EIX-SCE 2014 Q2


 
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 June 30, 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 July 29, 2014:
 
 
Edison International
 
325,811,206 shares
Southern California Edison Company
 
434,888,104 shares
 
 
 
 
 
 







TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


i


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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.


ii


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
EME Settlement Agreement
 
Settlement Agreement entered into by Edison International, EME, and the Consenting Noteholders in February 2014
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)


iii


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
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
San Onofre OII Settlement Agreement
 
Settlement Agreement dated March 27, 2014 between SCE, The Utility Reform Network ("TURN"), the CPUC's Office of Ratepayer Advocates ("ORA") and SDG&E, which was later joined by the Coalition of California Utility Employees ("CUE") and Friends of the Earth ("FOE"), which remains subject to CPUC approval
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)



iv

















(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 June 30,
 
Six months ended June 30,
(in millions, except per-share amounts, unaudited)
 
2014
 
2013
 
2014

2013
Operating revenue
 
$
3,016

 
$
3,046

 
$
5,943

 
$
5,678

Fuel
 
71

 
81

 
143

 
154

Purchased power
 
1,168

 
1,076

 
2,239

 
1,855

Operation and maintenance
 
788

 
967

 
1,600

 
1,840

Depreciation, decommissioning and amortization
 
414

 
418

 
824

 
832

Impairment and other charges
 
—

 
575

 
231

 
575

Total operating expenses
 
2,441

 
3,117

 
5,037

 
5,256

Operating income (loss)
 
575

 
(71
)
 
906

 
422

Interest and other income
 
46

 
34

 
69

 
63

Interest expense
 
(139
)
 
(133
)
 
(281
)
 
(265
)
Other expenses
 
(16
)
 
(14
)
 
(23
)
 
(21
)
Income (loss) from continuing operations before income taxes
 
466

 
(184
)
 
671

 
199

Income tax expense (benefit)
 
84

 
(102
)
 
65

 
(4
)
Income (loss) from continuing operations
 
382

 
(82
)
 
606

 
203

Income from discontinued operations, net of tax
 
184

 
12

 
162

 
24

Net income (loss)
 
566

 
(70
)
 
768

 
227

Preferred and preference stock dividend requirements
of utility
 
30

 
24

 
56

 
51

Net income (loss) attributable to Edison International common shareholders
 
$
536

 
$
(94
)
 
$
712

 
$
176

Amounts attributable to Edison International common shareholders:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of tax
 
$
352

 
$
(106
)
 
$
550

 
$
152

Income from discontinued operations, net of tax
 
184

 
12

 
162

 
24

Net income (loss) attributable to Edison International common shareholders
 
$
536

 
$
(94
)
 
$
712

 
$
176

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
 
$
1.08

 
$
(0.33
)
 
$
1.69

 
$
0.47

Discontinued operations
 
0.56

 
0.04

 
0.49

 
0.07

Total
 
$
1.64

 
$
(0.29
)
 
$
2.18

 
$
0.54

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

 
326

 
329

 
329

Continuing operations
 
$
1.07

 
$
(0.33
)
 
$
1.68

 
$
0.47

Discontinued operations
 
0.56

 
0.04

 
0.49

 
0.07

Total
 
$
1.63

 
$
(0.29
)
 
$
2.17

 
$
0.54

Dividends declared per common share
 
$
0.355

 
$
0.3375

 
$
0.710

 
$
0.6750


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

2


Consolidated Statements of Comprehensive Income
 
 
 
Edison International
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions, unaudited)
 
2014
 
2013
 
2014
 
2013
Net income (loss)
 
$
566

 
$
(70
)
 
$
768

 
$
227

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
 
(4
)
 
5

 
(2
)
 
5

Other
 
2

 
—

 
2

 
—

Other comprehensive income (loss), net of tax
 
(2
)
 
5

 
—

 
5

Comprehensive income (loss)
 
564

 
(65
)
 
768

 
232

Less: Comprehensive income attributable to noncontrolling interests
 
30

 
24

 
56

 
51

Comprehensive income (loss) attributable to Edison International
 
$
534

 
$
(89
)
 
$
712

 
$
181



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

3


Consolidated Balance Sheets
Edison International
 






(in millions, unaudited)
June 30,
2014

December 31,
2013
ASSETS
 

 
Cash and cash equivalents
$
190


$
146

Receivables, less allowances of $67 and $66 for uncollectible accounts at respective dates
1,034


838

Accrued unbilled revenue
870


596

Inventory
277


256

Derivative assets
93


122

Regulatory assets
1,265


538

Deferred income taxes
389


421

Other current assets
433


395

Total current assets
4,551

 
3,312

Nuclear decommissioning trusts
4,740


4,494

Other investments
202


207

Total investments
4,942

 
4,701

Utility property, plant and equipment, less accumulated depreciation of $7,774 and $7,493 at respective dates
31,287


30,379

Nonutility property, plant and equipment, less accumulated depreciation of $77 and $74 at respective dates
77


76

Total property, plant and equipment
31,364

 
30,455

Derivative assets
217


251

Regulatory assets
7,345


7,241

Other long-term assets
445


686

Total long-term assets
8,007

 
8,178



















 
 
 
 


















 
 
 
 






Total assets
$
48,864

 
$
46,646



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

4


Consolidated Balance Sheets

Edison International
 


 

 
(in millions, except share amounts, unaudited)

June 30,
2014
 
December 31,
2013
LIABILITIES AND EQUITY

 

 
Short-term debt

$
1,253


$
209

Current portion of long-term debt

900


601

Accounts payable

1,306


1,407

Accrued taxes

127


358

Customer deposits

209


201

Derivative liabilities

144


152

Regulatory liabilities

826


767

Other current liabilities

1,008


1,186

Total current liabilities

5,773

 
4,881

Long-term debt

9,926


9,825

Deferred income taxes and credits

6,709


7,346

Derivative liabilities

1,051


1,042

Pensions and benefits

1,327


1,378

Asset retirement obligations

2,919


3,418

Regulatory liabilities

6,234


4,995

Other deferred credits and other long-term liabilities

2,522


2,070

Total deferred credits and other liabilities

20,762

 
20,249

Total liabilities

36,461

 
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)

2,434


2,403

Accumulated other comprehensive loss

(13
)

(13
)
Retained earnings

7,960


7,548

Total Edison International's common shareholders' equity

10,381

 
9,938

Preferred and preference stock of utility

2,022


1,753

Total noncontrolling interests

2,022

 
1,753

Total equity

12,403

 
11,691

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities and equity

$
48,864

 
$
46,646



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

5


Consolidated Statements of Cash Flows

Edison International
 



 

Six months ended June 30,
(in millions, unaudited)

2014

2013
Cash flows from operating activities:

 

 
Net income

$
768


$
227

Less: Income from discontinued operations

162


24

Income from continuing operations

606

 
203

Adjustments to reconcile to net cash provided by operating activities:



 
Depreciation, decommissioning and amortization

824


832

Regulatory impacts of net nuclear decommissioning trust earnings

78


161

Impairment and other charges

231


575

Deferred income taxes and investment tax credits

110


85

Other

46


45

EME settlement payments
 
(225
)
 
—

Changes in operating assets and liabilities:



 
Receivables

(185
)

(47
)
Inventory

(21
)

73

Accounts payable

116


88

Other current assets and liabilities

(392
)

(393
)
Derivative assets and liabilities, net

64


152

Regulatory assets and liabilities, net

(317
)

(11
)
Other noncurrent assets and liabilities

(332
)

(502
)
Net cash provided by operating activities

603

 
1,261

Cash flows from financing activities:

 

 
Long-term debt issued, net of premium, discount, and issuance costs of $4 and $6 at respective dates

396


394

Long-term debt matured or repurchased

(4
)

(199
)
Bonds remarketed, net

—


195

Preference stock issued, net

269

 
387

Preference stock redeemed

—


(400
)
Short-term debt financing, net

1,043


678

Settlements of stock-based compensation, net

(51
)

(37
)
Dividends to noncontrolling interests

(54
)

(52
)
Dividends paid

(231
)

(220
)
Net cash provided by financing activities

1,368

 
746

Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
(1,856
)
 
(1,834
)
Proceeds from sale of nuclear decommissioning trust investments
 
3,750

 
1,956

Purchases of nuclear decommissioning trust investments and other
 
(3,833
)
 
(2,128
)
Other
 
12

 
(23
)
Net cash used by investing activities
 
(1,927
)
 
(2,029
)
Net increase (decrease) in cash and cash equivalents
 
44

 
(22
)
Cash and cash equivalents at beginning of period
 
146

 
170

Cash and cash equivalents at end of period
 
$
190

 
$
148


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

6



Consolidated Statements of Income
 
Southern California Edison Company
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions, unaudited)
 
2014
 
2013
 
2014
 
2013
Operating revenue
 
$
3,014

 
$
3,045

 
$
5,938

 
$
5,674

Fuel
 
71

 
81

 
143

 
154

Purchased power
 
1,168

 
1,076

 
2,239

 
1,855

Operation and maintenance
 
697

 
879

 
1,410

 
1,665

Depreciation, decommissioning and amortization
 
414

 
417

 
824

 
832

Property and other taxes
 
71

 
72

 
156

 
151

Impairment and other charges
 
—

 
575

 
231

 
575

Total operating expenses
 
2,421

 
3,100

 
5,003

 
5,232

Operating income (loss)
 
593

 
(55
)
 
935

 
442

Interest and other income
 
46

 
30

 
69

 
61

Interest expense
 
(134
)
 
(127
)
 
(269
)
 
(253
)
Other expenses
 
(15
)
 
(14
)
 
(23
)
 
(21
)
Income (loss) before income taxes
 
490

 
(166
)
 
712

 
229

Income tax expense (benefit)
 
98

 
(99
)
 
86

 
13

Net income (loss)
 
392

 
(67
)
 
626

 
216

Less: Preferred and preference stock dividend requirements
 
30

 
24

 
56

 
51

Net income (loss) available for common stock
 
$
362

 
$
(91
)
 
$
570

 
$
165


Consolidated Statements of Comprehensive Income
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions, unaudited)
 
2014
 
2013
 
2014
 
2013
Net income (loss)
 
$
392

 
$
(67
)
 
$
626

 
$
216

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
 
—

 
2

 
1

 
(1
)
Other
  
 
2

 
—

 
2

 
—

Other comprehensive income (loss), net of tax
 
2

 
2

 
3

 
(1
)
Comprehensive income (loss)
 
$
394

 
$
(65
)
 
$
629

 
$
215



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

7


Consolidated Balance Sheets
Southern California Edison Company
(in millions, unaudited)
 
June 30,
2014
 
December 31, 2013
ASSETS
 
 
 
 
Cash and cash equivalents
 
$
71

 
$
54

Receivables, less allowances of $67 and $66 for uncollectible accounts at respective dates
 
1,004

 
813

Accrued unbilled revenue
 
870

 
596

Inventory
 
259

 
256

Derivative assets
 
93

 
122

Regulatory assets
 
1,265

 
538

Deferred income taxes
 
84

 
303

Other current assets
 
452

 
393

Total current assets
 
4,098

 
3,075

Nuclear decommissioning trusts
 
4,740

 
4,494

Other investments
 
150

 
140

Total investments
 
4,890

 
4,634

Utility property, plant and equipment, less accumulated depreciation of $7,774 and $7,493 at respective dates
 
31,287

 
30,379

Nonutility property, plant and equipment, less accumulated depreciation of $72 and $70 at respective dates
 
70

 
72

Total property, plant and equipment
 
31,357

 
30,451

Derivative assets
 
217

 
251

Regulatory assets
 
7,345

 
7,241

Other long-term assets
 
398

 
398

Total long-term assets
 
7,960

 
7,890

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
48,305

 
$
46,050


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

8


Consolidated Balance Sheets
Southern California Edison Company
(in millions, except share amounts, unaudited)
 
June 30,
2014
 
December 31, 2013
LIABILITIES AND EQUITY
 
 
 
 
Short-term debt
 
$
587

 
$
175

Current portion of long-term debt
 
900

 
600

Accounts payable
 
1,286

 
1,373

Customer deposits
 
209

 
201

Derivative liabilities
 
144

 
152

Regulatory liabilities
 
826

 
767

Deferred income taxes
 
68

 
39

Other current liabilities
 
1,033

 
1,091

Total current liabilities
 
5,053

 
4,398

Long-term debt
 
9,523

 
9,422

Deferred income taxes and credits
 
8,026

 
7,841

Derivative liabilities
 
1,051

 
1,042

Pensions and benefits
 
897

 
951

Asset retirement obligations
 
2,919

 
3,418

Regulatory liabilities
 
6,234

 
4,995

Other deferred credits and other long-term liabilities
 
1,902

 
1,845

Total deferred credits and other liabilities
 
21,029

 
20,092

Total liabilities
 
35,605

 
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
 
603

 
592

Accumulated other comprehensive loss
 
(8
)
 
(11
)
Retained earnings
 
7,867

 
7,594

Total common shareholder's equity
 
10,630

 
10,343

Preferred and preference stock
 
2,070

 
1,795

Total equity
 
12,700

 
12,138

Total liabilities and equity
 
$
48,305

 
$
46,050



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

9


Consolidated Statements of Cash Flows
Southern California Edison Company
 
 
Six months ended June 30,
(in millions, unaudited)
 
2014
 
2013
Cash flows from operating activities:
 
 
 
 
Net income
 
$
626

 
$
216

Adjustments to reconcile to net cash provided by operating activities:
 
 
 
 
 Depreciation, decommissioning and amortization
 
824

 
832

 Regulatory impacts of net nuclear decommissioning trust earnings
 
78

 
161

 Impairment and other charges
 
231

 
575

 Deferred income taxes and investment tax credits
 
144

 
50

 Other
 
39

 
42

Changes in operating assets and liabilities:
 
 
 
 
 Receivables
 
(191
)
 
(12
)
 Inventory
 
(3
)
 
73

 Accounts payable
 
128

 
96

 Other current assets and liabilities
 
(510
)
 
(371
)
 Derivative assets and liabilities, net
 
64

 
152

 Regulatory assets and liabilities, net
 
(317
)
 
(11
)
 Other noncurrent assets and liabilities
 
(35
)
 
(478
)
Net cash provided by operating activities
 
1,078

 
1,325

Cash flows from financing activities:
 
 
 
 
Long-term debt issued, net of premium, discount, and issuance costs of $2 and $6 at respective dates
 
398

 
394

Long-term debt matured or repurchased
 
(3
)
 
(199
)
Bonds remarketed, net
 
—

 
195

Preference stock issued, net
 
269

 
387

Preference stock redeemed
 
—

 
(400
)
Short-term debt financing, net
 
410

 
653

Settlements of stock-based compensation, net
 
(30
)
 
(34
)
Dividends paid
 
(180
)
 
(292
)
Net cash provided by financing activities
 
864

 
704

Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
(1,853
)
 
(1,834
)
Proceeds from sale of nuclear decommissioning trust investments
 
3,750

 
1,956

Purchases of nuclear decommissioning trust investments and other
 
(3,833
)
 
(2,128
)
Other
 
11

 
(19
)
Net cash used by investing activities
 
(1,925
)

(2,025
)
Net decrease in cash and cash equivalents
 
17

 
4

Cash and cash equivalents, beginning of period
 
54

 
45

Cash and cash equivalents, end of period
 
$
71

 
$
49


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

10


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- and six-month periods ended June 30, 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)
 
June 30,
2014
 
December 31, 2013
 
June 30,
2014
 
December 31, 2013
Money market funds
 
$
63

 
$
68

 
$
5

 
$
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)
 
June 30,
2014
 
December 31, 2013
 
June 30,
2014
 
December 31, 2013
Book balances reclassified to accounts payable
 
$
148

 
$
168

 
$
143

 
$
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.

11


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 June 30,
 
Six months ended June 30,
(in millions)
 
2014
 
2013
 
2014
 
2013
Basic earnings per share – continuing operations:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations available to common shareholders
 
$
352

 
$
(106
)
 
$
550

 
$
152

Weighted average common shares outstanding
 
326

 
326

 
326

 
326

Basic earnings per share – continuing operations
 
$
1.08

 
$
(0.33
)
 
$
1.69

 
$
0.47

Diluted earnings per share – continuing operations:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations available to common shareholders
 
$
352

 
$
(106
)
 
$
550

 
$
152

Income impact of assumed conversions
 
1

 
—

 
1

 
—

Income (loss) from continuing operations available to common shareholders and assumed conversions
 
$
353

 
$
(106
)
 
$
551

 
$
152

Weighted average common shares outstanding
 
326

 
326

 
326

 
326

Incremental shares from assumed conversions
 
3

 
—

1 
3

 
3

Adjusted weighted average shares – diluted
 
329

 
326

 
329

 
329

Diluted earnings per share – continuing operations
 
$
1.07

 
$
(0.33
)
 
$
1.68

 
$
0.47

1 
Due to a loss for the three months ended June 30, 2013, there were no incremental shares in the computation because such shares would be considered antidilutive.
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 45,951 shares of common stock for the three months ended June 30, 2014, and 96,341 and 1,587,370 shares for the six months ended June 30, 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.
Asset Retirement Obligation
The following table summarizes the changes in SCE's ARO liability for the six month period ended June 30, 2014 and the twelve month period ended December 31, 2013, including San Onofre and Palo Verde:
(in millions)
June 30,
2014
 
December 31,
2013
Beginning balance
$
3,418

 
$
2,782

Accretion1
106

 
182

Revisions
(604
)
 
455

Liabilities settled
(1
)
 
(1
)
Ending balance
$
2,919

 
$
3,418

1 
An ARO represents the present value of a future obligation. Accretion is an increase in the liability to account for the time value of money resulting from discounting.

12


During the second quarter of 2014, SCE updated its decommissioning cost estimate based on a site specific assessment. The decommissioning cost estimate in 2014 dollars is $4.4 billion (SCE share – $3.3 billion) and includes costs from June 7, 2013 through to the respective completion dates to decommission San Onofre Units 2 and 3. The decommissioning cost estimate is subject to a number of estimates including the cost of burial of nuclear waste, cost of removal of property, site remediation costs as well as a number of other assumptions and estimates, including when the federal government may remove spent fuel canisters from the San Onofre site, as to which there can be no assurance. The cost estimate is subject to change and such changes may be material. SCE's share of the present value of decommissioning costs after escalation and using current discounts rates was $2.9 billion at June 30, 2014.
The total ARO liability related to San Onofre Units 2 and 3 at June 30, 2014 was $2.2 billion compared to $2.7 billion at December 31, 2013. The ARO liability is lower than the present value of the decommissioning costs set forth above due to different discount rates and expected time period of expenditures. The ARO liability at June 30, 2014 was based on a discount rate of 6.30% established when the ARO liability was originally recorded in 2003. The ARO liability for San Onofre Units 2 and 3 is based on expenditures beginning in 2015 through the respective completion dates. Expenditures from June 7, 2013 through June 30, 2014 are currently recorded as operation and maintenance costs and are treated as recoverable through GRC revenues. SCE has filed a request with the CPUC to authorize early release of Nuclear Decommissioning Trust funds to recover SCE's share of costs from June 7, 2013 through the end of 2014. As discussed in Note 9, to the extent that costs are recovered from SCE's Nuclear Decommissioning Trust as decommissioning costs, SCE intends to refund such amounts to customers as provided in the San Onofre OII Settlement Agreement (as defined in Note 9).
The change in estimate of the ARO liability related to San Onofre Units 2 and 3 decreased by $604 million in the second quarter of 2014 based on the updated decommissioning cost estimate for the retirement of those Units. The work plan developed for the revised estimate accelerated decommissioning activities beginning in 2013 from the prior assumption of 2022. In addition, certain activities that were previously forecasted to be completed at the end of the decommissioning period were accelerated over the next ten years. Although the changes in the decommissioning cost estimate for these activities in current dollars did not change significantly, the changes in timing, as well as revised escalation rates, reduced the present value of future decommissioning costs (using the 6.30% discount rate).
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
On May 28, 2014, the FASB issued an accounting standards update on revenue recognition including enhanced disclosures. Under the new standard, revenue is recognized when (or as) a good or service is transferred to the customer and the customer obtains control of the good or service. Edison International and SCE are currently evaluating this new guidance which is effective January 1, 2017 and cannot determine the impact of this standard at this time.

13


Note 2.    Consolidated Statements of Changes in Equity
The following table provides Edison International's changes in equity for the six months ended June 30, 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
—

 
—

 
712

 
712

 
56

 
768

Common stock dividends declared ($0.71 per share)
—

 
—

 
(231
)
 
(231
)
 
—

 
(231
)
Dividends, distributions to noncontrolling interests
—

 
—

 
—

 
—

 
(57
)
 
(57
)
Stock-based compensation and other
17

 
—

 
(68
)
 
(51
)
 
—

 
(51
)
Non-cash stock-based compensation and other
14

 
—

 
(1
)
 
13

 
1

 
14

Issuance of preference stock
—

 
—

 
—

 
—

 
269

 
269

Balance at June 30, 2014
$
2,434

 
$
(13
)
 
$
7,960

 
$
10,381

 
$
2,022

 
$
12,403

The following table provides Edison International's changes in equity for the six months ended June 30, 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
—

 
—

 
176

 
176

 
51

 
227

Other comprehensive income
—

 
5

 
—

 
5

 
—

 
5

Common stock dividends declared ($0.675 per share)
—

 
—

 
(220
)
 
(220
)
 
—

 
(220
)
Dividends, distributions to noncontrolling interests
—

 
—

 
—

 
—

 
(51
)
 
(51
)
Stock-based compensation and other
3

 
—

 
(40
)
 
(37
)
 
—

 
(37
)
Non-cash stock-based compensation and other
12

 
—

 
(5
)
 
7

 
(1
)
 
6

Issuance of preference stock
—

 
—

 
—

 
—

 
387

 
387

Redemption of preference stock
—

 
—

 
(8
)
 
(8
)
 
(392
)
 
(400
)
Balance at June 30, 2013
$
2,388

 
$
(82
)
 
$
7,049

 
$
9,355

 
$
1,753

 
$
11,108


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The following table provides SCE's changes in equity for the six months ended June 30, 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
—

 
—

 
—

 
626

 
—

 
626

Other comprehensive income
—

 
—

 
3

 
—

 
—

 
3

Dividends declared on common stock
—

 
—

 
—

 
(252
)
 
—

 
(252
)
Dividends on preferred and preference stock
—

 
—

 
—

 
(57
)
 
—

 
(57
)
Stock-based compensation and other
—

 
12

 
—

 
(42
)
 
—

 
(30
)
Non-cash stock-based compensation and other
—

 
5

 
—

 
(2
)
 
—

 
3

Issuance of preference stock
—

 
(6
)
 
—

 
—

 
275

 
269

Balance at June 30, 2014
$
2,168

 
$
603

 
$
(8
)
 
$
7,867

 
$
2,070

 
$
12,700

The following table provides SCE's changes in equity for the six months ended June 30, 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
—

 
—

 
—

 
216

 
—

 
216

Other comprehensive loss
—

 
—

 
(1
)
 
—

 
—

 
(1
)
Dividends declared on common stock
—

 
—

 
—

 
(240
)
 
—

 
(240
)
Dividends on preferred and preference stock
—

 
—

 
—

 
(51
)
 
—

 
(51
)
Stock-based compensation and other
—

 
1

 
—

 
(35
)
 
—

 
(34
)
Non-cash stock-based compensation and other
—

 
7

 
—

 
5

 
—

 
12

Issuance of preference stock
—

 
(13
)
 
—

 
—

 
400

 
387

Redemption of preference stock
—

 
8

 
—

 
(8
)
 
(400
)
 
(400
)
Balance at June 30, 2013
$
2,168

 
$
584

 
$
(30
)
 
$
7,115

 
$
1,795

 
$
11,632

Note 3.    Variable Interest Entities
A VIE is defined as a legal entity that meets one of two conditions: (1) the equity owners do not have sufficient equity at risk, or (2) the holders of the equity investment at risk, as a group, 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

15


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 5,341 MW and 4,057 MW at June 30, 2014 and 2013, respectively, and the amounts that SCE paid to these projects were $93 million and $99 million for the three months ended June 30, 2014 and 2013, respectively, and $207 million and $197 million for the six months ended June 30, 2014 and 2013, respectively. These amounts are recoverable in customer rates, subject to reasonableness review. As of June 30, 2014, SCE has additional VIE contracts with future aggregate contracted capacity of 299 MW to commence deliveries in 2016 and 2018.
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 trust 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 June 30, 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 June 30, 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 following table provides a summary of the trusts' income statements:
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
 
Trust I
 
Trust II
 
Trust III
 
Trust I
 
Trust II
 
Trust III
2014
 
 
 
 
 
 
 
 
 
 
 
 
Dividend income
 
$
6

 
$
5

 
$
4

 
$
13

 
$
10

 
$
5

Dividend distributions
 
6

 
5

 
4

 
13

 
10

 
5

2013
 
 
 
 
 
 
 
 
 
 
 
 
Dividend income
 
$
6

 
$
5

 
*

 
$
13

 
$
9

 
*

Dividend distributions
 
6

 
5

 
*

 
13

 
9

 
*

* 
Not applicable

16


Note 4.    Fair Value Measurement
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 June 30, 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.