UNITED STATES
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, 1998
---------------------------------------------
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 800)
Rosemead, California
(Address of principal 91770
executive offices) (Zip Code)
(626) 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 (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 12, 1998
- ----------------------------------- -----------------------------------------
Common Stock, no par value 353,638,586
<PAGE>
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, 1998, and 1997 1
Consolidated Statements of Comprehensive Income --
Three and Six Months Ended June 30, 1998, and 1997 1
Consolidated Balance Sheets -- June 30, 1998,
and December 31, 1997 2
Consolidated Statements of Cash Flows -- Six Months
Ended June 30, 1998, and 1997 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 12
Part II. Other Information:
Item 1. Legal Proceedings 27
Item 6. Exhibits and Reports on Form 8-K 32
<PAGE>
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, June 30, June 30,
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Sales to ultimate consumers $1,531,452 $1,763,003 $3,077,286 $3,391,417
Sales to power exchange 303,685 -- 303,685 --
Other 87,330 80,960 164,185 147,948
- -------------------------------------------------------------------------------------------------------------------
Total electric utility revenue 1,922,467 1,843,963 3,545,156 3,539,365
Diversified operations 320,253 323,219 607,124 628,543
- -------------------------------------------------------------------------------------------------------------------
Total operating revenue 2,242,720 2,167,182 4,152,280 4,167,908
- -------------------------------------------------------------------------------------------------------------------
Fuel 100,259 194,328 267,580 394,561
Purchased power -- contracts 525,355 587,660 1,101,862 1,216,335
Purchased power -- power exchange 343,784 -- 343,784 --
Provisions for regulatory adjustment clauses-- net 485,492 (3,850) 247,474 (92,023)
Other operating expenses 562,533 457,964 949,702 788,007
Maintenance 98,597 116,848 200,566 213,002
Depreciation, decommissioning and amortization 404,031 342,254 815,354 682,375
Income taxes 99,010 113,541 235,728 209,616
Property and other taxes 33,194 32,682 73,955 72,992
Gains on sale of utility plant (708,154) (3,065) (708,149) (2,836)
- -------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,944,101 1,838,362 3,527,856 3,482,029
- -------------------------------------------------------------------------------------------------------------------
Operating income 298,619 328,820 624,424 685,879
- -------------------------------------------------------------------------------------------------------------------
Provision for rate phase-in plan -- (11,381) -- (22,690)
Allowance for equity funds used during construction 2,908 1,897 5,690 3,900
Interest and dividend income 25,078 19,149 55,794 34,991
Minority interest (859) (9,724) (2,367) (37,689)
Other nonoperating income (deductions)-- net (9,107) (6,870) (18,308) (9,732)
- -------------------------------------------------------------------------------------------------------------------
Total other income (deductions)-- net 18,020 (6,929) 40,809 (31,220)
- -------------------------------------------------------------------------------------------------------------------
Income before interest and other expenses 316,639 321,891 665,233 654,659
- -------------------------------------------------------------------------------------------------------------------
Interest on long-term debt 147,505 152,382 326,617 304,806
Other interest expense 20,319 25,001 41,531 56,260
Allowance for borrowed funds used during
construction (1,979) (2,284) (3,871) (4,696)
Capitalized interest (4,461) (2,899) (8,365) (8,076)
Dividends on subsidiary preferred securities 9,952 10,669 20,008 22,531
- -------------------------------------------------------------------------------------------------------------------
Total interest and other expenses-- net 171,336 182,869 375,920 370,825
- -------------------------------------------------------------------------------------------------------------------
Net Income $ 145,303 $ 139,022 $ 289,313 $ 283,834
- -------------------------------------------------------------------------------------------------------------------
Weighted-average shares of common stock
outstanding 360,251 408,310 365,150 413,888
Basic earnings per share $.40 $.34 $.79 $.69
Diluted earnings per share $.40 $.34 $.78 $.68
Dividends declared per common share $.26 $.25 $.52 $.50
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands
3 Months Ended 6 Months Ended
June 30, June 30, June 30, June 30,
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
Net income $145,303 $139,022 $289,313 $283,834
Cumulative translation adjustments-- net (7,585) 7,270 733 (19,631)
Unrealized gains on securities-- net 1,384 7,205 15,398 14,448
- -------------------------------------------------------------------------------------------------------------------
Comprehensive income $139,102 $153,497 $305,444 $278,651
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
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EDISON INTERNATIONAL
CONSOLIDATED BALANCE SHEETS
In thousands
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
- -------------------------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
Transmission and distribution:
Utility plant, at original cost, subject to
<S> <C> <C>
cost-based rate regulation $11,454,066 $11,213,352
Accumulated provision for depreciation (5,796,847) (5,573,742)
Construction work in progress 481,192 492,614
- -------------------------------------------------------------------------------------------------------------------
6,138,411 6,132,224
- -------------------------------------------------------------------------------------------------------------------
Generation:
Utility plant, at original cost,
not subject to cost-based rate regulation 2,021,636 9,522,127
Accumulated provision for depreciation and
decommissioning (1,065,888) (4,970,137)
Construction work in progress 86,043 100,283
Nuclear fuel, at amortized cost 133,070 154,757
- -------------------------------------------------------------------------------------------------------------------
1,174,861 4,807,030
- -------------------------------------------------------------------------------------------------------------------
Total utility plant 7,313,272 10,939,254
- -------------------------------------------------------------------------------------------------------------------
Nonutility property -- less accumulated provision for
depreciation of $263,826 and $238,386 at respective dates 3,098,311 3,178,375
Nuclear decommissioning trusts 2,056,275 1,831,460
Investments in partnerships and
unconsolidated subsidiaries 1,306,520 1,340,853
Investments in leveraged leases 1,386,397 959,646
Other investments 323,749 260,427
- -------------------------------------------------------------------------------------------------------------------
Total other property and investments 8,171,252 7,570,761
- -------------------------------------------------------------------------------------------------------------------
Cash and equivalents 1,655,860 1,906,505
Receivables, including unbilled revenue,
less allowances of $21,345 and $26,722
for uncollectible accounts at respective dates 1,163,372 1,077,671
Fuel inventory 50,965 58,059
Materials and supplies, at average cost 116,678 132,980
Accumulated deferred income taxes-- net 313,360 123,146
Regulatory balancing accounts-- net 50,234 193,311
Prepayments and other current assets 54,136 105,811
- -------------------------------------------------------------------------------------------------------------------
Total current assets 3,404,605 3,597,483
- -------------------------------------------------------------------------------------------------------------------
Unamortized nuclear investment-- net 2,561,325 --
Unamortized debt issuance and reacquisition expense 362,125 359,304
Rate phase-in plan -- 3,777
Income tax-related deferred charges 1,559,336 1,543,380
Other deferred charges 1,212,663 1,087,108
- -------------------------------------------------------------------------------------------------------------------
Total deferred charges 5,695,449 2,993,569
- -------------------------------------------------------------------------------------------------------------------
Total assets $24,584,578 $25,101,067
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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EDISON INTERNATIONAL
CONSOLIDATED BALANCE SHEETS
In thousands, except share amounts
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
- -------------------------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES (Unaudited)
Common shareholders' equity:
Common stock (355,014,497 and 375,764,429
<S> <C> <C>
shares outstanding at respective dates) $2,136,122 $ 2,260,974
Accumulated other comprehensive income:
Cumulative translation adjustments-- net 31,189 30,456
Unrealized gain in equity securities-- net 75,428 60,030
Retained earnings 2,812,621 3,175,883
- -------------------------------------------------------------------------------------------------------------------
5,055,360 5,527,343
- -------------------------------------------------------------------------------------------------------------------
Preferred securities of subsidiaries:
Not subject to mandatory redemption 128,755 183,755
Subject to mandatory redemption 406,700 425,000
Long-term debt 8,677,728 8,870,781
- -------------------------------------------------------------------------------------------------------------------
Total capitalization 14,268,543 15,006,879
- -------------------------------------------------------------------------------------------------------------------
Other long-term liabilities 495,703 479,637
- -------------------------------------------------------------------------------------------------------------------
Current portion of long-term debt 791,407 868,026
Short-term debt 139,498 329,550
Accounts payable 443,642 441,049
Accrued taxes 738,798 576,841
Accrued interest 147,969 131,885
Dividends payable 92,893 95,146
Deferred unbilled revenue and other current liabilities 1,385,007 1,285,679
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,739,214 3,728,176
- -------------------------------------------------------------------------------------------------------------------
Accumulated deferred income taxes-- net 4,319,530 4,085,296
Accumulated deferred investment tax credits 333,919 350,685
Customer advances and other deferred credits 1,413,751 1,441,303
- -------------------------------------------------------------------------------------------------------------------
Total deferred credits 6,067,200 5,877,284
- -------------------------------------------------------------------------------------------------------------------
Minority interest 13,918 9,091
- -------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
(Notes 1 and 2)
Total capitalization and liabilities $24,584,578 $25,101,067
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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EDISON INTERNATIONAL
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
<TABLE>
<CAPTION>
6 Months Ended
June 30,
- -------------------------------------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income $ 289,313 $ 283,834
Adjustments for non-cash items:
Depreciation, decommissioning and amortization 815,354 682,375
Other amortization 76,334 35,814
Rate phase-in plan 3,777 21,584
Deferred income taxes and investment tax credits 4,802 (13,317)
Equity in income from partnerships and unconsolidated
subsidiaries (62,727) (84,014)
Other long-term liabilities 16,066 82,141
Regulatory asset related to the sale of utility plant (107,991) --
Net gains on sale of utility plant (640,339) --
Other-- net (149,610) (91,267)
Changes in working capital:
Receivables (123,278) (52,220)
Regulatory balancing accounts 143,077 (94,972)
Fuel inventory, materials and supplies 23,396 11,714
Prepayments and other current assets 62,503 86,223
Accrued interest and taxes 178,041 125,139
Accounts payable and other current liabilities 153,165 (48,768)
Distributions from partnerships and unconsolidated subsidiaries 70,453 69,058
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 752,336 1,013,324
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Long-term debt issued 716,441 1,475,537
Long-term debt repaid (873,737) (1,142,534)
Common stock issued -- 4,661
Common stock repurchased (586,297) (500,285)
Preferred securities redeemed (73,300) (100,000)
Rate reduction notes repaid (82,465) --
Nuclear fuel financing-- net (18,871) (7,061)
Short-term debt financing-- net (190,052) 235,592
Dividends paid (189,505) (210,944)
Other-- net 367 973
- -------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (1,297,419) (244,061)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and plant (398,277) (345,975)
Proceeds from sale of plant 1,149,139 142,273
Funding of nuclear decommissioning trusts (76,881) (74,573)
Investments in partnerships and unconsolidated subsidiaries (53,636) (162,076)
Unrealized gain on securities-- net 15,398 14,448
Investments in leveraged leases (336,637) (270,626)
Other-- net (4,668) (73,591)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 294,438 (770,120)
- -------------------------------------------------------------------------------------------------------------------
Net decrease in cash and equivalents (250,645) (857)
Cash and equivalents, beginning of period 1,906,505 896,594
- -------------------------------------------------------------------------------------------------------------------
Cash and equivalents, end of period $1,655,860 $ 895,737
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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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 1997 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 1997 Annual Report.
As a result of industry restructuring legislation enacted by the State of
California and a related change in the application of accounting principles for
rate-regulated enterprises adopted by the Financial Accounting Standards Board's
Emerging Issues Task Force (EITF), during the third quarter of 1997, Southern
California Edison Company (SCE) began accounting for its investments in
generation facilities in accordance with accounting principles applicable to
enterprises in general, and SCE's balance sheets display a separate caption for
its investments in generation. Application of accounting principles for
enterprises in general to SCE's generation assets did not result in any
adjustment of their carrying value; however, SCE's nuclear investments were
reclassified as a regulatory asset in second quarter 1998.
In June 1998, a new accounting standard for derivative instruments and hedging
activities was issued. The new standard, which will be effective January 1,
2000, requires all derivatives to be recognized on the balance sheet at fair
value. Gains or losses from changes in fair value would be recognized in
earnings in the period of change unless the derivative is designated as a
hedging instrument. Gains or losses from hedges of a forecasted transaction or
foreign currency exposure would be reflected in other comprehensive income.
Gains or losses from hedges of a recognized asset or liability or a firm
commitment would be reflected in earnings for the ineffective portion of the
hedge. SCE anticipates that most of its derivatives under the new standard would
qualify for hedge accounting. SCE expects to recover in rates any market price
changes from its derivatives that could potentially affect earnings. Edison
International is studying the impact of the new standard on its nonutility
subsidiaries, and is unable to predict at this time the impact on its financial
statements.
Certain prior-period amounts were reclassified to conform to the June 30, 1998,
financial statement presentation.
Note 1. Regulatory Matters
California Electric Utility Industry Restructuring
Restructuring Decision -- The California Public Utilities Commission's (CPUC)
December 1995 decision on restructuring California's electric utility industry
started the transition to a new market structure; competition and customer
choice began on April 1, 1998. Key elements of the CPUC's restructuring decision
included: creation of the power exchange (PX) and independent system operator
(ISO); availability of customer choice for electricity supply and certain
billing and metering services; performance-based ratemaking (PBR) for those
utility services not subject to competition; voluntary divestiture of at least
50% of utilities' gas-fueled generation; and implementation of the competition
transition charge (CTC).
Restructuring Statute -- In September 1996, the State of California enacted
legislation to provide a transition to a competitive market structure. The
Statute substantially adopted the CPUC's December 1995 restructuring decision by
addressing stranded-cost recovery for utilities and providing a certain
cost-recovery time period for the transition costs associated with utility-owned
generation-related assets. Transition costs related to power-purchase contracts
are being recovered through the terms of their
5
<PAGE>
EDISON INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
contracts while most of the remaining transition costs will be recovered through
2001. The Statute also included provisions to finance a portion of the stranded
costs that residential and small commercial customers would have paid between
1998 and 2001, which allowed SCE to reduce rates by at least 10% to these
customers, effective January 1, 1998. The Statute included a rate freeze for all
other customers, including large commercial and industrial customers, as well as
provisions for continued funding for energy conservation, low-income programs
and renewable resources. Despite the rate freeze, SCE expects to be able to
recover its revenue requirement during the 1998-2001 transition period. In
addition, the Statute mandated the implementation of the CTC that provides
utilities the opportunity to recover costs made uneconomic by electric utility
restructuring. Finally, the Statute contained provisions for the recovery
(through 2006) of reasonable employee-related transition costs, incurred and
projected, for retraining, severance, early retirement, outplacement and related
expenses. A voter initiative, known as California Proposition 9, seeks to
overturn major portions of the Statute. A more detailed discussion of
Proposition 9 is in Note 2 to the Consolidated Financial Statements.
Rate Reduction Notes -- In December 1997, after receiving approval from both the
CPUC and the California Infrastructure and Economic Development Bank, a limited
liability company created by SCE issued approximately $2.5 billion of rate
reduction notes. Residential and small commercial customers, whose 10% rate
reduction began January 1, 1998, are repaying the notes over the expected
10-year term through non-bypassable charges based on electricity consumption. A
voter initiative on the November 1998 ballot seeks to prohibit the collection of
these non-bypassable charges, or if the charges are found enforceable by a
court, require SCE to offset such charges with an equal credit to customers. See
Note 2 to the Consolidated Financial Statements.
Rate-setting -- Beginning January 1, 1998, SCE's rates were unbundled into
separate charges for energy, transmission, distribution, the CTC, public benefit
programs and nuclear decommissioning. The transmission component is being
collected through Federal Energy Regulatory Commission (FERC)-approved rates,
subject to refund. In August 1997, the CPUC issued a decision which adopted a
methodology for determining CTC residually (see CTC discussion below) and
adopted SCE's revenue requirement components for public benefit programs and
nuclear decommissioning. The decision also adjusted SCE's proposed distribution
revenue requirement (see PBR discussion below) by reallocating $76 million of it
annually to other functions such as generation and transmission. Under the
decision, SCE will be able to recover most of the reallocated amount through
market revenue, other rate-making mechanisms or operation and maintenance
contracts with the new owners of the divested generation plants.
PX and ISO -- On March 31, 1998, both the PX and ISO began accepting bids and
schedules for April 1, 1998, when the ISO took over operational control of the
transmission system. The hardware and software systems being utilized by the PX
and ISO in their bidding and scheduling activities were financed through loans
of $300 million (backed by utility guarantees) obtained by restructuring trusts
established by a CPUC order in 1996. The PX and ISO will repay the trusts' loans
through charges for service to future PX and ISO customers. The restructuring
implementation costs related to the start-up and development of the PX, which
are paid by the utilities, will be recovered from all retail customers over the
four-year transition period. SCE's share of the charge is $45 million, plus
interest and fees. SCE's share of the ISO's start-up and development costs
(approximately $16 million per year), will be paid over a 10-year period.
Direct Customer Access -- Effective April 1, 1998, customers are now able to
choose to remain utility customers with either bundled electric service or an
hourly PX pricing option from SCE (which is purchasing its power through the
PX), or choose direct access, which means the customer can contract directly
with either independent power producers or energy service providers (ESPs) such
as power brokers, marketers and aggregators. Additionally, all
investor-owned-utility customers are paying the CTC whether or not they choose
to buy power through SCE. Electric utilities are continuing to provide the core
distribution service of delivering energy through their distribution system
regardless of a
6
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EDISON INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
customer's choice of electricity supplier. The CPUC is continuing to regulate
the prices and service obligations related to distribution services.
Revenue Cycle Services -- Effective April 1, 1998, customers have options
regarding metering, billing and related services (referred to as revenue cycle
services) that have been provided by California's investor-owned utilities. Now
ESPs can provide their customers with one consolidated bill for their services
and the utility's services, request the utility to provide a consolidated bill
to the customer or elect to have both the ESP and the utility bill the customer
for their respective charges. In addition, customers with maximum demand above
20 kW (primarily industrial and medium and large commercial) can choose SCE or
any other supplier to provide their metering service. All other customers will
have this option beginning in January 1999. In determining whether any credit
should be provided by the utility to customers who elect to have ESPs provide
them with revenue cycle services, and the amount of any such credit, the CPUC
has indicated that it is appropriate to provide such customers with the
utility's avoided costs net of costs incurred by the utility to facilitate the
provision of such services by a firm other than the utility.
PBR -- In September 1996, the CPUC adopted a transmission and distribution (T&D)
PBR mechanism for SCE which began on January 1, 1997. Beginning in April 1998,
the transmission portion was separated from PBR and subject to ratemaking under
the rules of the FERC. The distribution-only PBR will extend through December
2001. Key elements of PBR include: T&D rates indexed for inflation based on the
Consumer Price Index less a productivity factor; elimination of the
kilowatt-hour sales adjustment; adjustments for cost changes that are not within
SCE's control; a cost-of-capital trigger mechanism based on changes in a bond
index; standards for service reliability and safety; and a net revenue-sharing
mechanism that determines how customers and shareholders will share gains and
losses from T&D operations.
The CPUC is considering unbundling SCE's cost of capital based on major utility
function. On May 8, 1998, SCE filed an application on this issue. A CPUC
decision is expected in early 1999.
Beginning in 1998, SCE's hydroelectric plants are operating under a PBR-type
mechanism. The mechanism sets the hydroelectric revenue requirement and
establishes a formula for extending it through the duration of the electric
industry restructuring transition period, or until market valuation of the
hydroelectric facilities, whichever occurs first. The mechanism provides that
power sales revenue from hydroelectric facilities in excess of the hydroelectric
revenue requirement be credited against the costs to transition to a competitive
market (see CTC discussion below).
Divestiture -- In November 1996, SCE filed an application with the CPUC to
voluntarily divest, by auction, all 12 of its gas- and oil-fueled generation
plants. Under this proposal, SCE would continue to operate and maintain the
divested power plants for at least two years following their sale, as mandated
by the restructuring legislation enacted in September 1996. In addition, SCE
would offer workforce transition programs to those employees who may be impacted
by divestiture-related job reductions. In September 1997, the CPUC approved
SCE's proposal to auction the 12 plants.
SCE has sold all 12 of its gas- and oil-fueled generation plants. Transfer of
ownership of 11 plants was completed by June 30, 1998, and the transfer of
ownership of the 12th plant took place on July 8, 1998. The total sales price of
the 12 plants was $1.2 billion, over $500 million more than the combined book
value. Net proceeds of the sales were used to reduce stranded costs, which
otherwise were expected to be collected through the CTC mechanism.
CTC -- The costs to transition to a competitive market are being recovered
through a non-bypassable CTC. This charge applies to all customers who were
using or began using utility services on or after the CPUC's December 20, 1995,
decision date. The CTC is being determined residually by subtracting other rate
components for the PX, T&D, nuclear decommissioning and public benefit programs
from the frozen rate levels. SCE currently estimates its transition costs to be
approximately $10.6 billion (1998 net
7
<PAGE>
EDISON INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
present value) from 1998 through 2030. This estimate is based on incurred costs,
forecasts of future costs and assumed market prices. However, changes in the
assumed market prices could materially affect these estimates. The potential
transition costs are comprised of $6.4 billion from SCE's qualifying facilities
contracts, which are the direct result of prior legislative and regulatory
mandates, and $4.2 billion from costs pertaining to certain generating assets
(successful completion of the sale of SCE's gas-fired generating plants has
reduced this estimate of transition costs for SCE-owned generation) 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
Units 2 and 3 and the Palo Verde units, and certain other costs. This issue was
separated into two phases; Phase 1 addressed the rate-making issues and Phase 2
the quantification issues.
Major elements of the CPUC's CTC Phase 1 and Phase 2 decisions were: the
establishment of a transition cost balancing account and annual transition cost
proceedings; the setting of a market rate forecast for 1998 transition costs;
the requirement that generation-related regulatory assets be amortized ratably
over a 48-month period; the establishment of calculation methodologies and
procedures for SCE to collect its transition costs from 1998 through the end of
the rate freeze; and the reduction of SCE's authorized rate of return on certain
assets eligible for transition cost recovery (primarily fossil- and
hydroelectric-generation related assets) beginning July 1997, five months
earlier than anticipated. SCE has filed an application for rehearing on the 1997
rate of return issue.
Accounting for Generation-Related Assets -- If the CPUC's electric industry
restructuring plan continues as described above, SCE would be allowed to recover
its CTC through non-bypassable charges to its distribution customers (although
its investment in certain generation assets would be subject to a lower
authorized rate of return). During the third quarter of 1997, SCE discontinued
application of accounting principles for rate-regulated enterprises for its
investment in generation facilities based on a consensus reached by the
Financial Accounting Standards Board's Emerging Issues Task Force (EITF). The
financial reporting effect of this discontinuance was to segregate these assets
on the balance sheet; the EITF consensus did not require SCE to write off any of
its generation-related assets, including related regulatory assets. However, the
EITF did not specifically address the application of asset impairment standards
to these assets. SCE has retained these assets on its balance sheet because the
legislation and restructuring plan referred to above make probable their
recovery through a non-bypassable CTC to distribution customers. The regulatory
assets relate primarily to the recovery of accelerated income tax benefits
previously flowed through to customers, purchased power contract termination
payments and unamortized losses on reacquired debt. The consensus reached by the
EITF also permits the recording of new generation-related regulatory assets
during the transition period that are probable of recovery through the CTC
mechanism.
During the second quarter of 1998, additional guidance was developed relating to
the application of asset impairment standards to these assets. Using this
guidance has resulted in SCE reducing its remaining nuclear plant investment by
$2.6 billion and recording a regulatory asset on its balance sheet for the same
amount. For this impairment assessment, the fair value of the investment was
calculated by discounting future net cash flows. This reclassification had no
effect on SCE's results of operations.
If during the transition period events were to occur that made the recovery of
generation-related regulatory assets no longer probable, SCE would be required
to write off the remaining balance of such assets (approximately $2.4 billion,
after tax, at June 30, 1998) as a one-time, non-cash charge against earnings.
If events occur during the restructuring process 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 what other revisions will
8
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EDISON INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ultimately be made during the restructuring process 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.
Note 2. Contingencies
In addition to the matters disclosed in these notes, Edison International is
involved in other 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 other proceedings
will not materially affect its results of operations or liquidity.
California Proposition 9 -- November 1998 Voter Initiative
In November 1997, individuals representing The Utilities Reform Network, Public
Media Center and the Coalition Against Utility Taxes filed a proposed voter
initiative that seeks to overturn major portions of the electric industry
restructuring legislation enacted in California in September 1996 (Statute). The
voter initiative proposes, among other things, to: (i) impose an additional 10%
rate reduction for residential and small commercial customers beyond the 10%
reduction that went into effect on January 1, 1998; (ii) block stranded-cost
recovery of nuclear investments; (iii) restrict stranded-cost recovery of
non-nuclear investments unless the CPUC finds that the utility would be deprived
of the opportunity to earn a fair rate of return; and (iv) prohibit the
collection of any charges in connection with a financing order for the purpose
of making payments on rate reduction notes, or if the financing order is found
enforceable by a court, require the utility to offset such charges with an equal
credit to customers.
On June 24, 1998, the California Secretary of State announced that the proposed
voter initiative qualified for the November 1998 ballot. On July 17, 1998, the
Secretary of State designated the initiative as Proposition 9 on the ballot.
On May 22, 1998, Californians for Affordable and Reliable Electric Service
(CARES), a coalition of California business organizations and utilities, filed a
petition for writ of mandate with the Court of Appeal of the State of
California. CARES is sponsored by the California Business Roundtable, the
California Chamber of Commerce, San Diego Gas & Electric Company, the California
Manufacturers Association, Pacific Gas & Electric Company, the California
Retailers Association, and SCE, among other groups. The CARES petition
challenged the initiative as illegal and unconstitutional on its face, and
sought to remove the initiative from the November 1998 ballot. On July 2, 1998,
the Court of Appeal denied the CARES petition. On July 6, 1998, CARES filed its
appeal of the denial with the California Supreme Court. On July 15, 1998, the
California Supreme Court denied the CARES petition. In these rulings, the Court
of Appeal of the State of California and the California Supreme Court both
decided, in effect, not to consider the legality and constitutionality of
Proposition 9 prior to the November 1998 election.
If Proposition 9 is voted into law, further litigation would ensue. Under the
terms of a servicing agreement relating to the rate reduction notes, SCE (acting
as the servicer) is required to take such legal or administrative actions as may
be reasonably necessary to block or overturn any attempts to cause a repeal of,
modification of, or supplement to the Statute, the financing order issued by the
CPUC, or the rights of holders of the property right authorized by the Statute
and the financing order by legislative enactment, voter initiative or
constitutional amendment that would be adverse to holders of the rate reduction
notes. The costs of such actions would be payable out of collections of the
non-bypassable charges established by the financing order and the related
issuance advice letter as an operating expense related to the rate reduction
notes. However, SCE may be required to advance its own funds to satisfy its
obligations as servicer to take such legal and administrative actions.
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EDISON INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SCE is unable to predict the outcome of this matter, but if Proposition 9 were
to be voted into law, and not immediately stayed and ultimately invalidated by
the courts, it could have a material adverse effect on SCE's results of
operation and financial position. Upon voter approval of Proposition 9, a
write-down of a portion of SCE's generation-related assets might be required
under applicable accounting principles, depending on SCE's assessment of both
the probability that Proposition 9 would be struck down by the courts and the
manner in which it would be interpreted and applied to SCE. The meaning of many
provisions of Proposition 9 is unclear and, if the courts uphold it in whole or
part, will be subject to judicial and regulatory interpretation. Depending on
how Proposition 9 is interpreted and implemented with respect to SCE, the
potential write-down of SCE's generation-related assets could amount to as much
as $1.9 billion after tax.
Additionally, if Proposition 9 passes and survives legal challenges, SCE could
suffer impacts on its annual earnings, including the possibility of being
required to offset customer charges necessary to pay the principal and interest
on the rate reduction notes. Depending on how this provision and other
provisions of Proposition 9 are interpreted and applied, the annual earnings
reductions could be as large as $210 million in 1999, gradually declining to as
much as $10 million in 2007, and immaterial amounts thereafter.
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).
Edison International's recorded estimated minimum liability to remediate its 51
identified sites (50 at SCE and one at EME) is $178 million. The ultimate costs
to clean up Edison International's identified sites may vary from its recorded
liability due to numerous uncertainties inherent in the estimation process, such
as: the extent and nature of contamination; the scarcity of reliable data for
identified sites; the varying costs of alternative cleanup methods; developments
resulting from investigatory studies; the possibility of identifying additional
sites; and the time periods over which site remediation is expected to occur.
Edison International believes that, due to these uncertainties, it is reasonably
possible that cleanup costs could exceed its recorded liability by up to $246
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. SCE has sold all of its gas- and oil-fueled power plants and has
retained some liability associated with the divested properties.
The CPUC allows SCE to recover environmental-cleanup costs at 41 of its sites,
representing $91 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
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EDISON INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
carriers and other third parties. SCE has successfully settled insurance claims
with all responsible carriers. Costs incurred at SCE's remaining sites are
expected to be recovered through customer rates. SCE has recorded a regulatory
asset of $148 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 $10 million.
Based on currently available information, Edison International believes it is
unlikely 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 materially affect its results of operations or financial
position. There can be no assurance, however, that future developments,
including additional information about existing sites or the identification of
new sites, will not require material revisions to such estimates.
Nuclear Insurance
Federal law limits public liability claims from a nuclear incident to $8.9
billion. SCE and other owners of San Onofre and Palo Verde have purchased the
maximum private primary insurance available ($200 million). The balance is
covered by the industry's retrospective rating plan that uses deferred premium
charges to every reactor licensee if a nuclear incident at any licensed reactor
in the U.S. results in claims and/or costs which exceed the primary insurance at
that plant site. Federal regulations require this secondary level of financial
protection. The Nuclear Regulatory Commission exempted San Onofre Unit 1 from
this secondary level, effective June 1994. The maximum deferred premium for each
nuclear incident is $79 million per reactor, but not more than $10 million per
reactor may be charged in any one year for each incident. Based on its ownership
interests, SCE could be required to pay a maximum of $158 million per nuclear
incident. However, it would have to pay no more than $20 million per incident in
any one year. Such amounts include a 5% surcharge if additional funds are needed
to satisfy public liability claims and are subject to adjustment for inflation.
If the public liability limit above is insufficient, federal regulations may
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 $28 million per year. Insurance premiums are charged to operating expense.
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EDISON INTERNATIONAL
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Earnings
Edison International's basic earnings per share for the three and six months
ended June 30, 1998, were 40(cent) and 79(cent), respectively, compared with
34(cent) and 69(cent) for the same periods in 1997. Southern California Edison
Company's (SCE) earnings for the three and six months ended June 30, 1998, were
31(cent) and 58(cent), respectively, 1(cent) more than each of the year-earlier
periods, primarily due to the operating performance at the San Onofre Nuclear
Generating Station and Edison International's share repurchase program more than
offsetting SCE's lower authorized revenue. The lower authorized revenue was
driven by reduced authorized returns on generating assets and a lower earning
asset base resulting from the accelerated recovery of investments and
divestiture of gas- and oil-fueled generation assets. Edison Mission Energy
(EME) and Edison Capital had combined earnings for the three and six months
ended June 30, 1998, of 12(cent) and 27(cent), respectively, up 5(cent) and
11(cent) from the year-earlier periods. The increases were primarily due to
earnings generated by Edison Capital's cross-border lease transactions in the
Netherlands, South Australia and South Africa. The year-to-date increase also
reflects earnings contributed by EME's investment in First Hydro, which
benefited from higher energy prices in the United Kingdom. Edison Enterprises
and the parent company were responsible for the following negative income
effects: 3(cent) per share for the second quarter of 1998 and 6(cent) for the
first half of 1998, compared to 3(cent) and 4(cent) for the same periods in
1997, primarily due to continued start-up costs at Edison Enterprises (Edison
International's new retail businesses:
Edison Source, Edison EV, Edison Select and Edison Utility Services).
Operating Revenue
Since April 1, 1998, SCE is required to sell all of its generated power to the
power exchange (PX). For more details, see "Competitive Environment -- PX and
ISO." Excluding the sales to the PX, electric utility revenue decreased 12% and
8%, respectively, for the three and six months ended June 30, 1998, compared to
the year-earlier periods. The decreases reflect lower average residential rates
(mandated by legislation enacted in September 1996). The quarterly decrease also
includes a decrease in sales volume due to milder weather in second quarter
1998. Over 99% of electric utility revenue (excluding sales to the PX) is from
retail sales. Retail rates are regulated by the California Public Utilities
Commission (CPUC) and wholesale rates are regulated by the Federal Energy
Regulatory Commission (FERC).
Legislation enacted in September 1996 provided for, among other things, at least
a 10% rate reduction (financed through the issuance of rate reduction notes) for
residential and small commercial customers in 1998 and other rates to remain
frozen at June 1996 levels (system average of 10.1(cent) per kilowatt-hour). See
discussion in "Competitive Environment."
Revenue from diversified operations decreased slightly for both the three and
six months ended June 30, 1998, compared to the same periods in 1997, primarily
due to a new series of power-sales-related contracts associated with EME's
acquisition of the remaining 49% of Loy Yang B in May 1997. The year-to-date
decrease was partially offset by increased revenue related to higher energy
sales at EME's First Hydro project.
Operating Expenses
Fuel expense decreased 48% and 32%, respectively, for the three and six months
ended June 30, 1998, compared to the same periods in 1997. The quarterly and
year-to-date decreases resulted from the sale of SCE's gas- and oil-fueled
plants. In addition, the year-to-date decrease also reflects significantly lower
gas prices at SCE in the first quarter of 1998, as well as a decrease at EME due
to the new fuel supply agreement entered into by Loy Yang B, partially offset by
an increase at First Hydro as a result of higher prices and increased generation
in 1998.
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Since April 1, 1998, SCE is required to purchase all of its power from the PX
for distribution to its customers. The new competitive market has caused SCE to
only make federally required purchases or purchases required under long-term
contracts and to discontinue making economy power purchases. Excluding the power
purchased from the PX, purchased-power expense decreased 11% and 9%,
respectively, for the three and six months ended June 30, 1998, compared to the
year-earlier periods. The decreases are the result of SCE discontinuing economy
purchases. SCE is required under federal law to purchase power from certain
nonutility generators even though energy prices under these contracts are
generally higher than other sources. For the twelve months ended June 30, 1998,
SCE paid about $1.5 billion (including energy and capacity payments) more for
these power purchases than the cost of power available from other sources. The
CPUC has mandated the prices for these contracts.
Provisions for regulatory adjustment clauses increased substantially for the
quarter and six months ended June 30, 1998, compared to the same periods in
1997, primarily due to overcollections in the transition cost balancing account
reflecting the gain on sales of the gas- and oil-fueled plants in second quarter
1998. The overcollections were partially offset by undercollections related to
direct access activities, the delay in the start-up of the PX and independent
system operator (ISO) and the issuance of the rate reduction notes in December
1997. Beginning in January 1998, the difference between generation-related
revenue and generation-related costs is being accumulated in the transition cost
balancing account, effectively eliminating all other balancing accounts except
those used in the administration of public-purpose funds.
Other operating expenses increased for the three and six months ended June 30,
1998, compared to the same periods in 1997, primarily due to SCE's direct access
activities, must-run reliability services and PX and ISO activities. The
year-to-date increase also reflects storm damage expense at SCE resulting from a
harsher winter in 1998, as well as continued start-up expenses at Edison
Enterprises.
Maintenance expense decreased 16% for the quarter ended June 30, 1998, compared
to the year-earlier period, reflecting the extended refueling outages at San
Onofre during the second quarter of 1997.
Depreciation, decommissioning and amortization expense increased 18% and 19%,
respectively, for the quarter and six months ended June 30, 1998, compared to
the same periods in 1997. The increases are primarily due to the accelerated
recovery of the gas- and oil-fueled generation plants and the further
acceleration of the San Onofre and Palo Verde Nuclear Generating Station units.
The accelerated recoveries implemented in 1998 are part of the competition
transition charge (CTC) mechanism (see further discussion under "California
Electric Utility Industry Restructuring"). The increases were partially offset
by a decrease at EME related to an extension in the useful life of Loy Yang B's
plant and equipment, from approximately 30 years, the term of the previous
power-purchase agreement, to 50 years, the projected economic life of the plant.
Income taxes decreased 13% and increased 12%, respectively, for the three and
six months ended June 30, 1998, compared to the same periods in 1997. The
quarterly decrease is primarily due to lower pre-tax income at SCE, partially
offset by higher pre-tax income at Edison Capital. The year-to-date increase is
mostly due to higher pre-tax income for the first quarter of 1998, as well as
additional amortization related to the CTC mechanism. The additional
amortization related to the CTC mechanism will continue to cause an increase in
the effective tax rate. Also, Edison Capital had increased income tax expense
related to revenue generated by its cross-border lease transactions.
Gains on sale of utility plant are from the sale of 11 of SCE's 12 gas- and
oil-fueled generation plants in the first half of 1998.
Other Income and Deductions
The provision for rate phase-in plan reflected 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 units. The deferred revenue (including
interest) was collected evenly over the final six years of each unit's plan. The
plan ended in February 1996, September 1996 and January 1998 for Units 1, 2 and
3, respectively. The provision was a non-cash offset to the collection of
deferred revenue.
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Interest and dividend income increased 31% and 59%, respectively, for the three
and six months ended June 30, 1998, compared to the year-earlier periods. The
increases reflect higher investment balances due to the sale of SCE's gas- and
oil-fueled generation plants. The year-to-date increase also reflects interest
earned on higher balancing account undercollections in the first quarter of
1998.
Minority interest decreased due to EME's May 1997 acquisition of the remaining
49% ownership interest in the Loy Yang B project.
Other nonoperating income decreased 33% and 88%, respectively, for the second
quarter and first half of 1998, compared to the same periods in 1997. The
decreases are due to additional accruals at SCE for regulatory matters
associated with the restructuring of California's electric utility industry. The
quarterly decrease also reflects the absence of second quarter 1997 income at
EME related to a gain on sale of their ownership interest in BC Star Partners,
partially offset by the extinguishment of Loy Yang B debt.
Interest and Other Expenses
Interest on long-term debt increased for the six months ended June 30, 1998,
compared to the year-earlier periods, mainly due to an increase at SCE related
to the issuance of rate reduction notes in December 1997, partially offset by
lower expenses at EME due to lower principal balances on outstanding debt.
Interest on the rate reduction notes was $38 million and $77 million,
respectively, for the second quarter and first half of 1998.
Other interest expense decreased 19% and 26%, respectively, for the three and
six months ended June 30, 1998, compared to the same periods in 1997. The
decreases are primarily due to lower levels of short-term debt at June 30, 1998,
versus June 30, 1997. In addition, the year-to-date decrease reflects a
reduction in SCE's balancing account interest expense as a result of higher
undercollections in the first quarter of 1998.
Financial Condition
Edison International's liquidity is primarily affected by debt maturities,
dividend payments and capital expenditures, and investments in partnerships and
unconsolidated subsidiaries. Capital resources include cash from operations and
external financings.
Edison International's Board of Directors has authorized the repurchase of up to
$2.8 billion (increased from $2.3 billion in July 1998) of its outstanding
shares of common stock. Edison International has repurchased 95.3 million shares
($2.3 billion) between January 1995 and August 5, 1998, funded by dividends from
its subsidiaries and the issuance of rate reduction notes.
Edison International's cash flow coverage of dividends for the six months ended
June 30, 1998, was 4.0 times, compared to 4.8 times for the same period in 1997.
The decrease was primarily due to the ongoing share repurchase program, as well
as the gain on sale of SCE's 11 gas- and oil-fueled generation plants. Edison
International's dividend payout ratio for the twelve-month period ended June 30,
1998, was 55%.
Cash Flows from Operating Activities
Net cash provided by operating activities totaled $752 million for the six-month
period ended June 30, 1998, compared with $1.0 billion in 1997. Cash from
operations exceeded capital requirements for both periods presented.
Cash Flows from Financing Activities
At June 30, 1998, Edison International and its subsidiaries had $2.2 billion of
borrowing capacity available under lines of credit totaling $2.6 billion. SCE
had available lines of credit of $1.3 billion, with $735 million for general
purpose short-term debt and $515 million for the long-term refinancing of its
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variable-rate pollution-control bonds. The parent company had total lines of
credit of $500 million, with $489 million available. The nonutility companies
had total lines of credit of $800 million, with $452 million 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. 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, 1998, SCE could issue
approximately $12.0 billion of additional first and refunding mortgage bonds and
$4.4 billion of preferred stock at current interest and dividend rates.
EME has firm commitments of $281 million to make equity and other contributions,
primarily for the ISAB project in Italy, the Paiton project in Indonesia, the
Tri-Energy project in Thailand, and the Doga project in Turkey. EME also has
contingent obligations to make additional contributions of $203 million,
primarily for equity support guarantees related to Paiton.
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 and funds available from EME's
revolving line of credit.
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, 1998, SCE
had the capacity to pay $1.1 billion 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.
In December 1997, SCE Funding LLC, a special purpose entity (SPE), of which SCE
is the sole member, issued approximately $2.5 billion of rate reduction notes to
Bankers Trust Company of California, as certificate trustee for the California
Infrastructure and Economic Development Bank Special Purpose Trust SCE-1
(Trust), which is a special purpose entity established by the State of
California. The terms of the rate reduction notes generally mirror the terms of
the pass-through certificates issued by the Trust, which are known as rate
reduction certificates. The proceeds of the rate reduction notes were used by
the SPE to purchase from SCE an enforceable right known as transition property.
Transition property is a current property right created pursuant to the
restructuring legislation and a financing order of the CPUC and consists
generally of the right to be paid a specified amount from a non-bypassable
tariff levied on residential and small commercial customers. Notwithstanding the
legal sale of the transition property by SCE to the SPE, the amounts reflected
as assets on SCE's balance sheet have not been reduced by the amount of the
transition property sold to the SPE, and the liabilities of the SPE for the rate
reduction notes are for accounting purposes reflected as long-term liabilities
on the consolidated balance sheet of SCE. SCE used the proceeds from the sale of
the transition property to retire debt and equity securities.
The rate reduction notes have maturities ranging from one to 10 years, and bear
interest at rates ranging from 5.98% to 6.42%. The rate reduction notes are
secured solely by the transition property and certain other assets of the SPE,
and there is no recourse to SCE or Edison International.
Although the SPE is consolidated with SCE in the financial statements, as
required by generally accepted accounting principles, the SPE is legally
separate from SCE, the assets of the SPE are not available to creditors of SCE
or Edison International, and the transition property is legally not an asset of
SCE or Edison International.
A voter initiative, known as California Proposition 9 on the November 1998
ballot, proposes to, among other things, prohibit the collection of any charges
in connection with the financing order for the purpose of making payments on
rate reduction notes. If Proposition 9 is voted into law and is not immediately
overturned or is not stayed pending judicial review of its merits, the
collection of charges necessary to pay the certificates while the litigation is
pending could be precluded, which would adversely affect the
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certificates and the secondary market for the certificates, including the
pricing, liquidity, dates of maturity, and weighted-average lives of the
certificates. In addition, if Proposition 9 is voted into law and upheld by the
courts, it could have a further material adverse effect on the certificates and
the holders of the certificates could incur a loss on their investment. A more
detailed discussion is in "California Proposition 9 -- November 1998 Voter
Initiative."
Cash Flows from Investing Activities
Cash flows from investing activities are affected by additions to property and
plant, the nonutilities' investments in partnerships and unconsolidated
subsidiaries, proceeds from the sale of plant (see discussion in Divestiture),
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 between 2013 --2070 to decommission its
nuclear facilities. This estimate is based on SCE's current-dollar
decommissioning costs ($2.1 billion), escalated using a 6.65% annual rate. These
costs are expected to be funded from independent decommissioning trusts, which
will receive SCE contributions of approximately $100 million per year until
decommissioning begins. Any plan to decommission San Onofre Unit 1 prior to 2013
is not expected to affect SCE's annual contributions to the decommissioning
trusts.
Cash used for the nonutility subsidiaries' investing activities was $423 million
for the six-month period ended June 30, 1998, compared to $401 million for the
same period in 1997. The increase is primarily due to Edison Capital's
investment in leveraged leases.
Market Risk Exposures
Edison International's primary market risk exposures arise from fluctuations in
energy prices, interest rates and foreign exchange rates. Edison International's
risk management policy allows the use of derivative financial instruments to
manage its financial exposures, but prohibits the use of these instruments for
speculative or trading purposes.
SCE has hedged a portion of its exposure to increases in natural gas prices.
Increases in natural gas prices tend to increase the price of electricity
purchased from the PX. SCE's exposure is also limited by regulatory mechanisms
that protect SCE from much of the risk arising from high electricity prices.
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 mitigated 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 project financings. As a result
of interest rate hedging mechanisms, interest expense includes $12 million in
the six months ended June 30, 1998, compared to $7 million for the same period
in 1997. The maturity dates of several of EME's interest rate swap and collar
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
its results of operations or financial position.
Projects in the United Kingdom sell their electric energy and capacity through a
centralized electricity pool, which establishes a half-hourly clearing price or
pool price for electric energy. 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), related to either the selling or
purchasing price of power, where a contract specifies a price at which the
electricity will be traded, and the parties to the agreements make payments,
calculated based on the difference between the price in the contract and the
pool price for the element of power under contract. These contracts can be sold
in two structures: one-way contracts, where a specified monthly amount is
received in advance and difference payments are made when the pool price is
above the price specified in the contract, and two-way contracts, where the
counterparty pays First Hydro when the pool price is below the contract priced
instead of a specified monthly amount. These contracts act as a means of
stabilizing production revenue or purchasing costs by removing an element of
First Hydro's net exposure to pool price volatility. First Hydro's electric
revenue increased by $29 million for the six months ended
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June 30, 1998, compared to an increase of $20 million for the same period in
1997, as a result of electricity rate swap agreements. The structure of the
forward-contracts market and the pool is currently under review by the Director
General of Electricity Supply, at the request of the Minister for Science,
Energy and Industry in the United Kingdom, and a report is expected in the third
quarter of 1998.
Loy Yang B sells its electric energy through a centralized electricity pool,
which provides for a system of generator bidding, central dispatch and a
settlements system based on a clearing market for each half-hour of every day.
The Victorian Power Exchange, operator and administrator of the pool, determines
a system marginal price each half-hour. To mitigate the exposure to price
volatility of the electricity traded in the pool, Loy Yang B has entered into a
number of financial hedges. From May 8, 1997, to December 31, 2000,
approximately 53% to 64% of the plant output sold is hedged under vesting
contracts, with the remainder of the plant capacity hedged under the state hedge
described below. Vesting contracts were put into place by the State Government
of Victoria (State), between each generator and each distributor, prior to the
privatization of electric power distributors in order to provide more
predictable pricing for those electricity customers that were unable to choose
their electricity retailer. Vesting contracts set base strike prices at which
the electricity will be traded, and the parties to the agreement make payments,
calculated based on the difference between the price in the contract and the
half-hourly pool clearing price for the element of power under contract. These
contracts can be sold as one-way or two-way contracts which are structured
similar to the electricity rate swap agreements described above. These contracts
are accounted for as electricity rate swap agreements. The state hedge is a
long-term contractual arrangement based upon a fixed price commencing May 8,
1997, and terminating October 31, 2016. The State guarantees the State
Electricity Commission of Victoria's obligations under the state hedge. Loy Yang
B's electric revenue increased by $41 million for the six months ended June 30,
1998, as a result of hedging contract arrangements. As EME continues to expand
into foreign markets, fluctuations in foreign currency exchange rates can affect
the amount of its equity contributions to, distributions from and results of
operations of its foreign projects. At times, EME has hedged a portion of its
current exposure to fluctuations in foreign exchange rates where it deems
appropriate through financial derivatives, 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. Statistical forecasting techniques are used to help assess foreign
exchange risk and the probabilities of various outcomes. There can be no
assurance, however, that fluctuations in exchange rates will be fully offset by
hedges or that currency movements and the relationship between macroeconomic
variables will behave in a manner that is consistent with historical or
forecasted relationships.
Construction on the two-unit Paiton project is approximately 93% complete, and
commercial operation is expected in the first half of 1999. The tariff is higher
in the early years and steps down over time, and the tariff for the Paiton
project includes infrastructure to be used in common by other units at the
Paiton complex. The plant's output is fully contracted with the state-owned
electricity company for payment in U.S. dollars. The projected rate of growth of
the Indonesian economy and the exchange rate of Indonesian Rupiah into U.S.
dollars have deteriorated significantly since the Paiton project was contracted,
approved and financed. The project received substantial finance and insurance
support from the Export-Import Bank of the United States, The Export-Import Bank
of Japan, the U.S. Overseas Private Investment Corporation and the Ministry of
International Trade and Industry of Japan. The Paiton project's senior debt
ratings have been reduced from investment grade to speculative grade based on
the rating agencies' perceived increased risk that the state-owned electricity
company might not be able to honor the electricity sales contract with Paiton. A
presidential decree has deemed some power plants, but not including the Paiton
project, subject to review, postponement or cancellation. EME continues to
monitor the situation closely.
Projected Capital Requirements
Edison International's projected construction expenditures for the next five
years are: 1998 -- $867 million; 1999 -- $729 million; 2000 -- $685 million;
2001 -- $684 million; and 2002 -- $656 million.
Long-term debt maturities and sinking fund requirements for the five
twelve-month periods following June 30, 1998, are: 1999 -- $769 million; 2000 --
$991 million; 2001 -- $1.2 billion; 2002 -- $341 million; and 2003 -- $698
million.
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Preferred stock redemption requirements for the five twelve-month periods
following June 30, 1998, are: 1999 through 2001 -- zero; 2002 -- $105 million;
and 2003 -- $9 million.
Generating Station Acquisition
On August 2, 1998, EME entered into agreements to acquire the 1,884-MW Homer
City Generating Station for approximately $1.8 billion. Homer City, jointly
owned by subsidiaries of GPU, Inc. and New York State Electric & Gas
Corporation, is the only major regional coal-fired facility with direct high
voltage interconnection to the New York Power Pool and the Pennsylvania-New
Jersey-Maryland Power Pool without access charges. The plant is located near
Pittsburgh, Pennsylvania. EME will operate the plant, which is one of the
lowest-cost generation facilities in the region. The sale is subject to approval
by the Pennsylvania Public Utility Commission, the New York State Public Service
Commission and other regulatory agencies, and is expected to be completed by the
first quarter of 1999. EME plans to finance this acquisition with a combination
of debt secured by the project, EME corporate debt and cash. The acquisition is
expected to have no effect on 1999 earnings and a positive effect on earnings in
2000 and beyond.
Regulatory Matters
Legislation enacted in September 1996 provided for, among other things, a 10%
rate reduction for residential and small commercial customers in 1998 and other
rates to remain frozen at June 1996 levels (system average of 10.1(cent) per
kilowatt-hour). See further discussion in "Competitive Environment
- --Restructuring Statute."
In 1998, revenue is determined by various mechanisms depending on the utility
operation. Revenue related to distribution operations is determined through a
performance-based rate-making mechanism (PBR) (see discussion in "Competitive
Environment -- PBR") and the distribution assets have the opportunity to earn a
CPUC-authorized 9.49% return. Until the ISO began operation, transmission
revenue was determined by the same mechanism as distribution operations. After
March 31, 1998, transmission revenue is determined through FERC-authorized rates
and transmission assets earn a 9.43% return. These rates are subject to refund.
See discussion in "Competitive Environment -- Rate-setting."
Revenue from generation-related operations is determined through the CTC
mechanism, nuclear rate-making agreements and the competitive market. Revenue
related to fossil and hydroelectric generation operations is recovered from two
sources. The portion that is made uneconomic by electric industry restructuring
is recovered through the CTC mechanism. The portion that is economic is
recovered through the market. In 1998, fossil and hydroelectric generation
assets earn a 7.22% return. A more detailed discussion is in "Competitive
Environment -- CTC."
The CPUC has authorized revised rate-making plans for SCE's nuclear facilities,
which call for the accelerated recovery of its nuclear investments in exchange
for a lower authorized rate of return. SCE's nuclear assets are earning an
annual rate of return of 7.35%. In addition, the San Onofre plan authorizes a
fixed rate of approximately 4(cent) per kilowatt-hour generated for operating
costs including incremental capital costs, and nuclear fuel and nuclear fuel
financing costs. The San Onofre plan commenced in April 1996, and ends in
December 2001 for the accelerated recovery portion and in December 2003 for the
incentive pricing portion. Palo Verde's operating costs, including incremental
capital costs, and nuclear fuel and nuclear fuel financing costs, are subject to
balancing account treatment. The Palo Verde plan commenced in January 1997 and
ends in December 2001. Beginning January 1, 1998, both the San Onofre and Palo
Verde rate-making plans became part of the CTC mechanism.
The changes in revenue from the regulatory mechanisms discussed above, excluding
the effects of other rate actions, are expected to have a minimal impact on 1998
earnings. However, the issuance of the rate reduction notes in December 1997,
which enables the repurchase of debt and equity, will have a negative impact on
1998 earnings of approximately $97 million. The impact on earnings per share is
mitigated by the repurchase of common stock from the rate reduction note
proceeds.
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Prior to the restructuring of the electric utility industry, SCE recovered its
non-nuclear capital additions to utility plant through depreciation rates
authorized in the general rate case. As part of the CTC Phase 2 decision, the
CPUC authorized recovery of the December 31, 1995, balances of non-nuclear
generating facilities through the CTC mechanism. The CPUC stated that rate
recovery for capital additions to the non-nuclear generating facilities should
be sought through a separate filing. In October 1997, SCE filed an application
with the CPUC requesting rate recovery of $61 million of 1996 capital additions
to its non-nuclear generating facilities. Hearings were held in early 1998. The
CPUC's Office of Ratepayer Advocates and The Utilities Reform Network
recommended a combined total disallowance of $37 million. A CPUC decision is
expected in third quarter 1998. In third quarter 1998, SCE plans to file an
application for rate recovery of capital additions to these same generating
facilities for the period January 1, 1997, through the date of divestiture.
Competitive Environment
SCE currently operates in a highly regulated environment in which it has an
obligation to deliver 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
industry.
California Electric Utility Industry Restructuring
Restructuring Decision -- The CPUC's December 1995 decision on restructuring
California's electric utility industry started the transition to a new market
structure; competition and customer choice began on April 1, 1998. Key elements
of the CPUC's restructuring decision included: creation of the PX and ISO;
availability of customer choice for electricity supply and certain billing and
metering services; PBR for those utility services not subject to competition;
voluntary divestiture of at least 50% of utilities' gas-fueled generation; and
implementation of the CTC.
Restructuring Statute -- In September 1996, the State of California enacted
legislation to provide a transition to a competitive market structure. The
Statute substantially adopted the CPUC's December 1995 restructuring decision by
addressing stranded-cost recovery for utilities and providing a certain
cost-recovery time period for the transition costs associated with utility-owned
generation-related assets. Transition costs related to power-purchase contracts
are being recovered through the terms of their contracts while most of the
remaining transition costs will be recovered through 2001. The Statute also
included provisions to finance a portion of the stranded costs that residential
and small commercial customers would have paid between 1998 and 2001, which
allowed SCE to reduce rates by at least 10% to these customers, effective
January 1, 1998. The Statute included a rate freeze for all other customers,
including large commercial and industrial customers, as well as provisions for
continued funding for energy conservation, low-income programs and renewable
resources. Despite the rate freeze, SCE expects to be able to recover its
revenue requirement during the 1998-2001 transition period. In addition, the
Statute mandated the implementation of the CTC that provides utilities the
opportunity to recover costs made uneconomic by electric utility restructuring.
Finally, the Statute contained provisions for the recovery (through 2006) of
reasonable employee-related transition costs, incurred and projected, for
retraining, severance, early retirement, outplacement and related expenses. A
voter initiative, known as California Proposition 9, seeks to overturn major
portions of the Statute. A more detailed discussion of Proposition 9 is in
"California Proposition 9 -- November 1998 Voter Initiative."
Rate Reduction Notes -- In December 1997, after receiving approval from both the
CPUC and the California Infrastructure and Economic Development Bank, a limited
liability company created by SCE issued approximately $2.5 billion of rate
reduction notes. Residential and small commercial customers, whose 10% rate
reduction began January 1, 1998, are repaying the notes over the expected
10-year term through non-bypassable charges based on electricity consumption. A
voter initiative on the November 1998 ballot seeks to prohibit the collection of
these non-bypassable charges, or if the charges are found enforceable by a
court, require SCE to offset such charges with an equal credit to customers. For
further details, see the discussion in "Cash Flows from Financing Activities."
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Rate-setting -- Beginning January 1, 1998, SCE's rates were unbundled into
separate charges for energy, transmission, distribution, the CTC, public benefit
programs and nuclear decommissioning. The transmission component is being
collected through FERC-approved rates, subject to refund. In August 1997, the
CPUC issued a decision which adopted a methodology for determining CTC
residually (see "CTC" discussion below) and adopted SCE's revenue requirement
components for public benefit programs and nuclear decommissioning. The decision
also adjusted SCE's proposed distribution revenue requirement (see "PBR"
discussion below) by reallocating $76 million of it annually to other functions
such as generation and transmission. Under the decision, SCE will be able to
recover most of the reallocated amount through market revenue, other rate-making
mechanisms or operation and maintenance contracts with the new owners of the
divested generation plants.
PX and ISO -- On March 31, 1998, both the PX and ISO began accepting bids and
schedules for April 1, 1998, when the ISO took over operational control of the
transmission system. The hardware and software systems being utilized by the PX
and ISO in their bidding and scheduling activities were financed through loans
of $300 million (backed by utility guarantees) obtained by restructuring trusts
established by a CPUC order in 1996. The PX and ISO will repay the trusts' loans
through charges for service to future PX and ISO customers. The restructuring
implementation costs related to the start-up and development of the PX, which
are paid by the utilities, will be recovered from all retail customers over the
four-year transition period. SCE's share of the charge is $45 million, plus
interest and fees. SCE's share of the ISO's start-up and development costs
(approximately $16 million per year) will be paid over a 10-year period.
Direct Customer Access -- Effective April 1, 1998, customers are now able to
choose to remain utility customers with either bundled electric service or an
hourly PX pricing option from SCE (which is purchasing its power through the
PX), or choose direct access, which means the customer can contract directly
with either independent power producers or energy service providers (ESPs) such
as power brokers, marketers and aggregators. Additionally, all
investor-owned-utility customers are paying the CTC whether or not they choose
to buy power through SCE. Electric utilities are continuing to provide the core
distribution service of delivering energy through their distribution system
regardless of a customer's choice of electricity supplier. The CPUC is
continuing to regulate the prices and service obligations related to
distribution services. As of July 1, 1998, approximately 47,000 of SCE's 4.3
million customers have requested the direct access option.
Revenue Cycle Services -- Effective April 1, 1998, customers have options
regarding metering, billing and related services (referred to as revenue cycle
services) that have been provided by California's investor-owned utilities. Now
ESPs can provide their customers with one consolidated bill for their services
and the utility's services, request the utility to provide a consolidated bill
to the customer or elect to have both the ESP and the utility bill the customer
for their respective charges. In addition, customers with maximum demand above
20 kW (primarily industrial and medium and large commercial) can choose SCE or
any other supplier to provide their metering service. All other customers will
have this option beginning in January 1999. In determining whether any credit
should be provided by the utility to customers who elect to have ESPs provide
them with revenue cycle services, and the amount of any such credit, the CPUC
has indicated that it is appropriate to provide such customers with the
utility's avoided costs net of costs incurred by the utility to facilitate the
provision of such services by a firm other than the utility. The unbundling of
revenue cycle services will expose SCE to the possible loss of revenue and a
reduction in revenue security.
PBR -- In September 1996, the CPUC adopted a transmission and distribution (T&D)
PBR mechanism for SCE which began on January 1, 1997. Beginning in April 1998,
the transmission portion was separated from PBR and subject to ratemaking under
the rules of the FERC. The distribution-only PBR will extend through December
2001. Key elements of PBR include: T&D rates indexed for inflation based on the
Consumer Price Index less a productivity factor; elimination of the
kilowatt-hour sales adjustment; adjustments for cost changes that are not within
SCE's control; a cost-of-capital trigger mechanism based on changes in a bond
index; standards for service reliability and safety; and a net revenue-sharing
mechanism that determines how customers and shareholders will share gains and
losses from T&D operations.
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The CPUC is considering unbundling SCE's cost of capital based on major utility
function. On May 8, 1998, SCE filed an application on this issue. A CPUC
decision is expected in early 1999.
Beginning in 1998, SCE's hydroelectric plants are operating under a PBR-type
mechanism. The mechanism sets the hydroelectric revenue requirement and
establishes a formula for extending it through the duration of the electric
industry restructuring transition period, or until market valuation of the
hydroelectric facilities, whichever occurs first. The mechanism provides that
power sales revenue from hydroelectric facilities in excess of the hydroelectric
revenue requirement be credited against the costs to transition to a competitive
market (see "CTC" discussion below).
Divestiture -- In November 1996, SCE filed an application with the CPUC to
voluntarily divest, by auction, all 12 of its gas- and oil-fueled generation
plants. Under this proposal, SCE would continue to operate and maintain the
divested power plants for at least two years following their sale, as mandated
by the restructuring legislation enacted in September 1996. In addition, SCE
would offer workforce transition programs to those employees who may be impacted
by divestiture-related job reductions. In September 1997, the CPUC approved
SCE's proposal to auction the 12 plants.
SCE has sold all 12 of its gas- and oil-fueled generation plants. Transfer of
ownership of 11 plants was completed by June 30, 1998, and transfer of ownership
of the 12th plant took place on July 8, 1998. The total sales price of the 12
plants was $1.2 billion, over $500 million more than the combined book value.
Net proceeds of the sales were used to reduce stranded costs, which otherwise
were expected to be collected through the CTC mechanism.
CTC -- The costs to transition to a competitive market are being recovered
through a non-bypassable CTC. This charge applies to all customers who were
using or began using utility services on or after the CPUC's December 20, 1995,
decision date. The CTC is being determined residually by subtracting other rate
components for the PX, T&D, nuclear decommissioning and public benefit programs
from the frozen rate levels. SCE currently estimates its transition costs to be
approximately $10.6 billion (1998 net present value) from 1998 through 2030.
This estimate is based on incurred costs, forecasts of future costs and assumed
market prices. However, changes in the assumed market prices could materially
affect these estimates. The potential transition costs are comprised of $6.4
billion from SCE's qualifying facilities contracts, which are the direct result
of prior legislative and regulatory mandates and $4.2 billion from costs
pertaining to certain generating assets (successful completion of the sale of
SCE's gas-fired generating plants has reduced this estimate of transition costs
for SCE-owned generation) 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 Units 2 and 3 and the Palo Verde units (as
discussed in "Regulatory Matters"), and certain other costs. This issue was
separated into two phases; Phase 1 addressed the rate-making issues and Phase 2
the quantification issues.
Major elements of the CPUC's CTC Phase 1 and Phase 2 decisions were: the
establishment of a transition cost balancing account and annual transition cost
proceedings; the setting of a market rate forecast for 1998 transition costs;
the requirement that generation-related regulatory assets be amortized ratably
over a 48-month period; the establishment of calculation methodologies and
procedures for SCE to collect its transition costs from 1998 through the end of
the rate freeze; and the reduction of SCE's authorized rate of return on certain
assets eligible for transition cost recovery (primarily fossil- and
hydroelectric-generation related assets) beginning July 1997, five months
earlier than anticipated. SCE has filed an application for rehearing on the 1997
rate of return issue.
Accounting for Generation-Related Assets -- If the CPUC's electric industry
restructuring plan continues as described above, SCE would be allowed to recover
its CTC through non-bypassable charges to its distribution customers (although
its investment in certain generation assets would be subject to a lower
authorized rate of return). During the third quarter of 1997, SCE discontinued
application of accounting principles for rate-regulated enterprises for its
investment in generation facilities based on a consensus reached by the
Financial Accounting Standards Board's Emerging Issues Task Force (EITF). The
financial reporting effect of this discontinuance was to segregate these assets
on the balance sheet; the EITF consensus did not require SCE to write off any of
its generation-related assets, including related
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regulatory assets. However, the EITF did not specifically address the
application of asset impairment standards to these assets. SCE has retained
these assets on its balance sheet because the legislation and restructuring plan
referred to above make probable their recovery through a non-bypassable CTC to
distribution customers. The regulatory assets relate primarily to the recovery
of accelerated income tax benefits previously flowed through to customers,
purchased power contract termination payments and unamortized losses on
reacquired debt. The consensus reached by the EITF also permits the recording of
new generation-related regulatory assets during the transition period that are
probable of recovery through the CTC mechanism.
During the second quarter of 1998, additional guidance was developed relating to
the application of asset impairment standards to these assets. Using this
guidance has resulted in SCE reducing its remaining nuclear plant investment by
$2.6 billion and recording a regulatory asset on its balance sheet for the same
amount. For this impairment assessment, the fair value of the investment was
calculated by discounting future net cash flows. This reclassification had no
effect on SCE's results of operations.
If during the transition period events were to occur that made the recovery of
generation-related regulatory assets no longer probable, SCE would be required
to write off the remaining balance of such assets (approximately $2.4 billion,
after tax, at June 30, 1998) as a one-time, non-cash charge against earnings.
If events occur during the restructuring process 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 what other revisions will ultimately
be made during the restructuring process 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.
California Proposition 9 -- November 1998 Voter Initiative
In November 1997, individuals representing The Utilities Reform Network, Public
Media Center and the Coalition Against Utility Taxes filed a proposed voter
initiative that seeks to overturn major portions of the electric industry
restructuring legislation enacted in California in September 1996 (Statute). The
voter initiative proposes, among other things, to: (i) impose an additional 10%
rate reduction for residential and small commercial customers beyond the 10%
reduction that went into effect on January 1, 1998; (ii) block stranded-cost
recovery of nuclear investments; (iii) restrict stranded-cost recovery of
non-nuclear investments unless the CPUC finds that the utility would be deprived
of the opportunity to earn a fair rate of return; and (iv) prohibit the
collection of any charges in connection with a financing order for the purpose
of making payments on rate reduction notes, or if the financing order is found
enforceable by a court, require the utility to offset such charges with an equal
credit to customers.
On June 24, 1998, the California Secretary of State announced that the proposed
voter initiative qualified for the November 1998 ballot. On July 17, 1998, the
Secretary of State designated the initiative as Proposition 9 on the ballot.
On May 22, 1998, Californians for Affordable and Reliable Electric Service
(CARES), a coalition of California business organizations and utilities, filed a
petition for writ of mandate with the Court of Appeal of the State of
California. CARES is sponsored by the California Business Roundtable, the
California Chamber of Commerce, San Diego Gas & Electric Company, the California
Manufacturers Association, Pacific Gas & Electric Company, the California
Retailers Association, and SCE, among other groups. The CARES petition
challenged Proposition 9 as illegal and unconstitutional on its face, and sought
to remove the initiative from the November 1998 ballot. On July 2, 1998, the
Court of Appeal denied the CARES petition. On July 6, 1998, CARES filed its
appeal of the denial with the California Supreme Court. On July 15, 1998, the
California Supreme Court denied the CARES petition. In these rulings, the Court
of Appeal of the State of California and the California Supreme Court both
decided, in effect, not to consider the legality and constitutionality of
Proposition 9 prior to the November 1998 election.
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If Proposition 9 is voted into law, further litigation would ensue. Under the
terms of a servicing agreement relating to the rate reduction notes, SCE (acting
as the servicer) is required to take such legal or administrative actions as may
be reasonably necessary to block or overturn any attempts to cause a repeal of,
modification of, or supplement to the Statute, the financing order issued by the
CPUC, or the rights of holders of the property right authorized by the Statute
and the financing order by legislative enactment, voter initiative or
constitutional amendment that would be adverse to holders of the rate reduction
notes. The costs of such actions would be payable out of collections of the
non-bypassable charges established by the financing order and the related
issuance advice letter as an operating expense related to the rate reduction
notes. However, SCE may be required to advance its own funds to satisfy its
obligations as servicer to take such legal and administrative actions.
SCE is unable to predict the outcome of this matter, but if Proposition 9 were
to be voted into law, and not immediately stayed and ultimately invalidated by
the courts, it could have a material adverse effect on SCE's results of
operation and financial position. Upon voter approval of Proposition 9, a
write-down of a portion of SCE's generation-related assets might be required
under applicable accounting principles, depending on SCE's assessment of both
the probability that Proposition 9 would be struck down by the courts and the
manner in which it would be interpreted and applied to SCE. The meaning of many
provisions of Proposition 9 is unclear and, if the courts uphold it in whole or
part, will be subject to judicial and regulatory interpretation. Depending on
how Proposition 9 is interpreted and implemented with respect to SCE, the
potential write-down of SCE's generation-related assets could amount to as much
as $1.9 billion after tax.
Additionally, if Proposition 9 passes and survives legal challenges, SCE could
suffer impacts on its annual earnings, including the possibility of being
required to offset customer charges necessary to pay the principal and interest
on the rate reduction notes. Depending on how this provision and other
provisions of Proposition 9 are interpreted and applied, the annual earnings
reductions could be as large as $210 million in 1999, gradually declining to as
much as $10 million in 2007, and immaterial amounts thereafter.
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 likely range of costs.
Edison International's recorded estimated minimum liability to remediate its 51
identified sites is $178 million. One of SCE's sites, a former pole-treating
facility, is considered a federal Superfund site and represents 41% of its
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 $246 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. SCE has sold all of
its gas- and oil-fueled power plants and has retained some liability associated
with the divested properties.
The CPUC allows SCE to recover environmental-cleanup costs at 41 of its sites,
representing $91 million of its recorded liability, through an incentive
mechanism. Under this mechanism, SCE will recover 90% of cleanup costs through
customer rates; shareholders fund the remaining 10%, with the opportunity to
recover these costs from insurance carriers and other third parties. SCE has
successfully settled insurance claims with all responsible carriers. Costs
incurred at SCE's remaining sites are expected to be recovered through customer
rates. SCE has recorded a regulatory asset of $148 million for its estimated
minimum environmental-cleanup costs expected to be recovered through customer
rates.
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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 $10 million.
Based on currently available information, Edison International believes it is
unlikely 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 materially affect 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
in progress 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 environmental capital expenditures are $935
million for the 1998-2002 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 has been the subject of scientific research. After many
years of research, scientists have not found that exposure to EMF causes disease
in humans. Research on this topic is continuing. 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.
San Onofre Steam Generator Tubes
The San Onofre Units 2 and 3 steam generators have performed relatively well
through the first 15 years of operation, with low rates of ongoing steam
generator tube degradation. However, during the Unit 2 scheduled refueling and
inspection outage, which was completed in Spring 1997, an increased rate of tube
degradation was identified, which resulted in the removal of more tubes from
service than had been expected. The steam generator design allows for the
removal of up to 10% of the tubes before the rated capacity of the unit must be
reduced. As a result of the increased degradation, a mid-cycle inspection outage
was conducted in early 1998 for Unit 2. Continued degradation was found during
this inspection. Monitoring of this degradation will occur at the next scheduled
refueling outage in January 1999. An additional mid-cycle inspection outage may
be required early in 2000. With the results from the February 1998 outage, 7% of
the tubes have now been removed from service.
During Unit 3's refueling outage, which was completed in July 1997, inspections
of structural supports for steam generator tubes identified several areas where
the thickness of the supports had been reduced, apparently by erosion during
normal plant operation. A follow-up mid-cycle inspection indicated that the
erosion had been stabilized. Additional monitoring inspections are planned
during the next
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scheduled refueling outage in 1999. To date, 5% of Unit 3's tubes have been
removed from service. During Unit 2's February 1998 mid-cycle outage, similar
tube supports showed no significant levels of such erosion.
Accounting Rules
During 1996, the Financial Accounting Standards Board issued an exposure draft
that 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 the 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 even after deregulation 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 their results of operations and financial position.
A recently issued accounting rule requires that costs related to start-up
activities be expensed as incurred, effective January 1, 1999. Edison
International currently expenses its start-up costs and therefore does not
expect this new accounting rule to materially affect its results of operations
or financial position.
In June 1998, a new accounting standard for derivative instruments and hedging
activities was issued. The new standard, which will be effective January 1,
2000, requires all derivatives to be recognized on the balance sheet at fair
value. Gains or losses from changes in fair value would be recognized in
earnings in the period of change unless the derivative is designated as a
hedging instrument. Gains or losses from hedges of a forecasted transaction or
foreign currency exposure would be reflected in other comprehensive income.
Gains or losses from hedges of a recognized asset or liability or a firm
commitment would be reflected in earnings for the ineffective portion of the
hedge. SCE anticipates that most of its derivatives under the new standard would
qualify for hedge accounting. SCE expects to recover in rates any market price
changes from its derivatives that could potentially affect earnings. Edison
International is studying the impact of the new standard on its nonutility
subsidiaries, and is unable to predict at this time the impact on its financial
statements.
Year 2000 Issue
Many of Edison International's existing computer systems identify a year by
using only two digits instead of four. If not corrected, these programs could
fail or create erroneous results beginning in 2000. This situation has been
referred to generally as the Year 2000 Issue.
SCE has a comprehensive program in place to remediate potential Year 2000
impacts. SCE divides its Year 2000 Issue activities into five phases: inventory,
impact assessment, remediation, testing and implementation. SCE's plan for
critical systems is to be 75% complete by year-end 1998, and 100% complete by
July 1999. A critical system is defined as those applications and systems,
including embedded processor technology, which if not appropriately remediated,
may have a significant impact on customers, the revenue stream, regulatory
compliance, or the health and safety of personnel.
The scope of this program includes three categories: mainframe computing,
distributed computing and physical assets (also known as embedded processors).
For mainframe financial systems, Year 2000 remediation was completed in the
fourth quarter of 1997. Remediation for the material management system was
completed in the second quarter of 1998. The customer information and billing
system is scheduled to be replaced by the first quarter of 1999 with a system
designed to be Year 2000-ready. Distributed computing assets include operations
and business information systems. The critical operations information systems
include outage management, power management, and plant monitoring and access
retrieval systems. Business information systems include a data acquisition
system for billing, the computer call center support system, credit support and
maintenance management. SCE is on
25
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schedule to have its mainframe and distributed computing assets Year 2000-ready
within the timeframe discussed above. The physical asset portfolio includes
systems in the generation, transmission, distribution, telecommunications and
facilities areas. SCE has completed its inventory of these systems and impact
assessment for critical physical assets is nearly complete.
The other essential component of the SCE Year 2000 readiness program is to
identify and assess vendor products and business partners for Year 2000
readiness. SCE has a process in place to identify and contact vendors and
business partners to determine their Year 2000 status, and is evaluating the
responses. SCE's general policy requires that all newly purchased products be
Year 2000-ready or otherwise designed to allow SCE to determine whether such
products present Year 2000 issues. SCE is also working to address Year 2000
issues related to all ISO and PX interfaces.
Preliminary estimates of the costs to complete these modifications, including
the cost of new hardware and software application modification, range from $55
million to $80 million, about half of which are expected to be capital costs.
SCE expects current rate levels for providing electric service to be sufficient
to provide funding for these modifications.
Although SCE is confident that its critical systems will be fully remediated
prior to year-end 1999, SCE believes that prudent business practices call for
the development of contingency plans. Such contingency plans shall include
developing strategies for dealing with Year 2000-related processing failures or
malfunctions due to SCE's internal systems or from external parties. SCE's
contingency plans are expected to be completed by March 1999; therefore, these
risk factors are not yet fully known, and SCE's reasonably likely worst case
scenario also is unknown at this time. Edison International does not expect the
Year 2000 issue to have a material adverse effect on its results of operation or
financial position; however, if not effectively remediated, negative effects
from Year 2000 issues, including those related to internal systems, vendors,
business partners, the ISO, the PX or customers, could cause results to differ.
Edison Mission Energy is continuing its Year 2000 Issue review at its power
projects and does not anticipate material expenditures to resolve this issue.
Forward-looking Information
In the preceding 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 further actions by state and federal regulatory bodies
setting rates and implementing the restructuring of the electric utility
industry; the effects of new laws and regulations relating to restructuring and
other matters; the effects of increased competition in the electric utility
business, including the beginning of direct customer access to retail energy
suppliers and the unbundling of revenue cycle services such as metering and
billing; changes in prices of electricity and fuel costs; changes in market
interest or currency exchange rates; foreign currency devaluation; new or
increased environmental liabilities; the effects of the Year 2000 Issue; the
passage and implementation of California Proposition 9; and other unforeseen
events.
26
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PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
Edison International
Tradename Litigation
As previously reported in Part II, Item 1 of the Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998, on September 30, 1997, an
action was filed against Edison International in the United States District
Court for the Southern District of New York alleging trademark infringement
under the Lanham Act and related state causes of action for unfair competition.
The complaint requested injunctive relief restraining Edison International from
using various tradenames and trademarks utilizing the "Edison" name and sought
to recover unspecified damages in profits from Edison International allegedly
arising from infringing activities. On November 19, 1997, Edison International
filed and served its answer to the complaint denying all of the substantive
allegations and asserting affirmative defenses. After an initial status
conference, the court stayed discovery in this matter to allow the parties to
discuss a resolution of the matter. Such discussions are continuing and the stay
of discovery has been extended by agreement of the parties.
Edison Mission Energy
PMNC Litigation
As previously reported in Part II, Item 1 of the Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998, in February 1997, a civil
action was commenced in the Superior Court of the State of California, Orange
County, entitled The Parsons Corporation and PMNC v. Brooklyn Navy Yard
Cogeneration Partners, L.P. (Brooklyn Navy Yard), Mission Energy New York, Inc.
and B-41 Associates, L.P., in which plaintiffs assert general monetary claims
under the construction turnkey agreement in the amount of $136.8 million. In
addition to defending this action, Brooklyn Navy Yard has also filed an action
entitled Brooklyn Navy Yard Cogeneration Partners, L.P. v. PMNC, Parsons Main of
New York, Inc., Nab Construction Corporation, L.K. Comstock & Co., Inc. and The
Parsons Corporation in the Supreme Court of the State of New York, Kings County,
asserting general monetary claims in excess of $13 million under the
construction turnkey agreement. On March 26, 1998, the Superior Court in the
California action granted PMNC's motion for attachment against Brooklyn Navy
Yard in the amount of $43 million. PMNC subsequently attached three checking
accounts in the approximate amount of $500,000. On the same day, the court
stayed all proceedings in the California action pending the appeal by PMNC of a
denial of its motion to dismiss the New York action.
Southern California Edison Company
Wind Generators' Litigation
As previously reported in Part II, Item 1 of the Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998, 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 ("Los Angeles County") and one was
filed in Kern County Superior Court ("Kern County"). The lawsuits alleged 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 sought declaratory relief regarding the proper interpretation of the
contracts. Plaintiffs alleged a combined total of approximately $189 million in
damages, which included consequential damages claimed in seven of the eight
lawsuits. Following the March 1 ruling, a ninth lawsuit was filed in Los Angeles
County raising claims similar to those alleged in the first eight. SCE
subsequently responded to the complaint in the new lawsuit by denying its
material allegations.
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After receiving a favorable decision in the liability phase of the lead case,
SCE agreed to settle with the plaintiffs in seven of the lawsuits on terms
whereby SCE waived its rights to recover costs against such plaintiffs in
exchange for their agreement that there is only one fixed price period under
each of their power purchase contracts with SCE and a mutual dismissal with
prejudice of claims. SCE also entered into a settlement agreement with the
plaintiff in another of the lawsuits which resolved the issue of multiple fixed
price periods on the same terms and which also resolved a related issue unique
to that plaintiff in exchange for a nominal payment by SCE. This settlement was
subject to bankruptcy court approval in bankruptcy proceedings involving the
plaintiff. On April 24, 1998, the bankruptcy court issued an order approving the
settlement.
Geothermal Generators' Litigation
As previously reported in Part II, Item 1 of the Registrant's quarterly Report
on Form 10-Q for the quarter ended March 31, 1998, on June 9, 1997, SCE filed a
complaint in Los Angeles County Superior Court against an independent power
producer of geothermal generation and six of its affiliated entities
(collectively the "Coso Defendants"). SCE alleges that in order to avoid power
production plant shutdowns caused by excessive noncondensable gas in the
geothermal field brine, the Coso Defendants routinely vented highly toxic
hydrogen sulfide gas from unmonitored release points beginning in 1990 and
continuing through at least 1994, in violation of applicable federal, state and
local environmental law. According to SCE, these violations constituted material
breaches by the Coso Defendants of their obligations under their contracts and
applicable law. The complaint sought termination of the contracts and damages
for excess power purchase payments made to the Coso Defendants. The Coso
Defendants' motion to transfer venue to Inyo County Superior Court was granted
on August 31, 1997.
On December 19, 1997, SCE filed a first amended complaint in response to which
the Coso Defendants filed a motion to strike the termination remedy sought by
SCE. This motion was granted on June 1, 1998. The Coso Defendants also filed a
motion for summary judgment, asserting that SCE's claims are time-barred or were
released in connection with the settlement of prior litigation among some of the
Coso Defendants and two of SCE's affiliates, Mission Power Engineering, and The
Mission Group (the Mission Parties). The court denied the Coso Defendants'
motion for summary judgment by order dated July 8, 1998. In addition, the Coso
Defendants filed a motion to stay SCE's case pending resolution of certain
technical issues by the Great Basin Air Quality Management District under the
doctrine of primary adjudication. On April 30, 1998, the court denied the motion
for stay without prejudice.
The Coso Defendants have also asserted various claims against SCE and the
Mission Parties in a cross-complaint filed in the action commenced by SCE as
well as in a separate action filed against SCE by three of the Coso Defendants
in Inyo County Superior Court. Following a hearing on November 20, 1997, the
court consolidated these actions for all purposes and ordered the Coso
Defendants to file a second amended cross-complaint, incorporating all but two
of the claims in the separate complaint.
The second amended cross-complaint asserts nineteen causes of action against
SCE, three of which are also asserted against the Mission Parties, and alleges
in excess of $115 million in compensatory damages and also punitive damages.
Several of these claims are premised on the theory that SCE has incorrectly
interpreted the cross-complainants' contracts as providing for only a single
"fixed price" period in view of the fact that the cross-complainants developed
their projects in phases. This theory has also been asserted by other
independent power producers in litigation pending in Los Angeles Superior Court.
(See "Wind Generators Litigation" above.) SCE filed a demurrer to, as well as a
motion to strike, certain portions of the second amended cross-complaint which
was argued on March 13, 1998. On May 22, 1998, the court granted SCE's motion to
strike and sustained the demurrer with leave to amend. The Coso Defendants
subsequently filed a motion for leave to file a third amended cross-complaint
which was argued and taken under submission on July 9, 1998.
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Electric and Magnetic Fields (EMF) Litigation
As previously reported in Part II, Item 1 of the Registrant's quarterly Report
on Form 10-Q for the quarter ended March 31, 1998, SCE is involved in three
lawsuits alleging that various plaintiffs developed cancer as a result of
exposure to EMF from SCE facilities. SCE denied the material allegations in its
responses to each of these lawsuits.
In December 1995, the court granted SCE's motion for summary judgment in the
first lawsuit and dismissed the case. Plaintiffs have filed a Notice of Appeal.
Briefs have been submitted but no date for oral argument has been set.
The second lawsuit has been dismissed by the plaintiffs. However, one of the
named plaintiffs is now deceased and a wrongful death action was filed by her
husband and children on May 7, 1998 and has been served on SCE.
On July 23, 1998, the court granted SCE's motion for summary judgment in the
third lawsuit and dismissed this case.
A California Court of Appeal decision, Cynthia Jill Ford et al. v. Pacific Gas &
Electric Co. (Ford), has held that the Superior Courts do not have jurisdiction
to decide issues, such as those concerning EMF, which are regulated by the CPUC.
The California Supreme Court recently denied the plaintiffs' petition for review
in Ford and it is now binding throughout California. SCE intends to seek
dismissal of the remaining cases in light of the Court of Appeal's decision.
San Onofre Personal Injury Litigation
As previously reported in Part II, Item 1 of the Registrant's quarterly Report
on Form 10-Q for the quarter ended March 31, 1998, SCE is involved in six
lawsuits alleging personal injuries relating to San Onofre.
An SCE engineer employed at San Onofre died in 1991 from cancer of the abdomen.
On February 6, 1995, his children sued SCE and SDG&E, as well as Combustion
Engineering, the manufacturer of the fuel rods for the plant, in the U.S.
District Court for the Southern District of California In the first lawsuit. On
December 7, 1995, the court granted SCE's motion for summary judgment on the
sole outstanding claim against it, basing the ruling on the worker's
compensation system being the exclusive remedy for the claim. Plaintiffs
appealed this ruling to the Ninth Circuit Court of Appeals. On May 28, 1998, the
Ninth Circuit Court affirmed the lower court's judgment in favor of SCE. 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 and his wife sued SCE and SDG&E
in the U.S. District Court for the Southern District of California in a second
lawsuit. Plaintiffs also named Combustion Engineering and the Institute of
Nuclear Power Operations as defendants. On December 22, 1995, SCE filed a motion
to dismiss or, in the alternative, for summary judgment based on worker's
compensation exclusivity. On March 25, 1996, the court granted SCE's motion for
summary judgment. Plaintiffs appealed this ruling to the Ninth Circuit Court of
Appeals. On May 28, 1998, the Ninth Circuit Court affirmed the lower court's
judgment in favor of SCE. The impact on SCE, if any, from further proceedings in
this case against the remaining defendants cannot be determined at this time.
On August 31, 1995, the wife and daughter of a former San Onofre security
supervisor sued SCE and SDG&E in the U.S. District Court for the Southern
District of California in the third lawsuit. Plaintiffs also named Combustion
Engineering and the Institute of Nuclear Power Operations as defendants. All
trial court proceedings have been stayed pending the ruling of the Court of
Appeals, recently issued by the Ninth Circuit on May 28, 1998 affirming the
lower court's judgment in favor of SCE, in the cases described in the above two
paragraphs. A trial date has not yet been set.
On November 17, 1995, an SCE employee and his wife sued SCE in the U.S. District
Court for the Southern District of California in the fourth lawsuit. Plaintiffs
also named Combustion Engineering. The trial in this case took place over
approximately 22 days between January and March 1998 and resulted in
29
<PAGE>
a jury verdict for both defendants. On March 19, 1998, the plaintiffs filed a
motion for a new trial. That motion was denied on June 9, 1998. On July 6, 1998,
plaintiffs filed a notice of appeal stating that they will appeal the trial
court's judgment to the Ninth Circuit Court of Appeals.
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 in the fifth lawsuit. Plaintiffs also named Combustion Engineering.
On August 12, 1996, the Court dismissed the claims of the former worker and her
husband with prejudice. This case, with only the son as plaintiff, is expected
to go to trial in late 1998 or early 1999.
On November 20, 1997, a former contract worker at San Onofre and his wife sued
SCE in the Superior Court of California, County of San Diego in the sixth
lawsuit. The case was removed to the U.S. District Court for the Southern
District of California. SCE filed a motion to dismiss the complaint for failure
to state a claim. In April 1998, the plaintiffs and SCE stipulated that SCE's
motion to dismiss be granted and that the plaintiffs be given leave to file an
amended complaint on or before May 11, 1998. On May 11, 1998, the plaintiffs
filed a first amended complaint. On May 22, 1998, SCE filed an answer denying
the material allegations of the first amended complaint.
False Claims Act Litigation
As previously reported in Part II, Item 1 of the Registrant's quarterly Report
on Form 10-Q for the quarter ended March 31, 1998, in September 1997, SCE became
aware of a complaint filed in the Southern District of the U.S. District Court
of California by a former San Onofre employee, acting at his own initiative on
behalf of the United States under the False Claims Act, against SCE and SDG&E.
SCE and SDG&E filed separate motions to dismiss this lawsuit on November 6,
1997. The former employee responded to both motions on December 20, 1997. SCE
and SDG&E replied to the former employee's responses on January 13, 1998. Oral
argument on the motion to dismiss was heard on January 20, 1998. On July 1,
1998, the U.S. District Court granted SCE's motion to dismiss. The court found
that the filed rate doctrine barred the former employee's federal claims, but
declined to rule on whether the state law claims would be likewise barred.
Instead, the court declined to exercise jurisdiction over the state law claims
in the wake of the dismissal of the federal claims.
Mohave Generating Station Environmental Litigation
As previously reported in Part II, Item 1 of the Registrant's quarterly Report
on Form 10-Q for the quarter ended March 31, 1998, on February 19, 1998, the
Sierra Club and the Grand Canyon Trust filed suit in the U.S. District Court of
Nevada against SCE, which operates Mohave, and the other three co-owners of the
Mohave Generating Station. The lawsuit alleges that Mohave has been violating
various provisions of the Clean Air Act, the Nevada state implementation plan,
certain Environmental Protection Agency orders, and applicable pollution permits
relating to opacity and sulfur dioxide emission limits over the last five years.
The plaintiffs seek declaratory and injunctive relief as well as civil
penalties. Under the Clean Air Act, the maximum civil penalty obtainable is
$25,000 per day per violation. SCE and the co-owners obtained an extension to
respond to the complaint and on April 10, 1998, a motion to dismiss was filed.
The plaintiffs filed an opposition to the motion to dismiss and a motion for
partial summary judgment on May 8, 1998. On May 29, 1998, SCE and the co-owners
filed their reply brief to the plaintiffs' opposition. On June 15, 1998, the
plaintiffs filed their final reply brief. SCE and the co-owners filed their
final reply to plaintiffs' opposition on June 25, 1998. The initial ruling by
the court on these motions is expected in early fall.
In addition, on June 4, 1998, the plaintiffs served SCE and its co-owners with a
60-day supplemental notice of intent to sue. This supplemental notice identified
additional causes of action that may be added to the ongoing litigation after
August 3, 1998. The new causes of action are expected to be a variation of the
existing allegations, and are not expected to raise new substantive issues. The
supplemental notice also stated the intent to add the National Parks and
Conservation Association as an additional plaintiff to these proceedings.
However, it is not expected that this will substantially change the timetable
for the court's initial ruling on all the pending motions.
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California Proposition 9 Litigation
In November 1997, individuals representing The Utilities Reform Network, Public
Media Center and the Coalition Against Utility Taxes filed a proposed voter
initiative that seeks to overturn major portions of the electric industry
restructuring legislation enacted in California in September 1996 ("Statute").
The voter initiative proposes, among other things, to: (i) impose an additional
10% rate reduction for residential and small commercial customers beyond the 10%
reduction that went into effect on January 1, 1998; (ii) block stranded-cost
recovery of nuclear investments; (iii) restrict stranded-cost recovery of
non-nuclear investments unless the CPUC finds that the utility would be deprived
of the opportunity to earn a fair rate of return; and (iv) prohibit the
collection of any charges in connection with a financing order for the purpose
of making payments on rate reduction notes, or if the financing order is found
enforceable by a court, require the utility to offset such charges with an equal
credit to customers.
On June 24, 1998, the California Secretary of State announced that the proposed
voter initiative qualified for the November 1998 ballot. On July 17, 1998, the
Secretary of State designated the initiative as Proposition 9 on the ballot.
On May 22, 1998, Californians for Affordable and Reliable Electric Service
(CARES), a coalition of California business organizations and utilities
(sponsored by the California Business Roundtable, the California Chamber of
Commerce, San Diego Gas & Electric Company, the California Manufacturers
Association, Pacific Gas & Electric Company, the California Retailers
Association, and SCE, among other groups) filed a petition for writ of mandate
with the Court of Appeal of the State of California. The CARES petition
challenged the voter initiative (later designated as Proposition 9) as illegal
and unconstitutional on its face, and sought to remove the initiative from the
November 1998 ballot. On July 2, 1998, the Court of Appeal denied the CARES
petition. On July 6, 1998, CARES filed its appeal of the denial with the
California Supreme Court. On July 15, 1998, the California Supreme Court denied
the CARES petition for pre-election review. In these rulings, the Court of
Appeal of the State of California and the California Supreme Court both decided,
in effect, not to consider the legality and constitutionality of Proposition 9
prior to the November 1998 election.
If Proposition 9 is voted into law, further litigation would ensue. Under the
terms of a servicing agreement relating to the rate reduction notes, SCE (acting
as the servicer) is required to take such legal or administrative actions as may
be reasonably necessary to block or overturn any attempts to cause a repeal of,
modification of, or supplement to the Statute, the financing order issued by the
CPUC, or the rights of holders of the property right authorized by the Statute
and the financing order by legislative enactment, voter initiative or
constitutional amendment that would be adverse to holders of the rate reduction
notes. The costs of such actions would be payable out of collections of the
non-bypassable charges established by the financing order and the related
issuance advice letter as an operating expense related to the rate reduction
notes. However, SCE may be required to advance its own funds to satisfy its
obligations as servicer to take such legal and administrative actions.
SCE is unable to predict the outcome of this matter, but if Proposition 9 is
voted into law, and not immediately stayed and ultimately invalidated by the
courts, it could have a material adverse effect on SCE's results of operation
and financial position as more specifically described in California Proposition
9 -- November 1998 Voter Initiative in Item 2 of Part 1 of this Form, which is
hereby incorporated by reference.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Articles of Incorporation (File No. 1-9936, Form 10-Q for the
quarterly period ended March 31, 1996)*
3.2 Bylaws as adopted by the Board of Directors effective
January 1, 1998 (File No. 1-9936, Form 10-K for the year
ended December 31, 1997)*
10. Material Contracts
10.1. Equity Compensation Plan
10.2. Retirement Plan for Directors
10.3. Director Deferred Compensation Plan
10.4. Form of Agreement for 1998 Employee Awards under
the Equity Compensation Plan
10.5. Form of 1998 Director Award under the Equity
Compensation Plan
11. Computation of Primary and Fully Diluted Earnings Per Share
27. Financial Data Schedule
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(b) Reports on Form 8-K:
None
- ----------------------
* Incorporated by reference pursuant to Rule 12b-32 .
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 RICHARD K. BUSHEY
-------------------------------------------
RICHARD K. BUSHEY
Vice President and Controller
By K. S. STEWART
-------------------------------------------
K. S. STEWART
Assistant General Counsel and
Assistant Secretary
August 13, 1998
EXHIBIT 10.1
EDISON INTERNATIONAL
EQUITY COMPENSATION PLAN
As Restated Effective
January 1, 1998
<PAGE>
EDISON INTERNATIONAL
EQUITY COMPENSATION PLAN
TABLE OF CONTENTS
Section Page
1. GENERAL.................................................................1
1.1 PURPOSE.......................................................1
1.2 PARTICIPATION.................................................1
1.3 OPERATION, ADMINISTRATION AND DEFINITIONS.....................1
2. PLAN AWARDS.............................................................2
2.1 GENERAL.......................................................2
2.2 NONQUALIFIED STOCK OPTIONS....................................2
2.3 STATUTORY STOCK OPTIONS.......................................2
2.4 STOCK APPRECIATION RIGHTS.....................................3
2.5 PERFORMANCE AWARDS............................................4
2.6 DIVIDEND EQUIVALENTS..........................................5
2.7 STOCK GRANTS..................................................5
2.8 STOCK PAYMENTS................................................5
3. OPERATION AND ADMINISTRATION............................................5
3.1 EFFECTIVE DATE OF PLAN AND DURATION...........................5
3.2 ADMINISTRATION................................................5
3.3 AGGREGATE AND MAXIMUM AWARDS UNDER PLAN.......................7
3.4 ADJUSTMENT PROVISIONS.........................................8
3.5 GENERAL PROVISIONS............................................9
3.6 AMENDMENT AND TERMINATION OF THE PLAN........................12
3.7 TERMINATION OF EMPLOYMENT....................................12
4. DEFINITIONS............................................................13
<PAGE>
EDISON INTERNATIONAL
EQUITY COMPENSATION PLAN
As Restated Effective January 1, 1998
WHEREAS, the Officer and Management Long-Term Incentive Compensation Plans and
the Director Incentive Compensation Plan were approved by the shareholders of
SCEcorp on April 16, 1992 and were subsequently amended and restated as Edison
International plans; and
WHEREAS, it is deemed desirable and appropriate to replace those plans with a
new plan called the Edison International Equity Compensation Plan ("Plan") and
to authorize the issuance of additional shares of Common Stock under the Plan;
NOW, THEREFORE, the Plan is effective January 1, 1998 subject to approval by the
shareholders of Edison International, to be solicited at the annual meeting of
the shareholders to be held on April 16, 1998, or at any adjournment thereof
within twelve months following the date of the Plan's adoption by the Board of
Directors, and subject to the following terms and conditions:
1. GENERAL
1.1 Purpose.
The purpose of the Plan is to improve the long-term financial and
operational performance of Edison International and its affiliates by providing
eligible Participants a financial incentive which reinforces and recognizes
long-term corporate, organizational and individual performance and
accomplishments. The Plan is further intended to promote the interests of Edison
International and its shareholders by attracting and retaining qualified
officers, employees and directors and aligning their interests with those of the
other shareholders by encouraging Participants to acquire Common Stock or
otherwise increase their proprietary interest in Edison International.
1.2 Participation.
The Administrator has authority, in its sole discretion, to
determine and designate from time-to-time from among the Eligible Persons, those
who are to be granted Plan Awards and thereby become Participants in the Plan.
1.3 Operation, Administration and Definitions.
The operation and administration of the Plan, and the Plan Awards are subject
to the provisions of Article 3. Capitalized terms in the Plan are defined
in Article 4.
1
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2. PLAN AWARDS
2.1 General.
The Administrator may grant any Plan Award except as otherwise provided in this
Article 2 to eligible Executive Officers and Key Management Employees. The
Administrator may grant only Nonqualified Stock Options or Stock Grants to
Directors. Awards may be granted as alternatives or replacements of awards
outstanding under any other plan or arrangement of another business or entity,
all or a portion of which is acquired by an EIX Company. Each Plan Award will be
evidenced by a written instrument specifying the date of grant and may include
or incorporate by reference any additional terms and conditions consistent with
the Plan as determined in the discretion of the Administrator. The Administrator
may grant any Plan Award permitted under the Plan which is otherwise payable in
Common Stock in the form of a cash equivalent award.
2.2 Nonqualified Stock Options.
The grant of a Nonqualified Stock Option entitles the Participant to purchase
shares of Common Stock at an exercise price established by the Administrator.
Nonqualified Stock Options awarded pursuant to the Plan are subject to the
following terms and conditions:
(a) The exercise price of each Nonqualified Stock Option will be determined by a
method established by the Administrator at the time of the grant, except that
the exercise price may not be less than one hundred percent of the Fair Market
Value of the Common Stock as of the Pricing Date.
(b) Upon the exercise of a Nonqualified Stock Option, the purchase price will be
payable in full in cash and/or its equivalent, such as Common Stock, acceptable
to Edison International. Any shares so assigned and delivered to Edison
International in payment or partial payment of the purchase price will be valued
at their Fair Market Value on the exercise date.
(c) No fractional shares will be issued pursuant to the exercise of a
Nonqualified Stock Option. Cash payments will be made in lieu of fractional
shares.
(d) No Nonqualified Stock Option may be exercised more than ten years from the
date of the grant. Each Nonqualified Stock Option granted under this Plan will
also be subject to earlier termination as provided in this Plan.
2.3 Statutory Stock Options.
The grant of a Statutory Stock Option entitles the Participant to purchase
shares of Common Stock at an exercise price established by the Administrator.
Statutory Stock Options awarded pursuant to the Plan will be subject to the
following terms and conditions:
(a) The purchase price of each share of Common Stock under a Statutory Stock
Option will be at least equal to the Fair Market Value of a share of the Common
Stock on the date of grant; provided, however, that if a Participant, at the
time a Statutory Stock Option is granted, owns stock representing more than ten
percent of the total combined voting power of all classes of stock of Edison
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International (as defined in Section 424(d) or (e) of the Code), then the
exercise price of each share of Common Stock subject to such Statutory Stock
Option will be at least one hundred and ten percent of the Fair Market Value of
such share of Common Stock on the date of grant.
(b) No Statutory Stock Option may be awarded more than ten years after this Plan
is adopted, nor may it be exercised more than ten years from the date of the
grant. Each Statutory Stock Option granted under this Plan will also be subject
to earlier termination as provided in this Plan.
(c) Upon the exercise of a Statutory Stock Option, the purchase price will be
payable in full in cash and/or its equivalent, such as Common Stock, acceptable
to Edison International. Any shares so assigned and delivered to Edison
International in payment or partial payment of the purchase price will be valued
at their Fair Market Value on the exercise date.
(d) The Fair Market Value (determined at the time the Statutory Stock Option is
granted) of the shares of Common Stock for which any Participant may be granted
Statutory Stock Options that are first exercisable during any one calendar year
(including Statutory Stock Options under all plans of Edison International) will
not in the aggregate exceed $100,000. To the extent that the aggregate Fair
Market Value of such shares exceeds $100,000, such Options shall be treated as
Nonqualified Stock Options.
(e) No fractional share will be issued pursuant to the exercise of a Statutory
Stock Option. Cash payments will be made in lieu of fractional shares.
2.4 Stock Appreciation Rights.
The grant of a Stock Appreciation Right entitles the Participant to receive in
cash or stock, the value equal to all or a portion of the appreciation in value
of Common Stock determined pursuant to Subsection 2.4(d). Stock Appreciation
Rights awarded pursuant to the Plan will be subject to the following terms and
conditions:
(a) A Stock Appreciation Right may be granted:
(i) at any time if unrelated to an Option;
(ii) either at the time of grant, or at any time thereafter during
the option term if related to a Nonqualified Stock Option;
(iii) only at the time of grant if related to a Statutory Stock
Option.
(b) A Stock Appreciation Right granted in connection with an Option will
entitle the Holder of the related Option, upon exercise of the Stock
Appreciation Right and surrender of the related Option, or any portion
thereof to the extent unexercised, with respect to the number of shares
as to which such Stock Appreciation Right is exercised, to receive
payment of an amount computed pursuant to Subsection 2.4(d). Such
Option will, to the extent surrendered, then cease to be exercisable.
(c) Subject to Subsection 2.4(g), a Stock Appreciation Right granted in
connection with an Option hereunder will be exercisable at such time or
times, and only to
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the extent that a related Option is exercisable, and will not be
transferable except to the extent that such related Option may be
transferable.
(d) Upon the exercise of a Stock Appreciation Right related to an Option,
the Holder will be entitled to receive payment of an amount determined
by multiplying:
(i) The difference obtained by subtracting the purchase price of a
share of Common Stock specified in the related Option from the
Fair Market Value of a share of Common Stock on the date of
exercise of such Stock Appreciation Right, by
(ii) The number of shares to which such Stock Appreciation
Right has been exercised.
(e) The Administrator may grant Stock Appreciation Rights unrelated to
Options. Subsection 2.4(d) will be used to determine the amount payable
at exercise of such Stock Appreciation Rights if Fair Market Value is
used, except that Fair Market Value will not be used if the
Administrator specified in the award that book value or another measure
as deemed appropriate by the Administrator was to be used. In applying
the formula in Subsection 2.4(d), the initial share value specified in
the Stock Appreciation Right award will be used in lieu of the price
"specified in the related Option."
(f) Payment of the amount determined under Subsection 2.4(d) or (e) may be
made solely in whole shares of Common Stock in a number determined at
their Fair Market Value on the date of exercise of the Stock
Appreciation Right or alternatively, at the sole discretion of the
Administrator, solely in cash or in a combination of cash and shares as
the Administrator deems advisable. If the Administrator decides to make
full payment in shares of Common Stock, and the amount payable results
in a fractional share, no fractional share will be issued. Payment for
the fractional share will be made in cash only.
(g) The Administrator may, at the time a Stock Appreciation Right is
granted, impose such conditions on the exercise of the Stock
Appreciation Right as may be required to satisfy the requirements of
Rule 16b-3, as applicable (or any other comparable provisions in effect
at the time or times in question). Without limiting the generality of
the foregoing, the Administrator may determine that a Stock
Appreciation Right may be exercised only during the period beginning on
the third business day and ending on the twelfth business day following
the publication of Edison International's quarterly and annual
summarized financial data.
2.5 Performance Awards.
The grant of a Performance Award entitles the Participant to receive in cash an
amount determined by formula established by the Administrator over a specified
term. Performance Awards may be based on Common Stock performance over a period
determined in advance by the Administrator or may be based on any other measures
as determined appropriate by the Administrator, including the performance of
hypothetical equity-related measures of any EIX Company. Payment will be in cash
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unless replaced by a Stock Payment in full or in part as determined by the
Administrator.
2.6 Dividend Equivalents.
The grant of Dividend Equivalents entitles the Participant to receive cash or
stock based on the dividends declared on the Common Stock on record dates during
the period between the date a Plan Award is granted and the date such Plan Award
is exercised or paid. Dividend Equivalents may be awarded separately or in
connection with Plan Awards, whether payable in cash or Common Stock. Subject to
Sections 3.3 and 3.4, such Dividend Equivalents will be converted to cash or
additional shares by such formula and at such time as may be determined by the
Administrator.
2.7 Stock Grants.
The award of a Stock Grant entitles the Participant to receive a specified
amount of Common Stock on the grant date. Stock Grants may be awarded pursuant
to the Plan to non-employee Directors only subject to the terms and conditions
established at the time of the award. Stock Grants may also be awarded in the
form of stock units with payment in cash delayed until retirement or as
otherwise provided at the time of grant.
2.8 Stock Payments.
The Administrator may approve Stock Payments of Common Stock to Eligible Persons
for all or any portion of the compensation (other than base salary) that would
otherwise become payable to a Participant in cash. Notwithstanding anything to
the contrary contained in this Plan, if the written instrument evidencing any
Plan Award states that the Plan Award will be paid in cash, the Administrator
may not make a Stock Payment in lieu thereof, and the Plan Award will be
redeemable or exercisable by the Holder only for cash.
3. OPERATION AND ADMINISTRATION
3.1 Effective Date of Plan and Duration.
This Plan will become effective on January 1, 1998, subject, however, to
approval by the shareholders of Edison International at their next annual
meeting or at any adjournment thereof, within twelve months following the date
of its adoption by the Board of Directors. Unless the Plan is terminated earlier
pursuant to Section 3.6, no Plan Awards will be made after December 31, 2007.
3.2 Administration.
(a) The Plan will be administered with respect to Executive Officers, Key
Management Employees, or Directors as follows:
(i) Executive Officers. The Administrator of the Plan for purposes
of Plan Awards made to Executive Officers is the Committee.
The Administrator has, and may exercise, such powers and
authority of the Board as may be necessary or appropriate for
the Administrator to carry out its functions as described in
the Plan. The Administrator has sole authority in its
discretion to determine the Executive Officers to whom, and
the time or times at which, Plan Awards may be granted, the
nature of the Plan
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Award, the numberof shares of Common Stock or the amount of
cash that makes up each Plan Award, the pricing and amount of
any Plan Award, the objectives, goals and performance criteria
(which need not be identical) utilized to measure the value of
Plan Awards, the form of payment (cash or Common Stock or a
combination thereof) upon the event or events giving rise to
payment of a Plan Award, the vesting schedule of any Plan
Award, the term of any Plan Award, and such other terms and
conditions applicable to each individual Plan Award as the
Administrator will determine. The Administrator may grant at
any time additional Plan Awards to Participants who have
previously received Plan Awards during the year. The purchase
price or initial value of the Plan Awards may be established
by the Administrator without regard to the existing Plan
Awards or such other grants. Further, the Administrator may,
with the consent of a Participant, amend the terms of any
existing Plan Award previously granted to include or amend any
provisions which could be incorporated in such a Plan Award at
the time of such amendment except that repricing of
Nonqualified Stock Options is not permitted.
The Administrator has the sole authority to interpret the
Plan, to determine the terms and provisions of the Plan Award
agreements, and to make all determinations necessary or
advisable for the administration of the Plan. The
Administrator has authority to prescribe, amend, and rescind
rules and regulations relating to the Plan. All
interpretations, determinations, and actions by the
Administrator will be final, conclusive, and binding upon all
parties. Any action of the Administrator with respect to the
administration of the Plan will be taken pursuant to a
majority vote or by the unanimous written consent of its
members. The Administrator may delegate to one or more agents
such nondiscretionary administrative duties as it may deem
advisable.
(ii) Key Management Employees. The Administrator of the Plan for
purposes of Plan Awards made to Key Management Employees is
the Committee which will administer the Plan and Plan Awards
as provided in Paragraph 3.2(a)(i) except as provided in this
Paragraph 3.2(a)(ii). The Committee will annually determine
the type or types of Plan Awards, the total number of Plan
Awards to be authorized under the Plan for the following year,
the prices of Plan Awards (which may be any lawful
consideration as determined by the Committee), any additional
terms and conditions, and the form of the documentation to be
utilized. The Committee will allocate a portion of the total
number of Plan Awards to each EIX Company. Each EIX Company
will then have the authority to determine to whom Plan Awards
will be granted and the amount of the individual awards.
Each EIX Company may grant Plan Awards to newly eligible
individuals at any time during the year provided the total
number of Plan Awards authorized by the Committee for that EIX
Company for that year is not exceeded. With the consent of
Edison International, additional Plan
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Awards may be granted to Participants who have previously
received Plan Awards during the year. The purchase price or
initial value of the Plan Awards may be established without
regard to the existing Plan Awards or such other grants.
Further, with the consent of Edison International and the
Participant, each EIX Company may amend the terms of any
existing Plan Award previously granted to include or amend any
provisions which could have been incorporated in such a Plan
Award at the time of such amendment except that repricing of
Nonqualified Stock Options is not permitted.
(iii) Directors. The Plan will be administered as provided under
Paragraph 3.2(a)(i) with respect to any Plan Award made to a
Director except that the Board will be substituted for any
reference therein to the Committee. With respect to any
reference throughout the Plan as to discretion exercised by
the Committee, such discretion will be exercised by the Board
with respect to Directors.
(b) No member of the Board or the Committee or agent or designee thereof
will be liable for any action or determination made in good faith with
respect to the Plan or any transaction arising under the Plan.
(c) Notwithstanding the provisions of Section 3.6 regarding the term of the
Plan, all authority of the Board and the Committee with respect to Plan
Awards hereunder, including (subject to share limits) the authority to
amend outstanding Plan Awards, shall continue after the term of the
Plan, so long as any Plan Award remains outstanding. The Administrator
shall have the authority to permit a deferred payment in respect of
Plan Awards under any deferred compensation plan of Edison
International, consistent with Subsection 3.5(b). Any such settlement
or deferral shall not be deemed a new award hereunder so long as all
shares issuable in respect thereof do not exceed the aggregate number
of shares subject to the Plan Award so paid thereby.
(d) Notwithstanding anything to the contrary contained in this Plan, no
Nonqualified Stock Option may be exercised more than ten years from the
date of the grant. Each Nonqualified Stock Option granted under this
Plan will also be subject to earlier termination as provided in this
Plan.
3.3 Aggregate and Maximum Awards Under Plan.
(a) Effective on the Approval Date, and subject to the provisions of
Sections 3.3 and 3.4 of the Plan, the aggregate annual number of shares
of Common Stock that may be issued or transferred pursuant to Plan
Awards, and the total aggregate annual value of Plan Awards other than
Dividend Equivalents which are payable in a form other than Common
Stock, will not exceed one percent of the total issued and outstanding
shares of Common Stock, as of December 31 of the next preceding year,
cumulative from the Approval Date until the Plan termination date, or
the fair market value of such shares as determined on the dates of
grant of the Plan Awards. Any shares of Common Stock available that are
not awarded during a calendar year, or portion thereof, will be
available for grant in
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may subsequent year, or portion thereof.On an annual basis, as long as
any Plan Awards are outstanding andhave not been paid, Dividend
Equivalents payable in cash will not exceed the annual dividend payable
on the aggregate shares of Common Stock authorized under the Plan
cumulative from the Approval Date.
(b) No Plan Award to an individual Participant, other than a Director,
during any calendar year will exceed 500,000 shares of Common Stock or
the value of such shares at the time of grant except that the maximum
number of Statutory Stock Options will also not exceed the limitations
set forth in Section 2.3. No Stock Grant to a Director during any
calendar year will exceed 2,500 shares of Common Stock, and no
Nonqualified Stock Option award to a Director during any calendar year
will exceed 12,500 shares of Common Stock. The shares to be delivered
under the Plan will be made available, at the discretion of Edison
International, either from authorized but unissued shares of Common
Stock or from shares purchased on the open market.
(c) If any Plan Award expires, is forfeited, is canceled, or otherwise
terminates for any reason other than upon exercise or payment, the
shares of Common Stock (provided the Participant receives no benefit of
ownership) or equivalent value that could have been delivered will not
be charged against the limitations provided above and may again be made
subject to Plan Awards. However, shares subject to Stock Appreciation
Rights settled in cash will not be charged against the share
limitations provided above, but only against the fair market value
limitation.
3.4 Adjustment Provisions.
(a) Subject to the provisions of this Section 3.4, if the outstanding
shares of Common Stock are increased, decreased, or exchanged for a
different number or kind of shares or other securities, or if
additional shares or new or different shares or other securities are
distributed with respect to such shares of Common Stock or other
securities, through merger, consolidation, sale of all or substantially
all of the property of Edison International, reorganization,
recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other distribution with respect to such shares
of Common Stock or other securities, an appropriate and proportionate
adjustment may be made in (i) the maximum number and kind of shares
provided in Article 3 of the Plan, (ii) the maximum individual award,
(iii) the number and kind of shares or other securities subject to the
then outstanding Plan Awards, and (iv) the price for each share or
other unit of any other securities subject to the then outstanding Plan
Awards without change in the aggregate purchase price or value as to
which Plan Awards remain exercisable or subject to restrictions.
(b) Despite the foregoing, upon dissolution or liquidation of Edison
International, or upon a reorganization, merger, or consolidation of
Edison International with one or more corporations as a result of which
Edison International is not the surviving corporation, or upon the sale
of all or substantially all the property of Edison International, all
Options, Stock Appreciation Rights, and other Plan Awards then
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outstanding under the Plan willbefully vested and exercisable unless
provisions are made in connection with such transaction for the
continuance of the Plan and the assumption of or the substitution for
such Plan Awards of new Options, Stock Appreciation Rights, or other
Plan Awards covering the stock of a successor employer corporation, or
a parent or subsidiary thereof, with appropriate adjustments as to the
number and kind of shares and prices.
(c) Any adjustments pursuant to this Section 3.4 will be made by the
Administrator, whose determination as to what adjustments will be made
and the extent thereof will be final, binding, and conclusive. No
fractional interest will be issued under the Plan on account of any
such adjustments. Only cash payments will be made in lieu of fractional
shares.
(d) Notwithstanding the foregoing, if a reorganization, merger,
consolidation, or other corporate transaction is consummated following
and related to the occurrence of a Distribution Date, as that term is
defined in the Rights Agreement approved by the Edison International
Board of Directors on November 20, 1996, as a result of which Edison
International is not the surviving corporation, all Options, Stock
Appreciation Rights, and other Plan Awards then outstanding under the
Plan will fully vest. This Plan may not be terminated, nor may any Plan
Award be cashed out, modified or terminated without the consent of the
Holder, by Edison International or its successor in interest during the
subsequent period necessary to allow Plan Awards to remain exercisable
for at least two years following the close of the transaction, or where
applicable, through the first exercise period occurring at least two
years after the close of the transaction. During such subsequent
period, valuation procedures and exercise periods will occur on a basis
consistent with past practice.
3.5 General Provisions.
(a) With respect to any share of Common Stock issued or transferred under
any provision of the Plan, such shares may be issued or transferred
subject to such conditions, in addition to those specifically provided
in the Plan, as the Administrator may direct.
(b) Notwithstanding the term of a Plan Award, the Administrator may approve
the delayed payment or delivery of any cash or shares of Common Stock
which may become due under the Plan. Any such delayed payment or
delivery must specifically be authorized by the Administrator in
writing and shall be subject to any conditions, restrictions or
requirements as the Administrator may determine.
The Administrator may permit the deferral of any cash or Common Stock
payable in respect of a Plan Award in the form of Stock Units which may
earn Dividend Equivalents and other compensation in respect thereof,
and the Committee may provide that such Stock Units and Dividend
Equivalents shall eventually be paid in the form of shares of Common
Stock (subject to share limits).
In the event that the purchase price of an Option is paid in full in
shares of Common Stock and the delivery of shares of Common Stock in
excess of the
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option price isdeferred, Stock Units may be credited in respect of such
excess shares and may earn Dividend Equivalents or other compensation
in respect thereof, and the number of shares of Common Stock issued in
respect of the deferred shares may include the number of such deferred
shares and the number of Stock Units credited as Dividend Equivalents
(subject to share limits).
In addition, during the term of the Plan, the Committee may grant Stock
Units to selected employees as dividend equivalents under and as set
forth in any Edison International option gain deferral program (the
"Deferral Program") and may deliver shares of Common Stock in respect
to such Stock Units pursuant to the selected employee's election under
the Deferral Program."
(c) Nothing in the Plan or in any instrument executed pursuant to the Plan
will confer upon any Holder any right to continue in the employ of an
EIX Company or affect the right of the EIX Company to terminate the
employment of any Holder at any time with or without cause.
(d) No shares of Common Stock will be issued or transferred pursuant to a
Plan Award unless and until all then applicable requirements imposed by
federal and state securities and other laws, rules, and regulations and
by any regulatory agencies having jurisdiction, and by any stock
exchanges upon which the Common Stock may be listed, have been fully
met. As a condition precedent to the issue of shares pursuant to the
grant or exercise of a Plan Award, Edison International may require the
Holder to take any reasonable action to meet such requirements.
(e) No Holder (individually or as a member of a group) and no beneficiary
or other person claiming under or through such Holder will have any
right, title, or interest in or to any shares of Common Stock allocated
or reserved under the Plan or subject to any Plan Award except as to
such shares of Common Stock, if any, that have been issued or
transferred to such Holder.
(f) Except to the extent prohibited by applicable law or the applicable
rules of a stock exchange, the Administrator may delegate all or any
portion of its responsibilities and powers to any one or more of its
members or any other person or persons selected by it. Such delegation
may be revoked by the Administrator at any time.
(g) Edison International may make such provisions as it deems appropriate
to withhold any taxes which it determines it is required to withhold in
connection with any Plan Award. Subject to this Subsection, however,
and without in anyway limiting the generality of Section 2.4, the
Administrator, in its sole discretion and subject to such rules as the
Administrator may adopt, may permit Participants to elect (i) cash
settlement of any Plan Award, or (ii) to apply a portion of the shares
of Common Stock they are otherwise entitled to receive pursuant to a
Plan Award, or shares of Common Stock already owned, to satisfy the tax
withholding obligation arising from the receipt, vesting, or exercise
of any Plan Award, as applicable.
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(h) No Plan Award and no right under the Plan, contingent or otherwise,
will be assignable or subject to any encumbrance, pledge, or charge of
any nature, or otherwise transferable (meaning, without limitation,
that such Plan Award or right is exercisable during the Holder's
lifetime only by him/her or by his/her guardian or legal
representative) except that, under such rules and regulations as Edison
International may establish pursuant to the terms of the Plan, a
beneficiary may be designated with respect to a Plan Award in the event
of death of a Holder of such Plan Award, and Plan Awards may be
transferred pursuant to a qualified domestic relations order as defined
by the Code or Title I of the Employee Retirement Income Security Act,
or the regulations promulgated thereunder. If such beneficiary is the
executor or administrator of the estate of the Holder of such Plan
Award, any rights with respect to such Plan Award may be transferred to
the person or persons or entity (including a trust) entitled thereto
under the will of the Holder of such Plan Award, or, in the case of
intestacy, under the laws relating to intestacy. Plan Awards
transferred remain subject to all applicable terms, conditions and
restrictions.
(i) Notwithstanding Subsection (h), the Administrator will have the
authority, in its discretion, to grant (or to sanction by way of
amendment of an existing grant) Plan Awards which may be transferred by
the Participant during his/her lifetime to any member of his/her
immediate family or to a trust, limited liability corporation, family
limited partnership or other equivalent vehicle, established for the
exclusive benefit of one or more members of his/her immediate family,
in which case the written documentation containing the terms and
conditions of such Plan Awards will so state. A transfer of a Plan
Award pursuant to this Subsection may only be effected by the
Administrator at the written request of a Participant and will become
effective only when recorded in Edison International's record of
outstanding Plan Awards. In the event a Plan Award is transferred as
contemplated in this Subsection, such Plan Award may not be
subsequently transferred by the transferee except by will or the laws
of descent and distribution. In the event a Plan Award is transferred
as contemplated in this Subsection, such Plan Award will continue to be
governed by and subject to the terms, conditions and restrictions of
the Plan and the relevant grant. A transfer of a Statutory Stock Option
as such pursuant to this provision will only be permissible if and to
the extent that Section 422 of the Code, as in effect from time to
time, does not cause such Statutory Stock Option to be treated as a
non-statutory stock option that does not meet the requirements of
Section 422 of the Code. As used in this Subsection, "immediate family"
will mean, with respect to any person, a spouse, child, stepchild or
grandchild, and will include relationships arising from legal adoption.
(j) No fractional shares will be issued under the Plan. Only cash payments
will be made in lieu of fractional shares.
(k) Each EIX Company will be liable for payment of cash due under the Plan
with respect to any Participant to the extent that such benefits are
attributable to services rendered for that EIX Company by the
Participant. Any disputes related
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to liability of an EIX Company for cash payments will be resolved by
the Committee.
(l) Future services shall not constitute payment or part payment for
previously unissued shares of Common Stock to be paid as a Plan Award.
(m) Edison International may, in its discretion, repurchase shares received
upon exercise of a Plan Award if requested by the Holder.
(n) This Plan will be governed by the laws of the State of California.
3.6 Amendment and Termination of the Plan.
(a) The Board will have the power, in its discretion, to amend, suspend, or
terminate the Plan at any time if, in the sole judgment of the Board,
such action is in the best interests of Edison International. No
amendment will, without approval of the shareholders of Edison
International, except as provided in Section 3.4 of the Plan,
materially increase the number of securities which may be issued under
the Plan, the maximum individual Plan Award, or the duration of the
Plan.
(b) The Administrator may, with the consent of a Holder, make such
modifications in the terms and conditions of any Plan Award as it deems
advisable or cancel the Plan Award (with or without consideration). No
amendment, suspension, or termination of the Plan will, without the
consent of the Holder, alter, terminate, impair, or adversely affect
any right or obligation under any Plan Award previously granted under
the Plan.
3.7 Termination of Employment.
(a) The Administrator shall provide in the terms and conditions of any Plan
Award at the time of grant the extent to which termination of
employment, or termination of service as a Director, will shorten the
period for exercising an Award.
(b) In the event a Holder of a Plan Award ceases to be an employee, the
Holder must have been a Participant for the entire incentive or vesting
period applicable to the Plan Award in order to be eligible for the
full amount of any such Plan Award. Pro-rata awards may be distributed
to Participants who are discharged or who terminate their employment
for reasons other than incompetence, misconduct or fraud, or who
retired or became disabled during the incentive period, or who were
Participants for less than the full incentive period. A pro-rata award
may be made to a Participant's designated beneficiary in the event of
death of a Participant during an incentive period prior to an award
being made.
(c) The Administrator may in its sole discretion determine, with respect to
a Plan Award, that any Holder who is on a leave of absence for any
reason will be considered as still in the employ of an EIX Company,
provided that rights to such Plan Award during an unpaid leave of
absence will be limited to the extent to which such right was earned or
vested at the commencement of such leave of absence.
(d) The Administrator may vary the requirements of this Section 3.7 in the
terms and conditions of a Plan Award at the time of grant, or on a
case-by-case basis
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thereafter, as it deems appropriate and in the best interests of
Edison International. The Administrator may accelerate the vesting of
all, or a portion of any Plan Award, and may extend the above-described
exercise periods to as long as the term provided in the terms and
conditions of the original Plan Award.
4. DEFINITIONS.
Whenever the following terms are used in this Plan, they will have the meanings
specified below unless the context clearly indicates otherwise:
"Administrator" is the Committee or the Board as determined under Article 3.
"Approval Date" means April 16, 1998, or such later date on which shareholder
approval of the Plan occurs.
"Board of Directors" or "Board" means the Board of Directors of Edison
International.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means those Directors on the Compensation and Executive Personnel
Committee of the Board who qualify as both "non-employee Directors" under Rule
16b-3 and "outside Directors" under Section 162(m) of the Code. The Board will
ensure at least two members are qualified to administer the Plan at all times.
"Common Stock" means the common shares of Edison International.
"Director" means a non-employee member of the Board of Directors of an EIX
Company.
"Dividend Equivalent" means the additional amount of cash or Common Stock as
described in Section 2.6 of the Plan.
"EIX Company" means Edison International or the Edison International affiliate
that the Participant serves as an employee or Director. For this purpose, an
Edison International affiliate is any company during any period in which it is a
"subsidiary company" as that term is defined in Section 424(f) of the Code.
"Eligible Person" means Directors, Executive Officers, or Key Management
Employees of an EIX Company.
"Executive Officer" means an executive officer of Edison International, as
determined from time-to-time by Edison International pursuant to Section 16 of
the Securities Exchange Act of 1934, as amended, and may include one or more
individuals who are officers of other EIX Companies.
"Fair Market Value" means the average of the highest and lowest sale prices for
the Common Stock as reported in the western edition of The Wall Street Journal
for the New York Stock Exchange Composite Transactions for the date as of which
such determination is made.
"Holder" means a person holding a Plan Award.
"Key Management Employee" means an officer or management employee of an EIX
Company whose participation as such has been approved by the Committee or the
EIX Company and who has not been determined to be an Executive Officer of Edison
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International pursuant to Section 16 of the Securities Exchange Act of 1934, as
amended.
"Nonqualified Stock Option" means an option, other than a Statutory Stock
Option, granted pursuant to Section 2.2 of the Plan.
"Option" means either a Nonqualified Stock Option or Statutory Stock Option.
"Participant" is an Eligible Person who has been granted a Plan Award.
"Performance Award" means a Plan Award granted pursuant to Article 2.5 of the
Plan.
"Plan" means the Equity Compensation Plan as set forth herein, which may be
amended from time-to-time.
"Plan Award" means any award (including any award or crediting of Stock Units)
which may be made under the Plan by the Administrator.
"Pricing Date" means the date the Plan Award is granted except that the
Administrator may provide that the Pricing Date is the date the recipient is
hired or promoted if the grant of the Plan Award occurs within 90 days of such
event.
"Rule 16b-3" means Rule 16b-3 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended.
"Statutory Stock Option" means an option as defined under Section 422 of the
Code granted pursuant to Section 2.3 of the Plan.
"Stock Appreciation Right" or "Right" means a right granted pursuant to Section
2.4 of the Plan.
"Stock Grant" means an award made in shares of Common Stock or Stock Units
pursuant to Section 2.7 of the Plan.
"Stock Payment" means a payment pursuant to Section 2.8 in shares of Common
Stock to replace all or any portion of the compensation (other than base salary)
that would otherwise become payable to a Participant in cash.
"Stock Unit" means a non-voting unit of measurement which is deemed for
bookkeeping purposes to be equivalent to one outstanding share of Common Stock
(subject to adjustment).
EDISON INTERNATIONAL
Lillian R. Gorman
- --------------------------------------------
Lillian R. Gorman, Vice President
EXHIBIT 10.2
EDISON INTERNATIONAL
SOUTHERN CALIFORNIA EDISON COMPANY
RETIREMENT PLAN FOR DIRECTORS
As Amended February 19, 1998
Contingent on Shareholder Approval of the
Equity Compensation Plan on April 16, 1998
I. GENERAL
1.1 Purpose
The purpose of this Plan is to provide recognition and retirement compensation
to eligible members of the Edison International and Southern California Edison
Company Boards of Directors ("Boards") to facilitate the companies' ability to
attract, retain, and reward members of the Boards.
1.2 Eligibility Eligibility
in this Plan is limited to members of the Boards who have at least five years of
total service (which need not be continuous service) as directors, and who
retire or resign from the Boards in good standing or die while in service and in
good standing. This Plan covers periods of service both as an employee director
and as an outside director. For purposes of this Plan, a year of service will be
determined on a calendar year basis and a full year of service will be credited
for any fractional year served.
II. AMOUNT OF ANNUAL BENEFIT
2.1 Benefit
The Plan pays an annual retirement benefit equal to the annual retainer in
effect at the time of the eligible director's retirement, resignation, or death.
The retirement benefit will be paid quarterly in advance in equal installments
for the period described in Section 3.1(a). No additional amount will be paid
for service on any of the committees of the Boards, nor will interest be paid.
2.2 Benefit of Directors in Service Before 1996 If a director has Board service
prior to 1996, the Plan will pay an annual retirement benefit determined by
multiplying the director's years of service before and after January 1, 1996 by
the applicable compensation base and dividing the sum of the products by the
director's total years of service. For service before 1996, the compensation
base will be (i) the annual retainer plus (ii) the regular Board meeting fee
multiplied by the annual number of regular meetings of the Board as described in
the
<PAGE>
Bylaws. For service after 1995, the compensation base will be the annual
retainer. The annual retainer, the regular Board meeting fee and the number of
regular meetings of the Board will be those in effect, or made effective, at the
time of the eligible director's retirement, resignation or death.
2.3 Termination of Benefit Accrual for Service After 1997
Notwithstanding any other provision of this Plan to the contrary, no Board
Service after 1997 of any Director who is elected or re-elected as a Director in
1998, or any time thereafter, will be taken into account for purposes of
determining benefits payable under this Plan. Benefits accrued based on Board
service prior to 1998 shall otherwise remain payable in accordance with the
terms of the Plan.
III. DURATION OF PAYMENTS
3.1 Benefit Period
(a) The Plan benefit will be paid to the retired director or his/her surviving
spouse for the number of years equal to the director's total years of service on
the Boards.
(b) A break in service on the Board of Edison International or Southern
California Edison Company which was required to allow the director to render a
period of uninterrupted high-level government service, and which was followed by
reelection to that Board within 12 months after the completion of such
government service, will be recognized under this Plan as a period of service on
that Board.
(c) A year of simultaneous service on the Boards of Edison International and
Southern California Edison Company will be counted as one year for computation
of the Plan's benefit period.
3.2 Commencement of Payments
The first quarterly installment of Plan Benefits will be paid on the first day
of the calendar quarter following the director's retirement as a director, or
the 65th anniversary of the director's birth, whichever occurs later.
3.3 Survivor Benefits
(a) If the director dies without leaving a surviving spouse, a lump sum of any
benefit payments remaining will be calculated and paid to the estate of the
director.
(b) If the director dies leaving a surviving spouse before retiring from the
Boards, benefit payments to that spouse will begin on the first day of the
calendar quarter following the date of the director's death, or the 65th
anniversary of the director's birth, whichever occurs later.
(c) If the director dies leaving a surviving spouse after benefit payments have
begun, benefit payments will continue and be paid to that spouse.
<PAGE>
(d) If the director dies leaving a surviving spouse after retirement from the
Boards but before benefit payments have begun, benefit payments to that spouse
will begin on the first day of the calendar quarter following the 65th
anniversary of the director's birth.
3.4 Termination of Benefit Payments
Once begun, benefit payments to a retired director or his/her surviving spouse
will continue until the earlier of the
o completion of payments for the Benefit Period, or
o date of death of the later to die of the director or the
surviving spouse. Upon said death, a lump sum of any remaining
benefit payments will be calculated and paid to that person's
estate.
V. ADMINISTRATION
(a) This Plan is non-contributory, non-qualified and unfunded, and represents an
unsecured general obligation of each Company. No special fund or trust will be
created, nor will any notes or securities be issued with respect to any
retirement benefits.
(b) The Chair of each Company's Compensation and Executive Personnel Committee,
or the Vice President of Human Resources of Southern California Edison Company,
will have full and final authority to interpret this Plan, and to make
determinations advisable for the administration of this Plan, to approve
ministerial changes, and to approve changes as may be required by law or
regulation. All such decisions and determinations will be final and binding upon
all parties.
(c) If any person entitled to payments under this Plan is, in the opinion of the
Committees or their designee, incapacitated and unable to use such payments in
his/her own best interest, the Committees or their designee may direct that
payments (or any portion) be made to the person's spouse or legal guardian, as
an alternative to the payment to the person unable to use the payments. The
Committees or their designee will have no obligation to supervise the use of
such payments.
(d) This Plan will be governed by the laws of the State of California.
EDISON INTERNATIONAL AND
SOUTHERN CALIFORNIA EDISON COMPANY
Lillian R. Gorman
---------------------------------
Lillian R. Gorman, Vice President
EXHIBIT 10.3
Edison International
Director Deferred Compensation Plan
As Restated
Effective January 1, 1998
Contingent Upon Shareholder Approval
of the Equity Compensation Plan on April 16, 1998
<PAGE>
EDISON INTERNATIONAL
DIRECTOR DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
Section Title Page
- ------- ----- ----
ARTICLE 1 DEFINITIONS 1
ARTICLE 2 PARTICIPATION 4
2.1 Participant Election 4
2.2 Annual Deferral 4
2.3 Continuation of Participation 4
ARTICLE 3 DIRECTOR DEFERRALS 4
3.1 Participation Election 4
3.2 Minimum Annual Deferral 5
3.3 Maximum Annual Deferral 5
3.4 Deferred Stock Units 5
3.5 Vesting 5
ARTICLE 4 DEFERRAL ACCOUNTS 5
4.1 Deferral Accounts 5
4.2 Timing of Credits 5
ARTICLE 5 RETIREMENT BENEFITS 6
5.1 Amount 6
5.2 Form of Retirement Benefits 7
5.3 Commencement of Benefits 7
5.4 Small Benefit Exception 7
ARTICLE 6 TERMINATION BENEFITS 7
6.1 Amount 7
6.2 Form of Termination Benefits 8
ARTICLE 7 SURVIVOR BENEFITS 8
7.1 Pre-Retirement Survivor Benefit 8
7.2 Post-Retirement Survivor Benefit 8
7.3 Post-Termination Survivor Benefit 9
7.4 Changing Form of Benefit 9
7.5 Small Benefit Exception 9
ARTICLE 8 CHANGE OF CONTROL 9
<PAGE>
EDISON INTERNATIONAL
DIRECTOR DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
Section Title Page
- ------- ----- ----
ARTICLE 9 SCHEDULED AND UNSCHEDULED WITHDRAWALS 9
9.1 Scheduled Withdrawals 9
9.2 Unscheduled Withdrawals 10
ARTICLE 10 CONDITIONS RELATED TO BENEFITS
10.1 Nonassignability 11
10.2 Financial Hardship Distribution 11
10.3 No Right to Assets 11
10.4 Protective Provisions 11
10.5 Withholding 11
ARTICLE 11 PLAN ADMINISTRATION 12
ARTICLE 12 BENEFICIARY DESIGNATION 12
ARTICLE 13 AMENDMENT OR TERMINATION OF PLAN 13
13.1 Amendment of Plan 13
13.2 Termination of Plan 13
13.3 Amendment or Termination After Change of Control 13
13.4 Exercise of Power to Amend or Terminate 13
13.5 Constructive Receipt Termination 13
ARTICLE 14 CLAIMS AND REVIEW PROCEDURES 14
14.1 Claims Procedure 14
14.2 Review Procedure 14
14.3 Dispute Arbitration 14
ARTICLE 15 MISCELLANEOUS 16
15.1 Successors 16
15.2 Trust 16
15.3 Service Not Guaranteed 16
15.4 Gender, Singular and Plural 16
15.5 Captions 16
15.6 Validity 16
15.7 Waiver of Breach 17
15.8 Applicable Law 17
15.9 Notice 17
<PAGE>
EDISON INTERNATIONAL
DIRECTOR DEFERRED COMPENSATION PLAN
Restated Effective January 1, 1998
PREAMBLE
Edison International Director Deferred Compensation Plan benefits are available
to Eligible Directors of Edison International and its participating affiliates.
Amounts of compensation deferred by Participants pursuant to this Plan accrue as
liabilities of the participating Affiliate at the time of the deferral under the
terms and conditions set forth herein. By electing to defer compensation under
the Plan, Participants consent to Edison International sponsorship of the Plan,
but acknowledge that Edison International is not a guarantor of the benefit
obligations of other participating Affiliates. Each participating Affiliate is
responsible for payment of the accrued benefits under the Plan with respect to
its own Eligible Directors subject to the terms and conditions set forth herein.
ARTICLE 1
DEFINITIONS
Capitalized terms in the text of the Plan are defined as follows:
Administrator means the Compensation and Executive Personnel Committee of the
Board of Directors of the Company.
Affiliate means Edison International or any corporation or entity which (i)
along with Edison International, is a component member of a "controlled group of
corporations" within the meaning of Section 414(b) of the Code, and (ii) has
approved the participation of its directors in the Plan.
Annual Deferral means the amount of Compensation which the Participant elects to
defer for a Plan Year pursuant to Articles 2 and 3 of the Plan.
Beneficiary means the person or persons or entity designated as such in
accordance with Article 12 of the Plan.
Board means the Board of Directors of Edison International.
Change of Control means either: (i) the dissolution or liquidation of Edison
International or a Company; (ii) a reorganization, merger or consolidation of
Edison International or a Company with one or more corporations as a result of
which Edison
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International or a Company is not the surviving corporation; (iii) approval by
the stockholders of Edison International or a Company of any sale, lease,
exchange or other transfer (in one or a series of transactions) of all or
substantially all of the assets of Edison International or a Company; (iv)
approval by the stockholders of Edison International or a Company of any merger
or consolidation of Edison International or a Company, in which the holders of
voting stock of Edison International or a Company immediately before the merger
or consolidation will not own 50% or more of the outstanding voting shares of
the continuing or surviving corporation immediately after the merger or
consolidation; or (v) a change of at least 51% (rounded to the next whole
person) in the membership of the Board of Directors of Edison International or a
Company within a 24-month period, unless the election or nomination for election
by stockholders of each new director within the period was approved by the vote
of at least 85% (rounded to the next whole person) of the directors then still
in office who were in office at the beginning of the twenty-four-month period,
except that any replacement of directors who are employees of Edison
International or a Company, with other employees of Edison International or a
Company, will be disregarded and not be considered a change in membership.
Notwithstanding the foregoing, any reorganization, merger or consolidation of a
Company with Edison International or another Company will be disregarded and not
be considered a Change of Control.
Code means the Internal Revenue Code of 1986, as amended.
Company means the Affiliate the Participant serves as a director.
Compensation means the sum of the all retainers and meeting fees which would be
paid to a Participant as an Eligible Director for the Plan Year before
reductions for deferrals under the Plan.
Crediting Rate means the rate at which interest will be credited to Participant
Deferral Accounts. The rate will be determined annually in advance of the Plan
Year and will be equal to 120 percent of the Index Rate. Edison International
reserves the right to prospectively change the Crediting Rate or formula.
Deferral Account means the notional account comprised of Compensation deferrals
and Deferred Stock Units established for record keeping purposes for a
Participant pursuant to Article 5 of the Plan.
Deferral Period means the Plan Year covered by a valid Participation Election
previously submitted by a Participant, or in the case of a newly eligible
Participant, the balance of the Plan Year following the date of the
Participation Election.
Deferred Stock Unit means a bookkeeping entry linked to shares of Edison
International Common Stock on a one-for-one basis. Deferred Stock Units may be
credited to a Participant's account as a result of an award under the Equity
Compensation Plan or Dividend Equivalents on such an award.
2
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Dividend Equivalent means an amount equal to the dividend declared by the Board
on one share of Edison International common stock for any calendar quarter.
Eligible Director means a non-employee director of an Affiliate who (i) is a
U.S. director or an expatriate who is based and paid in the U.S., and (ii) is
designated by the Company as eligible to participate in the Plan (subject to the
restrictions in Article 8 and Section 10.2 of the Plan).
Financial Hardship means an unexpected and unforeseen financial disruption
arising from an illness, casualty loss, sudden financial reversal, or other such
unforeseeable occurrence as determined by the Administrator or its designee.
Needs arising from foreseeable events such as the purchase of a residence or
education expenses for children will not, alone, be considered a Financial
Hardship.
Index Rate means the 120-month average rate of 10-year U.S. Treasury Notes
determined for any Plan Year as of October 15th of the prior year.
Participant means an Eligible Director who has elected to participate and has
completed a Participation Election pursuant to Section 2.1 of the Plan or has
received an award of Deferred Stock Units under the Edison International Equity
Compensation Plan which has been credited under this Plan.
Participation Election means the Participant's written election to defer
Compensation under the Plan submitted on the form prescribed by the
Administrator for that purpose.
Plan means the Edison International Director Deferred Compensation Plan.
Plan Year means the calendar year.
Retirement means a separation from service after attaining age 55 with at least
5 years of service.
Scheduled Withdrawal means a distribution of all or a portion of the entire
amount of Annual Deferrals and earnings credited to the Participant's
Compensation Deferral Account as elected by the Participant pursuant to the
provisions of Article 9 of the Plan.
Termination for Cause means the Termination of Service of the Participant upon
willful failure by the Participant to substantially perform his or her duties
for the Company or the willful engaging by the Participant in conduct which is
injurious to the Company, monetarily or otherwise.
Termination of Service means the voluntary or involuntary cessation of the
Participant's service as a member of the Board of Directors of a Company for any
reason other than Retirement or death. Termination of Service will not be deemed
to have occurred for purposes of this Plan if the Participant continues to serve
on the
3
<PAGE>
Board of Directors of another participating Affiliate, or commences such service
within 30 days.
Unscheduled Withdrawal means a distribution of all or a portion of the entire
amount of Annual Deferrals and earnings credited to the Participant's
Compensation Deferral Account as requested by the Participant pursuant to the
provisions of Article 9 of the Plan.
Valuation Date means the last day of the month in which Termination of Service,
Retirement or death occurs, or the day before a Scheduled Withdrawal or
Unscheduled Withdrawal occurs.
ARTICLE 2
PARTICIPATION
2.1 Commencement
(a) An Eligible Director will become a Participant in the Plan on the first day
of the month coincident with or next following the date the director becomes an
Eligible Director, provided the Eligible Director has submitted to the
Administrator a Participation Election prior to that date. Except for directors
who become newly eligible during the Plan Year, the Participation Election must
be submitted to the Administrator during the enrollment period designated by the
Administrator which will always be prior to the commencement of the Plan Year.
(b) An Eligible Director will also become a Participant upon any award of
Deferred Stock Units made under the Edison International Equity Compensation
Plan and credited to this Plan.
2.2 Annual Deferral
Subject to the restrictions in Article 3, the Eligible Director will designate
his or her Annual Deferral for the covered Plan Year on the Participation
Election.
2.3 Continuation of Participation
Participation will continue as long as the Participant has a Deferral Account
balance under the Plan.
ARTICLE 3
DIRECTOR DEFERRALS
3.1 Participation Election
Eligible Directors may elect to make an Annual Deferral under the Plan by
submitting a Participation Election during the applicable enrollment period. The
Participation Election will designate the percentage of Compensation, in whole
percentage
4
<PAGE>
increments, that the Participant wishes to defer pursuant to the terms of the
Plan. Once made, a Participation Election will continue to apply for subsequent
Deferral Periods unless the Participant submits a new Participation Election
form during a subsequent enrollment period changing the deferral amount or
revoking the existing election. A Participation Election may be revoked by the
Participant upon 30 days written notice to the Administrator; however, such
Participant will be ineligible to make an Annual Deferral under the Plan for the
following Plan Year.
3.2 Minimum Annual Deferral
The minimum Annual Deferral for a Plan Year is 10% of the Participant's
Compensation.
3.3 Maximum Annual Deferral
The maximum Annual Deferral for a Plan Year is 100% of the Participant's
Compensation.
3.4 Deferred Stock Units
The Company will credit the Participant's account with any Deferred Stock Unit
award approved by the Board pursuant to the Equity Compensation Plan.
3.5 Vesting
Amounts deferred under this Article 3 and any earnings thereon will be 100%
vested at all times.
ARTICLE 4
DEFERRAL ACCOUNTS
4.1 Deferral Accounts
Solely for record keeping purposes, the Administrator will maintain Deferral
Accounts for Compensation and Deferred Stock Units for each Participant with
such subaccounts as the Administrator or its record keeper find necessary or
convenient in the administration of the Plan.
4.2 Timing of Credits
(a) Annual Deferrals. The Administrator will credit the Annual Deferrals to the
Participant's Compensation Deferral Account at the time such amounts would
otherwise have been paid to the Participant but for the Participation Election.
(b) Deferred Stock Units. The Administrator will credit Deferred Stock Units to
the Participant's Deferred Stock Unit Deferral Account as of the effective date
of any award of Deferred Stock Units under the Equity Compensation Plan.
5
<PAGE>
(c) Earnings Crediting Dates.
(i) The Administrator will credit interest at the Crediting Rate to
the Participant's Compensation Deferral Account on a daily basis,
compounded annually.
(ii) The Administrator will credit a Dividend Equivalent for each
Deferred Stock Unit credited to the Participant's Deferred Stock
Unit Deferral Account on the Edison International common stock
ex-dividend date each quarter. Dividend Equivalents so credited
will be converted into additional Deferred Stock Units based on
the closing price of Edison International Common Stock on that
date as reported in the Western Edition of the Wall Street
Journal. Fractional Dividend Equivalents and Deferred Stock Units
will be credited.
(d) Statement of Accounts. The Administrator will periodically provide to each
Participant a statement setting forth the balance of the Deferral Account
maintained for the Participant.
ARTICLE 5
RETIREMENT BENEFITS
5.1 Amount
(a) Deferred Compensation. Upon Retirement, the Company will pay to the
Participant a retirement benefit in the form provided in Section 5.2(a), based
on the balance of the Compensation Deferral Account as of the Valuation Date. If
paid as a lump sum, the retirement benefit will be equal to the Compensation
Deferral Account balance. If paid in installments, the installments will be paid
in amounts that will amortize the Compensation Deferral Account balance with
interest credited at the Crediting Rate over the period of time benefits are to
be paid. For purposes of calculating installments, the Compensation Deferral
Account will be valued as of December 31 each year, and the subsequent
installments will be adjusted for the next Plan Year according to procedures
established by the Administrator to reflect changes in the Crediting Rate.
(b) Deferred Stock Units. Upon Retirement, the Company will pay to the
Participant a retirement benefit in the form provided in Section 5.2(b), based
on the balance of the Deferred Stock Unit Deferral Account as of the Valuation
Date. If paid as a lump sum, the retirement benefit will be equal to the
Deferred Stock Unit Deferral Account balance. If paid in installments, the
installments will be paid in amounts that will amortize the Deferred Stock Unit
Deferral Account balance with Dividend Equivalents credited over the period of
time benefits are to be paid. For purposes of calculating installments, the
Deferred Stock Unit Deferral Account will be valued as of December 31 each year,
and the subsequent installments will be adjusted for the next Plan Year
according to procedures established by the Administrator to reflect any changes
in the Dividend Equivalent crediting rate.
6
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5.2 Form of Retirement Benefits
(a) Compensation Deferrals. The Participant may elect on the Participation
Election form to have the retirement benefit attributable to Compensation
deferrals paid in cash:
(i) In a lump sum,
(ii) In installments paid monthly over a period of 60, 120, or 180
months, or
(iii) In a lump sum of a portion of the Deferral Account upon
Retirement with the balance in installments paid monthly over a
period of 60, 120, or 180 months.
If no valid election is made, the Administrator will pay the retirement benefit
in installments over a 180 month period. Participants may change the form of
payout by written election filed with the Administrator; provided, however, that
if the Participant files the election less than 13 months prior to the date of
Retirement, the payout election in effect 13 months prior to the date of
Retirement will govern.
(b) Deferred Stock Units. The balance in the Deferred Stock Unit Deferral
Account will be paid in cash in a lump sum. At least six months prior to
retirement, the Participant may request distribution in monthly installments
over 5, 10, or 15 years subject to approval of the Board.
5.3 Commencement of Benefits
Payments will commence within 60 days after the date the Participant retires, or
attains age 55, whichever is later.
5.4 Small Benefit Exception
Notwithstanding the foregoing, the Administrator may, in its sole discretion:
(a) pay the benefits in a single lump sum if the sum of all benefits payable to
the Participant is less than or equal to $3,500.00, or
(b) reduce the number of installments elected by the Participant to 120 or 60 if
necessary to produce a monthly benefit of at least $300.00.
ARTICLE 6
TERMINATION BENEFITS
6.1 Amount
No later than 60 days following a Termination of Service, the Administrator will
pay to the Participant a termination benefit as of the Valuation Date equal to
(i) the balance of the Compensation Deferral Account, and (ii) the balance of
the Deferred Stock Unit Deferral Account.
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6.2 Form of Termination Benefits
(a) The Administrator will pay the Compensation Deferral Account termination
benefits in a single lump sum cash payment unless the Participant has previously
elected payment to be made in three annual installments. Installments paid under
this Section 6.2(a) will include interest at the Index Rate and will be
redetermined annually to reflect adjustments in that rate.
(b) The Administrator will pay the Deferred Stock Unit Deferral Account
termination benefit in a single lump sum cash payment.
(c) Notwithstanding the foregoing, any Termination for Cause will result in an
single lump sum cash payment.
ARTICLE 7
SURVIVOR BENEFITS
7.1 Pre-Retirement Survivor Benefit
If the Participant dies while actively serving on the board of directors of an
Affiliate, the Administrator will pay a pre-retirement survivor benefit to the
Participant's Beneficiary. With respect to the Compensation Deferral Account,
the Administrator will pay a lump sum in cash or commence monthly installments
in accordance with the Participant's prior election within 60 days after the
Participant's death. The payment(s) will be based on the Participant's
Compensation Deferral Account balance as of the Valuation Date; provided
however, that if the Participant's death occurs within ten years of (i) his or
her initial Plan participation date, or (ii) January 1, 1995, whichever is
later, then the Beneficiary's payment(s) will be based on twice the
Participant's Compensation Deferral Account balance as of the Valuation Date.
With respect to Deferred Stock Units, the Administrator will pay a lump sum in
cash based on the Deferred Stock Unit Deferral Account balance as of the
Valuation Date within 60 days after the Participant's death. No doubling will
apply to the Deferred Stock Unit Deferral Account.
7.2 Post-Retirement Survivor Benefit
If the Participant dies after Retirement, the Administrator will pay a
post-retirement survivor benefit to the Participant's Beneficiary in an amount
equal to the remaining benefits payable to the Participant from the Compensation
Deferral Account under the Plan over the same period the benefits would have
been paid to the Participant; provided however, if the Participant's death
occurs within ten years of (i) his or her initial Plan participation date, or
(ii) January 1, 1995, whichever is later, then the Beneficiary's death benefit
will be based on twice the Participant's Compensation Deferral Account balance
as of the Valuation Date. In the event the Deferred Stock Unit Deferral Account
Balance has not yet been paid to the Participant, the Administrator will pay a
lump sum in cash as of the Valuation Date within 60 days after
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the Participant's death. No doubling will apply to the Deferred Stock Unit
Deferral Account.
7.3 Post-Termination Survivor Benefit
It the Participant dies following Termination of Service, but prior to the
payment of all benefits under the Plan, the Beneficiary will be paid the
remaining balance in the Participant's Deferral Account in a lump sum. No double
benefit will apply.
7.4 Changing Form of Benefit
Beneficiaries may petition the Administrator once, and only after the death of
the Participant, for a change in the form of survivor Benefits. The
Administrator may, in its sole and absolute discretion, choose to grant or deny
such a petition.
7.5 Small Benefit Exception
Notwithstanding the foregoing, the Administrator may, in its sole discretion:
(a) pay the benefits in a single lump sum if the sum of all benefits payable to
the Beneficiary is less than or equal to $3,500.00, or
(b) reduce the number of installments elected by the Participant to 120 or 60 if
necessary to produce a monthly benefit of at least $300.00.
ARTICLE 8
CHANGE OF CONTROL
Within two years after a Change of Control, any Participant or Beneficiary in
the case of an Edison International Change of Control, or the affected
Participants or Beneficiaries in the case of a Company Change of Control, may
elect to receive a distribution of the balance of the Compensation Deferral
Account. There will be a penalty deducted from the Compensation Deferral Account
prior to distribution pursuant to this Article 8 equal to 5% of the total
balance of the Compensation Deferral Account (instead of the 10% reduction
otherwise provided for in Section 9.2). If a Participant elects such a
withdrawal, any on-going Annual Deferral will cease, and the Participant may not
again be designated as an Eligible Employee until one entire Plan Year following
the Plan Year in which the withdrawal was made has elapsed.
ARTICLE 9
SCHEDULED AND UNSCHEDULED WITHDRAWALS
9.1 Scheduled Withdrawals
(a) Election. When making a Participation Election, a Participant may elect to
receive a distribution of a specific dollar amount or a percentage of the Annual
Deferral that will be made in the following Plan Year at a specified year in the
future when the Participant
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will still be an active director. Such an election must be made on an In-Service
Distribution Election Form and submitted concurrently with the Participation
Election. The election of a Scheduled Withdrawal will only apply to the Annual
Deferral and related earnings for that Deferral Period, but not to previous or
subsequent Annual Deferrals or related earnings. Elections under this Section
will be superseded by benefit payments due to the Retirement, Termination of
Service or death of the Participant.
(b) Timing and Form of Withdrawal. The year specified for the Scheduled
Withdrawal may not be sooner than the second Plan Year following the Plan Year
in which the deferral occurs. The Participant will receive a lump sum
distribution of the amount elected on January 1st of the Plan Year specified.
(c) Remaining Compensation Deferral Account. The remainder, if any, of the
Participant's Compensation Deferral Account will continue in effect and will be
distributed in the future according to the terms of the Plan.
(d) Deferred Stock Units. No Scheduled Withdrawal of Deferred Stock Units is
permitted.
9.2 Unscheduled Withdrawals
(a) Election. A Participant (or Beneficiary if the Participant is deceased) may
request in writing to the Administrator an Unscheduled Withdrawal of all or a
portion of the entire vested amount credited to the Participant's Compensation
Deferral Account, including earnings, which will be paid within 30 days in a
single lump sum; provided, however, that (i) the minimum withdrawal will be 25%
of the Compensation Deferral Account balance, (ii) an election to withdraw 75%
or more of the balance will be deemed to be an election to withdraw the entire
balance, and (iii) such an election may be made only once in a Plan Year.
(b) Withdrawal Penalty. There will be a penalty deducted from the Compensation
Deferral Account prior to an Unscheduled Withdrawal equal to 10% of the
Unscheduled Withdrawal. If a Participant elects such a withdrawal, any on-going
Annual Deferral will cease, and the Participant may not again be designated as
an Eligible Director until one entire Plan Year following the Plan Year in which
the withdrawal was made has elapsed.
(c) Small Benefit Exception. Notwithstanding any of the foregoing, if the sum of
all benefits payable to the Participant or Beneficiary who has requested the
Unscheduled Withdrawal is less than or equal to $3,500.00, the Administrator
may, in its sole discretion, elect to pay out the entire Compensation Deferral
Account (reduced by the 10% penalty) in a single lump sum.
(d) Deferred Stock Units. No Unscheduled Withdrawal of Deferred Stock Units is
permitted.
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ARTICLE 10
CONDITIONS RELATED TO BENEFITS
10.1 Nonassignability
The benefits provided under the Plan may not be alienated, assigned,
transferred, pledged or hypothecated by or to any person or entity, at any time
or any manner whatsoever. These benefits will be exempt from the claims of
creditors of any Participant or other claimants and from all orders, decrees,
levies, garnishment or executions against any Participant to the fullest extent
allowed by law. Notwithstanding the foregoing, the benefit payable to a
Participant may be assigned in full or in part, pursuant to a domestic relations
order of a court of competent jurisdiction.
10.2 Financial Hardship Distribution
A participant may submit a hardship distribution request to the Administrator in
writing setting forth the reasons for the request. The Administrator will have
the sole authority to approve or deny such requests. Upon a finding that the
Participant or the Beneficiary has suffered a Financial Hardship, the
Administrator may in its discretion, permit the Participant to cease any
on-going deferrals and accelerate distributions of benefits under the Plan in
the amount reasonably necessary to alleviate the Financial Hardship. If a
distribution is to be made to a Participant on account of Financial Hardship,
the Participant may not make deferrals under the Plan until one entire Plan Year
following the Plan Year in which a distribution based on Financial Hardship was
made has elapsed.
10.3 No Right To Assets
The benefits paid under the Plan will be paid from the general funds of the
Company, and the Participant and any Beneficiary will be no more than unsecured
general creditors of the Company with no special or prior right to any assets of
the Company for payment of any obligations hereunder. The Participant will have
no claim to benefits from any other Affiliate.
10.4 Protective Provisions
The Participant will cooperate with the Administrator by furnishing any and all
information requested by the Administrator, in order to facilitate the payment
of benefits hereunder, taking such physical examinations as the Administrator
may deem necessary and signing such consents to insure or taking such other
actions as may be requested by the Administrator. If the Participant refuses to
cooperate, the Administrator and the Employer will have no further obligation to
the Participant under the Plan.
10.5 Withholding
The Participant or the Beneficiary will make appropriate arrangements with the
Administrator for satisfaction of any federal, state or local income tax
withholding requirements and Social Security or other director tax requirements
applicable to the
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payment of benefits under the Plan. If no other arrangements are made, the
Administrator may provide, at its discretion, for such withholding and tax
payments as may be required.
ARTICLE 11
PLAN ADMINISTRATION
The Administrator will administer the Plan and interpret, construe and apply its
provisions in accordance with its terms and will provide direction and oversight
as necessary to management, staff, or contractors to whom day-to-day Plan
operations may be delegated. The Administrator will establish, adopt or revise
such rules and regulations as it may deem necessary or advisable for the
administration of the Plan. All decisions of the Administrator will be final and
binding.
ARTICLE 12
BENEFICIARY DESIGNATION
The Participant will have the right, at any time, to designate any person or
persons as Beneficiary (both primary and contingent) to whom payment under the
Plan will be made in the event of the Participant's death. The Beneficiary
designation will be effective when it is submitted in writing to the
Administrator during the Participant's lifetime on a form prescribed by the
Administrator.
The submission of a new Beneficiary designation will cancel all prior
Beneficiary designations. Any finalized divorce or marriage of a Participant
subsequent to the date of a Beneficiary designation will revoke such
designation, unless in the case of divorce the previous spouse was not
designated as Beneficiary, and unless in the case of marriage the Participant's
new spouse has previously been designated as Beneficiary. The spouse of a
married Participant must consent in writing to any designation of a Beneficiary
other than the spouse.
If a Participant fails to designate a Beneficiary as provided above, or if the
Beneficiary designation is revoked by marriage, divorce, or otherwise without
execution of a new designation, or if every person designated as Beneficiary
predeceases the Participant or dies prior to complete distribution of the
Participant's benefits, then the Administrator will direct the distribution of
the benefits to the Participant's estate. If a Beneficiary dies after
commencement of payments to the Beneficiary, a lump sum of any remaining
payments will be paid to that person's Beneficiary, if one has been designated,
or to the Beneficiary's estate.
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ARTICLE 13
AMENDMENT OR TERMINATION OF PLAN
13.1 Amendment of Plan
Subject to the terms of Section 13.3, Edison International may at any time amend
the Plan in whole or in part, provided, however, that the amendment (i) will not
decrease the balance of the Participant's Deferral Account at the time of the
amendment and (ii) will not retroactively decrease the applicable Crediting
Rates of the Plan prior to the time of the amendment. Edison International may
amend the Crediting Rates of the Plan prospectively, in which case the
Administrator will notify the Participant of the amendment in writing within 30
days after the amendment.
13.2 Termination of Plan
Subject to the terms of Section 13.3, Edison International may at any time
terminate the Plan. If Edison International terminates the Plan, the date of the
termination will be treated as the date of Termination of Service for the
purpose of calculating Plan benefits, and the benefits the Participant is
entitled to receive under the Plan will be paid to the Participant in a lump sum
within 60 days.
13.3 Amendment or Termination After Change of Control
Notwithstanding the foregoing, Edison International will not amend or terminate
the Plan without the prior written consent of affected Participants for a period
of two calendar years following a Change of Control and will not thereafter
amend or terminate the Plan in any manner which affects any Participant (or
Beneficiary of a deceased Participant) who commences receiving payment of
benefits under the Plan prior to the end of the two-year period following a
Change of Control.
13.4 Exercise of Power to Amend or Terminate
Edison International's power to amend or terminate the Plan will be exercisable
by the Board.
13.5 Constructive Receipt Termination
Notwithstanding anything to the contrary in this Plan, in the event the
Administrator determines that amounts deferred under the Plan have been
constructively received by Participants and must be recognized as income for
federal income tax purposes, the Plan will terminate and distributions will be
made to Participants in accordance with the provisions of Section 13.2 or as may
be determined by the Administrator. The determination of the Administrator under
this Section 13.5 will be binding and conclusive.
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ARTICLE 14
CLAIMS AND REVIEW PROCEDURES
14.1 Claims Procedure
The Administrator will notify a Participant in writing, within 90 days after his
or her written application for benefits, of his or her eligibility or
noneligibility for benefits under the Plan. If the Administrator determines that
a Participant is not eligible for benefits or full benefits, the notice will set
forth (1) the specific reasons for the denial, (2) a specific reference to the
provisions of the Plan on which the denial is based, (3) a description of any
additional information or material necessary for the claimant to perfect his or
her claim, and a description of why it is needed, and (4) an explanation of the
Plan's claims review procedure and other appropriate information as to the steps
to be taken if the Participant wishes to have the claim reviewed. If the
Administrator determines that there are special circumstances requiring
additional time to make a decision, the Administrator will notify the
Participant of the special circumstances and the date by which a decision is
expected to be made, and may extend the time for up to an additional 90-day
period.
14.2 Review Procedure
If a Participant is determined by the Administrator not to be eligible for
benefits, or if the Participant believes that he or she is entitled to greater
or different benefits, the Participant will have the opportunity to have the
claim reviewed by the Administrator by filing a petition for review with the
Administrator within 60 days after receipt of the notice issued by the
Administrator. Said petition will state the specific reasons which the
Participant believes entitle him or her to benefits or to greater or different
benefits. Within 60 days after receipt by the Administrator of the petition, the
Administrator will afford the Participant (and counsel, if any) an opportunity
to present his or her position to the Administrator orally or in writing, and
the Participant (or counsel) will have the right to review the pertinent
documents. The Administrator will notify the Participant of its decision in
writing within the 60-day period, stating specifically the basis of its
decision, written in a manner calculated to be understood by the Participant and
the specific provisions of the Plan on which the decision is based. If, because
of the need for a hearing, the 60-day period is not sufficient, the decision may
be deferred for up to another 60-day period at the election of the
Administrator, but notice of this deferral will be given to the Participant. In
the event of the death of the Participant, the same procedures will apply to the
Participant's Beneficiaries.
14.3 Dispute Arbitration
Notwithstanding the foregoing, and because it is agreed that time will be of the
essence in determining whether any payments are due to Participant or his or her
Beneficiary under the Plan, a Participant or Beneficiary may, if he or she
desires, submit any claim for payment under the Plan to arbitration. This right
to select arbitration will be solely that of the Participant or Beneficiary and
the Participant or Beneficiary may decide whether or not to arbitrate in his or
her discretion. The "right to select arbitration" is not mandatory on the
Participant or Beneficiary, and the Participant or Beneficiary may
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choose in lieu thereof to bring an action in an appropriate civil court. Once an
arbitration is commenced, however, it may not be discontinued without the mutual
consent of both parties to the arbitration. During the lifetime of the
Participant only he or she can use the arbitration procedure set forth in this
Section.
Any claim for arbitration may be submitted as follows: if a Participant or
Beneficiary has submitted a request to be paid under the Plan and the claim is
finally denied by the Administrator in whole or in part, the claim may be filed
in writing with an arbitrator of the Participant's or Beneficiary's choice who
is selected by the method described in the next four sentences. The first step
of the selection will consist of the Participant or Beneficiary submitting a
list of five potential arbitrators to the Administrator. Each of the five
arbitrators must be either (1) a member of the National Academy of Arbitrators
located in the State of California or (2) a retired California Superior Court or
Appellate Court judge. Within one week after receipt of the list, the
Administrator will select one of the five arbitrators as the arbitrator for the
dispute in question. If the Administrator fails to select an arbitrator within
one week after receipt of the list, the Participant or Beneficiary will then
designate one of the five arbitrators for the dispute in question.
The arbitration hearing will be held within seven days (or as soon thereafter as
possible) after the picking of the arbitrator. No continuance of said hearing
will be allowed without the mutual consent of Participant or Beneficiary and the
Administrator. Absence from or nonparticipation at the hearing by either party
will not prevent the issuance of an award. Hearing procedures which will
expedite the hearing may be ordered at the arbitrator's discretion, and the
arbitrator may close the hearing in his or her sole discretion when he or she
decides he or she has heard sufficient evidence to satisfy issuance of an award.
The arbitrator's award will be rendered as expeditiously as possible and in no
event later than one week after the close of the hearing.
In the event the arbitrator finds that the Administrator or the Company has
breached the terms of the Plan, he or she will order the Company to pay to
Participant or Beneficiary within two business days after the decision is
rendered the amount then due the Participant or Beneficiary, plus,
notwithstanding anything to the contrary in the Plan, an additional amount equal
to 20% of the amount actually in dispute. This additional amount will constitute
an additional benefit under the Plan. The award of the arbitrator will be final
and binding upon the Parties.
The award may be enforced in any appropriate court as soon as possible after its
rendition. The Administrator will be considered the prevailing party in a
dispute if the arbitrator determines (1) that the Administrator or the Company
has not breached the terms of the Plan and (2) the claim by Participant or his
or her Beneficiary was not made in good faith. Otherwise, the Participant or his
or her Beneficiary will be considered the prevailing party. In the event that
the Administrator is the prevailing party, the fee of the arbitrator and all
necessary expenses of the hearing (excluding any attorneys' fees incurred by the
Administrator) including stenographic reporter, if
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employed, will be paid by the losing party. In the event that the Participant or
his or her Beneficiary is the prevailing party, the fee of the arbitrator and
all necessary expenses of the hearing (including all attorneys' fees incurred by
Participant or his or her Beneficiary in pursuing his or her claim), including
the fees of a stenographic reporter, if employed, will be paid by the Company.
ARTICLE 15
MISCELLANEOUS
15.1 Successors
The rights and obligations of Edison International and the Companies under the
Plan will inure to the benefit of, and will be binding upon, the successors and
assigns of Edison International and the Companies, respectively.
15.2 Trust
The Companies will be responsible for the payment of all benefits under the
Plan. At their discretion, the Companies may establish one or more grantor
trusts for the purpose of providing for payment of benefits under the Plan. The
trust or trusts may be irrevocable, but a Company's share of the assets thereof
will be subject to the claims of the Company's creditors. Benefits paid to the
Participant from any such trust will be considered paid by the Company for
purposes of meeting the obligations of the Company under the Plan.
15.3 Service Not Guaranteed
Nothing contained in the Plan nor any action taken hereunder will be construed
as a contract of service or as giving any Participant any right to continue in
service as a director of Edison International or any other Affiliate.
15.4 Gender, Singular and Plural
All pronouns and variations thereof will be deemed to refer to the masculine,
feminine, or neuter, as the identity of the person or persons may require. As
the context may require, the singular may be read as the plural and the plural
as the singular.
15.5 Captions
The captions of the articles and sections of the Plan are for convenience only
and will not control or affect the meaning or construction of any of its
provisions.
15.6 Validity
If any provision of the Plan is held invalid, void or unenforceable, the same
will not affect, in any respect whatsoever, the validity of any other provisions
of the Plan.
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15.7 Waiver of Breach
The waiver by the Administrator of any breach of any provision of the Plan by
the Participant will not operate or be construed as a waiver of any subsequent
breach by the Participant.
15.8 Applicable Law
The Plan will be governed and construed in accordance with the laws of
California.
15.9 Notice
Any notice or filing required or permitted to be given to the Administrator
under the Plan will be sufficient if in writing and hand-delivered, or sent by
first class mail to the principal office of Edison International, directed to
the attention of the Administrator. The notice will be deemed given as of the
date of delivery, or, if delivery is made by mail, as of the date shown on the
postmark.
IN WITNESS WHEREOF, Edison International has restated this Plan effective the
1st day of January, 1998.
Edison International
Lillian R. Gorman
- -------------------------------------------
Lillian R. Gorman, Vice President
EXHIBIT 10.4
EDISON INTERNATIONAL EQUITY COMPENSATION PLAN
1998 Statement of Terms and Conditions of Plan Awards for
Executive Officers and Key Management Employees
(Revised to Include Edison Enterprises CVA Performance Awards)
1998 awards (Plan Awards) made under the Edison Equity Compensation Plan (Plan)
to eligible recipients (Holders) at Edison International (EIX) or its
participating affiliates (the Companies, or individually, the Company) include
EIX nonqualified stock options to purchase EIX Common Stock (EIX Options), EIX
Option dividend equivalents (Dividend Equivalents), Edison Mission Energy or
Edison Capital affiliate option performance awards (Affiliate Options) and
Edison Enterprises affiliate cash value added performance awards (CVA
Performance Awards) which are subject to the following terms and conditions:
1. PRICE
(a) The exercise price of an EIX Option stated in the award certificate is the
average of the high and low sales prices of EIX Common Stock as reported in the
Western Edition of The Wall Street Journal for the New York Stock Exchange
Composite Transactions for the date of the award.
(b) The annual exercise price of an Affiliate Option will be the base price
stated in the award certificate escalated by an annual compound appreciation
rate linked to the affiliate's cost of capital plus an overhead allowance. Upon
any significant subsequent change in the affiliate's cost of capital, the
Affiliate Option exercise price for that year may be redetermined and
prospectively indexed reflecting the affiliate's revised appreciation rate.
2. VESTING
(a) Subject to the provisions of Section 3, Plan Awards may only be exercised or
paid to the extent vested. The initial vesting date will be January 2nd of the
year following the date of the grant, or six months after the date of the grant,
whichever date is later. The Plan Awards will vest as follows:
o On the initial vesting date, the Plan Awards will vest as to 25% of the
covered shares or units.
o On January 2nd of the following year, the Plan Awards will vest as to an
additional 25% of the covered shares or units.
o On January 2nd of the following year, the Plan Awards will vest as to an
additional 25% of the covered shares or units.
o On January 2nd of the fourth year following the date of grant, the Plan Awards
will be fully vested.
(b) The vested portions of the Plan Award will accumulate to the extent not
exercised, and be exercisable by the Holder subject to the provisions of Section
3, in whole or in part, in any subsequent period but not later than the first
business day of the 10th calendar year following the date of the award, or, in
the case of Affiliate Options, not later than the end of the final 60-day
exercise period.
(c) If the Holder is removed from a position entitling him or her to benefits
under the Plan, but continues employment, or the Holder retires, dies or is
permanently and totally disabled during the four-year vesting period, the Plan
Awards will vest and be exercisable to the extent of 1/48th of the aggregate
number of shares or units granted for each full month of service during the
vesting period. Notwithstanding the foregoing, the Plan Award of a Holder who
has served as a member of the Southern California Edison Company Management
Committee will be fully vested and exercisable upon his or her retirement, death
or permanent and total disability.
(d) Upon termination of a Holder's employment for any reason other than the
reasons specified in Subsection (c), only that portion of the Plan Award which
has vested as of the prior vesting date may be exercised, and that portion will
be forfeited unless exercised within 180 days following the date of
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termination, or in the case of Affiliate Options, the first 60-day exercise
period following the date of termination. Any earned and vested Dividend
Equivalents remaining unpaid will be paid upon expiration of the 180-day period.
(e) Notwithstanding the foregoing, Plan Awards may vest in accordance with
Section 3.4 of the Plan as a result of certain events, including liquidation of
EIX or merger, reorganization or consolidation of EIX as a result of which EIX
is not the surviving corporation. Upon a change of control of EIX following the
occurrence of a Distribution Date, as that term is defined in the Rights
Agreement approved by the EIX Board of Directors on November 20, 1996, the Plan
Awards will vest and will remain exercisable for at least two years following
the Distribution Date, or in the case of Affiliate Options, through the first
exercise period occurring at least two years after such date. During that
period, (i) the Plan may not be terminated, (ii) individual awards may not be
cashed out, terminated, or modified without the Holder's consent, and (iii)
valuation procedures and exercise periods will occur on a basis consistent with
past practice.
3. PLAN AWARD EXERCISE
(a) The Holder may exercise a Plan Award by providing written notice to EIX on
the form prescribed by EIX for this purpose accompanied by full payment of any
applicable exercise price. Payment must be in cash, or its equivalent, such as
EIX Common Stock, acceptable to EIX. A "cashless" exercise will be accommodated
for all Affiliate Options, and may be accommodated for EIX Options at the
discretion of EIX. Until payment is accepted, the Holder will have no rights in
the optioned stock. Earned Dividend Equivalents may not be directly applied to
payment of the exercise price for EIX Options.
(b) EIX Options may be exercised at any time after they have vested through the
first business day of the 10th calendar year following the date of the award,
and CVA Performance Awards that have been translated into EIX Common Stock Units
(EIX Units) as provided in Section 5(b) may be exercised at any time after they
have vested through the first business day of the 10th calendar year following
the date of the award. Affiliate Options may be exercised after they have
vested, but only during an annually specified 60-day period following the fiscal
year end and the completion of an independently reviewed valuation report which
indicates a share value for the fiscal year higher than the applicable Affiliate
Option exercise price for that period. The final 60-day Affiliate Option
exercise period will commence no later than the end of the second quarter of the
10th calendar year following the date of the award. Subject to Section 9,
Affiliate Options are payable in cash upon exercise to the extent the actual
value of an affiliate share exceeds the applicable exercise price.
(c) The Holder agrees that any securities acquired by him or her hereunder are
being acquired for his or her own account for investment and not with a view to
or for sale in connection with any distribution thereof and that he or she
understands that such securities may not be sold, transferred, pledged,
hypothecated, alienated, or otherwise assigned or disposed of without either
registration under the Securities Act of 1933 or compliance with the exemption
provided by Rule 144 or another applicable exemption under such act.
(d) In accordance with Section 3.5(e) of the Plan, the Holder will have no right
or claim to any specific funds, property or assets of EIX as a result of the
award.
4. EIX OPTION DIVIDEND EQUIVALENTS
(a) An EIX Dividend Equivalent account will be established on behalf of the
Holder if EIX Options have been granted pursuant to the award. This account may
be credited with all or a portion of the dividends payable after the date of the
award on the number of shares of stock covered by such EIX Options depending
upon EIX performance during the first three years of the Plan Award term as
provided in Subsection (b). No amount will be credited prior to January 2nd of
the third year following the date of the award. No Dividend Equivalent will
accrue on any EIX Option exercised during that period regardless of EIX
performance. Dividend Equivalents credited on any EIX Option will accumulate in
this account without interest and will vest on the same schedule as the EIX
Option to purchase the corresponding shares of EIX Common Stock. Once earned and
vested, the Dividend Equivalents will be paid upon the
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earlier of (i) the request of the holder at any time prior to the final year of
the Plan Award term regardless of whether the corresponding EIX Option is
exercised, (ii) the exercise of the corresponding EIX Option, or (iii) the
expiration or termination of the corresponding EIX Option. Upon such payment, no
further Dividend Equivalents will accrue even if the corresponding EIX Option
remains outstanding and exercisable.
(b) Dividend Equivalents related to EIX Options are subject to a performance
measure based on the percentile ranking of EIX total shareholder return (TSR)
compared to the TSR for each stock in the Dow Jones Electric Utilities Group
Index. The percentile ranking will be measured at the completion of the first
three years of the Plan Award term . If the EIX average ranking is in the 60th
percentile or higher for the 3-year period, 100% of the Dividend Equivalents
will be earned from the date of grant through the date the EIX Option is
exercised or the date the Dividend Equivalents are paid, whichever is earlier.
If the EIX average ranking is in the 25th percentile, 25% of the Dividend
Equivalents will be earned. No Dividend Equivalents will be earned for
performance below the 25th percentile, and a pro rata amount will be earned for
performance between the 25th and 60th percentiles.
Dividend Equivalents related to unexercised EIX Options that were not earned due
to the limitations of this Subsection (b) may be earned back as of the end of
each of the last five years of the Plan Award term if it is determined at that
point that the EIX cumulative average TSR percentile ranking equals or exceeds
the 60th percentile.
5. PERFORMANCE AWARDS
(a) Affiliate Options are performance awards under the Plan similar to stock
options but based on shares of hypothetical affiliate stock created for this
purpose only. The Affiliate Option exercise prices are derived by applying a
compound annual appreciation rate, based on the affiliate's cost of capital and
an allowance for corporate overhead, to the base price of a share. Following the
end of each calendar year during the Plan Award term, new affiliate share prices
will be computed. If the affiliate share value exceeds the exercise price for
that period, any portion of the vested Affiliate Option may be exercised by the
Holder in accordance with Section 3 and the difference will be paid in cash to
the Holder. If a change in the affiliate's cost of capital has occurred that
significantly affects the new share price valuation, the Affiliate Option
exercise prices may be redetermined (i) for that year to reflect the same
intrinsic value result (gain or loss) that would have existed using the previous
cost of capital, and (ii) for subsequent years by applying the revised
appreciation rate.
(b) CVA Performance Awards under the Plan are based on value created at the
affiliate and allocated to Holders for this purpose only. Following the end of
the first year of the ten-year Plan Award term, the improvement in cash value
added at the affiliate during the first year will be determined. Each Holder's
share of any improvement in cash value added during the first year of the Plan
Award term will be translated into EIX Units and credited to the Holder's
account under the Plan as of the first business day of the second year of the
Plan Award term ("Crediting Date") based on the average of the high and low
prices of EIX Common Stock on the Crediting Date as determined in accordance
with 1(a) above. The EIX Units will be 25% vested as of the Crediting Date, and
will continue to vest at the rate of 25% per year as provided under Section 2.
The Holder's account will be credited thereafter with any dividends payable on a
comparable number of shares of EIX Common Stock as of the quarterly ex-dividend
date. Dividends so credited will be translated into additional EIX Units based
on the closing price of EIX Common Stock on that date as reported in the Western
Edition of the Wall Street Journal and will be credited with dividends in
subsequent quarters. Once vested, the Holder may elect payment of the EIX Units
in cash at any time. If not elected sooner, the EIX Units will be paid in cash
to the Holder at the end of the Plan Award term.
6. DELAYED PAYMENT OR DELIVERY OF PLAN AWARD GAINS
Notwithstanding the term of any Plan Award, Holders who are eligible to defer
salary under the EIX Executive Deferred Compensation Plan (EDCP) may irrevocably
elect to alternatively exercise all or a portion of any vested Plan Award
pursuant to the Option Gain Deferral Program (OGDP) in the case of EIX Options,
or the EDCP in the case of Dividend Equivalents or performance awards, and defer
gains
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that would otherwise be realized upon exercise of the Plan Award. To make such
an election, the Holder must submit a signed alternative exercise agreement in
the form approved by the Administrator at least six months prior to the
expiration date of the Plan Award. The Plan Award may generally not be exercised
for six months thereafter. Any subsequent exercises will be subject to the
terms, conditions and restrictions of the OGDP or the EDCP, as applicable.
7. TRANSFER AND BENEFICIARY
(a) The Plan Awards will not be transferable by the Holder. During the lifetime
of the Holder, the Plan Award will be exercisable only by him or her. The Holder
may designate a beneficiary who, upon the death of the Holder, will be entitled
to exercise the then vested portion of the Plan Award during the remaining term
subject to the provisions of the Plan and these terms and conditions. (b)
Notwithstanding the foregoing, Plan Awards of the CEOs of EIX, Edison Mission
Energy, Edison Capital and Edison Enterprises, the COO of Southern California
Edison and the EVPs of EIX are transferable to a spouse, children or
grandchildren, or trusts or other vehicles established exclusively for their
benefit. Any transfer request must specifically be authorized by EIX in writing
and shall be subject to any conditions, restrictions or requirements as the
administrator may determine.
8. TERMINATION OF PLAN AWARDS
As set forth in Section 2(d), in the event of termination of the employment of
the Holder for any reason other than retirement, permanent and total disability
or death of the Holder, Plan Awards will terminate 180 days from the date on
which such employment terminated, or in the case of Affiliate Options, at the
end of the first 60-day exercise period following the employment termination
date. In addition, the Plan Awards may be terminated if EIX elects to substitute
cash awards as provided under Section 12.
9. TAXES
EIX will have the right to retain and withhold the amount of taxes required by
any government to be withheld or otherwise deducted and remitted with respect to
the exercise of any Plan Award. In its discretion, EIX may require the Holder to
reimburse EIX for any such taxes required to be withheld by EIX and may withhold
any distribution in whole or in part until EIX is so reimbursed. In lieu
thereof, EIX will have the right to withhold from any other cash amounts due
from EIX to the Holder an amount equal to such taxes required to be withheld by
EIX to reimburse EIX for any such taxes or to retain and withhold a number of
shares of EIX Common Stock having a market value equal to the taxes and cancel
(in whole or in part) the shares in order to reimburse EIX for the taxes.
Each recipient of an EIX Option must attach a statement to his or her federal
and state tax returns for the year in which the EIX Option was granted
containing certain information specified in tax regulations. A sample statement
is attached as Exhibit 1.
10. CONTINUED EMPLOYMENT
(a) Nothing in the award certificate or this Statement of Terms and Conditions
will be deemed to confer on the Holder any right to continue in the employ of
EIX or an EIX affiliate or interfere in any way with the right of the employer
to terminate his or her employment at any time.
(b) In the event employment is terminated, except as a result of death,
disability, or retirement under the Southern California Edison Company
Retirement Plan, or a successor plan, whether voluntarily or otherwise, the
restrictions of Section 2(d) will apply.
11. NOTICE OF DISPOSITION OF SHARES
Holder agrees that if he or she should dispose of any shares of stock acquired
on the exercise of EIX Options, including a disposition by sale, exchange, gift
or transfer of legal title within six months from the date such shares are
transferred to the Holder, the Holder will notify EIX promptly of such
disposition.
12. AMENDMENT
The Plan Awards are subject to the terms of the Plan as amended from time to
time. EIX reserves the right to substitute cash awards substantially equivalent
in value to the Plan Awards. The Plan Awards
4
<PAGE>
may not otherwise be restricted or limited by any Plan amendment or termination
approved after the date of the award without the Holder's consent.
13. FORCE AND EFFECT
The various provisions herein are severable in their entirety. Any determination
of invalidity or unenforceability of any one provision will have no effect on
the continuing force and effect of the remaining provisions.
14. GOVERNING LAW
The terms and conditions of the Plan Awards will be construed under the laws of
the State of California.
15. NOTICE
Unless waived by EIX, any notice required under or relating to the Plan Awards
must be in writing, with postage prepaid, addressed to: Edison International,
Attn: Corporate Secretary, P.O. Box 800, Rosemead, CA 91770
EDISON INTERNATIONAL
Lillian R. Gorman
- -------------------------------------------------
Lillian R. Gorman, Vice President
5
<PAGE>
EXHIBIT 1
STATEMENT PURSUANT TO INCOME TAX
REGULATION SECTION 1.61-15(c)
This statement is attached to my income tax return in compliance with
the requirements of Income Tax Regulation ss.1.61-15(c) relative to a
nonqualified stock option I received on _____________, 19__.
(1) Name and address of the taxpayer:
John Q. Doe
1234 Your Street
Anywhere, CA 90000
(2) Description of Securities subject to the option:
On ____________, 19__, I was granted a nonqualified stock option
covering _______ shares of Edison International common stock.
(3) Period during which the option is exercisable:
The option vests and becomes exercisable as to one-fourth of the
covered shares on January 2, 1999 (or six months after the date of grant if
later), January 2, 2000, January 2, 2001 and January 2, 2002, respectively. To
the extent vested, the option may be exercised at any time through January 2,
2008.
(4) Whether the option had an ascertainable market value:
The option did not have a readily ascertainable fair market value on
the date of the grant.
(5) Whether the option was granted as compensation:
The option was granted as compensation and is subject to
Reg.ss.1.61-15(a).
Respectfully Submitted,
<PAGE>
EDISON LOGO
EQUITY COMPENSATION PLAN
1998 AWARD AGREEMENT
This award is made by Edison International to -NAME- ("Employee"), as of January
2, 1998, pursuant to the Equity Compensation Plan. Edison International hereby
grants to Employee, as a matter of separate agreement and not in lieu of salary
or any other compensation for services, the right and option to purchase the
following:
-------------------------------------------------------
-EIX- shares of authorized Edison
International Common Stock, coupled with
dividend equivalents, at an exercise price of
$27.25 per share.
-------------------------------------------------------
This award is made subject to the conditions contained in the 1998 Statement of
Terms and Conditions which is incorporated herein by reference.
Edison International
By:___________________________________
EXHIBIT 10.5
EDISON LOGO
EQUITY COMPENSATION PLAN
1998 DIRECTOR AWARD CERTIFICATE
This award is made by Edison International to -NAME- ("Director"), as of April
16, 1998, pursuant to the Equity Compensation Plan ("Plan"). Edison
International hereby grants to Director, as a matter of separate arrangement and
not in lieu of any other compensation for services, the following:
---------------------------------------------------
500 shares of Edison International Common
Stock to be issued as soon as practicable in
accordance with the Director's instructions, and
300 Edison International deferred stock units
to be credited under the Director Deferred
Compensation Plan.
---------------------------------------------------
The deferred stock unit award is made subject to the terms and conditions
contained in the Director Deferred Compensation Plan which are incorporated
herein by reference.
Edison International
By:___________________________________
EXHIBIT 11
EDISON INTERNATIONAL
COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE
For the Quarter ended
June 30
------------------------------
1998 1997
------ ------
(in thousands, except per-share amounts)
Consolidated net income $145,303 $139,022
Basic weighted average shares 360,251 408,310
Diluted weighted average shares 365,831 410,711
Basic earnings per share $0.40 $0.34
Diluted earnings per share $0.40 $0.34
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
EDISON INTERNATIONAL FINANCIAL DATA SCHEDULE
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 7,313,272
<OTHER-PROPERTY-AND-INVEST> 8,171,252
<TOTAL-CURRENT-ASSETS> 3,404,605
<TOTAL-DEFERRED-CHARGES> 5,695,449
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 24,584,578
<COMMON> 2,136,122
<CAPITAL-SURPLUS-PAID-IN> 106,617
<RETAINED-EARNINGS> 2,812,621
<TOTAL-COMMON-STOCKHOLDERS-EQ> 5,055,360
406,700
128,755
<LONG-TERM-DEBT-NET> 2,320,521
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 6,331,473
<COMMERCIAL-PAPER-OBLIGATIONS> 194,381
<LONG-TERM-DEBT-CURRENT-PORT> 791,407
0
<CAPITAL-LEASE-OBLIGATIONS> 25,734
<LEASES-CURRENT> 22,797
<OTHER-ITEMS-CAPITAL-AND-LIAB> 9,307,450
<TOT-CAPITALIZATION-AND-LIAB> 24,584,578
<GROSS-OPERATING-REVENUE> 4,152,280
<INCOME-TAX-EXPENSE> 235,728
<OTHER-OPERATING-EXPENSES> 3,292,128
<TOTAL-OPERATING-EXPENSES> 3,527,856
<OPERATING-INCOME-LOSS> 624,424
<OTHER-INCOME-NET> 40,809
<INCOME-BEFORE-INTEREST-EXPEN> 665,233
<TOTAL-INTEREST-EXPENSE> 355,912
<NET-INCOME> 309,321
20,008
<EARNINGS-AVAILABLE-FOR-COMM> 289,313
<COMMON-STOCK-DIVIDENDS> 187,502
<TOTAL-INTEREST-ON-BONDS> 199,599
<CASH-FLOW-OPERATIONS> 752,336
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.78
</TABLE>
