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, 1999
---------------------------------------------
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, 1999
- --------------------------------------- ----------------------------------
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, 1999, and 1998 2
Consolidated Statements of Comprehensive Income --
Three and Twelve Months Ended March 31, 1999,
and 1998 2
Consolidated Balance Sheets -- March 31, 1999,
December 31, 1998, and March 31, 1998 3
Consolidated Statements of Cash Flows --
Three and Twelve Months Ended
March 31, 1999, and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 26
Part II. Other Information:
Item 1. Legal Proceedings 37
Item 4. Submission of Matters to a Vote of Security Holders 40
Item 6. Exhibits and Reports on Form 8-K 40
<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) and its subsidiaries as of March 31, 1999,
December 31, 1998, and March 31, 1998, and the related consolidated statements
of income, comprehensive income and cash flows for each of the three- and
twelve-month periods ended March 31, 1999, and 1998. 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, 1999, December 31, 1998, and March 31, 1998, and the results of their
operations and their cash flows for each of the three- and twelve-month periods
ended March 31, 1999, and 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
May 6, 1999
1
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME
In thousands
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
- ----------------------------------------------------------- ----------------------------- -------------------------
1999 1998 1999 1998
- ----------------------------------------------------------- ----------------------------- -------------------------
<S> <C> <C> <C> <C>
Operating revenue $1,676,705 $1,622,691 $7,553,532 $7,880,638
- -------------------------------------------------------------------------------------------------------------------
Fuel 60,308 118,684 265,339 855,539
Purchased power-- contracts 609,906 576,506 2,659,300 2,801,834
Purchased power-- power exchange-- net 116,956 -- 753,299 --
Provisions for regulatory adjustment clauses-- net (279,030) (303,813) (447,736) (626,575)
Other operating expenses 404,280 287,579 1,597,349 1,263,170
Maintenance 88,868 101,870 397,565 411,537
Depreciation, decommissioning and amortization 386,277 382,974 1,549,032 1,317,270
Income taxes 80,541 125,604 400,580 612,339
Property and other taxes 38,285 39,518 127,169 129,680
Net loss (gain) on sale of utility plant (2,200) 65,801 (610,609) 61,722
- -------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,504,191 1,394,723 6,691,288 6,826,516
- -------------------------------------------------------------------------------------------------------------------
Operating income 172,514 227,968 862,244 1,054,122
- -------------------------------------------------------------------------------------------------------------------
Provision for rate phase-in plan -- -- -- (37,177)
Allowance for equity funds
used during construction 2,836 2,781 11,880 8,429
Interest and dividend income 14,146 18,312 62,559 56,092
Other nonoperating income (deductions)-- net 12,720 (3,591) 11,927 (31,273)
- -------------------------------------------------------------------------------------------------------------------
Total other income (deductions)-- net 29,702 17,502 86,366 (3,929)
- -------------------------------------------------------------------------------------------------------------------
Income before interest expense 202,216 245,470 948,610 1,050,193
- -------------------------------------------------------------------------------------------------------------------
Interest and amortization on long-term debt 98,643 124,354 396,147 378,758
Other interest expense 24,136 18,020 70,340 91,607
Allowance for borrowed funds used
during construction (2,461) (1,892) (8,615) (8,693)
Capitalized interest (796) (158) (1,933) (1,236)
- -------------------------------------------------------------------------------------------------------------------
Total interest expense-- net 119,522 140,324 455,939 460,436
- -------------------------------------------------------------------------------------------------------------------
Net income 82,694 105,146 492,671 589,757
Dividends on preferred stock 6,199 6,759 24,072 27,648
- -------------------------------------------------------------------------------------------------------------------
Earnings available for common stock $ 76,495 $ 98,387 $ 468,599 $ 562,109
- -------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands
3 Months Ended 12 Months Ended
March 31, March 31,
- ----------------------------------------------------------- ----------------------------- -------------------------
1999 1998 1999 1998
- ----------------------------------------------------------- ----------------------------- -------------------------
Net income $ 82,694 $ 105,146 $ 492,671 $ 589,757
Unrealized gain (loss) on securities-- net (6,215) 11,110 (8,050) 18,508
Reclassification adjustment for gains included in net income (17,371) -- (35,207) --
- -------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 59,108 $ 116,256 $ 449,414 $ 608,265
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
In thousands
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1999 1998 1998
- ------------------------------------------------------------------------------------------------------------------
ASSETS
Transmission and distribution:
Utility plant, at original cost, subject to
<S> <C> <C> <C>
cost-based rate regulation $11,901,873 $11,771,678 $11,333,083
Accumulated provision for depreciation (6,280,719) (6,062,562) (5,690,973)
Construction work in progress 554,209 455,233 482,386
- ------------------------------------------------------------------------------------------------------------------
6,175,363 6,164,349 6,124,496
- ------------------------------------------------------------------------------------------------------------------
Generation:
Utility plant, at original cost,
not subject to cost-based rate regulation 1,692,358 1,689,469 9,367,923
Accumulated provision for depreciation, decommissioning
and amortization (848,315) (833,917) (5,241,980)
Construction work in progress 74,993 61,431 101,759
Nuclear fuel, at amortized cost 164,489 172,250 145,607
- ------------------------------------------------------------------------------------------------------------------
1,083,525 1,089,233 4,373,309
- ------------------------------------------------------------------------------------------------------------------
Total utility plant 7,258,888 7,253,582 10,497,805
- ------------------------------------------------------------------------------------------------------------------
Nonutility property -- less accumulated
provision for depreciation of $7,865, $25,682
and $25,195 at respective dates 75,303 56,681 67,495
Nuclear decommissioning trusts 2,311,082 2,239,929 2,001,906
Other investments 140,324 179,480 221,148
- ------------------------------------------------------------------------------------------------------------------
Total other property and investments 2,526,709 2,476,090 2,290,549
- ------------------------------------------------------------------------------------------------------------------
Cash and equivalents 122,310 81,500 613,475
Receivables, including unbilled revenue, less
allowances of $24,638, $22,230 and $23,849
for uncollectible accounts at respective dates 1,048,104 1,112,630 751,319
Fuel inventory 53,674 51,299 53,464
Materials and supplies, at average cost 118,136 116,259 131,278
Accumulated deferred income taxes-- net 89,832 274,833 --
Regulatory balancing accounts-- net 974,190 648,781 495,078
Prepayments and other current assets 54,865 91,992 54,439
- ------------------------------------------------------------------------------------------------------------------
Total current assets 2,461,111 2,377,294 2,099,053
- ------------------------------------------------------------------------------------------------------------------
Unamortized nuclear investment-- net 1,962,973 2,161,998 --
Income tax-related deferred charges 1,502,897 1,463,256 1,549,631
Unamortized debt issuance and reacquisition expense 341,702 348,816 369,163
Other deferred charges 1,063,279 865,892 841,519
- ------------------------------------------------------------------------------------------------------------------
Total deferred charges 4,870,851 4,839,962 2,760,313
- ------------------------------------------------------------------------------------------------------------------
Total assets $17,117,559 $16,946,928 $17,647,720
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part ofthese financial statements.
3
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
In thousands, except share amounts
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1999 1998 1998
- ------------------------------------------------------------------------------------------------------------------
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 334,031 334,031 334,031
Accumulated other comprehensive income 15,876 39,462 59,133
Retained earnings 700,146 793,625 1,408,330
- ------------------------------------------------------------------------------------------------------------------
3,218,107 3,335,172 3,969,548
- ------------------------------------------------------------------------------------------------------------------
Preferred stock:
Not subject to mandatory redemption 128,755 128,755 183,755
Subject to mandatory redemption 255,700 255,700 275,000
Long-term debt 5,052,393 5,446,638 5,807,485
- ------------------------------------------------------------------------------------------------------------------
Total capitalization 8,654,955 9,166,265 10,235,788
- ------------------------------------------------------------------------------------------------------------------
Other long-term liabilities 713,510 467,109 494,370
- ------------------------------------------------------------------------------------------------------------------
Current portion of long-term debt 716,231 400,810 567,875
Short-term debt 629,197 469,565 345,241
Accounts payable 381,167 447,484 400,592
Accrued taxes 681,366 678,955 566,292
Accrued interest 92,504 89,828 75,337
Dividends payable 94,343 91,742 99,999
Accumulated deferred income taxes-- net -- -- 94,577
Deferred unbilled revenue and other current liabilities 1,169,271 1,096,332 818,324
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,764,079 3,274,716 2,968,237
- ------------------------------------------------------------------------------------------------------------------
Accumulated deferred income taxes-- net 2,941,112 2,993,142 2,836,703
Accumulated deferred investment tax credits 239,351 250,116 319,916
Customer advances and other deferred credits 804,233 795,266 791,865
- ------------------------------------------------------------------------------------------------------------------
Total deferred credits 3,984,696 4,038,524 3,948,484
- ------------------------------------------------------------------------------------------------------------------
Minority interest 319 314 841
- ------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
(Notes 2, 8, 9 and 10)
Total capitalization and liabilities $17,117,559 $16,946,928 $17,647,720
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
- ------------------------------------------------------------ ------------------------------ --------------------------
1999 1998 1999 1998
- ------------------------------------------------------------ ------------------------------ --------------------------
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income $ 82,694 $ 105,146 $ 492,671 $ 589,757
Adjustments for non-cash items:
Depreciation, decommissioning and amortization 386,277 382,974 1,549,032 1,317,270
Other amortization 20,618 13,156 96,785 82,355
Rate phase-in plan -- 3,777 -- 40,013
Deferred income taxes and investment
tax credits 82,565 101,892 (113,831) 121,717
Other long-term liabilities 52,523 14,733 25,262 42,322
Regulatory asset related to sale of oil and gas plant 241 (98,041) (121,950) (98,041)
Net loss (gain) on sale of oil and gas plant (1,124) 62,633 (628,380) 62,633
Other-- net (24,319) (5,117) (15,375) (192,698)
Changes in working capital:
Receivables 64,526 155,069 (296,785) 80,804
Regulatory balancing accounts (325,409) (301,767) (479,112) (601,583)
Fuel inventory, materials and supplies (4,252) 6,297 12,932 27,342
Prepayments and other current assets 37,127 38,659 (426) 5,355
Accrued interest and taxes 5,087 46,953 132,241 (23,814)
Accounts payable and other current liabilities 6,622 (119,644) 331,522 103,906
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 383,176 406,720 984,586 1,557,338
- --------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Long-term debt repaid -- (454,441) (321,589) (1,170,581)
Rate reduction notes issued -- -- -- 2,444,532
Rate reduction notes repaid (70,531) (17,111) (305,011) (12,354)
Preferred stock redeemed -- -- (74,300) (100,000)
Nuclear fuel financing-- net (8,836) (8,623) 16,031 (34,794)
Short-term debt financing-- net 159,632 23,213 283,956 210,415
Capital transferred -- -- -- 153,000
Dividends paid (172,125) (101,084) (1,200,852) (1,787,412)
- --------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (91,860) (558,046) (1,601,765) (297,194)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and plant (230,844) (167,978) (923,703) (701,891)
Proceeds from sale of oil and gas plant -- 29,801 1,173,238 29,801
Funding of nuclear decommissioning trusts (37,126) (39,683) (160,367) (165,550)
Unrealized gain (loss) on securities-- net (23,586) 11,110 (43,257) 18,508
Other-- net 41,050 (30,721) 80,103 (50,820)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (250,506) (197,471) 126,014 (869,952)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 40,810 (348,797) (491,165) 390,192
Cash and equivalents, beginning of period 81,500 962,272 613,475 223,283
- --------------------------------------------------------------------------------------------------------------------
Cash and equivalents, end of period $ 122,310 $ 613,475 $ 122,310 $ 613,475
- --------------------------------------------------------------------------------------------------------------------
Cash payments for interest and taxes:
Interest-- net of amounts capitalized $ 67,618 $ 74,808 $ 256,554 $ 337,317
Taxes 12 10 404,832 437,758
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Southern California Edison Company (SCE) is a public utility which produces and
supplies electric energy for its 4.3 million customers in central, coastal and
Southern California. The regulatory environment in which SCE operates is
changing as a result of a 1995 California Public Utilities Commission (CPUC)
decision on electric utility industry restructuring and state legislation
enacted in 1996.
Basis of Presentation
SCE's accounting policies conform with generally accepted accounting principles,
including the accounting principles for rate-regulated enterprises which reflect
the rate-making policies of the 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, in 1997, SCE began accounting for
its investment in generation facilities in accordance with accounting principles
applicable to enterprises in general. Application of such accounting principles
to SCE's generation assets did not result in any adjustment of their carrying
value; however, SCE's nuclear investments were reclassified as a regulatory
asset in second quarter 1998.
The consolidated financial statements include SCE and its wholly owned
subsidiaries. Intercompany transactions have been eliminated. Certain
prior-period amounts were reclassified to conform to the March 31, 1999,
financial statement presentation.
Since April 1, 1998, when the new market structure began, SCE has been selling
all of its generation through the power exchange (PX), as mandated by the CPUC's
1995 restructuring decision. Through the PX, SCE satisfies the electric energy
needs of customers who did not choose an alternative energy provider. These
transactions with the PX are reported as Purchased power - power exchange - net.
Generation sales through the PX were $282 million and $1.7 billion for the three
and twelve months ended March 31, 1999, respectively. Purchases from the PX were
$399 million and $2.4 billion for the three and twelve months ended March 31,
1999, respectively.
SCE's outstanding common stock is owned entirely by its parent company, Edison
International.
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.
Nuclear
CPUC-authorized rate phase-in plans, which deferred 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.
6
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SCE is recovering its investment in San Onofre Nuclear Generating Station Units
2 and 3 and Palo Verde on an accelerated basis, as authorized by the CPUC. The
accelerated recovery will continue through December 2001, earning a 7.35% fixed
rate of return. San Onofre's operating costs, including nuclear fuel and nuclear
fuel financing costs, and incremental capital expenditures, 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. Palo Verde's 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, San Onofre's incentive pricing plan and accelerated
plant recovery and the Palo Verde balancing account became part of the
transition cost balancing account. SCE will be required to share equally with
ratepayers the net benefits received from operation of Palo Verde, beginning in
2002, and from the operation of the San Onofre units in 2004. Palo Verde's
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.
Regulation of Utility Business
SCE, subject to rate-regulation by the CPUC and the FERC, 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.
Effective January 1, 1998, SCE's rates were unbundled into separate charges for
energy, transmission, distribution, the non-bypassable competition transition
charge (CTC), public benefit programs and nuclear decommissioning. The
transmission component is being collected through FERC-approved rates, subject
to refund. SCE's costs associated with its hydroelectric plants are being
recovered through a performance-based mechanism. This mechanism sets the
hydroelectric revenue requirement and establishes a formula for extending it
through the duration of the electric industry restructuring transition period
(March 31, 2002), or until market valuation of the hydroelectric facilities,
whichever occurs first. Revenue from hydroelectric facilities in excess of the
hydroelectric revenue requirement is credited against the costs to transition to
a competitive market.
Beginning January 1, 1998, the CTC is being billed to all SCE customers, which
provides SCE the opportunity to recover its costs to transition to a competitive
market (approximately $10.6 billion 1998 net present value). Transition costs
related to power-purchase contracts are being recovered through the terms of
their contracts while most of the remaining transition costs will be recovered
through 2001. A portion of the stranded costs that residential and small
commercial customers would have paid between 1998 and 2001, has been financed by
the issuance of rate reduction notes, allowing SCE to reduce rates by at least
10% to these customers, effective January 1, 1998. The notes allow for the rate
reduction by lowering the carrying cost on a portion of the transition costs and
by deferring recovery of a portion of these transition costs until after the
transition period. Additionally, the state 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.
Regulatory Assets and Liabilities
In accordance with accounting principles for rate-regulated enterprises, SCE
records regulatory assets, which represent probable future revenue associated
with certain costs that will be recovered from customers through the rate-making
process, and regulatory liabilities, which represent probable future reductions
in revenue associated with amounts that are to be credited to customers through
the rate-making process.
7
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Regulatory assets and liabilities included in the consolidated balance sheets
are:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
In millions 1999 1998 1998
- ----------------------------------------------------------------------------------------------------------------
Generation-related:
<S> <C> <C> <C>
Unamortized nuclear investment-- net $ 1,963 $ 2,162 $ --
Flow-through taxes 466 614 410
Rate reduction notes-- transition cost deferral 433 315 87
Unamortized loss on sale of plant 167 183 98
Purchased-power settlements 318 130 142
Environmental remediation 16 16 16
Regulatory balancing accounts and other 604 354 554
- ----------------------------------------------------------------------------------------------------------------
Subtotal 3,967 3,774 1,307
- ----------------------------------------------------------------------------------------------------------------
Non-generation related:
Flow-through taxes 1,037 849 1,140
Unamortized loss of reacquired debt 308 308 326
Environmental 121 125 134
Regulatory balancing accounts and other 60 110 15
- ----------------------------------------------------------------------------------------------------------------
Subtotal 1,526 1,392 1,615
- ----------------------------------------------------------------------------------------------------------------
Total $ 5,493 $ 5,166 $ 2,922
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Generation-related regulatory assets and liabilities are being recovered through
the CTC through March 31, 2002, except for the rate reduction notes regulatory
asset which will be recovered over the terms of the rate reduction notes. The
non-generation related regulatory assets and liabilities are being recovered
through other components of the unbundled rates.
During the second quarter of 1998, SCE reduced its remaining nuclear plant
investment by $2.6 billion (as of June 30, 1998) and recorded a regulatory asset
on its balance sheet for the same amount in accordance with asset impairment
accounting standards. For this impairment assessment, the fair value of the
investment was calculated by discounting expected future net cash flows. This
reclassification had no effect on SCE's results of operations.
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 (approximately $2.7
billion, after tax, at March 31, 1999) as a one-time, non-cash charge against
earnings.
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 the 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. Additionally, gains resulting from the
sale of the gas- and oil-fueled generation plants during 1998 were credited to
the transition cost balancing account; the losses are being amortized over the
remaining transition period and accumulated in the transition cost balancing
account. These transition costs are being recovered from utility customers (with
interest) through the CTC mechanism.
Income tax effects on all balancing account changes are deferred.
8
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 for utility property include direct material and labor, construction
overhead and an allowance for funds used during construction (AFUDC). AFUDC
represents the estimated cost of debt and equity funds that finance
utility-plant construction. AFUDC is capitalized during plant construction and
reported in current earnings. AFUDC is recovered in rates through depreciation
expense over the useful life of the related asset. Depreciation of utility plant
is computed on a straight-line, remaining-life basis.
Replaced or retired property and removal costs less salvage are charged to the
accumulated provision for depreciation. Depreciation expense stated as a percent
of average original cost of depreciable utility plant was 3.8% and 2.3% for the
three and twelve months ended March 31, 1999, respectively, and 6.6% and 5.6%
for the three and twelve months ended March 31, 1998, respectively.
Note 2. Regulatory Matters
Recovery of Restructuring Implementation Costs
The independent system operator (ISO) assumed operational control of the
transmission system after the ISO and PX had begun accepting bids and schedules
for electricity purchases on March 31, 1998. The restructuring implementation
costs related to the start-up and development of the PX, which were paid by the
utilities, were to be recovered from all retail customers over the four-year
transition period. SCE's share of the charge is $45 million, plus interest and
fees. SCE's share of the ISO's start-up and development costs (approximately $16
million per year) will be paid over a 10-year period. In May 1998, SCE filed an
application with the CPUC to identify the categories of such costs (including
costs related to the implementation of direct access), and to establish the
reasonableness of those costs incurred in 1997. The CPUC split the application
into two phases.
Two proposed decisions on Phase 1, which addressed the eligibility of the
implementation costs, were issued on March 11, 1999. Both proposed decisions
reject SCE's request for a determination of eligibility for several major
categories of such costs. These proposed decisions further state that even for
the cost categories they approve for eligibility, costs incurred in those
categories after December 31, 1998, would not be eligible. Instead, these
proposed decisions would have SCE recover many of the costs identified in its
application from market revenue, although the decisions fail to identify the
market and no specific mechanism or authority to recover such costs from any
market has yet been established. SCE disagrees with many of the conclusions
reached in these proposed decisions and has filed comments to that effect with
the CPUC. A final CPUC decision is expected later this year. Under both of the
proposed decisions, the reasonableness of 1997 and 1998 expenditures for
eligible restructuring costs would be addressed in a separate application later
this year.
9
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Financial Instruments
Cash Equivalents
Cash and equivalents include tax-exempt investments ($51 million at March 31,
1999, $78 million at December 31, 1998, and $392 million at March 31, 1998), and
time deposits and other investments ($71 million at March 31, 1999, $4 million
at December 31, 1998, and $221 million at March 31, 1998) 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 has gas call options that mitigate SCE's 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 1999
through 2001.
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
included in the transition cost balancing account. As a result, the
mark-to-market gains or losses have no effect on earnings.
Interest rate swaps are used to reduce the potential impact of interest rate
fluctuations on floating-rate long-term debt. At March 31, 1999, December 31,
1998, and March 31, 1998, 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, 1999, SCE had pledged $26 million as collateral due to a decline in
market interest rates. 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 obligation.
10
<PAGE>
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,
In millions 1999 1998 1998
- --------------------------------------------------------------------------------------------------------
Cost Fair Cost Fair Cost Fair
Instrument Basis Value Basis Value Basis Value
- --------------------------------------------------------------------------------------------------------
Financial assets:
<S> <C> <C> <C> <C> <C> <C>
Decommissioning trusts $ 1,571 $2,311 $ 1,534 $2,240 $1,411 $2,002
Equity investments 2 29 7 72 9 109
Gas call options 37 23 39 31 47 51
Financial liabilities:
DOE decommissioning and
decontamination fees $ 45 $ 40 $ 45 $ 40 $ 50 $ 42
Interest rate swap -- 21 -- 28 -- 20
Long-term debt 5,052 5,201 5,447 5,699 5,807 6,006
Preferred stock subject to
mandatory redemption 256 272 256 274 275 295
- --------------------------------------------------------------------------------------------------------
</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 and electricity rate swaps. 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 and preferred stock;
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 (losses) on financial assets were:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
In millions 1999 1998 1998
- ------------------------------------------------------------------------------------------------------
Decommissioning trusts:
<S> <C> <C> <C>
Municipal bonds $208 $196 $ 158
Stocks 383 365 315
U.S. government issues 128 115 109
Short-term and other 21 30 9
- ------------------------------------------------------------------------------------------------------
740 706 591
Equity investments 27 65 100
Gas call options (14) (8) 4
- ------------------------------------------------------------------------------------------------------
Total $753 $763 $695
- ------------------------------------------------------------------------------------------------------
</TABLE>
There were no unrealized holding losses on financial assets for the periods
presented, other than the unrealized holding losses on the gas call options at
March 31, 1999, and December 31, 1998.
In June 1998, a new accounting standard for derivative instruments and hedging
activities was issued. The new standard, which will be effective January 1,
2000, requires all derivatives to be recognized on the balance sheet at fair
value. Gains or losses from changes in fair value would be recognized in
earnings in the period of change unless the derivative is designated as a
hedging instrument. Gains or losses from hedges of a forecasted transaction or
foreign currency exposure would be reflected in other comprehensive income.
Gains or losses from hedges of a recognized asset or liability or a firm
commitment would be reflected in earnings for the ineffective portion of the
hedge. SCE anticipates that most of its derivatives under the new standard would
qualify for hedge accounting. SCE expects to recover in rates any market price
changes from its derivatives that could potentially affect earnings.
11
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Investments
Net unrealized gains (losses) in equity investments are recorded as a separate
component of shareholders' equity under the caption: Accumulated 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.
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.
Commercial paper intended to be refinanced for a period exceeding one year and
used to finance nuclear fuel scheduled to be used more than one year after the
balance sheet date is classified as long-term debt.
Long-term debt maturities and sinking-fund requirements for the five
twelve-month periods following March 31, 1999, are: 2000--$716 million;
2001--$448 million; 2002--$446 million; 2003--$446 million; and 2004--$371
million.
In December 1997, SCE Funding LLC, a special purpose entity, 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
SCE Funding LLC 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 rate
charged to residential and small commercial customers. In spite of the legal
sale of the transition property by SCE to SCE Funding LLC, the amounts reflected
as assets on SCE's balance sheet have not been reduced by the amount of the
transition property sold, and the liabilities of SCE Funding LLC for the rate
reduction notes are for accounting purposes reflected as long-term liabilities
on the consolidated balance sheets 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 SCE Funding LLC, and there is no recourse to SCE or Edison
International.
Although SCE Funding LLC is consolidated with SCE in the financial statements,
as required by generally accepted accounting principles, SCE Funding LLC is
legally separate from SCE, and its assets are not available to creditors of SCE
or Edison International, and the transition property is legally not an asset of
SCE or Edison International.
12
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-term debt consisted of:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
In millions 1999 1998 1998
- ---------------------------------------------------------------------------------------------------------
First and refunding mortgage bonds:
<S> <C> <C> <C>
1999 - 2026 (5.625% to 7.5%) $1,550 $1,550 $1,700
Rate reduction notes:
1999 - 2007 (6.14% to 6.42%) 2,146 2,217 2,451
Pollution-control bonds:
1999 - 2027 (5.4% to 7.2% and variable) 1,201 1,201 1,202
Funds held by trustees (2) (2) (2)
Debentures and notes:
2000 - 2006 (5.875% to 8.25%) 700 700 870
Subordinated debentures:
2044 (8.375%) 100 100 100
Commercial paper for nuclear fuel 99 108 83
Long-term debt due within one year (716) (401) (568)
Unamortized debt discount-- net (26) (26) (29)
- ---------------------------------------------------------------------------------------------------------
Total $5,052 $5,447 $5,807
- ---------------------------------------------------------------------------------------------------------
</TABLE>
On April 6, 1999, SCE issued $300 million of 6.65% notes, due 2029. On April 29,
1999, SCE issued $56 million of 5.125% pollution-control bonds, due 2029.
Short-Term Debt
SCE has lines of credit it can use at negotiated or bank index rates. At March
31, 1999, available lines totaled $1.3 billion, with $800 million for short-term
debt and $500 million available for the long-term refinancing of certain
variable-rate pollution-control debt.
Short-term debt consisted of commercial paper used to finance fuel inventories,
balancing account undercollections and general cash requirements. Commercial
paper outstanding at March 31, 1999, December 31, 1998, and March 31, 1998, was
$732 million, $581 million and $428 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 4.9%, 6.0% and 5.8% at March 31, 1999,
December 31, 1998, and March 31, 1998, respectively.
Note 4. Equity
The CPUC regulates SCE's capital structure, limiting the dividends it may pay
Edison International. At March 31, 1999, SCE had the capacity to pay $700
million in additional dividends and continue to maintain its authorized capital
structure.
In 1998, SCE implemented a recently issued accounting standard that requires
companies to report comprehensive income. Implementation of the new standard had
no effect on SCE's results of operations or financial position.
13
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in SCE's common shareholder's equity for the three-month periods ended
March 31, 1998, and 1999, were as follows:
<TABLE>
<CAPTION>
Accumulated Total
Additional Other Common
Common Paid-in Comprehensive Retained Shareholder's
In millions Stock Capital Income Earnings Equity
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $2,168 $ 334 $ 48 $1,408 $3,958
- ---------------------------------------------------------------------------------------------------------------------
Net income 105 105
Unrealized gain on securities 19 19
Tax effect (8) (8)
Dividends declared on common stock (96) (96)
Dividends declared on preferred stock (7) (7)
Stock option appreciation (2) (2)
- ---------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1998 $2,168 $ 334 $ 59 $1,408 $3,969
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $2,168 $ 334 $ 39 $794 $3,335
- ---------------------------------------------------------------------------------------------------------------------
Net income 83 83
Unrealized gain on securities (8) (8)
Tax effect 2 2
Reclassified adjustment for gains
included in net income (29) (29)
Tax effect 12 12
Dividends declared on common stock (170) (170)
Dividends declared on preferred stock (6) (6)
Stock option appreciation (1) (1)
- ---------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1999 $2,168 $ 334 $ 16 $ 700 $3,218
- ---------------------------------------------------------------------------------------------------------------------
Changes in SCE's common shareholder's equity for the twelve-month periods ended
March 31, 1998, and 1999, were as follows:
- ---------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 $2,168 $ 178 $ 40 $2,603 $4,989
- ---------------------------------------------------------------------------------------------------------------------
Net income 590 590
Unrealized gain on securities 36 36
Tax effect (17) (17)
Dividends declared on common stock (1,750) (1,750)
Dividends declared on preferred stock (28) (28)
Stock option appreciation (2) (2)
Required capital stock expense and other (5) (5)
Additional investment from parent company 156 156
- ---------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1998 $2,168 $ 334 $ 59 $1,408 $3,969
- ---------------------------------------------------------------------------------------------------------------------
Net income 493 493
Unrealized gain on securities (14) (14)
Tax effect 6 6
Reclassified adjustment for gains included
in net income (59) (59)
Tax effect 24 24
Dividends declared on common stock (1,174) (1,174)
Dividends declared on preferred stock (24) (24)
Stock option appreciation (3) (3)
- ---------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1999 $2,168 $ 334 $ 16 $700 $3,218
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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
14
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1999, are: 2000 through 2002-- zero; 2003--$109 million; and
2004-- $9 million.
Cumulative preferred stock consisted of:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
Dollars in millions, except per-share amounts 1999 1998 1998
- -----------------------------------------------------------------------------------------------------------------
March 31, 1999
---------------------------
Shares Redemption
Outstanding Price
---------------------------
Not subject to mandatory redemption:
$25 par value:
<S> <C> <C> <C> <C> <C>
4.08% Series 1,000,000 $ 25.50 $ 25 $ 25 $ 25
4.24 1,200,000 25.80 30 30 30
4.32 1,653,429 28.75 41 41 41
4.78 1,296,769 25.80 33 33 33
5.80 -- -- -- -- 55
- -----------------------------------------------------------------------------------------------------------------
Total $ 129 $129 $184
- -----------------------------------------------------------------------------------------------------------------
Subject to mandatory redemption:
$100 par value:
6.05% 750,000 $ 100.00 $ 75 $ 75 $ 75
6.45 1,000,000 100.00 100 100 100
7.23 807,000 100.00 81 81 100
- ----------------------------------------------------------------------------------------------------------------
Total $ 256 $256 $275
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
In the third quarter of 1998, 10,000 shares of Series 7.23% preferred stock were
redeemed. In the second quarter of 1998, 2.2 million shares of Series 5.8%
preferred stock and 183,000 shares of Series 7.23% were redeemed. In the second
quarter of 1997, 4 million shares of Series 7.36% preferred stock were redeemed.
There were no preferred stock issuances for the periods presented.
Note 5. Income Taxes
SCE and its subsidiaries will be included in its 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.
15
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the net accumulated deferred income tax liability were:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
In millions 1999 1998 1998
- --------------------------------------------------------------------------------------------------------------
Deferred tax assets:
<S> <C> <C> <C>
Property-related $ 191 $197 $199
Unrealized gains or losses 386 387 326
Investment tax credits 148 152 157
Regulatory balancing accounts 107 96 78
Decommissioning-related 126 126 117
Other 380 473 333
- --------------------------------------------------------------------------------------------------------------
Total $1,338 $1,431 $1,210
- --------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Property-related $2,927 $3,005 $3,139
Capitalized software costs 206 196 144
Other 1,056 948 859
- --------------------------------------------------------------------------------------------------------------
Total $4,189 $4,149 $4,142
- --------------------------------------------------------------------------------------------------------------
Accumulated deferred income taxes-- net $2,851 $2,718 $2,932
- --------------------------------------------------------------------------------------------------------------
Classification of accumulated deferred income taxes:
Included in deferred credits $2,941 $2,993 $2,837
Included in current assets 90 275 (95)
</TABLE>
The current and deferred components of income tax expense were:
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
- ---------------------------------------------------------------------------------------------------------------
In millions 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------
Current:
<S> <C> <C> <C> <C>
Federal $ (6) $ 24 $420 $374
State (3) 4 94 85
- ---------------------------------------------------------------------------------------------------------------
(9) 28 514 459
- ---------------------------------------------------------------------------------------------------------------
Deferred -- federal and state:
Accrued charges 50 (30) 37 (61)
Ad valorem lien date adjustment 5 8 (5) 8
Amortization of regulatory assets 3 28 39 28
Contributions in aid of construction 4 6 (8) (2)
Depreciation (46) (73) (142) (107)
Investment and energy tax credits-- net (11) (4) (81) (20)
Rate phase-in plan -- -- -- (15)
Regulatory balancing accounts 45 109 112 225
State tax-- privilege year 35 32 3 5
Unbilled revenue 13 14 (68) 11
Other (1) 2 7 22
- ---------------------------------------------------------------------------------------------------------------
97 92 (106) 94
- ---------------------------------------------------------------------------------------------------------------
Total income tax expense $ 88 $120 $408 $553
- ---------------------------------------------------------------------------------------------------------------
Classification of income taxes:
Included in operating income $ 81 $126 $401 $612
Included in other income 7 (6) 7 (59)
</TABLE>
The composite federal and state statutory income tax rate was 40.551% for the
three- and twelve-month periods ended March 31, 1999, and 1998.
16
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
- ---------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0% 35.0%
Ad valorem lien date adjustment 2.2 0.7 (0.5) 0.1
Amortization of regulatory assets 1.9 12.3 4.3 2.4
Capitalized software (0.8) (2.7) 0.1 (1.3)
Property-related and other 12.5 3.8 6.9 7.3
Investment and energy tax credits (6.1) (1.9) (7.9) (1.7)
State tax-- net of federal deduction 6.3 5.3 7.2 6.4
- ---------------------------------------------------------------------------------------------------------------
Effective tax rate 51.0% 52.5% 45.1% 48.2%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Note 6. Employee Compensation and Benefit Plans
Employee Savings Plan
SCE has a 401(k) defined contribution savings plan designed to supplement
employees' retirement income. The plan received employer contributions of $6
million and $19 million for the three and twelve months ended March 31, 1999,
respectively; and $4 million and $15 million for the three and twelve months
ended March 31, 1998, respectively.
Pension Plan
SCE has a noncontributory, defined benefit pension plan that covers employees
meeting minimum service requirements. In April 1999, SCE adopted a cash balance
feature for its non-represented employees. SCE recognizes pension expense as
calculated by the actuarial method used for ratemaking. In 1998, SCE adopted a
new accounting standard that revises the disclosure requirements for pension
plans. Prior periods have been restated.
17
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 1999 1998 1998
- -------------------------------------------------------------------------------------------------------------------
Change in benefit obligation
<S> <C> <C> <C>
Benefit obligation at beginning of period $ 2,251 $ 2,094 $ 2,094
Service cost 18 59 14
Interest cost 38 141 35
Actuarial loss -- 90 --
Benefits paid (33) (133) (35)
- -------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of period $ 2,274 $ 2,251 $ 2,108
- -------------------------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of period $2,552 $ 2,298 $ 2,298
Actual return on plan assets 57 334 266
Employer contributions 21 53 17
Benefits paid (33) (133) (35)
- -------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of period $ 2,597 $ 2,552 $ 2,546
- -------------------------------------------------------------------------------------------------------------------
Funded status $ 323 $ 301 $ 438
Unrecognized net loss (gain) (379) (372) (524)
Unrecognized transition obligation (17-year amortization) 32 33 37
Unrecognized prior service cost 164 168 179
- ------------------------------------------------------------------------------------------------------------------
Recorded asset (liability) $ 140 $ 130 $ 130
- -------------------------------------------------------------------------------------------------------------------
Discount rate 6.75% 6.75% 7.0%
Rate of compensation increase 5.0% 5.0% 5.0%
Expected return on plan assets 7.5% 7.5% 8.0%
</TABLE>
The components of pension expense were:
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
- -------------------------------------------------------------------------------------------------------------------
In millions 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service cost $ 18 $ 14 $ 63 $ 47
Interest cost 38 35 144 139
Expected return on plan assets (48) (45) (173) (165)
Net amortization and deferral 3 4 13 13
- -------------------------------------------------------------------------------------------------------------------
Pension expense under accounting standards 11 8 47 34
Regulatory adjustment-- deferred 2 5 8 18
- -------------------------------------------------------------------------------------------------------------------
Net pension expense recognized $ 13 $ 13 $ 55 $ 52
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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,
In millions 1999 1998 1998
- ----------------------------------------------------------------------------------------------------------------
Change in benefit obligation
<S> <C> <C> <C>
Benefit obligation at beginning of period $ 1,545 $ 1,533 $ 1,533
Service cost 11 41 9
Interest cost 26 99 26
Actuarial loss (gain) -- (74) --
Benefits paid (15) (54) (16)
- ----------------------------------------------------------------------------------------------------------------
Benefit obligation at end of period $ 1,567 $ 1,545 $ 1,552
- ----------------------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of period $ 1,029 $ 815 $ 815
Actual return on plan assets 19 147 16
Employer contributions 25 121 27
Benefits paid (15) (54) (16)
- ----------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of period $ 1,058 $ 1,029 $ 842
- ---------------------------------------------------------------------------------------------------------------
Funded status $ (509) $ (516) $ (710)
Unrecognized net loss 84 84 243
Unrecognized transition obligation (20-year
amortization) 369 376 396
- ----------------------------------------------------------------------------------------------------------------
Recorded asset (liability) $ (56) $ (56) $ (71)
- ----------------------------------------------------------------------------------------------------------------
Discount rate 6.75% 6.75% 7.0%
Expected return on plan assets 7.5% 7.5% 8.0%
</TABLE>
The components of postretirement benefits other than pensions expense were:
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
- ------------------------------------------------------------------------------------------------------------------
In millions 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service cost $ 11 $ 9 $ 43 $ 32
Interest cost 26 26 99 100
Expected return on plan assets (19) (16) (65) (53)
Amortization of loss -- 1 -- 3
Amortization of transition obligation 7 7 27 27
- ------------------------------------------------------------------------------------------------------------------
Total expense $ 25 $ 27 $104 $109
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The assumed rate of future increase in the per-capita cost of health care
benefits is 8.25% for 1999, gradually decreasing to 5.0% for 2009 and beyond.
Increasing the health care cost trend rate by one percentage point would
increase the accumulated obligation as of March 31, 1999, by $268 million and
annual aggregate service and interest costs by $33 million. Decreasing the
health care cost trend rate by one percentage point would decrease the
accumulated obligation as of March 31, 1999, by $214 million and annual
aggregate service and interest costs by $25 million.
19
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Option Plans
In April 1998, 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 Edison International 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.
The prior program participated in the use of 8.2 million shares of 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 2.9 million shares of Edison
International common stock are currently outstanding to officers and senior
managers.
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, 1998, and December 31, 1997, was 3.5 million and
3.8 million shares, respectively. Under the new plan, options on 4.0 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. All Edison International stock
options granted prior to 1999 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 after
1993, dividend equivalents are subject to reduction unless certain shareholder
return performance criteria are met. Beginning with the 1999 Edison
International stock option awards, some stock options include a dividend
equivalent feature, and some stock options do not include a dividend equivalent
feature.
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 (which was dissolved in 1993) 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 $2 million and $7 million for the three and
twelve months ended March 31, 1999, respectively, and $1 million and $5 million
for the three and twelve months ended March 31, 1998, respectively.
20
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-based compensation expense under the fair-value method of accounting would
have resulted in pro forma earnings of $83 million and $493 million for the
three and twelve months ended March 31, 1999, respectively; and $105 million and
$591 million for the three and twelve months ended March 31, 1998, respectively.
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:
12 Months Ended
March 31,
- -------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------
Expected life 7 years 7 years
Risk-free interest rate 4.7% - 5.6% 5.6%
Expected volatility 17% - 18% 17%
- -------------------------------------------------------------------------------
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.
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, 1999, was:
<TABLE>
<CAPTION>
Original Accumulated
Cost of Depreciation and Under Ownership
In millions Facility Amortization Construction Interest
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Transmission systems:
<S> <C> <C> <C> <C>
Eldorado $ 30 $ 6 $ 4 60%
Pacific Intertie 238 79 5 50
Generating stations:
Four Corners Units 4 and 5 (coal) 459 299 2 48
Mohave (coal) 314 190 8 56
Palo Verde (nuclear)(1) 1,606 970 14 16
San Onofre (nuclear)(1) 4,221 2,890 66 75
- ---------------------------------------------------------------------------------------------------------------
Total $6,868 $4,434 $ 99
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Reported as "Unamortized nuclear investment -- net."
21
<PAGE>
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 noncancelable leases
at March 31, 1999, were:
Year Ended December 31, In millions
- -------------------------------------------------------------------------------
1999 $ 10
2000 11
2001 8
2002 5
2003 3
Thereafter 6
- -------------------------------------------------------------------------------
Total future commitments $ 43
- -------------------------------------------------------------------------------
Note 9. Commitments
Nuclear Decommissioning
Decommissioning is estimated to cost $1.9 billion in current-year dollars, based
on site-specific studies performed in 1998 for San Onofre and 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 estimates that it will spend
approximately $8.6 billion through 2060 to decommission its nuclear facilities.
This estimate is based on SCE's current dollar decommissioning costs, escalated
at rates ranging from 0.3% to 10.0% (depending on the cost element) annually.
These costs are expected to be funded from independent decommissioning trusts,
which currently receive contributions of approximately $100 million per year.
SCE estimates annual after-tax earnings on the decommissioning funds of 3.9% to
4.9%.
SCE plans to decommission its nuclear generating facilities 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 2025 at Palo Verde.
In December 1998, SCE requested the CPUC's approval to access its nuclear
decommissioning trust funds to commence decommissioning of San Onofre Unit 1
(shut down in 1992 pursuant to a CPUC agreement) in 2000.
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 $39 million and $164 million for the three and
twelve months ended March 31, 1999, respectively, and $40 million and $158
million for the three and twelve months ended March 31, 1998, respectively. The
accumulated provision for decommissioning, excluding San Onofre Unit 1, was $1.3
billion at March 31, 1999, $1.2 billion at December 31, 1998, and $1.1 billion
at March 31, 1998. The estimated costs to decommission San Onofre Unit 1 ($368
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 (cost basis) include:
<TABLE>
<CAPTION>
Maturity March 31, December 31, March 31,
In millions Dates 1999 1998 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal bonds 2000 - 2033 $ 581 $ 547 $ 470
Stocks -- 538 550 563
U.S. government issues 1999 - 2029 396 355 363
Short-term and other 1999 - 2030 56 82 15
- ----------------------------------------------------------------------------------------------------------------
Total $ 1,571 $1,534 $1,411
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Trust fund earnings (based on specific identification) increase the trust fund
balance and the accumulated provision for decommissioning. Net earnings were $14
million and $61 million for the three and twelve months ended March 31, 1999,
respectively; and $15 million and $58 million for the three and twelve months
ended March 31, 1998, respectively. Proceeds from sales of securities (which are
reinvested) were $379 million and $1.4 billion for the three and twelve months
ended March 31, 1999, respectively; and $208 million and $656 million for the
three and twelve months ended March 31, 1998, respectively. Approximately 90% of
the trust fund contributions were tax-deductible.
Other Commitments
SCE has fuel supply contracts which require payment only if the fuel is made
available for purchase.
SCE has power-purchase contracts with certain qualifying facilities
(cogenerators and small power producers) and other utilities. These 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 expected to provide approximately 5.5% of current
and estimated future operating capacity. SCE's minimum commitment under both
contracts is approximately $172 million through 2017.
Certain commitments for the years 1999 through 2003 are estimated below:
<TABLE>
<CAPTION>
In millions 1999 2000 2001 2002 2003
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Projected construction expenditures $916 $808 $709 $671 $623
Fuel supply contracts 161 137 124 141 124
Purchased-power capacity payments 758 787 797 703 689
Unconditional purchase obligations 6 7 7 6 7
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Note 10. Contingencies
In addition to the matters disclosed in these notes, SCE is involved in other
legal, tax and regulatory proceedings before various courts and governmental
agencies regarding matters arising in the ordinary course of business. SCE
believes the outcome of these proceedings will not materially affect its results
of operations or liquidity.
Environmental Protection
SCE is subject to numerous environmental laws and regulations, which require it
to incur substantial costs to operate existing facilities, construct and operate
new facilities, and mitigate or remove the effect of past operations on the
environment.
SCE records its environmental liabilities when site assessments and/or remedial
actions are probable and a range of reasonably likely cleanup costs can be
estimated. SCE reviews its sites and measures the liability quarterly, by
assessing a range of reasonably likely costs for each identified site using
currently available information, including existing technology, presently
enacted laws and regulations, experience gained at similar sites, and the
probable level of involvement and financial condition of other potentially
responsible parties. These estimates include costs for site investigations,
remediation, operations and maintenance, monitoring and site closure. Unless
there is a probable amount, SCE records the lower end of this reasonably likely
range of costs (classified as other long-term liabilities at undiscounted
amounts).
23
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SCE's recorded estimated minimum liability to remediate its 49 identified sites
is $169 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 $285 million. The upper limit of this range of costs
was estimated using assumptions least favorable to SCE among a range of
reasonably possible outcomes. SCE has sold all of its gas- and oil-fueled
generation plants and has retained some liability associated with the divested
properties.
The CPUC allows SCE to recover environmental-cleanup costs at 41 of its sites,
representing $87 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 $137 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-month period ended
March 31, 1999, were $9 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 $9.8
billion. SCE and other owners of the San Onofre and Palo Verde nuclear plants
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 $88 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 $175 million per nuclear incident. However, it would have to pay no
more than $20 million per incident in any one year. Such amounts include a 5%
surcharge if additional funds are needed to satisfy public liability claims and
are subject to adjustment for inflation. If the public liability limit above is
insufficient, federal regulations may impose further revenue-raising measures to
pay claims, including a possible additional assessment on all licensed reactor
operators.
24
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $22 million per year. Insurance premiums are charged to operating expense.
Spent Nuclear Fuel
Federal law requires the DOE to select and develop repositories for, and oversee
disposal of, spent nuclear fuel and high-level radioactive waste. The law
requires the DOE to provide for the disposal of spent nuclear fuel and
high-level radioactive waste from nuclear generation stations beginning January
31, 1998. However, the DOE did not meet its obligation. It is not certain when
the DOE will begin accepting spent nuclear fuel from San Onofre or from other
nuclear power plants.
SCE has paid the DOE the required one-time fee applicable to nuclear generation
at San Onofre through April 6, 1983, (approximately $24 million, plus interest).
SCE is also paying the required quarterly fee equal to one mill per
kilowatt-hour of nuclear-generated electricity sold after April 6, 1983.
SCE has primary responsibility for the interim storage of its spent nuclear fuel
at San Onofre. Current capability to store spent fuel is estimated to be
adequate through 2005. Meeting spent-fuel storage requirements beyond that
period could require new and separate interim storage facilities, the costs for
which have not been determined. Extended delays by the DOE could lead to
consideration of costly alternatives involving siting and environmental issues.
Palo Verde on-site spent fuel storage capacity will accommodate needs until 2002
for Units 1 and 2, and until 2003 for Unit 3. Arizona Public Service Company,
operating agent for Palo Verde, is constructing an interim fuel storage facility
that is expected to be completed in 2002.
SCE and other owners of nuclear power plants may be able to recover interim
storage costs arising from DOE delays in the acceptance of utility spent nuclear
fuel by pursuing relief under the terms of the contracts, as directed by the
courts, or through other court actions.
25
<PAGE>
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, 1999, were $76 million and $469 million, respectively,
compared with $98 million and $562 million for the same periods in 1998. The $22
million quarterly decrease was primarily due to the scheduled refueling outage
at San Onofre Nuclear Generating Station Unit 2. The $93 million
twelve-months-ended decrease was mainly due to lower authorized revenue, which
resulted from reduced authorized returns on generation assets and a lower
earning asset base resulting from the accelerated recovery of investments and
divestiture of gas- and oil-fueled generation plants, as well as the San Onofre
Unit 2 refueling outage.
Operating Revenue
Operating revenue increased 3% during the first quarter of 1999, compared with
the same period in 1998, due to a 3% increase in the retail sales volume of
commercial customers. For the twelve months ended March 31, 1999, operating
revenue decreased 4%. The decrease reflects lower average residential retail
rates (mandated by legislation enacted in September 1996), partially offset by
an increase in other revenue resulting from maintenance work SCE is providing
for the new owners of the divested gas- and oil-fueled plants. Over 99% of
operating revenue was from retail sales. Retail rates are regulated by the
California Public Utilities Commission (CPUC) and wholesale rates are regulated
by the Federal Energy Regulatory Commission (FERC).
Due to warmer weather during the summer months, operating revenue during the
third quarter of each year is significantly higher than other quarters.
Legislation enacted in September 1996 provided for, among other things, 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 Regulatory Environment below.
Operating Expenses
Fuel expense decreased 49% and 69%, respectively, for the three and twelve
months ended March 31, 1999, compared with the same periods in 1998, primarily
due to the sale of the gas- and oil-fueled generation plants in 1998.
Since April 1, 1998, SCE has been required to sell all of its generated power
through the power exchange (PX) and acquire all of its power from the PX to
distribute to its retail customers. These transactions with the PX are reported
as Purchased power - power exchange - net. SCE is continuing to purchase power
from certain nonutility generators (known as qualifying facilities) and under
existing contracts with other utilities. This purchased power is sold through
the PX. Excluding transactions with the PX, purchased-power expense increased
for the three months ended March 31, 1999, compared to the same period last
year, due to higher prices for required purchases from qualifying facilities.
Purchased-power expense decreased for the twelve months ended March 31, 1999,
compared to the prior-year period, due to a decrease in contract purchases as a
result of electric utility restructuring. SCE is required under federal law to
purchase power from certain qualifying facilities even though energy prices
under these contracts are generally higher than other sources. For the twelve
months ended March 31, 1999, SCE paid about $1.5 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.
26
<PAGE>
Provisions for regulatory adjustment clauses increased for both the three and
twelve months ended March 31, 1999, compared to the year-earlier periods. The
quarterly increase primarily reflects overcollections related to the difference
between generation-related revenue and generation-related costs. These
overcollections were almost completely offset by undercollections related to the
rate-making treatment of the rate reduction notes and the administration of
public-purpose funds. This rate-making treatment has allowed for the deferral of
the recovery of a portion of the transition-related costs, from a four-year
period to a 10-year period. The twelve-months-ended increase reflects
overcollections resulting from the gain on sales of the gas- and oil-fueled
generation plants during 1998 and other transition costs, as well as
overcollections related to the administration of public-purpose funds. This
increase was partially offset by the rate-making treatment of the rate reduction
notes, discussed above.
Other operating expenses increased 41% and 26%, respectively, for the three and
twelve months ended March 31, 1999, primarily due to must-run reliability
services, direct access activities, and PX and independent system operator (ISO)
costs incurred by SCE. The twelve-months-ended increase also reflects storm
damage expense resulting from the harsh winter in 1998.
Maintenance expense decreased 13% for the three months ended March 31, 1999,
compared to the same period in 1998, mainly due to lower expenses incurred at
distribution facilities.
Depreciation, decommissioning and amortization expense increased 18% for the
twelve months ended March 31, 1999, compared to the prior-year period, primarily
due to the further acceleration of recovery of San Onofre Units 2 and 3 and the
Palo Verde Nuclear Generating Station units, accelerated recovery of the gas-
and oil-fueled generation plants (before their sale during 1998), and the
amortization of the loss on plant sales. The amortization of the loss on plant
sales, as well as the accelerated recoveries implemented in 1998 are part of the
competition transition charge (CTC) mechanism.
Income taxes decreased for both the three and twelve months ended March 31,
1999, compared to the same periods in 1998, primarily due to lower pre-tax
income, as well as additional amortization related to the CTC mechanism.
Net loss (gain) on sale of utility plant increased for both the three and twelve
months ended March 31, 1999, compared to the year-earlier periods. The quarterly
increase is mainly due to the loss on sale of one plant during first quarter
1998. The twelve-months-ended increase is primarily due to the gain on sales of
the remaining gas- and oil-fueled plants in 1998. Gains were used to reduce
stranded costs. Losses will be recovered from customers over the transition
period.
Other Income and Deductions
The provision for rate phase-in plan reflected 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 was a non-cash offset to the collection of
deferred revenue.
Interest and dividend income decreased 23% for the three months ended March 31,
1999, reflecting lower investment balances during the first quarter of 1999, as
well as slightly lower interest rates. Interest and dividend income increased
12% for the twelve months ended March 31, 1999, as a result of higher investment
balances during the period and increases in interest earned on higher balancing
account undercollections.
Other nonoperating income increased for both the three and twelve months ended
March 31, 1999, when compared to the prior-year periods, primarily due to the
gains on sales of equity investments. The twelve-month-ended increase is also
due to 1997 accruals for regulatory matters.
27
<PAGE>
Interest Expense
Interest and amortization on long-term debt decreased 21% for the quarter ended
March 31, 1999, compared to the same period in 1998, mainly due to an adjustment
of accrued interest in 1998 related to the rate reduction notes issued in
December 1997, and the maturity of $320 million of debt in the second half of
1998. Interest on the rate reduction notes was $35 million and $146 million,
respectively, for the three and twelve months ended March 31, 1999, compared to
$38 million and $47 million for the same periods in 1998.
Other interest expense increased for the three months ended March 31, 1999,
compared to the same periods in 1998, mostly due to higher short-term debt
levels arising from an additional dividend payment to Edison International
during the first quarter of 1999. Other interest expense decreased for the
twelve months ended March 31, 1999, compared to the year-earlier period,
primarily due to lower overall short-term debt balances, particularly short-term
debt used to finance fuel inventories. These fuel inventories are no longer
needed because of the divestiture of the gas- and oil-fueled plants in 1998.
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
$2.8 billion (increased from $2.3 billion in July 1998) of its outstanding
shares of common stock. Edison International repurchased approximately 101
million shares ($2.4 billion) between January 1995 and March 31, 1999, funded by
dividends from its subsidiaries and the issuance of rate reduction notes.
For the first quarter of 1999, SCE's cash flow coverage of dividends decreased
to 2.2 times from 4.0 times for the year-earlier period. The quarterly decrease
is primarily due to a $75 million special dividend SCE paid to Edison
International in January 1999 for common stock repurchases. For the twelve
months ended March 31, 1999, the cash flow coverage of dividends decreased to
0.8 times from 0.9 times for the same period in 1998.
Cash Flows from Operating Activities
Net cash provided by operating activities totaled $383 million and $985 million,
respectively, for the three and twelve months ended March 31, 1999, compared
with $407 million and $1.6 billion for the same periods in 1998. Cash from
operations exceed capital requirements for all periods presented.
Cash Flows from Financing Activities
At March 31, 1999, SCE had available lines of $1.3 billion, with $800 million
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 and expire in 2002.
Short-term debt is used to finance fuel inventories 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, 1999, SCE could issue approximately $12.6 billion of
additional first and refunding mortgage bonds and $3.8 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, 1999, SCE
had the capacity to pay $700 million in additional dividends and continue to
maintain its authorized capital structure.
28
<PAGE>
In December 1997, SCE Funding LLC, a special purpose entity, 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
SCE Funding LLC 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. In spite of the
legal sale of the transition property by SCE to SCE Funding LLC, the amounts
reflected as assets on SCE's balance sheet have not been reduced by the amount
of the transition property sold to SCE Funding LLC, and the liabilities of SCE
Funding LLC 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 outstanding rate reduction notes have maturities ranging from one to nine
years, and bear interest at rates ranging from 6.14% to 6.42%. The rate
reduction notes are secured solely by the transition property and certain other
assets of SCE Funding LLC, and there is no recourse to SCE or Edison
International.
Although SCE Funding LLC is consolidated with SCE in the financial statements,
as required by generally accepted accounting principles, SCE Funding LLC is
legally separate from SCE, the assets of the SCE Funding LLC 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 Regulatory Environment
below) 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 $8.6 billion through 2060 to
decommission its nuclear facilities. This estimate is based on SCE's
current-dollar decommissioning costs ($1.9 billion), escalated at rates ranging
from 0.3% to 10.0% (depending on the cost element) annually. These costs are
expected to be funded from independent decommissioning trusts, which currently
receive SCE contributions of approximately $100 million per year. However, SCE
has requested the CPUC to authorize a reduction in the annual contributions to
the decommissioning trusts beginning in 2000. The plan to begin decommissioning
San Onofre Unit 1 in 2000, which is pending CPUC approval, is not expected to
affect SCE's annual contributions to the decommissioning trusts.
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.
As a result of the rate freeze established in the restructuring legislation,
SCE's transition costs are recovered as the residual component of rates once the
costs for distribution, transmission, public purpose programs, nuclear
decommissioning and the cost of supplying power to its customers through the PX
and ISO have already been recovered. Accordingly, more revenue will be available
to cover transition costs when market prices in the PX and ISO are low than when
PX and ISO prices are high. The PX and ISO market prices to date have generally
been reasonable, although some irregular price spikes have occurred. The ISO has
responded to price spikes in the market for reliability services (referred to as
ancillary services) by imposing a price cap of $250/MW on the market for such
services until certain actions have been completed to improve the functioning of
those markets. Similarly, the ISO currently maintains
29
<PAGE>
a cap of $250/MWh on its market for imbalance energy until adequate measures to
improve the efficient operation of the market have been implemented. The caps in
these markets mitigate the risk of costly price spikes that would reduce the
revenue available to SCE to pay transition costs. During the upcoming year, the
ISO will be considering raising these price caps, which could increase the risk
of high market prices. SCE has entered into hedges against high natural gas
prices, since increases in natural gas prices tend to raise the price of
electricity purchased from the PX. SCE has also applied to the CPUC for approval
to participate in forward purchases through a PX forward market. Furthermore,
SCE has requested permission from the CPUC to begin a pilot demand
responsiveness program that would allow customers to be paid to curtail their
load during times of very high prices. SCE is seeking approval for these high
price mitigation measures prior to mid-1999.
A 10% increase in market interest rates would result in a $7 million increase in
the fair value of SCE's interest rate hedge agreements. A 10% decrease in market
interest rates would result in a $7 million decline in the fair market value of
interest rate hedge agreements. A 10% increase in natural gas prices would
result in a $16 million increase in the fair market value of gas call options. A
10% decrease in natural gas prices would result in an $11 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: 1999--
$916 million; 2000-- $808 million; 2001-- $709 million; 2002-- $671 million; and
2003-- $623 million.
Long-term debt maturities and sinking fund requirements for the five
twelve-month periods following March 31, 1999, are: 2000 -- $716 million; 2001
- -- $448 million; 2002 -- $446 million; 2003 -- $446 million; and 2004 -- $371
million.
Preferred stock redemption requirements for the five twelve-month periods
following March 31, 1999, are: 2000 through 2002-- zero; 2003-- $109 million;
and 2004-- $9 million.
Regulatory 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
as a result of a 1995 CPUC decision on restructuring and state legislation
enacted in 1996. The Statute substantially adopted the CPUC's 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. The Statute 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 allowed SCE to reduce
rates by at least 10% to these customers, effective January 1, 1998. The Statute
mandated other rates to remain frozen at June 1996 levels (system average of
10.1(cent) per kilowatt-hour), including those for large commercial and
industrial customers, and included 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 Statute mandated the
implementation of the CTC (see detailed discussion below) that provides
utilities the opportunity to recover costs made uneconomic by electric utility
restructuring. The new market structure began on April 1, 1998.
Revenue and Cost-Recovery Mechanisms
In 1999, revenue is being determined by various mechanisms depending on the
utility operation. Revenue related to distribution operations is being
determined through a performance-based rate-making mechanism (PBR) and the
distribution assets have the opportunity to earn a CPUC-authorized 9.49% return.
The distribution-only PBR will extend through December 2001. Transmission
revenue is being
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determined through FERC-authorized rates and transmission assets earn a 9.43%
return. These rates are subject to refund. Key elements of PBR include:
transmission and distribution (T&D) rates indexed for inflation based on the
Consumer Price Index less a productivity factor; 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.
SCE's transition costs 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 1995 restructuring decision date. SCE has
estimated its transition costs to be approximately $10.6 billion (1998 net
present value) from 1998 through 2030. This estimate was based on incurred
costs, forecasts of future costs and assumed market prices. However, changes in
the assumed market prices could materially affect these estimates. Transition
costs related to power-purchase contracts are being recovered through the terms
of their contracts while most of the remaining transition costs will be
recovered through 2001. The potential transition costs are comprised of $6.4
billion from SCE's qualifying facilities contracts, which are the direct result
of prior legislative and regulatory mandates, and $4.2 billion (which reflects
the 1998 sale of SCE's gas- and oil-fueled generation plants) from costs
pertaining to certain generating assets 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 , and
certain other costs. During 1998, SCE sold all of its gas- and oil-fueled
generation plants for $1.2 billion, over $500 million more than the combined
book value. Net proceeds of the sales were used to reduce stranded costs, which
otherwise were expected to be collected through the CTC mechanism. If events
occur during the restructuring process that result in all or a portion of the
transition costs being improbable of recovery, SCE could have write-offs
associated with these costs if they are not recovered through another regulatory
mechanism.
Revenue from generation-related operations is being determined through the
competitive market and the CTC mechanism, which now includes the nuclear
rate-making agreements. 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. SCE's costs associated
with its hydroelectric plants are being recovered through a performance-based
mechanism. The mechanism sets the hydroelectric revenue requirement 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. In 1999, fossil and hydroelectric generation assets will earn a 7.22%
return.
The CPUC has authorized revised rate-making plans for SCE's nuclear facilities,
which call for the accelerated recovery of the 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 an approximately $20
million negative impact on 1999 earnings.
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The CPUC is considering unbundling SCE's cost of capital by authorizing separate
rates of return for generation, transmission, and distribution operations. In
May 1998, SCE filed an application on this issue and hearings were completed in
October 1998. On April 22, 1999, a proposed decision, which would reduce SCE's
return on common equity to 10.6% from its current rate of 11.6%, and an
alternate decision, which would keep the rate at 11.6%, were issued. If the
10.6% rate is adopted, it would have an approximately $25 million negative
impact on 1999 earnings. A final CPUC decision is expected in May.
Restructuring Implementation Costs
The ISO assumed operational control of the transmission system after the ISO and
PX had begun accepting bids and schedules for electricity purchases on March 31,
1998. The restructuring implementation costs related to the start-up and
development of the PX, which are paid by the utilities, were to be recovered
from all retail customers over the four-year transition period. SCE's share of
the charge is $45 million, plus interest and fees. SCE's share of the ISO's
start-up and development costs (approximately $16 million per year) will be paid
over a 10-year period. In May 1998, SCE filed an application with the CPUC to
identify the categories of such costs (including costs related to the
implementation of direct access) and to establish the reasonableness of those
costs incurred in 1997. The CPUC split the application into two phases.
Two proposed decisions on Phase 1, which addressed the eligibility of the
implementation costs, were issued on March 11, 1999. Both of these proposed
decisions reject SCE's request for a determination of eligibility for several
major categories of such costs. These proposed decisions further state that even
for the cost categories they approve for eligibility, costs incurred in those
categories after December 31, 1998, would not be eligible. Instead, these
proposed decisions would have SCE recover many of the costs identified in its
application from market revenue, although the decisions fail to identify the
market and no specific mechanism or authority to recover such costs from any
market has yet been established. SCE disagrees with much of the conclusions
reached in these proposed decisions and has filed comments to that effect with
the CPUC. A final CPUC decision is expected later this year. Under both of the
proposed decisions, the reasonableness of 1997 and 1998 expenditures for
eligible restructuring costs would be addressed in a separate application later
this year.
Accounting for Generation-Related Assets
If the CPUC's electric industry restructuring plan continues as described above,
SCE would be allowed to recover its transition costs 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). In
1997, SCE discontinued application of accounting principles for rate-regulated
enterprises for its investment in generation facilities based on new accounting
guidance. The financial reporting effect of this discontinuance was to segregate
these assets on the balance sheet; the new guidance did not require SCE to write
off any of its generation-related assets, including related regulatory assets.
However, the new guidance did not specifically address the application of asset
impairment standards to these assets. SCE has retained these assets on its
balance sheet because the Statute and restructuring plan referred to above make
probable their recovery through a non-bypassable CTC to distribution customers.
The regulatory assets relate primarily to the recovery of accelerated income tax
benefits previously flowed through to customers, purchased power contract
termination payments and unamortized losses on reacquired debt. The new
accounting guidance also permits the recording of new generation-related
regulatory assets during the transition period that are probable of recovery
through the CTC mechanism.
During the second quarter of 1998, additional guidance was developed related to
the application of asset impairment standards to these assets. Using this
guidance resulted in SCE reducing its remaining nuclear plant investment by $2.6
billion (as of June 30, 1998) and recording a regulatory asset on its balance
sheet for the same amount. For this impairment assessment, the fair value of the
investment was calculated by discounting future net cash flows. This
reclassification had no effect on SCE's results of operations.
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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 (approximately $2.7
billion, after tax, at March 31, 1999) as a one-time, non-cash charge against
earnings. At this time, SCE cannot predict what other revisions will ultimately
be made during the restructuring process in subsequent proceedings or the
effect, after the transition period, that competition will have on its results
of operations or financial position.
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 49 identified sites
is $169 million. One of SCE's sites, a former pole-treating facility, is
considered a federal Superfund site and represents 41% 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 $285
million. The upper limit of this range of costs was estimated using assumptions
least favorable to SCE among a range of reasonably possible outcomes. SCE has
sold all of its gas- and oil-fueled power plants and has retained some liability
associated with the divested properties.
The CPUC allows SCE to recover environmental-cleanup costs at 41 of its sites,
representing $87 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 $137 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, 1999, were $9 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
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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 environmental capital expenditures are $900 million for the
1999--2003 period, mainly for aesthetics treatment, including undergrounding
certain transmission and distribution lines.
The possibility that exposure to electric and magnetic fields (EMF) emanating
from power lines, household appliances and other electric sources may result in
adverse health effects 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 in 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. A favorable
or decreasing trend in degradation was observed during inspection in the
scheduled refueling outage in January 1999. The results of the January 1999
inspection are being analyzed to determine if there is a need for a mid-cycle
inspection outage in early 2000. With the results from the January 1999 outage,
7.5% of the tubes have now been removed from service. In September 1998, San
Onofre Unit 2 experienced a small amount of leakage from a steam generator tube
plug, which required an 11-day outage to repair.
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 were performed
during the scheduled refueling outage in April 1999. These inspections also
indicated the erosion has stabilized. A complete inspection of the steam
generator tubes was conducted. Results obtained were within expectations. To
date, 5.4% 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.
New Accounting Rules
In June 1997, a new accounting standard for reporting operating segment
information was issued. The new standard, which became effective for financial
reports issued after December 15, 1998, requires that operating segment
information be disclosed in the Notes to the Consolidated Financial Statements.
Since, in management's view, SCE currently operates as one segment, this
standard did not to affect SCE's consolidated financial statements and the
accompanying notes to the consolidated financial statements.
In June 1998, a new accounting standard for derivative instruments and hedging
activities was issued. The new standard, which will be effective January 1,
2000, requires all derivatives to be recognized on the balance sheet at fair
value. Gains or losses from changes in fair value would be recognized in
earnings
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in the period of change unless the derivative is designated as a hedging
instrument. Gains or losses from hedges of a forecasted transaction or foreign
currency exposure would be reflected in other comprehensive income. Gains or
losses from hedges of a recognized asset or liability or a firm commitment would
be reflected in earnings for the ineffective portion of the hedge. SCE
anticipates that most of its derivatives under the new standard would qualify
for hedge accounting. SCE expects to recover in rates any market price changes
from its derivatives that could potentially affect earnings. Accordingly,
implementation of this new standard is not expected to affect earnings.
Year 2000 Issue
Many of SCE's existing computer systems were originally programmed to represent
any date by using six digits (e.g., 12/31/99) rather than eight digits (e.g.,
12/31/1999). Accordingly, such programs, if not appropriately addressed, could
fail or create erroneous results when attempting to process information
containing dates after December 31, 1999. This situation has been referred to
generally as the Year 2000 Issue.
SCE has a comprehensive program in place to address potential Year 2000 impacts.
Edison International provides overall coordination of this effort, working with
SCE and its departments. SCE divides Year 2000 activities into five phases:
inventory, impact assessment, remediation, testing and implementation. SCE's
objective for the Year 2000 readiness of critical systems is to be 100% complete
by July 1999. A critical system is defined as those applications and systems,
including embedded processor technology, which if not appropriately remediated,
may have a significant impact on customers, the health and safety of the public
and/or personnel, the revenue stream, or regulatory compliance. SCE was 80%
complete at year-end 1998 (the goal was 75%) and is on track to meets its July
1999 goal. A system, application or physical asset is deemed to be Year
2000-ready if it is determined by SCE to be suitable for continued use through
2028 (or through the last year of the anticipated life of the asset, whichever
occurs first), even though it may not be fully Year 2000-compliant. A system,
application, or physical asset is Year 2000-compliant if it accurately processes
date/time data.
SCE has structured the scope of the program to focus on three principal
categories: mainframe computing, distributed computing and physical assets (also
known as embedded processors). The mainframe and distributed computing assets
consist of computer application systems (software). Physical assets include
information technology infrastructure (hardware, operating system software) and
embedded processor technology in generation, transmission, distribution, and
facilities components.
Year 2000-readiness preparations for SCE's mainframe financial systems were
completed in the fourth quarter of 1997, and preparations for SCE's material
management system were completed in the second quarter of 1998. SCE's customer
information and billing system is being replaced by a new Customer Service
System designed and constructed to be Year 2000-ready. SCE's distributed
computing assets include operations and business information systems. SCE's
critical operations information systems include outage management, power
management, and plant monitoring and access retrieval systems. SCE's critical
business information systems include a data acquisition system for billing, the
computer call center support system, credit support and maintenance management.
Ongoing efforts in 1999 will continue to focus on guarding against
reintroduction of components that are not Year 2000-ready into Year 2000-ready
systems.
The other essential component of the Year 2000 program is to identify and assess
vendor products and business partners for Year 2000 readiness, as these external
parties may have the potential to impact SCE's Year 2000 readiness. SCE has
implemented a process to identify and contact vendors and business partners to
determine their Year 2000 status. Evaluation of responses and other follow-up
activities are continuing. SCE's general policy requires that all newly
purchased products and services be Year 2000-ready or otherwise designed to
allow SCE to determine whether such products and services present Year 2000
issues. SCE is also working to address Year 2000 issues related to all ISO and
PX interfaces, as well as joint ownership facilities. SCE exchanges Year
2000-readiness information (including, but not limited to, test results and
related data) with certain of its affiliates and other external parties as part
of its Year 2000-readiness efforts.
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SCE's current estimate of the cost of these modifications, including the cost of
new hardware and software application modification, is $72 million, about 40% of
which is expected to be capital costs. SCE's Year 2000 costs expended through
March 31, 1999, were $44 million. SCE expects current rate levels for providing
electric service to be sufficient to provide funding for utility-related
modifications.
Although SCE expects that its critical facilities, systems, information
technology infrastructure and physical assets will be fully Year 2000-ready
prior to year-end 1999, there can be no assurance that the facilities, systems,
infrastructure and physical assets of other companies on which the systems and
operations of SCE rely will be converted on a timely basis. SCE believes that
prudent business practices call for development of contingency plans. These
plans include provisions for monitoring, validating and managing the continued
performance of SCE Year 2000-sensitive systems and assets during critical
transition periods, development of work-arounds and expedited fix-on-failure
strategies. Where appropriate, contingency plans include scheduling of key
personnel, identification of alternate suppliers, and securing adequate on-site
supplies of critical materials.
SCE has implemented a Year 2000 contingency planning process as a part of its
Year 2000 Remediation Program. Each SCE department is required to assess the
Year 2000 risks, including both internal and external risks and dependencies,
associated with critical systems and assets, that are date aware or date
sensitive. This includes assessment of Year 2000 risks for all indispensable or
critical business processes and key facilities.
Where appropriate, the plans utilize or supplement the existing Corporate
Emergency Response and Recovery Plan, and Information Technology disaster
recovery plan, for identified Year 2000-related events. The SCE Year 2000
contingency plans are being developed to coordinate and interface with the
California ISO and the PX and to satisfy Western System Coordinating Council
(WSCC) and North America Electric Reliability Council (NERC) recommendations and
Nuclear Energy Institute guidelines. SCE is working with these industry groups,
as well as the Electric Power Research Institute, in the development of
contingency plans. These plans are in the final stages of completion and are
expected to be ready by June 30, 1999. SCE will be reporting on its contingency
plans to the CPUC by July 1, 1999. Contingency plans will be used in conducting
SCE and electric industry drills throughout the rest of 1999. However, it is
expected that contingency plans will continue to be revised and enhanced as 2000
approaches.
Although the SCE Year 2000 contingency plans are being developed using
risk-based methods, the plans are being evaluated against the NERC/WSCC
suggested "More Probable" and "Credible Worst Case Scenarios." SCE believes that
the most likely worst case scenario would be small, localized interruptions of
service which would be restored in a timeframe that is within normal service
levels.
SCE does not expect the Year 2000 Issue to have a material adverse effect on its
results of operation or financial position; however, if not effectively
remediated, and despite the adoption of contingency plans, negative effects from
Year 2000 issues, including those related to internal systems, vendors, business
partners, the ISO, the PX or customers, could cause results to differ.
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 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; the effects of the Year 2000 Issue; and
other unforeseen events.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
Geothermal Generators' Litigation
On June 9, 1997, SCE filed a complaint in Los Angeles County Superior Court
against an independent power producer of geothermal generation and six of its
affiliated entities (Coso parties). SCE alleges that in order to avoid power
production plant shutdowns caused by excessive noncondensable gas in the
geothermal field brine, the Coso parties 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 Coso parties of their obligations under their contracts with SCE
and applicable law. The complaint sought termination of the contracts and
damages for excess power purchase payments made to the Coso parties. The Coso
parties' motion to transfer venue to Inyo County Superior Court was granted on
August 31, 1997. On June 1, 1998, the court struck SCE's request for termination
of the contracts, leaving SCE with its claim for damages and other relief. On
February 16, 1999, the court denied the Coso parties' motion for judgment on the
pleadings directed to SCE's first amended complaint.
The Coso parties have also asserted various claims against SCE, The Mission
Group, and Mission Power Engineering Company (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 Coso parties in Inyo County Superior Court. In
November 1997, the court struck all but two causes of action asserted in the
separate action on the grounds that they should have been raised as part of the
Coso parties' cross-complaint, and ordered the remaining two causes of action
consolidated for all purposes with the action filed by SCE.
The Coso parties subsequently filed second and third amended cross-complaints.
The third amended cross-complaint names SCE, the Mission parties and Edison
International. As against SCE, the third amended cross-complaint purports to
state causes of action for declaratory relief, breach of the covenant of good
faith and fair dealing; inducing breach of agreements between the Coso parties
and their former employees; breach of an earlier settlement agreement between
the Mission parties and the Coso parties; slander and disparagement, injunctive
relief and restitution for unfair business practices; anticipatory breach of the
contracts; and violations of Public Utilities Code ss.ss. 453, 702 and 2106. As
against the Mission parties, the third amended cross-complaint seeks damages for
breach of warranty of authority with respect to the settlement agreement, and
for equitable indemnity. The Coso parties voluntarily dismissed Edison
International from the third amended cross-complaint on December 4, 1998. As
against SCE, the third amended cross-complaint seeks restitution, compensatory
damages in excess of $115 million, punitive damages in an amount not less than
$400 million, interest, attorney's fees, declaratory relief, and injunctive
relief.
On September 21, 1998, SCE filed an answer to the third amended cross-complaint
generally denying the allegations contained therein and asserting affirmative
defenses. In addition, SCE filed a cross-complaint for reformation of the
contracts alleging that if they are not susceptible to SCE's interpretation,
they should be reformed to reflect the parties' true intention. SCE subsequently
voluntarily filed a first amended cross-complaint. The Coso defendants demurred
to SCE's first amended cross-complaint and, in January 1999, their demurrer was
sustained with leave to amend. On February 26, 1999, SCE filed a second amended
cross-complaint for reformation.
Following various pre-trial motions filed by the Mission parties and Edison
International, the Coso Parties purported to file a fourth amended
cross-complaint on December 23, 1998, against the Mission Parties only. The
Mission Parties' demurrer to and motion to strike directed to the fourth amended
cross-complaint was heard and taken under submission on March 10, 1999.
On December 15, 1998, the Court granted the Coso parties leave to file a second
amended complaint in the separately filed (now consolidated) action. The second
amended complaint, which names SCE and Edison International, alleges that SCE
engaged in anti-competitive conduct, false advertising, and conduct proscribed
by Public Utilities Code ss. 2106, and seeks injunctive relief, restitution, and
punitive damages. On January 20, 1999, SCE filed three motions to strike several
portions of the second amended complaint on
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the grounds, among others, that the CPUC or FERC have either exclusive or
primary jurisdiction over the matters asserted therein, and that SCE's alleged
conduct was in furtherance of constitutionally protected rights of free speech
and petition and therefore not actionable. These matters were heard on February
22, 1999, and taken under submission at that time. Edison International also
filed a demurrer and motion to strike the second amended complaint. The Court
denied the motion to strike and overruled the demurrer on March 22, 1999.
On April 1, 1999, the Court signed a stipulation and order submitted by the
parties staying all proceedings to allow the parties to engage in settlement
discussions. The stay is in effect for a period of 60 days through and including
May 30, 1999, subject to the right of any party to terminate the stay on or
after April 29, 1999. As a result of the stay, all discovery has been suspended.
Furthermore, during the period of the stay, the Court will not issue orders or
rulings on matters taken under submission.
The Court has set a trial date of March 1, 2000, but, in light of the stay
currently in effect, has reserved jurisdiction to advance or to continue the
trial date. The materiality of net final judgments against SCE in these actions
would be largely dependent on the extent to which any damages or additional
payments which might result therefrom are recoverable through rates.
San Onofre Personal Injury Litigation
SCE is actively involved in three lawsuits claiming personal injuries allegedly
resulting from exposure to radiation at San Onofre. 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 and the Institute of Nuclear Power Operations as
defendants. All trial court proceedings were stayed pending ruling of the Ninth
Circuit Court of Appeal, on an appeal of a lower court's judgment in favor of
SCE in two earlier cases raising similar allegations. On May 28, 1998, the Court
of Appeal affirmed these judgments. Pursuant to an agreement of the parties as
described below, all proceedings in this matter have been stayed.
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 trial in this case resulted in a jury verdict for both
defendants. The plaintiffs' motion for a new trial was denied. Plaintiffs filed
an appeal of the trial court's judgment to the Ninth Circuit Court of Appeal.
Briefing on the appeal was completed in January 1999 and the parties are
awaiting a date for oral argument to be set by the court. A decision is not
expected until early 2000.
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. On August 12, 1996,
the Court dismissed the claims of the former worker and her husband with
prejudice, leaving only the son as plaintiff. Pursuant to an agreement of the
parties as described below, all proceedings in this matter have been stayed.
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 case was
removed to the U.S. District Court for the Southern District of California. On
May 11, 1998, the plaintiffs filed a first amended complaint. On May 22, 1998,
SCE filed an answer denying the material allegations of the first amended
complaint. Pursuant to a stipulation of the parties, the court, on January 4,
1999, dismissed the plaintiffs' complaint in this matter with prejudice.
In March of 1999, SCE reached an agreement with the plaintiffs in both of the
above cases currently pending at the U.S. District Court level to stay all
proceedings including trial, pending the results of the case currently before
the Ninth Circuit Court of Appeal. The parties agreed that if the
plaintiffs/petitioners do not receive a favorable determination on appeal then
the two cases at the District Court level will be dismissed. If, however, the
plaintiffs/petitioners receive a favorable determination on appeal, then the two
District Court cases will be set for trial. On March 23, 1999, the District
Court approved the parties' stay agreement in both these cases.
38
<PAGE>
SCE was previously involved, along with other defendants, in two earlier cases
raising allegations similar to those described above. Although as indicated
above SCE was successful in removing itself from those actions, and is no longer
actively involved in them, the impact on SCE, if any, from further proceedings
in these cases against the remaining defendants can not be determined at this
time.
Mohave Generating Station Environmental Litigation
On February 19, 1997, 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
Mohave Generating Station. The lawsuit alleges that Mohave has been violating
various provisions of the Clean Air Act (CAA), the Nevada state implementation
plan, certain EPA 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 CAA, 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 pending the court's
ruling on a motion to dismiss filed by the defendants. The plaintiffs filed an
opposition to the defendants' motion to dismiss as well as a separate motion for
partial summary judgment on May 8, 1998. The initial ruling by the court on the
motions was (prior to the stay of proceedings described below) expected in early
1999.
On June 4, 1998, the plaintiffs served SCE and its co-owners with a 60-day
supplemental notice of intent to sue. This supplemental notice identified
additional causes of action as well as an additional plaintiff (National Parks
and Conservation Association) to be added to the proceedings. On November 12,
1998, the court bifurcated the liability and damage phases of the case.
On December 8, 1998, defendants filed a supplemental memorandum in support of
defendants' opposition to plaintiffs' motion for partial summary judgment. On
February 4, 1999, plaintiffs filed their first amended complaint to add the
National Parks and Conservation Association as a plaintiff in the action. On
March 10, 1999, defendants filed a motion for partial summary judgment. On March
11, 1999, plaintiffs filed a motion for partial summary judgment to establish
emission limit violations as alleged in certain of the causes of action in their
first amended complaint.
On March 8, 1999, the parties filed a stipulated request for a 60-day stay which
was granted and ordered, by the court on March 9, 1999. Settlement discussions
are ongoing.
39
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
Bylaw Amendment to Reduce Maximum and Minimum Board Size
At SCE's Annual Meeting of Shareholders on April 15, 1999 ("Annual Meeting"),
shareholders approved a Bylaw Amendment to reduce the maximum and minimum Board
size. The number of affirmative and negative votes, abstentions and broker
non-votes with respect to the Bylaw Amendment were as follows:
<TABLE>
<CAPTION>
Broker
Affirmative Negative Abstentions Non-votes
----------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Common Stock 434,888,104 0 0 0
Cum. Preferred Stock 6,349,314 109,650 142,398 0
$100 Cum. Pref. Stock 244,600 0 0 0
</TABLE>
Election of Directors
At SCE's Annual Meeting, shareholders also elected fourteen 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:
Number of Votes
- -------------------------------------------------------------------------------
Name For Withheld
- ----------------------------------------------------------------------------
John E. Bryson 441,633,062 101,004
Winston H. Chen 441,644,330 89,736
` Warren Christopher 441,579,224 154,842
Stephen E. Frank 441,651,530 82,536
Joan C. Hanley 441,634,826 99,240
Carl F. Huntsinger 441,644,126 89,940
Charles D. Miller 441,643,910 90,156
Luis G. Nogales 441,631,580 102,486
Ronald L. Olson 441,646,130 87,936
James M. Rosser 441,636,098 97,968
Robert H. Smith 441,647,186 86,880
Thomas C. Sutton 441,647,636 86,430
Daniel M. Tellep 441,644,432 89,634
Edward Zapanta 441,639,260 94,806
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Certificate of Amendment and Restated Articles of Incorporation of SCE
effective 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 SCE
dated June 23, 1997 (File No. 1-2313, Form 10-Q for the quarter ended
September 30, 1997)*
3.3 Amended Bylaws of Southern California Edison Company as adopted by the
Board of Directors on April 15, 1999
10. Form of Agreement for 1999 Employee Awards under the Equity
Compensation Plan
23. Consent of Independent Public Accountants
27. Financial Data Schedule
40
<PAGE>
(b) Reports on Form 8-K:
March 31, 1999 Item 5: Other Events: $300 million note financing*
- ---------------------
* Incorporated by reference pursuant to Rule 12b-32.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHERN CALIFORNIA EDISON COMPANY
(Registrant)
By THOMAS M. NOONAN
----------------------------------
THOMAS M. NOONAN
Vice President and Controller
By KENNETH S. STEWART
-----------------------------------
KENNETH S. STEWART
Assistant General Counsel and
Assistant Secretary
May 13, 1999
To Holders of the Company's Bylaws:
Effective April 15, 1999, Article III,
Section 2, was amended to change the authorized
number of directors from not less than fifteen
nor more than twenty to not less than nine nor more than seventeen.
BEVERLY P. RYDER
Corporate Secretary
BYLAWS
OF
SOUTHERN CALIFORNIA EDISON COMPANY
AS AMENDED TO AND INCLUDING
APRIL 15, 1999
<PAGE>
INDEX
Page
----
ARTICLE I -- PRINCIPAL OFFICE
Section 1. Principal Office...............................................1
ARTICLE II -- SHAREHOLDERS
Section 1. Meeting Locations..............................................1
Section 2. Annual Meetings................................................1
Section 3. Special Meetings...............................................2
Section 4. Notice of Annual or Special Meeting............................2
Section 5. Quorum.........................................................4
Section 6. Adjourned Meeting and Notice Thereof...........................4
Section 7. Voting.........................................................4
Section 8. Record Date....................................................6
Section 9. Consent of Absentees...........................................7
Section 10. Action Without Meeting.........................................7
Section 11. Proxies........................................................8
Section 12. Inspectors of Election.........................................8
ARTICLE III -- DIRECTORS
Section 1. Powers.........................................................9
Section 2. Number of Directors...........................................10
Section 3. Election and Term of Office...................................10
Section 4. Vacancies.....................................................10
Section 5. Place of Meeting..............................................11
Section 6. Regular Meetings..............................................11
Section 7. Special Meetings..............................................11
Section 8. Quorum........................................................12
Section 9. Participation in Meetings by Conference Telephone.............12
Section 10. Waiver of Notice..............................................12
Section 11. Adjournment...................................................13
Section 12. Fees and Compensation.........................................13
Section 13. Action Without Meeting........................................13
Section 14. Rights of Inspection..........................................13
Section 15. Committees....................................................13
<PAGE>
ARTICLE IV -- OFFICERS
Section 1. Officers......................................................14
Section 2. Election......................................................15
Section 3. Eligibility of Chairman or President..........................15
Section 4. Removal and Resignation.......................................15
Section 5. Appointment of Other Officers.................................15
Section 6. Vacancies.....................................................15
Section 7. Salaries......................................................16
Section 8. Furnish Security for Faithfulness.............................16
Section 9. Chairman's Duties; Succession to
Such Duties in Chairman's Absence or Disability......16
Section 10. President's Duties............................................16
Section 11. Chief Financial Officer.......................................17
Section 12. Vice President's Duties.......................................17
Section 13. General Counsel's Duties......................................17
Section 14. Associate General Counsel's and Assistant General
Counsel's Duties.....................................17
Section 15. Controller's Duties...........................................17
Section 16. Assistant Controllers' Duties.................................17
Section 17. Treasurer's Duties............................................18
Section 18. Assistant Treasurers' Duties..................................18
Section 19. Secretary's Duties............................................18
Section 20. Assistant Secretaries' Duties.................................19
Section 21. Secretary Pro Tempore.........................................19
Section 22. Election of Acting Treasurer or Acting Secretary..............19
Section 23. Performance of Duties.........................................20
ARTICLE V -- OTHER PROVISIONS
Section 1. Inspection of Corporate Records...............................20
Section 2. Inspection of Bylaws..........................................21
Section 3. Contracts and Other Instruments, Loans, Notes
and Deposits of Funds.................................21
Section 4. Certificates of Stock.........................................22
Section 5. Transfer Agent, Transfer Clerk and Registrar..................22
Section 6. Representation of Shares of Other Corporations................22
<PAGE>
ARTICLE V -- OTHER PROVISIONS (Cont.)
Section 7. Stock Purchase Plans..........................................23
Section 8. Fiscal Year and Subdivisions..................................23
Section 9. Construction and Definitions..................................23
ARTICLE VI -- INDEMNIFICATION
Section 1. Indemnification of Directors and Officers.....................24
Section 2. Indemnification of Employees and Agents.......................25
Section 3. Right of Directors and Officers to Bring Suit.................26
Section 4. Successful Defense............................................26
Section 5. Non-Exclusivity of Rights.....................................26
Section 6. Insurance.....................................................26
Section 7. Expenses as a Witness.........................................27
Section 8. Indemnity Agreements..........................................27
Section 9. Separability..................................................27
Section 10. Effect of Repeal or Modification..............................27
ARTICLE VII -- EMERGENCY PROVISIONS
Section 1. General.......................................................27
Section 2. Unavailable Directors.........................................28
Section 3. Authorized Number of Directors................................28
Section 4. Quorum........................................................28
Section 5. Creation of Emergency Committee...............................28
Section 6. Constitution of Emergency Committee...........................29
Section 7. Powers of Emergency Committee.................................29
Section 8. Directors Becoming Available..................................29
Section 9. Election of Board of Directors................................29
Section 10. Termination of Emergency Committee............................30
ARTICLE VIII -- AMENDMENTS
Section 1. Amendments....................................................30
<PAGE>
BYLAWS
Bylaws for the regulation, except as otherwise provided
by statute or its Articles of Incorporation
of
SOUTHERN CALIFORNIA EDISON COMPANY
AS AMENDED TO AND INCLUDING
APRIL 15, 1999
ARTICLE I -- PRINCIPAL OFFICE
Section 1. Principal Office.
The Edison General Office, situated at 2244 Walnut Grove Avenue, in the
City of Rosemead, County of Los Angeles, State of California, is hereby fixed as
the principal office for the transaction of the business of the corporation.
ARTICLE II -- SHAREHOLDERS
Section 1. Meeting Locations.
All meetings of shareholders shall be held at the principal office of the
corporation or at such other place or places within or without the State of
California as may be designated by the Board of Directors (the "Board"). In the
event such places shall prove inadequate in capacity for any meeting of
shareholders, an adjournment may be taken to and the meeting held at such other
place of adequate capacity as may be designated by the officer of the
corporation presiding at such meeting.
Section 2. Annual Meetings.
The annual meeting of shareholders shall be held on the third Thursday of
the month of April of each year at 10:00 a.m. on said day to elect directors to
hold office for the year next ensuing and until their successors shall be
elected, and to consider and act upon such other matters as may lawfully be
presented to such meeting; provided, however, that should said day fall upon a
legal holiday, then any such annual meeting of shareholders shall be held at the
same time and place on the next day thereafter ensuing which is not a legal
holiday.
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<PAGE>
Section 3. Special Meetings.
Special meetings of the shareholders may be called at any time by the
Board, the Chairman of the Board, the President, or upon written request of any
three members of the Board, or by the holders of shares entitled to cast not
less than ten percent of the votes at such meeting. Upon request in writing to
the Chairman of the Board, the President, any Vice President or the Secretary by
any person (other than the Board) entitled to call a special meeting of
shareholders, the officer forthwith shall cause notice to be given to the
shareholders entitled to vote that a meeting will be held at a time requested by
the person or persons calling the meeting, not less than thirty-five nor more
than sixty days after the receipt of the request. If the notice is not given
within twenty days after receipt of the request, the persons entitled to call
the meeting may give the notice.
Section 4. Notice of Annual or Special Meeting.
Written notice of each annual or special meeting of shareholders shall be
given not less than ten (or if sent by third-class mail, thirty) nor more than
sixty days before the date of the meeting to each shareholder entitled to vote
thereat. Such notice shall state the place, date, and hour of the meeting and
(i) in the case of a special meeting, the general nature of the business to be
transacted, and no other business may be transacted, or (ii) in the case of an
annual meeting, those matters which the Board, at the time of the mailing of the
notice, intends to present for action by the shareholders, but, subject to the
provisions of applicable law and these Bylaws, any proper matter may be
presented at an annual meeting for such action. The notice of any special or
annual meeting at which directors are to be elected shall include the names of
nominees intended at the time of the notice to be presented by the Board for
election. For any matter to be presented by a shareholder at an annual meeting
held after December 31, 1993, but on or before December 31, 1999, including the
nomination of any person (other than a person nominated by or at the direction
of the Board) for election to the Board, written notice must be received by the
Secretary of the corporation from the shareholder not less than sixty nor more
than one hundred twenty days prior to the date of the annual meeting specified
in these Bylaws and to which the shareholder's notice relates; provided however,
that in the event the annual meeting to which the shareholder's written notice
relates is to be held on a date which is more than thirty days earlier than the
date of the annual meeting specified in these Bylaws, the notice from a
shareholder must be received by the Secretary not later than the close of
business on the tenth day following the date on which public disclosure of the
date of the annual meeting was made or given to the shareholders. For any matter
to be presented by a shareholder at an annual meeting held after December 31,
1999, including the nomination of any person (other than a person
2
<PAGE>
nominated by or at the direction of the Board) for election to the Board,
written notice must be received by the Secretary of the corporation from the
shareholder not more than one hundred eighty days nor less than one hundred
twenty days prior to the date on which the proxy materials for the prior year's
annual meeting were first released to shareholders by the corporation; provided
however, that in the event the annual meeting to which the shareholder's written
notice relates is to be held on a date which is more than thirty days earlier or
later than the date of the annual meeting specified in these Bylaws, the notice
from a shareholder must be received by the Secretary not earlier than two
hundred twenty days prior to the date of the annual meeting to which the
shareholder's notice relates nor later than one hundred sixty days prior to the
date of such annual meeting, unless less than one hundred seventy days' prior
public disclosure of the date of the meeting is made by the earliest possible
quarterly report on Form 10-Q, or, if impracticable, any means reasonably
calculated to inform shareholders including without limitation a report on Form
8-K, a press release or publication once in a newspaper of general circulation
in the county in which the principal office is located, in which event notice by
the shareholder to be timely must be received not later than the close of
business on the tenth day following the date of such public disclosure. The
shareholder's notice to the Secretary shall set forth (a) a brief description of
each matter to be presented at the annual meeting by the shareholder; (b) the
name and address, as they appear on the corporation's books, of the shareholder;
(c) the class and number of shares of the corporation which are beneficially
owned by the shareholder; and (d) any material interest of the shareholder in
the matters to be presented. Any shareholder who intends to nominate a candidate
for election as a director shall also set forth in such a notice (i) the name,
age, business address and residence address of each nominee that he or she
intends to nominate at the meeting, (ii) the principal occupation or employment
of each nominee, (iii) the class and number of shares of capital stock of the
corporation beneficially owned by each nominee, and (iv) any other information
concerning the nominee that would be required under the rules of the Securities
and Exchange Commission in a proxy statement soliciting proxies for the election
of the nominee. The notice shall also include a consent, signed by the
shareholder's nominees, to serve as a director of the corporation if elected.
Notwithstanding anything in these Bylaws to the contrary, and subject to the
provisions of any applicable law, no business shall be conducted at a special or
annual meeting except in accordance with the procedures set forth in this
Section 4.
Notice of a shareholders' meeting shall be given either personally or by
first-class mail (or, if the outstanding shares of the corporation are held of
record by 500 or more persons on the record date for the meeting, by third-class
mail) or by other means of written communication, addressed to the shareholder
at the address of such shareholder appearing on the books of the corporation or
given by the shareholder to the corporation for the purpose of notice; or, if no
such
3
<PAGE>
address appears or is given, at the place where the principal office of the
corporation is located or by publication at least once in a newspaper of general
circulation in the county in which the principal office is located. Notice by
mail shall be deemed to have been given at the time a written notice is
deposited in the United States mails, postage prepaid. Any other written notice
shall be deemed to have been given at the time it is personally delivered to the
recipient or is delivered to a common carrier for transmission, or actually
transmitted by the person giving the notice by electronic means, to the
recipient.
Section 5. Quorum.
A majority of the shares entitled to vote, represented in person or by
proxy, shall constitute a quorum at any meeting of shareholders. The affirmative
vote of a majority of the shares represented and voting at a duly held meeting
at which a quorum is present (which shares voting affirmatively also constitute
at least a majority of the required quorum) shall be the act of the
shareholders, unless the vote of a greater number or voting by classes is
required by law or the Articles; provided, however, that the shareholders
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to have less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 6. Adjourned Meeting and Notice Thereof.
Any shareholders' meeting, whether or not a quorum is present, may be
adjourned from time to time by the vote of a majority of the shares, the holders
of which are either present in person or represented by proxy thereat, but in
the absence of a quorum (except as provided in Section 5 of this Article) no
other business may be transacted at such meeting.
It shall not be necessary to give any notice of the time and place of the
adjourned meeting or of the business to be transacted thereat, other than by
announcement at the meeting at which such adjournment is taken. At the adjourned
meeting, the corporation may transact any business which might have been
transacted at the original meeting. However, when any shareholders' meeting is
adjourned for more than forty-five days or, if after adjournment a new record
date is fixed for the adjourned meeting, notice of the adjourned meeting shall
be given as in the case of an original meeting.
Section 7. Voting.
The shareholders entitled to notice of any meeting or to vote at any such
meeting shall be only persons in whose name shares stand on the stock records
4
<PAGE>
of the corporation on the record date determined in accordance with Section
8 of this Article.
Voting shall in all cases be subject to the provisions of Chapter 7 of the
California General Corporation Law, and to the following provisions:
(a) Subject to clause (g), shares held by an administrator, executor,
guardian, conservator or custodian may be voted by such holder either in person
or by proxy, without a transfer of such shares into the holder's name; and
shares standing in the name of a trustee may be voted by the trustee, either in
person or by proxy, but no trustee shall be entitled to vote shares held by such
trustee without a transfer of such shares into the trustee's name.
(b) Shares standing in the name of a receiver may be voted by such
receiver; and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into the receiver's name if authority
to do so is contained in the order of the court by which such receiver was
appointed.
(c) Subject to the provisions of Section 705 of the California General
Corporation Law and except where otherwise agreed in writing between the
parties, a shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
(d) Shares standing in the name of a minor may be voted and the corporation
may treat all rights incident thereto as exercisable by the minor, in person or
by proxy, whether or not the corporation has notice, actual or constructive, of
the non-age unless a guardian of the minor's property has been appointed and
written notice of such appointment given to the corporation.
(e) Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent or proxyholder as the bylaws of
such other corporation may prescribe or, in the absence of such provision, as
the Board of Directors of such other corporation may determine or, in the
absence of such determination, by the chairman of the board, president or any
vice president of such other corporation, or by any other person authorized to
do so by the chairman of the board, president or any vice president of such
other corporation. Shares which are purported to be voted or any proxy purported
to be executed in the name of a corporation (whether or not any title of the
person signing is indicated) shall be presumed to be voted or the proxy executed
in accordance with the provisions of this subdivision, unless the contrary is
shown.
(f) Shares of the corporation owned by any of its subsidiaries shall not be
entitled to vote on any matter.
5
<PAGE>
(g) Shares of the corporation held by the corporation in a fiduciary
capacity, and shares of the corporation held in a fiduciary capacity by any of
its subsidiaries, shall not be entitled to vote on any matter, except to the
extent that the settlor or beneficial owner possesses and exercises a right to
vote or to give the corporation binding instructions as to how to vote such
shares.
(h) If shares stand of record in the names of two or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, husband
and wife as community property, tenants by the entirety, voting trustees,
persons entitled to vote under a shareholder voting agreement or otherwise, or
if two or more persons (including proxyholders) have the same fiduciary
relationship respecting the same shares, unless the secretary of the corporation
is given written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it is
so provided, their acts with respect to voting shall have the following effect:
(i) If only one votes, such act binds all;
(ii) If more than one vote, the act of the majority so voting binds
all;
(iii) If more than one vote, but the vote is evenly split on any
particular matter, each faction may vote the securities in
question proportionately.
If the instrument so filed or the registration of the shares shows that any such
tenancy is held in unequal interests, a majority or even split for the purpose
of this section shall be a majority or even split in interest.
No shareholder of any class of stock of this corporation shall be entitled
to cumulate votes at any election of directors of this corporation.
Elections for directors need not be by ballot; provided, however, that all
elections for directors must be by ballot upon demand made by a shareholder at
the meeting and before the voting begins.
In any election of directors, the candidates receiving the highest number
of votes of the shares entitled to be voted for them up to the number of
directors to be elected by such shares are elected.
Section 8. Record Date.
The Board may fix, in advance, a record date for the determination of the
shareholders entitled to notice of any meeting or to vote or entitled to receive
payment of any dividend or other distribution, or any allotment of rights, or to
6
<PAGE>
exercise rights in respect of any other lawful action. The record date so fixed
shall be not more than sixty days nor less than ten days prior to the date of
the meeting nor more than sixty days prior to any other action. When a record
date is so fixed, only shareholders of record at the close of business on that
date are entitled to notice of and to vote at the meeting or to receive the
dividend, distribution, or allotment of rights, or to exercise the rights, as
the case may be, notwithstanding any transfer of shares on the books of the
corporation after the record date, except as otherwise provided by law or these
Bylaws. A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board fixes a new record date for the adjourned meeting. The Board
shall fix a new record date if the meeting is adjourned for more than forty-five
days.
If no record date is fixed by the Board, the record date for determining
shareholders entitled to notice of or to vote at a meeting of shareholders shall
be at the close of business on the business day next preceding the day on which
notice is given or, if notice is waived, at the close of business on the
business day next preceding the day on which the meeting is held. The record
date for determining shareholders for any purpose other than as set forth in
this Section 8 or Section 10 of this Article shall be at the close of business
on the day on which the Board adopts the resolution relating thereto, or the
sixtieth day prior to the date of such other action, whichever is later.
Section 9. Consent of Absentees.
The transactions of any meeting of shareholders, however called and
noticed, and wherever held, are as valid as though had at a meeting duly held
after regular call and notice, if a quorum is present either in person or by
proxy, and if, either before or after the meeting, each of the persons entitled
to vote, not present in person or by proxy, signs a written waiver of notice or
a consent to the holding of the meeting or an approval of the minutes thereof.
All such waivers, consents or approvals shall be filed with the corporate
records or made a part of the minutes of the meeting. Neither the business to be
transacted at nor the purpose of any regular or special meeting of shareholders
need be specified in any written waiver of notice, consent to the holding of the
meeting or approval of the minutes thereof, except as provided in Section 601
(f) of the California General Corporation Law.
Section 10. Action Without Meeting.
Subject to Section 603 of the California General Corporation Law, any
action which, under any provision of the California General Corporation Law, may
be taken at any annual or special meeting of shareholders may be taken without a
meeting and without prior notice if a consent in writing, setting forth the
7
<PAGE>
action so taken, shall be signed by the holders of outstanding shares having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Unless a record date for voting purposes be fixed as provided
in Section 8 of this Article, the record date for determining shareholders
entitled to give consent pursuant to this Section 10, when no prior action by
the Board has been taken, shall be the day on which the first written consent is
given.
Section 11. Proxies.
Every person entitled to vote shares has the right to do so either in
person or by one or more persons, not to exceed three, designated by a proxy
authorized by such shareholder or the shareholder's attorney in fact and filed
with the corporation, in accordance with Cal. Corp. Code ss.178. Subject to the
following sentence, any proxy duly authorized continues in full force and effect
until revoked by the person authorizing it prior to the vote pursuant thereto by
a writing delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy authorized by the person authorizing the prior proxy and
presented to the meeting, or by attendance at the meeting and voting in person
by the person authorizing the proxy; provided, however, that a proxy is not
revoked by the death or incapacity of the maker unless, before the vote is
counted, written notice of such death or incapacity is received by this
corporation. No proxy shall be valid after the expiration of eleven months from
the date of its authorization unless otherwise provided in the proxy.
Section 12. Inspectors of Election.
In advance of any meeting of shareholders, the Board may appoint any
persons other than nominees as inspectors of election to act at such meeting and
any adjournment thereof. If inspectors of election are not so appointed, or if
any persons so appointed fail to appear or refuse to act, the chairman of any
such meeting may, and on the request of any shareholder or shareholder's proxy
shall, make such appointments at the meeting. The number of inspectors shall be
either one or three. If appointed at a meeting on the request of one or more
shareholders or proxies, the majority of shares present shall determine whether
one or three inspectors are to be appointed.
The duties of such inspectors shall be as prescribed by Section 707 (b) of
the California General Corporation Law and shall include: determining the number
of shares outstanding and the voting power of each, the shares represented at
the meeting, the existence of a quorum, and the authenticity, validity and
effect of proxies; receiving votes, ballots or consents; hearing and
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determining all challenges and questions in any way arising in connection with
the right to vote; counting and tabulating all votes or consents; determining
when the polls shall close; determining the result; and doing such acts as may
be proper to conduct the election or vote with fairness to all shareholders. If
there are three inspectors of election, the decision, act or certificate of a
majority is effective in all respects as the decision, act or certificate of
all. Any report or certificate made by the inspectors of election is prima facie
evidence of the facts stated therein.
ARTICLE III -- DIRECTORS
Section 1. Powers.
Subject to limitations of the Articles, of these Bylaws and of the
California General Corporation Law relating to action required to be approved by
the shareholders or by the outstanding shares, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the Board. The Board may delegate the management of the
day-to-day operation of the business of the corporation provided that the
business and affairs of the corporation shall be managed and all corporate
powers shall be exercised under the ultimate direction of the Board. Without
prejudice to such general powers, but subject to the same limitations, it is
hereby expressly declared that the Board shall have the following powers in
addition to the other powers enumerated in these Bylaws:
(a) To select and remove all the other officers, agents and employees of
the corporation, prescribe the powers and duties for them as may not be
inconsistent with law, with the Articles or these Bylaws, fix their compensation
and require from them security for faithful service.
(b) To conduct, manage and control the affairs and business of the
corporation and to make such rules and regulations therefor not inconsistent
with law, or with the Articles or these Bylaws, as they may deem best.
(c) To adopt, make and use a corporate seal, and to prescribe the forms of
certificates of stock, and to alter the form of such seal and of such
certificates from time to time as in their judgment they may deem best.
(d) To authorize the issuance of shares of stock of the corporation from
time to time, upon such terms and for such consideration as may be lawful.
(e) To borrow money and incur indebtedness for the purposes of the
corporation, and to cause to be executed and delivered therefor, in the
corporate
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name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations or other evidences of debt and securities therefor.
Section 2. Number of Directors.
The authorized number of directors shall be not less than nine nor more
than seventeen until changed by amendment of the Articles or by a Bylaw duly
adopted by the shareholders. The exact number of directors shall be fixed,
within the limits specified, by the Board by adoption of a resolution or by the
shareholders in the same manner provided in these Bylaws for the amendment
thereof.
Section 3. Election and Term of Office.
The directors shall be elected at each annual meeting of the shareholders,
but if any such annual meeting is not held or the directors are not elected
thereat, the directors may be elected at any special meeting of shareholders
held for that purpose. Each director shall hold office until the next annual
meeting and until a successor has been elected and qualified.
Section 4. Vacancies.
Any director may resign effective upon giving written notice to the
Chairman of the Board, the President, the Secretary or the Board, unless the
notice specifies a later time for the effectiveness of such resignation. If the
resignation is effective at a future time, a successor may be elected to take
office when the resignation becomes effective.
Vacancies in the Board, except those existing as a result of a removal of a
director, may be filled by a majority of the remaining directors, though less
than a quorum, or by a sole remaining director, and each director so elected
shall hold office until the next annual meeting and until such director's
successor has been elected and qualified. Vacancies existing as a result of a
removal of a director may be filled by the shareholders as provided by law.
A vacancy or vacancies in the Board shall be deemed to exist in case of the
death, resignation or removal of any director, or if the authorized number of
directors be increased, or if the shareholders fail, at any annual or special
meeting of shareholders at which any director or directors are elected, to elect
the full authorized number of directors to be voted for at that meeting.
The Board may declare vacant the office of a director who has been declared
of unsound mind by an order of court or convicted of a felony.
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The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors. Any such election by written
consent other than to fill a vacancy created by removal requires the consent of
a majority of the outstanding shares entitled to vote. If the Board accepts the
resignation of a director tendered to take effect at a future time, the Board or
the shareholders shall have power to elect a successor to take office when the
resignation is to become effective.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of the director's term of office.
Section 5. Place of Meeting.
Regular or special meetings of the Board shall be held at any place within
or without the State of California which has been designated from time to time
by the Board or as provided in these Bylaws. In the absence of such designation,
regular meetings shall be held at the principal office of the corporation.
Section 6. Regular Meetings.
Promptly following each annual meeting of shareholders the Board shall hold
a regular meeting for the purpose of organization, election of officers and the
transaction of other business.
Regular meetings of the Board shall be held at the principal office of the
corporation without notice on the third Thursday of the months of February,
April, May, July and September, and on the second Thursday in December, at the
hour of 9:00 a.m. or as soon thereafter as the regular meeting of the Board of
Directors of Edison International is adjourned, and on the third Thursday in
March, at the hour of 8:00 a.m. or as soon thereafter as the regular meeting of
the Board of Directors of Edison International is adjourned. Call and notice of
all regular meetings of the Board are not required.
Section 7. Special Meetings.
Special meetings of the Board for any purpose or purposes may be called at
any time by the Chairman of the Board, the President, any Vice President, the
Secretary or by any two directors.
Special meetings of the Board shall be held upon four days' written notice
or forty-eight hours' notice given personally or by telephone, telegraph, telex,
facsimile, electronic mail or other similar means of communication. Any such
notice shall be addressed or delivered to each director at such director's
address as it is shown upon the records of the corporation or as may have been
given to
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the corporation by the director for purposes of notice or, if such
address is not shown on such records or is not readily ascertainable, at the
place in which the meetings of the directors are regularly held. The notice need
not specify the purpose of such special meeting.
Notice by mail shall be deemed to have been given at the time a written
notice is deposited in the United States mail, postage prepaid. Any other
written notice shall be deemed to have been given at the time it is personally
delivered to the recipient or is delivered to a common carrier for transmission,
or actually transmitted by the person giving the notice by electronic means to
the recipient. Oral notice shall be deemed to have been given at the time it is
communicated, in person or by telephone, radio or other similar means to the
recipient or to a person at the office of the recipient who the person giving
the notice has reason to believe will promptly communicate it to the recipient.
Section 8. Quorum.
One-third of the number of authorized directors constitutes a quorum of the
Board for the transaction of business, except to adjourn as provided in Section
ll of this Article. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the Board, unless a greater number is required by law or
by the Articles; provided, however, that a meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum for such meeting.
Section 9. Participation in Meetings by Conference Telephone.
Members of the Board may participate in a meeting through use of conference
telephone or similar communications equipment, so long as all members
participating in such meeting can hear one another. Such participation
constitutes presence in person at such meeting.
Section 10. Waiver of Notice.
The transactions of any meeting of the Board, however called and noticed or
wherever held, are as valid as though had at a meeting duly held after regular
call and notice if a quorum is present and if, either before or after the
meeting, each of the directors not present signs a written waiver of notice, a
consent to holding such meeting or an approval of the minutes thereof. All such
waivers, consents or approvals shall be filed with the corporate records or made
a part of the minutes of the meeting.
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Section 11. Adjournment.
A majority of the directors present, whether or not a quorum is present,
may adjourn any directors' meeting to another time and place. Notice of the time
and place of holding an adjourned meeting need not be given to absent directors
if the time and place is fixed at the meeting adjourned. If the meeting is
adjourned for more than twenty-four hours, notice of any adjournment to another
time or place shall be given prior to the time of the adjourned meeting to the
directors who were not present at the time of the adjournment.
Section 12. Fees and Compensation.
Directors and members of committees may receive such compensation, if any,
for their services, and such reimbursement for expenses, as may be fixed or
determined by the Board.
Section 13. Action Without Meeting.
Any action required or permitted to be taken by the Board may be taken
without a meeting if all members of the Board shall individually or collectively
consent in writing to such action. Such written consent or consents shall have
the same force and effect as a unanimous vote of the Board and shall be filed
with the minutes of the proceedings of the Board.
Section 14. Rights of Inspection.
Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records and documents of every kind and to inspect
the physical properties of the corporation and also of its subsidiary
corporations, domestic or foreign. Such inspection by a director may be made in
person or by agent or attorney and includes the right to copy and make extracts.
Section 15. Committees.
The Board may appoint one or more committees, each consisting of two or
more directors, to serve at the pleasure of the Board. The Board may delegate to
such committees any or all of the authority of the Board except with respect to:
(a) The approval of any action for which the California General Corporation
Law also requires shareholders' approval or approval of the outstanding shares;
(b) The filling of vacancies on the Board or in any committee;
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(c) The fixing of compensation of the directors for serving on the Board or
on any committee;
(d) The amendment or repeal of Bylaws or the adoption of new Bylaws;
(e) The amendment or repeal of any resolution of the Board which by its
express terms is not so amendable or repealable;
(f) A distribution to the shareholders of the corporation except at a rate
or in a periodic amount or within a price range determined by the Board; or
(g) The appointment of other committees of the Board or the members
thereof.
Any such committee, or any member or alternate member thereof, must be
appointed by resolution adopted by a majority of the exact number of authorized
directors as specified in Section 2 of this Article. The Board shall have the
power to prescribe the manner and timing of giving of notice of regular or
special meetings of any committee and the manner in which proceedings of any
committee shall be conducted. In the absence of any such prescription, such
committee shall have the power to prescribe the manner in which its proceedings
shall be conducted. Unless the Board or such committee shall otherwise provide,
the regular and special meetings and other actions of any such committee shall
be governed by the provisions of this Article applicable to meetings and actions
of the Board. Minutes shall be kept of each meeting of each committee.
ARTICLE IV -- OFFICERS
Section 1. Officers.
The officers of the corporation shall be a Chairman of the Board, a
President, a Chief Financial Officer, one or more Vice Presidents, a General
Counsel, one or more Associate General Counsel, one or more Assistant General
Counsel, a Controller, one or more Assistant Controllers, a Treasurer, one or
more Assistant Treasurers, a Secretary and one or more Assistant Secretaries,
and such other officers as may be elected or appointed in accordance with
Section 5 of this Article. The Board, the Chairman of the Board or the President
may confer a special title upon any Vice President not specified herein. Any
number of offices of the corporation may be held by the same person.
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Section 2. Election.
The officers of the corporation, except such officers as may be elected or
appointed in accordance with the provisions of Section 5 or Section 6 of this
Article, shall be chosen annually by, and shall serve at the pleasure of the
Board, and shall hold their respective offices until their resignation, removal,
or other disqualification from service, or until their respective successors
shall be elected.
Section 3. Eligibility of Chairman or President.
No person shall be eligible for the office of Chairman of the Board or
President unless such person is a member of the Board of the corporation; any
other officer may or may not be a director.
Section 4. Removal and Resignation.
Any officer may be removed, either with or without cause, by the Board at
any time or by any officer upon whom such power or removal may be conferred by
the Board. Any such removal shall be without prejudice to the rights, if any, of
the officer under any contract of employment of the officer.
Any officer may resign at any time by giving written notice to the
corporation, but without prejudice to the rights, if any, of the corporation
under any contract to which the officer is a party. Any such resignation shall
take effect at the date of the receipt of such notice or at any later time
specified therein and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 5. Appointment of Other Officers.
The Board may appoint such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in the Bylaws or as the
Board may from time to time determine.
Section 6. Vacancies.
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled at any time deemed
appropriate by the Board in the manner prescribed in these Bylaws for regular
election or appointment to such office.
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Section 7. Salaries.
The salaries of the Chairman of the Board, President, Chief Financial
Officer, Vice Presidents, General Counsel, Controller, Treasurer and Secretary
of the corporation shall be fixed by the Board. Salaries of all other officers
shall be as approved from time to time by the chief executive officer.
Section 8. Furnish Security for Faithfulness.
Any officer or employee shall, if required by the Board, furnish to the
corporation security for faithfulness to the extent and of the character that
may be required.
Section 9. Chairman's Duties; Succession to Such Duties in
Chairman's Absence or Disability.
The Chairman of the Board shall be the chief executive officer of the
corporation and shall preside at all meetings of the shareholders and of the
Board. Subject to the Board, the Chairman of the Board shall have charge of the
business of the corporation, including the construction of its plants and
properties and the operation thereof. The Chairman of the Board shall keep the
Board fully informed, and shall freely consult them concerning the business of
the corporation.
In the absence or disability of the Chairman of the Board, the President
shall act as the chief executive officer of the corporation; in the absence or
disability of the Chairman of the Board and the President, the next in order of
election by the Board of the Vice Presidents shall act as chief executive
officer of the corporation.
In the absence or disability of the Chairman of the Board, the President
shall act as Chairman of the Board at meetings of the Board; in the absence or
disability of the Chairman of the Board and the President, the next, in order of
election by the Board, of the Vice Presidents who is a member of the Board shall
act as Chairman of the Board at any such meeting of the Board; in the absence or
disability of the Chairman of the Board, the President, and such Vice Presidents
who are members of the Board, the Board shall designate a temporary Chairman to
preside at any such meeting of the Board.
Section 10. President's Duties.
The President shall perform such other duties as the Chairman of the Board
shall delegate or assign to such officer.
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Section 11. Chief Financial Officer.
The Chief Financial Officer of the corporation shall be the chief
consulting officer in all matters of financial import and shall have control
over all financial matters concerning the corporation.
Section 12. Vice Presidents' Duties.
The Vice Presidents shall perform such other duties as the chief executive
officer shall designate.
Section 13. General Counsel's Duties.
The General Counsel shall be the chief consulting officer of the
corporation in all legal matters and, subject to the chief executive officer,
shall have control over all matters of legal import concerning the corporation.
Section 14. Associate General Counsel's and Assistant General
Counsel's Duties.
The Associate General Counsel shall perform such of the duties of the
General Counsel as the General Counsel shall designate, and in the absence or
disability of the General Counsel, the Associate General Counsel, in order of
election to that office by the Board at its latest organizational meeting, shall
perform the duties of the General Counsel. The Assistant General Counsel shall
perform such duties as the General Counsel shall designate.
Section 15. Controller's Duties.
The Controller shall be the chief accounting officer of the Corporation
and, subject to the Chief Financial Officer, shall have control over all
accounting matters concerning the Corporation and shall perform such other
duties as the Chief Executive Officer shall designate.
Section 16. Assistant Controllers' Duties.
The Assistant Controllers shall perform such of the duties of the
Controller as the Controller shall designate, and in the absence or disability
of the Controller, the Assistant Controllers, in order of election to that
office by the Board at its latest organizational meeting, shall perform the
duties of the Controller.
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Section 17. Treasurer's Duties.
It shall be the duty of the Treasurer to keep in custody or control all
money, stocks, bonds, evidences of debt, securities and other items of value
that may belong to, or be in the possession or control of, the corporation, and
to dispose of the same in such manner as the Board or the chief executive
officer may direct, and to perform all acts incident to the position of
Treasurer.
Section 18. Assistant Treasurers' Duties.
The Assistant Treasurers shall perform such of the duties of the Treasurer
as the Treasurer shall designate, and in the absence or disability of the
Treasurer, the Assistant Treasurers, in order of election to that office by the
Board at its latest organizational meeting, shall perform the duties of the
Treasurer, unless action is taken by the Board as contemplated in Article IV,
Section 22.
Section 19. Secretary's Duties.
The Secretary shall keep or cause to be kept full and complete records of
the proceedings of shareholders, the Board and its committees at all meetings,
and shall affix the corporate seal and attest by signing copies of any part
thereof when required.
The Secretary shall keep, or cause to be kept, a copy of the Bylaws of the
corporation at the principal office in accordance with Section 213 of the
California General Corporation Law.
The Secretary shall be the custodian of the corporate seal and shall affix
it to such instruments as may be required.
The Secretary shall keep on hand a supply of blank stock certificates of
such forms as the Board may adopt.
The Secretary shall serve or cause to be served by publication or
otherwise, as may be required, all notices of meetings and of other corporate
acts that may by law or otherwise be required to be served, and shall make or
cause to be made and filed in the principal office of the corporation, the
necessary certificate or proofs thereof.
An affidavit of mailing of any notice of a shareholders' meeting or of any
report, in accordance with the provisions of Section 601 (b) of the California
General Corporation Law, executed by the Secretary shall be prima facie evidence
of the fact that such notice or report had been duly given.
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The Secretary may, with the Chairman of the Board, the President, or a Vice
President, sign certificates of ownership of stock in the corporation, and shall
cause all certificates so signed to be delivered to those entitled thereto.
The Secretary shall keep all records required by the California General
Corporation Law.
The Secretary shall generally perform the duties usual to the office of
secretary of corporations, and such other duties as the chief executive officer
shall designate.
Section 20. Assistant Secretaries' Duties.
Assistant Secretaries shall perform such of the duties of the Secretary as
the Secretary shall designate, and in the absence or disability of the
Secretary, the Assistant Secretaries, in the order of election to that office by
the Board at its latest organizational meeting, shall perform the duties of the
Secretary, unless action is taken by the Board as contemplated in Article IV,
Sections 21 and 22 of these Bylaws.
Section 21. Secretary Pro Tempore.
At any meeting of the Board or of the shareholders from which the Secretary
is absent, a Secretary pro tempore may be appointed and act.
Section 22. Election of Acting Treasurer or Acting Secretary.
The Board may elect an Acting Treasurer, who shall perform all the duties
of the Treasurer during the absence or disability of the Treasurer, and who
shall hold office only for such a term as shall be determined by the Board.
The Board may elect an Acting Secretary, who shall perform all the duties
of the Secretary during the absence or disability of the Secretary, and who
shall hold office only for such a term as shall be determined by the Board.
Whenever the Board shall elect either an Acting Treasurer or Acting
Secretary, or both, the officers of the corporation as set forth in Article IV,
Section 1 of these Bylaws, shall include as if therein specifically set out, an
Acting Treasurer or an Acting Secretary, or both.
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Section 23. Performance of Duties.
Officers shall perform the duties of their respective offices as stated in
these Bylaws, and such additional duties as the Board shall designate.
ARTICLE V -- OTHER PROVISIONS
Section 1. Inspection of Corporate Records.
(a) A shareholder or shareholders holding at least five percent in the
aggregate of the outstanding voting shares of the corporation or who hold at
least one percent of such voting shares and have filed a Schedule 14B with the
United States Securities and Exchange Commission relating to the election of
directors of the corporation shall have an absolute right to do either or both
of the following:
(i) Inspect and copy the record of shareholders' names and addresses
and shareholdings during usual business hours upon five business
days' prior written demand upon the corporation; or
(ii) Obtain from the transfer agent, if any, for the corporation, upon
five business days' prior written demand and upon the tender of
its usual charges for such a list (the amount of which charges
shall be stated to the shareholder by the transfer agent upon
request), a list of the shareholders' names and addresses who are
entitled to vote for the election of directors and their
shareholdings, as of the most recent record date for which it has
been compiled or as of a date specified by the shareholder
subsequent to the date of demand.
(b) The record of shareholders shall also be open to inspection and copying
by any shareholder or holder of a voting trust certificate at any time during
usual business hours upon written demand on the corporation, for a purpose
reasonably related to such holder's interest as a shareholder or holder of a
voting trust certificate.
(c) The accounting books and records and minutes of proceedings of the
shareholders and the Board and committees of the Board shall be open to
inspection upon written demand on the corporation of any shareholder or holder
of a voting trust certificate at any reasonable time during usual business
hours, for a purpose reasonably related to such holder's interests as a
shareholder or as a holder of such voting trust certificate.
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(d) Any such inspection and copying under this Article may be made in
person or by agent or attorney.
Section 2. Inspection of Bylaws.
The corporation shall keep in its principle office the original or a copy
of these Bylaws as amended to date, which shall be open to inspection by
shareholders at all reasonable times during office hours.
Section 3. Contracts and Other Instruments, Loans, Notes and
Deposits of Funds.
The Chairman of the Board, the President, or a Vice President, either alone
or with the Secretary or an Assistant Secretary, or the Secretary alone, shall
execute in the name of the corporation such written instruments as may be
authorized by the Board and, without special direction of the Board, such
instruments as transactions of the ordinary business of the corporation may
require and, such officers without the special direction of the Board may
authenticate, attest or countersign any such instruments when deemed
appropriate. The Board may authorize any person, persons, entity, entities,
attorney, attorneys, attorney-in-fact, attorneys-in-fact, agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the corporation, and such authority may be general or confined to
specific instances.
No loans shall be contracted on behalf of the corporation and no evidences
of such indebtedness shall be issued in its name unless authorized by the Board
as it may direct. Such authority may be general or confined to specific
instances.
All checks, drafts, or other similar orders for the payment of money,
notes, or other such evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, agent or agents of the
corporation and in such manner as the Board or chief executive officer may
direct.
Unless authorized by the Board or these Bylaws, no officer, agent, employee
or any other person or persons shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or amount.
All funds of the corporation not otherwise employed shall be deposited from
time to time to the credit of the corporation in such banks, trust companies, or
other depositories as the Board may direct.
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Section 4. Certificates of Stock.
Every holder of shares of the corporation shall be entitled to have a
certificate signed in the name of the corporation by the Chairman of the Board,
the President, or a Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary, certifying the number of
shares and the class or series of shares owned by the shareholder. Any or all of
the signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
Certificates for shares may be used prior to full payment under such
restrictions and for such purposes as the Board may provide; provided, however,
that on any certificate issued to represent any partly paid shares, the total
amount of the consideration to be paid therefor and the amount paid thereon
shall be stated.
Except as provided in this Section, no new certificate for shares shall be
issued in lieu of an old one unless the latter is surrendered and canceled at
the same time. The Board may, however, if any certificate for shares is alleged
to have been lost, stolen or destroyed, authorize the issuance of a new
certificate in lieu thereof, and the corporation may require that the
corporation be given a bond or other adequate security sufficient to indemnify
it against any claim that may be made against it (including expense or
liability) on account of the alleged loss, theft or destruction of such
certificate or the issuance of such new certificate.
Section 5. Transfer Agent, Transfer Clerk and Registrar.
The Board may, from time to time, appoint transfer agents, transfer clerks,
and stock registrars to transfer and register the certificates of the capital
stock of the corporation, and may provide that no certificate of capital stock
shall be valid without the signature of the stock transfer agent or transfer
clerk, and stock registrar.
Section 6. Representation of Shares of Other Corporations.
The chief executive officer or any other officer or officers authorized by
the Board or the chief executive officer are each authorized to vote, represent
and exercise on behalf of the corporation all rights incident to any and all
shares of any other corporation or corporations standing in the name of the
corporation.
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The authority herein granted may be exercised either by any such officer in
person or by any other person authorized so to do by proxy or power of attorney
duly executed by said officer.
Section 7. Stock Purchase Plans.
The corporation may adopt and carry out a stock purchase plan or agreement
or stock option plan or agreement providing for the issue and sale for such
consideration as may be fixed of its unissued shares, or of issued shares
acquired, to one or more of the employees or directors of the corporation or of
a subsidiary or to a trustee on their behalf and for the payment for such shares
in installments or at one time, and may provide for such shares in installments
or at one time, and may provide for aiding any such persons in paying for such
shares by compensation for services rendered, promissory notes or otherwise.
Any such stock purchase plan or agreement or stock option plan or agreement
may include, among other features, the fixing of eligibility for participation
therein, the class and price of shares to be issued or sold under the plan or
agreement, the number of shares which may be subscribed for, the method of
payment therefor, the reservation of title until full payment therefor, the
effect of the termination of employment and option or obligation on the part of
the corporation to repurchase the shares upon termination of employment,
restrictions upon transfer of the shares, the time limits of and termination of
the plan, and any other matters, not in violation of applicable law, as may be
included in the plan as approved or authorized by the Board or any committee of
the Board.
Section 8. Fiscal Year and Subdivisions.
The calendar year shall be the corporate fiscal year of the corporation.
For the purpose of paying dividends, for making reports and for the convenient
transaction of the business of the corporation, the Board may divide the fiscal
year into appropriate subdivisions.
Section 9. Construction and Definitions.
Unless the context otherwise requires, the general provisions, rules of
construction and definitions contained in the General Provisions of the
California Corporations Code and in the California General Corporation Law shall
govern the construction of these Bylaws.
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ARTICLE VI -- INDEMNIFICATION
Section 1. Indemnification of Directors and Officers.
Each person who was or is a party or is threatened to be made a party to or
is involved in any threatened, pending or completed action, suit or proceeding,
formal or informal, whether brought in the name of the corporation or otherwise
and whether of a civil, criminal, administrative or investigative nature
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is an alleged
action or inaction in an official capacity or in any other capacity while
serving as a director or officer, shall, subject to the terms of any agreement
between the corporation and such person, be indemnified and held harmless by the
corporation to the fullest extent permissible under California law and the
corporation's Articles of Incorporation, against all costs, charges, expenses,
liabilities and losses (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that (A) the corporation shall indemnify any
such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of the corporation; (B) the corporation shall indemnify
any such person seeking indemnification in connection with a proceeding (or part
thereof) other than a proceeding by or in the name of the corporation to procure
a judgment in its favor only if any settlement of such a proceeding is approved
in writing by the corporation; (C) that no such person shall be indemnified (i)
except to the extent that the aggregate of losses to be indemnified exceeds the
amount of such losses for which the director or officer is paid pursuant to any
directors' and officers' liability insurance policy maintained by the
corporation; (ii) on account of any suit in which judgment is rendered against
such person for an accounting of profits made from the purchase or sale by such
person of securities of the corporation pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any federal, state or local statutory law; (iii) if a court of
competent jurisdiction finally determines that any indemnification hereunder is
unlawful; and (iv) as to circumstances in which indemnity is expressly
prohibited by Section 317 of the General Corporation Law of California (the
"Law"); and (D) that no such person shall be indemnified with regard to any
action brought by or in the right of the
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corporation for breach of duty to the corporation and its shareholders (a) for
acts or omissions involving intentional misconduct or knowing and culpable
violation of law; (b) for acts or omissions that the director or officer
believes to be contrary to the best interests of the corporation or its
shareholders or that involve the absence of good faith on the part of the
director or officer; (c) for any transaction from which the director or officer
derived an improper personal benefit; (d) for acts or omissions that show a
reckless disregard for the director's or officer's duty to the corporation or
its shareholders in circumstances in which the director or officer was aware, or
should have been aware, in the ordinary course of performing his or her duties,
of a risk of serious injury to the corporation or its shareholders; (e) for acts
or omissions that constitute an unexcused pattern of inattention that amounts to
an abdication of the director's or officer's duties to the corporation or its
shareholders; and (f) for costs, charges, expenses, liabilities and losses
arising under Section 310 or 316 of the Law. The right to indemnification
conferred in this Article shall include the right to be paid by the corporation
expenses incurred in defending any proceeding in advance of its final
disposition; provided, however, that if the Law permits the payment of such
expenses incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, such advances shall be made only upon delivery to the corporation of
an undertaking, by or on behalf of such director or officer, to repay all
amounts to the corporation if it shall be ultimately determined that such person
is not entitled to be indemnified.
Section 2. Indemnification of Employees and Agents.
A person who was or is a party or is threatened to be made a party to or is
involved in any proceeding by reason of the fact that he or she is or was an
employee or agent of the corporation or is or was serving at the request of the
corporation as an employee or agent of another enterprise, including service
with respect to employee benefit plans, whether the basis of such action is an
alleged action or inaction in an official capacity or in any other capacity
while serving as an employee or agent, may, subject to the terms of any
agreement between the corporation and such person, be indemnified and held
harmless by the corporation to the fullest extent permitted by California law
and the corporation's Articles of Incorporation, against all costs, charges,
expenses, liabilities and losses, (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith.
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Section 3. Right of Directors and Officers to Bring Suit.
If a claim under Section 1 of this Article is not paid in full by the
corporation within 30 days after a written claim has been received by the
corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall also be entitled to be paid the expense of
prosecuting such claim. Neither the failure of the corporation (including its
Board, independent legal counsel, or its shareholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is permissible in the circumstances because he or she has met the
applicable standard of conduct, if any, nor an actual determination by the
corporation (including its Board, independent legal counsel, or its
shareholders) that the claimant has not met the applicable standard of conduct,
shall be a defense to the action or create a presumption for the purpose of an
action that the claimant has not met the applicable standard of conduct.
Section 4. Successful Defense.
Notwithstanding any other provision of this Article, to the extent that a
director or officer has been successful on the merits or otherwise (including
the dismissal of an action without prejudice or the settlement of a proceeding
or action without admission of liability) in defense of any proceeding referred
to in Section 1 or in defense of any claim, issue or matter therein, he or she
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred in connection therewith.
Section 5. Non-Exclusivity of Rights.
The right to indemnification provided by this Article shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, bylaw, agreement, vote of shareholders or disinterested
directors or otherwise.
Section 6. Insurance.
The corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the corporation would have the power
to indemnify such person against such expense, liability or loss under the Law.
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Section 7. Expenses as a Witness.
To the extent that any director, officer, employee or agent of the
corporation is by reason of such position, or a position with another entity at
the request of the corporation, a witness in any action, suit or proceeding, he
or she shall be indemnified against all costs and expenses actually and
reasonably incurred by him or her on his or her behalf in connection therewith.
Section 8. Indemnity Agreements.
The corporation may enter into agreements with any director, officer,
employee or agent of the corporation providing for indemnification to the
fullest extent permissible under the Law and the corporation's Articles of
Incorporation.
Section 9. Separability.
Each and every paragraph, sentence, term and provision of this Article is
separate and distinct so that if any paragraph, sentence, term or provision
hereof shall be held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the validity or enforceability
of any other paragraph, sentence, term or provision hereof. To the extent
required, any paragraph, sentence, term or provision of this Article may be
modified by a court of competent jurisdiction to preserve its validity and to
provide the claimant with, subject to the limitations set forth in this Article
and any agreement between the corporation and claimant, the broadest possible
indemnification permitted under applicable law.
Section 10. Effect of Repeal or Modification.
Any repeal or modification of this Article shall not adversely affect any
right of indemnification of a director or officer existing at the time of such
repeal or modification with respect to any action or omission occurring prior to
such repeal or modification.
ARTICLE VII -- EMERGENCY PROVISIONS
Section 1. General.
The provisions of this Article shall be operative only during a national
emergency declared by the President of the United States or the person
performing the President's functions, or in the event of a nuclear, atomic or
other attack on the United States or a disaster making it impossible or
impracticable for the corporation to conduct its business without recourse to
the provisions of
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this Article. Said provisions in such event shall override all other Bylaws
of the corporation in conflict with any provisions of this Article, and shall
remain operative so long as it remains impossible or impracticable to continue
the business of the corporation otherwise, but thereafter shall be inoperative;
provided that all actions taken in good faith pursuant to such provisions shall
thereafter remain in full force and effect unless and until revoked by action
taken pursuant to the provisions of the Bylaws other than those contained in
this Article.
Section 2. Unavailable Directors.
All directors of the corporation who are not available to perform their
duties as directors by reason of physical or mental incapacity or for any other
reason or who are unwilling to perform their duties or whose whereabouts are
unknown shall automatically cease to be directors, with like effect as if such
persons had resigned as directors, so long as such unavailability continues.
Section 3. Authorized Number of Directors.
The authorized number of directors shall be the number of directors
remaining after eliminating those who have ceased to be directors pursuant to
Section 2, or the minimum number required by law, whichever number is greater.
Section 4. Quorum.
The number of directors necessary to constitute a quorum shall be one-third
of the authorized number of directors as specified in the foregoing Section, or
such other minimum number as, pursuant to the law or lawful decree then in
force, it is possible for the Bylaws of a corporation to specify.
Section 5. Creation of Emergency Committee.
In the event the number of directors remaining after eliminating those who
have ceased to be directors pursuant to Section 2 is less than the minimum
number of authorized directors required by law, then until the appointment of
additional directors to make up such required minimum, all the powers and
authorities which the Board could by law delegate, including all powers and
authorities which the Board could delegate to a committee, shall be
automatically vested in an emergency committee, and the emergency committee
shall thereafter manage the affairs of the corporation pursuant to such powers
and authorities and shall have all other powers and authorities as may by law or
lawful decree be conferred on any person or body of persons during a period of
emergency.
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Section 6. Constitution of Emergency Committee.
The emergency committee shall consist of all the directors remaining after
eliminating those who have ceased to be directors pursuant to Section 2,
provided that such remaining directors are not less than three in number. In the
event such remaining directors are less than three in number the emergency
committee shall consist of three persons, who shall be the remaining director or
directors and either one or two officers or employees of the corporation, as the
remaining director or directors may in writing designate. If there is no
remaining director, the emergency committee shall consist of the three most
senior officers of the corporation who are available to serve, and if and to the
extent that officers are not available, the most senior employees of the
corporation. Seniority shall be determined in accordance with any designation of
seniority in the minutes of the proceedings of the Board, and in the absence of
such designation, shall be determined by rate of remuneration. In the event that
there are no remaining directors and no officers or employees of the corporation
available, the emergency committee shall consist of three persons designated in
writing by the shareholder owning the largest number of shares of record as of
the date of the last record date.
Section 7. Powers of Emergency Committee.
The emergency committee, once appointed, shall govern its own procedures
and shall have power to increase the number of members thereof beyond the
original number, and in the event of a vacancy or vacancies therein, arising at
any time, the remaining member or members of the emergency committee shall have
the power to fill such vacancy or vacancies. In the event at any time after its
appointment all members of the emergency committee shall die or resign or become
unavailable to act for any reason whatsoever, a new emergency committee shall be
appointed in accordance with the foregoing provisions of this Article.
Section 8. Directors Becoming Available.
Any person who has ceased to be a director pursuant to the provisions of
Section 2 and who thereafter becomes available to serve as a director shall
automatically become a member of the emergency committee.
Section 9. Election of Board of Directors.
The emergency committee shall, as soon after its appointment as is
practicable, take all requisite action to secure the election of a board of
directors,
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and upon such election all the powers and authorities of the emergency
committee shall cease.
Section 10. Termination of Emergency Committee.
In the event, after the appointment of an emergency committee, a sufficient
number of persons who ceased to be directors pursuant to Section 2 become
available to serve as directors, so that if they had not ceased to be directors
as aforesaid, there would be enough directors to constitute the minimum number
of directors required by law, then all such persons shall automatically be
deemed to be reappointed as directors and the powers and authorities of the
emergency committee shall be at an end.
ARTICLE VIII -- AMENDMENTS
Section 1. Amendments.
These Bylaws may be amended or repealed either by approval of the
outstanding shares or by the approval of the Board; provided, however, that a
Bylaw specifying or changing a fixed number of directors or the maximum or
minimum number or changing from a fixed to a variable Board or vice versa may
only be adopted by approval of the outstanding shares. The exact number of
directors within the maximum and minimum number specified in these Bylaws may be
amended by the Board alone.
EDISON INTERNATIONAL EQUITY COMPENSATION PLAN
1999 Statement of Terms and Conditions of Plan Awards for
Executive Officers and Key Management Employees
1999 awards (Plan Awards) made under the Edison Equity Compensation Plan (Plan)
to eligible recipients (Holders) at Edison International (EIX) or its
participating affiliates (the Companies, or individually, the Company) include
EIX nonqualified stock options to purchase EIX Common Stock (EIX Options), EIX
Option dividend equivalents (Dividend Equivalents), Edison Mission Energy or
Edison Capital affiliate option performance awards (Affiliate Options) and
Edison Enterprises affiliate cash value added performance awards (CVA
Performance Awards) which are subject to the following terms and conditions:
1. PRICE
(a) The exercise price of an EIX Option stated in the award certificate is the
average of the high and low sales prices of EIX Common Stock as reported in the
Western Edition of The Wall Street Journal for the New York Stock Exchange
Composite Transactions for the date of the award.
(b) The annual exercise price of an Affiliate Option will be the base price
stated in the award certificate escalated by an annual compound appreciation
rate linked to the affiliate's cost of capital plus an overhead allowance. Upon
any significant subsequent change in the affiliate's cost of capital, the
Affiliate Option exercise price for that year may be redetermined and
prospectively indexed reflecting the affiliate's revised appreciation rate.
2. VESTING
(a) Subject to the provisions of Section 3, Plan Awards may only be exercised or
paid to the extent vested. The initial vesting date will be January 2nd of the
year following the date of the grant, or six months after the date of the grant,
whichever date is later.
The Plan Awards will vest as follows:
o On the initial vesting date, the Plan Awards will vest as to 25% of the
covered shares or units.
o On January 2nd of the following year, the Plan Awards will vest as to an
additional 25% of the covered shares or units.
o On January 2nd of the following year, the Plan Awards will vest as to an
additional 25% of the covered shares or units.
o On January 2nd of the fourth year following the date of grant, the Plan
Awards will be fully vested.
(b) The vested portions of the Plan Award will accumulate to the extent not
exercised, and be exercisable by the Holder subject to the provisions of Section
3, in whole or in part, in any subsequent period but not later than the first
business day of the 10th calendar year following the date of the award, or, in
the case of Affiliate Options, not later than the end of the final 60-day
exercise period.
(c) If the Holder retires, dies or is permanently and totally disabled during
the four-year vesting period, the Plan Awards will vest and be exercisable to
the extent of 1/48th of the aggregate number of shares or units granted for each
full month of service during the vesting period. Notwithstanding the foregoing,
the Plan Award of a Holder who has served as a member of the Southern California
Edison Company Management Committee will be fully vested and exercisable upon
his or her retirement, death or permanent and total disability.
(d) Upon termination of a Holder's employment for any reason other than the
reasons specified in Subsection (c), only that portion of the Plan Award which
has vested as of the prior vesting date may be exercised, and that portion will
be forfeited unless exercised within 180 days following the date of termination,
or in the case of Affiliate Options, the first 60-day exercise period following
the date of
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termination. Any earned and vested Dividend Equivalents remaining
unpaid will be paid upon expiration of the 180-day period.
(e) Notwithstanding the foregoing, Plan Awards may vest in accordance with
Section 3.4 of the Plan as a result of certain events, including liquidation of
EIX or merger, reorganization or consolidation of EIX as a result of which EIX
is not the surviving corporation. Upon a change of control of EIX following the
occurrence of a Distribution Date, as that term is defined in the Rights
Agreement approved by the EIX Board of Directors on November 20, 1996, the Plan
Awards will vest and will remain exercisable for at least two years following
the Distribution Date, or in the case of Affiliate Options, through the first
exercise period occurring at least two years after such date. During that
period, (i) the Plan may not be terminated, (ii) individual awards may not be
cashed out, terminated, or modified without the Holder's consent, and (iii)
valuation procedures and exercise periods will occur on a basis consistent with
past practice.
3. PLAN AWARD EXERCISE
(a) The Holder may exercise a Plan Award by providing written notice to EIX on
the form prescribed by EIX for this purpose accompanied by full payment of any
applicable exercise price. Payment must be in cash, or its equivalent, such as
EIX Common Stock, acceptable to EIX. A "cashless" exercise will be accommodated
for all Affiliate Options, and may be accommodated for EIX Options at the
discretion of EIX. Until payment is accepted, the Holder will have no rights in
the optioned stock. Earned Dividend Equivalents may not be directly applied to
payment of the exercise price for EIX Options.
(b) EIX Options may be exercised at any time after they have vested through the
first business day of the 10th calendar year following the date of the award and
CVA Performance Awards that have been translated into EIX Common Stock Units
(EIX Units) as provided in Section 5(b) may be exercised at any time after they
have vested through the first business day of the 10th calendar year following
the date of the award. Affiliate Options may be exercised after they have
vested, but only during an annually specified 60-day period following the fiscal
year end and the completion of an independently reviewed valuation report which
indicates a share value for the fiscal year higher than the applicable Affiliate
Option exercise price for that period. The final 60-day Affiliate Option
exercise period will commence no later than the end of the second quarter of the
10th calendar year following the date of the award. Subject to Section 9,
Affiliate Options are payable in cash upon exercise to the extent the actual
value of an affiliate share exceeds the applicable exercise price.
(c) The Holder agrees that any securities acquired by him or her hereunder are
being acquired for his or her own account for investment and not with a view to
or for sale in connection with any distribution thereof and that he or she
understands that such securities may not be sold, transferred, pledged,
hypothecated, alienated, or otherwise assigned or disposed of without either
registration under the Securities Act of 1933 or compliance with the exemption
provided by Rule 144 or another applicable exemption under such act.
(d) In accordance with Section 3.5(e) of the Plan, the Holder will have no right
or claim to any specific funds, property or assets of EIX as a result of the
award.
4. EIX OPTION DIVIDEND EQUIVALENTS
(a) An EIX Dividend Equivalent account will be established on behalf of the
Holder if Dividend Equivalents have been granted pursuant to the award. This
account may be credited with all or a portion of the dividends payable after the
date of the award on the number of shares of stock covered by the related EIX
Option award depending upon EIX performance during the first three years of the
Plan Award term as provided in Subsection (b). No amount will be credited prior
to January 2nd of the third year following the date of the award. No Dividend
Equivalent will accrue on any related EIX Option exercised during that period
regardless of EIX performance. Dividend Equivalents credited on any related EIX
Option will accumulate in this account without interest and will vest on the
same schedule as the related EIX Option to purchase the corresponding shares of
EIX Common Stock. Once earned and vested, the Dividend Equivalents will be paid
upon the earlier of (i) the request of the holder at any time prior to the final
year
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of the Plan Award term regardless of whether the related EIX Option is
exercised, (ii) the exercise of the related EIX Option, or (iii) the expiration
or termination of the related EIX Option. Upon such payment, no further Dividend
Equivalents will accrue even if the related EIX Option remains outstanding and
exercisable.
(b) Dividend Equivalents related to EIX Options are subject to a performance
measure based on the percentile ranking of EIX total shareholder return (TSR)
compared to the TSR for each stock in the Dow Jones Electric Utilities Group
Index. The percentile ranking will be measured at the completion of the first
three years of the Plan Award term . If the EIX average ranking is in the 60th
percentile or higher for the 3-year period, 100% of the Dividend Equivalents
will be earned from the date of grant through the date the related EIX Option is
exercised or the date the Dividend Equivalents are paid, whichever is earlier.
If the EIX average ranking is in the 25th percentile, 25% of the Dividend
Equivalents will be earned. No Dividend Equivalents will be earned for
performance below the 25th percentile, and a pro rata amount will be earned for
performance between the 25th and 60th percentiles.
Dividend Equivalents related to unexercised EIX Options that were not earned due
to the limitations of this Subsection (b) may be earned back as of the end of
each of the last five years of the Plan Award term if it is determined at that
point that the EIX cumulative average TSR percentile ranking equals or exceeds
the 60th percentile.
5. PERFORMANCE AWARDS
(a) Affiliate Options are performance awards under the Plan similar to stock
options but based on shares of hypothetical affiliate stock created for this
purpose only. The Affiliate Option exercise prices are derived by applying a
compound annual appreciation rate, based on the affiliate's cost of capital and
an allowance for corporate overhead, to the base price of a share. Following the
end of each calendar year during the Plan Award term, new affiliate share prices
will be computed. If the affiliate share value exceeds the exercise price for
that period, any portion of the vested Affiliate Option may be exercised by the
Holder in accordance with Section 3 and the difference will be paid in cash to
the Holder. If a change in the affiliate's cost of capital has occurred that
significantly affects the new share price valuation, the Affiliate Option
exercise prices may be redetermined (i) for that year to reflect the same
intrinsic value result (gain or loss) that would have existed using the previous
cost of capital, and (ii) for subsequent years by applying the revised
appreciation rate.
(b) CVA Performance Awards under the Plan are based on cash value created at the
affiliate and allocated to Holders for this purpose only. Following the end of
the first year of the ten-year Plan Award term, the cash value added at the
affiliate during the first year will be determined. Each Holder's share of any
cash value added during the first year of the Plan Award term will be translated
into EIX Units and credited to the Holder's account under the Plan as of the
first business day of the second year of the Plan Award term (Crediting Date)
based on the average of the high and low prices of EIX Common Stock on the
Crediting Date as determined in accordance with 1(a) above.. The EIX Units will
be 25% vested as of the Crediting Date, and will continue to vest at the rate of
25% per year as provided under Section 2. The Holder's account will be credited
thereafter with any dividends payable on a comparable number of shares of EIX
Common Stock as of the quarterly ex-dividend date. Dividends so credited will be
translated into additional EIX Units based on the closing price of EIX Common
Stock on that date as reported in the Western Edition of the Wall Street Journal
and will be credited with dividends in subsequent quarters. Once vested, the
Holder may elect payment of the EIX Units in cash at any time. If not elected
sooner, the EIX Units will be paid in cash to the Holder at the end of the Plan
Award term.
6. DELAYED PAYMENT OR DELIVERY OF PLAN AWARD GAINS
Notwithstanding the term of any Plan Award, Holders who are eligible to defer
salary under the EIX Executive Deferred Compensation Plan (EDCP) may irrevocably
elect to alternatively exercise all or a portion of any vested Plan Award
pursuant to the Option Gain Deferral Program (OGDP) in the case of EIX Options,
or the EDCP in the case of Dividend Equivalents or performance awards, and defer
gains that would otherwise be realized upon exercise of the Plan Award. To make
such an election, the Holder must submit a signed alternative exercise agreement
in the form approved by the Administrator at least
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six months prior to the expiration date of the Plan Award. The Plan Award may
generally not be exercised for six months thereafter. Any subsequent exercises
will be subject to the terms, conditions and restrictions of the OGDP or the
EDCP, as applicable.
7. TRANSFER AND BENEFICIARY
(a) The Plan Awards will not be transferable by the Holder. During the lifetime
of the Holder, the Plan Award will be exercisable only by him or her. The Holder
may designate a beneficiary who, upon the death of the Holder, will be entitled
to exercise the then vested portion of the Plan Award during the remaining term
subject to the provisions of the Plan and these terms and conditions.
(b) Notwithstanding the foregoing, Plan Awards of the CEOs of EIX, Edison
Mission Energy, Edison Capital and Edison Enterprises, the COO of Southern
California Edison and the EVPs of EIX are transferable to a spouse, children or
grandchildren, or trusts or other vehicles established exclusively for their
benefit. Any transfer request must specifically be authorized by EIX in writing
and shall be subject to any conditions, restrictions or requirements as the
administrator may determine.
8. TERMINATION OF PLAN AWARDS
As set forth in Section 2(d), in the event of termination of the employment of
the Holder for any reason other than retirement, permanent and total disability
or death of the Holder, Plan Awards will terminate 180 days from the date on
which such employment terminated, or in the case of Affiliate Options, at the
end of the first 60-day exercise period following the employment termination
date. In addition, the Plan Awards may be terminated if EIX elects to substitute
cash awards as provided under Section 12.
9. TAXES
EIX will have the right to retain and withhold the amount of taxes required by
any government to be withheld or otherwise deducted and remitted with respect to
the exercise of any Plan Award. In its discretion, EIX may require the Holder to
reimburse EIX for any such taxes required to be withheld by EIX and may withhold
any distribution in whole or in part until EIX is so reimbursed. In lieu
thereof, EIX will have the right to withhold from any other cash amounts due
from EIX to the Holder an amount equal to such taxes required to be withheld by
EIX to reimburse EIX for any such taxes or to retain and withhold a number of
shares of EIX Common Stock having a market value equal to the taxes and cancel
(in whole or in part) the shares in order to reimburse EIX for the taxes.
Each recipient of an EIX Option must attach a statement to his or her federal
and state tax returns for the year in which the EIX Option was granted
containing certain information specified in tax regulations. A sample statement
is attached as Exhibit 1.
10. CONTINUED EMPLOYMENT
(a) Nothing in the award certificate or this Statement of Terms and Conditions
will be deemed to confer on the Holder any right to continue in the employ of
EIX or an EIX affiliate or interfere in any way with the right of the employer
to terminate his or her employment at any time.
(b) In the event employment is terminated, except as a result of death,
disability, or retirement under the Southern California Edison Company
Retirement Plan, or a successor plan, whether voluntarily or otherwise, the
restrictions of Section 2(d) will apply.
11. NOTICE OF DISPOSITION OF SHARES
Holder agrees that if he or she should dispose of any shares of stock acquired
on the exercise of EIX Options, including a disposition by sale, exchange, gift
or transfer of legal title within six months from the date such shares are
transferred to the Holder, the Holder will notify EIX promptly of such
disposition.
12. AMENDMENT
The Plan Awards are subject to the terms of the Plan as amended from time to
time. EIX reserves the right to substitute cash awards substantially equivalent
in value to the Plan Awards. If Holder transfers to another company within the
EIX affiliated group, any gain in value of any Performance Awards held will be
frozen as of the next valuation date but the Performance Award will remain
exercisable for its original
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term. An EIX Option award will be issued for the remaining award term based on
the Black-Scholes valuation of the remaining term of the Performance Award and
the Black-Scholes valuation of EIX options as of the transfer date assuming a
term equal to such remaining term. The Plan Awards may not otherwise be
restricted or limited by any Plan amendment or termination approved after the
date of the award without the Holder's consent.
13. FORCE AND EFFECT
The various provisions herein are severable in their entirety. Any determination
of invalidity or unenforceability of any one provision will have no effect on
the continuing force and effect of the remaining provisions.
14. GOVERNING LAW
The terms and conditions of the Plan Awards will be construed under the laws of
the State of California.
15. NOTICE
Unless waived by EIX, any notice required under or relating to the Plan Awards
must be in writing, with postage prepaid, addressed to: Edison International,
Attn: Corporate Secretary, P.O. Box 800, Rosemead, CA 91770
EDISON INTERNATIONAL
Lillian R. Gorman
- -------------------------------------------
Lillian R. Gorman, Vice President
<PAGE>
EXHIBIT 1
STATEMENT PURSUANT TO INCOME TAX
REGULATION SECTION 1.61-15(c)
This statement is attached to my income tax return in compliance with the
requirements of Income Tax Regulation ss.1.61-15(c) relative to a nonqualified
stock option I received on _____________, 19__.
(1) Name and address of the taxpayer:
John Q. Doe
1234 Your Street
Anywhere, CA 90000
(2) Description of Securities subject to the option:
On ____________, 19__, I was granted a nonqualified stock option
covering _______ shares of Edison International common stock.
(3) Period during which the option is exercisable:
The option vests and becomes exercisable as to one-fourth of the covered shares
on January 2, 1999 (or six months after the date of grant if later), January 2,
2000, January 2, 2001 and January 2, 2002, respectively. To the extent vested,
the option may be exercised at any time through January 2, 2008.
(4) Whether the option had an ascertainable market value:
The option did not have a readily ascertainable fair market value
on the date of the grant.
(5) Whether the option was granted as compensation:
The option was granted as compensation and is subject to Reg.ss.1.61-15(a).
Respectfully Submitted,
<PAGE>
EDISON INTERNATIONAL LOGO
EQUITY COMPENSATION PLAN
1999 AWARD CERTIFICATE
This award is made by Edison International to (Name) ("Employee") as of January
4, 1999, pursuant to the Equity Compensation Plan. Edison International hereby
grants to Employee, as a matter of separate agreement and not in lieu of salary
or any other compensation for services, the right and option to purchase the
following:
----------------------------------------------------------
(#) shares of authorized Edison International Common
Stock, (#) with dividend equivalents and (#) without
dividend equivalents, at an exercise price of $28.125
per share.
----------------------------------------------------------
This award is made subject to the conditions contained in the 1999 Statement of
Terms and Conditions which is incorporated herein by reference.
Edison International
By: LILLIAN R. GORMAN
------------------------
LILLIAN R. GORMAN
CONSENT OF INDEPENDENT PUBLIC ACCOUNTS
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, 1999, 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
May 6, 1999
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
SCE Financial Data Schedule -- Exhibit 27
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 7,258,888
<OTHER-PROPERTY-AND-INVEST> 2,526,709
<TOTAL-CURRENT-ASSETS> 2,461,111
<TOTAL-DEFERRED-CHARGES> 4,870,851
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 17,117,559
<COMMON> 2,168,054
<CAPITAL-SURPLUS-PAID-IN> 349,907
<RETAINED-EARNINGS> 700,146
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,218,107
255,700
128,755
<LONG-TERM-DEBT-NET> 2,243,840
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 2,808,553
<COMMERCIAL-PAPER-OBLIGATIONS> 728,302
<LONG-TERM-DEBT-CURRENT-PORT> 716,231
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 7,018,071
<TOT-CAPITALIZATION-AND-LIAB> 17,117,559
<GROSS-OPERATING-REVENUE> 1,676,705
<INCOME-TAX-EXPENSE> 80,541
<OTHER-OPERATING-EXPENSES> 1,423,650
<TOTAL-OPERATING-EXPENSES> 1,504,191
<OPERATING-INCOME-LOSS> 172,514
<OTHER-INCOME-NET> 29,702
<INCOME-BEFORE-INTEREST-EXPEN> 202,216
<TOTAL-INTEREST-EXPENSE> 119,522
<NET-INCOME> 82,694
6,199
<EARNINGS-AVAILABLE-FOR-COMM> 76,495
<COMMON-STOCK-DIVIDENDS> 169,114
<TOTAL-INTEREST-ON-BONDS> 90,962
<CASH-FLOW-OPERATIONS> 383,176
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</TABLE>
