<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 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 August 5, 1994
- - - -------------------------- -----------------------------
Common Stock, no par value 434,888,104
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<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
INDEX
<TABLE>
<CAPTION>
Page
No.
----
Part I. Financial Information:
Item 1. Consolidated Financial Statements:
<S> <C>
Report of Independent Public Accountants 2
Consolidated Statements of Income--Three, Six and
Twelve Months Ended June 30, 1994, and 1993 3
Consolidated Balance Sheets--June 30, 1994,
December 31, 1993, and June 30, 1993 4
Consolidated Statements of Cash Flows--
Three, Six and Twelve Months Ended
June 30, 1994, and 1993 6
Consolidated Statements of Retained Earnings--
Three, Six and Twelve Months Ended
June 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 31
Item 5. Other Information 32
Item 6. Exhibits and Reports on Form 8-K 32
</TABLE>
<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 June 30, 1994, December 31, 1993, and June 30, 1993,
and the related consolidated statements of income, retained earnings and
cash flows for each of the three-, six- and twelve-month periods ended
June 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 audit 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 June 30, 1994, December 31, 1993, June 30, 1993, and
the results of their operations and their cash flows for each of the
three-, six- and twelve-month periods ended June 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 any adjustments that
might result from Edison discontinuing the application of SFAS No. 71.
ARTHUR ANDERSEN & CO.
ARTHUR ANDERSEN & CO.
Los Angeles, California
August 5, 1994
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME
In thousands
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
----------------- ----------------- -----------------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating revenue $1,746,492 $1,689,576 $3,423,173 $3,390,547 $7,429,225 $7,716,980
---------- ---------- ---------- ---------- ---------- ----------
Fuel 188,841 155,231 375,070 360,973 806,153 855,237
Purchased power 537,346 508,622 1,026,861 969,399 2,555,812 2,358,928
Provisions for regulatory
adjustment clauses--net (30,532) (16,166) (39,439) 6,072 (332,405) 214,192
Other operating expenses 325,715 293,813 618,832 583,269 1,298,610 1,195,428
Maintenance 87,959 86,556 171,720 176,644 355,498 341,544
Depreciation and decommissioning 224,812 222,127 451,198 443,665 900,035 851,566
Income taxes 108,250 115,541 211,501 202,950 514,450 487,985
Property and other taxes 50,761 50,700 103,727 105,879 204,623 204,523
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses 1,493,152 1,416,424 2,919,470 2,848,851 6,302,776 6,509,403
---------- ---------- ---------- ---------- ---------- ----------
Operating income 253,340 273,152 503,703 541,696 1,126,449 1,207,577
---------- ---------- ---------- ---------- ---------- ----------
Provision for rate phase-in plan (31,580) (31,580) (64,226) (64,930) (136,596) (145,495)
Allowance for equity funds
used during construction 3,565 5,075 7,489 10,090 17,661 20,392
Other nonoperating income--net 15,036 16,301 39,311 30,505 72,511 50,356
---------- ---------- ---------- ---------- ---------- ----------
Total other deductions--net (12,979) (10,204) (17,426) (24,335) (46,424) (74,747)
---------- ---------- ---------- ---------- ---------- ----------
Income before interest expense 240,361 262,948 486,277 517,361 1,080,025 1,132,830
---------- ---------- ---------- ---------- ---------- ----------
Interest on long-term debt 95,295 100,916 190,417 205,913 383,641 416,194
Other interest expense 16,801 13,472 30,758 23,358 58,471 62,032
Allowance for borrowed funds
used during construction (3,715) (4,049) (7,804) (8,052) (15,920) (16,466)
Capitalized interest (89) (259) (136) (377) (736) (565)
---------- ---------- ---------- ---------- ---------- ----------
Total interest expense--net 108,292 110,080 213,235 220,842 425,456 461,195
---------- ---------- ---------- ---------- ---------- ----------
Net income 132,069 152,868 273,042 296,519 654,569 671,635
Dividends on preferred stock 10,020 10,212 20,040 20,682 40,080 42,052
---------- ---------- ---------- ---------- ---------- ----------
Earnings available for
common stock $ 122,049 $ 142,656 $ 253,002 $ 275,837 $ 614,489 $ 629,583
========== ========== ========== ========== ========== ==========
</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>
June 30, December 31, June 30,
1994 1993 1993
------------ ----------- ------------
ASSETS
<S> <C> <C> <C>
Utility plant, at original cost $18,738,591 $18,436,134 $18,045,162
Less--accumulated provision for depreciation
and decommissioning 7,463,420 7,138,289 6,839,454
----------- ----------- -----------
11,275,171 11,297,845 11,205,708
Construction work in progress 938,367 857,225 827,658
Nuclear fuel, at amortized cost 118,963 148,012 124,959
----------- ----------- -----------
Total utility plant 12,332,501 12,303,082 12,158,325
----------- ----------- -----------
Nonutility property--less accumulated provision
for depreciation of $31,006, $31,573 and $29,902
at respective dates 72,443 61,838 34,758
Nuclear decommissioning trusts 869,954 788,575 718,929
Other investments 41,803 20,577 23,639
----------- ----------- -----------
Total other property and investments 984,200 870,990 777,326
----------- ----------- -----------
Cash and equivalents 347,111 204,919 415,778
Receivables, including unbilled revenue, less
allowances of $17,922, $18,422 and $10,412 for
uncollectible accounts at respective dates 898,924 831,070 866,318
Fuel inventory 136,216 120,859 130,826
Materials and supplies, at average cost 118,237 104,092 102,983
Accumulated deferred income taxes--net 197,283 204,119 297,857
Regulatory balancing accounts-net 10,426 -- --
Prepayments and other current assets 12,498 97,518 41,819
----------- ----------- -----------
Total current assets 1,720,695 1,562,577 1,855,581
----------- ----------- -----------
Unamortized debt issuance and reacquisition
expense 370,728 381,781 352,434
Rate phase-in plan 306,218 364,209 430,162
Unamortized nuclear plant--net 222,521 273,837 325,925
Income tax-related deferred charges 1,836,360 2,016,194 1,540,796
Other deferred charges 341,161 318,949 317,861
----------- ----------- -----------
Total deferred charges 3,076,988 3,354,970 2,967,178
----------- ----------- -----------
Total assets $18,114,384 $18,091,619 $17,758,410
=========== =========== ===========
</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>
June 30, December 31, June 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 $ 2,167,912
Additional paid-in capital 327,363 327,363 177,424
Retained earnings 2,412,261 2,430,181 2,386,622
----------- ----------- -----------
4,907,678 4,925,598 4,731,958
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 5,004,615 5,233,697 5,112,832
----------- ----------- -----------
Total capitalization 10,546,048 10,793,050 10,478,545
----------- ----------- -----------
Other long-term liabilities 302,573 266,595 239,378
----------- ----------- -----------
Current portion of long-term debt 201,200 151,200 257,312
Short-term debt 863,221 613,094 537,360
Accounts payable 326,747 336,464 431,148
Accrued taxes 542,363 394,740 629,042
Accrued interest 90,888 89,615 106,302
Dividends payable 115,803 162,818 162,800
Regulatory balancing accounts--net -- 57,932 356,512
Deferred unbilled revenue and other current liabilities 731,723 653,233 497,760
----------- ----------- -----------
Total current liabilities 2,871,945 2,459,096 2,978,236
----------- ----------- -----------
Accumulated deferred income taxes--net 3,407,026 3,616,657 3,094,950
Accumulated deferred investment tax credits 408,554 421,338 434,916
Customer advances and other deferred credits 578,238 534,883 532,385
----------- ----------- -----------
Total deferred credits 4,393,818 4,572,878 4,062,251
----------- ----------- -----------
Commitments and contingencies
(Notes 2, 8, 9 and 10)
Total capitalization and liabilities $18,114,384 $18,091,619 $17,758,410
=========== =========== ===========
</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 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
----------------- ----------------- -----------------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C> <C>
Net income $ 132,069 $ 152,868 $ 273,042 $ 296,519 $ 654,569 $ 671,635
Adjustments for noncash items:
Depreciation and
decommissioning 224,812 222,127 451,198 443,665 900,035 851,566
Amortization 46,439 24,560 74,123 54,603 120,260 128,200
Rate phase-in plan 28,262 28,086 57,991 57,459 123,944 128,898
Deferred income taxes and
investment tax credits (23,925) (34,236) (35,851) (53,205) 123,566 (82,642)
Other long-term liabilities 161 12,574 35,978 (102,296) 63,195 (135,278)
Other--net (1,165) (26,570) (10,655) (21,484) (16,999) 86,548
Changes in working capital
components:
Receivables (162,262) (67,633) (105,057) (13,627) (69,809) (20,750)
Regulatory balancing accounts (49,250) 243,550 (68,358) 268,989 (366,938) 390,937
Fuel inventory, materials
and supplies (26,196) (7,627) (29,502) (15,450) (20,644) (9,317)
Prepayments and other
current assets 42,379 79,074 85,020 134,237 29,321 4,783
Accrued interest and taxes 52,026 (7,077) 181,768 111,676 (106,506) (67,768)
Accounts payable and other
current liabilities 103,888 (196,565) 51,910 (68,177) 112,699 10,783
--------- --------- -------- ---------- ---------- ----------
Net cash provided by
operating activities 367,238 423,131 961,607 1,092,909 1,546,693 1,957,595
--------- --------- -------- ---------- ---------- ----------
Cash flows from financing activities:
Issuances of long-term debt (13) 423,130 (362) 1,258,613 896,943 1,919,073
Issuances of preferred stock -- 74,626 -- 74,626 (28) 174,086
Repayment of long-term debt (23) (159,696) (169,024) (1,232,915) (1,115,880) (1,721,057)
Redemption of preferred stock -- (86,392) -- (86,392) -- (180,861)
Nuclear fuel financing--net (12,359) 9,137 (13,816) (12,246) 6,093 (52,656)
Short-term debt financings--net 177,349 87,182 250,127 (70,287) 325,861 (158,477)
Dividends paid (168,989) (167,703) (337,977) (334,881) (675,927) (669,208)
Capital transfers -- -- -- -- 150,000 --
--------- --------- --------- ---------- ---------- ----------
Net cash provided (used) by
financing activities (4,035) 180,284 (271,052) (403,482) (412,938) (689,100)
--------- --------- --------- ---------- ---------- ----------
Cash flows from investing activities:
Additions to property and plant (217,387) (277,189) (462,939) (462,493) (1,040,872) (881,435)
Nuclear decommissioning trusts (30,821) (34,704) (81,379) (71,309) (151,025) (137,748)
Other--net (1,513) (3,289) (4,045) (6,554) (10,525) 880
--------- --------- --------- ---------- ---------- ----------
Net cash used by
investing activities (249,721) (315,182) (548,363) (540,356) (1,202,422) (1,018,303)
--------- --------- --------- ---------- ---------- ----------
Net increase (decrease) in cash
and equivalents 113,482 288,233 142,192 149,071 (68,667) 250,192
Cash and equivalents, beginning
of period 233,629 127,545 204,919 266,707 415,778 165,586
--------- --------- --------- ---------- ---------- ----------
Cash and equivalents, end
of period $ 347,111 $ 415,778 $ 347,111 $ 415,778 $ 347,111 $ 415,778
========= ========= ========= ========== ========== ==========
Cash payments for interest and taxes:
Interest $ 110,100 $ 88,400 $ 181,400 $ 206,300 $ 373,300 $ 417,300
Taxes 74,754 61,049 (5,002) 60,968 388,045 516,991
</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 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
----------------- ----------------- -----------------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $2,402,162 $2,405,418 $2,430,181 $2,428,945 $2,386,622 $2,391,278
Net income 132,069 152,868 273,042 296,519 654,569 671,635
Dividends declared on common stock (111,950) (158,947) (270,922) (315,655) (588,850) (629,065)
Dividends declared on preferred
stock (10,020) (10,212) (20,040) (20,682) (40,080) (42,052)
Reacquired capital stock expense -- (2,505) -- (2,505) -- (5,174)
---------- ---------- ---------- ---------- ---------- ----------
Balance at end of period $2,412,261 $2,386,622 $2,412,261 $2,386,622 $2,412,261 $2,386,622
========== ========== ========== ========== ========== ==========
</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 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 June
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 ($256 million at June 30,
1994), and time deposits and other investments ($83 million at June 30,
1994) with original maturities of three months or less and are classified
as held-to-maturity. Due to their short maturities, reported amounts
approximate fair value.
Equity investments are reported at fair value and are classified as
available-for-sale. At June 30, 1994, the investments' fair value was $26
million; cost basis was $9 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 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.
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 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.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
as a cost of fuel and are fully recoverable through customer rates. The
fair value of this obligation was $49 million at June 30, 1994, $59
million at December 31, 1993, and $58 million at June 30, 1993 (estimated
by discounting future cash flows).
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 $13
million, $26 million and $58 million for the three, six and twelve months
ended June 30, 1994, respectively, and $10 million, $17 million and $42
million for the three, six and twelve months ended June 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. Effective July 1, 1994, the CPUC approved Edison's request
to accelerate recovery of its nuclear plants by $75 million per year
through 2011 with a corresponding deceleration in recovery of its
transmission and distribution assets; depreciation estimates will reflect
these adjustments. Replaced or retired property and removal costs--less
salvage--are charged to the accumulated provision for depreciation.
Note 2. Regulatory Matters
CPUC Electric Utility Industry Restructuring Proposal
On April 20, 1994, the CPUC issued a proposal for restructuring
California's electric utility industry. Under the proposal, large
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<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. On June 8, 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. Additionally, Edison has 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, and in
anticipation of a delay in implementing the CPUC's proposal due to several
regulatory, legislative and jurisdictional issues, Edison proposed the
adoption of performance-based ratemaking for its generation operations
until direct access phase-in begins. The CPUC has held three full-panel
hearings to address comments on its proposal. A fourth full-panel hearing
is scheduled for September 1994. A CPUC final policy statement is
expected in early 1995.
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. This change could result in either full recovery of
generation-related regulatory assets or a non-cash write-off of up to
approximately $1 billion depending on whether the CPUC adopts a transition
mechanism for the recovery of all or a portion of these regulatory assets
before rate recovery becomes unlikely or uncertain. Until the CPUC
establishes more definitive valuation and pricing criteria for its
restructuring proposal, 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 CPUC's Division of Ratepayer Advocates (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 (APS), 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
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 1995.
RD&D Cost Review
In Edison's 1992 general rate case, the CPUC deferred a decision (pending
additional information from Edison) on the recovery of $56 million in
capitalized RD&D costs. Edison refiled, requesting that $35 million be
included in rate base and $17 million be classified as RD&D expense.
Subsequently, additional adjustments of $11 million were recorded. In
August 1993, the DRA recommended further disallowances of about $15
million on Edison's RD&D capital refiling. In June 1994, a CPUC
administrative law judge issued a proposed decision recommending
disallowances of $6 million. The probable effect of this matter has been
fully reflected in the financial statements. A CPUC decision is expected
in September 1994.
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 1997 to a fixed rate of 6%
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
at June 30, 1994, December 31, 1993, and June 30, 1993. The fair value
of the agreements (the cost to terminate them) was estimated at $7 million
at June 30, 1994, and $29 million at December 31, 1993, and June 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 June 30, 1994, are: 1995--$201 million;
1996--$1 million; 1997--$201 million; 1998--$576 million; and 1999--$322
million.
Long-term debt consisted of:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1994 1993 1993
---------- ------------ ---------
(In millions)
First and refunding mortgage bonds:
<C> <C> <C> <C>
1995--1998 (5.45% to 6.125%) $ 850 $ 850 $1,225
1999--2003 (5.625% to 7.5%) 700 700 625
2004--2026 (5.875% to 9.25%) 1,975 1,993 1,853
Pollution-control bonds:
1999--2027 (5.4% to 7.2% and variable) 1,208 1,208 1,209
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 57 70 50
Spent nuclear fuel obligation -- -- 4
Long-term debt due within one year (201) (151) (257)
Unamortized debt discount--net (77) (79) (71)
------ ------ ------
Total $5,005 $5,234 $5,113
====== ====== ======
Fair value (based on brokers' quotes) $4,920 $5,579 $5,510
</TABLE>
Short-Term Debt
Edison has lines of credit it can use at negotiated or bank index rates.
At June 30, 1994, such lines included $800 million supporting commercial
paper and $500 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>
June 30, December 31, June 30,
1994 1993 1993
--------- ------------- ---------
(In millions)
<S> <C> <C> <C>
Balancing accounts $183 $163 $ 37
Fuel 185 270 242
General purpose 554 252 310
---- ---- -----
Total 922 685 589
Amount reclassified as long-term (57) (70) (50)
Unamortized discount (2) (2) (2)
---- ---- -----
Total $863 $613 $ 537
==== ==== =====
</TABLE>
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Cumulative preferred stock consisted of:
<TABLE>
<CAPTION>
June 30, 1994
------------------
Shares Redemption June 30, December 31, June 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 $266 $291 $289
</TABLE>
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The changes in preferred stock were:
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
---------------- ----------------- ----------------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
(In thousands of shares)
Series:
<S> <C> <C> <C> <C> <C> <C>
6.05% -- 750 -- 750 -- 750
6.45 -- -- -- -- -- 1,000
7.325 -- (427) -- (427) -- (457)
7.80 -- (412) -- (412) -- (429)
8.54 -- -- -- -- -- (503)
8.70A -- -- -- -- -- (368)
----- ----- ----- ----- ----- -----
Net redemptions -- (89) -- (89) -- (7)
===== ===== ===== ===== ===== =====
</TABLE>
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.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the net accumulated deferred income tax liability were:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1994 1993 1993
------------- ------------- -------------
(In millions)
Deferred tax assets:
<S> <C> <C> <C> <C>
Depreciation $ 352 $ 240 $ 130
Investment tax credits 266 310 298
Regulatory balancing accounts 130 171 181
Other 560 536 556
------ ------ ------
Total $1,308 $1,257 $1,165
====== ====== ======
Deferred tax liabilities:
Property-related $3,933 $4,030 $3,432
Other 585 640 530
------ ------ ------
Total $4,518 $4,670 $3,962
====== ====== ======
Accumulated deferred income taxes--net $3,210 $3,413 $2,797
====== ====== ======
Classification of accumulated deferred income
taxes:
Included in deferred credits $3,407 $3,617 $3,095
Included in current assets 197 204 298
</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 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
----------------- ----------------- -----------------
1994 1993 1994 1993 1994 1993*
---- ---- ---- ---- ---- ----
(In millions)
Current:
<S> <C> <C> <C> <C> <C> <C>
Federal $ 88 $101 $168 $175 $211 $385
State 27 34 52 58 76 111
---- ---- ---- ---- ---- ----
115 135 220 233 287 496
---- ---- ---- ---- ---- ----
Deferred--federal and state:
Accrued charges (14) (3) (18) (6) (49) (10)
Depreciation 10 14 21 27 51 99
Investment and energy tax
credits--net (6) (6) (13) (12) (26) (23)
Rate phase-in plan (12) (11) (24) (23) (51) (52)
Regulatory balancing accounts 16 (12) 14 (22) 154 (84)
Resale revenue 7 -- 7 (1) 34 (6)
Retirement of debt (2) -- (4) 1 28 (2)
Unbilled revenue (18) (16) (16) (7) (8) 8
Other (5) -- (3) (10) (9) (13)
---- ---- ----- ---- ---- ----
(24) (34) (36) (53) 124 (83)
---- ---- ----- ---- ---- ----
Total income tax expense $ 91 $101 $184 $180 $411 $413
==== ==== ==== ==== ==== ====
Classification of income taxes:
Included in operating income $108 $116 $212 $203 $514 $488
Included in other income (17) (15) (28) (23) (103) (75)
</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 6 Months Ended 12 Months Ended
June 30, June 30, June 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% 34.5%
Capitalized software (2.3) (1.8) (2.2) (1.9) (2.0) (0.8)
Cumulative effect of change in
accounting for income taxes -- -- -- (1.7) (0.5) (0.7)
Depreciation and related timing
differences not deferred 5.2 4.2 4.6 4.1 5.8 3.0
Investment and energy
tax credits (2.9) (2.5) (2.8) (2.6) (2.5) (2.2)
State tax--net of federal
deduction 5.9 5.5 5.9 5.1 5.8 4.1
Other (0.1) (0.6) (0.2) (0.2) (3.0) 0.2
---- ---- ---- ---- ---- ----
Effective tax rate 40.8% 39.8% 40.3% 37.8% 38.6% 38.1%
==== ==== ==== ==== ==== ====
<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>
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1994 1993 1993
---------- ------------- ----------
(In millions)
Actuarial present value of benefit obligation:
<S> <C> <C> <C>
Vested benefits $1,363 $1,340 $1,338
Nonvested benefits 175 164 170
------ ------ ------
Accumulated benefit obligation 1,538 1,504 1,508
Value of projected future compensation levels 587 551 577
------ ------ ------
Projected benefit obligation $2,125 $2,055 $2,085
====== ====== ======
Plan assets at fair value $2,204 $2,196 $2,107
====== ====== ======
Projected benefit obligation in excess of
(less than) plan assets $ (79) $ (141) $ (22)
Unrecognized net gain 183 248 127
Unrecognized prior service cost (5) (5) (5)
Unrecognized net obligation being amortized over
17 years (57) (59) (63)
------ ------ ------
Accrued pension liability $ 42 $ 43 $ 37
====== ====== ======
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 difference between pension expense calculated
for accounting and ratemaking is deferred.
The components of pension expense were:
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
----------------- ----------------- ---------------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
(In millions)
Net pension expense:
<S> <C> <C> <C> <C> <C> <C>
Service cost for benefits earned $18 $ 18 $ 36 $ 36 $ 70 $ 57
Interest cost on projected benefit
obligation 37 35 73 69 142 129
Actual return on plan assets (5) (78) (17) (187) (119) (191)
Net amortization and deferral (37) 40 (67) 113 (40) 48
--- ---- ---- ----- ---- -----
Pension expense under accounting
standards 13 15 25 31 53 43
Regulatory adjustment -- (3) -- (7) (5) 5
--- ---- ---- ----- ---- -----
Net pension expense recognized $13 $ 12 $ 25 $ 24 $ 48 $ 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 January 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 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
----------------- ----------------- ---------------
1994 1993 1994 1993 1994 1993*
---- ---- ---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Service cost for benefits earned $ 7 $ 7 $ 15 $ 13 $ 28 $ 30
Interest cost on projected benefit
obligation 18 16 35 33 68 33
Actual return on plan assets (5) (3) (10) (6) (16) (6)
Amortization of transition obligation 9 9 18 18 36 18
--- --- --- --- ---- ----
Net expense 29 29 58 58 116 75
Amortization of prior funding -- 11 2 23 28 53
--- --- --- --- ---- ----
Total expense $29 $40 $60 $81 $144 $128
=== === === === ==== ====
</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>
June 30, December 31, June 30,
1994 1993 1993
------------- ------------- -------------
(In millions)
Actuarial present value of benefit obligation:
<S> <C> <C> <C>
Retirees $ 510 $ 512 $ 486
Employees eligible to retire 91 87 78
Other employees 385 358 307
----- ----- -----
Accumulated benefit obligation $ 986 $ 957 $ 871
===== ===== =====
Plan assets at fair value $ 257 $ 210 $ 122
===== ===== =====
Accumulated benefit obligation in excess of
plan assets $ 729 $ 747 $ 749
Unrecognized transition obligation (670) (688) (706)
Unrecognized net loss (59) (59) --
----- ----- -----
Recorded liability $ -- $ -- $ 43
===== ===== =====
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 June 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 $6 million,
$11 million and $22 million for the three, six and twelve months ended
June 30, 1994, respectively, and $5 million, $10 million and $20 million
for the three, six and twelve months ended June 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 June 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 282 142 7 56
Pacific Intertie Transmission System 213 62 3 50
Palo Verde Nuclear Generating Station 1,548 300 25 16
San Onofre Nuclear Generating Station 4,091 1,335 61 75
------ ------ ----
Total $6,617 $2,076 $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 June 30, 1994,
were:
<TABLE>
<CAPTION>
Year ended December 31, (In millions)
<S> <C>
1994 $13
1995 22
1996 17
1997 14
1998 10
Thereafter 16
---
Total $92
===
</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, $68
million and $138 million for the three, six and twelve months ended June
30, 1994, respectively, and $35 million, $71 million and $138 million for
the three, six and twelve months ended June 30, 1993, respectively. The
accumulated provision for decommissioning was $865 million at June 30,
1994, $797 million at December 31, 1993, and $727 million at June 30,
1993. The estimated costs to decommission San Onofre Unit 1 have been
recorded as a liability.
Decommissioning costs recovered 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 June 30, December 31, June 30,
Dates 1994 1993 1993
-------- -------- ------------- --------
(In millions)
<S> <C> <C> <C> <C>
Municipal bonds 1996-2021 $592 $680 $624
Stocks 53 51 40
U.S. government and agency issues 1998-2023 129 36 20
Short-term investments and other 1994 91 22 35
---- ---- ----
Trust fund balance $865 $789 $719
==== ==== ====
Market value (based on quoted
market prices) $870 $853 $771
</TABLE>
Trust fund earnings (based on specific identification) increase the trust
fund balance and the accumulated provision for decommissioning. Net
earnings were $9 million, $20 million and $41 million for the three, six
and twelve months ended June 30, 1994, respectively, and $11 million, $23
million and $42 million for the same periods in 1993. Proceeds from sales
of securities (which are reinvested) were $358 million, $403 million and
$564 million for the three, six and twelve months ended June 30, 1994,
respectively, and $91 million, $48 million and $46 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), 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 decision is expected in late 1994. Edison
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $1,187 $1,170 $1,039 $1,063 $1,308
Fuel supply contracts 324 220 195 176 179
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 56 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.
On May 4, 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. Environmental-cleanup costs not included in the incentive
mechanism are expected to be recovered through customer rates. As a
result, Edison's regulatory asset of $68 million reflects the estimated
future environmental-cleanup costs expected to be recovered in customer
rates.
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 $9.2
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
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.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $34 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. 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 two units to full power in July 1994. APS expects Unit 2
(currently operated at 88% power) to be returned to full power by year-
end 1994, following additional inspections.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
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, six and
twelve months ended June 30, 1994, were $122 million, $253 million and
$614 million, respectively, compared with $143 million, $276 million and
$630 million for the same periods in 1993. The lower earnings reflect a
lower authorized return on common equity and a 1993 benefit from
refinancing long-term debt. In addition, earnings for the twelve months
ended June 30, 1993, reflect a $24 million after-tax charge for settlement
of litigation with Tucson Electric Power Company in September 1992.
Operating Revenue
Operating revenue increased for the three months ended June 30, 1994, as
compared to the year-earlier period, almost entirely due to a 3% increase
in average rates. For the twelve months ended June 30, 1994, compared to
the same period in 1993, operating revenue decreased, mainly due to a 4%
decrease in sales volume. Almost 98% 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 22% and 4%, respectively, for the three and six
months ended June 30, 1994, compared to the year-earlier periods,
primarily due to increased power generation. The increased power
generation resulted from decreased hydro generation in 1994. For the
twelve months ended June 30, 1994, compared to the same period in 1993,
fuel expense decreased, mostly due to a 7% decrease in power generation.
Purchased-power expense increased, due to greater volume and 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 three-, six- and
twelve-month period decreases reflect authorized estimates exceeding
actual kilowatt-hour sales. The three- and six-month period decreases
were partially offset by CPUC-authorized estimates exceeding energy costs.
The twelve-month period decrease also reflects energy costs exceeding
CPUC-authorized estimates.
Other operating expenses increased, mainly due to the CPUC authorizing
accelerated recovery of costs related to a demand-side management (DSM)
program.
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
<PAGE>
<PAGE>
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.
Other nonoperating income increased 44% for the twelve months ended June
30, 1994, compared to the same period in 1993, due to the $40 million ($24
million after-tax) settlement with Tucson Electric in September 1992.
Interest Expense
Interest on long-term debt decreased, primarily due to refinancing debt
at lower interest rates. Other interest expense increased 25% and 32%,
for the three and six months ended June 30, 1994, respectively, compared
to the same periods in 1993, due to increased short-term borrowings.
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 light of declining authorized rates of return, ongoing cash needs, the
changing nature of the electric utility industry and recently proposed
changes in California utility regulation, in the second quarter of 1994
Edison lowered its quarterly common stock dividend to SCEcorp by about
30%.
Cash Flows from Operating Activities
Net cash provided by operating activities totaled $367 million, $962
million and $1.5 billion for the three-, six- and twelve-month periods
ended June 30, 1994, respectively, compared with $423 million, $1.1
billion and $2.0 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. Long-term debt is used
mainly to finance capital expenditures. External financings are
influenced by market conditions and other factors, including limitations
imposed by Edison's articles of incorporation and trust indenture. As of
June 30, 1994, Edison could issue approximately $5.7 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 $800 million for short-term debt and $500
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
funds ranging from 5.25% to 6.0%. These amounts are expected to be funded
<PAGE>
<PAGE>
from independent decommissioning trusts (see Notes to Consolidated
Financial Statements). Edison contributes approximately $96 million per
year to decommissioning 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 $1,187 $1,170 $1,039 $1,063 $1,308
Maturities of long-term debt 1 201 1 501 447
------ ------ ------ ------ ------
Total $1,188 $1,371 $1,040 $1,564 $1,755
====== ====== ====== ====== ======
</TABLE>
REGULATORY MATTERS
The CPUC increased Edison's 1994 authorized revenue by $232 million, or
3.2%. The increase includes a $275 million increase for fuel and related
costs and an $82 million increase for higher operating costs, partially
offset by a $108 million decrease for the lower costs of debt and equity.
In its 1994 cost-of-capital decision, the CPUC approved Edison's request
to increase its equity ratio from 46% to 47.25%. The increase reflects
the CPUC's recognition of Edison's need to reduce debt to levels more in
line with other utilities and the competitive environment. The CPUC also
authorized Edison an 11.0% return on common equity for 1994. Authorized
return on common equity was 11.8% for 1993. This decision is expected to
reduce 1994 earnings by about $25 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 disallowances
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.
In its 1995 general rate case filing, Edison requested a $117 million
revenue increase to recover the higher costs of operations (excluding
fuel) resulting from inflation and new capital investments. Adjusted for
inflation, this increase represents 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 1996-2000 (see Competitive
Environment). In March 1994, as part of its response to the general rate
case filing, the DRA recommended that Edison be denied funds to continue
operating San Onofre Nuclear Generating Station Units 2 and 3 after 1998,
or that an alternative pricing mechanism (a fixed price per kilowatt-hour
generated) be implemented. Edison believes the continued operation of the
nuclear units would benefit its customers by providing reliable and non-
polluting energy. A CPUC decision is expected on the general rate case
<PAGE>
<PAGE>
in late 1994. Hearings on performance-based ratemaking are currently
being conducted with a CPUC decision expected in 1995.
On May 25, 1994, the CPUC approved Edison's request to accelerate recovery
of its investments in San Onofre and Palo Verde by $75 million, or 40%,
annually 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 assets.
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.
Due to this changing environment, Edison requested a performance-based
rate-making mechanism in its 1995 general rate case filing. 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. It would provide stronger incentives for efficient
utility operations and investment and allow for a better alignment of
customer and shareholder interests. On July 12, 1994, the CPUC ordered
Edison to divide its performance-based rate-making application into two
phases--transmission and distribution, and power generation. Hearings are
scheduled to begin in October 1994 for the transmission and distribution
phase and in 1995 for the power generation phase.
On April 20, 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. On June 8, 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. Additionally, Edison has 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, and in
anticipation of a delay in implementing the CPUC's proposal due to several
regulatory, legislative and jurisdictional issues, Edison proposed the
adoption of performance-based ratemaking for its generation operations
until direct access phase-in begins. The CPUC has held three full-panel
hearings to address comments on its proposal. A fourth full-panel hearing
is scheduled for September 1994. A CPUC final policy statement is
expected in early 1995.
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. This change could result in either full recovery of
<PAGE>
<PAGE>
generation-related regulatory assets or a non-cash write-off of up to
approximately $1 billion depending on whether the CPUC adopts a transition
mechanism for the recovery of all or a portion of these regulatory assets
before rate recovery becomes unlikely or uncertain. Until the CPUC
establishes more definitive valuation and pricing criteria for its
restructuring proposal, Edison cannot predict the effect of the proposal
on its results of operations or financial position.
CPUC-MANDATED POWER CONTRACTS
On June 22, 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
life of the contracts. On July 25, 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. For the
twelve months ended June 30, 1994, Edison paid about $800 million more than
the cost of power available from other sources for federally required
purchases from independent power producers under CPUC-mandated prices.
ENVIRONMENTAL PROTECTION
Costs to protect the environment continue to grow due to increasingly
stringent laws and regulations.
Edison has identified 56 sites for which it is, or may be, responsible for
remediation under environmental laws. Earlier this year, Edison developed
an above-ground storage tank inspection program to determine 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 recorded 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. On May 4, 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 will fund the remaining 10%,
with the opportunity to recover these costs through insurance.
Environmental-cleanup costs not included in the incentive mechanism are
expected to be recovered through customer rates. As a result, Edison's
regulatory asset of $68 million reflects the estimated future
environmental-cleanup costs expected to be recovered in customer rates.
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 1994-2001 period, mainly for placing overhead
distribution lines underground and reducing nitrogen-oxides emissions
<PAGE>
<PAGE>
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 administrative law
judge'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 $10 million representing the additional liability for
these postemployment benefits, and expects to recover these costs in
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
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. 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 two units to full power in July 1994. APS expects Unit 2
(currently operated at 88% power) to be returned to full power by year-
end 1994, following additional inspections.
<PAGE>
<PAGE>
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Antitrust Matters
Transphase Systems, Inc. filed a lawsuit on May 3, 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. On October 7, 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.
Transphase has requested a hearing en banc on the denial of the appeal.
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 quarter
ending March 31, 1994, under the heading "Legal Proceedings" 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 has underpaid the
plaintiffs, and continues to underpay the plaintiffs, for energy. 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). The
plaintiffs allege that the underpayments totaled at least $10 million as
of the filing of the complaint. In subsequent court filings, plaintiffs
contend that contract payments due through the end of the contract term
could total approximately $50 million. They also seek unspecified
punitive damages. The matter is in the discovery stage. 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").
Edison believes the claims are without merit and is vigorously defending
itself against the claims in the lawsuit.
Between January 1994 and July 1994, Edison was named as a defendant in a
series of seven lawsuits brought by independent power producers of wind
generation. Six 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 each of
the lawsuits, the plaintiffs seek declaratory relief regarding the proper
interpretation of the contracts. Plaintiffs allege a combined total of
approximately $173 million in damages, which includes consequential damages
claimed in six of the seven lawsuits. The lawsuits are in various stages
of pleading and discovery. 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. Edison believes the claims are without
merit and is vigorously defending against these claims.
<PAGE>
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. Edison believes that the
allegations in all of these actions are without merit and intends to
vigorously defend against these allegations.
The Orange County Superior Court case was previously reported in the
Quarterly Report on Form 10-Q for the quarter ending March 31, 1994, under
the heading "Environmental 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. Edison
believes the allegations are without merit and intends to vigorously
contest the allegations.
Item 5. Other Information
Construction Program and Capital Expenditures
Construction expenditures for the 1994-1998 period are estimated (as of
July 14, 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 $ 338 $ 336 $ 274 $ 274 $ 500 $1,722
Electric transmission lines and substations 174 116 156 167 213 826
Electric distribution lines and substations 449 495 522 552 547 2,565
Other expenditures 256 267 130 113 91 857
------ ------ ------ ------ ------ ------
Total 1,217 1,214 1,082 1,106 1,351 5,970
Less--Allowance for funds used during construction 30 44 43 43 43 203
------ ------ ------ ------ ------ ------
Funds required for construction expenditures $1,187 $1,170 $1,039 $1,063 $1,308 $5,767
====== ====== ====== ====== ====== ======
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Consent of Independent Public Accountants
(b) Reports on Form 8-K:
None
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
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
August 10, 1994
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Number Numbered
Exhibit Page
- - - ------- ------------
<C> <S>
23. Consent of Independent Public Accountants
</TABLE>
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 June 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 & CO.
ARTHUR ANDERSEN & CO.
Los Angeles, California
August 10, 1994
