Edgar Filing: EDISON INTERNATIONAL

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 September 30, 2018
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, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," accelerated filer," "smaller reporting company," and "emerging growth 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 ¨	Emerging growth company ¨
Southern California Edison Company	Large Accelerated Filer ¨	Accelerated Filer ¨	Non-accelerated Filer þ	Smaller Reporting Company ¨	Emerging growth company ¨



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Edison International o Southern California Edison 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 26, 2018:
Edison International		325,811,206 shares
Southern California Edison Company		434,888,104 shares

TABLE OF CONTENTS



					SEC Form 10-Q Reference Number
GLOSSARY				iv
FORWARD-LOOKING STATEMENTS				1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS				3	Part I, Item 2
	MANAGEMENT OVERVIEW			3
		Highlights of Operating Results		3
		Southern California Wildfires		4
		Montecito Mudslides		5
		Permanent Retirement of San Onofre		6
		Capital Program		6
		2018 General Rate Case		8
	RESULTS OF OPERATIONS			8
	Southern California Edison Company			8
		Three months ended September 30, 2018 versus September 30, 2017		9
			Earning Activities	10
			Cost-Recovery Activities	10
		Nine months ended September 30, 2018 versus September 30, 2017		11
			Earning Activities	11
			Cost-Recovery Activities	12
	Supplemental Operating Revenue Information			12
	Income Taxes			12
	Edison International Parent and Other			13
		Income from Continuing Operations		13
	LIQUIDITY AND CAPITAL RESOURCES			13
	Southern California Edison Company			13
		Available Liquidity		14
		Capital Investment Plan		14
		Regulatory Proceedings		15
		Decommissioning of San Onofre		15
		SCE Dividends		15
		Margin and Collateral Deposits		16
	Edison International Parent and Other			17
	Historical Cash Flows			18



		Southern California Edison Company	18
		Edison International Parent and Other	21
	Contingencies		21
	MARKET RISK EXPOSURES		21
	Commodity Price Risk		22
	Credit Risk		22
	CRITICAL ACCOUNTING ESTIMATES AND POLICIES		22
	NEW ACCOUNTING GUIDANCE		22
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			22	Part I, Item 3
FINANCIAL STATEMENTS			24	Part I, Item 1
	Edison International Consolidated Statements of Income		24
	Edison International Consolidated Statements of Comprehensive Income		25
	Edison International Consolidated Balance Sheets		26
	Edison International Consolidated Statements of Cash Flows		28
	SCE Consolidated Statements of Income		29
	SCE Consolidated Statements of Comprehensive Income		29
	SCE Consolidated Balance Sheets		30
	SCE Consolidated Statements of Cash Flows		32
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		33
		Note 1. Summary of Significant Accounting Policies	33
		Note 2. Consolidated Statements of Changes in Equity	37
		Note 3. Variable Interest Entities	39
		Note 4. Fair Value Measurements	41
		Note 5. Debt and Credit Agreements	44
		Note 6. Derivative Instruments	45
		Note 7. Revenue	47
		Note 8. Income Taxes	50
		Note 9. Compensation and Benefit Plans	51
		Note 10. Investments	53
		Note 11. Regulatory Assets and Liabilities	54
		Note 12. Commitments and Contingencies	56
		Note 13. Accumulated Other Comprehensive Loss	62
		Note 14. Other Income and Expenses	63
		Note 15. Supplemental Cash Flows Information	63
CONTROLS AND PROCEDURES			64	Part I, Item 4
	Disclosure Controls and Procedures		64



	Changes in Internal Control Over Financial Reporting	64
	Jointly Owned Utility Plant	64
LEGAL PROCEEDINGS		64	Part II, Item 1
	December 2017 Wildfires Litigation	64
	Montecito Mudslides Litigation	64
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		65	Part II, Item 2
	Purchases of Equity Securities by Edison International and Affiliated Purchasers	65
OTHER INFORMATION		65	Part II, Item 5
EXHIBITS		66	Part II, Item 6
SIGNATURES		67

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.

iii

GLOSSARY

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



2017 Form 10-K		Edison International's and SCE's combined Annual Report on Form 10-K for the year ended December 31, 2017
AFUDC		allowance for funds used during construction
ALJ		administrative law judge
ARO(s)		asset retirement obligation(s)
Bcf		billion cubic feet
bonus depreciation		Federal tax deduction of a percentage of the qualifying property placed in service during periods permitted under tax laws
BRRBA		Base Revenue Requirement Balancing Account
CAISO		California Independent System Operator
CAL FIRE		California Department of Forestry and Fire Protection
CCAs		Community Choice Aggregators which are cities, counties, and certain other public agencies with the authority to generate and/or purchase electricity for their local residents and businesses
CPUC		California Public Utilities Commission
December 2017 Wildfires		several wind-driven wildfires, including the Thomas Fire, that occurred in December 2017 and impacted portions of SCE's service territory
DERs		distributed energy resources
DOE		U.S. Department of Energy
DRP		Distributed Resources Plan
Edison Energy		Edison Energy, LLC, a wholly-owned subsidiary of Edison Energy Group that advises and provides energy solutions to large energy users
Edison Energy Group		Edison Energy Group, Inc., a wholly-owned subsidiary of Edison International, is a holding company for subsidiaries engaged in competitive businesses that provide energy services to commercial and industrial customers
EME		Edison Mission Energy
EME Settlement Agreement		Settlement Agreement by and among Edison Mission Energy, Edison International and the Consenting Noteholders identified therein, dated February 18, 2014
ERRA		Energy Resource Recovery Account
FASB		Financial Accounting Standards Board
FERC		Federal Energy Regulatory Commission
Fitch		Fitch Ratings, Inc.
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 26, 2018
MD&A		Management's Discussion and Analysis of Financial Condition and Results of Operations in this report
MHI		Mitsubishi Heavy Industries, Inc. and related companies
Montecito Mudslides		the mudslides and flooding in Montecito, Santa Barbara County, that occurred in January 2018
Moody's		Moody's Investors Service, Inc.
MW		megawatts



MWdc		megawatts measured for solar projects representing the accumulated peak capacity of all the solar modules
NDCTP		Nuclear Decommissioning Cost Triennial Proceeding
NEIL		Nuclear Electric Insurance Limited
NEM		net energy metering
NERC		North American Electric Reliability Corporation
NOL		net operating loss
NRC		Nuclear Regulatory Commission
OII		Order Instituting Investigation
OII Parties		SCE, SDG&E, The Alliance for Nuclear Responsibility, The California Large Energy Consumers Association, California State University, Citizens Oversight dba Coalition to Decommission San Onofre, the Coalition of California Utility Employees, the Direct Access Customer Coalition, Ruth Henricks, PAO, TURN, and Women's Energy Matters, all of whom are parties to the Revised San Onofre Settlement Agreement
Palo Verde		nuclear electric generating facility located near Phoenix, Arizona in which SCE holds a 15.8% ownership interest
PAO		CPUC's Public Advocates Office (formerly known as the Office of Ratepayer Advocates or ORA)
PBOP(s)		postretirement benefits other than pension(s)
Prior San Onofre Settlement Agreement		San Onofre OII Settlement Agreement by and among TURN, PAO, SDG&E, the Coalition of California Utility Employees, and Friends of the Earth, dated November 20, 2014
Revised San Onofre Settlement Agreement		Revised San Onofre OII Settlement Agreement among OII Parties, dated January 30, 2018 and modified on August 2, 2018
ROE		return on common equity
S&P		Standard & Poor's Financial Services LLC
San Onofre		retired nuclear generating facility located in south San Clemente, California in which SCE holds a 78.21% ownership interest
SCE		Southern California Edison Company, a wholly-owned subsidiary of Edison International
SDG&E		San Diego Gas & Electric
SEC		U.S. Securities and Exchange Commission
SED		Safety and Enforcement Division of the CPUC
SoCalGas		Southern California Gas Company
SoCore Energy		SoCore Energy LLC, a former subsidiary of Edison Energy Group that was sold in April 2018
TAMA		Tax Accounting Memorandum Account
Tax Reform		Tax Cuts and Jobs Act signed into law on December 22, 2017
TURN		The Utility Reform Network
US EPA		U.S. Environmental Protection Agency

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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 statements that do 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 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 through regulated rates, including costs related to uninsured wildfire-related and mudslide-related liabilities and capital spending incurred prior to explicit regulatory approval;


•	ability to obtain sufficient insurance at a reasonable cost, including insurance relating to SCE's nuclear facilities and wildfire-related and mudslide-related exposure, and to recover the costs of such insurance or, in the absence of insurance, the ability to recover uninsured losses;


•	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, the 2018 GRC, the recoverability of wildfire-related and mudslide-related costs, and delays in regulatory actions;


•	ability of Edison International or SCE to borrow funds and access the bank and capital markets on reasonable terms;


•	actions by credit rating agencies to downgrade our credit ratings or those of our subsidiaries or to place those ratings on negative watch or outlook;


•	risks associated with the decommissioning of San Onofre, including those related to public opposition, permitting, governmental approvals, on-site storage of spent nuclear fuel, delays, contractual disputes, and cost overruns;


•	extreme weather-related incidents and other natural disasters (including earthquakes and events caused, or exacerbated, by climate change, such as wildfires), which could cause, among other things, public safety issues, property damage and operational issues;


•	risks associated with cost allocation resulting in higher rates for utility bundled service customers because of possible customer bypass or departure for other electricity providers such as CCAs and Electric Service Providers;

•

risks inherent in SCE's transmission and distribution infrastructure investment program, 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), changes in the CAISO's transmission plans, and governmental approvals;


•	risks associated with the operation of transmission and distribution assets and power generating facilities, including public and employee safety issues, the risk of utility assets causing wildfires, failure, availability, efficiency and output of equipment and facilities, and availability and cost of spare parts;


•	physical security of Edison International's and SCE's critical assets and personnel and the cybersecurity of Edison International's and SCE's critical information technology systems for grid control, and business, employee and customer data;


•	ability of Edison International to develop competitive businesses, manage new business risks, and recover and earn a return on its investment in newly developed or acquired businesses;


•	changes in tax laws and regulations, at both the state and federal levels, or changes in the application of those laws, that could affect recorded deferred tax assets and liabilities and effective tax rate;


•	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 NERC, CAISO, Western Electricity Council, and similar regulatory bodies in 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;


•	potential for penalties or disallowance for non-compliance with applicable laws and regulations; and


•	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.

Additional information about risks and uncertainties, including more detail about the factors described in this report, is contained throughout this report and in the 2017 Form 10-K, including the "Risk Factors" section. Readers are urged to read this entire report, including information incorporated by reference, as well as the 2017 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. Edison International and SCE provide direct links to certain SCE and other parties' regulatory filings and documents with the CPUC and the FERC and certain agency rulings and notices in open proceedings at www.edisoninvestor.com (SCE Regulatory Highlights) so that such filings, rulings and notices are available to all investors. Edison International and SCE post or provide direct links to certain documents and information related to Southern California wildfires which may be of interest to investors at www.edisoninvestor.com (Southern California Wildfires) in order to publicly disseminate such information. Edison International and SCE also routinely post or provide direct links to presentations, documents and other information that may be of interest to investors at www.edisoninvestor.com (Events and Presentations) in order to publicly disseminate such information.

The MD&A for the nine months ended September 30, 2018 discusses material changes in the consolidated financial condition, results of operations and other developments of Edison International and SCE since December 31, 2017, and as compared to the nine months ended September 30, 2017. This discussion presumes that the reader has read or has access to Edison International's and SCE's MD&A for the calendar year 2017 (the "year-ended 2017 MD&A"), which was included in the 2017 Form 10-K.

Except when otherwise stated, references to each of Edison International, SCE, or Edison Energy Group 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 and "Edison International Parent" mean Edison International on a stand-alone basis, not consolidated with its subsidiaries.

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 and Edison Energy Group. SCE is an investor-owned public utility primarily engaged in the business of supplying and delivering electricity to an approximately 50,000 square mile area of southern California. Edison Energy Group is a holding company for subsidiaries engaged in operating competitive businesses, primarily consisting of Edison Energy which provides energy services to commercial and industrial customers. Edison Energy's 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 the information contained in this report relates to both filers.



	Three months ended September 30,								Nine months ended September 30,
(in millions)	2018			2017		Change			2018			2017			Change
Net income (loss) attributable to Edison International
Continuing operations
SCE	$	536		$	465	$	71		$	1,119		$	1,121		$	(2	)
Edison International Parent and Other	(23		)	5		(28		)	(112		)	(11		)	(101		)
Edison International	513			470		43			1,007			1,110			(103		)
Less: Non-core items
SCE	7			—		7			7			—			7
Edison International Parent and Other	(4		)	—		(4		)	(46		)	1			(47		)
Total non-core items	3			—		3			(39		)	1			(40		)
Core earnings (losses)
SCE	529			465		64			1,112			1,121			(9		)
Edison International Parent and Other	(19		)	5		(24		)	(66		)	(12		)	(54		)
Edison International	$	510		$	470	$	40		$	1,046		$	1,109		$	(63	)

Edison International's earnings are prepared in accordance with GAAP. Management uses core earnings (losses) 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 HLBV accounting method (related to previous results of SoCore Energy which was sold in the second quarter of 2018) and income or loss from significant discrete items that management does not consider representative of ongoing earnings, such as write downs, asset impairments and other gains and losses related to certain tax, regulatory, or legal settlements or proceedings, and exit activities, including sale of certain assets and other activities that are no longer continuing.

Edison International's third quarter 2018 earnings increased $43 million from the third quarter of 2017, comprised of an increase in SCE's earnings of $71 million, partially offset by Edison International Parent and Other's increased losses of $28 million. SCE's higher quarter-to-date earnings resulted from lower operation and maintenance expenses due to regulatory deferrals for line clearing and wildfire insurance costs, the favorable impact of Tax Reform on incremental pre-tax earnings and higher revenue due to a reimbursement for spent nuclear fuel storage costs recorded in 2018.

Edison International's earnings for the nine months ended September 30, 2018 decreased $103 million from the nine months ended 2017, comprised of a decrease in SCE's earnings of $2 million and an increase in Edison International Parent and Other's losses of $101 million. SCE's lower year-to-date earnings resulted from higher operation and maintenance expenses related to wildfire insurance and higher net financing costs, partially offset by higher revenue due to a reimbursement for

spent nuclear fuel storage costs recorded in 2018, a refund to customers for prior overcollections recorded in 2017 and higher 2018 income tax benefits.

Edison International Parent and Other's increase in losses for the three and nine months ended September 30, 2018 was due to higher core losses of $24 million and $54 million, respectively, and higher non-core losses of $4 million and $47 million, respectively. The increase in core losses was due to tax benefits recorded in 2017 related to net operating loss carrybacks from the filing of the 2016 returns in 2017 and the impact of Tax Reform on pre-tax losses. The higher core losses for the nine months ended September 30, 2018 were also due to tax benefits in 2017 related to stock option exercises and the settlement of 2007 – 2012 federal income tax audits, partially offset by a goodwill impairment recorded in 2017 and lower corporate expenses in 2018.

Edison International had non-core income of $3 million ($11 million pre-tax) and non-core losses of $39 million ($46 million pre-tax) for the three and nine months ended September 30, 2018, respectively. Non-core income for the three months ended September 30, 2018 was related to the CPUC-mandated elimination of an obligation for SCE to fund a research, development and demonstration program intended to develop technologies and methodologies to reduce GHG emissions, partially offset by finalizing the purchase price and taxes related to the sale of SoCore Energy. Non-core losses for the nine months ended September 30, 2018 primarily consisted of the impact of the sale of SoCore Energy in April 2018.

Southern California Wildfires

In December 2017, several wind-driven wildfires impacted portions of SCE's service territory and caused substantial damage to both residential and business properties and service outages for SCE customers. The largest of these fires, known as the Thomas Fire, originated in Ventura County and burned acreage located in both Ventura and Santa Barbara Counties. According to the most recent CAL FIRE incident information reports, the Thomas Fire burned over 280,000 acres, destroyed an estimated 1,063 structures, damaged an estimated 280 structures and resulted in two fatalities.

SCE is aware of multiple lawsuits filed related to the Thomas Fire naming SCE as a defendant. A number of the lawsuits also name Edison International as a defendant. The extent of potential liability for December 2017 Wildfire-related damages depends on a number of factors, including whether SCE substantially caused, or contributed to, the damages and whether parties seeking recovery of damages will be required to show negligence in addition to causation. Certain California courts have previously found utilities to be strictly liable for property damage, regardless of fault, by applying the theory of inverse condemnation when a utility's facilities were determined to be a substantial cause of a wildfire that caused the property damage.

Determining wildfire origin and cause is often a complex and time-consuming process and several investigations into the facts and circumstances of the Thomas Fire are believed to be ongoing. SCE has been advised that the origins and causes of the fire are being investigated by CAL FIRE and the Ventura County Fire Department. In connection with its investigation of the Thomas Fire, CAL FIRE has removed and retained certain of SCE's equipment that was located in the general vicinity of suspected ignition points of the fire. SCE expects that the Ventura County Fire Department and/or CAL FIRE will ultimately issue reports concerning the origins and causes of the Thomas Fire but cannot predict when these reports will be released. The SED is also conducting an investigation to assess the compliance of SCE and its facilities with applicable rules and regulations in areas impacted by the Thomas Fire. SCE cannot predict when the investigations of CAL FIRE, the Ventura County Fire Department or the SED, will be completed.

As it does in all wildfire matters in which its facilities may or are alleged to be involved, SCE is conducting its own review into the facts and circumstances of the Thomas Fire. SCE's internal review of the Thomas Fire is complex and examines various matters including possible ignition points, the location of those ignition points, fire progression and the attribution of damages to fires with separate ignition points. As its review of the Thomas Fire progresses and the Thomas Fire litigation process continues, SCE expects to obtain and review additional information, materials and physical information that are in the possession of CAL FIRE and other parties, including SCE equipment that has been retained by CAL FIRE. Based on currently available information, SCE believes that the Thomas Fire had at least two separate ignition points, one near Koenigstein Road in the City of Santa Paula and the other somewhere in the Anlauf Canyon area of Ventura County.

With respect to the Koenigstein Road ignition point, witnesses have reported that a fire ignited in the vicinity of an SCE power pole, and SCE believes that its equipment was associated with this ignition. CAL FIRE has removed equipment located in the general vicinity of Koenigstein Road and SCE has not been able to inspect it. SCE is continuing to assess the progression of the fire from the Koenigstein Road ignition point and the extent of damages that may be attributable to that ignition. At this time, based on available information, SCE has not determined whether the ignition in the Anlauf Canyon area involved SCE equipment. CAL FIRE has removed equipment located in the Anlauf Canyon area and SCE has not been able to inspect it.

Edison International and SCE expect to incur a material loss in connection with the Thomas Fire. However, given the uncertainty as to the contributing causes of the Thomas Fire, the complexities associated with multiple ignition points and the potential for separate damages to be attributable to fires ignited at separate ignition points, Edison International and SCE are currently unable to reasonably estimate a range of losses that may be incurred in connection with the Thomas Fire, but anticipate being able to do so when sufficient additional information becomes available. Such additional information is expected to become available from multiple external sources, during the course of litigation, and from SCE's ongoing internal review, including, among other things, information regarding the extent of damages that may be attributable to any ignition determined to have been substantially caused by SCE's equipment, information that may be obtained from the equipment in CAL FIRE's possession and information pertaining to fire progression, suppression activities, alleged damages and insurance claims.

For events that occurred in 2017, principally the December 2017 Wildfires, SCE has approximately $1 billion of wildfire-specific insurance coverage, subject to a self-insured retention of $10 million per occurrence. Various coverage limitations within the policies that make up SCE's wildfire insurance coverage could result in material self-insured costs in the event of multiple wildfire occurrences during a policy period. Should responsibility for a significant portion of the damages related to the December 2017 Wildfires be attributed to SCE, SCE's insurance may not be sufficient to cover all such damages. In addition, SCE may not be authorized to recover some or all of its uninsured damages through electric service rates if, for example, the CPUC finds that the damages were incurred because SCE did not prudently manage its facilities.

Edison International and SCE are pursuing legislative, regulatory and legal strategies to address the application of a strict liability standard to wildfire-related damages without the ability to recover resulting damages in rates. In September 2018, California Senate Bill 901 ("SB 901") was signed by the Governor of California. Although SB 901 does not address the strict liability standard imposed by courts in inverse condemnation actions, the bill as enacted introduces a number of considerations the CPUC can apply to determine whether costs are recoverable in rates for wildfires occurring on or after January 1, 2019, including, among other things, the utility’s actions, circumstances beyond the utility's control and the impact of extreme climate conditions. SB 901 requires investor-owned utilities to prepare annually, for CPUC approval, wildfire risk mitigation plans, and, compliance with an approved plan is one factor the CPUC can consider in addressing cost recovery. SB 901 also calls for a commission on Catastrophic Wildfire Cost and Recovery to be formed to examine, among other things, the allocation of catastrophic wildfire costs in an equitable manner. Edison International and SCE cannot predict whether or when a comprehensive solution mitigating the significant risk faced by a California investor-owned utility related to wildfires will be achieved.

For further information, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Southern California Wildfires" and "Legal Proceedings—December 2017 Wildfires Litigation."

Current Wildfire Insurance Coverage

SCE has approximately $1 billion of wildfire-specific insurance coverage, subject to a self-insured retention of $10 million per occurrence, for events that may occur during the period June 1, 2018 through May 31, 2019. SCE may obtain additional wildfire insurance for portions of this time period in the future. Various coverage limitations within the policies that make up SCE's wildfire insurance coverage could result in material self-insured costs in the event of multiple wildfire occurrences during a policy period or in the event of an exceptionally large wildfire.

SCE's cost of obtaining wildfire insurance coverage has increased significantly as a result of, among other things, the December 2017 Wildfires. Based on policies currently in effect, SCE anticipates that its wildfire insurance expense, prior to any regulatory deferrals, will total approximately $237 million during 2018. SCE has requested approval from the CPUC for regulatory mechanisms to track and recover wildfire insurance premiums in excess of the amounts that are ultimately approved in a 2018 GRC decision. As of September 30, 2018, SCE has deferred $63 million of costs related to wildfire insurance and believes that such amounts are probable of recovery.

For further information, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Southern California Wildfires—Current Wildfire Insurance Coverage."

Montecito Mudslides

In January 2018, torrential rains in Santa Barbara County produced mudslides and flooding in Montecito and surrounding areas (the "Montecito Mudslides"). According to Santa Barbara County initial reports, the Montecito Mudslides destroyed an estimated 135 structures, damaged an estimated 324 structures, and resulted in at least 21 fatalities, with two additional fatalities presumed.

Of the lawsuits mentioned above, several allege that SCE has responsibility for the Thomas Fire and that the Thomas Fire proximately caused the Montecito Mudslides, resulting in the plaintiffs' claimed damages. Some of the Montecito Mudslides lawsuits also name Edison International as a defendant.

The inquiry into whether the Thomas Fire proximately caused or contributed to the Montecito Mudslides, the source of ignition of the portion of the Thomas fire that burned through the Montecito area and other factors that contributed to the Montecito Mudslides is complex and time consuming. Many other factors, including, among other things, weather conditions and insufficiently or improperly designed and maintained roads, bridges and other channel crossings, could have contributed to or exacerbated the losses that resulted from the Montecito Mudslides. While SCE is not aware of any governmental agency that is investigating the causes of the Montecito Mudslides, SCE is conducting its own review of the factors that potentially contributed to the losses that resulted from the Montecito Mudslides.

At this time, based on available information, SCE has not been able to determine the source of ignition of the portion of the Thomas fire that burned through the Montecito area. In the event that SCE is determined to have caused the fire that spread to the Montecito area, SCE cannot predict whether the courts will conclude that the Montecito Mudslides were caused or contributed to by the Thomas Fire or that SCE is liable for damages caused by the Montecito Mudslides. As a result, Edison International and SCE are currently unable to predict the outcome of the claims made against SCE and Edison International arising from the Montecito Mudslides or reasonably estimate a range of losses that may be incurred. If it is determined that SCE is liable for damages caused by the Montecito Mudslides, SCE will incur a material loss. SCE's insurance may not be sufficient to cover all such damages and SCE may not be authorized to recover some or all its uninsured damages through electric service rates.

For further information, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Montecito Mudslides" and "Legal Proceedings—Montecito Mudslides Litigation."

Permanent Retirement of San Onofre

Revised Settlement Agreement

On January 30, 2018, the OII Parties entered into a Revised San Onofre Settlement Agreement in the CPUC OII proceeding regarding the steam generator replacement project at San Onofre and the related outages and subsequent shutdown of San Onofre. The Revised San Onofre Settlement Agreement modified the Prior San Onofre Settlement Agreement.

In July 2018, the CPUC approved all of the terms of the Revised San Onofre Settlement Agreement other than a provision under which SCE agreed to fund $10 million for a research, development and demonstration program intended to develop technologies and methodologies to reduce GHG emissions (the "Modification"). The Revised San Onofre Settlement Agreement with the Modification became effective on August 2, 2018. All issues under consideration in the San Onofre OII have been resolved.

Additional challenges related to the settlement of the San Onofre CPUC OII proceeding remain pending. For further information, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Permanent Retirement of San Onofre."

Capital Program

SCE's capital expenditures forecast for the 2018 – 2020 period has been revised to incorporate the approval by the CPUC of a transportation electrification program to fund medium- and heavy-duty vehicle charging infrastructure (See "—Distribution Grid Development—Medium- and Heavy-Duty Vehicle Transportation Electrification") and other operational adjustments to spending on FERC projects (See "Liquidity and Capital Resources—Southern California Edison—Capital Investment Plan—Major Transmission Projects").

In April 2018 and July 2018, the CPUC issued a proposed decision and an alternate proposed decision, both denying SCE's ability to construct the Alberhill System Project based on a perceived lack of need. SCE filed comments on both proposed decisions requesting that the CPUC grant the certificate of public convenience and necessity for the Alberhill System Project. In August 2018, the CPUC issued a revised decision holding the proceeding open and directing SCE to submit supplemental information on the Alberhill System Project including details of demand and load forecasts and possible alternatives to the proposed project. Ongoing capital spending has been deferred as a result of the CPUC request for additional information and alternatives. SCE continues to believe the Alberhill System Project is needed and is unable to predict the timing of a final CPUC decision in connection with the Alberhill System Project.

Traditional capital expenditures for 2018 reflect SCE's forecast capital expenditures for CPUC and FERC capital projects. SCE's capital spending for the first nine months of 2018 was consistent with its 2018 plan and SCE continues to project 2018

capital expenditures of approximately $4.2 billion for 2018. In the absence of a 2018 GRC decision, SCE has developed, and is executing against, a 2018 capital expenditure plan that will allow SCE to ramp up its capital spending program over the three-year GRC period to meet what is ultimately authorized in the 2018 GRC decision while minimizing the associated risk of unauthorized spending. Capital spending in 2019 and 2020 will be dependent upon the amount approved in a 2018 GRC decision. Forecasted expenditures for capital projects are subject to change due to, among other things, timeliness of permitting, licensing, regulatory approvals, and contractor bids. For further information regarding the capital program, see "Liquidity and Capital Resources—SCE—Capital Investment Plan."

Total capital expenditures (including accruals) were $2.9 billion and $2.3 billion for the first nine months of 2018 and 2017, respectively. The following table sets forth a summary of forecasted capital expenditures for 2018 – 2020 on the basis described above:



(in millions)	2018		2019		2020		Total 2018 – 2020
Traditional capital expenditures¹
Distribution²	$	3,425	$	3,220	$	3,105	$	9,750
Transmission	612		702		761		2,075
Generation	198		212		201		611
Total requested traditional capital expenditures¹	$	4,235	$	4,134	$	4,067	$	12,436
Grid modernization capital expenditures²	$	—	$	649	$	608	$	1,257
Total capital expenditures	$	4,235	$	4,783	$	4,675	$	13,693


¹	Includes 2018 – 2020 capital expenditures of $49 million for Energy Storage, $115 million for Transportation Electrification, and $4 million for Charge Ready; does not include amounts requested in the Grid Safety and Resiliency Program (see "—Distribution Grid Development" below).


²	2018 capital expenditures related to grid modernization are included in traditional capital expenditures.

SCE's estimated weighted average annual rate base for 2018 – 2020 using the capital expenditures set forth in the table above is as follows:



(in millions)	2018		2019		2020
Rate base for requested traditional capital expenditures	$	28,787	$	31,077	$	33,460
Rate base for requested grid modernization capital expenditures	264		743		1,279
Total rate base	$	29,051	$	31,820	$	34,739

The rate base above does not reflect reductions from the amounts requested in the 2018 GRC that may be included in a final decision.

Distribution Grid Development

Grid Safety and Resiliency Program

In September 2018, SCE filed an application with the CPUC requesting approval of a Grid Safety and Resiliency Program to implement additional wildfire safety measures, including measures to further harden SCE's infrastructure to significantly reduce potential fire ignition sources, bolster SCE's situational awareness capabilities to more fully assess and respond to potential wildfire conditions, and enhance SCE's operational practices to further strengthen fire safety measures and system resiliency. In the application, SCE proposed to spend approximately $582 million ($407 million capital) in 2018 dollars between 2018 and 2020. The amounts requested for the 2018 to 2020 period are not included in SCE's 2018 GRC. SCE is unable to estimate the amount of capital that will be approved, or the timing of any such approval, in connection with the Grid Safety and Resiliency Program.

Charge Ready Program

In January 2016, the CPUC approved SCE's $22 million Charge Ready Program Pilot, which allows SCE to install light-duty electric vehicle charging infrastructure, provide rebates to offset the cost of qualified customer-owned charging stations, and implement a supporting marketing, education, and outreach campaign. As of September 30, 2018, SCE had executed agreements and reserved funding for 79 sites to deploy 1,280 charge ports. The results of this pilot have helped shape Charge

Ready 2, the second phase of the Charge Ready program. In June 2018, SCE filed an application to obtain approval for Charge Ready 2. In the application, SCE requested approval to install infrastructure and provide rebates to support 48,000 new electric vehicle charging ports as part of a four-year program, $760 million ($561 million capital) in 2018 dollars, which will also include a marketing, education, and outreach campaign. SCE is unable to estimate the amount of capital that will be approved, or the timing of any such approval, in connection with Charge Ready 2.

Medium- and Heavy-Duty Vehicle Transportation Electrification

In January 2017, SCE filed an application with the CPUC requesting approval of transportation electrification programs to accelerate the adoption of electric transportation, which is critical to California's climate change and GHG reduction objectives. The application proposed a five-year program to fund medium- and heavy-duty vehicle charging infrastructure that follows the model developed for SCE's Charge Ready program, as well as six pilot projects to be considered on an accelerated basis. In January 2018, the CPUC issued a final decision approving five pilot projects with a budget of $16 million ($10 million capital) in 2016 dollars. In May 2018, the CPUC issued a final decision approving the five-year program, with certain modifications, to install charging infrastructure to support the electrification of 8,490 medium- and heavy-duty electric vehicles at 870 sites, which must be fully contracted for by 2024. The final decision includes an approved five-year budget of $356 million ($242 million capital) in nominal dollars.

SCE plans to propose additional programs and pilots in the future.

2018 General Rate Case

As discussed in the year-ended 2017 MD&A, SCE's GRC proceeding for the three-year period 2018 – 2020 is pending. SCE has requested a revenue requirement of $5.534 billion for its test year of 2018, a $106 million decrease from the 2017 GRC authorized revenue requirement, and revenue requirements for the post-test years of 2019 and 2020 of $5.965 billion and $6.468 billion, respectively.

A 2018 GRC decision is expected by the end of 2018. In the absence of a 2018 GRC decision, SCE is recognizing revenue in 2018 based on the 2017 authorized revenue requirement, adjusted for the July 2017 cost of capital decision and Tax Reform. The CPUC has approved the establishment of a GRC memorandum account, which will make the 2018 revenue requirement adopted by the CPUC effective as of January 1, 2018. SCE cannot predict the revenue requirement the CPUC will authorize or provide assurance on the timing of a final decision.

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 revenues 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. SCE earns no return on these activities.

The following table is a summary of SCE's results of operations for the periods indicated.

Three months ended September 30, 2018 versus September 30, 2017



	Three months ended September 30, 2018									Three months ended September 30, 2017
(in millions)	Earning Activities			Cost- Recovery Activities			Total Consolidated			Earning Activities			Cost-Recovery Activities			Total Consolidated
Operating revenue	$	1,777		$	2,483		$	4,260		$	1,677		$	1,975		$	3,652
Purchased power and fuel	—			2,306			2,306			—			1,783			1,783
Operation and maintenance¹	447			204			651			487			203			690
Depreciation and amortization	466			—			466			521			—			521
Property and other taxes	96			—			96			98			(1		)	97
Impairment and other	(10		)	—			(10		)	—			—			—
Other operating income	(3		)	—			(3		)	(8		)	—			(8		)
Total operating expenses	996			2,510			3,506			1,098			1,985			3,083
Operating income	781			(27		)	754			579			(10		)	569
Interest expense	(173		)	—			(173		)	(148		)	(1		)	(149		)
Other income and expenses¹	45			27			72			31			11			42
Income before income taxes	653			—			653			462			—			462
Income tax expense (benefit)	86			—			86			(35		)	—			(35		)
Net income	567			—			567			497			—			497
Preferred and preference stock dividend requirements	31			—			31			32			—			32
Net income available for common stock	$	536		$	—		$	536		$	465		$	—		$	465
Net income available for common stock							$	536								$	465
Less:
Non-core earnings							7									—
Core earnings²							$	529								$	465


¹	Expenses for the three months ended September 30, 2017 were updated to reflect the implementation of the accounting standard update for net periodic benefit costs related to the defined benefit pension and other postretirement plans.For further information, see Note 1 in the "Notes to Consolidated Financial Statements."


²	See use of non-GAAP financial measures in "Management Overview—Highlights of Operating Results."

Earning Activities

Earning activities were primarily affected by the following:


•	Higher operating revenue of $100 million primarily due to the following:

•

An increase in revenue of $247 million related to tax balancing account activities (offset in income taxes below), consisting of $148 million of lower customer refunds for incremental tax repair benefits and $119 million for tax benefits related to 2017 tax accounting method changes, partially offset by $20 million resulting from the amortization of excess deferred tax assets as a result of Tax Reform.

•

A decrease of $45 million in CPUC revenue primarily resulting from recognizing 2018 revenue based on the 2017 authorized revenue requirement, adjusted for the July 2017 cost of capital decision and the impact of Tax Reform, partially offset by the receipt of a $17 million reimbursement related to spent nuclear fuel storage costs. See "Management Overview—2018 General Rate Case" and "Notes to Consolidated Financial Statements—Note12. Commitments and Contingencies—Spent Nuclear Fuel" for further information.


•	A decrease in FERC revenue of $22 million primarily due to the reduction in the federal corporate income tax rate resulting from Tax Reform.

•

A decrease in revenue related to San Onofre of $90 million related to the 2017 recovery of amortization of the San Onofre regulatory asset (offset in depreciation and amortization below) and authorized return as provided by the Prior San Onofre Settlement Agreement. There was no revenue recorded in 2018 for San Onofre as a result of the Revised San Onofre Settlement Agreement (see "Management Overview—Permanent Retirement of San Onofre" for further information).


•	Lower operation and maintenance costs of $40 million primarily due to the regulatory deferral of line clearing and wildfire insurance costs.


•	Lower depreciation and amortization expense of $55 million primarily related to the amortization of the San Onofre regulatory asset in 2017 (offset in revenue above).


•	Higher interest expense of $25 million primarily due to increased borrowings and higher interest on balancing account overcollections.


•	Higher other income and expense of $14 million primarily due to higher AFUDC equity income.


•	Higher income tax expense of $121 million primarily due to tax balancing account activities referred to above and higher pre-tax income, partially offset by the impact of a lower federal income tax rate as a result of Tax Reform and a true up related to the filing of the federal income tax return in the third quarter of 2018.

Cost-Recovery Activities

Cost-recovery activities were primarily affected by the following:


•	Higher purchased power and fuel costs of $523 million primarily driven by higher power and gas prices and volume experienced in 2018 relative to 2017, partially offset by higher congestion revenue right credits and lower capacity costs.


•	Higher other income and expenses of $16 million primarily driven by higher net periodic benefit income related to the non-service cost components in 2018 relative to 2017. See "Notes to Consolidated Financial Statements—Note 9. Compensation and Benefit Plans" for further information.

The following table is a summary of SCE's results of operations for the periods indicated.

Nine months ended September 30, 2018 versus September 30, 2017



	Nine months ended September 30, 2018									Nine months ended September 30, 2017
(in millions)	Earning Activities			Cost- Recovery Activities			Total Consolidated			Earning Activities			Cost-Recovery Activities			Total Consolidated
Operating revenue	$	4,825		$	4,792		$	9,617		$	4,813		$	4,248		$	9,061
Purchased power and fuel	—			4,344			4,344			—			3,742			3,742
Operation and maintenance¹	1,468			528			1,996			1,410			535			1,945
Depreciation and amortization	1,387			—			1,387			1,528			—			1,528
Property and other taxes	298			—			298			279			—			279
Impairment and other	(10		)	—			(10		)	—			—			—
Other operating income	(5		)	—			(5		)	(8		)	—			(8		)
Total operating expenses	3,138			4,872			8,010			3,209			4,277			7,486
Operating income	1,687			(80		)	1,607			1,604			(29		)	1,575
Interest expense	(490		)	(2		)	(492		)	(435		)	(1		)	(436		)
Other income and expenses¹	91			82			173			80			30			110
Income before income taxes	1,288			—			1,288			1,249			—			1,249
Income tax expense	78			—			78			34			—			34
Net income	1,210			—			1,210			1,215			—			1,215
Preferred and preference stock dividend requirements	91			—			91			94			—			94
Net income available for common stock	$	1,119		$	—		$	1,119		$	1,121		$	—		$	1,121
Net income available for common stock							$	1,119								$	1,121
Less:
Non-core earnings							7									—
Core earnings²							$	1,112								$	1,121


¹	Expenses for the nine months ended September 30, 2017 were updated to reflect the implementation of the accounting standard update for net periodic benefit costs related to the defined benefit pension and other postretirement plans. For further information, see Note 1 in the "Notes to Consolidated Financial Statements."


²	See use of non-GAAP financial measures in "Management Overview—Highlights of Operating Results."

Earning Activities

Earning activities were primarily affected by the following:


•	Higher operating revenue of $12 million primarily due to the following:

•

An increase in revenue of $263 million related to tax balancing account activities (offset in income taxes below), consisting of $199 million of lower customer refunds for incremental tax repair benefits and $119 million for tax benefits related to 2017 tax accounting method changes, partially offset by $55 million resulting from the amortization of excess deferred tax assets as a result of Tax Reform.

•

A decrease of $111 million in CPUC revenue primarily from recognizing 2018 revenue based on the 2017 authorized revenue requirement, adjusted for the July 2017 cost of capital decision and the impact of Tax Reform. This decrease was partially offset by the receipt of a $17 million reimbursement related to spent nuclear fuel storage costs recorded in 2018 and a $17 million refund to customers for prior overcollections of revenue recorded in 2017. See "Management Overview—2018 General Rate Case" and "Notes to Consolidated Financial Statements—Note12. Commitments and Contingencies—Spent Nuclear Fuel" for further information.


•	A decrease in FERC revenue of $53 million primarily due to the reduction in the federal corporate income tax rate resulting from Tax Reform.

•

A decrease in revenue related to San Onofre of $115 million of which $180 million related to the recovery of amortization of the San Onofre regulatory asset (offset in depreciation and amortization) and authorized return as provided by the Prior San Onofre Settlement Agreement, partially offset by a $65 million reduction in 2017 revenue related to the tax abandonment of San Onofre (offset in income taxes below). There was no revenue recorded in 2018 for San Onofre as a result of the Revised San Onofre Settlement Agreement (see "Management Overview—Permanent Retirement of San Onofre" for further information).


•	Higher operation and maintenance costs of $58 million primarily due to higher insurance premiums associated with wildfire insurance (see "Management Overview—Southern California Wildfires—Current Wildfire Insurance Coverage" for further information).


•	Lower depreciation and amortization expense of $141 million primarily related to the amortization of the San Onofre regulatory asset in 2017 (offset in revenue above) and lower intangible plant amortization.


•	Higher property and other taxes of $19 million primarily due to higher assessed values for property taxes in 2018.


•	Higher interest expense of $55 million primarily due to increased borrowings and higher interest on balancing account overcollections.


•	Higher other income and expense of $11 million primarily due to higher AFUDC equity income.


•	Higher income tax expense of $44 million primarily due to tax balancing account activities referred to above and higher pre-tax income, partially offset by the impact of a lower federal income tax rate as a result of Tax Reform and a true up related to the filing of the federal income tax return.

Cost-Recovery Activities

Cost-recovery activities were primarily affected by the following:


•	Higher purchased power and fuel costs of $602 million primarily driven by higher power and gas prices and volume experienced in 2018 relative to 2017, partially offset by higher congestion revenue right credits, the receipt of settlement funds related to the California energy crisis and lower capacity costs.


•	Higher other income and expenses of $52 million primarily driven by higher net periodic benefit income related to the non-service cost components in 2018 relative to 2017. See "Notes to Consolidated Financial Statements—Note 9. Compensation and Benefit Plans" for further information.

Supplemental Operating Revenue Information

SCE's retail billed and unbilled revenue (excluding wholesale sales) was $4.0 billion and $3.4 billion for the three months ended September 30, 2018 and 2017, respectively, and $9.0 billion and $8.4 billion for the nine months ended September 30, 2018 and 2017, respectively.

Retail billed and unbilled revenue for the three and nine months ended September 30, 2018 was higher compared to the same period in 2017 primarily due to higher purchased power and fuel costs driven by higher power and gas prices and volume experienced in 2018 relative to 2017. See "—Cost-Recovery Activities" for further details.

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 2017 Form 10-K).

Income Taxes

SCE's income tax expense increased by $121 million and $44 million for the three and nine months ended September 30, 2018 compared to the same periods in 2017.

The effective tax rates were 13.2% and (7.6)% for the three months ended September 30, 2018 and 2017, respectively. The effective tax rates were 6.1% and 2.7% for the nine months ended September 30, 2018 and 2017, respectively. SCE's effective tax rate is below the federal statutory rate of 21% and 35% for 2018 and 2017, respectively, primarily due to CPUC's ratemaking treatment for the current tax benefit arising from certain property-related and other temporary differences, which reverse over time. The accounting treatment for these temporary differences results in recording regulatory assets and liabilities for amounts that would otherwise be recorded to deferred income tax expense. The effective tax rate decrease for the three and nine months ended September 30, 2018 was primarily due to tax benefits recognized related to repairs in 2018. The effective tax rate decrease for the three months ended September 30, 2017 was primarily due to tax

benefits recognized for tax accounting method changes. The change in the effective tax rate for the nine months ended September 30, 2017 also included the ratemaking treatment on the San Onofre tax abandonment and higher benefits recognized for tax accounting method changes.

See "Notes to Consolidated Financial Statements—Note 8. Income Taxes" for a reconciliation of the federal statutory rate to the effective income tax rates.

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 September 30,					Nine months ended September 30,
(in millions)	2018			2017		2018			2017
Edison Energy Group and subsidiaries	$	(6	)	$	3	$	(61	)	$	(20	)
Corporate expenses and other subsidiaries	(17		)	2		(51		)	9
Total Edison International Parent and Other	$	(23	)	$	5	$	(112	)	$	(11	)

The loss from continuing operations of Edison International Parent and Other increased $28 million and $101 million for the three and nine months ended September 30, 2018, respectively, compared to the same periods in 2017 primarily due to:


•	Impact of the 2018 sale of SoCore Energy, resulting in a $4 million and $40 million increase in losses for the three and nine months ended September 30, 2018, respectively. The higher losses for the nine months ended September 30, 2018 were partially offset by a goodwill impairment recorded in 2017.

•

Lower income tax benefits of $4 million and $40 million related to stock option exercises for the three and nine months ended September 30, 2018, respectively, the impact of Tax Reform on pre-tax losses, $17 million of tax benefits recorded in the third quarter of 2017 related to net loss carrybacks from the filing of the 2016 tax returns and $6 million of tax benefits recorded in the second quarter of 2017 related to the settlement of 2007 – 2012 federal income tax audits, partially offset by lower corporate expenses for the nine months ended September 30, 2018.

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 any dividend payments to Edison International and preferred and preference shareholders, and the outcome of tax and regulatory matters.

In the next 12 months, SCE expects to fund its cash requirements through operating cash flows and capital market financings of debt and preferred equity, as needed. SCE also has availability under its credit facility to fund cash requirements.

SCE's credit ratings remained at investment grade levels during the first nine months of 2018. However, during the third quarter of 2018, Moody's and Fitch downgraded SCE's credit ratings due to the exposure related to wildfires. The following table summarizes SCE's current credit ratings and outlook from the major credit rating agencies:



	Moody's	Fitch	S&P
Credit Rating	A3	BBB+	BBB+
Outlook	Stable	Stable	Negative

SCE's credit ratings may be affected by the ultimate outcome of pending enforcement and litigation matters, including the outcome of the uncertainties and potential liabilities associated with the December 2017 Wildfires and the Montecito Mudslides, and the underlying inverse condemnation exposure risk created by wildfires. Credit rating downgrades increase

the cost and may impact the availability of short-term and long-term borrowings, including commercial paper, credit facilities, bond financings or other borrowings. In addition, some of SCE's power procurement contracts contain provisions that require SCE to maintain an investment grade rating from the major credit rating agencies. For further details, see "— Margin and Collateral Deposits."

Available Liquidity

In May 2018, SCE amended its multi-year revolving credit facility to increase the facility from $2.75 billion to $3.0 billion. At September 30, 2018, SCE had approximately $2.63 billion available under its credit facility. The credit facility is available for borrowing needs until May 2023 and contains two 1-year extension options. In March, June and August 2018, SCE issued $1.25 billion, $650 million and $850 million, respectively, of first and refunding mortgage bonds. The proceeds from these bonds were used to repay commercial paper borrowings, outstanding bonds and for general corporate purposes. For further details, see "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements."

SCE may finance balancing account undercollections and working capital requirements to support operations and capital expenditures with commercial paper, its credit facility or other borrowings, subject to availability in the bank and capital markets. As necessary, SCE will utilize its available liquidity, capital market financings of debt and preferred equity or parent company contributions to SCE equity in order to meet its obligations as they become due, including any potential costs related to the December 2017 Wildfires and Montecito Mudslides (see "Management Overview—Southern California Wildfires" and "—Montecito Mudslides" for further information).

Debt Covenant

A 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, 2018, SCE's debt to total capitalization ratio was 0.46 to 1.

At September 30, 2018, SCE was in compliance with all other financial covenants that affect access to capital.

Capital Investment Plan

Below are updates for large transmission and substation projects since the filing of the 2017 Form 10-K. For further information on these projects, see "Liquidity and Capital Resources—SCE—Capital Investment Plan—Major Transmission Projects" in the year-ended 2017 MD&A.

Major Transmission Projects

Alberhill System

The Alberhill System Project would consist 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 System Project area and to increase electrical system reliability. In April 2018 and July 2018, the CPUC issued a proposed decision and an alternate proposed decision, both denying SCE's ability to construct the Alberhill System Project based on a perceived lack of need. SCE filed comments on both proposed decisions requesting that the CPUC grant the certificate of public convenience and necessity for the Alberhill System Project. In August 2018, the CPUC directed SCE to submit supplemental information on the Alberhill System Project including details of demand and load forecasts and possible alternatives to the proposed project. Ongoing capital spending has been deferred as a result of the CPUC request for additional information and alternatives. Given the uncertainty associated with the resolution of the permitting process, potential revisions to the project have not been reflected in total direct expenditures. SCE continues to believe the Alberhill System Project is needed and is unable to predict the timing of a final CPUC decision in connection with the Alberhill System Project.

Approximately 48% of the Alberhill System Project costs spent to date would be subject to recovery through CPUC revenue and 52% through FERC revenue. In October 2017, SCE obtained approval from the FERC for abandoned plant treatment for the Alberhill System Project, which allows SCE to seek recovery of 100% of all prudently-incurred costs after the approval date and 50% of prudently incurred costs prior to the approval date. Excluding land costs, which may be recovered through sale to a third party, SCE has incurred approximately $41 million of capital expenditures, including overhead costs, as of September 30, 2018, of which approximately $30 million may not be recoverable if the project is cancelled.

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 long-term system capacity for load growth, and to provide needed system reliability. Due to changed circumstances since the time the Project was originally developed, SCE informed the CPUC in August 2016 that it supports revisions to the proposed Project. In April 2018, the CPUC issued a subsequent environmental impact report which included a new route alternative, different from SCE's proposed project, as the environmentally preferred project and proposed an additional underground section of the proposed 220-kV power line. In October 2018, the CPUC issued the final environmental report confirming the CPUC's new route alternative and additional underground section as the environmentally preferred project. SCE is assessing costs for its proposed project as well as new cost estimates for the alternatives included in the final environmental report. SCE anticipates a final CPUC decision on a certificate of public convenience and necessity in the second half of 2019.

Regulatory Proceedings

FERC Formula Rate

In June 2018, SCE provided its preliminary 2019 annual transmission revenue requirement update to interested parties. The update provided support for a decrease in SCE's transmission revenue requirement of $131 million or 11% from amounts currently authorized in rates, subject to settlement procedures and refund. The decrease is primarily due to lowering the federal tax rate as a result of Tax Reform. SCE expects to file its 2019 annual update with the FERC by December 1, 2018 and the proposed rates would be effective January 1, 2019, subject to settlement procedures and refund.

Decommissioning of San Onofre

The decommissioning of San Onofre is expected to take many years. Decommissioning of San Onofre Unit 1 began in 1999 and the transfer of spent nuclear fuel from Unit 1 to dry cask storage in the Independent Spent Fuel Storage Installation ("ISFSI") was completed in 2005. Some spent nuclear fuel from Units 2 and 3 also were transferred to the ISFSI between 2007 and 2012. The initial planning of decommissioning of San Onofre Units 2 and 3 began in June 2013 and the transfer of the remaining spent nuclear fuel to the ISFSI began in 2018. However, the spent fuel transfer operations were suspended on August 3, 2018 due to an incident that occurred when an SCE contractor was loading a spent fuel canister into the ISFSI. The incident did not result in any harm to the public or workers and the canister was subsequently safely loaded into the ISFSI. SCE cannot predict when fuel transfer operations at San Onofre will recommence.

SCE cannot start major radiological decommissioning activities at Units 2 and 3 until it obtains all necessary environmental permits for decommissioning. The decommissioning cost estimate in December 2017 was $3.4 billion (SCE share is $2.6 billion) in 2017 dollars and included costs through the respective completion dates to decommission San Onofre Units 2 and 3, initially estimated to be in 2051. The decommissioning cost estimate is subject to a number of uncertainties including the cost of disposal of nuclear waste, cost of removal of property, site remediation costs as well as a number of other assumptions and estimates, including when the federal government may remove spent fuel canisters from the San Onofre site, as to which there can be no assurance.

SCE had nuclear decommissioning trust funds for San Onofre Units 2 and 3 of $2.7 billion and $2.8 billion as of September 30, 2018 and December 31, 2017, respectively. If the decommissioning cost estimate and assumptions regarding trust performance do not change significantly, SCE believes that future contributions to the trust funds will not be necessary. Cost increases resulting from contractual disputes or significant permitting delays, among other things, could cause SCE to materially overrun the decommissioning cost estimate and could materially impact the sufficiency of trust funds.

For further information, see "2017 Form 10-K—Management Discussion and Analysis—Liquidity and Capital Resources—SCE—Decommissioning of San Onofre" and "2017 Form 10-K—Notes to Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies—Nuclear Decommissioning and Asset Retirement Obligations."

SCE Dividends

In the first quarter of 2018, SCE declared a dividend to Edison International of $212 million that was paid in June 2018. In the second quarter of 2018, SCE declared a dividend to Edison International of $100 million, of which $50 million was paid

on September 30, 2018 and the remaining $50 million was paid on October 12, 2018. On August 23, 2018, SCE declared a dividend to Edison International of $264 million that will be paid on or before December 21, 2018.

The CPUC regulates SCE's capital structure which limits the dividends it may pay Edison International. Prior to July 2018, CPUC regulations allowed SCE to make distributions to Edison International as long as the common equity component of SCE’s capital structure remained at or above 48% on a 13-month weighted average basis, or otherwise satisfied the CPUC requirements. During the third quarter of 2018, SCE filed, and the CPUC made effective, a change to the calculation of the common equity component of SCE's capital structure from a 13-month to a 37-month weighted average basis to correspond with the standard period between cost of capital applications. As allowed under the Revised San Onofre Settlement Agreement, which was approved by the CPUC in July 2018, SCE excluded a $448 million after-tax charge resulting from the implementation of the Revised San Onofre Settlement Agreement from its ratemaking capital structure (see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies" for further information on the Revised San Onofre Settlement Agreement). At September 30, 2018, SCE's 37-month average common equity component of total capitalization was 50.0% and the maximum additional dividend that SCE could pay to Edison International under this limitation was $565 million, resulting in a restriction on net assets of approximately $14.7 billion.

As a California corporation, SCE's ability to pay dividends is also governed by the California General Corporation Law. California law requires that for a dividend to be declared: (a) retained earnings must equal or exceed the proposed dividend, or (b) immediately after the dividend is made, the value of the corporation's assets must exceed the value of its liabilities plus amounts required to be paid, if any, in order to liquidate stock senior to the shares receiving the dividend. Additionally, a California corporation may not declare a dividend if it is, or as a result of the dividend would be, likely to be unable to meet its liabilities as they mature.

The timing and amount of future dividends are also dependent on a number of other factors including SCE's requirements to fund other obligations and capital expenditures, and its ability to access the capital markets, and generate operating cash flows and earnings. If SCE incurs significant costs related to the December 2017 Wildfires or the Montecito Mudslides and is unable to recover such costs through insurance or from customers or access capital markets on reasonable terms, SCE may be limited in its ability to pay future dividends to Edison international and its preferred and preference shareholders.

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, 2018, 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, 2018.



(in millions)
Collateral posted as of September 30, 2018¹	$	277
Incremental collateral requirements for power procurement contracts resulting from a potential downgrade of SCE's credit rating to below investment grade	52
Incremental collateral requirements for power procurement contracts resulting from adverse market price movement²	2
Posted and potential collateral requirements	$	331

¹Net collateral provided to counterparties and other brokers consisted of $265 million in letters of credit and surety bonds and $12 million of cash which was offset against net derivative liabilities on the consolidated balance sheets.


²	Incremental collateral requirements were based on potential changes in SCE's forward positions as of September 30, 2018 due to adverse market price movements over the remaining lives of the existing power contracts using a 95% confidence level.

Edison International Parent and Other

For the first and second quarters of 2018, Edison International declared dividends to common shareholders, totaling $394 million, which were paid in April and July 2018, respectively. On August 23, 2018, Edison International declared a dividend to common shareholders of $197 million that will be paid on October 31, 2018.

In the next 12 months, Edison International expects to fund its cash requirements through operating cash flows, tax benefits and bank and capital market financings, as needed. Edison International also has availability under its credit facility. Edison International Parent and Other's liquidity and its ability to pay operating expenses and pay dividends to common shareholders are dependent on dividends from SCE, realization of tax benefits, and its access to the bank and capital markets. In addition to having sufficient liquidity, Edison International's ability to pay dividends is dependent upon meeting California law requirements for the declaration of dividends. For information on the California law requirements on the declaration of dividends, see "—SCE—SCE Dividends." Edison International intends to maintain its target payout ratio of 45% – 55% of SCE's core earnings, subject to the factors identified above. Edison International may also finance working capital requirements, payment of obligations, capital investments, including capital contributions to subsidiaries, and any common stock dividends with short-term or other financings, subject to availability in the bank and capital markets.

As a result of the sale of SoCore Energy, Edison Energy Group made dividend payments to Edison International Parent of $101 million in 2018.

In May 2018, Edison International Parent amended its multi-year revolving credit facility to increase the facility from $1.25 billion to $1.5 billion. At September 30, 2018, Edison International Parent had approximately $1.5 billion available under its credit facility. The credit facility is available for borrowing needs until May 2023 and contains two 1-year extension options. In January 2018, Edison International Parent issued a $500 million term loan. In March 2018, Edison International Parent issued $550 million of 4.125% senior notes. The proceeds from the March 2018 issuance were used to repay the $500 million term loan discussed above and for general corporate purposes. For further details, see "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements."

A 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 0.70 to 1. At September 30, 2018, Edison International Parent's consolidated debt to total capitalization ratio was 0.51 to 1.

At September 30, 2018, Edison International Parent was also in compliance with all other financial covenants that affect access to capital.

Edison International Parent's credit ratings remained at investment grade levels during the first nine months of 2018. However, during the third quarter of 2018, Moody's and Fitch downgraded Edison International Parent's credit ratings due to the exposure related to wildfires. The following table summarizes Edison International Parent's current credit ratings and outlook from the major credit rating agencies:



	Moody's	Fitch	S&P
Credit Rating	Baa1	BBB+	BBB+
Outlook	Stable	Stable	Negative

Edison International Parent's credit ratings may be affected by the ultimate outcome of pending enforcement and litigation matters, including the outcome of the uncertainties and potential liabilities associated with the December 2017 Wildfires and the Montecito Mudslides, and the underlying inverse condemnation exposure risk created by wildfires. Credit rating downgrades increase the cost and may impact the availability of short-term and long-term borrowings, including commercial paper, credit facilities, note financings or other borrowings.

Historical Cash Flows

Southern California Edison Company



	Nine months ended September 30,
(in millions)	2018		2017¹
Net cash provided by operating activities	2,258		2,801
Net cash provided by (used in) financing activities	340		(339	)
Net cash used in investing activities	(3,074	)	(2,441	)
Net (decrease) increase in cash, cash equivalents and restricted cash	(476	)	21


¹	Net cash for the nine months ended September 30, 2017 was updated to reflect the implementation of the accounting standards updates for cash flows related to cash receipts and restricted cash.

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, 2018 and 2017.



	Nine months ended September 30,						Change in cash flows
(in millions)	2018			2017⁴			2018/2017
Net income	$	1,210		$	1,215
Non-cash items¹	1,697			1,862
Subtotal	$	2,907		$	3,077		$	(170	)
Changes in cash flow resulting from working capital²	(692		)	(576		)	(116		)
Regulatory assets and liabilities	213			560			(347		)
Other noncurrent assets and liabilities³	(170		)	(260		)	90
Net cash provided by operating activities	$	2,258		$	2,801		$	(543	)


¹	Non-cash items include depreciation and amortization, allowance for equity during construction, 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. See "Nuclear Decommissioning Activities" below for further information.


⁴	Cash flow for the nine months ended September 30, 2017 was updated to reflect the implementation of the accounting standards updates for cash flows related to cash receipts and restricted cash.

Net cash provided by operating activities was impacted by the following:

Net income decreased in 2018 by $5 million primarily due to higher operation and maintenance expenses related to wildfire insurance and higher net financing costs, partially offset by higher revenue due to a reimbursement for spent nuclear fuel storage costs recorded in 2018, a refund to customers for prior overcollections recorded in 2017 and higher 2018 income tax benefits.

Net cash for working capital was $(692) million and $(576) million during the nine months ended September 30, 2018 and 2017, respectively. The decrease in cash flow from changes in working capital for each period was primarily due to an increase in receivables from customers of $632 million and $370 million in 2018 and 2017, respectively.

Net cash provided by regulatory assets and liabilities, including changes in overcollections of balancing accounts was $213 million and $560 million during the nine months ended September 30, 2018 and 2017, respectively. 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. Cash flows were primarily impacted by the following:

2018


•	BRRBA overcollections increased by $478 million during the first nine months of 2018 primarily due to a $263 million reclassification from TAMA to BRRBA to refund incremental tax benefits to customers in January 2019 and higher sales than forecasted in rates, partially offset by a refund of 2016 incremental tax benefits.


•	Higher cash due to $138 million of overcollections for the public purpose and energy efficiency programs resulting from lower program spending.


•	Higher cash from increased regulatory liabilities of approximately $269 million primarily due to the delay in the 2018 GRC decision. During the first nine months of 2018, the amounts billed to customers was largely based on the 2017 authorized GRC revenue requirement and therefore, a regulatory liability has been established to record any associated adjustments.

•

Net undercollections for ERRA and the new system generation program were $592 million and $267 million at September 30, 2018 and December 31, 2017, respectively. Net undercollections increased $325 million during the first nine months of 2018 primarily due to an increase in costs due to higher than forecasted power and gas prices experienced in 2018 and higher load requirements than forecasted in rates, partially offset by an increase in cash due to recovery of prior year undercollections.


•	TAMA overcollections decreased by $290 million primarily due to a $263 million reclassification from TAMA to BRRBA to refund customers as discussed above.

•

During the third quarter of 2018, SCE requested approval from the CPUC to track and recover wildfire related costs including insurance premiums in excess of the amounts that will be ultimately approved in the 2018 GRC decision. At September 30, 2018, SCE had a regulatory asset of $63 million related to these costs. For further information, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Southern California Wildfires."

2017

•

The 2015 GRC decision established the TAMA. As a result of this memorandum account, together with a balancing account for pole loading expenditures, 2015 – 2017 tax benefits or costs associated with certain events are tracked and adjusted annually through customer rates. Overcollections increased by $319 million during the first nine months of 2017 primarily due to higher tax repair deductions than forecasted in rates and $118 million of higher benefits recognized for tax accounting method changes. The overcollections in 2017 are expected to be refunded to customers in January 2018.


•	Higher cash due to $186 million of overcollections for the public purpose and energy efficiency programs. Overcollections for public purpose and energy efficiency programs increased due to lower spending for these programs and recovery of prior year undercollections.


•	Higher cash due to $140 million of overcollections related to FERC balancing accounts. Overcollections increased due to recovery of prior FERC undercollections and lower costs than forecasted in the FERC formula rate.


•	Higher cash due to $94 million of overcollections related to the timing of greenhouse gas auction revenue and climate credit refunds to customers, which are expected to be refunded to customers in the fourth quarter of 2017.

•

Higher cash due to realization of $47 million in proceeds from the MHI arbitration and approximately $34 million from the Department of Energy related to spent nuclear fuel. For further information on the MHI claims and spent nuclear fuel, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Permanent Retirement of San Onofre" and "—Spent Nuclear Fuel."

•

BRRBA overcollections decreased by $161 million during the first nine months of 2017 primarily due to the refunds of 2016 overcollections related to TAMA, a revenue refund to customers of $133 million for 2012 – 2014 incremental tax benefits related to repair deductions, and 2015 overcollections resulting from the implementation of the 2015 GRC decision, which was authorized to be refunded to customers over a two year period. The BRRBA tracks the differences between amounts authorized by the CPUC in the GRC proceedings and amounts billed to customers.


•	Net undercollections for ERRA and the new system generation program were $91 million at September 30, 2017 compared to net overcollections of $26 million at December 31, 2016. Net undercollections increased $117 million during the first nine months of 2017 primarily due to a refund of prior year overcollections and an increase in costs due to higher load requirements than forecasted in rates.

Cash flows used in other noncurrent assets and liabilities were primarily related to net earnings from nuclear decommissioning trust investments ($29 million and $47 million in 2018 and 2017, respectively) and SCE's payments of decommissioning costs ($109 million and $170 million in 2018 and 2017, respectively). See "Nuclear Decommissioning Activities" below for further discussion.

Net Cash Provided by (Used in) Financing Activities

The following table summarizes cash provided by (used in) financing activities for the nine months ended September 30, 2018 and 2017. 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)	2018			2017
Issuances of first and refunding mortgage bonds, net of discount and issuance costs	$	2,692		$	1,011
Issuance of term loan	—			300
Remarketing of pollution control bonds, net of issuance costs	—			134
Long-term debt matured or repurchased	(639		)	(781		)
Issuances of preference stock, net of issuance costs	—			463
Redemptions of preference stock	—			(475		)
Short-term debt repayments, net of borrowings and discount	(1,137		)	(441		)
Payments of common stock dividends to Edison International	(474		)	(382		)
Payments of preferred and preference stock dividends	(96		)	(99		)
Other	(6		)	(69		)
Net cash provided by (used in) financing activities	$	340		$	(339	)

Net Cash Used in Investing Activities

Cash flows used in investing activities are primarily due to capital expenditures related to transmission and distribution investments ($3.2 billion and $2.6 billion for the nine months ended September 30, 2018 and 2017, respectively). In addition, SCE had a net redemption of nuclear decommissioning trust investments of $86 million and $117 million during the first nine months ended September 30, 2018 and 2017. See "Nuclear Decommissioning Activities" below for further discussion.

Nuclear Decommissioning Activities

SCE's statement of cash flows includes nuclear decommissioning activities, which are reflected in the following line items:



	Nine months ended September 30,
(in millions)	2018			2017
Net cash used in operating activities: Net earnings from nuclear decommissioning trust investments	$	29		$	47
SCE's decommissioning costs	(109		)	(170		)
Net cash provided by investing activities: Proceeds from sale of investments	3,017			3,974
Purchases of investments	(2,931		)	(3,857		)
Net cash impact	$	6		$	(6	)

Net cash used in operating activities relates to interest and dividends less administrative expenses, taxes, and SCE's decommissioning costs. See "Notes to Consolidated Financial Statements—Note 10. Investments" for further information. Investing activities represent the purchase and sale of investments within the nuclear decommissioning trusts, including the reinvestment of earnings from nuclear decommissioning trust investments. The net cash impact reflects timing of decommissioning payments ($109 million and $170 million in 2018 and 2017, respectively) and reimbursements to SCE from the nuclear decommissioning trust ($115 million and $164 million in 2018 and 2017, respectively).

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)	2018			2017¹
Net cash provided by (used in) operating activities	$	13		$	(103	)
Net cash (used in) provided by financing activities	(651		)	163
Net cash provided by (used in) investing activities	61			(62		)
Net decrease in cash and cash equivalents	$	(577	)	$	(2	)


¹	Net cash for the nine months ended September 30, 2017 was updated to reflect the implementation of the accounting standards updates for cash flows related to cash receipts and restricted cash.

Net Cash Provided by (Used in) Operating Activities

Net cash provided by (used in) operating activities was impacted by the following:


•	$75 million and $7 million cash inflow from income tax refunds in 2018 and 2017, respectively.


•	$62 million and $110 million cash outflow from operating activities in 2018 and 2017, respectively, primarily due to payments relating to interest and operating costs. In addition, the cash outflow in 2017 included higher pension payments related to executive retirement plans.

Net Cash (Used in) Provided by Financing Activities

Net cash (used in) provided by financing activities was as follows:



	Nine months ended September 30,
(in millions)	2018			2017
Dividends paid to Edison International common shareholders	$	(591	)	$	(530	)
Dividends received from SCE	474			382
Payment for stock-based compensation, net of receipt from stock option exercises	(9		)	(129		)
Issuance of long-term debt, net of discount and issuance costs	545			791
Long-term debt repayment	(15		)	(401		)
Short-term debt (repayments), net of borrowings and discount	(1,091		)	40
Other	36			10
Net cash (used in) provided by financing activities	$	(651	)	$	163

Net Cash Provided by (Used in) Investing Activities

Net cash provided by (used in) investing activities increased $123 million during the nine months of 2018 compared to 2017 primarily due to a cash inflow of $78 million from the sale of SoCore Energy in April 2018.

Contingencies

SCE has contingencies related to the December 2017 Wildfires, wildfire insurance, Montecito Mudslides, San Onofre Related Matters, Environmental Remediation, Nuclear Insurance and Spent Nuclear Fuel, which are discussed in "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies."

MARKET RISK EXPOSURES

Edison International's and SCE's primary market risks are described in the 2017 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

SCE records derivative instruments on its consolidated balance sheets as either assets or liabilities measured at fair value unless otherwise exempted from derivative treatment as normal purchases or sales. The fair value of outstanding derivative instruments used to mitigate exposure to commodity price risk was reflected as a net asset of $71 million and $109 million on SCE's consolidated balance sheets at September 30, 2018 and December 31, 2017, respectively. 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.

As of September 30, 2018, the amount of balance sheet exposure as described above broken down by the credit ratings of SCE's counterparties, was as follows:



	September 30, 2018
(in millions)	Exposure²		Collateral		Net Exposure
S&P Credit Rating¹
A or higher	$	78	$	—	$	78


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 credit ratings from S&P or Moody's.


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 2017 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.

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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)	2018			2017			2018			2017
Total operating revenue	$	4,269		$	3,672		$	9,648		$	9,100
Purchased power and fuel	2,306			1,783			4,344			3,742
Operation and maintenance	674			721			2,068			2,031
Depreciation and amortization	466			524			1,391			1,535
Property and other taxes	97			98			301			284
Impairment and other	(11		)	—			60			22
Other operating income	(2		)	(7		)	(5		)	(8		)
Total operating expenses	3,530			3,119			8,159			7,606
Operating income	739			553			1,489			1,494
Interest expense	(188		)	(162		)	(538		)	(473		)
Other income and expense	76			41			176			98
Income from continuing operations before income taxes	627			432			1,127			1,119
Income tax expense (benefit)	83			(69		)	43			(83		)
Income from continuing operations	544			501			1,084			1,202
Net income	544			501			1,084			1,202
Preferred and preference stock dividend requirements of SCE	31			32			91			94
Other noncontrolling interests	—			(1		)	(14		)	(2		)
Net income attributable to Edison International common shareholders	$	513		$	470		$	1,007		$	1,110
Amounts attributable to Edison International common shareholders:
Income from continuing operations, net of tax	$	513		$	470		$	1,007		$	1,110
Net income attributable to Edison International common shareholders	$	513		$	470		$	1,007		$	1,110
Basic earnings per share:
Weighted-average shares of common stock outstanding	326			326			326			326
Basic earnings per common share attributable to Edison International common shareholders	$	1.57		$	1.44		$	3.09		$	3.41
Diluted earnings per share:
Weighted-average shares of common stock outstanding, including effect of dilutive securities	327			328			327			329
Diluted earnings per common share attributable to Edison International common shareholders	$	1.57		$	1.43		$	3.08		$	3.38
Dividends declared per common share	$	0.6050		$	0.5425		$	1.8150		$	1.6275

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



Consolidated Statements of Comprehensive Income						Edison International

	Three months ended September 30,					Nine months ended September 30,
(in millions, unaudited)	2018		2017			2018			2017
Net income	$	544	$	501		$	1,084		$	1,202
Other comprehensive income (loss), net of tax:
Pension and postretirement benefits other than pensions:
Amortization of net loss included in net income	1		2			5			5
Other	1		(2		)	(4		)	—
Other comprehensive income, net of tax	2		—			1			5
Comprehensive income	546		501			1,085			1,207
Less: Comprehensive income attributable to noncontrolling interests	31		31			77			92
Comprehensive income attributable to Edison International	$	515	$	470		$	1,008		$	1,115

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



Consolidated Balance Sheets	Edison International

(in millions, unaudited)	September 30, 2018		December 31, 2017
ASSETS
Cash and cash equivalents	$	71	$	1,091
Receivables, less allowances of $56 and $54 for uncollectible accounts at respective dates	1,044		717
Accrued unbilled revenue	505		212
Inventory	261		242
Income tax receivables	167		224
Prepaid expenses	188		233
Derivative assets	77		105
Regulatory assets	913		703
Other current assets	157		202
Total current assets	3,383		3,729
Nuclear decommissioning trusts	4,330		4,440
Other investments	59		73
Total investments	4,389		4,513
Utility property, plant and equipment, less accumulated depreciation and amortization of $9,533 and $9,355 at respective dates	40,333		38,708
Nonutility property, plant and equipment, less accumulated depreciation of $80 and $114 at respective dates	79		342
Total property, plant and equipment	40,412		39,050
Regulatory assets	5,046		4,914
Other long-term assets	333		374
Total long-term assets	5,379		5,288









Total assets	$	53,563	$	52,580

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



Consolidated Balance Sheets	Edison International

(in millions, except share amounts, unaudited)	September 30, 2018			December 31, 2017
LIABILITIES AND EQUITY
Short-term debt	$	103		$	2,393
Current portion of long-term debt	79			481
Accounts payable	1,288			1,503
Accrued taxes	102			23
Customer deposits	297			281
Regulatory liabilities	1,599			1,121
Other current liabilities	1,251			1,266
Total current liabilities	4,719			7,068
Long-term debt	14,629			11,642
Deferred income taxes and credits	5,043			4,567
Pensions and benefits	897			943
Asset retirement obligations	2,890			2,908
Regulatory liabilities	8,463			8,614
Other deferred credits and other long-term liabilities	2,633			2,953
Total deferred credits and other liabilities	19,926			19,985
Total liabilities	39,274			38,695
Commitments and contingencies (Note 12)
Redeemable noncontrolling interest	—			19
Common stock, no par value (800,000,000 shares authorized; 325,811,206 shares issued and outstanding at respective dates)	2,541			2,526
Accumulated other comprehensive loss	(42		)	(43		)
Retained earnings	9,597			9,188
Total Edison International's common shareholders' equity	12,096			11,671
Noncontrolling interests – preferred and preference stock of SCE	2,193			2,193
Other noncontrolling interests	—			2
Total equity	14,289			13,866




Total liabilities and equity	$	53,563		$	52,580

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



Consolidated Statements of Cash Flows	Edison International

	Nine months ended September 30,
(in millions, unaudited)	2018			2017
Cash flows from operating activities:
Net income	$	1,084		$	1,202
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization	1,639			1,591
Allowance for equity during construction	(76		)	(65		)
Impairment and other	60			22
Deferred income taxes and investment tax credits	133			77
Other	48			17
Nuclear decommissioning trusts	(86		)	(117		)
Changes in operating assets and liabilities:
Receivables	(325		)	(387		)
Inventory	(25		)	10
Accounts payable	20			(11		)
Tax receivables and payables	137			(128		)
Other current assets and liabilities	(424		)	(40		)
Regulatory assets and liabilities, net	213			560
Other noncurrent assets and liabilities	(127		)	(33		)
Net cash provided by operating activities	2,271			2,698
Cash flows from financing activities:
Long-term debt issued or remarketed, net of (discount) premium and issuance costs of $(63) and $1 for respective periods	3,237			2,236
Long-term debt matured	(654		)	(1,182		)
Preference stock issued, net	—			463
Preference stock redeemed	—			(475		)
Short-term debt financing, net	(2,228		)	(401		)
Payments for stock-based compensation	(37		)	(365		)
Receipts from stock option exercises	20			201
Dividends and distributions to noncontrolling interests	(96		)	(100		)
Dividends paid	(591		)	(530		)
Other	38			(23		)
Net cash used in financing activities	(311		)	(176		)
Cash flows from investing activities:
Capital expenditures	(3,241		)	(2,674		)
Proceeds from sale of nuclear decommissioning trust investments	3,017			3,974
Purchases of nuclear decommissioning trust investments	(2,931		)	(3,857		)
Proceeds from sale of SoCore Energy, net of cash acquired by buyer	78			—
Other	64			54
Net cash used in investing activities	(3,013		)	(2,503		)
Net (decrease) increase in cash, cash equivalents and restricted cash	(1,053		)	19
Cash, cash equivalents and restricted cash at beginning of period	1,132			114
Cash, cash equivalents and restricted cash at end of period	$	79		$	133

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



Consolidated Statements of Income	Southern California Edison Company

		Three months ended September 30,						Nine months ended September 30,
(in millions, unaudited)		2018			2017			2018			2017
Operating revenue		$	4,260		$	3,652		$	9,617		$	9,061
Purchased power and fuel		2,306			1,783			4,344			3,742
Operation and maintenance		651			690			1,996			1,945
Depreciation and amortization		466			521			1,387			1,528
Property and other taxes		96			97			298			279
Impairment and other		(10		)	—			(10		)	—
Other operating income		(3		)	(8		)	(5		)	(8		)
Total operating expenses		3,506			3,083			8,010			7,486
Operating income		754			569			1,607			1,575
Interest expense		(173		)	(149		)	(492		)	(436		)
Other income and expense		72