EIX-SCE 2014 Q3


 
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 September 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 o No þ

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 October 24, 2014:
 
 
Edison International
 
325,811,206 shares
Southern California Edison Company
 
434,888,104 shares
 
 
 
 
 
 







TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30, 2014 versus September 30, 2013
 
 
 
Utility Earning Activities


i


 
 
 
 
 
Nine months ended September 30, 2014 versus September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
Income from Continuing Operations
 
Income (Loss) from Discontinued Operations (Net of Tax)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 was superseded by the San Onofre OII Amended Settlement Agreement
San Onofre OII Amended Settlement Agreement
 
Settlement Agreement dated September 23, 2014 between SCE, TURN, ORA, SDG&E, CUE, and 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
September 30,

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

2014

2013

2014

2013
Operating revenue

$
4,356


$
3,960


$
10,298


$
9,638

Fuel

77


95


219


249

Purchased power

2,105


1,713


4,344


3,569

Operation and maintenance

879


971


2,480


2,809

Depreciation, decommissioning and amortization

424


392


1,248


1,224

Impairment and other charges

(3
)

—


228


575

Total operating expenses

3,482


3,171


8,519


8,426

Operating income

874


789


1,779


1,212

Interest and other income

40


28


109


91

Interest expense

(141
)

(137
)

(422
)

(402
)
Other expenses

(29
)

(15
)

(52
)

(38
)
Income from continuing operations before income taxes

744


665


1,414


863

Income tax expense

220


177


284


173

Income from continuing operations

524


488


1,130


690

Income (loss) from discontinued operations, net of tax

(16
)

(25
)

146


(1
)
Net income

508


463


1,276


689

Preferred and preference stock dividend requirements
of utility

28


25


84


75

Net income attributable to Edison International common shareholders

$
480


$
438


$
1,192


$
614

Amounts attributable to Edison International common shareholders:








Income from continuing operations, net of tax

$
496


$
463


$
1,046


$
615

Income (loss) from discontinued operations, net of tax

(16
)

(25
)

146


(1
)
Net income attributable to Edison International common shareholders

$
480


$
438


$
1,192


$
614

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

$
1.52


$
1.42


$
3.21


$
1.88

Discontinued operations

(0.05
)

(0.08
)

0.45


—

Total

$
1.47


$
1.34


$
3.66


$
1.88

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


328


329


329

Continuing operations

$
1.51


$
1.41


$
3.18


$
1.87

Discontinued operations

(0.05
)

(0.07
)

0.44


—

Total

$
1.46


$
1.34


$
3.62


$
1.87

Dividends declared per common share

$
0.355


$
0.3375


$
1.065


$
1.0125


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

2




Consolidated Statements of Comprehensive Income
 
 
 
Edison International
 
 
 
 
 
 
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in millions, unaudited)
 
2014
 
2013
 
2014
 
2013
Net income
 
$
508

 
$
463

 
$
1,276

 
$
689

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Pension and postretirement benefits other than pensions:
 
 
 
 
 
 
 
 
Net gain (loss) arising during the period plus amortization included in net income
 
(9
)
 
3

 
(11
)
 
8

Other
 
(1
)
 
—

 
1

 
—

Other comprehensive income (loss), net of tax
 
(10
)
 
3

 
(10
)
 
8

Comprehensive income
 
498

 
466

 
1,266

 
697

Less: Comprehensive income attributable to noncontrolling interests
 
28

 
25

 
84

 
75

Comprehensive income attributable to Edison International
 
$
470

 
$
441

 
$
1,182

 
$
622



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

3


Consolidated Balance Sheets
Edison International
 






(in millions, unaudited)
September 30,
2014

December 31,
2013
ASSETS
 

 
Cash and cash equivalents
$
142


$
146

Receivables, less allowances of $70 and $66 for uncollectible accounts at respective dates
1,218


838

Accrued unbilled revenue
998


596

Inventory
275


256

Derivative assets
103


122

Regulatory assets
1,170


538

Deferred income taxes
125


421

Other current assets
467


395

Total current assets
4,498


3,312

Nuclear decommissioning trusts
4,741


4,494

Other investments
204


207

Total investments
4,945


4,701

Utility property, plant and equipment, less accumulated depreciation and amortization of $7,997 and $7,493 at respective dates
31,919


30,379

Nonutility property, plant and equipment, less accumulated depreciation of $74 at both dates
102


76

Total property, plant and equipment
32,021


30,455

Derivative assets
245


251

Regulatory assets
7,329


7,241

Other long-term assets
437


686

Total long-term assets
8,011


8,178























































Total assets
$
49,475


$
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)

September 30,
2014

December 31,
2013
LIABILITIES AND EQUITY

 

 
Short-term debt

$
1,349


$
209

Current portion of long-term debt

704


601

Accounts payable

1,455


1,407

Accrued taxes

191


358

Customer deposits

214


201

Derivative liabilities

154


152

Regulatory liabilities

794


767

Other current liabilities

988


1,186

Total current liabilities

5,849


4,881

Long-term debt

10,133


9,825

Deferred income taxes and credits

6,762


7,346

Derivative liabilities

947


1,042

Pensions and benefits

1,454


1,378

Asset retirement obligations

2,960


3,418

Regulatory liabilities

6,387


4,995

Other deferred credits and other long-term liabilities

2,225


2,070

Total deferred credits and other liabilities

20,735


20,249

Total liabilities

36,717


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)

2,445


2,403

Accumulated other comprehensive loss

(23
)

(13
)
Retained earnings

8,314


7,548

Total Edison International's common shareholders' equity

10,736


9,938

Preferred and preference stock of utility

2,022


1,753

Total noncontrolling interests

2,022


1,753

Total equity

12,758


11,691






















Total liabilities and equity

$
49,475


$
46,646



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

5


Consolidated Statements of Cash Flows

Edison International
 



 

Nine months ended
September 30,
(in millions, unaudited)

2014

2013
Cash flows from operating activities:

 

 
Net income

$
1,276


$
689

Less: Income (loss) from discontinued operations

146


(1
)
Income from continuing operations

1,130


690

Adjustments to reconcile to net cash provided by operating activities:



 
Depreciation, decommissioning and amortization

1,248


1,224

Regulatory impacts of net nuclear decommissioning trust earnings

100


82

Impairment and other charges

228


575

Deferred income taxes and investment tax credits

303


257

Other

70


70

EME settlement payments

(225
)

—

Changes in operating assets and liabilities:



 
Receivables

(369
)

(406
)
Inventory

(19
)

68

Accounts payable

211


155

Other current assets and liabilities

(497
)

(458
)
Derivative assets and liabilities, net

(68
)

207

Regulatory assets and liabilities, net

41


94

Other noncurrent assets and liabilities

(126
)

(488
)
Net cash provided by operating activities

2,027


2,070

Cash flows from financing activities:

 

 
Long-term debt issued, net of premium, discount, and issuance costs of $5 and $6 at respective dates

395


394

Long-term debt matured or repurchased

(405
)

(201
)
Bonds remarketed, net

—


195

Preference stock issued, net

269


387

Preference stock redeemed

—


(400
)
Short-term debt financing, net

1,138


1,352

Settlements of stock-based compensation, net

(57
)

(40
)
Dividends to noncontrolling interests

(88
)

(82
)
Dividends paid

(347
)

(330
)
Net cash provided by financing activities

905


1,275

Cash flows from investing activities:

 

 
Capital expenditures

(2,856
)

(2,761
)
Proceeds from sale of nuclear decommissioning trust investments

5,846


4,574

Purchases of nuclear decommissioning trust investments and other

(5,951
)

(4,674
)
Other

25


(44
)
Net cash used by investing activities

(2,936
)

(2,905
)
Net (decrease) increase in cash and cash equivalents

(4
)

440

Cash and cash equivalents at beginning of period

146


170

Cash and cash equivalents at end of period

$
142


$
610


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

6


Consolidated Statements of Income
 
Southern California Edison Company
 
 
 
 
 
 
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in millions, unaudited)
 
2014
 
2013
 
2014
 
2013
Operating revenue
 
$
4,338

 
$
3,957

 
$
10,276

 
$
9,631

Fuel
 
77

 
95

 
219

 
249

Purchased power
 
2,105

 
1,713

 
4,344

 
3,569

Operation and maintenance
 
776

 
875

 
2,187

 
2,540

Depreciation, decommissioning and amortization
 
423

 
392

 
1,248

 
1,223

Property and other taxes
 
76

 
78

 
232

 
229

Impairment and other charges
 
—

 
—

 
231

 
575

Total operating expenses
 
3,457

 
3,153

 
8,461

 
8,385

Operating income
 
881

 
804

 
1,815

 
1,246

Interest and other income
 
36

 
27

 
105

 
89

Interest expense
 
(133
)
 
(131
)
 
(402
)
 
(384
)
Other expenses
 
(29
)
 
(15
)
 
(52
)
 
(38
)
Income before income taxes
 
755

 
685

 
1,466

 
913

Income tax expense
 
224

 
183

 
310

 
196

Net income
 
531

 
502

 
1,156

 
717

Less: Preferred and preference stock dividend requirements
 
28

 
25

 
84

 
75

Net income available for common stock
 
$
503

 
$
477

 
$
1,072

 
$
642


Consolidated Statements of Comprehensive Income
 
 
 
 
 
 
 
 
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in millions, unaudited)
 
2014
 
2013
 
2014
 
2013
Net income
 
$
531

 
$
502

 
$
1,156

 
$
717

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Pension and postretirement benefits other than pensions:
 
 
 
 
 
 
 
 
Net gain arising during the period plus amortization included in net income
 
1

 
2

 
2

 
1

Other
  
 
(1
)
 
—

 
1

 
—

Other comprehensive income, net of tax
 
—

 
2

 
3

 
1

Comprehensive income
 
$
531

 
$
504

 
$
1,159

 
$
718



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

7



Consolidated Balance Sheets
Southern California Edison Company
(in millions, unaudited)
 
September 30,
2014
 
December 31, 2013
ASSETS
 
 
 
 
Cash and cash equivalents
 
$
49

 
$
54

Receivables, less allowances of $70 and $66 for uncollectible accounts at respective dates
 
1,190

 
813

Accrued unbilled revenue
 
998

 
596

Inventory
 
265

 
256

Derivative assets
 
103

 
122

Regulatory assets
 
1,170

 
538

Deferred income taxes
 
—

 
303

Other current assets
 
489

 
393

Total current assets
 
4,264

 
3,075

Nuclear decommissioning trusts
 
4,741

 
4,494

Other investments
 
149

 
140

Total investments
 
4,890

 
4,634

Utility property, plant and equipment, less accumulated depreciation and amortization of $7,997 and $7,493 at respective dates
 
31,919

 
30,379

Nonutility property, plant and equipment, less accumulated depreciation of $73 and $70 at respective dates
 
69

 
72

Total property, plant and equipment
 
31,988

 
30,451

Derivative assets
 
245

 
251

Regulatory assets
 
7,329

 
7,241

Other long-term assets
 
387

 
398

Total long-term assets
 
7,961

 
7,890

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
49,103

 
$
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)
 
September 30,
2014
 
December 31, 2013
LIABILITIES AND EQUITY
 
 
 
 
Short-term debt
 
$
679

 
$
175

Current portion of long-term debt
 
500

 
600

Accounts payable
 
1,446

 
1,373

Customer deposits
 
214

 
201

Derivative liabilities
 
154

 
152

Regulatory liabilities
 
794

 
767

Deferred income taxes
 
126

 
39

Other current liabilities
 
1,117

 
1,091

Total current liabilities
 
5,030

 
4,398

Long-term debt
 
9,523

 
9,422

Deferred income taxes and credits
 
8,182

 
7,841

Derivative liabilities
 
947

 
1,042

Pensions and benefits
 
1,015

 
951

Asset retirement obligations
 
2,960

 
3,418

Regulatory liabilities
 
6,387

 
4,995

Other deferred credits and other long-term liabilities
 
1,984

 
1,845

Total deferred credits and other liabilities
 
21,475

 
20,092

Total liabilities
 
36,028

 
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
 
608

 
592

Accumulated other comprehensive loss
 
(8
)
 
(11
)
Retained earnings
 
8,237

 
7,594

Total common shareholder's equity
 
11,005

 
10,343

Preferred and preference stock
 
2,070

 
1,795

Total equity
 
13,075

 
12,138

Total liabilities and equity
 
$
49,103

 
$
46,050



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

9


Consolidated Statements of Cash Flows
Southern California Edison Company
 
 
Nine months ended
September 30,
(in millions, unaudited)
 
2014
 
2013
Cash flows from operating activities:
 
 
 
 
Net income
 
$
1,156

 
$
717

Adjustments to reconcile to net cash provided by operating activities:
 
 
 
 
 Depreciation, decommissioning and amortization
 
1,248

 
1,223

 Regulatory impacts of net nuclear decommissioning trust earnings
 
100

 
82

 Impairment and other charges
 
231

 
575

 Deferred income taxes and investment tax credits
 
324

 
197

 Other
 
61

 
66

Changes in operating assets and liabilities:
 
 
 
 
 Receivables
 
(377
)
 
(371
)
 Inventory
 
(9
)
 
68

 Accounts payable
 
234

 
174

 Other current assets and liabilities
 
(577
)
 
(382
)
 Derivative assets and liabilities, net
 
(68
)
 
207

 Regulatory assets and liabilities, net
 
41

 
94

 Other noncurrent assets and liabilities
 
149

 
(487
)
Net cash provided by operating activities
 
2,513

 
2,163

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
 
(405
)
 
(201
)
Bonds remarketed, net
 
—

 
195

Preference stock issued, net
 
269

 
387

Preference stock redeemed
 
—

 
(400
)
Short-term debt financing, net
 
502

 
1,178

Settlements of stock-based compensation, net
 
(34
)
 
(36
)
Dividends paid
 
(340
)
 
(321
)
Net cash provided by financing activities
 
390

 
1,196

Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
(2,827
)
 
(2,761
)
Proceeds from sale of nuclear decommissioning trust investments
 
5,846

 
4,574

Purchases of nuclear decommissioning trust investments and other
 
(5,951
)
 
(4,674
)
Other
 
24

 
(21
)
Net cash used by investing activities
 
(2,908
)

(2,882
)
Net (decrease) increase in cash and cash equivalents
 
(5
)
 
477

Cash and cash equivalents, beginning of period
 
54

 
45

Cash and cash equivalents, end of period
 
$
49

 
$
522


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 nine-month periods ended September 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.
Revision to Consolidated Statements of Cash Flow
The consolidated statements of cash flows of Edison International and Southern California Edison Company were revised to correct an error in the amount of purchases of nuclear decommissioning trust investments and the amount of regulatory impacts of net nuclear decommissioning trust earnings. The revisions had no impact on the consolidated balance sheet, statements of income, comprehensive income, changes in equity or on the net change in cash and cash equivalents. Management believes the revisions do not have a material impact on the prior period financial statements. The following table presents the cash flow statement effects related to the revision for the nine months ended September 30, 2013 and the year ended December 31, 2013:
 
Edison International
 
Southern California Edison
(in millions)
As Reported
 
Adjustment
 
As Revised
 
As Reported
 
Adjustment
 
As Revised
Nine months ended September 30, 2013
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
 
 
Adjustments to reconcile to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
Regulatory impacts of net nuclear decommissioning trust earnings
$
265

 
$
(183
)
 
$
82

 
$
265

 
$
(183
)
 
$
82

Total cash provided by operating activities
2,253

 
(183
)
 
2,070

 
2,346

 
(183
)
 
2,163

 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
Purchases of nuclear decommissioning trust investments
(4,857
)
 
183

 
(4,674
)
 
(4,857
)
 
183

 
(4,674
)
Total cash used by investing activities
(3,088
)
 
183

 
(2,905
)
 
(3,065
)
 
183

 
(2,882
)

11



 
Edison International
 
Southern California Edison
(in millions)
As Reported
 
Adjustment
 
As Revised
 
As Reported
 
Adjustment
 
As Revised
Year ended December 31, 2013
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
 
 
Adjustments to reconcile to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
Regulatory impacts of net nuclear decommissioning trust earnings
$
312

 
$
(236
)
 
$
76

 
$
312

 
$
(236
)
 
$
76

Total cash provided by operating activities
3,203

 
(236
)
 
2,967

 
3,284

 
(236
)
 
3,048

 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
Purchases of nuclear decommissioning trust investments
(5,951
)
 
236

 
(5,715
)
 
(5,951
)
 
236

 
(5,715
)
Total cash used by investing activities
(3,808
)
 
236

 
(3,572
)
 
(3,783
)
 
236

 
(3,547
)
For the three months ended March 31, 2014 and the six months ended June 30, 2014, the correction also increases net cash provided by operating activities by $67 million and $5 million, respectively, and increases cash flows used by investing activities by the same amount. There were also errors identified which had an inconsequential impact on the three months ended March 31, 2013 and the six months ended June 30, 2013 as well as the annual periods of 2012 and 2011. Since these errors are inconsequential, management has concluded revision of these periods is not necessary.
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)
 
September 30,
2014
 
December 31, 2013
 
September 30,
2014
 
December 31, 2013
Money market funds
 
$
40

 
$
68

 
$
8

 
$
8

Cash is temporarily invested until required for check clearing. 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)
 
September 30,
2014
 
December 31, 2013
 
September 30,
2014
 
December 31, 2013
Book balances reclassified to accounts payable
 
$
191

 
$
168

 
$
190

 
$
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.

12


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
September 30,
 
Nine months ended
September 30,
(in millions, except per-share amounts)
 
2014
 
2013
 
2014
 
2013
Basic earnings per share – continuing operations:
 
 
 
 
 
 
 
 
Income from continuing operations available to common shareholders
 
$
496

 
$
463

 
$
1,046

 
$
615

Weighted average common shares outstanding
 
326

 
326

 
326

 
326

Basic earnings per share – continuing operations
 
$
1.52

 
$
1.42

 
$
3.21

 
$
1.88

Diluted earnings per share – continuing operations:
 
 
 
 
 
 
 
 
Income from continuing operations available to common shareholders
 
$
496

 
$
463

 
$
1,046

 
$
615

Income impact of assumed conversions
 
—

 
—

 
1

 
1

Income from continuing operations available to common shareholders and assumed conversions
 
$
496

 
$
463

 
$
1,047

 
$
616

Weighted average common shares outstanding
 
326

 
326

 
326

 
326

Incremental shares from assumed conversions
 
3

 
2

 
3

 
3

Adjusted weighted average shares – diluted
 
329

 
328

 
329

 
329

Diluted earnings per share – continuing operations
 
$
1.51

 
$
1.41

 
$
3.18

 
$
1.87

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 38,800 and 4,109,363 shares of common stock for the three months ended September 30, 2014 and 2013, and 62,885 and 4,109,363 shares for the nine months ended September 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 nine month period ended September 30, 2014 and the twelve month period ended December 31, 2013, including San Onofre and Palo Verde:
(in millions)
September 30,
2014
 
December 31,
2013
Beginning balance
$
3,418

 
$
2,782

Accretion1
150

 
182

Revisions
(604
)
 
455

Liabilities settled
(4
)
 
(1
)
Ending balance
$
2,960

 
$
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.

13


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 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 $3.0 billion at September 30, 2014.
The total ARO liability related to San Onofre Units 2 and 3 at September 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 September 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 September 30, 2014 are currently recorded as operation and maintenance costs and are treated as recoverable through GRC revenues, with the 2014 recorded costs being subject to customary prudency review (See Note 9). 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 Amended Settlement Agreement (as defined in Note 9).
The change in estimate of the ARO liability related to San Onofre Units 2 and 3 ($604 million) was 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.


14


Note 2.    Consolidated Statements of Changes in Equity
The following table provides Edison International's changes in equity for the nine months ended September 30, 2014:
 
Equity Attributable to Edison International
 
Noncontrolling Interests
 
 
(in millions, except per-share amounts)
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
—

 
—

 
1,192

 
1,192

 
84

 
1,276

Other comprehensive loss
—

 
(10
)
 
—

 
(10
)
 
—

 
(10
)
Common stock dividends declared ($1.065 per share)
—

 
—

 
(347
)
 
(347
)
 
—

 
(347
)
Dividends, distributions to noncontrolling interests
—

 
—

 
—

 
—

 
(84
)
 
(84
)
Stock-based compensation
22

 
—

 
(79
)
 
(57
)
 
—

 
(57
)
Noncash stock-based compensation
20

 
—

 
—

 
20

 
—

 
20

Issuance of preference stock
—

 
—

 
—

 
—

 
269

 
269

Balance at September 30, 2014
$
2,445

 
$
(23
)
 
$
8,314

 
$
10,736

 
$
2,022

 
$
12,758

The following table provides Edison International's changes in equity for the nine months ended September 30, 2013:
 
Equity Attributable to Edison International
 
Noncontrolling Interests
 
 
(in millions, except per-share amounts)
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
—

 
—

 
614

 
614

 
75

 
689

Other comprehensive income
—

 
8

 
—

 
8

 
—

 
8

Common stock dividends declared ($1.0125 per share)
—

 
—

 
(330
)
 
(330
)
 
—

 
(330
)
Dividends, distributions to noncontrolling interests
—

 
—

 
—

 
—

 
(75
)
 
(75
)
Stock-based compensation
5

 
—

 
(45
)
 
(40
)
 
—

 
(40
)
Noncash stock-based compensation
19

 
—

 
(6
)
 
13

 
(1
)
 
12

Issuance of preference stock
—

 
—

 
—

 
—

 
387

 
387

Redemption of preference stock
—

 
—

 
(8
)
 
(8
)
 
(392
)
 
(400
)
Balance at September 30, 2013
$
2,397

 
$
(79
)
 
$
7,371

 
$
9,689

 
$
1,753

 
$
11,442


15


The following table provides SCE's changes in equity for the nine months ended September 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
—

 
—

 
—

 
1,156

 
—

 
1,156

Other comprehensive income
—

 
—

 
3

 
—

 
—

 
3

Dividends declared on common stock
—

 
—

 
—

 
(378
)
 
—

 
(378
)
Dividends on preferred and preference stock
—

 
—

 
—

 
(84
)
 
—

 
(84
)
Stock-based compensation
—

 
13

 
—

 
(47
)
 
—

 
(34
)
Noncash stock-based compensation
—

 
9

 
—

 
(4
)
 
—

 
5

Issuance of preference stock
—

 
(6
)
 
—

 
—

 
275

 
269

Balance at September 30, 2014
$
2,168

 
$
608

 
$
(8
)
 
$
8,237

 
$
2,070

 
$
13,075

The following table provides SCE's changes in equity for the nine months ended September 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
)
 
$