10-Q


 
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, 2015
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 October 23, 2015:
 
 
Edison International
 
325,811,206 shares
Southern California Edison Company
 
434,888,104 shares
 
 
 
 
 
 







TABLE OF CONTENTS
 
 
 
 
 
 
SEC Form 10-Q Reference Number
 
 
Part I, Item 2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


i


Part I, Item 3
Part I, Item 1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part I, Item 4
 
 
 
 
 
 
Part II, Item 1
Part II, Item 2
 
 
Part II, Item 6
 
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


FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect Edison International's and SCE's current expectations and projections about future events based on Edison International's and SCE's knowledge of present facts and circumstances and assumptions about future events and include any statement that does not directly relate to a historical or current fact. Other information distributed by Edison International and SCE that is incorporated in this report, or that refers to or incorporates this report, may also contain forward-looking statements. In this report and elsewhere, the words "expects," "believes," "anticipates," "estimates," "projects," "intends," "plans," "probable," "may," "will," "could," "would," "should," and variations of such words and similar expressions, or discussions of strategy or of plans, are intended to identify forward-looking statements. Such statements necessarily involve risks and uncertainties that could cause actual results to differ materially from those anticipated. Some of the risks, uncertainties and other important factors that could cause results to differ from those currently expected, or that otherwise could impact Edison International and SCE, include, but are not limited to the:
•
ability of SCE to recover its costs in a timely manner from its customers through regulated rates, including regulatory assets related to San Onofre and undercollection of fuel and purchased power costs;
•
decisions and other actions by the CPUC, the FERC, the NRC and other regulatory authorities, including determinations of authorized rates of return or return on equity, and delays in regulatory actions;
•
ability of Edison International or its subsidiaries to borrow funds and access the capital markets on reasonable terms;
•
possible customer bypass or departure due to technological advancements, federal and state subsidies, or cumulative rate impacts that make self-generation or use of alternative energy sources economically viable;
•
risks inherent in the construction of transmission and distribution infrastructure replacement and expansion projects, including those related to project site identification, public opposition, environmental mitigation, construction, permitting, power curtailment costs (payments due under power contracts in the event there is insufficient transmission to enable the acceptance of power delivery), and governmental approvals;
•
risks associated with the operation of transmission and distribution assets and power generating facilities including: public safety issues, failure, availability, efficiency, and output of equipment and availability and cost of spare parts;
•
risks associated with the retirement and decommissioning of nuclear generating facilities;
•
physical security of SCE's critical assets and personnel and the cyber security of SCE's critical information technology systems for grid control, and business and customer data;
•
cost and availability of electricity, including the ability to procure sufficient resources to meet expected customer needs in the event of power plant outages or significant counterparty defaults under power-purchase agreements;
•
environmental laws and regulations, at both the state and federal levels, or changes in the application of those laws, that could require additional expenditures or otherwise affect the cost and manner of doing business;
•
changes in the fair value of investments and other assets;
•
changes in interest rates and rates of inflation, including escalation rates, which may be adjusted by public utility regulators;
•
governmental, statutory, regulatory or administrative changes or initiatives affecting the electricity industry, including market structure rules applicable to each market adopted by the CAISO, WECC, NERC, and adjoining regions;
•
availability and creditworthiness of counterparties and the resulting effects on liquidity in the power and fuel markets and/or the ability of counterparties to pay amounts owed in excess of collateral provided in support of their obligations;
•
cost and availability of labor, equipment and materials;
•
ability to obtain sufficient insurance, including insurance relating to SCE's nuclear facilities and wildfire-related liability, and to recover the costs of such insurance or in the absence of insurance the ability to recover uninsured losses;
•
effects of legal proceedings, changes in or interpretations of tax laws, rates or policies;
•
potential for penalties or disallowances for non-compliance with applicable laws and regulations, including potential penalties for violation of the CPUC's ex parte communications rules;


iii


•
cost and availability of fuel for generating facilities and related transportation to the extent not recovered through regulated rate cost escalation provisions or balancing accounts;
•
extent of technological change in the generation, storage, transmission, distribution and use of electricity;
•
risk that competing transmission systems will be built by merchant transmission providers in SCE's service area; and
•
weather conditions and natural disasters.
Additional information about risks and uncertainties, including more detail about the factors described above, is contained throughout this MD&A and in Edison International's and SCE's combined 2014 Form 10-K, including the "Risk Factors" section. Readers are urged to read this entire report, including the information incorporated by reference, as well as the 2014 Form 10-K, and carefully consider the risks, uncertainties and other factors that affect Edison International's and SCE's businesses. Forward-looking statements speak only as of the date they are made and neither Edison International nor SCE are obligated to publicly update or revise forward-looking statements. Readers should review future reports filed by Edison International and SCE with the SEC. Additionally, Edison International and SCE provide direct links to SCE's regulatory filings with the CPUC and the FERC at www.edisoninvestor.com so that such filings are available to all investors upon SCE filing with the relevant agency.
The MD&A for the nine months ended September 30, 2015 discusses material changes in the consolidated financial condition, results of operations and other developments of Edison International and SCE since December 31, 2014, and as compared to the nine months ended September 30, 2014. This discussion presumes that the reader has read or has access to Edison International's and SCE's MD&A for the calendar year 2014 (the "year-ended 2014 MD&A"), which was included in the 2014 Form 10-K.
Except when otherwise stated, references to each of Edison International, SCE, EMG, Edison Energy Group, EME or Edison Capital mean each such company with its subsidiaries on a consolidated basis. References to "Edison International Parent and Other" mean Edison International Parent and its consolidated non-utility subsidiaries.


iv


GLOSSARY
The following terms and abbreviations appearing in the text of this report have the meanings indicated below.
Amended Plan of Reorganization
 
EME Chapter 11 Bankruptcy Plan of Reorganization as amended to incorporate the terms of the Settlement Agreement, dated February 19, 2014
AFUDC
 
allowance for funds used during construction
2014 Form 10-K
 
Edison International's and SCE's combined Annual Report on Form 10-K for the year-ended December 31, 2014
ALJ
 
administrative law judge
APS
 
Arizona Public Service Company
ARO(s)
 
asset retirement obligation(s)
Bcf
 
billion cubic feet
CAA
 
Clean Air Act
CAISO
 
California Independent System Operator
CARB
 
California Air Resources Board
CPUC
 
California Public Utilities Commission
CRRs
 
congestion revenue rights
DOE
 
U.S. Department of Energy
Edison Energy Group
 
Edison International's subsidiary that holds interests in competitive businesses related to the generation, delivery, or use of electricity, formerly named Edison Energy, Inc.
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
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
HLBV
 
hypothetical liquidation at book value
IRS
 
Internal Revenue Service
ISO
 
Independent System Operator
MD&A
 
Management's Discussion and Analysis of Financial Condition and Results
of Operations in this report
MHI
 
Mitsubishi Heavy Industries, Ltd. and a related company
Moody's
 
Moody's Investors Service
MW
 
megawatts
MWh
 
megawatt-hours
NAAQS
 
national ambient air quality standards
NDTCP
 
Nuclear Decommissioning Trust Costs Proceeding
NERC
 
North American Electric Reliability Corporation
Ninth Circuit
 
Ninth Circuit Court of Appeals
NRC
 
Nuclear Regulatory Commission
ORA
 
CPUC's Office of Ratepayers Advocates
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


v


PBOP(s)
 
postretirement benefits other than pension(s)
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 by and among SCE, The Utility Reform Network, the CPUC's Office of Ratepayer Advocates and SDG&E, which was later joined by the Coalition of California Utility Employees and Friends of the Earth, (together, the "Settling Parties"), dated November 20, 2014
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
TURN
 
The Utility Reform Network
US EPA
 
U.S. Environmental Protection Agency
VIE(s)
 
variable interest entity(ies)
WECC
 
Western Electric Coordinating Council



vi

















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1


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT OVERVIEW
Highlights of Operating Results
Edison International is the parent holding company of SCE. SCE is a 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 Edison Energy Group, a subsidiary that holds interests in competitive businesses that are related to the generation, delivery, or use of electricity. Such competitive business activities are currently not material to report as a separate business segment. 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, Edison Energy Group, and other subsidiaries. Unless otherwise described, all of the information contained in this report relates to both filers.
 
Three months ended September 30,
 
 
 
Nine months ended September 30,
 
 
(in millions)
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Net income (loss) attributable to Edison International
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
 
 
 
 
 
 
 
 
 
 
SCE
$
389

 
$
503

 
$
(114
)
 
$
1,079

 
$
1,072

 
$
7

Edison International Parent and Other
(11
)
 
(7
)
 
(4
)
 
(23
)
 
(26
)
 
3

Discontinued operations
43

 
(16
)
 
59

 
43

 
146

 
(103
)
Edison International
421

 
480

 
(59
)
 
1,099

 
1,192

 
(93
)
Less: Non-core items
 
 
 
 
 
 
 
 
 
 
 
     SCE
—

 
—

 
—

 
—

 
(96
)
 
96

     Edison International Parent and Other
1

 
—

 
1

 
7

 
—

 
7

     Discontinued operations
43

 
(16
)
 
59

 
43

 
146

 
(103
)
Total non-core items
44

 
(16
)
 
60

 
50

 
50

 
—

Core earnings (losses)
 
 
 
 
 
 
 
 
 
 
 
SCE
389

 
503

 
(114
)
 
1,079

 
1,168

 
(89
)
Edison International Parent and Other
(12
)
 
(7
)
 
(5
)
 
(30
)
 
(26
)
 
(4
)
Edison International
$
377

 
$
496

 
$
(119
)
 
$
1,049

 
$
1,142

 
$
(93
)
Edison International's earnings are prepared in accordance with GAAP used in the United States. Management uses core earnings internally for financial planning and for analysis of performance. Core earnings (losses) are also used when communicating with investors and analysts regarding Edison International's earnings results to facilitate comparisons of the Company's performance from period to period. Core earnings (losses) are a non-GAAP financial measure and may not be comparable to those of other companies. Core earnings (losses) are defined as earnings attributable to Edison International shareholders less income or loss from discontinued operations, income resulting from allocation of losses to tax equity investors under the hypothetical liquidation at book value ("HLBV") accounting method, acquisition expenses and income or loss from significant discrete items that management does not consider representative of ongoing earnings, such as: exit activities, including sale of certain assets and other activities that are no longer continuing; asset impairments and certain tax, regulatory or legal settlements or proceedings.
SCE's core earnings for the three months ended September 30, 2015 were lower by $114 million compared to the same period in 2014 primarily due to lower CPUC-related revenue and income tax benefits, partially offset by an increase in FERC-related revenue from rate base growth. SCE recognized revenue from CPUC activities largely based on the 2015 GRC proposed decision resulting in an estimated revenue refund to customers of $233 million. See "—2015 General Rate Case" and "Results of Operations—Southern California Edison Company" for further information. The revenue requirement ultimately adopted by the CPUC in a final GRC decision will be retroactive to January 1, 2015.

2


SCE's core earnings for the nine months ended September 30, 2015 were lower by $89 million primarily due to lower CPUC-related revenue and lower other income, partially offset by an increase in FERC-related revenue from rate base growth and earnings on funds used during construction.
In addition, income tax benefits were lower in 2015. During the nine months ended September 30, 2015, SCE recorded $100 million of income tax benefits from revisions to liabilities for uncertain tax positions for tax years 2010 through 2012. These benefits were partially offset by changes in estimated taxes related to net operating loss carrybacks, interest and state income taxes. During the nine months ended September 30, 2014, SCE recorded $85 million of income tax benefits from incremental repair deductions and $29 million of income tax benefits from revisions to liabilities for uncertain tax positions.
Consolidated non-core items included:
•
Impairment and other charges of $231 million ($96 million after-tax) in the first quarter of 2014 related to the San Onofre OII Settlement Agreement (as discussed below). For further information, see "—San Onofre Proceedings, Recoveries, and Decommissioning."
•
Income (loss) from discontinued operations, net of tax, included:
•
Loss of $16 million during the third quarter of 2014 and income of $168 million during the nine months ended September 30, 2014 related to the impact of completing the EME Settlement Agreement. In August 2014, Edison International entered into an amendment of the Settlement Agreement to finalize the remaining matters related to the EME Settlement.
•
Income tax benefit of $27 million during the third quarter of 2015 from revised estimates of tax benefits based on filing of the tax returns and an income tax loss of $22 million for the nine months ended September 30, 2014 from revised estimates of the tax impact of a tax deconsolidation of EME from Edison International as originally contemplated prior to the EME Settlement. See 2014 Form 10-K, "Management Overview—Resolution of Uncertainty Related to EME in Bankruptcy."
•
Income of $16 million ($28 million pre-tax) during the third quarter of 2015 related to insurance recoveries related to the EME bankruptcy.
•
Income of $1 million and $7 million for the three and nine months ended September 30, 2015, respectively, related to losses allocated to tax equity investors under the HLBV accounting method. Edison International reflected in core earnings the operating results of the solar rooftop projects, related financings and the priority return to the tax equity investor. The losses allocated to the tax equity investor under HLBV accounting method results in income allocated to subsidiaries of Edison International, neither of which is due to the operating performance of the projects but rather due to the allocation of income tax attributes under the tax equity financing. Accordingly, Edison International has included the non-operating allocation of income as a non-core item. For further information on HLBV, see the 2014 Form 10-K, "Notes to Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies."
2015 General Rate Case
SCE's 2015 GRC application, as amended, requested a base rate revenue requirement of $5.512 billion, which would be a $121 million decrease from currently authorized base rate revenue. On September 18, 2015, the CPUC issued a proposed decision, which, if adopted, would result in a 2015 base rate revenue requirement of $5.159 billion, a decrease of $353 million from SCE's requested revenue requirement, primarily related to operation and maintenance expenses, capital expenditures, and other rate base adjustments. The proposed decision includes a reduction of 2015 capital expenditures of approximately $300 million, primarily in the areas of infrastructure replacement, inspection and maintenance and non-electric facility capital projects. The proposed decision, if adopted, would result in a decrease of approximately $474 million from currently authorized revenue. The proposed decision also continues SCE's flow-through rate-making treatment of tax repair deductions. See "Notes to Consolidated Financial Statements—Note 7. Income Taxes" for further discussion.
The proposed decision would allow a post-test year ratemaking methodology that escalates capital additions by 2% for 2016 and 2% for 2017. It would also allow operation and maintenance expense to be escalated for 2016 and 2017 through the use of various escalation factors for labor, non-labor and medical expenses. The methodology adopted in the proposed decision would result in a revenue requirement of $5.429 billion for 2016 and $5.704 billion for 2017.

3


As indicated in the table below, revenue in the 2015 GRC proposed decision is lower than the amount authorized in 2014 due to lower operation and maintenance costs and income taxes. SCE has recognized revenue largely based on the revenue requirement set forth in the proposed decision. The reduction in revenue from estimated refunds to customers was $233 million during the third quarter of 2015 and the total reduction in revenue for the nine months was $318 million. See "Results of Operations—SCE" for further information. The CPUC has authorized the establishment of a GRC memorandum account, which will make the 2015 revenue requirement ultimately adopted by the CPUC effective as of January 1, 2015. A final CPUC decision may be received by year-end and could result in material changes to the proposed decision.
The 2015 GRC proposed decision also includes a reduction in 2015 base rate revenue requirement of approximately $40 million through a rate base adjustment of $344 million as determined by the CPUC to achieve a benefit to customers equal to the increased future customer costs attributable to SCE's election related to 2012 – 2014 tax repairs. In SCE's filed comments, it requested a modification to eliminate the rate base adjustment on the basis of a number of legal errors including, among other items, that the rate base adjustment affecting the revenue requirements is prohibited as retroactive rate making. As of September 30, 2015, SCE had recorded a net regulatory asset of approximately $380 million related to future cash taxes associated with incremental 2012 – 2014 repair deductions. SCE has not recorded the potential impact from the rate base adjustment or 2015 incremental repair deductions pending a final decision that would provide clarity on the tax accounting treatment. SCE cannot predict the outcome of this matter. If the final decision mandates future reductions in revenue requirements, SCE would reduce 2015 revenue by the amount determined in the final decision and may record a charge against income to write down some or all of the above regulatory asset.
Capital Program
Total capital expenditures (including accruals) were $2.6 billion for the first nine months of both 2015 and 2014.
SCE’s capital expenditures forecast for the 2015 – 2017 period has been revised since the filing of the 2014 Form 10-K and is now estimated to be in the range of $11.6 billion to $11.8 billion, including $3.9 billion for 2015. The update reflects a reduction in capital expenditures due to the 2015 GRC proposed decision, the Coolwater-Lugo Transmission Project (for more information, see "Liquidity and Capital Resources—SCE—Capital Investment Plan") and revisions to the timing of capital spending for transmission projects. Actual capital spending will be affected by: changes in regulatory, environmental and engineering design requirements; permitting and project delays; cost and availability of labor, equipment and materials; and other factors.
Distribution Resources Plan
As discussed in the 2014 Form 10-K, to support California's greenhouse gas reduction targets, modernize the electric distribution system to accommodate two-way flows of energy associated with distributed energy resources such as rooftop solar, and facilitate customer choice of new technologies and services that reduce emissions and improve resilience, the CPUC initiated a rulemaking to establish policies, procedures and rules to guide investor owned utilities in developing a Distribution Resources Plan ("DRP") proposal. On July 1, 2015, SCE filed its DRP with the CPUC, which included an indicative forecast of capital investment in distribution automation, substation automation, communications systems, technology platforms and applications, and grid reinforcement. Subject to future CPUC guidance, SCE anticipates integrating authorization for revenue to support DRP operation and maintenance and capital spending into future general rate cases, beginning with its 2018 – 2020 GRC, which is expected to be filed on or about September 1, 2016. Capital investments for 2015 – 2017 discussed above may be updated or revised based on developments and guidance received from the CPUC as a part of the DRP rule making, technology availability, pace of distributed energy resource adoption, and other factors.
SCE expects overall capital spending to continue at least in the range of current capital spending forecasts, although the CPUC's approval in future general rate cases of all or part of the capital investment plan supporting SCE's DRP filing could result in higher spending. The timing and amount of capital investments may vary depending upon implementation decisions, including scope and pace of adoption and GRC ratemaking decisions and other CPUC actions.

4


San Onofre Proceedings, Recoveries, and Decommissioning
As discussed in the 2014 Form 10-K, in November 2014, the CPUC approved the San Onofre OII Settlement Agreement that SCE had entered into with TURN, ORA, SDG&E, the Coalition of California Utility Employees, and Friends of the Earth. The San Onofre OII Settlement Agreement resolved the CPUC's investigation regarding the Steam Generator Replacement Project at San Onofre and the related outages and subsequent shutdown of San Onofre. The San Onofre OII Settlement Agreement does not affect proceedings related to recoveries from third parties, but does describe how shareholders and customers will share any potential recoveries. For further discussion of third party recoveries, including claims against MHI and under the NEIL outage insurance, see "Notes to Consolidated Financial Statements—Note 11. Commitments and Contingencies—Contingencies—San Onofre Related Matters."
NEIL Insurance Settlement
The San Onofre owners have reached an agreement with NEIL to resolve all insurance claims arising out of the failures of the San Onofre replacement steam generators for a total payment by NEIL of $400 million (SCE's share of which is approximately $313 million). Under the terms of the San Onofre OII Settlement Agreement, after reimbursement of the costs incurred in pursuing these claims, the recovery will be allocated 95% to customers and 5% to SCE. For further discussion of recovery under the NEIL outage and property damage insurance, see "Notes to Consolidated Financial Statements—Note 11. Commitments and Contingencies—Contingencies—San Onofre Related Matters."
Challenges related to San Onofre CPUC Proceedings
A federal lawsuit challenging the CPUC's authority to permit rate recovery of San Onofre costs and an application to the CPUC for rehearing of its decision approving the San Onofre OII Settlement Agreement were filed in November and December 2014, respectively. In April 2015, the federal lawsuit was dismissed with prejudice and the plaintiffs in that case appealed the dismissal to the Ninth Circuit in May 2015. Both the appeal and the application for rehearing remain pending.
In February 2015, SCE filed in the OII proceeding a Late-Filed Notice of Ex Parte Communication regarding a meeting in March 2013 between an SCE senior executive and the president of the CPUC, both of whom have since retired from their respective positions. Following this filing, the Alliance for Nuclear Responsibility ("A4NR"), one of the intervenors in the OII, filed a motion requesting that the CPUC institute an investigation into whether sanctions should be imposed on SCE for the late notice of the March 2013 meeting. The motion requests that the CPUC order SCE to produce all ex parte communications between SCE and the CPUC or its staff since January 31, 2012 and all internal SCE unprivileged communications that discuss such ex parte communications. On May 6, 2015, A4NR amended its motion to recommend that the CPUC impose a $38.2 million penalty on SCE and additional restrictions on ex parte communications.
On April 14, 2015, the OII ALJs ordered SCE, among other things, to produce unprivileged documents pertaining to oral and written communications regarding the possible settlement of the OII proceeding between any SCE employee and CPUC decision makers from March 2013 to November 2014. SCE produced responsive documents and information on April 29, 2015. On June 26, 2015, the ALJs requested additional information, which SCE provided on July 3, 2015. Subsequently, another intervenor, the Coalition to Decommission San Onofre, filed a motion to move the start date for the production of documents under the CPUC's order to January 31, 2012 and to authorize the intervenors to conduct discovery of SCE. On August 5, 2015, the OII ALJ issued a ruling that nine additional communications should have been reported in addition to the March 2013 communication that SCE had reported in February 2015. The ruling dismissed all other pending requests for disclosures by SCE, discovery, or sanctions. In addition, the August 2015 ruling ordered SCE to show cause why it should not be sanctioned for violations of the ex parte rules and two related violations of Rule 1.1. The amount of potential monetary sanctions may vary from $500 to $50,000 per offense and will also depend on whether each offense is considered to be a single or a continuing violation, rendering it subject to a separate fine for each day. SCE responded to the order on August 20, 2015, arguing that the additional communications were not reportable and that sanctions were not justified. On October 20, 2015, SCE submitted to the CPUC additional documents that were responsive to the ALJs' order discussed above. On October 26, 2015, the OII ALJ issued a proposed decision that would impose a penalty of $16.74 million in connection with eight communications that the proposed decision finds should have been reported. The proposed decision does not address the petitions for modification of the San Onofre OII Settlement Agreement discussed below.

5


On April 17, 2015, ORA and TURN issued press releases asking the CPUC to impose penalties on SCE as a sanction for allegedly improper ex parte communications pertaining to San Onofre or failures to report such communications. ORA recommended penalties in the amount of $648 million, representing ORA's calculation of the difference in ratepayer value between ORA's initial settlement negotiating position in the San Onofre OII and the approved settlement. TURN did not recommend a penalty amount.
On April 27, 2015, A4NR filed a petition to modify the CPUC's decision approving the San Onofre OII Settlement Agreement based on SCE's alleged failures to disclose communications between SCE and CPUC decision-makers pertaining to the issues in the San Onofre OII. The petition seeks the reversal of the decision approving the San Onofre OII Settlement Agreement and reopening of the OII proceeding. Subsequently, TURN and ORA filed responses supporting A4NR's petition to reopen the San Onofre OII proceeding. In August 2015, ORA filed its own petition to modify the CPUC's decision approving the San Onofre OII Settlement Agreement seeking to set aside the settlement and reopen the San Onofre OII proceeding. SCE and SDG&E responded to this petition in September 2015. Both petitions remain pending before the CPUC.
On July 6, 2015, a purported securities class action lawsuit was filed in federal court against Edison International, its CEO and CFO. The lawsuit alleges that the defendants violated the securities laws by failing to disclose that Edison International's ex parte contacts with CPUC decision-makers were more extensive than initially reported. The complaint purports to be filed on behalf of a class of persons who acquired Edison International common stock between July 31, 2014 and June 24, 2015.
Subsequently, in July 2015, a federal shareholder derivative lawsuit was filed against members of the Edison International Board of Directors for breach of fiduciary duty and other claims based on similar allegations to the federal securities lawsuit. The derivative lawsuit seeks monetary damages, including punitive damages, and various corporate governance reforms. Two additional federal shareholder derivative lawsuits making essentially the same allegations were filed in August and October 2015.
SCE has produced and is producing documents and is otherwise cooperating with criminal investigations being conducted by the California Attorney General and the U.S. Department of Justice. While the full scope of the investigations is not known to SCE, SCE's document production and cooperation have included information relating to the settlement of the San Onofre OII and interactions between SCE executives and CPUC decision-makers.
Edison International and SCE cannot predict the outcome of these proceedings.
Rate Impacts
Due to the implementation of the San Onofre OII Settlement Agreement as of December 31, 2014, customers were refunded approximately $540 million through a reduction in SCE's ERRA undercollection. As a result of collections in 2015 and the reimbursement of 2013 and 2014 San Onofre decommissioning costs discussed below, the ERRA undercollection was fully recovered as of September 30, 2015.
For further information on 2015 ERRA forecast application, see "Liquidity and Capital Resources—SCE—Regulatory Proceedings—ERRA Forecast Filing – 2015" in the year-ended 2014 MD&A. For information on the San Onofre regulatory asset, see "Notes to Consolidated Financial Statements—Note 10. Regulatory Assets and Liabilities."
Decommissioning
As discussed in the 2014 Form 10-K, SCE decided to permanently retire and decommission San Onofre Units 2 and 3 on June 6, 2013. For further information about the decommissioning cost estimates, see the 2014 Form 10-K under the headings, "Notes to Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies—Nuclear Decommissioning and Asset Retirement Obligations" and "Management Overview—Permanent Retirement of San Onofre and San Onofre OII Settlement" in the year-ended 2014 MD&A.
SCE has nuclear decommissioning trust funds for San Onofre Units 2 and 3 of $3.0 billion as of September 30, 2015. If the decommissioning cost estimate and assumptions regarding trust performance do not change, SCE believes that future contributions to the trust funds will not be necessary. The CPUC must issue an order granting approval for withdrawal of decommissioning trust funds.

6


Decommissioning costs incurred in 2013 and 2014 were recorded as operation and maintenance expenses pending the CPUC decision on access to the trusts for reimbursement. Accordingly, such costs were recovered through GRC revenue. Costs incurred for 2013 have been found reasonable under the San Onofre OII Settlement Agreement. The CPUC will conduct a reasonableness review for 2014 costs and years going forward. On July 23, 2015, the CPUC approved SCE's request for access to the nuclear decommissioning trusts for reimbursement of 2013 and 2014 Units 2 and 3 decommissioning costs. Under the San Onofre OII Settlement Agreement, any recoveries from the nuclear decommissioning trusts of 2013 and 2014 decommissioning costs funded through GRC revenue must be refunded to customers. In August 2015, SCE received $319 million of decommissioning funds and refunded this amount back to customers primarily through ERRA.
Beginning in 2015, SCE must fund decommissioning costs (recorded as a reduction of SCE's asset retirement obligation) until the CPUC approves SCE's request to access the trust funds for that year's costs. SCE expects that the CPUC would approve access for 2015 costs prior to year-end 2015. SCE's share of the decommissioning costs recorded during the first nine months of 2015 were approximately $129 million and are estimated to be approximately $88 million for the remainder of 2015.
Depending on the ultimate interpretation of IRS regulations that address the taxation of a qualified nuclear decommissioning trust, SCE may also be restricted from withdrawing amounts from the qualified decommissioning trusts to pay for independent spent fuel storage installation ("ISFSI") where SCE is seeking, or plans to seek, recovery of the ISFSI costs in litigation against the DOE. SCE's share of ISFSI costs for 2015 (included in the above 2015 decommissioning costs estimate) are currently estimated to be approximately $28 million. SCE has filed for a private letter ruling with the IRS to address this matter based on facts and circumstances related to Units 2 and 3 at San Onofre.
Labor Contract Negotiation
Approximately 3,900 of SCE's full-time employees are covered by collective bargaining agreements with the International Brotherhood of Electrical Workers ("IBEW"). On September 1, 2015, the parties formally executed the 2015 – 2017 collective bargaining agreements with SCE that include, among other things, pay increases retroactive to January 1, 2015 and modified benefit plans, generally consistent with the 2015 GRC proposed decision. The IBEW collective bargaining agreements expire on December 31, 2017.
RESULTS OF OPERATIONS
Southern California Edison Company
SCE's results of operations are derived mainly through two sources:
•
Utility earning activities – representing revenue authorized by the CPUC and FERC which is intended to provide SCE a reasonable opportunity to recover its costs and earn a return on its net investment in generation, transmission and distribution assets. The annual revenue requirements are comprised of authorized operation and maintenance costs, depreciation, taxes and a return consistent with the capital structure. Also, included in utility earnings activities are revenue or penalties related to incentive mechanisms, other operating revenue, and regulatory charges or disallowances.
•
Utility cost-recovery activities – representing CPUC- and FERC-authorized balancing accounts which allow for recovery of specific project or program costs, subject to reasonableness review or compliance with upfront standards. Utility cost-recovery activities include rates which provide recovery, subject to reasonableness review of, among other things, fuel costs, purchased power costs, public purpose related-program costs (including energy efficiency and demand-side management programs) and certain operation and maintenance expenses.

7


Revenue Impact of 2015 GRC Proposed Decision
SCE has recognized revenue largely based on the revenue requirement set forth in the proposed GRC decision. The CPUC has authorized the establishment of a GRC memorandum account, which will make the 2015 revenue requirement ultimately adopted by the CPUC effective as of January 1, 2015. A final CPUC decision may be received by year-end and could result in material changes to the proposed decision.
As indicated in the table below, revenue in the 2015 GRC proposed decision is lower than the amount authorized in 2014 due to lower operation and maintenance costs and income taxes. Accordingly, if a final decision adopts the lower 2015 revenue, SCE would refund the excess amount to customers. The total estimated refunds to customers for the nine month period ended September 30, 2015 was $318 million. The reduction in revenue and operating costs reflected in the 2015 GRC proposed decision did not affect the authorized return.
The following table summarizes the proposed decision compared to the amounts of revenue currently authorized:
(in millions)
2014 Authorized Revenue
 
Exclude
San Onofre Authorized Revenue
 
2014 Authorized Revenue
less San Onofre
 
2015 GRC Proposed Decision Authorized Revenue
 
(Decrease)
Increase
 
Authorized revenue
$
6,149

 
$
(516
)
 
$
5,633

 
$
5,159

 
$
(474
)
 
Cost of service:
 
 
 
 
 
 
 
 
 
 
  Operation and maintenance
2,354

 
(352
)
 
2,002

 
1,826

 
(176
)
1 
  Depreciation
1,587

 
(91
)
 
1,496

 
1,536

 
40

 
  Property and payroll taxes
273

 
(13
)
 
260

 
245

 
(15
)
 
Income taxes
494

 
(13
)
 
481

 
174

 
(307
)
2 
Authorized return
1,441

 
(47
)
 
1,394

 
1,378

 
(16
)
 
 
$
6,149

 
$
(516
)
 
$
5,633

 
$
5,159

 
$
(474
)
 
1     Authorized revenue for operation and maintenance costs decreased due to:
•
$78 million reduction in cost-recovery activities primarily for pension, postretirement benefits other than pensions (PBOP), medical and results sharing costs. These cost-recovery activities are recorded through balancing accounts and, accordingly, did not impact revenue recognition based on the proposed decision in the 2015 GRC.
•
$98 million reduction for utility earning activities primarily from SCE's initiatives to improve operational efficiency which has resulted in lower forecasted operation and maintenance costs than included in the 2014 authorized amounts.
2 
Authorized revenue for income taxes decreased due to flow-through items for income tax benefits – primarily tax repairs and cost of removal deductions. Forecasted flow-through items increased in the 2015 GRC from the amounts reflected in 2014 authorized revenue which is reflected as lower revenue requirement.
SCE recorded an estimated revenue refund to customers of $233 million during the third quarter of 2015. Revenue recognition for the first and second quarters of 2015 were based largely on 2014 authorized revenue currently in rates. Had revenue during the first and second quarter of 2015 been determined on the same basis as the 2015 GRC proposed decision used during the third quarter, revenue and net income in each quarter would have been approximately $37 million and $22 million lower with an offsetting reduction in the third quarter (no impact on the nine months results of operations). These amounts represent the impact of a change in estimate regarding refunds to customers during the third quarter when it was determined that it was probable that SCE would make additional refunds to customers.

8


The following table is a summary of SCE's results of operations for the periods indicated.
Three months ended September 30, 2015 versus September 30, 2014
 
Three months ended September 30, 2015
Three months ended September 30, 2014
(in millions)
Utility
Earning
Activities
Utility
Cost-
Recovery
Activities
Total
Consolidated
Utility
Earning
Activities
Utility
Cost-
Recovery
Activities
Total
Consolidated
Operating revenue
$
1,711

$
2,046

$
3,757

$
1,884

$
2,454

$
4,338

Purchased power and fuel
—

1,785

1,785

—

2,182

2,182

Operation and maintenance
498

258

756

506

270

776

Depreciation, decommissioning and amortization
504

2

506

423

—

423

Property and other taxes
84

—

84

76

—

76

Total operating expenses
1,086

2,045

3,131

1,005

2,452

3,457

Operating income
625

1

626

879

2

881

Interest expense
(130
)
(1
)
(131
)
(132
)
(1
)
(133
)
Other income and expenses
14

—

14

8

(1
)
7

Income before income taxes
509

—

509

755

—

755

Income tax expense
92

—

92

224

—

224

Net income
417

—

417

531

—

531

Preferred and preference stock dividend requirements
28

—

28

28

—

28

Net income available for common stock
$
389

$
—

$
389

$
503

$
—

$
503

Core earnings1
 
 
$
389

 
 
$
503

Non-core earnings
 
 
—

 
 
—

Total SCE GAAP earnings
 
 
$
389

 
 
$
503

1 
See use of non-GAAP financial measures in "Management Overview—Highlights of Operating Results."
Utility Earning Activities
Utility earning activities were primarily affected by the following:
•
Lower operating revenue of $173 million primarily due to the following:
•
A decrease in CPUC-related revenue of $190 million primarily due to an estimated revenue refund to customers of $233 million, as discussed above, partially offset by a net increase in San Onofre-related revenue of $48 million due to the implementation of the San Onofre OII Settlement Agreement. Revenue for San Onofre during the third quarter of 2015 primarily related to recovery of amortization of the regulatory asset and authorized return as provided by the San Onofre Settlement Agreement compared to revenue during the third quarter of 2014 related to recovery of San Onofre's cost of service. See "Management Overview—San Onofre Proceedings, Recoveries, and Decommissioning" above for more information.
•
An increase in FERC-related revenue of $15 million primarily related to rate base growth and higher operating costs.
•
Lower operation and maintenance expense of $8 million primarily due to San Onofre-related expense of $23 million in the third quarter of 2014 partially offset by severance costs of $7 million and higher outside service costs in the third quarter of 2015. Beginning January 1, 2015, expense related to San Onofre has been classified as decommissioning costs and recorded as a reduction to SCE's asset retirement obligation.
•
Higher depreciation, decommissioning and amortization expense of $81 million primarily due to San Onofre-related expense of $69 million in 2015 related to the amortization of the regulatory asset and a $12 million increase in depreciation primarily related to transmission and distribution investments. In accordance with the San Onofre OII Settlement Agreement, SCE is authorized to recover in rates its San Onofre regulatory asset over a ten-year period. For further information on the San Onofre regulatory asset, see the 2014 Form 10-K, "Management Overview—Permanent Retirement of San Onofre and San Onofre OII Settlement" and "Notes to Consolidated Financial Statements—Note 10. Regulatory Assets and Liabilities."
•
Higher property and other taxes of $8 million primarily due to higher property assessed values in 2015.

9


•
Higher other income and expenses of $6 million primarily due to a $15 million penalty recorded in 2014 resulting from the San Bernardino and San Gabriel settlements and higher AFUDC equity income related to a higher rate, partially offset by a $7 million sales tax refund related to San Onofre received in 2014 and lower insurance benefits in 2015. See "Notes to Consolidated Financial Statements—Note 14. Interest and Other Income and Other Expenses" for more information.
•
Lower income taxes of $132 million primarily due to lower pre-tax income in 2015, as discussed above, and higher income tax benefits in 2015 primarily related to repair deductions. See "—Income Taxes" below for more information.
Utility Cost-Recovery Activities
Utility cost-recovery activities were primarily affected by the following:
•
Lower purchased power and fuel of $397 million primarily driven by lower power and gas prices in 2015 relative to 2014. Fuel costs were $57 million and $77 million for the three months ended September 30, 2015 and 2014, respectively.
•
Lower operation and maintenance expense of $12 million primarily due to lower benefit costs partially offset by higher transmission access charges.
The following table is a summary of SCE's results of operations for the periods indicated.
Nine months ended September 30, 2015 versus September 30, 2014
 
Nine months ended September 30, 2015
Nine months ended September 30, 2014
(in millions)
Utility
Earning
Activities
Utility
Cost-
Recovery
Activities
Total
Consolidated
Utility
Earning
Activities
Utility
Cost-
Recovery
Activities
Total
Consolidated
Operating revenue
$
4,870

$
4,296

$
9,166

$
5,023

$
5,253

$
10,276

Purchased power and fuel
—

3,648

3,648

—

4,563

4,563

Operation and maintenance
1,455

646

2,101

1,501

686

2,187

Depreciation, decommissioning and amortization
1,448

1

1,449

1,248

—

1,248

Property and other taxes
254

—

254

232

—

232

Impairment and other charges
—

—

—

231

—

231

Total operating expenses
3,157

4,295

7,452

3,212

5,249

8,461

Operating income
1,713

1

1,714

1,811

4

1,815

Interest expense
(397
)
(1
)
(398
)
(398
)
(4
)
(402
)
Other income and expenses
54

—

54

53

—

53

Income before income taxes
1,370

—

1,370

1,466

—

1,466

Income tax expense
207

—

207

310

—

310

Net income
1,163

—

1,163

1,156

—

1,156

Preferred and preference stock dividend requirements
84

—

84

84

—

84

Net income available for common stock
$
1,079

$
—

$
1,079

$
1,072

$
—

$
1,072

Core earnings1
 
 
$
1,079

 
 
$
1,168

Non-core earnings
 
 
—

 
 
(96
)
Total SCE GAAP earnings
 
 
$
1,079

 
 
$
1,072

1 
See use of non-GAAP financial measures in "Management Overview—Highlights of Operating Results."

10


Utility Earning Activities
Utility earning activities were primarily affected by the following:
•
Lower operating revenue of $153 million primarily due to the following:
•
A decrease in CPUC-related revenue of $230 million primarily due to an estimated revenue refund to customers of $318 million, as discussed above, partially offset by a net increase in San Onofre-related revenue of $82 million due to the implementation of the San Onofre OII Settlement Agreement. Revenue for San Onofre during the nine months ended September 30, 2015 primarily related to recovery of amortization of the regulatory asset and authorized return as provided by the San Onofre Settlement Agreement compared to revenue during the nine months ended September 30, 2014 related to recovery of San Onofre's cost of service. See "Management Overview—San Onofre Proceedings, Recoveries, and Decommissioning" above for more information.
•
An increase in FERC-related revenue of $75 million primarily related to rate base growth and higher operating costs. During the first nine months of 2015 and 2014, SCE recorded $15 million and $19 million, respectively, of additional revenue from a change in estimate under the FERC formula rate mechanism.
•
Lower operation and maintenance expense of $46 million primarily due to San Onofre-related expense of $64 million for the nine months ended September 30, 2014. Beginning January 1, 2015, expense related to San Onofre has been classified as decommissioning costs and recorded as a reduction to SCE's asset retirement obligation. This decrease was partially offset by higher severance costs related to workforce reduction efforts ($17 million in 2015 and $9 million in 2014) and higher outside service costs in 2015.
•
Higher depreciation, decommissioning and amortization expense of $200 million primarily due to San Onofre-related expense of $139 million in 2015 related to the amortization of the regulatory asset and a $61 million increase in depreciation primarily related to transmission and distribution investments.
•
Higher property and other taxes of $22 million primarily due to higher property assessed values in 2015.
•
Impairment and other charges of $231 million in the first quarter of 2014 related to the San Onofre OII Settlement Agreement. For further information, see "Management Overview—San Onofre Proceedings, Recoveries, and Decommissioning."
•
Higher other income and expenses of $1 million primarily due to a $15 million penalty recorded in 2014 resulting from the San Bernardino and San Gabriel settlements and higher AFUDC equity income related to a higher rate and higher construction work in progress balances in 2015. These increases were offset by $15 million in generator settlements received in 2014, a $7 million sales tax refund related to San Onofre received in 2014 and lower insurance benefits in 2015. See "Notes to Consolidated Financial Statements—Note 14. Interest and Other Income and Other Expenses" for more information.
•
Lower income taxes of $103 million primarily due to the following:
•
An increase in income tax benefits in 2015 primarily related to repair deductions.
•
A change in liabilities related to uncertain tax positions related to repair deductions, which resulted in income tax benefits of $100 million and $29 million during the second quarters of 2015 and 2014, respectively. See "—Income Taxes" below for more information.
•
A lower pre-tax income in 2015, as discussed above, partially offset by the impact of the San Onofre OII Settlement Agreement.
Utility Cost-Recovery Activities
Utility cost-recovery activities were primarily affected by the following:
•
Lower purchased power and fuel of $915 million primarily driven by lower power and gas prices in 2015 relative to 2014 and the CAISO generation surcharge of $83 million in 2014 (as discussed below). These decreases were partially offset by higher realized losses on economic hedging activities ($103 million in 2015 compared to $59 million in 2014) and the generator settlements received in 2014 (see "Notes to Consolidated Financial Statements—Note 14. Interest and Other Income and Other Expenses" for more information). Fuel costs were $132 million and $219 million for the nine months ended September 30, 2015 and 2014, respectively.

11


As discussed above, during the second quarter of 2014, the CAISO issued invoices implementing a FERC order which revised FERC tariffs for costs associated with scheduling coordinator activities. The impact of implementing the order and revised invoices resulted in a transmission refund of $106 million reflected in operation and maintenance expense and a generation surcharge of $83 million reflected in purchased power expense. These transactions did not impact earnings as the net refund was provided to customers through a FERC balancing account mechanism.
•
Lower operation and maintenance expense of $40 million primarily due to lower spending on various public purpose programs, lower pension expenses and a decrease in transmission access charges, partially offset by the 2014 CAISO refund of $106 million mentioned above.
Supplemental Operating Revenue Information
SCE's retail billed and unbilled revenue (excluding wholesale sales and balancing account overcollections/undercollections) was $4.3 billion and $9.7 billion for the three and nine months ended September 30, 2015, respectively, compared to $4.5 billion and $9.7 billion for the respective periods in 2014.
•
Retail billed and unbilled revenue for the three months ended September 30, 2015 were lower compared to the same period last year primarily due to a rate decrease of $120 million. The decrease was primarily due to the implementation of the San Onofre OII Settlement Agreement, which resulted in a rate adjustment beginning on January 1, 2015.
•
Retail billed and unbilled revenue for the nine months ended September 30, 2015 reflects a rate increase of $115 million offset by a sales volume decrease of $117 million. The rate increase was primarily due to the implementations of the 2014 ERRA rate increase in June 2014 and the San Onofre-related rate adjustment in January 2015. The sales volume decrease was due to lower load requirements related to cooler weather experienced in 2015 compared to the same period last year.
As a result of the CPUC-authorized decoupling mechanism, SCE earnings are not affected by changes in retail electricity sales (see "Business—SCE—Overview of Ratemaking Process" in the 2014 Form 10-K).
Income Taxes
SCE's income tax provision decreased by $132 million and $103 million for the three and nine months ended September 30, 2015, respectively, compared to the same periods in 2014.
The effective tax rates were 18.1% and 29.7% for the three months ended September 30, 2015 and 2014, respectively. The effective tax rate decrease was primarily due to higher income tax benefits related to repair deductions, as discussed above.
The effective tax rates were 15.1% and 21.1% for the nine months ended September 30, 2015 and 2014, respectively. The effective tax rate decrease was primarily due to higher income tax benefits related to repair deductions (as discussed above) and the change in liabilities related to uncertain tax positions, partially offset by income tax benefits in 2014 related to the San Onofre OII Settlement Agreement. See "Management Overview—San Onofre Proceedings, Recoveries, and Decommissioning" above for more information.
See "Notes to Consolidated Financial Statements—Note 7. Income Taxes" for a reconciliation of the federal statutory rate of 35% to the effective income tax rates and "Management Overview—2015 General Rate Case" above for more information.
Edison International Parent and Other
Results of operations for Edison International Parent and Other include amounts from other Edison International subsidiaries that are not significant as a reportable segment, as well as intercompany eliminations.

12


Income from Continuing Operations
The following table summarizes the results of Edison International Parent and Other:
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions)
2015
 
2014
 
2015
 
2014
Edison Energy Group and subsidiaries
$
(3
)
 
$
(3
)
 
$
(3
)
 
$
(7
)
Edison Mission Group and subsidiaries
1

 
13

 
13

 
21

Corporate expenses and Other
(9
)
 
(17
)
 
(33
)
 
(40
)
Total Edison International Parent and Other
$
(11
)
 
$
(7
)
 
$
(23
)
 
$
(26
)
The loss from continuing operations of Edison International Parent and Other increased $4 million and decreased $3 million for the three and nine months ended September 30, 2015, respectively, compared to the same periods in 2014 primarily due to:
•
A decrease in the loss of Edison International Parent and Other primarily due to higher income tax benefits in the third quarter of 2015 and lower corporate expenses for the nine months ended September 30, 2015.
•
An decrease in income from EMG and subsidiaries of $12 million and $8 million for the three and nine months ended September 30, 2015, respectively, primarily due to lower income from affordable housing projects, including asset sales, and income taxes. EMG's subsidiary, Edison Capital, continues to wind down its remaining affordable housing investments. For further information, see "Liquidity and Capital Resources—Edison International Parent and Other." Earnings from Edison Capital were $1 million and $10 million for three and nine months ended September 30, 2015, respectively, compared to $9 million and $13 million for the respective periods in 2014.
•
An increase in income allocated to subsidiaries of Edison Energy Group under the HLBV accounting method that resulted in losses allocated to tax equity investors ($1 million and $7 million after-tax for the three and nine months ended September 30, 2015, respectively). This increase was partially offset by higher operating expenses for the nine months ended September 30, 2015. For further information, see the 2014 Form 10-K, "Notes to Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies" and "Management Overview—Highlights of Operating Results."
Income (Loss) from Discontinued Operations (Net of Tax)
Income from discontinued operations, net of tax, was $43 million for the three- and nine-month periods in 2015 compared to a loss of $16 million and income of $146 million for the respective periods in 2014. The 2015 income was due to $16 million in insurance recoveries ($28 million pre-tax) related to the EME bankruptcy and $27 million of income tax benefits from revised estimates of tax benefits based on filing of the 2014 tax returns in the third quarter of 2015. The 2014 loss and income were due to the completion of the Amended Plan of Reorganization, including transactions recorded in the first nine months of 2014 and other impacts of the EME Settlement. The nine months of 2014 also reflects a $22 million income tax loss from revised estimates of the tax impact of a tax deconsolidation of EME as originally contemplated prior to the EME Settlement. See 2014 Form 10-K, "Management Overview—Resolution of Uncertainty Related to EME in Bankruptcy."    
LIQUIDITY AND CAPITAL RESOURCES
Southern California Edison Company
SCE's ability to operate its business, fund capital expenditures, and implement its business strategy is dependent upon its cash flow and access to the bank and capital markets. SCE's overall cash flows fluctuate based on, among other things, its ability to recover its costs in a timely manner from its customers through regulated rates, changes in commodity prices and volumes, collateral requirements, interest obligations and dividend payments to Edison International, and the outcome of tax and regulatory matters.
SCE expects to fund its 2015 obligations, capital expenditures and dividends through operating cash flows, and capital market financings of debt and preferred equity, as needed. SCE also has availability under its credit facilities to fund liquidity requirements.

13


Available Liquidity
At September 30, 2015, SCE had approximately $2.2 billion available under its $2.75 billion multi-year revolving credit facility. For further details, see "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements."
Debt Covenant
The debt covenant in SCE's credit facility limits its debt to total capitalization ratio to less than or equal to 0.65 to 1. At September 30, 2015, SCE's debt to total capitalization ratio was 0.44 to 1.
Regulatory Proceedings
Energy Efficiency Incentive Mechanism
In June 2015, SCE filed a request for energy efficiency incentives of approximately $12 million related to Part 1 of its 2014 program year. In September 2015, SCE filed a request for energy efficiency incentives of $10.5 million related to Part 2 of its 2013 program year. There is no assurance that the CPUC will make an award for any given year.

As discussed in the 2014 10-K, TURN and ORA filed separate petitions in November 2014 with the CPUC asking for the rehearing of the December 2010 decision that trued up the California investor-owned utilities energy efficiency incentive awards for the 2006 – 2008 program period. TURN and ORA alleged that ex parte communications between PG&E and the former president of the CPUC, which were disclosed in an October 2014 report filed by PG&E, demonstrated a quid pro quo that tainted the 2010 energy efficiency decision and that the decision should be vacated. In September 2015, the CPUC granted these separate petitions as well as other TURN and ORA requests for rehearing of other decisions related to the 2006 – 2008 incentive awards. SCE continues to dispute that SCE should be at risk to repay previously awarded incentives but cannot predict the outcome of this proceeding.

FERC Formula Rates
In June 2015, SCE provided its preliminary 2016 annual transmission revenue requirement update to interested parties. The update provided support for an increase in SCE's transmission revenue requirement of $188 million or 21% over amounts currently authorized in rates. The increase is mainly due to the completion of several major transmission projects in 2014 and the completion in 2014 of refunds from an over-recovery in 2013. SCE expects to file its 2016 annual update with the FERC by December 1, 2015 and the proposed rates would be effective from January 1, 2016.

ERRA Forecast Filing – 2015
As discussed in the 2014 10-K, in December 2014, the CPUC issued a proposed decision on SCE's 2015 ERRA forecast application. Due to substantially lower natural gas and power prices as compared to the forecast levels incorporated in the revenue requirement in the proposed decision, in July 2015 SCE and the intervening parties entered into an all-party settlement agreement that would keep 2015 ERRA rates substantially at their current levels. The CPUC approved the settlement in October 2015.
Capital Investment Plan
SCE forecasts capital expenditures for 2015 – 2017 in the range of $11.6 billion to $11.8 billion. The forecast includes the level of spending in the 2015 GRC proposed decision. The low end of the range reflects a 12% reduction from requested levels primarily for FERC projects using management judgment based on historical experience. The completion of projects, the timing of expenditures, and the associated cost recovery may be affected by permitting requirements and delays, construction schedules, availability of labor, equipment and materials, financing, legal and regulatory approvals and developments, community requests or protests, weather and other unforeseen conditions.

14


SCE's 2015 – 2017 forecast for major capital expenditures are set forth in the table below:
(in millions)
 
2015
2016
2017
2015 – 2017 Total
Transmission
 
$
710

$
710

$
1,081

$
2,501

Distribution
 
2,988

2,844

2,836

8,668

Generation
 
225

247

169

641

Total estimated capital expenditures
 
$
3,923

$
3,801

$
4,086

$
11,810

Total estimated capital expenditures for 2015 – 2017 (using the range discussed above)
 
$
3,923

$
3,715

$
3,958

$
11,596

Capital expenditures for projects under CPUC jurisdiction are recovered through the authorized revenue requirement in SCE's GRCs or through other CPUC-authorized mechanisms. Recovery of planned capital expenditures for projects under CPUC jurisdiction for 2015 – 2017 are subject to the outcome of the 2015 GRC or other CPUC approvals. Recovery for 2015 – 2017 planned expenditures for projects under FERC jurisdiction will be pursued through FERC-authorized mechanisms.
Transmission Projects
Coolwater-Lugo Transmission Project
The Coolwater-Lugo Project would provide additional 220 kV transmission capacity in the Kramer Junction and Lucerne Valley areas of San Bernardino County. In March 2015, the CAISO filed comments with the CPUC stating that the Coolwater-Lugo project is not necessary to provide full capacity deliverability and requested that the CPUC suspend its approval proceeding for the project. In May 2015, the CPUC issued a final decision that dismissed the approval proceeding but would allow SCE to apply for new approval if future studies determine that there is residual need for any elements of the project. SCE's capital expenditures for the Coolwater-Lugo project were projected to be $740 million, of which $584 million was for the 2015 – 2017 period, and have been removed from the capital expenditure forecast. SCE previously obtained authorization from the FERC, which allows SCE to seek recovery of 100% of reasonable abandoned plant costs if the project is abandoned for reasons beyond SCE's control.
Dividend Restrictions
The CPUC regulates SCE's capital structure which limits the dividends it may pay Edison International. SCE may make distributions to Edison International as long as the common equity component of SCE's capital structure remains at or above 48% on a 13-month weighted average basis. At September 30, 2015, SCE's 13-month weighted-average common equity component of total capitalization was 49.5% and the maximum additional dividend, taking into account declared but unpaid dividends, that SCE could pay to Edison International under this limitation was approximately $345 million, resulting in a restriction on net assets of approximately $13.6 billion.
SCE paid the $147 million dividend declared in June 2015 to Edison International during the third quarter of 2015. In August 2015, SCE declared another $147 million dividend to Edison International which will be paid in the fourth quarter of 2015. Future dividend amounts and timing of distributions are dependent on a number of factors including the level of capital expenditures, operating cash flows and earnings.

15


Margin and Collateral Deposits
Certain derivative instruments, power procurement contracts and other contractual arrangements contain collateral requirements. Future collateral requirements may differ from the requirements at September 30, 2015, due to the addition of incremental power and energy procurement contracts with collateral requirements, if any, and the impact of changes in wholesale power and natural gas prices on SCE's contractual obligations.
Some of the power procurement contracts contain provisions that require SCE to maintain an investment grade credit rating from the major credit rating agencies. If SCE's credit rating were to fall below investment grade, SCE may be required to pay the liability or post additional collateral.
The table below provides the amount of collateral posted by SCE to its counterparties as well as the potential collateral that would have been required as of September 30, 2015.
(in millions)
 
 
Collateral posted as of September 30, 20151
 
$
204

Incremental collateral requirements for power procurement contracts resulting from a potential downgrade of SCE's credit rating to below investment grade
 
97

Incremental collateral requirements for power procurement contracts resulting from adverse market price movement2
 
60

Posted and potential collateral requirements
 
$
361

1 
Net collateral provided to counterparties and other brokers consisted of $35 million of cash which was offset against net derivative liabilities on the consolidated balance sheets, $32 million of cash reflected in "Other current assets" on the consolidated balance sheets and $137 million in letters of credit and surety bonds.
2 
Incremental collateral requirements were based on potential changes in SCE's forward positions as of September 30, 2015 due to adverse market price movements over the remaining lives of the existing power procurement contracts using a 95% confidence level.
Edison International Parent and Other
Edison International Parent and Other's liquidity and its ability to pay operating expenses and dividends to common shareholders are dependent on dividends from SCE, realization of tax benefits and access to bank and capital markets.
At September 30, 2015, Edison International Parent had $512 million available under its $1.25 billion multi-year revolving credit facility. For further details, see "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements."
Edison International may finance working capital requirements, payment of obligations and capital investments, including capital contributions to subsidiaries to fund new businesses, with commercial paper or other borrowings, subject to availability in the capital markets.
The debt covenant in Edison International Parent's credit facility requires a consolidated debt to total capitalization ratio as defined in the credit agreement of less than or equal to 0.65 to 1. At September 30, 2015, Edison International Parent's consolidated debt to total capitalization ratio was 0.48 to 1.
In August 2014, Edison International entered into an amendment of the EME Settlement Agreement that finalized the remaining matters related to the EME Settlement. Edison International made a payment of $204 million on September 30, 2015 and is obligated to make another payment of $214 million on September 30, 2016. Edison International has net operating loss and tax credit carryforwards retained by EME which are available to offset future consolidated taxable income or tax liabilities. As a result of the extension of 50% bonus depreciation for qualifying property under the Tax Increase Prevention Act of 2014, realization of these tax benefits has been deferred (currently forecasted through 2018). The timing of realization of these tax benefits may be further delayed in the event of future extensions of bonus depreciation and the value of the net operating loss carryforwards could be permanently reduced in the event that tax reform decreases the current corporate tax rate.

16


Historical Cash Flows
Southern California Edison Company
 
Nine months ended September 30,
(in millions)
2015
 
2014
Net cash provided by operating activities
$
2,951

 
$
2,513

Net cash (used in) provided by financing activities
(96
)
 
390

Net cash used in investing activities
(2,855
)
 
(2,908
)
Net decrease in cash and cash equivalents
$
—

 
$
(5
)
Net Cash Provided by Operating Activities
The following table summarizes major categories of net cash provided by operating activities as provided in more detail in SCE's consolidated statements of cash flows for the nine months ended September 30, 2015 and 2014.
 
Nine months ended September 30,
 
Change in cash flows
(in millions)
2015
2014
 
2015/2014
Net income
$
1,163

$
1,156

 
 
Non cash items1
1,307

1,827

 
 
    Subtotal
$
2,470

$
2,983

 
$
(513
)
Changes in cash flow resulting from working capital2
(682
)
(729
)
 
47

Derivative assets and liabilities, net
25

(68
)
 
93

Regulatory assets and liabilities, net
1,318

41

 
1,277

Other noncurrent assets and liabilities, net3
(180
)
286

 
(466
)
Net cash provided by operating activities
$
2,951

$
2,513

 
$
438

1 
Non cash items include depreciation, decommissioning and amortization, allowance for equity during construction, impairment and other charges, deferred income taxes and investment tax credits and other.
2 
Changes in working capital items include receivables, inventory, accounts payable, prepaid and accrued taxes, and other current assets and liabilities.
3 Includes the nuclear decommissioning trusts.
Net cash provided by operating activities were impacted by the following:
•
Net cash used from working capital was $682 million and $729 million during the nine months ended September 30, 2015 and 2014, respectively. The cash outflow for each period was primarily related to the timing of receipts from customers (increase in billed and unbilled receivables due to seasonal usage) and timing of disbursements (including purchase power payments due to seasonal usage and annual compensation payments).
•
Net cash provided by regulatory assets and liabilities, including changes in over (under) collections of balancing accounts. SCE has a number of balancing accounts under CPUC decisions, which impact cash flows based on differences between timing of collection of amounts through rates and accrual expenditures. During the first nine months of 2015 and 2014, cash flows were impacted by the two principal balancing accounts:
•
ERRA collections for fuel and purchased power increased $1.1 billion during the first nine months of 2015 primarily due to lower than forecasted power and gas prices experienced in 2015 and the refund to ratepayers related to the 2013 and 2014 nuclear decommissioning costs, see "Management Overview—San Onofre Proceedings, Recoveries, Decommissioning" for further discussion. ERRA undercollections for fuel and purchased power increased $565 million in the first nine months of 2014 primarily due to higher purchased power than the forecast purchases included in customer rates in addition to higher gas prices. In January 2015, SCE reclassified the regulatory liability for generator settlements to ERRA to refund customers.


17


•
The base rate revenue balancing account ("BRRBA") tracks differences between amounts authorized by the CPUC in the GRC proceedings and amounts billed to customers. BRRBA overcollections increased $74 million in the first nine months of 2015 primarily due to higher summer usage partially offset by lower rates (see "Results of Operations—Supplemental Operating Revenue Information" for further discussion of rate changes). BRRBA overcollections decreased $4 million in the first nine months of 2014 primarily due to a refund to customers of approximately $150 million related to the sale of Four Corners in December 2013 offset by higher rates and higher than forecasted sales.
•
The public purpose and energy efficiency programs track differences between amounts authorized by the CPUC and amounts incurred to fund programs established by the CPUC. Overcollections decreased for these programs by $120 million and $205 million in the first nine months of 2015 and 2014, respectively, primarily due to higher spending for these programs.
•
Net cash provided by regulatory assets and liabilities also consisted of a cash inflow of $318 million in 2015 due to revenue collected from customers that is estimated to be refunded as part of the 2015 GRC proposed decision and $380 million in 2014 due to cash collected in excess of cost of service for San Onofre. See "Results of Operations" for further discussion.
•
Cash flows (used in) provided by other noncurrent assets and liabilities were $(180) million and $286 million in the first nine months of 2015 and 2014, respectively. During 2015, decommissioning costs of San Onofre were approximately $129 million (such costs were recorded as a reduction of SCE's asset retirement obligation). The change in operating activities of the nuclear decommissioning trusts, as described below, is also included as part of cash flow (used in) or provided by other noncurrent assets and liabilities.
Net Cash (Used in) Provided by Financing Activities
The following table summarizes cash (used in) provided by financing activities for the nine months ended September 30, 2015 and 2014. Issuances of debt are discussed in "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements—Long-Term Debt."
 
Nine months ended September 30,
(in millions)
2015
 
2014
Issuances of first and refunding mortgage bonds, net
$
1,287

 
$
398

Issuances of pollution control bonds, net
128

 
—

Long-term debt matured or repurchased
(761
)
 
(405
)
Issuances of preference stock, net
319

 
269

Redemptions of preference stock
(325
)
 
—

Short-term debt financing, net
(251
)
 
502

Payments of common stock dividends to Edison International
(441
)
 
(252
)
Payments of preferred and preference stock dividends
(91
)
 
(88
)
Other
39

 
(34
)
Net cash (used in) provided by financing activities
$
(96
)
 
$
390

Net Cash Used in Investing Activities
Cash flows used in investing activities are primarily due to capital expenditures and funding of nuclear decommissioning trusts. Capital expenditures were $3.1 billion and $2.8 billion for the nine months ended September 30, 2015 and 2014, respectively, primarily related to transmission, distribution and generation investments. Net proceeds (purchases) of nuclear decommissioning trust investments were $242 million and $(105) million for the nine months ended September 30, 2015 and 2014, respectively. The 2015 net proceeds from sale of nuclear decommissioning trust investments was used to pay 2013 and 2014 decommissioning costs less net earnings during the period. The 2014 net purchase of nuclear decommissioning trust investments was due to net earnings during the period.

18


Nuclear Decommissioning Trusts
SCE's statement of cash flows includes activities of the Nuclear Decommissioning Trusts which are reflected in the following line items:
 
Nine months ended September 30,
(in millions)
2015
 
2014
Net cash (used in) provided by operating activities:
   Nuclear decommissioning trusts
$
(249
)
 
$
100

Net cash flow from investing activities:
   Proceeds from sale of investments
12,915

 
5,846

   Purchases of investments
(12,673
)
 
(5,951
)
Net cash impact
$
(7
)
 
$
(5
)
Net cash (used in) provided by operating activities of the nuclear decommissioning trusts relate to interest and dividends less administrative expenses, taxes and decommissioning costs. Such activities represent the source (use) of the funds for investing activities. The net cash impact represents the contributions made by SCE to the nuclear decommissioning trusts. During the nine months ended September 30, 2015, SCE made a contribution of $7 million to the non-qualified decommissioning trust pursuant to a CPUC decision related to decommissioning costs for San Onofre Unit 1.
In future periods, SCE expects decommissioning costs of San Onofre to increase significantly. Such amounts will continue to be reflected as a decrease in SCE net cash provided by operating activities and will be funded from sales of investments of the nuclear decommissioning trusts once approved by the CPUC. Decommissioning costs incurred prior to CPUC approval will be funded by SCE and are reflected as cash flow used by operating activities. See "Notes to Consolidated Financial Statements—Note 9. Investments" for further information.
Edison International Parent and Other
The table below sets forth condensed historical cash flow from operations for Edison International Parent and Other.
 
Nine months ended September 30,
(in millions)
2015
 
2014
Net cash used in operating activities
$
(118
)
 
$
(486
)
Net cash provided by financing activities
122

 
515

Net cash used in investing activities
(2
)
 
(28
)
Net increase in cash and cash equivalents
$
2

 
$
1

Net Cash Used in Operating Activities
Net cash provided by operating activities increased $368 million for the first nine months of 2015 compared to 2014 due to:
•
$204 million and $225 million of cash payments made to the Reorganization Trust in September 2015 and April 2014 related to the EME Settlement Agreement, respectively, see "Notes to Consolidated Financial Statements—Note 15. Discontinued Operations—EME Chapter 11 Bankruptcy" for further information.
•
$189 million deposit made with the IRS in 2014 related to open tax years 2003 through 2006 and a $122 million receipt of intercompany tax-allocation payments in 2015.
•
approximately $36 million cash outflow from operating activities in 2015 compared to $72 million cash outflow in 2014 due to the timing of payments and receipts relating to interest and operating costs.

19


Net Cash Provided by Financing Activities
Net cash provided by financing activities were as follows:
 
Nine months ended September 30,
(in millions)
2015
 
2014
Dividends paid to Edison International common shareholders
$
(408
)
 
$
(347
)
Dividends received from SCE
441

 
252

Payment for stock-based compensation
(116
)
 
(87
)
Receipt from stock option exercises
65

 
55

Debt financing, net1
139

 
636

Other
1

 
6

Net cash provided by financing activities
$
122

 
$
515

1  
Includes $20 million debt financing for Edison Energy Group, see "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements—Project Financing."
Contingencies
SCE has contingencies related to San Onofre Related Matters, Long Beach Service Interruptions, Nuclear Insurance, Wildfire Insurance and Spent Nuclear Fuel which are discussed in "Notes to Consolidated Financial Statements—Note 11. Commitments and Contingencies."
Environmental Remediation
As of September 30, 2015, SCE had identified 19 material sites for remediation and recorded an estimated minimum liability of $137 million. SCE expects to recover 90% of its remediation costs at certain sites. See "Notes to Consolidated Financial Statements—Note 11. Commitments and Contingencies" for further discussion.
MARKET RISK EXPOSURES
Edison International's and SCE's primary market risks include fluctuations in interest rates, commodity prices and volumes, and counterparty credit. Fluctuations in interest rates can affect earnings and cash flows. Fluctuations in commodity prices and volumes and counterparty credit losses may temporarily affect cash flows, but are not expected to affect earnings due to expected recovery through regulatory mechanisms. Derivative instruments are used, as appropriate, to manage market risks including market risks of SCE's customers. For a further discussion of market risk exposures, including commodity price risk, credit risk and interest rate risk, see "Notes to Consolidated Financial Statements—Note 6. Derivative Instruments" and "—Note 4. Fair Value Measurements."
Commodity Price Risk
The fair value of outstanding derivative instruments used to mitigate exposure to commodity price risk was a net liability of $1.1 billion and $927 million at September 30, 2015 and December 31, 2014 respectively. For further discussion of fair value measurements and the fair value hierarchy, see "Notes to Consolidated Financial Statements—Note 4. Fair Value Measurements."
Credit Risk
Credit risk exposure from counterparties for power and gas trading activities is measured as the sum of net accounts receivable (accounts receivable less accounts payable) and the current fair value of net derivative assets (derivative assets less derivative liabilities) reflected on the consolidated balance sheets. SCE enters into master agreements which typically provide for a right of setoff. Accordingly, SCE's credit risk exposure from counterparties is based on a net exposure under these arrangements. SCE manages the credit risk on the portfolio for both rated and non-rated counterparties based on credit ratings using published ratings of counterparties and other publicly disclosed information, such as financial statements, regulatory filings, and press releases, to guide it in the process of setting credit levels, risk limits and contractual arrangements, including master netting agreements.

20


As of September 30, 2015, the amount of balance sheet exposure as described above broken down by the credit ratings of SCE's counterparties, was as follows:
 
September 30, 2015
(in millions)
Exposure2
 
Collateral
 
Net Exposure
S&P Credit Rating1
 
 
 
 
 
A or higher
$
258

 
$
—

 
$
258

Not rated3
13

 
(5
)
 
8

Total
$
271

 
$
(5
)
 
$
266

1 
SCE assigns a credit rating based on the lower of a counterparty's S&P or Moody's rating. For ease of reference, the above table uses the S&P classifications to summarize risk, but reflects the lower of the two credit ratings.
2 
Exposure excludes amounts related to contracts classified as normal purchases and sales and non-derivative contractual commitments that are not recorded on the consolidated balance sheets, except for any related net accounts receivable.
3 
The exposure in this category relates to long-term power purchase agreements. SCE's exposure is mitigated by regulatory treatment.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
For a complete discussion on Edison International's and SCE's critical accounting policies, see "Critical Accounting Estimates and Policies" in the year-ended 2014 MD&A.
NEW ACCOUNTING GUIDANCE
New accounting guidance is discussed in "Notes to Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies—New Accounting Guidance."
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information responding to this section is included in the MD&A under the heading "Market Risk Exposures" and is incorporated herein by reference.

21


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)

2015
 
2014
 
2015

2014
Total operating revenue

$
3,763

 
$
4,356

 
$
9,183


$
10,298

Purchased power and fuel

1,785

 
2,182

 
3,648


4,563

Operation and maintenance

780

 
802

 
2,159


2,245

Depreciation, decommissioning and amortization

506

 
424

 
1,451


1,248

Property and other taxes
 
84

 
77

 
255

 
235

Impairment and other charges

—

 
(3
)
 
—


228

Total operating expenses

3,155

 
3,482

 
7,513


8,519

Operating income

608

 
874

 
1,670


1,779

Interest and other income

32

 
40

 
114


109

Interest expense

(138
)
 
(141
)
 
(420
)

(422
)
Other expenses

(15
)
 
(29
)
 
(40
)

(52
)
Income from continuing operations before income taxes

487

 
744

 
1,324


1,414

Income tax expense

82

 
220

 
195


284

Income from continuing operations

405

 
524

 
1,129


1,130

Income (loss) from discontinued operations, net of tax
 
43

 
(16
)
 
43

 
146

Net income

448

 
508

 
1,172


1,276

Preferred and preference stock dividend requirements of utility

28

 
28

 
84


84

Other noncontrolling interests
 
(1
)
 
—

 
(11
)
 
—

Net income attributable to Edison International common shareholders

$
421

 
$
480

 
$
1,099


$
1,192

Amounts attributable to Edison International common shareholders:

 
 
 
 



Income from continuing operations, net of tax

$
378

 
$
496

 
$
1,056


$
1,046

Income (loss) from discontinued operations, net of tax

43

 
(16
)
 
43


146

Net income attributable to Edison International common shareholders

$
421

 
$
480

 
$
1,099


$
1,192

Basic earnings per common share attributable to Edison International common shareholders:

 
 
 
 



Weighted-average shares of common stock outstanding

326

 
326

 
326


326

Continuing operations

$
1.16

 
$
1.52

 
$
3.24


$
3.21

Discontinued operations

0.13

 
(0.05
)
 
0.13


0.45

Total

$
1.29

 
$
1.47

 
$
3.37


$
3.66

Diluted earnings per common share attributable to Edison International common shareholders:

 
 
 
 



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

328

 
329

 
329


329

Continuing operations

$
1.15

 
$
1.51

 
$
3.21


$
3.18

Discontinued operations

0.13

 
(0.05
)
 
0.13


0.44

Total

$
1.28

 
$
1.46

 
$
3.34


$
3.62

Dividends declared per common share

$
0.4175

 
$
0.3550

 
$
1.2525


$
1.0650


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

22



Consolidated Statements of Comprehensive Income
 
 
 
Edison International
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions, unaudited)
 
2015
 
2014
 
2015
 
2014
Net income
 
$
448

 
$
508

 
$
1,172

 
$
1,276

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
 
2

 
(9
)
 
4

 
(11
)
Other
 
(1
)
 
(1
)
 
(1
)
 
1

Other comprehensive income (loss), net of tax
 
1

 
(10
)
 
3

 
(10
)
Comprehensive income
 
449

 
498

 
1,175

 
1,266

Less: Comprehensive income attributable to noncontrolling interests
 
27

 
28

 
73

 
84

Comprehensive income attributable to Edison International
 
$
422

 
$
470

 
$
1,102

 
$
1,182



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

23


Consolidated Balance Sheets
Edison International
 






(in millions, unaudited)
September 30,
2015

December 31,
2014
ASSETS
 

 
Cash and cash equivalents
$
134


$
132

Receivables, less allowances of $66 and $68 for uncollectible accounts at respective dates
1,211


790

Accrued unbilled revenue
1,025


632

Inventory
270


281

Derivative assets
81


102

Regulatory assets
473


1,254

Deferred income taxes
152


452

Other current assets
446


376

Total current assets
3,792


4,019

Nuclear decommissioning trusts
4,388


4,799

Other investments
208


207

Total investments
4,596


5,006

Utility property, plant and equipment, less accumulated depreciation and amortization of $8,407 and $8,132 at respective dates
34,062


32,859

Nonutility property, plant and equipment, less accumulated depreciation of $81 and $76 at respective dates
140


122

Total property, plant and equipment
34,202


32,981

Derivative assets
188


219

Regulatory assets
8,121


7,612

Other long-term assets
371


349

Total long-term assets
8,680


8,180

















































 
 
 
 
Total assets
$
51,270


$
50,186



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

24


Consolidated Balance Sheets

Edison International
 


 

 
(in millions, except share amounts, unaudited)

September 30,
2015

December 31,
2014
LIABILITIES AND EQUITY

 

 
Short-term debt

$
1,154


$
1,291

Current portion of long-term debt

295


504

Accounts payable

1,330


1,580

Accrued taxes

80


81

Customer deposits

235


221

Derivative liabilities

207


196

Regulatory liabilities

888


401

Other current liabilities

1,050


1,205

Total current liabilities

5,239


5,479

Long-term debt

10,957


10,234

Deferred income taxes and credits

7,698


7,313

Derivative liabilities

1,167


1,052

Pensions and benefits

2,175


2,155

Asset retirement obligations

2,822


2,821

Regulatory liabilities

5,265


5,889

Other deferred credits and other long-term liabilities

2,316


2,255

Total deferred credits and other liabilities

21,443


21,485

Total liabilities

37,639


37,198

Commitments and contingencies (Note 11)






Redeemable noncontrolling interest
 
11

 
6

Common stock, no par value (800,000,000 shares authorized; 325,811,206 shares issued and outstanding at respective dates)

2,475


2,445

Accumulated other comprehensive loss

(55
)

(58
)
Retained earnings

9,180


8,573

Total Edison International's common shareholders' equity

11,600


10,960

Noncontrolling interests – preferred and preference stock of utility

2,020


2,022

Total equity

13,620


12,982






















Total liabilities and equity

$
51,270


$
50,186



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

25


Consolidated Statements of Cash Flows
Edison International
 



Nine months ended September 30,
(in millions, unaudited)
2015

2014
Cash flows from operating activities:
 

 
Net income
$
1,172


$
1,276

Less: Income from discontinued operations
43


146

Income from continuing operations
1,129


1,130

Adjustments to reconcile to net cash provided by operating activities:


 
Depreciation, decommissioning and amortization
1,515


1,312

Allowance for equity during construction
(63
)

(45
)
Impairment and other charges
—


228

Deferred income taxes and investment tax credits
202


303

Other
(5
)

14

EME insurance proceeds and settlement payments
(176
)

(225
)
Changes in operating assets and liabilities:


 
Receivables
(412
)

(369
)
Inventory
10


(19
)
Accounts payable
164


211

Prepaid and accrued taxes
(18
)
 
106

Other current assets and liabilities
(572
)

(603
)
Derivative assets and liabilities, net
25


(68
)
Regulatory assets and liabilities, net
1,318


41

Nuclear decommissioning trusts
(249
)
 
100

Other noncurrent assets and liabilities
(35
)

(89
)
Net cash provided by operating activities
2,833


2,027

Cash flows from financing activities:
 

 
Long-term debt issued or remarketed, net of discount and issuance costs of $16 and $5 at respective periods
1,415


395

Long-term debt matured or repurchased
(761
)

(405
)
Preference stock issued, net
319


269

Preference stock redeemed
(325
)

—

Short-term debt financing, net
(112
)

1,138

Cash contribution from redeemable noncontrolling interest
17

 
—

Dividends to noncontrolling interests
(91
)

(88
)
Dividends paid
(408
)

(347
)
Other
(28
)
 
(57
)
Net cash provided by financing activities
26


905

Cash flows from investing activities:
 

 
Capital expenditures
(3,134
)

(2,856
)
Proceeds from sale of nuclear decommissioning trust investments
12,915


5,846

Purchases of nuclear decommissioning trust investments
(12,673
)

(5,951
)
Other
35


25

Net cash used in investing activities
(2,857
)

(2,936
)
Net increase (decrease) in cash and cash equivalents
2


(4
)
Cash and cash equivalents at beginning of period
132


146

Cash and cash equivalents at end of period
$
134


$
142


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

26


Consolidated Statements of Income
 
Southern California Edison Company
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions, unaudited)
 
2015
 
2014
 
2015
 
2014
Operating revenue
 
$
3,757

 
$
4,338

 
$
9,166

 
$
10,276

Purchased power and fuel
 
1,785

 
2,182

 
3,648

 
4,563

Operation and maintenance
 
756

 
776

 
2,101

 
2,187

Depreciation, decommissioning and amortization
 
506

 
423

 
1,449

 
1,248

Property and other taxes
 
84

 
76

 
254

 
232

Impairment and other charges
 
—

 
—

 
—

 
231

Total operating expenses
 
3,131

 
3,457

 
7,452

 
8,461

Operating income
 
626

 
881

 
1,714

 
1,815

Interest and other income
 
29

 
36

 
93

 
105

Interest expense
 
(131
)
 
(133
)
 
(398
)
 
(402
)
Other expenses
 
(15
)
 
(29
)
 
(39
)
 
(52
)
Income before income taxes
 
509

 
755

 
1,370

 
1,466