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, 1996
---------------------------------------
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
EDISON INTERNATIONAL
(formerly 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 3, 1996
- -------------------------- ---------------------------
Common Stock, no par value 441,578,131
PAGE
<PAGE>
EDISON INTERNATIONAL
INDEX
Page
No.
----
Part I. Financial Information:
Item 1. Consolidated Financial Statements:
Consolidated Statements of Income--Three
Months Ended March 31, 1996, and 1995 2
Consolidated Balance Sheets--March 31, 1996
and December 31, 1995 3
Consolidated Statements of Cash Flows--Three Months
Ended March 31, 1996, and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 13
Part II. Other Information:
Item 1. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 6. Exhibits and Reports on Form 8-K 27
page 1
<PAGE>
EDISON INTERNATIONAL
PART I--FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF INCOME
In thousands, except per-share amounts
3 Months Ended
March 31,
-------------------------
1996 1995
---------- ----------
(Unaudited)
Electric utility revenue $1,760,134 $1,721,773
Diversified operations 207,520 100,260
---------- ----------
Total operating revenue 1,967,654 1,822,033
---------- ----------
Fuel 143,178 164,465
Purchased power 527,433 487,092
Provisions for regulatory adjustment
clauses -- net 97,823 28,761
Other operating expenses 329,860 316,278
Maintenance 84,113 97,895
Depreciation and decommissioning 264,527 243,333
Income taxes 111,477 111,726
Property and other taxes 59,686 54,789
---------- ----------
Total operating expenses 1,618,097 1,504,339
---------- ----------
Operating income 349,557 317,694
---------- ----------
Provision for rate phase-in plan (29,078) (29,775)
Allowance for equity funds used
during construction 4,402 5,524
Interest income 15,327 14,476
Minority interest (13,724) (11,651)
Other nonoperating income -- net 8,465 4,544
---------- ----------
Total other income (deductions) -- net (14,608) (16,882)
---------- ----------
Income before interest and other expenses 334,949 300,812
---------- ----------
Interest on long-term debt 150,986 128,743
Other interest expense 23,761 23,639
Allowance for borrowed funds used
during construction (2,767) (4,195)
Capitalized interest (15,998) (13,137)
Dividends on subsidiary preferred
securities 11,878 12,217
---------- ----------
Total interest and other expenses -- net 167,860 147,267
---------- ----------
Net income $ 167,089 $ 153,545
========== ==========
Weighted-average shares of common stock
outstanding 443,626 447,619
Earnings per share $.38 $.34
Dividends declared per common share $.25 $.25
The accompanying notes are an integral part of these financial statements.
page 2
<PAGE>
EDISON INTERNATIONAL
CONSOLIDATED BALANCE SHEETS
In thousands
March 31, December 31,
1996 1995
------------- -----------
(Unaudited)
ASSETS
Utility plant, at original cost $20,016,984 $19,850,179
Less -- accumulated provision for
depreciation and decommissioning 8,732,739 8,569,265
----------- -----------
11,284,245 11,280,914
Construction work in progress 684,774 727,865
Nuclear fuel, at amortized cost 125,983 139,411
----------- -----------
Total utility plant 12,095,002 12,148,190
----------- -----------
Nonutility property -- less
accumulated provision for
depreciation of $180,191 and $133,670
at respective dates 3,373,170 3,140,385
Nuclear decommissioning trusts 1,294,661 1,260,095
Investments in partnerships and
unconsolidated subsidiaries 1,196,060 1,190,294
Investments in leveraged leases 575,493 574,091
Other investments 77,068 65,963
----------- -----------
Total other property and investments 6,516,452 6,230,828
----------- -----------
Cash and equivalents 722,697 507,151
Receivables, including unbilled
revenue, less allowances of
$22,361 and $24,244 for uncollectible
accounts at respective dates 963,494 1,054,954
Fuel inventory 111,207 114,357
Materials and supplies, at average cost 150,382 151,180
Accumulated deferred income taxes -- net 386,868 476,725
Prepayments and other current assets 77,100 126,184
----------- -----------
Total current assets 2,411,748 2,430,551
----------- -----------
Unamortized debt issuance and
reacquisition expense 370,581 350,563
Rate phase-in plan 101,369 129,714
Unamortized nuclear plant -- net 41,936 67,185
Income tax-related deferred charges 1,791,017 1,723,605
Other deferred charges 966,478 865,599
----------- -----------
Total deferred charges 3,271,381 3,136,666
----------- -----------
Total assets $24,294,583 $23,946,235
=========== ===========
The accompanying notes are an integral part of these financial statements.
page 3
<PAGE>
EDISON INTERNATIONAL
CONSOLIDATED BALANCE SHEETS
In thousands, except share amounts
March 31, December 31,
1996 1995
------------- -----------
(Unaudited)
CAPITALIZATION AND LIABILITIES
Common shareholders' equity:
Common stock (443,644,275 and 443,607,674
shares outstanding at respective dates) $ 2,660,749 $ 2,660,096
Retained earnings 3,755,748 3,699,572
----------- -----------
6,416,497 6,359,668
Preferred securities of subsidiaries:
Not subject to mandatory redemption 283,755 283,755
Subject to mandatory redemption 425,000 425,000
Long-term debt 7,217,974 7,195,197
----------- -----------
Total capitalization 14,343,226 14,263,620
----------- -----------
Other long-term liabilities 373,802 344,192
----------- -----------
Current portion of long-term debt 251,439 40,328
Short-term debt 608,535 709,508
Accounts payable 346,098 419,522
Accrued taxes 660,922 557,095
Accrued interest 143,467 101,370
Dividends payable 113,343 113,334
Regulatory balancing accounts -- net 439,354 337,867
Deferred unbilled revenue and other
current liabilities 944,950 1,004,879
----------- -----------
Total current liabilities 3,508,108 3,283,903
----------- -----------
Accumulated deferred income
taxes -- net 4,304,419 4,339,259
Accumulated deferred investment
tax credits 395,078 405,112
Customer advances and other
deferred credits 696,531 680,210
----------- -----------
Total deferred credits 5,396,028 5,424,581
----------- -----------
Minority interest 673,419 629,939
----------- -----------
Commitments and contingencies
(Notes 1 and 2)
Total capitalization and liabilities $24,294,583 $23,946,235
=========== ===========
The accompanying notes are an integral part of these financial statements.
page 4
<PAGE>
EDISON INTERNATIONAL
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
3 Months Ended
March 31,
------------------------
1996 1995
--------- -----------
(Unaudited)
Cash flows from operating activities:
Net income $ 167,089 $ 153,545
Adjustments for non-cash items:
Depreciation and decommissioning 264,527 243,333
Amortization 28,969 13,519
Rate phase-in plan 28,345 26,255
Deferred income taxes and investment tax
credits (20,022) 10,260
Equity in income from partnerships and
unconsolidated subsidiaries (24,907) (15,048)
Other long-term liabilities 29,610 23,792
Other -- net (6,432) (33,367)
Changes in working capital:
Receivables 105,325 102,075
Regulatory balancing accounts 101,487 42,973
Fuel inventory, materials and supplies 3,948 (37,414)
Prepayments and other current assets 49,084 40,580
Accrued interest and taxes 142,053 89,524
Accounts payable and other current
liabilities (114,521) (71,281)
Distributions from partnerships and
unconsolidated subsidiaries 15,302 35,969
---------- ----------
Net cash provided by operating activities 769,857 624,715
---------- ----------
Cash flows from financing activities:
Long-term debt issued 1,048,518 231,708
Long-term debt repayments (1,027,633) (317,763)
Common stock issued 653 --
Common stock repurchases -- (8,270)
Nuclear fuel financing -- net (8,437) 22,010
Short-term debt financing -- net (100,973) (292,707)
Dividends paid (110,911) (103,680)
---------- ----------
Net cash used by financing activities (198,783) (468,702)
---------- ----------
Cash flows from investing activities:
Additions to property and plant (232,402) (245,844)
Funding of nuclear decommissioning trusts (35,975) (24,157)
Investments in partnerships and
unconsolidated subsidiaries (96,266) (129,754)
Other -- net 9,115 (5,542)
---------- ----------
Net cash used by investing activities (355,528) (405,297)
---------- ----------
Net increase (decrease) in cash and
equivalents 215,546 (249,284)
Cash and equivalents, beginning of period 507,151 533,957
---------- ----------
Cash and equivalents, end of period $ 722,697 $ 284,673
========== ==========
The accompanying notes are an integral part of these financial statements.
page 5
<PAGE>
EDISON INTERNATIONAL
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.
Edison International's significant accounting policies were described in
Note 1 of "Notes to Consolidated Financial Statements" included in its
1995 Annual Report on Form 10-K filed with the Securities and Exchange
Commission. Edison International follows the same accounting policies for
interim reporting purposes. This quarterly report should be read in
conjunction with Edison International's 1995 Annual Report.
Certain prior-period amounts were reclassified to conform to the March 31,
1996, financial statement presentation.
Note 1. Regulatory Matters
1995 General Rate Case
On January 10, 1996, the California Public Utilities Commission (CPUC)
issued its decision on Southern California Edison Company's (SCE) 1995
general rate case. The decision affirmed the CPUC's interim order to
reduce 1995 operating revenue by $67 million, but decreased 1996 operating
revenue by an additional $9 million, which includes a decrease of $44
million for operating and maintenance expenses. The decision also
authorized recovery of SCE's remaining investment in San Onofre Nuclear
Generating Station Units 2 and 3, at a reduced rate of return, over an
eight-year period. On April 10, 1996, the CPUC finalized the
implementation details of the accelerated recovery of the San Onofre
Units. On April 15, 1996, SCE began accelerating the recovery of its
remaining investment of $2.6 billion. The accelerated recovery will
continue through December 31, 2003, earning a 7.35% fixed rate of return
(compared to the current 9.55%). Future operating costs and incremental
capital expenditures at San Onofre are subject to an incentive pricing
plan, where SCE receives about 4 cents per kilowatt-hour. Any differences
from the incentive price will flow through to shareholders. Beginning in
2004, after SCE's investment is fully recovered, SCE would be required to
share equally with ratepayers the benefits received from operation of the
units.
Performance-Based Ratemaking (PBR)
SCE originally filed for a PBR mechanism in 1993, requesting a revenue-
indexing formula to combine operating expenses and capital-related costs
into a single index to determine most of its revenue (excluding fuel) from
1996-2000. The filing was subsequently divided between transmission and
distribution, and power generation. Hearings concluded on the
transmission and distribution phase in December 1994. The CPUC's
restructuring decision, as further discussed below, requested comments
addressing whether SCE's transmission and distribution PBR proposal should
be amended or reviewed as filed. In January 1996, SCE requested the CPUC
approve its PBR as filed. SCE expects to file its proposal for the power
generation phase in July 1996.
CPUC Restructuring Decision
On December 20, 1995, the CPUC issued its decision on restructuring
California's electric industry, which it had been considering since April
1994. The new market structure would provide competition and customer
choice. The transition to a competitive electric market would begin
page 6
<PAGE>
EDISON INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 1, 1998, with all consumers participating by 2003. Key elements
of the decision include:
o Creation of an independent power exchange to manage electric supply
and demand. California's investor-owned utilities would be required
to purchase from and sell to the exchange all of their power during
the transition period, while other generators could voluntarily
participate.
o Creation of an independent system operator to have operational control
of the utilities' transmission facilities and, therefore, control the
scheduling and dispatch of all electricity on the state's power grid.
o Availability of customer choice through time-of-use rates, direct
customer access to generation providers with transmission arrangements
through the system operator, and customer-arranged "contracts for
differences" to manage price fluctuations from the power exchange.
o Recovery of costs to transition to a competitive market (utility
investments and obligations incurred to serve customers under the
existing framework) through a non-bypassable charge, applied to all
customers, called the "competition transition charge" (CTC).
o CPUC-established incentives to encourage voluntary divestiture
(through spin-off or sale to an unaffiliated entity) of at least 50%
of utilities' gas-fueled generation to address market power issues.
o Performance-based ratemaking (PBR) for those utility services not
subject to competition.
On March 19, 1996, SCE filed a plan outlining how SCE would propose to
divest 50% of its gas-fueled generation. SCE's plan is contingent on
assurances about transition cost recovery and the resolution of key issues
related to: worker protection measures being in place for utility
employees who could suffer hardship as a result of divestiture; utilities
being permitted full recovery of the transition costs incurred during the
divestiture process; appropriate rate-making measures to cover the
contingency if the completion of the divestiture plan or commencement of
the power exchange is delayed; and prudently incurred costs associated
with fuel supply, transportation and storage contracts not being stranded
by the divestiture.
On April 29, 1996, SCE, Pacific Gas & Electric Company and San Diego Gas
& Electric Company filed a proposal with the Federal Energy Regulatory
Commission (FERC) regarding the creation of the independent power exchange
and the independent system operator.
Recovery of costs to transition to a competitive market would be
implemented through a non-bypassable CTC. This charge would apply to all
customers who currently use utility services or begin utility service
after this decision is effective. SCE estimates its potential transition
costs through 2025 to be approximately $9.3 billion (net present value),
based on incurred costs, and forecasts of future costs and assumed market
prices. However, changes in the assumed market price could require
material revisions to such estimates. The potential transition costs are
comprised of: $4.9 billion from SCE's qualifying facility contracts, which
are the direct result of legislative and regulatory mandates; and $4.4
billion from costs pertaining to certain generating plants and regulatory
commitments consisting of costs incurred (whose recovery has been deferred
by the CPUC) to provide service to customers. Such commitments include
the recovery of income tax benefits previously flowed-through to
customers, postretirement benefit transition costs, accelerated recovery
page 7
<PAGE>
EDISON INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of nuclear plants (including San Onofre Unit 1 and San Onofre Units 2 and
3 as previously discussed), nuclear decommissioning and certain other
costs. The undepreciated book value of a utility's generation plant will
be calculated on the amount in rate base as of the decision date.
Further, adverse financial consequences could result if an ambiguity in
the CPUC's restructuring decision is not eliminated. The ambiguity
relates to recovery of capital expenditures made for SCE's fossil
generation units in 1996 and beyond in the calculation of the CTC. SCE
believes that recovery of such capital expenditures is consistent with the
intent of the restructuring decision and filed a petition on March 25,
1996, to clarify the decision. If these efforts at clarification,
consistent with the decision's intent, are unsuccessful, then SCE
estimates the negative effect on 1996 earnings would be approximately $50
million (pre-tax), based on SCE's 1996 capital budget for its fossil
generation units.
Because the restructuring of California's electric industry has widespread
impact and the market structure requires the participation and oversight
of the FERC, the CPUC will seek to build a California consensus involving
the legislature, governor, public and municipal utilities, and customers.
Once the consensus is in place, FERC approval will be sought, and together
both agencies would move forward to implement the new market structure.
In addition, the CPUC will prepare an environmental impact report. If the
CPUC's restructuring decision is upheld and implemented as outlined, SCE
would be allowed to recover its CTC (subject to a lower return on equity)
and would continue to apply accounting standards that recognize the
economic effects of rate regulation. The effect of such an outcome would
not be expected to materially affect SCE's results of operations or
financial position during the transition period.
If revisions are made to the CPUC's restructuring decision that result in
SCE no longer meeting the criteria to apply regulatory accounting
standards to its generation operations, SCE may be required to write off
its recorded generation-related regulatory assets. At March 31, 1996,
these amounts totaled $1.3 billion (excluding balancing account
overcollections of $237 million to be refunded to customers in June 1996),
primarily for the recovery of income tax benefits previously flowed-
through to customers, the Palo Verde Nuclear Generating Station phase-in
plan and unamortized loss on reacquired debt. Although depreciation-
related differences could result from applying a regulatory prescribed
depreciation method (straight-line, remaining-life method) rather than a
method that would have been applied absent the regulatory process, SCE
believes that the depreciable lives of its generation-related assets would
not vary significantly from that of an unregulated enterprise, as the CPUC
bases depreciable lives on periodic studies that reflect the assets'
physical useful life. SCE also believes that any depreciation-related
differences would be recovered through the CTC.
Additionally, if revisions are made to the CPUC's restructuring decision
that result in all or a portion of the CTC not being probable of recovery,
SCE could have additional write-offs associated with these costs if they
are not recovered through another regulatory mechanism. At this time, SCE
cannot predict when, or if, a consensus on restructuring will be reached,
what revisions will ultimately be made in the CPUC's restructuring plan
in subsequent proceedings or implementation phases, or the effect, after
the transition period, that competition will have on its results of
operations or financial position.
FERC Stranded Cost/Open Access Transmission Decision
On April 24, 1996, the FERC issued its decision on stranded cost recovery
and open access transmission, which it had been considering since March
page 8
<PAGE>
EDISON INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1995. The decision, which will be effective in July 1996, requires all
electric utilities subject to the FERC's jurisdiction to file transmission
tariffs which provide competitors with increased access to transmission
facilities for wholesale transactions and also establishes information
requirements for the transmission utility. The decision also provides
utilities with the recovery of prior-service costs incurred under the
current regulatory framework, which are known as stranded costs. In
addition to providing recovery of stranded costs associated with existing
wholesale customers, the FERC directed that it would be the primary
jurisdiction for the recovery of stranded costs associated with retail-
turned-wholesale customers, such as the formation of a new municipal
electric system. Retail stranded costs resulting from a state-authorized
retail direct-access program are the responsibility of the states and the
FERC would only address recovery of these costs if the state has no
authority to do so.
Mohave Generating Station
A 1994 CPUC decision stated that SCE 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. On December
22, 1995, SCE and the CPUC's Division of Ratepayer Advocates (DRA) filed
a $38 million settlement agreement subject to CPUC approval. This
agreement has been fully reflected in the financial statements.
Canadian Gas Contracts
In May 1994, SCE filed its testimony in the non-Qualified Facilities phase
of the 1994 Energy Cost Adjustment Clause proceeding. In May 1995, the
DRA filed its report on the reasonableness of SCE's gas supply costs for
both the 1993 and 1994 record periods. The report recommends a
disallowance of $13.3 million for excessive costs incurred from November
1993 through March 1994 associated with SCE's Canadian gas purchase and
supply contracts. The report requests the CPUC defer finding SCE's
Canadian supply and transportation agreements reasonable for the duration
of their terms and that the costs under these contracts be reviewed on a
yearly basis. In December 1995, SCE filed rebuttal testimony. Hearings
are scheduled for late 1996.
Palo Verde Rate-making Proposal
On February 29, 1996, SCE filed a proposal with the CPUC requesting a new
rate mechanism for its 15.8% share of the three units at Palo Verde. The
filing was made in compliance with the CPUC's December 20, 1995,
restructuring decision that directed SCE to file a rate-making proposal
similar to rate-making approved for San Onofre in the 1995 general rate
case. The proposed rate mechanism would allow SCE to accelerate the
recovery of its share of Palo Verde's sunk cost (forecast to be $1.2
billion as of December 31, 1996), over a seven-year period, beginning
January 1, 1997, and ending in 2003. During the seven-year period, SCE's
return on rate base for Palo Verde sunk costs would be reduced to 7.34%
from the current 9.55%, and SCE would also have the opportunity to recover
the incremental costs of continued operation of Palo Verde at
approximately 3.5 cents per kilowatt-hour, provided the Palo Verde units
operate at an average capacity factor of 77%. SCE recommended to the CPUC
a schedule for this proceeding that calls for hearings to begin in June
and a decision by year-end 1996.
Note 2. Contingencies
In addition to the matters disclosed in these notes, Edison International
is involved in legal, tax and regulatory proceedings before various courts
page 9
<PAGE>
EDISON INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and governmental agencies regarding matters arising in the ordinary course
of business. Edison International believes the outcome of these
proceedings will not materially affect its results of operations or
liquidity.
Brooklyn Navy Yard Project
Edison Mission Energy (EME) owns, through a wholly-owned subsidiary, 50%
of the Brooklyn Navy Yard project; however, it is initially funding all
of the required equity and debt ($460 million) for the project and has
provided a guarantee as a condition of obtaining financing for the
project. Consolidated Edison Company of New York, which has contracted
to buy most of the project's power, raised concerns regarding the timing
of certain performance milestones and whether the plant's configuration
and related performance comply with the terms of the contracts. EME and
its project partner are attempting to resolve these issues in a manner
satisfactory to the project and Consolidated Edison. EME believes the
anticipated returns on the project will be substantially less than
originally estimated.
Environmental Protection
Edison International 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.
Edison International records its environmental liabilities when site
assessments and/or remedial actions are probable and a range of reasonably
likely cleanup costs can be estimated. Edison International 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, Edison International records the lower
end of this reasonably likely range of costs (classified as other long-
term liabilities at undiscounted amounts). While Edison International 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.
Edison International's recorded estimated minimum liability to remediate
its 62 identified sites (58 at SCE and 4 at EME) was $114 million at March
31, 1996. The ultimate costs to clean up Edison International'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. Edison International 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 Edison
International among a range of reasonably possible outcomes.
The CPUC allows SCE to recover environmental-cleanup costs at 24 of its
sites, representing $90 million of Edison International's recorded
liability, through an incentive mechanism (SCE may request to include
page 10
<PAGE>
EDISON INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
additional sites). Under this mechanism, SCE 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. SCE has settled insurance claims with several carriers,
and is continuing to pursue additional recovery. Costs incurred at SCE's
remaining 34 sites are expected to be recovered through customer rates.
SCE has filed a request with the CPUC to add 17 of these sites ($6 million
in estimated minimum liability) to the incentive mechanism. SCE has
recorded a regulatory asset of $104 million for its estimated minimum
environmental-cleanup costs expected to be recovered through customer
rates.
Edison International'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 Edison
International may be held responsible for contributing to any costs
incurred for remediating these sites. Thus, no reasonable estimate of
cleanup costs can now be made for these sites.
Edison International 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 $3 million to $6 million.
In 1994, SCE 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. During
1995, EME completed a similar review of some of its sites where known
contamination and potential liability exist and does not believe a
material liability exists as of March 31, 1996.
Based on currently available information, Edison International 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, Edison International 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.
Nuclear Insurance
Federal law limits public liability claims from a nuclear incident to $8.9
billion. SCE 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 to every reactor licensee if a nuclear incident
at any licensed reactor in the U.S. results in claims and/or costs which
exceed the primary insurance at that plant site. 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, SCE 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. If the public
liability limit above is insufficient, federal regulations will impose
further revenue-raising measures to pay claims, including a possible
additional assessment on all licensed reactor operators.
page 11
<PAGE>
EDISON INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, SCE could be
assessed retrospective premium adjustments of up to $44 million per year.
Insurance premiums are charged to operating expense.
page 12
<PAGE>
EDISON INTERNATIONAL
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
Earnings
Edison International's earnings per share were 38 cents for the first
quarter of 1996, compared to 34 cents for the first quarter of 1995.
Southern California Edison Company's (SCE) earnings were 31 cents per
share, unchanged from the same period in 1995. SCE's earnings reflect
improved operating performance despite the lower authorized return on
common equity and lower authorized operating expenses. The nonutility
subsidiaries' quarterly earnings were up 4 cents from the same period in
1995 due to unusually high seasonal earnings from Edison Mission Energy's
(EME) newly acquired First Hydro project. There were no comparable
earnings from this project in 1995.
In April 1996, EME completed a sale of four operating geothermal
facilities and recorded an after-tax gain of approximately $16 million.
EME had previously discontinued recording earnings for these projects due
to the absence of an escalation in the market price of natural gas.
Operating Revenue
Electric utility revenue increased 2% during the first quarter of 1996,
compared with the same period in 1995, primarily due to a similar increase
in retail sales volume. Since the California Public Utilities Commission
(CPUC) did not rule on 1996 authorized revenue until February 1996, new
rates will be effective in the second quarter. About 99% 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, SCE announced that it intends to freeze average rates for
residential, small business and agricultural customers through 1996, and
announced a five-year goal to reduce system average rates by 25% (from
10.7 cents per kilowatt-hour to below 10 cents per kilowatt-hour), after
adjusting for inflation. In February 1996, the CPUC approved a system-
wide rate reduction which will drop the average price per kilowatt-hour
from 10.7 cents to 10.1 cents.
Revenue from diversified operations increased over 100%, mainly due to an
increase in EME's electric revenue from its First Hydro and Iberian Hy-
Power projects. First Hydro, acquired in December 1995, is an independent
power company whose principal assets consist of two pumped-storage
electric power stations with a combined capacity of 2,088 megawatts. In
January 1996, EME increased its ownership from 34% to 100% of Iberian Hy-
Power, which consists of 18 hydroelectric plants located throughout Spain.
There was no comparable revenue from these projects in 1995.
Operating Expenses
Fuel expense decreased 13%, primarily reflecting a decrease in SCE's gas-
powered generation partially offset by an increase from EME's First Hydro
and Iberian Hy-Power projects. The decrease in SCE's gas-powered
generation was directly related to an increase in nuclear generation. In
1995, San Onofre Nuclear Generating Station Unit 2 was out of service for
a scheduled refueling and maintenance outage for half of the first
quarter. There was no comparable outage in 1996 and no comparable fuel
expense from the EME projects in 1995.
page 13
<PAGE>
Purchased-power expense increased 8% for the quarter ended March 31, 1996,
compared to the same period last year. SCE makes federally required power
purchases from nonutility generators based on contracts with CPUC-mandated
pricing. Energy prices under these contracts are generally higher than
other energy sources.
Provisions for regulatory adjustment clauses increased as kilowatt-hour
sales exceeded CPUC-authorized estimates.
Maintenance expense decreased 14% in the first quarter of 1996, compared
with the year-earlier period, due to the scheduled refueling and
maintenance outage at San Onofre Unit 2 during the first quarter of 1995.
Unit 2 returned to service in May 1995.
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. The plan allows the deferred revenue (including interest) to be
collected evenly over the final six years of each unit's plan. The plan
ended in February 1996 for Unit 1, and will end in September 1996 and
January 1998 for Units 2 and 3, respectively. The provision is a non-cash
offset to the collection of deferred revenue.
Minority interest increased 18%, primarily from EME's Loy Yang B project.
Other nonoperating income increased primarily due to additional accruals
at SCE for regulatory matters in the first quarter of 1995, partially
offset by the reclassification of Edison Capital's equity losses from
affiliates which was previously included in revenue from diversified
operations in the first quarter of 1995.
Interest and Other Expenses
Interest on long-term debt increased 17%, reflecting EME's newly acquired
First Hydro project.
Other interest expense remained unchanged due to lower interest rates
offset by higher balances in SCE's regulatory balancing accounts.
Capitalized interest increased 22%, primarily due to an increase in
construction activity at EME's Brooklyn Navy Yard and Paiton projects.
FINANCIAL CONDITION
Edison International'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, Edison International lowered its quarterly common stock
dividend by 30%, as the result of uncertainty of future earnings levels
arising from the changing nature of California's electric utility
regulation.
In January 1995, Edison International authorized the repurchase of up to
$150 million (increased to $300 million on April 18, 1996) of its common
stock. Edison International repurchased 7,173,542 shares ($117 million)
through May 3, 1996, funded by dividends from Edison International
subsidiaries.
For the first quarter of 1996, Edison International's cash flow coverage
of dividends increased to 6.9 times from 6.0 times for the same period in
1995. Edison International's dividend payout ratio for the twelve-month
period ended March 31, 1996, was 59%.
page 14
<PAGE>
Cash Flows from Operating Activities
Net cash provided by operating activities totaled $770 million in the
first quarter of 1996 compared to $625 million in the first quarter of
1995. Cash from operations exceeded capital requirements for both periods
presented.
Cash Flows from Financing Activities
At March 31, 1996, Edison International and its subsidiaries had $1.9
billion of borrowing capacity available under lines of credit totaling
$2.4 billion. SCE had available lines of credit of $1.4 billion, with
$900 million for short-term debt and $500 million for the long-term
refinancing of its variable-rate pollution-control bonds. The parent
company had a $350 million, one-year term, line of credit with $50 million
of borrowing capacity available. The nonutility companies had lines of
credit of $610 million, with $480 million of borrowing capacity available
to finance general cash requirements. Edison International's unsecured
lines of credit are at negotiated or bank index rates with various
expiration dates; the majority have five-year terms.
SCE's short-term debt is used to finance fuel inventories, balancing
account undercollections and general cash requirements. EME uses short-
term debt and available credit lines mainly for construction projects
until long-term construction or project loans are secured. Long-term debt
is used mainly to finance capital expenditures. SCE'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, 1996, SCE could issue approximately $7.6 billion of
additional first and refunding mortgage bonds and $4.3 billion of
preferred stock at current interest and dividend rates.
EME owns, through a wholly-owned subsidiary, 50% of the Brooklyn Navy Yard
project. However, EME is initially funding all of the required equity and
debt ($460 million) for the project; about $360 million had been spent
through March 31, 1996. In December 1995, EME provided a guarantee as a
condition of obtaining a $254 million tax-exempt financing for the
project. Consolidated Edison of New York, which has contracted to buy
most of the project's power, raised concerns regarding the timing of
certain performance milestones and whether the plant's configuration and
related performance comply with the terms of the contracts. EME and its
project partner are attempting to resolve these issues in a manner
satisfactory to the project and Consolidated Edison. In addition, EME,
its project partner and Consolidated Edison are continuing to evaluate
various options with respect to the ongoing development of the project.
EME believes that its anticipated returns on the project will be
substantially less than it had originally estimated.
At March 31, 1996, EME had firm commitments to make equity and other
contributions to its projects and contingent obligations to make
additional contributions to its projects in the amount of $287 million and
$454 million, respectively. Included in the contingent obligations are
EME's guarantees related to the Brooklyn Navy Yard project, discussed
above. The majority of the remaining amounts are for the expected four-
year construction period of the Paiton project.
In April 1996, EME and its partner ISAB S.p.A., completed a 1.9 trillion
Italian lira ($1.2 billion) financing for a 507 MW power project located
in Italy. In connection with the financing, EME has guaranteed equity
contributions and subordinated debt totaling 244 billion Italian lira
($156 million).
EME may incur additional obligations to make equity and other
contributions to projects in the future. EME believes it will have
sufficient liquidity to meet these equity requirements from cash provided
page 15
<PAGE>
by operating activities, proceeds from the repayment of loans to energy
projects, funds available from EME's revolving line of credit and
additional corporate borrowings.
California law prohibits SCE from incurring or guaranteeing debt for its
nonutility affiliates. Additionally, the CPUC regulates SCE's capital
structure, limiting the dividends it may pay Edison International. At
March 31, 1996, SCE had the capacity to pay $491 million in additional
dividends and continue to maintain its authorized capital structure.
These restrictions are not expected to affect Edison International'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 nonutilities' 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. SCE estimates that it will spend
approximately $12.7 billion to decommission its nuclear facilities,
primarily between 2013-2070. This estimate is based on SCE's current-
dollar decommissioning costs ($2.0 billion), escalated using a 6.65% rate
and an earnings assumption on trust funds ranging from 5.5% to 5.75%.
These amounts are expected to be funded from independent decommissioning
trusts, which receive SCE contributions of approximately $100 million per
year (until decommissioning begins). The Financial Accounting Standards
Board has issued an exposure draft related to accounting practices for
removal costs, including decommissioning of nuclear power plants. SCE
does not expect that the accounting changes proposed in the exposure draft
would have an adverse effect on its results of operations due to its
current and expected future ability to recover these costs through
customer rates.
Cash used for the nonutility subsidiaries' investing activities was $128
million for the three-month period ended March 31, 1996, compared to $181
million for the same period in 1995.
Edison International's risk management policy allows the use of derivative
financial instruments to mitigate risk. Changes in interest rates,
electricity pool pricing and fluctuations in foreign currency exchange
rates can have a significant impact on EME's results of operations. EME
has attempted to mitigate the risk of interest rate fluctuations by
arranging for fixed rate or variable rate financing with interest rate
swaps or other hedging mechanisms for the majority of its corporate and
project financings. As a result of interest rate hedging mechanisms,
interest expense increased $2 million in the first quarter of 1996 and
1995. The maturity date of several of EME's interest rate swap agreements
do not correspond to the term of the underlying debt. EME does not
anticipate a material adverse effect on results of operations or financial
position as a result of interest rate fluctuations.
Projects in the United Kingdom (U.K.) sell their energy and capacity
production through a centralized electricity pool, which establishes a
half-hourly clearing price for electrical energy and capacity. The pool
price is extremely volatile, and can vary by a factor of ten or more over
the course of a few hours due to large differentials in demand according
to the time of day. First Hydro mitigates a portion of the market risk of
the pool by entering into contracts for differences (electricity rate swap
agreements), where payments are made when pool selling prices rise above
the prices specified in the contracts. These contracts act as a means of
stabilizing production revenue by removing an element of net exposure to
pool price volatility. First Hydro's electric revenue was decreased by $4
million in the first quarter of 1996 as a result of electricity rate swap
agreements.
page 16
<PAGE>
As EME continues to expand into foreign markets, fluctuations in foreign
currency exchange rates will continue to affect the amount of its equity
contributions to, distributions from, and results of operations for its
foreign projects. EME has hedged a portion of its current exposure to
fluctuations in foreign exchange risks, where it deems appropriate,
through offsetting obligations denominated in foreign currencies, and
indexing underlying project agreements to U.S. dollars or other indices
reasonably expected to correlate with foreign exchange movements.
Projected Capital Requirements
Edison International's projected capital requirements for the next five
years are: 1996--$893 million; 1997--$757 million; 1998--$647 million;
1999--$690 million; and 2000--$673 million.
Long-term debt maturities and sinking fund requirements for the five
twelve-month periods following March 31, 1996, are: 1997--$236 million;
1998--$536 million; 1999--$570 million; 2000--$592 million; and 2001--$306
million.
REGULATORY MATTERS
SCE's 1996 CPUC-authorized revenue decreased $575 million, or 7.5%,
including a one-time bill credit of $237 million, which customers will
receive in June 1996, related to lower fuel costs than originally
estimated. The remaining $338 million revenue reduction is primarily for
a $242 million decrease in fuel costs, a $53 million decrease for lower
costs of debt and equity (discussed below), a $24 million decrease for
lower nuclear refueling costs and a $9 million decrease related to the
1995 general rate case (discussed below).
On January 10, 1996, the CPUC issued its decision on SCE's 1995 general
rate case. The decision affirmed the CPUC's interim order to reduce 1995
operating revenue by $67 million, but decreased 1996 operating revenue by
an additional $9 million, which includes a decrease of $44 million for
operating and maintenance expenses. The decision also authorized recovery
of SCE's remaining investment in San Onofre Units 2 and 3 at a reduced
rate of return over an eight-year period. On April 10, 1996, the CPUC
finalized the implementation details of the accelerated recovery of the
San Onofre units. On April 15, 1996, SCE began accelerating the recovery
of its remaining investment of $2.6 billion. The accelerated recovery
will continue through December 31, 2003, earning a 7.35% fixed rate of
return (compared to the current 9.55%). Future operating costs and
incremental capital expenditures at San Onofre are subject to an incentive
pricing plan, where SCE receives about 4 cents per kilowatt-hour. Any
differences from the incentive price will flow through to shareholders.
Beginning in 2004, after SCE's investment is fully recovered, SCE would
be required to share equally with ratepayers the benefits received from
operation of the units.
The CPUC's 1996 cost-of-capital decision authorized an increase to SCE's
equity ratio from 47.75% to 48% and authorized SCE an 11.6% return on
common equity, compared to 12.1% for 1995. This decision, excluding the
effects of other rate actions, would reduce 1996 earnings by approximately
4 cents per share.
A 1994 CPUC decision stated that SCE 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. On December
22, 1995, SCE and the CPUC's Division of Ratepayer Advocates (DRA) filed
a $38 million settlement agreement, subject to CPUC approval. This
agreement has been fully reflected in the financial statements.
In May 1994, SCE filed its testimony in the non-Qualified Facilities phase
of the 1994 Energy Cost Adjustment Clause proceeding. In May 1995, the
DRA filed its report on the reasonableness of SCE's gas supply costs for
page 17
<PAGE>
both the 1993 and 1994 record periods. The report recommends a
disallowance of $13.3 million for excessive costs incurred from November
1993 through March 1994 associated with SCE's Canadian gas purchase and
supply contracts. The report requests the CPUC defer finding SCE's
Canadian supply and transportation agreements reasonable for the duration
of their terms and that the costs under these contracts be reviewed on a
yearly basis. In December 1995, SCE filed rebuttal testimony. Hearings
are scheduled for late 1996.
On February 29, 1996, SCE filed a proposal with the CPUC requesting a new
rate mechanism for its 15.8% share of the three units at Palo Verde. The
filing was made in compliance with the CPUC's December 20, 1995,
restructuring decision that directed SCE to file a rate-making proposal
similar to ratemaking approved for San Onofre in the 1995 general rate
case. The proposed rate mechanism would allow SCE to accelerate the
recovery of its share of Palo Verde's sunk cost (forecast to be $1.2
billion as of December 31, 1996) over a seven-year period, beginning
January 1, 1997, and ending in 2003. During the seven-year period, SCE's
return on rate base for Palo Verde sunk costs would be reduced to 7.34%
from the current 9.55%, and SCE would also have the opportunity to recover
the incremental costs of continued operation of Palo Verde at
approximately 3.5 cents per kilowatt-hour, provided the Palo Verde units
operate at an average capacity factor of 77%. SCE recommended to the
CPUC a schedule for this proceeding that calls for hearings to begin in
June and a decision by year-end 1996.
COMPETITIVE ENVIRONMENT
SCE currently operates in a highly regulated environment in which it has
an obligation to provide electric service to customers in return for an
exclusive franchise within its service territory. This regulatory
environment is changing. The generation sector has experienced
competition from nonutility power producers and regulators are
restructuring California's electric utility regulation.
On December 20, 1995, the CPUC issued its decision on restructuring
California's electric industry, which it had been considering since April
1994. The new market structure would provide competition and customer
choice. The transition to a competitive electric market would begin
January 1, 1998, with all consumers participating by 2003. Key elements
of the decision include:
o Creation of an independent power exchange to manage electric supply and
demand. California's investor-owned utilities would be required to
purchase from and sell to the exchange all of their power during the
transition period, while other generators could voluntarily
participate.
o Creation of an independent system operator to have operational control
of the utilities' transmission facilities and, therefore, control the
scheduling and dispatch of all electricity on the state's power grid.
o Availability of customer choice through time-of-use rates, direct
customer access to generation providers with transmission arrangements
through the system operator, and customer-arranged "contracts for
differences" to manage price fluctuations from the power exchange.
o Recovery of costs to transition to a competitive market (utility
investments and obligations incurred to serve customers under the
existing framework) through a non-bypassable charge, applied to all
customers, called the "competition transition charge" (CTC).
o CPUC-established incentives to encourage voluntary divestiture (through
spin-off or sale to an unaffiliated entity) of at least 50% of
utilities' gas-fueled generation to address market power issues.
page 18
<PAGE>
o Performance-based ratemaking (PBR) for those utility services not
subject to competition.
SCE originally filed for a PBR mechanism in 1993, requesting a revenue-
indexing formula to combine operating expenses and capital-related costs
into a single index to determine most of its revenue (excluding fuel) from
1996-2000. The filing was subsequently divided between transmission and
distribution, and power generation. Hearings concluded on the
transmission and distribution phase in December 1994. The CPUC's
restructuring decision requested comments addressing whether SCE's
transmission and distribution PBR proposal should be amended or reviewed
as filed. In January 1996, SCE requested the CPUC approve its PBR as
filed. SCE expects to file its proposal for the power generation phase
in July 1996.
On March 19, 1996, SCE filed a plan outlining how SCE would propose to
divest 50% of its gas-fueled generation. SCE's plan is contingent on
assurances about transition cost recovery and the resolution of key issues
related to: worker protection measures being in place for utility
employees who could suffer hardship as a result of divestiture; utilities
being permitted full recovery of the transaction costs incurred during the
divestiture process; appropriate rate-making measures to cover the
contingency if the completion of the divestiture plan or commencement of
the power exchange is delayed; and prudently incurred costs associated
with fuel supply, transportation and storage contracts not being stranded
by the divestiture.
On April 29, 1996, SCE, Pacific Gas & Electric Company and San Diego Gas
& Electric Company filed a proposal with the FERC regarding the creation
of the independent power exchange and the independent system operator.
SCE estimates its potential transition costs through 2025 to be
approximately $9.3 billion (net present value), based on incurred costs,
and forecasts of future costs and assumed market prices. However, changes
in the assumed market price could require material revisions to such
estimates. The potential transition costs are comprised of: $4.9 billion
from SCE's qualifying facility contracts, which are the direct result of
legislative and regulatory mandates; and $4.4 billion from costs
pertaining to certain generating plants and regulatory commitments
consisting of costs incurred (whose recovery has been deferred by the
CPUC) to provide service to customers. Such commitments include the
recovery of income-tax benefits previously flowed-through to customers,
postretirement benefit transition costs, accelerated recovery of nuclear
plants (including San Onofre Unit 1 and San Onofre Units 2 and 3 as
previously discussed), nuclear decommissioning and certain other costs.
The undepreciated book value of a utility's generation plant will be
calculated on the amount in rate base as of the decision date. Further,
adverse financial consequences could result if an ambiguity in the CPUC's
restructuring decision is not eliminated. The ambiguity relates to
recovery of capital expenditures made for SCE's fossil generation units
in 1996 and beyond in the calculation of the CTC. SCE believes that
recovery of such capital expenditures is consistent with the intent of the
restructuring decision and filed a petition on March 25, 1996, to clarify
the decision. If these efforts at clarification, consistent with the
decision's intent, are unsuccessful, then SCE estimates the negative
effect on 1996 earnings would be approximately $50 million (pre-tax),
based on SCE's 1996 capital budget for its fossil generation units.
Because the restructuring of California's electric industry has widespread
impact and the market structure requires the participation and oversight
of the FERC, the CPUC will seek to build a California consensus involving
the legislature, governor, public and municipal utilities, and customers.
Once the consensus is in place, FERC approval will be sought and together
both agencies would move forward to implement the new market structure.
In addition, the CPUC will prepare an environmental impact report. If the
CPUC's restructuring decision is upheld and implemented as outlined, SCE
page 19
<PAGE>
would be allowed to recover its CTC (subject to a lower return on equity)
and would continue to apply accounting standards that recognize the
economic effects of rate regulation. The effect of such an outcome would
not be expected to materially affect SCE's results of operations or
financial position during the transition period.
If revisions are made to the CPUC's restructuring decision that result in
SCE no longer meeting the criteria to apply regulatory accounting
standards to its generation operations, SCE may be required to write off
its recorded generation-related regulatory assets. At March 31, 1996,
these amounts totaled $1.3 billion (excluding balancing account
overcollections of $237 million to be refunded to customers in June 1996),
primarily for the recovery of income-tax benefits previously flowed-
through to customers, the Palo Verde phase-in plan and unamortized loss
on reacquired debt. Although depreciation-related differences could
result from applying a regulatory prescribed deprecation method (straight-
line, remaining-life method) rather than a method that would have been
applied absent the regulatory process, SCE believes that the depreciable
lives of its generation-related assets would not vary significantly from
that of an unregulated enterprise, as the CPUC bases depreciable lives on
periodic studies that reflect the assets' physical useful life. SCE also
believes that any depreciation-related differences would be recovered
through the CTC.
Additionally, if revisions are made to the CPUC's restructuring decision
that result in all or a portion of the CTC not being probable of recovery,
SCE could have additional write-offs associated with these costs if they
are not recovered through another regulatory mechanism. At this time, SCE
cannot predict when, or if, a consensus on restructuring will be reached,
what revisions will ultimately be made in the CPUC's restructuring plan
in subsequent proceedings or implementation phases, or the effect, after
the transition period, that competition will have on its results of
operations or financial position.
FERC Stranded Cost/Open Access Transmission Decision
On April 24, 1996, the FERC issued its decision on stranded cost recovery
and open access transmission, which it had been considering since March
1995. The decision, which will be effective in July 1996, requires all
electric utilities subject to the FERC's jurisdiction to file transmission
tariffs which provide competitors with increased access to transmission
facilities for wholesale transactions and also establishes information
requirements for the transmission utility. The decision also provides
utilities with the recovery of prior-service costs incurred under the
current regulatory framework, which are known as stranded costs. In
addition to providing recovery of stranded costs associated with existing
wholesale customers, the FERC directed that it would be the primary
jurisdiction for the recovery of stranded costs associated with retail-
turned-wholesale customers, such as the formation of a new municipal
electric system. Retail stranded costs resulting from a state-authorized
retail direct access program are the responsibility of the states and the
FERC would only address recovery of these costs if the state has no
authority to do so.
ENVIRONMENTAL PROTECTION
Edison International 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.
As further discussed in Note 2 to the Consolidated Financial Statements,
Edison International records its environmental liabilities when site
assessments and/or remedial actions are probable and a range of reasonably
likely cleanup costs can be estimated. Edison International reviews its
page 20
<PAGE>
sites and measures the liability quarterly, by assessing a range of
reasonably likely costs for each identified site. Unless there is a
probable amount, Edison International records the lower end of this
reasonably likely range of costs.
Edison International's recorded estimated minimum liability to remediate
its 62 identified sites (58 at SCE and 4 at EME) was $114 million at March
31, 1996. One of SCE's sites, a former pole-treating facility, is
considered a federal Superfund site and represents 71% of Edison
International's recorded liability. The ultimate costs to clean up Edison
International's identified sites may vary from its recorded liability due
to numerous uncertainties inherent in the estimation process. Edison
International 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 Edison International among a range of
reasonably possible outcomes.
The CPUC allows SCE to recover environmental-cleanup costs at 24 of its
sites, representing $90 million of Edison International's recorded
liability, through an incentive mechanism. Under this mechanism, SCE 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. SCE has settled insurance
claims with several carriers, and is continuing to pursue additional
recovery. Costs incurred at SCE's remaining 34 sites are expected to be
recovered through customer rates. SCE has recorded regulatory assets of
$104 million for its estimated minimum environmental-cleanup costs
expected to be recovered through customer rates.
Edison International'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 Edison
International may be held responsible for contributing to any costs
incurred for remediating these sites. Thus, no reasonable estimate of
cleanup costs can now be made for these sites.
Edison International 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 $3 million to $6 million.
In 1994, SCE 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. During
1995, EME completed a similar review of some of its sites where known
contamination and potential liability exist, and does not believe a
material liability exists as of March 31, 1996.
Based on currently available information, Edison International 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, Edison International 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. SCE 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
page 21
<PAGE>
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.
Edison International's projected capital expenditures to protect the
environment are $1 billion for the 1996-2000 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. SCE 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.
PALO VERDE STEAM TUBE RUPTURE
In 1993, a steam generator tube ruptured at Palo Verde Unit 2; additional
cracking was found in other tubes. Arizona Public Service Company (APS),
the operating agent for Palo Verde, has taken, and will continue to take,
remedial actions that it believes have slowed the rate of steam generator
tube degradation in all three units. APS believes that the steam
generators in only one of the units will have to be replaced within five
to ten years. SCE estimates its share of the costs to be between $16
million and $30 million, plus replacement power costs which are subject
to CPUC reasonableness review. SCE is evaluating APS' analyses,
conducting its own review, and has not yet decided whether it supports
replacement of the steam generators.
VOLUNTARY RETIREMENT OFFER
In March 1996, SCE announced it will take a one-time charge against
earnings of approximately $65 million (pre-tax), in the second quarter of
1996, related to a voluntary retirement offer for non-union employees.
SCE expects to offset these costs through lower expenses within a year.
SCE anticipates negotiating a similar program for represented employees
later this year, which could increase the total charge against earnings
to approximately $100 million (pre-tax) by year-end. The actual amount
charged to earnings will depend on the number of employees who accept the
offer.
page 22
<PAGE>
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Qualifying Facilities ("QF") Litigation
On May 20, 1993, four geothermal QFs filed a lawsuit against Southern
California Edison Company ("SCE") in Los Angeles County Superior Court,
claiming that SCE underpaid, and continues to underpay, the plaintiffs for
energy. SCE 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 was partially owned
by a subsidiary of Edison Mission Energy ("EME") (a subsidiary of Edison
International) until April of this year when EME sold its interests in the
projects to its nationwide partner. In October 1994, plaintiffs submitted
an amended complaint to the court to add causes of action for unfair
competition and restraint of trade. In July 1995, after several motions
to strike had been heard by the court, the plaintiffs served a further
amended complaint, which omitted the previous claims based on alleged
restraint of trade. The plaintiffs alleged that the past underpayments
totaled at least $21,000,000. In other court filings, plaintiffs have
contended that the total amount of additional contract payments owing from
the beginning of the alleged underpayments through the end of the contract
term could total approximately $60,000,000. In addition to seeking
compensatory damages and declaratory relief, the fourth amended complaint
also seeks unspecified punitive damages and an injunction to enjoin SCE
from "future" unfair competition. After a number of continuances, the
matter was set for trial on June 18, 1996. On May 1, 1996, the parties
entered into an agreement providing for a settlement of all claims in
dispute. Pursuant to the agreement, the specific terms of which are
confidential, SCE will pay jointly to the plaintiffs an amount which is
less than $10,000,000 in order to resolve all claims prior to January 1,
1996. SCE intends to seek recovery of this payment in its annual Energy
Cost Adjustment Clause ("ECAC") filing. SCE has also agreed, subject to
California Public Utilities Commission ("CPUC") approval, to increase
payments to plaintiffs for specified levels of energy deliveries for the
period after December 31, 1995. Plaintiffs have received the right to
continue the lawsuit as to the period after December 31, 1995, only in the
event CPUC approval of the increased payments is not obtained.
Between January 1994 and October 1994, SCE 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 SCE 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, SCE 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 SCE's position that there is only a single, 10-year period
of fixed payments. In March 1995, a ninth lawsuit was filed in the Los
Angeles County Superior Court raising claims similar to those alleged in
the first seven cases filed in that court. SCE has responded to the
complaint in the new lawsuit by denying its material allegations. On
April 5, 1995, SCE filed a petition for writ of mandate, prohibition or
other appropriate relief, requesting that the Court of Appeal issue a writ
directing the Los Angeles Superior Court to vacate its March 1 order
granting summary adjudication. In a decision filed August 9, 1995, the
Court of Appeal issued a writ directing that the order be overturned, and
a new order be entered denying the motion. A pending summary adjudication
page 23
<PAGE>
motion in the Kern County case has been withdrawn in light of the Court
of Appeal decision. Furthermore, pursuant to stipulation of the parties,
the Kern County case was ordered on April 3, 1996, to be coordinated with
the Los Angeles cases so that it too will be tried in Los Angeles. As a
result of the coordination, the April 22, 1996 trial date for the Kern
County case has been stricken and no new trial date has been set. On
February 6, 1996, plaintiffs in one of the actions filed their first
amended and supplemental complaint. On March 6, 1996, SCE filed its new
answer, denying the material allegations of the first amended and
supplemental complaint. On April 16, 1996, SCE filed a motion for summary
adjudication of certain of the causes of action in this complaint. The
motion is set for hearing on May 16, 1996. Plaintiffs' motion to
consolidate all eight cases for jury trial was denied without prejudice
on March 25, 1996. Parties have since reached agreement in principle on
a stipulation whereby at least the original Los Angeles cases would be
consolidated for trial in January 1997, in return for plaintiffs' waiver
of a jury trial. Nevertheless, with a trial date of June 26, 1996, the
lead Los Angeles case is the only case currently scheduled for trial. 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 SCE's ECAC.
This matter was previously reported under the heading "QF Litigation" in
Part I, Item 3 of Edison International's Annual Report on Form 10-K for
the year ended December 31, 1995.
Electric and Magnetic Fields ("EMF") Litigation
SCE is involved in three lawsuits alleging that various plaintiffs
developed cancer as a result of exposure to EMF from SCE facilities. SCE
denies the material allegations in its responses to each of the lawsuits.
Two of the lawsuits allege, among other things, that certain past and
present employees of Grubb & Ellis ("Employee-Plaintiffs"), a real estate
brokerage firm with offices located in a commercial building known as the
Koll Center in Newport Beach, developed cancer as a result of exposure to
EMF from electrical facilities owned by SCE and/or the other defendants
located on the property. The lawsuits, served on SCE in 1994 ("First
Case") and January 1995 ("Second Case"), respectively, also name Grubb &
Ellis and the owners and developers of the Koll Center as defendants. No
specific damage amounts are alleged in either complaint.
The five named plaintiffs in the First Case, three Employee-Plaintiffs and
the spouses of two of them, allege compensatory damages of $8,000,000 plus
unspecified punitive damages, according to supplemental documentation they
have prepared. In December, 1995 the court granted SCE's motion for
summary judgment and dismissed the case. Plaintiffs have filed a Notice
of Appeal.
Supplemental documentation prepared by the four named plaintiffs in the
Second Case, two Employee-Plaintiffs and their respective spouses,
indicates they allege compensatory damages of approximately $13,500,000
plus unspecified punitive damages. On April 18, 1995, Grubb & Ellis filed
a cross-complaint against the other codefendants, requesting
indemnification and declaratory relief concerning the rights and
responsibilities of the parties. Trial in the case has been set for
November 4, 1996.
A third case was filed in Orange County Superior Court and served on SCE
in March 1995. The plaintiff alleges, among other things, that he
developed cancer as a result of EMF emitted from SCE 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
page 24
<PAGE>
punitive damages. A previous trial date was vacated and, pursuant to
stipulation of the parties, no new trial date has been set. An evaluation
conference is scheduled for August 16, 1996.
These matters were previously reported under the heading "Environmental
Litigation" in Part I, Item 3 of Edison International's Annual Report on
Form 10-K for the year ended December 31, 1995.
San Onofre Personal Injury Litigation
An engineer for two contractors providing services for San Onofre has been
diagnosed with chronic myelogenous leukemia. On July 12, 1994, the
engineer and his wife sued SCE, San Diego Gas and Electric Company
("SDG&E") and Combustion Engineering, the manufacturer of the fuel rods
for the plant, in the United States District Court for the Southern
District of California. The plaintiffs alleged that the engineer's
illness resulted from contact with radioactive fuel particles released
from failed fuel rods. Plant records showed that the engineer's exposure
to radiation was well below Nuclear Regulatory Commission ("NRC") safety
levels. In the complaint, plaintiffs sought unspecified compensatory and
punitive damages. SCE's December 23, 1994, answer to the complaint denied
all material allegations. The trial began August 3, 1995, and on October
12, 1995, an eight member jury unanimously decided that radiation exposure
at San Onofre was not the cause of the leukemia. Plaintiffs' motion for
a new trial was denied on December 5, 1995. On April 11, 1996, the
plaintiffs' appeal of the denial of their motion was argued before the
Ninth Circuit Court of Appeals and the case was submitted for decision.
An SCE engineer employed at San Onofre died in 1991 from cancer of the
abdomen. On February 6, 1995, his children sued SCE, SDG&E and Combustion
Engineering 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. 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. SCE's April 20, 1995, answer to the complaint denied all
material allegations. On October 10, 1995, the Court ruled in favor of
plaintiffs' request to include the Institute of Nuclear Power Operations
(an organization dedicated to achieving excellence in nuclear power
operations) as a defendant in the suit. On December 7, 1995, the court
granted SCE's motion for summary judgment on the sole outstanding claim
against it. Plaintiffs have indicated that they will appeal this ruling
to the Ninth Circuit Court of Appeals. Trial of the case may be delayed
pending such ruling. The impact on SCE, if any, from further proceedings
in this case against the remaining defendants cannot be determined at this
time.
On July 5, 1995, a former SCE reactor operator employed at San Onofre and
his wife sued SCE, SDG&E, Combustion Engineering 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, and was aggravated by, exposure to
radiation at San Onofre, including contact with radioactive fuel
particles. The former employee subsequently died from his illness.
Plaintiffs seek unspecified compensatory and punitive damages. On March
25, 1996, the court granted SCE's motion for summary judgment on all
claims. It is anticipated that plaintiffs will appeal this ruling.
Should plaintiffs do so, trial of the case may be delayed pending the
ruling of the Court of Appeals. The impact on SCE, if any, from further
proceedings in this case against the remaining defendants cannot be
determined at this time.
<page 25>
On August 31, 1995, the family of a former worker for a contractor at San
Onofre, and later a temporary and then a permanent SCE employee at San
Onofre, sued SCE, SDG&E, Combustion Engineering 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, which resulted in his death in 1994, resulted from,
and was aggravated by, exposure to radiation at San Onofre, including
contact with radioactive fuel particles. Plaintiffs seek unspecified
compensatory and punitive damages. SCE's answer to the complaint filed
on November 13, 1995, denied all material allegations. A trial date will
be set at the pretrial conference scheduled for October 7, 1996.
On November 17, 1995, a SCE employee and his wife sued SCE in the U.S.
District Court for the Southern District of California. Plaintiffs also
named Combustion Engineering, the manufacturer of the fuel rods for the
San Onofre plant. The employee worked for SCE at San Onofre from 1981 to
1990. Plaintiffs allege that the employee transported radioactive
byproducts on his person, clothing and/or tools to his home where his wife
was then exposed to radiation that caused her leukemia. Plaintiffs seek
unspecified compensatory and punitive damages. SCE's December 19, 1995,
partial answer to the complaint denied all material non-employment related
allegations. SCE's motion to dismiss the claims of the plaintiffs' was
granted on March 19, 1996. A trial date will be set at the pretrial
conference that is scheduled for December 2, 1996, relative to the
plaintiffs' claims.
On November 28, 1995, a former contract worker at San Onofre, her husband,
and her son, sued SCE in the U.S. District Court for the Southern District
of California. Plaintiffs also named Combustion Engineering, the
manufacturer of the fuel rods for the San Onofre plant. Plaintiffs allege
that the former contract worker transported radioactive byproducts on her
person and clothing to her home where her son was then exposed to
radiation that caused his leukemia. Plaintiffs seek unspecified
compensatory and punitive damages. SCE's January 2, 1996, answer denied
all material allegations.
These matters were previously reported under the heading "San Onofre
Personal Injury Litigation" in Part I, Item 3 of Edison International's
Annual Report on Form 10-K for the year ended December 31, 1995.
Employment Discrimination Litigation
On September 21, 1994, nine African-American employees filed a lawsuit
against Edison International and SCE 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.
Edison International and SCE have responded by denying the material
allegations of the complaint and asserting several affirmative defenses
and are pursuing discovery. Prior deadlines for plaintiffs to file their
motion for class certification have been suspended pending settlement
discussions. The court has set a status conference for May 13, 1996.
This matter was previously reported under the heading "Employment
Discrimination Litigation" in Part I, Item 3 of Edison International's
Annual Report on Form 10-K for the year ended December 31, 1995.
Item 4. Submission of Matters to a Vote of Security Holders
Election of Directors
At Edison International's Annual Meeting of Shareholders on April 18,
1996, shareholders elected seventeen nominees to the Board of Directors.
page 26
<PAGE>
The number of broker non-votes for each nominee was zero. The number of
votes cast for and withheld from each Director-nominee were as follows:
Name Number of Votes
---- ---------------------------
For Withheld
----------- ----------
Howard P. Allen 357,658,425 7,283,330
John E. Bryson 357,392,210 7,549,545
Winston H. Chen 358,558,143 6,383,612
Stephen E. Frank 358,226,545 6,715,210
Camilla C. Frost 358,057,970 6,883,785
Joan C. Hanley 358,488,025 6,453,730
Carl F. Huntsinger 358,397,831 6,543,924
Charles D. Miller 358,440,423 6,501,332
Luis G. Nogales 358,031,014 6,910,741
Ronald L. Olson 354,690,616 10,251,139
J. J. Pinola 357,098,182 7,843,573
James M. Rosser 358,424,123 6,517,632
E. L. Shannon, Jr. 358,387,207 6,554,548
Robert H. Smith 358,439,849 6,501,906
Thomas C. Sutton 358,441,298 6,500,457
Daniel M. Tellep 358,449,310 6,492,445
James D. Watkins 358,124,385 6,817,370
Edward Zapanta 358,410,148 6,531,607
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Articles of Incorporation
27. Financial Data Schedule
28. Articles of Incorporation
(b) Reports on Form 8-K:
January 11, 1996 --Item 5--Other Events--
California Public Utilities
Commission decision in
1995 General Rate Case
January 18, 1996 --Item 5--Other Events--
1995 Earnings Report
page 27
<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.
EDISON INTERNATIONAL
(Registrant)
By R. K. BUSHEY
---------------------------------
R. K. BUSHEY
Vice President and Controller
By K. S. STEWART
---------------------------------
K. S. STEWART
Assistant General Counsel and
Assistant Secretary
May 10, 1996
EXHIBIT 3.1
CERTIFICATE OF
RESTATED ARTICLES OF INCORPORATION
OF
EDISON INTERNATIONAL
The undersigned, ALAN J. FOHRER and BEVERLY P. RYDER, hereby certify
that they are the duly elected and acting Executive Vice President,
Treasurer and Chief Financial Officer, and Secretary, respectively, of
EDISON INTERNATIONAL, a California corporation, and that the Articles of
Incorporation of said corporation shall be restated to read as set forth
in full as follows:
"RESTATED ARTICLES OF INCORPORATION
OF
EDISON INTERNATIONAL
First: Edison International is the name of the corporation.
Second: The purpose of the corporation is to engage in any lawful
act or activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust
company business or the practice of a profession permitted to be
incorporated by the California Corporations Code.
Third: This corporation is authorized to issue only two classes of
shares, which shall be designated respectively "Preferred Stock" and
"Common Stock." The total number of shares of Preferred Stock authorized
to be issued is fifty million (50,000,000) shares. The total number of
shares of Common Stock authorized to be issued is eight hundred million
(800,000,000) shares.
Fourth: The Preferred Stock may be issued from time to time in one
or more series. To the extent not prohibited by law, the Board of
Directors is authorized: (i) to fix the number of shares of any series of
Preferred Stock and to determine the designation of any such series, (ii)
to determine or alter the rights, preferences, privileges and restrictions
granted to or imposed upon any wholly unissued series of Preferred Stock,
including but not limited to rights, preferences, privileges, and
restrictions regarding dividends, liquidation, conversion, redemption and
voting (including provisions specifying more than one vote per share) and,
(iii) within the limits and restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the number of
shares constituting any series, to increase or decrease (but not below the
number of shares of such series then outstanding) the number of shares of
any such series subsequent to the issue of shares of that series.
Fifth: BUSINESS COMBINATIONS:
1. In addition to any affirmative vote required by law or these
Articles of Incorporation, and except as otherwise expressly provided in
paragraph 2 of this Article Fifth, none of the following transactions
shall be consummated unless and until such transaction shall have been
approved by the affirmative vote of the holders of at least eighty percent
(80%) of the voting power of the then outstanding shares of stock of the
corporation entitled to vote generally in the election of directors (the
"Voting Stock"), voting together as a single class:
(a) any merger or consolidation of the corporation or any
Subsidiary (as hereinafter defined) with (i) any Interested
Shareholder (as hereinafter defined) or (ii) any other corporation
(whether or not itself an Interested Shareholder) which is, or after
such merger or consolidation would be, an Affiliate (as hereinafter
defined) of an Interested Shareholder; or
PAGE
<PAGE>
(b) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in one transaction or a series of related
transactions) to or with any Interested Shareholder or any Affiliate
of any Interested Shareholder of any assets of the corporation or
any Subsidiary having an aggregate Fair Market Value (as hereinafter
defined) of more than ten percent (10%) of the total book value of
the assets of the corporation and its consolidated subsidiaries as
shown on the most recently available quarterly consolidated balance
sheet of the corporation; or
(c) the issuance or transfer by the corporation or any
Subsidiary (in one transaction or a series of related transactions)
of any securities of the corporation or any Subsidiary to any
Interested Shareholder or any Affiliate of any Interested
Shareholder having an aggregate Fair Market Value of more than ten
percent (10%) of the total book value of the assets of the
corporation and its consolidated subsidiaries as shown on the most
recently available quarterly consolidated balance sheet of the
corporation; or
(d) the adoption of any plan or proposal for the spinoff,
split-off or split-up of the corporation or any material Subsidiary
proposed by or on behalf of an Interested Shareholder or any
Affiliate of any Interested Shareholder; or
(e) any reclassification of any securities of the
corporation (including any reverse stock split), any
recapitalization of the capital stock of the corporation, any merger
or consolidation of the corporation with or into any of its
Subsidiaries, or any other transaction (whether or not with or
involving any Interested Shareholder), which has the effect,
directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of stock or series thereof of the
corporation or of any Subsidiary directly or indirectly Beneficially
Owned (as hereinafter defined) by any Interested Shareholder or as
a result of which the shareholders of the corporation would cease
to be shareholders of a corporation incorporated under the laws of
the State of California having, as parts of its articles of
incorporation, provisions to the same effect as this Article Fifth;
or
(f) any agreement, contract or other arrangement providing
for any of the transactions described in the foregoing paragraphs
(a) through (e).
The term "Business Combination" as used in this Article Fifth shall
mean any transaction or proposed transaction which is referred to in any
one or more of the foregoing subparagraphs (a) through (f) of this
paragraph 1.
2. The provisions of paragraph 1 of this Article Fifth shall not
be applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote of shareholders, if
any, as is required by law and any other provision of any Article hereof,
if such Business Combination has been approved by at least a majority of
the Disinterested Directors (as hereinafter defined) at the time or if all
the conditions specified in the following subparagraphs (a), (b), (c),
(d), (e) and (f) are satisfied:
(a) The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business Combination
of any consideration other than cash to be received per share by
holders of Common Stock in such Business Combination shall be at
least equal to the higher of the following:
<page 2>
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined) paid in order to acquire any shares of
Common Stock beneficially owned by the Interested Shareholder
which were acquired beneficially by such Interested
Shareholder (x) within the two-year period immediately prior
to the first public announcement of the proposal of the
Business Combination (the "Announcement Date") or (y) in the
transaction in which it became an Interested Shareholder,
whichever is higher; and
(2) the Fair Market Value per share of Common Stock
on the Announcement Date or on the date on which the
Interested Shareholder became an Interested Shareholder (such
later date is referred to in this Article Fifth as the
"Determination Date"), whichever is higher.
(b) The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business Combination
of consideration other than cash to be received per share by holders
of shares of any class or series of outstanding Voting Stock other
than the Common Stock shall be at least equal to the highest of the
following (it being intended that the requirements of this
subparagraph (b) shall be required to be met with respect to every
such class or series of outstanding Voting Stock, whether or not the
Interested Shareholder beneficially owns any shares of a particular
class or series of Voting Stock):
(1) (if applicable) the Highest Per Share Price paid
in order to acquire any shares of such class or series of
Voting Stock beneficially owned by the Interested Shareholder
which were acquired beneficially by such Interested
Shareholder (x) within the two-year period immediately prior
to the Announcement Date or (y) in the transaction in which
it became an Interested Shareholder, whichever is higher; and
(2) (if applicable) the highest preferential amount
per share to which the holders of shares of such class or
series of Voting Stock are entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding
up of the corporation; and
(3) the Fair Market Value per share of such class or
series of Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher.
(c) The consideration to be received by holders of a
particular class or series of outstanding Voting Stock (including
Common Stock) shall be in cash or in the same form as the Interested
Shareholder has previously paid in order to acquire beneficially
shares of such class or series of Voting Stock that are beneficially
owned by the Interested Shareholder and, if the Interested
Shareholder beneficially owns shares of any class or series of
Voting Stock that were acquired with varying forms of consideration,
the form of consideration to be received by holders of such class
or series of Voting Stock shall be either cash or the form used to
acquire beneficially the largest number of shares of such class or
series of Voting Stock beneficially acquired by it prior to the
Announcement Date. The price determined in accordance with
paragraphs 2(a) and 2(b) shall be subject to appropriate adjustment
in the event of any stock dividend, stock split, combinations of
shares or similar event.
(d) After such Interested Shareholder has become an
Interested Shareholder and prior to the consummation of such
Business Combination: (i) except as approved by at least a majority
<page 3>
of the Disinterested Directors, there shall have been no failure to
declare and pay at the regular dates therefor the full amount of any
dividends (whether or not cumulative) payable on any class or series
of stock having a preference over the Common Stock as to dividends
or upon liquidation; (ii) there shall have been (x) no reduction in
the annual rate of dividends paid on the Common Stock (except as
necessary to reflect any subdivision of the Common Stock), except
as approved by at least a majority of the Disinterested Directors,
and (y) an increase in such annual rate of dividends (as necessary
to prevent any such reduction) in the event of any reclassification
(including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the effect of
reducing the number of outstanding shares of the Common Stock,
unless the failure to increase such annual rate was approved by at
least a majority of the Disinterested Directors; and (iii) such
Interested Shareholder shall have not become the beneficial owner
of any additional shares of Voting Stock except as part of the
transaction which results in such Interested Shareholder becoming
an Interested Shareholder or as a result of a pro rata stock
dividend or stock split.
(e) After such Interested Shareholder has become an
Interested Shareholder, such Interested Shareholder shall not have
received the benefit, directly or indirectly (except proportionally
as a stockholder), of any loans, advances, guarantees, pledges or
other financial assistance or any tax credits or other tax
advantages provided by the corporation, whether in anticipation of
or in connection with such Business Combination or otherwise.
(f) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules
or regulations) shall be mailed to public stockholders of the
Corporation at least 30 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or
subsequent provisions).
3. For the purposes of this Article Fifth:
(a) A "person" shall mean any individual, firm, corporation
or other entity.
(b) "Interested Shareholder" shall mean any person or group
(other than this corporation or any Subsidiary or any compensation
plan or any benefit plan of this corporation or any Subsidiary or
any trustee of, or fiduciary with respect to, any such plan when
acting in such capacity, or any corporation formed pursuant to a
resolution of the Board of Directors of this corporation which was
approved by at least a majority of the Disinterested Directors as
defined hereinafter) who or which:
(1) is the Beneficial Owner, directly or indirectly,
of more than ten percent (10%) of the voting power of the
outstanding Voting Stock; or
(2) is an Affiliate of the corporation and at any time
within the two-year period immediately prior to the date in
question was the Beneficial Owner, directly or indirectly, of
ten percent (10%) or more of the voting power of the then
outstanding Voting Stock; or
(3) is an assignee of or has otherwise succeeded to
any shares of Voting Stock representing more than one percent
<page 4>
(1%) of the voting power of the outstanding Voting Stock,
which shares were at any time within the two-year period
immediately prior to the date in question beneficially owned
by any Interested Shareholder, if such assignment or
succession shall have occurred in the course of a transaction
or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933.
(c) A person shall be a "Beneficial Owner" of any Voting
Stock:
(1) which such person or any of its Affiliates or
Associates (as hereinafter defined) beneficially owns,
directly or indirectly; or
(2) which such person or any of its Affiliates or
Associates has (i) the right to acquire (whether such right
is exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote
or direct the vote pursuant to any agreement, arrangement or
understanding; or
(3) which are beneficially owned, directly or
indirectly, by any other person with which such person or any
of its Affiliates or Associates has any agreement, arrangement
or understanding for the purposes of acquiring, holding,
voting or disposing of any shares of Voting Stock.
(d) For the purposes of determining whether a person is an
Interested Shareholder pursuant to subparagraph (b) of paragraph 3
of this Article Fifth, the number of shares of Voting Stock deemed
to be outstanding shall include shares deemed owned through
application of subparagraph (c) of paragraph 3 of this Article Fifth
but shall not include any other shares of Voting Stock which may be
issuable pursuant to any agreement, arrangement or understanding or
upon exercise of conversion rights, warrants or options, or
otherwise.
(e) The term "Affiliate," used to indicate a relationship
to a specified person, means a person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by,
or is under common control with, such specified person.
(f) The term "Associate," used to indicate a relationship
with a specified person, means (A) any corporation, partnership or
other organization of which such specified person is an officer or
partner, (B) any trust or other estate in which such specified
person has a substantial beneficial interest or as to which such
specified person serves as trustee or in a similar fiduciary
capacity, (C) any relative or spouse of such specified person, or
any relative of such spouse, who has the same home as such specified
person or who is a director or officer of the corporation or any of
its parents or Subsidiaries and (D) any person who is a director,
officer or partner of such specified person or of any corporation
(other than the corporation or any wholly-owned Subsidiary of the
corporation), partnership or other entity which is an Affiliate of
such specified person.
(g) "Subsidiary" means any corporation of which a majority
of any class of equity security is owned, directly or indirectly,
by the corporation or by a Subsidiary of the corporation or by the
corporation and one or more Subsidiaries; provided, however, that
for the purposes of the definition of Interested Shareholder set
<page 5>
forth in paragraph (b) of paragraph 3 of this Article Fifth the term
"Subsidiary" shall mean only a corporation of which a majority of
each class of equity security is owned, directly or indirectly, by
the corporation.
(h) "Disinterested Director" means any member of the Board
of Directors of the corporation who was a member of the Board of
Directors of the corporation on April 21, 1988, or who became a
member of the Board of Directors of the corporation subsequent to
that time and who is unaffiliated with, and not a nominee or
representative of, an Interested Shareholder and who is recommended
to succeed a Disinterested Director by at least a majority of
Disinterested Directors then on the Board of Directors. Any
reference to "Disinterested Directors" shall refer to a single
Disinterested Director if there be but one. Any reference under
this Article Fifth to an approval, designation or determination by
"a majority of the Disinterested Directors" of the Board of
Directors shall mean such approval, designation or determination by
not less than a majority of the Disinterested Directors then serving
on the Board of Directors.
(i) "Fair Market Value" means: (i) in the case of stock,
the highest closing sale price during the 30-day period immediately
preceding the date in question of a share of such stock on the
Composite Tape, for New York Stock Exchange-Listed Stocks, or, if
such stock is not quoted on the Composite Tape on the New York Stock
Exchange, or, if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the
Securities Exchange Act of 1934 on which such stock is listed, or,
if such stock is not listed on any such exchange, the highest
closing sales price or bid quotation with respect to a share of such
stock during the 30-day period preceding the date in question on the
National Association of Securities Dealers, Inc. Automated
Quotations Systems or any system then in use, or if no such
quotations are available, the fair market value on the date in
question of a share of such stock as determined by at least a
majority of the Disinterested Directors in good faith, in each case
with respect to any class of stock, appropriately adjusted for any
dividend or distribution in shares of such stock or any stock split
or reclassification of outstanding shares of such stock into a
greater number of shares of such stock or any combination or
reclassification of outstanding shares of such stock into a smaller
number of shares of such stock; and (ii) in the case of stock of any
class or series which is not traded on any United States registered
securities exchange nor in the over-the-counter market or in the
case of property other than cash or stock, the fair market value of
such property on the date in question as determined by at least a
majority of the Disinterested Directors in good faith; and such
determination by the Disinterested Directors shall be conclusive and
binding for all purposes of this Article Fifth.
(j) References to "Highest Per Share Price" with respect to
any class of stock, means the highest amount of consideration paid
for a share of such stock (including, without limitation, any
brokerage commissions, transfer taxes and soliciting dealers' fees)
and shall reflect an appropriate adjustment for any dividend or
distribution in shares of such stock or any stock split or
reclassification of outstanding shares of such stock into a greater
number of shares of such stock or any combination or
reclassification of outstanding shares of such stock into a smaller
number of shares of such stock.
(k) In the event of any Business Combination in which the
corporation survives, the phrase "consideration other than cash to
be received" as used in subparagraphs (a) and (b) of paragraph 2 of
<page 6>
this Article Fifth shall include the shares of Common Stock and/or
the shares of any other class of outstanding Voting Stock retained
by the holders of such shares.
4. At least a majority of the Disinterested Directors of the
corporation shall have the power and duty to make a good faith
determination, on the basis of information known to them, of all facts
necessary to determine compliance with this Article Fifth, including
without limitation:
(a) whether a person is an Interested Shareholder;
(b) the number of shares of Voting Stock beneficially owned
by any person;
(c) whether a person is an Affiliate or Associate of
another;
(d) whether the assets which are the subject of any Business
Combination, or the securities issued or transferred by the
corporation or any Subsidiary in any Business Combination, have an
aggregate Fair Market Value of more than ten percent (10%) of the
total book value of the assets of the corporation and its
consolidated subsidiaries as shown on the most recently available
quarterly consolidated balance sheet of the corporation; and
(e) whether the requirements of paragraph 2 of this Article
Fifth have been met.
Such determination by a majority of the Disinterested Directors
shall be conclusive and binding for all purposes of this Article Fifth.
5. Nothing contained in this Article Fifth shall be construed to
relieve any Interested Shareholder from any fiduciary obligation imposed
by law.
6. The fact that a Business Combination complies with the
provisions of Section 2 of this Article Fifth shall not be construed to
impose any fiduciary duty, obligation or responsibility on the Board of
Directors, or any member thereof, to approve such Business Combination or
recommend its adoption or approval to the shareholders of the corporation.
7. In addition to any affirmative vote required by law or these
Articles of Incorporation, a proposal that the provisions of this Article
Fifth be altered, amended or repealed in any respect, or any provision
inconsistent therewith be adopted, shall require either (i) the
affirmative vote of the holders of at least eighty percent (80%) of the
voting power of the then outstanding Voting Stock voting together as a
single class or (ii) approval by at least a majority of the Disinterested
Directors and the affirmative vote of the holders of at least fifty
percent (50%) of the voting power of the then outstanding Voting Stock
voting together as a single class.
Sixth: LIMITATION ON LIABILITY OF DIRECTORS
AND AUTHORITY TO INDEMNIFY AGENTS
1. The liability of directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under
California law.
2. The corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the California Corporations Code)
through bylaw provisions, agreements with agents, vote of shareholders or
disinterested directors, or otherwise, in excess of the indemnification
otherwise permitted by Section 317 of the California Corporations Code,
<page 7>
subject only to the applicable limits set forth in Section 204 of the
California Corporations Code."
This Certificate of Restated Articles of Incorporation does not
itself alter or amend the Articles of Incorporation of the corporation in
any respect and has been approved by the Board of Directors.
IN WITNESS WHEREOF, the undersigned have executed this certificate
on this 7th day of May, 1996.
ALAN J. FOHRER
-----------------------------------------
ALAN J. FOHRER
Executive Vice President,
Treasurer and Chief Financial Officer
of Edison International
BEVERLY P. RYDER
-----------------------------------------
BEVERLY P. RYDER
Secretary of
Edison International
DECLARATION
The undersigned ALAN J. FOHRER and BEVERLY P. RYDER, the Executive
Vice President, Treasurer and Chief Financial Officer, and Secretary,
respectively, of Edison International, each declares under penalty of
perjury under the laws of the State of California that the matters set
forth in the foregoing certificate are true and correct of his or her own
knowledge.
Executed at Rosemead, California on this 7th day of May, 1996.
ALAN J. FOHRER
-----------------------------------------
ALAN J. FOHRER
Executive Vice President,
Treasurer and Chief Financial Officer
of Edison International
BEVERLY P. RYDER
-----------------------------------------
BEVERLY P. RYDER
Secretary of
Edison International
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
Edison International Financial Data Schedule -- Exhibit 27
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 12,095,002
<OTHER-PROPERTY-AND-INVEST> 6,516,452
<TOTAL-CURRENT-ASSETS> 2,411,748
<TOTAL-DEFERRED-CHARGES> 3,271,381
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 24,294,583
<COMMON> 2,660,749
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 3,755,748
<TOTAL-COMMON-STOCKHOLDERS-EQ> 6,416,497
425,000
283,755
<LONG-TERM-DEBT-NET> 7,217,974
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 3,406,074
<COMMERCIAL-PAPER-OBLIGATIONS> 369,800
<LONG-TERM-DEBT-CURRENT-PORT> 251,439
0
<CAPITAL-LEASE-OBLIGATIONS> 80,557
<LEASES-CURRENT> 15,835
<OTHER-ITEMS-CAPITAL-AND-LIAB> 9,330,118
<TOT-CAPITALIZATION-AND-LIAB> 24,294,583
<GROSS-OPERATING-REVENUE> 1,967,654
<INCOME-TAX-EXPENSE> 111,477
<OTHER-OPERATING-EXPENSES> 1,506,620
<TOTAL-OPERATING-EXPENSES> 1,618,097
<OPERATING-INCOME-LOSS> 349,557
<OTHER-INCOME-NET> (14,608)
<INCOME-BEFORE-INTEREST-EXPEN> 334,949
<TOTAL-INTEREST-EXPENSE> 155,982
<NET-INCOME> 178,967
11,878
<EARNINGS-AVAILABLE-FOR-COMM> 167,089
<COMMON-STOCK-DIVIDENDS> 110,913
<TOTAL-INTEREST-ON-BONDS> 88,967
<CASH-FLOW-OPERATIONS> 769,857
<EPS-PRIMARY> $0.38
<EPS-DILUTED> $0.38
</TABLE>
