<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1994
--------------------------------------
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 1-2313
SOUTHERN CALIFORNIA EDISON COMPANY
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-1240335
(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)
818-302-1212
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class Outstanding at November 7, 1994
- - - -------------------------- -------------------------------
Common Stock, no par value 434,888,104
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SOUTHERN CALIFORNIA EDISON COMPANY
INDEX
Page
No.
----
Part I. Financial Information:
Item 1. Consolidated Financial Statements:
Report of Independent Public Accountants 2
Consolidated Statements of Income--Three, Nine and
Twelve Months Ended September 30, 1994, and 1993 3
Consolidated Balance Sheets--September 30, 1994,
December 31, 1993, and September 30, 1993 4
Consolidated Statements of Cash Flows--
Three, Nine and Twelve Months Ended
September 30, 1994, and 1993 6
Consolidated Statements of Retained Earnings--
Three, Nine and Twelve Months Ended
September 30, 1994, and 1993 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 25
Part II. Other Information:
Item 1. Legal Proceedings 32
Item 5. Other Information 34
Item 6. Exhibits and Reports on Form 8-K 34
<PAGE>
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Southern California Edison Company:
We have audited the accompanying consolidated balance sheets of Southern
California Edison Company (Edison, a California corporation) and its
subsidiaries as of September 30, 1994, December 31, 1993, and September
30, 1993, and the related consolidated statements of income, retained
earnings and cash flows for each of the three-, nine- and twelve-month
periods ended September 30, 1994, and 1993. These financial statements
are the responsibility of Edison's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Edison and its
subsidiaries as of September 30, 1994, December 31, 1993, September 30,
1993, and the results of their operations and their cash flows for each
of the three-, nine- and twelve-month periods ended September 30, 1994,
and 1993, in conformity with generally accepted accounting principles.
As discussed in Notes 5 and 6 of the financial statements, and as required
by generally accepted accounting principles, Edison changed its methods
of accounting for income taxes and postretirement benefits other than
pensions in 1993.
As discussed in Note 2, the California Public Utilities Commission (CPUC)
has issued a proposal for restructuring the California electric utility
industry. If restructuring occurs, it is uncertain whether Edison will
continue to meet the criteria for applying to all of its utility
operations the provisions of Statement of Financial Accounting Standards
(SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation.
The accompanying financial statements do not include adjustments that
might result from Edison discontinuing the application of SFAS No. 71 for
any portion of its utility operations.
ARTHUR ANDERSEN LLP
Los Angeles, California
November 8, 1994
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME
In thousands
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
----------------- ----------------- -----------------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating revenue $2,529,783 $2,263,060 $5,952,957 $5,653,607 $7,695,949 $7,523,449
---------- ---------- ---------- ---------- ---------- ----------
Fuel 261,233 213,158 636,303 574,132 854,228 809,613
Purchased power 922,815 923,375 1,949,676 1,892,773 2,555,252 2,467,574
Provisions for regulatory
adjustment clauses--net 121,536 (116,374) 82,097 (110,302) (94,495) (54,994)
Other operating expenses 318,594 331,547 937,426 914,815 1,285,655 1,219,387
Maintenance 76,791 83,856 248,511 260,500 348,433 343,085
Depreciation and decommissioning 225,298 224,517 676,496 668,182 900,816 872,831
Income taxes 196,390 186,929 407,891 389,879 523,909 479,767
Property and other taxes 51,584 52,435 155,311 158,315 203,772 205,738
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses 2,174,241 1,899,443 5,093,711 4,748,294 6,577,570 6,343,001
---------- ---------- ---------- ---------- ---------- ----------
Operating income 355,542 363,617 859,246 905,313 1,118,379 1,180,448
---------- ---------- ---------- ---------- ---------- ----------
Provision for rate phase-in plan (37,196) (37,196) (101,422) (102,126) (136,596) (140,477)
Allowance for equity funds
used during construction 3,807 4,797 11,296 14,887 16,670 20,910
Interest income 9,073 6,208 23,458 20,265 29,511 29,599
Other nonoperating income--net 13,886 12,387 38,811 28,835 47,360 38,227
---------- ---------- ---------- ---------- ---------- ----------
Total other deductions--net (10,430) (13,804) (27,857) (38,139) (43,055) (51,741)
---------- ---------- ---------- ---------- ---------- ----------
Income before interest expense 345,112 349,813 831,389 867,174 1,075,324 1,128,707
---------- ---------- ---------- ---------- ---------- ----------
Interest on long-term debt 95,481 97,798 285,898 303,710 381,324 408,217
Other interest expense 16,029 13,399 46,786 36,758 61,100 55,714
Allowance for borrowed funds
used during construction (3,733) (3,827) (11,537) (11,879) (15,825) (16,798)
Capitalized interest (7) (232) (142) (609) (511) (720)
---------- ---------- ---------- ---------- ---------- ----------
Total interest expense--net 107,770 107,138 321,005 327,980 426,088 446,413
---------- ---------- ---------- ---------- ---------- ----------
Net income 237,342 242,675 510,384 539,194 649,236 682,294
Dividends on preferred stock 10,020 10,020 30,060 30,702 40,080 41,196
---------- ---------- ---------- ---------- ---------- ----------
Earnings available for
common stock $ 227,322 $ 232,655 $ 480,324 $ 508,492 $ 609,156 $ 641,098
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
In thousands
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1994 1993 1993
------------ ----------- ------------
ASSETS
<S> <C> <C> <C>
Utility plant, at original cost $18,939,285 $18,436,134 $18,217,733
Less--accumulated provision for depreciation
and decommissioning 7,565,584 7,138,289 6,990,382
----------- ----------- -----------
11,373,701 11,297,845 11,227,351
Construction work in progress 900,700 857,225 835,235
Nuclear fuel, at amortized cost 105,267 148,012 155,968
----------- ----------- -----------
Total utility plant 12,379,668 12,303,082 12,218,554
----------- ----------- -----------
Nonutility property--less accumulated provision
for depreciation of $30,271, $31,573 and $30,794
at respective dates 73,122 61,838 43,384
Nuclear decommissioning trusts 895,089 788,575 754,612
Other investments 40,873 20,577 22,778
----------- ----------- -----------
Total other property and investments 1,009,084 870,990 820,774
----------- ----------- -----------
Cash and equivalents 150,312 204,919 48,219
Receivables, including unbilled revenue, less
allowances of $23,947, $18,422 and $11,764 for
uncollectible accounts at respective dates 1,190,176 837,779 1,252,680
Fuel inventory 127,003 120,859 134,663
Materials and supplies, at average cost 124,472 104,092 105,246
Accumulated deferred income taxes--net 295,552 204,119 291,657
Prepayments and other current assets 132,142 97,518 147,209
----------- ----------- -----------
Total current assets 2,019,657 1,569,286 1,979,674
----------- ----------- -----------
Unamortized debt issuance and reacquisition
expense 364,306 381,781 374,031
Rate phase-in plan 272,431 364,209 396,282
Unamortized nuclear plant--net 196,867 273,837 300,358
Income tax-related deferred charges 1,816,741 2,016,194 2,224,282
Other deferred charges 344,951 318,949 329,841
----------- ----------- -----------
Total deferred charges 2,995,296 3,354,970 3,624,794
----------- ----------- -----------
Total assets $18,403,705 $18,098,328 $18,643,796
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
In thousands
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1994 1993 1993
------------- ------------ -------------
CAPITALIZATION AND LIABILITIES
Common shareholder's equity:
Common stock (434,888 shares outstanding
<S> <C> <C> <C>
at each date) $ 2,168,054 $ 2,168,054 $ 2,167,987
Additional paid-in capital 177,363 177,363 177,378
Retained earnings 2,677,342 2,586,890 2,617,022
----------- ----------- -----------
5,022,759 4,932,307 4,962,387
Preferred stock:
Not subject to mandatory redemption 358,755 358,755 358,755
Subject to mandatory redemption 275,000 275,000 275,000
Long-term debt 4,992,373 5,233,697 4,883,011
----------- ----------- -----------
Total capitalization 10,648,887 10,799,759 10,479,153
----------- ----------- -----------
Other long-term liabilities 315,109 266,595 259,447
----------- ----------- -----------
Current portion of long-term debt 201,275 151,200 156,296
Short-term debt 439,469 613,094 558,266
Accounts payable 363,519 336,464 485,056
Accrued taxes 813,850 394,740 735,537
Accrued interest 90,537 89,615 94,995
Dividends payable 122,803 162,818 162,816
Regulatory balancing accounts--net 109,748 57,932 238,712
Deferred unbilled revenue and other current liabilities 952,567 653,233 741,188
----------- ----------- -----------
Total current liabilities 3,093,768 2,459,096 3,172,866
----------- ----------- -----------
Accumulated deferred income taxes--net 3,375,004 3,616,657 3,771,309
Accumulated deferred investment tax credits 404,113 421,338 428,211
Customer advances and other deferred credits 566,824 534,883 532,810
----------- ----------- -----------
Total deferred credits 4,345,941 4,572,878 4,732,330
----------- ----------- -----------
Commitments and contingencies
(Notes 2, 8, 9 and 10)
Total capitalization and liabilities $18,403,705 $18,098,328 $18,643,796
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
----------------- ----------------- -----------------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C> <C>
Net income $ 237,342 $ 242,675 $ 510,384 $ 539,194 $ 649,236 $ 682,294
Adjustments for noncash items:
Depreciation and
decommissioning 225,298 224,517 676,496 668,182 900,816 872,831
Amortization 26,525 23,522 100,648 78,125 123,263 111,793
Rate phase-in plan 33,787 33,880 91,778 91,339 123,851 125,403
Deferred income taxes and
investment tax credits (115,718) (12,679) (151,569) (65,884) 20,530 24,003
Other long-term liabilities 12,536 20,069 48,514 (82,227) 55,662 (41,194)
Other--net (17,827) (14,501) (49,677) (35,986) (78,806) 66,169
Changes in working capital
components:
Receivables (284,543) (229,653) (352,397) (399,989) 62,504 (113,907)
Regulatory balancing accounts 120,174 (117,800) 51,816 151,189 (128,964) 130,844
Fuel inventory, materials
and supplies 2,978 (6,100) (26,524) (21,550) (11,566) (18,059)
Prepayments and other
current assets (119,644) (105,390) (34,624) 28,847 15,067 6,896
Accrued interest and taxes 271,136 95,188 420,032 206,864 73,855 (196,388)
Accounts payable and other
current liabilities 257,616 297,336 326,389 229,159 89,842 (86,359)
--------- --------- ---------- ---------- ---------- ----------
Net cash provided by
operating activities 649,660 451,064 1,611,266 1,387,263 1,895,290 1,564,326
--------- --------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Issuances of long-term debt -- 337,793 (362) 1,596,407 559,150 1,781,189
Issuances of preferred stock -- (28) -- 74,598 -- 74,422
Repayment of long-term debt (1,200) (730,060) (170,224) (1,962,975) (387,019) (1,970,534)
Redemption of preferred stock -- -- -- (86,392) -- (88,233)
Nuclear fuel financing--net (12,099) 32,344 (25,915) 20,098 (38,350) (12,725)
Short-term debt financings--net (423,752) 20,906 (173,625) (49,381) (118,797) (59,127)
Dividends paid (121,970) (168,967) (459,947) (347,138) (628,930) (514,335)
--------- --------- ---------- ---------- ---------- ----------
Net cash used by
financing activities (559,021) (508,012) (830,073) (754,783) (613,946) (789,343)
--------- --------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Additions to property and plant (261,287) (271,848) (729,618) (734,341) (1,035,703) (969,694)
Nuclear decommissioning trusts (25,044) (35,683) (101,031) (106,992) (134,994) (140,304)
Other--net (1,107) (3,080) (5,151) (9,635) (8,554) (954)
--------- --------- ---------- ---------- ---------- ----------
Net cash used by
investing activities (287,438) (310,611) (835,800) (850,968) (1,179,251) (1,110,952)
--------- --------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash
and equivalents (196,799) (367,559) (54,607) (218,488) 102,093 (335,969)
Cash and equivalents, beginning
of period 347,111 415,778 204,919 266,707 48,219 384,188
--------- --------- ---------- ---------- ---------- ----------
Cash and equivalents, end
of period $ 150,312 $ 48,219 $ 150,312 $ 48,219 $ 150,312 $ 48,219
========= ========= ========== ========== ========== ==========
Cash payments for interest and taxes:
Interest $ 90,287 $ 97,734 $ 271,702 $ 304,045 $ 365,807 $ 388,039
Taxes 185,464 296,601 180,462 357,568 334,278 610,737
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
In thousands
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
----------------- ----------------- -----------------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $2,568,970 $2,543,331 $2,586,890 $2,428,945 $2,617,022 $2,453,087
Net income 237,342 242,675 510,384 539,194 649,236 682,294
Dividends declared on common stock (118,950) (158,964) (389,872) (317,910) (548,836) (474,618)
Dividends declared on preferred
stock (10,020) (10,020) (30,060) (30,702) (40,080) (41,196)
Reacquired capital stock expense -- -- -- (2,505) -- (2,545)
---------- ---------- ---------- ---------- ---------- ----------
Balance at end of period $2,677,342 $2,617,022 $2,677,342 $2,617,022 $2,677,342 $2,617,022
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
SCEcorp owns all of the outstanding common stock of Southern California
Edison Company. Edison is a public utility which produces and supplies
electric energy in Central and Southern California. The consolidated
financial statements include Edison and its subsidiaries. Intercompany
transactions have been eliminated.
Edison's accounting policies conform with generally accepted accounting
principles for regulated enterprises and reflect the rate-making policies
of the California Public Utilities Commission (CPUC) and the Federal
Energy Regulatory Commission.
Certain prior-period amounts have been reclassified to conform to the
September 30, 1994, financial statement presentation.
Debt Issuance and Reacquisition Expense
Debt premium, discount and issuance expenses are amortized over the life
of each issue. Debt reacquisition expenses are amortized over the
remaining life of the reacquired debt or, if refinanced, the life of the
new debt.
Fuel Inventories
Fuel inventories are computed under the last-in, first-out method for fuel
oil and natural gas, and under the first-in, first-out method for coal.
Investments
Cash equivalents include tax-exempt investments ($130 million at September
30, 1994), and time deposits and other investments ($14 million at
September 30, 1994). These investments are short-term and highly liquid
and are classified as available-for-sale. Due to their short maturities,
reported amounts approximate fair value.
Equity investments (cost basis of $9 million) are reported at fair value
and are classified as available-for-sale. At September 30, 1994, the
investments' fair value was $26 million. Unrealized gains are recorded
as a regulatory liability.
Nuclear Plant
A CPUC-authorized rate phase-in plan deferred the collection of $200
million in revenue for each unit at Palo Verde Nuclear Generating Station
during the first four years of operation. The deferred revenue (including
interest) is being collected evenly over the final six years of each
unit's plan. The plans end in 1996 for Units 1 and 2, and in 1998 for
Unit 3.
The cost of nuclear fuel, including disposal, is amortized to fuel expense
on the basis of generation. Under CPUC rate-making procedures, nuclear-
fuel related financing costs are capitalized until the fuel is placed into
production.
Decommissioning costs are accrued and recovered in rates over the useful
life of the nuclear facility through charges to depreciation expense.
Under the Energy Policy Act of 1992, Edison is liable for its share of the
estimated costs to decommission three federal nuclear enrichment
facilities. Edison's share is based on the number of nuclear enrichment
units purchased and will be paid over 15 years. These costs are recorded
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
as a cost of fuel and are recoverable through customer rates. The fair
value of this obligation was $48 million at September 30, 1994, $59
million at December 31, 1993, and $60 million at September 30, 1993
(estimated by discounting future cash flows).
In November 1992, Edison discontinued operation of San Onofre Nuclear
Generating Station Unit 1. Edison will recover its investment, plus an
8.98% rate of return, by August 1996.
The CPUC approved Edison's request to accelerate recovery of its nuclear
plant investments, by $75 million per year beginning October 1, 1994,
through 2011 with a corresponding deceleration in recovery of its
transmission and distribution assets; depreciation estimates will reflect
these adjustments.
Regulatory Balancing Accounts
The differences between CPUC-authorized and actual kilowatt-hour sales or
energy costs are accumulated in balancing accounts until they are refunded
to, or recovered from, utility customers through authorized rate
adjustments (with interest). Income tax effects on balancing account
changes are deferred.
CPUC-established target generation levels act as performance incentives
for Edison's nuclear generating stations. Fuel savings or costs above or
below these targets are shared equally by Edison and its customers through
balancing account adjustments.
Research, Development and Demonstration (RD&D)
RD&D costs are charged to expense unless they are expected to result in
plant construction. If construction does not result, any capitalized
costs are subsequently charged to expense. RD&D expenses are recorded in
a balancing account. At the end of the rate-case cycle, authorized but
unspent RD&D funds are refunded to customers. RD&D expenses were $14
million, $40 million and $52 million for the three, nine and twelve months
ended September 30, 1994, respectively, and $19 million, $37 million and
$46 million for the three, nine and twelve months ended September 30,
1993, respectively.
Revenue
Operating revenue includes amounts for services rendered but unbilled at
the end of each period.
Utility Plant
Plant additions, including replacements and betterments, are capitalized.
Such costs include direct material and labor, construction overhead and
an allowance for funds used during construction (AFUDC). AFUDC represents
the estimated cost of debt and equity funds used to finance utility-plant
construction. AFUDC is capitalized during plant construction and reported
in current earnings. AFUDC is recovered in rates through depreciation
expense over the useful life of the related asset.
Depreciation of utility plant is computed on a straight-line, remaining-
life basis. Replaced or retired property and removal costs less salvage
are charged to the accumulated provision for depreciation.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Regulatory Matters
1995 General Rate Case Proposed Settlement Agreement
On September 2, 1994, Edison signed a memorandum of understanding related
to its 1995 general rate case with the CPUC's Division of Ratepayer
Advocates (DRA). The memorandum, which requires negotiation of a final
agreement and then approval by the CPUC, includes: a decrease of $67
million, or 1.7%, in revenues (except fuel-related revenues) in 1995; an
accelerated recovery of Edison's remaining investment ($2.7 billion) in
San Onofre Units 2 and 3; and an incentive pricing plan for these units,
under which Edison would charge about four cents per kilowatt-hour.
To achieve the revenue reductions in 1995, Edison and the DRA agreed to
substantial reductions in research and development and traditional
customer energy conservation programs. The accelerated recovery of Units
2 and 3 would start in February 1996, allowing a lower rate of return of
7.78% (compared to the current 9.17%) over the 8-year period. Incentive
pricing for Units 2 and 3 would replace traditional regulation and rate
recovery for operating expenses and any new capital during the 8-year
period. A CPUC decision is expected mid-1995.
CPUC Electric Utility Industry Restructuring Proposal
In April 1994, the CPUC issued a proposal for restructuring California's
electric utility industry. Under the proposal, large electric
customers would have the option to choose a range of generation providers,
including utilities (direct access), beginning in 1996. As proposed,
eligibility would expand gradually, until all customers, including
residential, have the option for direct access to this competitive
generation market beginning in 2002. Edison would continue to provide
transmission and distribution services to all customers in its service
territory. Performance-based regulation would replace traditional cost-
of-service regulation for all transmission and distribution services.
The proposal also stated that utilities should be entitled to recover all
of their investments in generation developed under traditional cost-of-
service regulation even if a portion is uneconomic under current
conditions. In June 1994, Edison filed its response to the CPUC's
proposal recommending the creation of an independent regional power pool
company that would act as an intermediary between all power consumers and
suppliers. Edison also recommended that the CPUC reaffirm in a definitive
way that prudent investments made under existing regulation will be
protected in the transition to direct access. In anticipation of
obstacles in implementing the CPUC's proposal due to several regulatory,
legislative and jurisdictional issues, Edison recommended the adoption of
performance-based ratemaking in an effort to achieve efficiency gains and
rate savings in the short term.
The CPUC has held several full-panel hearings to address comments on its
proposal. At the October 24, 1994, hearing, Edison proposed a schedule
for implementing its competitive market plan, in which all customers could
choose their power provider beginning in 1998. Edison also stated that
the CPUC should approve and implement a competition transition charge
mechanism, also approved by federal regulators, for full recovery of
utility investments and obligations incurred to serve customers under the
existing regulatory structure.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The State Legislature passed a resolution in September 1994 which requests
that the CPUC withhold full implementation of any restructuring plan until
its impact can be evaluated by the Legislature and Governor. The CPUC is
to report to the State Legislature by January 31, 1995, on the impact of
its restructuring plan.
Edison currently applies accounting standards that recognize the economic
effects of rate regulation and, accordingly, has recorded regulatory
assets related to its generation, transmission and distribution
operations. If rate recovery of generation-related costs becomes unlikely
or uncertain, whether due to competition or regulatory action, these
accounting standards may no longer apply to Edison's generation operations
and a non-cash write-off of up to approximately $1.0 billion could occur.
Until the CPUC establishes more definitive valuation and pricing criteria
for its restructuring proposal, including transition mechanisms for the
recovery of regulatory assets, Edison cannot predict the effect of the
proposal on its results of operations or financial position.
Mohave Outage Review
In 1986, the CPUC began investigating a 1985 steam-pipe rupture at the
Mohave Generating Station. Edison, plant operator and 56% owner, incurred
costs of approximately $90 million, after insurance recoveries, to repair
damage and provide replacement power during the six-month outage. In
1991, the DRA alleged that Edison contributed to the piping failure by
imprudently operating the plant and recommended the disallowance of all
accident-related expenditures. Edison believes the accident was caused
by a manufacturing defect in a seam weld and filed testimony contesting
the allegations. A CPUC decision issued in March 1994 agreed with the
DRA's allegations and ordered a second phase of this proceeding to
quantify the disallowance. The probable effect on net income cannot be
determined at this time, but Edison believes it will not materially affect
its results of operations or financial position.
Palo Verde Outage Review
In March 1989, Arizona Public Service Company, operator of Palo Verde,
removed Units 1 and 3 from service for modifications required by
regulatory agencies. As required by state law, the CPUC conducted an
investigation, and ordered the authorized revenue collected during the
outages be subject to refund. The units resumed operation in December
1989 and July 1990.
During 1992, the CPUC consolidated its reasonableness review of
replacement power costs from several Unit 2 outages in 1989 and 1990 with
the investigation of Units 1 and 3. The DRA initially recommended a
disallowance valued at $169 million, including: $63 million of revenue
collected during the outages (including interest); $5 million for capital
projects deemed unnecessary; $50 million in replacement power costs; and
$51 million in penalties for environmental effects of replacement power
and the outages' effect on the regional energy market. Edison filed
testimony that its costs were reasonably incurred.
In September 1993, Edison and the DRA agreed to settle these disputes for
$38 million (including $29 million for replacement power costs, $2 million
for capital projects and $7 million for interest), subject to CPUC
approval. The effect of the settlement has been fully reflected in the
financial statements. A CPUC decision is expected in early 1995.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Debt
Long-Term Debt
California law prohibits Edison from incurring or guaranteeing debt for
its nonutility affiliates.
Almost all Edison properties are subject to a trust indenture lien.
Edison has pledged first and refunding mortgage bonds as security for
borrowed funds obtained from pollution-control bonds issued by government
agencies. Edison uses these proceeds to finance construction of
pollution-control facilities. Bondholders have limited discretion in
redeeming certain pollution-control bonds, and Edison has arranged with
securities dealers to remarket or purchase them if necessary.
Edison's risk management policy allows the use of derivative financial
instruments to limit financial exposure on its investments and contractual
obligations, but prohibits the use of these instruments for speculative
purposes.
Edison had interest-rate swap and cap agreements that effectively changed
the interest rate exposure on $196 million of its debt due 2008 to a fixed
rate of 5.585% and $30 million of its debt due 2027 to a fixed rate of 6%
at September 30, 1994, December 31, 1993, and September 30, 1993. The
fair value of the agreements (the cost to terminate them) was estimated
at $1 million at September 30, 1994, and $29 million at December 31, 1993,
and at September 30, 1993 (based on brokers' quotes). Edison is exposed
to credit loss from nonperformance by counterparties to these agreements,
but does not anticipate such nonperformance.
Commercial paper that finances nuclear fuel scheduled to be used more than
one year after the balance sheet date is classified as long-term debt.
Long-term debt maturities and sinking-fund requirements for the five
twelve-month periods following September 30, 1994, are: 1995--$201
million; 1996--$1 million; 1997--$501 million; 1998--$277 million; and
1999--$325 million.
Long-term debt consisted of:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1994 1993 1993
------------- ------------ --------------
(In millions)
First and refunding mortgage bonds:
<S> <C> <C> <C>
1995--1998 (5.45% to 6.125%) $ 850 $ 850 $ 850
1999--2003 (5.625% to 7.5%) 700 700 500
2004--2026 (5.875% to 9.25%) 1,975 1,993 1,993
Pollution-control bonds:
1999--2027 (5.4% to 7.2% and variable) 1,207 1,208 1,207
Funds held by trustees (2) (2) (2)
Debentures and notes:
1998--2003 (5.6% to 7.375%) 495 645 477
Commercial paper for nuclear fuel 44 70 83
Spent nuclear fuel obligation -- -- 3
Long-term debt due within one year (201) (151) (156)
Unamortized debt discount--net (76) (79) (72)
------ ------ ------
Total $4,992 $5,234 $4,883
====== ====== ======
Fair value (based on brokers' quotes) $4,820 $5,579 $5,332
</TABLE>
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Short-Term Debt
Edison has lines of credit it can use at negotiated or bank index rates.
At September 30, 1994, such lines included $859 million supporting
commercial paper and $515 million available for the long-term refinancing
of certain variable-rate pollution-control debt.
Short-term debt consisted of commercial paper used for:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1994 1993 1993
------------- ------------- --------------
(In millions)
<S> <C> <C> <C>
Balancing accounts $ 93 $163 $ 76
Fuel 166 270 289
General purpose 227 252 278
---- ---- ----
Total 486 685 643
Amount reclassified as long-term (44) (70) (83)
Unamortized discount (3) (2) (2)
---- ---- ----
Total $439 $613 $558
==== ==== ====
</TABLE>
Due to these instruments' short maturities, reported amounts approximate
fair value.
Note 4. Equity
The CPUC regulates Edison's capital structure, limiting the dividends it
may pay SCEcorp.
Authorized common stock is 560 million shares with no par value.
Authorized shares of preferred and preference stock are: $25 cumulative
preferred--24 million; $100 cumulative preferred--12 million; and
preference--50 million. All cumulative preferred stocks are redeemable.
Mandatorily redeemable preferred stocks are subject to sinking-fund
provisions. When preferred shares are redeemed, the premiums paid are
charged to common equity. There are no preferred stock redemption
requirements for the next five years. The fair value estimates of
preferred stock subject to mandatory redemption were based on brokers'
quotes.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cumulative preferred stock consisted of:
<TABLE>
<CAPTION>
September 30, 1994
--------------------
Shares Redemption September 30, December 31, September 30,
Outstanding Price 1994 1993 1993
----------- ---------- ------------- ------------ -------------
(In millions)
Not subject to mandatory redemption:
$25 Par value:
<S> <C> <C> <C> <C> <C>
4.08% Series 1,000,000 $ 25.50 $ 25 $ 25 $ 25
4.24 1,200,000 25.80 30 30 30
4.32 1,653,429 28.75 41 41 41
4.78 1,296,769 25.80 33 33 33
5.80 2,200,000 25.25 55 55 55
7.36 4,000,000 25.00 100 100 100
$100 Par value:
7.58% Series 750,000 101.00 75 75 75
---- ---- ----
Total $359 $359 $359
==== ==== ====
Subject to mandatory redemption:
$100 Par value:
6.05% Series 750,000 $100.00 $ 75 $ 75 $ 75
6.45 1,000,000 100.00 100 100 100
7.23 1,000,000 100.00 100 100 100
---- ---- ----
Total $275 $275 $275
==== ==== ====
Fair value of preferred stock subject to
mandatory redemption $264 $291 $294
</TABLE>
There were no changes in preferred stock in the three, nine, or twelve
months ended September 30, 1994, or the three months ended September 30,
1993.
The changes in preferred stock in 1993 were:
<TABLE>
<CAPTION>
9 Months Ended 12 Months Ended
September 30, 1993 September 30, 1993
------------------ ------------------
(In thousands of shares)
Series:
<S> <C> <C>
6.05% 750 750
7.325 (427) (427)
7.80 (412) (430)
----- -----
Net redemptions (89) (107)
===== =====
</TABLE>
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Income Taxes
Edison and its subsidiaries will be included in SCEcorp's consolidated
federal income tax and combined state franchise tax returns. Under income
tax allocation agreements, each subsidiary calculates its own tax
liability.
Change in Accounting Principle
Edison adopted a new income tax accounting standard in 1993 that requires
the balance sheet method to account for income taxes. Upon adoption,
Edison recognized additional deferred taxes for certain temporary
differences between book and tax income. Corresponding deferred charges
were recorded representing amounts expected to be recovered in future
rates. As a result, the cumulative effect on net income of adopting this
standard was not material. The net effect of adoption on total assets and
liabilities was an increase of about $2 billion. Financial statements
prior to adoption have not been restated; they reflect income taxes
accounted for under the income statement method.
Current and Deferred Taxes
Income tax expense includes the current tax liability from operations and
the change in deferred income taxes during the period. Investment tax
credits are amortized over the lives of the related properties.
The components of the net accumulated deferred income tax liability were:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1994 1993 1993
------------- ------------- -------------
(In millions)
Deferred tax assets:
<S> <C> <C> <C> <C>
Depreciation $ 357 $ 240 $ 173
Investment tax credits 266 310 298
Regulatory balancing accounts 130 171 146
Other 449 536 625
------ ------ ------
Total $1,202 $1,257 $1,242
====== ====== ======
Deferred tax liabilities:
Property-related $3,761 $4,030 $4,162
Other 520 640 559
------ ------ ------
Total $4,281 $4,670 $4,721
====== ====== ======
Accumulated deferred income taxes--net $3,079 $3,413 $3,479
====== ====== ======
Classification of accumulated deferred income
taxes:
Included in deferred credits $3,375 $3,617 $3,771
Included in current assets 296 204 292
</TABLE>
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The current and deferred components of income tax expense were:
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
----------------- ----------------- -----------------
1994 1993 1994 1993 1994 1993*
---- ---- ---- ---- ---- ----
(In millions)
Current:
<S> <C> <C> <C> <C> <C> <C>
Federal $233 $148 $401 $323 $297 $321
State 63 40 115 98 99 82
---- ---- ---- ---- ---- ----
296 188 516 421 396 403
---- ---- ---- ---- ---- ----
Deferred--federal and state:
Accrued charges (5) (3) (22) (9) (51) (6)
Depreciation 12 15 33 44 51 100
Investment and energy tax
credits--net (4) (7) (17) (19) (24) (25)
Rate phase-in plan (14) (14) (38) (37) (51) (51)
Regulatory balancing accounts (46) 39 (32) 17 68 21
Resale revenue -- 1 8 -- 33 (4)
Retirement of debt (2) 1 (6) 2 24 --
Unbilled revenue (32) (29) (48) (36) (11) 22
Other (25) (16) (30) (28) (18) (33)
---- ---- ---- ---- ---- ----
(116) (13) (152) (66) 21 24
---- ---- ---- ---- ---- ----
Total income tax expense $180 $175 $364 $355 $417 $427
==== ==== ==== ==== ==== ====
Classification of income taxes:
Included in operating income $196 $187 $408 $390 $524 $480
Included in other income (16) (12) (44) (35) (107) (53)
</TABLE>
* The 1992 portion reflects the income statement method of accounting for
income taxes.
The composite federal and state statutory income tax rate was 41.045% for
1994 and 1993, and 40.138% for 1992.
A reconciliation of the federal statutory income tax rate to the effective
rate is presented below:
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
------------------ ------------------ ------------------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0% 35.0% 35.0% 34.9%
Capitalized software (1.2) (1.1) (1.8) (1.5) (2.1) (1.3)
Cumulative effect of change in
accounting for income taxes -- (1.2) -- (1.5) -- (1.2)
Depreciation and related timing
differences not deferred 4.2 4.4 4.4 4.3 5.7 3.7
Investment and energy
tax credits (1.1) (1.6) (2.0) (2.2) (2.3) (2.3)
State tax--net of federal
deduction 5.9 5.7 5.9 5.4 5.9 4.1
Other 0.3 0.7 0.1 0.2 (3.1) 0.6
---- ---- ---- ---- ---- ----
Effective tax rate 43.1% 41.9% 41.6% 39.7% 39.1% 38.5%
==== ==== ==== ==== ==== ====
</TABLE>
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Employee Benefit Plans
Pension Plan
Edison has a noncontributory, defined-benefit pension plan that covers
employees meeting minimum service requirements. Benefits are based on
years of accredited service and average base pay. Edison funds the plan
on a level premium actuarial method. These funds are accumulated in an
independent trust. Annual contributions meet minimum legal funding
requirements and do not exceed the maximum amounts deductible for income
taxes. Prior service costs from pension plan amendments are funded over
30 years. Plan assets are primarily common stocks, corporate and
government bonds, and short-term investments.
The plan's funded status was:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1994 1993 1993
------------- ------------- -------------
(In millions)
Actuarial present value of benefit obligation:
<S> <C> <C> <C>
Vested benefits $1,438 $1,340 $1,347
Nonvested benefits 186 164 176
------ ------ ------
Accumulated benefit obligation 1,624 1,504 1,523
Value of projected future compensation levels 602 551 595
------ ------ ------
Projected benefit obligation $2,226 $2,055 $2,118
====== ====== ======
Plan assets at fair value $2,296 $2,196 $2,139
====== ====== ======
Projected benefit obligation in excess of
(less than) plan assets $ (70) $ (141) $ (21)
Unrecognized net gain 174 248 130
Unrecognized prior service cost (5) (5) (5)
Unrecognized net obligation being amortized over
17 years (56) (59) (61)
------ ------ ------
Accrued pension liability $ 43 $ 43 $ 43
====== ====== ======
Discount rate 7.25% 7.25% 7.0%
Rate of increase in future compensation 5.0% 5.0% 5.0%
Expected long-term rate of return on assets 8.0% 8.0% 8.0%
</TABLE>
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Edison recognizes pension expense calculated under the actuarial method
used for ratemaking.
The components of pension expense were:
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
----------------- ----------------- ---------------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
(In millions)
Net pension expense:
<S> <C> <C> <C> <C> <C> <C>
Service cost for benefits earned $ 17 $ 18 $ 53 $ 53 $ 69 $ 61
Interest cost on projected benefit
obligation 38 35 111 104 145 131
Actual return on plan assets (100) (41) (117) (227) (179) (314)
Net amortization and deferral 58 3 (9) 116 15 171
---- ---- ---- ----- ---- -----
Pension expense under accounting
standards 13 15 38 46 50 49
Regulatory adjustment (deferred) -- (3) (1) (10) (1) (1)
---- ---- ---- ----- ---- -----
Net pension expense recognized $ 13 $ 12 $ 37 $ 36 $ 49 $ 48
=== ==== ==== ===== ==== =====
</TABLE>
Postretirement Benefits Other Than Pensions
Employees retiring at or after age 55, who have at least 10 years of
service, are eligible for postretirement health care, dental, life
insurance and other benefits. Health care benefits are subject to
deductibles, copayment provisions and other limitations.
In 1993, Edison adopted a new accounting standard for postretirement
benefits other than pensions, which requires the expected cost of these
benefits to be charged to expense during employees' years of service.
Edison will amortize its obligation related to prior service over 20
years.
Edison funds the plan (by contributions to independent trusts) up to tax-
deductible limits, in accordance with rate-making practices. Edison began
funding its liability for these benefits in 1991. Amounts funded prior
to 1993 are amortized to expense and recovered in rates over 12 months.
Any difference between expense determined under the new standard and
amounts authorized for rate recovery is not expected to be material and
will be charged to earnings.
Plan assets are primarily common stocks, corporate and government bonds,
and short-term investments.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of postretirement benefits other than pensions expense
were:
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
----------------- ----------------- ---------------
1994 1993 1994 1993 1994 1993*
---- ---- ---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Service cost for benefits earned $ 7 $ 7 $ 22 $ 20 $ 28 $ 28
Interest cost on projected benefit
obligation 18 16 53 49 70 49
Actual return on plan assets (5) (3) (15) (9) (18) (9)
Amortization of transition obligation 9 9 27 27 36 27
--- --- --- ---- ---- ----
Net expense 29 29 87 87 116 95
Amortization of prior funding -- 13 2 36 15 47
--- --- --- ---- ---- ----
Total expense $29 $42 $89 $123 $131 $142
=== === === ==== ==== ====
</TABLE>
* In 1992, Edison recognized the cost of these benefits as they were paid
or funded.
A reconciliation of the plan's funded status with the recorded liability
is presented below:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1994 1993 1993
------------- ------------- -------------
(In millions)
Actuarial present value of benefit obligation:
<S> <C> <C> <C>
Retirees $ 509 $ 512 $ 488
Employees eligible to retire 92 87 80
Other employees 399 358 319
------ ----- -----
Accumulated benefit obligation $1,000 $ 957 $ 887
====== ===== =====
Plan assets at fair value $ 280 $ 210 $ 125
====== ===== =====
Accumulated benefit obligation in excess of
plan assets $ 720 $ 747 $ 762
Unrecognized transition obligation (661) (688) (697)
Unrecognized net loss (59) (59) --
------ ----- -----
Recorded liability $ -- $ -- $ 65
====== ===== =====
Discount rate 7.75% 7.75% 8.0%
Expected long-term rate of return on assets 8.5% 8.5% 8.5%
</TABLE>
The assumed rate of future increases in the per-capita cost of health care
benefits is 11% for 1994, gradually decreasing to 5.5% for 2004 and
beyond. Increasing the health care cost trend rate by one percentage
point would increase the accumulated obligation as of September 30, 1994,
by $150 million and annual aggregate service and interest costs by $21
million.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Employee Savings Plans
Edison has two employee savings plans designed to supplement employees'
retirement income. The Stock Savings Plus Plan (401(k)) is funded by
employee and Edison contributions. Edison contributions were $5 million,
$16 million and $21 million for the three, nine and twelve months ended
September 30, 1994, respectively, and $6 million, $15 million and $21
million for the three, nine and twelve months ended September 30, 1993,
respectively. Holdings in the Employee Stock Ownership Plan will be
transferred to the Stock Savings Plus Plan by the end of 1994.
Note 7. Jointly Owned Utility Projects
Edison owns interests in several generating stations and transmission
systems for which each participant provides its own financing. Edison's
share of expenses for each project is included in the consolidated
statements of income.
The investment in each project, as included in the consolidated balance
sheet as of September 30, 1994, was:
<TABLE>
<CAPTION>
Plant in Accumulated Under Ownership
Service Depreciation Construction Interest
-------- ------------ ------------ ---------
(In millions)
<S> <C> <C> <C> <C>
Eldorado Transmission System $ 28 $ 11 $ 1 60%
Four Corners Coal Generating Station--
Units 4 and 5 455 226 3 48
Mohave Coal Generating Station 288 140 4 56
Pacific Intertie Transmission System 213 63 7 50
Palo Verde Nuclear Generating Station 1,550 308 27 16
San Onofre Nuclear Generating Station 4,111 1,370 58 75
------ ------ ----
Total $6,645 $2,118 $100
====== ====== ====
</TABLE>
Note 8. Leases
Edison has operating leases, primarily for vehicles, with varying terms,
provisions and expiration dates.
Estimated remaining commitments for noncancelable leases at September 30,
1994, were:
<TABLE>
<CAPTION>
Year ended December 31, (In millions)
<S> <C>
1994 $ 7
1995 23
1996 18
1997 14
1998 11
Thereafter 17
---
Total $90
===
</TABLE>
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Commitments
Nuclear Decommissioning
Decommissioning of Edison's nuclear generating facilities is expected to
cost an estimated $1.1 billion in current-year dollars (based on site-
specific studies performed in 1990 for San Onofre and 1989 for Palo
Verde). Edison expects to decommission its nuclear facilities by prompt
removal or decontamination at the end of their useful lives.
Decommissioning is scheduled to begin in 2013 at San Onofre and 2024 at
Palo Verde. San Onofre Unit 1, which shut down in 1992, will be stored
until decommissioning begins at the other San Onofre units.
Decommissioning costs are recovered in customer rates through charges to
depreciation expense. Decommissioning expense was $33 million, $101
million and $140 million for the three, nine and twelve months ended
September 30, 1994, respectively, and $30 million, $102 million and $135
million for the three, nine and twelve months ended September 30, 1993,
respectively. The accumulated provision for decommissioning was $898
million at September 30, 1994, $797 million at December 31, 1993, and $757
million at September 30, 1993. The estimated costs to decommission San
Onofre Unit 1 have been recorded as a liability.
Decommissioning funds collected in rates are placed in external trusts,
which, together with accumulated earnings, will be utilized solely for
decommissioning. These amounts are invested in high-grade securities
(classified as available-for-sale) and reported at market value in
accordance with a new accounting standard for debt and equity securities
implemented in January 1994. Unrealized gains are recorded in the
accumulated provision for decommissioning.
Trust investments include:
<TABLE>
<CAPTION>
Maturity September 30, December 31, September 30,
Dates 1994 1993 1993
-------- -------------- ------------- --------------
(In millions)
<S> <C> <C> <C> <C>
Municipal bonds 1996-2021 $548 $680 $654
Stocks 156 51 44
U.S. government and agency issues 1998-2023 114 36 36
Short-term investments and other 1994 72 22 21
---- ---- ----
Trust fund balance $890 $789 $755
==== ==== ====
Market value (based on quoted
market prices) $895 $853 $825
</TABLE>
Trust fund earnings (based on specific identification) increase the trust
fund balance and the accumulated provision for decommissioning. Net
earnings were $9 million, $29 million and $44 million for the three, nine
and twelve months ended September 30, 1994, respectively, and $6 million,
$29 million and $39 million for the same periods in 1993. Proceeds from
sales of securities (which are reinvested) were $305 million, $708 million
and $776 million for the three, nine and twelve months ended September 30,
1994, respectively, and $93 million, $304 million and $402 million for
the same periods in 1993. Approximately 87% of the trust fund
contributions were tax-deductible.
In its 1995 general rate case filing, Edison requested to revise its
authorized decommissioning costs based on updated site-specific studies
(1993 for San Onofre and 1992 for Palo Verde), inclusion of spent nuclear
fuel storage cost and adjustments to its authorized escalation rates and
after-tax rate of return on the trust funds. If approved by the CPUC,
current fund contribution levels would be virtually unchanged. A CPUC
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
decision is expected in mid-1995. Edison believes the amounts collected
in rates are adequate to meet estimated decommissioning costs.
Other Commitments
Edison has fuel supply contracts which require payment only if the fuel
is made available for purchase.
Edison has power-purchase contracts with certain qualifying facilities
(cogenerators and small power producers) and other utilities. The
qualifying facility contracts provide for capacity payments subject to a
facility meeting certain performance obligations and energy payments based
on actual power supplied to Edison. There are no requirements to make
debt-service payments.
Edison has unconditional purchase obligations for part of a power plant's
generating output, as well as firm transmission service from another
utility. Minimum payments are based, in part, on the debt-service
requirements of the provider, whether or not the plant or transmission
line is operable. The purchased-power contract is not expected to provide
more than 5% of current or estimated future operating capacity. Edison's
minimum commitment under both contracts is approximately $210 million
through 2017.
Certain commitments for the years 1994 through 1998 are estimated below:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C> <C>
Construction expenditures $1,094 $1,187 $1,021 $1,096 $1,084
Fuel supply contracts 327 219 194 176 179
Purchased power capacity payments 742 759 754 752 754
Unconditional purchase obligations 9 9 9 9 9
</TABLE>
Note 10. Contingencies
Conservation Expenditures Tax Issue
The Internal Revenue Service (IRS) has completed its examination of tax
years 1983-1988. In connection with this examination, the IRS has
challenged certain tax positions, including how Edison deducts energy
conservation expenditures. The deduction of energy conservation
expenditures is consistent with positions taken by other members of the
industry. According to the IRS, certain demand-side management (DSM)
expenditures should not be treated as a current income tax deduction. The
IRS claims that DSM programs create a future benefit by delaying the cost
of building additional power plants. The utility industry believes that
energy conservation expenditures constitute ordinary and necessary
business expenses, which, under current provisions of the Internal Revenue
Code, are deductible in the year incurred or accrued. Edison believes the
IRS' position is in conflict with existing tax laws and is contrary to the
nation's energy and environmental policy goals. Edison will continue to
vigorously defend its position.
In March 1994, the CPUC approved Edison's request to establish a
memorandum account to track the prospective income tax effect if a change
in the method of deducting these expenditures were imposed. Such amounts
would be recovered through customer rates, subject to reasonableness
reviews. The probable effect on net income of the outcome of this matter
cannot be determined at this time, but Edison believes it will not
materially affect its results of operations or financial position.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Environmental Protection
Edison is subject to numerous legislative and regulatory environmental-
protection requirements. To meet these requirements, Edison will continue
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 has identified 54 sites for which it is, or may be, responsible for
remediation under environmental laws. In 1994, Edison developed an above-
ground storage tank inspection program to determine the future use of its
existing fuel-oil pipeline and station tanks. As a result of this
program, several above-ground storage tanks may require surrounding soil
remediation and were added to Edison's total number of identified sites.
Edison is participating in investigations and cleanups at a number of
these identified sites and has estimated its minimum liability at $74
million. This estimate may change as progress is made in determining the
magnitude of required remedial actions, as Edison's share of these costs
in proportion to other responsible parties is determined, and as
additional investigations and cleanups are performed.
In May 1994, the CPUC approved an incentive mechanism for rate recovery
of environmental-cleanup costs at 23 of Edison's identified sites (Edison
may request to include additional sites). This mechanism allows Edison
to recover 90% of cleanup costs through customer rates. Shareholders fund
the remaining 10%, with the opportunity to recover these costs through
insurance. Edison has settled an insurance claim with one carrier, and
is pursuing additional recovery from several other carriers.
Environmental-cleanup costs not included in the incentive mechanism are
expected to be recovered through customer rates. As a result, Edison's
estimated future environmental-cleanup costs expected to be recovered in
customer rates ($68 million) are recorded as a regulatory asset.
The probable effect of the outcome of these environmental matters cannot
be determined at this time, but Edison believes they will not materially
affect its financial position.
Nuclear Insurance
Federal law limits public liability claims from a nuclear incident to $9.0
billion. Edison and other owners of San Onofre and Palo Verde have
purchased the maximum private primary insurance available ($200 million).
The balance is covered by the industry's retrospective rating plan that
uses deferred premium charges. Federal regulations require this secondary
level of financial protection. The Nuclear Regulatory Commission exempted
San Onofre Unit 1 from this secondary level, effective June 3, 1994. The
maximum deferred premium for each nuclear incident is $79 million per
reactor, but not more than $10 million per reactor may be charged in any
one year for each incident. Based on its ownership interests, Edison
could be required to pay a maximum of $158 million per nuclear incident.
However, it would have to pay no more than $20 million per incident in any
one year. Such amounts include a 5% surcharge if additional funds are
needed to satisfy public liability claims and are subject to adjustment
for inflation.
Property damage insurance covers losses up to $500 million, including
decontamination costs, at San Onofre and Palo Verde. Decontamination
liability and property damage coverage exceeding the primary $500 million
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
also has been purchased in amounts greater than federal requirements.
Additional insurance covers part of replacement power expenses during an
accident-related nuclear unit outage. These policies are issued primarily
by mutual insurance companies owned by utilities with nuclear facilities.
If losses at any nuclear facility covered by the arrangement were to
exceed the accumulated funds for these insurance programs, Edison could
be assessed retrospective premium adjustments of up to $31 million per
year. Insurance premiums are charged to operating expense.
Palo Verde Steam Generators
In March 1993, a steam generator tube ruptured at Palo Verde Unit 2. A
subsequent investigation of the unit revealed cracking in additional steam
generator tubes. Arizona Public Service (APS) operator of Palo Verde,
reduced power at all three units to 85% in late 1993 to mitigate further
tube degradation until investigations were completed. In April 1994,
investigations revealed some minor cracking at Unit 3. APS implemented
several remedial actions and returned the units to full power in July and
August 1994.
In addition to the matters disclosed in these notes, Edison is involved
in legal, tax and regulatory proceedings before various courts and
governmental agencies with regard to matters arising in the ordinary
course of business. Edison believes that the final outcome of these
proceedings will not materially affect its results of operations or
financial position.
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
Earnings
Southern California Edison Company's earnings for the three, nine and
twelve months ended September 30, 1994, were $227 million, $480 million
and $609 million, respectively, compared with $233 million, $508 million
and $641 million for the same periods in 1993. The lower earnings reflect
a lower authorized return on common equity. The lower year-to-date and
twelve months ended September 30, 1994, earnings also reflect a 1993
benefit from refinancing long-term debt.
Operating Revenue
Operating revenue increased for the three months ended September 30, 1994,
as compared to the year-earlier period, due to a 13% increase in sales
volume. For the nine months ended September 30, 1994, compared to the
same period in 1993, operating revenue increased 5%, mainly due to a 4%
increase in sales volume and a 2% increase in average rates. Volume
increases were primarily the result of warmer weather in the third quarter
of 1994. Over 97% of electric revenue 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.
Operating Expenses
Fuel expense increased 23% and 11%, respectively, for the three and nine
months ended September 30, 1994, compared to the year-earlier periods,
primarily due to 38% and 17% increases, respectively, in gas- and nuclear-
powered generation related to the increased demand in third quarter 1994.
Purchased-power expense increased for the year-to-date and twelve months
ended September 30, 1994, compared to the same periods in 1993, due to a
greater volume of higher-priced federally required purchases from
nonutility generators. These purchases were made under contracts with
CPUC-mandated pricing, which is generally higher than those for other
sources.
The provisions for regulatory adjustment clauses minimize rate
fluctuations by adjusting for differences between estimated and actual
kilowatt-hour sales or energy costs. These differences are accumulated
in balancing accounts for subsequent rate adjustment. Prior-period rate
adjustments are also reflected in these provisions. The quarterly and
year-to-date increases reflect CPUC-authorized estimates exceeding energy
costs. The year-to-date increase is partially offset by authorized
estimates exceeding actual kilowatt-hour sales. The twelve-month period
decrease reflects authorized estimates exceeding actual kilowatt-hour
sales, partially offset by CPUC-authorized estimates exceeding energy
costs.
Other Income and Deductions
The provision for rate phase-in plan reflects a CPUC-authorized, 10-year
rate phase-in plan for the three Palo Verde Nuclear Generating Station
units. Phase-in plans minimize the effect on customer rates of newly
constructed plant by implementing rate increases gradually. Palo Verde's
plan deferred $200 million of revenue for each unit during the first four
years of operation. The deferred revenue, including interest, is being
collected evenly over six years ending in 1996 for Units 1 and 2, and in
1998 for Unit 3. The provision is a non-cash offset to the collection of
deferred revenue.
<PAGE>
<PAGE>
Interest income increased 51% and 16%, respectively, for the three and
nine months ended September 30, 1994, compared to the same periods in
1993, mainly due to rising interest rates.
Interest Expense
Other interest expense increased 20%, 27% and 10%, respectively, for the
three, nine and twelve months ended September 30, 1994, compared to the
same periods in 1993, due to rising interest rates on short-term debt.
FINANCIAL CONDITION
Edison's liquidity is primarily affected by debt maturities, dividend
payments and construction expenditures. Capital resources include cash
from operations and external financings.
In the second quarter of 1994, Edison lowered its quarterly common stock
dividend to SCEcorp by 30%, as the result of declining authorized rates
of return, the changing nature of the electric utility industry and
recently proposed changes in California utility regulation.
Cash Flows from Operating Activities
Net cash provided by operating activities totaled $650 million, $1.6
billion and $1.9 billion for the three-, nine- and twelve-month periods
ended September 30, 1994, respectively, compared with $451 million, $1.4
billion and $1.6 billion for the same periods in 1993. Edison continues
to meet most of its capital requirements with cash from operations.
Cash Flows from Financing Activities
Short-term debt is used to finance fuel inventories, balancing account
undercollections and general cash requirements. Generally, the net amount
of short-term debt financings has decreased for the periods ended
September 30, 1994, compared to the same periods in 1993, due to lower
corporate cash needs. Also, since Edison's nuclear units have had less
downtime in 1994, the net amount of cash used for nuclear fuel financings
is lower. Long-term debt is used mainly to finance capital expenditures.
Although the majority of long-term debt with higher interest rates was
refinanced in 1993, a minimal amount of cash has been used for the
issuance and repayment of long-term debt for the periods ended September
30, 1994. External financings are influenced by market conditions and
other factors, including limitations imposed by Edison's articles of
incorporation and trust indenture. As of September 30, 1994, Edison could
issue approximately $5.3 billion of additional first and refunding
mortgage bonds and $3.5 billion of preferred stock at current interest and
dividend rates.
Edison has lines of credit of $859 million for short-term debt and $515
million for the long-term refinancing of variable-rate pollution-control
bonds.
California law prohibits Edison from incurring or guaranteeing debt for
its nonutility affiliates. Additionally, the CPUC regulates Edison's
capital structure, limiting the dividends it may pay SCEcorp.
Cash Flows from Investing Activities
The primary uses of cash for investing activities are additions to
property and plant, and contributions to nuclear decommissioning trusts.
Decommissioning costs are accrued and recovered in rates over the useful
life of each nuclear generating facility through charges to depreciation
expense. Edison expects to spend approximately $7.9 billion to
decommission its nuclear facilities, primarily between 2013-2035. This
estimate is based on Edison's current-dollar decommissioning costs ($1.1
billion), escalated using a 7.7% rate and an earnings assumption on trust
<PAGE>
<PAGE>
funds ranging from 5.25% to 6.0%. These amounts are expected to be funded
from independent decommissioning trusts (see Notes to Consolidated
Financial Statements). Edison contributes approximately $96 million per
year to these trusts. Trust contributions will continue until
decommissioning begins.
Capital Requirements
Edison's projected capital requirements for the years 1994 through 1998
are:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
------ ------ ------ ------ ------
(In millions)
<S> <C> <C> <C> <C> <C>
Construction expenditures* $1,094 $1,187 $1,021 $1,096 $1,084
Maturities of long-term debt - 201 1 501 447
------ ------ ------ ------ ------
Total $1,094 $1,388 $1,022 $1,597 $1,531
====== ====== ====== ====== ======
</TABLE>
* As of October 13, 1994, the date of Edison's latest approved budget.
REGULATORY MATTERS
The CPUC increased Edison's 1994 authorized revenue by $232 million, or
3.2% from 1993 levels. In its 1994 cost-of-capital decision, the CPUC
approved Edison's request to increase its equity ratio from 46% to 47.25%
and authorized an 11.0% return on common equity for 1994, compared to
11.8% for 1993. This decision is expected to reduce 1994 earnings by
about $25 million. On October 18, 1994, a CPUC administrative law judge
(ALJ) issued a proposed decision on Edison's 1995 cost-of-capital
proceeding. The decision recommended an increased return on common equity
of 11.7%, as well as an increase in the equity ratio to 47.75%. This
decision, if adopted, would increase 1995 earnings by about $44 million.
The CPUC is reviewing Edison's costs (approximately $90 million) related
to a 1985 steam-pipe rupture at the Mohave Generating Station. A March
1994 CPUC decision stated that Edison had contributed to the piping
failure by imprudently operating the plant and recommended the
disallowance of all accident-related expenditures. The CPUC also ordered
a second phase of this proceeding to quantify the disallowance. The
probable effect on net income cannot be determined at this time, but
Edison believes it will not materially affect its results of operations
or financial position.
The CPUC is also reviewing extended outages at Palo Verde. The CPUC's
Division of Ratepayer Advocates (DRA) initially recommended a disallowance
valued at $169 million. In September 1993, Edison and the DRA agreed to
settle these disputes for $38 million, subject to CPUC approval. The
effect of the proposed settlement has been fully reflected in the
financial statements. A CPUC decision is expected in 1995.
The CPUC approved Edison's request to accelerate recovery of its nuclear
plant investments, by $75 million per year, beginning October 1, 1994,
through 2011. This decision also adopted Edison's request to offset the
rate impact of the accelerated cost recovery with a corresponding
deceleration of rate recovery associated with its transmission and
distribution facilities.
1995 General Rate Case
In its 1995 general rate case filing, Edison requested a revenue increase
to recover the higher costs of operations (excluding fuel) resulting from
<PAGE>
<PAGE>
inflation and new capital investments. Adjusted for inflation, this
increase represented a 7.2% reduction from Edison's 1992 authorized
revenue. In addition, Edison filed a proposal for a performance-based
rate-making mechanism that would determine most of Edison's revenue
(excluding fuel) from 1995-2000. The filing asks for a revenue-indexing
formula that combines operating expenses and capital-related costs into
a single index. This is a departure from the traditional utility model
that links potential earnings levels with capital investment. Edison
believes it would provide stronger incentives for efficient utility
operations and investment and allow for a better alignment of customer
and shareholder interests. In July 1994, the CPUC ordered Edison to
divide its performance-based rate-making application into two phases--
transmission and distribution, and power generation. Hearings began in
October 1994 for the transmission and distribution phases and are
scheduled to begin in 1995 for the power generation phase.
On September 2, 1994, Edison and the DRA signed a memorandum of
understanding that will form the basis for a final settlement regarding
the 1995 general rate case. The memorandum of understanding contains
these terms: a $67 million decrease in non-fuel revenue for 1995;
accelerated eight-year recovery of Edison's remaining $2.7 billion
investment in San Onofre Units 2 and 3 at a reduced rate of return; and,
an incentive pricing plan for electricity produced by San Onofre Units 2
and 3. A final decision on the proposed settlement is expected mid-1995.
COMPETITIVE ENVIRONMENT
Electric utilities operate in a highly regulated environment in which they
have an obligation to provide electric service to their customers in
return for an exclusive franchise within their service territory. This
regulatory environment is changing. The generation sector has experienced
competition from nonutility power producers and Edison expects even
greater competition in the generation sector over the next decade.
In April 1994, the CPUC issued a proposal for restructuring California's
electric utility industry. Under the proposal, large electric customers
would have the option to choose a range of generation providers, including
utilities (direct access), beginning in 1996. As proposed, eligibility
would expand gradually, until all customers including residential, have
the option for direct access to this competitive generation market
beginning in 2002. Edison would continue to provide transmission and
distribution services to all customers in its service territory.
Performance-based regulation would replace traditional cost-of-service
regulation for all transmission and distribution services. The proposal
also stated that utilities should be entitled to recover all of their
investments in generation developed under traditional cost-of-service
regulation even if a portion is uneconomic under current conditions. In
June 1994, Edison filed its response to the CPUC's proposal recommending
the creation of an independent regional power pool company that would act
as an intermediary between all power consumers and suppliers. Edison also
recommended that the CPUC reaffirm in a definitive way that prudent
investments made under existing regulation will be protected in the
transition to direct access. In anticipation of obstacles in implementing
the CPUC's proposal due to several regulatory, legislative and
jurisdictional issues, Edison recommended the adoption of performance-
based ratemaking in an effort to achieve efficiency gains and rate savings
in the short term.
The CPUC has held several full-panel hearings to address comments on its
proposal. At the October 24, 1994, hearing, Edison proposed a schedule
for implementing its competitive market plan in which all customers could
choose their power provider beginning in 1998. Edison also stated that
the CPUC should approve and implement a competition transition charge
mechanism, also approved by federal regulators, for full recovery of
utility investments and obligations incurred to serve customers under the
<PAGE>
<PAGE>
existing regulatory structure. The State Legislature has passed a
resolution in September 1994 which requests that the CPUC withhold full
implementation of any restructuring plan until its impact can be evaluated
by the Legislature and Governor. The CPUC is to report to the State
Legislature by January 31, 1995, on the impact of its restructuring plan.
Edison currently applies accounting standards that recognize the economic
effects of rate regulation and, accordingly, has recorded regulatory
assets related to its generation, transmission and distribution
operations. If rate recovery of generation-related costs becomes unlikely
or uncertain, whether due to competition or regulatory action, these
accounting standards may no longer apply to Edison's generation operations
and a non-cash write-off of up to approximately $1.0 billion could occur.
Until the CPUC establishes more definitive valuation and pricing criteria
for its restructuring proposal, including transition mechanisms for the
rate recovery of regulatory assets, Edison cannot predict the effect of
the proposal on its results of operations or financial position.
CPUC-MANDATED POWER CONTRACTS
In June 1994, the CPUC ordered the California utilities to proceed with
the signing of new contracts with independent power producers. This
decision will force Edison to purchase 686 MW of new power at fixed prices
starting in 1997. This will cost Edison customers $14 billion over the
lives of the contracts. In July 1994, Edison filed a petition with the
CPUC asking it to reconsider its decision. Edison has consistently
opposed this proposal because it has no need for additional generating
capacity until at least 2005 and because the contracts will increase
customer rates. Also, Edison believes the decision is inconsistent with
the CPUC's restructuring proposal goal to ultimately lower rates. On
October 12, 1994, the CPUC issued a stay of the June decision until it
decides how to act on the various applications for rehearing. On November
8, 1994, Edison signed an agreement with an independent power producer
that would replace a portion of the power purchases mandated by the CPUC.
The agreement, subject to CPUC approval, would save Edison customers
approximately $200 million (in 1994 dollars). For the twelve months ended
September 30, 1994, Edison paid about $1.0 billion more than the cost of
power available from other sources for federally required purchases from
independent power producers under CPUC-mandated pricing.
ENVIRONMENTAL PROTECTION
Costs to protect the environment continue to grow due to increasingly
stringent laws and regulations.
Edison has identified 54 sites for which it is, or may be, responsible for
remediation under environmental laws. In 1994, Edison developed an above-
ground storage tank inspection program to determine the future use of its
existing fuel-oil pipeline and station tanks. As a result of this
program, several above-ground storage tanks may require surrounding soil
remediation and were added to Edison's total number of identified sites.
Edison is participating in investigations and cleanups at a number of
these identified sites and has estimated its minimum liability at $74
million. This estimate may change as progress is made in determining the
magnitude of required remedial actions, as Edison's share of these costs
in proportion to other responsible parties is determined, and as
additional investigations and cleanups are performed. In May 1994, the
CPUC approved an incentive mechanism for rate recovery of environmental-
cleanup costs at 23 of Edison's identified sites (Edison may request to
include additional sites). This mechanism allows Edison to recover 90%
of cleanup costs through customer rates. Shareholders fund the remaining
10%, with the opportunity to recover these costs through insurance.
Edison has settled an insurance claim with one carrier, and is pursuing
additional recovery from several other carriers. Environmental-cleanup
costs not included in the incentive mechanism are expected to be recovered
<PAGE>
<PAGE>
through customer rates. As a result, Edison's estimated future
environmental-cleanup costs expected to be recovered in customer rates
($68 million) are recorded as a regulatory asset.
The 1990 federal Clean Air Act requires power producers to have emissions
allowances to emit sulfur dioxide. Power companies receive emissions
allowances from the federal government and may bank or sell excess
allowances. Edison expects to have excess allowances under Phase II of
the Clean Air Act (2000 and later). The act also calls for a five-year
study of regional haze in the southwestern U.S. In addition, the U.S.
Environmental Protection Agency is conducting a study of the effect of air
contaminant emissions on visibility in Grand Canyon National Park. The
potential effect of these studies on sulfur dioxide emissions regulations
for the Mohave Coal Generating Station is unknown.
Edison's projected capital expenditures to protect the environment are
$1.3 billion for the 1994-1998 period, mainly for placing overhead
distribution lines underground and reducing nitrogen-oxides emissions from
gas-fired electric generators. Edison's projected capital expenditures
(up to $290 million by 2001) to reduce nitrogen-oxides emissions may be
lowered by local regulations.
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 received increased
attention. The scientific community has not yet reached a consensus on
the nature of any health effects of EMF. However, an ALJ's proposed
decision provides for a rate-recoverable research and public education
program conducted by California electric utilities, and authorizes these
utilities to take no-cost or low-cost steps to reduce EMF in new electric
facilities. Edison is unable to predict when or if the scientific
community will be able to reach a consensus on any health effects of EMF,
or the effect that such a consensus, if reached, could have on future
electric operations.
The probable effect on net income of these environmental matters cannot
be determined at this time, but Edison believes they will not materially
affect its financial position.
NEW ACCOUNTING STANDARDS
In January 1994, Edison adopted a new accounting standard which requires
the accrual of certain postemployment, but prior to retirement, benefits
provided to former or inactive employees. Edison has recorded balance
sheet adjustments of $19 million representing the additional liability for
these postemployment benefits, and expects to recover these costs through
customer rates. In January 1994, Edison also adopted a new accounting
standard which requires certain debt and equity investments be reported
at fair value. Accordingly, nuclear decommissioning trusts and other
equity investments are now reported at market value. Adoption of these
new standards did not have a material effect on results of operations or
financial position.
OTHER CONTINGENCIES
The Internal Revenue Service (IRS) has completed its examination of tax
years 1983-1988. In connection with this examination, the IRS has
challenged certain tax positions, including how Edison deducts energy
conservation expenditures. The deduction of energy conservation
expenditures is consistent with positions taken by other members of the
industry. According to the IRS, certain demand-side management (DSM)
expenditures should not be treated as a current income tax deduction. The
IRS claims that DSM programs create a future benefit by delaying the cost
of building additional power plants. The utility industry believes that
energy conservation expenditures constitute ordinary and necessary
business expenses, which, under current provisions of the Internal Revenue
<PAGE>
<PAGE>
Code, are deductible in the year incurred or accrued. Edison believes the
IRS' position is in conflict with existing tax laws and contrary to the
nation's energy and environmental policy goals. Edison will continue to
vigorously defend its position.
In March 1993, a steam generator tube ruptured at Palo Verde Unit 2. A
subsequent investigation of the unit revealed cracking in additional steam
generator tubes. Arizona Public Service Company (APS), operator of Palo
Verde, reduced power at all three units to 85% in late 1993 to mitigate
further tube degradation until investigations were completed. In April
1994, investigations revealed some minor cracking at Unit 3. APS
implemented several remedial actions, and returned the units to full power
in July and August 1994.
<PAGE>
<PAGE>
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Antitrust Matters
Transphase Systems, Inc. filed a lawsuit in May 1993, in the United States
District Court for the Central District of California against Edison and
San Diego Gas & Electric Company ("SDG&E"). The complaint alleged that
Transphase was competitively disadvantaged because it could not directly
access the demand-side management funds Edison collects from its
ratepayers to fund demand-side management activities, and that the
utilities willfully acquired and maintain monopoly power in the energy
conservation industry. The complaint sought $50 million in damages before
trebling. In October 1993, the District Court dismissed the case and
denied the plaintiffs the opportunity to replead. Transphase appealed to
the Ninth Circuit Court of Appeals; the appeal was denied on May 6, 1994.
On September 1, 1994, Transphase filed a petition for a writ of certiorari
with the United States Supreme Court. Edison filed its reply on October
7, 1994.
This matter was previously reported in the Annual Report on Form 10-K for
the year ended December 31, 1993, under the heading "Antitrust Matters"
in Part I, Item 3 and in the Quarterly Report on Form 10-Q for the
quarters ending March 31, 1994, and June 30, 1994, under the heading
"Antitrust Matters" in Part II, Item 1.
Qualified Facilities ("QF") Litigation
On May 20, 1993, four geothermal QFs filed a lawsuit against Edison in Los
Angeles County Superior Court, claiming that Edison underpaid, and
continues to underpay, the plaintiffs for energy. Edison denied the
allegations in its response to the complaint. The action was brought on
behalf of Vulcan/BN Geothermal Power Company, Elmore L.P., Del Ranch L.P.,
and Leathers L.P., each of which is partially owned by a subsidiary of
Mission Energy Company (a subsidiary of SCEcorp). On October 25, 1994,
plaintiffs filed a motion to amend the complaint and to add causes of
action for unfair competition and restraint of trade. The plaintiffs
allege that the underpayments totaled at least $21 million as of the
filing of the amended complaint. In other court filings, plaintiffs
contend that contract payments due through the end of the contract term
could total approximately $60 million. They also seek treble damages for
the alleged antitrust violations, unspecified punitive damages, and an
injunction to enjoin Edison from "future" unfair competition. The
materiality of a judgment in favor of the plaintiffs would be largely
dependent on the extent to which additional payments resulting from such
a judgment are recoverable through Edison's Energy Cost Adjustment Clause
("ECAC").
Between January 1994 and October 1994, Edison was named as a defendant in
a series of eight lawsuits brought by independent power producers of wind
generation. Seven of the lawsuits were filed in Los Angeles County
Superior Court and one was filed in Kern County Superior Court. The
lawsuits allege Edison incorrectly interpreted contracts with the
plaintiffs by limiting fixed energy payments to a single 10-year period
rather than beginning a new 10-year period of fixed energy payments for
each stage of development. In its responses to the complaints, Edison
denied the plaintiffs' allegations. In each of the lawsuits, the
plaintiffs seek declaratory relief regarding the proper interpretation of
the contracts. Plaintiffs allege a combined total of approximately $189
million in damages, which includes consequential damages claimed in seven
of the eight lawsuits. The materiality of judgments in favor of the
plaintiffs would be largely dependent on the extent to which any damages
or additional payments which might result from such judgments would be
recoverable through Edison's ECAC.
<PAGE>
<PAGE>
These matters were previously reported in the Quarterly Report on Form
10-Q for the quarter ended June 30, 1994, under the heading "Qualified
Facilities ("QF") Litigation" in Part II, Item 1.
Electric and Magnetic Fields ("EMF") Litigation
Edison has been served with two lawsuits, both of which allege, among
other things, that certain plaintiffs developed cancer and sustained other
injuries as a result of EMF emitted from Edison facilities. The first
lawsuit, filed in Orange County Superior Court and served on Edison in
June 1994, requests compensatory and punitive damages. Although no
specific damage amounts are alleged in the complaint, in subsequent court
filings, plaintiffs estimated general damages at $8 million. On August
8, 1994, one of the co-defendants filed a cross-complaint against the
other co-defendants, including Edison, requesting indemnification and
declaratory relief concerning the rights and responsibilities of the
parties.
The second lawsuit was filed in Los Angeles County Superior Court and
served on Edison in July 1994. The complaint requests an unspecified
amount of compensatory damages. In subsequent court filings, however,
plaintiffs claimed approximately $3 million in damages. After the filing
of this lawsuit, one of the plaintiffs died.
The Orange County Superior Court case was previously reported in the
Quarterly Report on Form 10-Q for the quarters ended March 31, 1994, and
June 30, 1994, under the heading "Electric and Magnetic Field ("EMF")
Litigation" in Part II, Item 1. The Los Angeles County Superior Court
case was previously reported in the Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994, under the heading "Electric Magnetic Field
("EMF") Litigation" in Part II, Item 1.
San Onofre Personal Injury Litigation
A former engineer for two contractors providing services for San Onofre
has been diagnosed with leukemia. On July 12, 1994, the engineer and his
wife sued Edison and SDG&E, as well as a manufacturer of fuel rods for the
plant, in the United States District Court for the Southern District of
California. The plaintiffs allege that the engineer's illness resulted
from contact with radioactive fuel particles released from failed fuel
rods. Plant records show that the engineer's exposure to radiation was
well below Nuclear Regulatory Commission safety levels. In the complaint,
plaintiffs seek unspecified compensatory and punitive damages. In its
response to the complaint, Edison denies plaintiffs' allegations.
This matter was previously reported in the Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994, under the heading "San Onofre
Personal Injury Litigation" in Part II, Item 1.
Employment Discrimination Litigation
On September 21, 1994, nine African-American employees filed a lawsuit
against SCEcorp and Edison on behalf of an alleged class of African-
American employees, alleging racial discrimination in job advancement,
pay, training and evaluation. The lawsuit was filed in the United States
District Court for the Central District of California. The plaintiffs
seek injunctive relief, as well as an unspecified amount of compensatory
and punitive damages, attorneys' fees, costs and interest. SCEcorp and
Edison are actively investigating the allegations.
<PAGE>
<PAGE>
Item 5. Other Information
Construction Program and Capital Expenditures
Construction expenditures for the 1994-1998 period are estimated (as of
October 13, 1994, the date of Edison's latest approved budget) as follows:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 Total
---- ---- ---- ---- ---- -----
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Electric generating plant $ 315 $ 326 $ 263 $ 288 $ 264 $1,456
Electric transmission lines and substations 118 127 147 191 224 807
Electric distribution lines and substations 446 493 523 547 565 2,574
Other expenditures 245 285 131 113 74 848
------ ------ ------ ------ ------ ------
Total 1,124 1,231 1,064 1,139 1,127 5,685
Less--Allowance for funds used during construction 30 44 43 43 43 203
------ ------ ------ ------ ------ ------
Funds required for construction expenditures $1,094 $1,187 $1,021 $1,096 $1,084 $5,482
====== ====== ====== ====== ====== ======
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Consent of Independent Public Accountants
Financial Data Schedule
(b) Reports on Form 8-K:
September 6, 1994
Item No. 5 -- Other Events -- Memorandum of Understanding regarding
Southern California Edison Company's
1995 General Rate Case.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHERN CALIFORNIA EDISON COMPANY
(Registrant)
By R. K. BUSHEY
------------------------------------
R. K. BUSHEY
Vice President and Controller
By W. J. SCILACCI
------------------------------------
W. J. SCILACCI
Assistant Treasurer
November 9, 1994
<PAGE>
<PAGE>
EXHIBIT INDEX
Number
Exhibit
- - - -------
23. Consent of Independent Public Accountants
27. Financial Data Schedule
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report included in this quarterly report on Form
10-Q for the quarter ended September 30, 1994 of Southern California
Edison Company in the previously filed Registration Statements which
follow:
Registration Form File No. Effective Date
----------------- -------- --------------
Form S-3 33-53288 November 6, 1992
Form S-3 33-53290 November 6, 1992
Form S-3 33-50251 September 21, 1993
ARTHUR ANDERSEN LLP
Los Angeles, California
November 9, 1994
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
Edison Financial Data Schedule -- Exhibit 27
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> SEP-30-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 12,379,668
<OTHER-PROPERTY-AND-INVEST> 1,009,084
<TOTAL-CURRENT-ASSETS> 2,019,657
<TOTAL-DEFERRED-CHARGES> 2,995,296
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 18,403,705
<COMMON> 2,168,054
<CAPITAL-SURPLUS-PAID-IN> 177,363
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275,000
358,755
<LONG-TERM-DEBT-NET> 4,497,373
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<LONG-TERM-NOTES-PAYABLE> 495,000
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<LONG-TERM-DEBT-CURRENT-PORT> 201,275
0
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<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 7,114,074
<TOT-CAPITALIZATION-AND-LIAB> 18,403,705
<GROSS-OPERATING-REVENUE> 5,952,957
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<OPERATING-INCOME-LOSS> 859,246
<OTHER-INCOME-NET> (27,857)
<INCOME-BEFORE-INTEREST-EXPEN> 831,389
<TOTAL-INTEREST-EXPENSE> 321,005
<NET-INCOME> 510,384
30,060
<EARNINGS-AVAILABLE-FOR-COMM> 480,324
<COMMON-STOCK-DIVIDENDS> 389,872
<TOTAL-INTEREST-ON-BONDS> 285,898
<CASH-FLOW-OPERATIONS> 1,611,266
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
