<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 March 31, 1995
---------------------------------------
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 5, 1995
- - - - -------------------------- --------------------------
Common Stock, no par value 434,888,104
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
INDEX
Page
No.
----
Part I. Financial Information:
Item 1. Consolidated Financial Statements:
Report of Independent Public Accountants 2
Consolidated Statements of Income--Three and Twelve
Months Ended March 31, 1995, and 1994 3
Consolidated Balance Sheets--March 31, 1995,
December 31, 1994, and March 31, 1994 4
Consolidated Statements of Cash Flows--
Three and Twelve Months Ended
March 31, 1995, and 1994 6
Consolidated Statements of Retained Earnings--
Three and Twelve Months Ended
March 31, 1995, and 1994 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 32
Item 4. Submission of Matters to a Vote of Security Holders 35
Item 6. Exhibits and Reports on Form 8-K 35
<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, 1995, December 31, 1994, and March 31, 1994,
and the related consolidated statements of income, retained earnings and
cash flows for each of the three- and twelve-month periods ended March 31,
1995, and 1994. 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, 1995, December 31, 1994, March 31, 1994, and
the results of their operations and their cash flows for each of the
three- and twelve-month periods ended March 31, 1995, and 1994, in
conformity with generally accepted accounting principles.
As discussed in Note 2, the California Public Utilities Commission has
issued a proposal for restructuring the California electric utility
industry. If restructuring occurs, it is uncertain if certain costs and
obligations incurred to serve customers under the existing regulatory
framework will continue to be recovered. Edison has proposed recovery of
these costs through a competition transition charge mechanism. It is also
uncertain whether Edison will continue to meet the criteria for applying
Statement of Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation" to all of its operations if a new
regulatory framework is adopted. Edison is unable to predict the outcome
of restructuring and the accompanying financial statements do not include
adjustments related to the potential effects of restructuring.
As discussed in Notes 5 and 6 to 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 LLP
Los Angeles, California
May 5, 1995
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME
In thousands
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
------------------------------- ------------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenue $1,721,782 $1,676,681 $7,843,702 $7,372,310
---------- ---------- ---------- ----------
Fuel 146,973 186,229 801,351 772,543
Purchased power 487,092 489,515 2,560,467 2,527,087
Provisions for regulatory
adjustment clauses--net 28,761 (8,906) 92,440 (318,038)
Other operating expenses 283,310 293,117 1,305,443 1,266,708
Maintenance 97,490 83,761 343,890 354,095
Depreciation and decommissioning 229,952 226,386 894,222 897,350
Income taxes 122,669 103,251 527,044 521,741
Property and other taxes 52,807 52,966 202,552 204,562
---------- ---------- ---------- ----------
Total operating expenses 1,449,054 1,426,319 6,727,409 6,226,048
---------- ---------- ---------- ----------
Operating income 272,728 250,362 1,116,293 1,146,262
---------- ---------- ---------- ----------
Provision for rate phase-in plan (29,775) (32,646) (133,725) (136,596)
Allowance for equity funds
used during construction 5,524 3,924 15,948 19,170
Interest income 8,207 6,243 33,046 25,038
Other nonoperating income--net 3,886 18,033 50,454 48,737
---------- ---------- ---------- ----------
Total other income (deductions)--net (12,158) (4,446) (34,277) (43,651)
---------- ---------- ---------- ----------
Income before interest expense 260,570 245,916 1,082,016 1,102,611
---------- ---------- ---------- ----------
Interest on long-term debt 95,462 95,123 382,167 389,262
Other interest expense 21,128 13,956 68,819 55,142
Allowance for borrowed funds
used during construction (4,195) (4,090) (14,545) (16,254)
Capitalized interest (514) (47) (721) (907)
---------- ---------- ---------- ----------
Total interest expense--net 111,881 104,942 435,720 427,243
---------- ---------- ---------- ----------
Net income 148,689 140,974 646,296 675,368
Dividends on preferred stock 10,020 10,020 40,080 40,272
---------- ---------- ---------- ----------
Earnings available for common stock $ 138,669 $ 130,954 $ 606,216 $ 635,096
========== ========== ========== ==========
</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,
1995 1994 1994
------------- ----------- -------------
ASSETS
<S> <C> <C> <C>
Utility plant, at original cost $19,238,151 $19,121,964 $18,602,311
Less--accumulated provision for depreciation
and decommissioning 7,932,747 7,710,227 7,321,831
----------- ----------- -----------
11,305,404 11,411,737 11,280,480
Construction work in progress 924,521 906,766 894,403
Nuclear fuel, at amortized cost 120,600 98,044 136,791
----------- ----------- -----------
Total utility plant 12,350,525 12,416,547 12,311,674
----------- ----------- -----------
Nonutility property--less accumulated provision
for depreciation of $30,678, $30,593 and $31,796
at respective dates 79,577 77,338 70,663
Nuclear decommissioning trusts 1,004,218 919,351 839,133
Other investments 49,498 39,584 21,103
----------- ----------- -----------
Total other property and investments 1,133,293 1,036,273 930,899
----------- ----------- -----------
Cash and equivalents 173,455 192,092 233,629
Receivables, including unbilled revenue, less
allowances of $23,454, $23,806 and $17,602 for
uncollectible accounts at respective dates 802,148 902,090 780,574
Fuel inventory 113,634 116,929 120,789
Materials and supplies, at average cost 169,818 129,109 107,468
Accumulated deferred income taxes--net 226,742 271,308 171,196
Prepayments and other current assets 57,406 98,778 54,877
----------- ----------- -----------
Total current assets 1,543,203 1,710,306 1,468,533
----------- ----------- -----------
Unamortized debt issuance and reacquisition
expense 350,682 356,557 377,149
Rate phase-in plan 214,475 240,730 334,480
Unamortized nuclear plant--net 145,556 171,071 248,305
Income tax-related deferred charges 1,823,242 1,816,414 1,845,357
Other deferred charges 353,109 327,613 349,343
----------- ----------- -----------
Total deferred charges 2,887,064 2,912,385 3,154,634
----------- ----------- -----------
Total assets $17,914,085 $18,075,511 $17,865,740
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
In thousands, except share amounts
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1995 1994 1994
----------- ------------ -----------
CAPITALIZATION AND LIABILITIES
Common shareholder's equity:
Common stock (434,888,104 shares outstanding
<S> <C> <C> <C>
at each date) $ 2,168,054 $ 2,168,054 $ 2,168,054
Additional paid-in capital 177,351 177,351 177,363
Retained earnings 2,685,417 2,683,568 2,558,871
----------- ----------- -----------
5,030,822 5,028,973 4,904,288
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 5,110,896 4,987,978 5,015,828
----------- ----------- -----------
Total capitalization 10,775,473 10,650,706 10,553,871
----------- ----------- -----------
Other long-term liabilities 334,855 311,063 302,412
----------- ----------- -----------
Current portion of long-term debt 1,275 201,275 201,200
Short-term debt 461,543 675,514 685,872
Accounts payable 289,386 317,082 313,676
Accrued taxes 605,196 514,441 507,439
Accrued interest 115,619 87,733 110,989
Dividends payable 140,673 115,803 162,822
Regulatory balancing accounts--net 98,683 55,710 38,824
Deferred unbilled revenue and other current liabilities 767,111 779,257 624,043
----------- ----------- -----------
Total current liabilities 2,479,486 2,746,815 2,644,865
----------- ----------- -----------
Accumulated deferred income taxes--net 3,347,793 3,386,775 3,403,039
Accumulated deferred investment tax credits 395,003 399,662 414,947
Customer advances and other deferred credits 581,475 580,490 546,606
----------- ----------- -----------
Total deferred credits 4,324,271 4,366,927 4,364,592
----------- ----------- -----------
Commitments and contingencies
(Notes 2, 8, 9 and 10)
Total capitalization and liabilities $17,914,085 $18,075,511 $17,865,740
=========== =========== ===========
</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,
----------------------------- -----------------------------
1995 1994 1995 1994
---------- --------- ---------- ----------
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income $ 148,689 $ 140,974 $ 646,296 $ 675,368
Adjustments for non-cash items:
Depreciation and
decommissioning 229,952 226,386 894,222 897,350
Amortization 12,061 27,684 110,508 98,381
Rate phase-in plan 26,255 29,729 120,005 123,768
Deferred income taxes and
investment tax credits (5,578) (11,927) (95,834) 113,256
Other long-term liabilities 23,792 35,817 32,443 75,608
Other--net (40,599) (25,348) (50,618) (58,265)
Changes in working capital components:
Receivables 99,942 57,205 (21,574) 24,820
Regulatory balancing accounts 42,973 (19,108) 59,859 (74,138)
Fuel inventory, materials
and supplies (37,414) (3,306) (55,195) (2,075)
Prepayments and other
current assets 41,372 42,641 (2,529) 66,016
Accrued interest and taxes 118,641 129,742 102,387 (165,609)
Accounts payable and other
current liabilities (39,842) (51,978) 118,778 (187,754)
--------- --------- ---------- -----------
Net cash provided by
operating activities 620,244 578,511 1,858,748 1,586,726
--------- --------- ---------- -----------
Cash flows from financing activities:
Long-term debt issued 99,416 (349) 100,729 1,320,086
Preferred stock issued -- -- -- 74,598
Long-term debt repayments (200,000) (169,001) (201,223) (1,275,553)
Preferred stock redemptions -- -- -- (86,392)
Nuclear fuel financing--net 22,010 (1,457) (7,977) 27,589
Short-term debt financing--net (213,971) 72,778 (224,329) 235,694
Dividends paid (121,970) (168,989) (541,898) (524,641)
--------- --------- ----------- -----------
Net cash used by
financing activities (414,515) (267,018) (874,698) (228,619)
--------- --------- ----------- -----------
Cash flows from investing activities:
Additions to property and plant (195,689) (245,553) (916,170) (1,100,673)
Funding of nuclear decommissioning
trusts (24,157) (34,698) (119,614) (139,048)
Other--net (4,520) (2,532) (8,440) (12,302)
--------- --------- ----------- -----------
Net cash used by
investing activities (224,366) (282,783) (1,044,224) (1,252,023)
--------- --------- ----------- -----------
Net increase (decrease) in cash
and equivalents (18,637) 28,710 (60,174) 106,084
Cash and equivalents, beginning
of period 192,092 204,919 233,629 127,545
--------- --------- ----------- -----------
Cash and equivalents, end of period $ 173,455 $ 233,629 $ 173,455 $ 233,629
========= ========= =========== ===========
Cash payments for interest and taxes:
Interest $ 72,288 $ 71,340 $ 366,074 $ 351,463
Taxes 29,330 (79,755) 552,887 374,527
</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,
------------------------------- ------------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at beginning of period $2,683,568 $2,586,890 $2,558,871 $2,562,127
Net income 148,689 140,974 646,296 675,368
Dividends declared on common stock (136,820) (158,973) (479,670) (635,848)
Dividends declared on preferred
stock (10,020) (10,020) (40,080) (40,272)
Reacquired capital stock expense -- -- -- (2,504)
---------- ---------- ---------- ----------
Balance at end of period $2,685,417 $2,558,871 $2,685,417 $2,558,871
========== ========== ========== ==========
</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
Southern California Edison Company's outstanding common stock is owned
entirely by SCEcorp. Edison is a public utility which produces and
supplies electric energy in Central and Southern California. The
consolidated financial statements include Edison and its subsidiaries.
Intercompany transactions have been eliminated.
Edison's accounting policies conform with generally accepted accounting
principles for regulated enterprises and reflect the rate-making policies
of the California Public Utilities Commission (CPUC) and the Federal
Energy Regulatory Commission (FERC).
Certain prior-period amounts have been reclassified to conform to the
March 31, 1995, financial statement presentation.
Debt Issuance and Reacquisition Expense
Debt premium, discount and issuance expenses are amortized over the life
of each issue. Under CPUC rate-making procedures, debt reacquisition
expenses are amortized over the remaining life of the reacquired debt or,
if refinanced, the life of the new debt.
Fuel Inventory
Fuel inventory is valued 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 ($160 million at March
31, 1995, $132 million at December 31, 1994, and $161 million at March 31,
1994), and time deposits and other investments ($6 million at March 31,
1995, $53 million at December 31, 1994, and $64 million at March 31, 1994)
with maturities of three months or less.
Unrealized gains and losses on equity investments are recorded as a
regulatory liability. Unrealized gains and losses on decommissioning
trust funds are recorded in the accumulated provision for decommissioning.
All investments are classified as available-for-sale.
Nuclear
A CPUC-authorized rate phase-in plan deferred the collection of $200
million in revenue for each unit at Palo Verde Nuclear Generating Station
during the first four years of operation. The deferred revenue (including
interest) is being collected evenly over the final six years of each
unit's plan. The plans end in 1996 for Units 1 and 2, and in 1998 for
Unit 3.
The cost of nuclear fuel, including disposal, is amortized to fuel expense
on the basis of generation. Under CPUC rate-making procedures, nuclear-
fuel financing costs are capitalized until the fuel is placed into
production.
Decommissioning costs are accrued and recovered in rates over the term of
each nuclear facility's operating license through charges to depreciation
expense (see Note 9).
Under the Energy Policy Act of 1992, Edison is liable for its share of the
estimated costs to decommission three federal nuclear enrichment
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
facilities (based on purchases). These costs, which will be paid over 15
years, are recorded as a fuel cost and recovered through customer rates.
Edison discontinued operation of San Onofre Nuclear Generating Station
Unit 1 in 1992. Edison will recover its remaining investment, earning an
8.98% rate of return, by August 1996.
In October 1994, the CPUC authorized accelerated recovery of Edison's
nuclear plant investments by $75 million per year through 2011, with a
corresponding deceleration in recovery of its transmission and
distribution assets through revised depreciation estimates over their
remaining useful lives.
Regulatory Balancing Accounts
The differences between CPUC-authorized and actual base-rate revenue from
kilowatt-hour sales and CPUC-authorized and actual 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)
Edison capitalizes RD&D costs that are expected to result in plant
construction. If construction does not result, these costs are charged
to expense. RD&D expenses are recorded in a balancing account, and at the
end of the rate-case cycle, any authorized but unspent RD&D funds are
refunded to customers. RD&D expenses were $6 million and $57 million for
the three and twelve months ended March 31, 1995, respectively, and $13
million and $54 million for the three and twelve months ended March 31,
1994, respectively.
Revenue
Operating revenue includes amounts for services rendered but unbilled at
the end of each year.
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 that finance utility-plant
construction. AFUDC is capitalized during plant construction and reported
in current earnings. AFUDC is recovered in rates through depreciation
expense over the useful life of the related asset. Depreciation of
utility plant is computed on a straight-line, remaining-life basis.
Replaced or retired property and removal costs less salvage are charged
to the accumulated provision for depreciation.
Note 2. Regulatory Matters
1995 General Rate Case Proposed Settlement Agreement
In 1994, Edison and the CPUC's Division of Ratepayer Advocates (DRA) filed
a settlement agreement related to the 1995 general rate case. The
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
settlement, which requires CPUC approval, includes a $67 million reduction
in 1995 non-fuel revenue and, beginning February 1, 1996, accelerated
recovery (by 2003, instead of 2012) of Edison's remaining investment in
San Onofre Units 2 and 3, with an incentive pricing plan for future
operating costs.
Edison's unrecovered investment in Units 2 and 3 (approximately $2.7
billion) would be collected over an eight-year period earning a reduced
rate of return of 7.78%, compared to the current 9.8%. Under the
incentive pricing plan, which would replace traditional regulation and
rate recovery, Edison will receive approximately 4 cents per kilowatt-
hour to cover its portion of San Onofre's ongoing operating and
incremental capital expenditures during the eight-year period. At the end
of this period, customers would bear no further obligation for the units,
except certain costs associated with decommissioning and permanent
closure. Edison would then sell power generated by San Onofre under
prices, terms and conditions which conform to any then-existing regulatory
procedures.
On April 26, 1995, the DRA filed supplemental testimony recommending a
0.25-cent-per-kilowatt-hour decrease to the incentive prices originally
agreed to in the proposed settlement. The DRA claims the decrease is
based on "new information" obtained after the settlement was negotiated,
but prior to hearings. Edison has filed rebuttal testimony showing that
the information the DRA is citing is not new and is requesting that the
CPUC adopt the original settlement. Hearings are scheduled to begin on
May 15, 1995.
The $67 million revenue reduction has been included in 1995 rates. This
reduction may change depending on the CPUC's final decision expected in
late 1995.
Electric Utility Industry Restructuring Proposals
During 1994, the CPUC issued a proposal and held several hearings 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,
including residential, have the option for direct access to this
competitive generation market by 2002. Edison would continue to provide
transmission and distribution service to all customers in its service
territory and performance-based regulation would replace existing
regulation for such services. The proposal also stated that utilities
should be entitled to recover the portion of their generation investments
rendered uneconomic in the new direct access environment. Edison's
response to the CPUC's proposal recommended the creation of a regional
competitive market with an independent power pool that would act as an
intermediary between all power consumers and suppliers and urged that the
CPUC provide that costs previously incurred to serve the state's
electricity needs under current regulatory rules be recovered fairly from
all customers. In anticipation of obstacles in implementing the CPUC's
proposal due to regulatory, legislative and jurisdictional issues, Edison
also recommended the adoption of performance-based ratemaking for its
generation operations until direct access phase-in begins.
During the CPUC hearings, Edison stressed that its competitive power
market proposal would provide all electric customers with the benefits of
a competitive marketplace, reliability and operating efficiency and
proposed a schedule for implementing Edison's competitive market plan with
customer choice beginning in 1998. Subsequent to the CPUC proposal, the
state legislature passed a resolution requesting the CPUC to withhold
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
implementation of any restructuring plan until its impact can be evaluated
by the legislature and governor. The CPUC issued an interim report to
the state legislature on January 24, 1995, describing the positions of the
parties and CPUC activities to date. The CPUC has postponed the issuance
date for its proposed policy statement from March 22, 1995, to May 24,
1995.
Edison filed a proposal with the CPUC recommending implementation of a
competition transition charge mechanism beginning in 1998, for full
recovery of utility investments and obligations incurred to serve
customers under the existing regulatory framework. In its filing, Edison
estimates its potential transition costs through 2025 to be approximately
$9.3 billion (net present value), based on an assumed 1998 market price
of 4 cents per kilowatt-hour. The potential transition costs are
comprised of: $4.9 billion from qualifying facility contracts, which are
the direct result of legislative and regulatory mandates; $600 million
from costs pertaining to certain generating plants; and $3.8 billion from
regulatory commitments to be recovered in the future. Such commitments
include deferred taxes, postretirement benefit transition costs,
accelerated recovery of nuclear plants, nuclear decommissioning and
certain other costs. At March 31, 1995, these commitments included
recorded regulatory assets of approximately $1 billion.
Edison currently applies accounting standards that recognize the economic
effects of rate regulation. If rate recovery of generation-related costs
becomes unlikely or uncertain, whether due to competition or regulatory
action, these accounting standards may no longer apply to Edison's
generation operations and the $1 billion would be a non-cash charge
against earnings. Additionally, Edison may have write-offs associated
with its potential transition costs if these costs are not recovered
through a competition transition charge or other mechanism. Until the
CPUC establishes more definitive valuation and pricing criteria for its
restructuring proposal, including a recovery mechanism for the transition
charges, Edison cannot predict the effect of the proposal on its results
of operations.
A new accounting standard, effective January 1996, requires impairment
losses on long-lived assets to be recognized when an asset's book value
exceeds its expected future cash flows (undiscounted). The current
standard bases impairment losses on the probability of recovery of an
asset's book value. The new standard also imposes stricter criteria for
retention of regulatory-created assets. Due to the regulatory
uncertainties mentioned above, Edison cannot predict the effect of the new
accounting standard on its generation-related assets; however, the timing
of potential impairment losses for regulatory-created assets may be
affected.
In March 1995, the FERC proposed rules which would require utilities to
provide wholesale open access to the nation's interstate transmission
grid, while allowing them to recover stranded costs associated with open
transmission access. To help insure that wholesale open access promotes
competition, the FERC proposed development of industry-wide real-time
information networks that would require utilities to provide simultaneous
information to all parties trading wholesale electric power. The proposal
defines stranded costs as legitimate, prudent and verifiable costs
incurred by a utility to provide service to customers that would
subsequently become unbundled wholesale transmission service customers of
the utility. Edison is currently analyzing the FERC proposal and expects
to file comments in August 1995.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Mohave Generating Station
A 1994 CPUC decision stated that Edison was liable for expenditures
related to a 1985 accident at the Mohave Generating Station. The CPUC
ordered a second phase of this proceeding to quantify the disallowance.
Edison believes that the final outcome of this matter will not materially
affect its results of operations.
Note 3. Financial Instruments
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.
Commercial paper intended to be refinanced for a period exceeding one year
and used to finance 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 March 31, 1995, are: 1996--$1 million;
1997--$201 million; 1998--$426 million; 1999--$322 million; and 2000--
$480 million.
Long-term debt consisted of:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1995 1994 1994
---------- ------------ ---------
(In millions)
First and refunding mortgage bonds:
<S> <C> <C> <C>
1995--1999 (5.45% to 7.5%) $ 800 $1,000 $1,000
2000--2004 (5.625% to 6.75%) 675 675 675
2017--2026 (6.9% to 9.25%) 1,850 1,850 1,850
Pollution-control bonds:
1999--2027 (5.4% to 7.2% and variable) 1,207 1,206 1,208
Funds held by trustees (2) (2) (2)
Debentures and notes:
1998--2003 (5.6% to 8.25%) 595 495 495
Commercial paper for nuclear fuel 61 39 69
Long-term debt due within one year (1) (201) (201)
Unamortized debt discount--net (74) (74) (78)
------ ------ ------
Total $5,111 $4,988 $5,016
====== ====== ======
</TABLE>
Short-Term Debt
Edison has lines of credit it can use at negotiated or bank index rates.
At March 31, 1995, 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.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Short-term debt consisted of commercial paper used to finance fuel
inventories, balancing account undercollections and general cash
requirements. Commercial paper outstanding at March 31, 1995, December
31, 1994, and March 31, 1994, was $524 million, $717 million and $757
million (with $61 million, $39 million and $69 million reclassified as
long-term), respectively. Weighted-average interest rates were 6.1%, 4.2%
and 3.3%, at March 31, 1995, December 31, 1994, and March 31, 1994,
respectively.
Other Financial Instruments
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.
Interest rate swaps and caps are used to reduce the potential impact of
interest rate fluctuations on floating rate long-term debt. The debt
related to these agreements is reported on the balance sheets at amortized
cost; the swap and cap agreements are not required to be recorded on the
financial statements. Edison is exposed to credit loss in the event of
nonperformance by counterparties to these agreements, but does not expect
the counterparties to fail to meet their obligations.
For all balance sheet dates presented, Edison had the following derivative
financial instruments:
<TABLE>
<CAPTION>
Category Contract Amount/Terms Purpose
- - - - -------- --------------------- -------
<S> <C> <C>
Interest rate swaps $196 million change interest rate exposure
due 2008 to a fixed rate of 5.585%
Interest rate cap $30 million change interest rate exposure
expires 1997 to a fixed rate of 6%
debt due 2027
</TABLE>
Fair values of financial instruments were:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1995 1994 1994
-------------------- ------------------- -----------------
Cost Fair Cost Fair Cost Fair
Instrument Basis Value Basis Value Basis Value
- - - - ---------- -------- ------ -------- -------- ------- -----
(In millions)
Financial assets:
<S> <C> <C> <C> <C> <C> <C>
Decommissioning trusts $ 943 $ 1,004 $ 920 $ 919 $ 825 $ 839
Equity investments 9 29 9 26 9 27
Financial liabilities:
Interest rate swap & cap
agreements -- 8 -- 1 -- 11
Long-term debt 5,111 5,076 4,988 4,763 5,016 5,094
Nuclear enrichment obligation 62 48 66 45 72 55
Preferred stock subject to
mandatory redemption 275 273 275 257 275 274
</TABLE>
Financial assets are carried at their fair value, which is based on quoted
market prices. Financial liabilities are recorded at cost. Financial
liabilities' fair values were based on: termination costs--interest rate
swap and cap agreements; brokers' quotes--long-term debt and preferred
stock; and discounted future cash flows--nuclear enrichment obligation.
Amounts reported for cash equivalents and short-term debt approximate fair
value, due to the instruments' short maturities.
<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. Edison
split its stock two-for-one, effective June 1, 1993. 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.
At each balance sheet date presented, cumulative preferred stock consisted
of:
<TABLE>
<CAPTION>
Shares Redemption
Outstanding Price
----------- -----------
(Dollars in millions, except per-share amounts)
Not subject to mandatory redemption:
$25 Par value:
<S> <C> <C> <C>
4.08% Series 1,000,000 $ 25.50 $ 25
4.24 1,200,000 25.80 30
4.32 1,653,429 28.75 41
4.78 1,296,769 25.80 33
5.80 2,200,000 25.25 55
7.36 4,000,000 25.00 100
$100 Par value:
7.58% Series 750,000 101.00 75
----
Total $359
====
Subject to mandatory redemption:
$100 Par value:
6.05% Series 750,000 $100.00 $ 75
6.45 1,000,000 100.00 100
7.23 1,000,000 100.00 100
----
Total $275
====
</TABLE>
There were no preferred stock issuances or redemptions for the periods
presented.
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. Financial
statements prior to adoption reflect income taxes accounted for under the
income statement method. The cumulative effect of adoption increased 1993
earnings by $8 million and total assets and liabilities by about $2
billion.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Current and Deferred Taxes
Income tax expense includes the current tax liability from operations and
the change in deferred income taxes during the year. Investment tax
credits are amortized over the lives of the related properties.
The components of the net accumulated deferred income tax liability were:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1995 1994 1994
--------- ------------ ---------
(In millions)
Deferred tax assets:
<S> <C> <C> <C>
Property-related $ 262 $ 260 $ 476
Investment tax credits 235 237 266
Regulatory balancing accounts 94 85 147
Other 537 521 348
------ ------ ------
Total $1,128 $1,103 $1,237
------ ------ ------
Deferred tax liabilities:
Property-related $3,703 $3,706 $3,890
Other 546 513 579
------ ------ ------
Total $4,249 $4,219 $4,469
------ ------ ------
Accumulated deferred income taxes--net $3,121 $3,116 $3,232
====== ====== ======
Classification of accumulated deferred income taxes:
Included in deferred credits $3,348 $3,387 $ 3,403
Included in current assets 227 271 171
</TABLE>
The current and deferred components of income tax expense were:
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
------------------ -------------------
1995 1994 1995 1994
---- ---- ---- ----
(In millions)
Current:
<S> <C> <C> <C> <C>
Federal $ 92 $ 80 $ 444 $ 225
State 23 25 120 84
----- ----- ----- -----
115 105 564 309
----- ----- ----- -----
Deferred--federal and state:
Accrued charges 4 (4) (17) (38)
Depreciation 2 10 38 58
Investment and energy tax credits--net (5) (6) (20) (26)
Rate phase-in plan (11) (12) (49) (51)
Regulatory balancing accounts (21) (2) (27) 126
Resale revenue -- -- 8 27
Retirement of debt (2) (2) (9) 30
State tax--privilege year 34 (2) 22 9
Other (7) 6 (42) (22)
----- ----- ----- -----
(6) (12) (96) 113
----- ----- ----- -----
Total income tax expense $ 109 $ 93 $ 468 $ 422
===== ===== ===== =====
Classification of income taxes:
Included in operating income $ 123 $ 103 $ 527 $ 522
Included in other income (14) (10) (59) (100)
</TABLE>
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The composite federal and state statutory income tax rate was 41.045% for
all periods presented.
The federal statutory income tax rate is reconciled to the effective tax
rate below:
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0% 35.0%
Depreciation and related timing differences not
deferred 2.7 4.0 4.1 5.6
Capitalized software (0.9) (2.2) (1.8) (1.9)
Investment and energy tax credits (1.8) (2.7) (1.8) (2.4)
State tax--net of federal deduction 3.6 5.8 5.2 5.7
Tax rate change 4.0 -- 0.9 (0.6)
Other (0.3) (0.2) 0.4 (3.0)
---- ---- ---- ----
Effective tax rate 42.3% 39.7% 42.0% 38.4%
==== ==== ==== ====
</TABLE>
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.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The plan's funded status was:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1995 1994 1994
---------- ------------- ----------
(In millions)
Actuarial present value of benefit obligation:
<S> <C> <C> <C>
Vested benefits $1,272 $1,260 $1,352
Nonvested benefits 153 147 169
------ ------ ------
Accumulated benefit obligation 1,425 1,407 1,521
Value of projected future compensation levels 466 450 569
------ ------ ------
Projected benefit obligation $1,891 $1,857 $2,090
====== ====== ======
Fair value of plan assets $2,294 $2,194 $2,207
====== ====== ======
Projected benefit obligation less than plan assets $ (403) $ (337) $ (117)
Unrecognized net gain 510 451 223
Unrecognized prior service cost (5) (5) (5)
Unrecognized net obligation (17-year amortization) (53) (54) (58)
------ ------ ------
Pension liability $ 49 $ 55 $ 43
====== ====== ======
Discount rate 8.5% 8.5% 7.25%
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>
Edison recognizes pension expense calculated under the actuarial method
used for ratemaking.
The components of pension expense were:
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
---------------- -----------------
1995 1994 1995 1994
---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C>
Service cost for benefits earned $ 14 $ 18 $ 63 $ 69
Interest cost on projected benefit obligation 39 37 150 140
Actual return on plan assets (84) (12) (101) (200)
Net amortization and deferral 38 (30) (71) 49
---- ----- ---- -----
Pension expense under accounting standards 7 13 41 58
Special termination benefits -- -- 15 --
Regulatory adjustment--deferred 6 -- 7 (8)
---- ----- ---- -----
Net pension expense recognized $ 13 $ 13 $ 63 $ 50
==== ===== ==== =====
</TABLE>
Postretirement Benefits Other Than Pensions
Employees retiring at or after age 55, with 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.
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1993, Edison adopted a new accounting standard for postretirement
benefits other than pensions, which requires the expected cost of these
benefits to be charged to expense during employees' years of service.
Edison is amortizing its obligation related to prior service over 20
years.
Edison funds these benefits (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 were amortized and recovered in rates over 12 months.
Edison is continuing to amortize its obligation related to prior service
over 20 years. Any difference between recognized expense and amounts
authorized for rate recovery is not expected to be material and will be
charged to earnings.
Trust assets are primarily common stocks, corporate and government bonds,
and short-term investments.
The components of postretirement benefits other than pensions expense
were:
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
---------------- ----------------
1995 1994 1995 1994
---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C>
Service cost for benefits earned $ 8 $ 7 $ 27 $ 27
Interest cost on benefit obligation 18 18 73 67
Actual return on plan assets (7) (5) (21) (14)
Amortization of transition obligation 9 9 36 36
---- --- ---- ----
Net expense 28 29 115 116
Amortization of prior funding -- 2 2 39
---- --- ---- ----
Total expense $ 28 $31 $117 $155
==== === ==== ====
</TABLE>
The funded status of these benefits is reconciled to the recorded
liability below:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1995 1994 1994
------------- ------------- -------------
(In millions)
Actuarial present value of benefit obligation:
<S> <C> <C> <C>
Retirees $ 530 $ 530 $ 511
Employees eligible to retire 48 47 89
Other employees 307 293 371
----- ----- -----
Accumulated benefit obligation $ 885 $ 870 $ 971
===== ===== =====
Fair value of plan assets $ 327 $ 303 $ 233
===== ===== =====
Plan assets less than accumulated benefit
obligation $(558) $(567) $(738)
Unrecognized transition obligation 613 622 679
Unrecognized net loss (gain) (50) (50) 59
----- ----- -----
Recorded asset (liability) $ 5 $ 5 $ --
===== ===== =====
Discount rate 8.75% 8.75% 7.75%
Expected long-term rate of return on assets 8.5% 8.5% 8.5%
</TABLE>
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The assumed rate of future increases in the per-capita cost of health care
benefits is 11% for 1995, gradually decreasing to 5.5% for 2005 and
beyond. Increasing the health care cost trend rate by one percentage
point would increase the accumulated obligation as of March 31, 1995, by
$135 million and annual aggregate service and interest costs by $18
million.
Employee Savings Plan
Edison has a 401(k) stock plan designed to supplement employees'
retirement income. The plan received employer contributions of $5 million
and $21 million for the three and twelve months ended March 31, 1995, and
March 31, 1994, respectively.
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 March 31, 1995, was:
<TABLE>
<CAPTION>
Plant in Accumulated Under Ownership
Service Depreciation Construction Interest
-------- ------------ ------------ ---------
(In millions)
Transmission systems:
<S> <C> <C> <C> <C>
Eldorado $ 28 $ 9 $ 1 60%
Pacific Intertie 218 66 5 50
Generating stations:
Four Corners (coal) Units 4 and 5 457 225 2 48
Mohave (coal) 284 139 11 56
Palo Verde (nuclear) 1,560 325 23 16
San Onofre (nuclear) 4,099 1,435 74 75
------ ------ ----
Total $6,646 $2,199 $116
====== ====== ====
</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,
1995, were:
<TABLE>
<CAPTION>
Year ended December 31, (In millions)
<C> <C>
1995 $18
1996 20
1997 16
1998 12
1999 8
Thereafter 12
---
Total $86
===
</TABLE>
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Commitments
Nuclear Decommissioning
Edison plans to decommission its nuclear generating facilities at the end
of each facility's operating license by a prompt removal method authorized
by the Nuclear Regulatory Commission. Decommissioning is estimated to
cost $1.8 billion in current-year dollars, based on site-specific studies
performed in 1993 for San Onofre and 1992 for Palo Verde. 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, which are recovered through customer rates, are
recorded as a component of depreciation expense. Decommissioning expense
was $33 million and $120 million for the three and twelve months ended
March 31, 1995, respectively, and $35 million and $139 million for the
three and twelve months ended March 31, 1994, respectively. The
accumulated provision for decommissioning was $951 million at March 31,
1995, $919 million at December 31, 1994, and $831 million at March 31,
1994. The estimated costs to decommission San Onofre Unit 1 ($242
million) are recorded as a liability.
Decommissioning funds collected in rates are placed in independent trusts,
which, together with accumulated earnings, will be utilized solely for
decommissioning.
Trust investments include:
<TABLE>
<CAPTION>
Maturity March 31, December 31, March 31,
Dates 1995 1994 1994
---------- ----------- --------------- ----------
(In millions)
<S> <C> <C> <C> <C>
Municipal bonds 1996-2021 $ 404 $ 447 $ 688
Stocks -- 313 258 55
U.S. government and agency issues 1998-2023 76 98 53
Short-term investments and other 1994-1995 150 117 29
------ ------ ------
Trust fund balance (at cost) $ 943 $ 920 $ 825
====== ====== ======
</TABLE>
Trust fund earnings (based on specific identification) increase the trust
fund balance and the accumulated provision for decommissioning. Net
earnings were $8 million and $23 million for the three and twelve months
ended March 31, 1995, respectively, and $11 million and $43 million for
the three and twelve months ended March 31, 1994, respectively. Proceeds
from sales of securities (which are reinvested) were $232 million and $1.3
billion for the three and twelve months ended March 31, 1995,
respectively, and $45 million and $266 million for the three and twelve
months ended March 31, 1994, respectively. Approximately 87% of the trust
fund contributions were tax-deductible.
The Financial Accounting Standards Board is reviewing current accounting
practices for removal costs, including decommissioning of nuclear power
plants, to determine the proper accounting classification and measurement
criteria for these costs. If current industry accounting practices are
changed, Edison could be required to report its estimated decommissioning
costs as a liability, rather than recognizing these costs over the term
of each facility's operating license. In addition, trust fund earnings
could be recognized as investment income, rather than a component of the
accumulated provision for decommissioning. Edison does not believe that
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
such changes, if any, would have an adverse effect on its results of
operations due to its current and expected future ability to recover these
costs through customer rates.
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 if a facility
meets 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 $225 million
through 2017.
Certain commitments for the years 1995 through 1999 are estimated below:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
----- ----- ----- ----- -----
(In millions)
<S> <C> <C> <C> <C> <C>
Construction expenditures $ 977 $ 977 $ 965 $ 913 $ 857
Fuel supply contracts 312 209 207 185 183
Purchased-power capacity payments 727 743 746 752 754
Unconditional purchase obligations 11 11 11 10 10
</TABLE>
Note 10. Contingencies
In addition to the matters disclosed in these notes, Edison is involved
in legal, tax and regulatory proceedings before various courts and
governmental agencies with regard to matters arising in the ordinary
course of business. Edison believes that the final outcome of these
proceedings will not materially affect its results of operations.
Environmental Protection
Edison is subject to numerous environmental laws and regulations, which
require it to incur substantial costs to operate existing facilities,
construct and operate new facilities, and mitigate or remove the effect
of past operations on the environment.
Edison records its environmental liabilities when site assessments and/or
remedial actions are probable and a range of reasonably likely cleanup
costs can be estimated. Edison reviews its sites and measures the
liability quarterly, by assessing a range of reasonably likely costs for
each identified site using currently available information, including
existing technology, presently enacted laws and regulations, experience
gained at similar sites, and the probable level of involvement and
financial condition of other potentially responsible parties. These
estimates include costs for site investigations, remediation, operations
and maintenance, monitoring and site closure. Unless there is a probable
amount, Edison records the lower end of this reasonably likely range of
costs (classified as other long-term liabilities at undiscounted amounts).
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
While Edison has numerous insurance policies that it believes may provide
coverage for some of these liabilities, it does not recognize recoveries
in its financial statements until they are realized.
At March 31, 1995, Edison's recorded estimated minimum liability to
remediate its 58 identified sites was $114 million, compared with $60
million at March 31, 1994. The increase resulted primarily from changes
in estimates for a former pole-treating facility and a fuel-oil tank
inspection program. The ultimate costs to clean up Edison's identified
sites may vary from its recorded liability due to numerous uncertainties
inherent in the estimation process, such as: the extent and nature of
contamination; the scarcity of reliable data for identified sites; the
varying costs of alternative cleanup methods; developments resulting from
investigatory studies; the possibility of identifying additional sites;
and the time periods over which site remediation is expected to occur.
Edison believes that, due to these uncertainties, it is reasonably
possible that cleanup costs could exceed its recorded liability by up to
$215 million. The upper limit of this range of costs was estimated using
assumptions least favorable to Edison among a range of reasonably possible
outcomes.
Edison expects to clean up its identified sites over a period of up to 30
years. Remediation costs in each of the next several years are expected
to range from $4 million to $8 million. Recorded costs for the twelve
months ended March 31, 1995, were $4 million.
Edison's identified sites include several sites for which there is a lack
of currently available information, including the nature and magnitude of
contamination and the extent, if any, that Edison may be held responsible
for contributing to any costs incurred for remediating these sites. Thus,
no reasonable estimate of cleanup costs can be made for these sites at
this time.
The CPUC allows Edison to recover environmental-cleanup costs at 23 of its
sites, representing $90 million of its recorded liability, through an
incentive mechanism (Edison may request to include additional sites).
Under this mechanism, Edison will recover 90% of cleanup costs through
customer rates; shareholders fund the remaining 10%, with the opportunity
to recover these costs through insurance and other third-party recoveries.
Edison settled an insurance claim with one carrier, and is pursuing
additional recovery from several other carriers. Costs incurred at the
remaining 35 sites are expected to be recovered through customer rates.
Edison has recorded a regulatory asset of $104 million for its estimated
minimum environmental-cleanup costs expected to be recovered through
customer rates.
Based on currently available information, Edison believes it is not likely
that it will incur amounts in excess of the upper limit of the estimated
range and, based upon the CPUC's regulatory treatment of environmental-
cleanup costs, Edison believes that costs ultimately recorded will not
have a material adverse effect on its results of operations or financial
position. There can be no assurance, however, that future developments,
including additional information about existing sites or the
identification of new sites, will not require material revisions to such
estimates.
Nuclear Insurance
Federal law limits public liability claims from a nuclear incident to $8.9
billion. 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
<PAGE>
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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.
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 $45 million per
year. Insurance premiums are charged to operating expense.
<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, 1995, were $139 million and $606 million,
respectively, compared with $131 million and $635 million for the same
periods in 1994. The increased quarterly earnings primarily reflect a
higher authorized return on common equity for 1995, partially offset by
a $4 million after-tax charge for employee severance costs in 1995. The
decrease in earnings for the twelve months ended March 31, 1995, compared
with the same period in 1994, reflects an $18 million after-tax charge for
employee severance expenses in the fourth quarter of 1994 and a lower
authorized return on common equity for 1994 compared with 1993.
Operating Revenue
Operating revenue increased 3% during the first quarter of 1995, compared
with the same period in 1994, mostly due to a 2.6% California Public
Utilities Commission (CPUC)-authorized rate increase. For the twelve
months ended March 31, 1995, operating revenue increased 6%, over the same
period in 1994, primarily from a 3% increase in CPUC-authorized retail
rates and a 3% increase in retail sales volume resulting from warmer
weather in the third quarter of 1994 compared to 1993. Wholesale volume
also increased in the twelve months ended March 31, 1995, over the year-
earlier period, as Edison's power was priced lower than many other sources
(see Operating Expenses). Over 98% of electric utility revenue is from
retail sales. Retail rates are regulated by the CPUC and wholesale rates
are regulated by the Federal Energy Regulatory Commission (FERC).
On March 28, 1995, Edison announced that it intends to freeze average
rates for residential, small business and small agricultural customers
through 1996 and lower average rates across the board by 25% in real terms
by 2000. These rate proposals are subject to CPUC approval. Edison also
urged the CPUC to re-examine its policies and procedures on rate design
issues, including possible elimination of the kilowatt-hour sales
balancing account, which adjusts utility revenues for differences between
CPUC-authorized and actual base-rate revenues. Edison does not anticipate
that these proposals will have a material effect on future earnings
trends; however, if the balancing account mechanism were to be revised or
eliminated, the seasonal variability of earnings could be affected.
Operating Expenses
Fuel expense decreased 21% in the first quarter of 1995, compared with
1994, due to a decrease in overall gas prices, and an increase in hydro
generation caused by greater rainfall in 1995. Fuel expense increased 4%
during the twelve-month period ended March 31, 1995, compared with the
year-earlier period, due to an increase in Edison's power generation
during 1994. This increase in power generation was due to lower overall
gas prices and a higher than average operating capacity at San Onofre
Nuclear Generating Station Units 2 and 3 during 1994, which caused an
increase in wholesale demand for Edison's lower-priced energy.
Purchased-power expense increased for the twelve-month period ended March
31, 1995, compared with the year-earlier period, due to higher prices for
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. During the twelve-month period
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ended March 31, 1995, Edison paid about $1.7 billion (including energy and
capacity payments) more than the cost of power available from other
sources due to these federally required purchases.
Provisions for regulatory adjustment clauses increased in the first
quarter of 1995, compared with the same period in 1994, as CPUC-authorized
fuel and purchased-power cost estimates exceeded Edison's actual energy
costs, primarily due to the increase in hydro generation. The increase
in the provisions for the twelve months ended March 31, 1995, compared to
the year-earlier period, also reflects collection of energy costs which
exceeded CPUC-authorized estimates during this period.
Maintenance expense increased 16% during the first quarter of 1995,
compared with the year-earlier quarter, mainly due to a refueling outage
at San Onofre Unit 2. Unit 2 is expected to return to service in May
1995.
Income taxes increased 19% during the first quarter of 1995, compared to
1994, mainly due to increased pre-tax income.
Other Income and Deductions
The provision for rate phase-in plan reflects a CPUC-authorized, 10-year
rate phase-in plan, which deferred the collection of revenue during the
first four years of operation for the Palo Verde Nuclear Generating
Station. Revenue previously deferred (including interest) will be
collected by the end of 1996 for Units 1 and 2, and 1998 for Unit 3. The
provision is a non-cash offset to the collection of deferred revenue.
Interest income increased 31% and 32%, respectively, for the three- and
twelve-month periods ended March 31, 1995, over the comparable periods in
1994, primarily due to higher interest rates and higher investment
balances. The higher balances reflect the decline in dividend payments,
beginning in June 1994.
Other nonoperating income decreased for the three months ended March 31,
1995, compared to the year-earlier period, primarily due to a $5 million
CPUC-authorized incentive award received in the first quarter of 1994
related to nuclear plant performance and a 1994 benefit resulting from the
effect of a drop in SCEcorp's stock price on Edison's stock option plan.
The 4% increase for the twelve months ended March 31, 1995, compared with
the year-earlier period, reflects a 1994 environmental insurance
settlement and an $11 million fourth quarter 1994 CPUC-authorized
incentive award for energy conservation programs, which more than offset
the first quarter decline.
Interest Expense
Other interest expense increased 51% and 25%, respectively, for the
quarter and twelve months ended March 31, 1995, compared with the year-
earlier periods, mainly due to rising interest rates on short-term
borrowings and higher balances in the regulatory balancing accounts.
FINANCIAL CONDITION
Edison's liquidity is primarily affected by debt maturities, dividend
payments and capital expenditures. Capital resources include cash from
operations and external financings.
In June 1994, Edison lowered its quarterly common stock dividend to its
parent, SCEcorp, by 30%, as the result of uncertainty of future earnings
levels arising from the changing nature of the electric utility industry,
intensified by recently proposed changes in California utility regulation.
In January 1995, SCEcorp authorized the repurchase of up to $150 million
of its common stock during 1995. As excess cash becomes available, Edison
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intends to pay cash dividends to SCEcorp, while maintaining its CPUC-
authorized capital structure. SCEcorp repurchased 802,098 shares ($13
million) through May 5, 1995, funded by dividends from SCEcorp
subsidiaries.
Cash Flows from Operating Activities
Net cash provided by operating activities totaled $620 million and $1.9
billion, respectively, for the three and twelve months ended March 31,
1995, compared with $579 million and $1.6 billion for the same periods in
1994. Cash from operations exceeded capital requirements for all periods
presented.
Cash Flows from Financing Activities
Edison has lines of credit of $700 million for short-term debt and $500
million for the long-term refinancing of variable-rate pollution control
bonds.
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, 1995, Edison could issue approximately $5.8 billion of
additional first and refunding mortgage bonds and $3.6 billion of
preferred stock at current interest and dividend rates.
California law prohibits Edison from incurring or guaranteeing debt for
its nonutility affiliates. Additionally, the CPUC regulates Edison's
capital structure, limiting the dividends Edison may pay SCEcorp.
Cash Flows from Investing Activities
The primary uses of cash for investing activities are additions to
property and plant and funding of nuclear decommissioning trusts.
Decommissioning costs are accrued and recovered in rates over the term of
each nuclear generating facility's operating license through charges to
depreciation expense. Edison estimates that it will spend approximately
$12.7 billion to decommission its nuclear facilities between 2013-2035.
This estimate is based on Edison's current-dollar decommissioning costs
($1.8 billion), escalated using a 6.65% rate and a trust fund earnings
assumption ranging from 5.5% to 5.75%. These amounts are expected to be
funded from independent decommissioning trusts (see Notes to Consolidated
Financial Statements), which receive Edison contributions of approximately
$100 million per year (until decommissioning begins). The Financial
Accounting Standards Board is reviewing current accounting practices for
removal costs, including decommissioning of nuclear power plants. If
current industry accounting practices are changed, Edison could be
required to report its estimated decommissioning costs as a liability,
rather than recognizing these costs over the term of each facility's
license. Edison does not believe that such changes, if any, would have
an adverse effect on its results of operations due to its current and
expected future ability to recover these costs through customer rates.
Projected Capital Requirements
Edison's projected capital requirements for the next five years are:
1995--$977 million; 1996--$977 million; 1997--$965 million; 1998--$913
million; and 1999--$857 million.
Long-term debt maturities and sinking fund requirements for the five
twelve-month periods following March 31, 1995, are: 1996--$1 million;
1997--$201 million; 1998--$426 million; 1999--$322 million; and 2000--
$480 million.
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REGULATORY MATTERS
Edison's 1995 CPUC-authorized revenue increased $193 million, or 2.6%,
primarily due to a $192 million increase for fuel and purchased power
($167 million for federally required purchases), a $121 million increase
for higher costs of debt and equity, a $64 million decrease for 1993
postretirement benefits other than pensions (collected in 1994 rates) and
a $67 million decrease for a pending settlement agreement with the CPUC's
Division of Ratepayer Advocates (DRA) related to the 1995 general rate
case (see 1995 General Rate Case below).
The CPUC's 1995 cost-of-capital decision authorized an increase to
Edison's equity ratio from 47.25% to 47.75%, and an increase to Edison's
return on common equity from 11% in 1994 to 12.1% in 1995. This decision,
excluding the effects of other rate actions, could increase 1995 earnings
by about $64 million.
A 1994 CPUC decision stated that Edison was liable for expenditures
related to a 1985 accident at the Mohave Generating Station. The CPUC
ordered a second phase of this proceeding to quantify the disallowance.
Edison believes that the final outcome of this matter will not materially
affect its results of operations.
In October 1994, the CPUC authorized Edison to accelerate recovery of its
nuclear plant investments by $75 million per year through 2011. The rate
impact of this accelerated cost recovery is offset by a corresponding
deceleration in recovery of transmission and distribution facilities
through revised depreciation estimates over their remaining useful lives.
1995 General Rate Case
In 1994, Edison and the DRA filed a settlement agreement related to the
1995 general rate case. The settlement, which requires CPUC approval,
includes a $67 million reduction in 1995 non-fuel revenue and, beginning
February 1, 1996, accelerated recovery (by 2003, instead of 2012) of
Edison's remaining investment (approximately $2.7 billion) in San Onofre
Units 2 and 3. Edison would earn a reduced rate of return of 7.78%,
compared to the current 9.8%, on its remaining investment. Future
operating costs would be recovered through an incentive pricing plan. At
the end of the recovery period, customers would bear no further obligation
for Units 2 and 3, except for certain costs associated with
decommissioning and permanent closure. Edison would then sell power
generated by San Onofre under prices, terms and conditions which conform
to any then-existing regulatory procedures.
On April 26, 1995, the DRA filed supplemental testimony recommending a
0.25-cent-per-kilowatt-hour decrease to the incentive prices originally
agreed to in the proposed settlement. The DRA claims the decrease is
based on "new information" obtained after the settlement was negotiated,
but prior to hearings. Edison has filed rebuttal testimony showing that
the information the DRA is citing is not new and is requesting that the
CPUC adopt the original settlement. Hearings are scheduled to begin on
May 15, 1995.
The $67 million revenue reduction has been included in 1995 rates and is
subject to change, pending the CPUC's final decision which is expected in
late 1995.
Performance-Based Ratemaking
In 1993, Edison filed a proposal with the CPUC for a performance-based
rate-making mechanism that would determine most of Edison's revenue
(excluding fuel) from 1996-2000. The filing proposed a revenue-indexing
formula that would combine operating expenses and capital-related costs
into a single index. In July 1994, the CPUC ordered Edison to divide its
performance-based rate-making application into two phases -- transmission
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and distribution, and power generation. Hearings concluded in December
1994 for the transmission and distribution phase and a decision is
expected in mid-1995. Edison expects to file its proposal for the power
generation phase in late 1995.
COMPETITIVE ENVIRONMENT
Electric utilities operate in a highly regulated environment in which they
have an obligation to provide electric service to their customers in
return for an exclusive franchise within their service territory. This
regulatory environment is changing. The generation sector has experienced
competition from nonutility power producers and regulators have proposed
restructuring the electric utility industry. Edison expects the
generation sector to continue to experience competition and other changes
over the next decade.
During 1994, the CPUC issued a proposal and held several hearings 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
including residential, have the option for direct access to this
competitive generation market by 2002. Edison would continue to provide
transmission and distribution service to all customers in its service
territory and performance-based regulation would replace existing
regulation for such services. The proposal also stated that utilities
should be entitled to recover the portion of their generation investments
rendered uneconomic in the new direct access environment. Edison's
response to the CPUC's proposal recommended the creation of a regional
competitive market with an independent power pool that would act as the
intermediary between all power consumers and suppliers and urged that the
CPUC provide that costs previously incurred to serve the state's
electricity needs under current regulatory rules be recovered fairly from
all customers. In anticipation of obstacles in implementing the CPUC's
proposal due to regulatory, legislative and jurisdictional issues, Edison
also recommended the adoption of performance-based ratemaking for its
generation operations until direct access phase-in begins.
During the CPUC hearings, Edison stressed that its competitive power
market proposal would provide all electric customers with the benefits of
a competitive marketplace, reliability and operating efficiency and
proposed a schedule for implementing Edison's competitive market plan with
customer choice beginning in 1998. Subsequent to the CPUC proposal, the
state legislature passed a resolution requesting the CPUC withhold
implementation of any restructuring plan until its impact can be evaluated
by the legislature and governor. The CPUC issued an interim report to the
state legislature on January 24, 1995, describing the positions of the
parties and CPUC activities to date. The CPUC has postponed the issuance
date for its proposed policy statement from March 22, 1995, to May 24,
1995.
Edison filed a proposal with the CPUC recommending implementation of a
competition transition charge (CTC) mechanism beginning in 1998, for full
recovery of utility investments and obligations incurred to serve
customers under the existing regulatory framework. In its filing, Edison
estimates its potential transition costs through 2025 to be approximately
$9.3 billion (net present value), based on an assumed 1998 market price
of 4 cents per kilowatt-hour. The potential transition costs are
comprised of: $4.9 billion from qualifying facility contracts, which are
the direct result of legislative and regulatory mandates; $600 million
from costs pertaining to certain generating plants; and $3.8 billion from
regulatory commitments to be recovered in the future. Such commitments
include deferred taxes, postretirement benefit transition costs,
accelerated recovery of nuclear plants, nuclear decommissioning and
certain other costs. At March 31, 1995, these commitments included
recorded regulatory assets of approximately $1 billion.
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Edison currently applies accounting standards that recognize the economic
effects of rate regulation. If rate recovery of generation-related costs
becomes unlikely or uncertain, whether due to competition or regulatory
action, these accounting standards may no longer apply to Edison's
generation operations and the $1 billion would be a non-cash charge
against earnings. Additionally, Edison may have write-offs associated
with its potential transition costs if these costs are not recovered
through a CTC or other mechanism. Until the CPUC establishes more
definitive valuation and pricing criteria for its restructuring proposal,
including a recovery mechanism for the transition charges, Edison cannot
predict the effect of the proposal on its results of operations.
A new accounting standard, effective January 1996, requires impairment
losses on long-lived assets to be recognized when an asset's book value
exceeds its expected future cash flows (undiscounted). The current
standard bases impairment losses on the probability of recovery of an
asset's book value. The new standard also imposes stricter criteria for
the retention of regulatory-created assets. Due to the regulatory
uncertainties mentioned above, Edison cannot predict the effect of the
new accounting standard on its generation-related assets; however, the
timing of potential impairment losses for regulatory-created assets may
be affected.
In March 1995, the FERC proposed rules which would require utilities to
provide wholesale open access to the nation's interstate transmission grid,
while allowing them to recover stranded costs associated with open
transmission access. To help insure that wholesale open access promotes
competition, the FERC proposed development of industry-wide real-time
information networks that would require utilities to provide simultaneous
information to all parties trading wholesale electric power. The proposal
defines stranded cost as legitimate, prudent and verifiable costs incurred
by a utility to provide service to customers that would subsequently become
unbundled wholesale transmission service customers of the utility. Edison
is currently analyzing the FERC proposal and expects to file comments
in August 1995.
Edison is engaged in an ongoing review of possible responses to the
regulatory and competitive changes affecting the electric utility
industry, including various corporate, financial, legal and legislative
alternatives. In addition, Edison is seeking to enhance its competitive
position by cutting costs and increasing productivity, and by developing
new revenue sources.
CPUC-MANDATED POWER CONTRACTS
In 1994, the CPUC ordered the California utilities to proceed with an
energy auction to solicit bids for new contracts with unregulated power
producers. This decision would have forced Edison to purchase 686 MW of
new power at fixed prices starting in 1997, costing Edison customers $14
billion over the lives of the contracts. This decision also denied
Edison's petition asking the CPUC to reconsider its decision. Edison
consistently opposed the energy auction because it has no need for
additional generating capacity until at least 2005, it believes the
contracts would increase customer rates and it believes the decision is
inconsistent with the CPUC's restructuring proposal goal to ultimately
lower rates. Edison negotiated agreements, at substantially lower costs
than those mandated by auction, with seven unregulated power producers,
representing 627 MW of the 686 MW mandated. These agreements, which are
subject to CPUC approval, would save Edison customers about 80% of
anticipated overpayments compared with the mandated contracts. On January
6, 1995, Edison appealed the CPUC decision to the FERC. On February 23,
1995, FERC ruled that the CPUC violated the federal Public Utility
Regulatory Policies Act and FERC regulations because the CPUC did not
consider all potential sources of capacity in reaching its avoided cost
determination. As a result of the FERC decision, the CPUC stayed its
decision until at least May 10, 1995. On March 27, 1995, the CPUC
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requested a rehearing on the FERC decision. A final FERC decision is
expected in 1995.
ENVIRONMENTAL PROTECTION
Edison is subject to numerous environmental laws and regulations, which
require it to incur substantial costs to operate existing facilities,
construct and operate new facilities, and mitigate or remove the effect
of past operations on the environment.
Edison records its environmental liabilities when site assessments and/or
remedial actions are probable and a range of reasonably likely cleanup
costs can be estimated. Edison reviews its sites and measures the
liability quarterly, by assessing a range of reasonably likely costs for
each identified site using currently available information, including
existing technology, presently enacted laws and regulations, experience
gained at similar sites, and the probable level of involvement and
financial condition of other potentially responsible parties. These
estimates include costs for site investigations, remediation, operations
and maintenance, monitoring and site closure. Unless there is a probable
amount, Edison records the lower end of this reasonably likely range of
costs (classified as other long-term liabilities at undiscounted amounts).
While Edison has numerous insurance policies that it believes may provide
coverage for some of these liabilities, it does not recognize recoveries
in its financial statements until they are realized.
At March 31, 1995, Edison's recorded estimated minimum liability to
remediate its 58 identified sites was $114 million, compared to $60
million at March 31, 1994. The increase resulted primarily from changes
in estimates for a former pole-treating facility and a fuel-oil tank
inspection program. The ultimate costs to clean up Edison's identified
sites may vary from its recorded liability due to numerous uncertainties
inherent in the estimation process, such as: the extent and nature of
contamination; the scarcity of reliable data for identified sites; the
varying costs of alternative cleanup methods; developments resulting from
investigatory studies; the possibility of identifying additional sites;
and the time periods over which site remediation is expected to occur.
Edison believes that, due to these uncertainties, it is reasonably
possible that cleanup costs could exceed its recorded liability by up to
$215 million. The upper limit of this range of costs was estimated using
assumptions least favorable to Edison among a range of reasonably possible
outcomes.
Edison expects to clean up its identified sites over a period of up to 30
years. Remediation costs in each of the next several years are expected
to range from $4 million to $8 million. Recorded costs for the twelve-
month period ended March 31, 1995, were $4 million.
One of Edison's sites is a former pole-treating facility, which is
considered a federal Superfund site and represents 71% of Edison's
recorded liability. Remedial actions to clean up soil and ground-water
contamination that occurred during pole-treating operations (1925-1980)
are expected to continue at this site for 30 years. Rate recovery of
environmental-cleanup costs for this site is authorized by the CPUC
through an incentive mechanism (discussed below).
Edison's identified sites include several sites for which there is a lack
of currently available information, including the nature and magnitude of
contamination and the extent, if any, that Edison may be held responsible
for contributing to any costs incurred for remediating these sites. Thus,
no reasonable estimate of cleanup costs can be made for these sites at
this time.
The CPUC allows Edison to recover environmental-cleanup costs at 23 of its
sites, representing $90 million of its recorded liability, through an
incentive mechanism (Edison may request to include additional sites).
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Under this mechanism, Edison will recover 90% of cleanup costs through
customer rates; shareholders fund the remaining 10%, with the opportunity
to recover these costs through insurance and other third-party recoveries.
Edison settled an insurance claim with one carrier, and is pursuing
additional recovery from several other carriers. Costs incurred at the
remaining 35 sites are expected to be recovered through customer rates.
Edison has recorded a regulatory asset of $104 million for its estimated
minimum environmental-cleanup costs expected to be recovered through
customer rates.
Based on currently available information, Edison believes it is not likely
that it will incur amounts in excess of the upper limit of the estimated
range and, based upon the CPUC's regulatory treatment of environmental-
cleanup costs, Edison believes that costs ultimately recorded will not
have a material adverse effect on its results of operations or financial
position. There can be no assurance, however, that future developments,
including additional information about existing sites or the
identification of new sites, will not require material revisions to such
estimates.
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 study to
determine if additional regulations are needed to reduce regional haze in
the southwestern U.S. In addition, another study is underway to determine
the specific impact of the effect of air contaminant emissions from the
Mohave Coal Generating Station on visibility in Grand Canyon National
Park. The potential effect of these studies on sulfur dioxide emissions
regulations for Mohave is unknown.
Edison's projected capital expenditures to protect the environment are
$1.2 billion for the 1995-1999 period, mainly for aesthetics treatment,
including undergrounding certain transmission and distribution lines.
The possibility that exposure to electric and magnetic fields (EMF)
emanating from power lines, household appliances and other electric
sources may result in adverse health effects is receiving increased
attention. The scientific community has not yet reached a consensus on
the nature of any health effects of EMF. However, the CPUC has issued a
decision which provides for a rate-recoverable research and public
education program conducted by California electric utilities, and
authorizes these utilities to take no-cost or low-cost steps to reduce EMF
in new electric facilities. 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.
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PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Qualified Facilities ("QF") Litigation
On May 20, 1993, four geothermal QFs filed a lawsuit against Edison in Los
Angeles County Superior Court, claiming that Edison underpaid, and
continues to underpay, the plaintiffs for energy. Edison denied the
allegations in its response to the complaint. The action was brought on
behalf of Vulcan/BN Geothermal Power Company, Elmore L.P., Del Ranch L.P.,
and Leathers L.P., each of which is partially owned by a subsidiary of
Mission Energy Company (a subsidiary of SCEcorp). In October 1994,
plaintiffs submitted an amended complaint to the court to add causes of
action for unfair competition and restraint of trade. The plaintiffs
allege that the underpayments totaled at least $21,000,000 as of the
filing of the amended complaint. In other court filings, plaintiffs
contend that additional contract payments owing through the end of the
contract term could total approximately $60,000,000. They also seek
treble damages for the alleged restraint of trade violations, unspecified
punitive damages, and an injunction to enjoin Edison from "future" unfair
competition. On February 9, 1995, the court sustained some of Edison's
demurrers to plaintiffs first amended complaint and overruled others. The
Court also granted plaintiffs 30 days in which to amend their complaint
further. On or about March 9, 1995, plaintiffs filed a second amended
complaint, realleging the substance of the claims included in the first
amended complaint. The Company's demurrer to four of the causes of action
alleged in the second amended complaint and motion to strike portions of
eight other causes of action alleged in the same pleading are set for
hearing on May 18, 1995. The materiality of a judgment in favor of the
plaintiffs would be largely dependent on the extent to which additional
payments resulting from such a judgment are recoverable through Edison's
Energy Cost Adjustment Clause ("ECAC").
Between January 1994 and October 1994, Edison was named as a defendant in
a series of eight lawsuits brought by independent power producers of wind
generation. Seven of the lawsuits were filed in Los Angeles County
Superior Court and one was filed in Kern County Superior Court. The
lawsuits allege Edison incorrectly interpreted contracts with the
plaintiffs by limiting fixed energy payments to a single 10-year period
rather than beginning a new 10-year period of fixed energy payments for
each stage of development. In its responses to the complaints, Edison
denied the plaintiffs' allegations. In each of the lawsuits, the
plaintiffs seek declaratory relief regarding the proper interpretation of
the contracts. Plaintiffs allege a combined total of approximately
$189,000,000 in damages, which includes consequential damages claimed in
seven of the eight lawsuits. On March 1, 1995, the court in the lead Los
Angeles Superior Court case granted the plaintiffs' motion seeking summary
adjudication that the contract language in question is not reasonably
susceptible to Edison's position that there is only a single, 10-year
period of fixed payments. On March 8, 1995, the court in the Kern County
Superior Court case directed Edison to submit a proposed order that would
deny a similar summary adjudication motion brought by the plaintiff in
that case. Although a proposed order was subsequently submitted to the
court in the Kern County case, it has not been signed. In addition, on
April 12, 1995, the Court issued a minute order stating that its March 8,
1995, directive should not be construed as a ruling on the merits of the
plaintiff's motion. Edison believes the March 1, 1995, ruling in the Los
Angeles case is erroneous and has asked the Court to reconsider its
ruling. On April 5, 1995, the Company filed a petition seeking writ
review of the March 1, 1995, ruling in the California Court of Appeal.
On May 3, 1995, the Court of Appeal issued an Order to Show Cause why the
March 1 ruling should not be vacated and set a hearing on the Order to
Show Cause for August 3, 1995. Following the March 1, 1995, ruling, an
eighth lawsuit was filed in the Los Angeles Superior Court raising claims
similar to those alleged in the first seven. Edison has responded to the
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complaint in the new lawsuit by denying its material allegations. The
materiality of final judgments in favor of the plaintiffs in these cases
would be largely dependent on the extent to which any damages or
additional payments which might result from such judgments would be
recoverable through Edison's ECAC.
This matter was previously reported under the heading "QF Litigation" in
Part I, Item 3 of Edison's Annual Report on Form 10-K for the year ended
December 31, 1994.
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 as a result of EMF
emitted from Edison facilities. The lawsuits filed in Orange County
Superior Court and served on Edison in June 1994 and January 1995, request
compensatory and punitive damages. Although no specific damage amounts
are alleged in the complaints, in subsequent court filings, plaintiffs
estimated general and compensatory damages of $8,000,000 and $13,500,000,
plus unspecified punitive damages. In August 1994, one of the co-
defendants in the June 1994 action filed a cross-complaint against the
other co-defendants, including Edison, requesting indemnification and
declaratory relief concerning the rights and responsibilities of the
parties. On April 18, 1995, one of the plaintiffs in the January 1995
action filed a cross-complaint against the other co-defendants, requesting
indemnification and declaratory relief concerning the rights and
responsibilities of the parties. On April 24, 1995, Edison filed a
Petition for Writs of Prohibition and/or Mandate with the California Court
of Appeal. The petition asks for an immediate stay of the case pending
a review by the Court of Appeal of the question of whether the Superior
Court has jurisdiction to consider personal injury claims based on EMF
from public utility-operated electric facilities. On April 24, 1995, the
Court of Appeal granted the immediate stay and agreed to review the
petition.
A third case was filed in Orange County Superior Court and served on
Edison in March 1995. The complaint seeks an unspecified amount of
compensatory and punitive damages. The plaintiff alleges, among other
things, that he developed cancer as a result of EMF emitted from Edison
facilities which he alleges were not constructed in accordance with CPUC
standards.
Edison believes that there is no proven scientific basis for the
allegation that EMF is hazardous to health and, therefore, believes that
the EMF lawsuits described above are without merit.
These matters were previously reported under the heading "Environmental
Litigation" in Part I, Item 3 of Edison's Annual Report on Form 10-K for
the year ended December 31, 1994.
San Onofre Personal Injury Litigation
An 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, San Diego Gas and Electric Company ("SDG&E"), and the manufacturer
of the 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 ("NRC")
safety levels. In the complaint, plaintiffs seek unspecified compensatory
and punitive damages. In its response to the complaint, Edison denies all
material allegations. A pretrial conference is scheduled for May 22,
1995, to set a trial date.
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An Edison engineer employed at San Onofre died in 1991 from cancer of the
abdomen. On February 6, 1995, his children sued Edison, SDG&E and the
manufacturer of the 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, and was aggravated by, exposure to
radiation at San Onofre, including contact with radioactive fuel particles
released from failed fuel rods. Plant records show that the engineer's
exposure to radiation was well below NRC safety levels. In the complaint,
plaintiffs seek unspecified compensatory and punitive damages.
On April 3, 1995, the Court granted the defendants' motion to dismiss 14
of plaintiffs' 15 claims. Punitive damages are not available under the
remaining claim. Edison's April 20, 1995, answer to the complaint denied
all material allegations.
These matters were previously reported under the heading "San Onofre
Person Injury Litigation" in Part I, Item 3 of Edison's Annual Report on
Form 10-K for the year ended December 31, 1994.
Employment Discrimination Litigation
On September 21, 1994, nine African-American employees filed a lawsuit
against SCEcorp and Edison on behalf of an alleged class of African-
American employees, alleging racial discrimination in job advancement,
pay, training and evaluation. The lawsuit was filed in the United States
District Court for the Central District of California. The plaintiffs
seek injunctive relief, as well as an unspecified amount of compensatory
and punitive damages, attorneys' fees, costs and interest. SCEcorp and
Edison have responded by denying the material allegations of the complaint
and asserting several affirmative defenses. The Court has ordered that
plaintiffs file their motion for class certification no later than July
21, 1995, and that the hearing on that motion shall be held on September
25, 1995.
This matter was previously reported under the heading "Employment
Discrimination Litigation" in Part I, Item 3 of Edison's Annual Report on
Form 10-K for the year ended December 31, 1994.
<PAGE>
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
Election of Directors
At Edison's Annual Meeting of Shareholders on April 20, 1995, 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 486,977,706 888,042
John E. Bryson 486,988,588 877,160
Winston H. Chen 486,993,850 871,898
Camilla C. Frost 486,928,284 937,464
Joan C. Hanley 486,995,636 870,112
Carl F. Huntsinger 486,988,164 877,584
Charles D. Miller 486,994,666 871,082
Luis G. Nogales 486,919,244 946,504
Ronald L. Olson 486,977,588 888,160
J. J. Pinola 486,981,132 884,616
James M. Rosser 486,969,214 896,534
E. L. Shannon, Jr. 486,969,736 896,012
Robert H. Smith 486,995,212 870,536
Thomas C. Sutton 486,785,846 1,079,902
Daniel M. Tellep 486,988,180 877,568
James D. Watkins 486,926,930 938,818
Edward Zapanta 486,983,584 882,164
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
23. Consent of Independent Public Accountants
27. Financial Data Schedule
(b) Reports on Form 8-K:
February 1, 1995 --Item 5 Other Events -- 8-1/4% Notes, Due 2000
March 31, 1995 -- Item 5 Other Events -- Price Freeze
<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 10, 1995
<PAGE>
<PAGE>
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, 1995 of Southern California Edison
Company in the previously filed Registration Statements which follow:
Registration Form File No. Effective Date
----------------- -------- --------------
Form S-3 33-53288 November 6, 1992
Form S-3 33-53290 November 6, 1992
Form S-3 33-50251 September 21, 1993
ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
May 10, 1995
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
Edison Financial Data Schedule-Exhibit 27
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> MAR-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 12,350,525
<OTHER-PROPERTY-AND-INVEST> 1,133,293
<TOTAL-CURRENT-ASSETS> 1,543,203
<TOTAL-DEFERRED-CHARGES> 2,887,064
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 17,914,085
<COMMON> 2,168,054
<CAPITAL-SURPLUS-PAID-IN> 177,351
<RETAINED-EARNINGS> 2,685,417
<TOTAL-COMMON-STOCKHOLDERS-EQ> 5,030,822
275,000
358,755
<LONG-TERM-DEBT-NET> 4,515,896
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 595,000
<COMMERCIAL-PAPER-OBLIGATIONS> 461,543
<LONG-TERM-DEBT-CURRENT-PORT> 1,275
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 6,675,794
<TOT-CAPITALIZATION-AND-LIAB> 17,914,085
<GROSS-OPERATING-REVENUE> 1,721,782
<INCOME-TAX-EXPENSE> 122,669
<OTHER-OPERATING-EXPENSES> 1,326,385
<TOTAL-OPERATING-EXPENSES> 1,449,054
<OPERATING-INCOME-LOSS> 272,728
<OTHER-INCOME-NET> (12,158)
<INCOME-BEFORE-INTEREST-EXPEN> 260,570
<TOTAL-INTEREST-EXPENSE> 111,881
<NET-INCOME> 148,689
10,020
<EARNINGS-AVAILABLE-FOR-COMM> 138,669
<COMMON-STOCK-DIVIDENDS> 136,820
<TOTAL-INTEREST-ON-BONDS> 95,462
<CASH-FLOW-OPERATIONS> 620,244
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
