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EDISON INTERNATIONAL - Quarter Report: 2015 June (Form 10-Q)



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

FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2015
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                        to

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

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

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

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

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

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

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

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

Edison International        Yes ¨ No þ    Southern California Edison Company    Yes ¨ No þ
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Common Stock outstanding as of July 28, 2015:
 
 
Edison International
 
325,811,206 shares
Southern California Edison Company
 
434,888,104 shares
 
 
 
 
 
 







TABLE OF CONTENTS
 
 
 
 
 
 
SEC Form 10-Q Reference Number
 
 
Part I, Item 2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part I, Item 3


i


Part I, Item 1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part I, Item 4
 
 
 
 
 
 
Part II, Item 1
Part II, Item 2
 
 
Part II, Item 6
 
This is a combined Form 10-Q separately filed by Edison International and Southern California Edison Company. Information contained herein relating to an individual company is filed by such company on its own behalf. Each company makes representations only as to itself and makes no other representation whatsoever as to any other company.



ii


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


iii


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


iv


GLOSSARY
The following terms and abbreviations appearing in the text of this report have the meanings indicated below.
Amended Plan of Reorganization
 
EME Chapter 11 Bankruptcy Plan of Reorganization as amended to incorporate the terms of the Settlement Agreement, dated February 19, 2014
AFUDC
 
allowance for funds used during construction
2014 Form 10-K
 
Edison International's and SCE's combined Annual Report on Form 10-K for the year-ended December 31, 2014
ALJ
 
administrative law judge
APS
 
Arizona Public Service Company
ARO(s)
 
asset retirement obligation(s)
Bcf
 
billion cubic feet
CAA
 
Clean Air Act
CAISO
 
California Independent System Operator
CARB
 
California Air Resources Board
CPUC
 
California Public Utilities Commission
CRRs
 
congestion revenue rights
DOE
 
U.S. Department of Energy
Edison Energy Group
 
Edison International's subsidiary that holds interests in competitive businesses related to the generation, delivery, or use of electricity, formerly named Edison Energy, Inc.
EME
 
Edison Mission Energy
EME Settlement Agreement
 
Settlement Agreement entered into by Edison International, EME, and the Consenting Noteholders in February 2014
EMG
 
Edison Mission Group Inc.
EPS
 
earnings per share
ERRA
 
energy resource recovery account
FERC
 
Federal Energy Regulatory Commission
Four Corners
 
coal fueled electric generating facility located in Farmington, New Mexico in
which SCE held a 48% ownership interest
GAAP
 
generally accepted accounting principles
GHG
 
greenhouse gas
GRC
 
general rate case
GWh
 
gigawatt-hours
HLBV
 
hypothetical liquidation at book value
IRS
 
Internal Revenue Service
ISO
 
Independent System Operator
MD&A
 
Management's Discussion and Analysis of Financial Condition and Results
of Operations in this report
MHI
 
Mitsubishi Heavy Industries, Ltd. and a related company
Moody's
 
Moody's Investors Service
MW
 
megawatts
MWh
 
megawatt-hours
NAAQS
 
national ambient air quality standards
NDTCP
 
Nuclear Decommissioning Trust Costs Proceeding
NERC
 
North American Electric Reliability Corporation
Ninth Circuit
 
Ninth Circuit Court of Appeals
NRC
 
Nuclear Regulatory Commission
ORA
 
CPUC's Office of Ratepayers Advocates
OII
 
Order Instituting Investigation
Palo Verde
 
large pressurized water nuclear electric generating facility located near
Phoenix, Arizona in which SCE holds a 15.8% ownership interest


v


PBOP(s)
 
postretirement benefits other than pension(s)
PG&E
 
Pacific Gas & Electric Company
QF(s)
 
qualifying facility(ies)
ROE
 
return on common equity
S&P
 
Standard & Poor's Ratings Services
San Onofre
 
retired nuclear generating facility located in south San Clemente, California in which SCE holds a 78.21% ownership interest
San Onofre OII Settlement Agreement
 
Settlement Agreement by and among SCE, The Utility Reform Network, the CPUC's Office of Ratepayer Advocates and SDG&E, which was later joined by the Coalition of California Utility Employees and Friends of the Earth, (together, the "Settling Parties"), dated November 20, 2014
SCE
 
Southern California Edison Company
SDG&E
 
San Diego Gas & Electric
SEC
 
U.S. Securities and Exchange Commission
SED
 
Safety and Enforcement Division of the CPUC, formerly known as the Consumer Protection and Safety Division or CPSD
US EPA
 
U.S. Environmental Protection Agency
VIE(s)
 
variable interest entity(ies)
WECC
 
Western Electric Coordinating Council



vi

















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1


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT OVERVIEW
Highlights of Operating Results
Edison International is the parent holding company of SCE. SCE is a public utility primarily engaged in the business of supplying and delivering electricity to an approximately 50,000 square mile area of southern California. Edison International is also the parent company of Edison Energy Group, a subsidiary that holds interests in competitive businesses that are related to the generation, delivery, or use of electricity. Such competitive business activities are currently not material to report as a separate business segment. References to Edison International refer to the consolidated group of Edison International and its subsidiaries. References to Edison International Parent and Other refer to Edison International Parent, Edison Energy Group, and other subsidiaries. Unless otherwise described, all of the information contained in this report relates to both filers.
 
Three months ended June 30,
 
 
 
Six months ended June 30,
 
 
(in millions)
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Net income (loss) attributable to Edison International
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
 
 
 
 
 
 
 
 
 
 
SCE
$
384

 
$
362

 
$
22

 
$
689

 
$
570

 
$
119

Edison International Parent and Other
(5
)
 
(10
)
 
5

 
(11
)
 
(20
)
 
9

Discontinued operations
—

 
184

 
(184
)
 
—

 
162

 
(162
)
Edison International
379

 
536

 
(157
)
 
678

 
712

 
(34
)
Less: Non-core items
 
 
 
 
 
 
 
 
 
 
 
     SCE
—

 
—

 
—

 
—

 
(96
)
 
96

     Edison International Parent and Other
1

 
—

 
1

 
6

 
—

 
6

     Discontinued operations
—

 
184

 
(184
)
 
—

 
162

 
(162
)
Total non-core items
1

 
184

 
(183
)
 
6

 
66

 
(60
)
Core earnings (losses)
 
 
 
 
 
 
 
 
 
 
 
SCE
384

 
362

 
22

 
689

 
666

 
23

Edison International Parent and Other
(6
)
 
(10
)
 
4

 
(17
)
 
(20
)
 
3

Edison International
$
378

 
$
352

 
$
26

 
$
672

 
$
646

 
$
26

Edison International's earnings are prepared in accordance with GAAP used in the United States. Management uses core earnings internally for financial planning and for analysis of performance. Core earnings (losses) are also used when communicating with investors and analysts regarding Edison International's earnings results to facilitate comparisons of the Company's performance from period to period. Core earnings (losses) are a non-GAAP financial measure and may not be comparable to those of other companies. Core earnings (losses) are defined as earnings attributable to Edison International shareholders less income or loss from discontinued operations, income resulting from allocation of losses to tax equity investors under the hypothetical liquidation at book value ("HLBV") accounting method and income or loss from significant discrete items that management does not consider representative of ongoing earnings, such as: exit activities, including sale of certain assets and other activities that are no longer continuing; asset impairments and certain tax, regulatory or legal settlements or proceedings.
SCE's core earnings for the second quarter and six months ended June 30, 2015 were higher than the respective periods in 2014 primarily due to higher income tax benefits, FERC-related revenue from rate base growth and earnings on funds used during construction partially offset by lower other income.
During the second quarter of 2015, SCE recorded $100 million of income tax benefits from revisions to liabilities for uncertain tax positions for tax years 2010 through 2012. These benefits were partially offset by changes in estimated taxes related to net operating loss carrybacks, interest and state income taxes. During the second quarter of 2014, SCE recorded $29 million of income tax benefits from revisions to liabilities for uncertain tax positions and $14 million ($9 million after-tax) of benefits related to generator settlements.

2


During the first half of 2015, SCE recognized revenue from CPUC activities largely based on 2014 authorized base revenue requirements included in customer rates. The revenue requirement ultimately adopted by the CPUC will be retroactive to January 1, 2015.
Consolidated non-core items included:
•
Impairment and other charges of $231 million ($96 million after-tax) in the first quarter of 2014 related to the San Onofre OII Settlement Agreement (as discussed below). For further information, see "—San Onofre Proceedings, Recoveries, and Decommissioning."
•
Income of $184 million during the second quarter of 2014 related to the estimated impact of the transactions called for in the EME Settlement. In addition, Edison International recorded an income tax loss of $22 million for the first quarter of 2014 from revised estimates of the tax impact of a tax deconsolidation of EME from Edison International as originally contemplated prior to the EME Settlement. See 2014 Form 10-K, "Management Overview—Resolution of Uncertainty Related to EME in Bankruptcy."
•
Income of $1 million and $6 million for the three and six months ended June 30, 2015, respectively, related to losses allocated to tax equity investors under the HLBV accounting method. Edison International reflected in core earnings the operating results of the solar rooftop projects, related financings and the priority return to the tax equity investor. The losses allocated to the tax equity investor under HLBV accounting method results in income allocated to subsidiaries of Edison International, neither of which is due to the operating performance of the projects but rather due to the allocation of income tax attributes under the tax equity financing. Accordingly, Edison International has included the non-operating allocation of income as a non-core item. For further information on HLBV, see the 2014 Form 10-K, "Notes to Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies."
2015 General Rate Case
As discussed in the 2014 10-K, SCE filed its original request for its 2015 GRC in November 2013. The request was updated in May 2015 to $5.512 billion, which would be a $121 million decrease over currently authorized base rate revenue. The updated base rate revenue requirement request would propose post-test year increases in 2016 and 2017 of $236 million and $320 million, respectively. The May 2015 update included revised tax estimates for the flow-through tax repair benefits related to SCE's pole replacement programs under a proposed balancing account designed to capture the actual net impact of the programs on the revenue requirement and to apply a higher tax repair eligible percentage to these programs. During the first six months of 2015, SCE deferred $85 million of the 2014 authorized base rate revenue requirement. See "Results of Operations—SCE" for further discussion. The CPUC has approved the establishment of a GRC memorandum account, which will make the 2015 revenue requirement ultimately adopted by the CPUC effective as of January 1, 2015. SCE cannot predict the revenue requirement the CPUC will ultimately authorize or forecast the timing of a final decision.
Capital Program
During the first six months of 2015, SCE's capital expenditures were primarily on projects designed for maintaining reliability and expanding the capability of SCE's transmission and distribution system; and upgrading and constructing new transmission lines and substations for system reliability and increased access to renewable energy. Total capital expenditures (including accruals) were $1.7 billion and $1.6 billion for the first six months of 2015 and 2014, respectively.
During first quarter 2015, SCE reduced its capital expenditures forecast for 2015 – 2017 by approximately $325 million to be in the range of $11.5 billion to $13.1 billion, including $3.6 billion to $4.1 billion for 2015. The update reflects a reduction in capital expenditures related to the Coolwater-Lugo Transmission Project (for more information, see "—Liquidity and Capital Resources—SCE—Capital Investment Plan") and revisions to the timing of capital spending. Actual capital spending will be affected by: changes in regulatory, environmental and engineering design requirements; permitting and project delays; cost and availability of labor, equipment and materials; and other factors.

3


Distribution Resources Plan
As discussed in the 2014 Form 10-K, to support California's greenhouse gas reduction targets, modernize the electric distribution system to accommodate two-way flows of energy, and facilitate customer choice of new technologies and services that reduce emissions and improve resilience, the CPUC initiated a rulemaking to establish policies, procedures and rules to guide investor owned utilities in developing a Distribution Resources Plan ("DRP") proposal. On July 1, 2015, SCE filed its DRP with the CPUC, which included an indicative forecast of capital investment in distribution automation, substation automation, communications systems, technology platforms and applications, and grid reinforcement. Subject to future CPUC guidance, SCE anticipates integrating authorization for revenue to support DRP operation and maintenance and capital spending into future general rate cases, beginning with its 2018 – 2020 GRC, which is expected to be filed on or about September 1, 2016. Capital investments for 2015 – 2017 are expected to be within the range of the three-year capital investments forecast indicated above. Such plans may be updated or revised based on developments and guidance received from the CPUC as a part of the DRP rule making, technology availability, pace of distributed energy resource adoption, and other factors.
Significant capital investment will be required to modernize and reinforce SCE's distribution grid consistent with the DRP recommendations, in addition to continued distribution system reliability investment, anticipated electric vehicle and storage investments, continued transmission and generation capital investment and potential improvements in capital spending productivity. SCE expects overall capital spending to continue at least in the range of current capital spending forecasts, although the CPUC's approval in future general rate cases of all or part of the capital investment plan supporting SCE's DRP filing could result in higher spending. All of these capital investments will be subject to CPUC review and approval. The timing and amount of capital investments may vary depending upon implementation decisions, including scope and pace of adoption and GRC ratemaking decisions and other CPUC actions.
San Onofre Proceedings, Recoveries, and Decommissioning
As discussed in the 2014 Form 10-K, in November 2014, the CPUC approved the San Onofre OII Settlement Agreement that SCE had entered into with TURN, ORA, SDG&E, the Coalition of California Utility Employees, and Friends of the Earth. The San Onofre OII Settlement Agreement resolved the CPUC's investigation regarding the Steam Generator Replacement Project at San Onofre and the related outages and subsequent shutdown of San Onofre. The San Onofre OII Settlement Agreement does not affect proceedings related to recoveries from third parties, but does describe how shareholders and customers will share any potential recoveries. For further discussion of third party recoveries, including claims against MHI and under the NEIL outage and property damage insurance, see "Notes to Consolidated Financial Statements—Note 11. Commitments and Contingencies—Contingencies—San Onofre Related Matters."
A federal lawsuit challenging the CPUC's authority to permit rate recovery of San Onofre costs and an application to the CPUC for rehearing of its decision approving the San Onofre OII Settlement Agreement were filed in November and December 2014, respectively. In April 2015, the federal lawsuit was dismissed with prejudice and the plaintiffs in that case appealed the dismissal to the Ninth Circuit in May 2015. Both the appeal and the application for rehearing remain pending.
In February 2015, SCE filed in the OII proceeding a Late-Filed Notice of Ex Parte Communication regarding a meeting in March 2013 between an SCE senior executive and the president of the CPUC, both of whom have since retired from their respective positions. Following this filing, the Alliance for Nuclear Responsibility ("A4NR"), one of the intervenors in the OII, filed a motion requesting that the CPUC institute an investigation into whether sanctions should be imposed on SCE for the late notice of the March 2013 meeting. The motion requests that the CPUC order SCE to produce all ex parte communications between SCE and the CPUC or its staff since January 31, 2012 and all internal SCE unprivileged communications that discuss such ex parte communications. On May 6, 2015, A4NR amended its motion to recommend that the CPUC impose a $38.2 million penalty on SCE and additional restrictions on ex parte communications.
On April 14, 2015, the OII ALJs ordered SCE, among other things, to produce unprivileged documents pertaining to oral and written communications regarding the possible settlement of the OII proceeding between any SCE employee and CPUC decision makers from March 2013 to November 2014. SCE produced responsive documents and information on April 29, 2015. On June 26, 2015, the ALJs requested additional information, which SCE provided on July 3, 2015. Subsequently, another intervenor, the Coalition to Decommission San Onofre, filed a motion to move the start date for the production of documents under the CPUC's order to January 31, 2012 and to authorize the intervenors to conduct discovery of SCE. That motion remains pending.

4


On April 17, 2015, ORA and TURN issued press releases asking the CPUC to impose penalties on SCE as a sanction for allegedly improper ex parte communications pertaining to San Onofre or failures to report such communications. ORA recommended penalties in the amount of $648 million, representing ORA's calculation of the difference in ratepayer value between ORA's initial settlement negotiating position in the San Onofre OII and the approved settlement. TURN did not recommend a penalty amount.
On April 27, 2015, A4NR filed a petition to modify the CPUC's decision approving the San Onofre OII Settlement Agreement based on SCE's alleged failures to disclose communications between SCE and CPUC decision-makers pertaining to the issues in the San Onofre OII. The petition seeks the reversal of the decision approving the San Onofre OII Settlement Agreement and reopening of the OII proceeding. Subsequently, TURN filed a response supporting A4NR's petition to reopen the San Onofre OII proceeding.
On July 6, 2015, a purported securities class action lawsuit was filed in federal court against Edison International, its CEO and CFO. The lawsuit alleges that the defendants violated the securities laws by failing to disclose that Edison International's ex parte contacts with CPUC decision-makers were more extensive than initially reported. The complaint purports to be filed on behalf of a class of persons who acquired Edison International common stock between July 31, 2014 and June 24, 2015.
Subsequently, a federal shareholder derivative lawsuit was filed against members of the Edison International Board of Directors for breach of fiduciary duty and other claims based on similar allegations to the federal securities lawsuit. The derivative lawsuit seeks monetary damages, including punitive damages, and various corporate governance reforms.
SCE has produced and is producing documents and is otherwise cooperating with criminal investigations being conducted by the California Attorney General and the U.S. Department of Justice. While the full scope of the investigations is not known to SCE, SCE's document production and cooperation have included information relating to the settlement of the San Onofre OII and interactions between SCE executives and CPUC decision-makers.
Edison International and SCE cannot predict the outcome of these proceedings.
Rate Impacts
Due to the implementation of the San Onofre OII Settlement Agreement as of December 31, 2014, customers were refunded approximately $540 million through a reduction in SCE's ERRA undercollection. At June 30, 2015, SCE's ERRA undercollection decreased to $543 million. Based on current rates, actual power and gas prices and the reimbursement of San Onofre decommissioning costs pursuant to the San Onofre OII Settlement Agreement, the ERRA undercollection is likely to be fully recovered before year-end 2015.
For further information on 2015 ERRA forecast application, see "Liquidity and Capital Resources—SCE—Regulatory Proceedings—ERRA Forecast Filing – 2015" in the year-ended 2014 MD&A.
Decommissioning
As discussed in the 2014 Form 10-K, SCE decided to permanently retire and decommission San Onofre Units 2 and 3 on June 6, 2013. For further information about the decommissioning cost estimates, see the 2014 Form 10-K under the headings, "Notes to Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies—Nuclear Decommissioning and Asset Retirement Obligations" and "Management Overview—Permanent Retirement of San Onofre and San Onofre OII Settlement" in the year-ended 2014 MD&A.
SCE has nuclear decommissioning trust funds for San Onofre Units 2 and 3 of $3.4 billion as of June 30, 2015. If the decommissioning cost estimate and assumptions regarding trust performance do not change, SCE believes that future contributions to the trust funds will not be necessary. The CPUC must issue an order granting approval for withdrawal of decommissioning trust funds.
Decommissioning costs incurred in 2013 and 2014 were recorded as operations and maintenance expenses pending the CPUC decision on access to the trusts for reimbursement. Accordingly, such costs were recovered through GRC revenues. Costs incurred for 2013 have been found reasonable under the San Onofre OII Settlement Agreement. The CPUC will conduct a reasonableness review for 2014 costs and years going forward. On July 23, 2015, the CPUC approved SCE's request for access to the nuclear decommissioning trusts for reimbursement of approximately $340 million in 2013 and 2014 Units 2 and 3 decommissioning costs. Under the San Onofre OII Settlement Agreement, any recoveries from the nuclear decommissioning trusts of 2013 and 2014 decommissioning costs funded through GRC revenues must be refunded to customers through ERRA.

5


Beginning in 2015, SCE must fund decommissioning costs (recorded as a reduction of SCE's asset retirement obligation) until the CPUC approves SCE's request to access the trust funds. SCE expects that the CPUC would approve access to the trust in 2015. SCE's share of the decommissioning costs recorded during the first six months of 2015 were approximately $80 million and are estimated to be approximately $150 million for the remainder of 2015.
Depending on the ultimate interpretation of IRS regulations that address the taxation of a qualified nuclear decommissioning trust, SCE may also be restricted from withdrawing amounts from the qualified decommissioning trusts to pay for independent spent fuel storage installation ("ISFSI") where SCE is seeking, or plans to seek, recovery of the ISFSI costs in litigation against the DOE. SCE's share of ISFSI costs for 2015 (included in the above 2015 decommissioning costs estimate) are currently estimated to be approximately $28 million. SCE has filed for a private letter ruling with the IRS to address this matter based on facts and circumstances related to Units 2 and 3 at San Onofre.
Labor Contract Negotiation
Approximately 3,900 of SCE's full-time employees are covered by collective bargaining agreements with the International Brotherhood of Electrical Workers ("IBEW"). The IBEW collective bargaining agreements expired on December 31, 2014 and were under negotiation during the first half of 2015. On June 30, 2015, the majority of IBEW members voted to approve the Benefits Agreement and the Wages and Working Conditions Bargaining Agreement with SCE that include, among other things, pay increases retroactive to January 1, 2015 and modified benefit plans, generally consistent with the proposed 2015 GRC.
RESULTS OF OPERATIONS
Southern California Edison Company
SCE's results of operations are derived mainly through two sources:
•
Utility earning activities – representing revenue authorized by the CPUC and FERC which is intended to provide SCE a reasonable opportunity to recover its costs and earn a return on its net investment in generation, transmission and distribution assets. The annual revenue requirements are comprised of authorized operation and maintenance costs, depreciation, taxes and a return consistent with the capital structure. Also, included in utility earnings activities are revenue or penalties related to incentive mechanisms, other operating revenue, and regulatory charges or disallowances.
•
Utility cost-recovery activities – representing CPUC- and FERC-authorized balancing accounts which allow for recovery of specific project or program costs, subject to reasonableness review or compliance with upfront standards. Utility cost-recovery activities include rates which provide recovery, subject to reasonableness review of, among other things, fuel costs, purchased power costs, public purpose related-program costs (including energy efficiency and demand-side management programs) and certain operation and maintenance expenses.
During the first six months of 2015, SCE recognized revenue from CPUC activities largely based on 2014 authorized base revenue requirements included in customer rates. SCE deferred $49 million and $85 million of the 2014 authorized base revenue requirement allocated to the second quarter and six month periods of 2015 related to incremental repair deductions pending the outcome of the 2015 GRC. The revenue deferral did not affect net income as the reduction in revenue was offset by lower income taxes. The deferred revenue includes SCE's estimate of the flow-through repair tax benefits related to SCE's proposed balancing account for pole replacement programs in the May update of the 2015 GRC. The CPUC has approved the establishment of a GRC memorandum account, which will make the 2015 revenue requirement ultimately adopted by the CPUC effective as of January 1, 2015. Recognition of the revenue for the period January 1, 2015 through the date of a final decision, as well as changes in authorized depreciation rates and treatment of specific costs, will impact the timing of earnings in 2015. Accordingly, quarterly earnings in 2015 will not be comparable to the same periods in 2014 (see "Management Overview—2015 General Rate Case" for further discussion).


6


The following table is a summary of SCE's results of operations for the periods indicated.
Three months ended June 30, 2015 versus June 30, 2014
 
Three months ended June 30, 2015
Three months ended June 30, 2014
(in millions)
Utility
Earning
Activities
Utility
Cost-
Recovery
Activities
Total
Consolidated
Utility
Earning
Activities
Utility
Cost-
Recovery
Activities
Total
Consolidated
Operating revenue
$
1,596

$
1,305

$
2,901

$
1,588

$
1,426

$
3,014

Purchased power and fuel
—

1,078

1,078

—

1,239

1,239

Operation and maintenance
495

229

724

513

184

697

Depreciation, decommissioning and amortization
481

—

481

414

—

414

Property and other taxes
82

—

82

71

—

71

Total operating expenses
1,058

1,307

2,365

998

1,423

2,421

Operating income
538

(2
)
536

590

3

593

Interest expense
(132
)
1

(131
)
(131
)
(3
)
(134
)
Other income and expenses
13

1

14

31

—

31

Income before income taxes
419

—

419

490

—

490

Income tax expense
7

—

7

98

—

98

Net income
412

—

412

392

—

392

Preferred and preference stock dividend requirements
28

—

28

30

—

30

Net income available for common stock
$
384

$
—

$
384

$
362

$
—

$
362

Core earnings1
 
 
$
384

 
 
$
362

Non-core earnings
 
 
—

 
 
—

Total SCE GAAP earnings
 
 
$
384

 
 
$
362

1 
See use of non-GAAP financial measures in "Management Overview—Highlights of Operating Results."
Utility Earning Activities
Utility earning activities were primarily affected by the following:
•
Higher operating revenue of $8 million primarily due to the following:
•
An increase in FERC-related revenue of $25 million primarily related to rate base growth and higher operating costs. During the second quarter of 2015 and 2014, SCE recorded $15 million and $19 million, respectively, of additional revenue from a change in estimate under the FERC formula rate mechanism.
•
A decrease in CPUC-related revenue of $20 million primarily due to the revenue deferral of $49 million, as discussed above, partially offset by a net increase in San Onofre-related revenue of $25 million due to the implementation of the San Onofre OII Settlement Agreement. Revenue for San Onofre during the second quarter of 2015 primarily related to recovery of amortization of the regulatory asset and authorized return as provided by the San Onofre Settlement Agreement compared to revenue during the second quarter of 2014 related to recovery of San Onofre's cost of service. See "Management Overview—San Onofre Proceedings, Recoveries, and Decommissioning" above for more information.
•
Lower operation and maintenance expense of $18 million primarily due to San Onofre-related expense of $15 million in the second quarter of 2014 partially offset by higher severance costs. Beginning January 1, 2015, expense related to San Onofre has been classified as decommissioning costs and recorded as a reduction to SCE's asset retirement obligation.
In addition, during the second quarter of 2015 and 2014, SCE incurred severance costs related to workforce reductions of $10 million and $8 million, respectively.


7


•
Higher depreciation, decommissioning and amortization expense of $67 million primarily due to San Onofre-related expense of $37 million in 2015 related to the amortization of the regulatory asset and a $30 million increase in depreciation primarily related to transmission and distribution investments. In accordance with the San Onofre OII Settlement Agreement, SCE is authorized to recover in rates its San Onofre regulatory asset over a ten-year period. For further information on the San Onofre regulatory asset, see the 2014 Form 10-K, "Management Overview—Permanent Retirement of San Onofre and San Onofre OII Settlement" and "Notes to Consolidated Financial Statements—Note 10. Regulatory Assets and Liabilities."
•
Lower other income and expenses of $18 million primarily due to $14 million of generator settlements and $5 million of higher insurance benefits in 2014, partially offset by higher AFUDC equity income related to a higher rate and higher construction work in progress balances in 2015. See "Notes to Consolidated Financial Statements—Note 13. Interest and Other Income and Other Expenses" for more information on generator settlements.
•
Lower income taxes of $91 million primarily due to a change in liabilities related to uncertain tax positions and higher income tax benefits related to repair deductions. During the second quarter of 2015 and 2014, SCE revised its liability for uncertain tax positions related to repair deductions which resulted in income tax benefits of $100 million and $29 million, respectively. See "—Income Taxes" below for more information.
Utility Cost-Recovery Activities
Utility cost-recovery activities were primarily affected by the following:
•
Lower purchased power and fuel of $161 million primarily driven by lower power and gas prices experienced in 2015 relative to 2014, reduced customer sales from cooler weather in the second quarter of 2015 compared to the same period in 2014 and the CAISO generation surcharge of $83 million in 2014 (as discussed below), partially offset by generator settlements in 2014 (See "Notes to Consolidated Financial Statements—Note 13. Interest and Other Income and Other Expenses" for more information). During the second quarter of 2014, the CAISO issued invoices implementing a FERC order which revised FERC tariffs for costs associated with scheduling coordinator activities. The impact of implementing the order and revised invoices resulted in a transmission refund of $106 million reflected in operation and maintenance expense and a generation surcharge of $83 million reflected in purchased power expense. These transactions did not impact earnings as the net refund was provided to customers through a FERC balancing account mechanism. Fuel costs were $32 million and $71 million for the three months ended June 30, 2015 and 2014, respectively.
•
Higher operation and maintenance expense of $45 million primarily due to the CAISO refund of $106 million mentioned above, partially offset by lower spending on various public purpose programs, lower pension expenses and a decrease in transmission access charges.

8


The following table is a summary of SCE's results of operations for the periods indicated.
Six months ended June 30, 2015 versus June 30, 2014
 
Six months ended June 30, 2015
Six months ended June 30, 2014
(in millions)
Utility
Earning
Activities
Utility
Cost-
Recovery
Activities
Total
Consolidated
Utility
Earning
Activities
Utility
Cost-
Recovery
Activities
Total
Consolidated
Operating revenue
$
3,159

$
2,250

$
5,409

$
3,139

$
2,799

$
5,938

Purchased power and fuel
—

1,864

1,864

—

2,382

2,382

Operation and maintenance
958

388

1,346

995

415

1,410

Depreciation, decommissioning and amortization
943

—

943

824

—

824

Property and other taxes
170

—

170

156

—

156

Impairment and other charges
—

—

—

231

—

231

Total operating expenses
2,071

2,252

4,323

2,206

2,797

5,003

Operating income
1,088

(2
)
1,086

933

2

935

Interest expense
(267
)
1

(266
)
(266
)
(3
)
(269
)
Other income and expenses
39

1

40

45

1

46

Income before income taxes
860

—

860

712

—

712

Income tax expense
115

—

115

86

—

86

Net income
745

—

745

626

—

626

Preferred and preference stock dividend requirements
56

—

56

56

—

56

Net income available for common stock
$
689

$
—

$
689

$
570

$
—

$
570

Core earnings1
 
 
$
689

 
 
$
666

Non-core earnings
 
 
—

 
 
(96
)
Total SCE GAAP earnings
 
 
$
689

 
 
$
570

1 
See use of non-GAAP financial measures in "Management Overview—Highlights of Operating Results."
Utility Earning Activities
Utility earning activities were primarily affected by the following:
•
Higher operating revenue of $20 million primarily due to the following:
•
An increase in FERC-related revenue of $60 million primarily related to rate base growth and higher operating costs.
•
A decrease in CPUC-related revenue of $45 million primarily due to the revenue deferral of $85 million, as discussed above, partially offset by a net increase in San Onofre-related revenue of $34 million due to the implementation of the San Onofre OII Settlement Agreement. Revenue for San Onofre during the six months ended June 30, 2015 primarily related to recovery of amortization of the regulatory asset and authorized return as provided by the San Onofre Settlement Agreement compared to revenue during the six months ended June 30, 2014 related to recovery of San Onofre's cost of service. See "Management Overview—San Onofre Proceedings, Recoveries, and Decommissioning" above for more information.
•
Lower operation and maintenance expense of $37 million primarily due to San Onofre-related expense of $41 million for the six months ended June 30, 2014. Beginning January 1, 2015, expense related to San Onofre has been classified as decommissioning costs and recorded as a reduction to SCE's asset retirement obligation.
•
Higher depreciation, decommissioning and amortization expense of $119 million primarily due to San Onofre-related expense of $69 million in 2015 related to the amortization of the regulatory asset and a $50 million increase in depreciation primarily related to transmission and distribution investments.
•
Impairment and other charges of $231 million in the first quarter of 2014 related to the San Onofre OII Settlement Agreement. For further information, see "Management Overview—San Onofre Proceedings, Recoveries, and Decommissioning."


9


•
Lower other income and expenses of $6 million primarily due to $14 million of generator settlements in 2014 and lower interest and other income, partially offset by higher AFUDC equity income related to a higher rate and higher construction work in progress balances in 2015. See "Notes to Consolidated Financial Statements—Note 13. Interest and Other Income and Other Expenses" for more information on generator settlements.
•
Higher income taxes of $29 million primarily due to lower pre-tax income in 2014 due to the San Onofre Settlement Agreement partially offset by a change in liabilities related to uncertain tax positions during the second quarters of 2015 and 2014 discussed above and higher income tax benefits in 2015 related to repair deductions. See "—Income Taxes" below for more information.
Utility Cost-Recovery Activities
Utility cost-recovery activities were primarily affected by the following:
•
Lower purchased power and fuel of $518 million primarily driven by lower power and gas prices experienced in 2015 relative to 2014, reduced customer sales from cooler weather in 2015 compared to the same period in 2014 and the CAISO generation surcharge of $83 million in 2014, partially offset by generator settlements in 2014 (See "Notes to Consolidated Financial Statements—Note 13. Interest and Other Income and Other Expenses" for more information). As discussed above, the CAISO issued invoices in 2014 implementing a FERC order which revised FERC tariffs for costs associated with scheduling coordinator activities. The impact of implementing the order and revised invoices resulted in a transmission refund of $106 million reflected in operation and maintenance expense and a generation surcharge of $83 million reflected in purchased power expense. These transactions did not impact earnings as the net refund was provided to customers through a FERC balancing account mechanism. Fuel costs were $75 million and $143 million for the six months ended June 30, 2015 and 2014, respectively.
•
Lower operation and maintenance expense of $27 million primarily due to lower spending on various public purpose programs, lower pension expenses and a decrease in transmission access charges, partially offset by the CAISO refund of $106 million mentioned above.
Supplemental Operating Revenue Information
SCE's retail billed and unbilled revenue (excluding wholesale sales and balancing account overcollections/undercollections) was $2.8 billion and $5.4 billion for the three and six months ended June 30, 2015, respectively, compared to $2.9 billion and $5.2 billion for the respective periods in 2014. The revenue reflects:
•
Retail billed and unbilled revenue reflects a sales volume decrease of $112 million and $86 million for the three and six months ended June 30, 2015, respectively, primarily due to lower load requirements related to cooler weather experienced in 2015 compared to the same period last year.
•
A rate increase of $48 million and $229 million for the three and six months ended June 30, 2015, respectively, primarily due to the implementation of the 2014 ERRA rate increase in June 2014.
As a result of the CPUC-authorized decoupling mechanism, SCE earnings are not affected by changes in retail electricity sales (see "Business—SCE—Overview of Ratemaking Process" in the 2014 Form 10-K).
Income Taxes
SCE's income tax provision decreased by $91 million and increased by $29 million for the three and six months ended June 30, 2015, respectively, compared to the same periods in 2014.
The effective tax rates were 1.7% and 20.0% for the three months ended June 30, 2015 and 2014, respectively. The effective tax rate decrease was primarily due to a change in liabilities related to uncertain tax positions discussed above and higher income tax benefits related to repair deductions.
The effective tax rates were 13.4% and 12.1% for the six months ended June 30, 2015 and 2014, respectively. The effective tax rate increase was primarily due to income tax benefits in 2014 related to the San Onofre OII Settlement Agreement, partially offset by the change in liabilities related to uncertain tax positions discussed above and higher income tax benefits related to repair deductions. See "Management Overview—San Onofre Proceedings, Recoveries, and Decommissioning" above for more information.
See "Notes to Consolidated Financial Statements—Note 7. Income Taxes" for a reconciliation of the federal statutory rate of 35% to the effective income tax rates.

10


Edison International Parent and Other
Results of operations for Edison International Parent and Other include amounts from other Edison International subsidiaries that are not significant as a reportable segment, as well as intercompany eliminations.
Income from Continuing Operations
The following table summarizes the results of Edison International Parent and Other:
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
2015
 
2014
 
2015
 
2014
Edison Energy Group and subsidiaries
$
(2
)
 
$
(2
)
 
$
—

 
$
(4
)
Edison Mission Group and subsidiaries
8

 
6

 
11

 
7

Corporate expenses and Other
(11
)
 
(14
)
 
(22
)
 
(23
)
Total Edison International Parent and Other
$
(5
)
 
$
(10
)
 
$
(11
)
 
$
(20
)
The loss from continuing operations of Edison International Parent and Other decreased $5 million and $9 million for the three and six months ended June 30, 2015, respectively, compared to the same periods in 2014 primarily due to:
•
A decrease in the loss of Edison International Parent and Other primarily due to lower corporate expenses.
•
An increase in income from EMG and subsidiaries of $2 million and $4 million for the three and six months ended June 30, 2015, respectively, primarily due to higher income from affordable housing projects, including asset sales and income tax benefits. EMG’s subsidiary, Edison Capital, continues to wind down its remaining affordable housing investments. Earnings from Edison Capital were $7 million and $9 million for three and six months ended June 30, 2015, respectively, compared to $3 million and $4 million for the respective periods in 2014.
•
An increase in income allocated to subsidiaries of Edison Energy Group under the HLBV accounting method that resulted in losses allocated to tax equity investors ($1 million and $6 million after-tax for the three and six months ended June 30, 2015, respectively) offset by higher operating expenses. For further information, see the 2014 Form 10-K, "Notes to Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies" and "Management Overview—Highlights of Operating Results."
Income from Discontinued Operations (Net of Tax)
Income from discontinued operations, net of tax, was $184 million and $162 million for the three and six months ended June 30, 2014, respectively. The 2014 income was primarily due to the completion of the Amended Plan of Reorganization, including transactions recorded in the second quarter of 2014 associated with the sale of substantially all of EME's assets to NRG Energy, Inc. and other transactions called for in the EME Settlement. See 2014 Form 10-K, "Management Overview—Resolution of Uncertainty Related to EME in Bankruptcy."
LIQUIDITY AND CAPITAL RESOURCES
Southern California Edison Company
SCE's ability to operate its business, fund capital expenditures, and implement its business strategy is dependent upon its cash flow and access to the capital markets. SCE's overall cash flows fluctuate based on, among other things, its ability to recover its costs in a timely manner from its customers through regulated rates, changes in commodity prices and volumes, collateral requirements, interest obligations and dividend payments to Edison International, and the outcome of tax and regulatory matters.
SCE expects to fund its 2015 obligations, capital expenditures and dividends through operating cash flows, and capital market financings of debt and preferred equity, as needed. SCE also has availability under its credit facilities to fund liquidity requirements.
Available Liquidity
At June 30, 2015, SCE had $1.78 billion available under its $2.75 billion multi-year revolving credit facility. For further details, see "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements."

11


Debt Covenant
The debt covenant in SCE's credit facility limits its debt to total capitalization ratio to less than or equal to 0.65 to 1. At June 30, 2015, SCE's debt to total capitalization ratio was 0.46 to 1.
Regulatory Proceedings

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

Capital Investment Plan
Transmission Projects
Coolwater-Lugo Transmission Project
The Coolwater-Lugo Project would provide additional 220 kV transmission capacity in the Kramer Junction and Lucerne Valley areas of San Bernardino County. In March 2015, the CAISO filed comments with the CPUC stating that the Coolwater-Lugo project is not necessary to provide full capacity deliverability and requested that the CPUC suspend its approval proceeding for the project. In May 2015, the CPUC issued a final decision that dismissed the approval proceeding but would allow SCE to apply for new approval if future studies determine that there is residual need for any elements of the project. SCE's capital expenditures for the Coolwater-Lugo project were estimated to be $740 million, of which $584 million was for the 2015 – 2017 period, and have been removed from the capital expenditure forecast. SCE previously obtained authorization from the FERC, which allows SCE to seek recovery of 100% of reasonable abandoned plant costs if the project is abandoned for reasons beyond SCE’s control.
Dividend Restrictions
The CPUC regulates SCE's capital structure which limits the dividends it may pay Edison International. SCE may make distributions to Edison International as long as the common equity component of SCE's capital structure remains at or above 48% on a 13-month weighted average basis. At June 30, 2015, SCE's 13-month weighted-average common equity component of total capitalization was 48.9% and the maximum additional dividend, taking into account declared but unpaid dividends, that SCE could pay to Edison International under this limitation was approximately $215 million, resulting in a restriction on net assets of approximately $13.5 billion.
SCE paid the $147 million dividend declared in February 2015 to Edison International during the second quarter of 2015. In June 2015, SCE declared another $147 million dividend to Edison International which will be paid in the third quarter of 2015. Future dividend amounts and timing of distributions are dependent on a number of factors including the level of capital expenditures, operating cash flows and earnings.
Margin and Collateral Deposits
Certain derivative instruments, power procurement contracts and other contractual arrangements contain collateral requirements. Future collateral requirements may differ from the requirements at June 30, 2015, due to the addition of incremental power and energy procurement contracts with collateral requirements, if any, and the impact of changes in wholesale power and natural gas prices on SCE's contractual obligations.
Some of the power procurement contracts contain provisions that require SCE to maintain an investment grade credit rating from the major credit rating agencies. If SCE's credit rating were to fall below investment grade, SCE may be required to pay the liability or post additional collateral.

12


The table below provides the amount of collateral posted by SCE to its counterparties as well as the potential collateral that would have been required as of June 30, 2015.
(in millions)
 
 
Collateral posted as of June 30, 20151
 
$
181

Incremental collateral requirements for power procurement contracts resulting from a potential downgrade of SCE's credit rating to below investment grade
 
69

Posted and potential collateral requirements2
 
$
250

1 
Net collateral provided to counterparties and other brokers consisted of $29 million of cash which was offset against net derivative liabilities on the consolidated balance sheets, $34 million of cash reflected in "Other current assets" on the consolidated balance sheets and $118 million in letters of credit and surety bonds.
2 
SCE's total posted and potential collateral requirements that could have increased by $48 million based on SCE's forward positions as of June 30, 2015 due to adverse market price movements over the remaining lives of the existing power procurement contracts using a 95% confidence level.
Edison International Parent and Other
Edison International Parent and Other's liquidity and its ability to pay operating expenses and dividends to common shareholders are dependent on dividends from SCE and access to bank and capital markets.
At June 30, 2015, Edison International Parent had $705 million available under its $1.25 billion multi-year revolving credit facility. For further details, see "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements."
Edison International may finance working capital requirements to support operations and capital expenditures with commercial paper or other borrowings, subject to availability in the capital markets.
The debt covenant in Edison International Parent's credit facility requires a consolidated debt to total capitalization ratio as defined in the credit agreement of less than or equal to 0.65 to 1. At June 30, 2015, Edison International Parent's consolidated debt to total capitalization ratio was 0.49 to 1.
In August 2014, Edison International entered into an amendment of the EME Settlement Agreement that finalized the remaining matters related to the EME Settlement. Edison International is obligated to make payments of $204 million on September 30, 2015 and $214 million on September 30, 2016. Edison International intends to make these payments from realization of tax benefits or issuance of commercial paper or other borrowings. Edison International has net operating loss and tax credit carryforwards retained by EME which are available to offset future consolidated taxable income or tax liabilities. As a result of the extension of 50% bonus depreciation for qualifying property under the Tax Increase Prevention Act of 2014, realization of these tax benefits has been deferred (currently forecasted through 2018). The timing of realization of these tax benefits may be further delayed in the event of future extensions of bonus depreciation and the value of the net operating loss carryforwards could be permanently reduced in the event that tax reform decreases the current corporate tax rate.
Historical Cash Flows
Southern California Edison Company
 
Six months ended June 30,
(in millions)
2015
 
2014
Net cash provided by operating activities
$
1,689

 
$
1,083

Net cash provided by financing activities
539

 
864

Net cash used in investing activities
(2,213
)
 
(1,930
)
Net increase in cash and cash equivalents
$
15

 
$
17


13


Net Cash Provided by Operating Activities
The following table summarizes major categories of net cash provided by operating activities as provided in more detail in SCE's consolidated statements of cash flows for the six months ended June 30, 2015 and 2014.
 
Six months ended June 30,
 
Change in cash flows
(in millions)
2015
2014
 
2015/2014
Net income
$
745

$
626

 
 
Non cash items1
995

1,216

 
 
    Subtotal
$
1,740

$
1,842

 
$
(102
)
Changes in cash flow resulting from working capital2
(311
)
(576
)
 
265

Derivative assets and liabilities, net
33

64

 
(31
)
Regulatory assets and liabilities, net
241

(317
)
 
558

Other noncurrent assets and liabilities, net3
(14
)
70

 
(84
)
Net cash provided by operating activities
$
1,689

$
1,083

 
$
606

1 
Non cash items include depreciation, decommissioning and amortization, allowance for equity during construction, impairment and other charges, deferred income taxes and investment tax credits and other.
2 
Changes in working capital items include receivables, inventory, accounts payable, prepaid and accrued taxes, and other current assets and liabilities.
3 Includes the nuclear decommissioning trusts.
Net cash provided by operating activities were impacted by the following:
•
Net cash used from working capital was $311 million and $576 million during the six months ended June 30, 2015 and 2014, respectively. The cash outflow for each period was primarily related to the timing of receipts from customers (increase in unbilled receivables due to seasonal usage) and timing of disbursements (annual compensation payments). In addition, SCE recorded in 2014 the amounts due from generator settlement refunds of approximately $179 million which decreased working capital.
•
Net cash provided by (used in) regulatory assets and liabilities, including changes in over (under) collections of balancing accounts. SCE has a number of balancing accounts under CPUC decisions, which impact cash flows based on differences between timing of collection of amounts through rates and accrual expenditures. During the first six months of 2015 and 2014, cash flows were impacted by the two principal balancing accounts:
•
ERRA undercollections for fuel and purchased power decreased $485 million during the first six months of 2015 primarily due to lower than forecasted power and gas prices experienced in 2015. ERRA undercollections for fuel and purchased power increased $612 million in the first six months of 2014 primarily due to higher purchased power than the forecast purchases included in customer rates in addition to higher gas price. In January 2015, SCE reclassified the regulatory liability for generator settlements to ERRA to refund customers.
•
The base rate revenue balancing account ("BRRBA") tracks differences between amounts authorized by the CPUC in the GRC proceedings and amounts billed to customers. BRRBA undercollections increased $79 million in the first six months of 2015 primarily due to reduced customer sales from cooler weather during the first six months of 2015. BRRBA overcollections decreased $144 million in the first six months of 2014 primarily due to refunds to customers of approximately $150 million, related to the sale of Four Corners in December 2013.
•
Cash flows (used in) provided by other noncurrent assets and liabilities were $(14) million and $70 million in the first six months of 2015 and 2014, respectively. During 2015, decommissioning costs of San Onofre were approximately $80 million (such costs were recorded as a reduction of SCE's asset retirement obligation). In addition, SCE received approximately $41 million and $83 million of earnings related to SCE's nuclear decommissioning trust during the first half of 2015 and 2014, respectively.

14


Net Cash Provided by Financing Activities
The following table summarizes cash provided by financing activities for the six months ended June 30, 2015 and 2014. Issuances of debt are discussed in "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements—Long-Term Debt."
 
Six months ended June 30,
(in millions)
2015
 
2014
Issuances of first and refunding mortgage bonds, net
$
1,287

 
$
398

Issuances of pollution control bonds, net

128

 
—

Long-term debt matured or repurchased
(721
)
 
(3
)
Issuances of preference stock, net
—

 
269

Short-term debt financing, net
184

 
410

Payments of common stock dividends to Edison International
(294
)
 
(126
)
Payments of preferred and preference stock dividends
(56
)
 
(54
)
Other
11

 
(30
)
Net cash provided by financing activities
$
539

 
$
864

Net Cash Used in Investing Activities
Cash flows used in investing activities are primarily due to capital expenditures and funding of nuclear decommissioning trusts. Capital expenditures were $2.2 billion and $1.9 billion for the six months ended June 30, 2015 and 2014, respectively, primarily related to transmission, distribution and generation investments. Net purchases of nuclear decommissioning trust investments were $48 million and $88 million for the six months ended June 30, 2015 and 2014, respectively.
Nuclear Decommissioning Trusts
SCE's statement of cash flows includes activities of the Nuclear Decommissioning Trusts which are reflected in the following line items:
 
Six months ended June 30,
(in millions)

2015
 
2014
Net cash provided by operating activities:
   Nuclear decommissioning trusts
$
41

 
$
83

Net cash flow from investing activities:
   Proceeds from sale of investments
7,253

 
3,750

   Purchases of investments
(7,301
)
 
(3,838
)
Net cash impact
$
(7
)
 
$
(5
)
Net cash provided by operating activities of the nuclear decommissioning trusts relate to interest and dividends less administrative expenses, taxes and decommissioning costs. Such activities represent the source (use) of the funds for investing activities. The net cash impact represents the contributions made by SCE to the nuclear decommissioning trusts. During the six months ended June 30, 2015, SCE made a contribution of $7 million to the non-qualified decommissioning trust pursuant to a CPUC decision related to decommissioning costs for San Onofre Unit 1. In future periods, SCE expects decommissioning costs of San Onofre to increase significantly. Such amounts will be reflected as a decrease in SCE net cash provided by operating activities and will be funded from sales of investments of the nuclear decommissioning trusts once approved by the CPUC. Decommissioning costs incurred prior to CPUC approval will be funded by SCE and are reflected as cash flow used by operating activities. See "Notes to Consolidated Financial Statements—Note 9. Investments" for further information.

15


Edison International Parent and Other
The table below sets forth condensed historical cash flow from operations for Edison International Parent and Other.
 
Six months ended June 30,
(in millions)
2015
 
2014
Net cash provided by (used in) operating activities
$
79

 
$
(475
)
Net cash (used in) provided by financing activities
(66
)
 
504

Net cash used in investing activities
(21
)
 
(2
)
Net (decrease) increase in cash and cash equivalents
$
(8
)
 
$
27

Net Cash Provided by (Used in) Operating Activities
Net cash provided by operating activities increased $554 million for the first six months of 2015 compared to 2014 due to:
•
$225 million initial cash payment to the Reorganization Trust in April 2014 related to the EME Settlement Agreement, see "Notes to Consolidated Financial Statements—Note 14. Discontinued Operations—EME Chapter 11 Bankruptcy" for further information.
•
$189 million deposit made with the IRS in 2014 related to open tax years 2003 through 2006 and a $122 million receipt of intercompany tax-allocation payments in 2015.
•
approximately $43 million cash outflow from operating activities in 2015 compared to $61 million cash outflow in 2014 due to the timing of payments and receipts relating to interest and operating costs.
Net Cash (Used in) Provided by Financing Activities
Net cash (used in) provided by financing activities were as follows:
 
Six months ended June 30,
(in millions)
2015
 
2014
Dividends paid to Edison International common shareholders
$
(272
)
 
$
(231
)
Dividends received from SCE
294

 
126

Payment for stock-based compensation
(108
)
 
(67
)
Receipt from stock option exercises
63

 
41

Debt financing, net1
(60
)
 
632

Other
17

 
3

Net cash (used in) provided by financing activities
$
(66
)
 
$
504

1  
Includes $13 million debt financing for Edison Energy Group, see "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements—Project Financing."
Contingencies
SCE has contingencies related to San Onofre Related Matters, Nuclear Insurance, Wildfire Insurance and Spent Nuclear Fuel which are discussed in "Notes to Consolidated Financial Statements—Note 11. Commitments and Contingencies."
Environmental Remediation
As of June 30, 2015, SCE had identified 19 material sites for remediation and recorded an estimated minimum liability of $115 million. SCE expects to recover 90% of its remediation costs at certain sites. See "Notes to Consolidated Financial Statements—Note 11. Commitments and Contingencies" for further discussion.

16


MARKET RISK EXPOSURES
Edison International's and SCE's primary market risks include fluctuations in interest rates, commodity prices and volumes, and counterparty credit. Fluctuations in interest rates can affect earnings and cash flows. Fluctuations in commodity prices and volumes and counterparty credit losses may temporarily affect cash flows, but are not expected to affect earnings due to expected recovery through regulatory mechanisms. Derivative instruments are used, as appropriate, to manage market risks including market risks of SCE's customers. For a further discussion of market risk exposures, including commodity price risk, credit risk and interest rate risk, see "Notes to Consolidated Financial Statements—Note 6. Derivative Instruments" and "—Note 4. Fair Value Measurements."
Commodity Price Risk
The fair value of outstanding derivative instruments used to mitigate exposure to commodity price risk was a net liability of $1.04 billion and $927 million at June 30, 2015 and December 31, 2014 respectively. For further discussion of fair value measurements and the fair value hierarchy, see "Notes to Consolidated Financial Statements—Note 4. Fair Value Measurements."
Credit Risk
Credit risk exposure from counterparties for power and gas trading activities is measured as the sum of net accounts receivable (accounts receivable less accounts payable) and the current fair value of net derivative assets (derivative assets less derivative liabilities) reflected on the consolidated balance sheets. SCE enters into master agreements which typically provide for a right of setoff. Accordingly, SCE's credit risk exposure from counterparties is based on a net exposure under these arrangements. SCE manages the credit risk on the portfolio for both rated and non-rated counterparties based on credit ratings using published ratings of counterparties and other publicly disclosed information, such as financial statements, regulatory filings, and press releases, to guide it in the process of setting credit levels, risk limits and contractual arrangements, including master netting agreements.
As of June 30, 2015, the amount of balance sheet exposure as described above broken down by the credit ratings of SCE's counterparties, was as follows:
 
June 30, 2015
(in millions)
Exposure2
 
Collateral
 
Net Exposure
S&P Credit Rating1
 
 
 
 
 
A or higher
$
262

 
$
—

 
$
262

BBB
3

 
—

 
3

Not rated3
7

 
5

 
2

Total
$
272

 
$
5

 
$
267

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

17


FINANCIAL STATEMENTS
Consolidated Statements of Income

Edison International
 


 
 

 

Three months ended June 30,

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

2015
 
2014
 
2015

2014
Total operating revenue

$
2,908

 
$
3,016

 
$
5,420


$
5,943

Purchased power and fuel

1,078

 
1,239

 
1,864


2,382

Operation and maintenance

743

 
715

 
1,380


1,442

Depreciation, decommissioning and amortization

481

 
414

 
945


824

Property and other taxes
 
82

 
73

 
171

 
158

Impairment and other charges

—

 
—

 
—


231

Total operating expenses

2,384

 
2,441

 
4,360


5,037

Operating income

524

 
575

 
1,060


906

Interest and other income

43

 
46

 
82


69

Interest expense

(138
)
 
(139
)
 
(281
)

(281
)
Other expenses

(17
)
 
(16
)
 
(24
)

(23
)
Income from continuing operations before income taxes

412

 
466

 
837


671

Income tax expense

6

 
84

 
113


65

Income from continuing operations

406

 
382

 
724


606

Gain from discontinued operations, net of tax

—

 
184

 
—


162

Net income

406

 
566

 
724


768

Preferred and preference stock dividend requirements of utility

28

 
30

 
56


56

Other noncontrolling interests
 
(1
)
 
—

 
(10
)
 
—

Net income attributable to Edison International common shareholders

$
379

 
$
536

 
$
678


$
712

Amounts attributable to Edison International common shareholders:

 
 
 
 



Income from continuing operations, net of tax

$
379

 
$
352

 
$
678


$
550

Gain from discontinued operations, net of tax

—

 
184

 
—


162

Net income attributable to Edison International common shareholders

$
379

 
$
536

 
$
678


$
712

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

 
 
 
 



Weighted-average shares of common stock outstanding

326

 
326

 
326


326

Continuing operations

$
1.16

 
$
1.08

 
$
2.08


$
1.69

Discontinued operations

—

 
0.56

 
—


0.49

Total

$
1.16

 
$
1.64

 
$
2.08


$
2.18

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

 
 
 
 



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

328

 
329

 
329


329

Continuing operations

$
1.15

 
$
1.07

 
$
2.06


$
1.68

Discontinued operations

—

 
0.56

 
—


0.49

Total

$
1.15

 
$
1.63

 
$
2.06


$
2.17

Dividends declared per common share

$
0.4175

 
$
0.3550

 
$
0.8350


$
0.7100


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

18



Consolidated Statements of Comprehensive Income
 
 
 
Edison International
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions, unaudited)
 
2015
 
2014
 
2015
 
2014
Net income
 
$
406

 
$
566

 
$
724

 
$
768

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

 
(4
)
 
2

 
(2
)
Other
 
—

 
2

 
—

 
2

Other comprehensive income (loss), net of tax
 
3

 
(2
)
 
2

 
—

Comprehensive income
 
409

 
564

 
726

 
768

Less: Comprehensive income attributable to noncontrolling interests
 
27

 
30

 
46

 
56

Comprehensive income attributable to Edison International
 
$
382

 
$
534

 
$
680

 
$
712



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

19


Consolidated Balance Sheets
Edison International
 






(in millions, unaudited)
June 30,
2015

December 31,
2014
ASSETS
 

 
Cash and cash equivalents
$
139


$
132

Receivables, less allowances of $68 for uncollectible accounts at both dates
768


790

Accrued unbilled revenue
853


632

Inventory
276


281

Derivative assets
79


102

Regulatory assets
1,066


1,254

Deferred income taxes
288


452

Other current assets
437


376

Total current assets
3,906


4,019

Nuclear decommissioning trusts
4,836


4,799

Other investments
210


207

Total investments
5,046


5,006

Utility property, plant and equipment, less accumulated depreciation and amortization of $8,141 and $8,132 at respective dates
33,594


32,859

Nonutility property, plant and equipment, less accumulated depreciation of $79 and $76 at respective dates
132


122

Total property, plant and equipment
33,726


32,981

Derivative assets
194


219

Regulatory assets
8,009


7,612

Other long-term assets
358


349

Total long-term assets
8,561


8,180

















































 
 
 
 
Total assets
$
51,239


$
50,186



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

20


Consolidated Balance Sheets

Edison International
 


 

 
(in millions, except share amounts, unaudited)

June 30,
2015

December 31,
2014
LIABILITIES AND EQUITY

 

 
Short-term debt

$
1,415


$
1,291

Current portion of long-term debt

204


504

Accounts payable

1,294


1,580

Accrued taxes

36


81

Customer deposits

234


221

Derivative liabilities

162


196

Regulatory liabilities

454


401

Other current liabilities

1,037


1,205

Total current liabilities

4,836


5,479

Long-term debt

11,265


10,234

Deferred income taxes and credits

7,599


7,313

Derivative liabilities

1,155


1,052

Pensions and benefits

2,176


2,155

Asset retirement obligations

2,825


2,821

Regulatory liabilities

5,813


5,889

Other deferred credits and other long-term liabilities

2,220


2,255

Total deferred credits and other liabilities

21,788


21,485

Total liabilities

37,889


37,198

Commitments and contingencies (Note 11)






Redeemable noncontrolling interest
 
3

 
6

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

2,472


2,445

Accumulated other comprehensive loss

(56
)

(58
)
Retained earnings

8,909


8,573

Total Edison International's common shareholders' equity

11,325


10,960

Noncontrolling interests – preferred and preference stock of utility

2,022


2,022

Total equity

13,347


12,982






















Total liabilities and equity

$
51,239


$
50,186



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

21


Consolidated Statements of Cash Flows
Edison International
 



Six months ended June 30,
(in millions, unaudited)
2015

2014
Cash flows from operating activities:
 

 
Net income
$
724


$
768

Less: Income from discontinued operations
—


162

Income from continuing operations
724


606

Adjustments to reconcile to net cash provided by operating activities:


 
Depreciation, decommissioning and amortization
987


864

Allowance for equity during construction
(42
)

(28
)
Impairment and other charges
—


231

Deferred income taxes and investment tax credits
101


110

Other
11


11

EME settlement payments
—


(225
)
Changes in operating assets and liabilities:


 
Receivables
32


(185
)
Inventory
5


(21
)
Accounts payable
130


116

Prepaid and accrued taxes
(50
)
 
79

Other current assets and liabilities
(411
)

(471
)
Derivative assets and liabilities, net
33


64

Regulatory assets and liabilities, net
241


(317
)
Nuclear decommissioning trusts
41

 
83

Other noncurrent assets and liabilities
(34
)

(309
)
Net cash provided by operating activities
1,768


608

Cash flows from financing activities:
 

 
Long-term debt issued or remarketed, net of discount and issuance costs of $16 and $4 at respective periods
1,415


396

Long-term debt matured or repurchased
(721
)

(4
)
Preference stock issued, net
—


269

Short-term debt financing, net
125


1,043

Cash contribution from redeemable noncontrolling interest
7

 
—

Dividends to noncontrolling interests
(56
)

(54
)
Dividends paid
(272
)

(231
)
Other
(25
)
 
(51
)
Net cash provided by financing activities
473


1,368

Cash flows from investing activities:
 

 
Capital expenditures
(2,197
)

(1,856
)
Proceeds from sale of nuclear decommissioning trust investments
7,253


3,750

Purchases of nuclear decommissioning trust investments
(7,301
)

(3,838
)
Other
11


12

Net cash used in investing activities
(2,234
)

(1,932
)
Net increase in cash and cash equivalents
7


44

Cash and cash equivalents at beginning of period
132


146

Cash and cash equivalents at end of period
$
139


$
190


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

22


Consolidated Statements of Income
 
Southern California Edison Company
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions, unaudited)
 
2015
 
2014
 
2015
 
2014
Operating revenue
 
$
2,901

 
$
3,014

 
$
5,409

 
$
5,938

Purchased power and fuel
 
1,078

 
1,239

 
1,864

 
2,382

Operation and maintenance
 
724

 
697

 
1,346

 
1,410

Depreciation, decommissioning and amortization
 
481

 
414

 
943

 
824

Property and other taxes
 
82

 
71

 
170

 
156

Impairment and other charges
 
—

 
—

 
—

 
231

Total operating expenses
 
2,365

 
2,421

 
4,323

 
5,003

Operating income
 
536

 
593

 
1,086

 
935

Interest and other income
 
31

 
46

 
64

 
69

Interest expense
 
(131
)
 
(134
)
 
(266
)
 
(269
)
Other expenses
 
(17
)
 
(15
)
 
(24
)
 
(23
)
Income before income taxes
 
419

 
490

 
860

 
712

Income tax expense
 
7

 
98

 
115

 
86

Net income
 
412

 
392

 
745

 
626

Less: Preferred and preference stock dividend requirements
 
28


30

 
56

 
56

Net income available for common stock
 
$
384

 
$
362

 
$
689

 
$
570


Consolidated Statements of Comprehensive Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions, unaudited)
 
2015
 
2014
 
2015
 
2014
Net income
 
$
412

 
$
392

 
$
745

 
$
626

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

 
—

 
2

 
1

Other
 
—

 
2

 
—

 
2

Other comprehensive income, net of tax
 
1

 
2

 
2

 
3

Comprehensive income
 
$
413

 
$
394

 
$
747

 
$
629



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

23


Consolidated Balance Sheets
Southern California Edison Company
(in millions, unaudited)
 
June 30,
2015
 
December 31, 2014
ASSETS
 
 
 
 
Cash and cash equivalents
 
$
53

 
$
38

Receivables, less allowances of $68 for uncollectible accounts at both dates
 
745

 
749

Accrued unbilled revenue
 
853

 
632

Inventory
 
261

 
275

Derivative assets
 
79

 
102

Regulatory assets
 
1,066

 
1,254

Other current assets
 
457

 
390

Total current assets
 
3,514

 
3,440

Nuclear decommissioning trusts
 
4,836

 
4,799

Other investments
 
167

 
158

Total investments
 
5,003

 
4,957

Utility property, plant and equipment, less accumulated depreciation and amortization of $8,141 and $8,132 at respective dates
 
33,594

 
32,859

Nonutility property, plant and equipment, less accumulated depreciation of $76 and $75 at respective dates
 
70

 
69

Total property, plant and equipment
 
33,664

 
32,928

Derivative assets
 
194

 
219

Regulatory assets
 
8,009

 
7,612

Other long-term assets
 
309

 
300

Total long-term assets
 
8,512

 
8,131

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
50,693

 
$
49,456


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

24


Consolidated Balance Sheets
Southern California Edison Company
(in millions, except share amounts, unaudited)
 
June 30,
2015
 
December 31, 2014
LIABILITIES AND EQUITY
 
 
 
 
Short-term debt
 
$
851

 
$
667

Current portion of long-term debt
 
—

 
300

Accounts payable
 
1,286

 
1,556

Accrued taxes
 
25

 
87

Customer deposits
 
234

 
221

Derivative liabilities
 
162

 
196

Regulatory liabilities
 
454

 
401

Deferred income taxes
 
253

 
209

Other current liabilities
 
1,031

 
1,183

Total current liabilities
 
4,296

 
4,820

Long-term debt
 
10,654

 
9,624

Deferred income taxes and credits
 
8,673

 
8,288

Derivative liabilities
 
1,155

 
1,052

Pensions and benefits
 
1,677

 
1,672

Asset retirement obligations
 
2,824

 
2,819

Regulatory liabilities
 
5,813

 
5,889

Other deferred credits and other long-term liabilities
 
1,933

 
2,010

Total deferred credits and other liabilities
 
22,075

 
21,730

Total liabilities
 
37,025

 
36,174

Commitments and contingencies (Note 11)
 


 


Common stock, no par value (560,000,000 shares authorized; 434,888,104 shares issued and outstanding at each date)
 
2,168

 
2,168

Additional paid-in capital
 
630

 
618

Accumulated other comprehensive loss
 
(26
)
 
(28
)
Retained earnings
 
8,826

 
8,454

Total common shareholder's equity
 
11,598

 
11,212

Preferred and preference stock
 
2,070

 
2,070

Total equity
 
13,668

 
13,282

Total liabilities and equity
 
$
50,693

 
$
49,456



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

25


Consolidated Statements of Cash Flows
Southern California Edison Company
 
 
Six months ended June 30,
(in millions, unaudited)
 
2015
 
2014
Cash flows from operating activities:
 
 
 
 
Net income
 
$
745

 
$
626

Adjustments to reconcile to net cash provided by operating activities:
 
 
 
 
Depreciation, decommissioning and amortization
 
982

 
864

Allowance for equity during construction
 
(42
)
 
(28
)
Impairment and other charges
 
—

 
231

Deferred income taxes and investment tax credits
 
48

 
144

Other
 
7

 
5

Changes in operating assets and liabilities:
 
 
 
 
Receivables
 
4

 
(191
)
Inventory
 
14

 
(3
)
Accounts payable
 
146

 
128

Prepaid and accrued taxes
 
(87
)
 
(48
)
Other current assets and liabilities
 
(388
)
 
(462
)
Derivative assets and liabilities, net
 
33

 
64

Regulatory assets and liabilities, net
 
241

 
(317
)
Nuclear decommissioning trusts
 
41


83

Other noncurrent assets and liabilities
 
(55
)
 
(13
)
Net cash provided by operating activities
 
1,689

 
1,083

Cash flows from financing activities:
 
 
 
 
Long-term debt issued or remarketed, net of discount and issuance costs of $16 and $2 at respective periods
 
1,415

 
398

Long-term debt matured or repurchased
 
(721
)
 
(3
)
Preference stock issued, net
 
—

 
269

Short-term debt financing, net
 
184

 
410

Dividends paid
 
(350
)
 
(180
)
Other
 
11

 
(30
)
Net cash provided by financing activities
 
539

 
864

Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
(2,187
)
 
(1,853
)
Proceeds from sale of nuclear decommissioning trust investments
 
7,253

 
3,750

Purchases of nuclear decommissioning trust investments
 
(7,301
)
 
(3,838
)
Other
 
22

 
11

Net cash used in investing activities
 
(2,213
)

(1,930
)
Net increase in cash and cash equivalents
 
15

 
17

Cash and cash equivalents, beginning of period
 
38

 
54

Cash and cash equivalents, end of period
 
$
53

 
$
71


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

26


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1.    Summary of Significant Accounting Policies
Organization and Basis of Presentation
Edison International is the parent holding company of Southern California Edison Company ("SCE"). SCE is an investor-owned public utility primarily engaged in the business of supplying and delivering electricity to an approximately 50,000 square mile area of southern California. Edison International is also the parent company of Edison Energy Group, a company that holds interests in subsidiaries that are engaged in competitive businesses related to the generation, delivery, or use of electricity. Such competitive business activities are currently not material to report as a separate business segment. These combined notes to the consolidated financial statements apply to both Edison International and SCE unless otherwise described. Edison International's consolidated financial statements include the accounts of Edison International, SCE and other wholly owned and controlled subsidiaries. References to Edison International refer to the consolidated group of Edison International and its subsidiaries. References to Edison International Parent and Other refer to Edison International Parent and its nonutility subsidiaries. SCE's consolidated financial statements include the accounts of SCE and its wholly owned and controlled subsidiaries. All intercompany transactions have been eliminated from the consolidated financial statements.
Edison International's and SCE's significant accounting policies were described in Note 1 of "Notes to Consolidated Financial Statements" included in the 2014 Form 10-K. This quarterly report should be read in conjunction with the financial statements and notes included in the 2014 Form 10-K.
In the opinion of management, all adjustments, consisting of recurring accruals, have been made that are necessary to fairly state the consolidated financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States of America for the periods covered by this quarterly report on Form 10-Q. The results of operations for the three- and six-month periods ended June 30, 2015 are not necessarily indicative of the operating results for the full year.
The December 31, 2014 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
Cash Equivalents
Cash equivalents included investments in money market funds. Generally, the carrying value of cash equivalents equals the fair value, as these investments have original maturities of three months or less. The cash equivalents were as follows:
 
 
Edison International
 
SCE
(in millions)
 
June 30,
2015
 
December 31, 2014
 
June 30,
2015
 
December 31, 2014
Money market funds
 
$
56

 
$
35

 
$
26

 
$
5

Cash is temporarily invested until required for check clearing. Checks issued, but not yet paid by the financial institution, are reclassified from cash to accounts payable at the end of each reporting period as follows:
 
 
Edison International
 
SCE
(in millions)
 
June 30,
2015
 
December 31, 2014
 
June 30,
2015
 
December 31, 2014
Book balances reclassified to accounts payable
 
$
123

 
$
180

 
$
123

 
$
177

Inventory
Inventory is primarily composed of materials, supplies and spare parts, and stated at the lower of cost or market, cost being determined by the average cost method.

27


San Onofre Impairment and Other Charges
As discussed in Note 1 of "Notes to Consolidated Financial Statements" included in the 2014 Form 10-K, in March 2014, SCE entered into a settlement agreement with The Utility Reform Network ("TURN"), the CPUC's Office of Ratepayer Advocates ("ORA"), SDG&E, the Coalition of California Utility Employees, and Friends of the Earth (together, the "Settling Parties") related to the regulatory proceedings for San Onofre. SCE recorded a pre-tax charge of approximately $231 million (approximately $96 million after-tax) in the first quarter of 2014.
In September 2014, SCE and the Settling Parties entered into an Amended and Restated Settlement Agreement (the "San Onofre OII Settlement Agreement") which was approved by the CPUC on November 20, 2014. As a result of these developments, SCE revised the pre-tax charge to $163 million (approximately $72 million after-tax) in the fourth quarter of 2014. Including amounts previously recorded in 2013, the total impact of the San Onofre OII Settlement Agreement was a pre-tax charge of $738 million (approximately $437 million after-tax).
Earnings Per Share
Edison International computes earnings per common share ("EPS") using the two-class method, which is an earnings allocation formula that determines EPS for each class of common stock and participating security. Edison International's participating securities are stock-based compensation awards payable in common shares, including performance shares and restricted stock units, which earn dividend equivalents on an equal basis with common shares once the awards are vested. EPS attributable to Edison International common shareholders was computed as follows:
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions, except per-share amounts)
 
2015
 
2014
 
2015
 
2014
Basic earnings per share – continuing operations:
 
 
 
 
 
 
 
 
Income from continuing operations attributable to common shareholders
 
$
379

 
$
352

 
$
678

 
$
550

Participating securities dividends
 
—

 
—

 
—

 
—

Income from continuing operations available to common shareholders
 
$
379

 
$
352

 
$
678

 
$
550

Weighted average common shares outstanding
 
326

 
326

 
326

 
326

Basic earnings per share – continuing operations
 
$
1.16

 
$
1.08

 
$
2.08

 
$
1.69

Diluted earnings per share – continuing operations:
 
 
 
 
 
 
 
 
Income from continuing operations available to common shareholders
 
$
379

 
$
352

 
$
678

 
$
550

Income impact of assumed conversions
 
—

 
1

 
—

 
1

Income from continuing operations available to common shareholders and assumed conversions
 
$
379

 
$
353

 
$
678

 
$
551

Weighted average common shares outstanding
 
326

 
326

 
326

 
326

Incremental shares from assumed conversions
 
2

 
3

 
3

 
3

Adjusted weighted average shares – diluted
 
328

 
329

 
329

 
329

Diluted earnings per share – continuing operations
 
$
1.15

 
$
1.07

 
$
2.06

 
$
1.68

In addition to the participating securities discussed above, Edison International also may award stock options which are payable in common shares and are included in the diluted earnings per share calculation. Stock option awards to purchase 1,981,596 and 45,951 shares of common stock for the three months ended June 30, 2015 and 2014, respectively, and 1,981,596 and 96,341 shares for the six months ended June 30, 2015 and 2014, respectively, were outstanding, but were not included in the computation of diluted earnings per share because the exercise price of the awards was greater than the average market price of the common shares during the respective periods and, therefore, the effect would have been antidilutive.

28


New Accounting Guidance
Accounting Guidance Not Yet Adopted
On May 28, 2014, the FASB issued an accounting standards update on revenue recognition including enhanced disclosures. Under the new standard, revenue is recognized when (or as) a good or service is transferred to the customer and the customer obtains control of the good or service. On July 9, 2015, the FASB approved a one-year deferral, updating the effective date to January 1, 2018. Edison International and SCE are currently evaluating this new guidance and cannot determine the impact of this standard at this time.
On April 7, 2015, the FASB issued an accounting standards update that will require debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts. Currently, these costs are presented as a deferred charge asset. Edison International and SCE will adopt this guidance in the first quarter of 2016. The adoption of this accounting standards update is not expected to have a material impact on Edison International's and SCE's consolidated financial statements.
On April 15, 2015, the FASB issued an accounting standard update on fees paid by a customer for software licenses. This new standard provides guidance about whether a cloud computing arrangement includes a software license which may be capitalized in certain circumstances. If a cloud computing arrangement does not include a software license, then the arrangement should be accounted for as a service contract. Edison International and SCE are currently evaluating this guidance, which is effective January 1, 2016, and expects this new standard will not have a material impact on the consolidated financial statements.
Note 2.    Consolidated Statements of Changes in Equity
The following table provides Edison International's changes in equity for the six months ended June 30, 2015:
 
Equity Attributable to Common Shareholders
 
Noncontrolling Interests
 
 
(in millions, except per-share amounts)
Common
Stock
 
Accumulated
Other
Comprehensive Loss
 
Retained
Earnings
 
Subtotal
 
Preferred
and
Preference
Stock
 
Total
Equity
Balance at December 31, 2014
$
2,445

 
$
(58
)
 
$
8,573

 
$
10,960

 
$
2,022

 
$
12,982

Net income
—

 
—

 
678

 
678

 
56

 
734

Other comprehensive income
—

 
2

 
—

 
2

 
—

 
2

Common stock dividends declared ($0.835 per share)
—

 
—

 
(272
)
 
(272
)
 
—

 
(272
)
Dividends to noncontrolling interests
—

 
—

 
—

 
—

 
(56
)
 
(56
)
Stock-based compensation
15

 
—

 
(70
)
 
(55
)
 
—

 
(55
)
Non-cash stock-based compensation
12

 
—

 
—

 
12

 
—

 
12

Balance at June 30, 2015
$
2,472

 
$
(56
)
 
$
8,909

 
$
11,325

 
$
2,022

 
$
13,347

The following table provides Edison International's changes in equity for the six months ended June 30, 2014:
 
Equity Attributable to Common Shareholders
 
Noncontrolling Interests
 
 
(in millions, except per-share amounts)
Common
Stock
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
 
Subtotal
 
Preferred
and
Preference
Stock
 
Total
Equity
Balance at December 31, 2013
$
2,403

 
$
(13
)
 
$
7,548

 
$
9,938

 
$
1,753

 
$
11,691

Net income
—

 
—

 
712

 
712

 
56

 
768

Common stock dividends declared ($0.71 per share)
—

 
—

 
(231
)
 
(231
)
 
—

 
(231
)
Dividends to noncontrolling interests
—

 
—

 
—

 
—

 
(57
)
 
(57
)
Stock-based compensation
17

 
—

 
(68
)
 
(51
)
 
—

 
(51
)
Non-cash stock-based compensation
14

 
—

 
(1
)
 
13

 
1

 
14

Issuance of preference stock
—

 
—

 
—

 
—

 
269

 
269

Balance at June 30, 2014
$
2,434

 
$
(13
)
 
$
7,960

 
$
10,381

 
$
2,022

 
$
12,403


29


The following table provides SCE's changes in equity for the six months ended June 30, 2015:
 
Equity Attributable to Edison International
 
 
 
 
(in millions)
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive Loss
 
Retained
Earnings
 
Preferred
and
Preference
Stock
 
Total
Equity
Balance at December 31, 2014
$
2,168

 
$
618

 
$
(28
)
 
$
8,454

 
$
2,070

 
$
13,282

Net income
—

 
—

 
—

 
745

 
—

 
745

Other comprehensive income
—

 
—

 
2

 
—

 
—

 
2

Dividends declared on common stock
—

 
—

 
—

 
(294
)
 
—

 
(294
)
Dividends declared on preferred and preference stock
—

 
—

 
—

 
(56
)
 
—

 
(56
)
Stock-based compensation
—

 
6

 
—

 
(23
)
 
—

 
(17
)
Non-cash stock-based compensation
—

 
6

 
—

 
—

 
—

 
6

Balance at June 30, 2015
$
2,168

 
$
630

 
$
(26
)
 
$
8,826

 
$
2,070

 
$
13,668

The following table provides SCE's changes in equity for the six months ended June 30, 2014:
 
Equity Attributable to Edison International
 
 
 
 
(in millions)
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
 
Preferred
and
Preference
Stock
 
Total
Equity
Balance at December 31, 2013
$
2,168

 
$
592

 
$
(11
)
 
$
7,594

 
$
1,795

 
$
12,138

Net income
—

 
—

 
—

 
626

 
—

 
626

Other comprehensive income
—

 
—

 
3

 
—

 
—

 
3

Dividends declared on common stock
—

 
—

 
—

 
(252
)
 
—

 
(252
)
Dividends declared on preferred and preference stock
—

 
—

 
—

 
(57
)
 
—

 
(57
)
Stock-based compensation
—

 
12

 
—

 
(42
)
 
—

 
(30
)
Non-cash stock-based compensation
—

 
5

 
—

 
(2
)
 
—

 
3

Issuance of preference stock
—

 
(6
)
 
—

 
—

 
275

 
269

Balance at June 30, 2014
$
2,168

 
$
603

 
$
(8
)
 
$
7,867

 
$
2,070

 
$
12,700

Note 3.    Variable Interest Entities
A VIE is defined as a legal entity that meets one of two conditions: (1) the equity owners do not have sufficient equity at risk, or (2) the holders of the equity investment at risk, as a group, lack any of the following three characteristics: decision-making rights, the obligation to absorb losses, or the right to receive the expected residual returns of the entity. The primary beneficiary is identified as the variable interest holder that has both the power to direct the activities of the VIE that most significantly impact the entity's economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. The primary beneficiary is required to consolidate the VIE. A subsidiary of Edison International is the primary beneficiary of an entity that owns rooftop solar projects. Commercial and operating activities are generally the factors that most significantly impact the economic performance of such VIEs. Commercial and operating activities include construction, operation and maintenance, fuel procurement, dispatch and compliance with regulatory and contractual requirements.

30


Variable Interest in VIEs that are not Consolidated
Power Purchase Contracts
SCE has power purchase agreements ("PPAs") that are classified as variable interests in VIEs, including tolling agreements through which SCE provides the natural gas to fuel the plants and contracts with qualifying facilities ("QFs") that contain variable pricing provisions based on the price of natural gas. SCE has concluded that it is not the primary beneficiary of these VIEs since it does not control the commercial and operating activities of these entities. Since payments for capacity are the primary source of income, the most significant economic activity for these VIEs is the operation and maintenance of the power plants.
As of the balance sheet date, the carrying amount of assets and liabilities in SCE's consolidated balance sheet that relate to its involvement with VIEs result from amounts due under the PPAs or the fair value of those derivative contracts. Under these contracts, SCE recovers the costs incurred through demonstration of compliance with its CPUC-approved long-term power procurement plans. SCE has no residual interest in the entities and has not provided or guaranteed any debt or equity support, liquidity arrangements, performance guarantees or other commitments associated with these contracts other than the purchase commitments described in Note 11 of the 2014 Form 10-K. As a result, there is no significant potential exposure to loss to SCE from its variable interest in these VIEs. The aggregate contracted capacity dedicated to SCE from these VIE projects was 4,125 MW and 5,341 MW at June 30, 2015 and 2014, respectively, and the amounts that SCE paid to these projects were $78 million and $93 million for the three months ended June 30, 2015 and 2014, respectively, and $181 million and $207 million for the six months ended June 30, 2015 and 2014, respectively. These amounts are recoverable in customer rates, subject to reasonableness review.
Unconsolidated Trusts of SCE
SCE Trust I, Trust II and Trust III were formed in 2012, 2013 and 2014, respectively, for the exclusive purpose of issuing the 5.625%, 5.10% and 5.75% trust preference securities, respectively ("trust securities"). The trusts are VIEs. SCE has concluded that it is not the primary beneficiary of these VIEs as it does not have the obligation to absorb the expected losses or the right to receive the expected residual returns of the trusts. SCE Trust I, Trust II and Trust III issued trust securities in the face amounts of $475 million, $400 million and $275 million, respectively, (cumulative, liquidation amounts of $25 per share) to the public and $10,000 of common stock each to SCE. The trusts invested the proceeds of these trust securities in Series F, Series G and Series H Preference Stock issued by SCE in the principal amounts of $475 million, $400 million and $275 million (cumulative, $2,500 per share liquidation values), respectively, which have substantially the same payment terms as the respective trust securities.
The Series F, Series G and Series H Preference Stock and the corresponding trust securities do not have a maturity date. Upon any redemption of any shares of the Series F, Series G or Series H Preference Stock, a corresponding dollar amount of trust securities will be redeemed by the applicable trust. The applicable trust will make distributions at the same rate and on the same dates on the applicable series of trust securities when and if the SCE board of directors declares and makes dividend payments on the Series F, Series G or Series H Preference Stock. The applicable trust will use any dividends it receives on the Series F, Series G or Series H Preference Stock to make its corresponding distributions on the applicable series of trust securities. If SCE does not make a dividend payment to any of these trusts, SCE would be prohibited from paying dividends on its common stock. SCE has fully and unconditionally guaranteed the payment of the trust securities and trust distributions, if and when SCE pays dividends on the Series F, Series G and Series H Preference Stock.
The Trust I, Trust II and Trust III balance sheets as of June 30, 2015 and December 31, 2014, consisted of investments of $475 million, $400 million and $275 million in the Series F, Series G and Series H Preference Stock, respectively, $475 million, $400 million and $275 million of trust securities, respectively, and $10,000 each of common stock.
The following table provides a summary of the trusts' income statements:
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
 
Trust I
 
Trust II
 
Trust III
 
Trust I
 
Trust II
 
Trust III
2015
 
 
 
 
 
 
 
 
 
 
 
 
Dividend income
 
$
6

 
$
5

 
$
4

 
$
13

 
$
10

 
$
8

Dividend distributions
 
6

 
5

 
4

 
13

 
10

 
8

2014
 
 
 
 
 
 
 
 
 
 
 
 
Dividend income
 
$
6

 
$
5

 
$
4

 
$
13


$
10


$
5

Dividend distributions
 
6

 
5

 
4

 
13


10


5


31


Note 4.    Fair Value Measurements
Recurring Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (referred to as an "exit price"). Fair value of an asset or liability considers assumptions that market participants would use in pricing the asset or liability, including assumptions about nonperformance risk. As of June 30, 2015 and December 31, 2014, nonperformance risk was not material for Edison International and SCE.
Assets and liabilities are categorized into a three-level fair value hierarchy based on valuation inputs used to determine fair value.
Level 1 – The fair value of Edison International's and SCE's Level 1 assets and liabilities is determined using unadjusted quoted prices in active markets that are available at the measurement date for identical assets and liabilities. This level includes exchange-traded equity securities, U.S. treasury securities, mutual funds and money market funds.
Level 2 – Edison International and SCE's Level 2 assets and liabilities include fixed income securities primarily consisting of U.S. government and agency bonds, municipal bonds and corporate bonds, and over-the-counter derivatives. The fair value of fixed income securities is determined using a market approach by obtaining quoted prices for similar assets and liabilities in active markets and inputs that are observable, either directly or indirectly, for substantially the full term of the instrument.
The fair value of SCE's over-the-counter derivative contracts is determined using an income approach. SCE uses standard pricing models to determine the net present value of estimated future cash flows. Inputs to the pricing models include forward published or posted clearing prices from exchanges (New York Mercantile Exchange and Intercontinental Exchange) for similar instruments and discount rates. A primary price source that best represents trade activity for each market is used to develop observable forward market prices in determining the fair value of these positions. Broker quotes, prices from exchanges or comparison to executed trades are used to validate and corroborate the primary price source. These price quotations reflect mid-market prices (average of bid and ask) and are obtained from sources believed to provide the most liquid market for the commodity.
Level 3 – The fair value of SCE's Level 3 assets and liabilities is determined using the income approach through various models and techniques that require significant unobservable inputs. This level includes over-the-counter options, tolling arrangements and derivative contracts that trade infrequently such as congestion revenue rights ("CRRs") and long-term power agreements. Edison International Parent and Other does not have any Level 3 assets and liabilities.
Assumptions are made in order to value derivative contracts in which observable inputs are not available. Changes in fair value are based on changes to forward market prices, including extrapolation of short-term observable inputs into forecasted prices for illiquid forward periods. In circumstances where fair value cannot be verified with observable market transactions, it is possible that a different valuation model could produce a materially different estimate of fair value. Modeling methodologies, inputs and techniques are reviewed and assessed as markets continue to develop and more pricing information becomes available and the fair value is adjusted when it is concluded that a change in inputs or techniques would result in a new valuation that better reflects the fair value of those derivative contracts.

32


SCE
The following table sets forth assets and liabilities of SCE that were accounted for at fair value by level within the fair value hierarchy:
 
June 30, 2015
(in millions)
Level 1
 
Level 2
 
Level 3
 
Netting
and
Collateral1
 
Total
Assets at fair value
 
 
 
 
 
 
 
 
 
Derivative contracts
$
—

 
$
—

 
$
273

 
$
—

 
$
273

Other
46

 
—

 
—

 
—

 
46

Nuclear decommissioning trusts:
 
 
 
 
 
 
 
 
 
Stocks2
2,084

 
—

 
—

 
—

 
2,084

Fixed Income3
1,029

 
1,607

 
—

 
—

 
2,636

Short-term investments, primarily cash equivalents
26

 
145

 
—

 
—

 
171

Subtotal of nuclear decommissioning trusts4
3,139

 
1,752

 
—

 
—

 
4,891

Total assets
3,185

 
1,752

 
273

 
—

 
5,210

Liabilities at fair value
 
 
 
 
 
 
 
 
 
Derivative contracts
—

 
29

 
1,317

 
(29
)
 
1,317

Total liabilities
—

 
29

 
1,317

 
(29
)
 
1,317

Net assets (liabilities)
$
3,185

 
$
1,723

 
$
(1,044
)
 
$
29

 
$
3,893

 
December 31, 2014
(in millions)
Level 1
 
Level 2
 
Level 3
 
Netting
and
Collateral1
 
Total
Assets at fair value
 
 
 
 
 
 
 
 
 
Derivative contracts
$
—

 
$
—

 
$
321

 
$
—

 
$
321

Other
33

 
—

 
—

 
—

 
33

Nuclear decommissioning trusts:
 
 
 
 
 
 
 
 
 
Stocks2
2,031

 
—

 
—

 
—

 
2,031

Fixed Income3
703

 
1,350

 
—

 
—

 
2,053

Short-term investments, primarily cash equivalents
606

 
166

 
—

 
—

 
772

Subtotal of nuclear decommissioning trusts4
3,340

 
1,516

 
—

 
—

 
4,856

Total assets
3,373

 
1,516

 
321

 
—

 
5,210

Liabilities at fair value
 
 
 
 
 
 
 
 
 
Derivative contracts
—

 
86

 
1,223

 
(61
)
 
1,248

Total liabilities
—

 
86

 
1,223

 
(61
)
 
1,248

Net assets (liabilities)
$
3,373

 
$
1,430

 
$
(902
)
 
$
61

 
$
3,962

1 
Represents the netting of assets and liabilities under master netting agreements and cash collateral across the levels of the fair value hierarchy. Netting among positions classified within the same level is included in that level.
2 
Approximately 72% and 73% of SCE's equity investments were located in the United States at June 30, 2015 and December 31, 2014, respectively.
3 
Includes corporate bonds, which were diversified and included collateralized mortgage obligations and other asset backed securities of $162 million and $49 million at June 30, 2015 and December 31, 2014, respectively.
4 
Excludes net payables of $55 million and net payables of $57 million at June 30, 2015 and December 31, 2014, which consist of interest and dividend receivables as well as receivables and payables related to SCE's pending securities sales and purchases.

33


Edison International
Edison International assets measured at fair value consisted of money market funds of $56 million and $35 million at June 30, 2015 and December 31, 2014, respectively, classified as Level 1.
SCE Fair Value of Level 3
The following table sets forth a summary of changes in SCE's fair value of Level 3 net derivative assets and liabilities:
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
 
2015
 
2014
 
2015
 
2014
Fair value of net liabilities at beginning of period
 
$
(976
)
 
$
(773
)
 
$
(902
)
 
$
(805
)
Total realized/unrealized gains (losses):
 
 
 
 
 
 
 
 
Included in regulatory assets and liabilities1
 
(68
)
 
(108
)
 
(142
)
 
(77
)
Purchases
 
—

 
8

 
—

 
15

Settlements
 
—

 
(5
)
 
—

 
(11
)
Fair value of net liabilities at end of period
 
$
(1,044
)
 
$
(878
)
 
$
(1,044
)
 
$
(878
)
Change during the period in unrealized gains and losses related to assets and liabilities held at the end of the period
 
$
(65
)
 
$
(116
)
 
$
(148
)
 
$
(84
)
1 
Due to regulatory mechanisms, SCE's realized and unrealized gains and losses are recorded as regulatory assets and liabilities.
Edison International and SCE recognize the fair value for transfers in and transfers out of each level at the end of each reporting period. There were no transfers between any levels during 2015 and 2014.
Valuation Techniques Used to Determine Fair Value
The process of determining fair value is the responsibility of SCE's risk management department, which reports to SCE's chief financial officer. This department obtains observable and unobservable inputs through broker quotes, exchanges and internal valuation techniques that use both standard and proprietary models to determine fair value. Each reporting period, the risk and finance departments collaborate to determine the appropriate fair value methodologies and classifications for each derivative. Inputs are validated for reasonableness by comparison against prior prices, other broker quotes and volatility fluctuation thresholds. Inputs used and valuations are reviewed period-over-period and compared with market conditions to determine reasonableness.

34


The following table sets forth SCE's valuation techniques and significant unobservable inputs used to determine fair value for significant Level 3 assets and liabilities:
 
Fair Value (in millions)
 
Significant
Range
 
Assets
 
Liabilities
Valuation Technique(s)
Unobservable Input
(Weighted Average)
Congestion revenue rights
 
 
 
 
 
June 30, 2015
$
261

 
$
—

Market simulation model
Load forecast
7,630 MW - 25,431 MW
 
 
 
 
 
Power prices1
$1.65 - $109.95
 
 
 
 
 
Gas prices2
$3.65 - $6.53
December 31, 2014
317

 
—

Market simulation model
Load forecast
7,630 MW - 25,431 MW
 
 
 
 
 
Power prices1
$1.65 - $109.95
 
 
 
 
 
Gas prices2
$3.65 - $6.53
Tolling
 
 
 
 
 
 
June 30, 2015
6

 
1,316

Option model
Volatility of gas prices
15% - 42% (20%)
 
 
 
 
 
Volatility of power prices
26% - 96% (30%)
 
 
 
 
 
Power prices
$30.62 - $54.60 ($39.50)
December 31, 2014
4

 
1,207

Option model
Volatility of gas prices
13% - 53% (20%)
 
 
 
 
 
Volatility of power prices
25% - 42% (30%)
 
 
 
 
 
Power prices
$30.60 - $61.40 ($44.60)
1 
Prices are in dollars per megawatt-hour.
2 
Prices are in dollars per million British thermal units.
Level 3 Fair Value Sensitivity
Congestion Revenue Rights
For CRRs, where SCE is the buyer, generally increases (decreases) in forecasted load in isolation would result in increases (decreases) to the fair value. In general, an increase (decrease) in electricity and gas prices at illiquid locations tends to result in increases (decreases) to fair value; however, changes in electricity and gas prices in opposite directions may have varying results on fair value.
Tolling Arrangements
The fair values of SCE's tolling arrangements contain intrinsic value and time value. Intrinsic value is the difference between the market price and strike price of the underlying commodity. Time value is made up of several components, including volatility, time to expiration, and interest rates. The option model for tolling arrangements reflects plant specific information such as operating and start-up costs.
For tolling arrangements where SCE is the buyer, increases in volatility of the underlying commodity prices would result in increases to fair value as it represents greater price movement risk. As power and gas prices increase, the fair value of tolling arrangements tends to increase. The valuation of tolling arrangements is also impacted by the correlation between gas and power prices. As the correlation increases, the fair value of tolling arrangements tends to decline.
Nuclear Decommissioning Trusts
SCE's nuclear decommissioning trust investments include equity securities, U.S. treasury securities and other fixed income securities. Equity and treasury securities are classified as Level 1 as fair value is determined by observable market prices in active or highly liquid and transparent markets. The remaining fixed income securities are classified as Level 2. The fair value of these financial instruments is based on evaluated prices that reflect significant observable market information such as reported trades, actual trade information of similar securities, benchmark yields, broker/dealer quotes, issuer spreads, bids, offers and relevant credit information.

35


Fair Value of Debt Recorded at Carrying Value
The carrying value and fair value of Edison International's and SCE's long-term debt (including current portion of long-term debt) are as follows:
 
 
June 30, 2015
 
December 31, 2014
(in millions)
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
SCE
 
$
10,654

 
$
11,569

 
$
9,924

 
$
11,479

Edison International
 
11,469

 
12,406

 
10,738

 
12,319

The fair value of Edison International and SCE's short-term and long-term debt is classified as Level 2 and is based on evaluated prices that reflect significant observable market information such as reported trades, actual trade information of similar securities, benchmark yields, broker/dealer quotes of new issue prices and relevant credit information.
The carrying value of Edison International's and SCE's trade receivables and payables, other investments, and short-term debt approximates fair value.
Note 5.    Debt and Credit Agreements
Credit Agreements and Short-Term Debt
SCE and Edison International Parent have multi-year revolving credit facilities of $2.75 billion and $1.25 billion, respectively. In July 2015, SCE and Edison International Parent amended the credit facilities to extend the maturity dates to July 2020 for $2.6 billion and $1.18 billion, respectively. The remaining $150 million and $68 million for the SCE and Edison International Parent credit facilities, respectively, will mature in July 2019. SCE's credit facility is generally used to support commercial paper borrowings and letters of credit issued for procurement-related collateral requirements, balancing account undercollections and for general corporate purposes, including working capital requirements to support operations and capital expenditures. Edison International Parent's credit facility is used to support commercial paper borrowings and for general corporate purposes.
At June 30, 2015, SCE's outstanding commercial paper was $852 million at a weighted-average interest rate of 0.34%. At June 30, 2015, letters of credit issued under SCE's credit facility aggregated $117 million and are scheduled to expire in twelve months or less. At December 31, 2014, the outstanding commercial paper was $367 million at a weighted-average interest rate of 0.40%.
At June 30, 2015, Edison International Parent's outstanding commercial paper was $545 million at a weighted-average interest rate of 0.48%. At December 31, 2014, the outstanding commercial paper was $619 million at a weighted-average interest rate of 0.45%.
Project Financing
During 2014, indirect subsidiaries of Edison International entered into a $31.6 million non-recourse debt financing to support investment in approximately 35 megawatts of solar rooftop projects. The financing is required to be converted to a 7-year term loan during 2015, subject to meeting specified conditions. As of June 30, 2015, there was $18.6 million outstanding under this financing at a weighted average interest rate of 2.69% which is currently classified as short-term debt.
Long-Term Debt
During the first quarter of 2015, SCE issued $550 million of 1.845% amortizing first and refunding mortgage bonds due in 2022, $325 million of 2.4% first and refunding mortgage bonds due in 2022, and $425 million of 3.6% first and refunding mortgage bonds due in 2045. The proceeds from these bonds were used to repay outstanding debt and for general corporate purposes. The $550 million amortizing first and refunding mortgage bonds and the $325 million of first and refunding mortgage bonds have been designated as a financing of the San Onofre regulatory asset.
During the second quarter of 2015, SCE reissued $56 million of 1.875% pollution-control bonds due in 2029 and $75 million of 1.875% pollution-control bonds due in 2031. The proceeds were used to repay commercial paper borrowings and for general corporate purposes.

36


Note 6.    Derivative Instruments
Derivative financial instruments are used to manage exposure to commodity price risk. These risks are managed in part by entering into forward commodity transactions, including options, swaps and futures. To mitigate credit risk from counterparties in the event of nonperformance, master netting agreements are used whenever possible and counterparties may be required to pledge collateral depending on the creditworthiness of each counterparty and the risk associated with the transaction.
Commodity Price Risk
Commodity price risk represents the potential impact that can be caused by a change in the market value of a particular commodity. SCE's electricity price exposure arises from energy purchased from and sold to wholesale markets as a result of differences between SCE's load requirements and the amount of energy delivered from its generating facilities and power purchase agreements. SCE's natural gas price exposure arises from natural gas purchased for the Mountainview power plant and peaker plants, QF contracts where pricing is based on a monthly natural gas index and power purchase agreements in which SCE has agreed to provide the natural gas needed for generation, referred to as tolling arrangements.
Credit and Default Risk
Credit and default risk represent the potential impact that can be caused if a counterparty were to default on its contractual obligations and SCE would be exposed to spot markets for buying replacement power or selling excess power. In addition, SCE would be exposed to the risk of non-payment of accounts receivable, primarily related to the sales of excess power and realized gains on derivative instruments.
Certain power contracts contain master netting agreements or similar agreements, which generally allow counterparties subject to the agreement to setoff amounts when certain criteria are met, such as in the event of default. The objective of netting is to reduce credit exposure. Additionally, to reduce SCE's risk exposures counterparties may be required to pledge collateral depending on the creditworthiness of each counterparty and the risk associated with the transaction.
Certain power contracts contain a provision that requires SCE to maintain an investment grade rating from each of the major credit rating agencies, referred to as a credit-risk-related contingent feature. If SCE's credit rating were to fall below investment grade, SCE may be required to post additional collateral to cover derivative liabilities and the related outstanding payables. The net fair value of all derivative liabilities with these credit-risk-related contingent features was $36 million and $53 million as of June 30, 2015 and December 31, 2014, respectively. SCE has posted no collateral at June 30, 2015 and $13 million at December 31, 2014 to its counterparties at the respective dates for its derivative liabilities and related outstanding payables. If the credit-risk-related contingent features underlying these agreements were triggered on June 30, 2015, SCE would be required to post $34 million of additional collateral.

37


Fair Value of Derivative Instruments
SCE presents its derivative assets and liabilities on a net basis on its consolidated balance sheets when subject to master netting agreements or similar agreements. Derivative positions are offset against margin and cash collateral deposits. In addition, SCE has provided collateral in the form of letters of credit. Collateral requirements can vary depending upon the level of unsecured credit extended by counterparties, changes in market prices relative to contractual commitments and other factors. See Note 4 for a discussion of fair value of derivative instruments. The following table summarizes the gross and net fair values of SCE's commodity derivative instruments:
 
 
June 30, 2015
 
 
 
 
Derivative Assets
 
Derivative Liabilities
 
Net
Liability
(in millions)
 
Short-Term
 
Long-Term
 
Subtotal
 
Short-Term
 
Long-Term
 
Subtotal
 
Commodity derivative contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
92

 
$
194

 
$
286

 
$
204

 
$
1,155

 
$
1,359

 
$
1,073

Gross amounts offset in the consolidated balance sheets
 
(13
)
 
—

 
(13
)
 
(13
)
 
—

 
(13
)
 
—

Cash collateral posted1
 
—

 
—

 
—

 
(29
)
 
—

 
(29
)
 
(29
)
Net amounts presented in the consolidated balance sheets
 
$
79

 
$
194

 
$
273

 
$
162

 
$
1,155

 
$
1,317

 
$
1,044

 
 
December 31, 2014
 
 
 
 
Derivative Assets
 
Derivative Liabilities
 
Net
Liability
(in millions)
 
Short-Term
 
Long-Term
 
Subtotal
 
Short-Term
 
Long-Term
 
Subtotal
 
Commodity derivative contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
104

 
$
219

 
$
323

 
$
259

 
$
1,052

 
$
1,311

 
$
988

Gross amounts offset in the consolidated balance sheets
 
(2
)
 
—

 
(2
)
 
(2
)
 
—

 
(2
)
 
—

Cash collateral posted1
 
—

 
—

 
—

 
(61
)
 
—

 
(61
)
 
(61
)
Net amounts presented in the consolidated balance sheets
 
$
102

 
$
219

 
$
321

 
$
196

 
$
1,052

 
$
1,248

 
$
927

1 
In addition, at June 30, 2015 and December 31, 2014, SCE had posted $34 million and $36 million, respectively, of collateral that is not offset against derivative liabilities and is reflected in "Other current assets" on the consolidated balance sheets.
Income Statement Impact of Derivative Instruments
SCE recognizes realized gains and losses on derivative instruments as purchased power expense and expects that such gains or losses will be part of the purchase power costs recovered from customers. As a result, realized gains and losses do not affect earnings, but may temporarily affect cash flows. Due to expected future recovery from customers, unrealized gains and losses are recorded as regulatory assets and liabilities and therefore also do not affect earnings. The results of derivative activities and related regulatory offsets are recorded in cash flows from operating activities in the consolidated statements of cash flows.
The following table summarizes the components of SCE's economic hedging activity:
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
 
2015
 
2014
 
2015
 
2014
Realized losses
 
$
(39
)

$
(4
)
 
$
(75
)
 
$
(41
)
Unrealized losses
 
(16
)

(110
)
 
(85
)
 
(58
)

38


Notional Volumes of Derivative Instruments
The following table summarizes the notional volumes of derivatives used for SCE hedging activities:
 
 
Unit of
 
Economic Hedges
Commodity
 
Measure
 
June 30, 2015
 
December 31, 2014
Electricity options, swaps and forwards
 
GWh
 
5,323

 
3,618
Natural gas options, swaps and forwards
 
Bcf
 
88

 
83
Congestion revenue rights
 
GWh
 
96,541

 
122,859
Tolling arrangements
 
GWh
 
75,352

 
79,989
Note 7.    Income Taxes
Effective Tax Rate
The table below provides a reconciliation of income tax expense computed at the federal statutory income tax rate to the income tax provision:
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
2015
 
2014
 
2015
 
2014
Edison International:
 
 
 
 
 
 
 
Income from continuing operations before income taxes
$
412

 
$
466

 
$
837

 
$
671

Provision for income tax at federal statutory rate of 35%
144

 
164

 
293

 
235

Increase (decrease) in income tax from:
 
 
 
 
 
 
 
State tax, net of federal benefit
5

 
6

 
16

 
7

Property-related
(69
)
 
(55
)
 
(129
)
 
(106
)
Change related to uncertain tax positions
(77
)
 
(21
)
 
(62
)
 
(14
)
San Onofre OII settlement
—

 
—

 
—

 
(40
)
Other
3

 
(10
)
 
(5
)
 
(17
)
Total income tax expense from continuing operations
$
6

 
$
84

 
$
113

 
$
65

Effective tax rate
1.5
%
 
18.0
%
 
13.5
%
 
9.7
%
SCE:
 
 
 
 
 
 
 
Income from continuing operations before income taxes
$
419

 
$
490

 
$
860

 
$
712

Provision for income tax at federal statutory rate of 35%
147

 
171

 
301

 
249

Increase (decrease) in income tax from:
 
 
 
 
 
 
 
State tax, net of federal benefit
2

 
9

 
16

 
10

Property-related
(69
)
 
(55
)
 
(129
)
 
(106
)
Change related to uncertain tax positions
(75
)
 
(17
)
 
(65
)
 
(10
)
San Onofre OII settlement
—

 
—

 
—

 
(40
)
Other
2

 
(10
)
 
(8
)
 
(17
)
Total income tax expense from continuing operations
$
7

 
$
98

 
$
115

 
$
86

Effective tax rate
1.7
%
 
20.0
%
 
13.4
%
 
12.1
%
The CPUC requires flow-through 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.

39


Property-related items include recognition of income tax benefits from repair deductions. The CPUC classifies repair deductions as a flow-through item which affects earnings to the extent actual income tax benefits from repair deductions differ from the estimated amounts included in authorized revenue. Income tax benefits for repair deductions in excess of the amounts recorded as a reduction in revenue on an after tax basis were $8 million and $24 million for the three months ended June 30, 2015 and 2014, respectively, and were $15 million and $49 million for the six months ended June 30, 2015 and 2014, respectively.
During the three months ended June 30, 2015, SCE recorded $18 million of additional income taxes for revisions to estimated net operating loss carrybacks, interest and state income taxes.
Tax Disputes
Tax Years 2007 – 2009
Edison International received a Revenue Agent Report from the IRS in February 2013 which included a proposed adjustment to disallow a component of SCE's percentage repair allowance deduction. The proposed adjustment, if sustained, would result in a federal tax liability of approximately $79 million, including interest through June 30, 2015. Edison International has tentatively reached an agreement with the IRS regarding SCE’s percentage repair allowance deduction, which if finalized, would result in a federal tax liability of approximately $16 million, including interest through June 30, 2015. The IRS also proposed an adjustment for 2008 and 2009 to disallow deductions related to certain capitalized overhead expenses. If this adjustment were sustained, it would result in a federal tax liability of approximately $123 million, including interest through June 30, 2015. Edison International disagrees with the proposed adjustment and has appealed.
Tax Years 2010 – 2012
The IRS Revenue Agent Report was received in June 2015. As a result, Edison International and SCE have re-measured its Federal and State uncertain tax positions and recorded $94 million and $100 million, respectively, of income tax benefits including interest and penalty during the second quarter of 2015. The Revenue Agent Report included a proposed adjustment to disallow deductions related to certain capitalized overhead expenses. If this adjustment is sustained, it would result in a federal tax liability of approximately $99 million, including interest through June 30, 2015. Edison International disagrees with the proposed adjustment and plans to appeal. SCE has agreed to the remaining proposed adjustments in the Revenue Agent Report.
Note 8.    Compensation and Benefit Plans
Pension Plans
Edison International made contributions of $45 million during the six months ended June 30, 2015, which includes contributions of $38 million by SCE. Edison International expects to make contributions of $76 million during the remainder of 2015, which includes $54 million from SCE. Annual contributions made by SCE to most of SCE's pension plans are anticipated to be recovered through CPUC-approved regulatory mechanisms, pending the outcome of the 2015 GRC decision. Annual contributions to these plans are expected to be, at a minimum, equal to the related annual expense.

40


Pension expense components for continuing operations are:
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
2015
 
2014
 
2015
 
2014
Edison International:
 
 
 
 
 
 
 
Service cost
$
35

 
$
29

 
$
70

 
$
59

Interest cost
42

 
48

 
83

 
93

Expected return on plan assets
(57
)
 
(60
)
 
(114
)
 
(117
)
Amortization of prior service cost
1

 
2

 
2

 
3

Amortization of net loss1
9

 
1

 
18

 
2

Expense under accounting standards
$
30

 
$
20

 
$
59

 
$
40

Regulatory adjustment
(2
)
 
30

 
(3
)
 
61

Total expense recognized
$
28

 
$
50

 
$
56

 
$
101

SCE:
 
 
 
 
 
 
 
Service cost
$
34

 
$
29

 
$
69

 
$
58

Interest cost
37

 
44

 
75

 
88

Expected return on plan assets
(54
)
 
(56
)
 
(107
)
 
(112
)
Amortization of prior service cost
2

 
1

 
3

 
2

Amortization of net loss1
8

 
1

 
15

 
1

Expense under accounting standards
$
27

 
$
19

 
$
55

 
$
37

Regulatory adjustment
(1
)
 
30

 
(2
)
 
61

Total expense recognized
$
26

 
$
49

 
$
53

 
$
98

1 
Includes the amount of net loss reclassified from other comprehensive income. The amount reclassified for Edison International and SCE was $4 million and $2 million, respectively, for the three months ended June 30, 2015, and $7 million and $4 million, respectively, for the six months ended June 30, 2015. The amount reclassified for Edison International and SCE was $1 million and $1 million, respectively, for the three months ended June 30, 2014 and $3 million and $2 million, respectively, for the six months ended June 30, 2014.
Postretirement Benefits Other Than Pensions
Edison International made contributions of $30 million during the six months ended June 30, 2015 and expects to make contributions of $29 million during the remainder of 2015, substantially all of which are expected to be made by SCE. Annual contributions made to SCE plans are anticipated to be recovered through CPUC-approved regulatory mechanisms and are expected to be, at a minimum, equal to the total annual expense for these plans, pending the outcome of the 2015 GRC decision. Benefits under these plans, with some exceptions, are generally unvested and subject to change. Under the terms of the Edison International Health and Welfare Plan ("PBOP Plan") each participating employer (Edison International or its participating subsidiaries) is responsible for the costs and expenses of all PBOP benefits with respect to its employees and former employees. A participating employer may terminate the PBOP benefits with respect to its employees and former employees, as may SCE (as Plan sponsor), and, accordingly, the participants' PBOP benefits are not vested benefits.

41


PBOP expense components for continuing operations are:
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
2015
 
2014
 
2015
 
2014
Edison International:
 
 
 
 
 
 
 
Service cost
$
12

 
$
11

 
$
24

 
$
22

Interest cost
28

 
27

 
57

 
54

Expected return on plan assets
(29
)
 
(28
)
 
(57
)
 
(56
)
Amortization of prior service cost
(3
)
 
(9
)
 
(6
)
 
(18
)
Amortization of net loss
6

 
—

 
12

 
—

Total expense
$
14

 
$
1

 
$
30

 
$
2

SCE:
 
 
 
 
 
 
 
Service cost
$
12

 
$
11

 
$
24

 
$
22

Interest cost
28

 
27

 
56

 
54

Expected return on plan assets
(28
)
 
(28
)
 
(56
)
 
(56
)
Amortization of prior service cost
(3
)
 
(9
)
 
(6
)
 
(18
)
Amortization of net loss
5

 
—

 
11

 
—

Total expense
$
14

 
$
1

 
$
29

 
$
2

Workforce Reductions
SCE continues to focus on productivity improvements to mitigate rate pressure from its capital program, optimize its cost structure and improve operational efficiency, which is expected to result in further workforce reductions through 2016. During the second quarter of 2015, SCE increased the estimated impact for workforce reduction approved through the end of the quarter. During the second quarter of 2014, SCE increased the estimated impact for workforce reductions related to transferring certain information technology activities to third parties.
The following table provides a summary of changes in the accrued severance liability associated with these reductions:
(in millions)
 
 
Balance at January 1, 2015
 
$
35

Additions
 
10

Payments
 
(24
)
Balance at June 30, 2015
 
$
21

The liability presented in the table above is reflected in "Other current liabilities" on the consolidated balance sheets. The severance costs are included in "Operation and maintenance" on the consolidated income statements.

42


Note 9.    Investments
Nuclear Decommissioning Trusts
Future decommissioning costs related to SCE's nuclear assets are expected to be funded from independent decommissioning trusts.
The following table sets forth amortized cost and fair value of the trust investments:
 
Longest
Maturity
Dates
 
Amortized Cost
 
Fair Value
(in millions)
 
June 30,
2015
 
December 31,
2014
 
June 30,
2015
 
December 31, 2014
Stocks
—
 
$
560

 
$
524

 
$
2,084

 
$
2,031

Municipal bonds
2054
 
705

 
681

 
826

 
822

U.S. government and agency securities
2045
 
1,116

 
777

 
1,173

 
836

Corporate bonds
2057
 
591

 
346

 
637

 
395

Short-term investments and receivables/payables1
One-year
 
113

 
692

 
116

 
715

Total
 
 
$
3,085

 
$
3,020

 
$
4,836

 
$
4,799

1
Short-term investments include $140 million of repurchase agreements payable by financial institutions which earn interest, are fully secured by U.S. Treasury securities and mature by July 8, 2015.
Trust fund earnings (based on specific identification) increase the trust fund balance and the ARO regulatory liability. Proceeds from sales of securities (which are reinvested) were $4.4 billion and $2.2 billion for the three months ended June 30, 2015 and 2014, respectively, and $7.3 billion and $3.8 billion for the six months ended June 30, 2015 and 2014, respectively. Unrealized holding gains, net of losses, were $1.8 billion at both June 30, 2015 and December 31, 2014.
The following table sets forth a summary of changes in the fair value of the trust:
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
 
2015
 
2014
 
2015
 
2014
Balance at beginning of period
 
$
4,896

 
$
4,587

 
$
4,799

 
$
4,494

Gross realized gains
 
5

 
28

 
32

 
38

Gross realized losses
 
(3
)
 
—

 
(5
)
 
—

Unrealized (losses) gains, net
 
(71
)
 
107

 
(27
)
 
169

Other-than-temporary impairments
 
(8
)
 
(3
)
 
(12
)
 
(6
)
Interest and dividends
 
32

 
33

 
60

 
62

Contributions
 
—

 
—

 
7

 
5

Income taxes
 
(14
)
 
(11
)
 
(14
)
 
(19
)
Administrative expenses and other
 
(1
)
 
(1
)
 
(4
)
 
(3
)
Balance at end of period
 
$
4,836

 
$
4,740

 
$
4,836

 
$
4,740

Trust assets are used to pay income taxes as the Trust files separate income taxes returns from SCE. Deferred income taxes related to unrealized gains at June 30, 2015 were $427 million. Accordingly, the fair value of Trust assets available to pay future decommissioning costs, net of deferred income taxes, totaled $4.4 billion at June 30, 2015. Due to regulatory mechanisms, changes in assets of the trusts from income items have no impact on operating revenue or earnings.


43


Note 10.    Regulatory Assets and Liabilities
Regulatory Assets
SCE's regulatory assets included on the consolidated balance sheets are:
(in millions)
June 30,
2015
 
December 31,
2014
Current:
 
 
 
Regulatory balancing accounts
$
911

 
$
1,088

Energy derivatives
116

 
159

Other
39

 
7

Total current
1,066

 
1,254

Long-term:
 
 
 
Deferred income taxes, net
3,777

 
3,405

Pensions and other postretirement benefits
1,210

 
1,218

Energy derivatives
975

 
850

Unamortized investments, net
217

 
255

San Onofre
1,203

 
1,288

Unamortized loss on reacquired debt
210

 
201

Regulatory balancing accounts
54

 
44

Other
363

 
351

Total long-term
8,009

 
7,612

Total regulatory assets
$
9,075

 
$
8,866

Regulatory Liabilities
SCE's regulatory liabilities included on the consolidated balance sheets are:
(in millions)
June 30,
2015
 
December 31,
2014
Current:
 
 
 
Regulatory balancing accounts
$
354

 
$
380

Other1
100

 
21

Total current
454

 
401

Long-term:
 
 
 
Costs of removal
2,767

 
2,826

Recoveries in excess of ARO liabilities2

1,908

 
1,956

Regulatory balancing accounts
1,080

 
1,083

Other
58

 
24

Total long-term
5,813

 
5,889

Total regulatory liabilities
$
6,267

 
$
6,290

1 
During the six months ended June 30, 2015, SCE recognized revenue from CPUC activities largely based on 2014 authorized base revenue requirements included in customer rates. SCE deferred $49 million and $85 million of the 2014 authorized base revenue requirement allocated to the second quarter and first six months of 2015, respectively, related to incremental repair deductions pending the outcome of the 2015 GRC.
2
Represents the cumulative differences between ARO expenses and amounts collected in rates primarily for the decommissioning of the SCE's nuclear generation facilities. Decommissioning costs recovered through rates are primarily placed in nuclear decommissioning trusts. This regulatory liability also represents the deferral of realized and unrealized gains and losses on the nuclear decommissioning trust investments. See Note 9.

44


Net Regulatory Balancing Accounts
The following table summarizes the significant components of regulatory balancing accounts included in the above tables of regulatory assets and liabilities:
(in millions)
June 30,
2015
 
December 31,
2014
Asset (liability)
 
 
 
Energy resource recovery account
$
543

 
$
1,028

New system generation balancing account
(139
)
 
35

Public purpose programs and energy efficiency programs
(752
)
 
(874
)
Base rate recovery balancing account
74

 
(5
)
Greenhouse gas auction revenue
(145
)
 
(182
)
FERC balancing accounts
44

 
(32
)
Generator settlements
(3
)
 
(197
)
Other
(91
)
 
(104
)
Liability
$
(469
)
 
$
(331
)
Note 11.    Commitments and Contingencies
Third-Party Power Purchase Agreements
During the six months ended June 30, 2015, SCE had new power procurement contracts with additional commitments estimated to be: $41 million for remainder of 2015, $208 million for 2016, $297 million for 2017, $347 million for 2018, $384 million for 2019 and $4.7 billion for the period remaining thereafter.
Indemnities
Edison International and SCE have various financial and performance guarantees and indemnity agreements which are issued in the normal course of business.
Edison International and SCE have provided indemnifications through contracts entered into in the normal course of business. These are primarily indemnifications against adverse litigation outcomes in connection with underwriting agreements, and indemnities for specified environmental liabilities and income taxes with respect to assets sold. Edison International's and SCE's obligations under these agreements may or may not be limited in terms of time and/or amount, and in some instances Edison International and SCE may have recourse against third parties. Edison International and SCE have not recorded a liability related to these indemnities. The overall maximum amount of the obligations under these indemnifications cannot be reasonably estimated.
SCE has indemnified the City of Redlands, California in connection with Mountainview's California Energy Commission permit for cleanup or associated actions related to groundwater contaminated by perchlorate due to the disposal of filter cake at the City's solid waste landfill. The obligations under this agreement are not limited to a specific time period or subject to a maximum liability. SCE has not recorded a liability related to this indemnity.
Contingencies
In addition to the matters disclosed in these Notes, Edison International and SCE are involved in other legal, tax and regulatory proceedings before various courts and governmental agencies regarding matters arising in the ordinary course of business. Edison International and SCE believe the outcome of these other proceedings will not, individually or in the aggregate, materially affect its results of operations or liquidity.

45


San Onofre Related Matters
Replacement steam generators were installed at San Onofre in 2010 and 2011. On January 31, 2012, a leak suddenly occurred in one of the heat transfer tubes in San Onofre's Unit 3 steam generators. The Unit was safely taken off-line and subsequent inspections revealed excessive tube wear. Unit 2 was off-line for a planned outage when areas of unexpected tube wear were also discovered. On June 6, 2013, SCE decided to permanently retire Units 2 and 3.
Settlement of San Onofre CPUC Proceedings
In November 2014, the CPUC approved the San Onofre OII Settlement Agreement that SCE had entered into with TURN, ORA, SDG&E, the Coalition of California Utility Employees, and Friends of the Earth. The San Onofre OII Settlement Agreement resolved the CPUC's investigation regarding the Steam Generator Replacement Project at San Onofre and the related outages and subsequent shutdown of San Onofre. The San Onofre OII Settlement Agreement does not affect proceedings related to recoveries from third parties described below, but does describe how shareholders and customers will share any potential recoveries.
A federal lawsuit challenging the CPUC's authority to permit rate recovery of San Onofre costs and an application to the CPUC for rehearing of its decision approving the San Onofre OII Settlement Agreement were filed in November and December 2014, respectively. In April 2015, the federal lawsuit was dismissed with prejudice and the plaintiffs in that case appealed the dismissal to the Ninth Circuit in May 2015. Both the appeal and the application for rehearing remain pending.
In February 2015, SCE filed in the OII proceeding a Late-Filed Notice of Ex Parte Communication regarding a meeting in March 2013 between an SCE senior executive and the president of the CPUC, both of whom have since retired from their respective positions. Following this filing, the Alliance for Nuclear Responsibility ("A4NR"), one of the intervenors in the OII, filed a motion requesting that the CPUC institute an investigation into whether sanctions should be imposed on SCE for the late notice of the March 2013 meeting. The motion requests that the CPUC order SCE to produce all ex parte communications between SCE and the CPUC or its staff since January 31, 2012 and all internal SCE unprivileged communications that discuss such ex parte communications. On May 6, 2015, A4NR amended its motion to recommend that the CPUC impose a $38.2 million penalty on SCE and additional restrictions on ex parte communications.
On April 14, 2015, the OII ALJs ordered SCE, among other things, to produce unprivileged documents pertaining to oral and written communications regarding the possible settlement of the OII proceeding between any SCE employee and CPUC decision makers from March 2013 to November 2014. SCE produced responsive documents and information on April 29, 2015. On June 26, 2015, the ALJs requested additional information, which SCE provided on July 3, 2015. Subsequently, another intervenor, the Coalition to Decommission San Onofre, filed a motion to move the start date for the production of documents under the CPUC’s order to January 31, 2012 and to authorize the intervenors to conduct discovery of SCE. That motion remains pending.
On April 17, 2015, ORA and TURN issued press releases asking the CPUC to impose penalties on SCE as a sanction for allegedly improper ex parte communications pertaining to San Onofre or failures to report such communications. ORA recommended penalties in the amount of $648 million, representing ORA's calculation of the difference in ratepayer value between ORA's initial settlement negotiating position in the San Onofre OII and the approved settlement. TURN did not recommend a penalty amount. 
On April 27, 2015, A4NR filed a petition to modify the CPUC’s decision approving the San Onofre OII Settlement Agreement based on SCE’s alleged failures to disclose communications between SCE and CPUC decision-makers pertaining to the issues in the San Onofre OII. The petition seeks the reversal of the decision approving the San Onofre OII Settlement Agreement and reopening of the OII proceeding. Subsequently, TURN filed a response supporting A4NR's petition to reopen the San Onofre OII proceeding.
Edison International and SCE cannot predict the outcome of these proceedings.
NEIL Insurance Claims
San Onofre carries accidental property damage and carried accidental outage insurance issued by Nuclear Electric Insurance Limited ("NEIL") and has placed NEIL on notice of claims under both policies. The NEIL policies have a number of exclusions and limitations that NEIL may assert reduce or eliminate coverage (such as a limitation under which benefits may be reduced by up to 90% for periods following a planned shutdown), and SCE may choose to challenge NEIL's application of any such exclusions and limitations. Through August 30, 2014, the San Onofre owners had submitted approximately $433 million in claims (SCE's share of which is approximately $339 million) under the accidental outage insurance. These claims continue to be under review and are subject to revision and updating over time. The accidental outage insurance at San

46


Onofre has been canceled prospectively as a result of the permanent retirement. SCE has not submitted a proof of loss under the accidental property damage insurance but reserves the right to do so. The parties are continuing discussions. SCE may challenge any reduction or denial of coverage that results from any coverage determination by NEIL. No amounts have been recognized in SCE's financial statements, pending NEIL's response to the San Onofre owners’ claims.
Under the San Onofre OII Settlement Agreement, recoveries from NEIL, if any, will first be applied to reimburse costs incurred in pursuing such recoveries, including litigation costs. To the extent SCE's share of recoveries from NEIL exceeds such costs, recoveries under the accidental outage insurance will be allocated 95% to customers and 5% to SCE and all other NEIL recoveries will be allocated 82.5% to customers and 17.5% to SCE. SCE customers' portion of amounts recovered from NEIL would be distributed to SCE customers via a credit to SCE's ERRA account.
MHI Claims
SCE is also pursuing claims against Mitsubishi Heavy Industries, Ltd. and a related company ("MHI"), which designed and supplied the RSGs. MHI warranted the RSGs for an initial period of 20 years from acceptance and is contractually obligated to repair or replace defective items with dispatch and to pay specified damages for certain repairs. MHI's stated liability under the purchase agreement is limited to $138 million and excludes consequential damages, defined to include "the cost of replacement power" however, limitations in the contract are subject to applicable exceptions both in the contract and under law. SCE has advised MHI that it believes one or more of such exceptions apply and that MHI's liability is not limited to $138 million. MHI has advised SCE that it disagrees. In October 2013, SCE sent MHI a formal request for binding arbitration under the auspices of the International Chamber of Commerce in accordance with the purchase contract seeking damages for all losses. In the request for arbitration, SCE alleges contract and tort claims and seeks at least $4 billion in damages on behalf of itself and its customers and in its capacity as Operating Agent for San Onofre. MHI has denied any liability and has asserted counterclaims for $41 million, for which SCE has denied any liability. Each of the other San Onofre owners sued MHI, alleging claims arising from MHI's supplying the faulty steam generators. These litigation claims have been stayed pending the arbitration. The other owners (SDG&E and Riverside) have been added as additional claimants in the arbitration. The arbitration is being conducted pursuant to a confidentiality order issued by the arbitration panel.
SCE, on behalf of itself and the other San Onofre owners, has submitted seven invoices to MHI totaling $149 million for steam generator repair costs incurred through April 30, 2013. MHI paid the first invoice of $45 million, while reserving its right to challenge it and subsequently rejected a portion of the first invoice and has not paid further invoices, claiming further documentation is required, which SCE disputes. SCE recorded its share of the invoice paid (approximately $35 million) as a reduction of repair and inspection costs in 2012.
Under the San Onofre OII Settlement Agreement, recoveries from MHI (including amounts paid by MHI under the first invoice), if any, will first be applied to reimburse costs incurred in pursuing such recoveries, including litigation costs. To the extent SCE's share of recoveries from MHI exceed such costs, they will be allocated 50% to customers and 50% to SCE.
The first $282 million of SCE's customers' portion of such recoveries from MHI will be distributed to customers via a credit to a sub-account of SCE's Base Revenue Requirement Balancing Account ("BRRBA"), reducing revenue requirements from customers. Amounts in excess of the first $282 million distributable to SCE customers will reduce SCE's regulatory asset represented by the unamortized balance of investment in San Onofre base plant, reducing the revenue requirement needed to amortize such investment. The amortization period, however, will be unaffected. Any additional amounts received after the regulatory asset is recovered will be applied to the BRRBA.
The San Onofre OII Settlement Agreement provides the utilities with the discretion to resolve the NEIL and MHI disputes without CPUC approval or review, but the utilities are obligated to use their best efforts to inform the CPUC of any settlement or other resolution of these disputes to the extent this is possible without compromising any aspect of the resolution. SCE and SDG&E have also agreed to allow the CPUC to review the documentation of any final resolution of the NEIL and MHI disputes and the litigation costs incurred in pursuing claims against NEIL and MHI to ensure they are not exorbitant in relation to the recovery obtained. There is no assurance that there will be any recoveries from NEIL or MHI or, that if there are recoveries, that they will equal or exceed the costs incurred to pursue them.
NRC Proceedings
In February 2015, the NRC issued a proposed decision resolving the review of SCE's compliance with the license amendment regulatory process related to the RSGs by an NRC Staff Petition Review Board by finding the issue to be moot, given the permanent cessation of operation of San Onofre. In March 2015, the NRC issued a lessons learned report in which it restated earlier NRC inspection findings that SCE properly concluded that the replacement steam generators at San Onofre did not require a formal license amendment prior to installation using a common NRC process for replacement components.

47


Certain anti-nuclear groups and individual members of Congress have alleged that SCE knew of deficiencies in the steam generators when they were installed or otherwise did not correctly follow NRC requirements for the design and installation of the replacement steam generators, all of which SCE has vigorously denied, and have called for investigations, including by the Department of Justice. SCE cannot predict when or whether ongoing proceedings by the NRC will be completed or whether inquiries by other government agencies concerning how the RSG project was conducted will be initiated or reopened.
Environmental Remediation
SCE records its environmental remediation liabilities when site assessments and/or remedial actions are probable and a range of reasonably likely cleanup costs can be estimated. SCE reviews its sites and measures the liability quarterly, by assessing a range of reasonably likely costs for each identified site using currently available information, including existing technology, presently enacted laws and regulations, experience gained at similar sites, and the probable level of involvement and financial condition of other potentially responsible parties. These estimates include costs for site investigations, remediation, operation and maintenance, monitoring and site closure. Unless there is a single probable amount, SCE records the lower end of this reasonably likely range of costs (reflected in "Other long-term liabilities") at undiscounted amounts as timing of cash flows is uncertain.
At June 30, 2015, SCE's recorded estimated minimum liability to remediate its 19 identified material sites (sites in which the upper end of the range of the costs is at least $1 million) was $115 million, including $83 million related to San Onofre. In addition to these sites, SCE also has 39 immaterial sites for which the total minimum recorded liability was $4 million. Of the $119 million total environmental remediation liability for SCE, $116 million has been recorded as a regulatory asset. SCE expects to recover $30 million through an incentive mechanism that allows SCE to recover 90% of its environmental remediation costs at certain sites (SCE may request to include additional sites) and $85 million through a mechanism that allows SCE to recover 100% of the costs incurred at certain sites through customer rates. SCE's identified sites include several sites for which there is a lack of currently available information, including the nature and magnitude of contamination, and the extent, if any, that SCE may be held responsible for contributing to any costs incurred for remediating these sites. Thus, no reasonable estimate of cleanup costs can be made for these sites.
The ultimate costs to clean up SCE's identified sites may vary from its recorded liability due to numerous uncertainties inherent in the estimation process, such as: the extent and nature of contamination; the scarcity of reliable data for identified sites; the varying costs of alternative cleanup methods; developments resulting from investigatory studies; the possibility of identifying additional sites; and the time periods over which site remediation is expected to occur. SCE believes that, due to these uncertainties, it is reasonably possible that cleanup costs at the identified material sites and immaterial sites could exceed its recorded liability by up to $159 million and $8 million, respectively. The upper limit of this range of costs was estimated using assumptions least favorable to SCE among a range of reasonably possible outcomes.
SCE expects to clean up and mitigate its identified sites over a period of up to 30 years. Remediation costs for each of the next four years are expected to range from $6 million to $24 million. Costs incurred for both the six months ended June 30, 2015 and 2014 were $3 million and $1 million.
Based upon the CPUC's regulatory treatment of environmental remediation costs incurred at SCE, SCE believes that costs ultimately recorded will not materially affect its results of operations, financial position or cash flows. There can be no assurance, however, that future developments, including additional information about existing sites or the identification of new sites, will not require material revisions to estimates.
Nuclear Insurance
SCE is a member of NEIL, a mutual insurance company owned by entities with nuclear facilities. NEIL provides insurance for nuclear property damage, including damages caused by acts of terrorism up to specified limits, and for accidental outages for active facilities. The amount of nuclear property damage insurance purchased for San Onofre and Palo Verde exceeds the minimum federal requirement of $1.06 billion. If NEIL losses at any nuclear facility covered by the arrangement were to exceed the accumulated funds for these insurance programs, SCE could be assessed retrospective premium adjustments of up to approximately $52 million per year.
Federal law limits public offsite liability claims for bodily injury and property damage from a nuclear incident to the amount of available financial protection, which is currently approximately $13.4 billion. Based on its ownership interests, SCE could be required to pay a maximum of approximately $255 million per nuclear incident. However, it would have to pay no more than approximately $38 million per incident in any one year.
For more information on nuclear insurance coverage, see Note 11 in the 2014 Form 10-K.

48


Wildfire Insurance
Severe wildfires in California have given rise to large damage claims against California utilities for fire-related losses alleged to be the result of the failure of electric and other utility equipment. Invoking a California Court of Appeal decision, plaintiffs pursuing these claims have relied on the doctrine of inverse condemnation, which can impose strict liability (including liability for a claimant's attorneys' fees) for property damage. Prolonged drought conditions in California have also increased the risk of severe wildfire events. On June 1, 2015, Edison International renewed its liability insurance coverage, which included coverage for SCE's wildfire liabilities up to a $610 million limit (with a self-insured retention of $10 million per wildfire occurrence). Various coverage limitations within the policies that make up this insurance coverage could result in additional self-insured costs in the event of multiple wildfire occurrences during the policy period (June 1, 2015 to May 31, 2016). SCE also has additional coverage for certain wildfire liabilities of $390 million, which applies when total covered wildfire claims exceed $610 million, through June 14, 2016. SCE may experience coverage reductions and/or increased insurance costs in future years. No assurance can be given that future losses will not exceed the limits of SCE's insurance coverage.
Spent Nuclear Fuel
Under federal law, the Department of Energy ("DOE") is responsible for the selection and construction of a facility for the permanent disposal of spent nuclear fuel and high-level radioactive waste. The DOE has not met its contractual obligation to accept spent nuclear fuel. Extended delays by the DOE have led to the construction of costly alternatives and associated siting and environmental issues. Currently, both San Onofre and Palo Verde have interim storage for spent nuclear fuel on site sufficient for the current license period.
SCE, as operating agent, filed a lawsuit on behalf of the San Onofre owners against the DOE in the Court of Federal Claims seeking damages of approximately $182 million for the DOE's failure to meet its obligation to begin accepting spent nuclear fuel for the period from January 1, 2006 to December 31, 2013. Additional legal action would be necessary to recover damages incurred after December 31, 2013. All damages recovered by SCE are subject to CPUC review as to how these amounts would be distributed among customers, shareholders, or to offset fuel decommissioning or storage costs.
Note 12.    Accumulated Other Comprehensive Loss
Edison International's accumulated other comprehensive loss, net of tax consist of:
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
2015
 
2014
 
2015
 
2014
Beginning balance
$
(59
)
 
$
(11
)
 
$
(58
)
 
$
(13
)
Pension and PBOP – net income (loss):
 
 
 
 
 
 
 
Other comprehensive loss before reclassifications
(1
)
 
(5
)
 
(4
)
 
(5
)
    Reclassified from accumulated other comprehensive loss1
4

 
1

 
6

 
3

Other
—

 
2

 
—

 
2

Change
3

 
(2
)
 
2

 
—

Ending Balance
$
(56
)
 
$
(13
)
 
$
(56
)
 
$
(13
)
1 
These items are included in the computation of net periodic pension and PBOP expense. See Note 8 for additional information.
SCE's accumulated other comprehensive loss, net of tax consist of:
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
2015
 
2014
 
2015
 
2014
Beginning balance
$
(27
)
 
$
(10
)
 
$
(28
)
 
$
(11
)
Pension and PBOP – net income (loss):
 
 
 
 
 
 
 
Other comprehensive loss before reclassifications
(1
)
 
—

 
(1
)
 
—

    Reclassified from accumulated other comprehensive loss1
2

 
—

 
3

 
1

Other
—

 
2

 
—

 
2

Change
1

 
2

 
2

 
3

Ending Balance
$
(26
)
 
$
(8
)
 
$
(26
)
 
$
(8
)
1 
These items are included in the computation of net periodic pension and PBOP expense. See Note 8 for additional information.

49


Note 13.    Interest and Other Income and Other Expenses
Interest and other income and other expenses are as follows:
 
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
 
2015
 
2014
 
2015
 
2014
SCE interest and other income:
 
 
 
 
 
 
 
 
Equity allowance for funds used during construction
 
$
21

 
$
15

 
$
42

 
$
28

Generator settlements
 
—

 
14

 
—

 
14

Increase in cash surrender value of life insurance policies and life insurance benefits
 
7

 
12

 
17

 
18

Interest income
 
2

 
3

 
3

 
5

Other
 
1

 
2

 
2

 
4

Total SCE interest and other income
 
31

 
46

 
64

 
69

Other income of Edison International Parent and Other
 
12

 
—

 
18

 
—

Total Edison International interest and other income
 
$
43

 
$
46

 
$
82

 
$
69

SCE other expenses:
 
 
 
 
 
 
 
 
Civic, political and related activities and donations
 
$
9

 
$
9

 
$
14

 
$
13

Other
 
8

 
6

 
10

 
10

Total SCE other expenses
 
17

 
15

 
24

 
23

Other expense of Edison International Parent and Other
 
—

 
1

 
—

 
—

Total Edison International other expenses
 
$
17

 
$
16

 
$
24

 
$
23

SCE has participated in proceedings seeking recovery of refunds from sellers of electricity and natural gas who manipulated the electric and natural gas markets during the energy crisis in California in 2000 – 2011. SCE is authorized to refund to customers any refunds actually realized by SCE, net of litigation costs and amounts retained by SCE as a shareholder incentive pursuant to an established sharing arrangement. During the second quarter of 2014, FERC approved generator refund settlement agreements which resulted in total refunds to customers of $208 million of which $14 million is subject to the shareholder incentive.
Edison Capital continues to wind down its remaining affordable housing investments. Edison International other income reflects Edison Capital's income related to the sale of affordable housing projects.
Note 14.    Discontinued Operations
EME Chapter 11 Bankruptcy
In December 2012, EME and certain of its wholly-owned subsidiaries filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of Illinois, Eastern Division. The Amended Plan of Reorganization, including the EME Settlement Agreement, was completed on April 1, 2014 with the sale of substantially all of EME's assets to NRG Energy, Inc. and the transactions called for in the EME Settlement Agreement, including an initial cash payment to the Reorganization Trust of $225 million in April 2014. For further discussion of the EME Settlement Agreement, see the 2014 Form 10-K, "Notes to Consolidated Financial Statements—Note 15."
In August 2014, Edison International entered into an amendment of the EME Settlement Agreement that finalized the remaining matters related to the EME Settlement including setting the amount of the two installment payments at $204 million due on September 30, 2015 and $214 million due on September 30, 2016.
Income from discontinued operations, net of tax, was $184 million and $162 million for the three and the six months ended June 30, 2014, respectively.

50


Note 15.    Supplemental Cash Flows Information
Supplemental cash flows information for continuing operations is:
 
Edison International
 
SCE
 
Six months ended June 30,
(in millions)
2015
 
2014
 
2015
 
2014
Cash payments for interest and taxes:
 
 
 
 
 
 
 
Interest, net of amounts capitalized
$
230

 
$
226

 
$
222

 
$
225

Tax payments, net
3

 
189

 
125

 
14

Non-cash financing and investing activities:
 
 
 
 
 
 
 
Dividends declared but not paid:
 
 
 
 
 
 
 
Common stock
$
136

 
$
116

 
$
147

 
$
126

Preferred and preference stock
18

 
18

 
18

 
18

   Details of debt exchange:
 
 
 
 
 
 
 
 Pollution-control bonds redeemed (2.875%)
$
(203
)
 
$
—

 
$
(203
)
 
$
—

 Pollution-control bonds issued (1.875%)
203

 
—

 
203

 
—

SCE's accrued capital expenditures at June 30, 2015 and 2014 were $393 million and $451 million, respectively. Accrued capital expenditures will be included as an investing activity in the consolidated statements of cash flow in the period paid.
During 2015, an SCE power contract classified as a capital lease was amended, which resulted in a reduction in the lease obligation and asset by $147 million.


51


CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The management of Edison International and SCE, under the supervision and with the participation of Edison International's Chief Executive Officer and Chief Financial Officer and SCE's President and Chief Financial Officer, have evaluated the effectiveness of Edison International's and SCE's disclosure controls and procedures (as that term is defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended), respectively, as of the end of the second quarter of 2015. Based on that evaluation, Edison International's Chief Executive Officer and Chief Financial Officer and SCE's President and Chief Financial Officer have each concluded that, as of the end of the period, Edison International's and SCE's disclosure controls and procedures, respectively, were effective.
Changes in Internal Control Over Financial Reporting
Beginning in 2015, SCE commenced transitioning a portion of its information technology services to third-party providers under managed services agreements. The transition of day-to-day responsibilities to outside service providers has resulted in certain changes to business processes and internal controls over financial reporting. SCE continues to be responsible for the design and operating effectiveness of controls over financial reporting and has taken steps to provide oversight of controls performed by its managed service provider during this period of change and will continue to evaluate the operating effectiveness of related controls during subsequent periods.

There were no other changes in Edison International's or SCE's internal control over financial reporting, respectively, during the second quarter of 2015 that have materially affected, or are reasonably likely to materially affect, Edison International's or SCE's internal control over financial reporting.
Jointly Owned Utility Plant
Edison International's and SCE's respective scope of evaluation of internal control over financial reporting includes their Jointly Owned Utility Projects as discussed in Note 2. Property, Plant and Equipment in the 2014 Form 10-K.
LEGAL PROCEEDINGS
Shaver Lake Dam Project Administrative Civil Liability Complaint
In 2011, SCE installed a PVC plastic geomembrane liner on the Shaver Lake Dam to prevent water seepage. Before starting the project, SCE received the required regulatory permits and approvals. SCE and the California Department of Fish and Wildlife executed a Streambed Alteration Agreement in November 2011 that governed SCE's activities in Shaver Lake as required by state and federal law. SCE also obtained the required federal Clean Water Act Certification in November 2011 for the project's completion.
In February 2012, the California Department of Fish and Wildlife and the Central Valley Regional Water Quality control Board issued letters alleging that SCE had violated provisions of the Streambed Alteration Agreement and certain conditions of the federal Clean Water Act Certification, respectively. Both letters alleged that during the draining of Shaver Lake, SCE failed to prevent the discharge of sediment into an adjoining creek, causing the deaths of fish in the lake and creek. In October 2014, SCE received a pre-issuance draft of an Administrative Civil Liability Complaint from the Central Valley Regional Water Quality Control Board alleging violations of certain permit conditions relating to the Shaver Lake Dam Project. The Regional Water Quality Control Board is seeking $25 million in civil penalties for the violations. SCE disputes the allegations.
Dominguez Channel Oil Spill Complaint
SCE has been named as a defendant in a criminal misdemeanor complaint filed by the L.A. City Attorney's office arising from a 2013 oil spill associated with the failure of an underground primary cable and ground rod located in close proximity to a pipeline controlled by a private pipeline management company. The City's complaint alleges that 840 gallons of oil leaked from the pipeline into the City's storm drain which connected to the Dominguez channel. The private pipeline management company is also named as a defendant in the complaint. The City alleges violations of the California Fish and Game code as well as other state statutes and city ordinances.


52


UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by Edison International and Affiliated Purchasers
The following table contains information about all purchases of Edison International Common Stock made by or on behalf of Edison International in the second quarter of 2015.
Period
(a) Total
Number of Shares
(or Units)
Purchased1
 
(b) Average
Price Paid per Share (or Unit)1
 
(c) Total
Number of Shares
(or Units)
Purchased
as Part of
Publicly
Announced
Plans or
Programs
 
(d) Maximum
Number (or
Approximate
Dollar Value)
of Shares
(or Units) that May
Yet Be Purchased
Under the Plans or
Programs
April 1, 2015 to April 30, 2015
96,733

 
 
$
62.78

 
 
—
 
—
May 1, 2015 to May 31, 2015
94,045

 
 
60.25

 
 
—
 
—
June 1, 2015 to June 30, 2015
262,290

 
 
58.39

 
 
—
 
—
Total
453,068

 
 
59.71

 
 
—
 
—
1 
The shares were purchased by agents acting on Edison International's behalf for delivery to plan participants to fulfill requirements in connection with Edison International's: (i) 401(k) Savings Plan; (ii) Dividend Reinvestment and Direct Stock Purchase Plan; and (iii) long-term incentive compensation plans. The shares were purchased in open-market transactions pursuant to plan terms or participant elections. The shares were never registered in Edison International's name and none of the shares purchased were retired as a result of the transactions.

53


EXHIBITS
Exhibit
Number
 
Description
 
 
 
10.1**
 
Edison International and Southern California Edison Company Director Compensation Schedule, as adopted June 17, 2015
 
 
 
10.2
 
Amended and Restated Credit Agreement dated as of July 14, 2015 among Edison International and the Lenders named therein (File 1-9936, filed as Exhibit 10.1 to Edison International's Form 8-K dated July 14, 2015 and filed July 17, 2015)*
 
 
 
10.3
 
Amended and Restated Credit Agreement dated as of July 14, 2015 among Southern California Edison Company and the Lenders named therein (File 1-2313, filed as Exhibit 10.2 to Southern California Edison Company's Form 8-K dated July 14, 2015 and filed July 17, 2015)*
 
 
 
31.1
 
Certifications of the Chief Executive Officer and Chief Financial Officer of Edison International pursuant to Section 302 of the Sarbanes-Oxley Act
 
 
 
31.2
 
Certifications of the Chief Executive Officer and Chief Financial Officer of Southern California Edison Company pursuant to Section 302 of the Sarbanes-Oxley Act
 
 
 
32.1
 
Certifications of the Chief Executive Officer and the Chief Financial Officer of Edison International required by Section 906 of the Sarbanes-Oxley Act
 
 
 
32.2
 
Certifications of the Chief Executive Officer and the Chief Financial Officer of Southern California Edison Company required by Section 906 of the Sarbanes-Oxley Act
 
 
 
101.1
 
Financial statements from the quarterly report on Form 10-Q of Edison International for the quarter ended June 30, 2015, filed on July 30, 2015, formatted in XBRL: (i) the Consolidated Statements of Income; (ii) the Consolidated Statements of Comprehensive Income; (iii) the Consolidated Balance Sheets; (iv) the Consolidated Statements of Cash Flows; and (v) the Notes to Consolidated Financial Statements
 
 
 
101.2
 
Financial statements from the quarterly report on Form 10-Q of Southern California Edison Company for the quarter ended June 30, 2015, filed on July 30, 2015, formatted in XBRL: (i) the Consolidated Statements of Income; (ii) the Consolidated Statements of Comprehensive Income; (iii) the Consolidated Balance Sheets; (iv) the Consolidated Statements of Cash Flows; and (v) the Notes to Consolidated Financial Statements
________________________________________
*
Incorporated by reference pursuant to Rule 12b-32.
**
Indicates a management contract or compensatory plan or arrangement, as required by Item 15(a)(3).


54


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.
 
EDISON INTERNATIONAL
 
 
SOUTHERN CALIFORNIA EDISON COMPANY
 
 
 
 
 
By:
/s/ Mark C. Clarke
 
By:
/s/ Connie J. Erickson
 
 
 
 
 
 
Mark C. Clarke
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
 
 
Connie J. Erickson
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
 
 
 
 
 
Date:
July 30, 2015
 
Date:
July 30, 2015


55