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 June 30, 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
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-4137452
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2244 Walnut Grove Avenue
(P.O. Box 999)
Rosemead, California
(Address of principal 91770
executive offices) (Zip Code)
818-302-2222
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class Outstanding at August 8, 1996
- -------------------------- ------------------------------
Common Stock, no par value 438,436,590
PAGE
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EDISON INTERNATIONAL
INDEX
Page
No.
----
Part I. Financial Information:
Item 1. Consolidated Financial Statements:
Consolidated Statements of Income--Three and
Six Months Ended June 30, 1996, and 1995 2
Consolidated Balance Sheets--June 30, 1996,
and December 31, 1995 3
Consolidated Statements of Cash Flows--Six Months
Ended June 30, 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 25
Item 6. Exhibits and Reports on Form 8-K 29
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EDISON INTERNATIONAL
PART I--FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF INCOME
In thousands, except per-share amounts
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended
June 30, June 30,
--------------------- ---------------------
1996 1995 1996 1995
---------- --------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Electric utility revenue $1,610,989 $1,737,838 $3,371,122 $3,459,612
Diversified operations 202,757 122,999 410,277 223,259
---------- ---------- ---------- ----------
Total operating revenue 1,813,746 1,860,837 3,781,399 3,682,871
---------- ---------- ---------- ----------
Fuel 162,503 138,998 305,680 303,462
Purchased power 560,742 549,730 1,088,174 1,036,822
Provisions for regulatory
adjustment clauses -- net (201,506) 16,693 (103,682) 45,454
Other operating expenses 419,677 348,518 749,540 664,797
Maintenance 67,611 84,830 151,724 182,725
Depreciation and decommissioning 299,134 253,218 563,661 496,551
Income taxes 127,721 104,822 239,201 216,549
Property and other taxes 45,899 53,588 105,584 108,378
---------- ---------- ---------- ----------
Total operating expenses 1,481,781 1,550,397 3,099,882 3,054,738
---------- ---------- ---------- ----------
Operating income 331,965 310,440 681,517 628,133
---------- ---------- ---------- ----------
Provision for rate phase-in plan (18,867) (28,090) (47,945) (57,865)
Allowance for equity funds used
during construction 3,066 4,999 7,468 10,523
Interest income 12,771 15,596 28,098 30,072
Minority interest (14,145) (11,443) (27,869) (23,094)
Other nonoperating income -- net 1,579 14,233 10,048 18,778
---------- ---------- ---------- ----------
Total other income (deductions)
-- net (15,596) (4,705) (30,200) (21,586)
---------- ---------- ---------- ----------
Income before interest and other
expenses 316,369 305,735 651,317 606,547
---------- ---------- ---------- ----------
Interest on long-term debt 146,472 129,485 297,459 258,228
Other interest expense 21,876 23,266 45,637 46,904
Allowance for borrowed funds used
during construction (1,927) (3,796) (4,695) (7,990)
Capitalized interest (17,650) (14,432) (33,648) (27,569)
Dividends on subsidiary preferred
securities 11,868 11,339 23,745 23,556
---------- ---------- ---------- ----------
Total interest and other
expenses -- net 160,639 145,862 328,498 293,129
---------- ---------- ---------- ----------
Net income $ 155,730 $ 159,873 $ 322,819 $ 313,418
========== ========== ========== ==========
Weighted-average shares of
common stock outstanding 441,035 446,813 442,143 447,206
Earnings per share $.35 $.36 $.73 $.70
Dividends declared per common share $.25 $.25 $.50 $.50
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
EDISON INTERNATIONAL
CONSOLIDATED BALANCE SHEETS
In thousands
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- -----------
(Unaudited)
ASSETS
<S> <C> <C>
Utility plant, at original cost $20,120,028 $19,850,179
Less -- accumulated provision for
depreciation and decommissioning 8,905,410 8,569,265
----------- -----------
11,214,618 11,280,914
Construction work in progress 644,791 727,865
Nuclear fuel, at amortized cost 124,621 139,411
----------- -----------
Total utility plant 11,984,030 12,148,190
----------- -----------
Nonutility property -- less
accumulated provision for
depreciation of $161,804 and $133,670
at respective dates 3,446,743 3,140,385
Nuclear decommissioning trusts 1,342,500 1,260,095
Investments in partnerships and
unconsolidated subsidiaries 1,195,890 1,190,294
Investments in leveraged leases 579,009 574,091
Other investments 84,189 65,963
----------- -----------
Total other property and investments 6,648,331 6,230,828
----------- -----------
Cash and equivalents 772,828 507,151
Receivables, including unbilled
revenue, less allowances of
$22,665 and $24,244 for uncollectible
accounts at respective dates 753,767 1,054,954
Fuel inventory 105,821 114,357
Materials and supplies, at average cost 151,253 151,180
Accumulated deferred income taxes -- net 341,224 476,725
Prepayments and other current assets 36,471 126,184
----------- -----------
Total current assets 2,161,364 2,430,551
----------- -----------
Unamortized debt issuance and
reacquisition expense 362,633 350,563
Rate phase-in plan 83,709 129,714
Unamortized nuclear plant -- net 16,770 67,185
Income tax-related deferred charges 1,754,879 1,723,605
Other deferred charges 968,336 865,599
----------- -----------
Total deferred charges 3,186,327 3,136,666
----------- -----------
Total assets $23,980,052 $23,946,235
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
EDISON INTERNATIONAL
CONSOLIDATED BALANCE SHEETS
In thousands, except share amounts
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- -----------
(Unaudited)
CAPITALIZATION AND LIABILITIES
Common shareholders' equity:
Common stock (439,551,682 and 443,607,674
<S> <C> <C>
shares outstanding at respective dates) $ 2,685,932 $ 2,660,096
Retained earnings 3,760,448 3,730,922
----------- -----------
6,446,380 6,391,018
Preferred securities of subsidiaries:
Not subject to mandatory redemption 283,755 283,755
Subject to mandatory redemption 425,000 425,000
Long-term debt 7,224,787 7,195,197
----------- -----------
Total capitalization 14,379,922 14,294,970
----------- -----------
Other long-term liabilities 333,907 344,192
----------- -----------
Current portion of long-term debt 261,688 40,328
Short-term debt 658,691 709,508
Accounts payable 364,627 419,522
Accrued taxes 530,791 557,095
Accrued interest 141,270 101,370
Dividends payable 112,320 113,334
Regulatory balancing accounts -- net 226,828 337,867
Deferred unbilled revenue and other
current liabilities 907,553 973,529
----------- -----------
Total current liabilities 3,203,768 3,252,553
----------- -----------
Accumulated deferred income
taxes -- net 4,282,629 4,339,259
Accumulated deferred investment
tax credits 384,088 405,112
Customer advances and other
deferred credits 707,311 680,210
----------- -----------
Total deferred credits 5,374,028 5,424,581
----------- -----------
Minority interest 688,427 629,939
----------- -----------
Commitments and contingencies
(Notes 1 and 2)
Total capitalization and liabilities $23,980,052 $23,946,235
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
EDISON INTERNATIONAL
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
<TABLE>
<CAPTION>
6 Months Ended
June 30,
------------------------
1996 1995
--------- -----------
(Unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income $ 322,819 $ 313,418
Adjustments for non-cash items:
Depreciation and decommissioning 563,661 496,551
Amortization 55,730 24,676
Rate phase-in plan 46,005 51,265
Deferred income taxes and investment tax
credits 23,465 (39,037)
Equity in income from partnerships and
unconsolidated subsidiaries (65,787) (44,786)
Other long-term liabilities (10,285) 27,954
Other -- net (11,743) (34,136)
Changes in working capital:
Receivables 315,052 27,579
Regulatory balancing accounts (111,039) 57,903
Fuel inventory, materials and supplies 8,463 (43,344)
Prepayments and other current assets 89,713 89,490
Accrued interest and taxes 9,725 39,534
Accounts payable and other current
liabilities (94,116) (49,503)
Distributions from partnerships and
unconsolidated subsidiaries 50,139 61,758
--------- ---------
Net cash provided by operating activities 1,191,802 979,322
--------- ---------
Cash flows from financing activities:
Long-term debt issued 1,127,321 807,940
Long-term debt repayments (1,107,082) (500,261)
Preferred securities redemptions -- (75,000)
Nuclear fuel financing - net (5,457) 20,189
Common stock issued 745 --
Common stock repurchases (65,701) (24,716)
Short-term debt financing -- net (50,817) (150,831)
Dividends received -- (284)
Dividends paid (221,821) (223,790)
--------- ---------
Net cash used by financing activities (322,812) (146,753)
--------- ---------
Cash flows from investing activities:
Additions to property and plant (434,687) (476,013)
Funding of nuclear decommissioning trusts (72,632) (72,557)
Investments in partnerships and
unconsolidated subsidiaries (171,440) (216,800)
Unrealized gains on equity investments 18,315 7,785
Other -- net 57,131 (15,042)
--------- ---------
Net cash used by investing activities (603,313) (772,627)
--------- ---------
Net increase in cash and equivalents 265,677 59,942
Cash and equivalents, beginning of period 507,151 533,957
--------- ---------
Cash and equivalents, end of period $ 772,828 $ 593,899
========= =========
</TABLE>
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 June 30,
1996, financial statement presentation.
Note 1. Regulatory Matters
Performance-Based Ratemaking (PBR)
Southern California Edison Company (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 California Public Utilities Commission's (CPUC)
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 transmission and distribution PBR as filed. On July 3, 1996,
a CPUC administrative law judge (ALJ) issued a proposed decision denying
SCE's application. The ALJ concluded that PBR for SCE's transmission and
distribution systems would be in effect for too short a period to provide
meaningful benefits to SCE's shareholders or ratepayers (assuming the
transfer of transmission to an independent system operator (ISO) under
Federal Energy Regulatory Commission (FERC) jurisdiction on January 1,
1998) and that SCE should revise its PBR proposal to address only
distribution following the FERC's order to split transmission and
distribution services. On July 23, 1996, SCE filed comments rejecting the
ALJ's proposal. A final CPUC decision is expected by year-end 1996. On
July 15, 1996, SCE filed a PBR proposal for its hydroelectric plants and
the proposed structure for performance-based local reliability contracts
for fossil-fueled plants. If approved, the hydro PBR would be in effect
for three years and the local reliability contracts, which are subject to
FERC approval, would be in effect for up to three years, both beginning
January 1, 1998. A final CPUC decision on hydro PBR is expected by year-
end 1997.
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
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
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<PAGE>
EDISON INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the transition period, while other generators could voluntarily
participate.
o Creation of an ISO to have operational control of the utilities'
transmission facilities and, therefore, control of 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 PBR for those utility services not subject to competition.
On March 19, 1996, SCE filed a plan outlining how it 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 FERC regarding the creation
of the independent power exchange and the ISO. On July 9, 1996, the three
utilities jointly filed an application with the CPUC requesting approval
to establish a restructuring trust which would obtain loans up to $250
million for the development of the ISO and power exchange through January
1, 1998. The loans would be backed by utility guarantees and SCE's share
would be 45%. Once the ISO and power exchange are formed, they will repay
the trust's loans and recover funds from future ISO and power exchange
customers.
On July 15, 1996, SCE filed a proposal with the CPUC related to separating
the costs associated with generation, transmission, distribution, public
goods programs and the CTC. The filing is in response to CPUC and FERC
directives that electric services, such as transmission and distribution,
be functionally separate and available to all customers on a
nondiscriminatory basis without cost-shifting among customers.
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 $8.3 billion to $9.1 billion (1996
net present value), based on incurred costs, and forecasts of future costs
and assumed market prices. However, changes in the assumed market prices
could require material revisions to such estimates. The potential
transition costs are comprised of: $5.1 billion from SCE's qualifying
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EDISON INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
facility contracts which are the direct result of legislative and
regulatory mandates; and $3.2 billion to $4.0 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 San
Onofre Nuclear Generating Station, 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 the 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 are
unsuccessful, SCE estimates the negative effect on 1996 earnings to 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 June 30, 1996,
these amounts totaled $1.3 billion, 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 physical useful lives of the assets. 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 being improbable 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
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EDISON INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 became 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 stranded costs, which are prior-service
costs incurred under the current regulatory framework. In addition to
providing recovery of stranded costs associated with existing wholesale
customers, the FERC directed that it would have primary jurisdiction over
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. In compliance with the April 1996 FERC decision, SCE filed a revised
open access tariff with the FERC on July 9, 1996. The tariff became
effective as of its filing date.
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. In December
1995, SCE and the CPUC's Division of Ratepayer Advocates (DRA) filed a
settlement agreement. On July 17, 1996, the CPUC approved the settlement
agreement which will result in a $39 million (including interest) refund
to SCE's customers beginning in August 1996. This refund has been fully
reflected in the financial statements.
Canadian Gas Contracts
In May 1994, SCE filed its testimony in the non-Qualifying 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 that 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. SCE and the DRA have filed several rounds of testimony on
this issue. Hearings are scheduled for late 1996.
Palo Verde Rate-making Proposal
In February 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
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EDISON INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
return on rate base for Palo Verde's sunk cost would be reduced to 7.35%
from the current 9.55%, and SCE would have the opportunity to recover the
incremental costs of continued operation of Palo Verde at approximately
3.4 cents per kilowatt-hour, provided the Palo Verde units operate at an
average capacity factor of 77%. Hearings are scheduled to begin in August
with a decision expected 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
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 ($485 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. EME has been advised that the contractor intends
to assert general monetary claims, under the Construction Turnkey
Agreement, against Brooklyn Navy Yard. None of such claims is expected
to have a material adverse effect on EME.
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 61 identified sites (58 at SCE and 3 at EME) was $114 million at June
30, 1996. The ultimate costs to clean up Edison International's
identified sites may vary from its recorded liability due to numerous
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<PAGE>
EDISON INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $95 million of Edison International's recorded
liability, through an incentive mechanism. SCE may request to include
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 from insurance carriers and other
third parties. SCE has settled insurance claims with most of its
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 11 of these sites
(the estimated minimum liability is $6 million) 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 $4 million to $8 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 June 30, 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
page 11
<PAGE>
EDISON INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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
has also 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
In the following Management's Discussion and Analysis of Results of
Operations and Financial Condition and elsewhere in this quarterly report,
the words "estimates," "expects," "anticipates," "believes," and other
similar expressions, are intended to identify forward-looking information
that involves risks and uncertainties. Actual results or outcomes could
differ materially as a result of such important factors as the outcome of
state and federal regulatory proceedings affecting the restructuring of
the electric utility industry, the impacts of new laws and regulations
relating to restructuring and other matters, the effects of increased
competition in the electric utility business, and changes in prices of
electricity and costs for fuel.
RESULTS OF OPERATIONS
Earnings
Edison International's earnings per share for the three- and six-month
periods ended June 30, 1996, were 35 cents and 73 cents, respectively,
compared with 36 cents and 70 cents for the year-earlier periods.
Southern California Edison Company's (SCE) earnings were 28 cents and 59
cents for the quarter and year-to-date ended June 30, 1996, compared to
31 cents and 62 cents for the same periods in 1995. Excluding special
charges of 7 cents per share in the second quarter of 1996, and 1 cent per
share in each of the first and second quarters of 1995, SCE's earnings
increased 3 cents and 2 cents, respectively, for the three- and six-month
periods ended June 30, 1996. The increased earnings reflect improved
operating performance partially offset by a lower authorized return on
common equity and lower authorized operating expenses. SCE's special
charges relate to workforce adjustments. The combined earnings of the
nonutility subsidiaries and the parent company were 7 cents and 14 cents
for the quarter and year-to-date ended June 30, 1996, compared to 5 cents
and 8 cents for the same periods in 1995. Excluding a 3-cent gain on the
sale of Edison Mission Energy's (EME) interests in four geothermal
projects in April 1996, the nonutility subsidiaries' (including the parent
company) earnings decreased 1 cent and increased 3 cents, respectively,
for the three- and six-month periods ended June 30, 1996. The quarterly
decrease is mainly attributable to Edison International's (the parent
company) interest payments on a $350 million debt issuance related to
EME's acquisition of First Hydro in December 1995. The year-to-date
increase is primarily related to earnings from EME's newly acquired First
Hydro project, partially offset by a 2-cent loss at the parent company.
There were no comparable earnings included in 1995.
Operating Revenue
Electric utility revenue decreased during the three and six months ended
June 30, 1996, due to a 4.4% decline in California Public Utilities
Commission (CPUC)-authorized rates effective April 1996. Additionally,
SCE refunded $179 million to ratepayers in June 1996 as part of a CPUC-
ordered $237 million refund of an energy-cost balancing account
overcollection; the remainder will be refunded during third quarter 1996.
The rate decline was partially offset by an increase in kilowatt-hour
sales of 4% and 1%, respectively, for the three and six months ended June
30, 1996. About 99% of operating 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 its intention 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
<page 13>
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 65% and 84%, respectively,
for the three- and six-month periods ended June 30, 1996, compared with
the same periods in 1995. The changes are due to an increase in EME's
electric revenue from its First Hydro and Iberian Hy-Power projects.
First Hydro is an independent power company whose principal assets consist
of two pumped-storage electric power stations with a combined capacity of
2,088 megawatts; it was acquired in December 1995. In January 1996, EME
increased its ownership from 34% to 100% in Iberian Hy-Power, which
consists of 18 hydroelectric plants located throughout Spain. There was
no comparable revenue from these projects included in 1995.
Operating Expenses
Fuel expense increased 17% during the second quarter of 1996, compared to
the same period in 1995, primarily due to increased fuel expense at EME
related to its First Hydro project. In addition, there was a slight
increase at SCE related to higher gas prices. Although the year-to-date
fuel expense remained virtually unchanged, it did reflect a $27 million
decrease at SCE related to decreased power generation as the result of
increased power purchases on the open market, offset by a $28 million
increase at EME related to its First Hydro project. There was no
comparable fuel expense for First Hydro included in 1995.
Purchased-power expense increased 2% and 5%, respectively, for the three-
and six-month periods ended June 30, 1996, compared to the same periods
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 decreased substantially for
the three and six months ended June 30, 1996, compared to the year-
earlier periods. The decrease is mainly due to the energy-cost-balancing-
account related refund as discussed above, as well as undercollections
related to the accelerated recovery of SCE's remaining investment in San
Onofre Nuclear Generating Station Units 2 and 3 (see discussion in
Regulatory Matters).
Before special charges for workforce management costs, other operating
expenses increased due to increased administrative and operating expenses
at EME's First Hydro and Iberian Hy-power projects, partially offset by
ongoing cost reduction efforts at SCE.
Maintenance expense decreased 20% and 17%, respectively, for the three-
and six-month periods ended June 30, 1996, compared with the year-
earlier periods, due to higher expenses in the first half of 1995 from a
scheduled refueling and maintenance outage at San Onofre Unit 2.
Depreciation and decommissioning expense increased 18% and 14%,
respectively, for the three- and six-month periods ended June 30, 1996,
compared to the year-earlier periods. The increase is primarily due to
the accelerated recovery of SCE's San Onofre Unit 2 and 3 investments
which began April 14, 1996, as part of an agreement with the CPUC (see
discussion in Regulatory Matters) and increases at EME related to its
First Hydro and Iberian Hy-Power projects. There was no comparable
depreciation expense from the EME projects included in 1995.
Income taxes increased for the three and six months ended June 30,
1996, compared to 1995, mainly due to an increase in the deferred tax
provision related to the agreement to accelerate recovery of San Onofre
Units 2 and 3 at SCE and increased earnings at EME from its First Hydro
project. Earnings from First Hydro are subject to a higher effective tax
rate than the federal statutory rate.
<page 14>
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 deferred revenue (including interest) is being 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,
respectively, for Units 2 and 3. The provision is a non-cash offset to
the collection of deferred revenue.
Interest income decreased 18% during the quarter ended June 30, 1996,
compared to the same period in 1995, due to lower interest rates.
Minority interest increased 24% and 21%, respectively, for both periods
ended June 30, 1996, compared to the same periods in 1995, primarily from
higher project income at EME's Loy Yang B project.
Other nonoperating income decreased substantially. The quarterly and
year-to-date decrease is due to additional accruals at SCE for regulatory
matters in the second quarter of 1996, partially offset by EME's gain from
the sale of its geothermal facilities.
Interest and Other Expenses
Interest on long-term debt increased 13% and 15%, respectively, for the
three- and six-month periods ended June 30, 1996, reflecting EME's
increased ownership in Iberian Hy-Power and newly acquired First Hydro
project.
Other interest expense decreased slightly due to lower interest rates.
Capitalized interest increased 22% for both periods ended June 30, 1996,
compared to the year-earlier periods, 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 has repurchased 10,876,223 shares ($177
million) through August 2, 1996, funded by dividends from its
subsidiaries.
For the six months ended June 30, 1996, Edison International's cash flow
coverage of dividends increased to 5.4 times from 4.4 times for the same
period in 1995. Edison International's dividend payout ratio for the
twelve-month period ended June 30, 1996, was 59%.
Cash Flows from Operating Activities
Net cash provided by operating activities totaled $1.2 billion for the
six-month period ended June 30, 1996, compared with $979 million in 1995.
Cash from operations exceeded capital requirements for all periods
presented.
page 15
<PAGE>
Cash Flows from Financing Activities
At June 30, 1996, Edison International and its subsidiaries had $1.7
billion of borrowing capacity available under lines of credit totaling
$2.0 billion. SCE had available lines of credit of $1.1 billion, with
$600 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 $85 million
of borrowing capacity available. The nonutility companies had lines of
credit of $610 million, with $535 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 June 30, 1996, SCE could issue approximately $7.2 billion of
additional first and refunding mortgage bonds and $4.0 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 ($485 million) for the project; about $386 million had been spent
through June 30, 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. EME has been advised
that the contractor intends to assert general monetary claims, under the
Construction Turnkey Agreement against, Brooklyn Navy Yard. None of such
claims is expected to have a material adverse effect on EME.
At June 30, 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 $431 million and
$457 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 and the ISAB S.p.A. project
discussed below.
In April 1996, EME and its partner ISAB S.p.A., completed a 1.9 trillion
Italian lira ($1.2 billion) financing for a 512 MW power project located
in Italy. In connection with the financing, EME has guaranteed equity
contributions and subordinated debt totaling 244 billion Italian lira
($159 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
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.
page 16
<PAGE>
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
June 30, 1996, SCE had the capacity to pay $480 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,
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).
Cash used for the nonutility subsidiaries' investing activities was $175
million for the six-month period ended June 30, 1996, compared to $324
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 $4 million for the six months ended June 30,
1996, and $3 million for the six months ended June 30, 1995. The maturity
dates of several of EME's interest rate swap agreements do not correspond
to the term of the underlying debt. EME does not believe that interest
rate fluctuations will have a material adverse effect on financial
position or results of operations.
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 price 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
$2 million for the six months ended June 30, 1996, as a result of
electricity rate swap agreements.
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.
page 17
<PAGE>
Projected Capital Requirements
Edison International's projected capital requirements for the next five
years are: 1996--$909 million; 1997--$846 million; 1998--$810 million;
1999--$767 million; and 2000--$776 million.
Long-term debt maturities and sinking fund requirements for the five
twelve-month periods following June 30, 1996, are: 1997--$245 million;
1998--$690 million; 1999--$519 million; 2000--$439 million; and 2001--
$521 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 had no impact on
operating income) and was 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 (approximately $2.7 billion) in San Onofre
Units 2 and 3 at a reduced rate of return over an eight-year period. In
April 1996, SCE began accelerating the recovery of its remaining
investment of $2.6 billion. The accelerated recovery will continue
through December 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,
through which 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. In December
1995, SCE and the CPUC's Division of Ratepayer Advocates (DRA) filed a
settlement agreement. On July 17, 1996, the CPUC approved a settlement
which will result in a $39 million (including interest) refund to SCE's
customers beginning in August 1996. This refund has been fully reflected
in the financial statements.
In May 1994, SCE filed its testimony in the non-Qualifying 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 that 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. SCE and the DRA have filed several rounds of testimony on
this issue. Hearings are scheduled for late 1996.
<page 18>
In February 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 the 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's sunk cost would be reduced to 7.35%
from the current 9.55%, and SCE would have the opportunity to recover the
incremental costs of continued operation of Palo Verde at approximately
3.4 cents per kilowatt-hour, provided the Palo Verde units operate at an
average capacity factor of 77%. Hearings are scheduled to begin in August
with a decision expected 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 (ISO) to have operational
control of the utilities' transmission facilities and, therefore, to
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.
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
<page 19>
transmission and distribution PBR proposal should be amended or reviewed
as filed. In January 1996, SCE requested the CPUC approve its
transmission and distribution PBR as filed. On July 3, 1996, a CPUC
administrative law judge (ALJ) issued a proposed decision denying SCE's
application. The ALJ concluded that PBR for SCE's transmission and
distribution systems would be in effect for too short a period to provide
meaningful benefits to SCE's shareholders or ratepayers (assuming the
transfer of transmission to an ISO under FERC jurisdiction on January 1,
1998) and that SCE should revise its PBR proposal to address only
distribution following the FERC's order to split transmission and
distribution services. On July 23, 1996, SCE filed comments rejecting the
ALJ's proposal. A final CPUC decision is expected by year-end 1996. On
July 15, 1996, SCE filed a PBR proposal for its hydroelectric plants and
the proposed structure for performance-based local reliability contracts
for fossil-fueled plants. If approved, the hydro PBR would be in effect
for three years and the local reliability contracts, which are subject to
FERC approval, would be in effect for up to three years, both beginning
January 1, 1998. A final CPUC decision on hydro PBR is expected by year-
end 1997.
On March 19, 1996, SCE filed a plan outlining how it 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 FERC regarding the creation
of the independent power exchange and the ISO. On July 9, 1996, the three
utilities jointly filed an application with the CPUC requesting approval
to establish a restructuring trust which would obtain loans up to $250
million for the development of the ISO and power exchange through January
1, 1998. The loans would be backed by utility guarantees and SCE's share
would be 45%. Once the ISO and power exchange are formed, they will repay
the trust's loans and recover funds from future ISO and power exchange
customers.
On July 15, 1996, SCE filed a proposal with the CPUC related to separating
the costs associated with generation, transmission, distribution, public
goods programs and the CTC. The filing is in response to CPUC and FERC
directives that electric services, such as transmission and distribution,
be functionally separate and available to all customers on a
nondiscriminatory basis without cost-shifting among customers.
SCE estimates its potential transition costs through 2025 to be
approximately $8.3 billion to $9.1 billion (1996 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: $5.1 billion from SCE's qualifying facility contracts, which
are the direct result of legislative and regulatory mandates; and $3.2
billion to $4.0 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 San Onofre, 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 the
<page 20>
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 are unsuccessful, then
SCE estimates the negative effect on 1996 earnings to 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 June 30, 1996,
these amounts totaled $1.3 billion 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
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 physical
useful lives of the assets. 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 being improbable 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 became 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 stranded costs, which are prior-service
costs incurred under the current regulatory framework. In addition to
providing recovery of stranded costs associated with existing wholesale
customers, the FERC directed that it would have primary jurisdiction over
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
<page 21>
so. In compliance with the April 1996 FERC decision, SCE filed a revised
open access tariff with the FERC on July 9, 1996. The tariff became
effective as of its filing date.
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
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 61 identified sites (58 at SCE and 3 at EME) was $114 million at June
30, 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 $95 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
this remaining 10%, with the opportunity to recover these costs from
insurance carriers and other third parties. SCE has settled insurance
claims with most of its 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 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 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 $4 million to $8 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 that a
material liability exists as of June 30, 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
<page 22>
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
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 $653 million 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. Based on APS' 100% share estimate, SCE estimates its share
of the costs to be between $22 million and $24 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.
WORKFORCE REDUCTIONS
During second quarter 1996, SCE recorded a one-time charge against
earnings of $54 million for workforce management costs, as it expects to
reduce its nonrepresented workforce by approximately 3,100 employees by
year-end 1996. These workforce reductions are related to a voluntary
retirement offer for nonrepresented employees and outsourcing certain
operations. SCE has reached tentative agreement, subject to ratification
votes, on a similar voluntary retirement program for represented employees
which could increase the total charge against earnings to approximately
$70 million by year-end. Any additional amounts charged to earnings will
depend on the number of represented employees who accept the offer.
page 23
<PAGE>
Proposed New Accounting Standard
The Financial Accounting Standards Board (FASB) has issued an exposure
draft, which would establish accounting standards for the recognition and
measurement of closure and removal obligations. The exposure draft would
require the estimated present value of an obligation to be recorded as a
liability, along with a corresponding increase in the plant or regulatory
asset accounts when the obligation is incurred. If the exposure draft is
approved in its present form, it would affect SCE's accounting practices
for decommissioning of its nuclear power plants, obligations for coal mine
reclamation costs, and any other activities related to the closure or
removal of long-lived assets. 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. The nonutility subsidiaries
are currently reviewing what impact the exposure draft may have on its
financial position or results of operations.
page 24
<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 fourth
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 has paid a settlement amount jointly to the plaintiffs
and the parties have resolved 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 retained the right to
continue the lawsuit as to the period after December 31, 1995, 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 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 motion in the
page 25
<PAGE>
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 was stricken. 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. After hearing, the motion was denied without prejudice.
Plaintiffs' motion to consolidate all eight Los Angeles cases for jury
trial was denied without prejudice on March 25, 1996. However, SCE and
all of the plaintiffs, with the exception of Flowind Corporation,
subsequently entered into a court-approved stipulation whereby the cases
involving the stipulating plaintiffs have been consolidated for trial
commencing on January 27, 1997 in return for these plaintiffs' waiver of
a jury trial. No trial date has been established for Flowing
Corporation's claims. 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 SCE's Annual Report on Form 10-K for the year ended
December 31, 1995, and the Quarterly Report on Form 10-Q for the period
ended March 31, 1996.
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. This case has been stayed pending
appellate review of the trial judge's sanction order against the
plaintiffs' attorneys. The Court of Appeals has set oral argument on this
issue for January 21, 1997.
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
<page 26>
documentation prepared by the plaintiff indicates that plaintiff will
allege compensatory damages of approximately $5,500,000, plus unspecified
punitive damages. No trial date has been set in this case.
These matters were previously reported under the heading "Environmental
Litigation" in Part I, Item 3 of SCE's Annual Report on Form 10-K for the
year ended December 31, 1995, and the Quarterly Report on Form 10-Q for
the period ended March 31, 1996.
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. Trial began on 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.
A 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 July 26, 1996, the court
entered judgment in favor of SCE dismissing the remaining claim.
Plaintiffs have indicated that they will appeal to the Ninth Circuit Court
of Appeals. Trial of the case against the other defendants may be delayed
pending this appeal decision and appeal decisions from other issues
regarding the other parties. 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
page 27
<PAGE>
proceedings in this case against the remaining defendants cannot be
determined at this time.
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 employee 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 his wife's
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 to the
complaint denied all material allegations.
On February 20, 1996, an individual employed by various contractors
intermittently at San Onofre from 1984 to 1993, and who was employed by
SCE as a temporary security officer in 1994, sued SCE in Orange County
municipal court for undiagnosed injuries he allegedly sustained as a
result of radiation exposure at San Onofre. In the complaint, plaintiff
seeks $25,000 in compensatory damages. This case was removed to the U.S.
District for the Southern District of California. SCE's answer to the
complaint, filed on July 2, 1996, denied all material allegations.
With the exception of the last of the above-mentioned matters, these
matters were previously reported under the heading "San Onofre Personal
Injury Litigation" in Part I, Item 3 of SCE's Annual Report on Form 10-K
for the year ended December 31, 1995, and the Quarterly Report on Form
10-Q for the period ended March 31, 1996.
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.
On May 2, 1996, SCE and the Equal Employment Opportunity Commission
("EEOC") stipulated to the EEOC's intervention in the action.
<page 28>
Subsequently, on May 9, 1996, the Court entered an order allowing the EEOC
to intervene.
Following extensive negotiations, the parties, including the EEOC entered
into a settlement agreement in the form of a proposed consent decree. On
May 13, 1996, the Court preliminarily approved the proposed consent
decree, and a hearing on final approval of the decree was scheduled for
July 22, 1996. At the July 22 hearing on final approval, the Court raised
concerns about some elements of the proposed consent decree. Because of
the Court's concerns, the parties negotiated revisions to the consent
decree and submitted a revised consent decree to the Court. The Court
granted preliminary approval to the revised decree on August 5, 1996 and
set a hearing to determine final approval for September 24, 1996.
The consent decree now before the Court calls for the certification of
a class of all African-American employees of SCE from January 1, 1989 to
May 13, 1996, for purposes of monetary relief, and from January 1, 1989
to the expiration of the decree for purposes of injunctive relief. Under
the proposed decree, SCE would be required to pay $11,250,000 to a
settlement fund for the class within fourteen days of final approval.
After prescribed review, individual class members with adequately
supported claims of discrimination or racial harassment would be paid from
the fund as specified in the consent decree. The consent decree also
would require SCE to implement or revise certain provisions regarding
career development and equal employment opportunity/diversity training,
and human resources processes.
This matter was previously reported under the heading "Employment
Discrimination Litigation" in Part I, Item 3 of SCE's Annual Report on
Form 10-K for the year ended December 31, 1995, and the Quarterly Report
on Form 10-Q for the period ended March 31, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K:
None
page 29
<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
August 13, 1996
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<ARTICLE> UT
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Edison International Financial Data Schedule
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 11,984,030
<OTHER-PROPERTY-AND-INVEST> 6,648,331
<TOTAL-CURRENT-ASSETS> 2,161,364
<TOTAL-DEFERRED-CHARGES> 3,186,327
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 23,980,052
<COMMON> 2,685,932
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 3,760,448
<TOTAL-COMMON-STOCKHOLDERS-EQ> 6,446,380
425,000
283,755
<LONG-TERM-DEBT-NET> 3,735,731
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 3,424,650
<COMMERCIAL-PAPER-OBLIGATIONS> 459,500
<LONG-TERM-DEBT-CURRENT-PORT> 245,566
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<CAPITAL-LEASE-OBLIGATIONS> 64,406
<LEASES-CURRENT> 16,122
<OTHER-ITEMS-CAPITAL-AND-LIAB> 8,878,942
<TOT-CAPITALIZATION-AND-LIAB> 23,980,052
<GROSS-OPERATING-REVENUE> 3,781,399
<INCOME-TAX-EXPENSE> 239,201
<OTHER-OPERATING-EXPENSES> 2,860,681
<TOTAL-OPERATING-EXPENSES> 3,099,882
<OPERATING-INCOME-LOSS> 681,517
<OTHER-INCOME-NET> (30,200)
<INCOME-BEFORE-INTEREST-EXPEN> 651,317
<TOTAL-INTEREST-EXPENSE> 304,753
<NET-INCOME> 346,564
23,745
<EARNINGS-AVAILABLE-FOR-COMM> 322,819
<COMMON-STOCK-DIVIDENDS> 220,799
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