UNITED STATES
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, 1998
------------------------------------------------
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)
(626) 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 (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 11, 1998
- ---------------------------------------- ------------------------------------
Common Stock, no par value 434,888,104
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
INDEX
Page
No.
----
Part I. Financial Information:
Item 1. Consolidated Financial Statements:
Report of Independent Public Accountants 1
Consolidated Statements of Income -- Three and
Twelve Months Ended March 31, 1998, and 1997 2
Consolidated Statements of Comprehensive Income --
Three and Twelve Months Ended March 31, 1998,
and 1997 2
Consolidated Balance Sheets -- March 31, 1998,
December 31, 1997, and March 31, 1997 3
Consolidated Statements of Cash Flows --
Three and Twelve Months Ended
March 31, 1998, and 1997 5
Consolidated Statements of Retained Earnings --
Three and Twelve Months Ended
March 31, 1998, and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 28
Part II. Other Information:
Item 1. Legal Proceedings 40
Item 4. Submission of Matters to a Vote of Security Holders 45
Item 6. Exhibits and Reports on Form 8-K 45
<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, 1998, December 31, 1997, and March 31, 1997, and the related
consolidated statements of income, comprehensive income, retained earnings and
cash flows for each of the three- and twelve-month periods ended March 31, 1998,
and 1997. 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, 1998, December 31, 1997, and March 31, 1997, and the results of their
operations and their cash flows for each of the three- and twelve-month periods
ended March 31, 1998, and 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
May 4, 1998
<PAGE 1>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME
In thousands
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
- ------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenue $1,622,691 $1,695,436 $7,880,638 $7,518,686
- -------------------------------------------------------------------------------------------------------------------
Fuel 118,684 144,616 855,539 663,536
Purchased power 576,506 628,674 2,801,834 2,807,122
Provisions for regulatory
adjustment clauses-- net (238,017) (88,173) (560,780) (411,904)
Other operating expenses 287,584 240,954 1,259,097 1,152,002
Maintenance 101,870 95,878 411,537 343,017
Depreciation and decommissioning 382,974 305,583 1,317,270 1,126,750
Income taxes 125,604 95,297 612,339 565,181
Property and other taxes 39,518 38,875 129,680 168,768
- -------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,394,723 1,461,704 6,826,516 6,414,472
- -------------------------------------------------------------------------------------------------------------------
Operating income 227,968 233,732 1,054,122 1,104,214
- -------------------------------------------------------------------------------------------------------------------
Provision for rate phase-in plan -- (11,309) (37,177) (66,519)
Allowance for equity funds
used during construction 2,781 2,003 8,429 13,181
Interest and dividend income 18,312 6,856 56,092 34,508
Other nonoperating income (deductions)-- net (3,591) 4,649 (31,273) (11,904)
- -------------------------------------------------------------------------------------------------------------------
Total other income (deductions)-- net 17,502 2,199 (3,929) (30,734)
- -------------------------------------------------------------------------------------------------------------------
Income before interest expense 245,470 235,931 1,050,193 1,073,480
- -------------------------------------------------------------------------------------------------------------------
Interest on long-term debt 124,354 91,189 378,758 374,293
Other interest expense 18,020 27,491 91,607 82,309
Allowance for borrowed funds used
during construction (1,892) (2,412) (8,693) (9,439)
Capitalized interest (158) (1,320) (1,236) (2,958)
- -------------------------------------------------------------------------------------------------------------------
Total interest expense-- net 140,324 114,948 460,436 444,205
- -------------------------------------------------------------------------------------------------------------------
Net income 105,146 120,983 589,757 629,275
Dividends on preferred stock 6,759 8,599 27,648 34,395
- -------------------------------------------------------------------------------------------------------------------
Earnings available for common stock $ 98,387 $ 112,384 $ 562,109 $ 594,880
- -------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands
3 Months Ended 12 Months Ended
March 31, March 31,
- ----------------------------------------------------------- ----------------------------- --------------------------
1998 1997 1998 1997
- ----------------------------------------------------------- ----------------------------- --------------------------
Net income $ 105,146 $ 120,983 $ 589,757 $ 629,275
Unrealized gains on securities-- net 11,110 7,243 18,508 18,511
- -------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 116,256 $ 128,226 $ 608,265 $ 647,786
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE 2>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
In thousands
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
- -------------------------------------------------------------------------------------------------------------------
ASSETS
\
Transmission and distribution:
Utility plant, at original cost, subject to
<S> <C> <C> <C>
cost-based rate regulation $11,333,083 $11,213,352 $11,090,635
Accumulated provision for depreciation (5,690,973) (5,573,742) (5,227,093)
Construction work in progress 482,386 492,614 433,763
- -------------------------------------------------------------------------------------------------------------------
6,124,496 6,132,224 6,297,305
- -------------------------------------------------------------------------------------------------------------------
Generation:
Utility plant, at original cost,
not subject to cost-based rate regulation 9,367,923 9,522,127 9,447,242
Accumulated provision for depreciation
and decommissioning (5,241,980) (4,970,137) (4,460,028)
Construction work in progress 101,759 100,283 91,502
Nuclear fuel, at amortized cost 145,607 154,757 185,411
- -------------------------------------------------------------------------------------------------------------------
4,373,309 4,807,030 5,264,127
- -------------------------------------------------------------------------------------------------------------------
Total utility plant 10,497,805 10,939,254 11,561,432
- -------------------------------------------------------------------------------------------------------------------
Nonutility property -- less accumulated
provision for depreciation of $25,195, $24,730
and $23,791 at respective dates 67,495 67,869 70,175
Nuclear decommissioning trusts 2,001,906 1,831,460 1,499,836
Other investments 221,148 171,399 115,470
- -------------------------------------------------------------------------------------------------------------------
Total other property and investments 2,290,549 2,070,728 1,685,481
- -------------------------------------------------------------------------------------------------------------------
Cash and equivalents 613,475 962,272 223,283
Receivables, including unbilled revenue, less
allowances of $23,849, $26,453 and $24,525
for uncollectible accounts at respective dates 751,319 906,388 832,123
Fuel inventory 53,464 58,059 58,626
Materials and supplies, at average cost 131,278 132,980 153,458
Accumulated deferred income taxes-- net -- 123,146 167,699
Regulatory balancing accounts-- net 495,078 193,311 --
Prepayments and other current assets 54,439 93,098 59,794
- -------------------------------------------------------------------------------------------------------------------
Total current assets 2,099,053 2,469,254 1,494,983
- -------------------------------------------------------------------------------------------------------------------
Unamortized debt issuance and reacquisition
expense 369,163 359,304 339,654
Rate phase-in plan -- 3,777 40,013
Income tax-related deferred charges 1,549,631 1,543,380 1,691,963
Other deferred charges 841,519 673,601 434,269
- -------------------------------------------------------------------------------------------------------------------
Total deferred charges 2,760,313 2,580,062 2,505,899
- -------------------------------------------------------------------------------------------------------------------
Total assets $17,647,720 $18,059,298 $17,247,795
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE 3>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
In thousands, except share amounts
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
- -------------------------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES
Common shareholder's equity:
Common stock (434,888,104 shares
<S> <C> <C> <C>
outstanding at each date) $ 2,168,054 $ 2,168,054 $ 2,168,054
Additional paid-in capital 334,031 334,031 177,774
Accumulated other comprehensive income 59,133 48,023 40,625
Retained earnings 1,408,330 1,407,834 2,603,439
- -------------------------------------------------------------------------------------------------------------------
3,969,548 3,957,942 4,989,892
- -------------------------------------------------------------------------------------------------------------------
Preferred stock:
Not subject to mandatory redemption 183,755 183,755 283,755
Subject to mandatory redemption 275,000 275,000 275,000
Long-term debt 5,807,485 6,144,597 4,660,831
- -------------------------------------------------------------------------------------------------------------------
Total capitalization 10,235,788 10,561,294 10,209,478
- -------------------------------------------------------------------------------------------------------------------
Other long-term liabilities 494,370 479,637 452,048
- -------------------------------------------------------------------------------------------------------------------
Current portion of long-term debt 567,875 692,875 426,470
Short-term debt 345,241 322,028 134,826
Accounts payable 400,592 406,704 327,191
Accrued taxes 566,292 509,270 560,766
Accrued interest 75,337 85,406 104,677
Dividends payable 99,999 95,146 106,102
Regulatory balancing accounts-- net -- -- 106,505
Accumulated deferred income taxes-- net 94,577 -- --
Deferred unbilled revenue and other current
liabilities 818,324 931,856 787,819
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,968,237 3,043,285 2,554,356
- -------------------------------------------------------------------------------------------------------------------
Accumulated deferred income taxes-- net 2,836,703 2,939,471 3,097,468
Accumulated deferred investment tax credits 319,916 326,728 342,042
Customer advances and other deferred credits 791,865 708,745 592,403
- -------------------------------------------------------------------------------------------------------------------
Total deferred credits 3,948,484 3,974,944 4,031,913
- -------------------------------------------------------------------------------------------------------------------
Minority interest 841 138 --
- -------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
(Notes 2, 8, 9 and 10)
Total capitalization and liabilities $17,647,720 $18,059,298 $17,247,795
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE 4>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
- ----------------------------------------------------------- ----------------------------- ---------------------------
1998 1997 1998 1997
- ----------------------------------------------------------- ----------------------------- ---------------------------
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income $ 105,146 $ 120,983 $ 589,757 $ 629,275
Adjustments for non-cash items:
Depreciation and decommissioning 382,974 305,583 1,317,270 1,126,750
Amortization 26,156 12,164 95,355 75,207
Rate phase-in plan 3,777 10,690 40,013 61,356
Deferred income taxes and investment
tax credits 101,892 43,554 121,717 122,157
Other long-term liabilities 14,733 28,123 42,322 78,246
Regulatory asset related to sale of utility plant (98,041) -- (98,041) --
Loss on sale of utility plant 62,633 -- 62,633 --
Other-- net (18,117) (21,043) (205,698) (171,269)
Changes in working capital:
Receivables 155,069 88,960 80,804 32,219
Regulatory balancing accounts (301,767) (74,983) (601,583) (332,849)
Fuel inventory, materials and supplies 6,297 14,662 27,342 49,505
Prepayments and other current assets 38,659 45,343 5,355 10,646
Accrued interest and taxes 46,953 87,392 (23,814) (96,055)
Accounts payable and other current liabilities (119,644) (103,086) 103,906 47,037
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 406,720 558,342 1,557,338 1,632,225
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Long-term debt repaid (454,441) (200,005) (1,170,581) (198,575)
Rate reduction notes issued (4,757) -- 2,444,532 --
Rate reduction notes repaid (12,354) -- (12,354) --
Preferred stock redeemed -- -- (100,000) --
Nuclear fuel financing-- net (8,623) 6,031 (34,794) 56,271
Short-term debt financing-- net 23,213 (95,323) 210,415 (171,709)
Capital transferred -- -- 153,000 --
Dividends paid (101,084) (185,617) (1,787,412) (840,710)
- -------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (558,046) (474,914) (297,194) (1,154,723)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and plant (167,978) (151,407) (701,891) (583,465)
Proceeds from sale of plant 29,801 -- 29,801 --
Funding of nuclear decommissioning trusts (39,683) (27,889) (165,550) (140,072)
Unrealized gain on securities-- net 11,110 7,243 18,508 18,511
Other-- net (30,721) (8,034) (50,820) (76,359)
- -------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (197,471) (180,087) (869,952) (781,385)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash
and equivalents (348,797) (96,659) 390,192 (303,883)
Cash and equivalents, beginning
of period 962,272 319,942 223,283 527,166
- -------------------------------------------------------------------------------------------------------------------
Cash and equivalents, end of period $ 613,475 $ 223,283 $ 613,475 $ 223,283
- -------------------------------------------------------------------------------------------------------------------
Cash payments for interest and taxes:
Interest-- net of amounts capitalized $ 74,808 $ 79,627 $ 337,317 $ 350,212
Taxes 10 29 437,758 515,238
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE 5>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
In thousands
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
- ----------------------------------------------------------- ----------------------------- ---------------------------
1998 1997 1998 1997
- ----------------------------------------------------------- ----------------------------- ---------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period $1,407,834 $2,665,612 $2,603,439 $2,737,651
Net income 105,146 120,983 589,757 629,275
Dividends declared on common stock (95,564) (174,557) (1,750,046) (729,075)
Dividends declared on preferred stock (6,759) (8,599) (27,648) (34,395)
Stock option appreciation (2,327) -- (2,327) --
Reacquired capital stock expense and other -- -- (4,845) (17)
- -------------------------------------------------------------------------------------------------------------------
Balance at end of period $1,408,330 $2,603,439 $1,408,330 $2,603,439
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE 6>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Accounting Principles
Southern California Edison Company's (SCE) 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). As a result of industry restructuring legislation enacted by
the State of California and a related change in the application of accounting
principles for rate-regulated enterprises adopted by the Financial Accounting
Standards Board's Emerging Issues Task Force, during the third quarter of 1997,
SCE began accounting for its investment in generation facilities in accordance
with accounting principles applicable to enterprises in general. Although this
change did not result in any adjustment of the carrying value of such
investment, SCE's Balance Sheets display a separate caption for its investment
in generation.
Competition Transition Charge (CTC)
Beginning January 1, 1998, a non-bypassable charge is being billed to all
customers, which provides SCE the opportunity to recover its costs to transition
to a competitive market.
Consolidation Policy
The consolidated financial statements include SCE and its subsidiaries.
Intercompany transactions have been eliminated.
Estimates
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 electric utility restructuring, decommissioning and contingencies are
further discussed in Notes 2, 9 and 10 to the Consolidated Financial Statements,
respectively.
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.
Nature of Operations
SCE's outstanding common stock is owned entirely by its parent company, Edison
International. SCE is a public utility which produces and supplies electric
energy for its 4.3 million customers in Central and Southern California. SCE
currently operates in a highly regulated environment in which it has an
obligation to deliver 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.
Nuclear
The CPUC-authorized rate phase-in plans (deferred the collection of revenue for
each unit at the Palo Verde Nuclear Generating Station during the first four
years of operation) ended in February 1996, September 1996 and January 1998 for
Units 1, 2 and 3, respectively.
<PAGE 7>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under federal law, 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 non-bypassable customer rates.
In April 1996, the CPUC authorized acceleration of the recovery of SCE's
remaining investment of $2.6 billion in San Onofre Units 2 and 3. The
accelerated recovery will continue through December 2001, earning a 7.35% fixed
rate of return. Operating costs, including nuclear fuel and nuclear fuel
financing costs, and incremental capital expenditures at San Onofre Units 2 and
3 are recovered through an incentive pricing plan which allows SCE to receive
about 4(cent) per kilowatt-hour through 2003. Any differences between these
costs and the incentive price will flow through to the shareholders. Beginning
January 1, 1998, the accelerated plant recovery and the incentive pricing plan
became part of the CTC mechanism. Beginning in 2004, SCE will be required to
share equally with ratepayers the net benefits received from operation of the
units.
In January 1997, the CPUC authorized an acceleration of the recovery of its
remaining investment of $1.2 billion in Palo Verde Units 1, 2 and 3. The
accelerated recovery will continue through December 2001, earning a 7.35% fixed
rate of return. The accelerated plant recovery, as well as operating costs,
including nuclear fuel and nuclear fuel financing costs, and incremental capital
expenditures, are subject to balancing account treatment through 2001. Beginning
January 1, 1998, the balancing account became part of the CTC mechanism. The
existing nuclear unit incentive procedure will continue only for purposes of
calculating a reward for performance of any unit above an 80% capacity factor
for a fuel cycle. Beginning in 2002, SCE will be required to share equally with
ratepayers the net benefits received from operation of Palo Verde.
Reclassifications
Certain prior-period amounts were reclassified to conform to the March 31, 1998,
financial statement presentation.
Regulatory Balancing Accounts
Prior to January 1, 1998, the differences between CPUC-authorized and actual
base-rate revenue from kilowatt-hour sales and CPUC-authorized and actual energy
costs were accumulated in balancing accounts until they were refunded to, or
recovered from, utility customers through authorized rate adjustments (with
interest). On January 1, 1998, the balances in these balancing accounts were
transferred to a transition cost balancing account. Also, beginning January 1,
1998, the difference between generation-related revenue and generation-related
costs is being accumulated in the transition cost balancing account, effectively
eliminating all other balancing accounts except those used to assist in the
administration of public purpose funds. These transition costs are being
recovered from utility customers (with interest) through the CTC mechanism. For
further details, see discussion under California Electric Utility Industry
Restructuring in Note 2 to the Consolidated Financial Statements. Income tax
effects on all balancing account changes are deferred.
In January 1997, in compliance with the new restructuring legislation,
overcollections in the kilowatt-hour sales and energy cost balancing accounts at
December 31, 1996, were transferred to an interim balancing account and were
credited to the transition cost balancing account beginning in January 1998.
Research, Development and Demonstration (RD&D)
SCE capitalizes RD&D costs that are expected to result in plant construction. If
construction does not occur, these costs are charged to expense. RD&D expenses
were $0.4 million and $35 million for the three and twelve months ended March
31, 1998, respectively, and $5 million and $22 million for the three and twelve
months ended March 31, 1997, respectively.
<PAGE 8>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue
Operating revenue includes amounts for services rendered but unbilled at the end
of each period.
Utility Plant
Plant additions, including replacements and betterments, are capitalized. Such
costs include direct material and labor, construction overhead and an allowance
for funds used during construction (AFUDC). AFUDC represents the estimated cost
of debt and equity funds 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 6.6% and 5.6% for the
three and twelve months ended March 31, 1998, respectively, and 5.2% and 4.6%
for the three and twelve months ended March 31, 1997, respectively.
During the third quarter of 1997, SCE discontinued accounting for its investment
in generation facilities using accounting principles applicable to
rate-regulated enterprises and began accounting for such investment using
accounting principles applicable to enterprises in general. The carrying value
of such investment was unaffected by this change.
Note 2. Regulatory Matters
California Electric Utility Industry Restructuring
Restructuring Decision -- The CPUC's December 1995 decision on restructuring
California's electric utility industry started the transition to a new market
structure, which provides competition and customer choice starting April 1,
1998. Key elements of the CPUC's restructuring decision included: creation of
the power exchange (PX) and independent system operator (ISO); availability of
customer choice for electricity supply and certain billing and metering
services; performance-based ratemaking (PBR) for those utility services not
subject to competition; voluntary divestiture of at least 50% of utilities'
gas-fueled generation; and implementation of the CTC.
Restructuring Legislation -- In September 1996, the State of California enacted
legislation to provide a transition to a competitive market structure. The
legislation substantially adopted the CPUC's December 1995 restructuring
decision by addressing stranded-cost recovery for utilities and providing a
certain cost-recovery time period for the transition costs associated with
utility-owned generation-related assets. Transition costs related to
power-purchase contracts would be recovered through the terms of their contracts
while most of the remaining transition costs would be recovered through 2001.
The legislation also included provisions to finance a portion of the stranded
costs that residential and small commercial customers would have paid between
1998 and 2001, which would allow SCE to reduce rates by at least 10% to these
customers, beginning January 1, 1998. The legislation included a rate freeze for
all other customers, including large commercial and industrial customers, as
well as provisions for continued funding for energy conservation, low-income
programs and renewable resources. Despite the rate freeze, SCE expects to be
able to recover its revenue requirement during the 1998-2001 transition period.
In addition, the legislation mandated the implementation of the CTC that
provides utilities the opportunity to recover costs made uneconomic by electric
utility restructuring. Finally, the legislation contained provisions for the
recovery (through 2006) of reasonable employee-related transition costs,
incurred and projected, for retraining, severance, early retirement,
outplacement and related expenses.
<PAGE 9>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Rate Reduction Notes -- In December 1997, after receiving approval from both the
CPUC and the California Infrastructure and Economic Development Bank, a limited
liability company created by SCE issued approximately $2.5 billion of rate
reduction notes. Residential and small commercial customers, whose 10% rate
reduction began in January 1998, will repay the notes over the expected 10-year
term through non-bypassable charges based on electricity consumption. For
further details see discussion under Long-Term Debt in Note 3 to the
Consolidated Financial Statements.
Rate-setting -- In December 1996, SCE filed a comprehensive plan addressing the
implementation-level detail for the functional unbundling of rates into separate
charges for energy, transmission, distribution, the CTC, public benefit programs
and nuclear decommissioning beginning January 1, 1998. The transmission
component of this rate unbundling process was addressed at the FERC through a
March 1997 filing. In December 1997, the FERC approved these rates, subject to
refund, to be effective on the date the ISO begins operation. In August 1997,
the CPUC issued a decision which adopted a methodology for determining CTC
residually (see CTC discussion below) and adopted SCE's revenue requirement
components for public benefit programs and nuclear decommissioning. The decision
also adjusted SCE's proposed distribution revenue requirement by reallocating
$76 million of it annually to other functions such as generation and
transmission. Under the decision, SCE will be able to recover most of the
reallocated amount through market revenue, other rate-making mechanisms or
another review process later in its divestiture proceeding.
PX and ISO -- In April 1996, SCE, Pacific Gas & Electric Company and San Diego
Gas & Electric Company filed a proposal with the FERC regarding the creation of
the PX and the ISO. In November 1996, the FERC conditionally accepted the
proposal and directed the three utilities, the ISO, and the PX to file more
specific information. The filing was made in March 1997, and included SCE's
proposed transmission revenue requirement. In October 1997, the FERC gave
conditional, interim authorization for operation of the PX and ISO to begin on
January 1, 1998. The FERC stated it would closely monitor the PX and ISO,
require further studies and make modifications, where necessary. A comprehensive
review will be performed by the FERC after three years of operation of the PX
and ISO. The start-up of the PX and ISO was delayed by three months due to
insufficient testing of systems. On March 31, 1998, both the PX and ISO began
bidding and scheduling for April 1, 1998, when the ISO took over operational
control of the power system.
In 1996, the CPUC issued an interim order establishing a restructuring trust
which would obtain loans up to $250 million (increased to $300 million in
November 1997) backed by utility guarantees. The loans were used to build
hardware and software systems for the ISO and PX. SCE's share of the loan
guarantees is 45%, or $135 million. The ISO and PX will repay the trust's loans
and recover funds from future ISO and PX customers. In December 1997, the CPUC
approved the utilities' request that the restructuring implementation charge, to
be paid to the PX by the utilities, be deemed a non-bypassable charge to be
recovered from all retail customers. The amount of the PX charge is $101
million, plus interest and fees over the four-year transition period; SCE's
share is 45%, or $45 million.
Direct Customer Access -- In May 1997, the CPUC issued a decision describing how
all California investor-owned-utility customers will be able to choose who will
provide them with electric generation service beginning January 1, 1998.
Effective April 1, 1998, after a three month delay in the implementation of
direct access, customers are now able to choose to remain utility customers with
either bundled electric service or an hourly PX pricing option from SCE (which
will purchase its power through the PX), or choose direct access, which means
the customer can contract directly with either independent power producers or
retail electric service providers such as power brokers, marketers and
aggregators. Additionally, all investor-owned-utility customers must pay the CTC
whether or not they choose to buy power through SCE. Electric utilities will
continue to provide the core distribution service of delivering energy through
its distribution system regardless of a customer's choice of electricity
supplier. The CPUC will continue to regulate the prices and service obligations
related to distribution services. If the
<PAGE 10>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
new competitive market cannot accommodate the volume of direct access
transactions, the CPUC could implement a contingency plan. However, the CPUC
believes it is likely that interest in and migration to direct access will be
gradual.
Revenue Cycle Services -- A decision issued by the CPUC in May 1997, introduced
customer choice to metering, billing and related services (referred to as
revenue cycle services) that have been provided by California's investor-owned
utilities. Under this revenue cycle services unbundling decision, beginning in
April 1998 (delayed from January 1998), energy service providers (ESPs) can
provide their customers with one consolidated bill for their services and the
utility's services, request the utility to provide a consolidated bill to the
customer or elect to have both the ESP and the utility bill the customer for
their respective charges. In addition, beginning in April 1998, customers with
maximum demand above 20 kW (primarily industrial and medium and large
commercial) can choose SCE or any other supplier to provide their metering
service. All other customers will have this option beginning in January 1999. In
determining whether any credit should be provided by the utility to customers
who elect to have ESPs providing customers with revenue cycle services, and the
amount of any such credit, the CPUC has indicated that it is appropriate to net
the cost incurred by the utility and the cost avoided by the utility as a result
of such services being provided by the other firm rather than by the utility.
PBR -- In September 1996, the CPUC adopted a non-generation or transmission and
distribution (T&D) PBR mechanism for SCE which began on January 1, 1997. In
accordance with this CPUC decision, beginning in April 1998 the transmission
portion was separated from non-generation PBR and subject to ratemaking under
the rules of the FERC. The distribution-only PBR will extend through December
2001. Key elements of the non-generation PBR include: T&D rates indexed for
inflation based on the Consumer Price Index less a productivity factor;
elimination of the kilowatt-hour sales adjustment; adjustments for cost changes
that are not within SCE's control; a cost-of-capital trigger mechanism based on
changes in a bond index; standards for service reliability and safety; and a net
revenue-sharing mechanism that determines how customers and shareholders will
share gains and losses from T&D operations.
The CPUC has announced its intention to consider unbundling SCE's cost of
capital by major utility function. On May 8, 1998, SCE filed an application on
this issue. A CPUC decision is expected by year-end.
In December 1997, the CPUC adopted a PBR-type rate-making mechanism for SCE's
hydroelectric plants. The mechanism sets the hydroelectric revenue requirement
in 1998 and establishes a formula for extending it through the duration of the
electric industry restructuring transition period, or until market valuation of
the hydroelectric facilities, whichever occurs first. The mechanism provides
that power sales revenue from hydroelectric facilities in excess of the
hydroelectric revenue requirement be credited against the costs to transition to
a competitive market (see CTC discussion below).
Divestiture -- In November 1996, SCE filed an application with the CPUC to
voluntarily divest, by auction, all 12 of its gas- and oil-fueled generation
plants. Under this proposal, SCE would continue to operate and maintain the
divested power plants for at least two years following their sale, as mandated
by the restructuring legislation enacted in September 1996. In addition, SCE
would offer workforce transition programs to those employees who may be impacted
by divestiture-related job reductions. In September 1997, the CPUC approved
SCE's proposal to auction the 12 plants.
In early December 1997, SCE filed a compliance filing with the CPUC stating that
it had sold 10 plants; the CPUC approved the sale of the 10 plants in
mid-December 1997. In the first quarter of 1998, SCE announced the pending sales
of the 11th and 12th plants. SCE has received CPUC approval of the sale of the
11th plant and approval of the sale of the 12th plant is expected by the end of
second quarter 1998. The total sales price of the 12 plants is $1.2 billion,
over $500 million more than the combined book value. Net proceeds of the sales
will be used to reduce stranded costs, which otherwise were expected to
<PAGE 11>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
be collected through the CTC mechanism. The transfer of ownership of the 12
plants is expected to be completed by the end of second quarter 1998.
CTC -- The CTC applies to all customers who were using or began using utility
services on or after the CPUC's December 20, 1995, decision date. In October
1996, SCE amended its August 1996 transition cost filing to reflect the effects
of the legislation enacted in September 1996. The CTC is being determined
residually (i.e., after subtracting other cost components for the PX, T&D,
nuclear decommissioning and public benefit programs). Nevertheless, the CPUC
directed that the amended application provide estimates of SCE's potential
transition costs from 1998 through 2030. SCE provided two estimates between
approximately $13.1 billion (1998 net present value) assuming the fossil plants
had a market value equal to their net book value, and $13.8 billion (1998 net
present value) assuming the fossil plants had no market value. These estimates
were based on incurred costs, forecasts of future costs and assumed market
prices. However, changes in the assumed market prices could materially affect
these estimates. The potential transition costs were comprised of: $7.5 billion
from SCE's qualifying facility (QF) contracts, which are the direct result of
prior legislative and regulatory mandates; and $5.6 billion to $6.3 billion from
costs pertaining to certain generating plants (successful completion of the sale
of SCE's gas-fired generating plants would reduce this estimate of transition
costs for SCE-owned generation to less than $5 billion) 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 San Onofre Units 2 and 3 and
the Palo Verde units (as discussed in Note 1 to the Consolidated Financial
Statements), and certain other costs. In February 1997, SCE filed an update to
the CTC filing to reflect approval by the CPUC of settlements regarding
ratemaking for SCE's share of Palo Verde and the buyout of a power purchase
agreement, as well as other minor data updates. No substantive changes in the
total CTC estimates were included. This issue was separated into two phases;
Phase 1 addressed the rate-making issues and Phase 2 the quantification issues.
A decision on Phase 1 was issued in June 1997, which, among other things,
required the establishment of a transition cost balancing account and annual
transition cost proceedings, set a market rate forecast for 1998 transition
costs, and required that generation-related regulatory assets be amortized
ratably over a 48-month period. The Phase 2 decision, which was issued in
November 1997, established the calculation methodologies and procedures for SCE
to collect its transition costs from 1998 through the end of the rate freeze.
The Phase 2 decision also reduced SCE's authorized rate of return on certain
assets eligible for transition cost recovery (primarily fossil- and
hydroelectric-generation related assets) beginning July 1997, five months
earlier than anticipated. SCE has filed an application for rehearing on the 1997
rate of return issue.
Accounting for Generation-Related Assets -- If the CPUC's electric industry
restructuring plan continues as outlined above, SCE would be allowed to recover
its CTC through non-bypassable charges to its distribution customers (although
its investment in certain generation assets would be subject to a lower
authorized rate of return). During the third quarter of 1997, SCE discontinued
application of accounting principles for rate-regulated enterprises for its
investment in generation facilities. SCE took this action after a consensus was
reached by the Financial Accounting Standards Board's Emerging Issues Task Force
(EITF) in July 1997, regarding the proper application of regulatory accounting
standards in light of the electric industry restructuring legislation enacted by
the State of California in September 1996 and the CPUC's electric industry
restructuring plan.
However, implementation of the EITF consensus did not require SCE to write off
any of its generation-related assets, including regulatory assets of
approximately $900 million at March 31, 1998. SCE has retained these assets on
its balance sheet because the legislation and restructuring plan referred to
above make probable their recovery through a non-bypassable CTC to distribution
customers. These
<PAGE 12>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
regulatory assets relate primarily to the recovery of accelerated income tax
benefits previously flowed through to customers, purchased power contract
termination payments, unamortized losses on reacquired debt, and the recovery of
amounts deferred under the Palo Verde rate phase-in plan. The consensus reached
by the EITF also permits the recording of new generation-related regulatory
assets during the transition period that are probable of recovery through the
CTC mechanism.
If during the transition period events were to occur that made the recovery of
these generation-related regulatory assets no longer probable, SCE would be
required to write off the remaining balance of such assets as a one-time,
non-cash charge against earnings. If such a write-off were to be required, SCE
believes that it should not affect the recovery of stranded costs provided for
in the legislation and restructuring plan.
If events occur during the restructuring process that result in all or a portion
of the CTC being improbable 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 what other revisions will ultimately
be made during the restructuring process 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 Restructuring Decision
In April 1996, the FERC issued its decision on stranded-cost recovery and open
access transmission, effective July 1996. The decision, reaffirmed by the FERC
in its March and November 1997 orders, 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 opportunity to recover
stranded costs associated with existing wholesale customers,
retail-turned-wholesale customers and retail wheeling when the state regulatory
body does not have authority to address retail stranded costs. Even though the
CPUC addressed stranded-cost recovery through the CTC proceedings, the FERC has
also asserted primary jurisdiction over the recovery of stranded costs
associated with retail-turned-wholesale customers, such as a new municipal
electric system or a municipal annexation. However, the FERC did clarify that it
does not intend to prevent or interfere with a state's authority and that it has
discretion to defer to a state stranded-cost-calculation method. In January
1997, the FERC accepted the open access transmission tariff SCE filed in
compliance with the April 1996 decision. The rates included in the tariff were
collected subject to refund. In May 1997, SCE filed a revised open access tariff
to reflect the few revisions set forth in the March 1997 order. The open access
transmission tariff was terminated as of April 1, 1998, when the ISO began
operation.
Mojave Cogeneration Contract
In 1991, SCE filed its testimony in the QF phase of the 1991 Energy Cost
Adjustment Clause proceeding. In 1993, the CPUC's Office of Ratepayer Advocates
(ORA) filed its report on the reasonableness of SCE's QF contracts and alleged
that SCE had imprudently renegotiated a QF contract with the Mojave Cogeneration
Company. The report recommended a disallowance of $32 million (1993 net present
value) over the contract's 20-year life. Subsequently, SCE and the ORA reached a
settlement where SCE agreed to a one-time reduction to its energy-cost
adjustment clause balancing account of $14 million plus interest. Because SCE
and the ORA were unable to finalize their settlement, hearings on the ORA's
disallowance recommendations were held in June 1997. During the hearings, the
ORA presented testimony updating its assessment of ratepayer harm to $45 million
(1997 net present value) over the contract's life. On April 9, 1998, the CPUC
issued a decision resulting in a $16 million disallowance, which has been fully
reflected in SCE's financial statements.
<PAGE 13>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Financial Instruments
Cash Equivalents
Cash and equivalents include tax-exempt investments ($392 million at March 31,
1998, $936 million at December 31, 1997, and $185 million at March 31, 1997),
and time deposits and other investments ($221 million at March 31, 1998, $26
million at December 31, 1997, and $38 million at March 31, 1997) with maturities
of three months or less.
Derivative 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.
SCE uses the hedge accounting method to record its derivative financial
instruments, except for gas call options. Hedge accounting requires an
assessment that the transaction reduces risk, that the derivative be designated
as a hedge at the inception of the derivative contract, and that the changes in
the market value of a hedge move in an inverse direction to the item being
hedged. Under hedge accounting, the derivative itself is not recorded on SCE's
balance sheet. Mark-to-market accounting would be used if the hedge accounting
criteria were not met. Interest rate differentials and amortization of premiums
for interest rate caps are recorded as adjustments to interest expense. If the
derivatives were terminated before the maturity of the corresponding debt
issuance, the realized gain or loss on the transaction would be amortized over
the remaining term of the debt.
SCE uses the mark-to-market accounting method for its gas call options. Gains
and losses from monthly changes in market prices are recorded as income or
expense. However, the costs of the options and the market price changes are
recovered through the transition cost balancing account. As a result, the
mark-to-market gains or losses have no effect on earnings.
SCE has gas call options that mitigate its exposure to increases in natural gas
prices. Increases in natural gas prices tend to increase the price of
electricity purchased from the PX. The options cover various periods from 1998
through 2001.
Interest rate swaps and caps are used to reduce the potential impact of interest
rate fluctuations on floating-rate long-term debt. At the balance sheet dates of
March 31, 1998, December 31, 1997, and March 31, 1997, SCE had an interest rate
swap agreement which fixed the interest rate at 5.585% for $196 million of debt
due 2008; it expires February 28, 2008. The interest rate swap agreement
requires the parties to pledge collateral according to bond rating and market
interest rate changes. At March 31, 1998, SCE had pledged $22 million as
collateral due to a decline in market interest rates. At March 31, 1997, SCE had
an interest rate cap agreement which fixed the interest rate at 6% for $30
million of debt due 2027; it expired July 1, 1997.
SCE is exposed to credit loss in the event of nonperformance by the counterparty
to the agreement, but does not expect the counterparty to fail to meet its
obligations.
<PAGE 14>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Financial Instruments
Fair values of financial instruments were:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
- -------------------------------------------------------------------------------------------------------------------
Cost Fair Cost Fair Cost Fair
Basis Value Basis Value Basis Value
- -------------------------------------------------------------------------------------------------------------------
Financial assets:
<S> <C> <C> <C> <C> <C> <C>
Decommissioning trusts $1,411 $2,002 $1,371 $1,831 $1,245 $1,499
Equity investments 9 109 9 90 11 75
Gas call options 47 51 34 34 -- --
Financial liabilities:
DOE decommissioning and
decontamination fees 50 42 50 43 54 44
Interest rate hedges -- 20 -- 24 -- 9
Long-term debt 5,807 6,006 6,145 6,456 4,661 4,727
Preferred stock subject to
mandatory redemption 275 295 275 293 275 289
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Financial assets are carried at their fair value based on quoted market prices
for decommissioning trusts and equity investments, and on financial models for
gas call options. Financial liabilities are recorded at cost. Financial
liabilities' fair values are 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. Due to their short maturities, amounts reported for
cash equivalents and short-term debt approximate fair value.
Gross unrealized holding gains on financial assets were:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
- -------------------------------------------------------------------------------------------------------------------
Decommissioning trusts:
<S> <C> <C> <C>
Municipal bonds $158 $131 $ 77
Stocks 315 190 129
U.S. government issues 109 91 34
Short-term and other 9 48 14
- -------------------------------------------------------------------------------------------------------------------
591 460 254
Equity investments 100 81 64
Gas call options 4 -- --
- -------------------------------------------------------------------------------------------------------------------
Total $695 $541 $318
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
There were no unrealized holding losses on financial assets for the periods
presented.
Investments
Net unrealized gains (losses) on equity investments are recorded as a separate
component of shareholder's equity under the caption: Other comprehensive income.
Unrealized gains and losses on decommissioning trust funds are recorded in the
accumulated provision for decommissioning. All investments are classified as
available-for-sale.
Long-Term Debt
California law prohibits SCE from incurring or guaranteeing debt for its
nonutility affiliates.
<PAGE 15>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Almost all SCE properties are subject to a trust indenture lien.
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.
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.
Long-term debt maturities and sinking-fund requirements for the five
twelve-month periods following March 31, 1998 are: 1999 -- $568 million; 2000 --
$716 million; 2001 -- $448 million; 2002 -- $446 million; and 2003 -- $446
million.
In December 1997, SCE Funding LLC, a special purpose entity (SPE), of which SCE
is the sole member, issued approximately $2.5 billion of rate reduction notes to
Bankers Trust Company of California, as certificate trustee for the California
Infrastructure and Economic Development Bank Special Purpose Trust SCE-1
(Trust), which is a special purpose entity established by the State of
California. The terms of the rate reduction notes generally mirror the terms of
the pass-through certificates issued by the Trust, which are known as rate
reduction certificates. The proceeds of the rate reduction notes were used by
the SPE to purchase from SCE an enforceable right known as transition property.
Transition property is a current property right created pursuant to the
restructuring legislation and a financing order of the CPUC and consists
generally of the right to be paid a specified amount from a non-bypassable
tariff levied on residential and small commercial customers. Notwithstanding the
legal sale of the transition property by SCE to the SPE, the amounts reflected
as assets on SCE's balance sheet have not been reduced by the amount of the
transition property sold to the SPE, and the liabilities of the SPE for the rate
reduction notes are for accounting purposes reflected as long-term liabilities
on the consolidated balance sheet of SCE. SCE used the proceeds from the sale of
the transition property to retire debt and equity securities. The rate reduction
notes are secured solely by the transition property and certain other assets of
the SPE, and there is no recourse to SCE or Edison International.
Although the SPE is consolidated with SCE in the financial statements, as
required by generally accepted accounting principles, the SPE is legally
separate from SCE, the assets of the SPE are not available to creditors of SCE
or Edison International, and the transition property is legally not an asset of
SCE or Edison International.
Long-term debt consisted of:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
- -------------------------------------------------------------------------------------------------------------------
First and refunding mortgage bonds:
<S> <C> <C> <C>
1998 - 2026 (5.45% to 7.5%) $1,700 $1,825 $2,525
Rate reduction notes:
1998 - 2007 (5.98% to 6.42%) 2,451 2,463 --
Pollution-control bonds:
1999 - 2027 (5.4% to 7.2% and variable) 1,202 1,202 1,204
Funds held by trustees (2) (2) (2)
Debentures and notes:
1998 - 2006 (5.6% to 8.25%) 870 1,195 1,195
Subordinated debentures:
2044 (8.375%) 100 100 100
Commercial paper for nuclear fuel 83 92 118
Long-term debt due within one year (568) (693) (426)
Unamortized debt discount-- net (29) (37) (53)
- -------------------------------------------------------------------------------------------------------------------
Total $5,807 $6,145 $4,661
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE 16>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Short-Term Debt
SCE has lines of credit it can use at negotiated or bank index rates. At March
31, 1998, available lines totaled $1.8 billion, with $1.3 billion 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, 1998, December 31, 1997, and March 31, 1997, was
$428 million, $415 million and $254 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 5.8%, 6.0% and 5.5% at March 31, 1998,
December 31, 1997, and March 31, 1997, respectively.
Note 4. Equity
The CPUC regulates SCE's capital structure, limiting the dividends it may pay
Edison International. At March 31, 1998, SCE had the capacity to pay $1.4
billion 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.
Preferred stock redemption requirements for the five twelve-month periods
following March 31, 1998, are: 1999 through 2002 -- zero and 2003 -- $105
million.
Cumulative preferred stock consisted of:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
Dollars in millions, except per share amounts 1998 1997 1997
- -------------------------------------------------------------------------------------------------------------------
March 31, 1998
---------------------------
Shares Redemption
Outstanding Price
----------- ----------
Not subject to mandatory redemption:
$25 par value:
<C> <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 -- -- -- -- 100
- -------------------------------------------------------------------------------------------------------------------
Total $184 $184 $284
- -------------------------------------------------------------------------------------------------------------------
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>
<PAGE 17>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the second quarter of 1997, 4 million shares of Series 7.36% preferred stock
were redeemed. There were no other preferred stock issuances or redemptions for
the periods presented.
A recently issued accounting standard requires companies to report comprehensive
income starting in 1998. SCE implemented the new accounting standard in the
first quarter of 1998. Implementation of the new standard had no effect on SCE's
financial position or results of operations.
Accumulated other comprehensive income balances were:
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
- ----------------------------------------------------------- ----------------------------- --------------------------
1998 1997 1998 1997
- ----------------------------------------------------------- ----------------------------- --------------------------
<S> <C> <C> <C> <C>
Beginning balance $ 48,023 $ 33,382 $ 40,625 $ 22,114
Unrealized gains on securities 18,688 6,964 35,882 26,076
Tax effect (7,578) 279 (17,374) (7,565)
- -------------------------------------------------------------------------------------------------------------------
Ending balance $ 59,133 $ 40,625 $ 59,133 $ 40,625
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
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,
1998 1997 1997
- -------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
<S> <C> <C> <C>
Property-related $ 199 $ 227 $ 237
Unrealized gains or losses 326 273 191
Investment tax credits 157 192 202
Regulatory balancing accounts 78 180 111
Decommissioning-related 117 114 105
Other 333 335 299
- -------------------------------------------------------------------------------------------------------------------
Total $ 1,210 $ 1,321 $ 1,145
- -------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Property-related $ 3,139 $ 3,272 $ 3,489
Capitalized software costs 144 127 115
Other 859 738 470
- -------------------------------------------------------------------------------------------------------------------
Total $ 4,142 $ 4,137 $ 4,074
- -------------------------------------------------------------------------------------------------------------------
Accumulated deferred income taxes-- net $ 2,932 $ 2,816 $ 2,929
- -------------------------------------------------------------------------------------------------------------------
Classification of accumulated deferred income taxes:
Included in deferred credits $ 2,837 $ 2,939 $ 3,097
Included in current assets (95) 123 168
</TABLE>
<PAGE 18>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The current and deferred components of income tax expense were:
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
- --------------------------------------------------------- ----------------------------- ----------------------------
1998 1997 1998 1997
- --------------------------------------------------------- -------------- ----------- -- -------------- -------------
Current:
<S> <C> <C> <C> <C>
Federal $ 24 $ 24 $374 $320
State 4 19 85 108
- -------------------------------------------------------------------------------------------------------------------
28 43 459 428
- -------------------------------------------------------------------------------------------------------------------
Deferred--federal and state:
Accrued charges (30) (2) (61) (14)
Depreciation (73) (12) (106) (21)
Investment and energy tax credits-- net (4) (5) (20) (22)
Rate phase-in plan -- (4) (15) (24)
Regulatory balancing accounts 109 26 225 109
Prior year state tax 32 27 5 7
CTC amortization 28 -- 27 --
Unbilled revenue 14 -- 14 --
Other 16 14 25 39
- -------------------------------------------------------------------------------------------------------------------
92 44 94 74
- -------------------------------------------------------------------------------------------------------------------
Total income tax expense $120 $ 87 $553 $502
- -------------------------------------------------------------------------------------------------------------------
Classification of income taxes:
Included in operating income $126 $ 95 $612 $565
Included in other income (6) (8) (59) (63)
</TABLE>
The composite federal and state statutory income tax rate was 40.551% for both
the three and twelve months ended March 31, 1998, and 40.551% and 40.921% for
the three and twelve months ended March 31, 1997, respectively.
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,
- --------------------------------------------------------- ----------------------------- ----------------------------
1998 1997 1998 1997
- --------------------------------------------------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0% 35.0%
Capitalized software (3.9) (0.9) (1.5) (0.8)
CTC amortization 12.3 -- 2.0 --
Depreciation and other 5.7 2.0 8.0 4.9
Investment and energy tax credits (1.9) (2.4) (1.7) (2.0)
State tax-- net of federal deduction 5.3 8.1 6.4 7.3
- -------------------------------------------------------------------------------------------------------------------
Effective tax rate 52.5% 41.8% 48.2% 44.4%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 6. Employee Compensation and Benefit Plans
Stock Option Plans
On April 16, 1998, the Edison International shareholders approved the Edison
International Equity Compensation Plan. The plan replaces the Long-Term
Incentive Compensation Program, consisting of officer, director, and management
plans, which was adopted by shareholders in 1992. No new awards will be made
under the prior program; however, it will remain in effect as long as any awards
remain outstanding under the prior program.
<PAGE 19>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The prior program participated in the use of 8.2 million shares of parent
company common stock reserved for potential issuance under various stock
compensation programs to directors, officers and senior managers of Edison
International and its affiliates. Under these programs, options on 3.4 million
shares of Edison International common stock are currently outstanding to
officers and senior managers of SCE.
The new plan authorizes the annual issuance of shares equal to one percent of
the issued and outstanding shares of Edison International common stock as of
December 31 of the prior year. This authorization is cumulative so that to the
extent shares are not needed to meet new plan requirements in any year, the
excess authorized shares will carry over to subsequent years until plan
termination. One percent of the issued and outstanding Edison International
common stock on December 31, 1997 was 3.8 million shares. Under the new plan,
options on 1.0 million shares of Edison International common stock are currently
outstanding to officers and senior managers of SCE.
Each option may be exercised to purchase one share of Edison International
common stock, and is exercisable at a price equivalent to the fair market value
of the underlying stock at the date of grant. Edison International stock options
include a dividend equivalent feature. Generally, for options issued before
1994, amounts equal to dividends accrue on the options at the same time and at
the same rate as would be payable on the number of shares of Edison
International common stock covered by the options. The amounts accumulate
without interest. For Edison International stock options issued subsequent to
1993, dividend equivalents are subject to reduction unless certain shareholder
return performance criteria are met.
The new plan's stock options have a 10-year term with one-fourth of the total
award vesting after each of the first four years of the award term. The prior
program's stock options have a 10-year term with one-third of the total award
vesting after each of the first three years of the award term. If an optionee
retires, dies or is permanently and totally disabled during the vesting period,
the unvested options will vest and be exercisable to the extent of 1/36 (prior
program) or 1/48 (the new plan) of the grant for each full month of service
during the vesting period.
Unvested options of any person who has served in the past on the Edison
International or SCE Management Committee will vest and be exercisable upon the
member's retirement, death or permanent and total disability. Upon retirement,
death or permanent and total disability, the vested options may continue to be
exercised within their original terms by the recipient or beneficiary. If an
optionee is terminated other than by retirement, death or permanent and total
disability, options which had vested as of the prior anniversary date of the
grant are forfeited unless exercised within 180 days of the date of termination.
All unvested options are forfeited on the date of termination.
SCE measures compensation expense related to stock-based compensation by the
intrinsic value method. Compensation expense recorded under the
stock-compensation program was $1 million and $5 million for the three and
twelve months ended March 1, 1998, respectively, and $7 million and $14 million
for the three and twelve months ended March 31, 1997, respectively.
Stock-based compensation expense under the fair-value method of accounting would
have resulted in pro forma earnings of $105 million and $591 million for the
three and twelve months ended March 31, 1998, respectively, and $122 million and
$630 million for the three and twelve months ended March 31, 1997, respectively.
The weighted-average fair value of options granted during the twelve months
ended March 31, 1998, and March 31, 1997, was $6.33 per share option and $7.62
per share option, respectively. The weighted-average remaining life of options
outstanding as of March 31, 1998, December 31, 1997, and March 31, 1997, was 7
years.
<PAGE 20>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value for each option granted, reflecting the basis for the above pro
forma disclosures, was determined on the date of grant using the Black-Scholes
option-pricing model. The following assumptions were used in determining fair
value through the model:
<TABLE>
<CAPTION>
12 Months Ended
----------------------------------------
March 31, 1998 March 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Expected life 7 years 7 years
Risk-free interest rate 5.6% 6.5%
Expected volatility 17% 17%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The application of fair-value accounting to calculate the pro forma disclosures
above is not an indication of future income statement effects. The pro forma
disclosures do not reflect the effect of fair-value accounting on stock-based
compensation awards granted prior to 1995.
Pension Plan
SCE has a noncontributory, defined-benefit pension plan that covers employees
meeting minimum service requirements. SCE recognizes pension expense as
calculated by the actuarial method used for ratemaking. In 1996, SCE recorded
pension gains from a special voluntary early retirement program. In 1998, SCE
adopted a new accounting standard that revises the disclosure requirements for
pension plans. Prior periods have been restated.
Information on plan assets and benefit obligations is shown below:
<TABLE>
<CAPTION>
3 Months Ended Year Ended 3 Months Ended
March 31, December 31, March 31,
In millions 1998 1997 1997
- -------------------------------------------------------------------------------------------------------------------
Change in benefit obligation
<S> <C> <C> <C>
Benefit obligation at beginning of period $2,094 $2,002 $2,002
Service cost 14 44 11
Interest cost 35 138 35
Actuarial gain -- 198 --
Benefits paid (35) (288) (147)
- -------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of period $2,108 $2,094 $1,901
- -------------------------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of period $2,298 $2,165 $2,165
Actual return on plan assets 266 369 22
Employer contributions 17 52 10
Benefits paid (35) (288) (147)
- -------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of period $2,546 $2,298 $2,050
- -------------------------------------------------------------------------------------------------------------------
Funded status $ 438 $ 204 $ 149
Unrecognized net gain (524) (304) (281)
Unrecognized net obligation (17-year amortization) 37 38 42
Unrecognized prior service cost 179 184 195
- -------------------------------------------------------------------------------------------------------------------
Pension asset (liability) $ 130 $ 122 $ 105
- -------------------------------------------------------------------------------------------------------------------
Discount rate 7.0% 7.0% 7.75%
Rate of compensation increase 5.0% 5.0% 5.0%
Expected return on plan assets 8.0% 8.0% 8.0%
</TABLE>
<PAGE 21>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of pension expense were:
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31.
- -------------------------------------------------------------------------------------------------------------------
In millions 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service cost $14 $ 11 $ 47 $ 43
Interest cost 35 35 139 171
Expected return on plan assets (45) (40) (165) (193)
Net amortization and deferral 4 4 13 9
- -------------------------------------------------------------------------------------------------------------------
Pension expense under accounting standards 8 10 34 30
Regulatory adjustment-- deferred 5 3 18 21
- -------------------------------------------------------------------------------------------------------------------
Net pension expense recognized 13 13 52 51
Settlement gain -- -- -- (121)
- -------------------------------------------------------------------------------------------------------------------
Total expense (gain) $13 $ 13 $ 52 $ (70)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Postretirement Benefits Other Than Pensions
Employees retiring at or after age 55 with at least 10 years of service (or
those eligible under a 1996 special voluntary early retirement program), are
eligible for postretirement health and dental care, life insurance and other
benefits. In 1996, SCE recorded special termination expenses from the special
voluntary early retirement program. In 1998, SCE adopted a new accounting
standard that revises the disclosure requirements for postretirement benefit
plans. Prior periods have been restated.
Information on plan assets and benefit obligations is shown below:
<TABLE>
<CAPTION>
3 Months Ended Year Ended 3 Months Ended
March 31, December 31, March 31,
1998 1997 1997
- -------------------------------------------------------------------------------------------------------------------
Change in benefit obligation
<S> <C> <C> <C>
Benefit obligation at beginning of period $1,533 $1,349 $1,349
Service cost 9 30 7
Interest cost 26 99 25
Actuarial loss -- 114 --
Benefits paid (16) (59) (14)
- -------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of period $1,552 $1,533 $1,367
- -------------------------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of period $ 815 $ 617 $ 617
Actual return on plan assets 16 147 13
Employer contributions 27 110 27
Benefits paid (16) (59) (14)
- -------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of period $ 842 $ 815 $ 643
- -------------------------------------------------------------------------------------------------------------------
Funded status $ (710) $ (718) $ (724)
Unrecognized net loss 243 244 229
Unrecognized transition obligation (20-year
amortization) 396 403 423
- -------------------------------------------------------------------------------------------------------------------
Recorded asset (liability) $ (71) $ (71) $ (72)
- -------------------------------------------------------------------------------------------------------------------
Discount rate 7.0% 7.0% 7.75%
Expected return on plan assets 8.0% 8.0% 8.5%
</TABLE>
<PAGE 22>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of postretirement benefits other than pensions expense were:
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service cost $ 9 $ 7 $ 32 $ 29
Interest cost 26 25 100 96
Expected return on plan assets (16) (13) (53) (47)
Amortization of loss 1 2 3 6
Amortization of transition obligation 7 7 27 27
- -------------------------------------------------------------------------------------------------------------------
Net expense 27 28 109 111
Special termination expense -- -- -- 72
- -------------------------------------------------------------------------------------------------------------------
Total expense $27 $28 $109 $183
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The assumed rate of future increases in the per-capita cost of health care
benefits is 8.5% for 1998, gradually decreasing to 5.25% for 2004 and beyond.
Increasing the health care cost trend rate by one percentage point would
increase the accumulated obligation as of March 31, 1998, by $255 million and
annual aggregate service and interest costs by $28 million. Decreasing the
health care cost trend rate by one percentage point would decrease the
accumulated obligation as of March 31, 1998, by $218 million and annual
aggregate service and interest costs by $23 million.
Employee Savings Plan
SCE has a 401(k) defined contribution savings plan designed to supplement
employees' retirement income. The plan received employer contributions of $4
million and $15 million for the three and twelve months ended March 31, 1998,
respectively, and $3 million and $23 million for the three and twelve months
ended March 31, 1997, 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, 1998, was:
<TABLE>
<CAPTION>
Plant in Accumulated Under Ownership
Service Depreciation Construction Interest
- -------------------------------------------------------------------------------------------------------------------
Transmission systems:
<S> <C> <C> <C> <C>
Eldorado $ 32 $ 6 -- 60%
Pacific Intertie 242 76 $ 1 50
Generating stations:
Four Corners Units 4 and 5 (coal) 459 258 3 48
Mohave (coal) 307 155 6 56
Palo Verde (nuclear) 1,603 727 9 16
San Onofre (nuclear) 4,214 2,327 31 75
- -------------------------------------------------------------------------------------------------------------------
Total $6,857 $3,549 $50
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE 23>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Leases
SCE has operating leases, primarily for vehicles, with varying terms, provisions
and expiration dates.
Estimated remaining commitments for noncancellable leases at March 31, 1998,
were:
Year ended December 31, In millions
- ------------------------------------------------------------------------
1998 $11
1999 12
2000 10
2001 7
2002 4
Thereafter 5
- ------------------------------------------------------------------------
Total $49
- ------------------------------------------------------------------------
Note 9. Commitments
Nuclear Decommissioning
Decommissioning is estimated to cost $2.1 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. SCE planned 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 scheduled to begin in 2013 for San
Onofre Units 2 and 3 and 2027 at Palo Verde. San Onofre Unit 1, which shut down
in 1992, is being evaluated for decommissioning prior to 2013.
Decommissioning costs, which are accrued and recovered through non-bypassable
customer rates over the term of each nuclear facility's operating license, are
recorded as a component of depreciation expense. Decommissioning expense was $40
million and $158 million for the three and twelve months ended March 31, 1998,
respectively, and $36 million and $147 million for the three and twelve months
ended March 31, 1997, respectively. The accumulated provision for
decommissioning was $1.1 billion at March 31, 1998, $1.1 billion at December 31,
1997, and $980 million at March 31, 1997. The estimated costs to decommission
San Onofre Unit 1 ($280 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,
In millions Dates 1998 1997 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal bonds 1998-2029 $ 470 $ 459 $ 430
Stocks -- 563 392 549
U.S. government issues 1999-2027 363 357 201
Short-term and other 2002-2028 15 163 65
- -------------------------------------------------------------------------------------------------------------------
Total $1,411 $1,371 $1,245
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Trust fund earnings (based on specific identification) increase the trust fund
balance and the accumulated provision for decommissioning. Net earnings were $15
million and $58 million for the three and twelve months ended March 31, 1998,
respectively, and $11 million and $48 million for the three and twelve months
ended March 31, 1997, respectively. Proceeds from sales of securities (which
<PAGE 24>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
are reinvested) were $208 million and $656 million for the three and twelve
months ended March 31, 1998, respectively, and $147 million and $732 million for
the three and twelve months ended March 31, 1997.
Approximately 89% 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 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 even after deregulation 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 QFs (cogenerators and small power
producers) and other utilities. The QF 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 $193 million through 2017.
Certain commitments for the years 1998 through 2002 are estimated below:
<TABLE>
<CAPTION>
In millions 1998 1999 2000 2001 2002
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Projected construction expenditures $836 $703 $693 $690 $671
Fuel supply contracts 225 146 166 154 162
Purchased-power capacity payments 712 715 716 715 712
Unconditional purchase obligations 9 9 10 9 10
- -------------------------------------------------------------------------------------------------------------------
</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,
<PAGE 25>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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).
SCE's recorded estimated minimum liability to remediate its 50 identified sites
is $178 million. 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 $246 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 41 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 from insurance
carriers and other third parties. SCE has successfully settled insurance claims
with all responsible carriers. Costs incurred at SCE's remaining sites are
expected to be recovered through customer rates. SCE has recorded a regulatory
asset of $150 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
$4 million to $10 million. Recorded costs for the twelve months ended March 31,
1998, were $6 million.
Based on currently available information, SCE believes it is unlikely 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 materially affect 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 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,
<PAGE 26>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $28 million per year. Insurance premiums are charged to operating expense.
<PAGE 27>
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, 1998, were $98 million and $562 million, respectively,
compared with $112 million and $595 million for the same periods in 1997. The
$14 million quarterly decrease is primarily related to lower authorized revenue,
partially offset by the San Onofre Nuclear Generating Station's operating
performance. Excluding special charges of $18 million in 1996 for workforce
management costs and reserves, the twelve-months-ended decrease in earnings is
mostly due to the extended outages and lower return at San Onofre, partially
offset by higher sales.
Operating Revenue
Operating revenue decreased 4% during the first quarter of 1998, compared with
the same period in 1997, as an 8% decrease in average residential rates
(mandated by legislation enacted in September 1996) was partially offset by a 3%
increase in sales volume. For the twelve months ended March 31, 1998, operating
revenue increased 5%, mostly due to an increase in sales volume and customer
refunds in 1996. There were no comparable refunds in 1997. During 1996, SCE's
customers received a one-time bill credit totaling $237 million as part of a
California Public Utilities Commission (CPUC)-ordered refund of energy cost
balancing account overcollections. Over 98% 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).
Legislation enacted in September 1996 provided for, among other things, at least
a 10% rate reduction (financed through the issuance of rate reduction notes) for
residential and small commercial customers in 1998 and other rates to remain
frozen at June 1996 levels (system average of 10.1(cent) per kilowatt-hour). See
discussion in Competitive Environment.
Operating Expenses
Fuel expense decreased 18% for the three months ended March 31, 1998, compared
with the same period in 1997. The quarterly decrease resulted from significantly
lower gas prices. For the twelve months ended March 31, 1998, fuel expense
increased 29%, compared to the year-earlier period, reflecting the effects of
the extended refueling outages at San Onofre Units 2 and 3 during the second and
third quarters of 1997, as well as a $174 million gas contract termination
payment during third quarter 1997.
Purchased-power expense decreased 8% for the three months ended March 31, 1998,
compared to the same period last year, due to an increase in SCE's power
generation from San Onofre Unit 2. San Onofre Unit 2 was shut down the entire
first quarter of 1997 for a refueling outage. A factor that increases expenses
in all periods is the federal requirement that SCE purchase power from certain
nonutility generators even though energy prices under these contracts are
generally higher than other sources. For the twelve months ended March 31, 1998,
SCE paid about $1.6 billion (including energy and capacity payments) more for
these power purchases than the cost of power available from other sources. The
CPUC has mandated the prices for these contracts.
Provisions for regulatory adjustment clauses decreased substantially for both
the quarter and twelve months ended March 31, 1998, compared to the year-earlier
periods, primarily due to undercollections in the transition cost balancing
account. Beginning in January 1998, the difference between generation-related
revenue and generation-related costs is being accumulated in the transition cost
balancing account, effectively eliminating all other balancing accounts except
those used in the administration of public-purpose funds. Also, in January 1998,
overcollections in the kilowatt-hour sales and energy cost
<PAGE 28>
balancing accounts, which were previously transferred to an interim balancing
account, were credited to the transition cost balancing account. The December
31, 1997, balances in these balancing accounts were also transferred to the
transition cost balancing account.
Other operating expenses increased 19% and 9%, respectively, for the three and
twelve months ended March 31, 1998, compared to the same periods in 1997. The
increases are primarily related to direct access activities, as well as storm
damage resulting from a harsher winter in 1998. In addition, the
twelve-month-ended increase also reflects the 1997 reclassification of payroll
taxes to operation and maintenance expense.
Maintenance expense increased 20% for the twelve months ended March 31, 1998,
compared to the year-earlier period, reflecting the extended refueling outages
at San Onofre during the second and third quarters of 1997.
Depreciation and decommissioning expense increased 25% and 17%, respectively,
for the quarter and twelve months ended March 31, 1998, compared to the same
periods in 1997. The increases are primarily due to the accelerated recovery of
the gas- and oil-fueled generation plants and the further acceleration of the
San Onofre and Palo Verde Nuclear Generating Station units. The accelerated
recoveries implemented in 1998 are part of the competition transition charge
(CTC) mechanism. (See further discussion under California Electric Utility
Industry Restructuring.) The twelve-months-ended increase also reflects the
initial accelerated recovery of the Palo Verde units, which began in January
1997.
Income taxes increased 32% for the quarter ended March 31, 1998, compared to the
year-earlier period, primarily due to higher pre-tax income, as well as
additional amortization related to the CTC mechanism. Also, the additional
amortization related to the CTC mechanism will continue to cause an increase in
the effective tax rate.
Property and other taxes decreased 23% for the twelve months ended March 31,
1998, compared to same period in 1997, due to a reclassification of payroll
taxes to operation and maintenance expense, which began in January 1997.
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 units. The deferred revenue (including
interest) was collected evenly over the final six years of each unit's plan. The
plan ended in February 1996, September 1996 and January 1998 for Units 1, 2 and
3, respectively. The provision is a non-cash offset to the collection of
deferred revenue.
Interest and dividend income increased significantly compared to the same
periods in 1997, mainly due to higher investment balances and increases in
interest earned on higher balancing account undercollections.
Other nonoperating income decreased substantially for the three and twelve
months ended March 31, 1998, compared to the year-earlier periods, mostly due to
additional accruals for regulatory matters associated with the restructuring of
California's electric utility industry.
Interest Expense
Interest on long-term debt increased 36% for the quarter ended March 31, 1998,
compared to the same period in 1997, primarily due to the issuance of the rate
reduction notes in December 1997. Interest on the rate reduction notes was $39
million and $47 million, respectively, for the quarter and twelve months ended
March 31, 1998.
Other interest expense decreased 34% for the three months ended March 31, 1998,
and increased 11% for the twelve months ended March 31, 1998, compared to the
same periods in 1997. The quarterly decrease reflects a reduction in balancing
account interest as a result of higher undercollections in 1998.
<PAGE 29>
The twelve-months-ended increase is mainly due to higher levels of short-term
debt used to retire first and refunding mortgage bonds in 1997.
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.
Edison International's Board of Directors has authorized the repurchase of up to
$2.3 billion of its outstanding shares of common stock. Edison International has
repurchased 85.9 million shares ($2.0 billion) between January 1995 and May 4,
1998, funded by dividends from its subsidiaries and the issuance of rate
reduction notes.
For the first quarter of 1998, SCE's cash flow coverage of dividends increased
to 4.0 times from 3.0 times for the year-earlier period. For the twelve months
ended March 31, 1998, the cash flow coverage of dividends decreased to 0.9 times
from 1.9 times for the same period in 1997. The decrease reflects the $1.2
billion special dividend SCE paid to Edison International in December 1997 from
rate reduction note proceeds.
Cash Flows from Operating Activities
Net cash provided by operating activities totaled $407 million and $1.6 billion,
respectively, for the three and twelve months ended March 31, 1998, compared
with $558 million and $1.6 billion for the same periods in 1997. Cash from
operations exceeded capital requirements for all periods presented.
Cash Flows from Financing Activities
At March 31, 1998, SCE had available lines of credit of $1.8 billion, with $1.3
billion for general purpose 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 SCE's articles of
incorporation and trust indenture. As of March 31, 1998, SCE could issue
approximately $11.1 billion of additional first and refunding mortgage bonds and
$3.9 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, 1998, SCE
had the capacity to pay $1.4 billion in additional dividends and continue to
maintain its authorized capital structure.
In December 1997, SCE Funding LLC, a special purpose entity (SPE), of which SCE
is the sole member, issued approximately $2.5 billion of rate reduction notes to
Bankers Trust Company of California, as certificate trustee for the California
Infrastructure and Economic Development Bank Special Purpose Trust SCE-1
(Trust), which is a special purpose entity established by the State of
California. The terms of the rate reduction notes generally mirror the terms of
the pass-through certificates issued by the Trust, which are known as rate
reduction certificates. The proceeds of the rate reduction notes were used by
the SPE to purchase from SCE an enforceable right known as transition property.
Transition property is a current property right created pursuant to the
restructuring legislation and a financing order of the CPUC and consists
generally of the right to be paid a specified amount from a non-bypassable
tariff levied on residential and small commercial customers. Notwithstanding the
legal sale of the transition property by SCE to the SPE, the amounts reflected
as assets on SCE's balance sheet have not been reduced by the amount of the
transition property sold to the SPE, and the liabilities of the SPE for the rate
reduction notes are for accounting purposes reflected as long-term liabilities
on the consolidated
<PAGE 30>
balance sheet of SCE. SCE used the proceeds from the sale of the transition
property to retire debt and equity securities.
The rate reduction notes have maturities ranging from one to 10 years, and bear
interest at rates ranging from 5.98% to 6.42%. The rate reduction notes are
secured solely by the transition property and certain other assets of the SPE,
and there is no recourse to SCE or Edison International.
Although the SPE is consolidated with SCE in the financial statements, as
required by generally accepted accounting principles, the SPE is legally
separate from SCE, the assets of the SPE are not available to creditors of SCE
or Edison International, and the transition property is legally not an asset of
SCE or Edison International.
Cash Flows from Investing Activities
Cash flows from investing activities are affected by additions to property and
plant, proceeds from the sale of plant (see discussion in Divestiture) and
funding of nuclear decommissioning trusts. Decommissioning costs are accrued and
recovered in rates over the term of each nuclear generating facility's operating
license through charges to depreciation expense. SCE estimates that it will
spend approximately $12.7 billion between 2013 -- 2070 to decommission its
nuclear facilities. This estimate is based on SCE's current-dollar
decommissioning costs ($2.1 billion), escalated using a 6.65% annual rate. These
costs are expected to be funded from independent decommissioning trusts, which
will receive SCE contributions of approximately $100 million per year until
decommissioning begins.
Market Risk Exposures
SCE's primary market risk exposures arise from fluctuations in energy prices and
interest rates. SCE's risk management policy allows the use of derivative
financial instruments to manage its financial exposures, but prohibits the use
of these instruments for speculative or trading purposes.
SCE has hedged a portion of its exposure to increases in natural gas prices.
Increases in natural gas prices tend to increase the price of electricity
purchased from the power exchange (PX). SCE's exposure is also limited by
regulatory mechanisms that protect SCE from much of the risk arising from high
electricity prices.
A 10% increase in market interest rates would result in a $6 million increase in
the fair value of SCE's interest rate hedge agreements. A 10% decrease in market
interest rates would result in a $6 million decline in the fair market value of
interest rate hedge agreements. A 10% increase in natural gas prices would
result in a $43 million increase in the fair market value of gas call options. A
10% decrease in natural gas prices would result in a $27 million decline in the
fair market value of gas call options. A 10% change in market rates is expected
to have an immaterial effect on SCE's other financial instruments.
Projected Capital Requirements
SCE's projected construction expenditures for the next five years are: 1998--
$836 million; 1999-- $703 million; 2000-- $693 million; 2001-- $690 million; and
2002-- $671 million.
Long-term debt maturities and sinking fund requirements for the five
twelve-month periods following March 31, 1998, are: 1999 -- $568 million; 2000
- -- $716 million; 2001 -- $448 million; 2002 -- $446 million; and 2003 -- $446
million.
Preferred stock redemption requirements for the five twelve-month periods
following March 31, 1998, are: 1999 through 2002 -- zero and 2003 -- $105
million.
Regulatory Matters
Legislation enacted in September 1996 provided for, among other things, a 10%
rate reduction for residential and small commercial customers in 1998 and other
rates to remain frozen at June 1996 levels
<PAGE 31>
(system average of 10.1(cent) per kilowatt-hour). See further discussion in
Competitive Environment -- Restructuring Legislation.
In 1998, revenue is affected by various mechanisms depending on the utility
operation. Revenue related to distribution operations is determined through a
performance-based rate-making mechanism (PBR) (see discussion in Competitive
Environment -- PBR) and the distribution assets have the opportunity to earn a
CPUC-authorized 9.49% return. Until the independent system operator (ISO) began
operation, transmission revenue was determined by the same mechanism as
distribution operations. After March 31, 1998, transmission revenue is
determined through FERC-authorized rates and transmission assets earn a 9.43%
return. These rates are subject to refund. See discussions in the Competitive
Environment -- Rate-setting and FERC Restructuring Decision sections.
Revenue from generation-related operations is determined through the CTC
mechanism, nuclear rate-making agreements and the competitive market. Revenue
related to fossil and hydroelectric generation operations is recovered from two
sources. The portion that is made uneconomic by electric industry restructuring
is recovered through the CTC mechanism. The portion that is economic is
recovered through the market. In 1998, fossil and hydroelectric generation
assets earn a 7.22% return. A more detailed discussion is in Competitive
Environment -- CTC.
The CPUC has authorized revised rate-making plans for SCE's nuclear facilities,
which call for the accelerated recovery of its nuclear investments in exchange
for a lower authorized rate of return. SCE's nuclear assets are earning an
annual rate of return of 7.35%. In addition, the San Onofre plan authorizes a
fixed rate of approximately 4(cent) per kilowatt-hour generated for operating
costs including incremental capital costs, and nuclear fuel and nuclear fuel
financing costs. The San Onofre plan commenced in April 1996, and ends in
December 2001 for the accelerated recovery portion and in December 2003 for the
incentive pricing portion. Palo Verde's operating costs, including incremental
capital costs, and nuclear fuel and nuclear fuel financing costs, are subject to
balancing account treatment. The Palo Verde plan commenced in January 1997 and
ends in December 2001. Beginning January 1, 1998, both the San Onofre and Palo
Verde rate-making plans became part of the CTC mechanism.
The changes in revenue from the regulatory mechanisms discussed above, excluding
the effects of other rate actions, are expected to have a minimal impact on 1998
earnings. However, the issuance of the rate reduction notes in December 1997,
which enables the repurchase of debt and equity, will have a negative impact on
1998 earnings of approximately $97 million.
Prior to the restructuring of the electric utility industry, SCE recovered its
non-nuclear capital additions to utility plant through depreciation rates
authorized in the general rate case. As part of the CTC Phase 2 decision, the
CPUC authorized recovery of the December 31, 1995, balances, of non-nuclear
generating facilities through the CTC mechanism. The CPUC stated that rate
recovery for capital additions to the non-nuclear generating facilities should
be sought through a separate filing. In October 1997, SCE filed an application
with the CPUC requesting rate recovery of $61 million of net capital additions
to its non-nuclear generating facilities in 1996. Hearings were held in early
1998. The ORA and Toward Utility Reform Network recommended a combined total
disallowance of $37 million. A CPUC decision is expected in third quarter 1998.
In third quarter 1998, SCE plans to file an application for rate recovery of
capital additions to these same generating facilities for the period January 1,
1997, through April 1, 1998 (or the date of divestiture).
In 1991, SCE filed its testimony in the Qualifying Facilities (QF) phase of the
1991 Energy Cost Adjustment Clause proceeding. In 1993, the CPUC's Office of
Ratepayer Advocates (ORA) filed its report on the reasonableness of SCE's QF
contracts and alleged that SCE had imprudently renegotiated a QF contract with
the Mojave Cogeneration Company. The report recommended a disallowance of $32
million (1993 net present value) over the contract's 20-year life. Subsequently,
SCE and the ORA reached a settlement where SCE agreed to a one-time reduction to
its energy-cost adjustment clause balancing account of $14 million plus
interest. Because SCE and the ORA were unable to finalize their settlement,
hearings on the ORA's disallowance recommendations were held in June 1997.
During the hearings, the ORA presented testimony updating its assessment of
ratepayer harm to $45 million (1997 net present value) over the contract's life.
On April 9, 1998, the CPUC issued a decision resulting in a $16 million
disallowance, which has been fully reflected in SCE's financial statements.
<PAGE 32>
Competitive Environment
SCE currently operates in a highly regulated environment in which it has an
obligation to deliver 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
industry.
California Electric Utility Industry Restructuring
Restructuring Decision -- The CPUC's December 1995 decision on restructuring
California's electric utility industry started the transition to a new market
structure, which provides competition and customer choice starting April 1,
1998. Key elements of the CPUC's restructuring decision included: creation of
the PX and ISO; availability of customer choice for electricity supply and
certain billing and metering services; PBR for those utility services not
subject to competition; voluntary divestiture of at least 50% of utilities'
gas-fueled generation; and implementation of the CTC.
Restructuring Legislation -- In September 1996, the State of California enacted
legislation to provide a transition to a competitive market structure. The
legislation substantially adopted the CPUC's December 1995 restructuring
decision by addressing stranded-cost recovery for utilities and providing a
certain cost-recovery time period for the transition costs associated with
utility-owned generation-related assets. Transition costs related to
power-purchase contracts would be recovered through the terms of their contracts
while most of the remaining transition costs would be recovered through 2001.
The legislation also included provisions to finance a portion of the stranded
costs that residential and small commercial customers would have paid between
1998 and 2001, which would allow SCE to reduce rates by at least 10% to these
customers, beginning January 1, 1998. The legislation included a rate freeze for
all other customers, including large commercial and industrial customers, as
well as provisions for continued funding for energy conservation, low-income
programs and renewable resources. Despite the rate freeze, SCE expects to be
able to recover its revenue requirement during the 1998-2001 transition period.
In addition, the legislation mandated the implementation of the CTC that
provides utilities the opportunity to recover costs made uneconomic by electric
utility restructuring. Finally, the legislation contained provisions for the
recovery (through 2006) of reasonable employee-related transition costs,
incurred and projected, for retraining, severance, early retirement,
outplacement and related expenses.
Rate Reduction Notes -- In December 1997, after receiving approval from both the
CPUC and the California Infrastructure and Economic Development Bank, a limited
liability company created by SCE issued approximately $2.5 billion of rate
reduction notes. Residential and small commercial customers, whose 10% rate
reduction began January 1, 1998, will repay the notes over the expected 10-year
term through non-bypassable charges based on electricity consumption. For
further details, see the discussion under Cash Flows from Financing Activities.
Rate-setting -- In December 1996, SCE filed a comprehensive plan addressing the
implementation-level detail for the functional unbundling of rates into separate
charges for energy, transmission, distribution, the CTC, public benefit programs
and nuclear decommissioning beginning January 1, 1998. The transmission
component of this rate unbundling process was addressed at the FERC through a
March 1997 filing. In December 1997, the FERC approved these rates, subject to
refund, to be effective on the date the ISO begins operation. In August 1997,
the CPUC issued a decision which adopted a methodology for determining CTC
residually (see CTC discussion below) and adopted SCE's revenue requirement
components for public benefit programs and nuclear decommissioning. The decision
also adjusted SCE's proposed distribution revenue requirement by reallocating
$76 million of it annually to other functions such as generation and
transmission. Under the decision, SCE will be able to recover most of the
reallocated amount through market revenue, other rate-making mechanisms or
another review process later in its divestiture proceeding.
PX and ISO -- In April 1996, SCE, Pacific Gas & Electric Company and San Diego
Gas & Electric Company filed a proposal with the FERC regarding the creation of
the PX and the ISO. In November 1996, the FERC conditionally accepted the
proposal and directed the three utilities, the ISO, and the PX to file more
specific information. The filing was made in March 1997, and included SCE's
proposed transmission revenue requirement. In October 1997, the FERC gave
conditional, interim authorization for
<PAGE 33>
operation of the PX and ISO to begin on January 1, 1998. The FERC stated it
would closely monitor the PX and ISO, require further studies and make
modifications, where necessary. A comprehensive review will be performed by the
FERC after three years of operation of the PX and ISO. The start-up of the PX
and ISO was delayed by three months due to insufficient testing of systems. On
March 31, 1998, both the PX and ISO began bidding and scheduling for April 1,
1998, when the ISO took over operational control of the power system.
In 1996, the CPUC issued an interim order establishing a restructuring trust
which would obtain loans up to $250 million (increased to $300 million in
November 1997) backed by utility guarantees. The loans were used to build
hardware and software systems for the ISO and PX. SCE's share of the loan
guarantees is 45%, or $135 million. The ISO and PX will repay the trust's loans
and recover funds from future ISO and PX customers. In December 1997, the CPUC
approved the utilities' request that the restructuring implementation charge, to
be paid to the PX by the utilities, be deemed a non-bypassable charge to be
recovered from all retail customers. The amount of the PX charge is $101
million, plus interest and fees over the four-year transition period; SCE's
share is 45%, or $45 million.
Direct Customer Access -- In May 1997, the CPUC issued a decision describing how
all California investor-owned-utility customers will be able to choose who will
provide them with electric generation service beginning January 1, 1998.
Effective April 1, 1998, after a three month delay in the implementation of
direct access, customers are now able to choose to remain utility customers with
either bundled electric service or an hourly PX pricing option from SCE (which
will purchase its power through the PX), or choose direct access, which means
the customer can contract directly with either independent power producers or
retail electric service providers such as power brokers, marketers and
aggregators. Additionally, all investor-owned-utility customers must pay the CTC
whether or not they choose to buy power through SCE. Electric utilities will
continue to provide the core distribution service of delivering energy through
its distribution system regardless of a customer's choice of electricity
supplier. The CPUC will continue to regulate the prices and service obligations
related to distribution services. If the new competitive market cannot
accommodate the volume of direct access transactions, the CPUC could implement a
contingency plan. However, the CPUC believes it is likely that interest in and
migration to direct access will be gradual. As of April 1, 1998, approximately
35,000 of SCE's 4.3 million customers have requested the direct access option.
Revenue Cycle Services -- A decision issued by the CPUC in May 1997, introduced
customer choice to metering, billing and related services (referred to as
revenue cycle services) that have been provided by California's investor-owned
utilities. Under this revenue cycle services unbundling decision, beginning in
April 1998 (delayed from January 1998), energy service providers (ESPs) can
provide their customers with one consolidated bill for their services and the
utility's services, request the utility to provide a consolidated bill to the
customer or elect to have both the ESP and the utility bill the customer for
their respective charges. In addition, beginning in April 1998, customers with
maximum demand above 20 kW (primarily industrial and medium and large
commercial) can choose SCE or any other supplier to provide their metering
service. All other customers will have this option beginning in January 1999. In
determining whether any credit should be provided by the utility to customers
who elect to have ESPs providing customers with revenue cycle services, and the
amount of any such credit, the CPUC has indicated that it is appropriate to net
the cost incurred by the utility and the cost avoided by the utility as a result
of such services being provided by the other firm rather than by the utility.
The unbundling of revenue cycle services will expose SCE to the possible loss of
revenue, higher stranded costs and a reduction in revenue security.
PBR -- In September 1996, the CPUC adopted a non-generation or transmission and
distribution (T&D) PBR mechanism for SCE which began on January 1, 1997. In
accordance with the CPUC decision, beginning in April 1998 the transmission
portion was separated from non-generation PBR and subject to ratemaking under
the rules of the FERC. The distribution-only PBR will extend through December
2001. Key elements of the non-generation PBR include: T&D rates indexed for
inflation based on the Consumer Price Index less a productivity factor;
elimination of the kilowatt-hour sales adjustment; adjustments for cost changes
that are not within SCE's control; a cost-of-capital trigger mechanism based on
changes in a bond index; standards for service reliability and safety; and a net
revenue-sharing mechanism that determines how customers and shareholders will
share gains and losses from T&D operations.
<PAGE 34>
The CPUC has announced its intention to consider unbundling SCE's cost of
capital by major utility function. On May 8, 1998, SCE filed an application on
this issue. A CPUC decision is expected by year-end.
In December 1997, the CPUC adopted a PBR-type rate-making mechanism for SCE's
hydroelectric plants. The mechanism sets the hydroelectric revenue requirement
in 1998 and establishes a formula for extending it through the duration of the
electric industry restructuring transition period, or until market valuation of
the hydroelectric facilities, whichever occurs first. The mechanism provides
that power sales revenue from hydroelectric facilities in excess of the
hydroelectric revenue requirement be credited against the costs to transition to
a competitive market (see CTC discussion below).
Divestiture -- In November 1996, SCE filed an application with the CPUC to
voluntarily divest, by auction, all 12 of its gas- and oil-fueled generation
plants. Under this proposal, SCE would continue to operate and maintain the
divested power plants for at least two years following their sale, as mandated
by the restructuring legislation enacted in September 1996. In addition, SCE
would offer workforce transition programs to those employees who may be impacted
by divestiture-related job reductions. In September 1997, the CPUC approved
SCE's proposal to auction the 12 plants.
In early December 1997, SCE filed a compliance filing with the CPUC stating that
it had sold 10 plants; the CPUC approved the sale of the 10 plants in
mid-December 1997. In the first quarter of 1998, SCE announced the pending sales
of the 11th and 12th plants. SCE has received CPUC approval of the sale of the
11th plant and approval of the sale of the 12th plant is expected by the end of
second quarter 1998. The total sales price of the 12 plants is $1.2 billion,
over $500 million more than the combined book value. Net proceeds of the sales
will be used to reduce stranded costs, which otherwise were expected to be
collected through the CTC mechanism. The transfer of ownership of the 12 plants
is expected to be completed by the end of second quarter 1998.
CTC -- The costs to transition to a competitive market are being recovered
through a non-bypassable CTC. This charge applies to all customers who were
using or began using utility services on or after the CPUC's December 20, 1995,
decision date. In October 1996, SCE amended its August 1996 transition cost
filing to reflect the effects of the legislation enacted in September 1996. The
CTC is being determined residually (i.e., after subtracting other cost
components for the PX, T&D, nuclear decommissioning and public benefit
programs). Nevertheless, the CPUC directed that the amended application provide
estimates of SCE's potential transition costs from 1998 through 2030. SCE
provided two estimates between approximately $13.1 billion (1998 net present
value) assuming the fossil plants had a market value equal to their net book
value, and $13.8 billion (1998 net present value) assuming the fossil plants had
no market value. These estimates were based on incurred costs, forecasts of
future costs and assumed market prices. However, changes in the assumed market
prices could materially affect these estimates. The potential transition costs
were comprised of: $7.5 billion from SCE's QF contracts, which are the direct
result of prior legislative and regulatory mandates; and $5.6 billion to $6.3
billion from costs pertaining to certain generating plants (successful
completion of the sale of SCE's gas-fired generating plants would reduce this
estimate of transition costs for SCE-owned generation to less than $5 billion)
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 San Onofre
Units 2 and 3 and the Palo Verde units (as discussed in Regulatory Matters), and
certain other costs. In February 1997, SCE filed an update to the CTC filing to
reflect approval by the CPUC of settlements regarding ratemaking for SCE's share
of Palo Verde and the buyout of a power purchase agreement, as well as other
minor data updates. No substantive changes in the total CTC estimates were
included. This issue was separated into two phases; Phase 1 addressed the
rate-making issues and Phase 2 the quantification issues.
A decision on Phase 1 was issued in June 1997, which, among other things,
required the establishment of a transition cost balancing account and annual
transition cost proceedings, set a market rate forecast for 1998 transition
costs, and required that generation-related regulatory assets be amortized
ratably over a 48-month period. The Phase 2 decision, which was issued in
November 1997, established the calculation methodologies and procedures for SCE
to collect its transition costs from 1998 through the end of the rate freeze.
The Phase 2 decision also reduced SCE's authorized rate of return on certain
assets eligible for transition cost recovery (primarily fossil- and
hydroelectric-generation related assets)
<PAGE 35>
beginning July 1997, five months earlier than anticipated. SCE has filed an
application for rehearing on the 1997 rate of return issue.
Accounting for Generation-Related Assets -- If the CPUC's electric industry
restructuring plan continues as outlined above, SCE would be allowed to recover
its CTC through non-bypassable charges to its distribution customers (although
its investment in certain generation assets would be subject to a lower
authorized rate of return). During the third quarter of 1997, SCE discontinued
application of accounting principles for rate-regulated enterprises for its
investment in generation facilities. SCE took this action after a consensus was
reached by the Financial Accounting Standards Board's Emerging Issues Task Force
(EITF) in July 1997, regarding the proper application of regulatory accounting
standards in light of the electric industry restructuring legislation enacted by
the State of California in September 1996 and the CPUC's electric industry
restructuring plan.
However, implementation of the EITF consensus did not require SCE to write off
any of its generation-related assets, including regulatory assets of
approximately $900 million at March 31, 1998. SCE has retained these assets on
its balance sheet because the legislation and restructuring plan referred to
above make probable their recovery through a non-bypassable CTC to distribution
customers. These regulatory assets relate primarily to the recovery of
accelerated income tax benefits previously flowed through to customers,
purchased power contract termination payments, unamortized losses on reacquired
debt, and the recovery of amounts deferred under the Palo Verde rate phase-in
plan. The consensus reached by the EITF also permits the recording of new
generation-related regulatory assets during the transition period that are
probable of recovery through the CTC mechanism.
If during the transition period events were to occur that made the recovery of
these generation-related regulatory assets no longer probable, SCE would be
required to write off the remaining balance of such assets as a one-time,
non-cash charge against earnings. If such a write-off were to be required, SCE
believes that it should not affect the recovery of stranded costs provided for
in the legislation and restructuring plan.
If events occur during the restructuring process that result in all or a portion
of the CTC being improbable 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 what other revisions will ultimately
be made during the restructuring process 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 Restructuring Decision
In April 1996, the FERC issued its decision on stranded-cost recovery and open
access transmission, effective July 1996. The decision, reaffirmed by the FERC
in its March and November 1997 orders, 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 opportunity to recover
stranded costs associated with existing wholesale customers,
retail-turned-wholesale customers and retail wheeling when the state regulatory
body does not have authority to address retail stranded costs. Even though the
CPUC addressed stranded-cost recovery through the CTC proceedings, the FERC has
also asserted primary jurisdiction over the recovery of stranded costs
associated with retail-turned-wholesale customers, such as a new municipal
electric system or a municipal annexation. However, the FERC did clarify that it
does not intend to prevent or interfere with a state's authority and that it has
discretion to defer to a state stranded-cost-calculation method. In January
1997, the FERC accepted the open access transmission tariff SCE filed in
compliance with the April 1996 decision. The rates included in the tariff were
collected subject to refund. In May 1997, SCE filed a revised open access tariff
to reflect the few revisions set forth in the March 1997 order. The open access
transmission tariff was terminated as of April 1, 1998, when the ISO began
operation.
<PAGE 36>
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 likely range of
costs.
SCE's recorded estimated minimum liability to remediate its 50 identified sites
is $178 million. One of SCE's sites, a former pole-treating facility, is
considered a federal Superfund site and represents 42% 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 $246
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 41 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 from insurance carriers and other third parties. SCE has
successfully settled insurance claims with all responsible carriers. Costs
incurred at SCE's remaining sites are expected to be recovered through customer
rates. SCE has recorded a regulatory asset of $150 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 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
$4 million to $10 million. Recorded costs for the twelve-month period ended
March 31, 1998, were $6 million.
Based on currently available information, SCE believes it is unlikely 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 materially affect 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
in progress 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 $935 million
for the 1998-2002 period, mainly for aesthetics treatment, including
undergrounding certain transmission and distribution lines.
<PAGE 37>
The possibility that exposure to electric and magnetic fields (EMF) emanating
from power lines, household appliances and other electric sources may result in
adverse health effects has been the subject of scientific research. After many
years of research, scientists have not found that exposure to EMF causes disease
in humans. Research on this topic is continuing. 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.
San Onofre Steam Generator Tubes
The San Onofre Units 2 and 3 steam generators have performed relatively well
through the first 15 years of operation, with low rates of ongoing steam
generator tube degradation. However, during the Unit 2 scheduled refueling and
inspection outage, which was completed in Spring 1997, an increased rate of tube
degradation was identified, which resulted in the removal of more tubes from
service than had been expected. The steam generator design allows for the
removal of up to 10% of the tubes before the rated capacity of the unit must be
reduced. As a result of the increased degradation, a mid-cycle inspection outage
was conducted in early 1998 for Unit 2. Continued degradation was found during
this inspection. Monitoring of this degradation will occur at the next scheduled
refueling outage in January 1999. An additional mid-cycle inspection outage may
be required early in 2000. With the results from the February 1998 outage, 7% of
the tubes have now been removed from service.
During Unit 3's refueling outage, which was completed in July 1997, inspections
of structural supports for steam generator tubes identified several areas where
the thickness of the supports had been reduced, apparently by erosion during
normal plant operation. A follow-up mid-cycle inspection indicated that the
erosion had been stabilized. Additional monitoring inspections are planned
during the next scheduled refueling outage in 1999. To date, 5% of Unit 3's
tubes have been removed from service. During Unit 2's February 1998 mid-cycle
outage, similar tube supports showed no significant levels of such erosion.
Accounting Rules
During 1996, the Financial Accounting Standards Board issued an exposure draft
that would establish accounting standards for the recognition and measurement of
closure and removal obligations. The exposure draft would require the estimated
present value of an obligation to be recorded as a liability, along with a
corresponding increase in the plant or regulatory asset accounts when the
obligation is incurred. If the exposure draft is approved in its present form,
it would affect SCE's accounting practices for the decommissioning of its
nuclear power plants, obligations for coal mine reclamation costs and any other
activities related to the closure or removal of long-lived assets. SCE does not
expect that the accounting changes proposed in the exposure draft would have an
adverse effect on its results of operations even after deregulation due to its
current and expected future ability to recover these costs through customer
rates.
A recently issued accounting rule requires that costs related to start-up
activities be expensed as incurred, effective January 1999. SCE does not expect
this new accounting rule to materially affect its results of operations or
financial position.
Year 2000 Issue
Many of SCE's existing computer systems identify a year by using only two digits
instead of four. If not corrected, these programs could fail or create erroneous
results beginning in 2000. This situation has been referred to generally as the
Year 2000 Issue.
SCE has developed plans and is addressing the programming changes that it has
determined are necessary in order for its computer systems to function properly
beginning in 2000. Remediation of SCE's key financial systems for the Year 2000
Issue was completed in 1997. SCE's informational and operational systems have
been assessed, and detailed plans have been developed to address modifications
required to be completed, tested and operational by December 31, 1999.
Preliminary
<PAGE 38>
estimates of the costs to complete these modifications, including the cost of
new hardware and software application modifications, range from $55 million to
$80 million, about half of which are expected to be capital costs. Current rate
levels for providing electric service should be sufficient to provide funding
for these modifications. Remediation of existing critical systems is expected to
be 75% complete by the end of 1998. SCE expects its Year 2000 date conversion
project to be completed on a timely basis, with no material adverse impact to
its results of operations or financial position.
SCE's Year 2000 date conversion project includes an assessment of critical
interfaces with the computer systems of others and it does not expect a material
adverse effect on its operating and business functions from the Year 2000 Issue.
Forward-looking Information
In the preceding Management's Discussion and Analysis of Results of Operations
and Financial Condition and elsewhere in this quarterly report, the words
estimates, expects, anticipates, believes, and other similar expressions are
intended to identify forward-looking information that involves risks and
uncertainties. Actual results or outcomes could differ materially as a result of
such important factors as further actions by state and federal regulatory bodies
setting rates and implementing the restructuring of the electric utility
industry; the effects of new laws and regulations relating to restructuring and
other matters; the effects of increased competition in the electric utility
business, including the beginning of direct customer access to retail energy
suppliers and the unbundling of revenue cycle services such as metering and
billing; changes in prices of electricity and fuel costs; changes in market
interest rates; new or increased environmental liabilities; and other unforeseen
events.
<PAGE 39>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Wind Generators' Litigation
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 million in damages,
which includes consequential damages claimed in seven of the eight lawsuits. On
March 1, 1995, the court in the lead Los Angeles Superior Court case granted the
plaintiffs' motion seeking summary adjudication that the contract language in
question is not reasonably susceptible to SCE's position that there is only a
single, 10-year period of fixed payments. Following the March 1 ruling, a ninth
lawsuit was filed in the Los Angeles Superior Court raising claims similar to
those alleged in the first eight. SCE subsequently 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 of the State of California, Second Appellate
District 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. In light of the Court of Appeal
decision in the lead Los Angeles case, a summary adjudication motion in the Kern
County case was withdrawn. On March 25, 1996, pursuant to a court-approved
stipulation, all but one of the cases were consolidated for trial in Los Angeles
Superior Court. Shortly thereafter, on April 3, 1996, pursuant to stipulation of
the parties, the Kern County case was ordered to be coordinated with the Los
Angeles cases so that it too will be tried in Los Angeles. Trial of the
consolidated cases, beginning with the lead case, commenced on March 10, 1997.
The consolidated cases are to be tried one after another in bifurcated fashion
with the liability phase of each and all of the cases to be tried before
commencement of the damages phase, if applicable. Testimony and arguments in the
liability phase of the lead case concluded on May 20, 1997. On July 7, 1997, the
court issued a tentative decision which effectively would resolve all liability
issues in the lead case in SCE's favor. A proposed Statement of Decision
consistent with the conclusions in the tentative decision was submitted by SCE
and argument on the same took place at a hearing on October 31, 1997. The
hearing was not concluded at that time and further argument took place on
November 17, 1997. On December 22, 1997, the judge ruled on the objections
raised at the two hearings and ordered SCE to prepare a proposed Statement of
Decision incorporating her ruling. SCE submitted this document to the court on
January 13, 1998. At a hearing on February 4, 1998, the court, after considering
additional objections to parts of the proposed order, directed SCE to prepare a
further, revised order which would not materially change the court's previous,
tentative rulings. This final statement of decision was filed on February 6,
1998. In addition, on February 20, 1998, the court entered a judgment against
one of the Plaintiffs in the lead case. (Judgment has not yet been entered
against the other plaintiff in the lead case because of outstanding issues
related to SCE's damages arising from cross-claims by SCE against that
plaintiff.)
SCE has recently agreed to settle with the plaintiffs in seven of the lawsuits
whereby SCE will waive its rights to recover costs against such plaintiffs in
exchange for their agreement that there is only one fixed price period under
each of their power purchase contracts with SCE and a mutual dismissal with
prejudice of claims. SCE has also entered into a settlement agreement with the
plaintiff in another of the lawsuits which resolves the issue of multiple fixed
price periods on the same terms and which also resolves a related issue unique
to that plaintiff in exchange for a nominal payment by SCE. This settlement is
subject to bankruptcy court approval in proceedings involving the plaintiff. On
April 24, 1998, the bankruptcy court issued an order approving the settlement.
<PAGE 40>
Geothermal Generators' Litigation
On June 9, 1997, SCE filed a complaint in Los Angeles County Superior Court
against another independent power producer of geothermal generation and six of
its affiliated entities (collectively the "Defendants"). SCE alleges that in
order to avoid power production plant shutdowns caused by excessive
noncondensable gas in the geothermal field brine, the Defendants routinely
vented highly toxic hydrogen sulfide gas from unmonitored release points
beginning in 1990 and continuing through at least 1994, in violation of
applicable federal, state and local environmental law. According to SCE, these
violations constituted material breaches by the Defendants of their obligations
under their contracts and applicable law. The complaint seeks termination of the
contracts and damages for excess power purchase payments made to the Defendants.
The Defendants' motion to transfer venue to Inyo County Superior Court was
granted on August 31, 1997.
On December 19, 1997, SCE filed a second amended complaint in response to which
the Defendants filed a motion to strike, which was argued and taken under
submission by the court on March 13, 1998. The Defendants also filed a motion
for summary judgment, asserting that SCE's claims are time-barred or were
released in connection with the settlement of prior litigation among some of the
Defendants and two of SCE's affiliates, Mission Power Engineering Company, and
The Mission Group (the Mission Parties). SCE asserts that the earlier settlement
does not bar the claims it is prosecuting in this matter and that these claims
are not time-barred. The motion was argued on April 22, 1998, and the matter was
taken under submission at that time. SCE has also filed a cross motion for
summary adjudication with respect to the issues raised in Defendants' summary
judgment motion. No hearing date has been scheduled for SCE's motion for summary
adjudication. In addition, the Defendants have filed a motion to stay SCE's case
pending resolution of certain technical issues by the Great Basin Air Quality
Management District under the doctrine of primary adjudication. The motion was
argued on March 13, 1998. On April 30, 1998, the court denied the motion for
stay without prejudice.
The Defendants have also asserted various claims against SCE and the Mission
Parties in a cross-complaint filed in the action commenced by SCE as well as in
a separate action filed against SCE by three of the Defendants in Inyo County
Superior Court. Following a hearing on November 20, 1997, the court consolidated
these actions for all purposes and ordered the Defendants to file a second
amended cross-complaint.
The second amended cross-complaint asserts nineteen causes of action against
SCE, three of which are also asserted against the Mission Parties, and alleges
in excess of $75 million in compensatory damages and also punitive damages.
Included are claims for declaratory relief; breach of the implied covenant of
good faith and fair dealing; inducing breach of employee agreements; breach of
contract; disparagement, and slander per se; injunctive relief and restitution
for unfair business practices; anticipatory breach of contract; violation of
Public Utilities Code Sections 453, 707 and 2106; and negligent and intentional
misrepresentation. Several of these claims are premised on the theory that SCE
has incorrectly interpreted the cross-complainants' contracts as providing for
only a single "fixed price" period in view of the fact that the
cross-complainants developed their projects in phases. This theory has also been
asserted by other independent power producers in litigation pending in Los
Angeles Superior Court. (See, "Wind Generators Litigation" above.) SCE filed a
demurrer to the second amended cross-complaint, which was argued on March 13,
1998, and taken under submission by the court.
Based on the common issues asserted in the Wind Generation Litigation and the
Defendants' second amended cross-complaint, SCE filed a petition to coordinate
the consolidated actions pending in Inyo County Superior Court with the Wind
Generation Litigation pending in Los Angeles County Superior Court. In
connection with the petition to coordinate, SCE also applied for a stay of all
proceedings in Inyo County. Both the petition to coordinate and the application
for stay were argued before the judge presiding in the Wind Generators
Litigation and were denied without prejudice on April 9, 1998.
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 denied the
material allegations in its responses to each of these lawsuits.
<PAGE 42>
The first lawsuit was filed in Orange County Superior Court and served on SCE in
June 1994. There are five named plaintiffs and six named defendants, including
SCE. Three of the five plaintiffs are presently or were formerly employed by
Grubb & Ellis, a real estate brokerage firm with offices located in a commercial
building known as the Koll Center in Newport Beach. Two of the named plaintiffs
are spouses of the other plaintiffs. Grubb & Ellis and the owners and developers
of the Koll Center are also named as defendants in the lawsuit. This lawsuit
alleges, among other things, that the three plaintiffs employed by Grubb & Ellis
developed various forms of cancer as a result of exposure to EMF from electrical
facilities owned by SCE and/or the other defendants located on Koll Center
property. No specific damage amounts are alleged in the complaint, but
supplemental documentation prepared by the plaintiffs indicates that plaintiffs
allege compensatory damages of approximately $8 million, plus unspecified
punitive damages. In December 1995, the court granted SCE's motion for summary
judgment and dismissed the case. Plaintiffs have filed a Notice of Appeal.
Briefs have been submitted but no date for oral argument has been set.
A second lawsuit was filed in Orange County Superior Court and served on SCE in
January 1995. This lawsuit arises out of the same fact situation as the June
1994 lawsuit described above and involves the same defendants. There are four
named plaintiffs, two of whom were formerly employed by Grubb & Ellis and now
allegedly have various forms of cancer. The other two plaintiffs are the spouses
of those two individuals. No specific damage amounts are alleged in the
complaint, but supplemental documentation prepared by the plaintiffs indicates
that plaintiffs will allege compensatory damages of approximately $13.5 million,
plus unspecified punitive damages. In April 1995, Grubb & Ellis filed a
cross-complaint against the other co-defendants, requesting indemnification and
declaratory relief concerning the rights and responsibilities of the parties.
Although stayed for a time pending appellate review of sanctions imposed against
plaintiffs' attorneys by the trial court, the case has been remanded back to the
trial court following the Court of Appeal's decision modifying the sanctions
order. To date, no further proceedings have been scheduled.
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 distribution lines 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 $5.5 million, plus unspecified punitive damages. No trial date has
been set in this case.
A California Court of Appeal decision, Cynthia Jill Ford et al. v. Pacific Gas
and Electric Co. (Ford), has held that the Superior Courts do not have
jurisdiction to decide issues, such as those concerning EMF, which are regulated
by the CPUC. The California Supreme Court recently denied the plaintiffs'
petition for review in Ford and it is now binding throughout California. SCE
intends to seek dismissal of these cases in light of the Court of Appeal's
decision.
San Onofre Personal Injury Litigation
An SCE engineer employed at San Onofre died in 1991 from cancer of the abdomen.
On February 6, 1995, his children sued SCE and SDG&E, as well as Combustion
Engineering, the manufacturer of the fuel rods for the plant, in the U.S.
District Court for the Southern District of California. Plaintiffs alleged that
the former employee's illness resulted from, and was aggravated by, exposure to
radiation at San Onofre, including contact with radioactive fuel particles
released from failed fuel rods. Plaintiffs sought unspecified compensatory and
punitive damages. On April 3, 1995, the court granted the defendants' motion to
dismiss 14 of the plaintiffs' 15 claims. SCE's April 20, 1995, answer to the
complaint denied all material allegations. On October 10, 1995, the court
granted plaintiffs' motion to include the Institute of Nuclear Power Operations
(an organization dedicated to achieving excellence 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, basing the ruling
on the worker's compensation system being the exclusive remedy for the claim.
Plaintiffs have appealed this ruling to the Ninth Circuit Court of Appeals. Oral
argument on the appeal took place on December 4, 1997, and the matter is now
under submission. All trial court proceedings have been stayed 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 42>
On July 5, 1995, a former SCE reactor operator and his wife sued SCE and SDG&E
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
plant, and the Institute of Nuclear Power Operations as defendants. The former
employee died of leukemia shortly after the complaint was filed. Plaintiffs
allege that the former operator's illness resulted from, and was aggravated by,
exposure to radiation at San Onofre, including contact with radioactive fuel
particles released from failed fuel rods. Plaintiffs seek unspecified
compensatory and punitive damages. On November 22, 1995, the complaint was
amended to allege wrongful death and added the former employee's two children as
plaintiffs. On December 22, 1995, SCE filed a motion to dismiss or, in the
alternative, for summary judgment based on worker's compensation exclusivity. On
March 25, 1996, the court granted SCE's motion for summary judgment. Plaintiffs
have appealed this ruling to the Ninth Circuit Court of Appeals. Oral argument
on the appeal took place on December 4, 1997, and the matter is now under
submission. All trial court proceedings have been stayed pending the ruling of
the Court of Appeals in this case and in the case described in the above
paragraph. The impact on SCE, if any, from further proceedings in this case
against the remaining defendants cannot be determined at this time.
On August 31, 1995, the wife and daughter of a former San Onofre security
supervisor sued SCE and SDG&E in the U.S. District Court for the Southern
District of California. Plaintiffs also named Combustion Engineering, the
manufacturer of fuel rods for the plant, and the Institute of Nuclear Power
Operations as defendants. The security officer worked for a contractor in 1982,
worked for SCE as a temporary employee (1982-1984), and later worked as an SCE
security supervisor (1984-1994). The officer died of leukemia in 1994.
Plaintiffs allege that the former officer's illness resulted from, and was
aggravated by, his exposure to radiation at San Onofre, including contact with
radioactive fuel particles released from failed fuel rods. Plaintiffs seek
unspecified compensatory and punitive damages. SCE's November 13, 1995, answer
to the complaint denied all material allegations. All trial court proceedings
have been stayed pending the rulings of the Court of Appeals in the cases
described in the above two paragraphs.
On November 17, 1995, an 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 alleged 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 employee's
employment related allegations based on worker's compensation exclusivity was
granted on March 19, 1996. The employee's wife died on August 15, 1996. On
September 20, 1996, the complaint was amended to allege wrongful death and to
add the employee's two children as plaintiffs. SCE's motion for summary judgment
was denied on April 9, 1997. The trial in this case took place over
approximately 22 days between January and March 1998 and resulted in a jury
verdict for both defendants. On March 19, 1998, the plaintiffs filed a motion
for a new trial. Arguments for that motion are scheduled to be heard on June 11,
1998.
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. On August 12, 1996, the Court
dismissed the claims of the former worker and her husband with prejudice. This
case is expected to go to trial in late-1998 or early 1999.
On November 20, 1997, a former contract worker at San Onofre and his wife sued
SCE in the Superior Court of California, County of San Diego. The contract
worker was an ironworker at San Onofre during a portion of 1995. The suit
alleges that SCE allowed dangerous conditions to exist at San Onofre, causing
him to sustain unspecified personal injuries. His wife alleges loss of
consortium and other general damages. The case has been removed to the U.S.
District Court for the Southern District of California. SCE filed a motion to
dismiss the complaint for failure to state a claim. In April 1998, the
plaintiffs and
<PAGE 43>
SCE stipulated that SCE's motion to dismiss be granted and that the plaintiffs
be given leave to file an amended complaint on or before May 11, 1998. The
plaintiffs have not yet filed an amended complaint.
Oil Pipeline Litigation
On November 1, 1996, plaintiff, a crude oil pipeline company, filed a lawsuit
against SCE and the City of Los Angeles (the City) in the United States District
Court for the Central District of California claiming that SCE and the City had
interfered with its attempt to construct a proposed 132-mile oil pipeline
(Pacific Pipeline) designed to transport oil from the San Joaquin Valley and
Santa Barbara to the Los Angeles refineries.
Plaintiff alleges, among other things, that SCE and the City wrongfully
initiated administrative and other legal proceedings in an attempt to derail and
obstruct the construction of the Pacific Pipeline. Plaintiff alleges that these
acts constitute unfair competition, tortious interference with economic
advantage and violate state and federal antitrust laws. Plaintiff further claims
that because of the alleged delays, it could suffer losses in excess of $300
million. Additionally, plaintiff seeks treble and punitive damages.
On June 30, 1997, SCE filed an answer to the complaint denying the substantive
allegations and raising appropriate defenses. Plaintiff and SCE reached a
settlement of this dispute for nonmonetary compensation. An agreement to dismiss
the lawsuit was filed with the court on February 8, 1998.
False Claims Act Litigation
In September 1997, SCE became aware of a complaint filed in the Southern
District of the U.S. District Court of California by a former San Onofre
employee, acting at his own initiative on behalf of the United States under the
False Claims Act, against SCE and SDG&E. The complaint alleges that SCE and
SDG&E have submitted fraudulent claims to the United States government, the
State of California and their customers resulting in $491 million in
overpayments ($383 million of which is attributed to SCE). The employee alleges
that SCE and SDG&E provided the CPUC with data which inflated projected costs at
San Onofre while minimizing projected revenue, resulting in the CPUC setting
inflated rates. The amount sought in this complaint is subject to trebling, plus
civil penalties of $10,000 per false claim submitted for payment (for an
unspecified number of claims). SCE and SDG&E filed separate motions to dismiss
this lawsuit on November 6, 1997. The employee responded to both motions on
December 20, 1997. SCE and SDG&E replied to the employee's response on January
13, 1998. Oral argument on the motion to dismiss was heard on January 20, 1998,
and the court has the matter under submission.
Mohave Generating Station Environmental Litigation
On February 19, 1998, the Sierra Club and the Grand Canyon Trust filed suit in
the U.S. District Court of Nevada against SCE and the other three co-owners of
the Mohave Generating Station (Mohave). The lawsuit alleges that Mohave has been
violating various provisions of the Clean Air Act, the Nevada state
implementation plan, certain Environmental Protection Agency orders, and
applicable pollution permits relating to opacity and sulfur dioxide emission
limits over the last five years. The plaintiffs seek declaratory and injunctive
relief as well as civil penalties. Under the Clean Air Act, the maximum civil
penalty obtainable is $25,000 per day per violation. SCE and the co-owners
obtained an extension to respond to the complaint and on April 10, 1998, filed a
motion to dismiss. The plaintiffs' opposition to the motion was due on May 8,
1998. The reply brief to plaintiffs' opposition will be due May 22, 1998.
<PAGE 44>
Item 4. Submission of Matters to a Vote of Security Holders
Election of Directors
At SCE's Annual Meeting of Shareholders on April 16, 1998, shareholders elected
sixteen 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>
Number of Votes
- -------------------------------------------------------------------------------------------------------------------
Name For Withheld
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
John E. Bryson 470,636,766 483,036
Winston H. Chen 470,645,298 474,504
` Warren Christopher 470,610,396 509,406
Stephen E. Frank 470,647,872 471,930
Joan C. Hanley 470,639,604 480,198
Carl F. Huntsinger 470,645,196 474,606
Charles D. Miller 470,627,832 491,970
Luis G. Nogales 470,623,140 496,662
Ronald L. Olson 470,633,922 485,880
James M. Rosser 470,641,032 478,770
E. L. Shannon, Jr. 470,638,530 481,272
Robert H. Smith 470,647,872 471,930
Thomas C. Sutton 470,646,084 473,718
Daniel M. Tellep 470,647,182 472,620
James D. Watkins 470,626,980 492,822
Edward Zapanta 470,645,670 472,132
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Restated Articles of Incorporation as amended through June 1,
1993 (File No. 1-2313, Form 10-K for the year ended December 31,
1993)*
3.2 Certificate of Correction of Restated Articles of Incorporation
of Southern California Edison Company as amended through June 1,
1993 (File No. 1-2313, Form 10-Q for the quarterly period ended
September 30, 1997)*
3.3 Bylaws as adopted by the Board of Directors effective January 1,
1998 (File No. 1-2313, Form 10-K for the year ended December 31,
1997)*
10. Material Contracts
10.1 Option Gain Deferral Plan
10.2 Executive Deferred Compensation Plan
10.3 Officer Long-term Incentive Compensation Plan
23. Consent of Independent Public Accountants
27. Financial Data Schedule
<PAGE 45>
(b) Reports on Form 8-K:
April 7, 1998
Item 5: Other Events: Sale of SCE Generating Plants
- ---------------------
* Incorporated by reference pursuant to Rule 12b-32.
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 12, 1998
EIX Option Gain Deferral Plan
January 1, 1998
EDISON INTERNATIONAL
OPTION GAIN DEFERRAL PLAN
<PAGE>
1. PURPOSE AND AUTHORIZED SHARES............................................1
1.1 Purposes ......................................................1
1.2 Shares Available...............................................1
1.3 Relationship to Incentive Plans................................2
2. DEFINITIONS..............................................................2
3. PARTICIPATION............................................................5
3.1 General Participation Requirements.............................5
3.2 Manner and Timing of Election..................................5
3.3 Execution of Alternative Exercise Agreement by the Company.....5
4. ALTERNATIVE EXERCISE OF OPTIONS..........................................6
4.1 Form of Agreement..............................................6
4.2 Limited Ability to Exercise Option.............................6
4.3 Termination of Alternative Exercise Agreements.................6
4.4 Other Terms of Alternative Exercise Agreements.................6
5. STOCK UNIT ACCOUNTS......................................................7
5.1 Crediting of Stock Units.......................................7
5.2 Dividend Equivalent Credits to Stock Unit Accounts.............7
5.3 Vesting....................................................... 7
5.4 Distribution of Benefits.......................................7
5.5 Adjustments in Case of Changes in Common Stock.................10
5.6 Company's Right to Withhold....................................10
6. ADMINISTRATION...........................................................11
6.1 The Administrator..............................................11
6.2 Committee Action...............................................11
6.3 Rights and Duties..............................................11
6.4 Indemnity and Liability........................................12
6.5 Claims Procedure...............................................12
<PAGE>
7. PLAN CHANGES AND TERMINATION...........................................13
7.1 Amendments...................................................13
7.2 Term.........................................................13
8. MISCELLANEOUS..........................................................13
8.1 Limitation on Participant Rights.............................13
8.2 Beneficiary Designation......................................14
8.3 Payments to Minors or Persons Under Incapacity...............14
8.4 Stock Units and Other Benefits Not Assignable;
Obligations Binding Upon Successors..........................15
8.5 Employment Taxes.............................................15
8.6 Governing Law; Severability..................................15
8.7 Compliance With Laws.........................................15
8.8 Plan Construction............................................15
8.9 Headings Not Part of Plan....................................16
<PAGE>
EDISON INTERNATIONAL
OPTION GAIN DEFERRAL PLAN
1.
PURPOSE AND AUTHORIZED SHARES
1.1 Purposes
The purpose of this Plan is to promote the ownership and retention of Shares by
Eligible Persons and to enable Eligible Persons to defer compensation that would
otherwise be realized upon exercise of a Qualifying Option and ultimately
receive the deferred compensation in the form of Shares.
1.2. Shares Available
The number of Shares that may be issued under each of the Management Plan, the
Officer Plan, and the 1998 Plan (except as provided below) as part of this Plan
is limited to the aggregate number of Shares that were the subject of the
Qualifying Options granted under such Plan that are exercised pursuant to
Article IV in exchange for the crediting of Stock Units under this Plan. If the
number of Shares payable under this Plan would exceed one or more of the limits
described in the preceding sentence because of the accumulation of Stock Units
in respect of Dividend Equivalents, such excess Shares shall be issued and
charged against the Share limits under the 1998 Plan. If insufficient Shares
remain under the 1998 Plan for the accumulation of Dividend Equivalents under
the Management Plan, the Officer Plan or the 1998 Plan, such excess Shares shall
be issued under other authority of the Board, or, in absence of such other
authority, may be paid (in the sole discretion of the Committee) in cash.
Shares not exceeding the number of Already-Owned Shares used under this Plan to
exercise a Qualifying Stock Option granted under the Management Plan may be used
in respect of Dividend Equivalents on the Stock Units credited with respect to
Alternatively Exercised Qualifying Options granted under the Management Plan,
but may not be used for other awards under the Incentive Plans. Shares not
exceeding the number of Already-Owned Shares used under this Plan to exercise a
Qualifying Stock Option granted under the Officer Plan may be used in respect of
Dividend Equivalents on the Stock Units credited with respect to Alternatively
Exercised Qualifying Options granted under the Officer Plan, but may not be used
for other awards under the Incentive Plans. Shares not exceeding the number of
Already-Owned Shares used under this Plan to exercise a Qualifying Stock Option
granted under the 1998 Plan may be used in respect of Dividend Equivalents on
the Stock Units credited with respect to an Alternatively Exercised Qualifying
Option granted under any one of the Incentive Plans, but may not be used for
other awards under the Incentive Plans.
<PAGE 1>
1.3. Relationship To Incentive Plans
This Plan constitutes a deferred compensation plan providing alternative
settlements under and as contemplated by the Incentive Plans in respect of
nonqualified stock options granted thereunder. This Plan also contemplates the
grant of Stock Units under and as contemplated by the 1998 Plan. This Plan and
all rights under it are provided under and shall be subject to and construed
consistently with the other terms of the Management Plan, the Officer Plan, or
the 1998 Plan, as the case may be, except as the context otherwise requires.
3.
DEFINITIONS
Whenever the following terms are used in this Plan they shall have the meaning
specified below unless the context clearly indicates to the contrary:
"ALREADY-OWNED SHARES" shall mean Shares owned by an Eligible Person; provided,
however, that Shares acquired by an Eligible Person from the Company under an
option or other employee benefit plan maintained by the Company or otherwise
must be held by the Eligible Person for at least six months in order to qualify
as Already-Owned Shares and, if Shares are used to pay the exercise price of an
option or other award, such Shares may not be reused as payment of the exercise
price of another option or award within six months of such prior use.
"ALTERNATIVE EXERCISE" shall mean the exercise of all or a portion of a
Qualifying Stock Option using Already-Owned Shares in exchange for a combination
of Shares and Stock Units under this Plan.
"ALTERNATIVE EXERCISE AGREEMENT" shall mean an agreement entered into between
the Company and an Eligible Person in accordance with Article IV of this Plan
pursuant to which the Eligible Person elects to defer that portion of the
proceeds of the exercise of the Qualifying Option equal to the spread in the
form of Stock Units.
"BENEFICIARY" or "BENEFICIARIES" shall mean the person, persons, trust or trusts
(or similar entity), personal representative, or other fiduciary, last
designated in writing by a Participant in accordance with the provisions of
Section 8.2 to receive the benefits specified hereunder in the event of the
Participant's death. If there is no valid Beneficiary designation in effect that
complies with the provisions of Section 8.2, or if there is no surviving
designated Beneficiary, then the Participant's surviving spouse shall be the
Beneficiary. If there is no surviving spouse to receive any benefits payable in
accordance with the preceding sentence, the duly appointed and currently acting
personal representative of the Participant's estate (which shall include either
the Participant's probate estate or living trust) shall be the Beneficiary. In
any case where there is no such personal representative of the Participant's
estate duly appointed and acting in that capacity within 90 days after the
Participant's death (or such extended period as the Committee determines is
reasonably necessary to allow such personal representative to be appointed, but
not to exceed 180 days after the Participant's death), then Beneficiary or
Beneficiaries shall mean the person or persons who can verify by affidavit or
court order to the satisfaction of the Committee that they are legally entitled
to receive the benefits specified hereunder.
<PAGE 2>
"BOARD" shall mean the Board of Directors of the Company.
"CHANGE IN CONTROL EVENT" shall mean any of the following:
(a) The dissolution or liquidation of the Company;
(b) The reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation;
(c) The sale of all or substantially all of the property of the Company;
(d) A reorganization, merger, consolidation, or other corporate transaction
which is consummated following the related occurrence of a Distribution Date (as
such term is defined in the Rights Agreement approved by the Board on November
20, 1996) and as a result of which the Company is not the surviving corporation.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMITTEE" shall mean those members of the Compensation and Executive Personnel
Committee of the Board of the Company determined under Article VI.
"COMMON STOCK" shall mean the Common Stock of the Company, subject to adjustment
pursuant to Section 5.5 of this Plan, Section 16 of the Management Plan, Section
16 of the Officer Plan, and Section 3.4 of the 1998 Plan, as the case may be.
"COMPANY" shall mean Edison International, a California corporation, and its
successors and assigns.
"CONVERSION DATE" shall mean the date that the Eligible Person exercises all or
a portion of a Qualifying Option in accordance with the Alternative Exercise
procedures under this Plan.
"DISABILITY" shall mean the permanent and total disability of the Participant as
determined by the Committee.
"DISTRIBUTION SUBACCOUNT" shall mean any subaccount established and maintained
under a Participant's Stock Unit Account to separately account for Stock Units
which are subject to different distribution elections made by the Participant.
"DIVIDEND EQUIVALENT" shall mean the amount of cash dividends or other cash
distributions paid by the Company on that number of Shares equal to the number
of Stock Units credited to a Participant's Stock Unit Account as of the
applicable record date for the dividend or other distribution, which amount
shall be credited in the form of additional Stock Units to the Stock Unit
Account of the Participant, as provided in Section 5.2.
"EFFECTIVE DATE" shall mean January 1, 1998.
"ELIGIBLE PERSON" shall mean any employee of the Company, Southern California
Edison Company or any other Subsidiary who is eligible to defer compensation
under the terms of the Company Executive Deferred Compensation Plan.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended from
time to time.
<PAGE 3>
"FAIR MARKET VALUE" shall mean on any date the average of the highest and lowest
sale prices of the Common Stock on the Composite Tape, as published in the
Western Edition of The Wall Street Journal, of the principal securities exchange
or market on which the Common Stock is so listed, admitted to trade, or quoted
on such date, or, if there is no trading of (or no available highest and lowest
sale prices of) the Common Stock on such date, then the average of the highest
and lowest sale prices of the Common Stock as quoted on such Composite Tape on
the next preceding date on which there was trading in such shares. If the Common
Stock is not so listed, admitted or quoted, the Committee may designate such
other exchange, market or source of data as it deems appropriate for determining
such value for purposes of this Plan.
"FINANCIAL HARDSHIP" shall mean an unexpected and unforeseen financial
disruption arising from an illness, casualty loss, sudden financial reversal, or
other such unforeseeable occurrence as determined by the Committee. Needs
arising from foreseeable events such as the purchase of a residence or education
expenses for children shall not, alone, be considered a "financial hardship."
"INCENTIVE PLANS" shall mean the Management Plan, the Officer Plan, and the 1998
Plan.
"INTEREST RATE" shall mean the rate (quoted as an annual rate) that is 120% of
the federal long-term rate for compounding on a quarterly basis, determined and
published by the Secretary of the United States Department of Treasury under
Section 1274(d) of the Code, for the month for which the interest is credited.
"MANAGEMENT PLAN" shall mean the Company's Management Long-Term Incentive
Compensation Plan.
"1998 PLAN" shall mean the Company's Equity Compensation Plan.
"OFFICER PLAN" shall mean the Company's Officer Long-Term Incentive Compensation
Plan.
"PARTICIPANT" shall mean any person who has Stock Units credited to a Stock Unit
Account under this Plan
"PLAN" shall mean this Edison International Option Gain Deferral Plan, as it may
be amended from time to time.
"QUALIFYING OPTION" or "QUALIFYING STOCK OPTION" shall mean a nonqualified stock
option granted under one of the Incentive Plans and evidenced in writing that
provides (or is amended to provide) that the option may be Alternatively
Exercised under this Plan; provided, however, that an option shall not be a
Qualifying Stock Option if it will expire, by its terms, before the end of the
six-month period commencing with the date that the Alternative Exercise
Agreement is submitted to and received by the Company
"RETIREMENT" shall mean a separation from service under terms constituting a
retirement for purposes of the nonqualified executive retirement plan covering
the Participant.
"RULE 16b-3" shall mean Rule 16b-3 promulgated under the Exchange Act.
"SCHEDULED WITHDRAWAL" shall mean a distribution of all or a portion of the
Stock Units credited to the Participant as elected by the Participant pursuant
to the provisions of Section 5.4(g) of the Plan.
<PAGE 4>
"SHARE" shall mean a share of Common Stock.
"STOCK UNIT" or "UNIT" shall mean a non-voting unit of measurement which is
deemed solely for bookkeeping purposes to be equivalent to one outstanding Share
(subject to Section 5.5) solely for purposes of this Plan.
"STOCK UNIT ACCOUNT" shall mean the bookkeeping account maintained by the
Company on behalf of each Participant which is credited with Stock Units in
accordance with Section 5.1(a) and Dividend Equivalents thereon in accordance
with Section 5.2.
"SUBSIDIARY" shall mean any company that is a "subsidiary company" as defined in
Section 424(f) of the Code.
"TERMINATION FOR CAUSE" shall mean the Termination of Employment of the
Participant upon willful failure by the Participant to substantially perform his
or her duties for the Company or one of its Subsidiaries or the willful engaging
by the Participant in conduct which is injurious to the Company or one of its
Subsidiaries, monetarily or otherwise.
"TERMINATION OF EMPLOYMENT" shall mean the voluntary or involuntary cessation of
the Participant's employment with the Company or a Subsidiary for any reason
other than death or Retirement. Termination of Employment shall not be deemed to
have occurred for purposes of this Plan if the Participant is re-employed by the
Company or a Subsidiary within thirty days of ceasing work with the Company or a
Subsidiary.
"UNSCHEDULED WITHDRAWAL" shall mean a distribution of all or a portion of the
Stock Units credited to the Participant under the Plan as requested by the
Participant pursuant to the provisions of Section 5.4(h) of the Plan.
3.
PARTICIPATION
3.1 General Participation Requirements.
An Eligible Person may elect to exercise all or a portion of a Qualifying Option
under and subject to the Alternative Exercise provisions set forth herein and to
receive a credit of Stock Units under this Plan.
3.2 Manner And Timing Of Election.
An election must be made by the Eligible Person by completing and executing a
form of Alternative Exercise Agreement which meets the requirements of Article
IV and submitting such form to the Company after the Effective Date. Such an
election shall be irrevocable.
3.3 Execution of Alternative Exercise Agreement by the Company.
The Company, acting through any of its officers, shall execute the Alternative
Exercise Agreement form submitted by such Eligible Person and deliver a copy of
such fully executed Alternative Exercise Agreement to him or her.
<PAGE 5>
4.
ALTERNATIVE EXERCISE OF OPTIONS
4.1 Form of Agreement.
Each Alternative Exercise Agreement with respect to a Qualifying Stock Option
shall be in the form approved by the Committee. Each such Alternative Exercise
Agreement shall specify the portion of the Qualifying Stock Option or Qualifying
Stock Options that the Eligible Person elects to exercise under this Plan and
shall provide that (i) the Eligible Person will exercise all or the specified
portion of such Qualifying Stock Option(s) by paying the exercise price with
Already-Owned Shares having an aggregate Fair Market Value equal to the exercise
price for the number of Shares with respect to which the Qualifying Stock Option
is exercised and (ii), upon exercise, the Company will (A) deliver to the
Eligible Person the same number of Shares used by the Eligible Employee to pay
the exercise price of the Qualifying Stock Option and (B), in lieu of the
remainder of the Shares which would otherwise be delivered to the Eligible
Person (the "Gain Shares"), credit to a Stock Unit Account established for the
Eligible Person Stock Units equal in number to the number of Gain Shares.
Subject to applicable law and the intent of this Plan, the Committee may provide
for or permit an alternative method of delivering or tendering Already-Owned
Shares to pay the exercise price of a Qualifying Stock Option.
4.2 Limited Ability to Exercise Option.
Any Qualifying Option (or portion thereof) which is subject to an Alternative
Exercise Agreement may not be exercised at all during the six-month period
following the date the Company receives the Eligible Person's Alternative
Exercise election.
4.3 Termination of Alternative Exercise Agreements.
If, prior to the end of the six-month period described in Section 4.2, (a) an
Eligible Person's employment with the Company (including any Subsidiary) is
terminated or (b), unless the Committee otherwise provides, a Change in Control
Event occurs, the Eligible Person's Alternative Exercise Agreement shall
terminate and the related Qualifying Option may be exercised for actual Shares
in accordance with the terms of the Qualifying Option without regard to the
Alternative Exercise Agreement. If the Company unilaterally refuses to honor an
Alternative Exercise of a Qualifying Option pursuant to Section 8.7, the
Alternative Exercise Agreement with respect to such Qualifying Option shall
terminate and such Qualifying Option shall be exercisable for actual Shares in
accordance with its terms without regard to the Alternative Exercise Agreement
or the terms of the Qualifying Option regarding Alternative Exercise.
4.4 Other Terms of Alternative Exercise Agreements.
No Alternative Exercise Agreement shall have the effect of extending the term or
otherwise changing the terms of any Qualifying Option (except as expressly
contemplated hereby in respect of the consequences of exercise). No Alternative
Exercise Agreement may be amended or terminated except as specifically provided
herein.
<PAGE 6>
5.
STOCK UNIT ACCOUNTS
5.1 Crediting of Stock Units.
(a) Crediting of Stock Units. As of the applicable Conversion Date of a
Qualifying Stock Option, an Eligible Person's Stock Unit Account shall be
credited with the number of Stock Units attributable to the Gain Shares, as
described in Section 4.1(a).
(b) Distribution Subaccounts. The Committee shall establish separate
Distribution Subaccounts under a Participant's Stock Unit Account as necessary
to separately account for Stock Units that are subject to different distribution
elections made by the Participant.
(c) Limitations on Rights Associated With Units. A Participant's Stock Unit
Account shall be a memorandum account on the books of the Company. The Units
credited to a Participant's Stock Unit Account shall be used solely as a device
for the determination of the number of Shares to be eventually distributed to
such Participant in accordance with this Plan. The Units shall not be treated as
property or as a trust fund of any kind. No Participant shall be entitled to any
voting or other stockholder rights with respect to Units granted or credited
under this Plan. The number of Units credited (and the Shares to which the
Participant is entitled under this Plan) shall be subject to adjustment in
accordance with Section 5.5 of this Plan, and Section 16 of the Management Plan
or Section 16 of the Officer Plan or Section 3.4 of the 1998 Plan, as the case
may be.
5.2 Dividend Equivalent Credits to Stock Unit Accounts.
As of any applicable dividend or distribution payment date, a Participant's
Stock Unit Account shall be credited with additional Units in an amount equal to
the amount of the Dividend Equivalents divided by the Fair Market Value of a
Share as of the applicable dividend payment date. If the limit on the number of
Shares available under this Plan in respect of Dividend Equivalents is reached,
the Company may in its discretion credit or settle such amounts in cash.
5.3 Vesting.
All Units (including Stock Units credited as Dividend Equivalents) credited to a
Participant's Stock Unit Account shall be at all times fully vested.
5.4 Distribution of Benefits.
(a) Form of Distribution. Stock Units credited to a Participant's Stock Unit
Account shall be distributed in an equivalent whole number of Shares. Fractional
share interests shall be disregarded, but, in the Committee's discretion, may be
accumulated and paid in cash
(b) Retirement Benefits. No later than sixty days following a Participant's
Retirement, the Committee shall distribute or begin to distribute Shares in an
amount equal to the number of Stock Units credited to the Participant's Stock
Unit Account pursuant to the election made by the Participant in his or her
Alternative Exercise Agreement. The Participant may elect in his or her
Alternative Exercise Agreement to have the Retirement Benefit paid in one of the
following forms:
<PAGE 7>
(i) in a lump sum,
(ii) in installments paid annually over a period of five, ten or fifteen
years, or
(iii) in a lump sum of a portion of the Shares upon Retirement with the
balance in installments paid annually over a period of five, ten or fifteen
years.
If no valid election is made, the Committee shall distribute the
Retirement Benefits in a lump sum. Notwithstanding the foregoing or anything to
the contrary in Section 5.4(c) below, the Committee may, in its sole discretion:
(iv) distribute the benefits in a single lump sum if the sum of Shares to
be distributed to the Participant is less than or equal to 1,000, or
(v) reduce the number of installments elected by the Participant to produce
an annual distribution of at least 100 Shares.
(c) Termination Benefits. No later than 60 days after Termination of Employment,
the Committee shall distribute or commence to distribute Shares in an amount
equal to the number of Units credited to the Participant's Stock Unit Account.
The Shares shall be distributed in a single lump sum unless the Participant
elected three annual installments in his or her Alternative Exercise Agreement.
Notwithstanding the foregoing, if the Participant's Termination of Employment is
a Termination for Cause, the Committee shall distribute the shares in a lump
sum.
(d) Survivor Benefits. If the Participant dies while actively employed by the
Company or a Subsidiary, the Committee shall distribute or commence to
distribute to the Participant's Beneficiary the number of Shares equal to the
number of Units credited to the Participant's Stock Unit Account in accordance
with the Participant's election for Retirement Benefits within sixty days after
the Participant's death. If the Participant dies after Retirement, the Committee
shall distribute to the Participant's Beneficiary the remaining Shares
distributable to the Participant under the Plan over the same period that the
Shares would have been distributed to the Participant. If the Participant dies
following Termination of Employment, but prior to the distribution of all Shares
distributable to the Participant, the Committee shall deliver the remaining
Shares to the Participant's Beneficiary in a lump sum. Beneficiaries may
petition the Committee once, and only after the death of the Participant, for a
change in the form of survivor benefits. The Committee may, in its sole and
absolute discretion, choose to grant or deny such a petition. Notwithstanding
the foregoing, the Committee may, in its sole discretion:
(i) distribute the Shares in a single lump sum if the total number of the
Shares distributable to the Beneficiary is less than or equal to 1,000, or
(ii) reduce the number of installments elected by the Participant to ten or
five if necessary to produce an annual benefit of at least 100 Shares.
(e) Disability. In the event that a Participant has suffered a Disability, the
Committee shall distribute shares upon the Participant's Termination of
Employment, Retirement or death according to the Participant's prior election.
(f) Effect of Change in Control Event. Notwithstanding Section 5.4(a) and unless
the Committee provides in advance that no such acceleration shall occur in
<PAGE 8>
connection with a specific Change in Control Event, then upon the occurrence of
a Change in Control Event, cash equal to the Fair Market Value, as of the date
immediately preceding the Change in Control Event, of the number of Shares equal
to the number of Stock Units then credited to the Participant's Stock Unit
Account shall be distributed immediately in a lump sum to the Participant.
(g) Scheduled Withdrawals. When completing an Alternative Exercise Agreement, a
Participant may elect to receive a distribution of a specific number of Shares
or a percentage of Shares deferred under such Alternative Exercise Agreement on
the first business day of the calendar year which is at least the second
calendar year following the calendar year in which the Qualifying Option is
Alternatively Exercised. Any Scheduled Withdrawal Election shall be superseded
by distributions due to the Retirement, Termination of Employment or death of
the Participant.
(h) Unscheduled Withdrawals. A Participant (or Beneficiary if the Participant is
deceased) may request in writing to the Committee a distribution of Shares in an
amount equal to all or a portion of the Units credited to his or her Stock Unit
Account, which shall be distributed in a lump sum within thirty days; provided,
that
(i) the minimum distribution shall be 25% of the Stock Unit Account,
(ii) an election to receive 75% or more of the Stock Unit Account shall be
deemed to be an election to receive the entire Stock Unit Account, and
(iii) such an election may be made only once in a Plan Year.
There shall be a penalty deducted from the Stock Unit Account prior to an
Unscheduled Withdrawal equal to 10% of the Shares to be delivered under the
Unscheduled Withdrawal. Notwithstanding the foregoing, if the number of Units
credited to the Stock Unit Account of the Participant or Beneficiary who has
requested an Unscheduled Withdrawal is less than or equal to 1,000, the
Committee may, in its sole discretion, elect to distribute Shares in an amount
equal to all of the Units credited, reduced by the 10% penalty, in a single lump
sum.
(i) Financial Hardship Distribution. A Participant or Beneficiary may submit a
hardship distribution request to the Committee in writing setting forth the
reasons for the request. The Committee shall have the sole authority to approve
or deny such requests. Upon a finding that the Participant or the Beneficiary
has suffered a Financial Hardship, the Committee may in its sole discretion,
accelerate distributions of Shares under the Plan in the amount reasonably
necessary to alleviate the Financial Hardship.
(j) Section 162(m) Limitation. Notwithstanding the foregoing, if the Committee
determines in good faith that there is a reasonable likelihood that any benefits
paid to a Participant for a taxable year of the Company would not be deductible
by the Company or a Subsidiary solely by reason of the limitation under Code
Section 162(m), then to the extent reasonably deemed necessary by the Committee
to ensure that the entire amount of any distribution to the Participant pursuant
to this Plan is deductible, the Committee may defer all or any portion of a
distribution under this Plan. The amounts so deferred shall be distributed to
the Participant or his or her Beneficiary (in the event of the Participant's
death) at the earliest possible date, as determined by the Committee in good
faith, on which the deductibility of compensation paid or payable to the
<PAGE 9>
Participant for the taxable year of the Company during which the distribution is
made will not be limited by Code Section 162(m).
(k) Changes in Distribution Elections. Participants may change the form of
payout upon termination of employment due to Retirement, Termination of
Employment (other than Termination for Cause) or death by written election filed
with the Committee; provided, however, that if the Participant files the
election less than thirteen months prior to the date of such termination of
employment, the payout election in effect thirteen months prior to such
termination date shall govern.
5.5 Adjustments in Case of Changes in Common Stock.
(a) If the outstanding Shares are increased, decreased, or exchanged for a
different number or kind of securities, or if additional shares or new or
different shares or other securities are distributed with respect to such Shares
or other securities, through merger, consolidation, sale of all or substantially
all of the assets of the Company, reorganization, recapitalization, stock
dividend, stock split, reverse stock split or similar change in capitalization
or any other distribution with respect to such Shares or other securities,
proportionate and equitable adjustments consistent with the effect of such event
on stockholders generally (but without duplication of benefits if Dividend
Equivalents are credited) shall be made in the number and type of Shares or
other securities, property and/or rights contemplated hereunder and of rights in
respect of Units and Stock Unit Accounts credited under this Plan so as to
preserve the benefits intended. The provisions of Section 16 of the Management
Plan, Section 16 of the Officer Plan, and Section 3.4 of the 1998 Plan shall
also apply to the related Stock Units granted under the Incentive Plans in
accordance with this Plan.
(b) If the event results in any rights of stockholders to receive cash (other
than cash dividends and cash distributions), a corresponding amount of cash
shall be credited to each Participant's Stock Unit Account (or, if applicable,
the appropriate Distribution Subaccount of the Participant's Stock Unit Account)
as of the date that cash is paid in respect of outstanding Shares. As of the
last day of each calendar quarter, the Participant's Stock Unit Account shall be
credited with earnings on the cash balance credited to such Stock Unit Account
as of the last day of the preceding quarter or, if later, the date of such
event, at a rate (on an annualized basis) equal to the Interest Rate. The amount
of cash credited to a Participant's Stock Unit Account shall be distributed in
cash at such time (or times) and in such manner as otherwise provided under this
Plan and/or the applicable election made by the Participant in accordance with
the terms of this Plan.
5.6 Company's Right to Withhold.
The Company (including its Subsidiaries) may satisfy any state or federal tax
withholding obligation arising upon a distribution of Shares and any cash with
respect to a Participant's Stock Unit Account by reducing the number of Shares
or cash otherwise deliverable to the Participant. The appropriate number of
Shares required to satisfy such tax withholding obligation in the case of Stock
Units will be based on the Fair Market Value of a Share on the day prior to the
date of distribution. If the Company (including its Subsidiaries), for any
reason, elects not to (or cannot) satisfy the withholding obligation in
accordance with the preceding sentence, the Participant shall pay or provide for
payment in cash of the amount of any taxes which the Company (including its
Subsidiaries) may be required to withhold with respect to the benefits
hereunder, before any such benefits are paid.
<PAGE 10>
6.
ADMINISTRATION
6.1 The Administrator.
The Committee hereunder shall consist of (i) the members of the Compensation and
Executive Personnel Committee of the Board who are Non-Employee Directors within
the meaning of Rule 16b-3 and "outside directors" for purposes of Section 162(m)
of the Code, or (ii) such other committee of the Board, each participating
member of which is a Non-Employee Director (as defined in Rule 16b-3) and each
member of which is an "outside director" for purposes of Section 162(m) of the
Code, as may hereafter be appointed by the Board to serve as administrator of
this Plan. Any member of the Committee may resign by delivering a written
resignation to the Board. Members of the Committee shall not receive any
additional compensation for administration of this Plan.
6.2 Committee Action.
Action of the Committee with respect to the administration of this Plan shall be
taken pursuant to a majority vote or by unanimous written consent of its
members. A member of the Committee shall not vote or act upon any matter which
relates solely to himself or herself as a Participant in this Plan.
6.3 Rights and Duties.
(a) Subject to the limitations of this Plan, the Committee shall be charged with
the general administration of this Plan and the responsibility for carrying out
its provisions, and shall have powers necessary to accomplish those purposes,
including, but not by way of limitation, the following:
(i) To construe and interpret this Plan;
(ii) To resolve any questions concerning the amount of benefits payable to
a Participant;
(iii) To make all other determinations required by this Plan, including
adjustments under Section 5.5.
(iv) To maintain all the necessary records for the administration of this
Plan and provide statements of Stock Unit Accounts to Participants on an annual
or more frequent basis;
(v) To make and publish forms, rules and procedures for the administration
of this Plan; and
(vi) To administer the claims procedures set forth in Section 6.5 for
presentation of claims by Participants and Beneficiaries for benefits under this
Plan, including consideration of such claims, review of claim denials and
issuance of a decision on review.
(b) The Committee shall have full discretion to construe and interpret the terms
<PAGE 11>
and provisions of this Plan (but not to increase amounts payable hereunder) and
to resolve any disputed question or controversy, which interpretation or
construction or resolution, including decisions with respect to adjustments
under Section 5.5, shall be final and binding on all parties, including but not
limited to the Company and any Eligible Person, Participant or Beneficiary,
except as otherwise required by law. The Committee shall administer such terms
and provisions in a nondiscriminatory manner and in full accordance with any and
all laws applicable to the Plan. In performing its duties, the Committee shall
be entitled to rely on information, opinions, reports or statements prepared or
presented by: (i) officers or employees of the Company whom the Committee
believes to be reliable and competent as to such matters; and (ii) counsel (who
may be employees of the Company), independent accountants and other persons as
to matters which the Committee believes to be within such persons' professional
or expert competence. The Committee shall be fully protected with respect to any
action taken or omitted by it in good faith pursuant to the advice of such
persons. The Committee may delegate ministerial, bookkeeping and other
non-discretionary functions to individuals who are officers or employees of the
Company.
6.4 Indemnity and Liability.
All expenses of the Committee shall be paid by the Company and the Company shall
furnish the Committee with such clerical and other assistance as is necessary in
the performance of its duties. No member of the Committee shall be liable for
any act or omission of any other member of the Committee nor for any act or
omission on his or her own part. To the extent permitted by law, the Company
shall indemnify and save harmless each member of the Committee against any and
all expenses and liabilities arising out of his or her membership on the
Committee.
6.5 Claims Procedure.
(a) The Committee shall notify Participants and, where appropriate,
Beneficiaries of their right to claim benefits under these claims procedures,
shall make forms available for filing of such claims, and shall provide the name
of the person or persons with whom such claims should be filed.
(b) The Committee shall act upon claims as required and communicate a decision
to the claimant promptly and, in any event, not later than 90 days after the
claim is received by the Committee, unless special circumstances require an
extension of time for processing the claim. If an extension is required, notice
of the extension shall be furnished to the claimant prior to the end of the
initial 90-day period, which notice shall indicate the reasons for the extension
and the expected decision date. The extension shall not exceed 90 days. The
claim may be deemed by the claimant to have been denied for purposes of further
review described below in the event a decision is not furnished to the claimant
within the period described in the preceding three sentences. Every claim for
benefits which is denied shall be denied by written notice setting forth in a
manner calculated to be understood by the claimant (i) the specific reason or
reasons for the denial, (ii) specific reference to any provisions of this Plan
on which denial is based, (iii) description of any additional material or
information necessary for the claimant to perfect his claim with an explanation
of why such material or information is necessary, and (iv) an explanation of the
procedure for further review of the denial of the claim under the Plan.
<PAGE 12>
(c) The claimant or his or her duly authorized representative shall have 60 days
after receipt of denial of his or her claim to request a review of such denial,
the right to review all pertinent documents and the right to submit issues and
comments in writing. Upon receipt of a request for a review of the denial of a
benefit claim, the Committee shall undertake a full and fair review of the
denial.
(d) The Committee shall issue a decision not later than 60 days after
receipt of a request for review from a claimant unless special circumstances,
such as the need to hold a hearing, require a longer period of time, in which
case a decision shall be rendered as soon as possible but not later than 120
days after receipt of the claimant's request for review. The decision on review
shall be in writing and shall include specific reasons for the decision written
in a manner calculated to be understood by the claimant with specific reference
to any provisions of this Plan on which the decision is based.
7.
PLAN CHANGES AND TERMINATION
7.1 Amendments.
The Committee shall have the right to amend this Plan in whole or in part from
time to time or may at any time suspend or terminate this Plan; provided,
however, that no amendment or termination shall cancel or otherwise adversely
affect in any way, without his or her written consent, any Participant's rights
with respect to Stock Units and Dividend Equivalents (and any cash credited
pursuant to Section 5.5(b)) credited to his or her Stock Unit Account. Any
amendments authorized hereby shall be stated in an instrument in writing, and
all Eligible Persons shall be bound thereby upon receipt of notice thereof.
Adjustments pursuant to Section 5.5 hereof, Section 16 of the Management Plan,
Section 16 of the Officer Plan, or Section 3.4 of the 1998 Plan shall not be
deemed amendments to this Plan, the Stock Unit Accounts or the rights of
Participants.
7.2 Term.
It is the current expectation of the Company that this Plan shall be continued
indefinitely, but continuance of this Plan is not assumed as a contractual
obligation of the Company. In the event that the Committee decides to
discontinue or terminate this Plan, it shall notify the Participants in this
Plan of its action in writing, and this Plan shall be terminated at the time
therein set forth. All Participants shall be bound thereby. In such event, the
then credited benefits of a Participant shall be immediately distributed in a
lump sum.
8.
MISCELLANEOUS
8.1 Limitation on Participant Rights.
Participation in this Plan shall not give any person the right to continued
employment or service or any rights or interests other than as herein provided.
No Participant shall have any right to any payment or benefit hereunder except
to the extent provided in this Plan. This Plan creates no fiduciary duty to
Participants and shall create only a contractual
<PAGE 13>
obligation on the part of the Company as to such amounts; the Plan shall not be
construed as creating a trust. The Plan, in and of itself, has no assets.
Participants shall have rights no greater than the right to receive the Common
Stock (and any cash as expressly provided herein) or the value thereof as a
general unsecured creditor in respect of their Stock Unit Accounts.
8.2 Beneficiary Designation.
Upon forms provided by and subject to conditions imposed by the Company, each
Participant may designate in writing the Beneficiary or Beneficiaries whom such
Participant desires to receive any Shares or amounts payable under this Plan
after his or her death. A Participant may from time to time change his or her
designated Beneficiary or Beneficiaries without the consent of such Beneficiary
or Beneficiaries by filing a new designation with the Committee. However, if a
married Participant wishes to designate a person other than his or her spouse as
Beneficiary, such designation shall be consented to in writing by the spouse,
which consent shall acknowledge the effect of the designation. The Participant
may change any election designating a Beneficiary or Beneficiaries without any
requirement of further spousal consent if the spouse's consent so provides.
Notwithstanding the foregoing, spousal consent shall be unnecessary if it is
established (to the satisfaction of the Committee or a Committee representative)
that there is no spouse or that the required consent cannot be obtained because
the spouse cannot be located. The Company and the Committee may rely on the
Participant's designation of a Beneficiary or Beneficiaries last filed in
accordance with the terms of this Plan. Upon the dissolution of marriage of a
Participant, any designation of the Participant's former spouse as a Beneficiary
shall be treated as though the Participant's former spouse had predeceased the
Participant, unless (a) the Participant executes another Beneficiary designation
that complies with this Section 8.2 and that clearly names such former spouse as
a Beneficiary, or (b) a court order is presented to the Company that requires
the former spouse be maintained as the Beneficiary. In any case where the
Participant's former spouse is treated under the Participant's Beneficiary
designation as having predeceased the Participant, no heirs or other
beneficiaries of the former spouse shall receive benefits from the Plan as a
Beneficiary of the Participant except as provided otherwise in the Participant's
Beneficiary designation.
8.3 Payments to Minors or Persons Under Incapacity.
If any amount is payable under this Plan to a minor, payment shall not be made
to the minor, but instead shall be paid (i) to that person's then living
parent(s) to act as custodian, (ii) if that person's parents are then divorced,
and one parent is the sole custodial parent, to such custodial parent, or (iii)
if no parent of that person is living, to a custodian selected by the Committee
to hold the funds for the minor under the Uniform Transfers or Gifts to Minors
Act in effect in the jurisdiction in which the minor resides. If no parent is
living and the Committee decides not to select another custodian to hold the
funds for the minor, then payment shall be made to the duly appointed and
currently acting guardian of the estate for the minor or, if no guardian of the
estate for the minor is duly appointed and currently acting within 60 days after
the date the amount becomes payable, payment shall be deposited with the court
having jurisdiction over the estate of the minor.
<PAGE 14>
8.4 Stock Units and Other Benefits Not Assignable; Obligations Binding Upon
Successors.
Stock Units and other benefits of a Participant under this Plan shall not be
assignable or transferable and any purported transfer, assignment, pledge or
other encumbrance or attachment of any payments or benefits under this Plan, or
any interest therein, other than by operation of law or pursuant to Section 8.2,
shall not be permitted or recognized. Obligations of the Company under this Plan
shall be binding upon successors of the Company.
8.5 Employment Taxes.
The Company (including its Subsidiaries) may satisfy any state or federal
employment tax withholding obligation arising from an Alternative Exercise of a
Qualifying Option under the Plan by deducting such amount from any amount of
compensation payable to the Participant. Alternatively, the Company (including
its Subsidiaries) may require the Participant to deliver to it the amount of any
such withholding obligation as a condition to the Alternative Exercise of the
Qualifying Option.
8.6 Governing Law; Severability.
The validity of this Plan or any of its provisions shall be construed,
administered and governed in all respects under and by the laws of the State of
California. If any provisions of this instrument shall be held by a court of
competent jurisdiction to be invalid or unenforceable, the remaining provisions
hereof shall continue to be fully effective.
8.7 Compliance With Laws.
This Plan, the Company's acceptance of the exercise price of a Qualifying Option
in the form of Shares, the Company's issuance of Stock Units, and the offer,
issuance and delivery of Shares and/or the payment in Shares through the
deferral of compensation under this Plan are subject to compliance with all
applicable federal and state laws, rules and regulations (including but not
limited to state and federal securities law) and to such approvals by any
listing, agency or any regulatory or governmental authority as may, in the
opinion of counsel for the Company, be necessary or advisable in connection
therewith. Any securities delivered under this Plan shall be subject to such
restrictions, and the person acquiring such securities shall, if requested by
the Company, provide such assurances and representations to the Company as the
Company may deem necessary or desirable to assure compliance with all applicable
legal requirements. If the Company in its sole discretion determines that an
Alternative Exercise of a Qualifying Option would violate any law, rule or
regulation, the Company may refuse to honor such Alternative Exercise.
8.8 Plan Construction.
It is the intent of the Company that transactions pursuant to this Plan satisfy
and be interpreted in a manner that satisfies the applicable requirements of
Rule 16b-3 so that to the extent elections are timely made, the crediting of
Stock Units and the distribution of Shares with respect to Stock Units under
this Plan will be entitled to the benefits of Rule 16b-3 or other exemptive
rules under Section 16 of the Exchange Act and will not be subjected to
avoidable liability thereunder.
<PAGE 15>
8.9 Headings Not Part of Plan.
Headings and subheadings in this Plan are inserted for reference only and are
not to be considered in the construction of the provisions hereof.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this Plan on this 27th day of March, 1998.
EDISON INTERNATIONAL
Lillian R. Gorman
--------------------
Lillian R. Gorman
Vice President
<PAGE 16>
EIX Executive Deferred Compensation Plan
As Amended January 1, 1998
EDISON INTERNATIONAL
EXECUTIVE DEFERRED COMPENSATION PLAN
As Amended January 1, 1998
<PAGE>
ARTICLE 1 DEFINITIONS.................................................1
ARTICLE 2 PARTICIPATION...............................................4
2.1 Commencement............................................4
2.2 Annual Deferral.........................................5
2.3 Continuation of Participation...........................5
ARTICLE 3 EMPLOYEE DEFERRALS..........................................6
3.1 Participation Election..................................6
3.2 Alternative Exercise of Qualifying Awards...............6
3.3 Deferral of Special Awards..............................7
3.5 Benefit Adjustment......................................7
3.6 Vesting.................................................7
ARTICLE 4 MATCHING CREDITS............................................8
4.1 Amount..................................................8
4.2 Vesting.................................................8
ARTICLE 5 DEFERRAL ACCOUNTS...........................................8
5.1 Deferral Accounts.......................................8
5.2 Timing of Credits.......................................8
ARTICLE 6 RETIREMENT BENEFITS.........................................9
6.1 Amount..................................................9
6.2 Form of Retirement Benefits.............................9
6.3 Commencement of Benefits................................9
6.4 Small Benefit Exception.................................9
ARTICLE 7 TERMINATION BENEFITS.......................................10
7.1 Amount.................................................10
7.2 Form of Termination Benefits...........................10
ARTICLE 8 SURVIVOR BENEFITS..........................................10
8.1 Pre-Retirement Survivor Benefit........................10
8.2 Post-Retirement Survivor Benefit.......................10
8.3 Post-Termination Survivor Benefit......................11
8.4 Changing Form of Benefit...............................11
8.5 Small Benefit Exception................................11
ARTICLE 9 DISABILITY.................................................11
ARTICLE 10 CHANGE OF CONTROL.........................................11
<PAGE>
ARTICLE 11 SCHEDULED AND UNSCHEDULED WITHDRAWALS.....................11
11.1 Scheduled Withdrawals.................................11
11.2 Unscheduled Withdrawals...............................12
ARTICLE 12 CONDITIONS RELATED TO BENEFITS............................13
12.1 Nonassignability......................................13
12.2 Financial Hardship Distribution.......................13
12.3 No Right to Assets....................................13
12.4 Protective Provisions.................................13
12.5 Withholding...........................................13
ARTICLE 13 PLAN ADMINISTRATION.......................................14
ARTICLE 14 BENEFICIARY DESIGNATION...................................14
ARTICLE 15 AMENDMENT OR TERMINATION OF PLAN..........................14
15.1 Amendment of Plan.....................................14
15.2 Termination of Plan...................................15
15.3 Amendment or Termination After Change of Control......15
15.4 Exercise of Power to Amend or Terminate...............15
15.5 Constructive Receipt Termination......................15
ARTICLE 16 CLAIMS AND REVIEW PROCEDURES..............................15
16.1 Claims Procedure.......................................15
16.2 Review Procedure.......................................16
16.3 Dispute Arbitration....................................16
ARTICLE 17 MISCELLANEOUS.............................................18
17.1 Successors............................................18
17.2 ERISA Plan............................................18
17.3 Trust.................................................18
17.4 Employment Not Guaranteed.............................18
17.5 Gender, Singular and Plural...........................18
17.6 Captions..............................................18
17.7 Validity..............................................18
17.8 Waiver of Breach......................................19
17.9 Applicable Law........................................19
17.10 Notice...............................................19
<PAGE>
EDISON INTERNATIONAL
EXECUTIVE DEFERRED COMPENSATION PLAN
As Amended January 1, 1998
PREAMBLE
Plan benefits are available to eligible executives and key management employees
of Edison International and its participating affiliates. Amounts of
compensation deferred by Participants pursuant to this Plan accrue as
liabilities of the participating affiliate at the time of the deferral under the
terms and conditions set forth herein. By electing to defer compensation under
the Edison International Executive Deferred Compensation Plan, Participants
consent to Edison International sponsorship of the Plan, but acknowledge that
Edison International is not a guarantor of the benefit obligations of other
participating affiliates. Each participating Edison International affiliate is
responsible for payment of the accrued benefits under the Plan with respect to
its own executives and key management employees subject to the terms and
conditions set forth herein.
ARTICLE 1
DEFINITIONS
Capitalized terms in the text of the Plan are defined as follows:
Administrator means the Compensation and Executive Personnel Committee of the
Board of Directors of Edison International.
Affiliate means Edison International or any corporation or entity which (i)
along with Edison International, is a component member of a "controlled group of
corporations" within the meaning of Section 414(b) of the Code, and (ii) has
approved the participation of its executives in the Plan.
Alternative Exercise means the exercise of all or a portion of a Qualifying
Award in exchange for an amount equal to the gain that would otherwise have been
realized by the Participant being credited under this Plan.
Alternative Exercise Agreement means an agreement entered into between Edison
International and an Eligible Employee in accordance with Article 2 pursuant to
which the Eligible Employee elects to defer under this Plan the gain resulting
from any subsequent exercise of the Qualifying Award.
<PAGE 1>
Annual Deferral means the amount of Compensation which the Participant elects to
defer for a calendar year pursuant to Articles 2 and 3 of the Plan.
Base Salary means the Participant's annual basic rate of pay from the Employer
(excluding Bonus, special awards, commissions, severance pay, and other
non-regular forms of compensation) before reductions for deferrals under the
Plan or the SSPP.
Beneficiary means the person or persons or entity designated as such in
accordance with Article 14 of the Plan.
Bonus means the amount paid in cash to the Participant by the Employer in the
form of an annual incentive award before reductions for deferrals under the
Plan.
Change of Control means either: (i) the dissolution or liquidation of Edison
International or an Employer; (ii) a reorganization, merger or consolidation of
Edison International or an Employer with one or more corporations as a result of
which Edison International or an Employer is not the surviving corporation;
(iii) approval by the stockholders of Edison International or an Employer of any
sale, lease, exchange or other transfer (in one or a series of transactions) of
all or substantially all of the assets of Edison International or an Employer;
(iv) approval by the stockholders of Edison International or an Employer of any
merger or consolidation of Edison International or an Employer, in which the
holders of voting stock of Edison International or an Employer immediately
before the merger or consolidation will not own 50% or more of the outstanding
voting shares of the continuing or surviving corporation immediately after the
merger or consolidation; or (v) a change of at least 51% (rounded to the next
whole person) in the membership of the Board of Directors of Edison
International or an Employer within a 24-month period, unless the election or
nomination for election by stockholders of each new director within the period
was approved by the vote of at least 85% (rounded to the next whole person) of
the directors then still in office who were in office at the beginning of the
twenty-four-month period, except that any replacement of directors who are
employees of Edison International or an Employer, with other employees of Edison
International or an Employer, will be disregarded and not be considered a change
in membership. Notwithstanding the foregoing, any reorganization, merger or
consolidation of an Employer with Edison International or another Employer will
be disregarded and not be considered a Change of Control.
Code means the Internal Revenue Code of 1986, as amended.
Compensation means the sum of the Participant's Base Salary and Bonus for a
calendar year before deferral under this Plan or the SSPP.
Crediting Rate means the rate at which interest will be credited to Participant
Deferral Accounts. The rate will be determined annually in advance of the
calendar year and will be equal to 120 percent of the Index Rate. Edison
International reserves the right to prospectively change the Crediting Rate or
formula.
Deferral Account means the notional account established for record keeping
purposes for a Participant pursuant to Article 5 of the Plan.
<PAGE 2>
Deferral Period means the calendar year covered by a valid Participation
Election previously submitted by a Participant, or in the case of a newly
eligible Participant, the balance of the calendar year following the date of the
Participation Election.
Disability means the permanent and total disability of the Participant as
determined by the Employer.
EIX means Edison International.
Eligible Employee means a key employee of an Affiliate, who (i) is a U.S.
employee or an expatriate who is based and paid in the U.S., (ii) is designated
by the Administrator as eligible to participate in the Plan (subject to the
restriction in Sections 10.2 and 12.2 of the Plan), and (iii) qualifies as a
member of the "select group of management or highly compensated employees" under
ERISA.
Employer means the Affiliate employing the Participant.
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
Excess SSPP shall mean the amount of Base Salary deferred under Section 3.5 of
the Plan.
Financial Hardship means an unexpected and unforeseen financial disruption
arising from an illness, casualty loss, sudden financial reversal, or other such
unforeseeable occurrence as determined by the Administrator or its designee.
Needs arising from foreseeable events such as the purchase of a residence or
education expenses for children will not, alone, be considered a Financial
Hardship.
Index Rate means the 120-month average rate of 10-year U.S. Treasury Notes
determined for any calendar year as of October 15th of the prior year.
Matching Credit means the credit added to the Participant's Deferral Account
under Article 4.
Matching Base means (i) the amount of the Primary Salary Deferral or (ii) the
difference between the Participant's Base Salary and the Code Section 401(a)(17)
compensation limit, or (iii) the difference between the Participant's Base
Salary and the Code 402(g) limitation divided by 0.06, whichever is greater.
Participant means an Eligible Employee who has elected to participate and has
completed a Participation Election or Alternative Exercise Agreement pursuant to
Article 2 of the Plan.
Participation Election means the Participant's written election to defer
Compensation under the Plan submitted on the form prescribed by the
Administrator for that purpose.
Plan means the EIX Executive Deferred Compensation Plan.
Primary Salary Deferral means the amount deferred from Base Salary that is not
Excess SSPP. The Primary Salary Deferral is subtracted from Base Salary before
SSPP Contributions and Excess SSPP deferrals are calculated.
<PAGE 3>
Qualifying Award means an award granted to an Eligible Employee under the EIX
Management Long-Term Incentive Compensation Plan, the EIX Officer Long-Term
Incentive Compensation Plan or the EIX Equity Compensation Plan, other than an
EIX nonqualified stock option, and evidenced in writing that provides (or is
amended to provide) that the award may be Alternatively Exercised under this
Plan; provided, however, that an award will not be a Qualifying Award if it will
expire, by its terms, before the end of the six-month period commencing with the
date that the Alternative Exercise Agreement is submitted to and received by the
Administrator.
Retirement means a separation from service under terms constituting a retirement
for purposes of the nonqualified executive retirement plan covering the
Participant.
Scheduled Withdrawal means a distribution of all or a portion of the vested
amount of deferrals and earnings credited to the Participant's Deferral Account
as elected by the Participant pursuant to the provisions of Article 11 of the
Plan.
SSPP means the Southern California Edison Company Stock Savings Plus Plan as
amended from time-to-time.
Termination for Cause means the Termination of Employment of the Participant
upon willful failure by the Participant to substantially perform his or her
duties for the Employer or the willful engaging by the Participant in conduct
which is injurious to the Employer, monetarily or otherwise.
Termination of Employment means the voluntary or involuntary cessation of the
Participant's employment with the Employer for any reason other than death or
Retirement. Termination of Employment will not be deemed to have occurred for
purposes of this Plan if the Participant is reemployed by an Affiliate within 30
days of ceasing work with the Employer.
Unscheduled Withdrawal means a distribution of all or a portion of the vested
amount and earnings credited to the Participant's Deferral Account as requested
by the Participant pursuant to the provisions of Article 11 of the Plan.
Valuation Date means the last day of the month in which Termination of
Employment, Retirement, or death occurs, or the day before a Scheduled
Withdrawal or Unscheduled Withdrawal occurs.
Vesting means the Participant's right to receive any amount deferred, Matching
Credits, and/or earnings thereon as provided in Article 4.
ARTICLE 2
PARTICIPATION
2.1 Commencement
(a) Salary and Bonus. An Eligible Employee will become a Participant in the Plan
on the first day of the calendar year or the first day of the pay period
coincident with or next following the date the employee became an Eligible
Employee, provided the Eligible Employee has submitted to the Administrator a
Participation Election prior to
<PAGE 4>
that date. Except for employees who become newly eligible during the calendar
year, the Participation Election must be submitted to the Administrator during
the enrollment period designated by the Administrator which will always be prior
to the commencement of the calendar year.
(b) Qualifying Awards. An Eligible Employee may also become a Participant in the
Plan by electing to alternatively exercise all or a portion of a Qualifying
Award as provided in Section 3.2.
2.2 Annual Deferral
Subject to the restrictions in Article 3, the Eligible Employee will designate
his or her Annual Deferral for the covered calendar year on the Participation
Election.
2.3 Continuation of Participation
A Participant may not elect to defer Compensation under the Plan unless the
Participant is an Eligible Employee for the calendar year for which the election
is made. Once a Deferral Account balance has been established, the individual
will continue as a Participant in the Plan until the Participant no longer has a
Deferral Account balance under the Plan. In the event a Participant is later
employed by an affiliated company that does not participate in the Plan, the
Participant's Annual Deferral will cease, and the Participant's Deferral Account
will remain in effect until such time as the benefits are distributed as elected
on the Participant's last valid Participation Election or Alternative Exercise
Agreement.
ARTICLE 3
EMPLOYEE DEFERRALS
3.1 Participation Election
(a) Annual Deferral. Eligible Employees may elect to make an Annual Deferral
under the Plan by submitting a Participation Election during the applicable
enrollment period. The Participant may designate a specified amount or a
percentage of Base Salary to be deferred as a Primary Salary Deferral. The
Participant may designate a specified amount, a percentage, or a whole
percentage in excess of a specified amount of Bonus to be deferred. The
Participant may also designate a percentage rate, up to the maximum deferral
rate permitted under the SSPP, at which to defer additional amounts of Base
Salary as Excess SSPP once the limits of SSPP contributions are reached as
provided in Section 3.5. Once made, this Participation Election will continue to
apply for subsequent Deferral Periods unless the Participant submits a new
Participation Election form during a subsequent enrollment period changing the
deferral amount or revoking the existing election. A Participation Election may
be revoked by the Participant upon 30 days written notice to the Administrator;
however, such Participant will be ineligible to make an Annual Deferral under
the Plan for the following calendar year.
<page 5>
(b) Minimum Annual Deferral. The minimum amount of Base Salary that may be
designated as Primary Salary Deferral is $2,000. The minimum amount of Bonus
that may be designated for deferral is $2,000.
There is no minimum percentage.
(c) Maximum Annual Deferral. The maximum Primary Salary Deferral from Base
Salary for a calendar year is 75% of Base Salary. The maximum deferral from
Bonus for a calendar year is 100% of the Bonus.
3.2 Alternative Exercise of Qualifying Awards
(a) Form of Agreement. Eligible Employees may elect to defer gains on future
exercises of Qualified Awards by completing and executing an Alternative
Exercise Agreement and submitting it to the Administrator. Such an election is
irrevocable. The Alternative Exercise Agreement must specify the portion of the
Qualifying Award that the Participant will alternatively exercise under this
Plan. Acting through any of its officers, EIX will execute the Alternative
Exercise Agreement and return a copy to the Participant. Subject to the
limitations of Section 5.2(b), the Qualifying Award may be exercised by
submitting a notice of Alternative Exercise on the form approved by the
Administrator for that purpose.
(b) Limited Ability to Exercise Qualifying Award. Any Qualifying Award (or
portion thereof) which is subject to an Alternative Exercise Agreement may not
be exercised at all during the six-month period following the date the
Administrator receives the Participant's Alternative Exercise Agreement. Upon
any exercise thereafter, gains will be credited as provided under Section
5.2(c). The Qualifying Award remains subject to all applicable limitations as to
the time or times during which it may be exercised as provided in the terms and
conditions of the Qualifying Award.
(c) Termination of Alternative Exercise Agreements. If, prior to the end of the
six-month period described above, (i) a Participant's employment with the
Company (including any Subsidiary) is terminated, or (ii) unless the Committee
otherwise provides, a Change of Control event occurs, the Participant's
Alternative Exercise Agreement will terminate and the related Qualifying Award
may then be exercised in accordance with the terms and conditions of the
Qualifying Award without regard to the Alternative Exercise provisions.
(d) Other Terms of Alternative Exercise Agreements. No Alternative Exercise
Agreement will have the effect of extending the term or otherwise changing the
terms of any Qualifying Award (except as expressly contemplated hereby in
respect of the consequences of exercise). No Alternative Exercise Agreement may
be amended or terminated except as specifically provided herein.
3.3 Deferral of Special Awards
At the discretion of the Employer, up to 100% of any special award made to an
Employee for employment, retention, recognition, achievement, retirement, or
severance may be deferred under this Plan subject to any additional terms and
conditions the Employer may impose.
<page 6>
3.5 Excess SSPP
Notwithstanding the above maximum deferral limits, the Participant may elect to
defer the receipt of additional amounts of Base Salary calculated by the
Administrator that would have been contributed to the SSPP but for the limits
upon SSPP contributions and benefits established by Sections 401(a)(17), 402(g)
and 415 of the Code. Such amounts will be credited to the Participant's Deferral
Account.
3.6 Vesting
The Participant's right to receive Compensation deferred under this Article 3
and any earnings thereon will be 100% vested at all times. Notwithstanding the
foregoing, any special award deferred under Section 3.3 and any earnings thereon
may be subject to vesting terms.
ARTICLE 4
MATCHING CREDITS
4.1 Amount
Matching Credits will be added by the Employer to the Participant's Deferral
Account under this Plan equal to (i) one-half of the amount of Base Salary
deferred under the Plan up to a maximum base salary Matching Credit equal to 3%
of the Participant's Matching Base, plus (ii) one-half of the amount of Bonus
deferred under the Plan up to a maximum bonus Matching Credit equal to 3% of the
Bonus.
4.2 Vesting
The Participant's Matching Credits and earnings thereon for any calendar year
will vest when the Participant has completed five years of service with an
Affiliate, or upon the death, Retirement or Disability of the Participant.
ARTICLE 5
DEFERRAL ACCOUNTS
5.1 Deferral Accounts
Solely for record keeping purposes, the Administrator will maintain a Deferral
Account for each Participant with such subaccounts as the Administrator or its
record keeper find necessary or convenient in the administration of the Plan.
5.2 Timing of Credits
(a) Annual Deferrals. The Administrator will credit to the Deferral Account the
Annual Deferrals under Article 3 at the time the deferrals would otherwise have
been paid to the Participant but for the Participation Election.
(b) Matching Credits. Until vested, Matching Credits under Article 4 will be
conditionally credited to the Deferral Account at the same time the related
deferrals are credited to the Deferral Account.
<page 7>
(c) Qualifying Award Gains. As of the Alternative Exercise date of a Qualifying
Award, a Participant's Deferral Account will be credited with an amount equal to
the gain that would have been realized by the Participant had the Qualifying
Award been exercised without regard to the Alternative Exercise Agreement.
(d) Interest Crediting Dates. The Administrator will credit interest at the
Crediting Rate to the Participant's Deferral Account on a daily basis,
compounded annually.
(e) Statement of Accounts. The Administrator will periodically provide to each
Participant a statement setting forth the balance of the Deferral Account
maintained for the Participant.
ARTICLE 6
RETIREMENT BENEFITS
6.1 Amount
Upon Retirement, the Employer will pay to the Participant a retirement benefit
in the form provided in Section 6.2, based on the balance of the Deferral
Account as of the Valuation Date in accordance with the Participant's prior
elections. If paid as a lump sum, the retirement benefit will be equal to the
Deferral Account balance. If paid in installments, the installments will be paid
in amounts that will amortize the Deferral Account balance with interest
credited at the Crediting Rate over the period of time benefits are to be paid.
For purposes of calculating installments, the Deferral Account will be valued as
of December 31 each year, and the subsequent installments will be adjusted for
the next calendar year according to procedures established by the Administrator.
6.2 Form of Retirement Benefits
The Participant may elect on the Participation Election and the Alternative
Exercise Agreement to have the retirement benefit paid:
(i) In a lump sum,
(ii) In installments paid monthly over a period of 60, 120, or 180
months, or
(iii) In a lump sum of a portion of the Deferral Account upon Retirement
with the balance in installments paid monthly over a period of 60,
120, or 180 months.
If no valid election is made, the Administrator will pay the retirement benefit
in installments over a 180-month period. Participants may change the form of
payout by written election filed with the Administrator; provided, however, that
if the Participant files the election less than 13 months prior to the date of
Retirement, the payout election in effect 13 months prior to the date of
Retirement will govern.
6.3 Commencement of Benefits
Payments will commence within 60 days after the date of Retirement.
<page 8>
6.4 Small Benefit Exception
Notwithstanding the foregoing, the Administrator may, in its sole discretion:
(i) pay the benefits in a single lump sum if the sum of all benefits
payable to the Participant is less than or equal to $3,500.00, or
(ii) reduce the number of installments elected by the Participant to 120 or
60 if necessary to produce a monthly benefit of at least $300.00.
<PAGE 9>
ARTICLE 7
TERMINATION BENEFITS
7.1 Amount
No later than 60 days after Termination of Employment, the Administrator will
pay to the Participant a termination benefit equal to the vested balance of the
Deferral Account as of the Valuation Date, or will commence installments, as
provided in Section 7.2.
7.2 Form of Termination Benefits
The Administrator will pay the termination benefits in a single lump sum unless
the Participant has previously elected payment to be made in three annual
installments. Installments paid under this Section 7.2 will include interest at
the Index Rate and will be redetermined annually to reflect adjustments in that
rate. Notwithstanding the foregoing, any Termination for Cause will result in an
immediate lump sum payout.
ARTICLE 8
SURVIVOR BENEFITS
8.1 Pre-Retirement Survivor Benefit
If the Participant dies while actively employed by an Affiliate, the
Administrator will pay a lump sum or commence monthly installments in accordance
with the Participant's prior election within 60 days after the Participant's
death. The payment(s) will be based on the Participant's Deferral Account
balance as of the Valuation Date; provided however, that if the Participant's
death occurs within ten years of (i) his or her initial Plan participation date,
or (ii) January 1, 1995, whichever is later, then the Beneficiary's payment(s)
will be based on twice the Participant's Deferral Account balance as of the
Valuation Date. Notwithstanding the foregoing, the portion of the Deferral
Account balance attributable to Alternative Exercises of Qualifying Awards and
related earnings will not be doubled.
8.2 Post-Retirement Survivor Benefit
If the Participant dies after Retirement, the Administrator will pay to the
Participant's Beneficiary an amount equal to the remaining benefits payable to
the Participant under the Plan over the same period the benefits would have been
paid to the Participant; provided however, if the Participant's death occurs
within ten years of (i) his or her initial Plan participation date, or (ii)
January 1, 1995, whichever is later, then the
<page 9>
Beneficiary's death benefit will be based on twice the Participant's Deferral
Account balance as of the Valuation Date. Notwithstanding the foregoing, the
portion of the Deferral Account balance attributable to Alternative Exercises of
Qualifying Awards and related earnings will not be doubled.
8.3 Post-Termination Survivor Benefit
It the Participant dies following Termination of Employment, but prior to the
payment of all benefits under the Plan, the Beneficiary will be paid the
remaining balance in the Participant's account in a lump sum. No double benefit
will apply.
8.4 Changing Form of Benefit
Beneficiaries may petition the Administrator once, and only after the death of
the Participant, for a change in the form of survivor benefits. The
Administrator may, in its sole and absolute discretion, choose to grant or deny
such a petition.
8.5 Small Benefit Exception
Notwithstanding the foregoing, the Administrator may, in its sole discretion:
(i) pay the benefits in a single lump sum if the sum of all benefits
payable to the Beneficiary is less than or equal to $3,500.00, or
(ii) reduce the number of installments elected by the Participant to 120 or
60 if necessary to produce a monthly benefit of at least $300.00.
ARTICLE 9
DISABILITY
Upon determination that a Participant has suffered a Disability, deferrals under
the Plan will cease. The Administrator will pay Plan benefits upon the
Participant's Retirement or death according to the Participant's prior election.
ARTICLE 10
CHANGE OF CONTROL
Within two years after a Change of Control, any Participant or Beneficiary in
the case of an Edison International Change of Control, or the affected
Participants or Beneficiaries in the case of an Employer Change of Control, may
elect to receive a distribution of the balance of the Deferral Account. There
will be a penalty deducted from the Deferral Account prior to distribution
pursuant to this Article 10 equal to 5% of the total balance of the Deferral
Account (instead of the 10% reduction otherwise provided for in Section 11.2).
If a Participant elects such a withdrawal, any on-going Annual Deferral will
cease, and the Participant may not again be designated as an Eligible Employee
until one entire calendar year following the calendar year in which the
withdrawal was made has elapsed.
<page 10>
ARTICLE 11
SCHEDULED AND UNSCHEDULED WITHDRAWALS
11.1 Scheduled Withdrawals
(a) Election. When submitting a Participation Election or an Alternative
Exercise Agreement, a Participant may elect to receive a distribution of a
specific dollar amount or a percentage of the Annual Deferral or Qualifying
Award gain deferral that will subsequently be made at a specified year in the
future when the Participant will still be an active employee. In the case of
Annual Deferrals, the election must be made on an In-Service Distribution
Election Form and submitted concurrently with the Participation Election. In the
case of Qualifying Awards, the election must be made on the Alternative Exercise
Agreement at the time it is initially submitted to the Administrator. The
election of a Scheduled Withdrawal will only apply to the Annual Deferral,
Matching Credits and related earnings for that Deferral Period, or the Qualified
Award gain specified on the Alternative Exercise Agreement and related earnings.
(b) Timing and Form of Withdrawal. The year specified for the Scheduled
Withdrawal may not be sooner than the second calendar year following the
calendar year in which the deferral occurs, or in the case of Alternative
Exercise Agreement, no sooner than the second calendar year following the
calendar year in which the Qualifying Option is Alternatively Exercised. The
Participant will receive a lump sum distribution of the amount elected on
January 1st of the calendar year specified. Any Scheduled Withdrawal election
will be superseded by distributions due to the Retirement, Termination of
Employment or death of the Participant.
(c) Remaining Deferral Account. The remainder, if any, of the Participant's
Deferral Account following payment of a Scheduled Withdrawal will continue in
effect and will be distributed in the future according to the terms of the Plan
and the Participant's elections.
11.2 Unscheduled Withdrawals
(a) Election. A Participant (or Beneficiary if the Participant is deceased) may
request in writing to the Administrator an Unscheduled Withdrawal of all or a
portion of the entire vested amount credited to the Participant's Deferral
Account, including earnings, which will be paid within 30 days in a single lump
sum; provided, however, that (i) the minimum withdrawal will be 25% of the
Deferral Account balance, (ii) an election to withdraw 75% or more of the
balance will be deemed to be an election to withdraw the entire balance, and
(iii) such an election may be made only once in a calendar year.
(b) Withdrawal Penalty. There will be a penalty deducted from the Deferral
Account prior to an Unscheduled Withdrawal equal to 10% of the Unscheduled
Withdrawal. If a Participant elects such a withdrawal, any on-going Annual
Deferral will cease, and the Participant may not again be designated as an
Eligible Employee until one entire calendar year following the calendar year in
which the withdrawal was made has elapsed.
<page 11>
(c) Small Benefit Exception. Notwithstanding any of the foregoing, if the sum of
all benefits payable to the Participant or Beneficiary who has requested the
Unscheduled Withdrawal is less than or equal to $3,500.00, the Administrator
may, in its sole discretion, elect to pay out the entire Deferral Account
(reduced by the 10% penalty) in a single lump sum.
<PAGE 12>
ARTICLE 12
CONDITIONS RELATED TO BENEFITS
12.1 Nonassignability
The benefits provided under the Plan may not be alienated, assigned,
transferred, pledged or hypothecated by or to any person or entity, at any time
or any manner whatsoever. These benefits will be exempt from the claims of
creditors of any Participant or other claimants and from all orders, decrees,
levies, garnishment or executions against any Participant to the fullest extent
allowed by law. Notwithstanding the foregoing, the benefit payable to a
Participant may be assigned in full or in part, pursuant to a domestic relations
order of a court of competent jurisdiction.
12.2 Financial Hardship Distribution
A Participant may submit a hardship distribution request to the Administrator in
writing setting forth the reasons for the request. The Administrator will have
the sole authority to approve or deny such requests. Upon a finding that the
Participant or the Beneficiary has suffered a Financial Hardship, the
Administrator may in its discretion, permit the Participant to cease any
on-going deferrals and accelerate distributions of benefits under the Plan in
the amount reasonably necessary to alleviate the Financial Hardship. If a
distribution is to be made to a Participant on account of Financial Hardship,
the Participant may not make deferrals under the Plan until one entire calendar
year following the calendar year in which a distribution based on Financial
Hardship was made has elapsed.
12.3 No Right to Assets
The benefits paid under the Plan will be paid from the general funds of the
Employer, and the Participant and any Beneficiary will be no more than unsecured
general creditors of the Employer with no special or prior right to any assets
of the Employer for payment of any obligations hereunder. The Participant will
have no claim to benefits from any other Affiliate.
12.4 Protective Provisions
The Participant will cooperate with the Administrator by furnishing any and all
information requested by the Administrator, in order to facilitate the payment
of benefits hereunder, taking such physical examinations as the Administrator
may deem necessary and signing such consents to insure or taking such other
actions as may be requested by the Administrator. If the Participant refuses to
cooperate, the
<page 12>
Administrator and the Employer will have no further obligation to
the Participant under the Plan.
12.5 Withholding
The Participant or the Beneficiary will make appropriate arrangements with the
Administrator for satisfaction of any federal, state or local income tax
withholding requirements and Social Security or other employee tax requirements
applicable to the payment of benefits under the Plan. If no other arrangements
are made, the
<PAGE 13>
Administrator may provide, at its discretion, for such withholding and tax
payments as may be required.
ARTICLE 13
PLAN ADMINISTRATION
The Administrator will administer the Plan and interpret, construe and apply its
provisions in accordance with its terms and will provide direction and oversight
as necessary to management, staff, or contractors to whom day-to-day Plan
operations may be delegated. The Administrator will establish, adopt or revise
such rules and regulations as it may deem necessary or advisable for the
administration of the Plan. All decisions of the Administrator will be final and
binding.
ARTICLE 14
BENEFICIARY DESIGNATION
The Participant will have the right, at any time, to designate any person or
persons as Beneficiary (both primary and contingent) to whom payment under the
Plan will be made in the event of the Participant's death. The Beneficiary
designation will be effective when it is submitted in writing to the
Administrator during the Participant's lifetime on a form prescribed by the
Administrator.
The submission of a new Beneficiary designation will cancel all prior
Beneficiary designations. Any finalized divorce or marriage of a Participant
subsequent to the date of a Beneficiary designation will revoke such
designation, unless in the case of divorce the previous spouse was not
designated as Beneficiary, and unless in the case of marriage the Participant's
new spouse has previously been designated as Beneficiary. The spouse of a
married Participant must consent in writing to any designation of a Beneficiary
other than the spouse.
If a Participant fails to designate a Beneficiary as provided above, or if the
Beneficiary designation is revoked by marriage, divorce, or otherwise without
execution of a new designation, or if every person designated as Beneficiary
predeceases the Participant or dies prior to complete distribution of the
Participant's benefits, then the Administrator will direct the distribution of
the benefits to the Participant's estate. If a Beneficiary dies after
commencement of payments to the Beneficiary, a lump sum of any remaining
payments will be paid to that person's Beneficiary, if one has been designated,
or to the Beneficiary's estate.
<page 13>
ARTICLE 15
AMENDMENT OR TERMINATION OF PLAN
15.1 Amendment of Plan
Subject to the terms of Section 15.3, Edison International may amend the Plan at
any time in whole or in part, provided, however, that the amendment (i) will not
decrease the balance of the Participant's Deferral Account at the time of the
amendment and (ii) will not retroactively decrease the applicable Crediting
Rates of the Plan prior to the time of the amendment. Edison International may
amend the Crediting Rates of the Plan prospectively, in which case the
Administrator will notify the Participant of the amendment in writing within 30
days after the amendment.
15.2 Termination of Plan
Subject to the terms of Section 15.3, Edison International may terminate the
Plan at any time. If Edison International terminates the Plan, the date of the
Termination of Employment will be treated as the date of Termination of
Employment for the purpose of calculating Plan benefits, and the benefits the
Participant is entitled to receive under the Plan will be paid to the
Participant in a lump sum within 60 days.
15.3 Amendment or Termination After Change of Control
Notwithstanding the foregoing, Edison International will not amend or terminate
the Plan without the prior written consent of affected Participants for a period
of two calendar years following a Change of Control and will not thereafter
amend or terminate the Plan in any manner which affects any Participant (or
Beneficiary of a deceased Participant) who commences receiving payment of
benefits under the Plan prior to the end of the two year period following a
Change of Control.
15.4 Exercise of Power to Amend or Terminate
Except as provided in Section 15.3, Edison International's power to amend or
terminate the Plan will be exercisable by the Compensation and Executive
Personnel Committee of the Edison International Board of Directors.
15.5 Constructive Receipt Termination
Notwithstanding anything to the contrary in this Plan, in the event the
Administrator determines that amounts deferred under the Plan have been
constructively received by Participants and must be recognized as income for
federal income tax purposes, the Plan will terminate and distributions will be
made to Participants in accordance with the provisions of Section 15.2 or as may
be determined by the Administrator. The determination of the Administrator under
this Section 15.5 will be binding and conclusive.
<page 14>
ARTICLE 16
CLAIMS AND REVIEW PROCEDURES
16.1 Claims Procedure
The Administrator will notify a Participant in writing, within 90 days after his
or her written application for benefits, of his or her eligibility or
noneligibility for benefits under the Plan. If the Administrator determines that
a Participant is not eligible for benefits or full benefits, the notice will set
forth (1) the specific reasons for the denial, (2) a specific reference to the
provisions of the Plan on which the denial is based, (3) a description of any
additional information or material necessary for the claimant to perfect his or
her claim, and a description of why it is needed, and (4) an explanation of the
plan's claims review procedure and other appropriate information as to the steps
to be taken if the Participant wishes to have the claim reviewed. If the
Administrator determines that there are special circumstances requiring
additional time to make a decision, the Administrator will notify the
Participant of the special circumstances and the date by which a decision is
expected to be made, and may extend the time for up to an additional 90-day
period.
16.2 Review Procedure
If a Participant is determined by the Administrator not to be eligible for
benefits, or if the Participant believes that he or she is entitled to greater
or different benefits, the Participant will have the opportunity to have the
claim reviewed by the Administrator by filing a petition for review with the
Administrator within 60 days after receipt of the notice issued by the
Administrator. Said petition will state the specific reasons which the
Participant believes entitle him or her to benefits or to greater or different
benefits. Within 60 days after receipt by the Administrator of the petition, the
Administrator will afford the Participant (and counsel, if any) an opportunity
to present his or her position to the Administrator orally or in writing, and
the Participant (or counsel) will have the right to review the pertinent
documents. The Administrator will notify the Participant of its decision in
writing within the 60-day period, stating specifically the basis of its
decision, written in a manner calculated to be understood by the Participant and
the specific provisions of the Plan on which the decision is based. If, because
of the need for a hearing, the 60-day period is not sufficient, the decision may
be deferred for up to another 60-day period at the election of the
Administrator, but notice of this deferral will be given to the Participant. In
the event of the death of the Participant, the same procedures will apply to the
Participant's Beneficiaries.
16.3 Dispute Arbitration
Notwithstanding the foregoing, and because it is agreed that time will be of the
essence in determining whether any payments are due to Participant or his or her
Beneficiary under the Plan, a Participant or Beneficiary may, if he or she
desires, submit any claim for payment under the Plan to arbitration. This right
to select arbitration will be solely that of the Participant or Beneficiary and
the Participant or Beneficiary may decide whether or not to arbitrate in his or
her discretion. The "right to select arbitration" is not mandatory on the
Participant or Beneficiary, and the Participant or Beneficiary may choose in
lieu thereof to bring an action in an appropriate civil court.
<page 15>
Once an arbitration is commenced, however, it may not be discontinued without
the mutual consent of both parties to the arbitration. During the lifetime of
the Participant only he or she can use the arbitration procedure set forth in
this Section.
Any claim for arbitration may be submitted as follows: if a Participant or
Beneficiary has submitted a request to be paid under the Plan and the claim is
finally denied by the Administrator in whole or in part, the claim may be filed
in writing with an arbitrator of the Participant's or Beneficiary's choice who
is selected by the method described in the next four sentences. The first step
of the selection will consist of the Participant or Beneficiary submitting a
list of five potential arbitrators to the Administrator. Each of the five
arbitrators must be either (1) a member of the National Academy of Arbitrators
located in the State of California or (2) a retired California Superior Court or
Appellate Court judge. Within one week after receipt of the list, the
Administrator will select one of the five arbitrators as the arbitrator for the
dispute in question. If the Administrator fails to select an arbitrator within
one week after receipt of the list, the Participant or Beneficiary will then
designate one of the five arbitrators for the dispute in question.
The arbitration hearing will be held within seven days (or as soon thereafter as
possible) after the picking of the arbitrator. No continuance of said hearing
will be allowed without the mutual consent of Participant or Beneficiary and the
Administrator. Absence from or nonparticipation at the hearing by either party
will not prevent the issuance of an award. Hearing procedures which will
expedite the hearing may be ordered at the arbitrator's discretion, and the
arbitrator may close the hearing in his or her sole discretion when he or she
decides he or she has heard sufficient evidence to satisfy issuance of an award.
The arbitrator's award will be rendered as expeditiously as possible and in no
event later than one week after the close of the hearing.
In the event the arbitrator finds that the Administrator or the Employer has
breached the terms of the Plan, he or she will order the Employer to pay to
Participant or Beneficiary within two business days after the decision is
rendered the amount then due the Participant or Beneficiary, plus,
notwithstanding anything to the contrary in the Plan, an additional amount equal
to 20% of the amount actually in dispute. This additional amount will constitute
an additional benefit under the Plan. The award of the arbitrator will be final
and binding upon the Parties.
The award may be enforced in any appropriate court as soon as possible after its
rendition. The Administrator will be considered the prevailing party in a
dispute if the arbitrator determines (1) that the Administrator or the Employer
has not breached the terms of the Plan and (2) the claim by Participant or his
or her Beneficiary was not made in good faith. Otherwise, the Participant or his
or her Beneficiary will be considered the prevailing party. In the event that
the Administrator is the prevailing party, the fee of the arbitrator and all
necessary expenses of the hearing (excluding any attorneys' fees incurred by the
Administrator) including stenographic reporter, if employed, will be paid by the
losing party. In the event that the Participant or his or her Beneficiary is the
prevailing party, the fee of the arbitrator and all necessary expenses of the
hearing (including all attorneys' fees incurred by Participant or his
<page 16>
or her Beneficiary in pursuing his or her claim), including the fees of a
stenographic reporter, if employed, will be paid by the Employer.
ARTICLE 17
MISCELLANEOUS
17.1 Successors
The rights and obligations of each Employer under the Plan will inure to the
benefit of, and will be binding upon, the successors and assigns of the
Employer.
17.2 ERISA Plan
The Plan is intended to be an unfunded plan maintained primarily to provide
deferred compensation benefits for "a select group of management or highly
compensated employees" within the meaning of Sections 201, 301 and 401 of ERISA
and therefore to be exempt from Parts 2, 3 and 4 of Title I of ERISA. Edison
International is the named fiduciary.
17.3 Trust
The Employers will be responsible for the payment of all benefits under the
Plan. At their discretion, the Employers may establish one or more grantor
trusts for the purpose of providing for payment of benefits under the Plan. The
trust or trusts may be irrevocable, but an Employer's share of the assets
thereof will be subject to the claims of the Employer's creditors. Benefits paid
to the Participant from any such trust will be considered paid by the Employer
for purposes of meeting the obligations of the Employer under the Plan.
17.4 Employment Not Guaranteed
Nothing contained in the Plan nor any action taken hereunder will be construed
as a contract of employment or as giving any Participant any right to continued
employment with the Employer or any other Affiliate.
17.5 Gender, Singular and Plural
All pronouns and variations thereof will be deemed to refer to the masculine,
feminine, or neuter, as the identity of the person or persons may require. As
the context may require, the singular may be read as the plural and the plural
as the singular.
17.6 Captions
The captions of the articles and sections of the Plan are for convenience only
and will not control or affect the meaning or construction of any of its
provisions.
17.7 Validity
If any provision of the Plan is held invalid, void or unenforceable, the same
will not affect, in any respect whatsoever, the validity of any other provisions
of the Plan.
<PAGE 17>
17.8 Waiver of Breach
The waiver by Edison International of any breach of any provision of the Plan by
the Participant will not operate or be construed as a waiver of any subsequent
breach by the Participant.
17.9 Applicable Law
The Plan will be governed and construed in accordance with the laws of
California except where the laws of California are preempted by ERISA.
17.10 Notice
Any notice or filing required or permitted to be given to Edison International
under the Plan will be sufficient if in writing and hand-delivered, or sent by
first class mail to the principal office of Edison International, directed to
the attention of the Administrator. The notice will be deemed given as of the
date of delivery, or, if delivery is made by mail, as of the date shown on the
postmark.
IN WITNESS WHEREOF, Edison International has restated this Plan effective the
1st day of January, 1998.
EDISON INTERNATIONAL
Lillian R. Gorman
- -------------------
Lillian R. Gorman
Vice President
<PAGE 18>
EDISON INTERNATIONAL
OFFICER LONG-TERM INCENTIVE COMPENSATION PLAN
Amended and Restated as of January 1, 1998
WHEREAS, the Officer Long-Term Incentive Compensation Plan was approved by the
shareholders of SCEcorp on April 16, 1992 and was amended and restated as the
Edison International Officer Long-Term Incentive Compensation Plan ("Plan") on
February 15, 1996; and
WHEREAS, it is deemed appropriate to amend and restate the Plan to reflect
amendments addressing deferral of award gains;
NOW, THEREFORE, the Plan is restated subject to the following terms and
conditions:
1. Purpose.
The purpose of the Edison International Officer Long-Term Incentive Compensation
Plan is to improve the long-term financial and operational performance of Edison
International and its affiliates by providing eligible Participants a financial
incentive which reinforces and recognizes long-term corporate, organizational
and individual performance and accomplishments. The Plan is intended to promote
the interests of Edison International and its shareholders by encouraging
eligible Participants to acquire stock or increase their proprietary interest in
Edison International.
2. Definitions.
Whenever the following terms are used in this Plan, they will have the meanings
specified below unless the context clearly indicates the contrary:
"Board of Directors" or "Board" means the Board of Directors of Edison
International.
"Cash Equivalent" means a stock-based award payable in cash only granted
pursuant to Section 14.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation and Executive Personnel Committee of the
Board of Directors excluding those members ineligible to administer this Plan as
determined under Section 4.
"Common Stock" means the common shares of Edison International.
<PAGE 1>
"Company" means Edison International or the Edison International affiliate
employing the Participant.
"Dividend Equivalent" means the additional amount of cash or Common Stock as
described in Section 12.
"Eligible Person" or "Participant" means an officer of the Company whose
participation has been approved by the Committee, including without limitation,
executive officers under Section 16 of the Securities Exchange Act of 1934, as
amended, but excluding those persons participating in the Edison International
Management Long-Term Incentive Compensation Plan.
"Fair Market Value" means the average of the highest and lowest sale prices for
the Common Stock as reported in the western edition of The Wall Street Journal
for the New York Stock Exchange Composite Transactions for the date as of which
such determination is made.
"Holder" means a person holding an Incentive Award.
"Incentive Award" means any award (including any award or crediting of Stock
Units) which may be made under the Plan by the Committee.
"Incentive Stock Option" means an option as defined under Section 422A of the
Code granted pursuant to Section 7 of the Plan.
"Nonqualified Stock Option" means an option, other than an Incentive Stock
Option, granted pursuant to Section 6 of the Plan.
"Option" means either a Nonqualified Stock Option or Incentive Stock Option.
"Performance Award" means an award granted pursuant to Section 10 which may be
based on stock value, book value, or other specific performance criteria.
"Plan" means the Officer Long-Term Incentive Compensation Plan as set forth
herein, which may be amended from time-to-time.
"Restricted Stock" means Common Stock granted or awarded pursuant to Section 8
of the Plan, which is nontransferable and subject to substantial risk of
forfeiture until restrictions lapse.
"Rule 16b-3" means Rule 16b-3 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended, and effective
August 15, 1996.
<PAGE 2>
"Stock Appreciation Equivalent" means an award based on Common Stock
appreciation or other specific performance criteria which is granted pursuant to
Section 11.
"Stock Appreciation Right" or "Right" means a right granted pursuant to Section
9 of the Plan.
"Stock Payment" means a payment pursuant to Section 13 in shares of Common Stock
to replace all or any portion of the compensation (other than base salary) that
would otherwise become payable to a Participant in cash.
"Stock Unit" means a non-voting unit of measurement which is deemed for
bookkeeping purposes to be equivalent to one outstanding share of Common Stock
(subject to adjustment).
3. Aggregate Awards Under Plan.
Pursuant to the terms of the Plan, and subject to the provisions of this Section
3 and Section 16 of the Plan, the aggregate number of shares of Common Stock
that may be issued or transferred pursuant to Incentive Awards, and the total
aggregate value of Incentive Awards other than Dividend Equivalents which are
payable in a form other than Common Stock, will not exceed 3 million shares, or
the fair market value of such shares as determined on the dates of payment of
the Incentive Awards. On an annual basis, as long as any Incentive Awards are
outstanding and have not been paid, Dividend Equivalents payable in cash will
not exceed the annual dividend payable on 3 million shares of Common Stock.
The shares to be delivered under the Plan will be made available, at the
discretion of the Board or Committee, either from authorized but unissued shares
of Common Stock or from previously issued shares of Common Stock reacquired by
Edison International including shares purchased on the open market.
If any Incentive Award expires, is forfeited, is canceled, or otherwise
terminates for any reason other than upon exercise or payment, the shares of
Common Stock (provided the Participant receives no benefit of ownership) or
equivalent value that could have been delivered will not be charged against the
limitations provided above and may again be made subject to Incentive Awards.
However, shares subject to Stock Appreciation Rights settled in cash will not be
charged against the share limitations provided above, but only against the fair
market value limitation.
4. Administration. The Plan will be administered by the Committee, which will
consist of those directors on the Compensation and Executive Personnel Committee
of the Board who qualify as Non-Employee Directors under Rule 16b-3. The Board
shall ensure at least two members are qualified to administer the Plan.
<PAGE 3>
The Committee has, and may exercise, such powers and authority of the Board as
may be necessary or appropriate for the Committee to carry out its functions as
described in the Plan. The Committee has sole authority in its discretion to
determine the Officers to whom, and the time or times at which, Incentive Awards
may be granted, the nature of the Incentive Award, the number of shares of
Common Stock or the amount of cash that makes up each Incentive Award, the
pricing and amount of any Incentive Award, the objectives, goals and performance
criteria (which need not be identical) utilized to measure the value of
Incentive Awards, the form of payment (cash or Common Stock or a combination
thereof) payable upon the event or events giving rise to payment of an Incentive
Award, the vesting schedule of any Incentive Award, the term of any Incentive
Award, and such other terms and conditions applicable to each individual
Incentive Award as the Committee shall determine. The Committee may grant at any
time new Incentive Awards to a Participant who has previously received Incentive
Awards whether such prior Incentive Awards are still outstanding, have
previously been exercised in whole or in part, or are canceled in connection
with the issuance of new Incentive Awards. The purchase price or initial value
of the Incentive Awards may be established by the Committee without regard to
the existing Incentive Awards or such other grants. Further, the Committee may,
with the consent of a Participant, amend the terms of any existing Incentive
Award previously granted to include or amend any provisions which could be
incorporated in such an Incentive Award at the time of such amendment.
The Committee has the sole authority to interpret the Plan, to determine the
terms and provisions of the Incentive Award agreements, and to make all
determinations necessary or advisable for the administration of the Plan. The
Committee has authority to prescribe, amend, and rescind rules and regulations
relating to the Plan. All interpretations, determinations, and actions by the
Committee will be final, conclusive, and binding upon all parties. Any action of
the Committee with respect to the administration of the Plan shall be taken
pursuant to a majority vote or by the unanimous written consent of its members.
The Committee may delegate to one or more agents such nondiscretionary
administrative duties as it may deem advisable.
No member of the Board or the Committee or agent or designee thereof will be
liable for any action or determination made in good faith by the Board or the
Committee with respect to the Plan or any transaction arising under the Plan.
Notwithstanding the provisions of Section 18 and Section 20 regarding the term
of the Plan, all authority of the Board and the Committee with respect to
Incentive Awards hereunder, including (subject to share limits) the authority to
amend outstanding Incentive Awards shall continue after the term of the Plan, so
long as any Incentive Award remains outstanding. The Committee shall have the
authority to grant Incentive Awards under any deferred compensation plan of the
Company, consistent with Section 15. Any such settlement or deferral shall not
be deemed a new award hereunder so long as all shares issuable in respect
thereto do not exceed the aggregate number of shares subject to the Incentive
Awards so paid thereby. The authority of the Committee shall continue in respect
of any deferral so authorized.
<PAGE 4>
5. Eligibility and Date of Grant.
The Committee has authority, in its sole discretion, to determine and designate
from time-to-time those Eligible Persons who are to be granted Incentive Awards,
the type of Incentive Awards to be granted, the times at which Incentive Awards
will be granted, the prices of Incentive Awards (which may be any lawful
consideration determined by the Committee), the amount of any Incentive Award,
and the number of shares of Common Stock or the amount of cash subject to each
Incentive Award.
Each Incentive Award will be evidenced by a written instrument and may include
any other terms and conditions consistent with the Plan as the Committee may in
its discretion determine. The date of grant of an Incentive Award will be the
date of the Agreement between the Company and the Participant.
6. Nonqualified Stock Options.
The Committee may approve the grant of Nonqualified Stock Options to Eligible
Persons, subject to the following terms and conditions:
(a) The purchase price of Common Stock under each Nonqualified Stock Option may
not be less than one hundred percent of the Fair Market Value of the Common
Stock on the date the Nonqualified Stock Option is granted.
(b) No Nonqualified Stock Option may be exercised after ten years and one day
from the date of grant.
(c) Upon the exercise of a Nonqualified Stock Option, the purchase price will be
payable in full in cash and/or its equivalent, such as Common Stock, acceptable
to Edison International. Any shares so assigned and delivered to Edison
International in payment or partial payment of the purchase price will be valued
at their Fair Market Value on the exercise date.
(d) No fractional shares will be issued pursuant to the exercise of a
Nonqualified Stock Option. Only cash payments will be made in lieu of fractional
shares.
7. Incentive Stock Options.
The Committee may approve the grant of Incentive Stock Options to Eligible
Persons, subject to the following terms and conditions:
(a) The purchase price of each share of Common Stock under an Incentive Stock
Option will be at least equal to the Fair Market Value of a share of the Common
Stock on the date of grant; provided, however, that if a Participant, at the
time an Incentive Stock Option is granted, owns stock representing more than ten
(10%) percent of the total combined voting power of all classes of stock of
Edison International (as defined in Section 425(e) or (d) of the Code), then the
exercise price of each share of Common Stock subject to such Incentive Stock
Option shall be at least one hundred and ten
<PAGE 5>
(110%) percent of the Fair Market Value of such share of Common Stock, as
determined in the manner stated in this paragraph.
(b) No Incentive Stock Option may be exercised after ten (10) years from the
date of the grant. Each Incentive Stock Option granted under this Plan shall
also be subject to earlier termination as provided in this Plan.
(c) Upon the exercise of an Incentive Stock Option, the purchase price will be
payable in full in cash and/or its equivalent, such as Common Stock, acceptable
to Edison International. Any shares so assigned and delivered to Edison
International in payment or partial payment of the purchase price will be valued
at their Fair Market Value on the exercise date.
(d) The Fair Market Value (determined at the time the Incentive Stock Option is
granted) of the shares of Common Stock for which any Participant may be granted
Incentive Stock Options that are first exercisable during any one calendar year
(including Incentive Stock Options under all plans of the Company) will not in
the aggregate exceed One Hundred Thousand ($100,000) Dollars.
(e) No fractional share will be issued pursuant to the exercise of an Incentive
Stock Option. Only cash payments will be made in lieu of fractional shares.
8. Restricted Stock.
The Committee may approve the grant or award of Restricted Stock to Eligible
Persons subject to the conditions of this Section 8.
(a) All shares of Restricted Stock granted or awarded pursuant to the Plan
(including any shares of Restricted Stock received by the Holder as a result of
stock dividends, stock splits, or any other forms of adjustment) will be subject
to the following restrictions:
(i) The shares may not be sold, transferred, or otherwise alienated or
hypothecated until the restrictions are removed or expire.
(ii) The Committee may require the Holder to enter into an escrow agreement
providing that the certificates representing Restricted Stock granted
or awarded pursuant to the Plan will remain in the physical custody of
an escrow holder or Edison International until all restrictions are
removed or expire.
(iii)Each certificate representing Restricted Stock granted or awarded
pursuant to the Plan will bear a legend making appropriate reference
to the restrictions imposed on the Restricted Stock.
(iv) The Committee may impose restrictions on any shares granted or awarded
as it may deem advisable, including, without limitation, restrictions
designed to facilitate exemption from or compliance with the
<PAGE 6>
Securities Exchange Act of 1934, as amended, with requirements of any
stock exchange upon which such shares or shares of the same class are
then listed, and with any blue sky or other securities laws applicable
to such shares.
(b) The restrictions imposed under subparagraph (a) above upon Restricted Stock
will lapse in accordance with a schedule or other conditions as determined by
the Committee, subject to the provisions of Sections 18 and 19.
(c) Upon acceptance of the Restricted Stock offer, the purchase price, if any,
established by the Committee will be payable in full in cash and/or its
equivalent, such as Common Stock, acceptable to Edison International.
(d) Subject to the provisions of subparagraph (a) above and Section 19, the
Holder will have all rights of a shareholder with respect to the Restricted
Stock granted or awarded, including the right to vote the shares and receive all
dividends and other distributions paid or made with respect thereto.
9. Stock Appreciation Rights.
The Committee may approve the grant of Rights related or unrelated to Options to
Eligible Persons, subject to the following terms and conditions:
(a) A Stock Appreciation Right may be granted:
(i) at any time if unrelated to an option;
(ii) either at the time of grant, or at any time thereafter during
the option term if related to a Nonqualified Stock Option;
(iii) only at the time of grant if related to an Incentive Stock
Option.
(b) A Stock Appreciation Right grant in connection with an Option will entitle
the Holder of the related Option, upon exercise of the Stock Appreciation Right,
to surrender such Option, or any portion thereof to the extent unexercised, with
respect to the number of shares as to which such Stock Appreciation Right is
exercised, and to receive payment of an amount computed pursuant to Section
9(d). Such Option will, to the extent surrendered, then cease to be exercisable.
(c) Subject to Section 9(g), a Stock Appreciation Right granted in connection
with an Option hereunder will be exercisable at such time or times, and only to
the extent that a related Option is exercisable, and will not be transferable
except to the extent that such related Option may be transferable.
(d) Upon the exercise of a Stock Appreciation Right related to an Option, the
Holder will be entitled to receive payment of an amount determined by
multiplying:
<PAGE 7>
(i) The difference obtained by subtracting the purchase price of a share
of Common Stock specified in the related Option from the Fair Market
Value of a share of Common Stock on the date of exercise of such Stock
Appreciation Right, by
(ii) The number of shares to which such Stock Appreciation Right has been
exercised.
(e) The Committee may grant Stock Appreciation Rights unrelated to Options to
Eligible Persons. Section 9(d) shall be used to determine the amount payable at
exercise of such Stock Appreciation Right(s) if Fair Market Value is not used,
except that Fair Market Value shall not be used if the Committee specified in
the award that book value or another measure as deemed appropriate by the
Committee was to be used. In applying the formula in Section 9(d), the initial
share value specified in the Stock Appreciation Right award shall be used in
lieu of the price "specified in the related Option."
(f) Payment of the amount determined under Section 9(d) or (e) may be made
solely in whole shares of Common Stock in a number determined at their Fair
Market Value on the date of exercise of the Stock Appreciation Right or
alternatively, at the sole discretion of the Committee, solely in cash or in a
combination of cash and shares as the Committee deems advisable. If the
Committee decides to make full payment in shares of Common Stock, and the amount
payable results in a fractional share, no fractional share will be issued.
Payment for the fractional share will be made in cash only.
(g) The Committee may, at the time a Stock Appreciation Right is granted, impose
such conditions on the exercise of the Stock Appreciation Right as may be
required to satisfy the requirements of Rule 16b-3, as applicable (or any other
comparable provisions in effect at the time or times in question). Without
limiting the generality of the foregoing, the Committee may determine that a
Stock Appreciation Right may be exercised only during the period beginning on
the third business day and ending on the twelfth business day following the
publication of Edison International's quarterly and annual summarized financial
data.
10. Performance Awards.
The Committee may approve Performance Awards to Eligible Persons. Such awards
may be based on Common Stock performance over a period determined in advance by
the Committee or any other measures as determined appropriate by the Committee.
Payment will be in cash unless replaced by a Stock Payment in full or in part as
determined by the Committee.
11. Stock Appreciation Equivalents.
The Committee may approve Stock Appreciation Equivalents to Eligible Persons.
Such awards may be based on Common Stock performance over a period determined in
advance by the Committee, or any other measures as determined appropriate by the
<PAGE 8>
Committee. Payment will be in cash unless replaced by a Stock Payment in full or
in part as determined by the Committee.
12. Dividend Equivalents.
The Committee may approve Dividend Equivalents based on the dividends declared
on the Common Stock on record dates during the period between the date an
Incentive Award is granted and the date such Incentive Award is exercised or
paid. Dividend Equivalents may be awarded separately or in connection with
Incentive Awards payable, whether payable in cash or Common Stock. Subject to
Sections 3 and 16, such Dividend Equivalents shall be converted to cash or
additional shares by such formula and at such time as may be determined by the
Committee.
13. Stock Payments.
The Committee may approve Stock Payments of Common Stock to Eligible Persons for
all or any portion of the compensation (other than base salary) that would
otherwise become payable to a Participant in cash.
Notwithstanding anything to the contrary contained in this Plan, if the written
instrument evidencing any Incentive Award states that the Incentive Award(s)
will be paid in cash, the Committee may not make a Stock Payment in lieu
thereof, and the Incentive Award(s) will be redeemable or exercisable by the
Holder only for cash.
14. Cash Equivalents.
The Committee may grant any Incentive Award permitted under the Plan which is
otherwise payable in stock in the form of a cash equivalent award.
15. Deferral of Payment.
The Committee may grant Incentive Awards which allow, and amend Incentive Awards
to allow, the delayed payment or delivery of any cash or shares of Common Stock
which may become due under the Plan. Any such delayed payment or delivery must
be specifically allowable under the terms of the Incentive Award agreement. The
deferral of any cash payable in respect of an Incentive Award may be in the form
of a credit to the Participant's deferral account under the Edison International
Executive Deferred Compensation Plan, or any other deferral plan of the Company;
the deferral of any shares of Common Stock distributable upon the exercise of a
Nonqualified Stock Option may be in the form of Stock Units under the Edison
International Option Gain Deferral Plan. In the event that the purchase price of
a Nonqualified Stock Option is paid in full in shares of Common Stock and the
delivery of shares of Common Stock in excess of the option price is deferred
under the Option Gain Deferral Plan, Stock Units may be credited in respect of
such excess shares and earn dividend equivalents or other compensation in
respect thereof, and the number of shares of Common Stock issued in respect of
the deferred shares may include the number of such deferred shares and the
number of Stock Units credited as dividend equivalents (subject to share
limits).
<PAGE 9>
16. Adjustment Provisions.
Subject to the provisions of this Section 16 below, if the outstanding shares of
Common Stock are increased, decreased, or exchanged for a different number or
kind of shares or other securities, or if additional shares or new or different
shares or other securities are distributed with respect to such shares of Common
Stock or other securities, through merger, consolidation, sale of all or
substantially all of the property of Edison International, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other distribution with respect to such shares of Common Stock or other
securities, an appropriate and proportionate adjustment may be made in (i) the
maximum number and kind of shares provided in Section 3 of the Plan, (ii) the
number and kind of shares or other securities subject to the then outstanding
Incentive Awards, and (iii) the price for each share or other unit of any other
securities subject to the then outstanding Incentive Awards without change in
the aggregate purchase price or value as to which Incentive Awards remain
exercisable or subject to restrictions.
Despite the foregoing, upon dissolution or liquidation of Edison International,
or upon a reorganization, merger, or consolidation of Edison International with
one or more corporations as a result of which Edison International is not the
surviving corporation, or upon the sale of all or substantially all the property
of Edison International, all Options, Stock Appreciation Rights, and other
Incentive Awards then outstanding under the Plan will be fully vested and
exercisable and all restrictions on Restricted Stock will immediately cease,
unless provisions are made in connection with such transaction for the
continuance of the Plan and the assumption of or the substitution for such
Incentive Awards of new Options, Stock Appreciation Rights, or other Incentive
Awards, or Restricted Stock covering the stock of a successor employer
corporation, or a parent or subsidiary thereof, with appropriate adjustments as
to the number and kind of shares and prices.
Any adjustments pursuant to this Section will be made by the Committee, whose
determination as to what adjustments will be made and the extent thereof will be
final, binding, and conclusive. No fractional interest will be issued under the
Plan on account of any such adjustments. Only cash payments will be made in lieu
of fractional shares.
Notwithstanding the foregoing, if a reorganization, merger, consolidation, or
other corporate transaction is consummated following and related to the
occurrence of a Distribution Date, as that term is defined in the Rights
Agreement approved by the Edison International Board of Directors on November
20, 1996, as a result of which Edison International is not the surviving
corporation, all Options, Stock Appreciation Rights, and other Incentive Awards
then outstanding under the Plan will fully vest and all restrictions on
Restricted Stock will immediately cease. This Plan may not be terminated, nor
may any Incentive Award be cashed out, modified or terminated without the
consent of the holder, by Edison International or its successor in interest
during the subsequent period necessary to allow Incentive Awards to remain
exercisable for at least two years following the close of the transaction, or
where applicable, through the first exercise period occurring at least two years
after the close of the transaction.
<PAGE 10>
During such subsequent period, valuation procedures and exercise periods will
occur on a basis consistent with past practice.
17. General Provisions.
(a) With respect to any share of Common Stock issued or transferred under any
provision of the Plan, such shares may be issued or transferred subject to such
conditions, in addition to those specifically provided in the Plan, as the
Committee may direct.
(b) Nothing in the Plan or in any instrument executed pursuant to the Plan will
confer upon any Holder any right to continue in the employ of the Company or
affect the right of the Company to terminate the employment of any Holder at any
time with or without cause.
(c) No shares of Common Stock will be issued or transferred pursuant to an
Incentive Award unless and until all then applicable requirements imposed by
federal and state securities and other laws, rules, and regulations and by any
regulatory agencies having jurisdiction, and by any stock exchanges upon which
the Common Stock may be listed, have been fully met. As a condition precedent to
the issue of shares pursuant to the grant or exercise of an Incentive Award,
Edison International may require the Holder to take any reasonable action to
meet such requirements.
(d) No Holder (individually or as a member of a group) and no beneficiary or
other person claiming under or through such Holder will have any right, title,
or interest in or to any shares of Common Stock allocated or reserved under the
Plan or subject to any Incentive Award except as to such shares of Common Stock,
if any, that have been issued or transferred to such Holder.
(e) Edison International may make such provisions as it deems appropriate to
withhold any taxes which it determines it is required to withhold in connection
with any Incentive Award. Subject to this Section 17(e), however, and without in
anyway limiting the generality of Section 9, the Committee, in its sole
discretion and subject to such rules as the Committee may adopt, may permit
Participants to elect (i) cash settlement of any Incentive Award, or (ii) to
apply a portion of the shares of Common Stock they are otherwise entitled to
receive pursuant to an Incentive Award, or shares of Common Stock already owned,
to satisfy the tax withholding obligation arising from the receipt, vesting, or
exercise of any Incentive Award, as applicable.
(f) No Incentive Award and no right under the Plan, contingent or otherwise,
will be assignable or subject to any encumbrance, pledge, or charge of any
nature, or otherwise transferable (meaning, without limitation, that such
Incentive Award or right is exercisable during the Holder's lifetime only by him
or her or by his or her guardian or legal representative) except that, under
such rules and regulations as Edison International may establish pursuant to the
terms of the Plan, a beneficiary may be designated with respect to an Incentive
Award in the event of death of a Holder of such Incentive Award, and Incentive
Awards may be transferred pursuant to a qualified
<PAGE 11>
domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act, or the regulations promulgated thereunder. If
such beneficiary is the executor or administrator of the estate of the Holder of
such Incentive Award, any rights with respect to such Incentive Award may be
transferred to the person or persons or entity (including a trust) entitled
thereto under the will of the Holder of such Incentive Award, or, in the case of
intestacy, under the laws relating to intestacy.
(g) Notwithstanding Section 17(f), the Committee may, to the extent permitted by
applicable law and Rule 16b-3, as applicable, permit a Holder to assign the
rights to exercise Options or Rights to a trust or to exercise options or rights
in favor of a trust, provided that, in the case of Incentive Stock Options, such
exercise in favor of a trust shall be permitted only if and to the extent that
such exercise is not deemed to be a transfer to or exercise by someone other
than the Holder in contravention of Section 422A(b)(5) of the Code.
(h) Whenever a Holder is entitled to receive cash in lieu of a fractional share,
recognizing that such payment may be deemed a sale of the underlying Common
Stock under Section 16 of the Securities Exchange Act of 1934, as amended, the
Holder may alternatively elect, at least six months in advance of the payment
date, to receive the cash payment or to forfeit his or her rights to such cash
payment. This election will be evidenced in the Incentive Award agreement.
(i) This Plan shall be governed by the laws of the State of California.
18. Amendment and Termination of the Plan.
The Board of Directors or the Committee will have the power, in its discretion,
to amend, suspend, or terminate the Plan at any time. No such amendment will,
without approval of the shareholders of Edison International to the extent
required by law or the rules of any exchange upon which the Common Stock is
listed, and except as provided in Section 16 of the Plan:
(a) Materially modify the requirements as to eligibility for participation in
the Plan;
(b) Materially increase the benefits accruing to Eligible Persons under the
Plan; or
(c) Materially increase the number of securities which may be issued under the
Plan.
The Committee may, with the consent of a Holder, make such modifications in the
terms and conditions of any Incentive Award as it deems advisable or cancel the
Incentive Award (with or without consideration). No amendment, suspension, or
termination of the Plan will, without the consent of the Holder, alter,
terminate, impair, or adversely affect any right or obligation under any
Incentive Award previously granted under the Plan.
<PAGE 12>
19. Termination of Employment.
(a) A Stock Appreciation Right or an Option held by a person who was an employee
at the time such Right or Option was granted will expire immediately if and when
the Holder ceases to be an employee, except as follows:
(i) If the employment of a Participant is terminated by the Company other
than for cause, then the Stock Appreciation Rights and Options will
expire six months thereafter unless the terms of the Incentive Award
agreement specify otherwise. For purposes of this provision,
termination "for cause" shall include, but shall not be limited to,
termination because of dishonesty, criminal offense, or violation of
work rule, and shall be determined by, and in the sole discretion of,
the Company. During the six-month period, the Stock Appreciation
Rights and Options may be exercised in accordance with their terms,
but only to the extent exercisable on the date of termination of
employment.
(ii) If a Participant dies or becomes permanently and totally disabled
while employed by the Company, the Stock Appreciation Rights and
Options of the Participant will expire three years after the date of
death or permanent and total disability unless the terms of the
Incentive Award agreement specify otherwise. If the Participant dies
or becomes permanently and totally disabled within the six-month
period referred to in subparagraph (a) above, the Stock Appreciation
Rights and Options will expire six months after the date of death or
permanent and total disability, unless the terms of the Incentive
Award agreement specify otherwise.
(b) In the event a Holder of other Incentive Awards ceases to be an employee,
all such Incentive Awards will terminate except in the case of retirement,
death, or permanent and total disability. To be eligible for the full amount of
any such Incentive Award, an individual must have been a Participant for the
entire period to which the Incentive Award applies. Pro-rata awards may be
distributed to Participants who are discharged or who terminate their employment
for reasons other than incompetence, misconduct or fraud, or who retired or
became disabled during the incentive period, or who were Participants for less
than the full incentive period. A pro-rata award may be made to a Participant's
designated beneficiary in the event of death of a Participant during an
incentive period prior to an award being made.
(c) The Committee may in its sole discretion determine, with respect to an
Incentive Award, that any Holder who is on a leave of absence for any reason
will be considered as still in the employ of the Company, provided that rights
to such Incentive Award during an unpaid leave of absence will be limited to the
extent to which such right was earned or vested at the commencement of such
leave of absence.
(d) The Committee may vary the strict requirements of this Section 19 by
agreement at the time of grant, or on a case-by-case basis thereafter, as it
deems appropriate and in the best interests of Edison International. The
Committee may accelerate the vesting
<PAGE 13>
of all, or a portion of any Incentive Award, and may extend the above-described
exercise periods to as long as the term provided in the original Incentive Award
agreement.
20. Effective Date of Plan and Duration of Plan.
This Plan as amended and restated will become effective on the date specified by
the Board of Directors of Edison International, subject, however, to approval by
the stockholders of Edison International at their next annual meeting or at any
adjournment thereof, within twelve (12) months following the date of its
adoption by the Board of Directors. Unless previously terminated by the Board of
Directors, the Plan will terminate April 16, 2002.
EDISON INTERNATIONAL
Lillian R. Gorman
-------------------------------------
Lillian R. Gorman
Vice President
<PAGE 14>
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, 1998, 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
Form S-3 333-00497 February 2, 1996
ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
May __, 1998
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
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<TOTAL-ASSETS> 17,647,720
<COMMON> 2,168,054
<CAPITAL-SURPLUS-PAID-IN> 393,164
<RETAINED-EARNINGS> 1,408,330
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,969,548
275,000
183,755
<LONG-TERM-DEBT-NET> 2,385,929
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<GROSS-OPERATING-REVENUE> 1,622,691
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<OTHER-OPERATING-EXPENSES> 1,269,119
<TOTAL-OPERATING-EXPENSES> 1,394,723
<OPERATING-INCOME-LOSS> 227,968
<OTHER-INCOME-NET> 17,502
<INCOME-BEFORE-INTEREST-EXPEN> 245,470
<TOTAL-INTEREST-EXPENSE> 140,324
<NET-INCOME> 105,146
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<EARNINGS-AVAILABLE-FOR-COMM> 98,387
<COMMON-STOCK-DIVIDENDS> 95,564
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