<PAGE>
<PAGE>
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, 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 May 5, 1995
- - - - -------------------------- --------------------------
Common Stock, no par value 447,170,074
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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
Months Ended March 31, 1995, and 1994 2
Consolidated Balance Sheets--March 31, 1995, and
December 31, 1994 3
Consolidated Statements of Cash Flows--Three Months
Ended March 31, 1995, and 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 12
Part II. Other Information:
Item 1. Legal Proceedings 21
Item 4. Submission of Matters to a Vote
of Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 24
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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
March 31,
-------------------------
1995 1994
---------- ----------
(Unaudited)
<S> <C> <C>
Electric utility revenue $1,721,773 $1,676,679
Diversified operations 100,260 70,361
---------- ----------
Total operating revenue 1,822,033 1,747,040
---------- ----------
Fuel 164,465 195,769
Purchased power 487,092 489,515
Provisions for regulatory adjustment
clauses -- net 28,761 (8,906)
Other operating expenses 316,278 323,402
Maintenance 97,895 84,176
Depreciation and decommissioning 243,333 239,290
Income taxes 111,726 90,828
Property and other taxes 54,789 54,557
---------- ----------
Total operating expenses 1,504,339 1,468,631
---------- ----------
Operating income 317,694 278,409
---------- ----------
Provision for rate phase-in plan (29,775) (32,646)
Allowance for equity funds used
during construction 5,524 3,924
Interest income 14,476 9,279
Minority interest (11,651) (9,401)
Other nonoperating income -- net 4,544 21,892
---------- ----------
Total other income (deductions) -- net (16,882) (6,952)
---------- ----------
Income before interest and other expenses 300,812 271,457
---------- ----------
Interest on long-term debt 128,743 125,082
Other interest expense 23,639 18,393
Allowance for borrowed funds used
during construction (4,195) (4,090)
Capitalized interest (13,137) (10,309)
Dividends on subsidiary preferred securities 12,217 10,020
---------- ----------
Total interest and other expenses -- net 147,267 139,096
---------- ----------
Net income $ 153,545 $ 132,361
========== ==========
Weighted-average shares of common stock
outstanding 447,619 447,799
Earnings per share $.34 $ .30
Dividends declared per common share $.25 $.355
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SCEcorp
CONSOLIDATED BALANCE SHEETS
In thousands
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------- -----------
(Unaudited)
ASSETS
<S> <C> <C>
Utility plant, at original cost $19,238,151 $19,121,964
Less -- accumulated provision for
depreciation and decommissioning 7,932,747 7,710,227
----------- -----------
11,305,404 11,411,737
Construction work in progress 924,521 906,766
Nuclear fuel, at amortized cost 120,600 98,044
----------- -----------
Total utility plant 12,350,525 12,416,547
----------- -----------
Nonutility property -- less
accumulated provision for
depreciation of $109,224 and $101,093
at respective dates 1,959,059 1,977,069
Nuclear decommissioning trusts 1,004,218 919,351
Investments in partnerships and
unconsolidated subsidiaries 1,361,392 1,200,927
Investments in leveraged leases 560,799 555,564
Other investments 49,498 39,584
----------- -----------
Total other property and investments 4,934,966 4,692,495
----------- -----------
Cash and equivalents 284,673 533,957
Receivables, including unbilled
revenue, less allowances of
$23,500 and $23,934 for uncollectible
accounts at respective dates 872,982 975,064
Fuel inventory 113,634 116,929
Materials and supplies, at average cost 169,818 129,109
Accumulated deferred income taxes -- net 226,742 271,308
Prepayments and other current assets 67,151 107,731
----------- -----------
Total current assets 1,735,000 2,134,098
----------- -----------
Unamortized debt issuance and
reacquisition expense 350,682 356,557
Rate phase-in plan 214,475 240,730
Unamortized nuclear plant -- net 145,556 171,071
Income tax-related deferred charges 1,823,242 1,816,414
Other deferred charges 585,665 562,335
----------- -----------
Total deferred charges 3,119,620 3,147,107
----------- -----------
Total assets $22,140,111 $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>
March 31, December 31,
1995 1994
----------- -----------
(Unaudited)
CAPITALIZATION AND LIABILITIES
Common shareholders' equity:
Common stock (447,281,074 and 447,799,172
<S> <C> <C>
shares outstanding at respective dates) $ 2,688,460 $ 2,691,574
Retained earnings 3,488,411 3,451,842
----------- -----------
6,176,871 6,143,416
Preferred securities of subsidiaries:
Not subject to mandatory redemption 446,255 446,255
Subject to mandatory redemption 275,000 275,000
Long-term debt 6,527,459 6,347,188
----------- -----------
Total capitalization 13,425,585 13,211,859
----------- -----------
Other long-term liabilities 334,855 311,063
----------- -----------
Current portion of long-term debt 43,513 231,370
Short-term debt 462,807 845,514
Accounts payable 323,523 412,930
Accrued taxes 587,498 530,163
Accrued interest 131,961 99,770
Dividends payable 115,673 115,803
Regulatory balancing accounts -- net 98,683 55,710
Deferred unbilled revenue and other
current liabilities 925,700 865,758
----------- -----------
Total current liabilities 2,689,358 3,157,018
----------- -----------
Accumulated deferred income
taxes -- net 4,036,539 4,059,372
Accumulated deferred investment
tax credits 427,198 432,265
Customer advances and other
deferred credits 629,393 616,110
----------- -----------
Total deferred credits 5,093,130 5,107,747
----------- -----------
Minority interest 597,183 602,560
----------- -----------
Commitments and contingencies
(Notes 1, 2 and 3)
Total capitalization and liabilities $22,140,111 $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>
3 Months Ended
March 31,
-------------------------
1995 1994
--------- -----------
(Unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income $ 153,545 $ 132,361
Adjustments for non-cash items:
Depreciation and decommissioning 243,333 239,290
Amortization 13,519 29,189
Rate phase-in plan 26,255 29,729
Deferred income taxes and investment tax
credits 10,260 909
Equity in income from partnerships and
unconsolidated subsidiaries (15,048) (3,394)
Other long-term liabilities 23,792 35,817
Other -- net (33,367) (65,045)
Changes in working capital components:
Receivables 102,075 72,190
Regulatory balancing accounts 42,973 (19,108)
Fuel inventory, materials and supplies (37,414) (3,306)
Prepayments and other current assets 40,580 47,325
Accrued interest and taxes 89,524 73,306
Accounts payable and other current
liabilities (71,281) (49,361)
Distributions from partnerships and
unconsolidated subsidiaries 35,969 11,846
--------- ---------
Net cash provided by operating activities 624,715 531,748
--------- ---------
Cash flows from financing activities:
Long-term debt issued 231,708 45,999
Long-term debt repayments (317,763) (213,762)
Nuclear fuel financing -- net 22,010 (1,457)
Short-term debt financing -- net (292,707) 141,158
Dividends paid (111,950) (158,969)
--------- ---------
Net cash used by financing activities (468,702) (187,031)
--------- ---------
Cash flows from investing activities:
Additions to property and plant (245,844) (277,903)
Funding of nuclear decommissioning trusts (24,157) (34,698)
Investments in partnerships and
unconsolidated subsidiaries (129,754) (70,359)
Other -- net (5,542) 49,312
--------- ---------
Net cash used by investing activities (405,297) (333,648)
--------- ---------
Net increase (decrease) in cash and
equivalents (249,284) 11,069
Cash and equivalents, beginning of period 533,957 420,510
--------- ---------
Cash and equivalents, end of period $ 284,673 $ 431,579
========= =========
</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 necessary to present a fair
statement of the financial position and results of operations for the
periods covered by this report, have been made.
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
March 31, 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.
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.
On April 26, 1995, the DRA filed supplemental testimony recommending a
0.25-cent-per-kilowatt-hour decrease to the incentive prices originally
agreed to in the proposed settlement. The DRA claims the decrease is
based on "new information" obtained after the settlement was negotiated,
but prior to the hearings. Edison has filed rebuttal testimony showing
that the information the DRA is citing is not new and is requesting that
the CPUC adopt the original settlement. Hearing are scheduled to begin
on May 15, 1995.
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.
Electric Utility Industry Restructuring Proposals
During 1994, the CPUC issued a proposal and held several hearings 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,
including residential, have the option for direct access to this
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SCEcorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
competitive generation market by 2002. Edison would continue to provide
transmission and distribution service to all customers in its service
territory and performance-based regulation would replace existing
regulation for such services. The proposal also stated that utilities
should be entitled to recover the portion of their generation investments
rendered uneconomic in the new direct access environment. Edison's
response to the CPUC's proposal recommended the creation of a regional
competitive market with an independent power pool that would act as the
intermediary between all power consumers and suppliers and urged that the
CPUC provide that costs previously incurred to serve the state's
electricity needs under current regulatory rules be recovered fairly from
all customers. In anticipation of obstacles in implementing the CPUC's
proposal due to regulatory, legislative and jurisdictional issues, Edison
also recommended the adoption of performance-based ratemaking for its
generation operations until direct access phase-in begins.
During the CPUC hearings, Edison stressed that its competitive power
market proposal would provide all electric customers with the benefits of
a competitive marketplace, reliability and operating efficiency and
proposed a schedule for implementing Edison's competitive market plan with
customer choice beginning in 1998. Subsequent to the CPUC proposal, the
state legislature passed a resolution requesting the CPUC to withhold
implementation of any restructuring plan until its impact can be evaluated
by the legislature and governor. The CPUC issued an interim report to the
state legislature on January 24, 1995, describing the positions of the
parties and CPUC activities to date. The CPUC has postponed the issuance
date for its proposed policy statement from March 22, 1995, to May 24,
1995.
Edison filed a proposal with the CPUC 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 4 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 to be recovered in the future. Such
commitments include deferred taxes, postretirement benefit transition
costs, accelerated recovery of nuclear plants, nuclear decommissioning and
certain other costs. At March 31, 1995, these commitments included
recorded regulatory assets of approximately $1 billion.
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 $1 billion 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 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
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SCEcorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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
transmission service customers of the utility. Edison is currently
analyzing the FERC proposal and expects to file comments in August 1995.
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. Nuclear Decommissioning
Edison plans to decommission its nuclear generating facilities at the end
of each facility's operating license by a prompt removal method authorized
by the Nuclear Regulatory Commission. Decommissioning is estimated to
cost $1.8 billion in current-year dollars, based on site-specific studies
performed in 1993 for San Onofre and 1992 for Palo Verde Nuclear
Generating Station. Decommissioning is scheduled to begin in 2013 at San
Onofre and 2024 at Palo Verde. San Onofre Unit 1, which shut down in
1992, will be stored until decommissioning begins at the other San Onofre
units.
Decommissioning costs, which are recovered through customer rates, are
recorded as a component of depreciation expense. Decommissioning expense
was $33 million and $35 million for the three months ended March 31, 1995
and 1994, respectively. The accumulated provision for decommissioning was
$951 million at March 31, 1995, and $919 million at December 31, 1994.
The estimated costs to decommission San Onofre Unit 1 ($242 million) are
recorded as a liability.
Decommissioning funds collected in rates are placed in independent trusts,
which, together with accumulated earnings, will be utilized solely for
decommissioning.
Trust investments include:
<TABLE>
<CAPTION>
Maturity March 31, December 31,
In millions Dates 1995 1994
- - - - ----------- -------- ---------- ------------
(In millions)
<S> <C> <C> <C>
Municipal bonds 1996-2021 $404 $447
Stocks -- 313 258
U.S. government and agency issues 1998-2023 76 98
Short-term investments and other 1995 150 117
---- ----
Trust fund balance (at cost) $943 $920
==== ====
</TABLE>
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SCEcorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Trust fund earnings (based on specific identification) increase the trust
fund balance and the accumulated provision for decommissioning. Net
earnings were $8 million and $11 million for the three months ended March
31, 1995, and March 31, 1994, respectively. Proceeds from sales of
securities (which are reinvested) were $232 million and $45 million for
the three months ended March 31, 1995, and March 31, 1994, respectively.
Approximately 87% of the trust fund contributions were tax-deductible.
The Financial Accounting Standards Board is reviewing current accounting
practices for removal costs, including decommissioning of nuclear power
plants, to determine the proper accounting classification and measurement
criteria for these costs. If current industry accounting practices are
changed, Edison could be required to report its estimated decommissioning
costs as a liability, rather than recognizing these costs over the term
of each facility's operating license. In addition, trust fund earnings
could be recognized as investment income, rather than a component of the
accumulated provision for decommissioning. 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.
Note 3. 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
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 March 31, 1995, SCEcorp's recorded estimated minimum liability to
remediate its 61 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
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SCEcorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 23 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 settled an insurance claim with one carrier, and is pursuing
additional recovery from several other carriers. Costs incurred at
Edison's remaining 35 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 61 identified sites consist of 58 Edison sites and 3 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 by mid-
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 result 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.
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 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
<PAGE>
<PAGE>
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.
Note 4. Subsequent Events
On April 21, 1995, Mission Energy Company consummated negotiations
involving financing for the Paiton power plant under construction in
Indonesia. Mission Energy has firm commitments and contingent obligations
to make equity contributions of $240 million and $115 million,
respectively. Equity contributions will be made by Mission Energy and its
partners over the construction period.
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SCEcorp
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
First Quarter 1995 vs. First Quarter 1994
Earnings
SCEcorp's earnings per share were 34 cents for the first quarter of 1995,
compared with 30 cents for the first quarter of 1994. Southern California
Edison Company's earnings were 31 cents per share, up 2 cents from 1994,
primarily due to a higher authorized return on common equity for 1995,
partially offset by a 1 cent after-tax charge in 1995 for employee
severance costs. The Mission companies earned 3 cents per share, a 2 cent
increase from 1994, primarily 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 annual earnings by 3 cents per share and is
expected to continue to affect earnings in 1995 and possibly beyond.
Operating Revenue
Electric utility revenue increased 3% during the first quarter of 1995,
compared with the same period in 1994, mostly due to a 2.6% California
Public Utilities Commission (CPUC)-authorized rate increase. 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).
On March 28, 1995, Edison announced that it intends to freeze average
rates for residential, small business and small agricultural customers
through 1996 and lower average rates across the board by 25% in real terms
by 2000. These rate proposals are subject to CPUC approval. Edison also
urged the CPUC to re-examine its policies and procedures on rate design
issues, including possible elimination of the kilowatt-hour sales
balancing account, which adjusts utility revenues for differences between
CPUC-authorized and actual base-rate revenues. 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 increased 42%, mainly due to an
increase in Mission Energy's electric revenue from its Roosecote project,
which was out of service during the first quarter of 1994 due to a
transformer failure. Improved operating performance at a number of
domestic projects, primarily from lower fuel prices, also contributed to
the increase.
Operating Expenses
Fuel expense decreased 16%, primarily due to an increase in Edison's hydro
generation caused by greater rainfall in 1995, a decrease in Edison's
overall gas prices and favorable fuel prices obtained by Mission Energy.
This decrease was partially offset by an increase at Mission Energy
resulting from its Roosecote project, which was out of service for the
comparable period in 1994.
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Provisions for regulatory adjustment clauses increased as CPUC-authorized
fuel and purchased-power cost estimates exceeded Edison's actual energy
costs, primarily due to the increase in Edison's hydro generation.
Maintenance expense increased 16%, mainly due to a refueling outage at San
Onofre Unit 2. Unit 2 is expected to return to service in May 1995.
Income taxes increased 23%, mainly due to increased pre-tax income.
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 56%, primarily due to higher interest rates and
higher investment balances. The higher balances reflect the decline in
dividend payments, beginning in June 1994. In addition, the first quarter
of 1995 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.
Minority interest increased 24%, primarily from Mission Energy's Roosecote
project which was out of service due to a transformer failure during the
first quarter of 1994.
Other nonoperating income decreased primarily due to 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 29%, mainly due to rising interest rates
on short-term borrowings and higher balances in the regulatory balancing
accounts.
Capitalized interest increased 27%, mainly from increased construction
activity at Mission Energy's Paiton power project in Indonesia.
Dividends on subsidiary preferred securities increased 22%, due to Mission
Energy's issuance of $87 million in preferred securities in the fourth
quarter of 1994 as partial funding of 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.
In June 1994, SCEcorp lowered its quarterly common stock dividend by 30%,
as the result of uncertainty of Edison's 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 repurchased 802,098 shares ($13
million) through May 5, 1995, funded by dividends from SCEcorp
subsidiaries.
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Cash Flows from Operating Activities
Net cash provided by operating activities totaled $625 million in the
first quarter of 1995 and $532 million in the first quarter of 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 $1.9 billion.
The holding company has a line of credit of $100 million for short-term
debt. Edison has lines of credit of $700 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 March 31, 1995, Edison could issue approximately $5.8 billion of
additional first and refunding mortgage bonds and $3.6 billion of
preferred stock at current interest and dividend rates.
On April 21, 1995, Mission Energy Company consummated negotiations
involving financing for the Paiton power project in Indonesia. Mission
Energy has firm commitments and contingent obligations to make equity
contributions of $240 million and $115 million, respectively. 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.
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
unconsolidated subsidiaries, and funding of nuclear decommissioning
trusts. Decommissioning costs are accrued and recovered in 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 between
2013-2035. This estimate is based on Edison's current-dollar
decommissioning costs ($1.8 billion), escalated using a 6.65% rate and a
trust fund earnings assumption ranging from 5.5% 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 changed, Edison could be required to report its estimated
decommissioning costs as a liability, rather than recognizing these costs
over the term of each facility's 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.
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Cash used for the Mission companies' investing activities was $181 million
for the first three months of 1995, compared to $51 million for the year-
earlier period.
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 interest rate swaps or
other hedging mechanisms for approximately 75% of the aggregate amount of
financings for 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--$1.1 billion; 1996-$1.0 billion; 1997-$966 million; 1998-$913
million; and 1999-$857 million.
Long-term debt maturities and sinking fund requirements for the five
twelve-month periods following March 31, 1995, are: 1996-$52 million;
1997-$238 million; 1998-$522 million; 1999-$692 million; and 2000-$697
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's 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% in 1994 to 12.1% in 1995. This decision,
excluding the effects of other rate actions, could increase 1995 earnings
by approximately 14 cents per share.
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 Edison's 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 Nuclear Generating Station 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
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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.
On April 26, 1995, the DRA filed supplemental testimony recommending a
0.25-cent-per-kilowatt-hour decrease to the incentive prices originally
agreed to in the proposed settlement. The DRA claims the decrease is
based on "new information" obtained after the settlement was negotiated,
but prior to the hearings. Edison has filed rebuttal testimony showing
that the information the DRA is citing is not new and is requesting that
the CPUC adopt the original settlement. Hearing are scheduled to begin
on May 15, 1995.
The $67 million revenue reduction has been included in 1995 rates and is
subject to change, pending the CPUC's final decision which 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 mid-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.
During 1994, the CPUC issued a proposal and held several hearings 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
including residential, have the option for direct access to this
competitive generation market by 2002. Edison would continue to provide
transmission and distribution service to all customers in its service
territory and performance-based regulation would replace existing
regulation for such services. The proposal also stated that utilities
should be entitled to recover the portion of their generation investments
rendered uneconomic in the new direct access environment. Edison's
response to the CPUC's proposal recommended the creation of a regional
competitive market with an independent power pool that would act as the
intermediary between all power consumers and suppliers and urged that the
CPUC provide that costs previously incurred to serve the state's
electricity needs under current regulatory rules be recovered fairly from
all customers. In anticipation of obstacles in implementing the CPUC's
proposal due to regulatory, legislative and jurisdictional issues, Edison
also recommended the adoption of performance-based ratemaking for its
generation operations until direct access phase-in begins.
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During the CPUC hearings, Edison stressed that its competitive power
market proposal would provide all electric customers with the benefits of
a competitive marketplace, reliability and operating efficiency and
proposed a schedule for implementing Edison's competitive market plan with
customer choice beginning in 1998. Subsequent to the CPUC proposal, the
state legislature passed a resolution requesting the CPUC withhold
implementation of any restructuring plan until its impact can be evaluated
by the legislature and governor. The CPUC issued an interim report to the
state legislature on January 24, 1995, describing the positions of the
parties and CPUC activities to date. The CPUC has postponed the issuance
date for its proposed policy statement from March 22, 1995, to May 24,
1995.
Edison filed a proposal with the CPUC 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 4 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 to be recovered in the future. Such
commitments include deferred taxes, postretirement benefit transition
costs, accelerated recovery of nuclear plants, nuclear decommissioning and
certain other costs. At March 31, 1995, these commitments included
recorded regulatory assets of approximately $1 billion.
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 $1 billion 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 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
the 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.
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
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 cost 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 is currently analyzing the FERC proposal and expects to file comments
in August 1995.
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SCEcorp and Edison are 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 2,123 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. This decision also denied
Edison's petition asking the CPUC to reconsider its decision. Edison
consistently opposed the energy auction because 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, 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. As a result of the FERC decision, the CPUC stayed its
decision until at least May 10, 1995. On March 27, 1995, the CPUC
requested a rehearing on the FERC decision. A final FERC decision is
expected in 1995.
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 March 31, 1995, SCEcorp's recorded estimated minimum liability to
remediate its 61 identified sites was $114 million. The ultimate costs
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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.
The CPUC allows Edison to recover environmental-cleanup costs at 23 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 settled an insurance claim with one carrier, and is pursuing
additional recovery from several other carriers. Costs incurred at
Edison's remaining 35 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 61 identified sites consist of 58 Edison sites and 3 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 by mid-
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
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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 the 1995-1999 period, 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
allege 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. They also seek
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 are set for
hearing on May 18, 1995. 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 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 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 has not been 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. 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, the Company 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 and set a hearing on the Order to
Show Cause for August 3, 1995. Following the March 1, 1995, ruling, an
eighth lawsuit was filed in the Los Angeles Superior Court raising claims
similar to those alleged in the first seven. Edison has responded to the
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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.
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. 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. In August 1994, one of the co-
defendants in the June 1994 action filed a cross-complaint against the
other co-defendants, including Edison, requesting indemnification and
declaratory relief concerning the rights and responsibilities of the
parties. On April 18, 1995, one of the plaintiffs in the January 1995
action filed a cross-complaint against the other co-defendants, requesting
indemnification and declaratory relief concerning the rights and
responsibilities of the parties. On April 24, 1995, Edison filed a
Petition for Writs of Prohibition and/or Mandate with the California Court
of Appeal. The petition asks for an immediate stay of the case pending
a review by the Court of Appeal of the question of whether the Superior
Court has jurisdiction to consider personal injury claims based on EMF
from public utility-operated electric facilities. On April 24, 1995, the
Court of Appeal granted the immediate stay and agreed to review the
petition.
A third case was filed in Orange County Superior Court and served on
Edison in March 1995. The complaint seeks an unspecified amount of
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.
Edison believes that there is no proven scientific basis for the
allegation that EMF is hazardous to health and, therefore, believes that
the EMF lawsuits described above are without merit.
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.
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. A pretrial conference is scheduled for May 22,
1995, to set a trial date.
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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 seek 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 denied
all material allegations.
These matters were previously reported under the heading "San Onofre
Person Injury Litigation" in Part I, Item 3 of SCEcorp's Annual Report on
Form 10-K for the year ended December 31, 1994.
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 July
21, 1995, and that the hearing on that motion shall be held on September
25, 1995.
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.
<PAGE>
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
Election of Directors
At SCEcorp's Annual Meeting of Shareholders on April 20, 1995,
shareholders elected seventeen nominees to the Board of Directors. The
number of broker non-votes for each nominee was 61,772,166. The number
of votes cast for and withheld from each Director-nominee were as follows:
Name Number of Votes
---- -----------------------------
For Withheld
----------- ----------
Howard P. Allen 332,454,236 13,671,926
John E. Bryson 333,590,511 12,535,661
Winston H. Chen 336,562,170 9,564,001
Camilla C. Frost 335,808,418 10,317,753
Joan C. Hanley 336,478,049 9,648,122
Carl F. Huntsinger 336,530,408 9,595,763
Charles D. Miller 336,449,234 9,676,937
Luis G. Nogales 335,712,999 10,413,172
Ronald L. Olson 333,670,434 12,455,738
J. J. Pinola 336,226,337 9,899,835
James M. Rosser 336,423,028 9,703,143
E. L. Shannon, Jr. 336,384,774 9,741,398
Robert H. Smith 336,485,846 9,640,326
Thomas C. Sutton 336,348,515 9,777,656
Daniel M. Tellep 336,490,976 9,635,195
James D. Watkins 335,920,851 10,205,321
Edward Zapanta 336,347,118 9,779,054
Shareholder Proposal
At SCEcorp's Annual Meeting of Shareholders on April 20, 1995,
shareholders did not approve a shareholder proposal regarding
discretionary voting of proxies. The number of affirmative and negative
votes, abstentions and broker non-votes with respect to the matter were
as follows:
Broker
Affirmative Negative Abstentions Non-Votes
----------- -------- ----------- ---------
Common Stock 56,725,853 245,403,991 12,562,435 61,772,166
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(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 10, 1995
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
SCEcorp Financial Data Schedule Exhibit 27
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> MAR-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 12,350,525
<OTHER-PROPERTY-AND-INVEST> 4,934,966
<TOTAL-CURRENT-ASSETS> 1,735,000
<TOTAL-DEFERRED-CHARGES> 3,119,620
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 22,140,111
<COMMON> 2,688,460
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 3,488,411
<TOTAL-COMMON-STOCKHOLDERS-EQ> 6,176,871
275,000
446,255
<LONG-TERM-DEBT-NET> 4,515,896
<SHORT-TERM-NOTES> 1,264
<LONG-TERM-NOTES-PAYABLE> 1,909,277
<COMMERCIAL-PAPER-OBLIGATIONS> 461,543
<LONG-TERM-DEBT-CURRENT-PORT> 28,205
0
<CAPITAL-LEASE-OBLIGATIONS> 102,286
<LEASES-CURRENT> 15,308
<OTHER-ITEMS-CAPITAL-AND-LIAB> 8,208,206
<TOT-CAPITALIZATION-AND-LIAB> 22,140,111
<GROSS-OPERATING-REVENUE> 1,822,033
<INCOME-TAX-EXPENSE> 111,726
<OTHER-OPERATING-EXPENSES> 1,392,613
<TOTAL-OPERATING-EXPENSES> 1,504,339
<OPERATING-INCOME-LOSS> 317,694
<OTHER-INCOME-NET> (16,882)
<INCOME-BEFORE-INTEREST-EXPEN> 300,812
<TOTAL-INTEREST-EXPENSE> 135,050
<NET-INCOME> 0
12,217
<EARNINGS-AVAILABLE-FOR-COMM> 153,545
<COMMON-STOCK-DIVIDENDS> 136,820
<TOTAL-INTEREST-ON-BONDS> 128,743
<CASH-FLOW-OPERATIONS> 624,715
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
