SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 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 May 9, 1994
- - -------------------------- ---------------------------
Common Stock, no par value 434,888,104
<PAGE>
<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 and Twelve
Months Ended March 31, 1994, and 1993 3
Consolidated Balance Sheets--March 31, 1994,
December 31, 1993, and March 31, 1993 4
Consolidated Statements of Cash Flows--
Three and Twelve Months Ended
March 31, 1994, and 1993 6
Consolidated Statements of Retained Earnings--
Three and Twelve Months Ended
March 31, 1994, and 1993 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 24
Part II. Other Information:
Item 1. Legal Proceedings 30
Item 4. Submission of Matters to a Vote of Security Holders 30
Item 5. Other Information 31
Item 6. Exhibits and Reports on Form 8-K 31
</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 March 31, 1994, December 31, 1993, and March 31, 1993,
and the related consolidated statements of income, retained earnings and
cash flows for each of the three- and twelve-month periods ended March 31,
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 March 31, 1994, December 31, 1993, March 31, 1993, and
the results of their operations and their cash flows for each of the
three- and twelve-month periods ended March 31, 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.
ARTHUR ANDERSEN & CO.
Los Angeles, California
May 5, 1994
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME
In thousands
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
--------------------------- ---------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenue $1,676,681 $1,700,971 $7,372,310 $7,737,267
---------- ---------- ---------- ----------
Fuel 186,229 205,742 772,543 867,891
Purchased power 489,515 460,777 2,527,087 2,277,596
Provisions for regulatory
adjustment clauses--net (8,906) 22,238 (318,038) 316,027
Other operating expenses 293,117 289,455 1,266,708 1,198,536
Maintenance 83,761 90,088 354,095 347,765
Depreciation and decommissioning 226,386 221,538 897,350 823,251
Income taxes 103,251 87,409 521,741 490,017
Property and other taxes 52,966 55,179 204,562 205,538
---------- ---------- ---------- ----------
Total operating expenses 1,426,319 1,432,426 6,226,048 6,526,621
---------- ---------- ---------- ----------
Operating income 250,362 268,545 1,146,262 1,210,646
---------- ---------- ---------- ----------
Provision for rate phase-in plan (32,646) (33,350) (136,596) (149,337)
Allowance for equity funds
used during construction 3,924 5,016 19,170 20,099
Other nonoperating income--net 24,276 14,205 73,775 59,056
---------- ---------- ---------- ----------
Total other income (deductions)--net (4,446) (14,129) (43,651) (70,182)
---------- ---------- ---------- ----------
Income before interest expense 245,916 254,416 1,102,611 1,140,464
---------- ---------- ---------- ----------
Interest on long-term debt 95,123 104,998 389,262 423,267
Other interest expense 13,956 9,886 55,142 74,033
Allowance for borrowed funds
used during construction (4,090) (4,002) (16,254) (16,323)
Capitalized interest (47) (118) (907) (418)
---------- ---------- ---------- ----------
Total interest expense--net 104,942 110,764 427,243 480,559
---------- ---------- ---------- ----------
Net income 140,974 143,652 675,368 659,905
Dividends on preferred stock 10,020 10,471 40,272 41,509
---------- ---------- ---------- ----------
Earnings available for common stock $ 130,954 $ 133,181 $ 635,096 $ 618,396
========== ========== ========== ==========
</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>
March 31, December 31, March 31,
1994 1993 1993
------------- ----------- -------------
ASSETS
<S> <C> <C> <C>
Utility plant, at original cost $18,602,311 $18,436,134 $17,865,874
Less--accumulated provision for depreciation
and decommissioning 7,321,831 7,138,289 6,683,292
----------- ----------- -----------
11,280,480 11,297,845 11,182,582
Construction work in progress 894,403 857,225 790,208
Nuclear fuel, at amortized cost 136,791 148,012 106,717
----------- ----------- -----------
Total utility plant 12,311,674 12,303,082 12,079,507
----------- ----------- -----------
Nonutility property--less accumulated provision
for depreciation of $31,796, $31,573 and $29,724
at respective dates 70,663 61,838 36,060
Nuclear decommissioning trusts 839,133 788,575 684,225
Other investments 21,103 20,577 22,695
----------- ----------- -----------
Total other property and investments 930,899 870,990 742,980
----------- ----------- -----------
Cash and equivalents 233,629 204,919 127,545
Receivables, including unbilled revenue, less
allowances of $17,602, $18,422 and $9,562 for
uncollectible accounts at respective dates 773,865 831,070 798,685
Fuel inventory 120,789 120,859 119,170
Materials and supplies, at average cost 107,468 104,092 107,012
Accumulated deferred income taxes--net 171,196 204,119 287,590
Prepayments and other current assets 54,877 97,518 120,893
----------- ----------- -----------
Total current assets 1,461,824 1,562,577 1,560,895
----------- ----------- -----------
Unamortized debt issuance and reacquisition
expense 377,149 381,781 350,717
Rate phase-in plan 334,480 364,209 458,248
Unamortized nuclear plant--net 248,305 273,837 351,139
Income tax-related deferred charges 1,845,357 2,016,194 1,502,632
Other deferred charges 349,343 318,949 284,991
----------- ----------- -----------
Total deferred charges 3,154,634 3,354,970 2,947,727
----------- ----------- -----------
Total assets $17,859,031 $18,091,619 $17,331,109
=========== =========== ===========
</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>
March 31, December 31, March 31,
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 $ 906,017
Additional paid-in capital 327,363 327,363 1,439,717
Retained earnings 2,402,162 2,430,181 2,405,418
----------- ----------- -----------
4,897,579 4,925,598 4,751,152
Preferred stock:
Not subject to mandatory redemption 358,755 358,755 358,755
Subject to mandatory redemption 275,000 275,000 278,488
Long-term debt 5,015,828 5,233,697 4,831,144
----------- ----------- -----------
Total capitalization 10,547,162 10,793,050 10,219,539
----------- ----------- -----------
Other long-term liabilities 302,412 266,595 173,668
----------- ----------- -----------
Current portion of long-term debt and redeemable
preferred stock 201,200 151,200 263,072
Short-term debt 685,872 613,094 450,178
Accounts payable 313,676 336,464 387,195
Accrued taxes 507,439 394,740 638,128
Accrued interest 110,989 89,615 104,293
Dividends payable 162,822 162,818 161,344
Regulatory balancing accounts--net 38,824 57,932 112,962
Deferred unbilled revenue and other current liabilities 624,043 653,233 733,114
----------- ----------- -----------
Total current liabilities 2,644,865 2,459,096 2,850,286
----------- ----------- -----------
Accumulated deferred income taxes--net 3,403,039 3,616,657 3,074,385
Accumulated deferred investment tax credits 414,947 421,338 441,286
Customer advances and other deferred credits 546,606 534,883 571,945
----------- ----------- -----------
Total deferred credits 4,364,592 4,572,878 4,087,616
----------- ----------- -----------
Commitments and contingencies
(Notes 2, 8, 9 and 10)
Total capitalization and liabilities $17,859,031 $18,091,619 $17,331,109
=========== =========== ===========
</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 12 Months Ended
March 31, March 31,
-------------------------- --------------------------
1994 1993 1994 1993
---------- --------- ---------- ----------
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income $ 140,974 $ 143,652 $ 675,368 $ 659,905
Adjustments for noncash items:
Depreciation and
decommissioning 226,386 221,538 897,350 823,251
Amortization 27,684 30,043 98,381 140,405
Rate phase-in plan 29,729 29,373 123,768 130,391
Deferred income taxes and
investment tax credits (11,927) (18,967) 113,256 (95,685)
Other long-term liabilities 35,817 (114,870) 75,608 (138,387)
Other--net (9,488) 5,083 (42,405) 99,985
Changes in working capital
components:
Receivables 57,205 54,006 24,820 (39,235)
Regulatory balancing accounts (19,108) 25,439 (74,138) 229,062
Fuel inventory, materials
and supplies (3,306) (7,823) (2,075) 47,149
Prepayments and other
current assets 42,641 55,163 66,016 (16,675)
Accrued interest and taxes 129,742 118,753 (165,609) (31,621)
Accounts payable and other
current liabilities (51,978) 128,388 (187,754) 247,789
--------- --------- ---------- ----------
Net cash provided by
operating activities 594,371 669,778 1,602,586 2,056,334
--------- --------- ---------- ----------
Cash flows from financing activities:
Issuances of long-term debt (349) 835,484 1,320,086 1,643,676
Issuances of preferred stock -- -- 74,598 199,032
Repayment of long-term debt (169,001) (1,073,219) (1,275,553) (1,896,103)
Redemption of preferred stock -- -- (86,392) (130,691)
Nuclear fuel financing--net (1,457) (21,383) 27,589 (95,133)
Short-term debt financings--net 72,778 (157,469) 235,694 (258,716)
Dividends paid (168,989) (167,178) (674,641) (662,199)
Capital transfers -- -- 150,000 92,000
--------- --------- ----------- ----------
Net cash used by
financing activities (267,018) (583,765) (228,619) (1,108,134)
--------- --------- ----------- ----------
Cash flows from investing activities:
Additions to property and plant (245,553) (185,305) (1,100,673) (783,895)
Nuclear decommissioning trusts (50,558) (36,605) (154,908) (134,216)
Other--net (2,532) (3,265) (12,302) 1,985
--------- --------- ----------- ----------
Net cash used by
investing activities (298,643) (225,175) (1,267,883) (916,126)
--------- --------- ----------- ----------
Net increase (decrease) in cash
and equivalents 28,710 (139,162) 106,084 32,074
Cash and equivalents, beginning
of period 204,919 266,707 127,545 95,471
--------- --------- ----------- ----------
Cash and equivalents, end of period $ 233,629 $ 127,545 $ 233,629 $ 127,545
========= ========= =========== ==========
Cash payments for interest and taxes:
Interest $ 71,340 $ 118,028 $ 351,463 $ 425,626
Taxes (79,755) (81) 374,527 514,859
</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 12 Months Ended
March 31, March 31,
--------------------------- ---------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at beginning of period $2,430,181 $2,428,945 $2,405,418 $2,417,751
Net income 140,974 143,652 675,368 659,905
Dividends declared on common stock (158,973) (156,708) (635,848) (626,887)
Dividends declared on preferred
stock (10,020) (10,471) (40,272) (41,509)
Reacquired capital stock expense -- -- (2,504) (3,842)
---------- ---------- ---------- ----------
Balance at end of period $2,402,162 $2,405,418 $2,402,162 $2,405,418
========== ========== ========== ==========
</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 reclassifications have been made to conform to the
March 31, 1994, financial statement presentation.
Cash Equivalents
Cash equivalents include temporary investments 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.
Construction Financing Costs
Allowance for funds used during construction (AFUDC) represents the
estimated cost of debt and equity funds that finance utility-plant
construction. AFUDC is capitalized as a cost of utility plant and
reported in current earnings. AFUDC is recovered in rates through
depreciation when completed projects are placed into commercial operation.
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.
Depreciation and Decommissioning
Depreciation of utility plant is computed on a straight-line remaining-
life basis. 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 Nuclear
Generating Station and 1989 for Palo Verde Nuclear Generating Station).
Decommissioning costs are accrued and recovered in rates over the useful
life of the nuclear facility through charges to depreciation expense.
Amounts collected from customers are placed in trusts, which, together
with accumulated earnings, will be utilized solely for decommissioning.
These amounts are invested in high-grade securities and reported at market
value in accordance with a new accounting standard for certain debt and
equity securities implemented in January 1994. These investments are
classified as available-for-sale.
Edison expects to decommission its nuclear facilities by prompt removal
or decontamination at the end of their useful lives. Decommissioning at
San Onofre and Palo Verde is scheduled to begin in 2013 and 2024,
respectively. San Onofre Unit 1, which shut down in 1992, will be
decommissioned with the other San Onofre units. The estimated costs to
decommission Unit 1 have been recorded as a liability.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Decommissioning expense was $35 million and $139 million for the three and
twelve months ended March 31, 1994, respectively, and $37 million and $134
million for the three and twelve months ended March 31, 1993,
respectively. The accumulated balance of these costs ($831 million at
March 31, 1994, $797 million at December 31, 1993, and $692 million at
March 31, 1993) approximates amounts funded. The market value of the
trusts (based on quoted market prices) was $839 million, $853 million and
$733 million at March 31, 1994, December 31, 1993, and March 31, 1993,
respectively. Net earnings on these funds, included as a component of
depreciation expense, were $11 million and $43 million for the three and
twelve months ended March 31, 1994, respectively, and $13 million and $38
million for the three and twelve months ended March 31, 1993,
respectively. 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
believes the amounts collected in rates are adequate to meet estimated
decommissioning.
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 fully
recoverable through rates. The fair value of this obligation was $55
million, $59 million and $58 million at March 31, 1994, December 31, 1993,
and March 31, 1993, respectively (estimated by discounting future cash
flows).
Fuel
The cost of nuclear fuel, including disposal, is amortized to fuel expense
on the basis of generation. Under CPUC rate-making procedures, nuclear-
fuel financing costs are capitalized until the fuel is placed into
production.
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.
Rate Phase-In Plan
A CPUC-authorized rate phase-in plan deferred the collection of $200
million in revenue for each unit at Palo Verde 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.
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.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 and $54 million for the three and twelve months ended March 31,
1994, respectively, and $8 million and $38 million for the three and
twelve months ended March 31, 1993, respectively.
Revenue
Operating revenue includes amounts for services rendered but unbilled at
the end of each period.
San Onofre Unit 1
In November 1992, Edison discontinued operation of San Onofre Unit 1.
Edison will recover its investment, plus an 8.98% rate of return, by mid-
1996.
Utility Plant
Plant additions, including replacements and betterments, are capitalized.
Such costs include direct material and labor, construction overhead and
AFUDC. Replaced or retired property and removal costs--less salvage--are
charged to the accumulated provision for depreciation.
Note 2. Regulatory Matters
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
on March 9, 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 financial position.
Palo Verde Outage Review
In March 1989, Arizona Public Service Company, operating agent for 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
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 mid-1994.
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 filed its position on Edison's RD&D capital refiling,
recommending further disallowances of about $15 million. Edison is
contesting the DRA's recommendation. A CPUC decision is expected in 1994.
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.
Resale Rates
Resale revenue related to pending rate proceedings is subject to refund
with interest if subsequently disallowed by the Federal Energy Regulatory
Commission. Edison believes any refunds from pending rate proceedings
will not materially affect its results of operations or financial
position.
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 in such cases.
Edison had interest-rate swap and cap agreements to reduce the effect of
changes in interest rates on $226 million of its debt at March 31, 1994,
December 31, 1993, and March 31, 1993. The fair value of the agreements
(the cost to terminate them) was estimated at $11 million, $29 million
and $17 million at March 31, 1994, December 31, 1993, and March 31, 1993,
respectively (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.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-term debt maturities and sinking-fund requirements for the five
twelve-month periods following March 31, 1994, are: 1995--$201 million;
1996--$1 million; 1997--$201 million; 1998--$426 million; and 1999--$322
million.
Long-term debt consisted of:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1994 1993 1993
---------- ------------ ---------
(In millions)
First and refunding mortgage bonds:
<S> <C> <C> <C>
1995--1998 (5.45% to 6.125%) $ 850 $ 850 $1,075
1999--2003 (5.625% to 7.5%) 700 700 500
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 69 70 41
Spent nuclear fuel obligation -- -- 5
Long-term debt due within one year (201) (151) (258)
Unamortized debt discount--net (78) (79) (69)
------ ------ ------
Total $5,016 $5,234 $4,831
------ ------ ------
Fair value (based on brokers' quotes) $5,094 $5,579 $5,211
====== ====== ======
</TABLE>
Short-Term Debt
Edison has lines of credit it can use at negotiated or bank index rates.
At March 31, 1994, such lines totaled $1.2 billion, with $700 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>
March 31, December 31, March 31,
1994 1993 1993
--------- ------------- ---------
(In millions)
<S> <C> <C> <C>
Balancing accounts $163 $163 $ 209
Fuel 196 270 223
General purpose 398 252 61
---- ---- -----
Total 757 685 493
Amount reclassified as long-term (69) (70) (41)
Unamortized discount (2) (2) (2)
---- ---- -----
Total $686 $613 $ 450
==== ==== =====
</TABLE>
Due to these instruments' short maturities, reported amounts approximate
fair value.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Effective June 1, 1993, Edison split its common stock two-for-one, and
changed the nominal value of the stock from $4-1/6 par to no par; prior
periods have not been restated.
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>
March 31, 1994
------------------
Shares Redemption March 31, December 31, March 31,
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 $ --
6.45 1,000,000 100.00 100 100 100
7.23 1,000,000 100.00 100 100 100
7.325 -- -- 42
7.80 -- -- 41
---- ---- ----
275 275 283
Preferred stock to be redeemed within one year -- -- (5)
---- ---- ----
Total $275 $275 $278
==== ==== ====
Fair value of preferred stock subject to
mandatory redemption $274 $291 $293
==== ==== ====
</TABLE>
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There were no preferred stock issuances or redemptions in the first
quarter of 1994 or 1993. The changes in preferred stock for the twelve-
month periods ended March 31 were:
<TABLE>
<CAPTION>
1994 1993
---- ----
(In thousands
of shares)
Series:
<S> <C> <C>
6.05% 750 --
6.45 -- 1,000
7.23 -- 1,000
7.325 (427) (30)
7.80 (412) (18)
8.54 -- (547)
8.70A -- (394)
12.31 -- (277)
------ ------
Net issuances (redemptions) (89) 734
====== ======
</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>
March 31, December 31, March 31,
1994 1993 1993
------------- ------------- -------------
(In millions)
Deferred tax assets:
<S> <C> <C> <C>
Depreciation $ 476 $ 240 $ 98
Investment tax credits 266 310 298
Regulatory balancing accounts 147 171 91
Other. 348 536 608
------ ------ ------
Total $1,237 $1,257 $1,095
====== ====== ======
Deferred tax liabilities:
Property-related $3,890 $4,030 $3,422
Other 579 640 460
------ ------ ------
Total $4,469 $4,670 $3,882
====== ====== ======
Accumulated deferred income taxes--net $3,232 $3,413 $2,787
====== ====== ======
Classification of accumulated deferred income
taxes:
Included in deferred credits $3,403 $3,617 $3,074
Included in current assets 171 204 287
</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 12 Months Ended
March 31, March 31,
---------------- ----------------
1994 1993 1994 1993*
---- ---- ---- ----
(In millions)
Current:
<S> <C> <C> <C> <C>
Federal $ 80 $ 74 $225 $395
State 25 24 84 117
---- ---- ---- ----
105 98 309 512
---- ---- ---- ----
Deferred--federal and state:
Accrued charges (4) (3) (38) (9)
Depreciation 10 13 58 110
Investment and energy tax credits--net (6) (6) (26) (22)
Rate phase-in plan (12) (12) (51) (52)
Regulatory balancing accounts (2) (11) 126 (108)
Resale revenue -- -- 27 4
Retirement of debt (2) 1 30 (4)
Other 4 (1) (13) (15)
---- ---- ----- ----
(12) (19) 113 (96)
---- ---- ----- ----
Total income tax expense $ 93 $ 79 $422 $416
==== ==== ==== ====
Classification of income taxes:
Included in operating income $103 $ 87 $522 $490
Included in other income (10) (8) (100) (74)
</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 12 Months Ended
March 31, March 31,
----------------- ----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0% 34.2%
Depreciation and related timing differences not
deferred 4.0 4.1 5.6 2.8
Capitalized software (2.2) (1.9) (1.9) (0.3)
Investment and energy tax credits (2.7) (2.6) (2.4) (2.0)
State tax--net of federal deduction 5.8 4.8 5.7 4.3
Other (0.2) (3.9) (3.6) (0.3)
---- ---- ---- ----
Effective tax rate 39.7% 35.5% 38.4% 38.7%
==== ==== ==== ====
</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. 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.
Net pension cost recognized is calculated under the actuarial method used
for ratemaking. The difference between pension costs calculated for
accounting and ratemaking is deferred.
The plan's funded status was:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1994 1993 1993
---------- ------------- ----------
(In millions)
Actuarial present value of benefit obligation:
<S> <C> <C> <C>
Vested benefits $1,352 $1,340 $1,328
Nonvested benefits 169 164 165
------ ------ ------
Accumulated benefit obligation 1,521 1,504 1,493
Value of projected future compensation levels 569 551 560
------ ------ ------
Projected benefit obligation $2,090 $2,055 $2,053
====== ====== ======
Plan assets at fair value $2,207 $2,196 $2,038
====== ====== ======
Projected benefit obligation in excess of
(less than) plan assets $ (117) $ (141) $ 15
Unrecognized net gain 223 248 90
Unrecognized prior service cost (5) (5) (5)
Unrecognized net obligation being amortized over
17 years (58) (59) (64)
------ ------ ------
Accrued pension liability $ 43 $ 43 $ 36
====== ====== ======
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
The components of pension expense were:
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
-------------- ----------------
1994 1993 1994 1993
---- ---- ---- ----
(In millions)
Net pension expense:
<S> <C> <C> <C> <C>
Service cost for benefits earned $18 $ 18 $ 69 $ 56
Interest cost on projected benefit obligation 37 35 140 127
Actual return on plan assets (12) (110) (200) (235)
Net amortization and deferral (30) 72 49 91
--- ----- ---- -----
Pension expense under accounting standards 13 15 58 39
Regulatory adjustment -- (3) (8) 10
--- ----- ---- -----
Net pension expense recognized $13 $ 12 $ 50 $ 49
=== ===== ==== =====
</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 future 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 12 Months Ended
March 31, March 31,
---------------- ----------------
1994 1993 1994 1993*
---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C>
Service cost for benefits earned $ 7 $ 7 $ 27 $ 32
Interest cost on projected benefit obligation 18 16 67 16
Actual return on plan assets (5) (3) (14) (3)
Amortization of transition obligation 9 9 36 9
---- --- ---- ----
Net expense 29 29 116 54
Amortization of prior funding 2 11 39 53
---- --- ---- ----
Total expense $ 31 $40 $155 $107
==== === ==== ====
</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>
March 31, December 31, March 31,
1994 1993 1993
------------- ------------- -------------
(In millions)
Actuarial present value of benefit obligation:
<S> <C> <C> <C>
Retirees $ 511 $ 512 $ 483
Employees eligible to retire 89 87 78
Other employees 371 358 295
----- ----- -----
Accumulated benefit obligation $ 971 $ 957 $ 856
===== ===== =====
Plan assets at fair value $ 233 $ 210 $ 119
===== ===== =====
Accumulated benefit obligation in excess of
plan assets $ 738 $ 747 $ 737
Unrecognized transition obligation (679) (688) (715)
Unrecognized net loss (59) (59) --
----- ----- -----
Recorded liability $ -- $ -- $ 22
===== ===== =====
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 March 31, 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
and $21 million for the three and twelve months ended March 31, 1994,
respectively, and $5 million and $20 million for the three and twelve
months ended March 31, 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. The
proportionate 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 March 31, 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 5 449 222 7 48
Mohave Coal Generating Station 278 140 9 56
Pacific Intertie Transmission System 213 61 1 50
Palo Verde Nuclear Generating Station 1,543 289 28 16
San Onofre Nuclear Generating Station 4,086 1,303 57 75
------ ------ ----
Total $6,597 $2,026 $103
====== ====== ====
</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 March 31,
1994, were:
<TABLE>
<CAPTION>
Year ended December 31, (In millions)
<S> <C>
1994 $18
1995 20
1996 16
1997 12
1998 9
Thereafter 15
---
Total $90
===
</TABLE>
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. 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). These 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 $1,205 $1,171 $1,030 $1,057 $1,354
Fuel supply contracts 270 220 197 172 173
Purchased power capacity payments 658 666 676 680 682
Unconditional purchase obligations 9 9 9 9 9
</TABLE>
Note 10. Contingencies
Conservation Expenditures Tax Issue
The Internal Revenue Service (IRS) has challenged how gas and electric
utilities deduct energy conservation expenditures. It has taken the
position that 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. Federal legislation has
been introduced, which, if adopted, will clarify that DSM expenditures
currently are deductible under existing tax code provisions. Edison
believes the IRS' position is contrary to the nation's energy and
environmental policy goals and will continue to take steps 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 that would
result 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.
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.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Edison has identified 42 sites for which it is, or may be, responsible for
remediation under environmental laws. Edison is participating in
investigations and cleanups at a number of these sites and has recorded
a $60 million liability for its estimated minimum costs to clean up
several sites. Additional costs may be incurred 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 certain environmental cleanup costs. 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. Accordingly, Edison has recorded a regulatory asset
representing 90% of the estimated minimum costs to remediate sites covered
by this mechanism. Edison believes the remaining sites' cleanup costs
will not materially affect its results of operations or financial
position.
Nuclear Insurance
Federal law limits public liability claims from a nuclear incident to $9.3
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. Insurance for San Onofre Unit 1 remains
in effect pending Nuclear Regulatory Commission approval to discontinue
the coverage. 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 $218 million per
nuclear incident. However, it would have to pay no more than $28 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.
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.
<PAGE>
<PAGE>
Palo Verde Nuclear Generating Station
After a March 1993 steam tube rupture occurred at one of the three Palo
Verde units, an investigation 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 in order to prevent
further tube degradation until investigations are completed. In April
1994, some cracking was found at a second unit. APS expects inspections
to be completed on this unit by June 1994. At that time, the unit is
expected to be restarted at 86% power; however, all three units may be
removed from service for mid-cycle inspections in late 1994. APS is
considering several remedial actions that would allow the units to be
operated at lower temperatures without appreciably reducing their power
output. APS cannot currently predict when one or more of the units will
be returned to full power.
<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 and twelve
months ended March 31, 1994, were $131 million and $635 million,
respectively, compared with $133 million and $618 million for the same
periods in 1993. The lower earnings in the first quarter of 1994 reflect
a lower authorized return on common equity. Excluding a $24 million
after-tax charge for settlement of litigation with Tucson Electric Power
Company in September 1992, earnings for the twelve months ended March 31,
1994, decreased $7 million from the year-earlier period. This decrease
reflects the lower authorized return on common equity, partially offset
by the net effect of lower interest rates.
Operating Revenue
Operating revenue decreased for the three months ended March 31, 1994, as
compared to the year-earlier period, primarily due to a 3% decrease in
sales volume partially offset by a 1% increase in average rates. For the
twelve months ended March 31, 1994, compared to the same period in 1993,
operating revenue decreased 5%, mainly due to a 4% decrease in sales
volume. Retail rates which result in over 98% of electric revenue, are
regulated by the California Public Utilities Commission (CPUC). Wholesale
rates are regulated by the Federal Energy Regulatory Commission.
Operating Expenses
Fuel expense decreased 9% and 11%, respectively, for the three and twelve
months ended March 31, 1994, compared with the same periods last year,
primarily due to decreased power generation. The quarterly decrease also
reflects lower average fuel costs.
Purchased-power expense increased, due to a greater volume of federally
required purchases from nonutility generators. These purchases were made
under contracts with CPUC-mandated pricing, which generally exceed 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 quarter and
twelve-months ended decreases were mostly due to authorized estimates
exceeding actual kilowatt-hour sales. The twelve-months ended decrease
also reflects energy costs exceeding CPUC-authorized estimates.
Income tax expense increased, mainly due to the benefit in 1993 from
implementing a new accounting standard for income taxes.
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 placing
newly constructed plants in service by gradually implementing rate
increases. Palo Verde's plan deferred $200 million of revenue for each
<PAGE>
<PAGE>
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.
Excluding the $40 million settlement ($24 million after-tax) with Tucson
Electric in September 1992, other nonoperating income decreased 11% for
the twelve months ended March 31, 1994, compared to the same period in
1993. The decrease is mainly due to lower interest rates and lower
balances in the Palo Verde phase-in plan and balancing accounts.
Interest Expense
Interest on long-term debt decreased, primarily due to an overall decrease
in interest rates.
Other interest expense increased 41% for the quarter ended March 31, 1994,
as compared to the same period in 1993, mainly due to regulatory balancing
account adjustments made in the first quarter of 1993 to reflect a CPUC-
approved purchased-power settlement. For the twelve months ended March
31, 1994, compared to the year-earlier period, other interest expense
decreased 26%, primarily as the result of monthly interest adjustments in
1992 related to the previously mentioned purchased-power settlement.
FINANCIAL CONDITION
Edison's liquidity is primarily affected by debt maturities, dividend
payments and construction expenditures. Recent CPUC decisions (see
Regulatory Matters) may affect Edison's ability to raise or retain current
dividend levels paid to SCEcorp. Capital resources include cash from
operations and external financings.
Cash Flows from Operating Activities
Net cash provided by operating activities totaled $594 million and $1.6
billion for the three- and twelve-month periods ended March 31, 1994,
respectively, compared with $670 million and $2.1 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
March 31, 1994, Edison could issue approximately $6.1 billion of
additional first and refunding mortgage bonds and $3.9 billion of
preferred stock at current interest and dividend rates.
Edison has lines of credit of $700 million for short-term debt and $500
million for the long-term refinancing of Edison's 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
<PAGE>
<PAGE>
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), using a 7.7% escalation rate and an earnings assumption on trust
funds ranging from 5.25% to 6.0%. These amounts are expected to be funded
from independent decommissioning trusts (see Notes to Consolidated
Financial Statement). 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 $1,205 $1,171 $1,030 $1,057 $1,354
Maturities of long-term debt 1 201 1 501 447
------ ------ ------ ------ ------
Total $1,206 $1,372 $1,031 $1,558 $1,801
====== ====== ====== ====== ======
</TABLE>
REGULATORY MATTERS
The CPUC increased Edison's authorized revenue by $232 million, or 3.2%,
for 1994. 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. On March
9, 1994, a 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 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 mid-1994.
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 1995-2000 (see Competitive
Environment). On March 14, 1994, as a 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,
<PAGE>
<PAGE>
or that an alternative formula of offering 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. Hearings on both matters are currently being conducted.
A CPUC decision is expected in late 1994.
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 in its 1995 general
rate case filing a performance-based rate-making mechanism. 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 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 for "direct access" to a range
of generation providers, including utilities, beginning in 1996. As
proposed, eligibility would expand gradually, until all customers have
the option for direct access to this competitive generation market
beginning in 2002. Edison would continue to provide transmission and
distribution service 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 states 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. A
hearing on the proposal is currently scheduled for June 1994. The CPUC
anticipates issuing a policy statement in August 1994 and initiating a
formal investigation on direct-access pricing in September 1994. Edison
is currently analyzing the CPUC's proposal; however, until the CPUC
establishes more detailed valuation and pricing criteria for its direct-
access proposal, Edison cannot predict the effect of the proposal on its
results of operations or financial position.
In the event that recovery of costs through rates becomes unlikely or
uncertain, whether due to competition or regulatory action, Edison's
accounting policies applicable to its rate-regulated electric utility
operations may no longer apply to all of such operations. The financial
effects of discontinuing application of these policies could be
significant.
ENVIRONMENTAL PROTECTION
Costs to protect the environment continue to grow due to increasingly
stringent laws and regulations.
Edison has identified 42 sites for which it is, or may be, responsible for
remediation under environmental laws. Edison is participating in
investigations and cleanups at a number of these sites and has recorded
a $60 million liability for its estimated minimum costs to clean up
several sites. Additional costs may be incurred 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,
<PAGE>
<PAGE>
1994, the CPUC approved an incentive mechanism for rate recovery of
certain environmental cleanup costs. 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. Accordingly, Edison has recorded a regulatory asset
representing 90% of the estimated minimum costs to remediate sites covered
by this mechanism.
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. Local regulations may lower Edison's
projected capital expenditures (up to $330 million by 1998) to reduce
nitrogen-oxides emissions.
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 it will not materially
affect its financial position.
NEW ACCOUNTING STANDARDS
On January 1, 1994, Edison adopted a new accounting standard which
requires the accrual of certain postemployment benefits provided to former
or inactive employees, prior to retirement. 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. Also, on January 1, 1994, Edison adopted a new accounting standard
which requires that certain debt and equity investments be reported at
fair value. Accordingly, nuclear decommissioning trusts are now reported
at market value. Adoption of these new standards did not have a material
effect on results of operations or financial position.
CONTINGENCIES
The Internal Revenue Service (IRS) has challenged how gas and electric
utilities deduct energy conservation expenditures. It has taken the
position that 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,
<PAGE>
<PAGE>
are deductible in the year incurred or accrued. Federal legislation has
been introduced, which, if adopted, will clarify that DSM expenditures
currently are deductible under existing tax code provisions. Edison
believes the IRS' position is contrary to the nation's energy and
environmental policy goals and will continue to take steps to vigorously
defend its position. The probable effect on net income of the outcome of
this matter cannot be determined at this time.
After a March 1993 steam tube rupture occurred at one of the three Palo
Verde Nuclear Generating Station units, an investigation 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 in order to prevent further tube degradation until investigations are
completed. In April 1994, some cracking was found at a second unit. APS
expects inspections to be completed on this unit by June 1994. At that
time, the unit is expected to be restarted at 86% power; however, all
three units may be removed from service for mid-cycle inspections in late
1994. APS is considering several remedial actions that would allow the
units to be operated at lower temperatures without appreciably reducing
their power output. APS cannot currently predict when one or more of the
units will be returned to full power.
<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. 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 conservation and demand 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 plaintiffs the opportunity to replead. Transphase appealed to the
Ninth Circuit Court of Appeals and oral argument was heard on May 3, 1994.
Edison expects a decision in August 1994.
This matter was previously reported under the heading "Antitrust Matters"
in Part 1, Item 3, of Edison's Annual Report on Form 10-K for the year
ended December 31, 1993.
Environmental Litigation
On March 14, 1994, five individuals filed a complaint against Edison and
certain other defendants in Orange County Superior Court. Plaintiffs
allege, among other things, that certain of the plaintiffs developed
cancer as a result of electric magnetic fields emitted from Edison
facilities. Plaintiffs request compensatory and punitive damages,
although no specific damage amounts are alleged in the complaint. Edison
has not yet been served with a copy of the complaint, but believes that
the allegations are without merit. Edison intends to vigorously defend
itself, if served.
Item 4. Submission of Matters to a Vote of Security Holders
Election of Directors
At Edison's Annual Meeting of Shareholders on April 21, 1994, shareholders
elected seventeen nominees to the Board of Directors. The number of
broker non-votes for each nominee was zero. The number of votes cast for
and withheld from each Director-nominee were as follows:
<TABLE>
<CAPTION>
Name Number of Votes
---- ----------------------------------
For Withheld
----------- ----------
<S> <C> <C>
Howard P. Allen 496,633,120 618,544
Norman Barker, Jr. 496,615,988 635,676
John E. Bryson 496,636,042 615,622
Camilla C. Frost 496,608,554 643,110
Walter B. Gerken 496,612,522 639,142
Joan C. Hanley 496,642,396 609,268
Carl F. Huntsinger 496,632,522 619,142
Charles D. Miller 496,100,704 1,150,960
Luis G. Nogales 496,574,912 676,752
J. J. Pinola 496,614,414 637,250
James M. Rosser 496,621,172 630,492
Henry T. Segerstrom 496,613,132 638,532
E. L. Shannon, Jr. 496,640,904 610,760
Robert H. Smith 496,650,792 600,872
Daniel M. Tellep 496,639,224 612,440
James D. Watkins 496,573,928 677,736
Edward Zapanta 496,613,766 637,898
</TABLE>
<PAGE>
<PAGE>
Item 5. Other Information
Construction Program and Capital Expenditures
Construction expenditures for the 1994-1998 period are estimated (as of
April 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 $ 352 $ 326 $ 269 $ 266 $ 499 $1,712
Electric transmission lines and substations 184 133 157 176 254 904
Electric distribution lines and substations 476 548 517 546 552 2,639
Other expenditures 223 208 130 112 92 765
------ ------ ------ ------ ------ ------
Total 1,235 1,215 1,073 1,100 1,397 6,020
Less--Allowance for funds used during construction 30 44 43 43 43 203
------ ------ ------ ------ ------ ------
Funds required for construction expenditures $1,205 $1,171 $1,030 $1,057 $1,354 $5,817
====== ====== ====== ====== ====== ======
</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
May 11, 1994
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Number Numbered
Exhibit Page
- - ------- ------------
<S> <C>
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 March 31, 1994 of Southern California Edison
Company in the previously filed Registration Statements which follow:
<TABLE>
<CAPTION>
Registration Form File No. Effective Date
----------------- -------- --------------
<S> <C> <C>
Form S-3 33-53288 November 6, 1992
Form S-3 33-53290 November 6, 1992
Form S-3 33-50251 September 21, 1993
</TABLE>
ARTHUR ANDERSEN & CO.
ARTHUR ANDERSEN & CO.
Los Angeles, California
May 11, 1994
