EIX 2012 Q3


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-Q
________________________
(Mark One)
R
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2012
 
 
o
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 1-9936
_________________________
EDISON INTERNATIONAL
(Exact name of registrant as specified in its charter)
__________________________
California
 
95-4137452
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
2244 Walnut Grove Avenue
(P.O. Box 976)
Rosemead, California
 
91770
(Address of principal executive offices)
 
(Zip Code)
 
 
 
(626) 302-2222
(Registrant's telephone number, including area code)
__________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes S No £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer S
Accelerated filer £
Non-accelerated filer £
(Do not check if a smaller reporting company)
Smaller reporting company £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes £ No S
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 October 30, 2012
Common Stock, no par value
 
325,811,206
 
 
 
 
 
 



TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Note 8. Compensation and Benefit Plans
 
 
 
 
 
 
 
 
 
 
Note 18. Discontinued Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Midwest Generation's Dependence on EME
 
 
 
 
 
 


i


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


ii


 


iii


GLOSSARY
The following terms and abbreviations appearing in the text of this report have the meanings indicated below.
2011 Form 10-K
 
Edison International's Annual Report on Form 10-K for the year-ended December 31, 2011
2010 Tax Relief Act
 
Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010
AFUDC
 
allowance for funds used during construction
Ambit project
 
American Bituminous Power Partners, L.P.
AOI
 
Adjusted Operating Income (Loss)
APS
 
Arizona Public Service Company
ARO(s)
 
asset retirement obligation(s)
BACT
 
best available control technology
BART
 
best available retrofit technology
Bcf
 
billion cubic feet
Big 4
 
Kern River, Midway-Sunset, Sycamore and Watson natural gas power projects
Btu
 
British thermal units
CAA
 
Clean Air Act
CAIR
 
Clean Air Interstate Rule
CAISO
 
California Independent System Operator
CAMR
 
Clean Air Mercury Rule
CARB
 
California Air Resources Board
CDWR
 
California Department of Water Resources
CEC
 
California Energy Commission
coal plants
 
Midwest Generation coal plants and Homer City plant
Commonwealth Edison
 
Commonwealth Edison Company
CPS
 
Combined Pollutant Standard
CPUC
 
California Public Utilities Commission
CSAPR
 
Cross-State Air Pollution Rule
CRRs
 
congestion revenue rights
DOE
 
U.S. Department of Energy
EME
 
Edison Mission Energy
EMG
 
Edison Mission Group Inc.
EMMT
 
Edison Mission Marketing & Trading, Inc.
EPS
 
earnings per share
ERRA
 
energy resource recovery account
Exelon Generation
 
Exelon Generation Company LLC
FASB
 
Financial Accounting Standards Board
FERC
 
Federal Energy Regulatory Commission
FGIC
 
Financial Guarantee Insurance Company
FIP(s)
 
federal implementation plan(s)
Four Corners
 
coal fueled electric generating facility located in Farmington, New Mexico in
which SCE holds a 48% ownership interest
GAAP
 
generally accepted accounting principles
GECC
 
General Electric Capital Corporation
GHG
 
greenhouse gas
GRC
 
general rate case
GWh
 
gigawatt-hours


iv


Homer City
 
EME Homer City Generation L.P., a Pennsylvania limited partnership that leases and operates three coal-fired electric generating units and related facilities located in Indiana County, Pennsylvania
Homer City MTA
 
Master Transaction Agreement between EME Homer City Generation L.P. and General Electric Capital Corporation
Illinois EPA
 
Illinois Environmental Protection Agency
IRS
 
Internal Revenue Service
ISO
 
Independent System Operator
kWh(s)
 
kilowatt-hour(s)
LIBOR
 
London Interbank Offered Rate
MATS
 
Mercury and Air Toxics Standards
MD&A
 
Management's Discussion and Analysis of Financial Condition and Results
of Operations in this report
Midwest Generation
 
Midwest Generation, LLC, a Delaware limited liability company that owns and/or leases, and that operates, the Midwest Generation plants
Midwest Generation plants
 
Midwest Generation's power plants (fossil fuel) located in Illinois
MMBtu
 
million British thermal units
Mohave
 
two coal fueled electric generating facilities that no longer operate located
in Clark County, Nevada in which SCE holds a 56% ownership interest
Moody's
 
Moody's Investors Service
MRTU
 
Market Redesign and Technology Upgrade
MW
 
megawatts
MWh
 
megawatt-hours
NAAQS
 
national ambient air quality standards
NAPP
 
Northern Appalachian
NERC
 
North American Electric Reliability Corporation
Ninth Circuit
 
U.S. Court of Appeals for the Ninth Circuit
NOV
 
notice of violation
NOx
 
nitrogen oxide
NRC
 
Nuclear Regulatory Commission
NSR
 
New Source Review
NYISO
 
New York Independent System Operator
PADEP
 
Pennsylvania Department of Environmental Protection
Palo Verde
 
large pressurized water nuclear electric generating facility located near
Phoenix, Arizona in which SCE holds a 15.8% ownership interest
PBOP(s)
 
postretirement benefits other than pension(s)
PBR
 
performance-based ratemaking
PG&E
 
Pacific Gas & Electric Company
PJM
 
PJM Interconnection, LLC
PRB
 
Powder River Basin
PSD
 
Prevention of Significant Deterioration
QF(s)
 
qualifying facility(ies)
ROE
 
return on equity
RPM
 
Reliability Pricing Model
RTO(s)
 
Regional Transmission Organization(s)
S&P
 
Standard & Poor's Ratings Services
San Onofre
 
large pressurized water nuclear electric generating facility located in south
San Clemente, California in which SCE holds a 78.21% ownership interest


v


SCE
 
Southern California Edison Company
SNCR
 
selective non-catalytic reduction
SDG&E
 
San Diego Gas & Electric
SEC
 
U.S. Securities and Exchange Commission
SIP(s)
 
state implementation plan(s)
SO2
 
sulfur dioxide
US EPA
 
U.S. Environmental Protection Agency
VIE(s)
 
variable interest entity(ies)



vi
























(This page has been left blank intentionally.)


1


PART I.    FINANCIAL INFORMATION
ITEM 1.     FINANCIAL STATEMENTS
Consolidated Statements of Income


 

Edison International
 





 

Three months ended
September 30,

Nine months ended
September 30,
(in millions, except per-share amounts, unaudited)

2012

2011

2012

2011
Electric utility

$
3,730


$
3,385


$
8,791


$
8,060

Competitive power generation

340


437


1,009


1,277

Total operating revenue

4,070


3,822


9,800


9,337

Fuel

270


272


678


671

Purchased power

1,612


1,264


3,049


2,422

Operation and maintenance

1,152


1,071


3,450


3,325

Depreciation, decommissioning and amortization

465


430


1,389


1,272

(Gain) loss on sale of assets and other

(65
)

—


(60
)

8

Total operating expenses

3,434


3,037


8,506


7,698

Operating income

636


785


1,294


1,639

Interest and dividend income

3


4


19


38

Equity in income from unconsolidated affiliates, net

25


56


42


68

Other income

37


27


105


110

Interest expense

(214
)

(203
)

(643
)

(600
)
Other expenses

(10
)

(11
)

(36
)

(37
)
Income from continuing operations before income taxes

477


658


781


1,218

Income tax expense

181


232


217


370

Income from continuing operations

296


426


564


848

Income (loss) from discontinued operations, net of tax

(76
)

15


(129
)

(3
)
Net income

220


441


435


845

Dividends on preferred and preference stock of utility

25


15


66


44

Other noncontrolling interests

5


—


12


(1
)
Net income attributable to Edison International common shareholders

$
190


$
426


$
357


$
802

Amounts attributable to Edison International common shareholders:





 

 
Income from continuing operations, net of tax

$
266


$
411


$
486


$
805

Income (loss) from discontinued operations, net of tax

(76
)

15


(129
)

(3
)
Net income attributable to Edison International common shareholders

$
190


$
426


$
357


$
802

Basic earnings (loss) per common share attributable to Edison International common shareholders:





 

 
Weighted-average shares of common stock outstanding

326


326


326


326

Continuing operations

$
0.81


$
1.26


$
1.49


$
2.47

Discontinued operations

(0.23
)

0.05


(0.40
)

(0.01
)
Total

$
0.58


$
1.31


$
1.09


$
2.46

Diluted earnings (loss) per common share attributable to Edison International common shareholders:





 

 
Weighted-average shares of common stock outstanding, including effect of dilutive securities

329


329


328


329

Continuing operations

$
0.81


$
1.25


$
1.48


$
2.46

Discontinued operations

(0.23
)

0.05


(0.39
)

(0.01
)
Total

$
0.58


$
1.30


$
1.09


$
2.45

Dividends declared per common share

$
0.325


$
0.320


$
0.975


$
0.960


The accompanying notes are an integral part of these consolidated financial statements.

2


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Comprehensive Income
 
 
 
Edison International
 
 
 
 
 
 
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in millions, unaudited)
 
2012
 
2011
 
2012
 
2011
Net income
 
$
220

 
$
441

 
$
435

 
$
845

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Pension and postretirement benefits other than pensions:
 
 
 
 
 
 
 
 
Net loss arising during the period, net of income tax benefit of $3 for the nine months ended September 30, 2012
 
—

 
—

 
(3
)
 
—

Amortization of net loss included in net income, net of income tax expense of $2 and $1 for the three months and $7 and $4 for the nine months ended September 30, 2012 and 2011, respectively
 
4

 
3

 
12

 
7

Unrealized loss on derivatives qualified as cash flow hedges:
 
 
 
 
 
 
 
 
Unrealized holding loss arising during the period, net of income tax benefit of $11 and $19 for the three months and $13 and $24 for the nine months ended September 30, 2012 and 2011, respectively
 
(16
)
 
(30
)
 
(19
)
 
(38
)
Reclassification adjustments included in net income, net of income tax expense (benefit) of $1 and none for the three months and $(12) and $(12) for the nine months ended September 30, 2012 and 2011, respectively
 
1

 
—

 
(19
)
 
(17
)
Other comprehensive loss
 
(11
)
 
(27
)
 
(29
)
 
(48
)
Comprehensive income
 
209

 
414

 
406

 
797

Less: Comprehensive income attributable to noncontrolling interests
 
30

 
15

 
78

 
43

Comprehensive income attributable to Edison International
 
$
179

 
$
399

 
$
328

 
$
754



The accompanying notes are an integral part of these consolidated financial statements.

3


Consolidated Balance Sheets
 
Edison International
 
 
 
 
 
 
(in millions, unaudited)
 
September 30,
2012
 
December 31,
2011
ASSETS
 
 
 
 
Cash and cash equivalents
 
$
1,080

 
$
1,390

Receivables, less allowances of $75 for uncollectible accounts at both dates
 
1,167

 
908

Accrued unbilled revenue
 
787

 
519

Inventory
 
508

 
519

Prepaid taxes
 
36

 
88

Derivative assets
 
76

 
106

Restricted cash and cash equivalents
 
116

 
103

Margin and collateral deposits
 
88

 
58

Regulatory assets
 
250

 
494

Deferred income taxes
 
231

 
—

Other current assets
 
94

 
92

Assets of discontinued operations
 
61

 
207

Total current assets
 
4,494

 
4,484

Nuclear decommissioning trusts
 
3,997

 
3,592

Investments in unconsolidated affiliates
 
544

 
525

Other investments
 
189

 
211

Total investments
 
4,730

 
4,328

Utility property, plant and equipment, less accumulated depreciation of $7,378 and $6,894 at respective dates
 
29,314

 
27,569

Competitive power generation and other property, plant and equipment, less accumulated depreciation of $1,616 and $1,408 at respective dates
 
4,544

 
4,547

Total property, plant and equipment
 
33,858

 
32,116

Derivative assets
 
117

 
131

Restricted deposits
 
89

 
25

Rent payments in excess of levelized rent expense under plant operating leases
 
855

 
760

Regulatory assets
 
5,677

 
5,466

Other long-term assets
 
725

 
684

Total long-term assets
 
7,463

 
7,066

Assets of discontinued operations
 
—

 
45

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
50,545

 
$
48,039



The accompanying notes are an integral part of these consolidated financial statements.

4


Consolidated Balance Sheets
 
Edison International
 
 
 
 
 
 
(in millions, except share amounts, unaudited)
 
September 30,
2012
 
December 31,
2011
LIABILITIES AND EQUITY
 
 
 
 
Short-term debt
 
$
429

 
$
429

Current portion of long-term debt
 
565

 
57

Accounts payable
 
1,257

 
1,397

Accrued taxes
 
105

 
52

Accrued interest
 
207

 
205

Customer deposits
 
193

 
199

Derivative liabilities
 
109

 
268

Regulatory liabilities
 
493

 
670

Deferred income taxes
 
—

 
91

Other current liabilities
 
855

 
953

Liabilities of discontinued operations
 
61

 
27

Total current liabilities
 
4,274

 
4,348

Long-term debt
 
13,708

 
13,689

Deferred income taxes
 
5,745

 
5,396

Deferred investment tax credits
 
108

 
89

Customer advances
 
149

 
138

Derivative liabilities
 
717

 
547

Pensions and benefits
 
2,884

 
2,912

Asset retirement obligations
 
2,804

 
2,680

Regulatory liabilities
 
5,249

 
4,670

Other deferred credits and other long-term liabilities
 
2,887

 
2,475

Total deferred credits and other liabilities
 
20,543

 
18,907

Liabilities of discontinued operations
 
—

 
9

Total liabilities
 
38,525

 
36,953

Commitments and contingencies (Note 9)
 


 


Common stock, no par value (800,000,000 shares authorized; 325,811,206 shares issued and outstanding at each date)
 
2,385

 
2,360

Accumulated other comprehensive loss
 
(168
)
 
(139
)
Retained earnings
 
7,806

 
7,834

Total Edison International's common shareholders' equity
 
10,023

 
10,055

Preferred and preference stock of utility
 
1,759

 
1,029

Other noncontrolling interests
 
238

 
2

Total noncontrolling interests
 
1,997

 
1,031

Total equity
 
12,020

 
11,086

Total liabilities and equity
 
$
50,545

 
$
48,039



The accompanying notes are an integral part of these consolidated financial statements.

5


Consolidated Statements of Cash Flows
 
Edison International
 
 
 
Nine months ended
September 30,
(in millions, unaudited)
 
2012
 
2011
Cash flows from operating activities:
 
 
 
 
Net income
 
$
435

 
$
845

Adjustments to reconcile to net cash provided by operating activities:
 
 
 
 
Depreciation, decommissioning and amortization
 
1,389

 
1,272

Regulatory impacts of net nuclear decommissioning trust earnings
 
147

 
131

Other amortization
 
73

 
112

Gain on sale of assets and other
 
(60
)
 
6

Stock-based compensation
 
28

 
22

Equity in income from unconsolidated affiliates
 
(42
)
 
(68
)
Distributions from unconsolidated affiliates
 
15

 
52

Deferred income taxes and investment tax credits
 
(20
)
 
373

Income from leveraged leases
 
(4
)
 
(4
)
Proceeds from U.S. treasury grants
 
73

 
310

Changes in operating assets and liabilities:
 
 
 
 
Receivables
 
(293
)
 
(205
)
Inventory
 
11

 
(25
)
Margin and collateral deposits, net of collateral received
 
(31
)
 
6

Prepaid taxes
 
52

 
318

Other current assets
 
(264
)
 
(321
)
Rent payments in excess of levelized rent expense
 
(95
)
 
(96
)
Accounts payable
 
347

 
178

Accrued taxes
 
61

 
76

Other current liabilities
 
(87
)
 
(189
)
Derivative assets and liabilities, net
 
(8
)
 
137

Regulatory assets and liabilities, net
 
210

 
(73
)
Other assets
 
(30
)
 
(20
)
Other liabilities
 
256

 
1

Operating cash flows from continuing operations
 
2,163

 
2,838

Operating cash flows from discontinued operations, net
 
(5
)
 
(14
)
Net cash provided by operating activities
 
2,158

 
2,824

Cash flows from financing activities:
 
 
 
 
Long-term debt issued
 
549

 
686

Long-term debt issuance costs
 
(12
)
 
(24
)
Long-term debt repaid
 
(36
)
 
(97
)
Bonds purchased
 
—

 
(86
)
Preference stock issued, net
 
804

 
123

Preference stock redeemed
 
(75
)
 
—

Short-term debt financing, net
 
(10
)
 
573

Settlements of stock-based compensation, net
 
(45
)
 
(14
)
Cash contributions from noncontrolling interests
 
238

 
—

Dividends and distributions to noncontrolling interests
 
(75
)
 
(43
)
Dividends paid
 
(318
)
 
(313
)
Net cash provided by financing activities from continuing operations
 
$
1,020

 
$
805


The accompanying notes are an integral part of these consolidated financial statements.

6


Consolidated Statements of Cash Flows
 
Edison International
 
 
 
Nine months ended
September 30,
(in millions, unaudited)
 
2012
 
2011
Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
$
(3,371
)
 
$
(3,481
)
Purchase of interest in acquired companies
 
—

 
(3
)
Proceeds from sale of nuclear decommissioning trust investments
 
1,525

 
2,108

Purchases of nuclear decommissioning trust investments and other
 
(1,689
)
 
(2,254
)
Proceeds from sale of interest in project, net
 
107

 
—

Proceeds from partnerships and unconsolidated subsidiaries, net of investment
 
7

 
6

Restricted deposits and restricted cash and cash equivalents
 
(75
)
 
4

Customer advances for construction and other investments
 
3

 
(4
)
Investing cash flows from continuing operations
 
(3,493
)
 
(3,624
)
Investing cash flows from discontinued operations, net
 
(19
)
 
(10
)
Net cash used by investing activities
 
(3,512
)
 
(3,634
)
Net (decrease) increase in cash and cash equivalents from continuing operations
 
(310
)
 
19

Cash and cash equivalents at beginning of period from continuing operations
 
1,390

 
1,261

Cash and cash equivalents at end of period from continuing operations
 
$
1,080

 
$
1,280

 
 
 
 
 
Net decrease in cash and cash equivalents from discontinued operations
 
$
(24
)
 
$
(24
)
Cash and cash equivalents at beginning of period from discontinued operations
 
79

 
128

Cash and cash equivalents at end of period from discontinued operations
 
$
55

 
$
104



The accompanying notes are an integral part of these consolidated financial statements.

7


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1.    Summary of Significant Accounting Policies
Edison International has two business segments for financial reporting purposes: an electric utility segment ("SCE") and a competitive power generation segment ("EMG"). SCE is an investor-owned public utility primarily engaged in the business of supplying electricity to an approximately 50,000 square mile area of southern California. EMG is the holding company for its principal wholly owned subsidiary, EME. EME is a holding company with subsidiaries and affiliates engaged in the business of developing, acquiring, owning or leasing, operating and selling energy and capacity from independent power production facilities. EME also engages in hedging and energy trading activities in competitive power markets through its Edison Mission Marketing & Trading, Inc. ("EMMT") subsidiary.
Basis of Presentation
Edison International's significant accounting policies were described in Note 1 of "Edison International Notes to Consolidated Financial Statements" included in the 2011 Form 10-K. The same accounting policies are followed for interim reporting purposes, with the exception of accounting principles adopted as of January 1, 2012, discussed below in "—New Accounting Guidance." This quarterly report should be read in conjunction with the financial statements and notes included in the 2011 Form 10-K.
In the opinion of management, all adjustments, consisting of recurring accruals, have been made that are necessary to fairly state the consolidated financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States of America for the periods covered by this quarterly report on Form 10-Q. The results of operations for the three- and nine-month periods ended September 30, 2012 are not necessarily indicative of the operating results for the full year.
The December 31, 2011 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
Interim Financial Statements
On September 21, 2012, EME Homer City Generation L.P. ("Homer City") and Homer City Generation L.P., an affiliate of General Electric Capital Corporation ("GECC"), entered into a Master Transaction Agreement ("Homer City MTA") for the divestiture by Homer City of substantially all of its remaining assets and certain specified liabilities.
Beginning in the third quarter of 2012, Homer City met the definition of a discontinued operation and was classified separately in Edison International's consolidated financial statements. Previously issued financial statements have been restated to reflect discontinued operations reported subsequent to the original issuance date. For further information, see Note 18—Discontinued Operations. Except as indicated, amounts in the notes to the consolidated financial statements relate to continuing operations of Edison International.
Cash Equivalents
Cash equivalents included investments in money market funds totaling $933 million and $1.3 billion at September 30, 2012 and December 31, 2011, respectively. Generally, the carrying value of cash equivalents equals the fair value, as these investments have original maturities of three months or less.
Edison International temporarily invests the ending daily cash balance in its primary disbursement accounts until required for check clearing. Edison International reclassified $234 million and $220 million of checks issued, but not yet paid by the financial institution, from cash to accounts payable at September 30, 2012 and December 31, 2011, respectively.
Restricted Cash and Cash Equivalents, and Restricted Deposits
Restricted cash and cash equivalents at September 30, 2012 and December 31, 2011 included $97 million received from a wind project financing that was held in escrow at those dates. At September 30, 2012, restricted deposits included $48 million to support outstanding letters of credit issued under EME's letter of credit facilities.

8



Inventory
Inventory is stated at the lower of cost or market, cost being determined by the weighted-average cost method for fuel, and the average cost method for materials and supplies. Inventory consisted of the following:
(in millions)
September 30, 2012
 
December 31, 2011
Coal, gas, fuel oil and other raw materials
$
138

 
$
143

Spare parts, materials and supplies
370

 
376

Total inventory
$
508

 
$
519

Revenue Recognition
Electric Utility Revenue
Operating revenue is recognized when electricity is delivered and includes amounts for services rendered but unbilled at the end of each reporting period. During the first nine months of 2012, pending the outcome of the 2012 GRC, SCE recognized GRC-related revenue based on the 2011 authorized revenue requirement included in customer rates. A GRC memorandum account has been established for SCE, which will make the 2012 revenue requirement ultimately adopted by the CPUC effective as of January 1, 2012.
Earnings Per Share
Edison International computes earnings per share ("EPS") using the two-class method, which is an earnings allocation formula that determines EPS for each class of common stock and participating security. Edison International's participating securities are stock-based compensation awards payable in common shares, including stock options, performance shares and restricted stock units, which earn dividend equivalents on an equal basis with common shares. Stock options awarded during the period 2003 through 2006 received dividend equivalents. EPS attributable to Edison International common shareholders was computed as follows:
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in millions)
2012
 
2011
 
2012
 
2011
Basic earnings per share – continuing operations:
 
 
 
 
 
 
 
Income from continuing operations attributable to common shareholders, net of tax
$
266

 
$
411

 
$
486

 
$
805

Participating securities dividends
—

 
—

 
—

 
—

Income from continuing operations available to common shareholders
$
266

 
$
411

 
$
486

 
$
805

Weighted average common shares outstanding
326

 
326

 
326

 
326

Basic earnings per share – continuing operations
$
0.81

 
$
1.26

 
$
1.49

 
$
2.47

Diluted earnings per share – continuing operations:
 
 
 
 
 
 
 
Income from continuing operations available to common shareholders
$
266

 
$
411

 
$
486

 
$
805

Income impact of assumed conversions
—

 
2

 
1

 
3

Income from continuing operations available to common shareholders and assumed conversions
$
266

 
$
413

 
$
487

 
$
808

Weighted average common shares outstanding
326

 
326

 
326

 
326

Incremental shares from assumed conversions
3

 
3

 
2

 
3

Adjusted weighted average shares – diluted
329

 
329

 
328

 
329

Diluted earnings per share – continuing operations
$
0.81

 
$
1.25

 
$
1.48

 
$
2.46

Stock-based compensation awards to purchase 3,238,581 and 5,943,378 shares of common stock for the three months ended September 30, 2012 and 2011, respectively, and 4,819,683 and 8,970,290 shares of common stock for the nine months ended September 30, 2012 and 2011, respectively, were outstanding, but were not included in the computation of diluted earnings per share because the exercise price of the awards was greater than the average market price of the common shares and therefore, the effect would have been antidilutive.

9



New Accounting Guidance
Accounting Guidance Adopted in 2012
Fair Value Measurement
In May 2011, the Financial Accounting Standards Board ("FASB") issued an accounting standards update modifying the fair value measurement and disclosure guidance. This guidance prohibits grouping of financial instruments for purposes of fair value measurement and requires the value be based on the individual security. This amendment also results in new disclosures primarily related to Level 3 measurements including quantitative disclosure about unobservable inputs and assumptions, a description of the valuation processes and a narrative description of the sensitivity of the fair value to changes in unobservable inputs. Edison International adopted this guidance effective January 1, 2012. For further information, see Note 4.
Presentation of Comprehensive Income
In June 2011 and December 2011, the FASB issued accounting standards updates on the presentation of comprehensive income. An entity can elect to present items of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate but consecutive statements. Edison International adopted this guidance January 1, 2012, and elected to present two separate but consecutive statements. The adoption of these accounting standards updates did not change the items that constitute net income and other comprehensive income.
Accounting Guidance Not Yet Adopted
Offsetting Assets and Liabilities
In December 2011, the FASB issued an accounting standards update modifying the disclosure requirements about the nature of an entity's rights of offsetting assets and liabilities in the statement of financial position under master netting agreements and related arrangements associated with financial and derivative instruments. The guidance requires increased disclosure of the gross and net recognized assets and liabilities, collateral positions and narrative descriptions of setoff rights. Edison International will adopt this guidance effective January 1, 2013.

10



Note 2.    Consolidated Statements of Changes in Equity
The following table provides the changes in equity for the nine months ended September 30, 2012.
 
Equity Attributable to Edison International
 
Noncontrolling
Interests
 
 
(in millions)
Common
Stock
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
 
Subtotal
 
Other
 
Preferred
and
Preference
Stock
 
Total
Equity
Balance at December 31, 2011
$
2,360

 
$
(139
)
 
$
7,834

 
$
10,055

 
$
2

 
$
1,029

 
$
11,086

Net income
—

 
—

 
357

 
357

 
12

 
66

 
435

Other comprehensive loss
—

 
(29
)
 
—

 
(29
)
 
—

 
—

 
(29
)
Contributions from noncontrolling interests1
—

 
—

 
—

 
—

 
238

 
—

 
238

Transfer of assets to Capistrano Wind Partners2
(21
)
 
—

 
—

 
(21
)
 
—

 
—

 
(21
)
Common stock dividends declared ($0.975 per share)
—

 
—

 
(318
)
 
(318
)
 
—

 
—

 
(318
)
Dividends, distributions to noncontrolling interests and other
—

 
—

 
—

 
—

 
(14
)
 
(66
)
 
(80
)
Stock-based compensation and other
19

 
—

 
(64
)
 
(45
)
 
—

 
—

 
(45
)
Noncash stock-based compensation and other
27

 
—

 
(2
)
 
25

 
—

 
—

 
25

Issuance of preference stock
—

 
—

 
—

 
—

 
—

 
804

 
804

Redemption of preference stock
—


—

 
(1
)
 
(1
)
 
—


(74
)
 
(75
)
Balance at September 30, 2012
$
2,385

 
$
(168
)
 
$
7,806

 
$
10,023

 
$
238

 
$
1,759

 
$
12,020

1 
Funds contributed by third-party investors related to the Capistrano Wind equity capital raise are reported in noncontrolling interest. For further information, see Note 3.
2 
Common stock was reduced by $21 million during the nine months ended September 30, 2012 due to a new tax basis in the assets transferred to Capistrano Wind Partners. For further information, see Note 3.

11



The following table provides the changes in equity for the nine months ended September 30, 2011
 
Equity Attributable to Edison International
 
Noncontrolling
Interests
 
 
(in millions)
Common
Stock
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
 
Subtotal
 
Other
 
Preferred
and
Preference
Stock
 
Total
Equity
Balance at December 31, 2010
$
2,331

 
$
(76
)
 
$
8,328

 
$
10,583

 
$
4

 
$
907

 
$
11,494

Net income (loss)
—

 
—

 
802

 
802

 
(1
)
 
44

 
845

Other comprehensive loss
—

 
(48
)
 
—

 
(48
)
 
—

 
—

 
(48
)
Common stock dividends declared ($0.96 per share)
—

 
—

 
(313
)
 
(313
)
 
—

 
—

 
(313
)
Dividends, distributions to noncontrolling interests and other
—

 
—

 
—

 
—

 
(1
)
 
(44
)
 
(45
)
Stock-based compensation and other
7

 
—

 
(21
)
 
(14
)
 
—

 
—

 
(14
)
Noncash stock-based compensation and other
22

 
—

 
(3
)
 
19

 
—

 
(1
)
 
18

Purchase of noncontrolling interest1
(14
)
 
—

 
—

 
(14
)
 
—

 
—

 
(14
)
Issuance of preference stock
—

 
—

 
—

 
—

 
—

 
123

 
123

Balance at September 30, 2011
$
2,346

 
$
(124
)
 
$
8,793

 
$
11,015

 
$
2

 
$
1,029

 
$
12,046

1 
During the nine months ended September 30, 2011, EMG purchased the remaining interests in Pinnacle Wind Force, LLC, and Broken Bow I, LLC and all assets of the Crofton Bluffs project. All three projects are now 100% owned by EMG. The purchases of the noncontrolling interests were accounted for as equity transactions between controlling and noncontrolling interest holders.
Note 3.    Variable Interest Entities
Categories of Variable Interest Entities
Projects or Entities that are Consolidated
At September 30, 2012 and December 31, 2011, 16 and 13 wind projects were consolidated with a total generating capacity of 861 MW and 570 MW, respectively, that have noncontrolling interests held by others. The increase from the projects consolidated after December 31, 2011 was due to the Capistrano Wind equity capital transaction discussed below. In determining that Edison International's subsidiary, EME, was the primary beneficiary of the projects that are consolidated, key factors considered were EME's ability to direct commercial and operating activities and EME's obligation to absorb losses of the variable interest entities.

12



The following table presents summarized financial information of the projects that were consolidated by EMG:
(in millions)
September 30,
2012
 
December 31,
2011
Current assets
$
71

 
$
36

Net property, plant and equipment
1,090

 
675

Other long-term assets
73

 
5

Total assets
$
1,234

 
$
716

Current liabilities
$
40

 
$
28

Long-term debt net of current portion
172

 
57

Deferred revenues
172

 
69

Long-term derivative liabilities
23

 
—

Other long-term liabilities
38

 
22

Total liabilities
$
445

 
$
176

Noncontrolling interests
$
238

 
$
2

Assets serving as collateral for the debt obligations had a carrying value of $467 million and $136 million at September 30, 2012 and December 31, 2011, respectively, and primarily consist of property, plant and equipment.
Capistrano Wind Equity Capital
On February 13, 2012, Edison Mission Wind Inc. ("Edison Mission Wind") sold its indirect equity interests in the Cedro Hill wind project (150 MW in Texas), the Mountain Wind Power I project (61 MW in Wyoming) and the Mountain Wind Power II project (80 MW in Wyoming) to a new venture, Capistrano Wind Partners. Outside investors provided $238 million of the funding. Capistrano Wind Partners also agreed to acquire the Broken Bow I wind project (80 MW in Nebraska) and the Crofton Bluffs wind project (40 MW in Nebraska) for consideration expected to include $140 million from the same outside investors upon the satisfaction of specified conditions, including commencement of commercial operation and conversion of project debt financing to term loans. In March 2012, EME received a distribution of the proceeds from outside investors, which was used for general corporate purposes. Through their ownership of Capistrano Wind Holdings, an indirect subsidiary of EME, Edison Mission Wind, and EME's parent company, Mission Energy Holding Company ("MEHC"), own 100% of the Class A equity interests in Capistrano Wind Partners, and the Class B preferred equity interests are held by outside investors. Under the terms of the formation documents, preferred equity interests receive 100% of the cash available for distribution, up to a scheduled amount to target a certain return and thereafter cash distributions are shared. Cash available for distribution includes 90% of the tax benefits realized by MEHC and contributed to Capistrano Wind Partners.
Edison Mission Wind retains indirect beneficial ownership of the common equity in the projects, net of a $4 million preferred investment made by MEHC, a note receivable of $107 million from the sale of the project companies, and retains responsibilities for managing the operations of Capistrano Wind Holdings and its projects, and accordingly, EME will continue to consolidate these projects. The $238 million contributed by the third-party interests is reflected in "Other noncontrolling interests" on Edison International's consolidated balance sheets at September 30, 2012. This transaction was accounted for as a transfer among entities under common control and, therefore, resulted in no change in the book basis of the transferred assets. However, the transaction triggered a taxable gain and new tax basis in the assets with a corresponding adjustment to deferred taxes and a reduction to equity of $21 million.
Variable Interest in VIEs that are not Consolidated
Power Purchase Contracts
SCE has 17 power purchase agreements ("PPAs") that have variable interests in VIEs, including 7 tolling agreements through which SCE provides the natural gas to fuel the plants and 10 contracts with qualifying facilities ("QFs") that contain variable pricing provisions based on the price of natural gas. SCE has concluded that it is not the primary beneficiary of these VIEs since it does not control the commercial and operating activities of these entities. In general, because payments for capacity are the primary source of income, the most significant economic activity for these VIEs is the operation and maintenance of the power plants.
As of the balance sheet date, the carrying amount of assets and liabilities in SCE's consolidated balance sheet that relate to its involvement with VIEs result from amounts due under the PPAs or the fair value of those derivative contracts. Under these

13



contracts, SCE recovers the costs incurred through demonstration of compliance with its CPUC-approved long-term power procurement plans. SCE has no residual interest in the entities and has not provided or guaranteed any debt or equity support, liquidity arrangements, performance guarantees or other commitments associated with these contracts other than the purchase commitments described in Note 9. As a result, there is no significant potential exposure to loss as a result of SCE's involvement with these VIEs. The aggregate capacity dedicated to SCE for these VIE projects was 3,900 MW at September 30, 2012 and the amounts that SCE paid to these projects were $158 million and $178 million for the three months ended September 30, 2012 and 2011, respectively, and $292 million and $347 million for the nine months ended September 30, 2012 and 2011, respectively. These amounts are recoverable in customer rates, subject to reasonableness review.
Unconsolidated Trust
In May 2012, SCE Trust I issued $475 million (aggregate liquidation preference) of 5.625% trust securities (cumulative, liquidation amount of $25 per share) to the public and $10,000 of common stock (100%) to SCE. The trust invested the proceeds of these trust securities in Series F Preference Stock issued by SCE in the principal amount of $475 million (cumulative, $2,500 per share liquidation value) and which have substantially the same payment terms as the trust securities. The trust securities and the Series F Preference Stock do not have a maturity date. Upon any redemption of the Series F Preference Stock, a corresponding dollar amount of trust securities will be redeemed (for further information see Note 13). SCE Trust I will pay dividends at the same rate and on the same dates on the trust securities when, and if the SCE board of directors declare and make dividend payments on the Series F Preference Stock. The trust will use the dividends, if any, it receives on the Series F Preference Stock to make its corresponding dividend payments on the trust securities. If SCE does not make dividend payments to the trust, SCE would be prohibited from paying dividends on its common stock. SCE has fully and unconditionally guaranteed the payment of the trust securities and also its dividend payments, if and when, SCE pays dividends on the Series F Preference Stock.
SCE Trust I was formed for the exclusive purpose of issuing trust preference securities (“trust securities”). The trust is a VIE. SCE has concluded that it is not the primary beneficiary of this VIE as it does not have the obligation to absorb the expected losses or the right to receive the expected residual returns of the trust. The trust's balance sheet as of September 30, 2012, consisted of an investment of $475 million in the Series F Preference Stock, $475 million of trust securities and $10,000 of common stock. The trust's income statement consisted of dividend income and accrued dividend payments of $7 million and $10 million for the three- and nine-months ended September 30, 2012, respectively.
Note 4.    Fair Value Measurements
Recurring Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (referred to as an “exit price”). Fair value of an asset or liability considers assumptions that market participants would use in pricing the asset or liability, including assumptions about nonperformance risk which was not material as of September 30, 2012 and December 31, 2011.
Assets and liabilities are categorized into a three-level fair value hierarchy based on valuation inputs used to determine fair value. The hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

14



The following table sets forth assets and liabilities that were accounted for at fair value by level within the fair value hierarchy:
 
September 30, 2012
(in millions)
Level 1
 
Level 2
 
Level 3
 
Netting
and
Collateral1
 
Total
Assets at Fair Value
 
 
 
 
 
 
 
 
 
Money market funds2
$
933

 
$
—

 
$
—

 
$
—

 
$
933

Derivative contracts:
 
 
 
 
 
 
 
 
 
Electricity
—

 
85

 
148

 
(44
)
 
189

Natural gas
1

 
—

 
—

 
(1
)
 
—

Fuel Oil
2

 
—

 
—

 
(2
)
 
—

Tolling
—

 
—

 
4

 
—

 
4

Subtotal of derivative contracts
3

 
85

 
152

 
(47
)
 
193

Long-term disability plan
8

 
—

 
—

 
—

 
8

Nuclear decommissioning trusts:
 
 
 
 
 
 
 
 
 
Stocks3
2,227

 
—

 
—

 
—

 
2,227

Municipal bonds
—

 
654

 
—

 
—

 
654

U.S. government and agency securities
467

 
122

 
—

 
—

 
589

Corporate bonds4
—

 
374

 
—

 
—

 
374

Short-term investments, primarily cash equivalents5
—

 
145

 
—

 
—

 
145

Subtotal of nuclear decommissioning trusts
2,694

 
1,295

 
—

 
—

 
3,989

Total assets6
3,638

 
1,380

 
152

 
(47
)
 
5,123

Liabilities at Fair Value
 
 
 
 
 
 
 
 
 
Derivative contracts:
 
 
 
 
 
 
 
 
 
Electricity
—

 
8

 
17

 
(15
)
 
10

Natural gas
1

 
115

 
6

 
(48
)
 
74

Tolling
—

 
—

 
617

 
—

 
617

Subtotal of derivative contracts
1

 
123

 
640

 
(63
)
 
701

Interest rate contracts
—

 
125

 
—

 
—

 
125

Total liabilities
1

 
248

 
640

 
(63
)
 
826

Net assets (liabilities)
$
3,637

 
$
1,132

 
$
(488
)
 
$
16

 
$
4,297


15



 
December 31, 2011
(in millions)
Level 1
 
Level 2
 
Level 3
 
Netting
and
Collateral1
 
Total
Assets at Fair Value
 
 
 
 
 
 
 
 
 
Money market funds2
$
1,293

 
$
—

 
$
—

 
$
—

 
$
1,293

Derivative contracts:
 
 
 
 
 
 
 
 
 
Electricity
—

 
65

 
218

 
(58
)
 
225

Natural gas
4

 
5

 
—

 
(7
)
 
2

Fuel oil
4

 
—

 
—

 
(4
)
 
—

Tolling
—

 
—

 
10

 
—

 
10

Subtotal of derivative contracts
8

 
70

 
228

 
(69
)
 
237

Long-term disability plan
8

 
—

 
—

 
—

 
8

Nuclear decommissioning trusts:
 
 
 
 
 
 
 
 
 
Stocks3
1,899

 
—

 
—

 
—

 
1,899

Municipal bonds
—

 
756

 
—

 
—

 
756

U.S. government and agency securities
433

 
147

 
—

 
—

 
580

Corporate bonds4
—

 
317

 
—

 
—

 
317

Short-term investments, primarily cash equivalents5
—

 
15

 
—

 
—

 
15

Subtotal of nuclear decommissioning trusts
2,332

 
1,235

 
—

 
—

 
3,567

Total assets6
3,641

 
1,305

 
228

 
(69
)
 
5,105

Liabilities at Fair Value
 
 
 
 
 
 
 
 
 
Derivative contracts:
 
 
 
 
 
 
 
 
 
Electricity
—

 
10

 
77

 
(17
)
 
70

Natural gas
—

 
234

 
23

 
(52
)
 
205

Tolling
—

 
—

 
451

 
—

 
451

Subtotal of derivative contracts
—

 
244

 
551

 
(69
)
 
726

Interest rate contracts
—

 
90

 
—

 
—

 
90

Total liabilities
—

 
334

 
551

 
(69
)
 
816

Net assets (liabilities)
$
3,641

 
$
971

 
$
(323
)
 
$
—

 
$
4,289

1 
Represents the netting of assets and liabilities under master netting agreements and cash collateral across the levels of the fair value hierarchy. Netting among positions classified within the same level is included in that level.
2 
Money market funds are included in cash and cash equivalents and restricted cash and cash equivalents on Edison International's consolidated balance sheets.
3 
Approximately 67% and 70% of the equity investments were located in the United States at September 30, 2012 and December 31, 2011, respectively.
4 
At September 30, 2012 and December 31, 2011, corporate bonds were diversified and included collateralized mortgage obligations and other asset backed securities of $42 million and $22 million, respectively.
5 
Excludes net receivables of $8 million and $25 million at September 30, 2012 and December 31, 2011, respectively, of interest and dividend receivables as well as receivables and payables related to pending securities sales and purchases.
6 
Excludes other investments of $70 million and $81 million at September 30, 2012 and December 31, 2011, respectively, primarily related to the cash surrender value of company owned life insurance investments which are used to fund certain executive benefits including deferred compensation. Also excludes other investments of $77 million and $118 million at September 30, 2012 and December 31, 2011, respectively, primarily related to leveraged leases.

16



The following table sets forth a summary of changes in the fair value of Level 3 net derivative assets and liabilities:
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
(in millions)
2012
 
2011
 
2012
 
2011
 
Fair value of net assets (liabilities) at beginning of period
$
(343
)