Edgar Filing: EDISON INTERNATIONAL

EIX-SCE 2014 Q1

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2014
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	Exact Name of Registrant as specified in its charter	State or Other Jurisdiction of Incorporation or Organization	IRS Employer Identification Number
1-9936	EDISON INTERNATIONAL	California	95-4137452
1-2313	SOUTHERN CALIFORNIA EDISON COMPANY	California	95-1240335



EDISON INTERNATIONAL		SOUTHERN CALIFORNIA EDISON COMPANY
2244 Walnut Grove Avenue (P.O. Box 976) Rosemead, California 91770 (Address of principal executive offices)		2244 Walnut Grove Avenue (P.O. Box 800) Rosemead, California 91770 (Address of principal executive offices)
(626) 302-2222 (Registrant's telephone number, including area 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 (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.

Edison International Yes þ No o Southern California Edison Company Yes þ No o

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).

Edison International Yes þ No o Southern California Edison Company Yes þ 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 "accelerated filer," "large accelerated filer," and "smaller reporting company" in Rule 12b-12 of the Exchange Act. (Check One):
Edison International	Large Accelerated Filer þ	Accelerated Filer ¨	Non-accelerated Filer ¨	Smaller Reporting Company ¨
Southern California Edison Company	Large Accelerated Filer ¨	Accelerated Filer ¨	Non-accelerated Filer þ	Smaller Reporting Company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Edison International Yes ¨ No þ Southern California Edison Company Yes ¨ No þ

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:



Common Stock outstanding as of April 25, 2014:
Edison International		325,811,206 shares
Southern California Edison Company		434,888,104 shares

TABLE OF CONTENTS



GLOSSARY			iii
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS			2
	Edison International Consolidated Statements of Income		2
	Edison International Consolidated Statements of Comprehensive Income		3
	Edison International Consolidated Balance Sheets		4
	Edison International Consolidated Statements of Cash Flows		6
	SCE Consolidated Statements of Income		7
	SCE Consolidated Statements of Comprehensive Income		7
	SCE Consolidated Balance Sheets		8
	SCE Consolidated Statements of Cash Flows		10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			11
	Note 1. Summary of Significant Accounting Policies		11
	Note 2. Consolidated Statements of Changes in Equity		13
	Note 3. Variable Interest Entities		14
	Note 4. Fair Value Measurements		16
	Note 5. Debt and Credit Agreements		20
	Note 6. Derivative Instruments		20
	Note 7. Income Taxes		22
	Note 8. Compensation and Benefit Plans		23
	Note 9. San Onofre Issues		24
	Note 10. Other Investments		27
	Note 11. Regulatory Assets and Liabilities		28
	Note 12. Commitments and Contingencies		29
	Note 13. Preferred and Preference Stock of Utility		32
	Note 14. Accumulated Other Comprehensive Loss		32
	Note 15. Interest and Other Income and Other Expenses		33
	Note 16. Discontinued Operations		33
	Note 17. Supplemental Cash Flows Information		34
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			35
FORWARD-LOOKING STATEMENTS			35
MANAGEMENT OVERVIEW			37
	Highlights of Operating Results		37
	San Onofre Issues		38
	ERRA Balancing Account		42
	2015 General Rate Case		43
	Capital Program		43
	EME Chapter 11 Bankruptcy		43
RESULTS OF OPERATIONS			44
	Southern California Edison Company		44
		Utility Earning Activities	45
		Utility Cost-Recovery Activities	45
	Supplemental Operating Revenue Information		46



	Income Taxes		46
	Edison International Parent and Other		46
	Income (Loss) from Discontinued Operations (Net of Tax)		46
LIQUIDITY AND CAPITAL RESOURCES			46
	Southern California Edison Company		46
		Available Liquidity	46
		Dividend Restrictions	47
		Margin and Collateral Deposits	47
	Edison International Parent and Other		47
	Historical Cash Flows		48
		Southern California Edison Company	48
		Edison International Parent and Other	49
	Contingencies		49
		Environmental Remediation	49
MARKET RISK EXPOSURES			49
	Commodity Price Risk		50
	Credit Risk		50
CRITICAL ACCOUNTING ESTIMATES AND POLICIES			50
NEW ACCOUNTING GUIDANCE			50
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			50
ITEM 4. CONTROLS AND PROCEDURES			51
	Disclosure Controls and Procedures		51
	Changes in Internal Control Over Financial Reporting		51
	Jointly Owned Utility Plant		51
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS			51
	EME Chapter 11 Bankruptcy		51
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			51
	Purchases of Equity Securities by Edison International and Affiliated Purchasers		51
ITEM 6. EXHIBITS			52
SIGNATURES			53

This is a combined Form 10-Q separately filed by Edison International and Southern California Edison Company. Information contained herein relating to an individual company is filed by such company on its own behalf. Each company makes representations only as to itself and makes no other representation whatsoever as to any other company.

GLOSSARY

The following terms and abbreviations appearing in the text of this report have the meanings indicated below.



2013 Form 10-K		Edison International's and SCE's combined Annual Report on Form 10-K for the year-ended December 31, 2013
APS		Arizona Public Service Company
ARO(s)		asset retirement obligation(s)
Bankruptcy Code		Chapter 11 of the United States Bankruptcy Code
Bankruptcy Court		United States Bankruptcy Court for the Northern District of Illinois, Eastern Division
Bcf		billion cubic feet
CAA		Clean Air Act
CAISO		California Independent System Operator
CARB		California Air Resources Board
CDWR		California Department of Water Resources
CEC		California Energy Commission
Competitive Businesses		competitive businesses related to the generation, delivery and use of electricity
CPUC		California Public Utilities Commission
CRRs		congestion revenue rights
DOE		U.S. Department of Energy
EME		Edison Mission Energy
EMG		Edison Mission Group Inc.
EPS		earnings per share
ERRA		energy resource recovery account
FASB		Financial Accounting Standards Board
FERC		Federal Energy Regulatory Commission
Four Corners		coal fueled electric generating facility located in Farmington, New Mexico in which SCE held a 48% ownership interest
GAAP		generally accepted accounting principles
GHG		greenhouse gas
GRC		general rate case
GWh		gigawatt-hours
IRS		Internal Revenue Service
ISO		Independent System Operator
kWh(s)		kilowatt-hour(s)
MD&A		Management's Discussion and Analysis of Financial Condition and Results of Operations in this report
MHI		Mitsubishi Heavy Industries, Ltd. and related companies
Moody's		Moody's Investors Service
MW		megawatts
MWh		megawatt-hours
NAAQS		national ambient air quality standards
NERC		North American Electric Reliability Corporation
NRC		Nuclear Regulatory Commission
OII		Order Instituting Investigation
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)
Petition Date		December 17, 2012 (date on which EME and certain of its wholly-owned subsidiaries filed for protection under Chapter 11 of the Bankruptcy Code)
PG&E		Pacific Gas & Electric Company

iii



QF(s)		qualifying facility(ies)
ROE		return on common equity
S&P		Standard & Poor's Ratings Services
San Onofre		retired nuclear generating facility located in south San Clemente, California in which SCE holds a 78.21% ownership interest
SCE		Southern California Edison Company
SDG&E		San Diego Gas & Electric
SEC		U.S. Securities and Exchange Commission
SED		Safety and Enforcement Division of the CPUC, formerly known as the Consumer Protection and Safety Division or CPSD
US EPA		U.S. Environmental Protection Agency
VIE(s)		variable interest entity(ies)

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS



Consolidated Statements of Income	Edison International

	Three months ended March 31,
(in millions, except per-share amounts, unaudited)	2014			2013
Operating revenue	$	2,926		$	2,632
Fuel	72			73
Purchased power	1,071			780
Operation and maintenance	811			873
Depreciation, decommissioning and amortization	410			414
Impairment and other charges	231			—
Total operating expenses	2,595			2,140
Operating income	331			492
Interest and other income	23			34
Interest expense	(141		)	(131		)
Other expenses	(8		)	(11		)
Income from continuing operations before income taxes	205			384
Income tax expense (benefit)	(19		)	98
Income from continuing operations	224			286
Income (loss) from discontinued operations, net of tax	(22		)	12
Net income	202			298
Preferred and preference stock dividend requirements of utility	26			27
Net income attributable to Edison International common shareholders	$	176		$	271
Amounts attributable to Edison International common shareholders:
Income from continuing operations, net of tax	$	198		$	259
Income (loss) from discontinued operations, net of tax	(22		)	12
Net income attributable to Edison International common shareholders	$	176		$	271
Basic earnings (loss) per common share attributable to Edison International common shareholders:
Weighted-average shares of common stock outstanding	326			326
Continuing operations	$	0.61		$	0.79
Discontinued operations	(0.07		)	0.04
Total	$	0.54		$	0.83
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
Continuing operations	$	0.61		$	0.78
Discontinued operations	(0.07		)	0.04
Total	$	0.54		$	0.82
Dividends declared per common share	$	0.355		$	0.3375

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





Consolidated Statements of Comprehensive Income	Edison International

	Three months ended March 31,
(in millions, unaudited)	2014		2013
Net income	$	202	$	298
Other comprehensive income, net of tax:
Pension and postretirement benefits other than pensions:
Amortization of net loss included in net income	2		—
Other comprehensive income, net of tax	2		—
Comprehensive income	204		298
Less: Comprehensive income attributable to noncontrolling interests	26		27
Comprehensive income attributable to Edison International	$	178	$	271

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



Consolidated Balance Sheets	Edison International

(in millions, unaudited)	March 31, 2014		December 31, 2013
ASSETS
Cash and cash equivalents	$	149	$	146
Receivables, less allowances of $67 and $66 for uncollectible accounts at respective dates	725		838
Accrued unbilled revenue	576		596
Inventory	268		256
Derivative assets	112		122
Regulatory assets	931		538
Deferred income taxes	369		421
Other current assets	390		395
Total current assets	3,520		3,312
Nuclear decommissioning trusts	4,587		4,494
Other investments	220		207
Total investments	4,807		4,701
Utility property, plant and equipment, less accumulated depreciation of $7,691 and $7,493 at respective dates	30,741		30,379
Nonutility property, plant and equipment, less accumulated depreciation of $76 and $74 at respective dates	76		76
Total property, plant and equipment	30,817		30,455
Derivative assets	240		251
Regulatory assets	7,351		7,241
Other long-term assets	653		686
Total long-term assets	8,244		8,178









Total assets	$	47,388	$	46,646

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



Consolidated Balance Sheets	Edison International

(in millions, except share amounts, unaudited)	March 31, 2014			December 31, 2013
LIABILITIES AND EQUITY
Short-term debt	$	611		$	209
Current portion of long-term debt	601			601
Accounts payable	1,116			1,407
Accrued taxes	423			358
Customer deposits	204			201
Derivative liabilities	143			152
Regulatory liabilities	455			767
Other current liabilities	1,004			1,186
Total current liabilities	4,557			4,881
Long-term debt	9,825			9,825
Deferred income taxes and credits	7,437			7,346
Derivative liabilities	985			1,042
Pensions and benefits	1,360			1,378
Asset retirement obligations	3,471			3,418
Regulatory liabilities	5,655			4,995
Other deferred credits and other long-term liabilities	2,096			2,070
Total deferred credits and other liabilities	21,004			20,249
Total liabilities	35,386			34,955
Commitments and contingencies (Note 12)
Common stock, no par value (800,000,000 shares authorized; 325,811,206 shares issued and outstanding at respective dates)	2,417			2,403
Accumulated other comprehensive loss	(11		)	(13		)
Retained earnings	7,573			7,548
Total Edison International's common shareholders' equity	9,979			9,938
Preferred and preference stock of utility	2,023			1,753
Total noncontrolling interests	2,023			1,753
Total equity	12,002			11,691



Total liabilities and equity	$	47,388		$	46,646

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



Consolidated Statements of Cash Flows	Edison International

	Three months ended March 31,
(in millions, unaudited)	2014			2013
Cash flows from operating activities:
Net income	$	202		$	298
Less: Income (loss) from discontinued operations	(22		)	12
Income from continuing operations	224			286
Adjustments to reconcile to net cash provided by operating activities:
Depreciation, decommissioning and amortization	410			414
Regulatory impacts of net nuclear decommissioning trust earnings	29			25
Impairment and other charges	231			—
Deferred income taxes and investment tax credits	(6		)	174
Other	23			23
Changes in operating assets and liabilities:
Receivables	112			(38		)
Inventory	(12		)	(11		)
Accounts payable	(63		)	(65		)
Other current assets and liabilities	(80		)	(120		)
Derivative assets and liabilities, net	(46		)	79
Regulatory assets and liabilities, net	(331		)	(199		)
Other noncurrent assets and liabilities	7			(62		)
Net cash provided by operating activities	498			506
Cash flows from financing activities:
Long-term debt issued, net of premium, discount, and issuance costs of $1 and $4 at respective dates	(1		)	394
Long-term debt matured or repurchased	(2		)	(1		)
Preference stock issued, net	270			387
Preference stock redeemed	—			(400		)
Short-term debt financing, net	401			245
Settlements of stock-based compensation, net	(42		)	(32		)
Dividends to noncontrolling interests	(30		)	(30		)
Dividends paid	(116		)	(110		)
Net cash provided by financing activities	480			453
Cash flows from investing activities:
Capital expenditures	(940		)	(979		)
Proceeds from sale of nuclear decommissioning trust investments	1,502			435
Purchases of nuclear decommissioning trust investments and other	(1,536		)	(466		)
Other	(1		)	(4		)
Net cash used by investing activities	(975		)	(1,014		)
Net increase (decrease) in cash and cash equivalents	3			(55		)
Cash and cash equivalents at beginning of period	146			170
Cash and cash equivalents at end of period	$	149		$	115

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



Consolidated Statements of Income	Southern California Edison Company



	Three months ended March 31,
(in millions, unaudited)	2014			2013
Operating revenue	$	2,924		$	2,629
Fuel	72			73
Purchased power	1,071			780
Operation and maintenance	713			785
Depreciation, decommissioning and amortization	410			414
Property and other taxes	85			79
Impairment and other charges	231			—
Total operating expenses	2,582			2,131
Operating income	342			498
Interest and other income	23			32
Interest expense	(136		)	(125		)
Other expenses	(7		)	(10		)
Income before income taxes	222			395
Income tax expense (benefit)	(12		)	112
Net income	234			283
Less: Preferred and preference stock dividend requirements	26			27
Net income available for common stock	$	208		$	256



Consolidated Statements of Comprehensive Income

	Three months ended March 31,
(in millions, unaudited)	2014		2013
Net income	$	234	$	283
Other comprehensive income (loss), net of tax:
Pension and postretirement benefits other than pensions:
Net loss arising during the period plus amortization included in net income	1		(3		)
Other comprehensive income (loss), net of tax	1		(3		)
Comprehensive income	$	235	$	280

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



Consolidated Balance Sheets	Southern California Edison Company



(in millions, unaudited)	March 31, 2014		December 31, 2013
ASSETS
Cash and cash equivalents	$	46	$	54
Receivables, less allowances of $67 and $66 for uncollectible accounts at respective dates	702		813
Accrued unbilled revenue	576		596
Inventory	262		256
Derivative assets	112		122
Regulatory assets	931		538
Deferred income taxes	245		303
Other current assets	388		393
Total current assets	3,262		3,075
Nuclear decommissioning trusts	4,587		4,494
Other investments	150		140
Total investments	4,737		4,634
Utility property, plant and equipment, less accumulated depreciation of $7,691 and $7,493 at respective dates	30,741		30,379
Nonutility property, plant and equipment, less accumulated depreciation of $72 and $70 at respective dates	71		72
Total property, plant and equipment	30,812		30,451
Derivative assets	240		251
Regulatory assets	7,351		7,241
Other long-term assets	396		398
Total long-term assets	7,987		7,890






Total assets	$	46,798	$	46,050

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



Consolidated Balance Sheets	Southern California Edison Company



(in millions, except share amounts, unaudited)	March 31, 2014			December 31, 2013
LIABILITIES AND EQUITY
Short-term debt	$	405		$	175
Current portion of long-term debt	600			600
Accounts payable	1,089			1,373
Customer deposits	204			201
Derivative liabilities	143			152
Regulatory liabilities	455			767
Deferred income taxes	42			39
Other current liabilities	1,100			1,091
Total current liabilities	4,038			4,398
Long-term debt	9,423			9,422
Deferred income taxes and credits	7,928			7,841
Derivative liabilities	985			1,042
Pensions and benefits	932			951
Asset retirement obligations	3,471			3,418
Regulatory liabilities	5,655			4,995
Other deferred credits and other long-term liabilities	1,885			1,845
Total deferred credits and other liabilities	20,856			20,092
Total liabilities	34,317			33,912
Commitments and contingencies (Note 12)
Common stock, no par value (560,000,000 shares authorized; 434,888,104 shares issued and outstanding at respective dates)	2,168			2,168
Additional paid-in capital	598			592
Accumulated other comprehensive loss	(10		)	(11		)
Retained earnings	7,655			7,594
Total common shareholder's equity	10,411			10,343
Preferred and preference stock	2,070			1,795
Total equity	12,481			12,138
Total liabilities and equity	$	46,798		$	46,050

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



Consolidated Statements of Cash Flows	Southern California Edison Company



	Three months ended March 31,
(in millions, unaudited)	2014			2013
Cash flows from operating activities:
Net income	$	234		$	283
Adjustments to reconcile to net cash provided by operating activities:
Depreciation, decommissioning and amortization	410			414
Regulatory impacts of net nuclear decommissioning trust earnings	29			25
Impairment and other charges	231			—
Deferred income taxes and investment tax credits	(12		)	150
Other	22			22
Changes in operating assets and liabilities:
Receivables	111			1
Inventory	(7		)	(11		)
Accounts payable	(55		)	(63		)
Other current assets and liabilities	(80		)	(93		)
Derivative assets and liabilities, net	(46		)	79
Regulatory assets and liabilities, net	(331		)	(199		)
Other noncurrent assets and liabilities	15			(47		)
Net cash provided by operating activities	521			561
Cash flows from financing activities:
Long-term debt issued, net of premium, discount, and issuance costs of $4 for the three months ended March 31, 2013	—			394
Long-term debt matured or repurchased	(2		)	(1		)
Preference stock issued, net	270			387
Preference stock redeemed	—			(400		)
Short-term debt financing, net	229			229
Settlements of stock-based compensation, net	(22		)	(29		)
Dividends paid	(30		)	(150		)
Net cash provided by financing activities	445			430
Cash flows from investing activities:
Capital expenditures	(939		)	(979		)
Proceeds from sale of nuclear decommissioning trust investments	1,502			435
Purchases of nuclear decommissioning trust investments and other	(1,536		)	(466		)
Other	(1		)	1
Net cash used by investing activities	(974		)	(1,009		)
Net decrease in cash and cash equivalents	(8		)	(18		)
Cash and cash equivalents, beginning of period	54			45
Cash and cash equivalents, end of period	$	46		$	27

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Organization and Basis of Presentation

Edison International is the parent holding company of Southern California Edison Company ("SCE"). SCE is an investor-owned public utility primarily engaged in the business of supplying and delivering electricity to an approximately 50,000 square mile area of southern California. Edison International is also the parent company of subsidiaries that are engaged in competitive businesses related to the delivery or use of electricity. Such competitive business activities are currently not material to report as a separate business segment. These combined notes to the consolidated financial statements apply to both Edison International and SCE unless otherwise described. Edison International's consolidated financial statements include the accounts of Edison International, SCE and other wholly owned and controlled subsidiaries. References to Edison International refer to the consolidated group of Edison International and its subsidiaries. References to Edison International Parent and Other refer to Edison International Parent and its nonutility subsidiaries. SCE's consolidated financial statements include the accounts of SCE and its wholly owned and controlled subsidiaries. All intercompany transactions have been eliminated from the consolidated financial statements.

Edison International's and SCE's significant accounting policies were described in Note 1 of "Notes to Consolidated Financial Statements" included in the 2013 Form 10-K. The same accounting policies are followed for interim reporting purposes, with the exception of accounting principles adopted as of January 1, 2014, discussed below in "—New Accounting Guidance." This quarterly report should be read in conjunction with the financial statements and notes included in the 2013 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-month period ended March 31, 2014 are not necessarily indicative of the operating results for the full year.

The December 31, 2013 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.

Cash Equivalents

Cash equivalents included investments in money market funds. Generally, the carrying value of cash equivalents equals the fair value, as these investments have original maturities of three months or less. The cash equivalents were as follows:



	Edison International				SCE
(in millions)	March 31, 2014		December 31, 2013		March 31, 2014		December 31, 2013
Money market funds	$	67	$	68	$	6	$	8

Cash is temporarily invested until required for check clearing from the primary disbursement accounts. Checks issued, but not yet paid by the financial institution, are reclassified from cash to accounts payable at the end of each reporting period as follows:



	Edison International				SCE
(in millions)	March 31, 2014		December 31, 2013		March 31, 2014		December 31, 2013
Cash reclassified to accounts payable	$	149	$	168	$	148	$	163

Inventory

Inventory is primarily composed of materials, supplies and spare parts, and stated at the lower of cost or market, cost being determined by the average cost method.

Earnings Per Share

Edison International computes earnings per common 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 performance shares and restricted stock units, which earn dividend equivalents on an equal basis with common shares once the awards are vested. EPS attributable to Edison International common shareholders was computed as follows:



	Three months ended March 31,
(in millions)	2014		2013
Basic earnings per share – continuing operations:
Income from continuing operations available to common shareholders	$	198	$	259
Weighted average common shares outstanding	326		326
Basic earnings per share – continuing operations	$	0.61	$	0.79
Diluted earnings per share – continuing operations:
Income from continuing operations available to common shareholders	$	198	$	259
Income impact of assumed conversions	—		—
Income from continuing operations available to common shareholders and assumed conversions	$	198	$	259
Weighted average common shares outstanding	326		326
Incremental shares from assumed conversions	3		3
Adjusted weighted average shares – diluted	329		329
Diluted earnings per share – continuing operations	$	0.61	$	0.78

In addition to the participating securities discussed above, Edison International also may award stock options which are payable in common shares and are included in the diluted earnings per share calculation. Stock option awards to purchase 2,050,449 and 4,455,669 shares of common stock for the three months ended March 31, 2014 and 2013, 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 during the respective periods and, therefore, the effect would have been antidilutive.

New Accounting Guidance

Accounting Guidance Adopted in 2014

In July 2013, the FASB issued an accounting standards update that requires that an unrecognized tax benefit be presented on the balance sheet as a reduction of a deferred tax asset for a net operating loss ("NOL") or tax credit carryforward under certain circumstances. Edison International and SCE adopted this guidance effective January 1, 2014 and it did not have a material impact on the consolidated financial statements.

Accounting Guidance Not Yet Adopted

In April 2014, the FASB issued an accounting standards update which will reduce the number of disposals that qualify for reporting as a discontinued operation and will also increase the associated disclosure. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. In addition, this update also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. Edison International and SCE will adopt this guidance prospectively effective January 1, 2015.

Note 2. Consolidated Statements of Changes in Equity

The following table provides Edison International's changes in equity for the three months ended March 31, 2014:



	Equity Attributable to Edison International											Noncontrolling Interests
(in millions)	Common Stock		Accumulated Other Comprehensive Loss			Retained Earnings			Subtotal			Preferred and Preference Stock			Total Equity
Balance at December 31, 2013	$	2,403	$	(13	)	$	7,548		$	9,938		$	1,753		$	11,691
Net income	—		—			176			176			26			202
Other comprehensive income	—		2			—			2			—			2
Common stock dividends declared ($0.355 per share)	—		—			(116		)	(116		)	—			(116		)
Dividends, distributions to noncontrolling interests	—		—			—			—			(26		)	(26		)
Stock-based compensation and other	9		—			(50		)	(41		)	—			(41		)
Non-cash stock-based compensation and other	5		—			15			20			—			20
Issuance of preference stock	—		—			—			—			270			270
Balance at March 31, 2014	$	2,417	$	(11	)	$	7,573		$	9,979		$	2,023		$	12,002

The following table provides Edison International's changes in equity for the three months ended March 31, 2013:



	Equity Attributable to Edison International											Noncontrolling Interests
(in millions)	Common Stock		Accumulated Other Comprehensive Loss			Retained Earnings			Subtotal			Preferred and Preference Stock			Total Equity
Balance at December 31, 2012	$	2,373	$	(87	)	$	7,146		$	9,432		$	1,759		$	11,191
Net income	—		—			271			271			27			298
Common stock dividends declared ($0.3375 per share)	—		—			(110		)	(110		)	—			(110		)
Dividends, distributions to noncontrolling interests	—		—			—			—			(27		)	(27		)
Stock-based compensation and other	1		—			(33		)	(32		)	—			(32		)
Non-cash stock-based compensation and other	6		—			(4		)	2			—			2
Issuance of preference stock	—		—			—			—			387			387
Redemption of preference stock	—		—			(8		)	(8		)	(392		)	(400		)
Balance at March 31, 2013	$	2,380	$	(87	)	$	7,262		$	9,555		$	1,754		$	11,309

The following table provides SCE's changes in equity for the three months ended March 31, 2014:



	Equity Attributable to SCE
(in millions)	Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Preferred and Preference Stock		Total Equity
Balance at December 31, 2013	$	2,168	$	592		$	(11	)	$	7,594		$	1,795	$	12,138
Net income	—		—			—			234			—		234
Other comprehensive income	—		—			1			—			—		1
Dividends declared on common stock	—		—			—			(126		)	—		(126		)
Dividends on preferred and preference stock	—		—			—			(26		)	—		(26		)
Stock-based compensation and other	—		9			—			(31		)	—		(22		)
Non-cash stock-based compensation and other	—		2			—			10			—		12
Issuance of preference stock	—		(5		)	—			—			275		270
Balance at March 31, 2014	$	2,168	$	598		$	(10	)	$	7,655		$	2,070	$	12,481

The following table provides SCE's changes in equity for the three months ended March 31, 2013:



	Equity Attributable to SCE
(in millions)	Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Preferred and Preference Stock			Total Equity
Balance at December 31, 2012	$	2,168	$	581		$	(29	)	$	7,228		$	1,795		$	11,743
Net income	—		—			—			283			—			283
Other comprehensive income	—		—			(3		)	—			—			(3		)
Dividends declared on common stock	—		—			—			(120		)	—			(120		)
Dividends on preferred and preference stock	—		—			—			(27		)	—			(27		)
Stock-based compensation and other	—		—			—			(29		)	—			(29		)
Non-cash stock-based compensation and other	—		3			—			5			—			8
Issuance of preference stock	—		(13		)	—			—			400			387
Redemption of preference stock	—		8			—			(8		)	(400		)	(400		)
Balance at March 31, 2013	$	2,168	$	579		$	(32	)	$	7,332		$	1,795		$	11,842

Note 3. Variable Interest Entities

A VIE is defined as a legal entity whose equity owners do not have sufficient equity at risk, or, as a group, the holders of the equity investment at risk lack any of the following three characteristics: decision-making rights, the obligation to absorb losses, or the right to receive the expected residual returns of the entity. The primary beneficiary is identified as the variable interest holder that has both the power to direct the activities of the VIE that most significantly impact the entity's economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. The primary beneficiary is required to consolidate the VIE. Commercial and operating activities are generally the factors that most significantly impact the economic performance of such VIEs. Commercial and operating activities include construction, operation and maintenance, fuel procurement, dispatch and compliance with regulatory and contractual requirements.

Variable Interest in VIEs that are not Consolidated

Power Purchase Contracts

SCE has power purchase agreements ("PPAs") that are classified as variable interests in VIEs, including tolling agreements through which SCE provides the natural gas to fuel the plants and 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. Since 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 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 12 of the 2013 Form 10-K. As a result, there is no significant potential exposure to loss to SCE from its variable interest in these VIEs. The aggregate contracted capacity dedicated to SCE for these VIE projects was 5,641 MW and 3,578 MW at March 31, 2014 and 2013, respectively, and the amounts that SCE paid to these projects were $125 million and $98 million for the three months ended March 31, 2014 and 2013, respectively. These amounts are recoverable in customer rates, subject to reasonableness review.

Unconsolidated Trusts of SCE

SCE Trust I, Trust II and Trust III were formed in 2012, 2013 and 2014, respectively, for the exclusive purpose of issuing the 5.625%, 5.10% and 5.75% trust preference securities, respectively (“trust securities”). The trusts are VIEs. SCE has concluded that it is not the primary beneficiary of these VIEs as it does not have the obligation to absorb the expected losses or the right to receive the expected residual returns of the trusts. SCE Trust I, Trust II and Trust III issued $475 million, $400 million and $275 million, respectively, (cumulative, liquidation amount of $25 per share) to the public and $10,000 of common stock each to SCE. The trusts invested the proceeds of these trust securities in Series F, Series G and Series H Preference Stock issued by SCE in the principal amounts of $475 million, $400 million and $275 million (cumulative, $2,500 per share liquidation value), respectively, which have substantially the same payment terms as the trust securities.

The Series F, Series G and Series H Preference Stock and the corresponding trust securities do not have a maturity date. Upon any redemption of any shares of the Series F, Series G or Series H Preference Stock, a corresponding dollar amount of trust securities will be redeemed by the applicable trust (for further information see Note 13). The applicable trust will make distributions at the same rate and on the same dates on the applicable series of trust securities when and if the SCE board of directors declares and makes dividend payments on the Series F, Series G or Series H Preference Stock. The applicable trusts will use any dividends it receives on the Series F, Series G or Series H Preference Stock to make its corresponding distributions on the applicable series of trust securities. If SCE does not make a dividend payment to any of these trusts, SCE would be prohibited from paying dividends on its common stock. SCE has fully and unconditionally guaranteed the payment of the trust securities and trust distributions, if and when SCE pays dividends on the Series F, Series G and Series H Preference Stock.

The Trust I and Trust II balance sheets as of March 31, 2014 and December 31, 2013, consisted of investments of $475 million and $400 million in the Series F and Series G Preference Stock, respectively, $475 million and $400 million of trust securities, respectively, and $10,000 each of common stock. The Trust III balance sheet as of March 31, 2014 consisted of investments of $275 million in the Series H Preference Stock, $275 million of trust securities, and $10,000 of common stock.

The trusts' income statements consisted of both dividend income and dividend distributions in the amounts of $7 million and $7 million for the three months ended March 31, 2014 and 2013, respectively for Trust I, $5 million and $4 million for the three months ended March 31, 2014 and 2013, respectively for Trust II, and $1 million for the three months ended March 31, 2014 for Trust III.

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. As of March 31, 2014 and December 31, 2013, nonperformance risk was not material for Edison International and SCE.

Assets and liabilities are categorized into a three-level fair value hierarchy based on valuation inputs used to determine fair value.

Level 1 – The fair value of Edison International and SCE's Level 1 assets and liabilities is determined using unadjusted quoted prices in active markets that are available at the measurement date for identical assets and liabilities. This level includes exchange-traded equity securities and derivatives, U.S. treasury securities, mutual funds and money market funds.

Level 2 – Edison International and SCE's Level 2 assets and liabilities include fixed income securities primarily consisting of U.S. government and agency bonds, municipal bonds and corporate bonds and over-the-counter derivatives. The fair value of fixed income securities is determined using a market approach by obtaining quoted prices for similar assets and liabilities in active markets and inputs that are observable, either directly or indirectly, for substantially the full term of the instrument.

The fair value of SCE's over-the-counter derivative contracts is determined using an income approach. SCE uses standard pricing models to determine the net present value of estimated future cash flows. Inputs to the pricing models include forward published or posted clearing prices from exchanges (New York Mercantile Exchange and Intercontinental Exchange) for similar instruments and discount rates. A primary price source that best represents trade activity for each market is used to develop observable forward market prices in determining the fair value of these positions. Broker quotes, prices from exchanges or comparison to executed trades are used to validate and corroborate the primary price source. These price quotations reflect mid-market prices (average of bid and ask) and are obtained from sources believed to provide the most liquid market for the commodity.

Level 3 – The fair value of SCE's Level 3 assets and liabilities is determined using the income approach through various models and techniques that require significant unobservable inputs. This level includes over-the-counter options, tolling arrangements and derivative contracts that trade infrequently such as congestion revenue rights ("CRRs") and long-term power agreements. Edison International Parent and Other does not have any Level 3 assets and liabilities.

Assumptions are made in order to value derivative contracts in which observable inputs are not available. Changes in fair value are based on changes to forward market prices, including extrapolation of short-term observable inputs into forecasted prices for illiquid forward periods. In circumstances where fair value cannot be verified with observable market transactions, it is possible that a different valuation model could produce a materially different estimate of fair value. Modeling methodologies, inputs and techniques are reviewed and assessed as markets continue to develop and more pricing information becomes available and the fair value is adjusted when it is concluded that a change in inputs or techniques would result in a new valuation that better reflects the fair value of those derivative contracts.

SCE

The following table sets forth assets and liabilities of SCE that were accounted for at fair value by level within the fair value hierarchy:



	March 31, 2014
(in millions)	Level 1		Level 2		Level 3			Netting and Collateral¹			Total
Assets at fair value
Derivative contracts	$	—	$	20	$	345		$	(13	)	$	352
Other	38		—		—			—			38
Nuclear decommissioning trusts:
Stocks²	2,234		—		—			—			2,234
Fixed Income³	777		1,221		—			—			1,998
Short-term investments, primarily cash equivalents	335		75		—			—			410
Subtotal of nuclear decommissioning trusts⁴	3,346		1,296		—			—			4,642
Total assets	3,384		1,316		345			(13		)	5,032
Liabilities at fair value
Derivative contracts	—		29		1,118			(19		)	1,128
Total liabilities	—		29		1,118			(19		)	1,128
Net assets (liabilities)	$	3,384	$	1,287	$	(773	)	$	6		$	3,904



	December 31, 2013
(in millions)	Level 1		Level 2		Level 3			Netting and Collateral¹			Total
Assets at fair value
Derivative contracts	$	—	$	11	$	372		$	(10	)	$	373
Other	39		—		—			—			39
Nuclear decommissioning trusts:
Stocks²	2,208		—		—			—			2,208
Fixed Income³	841		1,102		—			—			1,943
Short-term investments, primarily cash equivalents	331		—		—			—			331
Subtotal of nuclear decommissioning trusts⁴	3,380		1,102		—			—			4,482
Total assets	3,419		1,113		372			(10		)	4,894
Liabilities at fair value
Derivative contracts	—		37		1,177			(20		)	1,194
Total liabilities	—		37		1,177			(20		)	1,194
Net assets (liabilities)	$	3,419	$	1,076	$	(805	)	$	10		$	3,700


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	Approximately 70% of SCE's equity investments were located in the United States at March 31, 2014 and December 31, 2013, respectively.


³	At March 31, 2014 and December 31, 2013, SCE's corporate bonds were diversified and included collateralized mortgage obligations and other asset backed securities of $46 million and $47 million, respectively.


⁴	Excludes net payables of $55 million and net receivables of $12 million at March 31, 2014 and December 31, 2013, respectively, of interest and dividend receivables as well as receivables and payables related to SCE's pending securities sales and purchases.

Edison International

Assets measured at fair value consisted of money market funds of $67 million and $68 million at March 31, 2014 and December 31, 2013, respectively, classified as Level 1.

SCE Fair Value of Level 3

The following table sets forth a summary of changes in SCE's fair value of Level 3 net derivative assets and liabilities:



	Three months ended March 31,
(in millions)	2014			2013
Fair value of net liabilities at beginning of period	$	(805	)	$	(791	)
Total realized/unrealized gains (losses):
Included in regulatory assets and liabilities¹	31			(82		)
Purchases	7			18
Settlements	(6		)	(27		)
Fair value of net liabilities at end of period	$	(773	)	$	(882	)
Change during the period in unrealized gains and losses related to assets and liabilities held at the end of the period	$	22		$	(66	)


¹	Due to regulatory mechanisms, SCE's realized and unrealized gains and losses are recorded as regulatory assets and liabilities.

Edison International and SCE recognize the fair value for transfers in and transfers out of each level at the end of each reporting period. There were no transfers between any levels during 2014 and 2013.

Valuation Techniques Used to Determine Fair Value

The process of determining fair value is the responsibility of SCE's risk management department, which reports to SCE's chief financial officer. This department obtains observable and unobservable inputs through broker quotes, exchanges and internal valuation techniques that use both standard and proprietary models to determine fair value. Each reporting period, the risk and finance departments collaborate to determine the appropriate fair value methodologies and classifications for each derivative. Inputs are validated for reasonableness by comparison against prior prices, other broker quotes and volatility fluctuation thresholds. Inputs used and valuations are reviewed period-over-period and compared with market conditions to determine reasonableness.

The following table sets forth SCE's valuation techniques and significant unobservable inputs used to determine fair value for significant Level 3 assets and liabilities:



	Fair Value (in millions)					Significant	Range
	Assets		Liabilities		Valuation Technique(s)	Unobservable Input	(Weighted Average)
Congestion revenue rights
March 31, 2014	$	345	$	—	Market simulation model	Load forecast	7,603 MW - 24,896 MW
						Power prices	$(9.86) - $108.56
						Gas prices	$3.50 - $7.10
December 31, 2013	366		—		Market simulation model	Load forecast	7,603 MW - 24,896 MW
						Power prices	$(9.86) - $108.56
						Gas prices	$3.50 - $7.10
Tolling
March 31, 2014	4		1,111		Option model	Volatility of gas prices	13% - 31% (18%)
						Volatility of power prices	26% - 61% (32%)
						Power prices	$37.50 - $70.80 ($50.10)
December 31, 2013	5		1,175		Option model	Volatility of gas prices	16% - 35% (21%)
						Volatility of power prices	25% - 45% (30%)
						Power prices	$38.00 - $63.90 ($47.40)

Level 3 Fair Value Sensitivity

Congestion Revenue Rights

For CRRs, where SCE is the buyer, generally increases (decreases) in forecasted load in isolation would result in increases (decreases) to the fair value. In general, an increase (decrease) in electricity and gas prices at illiquid locations tends to result in increases (decreases) to fair value; however, changes in electricity and gas prices in opposite directions may have varying results on fair value.

Tolling Arrangements

The fair values of SCE's tolling arrangements contain intrinsic value and time value. Intrinsic value is the difference between the market price and strike price of the underlying commodity. Time value is made up of several components, including volatility, time to expiration, and interest rates. The option model for tolling arrangements reflects plant specific information such as operating and start-up costs.

For tolling arrangements where SCE is the buyer, increases in volatility of the underlying commodity prices would result in increases to fair value as it represents greater price movement risk. As power and gas prices increase, the fair value of tolling arrangements tends to increase. The valuation of tolling arrangements is also impacted by the correlation between gas and power prices. As the correlation increases, the fair value of tolling arrangements tends to decline.

Nuclear Decommissioning Trusts

SCE's nuclear decommissioning trust investments include equity securities, U.S. treasury securities and other fixed income securities. Equity and treasury securities are classified as Level 1 as fair value is determined by observable market prices in active or highly liquid and transparent markets. The remaining fixed income securities are classified as Level 2. The fair value of these financial instruments is based on evaluated prices that reflect significant observable market information such as reported trades, actual trade information of similar securities, benchmark yields, broker/dealer quotes, issuer spreads, bids, offers and relevant credit information.

Fair Value of Long-Term Debt Recorded at Carrying Value

The carrying value and fair value of Edison International and SCE's long-term debt (including current portion of long-term debt) are as follows:



	March 31, 2014				December 31, 2013
(in millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
SCE	$	10,023	$	11,012	$	10,022	$	10,656
Edison International	10,426		11,442		10,426		11,084

The fair value of Edison International and SCE's short-term and long-term debt is classified as Level 2 and is based on evaluated prices that reflect significant observable market information such as reported trades, actual trade information of similar securities, benchmark yields, broker/dealer quotes of new issue prices and relevant credit information.

The carrying value of Edison International and SCE's trade receivables and payables, other investments, and short-term debt approximates fair value.

Note 5. Debt and Credit Agreements

Credit Agreements and Short-Term Debt

In January 2014, SCE issued $300 million of floating rate first and refunding mortgage bonds due in January 2015. The proceeds from these bonds were used for working capital to fund the ERRA balancing account undercollections.

At March 31, 2014, SCE's outstanding commercial paper was $105 million at a weighted-average interest rate of 0.20%. This commercial paper was supported by a $2.75 billion multi-year revolving credit facility. At March 31, 2014, letters of credit issued under SCE's credit facility aggregated $141 million and are scheduled to expire in twelve months or less. At December 31, 2013, the outstanding commercial paper was $175 million at a weighted-average interest rate of 0.24%.

At March 31, 2014, Edison International Parent's outstanding commercial paper was $206 million at a weighted-average interest rate of 0.51%. This commercial paper was supported by a $1.25 billion multi-year revolving credit facility. At December 31, 2013, the outstanding commercial paper was $34 million at a weighted-average interest rate of 0.55%.

Note 6. Derivative Instruments

Derivative financial instruments are used to manage exposure to commodity price risk. These risks are managed in part by entering into forward commodity transactions, including options, swaps and futures. To mitigate credit risk from counterparties in the event of nonperformance, master netting agreements are used whenever possible and counterparties may be required to pledge collateral depending on the creditworthiness of each counterparty and the risk associated with the transaction.

Commodity Price Risk

Commodity price risk represents the potential impact that can be caused by a change in the market value of a particular commodity. SCE's electricity price exposure arises from energy purchased from and sold to wholesale markets as a result of differences between SCE's load requirements and the amount of energy delivered from its generating facilities and power purchase agreements. SCE's natural gas price exposure arises from natural gas purchased for the Mountainview power plant and peaker plants, QF contracts where pricing is based on a monthly natural gas index and power purchase agreements in which SCE has agreed to provide the natural gas needed for generation, referred to as tolling arrangements.

Credit and Default Risk

Credit and default risk represents the potential impact that can be caused if a counterparty were to default on its contractual obligations and SCE would be exposed to spot markets for buying replacement power or selling excess power. In addition, SCE would be exposed to the risk of non-payment of accounts receivable, primarily related to the sales of excess power and realized gains on derivative instruments.

Certain power contracts contain master netting agreements or similar agreements, which generally allows counterparties subject to the agreement to setoff amounts when certain criteria are met, such as in the event of default. The objective of netting is to reduce credit exposure. Additionally, to reduce SCE's risk exposures counterparties may be required to pledge collateral depending on the credit worthiness of each counterparty and the risk associated with the transaction.

Certain power contracts contain a provision that requires SCE to maintain an investment grade rating from each of the major credit rating agencies, referred to as a credit-risk-related contingent feature. If SCE's credit rating were to fall below investment grade, SCE may be required to pay the derivative liability or post additional collateral. The net fair value of all derivative liabilities with these credit-risk-related contingent features was $53 million and $49 million as of March 31, 2014 and December 31, 2013, respectively, for which SCE has posted no collateral to its counterparties for the respective periods. If the credit-risk-related contingent features underlying these agreements were triggered on March 31, 2014, SCE would be required to post collateral in the amount of $10 million, excluding the impact of unpaid closed positions as their settlement is not impacted by the credit-risk-related contingent features.

Fair Value of Derivative Instruments

SCE presents its derivative assets and liabilities on a net basis on its consolidated balance sheets when subject to master netting agreements or similar agreements. Derivative positions are offset against margin and cash collateral deposits. In addition, SCE has provided collateral in the form of letters of credit. Collateral requirements can vary depending upon the level of unsecured credit extended by counterparties, changes in market prices relative to contractual commitments and other factors. The following table summarizes the gross and net fair values of SCE's commodity derivative instruments:

March 31, 2014

Derivative Assets

Derivative Liabilities

(in millions)