SOUTHERN CALIFORNIA EDISON Co - Quarter Report: 2009 September (Form 10-Q)

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

FORM 10-Q


(Mark One)
ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 30, 2009
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 1-2313

SOUTHERN CALIFORNIA EDISON COMPANY
(Exact name of registrant as specified in its charter)


California		95-1240335
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
2244 Walnut Grove Avenue (P. O. Box 800) Rosemead, California		91770
(Address of principal executive offices)		(Zip 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. Yes ý 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or non-accelerated filer.


Large accelerated filer o		Accelerated filer o		Non-accelerated filer ý (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

Class		Outstanding at November 3, 2009

Common Stock, no par value		434,888,104

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SOUTHERN CALIFORNIA EDISON

INDEX

				Page

PART I. FINANCIAL INFORMATION				1
	Item 1.	Financial Statements		1
		Consolidated Statements of Income – Three and Nine Months Ended September 30, 2009 and 2008		1
		Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2009 and 2008		1
		Consolidated Balance Sheets – September 30, 2009 and December 31, 2008		2
		Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2009 and 2008		4
		Notes to the Consolidated Financial Statements		5
		Management's Statement		5
		Note 1. Summary of Significant Accounting Policies		5
		Note 2. Derivative Instruments and Hedging Activities		9
		Note 3. Liabilities and Lines of Credit		11
		Note 4. Income Taxes		12
		Note 5. Compensation and Benefits Plans		13
		Note 6. Commitments and Contingencies		16
		Note 7. Consolidated Statement of Changes in Equity		22
		Note 8. Property and Plant		23
		Note 9. Supplemental Cash Flows Information		24
		Note 10. Fair Value Measurements		24
		Note 11. Regulatory Assets and Liabilities		29
		Note 12. Variable Interest Entities		30
		Note 13. Business Segments		31
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		34
		Management Overview		36
			Areas of Business Focus	36
			Global Settlement	38
			Earnings Performance	39
		Regulatory Matters		39
			Current Regulatory Developments	39
		Other Developments		40
			Environmental Matters	40
			Wildfire Insurance Issues	43

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				Page

		Liquidity		43
			Overview	43
			American Recovery and Reinvestment Act of 2009	44
			Repair Deductions	44
			Intercompany Tax-Allocation Agreement	45
			Capital Expenditures	45
			Credit Ratings	46
			Dividend Restrictions and Debt Covenants	46
			Margin and Collateral Deposits	46
		Market Risk Exposures		47
			Commodity Price Risk	47
			Interest Rate Risk	49
			Credit Risk	49
		Results of Operations		50
		Historical Cash Flow Analysis		54
		New Accounting Requirements		56
		Commitments and Indemnities		56
			Uncertain Tax Position Net Liability	56
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		56
	Item 4.	Controls and Procedures		56
			Disclosure Controls and Procedures	56
			Internal Control Over Financial Reporting	56
PART II. OTHER INFORMATION				57
	Item 6.	Exhibits		57
SIGNATURE				58

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GLOSSARY

When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below.


AB		Assembly Bill
AFUDC		allowance for funds used during construction
APS		Arizona Public Service Company
ARO(s)		asset retirement obligation(s)
Bcf		billion cubic feet
CAA		Clean Air Act
CAIR		Clean Air Interstate Rule
CAISO		California Independent System Operator
CAMR		Clean Air Mercury Rule
CARB		Clean Air Resources Board
CDWR		California Department of Water Resources
CEC		California Energy Commission
CPUC		California Public Utilities Commission
CRRs		congestion revenue rights
DCR		Devers-Colorado River
DOE		United States Department of Energy
DRA		Division of Ratepayer Advocates
DWP		Los Angeles Department of Water & Power
EME		Edison Mission Energy
ERRA		energy resource recovery account
FASB		Financial Accounting Standards Board
FERC		Federal Energy Regulatory Commission
FGIC		Financial Guarantee Insurance Company
FTRs		firm transmission rights
GAAP		generally accepted accounting principles
GHG		greenhouse gas
Global Settlement		A settlement between Edison International and the IRS that resolves all outstanding tax disputes for open tax years 1986 through 2002.
GRC		General Rate Case
Investor-Owned Utilities		SCE, SDG&E and PG&E
IRS		Internal Revenue Service
ISO		Independent System Operator
kWh(s)		kilowatt-hour(s)

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GLOSSARY (Continued)


MD&A		Management's Discussion and Analysis of Financial Condition and Results of Operations
Mohave		Mohave Generating Station
MRTU		Market Redesign and Technology Upgrade
MW		megawatts
MWh		megawatt-hours
Ninth Circuit		United States Court of Appeals for the Ninth Circuit
NO_x		nitrogen oxide
NRC		Nuclear Regulatory Commission
Palo Verde		Palo Verde Nuclear Generating Station
PBOP(s)		postretirement benefits other than pension(s)
PBR		performance-based ratemaking
PG&E		Pacific Gas & Electric Company
POD		Presiding Officer's Decision
PX		California Power Exchange
QF(s)		qualifying facility(ies)
RICO		Racketeer Influenced and Corrupt Organization
ROE		return on equity
S&P		Standard & Poor's
San Onofre		San Onofre Nuclear Generating Station
SCAQMD		South Coast Air Quality Management District
SCE		Southern California Edison Company
SDG&E		San Diego Gas & Electric
SO₂		sulfur dioxide
SRP		Salt River Project Agricultural Improvement and Power District
The Tribes		Navajo Nation and Hopi Tribe
TURN		The Utility Reform Network
US EPA		United States Environmental Protection Agency
VIE(s)		variable interest entity(ies)

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SOUTHERN CALIFORNIA EDISON

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended September 30,						Nine Months Ended September 30,


In millions	2009			2008			2009			2008

	(Unaudited)
Operating revenue	$	3,069		$	3,468		$	7,531		$	8,698

Fuel		177			415			533			1,161
Purchased power		1,032			1,333			2,155			3,053
Other operation and maintenance		802			721			2,222			2,145
Depreciation, decommissioning and amortization		302			276			877			830
Property and other taxes		60			61			187			179
Gain on sale of assets		—			(1	)		(1	)		(9	)

Total operating expenses		2,373			2,805			5,973			7,359

Operating income		696			663			1,558			1,339
Interest income		4			2			9			12
Other nonoperating income		69			20			126			69
Interest expense – net of amounts capitalized		(105	)		(104	)		(320	)		(297	)
Other nonoperating deductions		(13	)		(81	)		(33	)		(114	)

Income before income taxes		651			500			1,340			1,009
Income tax expense		236			158			159			268

Net income		415			342			1,181			741
Less: Net income attributable to noncontrolling interests		56			94			90			161
Dividends on preferred and preference stock not subject to mandatory redemption		13			13			38			38

Net income available for common stock	$	346		$	235		$	1,053		$	542

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

			Three Months Ended September 30,					Nine Months Ended September 30,


In millions			2009		2008			2009		2008

			(Unaudited)
Net income			$	415	$	342		$	1,181	$	741
Other comprehensive income (loss), net of tax:
	Pension and postretirement benefits other than pensions:
		Amortization of net gain (loss) included in net income – net		—		(1	)		1		(2	)

Comprehensive income				415		341			1,182		739
Less: Comprehensive income attributable to noncontrolling interests				56		94			90		161

Comprehensive income attributable to SCE			$	359	$	247		$	1,092	$	578

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

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SOUTHERN CALIFORNIA EDISON

CONSOLIDATED BALANCE SHEETS

In millions		September 30, 2009			December 31, 2008


		(Unaudited)
ASSETS
Cash and equivalents		$	754		$	1,611
Short-term investments			3			3
Receivables, less allowances of $47 and $39 for uncollectible accounts at respective dates			952			703
Accrued unbilled revenue			583			328
Inventory			332			365
Derivative assets			195			157
Regulatory assets			57			605
Deferred income taxes – net			16			147
Other current assets			127			283

Total current assets			3,019			4,202

Nonutility property – less accumulated depreciation of $733 and $765 at respective dates			330			953
Nuclear decommissioning trusts			3,025			2,524
Other investments			80			68

Total investments and other assets			3,435			3,545

Utility plant, at original cost:
	Transmission and distribution		21,035			20,006
	Generation		2,633			1,819
Accumulated depreciation			(5,757	)		(5,570	)
Construction work in progress			2,688			2,454
Nuclear fuel, at amortized cost			277			260

Total utility plant			20,876			18,969

Derivative assets			237			74
Regulatory assets			5,084			5,414
Other long-term assets			503			364

Total long-term assets			5,824			5,852

Total assets		$	33,154		$	32,568

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

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SOUTHERN CALIFORNIA EDISON

CONSOLIDATED BALANCE SHEETS

In millions, except share amounts	September 30, 2009			December 31, 2008


	(Unaudited)
LIABILITIES AND EQUITY
Short-term debt	$	—		$	1,893
Current portion of long-term debt		250			150
Accounts payable		888			948
Accrued taxes		239			340
Accrued interest		100			153
Customer deposits		241			227
Book overdrafts		259			224
Derivative liabilities		104			156
Regulatory liabilities		1,176			1,111
Other current liabilities		608			572

Total current liabilities		3,865			5,774

Long-term debt		6,490			6,212

Deferred income taxes – net		3,335			2,918
Deferred investment tax credits		99			101
Customer advances		123			137
Derivative liabilities		632			738
Pensions and benefits		2,613			2,485
Asset retirement obligations		3,137			3,007
Regulatory liabilities		2,848			2,481
Other deferred credits and other long-term liabilities		1,338			902

Total deferred credits and other liabilities		14,125			12,769

Total liabilities		24,480			24,755

Commitments and contingencies (Note 6)

Common stock, no par value (434,888,104 shares outstanding at each date)		2,168			2,168
Additional paid-in capital		548			532
Accumulated other comprehensive loss		(13	)		(14	)
Retained earnings		4,675			3,827

Total common shareholder's equity		7,378			6,513
Preferred and preference stock not subject to mandatory redemption		920			920
Noncontrolling interests		376			380

Total equity		8,674			7,813

Total liabilities and equity	$	33,154		$	32,568

Authorized common stock is 560 million shares at each reporting period.

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

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SOUTHERN CALIFORNIA EDISON

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Nine Months Ended September 30,


In millions		2009			2008

		(Unaudited)
Cash flows from operating activities:
Net income		$	1,181		$	741
Adjustments to reconcile to net cash provided by operating activities:
	Depreciation, decommissioning and amortization		877			830
	Regulatory impacts of net nuclear decommissioning trust earnings (reflected in accumulated depreciation)		133			42
	Other amortization		88			73
	Stock-based compensation		10			13
	Deferred income taxes and investment tax credits		353			(22	)
	Long-term regulatory assets and liabilities – net		338			(28	)
	Long-term derivative assets and liabilities – net		(269	)		32
	Other assets		(147	)		(39	)
	Other liabilities		469			(22	)
Changes in working capital:
	Receivables and accrued unbilled revenue		(498	)		(453	)
	Inventory		33			(61	)
	Other current assets		170			95
	Book overdrafts		35			94
	Accrued taxes		(101	)		87
	Accounts payable and other current liabilities		86			65
	Current regulatory assets and liabilities – net		613			(97	)
	Current derivative assets and liabilities – net		(90	)		(37	)

Net cash provided by operating activities			3,281			1,313

Cash flows from financing activities:
Long-term debt issued			750			1,000
Long-term debt issuance costs			(11	)		(14	)
Long-term debt repaid			(153	)		(3	)
Bonds repurchased			(219	)		(212	)
Preferred stock redeemed			—			(7	)
Short-term debt financing – net			(1,893	)		1,058
Stock-based compensation – net			4			(10	)
Distributions to noncontrolling interests			(94	)		(156	)
Dividends paid			(238	)		(263	)

Net cash provided (used) by financing activities			(1,854	)		1,393

Cash flows from investing activities:
Capital expenditures			(2,109	)		(1,638	)
Proceeds from nuclear decommissioning trust sales			1,814			2,279
Purchases of nuclear decommissioning trust investments and other			(1,977	)		(2,329	)
Sales of short-term investments			1			—
Purchases of short-term investments			(1	)		(3	)
Customer advances for construction and other investments			(12	)		(11	)

Net cash used by investing activities			(2,284	)		(1,702	)

Net increase (decrease) in cash and equivalents			(857	)		1,004
Cash and equivalents, beginning of period			1,611			252

Cash and equivalents, end of period		$	754		$	1,256

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

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SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Management's Statement

In the opinion of management, all adjustments, including recurring accruals, have been made that are necessary for a fair statement of the consolidated financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States of America for the periods covered by this quarterly report on Form 10-Q. The results of operations for the three- and nine-month periods ended September 30, 2009 are not necessarily indicative of the operating results for the full year.

This quarterly report should be read in conjunction with SCE's Annual Report to Shareholders incorporated by reference into SCE's Annual Report on Form 10-K for the year ended December 31, 2008 and Current Report on Form 8-K filed with the Securities and Exchange Commission on March 2, 2009 and August 14, 2009, respectively.

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

SCE's significant accounting policies were described in Note 1 of "Notes to consolidated financial statements" included in its 2008 Annual Report on Form 10-K. SCE follows the same accounting policies for interim reporting purposes.

The December 31, 2008 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.

Certain prior-period reclassifications have been made to conform to the current year financial statement presentation mostly pertaining to the presentation of noncontrolling interest in the consolidated financial statements and the elimination of the previously reported income statement caption "Provision for regulatory adjustment clauses – net" through classifications within relevant captions including "Operating revenue," "Purchased power," "Other operation and maintenance" and "Depreciation, decommissioning and amortization."

SCE has performed an evaluation of subsequent events through November 6, 2009, the date the financial statements were issued.

Cash Equivalents

Cash equivalents included money market funds totaling $647 million and $1.53 billion at September 30, 2009 and December 31, 2008, respectively. The carrying value of cash equivalents equals the fair value as all investments have maturities of less than three months. For further discussion of money market funds, see Note 10. Included in cash and equivalents is $94 million and $89 million at September 30, 2009 and December 31, 2008, respectively for four projects that SCE is consolidating under an accounting interpretation for VIEs.

Margin and Collateral Deposits

Margin and collateral deposits include cash deposited with counterparties and brokers (reflected in "Other current assets" on the consolidated balance sheets) and cash received from counterparties (reflected in "Other current liabilities" on the consolidated balance sheets) as credit support under

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energy contracts. The amount of margin and collateral deposits generally varies based on changes in the fair value of the positions. In accordance with the authoritative guidance which allows for netting of counterparty receivables and payables under a master netting arrangement, SCE presents a portion of its margin and cash collateral deposits net with its derivative positions on its consolidated balance sheets. Amounts recognized for cash collateral provided to others that have been offset against derivative liabilities totaled $1 million and $72 million at September 30, 2009 and December 31, 2008, respectively. Amounts recognized for cash collateral provided to others that have not been offset against derivative liabilities totaled $16 million and $17 million at September 30, 2009 and December 31, 2008, respectively. Amounts recognized for cash collateral received from others that have not been offset against derivative assets totaled $26 million and $8 million at September 30, 2009 and December 31, 2008, respectively.

New Accounting Requirements

Accounting Requirements Adopted

General Principles

In June 2009, the FASB issued an accounting standard establishing the FASB Accounting Standards Codification (Codification) as the source of authoritative, nongovernmental U.S. GAAP superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF) and related literature. Following this action, the FASB will not issue new standards in the form of Statements, FASB Staff Positions or EITF Abstracts. Instead, the FASB will issue Accounting Standards Updates. Two levels of U.S. GAAP will exist: authoritative and non-authoritative. Codification is not intended to change U.S. GAAP or guidance issued by the SEC. SCE adopted the Codification effective July 1, 2009.

Subsequent Events

In May 2009, the FASB issued authoritative guidance that sets forth the period subsequent to the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; the circumstances under which an entity should recognize these events or transactions; and the disclosures that an entity should make. SCE adopted this guidance effective April 1, 2009. The adoption had no impact on SCE's consolidated results of operations, financial position or cash flows.

Fair Value Measurements and Disclosures

In April 2009, the FASB issued authoritative guidance affirming the objective of a fair value measurement, which is to identify the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction at the measurement date between market participants ("exit price") under current market conditions. This includes guidance on identifying circumstances that indicate when there is no active market or transactions where the price inputs being used represent distressed or forced sales. If either of these conditions exists, this guidance provides additional direction for estimating fair value and requires disclosure of a change in valuation technique (and the related inputs) resulting from the application of this guidance and to quantify its effects, if practicable. This guidance also requires disclosures on a more disaggregated basis for investments in debt and equity securities measured at fair value. SCE adopted this guidance effective April 1, 2009. The adoption had no impact on SCE's consolidated results of operations, financial position or cash flows. See Note 10.

In April 2009, the FASB issued authoritative guidance requiring disclosures about the fair value of all financial instruments, for which it is practicable to estimate that fair value, for interim reporting periods as well as annual statements. SCE adopted this guidance effective April 1, 2009. Since this guidance

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impacts disclosure only, the adoption did not have an impact on SCE's consolidated results of operations, financial position or cash flows. See Note 10.

Effective January 1, 2009, SCE adopted authoritative guidance for nonrecurring fair value measurements of nonfinancial assets and liabilities. The adoption did not have a material impact on SCE's consolidated financial statements.

Investments-Debt and Equity Securities

In April 2009, the FASB amended existing authoritative guidance which determines whether impairment is other than temporary for debt securities. Under this amended guidance, an entity writes down to fair value through earnings, impaired debt securities that it currently intends to sell or for which it is more likely than not it will be required to sell before the anticipated recovery. If an entity does not intend and will not be required to sell a debt security but it is probable that the entity will not collect all amounts due, the entity will separate the other-than-temporary impairment into two components: 1) the amount due to credit loss would be recognized in earnings, and 2) the remaining portion would be recognized in other comprehensive income. SCE adopted this guidance, effective April 1, 2009 resulting in increased disclosures. The adoption did not have an impact on SCE's consolidated results of operations, financial position or cash flows. See Note 10.

Consolidation

In December 2007, the FASB issued authoritative guidance, requiring an entity to present noncontrolling interests that reflect the ownership interests in subsidiaries held by parties other than the entity, within the equity section but separate from the entity's equity in the consolidated financial statements. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interests to be clearly identified and presented on the face of the consolidated statements of income; changes in ownership interests to be accounted for similarly as equity transactions; and when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary to be measured at fair value. SCE adopted this guidance effective January 1, 2009 and retrospectively applied this guidance as of December 31, 2008. In accordance with this guidance, SCE reclassified "Noncontrolling interests – other" of $380 million and "Preferred and preference stock of utility not subject to mandatory redemption" of $920 million to a component of equity. For additional information, see Note 7.

Derivatives and Hedging

In March 2008, the FASB issued authoritative guidance, requiring additional disclosures related to derivative instruments, including how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. SCE adopted this guidance effective January 1, 2009. Since this guidance impacts disclosures only, the adoption did not have an impact on SCE's consolidated results of operations, financial position or cash flows. For additional information regarding the adoption, see Note 2.

Accounting Requirements Not Yet Adopted

Compensation-Retirement Benefits

In December 2008, the FASB issued authoritative guidance requiring additional postretirement benefit plan asset disclosures by employers about the major categories of assets, the inputs and valuation techniques used to measure fair value, the level within the fair value hierarchy, the effect of using

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significant unobservable inputs (Level 3) and significant concentrations of risk. This guidance is effective for years ending after December 15, 2009 and, therefore, SCE will adopt this guidance at year-end 2009. This guidance will impact disclosures only and will not have an impact on SCE's consolidated results of operations, financial position or cash flows.

Consolidation-Variable Interest Entities

In June 2009, the FASB issued an amendment on the accounting and disclosure requirements for the consolidation of variable interest entities. This amendment changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity's purpose and design and a company's ability to direct the activities of the entity that most significantly impact the entity's economic performance. SCE is currently evaluating the impact that the adoption will have on its consolidated financial statements including the impact on four QF contracts in which SCE has variable interests and currently consolidates. SCE will adopt this guidance on January 1, 2010.

Fair Value Measurements

In August 2009, the FASB issued an accounting standards update that provides additional guidance on how companies should measure liabilities at fair value. While reaffirming the existing definition of fair value, the update reintroduced the concept of entry value into the determination of fair value. Entry value is the amount an entity would receive to enter into an identical liability. Under the new guidance, the fair value of a liability is not adjusted to reflect the impact of contractual restrictions that prevent its transfer. If the quoted price of a liability when traded as an asset includes the effect of a credit enhancement (i.e. a guarantee), this effect should be excluded from the measurement of the liability. SCE adopted this guidance effective October 1, 2009. This guidance is not expected to have a material impact on its consolidated financial statements.

In September 2009, the FASB issued an accounting standards update that provides additional guidance on how companies should measure the fair value of certain alternative investments such as hedge funds, private equity funds, venture capital funds and funds of funds. This update is designed to address concerns regarding how to appropriately adjust the Net Asset Value (NAV) of these investments to reflect specific attributes, including redemption restrictions and capital commitments. If the investee's underlying investments are measured at fair value at the investor's measurement date, this update allows investors to use NAV to estimate the fair value unless it is probable the investment will be sold at something other than NAV. If not calculated as of the reporting entity's measurement date, the NAV must be adjusted for significant market events. This update provides guidance on fair value hierarchy classification and also requires enhanced disclosures. SCE is currently evaluating the impact, if any, that the adoption will have on certain investments in the defined benefit pension and PBOP plans and the resulting impact on the funded status of these plans recorded on SCE's balance sheets. SCE will adopt this guidance on December 31, 2009.

Related Party Transactions

During the first quarter of 2008, a subsidiary of EME was awarded, through a competitive bidding process, a ten-year power sales contract with SCE for the output of a 479 MW gas-peaking facility located in the City of Industry, California, which is referred to as the Walnut Creek project. Deliveries under the power sales agreement are expected to commence in 2013. The project is subject to resolution of uncertainty regarding the availability of required emission credits.

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Note 2. Derivative Instruments and Hedging Activities

Commodity Price Risk

SCE is exposed to commodity price risk from its purchases of capacity and ancillary services to meet peak energy requirements and from exposure to natural gas prices that affect costs associated with power purchased from QFs, fuel tolling arrangements, and its own gas-fired generation, including the Mountainview and peaker plants. Contract energy prices for most nonrenewable QFs are based in large part on the monthly index price of natural gas delivered at the Southern California border. SCE also has power contracts, referred to as tolling arrangements, in which SCE has agreed to provide the natural gas needed for generation under those power contracts or pay for the natural gas based on published index prices. In addition to the Mountainview and peaker plants, approximately 42% of SCE's purchased power supply is subject to natural gas price volatility. Fair value changes in SCE's derivative instruments are expected to be recovered from or refunded to ratepayers and therefore, fair value changes have no impact on earnings, but may temporarily affect cash flows.

Natural Gas and Electricity Price Risk

SCE has an active hedging program in place to minimize ratepayer exposure to variability in market prices; however, to the extent that SCE does not mitigate the exposure to commodity price risk, the unhedged portion is subject to the risks and benefits of spot-market price movements, which are ultimately passed-through to ratepayers.

To mitigate SCE's exposure to variability in market prices, SCE enters into energy options, tolling arrangements, forward physical contracts and transmission congestion revenue rights (CRRs). SCE also enters into contracts for power and gas options, as well as swaps and futures, in order to mitigate its exposure to increases in natural gas and electricity pricing. These transactions are pre-approved by the CPUC or executed in compliance with CPUC-approved procurement plans.

SCE records its derivative instruments on its consolidated balance sheets at fair value unless they meet the definition of a normal purchase or sale. The derivative instrument fair values are marked to market at the end of each reporting period. Any fair value changes are expected to be recovered from or refunded to customers through regulatory mechanisms and therefore, SCE's fair value changes have no impact on purchased-power expense or earnings. Hedge accounting is not used for these transactions due to this regulatory accounting treatment.

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Notional Volumes of Derivative Instruments

The following table summarizes the notional volumes of derivatives used for hedging activities:

Commodity	Unit of Measure	Economic Hedges


		(Unaudited)
Electricity options, swaps and forward arrangements	MW		24,308
Natural gas options, swaps and forward arrangements	Bcf		272
Congestion revenue rights⁽¹⁾	MW		516,488
Tolling arrangements⁽²⁾	MW		2,556

(1): In September 2007 and November 2008, the CAISO allocated CRRs for the period April 2009 through December 2017 based on SCE's load requirements. In addition, SCE participated in CAISO auctions for the procurement of additional CRRs. These CRRs meet the definition of a derivative.
(2): In compliance with a CPUC mandate, SCE held an open, competitive solicitation that produced agreements with different project developers who have agreed to construct new southern California generating resources. SCE has entered into a number of contracts, of which five received regulatory approval in the fourth quarter of 2008 and are recorded as derivative instruments. The contracts provide for fixed capacity payments as well as pricing for energy delivered based on a heat rate and contractual operation and maintenance prices. However, due to uncertainty regarding the availability of required emission credits, some of the generating resources may not be constructed and the contracts associated with these resources could therefore terminate, at which time SCE would no longer account for these contracts as derivatives.

Fair Value of Derivative Instruments

The following table summarizes the gross and net fair values of commodity derivative instruments at September 30, 2009:

		Derivative Assets								Derivative Liabilities


In millions		Short- Term			Long- Term		Subtotal			Short- Term			Long- Term		Subtotal			Net Liability

		(Unaudited)
Non-trading activities
	Economic hedges	$	203		$	237	$	440		$	113		$	632	$	745		$	305
Netting and collateral			(8	)		—		(8	)		(9	)		—		(9	)		(1	)

Total		$	195		$	237	$	432		$	104		$	632	$	736		$	304

Income Statement Impact of Derivative Instruments

SCE recognizes realized gains and losses on derivative instruments as purchased-power expense and recovers these costs from ratepayers. Due to expected future recovery from ratepayers, unrealized gains and losses are deferred and are not recognized as purchased-power expense until realized. As a result, realized and unrealized gains and losses do not affect earnings, but may temporarily affect cash flows. The results of derivative activities and related regulatory offsets are recorded in cash flows from operating activities in the consolidated statements of cash flows. Realized losses on economic hedging activities were $113 million and $307 million for the three- and nine-month periods ended September 30, 2009, respectively, compared to realized gains on economic hedging activities of $14 million and $39 million for the comparable periods in 2008, respectively. Unrealized losses on economic hedging activities were $198 million for the three months ended September 30, 2009, and

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unrealized gains on economic hedging activities were $428 million for the nine months ended September 30, 2009. Unrealized losses on economic hedging activities were $617 million and $131 million for the comparable periods in 2008, respectively.

Contingent Features/Credit Related Exposure

Certain derivative instruments and power procurement contracts under SCE's power and natural gas hedging activities contain collateral requirements. SCE has historically provided collateral in the form of cash and/or letters of credit for the benefit of counterparties. These requirements can vary depending upon the level of unsecured credit extended by counterparties, changes in market prices relative to contractual commitments, and other factors.

Certain of these power contracts contain a provision that requires SCE to maintain an investment grade credit 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 pay the derivative liability or post additional collateral. The aggregate fair value of all derivative liabilities with these credit-risk-related contingent features as of September 30, 2009, was $74 million, for which SCE has posted no collateral to its counterparties. If the credit-risk-related contingent features underlying these agreements were triggered on September 30, 2009, SCE would be required to post an additional $18 million of collateral.

Note 3. Liabilities and Lines of Credit

Long-Term Debt

In March 2009, SCE issued $500 million of 6.05% and $250 million of 4.15% first and refunding mortgage bonds due in 2039 and 2014, respectively. The bond proceeds were used for general corporate purposes and to finance fuel inventories.

In February 2009, SCE repaid $150 million of its first and refunding mortgage bonds. In March 2009, SCE purchased two issues of its tax-exempt pollution control bonds totaling $219 million and converted the issues to a variable rate structure. SCE continues to hold the bonds which remain outstanding and have not been retired or cancelled.

Credit Agreements

On March 17, 2009, SCE entered into a new $500 million 364-day revolving credit facility, terminating on March 16, 2010. The additional liquidity provided by the facility will be used to support SCE's ongoing power procurement-related needs.

In June 2009, SCE amended its $2.5 billion five-year credit facility to remove a subsidiary of Lehman Brothers Holdings as a lender which resulted in a reduction of the total commitment under the facility to $2.4 billion.

The following table summarizes the status of the SCE credit facilities at September 30, 2009:

In millions	(Unaudited)


Commitment	$	2,894
Outstanding borrowings		—
Outstanding letters of credit		(82	)

Amount available	$	2,812

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In millions			2009			2008


			(Unaudited)
Balance at January 1			$	2,066		$	1,950
	Tax positions taken during the current year
		Increases		48			72
	Tax positions taken during a prior year
		Increases		155			106
		Decreases		(30	)		(129	)
	Decreases for settlements during the period			(1,741	)		—

Balance at September 30			$	498		$	1,999

				Weighted-Average


	Stock Options			Exercise Price		Remaining Contractual Term (Years)		Aggregate Intrinsic Value

	(Unaudited)
Outstanding at December 31, 2008		6,400,734		$	34.58
Granted		2,857,975		$	25.15
Expired		(23,594	)	$	38.69
Forfeited		(155,792	)	$	32.11
Exercised		(189,148	)	$	21.41
Affiliate transfers – net		(86,269	)	$	34.92

Outstanding at September 30, 2009		8,803,906		$	31.88		6.76

Vested and expected to vest at September 30, 2009		8,398,104		$	31.83		6.67	$	35,357,145

Exercisable at September 30, 2009		4,625,277		$	30.78		5.01	$	22,642,260

	Performance Shares			Weighted- Average Grant-Date Fair Value


	(Unaudited)
Nonvested at December 31, 2008		78,517		$	56.45
Granted		101,451		$	21.47
Forfeited		(7,616	)	$	(28.94	)
Affiliate transfers – net		(1,253	)	$	(57.96	)

Nonvested at September 30, 2009		171,099		$	36.93

	Performance Shares			Weighted- Average Fair Value


	(Unaudited)
Nonvested at December 31, 2008		78,517
Granted		101,451
Forfeited		(7,616	)
Affiliate transfers – net		(1,253	)

Nonvested at September 30, 2009		171,099		$	24.45

In millions	Operating Leases – Power Contracts		Operating Leases – Other		Capital Leases


	(Unaudited)
Year ending December 31,
2009 (remaining three months)	$	84	$	16	$	1
2010		626		49		96
2011		498		45		93
2012		361		39		120
2013		356		33		120
Thereafter		2,186		116		2,388

Total future commitments	$	4,111	$	298	$	2,818
Amount representing executory costs		—		—		(696	)
Amount representing interest		—		—		(402	)

Net commitments	$	4,111	$	298	$	1,720

	Equity Attributable to SCE

In millions	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Preferred and Preference Stock		Noncontrolling Interests			Total Equity

	(Unaudited)
Balance at December 31, 2008	$	2,168	$	532	$	(14	)	$	3,827		$	920	$	380		$	7,813
Net income		—		—		—			1,091			—		90			1,181
Other comprehensive income		—		—		1			—			—		—			1
Dividends declared on common stock		—		—		—			(200	)		—		—			(200	)
Dividends declared on preferred and preference stock not subject to mandatory redemption		—		—		—			(38	)		—		—			(38	)
Distributions to noncontrolling interests		—		—		—			—			—		(94	)		(94	)
Shares purchased for stock-based compensation		—		—		—			(6	)		—		—			(6	)
Proceeds from stock option exercises		—		—		—			4			—		—			4
Noncash stock-based compensation and other		—		10		—			(3	)		—		—			7
Excess tax benefits related to stock-based awards		—		6		—			—			—		—			6

Balance at September 30, 2009	$	2,168	$	548	$	(13	)	$	4,675		$	920	$	376		$	8,674

In millions			Level 1		Level 2			Level 3			Netting and Collateral⁽¹⁾			Total


			(Unaudited)
Assets at Fair Value
	Money market funds⁽²⁾		$	647	$	—		$	—		$	—		$	647
	Derivative contracts			12		2			426			(8	)		432
	Long-term disability plan			8		—			—			—			8
	Nuclear decommissioning trusts⁽³⁾
		Municipal bonds		—		608			—			—			608
		Stocks		1,681		—			—			—			1,681
		United States government issues		262		39			—			—			301
		Corporate bonds		—		414			—			—			414
		Short-term investments, primarily cash equivalents				15			—			—			15

		Sub-total of nuclear decommissioning trusts	$	1,943	$	1,076		$	—		$	—		$	3,019

Total assets⁽⁴⁾			$	2,610	$	1,078		$	426		$	(8	)	$	4,106
Liabilities at Fair Value
	Derivative contracts			—		(144	)		(601	)		9			(736	)

Net assets (liabilities)			$	2,610	$	934		$	(175	)	$	1		$	3,370

		Amortized Cost				Fair Value


In millions	Maturity Dates	September 30, 2009		December 31, 2008		September 30, 2009		December 31, 2008

		(Unaudited)
Municipal bonds	2009 – 2042	$	513	$	561	$	608	$	629
Stocks	–		825		839		1,681		1,308
United States government issues	2009 – 2051		280		268		301		304
Corporate bonds	2009 – 2049		325		214		414		260
Short-term investments, primarily cash equivalents	2009		20		24		21		23

Total		$	1,963	$	1,906	$	3,025	$	2,524

In millions	2009


	(Unaudited)
Balance at December 31, 2008	$	2,524
Realized gains – net		81
Unrealized gains – net		444
Other-than-temporary impairments		(105	)
Interest, dividends, contributions and other		81

Balance at September 30, 2009	$	3,025

	September 30, 2009				December 31, 2008


In millions	Carrying Amount		Fair Value		Carrying Amount		Fair Value

	(Unaudited)
Long-term debt, including current portion	$	6,740	$	7,422	$	6,362	$	6,717

In millions	September 30, 2009		December 31, 2008


	(Unaudited)
Current:
Regulatory balancing accounts	$	47	$	455
Energy derivatives		8		138
Other		2		12

	$	57	$	605

Long-term:
Regulatory balancing accounts	$	42	$	29
Flow-through taxes – net		1,529		1,337
ARO		—		224
Unamortized nuclear investment – net		352		375
Nuclear-related ARO investment – net		263		278
Unamortized coal plant investment – net		75		79
Unamortized loss on reacquired debt		293		309
SFAS No. 158 pensions and postretirement benefits		1,907		1,882
Energy derivatives		446		723
Environmental remediation		40		40
Other		137		138

	$	5,084	$	5,414

Total Regulatory Assets	$	5,141	$	6,019

Project	Capacity


	(Unaudited)
Kern River		300 MW	June 2011	50%
Midway-Sunset		225 MW	May 2009	50%
Sycamore		300 MW	December 2007	50%
Watson		385 MW	December 2007	49%

In millions	Electric Utility		VIEs		Eliminations			SCE


	(Unaudited)
Balance Sheet Items as of September 30, 2009:
Cash and equivalents	$	660	$	94	$	—		$	754
Accounts receivable – net		934		55		(37	)		952
Inventory		314		18		—			332
Other current assets		123		4		—			127
Nonutility property – net of depreciation		71		259		—			330
Other long-term assets		499		4		—			503
Total assets		32,757		434		(37	)		33,154
Accounts payable		885		40		(37	)		888
Other current liabilities		606		2		—			608
Asset retirement obligations		3,121		16		—			3,137
Noncontrolling interests		—		376		—			376
Total liabilities and equity	$	32,757	$	434	$	(37	)	$	33,154

Balance Sheet Items as of December 31, 2008:
Cash and equivalents	$	1,522	$	89	$	—		$	1,611
Accounts receivable – net		679		63		(39	)		703
Inventory		346		19		—			365
Other current assets		279		4		—			283
Nonutility property – net of depreciation		671		282		—			953
Other long-term assets		363		1		—			364
Total assets		32,149		458		(39	)		32,568
Accounts payable		926		61		(39	)		948
Other current liabilities		570		2		—			572
Asset retirement obligations		2,992		15		—			3,007
Noncontrolling interests		—		380		—			380
Total liabilities and equity	$	32,149	$	458	$	(39	)	$	32,568

In millions	Electric Utility			VIEs			Eliminations⁽¹⁾			SCE


	(Unaudited)
Income Statement Items for the Three Months Ended September 30, 2009:
Operating revenue	$	3,021		$	166		$	(118	)	$	3,069
Fuel		97			80			—			177
Purchased power		1,150			—			(118	)		1,032
Other operation and maintenance		780			22			—			802
Depreciation, decommissioning and amortization		294			8			—			302
Property and other taxes		60			—			—			60
Total operating expenses		2,381			110			(118	)		2,373
Operating income		640			56			—			696
Interest income		4			—			—			4
Other nonoperating income		69			—			—			69
Interest expense – net of amounts capitalized		(105	)		—			—			(105	)
Other nonoperating deductions		(13	)		—			—			(13	)
Income tax expense		(236	)		—			—			(236	)
Net income		359			56			—			415
Net income attributable to noncontrolling interest		—			(56	)		—			(56	)
Dividends on preferred and preference stock not subject to mandatory redemption		(13	)		—			—			(13	)
Net income available for common stock	$	346		$	—		$	—		$	346
Income Statement Items for the Three Months Ended September 30, 2008:
Operating revenue	$	3,339		$	358		$	(229	)	$	3,468
Fuel		173			242			—			415
Purchased power		1,562			—			(229	)		1,333
Other operation and maintenance		707			14			—			721
Depreciation, decommissioning and amortization		268			8			—			276
Property and other taxes		61			—			—			61
Gain on sale of assets		(1	)		—			—			(1	)
Total operating expenses		2,770			264			(229	)		2,805
Operating income		569			94			—			663
Interest income		2			—			—			2
Other nonoperating income		20			—			—			20
Interest expense – net of amounts capitalized		(104	)		—			—			(104	)
Other nonoperating deductions		(81	)		—			—			(81	)
Income tax expense		(158	)		—			—			(158	)
Net income		248			94			—			342
Net income attributable to noncontrolling interest		—			(94	)		—			(94	)
Dividends on preferred and preference stock not subject to mandatory redemption		(13	)		—			—			(13	)
Net income available for common stock	$	235		$	—		$	—		$	235

In millions	Electric Utility			VIEs			Eliminations⁽¹⁾			SCE


	(Unaudited)
Income Statement Items for the Nine Months Ended September 30, 2009:
Operating revenue	$	7,377		$	440		$	(286	)	$	7,531
Fuel		276			257			—			533
Purchased power		2,441			—			(286	)		2,155
Other operation and maintenance		2,154			68			—			2,222
Depreciation, decommissioning and amortization		852			25			—			877
Property and other taxes		187			—			—			187
Gain on sale of assets		(1	)		—			—			(1	)
Total operating expenses		5,909			350			(286	)		5,973
Operating income		1,468			90			—			1,558
Interest income		9			—			—			9
Other nonoperating income		126			—			—			126
Interest expense – net of amounts capitalized		(320	)		—			—			(320	)
Other nonoperating deductions		(33	)		—			—			(33	)
Income tax expense		(159	)⁽²⁾		—			—			(159	)
Net income		1,091			90			—			1,181
Net income attributable to noncontrolling interest		—			(90	)		—			(90	)
Dividends on preferred and preference stock not subject to mandatory redemption		(38	)		—			—			(38	)
Net income available for common stock	$	1,053		$	—		$	—		$	1,053
Income Statement Items for the Nine Months Ended September 30, 2008:
Operating revenue	$	8,355		$	933		$	(590	)	$	8,698
Fuel		480			681			—			1,161
Purchased power		3,643			—			(590	)		3,053
Other operation and maintenance		2,076			69			—			2,145
Depreciation, decommissioning and amortization		804			26			—			830
Property and other taxes		179			—			—			179
Gain on sale of assets		(9	)		—			—			(9	)
Total operating expenses		7,173			776			(590	)		7,359
Operating income		1,182			157			—			1,339
Interest income		10			2			—			12
Other nonoperating income		67			2			—			69
Interest expense – net of amounts capitalized		(297	)		—			—			(297	)
Other nonoperating deductions		(114	)		—			—			(114	)
Income tax expense		(268	)		—			—			(268	)
Net income		580			161			—			741
Net income attributable to noncontrolling interest		—			(161	)		—			(161	)
Dividends on preferred and preference stock not subject to mandatory redemption		(38	)		—			—			(38	)
Net income available for common stock	$	542		$	—		$	—		$	542

In millions	Credit Facilities⁽¹⁾


Commitment	$	2,894
Outstanding borrowings		—
Outstanding letters of credit		(82	)

Amount available	$	2,812

In millions


Taxes settled through September 30, 2009	$	875
Estimated future net tax payments		(235	)

Cash flow expected over time	$	640




Long-term senior secured debt	A1	A	A+
Short-term (commercial paper)	P-2	A-2	F-1

In millions


Collateral posted as of September 30, 2009⁽¹⁾	$	98
Incremental collateral requirements resulting from a potential downgrade of SCE's credit rating to below investment grade		240

Total posted and potential collateral requirements⁽²⁾	$	338

	September 30, 2009						December 31, 2008


In millions	Assets			Liabilities			Assets		Liabilities

Electricity options, swaps and forward arrangements	$	1		$	20		$	7	$	15
Natural gas options, swaps and forward arrangements		78			161			80		304
Congestion revenue rights and firm transmission rights⁽¹⁾		314			—			81		—
Tolling arrangements⁽²⁾		47			564			63		647
Netting and collateral		(8	)		(9	)		—		(72	)

Total	$	432		$	736		$	231	$	894

	September 30, 2009

In millions	Exposure⁽²⁾		Collateral			Net Exposure

S&P Credit Rating⁽¹⁾
A or higher	$	79	$	(4	)	$	75
A-		313		—			313
BBB+		1		—			1
BBB		—		—			—
BBB-		—		—			—
Below investment grade and not rated		—		—			—

Total	$	393	$	(4	)	$	389


	31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
	31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
	32		Statement Pursuant to 18 U.S.C. Section 1350
	101		Financial statements from the quarterly report on Form 10-Q of Southern California Edison Company for the quarter ended September 30, 2009, filed on November 6, 2009, 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 tagged as blocks of text


	SOUTHERN CALIFORNIA EDISON COMPANY
	(Registrant)
	By		/s/ LINDA G. SULLIVAN LINDA G. SULLIVAN Senior Vice President, Chief Financial Officer and Acting Controller (Duly Authorized Officer and Principal Financial and Accounting Officer)