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, 1996
---------------------------------------
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 3, 1996
- -------------------------- --------------------------
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, 1996, and 1995 3
Consolidated Balance Sheets--March 31, 1996,
December 31, 1995, and March 31, 1995 4
Consolidated Statements of Cash Flows--
Three and Twelve Months Ended
March 31, 1996, and 1995 6
Consolidated Statements of Retained Earnings--
Three and Twelve Months Ended
March 31, 1996, and 1995 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 26
Part II. Other Information:
Item 1. Legal Proceedings 35
Item 4. Submission of Matters to a Vote of
Security Holders 39
Item 6. Exhibits and Reports on Form 8-K 39
page 1
<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 (SCE, a California corporation) and its
subsidiaries as of March 31, 1996, December 31, 1995, and March 31, 1995,
and the related consolidated statements of income, retained earnings and
cash flows for each of the three- and twelve-month periods ended March 31,
1996, and 1995. These financial statements are the responsibility of
SCE'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 SCE and its
subsidiaries as of March 31, 1996, December 31, 1995, and March 31, 1995,
and the results of their operations and their cash flows for each of the
three- and twelve-month periods ended March 31, 1996, and 1995, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
May 3, 1996
page 2
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME
In thousands
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
---------------------------- ----------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenue $1,760,133 $1,721,782 $7,911,065 $7,843,702
---------- ---------- ---------- ----------
Fuel 111,692 146,973 579,674 801,351
Purchased power 527,433 487,092 2,622,219 2,560,467
Provisions for regulatory
adjustment clauses--net 97,823 28,761 298,806 92,440
Other operating expenses 272,624 283,310 1,215,845 1,305,443
Maintenance 83,659 97,490 342,863 343,890
Depreciation and decommissioning 242,338 229,952 966,526 894,222
Income taxes 108,443 122,669 545,470 527,044
Property and other taxes 53,508 52,807 200,936 202,552
---------- ---------- ---------- ----------
Total operating expenses 1,497,520 1,449,054 6,772,339 6,727,409
---------- ---------- ---------- ----------
Operating income 262,613 272,728 1,138,726 1,116,293
---------- ---------- ---------- ----------
Provision for rate phase-in plan (29,078) (29,775) (121,536) (133,725)
Allowance for equity funds
used during construction 4,402 5,524 17,959 15,948
Interest income 10,205 8,207 39,642 33,046
Other nonoperating income--net 12,925 3,886 54,693 50,454
---------- ---------- ---------- ----------
Total other income (deductions)--net (1,546) (12,158) (9,242) (34,277)
---------- ---------- ---------- ----------
Income before interest expense 261,067 260,570 1,129,484 1,082,016
---------- ---------- ---------- ----------
Interest on long-term debt 97,707 95,462 387,433 382,167
Other interest expense 19,097 21,128 78,099 68,819
Allowance for borrowed funds
used during construction (2,767) (4,195) (13,062) (14,545)
Capitalized interest (73) (514) (1,090) (721)
---------- ---------- ---------- ----------
Total interest expense--net 113,964 111,881 451,380 435,720
---------- ---------- ---------- ----------
Net income 147,103 148,689 678,104 646,296
Dividends on preferred stock 8,599 10,020 35,342 40,080
---------- ---------- ---------- ----------
Earnings available for common stock $ 138,504 $ 138,669 $ 642,762 $ 606,216
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
page 3
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
In thousands
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1996 1995 1995
-------------- ------------ --------------
ASSETS
<S> <C> <C> <C>
Utility plant, at original cost $20,016,984 $19,850,179 $19,238,151
Less--accumulated provision for depreciation
and decommissioning 8,732,739 8,569,265 7,932,747
----------- ----------- -----------
11,284,245 11,280,914 11,305,404
Construction work in progress 684,774 727,865 924,521
Nuclear fuel, at amortized cost 125,983 139,411 120,600
----------- ----------- -----------
Total utility plant 12,095,002 12,148,190 12,350,525
----------- ----------- -----------
Nonutility property--less accumulated provision
for depreciation of $25,839, $25,454 and $30,678
at respective dates 80,765 70,191 79,577
Nuclear decommissioning trusts 1,294,661 1,260,095 1,004,218
Other investments 77,068 65,963 49,498
----------- ----------- -----------
Total other property and investments 1,452,494 1,396,249 1,133,293
----------- ----------- -----------
Cash and equivalents 527,166 261,767 173,455
Receivables, including unbilled revenue, less
allowances of $22,256, $24,139 and $23,454 for
uncollectible accounts at respective dates 864,342 911,963 802,148
Fuel inventory 111,207 114,357 113,634
Materials and supplies, at average cost 150,382 151,180 169,818
Accumulated deferred income taxes--net 386,868 476,725 226,742
Prepayments and other current assets 70,440 114,289 57,406
----------- ----------- -----------
Total current assets 2,110,405 2,030,281 1,543,203
----------- ----------- -----------
Unamortized debt issuance and reacquisition
expense 370,581 350,563 350,682
Rate phase-in plan 101,369 129,714 214,475
Unamortized nuclear plant--net 41,936 67,185 145,556
Income tax-related deferred charges 1,791,017 1,723,605 1,823,242
Other deferred charges 323,307 309,328 353,109
----------- ----------- -----------
Total deferred charges 2,628,210 2,580,395 2,887,064
----------- ----------- -----------
Total assets $18,286,111 $18,155,115 $17,914,085
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
page 4
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
In thousands, except share amounts
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1996 1995 1995
----------- ------------ -----------
CAPITALIZATION AND LIABILITIES
Common shareholder's equity:
<S> <C> <C> <C>
Common stock (434,888,104 shares outstanding
at each date) $ 2,168,054 $ 2,168,054 $ 2,168,054
Additional paid-in capital 177,397 177,333 177,351
Retained earnings 2,737,651 2,780,058 2,685,417
----------- ----------- -----------
5,083,102 5,125,445 5,030,822
Preferred stock:
Not subject to mandatory redemption 283,755 283,755 358,755
Subject to mandatory redemption 275,000 275,000 275,000
Long-term debt 5,026,343 5,215,117 5,110,896
----------- ----------- -----------
Total capitalization 10,668,200 10,899,317 10,775,473
----------- ----------- -----------
Other long-term liabilities 373,802 344,192 334,855
----------- ----------- -----------
Current portion of long-term debt 201,375 1,375 1,275
Short-term debt 306,535 359,508 461,543
Accounts payable 316,866 346,258 289,386
Accrued taxes 653,539 550,384 605,196
Accrued interest 107,959 86,494 115,619
Dividends payable 183,343 138,334 140,673
Regulatory balancing accounts--net 439,354 337,867 98,683
Deferred unbilled revenue and other current liabilities 788,617 809,826 767,111
----------- ----------- -----------
Total current liabilities 2,997,588 2,630,046 2,479,486
----------- ----------- -----------
Accumulated deferred income taxes--net 3,265,293 3,310,322 3,347,793
Accumulated deferred investment tax credits 364,516 374,142 395,003
Customer advances and other deferred credits 616,712 597,096 581,475
----------- ----------- -----------
Total deferred credits 4,246,521 4,281,560 4,324,271
----------- ----------- -----------
Commitments and contingencies
(Notes 2, 8, 9 and 10)
Total capitalization and liabilities $18,286,111 $18,155,115 $17,914,085
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
page 5
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
-------------------------- --------------------------
1996 1995 1996 1995
---------- --------- ---------- ----------
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income $ 147,103 $ 148,689 $ 678,104 $ 646,296
Adjustments for non-cash items:
Depreciation and
decommissioning 242,338 229,952 966,526 894,222
Amortization 27,888 12,061 83,891 110,508
Rate phase-in plan 28,345 26,255 113,106 120,005
Deferred income taxes and
investment tax credits (35,009) (5,578) (244,009) (95,834)
Other long-term liabilities 29,610 23,792 38,947 32,443
Other--net (2,807) (40,599) 37,533 (50,618)
Changes in working capital components:
Receivables 47,621 99,942 (62,194) (21,574)
Regulatory balancing accounts 101,487 42,973 340,671 59,859
Fuel inventory, materials
and supplies 3,948 (37,414) 21,863 (55,195)
Prepayments and other
current assets 43,849 41,372 (13,034) (2,529)
Accrued interest and taxes 124,620 118,641 40,683 102,387
Accounts payable and other
current liabilities (50,601) (39,842) 48,986 118,778
--------- --------- ---------- -----------
Net cash provided by
operating activities 708,392 620,244 2,051,073 1,858,748
--------- --------- ---------- -----------
Cash flows from financing activities:
Long-term debt issued 397,294 99,416 691,707 100,729
Long-term debt repayments (406,372) (200,000) (628,875) (201,223)
Preferred stock redemptions -- -- (75,000) --
Nuclear fuel financing--net (8,437) 22,010 687 (7,977)
Short-term debt financing--net (52,973) (213,971) (155,008) (224,329)
Dividends paid (144,501) (121,970) (582,417) (541,898)
--------- --------- ----------- -----------
Net cash used by
financing activities (214,989) (414,515) (748,906) (874,698)
--------- --------- ----------- -----------
Cash flows from investing activities:
Additions to property and plant (184,369) (195,689) (761,630) (916,170)
Funding of nuclear decommissioning
trusts (35,975) (24,157) (162,413) (119,614)
Other--net (7,660) (4,520) (24,413) (8,440)
--------- --------- ----------- -----------
Net cash used by
investing activities (228,004) (224,366) (948,456) (1,044,224)
--------- --------- ----------- -----------
Net increase (decrease) in cash
and equivalents 265,399 (18,637) 353,711 (60,174)
Cash and equivalents, beginning
of period 261,767 192,092 173,455 233,629
--------- --------- ----------- -----------
Cash and equivalents, end of period $ 527,166 $ 173,455 $ 527,166 $ 173,455
========= ========= =========== ===========
Cash payments for interest and taxes:
Interest $ 76,468 $ 72,288 $ 386,978 $ 366,074
Taxes 30,047 29,330 693,497 552,887
</TABLE>
The accompanying notes are an integral part of these financial statements.
page 6
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
In thousands
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
--------------------------- ---------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at beginning of period $2,780,058 $2,683,568 $2,685,417 $2,558,871
Net income 147,103 148,689 678,104 646,296
Dividends declared on common stock (180,911) (136,820) (590,528) (479,670)
Dividends declared on preferred
stock (8,599) (10,020) (35,342) (40,080)
---------- ---------- ---------- ----------
Balance at end of period $2,737,651 $2,685,417 $2,737,651 $2,685,417
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
page 7
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Southern California Edison Company's (SCE) outstanding common stock is
owned entirely by its parent company, Edison International (formerly
SCEcorp). SCE is a public utility which produces and supplies electric
energy for its 4.2 million customers in Central and Southern California.
The consolidated financial statements include SCE and its subsidiaries.
Intercompany transactions have been eliminated.
SCE's accounting policies conform with generally accepted accounting
principles, including the accounting principles for rate-regulated
enterprises which reflect the rate-making policies of the California
Public Utilities Commission (CPUC) and the Federal Energy Regulatory
Commission (FERC).
SCE currently operates in a highly regulated environment in which it has
an obligation to provide electric service to customers in return for an
exclusive franchise within its service territory. This regulatory
environment is changing, as further discussed in Note 2 to the
Consolidated Financial Statements. Financial statements prepared in
compliance with generally accepted accounting principles require
management to make estimates and assumptions that affect the amounts
reported in the financial statements and disclosure of contingencies.
Actual results could differ from those estimates. Certain significant
estimates related to the CPUC restructuring decision, decommissioning and
contingencies are further discussed in Notes 2, 9 and 10, respectively.
Certain prior-period amounts were reclassified to conform to the March 31,
1996, 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.
Financial Instruments
SCE enters into interest rate swap and cap agreements to manage its
interest rate exposure. Interest rate differentials and premiums for
interest rate caps to be paid or received are recorded as adjustments to
interest expense.
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 ($313 million at March 31,
1996, $235 million at December 31, 1995, and $160 million at March 31,
1995), and time deposits and other investments ($206 million at March 31,
1996, $23 million at December 31, 1995, and $6 million at March 31, 1995)
with maturities of three months or less.
Unrealized gains (losses) on equity investments are recorded as regulatory
liabilities (assets). Unrealized gains and losses on decommissioning
trust funds are recorded in the accumulated provision for decommissioning.
All investments are classified as available-for-sale.
page 8
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nuclear
The CPUC authorized rate phase-in plans to defer the collection of $200
million in revenue for each unit at Palo Verde Nuclear Generating Station
during the first four years of operation and recover the deferred revenue
(including interest) evenly over the following six years. Unit 1's plan
ended in February 1996; the plans end in September 1996 and January 1998
for Units 2 and 3, respectively.
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, SCE is liable for its share of the
estimated costs to decommission three federal nuclear enrichment
facilities (based on purchases). These costs, which will be paid over 15
years, are recorded as a fuel cost and recovered through customer rates.
In August 1992, the CPUC approved a settlement agreement between SCE and
the CPUC's Division of Ratepayer Advocates (DRA) to discontinue operation
of San Onofre Nuclear Generating Station Unit 1 at the end of its then-
current fuel cycle because operation of the unit was no longer cost-
effective. In November 1992, SCE discontinued operation of Unit 1. As
part of the agreement, SCE will recover its remaining investment, earning
an 8.98% rate of return on rate base, by August 1996.
In October 1994, the CPUC authorized accelerated recovery of SCE's nuclear
plant investments by $75 million per year, with a corresponding
deceleration in recovery of its transmission and distribution assets
through revised depreciation estimates over their remaining useful lives.
Recovery of the San Onofre nuclear plant investment has been further
accelerated by the 1995 general rate case decision (see Note 2).
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.
Research, Development and Demonstration (RD&D)
SCE 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 any
authorized but unspent RD&D funds at the end of the rate-case cycle are
refunded to customers. RD&D expenses were $4 million and $27 million for
the three and twelve months ended March 31, 1996, respectively, and $6
million and $57 million for the three and twelve months ended March 31,
1995, respectively.
Revenue
Operating revenue includes amounts for services rendered but unbilled at
the end of each period.
page 9
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Depreciation expense
stated as a percent of average original cost of depreciable utility plant
was 3.6% for all periods presented.
Note 2. Regulatory Matters
1995 General Rate Case
On January 10, 1996, the CPUC issued its decision on SCE's 1995 general
rate case. The decision affirmed the CPUC's interim order to reduce 1995
operating revenue by $67 million, but decreased 1996 operating revenue by
an additional $9 million, which includes a decrease of $44 million for
operating and maintenance expenses. The decision also authorized recovery
of SCE's remaining investment in San Onofre Units 2 and 3, at a reduced
rate of return, over an eight-year period. On April 10, 1996, the CPUC
finalized the implementation details of the accelerated recovery of the
San Onofre units. On April 15, 1996, SCE began accelerating the recovery
of its remaining investment of $2.6 billion. The accelerated recovery
will continue through December 31, 2003, earning a 7.35% fixed rate of
return (compared to the current 9.55%). Future operating costs and
incremental capital expenditures at San Onofre are subject to an incentive
pricing plan, where SCE receives about 4 cents per kilowatt-hour. Any
differences from the incentive price will flow through to shareholders.
Beginning in 2004, after SCE's investment is fully recovered, SCE would
be required to share equally with ratepayers the benefits received from
operation of the units.
Performance-Based Ratemaking (PBR)
SCE originally filed for a PBR mechanism in 1993, requesting a revenue-
indexing formula to combine operating expenses and capital-related costs
into a single index to determine most of its revenue (excluding fuel) from
1996-2000. The filing was subsequently divided between transmission and
distribution, and power generation. Hearings concluded on the
transmission and distribution phase in December 1994. The CPUC's
restructuring decision, as further discussed below, requested comments
addressing whether SCE's transmission and distribution PBR proposal should
be amended or reviewed as filed. In January 1996, SCE requested the CPUC
approve its PBR as filed. SCE expects to file its proposal for the power
generation phase in July 1996.
CPUC Restructuring Decision
On December 20, 1995, the CPUC issued its decision on restructuring
California's electric industry, which it had been considering since April
1994. The new market structure would provide competition and customer
choice. The transition to a competitive electric market would begin
January 1, 1998, with all consumers participating by 2003. Key elements
of the decision include:
page 10
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
o Creation of an independent power exchange to manage electric supply
and demand. California's investor-owned utilities would be required
to purchase from and sell to the exchange all of their power during
the transition period, while other generators could voluntarily
participate.
o Creation of an independent system operator to have operational control
of the utilities' transmission facilities and, therefore, control the
scheduling and dispatch of all electricity on the state's power grid.
o Availability of customer choice through time-of-use rates, direct
customer access to generation providers with transmission arrangements
through the system operator, and customer-arranged "contracts for
differences" to manage price fluctuations from the power exchange.
o Recovery of costs to transition to a competitive market (utility
investments and obligations incurred to serve customers under the
existing framework) through a non-bypassable charge, applied to all
customers, called the "competition transition charge" (CTC).
o CPUC-established incentives to encourage voluntary divestiture
(through spin-off or sale to an unaffiliated entity) of at least 50%
of utilities' gas-fueled generation to address market power issues.
o Performance-based ratemaking (PBR) for those utility services not
subject to competition.
On March 19, 1996, SCE filed a plan outlining how SCE would propose to
divest 50% of its gas-fueled generation. SCE's plan is contingent on
assurances about transition cost recovery and the resolution of key issues
related to: worker protection measures being in place for utility
employees who could suffer hardship as a result of divestiture; utilities
being permitted full recovery of the transition costs incurred during the
divestiture process; appropriate rate-making measures to cover the
contingency if the completion of the divestiture plan or commencement of
the power exchange is delayed; and prudently incurred costs associated
with fuel supply, transportation and storage contracts not being stranded
by the divestiture.
On April 29, 1996, SCE, Pacific Gas & Electric Company and San Diego Gas
& Electric Company filed a proposal with the FERC regarding the creation
of the independent power exchange and the independent system operator.
Recovery of costs to transition to a competitive market would be
implemented through a non-bypassable CTC. This charge would apply to all
customers who currently use utility services or begin utility service
after this decision is effective. SCE estimates its potential transition
costs through 2025 to be approximately $9.3 billion (net present value),
based on incurred costs, and forecasts of future costs and assumed market
prices. However, changes in the assumed market price could require
material revisions to such estimates. The potential transition costs are
comprised of: $4.9 billion from SCE's qualifying facility contracts, which
are the direct result of legislative and regulatory mandates; and $4.4
billion from costs pertaining to certain generating plants and regulatory
commitments consisting of costs incurred (whose recovery has been deferred
by the CPUC) to provide service to customers. Such commitments include
the recovery of income tax benefits previously flowed-through to
customers, postretirement benefit transition costs, accelerated recovery
of nuclear plants (including San Onofre Unit 1 as discussed in Note 1 and
San Onofre Units 2 and 3 as previously discussed), nuclear decommissioning
and certain other costs. The undepreciated book value of a utility's
generation plant will be calculated on the amount in rate base as of the
page 11
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
decision date. Further, adverse financial consequences could result if
an ambiguity in the CPUC's restructuring decision is not eliminated. The
ambiguity relates to recovery of capital expenditures made for SCE's
fossil generation units in 1996 and beyond in the calculation of the CTC.
SCE believes that recovery of such capital expenditures is consistent with
the intent of the restructuring decision and filed a petition on March 25,
1996, to clarify the decision. If these efforts at clarification,
consistent with the decision's intent, are unsuccessful, then SCE
estimates the negative effect on 1996 earnings would be approximately $50
million (pre-tax), based on SCE's 1996 capital budget for its fossil
generation units.
Because the restructuring of California's electric industry has widespread
impact and the market structure requires the participation and oversight
of the FERC, the CPUC will seek to build a California consensus involving
the legislature, governor, public and municipal utilities, and customers.
Once the consensus is in place, FERC approval will be sought, and together
both agencies would move forward to implement the new market structure.
In addition, the CPUC will prepare an environmental impact report. If the
CPUC's restructuring decision is upheld and implemented as outlined, SCE
would be allowed to recover its CTC (subject to a lower return on equity)
and would continue to apply accounting standards that recognize the
economic effects of rate regulation. The effect of such an outcome would
not be expected to materially affect SCE's results of operations or
financial position during the transition period.
If revisions are made to the CPUC's restructuring decision that result in
SCE no longer meeting the criteria to apply regulatory accounting
standards to its generation operations, SCE may be required to write off
its recorded generation-related regulatory assets. At March 31, 1996,
these amounts totaled $1.3 billion (excluding balancing account
overcollections of $237 million to be refunded to customers in June 1996),
primarily for the recovery of income tax benefits previously flowed-
through to customers, the Palo Verde phase-in plan and unamortized loss
on reacquired debt. Although depreciation-related differences could
result from applying a regulatory prescribed depreciation method
(straight-line, remaining-life method) rather than a method that would
have been applied absent the regulatory process, SCE believes that the
depreciable lives of its generation-related assets would not vary
significantly from that of an unregulated enterprise, as the CPUC bases
depreciable lives on periodic studies that reflect the assets' physical
useful life. SCE also believes that any depreciation-related differences
would be recovered through the CTC.
Additionally, if revisions are made to the CPUC's restructuring decision
that result in all or a portion of the CTC not being probable of recovery,
SCE could have additional write-offs associated with these costs if they
are not recovered through another regulatory mechanism. At this time, SCE
cannot predict when, or if, a consensus on restructuring will be reached,
what revisions will ultimately be made in the CPUC's restructuring plan
in subsequent proceedings or implementation phases, or the effect, after
the transition period, that competition will have on its results of
operations or financial position.
FERC Stranded Cost/Open Access Transmission Decision
On April 24, 1996, the FERC issued its decision on stranded cost recovery
and open access transmission, which it had been considering since March
1995. The decision, which will be effective in July 1996, requires all
electric utilities subject to the FERC's jurisdiction to file transmission
tariffs which provide competitors with increased access to transmission
facilities for wholesale transactions and also establishes information
page 12
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
requirements for the transmission utility. The decision also provides
utilities with the recovery of prior-service costs incurred under the
current regulatory framework, which are known as stranded costs. In
addition to providing recovery of stranded costs associated with existing
wholesale customers, the FERC directed that it would be the primary
jurisdiction for the recovery of stranded costs associated with retail-
turned-wholesale customers, such as the formation of a new municipal
electric system. Retail stranded costs resulting from a state-authorized
retail direct-access program are the responsibility of the states and the
FERC would only address recovery of these costs if the state has no
authority to do so.
Mohave Generating Station
A 1994 CPUC decision stated that SCE 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. On December
22, 1995, SCE and the DRA filed a $38 million settlement agreement subject
to CPUC approval. This agreement has been fully reflected in the
financial statements.
Canadian Gas Contracts
In May 1994, SCE filed its testimony in the non-Qualified Facilities phase
of the 1994 Energy Cost Adjustment Clause proceeding. In May 1995, the
DRA filed its report on the reasonableness of SCE's gas supply costs for
both the 1993 and 1994 record periods. The report recommends a
disallowance of $13.3 million for excessive costs incurred from November
1993 through March 1994 associated with SCE's Canadian gas purchase and
supply contracts. The report requests the CPUC defer finding SCE's
Canadian supply and transportation agreements reasonable for the duration
of their terms and that the costs under these contracts be reviewed on a
yearly basis. In December 1995, SCE filed rebuttal testimony. Hearings
are scheduled for late 1996.
Palo Verde Rate-making Proposal
On February 29, 1996, SCE filed a proposal with the CPUC requesting a new
rate mechanism for its 15.8% share of the three units at Palo Verde. The
filing was made in compliance with the CPUC's December 20, 1995,
restructuring decision that directed SCE to file a rate-making proposal
similar to ratemaking approved for San Onofre in the 1995 general rate
case. The proposed rate mechanism would allow SCE to accelerate the
recovery of its share of Palo Verde's sunk cost (forecast to be $1.2
billion as of December 31, 1996), over a seven-year period, beginning
January 1, 1997, and ending in 2003. During the seven-year period, SCE's
return on rate base for Palo Verde sunk costs would be reduced to 7.34%
from the current 9.55%, and SCE would also have the opportunity to recover
the incremental costs of continued operation of Palo Verde at
approximately 3.5 cents per kilowatt-hour, provided the Palo Verde units
operate at an average capacity factor of 77%. SCE recommended to the CPUC
a schedule for this proceeding that calls for hearings to begin in June
and a decision by year-end 1996.
Note 3. Financial Instruments
Long-Term Debt
California law prohibits SCE from incurring or guaranteeing debt for its
nonutility affiliates.
Almost all SCE properties are subject to a trust indenture lien.
page 13
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SCE has pledged first and refunding mortgage bonds as security for
borrowed funds obtained from pollution-control bonds issued by government
agencies. SCE uses these proceeds to finance construction of pollution-
control facilities. Bondholders have limited discretion in redeeming
certain pollution-control bonds, and SCE has arranged with securities
dealers to remarket or purchase them if necessary.
Long-term debt maturities and sinking-fund requirements for the five
twelve-month periods following March 31, 1996, are: 1997--$201 million;
1998--$426 million; 1999--$322 million; 2000--$479 million; and 2001--$200
million.
Long-term debt consisted of:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1996 1995 1995
-------------- ------------ -------------
(In millions)
First and refunding mortgage bonds:
<C> <C> <C> <C>
1997--2000 (5.45% to 7.5%) $1,025 $1,025 $1,025
2001--2005 (5.625% to 6.25%) 450 450 450
2017--2026 (6.9% to 9.25%) 1,250 1,637 1,850
Pollution-control bonds:
1999--2027 (5.4% to 7.2% and variable) 1,205 1,205 1,207
Funds held by trustees (2) (2) (2)
Debentures and notes:
1998--2006 (5.6% to 8.25%) 1,195 795 595
Subordinated debentures:
2044 (8-3/8%) 100 100 --
Commercial paper for nuclear fuel 61 70 61
Long-term debt due within one year (201) (1) (1)
Unamortized debt discount--net (57) (64) (74)
------ ------ ------
Total $5,026 $5,215 $5,111
====== ====== ======
</TABLE>
Short-Term Debt
SCE has lines of credit it can use at negotiated or bank index rates. At
March 31, 1996, available lines totaled $1.4 billion, with $900 million
for short-term debt and $500 million available for the long-term
refinancing of certain variable-rate pollution-control debt.
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, 1996, December
31, 1995, and March 31, 1995, was $370 million, $433 million and $524
million, respectively. Commercial paper intended to finance nuclear fuel
scheduled to be used more than one year after the balance sheet date is
classified as long-term debt in connection with refinancing terms under
five-year term lines of credit with commercial banks. Weighted-average
interest rates were 5.3%, 5.8% and 6.1%, at March 31, 1996, December 31,
1995, and March 31, 1995, respectively.
Other Financial Instruments
SCE's risk management policy allows the use of derivative financial
instruments to manage financial exposure on its investments and
fluctuations in interest rates, but prohibits the use of these instruments
for speculative or trading purposes.
Interest rate swaps and caps are used to reduce the potential impact of
interest rate fluctuations on floating rate long-term debt. The interest
page 14
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
rate swap agreement requires the parties to pledge collateral according
to bond rating and market interest rate changes. At March 31, 1996, SCE
has pledged $13 million as collateral due to a downgrade of its bond
rating and a decline in market interest rates. SCE 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, SCE had the following derivative
financial instruments:
<TABLE>
<CAPTION>
Category Contract Amount/Terms Purpose
- -------- --------------------- -------
<S> <C> <C>
Interest rate swap $196 million fix interest rate exposure at
due 2008 5.585%
Interest rate cap $30 million fix interest rate exposure at
expires 1997 6% over variable term of the
debt due 2027 debt
</TABLE>
Fair values of financial instruments were:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1996 1995 1995
-------------------- ------------------- -----------------
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 $1,105 $1,295 $1,069 $1,260 $ 943 $1,004
Equity investments 9 47 9 41 9 29
Financial liabilities:
DOE decommissioning and
decontamination fees 58 47 58 49 62 48
Interest rate swap & cap -- 11 -- 18 -- 8
Long-term debt 5,026 5,141 5,215 5,487 5,111 5,076
Preferred stock subject to
mandatory redemption 275 281 275 288 275 273
</TABLE>
Financial assets are carried at their fair value based on quoted market
prices. Financial liabilities are recorded at cost. Financial
liabilities' fair values were based on: termination costs for the interest
rate swap; brokers' quotes for long-term debt, preferred stock and the
cap; and discounted future cash flows for U.S. Department of Energy (DOE)
decommissioning and decontamination fees. Amounts reported for cash
equivalents and short-term debt approximate fair value, due to their short
maturities.
Gross unrealized holding gains on financial assets were:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1996 1995 1995
------------- ------------ -------------
(In millions)
Decommissioning trusts:
<S> <C> <C> <C>
Municipal bonds $ 57 $ 52 $ 16
Stocks 80 122 39
U.S. government issues 19 11 4
Short-term and other 34 6 2
---- ---- ----
190 191 61
Equity investments 38 32 20
---- ---- ----
Total $228 $223 $ 81
==== ==== ====
</TABLE>
page 15
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There were no unrealized holding losses on financial assets for all
periods presented.
Note 4. Equity
The CPUC regulates SCE's capital structure, limiting the dividends it may
pay Edison International. At March 31, 1996, SCE had the capacity to pay
$491 million in additional dividends and continue to maintain its
authorized capital structure.
Authorized common stock is 560 million shares with no par value.
Authorized shares of preferred and preference stock are: $25 cumulative
preferred--24 million; $100 cumulative preferred--12 million; and
preference--50 million. All cumulative preferred stocks are redeemable.
Mandatorily redeemable preferred stocks are subject to sinking-fund
provisions. When preferred shares are redeemed, the premiums paid are
charged to common equity. There are no preferred stock redemption
requirements for the next five years.
Cumulative preferred stock consisted of:
<TABLE>
<CAPTION>
March 31, 1996
---------------------------
Shares Redemption March 31, December 31, March 31,
Outstanding Price 1996 1995 1995
----------- ---------- ------------- ------------ -------------
(In millions)
Not subject to mandatory redemption:
$25 Par value:
<S> <C> <C> <C> <C> <C>
4.08% Series 1,000,000 $ 25.50 $ 25 $ 25 $ 25
4.24 1,200,000 25.80 30 30 30
4.32 1,653,429 28.75 41 41 41
4.78 1,296,769 25.80 33 33 33
5.80 2,200,000 25.25 55 55 55
7.36 4,000,000 25.00 100 100 100
$100 Par value:
7.58% Series -- -- -- -- 75
---- ---- ----
Total $284 $284 $359
==== ==== ====
Subject to mandatory redemption:
$100 Par value:
6.05% Series 750,000 $100.00 $ 75 $ 75 $ 75
6.45 1,000,000 100.00 100 100 100
7.23 1,000,000 100.00 100 100 100
---- ---- ----
Total $275 $275 $275
==== ==== ====
</TABLE>
In the second quarter of 1995, 750,000 shares of Series 7.58% preferred
stock were redeemed. There were no other preferred stock issuances or
redemptions for the periods presented.
Note 5. Income Taxes
SCE and its subsidiaries will be included in Edison International's
consolidated federal income tax and combined state franchise tax returns.
Under income tax allocation agreements, each subsidiary calculates its own
tax liability.
page 16
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
1996 1995 1995
------------- ------------ -------------
(In millions)
Deferred tax assets:
<S> <C> <C> <C>
Property-related $ 254 $ 276 $ 262
Investment tax credits 218 222 235
Regulatory balancing accounts 193 166 94
Other 605 674 537
------ ------ ------
Total $1,270 $1,338 $1,128
------ ------ ------
Deferred tax liabilities:
Property-related $3,669 $3,670 $3,703
Other 479 501 546
------ ------ ------
Total $4,148 $4,171 $4,249
------ ------ ------
Accumulated deferred income taxes--net $2,878 $2,833 $3,121
====== ====== ======
Classification of accumulated deferred income taxes:
Included in deferred credits $3,265 $3,310 $3,348
Included in current assets 387 477 227
</TABLE>
The current and deferred components of income tax expense were:
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
---------------- -----------------
1996 1995 1996 1995
------ ------ ------ ------
(In millions)
Current:
<S> <C> <C> <C> <C>
Federal $ 90 $ 92 $ 557 $ 444
State 41 23 184 120
----- ----- ----- -----
131 115 741 564
----- ----- ----- -----
Deferred--federal and state:
Accrued charges (1) 4 (4) (17)
Depreciation (6) 2 12 38
Investment and energy tax credits--net (6) (5) (27) (20)
Rate phase-in plan (11) (11) (46) (49)
Regulatory balancing accounts (49) (21) (146) (27)
Retirement of debt (3) (2) (11) (9)
State tax-privilege year 40 34 (6) 22
Unbilled revenue 2 (5) -- (10)
Other (1) (2) (16) (24)
----- ----- ----- -----
(35) (6) (244) (96)
----- ----- ----- -----
Total income tax expense $ 96 $ 109 $ 497 $ 468
===== ===== ===== =====
Classification of income taxes:
Included in operating income $ 108 $ 123 $ 545 $ 527
Included in other income (12) (14) (48) (59)
</TABLE>
page 17
<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,
------------------ ------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0% 35.0%
Investment and energy tax credits (2.6) (1.8) (2.3) (1.8)
State tax--net of federal deduction 6.8 3.6 7.2 5.2
Tax rate change -- 4.0 -- 0.9
Other 0.4 1.5 2.4 2.7
---- ---- ---- ----
Effective tax rate 39.6% 42.3% 42.3% 42.0%
==== ==== ==== ====
</TABLE>
Note 6. Employee Benefit Plans
Pension Plan
SCE 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. SCE 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 18
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The plan's funded status was:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1996 1995 1995
-------------- ------------- --------------
(In millions)
Actuarial present value of benefit obligation:
<S> <C> <C> <C>
Vested benefits $1,864 $1,696 $1,272
Nonvested benefits 165 210 153
------ ------ ------
Accumulated benefit obligation 2,029 1,906 1,425
Value of projected future compensation levels 417 479 466
------ ------ ------
Projected benefit obligation $2,446 $2,385 $1,891
====== ====== ======
Fair value of plan assets $2,713 $2,620 $2,294
====== ====== ======
Plan assets greater than projected benefit
obligation $ (267) $ (235) $ (403)
Unrecognized net gain 377 326 510
Unrecognized prior service cost (31) (6) (5)
Unrecognized net obligation (17-year amortization) (48) (49) (53)
------ ------ ------
Pension liability $ 31 $ 36 $ 49
====== ====== ======
Discount rate 7.25% 7.25% 8.5%
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>
SCE 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,
-------------- ----------------
1996 1995 1996 1995
---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C>
Service cost for benefits earned $ 17 $ 14 $ 60 $ 63
Interest cost on projected benefit obligation 42 39 160 150
Actual return on plan assets (101) (84) (471) (101)
Net amortization and deferral 50 38 280 (71)
---- ----- ---- -----
Pension expense under accounting standards 8 7 29 41
Special termination benefits -- -- 3 15
Regulatory adjustment--deferred 4 6 21 7
---- ----- ---- -----
Net pension expense recognized $ 12 $ 13 $ 53 $ 63
==== ===== ==== =====
</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 19
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1993, SCE 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. SCE is
amortizing its obligation related to prior service over 20 years.
SCE funds these benefits (by contributions to independent trusts) up to
tax-deductible limits, in accordance with rate-making practices. SCE
began funding its liability for these benefits in 1991. Amounts funded
prior to 1993 were amortized and recovered in rates over 12 months. 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,
---------------- ----------------
1996 1995 1996 1995
---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C>
Service cost for benefits earned $ 9 $ 8 $ 35 $ 27
Interest cost on benefit obligation 19 18 78 73
Actual return on plan assets (9) (7) (30) (21)
Amortization of loss 2 -- 3 --
Amortization of transition obligation 7 9 25 36
---- --- ---- ----
Net expense 28 28 111 115
Amortization of prior funding -- -- -- 2
---- --- ---- ----
Total expense $ 28 $28 $111 $117
==== === ==== ====
</TABLE>
The funded status of these benefits is reconciled to the recorded
liability below:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1996 1995 1995
------------- ------------- -------------
(In millions)
Actuarial present value of benefit obligation:
<S> <C> <C> <C>
Retirees $ 401 $ 402 $ 530
Employees eligible to retire 104 103 48
Other employees 577 556 307
------ ------ -----
Accumulated benefit obligation $1,082 $1,061 $ 885
====== ====== =====
Fair value of plan assets $ 427 $ 400 $ 327
====== ====== =====
Plan assets less than accumulated benefit
obligation $ 655 $ 661 $ 558
Unrecognized transition obligation (450) (457) (613)
Unrecognized net loss (gain) (203) (203) 50
----- ------ -----
Recorded liability (asset) $ 2 $ 1 $ (5)
===== ====== =====
Discount rate 7.5% 7.5% 8.75%
Expected long-term rate of return on assets 8.5% 8.5% 8.5%
page 20
<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 10% for 1996, gradually decreasing to 5% for 2003 and beyond.
Increasing the health care cost trend rate by one percentage point would
increase the accumulated obligation as of March 31, 1996, by $166 million
and annual aggregate service and interest costs by $20 million.
Employee Savings Plan
SCE has a 401(k) stock plan designed to supplement employees' retirement
income. The plan received employer contributions of $4 million and $19
million for the three and twelve months ended March 31, 1996,
respectively, and $5 million and $21 million for the three and twelve
months ended March 31, 1995, respectively.
Note 7. Jointly Owned Utility Projects
SCE owns interests in several generating stations and transmission systems
for which each participant provides its own financing. SCE'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, 1996, was:
</TABLE>
<TABLE>
<CAPTION>
Plant in Accumulated Under Ownership
Service Depreciation Construction Interest
-------- ------------ ------------ ---------
(In millions)
Transmission systems:
<S> <C> <C> <C> <C>
Eldorado $ 29 $ 8 $ -- 60%
Pacific Intertie 223 70 12 50
Generating stations:
Four Corners Units 4 and 5 (coal) 456 232 8 48
Mohave (coal) 291 142 14 56
Palo Verde (nuclear) 1,580 374 16 16
San Onofre (nuclear) 4,219 1,629 10 75
------ ------ ----
Total $6,798 $2,455 $ 60
====== ====== ====
</TABLE>
Note 8. Leases
SCE has operating leases, primarily for vehicles, with varying terms,
provisions and expiration dates.
Estimated remaining commitments for noncancelable leases at March 31,
1996, were:
Year ended December 31, (In millions)
1996 $16
1997 18
1998 15
1999 11
2000 8
Thereafter 11
---
Total $79
===
page 21
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Commitments
Nuclear Decommissioning
SCE 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 $2.0 billion in current-year dollars, based on site-specific studies
performed in 1993 for San Onofre and 1992 for Palo Verde. Changes in the
estimated costs, timing of decommissioning, or the assumptions underlying
these estimates could cause material revisions to the estimated total cost
to decommission in the near term. Decommissioning is scheduled to begin
in 2013 at San Onofre and 2024 at Palo Verde. San Onofre Unit 1, which
shut down in 1992, is expected to 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 $37 million and $155 million for the three and twelve months ended
March 31, 1996, respectively, and $33 million and $120 million for the
three and twelve months ended March 31, 1995, respectively. The
accumulated provision for decommissioning was $854 million at March 31,
1996, $823 million at December 31, 1995, and $951 million at March 31,
1995. The estimated costs to decommission San Onofre Unit 1 ($263
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 1996 1995 1995
---------- ------------- --------------- -------------
(In millions)
<S> <C> <C> <C> <C>
Municipal bonds 1997-2022 $ 359 $ 348 $ 404
Stocks -- 406 390 313
U.S. government issues 1997-2023 127 145 76
Short-term and other 1996-2045 213 186 150
------ ------ ------
Total $1,105 $1,069 $ 943
====== ====== ======
</TABLE>
Trust fund earnings (based on specific identification) increase the trust
fund balance and the accumulated provision for decommissioning. Net
earnings were $12 million and $56 million for the three and twelve months
ended March 31, 1996, respectively, and $8 million and $23 million for the
three and twelve months ended March 31, 1995, respectively. Proceeds from
sales of securities (which are reinvested) were $369 million and $1.1
billion for the three and twelve months ended March 31, 1996,
respectively, and $232 million and $1.3 billion for the three and twelve
months ended March 31, 1995, respectively. Approximately 88% of the trust
fund contributions were tax-deductible.
The Financial Accounting Standards Board has issued an exposure draft
related to accounting practices for removal costs, including
decommissioning of nuclear power plants. The exposure draft would require
SCE to report its estimated decommissioning costs as a liability, rather
than recognizing these costs over the term of each facility's operating
page 22
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
license (current industry practice). SCE does not believe that the
changes proposed in the exposure draft 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
SCE has fuel supply contracts which require payment only if the fuel is
made available for purchase.
SCE 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 SCE. There are no requirements to make debt-service
payments.
SCE 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. SCE's
minimum commitment under both contracts is approximately $225 million
through 2017.
Certain commitments for the years 1996 through 2000 are estimated below:
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
------ ------ ------ ------ ------
(In millions)
<S> <C> <C> <C> <C> <C>
Projected construction expenditures $ 746 $ 754 $ 647 $ 689 $ 673
Fuel supply contracts 280 214 224 214 234
Purchased-power capacity payments 726 714 721 733 735
Unconditional purchase obligations 12 12 12 12 12
</TABLE>
Note 10. Contingencies
In addition to the matters disclosed in these notes, SCE is involved in
legal, tax and regulatory proceedings before various courts and
governmental agencies regarding matters arising in the ordinary course of
business. SCE believes the outcome of these proceedings will not
materially affect its results of operations or liquidity.
Environmental Protection
SCE 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.
SCE records its environmental liabilities when site assessments and/or
remedial actions are probable and a range of reasonably likely cleanup
costs can be estimated. SCE 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, SCE records the lower end of this reasonably likely range of costs
(classified as other long-term liabilities at undiscounted amounts).
page 23
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
While SCE 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.
SCE's recorded estimated minimum liability to remediate its 58 identified
sites was $114 million at March 31, 1996. The ultimate costs to clean up
SCE'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. SCE 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 SCE
among a range of reasonably possible outcomes.
The CPUC allows SCE to recover environmental-cleanup costs at 24 of its
sites, representing $90 million of its recorded liability, through an
incentive mechanism (SCE may request to include additional sites). Under
this mechanism, SCE will recover 90% of cleanup costs through customer
rates; shareholders fund the remaining 10%, with the opportunity to
recover these costs through insurance and other third-party recoveries.
SCE has settled insurance claims with several carriers, and is continuing
to pursue additional recovery. Costs incurred at the remaining 34 sites
are expected to be recovered through customer rates. SCE has filed a
request with the CPUC to add 17 of these sites ($6 million in estimated
minimum liability) to the incentive mechanism. SCE has recorded a
regulatory asset of $104 million for its estimated minimum environmental-
cleanup costs expected to be recovered through customer rates.
SCE'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 SCE may be held responsible
for contributing to any costs incurred for remediating these sites. Thus,
no reasonable estimate of cleanup costs can now be made for these sites.
SCE 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 $3 million to $6 million. Recorded costs for the twelve
months ended March 31, 1996, were $3 million.
Based on currently available information, SCE 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, SCE 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. SCE and other owners of San Onofre and Palo Verde have purchased
the maximum private primary insurance available ($200 million). The
balance is covered by the industry's retrospective rating plan that uses
deferred premium charges to every reactor licensee if a nuclear incident
at any licensed reactor in the U.S. results in claims and/or costs which
page 24
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
exceed the primary insurance at that plant site. Federal regulations
require this secondary level of financial protection. The Nuclear
Regulatory Commission exempted San Onofre Unit 1 from this secondary
level, effective June 1994. The maximum deferred premium for each nuclear
incident is $79 million per reactor, but not more than $10 million per
reactor may be charged in any one year for each incident. Based on its
ownership interests, SCE could be required to pay a maximum of $158
million per nuclear incident. However, it would have to pay no more than
$20 million per incident in any one year. Such amounts include a 5%
surcharge if additional funds are needed to satisfy public liability
claims and are subject to adjustment for inflation. If the public
liability limit above is insufficient, federal regulations may impose
further revenue-raising measures to pay claims, including a possible
additional assessment on all licensed reactor operators.
Property damage insurance covers losses up to $500 million, including
decontamination costs, at San Onofre and Palo Verde. Decontamination
liability and property damage coverage exceeding the primary $500 million
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, SCE could be
assessed retrospective premium adjustments of up to $44 million per year.
Insurance premiums are charged to operating expense.
page 25
<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 (SCE) earnings for the three and
twelve months ended March 31, 1996, were $139 million and $643 million,
respectively, compared with $139 million and $606 million for the same
periods in 1995. Quarterly earnings reflect improved operating
performance despite the lower authorized return on common equity and lower
authorized operating expenses. The increase in earnings for the twelve
months ended March 31, 1996, compared with the same period in 1995,
reflects the higher overall authorized return on common equity that was
in effect during the period of April 1, 1995, through March 31, 1996.
This increase is partially offset by the financial effects of the 1995
general rate case settlement.
Operating Revenue
Operating revenue increased slightly during the first quarter of 1996,
compared with the same period in 1995, primarily due to a similar increase
in retail sales volume. Since the California Public Utilities Commission
(CPUC) did not rule on 1996 authorized revenue until February 1996, new
rates will be effective in the second quarter. For the twelve months
ended March 31, 1996, compared to the year-earlier period, operating
revenue was unchanged, as the overall CPUC-authorized rate increase was
offset by a decrease in resale sales volume. About 99% of operating
revenue is from retail sales. Retail rates are regulated by the CPUC and
wholesale rates are regulated by the Federal Energy Regulatory Commission
(FERC).
In March 1995, SCE announced that it intends to freeze average rates for
residential, small business and agricultural customers through 1996, and
announced a five-year goal to reduce system average rates by 25% (from
10.7 cents per kilowatt-hour to below 10 cents per kilowatt-hour), after
adjusting for inflation. In February 1996, the CPUC approved a system-
wide rate reduction which will drop the average price per kilowatt-hour
from 10.7 cents to 10.1 cents.
Operating Expenses
Fuel expense decreased 24% and 28%, respectively, in the three and twelve
months ended March 31, 1996, compared with the same periods in 1995. The
decreases primarily reflect a decrease in gas-powered generation directly
related to an increase in nuclear generation. In 1995, San Onofre Nuclear
Generating Station Unit 2 was out of service for a scheduled refueling and
maintenance outage for half of the first quarter. There was no comparable
outage in 1996.
Purchased-power expense increased 8% for the quarter ended March 31, 1996,
compared to the same period last year. SCE makes federally required power
purchases from nonutility generators based on contracts with CPUC-mandated
pricing. Energy prices under these contracts are generally higher than
other energy sources. During the twelve-month period ended March 31,
1996, SCE 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 for both the
quarter and twelve months ended March 31, 1996, compared to the year-
earlier periods, as kilowatt-hour sales exceeded CPUC-authorized
estimates. In addition, the twelve-month period increase reflects CPUC-
<page 26>
authorized fuel and purchased-power cost estimates exceeding actual energy
costs.
Maintenance expense decreased 14% in the first quarter of 1996, compared
with the year-earlier period, due to the scheduled refueling and
maintenance outage at San Onofre Unit 2 during the first quarter of 1995.
Unit 2 returned to service in May 1995. For the twelve months ended March
31, 1996, compared to the same period in 1995, maintenance expense was
unchanged due to a scheduled refueling and maintenance outage at San
Onofre Unit 3 during the third quarter of 1995.
Income taxes decreased 12% during the first quarter of 1996, compared to
the same period in 1995, mainly due to a decrease in 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. The plan allows the deferred revenue (including interest) to be
collected evenly over the final six years of each unit's plan. The plan
ended in February 1996 for Unit 1, and will end in September 1996 and
January 1998 for Units 2 and 3, respectively. The provision is a non-cash
offset to the collection of deferred revenue.
Interest income increased 24% and 20%, respectively, for the three- and
twelve-month periods ended March 31, 1996, compared to the year-earlier
periods, primarily due to higher investment balances.
Other nonoperating income increased for both the three and twelve months
ended March 31, 1996, compared to the same periods in 1995, primarily due
to additional accruals for regulatory matters in the first quarter of
1995. In addition, the twelve months ended increase was partially offset
by the absence of an $11 million fourth quarter 1994 CPUC-authorized
incentive award for energy conservation.
Interest Expense
Other interest expense decreased 10% for the first quarter of 1996 and
increased 13% for the twelve months ended March 31, 1996, compared to the
year-earlier periods. The quarterly decrease reflects lower levels of
short-term debt and lower interest rates. The twelve-month period
increase is mainly due to higher balances in the regulatory balancing
accounts and is partially offset by the quarterly decrease.
FINANCIAL CONDITION
SCE'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, SCE lowered its quarterly common stock dividend to its
parent, Edison International, by 30%, as the result of uncertainty of
future earnings levels arising from the changing nature of California's
electric utility regulation.
In January 1995, Edison International authorized the repurchase of up to
$150 million (increased to $300 million on April 18, 1996) of its common
stock. As excess cash becomes available, SCE intends to pay cash
dividends to Edison International, while maintaining its CPUC-authorized
capital structure. Edison International repurchased 7,173,542 shares
($117 million) through May 3, 1996, funded by dividends from its
subsidiaries.
For the first quarter of 1996, SCE's cash flow coverage of dividends
decreased to 4.9 times from 5.1 times compared to the year-earlier period,
page 27
<PAGE>
reflecting the additional cash needs of Edison International. For the
twelve months ended March 31, 1996, the cash flow coverage of dividends
increased to 3.5 times from 3.4 times for the same period last year,
primarily due to the lower dividend rate.
Cash Flows from Operating Activities
Net cash provided by operating activities totaled $708 million and $2.1
billion, respectively, for the three and twelve months ended March 31,
1996, compared with $620 million and $1.9 billion for the same periods in
1995. Cash from operations exceeded capital requirements for both periods
presented.
Cash Flows from Financing Activities
At March 31, 1996, SCE had available lines of credit of $1.4 billion, with
$900 million for short-term debt and $500 million for the long-term
refinancing of its variable-rate pollution-control bonds. These unsecured
lines of credit are at negotiated or bank index rates with various
expiration dates; the majority have five-year terms.
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 its articles of incorporation and trust indenture. As of March
31, 1996, SCE could issue approximately $7.6 billion of additional first
and refunding mortgage bonds and $4.3 billion of preferred stock at
current interest and dividend rates.
California law prohibits SCE from incurring or guaranteeing debt for its
nonutility affiliates. Additionally, the CPUC regulates SCE's capital
structure, limiting the dividends it may pay Edison International. At
March 31, 1996, SCE had the capacity to pay $491 million in additional
dividends and continue to maintain its authorized capital structure.
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. As
further discussed in Note 9 to the Consolidated Financial Statements,
decommissioning costs are accrued and recovered in rates over the term of
each nuclear generating facility's operating license through charges to
depreciation expense. SCE estimates that it will spend approximately
$12.7 billion to decommission its nuclear facilities, primarily between
2013-2070. This estimate is based on SCE's current-dollar decommissioning
costs ($2.0 billion), escalated using a 6.65% rate and an earnings
assumption on trust funds ranging from 5.5% to 5.75%. These amounts are
expected to be funded from independent decommissioning trusts, which
receive SCE contributions of approximately $100 million per year (until
decommissioning begins). The Financial Accounting Standards Board has
issued an exposure draft related to accounting practices for removal
costs, including decommissioning of nuclear power plants. SCE does not
expect that the accounting changes proposed in the exposure draft 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
SCE's projected capital requirements for the next five years are: 1996--
$746 million; 1997--$754 million; 1998--$647 million; 1999--$689 million;
and 2000--$673 million.
Long-term debt maturities and sinking fund requirements for the five
twelve-month periods following March 31, 1996, are: 1997--$201 million;
1998--$426 million; 1999--$322 million; 2000--$479 million; and 2001--$200
million.
page 28
<PAGE>
REGULATORY MATTERS
SCE's 1996 CPUC-authorized revenue decreased $575 million, or 7.5%,
including a one-time bill credit of $237 million, which customers will
receive in June 1996, related to lower fuel costs than originally
estimated. The remaining $338 million revenue reduction is primarily for
a $242 million decrease in fuel costs, a $53 million decrease for lower
costs of debt and equity (discussed below), a $24 million decrease for
lower nuclear refueling costs and a $9 million decrease related to the
1995 general rate case (discussed below).
On January 10, 1996, the CPUC issued its decision on SCE's 1995 general
rate case. The decision affirmed the CPUC's interim order to reduce 1995
operating revenue by $67 million, but decreased 1996 operating revenue by
an additional $9 million, which includes a decrease of $44 million for
operating and maintenance expenses. The decision also authorized
recovery of SCE's remaining investment in San Onofre Units 2 and 3 at a
reduced rate of return over an eight-year period. On April 10, 1996, the
CPUC finalized the implementation details of the accelerated recovery of
the San Onofre units. On April 15, 1996, SCE began accelerating the
recovery of its remaining investment of $2.6 billion. The accelerated
recovery will continue through December 31, 2003, earning a 7.35% fixed
rate of return (compared to the current 9.55%). Future operating costs and
incremental capital expenditures at San Onofre are subject to an incentive
pricing plan, where SCE receives about 4 cents per kilowatt-hour. Any
differences from the incentive price will flow through to shareholders.
Beginning in 2004, after SCE's investment is fully recovered, SCE would
be required to share equally with ratepayers the benefits received from
operation of the units.
The CPUC's 1996 cost-of-capital decision authorized an increase to SCE's
equity ratio from 47.75% to 48% and authorized SCE an 11.6% return on
common equity, compared to 12.1% for 1995. This decision, excluding the
effects of other rate actions, would reduce 1996 earnings by approximately
$19 million.
A 1994 CPUC decision stated that SCE 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. On December
22, 1995, SCE and the CPUC's Division of Ratepayer Advocates (DRA) filed
a $38 million settlement agreement, subject to CPUC approval. This
agreement has been fully reflected in the financial statements.
In May 1994, SCE filed its testimony in the non-Qualified Facilities phase
of the 1994 Energy Cost Adjustment Clause proceeding. In May 1995, the
DRA filed its report on the reasonableness of SCE's gas supply costs for
both the 1993 and 1994 record periods. The report recommends a
disallowance of $13.3 million for excessive costs incurred from November
1993 through March 1994 associated with SCE's Canadian gas purchase and
supply contracts. The report requests the CPUC defer finding SCE's
Canadian supply and transportation agreements reasonable for the duration
of their terms and that the costs under these contracts be reviewed on a
yearly basis. In December 1995, SCE filed rebuttal testimony. Hearings
are scheduled for late 1996.
On February 29, 1996, SCE filed a proposal with the CPUC requesting a new
rate mechanism for its 15.8% share of the three units at Palo Verde. The
filing was made in compliance with the CPUC's December 20, 1995,
restructuring decision that directed SCE to file a rate-making proposal
similar to ratemaking approved for San Onofre in the 1995 general rate
case. The proposed rate mechanism would allow SCE to accelerate the
recovery of its share of Palo Verde's sunk cost (forecast to be $1.2
billion as of December 31, 1996) over a seven-year period, beginning
January 1, 1997, and ending in 2003. During the seven-year period, SCE's
return on rate base for Palo Verde sunk costs would be reduced to 7.34%
from the current 9.55%, and SCE would also have the opportunity to recover
page 29
<PAGE>
the incremental costs of continued operation of Palo Verde at
approximately 3.5 cents per kilowatt-hour, provided the Palo Verde units
operate at an average capacity factor of 77%. SCE recommended to the
CPUC a schedule for this proceeding that calls for hearings to begin in
June and a decision by year-end 1996.
COMPETITIVE ENVIRONMENT
SCE currently operates in a highly regulated environment in which it has
an obligation to provide electric service to customers in return for an
exclusive franchise within its service territory. This regulatory
environment is changing. The generation sector has experienced
competition from nonutility power producers and regulators are
restructuring California's electric utility regulation.
On December 20, 1995, the CPUC issued its decision on restructuring
California's electric industry, which it had been considering since April
1994. The new market structure would provide competition and customer
choice. The transition to a competitive electric market would begin
January 1, 1998, with all consumers participating by 2003. Key elements
of the decision include:
o Creation of an independent power exchange to manage electric supply and
demand. California's investor-owned utilities would be required to
purchase from and sell to the exchange all of their power during the
transition period, while other generators could voluntarily
participate.
o Creation of an independent system operator to have operational control
of the utilities' transmission facilities and, therefore, control the
scheduling and dispatch of all electricity on the state's power grid.
o Availability of customer choice through time-of-use rates, direct
customer access to generation providers with transmission arrangements
through the system operator, and customer-arranged "contracts for
differences" to manage price fluctuations from the power exchange.
o Recovery of costs to transition to a competitive market (utility
investments and obligations incurred to serve customers under the
existing framework) through a non-bypassable charge, applied to all
customers, called the "competition transition charge" (CTC).
o CPUC-established incentives to encourage voluntary divestiture (through
spin-off or sale to an unaffiliated entity) of at least 50% of
utilities' gas-fueled generation to address market power issues.
o Performance-based ratemaking (PBR) for those utility services not
subject to competition.
SCE originally filed for a PBR mechanism in 1993, requesting a revenue-
indexing formula to combine operating expenses and capital-related costs
into a single index to determine most of its revenue (excluding fuel) from
1996-2000. The filing was subsequently divided between transmission and
distribution, and power generation. Hearings concluded on the
transmission and distribution phase in December 1994. The CPUC's
restructuring decision requested comments addressing whether SCE's
transmission and distribution PBR proposal should be amended or reviewed
as filed. In January 1996, SCE requested the CPUC approve its PBR as
filed. SCE expects to file its proposal for the power generation phase
in July 1996.
On March 19, 1996, SCE filed a plan outlining how SCE would propose to
divest 50% of its gas-fueled generation. SCE's plan is contingent on
assurances about transition cost recovery and the resolution of key issues
related to: worker protection measures being in place for utility
employees who could suffer hardship as a result of divestiture; utilities
page 30
<PAGE>
being permitted full recovery of the transition costs incurred during the
divestiture process; appropriate rate-making measures to cover the
contingency if the completion of the divestiture plan or commencement of
the power exchange is delayed; and prudently incurred costs associated
with fuel supply, transportation and storage contracts not being stranded
by the divestiture.
On April 29, 1996, SCE, Pacific Gas & Electric Company and San Diego Gas
& Electric Company filed a proposal with the FERC regarding the creation
of the independent power exchange and the independent system operator.
SCE estimates its potential transition costs through 2025 to be
approximately $9.3 billion (net present value), based on incurred costs,
and forecasts of future costs and assumed market prices. However, changes
in the assumed market price could require material revisions to such
estimates. The potential transition costs are comprised of: $4.9 billion
from SCE's qualifying facility contracts, which are the direct result of
legislative and regulatory mandates; and $4.4 billion from costs
pertaining to certain generating plants and regulatory commitments
consisting of costs incurred (whose recovery has been deferred by the
CPUC) to provide service to customers. Such commitments include the
recovery of income tax benefits previously flowed-through to customers,
postretirement benefit transition costs, accelerated recovery of nuclear
plants (including San Onofre Unit 1 as discussed in Note 1 to the
Consolidated Financial Statements and San Onofre Units 2 and 3 as
previously discussed), nuclear decommissioning and certain other costs.
The undepreciated book value of a utility's generation plant will be
calculated on the amount in rate base as of the decision date. Further,
adverse financial consequences could result if an ambiguity in the CPUC's
restructuring decision is not eliminated. The ambiguity relates to
recovery of capital expenditures made for SCE's fossil generation units
in 1996 and beyond in the calculation of the CTC. SCE believes that
recovery of such capital expenditures is consistent with the intent of the
restructuring decision and filed a petition on March 25, 1996, to clarify
the decision. If these efforts at clarification, consistent with the
decision's intent, are unsuccessful, then SCE estimates the negative
effect on 1996 earnings would be approximately $50 million (pre-tax),
based on SCE's 1996 capital budget for its fossil generation units.
Because the restructuring of California's electric industry has widespread
impact and the market structure requires the participation and oversight
of the FERC, the CPUC will seek to build a California consensus involving
the legislature, governor, public and municipal utilities, and customers.
Once the consensus is in place, FERC approval will be sought and together
both agencies would move forward to implement the new market structure.
In addition, the CPUC will prepare an environmental impact report. If the
CPUC's restructuring decision is upheld and implemented as outlined, SCE
would be allowed to recover its CTC (subject to a lower return on equity)
and would continue to apply accounting standards that recognize the
economic effects of rate regulation. The effect of such an outcome would
not be expected to materially affect SCE's results of operations or
financial position during the transition period.
If revisions are made to the CPUC's restructuring decision that result in
SCE no longer meeting the criteria to apply regulatory accounting
standards to its generation operations, SCE may be required to write off
its recorded generation-related regulatory assets. At March 31, 1996,
these amounts totaled $1.3 billion (excluding balancing account
overcollections of $237 million to be refunded to customers in June 1996),
primarily for the recovery of income tax benefits previously flowed-
through to customers, the Palo Verde phase-in plan and unamortized loss
on reacquired debt. Although depreciation-related differences could
result from applying a regulatory prescribed depreciation method
(straight-line, remaining-life method) rather than a method that would
have been applied absent the regulatory process, SCE believes that the
depreciable lives of its generation-related assets would not vary
<page 31>
significantly from that of an unregulated enterprise, as the CPUC bases
depreciable lives on periodic studies that reflect the assets' physical
useful life. SCE also believes that any depreciation-related differences
would be recovered through the CTC.
Additionally, if revisions are made to the CPUC's restructuring decision
that result in all or a portion of the CTC not being probable of recovery,
SCE could have additional write-offs associated with these costs if they
are not recovered through another regulatory mechanism. At this time,
SCE cannot predict when, or if, a consensus on restructuring will be
reached, what revisions will ultimately be made in the CPUC's
restructuring plan in subsequent proceedings or implementation phases, or
the effect, after the transition period, that competition will have on its
results of operations or financial position.
FERC Stranded Cost/Open Access Transmission Decision
On April 24, 1996, the FERC issued its decision on stranded cost recovery
and open access transmission, which it had been considering since March
1995. The decision, which will be effective in July 1996, requires all
electric utilities subject to the FERC's jurisdiction to file transmission
tariffs which provide competitors with increased access to transmission
facilities for wholesale transactions and also establishes information
requirements for the transmission utility. The decision also provides
utilities with the recovery of prior-service costs incurred under the
current regulatory framework, which are known as stranded costs. In
addition to providing recovery of stranded costs associated with existing
wholesale customers, the FERC directed that it would be the primary
jurisdiction for the recovery of stranded costs associated with retail-
turned-wholesale customers, such as the formation of a new municipal
electric system. Retail stranded costs resulting from a state-authorized
retail direct access program are the responsibility of the states and the
FERC would only address recovery of these costs if the state has no
authority to do so.
ENVIRONMENTAL PROTECTION
SCE is subject to numerous environmental laws and regulations, which
require it to incur substantial costs to operate existing facilities,
construct and operate new facilities, and mitigate or remove the effect
of past operations on the environment.
As further discussed in Note 10 to the Consolidated Financial Statements,
SCE records its environmental liabilities when site assessments and/or
remedial actions are probable and a range of reasonably likely cleanup
costs can be estimated. SCE reviews its sites and measures the liability
quarterly, by assessing a range of reasonably likely costs for each
identified site. Unless there is a probable amount, SCE records the lower
end of this reasonably likely range of costs.
SCE's recorded estimated minimum liability to remediate its 58 identified
sites was $114 million at March 31, 1996. One of SCE's sites, a former
pole-treating facility, is considered a federal Superfund site and
represents 71% of its recorded liability. The ultimate costs to clean up
SCE's identified sites may vary from its recorded liability due to
numerous uncertainties inherent in the estimation process. SCE 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 SCE among a range of reasonably possible outcomes.
The CPUC allows SCE to recover environmental-cleanup costs at 24 of its
sites, representing $90 million of its recorded liability, through an
incentive mechanism. Under this mechanism, SCE will recover 90% of
cleanup costs through customer rates; shareholders fund the remaining 10%,
with the opportunity to recover these costs through insurance and other
third-party recoveries. SCE has settled insurance claims with several
<page 32>
carriers, and is continuing to pursue additional recovery. Costs incurred
at SCE's remaining 34 sites are expected to be recovered through customer
rates. SCE has recorded regulatory assets of $104 million for its
estimated minimum environmental-cleanup costs expected to be recovered
through customer rates.
SCE'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 SCE may be held responsible
for contributing to any costs incurred for remediating these sites. Thus,
no reasonable estimate of cleanup costs can now be made for these sites.
SCE 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 $3 million to $6 million. Recorded costs for the twelve-
month period ended March 31, 1996, were $3 million.
Based on currently available information, SCE 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, SCE 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. SCE expects to have excess allowances under Phase II of the
Clean Air Act (2000 and later). The act also calls for a study to
determine if additional regulations are needed to reduce regional haze in
the southwestern U.S. In addition, another study is underway to determine
the specific impact of air contaminant emissions from the Mohave Coal
Generating Station on visibility in Grand Canyon National Park. The
potential effect of these studies on sulfur dioxide emissions regulations
for Mohave is unknown.
SCE's projected capital expenditures to protect the environment are $1
billion for the 1996-2000 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. SCE is unable to predict when or if the
scientific community will be able to reach a consensus on any health
effects of EMF, or the effect that such a consensus, if reached, could
have on future electric operations.
PALO VERDE STEAM TUBE RUPTURE
In 1993, a steam generator tube ruptured at Palo Verde Unit 2; additional
cracking was found in other tubes. Arizona Public Service Company (APS),
the operating agent for Palo Verde, has taken, and will continue to take,
remedial actions that it believes have slowed the rate of steam generator
tube degradation in all three units. APS believes that the steam
generators in only one of the units will have to be replaced within five
to ten years. SCE estimates its share of the costs to be between $16
million and $30 million, plus replacement power costs which are subject
to CPUC reasonableness review. SCE is evaluating APS' analyses,
<page 33>
conducting its own review, and has not yet decided whether it supports
replacement of the steam generators.
VOLUNTARY RETIREMENT OFFER
In March 1996, SCE announced it will take a one-time charge against
earnings of approximately $65 million (pre-tax), in the second quarter of
1996, related to a voluntary retirement offer for non-union employees.
SCE expects to offset these costs through lower expenses within a year.
SCE anticipates negotiating a similar program for represented employees
later this year, which could increase the total charge against earnings
to approximately $100 million (pre-tax) by year-end. The actual amount
charged to earnings will depend on the number of employees who accept the
offer.
page 34
<PAGE>
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Qualifying Facilities ("QF") Litigation
On May 20, 1993, four geothermal QFs filed a lawsuit against Southern
California Edison Company ("SCE") in Los Angeles County Superior Court,
claiming that SCE underpaid, and continues to underpay, the plaintiffs for
energy. SCE 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 was partially owned
by a subsidiary of Edison Mission Energy ("EME") (a subsidiary of Edison
International) until April of this year when EME sold its interests in the
projects to its nationwide partner. In October 1994, plaintiffs submitted
an amended complaint to the court to add causes of action for unfair
competition and restraint of trade. In July 1995, after several motions
to strike had been heard by the court, the plaintiffs served a further
amended complaint, which omitted the previous claims based on alleged
restraint of trade. The plaintiffs alleged that the past underpayments
totaled at least $21,000,000. In other court filings, plaintiffs have
contended that the total amount of additional contract payments owing from
the beginning of the alleged underpayments through the end of the contract
term could total approximately $60,000,000. In addition to seeking
compensatory damages and declaratory relief, the fourth amended complaint
also seeks unspecified punitive damages and an injunction to enjoin SCE
from "future" unfair competition. After a number of continuances, the
matter was set for trial on June 18, 1996. On May 1, 1996, the parties
entered into an agreement providing for a settlement of all claims in
dispute. Pursuant to the agreement, the specific terms of which are
confidential, SCE will pay jointly to the plaintiffs an amount which is
less than $10,000,000 in order to resolve all claims prior to January 1,
1996. SCE intends to seek recovery of this payment in its annual Energy
Cost Adjustment Clause ("ECAC") filing. SCE has also agreed, subject to
California Public Utilities Commission ("CPUC") approval, to increase
payments to plaintiffs for specified levels of energy deliveries for the
period after December 31, 1995. Plaintiffs have received the right to
continue the lawsuit as to the period after December 31, 1995, only in the
event CPUC approval of the increased payments is not obtained.
Between January 1994 and October 1994, SCE was named as a defendant in a
series of eight lawsuits brought by independent power producers of wind
generation. Seven of the lawsuits were filed in Los Angeles County
Superior Court and one was filed in Kern County Superior Court. The
lawsuits allege SCE incorrectly interpreted contracts with the plaintiffs
by limiting fixed energy payments to a single 10-year period rather than
beginning a new 10-year period of fixed energy payments for each stage of
development. In its responses to the complaints, SCE denied the
plaintiffs' allegations. In each of the lawsuits, the plaintiffs 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
County Superior Court case granted the plaintiffs' motion seeking summary
adjudication that the contract language in question is not reasonably
susceptible to SCE's position that there is only a single, 10-year period
of fixed payments. In March 1995, a ninth lawsuit was filed in the Los
Angeles County Superior Court raising claims similar to those alleged in
the first seven cases in that court. SCE has responded to the complaint
in the new lawsuit by denying its material allegations. On April 5, 1995,
SCE filed a petition for writ of mandate, prohibition or other appropriate
relief, requesting that the Court of Appeal issue a writ directing the Los
Angeles Superior Court to vacate its March 1 order granting summary
adjudication. In a decision filed August 9, 1995, the Court of Appeal
issued a writ directing that the order be overturned, and a new order be
entered denying the motion. A pending summary adjudication motion in the
page 35
<PAGE>
Kern County case has been withdrawn in light of the Court of Appeal
decision. Furthermore, pursuant to stipulation of the parties, the Kern
County case was ordered on April 3, 1996, to be coordinated with the Los
Angeles cases so that it too will be tried in Los Angeles. As a result
of the coordination, the April 22, 1996 trial date for the Kern County
case has been stricken and no new trial date has been set. On February
6, 1996, plaintiffs in one of the actions filed their first amended and
supplemental complaint. On March 6, 1996, SCE filed its new answer,
denying the material allegations of the first amended and supplemental
complaint. On April 16, 1996, SCE filed a motion for summary adjudication
of certain of the causes of action in this complaint. The motion is set
for hearing on May 16, 1996. Plaintiffs' motion to consolidate all eight
cases for jury trial was denied without prejudice on March 25, 1996.
Parties have since reached agreement in principle on a stipulation whereby
at least the original Los Angeles cases would be consolidated for trial
in January 1997, in return for plaintiffs' waiver of a jury trial.
Nevertheless, with a trial date of June 26, 1996, the lead Los Angeles
case is the only case currently scheduled for trial. 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 SCE's ECAC.
This matter was previously reported under the heading "QF Litigation" in
Part I, Item 3 of SCE's Annual Report on Form 10-K for the year ended
December 31, 1995.
Electric and Magnetic Fields ("EMF") Litigation
SCE is involved in three lawsuits alleging that various plaintiffs
developed cancer as a result of exposure to EMF from SCE facilities. SCE
denies the material allegations in its responses to each of the lawsuits.
Two of the lawsuits allege, among other things, that certain past and
present employees of Grubb & Ellis ("Employee-Plaintiffs"), a real estate
brokerage firm with offices located in a commercial building known as the
Koll Center in Newport Beach, developed cancer as a result of exposure to
EMF from electrical facilities owned by SCE and/or the other defendants
located on the property. The lawsuits, served on SCE in 1994 ("First
Case") and January 1995 ("Second Case"), respectively, also name Grubb &
Ellis and the owners and developers of the Koll Center as defendants. No
specific damage amounts are alleged in either complaint.
The five named plaintiffs in the First Case, three Employee-Plaintiffs and
the spouses of two of them, allege compensatory damages of $8,000,000 plus
unspecified punitive damages, according to supplemental documentation they
have prepared. In December, 1995 the court granted SCE's motion for
summary judgment and dismissed the case. Plaintiffs have filed a Notice
of Appeal.
Supplemental documentation prepared by the four named plaintiffs in the
Second Case, two Employee-Plaintiffs and their respective spouses,
indicates they allege compensatory damages of approximately $13,500,000
plus unspecified punitive damages. On April 18, 1995, Grubb & Ellis filed
a cross- complaint against the other codefendants, requesting
indemnification and declaratory relief concerning the rights and
responsibilities of the parties. Trial in the case has been set for
November 4, 1996.
A third case was filed in Orange County Superior Court and served on SCE
in March 1995. The plaintiff alleges, among other things, that he
developed cancer as a result of EMF emitted from SCE facilities which he
alleges were not constructed in accordance with CPUC standards. No
specific damage amounts are alleged in the complaint but supplemental
documentation prepared by the plaintiff indicates that plaintiff will
allege compensatory damages of approximately $5,500,000, plus unspecified
page 36
<PAGE>
punitive damages. A previous trial date was vacated and, pursuant to
stipulation of the parties, no new trial date has been set. An evaluation
conference is scheduled for August 16, 1996.
These matters were previously reported under the heading "Environmental
Litigation" in Part I, Item 3 of SCE's Annual Report on Form 10-K for the
year ended December 31, 1995.
San Onofre Personal Injury Litigation
An engineer for two contractors providing services for San Onofre has been
diagnosed with chronic myelogenous leukemia. On July 12, 1994, the
engineer and his wife sued SCE, San Diego Gas and Electric Company
("SDG&E") and Combustion Engineering, the manufacturer of the fuel rods
for the plant, in the United States District Court for the Southern
District of California. The plaintiffs alleged that the engineer's
illness resulted from contact with radioactive fuel particles released
from failed fuel rods. Plant records showed that the engineer's exposure
to radiation was well below Nuclear Regulatory Commission ("NRC") safety
levels. In the complaint, plaintiffs sought unspecified compensatory and
punitive damages. SCE's December 23, 1994, answer to the complaint denied
all material allegations. The trial began August 3, 1995, and on October
12, 1995, an eight member jury unanimously decided that radiation exposure
at San Onofre was not the cause of the leukemia. Plaintiffs' motion for
a new trial was denied on December 5, 1995. On April 11, 1996, the
plaintiffs' appeal of the denial of their motion was argued before the
Ninth Circuit Court of Appeals and the case was submitted for decision.
A SCE engineer employed at San Onofre died in 1991 from cancer of the
abdomen. On February 6, 1995, his children sued SCE, SDG&E and Combustion
Engineering 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. Plant records show
that the engineer's exposure to radiation was well below NRC safety
levels. In the complaint, plaintiffs sought 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. SCE's April 20, 1995, answer to the complaint denied
all material allegations. On October 10, 1995, the Court ruled in
favor of plaintiffs' request to include the Institute of Nuclear
Power Operations (an organization dedicated to achieving excellance
in nuclear power operations) as a defendant in the suit. On
December 7, 1995, the court granted SCE's motion for summary judgment on
the sole outstanding claim against it. Plaintiffs have indicated that
they will appeal this ruling to the Ninth Circuit Court of Appeals. Trial
of the case may be delayed pending such ruling. The impact on SCE, if
any, from further proceedings in this case against the remaining
defendants cannot be determined at this time.
On July 5, 1995, a former SCE reactor operator employed at San Onofre and
his wife sued SCE, SDG&E, Combustion Engineering and the Institute of
Nuclear Power Operations in the U.S. District Court for the Southern
District of California. Plaintiffs allege the former employee's acute
myelogenous leukemia resulted from, and was aggravated by, exposure to
radiation at San Onofre, including contact with radioactive fuel
particles. The former employee subsequently died from his illness.
Plaintiffs seek unspecified compensatory and punitive damages. On March
25, 1996, the court granted SCE's motion for summary judgment on all
claims. It is anticipated that plaintiffs will appeal this ruling.
Should plaintiffs do so, trial of the case may be delayed pending the
ruling of the Court of Appeals. The impact on SCE, if any, from further
proceedings in this case against the remaining defendants cannot be
determined at this time.
page 37
<PAGE>
On August 31, 1995, the family of a former worker for a contractor at San
Onofre, and later a temporary and then a permanent SCE employee at San
Onofre, sued SCE, SDG&E, Combustion Engineering and the Institute of
Nuclear Power Operations in the U.S. District Court for the Southern
District of California. Plaintiffs allege the former employee's acute
myelogenous leukemia, which resulted in his death in 1994, resulted from,
and was aggravated by, exposure to radiation at San Onofre, including
contact with radioactive fuel particles. Plaintiffs seek unspecified
compensatory and punitive damages. SCE's answer to the complaint filed
on November 13, 1995, denied all material allegations. A trial date will
be set at the pretrial conference scheduled for October 7, 1996.
On November 17, 1995, a SCE employee and his wife sued SCE in the U.S.
District Court for the Southern District of California. Plaintiffs also
named Combustion Engineering, the manufacturer of the fuel rods for the
San Onofre plant. The employee worked for SCE at San Onofre from 1981 to
1990. Plaintiffs allege that the employee transported radioactive
byproducts on his person, clothing and/or tools to his home where his wife
was then exposed to radiation that caused her leukemia. Plaintiffs seek
unspecified compensatory and punitive damages. SCE's December 19, 1995,
partial answer to the complaint denied all material non-employment related
allegations. SCE's motion to dismiss the claims of the plaintiffs' was
granted on March 19, 1996. A trial date will be set at the pretrial
conference that is scheduled for December 2, 1996, relative to the
plaintiffs' claims.
On November 28, 1995, a former contract worker at San Onofre, her husband,
and her son, sued SCE in the U.S. District Court for the Southern District
of California. Plaintiffs also named Combustion Engineering, the
manufacturer of the fuel rods for the San Onofre plant. Plaintiffs allege
that the former contract worker transported radioactive byproducts on her
person and clothing to her home where her son was then exposed to
radiation that caused his leukemia. Plaintiffs seek unspecified
compensatory and punitive damages. SCE's January 2, 1996, answer denied
all material allegations.
These matters were previously reported under the heading "San Onofre
Personal Injury Litigation" in Part I, Item 3 of SCE's Annual Report on
Form 10-K for the year ended December 31, 1995.
Employment Discrimination Litigation
On September 21, 1994, nine African-American employees filed a lawsuit
against Edison International and SCE 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.
Edison International and SCE have responded by denying the material
allegations of the complaint and asserting several affirmative defenses
and are pursuing discovery. Prior deadlines for plaintiffs to file their
motion for class certification have been suspended pending settlement
discussions. The court has set a status conference for May 13, 1996.
This matter was previously reported under the heading "Employment
Discrimination Litigation" in Part I, Item 3 of SCE's Annual Report on
Form 10-K for the year ended December 31, 1995.
page 38
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
Election of Directors
At SCE's Annual Meeting of Shareholders on April 18, 1996, 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 491,871,118 590,676
John E. Bryson 491,891,016 575,772
Winston H. Chen 491,886,378 577,838
Stephen E. Frank 491,884,092 580,104
Camilla C. Frost 491,845,260 617,136
Joan C. Hanley 491,879,214 582,782
Carl F. Huntsinger 491,872,566 594,630
Charles D. Miller 491,871,108 597,888
Luis G. Nogales 491,842,082 624,314
Ronald L. Olson 491,871,188 590,608
J. J. Pinola 491,862,450 601,746
James M. Rosser 491,879,022 582,772
E. L. Shannon, Jr. 491,854,338 607,458
Robert H. Smith 491,889,564 572,232
Thomas C. Sutton 491,881,508 587,488
Daniel M. Tellep 491,885,568 581,028
James D. Watkins 491,835,260 631,336
Edward Zapanta 491,894,556 567,240
</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:
January 11, 1996 --Item 5--Other Events--
California Public Utilities
Commission decision in
1995 General Rate Case
January 17, 1996 -- Item 5--Other Events--
Issue and Sale of $200 million
of 5 7/8% Notes, Due 2001 and
$200 Million of 6 3/8% Notes, Due 2006
January 18, 1996 -- Item 5--Other Events--
1995 Earnings Report
February 23, 1996 --Item 5--Other Events--
1995 Financial Information
page 39
<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 K. S. STEWART
------------------------------------
K. S. STEWART
Assistant General Counsel and
Assistant Secretary
May 10, 1996
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, 1996, of Southern California Edison
Company into the previously filed Registration Statements which follow:
Registration Form File No. Effective Date
----------------- -------- --------------
Form S-3 33-53288 November 6, 1992
Form S-3 33-50251 September 21, 1993
Form S-3 33-59001 May 15, 1995
ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
May 10, 1996
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
Southern California Edison Financial Data Schedule - Exhibit 27
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 12,095,002
<OTHER-PROPERTY-AND-INVEST> 1,452,494
<TOTAL-CURRENT-ASSETS> 2,110,405
<TOTAL-DEFERRED-CHARGES> 2,628,210
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 18,286,111
<COMMON> 2,168,054
<CAPITAL-SURPLUS-PAID-IN> 177,333
<RETAINED-EARNINGS> 2,737,651
<TOTAL-COMMON-STOCKHOLDERS-EQ> 5,083,038
275,000
283,755
<LONG-TERM-DEBT-NET> 5,026,343
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 1,295,000
<COMMERCIAL-PAPER-OBLIGATIONS> 369,800
<LONG-TERM-DEBT-CURRENT-PORT> 201,375
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 7,110,001
<TOT-CAPITALIZATION-AND-LIAB> 18,286,111
<GROSS-OPERATING-REVENUE> 1,760,133
<INCOME-TAX-EXPENSE> 108,443
<OTHER-OPERATING-EXPENSES> 1,389,077
<TOTAL-OPERATING-EXPENSES> 1,497,520
<OPERATING-INCOME-LOSS> 262,613
<OTHER-INCOME-NET> (1,546)
<INCOME-BEFORE-INTEREST-EXPEN> 261,067
<TOTAL-INTEREST-EXPENSE> 113,964
<NET-INCOME> 147,103
8,599
<EARNINGS-AVAILABLE-FOR-COMM> 138,504
<COMMON-STOCK-DIVIDENDS> 180,911
<TOTAL-INTEREST-ON-BONDS> 97,707
<CASH-FLOW-OPERATIONS> 708,392
<EPS-PRIMARY> $.0
<EPS-DILUTED> $.0
</TABLE>
