Document



 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2016
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                        to

Commission
File Number
 
Exact Name of Registrant
as specified in its charter
 
State or Other Jurisdiction of
Incorporation or Organization
 
IRS Employer
Identification Number
1-9936
 
EDISON INTERNATIONAL
 
California
 
95-4137452
1-2313
 
SOUTHERN CALIFORNIA EDISON COMPANY
 
California
 
95-1240335

EDISON INTERNATIONAL
 
SOUTHERN CALIFORNIA EDISON COMPANY
2244 Walnut Grove Avenue
(P.O. Box 976)
Rosemead, California 91770
(Address of principal executive offices)
 
2244 Walnut Grove Avenue
(P.O. Box 800)
Rosemead, California 91770
(Address of principal executive offices)
(626) 302-2222
(Registrant's telephone number, including area code)
 
(626) 302-1212
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "accelerated filer," "large accelerated filer," and "smaller reporting company" in Rule 12b-12 of the Exchange Act. (Check One):
Edison International
Large Accelerated Filer þ
Accelerated Filer ¨
Non-accelerated Filer ¨
Smaller Reporting Company ¨
Southern California Edison Company
Large Accelerated Filer ¨
Accelerated Filer ¨
Non-accelerated Filer þ
Smaller Reporting Company ¨
 
 
 
 
 

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

Edison International        Yes ¨ No þ    Southern California Edison Company    Yes ¨ No þ
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Common Stock outstanding as of July 26, 2016:
 
 
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part I, Item 1A
 
 
 
 
 
Part I, Item 3


i



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



GLOSSARY
The following terms and abbreviations appearing in the text of this report have the meanings indicated below.
AFUDC
 
allowance for funds used during construction
2015 Form 10-K
 
Edison International's and SCE's combined Annual Report on Form 10-K for the year-ended December 31, 2015
ALJ
 
administrative law judge
APS
 
Arizona Public Service Company
ARO(s)
 
asset retirement obligation(s)
Bcf
 
billion cubic feet
Bonus Depreciation
 
Current federal tax deduction of a percentage of the qualifying property placed in service during periods permitted under tax laws 
CAA
 
Clean Air Act
CAISO
 
California Independent System Operator
CARB
 
California Air Resources Board
Competitive Businesses
 
businesses focused on providing energy solutions, including distributed generation and/or storage, to commercial and industrial customers; engaging in competitive transmission opportunities; and exploring distributed water treatment and recycling.
CPUC
 
California Public Utilities Commission
CRRs
 
congestion revenue rights
DOE
 
U.S. Department of Energy
Edison Energy
 
Edison Energy, LLC, a wholly-owned subsidiary of Edison Energy Group and one of the Competitive Businesses
Edison Energy Group
 
Edison Energy Group, Inc., the holding company for the Competitive Businesses
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
Joint Proxy Statement
 
Edison International's and SCE's definitive Proxy Statement filed with the SEC in connection with Edison International's and SCE's Annual Shareholders' Meeting held on April 28, 2016
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
NEIL
 
Nuclear Electric Insurance Limited
NEM
 
net energy metering


iii



NERC
 
North American Electric Reliability Corporation
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
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
SoCalGas
 
Southern California Gas Company
TURN
 
The Utility Reform Network
US EPA
 
U.S. Environmental Protection Agency
VIE(s)
 
variable interest entity(ies)



iv



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;
•
decisions and other actions by the CPUC, the FERC, the NRC and other regulatory authorities, including the determinations of authorized rates of return or return on equity, outcome of San Onofre CPUC proceedings and delays in regulatory actions;
•
ability of Edison International or SCE to borrow funds and access the capital markets on reasonable terms;
•
ability of cities, counties and certain other public agencies to generate and/or purchase electricity for their local residents and businesses, along with other possible customer bypass or departure due to technological advancements in the generation, storage, transmission, distribution and use of electricity, and supported by public policy, government regulations and incentives;
•
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 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 cybersecurity of SCE's critical information technology systems for grid control, and business and customer data;
•
ability of Edison International to develop its Competitive Businesses, manage new business risks, and recover and earn a return on its investment in newly developed or acquired businesses;
•
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 the 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;

1



•
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;
•
potential for penalties or disallowance for non-compliance with applicable laws and regulations;
•
cost of fuel for generating facilities and related transportation, which could be impacted by, among other things, disruption of natural gas storage facilities, to the extent not recovered through regulated rate cost escalation provisions or balancing accounts;
•
disruption of natural gas supply due to unavailability of storage facilities, which could lead to electricity service interruptions; and
•
weather conditions and natural disasters.
Additional information about risks and uncertainties, including more detail about the factors described in this report, is contained throughout this MD&A and in Edison International's and SCE's combined 2015 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 2015 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 in open proceedings most important to investors at www.edisoninvestor.com (SCE Regulatory Highlights) so that such filings are available to all investors upon SCE filing with the relevant agency.
The MD&A for the six months ended June 30, 2016 discusses material changes in the consolidated financial condition, results of operations and other developments of Edison International and SCE since December 31, 2015, and as compared to the six months ended June 30, 2015. This discussion presumes that the reader has read or has access to Edison International's and SCE's MD&A for the calendar year 2015 (the "year-ended 2015 MD&A"), which was included in the 2015 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 competitive subsidiaries.

2


















(This page has been left blank intentionally.)


3



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 subsidiaries that are engaged in competitive businesses focused on providing energy solutions to commercial and industrial customers, including distributed resources, engaging in transmission opportunities, and exploring distributed water treatment and recycling (the "Competitive Businesses"). Such 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 and its competitive subsidiaries. Unless otherwise described, all of the information contained in this report relates to both filers.
 
Three months ended June 30,
 
 
 
Six months ended June 30,
 
 
(in millions)
2016
 
2015
 
Change
 
2016
 
2015
 
Change
Net income (loss) attributable to Edison International
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
 
 
 
 
 
 
 
 
 
 
SCE
$
315

 
$
384

 
$
(69
)
 
$
601

 
$
689

 
$
(88
)
Edison International Parent and Other
(37
)
 
(5
)
 
(32
)
 
(54
)
 
(11
)
 
(43
)
Discontinued operations
(2
)
 
—

 
(2
)
 
(1
)
 
—

 
(1
)
Edison International
276

 
379

 
(103
)
 
546

 
678

 
(132
)
Less: Non-core items
 
 
 
 
 
 
 
 
 
 
 
     SCE
—

 
—

 
—

 
—

 
—

 
—

     Edison International Parent and Other
2

 
1

 
1

 
4

 
6

 
(2
)
     Discontinued operations
(2
)
 
—

 
(2
)
 
(1
)
 
—

 
(1
)
Total non-core items
—

 
1

 
(1
)
 
3

 
6

 
(3
)
Core earnings (losses)
 
 
 
 
 
 
 
 
 
 
 
SCE
315

 
384

 
(69
)
 
601

 
689

 
(88
)
Edison International Parent and Other
(39
)
 
(6
)
 
(33
)
 
(58
)
 
(17
)
 
(41
)
Edison International
$
276

 
$
378

 
$
(102
)
 
$
543

 
$
672

 
$
(129
)
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 non-core items. Non-core items include 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 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, write downs, asset impairments and other gains and losses related to certain tax, regulatory or legal settlements or proceedings.
SCE's earnings for the second quarter and six months ended June 30, 2016 decreased by $69 million and $88 million, respectively, which includes lower income tax benefits partially offset by the implementation of the 2015 GRC decision and 2016 incremental return on the pole loading rate base. The year-to-date variance also includes higher operation and maintenance costs.
During the second quarter of 2015, SCE recorded $100 million of income tax benefits from revisions to liabilities for uncertain tax positions (see "Results of Operations" for further information).

4



During the first six months of 2015, pending the outcome of the 2015 GRC decision, SCE recognized GRC-related revenue largely based on the 2014 authorized revenue requirement. During the third and fourth quarters of 2015, SCE recorded revenue refunds to customers which totaled $451 million to reflect the final decision in the 2015 GRC. The estimated amount of the refund to customers attributable to the second quarter and six months ended June 30, 2015, but subsequently recorded in 2015, was approximately $35 million ($21 million after-tax) and $70 million ($42 million after-tax), respectively. In addition, SCE's results of operations for the three and six months ended June 30, 2016 included an increase in revenue of approximately $50 million ($30 million after-tax) and $96 million ($57 million after-tax), respectively, from the escalation mechanism set forth in the final 2015 GRC decision. The annual escalation increase implemented in customer rates for 2016 was $203 million. SCE's results of operations for the three and six months ended June 30, 2015 were largely based on 2014 authorized base revenue requirements included in customer rates.
Edison International Parent and Other losses from continuing operations for the second quarter and six months ended June 30, 2016 increased by $32 million and $43 million, respectively. Losses for the second quarter consisted of $33 million of higher core losses and $1 million of higher non-core earnings. Losses for the six months ended June 30, 2016 consisted of $41 million of higher core losses and $2 million of lower non-core earnings. During the second quarter of 2016, Edison International Parent and Other recorded an after-tax charge of $13 million related to the buy-out of an earn-out provision with the former shareholders of a company acquired by Edison Energy at the end of 2015. The buy-out was completed, together with modification to employment contracts, in order to align long-term incentive compensation. In addition, core losses included higher operating and development costs and lower revenue and gross margin from the sale of solar systems at Edison Energy Group. Results during 2015 included income from Edison Capital's investments in affordable housing projects which were sold at the end of 2015.
Consolidated non-core items included income of $2 million and $4 million for the three and six months ended June 30, 2016, respectively, compared to income of $1 million and $6 million for the same periods in 2015. The income was related to losses (net of distributions) 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 2015 Form 10-K, "Notes to Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies."
Capital Program
SCE forecasts capital expenditures for 2016 – 2017 in the range of $7.9 billion to $8.1 billion. The low end of the range reflects a 12% reduction in FERC projects using management judgment, based on historical experience. SCE's 2016 – 2017 forecast for major capital expenditures are set forth in the table below:
(in millions)
 
2016
2017
2016 – 2017 Total
Transmission
 
$
534

$
1,000

$
1,534

Distribution
 
2,984

3,079

6,063

Generation
 
244

217

461

Total estimated capital expenditures
 
$
3,762

$
4,296

$
8,058

Total estimated capital expenditures for 2016 – 2017 (using the range discussed above)
 
$
3,694

$
4,174

$
7,868

Capital expenditures for projects under CPUC jurisdiction are recovered through the authorized revenue requirement in SCE's GRC or through other CPUC-authorized mechanisms. Recovery for 2016 – 2017 planned expenditures for projects under FERC jurisdiction will be pursued through FERC-authorized mechanisms.
SCE is experiencing delays, mainly due to licensing, with certain of its transmission projects, notably the Riverside Transmission Reliability Project, Alberhill System and Mesa Substation. As a result, approximately $300 million of 2016 capital expenditures have been delayed. Approximately $100 million of these capital expenditures will be made up in 2017 and the remaining $200 million will be reflected in our forecast once SCE files its 2018 GRC application. SCE will file its 2018 GRC application in September 2016, which will include a forecast of capital expenditures and rate base for 2018 – 2020.

5



Changes to the route or location, adoption of any undergrounding options or other significant modification to the licensing or construction plans could create additional costs and further delay the completion of the projects discussed above. For further information regarding the capital program, see "Liquidity and Capital Resources—Capital Investment Plan" and the year-ended 2015 MD&A, "Management Overview—Capital Program."
SCE's forecasted rate base for 2016 and 2017 is as follows:
(in millions)
2016
 
2017
Based on total estimated capital expenditures
$
25,012

 
$
26,615

Based on total estimated capital expenditures for 2016 – 2017 (using the range discussed above)
24,944

 
26,425

RESULTS OF OPERATIONS
Southern California Edison Company
SCE's results of operations are derived mainly through two sources:
•
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 earnings activities are revenue or penalties related to incentive mechanisms, other operating revenue, and regulatory charges or disallowances.
•
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. 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.
The following table is a summary of SCE's results of operations for the periods indicated.
Three months ended June 30, 2016 versus June 30, 2015
 
Three months ended June 30, 2016
Three months ended June 30, 2015
(in millions)
Earning
Activities
Cost-
Recovery
Activities
Total
Consolidated
Earning
Activities
Cost-
Recovery
Activities
Total
Consolidated
Operating revenue
$
1,509

$
1,259

$
2,768

$
1,596

$
1,305

$
2,901

Purchased power and fuel
—

1,064

1,064

—

1,078

1,078

Operation and maintenance
492

195

687

495

229

724

Depreciation, decommissioning and amortization
503

—

503

481

—

481

Property and other taxes
85

—

85

82

—

82

Total operating expenses
1,080

1,259

2,339

1,058

1,307

2,365

Operating income
429

—

429

538

(2
)
536

Interest expense
(134
)
—

(134
)
(132
)
1

(131
)
Other income and expenses
22

—

22

13

1

14

Income before income taxes
317

—

317

419

—

419

Income tax expense
(29
)
—

(29
)
7

—

7

Net income
346

—

346

412

—

412

Preferred and preference stock dividend requirements
31

—

31

28

—

28

Net income available for common stock
$
315

$
—

$
315

$
384

$
—

$
384

Core earnings1
 
 
$
315

 
 
$
384

Non-core earnings
 
 
—

 
 
—

Total SCE GAAP earnings
 
 
$
315

 
 
$
384

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

6



Earning Activities
Earning activities were primarily affected by the following:
•
Lower operating revenue of $87 million primarily due to the following:
•
During the second quarter of 2016, SCE recorded a revenue refund to customers of $133 million for 2012 – 2014 incremental tax benefits related to repair deductions (offset in income taxes as discussed below). This revenue refund resulted from the CPUC's approval of SCE's request to refund incremental tax repair deductions that were not addressed in SCE's 2015 GRC decision. See "Liquidity and Capital Resources—Regulatory Proceedings—Tax Repair Deductions and Memorandum Account" for further information.
•
A decrease in revenue of approximately $20 million for 2016 incremental tax benefits recognized through the tax accounting memorandum account ("TAMA") and the pole loading balancing account (offset in income taxes as discussed below). In addition, in 2016, SCE recorded $15 million ($9 million after-tax) of incremental return on the pole loading rate base in this balancing account. During the second quarter of 2015, there was no incremental return on pole loading rate base due to the timing of the final GRC decision.
•
An increase in FERC-related revenue of $19 million primarily due to higher operating costs including amortization of the regulatory asset associated with the Coolwater-Lugo transmission project (see "Liquidity and Capital Resources—Capital Investment Plan—Major Transmission Projects—Coolwater-Lugo" for further information) and rate base growth partially offset by a $15 million increase in 2015 revenue due to a change in estimate under the FERC formula rate mechanism.
•
An increase in CPUC revenue of approximately $15 million primarily due to the implementation of the 2015 GRC decision. During the second quarter of 2016, SCE increased authorized revenue approximately $50 million based on the escalation mechanism set forth in the 2015 GRC decision. This increase was partially offset by approximately $35 million of the refund to customers attributable to the second quarter of 2015 as a result of the finalization of the 2015 GRC decision (see "Highlights of Operating Results" for further information).
•
An increase of $9 million primarily due to tax benefits recognized in 2015 related to net operating loss carrybacks for San Onofre decommissioning costs resulting in a reduction in revenue in 2015 (offset in income taxes).
•
Lower operation and maintenance costs of $3 million primarily related to lower labor costs due to the workforce reductions and lower legal costs. These lower costs were partially offset by a planned outage and upgrades at the Mountainview plant and costs associated with the pole loading program. The pole loading program costs are recovered in revenue (for further information see the year-ended 2015 MD&A, "Management Overview—Regulatory Proceedings—2015 General Rate Case").
•
Higher depreciation, decommissioning and amortization expense of $22 million primarily related to depreciation on transmission and distribution investments and amortization of the regulatory asset related to the Coolwater-Lugo, as discussed above.
•
Higher other income and expenses of $9 million primarily due to higher insurance benefits in 2016. See "Notes to Consolidated Financial Statements—Note 14. Interest and Other Income and Other Expenses" for further details.
•
Lower income taxes of $36 million primarily due to lower pre-tax income and the following discrete items:
•
Higher income tax benefits in 2016 primarily related to $79 million of flow-through incremental tax benefits for 2012 – 2014 to customers and $12 million of repair deductions for TAMA and pole loading balancing accounts (both offset in revenue above).
•
A change in liabilities related to uncertain tax positions related to repair deductions, which resulted in income tax benefits of $100 million during the second quarter of 2015.
Cost-Recovery Activities
Cost-recovery activities were primarily affected by the following:
•
Lower operation and maintenance expense of $34 million primarily due to lower transmission access charges and lower spending on various public purpose programs.

7



The following table is a summary of SCE's results of operations for the periods indicated.
Six months ended June 30, 2016 versus June 30, 2015
 
Six months ended June 30, 2016
Six months ended June 30, 2015
(in millions)
Earning
Activities
Cost-
Recovery
Activities
Total
Consolidated
Earning
Activities
Cost-
Recovery
Activities
Total
Consolidated
Operating revenue
$
3,031

$
2,173

$
5,204

$
3,159

$
2,250

$
5,409

Purchased power and fuel
—

1,858

1,858

—

1,864

1,864

Operation and maintenance
975

315

1,290

958

388

1,346

Depreciation, decommissioning and amortization
978

—

978

943

—

943

Property and other taxes
176

—

176

170

—

170

Total operating expenses
2,129

2,173

4,302

2,071

2,252

4,323

Operating income
902

—

902

1,088

(2
)
1,086

Interest expense
(265
)
—

(265
)
(267
)
1

(266
)
Other income and expenses
46

—

46

39

1

40

Income before income taxes
683

—

683

860

—

860

Income tax expense
21

—

21

115

—

115

Net income
662

—

662

745

—

745

Preferred and preference stock dividend requirements
61

—

61

56

—

56

Net income available for common stock
$
601

$
—

$
601

$
689

$
—

$
689

Core earnings1




$
601





$
689

Non-core earnings




—





—

Total SCE GAAP earnings




$
601





$
689

1 
See use of non-GAAP financial measures in "Management Overview—Highlights of Operating Results."
Earning Activities
Utility earning activities were primarily affected by the following:
•
Lower operating revenue of $128 million primarily due to the following:
•
During the second quarter of 2016, SCE recorded a revenue refund to customers of $133 million for 2012 – 2014 incremental tax benefits related to repair deductions, as discussed above (offset in income taxes below).
•
A decrease in revenue of approximately $95 million for 2016 incremental tax benefits recognized through the tax accounting memorandum account ("TAMA") and the pole loading balancing account (offset in income taxes as discussed below). In addition, SCE recorded $26 million ($15 million after-tax) of incremental return on the pole loading rate base recorded through this balancing account. During the first six months of 2015, there was no incremental return on pole loading rate base due to the timing of the final 2015 GRC decision.
•
An increase in CPUC revenue of approximately $26 million primarily due to the implementation of the 2015 GRC decision. During the first six months of 2016, SCE increased authorized revenue approximately $96 million based on the escalation mechanism set forth in the 2015 GRC decision. This increase was partially offset by approximately $70 million of the refund to customers attributable to the second quarter of 2015 as a result of the finalization of the 2015 GRC decision (see "Highlights of Operating Results" for further information).
•
An increase in FERC-related revenue of $32 million primarily related to higher operating costs including amortization of the regulatory asset associated with the Coolwater-Lugo transmission project and rate base growth partially offset by a $15 million increase in 2015 revenue due to a change in estimate under the FERC formula rate mechanism.
•
An increase of $15 million primarily due to tax benefits recognized in 2015 related to net operating loss carrybacks for San Onofre decommissioning costs resulting in a reduction in revenue in 2015 (offset in income taxes).
•
Higher operation and maintenance expense of $17 million primarily due:
•
An increase of $10 million related to transmission and distribution costs for storm-related activities.
•
An increase of $10 million related to the pole loading program, which is recovered in revenue.

8



•
An increase of $8 million related to a planned outage and upgrades at the Mountainview plant.
•
A decrease of $11 million of lower operating costs primarily related to lower labor costs due to the workforce reductions.
•
Higher depreciation, decommissioning and amortization expense of $35 million primarily related to depreciation on transmission and distribution investments and amortization of the regulatory asset related to the Coolwater-Lugo plant, as discussed above.
•
Higher other income and expenses of $7 million, see "Notes to Consolidated Financial Statements—Note 14. Interest and Other Income and Other Expenses" for details.
•
Lower income taxes of $94 million primarily due to lower pre-tax income and the following discrete items:
•
Higher income tax benefits in 2016 primarily related to $79 million related to the flow-through of incremental tax benefits for 2012 – 2014 to customers and $56 million of repair deductions for TAMA and pole loading balancing accounts (both offset in revenue above). These items were partially offset by lower tax benefits on other property-related items in 2016.
•
A change in liabilities related to uncertain tax positions related to repair deductions, which resulted in income tax benefits of $100 million during the second quarter of 2015.
Cost-Recovery Activities
Cost-recovery activities were primarily affected by the following:
•
Lower operation and maintenance expense of $73 million primarily due to lower transmission access charges, lower benefit costs, and lower spending on various public purpose programs.
Supplemental Operating Revenue Information
SCE's retail billed and unbilled revenue (excluding wholesale sales and balancing account overcollections/undercollections) was $2.5 billion and $4.9 billion for the three and six months ended June 30, 2016, respectively, compared to $2.8 billion and $5.4 billion for the respective periods in 2015.
•
Retail billed and unbilled revenue for the three months ended June 30, 2016 were lower compared to the same period last year primarily due to a rate decrease of $264 million. The decrease was due to implementations of the 2016 ERRA rate decrease and the 2015 GRC decision in January 2016.
•
Retail billed and unbilled revenue for the six months ended June 30, 2016 reflects a rate decrease of $400 million and a sales volume decrease of $40 million. The rate decrease is primarily due to implementations of the 2016 ERRA rate decrease and the 2015 GRC decision in January 2016. The sales volume decrease is primarily due to lower load requirements related to solar generation and energy efficiency programs.
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 2015 Form 10-K).
Income Taxes
SCE's income tax provision decreased by $36 million and $94 million for the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015.
The effective tax rates were (9.1)% and 1.7% for the three months ended June 30, 2016 and 2015, respectively. The effective tax rates were 3.1% and 13.4% for the six months ended June 30, 2016 and 2015, respectively. SCE's effective tax rate is lower than the statutory rate primarily due to income tax benefits related to repair deductions, mainly due to flow-through income tax benefits recorded through balancing accounts. The decrease in the effective tax rate from 2015 to 2016 is mainly due to the $133 million revenue refund to customers partially offset by the change in liabilities related to uncertain tax positions.
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 "Liquidity and Capital Resources—SCE—Regulatory Proceedings—Tax Repair Deductions and Memorandum Account" below for more information.

9



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.
Income from Continuing Operations
The following table summarizes the results of Edison International Parent and Other:
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
2016
 
2015
 
2016
 
2015
Edison Energy Group and subsidiaries1
$
(17
)
 
$
(2
)
 
$
(23
)
 
$
—

Edison Mission Group and subsidiaries
(4
)
 
8

 
(4
)
 
11

Corporate expenses and Other2
(16
)
 
(11
)
 
(27
)
 
(22
)
Total Edison International Parent and Other
$
(37
)
 
$
(5
)
 
$
(54
)
 
$
(11
)
1  
Includes income of $2 million and $4 million for the three and six months ended June 30, 2016, respectively, compared to income of $1 million and $6 million for the same periods in 2015 related to losses (net of distributions) allocated to tax equity investors under the HLBV accounting method.
2 
Includes interest expense (pre-tax) of $9 million and $7 million for the three months ended June 30, 2016 and 2015, respectively, and $17 million and $14 million for the six months ended June 30, 2016 and 2015, respectively.
The loss from continuing operations of Edison International Parent and Other increased $32 million and $43 million for the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015 primarily due to:
•
An increase in losses of Edison Energy Group from a $13 million after-tax charge from a buy-out of an earn-out provision contained in one of the 2015 acquisitions, higher operating and development expenses and lower revenue and gross margin from the sale of solar systems. The buy-out was completed, together with modification to employment contracts, in order to align long-term incentive compensation. The results during the first half of 2016 include the three businesses acquired by Edison Energy in December 2015. Revenue for Edison Energy Group for the three and six months ended June 30, 2016 were $9 million and $15 million, respectively, compared to $6 million and $9 million for the respective periods in 2015.
•
A decrease in income from Edison Mission Group and subsidiaries of $12 million and $15 million for the three and six months ended June 30, 2016, respectively, primarily due to income related to affordable housing projects in 2015. In December 2015, EMG's subsidiary, Edison Capital completed the sale of its remaining affordable housing investments portfolio which represents the exit from this business activity.
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 2016 obligations, capital expenditures and dividends through operating cash flows, tax benefits and capital market financings of debt and preferred equity, as needed. SCE also has availability under its credit facilities to fund liquidity requirements.
Available Liquidity
At June 30, 2016, SCE had approximately $2.15 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 June 30, 2016, SCE's debt to total capitalization ratio was 0.44 to 1.

10



Regulatory Proceedings
San Onofre CPUC Proceedings
In May 2016, and in consideration of the CPUC's December 2015 decision sanctioning SCE for failing to disclose ex parte communications relevant to the San Onofre OII, the Assigned Commissioner and ALJ issued a ruling to reopen the record upon which the CPUC had, in November 2014, approved the San Onofre OII Settlement Agreement among SCE, TURN, ORA, SDG&E, the Coalition of California Utility Employees, and Friends of the Earth. See "Notes to Consolidated Financial Statements—Note 11. Commitments and Contingencies—San Onofre Related Matters—San Onofre CPUC Proceedings" for more information.
Cost of Capital
As discussed in the year-ended 2015 MD&A, SCE and the other Joint Investor-Owned Utilities submitted a petition to the CPUC in connection with their request for a one-year extension of the due date for the filing of the next cost of capital applications. A final decision approving the Joint Investor-Owned Utilities' petition was approved on February 25, 2016. As extended, the Joint Investor-Owned Utilities must file their next cost of capital applications by April 20, 2017 instead of April 20, 2016. SCE's authorized rate of return and capital structure for CPUC-related activities will remain unchanged through December 31, 2017. See "Business—SCE—Overview of Ratemaking Process—CPUC" in the 2015 Form 10-K for details on SCE's cost of capital and authorized rates of return.
Energy Efficiency Incentive Mechanism
In March 2016, ORA and TURN filed a joint proposal requesting that the CPUC recalculate SCE's 2006 – 2008 incentive awards and order SCE to refund $39.9 million to its customers. SCE disputes the assertion that SCE should be at risk to repay previously awarded incentives. SCE cannot predict the outcome of this proceeding. See "Notes to Consolidated Financial Statements—Note 11. Commitments and Contingencies—Energy Efficiency Incentive Mechanism" for more information.
FERC Formula Rates
In June 2016, SCE provided its preliminary 2017 annual transmission revenue requirement update to interested parties. The update provided support for an increase in SCE's transmission revenue requirement of $98 million or 9% over amounts currently authorized in rates. The increase is mainly due to the completion of several major transmission projects and an underrecovery in rates for revenue in 2015, which is being recovered through the formula rate true up process. SCE expects to file its 2017 annual update with the FERC by December 1, 2016 and the proposed rates would be effective January 1, 2017.
Tax Repair Deductions and Memorandum Account
SCE recognized earnings and a regulatory asset for deferred income taxes related to 2012 – 2014 tax repair deductions. As a result of the CPUC's rate base offset in the 2015 GRC decision, SCE wrote down this regulatory asset in full during 2015. The after-tax charge was reflected in "Income tax expense" on the consolidated statements of income. The amount of tax repair deductions the CPUC used to establish the rate base offset was based on SCE's forecast of 2012 – 2014 tax repair deductions from the Notice of Intent filed in the 2015 GRC. The amount of tax repair deductions included in the Notice of Intent was less than the actual tax repair deductions SCE reported on its 2012 through 2014 income tax returns. In April 2016, the CPUC granted SCE's request to reduce SCE's Base Revenue Requirement Balancing Account by $234 million during 2016 through 2020 subject to the outcome of audits that may be conducted by tax authorities. The refunds result in flowing incremental tax benefits for 2012 – 2014 to customers through 2020. SCE refunded $133 million during the second quarter of 2016. SCE did not record a gain or loss from this reduction. Regulatory assets recorded from flow through tax benefits are recovered through SCE's general rate case proceedings.
Capital Investment Plan
Major Transmission Projects
West of Devers
In April 2016, the CPUC issued a proposed decision to approve the project as recommended by SCE. An alternative project with a modified scope had been considered as part of required environmental impact reviews as discussed in the year-ended 2015 MD&A. The CPUC is expected to issue a final decision on the project in the third quarter of 2016.

11



Riverside Transmission Reliability
The Riverside Transmission Reliability Project is a joint project between SCE and Riverside Public Utilities (RPU), the municipal utility department of the City of Riverside. While RPU would be responsible for constructing some of the Project's facilities within Riverside, SCE's portion of the Project consists of constructing upgrades to its system, including a new 230-kV Substation; certain interconnection and telecommunication facilities and transmission lines in the cities of Riverside, Jurupa Valley and Norco and in portions of unincorporated Riverside County. The purpose of the Project is to provide RPU and its customers with adequate transmission capacity to serve existing and projected load, to provide for long-term system capacity for load growth, and to provide needed system reliability. 
Alberhill System
The Alberhill System Project consists of constructing a new 500-kV substation, two 500-kV transmission lines to connect the proposed substation to the existing Serrano-Valley 500-kV transmission line, telecommunication equipment and subtransmission lines in unincorporated and incorporated portions of western Riverside County. The Project was designed to meet long-term forecasted electrical demand in the proposed Alberhill Project area and to increase electrical system reliability.
Coolwater-Lugo
In February 2016, SCE filed an abandoned plant recovery request at FERC for the costs of the cancelled Coolwater-Lugo transmission project pursuant to the authority granted by FERC for SCE to recover 100% of all prudently-incurred costs if the project is cancelled for reasons beyond SCE's control. The project was cancelled by the CPUC in 2015 due to a reduction in need. SCE requested recovery of the $37.1 million in costs that SCE incurred for the project over a twelve-month period through the FERC transmission formula rate. In May 2016, the FERC issued an order finding that the project was cancelled for reasons beyond SCE's control, and granted SCE recovery of 100% of the prudently-incurred costs of the project, as proposed by SCE but set for hearing and settlement the $8.5 million in overhead costs assigned by SCE to the project to determine whether these costs are reasonable.
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 June 30, 2016, SCE's 13-month weighted-average common equity component of total capitalization was 50.3% and the maximum additional dividend that SCE could pay to Edison International under this limitation was approximately $540 million, resulting in a restriction on net assets of approximately $13.5 billion.
In the second quarter of 2016, SCE declared and paid a dividend to Edison International of $170 million. 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.
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 June 30, 2016, 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.

12



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 June 30, 2016.
(in millions)
 
 
Collateral posted as of June 30, 20161
 
$
91

Incremental collateral requirements for power procurement contracts resulting from a potential downgrade of SCE's credit rating to below investment grade
 
55

Incremental collateral requirements for power procurement contracts resulting from adverse market price movement2
 
6

Posted and potential collateral requirements
 
$
152

1 
Net collateral provided to counterparties and other brokers consisted of $95 million in letters of credit and surety bonds and $4 million of cash reflected in "Other current liabilities" on the consolidated balance sheets.
2 
Incremental collateral requirements were based on potential changes in SCE's forward positions as of June 30, 2016 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 June 30, 2016, Edison International Parent had $956 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 June 30, 2016, Edison International Parent's consolidated debt to total capitalization ratio was 0.47 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 is obligated to make the final 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. In December 2015, the PATH Act of 2015 extended 50% bonus depreciation for qualifying property retroactive to January 1, 2015 and through 2017 and provided for 40% bonus depreciation in 2018 and 30% in 2019. As a result, realization of these tax benefits has been deferred (currently forecasted through 2022). 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.

13



Historical Cash Flows
Southern California Edison Company
 
Six months ended June 30,
(in millions)
2016
 
2015
Net cash provided by operating activities
$
1,514

 
$
1,689

Net cash provided by financing activities
151

 
539

Net cash used in investing activities
(1,671
)
 
(2,213
)
Net (decrease) increase in cash and cash equivalents
$
(6
)
 
$
15

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 six months ended June 30, 2016 and 2015.
 
Six months ended June 30,
 
Change in cash flows
(in millions)
2016
2015
 
2016/2015
Net income
$
662

$
745

 
 
Non-cash items1
989

995

 
 
    Subtotal
$
1,651

$
1,740

 
$
(89
)
Changes in cash flow resulting from working capital2
(120
)
(311
)
 
191

Derivative assets and liabilities, net
15

33

 
(18
)
Regulatory assets and liabilities, net
90

241

 
(151
)
Other noncurrent assets and liabilities, net3
(122
)
(14
)
 
(108
)
Net cash provided by operating activities
$
1,514

$
1,689

 
$
(175
)
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 for working capital was $120 million and $311 million during the six months ended June 30, 2016 and 2015, respectively. The cash outflow for each period was primarily related to the timing of receipts from customers and timing of disbursements, including payments for payroll, payroll-related costs and income taxes. During the first six months of the 2016 and 2015, SCE had net tax payments of $32 million and $125 million, respectively.
•
Net cash provided by regulatory assets and liabilities, including changes in over (under) collections of balancing accounts. SCE has a number of balancing accounts, which impact cash flows based on differences between timing of collection of amounts through rates and accrual expenditures. During the first six months of 2016 and 2015, cash flows were impacted by the following principal balancing accounts:
•
ERRA overcollections for fuel and purchased power decreased $187 million during the first six months of 2016 primarily due to the implementation of the 2016 ERRA rate decrease in January 2016 partially offset by lower than forecasted power and gas prices experienced in 2016. ERRA undercollections for fuel and purchased power decreased $485 million in the first six months of 2015 primarily due to lower power and gas prices experienced in 2015.
•
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 $216 million in the first six months of 2016 primarily due to a reclassification of $206 million from TAMA to BRRBA to refund customers as required by the CPUC, partially offset by the implementation of the 2015 GRC decision in January 2016. In addition, during the second quarter of 2016, SCE recorded a revenue refund to customers of $133 million for 2012 – 2014

14



incremental tax benefits related to repair deductions. See "Liquidity and Capital Resources—Regulatory Proceedings—Tax Repair Deductions and Memorandum Account" for further information.
•
The public purpose and energy efficiency programs track the differences between amounts authorized by the CPUC and amounts incurred to fund programs established by the CPUC. Overcollections increased by $145 million during the first six months of 2016 due to higher funding and lower spending for these programs. Overcollections decreased by $122 million during the first six months of 2015 due to increased spending for these programs.
•
The 2015 GRC decision established the TAMA. As a result of this memorandum account, together with a balancing account for pole loading expenditures, any differences between the authorized tax repair deductions and actual tax repair deductions will be adjusted through customer rates. Overcollections decreased by $180 million during the first six months of 2016 primarily due to a $206 million reclassification from TAMA to BRRBA to refund customers as discussed above, partially offset by higher tax repairs deductions than forecasted in rates.
•
SCE received $122 million in May 2016 from the federal government related to Department of Energy's failure to meet its obligation to begin accepting spent nuclear fuel from San Onofre. These damages recovered by SCE are subject to CPUC review as to how these amounts would be distributed among customers, shareholders, or to offset fuel decommissioning or storage costs. See "Notes to Consolidated Financial Statements—Note 11. Commitments and Contingencies—Contingencies—Spent Nuclear Fuel" for further discussion.
•
Cash flows used in other noncurrent assets and liabilities were $122 million and $14 million in the first six months of 2016 and 2015, respectively. Major factors affecting cash flow related to noncurrent assets and liabilities were activities related to SCE's nuclear decommissioning trusts (principally related to the payment of decommissioning costs). Decommissioning costs of San Onofre were approximately $88 million and $80 million for the six months ended June 30, 2016 and 2015, respectively (such costs were recorded as a reduction of SCE's asset retirement obligation).
Net Cash Provided by Financing Activities
The following table summarizes cash provided by financing activities for the six months ended June 30, 2016 and 2015. Issuances of debt and preference stock are discussed in "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements—Long-Term Debt" and "—Note 12. Preferred and Preference Stock of SCE."
 
Six months ended June 30,
(in millions)
2016
 
2015
Issuances of first and refunding mortgage bonds, net
$
—

 
$
1,287

Issuances of pollution control bonds, net
—

 
128

Long-term debt matured or repurchased
(41
)
 
(721
)
Issuances of preference stock, net
294

 
—

Redemptions of preference stock
(125
)
 
—

Short-term debt financing, net
457

 
184

Payments of common stock dividends to Edison International
(340
)
 
(294
)
Payments of preferred and preference stock dividends
(61
)
 
(56
)
Other
(33
)
 
11

Net cash provided by financing activities
$
151

 
$
539

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 $1.8 billion and $2.2 billion for the six months ended June 30, 2016 and 2015, respectively, primarily related to transmission, distribution and generation investments. Net proceeds (purchases) of nuclear decommissioning trust investments were $144 million and $(48) million for the six months ended June 30, 2016 and 2015, respectively. The 2016 net proceeds from sale of nuclear decommissioning trust investments was due to disbursements less net earnings during the period. The 2015 net purchase of nuclear decommissioning trust investments was due to net earnings during the period.

15



Nuclear Decommissioning Trusts
SCE's statement of cash flows includes activities of the Nuclear Decommissioning Trusts, which are reflected in the following line items:
 
Six months ended June 30,
(in millions)
2016
 
2015
Net cash (used in) provided by operating activities:
   Nuclear decommissioning trusts
$
(144
)
 
$
41

Net cash flow from investing activities:
   Proceeds from sale of investments
1,391

 
1,455

   Purchases of investments
(1,247
)
 
(1,503
)
Net cash impact
$
—

 
$
(7
)
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. See "Notes to Consolidated Financial Statements—Note 9. Investments" for further information. 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.
In future periods, decommissioning costs of San Onofre will increase significantly. Beginning in March 2016, funds for decommissioning costs are requested from the nuclear decommissioning trusts one month in advance. Decommissioning disbursements are funded from sales of investments of the nuclear decommissioning trusts. 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.
 
Six months ended June 30,
(in millions)
2016
 
2015
Net cash (used in) provided by operating activities
$
(85
)
 
$
79

Net cash provided by (used in) financing activities
51

 
(66
)
Net cash used in investing activities
(10
)
 
(21
)
Net decrease in cash and cash equivalents
$
(44
)
 
$
(8
)
Net Cash (Used in) Provided by Operating Activities
Net cash (used in) provided by operating activities were impacted by the following:
•
$122 million receipt of intercompany tax-allocation payments in 2015.
•
$21 million outflow in June 2016 related to the buy-out of an earn-out provision with the former shareholders of a company acquired by Edison Energy in 2015. See "Results of Operations—Edison International Parent and Other—Income from Continuing Operations" for further information.
•
approximately $64 million cash outflow from operating activities in 2016 compared to $43 million cash outflow in 2015 due to the timing of payments and receipts relating to interest and operating costs.

16



Net Cash Provided by (Used in) Financing Activities
Net cash provided by (used in) financing activities were as follows:
 
Six months ended June 30,
(in millions)
2016
 
2015
Dividends paid to Edison International common shareholders
$
(313
)
 
$
(272
)
Dividends received from SCE
340

 
294

Payment for stock-based compensation
(47
)
 
(108
)
Receipt from stock option exercises
26

 
63

Long-term debt issuance, net
397

 
—

Short-term debt financing, net
(351
)
 
(60
)
Other
(1
)
 
17

Net cash provided by (used in) financing activities
$
51

 
$
(66
)
Contingencies
SCE has contingencies related to San Onofre Related Matters, Energy Efficiency Incentive Mechanism, 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 June 30, 2016, SCE had identified 19 material sites for remediation and recorded an estimated minimum liability of $130 million. SCE expects to recover 90% of its remediation costs at certain sites. See "Notes to Consolidated Financial Statements—Note 11. Commitments and Contingencies—Contingencies—Environmental Remediation" for further discussion.
MARKET RISK EXPOSURES
Edison International's and SCE's primary market risks are described in the 2015 Form 10-K. 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 4. Fair Value Measurements" and "—Note 6. Derivative Instruments."
Commodity Price Risk
The fair value of outstanding derivative instruments used to mitigate exposure to commodity price risk was a net liability of $1.2 billion at both June 30, 2016 and December 31, 2015. For further discussion of fair value measurements and the fair value hierarchy, see "Notes to Consolidated Financial Statements—Note 4. Fair Value Measurements" and "— Note 6. Derivative Instruments."
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.

17



As of June 30, 2016, the amount of balance sheet exposure as described above broken down by the credit ratings of SCE's counterparties, was as follows:
 
June 30, 2016
(in millions)
Exposure2
 
Collateral
 
Net Exposure
S&P Credit Rating1
 
 
 
 
 
A or higher
$
124

 
$
(4
)
 
$
120

BBB
2

 
—

 
2

Not rated
5

 
(14
)
 
—

Total
$
131

 
$
(18
)
 
$
122

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.
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 2015 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."
RISK FACTORS
The risk factors appearing in the 2015 Form 10-K under the headings set forth below are supplemented and updated as follows:
RISKS RELATING TO SOUTHERN CALIFORNIA EDISON COMPANY
Regulatory Risks
SCE is subject to extensive regulation and the risk of adverse regulatory decisions and changes in applicable regulations or legislation.
SCE operates in a highly regulated environment. SCE's business is subject to extensive federal, state and local energy, environmental and other laws and regulations. Among other things, the CPUC regulates SCE's retail rates and capital structure, and the FERC regulates SCE's wholesale rates. The NRC regulates the decommissioning of San Onofre. The construction, planning, and siting of SCE's power plants and transmission lines in California are also subject to regulation by the CPUC.
SCE must periodically apply for licenses and permits from these various regulatory authorities and abide by their respective orders. Should SCE be unsuccessful in obtaining necessary licenses or permits or should these regulatory authorities initiate any investigations or enforcement actions or impose penalties or disallowances on SCE, SCE's business could be materially affected. The process of obtaining licenses and permits from regulatory authorities may be delayed or defeated by concerted community opposition and such delay or defeat could have a material effect on SCE's business.
In June 2016, the California Governor and state legislators announced an agreement on CPUC reform bills that, if passed, will establish rulemaking to govern communications between the CPUC officials, staff and the regulated utilities. These bills have not yet been approved by the California legislature and the particular rules they propose have yet to be adopted. Changes to the rules and processes around ex parte communications could result in delayed decisions, increased investigations, enforcement actions and penalties. In addition, the CPUC or other parties may initiate investigations of past communications between public utilities, including SCE, and CPUC officials and staff that could result in reopening completed proceedings for reconsideration.

18



In addition, existing regulations may be revised or reinterpreted and new laws and regulations may be adopted or become applicable to SCE, or its facilities or operations, in a manner that may have a detrimental effect on SCE's business or result in significant additional costs. In addition, regulations adopted via the public initiative or legislative process may apply to SCE, or its facilities or operations, in a manner that may have a detrimental effect on SCE's business or result in significant additional costs.
Competitive and Market Risks
The electricity industry is undergoing change, including increased competition, technological advancements, and political and regulatory developments
California utilities are experiencing increasing deployment of distributed energy resources, such as solar, energy storage, energy efficiency and demand response technologies. This growth will eventually require modernization of the electric distribution grid to, among other things, accommodate two-way flows of electricity and increase the grid's capacity to interconnect distributed energy resources. To this end, the CPUC is conducting proceedings to: evaluate changes to the planning and operation of the electric distribution grid in order to prepare for higher penetration of distributed energy resources; consider future grid modernization and grid reinforcement investments; evaluate if traditional grid investments can be deferred by distributed energy resources, and if feasible, what, if any, compensation would be appropriate; and clarify the role of the electric distribution grid operator. The outcome of these proceedings is unknown. These changes could materially affect SCE's business model and its financial condition and results of operations.
Customer-owned generation itself reduces the amount of electricity those customers purchase from utilities and has the effect of increasing utility rates unless customer rates are designed to allocate the costs of the distribution grid across all customers that benefit from their use. For example, customers in California that generate their own power do not currently pay all transmission and distribution charges and non-bypassable charges, subject to limitations, which result in increased utility rates for those customers who do not own their generation. Such increases influence the public discussion regarding changes in the electric utility business model.
In addition, the FERC has adopted changes that have opened transmission development to competition from independent developers, allowing such developers to compete with incumbent utilities for the construction and operation of transmission facilities. For more information, see "Business—SCE—Competition" in the 2015 Form 10-K.
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.

19



FINANCIAL STATEMENTS
Consolidated Statements of Income
Edison International
 

 
 

 
Three months ended June 30,

Six months ended June 30,
(in millions, except per-share amounts, unaudited)
2016
 
2015
 
2016

2015
Total operating revenue
$
2,777

 
$
2,908

 
$
5,218


$
5,420

Purchased power and fuel
1,064

 
1,078

 
1,858


1,864

Operation and maintenance
721

 
743

 
1,350


1,380

Depreciation, decommissioning and amortization
505

 
481

 
982


945

Property and other taxes
85

 
82

 
178

 
171

Impairment and other charges
21

 
—

 
21


—

Total operating expenses
2,396

 
2,384

 
4,389


4,360

Operating income
381

 
524

 
829


1,060

Interest and other income
33

 
43

 
65


82

Interest expense
(144
)
 
(138
)
 
(284
)

(281
)
Other expenses
(11
)
 
(17
)
 
(19
)

(24
)
Income from continuing operations before income taxes
259

 
412

 
591


837

Income tax (benefit) expense
(47
)
 
6

 
(9
)

113

Income from continuing operations
306

 
406

 
600


724

Loss from discontinued operations, net of tax
(2
)
 
—

 
(1
)
 
—

Net income
304

 
406

 
599


724

Preferred and preference stock dividend requirements of SCE
31

 
28

 
61


56

Other noncontrolling interests
(3
)
 
(1
)
 
(8
)
 
(10
)
Net income attributable to Edison International common shareholders
$
276

 
$
379

 
$
546


$
678

Amounts attributable to Edison International common shareholders:
 
 
 
 



Income from continuing operations, net of tax
$
278

 
$
379

 
$
547


$
678

Loss from discontinued operations, net of tax
(2
)
 
—

 
(1
)

—

Net income attributable to Edison International common shareholders
$
276

 
$
379

 
$
546


$
678

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



Weighted-average shares of common stock outstanding
326

 
326

 
326


326

Continuing operations
$
0.86

 
$
1.16

 
$
1.68


$
2.08

Discontinued operations
(0.01
)
 
—

 
—


—

Total
$
0.85

 
$
1.16

 
$
1.68


$
2.08

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



Weighted-average shares of common stock outstanding, including effect of dilutive securities
329

 
328

 
329


329

Continuing operations
$
0.85

 
$
1.15

 
$
1.66


$
2.06

Discontinued operations
(0.01
)
 
—

 
—


—

Total
$
0.84

 
$
1.15

 
$
1.66


$
2.06

Dividends declared per common share
$
0.4800

 
$
0.4175

 
$
0.9600


$
0.8350


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

20




Consolidated Statements of Comprehensive Income
 
 
 
Edison International
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions, unaudited)
 
2016
 
2015
 
2016
 
2015
Net income
 
$
304

 
$
406

 
$
599

 
$
724

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

 
3

 
3

 
2

Other comprehensive income, net of tax
 
1

 
3

 
3

 
2

Comprehensive income
 
305

 
409

 
602

 
726

Less: Comprehensive income attributable to noncontrolling interests
 
28

 
27

 
53

 
46

Comprehensive income attributable to Edison International
 
$
277

 
$
382

 
$
549

 
$
680



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

21



Consolidated Balance Sheets
Edison International
 






(in millions, unaudited)
June 30,
2016

December 31,
2015
ASSETS
 

 
Cash and cash equivalents
$
111


$
161

Receivables, less allowances of $56 and $62 for uncollectible accounts at respective dates
801


771

Accrued unbilled revenue
682


565

Inventory
308


267

Derivative assets
65


79

Regulatory assets
478


560

Other current assets
214


251

Total current assets
2,659


2,654

Nuclear decommissioning trusts
4,344


4,331

Other investments
203


203

Total investments
4,547


4,534

Utility property, plant and equipment, less accumulated depreciation and amortization of $8,531 and $8,548 at respective dates
35,629


34,945

Nonutility property, plant and equipment, less accumulated depreciation of $92 and $85 at respective dates
148


140

Total property, plant and equipment
35,777


35,085

Derivative assets
69


84

Regulatory assets
7,792


7,512

Other long-term assets
353


360

Total long-term assets
8,214


7,956

















































 
 
 
 
Total assets
$
51,197


$
50,229



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

22



Consolidated Balance Sheets

Edison International
 


 

 
(in millions, except share amounts, unaudited)

June 30,
2016

December 31,
2015
LIABILITIES AND EQUITY

 

 
Short-term debt

$
800


$
695

Current portion of long-term debt

696


295

Accounts payable

1,166


1,310

Accrued taxes

74


72

Customer deposits

257


242

Derivative liabilities

195


218

Regulatory liabilities

1,072


1,128

Other current liabilities

889


967

Total current liabilities

5,149


4,927

Long-term debt

10,845


10,883

Deferred income taxes and credits

7,892


7,480

Derivative liabilities

1,101


1,100

Pensions and benefits

1,774


1,759

Asset retirement obligations

2,590


2,764

Regulatory liabilities

6,017


5,676

Other deferred credits and other long-term liabilities

2,081


2,246

Total deferred credits and other liabilities

21,455


21,025

Total liabilities

37,449


36,835

Commitments and contingencies (Note 11)






Redeemable noncontrolling interest
 
—

 
6

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

2,499


2,484

Accumulated other comprehensive loss

(53
)

(56
)
Retained earnings

9,111


8,940

Total Edison International's common shareholders' equity

11,557


11,368

Noncontrolling interests – preferred and preference stock of SCE

2,191


2,020

Total equity

13,748


13,388















Total liabilities and equity

$
51,197


$
50,229



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

23



Consolidated Statements of Cash Flows
Edison International
 



Six months ended June 30,
(in millions, unaudited)
2016

2015
Cash flows from operating activities:
 

 
Net income
$
599


$
724

Less: Loss from discontinued operations
(1
)

—

Income from continuing operations
600


724

Adjustments to reconcile to net cash provided by operating activities:


 
Depreciation, decommissioning and amortization
1,025


987

Allowance for equity during construction
(42
)

(42
)
Deferred income taxes and investment tax credits
(28
)

101

Other
11


11

Nuclear decommissioning trusts
(144
)
 
41

EME insurance proceeds
1


—

Changes in operating assets and liabilities:


 
Receivables
(33
)

32

Inventory
(41
)

5

Accounts payable
67


130

Prepaid and accrued taxes
1

 
(50
)
Other current assets and liabilities
(135
)

(411
)
Derivative assets and liabilities, net
15


33

Regulatory assets and liabilities, net
90


241

Other noncurrent assets and liabilities
42


(34
)
Net cash provided by operating activities
1,429


1,768

Cash flows from financing activities:
 

 
Long-term debt issued, net of discount and issuance costs of $3 and $16 for
respective periods
397


1,415

Long-term debt matured
(41
)

(721
)
Preference stock issued, net
294


—

Preference stock redeemed
(125
)

—

Short-term debt financing, net
106


125

Dividends to noncontrolling interests
(61
)

(56
)
Dividends paid
(313
)

(272
)
Other
(55
)
 
(18
)
Net cash provided by financing activities
202


473

Cash flows from investing activities:
 

 
Capital expenditures
(1,828
)

(2,197
)
Proceeds from sale of nuclear decommissioning trust investments
1,391


1,455

Purchases of nuclear decommissioning trust investments
(1,247
)

(1,503
)
Other
3


11

Net cash used in investing activities
(1,681
)

(2,234
)
Net (decrease) increase in cash and cash equivalents
(50
)

7

Cash and cash equivalents at beginning of period
161


132

Cash and cash equivalents at end of period
$
111


$
139


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

24



Consolidated Statements of Income
 
Southern California Edison Company

 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions, unaudited)
 
2016
 
2015
 
2016
 
2015
Operating revenue
 
$
2,768

 
$
2,901

 
$
5,204

 
$
5,409

Purchased power and fuel
 
1,064

 
1,078

 
1,858

 
1,864

Operation and maintenance
 
687

 
724

 
1,290

 
1,346

Depreciation, decommissioning and amortization
 
503

 
481

 
978

 
943

Property and other taxes
 
85

 
82

 
176

 
170

Total operating expenses
 
2,339


2,365


4,302

 
4,323

Operating income
 
429


536


902

 
1,086

Interest and other income
 
33

 
31

 
65

 
64

Interest expense
 
(134
)
 
(131
)
 
(265
)
 
(266
)
Other expenses
 
(11
)
 
(17
)
 
(19
)
 
(24
)
Income before income taxes
 
317


419


683

 
860

Income tax (benefit) expense
 
(29
)
 
7

 
21

 
115

Net income
 
346


412


662

 
745

Less: Preferred and preference stock dividend requirements
 
31

 
28

 
61

 
56

Net income available for common stock
 
$
315


$
384


$
601

 
$
689


Consolidated Statements of Comprehensive Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions, unaudited)
 
2016
 
2015
 
2016
 
2015
Net income
 
$
346

 
$
412

 
$
662

 
$
745

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
Pension and postretirement benefits other than pensions:
 
 
 
 
 
 
 
 
Amortization of net loss included in net income
 
1

 
1

 
2

 
2

Other comprehensive income, net of tax
 
1

 
1

 
2

 
2

Comprehensive income
 
$
347

 
$
413

 
$
664

 
$
747



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

25



Consolidated Balance Sheets
Southern California Edison Company
(in millions, unaudited)
 
June 30,
2016
 
December 31, 2015
ASSETS
 
 
 
 
Cash and cash equivalents
 
$
20

 
$
26

Receivables, less allowances of $56 and $62 for uncollectible accounts at respective dates
 
784

 
724

Accrued unbilled revenue
 
681

 
564

Inventory
 
254

 
256

Derivative assets
 
65

 
79

Regulatory assets
 
478

 
560

Other current assets
 
192

 
234

Total current assets
 
2,474

 
2,443

Nuclear decommissioning trusts
 
4,344

 
4,331

Other investments
 
170

 
168

Total investments
 
4,514

 
4,499

Utility property, plant and equipment, less accumulated depreciation and amortization of $8,531 and $8,548 at respective dates
 
35,629

 
34,945

Nonutility property, plant and equipment, less accumulated depreciation of $85 and $81 at respective dates
 
76

 
73

Total property, plant and equipment