SOUTHERN CALIFORNIA EDISON Co - Quarter Report: 2010 June (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 June 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 August 2, 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
		Greenhouse Gas Regulation Developments		36
		California Renewable Energy Developments		36
		Once-Through Cooling		36
	RESULTS OF OPERATIONS			37
	Electric Utility Results of Operations			38
		Three Months Ended June 30, 2010 versus June 30, 2009		38
			Utility Earning Activities	39
			Utility Cost-Recovery Activities	40

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		Six Months Ended June 30, 2010 versus June 30, 2009		41
			Utility Earning Activities	41
			Utility Cost-Recovery Activities	43
		Supplemental Operating Revenue Information		43
		Income Taxes		44
	LIQUIDITY AND CAPITAL RESOURCES			44
	Available Liquidity			44
		Debt Covenant		44
	Regulatory Proceedings			45
		Energy Efficiency Risk/Reward Incentive Mechanism		45
		2010 FERC Rate Case		45
	Dividend Restrictions			45
	Margin and Collateral Deposits			45
	Historical Consolidated Cash Flow			46
		Condensed Consolidated Statement of Cash Flows		46
			Cash Flows Provided by Operating Activities	46
			Cash Flows Provided (Used) by Financing Activities	46
			Cash Flows Used by Investing Activities	47
	Contractual Obligations and Contingencies			47
		Contractual Obligations		47
		Contingencies		47
			Environmental Remediation	47
	MARKET RISK EXPOSURES			47
	Interest Rate Risk			47
	Commodity Price Risk			48
		Natural Gas and Electricity Price Risk		48
	Credit Risk			49
	NEW ACCOUNTING GUIDANCE			50
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK				50
ITEM 4T. CONTROLS AND PROCEDURES				50
	Disclosure Controls and Procedures			50
	Internal Control Over Financial Reporting			50
PART II. OTHER INFORMATION				50
ITEM 1. LEGAL PROCEEDINGS				50
	Navajo Nation Litigation			50
ITEM 6. EXHIBITS				51
SIGNATURE				52

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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		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.
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
NOx		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
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 June 30,						Six Months Ended June 30,

(in millions)	2010			2009			2010			2009

	(Unaudited)
Operating revenue	$	2,247		$	2,273		$	4,406		$	4,462

Fuel		94			156			175			356
Purchased power		612			583			1,220			1,124
Operation and maintenance		755			762			1,468			1,420
Depreciation, decommissioning and amortization		320			289			629			574
Property and other taxes		62			61			130			127
Gain on sale of assets		—			(1	)		—			(1	)

Total operating expenses		1,843			1,850			3,622			3,600

Operating income		404			423			784			862
Interest income		2			2			3			6
Other income		35			29			70			56
Interest expense – net of amounts capitalized		(107	)		(106	)		(206	)		(215	)
Other expenses		(15	)		(12	)		(26	)		(20	)

Income before income taxes		319			336			625			689
Income tax expense (benefit)		5			(198	)		134			(77	)

Net income		314			534			491			766
Less: Net income attributable to noncontrolling interests		—			22			—			34
Dividends on preferred and preference stock not subject to mandatory redemption		13			13			26			25

Net income available for common stock	$	301		$	499		$	465		$	707

Consolidated Statements of Comprehensive Income

			Three Months Ended June 30,				Six Months Ended June 30,

(in millions)			2010		2009		2010		2009

			(Unaudited)
Net income			$	314	$	534	$	491	$	766
Other comprehensive income, net of tax:
	Pension and postretirement benefits other than pensions:
		Amortization of net loss included in net income		1		1		2		1

Comprehensive income				315		535		493		767
Less: Comprehensive income attributable to noncontrolling interests				—		22		—		34

Comprehensive income attributable to SCE			$	315	$	513	$	493	$	733

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)			June 30, 2010			December 31, 2009

			(Unaudited)
ASSETS
Cash and equivalents			$	85		$	462
Short-term investments				6			9
Receivables, less allowances of $53 for uncollectible accounts at both dates				731			719
Accrued unbilled revenue				542			347
Inventory				323			337
Prepaid taxes				200			33
Derivative assets				78			160
Regulatory assets				338			120
Deferred income taxes				—			78
Other current assets				51			64

Total current assets				2,354			2,329

Nonutility property – less accumulated depreciation of $95 and $744 at respective dates				68			324
Nuclear decommissioning trusts				3,083			3,140
Other investments				82			67

Total investments and other assets				3,233			3,531

Utility plant, at original cost:
	Transmission and distribution			23,355			22,214
	Generation			2,715			2,667
Accumulated depreciation				(6,047	)		(5,921	)
Construction work in progress				2,682			2,701
Nuclear fuel, at amortized cost				339			305

Total utility plant				23,044			21,966

Derivative assets				197			187
Regulatory assets				5,058			4,139
Other long-term assets				327			322

Total long-term assets				5,582			4,648




Total assets			$	34,213		$	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)		June 30, 2010			December 31, 2009

		(Unaudited)
LIABILITIES AND EQUITY
Short-term debt		$	215		$	—
Current portion of long-term debt			—			250
Accounts payable			971			1,282
Accrued taxes			31			9
Accrued interest			180			162
Customer deposits			229			238
Derivative liabilities			179			102
Regulatory liabilities			457			367
Deferred income taxes			52			—
Other current liabilities			445			637

Total current liabilities			2,759			3,047

Long-term debt			7,129			6,490

Deferred income taxes			3,959			3,651
Deferred investment tax credits			94			97
Customer advances			124			119
Derivative liabilities			1,188			496
Pensions and benefits			1,725			1,681
Asset retirement obligations			3,278			3,198
Regulatory liabilities			3,391			3,328
Other deferred credits and other long-term liabilities			1,730			1,652

Total deferred credits and other liabilities			15,489			14,222

Total liabilities			25,377			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			561			551
Accumulated other comprehensive loss			(17	)		(19	)
Retained earnings			5,204			4,746

Total common shareholder's equity			7,916			7,446

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

Total equity			8,836			8,715

Total liabilities and equity		$	34,213		$	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
			Six Months Ended June 30,
(in millions)			2010			2009

			(Unaudited)
Cash flows from operating activities:
Net income			$	491		$	766
Adjustments to reconcile to net cash provided by operating activities:
	Depreciation, decommissioning and amortization			629			574
	Regulatory impacts of net nuclear decommissioning trust earnings (reflected in accumulated depreciation)			74			86
	Other amortization			50			55
	Stock-based compensation			8			6
	Deferred income taxes and investment tax credits			221			447
Changes in operating assets and liabilities:
	Receivables			(41	)		15
	Inventory			(2	)		40
	Margin and collateral deposits – net of collateral received			—			(16	)
	Prepaid taxes			(167	)		178
	Other current assets			(189	)		(181	)
	Accounts payable			(104	)		(64	)
	Accrued taxes			22			(277	)
	Other current liabilities			(75	)		(50	)
	Derivative assets and liabilities – net			841			(626	)
	Regulatory assets and liabilities – net			(720	)		761
	Other assets			(18	)		(106	)
	Other liabilities			75			446

Net cash provided by operating activities				1,095			2,054

Cash flows from financing activities:
Long-term debt issued				644			750
Long-term debt issuance costs				(15	)		(11	)
Long-term debt repaid				(253	)		(151	)
Bonds repurchased				—			(219	)
Short-term debt financing – net				215			(1,893	)
Settlements of stock-based compensation – net				(1	)		—
Distributions to noncontrolling interest				—			(45	)
Dividends paid				(125	)		(125	)

Net cash provided (used) by financing activities				465			(1,694	)

Cash flows from investing activities:
Capital expenditures				(1,757	)		(1,402	)
Proceeds from sale of nuclear decommissioning trust investments				600			1,310
Purchases of nuclear decommissioning trust investments and other				(697	)		(1,415	)
Sales of short-term investments				4			1
Purchases of short-term investments				(1	)		(1	)
Customer advances for construction and other investments				6			(10	)
Effect of deconsolidation of variable interest entities				(92	)		—

Net cash used by investing activities				(1,937	)		(1,517	)

Net decrease in cash and equivalents				(377	)		(1,157	)
Cash and equivalents, beginning of period				462			1,611

Cash and equivalents, end of period			$	85		$	454

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 six-month periods ended June 30, 2010 are not necessarily indicative of the operating results for the full year.

Management has performed an evaluation of subsequent events through the date the financial statements were issued.

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 $54 million and $360 million at June 30, 2010 and December 31, 2009, respectively. The carrying value of cash equivalents equals 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 $201 million and $224 million of checks issued against these accounts, but not yet paid by the financial institution, from cash to accounts payable at June 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 presents margin and cash collateral deposits subject to a master netting arrangement netted with its

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

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


		(Unaudited)
Collateral provided to counterparties:
	Offset against derivative liabilities	$	8	$	—
	Reflected in other current assets		4		6
Collateral received from counterparties:
	Reflected in other current liabilities		57		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

Accounting pronouncements recently issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants and the SEC that are effective after June 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 Mountainview and peaker plants, bilateral contracts where pricing is based on natural gas prices (this includes contract energy prices for most 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	June 30, 2010		December 31, 2009

		(Unaudited)
Electricity options, swaps and forward arrangements	GWh		14,686		14,868
Natural gas options, swaps and forward arrangements	Bcf		278		266
Congestion revenue rights	GWh		165,097		195,367
Tolling arrangements¹	GWh		116,398		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 June 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	$	78	$	197	$	275	$	187	$	1,188	$	1,375	$	1,100
Netting and collateral		—		—		—		8		—		8		8

Total	$	78	$	197	$	275	$	179	$	1,188	$	1,367	$	1,092

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, 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 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 June 30,						Six Months Ended June 30,


(in millions)	2010			2009			2010			2009

	(Unaudited)
Realized gain (loss)	$	(38	)	$	(96	)	$	(62	)	$	(194	)
Unrealized gain (loss)		(276	)		293			(857	)		626

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 $232 million and $91 million, as of June 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 June 30, 2010, SCE would be required to post $20 million of additional collateral.

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. The proceeds from these bonds were used to repay commercial paper borrowings and for general corporate purposes.

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.

Short-term debt is generally used to finance fuel inventories, balancing account under-collections and general, temporary cash requirements including power purchase payments. At June 30, 2010, the outstanding short-term debt was $215 million at a weighted-average interest rate of 0.42%. This short-term debt is supported by $2.9 billion of credit lines. At December 31, 2009, the outstanding short-term debt was zero.

At June 30, 2010, letters of credit issued under SCE's credit facilities aggregated $11 million and were scheduled to expire in 2010.

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Note 4. Income Taxes

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 June 30,						Six Months Ended June 30,


(in millions)		2010			2009			2010			2009

		(Unaudited)
Provision for income tax at federal statutory rate of 35%		$	112		$	110		$	219		$	229
Increase (decrease) in income tax from:
Items presented with related state income tax, net
	Global settlement related		(53	)		(300	)		(53	)		(300	)
	Change in tax accounting method for asset removal costs		(40	)		—			(40	)		—
State tax – net of federal benefit			19			23			21			27
Health care legislation			—			—			39			—
Property-related and other			(33	)		(31	)		(52	)		(33	)

Total income tax expense from continuing operations		$	5		$	(198	)	$	134		$	(77	)

Pre-tax income from continuing operations		$	319		$	314		$	624		$	655

Effective tax rate			2%			(63%	)		21%			(12%	)

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 the second quarter of 2010, SCE recognized a $53 million earnings benefit resulting from acceptance by the California Franchise Tax Board of the tax positions finalized with the IRS in 2009 as part of the Global Settlement for tax years 1986 through 2002 (described in "Item 8. SCE Notes to Consolidated Financial Statements—Note 4. Income Taxes" of the 2009 Form 10-K). Edison International is awaiting receipt of final interest calculations from the California Franchise Tax Board. During the second quarter of 2009, SCE recognized a $300 million earnings benefit related to the federal Global Settlement finalized with the IRS.

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.

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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. 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, Edison International 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 June 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		31			28
Tax positions taken during a prior year:
Increases		133			138
Decreases		(42	)		(25	)
Decreases for settlements during the period		(68	)		(1,741	)

Balance at June 30	$	536		$	466

As of June 30, 2010 and December 31, 2009, respectively, if recognized, $160 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 $71 million and $79 million as of June 30, 2010 and December 31, 2009, respectively.

The after-tax interest income recognized and included in income tax expense was $24 million and $292 million for the three months ended June 30, 2010 and 2009, respectively, and was $22 million and $289 million for the six months ended June 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 six months ended June 30, 2010, SCE made 2010 plan year contributions of $51 million and expects to make $30 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 June 30,						Six Months Ended June 30,


(in millions)	2010			2009			2010			2009

	(Unaudited)
Service cost	$	29		$	27		$	58		$	54
Interest cost		49			48			98			96
Expected return on plan assets		(49	)		(40	)		(98	)		(80	)
Amortization of prior service cost		2			4			4			8
Amortization of net loss		6			13			12			26

Expense under accounting standards	$	37		$	52		$	74		$	104
Regulatory adjustment – deferred		(14	)		(37	)		(28	)		(74	)

Total expense recognized	$	23		$	15		$	46		$	30

Postretirement Benefits Other Than Pensions

During the six months ended June 30, 2010, SCE made 2010 plan year contributions of $14 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 June 30,						Six Months Ended June 30,


(in millions)	2010			2009			2010			2009

	(Unaudited)
Service cost	$	7		$	10		$	14		$	20
Interest cost		30			34			60			68
Expected return on plan assets		(25	)		(21	)		(50	)		(42	)
Amortization of prior service cost (credit)		(9	)		(7	)		(18	)		(14	)
Amortization of net loss		8			15			16			30

Total expense	$	11		$	31		$	22		$	62

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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		2,082,894			33.24
Forfeited		(57,796	)		31.92
Exercised		(216,174	)		22.46
Affiliate transfers – net		28,554			36.33

Outstanding at June 30, 2010		10,586,493			32.38		6.76

Vested and expected to vest at June 30, 2010		10,301,100			32.38		6.70	$	40,387,444

Exercisable at June 30, 2010		5,764,144			32.52		5.09		27,650,336

	Performance Shares			Weighted-Average Grant Date Fair Value


	(Unaudited)
Nonvested at December 31, 2009		172,604		$	36.65
Granted		78,765			32.31
Forfeited		(34,180	)		56.24
Affiliate transfers – net		791			41.62

Nonvested at June 30, 2010		217,980			32.19

	Performance Shares			Weighted-Average Fair Value


	(Unaudited)
Nonvested at December 31, 2009		172,604
Granted		78,765
Forfeited		(34,180	)
Affiliate transfers – net		791

Nonvested at June 30, 2010		217,980		$	20.37




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

			Amortized Cost				Fair Value


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

			(Unaudited)
Stocks		–	$	843	$	822	$	1,635	$	1,772
Municipal bonds		2010 – 2047		602		545		703		634
Corporate bonds		2010 – 2044		317		309		395		393
U.S. government and agency securities		2010 – 2039		285		287		316		308
Short-term investments and receivables/payables		2010		33		33		34		33

Total			$	2,080	$	1,996	$	3,083	$	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		—		—					491			—		—			491
Other comprehensive income		—		—		2			—			—		—			2
Deconsolidation of variable interest entities (see Note 12)		—		—		—			—			—		(349	)		(349	)
Dividends declared on preferred and preference stock not subject to mandatory redemption		—		—		—			(26	)		—		—			(26	)
Stock-based compensation – net		—		2		—			(3	)		—		—			(1	)
Noncash stock-based compensation and other		—		8		—			(4	)		—		—			4

Balance at June 30, 2010	$	2,168	$	561	$	(17	)	$	5,204		$	920	$	—		$	8,836

	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, 2008	$	2,168	$	532	$	(14	)	$	3,827		$	920	$	380		$	7,813
Net income		—		—		—			732			—		34			766
Other comprehensive income		—		—		1			—			—		—			1
Distributions to noncontrolling interests		—		—		—			—			—		(45	)		(45	)
Dividends declared on common stock		—		—		—			(100	)		—		—			(100	)
Dividends declared on preferred and preference stock not subject to mandatory redemption		—		—		—			(25	)		—		—			(25	)
Stock-based compensation – net		—		2		—			(2	)		—		—			—
Noncash stock based compensation and other		—		6		—			(2	)		—		—			4

Balance at June 30, 2009	$	2,168	$	540	$	(13	)	$	4,430		$	920	$	369		$	8,414

			As of June 30, 2010

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

			(Unaudited)
Assets at Fair Value
	Money market funds²		$	54	$	—		$	—		$	—	$	54

	Derivative contracts:
		Electricity		—		—			1			—		1
		Natural Gas		—		1			83			—		84
		CRRs		—		—			190			—		190

		Subtotal of derivative contracts		—		1			274			—		275

	Long-term disability plan			9		—			—			—		9

	Nuclear decommissioning trusts:
		Stocks³		1,635		—			—			—		1,635
		Municipal bonds		—		703			—			—		703
		Corporate bonds⁴		—		395			—			—		395
		U.S. government and agency securities		262		54			—			—		316
		Short-term investments, primarily cash equivalents⁵		—		12			—			—		12

		Subtotal of nuclear decommissioning trusts		1,897		1,164			—			—		3,061

Total assets⁶			$	1,960	$	1,165		$	274		$	—	$	3,399

Liabilities at Fair Value
	Derivative contracts:
		Electricity	$	—	$	—		$	(89	)	$	1	$	(88	)
		Natural Gas		—		(232	)		(48	)		7		(273	)
		Tolling		—		—			(1,006	)		—		(1,006	)

		Subtotal of derivative contracts		—		(232	)		(1,143	)		8		(1,367	)

Net assets (liabilities)			$	1,960	$	933		$	(869	)	$	8	$	2,032

	June 30, 2010				December 31, 2009


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

	(Unaudited)
Long-term debt, including current portion	$	7,129	$	8,056	$	6,740	$	7,202

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


	(Unaudited)
Current:
Regulatory balancing accounts	$	194	$	94
Energy derivatives		143		25
Other		1		1

		338		120

Long-term:
Regulatory balancing accounts		43		43
Deferred income taxes – net		1,775		1,561
Unamortized nuclear investment – net		310		340
Nuclear-related ARO investment – net		248		258
Unamortized coal plant investment – net		71		73
Unamortized loss on reacquired debt		277		287
Pensions and other postretirement benefits		1,004		1,014
Energy derivatives		1,092		357
Environmental remediation		39		36
Other		199		170

		5,058		4,139

Total regulatory assets	$	5,396	$	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 June 30, 2010								Three Months Ended June 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		$	1,308		$	939	$	2,247		$	1, 253		$	1,020		$	2,273

Fuel and purchased power			—			706		706			—			739			739
Operation and maintenance			537			218		755			516			246			762
Depreciation, decommissioning and amortization			306			14		320			275			14			289
Property and other taxes			61			1		62			61			—			61
Gain on sale of assets			—			—		—			—			(1	)		(1	)

Total operating expenses			904			939		1,843			852			998			1,850

Operating income			404			—		404			401			22			423
Net interest expense and other			(85	)		—		(85	)		(87	)		—			(87	)

Income before income taxes			319			—		319			314			22			336
Income tax expense (benefit)			5			—		5			(198	)		—			(198	)

Net income			314			—		314			512			22			534
Net income attributable to noncontrolling interests			—			—		—			—			22			22
Dividends on preferred and preference stock not subject to mandatory redemption			13			—		13			13			—			13

Net income available for common stock		$	301		$	—	$	301		$	499		$	—		$	499

Core Earnings³							$	248								$	199
Non-Core Earnings:
	Global Settlement							53									300
	Tax impact of health care legislation							—									—

Total SCE GAAP Earnings							$	301								$	499

(in millions)	Three Months Ended June 30, 2009		Six Months Ended June 30, 2009


Operating revenue	$	131	$	274

Fuel		76		177
Operation and maintenance		25		46
Depreciation		8		17

Total operating expenses		109		240

Net income	$	22	$	34

(in millions)	Credit Facilities¹


Commitment	$	2,894
Outstanding borrowings		(215	)
Outstanding letters of credit		(11	)

Amount available	$	2,668

(in millions)	June 30, 2010


Collateral posted as of June 30, 2010¹	$	22
Incremental collateral requirements resulting from a potential downgrade of SCE's credit rating to below investment grade		180

Total posted and potential collateral requirements²	$	202

	June 30, 2010					December 31, 2009


(in millions)	Assets		Liabilities			Assets		Liabilities

Electricity options, swaps and forward arrangements	$	1	$	89		$	1	$	25
Natural gas options, swaps and forward arrangements		84		280			86		171
Congestion revenue rights		190		—			217		—
Tolling arrangements¹		—		1,006			43		402
Netting and collateral		—		(8	)		—		—

Total	$	275	$	1,367		$	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		(919	)
Purchases and settlements, net			70
Netting and collateral			8

Fair value of derivative contracts, net liability at June 30, 2010		$	(1,092	)

	June 30, 2010

(in millions)	Exposure²		Collateral		Net Exposure

S&P Credit Rating¹
A or higher	$	217	$	—	$	217
A-		—		—		—
BBB+		1		—		1
BBB		—		—		—
BBB-		—		—		—
Below investment grade and not rated		—		—		—

Total	$	218	$	—	$	218


	10.1		Edison International Director Matching Gifts Program, as adopted June 24, 2010 (File No. 1-9936, filed as Exhibit 10.1 to Edison International's Form 10-Q for the quarter ended June 30, 2010)*
	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 June 30, 2010, filed on August 5, 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 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)