining useful lives.
1995 General Rate Case
In 1994, Edison and the DRA filed a settlement agreement related to the
1995 general rate case. The settlement, which requires CPUC approval,
includes a $67 million reduction in 1995 non-fuel revenue and, beginning
February 1, 1996, accelerated recovery (by 2003, instead of 2012) of
Edison's remaining investment (approximately $2.7 billion) in San Onofre
Units 2 and 3. Edison would earn a reduced rate of return of 7.78%,
compared to the current 9.8%, on its remaining investment. Future
operating costs would be recovered through an incentive pricing plan. At
the end of the recovery period, customers would bear no further obligation
for Units 2 and 3, except for certain costs associated with
decommissioning and permanent closure. Edison would then sell power
generated by San Onofre under prices, terms and conditions which conform
to any then-existing regulatory procedures.
The $67 million revenue reduction has been included in 1995 rates and is
subject to change, pending the CPUC's final decision expected in late
1995.
In April 1995, the DRA filed supplemental testimony requesting a decrease
to the incentive prices originally agreed upon in the settlement
agreement. On May 8, 1995, Edison filed rebuttal testimony requesting
that the CPUC adopt the original settlement. Hearings concluded on May
24, 1995. A CPUC decision is expected in late 1995.
Performance-Based Ratemaking
In 1993, Edison filed a proposal with the CPUC for a performance-based
rate-making mechanism that would determine most of Edison's revenue
(excluding fuel) from 1996-2000. The filing proposed a revenue-indexing
formula that would combine operating expenses and capital-related costs
into a single index. In July 1994, the CPUC ordered Edison to divide its
performance-based rate-making application into two phases--transmission
and distribution, and power generation. Hearings concluded in December
1994 for the transmission and distribution phase and a decision is
expected in late 1995. Edison expects to file its proposal for the power
generation phase in late 1995.
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 regulators have proposed
restructuring the electric utility industry. Edison expects the
generation sector to continue to experience competition and other changes
over the next decade.
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CPUC Restructuring Proposals
Since April 1994, the CPUC has been considering its proposal for
restructuring California's electric utility industry, seeking to lower
energy prices and provide customers with a choice of generation suppliers
(direct access). As part of these proceedings, Edison filed a proposal
with the CPUC in November 1994, recommending implementation of a
competition transition charge mechanism beginning in 1998, for full
recovery of utility investments and obligations incurred to serve
customers under the existing regulatory framework. In its filing, Edison
estimates its potential transition costs through 2025 to be approximately
$9.3 billion (net present value), based on an assumed 1998 market price
of four cents per kilowatt-hour. The potential transition costs are
comprised of: $4.9 billion from Edison's qualifying facility contracts,
which are the direct result of legislative and regulatory mandates; $600
million from costs pertaining to certain generating plants; and $3.8
billion from regulatory commitments consisting of costs incurred to
provide service to customers whose recovery has been deferred. Such
commitments include deferred taxes, postretirement benefit transition
costs, accelerated recovery of nuclear plants, nuclear decommissioning and
certain other costs. At June 30, 1995, these commitments included
recorded generation-related regulatory assets of approximately $850
million.
On May 24, 1995, the CPUC issued for public comment two policy proposals
on restructuring. Although the proposals differ, they both recommend
moving to a restructured competitive electric industry within two years
and generally endorse recovery of costs incurred under prior regulatory
rules. The majority's proposal, supported by three of the four
commissioners, recommends a power pool that would commence operation by
the beginning of 1997. Under this proposal, an independent system
operator would coordinate a competitive bidding process that would
determine which generating plants supply power to the pool based on
demand. Edison and other utilities would obtain power from the pool for
distribution to their customers. After the initial two years of
operation, if market power, stranded cost recovery, and jurisdictional
issues were resolved, consumers would be allowed to buy electricity
directly from generators. Under this proposal, utilities would provide
transmission and distribution services under a performance-based rate-
making model.
One commissioner offered an alternate proposal that would provide for
"retail wheeling." Under this proposal, customers could enter into
individual agreements and power producers, and use Edison's and other
utilities' lines to transmit the power, beginning January 1998. This
proposal calls for the immediate sale or spin-off of all utility-owned
generation facilities, and may allow utilities to recover only 90% of the
uneconomic portion of their generating assets.
On July 24, 1995, Edison filed comments supporting the majority proposal
because it believes this proposal will be more successful at achieving the
goals the CPUC originally set in April 1994 for a restructured electric
industry in California. Hearings on both proposals have been scheduled
for mid- to late August 1995. A final CPUC decision is expected in late
1995; however, the state legislature has requested the CPUC to withhold
implementation of any restructuring plan until its impact can be evaluated
by the legislature and governor.
FERC Restructuring Proposal
In March 1995, the FERC proposed rules which would require utilities to
provide wholesale open access to the nation's interstate transmission
grid, while allowing them to recover stranded costs associated with open
transmission access. To help insure that wholesale open access promotes
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competition, the FERC proposed development of industry-wide real-time
information networks that would require utilities to provide simultaneous
information to all parties trading wholesale electric power. The proposal
defines stranded costs as legitimate, prudent and verifiable costs
incurred by a utility to provide service to customers that would
subsequently become unbundled wholesale transmission service customers of
the utility. Edison supports the FERC's proposal and filed comments on
August 7, 1995. A final FERC decision is expected in mid-1996.
Accounting for the Effects of Regulation
Edison currently applies accounting standards that recognize the economic
effects of rate regulation. If rate recovery of generation-related costs
becomes unlikely or uncertain, whether due to competition or regulatory
action, these accounting standards may no longer apply to Edison's
generation operations and the $850 million in recorded regulatory assets
would be a non-cash charge against earnings. Additionally, Edison may
have write-offs associated with its potential transition costs if these
costs are not fully recovered through a competition transition charge or
other mechanism. Until the CPUC establishes more definitive valuation and
pricing criteria for its restructuring proposal, including a recovery
mechanism for the transition charges, Edison cannot predict the effect of
the proposal on its results of operations.
A new accounting standard, effective January 1996, requires recognition
of impairment losses on long-lived assets when an asset's book value
exceeds its expected future cash flows (undiscounted). Currently,
impairment losses are based on the probability that an asset's book value
will be recovered. The new standard also imposes stricter criteria for
retention of regulatory-created assets. Due to the regulatory
uncertainties mentioned above, Edison cannot predict the effect of the new
accounting standard on its generation-related assets; however, the timing
of potential impairment losses for regulatory-created assets may be
affected.
Edison is engaged in an ongoing review of possible responses to the
regulatory and competitive changes affecting the electric utility
industry, including various corporate, financial, legal and legislative
alternatives. In addition, Edison is seeking to enhance its competitive
position by cutting costs and increasing productivity, and by developing
new revenue sources.
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 2,048 megawatts of generating capacity, enough power to serve a
population of over 1.5 million.
CPUC-MANDATED POWER CONTRACTS
In 1994, the CPUC ordered the California utilities to proceed with an
energy auction to solicit bids for new contracts with unregulated power
producers. This decision would have forced Edison to purchase 686 MW of
new power at fixed prices starting in 1997, costing Edison customers $14
billion over the lives of the contracts. Edison had requested the CPUC
to reconsider its decision, as it has no need for additional generating
capacity until at least 2005, it believes the contracts would increase
customer rates and it believes the decision is inconsistent with the
CPUC's restructuring proposal goal to ultimately lower rates. Edison
negotiated agreements, at substantially lower costs than those mandated
by auction, with seven unregulated power producers, representing 627 MW
of the 686 MW mandated. These agreements, which are subject to CPUC
approval, would save Edison customers about 80% of anticipated
overpayments compared with the mandated contracts. On January 6, 1995,
Edison appealed the CPUC decision to the FERC. On February 23, 1995, the
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FERC ruled that the CPUC violated the Federal Public Utility Regulatory
Policies Act and FERC regulations because the CPUC did not consider all
potential sources of capacity in reaching its avoided cost determination.
The CPUC requested a rehearing on the FERC decision; however, the FERC's
final decision denied the CPUC's request and reaffirmed the earlier FERC
ruling. In response, the CPUC supported resolution of the energy auction
through negotiated settlements and set criteria that will be used to
evaluate the settlements. Edison is currently evaluating these criteria
to determine the impact on its existing settlement agreements and ongoing
settlement negotiations.
ENVIRONMENTAL PROTECTION
SCEcorp is subject to numerous environmental laws and regulations, which
require it to incur substantial costs to operate existing facilities,
construct and operate new facilities, and mitigate or remove the effect
of past operations on the environment.
SCEcorp records its environmental liabilities when site assessments and/or
remedial actions are probable and a range of reasonably likely cleanup
costs can be estimated. SCEcorp reviews its sites and measures the
liability quarterly, by assessing a range of reasonably likely costs for
each identified site using currently available information, including
existing technology, presently enacted laws and regulations, experience
gained at similar sites, and the probable level of involvement and
financial condition of other potentially responsible parties. These
estimates include costs for site investigations, remediation, operations
and maintenance, monitoring and site closure. Unless there is a probable
amount, SCEcorp records the lower end of this reasonably likely range of
costs (classified as other long-term liabilities at undiscounted amounts).
While SCEcorp has numerous insurance policies that it believes may provide
coverage for some of these liabilities, it does not recognize recoveries
in its financial statements until they are realized.
At June 30, 1995, SCEcorp's recorded estimated minimum liability to
remediate its 62 identified sites was $114 million. The ultimate costs
to clean up SCEcorp's identified sites may vary from its recorded
liability due to numerous uncertainties inherent in the estimation
process, such as: the extent and nature of contamination; the scarcity
of reliable data for identified sites; the varying costs of alternative
cleanup methods; developments resulting from investigatory studies; the
possibility of identifying additional sites; and the time periods over
which site remediation is expected to occur. SCEcorp believes that due
to these uncertainties, it is reasonably possible that cleanup costs could
exceed its recorded liability by up to $215 million. The upper limit of
this range of costs was estimated using assumptions least favorable to
SCEcorp among a range of reasonably possible outcomes.
SCEcorp expects to clean up its identified sites over a period of up to
30 years. Remediation costs in each of the next several years are
expected to range from $4 million to $8 million.
One of Edison's sites is a former pole-treating facility, which is
considered a federal Superfund site and represents 71% of SCEcorp's
recorded liability. Remedial actions to clean up soil and ground-water
contamination that occurred during pole-treating operations (1925-1980)
are expected to continue at this site for 30 years. Rate recovery of
environmental-cleanup costs for this site is authorized by the CPUC
through an incentive mechanism (discussed below).
SCEcorp's identified sites include several sites for which there is a lack
of currently available information, including the nature and magnitude of
contamination, and the extent, if any, that SCEcorp may be held
responsible for contributing to any costs incurred for remediating these
sites. Thus, no reasonable estimate of cleanup costs can be made for these
sites at this time.
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The CPUC allows Edison to recover environmental-cleanup costs at 24 of its
sites, representing $90 million of SCEcorp's recorded liability, through
an incentive mechanism (Edison may request to include additional sites).
Under this mechanism, Edison will recover 90% of cleanup costs through
customer rates; shareholders fund the remaining 10%, with the opportunity
to recover these costs through insurance and other third-party recoveries.
Edison has settled insurance claims with several carriers, and is
continuing to pursue additional recovery. Costs incurred at Edison's
remaining 34 sites are expected to be recovered through customer rates.
Edison has recorded a regulatory asset of $104 million for its estimated
minimum environmental-cleanup costs expected to be recovered through
customer rates.
SCEcorp's 62 identified sites consist of 58 Edison sites and 4 Mission
Energy sites. In 1994, Edison utilized an estimating technique to
quantify its potential liability for environmental cleanup in an effort
to obtain a reasonably possible objective and reliable estimate of
environmental cleanup. Mission Energy is in the process of conducting a
similar review of its sites, which is expected to be complete in 1995.
This review could result in an increase to SCEcorp's number of identified
sites and/or its estimated minimum liability.
Based on currently available information, SCEcorp believes it is not
likely that it will incur amounts in excess of the upper limit of the
estimated range and, based upon the CPUC's regulatory treatment of
environmental-cleanup costs, SCEcorp believes that costs ultimately
recorded will not have a material adverse effect on its results of
operations or financial position. There can be no assurance, however,
that future developments, including additional information about existing
sites or the identification of new sites, will not require material
revisions to such estimates.
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 study to
determine if additional regulations are needed to reduce regional haze in
the southwestern U.S. In addition, another study is underway to determine
the specific impact of air contaminant emissions from the Mohave Coal
Generating Station on visibility in Grand Canyon National Park. The
potential effect of these studies on sulfur dioxide emissions regulations
for Mohave is unknown.
SCEcorp's projected capital expenditures to protect the environment are
$1.3 billion for 1995-1999, mainly for aesthetics treatment, including
undergrounding certain transmission and distribution lines.
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 is receiving increased
attention. The scientific community has not yet reached a consensus on
the nature of any health effects of EMF. However, the CPUC has issued a
decision which 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.
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PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Qualified Facilities ("QF") Litigation
On May 20, 1993, four geothermal QFs filed a lawsuit against Edison in Los
Angeles County Superior Court, claiming that Edison underpaid, and
continues to underpay, the plaintiffs for energy. Edison denied the
allegations in its response to the complaint. The action was brought on
behalf of Vulcan/BN Geothermal Power Company, Elmore L.P., Del Ranch L.P.,
and Leathers L.P., each of which is partially owned by a subsidiary of
Mission Energy Company (a subsidiary of SCEcorp). In October 1994,
plaintiffs submitted an amended complaint to the court to add causes of
action for unfair competition and restraint of trade. The plaintiffs
alleged that the underpayments totaled at least $21,000,000 as of the
filing of the amended complaint. In other court filings, plaintiffs
contend that additional contract payments owing through the end of the
contract term could total approximately $60,000,000. In the amended
complaint, plaintiffs also sought treble damages for the alleged restraint
of trade violations, unspecified punitive damages, and an injunction to
enjoin Edison from "future" unfair competition. On February 9, 1995, the
court sustained some of Edison's demurrers to plaintiffs first amended
complaint and overruled others. The Court also granted plaintiffs 30 days
in which to amend their complaint further. On or about March 9, 1995,
plaintiffs filed a second amended complaint, realleging the substance of
the claims included in the first amended complaint. The Company's
demurrer to four of the causes of action alleged in the second amended
complaint and motion to strike portions of eight other causes of action
alleged in the same pleading were heard on May 18, 1995. Following the
hearing, the court granted portions of Edison's demurrer and motion to
strike. On June 6, 1995, plaintiffs served their third amended complaint,
which essentially realleged the same material facts as in the second
amended complaint and sought damages in the same amounts, although the
allegations pertaining to restraint of trade were omitted. On July 11,
1995, the court sustained Edison's motions to strike portions of the third
amended complaint which alleged certain violations of the FERC regulations
requiring payment of avoided cost for QF power. However, the court
granted plaintiffs leave to file a further amended complaint within 20
days. On July 27, 1995, plaintiffs served their fourth amended complaint,
which essentially repeated the material allegations of the third amended
complaint. If Edison does not make another motion to strike motions of
the fourth amended complaint, it will respond to the complaint by denying
its material allegations. The materiality of a judgment in favor of the
plaintiffs would be largely dependent on the extent to which additional
payments resulting from such a judgment are recoverable through Edison's
Energy Cost Adjustment Clause ("ECAC").
Between January 1994 and October 1994, Edison was named as a defendant in
a series of eight lawsuits brought by independent power producers of wind
generation. Seven of the lawsuits were filed in Los Angeles County
Superior Court and one was filed in Kern County Superior Court. The
lawsuits allege Edison incorrectly interpreted contracts with the
plaintiffs by limiting fixed energy payments to a single 10-year period
rather than beginning a new 10-year period of fixed energy payments for
each stage of development. In its responses to the complaints, Edison
denied the plaintiffs' allegations. In each of the lawsuits, the
plaintiffs seek declaratory relief regarding the proper interpretation of
the contracts. Plaintiffs allege a combined total of approximately
$189,000,000 in damages, which includes consequential damages claimed in
seven of the eight lawsuits. On March 1, 1995, the court in the lead Los
Angeles County Superior Court case granted the plaintiffs' motion seeking
summary adjudication that the contract language in question is not
reasonably susceptible to Edison's position that there is only a single,
10-year period of fixed payments. On March 8, 1995, the court in the Kern
County Superior Court case directed Edison to submit a proposed order that
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would deny a similar summary adjudication motion brought by the plaintiff
in that case. Although a proposed order was subsequently submitted to the
court in the Kern County case, it was not signed. In addition, on April
12, 1995, the court issued a minute order stating that its March 8, 1995,
directive should not be construed as a ruling on the merits of the
plaintiff's motion. Subsequently, the judge who heard the summary
adjudication motion in the Kern County case recused himself, resulting in
a new judge being assigned to the case. Edison believes the March 1,
1995, ruling in the Los Angeles case is erroneous and has asked the court
to reconsider its ruling. On April 5, 1995, Edison filed a petition
seeking writ review of the March 1, 1995, ruling in the California Court
of Appeal. On May 3, 1995, the Court of Appeal issued an Order to Show
Cause why the March 1 ruling should not be vacated. The matter was heard
August 3, 1995, and on August 9, 1995, the Court of Appeal issued its
decision vacating the March 1 summary adjudication order and directing the
trial court to issue an order denying the summary adjudication motion. The
summary adjudication motion in the Kern County case will be reset for hearing
following the Court of Appeal's decision in the Los Angeles case.
Following the March 1, 1995, ruling, an eighth lawsuit was filed in the
Los Angeles County Superior Court raising claims similar to those alleged
in the first seven cases in that Court. Edison has responded to the
complaint in the new lawsuit by denying its material allegations. The
materiality of final judgments in favor of the plaintiffs in these cases
would be largely dependent on the extent to which any damages or
additional payments which might result from such judgments would be
recoverable through Edison's ECAC.
This matter was previously reported under the heading "QF Litigation" in
Part I, Item 3 of SCEcorp's Annual Report on Form 10-K for the year ended
December 31, 1994, and the Quarterly Report on Form 10-Q for the period
ended March 31, 1995.
Electric and Magnetic Fields ("EMF") Litigation
Edison has been served with two lawsuits, both of which allege, among
other things, that certain plaintiffs developed cancer as a result of EMF
emitted from Edison facilities in an office building. The lawsuits, filed
in Orange County Superior Court and served on Edison in June 1994 and
January 1995, request compensatory and punitive damages. Although no
specific damage amounts are alleged in the complaints, in subsequent court
filings, plaintiffs estimated general and compensatory damages of
$8,000,000 and $13,500,000, plus unspecified punitive damages. The same
co-defendant in both actions have filed cross-complaints against the other
co-defendants, including Edison, requesting indemnification and
declaratory relief concerning the rights and responsibilities of the
parties. The case served in June 1994, is set to go to trial on January
8, 1996. In the case served in January 1995, Edison attempted to have the
California appellate courts review the question of whether a California
Superior Court has jurisdiction over personal injury claims based on EMF
emitted from public utility operated electric facilities. This attempt
was ultimately unsuccessful. As a result, this case is proceeding toward
trial but a trial date has not yet been set.
A third case was filed in Orange County Superior Court and served on
Edison in March 1995. The complaint seeks compensatory and punitive
damages. The plaintiff alleges, among other things, that he developed
cancer as a result of EMF emitted from Edison facilities which he alleges
were not constructed in accordance with CPUC standards. No specific
damage amounts are alleged in the complaint but supplemental documentation
prepared by the plaintiff indicates that plaintiff will allege
compensatory damages of approximately $5,500,000, plus unspecified
punitive damages. This case is set to go to trial on March 11, 1996.
Edison believes that there is no proven scientific basis for the
allegation that EMF are hazardous to health and, therefore, believes that
the EMF lawsuits described above are without merit.
<PAGE>
<PAGE>
These matters were previously reported under the heading "Environmental
Litigation" in Part I, Item 3 of SCEcorp's Annual Report on Form 10-K for
the year ended December 31, 1994, and the Quarterly Report on Form 10-Q
for the period ended March 31, 1995.
San Onofre Personal Injury Litigation
An engineer for two contractors providing services for San Onofre has been
diagnosed with leukemia. On July 12, 1994, the engineer and his wife sued
Edison, San Diego Gas and Electric Company ("SDG&E"), and the manufacturer
of the fuel rods for the plant in the United States District Court for the
Southern District of California. The plaintiffs allege that the
engineer's illness resulted from contact with radioactive fuel particles
released from failed fuel rods. Plant records show that the engineer's
exposure to radiation was well below Nuclear Regulatory Commission ("NRC")
safety levels. In the complaint, plaintiffs seek unspecified compensatory
and punitive damages. In its response to the complaint, Edison denies all
material allegations. The trial began August 3, 1995.
An Edison engineer employed at San Onofre died in 1991 from cancer of the
abdomen. On February 6, 1995, his children sued Edison, SDG&E and the
manufacturer of the fuel rods for the plant in the United States District
Court for the Southern District of California. The plaintiffs allege that
the engineer's illness resulted from, and was aggravated by, exposure to
radiation at San Onofre, including contact with radioactive fuel particles
released from failed fuel rods. Plant records show that the engineer's
exposure to radiation was well below NRC safety levels. In the complaint,
plaintiffs sought unspecified compensatory and punitive damages.
On April 3, 1995, the Court granted the defendants' motion to dismiss 14
of plaintiffs' 15 claims. Punitive damages are not available under the
remaining claim. Edison's April 20, 1995, answer to the complaint denies
all material allegations.
These matters were previously reported under the heading "San Onofre
Personal Injury Litigation" in Part I, Item 3 of SCEcorp's Annual Report
on Form 10-K for the year ended December 31, 1994, and the Quarterly
Report on Form 10-Q for the period ended March 31, 1995.
On July 5, 1995, a former Edison reactor operator employed at San Onofre
and his wife sued Edison and SDG&E, as well as Combustion Engineering, the
manufacturer of the fuel rods for the plant and the Institute of Nuclear
Power Operations, in the U.S. District Court for the Southern District of
California. Plaintiffs allege the former employee's acute myelogenous
leukemia resulted from contact with radioactive fuel particles released
from fuel rods at San Onofre. The former employee subsequently died from
his illness. Plaintiffs seek unspecified compensatory and punitive
damages. Edison intends to deny the plaintiffs' allegations.
Employment Discrimination Litigation
On September 21, 1994, nine African-American employees filed a lawsuit
against SCEcorp and Edison on behalf of an alleged class of African-
American employees, alleging racial discrimination in job advancement,
pay, training and evaluation. The lawsuit was filed in the United States
District Court for the Central District of California. The plaintiffs
seek injunctive relief, as well as an unspecified amount of compensatory
and punitive damages, attorneys' fees, costs and interest. SCEcorp and
Edison have responded by denying the material allegations of the complaint
and asserting several affirmative defenses. The Court has ordered that
plaintiffs file their motion for class certification no later than
September 22, 1995, and that the hearing on that motion be held on
December 11, 1995.
<PAGE>
<PAGE>
This matter was previously reported under the heading "Employment
Discrimination Litigation" in Part I, Item 3 of SCEcorp's Annual Report
on Form 10-K for the year ended December 31, 1994, and the Quarterly
Report on Form 10-Q for the period ended March 31, 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K: None.
<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
August 8, 1995
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
SCEcorp Financial Data Schedule -- Exhibit 27
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUN-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $12,283,317
<OTHER-PROPERTY-AND-INVEST> 5,122,481
<TOTAL-CURRENT-ASSETS> 2,175,718
<TOTAL-DEFERRED-CHARGES> 3,054,070
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 22,635,586
<COMMON> 2,682,835
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 3,525,365
<TOTAL-COMMON-STOCKHOLDERS-EQ> 6,208,200
275,000
371,255
<LONG-TERM-DEBT-NET> 6,884,357
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 2,302,297
<COMMERCIAL-PAPER-OBLIGATIONS> 663,423
<LONG-TERM-DEBT-CURRENT-PORT> 44,381
0
<CAPITAL-LEASE-OBLIGATIONS> 84,023
<LEASES-CURRENT> 16,485
<OTHER-ITEMS-CAPITAL-AND-LIAB> 8,247,710
<TOT-CAPITALIZATION-AND-LIAB> 22,635,586
<GROSS-OPERATING-REVENUE> 3,682,871
<INCOME-TAX-EXPENSE> 216,549
<OTHER-OPERATING-EXPENSES> 2,838,189
<TOTAL-OPERATING-EXPENSES> 3,054,738
<OPERATING-INCOME-LOSS> 628,133
<OTHER-INCOME-NET> (21,586)
<INCOME-BEFORE-INTEREST-EXPEN> 606,547
<TOTAL-INTEREST-EXPENSE> 269,573
<NET-INCOME> 336,974
23,556
<EARNINGS-AVAILABLE-FOR-COMM> 313,418
<COMMON-STOCK-DIVIDENDS> 223,410
<TOTAL-INTEREST-ON-BONDS> 192,093
<CASH-FLOW-OPERATIONS> 988,519
<EPS-PRIMARY> $.70
<EPS-DILUTED> $.70
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