SOUTHERN CALIFORNIA EDISON Co - Quarter Report: 2010 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, 2010
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 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, a non-accelerated filer, or a smaller reporting company.


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 October 26, 2010

Common Stock, no par value		434,888,104

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TABLE OF CONTENTS


GLOSSARY				i
PART I. FINANCIAL INFORMATION				1
ITEM 1. FINANCIAL STATEMENTS				1
	Consolidated Statements of Income			1
	Consolidated Statements of Comprehensive Income			1
	Consolidated Balance Sheets			2
	Consolidated Statements of Cash Flows			4
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			5
	Note 1. Summary of Significant Accounting Policies			5
	Note 2. Derivative Instruments and Hedging Activities			7
	Note 3. Liabilities and Lines of Credit			9
	Note 4. Income Taxes			10
	Note 5. Compensation and Benefit Plans			12
	Note 6. Commitments and Contingencies			14
	Note 7. Consolidated Statements of Changes in Equity			20
	Note 8. Supplemental Cash Flows Information			21
	Note 9. Fair Value Measurements			21
	Note 10. Regulatory Assets and Liabilities			27
	Note 11. Other Income and Expenses			28
	Note 12. Variable Interest Entities			28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS				32
	FORWARD-LOOKING STATEMENTS			32
	MANAGEMENT OVERVIEW			34
	Introduction			34
	Highlights of Operating Results			34
	SCE Capital Program			35
	2012 General Rate Case			36
	Environmental Developments			36
	RESULTS OF OPERATIONS			36
	Electric Utility Results of Operations			37
		Three Months Ended September 30, 2010 versus September 30, 2009		37
			Utility Earning Activities	38
			Utility Cost-Recovery Activities	38
		Nine Months Ended September 30, 2010 versus September 30, 2009		39
			Utility Earning Activities	39
			Utility Cost-Recovery Activities	41
		Supplemental Operating Revenue Information		41
		Income Taxes		42

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	LIQUIDITY AND CAPITAL RESOURCES			42
	Available Liquidity			42
		Debt Covenant		43
	Regulatory Proceedings			43
		Energy Efficiency Risk/Reward Incentive Mechanism		43
		2010 FERC Rate Case		43
	Dividend Restrictions			43
	Income Tax Matters			44
	Margin and Collateral Deposits			44
	Historical Consolidated Cash Flows			44
		Condensed Consolidated Statement of Cash Flows		44
			Cash Flows Provided by Operating Activities	45
			Cash Flows Provided (Used) by Financing Activities	45
			Cash Flows Used by Investing Activities	45
	Contractual Obligations and Contingencies			46
		Contractual Obligations		46
		Contingencies		46
			Environmental Remediation	46
	MARKET RISK EXPOSURES			46
	Interest Rate Risk			46
	Commodity Price Risk			47
		Natural Gas and Electricity Price Risk		47
	Credit Risk			48
	NEW ACCOUNTING GUIDANCE			48
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK				48
ITEM 4T. CONTROLS AND PROCEDURES				48
	Disclosure Controls and Procedures			48
	Internal Control Over Financial Reporting			49
PART II. OTHER INFORMATION				49
ITEM 1. LEGAL PROCEEDINGS				49
	Navajo Nation Litigation			49
	California Coastal Commission Potential Environmental Proceeding			49
ITEM 6. EXHIBITS				49
SIGNATURE				50

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GLOSSARY

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


2009 Form 10-K		SCE's Annual Report on Form 10-K for the year ended December 31, 2009
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		California 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		U. S. Department of Energy
DRA		Division of Ratepayer Advocates
DWP		Los Angeles Department of Water & Power
ERRA		energy resource recovery account
FASB		Financial Accounting Standards Board
FERC		Federal Energy Regulatory Commission
FGIC		Financial Guarantee Insurance Company
Four Corners		coal fueled electric generating facility located in Farmington, New Mexico in which SCE holds a 48% ownership interest
GAAP		generally accepted accounting principles
Global Settlement		A settlement between Edison International and the IRS that resolves all of SCE's federal income tax disputes and affirmative claims for tax years 1986 through 2002 and related matters with state tax authorities.
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)
MD&A		Management's Discussion and Analysis of Financial Condition and Results of Operations in this report
Moody's		Moody's Investors Service
Mohave		two coal fueled electric generating facilities that no longer operate located in Clark County, Nevada in which SCE holds a 56% ownership interest
MRTU		Market Redesign Technical Upgrade
MW		megawatts
MWh		megawatt-hours
NAAQS		national ambient air quality standards
NERC		North American Electric Reliability Corporation
Ninth Circuit		U.S. Court of Appeals for the Ninth Circuit
NO_x		nitrogen oxide

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NRC		Nuclear Regulatory Commission
NSR		New Source Review
Palo Verde		large pressurized water nuclear electric generating facility located near Phoenix, Arizona in which SCE holds a 15.8% ownership interest
PBOP(s)		postretirement benefits other than pension(s)
PBR		Performance-based ratemaking
PG&E		Pacific Gas & Electric Company
PSD		Prevention of Significant Deterioration
QF(s)		qualifying facility(ies)
RICO		Racketeer Influenced and Corrupt Organization
ROE		return on equity
S&P		Standard & Poor's Ratings Services
San Onofre		large pressurized water nuclear electric generating facility located in south San Clemente, California in which SCE holds a 78.21% ownership interest
SCAQMD		South Coast Air Quality Management District
SCE		Southern California Edison Company
SDG&E		San Diego Gas & Electric
SEC		U.S. Securities and Exchange Commission
SIP(s)		State Implementation Plan(s)
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		U.S. Environmental Protection Agency
VIE(s)		variable interest entity(ies)

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS



Consolidated Statements of Income	Southern California Edison Company
	Three Months Ended September 30,						Nine Months Ended September 30,

(in millions)	2010			2009			2010			2009

	(Unaudited)
Operating revenue	$	3,098		$	3,069		$	7,504		$	7,531

Fuel		100			177			275			533
Purchased power		1,118			1,032			2,337			2,155
Operation and maintenance		803			802			2,272			2,222
Depreciation, decommissioning and amortization		316			302			945			877
Property and other taxes		65			60			195			187
Gain on sale of assets		—			—			(1	)		(1	)

Total operating expenses		2,402			2,373			6,023			5,973

Operating income		696			696			1,481			1,558
Interest income		2			4			5			9
Other income		33			69			103			126
Interest expense – net of amounts capitalized		(109	)		(105	)		(315	)		(320	)
Other expenses		(10	)		(13	)		(39	)		(33	)

Income before income taxes		612			651			1,235			1,340
Income tax expense		205			236			338			159

Net income		407			415			897			1,181
Less: Net income attributable to noncontrolling interests		—			56			—			90
Dividends on preferred and preference stock not subject to mandatory redemption		13			13			39			38

Net income available for common stock	$	394		$	346		$	858		$	1,053

Consolidated Statements of Comprehensive Income

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

(in millions)			2010		2009		2010		2009

			(Unaudited)
Net income			$	407	$	415	$	897	$	1,181
Other comprehensive income, net of tax:
	Pension and postretirement benefits other than pensions:
		Amortization of net loss included in net income		—		—		2		1

Comprehensive income				407		415		899		1,182
Less: Comprehensive income attributable to noncontrolling interests				—		56		—		90

Comprehensive income attributable to SCE			$	407	$	359	$	899	$	1,092

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

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Consolidated Balance Sheets	Southern California Edison Company
(in millions)		September 30, 2010			December 31, 2009

		(Unaudited)
ASSETS
Cash and equivalents		$	857		$	462
Short-term investments			4			9
Receivables, less allowances of $59 and $53 for uncollectible accounts at respective dates			887			719
Accrued unbilled revenue			612			347
Inventory			326			337
Derivative assets			69			160
Regulatory assets			404			120
Other current assets			69			175

Total current assets			3,228			2,329

Nonutility property – less accumulated depreciation of $98 and $744 at respective dates			69			324
Nuclear decommissioning trusts			3,347			3,140
Other investments			84			67

Total investments and other assets			3,500			3,531

Utility plant, at original cost:
Transmission and distribution			23,747			22,214
Generation			2,731			2,667
Accumulated depreciation			(6,097	)		(5,921	)
Construction work in progress			3,020			2,701
Nuclear fuel, at amortized cost			340			305

Total utility plant			23,741			21,966

Derivative assets			192			187
Regulatory assets			5,227			4,139
Other long-term assets			339			322

Total long-term assets			5,758			4,648




Total assets		$	36,227		$	32,474

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

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Consolidated Balance Sheets	Southern California Edison Company
(in millions, except share amounts)		September 30, 2010			December 31, 2009

		(Unaudited)
LIABILITIES AND EQUITY
Current portion of long-term debt		$	—		$	250
Accounts payable			1,146			1,282
Accrued taxes			150			9
Accrued interest			98			162
Customer deposits			224			238
Derivative liabilities			225			102
Regulatory liabilities			804			367
Other current liabilities			513			637

Total current liabilities			3,160			3,047

Long-term debt			7,626			6,490

Deferred income taxes			4,173			3,651
Deferred investment tax credits			98			97
Customer advances			114			119
Derivative liabilities			1,298			496
Pensions and benefits			1,757			1,681
Asset retirement obligations			3,326			3,198
Regulatory liabilities			3,663			3,328
Other deferred credits and other long-term liabilities			1,879			1,652

Total deferred credits and other liabilities			16,308			14,222

Total liabilities			27,094			23,759

Commitments and contingencies (Note 6)
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			566			551
Accumulated other comprehensive loss			(17	)		(19	)
Retained earnings			5,496			4,746

Total common shareholder's equity			8,213			7,446

Preferred and preference stock not subject to mandatory redemption			920			920
Noncontrolling interests			—			349

Total equity			9,133			8,715

Total liabilities and equity		$	36,227		$	32,474

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

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Consolidated Statements of Cash Flows	Southern California Edison Company
		Nine Months Ended September 30,
(in millions)		2010			2009

		(Unaudited)
Cash flows from operating activities:
Net income		$	897		$	1,181
Adjustments to reconcile to net cash provided by operating activities:
Depreciation, decommissioning and amortization			945			877
Regulatory impacts of net nuclear decommissioning trust earnings (reflected in accumulated depreciation)			106			133
Other amortization			82			88
Stock-based compensation			12			10
Deferred income taxes and investment tax credits			336			353
Changes in operating assets and liabilities:
Receivables			(197	)		(243	)
Inventory			(5	)		33
Margin and collateral deposits – net of collateral received			1			20
Prepaid taxes			33			178
Other current assets			(279	)		(283	)
Accounts payable			(3	)		146
Accrued taxes			140			(101	)
Other current liabilities			(103	)		(25	)
Derivative assets and liabilities – net			1,012			(359	)
Regulatory assets and liabilities – net			(530	)		951
Other assets			(26	)		(147	)
Other liabilities			235			469

Net cash provided by operating activities			2,656			3,281

Cash flows from financing activities:
Long-term debt issued			1,135			750
Long-term debt issuance costs			(16	)		(11	)
Long-term debt repaid			(256	)		(153	)
Bonds repurchased			—			(219	)
Short-term debt financing – net			—			(1,893	)
Settlements of stock-based compensation – net			(2	)		4
Distributions to noncontrolling interest			—			(94	)
Dividends paid			(239	)		(238	)

Net cash provided (used) by financing activities			622			(1,854	)

Cash flows from investing activities:
Capital expenditures			(2,659	)		(2,109	)
Proceeds from sale of nuclear decommissioning trust investments			903			1,814
Purchases of nuclear decommissioning trust investments and other			(1,036	)		(1,977	)
Sales of short-term investments			6			1
Purchases of short-term investments			(1	)		(1	)
Customer advances for construction and other investments			(4	)		(12	)
Effect of deconsolidation of variable interest entities			(92	)		—

Net cash used by investing activities			(2,883	)		(2,284	)

Net increase (decrease) in cash and equivalents			395			(857	)
Cash and equivalents, beginning of period			462			1,611

Cash and equivalents, end of period		$	857		$	754

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

SCE is a rate-regulated electric utility that supplies electric energy to a 50,000 square-mile area of central, coastal and southern California. SCE is a wholly-owned subsidiary of Edison International.

Basis of Presentation

SCE's significant accounting policies were described in Note 1 of "SCE Notes to Consolidated Financial Statements" included in the 2009 Form 10-K. SCE follows the same accounting policies for interim reporting purposes, with the exception of accounting principles adopted as of January 1, 2010, as discussed below in "—New Accounting Guidance." This quarterly report should be read in conjunction with such financial statements.

In the opinion of management, all adjustments, including 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 nine-month periods ended September 30, 2010 are not necessarily indicative of the operating results for the full year.

The December 31, 2009 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 and Equivalents

Cash equivalents included money market funds totaling $825 million and $360 million at September 30, 2010 and December 31, 2009, respectively. The carrying value of cash equivalents approximates the fair value, as all investments have maturities of three months or less. For further discussion of money market funds, see Note 9.

SCE temporarily invests the ending daily cash balance in its primary disbursement accounts until required for check clearing. SCE reclassified $320 million and $224 million of checks issued against these accounts, but not yet paid by the financial institution, from cash to accounts payable at September 30, 2010 and December 31, 2009, respectively.

Margin and Collateral Deposits

Margin and collateral deposits include cash deposited with counterparties and brokers, and cash received from counterparties and brokers as credit support under energy contracts. The amount of margin and collateral deposits generally varies based on changes in the fair value of the positions. SCE nets margin and cash collateral deposits subject to a master netting arrangement with its derivative

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positions on its consolidated balance sheets. The following table summarizes margin and collateral deposits provided to and received from counterparties:

(in millions)		September 30, 2010		December 31, 2009


		(Unaudited)
Collateral provided to counterparties:
	Offset against derivative liabilities	$	5	$	—
	Reflected in other current assets		2		6
Collateral received from counterparties:
	Reflected in other current liabilities		56		59

New Accounting Guidance

Accounting Guidance Adopted in 2010

Consolidation—Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities

The FASB issued an accounting standards update that 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 ability to direct the activities of the entity that most significantly impact the entity's economic performance and whether the entity has an obligation to absorb losses or the right to receive expected returns of the entity. This guidance requires a company to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. SCE adopted this guidance prospectively effective January 1, 2010. The impact of adopting this guidance resulted in the deconsolidation of projects related to four QF contracts. For further discussion, see Note 12.

Fair Value Measurements and Disclosures

The FASB issued an accounting standards update that provides for new disclosure requirements related to fair value measurements. The requirements, which SCE adopted effective January 1, 2010, include separate disclosure of significant transfers in and out of Levels 1 and 2 and the reasons for the transfers. The update also clarified existing disclosure requirements for the level of disaggregation, inputs and valuation techniques. In addition, effective January 1, 2011, the Level 3 reconciliation of fair value measurements using significant unobservable inputs should include gross rather than net information about purchases, sales, issuances and settlements. The guidance impacts disclosures only. For further discussion, see Note 9.

Accounting Guidance Not Yet Adopted

Final accounting pronouncements issued by the FASB effective after September 30, 2010 are not expected to have a material effect on SCE's consolidated results of operations, financial position or cash flows.

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Note 2. Derivative Instruments and Hedging Activities

Commodity Price Risk

SCE is exposed to commodity price risk, which represents the potential impact that can be caused by a change in the market value of a particular commodity. SCE's hedging program reduces ratepayer exposure to variability in market prices related to SCE's power and gas activities. As part of this program, SCE enters into energy options, swaps, forward arrangements, tolling arrangements and congestion revenue rights ("CRRs"). These transactions are pre-approved by the CPUC or executed in compliance with CPUC-approved procurement plans. SCE recovers its related hedging costs through the ERRA balancing account and as a result, exposure to commodity price risk is not expected to impact earnings, but may impact cash flows.

SCE's electricity price exposure arises from energy purchased and sold in the MRTU market as a result of differences between SCE's load requirements versus the amount of energy delivered from its generating facilities, existing bilateral contracts and CDWR contracts allocated to SCE.

A portion of SCE's purchased power supply is subject to natural gas price volatility. SCE's natural gas price exposure arises from purchasing natural gas for generation at the Mountainview power plant and peaker plants, bilateral contracts where pricing is based on natural gas prices (this includes contract energy prices for some renewable QFs which are based on the monthly index price of natural gas delivered at the southern California border), and power contracts in which SCE has agreed to provide the natural gas needed for generation, referred to as tolling arrangements.

Notional Volumes of Derivative Instruments

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

		Economic Hedges

Commodity	Unit of Measure	September 30, 2010		December 31, 2009

		(Unaudited)
Electricity options, swaps and forward arrangements	GWh		12,721		14,868
Natural gas options, swaps and forward arrangements	Bcf		272		266
Congestion revenue rights	GWh		146,538		195,367
Tolling arrangements¹	GWh		115,681		116,398

¹: 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 which 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 new 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.

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Fair Value of Derivative Instruments

The following table summarizes the gross and net fair values of commodity derivative instruments at September 30, 2010:

		Derivative Assets						Derivative Liabilities


(in millions)		Short- Term		Long- Term		Subtotal		Short- Term			Long- Term		Subtotal			Net Liability

		(Unaudited)
Non-trading activities:
	Economic hedges	$	69	$	192	$	261	$	230		$	1,298	$	1,528		$	1,267
	Netting and collateral		—		—		—		(5	)		—		(5	)		(5	)

Total		$	69	$	192	$	261	$	225		$	1,298	$	1,523		$	1,262

The following table summarizes the gross and net fair values of commodity derivative instruments at December 31, 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	$	160	$	187	$	347	$	102	$	496	$	598	$	251

Income Statement Impact of Derivative Instruments

SCE recognizes realized gains and losses on derivative instruments as purchased-power expense and recovers these costs, subject to reasonableness review, from ratepayers. As a result, realized gains and losses are not reflected in earnings, but may temporarily affect cash flows. Due to expected future recovery from ratepayers, unrealized gains and losses are recorded as regulatory assets or liabilities and therefore are also not reflected in 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 economic hedging activity:

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


(in millions)	2010			2009			2010			2009

	(Unaudited)
Realized loss	$	(53	)	$	(113	)	$	(116	)	$	(307	)
Unrealized gain (loss)		(165	)		(198	)		(1,022	)		428

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

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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 was $240 million and $91 million, as of September 30, 2010 and December 31, 2009, respectively, 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, 2010, SCE would be required to post $16 million of additional collateral based on the contractual terms.

Note 3. Liabilities and Lines of Credit

Long-Term Debt

In March 2010, SCE issued $500 million of 5.5% first and refunding mortgage bonds due in 2040. In May 2010, SCE reissued $144 million of 5.0% tax-exempt pollution control bonds due in 2035. In August 2010, SCE issued $500 million of 4.5% first and refunding mortgage bonds due in 2040. These issuances are part of long-term financing plans to fund SCE's capital program.

Credit Agreements and Short-Term Debt

In March 2010, SCE replaced its $500 million 364-day revolving credit facility with a new $500 million three-year credit facility that terminates in March 2013.

At September 30, 2010, letters of credit issued under SCE's credit facilities aggregated $11 million and are scheduled to expire in twelve months or less.

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Note 4. Income Taxes

Effective Tax Rate

The table below contains a reconciliation of income tax expense computed at the federal statutory income tax rate to the income tax provision from continuing operations attributable to common shareholders:

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


(in millions)			2010			2009		2010			2009

			(Unaudited)
Provision for income tax at federal statutory rate of 35%			$	214		$	208	$	433		$	438
Increase (decrease) in income tax from:
	Items presented with related state income tax, net
		Global settlement related		(42	)		—		(95	)		(300	)
		Change in tax accounting method for asset removal costs		—			—		(40	)		—
	State tax – net of federal benefit			26			28		47			55
	Health care legislation			—			—		39			—
	Property-related and other			7			—		(46	)		(34	)

Total income tax expense from continuing operations			$	205		$	236	$	338		$	159

Pre-tax income from continuing operations			$	612		$	595	$	1,235		$	1,250

Effective tax rate				33%			40%		27%			13%

The CPUC requires flow-through rate-making 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.

Global Settlement

During 2010, SCE recognized a $95 million earnings benefit relating to the California impact of the federal Global Settlement, including $53 million in the second quarter resulting from acceptance by the Franchise Tax Board of the tax positions finalized with the IRS in 2009 and $42 million in the third quarter resulting from receipt of the final interest determination from the Franchise Tax Board. During the nine months ended September 30, 2009 SCE recognized a $300 million earnings benefit related to the Global Settlement finalized with the IRS (described in "Item 8. SCE Notes to Consolidated Financial Statements—Note 4. Income Taxes" of the 2009 Form 10-K).

Change in Tax Accounting Method for Asset Removal Costs

During the second quarter of 2010 the IRS approved SCE's request to change its tax accounting method for asset removal costs primarily related to its infrastructure replacement program. As a result, SCE recognized a $40 million earnings benefit ($28 million of which relates to asset removal costs incurred prior to 2010) from deducting asset removal costs earlier in the construction cycle. These deductions are recorded on a flow-through basis.

Health Care Legislation

During the first quarter of 2010, SCE recognized a $39 million non-cash charge to reverse previously recognized federal tax benefits eliminated by the federal health care legislation enacted in March 2010.

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The Patient Protection and Affordable Care Act, as modified by the Health Care and Education Reconciliation Act, includes a provision that eliminates the federal tax deduction of retiree health care costs to the extent those costs are eligible for federal Medicare Part D subsidies. Although this change does not take effect until January 1, 2013, SCE is required to recognize the full accounting impact of the legislation in its financial statements in the period of enactment.

Accounting for Uncertainty in Income Taxes

Unrecognized Tax Benefits

The following table provides a reconciliation of unrecognized tax benefits from January 1 to September 30 for 2010 and 2009:

(in millions)		2010			2009


		(Unaudited)
Balance at January 1		$	482		$	2,066
Tax positions taken during the current year:
	Increases		65			48
Tax positions taken during a prior year:
	Increases		185			155
	Decreases		(14	)		(30	)
Decreases for settlements during the period			(68	)		(1,741	)

Balance at September 30		$	650		$	498

As of September 30, 2010 and December 31, 2009, respectively, if recognized, $191 million and $179 million of unrecognized tax benefits would impact the effective tax rate.

Accrued Interest and Penalties

The total amount of accrued interest and penalties related to SCE's income tax liabilities was $105 million and $79 million as of September 30, 2010 and December 31, 2009, respectively.

The net after-tax interest and penalties recognized in income tax expense was a benefit of $27 million for the three months ended September 30, 2010, compared to an expense of $5 million for the same period in 2009. Net after-tax interest and penalties recognized in income tax expense was a benefit of $48 million and $284 million for the nine months ended September 30, 2010 and 2009, respectively.

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Note 5. Compensation and Benefit Plans

Pension Plans and Postretirement Benefits Other Than Pensions

Pension Plans

During the nine months ended September 30, 2010, SCE made 2010 plan year contributions of $72 million and expects to make $25 million of additional contributions during the remainder of 2010. SCE recovers contributions made to most of its pension plans through CPUC-approved regulatory mechanisms. Annual contributions to these plans are expected to be, at a minimum, equal to the related annual expense.

Expense components are:

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


(in millions)	2010			2009			2010			2009

	(Unaudited)
Service cost	$	29		$	27		$	87		$	81
Interest cost		49			48			147			144
Expected return on plan assets		(49	)		(40	)		(147	)		(120	)
Amortization of prior service cost		2			4			6			12
Amortization of net loss		6			13			18			39

Expense under accounting standards	$	37		$	52		$	111		$	156
Regulatory adjustment – deferred		(14	)		(24	)		(42	)		(72	)

Total expense recognized	$	23		$	28		$	69		$	84

Postretirement Benefits Other Than Pensions

During the nine months ended September 30, 2010, SCE made 2010 plan year contributions of $18 million and expects to make $29 million of additional contributions during the remainder of 2010. SCE's annual contributions are recovered through CPUC-approved regulatory mechanisms and are expected to be, at a minimum, equal to its total annual expense.

Expense components are:

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


(in millions)	2010			2009			2010			2009

	(Unaudited)
Service cost	$	7		$	7		$	21		$	21
Interest cost		30			29			90			88
Expected return on plan assets		(25	)		(20	)		(75	)		(60	)
Amortization of prior service cost (credit)		(9	)		(7	)		(27	)		(21	)
Amortization of net loss		8			11			24			32

Total expense	$	11		$	20		$	33		$	60

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				Weighted-Average

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

	(Unaudited)
Outstanding at December 31, 2009		8,749,015		$	31.91
Granted		2,157,031			33.28
Expired		(2,688	)		51.38
Forfeited		(78,641	)		31.50
Exercised		(396,184	)		23.02
Affiliate transfers – net		28,554			36.33

Outstanding at September 30, 2010		10,457,087			32.54		6.52

Vested and expected to vest at September 30, 2010		10,170,748			32.55		6.46	$	54,894,724

Exercisable at September 30, 2010		5,599,849			32.79		4.79	$	35,092,633

	Equity Awards					Liability Awards


	Shares			Weighted-Average Grant Date Fair Value		Shares			Weighted-Average Fair Value¹

	(Unaudited)
Nonvested at December 31, 2009		172,604		$	36.65		172,604
Granted		82,056			31.96		82,056
Forfeited		(34,673	)		55.87		(34,673	)
Affiliate transfers – net		791			41.62		791

Nonvested at September 30, 2010		220,778			32.06		220,778		$	16.47



January – June 2011		75,000 tons per year for new and modified sources already subject to PSD for pollutants other than greenhouse gases
July 2011 – June 2013		100,000 tons per year for new sources, and 75,000 tons per year for modified sources

		Nine Months Ended September 30,

(in millions)		2010			2009

		(Unaudited)
Cash payments (receipts) for interest and taxes
	Interest – net of amounts capitalized	$	339		$	326
	Tax receipts		(309	)		(690	)
Noncash investing and financing activities
	Details of debt exchange:
	Pollution-control bonds redeemed	$	(303	)	$	—
	Pollution-control bonds issued		303			—
	Deconsolidation of variable interest entities:
	Assets other than cash	$	306		$	—
	Liabilities and noncontrolling interests		(398	)		—
Dividends declared but not paid
	Common stock	$	—		$	100
	Preferred and preference stock		9			8

		Amortized Cost				Fair Value


(in millions)	Maturity Dates¹	September 30, 2010		December 31, 2009		September 30, 2010		December 31, 2009

		(Unaudited)
Stocks	–	$	848	$	822	$	1,840	$	1,772
Municipal bonds	2010 – 2049		618		545		733		634
Corporate bonds	2010 – 2044		327		309		418		393
U.S. government and agency securities	2010 – 2040		284		287		320		308
Short-term investments and receivables/payables	2010		34		33		36		33

Total		$	2,111	$	1,996	$	3,347	$	3,140

	Equity Attributable to SCE

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

	(Unaudited)
Balance at December 31, 2009	$	2,168	$	551	$	(19	)	$	4,746		$	920	$	349		$	8,715
Net income		—		—		—			897			—		—			897
Other comprehensive income		—		—		2			—			—		—			2
Deconsolidation of variable interest entities (see Note 12)		—		—		—			—			—		(349	)		(349	)
Dividends declared on common stock		—		—		—			(100	)		—		—			(100	)
Dividends declared on preferred and preference stock not subject to mandatory redemption		—		—		—			(39	)		—		—			(39	)
Stock-based compensation – net		—		3		—			(5	)		—		—			(2	)
Noncash stock-based compensation and other		—		12		—			(3	)		—		—			9

Balance at September 30, 2010	$	2,168	$	566	$	(17	)	$	5,496		$	920	$	—		$	9,133

			As of September 30, 2010

(in millions)			Level 1		Level 2			Level 3			Netting and Collateral¹		Total

			(Unaudited)
Assets at Fair Value
	Money market funds²		$	825	$	—		$	—		$	—	$	825

	Derivative contracts:
		Electricity		—		3			—			—		3
		Natural Gas		—		65			16			—		81
		CRRs		—		—			177			—		177

		Subtotal of derivative contracts		—		68			193			—		261

	Long-term disability plan			9		—			—			—		9

	Nuclear decommissioning trusts:
		Stocks³		1,840		—			—			—		1,840
		Municipal bonds		—		733			—			—		733
		Corporate bonds⁴		—		418			—			—		418
		U.S. government and agency securities		260		60			—			—		320
		Short-term investments, primarily cash equivalents⁵		3		13			—			—		16

		Subtotal of nuclear decommissioning trusts		2,103		1,224			—			—		3,327
Total assets⁶			$	2,937	$	1,292		$	193		$	—	$	4,422

Liabilities at Fair Value
	Derivative contracts:
		Electricity	$	—	$	—		$	(75	)	$	—	$	(75	)
		Natural Gas		—		(320	)		(18	)		5		(333	)
		Tolling		—		—			(1,115	)		—		(1,115	)

		Subtotal of derivative contracts		—		(320	)		(1,208	)		5		(1,523	)

Net assets (liabilities)			$	2,937	$	972		$	(1,015	)	$	5	$	2,899

	September 30, 2010				December 31, 2009


(in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value

	(Unaudited)
Long-term debt, including current portion	$	7,626	$	8,740	$	6,740	$	7,202

(in millions)		September 30, 2010		December 31, 2009


		(Unaudited)
Current:
	Regulatory balancing accounts	$	207	$	94
	Energy derivatives		197		25
	Other		—		1

			404		120

Long-term:
	Regulatory balancing accounts		52		43
	Deferred income taxes – net		1,838		1,561
	Unamortized nuclear investment – net		301		340
	Nuclear-related ARO investment – net		243		258
	Unamortized coal plant investment – net		70		73
	Unamortized loss on reacquired debt		273		287
	Pensions and other postretirement benefits		999		1,014
	Energy derivatives		1,201		357
	Environmental remediation		39		36
	Other		211		170

			5,227		4,139

Total regulatory assets		$	5,631	$	4,259

	December 31, 2009

(in millions)	Electric Utility		VIEs		Eliminations			SCE

	(Unaudited)
Cash and equivalents	$	370	$	92	$	—		$	462
Accounts receivable – net		689		62		(32	)		719
Inventory		321		16		—			337
Other current assets		94		3		—			97
Nonutility property – net of accumulated depreciation		71		253		—			324
Other long-term assets		318		4		—			322
Total assets		32,076		430		(32	)		32,474

Accounts payable	$	1,031	$	59	$	(32	)	$	1,058
Other current liabilities		632		5		—			637
Asset retirement obligations		3,181		17		—			3,198
Noncontrolling interest		—		349		—			349
Total liabilities and equity		32,076		430		(32	)		32,474

		Three Months Ended September 30, 2010								Three Months Ended September 30, 2009


(in millions)		Utility Earning Activities			Utility Cost- Recovery Activities^1,2		Total Consolidated			Utility Earning Activities			Utility Cost- Recovery Activities^1,2		Total Consolidated

Operating revenue		$	1,601		$	1,497	$	3,098		$	1,494		$	1,575	$	3,069

Fuel and purchased power			—			1,218		1,218			—			1,209		1,209
Operation and maintenance			541			262		803			506			296		802
Depreciation, decommissioning and amortization			300			16		316			288			14		302
Property and other taxes			64			1		65			60			—		60

Total operating expenses			905			1,497		2,402			854			1,519		2,373

Operating income			696			—		696			640			56		696
Net interest expense and other			(84	)		—		(84	)		(45	)		—		(45	)

Income before income taxes			612			—		612			595			56		651
Income tax expense			205			—		205			236			—		236

Net income			407			—		407			359			56		415
Net income attributable to noncontrolling interests			—			—		—			—			56		56
Dividends on preferred and preference stock not subject to mandatory redemption			13			—		13			13			—		13

Net income available for common stock		$	394		$	—	$	394		$	346		$	—	$	346

Core Earnings³							$	352							$	300
Non-Core Earnings:
	Global Settlement							42								—
	Regulatory items⁴							—								46
Total SCE GAAP Earnings							$	394							$	346

(in millions)	Three Months Ended September 30, 2009			Nine Months Ended September 30, 2009


Operating revenue	$	48		$	154

Fuel		80			257
Purchased power		(118	)		(286	)
Operation and maintenance		22			68
Depreciation		8			25

Total operating expenses		(8	)		64

Net income	$	56		$	90

(in millions)	Credit Facilities¹


Commitment	$	2,894
Outstanding borrowings		—
Outstanding letters of credit		(11	)

Amount available	$	2,883

(in millions)	September 30, 2010


Collateral posted as of September 30, 2010¹	$	18
Incremental collateral requirements if SCE's credit rating was downgraded below investment grade		201

Total posted and potential collateral requirements²	$	219

	September 30, 2010					December 31, 2009


(in millions)	Assets		Liabilities			Assets		Liabilities

Electricity options, swaps and forward arrangements	$	3	$	75		$	1	$	25
Natural gas options, swaps and forward arrangements		81		338			86		171
Congestion revenue rights		177		—			217		—
Tolling arrangements¹		—		1,115			43		402
Netting and collateral		—		(5	)		—		—

Total	$	261	$	1,523		$	347	$	598

(in millions)

Fair value of derivative contracts, net liability at January 1, 2010		$	(251	)
Total realized/unrealized net losses:
	Included in regulatory assets and liabilities¹		(1,138	)
Purchases and settlements, net			122
Netting and collateral			5

Fair value of derivative contracts, net liability at September 30, 2010		$	(1,262	)

	September 30, 2010

(in millions)	Exposure²		Collateral		Net Exposure

S&P Credit Rating¹
A or higher	$	187	$	—	$	187
A-		—		—		—
BBB+		—		—		—
BBB		—		—		—
BBB-		—		—		—
Below investment grade and not rated		—		—		—

Total	$	187	$	—	$	187


	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 Edison International for the quarter ended September 30, 2010, filed on October 29, 2010, 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 the Consolidated Financial Statements


		SOUTHERN CALIFORNIA EDISON COMPANY
		(Registrant)
		By		/s/ CHRIS C. DOMINSKI Chris C. Dominski Vice President and Controller (Duly Authorized Officer and Principal Accounting Officer)