Leading the transformation
of the electric power industry
Edison International and
Southern California Edison
2017 Annual Report
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2244 Walnut Grove Avenue
Rosemead, CA 91770
www.edison.com
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2017 FINANCIAL HIGHLIGHTS
Dollar amounts in millions, except per-share data
Years ended December 31,
Operating revenue
Basic earnings (1)
Less: non-core items
2017
2016
2015
$12,320 $11,869 $11,524
$565
$1,311
$1,020
Write -down, impairment and other charges
Re-measurement of deferred taxes
Discontinued operations
Other
(448)
(466)
–
13
Total non-core items (901)
- (382)
-
12
5
17
-
35
31
(316)
Core earnings (1)
Basic earnings per share (1)
Core earnings per share (1)
Total assets at December 31
Dividends paid per common share
Total shareholder return
Total employees
B U S I N E S S H I G H L I G H T S
Southern California Edison
Rate base (2)
Capital expenditures (2)
Peak demand (megawatts)
Total system sales (kilowatt-hours, in millions)
$1,466
$1,294
$1,336
$1.73 $4.02 $3.13
$4.50
$3.97
$4.10
$52,580 $51,319 $50,229
$2.17
$1.92
$1.67
(9.5)% 24.9% (6.9)%
12,521
12,390 12,768
$27,816
$25,923 $24,596
$3,835
$3,527
$3,867
23,508
23,091
23,079
85,879
85,977
87,544
(1) Edison International’s earnings are prepared in accordance with generally accepted accounting principles (GAAP) used in the
United States. Management uses core earnings and core earnings per share (EPS) internally for financial planning and for analysis
of performance. Core earnings and core EPS are also used when communicating with analysts and investors regarding our earnings
results to facilitate comparisons of the Company’s performance from period to period. Core earnings and core EPS are non-GAAP
financial measures and may not be comparable to those of other companies. Core earnings and core EPS are defined as basic
earnings and basic EPS excluding income or loss from discontinued operations and income or loss from significant discrete items
that management does not consider representative of ongoing earnings. Basic earnings refer to net income attributable to Edison
International shareholders.
(2) Represents year-end rate base at December 31, which includes capital expenditures related to certain FERC-approved projects
during the construction phase. Capital expenditures for each year include accruals.
Inquiries may also
be directed to:
EQ Shareowner Services
1110 Centre Point Curve, Suite 101
Mendota Heights, MN 55120-4100
Fax:
(651) 450-4033
EQ Shareowner Services
www.shareowneronline.com
Investor Relations
www.edisoninvestor.com
Email: invrel@sce.com
Phone: (877) 379-9515
Online account information:
www.shareowneronline.com
Dividend Reinvestment and
Direct Stock Purchase Plan
A prospectus and enrollment forms
for Edison International’s common
stock Dividend Reinvestment and
Direct Stock Purchase Plan are
available from EQ Shareowner
Services upon request.
Edison International
Annual Meeting
The annual meeting of shareholders
will be held on Thursday, April 26,
2018, at 9:00 a.m., Pacific Time, at the
Hilton Los Angeles San Gabriel Hotel,
225 West Valley Boulevard,
San Gabriel, California 91776.
Corporate Governance
Practices
A description of Edison International’s
corporate governance practices is
available on our Web site at
www.edisoninvestor.com. The Edison
International Board Nominating/
Corporate Governance Committee
periodically reviews the Company’s
corporate governance practices and
makes recommendations to the
Company’s Board that the practices
be updated from time to time.
Stock Listing and
Trading Information
Common Stock: The New York Stock
Exchange uses the ticker symbol EIX;
daily newspapers list the stock as
EdisonInt.
SCE’s 4.08%, 4.24%, 4.32% and 4.78%
Series of $25 par value cumulative
preferred stock are listed on the NYSE
MKT stock exchange. Shares of SCE’s
preference stock are not listed on an
exchange. SCE Trust II, SCE Trust III, SCE
Trust IV, SCE Trust V, and SCE Trust VI,
subsidiaries of SCE, have issued Trust
Preference Securities which are listed
on the New York Stock Exchange.
Transfer Agent and Registrar
Equiniti Trust Company, which
maintains shareholder records,
is the transfer agent and registrar
for Edison International’s common
stock and Southern California Edison
Company’s preferred and preference
stock. Shareholders may call
EQ Shareowner Services,
(800) 347-8625, between 7 a.m. and
7 p.m. (Central Time), Monday
through Friday, to speak with a
representative (or to use the
interactive voice response unit
24 hours a day, seven days a
week) regarding:
n stock transfer and name-change
requirements;
n address changes, including dividend
payment addresses;
n electronic deposit of dividends;
n taxpayer identification number
submissions or changes;
n duplicate 1099 and W-9 forms;
n notices of, and replacement of
destroyed stock certificates and
dividend checks;
n Edison International’s Dividend
Reinvestment and Direct
Stock Purchase Plan, including
enrollments, purchases,
withdrawals, terminations,
transfers, sales, duplicate
statements and direct debit
of optional cash for dividend
reinvestment; and
n requests for access to online
account information.
Edison International and Southern California Edison 2017 Annual Report
Page 1
Letter to Shareholders
The past year produced strong core earnings
for Edison International and continued growth in
our dividend payout. We launched a refreshed
strategy and new brand – Energy for What’s Ahead.
We unveiled our vision for a pathway to a clean
energy future in support of California’s ambitious
environmental goals. Above all, in a year that shed
long-needed light on too many disturbing stories of
harassment across the country, we remained firmly
rooted in our values of safety, integrity, excellence,
respect, continuous improvement and teamwork.
At Edison International, including Southern
California Edison (SCE) and Edison Energy (EE),
we are committed to leading the transformative
change underway in the electric power industry
by pursuing opportunities in clean energy, efficient
electrification, grid of the future and customer
choice, thereby delivering value to shareholders.
Underlying this is a relentless focus on operational
and service excellence, starting with safety as our
first priority.
Core earnings in 2017 were $4.50 per share
and our GAAP earnings were $1.73 per share
(see opposite page for a reconciliation of core
and GAAP earnings). These results compared to
2016 core earnings of $3.97 and GAAP earnings
of $4.02 per share.
In December, we increased our dividend for
the 14th consecutive year to an annual rate of
$2.42 per share – an 11.5 percent increase. This
was the fourth consecutive year we announced
a double-digit increase, and reflected our
commitment to a target dividend payout ratio
of 45 to 55 percent of SCE’s earnings.
Toward the end of 2017, we faced new challenges
from massive wildfires statewide and adverse
decisions impacting California’s related regulatory
framework, which led to a sudden sell-off of our
shares and a 22 percent drop in the stock price.
As I write this, our shares remain well below their
all-time high of $83 reached last year.
In December, we experienced in our service
territory the largest wildfire by acreage ever
recorded in California history, the Thomas
Fire in Ventura and Santa Barbara counties.
Then, heavy rains in January of this year led to
massive mudslides in the burn area near
Montecito. The devastation caused by these
events is heartbreaking.
Our crews and support teams did an outstanding
job on power restoration and community recovery
and support. Our teams replaced about 1,000 poles
and other electrical equipment, under challenging
conditions, with no serious injuries. Our employees
demonstrated our deep commitment to the
communities we serve, and our ability to continue
improving our companywide safety culture.
Gov. Brown stated that wildfires are “the new
normal.” Wildfires have become larger and
more frequent recently through severe drought,
prolonged growth of hazardous vegetation fuels,
development in the wildland/urban interface where
wildfire risk is high and longer periods of warmer
weather with low humidity. Eight of California’s
20 most destructive wildfires have occurred since
2015. The losses statewide are staggering – more
than 10,000 homes destroyed in 2017 alone,
as well as the tragedy of lives lost.
Wildfire risk poses a major threat to all Californians,
our economy and to achievement of California’s
environmental goals. This is a statewide problem
requiring a statewide solution across three
components.
First, the state must focus on wildfire prevention
and mitigation. This includes revisiting fire
prevention and suppression policies, and better
land use management policies for the wildland/
urban interface.
Second, California must harden its infrastructure,
reviewing building codes in high-fire-risk areas
and reexamining design and operations of
critical infrastructure. In particular, we must align
expectations of our duty to serve with the realities
of power line operations, given that 27 percent
of our service territory is in designated high-fire-
risk areas.
Third, the state must address the impacts across
the economy, including the high and rising cost of
insurance to homeowners and businesses, and,
when wildfires do occur, the costs of firefighting, fire
suppression, recovery, restoration and damages.
Beyond the tragic loss of life and property, the
wildfires and mudslides have raised serious
concerns over liability. Several lawsuits have already
been filed against SCE, even before CAL FIRE has
completed its investigation regarding the cause of
the Thomas Fire.
Edison International and Southern California Edison 2017 Annual Report
Page 2
California courts have held investor-owned utilities
(IOUs) liable, regardless of fault, for damages
when utility equipment is found to be a substantial
cause of a wildfire. What this means is that, if our
equipment is a substantial cause of a fire, the utility
is fully liable regardless of fault – even if we followed
all required safety and other operational practices.
The legal theory is that utilities are like government
entities and can spread the costs of wildfire damages
among our customers, much like a government
entity can spread the costs it incurs for public
improvements among its taxpayers.
However, last fall the California Public Utilities
Commission (CPUC) ruled that another investor-
owned utility could not recover some material
Aside from wildfire and liability risks, we face
other regulatory challenges. We continue to await
a decision on our 2018 General Rate Case. The
San Onofre settlement has also been a priority,
with the reopening of the agreement reached in
2014. In February 2018, we announced a revised
settlement with a broad range of consumer
advocacy groups that we believe is in the best
interest of customers and shareholders.
These challenges cannot detract us from our clean
energy strategy, since it is not just the right strategy
for Edison – it is right for the state. California’s goal
is to reduce GHG emissions 40 percent below 1990
levels by 2030. The electric sector makes up only
20 percent of the state’s emissions; other industries
Edison International’s senior leadership team
Front row, left to right:
Jacqueline Trapp, Senior Vice President,
Human Resources; Gaddi H. Vasquez,
Senior Vice President, Government Affairs;
Pedro J. Pizarro, President and Chief
Executive Officer; J. Andrew (Drew) Murphy,
Senior Vice President, Strategy and
Corporate Development
Back row, left to right:
Kevin M. Payne, Chief Executive Officer,
Southern California Edison; Maria Rigatti,
Executive Vice President and Chief
Financial Officer; Janet Clayton, Senior Vice
President, Corporate Communications;
Ronald O. Nichols, President, Southern
California Edison; Adam S. Umanoff,
Executive Vice President and General Counsel
costs related to fires that occurred in 2007. This
decision created a serious disconnect between
the liability standard applied to utilities by the
courts and the standards applied by the CPUC for
utilities to recover wildfire costs. We have already
launched an aggressive policy and legislative
strategy to engage with state and federal officials,
and stakeholders across the economy, to address
this situation with urgency.
Financially healthy utilities that can attract capital
are essential to California. The state learned this
lesson two decades ago in the energy crisis, and
it is even more true today. Healthy utilities must
keep the lights on safely and reliably in the world’s
sixth-largest economy, and also drive the state’s
ambitious environmental policy goals. This gives
me confidence that we can work with California
policymakers to develop a sensible framework
for managing wildfire risks, but it will take time.
make up 80 percent, including 45 percent by
transportation and upstream refining processes.
Our analysis, which SCE published in our
whitepaper, “The Clean Power and Electrification
Pathway,” in October 2017, demonstrates that
an electric-led clean energy approach to these
environmental policies is more cost-effective and
technologically feasible than other alternatives.
We will continue to respond to the push for
clean energy solutions from our customers
and stakeholders, both here in California and
throughout the rest of our competitive businesses.
We underscored this commitment in 2017 by
signing on to the “We Are Still In” campaign in
support of the Paris climate agreement. We will
address climate change by focusing on opportunities
to strengthen and grow our businesses across
Edison International in four areas.
Edison International and Southern California Edison 2017 Annual Report
Page 3
Our customer satisfaction with residential
customers continued to improve. SCE ranked
in the upper second quartile among peer utilities
in the most recent J.D. Power survey, and
narrowed the gap with our top-quartile peers.
On the business customer side, our peers
continued to raise their performance, and we
dipped into the upper third quartile. We will
continue to target top-quartile satisfaction for
both our residential and business customers.
SCE improved cost performance in 2017. One
way we measure SCE cost efficiency is controllable
O&M per customer. SCE continues to reduce
O&M costs and is on track to achieve top-quartile
performance over the next couple of years. More
broadly, our system average rates continue to be
the lowest among California IOUs.
As we continue to pursue top-quartile performance,
we know that the bar will continue to be raised
as we and our peer utilities take advantage of
technological and analytical advances to improve
outcomes. While we have plans to achieve
top-quartile performance based on current
benchmarks, we know that we will need to work
to push past those levels in order to keep pace
and ultimately lead our industry.
In closing, I want to thank the board of directors
for its guidance and support, and welcome new
directors Michael Camuñez and Tim O’Toole.
I also want to salute Ron Litzinger, who retired in
December as president of Edison Energy Group,
for his 30 years of outstanding service at Edison.
There are challenges ahead, but the solutions are
within our reach. Our core values will guide our
actions as our team drives our strategy forward.
We will meet our customers’ needs, play a critical
role in ensuring that California achieves its climate
objectives and create value for our shareholders.
That’s what Energy for What’s Ahead is all about.
First, we will focus on clean energy. At SCE, we
will continue to add new sources of renewable
power and adopt storage for renewables
integration. Demand for clean energy is evident
across the country, not just in California, and we
will help large commercial and industrial customers
meet this demand through our Edison Energy
competitive business.
Second, we will enable efficient electrification,
supporting new uses for electricity, particularly
in transportation. At SCE, we will continue to
lead the industry in supporting transportation
electrification adoption, including light-, medium-
and heavy-duty vehicles.
Third, we will invest in the grid of the future: building
a modern 21st century grid that can handle new
technologies and customer demands. This includes
grid modernization – grid reliability, grid hardening
for climate resiliency and grid security.
Finally, we will enable more customer choice. We
will help customers choose clean energy technology
and meet their increasingly complex energy needs
at both SCE and EE.
SCE is the core of our business, yet there are
lessons to be learned from customers across
different geographic footprints and industry
sectors. We continue to engage with these
customers through Edison Energy. We provide
data-driven and industry-specific insights that help
customers navigate an increasingly complex energy
environment where sustainability, cost, security
and innovation are often equally important.
Operational and service excellence has long been
a central objective of our work and our ability to
deliver value to all our stakeholders. It starts with
safety for our workers and our public, the first of
our core values. Our 2017 performance did not
meet our expectations; for example, our rate of
injuries leading to days away, on restricted duty,
or transferred – known as the “DART” rate –
remains worse than industry norms. We dedicated
additional senior leadership to this area and are
focused not just on tools and processes, but more
importantly, on growing the safety focus of our
organization’s culture.
While SCE also did not meet its 2017 reliability goals,
we began implementing a three-year improvement
roadmap in 2017. The benefits realized in the
second half of 2017 exceeded our expectations,
and our goal is to achieve top-quartile performance
over the next few years.
Pedro J. PizarroPresident and Chief Executive OfficerMarch 2, 2018 Edison International and Southern California Edison 2017 Annual Report
Page 4
Cleaning the
Power System
CLIMATE CHANGE: ONE OF THE
GREAT CHALLENGES OF OUR TIME
The State of California’s
goal is to be 40 percent
below 1990 levels of
greenhouse gas emissions
by 2030.
We are charting a path to help curb climate change
and cleanse our air of smog-forming pollutants.
It’s the reason we are building a grid that delivers
more and more carbon-free energy. We are now
approaching 30 percent of the energy we deliver
to customers coming from renewable resources,
and 40 percent carbon-free. We’re headed to
50 percent renewables, and we believe that we
should go beyond that. To meet the climate challenge,
we’re going to add more renewables, such as wind
and solar, and more capability to integrate those
intermittent resources, such as energy storage and
new transmission. Our Clean Power and Electrification
Pathway by 2030 calls for an electric grid supplying
80 percent carbon-free energy.
Above: Wind turbines now contribute about 10 percent of
Southern California Edison’s electricity portfolio, and solar
power contributes another 10 percent.
Edison International and Southern California Edison 2017 Annual Report
Page 5
Helping
Customers
Make
Cleaner Energy
Choices
CUSTOMER EXPECTATIONS
ARE CHANGING
We want to help our
customers be a more
active part of the
energy infrastructure.
New energy technologies are priming customers’
appetites for more choice and flexibility in managing
their energy. They want energy to be more reliable,
more affordable and cleaner. At Southern California
Edison, our Charge Ready program is helping to build
the infrastructure that helps customers’ confidence
in plug-in electric vehicles. We also incentivize people
to make clean choices with our Clean Fuel Rewards
program. At Edison Energy, our focus remains on
meeting the demand for energy advisory services
and solutions from large commercial and industrial
customers across the country. That includes a new
set of managed portfolio solutions providing
comprehensive and independent energy expertise
backed up by robust analytics capabilities.
Left: Data analytics is at the core of Edison Energy’s solutions
for large business customers.
Below: At the Port of Long Beach, SCE is helping transport
companies convert their fleets to emission-free electric trucks.
Edison International and Southern California Edison 2017 Annual Report
Page 6
Strengthening
and Modernizing
the Grid
THE POWER SYSTEM
OF THE FUTURE
We are using innovative
new technologies to
create a more flexible
and useful power grid.
Modernizing and reinforcing the grid will be critical
for customers seeking to adopt distributed energy
resources and connect to the grid – quickly and with
minimal hassle. We are reinforcing local grids to
accommodate these new resources. Once connected,
clusters or concentrations of distributed resources
can quickly complicate grid operations. Grid operators
need advanced sensors, communications and
automation so they can see what is happening in real
time, minimize disruptions and maintain reliability.
To meet these challenges, we will need to expand
our capabilities to plan and manage a modernized
plug-and-play grid, ensuring that all customers
receive safe, reliable, clean energy, while seamlessly
integrating rapid growth in distributed resources.
Above: SCE forecasts capital expenditures of up to
$13.7 billion for transmission, distribution, generation
and grid modernization in 2018-2020.
Inset: As the frequency and intensity of windstorms and
wildfires increase, SCE is rebuilding the power grid to be
more resilient to natural disasters.
Edison International and Southern California Edison 2017 Annual Report
Page 7
Electrifying
the Economy
Efficiently
CONVERTING TRANSPORTATION
AND SPACE AND WATER HEATING
Transportation and
fossil fuels used in space
and water heating produce
more than 80 percent of the
air pollution in California.
Reducing pollution and greenhouse gas (GHG)
emissions hinges on aggressive electrification of
light-duty vehicles – the passenger cars, SUVs and
pickup trucks that currently contribute one-quarter
of California’s GHG emissions. Our Clean Power
and Electrification Pathway calls for at least 24 percent
of these vehicles – 7 million – to be electrified by 2030.
EVs charging from an increasingly clean electric grid
can help reduce transportation sector GHG emissions
from 169 to 111 million metric tons per year. Space
and water heating currently contributes more than
two-thirds of total residential and commercial building
GHG emissions. Electrifying nearly one-third of residential
and commercial space and water heaters, in addition to
increased energy efficiency and strong building codes
and standards, could reduce GHG emissions from this
sector from 49 to 37 million metric tons per year.
Below: Fossil-fuel powered buses are a significant source of air
pollution in urban communities. An SCE pilot project, designed
for government transit agencies, will fund the infrastructure
cost of installing up to 20 electric charge ports at bus yards.
Edison International and Southern California Edison 2017 Annual Report
Page 8
LEADING THE TRANSFORMATION
OF THE ELECTRIC POWER INDUSTRY
Our Values
safety I integrity I excellence I respect
continuous improvement I teamwork
Our Sh ared Enterprise
Together we provide an indispensable service
that powers society. We are a single enterprise that
is stronger than the sum of its parts.
Our Oper ating Priorities
We meet customer needs
We value diversity
We build productive partnerships
We protect the environment
We learn from experience and improve
We grow the value of our business
SEC Form 10-K
Reference Number
Part II, Item 7
TABLE OF CONTENTS
GLOSSARY ..............................................................................................................................
vi
FORWARD-LOOKING STATEMENTS...............................................................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.......................................................................................
MANAGEMENT OVERVIEW ..............................................................................................
Highlights of Operating Results.......................................................................................
Southern California Wildfires..........................................................................................
Montecito Mudslides.........................................................................................................
Permanent Retirement of San Onofre.............................................................................
Tax Reform ........................................................................................................................
Electricity Industry Trends ..............................................................................................
2018 General Rate Case....................................................................................................
Capital Program................................................................................................................
RESULTS OF OPERATIONS ................................................................................................
Southern California Edison Company ............................................................................
Earning Activities........................................................................................................
Cost-Recovery Activities..............................................................................................
Supplemental Operating Revenue Information.........................................................
Income Taxes...............................................................................................................
Edison International Parent and Other ..........................................................................
Strategic Review of Edison Energy Group Competitive Businesses .........................
Loss from Continuing Operations..............................................................................
LIQUIDITY AND CAPITAL RESOURCES.........................................................................
Southern California Edison Company ............................................................................
Available Liquidity ......................................................................................................
Capital Investment Plan .............................................................................................
Regulatory Proceedings ..............................................................................................
Decommissioning of San Onofre ...............................................................................
1
3
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i
SCE Dividends ............................................................................................................
Margin and Collateral Deposits .................................................................................
Regulatory Balancing Accounts .................................................................................
Edison International Parent and Other ..........................................................................
Net Operating Loss and Tax Credit Carryforwards...................................................
Historical Cash Flows .......................................................................................................
Southern California Edison Company.......................................................................
Edison International Parent and Other .....................................................................
Contractual Obligations and Contingencies...................................................................
Contractual Obligations..............................................................................................
Contingencies ..............................................................................................................
Off-Balance Sheet Arrangements ....................................................................................
Environmental Developments ..........................................................................................
MARKET RISK EXPOSURES ..............................................................................................
Interest Rate Risk..............................................................................................................
Commodity Price Risk......................................................................................................
Credit Risk.........................................................................................................................
CRITICAL ACCOUNTING ESTIMATES AND POLICIES ..............................................
Rate Regulated Enterprises..............................................................................................
Income Taxes .....................................................................................................................
Nuclear Decommissioning – Asset Retirement Obligation............................................
Pensions and Postretirement Benefits Other than Pensions .........................................
Accounting for Contingencies ..........................................................................................
NEW ACCOUNTING GUIDANCE .......................................................................................
RISK FACTORS ......................................................................................................................
RISKS RELATING TO EDISON INTERNATIONAL ........................................................
RISKS RELATING TO SOUTHERN CALIFORNIA EDISON COMPANY ...................
Regulatory Risks ...............................................................................................................
20
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ii
Part I, Item 1A
Part II, Item 7A
Part II, Item 8
Operating Risks.................................................................................................................
Financing Risks .................................................................................................................
Competitive and Market Risks ........................................................................................
Cybersecurity and Physical Security Risks ....................................................................
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .....
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ........................................
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM .........
CONSOLIDATED STATEMENTS ........................................................................................
Consolidated Statements of Income for Edison International......................................
Consolidated Statements of Comprehensive Income for Edison International ..........
Consolidated Balance Sheets for Edison International .................................................
Consolidated Statements of Cash Flows for Edison International...............................
Consolidated Statements of Changes in Equity for Edison International ...................
Consolidated Statements of Income for Southern California Edison Company.........
Consolidated Statements of Comprehensive Income for Southern California
Edison Company ...............................................................................................................
Consolidated Balance Sheets for Southern California Edison Company ....................
Consolidated Statements of Cash Flows for Southern California Edison Company..
Consolidated Statements of Changes in Equity for Southern California Edison
Company ............................................................................................................................
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...........................................
Note 1. Summary of Significant Accounting Policies....................................................
Note 2. Property, Plant and Equipment .........................................................................
Note 3. Variable Interest Entities....................................................................................
Note 4. Fair Value Measurements...................................................................................
Note 5. Debt and Credit Agreements..............................................................................
Note 6. Derivative Instruments .......................................................................................
Note 7. Income Taxes .......................................................................................................
Note 8. Compensation and Benefit Plans .......................................................................
Note 9. Investments ..........................................................................................................
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iii
Note 10. Regulatory Assets and Liabilities......................................................................
Note 11. Commitments and Contingencies .....................................................................
95
98
Note 12. Preferred and Preference Stock of Utility........................................................
105
Note 13. Accumulated Other Comprehensive Loss........................................................
107
Note 14. Interest and Other Income and Other Expenses.............................................
107
Note 15. Supplemental Cash Flow Information .............................................................
108
Note 16. Related-Party Transactions ...............................................................................
108
Note 17. Quarterly Financial Data (Unaudited).............................................................
109
SELECTED FINANCIAL DATA............................................................................................
111
Part II, Item 6
CONTROLS AND PROCEDURES .......................................................................................
112
Part II, Item 9A
OTHER INFORMATION .......................................................................................................
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE ............................................................
112
112
Part II, Item 9B
Part II, Item 9
BUSINESS.................................................................................................................................
113
Part I, Item 1
CORPORATE STRUCTURE, INDUSTRY AND OTHER INFORMATION ...................
113
Subsidiaries of Edison International ...............................................................................
113
Regulation of Edison International as a Holding Company .........................................
114
Employees and Labor Relations ......................................................................................
114
Insurance............................................................................................................................
114
SOUTHERN CALIFORNIA EDISON COMPANY .............................................................
114
Regulation ..........................................................................................................................
114
Overview of Ratemaking Process ....................................................................................
115
Purchased Power and Fuel Supply ..................................................................................
117
Competition .......................................................................................................................
117
Properties ...........................................................................................................................
119
Seasonality .........................................................................................................................
119
ENVIRONMENTAL CONSIDERATIONS...........................................................................
120
Greenhouse Gas Regulation .............................................................................................
120
Environmental Risks.........................................................................................................
121
iv
UNRESOLVED STAFF COMMENTS ..................................................................................
121
Part I, Item 1B
PROPERTIES ..........................................................................................................................
121
Part I, Item 2
LEGAL PROCEEDINGS........................................................................................................
121
Part I, Item 3
December 2017 Wildfires Litigation................................................................................
121
Montecito Mudslides Litigation .......................................................................................
121
EXECUTIVE OFFICERS OF EDISON INTERNATIONAL .............................................
122
Part III, Item 10
EXECUTIVE OFFICERS OF SOUTHERN CALIFORNIA EDISON COMPANY.........
123
Part III, Item 10
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE............
124
Part III, Item 10
EXECUTIVE COMPENSATION ..........................................................................................
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS....................................
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE ....................................................................................................................
PRINCIPAL ACCOUNTANT FEES AND SERVICES........................................................
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES............................................................................................................................
Purchases of Equity Securities by Edison International and Affiliated Purchasers...
Purchases of Equity Securities by Southern California Edison Company and
Affiliated Purchasers ........................................................................................................
124
124
124
125
125
125
125
Comparison of Five-Year Cumulative Total Return......................................................
126
Part III, Item 11
Part III, Item 12
Part III, Item 13
Part III, Item 14
Part II, Item 5
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES .............................................
Exhibit Index .....................................................................................................................
Schedules Supplementing Financial Statements ............................................................
126
127
131
Part IV, Item 15
SIGNATURES ..........................................................................................................................
137
This is a combined Form 10-K separately filed by Edison International and Southern California Edison Company. Information
contained herein relating to an individual company is filed by such company on its own behalf. Each company makes
representations only as to itself and makes no other representation whatsoever as to any other company.
v
GLOSSARY
The following terms and abbreviations appearing in the text of this report have the meanings indicated below.
AFUDC..............................
ALJ ....................................
ARO(s) ..............................
Bcf
bonus depreciation.............
BRRBA..............................
CAISO ...............................
Cal Fire ..............................
CCAs .................................
CPUC.................................
DOE...................................
DERs..................................
DRP ...................................
Edison Energy....................
Edison Energy Group ........
EME...................................
EME Settlement
Agreement .........................
ERRA.................................
FASB .................................
FERC .................................
GAAP ................................
GHG ..................................
GRC...................................
GWh ..................................
HLBV ................................
IRS.....................................
Joint Proxy Statement........
allowance for funds used during construction
administrative law judge
asset retirement obligation(s)
billion cubic feet
Current federal tax deduction of a percentage of the qualifying property placed in service
during periods permitted under tax laws
Base Revenue Requirement Balancing Account
California Independent System Operator
California Department of Forestry and Fire Protection
Community Choice Aggregators which are cities, counties, and certain other public agencies
with the authority to generate and/or purchase electricity for their local residents and
businesses
California Public Utilities Commission
U.S. Department of Energy
distributed energy resources
Distributed Resources Plan
Edison Energy, LLC, a wholly-owned subsidiary of Edison Energy Group that advises and
provides energy solutions to large energy users
Edison Energy Group, Inc., the holding company for subsidiaries engaged in competitive
businesses focused on providing energy services, including distributed generation and/or
storage, to commercial and industrial customers
Edison Mission Energy
Settlement Agreement by and among Edison Mission Energy, Edison International and the
Consenting Noteholders identified therein, dated February 18, 2014
Energy Resource Recovery Account
Financial Accounting Standards Board
Federal Energy Regulatory Commission
generally accepted accounting principles
greenhouse gas
general rate case
gigawatt-hours
hypothetical liquidation at book value
Internal Revenue Service
Edison International's and SCE's definitive Proxy Statement to be filed with the SEC in
connection with Edison International's and SCE's Annual Shareholders' Meeting to be held
on April 26, 2018
MD&A............................... Management's Discussion and Analysis of Financial Condition and Results
of Operations in this report
MHI ................................... Mitsubishi Heavy Industries, Inc. and related companies
MW....................................
MWdc ................................
NDCTP ..............................
NEIL ..................................
NEM ..................................
NERC ................................
NOL...................................
NRC...................................
ORA...................................
megawatts
megawatts measured for solar projects representing the accumulated peak capacity of all the
solar modules
Nuclear Decommissioning Cost Triennial Proceeding
Nuclear Electric Insurance Limited
net energy metering
North American Electric Reliability Corporation
net operating loss
Nuclear Regulatory Commission
CPUC's Office of Ratepayers Advocates
vi
OII......................................
Order Instituting Investigation
OII Parties..........................
Palo Verde..........................
PBOP(s).............................
Prior San Onofre
Settlement Agreement .......
ROE ...................................
Revised
San Onofre
Settlement Agreement .......
S&P....................................
San Onofre.........................
SCE....................................
SDG&E..............................
SEC....................................
SED....................................
SCE, SDG&E, The Alliance for Nuclear Responsibility, The California Large Energy
Consumers Association, California State University, Citizens Oversight dba Coalition to
Decommission San Onofre, the Coalition of California Utility Employees, the Direct Access
Customer Coalition, Ruth Henricks, ORA, TURN, and Women's Energy Matters, all of
whom are parties to the Revised San Onofre Settlement Agreement
nuclear electric generating facility located near
Phoenix, Arizona in which SCE holds a 15.8% ownership interest
postretirement benefits other than pension(s)
San Onofre OII Settlement Agreement by and among TURN, ORA, SDG&E, the Coalition
of California Utility Employees, and Friends of the Earth, dated November 20, 2014
return on common equity
Revised San Onofre OII Settlement Agreement among OII Parties, dated January 30, 2018
Standard & Poor's Ratings Services
retired nuclear generating facility located in south
San Clemente, California in which SCE holds a 78.21% ownership interest
Southern California Edison Company
San Diego Gas & Electric
U.S. Securities and Exchange Commission
Safety and Enforcement Division of the CPUC
SoCalGas ...........................
Southern California Gas Company
SoCore Energy...................
SoCore Energy LLC, a subsidiary of Edison Energy Group that provides solar energy and
energy storage solutions
TAMA................................
Tax Reform........................
TURN ................................
US EPA..............................
Tax Accounting Memorandum Account
Tax Cuts and Jobs Act signed into law on December 22, 2017
The Utility Reform Network
U.S. Environmental Protection Agency
vii
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements reflect Edison International's and SCE's current expectations and
projections about future events based on Edison International's and SCE's knowledge of present facts and circumstances and
assumptions about future events and include any statements that do not directly relate to a historical or current fact. Other
information distributed by Edison International and SCE that is incorporated in this report, or that refers to or incorporates
this report, may also contain forward-looking statements. In this report and elsewhere, the words "expects," "believes,"
"anticipates," "estimates," "projects," "intends," "plans," "probable," "may," "will," "could," "would," "should," and variations
of such words and similar expressions, or discussions of strategy or plans, are intended to identify forward-looking
statements. Such statements necessarily involve risks and uncertainties that could cause actual results to differ materially
from those anticipated. Some of the risks, uncertainties and other important factors that could cause results to differ from
those currently expected, or that otherwise could impact Edison International and SCE, include, but are not limited to the:
• ability of SCE to recover its costs in a timely manner from its customers through regulated rates, including costs related to
San Onofre, uninsured wildfire-related liabilities, and spending on grid modernization;
• ability to obtain sufficient insurance at a reasonable cost, including insurance relating to SCE's nuclear facilities and
wildfire-related exposure, and to recover the costs of such insurance or, in the absence of insurance, the ability to recover
uninsured losses;
• decisions and other actions by the CPUC, the FERC, the NRC and other regulatory authorities, including determinations
of authorized rates of return or return on equity, the 2018 GRC, the recoverability of wildfire-related costs, and delays in
regulatory actions;
• ability of Edison International or SCE to borrow funds and access the capital markets on reasonable terms;
•
risks associated with the decommissioning of San Onofre, including those related to public opposition, permitting,
governmental approvals, on-site storage of spent nuclear fuel, and cost overruns;
• extreme weather-related incidents and other natural disasters, including earthquakes and events caused, or exacerbated, by
climate change, such as wildfires;
•
•
risks associated with cost allocation resulting in higher rates for utility bundled service customers because of possible
customer bypass or departure due to CCAs;
risks inherent in SCE's transmission and distribution infrastructure investment program, including those related to project
site identification, public opposition, environmental mitigation, construction, permitting, power curtailment costs
(payments due under power contracts in the event there is insufficient transmission to enable acceptance of power
delivery), changes in the CAISO's transmission plans, and governmental approvals;
•
risks associated with the operation of transmission and distribution assets and power generating facilities, including public
safety issues, failure, availability, efficiency, and output of equipment and availability and cost of spare parts;
• physical security of Edison International's and SCE's critical assets and personnel and the cybersecurity of Edison
International's and SCE's critical information technology systems for grid control, and business and customer data;
• ability of Edison International to develop competitive businesses, manage new business risks, and recover and earn a
return on its investment in newly developed or acquired businesses;
• changes in tax laws and regulations, at both the state and federal levels, or changes in the application of those laws, that
could affect recorded deferred tax assets and liabilities and effective tax rate;
• changes in the fair value of investments and other assets;
• changes in interest rates and rates of inflation, including escalation rates, which may be adjusted by public utility
regulators;
• governmental, statutory, regulatory, or administrative changes or initiatives affecting the electricity industry, including the
market structure rules applicable to each market adopted by the NERC, CAISO, Western Electricity Council, and similar
regulatory bodies in adjoining regions;
1
• availability and creditworthiness of counterparties and the resulting effects on liquidity in the power and fuel markets and/
or the ability of counterparties to pay amounts owed in excess of collateral provided in support of their obligations;
• cost and availability of labor, equipment and materials;
• potential for penalties or disallowance for non-compliance with applicable laws and regulations;
• cost of fuel for generating facilities and related transportation, which could be impacted by, among other things, disruption
of natural gas storage facilities, to the extent not recovered through regulated rate cost escalation provisions or balancing
accounts; and
• disruption of natural gas supply due to unavailability of storage facilities, which could lead to electricity service
interruptions.
See "Risk Factors" in this report for additional information on risks and uncertainties that could cause results to differ from
those currently expected or that otherwise could impact Edison International, SCE or their subsidiaries.
Additional information about risks and uncertainties, including more detail about the factors described in this report, is
contained throughout this report. Readers are urged to read this entire report, including information incorporated by
reference, and carefully consider the risk, uncertainties and other factors that affect Edison International's and SCE's
businesses. Forward-looking statements speak only as of the date they are made and neither Edison International nor SCE are
obligated to publicly update or revise forward-looking statements. Readers should review future reports filed by Edison
International and SCE with the SEC. Edison International and SCE provide direct links to certain SCE regulatory filings with
the CPUC and the FERC and certain agency rulings and notices in open proceedings at www.edisoninvestor.com (SCE
Regulatory Highlights) so that such filings are available to all investors. Edison International and SCE also routinely post or
provide direct links to presentations, documents and other information that may be of interest to investors at
www.edisoninvestor.com (Events and Presentations) in order to publicly disseminate such information.
Except when otherwise stated, references to each of Edison International, SCE, Edison Mission Group, Inc., Edison Energy
Group, EME or Edison Capital mean each such company with its subsidiaries on a consolidated basis. References to "Edison
International Parent and Other" mean Edison International Parent and its consolidated competitive subsidiaries.
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
MANAGEMENT OVERVIEW
Highlights of Operating Results
Edison International is the parent holding company of SCE and Edison Energy Group. SCE is an investor-owned public
utility primarily engaged in the business of supplying and delivering electricity to an approximately 50,000 square mile area
of southern California. Edison Energy Group is a holding company for subsidiaries engaged in pursuing competitive business
opportunities across energy services, managed portfolio solutions, and distributed solar solutions to commercial and
industrial customers. Edison Energy Group's business activities are currently not material to report as a separate business
segment. References to Edison International refer to the consolidated group of Edison International and its subsidiaries.
References to Edison International Parent and Other refer to Edison International Parent and its competitive subsidiaries.
Unless otherwise described, all of the information contained in this annual report relates to both filers.
(in millions)
Net income (loss) attributable to Edison International
Continuing operations
SCE
Edison International Parent and Other
Discontinued operations
Edison International
Less: Non-core items
SCE
Write-down, impairment and other charges
NEIL insurance recoveries
Re-measurement of deferred taxes
Edison International Parent and Other
Re-measurement of deferred taxes
Edison Capital sale of affordable housing portfolio
Income from allocation of losses to tax equity investor
Discontinued operations
Total non-core items
Core earnings (losses)
SCE
Edison International Parent and Other
Edison International
2017
2016
2017 vs 2016
Change
2015
$
$
1,012
(447)
—
565
$
1,376
(77)
12
1,311
(364) $
(370)
(12)
(746)
(448)
—
(33)
(433)
—
13
—
(901)
—
—
—
—
—
5
12
17
1,493
(27)
1,466
$
1,376
(82)
1,294
$
(448)
—
(33)
(433)
—
8
(12)
(918)
117
55
$
172
$
998
(13)
35
1,020
(382)
12
—
—
10
9
35
(316)
1,368
(32)
1,336
Edison International's earnings are prepared in accordance with GAAP. Management uses core earnings internally for
financial planning and analysis of performance. Core earnings (losses) are also used when communicating with investors and
analysts regarding Edison International's earnings results to facilitate comparisons of the company's performance from period
to period. Core earnings (losses) are a non-GAAP financial measure and may not be comparable to those of other companies.
Core earnings (losses) are defined as earnings attributable to Edison International shareholders less non-core items. Non-core
items include income or loss from discontinued operations, income resulting from allocation of losses to tax equity investors
under the HLBV accounting method and income or loss from significant discrete items that management does not consider
representative of ongoing earnings, such as write downs, asset impairments and other gains and losses related to certain tax,
regulatory or legal settlements or proceedings, and exit activities, including sale of certain assets and other activities that are
no longer continuing.
Edison International's 2017 earnings decreased $746 million, driven by a decrease in SCE's earnings of $364 million and a
decrease in Edison International Parent and Other earnings of $370 million and lower income from discontinued operations.
SCE's lower net income consisted of $481 million of higher non-core losses, mainly the result of the Revised San Onofre
3
Settlement Agreement, and $117 million of higher core earnings. The increase in core earnings was due to an increase in
revenue from the escalation mechanism set forth in the 2015 GRC decision and lower operation and maintenance expenses,
partially offset by higher net financing costs.
Edison International Parent and Other losses from continuing operations for 2017 consisted of $55 million of lower core
losses and $425 million of higher non-core losses. The decrease in core losses in 2017 was due to higher income tax benefits
related to stock option exercises, net operating loss carrybacks from the filing of the 2016 tax returns in 2017, the 2017
settlement of federal income tax audits for 2007 – 2012 and higher Edison Energy Group operating revenue.
Consolidated non-core items for 2017, 2016 and 2015 for Edison International included:
•
Impairment and other charges of $716 million ($448 million after-tax) in 2017 related to the Revised San Onofre
Settlement Agreement. For further information, see "—Permanent Retirement of San Onofre" below.
• Charges of $433 million in 2017 for Edison International Parent and Other and $33 million for SCE from the re-
measurement of deferred taxes as a result of the Tax Cuts and Jobs Act ("Tax Reform"). For further information see
"— Tax Reform" below.
•
Income of $21 million ($13 million after-tax), $9 million ($5 million after-tax) and $16 million ($9 million after-tax) for
2017, 2016 and 2015, respectively, related to losses (net of distributions) allocated to tax equity investors under the HLBV
accounting method. Edison International core earnings reflected the operating results of the solar projects, related
financings and the priority return to the tax equity investor. The losses allocated to the tax equity investor under HLBV
accounting method results in income allocated to subsidiaries of Edison International, neither of which is due to the
operating performance of the projects but rather due to the allocation of income tax attributes under the tax equity
financing. Accordingly, Edison International has included the non-operating allocation of income as a non-core item. For
further information on HLBV, see "Notes to Consolidated Financial Statements—Note 1. Summary of Significant
Accounting Policies."
•
Income from discontinued operations was $1 million ($12 million after-tax) and $15 million ($35 million after-tax) for
2016 and 2015, respectively, which was primarily related to the resolution of tax issues related to EME. The discontinued
operations from 2015 also reflects proceeds from insurance recoveries related to EME. See "Notes to Consolidated
Financial Statements—Note 7. Income Taxes" for further information.
• Tax expense of $382 million in 2015 related to the write-down of regulatory assets previously recorded for recovery of
deferred income taxes from 2012 – 2014 incremental tax repair deductions resulting from the 2015 GRC decision.
•
•
Income of $20 million ($12 million after-tax) in 2015 at SCE related to shareholder's portion of NEIL insurance
recoveries arising from the outage and shutdown of the San Onofre Units 2 and 3 generating stations and the recovery of
legal costs.
Income of $16 million ($10 million after-tax) in 2015 related to completion of the sale of Edison Capital's affordable
housing investment portfolio which represented the exit from this business activity.
See "Results of Operations" for discussion of SCE and Edison International Parent and Other results of operations.
Southern California Wildfires
In December 2017, several wind-driven wildfires (the "December 2017 Wildfires") impacted portions of SCE's service
territory and caused substantial damage to both residential and business properties and service outages for SCE customers.
The largest of these fires, known as the Thomas Fire, originated in Ventura County and burned acreage located in both
Ventura and Santa Barbara Counties. According to the most recent California Department of Forestry and Fire Protection
("Cal Fire") incident information reports, the Thomas Fire burned over 280,000 acres, destroyed an estimated
1,063 structures, damaged an estimated 280 structures and resulted in two fatalities. During 2017, SCE incurred
approximately $35 million of capital expenditures related to restoration of service resulting from the December 2017
Wildfires.
The causes of the December 2017 Wildfires are being investigated by Cal Fire and other fire agencies. SCE believes the
investigations include the possible role of SCE's facilities. SCE expects that one or more of the fire agencies will ultimately
issue reports concerning the origins and causes of the December 2017 Wildfires but cannot predict when these reports will be
released or if any findings will be issued before the investigations are completed.
4
Any potential liability of SCE for December 2017 Wildfire-related damages will depend on a number of factors, including
whether SCE is determined to have substantially caused, or contributed to, the damages and whether parties seeking recovery
of damages will be required to show negligence in addition to causation. Certain California courts have previously found
utilities to be strictly liable for property damage, regardless of fault, by applying the theory of inverse condemnation when a
utility's facilities were determined to be a substantial cause of a wildfire that caused the property damage. The rationale stated
by these courts for applying this theory to investor-owned utilities is that property losses resulting from a public
improvement, such as the distribution of electricity, can be spread across the larger community that benefited from such
improvement. However, in December 2017, the CPUC issued a decision denying the investor-owned utility's request to
include in its rates uninsured wildfire-related costs arising from several 2007 fires, finding that the investor-owned utility did
not prudently manage and operate its facilities prior to or at the outset of the 2007 wildfires.
In addition to liability for property damages, when inverse condemnation is found to be applicable to a utility, the utility may
be held liable, without regard to fault, for associated interest and attorney's fees (collectively, "Property Losses"). If inverse
condemnation is held to be inapplicable to SCE in connection with the December 2017 Wildfires, SCE could still be held
liable for Property Losses if those losses were found to have been proximately caused by SCE’s negligence. If SCE was
found negligent, SCE also could be held liable for fire suppression costs, business interruption losses, evacuation costs,
medical expenses and personal injury/wrongful death claims. These potential liabilities, in the aggregate, could be substantial.
Additionally, SCE could potentially be subject to fines for alleged violations of CPUC rules and laws in connection with the
December 2017 Wildfires.
SCE is aware of multiple lawsuits filed related to the December 2017 Wildfires naming SCE as a defendant. One of these
lawsuits also named Edison International as a defendant. At least four of these lawsuits were filed as purported class actions.
The lawsuits, which have been filed in the superior courts of Ventura, Santa Barbara and Los Angeles Counties allege, among
other things, negligence, inverse condemnation, trespass, private nuisance, and violations of the public utility and health and
safety codes. SCE expects to be the subject of additional lawsuits related to the December 2017 Wildfires. The litigation
could take a number of years to be resolved because of the complexity of the matters and the time needed to complete the
ongoing investigations.
Given the preliminary stages of the investigations and the uncertainty as to the causes of the December 2017 Wildfires, and
the extent and magnitude of potential damages, Edison International and SCE are currently unable to reasonably estimate
whether SCE will incur material losses and, if so, the range of possible losses that could be incurred.
SCE has approximately $1 billion of wildfire-specific insurance coverage, subject to a self-insured retention of $10 million
per occurrence, for wildfire-related claims for the period ending on May 31, 2018. SCE also has approximately $300 million
of additional insurance coverage for wildfire-related occurrences for the period from December 31, 2017 to December 31,
2018, which may be used in addition to the $1 billion in wildfire insurance for wildfire events occurring on or after
December 31, 2017 and on or before May 31, 2018, and would be available for new wildfire events, if any, occurring after
May 31, 2018 and on or before December 30, 2018. Various coverage limitations within the policies that make up SCE's
wildfire insurance coverage could result in material self-insured costs in the event of multiple wildfire occurrences during a
policy period. SCE also has other general liability insurance coverage of approximately $450 million but it is uncertain
whether these other policies would apply to liabilities alleged to be related to wildfires. Should responsibility for damages be
attributed to SCE for a significant portion of the losses related to the December 2017 Wildfires, SCE's insurance may not be
sufficient to cover all such damages. In addition, SCE may not be authorized to recover its uninsured damages through
customer rates if, for example, the CPUC finds that the damages were incurred because SCE was not a prudent manager of its
facilities. The CPUC's SED is conducting an investigation to assess the compliance of SCE's facilities with applicable rules
and regulations in areas impacted by the December 2017 Wildfires.
Edison International and SCE are pursuing legislative, regulatory and legal solutions to the application of a strict liability
standard to wildfire-related damages without the ability to recover resulting costs from customers. Edison International and
SCE cannot predict whether or when a solution mitigating the significant risk faced by a California investor-owned utility
related to wildfires will be achieved.
5
Montecito Mudslides
In January 2018, torrential rains in Santa Barbara County produced mudslides and flooding in Montecito and surrounding
areas (the "Montecito Mudslides"). According to Santa Barbara County, the Montecito Mudslides destroyed an estimated
135 structures, damaged an estimated 324 structures, and resulted in at least 21 fatalities, with two additional fatalities
presumed.
Six of the lawsuits mentioned above allege that SCE has responsibility for the Thomas Fire and that the Thomas Fire
proximately caused the Montecito Mudslides, resulting in the plaintiffs' claimed damages. SCE expects that additional
lawsuits related to the Montecito Mudslides will be filed.
As noted above, the cause of the Thomas Fire has not been determined. In the event that SCE is determined to have liability
for damages caused by the Thomas Fire, SCE cannot predict whether the courts will conclude that the Montecito Mudslides
were caused by the Thomas Fire or that SCE is responsible or liable for damages caused by the Montecito Mudslides. As a
result, Edison International and SCE are currently unable to reasonably estimate whether SCE will incur material losses and,
if so, the range of possible losses that could be incurred. If it is determined that the Montecito Mudslides were caused by the
Thomas Fire and that SCE is responsible or liable for damages caused by the Montecito Mudslides, then SCE's insurance
coverage for such losses may be limited to its wildfire insurance. Additionally, if SCE is determined to be liable for a
significant portion of costs associated with the Montecito Mudslides, SCE's insurance may not be sufficient to cover all such
damages and SCE may be unable to recover any uninsured losses.
If it is ultimately determined that SCE is legally responsible for losses caused by the Montecito Mudslides, SCE could be
held liable for resulting Property Losses if inverse condemnation is found applicable. If SCE is determined to have been
negligent, in addition to Property Losses, SCE could be liable for business interruption losses, evacuation costs, clean-up
costs, medical expenses and personal injury/wrongful death claims associated with the Montecito Mudslides. These
liabilities, in the aggregate, could be substantial. SCE cannot predict whether it will be subjected to regulatory fines related to
the Montecito Mudslides.
Permanent Retirement of San Onofre
Replacement steam generators were installed at San Onofre in 2010 and 2011. On January 31, 2012, a leak suddenly occurred
in one of the heat transfer tubes in San Onofre's Unit 3 steam generators. The Unit was safely taken off-line and subsequent
inspections revealed excessive tube wear. Unit 2 was off-line for a planned outage when areas of unexpected tube wear were
also discovered. On June 6, 2013, SCE decided to permanently retire Units 2 and 3.
San Onofre CPUC Proceedings
In November 2014, the CPUC approved the Prior San Onofre Settlement Agreement, which, at the time, resolved the CPUC's
investigation regarding the steam generator replacement project at San Onofre and the related outages and subsequent shutdown
of San Onofre. Subsequently, the San Onofre OII proceeding record was reopened by a joint ruling of the Assigned Commissioner
and the Assigned ALJ to consider whether, in light of the Company not reporting certain ex parte communications on a timely
basis, the Prior San Onofre Settlement Agreement remained reasonable, consistent with the law and in the public interest, which
is the standard the CPUC applies in reviewing settlements submitted for approval.
Entry into Revised Settlement and Utility Shareholder Agreements
On January 30, 2018, the OII Parties entered into a Revised San Onofre Settlement Agreement in the San Onofre OII
proceeding. If approved by the CPUC, the Revised San Onofre Settlement Agreement will resolve all issues under
consideration in the San Onofre OII and will modify the Prior San Onofre Settlement Agreement. If approved by the CPUC,
the Revised San Onofre Settlement Agreement will also result in the dismissal of a federal lawsuit currently pending in the
9th Circuit Court of Appeals challenging the CPUC’s authority to permit rate recovery of San Onofre costs. The Revised San
Onofre Settlement Agreement was the result of multiple mediation sessions in 2017 and January 2018 and was signed on
January 30, 2018 following a settlement conference in the OII, as required under CPUC rules.
Implementation of the terms of the Revised San Onofre Settlement Agreement is subject to the approval of the CPUC, as to
which there is no assurance. The OII Parties have agreed to exercise their best efforts to obtain CPUC approval, but there can
be no certainty of when or what the CPUC will actually decide.
On February 6, 2018, the San Onofre OII Assigned Commissioner and Assigned ALJ issued a joint ruling advising the
parties, among other things, that (i) the CPUC will need additional information and that the parties should be prepared to
submit joint testimony in support of the Revised San Onofre Settlement Agreement on March 26, 2018; (ii) there will be
6
public participation hearings and at least one additional status conference; and (iii) another ruling will be issued with further
direction.
Disallowances, Refunds and Recoveries
If the Revised San Onofre Settlement Agreement is approved by the CPUC, the Utilities will cease rate recovery of San
Onofre costs as of the date their combined remaining San Onofre regulatory assets equal $775 million (the "Cessation Date").
SCE has previously requested the CPUC to authorize SCE to reduce the San Onofre regulatory asset by applying $72 million
of proceeds received from litigation with the DOE related to DOE's failure to meet its obligation to begin accepting spent
nuclear fuel from San Onofre. If that request is approved by the CPUC, the Cessation Date is estimated to be December 19,
2017. If that request is not approved by the CPUC, the Cessation Date is estimated to be April 21, 2018. The Utilities will
refund to customers San Onofre-related amounts recovered in rates after the Cessation Date. SCE will retain amounts
collected under the Prior San Onofre Settlement Agreement before the Cessation Date. SCE also will retain $47 million of
proceeds received in 2017 from arbitration with MHI over MHI's delivery of faulty steam generators. In the Revised San
Onofre Settlement Agreement, SCE retains the right to sell its stock of nuclear fuel and not share such proceeds with
customers, as was provided in the Prior San Onofre Settlement Agreement. SCE intends to sell its nuclear fuel inventory as
market conditions warrant. Sales of nuclear fuel may be significant and will be accounted for as non-core gains when sales
are executed.
Under the Prior San Onofre Settlement Agreement, the Utilities agreed to fund $25 million for a Research, Development and
Demonstration program that is intended to develop technologies and methodologies to reduce greenhouse gas emissions
("GHG Reduction Program"). The Utilities' funding obligation is reduced to $12.5 million under the Revised San Onofre
Settlement Agreement.
If approved by the CPUC, the Revised San Onofre Settlement Agreement will also provide certain exclusions from the
determination of SCE's ratemaking capital structure. Notwithstanding that SCE will no longer recover its San Onofre
regulatory asset, the debt borrowed to finance the regulatory asset will continue to be excluded from SCE's ratemaking
capital structure. Additionally, SCE may exclude the after-tax charge resulting from the implementation of the Revised San
Onofre Settlement Agreement from its ratemaking capital structure.
Accounting and Financial Impacts
Under the Prior San Onofre Settlement Agreement, GAAP required that previously incurred costs related to San Onofre Units
2 & 3 be reflected as a regulatory asset to the extent that management concluded the costs were probable of recovery through
future rates. GAAP also requires that amounts collected that are probable of refund to customers be recorded as regulatory
liabilities. In the fourth quarter of 2017, regulatory assets and liabilities were adjusted based on the probable approval of the
Revised San Onofre Settlement Agreement.
In connection with the Revised San Onofre Settlement Agreement, and in exchange for the release of certain San Onofre-
related claims, the Utilities entered into an agreement ("Utility Shareholder Agreement") in which SCE has agreed to pay
SDG&E the amounts SDG&E would have received in rates under the Prior San Onofre Settlement Agreement but will not
receive upon implementation of the Revised San Onofre Settlement Agreement. As of December 19, 2017, SDG&E's
regulatory asset was approximately $151 million. In the fourth quarter of 2017, SCE recorded an accrued liability of
$143 million for the estimated present value of this obligation. The following table summarizes the financial impact of the
Revised San Onofre Settlement Agreement and the Utility Shareholder Agreement:
(in millions)
San Onofre base regulatory asset
DOE litigation regulatory liability
MHI Arbitration regulatory liability
GHG Reduction Program
Other
Present value of Utility Shareholder Agreement
Total pre-tax charge
Total after-tax charge
7
$
$
$
696
(72)
(47)
(10)
6
143
716
448
Tax Reform
On December 22, 2017, Tax Reform was signed into law. This comprehensive reform of tax law reduces the federal corporate
income tax rate from 35% to 21% and is generally effective beginning January 1, 2018. Certain provisions of Tax Reform,
such as full expensing of certain capital expenditures ("bonus depreciation") and limitations on the deductibility of interest
expense are not applicable to regulated utilities, such as SCE. It is expected that the new interest disallowance provisions
applicable to the utility holding company would require allocations of interest expense to operating subsidiaries. As a result,
Edison International expects that limitations on the deductibility of interest expense will be minimal for Edison International
Parent and Other.
US GAAP requires deferred tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary
differences are to be realized or settled. Thus, at December 31, 2017, the company's deferred taxes were re-measured based
upon the new tax rate. Immediately prior to the enactment of Tax Reform, Edison International Parent and Other had
approximately $2.6 billion of federal net operating loss carryforwards ("NOL") (excluding Capistrano Wind net operating
loss carryforwards of approximately $400 million). The reduction in the federal corporate income tax rate does not change
the gross dollar value of taxable income that may be offset by NOLs, however since future income will only be taxable at
21% the value of NOLs utilized after 2017 is reduced. The re-measurement of these NOLs along with the other deferred
taxes, resulted in a non-core charge of $433 million reflected in "Income tax expense" for Edison International Parent and
Other at December 31, 2017. Edison International Parent and Other also has $347 million of tax credit carryforwards
(excluding Capistrano Wind tax credit carryforwards of approximately $112 million) which directly offset taxes due and are
not re-measured in connection with Tax Reform.
The specific provisions of Tax Reform applicable to SCE generally allow for the continued deductibility of interest expense,
the elimination of bonus depreciation of certain property acquired after September 27, 2017, and continues rate normalization
requirements for accelerated depreciation benefits. While the re-measurement of deferred taxes at Edison International Parent
and Other were recorded to earnings, the re-measurement of deferred taxes at SCE was mainly recorded to regulatory
liabilities or an offset to regulatory assets since pre-tax amounts giving rise to the deferred taxes were created through
ratemaking activities.
The CPUC and FERC regulatory processes that will be utilized to return the excess deferred taxes applicable to customers
have not been determined. In the absence of regulatory guidance, judgment is required to estimate which deferred tax re-
measurements will be refunded to customers and are subject to change based on the outcome of the regulatory processes. At
December 31, 2017, the implementation of Tax Reform for SCE resulted in a reduction of deferred tax liabilities and an
increase in regulatory liabilities of approximately $5.0 billion ("Excess Deferred Taxes"). Changes in the allocation to
customers of the deferred tax re-measurement will be reflected in the financial statements and adjusted prospectively as
information becomes available through the regulatory process. Amounts to be refunded to customers will generally be
refunded over the life of the underlying asset or liability that gave rise to the deferred taxes. Since the majority of SCE's
deferred taxes arise from property-related differences, SCE estimates that the amount to be refunded will be amortized over
approximately 40 or more years. SCE also had shareholder-funded pre-tax amounts that gave rise to deferred tax assets
resulting in a non-core charge of $33 million reflected in "Income tax expense."
In the near term, SCE expects Tax Reform to lower rates charged to customers, but not to have a meaningful impact to SCE's
earnings. Certain deferred tax liabilities reduce SCE's rate base. The re-measurement of deferred tax liabilities from the
implementation of Tax Reform will not impact SCE's rate base initially. However, Tax Reform's elimination of bonus
depreciation and lower corporate tax rates will reduce cash flow from operations and increase rate base over time. In addition,
as new plant is placed in service the lower federal corporate tax rate will result in lower deferred tax liabilities and, therefore,
higher rate base than previously expected. See "—Capital Program." To the extent that Edison International Parent and Other
continue to produce pre-tax losses, Tax Reform will result in lower tax benefits. Tax Reform will also impact Edison
International's liquidity. See "Liquidity and Capital Resources—Edison International Parent and Other—Net Operating Loss
and Tax Credit Carryforwards."
Electricity Industry Trends
The electric power industry is undergoing transformative change driven by technological advances such as customer-owned
generation and energy storage, which is altering the nature of energy generation and delivery. California is committed to
reducing its GHG emissions, improving local air quality and supporting continued economic growth. The state set goals to
reduce GHG emissions by 40 percent from 1990 levels by 2030 and 80 percent from the same baseline by 2050. State and
local air quality plans call for substantial improvements, such as reducing smog-causing nitrogen oxides 90 percent below
2010 levels by 2032 in the most polluted areas of the state. While these policy goals cannot be achieved by the electric sector
alone, the electric grid is a critical enabler of the adoption of new energy technologies that support California's climate
8
change and GHG reduction objectives. The grid is also key to enabling more customer choices with respect to new energy
technologies.
Edison International expects to be a leader in the transformation of the industry by focusing on opportunities in clean energy
and efficient electrification, building a modernized and more reliable grid, and enabling customers' technology choices.
SCE plans to be a key enabler of the adoption of new energy technologies that benefit customers of the electric grid while
also helping California achieve its environmental goals. SCE expects to achieve these objectives through modernizing the
electric grid to improve the safety and reliability of the transmission and distribution network and helping customers make
cleaner energy choices including enabling increased penetration of DERs, electric transportation and energy efficiency
programs. SCE's ongoing focus to drive operational and service excellence is intended to allow it to achieve these objectives
safely while controlling costs and customer rates. SCE's focus on the transmission and distribution of electricity aligns with
California's policy supporting competitive power procurement markets. For more information on the distribution grid
development, see "—Capital Program—Distribution Grid Development" below.
Changes in the electric power industry are impacting customers and jurisdictions outside California as well. Edison
International believes that other states will also pursue climate change and GHG reduction objectives and large commercial
and industrial customers will continue to pursue cost reduction and sustainability goals. Edison Energy Group provides
energy services, managed portfolio solutions and distributed solar solutions to commercial and industrial customers who may
be impacted by these changes. Edison Energy Group seeks to provide advice in dealing with increasingly complex tariff and
technology choices in order to support customers and their management of energy costs and risks.
2018 General Rate Case
As part of SCE's December update in the GRC proceedings for the three-year period 2018 – 2020, SCE updated its 2018
revenue requirement request from $5.885 billion to $5.673 billion, a $33 million increase over the 2017 GRC authorized
revenue requirement, and proposed post-test year increases in 2019 and 2020 of $477 million and $554 million, respectively.
The changes are primarily driven by an update to the cost of capital, updated pension and benefits forecast and escalation rate
forecasts. In February 2018, SCE further updated its request to incorporate the changes associated with Tax Reform, which
resulted in a revenue requirement of $5.534 billion, a decrease of $139 million from the December update filing. The
proposed post-test year decreases in 2019 and 2020 from the December update filing are $185 million and $235 million,
respectively.
In April 2017 intervenor testimony, the ORA proposed, among other things, capturing grid modernization spending in a
memorandum account for review in the 2021 GRC. TURN recommended reductions of 78% of grid modernization capital
expenditures in 2018 and initially recommended adjustments to rate base for historical capital expenditures, including a
reduction of $550 million, primarily related to certain distribution infrastructure replacement programs.
Public participation hearings and updated testimony were completed in late 2017. A final 2018 GRC decision is not expected
until later in 2018. SCE expects to recognize revenue based on the 2017 authorized revenue requirement, adjusted for the
July cost of capital decision and Tax Reform, until a GRC decision is issued. The CPUC has approved the establishment of a
GRC memorandum account, which will make the 2018 revenue requirement adopted by the CPUC effective as of January 1,
2018. SCE cannot predict the revenue requirement the CPUC will authorize or provide assurance on the timing of a final
decision.
9
Capital Program
Total capital expenditures (including accruals), were $3.8 billion in 2017 and $3.5 billion in 2016. SCE's year-end rate base
was $27.8 billion at December 31, 2017 compared to $25.9 billion at December 31, 2016.
In connection with the 2018 GRC, SCE forecasts capital expenditures of up to $13.7 billion for 2018 – 2020. In the absence
of a 2018 GRC decision, SCE has developed, and is executing against, a 2018 capital expenditure plan that will allow SCE to
ramp up its capital spending program over the three-year GRC period to meet what is ultimately authorized in the 2018 GRC
decision while minimizing the associated risk of unauthorized spending. A component of this approach is to focus initial grid
modernization spending on capital that provides safety and reliability benefits while deferring most spending that is primarily
focused on integration of distributed energy resources.
The CPUC has approved 81%, 89%, and 92% of the traditional capital expenditures requested in the 2009, 2012, and 2015
GRC decisions, respectively. While SCE cannot predict the level of traditional capital spending that will be approved in the
2018 GRC decision, management is not aware of factors that would cause the percentage of SCE's request that is approved to
be materially different from what has been approved in recent GRC decisions. SCE does not have prior approval experience
with grid modernization capital expenditures and, therefore, is unable to predict an expected outcome. The table below
reflects expected CPUC jurisdictional capital expenditures for 2018 and requested capital expenditures for 2019 – 2020.
FERC jurisdictional capital expenditures are based on management’s expectations. Forecasted expenditures for FERC capital
projects are subject to change due to timeliness of permitting, licensing, regulatory approvals, and contractor bids. For further
information regarding updates for large transmission and substation projects, see "Liquidity and Capital Resources—SCE—
Capital Investment Plan." The following table sets forth a summary of capital expenditures for 2017 actual spend and a
forecast for 2018 – 2020 on the basis described above:
(in millions)
Traditional capital expenditures1
Distribution2
Transmission
Generation
Total traditional capital expenditures1
Grid modernization capital expenditures2
Total capital expenditures
2017
2018
2019
2020
Total
2018 – 2020
$
$
$
$
3,131 $
501
203
3,835 $
3,399 $
609
193
4,201 $
3,161 $
762
212
4,135 $
3,048 $
874
201
4,123 $
— $
— $
649 $
608 $
9,608
2,245
606
12,459
1,257
3,835 $
4,201 $
4,784 $
4,731 $
13,716
1 Includes 2018 – 2020 capital expenditures of $49 million for Energy Storage, $10 million for Transportation Electrification, and
$4 million for Charge Ready.
2 2017 and 2018 capital expenditures related to grid modernization are included in traditional capital expenditures.
SCE’s CPUC-jurisdictional rate base is determined by the amount authorized by the CPUC. Differences between actual and
authorized capital expenditures are addressed in subsequent GRC proceedings. FERC-jurisdictional rate base is generally
determined based on actual capital expenditures. Reflected below is SCE's estimated weighted average annual rate base for
2018 – 2020 using CPUC capital expenditures as requested in the 2018 GRC. The estimated weighted average annual rate
base was updated to reflect FERC expected capital expenditures and changes associated with Tax Reform as discussed above.
(in millions)
Rate base for requested traditional capital expenditures
Rate base for requested grid modernization capital expenditures
Total rate base
2018
2019
2020
$
$
28,860 $
264
31,070 $
743
29,124 $
31,813 $
33,332
1,279
34,611
The rate base above does not reflect reductions from the amounts requested in the 2018 GRC that may be included in a final
decision.
10
Distribution Grid Development
Distribution Resources Plan
In July 2015, SCE filed its DRP with the CPUC. The filing was made as part of a CPUC proceeding initiated to support
California's climate change and GHG reduction targets, modernize the electric distribution system to accommodate two-way
flows of energy associated with DERs, such as rooftop solar, and facilitate customer choice of new technologies and services
that reduce emissions and improve resilience. SCE's DRP included an indicative forecast of capital investment in distribution
automation, substation automation, communications systems, technology platforms and applications, and grid reinforcement.
The 2018 GRC includes operation and maintenance and capital expenditure requests consistent with SCE's DRP operation
and maintenance and capital spending. Capital investments for 2018 may be updated or revised based on developments and
guidance received from the CPUC as a part of the 2018 GRC, DRP rule making, technology availability, pace of DER
adoption, and other factors. In January 2016, the CPUC issued a scoping memo that provided for, among other things, the
issuance of guidance on utility spending to modify its grid in order to support its DRP. In 2017, the CPUC issued decisions on
other topics in the DRP proceeding such as new DER integration tools and field demonstration projects as well as a proposed
decision that would establish a new distribution investment deferral framework and new guidance regarding DER adoption
forecasting. However, a proposed decision addressing grid modernization investment guidelines has not yet been issued and it
is uncertain when SCE will receive firm guidance on the DRP proceeding.
Charge Ready Program
In January 2016, the CPUC approved SCE's $22 million Charge Ready Phase 1 pilot program, which allows SCE to install
light-duty vehicle charging infrastructure, provide rebates to offset the cost of qualified customer-owned charging stations,
and implement a supporting market education effort. Under the Phase 1 pilot program, SCE is building, and will own and
maintain the electric infrastructure needed to serve the qualified charging stations at participating customer locations.
Participating customers install, own, maintain, and operate the charging stations. By the end of December 2017, SCE had
executed agreements for 74 sites to deploy 1,116 charge ports. The results of this pilot will help shape Phase 2 of the
program. SCE anticipates filing an application to obtain CPUC approval for Phase 2 by the second quarter of 2018. The
capital costs for Phase 2 of the program are not included in SCE's capital spending and rate base forecasts provided above.
Transportation Electrification Plan
In January 2017, SCE filed a transportation electrification plan with the CPUC to accelerate the adoption of electric
transportation, which is critical to California's climate change and GHG reduction objectives. The plan proposes a five-year
program to fund medium- and heavy-duty vehicle charging infrastructure that follows the model developed for SCE's Charge
Ready program discussed above. The proposal has an estimated five-year cost of $554 million ($532 million capital) in 2016
dollars. In addition, the plan proposed six pilot projects to be considered by the CPUC on an accelerated basis. The pilot
projects would install charging infrastructure for electric transit buses and the Port of Long Beach; build clusters of fast
charging sites in urban areas, and establish programs that would incentivize electric vehicle adoption. The estimated total cost
of the six pilot projects is approximately $19 million ($14 million capital) in 2016 dollars. In January 2018, the CPUC issued
a final decision approving five of the six pilot projects. SCE expects to receive a CPUC decision on the five-year program in
the second quarter of 2018. SCE expects to propose additional programs and pilots in the future.
All of the plan's proposed transportation electrification projects are subject to CPUC review and the timing and amount of
capital investments for any approved project will depend upon implementation decisions, including scope and pace of
adoption and GRC ratemaking decisions and other CPUC actions. The capital costs for these proposed projects are not
included in SCE's capital spending and rate base forecasts provided above.
11
RESULTS OF OPERATIONS
SCE
SCE's results of operations are derived mainly through two sources:
• Earning activities – representing revenue authorized by the CPUC and FERC which is intended to provide SCE a
reasonable opportunity to recover its costs and earn a return on its net investment in generation, transmission and
distribution assets. The annual revenue requirements are comprised of authorized operation and maintenance costs,
depreciation, taxes and a return consistent with the capital structure. Also, included in earnings activities are revenue or
penalties related to incentive mechanisms, other operating revenue, and regulatory charges or disallowances.
• Cost-recovery activities – representing CPUC- and FERC-authorized balancing accounts which allow for recovery of
specific project or program costs, subject to reasonableness review or compliance with upfront standards. Cost-recovery
activities include rates which provide recovery, subject to reasonableness review of, among other things, fuel costs,
purchased power costs, public purpose related-program costs (including energy efficiency and demand-side management
programs) and certain operation and maintenance expenses. SCE earns no return on these activities.
The following table is a summary of SCE's results of operations for the periods indicated.
(in millions)
2017
Cost-
Recovery
Activities
Earning
Activities
Total
Consolidated
Earning
Activities
2016
Cost-
Recovery
Activities
Total
Consolidated
Earning
Activities
2015
Cost-
Recovery
Activities
Total
Consolidated
Operating revenue
$ 6,611 $ 5,643 $
12,254 $ 6,504 $ 5,326 $
11,830 $ 6,305 $ 5,180 $
11,485
Purchased power and fuel
Operation and maintenance
Depreciation and amortization
Property and other taxes
Impairment and other charges
Other operating income
Total operating expenses
Operating income
Interest expense
Other income and expenses
Income before income taxes
Income tax (benefit) expense
Net income
Preferred and preference stock
dividend requirements
Net income available for common
stock
Net income available for common
stock
Less: Non-core items
Impairment and other charges
Re-measurement of deferred
taxes
NEIL insurance recoveries
Core earnings1
—
4,527
—
4,266
—
4,873
1,902
2,032
372
716
(8)
5,014
1,597
(588)
97
1,106
(30)
1,136
124
769
—
—
—
—
5,642
1
(1)
—
—
—
—
—
4,873
2,671
2,032
372
716
(8)
10,656
1,598
1,939
1,998
351
—
—
4,288
2,216
(589)
(540)
97
79
1,106
1,755
(30)
256
1,136
1,499
124
123
798
—
—
—
—
5,325
1
(1)
—
—
—
—
—
4,527
2,737
1,998
351
—
—
9,613
2,217
1,977
1,915
334
—
—
4,226
2,079
(541)
(525)
79
64
1,755
1,618
256
507
1,499
1,111
123
113
913
—
—
—
—
5,179
1
(1)
—
—
—
—
—
$ 1,012 $
— $
1,012 $ 1,376 $
— $
1,376 $
998 $
— $
$
1,012
$
1,376
$
(448)
(33)
—
—
—
—
4,266
2,890
1,915
334
—
—
9,405
2,080
(526)
64
1,618
507
1,111
113
998
998
(382)
—
12
$
1,493
$
1,376
$
1,368
1 See use of non-GAAP financial measures in "Management Overview—Highlights of Operating Results."
12
Earning Activities
2017 vs 2016
Earning activities were primarily affected by the following:
• Higher operating revenue of $107 million is primarily due to:
• An increase in revenue of approximately $241 million related to the increase in authorized revenue from the escalation
mechanism set forth in the 2015 GRC decision and $32 million of higher operating costs subject to balancing account
treatment (primarily offset in depreciation expense below). These increases were partially offset by $33 million of
lower revenue related to the extension of bonus depreciation and a $15 million revenue reduction for the expected
refund to customers of prior overcollections identified in 2017.
• Energy efficiency incentive awards recognized in 2017 were $17 million compared to $5 million in 2016. During
2016, the CPUC approved a settlement agreement in which SCE agreed to refund $13 million related to incentive
awards SCE received for savings achieved by its 2006 – 2008 energy efficiency programs.
• A decrease in revenue of $118 million related to tax benefits refunded to customers (offset in income taxes below). The
decrease in revenue resulted from $116 million of higher year-over-year incremental tax repair benefits recognized and
$135 million of benefits recognized for tax accounting method changes. These decreases were partially offset by a
2016 revenue refund to customers of $133 million related to 2012 – 2014 incremental tax repair deductions.
• A decrease in FERC-related revenue of $39 million primarily related to higher operating costs in 2016 including
amortization of the regulatory asset associated with the Coolwater-Lugo transmission project and a $8 million
reduction to FERC revenue due to a change in estimate under the FERC formula rate mechanism.
• An increase of $20 million for other operating revenue resulting from refunds to customers recorded in 2016 due to the
retroactive extension of bonus depreciation in the PATH Act of 2015.
• Lower operation and maintenance expense of $37 million primarily due to the impact of SCE's operational and service
excellence initiatives and lower legal costs partially offset by higher transmission and distribution costs for line clearing
and maintenance and information technology costs.
• Higher depreciation and amortization expense of $34 million primarily related to depreciation and amortization on
transmission and distribution investments partially offset by amortization of the regulatory asset related to Coolwater-
Lugo plant recorded in 2016.
• Higher property and other taxes of $21 million primarily due to higher property assessed values in 2017.
•
Impairment and other charges of $716 million in 2017 due to the Revised San Onofre Settlement Agreement (see
"Management Overview—Highlights of Operating Results" for further information).
• Higher other operating income of $8 million due to the sale of utility property.
• Higher interest expense of $48 million primarily due to increased borrowings and higher interest on balancing account
overcollections in 2017.
• Higher other income and expenses of $18 million primarily due to higher AFUDC equity income. See "Notes to
Consolidated Financial Statements—Note 14. Interest and Other Income and Other Expenses" for further information.
• Lower income taxes of $286 million primarily due to the following:
• Higher non-core income tax benefits in 2017 of $235 million due to the impairment and other charges related to the
Revised San Onofre Settlement Agreement partially offset by $33 million income tax expense related to the re-
measurement of deferred taxes resulting from the implementation of Tax Reform.
• Higher income tax benefits in 2017 of $70 million due to $149 million related to flow through of incremental tax
repair benefits and for tax accounting method changes (offset in revenue above) partially offset by $79 million flow-
through of 2012 – 2014 incremental income tax benefits in 2016.
• Higher pre-tax income in 2017, excluding non-core items discussed above.
13
2016 vs 2015
Earning activities were primarily affected by the following:
• Higher operating revenue of $199 million is primarily due to:
• An increase in revenue of approximately $191 million related to the increase in authorized revenue from the escalation
mechanism set forth in the 2015 GRC decision.
• An increase in FERC-related revenue of $68 million primarily related to higher operating costs including amortization
of the regulatory asset associated with the Coolwater-Lugo transmission project and rate base growth partially offset
by a $15 million increase in 2015 due to a change in estimate under the FERC formula rate mechanism.
• An increase in revenue of $25 million ($15 million after-tax) related to the incremental return on the pole loading rate
base recorded through the pole loading balancing account.
• An increase of $46 million primarily due to tax benefits recognized in 2015 related to net operating loss carrybacks for
San Onofre decommissioning costs resulting in a reduction in revenue in 2015 (offset in income taxes).
• A decrease in revenue of $52 million for incremental tax benefits refunded to customers. In 2016, SCE recorded a
revenue refund to customers of $133 million for 2012 – 2014 incremental tax benefits related to repair deductions
(offset in income taxes as discussed below). This revenue refund resulted from the CPUC's approval of SCE's request
to refund incremental tax repair deductions that were not addressed in SCE's 2015 GRC decision. Partially offsetting
the refund of 2012 – 2014 incremental tax repair deductions, SCE recognized $81 million lower incremental tax
repairs and other benefits refunded to customers through balancing accounts in 2016.
• Energy efficiency incentive awards were $18 million in 2016 compared to $29 million in 2015. In addition, in 2016,
the CPUC approved a settlement agreement in which SCE agreed to refund $13 million related to incentive awards
SCE received for savings achieved by its 2006 – 2008 energy efficiency programs.
• SCE's portion of NEIL insurance and legal cost recoveries of approximately $20 million in 2015 arising from the
outage and shutdown of the San Onofre Units 2 and 3 generating stations.
• A decrease of $29 million for other operating revenue resulting from lower contributions received from customers due
to the retroactive extension of bonus depreciation in the PATH Act of 2015.
• Lower operation and maintenance expense of $38 million primarily due to lower labor related to SCE's focus on
operational and service excellence as well as lower outside services partially offset by higher transmission and
distribution costs for rain and storm-related activities.
• Higher depreciation and amortization expense of $83 million primarily related to depreciation on higher rate base and
amortization of the regulatory asset related to the Coolwater-Lugo plant, as discussed above.
• Higher property and other taxes of $17 million primarily due to higher property assessed values in 2016.
• Higher interest expense of $15 million primarily due to reduced interest capitalization (AFUDC debt) related to lower
construction work in progress balances and a higher interest rate on balancing account overcollections in 2016.
• Higher other income and expenses of $15 million primarily due to higher insurance benefits and lower advertising
expense in 2016. See "Notes to Consolidated Financial Statements—Note 14. Interest and Other Income and Other
Expenses" for further information.
• Lower income taxes of $251 million primarily due to the following:
• Write-down of $382 million in 2015 of regulatory assets previously recorded for recovery of deferred income taxes
from 2012 – 2014 incremental tax repair deductions.
• Higher income tax benefits in 2016 of $31 million primarily due to $79 million related to the flow-through of
incremental tax benefits for 2012 – 2014 to customers partially offset by lower income tax benefits in 2016 of
$48 million related to the flow-through of incremental tax repair and other benefits refunded to customers through
balancing accounts.
• Lower income tax expense in 2016 of $13 million related to the adoption of the FASB guidance on accounting for
share-based payments.
14
• A change in liabilities related to uncertain tax positions related to repair deductions, which resulted in income tax
benefits of $100 million during the second quarter of 2015. See "—Income Taxes" below for more information.
• Higher pre-tax income in 2016, as discussed above.
• Higher preferred and preference stock dividends of $10 million primarily related to new issuances in 2016 and late 2015
partially offset by redemptions of preferred stock.
Cost-Recovery Activities
2017 vs 2016
Cost-recovery activities were primarily affected by the following:
• Higher purchased power and fuel costs of $346 million primarily driven by higher power and gas prices experienced in
2017 relative to 2016, partially offset by lower realized losses on hedging activities ($14 million in 2017 compared to
$59 million in 2016) and lower capacity costs.
• Lower operation and maintenance expense of $29 million primarily driven by lower employee benefit and other labor
costs and lower spending on various public purpose programs, partially offset by an increase in transmission and
distribution costs for line clearing and maintenance activities.
2016 vs 2015
Cost-recovery activities were primarily affected by the following:
• Higher purchased power and fuel of $261 million primarily due to the NEIL insurance recoveries received in 2015
(discussed below) and a change in portfolio mix partially offset by lower load related to cooler weather.
In October 2015, San Onofre owners reached an agreement with NEIL to resolve all insurance claims arising out of the
failures of the San Onofre replacement steam generators. SCE customer's portion of amounts recovered from NEIL has
been distributed to SCE customers via a credit to SCE's ERRA account of approximately $300 million in 2015.
• Lower operation and maintenance expense of $115 million primarily due to lower transmission access charges and lower
spending on various public purpose programs partially offset by an increase in transmission and distribution costs for
drought related activities.
Supplemental Operating Revenue Information
SCE's retail billed and unbilled revenue (excluding wholesale sales and balancing account over/undercollections) was
$11.5 billion, $10.7 billion and $12.2 billion for 2017, 2016 and 2015, respectively. The 2017 revenue reflects an increase of
approximately $720 million primarily due to the implementation of the 2017 ERRA rate increase.
The 2016 revenue reflects a rate decrease of $1.15 billion primarily due to the implementations of the 2016 ERRA rate
change and the 2015 GRC decision in January 2016 and a sales volume decrease of $321 million due to lower load
requirements related to cooler weather experienced in 2016 compared to 2015.
As a result of the CPUC-authorized decoupling mechanism, SCE earnings are not affected by changes in retail electricity
sales (see "Business—SCE—Overview of Ratemaking Process").
15
Income Taxes
SCE’s income tax provision decreased by $286 million in 2017 compared to 2016 and decreased by $251 million in 2016
compared to 2015. The effective tax rates were (2.7)%, 14.6% and 31.3% for 2017, 2016 and 2015, respectively. SCE's
effective tax rate is below the federal statutory rate of 35% primarily due to CPUC's ratemaking treatment for the current tax
benefit arising from certain property-related and other temporary differences, which reverse over time. The accounting
treatment for these temporary differences results in recording regulatory assets and liabilities for amounts that would
otherwise be recorded to deferred income tax expense. The effective tax rate decrease in 2017 was primarily due to
impairment and other charges of $716 million related to the Revised San Onofre Settlement Agreement. The decrease was
also attributable to higher incremental repair tax benefits and benefits recognized for tax accounting method changes, all of
which will be refunded to customers partially offset by lower tax benefits for the $133 million revenue refund to customers
that was recorded in 2016. The effective tax rate decrease in 2016 was primarily due to the $382 million write-down in 2015
of regulatory assets partially offset by revisions in liabilities related to uncertain tax positions in 2015.
See "Notes to Consolidated Financial Statements—Note 7. Income Taxes" for a reconciliation of the federal statutory rate of
35% to the effective income tax rates and "Management Overview—Permanent Retirement of San Onofre" above for more
information.
Edison International Parent and Other
Results of operations for Edison International Parent and Other includes amounts from other subsidiaries that are not
significant as a reportable segment, as well as intercompany eliminations.
Strategic Review of Edison Energy Group Competitive Businesses
During the third quarter of 2017, Edison International completed a strategic review of Edison Energy Group's competitive
businesses. The competitive businesses pursued by Edison Energy Group include energy and managed portfolio services
provided by Edison Energy and distributed solar solutions provided by SoCore Energy. Edison International decided to
evaluate strategic options, including potential sale of SoCore Energy, and consolidate management across Edison Energy
Group. Edison Energy will continue to pursue a proof of concept of its existing energy services and managed portfolio
solutions practice for large energy users in the United States. Under the proof of concept, Edison Energy will seek to achieve
a breakeven earnings run rate and 5% target customer penetration by the end of 2019.
In connection with the strategic review, Edison International evaluated the recoverability of goodwill and recorded an
impairment of SoCore Energy's goodwill totaling $16 million ($10 million after-tax) in the second quarter of 2017. SoCore
Energy's remaining goodwill at December 31, 2017 was $6 million.
In light of the decision to evaluate sale opportunities for SoCore Energy, Edison International considered the application of
held for sale accounting treatment under the applicable accounting guidance. Edison International concluded that, as of
December 31, 2017, it was not probable that the investment in SoCore Energy ($248 million at December 31, 2017) would be
sold within one year, therefore the long-lived assets of SoCore Energy were not subject to held for sale accounting
treatment. Under held for sale accounting treatment, the net assets of SoCore Energy would be recorded at the lower of book
value or net realizable value, including transaction costs.
On January 22, 2017, the United States government announced that it will impose tariffs on imported solar cells and modules.
These tariffs are expected to increase the cost of solar equipment, which is expected to adversely impact the economics of
new solar projects. Subsequent to the United States government announcement, Edison International obtained bids for the
sale of its interest in SoCore Energy. Edison International is in the process of negotiating the sale of its interest in SoCore
Energy. While the conclusion of the sale process cannot be assured, as a result of the current status of negotiations, Edison
International expects to record a pre-tax loss of approximately $65 million (approximately $45 million on an after-tax basis)
during the first quarter of 2018.
16
Loss from Continuing Operations
The following table summarizes the results of Edison International Parent and Other:
(in millions)
Edison Energy Group and subsidiaries1
Corporate expenses and other subsidiaries
Total Edison International Parent and Other
Years ended December 31,
2017
2016
2015
$
$
(26)
(421)
(447)
$
$
(38)
(39)
(77)
$
$
(6)
(7)
(13)
1 Includes income of $13 million, $5 million and $9 million in 2017, 2016, 2015 related to losses (net of distributions) allocated to tax
equity investors under the HLBV accounting method.
The loss from continuing operations of Edison International Parent and Other increased $370 million in 2017 compared to
2016 primarily due to:
•
Income tax expense of $433 million in 2017 from the re-measurement of deferred taxes as a result of Tax Reform. For
further information, see "Management Overview—Tax Reform."
• Higher income tax benefits related to stock option exercises of $30 million for the year ended December 31, 2017,
$17 million of tax benefits recorded in 2017 from net operating loss carrybacks that resulted from the filing of the 2016
tax returns and $6 million of tax benefits recorded in 2017 related to settlement with the IRS for taxable years 2007 –
2012.
• Edison Energy Group's 2017 results included HLBV income of $13 million, a $10 million after-tax goodwill impairment
charge on the SoCore Energy reporting unit and net tax expense of $5 million from a change in tax law partially offset by
tax benefits primarily related to stock option exercises. Edison Energy Group's 2016 results included HLBV income of
$5 million, $13 million after-tax charge in 2016 from a buy-out of an earn-out provision contained in one of the 2015
acquisitions and net tax benefits of $5 million primarily related to stock option exercises. Excluding these items, Edison
Energy Group net losses were $24 million in 2017 and $35 million in 2016. The reduction in these losses was due to
lower expenses related to new business activities. Revenue for the Edison Energy Group was $69 million and $42 million
for the years ended December 31, 2017 and 2016, respectively. The increase in revenue was primarily due to higher build
transfer projects from SoCore Energy in 2017.
The loss from continuing operations of Edison International Parent and Other increased $64 million in 2016 compared to
2015 primarily due to:
• An increase in losses of Edison Energy Group of $32 million, including a $13 million after-tax charge during 2016 (as
discussed above), higher operating and development expenses and lower revenue and gross margin from the sale of solar
systems in 2016 compared to 2015. The results for the twelve months ended December 31, 2016 include the three
businesses acquired by Edison Energy in December 2015 and expanded sales and support personnel. Revenue for the
Edison Energy Group was $42 million and $34 million for the twelve months ended December 31, 2016 and 2015,
respectively.
• A decrease in income from Edison Mission Group and subsidiaries of $32 million in 2016 primarily due to income related
to affordable housing projects in 2015. In December 2015, Edison Mission Group, Inc.'s subsidiary, Edison Capital,
completed the sale of its remaining affordable housing investment portfolio which represents the exit of this business
activity.
17
LIQUIDITY AND CAPITAL RESOURCES
SCE
SCE's ability to operate its business, fund capital expenditures, and implement its business strategy is dependent upon its cash
flow and access to the bank and capital markets. SCE's overall cash flows fluctuate based on, among other things, its ability
to recover its costs in a timely manner from its customers through regulated rates, changes in commodity prices and volumes,
collateral requirements, interest obligations, dividend payments, and the outcome of tax and regulatory matters.
As discussed in "Management Overview," Tax Reform is expected to lower rates charged to customers which will result in
less cash available to fund operations. In the next 12 months, SCE expects to fund its obligations, capital expenditures and
dividends through operating cash flows, tax benefits and capital market financings of debt and preferred equity, as needed.
SCE also has availability under its credit facilities to fund cash requirements.
Available Liquidity
At December 31, 2017, SCE had $1.41 billion available under its $2.75 billion credit facility. The credit facility is available
for borrowing needs until July 2022. In December 2017, SCE borrowed $500 million from its credit facility. On January 26,
2018, SCE repaid its $500 million borrowings with cash on hand. For further details, see "Notes to Consolidated Financial
Statements—Note 5. Debt and Credit Agreements" and "—Note 12. Preferred and Preference Stock of Utility."
SCE may finance balancing account undercollections and working capital requirements to support operations and capital
expenditures with commercial paper, its credit facility or other borrowings, subject to availability in the bank and capital
markets. To the extent necessary, SCE would utilize its available liquidity, capital market financings of debt and preferred
equity or parent company contributions to SCE equity in order to meet its obligations as they become due, including any
potential costs related to the December 2017 Wildfires and Montecito Mudslides (see "Management Overview—Southern
California Wildfires" and "—Montecito Mudslides" for further information).
Debt Covenant
The debt covenant in SCE's credit facility limits its debt to total capitalization ratio to less than or equal to 0.65 to 1. At
December 31, 2017, SCE's debt to total capitalization ratio was 0.45 to 1.
At December 31, 2017, SCE was in compliance with all other financial covenants that affect access to capital.
Capital Investment Plan
Major Transmission Projects
A summary of SCE's most significant transmission and substation construction projects during the next three years is
presented below. The timing of the projects below is subject to timely receipt of permitting, licensing and regulatory
approvals.
Project Name
West of Devers
Mesa Substation
Alberhill System
Riverside Transmission Reliability
Eldorado-Lugo-Mohave Upgrade
Project
Lifecycle Phase
Construction
Construction
Licensing
Licensing
Planning
Direct
Expenditures
(in millions)1
$848
Inception to
Date
(in millions)1
$91
$646
$486
$405
$233
$78
$37
$8
$31
Scheduled In-
Service Date
2021
2022
2021
2023
2021
1 Direct expenditures include direct labor, land and contract costs incurred for the respective projects and exclude overhead
costs that are included in the capital expenditures forecast discussed in "Management Overview—Capital Program."
18
West of Devers
The West of Devers Project consists of upgrading and reconfiguring approximately 48 miles of existing 220 kV
transmission lines between the Devers, El Casco, Vista and San Bernardino substations, increasing the power transfer
capabilities in support of California's renewable portfolio standards goals.
In August 2016, the CPUC approved the construction of the West of Devers Project. As a result of the delay in receipt of the
Project's approval from the CPUC, SCE deferred the forecasted timing of project capital expenditures. ORA filed an
Application for Rehearing in September 2016 stating that the August 2016 decision failed to follow the California
Environmental Quality Act when it approved the Project and should have approved an alternative project with an amended
scope. In March 2017, the CPUC issued a decision denying ORA's September 2016 Application for Rehearing. This action
confirmed SCE's proposed project. In December 2017, SCE awarded the competitive bid for transmission construction,
which resulted in a decrease to the expected cost of the Project.
Mesa Substation
The Mesa Substation Project consists of replacing the existing 220 kV Mesa Substation with a new 500/220 kV substation.
The Mesa Substation Project would address reliability concerns by providing additional transmission import capability,
allowing greater flexibility in the siting of new generation, and reducing the total amount of new generation required to meet
local reliability needs in the Western Los Angeles Basin area. In February 2017, the CPUC issued a final decision approving
the Project largely consistent with SCE's proposal and rejected alternative project configurations proposed by CPUC staff. In
October 2017, SCE awarded the competitive bid for the new 220kV portion of substation construction. SCE updated the
expected cost of the Project due to schedule delays and scope changes. The remainder (550kV portion of substation
construction) will be put out for bid by early 2019.
Alberhill System
The Alberhill System Project consists of constructing a new 500-kV substation, two 500-kV transmission lines to connect the
proposed substation to the existing Serrano-Valley 500-kV transmission line, telecommunication equipment and
subtransmission lines in unincorporated and incorporated portions of western Riverside County. The Project was designed to
meet long-term forecasted electrical demand in the proposed Alberhill Project area and to increase electrical system
reliability. In April 2016, the CPUC issued a draft environmental impact report that identified an alternative substation site. In
April 2017, the CPUC issued a final environmental impact report for the Project which rejected different alternatives
recommended by CPUC staff and intervenors, selecting SCE's proposed project as the environmentally superior project. A
final CPUC decision to approve the Project for construction is anticipated during 2018. SCE updated the total capital forecast
for the Project based on the conclusion in the final environmental impact report and the timing of the extended regulatory
review process.
Riverside Transmission Reliability
The Riverside Transmission Reliability Project is a joint project between SCE and Riverside Public Utilities (RPU), the
municipal utility department of the City of Riverside. While RPU would be responsible for constructing some of the Project's
facilities within Riverside, SCE's portion of the Project consists of constructing upgrades to its system, including a new 230-
kV Substation; certain interconnection and telecommunication facilities and transmission lines in the cities of Riverside,
Jurupa Valley and Norco and in portions of unincorporated Riverside County. The purpose of the Project is to provide RPU
and its customers with adequate transmission capacity to serve existing and projected load, to provide for long-term system
capacity for load growth, and to provide needed system reliability.
Due to changed circumstances since the time the Project was originally developed, SCE informed the CPUC in August 2016
that it supports revisions to the proposed Project. The CPUC continues to collect information regarding the revised Project or
other proposed revisions in support of a supplemental environmental review. SCE updated the total expected cost of the
Project to include scope revisions consistent with a revised project.
Eldorado-Lugo-Mohave Upgrade
The Eldorado-Lugo-Mohave Upgrade Project will increase capacity on existing transmission lines to allow additional
renewable energy to flow from Nevada to southern California. The Project would modify SCE's existing Eldorado, Lugo, and
Mohave electrical substations to accommodate the increased current flow from Nevada to southern California; increase the
power flow through the existing 500 kV transmission lines by constructing two new capacitors along the lines; raise
transmission tower heights to meet ground clearance requirements; and install communication wire on our transmission lines
to allow for communication between existing SCE substations. SCE has proposed an expedited schedule and a non-standard
19
review process with the regulatory permitting agencies in order to meet the current in-service date. During September 2017,
SCE awarded the competitive bid for the Project which resulted in a decrease to the expected capital forecast for the Project.
Regulatory Proceedings
Cost of Capital
In July 2017, the CPUC issued a final decision that adopted the petition previously filed by SCE, Pacific Gas & Electric
Company, SDG&E, and SoCalGas (collectively, the "Investor-Owned Utilities"), ORA, and TURN to modify the prior CPUC
decisions addressing the Investor-Owned Utilities' costs of capital. The decision extended the deadline for the next Investor-
Owned Utilities cost of capital application to April 2019, reset SCE's authorized cost of long-term debt to 4.98% and
preferred stock to 5.82%, and established SCE's authorized ROE at 10.30%, both beginning January 1, 2018. In October
2017, the CPUC approved SCE's updated debt and preferred rates that SCE filed in September 2017.
FERC Formula Rate
In December 2017, the FERC issued an order setting the effective date of SCE's new formula rate as January 1, 2018, subject
to settlement procedures and refund. The new formula rate results in a decrease in SCE's transmission revenue requirement of
$19 million or 1.6% lower than amounts authorized in 2017 rates primarily due to higher recovery of undercollections in
previous periods.
Energy Efficiency Incentive Mechanism
In December 2017, the CPUC awarded SCE incentives of approximately $17 million, approximately 70% of the requested
award for program years 2015 and 2016.
Decommissioning of San Onofre
The decommissioning of a nuclear plant requires the management of three related activities: radiological decommissioning,
non-radiological decommissioning and the management of spent nuclear fuel. The decommissioning process is expected to
take many years. Decommissioning of San Onofre Unit 1 began in 1999 and major decommissioning work was completed in
2008, except for reactor vessel disposal and certain underground work that was deferred to allow for the construction of the
San Onofre Independent Spent Fuel Storage Installation ("ISFSI"). The construction of the ISFSI has been completed and the
transfer of spent nuclear fuel to the dry cask storage in the ISFSI has begun. The initial activity phase of radiological
decommissioning of Units 2 and 3 began in June 2013 with SCE filing a certification of permanent cessation of power
operations at San Onofre with the NRC. SCE is currently permitted to start major radiological decommissioning activities
pursuant to NRC regulations, provided SCE obtains all necessary environmental permits for decommissioning. SCE has
engaged a decommissioning general contractor to undertake a significant scope of decommissioning activities for Units 1, 2
and 3 at San Onofre.
In December 2017, SCE updated its decommissioning cost estimate for San Onofre Units 2 and 3. The decommissioning cost
estimate in 2017 dollars is $3.4 billion (SCE share is $2.6 billion) and includes costs through the respective completion dates
to decommission San Onofre Units 2 and 3 estimated to be in 2051. The decommissioning cost estimate is subject to a
number of uncertainties including the cost of disposal of nuclear waste, cost of removal of property, site remediation costs as
well as a number of other assumptions and estimates, including when the federal government may remove spent fuel
canisters from the San Onofre site, as to which there can be no assurance. The cost estimate is subject to change once the site
specific study is final, and such changes may be material. In March 2018, SCE expects to file its 2018 NDCTP which will
include the updated site specific study for San Onofre Units 2 and 3. For further information, see "Notes to Consolidated
Financial Statements—Note 1. Summary of Significant Accounting Policies—Nuclear Decommissioning and Asset
Retirement Obligations." The CPUC will conduct a reasonableness review for costs for each year. SCE's share of the
decommissioning costs recorded during 2017 were $236 million and are subject to reasonableness review by the CPUC.
SCE has nuclear decommissioning trust funds for San Onofre Units 2 and 3 of $2.8 billion as of December 31, 2017. If the
decommissioning cost estimate and assumptions regarding trust performance do not change significantly, SCE believes that
future contributions to the trust funds will not be necessary.
SCE Dividends
SCE made $573 million and $701 million in dividend payments to its parent, Edison International, in 2017 and 2016,
respectively. During the fourth quarter of 2017, SCE declared a dividend to Edison International of $212 million, which was
paid on January 31, 2018.
20
The CPUC regulates SCE's capital structure which limits the dividends it may pay Edison International. Under CPUC
regulations, SCE may make distributions to Edison International as long as the common equity component of SCE's capital
structure remains at or above 48% on a 13-month average basis, or otherwise satisfies the CPUC requirements. If the Revised
San Onofre Settlement Agreement is approved by the CPUC, SCE may exclude the $448 million after-tax charge resulting
from the implementation of the Revised San Onofre Settlement Agreement from its ratemaking capital structure. At
December 31, 2017, without excluding the $448 million after-tax charge, SCE's 13-month average common equity
component of total capitalization was 50.0% and the maximum additional dividend that SCE could pay to Edison
International under this limitation was approximately $511 million, resulting in a restriction on net assets of approximately
$14.2 billion. If the Revised San Onofre Settlement Agreement had been approved by the CPUC at December 31, 2017, the
common equity component of SCE's capital structure would have been 50.1% on a 13-month average basis.
As a California corporation, SCE's ability to pay dividends is also governed by its obligations under the California General
Corporation Law. California law requires that for a dividend to be declared: (a) retained earnings must equal or exceed the
proposed dividend, or (b) immediately after the dividend is made, the value of the corporation's assets must exceed the value
of its liabilities plus amounts required to be paid in order to liquidate stock senior to the shares receiving the dividend.
Additionally, a California corporation may not declare a dividend if it is, or as a result of the dividend, would be, likely to be
unable to meet its liabilities as they mature. On February 22, 2018, SCE declared a dividend to Edison International of
$212 million. Prior to declaring the dividend, SCE's Board of Directors evaluated the information available, including
information pertaining to the December 2017 Wildfires and Montecito Mudslides, and determined that the California law
requirements for the declaration were met.
The timing and amount of future dividends are also dependent on a number of other factors including SCE's requirements to
fund other obligations and capital expenditures, and its ability to access the capital markets, and generate operating cash
flows and earnings. If SCE incurs significant costs for 2017 Wildfires-related damages and is unable to recover such costs
through insurance or from customers or access capital markets on reasonable terms, SCE may be limited in its ability to pay
future dividends to Edison International and its preferred and preference shareholders. See "Notes to Consolidated Financial
Statements—Note 1. Summary of Significant Accounting Policies—SCE Dividend Restrictions" for discussion of dividend
restrictions.
Margin and Collateral Deposits
Certain derivative instruments, power procurement contracts and other contractual arrangements contain collateral
requirements. Future collateral requirements may differ from the requirements at December 31, 2017 due to the addition of
incremental power and energy procurement contracts with collateral requirements, if any, and the impact of changes in
wholesale power and natural gas prices on SCE's contractual obligations.
Some of the power procurement contracts contain provisions that require SCE to maintain an investment grade credit rating
from the major credit rating agencies. If SCE's credit rating were to fall below investment grade, SCE may be required to pay
the liability or post additional collateral.
The table below provides the amount of collateral posted by SCE to its counterparties as well as the potential collateral that
would be required as of December 31, 2017.
(in millions)
Collateral posted as of December 31, 20171
Incremental collateral requirements for power procurement contracts resulting from a
potential downgrade of SCE's credit rating to below investment grade
Incremental collateral requirements for power procurement contracts resulting from adverse
market price movement2
Posted and potential collateral requirements
$
$
102
35
3
140
1 Net collateral provided to counterparties and other brokers consisted $101 million in letters of credit and surety bonds
and $1 million of cash which was offset against net derivative liabilities on the consolidated balance sheets.
2
Incremental collateral requirements were based on potential changes in SCE's forward positions as of December 31,
2017 due to adverse market price movements over the remaining lives of the existing power procurement contracts
using a 95% confidence level.
21
Regulatory Balancing Accounts
SCE's cash flows are affected by regulatory balancing accounts overcollections or undercollections. Overcollections and
undercollections represent differences between cash collected in current rates for specified forecasted costs and the costs
actually incurred. With some exceptions, SCE seeks to adjust rates on an annual basis or at other designated times to recover
or refund the balances recorded in its balancing accounts. Undercollections or overcollections in these balancing accounts
impact cash flows and can change rapidly. Undercollections- and overcollections accrue interest based on a three-month
commercial paper rate published by the Federal Reserve.
As of December 31, 2017, SCE had regulatory balancing account net overcollections of $1.7 billion, primarily consisting of
overcollections related to public purpose-related and energy efficiency program costs, BRRBA and TAMA. Overcollections
related to public purpose-related programs are expected to decrease as costs are incurred to fund programs established by the
CPUC. Overcollections related to BRRBA and TAMA are expected to decrease as refunds are provided to customers in
January 2018. See "Notes to Consolidated Financial Statements—Note 10. Regulatory Assets and Liabilities" for further
information.
Edison International Parent and Other
In the next 12 months, Edison International expects to fund its obligations, capital expenditures and dividends through
operating cash flows, tax benefits and capital market financings, as needed. Edison International also has availability under
its credit facilities to fund cash requirements. In December 2017, Edison International declared an 11.5% increase to the
annual dividend rate from $2.17 per share to $2.42 per share. On February 22, 2018, Edison International declared a dividend
of $0.605 per share to be paid on April 30, 2018. Edison International Parent and Other's liquidity and its ability to pay
operating expenses and pay dividends to common shareholders are dependent on dividends from SCE, realization of tax
benefits, access to the bank and capital markets, and its ability to meet California law requirements for the declaration of
dividends. For information on the California law requirements on the declaration of dividends, see "—SCE—SCE
Dividends." Edison International intends to maintain its target payout ratio of 45% – 55% of SCE's core earnings, subject to
the factors identified above. Edison International may also finance working capital requirements, payment of obligations,
capital investments, including capital contributions to subsidiaries, and common stock dividends with short-term or other
financings, subject to availability in the bank and capital markets.
At December 31, 2017, Edison International Parent had approximately $524 million of cash and cash equivalents and
$111 million available of net borrowing capacity under its $1.25 billion multi-year revolving credit facility. In December
2017, Edison International Parent borrowed $500 million from its credit facility. The $500 million credit facility was repaid
on January 26, 2018 from cash on hand. In addition, on January 26, 2018, Edison International Parent issued a $500 million
term loan and the proceeds of the loan were used to pay down the commercial paper outstanding. At February 20, 2018,
Edison International Parent had available liquidity of approximately $1.1 billion on its credit facility. The credit facility is
available for borrowing needs until July 2022. For further details, see "Notes to Consolidated Financial Statements—Note 5.
Debt and Credit Agreements."
The debt covenant in Edison International Parent's credit facility requires a consolidated debt to total capitalization ratio as
defined in the credit agreement of less than or equal to 0.65 to 1. At December 31, 2017, Edison International Parent's
consolidated debt to total capitalization ratio was 0.51 to 1.
At December 31, 2017, Edison International Parent was in compliance with all financial covenants that affect access to
capital.
Net Operating Loss and Tax Credit Carryforwards
After giving effect to Tax Reform, Edison International has approximately $1.1 billion of tax effected net operating loss and
tax credit carryforwards at December 31, 2017 (excluding $77 million of unrecognized tax benefits and $199 million of
Capistrano Wind net operating loss and tax credit carryforwards) which are available to offset future consolidated tax
liabilities (see "Notes to Consolidated Financial Statements—Note 7. Income Taxes" for further information regarding taxes
payable to Capistrano Wind). Tax Reform reduced the valuation of net operating loss carryforwards but did not affect the
amount of future taxable income that may be offset. Tax Reform also will limit the utilization of NOLs arising after
December 31, 2017 to 80% of taxable income with an indefinite carryforward and places limitations on the ability of
regulated utilities to qualify for immediate expensing of certain capital expenditures. Tax Reform did not impact the valuation
of tax credit carryforwards, which directly offset taxes due. As a result of the forgoing, Edison International expects to realize
its NOL and tax credit carryforward position through 2025.
22
Historical Cash Flows
SCE
(in millions)
Net cash provided by operating activities
Net cash provided by (used in) financing activities
Net cash used in investing activities
Net increase (decrease) in cash and cash equivalents
Net Cash Provided by Operating Activities
2017
2016
2015
$
$
3,725
$
243
(3,492)
476
$
3,523
(219)
(3,291)
13
$
$
4,624
(812)
(3,824)
(12)
The following table summarizes major categories of net cash provided by operating activities as provided in more detail in
SCE's consolidated statements of cash flows for 2017, 2016 and 2015.
(in millions)
Net income
Non-cash items1
Subtotal
Changes in cash flow resulting from working
capital2
Derivative assets and liabilities, net
Regulatory assets and liabilities, net
Other noncurrent assets and liabilities, net3
Net cash provided by operating activities
Years ended December 31,
Change in cash flows
2017
2016
2015
2017/2016
2016/2015
$
$
$
1,136 $
1,499 $
3,046
2,108
4,182 $
3,607 $
(120)
(28)
4
(313)
3,725 $
236
13
(292)
(41)
3,523 $
1,111
2,231
3,342
16
45
1,729
(508)
4,624
$
575 $
265
(356)
(41)
296
(272)
202 $
220
(32)
(2,021)
467
(1,101)
$
1 Non-cash items include depreciation and amortization, allowance for equity during construction, impairment and other charges,
deferred income taxes and investment tax credits and other.
2 Changes in working capital items include receivables, inventory, accounts payable, prepaid and accrued taxes, and other current assets
and liabilities.
3
Includes the nuclear decommissioning trusts.
Net cash provided by operating activities was impacted by the following:
Net income and non-cash items increased in 2017 by $575 million from 2016 and increased in 2016 by $265 million from
2015. The increase in 2017 was primarily due to an increase in revenue from the escalation mechanism set forth in the 2015
GRC decision and lower operation and maintenance expenses, partially offset by higher financing costs along with non-cash
items. Non-cash items included changes in deferred income taxes and investment tax credits of $304 million in 2017 and
$88 million in 2016. The increase in 2016 was primarily due to higher authorized revenue in 2016 from the escalation
mechanism set forth in the 2015 GRC decision. The factors that impacted these items are discussed under "Results of
Operations—SCE—Earning Activities."
Net cash for working capital was $(120) million, $236 million and $16 million in 2017, 2016 and 2015, respectively. The net
cash for 2017, 2016 and 2015 was primarily related to timing of disbursements ($125 million, $45 million and $120 million
in 2017, 2016 and 2015, respectively) and the decrease in receivables from customers ($163 million, $220 million and
$93 million in 2017, 2016 and 2015, respectively). Net cash for working capital also included an insurance premium payment
of $121 million for additional wildfire coverage in December 2017 and changes in tax receivables and payables of
$(234) million in 2017 and $(16) million in 2016 primarily due to the utilization of net operating losses in 2017. In addition,
SCE had net tax payments of $144 million in 2015.
23
Net cash provided by regulatory assets and liabilities, including changes in over (under) collections of balancing accounts,
was $4 million, $(292) million and $1.7 billion in 2017, 2016 and 2015, respectively. SCE has a number of balancing
accounts, which impact cash flows based on differences between timing of collection of amounts through rates and accrual
expenditures. Cash flows were primarily impacted by the following:
2017
• The 2015 GRC decision established the TAMA. As a result of this memorandum account, together with a balancing
account for pole loading expenditures, 2015 – 2017 tax benefits or costs associated with certain events are tracked and
adjusted annually through customer rates. Overcollections increased by $117 million during 2017 primarily due to higher
tax repair deductions than forecasted in rates and $135 million of higher benefits recognized for tax accounting method
changes, partially offset by a $226 million reclassification from TAMA to BRRBA to refund customers.
• Higher cash due to $153 million of overcollections for the public purpose and energy efficiency programs. The increase in
cash was due to lower spending than billed to customers and recovery of prior year undercollections.
• Higher cash due to $136 million of overcollections related to FERC balancing accounts. The increase in cash was due to
recovery of prior FERC undercollections and lower costs than previously forecasted.
• Higher cash due to proceeds of approximately $34 million from the Department of Energy related to spent nuclear fuel.
For further information on the spent nuclear fuel, see "Notes to Consolidated Financial Statements—Note 11.
Commitments and Contingencies—Contingencies—Spent Nuclear Fuel."
• The BRRBA tracks the differences between amounts authorized by the CPUC in the GRC proceedings and amounts billed
to customers. BRRBA overcollections decreased by $226 million during 2017 primarily due to the refunds of 2015 TAMA
overcollections, a revenue refund to customers of $133 million for 2012 – 2014 incremental tax benefits related to repair
deductions, and 2015 overcollections resulting from the implementation of the 2015 GRC decision, which was authorized
to be refunded to customers over a two year period, partially offset by a $226 million reclassification from TAMA to
BRRBA to refund customers in January 2018 as discussed above.
• Net undercollections for ERRA and the new system generation program were $267 million at December 31, 2017
compared to net overcollections of $26 million at December 31, 2016. Lower cash due to $293 million of net
undercollections in 2017 primarily due to a refund of prior year overcollections and an increase in costs due to higher than
forecasted power and gas prices experienced in 2017 and higher load requirements than forecasted in rates.
2016
• Lower cash due to a decrease in ERRA overcollections for fuel and purchased power of $419 million in 2016 primarily
due to the implementation of the 2016 ERRA rate decrease in January 2016, partially offset by lower than forecasted
power and gas prices experienced in 2016.
• The public purpose and energy efficiency programs track differences between amounts authorized by the CPUC and
amounts incurred to fund programs established by the CPUC. Overcollections increased by $309 million in 2016 due to
higher funding and lower spending for these programs.
• SCE had a decrease in cash of approximately $182 million primarily due to a 2016 refund of 2015 overcollections
resulting from the implementation of the 2015 GRC decision which was authorized to be refunded to customers over a
two year period.
2015
• Higher cash due to a decrease in ERRA undercollections of $1.5 billion in 2015 primarily due to lower power and gas
prices experienced in 2015, the 2015 application of 2013 and 2014 nuclear decommissioning costs refunds against ERRA
undercollections and the NEIL settlement proceeds from insurance claims arising out of the failures of the San Onofre
replacement steam generators. In January 2015, SCE reclassified the regulatory liability for generator settlements to
ERRA to refund customers as required by the CPUC.
• During 2015, BRRBA overcollections increased by $314 million primarily due to revenue previously collected from
customers that was expected to be refunded as part of the 2015 GRC decision.
• Overcollections for the public purpose and energy efficiency programs decreased by $191 million in 2015 primarily due
to higher spending for these programs. The decrease was partially offset by an increase in funding of the new system
generation program for 2015.
24
• The 2015 GRC Decision established the TAMA. As a result of this memorandum account, together with a balancing
account for pole loading expenditures, any differences between the forecasted tax repair deductions and actual tax repair
deductions will be adjusted through customer rates. At December 31, 2015, SCE had a regulatory liability of $248 million
related to these accounts (impact of TAMA is offset in non-cash items above).
Cash flows used in other noncurrent assets and liabilities were primarily related to net earnings from nuclear
decommissioning trust investments ($55 million, $45 million and $43 million in 2017, 2016 and 2015, respectively), SCE's
payments of decommissioning costs ($236 million, $168 million and $216 million in 2017, 2016 and 2015, respectively) and
changes in uncertain tax positions due to the utilization of net operating losses ($(98) million and $104 million in 2017 and
2016, respectively). See "Nuclear Decommissioning Activities" below for further discussion.
Net Cash Provided by (Used in) Financing Activities
The following table summarizes cash provided by financing activities for 2017, 2016 and 2015. Issuances of debt and
preference stock are discussed in "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements—Long-
Term Debt" and "—Note 12. Preferred and Preference Stock of Utility."
(in millions)
2017
2016
2015
Issuances of first and refunding mortgage bonds, net of premium
(discount) and issuance costs
$
1,011
$
Issuance of term loan
Remarketing and issuances of pollution control bonds, net of issuance
costs
Long-term debt matured or repurchased
Issuances of preference stock, net of issuance costs
Redemptions of preference stock
Short-term debt borrowings, net of repayments and discount
Payments of common stock dividends to Edison International
Payments of preferred and preference stock dividends
Other
Net cash provided by (used in) financing activities
$
300
134
(882)
462
(475)
469
(573)
(124)
(79)
243
$
— $
—
1,287
—
—
(217)
294
(125)
719
(701)
(123)
(66)
(219)
$
126
(761)
319
(325)
(619)
(758)
(116)
35
(812)
Net Cash Used in Investing Activities
Cash flows used in investing activities are primarily due to capital expenditures and funding of nuclear decommissioning
trusts. Capital expenditures were $3.7 billion for 2017, $3.6 billion for 2016 and $4.2 billion for 2015, primarily related to
transmission and generation investments. The decrease in capital expenditures during 2016 was primarily due to lower FERC
capital spending. SCE had a net redemption of nuclear decommissioning trust investments of $197 million, $179 million and
$374 million in 2017, 2016 and 2015, respectively. See "Nuclear Decommissioning Activities" below for further discussion.
In addition, during 2017 and 2016, SCE received proceeds of $26 million and $140 million, respectively, for loans on the
cash surrender value of life insurance policies. The proceeds were used for general corporate purposes.
Nuclear Decommissioning Activities
SCE's statement of cash flows includes nuclear decommissioning activities, which are reflected in the following line items:
(in millions)
2017
2016
2015
Net cash used in operating activities:
Net earnings from nuclear decommissioning trust investments
SCE's decommissioning costs
Net cash provided by investing activities:
Proceeds from sale of investments
Purchases of investments
Net cash impact
$
$
55
(236)
5,239
(5,042)
16
$
$
45
(168)
3,212
(3,033)
56
$
$
43
(216)
3,506
(3,132)
201
25
Net cash used in operating activities relate to interest and dividends less administrative expenses, taxes, and SCE's
decommissioning costs. See "Notes to Consolidated Financial Statements—Note 9. Investments" for further information.
Investing activities represent the purchase and sale of investments within the nuclear decommissioning trusts, including the
reinvestment of earnings from nuclear decommissioning trust investments.
Beginning in March 2016, funds for decommissioning costs are requested from the nuclear decommissioning trusts one
month in advance. Decommissioning disbursements are funded from sales of investments of the nuclear decommissioning
trusts. See "Notes to Consolidated Financial Statements—Note 9. Investments" for further information. The net cash impact
reflects timing of decommissioning payments ($236 million, $168 million and $216 million in 2017, 2016 and 2015,
respectively) and reimbursements to SCE from the nuclear decommissioning trust ($252 million, $224 million and
$471 million in 2017, 2016 and 2015, respectively). The 2016 net cash impact included reimbursements for 2016 and a
portion of 2015, 2014, and 2013 decommissioning costs. The 2015 net cash impact included reimbursements for 2015, 2014,
and 2013 decommissioning costs. In addition, during 2015, SCE made a contribution of $54 million to the non-qualified
decommissioning trust related to tax benefits received and pursuant to a CPUC decision related to decommissioning costs for
San Onofre Unit 1.
Edison International Parent and Other
The table below sets forth condensed historical cash flow from operations for Edison International Parent and Other.
(in millions)
Net cash used in operating activities
Net cash provided by financing activities
Net cash used in investing activities
Net increase (decrease) in cash and cash equivalents
Net Cash Used in Operating Activities
2017
2016
2015
$
$
(138)
764
(107)
519
$
$
(267)
314
(125)
(78)
$
$
(115)
224
(68)
41
Net cash used in operating activities decreased in 2017 by $129 million from 2016 and increased in 2016 by $152 million
from 2015 due to:
• $214 million and $204 million of cash payments made to the Reorganization Trust in September 2016 and 2015,
respectively, related to the EME Settlement Agreement.
• $21 million outflow in June 2016 related to the buy-out of an earn-out provision with the former shareholders of a
company acquired by Edison Energy in 2015. See "Results of Operations—Edison International Parent and Other—Loss
from Continuing Operations" for further information.
• $143 million receipt of intercompany tax-allocation payments in 2015.
• $138 million, $32 million and $54 million cash outflow from operating activities in 2017, 2016 and 2015, respectively,
due to payments and receipts relating to interest and operating costs. In addition, the cash outflow in 2017 included higher
pension payments related to executive retirement plans.
Net Cash Provided by Financing Activities
Net cash provided by financing activities were as follows:
(in millions)
2017
2016
2015
Dividends paid to Edison International common shareholders
Dividends received from SCE
Payment for stock-based compensation, net of receipt from stock option
exercises
Long-term debt issuance, net of discount and issuance costs
Long-term debt repayment
Short-term debt borrowings, net of repayments and discount
Other
Net cash provided by financing activities
$
$
(707)
573
(140)
788
(403)
615
38
764
$
$
(626)
701
(51)
397
(3)
(108)
4
$
314
$
(544)
758
(52)
7
(1)
47
9
224
26
Net Cash Used in Investing Activities
Net cash used in investing activities relates to Edison Energy Group's capital expenditures primarily for commercial solar
installations ($88 million, $101 million and $15 million in 2017, 2016 and 2015, respectively). In addition, the cash outflow
in 2017 included $24 million of restricted cash related to funds held by SoCore Energy and its consolidated affiliates pursuant
to project financing or purchase agreements. The cash outflow in 2015 was also due to the acquisitions of three companies for
approximately $100 million to support Edison Energy Group's commercial and industrial services growth strategy. See
"Notes to Consolidated Financial Statements—Note 9. Investments" for further information.
Contractual Obligations and Contingencies
Contractual Obligations
Edison International Parent and Other and SCE's contractual obligations as of December 31, 2017, for the years 2018 through
2022 and thereafter are estimated below.
(in millions)
SCE:
Long-term debt maturities and interest1
Power purchase agreements:2
Other operating lease obligations3
Purchase obligations:4
$
Other contractual obligations
Total SCE5,6,7
Edison International Parent and Other:
Long-term debt maturities and interest1
Total Edison International Parent and Other5
Total Edison International6,7
Total
Less than
1 year
1 to 3 years
3 to 5 years
More than
5 years
20,060
39,877
246
704
60,887
1,370
1,370
$
967
$
2,513
48
127
3,655
35
35
1,103
5,127
64
141
6,435
462
462
$
$
1,844
5,144
35
91
7,114
459
459
16,146
27,093
99
345
43,683
414
414
$
62,257
$
3,690
$
6,897
$
7,573
$
44,097
1 For additional details, see "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements." Amount
includes interest payments totaling $9.07 billion and $141 million over applicable period of the debt for SCE and Edison
International Parent and Other, respectively.
2 Certain power purchase agreements entered into with independent power producers are treated as operating or capital leases. For
further discussion, see "Notes to Consolidated Financial Statements—Note 11. Commitments and Contingencies."
3 At December 31, 2017, SCE's minimum other operating lease payments were primarily related to vehicles, office space and
other equipment. For further discussion, see "Notes to Consolidated Financial Statements—Note 11. Commitments and
Contingencies."
4 For additional details, see "Notes to Consolidated Financial Statements—Note 11. Commitments and Contingencies." At
December 31, 2017, other commitments were primarily related to maintaining reliability and expanding SCE's transmission and
distribution system and nuclear fuel supply contracts.
5 At December 31, 2017, Edison International Parent and Other and SCE had estimated contributions to the pension and PBOP
plans. SCE estimated contributions are $62 million, $54 million, $47 million, $42 million and $39 million in 2018, 2019, 2020,
2021 and 2022, respectively, which are excluded from the table above. Edison International Parent and Other estimated
contributions are $16 million, $24 million, $18 million, $21 million and $15 million for the same respective periods and are
excluded from the table above. These amounts represent estimates that are based on assumptions that are subject to change. See
"Notes to Consolidated Financial Statements—Note 8. Compensation and Benefit Plans" for further information.
6 At December 31, 2017, Edison International and SCE had a total net liability recorded for uncertain tax positions of
$432 million and $331 million, respectively, which is excluded from the table. Edison International and SCE cannot make
reliable estimates of the cash flows by period due to uncertainty surrounding the timing of resolving these open tax issues with
the tax authorities.
7 The contractual obligations table does not include derivative obligations and asset retirement obligations, which are discussed in
"Notes to Consolidated Financial Statements—Note 6. Derivative Instruments," and "—Note 1. Summary of Significant
Accounting Policies" and "—Note 9. Investments," respectively.
27
Contingencies
SCE has contingencies related to San Onofre Related Matters, Nuclear Insurance, December 2017 Wildfires, and Spent
Nuclear Fuel, which are discussed in "Notes to Consolidated Financial Statements—Note 11. Commitments and
Contingencies."
Environmental Remediation
For a discussion of SCE's environmental remediation liabilities, see "Notes to Consolidated Financial Statements—Note 11.
Commitments and Contingencies—Contingencies—Environmental Remediation."
Off-Balance Sheet Arrangements
SCE has variable interests in power purchase contracts with variable interest entities and a variable interest in unconsolidated
Trust II, Trust III, Trust IV, Trust V and Trust VI that issued $400 million (aggregate liquidation preference) of 5.10%,
$275 million (aggregate liquidation preference) of 5.75%, $325 million (aggregate liquidation preference) of 5.375%,
$300 million (aggregate liquidation preference) of 5.45% and $475 million (aggregate liquidation preference) of 5.00%, trust
securities, respectively, to the public, see "Notes to Consolidated Financial Statements—Note 3. Variable Interest Entities."
Environmental Developments
For a discussion of environmental developments, see "Business—Environmental Considerations."
MARKET RISK EXPOSURES
Edison International's and SCE's primary market risks include fluctuations in interest rates, commodity prices and volumes,
and counterparty credit. Derivative instruments are used to manage market risks including market risks of SCE's customers.
For a further discussion of market risk exposures, including commodity price risk, credit risk and interest rate risk, see "Notes
to Consolidated Financial Statements—Note 6. Derivative Instruments" and "—Note 4. Fair Value Measurements."
Interest Rate Risk
Edison International and SCE are exposed to changes in interest rates primarily as a result of its financing, investing and
borrowing activities used for liquidity purposes, and to fund business operations and capital investments. The nature and
amount of Edison International and SCE's long-term and short-term debt can be expected to vary as a result of future business
requirements, market conditions and other factors. Fluctuations in interest rates can affect earnings and cash flows. Changes
in interest rates may impact SCE's authorized rate of return for the period beyond 2017, see "Business—SCE—Overview of
Ratemaking Process" for further discussion. The following table summarizes the increase or decrease to the fair value of
long-term debt including the current portion as of December 31, 2017, if the market interest rates were changed while leaving
all other assumptions the same:
(in millions)
Edison International
SCE
Commodity Price Risk
Carrying
Value
Fair Value
10% Increase
10% Decrease
$
$
12,123
10,907
$
13,760
12,547
$
13,239
12,039
14,308
13,082
SCE and its customers are exposed to the risk of a change in the market price of natural gas, electric power and transmission
congestion. SCE's hedging program is designed to reduce exposure to variability in market prices related to SCE's purchases
and sales of electric power and natural gas. SCE expects recovery of its related hedging costs through the ERRA balancing
account or CPUC-approved procurement plans, and as a result, exposure to commodity price is not expected to impact
earnings, but may impact timing of cash flows. As part of this program, SCE enters into energy options, swaps, forward
arrangements, and congestion revenue rights ("CRRs"). The transactions are pre-approved by the CPUC or executed in
compliance with CPUC-approved procurement plans.
Fair Value of Derivative Instruments
The fair value of derivative instruments is included in the consolidated balance sheets unless subject to an exception under
the applicable accounting guidance. Realized gains and losses from derivative instruments are expected to be recovered from
or refunded to customers through regulatory mechanisms and, accordingly, changes in SCE's fair value have no impact on
earnings. SCE does not use hedge accounting for these transactions due to this regulatory accounting treatment. For further
28
discussion on fair value measurements and the fair value hierarchy, see "Notes to Consolidated Financial Statements—Note 4.
Fair Value Measurements."
The fair value of outstanding derivative instruments used to mitigate exposure to commodity price risk was a net liability of
$1.1 billion at December 31, 2016. During the third quarter of 2017, SCE designated certain derivative contracts as normal
purchase and normal sale contracts, which resulted in a reclassification of $914 million from derivative liabilities to other
liabilities. These liabilities will be amortized over the remaining contract terms. The fair value of remaining derivative
instruments at December 31, 2017 was a net asset of $109 million.
The following table summarizes the increase or decrease to the fair values of the net liability of derivative instruments
included in the consolidated balance sheets as of December 31, 2017, if the electricity prices or gas prices were changed
while leaving all other assumptions constant:
(in millions)
Increase in electricity prices by 10%
Decrease in electricity prices by 10%
Increase in gas prices by 10%
Decrease in gas prices by 10%
Credit Risk
December 31, 2017
$
11
(11)
10
(5)
For information related to credit risks, see "Notes to Consolidated Financial Statements—Note 6. Derivative Instruments."
Credit risk exposure from counterparties for power and gas trading activities is measured as the sum of net accounts
receivable (accounts receivable less accounts payable) and the current fair value of net derivative assets (derivative assets less
derivative liabilities) reflected on the consolidated balance sheets. SCE enters into master agreements which typically provide
for a right of setoff. Accordingly, SCE's credit risk exposure from counterparties is based on a net exposure under these
arrangements. SCE manages the credit risk on the portfolio for both rated and non-rated counterparties based on credit ratings
using published ratings of counterparties and other publicly disclosed information, such as financial statements, regulatory
filings, and press releases, to guide it in the process of setting credit levels, risk limits and contractual arrangements,
including master netting agreements.
As of December 31, 2017, the amount of balance sheet exposure as described above broken down by the credit ratings of
SCE's counterparties, was as follows:
(in millions)
S&P Credit Rating1
A or higher
December 31, 2017
Exposure2
Collateral
Net Exposure
$
110
$
— $
110
1
2
SCE assigns a credit rating based on the lower of a counterparty's S&P, Fitch or Moody's rating. For ease of reference, the above table
uses the S&P classifications to summarize risk, but reflects the lower of the three credit ratings.
Exposure excludes amounts related to contracts classified as normal purchases and sales and non-derivative contractual commitments
that are not recorded on the consolidated balance sheets, except for any related net accounts receivable.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
The accounting policies described below are considered critical to obtaining an understanding of Edison International and
SCE's consolidated financial statements because their application requires the use of significant estimates and judgments by
management in preparing the consolidated financial statements. Management estimates and judgments are inherently
uncertain and may differ significantly from actual results achieved. Management considers an accounting estimate to be
critical if the estimate requires significant assumptions and changes in the estimate or, the use of alternative estimates, could
have a material impact on Edison International's results of operations or financial position. For more information on Edison
International's accounting policies, see "Notes to Consolidated Financial Statements—Note 1. Summary of Significant
Accounting Policies."
29
Rate Regulated Enterprises
Nature of Estimate Required. SCE follows the accounting principles for rate-regulated enterprises which are required for
entities whose rates are set by regulators at levels intended to recover the estimated costs of providing service, plus a return
on net investment, or rate base. Regulators may also impose penalties or grant incentives. Due to timing and other differences
in the collection of revenue, these principles allow a cost that would otherwise be charged as an expense by an unregulated
entity to be capitalized as a regulatory asset if it is probable that such cost is recoverable through future rates; conversely the
principles allow creation of a regulatory liability for amounts collected in rates to recover costs expected to be incurred in the
future or amounts collected in excess of costs incurred and are refundable to customers. In addition, SCE recognizes revenue
and regulatory assets from alternative revenue programs, which enables the utility to adjust future rates in response to past
activities or completed events, if certain criteria are met, even for programs that do not qualify for recognition of "traditional"
regulatory assets and liabilities.
Key Assumptions and Approach Used. SCE's management assesses at the end of each reporting period whether regulatory
assets are probable of future recovery by considering factors such as the current regulatory environment, the issuance of rate
orders on recovery of the specific or a similar incurred cost to SCE or other rate-regulated entities, and other factors that
would indicate that the regulator will treat an incurred cost as allowable for ratemaking purposes. Using these factors,
management has determined that existing regulatory assets and liabilities are probable of future recovery or settlement. This
determination reflects the current regulatory climate and is subject to change in the future.
Effect if Different Assumptions Used. Significant management judgment is required to evaluate the anticipated recovery of
regulatory assets, the recognition of incentives and revenue subject to refund, as well as the anticipated cost of regulatory
liabilities or penalties. If future recovery of costs ceases to be probable, all or part of the regulatory assets and liabilities
would have to be written off against current period earnings. At December 31, 2017, the consolidated balance sheets included
regulatory assets of $5.6 billion and regulatory liabilities of $9.7 billion. If different judgments were reached on recovery of
costs and timing of income recognition, SCE's earnings may vary from the amounts reported.
Application to Tax Reform
As discussed in "Management Overview—Tax Reform," in December 2017, Tax Reform was signed into law. This
comprehensive reform of tax law reduces the federal corporate income tax rate from 35% to 21% and is generally effective
beginning January 1, 2018. US GAAP requires deferred tax assets and liabilities to be measured at the enacted tax rate
expected to apply when temporary differences are to be realized or settled. Thus, at the date of enactment, the deferred taxes
were re-measured based upon the new tax rate. The re-measurement of SCE's deferred taxes was recorded against regulatory
assets and liabilities when the pre-tax amounts giving rise to deferred tax assets and liabilities were funded by customers and
were recorded to earnings when amounts were funded by shareholders.
The CPUC and FERC regulatory processes that will be utilized to return SCE's excess deferred taxes applicable to customers
have not been determined. In the absence of regulatory guidance, judgment is required to estimate which deferred tax re-
measurements will be refunded to customers and are subject to change based on the outcome of the regulatory processes.
At December 31, 2017, the implementation of Tax Reform at SCE resulted in a reduction of deferred tax liabilities and an
increase in regulatory liabilities of approximately $5.0 billion. Changes in the allocation to customers of the deferred tax re-
measurement will be reflected in the financial statements and adjusted prospectively as information becomes available
through the regulatory process. Amounts to be refunded to customers are expected to generally be refunded over the life of
the underlying asset or liability that gave rise to the deferred taxes.
Income Taxes
Nature of Estimates Required. As part of the process of preparing its consolidated financial statements, Edison International
and SCE are required to estimate income taxes for each jurisdiction in which they operate. This process involves estimating
actual current period tax expense together with assessing temporary differences resulting from differing treatment of items,
such as depreciation, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are
included within Edison International and SCE's consolidated balance sheets, including net operating loss and tax credit
carryforwards that can be used to reduce liabilities in future periods.
Edison International and SCE take certain tax positions they believe are in accordance with the applicable tax laws. However,
these tax positions are subject to interpretation by the IRS, state tax authorities and the courts. Edison International and SCE
determine uncertain tax positions in accordance with the authoritative guidance.
30
Key Assumptions and Approach Used. Accounting for tax obligations requires management judgment. Edison International
and SCE's management use judgment in determining whether the evidence indicates it is more likely than not, based solely
on the technical merits, that a tax position will be sustained, and to determine the amount of tax benefits to be recognized.
Judgment is also used in determining the likelihood a tax position will be settled and possible settlement outcomes. In
assessing uncertain tax positions Edison International and SCE consider, among others, the following factors: the facts and
circumstances of the position, regulations, rulings, and case law, opinions or views of legal counsel and other advisers, and
the experience gained from similar tax positions. Edison International and SCE's management evaluates uncertain tax
positions at the end of each reporting period and makes adjustments when warranted based on changes in fact or law.
Effect if Different Assumptions Used. Actual income taxes may differ from the estimated amounts which could have a
significant impact on the liabilities, revenue and expenses recorded in the financial statements. Edison International and SCE
continue to be under audit or subject to audit for multiple years in various jurisdictions. Significant judgment is required to
determine the tax treatment of particular tax positions that involve interpretations of complex tax laws. Such liabilities are
based on judgment and a final determination could take many years from the time the liability is recorded. Furthermore,
settlement of tax positions included in open tax years may be resolved by compromises of tax positions based on current
factors and business considerations that may result in material adjustments to income taxes previously estimated.
Nuclear Decommissioning – Asset Retirement Obligation
Key Assumptions and Approach Used. The liability to decommission SCE's nuclear power facilities is based on an updated
cost estimate in 2017 for Palo Verde, a decommissioning study performed in 2014 for San Onofre Unit 1 and an updated cost
estimate in 2017 for San Onofre 2 and 3. See "Liquidity and Capital Resources—SCE—Decommissioning of San Onofre"
for further discussion of the plans for decommissioning of San Onofre. SCE estimates that it will spend approximately
$7.2 billion undiscounted through 2079 to decommission its nuclear facilities. San Onofre Units 1, 2 and 3 decommissioning
cost estimates are updated in each Nuclear Decommissioning Triennial Proceeding. Palo Verde decommissioning cost
estimates are updated every three years by the operating agent, Arizona Public Services.
The current ARO estimates for San Onofre and Palo Verde are based on the assumptions from these decommissioning studies
and revised based on the latest cost estimates:
• Decommissioning Costs. The estimated costs for labor, "material, equipment and other," and low-level radioactive waste
costs are included in each of the NRC decommissioning stages; license termination, site restoration, and spent fuel
storage. The ARO for decommissioning San Onofre Units 2 and 3 was updated in 2017 after onboarding the
decommissioning general contractor.
• Escalation Rates. Annual escalation rates are used to convert the decommissioning cost estimates in base year dollars to
decommissioning cost estimates in future-year dollars. Escalation rates are primarily used for labor, material, equipment,
and low level radioactive waste burial costs. SCE's current estimates are based upon SCE's decommissioning cost
methodology used for ratemaking purposes. Average escalation rates range from 1.6% to 7.5% (depending on the cost
element) annually.
• Timing. Cost estimates for Palo Verde are based on an assumption that decommissioning will commence promptly after
the current NRC operating licenses expire. The Palo Verde 1, 2, 3 operating licenses currently expire in 2045, 2046 and
2047 respectively. San Onofre Unit 1 started decommissioning in 1998 and Units 2 and 3 began in 2013. Cost estimates
for San Onofre Units are currently based on completion of decommissioning activities by 2051.
• Spent Fuel Dry Storage Costs. Cost estimates are based on an assumption that the DOE will begin to take spent fuel from
the nuclear industry in 2028, and will remove the last spent fuel from the San Onofre and Palo Verde sites by 2049 and
2078, respectively.
• Changes in Decommissioning Technology, Regulation, and Economics. The current cost studies assume the use of current
technologies under current regulations and at current cost levels.
Effect if Different Assumptions Used. The ARO for decommissioning SCE's nuclear facilities was $2.6 billion as of
December 31, 2017, based on the decommissioning studies performed and the subsequent cost estimate updates. Changes in
the estimated costs, execution strategy or timing of decommissioning, or in the assumptions and judgments by management
underlying these estimates, could cause material revisions to the estimated total cost to decommission these facilities which
could have a material effect on the recorded liability. SCE expects to file its 2018 NDTCP for San Onofre Units 2 and 3 in
March 2018 which may result in a revision to the currently reflected decommissioning liability.
31
The following table illustrates the increase to the ARO liability if the cost escalation rate was adjusted while leaving all other
assumptions constant:
(in millions)
Uniform increase in escalation rate of 1 percentage point
Increase to ARO and
Regulatory Asset at
December 31, 2017
616
$
The increase in the ARO liability driven by an increase in the escalation rate would result in a decrease in the regulatory
liability for recoveries in excess of ARO liabilities.
Pensions and Postretirement Benefits Other than Pensions
Nature of Estimate Required. Authoritative accounting guidance requires companies to recognize the overfunded or
underfunded status of defined benefit pension and other postretirement plans as assets and liabilities in the balance sheet; the
assets and/or liabilities are normally offset through other comprehensive income (loss). In accordance with authoritative
guidance for rate-regulated enterprises, regulatory assets and liabilities are recorded instead of charges and credits to other
comprehensive income (loss) for its postretirement benefit plans that are recoverable in utility rates. Edison International and
SCE have a fiscal year-end measurement date for all of its postretirement plans.
Key Assumptions of Approach Used. Pension and other postretirement benefit obligations and the related effects on results
of operations are calculated using actuarial models. Two critical assumptions, discount rate and expected return on assets, are
important elements of plan expense, and the discount rate is important to liability measurement. Additionally, health care cost
trend rates are critical assumptions for postretirement health care plans. These critical assumptions are evaluated at least
annually. Other assumptions, which require management judgment, such as rate of compensation increases and rates of
retirement and turnover, are evaluated periodically and updated to reflect actual experience.
As of December 31, 2017, Edison International's and SCE's pension plans had a $4.2 billion and $3.7 billion benefit
obligation, respectively, and total 2017 expense for these plans was $92 million and $75 million, respectively. As of
December 31, 2017, the benefit obligation for both Edison International's and SCE's PBOP plans were $2.3 billion, and total
2017 expense for Edison International's and SCE's plans was $5 million. Annual contributions made to most of SCE's pension
plans are currently recovered through CPUC-approved regulatory mechanisms and are expected to be, at a minimum, equal to
the related annual expense.
Pension expense is recorded for SCE based on the amount funded to the trusts, as calculated using an actuarial method
required for ratemaking purposes, in which the impact of market volatility on plan assets is recognized in earnings on a more
gradual basis. Any difference between pension expense calculated in accordance with ratemaking methods and pension
expense calculated in accordance with authoritative accounting guidance for pension is accumulated as a regulatory asset or
liability, and is expected, over time, to be recovered from or returned to customers. As of December 31, 2017, this cumulative
difference amounted to a regulatory asset of $123 million, meaning that the accounting method has recognized more in
expense than the ratemaking method since implementation of authoritative guidance for employers' accounting for pensions
in 1987.
Edison International and SCE used the following critical assumptions to determine expense for pension and other
postretirement benefit for 2017:
(in millions)
Discount rate1
Expected long-term return on plan assets2
Assumed health care cost trend rates3
Pension
Plans
Postretirement
Benefits Other
than Pensions
3.94%
6.50%
*
4.29%
5.30%
7.00%
* Not applicable to pension plans.
1 The discount rate enables Edison International and SCE to state expected future cash flows at a present
value on the measurement date. Edison International and SCE select its discount rate by performing a yield
curve analysis. This analysis determines the equivalent discount rate on projected cash flows, matching the
timing and amount of expected benefit payments. The AON-Hewitt yield curve is considered in
determining the discount rate.
32
2 To determine the expected long-term rate of return on pension plan assets, current and expected asset
allocations are considered, as well as historical and expected returns on plan assets. A portion of PBOP
trusts asset returns are subject to taxation, so the 5.3% rate of return on plan assets above is determined on
an after-tax basis. Actual time-weighted, annualized returns on the pension plan assets were 15.1%, 9.7%
and 6.4% for the one-year, five-year and ten-year periods ended December 31, 2017, respectively. Actual
time-weighted, annualized returns on the PBOP plan assets were 14.1%, 9.5% and 5.7% over these same
periods. Accounting principles provide that differences between expected and actual returns are recognized
over the average future service of employees.
3 The health care cost trend rate gradually declines to 5.0% for 2022 and beyond.
As of December 31, 2017, Edison International and SCE had unrecognized pension costs of $347 million and $292 million,
and unrecognized PBOP gains of $22 million and $26 million, respectively. The unrecognized pension costs and PBOP gains
primarily consisted of the cumulative impact of the reduced discount rates on the respective benefit obligations and the
cumulative difference between the expected and actual rate of return on plan assets. Of these deferred costs (gains),
$271 million of SCE's pension costs and $(26) million of SCE's PBOP gains are recorded as regulatory assets and regulatory
liabilities, respectively, and are expected to be recovered (refunded) over the average expected future service of employees.
Edison International's and SCE's pension and PBOP plans are subject to limits established for federal tax deductibility. SCE
funds its pension and PBOP plans in accordance with amounts allowed by the CPUC. Executive pension plans have no plan
assets.
Effect if Different Assumptions Used. Changes in the estimated costs or timing of pension and other postretirement benefit
obligations, or the assumptions and judgments used by management underlying these estimates, could have a material effect
on the recorded expenses and liabilities.
The following table summarizes the increase or (decrease) to projected benefit obligation for pension and the accumulated
benefit obligation for PBOP if the discount rate were changed while leaving all other assumptions constant:
(in millions)
Change to projected benefit obligation for pension
Change to accumulated benefit obligation for PBOP
Edison International
SCE
Increase in
discount
rate by 1%
Decrease in
discount
rate by 1%
Increase in
discount
rate by 1%
Decrease in
discount
rate by 1%
$
$
(381)
(328)
$
463
382
$
(342)
(327)
417
380
A one percentage point increase in the expected rate of return on pension plan assets would decrease Edison International's
and SCE's current year expense by $33 million and $31 million, respectively, and a one percentage point increase in the
expected rate of return on PBOP plan assets would decrease both Edison International's and SCE's current year expense by
$21 million.
The following table summarizes the increase or (decrease) to accumulated benefit obligation and annual aggregate service
and interest costs for PBOP if the health care cost trend rate was changed while leaving all other assumptions constant:
(in millions)
Edison International
SCE
Increase in
health care
cost trend
rate by 1%
Decrease in
health care
cost trend
rate by 1%
Increase in
health care
cost trend
rate by 1%
Decrease in
health care
cost trend
rate by 1%
Change to accumulated benefit obligation for PBOP
$
247
$
Change to annual aggregate service and interest costs
9
(203)
(8)
$
246
$
9
(202)
(8)
Accounting for Contingencies
Nature of Estimates Required. Edison International and SCE record loss contingencies when management determines that
the outcome of future events is probable of occurring and when the amount of the loss can be reasonably estimated. Gain
contingencies are recognized in the financial statements when they are realized.
Key Assumptions and Approach Used. The determination of a reserve for a loss contingency is based on management
judgment and estimates with respect to the likely outcome of the matter, including the analysis of different scenarios.
33
Liabilities are recorded or adjusted when events or circumstances cause these judgments or estimates to change. In assessing
whether a loss is a reasonable possibility, Edison International and SCE may consider the following factors, among others:
the nature of the litigation, claim or assessment, available information, opinions or views of legal counsel and other advisors,
and the experience gained from similar cases. Edison International and SCE provide disclosures for material contingencies
when there is a reasonable possibility that a loss or an additional loss may be incurred.
Effect if Different Assumptions Used. Actual amounts realized upon settlement of contingencies may be different than
amounts recorded and disclosed and could have a significant impact on the liabilities, revenue and expenses recorded on the
consolidated financial statements. For a discussion of contingencies, guarantees and indemnities, see "Notes to Consolidated
Financial Statements—Note 11. Commitments and Contingencies."
Application to Southern California Wildfires
As discussed in "Management Overview," in December 2017, several wind-driven wildfires (the "December 2017 Wildfires")
impacted portions of SCE's service territory and caused substantial damage to both residential and business properties and
service outages for SCE customers. The causes of the December 2017 Wildfires are being investigated by Cal Fire and other
fire agencies. SCE believes the investigations include the possible role of SCE's facilities.
Any potential liability of SCE for December 2017 Wildfire-related damages will depend on a number of factors, including
whether SCE is determined to have substantially caused, or contributed to, the damages and whether parties seeking recovery
of damages will be required to show negligence in addition to causation.
Management judgment was required to assess whether a loss contingency was probable and reasonably estimable. Given the
preliminary stages of the investigations and the uncertainty as to the causes of the December 2017 Wildfires, and the extent
and magnitude of potential damages, Edison International and SCE determined that it is possible, but not probable a loss had
occurred as of December 31, 2017. Over the course of the various investigations, new facts may emerge as to the cause of the
December 2017 Wildfires and the extent and magnitude of potential damages. If new facts are learned that cause management
to conclude a loss is probable and reasonably estimable, Edison International and SCE would record an accrued liability at
that time.
NEW ACCOUNTING GUIDANCE
New accounting guidance is discussed in "Notes to Consolidated Financial Statements—Note 1. Summary of Significant
Accounting Policies—New Accounting Guidance."
RISK FACTORS
RISKS RELATING TO EDISON INTERNATIONAL
Edison International's liquidity and ability to pay dividends depends on SCE's ability to pay dividends and tax
allocation payments to Edison International, monetization of tax benefits retained by EME, ability to borrow funds,
and access to capital markets.
Edison International is a holding company and, as such, it has no operations of its own. Edison International's ability to meet
its financial obligations, make investments, and to pay dividends on its common stock is primarily dependent on the earnings
and cash flows of SCE and its ability to make upstream distributions. Prior to paying dividends to Edison International, SCE
has financial and regulatory obligations that must be satisfied, including, among others, debt service and preferred and
preference stock dividends. In addition, CPUC holding company rules require that SCE's dividend policy be established by
SCE's Board of Directors on the same basis as if SCE were a stand-alone utility company, and that the capital requirements of
SCE, as deemed to be necessary to meet SCE's electricity service obligations, shall receive first priority from the Boards of
Directors of both Edison International and SCE. Further, SCE and Edison International cannot pay dividends if California
law requirements for the declaration of dividends are not met. For information on the California law requirements on the
declaration of dividends, see "Liquidity and Capital Resources—SCE—SCE Dividends." SCE may also owe tax-allocation
payments to Edison International under applicable tax-allocation agreements. See "Risks Relating to Southern California
Edison Company" below for further discussion.
Edison International's business activities are concentrated in one industry and in one region.
Edison International business activities are concentrated in the electricity industry. Its principal subsidiary, SCE, serves
customers only in southern and central California. Although Edison International, through Edison Energy Group, is
developing competitive businesses that are diversified geographically, these businesses are not material. As a result, Edison
34
International's future performance may be affected by events and economic factors unique to California or by regional
regulation or legislation.
Edison International is developing businesses held by Edison Energy Group that may not be successful.
Edison International, through Edison Energy Group, is pursuing an energy services and managed portfolio solutions business
focused on large C&I customers by providing unbiased expertise to help define energy requirements and implement solutions
to better manage energy costs and risks. There is no assurance that these activities will lead to growth or be profitable.
Edison International is also exploring the sale of SoCore Energy, its solar business. There is no assurance that this will lead to
a sale of the business, that a loss on sale will not result or that if a sale is not completed, that future solar activities will be
profitable.
RISKS RELATING TO SOUTHERN CALIFORNIA EDISON COMPANY
Regulatory Risks
SCE's financial results depend upon its ability to recover its costs and to earn a reasonable rate of return on capital
investments in a timely manner from its customers through regulated rates.
SCE's ongoing financial results depend on its ability to recover its costs from its customers, including the costs of electricity
purchased for its customers, through the rates it charges its customers as approved by the CPUC and FERC. SCE's financial
results also depend on its ability to earn a reasonable return on capital, including long-term debt and equity. SCE's ability to
recover its costs and earn a reasonable rate of return can be affected by many factors, including the time lag between when
costs are incurred and when those costs are recovered in customers' rates and differences between the forecast or authorized
costs embedded in rates (which are set on a prospective basis) and the amount of actual costs incurred. The CPUC or the
FERC may not allow SCE to recover costs on the basis that such costs were not reasonably or prudently incurred or for other
reasons. Further, SCE may be required to incur expenses before the relevant regulatory agency approves the recovery of such
costs. For example, to the extent SCE is required to pay uninsured wildfire-related damages, SCE may be forced to do so
before it is clear that such costs will be recoverable from customers. In addition, while SCE supports California’s
environmental goals, it may be prevented from fully executing on its strategy to support such goals by regulatory delay or
lack of approval of cost-recovery for the costs of such strategic actions from the relevant regulatory agencies. In addition,
SCE's capital investment plan, increasing procurement of renewable power and energy storage, increasing environmental
regulations, leveling demand, and the cumulative impact of other public policy requirements, collectively place continuing
upward pressure on customer rates. If SCE is unable to obtain a sufficient rate increase or modify its rate design to recover its
costs (including an adequate return on capital) in rates in a timely manner, its financial condition and results of operations
could be materially affected. For further information on SCE's rate requests, see "Management Overview—2018 General
Rate Case" and "Liquidity and Capital Resources—SCE—Regulatory Proceedings—FERC Formula Rate" in the MD&A.
SCE is subject to extensive regulation and the risk of adverse regulatory decisions and changes in applicable regulations
or legislation.
SCE operates in a highly regulated environment. SCE's business is subject to extensive federal, state and local energy,
environmental and other laws and regulations. Among other things, the CPUC regulates SCE's retail rates and capital
structure, and the FERC regulates SCE's wholesale rates. The NRC regulates the decommissioning of San Onofre in addition
to the local and state agencies that require permits. The construction, planning, and siting of SCE's power plants and
transmission lines in California are also subject to regulation by the CPUC and other local, state and federal agencies.
SCE must periodically apply for licenses and permits from these various regulatory authorities and abide by their respective
orders. Should SCE be unsuccessful in obtaining necessary licenses or permits or should these regulatory authorities initiate
any investigations or enforcement actions or impose penalties or disallowances on SCE, SCE may be prevented from
executing its strategy and its business could be materially affected. The process of obtaining licenses and permits from
regulatory authorities may be delayed or defeated by opponents and such delay or defeat could have a material effect on
SCE's business.
Rules, restrictions and processes around ex parte communications could result in delayed decisions, increased investigations,
enforcement actions and penalties. In addition, the CPUC or other parties may initiate investigations of past communications
between public utilities, including SCE, and CPUC officials and staff that could result in reopening completed proceedings
for reconsideration.
In addition, existing regulations may be revised or reinterpreted and new laws and regulations may be adopted or become
applicable to SCE, or its facilities or operations, in a manner that may have a detrimental effect on SCE's business or result in
35
significant additional costs. In addition, regulations adopted via the public initiative or legislative process may apply to SCE,
or its facilities or operations, in a manner that may have a detrimental effect on SCE's business or result in significant
additional costs.
SCE's energy procurement activities are subject to regulatory and market risks that could materially affect its financial
condition and liquidity.
SCE obtains energy, capacity, environmental credits and ancillary services needed to serve its customers from its own
generating plants and through contracts with energy producers and sellers. California law and CPUC decisions allow SCE to
recover, through the rates it is allowed to charge its customers, reasonable procurement costs incurred in compliance with an
approved procurement plan. Nonetheless, SCE's cash flows remain subject to volatility primarily resulting from changes in
commodity prices. Additionally, significant and prolonged gas use restrictions may adversely impact the reliability of the
electric grid if critical generation resources are limited in their operations. For further information, see "Business—SCE—
Purchased Power and Fuel Supply." SCE is also subject to the risks of unfavorable or untimely CPUC decisions about the
compliance with SCE's procurement plan and the reasonableness of certain procurement-related costs.
SCE may not be able to hedge its risk for commodities on economic terms or fully recover the costs of hedges through the
rates it is allowed to charge its customers, which could materially affect SCE's liquidity and results of operations, see "Market
Risk Exposures" in the MD&A.
Operating Risks
Damage claims against SCE for wildfire-related losses may materially affect SCE’s financial condition and results of
operations.
Prolonged drought conditions and shifting weather patterns in California resulting from climate change as well as increased
tree mortality rates have increased the duration of the wildfire season and the risk of severe wildfire events. Severe wildfires
and increased urban development in high fire risk areas in California have given rise to large damage claims against
California utilities for fire-related losses alleged to be the result of utility practices and/or the failure of electric and other
utility equipment. Certain California courts have previously found utilities to be strictly liable for property damage,
regardless of fault, by applying the theory of inverse condemnation when a utility's facilities were determined to be a
substantial cause of a wildfire that caused the property damage. The rationale stated by these courts for applying this theory
to investor-owned utilities is that property losses resulting from a public improvement, such as the distribution of electricity,
can be spread across the larger community that benefited from such improvement. However, in December 2017, the CPUC
issued a decision denying the investor-owned utility's request to include in its rates uninsured wildfire-related costs arising
from several 2007 fires, finding that the investor-owned utility did not prudently manage and operate its facilities prior to or
at the outset of the 2007 wildfires. An inability to recover uninsured wildfire-related costs could materially affect SCE's
business, financial condition and results of operations. For example, if SCE is found liable for damages related to the
December 2017 Wildfires, and SCE is unable to, or believes that it will be unable to, recover those damages, SCE may not
have sufficient cash or equity to pay dividends to Edison International or may be prohibited from declaring such dividends
because it does not meet California law requirements for the declaration of dividends. For information on the California law
requirements on the declaration of dividends, see "Liquidity and Capital Resources—SCE—SCE Dividends" in the MD&A.
See "Management Overview—Southern California Wildfires" in the MD&A.
SCE's insurance coverage for wildfires arising from its ordinary operations may not be sufficient.
Edison International has experienced increased costs and difficulties in obtaining insurance coverage for wildfires that could
arise from SCE's ordinary operations. Edison International, SCE or its contractors may experience coverage reductions and/or
increased wildfire insurance costs in future years. No assurance can be given that losses will not exceed the limits of SCE's or
its contractors' insurance coverage. SCE may not be able to recover uninsured losses and increases in the cost of insurance in
customer rates. Losses which are not fully insured or cannot be recovered in customer rates could materially affect Edison
International's and SCE's financial condition and results of operations. For more information on wildfire insurance risk, see
"Notes to Consolidated Financial Statements—Note 11. Commitments and Contingencies—Contingencies—Southern
California Wildfires."
There are inherent risks associated with owning and decommissioning nuclear power generating facilities and obtaining
cost reimbursement, including, among other things, costs exceeding estimates, execution risks, potential harmful effects
on the environment and human health and the hazards of storage, handling and disposal of radioactive materials.
Existing insurance and ratemaking arrangements may not protect SCE fully against losses from a nuclear incident.
36
SCE expects to fund decommissioning costs with assets that are currently held in nuclear decommissioning trusts. SCE
believes that the nuclear decommissioning trusts' assets will be sufficient to pay the estimated costs of decommissioning
without further contributions but the costs ultimately incurred could exceed the current estimates. The costs of
decommissioning San Onofre are subject to reasonableness reviews by the CPUC. These costs may not be recoverable
through regulatory processes or otherwise unless SCE can establish that the costs were reasonably incurred. In addition, SCE
faces inherent execution risks including such matters as the risks of human performance, workforce capabilities, public
opposition, permitting delays, and governmental approvals.
Despite the fact that San Onofre is being decommissioned, the presence of spent nuclear fuel still poses a potential risk of a
nuclear incident. Federal law limits public liability claims from a nuclear incident to the amount of available financial
protection, which is currently approximately $13.4 billion. SCE and other owners of San Onofre and Palo Verde have
purchased the maximum private primary insurance available of $450 million per site. If nuclear incident liability claims were
to exceed $450 million, the remaining amount would be made up from contributions of approximately $13.0 billion made by
all of the nuclear facility owners in the U.S., up to an aggregate total of $13.4 billion. There is no assurance that the CPUC
would allow SCE to recover the required contribution made in the case of one or more nuclear incident claims that exceeded
$450 million. If this public liability limit of $13.4 billion is insufficient, federal law contemplates that additional funds may
be appropriated by Congress. There can be no assurance of SCE's ability to recover uninsured costs in the event the additional
federal appropriations are insufficient. For more information on nuclear insurance risk, see "Notes to Consolidated Financial
Statements—Note 11. Commitments and Contingencies—Contingencies—Nuclear Insurance."
Climate change exacerbated weather-related incidents and other natural disasters could materially affect SCE's financial
condition and results of operations.
Weather-related incidents and other natural disasters, including storms, wildfires, mudslides and earthquakes, can disrupt the
generation and transmission of electricity, and can seriously damage the infrastructure necessary to deliver power to SCE's
customers. Climate change has caused, and exacerbated, extreme weather events and wildfires in southern California. These
events can lead to lost revenue and increased expense, including higher maintenance and repair costs, which SCE may not be
able to recover from its customers. They can also result in regulatory penalties and disallowances, particularly if SCE
encounters difficulties in restoring power to its customers on a timely basis or if fire-related losses are found to be the result
of utility practices and/or the failure of electric and other utility equipment. These occurrences could materially affect SCE's
business, financial condition and results of operations, and the inability to restore power to SCE's customers could also
materially damage the business reputation of SCE and Edison International.
The generation, transmission and distribution of electricity are dangerous and involve inherent risks of damage to private
property and injury to employees and the general public.
Electricity is dangerous for employees and the general public should they come in contact with electrical current or
equipment, including through downed power lines or if equipment malfunctions. Injuries and property damage caused by
such events can subject SCE to liability that, despite the existence of insurance coverage, can be significant. No assurance
can be given that future losses will not exceed the limits of SCE's or its contractors' insurance coverage. The CPUC has
increased its focus on public safety with an emphasis on heightened compliance with construction and operating standards
and the potential for penalties being imposed on utilities. Additionally, the CPUC has delegated to its staff the authority to
issue citations to electric utilities, which can impose fines of up to $50,000 per violation per day, pursuant to the CPUC's
jurisdiction for violations of safety rules found in statutes, regulations, and the CPUC's General Orders. Such penalties and
liabilities could be significant and materially affect SCE's liquidity and results of operations.
SCE's financial condition and results of operations could be materially affected if it is unable to successfully manage the
risks inherent in operating and maintaining its facilities.
SCE's infrastructure is aging and could pose a risk to system reliability. In order to mitigate this risk, SCE is engaged in a
significant and ongoing infrastructure investment program. This substantial investment program elevates operational risks
and the need for superior execution in SCE's activities. SCE's financial condition and results of operations could be materially
affected if it is unable to successfully manage these risks as well as the risks inherent in operating and maintaining its
facilities, the operation of which can be hazardous. SCE's inherent operating risks include such matters as the risks of human
performance, workforce capabilities, public opposition to infrastructure projects, delays, environmental mitigation costs,
difficulty in estimating costs or in recovering costs that are above original estimates, system limitations and degradation, and
interruptions in necessary supplies.
37
Financing Risks
As a capital intensive company, SCE relies on access to the capital markets. If SCE were unable to access the capital
markets or the cost of financing were to substantially increase, its liquidity and operations could be materially affected.
SCE regularly accesses the capital markets to finance its activities and is expected to do so by its regulators as part of its
obligation to serve as a regulated utility. SCE's needs for capital for its ongoing infrastructure investment program are
substantial. SCE's ability to obtain financing, as well as its ability to refinance debt and make scheduled payments of
principal, interest and preferred stock dividends, are dependent on numerous factors, including SCE's levels of indebtedness,
maintenance of acceptable credit ratings, financial performance, liquidity and cash flow, and other market conditions. In
addition, the actions of other California investor-owned utilities and the CPUC can affect market conditions and therefore,
SCE's ability to obtain financing. SCE's inability to obtain additional capital from time to time could have a material effect on
SCE's liquidity and operations.
Competitive and Market Risks
SCE's inability to effectively and timely respond to the changes that the electricity industry is undergoing, as a result of
increased competition, technological advances, and changes to the regulatory environment, could materially impact SCE’s
business model, financial condition and results of operations.
California utilities are experiencing increasing deployment by customers and third parties of DERs, such as solar generation,
energy storage, energy efficiency and demand response technologies. California’s environmental policy objectives are
accelerating the pace and scope of industry change. This change will require modernization of the electric distribution grid to,
among other things, accommodate two-way flows of electricity and increase the grid's capacity to interconnect DERs. In
addition, enabling California’s clean energy economy goals will require sustained investments in grid modernization,
renewable integration projects, energy efficiency programs, energy storage options and electric vehicle infrastructures. To this
end, the CPUC is conducting proceedings to: evaluate changes to the planning and operation of the electric distribution grid
in order to prepare for higher penetration of DERs; consider future grid modernization and grid reinforcement investments;
evaluate if traditional grid investments can be deferred by DERs, and if feasible, what, if any, compensation to utilities would
be appropriate; and clarify the role of the electric distribution grid operator. The outcome of the CPUC's proceedings may
impact SCE's business model, its ability to execute on its strategy, and ultimately its financial condition and results of
operations. For more information, see "Management Overview—Capital Program—Distribution Grid Development" in the
MD&A.
Customer-owned generation and CCAs each reduce the amount of electricity that customers purchase from utilities and have
the effect of increasing utility rates unless customer rates are designed to allocate the costs of the distribution grid across all
customers that benefit from its use. For example, customers in California who generate their own power do not currently pay
all transmission and distribution charges and non-bypassable charges, subject to limitations, which result in increased utility
rates for those customers who do not own their generation. If regulations aren't changed such that customers pay their share
of transmission and distribution charges and non-bypassable charges or the demand for electricity reduces so significantly
that SCE is no longer effectively able to recover such charges from its customers, SCE's business, financial condition and
results of operations will be materially impacted.
In addition, the FERC has opened transmission development to competition from independent developers, allowing such
developers to compete with incumbent utilities for the construction and operation of transmission facilities. For more
information, see "Business—SCE—Competition."
Cybersecurity and Physical Security Risks
SCE's systems and network infrastructure may be vulnerable to physical and cyber attacks, intrusions or other
catastrophic events that could result in their failure or reduced functionality.
Regulators, such as the NERC, and U.S. Government Departments, including the Departments of Defense, Homeland
Security and Energy, have noted that threat sources continue to seek to exploit potential vulnerabilities in the U.S. national
electric grid and other energy infrastructures and that such attacks and disruptions, both physical and cyber, are becoming
increasingly sophisticated and dynamic. As SCE moves from an analog to a digital electric grid, new cyber security risks
arise. An example of such new risks is the installation of "smart" meters in SCE's service territory. This technology may
represent a new route for attacks on SCE's information systems. Additional risks may also arise as a result of proposed grid
modernization efforts. SCE's operations require the continuous availability of critical information technology systems and
network infrastructure. SCE's systems have been, and will likely continue to be, subjected to computer attacks of malicious
codes, unauthorized access attempts, and other illicit activities, but to date, SCE has not experienced a material cybersecurity
38
breach. Although SCE actively monitors developments in this area and is involved in various industry groups and
government initiatives, no security measures can completely shield such systems and infrastructure from vulnerabilities to
cyber attacks, intrusions or other catastrophic events that could result in their failure or reduced functionality. If SCE's
information technology and operational technology systems' security measures were to be breached or a critical system
failure were to occur without timely recovery, SCE could be unable to fulfill critical business functions such as delivery of
electricity to customers and/or sensitive confidential personal and other data could be compromised, which could result in
violations of applicable privacy and other laws, financial loss to SCE or to its customers, loss of confidence in SCE's security
measures, customer dissatisfaction, and significant litigation exposure, all of which could materially affect SCE's financial
condition and results of operations and materially damage the business reputation of Edison International and SCE.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information responding to this section is included in the MD&A under the heading "Market Risk Exposures."
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
39
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Shareholders of Edison International
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Edison International and its subsidiaries as of
December 31, 2017 and December 31, 2016, and the related consolidated statements of income, comprehensive income,
changes in equity and cash flows for each of the three years in the period ended December 31, 2017, including the related
notes and financial statement schedules listed in the index appearing under Item 15(a)(2) (collectively referred to as the
"consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control—Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework
(2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility
is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over
financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in
all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our
audit of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
40
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
February 22, 2018
We have served as the Company's auditor since 2002.
41
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Shareholders of Southern California Edison Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Southern California Edison and its subsidiaries as of
December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, changes in equity
and cash flows for each of the three years in the period ended December 31, 2017, including the related notes and financial
statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the "consolidated financial
statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United
States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express
an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain
an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable
basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
February 22, 2018
We have served as the Company's auditor since 2002.
42
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43
CONSOLIDATED STATMENTS
Consolidated Statements of Income
(in millions, except per-share amounts)
Total operating revenue
Purchased power and fuel
Operation and maintenance
Depreciation and amortization
Property and other taxes
Impairment and other charges
Other operating income
Total operating expenses
Operating income
Interest and other income
Interest expense
Other expenses
Income from continuing operations before income taxes
Income tax expense
Income from continuing operations
Income from discontinued operations, net of tax
Net income
Preferred and preference stock dividend requirements of utility
Other noncontrolling interests
Net income attributable to Edison International common shareholders
Amounts attributable to Edison International common shareholders:
Income from continuing operations, net of tax
Income from discontinued operations, net of tax
Net income attributable to Edison International common shareholders
Basic earnings per common share attributable to Edison International
common shareholders:
Weighted-average shares of common stock outstanding
Continuing operations
Discontinued operations
Total
Diluted earnings per common share attributable to Edison International
common shareholders:
Weighted-average shares of common stock outstanding, including effect of
dilutive securities
Continuing operations
Discontinued operations
Total
Dividends declared per common share
44
Edison International
Years ended December 31,
2017
2016
2015
$
12,320
$
11,869
$
11,524
4,873
2,807
2,041
377
738
(9)
10,827
1,493
146
(639)
(51)
949
281
668
—
668
124
(21)
565
565
—
565
326
1.73
—
1.73
328
1.72
—
1.72
2.2325
4,527
2,868
2,007
354
21
—
9,777
2,092
123
(581)
(44)
1,590
177
1,413
12
1,425
123
(9)
1,311
1,299
12
1,311
326
3.99
0.03
4.02
330
3.94
0.03
3.97
1.9825
4,266
2,990
1,919
336
5
—
9,516
2,008
174
(555)
(59)
1,568
486
1,082
35
1,117
113
(16)
1,020
985
35
1,020
326
3.02
0.11
3.13
329
2.99
0.11
3.10
1.7325
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Consolidated Statements of Comprehensive Income
Edison International
(in millions)
Net income
Years ended December 31,
2017
2016
2015
$
668
$
1,425
$
1,117
Other comprehensive income, net of tax:
Pension and postretirement benefits other than pensions:
Net gain or loss arising during the period plus amortization included in
net income
Prior service cost arising during the period plus amortization included
in net income
Other
Other comprehensive income, net of tax
Comprehensive income
Less: Comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to Edison International
$
10
—
—
10
678
103
575
2
—
1
3
1
1
—
2
1,428
114
1,314
1,119
97
1,022
$
$
The accompanying notes are an integral part of these consolidated financial statements.
45
Consolidated Balance Sheets
(in millions)
ASSETS
Cash and cash equivalents
Receivables, less allowances of $54 million and $62 for uncollectible accounts at respective
dates
Accrued unbilled revenue
Inventory
Income tax receivables
Prepaid expenses
Derivative assets
Regulatory assets
Other current assets
Total current assets
Nuclear decommissioning trusts
Other investments
Total investments
Edison International
December 31,
2017
2016
$
1,091
$
717
212
242
224
233
105
703
202
3,729
4,440
73
4,513
96
714
370
239
1
103
73
350
177
2,123
4,242
83
4,325
Utility property, plant and equipment, less accumulated depreciation and amortization of
$9,355 and $9,000 at respective dates
38,708
36,806
Nonutility property, plant and equipment, less accumulated depreciation of $114 and $99 at
respective dates
Total property, plant and equipment
Regulatory assets
Other long-term assets
Total long-term assets
342
39,050
4,914
374
5,288
194
37,000
7,455
416
7,871
Total assets
$
52,580
$
51,319
The accompanying notes are an integral part of these consolidated financial statements.
46
Consolidated Balance Sheets
(in millions, except share amounts)
LIABILITIES AND EQUITY
Short-term debt
Current portion of long-term debt
Accounts payable
Accrued taxes
Customer deposits
Derivative liabilities
Regulatory liabilities
Other current liabilities
Total current liabilities
Long-term debt
Deferred income taxes and credits
Derivative liabilities
Pensions and benefits
Asset retirement obligations
Regulatory liabilities
Other deferred credits and other long-term liabilities
Total deferred credits and other liabilities
Total liabilities
Commitments and contingencies (Note 11)
Redeemable noncontrolling interest
Common stock, no par value (800,000,000 shares authorized; 325,811,206 shares issued
and outstanding at respective dates)
Accumulated other comprehensive loss
Retained earnings
Total Edison International's common shareholders' equity
Noncontrolling interests – preferred and preference stock of utility
Other noncontrolling interests
Total equity
Edison International
December 31,
2017
2016
$
2,393
$
1,307
481
1,503
23
281
1
1,121
1,265
7,068
11,642
4,567
—
943
2,908
8,614
2,953
19,985
38,695
981
1,342
50
269
216
756
991
5,912
10,175
8,327
941
1,354
2,590
5,726
2,102
21,040
37,127
19
5
2,526
(43)
9,188
11,671
2,193
2
13,866
2,505
(53)
9,544
11,996
2,191
—
14,187
Total liabilities and equity
$
52,580
$
51,319
The accompanying notes are an integral part of these consolidated financial statements.
47
Consolidated Statements of Cash Flows
Edison International
(in millions)
Cash flows from operating activities:
Net income
Less: Income from discontinued operations
Income from continuing operations
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization
Allowance for equity during construction
Impairment and other charges
Deferred income taxes and investment tax credits
Other
Nuclear decommissioning trusts
EME settlement payments, net of insurance proceeds
Changes in operating assets and liabilities:
Receivables
Inventory
Accounts payable
Tax receivables and payables
Other current assets and liabilities
Derivative assets and liabilities, net
Regulatory assets and liabilities, net
Other noncurrent assets and liabilities
Net cash provided by operating activities
Cash flows from financing activities:
Long-term debt issued or remarketed, net of premium, discount and issuance costs
of $2, $7, and $17 for respective years
Long-term debt matured or repurchased
Preference stock issued, net
Preference stock redeemed
Short-term debt financing, net
Payments for stock-based compensation
Receipts from stock option exercises
Dividends and distribution to noncontrolling interests
Dividends paid
Other
Net cash provided by (used in) financing activities
Cash flows from investing activities:
Capital expenditures
Proceeds from sale of nuclear decommissioning trust investments
Purchases of nuclear decommissioning trust investments
Life insurance policy loans proceeds
Other
Net cash used in investing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Years ended December 31,
2016
2015
2017
$
$
668
—
668
$
1,425
12
1,413
2,098
(74)
—
190
20
(179)
(209)
52
8
35
(6)
211
13
(292)
(24)
3,256
397
(220)
294
(125)
611
(237)
135
(123)
(626)
(11)
95
1,117
35
1,082
2,005
(87)
5
449
(28)
(428)
(176)
49
14
8
(28)
(24)
45
1,729
(106)
4,509
1,420
(762)
319
(325)
(572)
(197)
128
(116)
(544)
61
(588)
(3,734)
3,212
(3,033)
140
(1)
(3,416)
(65)
161
96
$
(4,225)
3,506
(3,132)
—
(41)
(3,892)
29
132
161
$
2,115
(87)
738
498
22
(197)
—
7
(12)
50
(250)
34
(28)
4
25
3,587
2,233
(1,285)
462
(475)
1,084
(393)
215
(125)
(707)
(2)
1,007
(3,828)
5,239
(5,042)
26
6
(3,599)
995
96
1,091
$
The accompanying notes are an integral part of these consolidated financial statements.
48
Consolidated Statements of Changes in Equity
Edison International
(in millions)
Equity Attributable to Common Shareholders
Noncontrolling
Interests
Common
Stock
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Subtotal
Other
Preferred
and
Preference
Stock
Total
Equity
Balance at December 31, 2014
$ 2,445
$
(58) $ 8,573
$ 10,960
$ — $
2,022
$ 12,982
Net income
Other comprehensive loss
Common stock dividends declared ($1.7325
per share)
Dividends and distributions to noncontrolling
interests and other
Stock-based compensation and other
Noncash stock-based compensation and other
—
—
—
—
15
24
Issuance of preference stock
Redemption of preference stock
Balance at December 31, 2015
Net income
Other comprehensive income
Common stock dividends declared ($1.9825
per share)
Dividends and distributions to noncontrolling
interests and other
Stock-based compensation and other
Noncash stock-based compensation and other
Issuance of preference stock
Redemption of preference stock
—
—
$ 2,484
$
—
—
—
—
(1)
22
—
—
—
2
—
—
—
—
1,020
1,020
—
2
(564)
(564)
—
(85)
—
—
—
—
(56) $ 8,940
(4)
—
(70)
24
—
(4)
—
—
—
—
—
—
—
—
113
—
1,133
2
—
(564)
(113)
—
—
319
(321)
(113)
(70)
24
319
(325)
$ 11,368
$ — $
2,020
$ 13,388
—
3
—
—
—
—
—
—
1,311
1,311
—
3
(646)
(646)
—
(59)
—
—
(2)
—
(60)
22
—
(2)
—
—
—
—
—
—
—
—
123
—
1,434
3
—
(646)
(123)
—
—
294
(123)
(123)
(60)
22
294
(125)
Balance at December 31, 2016
$ 2,505
$
(53) $ 9,544
$ 11,996
$ — $
2,191
$ 14,187
Net income
Other comprehensive income
Contribution from tax equity investor
Common stock dividends declared ($2.2325
per share)
Dividends and distributions to noncontrolling
interests and other
Stock-based compensation and other
Noncash stock-based compensation and other
Issuance of preference stock
Redemption of preference stock
—
—
—
—
—
—
21
—
—
—
10
—
—
—
—
—
—
—
565
—
—
565
10
—
(727)
(727)
—
(179)
—
—
(15)
—
(179)
21
—
(15)
Balance at December 31, 2017
$ 2,526
$
(43) $ 9,188
$ 11,671
$
(18)
—
20
—
—
—
—
—
—
2
124
—
—
—
(124)
—
—
462
(460)
671
10
20
(727)
(124)
(179)
21
462
(475)
$
2,193
$ 13,866
The accompanying notes are an integral part of these consolidated financial statements.
49
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50
Consolidated Statements of Income
Southern California Edison Company
(in millions)
Operating revenue
Purchased power and fuel
Operation and maintenance
Depreciation and amortization
Property and other taxes
Impairment and other charges
Other operating income
Total operating expenses
Operating income
Interest and other income
Interest expense
Other expenses
Income before income taxes
Income tax expense
Net income
Less: Preferred and preference stock dividend requirements
Net income available for common stock
Consolidated Statements of Comprehensive Income
Years ended December 31,
2017
2016
2015
$
12,254
$ 11,830
$
11,485
4,873
2,671
2,032
372
716
(8)
10,656
1,598
145
(589)
(48)
1,106
(30)
1,136
124
4,527
2,737
1,998
351
—
—
9,613
2,217
123
(541)
(44)
1,755
256
1,499
123
$
1,012
$
1,376
$
4,266
2,890
1,915
334
—
—
9,405
2,080
123
(526)
(59)
1,618
507
1,111
113
998
(in millions)
Net income
Other comprehensive income, net of tax:
Pension and postretirement benefits other than pensions:
Net loss arising during period plus amortization included in net income
Prior service cost arising during the period plus amortization included in
net income
Other
Other comprehensive income, net of tax
Comprehensive income
Years ended December 31,
2016
2015
2017
$
1,136
$
1,499
$
1,111
1
—
—
1
1,137
1
—
1
2
1,501
$
$
5
1
—
6
1,117
$
The accompanying notes are an integral part of these consolidated financial statements.
51
Consolidated Balance Sheets
Southern California Edison Company
(in millions)
ASSETS
Cash and cash equivalents
Receivables, less allowances of $53 and $61 for uncollectible accounts at respective dates
Accrued unbilled revenue
Inventory
Income tax receivables
Prepaid expenses
Derivative assets
Regulatory assets
Other current assets
Total current assets
Nuclear decommissioning trusts
Other investments
Total investments
Utility property, plant and equipment, less accumulated depreciation and amortization of
$9,355 and $9,000 at respective dates
Nonutility property, plant and equipment, less accumulated depreciation of $97 and $89 at
respective dates
Total property, plant and equipment
Regulatory assets
Other long-term assets
Total long-term assets
$
December 31,
2017
2016
515
693
212
242
229
228
105
703
160
3,087
4,440
52
4,492
$
39
699
369
239
16
98
73
350
148
2,031
4,242
50
4,292
38,708
36,806
77
38,785
4,914
237
5,151
75
36,881
7,455
232
7,687
Total assets
$
51,515
$
50,891
The accompanying notes are an integral part of these consolidated financial statements.
52
Consolidated Balance Sheets
Southern California Edison Company
(in millions, except share amounts)
LIABILITIES AND EQUITY
Short-term debt
Current portion of long-term debt
Accounts payable
Accrued taxes
Customer deposits
Derivative liabilities
Regulatory liabilities
Other current liabilities
Total current liabilities
Long-term debt
Deferred income taxes and credits
Derivative liabilities
Pensions and benefits
Asset retirement obligations
Regulatory liabilities
Other deferred credits and other long-term liabilities
Total deferred credits and other liabilities
Total liabilities
Commitments and contingencies (Note 11)
Common stock, no par value (560,000,000 shares authorized; 434,888,104 shares issued and
outstanding at each date)
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total common shareholder's equity
Preferred and preference stock
Total equity
Total liabilities and equity
December 31,
2017
2016
$
1,238
$
479
1,519
24
281
1
1,121
1,224
5,887
10,428
5,890
—
483
2,892
8,614
2,649
20,528
36,843
2,168
671
(19)
9,607
12,427
2,245
14,672
51,515
$
$
769
579
1,344
45
269
216
756
729
4,707
9,754
9,886
941
896
2,586
5,726
1,912
21,947
36,408
2,168
657
(20)
9,433
12,238
2,245
14,483
50,891
The accompanying notes are an integral part of these consolidated financial statements.
53
Consolidated Statements of Cash Flows
(in millions)
Cash flows from operating activities:
Net income
Adjustments to reconcile to net cash provided by operating activities:
Southern California Edison Company
Years ended December 31,
2016
2015
2017
$
1,136
$
1,499
$
1,111
Depreciation and amortization
Allowance for equity during construction
Impairment and other charges
Deferred income taxes and investment tax credits
Other
Nuclear decommissioning trusts
Changes in operating assets and liabilities:
Receivables
Inventory
Accounts payable
Tax receivables and payables
Other current assets and liabilities
Derivative assets and liabilities, net
Regulatory assets and liabilities, net
Other noncurrent assets and liabilities
Net cash provided by operating activities
Cash flows from financing activities:
Long-term debt issued or remarketed, net of premium, discount and issuance
costs of $10 and $(17) for the years ended 2017 and 2015, respectively
Long-term debt matured or repurchased
Preference stock issued, net
Preference stock redeemed
Short-term debt financing, net
Payments for stock-based compensation
Receipts from stock option exercises
Dividends paid
Other
Net cash provided by (used in) financing activities
Cash flows from investing activities:
Capital expenditures
Proceeds from sale of nuclear decommissioning trust investments
Purchases of nuclear decommissioning trust investments
Life insurance policy loans proceeds
Other
Net cash used in investing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
2,101
(87)
716
304
12
(197)
6
(11)
50
(234)
69
(28)
4
(116)
3,725
1,445
(882)
462
(475)
469
(86)
48
(697)
(41)
243
(3,740)
5,239
(5,042)
26
25
(3,492)
476
39
515
$
$
2,085
(74)
—
88
9
(179)
25
(3)
45
(16)
185
13
(292)
138
3,523
—
(217)
294
(125)
719
(127)
76
(824)
(15)
(219)
(3,633)
3,212
(3,033)
140
23
(3,291)
13
26
39
1,996
(87)
—
308
14
(428)
25
19
30
(16)
(42)
45
1,729
(80)
4,624
1,413
(761)
319
(325)
(619)
(78)
68
(874)
45
(812)
(4,210)
3,506
(3,132)
—
12
(3,824)
(12)
38
$
26
The accompanying notes are an integral part of these consolidated financial statements.
54
Consolidated Statements of Changes in Equity
Southern California Edison Company
(in millions)
Equity Attributable to Edison International
Common
Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Preferred
and
Preference
Stock
Total
Equity
Retained
Earnings
Balance at December 31, 2014
$
2,168
$
618
$
(28) $
8,454
$
2,070
$13,282
Net income
Other comprehensive loss
Dividends declared on common stock
Dividends declared on preferred and preference stock
Stock-based compensation
Noncash stock-based compensation
Issuance of preference stock
Redemption of preference stock
Balance at December 31, 2015
Net income
Other comprehensive income
Dividends declared on common stock
Dividends declared on preferred and preference stock
Stock-based compensation
Noncash stock-based compensation
Issuance of preference stock
Redemption of preference stock
Balance at December 31, 2016
Net income
Other comprehensive income
Dividends declared on common stock
Dividends declared on preferred and preference stock
Stock-based compensation
Noncash stock-based compensation
Issuance of preference stock
Redemption of preference stock
Balance at December 31, 2017
—
—
—
—
—
—
—
—
—
—
—
—
23
13
(6)
4
—
6
—
—
—
—
—
—
1,111
—
(611)
(113)
(33)
—
—
(4)
—
—
—
—
—
—
325
(325)
1,111
6
(611)
(113)
(10)
13
319
(325)
$
2,168
$
652
$
(22) $
8,804
$
2,070
$13,672
—
—
—
—
—
—
—
—
—
—
—
—
—
9
(6)
2
—
2
—
—
—
—
—
—
1,499
—
(701)
(123)
(44)
—
—
(2)
—
—
—
—
—
—
300
(125)
1,499
2
(701)
(123)
(44)
9
294
(125)
$
2,168
$
657
$
(20) $
9,433
$
2,245
$14,483
—
—
—
—
—
—
—
—
—
—
—
—
—
12
(13)
15
—
1
—
—
—
—
—
—
1,136
—
(785)
(124)
(38)
—
—
(15)
—
—
—
—
—
—
475
(475)
1,136
1
(785)
(124)
(38)
12
462
(475)
$
2,168
$
671
$
(19) $
9,607
$
2,245
$14,672
The accompanying notes are an integral part of these consolidated financial statements.
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1.
Summary of Significant Accounting Policies
Organization and Basis of Presentation
Edison International is the parent holding company of Southern California Edison Company ("SCE") and Edison Energy
Group, Inc. ("Edison Energy Group"). SCE is an investor-owned public utility primarily engaged in the business of supplying
and delivering electricity to an approximately 50,000 square mile area of southern California. Edison Energy Group is a
holding company for subsidiaries, including Edison Energy, LLC ("Edison Energy") and SoCore Energy LLC ("SoCore
Energy"), engaged in pursuing competitive business opportunities across energy services, managed portfolio solutions, and
distributed solar solutions for commercial and industrial customers. Such business activities are currently not material to
report as a separate business segment. These combined notes to the consolidated financial statements apply to both Edison
International and SCE unless otherwise described. Edison International's consolidated financial statements include the
accounts of Edison International, SCE and other wholly owned and controlled subsidiaries. References to Edison
International refer to the consolidated group of Edison International and its subsidiaries. References to Edison International
Parent and Other refer to Edison International Parent and its competitive subsidiaries. SCE's consolidated financial statements
include the accounts of SCE and its wholly owned and controlled subsidiaries. All intercompany transactions have been
eliminated from the consolidated financial statements.
Edison International's and SCE's accounting policies conform to accounting principles generally accepted in the United States
of America, including the accounting principles for rate-regulated enterprises, which reflect the ratemaking policies of the
California Public Utility Commission ("CPUC") and the Federal Energy Regulatory Commission ("FERC"). SCE applies
authoritative guidance for rate-regulated enterprises to the portion of its operations in which regulators set rates at levels
intended to recover the estimated costs of providing service, plus a return on net investments in assets, or rate base.
Regulators may also impose certain penalties or grant certain incentives. Due to timing and other differences in the collection
of electric utility revenue, these principles require an incurred cost that would otherwise be charged to expense by a
non-regulated entity to be capitalized as a regulatory asset if it is probable that the cost is recoverable through future rates;
and conversely the principles require recording of a regulatory liability for amounts collected in rates to recover costs
expected to be incurred in the future or amounts collected in excess of costs incurred and refundable to customers. In
addition, SCE recognizes revenue and regulatory assets from alternative revenue programs, which enables the utility to adjust
future rates in response to past activities or completed events, if certain criteria are met, even for programs that do not qualify
for recognition of "traditional" regulatory assets and liabilities. SCE assesses, at the end of each reporting period, whether
regulatory assets are probable of future recovery. See Note 10 for composition of regulatory assets and liabilities.
The preparation of financial statements in conformity with United States generally accepted accounting principles ("GAAP")
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the reported period. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents includes investments in money market funds. Generally, the carrying value of cash equivalents equals the
fair value, as these investments have original maturities of three months or less. The cash equivalents were as follows:
(in millions)
Money market funds
Edison International
SCE
December 31,
2017
2016
2017
2016
$
1,024
$
41
$
483
$
18
Cash is temporarily invested until required for check clearing. Checks issued, but not yet paid by the financial institution, are
reclassified from cash to accounts payable at the end of each reporting period as follows:
(in millions)
Book balances reclassified to accounts payable
2017
2016
2017
2016
$
64
$
138
$
63
$
136
Edison International
SCE
December 31,
56
Restricted Cash
Edison International's restricted cash at December 31, 2017 and 2016 were $41 million and $18 million, respectively.
Restricted cash primarily relates to funds held by SoCore Energy and its consolidated affiliates pursuant to project financing
or purchase agreements; most of which are expected to lapse by the end of 2018.
Allowance for Uncollectible Accounts
Allowances for uncollectible accounts are provided based upon a variety of factors, including historical amounts written-off,
current economic conditions and assessment of customer collectability.
Inventory
SCE's inventory is primarily composed of materials, supplies and spare parts, and generally stated at average cost.
Emission Allowances
SCE is allocated greenhouse gas ("GHG") allowances annually which it is then required to sell into quarterly auctions. GHG
proceeds from the auctions are recorded as a regulatory liability to be refunded to customers. SCE purchases GHG
allowances in quarterly auctions or from counterparties to satisfy its GHG emission compliance obligations and recovers such
costs of GHG allowances from customers. GHG allowances held for use are classified as "Other current assets" on the
consolidated balance sheets and are stated, similar to an inventory method, at the lower of weighted-average cost or market.
SCE had GHG allowances of $127 million and $113 million at December 31, 2017 and 2016, respectively. GHG emission
obligations were $129 million and $95 million at December 31, 2017 and 2016, respectively, and are classified as "Other
current liabilities" on the consolidated balance sheets.
Property, Plant and Equipment
SCE plant additions, including replacements and betterments, are capitalized. Direct material and labor and indirect costs
such as construction overhead, administrative and general costs, pension and benefits, and property taxes are capitalized as
part of plant additions. The CPUC authorizes a capitalization rate for each of the indirect costs which are allocated to each
project based on either labor or total costs.
Estimated useful lives (authorized by the CPUC) and weighted-average useful lives of SCE's property, plant and equipment,
are as follows:
Generation plant
Distribution plant
Transmission plant
General plant and other
Estimated Useful Lives
10 years to 55 years
20 years to 60 years
40 years to 65 years
5 years to 60 years
Weighted-Average
Useful Lives
37 years
43 years
52 years
22 years
Depreciation of utility property, plant and equipment is computed on a straight-line, remaining-life basis. Depreciation
expense was $1.61 billion, $1.52 billion and $1.42 billion for 2017, 2016 and 2015, respectively. Depreciation expense stated
as a percent of average original cost of depreciable utility plant was, on a composite basis, 3.8%, 3.8% and 3.9% for 2017,
2016 and 2015, respectively. The original costs of retired property is charged to accumulated depreciation.
Nuclear fuel for the Palo Verde Nuclear Generating Station ("Palo Verde") is recorded as utility plant (nuclear fuel in the
fabrication and installation phase is recorded as construction in progress) in accordance with CPUC ratemaking procedures.
Palo Verde nuclear fuel is amortized using the units of production method.
Allowance for funds used during construction ("AFUDC") represents the estimated cost of debt and equity funds that finance
utility-plant construction and is capitalized during certain plant construction. AFUDC is recovered in rates through
depreciation expense over the useful life of the related asset. AFUDC equity represents a method to compensate SCE for the
estimated cost of equity used to finance utility plant additions and is recorded as part of construction in progress.
AFUDC equity was $87 million, $74 million and $87 million in 2017, 2016 and 2015, respectively, and is reflected in
"Interest and other income." AFUDC debt was $28 million, $23 million and $31 million in 2017, 2016 and 2015, respectively
and is reflected as a reduction of "Interest expense."
57
Major Maintenance
Major maintenance costs for SCE's power plant facilities and equipment are expensed as incurred.
Impairment of Long-Lived Assets
Impairments of long-lived assets are evaluated based on a review of estimated future cash flows expected to be generated
whenever events or changes in circumstances indicate that the carrying amount of such investments or assets may not be
recoverable. If the carrying amount of a long-lived asset exceeds expected future cash flows, undiscounted and without
interest charges, an impairment loss is recognized in the amount of the excess of fair value over the carrying amount. Fair
value is determined via market, cost and income based valuation techniques, as appropriate.
Goodwill
Edison International assesses goodwill through annual goodwill impairment tests, at the reporting unit level as of October 1st
of each year. Edison International will update these tests between annual tests if events occur or circumstances change such
that it is more likely than not that the fair value of a reporting unit is below its carrying value. During 2017, Edison
International completed a strategic review of Edison Energy Group's competitive businesses. Edison International has
concluded that it will evaluate strategic options, including potential sale opportunities, for SoCore Energy. In connection with
the strategic review of the Edison Energy Group's competitive businesses, Edison International evaluated the recoverability
of goodwill and recorded an impairment of SoCore Energy's goodwill totaling $16.5 million ($10 million after-tax) in the
second quarter of 2017.
The fair value of the Edison Energy and SoCore Energy reporting units exceeded their carrying values at the date of the
impairment analysis. As of December 31, 2017 and 2016, goodwill is comprised of $78 million at each year end at the Edison
Energy reporting unit and $5 million and $22 million, respectively, at the SoCore Energy reporting unit.
Nuclear Decommissioning and Asset Retirement Obligations
The fair value of a liability for an asset retirement obligation ("ARO") is recorded in the period in which it is incurred,
including a liability for the fair value of a conditional ARO, if the fair value can be reasonably estimated even though
uncertainty exists about the timing and/or method of settlement. When an ARO liability is initially recorded, SCE capitalizes
the cost by increasing the carrying amount of the related long-lived asset. For each subsequent period, the liability is
increased for accretion expense and the capitalized cost is depreciated over the useful life of the related asset.
AROs related to decommissioning of SCE's nuclear power facilities are based on site-specific studies conducted as part of
each Nuclear Decommissioning Cost Triennial Proceeding ("NDCTP") conducted before the CPUC. Revisions of an ARO
are established for updated site-specific decommissioning cost estimates.
SCE adjusts its nuclear decommissioning obligation into a nuclear-related ARO regulatory asset and also records an ARO
regulatory liability as a result of timing differences between the recognition of costs and the recovery of costs through the
ratemaking process. For further information, see Notes 9 and 10.
SCE has not recorded an asset retirement obligation for assets that are expected to operate indefinitely or where SCE cannot
estimate a settlement date (or range of potential settlement dates). As such, ARO liabilities are not recorded for certain
retirement activities, including certain hydroelectric facilities.
The following table summarizes the changes in SCE's ARO liability, including San Onofre Nuclear Generating Station ("San
Onofre") and Palo Verde:
(in millions)
Beginning balance
Accretion1
Revisions
Liabilities settled
Ending balance
December 31,
2017
2016
$
$
2,586
$
166
376
(236)
2,892
$
2,762
157
(165)
(168)
2,586
1 An ARO represents the present value of a future obligation. Accretion is an increase in the liability to
account for the time value of money resulting from discounting.
58
The recorded liability to decommission SCE's nuclear power facilities (included in the table above) is $2.6 billion as of
December 31, 2017. In 2016, SCE updated the recorded liability for Palo Verde and San Onofre Unit 1 based on the 2013
decommissioning study performed for Palo Verde and the 2014 study for San Onofre Unit 1. In 2017, SCE further revised the
recorded liability for Palo Verde and San Onofre Units 2 and 3 based on updated cost estimates, including changes related to
onboarding the general contractor. The final site specific study for San Onofre Units 2 and 3 is expected to be filed in March
2018 as part of the 2018 NDCTP which may result in additional changes to the ARO estimate.
Decommissioning costs, which are recovered through customer rates over the term of each nuclear facility's operating
license, are recorded as a component of depreciation expense, with a corresponding credit to the ARO regulatory liability.
Amortization of the ARO asset (included within the unamortized nuclear investment) and accretion of the ARO liability are
deferred as increases to the ARO regulatory liability account, resulting in no impact on earnings.
SCE has collected in rates amounts for the future decommissioning of its nuclear assets, and has placed those amounts in
independent trusts. Amounts collected in rates in excess of the ARO liability are classified as regulatory liabilities.
Changes in the estimated costs, timing of decommissioning or the assumptions underlying these estimates could cause
material revisions to the estimated total cost to decommission. SCE currently estimates that it will spend approximately
$7.2 billion through 2079 to decommission its nuclear facilities. This estimate is based on SCE's decommissioning cost
methodology used for ratemaking purposes, escalated at rates ranging from 1.6% to 7.5% (depending on the cost element)
annually. These costs are expected to be funded from independent decommissioning trusts. SCE estimates annual after-tax
earnings on the decommissioning funds of 2.4% to 3.8%. Future decommissioning costs related to SCE's nuclear assets are
expected to be funded from independent decommissioning trusts. If the assumed return on trust assets is not earned or costs
escalate at higher rates, SCE expects that additional funds needed for decommissioning will be recoverable through future
rates. See Note 9 for further information.
Due to regulatory recovery of SCE's nuclear decommissioning expense, prudently incurred costs for nuclear
decommissioning activities do not affect SCE's earnings. SCE's nuclear decommissioning costs are subject to CPUC review
through the triennial regulatory proceeding. SCE's nuclear decommissioning trust investments primarily consist of fixed
income and equity investments that are classified as available-for-sale. Due to regulatory mechanisms, earnings and realized
gains and losses (including other-than-temporary impairments) have no impact on earnings. Unrealized gains and losses on
decommissioning trust funds increase or decrease the trust assets and the related regulatory asset or liability and have no
impact on electric utility revenue or decommissioning expense. SCE reviews each security for other-than-temporary
impairment on the last day of each month. If the fair value on the last day of two consecutive months is less than the cost for
that security, SCE recognizes a loss for the other-than-temporary impairment. If the fair value is greater or less than the
carrying value for that security at the time of sale, SCE recognizes a related realized gain or loss, respectively.
Deferred Financing Costs
Debt premium, discount and issuance expenses incurred in connection with obtaining financing are deferred and amortized
on a straight-line basis. Under CPUC ratemaking procedures, SCE's debt reacquisition expenses are amortized over the
remaining life of the reacquired debt or, if refinanced, the life of the new debt. SCE had unamortized losses on reacquired
debt of $168 million and $184 million at December 31, 2017 and 2016, respectively, reflected as long-term "Regulatory
assets" in the consolidated balance sheets. Edison International and SCE had unamortized debt issuance costs related to
issuances under the credit facilities of $15 million and $7 million at December 31, 2017, respectively, and $10 million and
$7 million at December 31, 2016, respectively, reflected in "Other long-term assets" on the consolidated balance sheets. In
addition, Edison International and SCE had debt issuance costs related to issuances of long-term debt of $88 million and
$77 million at December 31, 2017, respectively, and $81 million and $71 million at December 31, 2016, respectively,
reflected as a reduction of "Long-term debt" on the consolidated balance sheets.
Amortization of deferred financing costs charged to interest expense is as follows:
(in millions)
2017
2016
2015
2017
Edison International
Years ended December 31,
SCE
2016
2015
Amortization of deferred financing
costs charged to interest expense
$
30
$
31
$
33
$
27
$
27
$
28
59
Revenue Recognition
Revenue is recognized when electricity is delivered and includes amounts for services rendered but unbilled at the end of
each reporting period as reflected in "Operating revenue" on the consolidated statements of income. Rates charged to
customers are based on CPUC- and FERC-authorized revenue requirements. CPUC rates are implemented subsequent to final
approval.
CPUC rates decouple authorized revenue from the volume of electricity sales. Differences between amounts collected and
authorized levels are either collected from or refunded to customers, and therefore, SCE earns revenue equal to amounts
authorized. FERC rates also decouple revenue from volume of electricity sales. In November 2013, the FERC approved a
formula rate effective January 1, 2012 to determine SCE's FERC transmission revenue requirement, including its construction
work in progress ("CWIP") revenue requirement. Under operation of the formula rate, transmission revenue will be updated
to actual cost of service annually. Differences between amounts collected and determined under the formula rate are either
collected from or refunded to customers, and therefore, SCE earns revenue based on estimates of recorded rate base costs
under the FERC formula rate.
SCE bills certain sales and use taxes levied by state or local governments to its customers. Included in these sales and use
taxes are franchise fees, which SCE pays to various municipalities (based on contracts with these municipalities) in order to
operate within the limits of the municipality. SCE bills these franchise fees to its customers based on a CPUC-authorized rate.
These franchise fees, which are required to be paid regardless of SCE's ability to collect from the customer, are accounted for
on a gross basis and reflected in electric utility revenue and other operation and maintenance expense. SCE's franchise fees
billed to customers and recorded as revenue were $133 million, $111 million and $138 million in 2017, 2016 and 2015,
respectively. When SCE acts as an agent, the taxes are accounted for on a net basis. Amounts billed to and collected from
customers for these taxes are remitted to the taxing authorities and are not recognized as electric utility revenue.
Power Purchase Agreements
SCE enters into power purchase agreements in the normal course of business. A power purchase agreement may be
considered a variable interest in a variable interest entity ("VIE"). If SCE is the primary beneficiary in the VIE, SCE should
consolidate the VIE. None of SCE's power purchase agreements resulted in consolidation of a VIE at December 31, 2017 and
2016. See Note 3 for further discussion of power purchase agreements that are considered variable interests.
A power purchase agreement may also contain a lease for accounting purposes. This generally occurs when a power purchase
agreement designates a specific power plant in which the buyer purchases substantially all of the output and does not
otherwise meet a fixed price per unit of output exception. SCE has a number of power purchase agreements that contain
leases. SCE's recognition of lease expense conforms to the ratemaking treatment for SCE's recovery of the cost of electricity
and is recorded in "Purchased power and fuel" on the consolidated statements of income. See Note 11 for further discussion
of SCE's power purchase agreements, including agreements that are classified as operating and capital leases for accounting
purposes.
A power purchase agreement that does not contain a lease may be classified as a derivative which is recorded at fair value on
the consolidated balance sheets. These power purchase agreements may be eligible for an election to designate as a normal
purchase and sale, which is accounted for on an accrual basis as an executory contract. See Note 6 for further information on
derivative instruments.
Power purchase agreements that do not meet the above classifications are accounted for on an accrual basis.
Derivative Instruments
SCE records derivative instruments on its consolidated balance sheets as either assets or liabilities measured at fair value
unless otherwise exempted from derivative treatment as normal purchases or sales. The normal purchases and sales exception
requires, among other things, physical delivery in quantities expected to be used or sold over a reasonable period in the
normal course of business. During the third quarter of 2017, SCE designated certain derivative contracts as normal purchase
and normal sale contracts, which resulted in a reclassification of $914 million from derivative liabilities to other liabilities.
These liabilities will be amortized over the remaining contract terms.
Realized gains and losses from SCE's derivative instruments 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. SCE does not use hedge accounting for derivative transactions due to regulatory accounting treatment.
Where SCE's derivative instruments are subject to a master netting agreement and certain criteria are met, SCE presents its
derivative assets and liabilities on a net basis on its consolidated balance sheets. In addition, derivative positions are offset
60
against margin and cash collateral deposits. The results of derivative activities are recorded as part of cash flows from
operating activities on the consolidated statements of cash flows. See Note 6 for further information on derivative
instruments.
Leases
SCE enters into power purchase agreements that may contain leases, as discussed under "Power Purchase Agreements"
above. SCE also enters into a number of agreements to lease property and equipment in the normal course of business.
Minimum lease payments under SCE's operating leases for property and equipment are reflected in "Operation and
maintenance" on the consolidated statements of income.
Stock-Based Compensation
Stock options, performance shares, deferred stock units and restricted stock units have been granted under Edison
International's long-term incentive compensation programs. Generally, Edison International does not issue new common
stock for settlement of equity awards, which are recorded as part of retained earnings. Rather, a third party is used to purchase
shares from the market and deliver such shares for the settlement of option exercises, performance shares, deferred stock
units and restricted stock units. The performance shares awarded that are earned are settled solely in cash. Deferred stock
units and restricted stock units are settled in common stock; however, Edison International will substitute cash awards to the
extent necessary to pay tax withholding or any government levies.
Stock-based compensation expense is recognized on a straight-line basis over the requisite service period and is based on the
number of awards that are expected to vest. Edison International and SCE estimate the number of awards that are expected to
vest rather than account for forfeitures when they occur. For awards granted to retirement-eligible participants, stock
compensation expenses are recognized on a prorated basis over the initial year. For awards granted to participants who
become eligible for retirement during the requisite service period, stock compensation expenses are recognized over the
period between the date of grant and the date the participant first becomes eligible for retirement. Under new accounting
guidance adopted in 2016, share-based payments may create a permanent difference between the amount of compensation
expense recognized for book and tax purposes. The tax impact of this permanent difference is recognized in earnings in the
period it is created. Effective January 1, 2016, the excess tax benefits are classified as an operating activity along with other
income tax cash flows on the statement of cash flows.
SCE Dividend Restrictions
The CPUC regulates SCE's capital structure which limits the dividends it may pay Edison International. Under CPUC
regulations, SCE may make distributions to Edison International as long as the common equity component of SCE's capital
structure remains at or above 48% on a 13-month average basis, or otherwise satisfies the CPUC requirements.
If the Revised San Onofre Settlement Agreement is approved by the CPUC, SCE may exclude the $448 million after-tax
charge resulting from the implementation of the Revised San Onofre Settlement Agreement from its ratemaking capital
structure. See Note 11 for discussion of the Revised San Onofre Settlement Agreement.
At December 31, 2017, without excluding the $448 million after-tax charge, SCE's 13-month average common equity
component of total capitalization was 50.0% and the maximum additional dividend that SCE could pay to Edison
International under this limitation was approximately $511 million, resulting in a restriction on net assets of approximately
$14.2 billion. If the Revised San Onofre Settlement Agreement had been approved by the CPUC at December 31, 2017, the
common equity component of SCE's capital structure would have been 50.1% on a 13-month average basis.
61
Earnings Per Share
Edison International computes earnings per common share ("EPS") using the two-class method, which is an earnings
allocation formula that determines EPS for each class of common stock and participating security. Edison International's
participating securities are stock-based compensation awards payable in common shares, including performance shares and
restricted stock units, which earn dividend equivalents on an equal basis with common shares once the awards are vested.
Performance shares awarded prior to 2015 that are earned are settled half in common shares and half in cash, while the
performance shares awarded on or after 2015 that are earned are settled solely in cash. For further information, see Note 8.
EPS attributable to Edison International common shareholders was computed as follows:
(in millions, except per-share amounts)
Basic earnings per share – continuing operations:
Income from continuing operations attributable to common
shareholders
Participating securities dividends
$
Income from continuing operations available to common shareholders $
Weighted average common shares outstanding
Basic earnings per share – continuing operations
Diluted earnings per share – continuing operations:
Income from continuing operations attributable to common
shareholders
Participating securities dividends
$
$
Income from continuing operations available to common shareholders $
Income impact of assumed conversions
Income from continuing operations available to common shareholders
and assumed conversions
Weighted average common shares outstanding
Incremental shares from assumed conversions
Adjusted weighted average shares – diluted
Diluted earnings per share – continuing operations
$
$
Years ended December 31,
2017
2016
2015
565
—
565
326
1.73
565
—
565
—
565
326
2
328
1.72
$
$
$
$
$
$
$
1,299
—
1,299
326
3.99
1,299
—
1,299
1
1,300
326
4
330
3.94
$
$
$
$
$
$
$
985
(1)
984
326
3.02
985
(1)
984
1
985
326
3
329
2.99
In addition to the participating securities discussed above, Edison International also may award stock options which are
payable in common shares and are included in the diluted earnings per share calculation. Stock option awards to purchase
1,334,451, 167,795 and 2,046,045 shares of common stock for the years ended December 31, 2017, 2016 and 2015,
respectively, were outstanding, but were not included in the computation of diluted earnings per share because the effect
would have been antidilutive.
Income Taxes
Edison International and SCE estimate their income taxes for each jurisdiction in which they operate. This involves
estimating current period tax expense along with assessing temporary differences resulting from differing treatment of items
(such as depreciation) for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which
are included in the consolidated balance sheets. In December 2017, the Tax Cuts and Jobs Act ("Tax Reform") was signed
into law. This comprehensive reform of tax law reduces the federal corporate income tax rate from 35% to 21% which
resulted in the re-measurement of deferred taxes using the new tax rate. See Note 7 for further information.
Income tax expense includes the current tax liability from operations and the change in deferred income taxes during the year.
Investment tax credits are deferred and amortized to income tax expense over the lives of the properties or the term of the
power purchase agreement of the respective project.
Interest income, interest expense and penalties associated with income taxes are reflected in "Income tax expense" on the
consolidated statements of income.
Edison International's eligible subsidiaries are included in Edison International's consolidated federal income tax and
combined state tax returns. Edison International has tax-allocation and payment agreements with certain of its subsidiaries.
62
Pursuant to an income tax-allocation agreement approved by the CPUC, SCE's tax liability is computed as if it filed its
federal and state income tax returns on a separate return basis.
Noncontrolling Interest
Noncontrolling interest represents the portion of equity ownership in an entity that is not attributable to the equity holders of
Edison International. Noncontrolling interests held by third parties that have rights to put their ownership back to a subsidiary
of Edison International are classified outside shareholders' equity as redeemable noncontrolling interest. Noncontrolling
interest is initially recorded at fair value and is subsequently adjusted for income allocated to the noncontrolling interest and
any distributions paid to the noncontrolling interest.
Certain solar projects for commercial customers are organized as limited liability companies and have noncontrolling equity
investors (referred to as tax equity investors) which are entitled to allocations of earnings, tax attributes and cash flows in
accordance with contractual agreements that vary over time. These entities are consolidated for financial reporting purposes
but are not subject to income taxes as the taxable income (loss) and investment tax credits are allocated to the respective
owners. The total consolidated assets and liabilities of these entities were $299 million and $41 million, respectively, at
December 31, 2017 and $74 million and $23 million, respectively, at December 31, 2016. Income (loss) of these entities is
allocated to the noncontrolling interest based on the hypothetical liquidation at book value ("HLBV") accounting method.
The HLBV accounting method is an approach that calculates the change in the claims of each member on the net assets of the
investment at the beginning and end of each period. Each member's claim is equal to the amount each party would receive or
pay if the net assets of the investment were to liquidate at book value. Under the contract provisions, the tax equity investors'
claim on net assets decreases rapidly in early years due to allocation of tax benefits resulting in additional non-operating
income allocated to Edison International ($21 million, $9 million and $16 million in 2017, 2016 and 2015, respectively).
New Accounting Guidance
Accounting Guidance Not Yet Adopted
In May 2014, the FASB issued an accounting standards update on revenue recognition and further amended the standard in
2016 and 2017. Under the new standard, revenue from contracts with customers is recognized when (or as) a good or service
is transferred to the customer and the customer obtains control of the good or service. For the year ended December 31, 2017,
approximately 95% of total operating revenue arises from SCE's tariff offerings that provide electricity to customers. For
such arrangements, revenue from contracts with customers will be equivalent to the electricity supplied and billed in that
period (including estimated billings). As such, there will not be a change in the timing or pattern of revenue recognition for
such sales. Edison International and SCE have implemented process changes necessary to comply with this standard's
enhanced disclosure requirements. SCE will disaggregate customer contract revenue between revenue from earnings
activities and revenue from cost-recovery activities. Some revenue arrangements, such as alternative revenue programs which
include balancing account overcollections and undercollections, are excluded from the scope of the new standard and,
therefore, will be accounted for and presented separately from revenue recognized from contracts with customers in the
disclosures. Edison International and SCE will adopt the standard by using the modified retrospective method. Edison
International will recognize an immaterial cumulative effect adjustment to the opening balance of retained earnings on
January 1, 2018.
In January 2016, the FASB issued an accounting standards update that amends the guidance on the classification and
measurement of financial instruments. The amendments require equity investments (excluding those accounted for under the
equity method or those that result in consolidation) to be measured at fair value, with changes in fair value through net
income. It also amends certain disclosure requirements associated with the fair value of financial instruments. In addition, the
new guidance requires financial assets and financial liabilities to be presented separately in the notes to the financial
statements, grouped by measurement category and form of financial assets. Edison International and SCE will adopt this
guidance effective January 1, 2018. SCE's nuclear decommissioning trust investments contain equity investments that are
classified as available-for-sale. Due to regulatory mechanisms, the change in fair value of these investments has no impact on
net income and, therefore, the adoption of this standard will not have a material impact on Edison International's and SCE's
consolidated financial statements.
In February 2016, the FASB issued an accounting standards update related to lease accounting, effective January 1, 2019.
Under the new standard, a lease is defined as a contract, or part of a contract, that conveys the right to control the use of
identified assets for a period of time in exchange for consideration. Lessees will need to recognize leases on the balance sheet
as a right-of-use asset and a related lease liability, and classify the leases as either operating or finance. The liability will be
equal to the present value of lease payments. The asset will be based on the liability, subject to adjustments, such as initial
direct costs. Edison International operating leases will result in straight-line expense while finance leases will result in a
63
higher initial expense pattern due to the interest component. SCE, as a regulated entity, is permitted to continue to recognize
expense using the timing that conforms to the regulatory rate treatment. Lessees can elect to exclude from the balance sheet
short-term contracts of one year or less. The standard requires retrospective application to previously issued financial
statements for 2018 and 2017. Although permitted, Edison and SCE will not elect to adopt this standard prior to January 1,
2019. The standard will provide entities with an optional transition method to apply the new requirements in the period of
adoption without retrospective application to previous periods. Edison International and SCE are evaluating whether to elect
this optional transition method. The adoption of this standard will increase right-of-use assets and lease liabilities in Edison
International's and SCE's consolidated balance sheets. Edison International and SCE are currently implementing a new lease
accounting system and are evaluating the impact this standard will have on the consolidated balance sheets and lease
disclosures.
The FASB issued an accounting standards update related to the impairment of financial instruments, effective January 1,
2020. The new guidance provides an impairment model, known as the current expected credit loss model, which is based on
expected credit losses rather than incurred losses. Edison International and SCE are currently evaluating the impact of this
new guidance.
The FASB issued two accounting standards updates related to the statement of cash flows. One standards update clarifies the
presentation and classification of certain cash receipts and payments in the statement of cash flows and the other requires
restricted cash to be presented with cash and cash equivalents in the statement of cash flows. These standards are effective
January 1, 2018 and require retrospective application. Restricted cash as of December 31, 2017 was $41 million at Edison
International and was less than $1 million at SCE. Currently, the changes in restricted cash balances are reflected as operating
or investing activities dependent on the nature of the activities.
In January 2017, the FASB issued an accounting standards update to simplify the accounting for goodwill impairment. This
accounting standards update changes the procedural steps in applying the goodwill impairment test. A goodwill impairment
will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of
goodwill. Edison International will apply this guidance to the goodwill impairment test beginning in 2020.
In March 2017, the FASB issued an accounting standards update which amends the current requirements related to the
presentation of the components of net periodic benefit cost for an entity's defined benefit pension and other postretirement
plans. The adoption of this standard is not expected to have a material impact on Edison International's and SCE's financial
position or results of operations, but will result in the separate presentation of service costs as an operating expense and non-
service costs within other income and expense and limit the capitalization of benefit costs to the service cost component. For
the year ended December 31, 2017, service costs totaled $169 million for Edison International and $164 million for SCE and
the non-service component of net periodic benefit cost was income of $72 million for Edison International and $84 million
for SCE. The new standards update is effective on January 1, 2018 and is required to be adopted retrospectively with respect
to the income statement presentation requirement and prospectively for the capitalization requirement.
Note 2.
Property, Plant and Equipment
SCE's property, plant and equipment included in the consolidated balance sheets is composed of the following:
(in millions)
Distribution
Transmission
Generation
General plant and other
Accumulated depreciation
Construction work in progress
Nuclear fuel, at amortized cost
$
December 31,
2017
2016
$
23,633
13,127
3,468
4,534
(9,355)
35,407
3,175
126
22,332
12,549
3,376
4,633
(9,000)
33,890
2,790
126
Total utility property, plant and equipment
$
38,708
$
36,806
64
Capitalized Software Costs
SCE capitalizes costs incurred during the application development stage of internal use software projects to property, plant,
and equipment. SCE amortizes capitalized software costs ratably over the expected lives of the software, primarily ranging
from 5 to 10 years and commencing upon operational use. Capitalized software costs, included in general plant and other
above, were $1.1 billion and $1.4 billion at December 31, 2017 and 2016, respectively, and accumulated amortization was
$0.6 billion and $0.8 billion, at December 31, 2017 and 2016, respectively. Amortization expense for capitalized software
was $233 million, $249 million and $268 million in 2017, 2016 and 2015, respectively. At December 31, 2017, amortization
expense is estimated to be $176 million, $127 million, $92 million, $62 million and $26 million for 2018 through 2022,
respectively.
Jointly Owned Utility Projects
SCE owns undivided interests in several generating assets for which each participant provides its own financing. SCE's
proportionate share of these assets is reflected in the consolidated balance sheets and included in the above table. SCE's
proportionate share of expenses for each project is reflected in the consolidated statements of income. A portion of the
investments in Palo Verde generating stations is included in regulatory assets on the consolidated balance sheets. For further
information, see Note 10.
The following is SCE's investment in each asset as of December 31, 2017:
(in millions)
Transmission systems:
Eldorado
Pacific Intertie
Generating station:
Palo Verde (nuclear)
Total
Plant in
Service
Construction
Work in
Progress
Accumulated
Depreciation
Nuclear Fuel
(at amortized cost)
Net Book
Value
Ownership
Interest
$
$
237 $
192
14 $
41
24 $
78
— $
—
227
155
2,001
2,430 $
52
107 $
1,557
1,659 $
126
126 $
622
1,004
59%
50%
16%
In addition, SCE has ownership interests in jointly owned power poles with other companies.
Note 3. Variable Interest Entities
A VIE is defined as a legal entity that meets one of two conditions: (1) the equity owners do not have sufficient equity at risk,
or (2) the holders of the equity investment at risk, as a group, lack any of the following three characteristics: decision-making
rights, the obligation to absorb losses, or the right to receive the expected residual returns of the entity. The primary
beneficiary is identified as the variable interest holder that has both the power to direct the activities of the VIE that most
significantly impact the entity's economic performance and the obligation to absorb losses or the right to receive benefits
from the entity that could potentially be significant to the VIE. The primary beneficiary is required to consolidate the VIE. A
subsidiary of Edison International is the primary beneficiary of entities that own solar projects (for further information, see
Note 1—Noncontrolling Interests). Commercial and operating activities are generally the factors that most significantly
impact the economic performance of such VIEs. Commercial and operating activities include site and equipment selection,
construction, operation and maintenance, fuel procurement, dispatch and compliance with regulatory and contractual
requirements.
Variable Interest in VIEs that are not Consolidated
Power Purchase Agreements
SCE has power purchase agreements ("PPAs") that are classified as variable interests in VIEs, including tolling agreements
through which SCE provides the natural gas to fuel the plants and contracts with qualifying facilities ("QFs") that contain
variable pricing provisions based on the price of natural gas. SCE has concluded that it is not the primary beneficiary of these
VIEs since it does not control the commercial and operating activities of these entities. Since payments for capacity are the
primary source of income, the most significant economic activity for these VIEs is the operation and maintenance of the
power plants.
As of the balance sheet date, the carrying amount of assets and liabilities in SCE's consolidated balance sheet that relate to its
involvement with VIEs result from amounts due under the PPAs. Under these contracts, SCE recovers the costs incurred
65
through demonstration of compliance with its California Public Utilities Commission ("CPUC")-approved long-term power
procurement plans. SCE has no residual interest in the entities and has not provided or guaranteed any debt or equity support,
liquidity arrangements, performance guarantees or other commitments associated with these contracts other than the purchase
commitments described in Note 11. As a result, there is no significant potential exposure to loss to SCE from its variable
interest in these VIEs. The aggregate contracted capacity dedicated to SCE from these VIE projects was 4,898 megawatts
("MW") and 4,353 MW at December 31, 2017 and 2016, respectively, and the amounts that SCE paid to these projects were
$767 million and $788 million for the years ended December 31, 2017 and 2016, respectively. These amounts are recoverable
in customer rates, subject to reasonableness review.
Unconsolidated Trusts of SCE
SCE Trust I, Trust II, Trust III, Trust IV, Trust V and Trust VI were formed in 2012, 2013, 2014, 2015, 2016 and 2017,
respectively, for the exclusive purpose of issuing the 5.625%, 5.10%, 5.75%, 5.375%, 5.45% and 5.00% trust preference
securities, respectively ("trust securities"). The trusts are VIEs. SCE has concluded that it is not the primary beneficiary of
these VIEs as it does not have the obligation to absorb the expected losses or the right to receive the expected residual returns
of the trusts. SCE Trust I, Trust II, Trust III, Trust IV, Trust V and Trust VI issued to the public trust securities in the face
amounts of $475 million, $400 million, $275 million, $325 million, $300 million, and $475 million (cumulative, liquidation
amounts of $25 per share), respectively, and $10,000 of common stock each to SCE. The trusts invested the proceeds of these
trust securities in Series F, Series G, Series H, Series J, Series K and Series L Preference Stock issued by SCE in the principal
amounts of $475 million, $400 million, $275 million, $325 million, $300 million, and $475 million (cumulative, $2,500 per
share liquidation values), respectively, which have substantially the same payment terms as the respective trust securities.
The Series F, Series G, Series H, Series J, Series K, and Series L Preference Stock and the corresponding trust securities do
not have a maturity date. Upon any redemption of any shares of the Series F, Series G, Series H, Series J, Series K or Series L
Preference Stock, a corresponding dollar amount of trust securities will be redeemed by the applicable trust (see Note 12 for
further information). The applicable trust will make distributions at the same rate and on the same dates on the applicable
series of trust securities if and when the SCE board of directors declares and makes dividend payments on the related
Preference Stock. The applicable trust will use any dividends it receives on the related Preference Stock to make its
corresponding distributions on the applicable series of trust securities. If SCE does not make a dividend payment to any of
these trusts, SCE would be prohibited from paying dividends on its common stock. SCE has fully and unconditionally
guaranteed the payment of the trust securities and trust distributions, if and when SCE pays dividends on the related
Preference Stock.
In July 2017, SCE Trust I redeemed $475 million of trust securities from the public and $10,000 of common stock from SCE.
As a result in September 2017, SCE Trust I was terminated. The Trust II, Trust III, Trust IV, and Trust V balance sheets as of
December 31, 2017 and 2016, consisted of investments of $400 million, $275 million, $325 million, and $300 million in the
Series G, Series H, Series J, and Series K Preference Stock, respectively, $400 million, $275 million, $325 million, and
$300 million of trust securities, respectively, and $10,000 each of common stock. The Trust VI balance sheet as of
December 31, 2017 consisted of investments of $475 million in the Series L Preference Stock, $475 million of trust
securities, and $10,000 of common stock.
The following table provides a summary of the trusts' income statements:
(in millions)
2017
Dividend income
Dividend distributions
2016
Dividend income
Dividend distributions
2015
Dividend income
Dividend distributions
* Not applicable
Trust I
Trust II
Trust III
Trust IV
Trust V
Trust VI
Years ended December 31,
$
$
$
$
$
$
14
14
27
27
27
27
$
$
$
20
20
20
20
20
20
$
$
$
16
16
16
16
16
16
$
$
17
17
17
17
6
6
$
16
16
13
13
*
*
12
12
*
*
*
*
66
Note 4.
Fair Value Measurements
Recurring Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date (referred to as an "exit price"). Fair value of an asset or liability
considers assumptions that market participants would use in pricing the asset or liability, including assumptions about
nonperformance risk. As of December 31, 2017 and 2016, nonperformance risk was not material for Edison International and
SCE.
Assets and liabilities are categorized into a three-level fair value hierarchy based on valuation inputs used to determine fair
value.
Level 1 – The fair value of Edison International's and SCE's Level 1 assets and liabilities is determined using unadjusted
quoted prices in active markets that are available at the measurement date for identical assets and liabilities. This level
includes exchange-traded equity securities, U.S. treasury securities, mutual funds and money market funds.
Level 2 – Edison International's and SCE's Level 2 assets and liabilities include fixed income securities, primarily consisting
of U.S. government and agency bonds, municipal bonds and corporate bonds, and over-the-counter derivatives. The fair value
of fixed income securities is determined using a market approach by obtaining quoted prices for similar assets and liabilities
in active markets and inputs that are observable, either directly or indirectly, for substantially the full term of the instrument.
The fair value of SCE's over-the-counter derivative contracts is determined using an income approach. SCE uses standard
pricing models to determine the net present value of estimated future cash flows. Inputs to the pricing models include forward
published or posted clearing prices from exchanges (New York Mercantile Exchange and Intercontinental Exchange) for
similar instruments and discount rates. A primary price source that best represents trade activity for each market is used to
develop observable forward market prices in determining the fair value of these positions. Broker quotes, prices from
exchanges or comparison to executed trades are used to validate and corroborate the primary price source. These price
quotations reflect mid-market prices (average of bid and ask) and are obtained from sources believed to provide the most
liquid market for the commodity.
Level 3 – The fair value of SCE's Level 3 assets and liabilities is determined using the income approach through various
models and techniques that require significant unobservable inputs. This level includes derivative contracts that trade
infrequently such as congestion revenue rights ("CRRs"). Edison International Parent and Other does not have any Level 3
assets and liabilities.
Assumptions are made in order to value derivative contracts in which observable inputs are not available. In circumstances
where fair value cannot be verified with observable market transactions, it is possible that a different valuation model could
produce a materially different estimate of fair value. Modeling methodologies, inputs and techniques are reviewed and
assessed as markets continue to develop and more pricing information becomes available and the fair value is adjusted when
it is concluded that a change in inputs or techniques would result in a new valuation that better reflects the fair value of those
derivative contracts. See Note 6 for a discussion of derivative instruments.
67
SCE
The following table sets forth assets and liabilities of SCE that were accounted for at fair value by level within the fair value
hierarchy:
(in millions)
Assets at fair value
Derivative contracts
Money market funds and other
Nuclear decommissioning trusts:
Stocks2
Fixed Income3
Short-term investments, primarily cash
equivalents
Subtotal of nuclear decommissioning trusts4
Total assets
Liabilities at fair value
Derivative contracts
Total liabilities
Net assets
(in millions)
Assets at fair value
Derivative contracts
Other
Nuclear decommissioning trusts:
Stocks2
Fixed Income3
Short-term investments, primarily cash
equivalents
Subtotal of nuclear decommissioning trusts4
Total assets
Liabilities at fair value
Derivative contracts
Total liabilities
Net assets (liabilities)
December 31, 2017
Level 1
Level 2
Level 3
Netting
and
Collateral1
Total
$
— $
495
1,596
1,065
101
2,762
3,257
—
—
$
9
—
—
1,665
72
1,737
1,746
2
2
$
102
—
—
—
—
—
102
1
1
$
3,257
$
1,744
$
101
$
(1)
—
—
—
—
—
(1)
(2)
(2)
1
$
110
495
1,596
2,730
173
4,499
5,104
1
1
$
5,103
December 31, 2016
Level 1
Level 2
Level 3
Netting
and
Collateral1
Total
$
— $
33
1,547
865
36
2,448
2,481
—
—
$
6
—
—
1,751
170
1,921
1,927
—
—
$
2,481
$
1,927
$
68
—
—
—
—
—
68
1,157
1,157
(1,089)
$
— $
—
—
—
—
—
—
—
—
$
— $
74
33
1,547
2,616
206
4,369
4,476
1,157
1,157
3,319
1 Represents the netting of assets and liabilities under master netting agreements and cash collateral across the levels of the fair value
hierarchy. Netting among positions classified within the same level is included in that level.
2 Approximately 69% and 70% of SCE's equity investments were located in the United States at December 31, 2017 and 2016,
respectively.
3
Includes corporate bonds, which were diversified and included collateralized mortgage obligations and other asset backed securities of
$102 million and $79 million at December 31, 2017 and 2016, respectively.
4 Excludes net payables of $59 million and $127 million at December 31, 2017 and 2016, which consist of interest and dividend
receivables as well as receivables and payables related to SCE's pending securities sales and purchases.
68
Edison International Parent and Other
Edison International Parent and Other assets measured at fair value consisted of money market funds of $541 million and
$23 million at December 31, 2017 and 2016, respectively, classified as Level 1.
SCE Fair Value of Level 3
The following table sets forth a summary of changes in SCE's fair value of Level 3 net derivative assets and liabilities:
(in millions)
Fair value of net liabilities at beginning of period
Total realized/unrealized gains:
Included in regulatory assets and liabilities1
Contract amendment2
Normal purchase and normal sale designation3
Fair value of net assets (liabilities) at end of period
Change during the period in unrealized gains and losses related to assets and liabilities
held at the end of the period
December 31,
2017
2016
$
(1,089)
$
(1,148)
133
143
914
101
100
$
$
59
—
—
(1,089)
(70)
$
$
1 Due to regulatory mechanisms, SCE's realized and unrealized gains and losses are recorded as regulatory assets and liabilities.
2 Represents a tolling contract that was amended during the second quarter of 2017, which is no longer accounted for as a derivative
as of December 31, 2017.
3 During the third quarter of 2017, SCE designated certain derivative contracts as normal purchase and normal sale contracts, which
resulted in a reclassification of $914 million from derivative liabilities to other liabilities. These liabilities will be amortized over
the remaining contract terms.
Edison International and SCE recognize the fair value for transfers in and transfers out of each level at the end of each
reporting period. There were no material transfers between any levels during 2017 and 2016.
Valuation Techniques Used to Determine Fair Value
The process of determining fair value is the responsibility of SCE's risk management department, which reports to SCE's
chief financial officer. This department obtains observable and unobservable inputs through broker quotes, exchanges and
internal valuation techniques that use both standard and proprietary models to determine fair value. Each reporting period, the
risk and finance departments collaborate to determine the appropriate fair value methodologies and classifications for each
derivative. Inputs are validated for reasonableness by comparison against prior prices, other broker quotes and volatility
fluctuation thresholds. Inputs used and valuations are reviewed period-over-period and compared with market conditions to
determine reasonableness.
69
The following table sets forth SCE's valuation techniques and significant unobservable inputs used to determine fair value for
significant Level 3 assets and liabilities:
Fair Value (in millions)
Significant
Assets
Liabilities
Valuation Technique(s)
Unobservable Input
Range
Congestion revenue rights
December 31, 2017
$
102
$
—
Market simulation model
and auction prices
December 31, 2016
67
Market simulation model
and auction prices
—
Load forecast
Power prices1
Gas prices2
CAISO CRR auction
clearing prices
Load forecast
Power prices1
Gas prices2
Tolling3
December 31, 2016
—
1,154 Option model
Volatility of gas prices
Volatility of power prices
Power prices
1 Prices are in dollars per megawatt-hour.
2 Prices are in dollars per million British thermal units.
5,002 MW - 22,970 MW
$(15.00) - $120.00
$2.46 - $4.37
$(9.41) - $8.66
3,708 MW - 22,840 MW
$3.65 - $99.58
$2.51 - $4.87
15% - 48%
29% - 71%
$23.40 - $51.24
3 During the third quarter of 2017, SCE designated certain derivative contracts as normal purchase and normal sale contracts, which
resulted in a reclassification of $914 million from derivative liabilities to other liabilities. These liabilities will be amortized over
the remaining contract terms.
Level 3 Fair Value Sensitivity
Congestion Revenue Rights
For CRRs, where SCE is the buyer, generally increases (decreases) in forecasted load in isolation would result in increases
(decreases) to the fair value. In general, an increase (decrease) in electricity and gas prices at illiquid locations tends to result
in increases (decreases) to fair value; however, changes in electricity and gas prices in opposite directions may have varying
results on fair value.
Nuclear Decommissioning Trusts
SCE's nuclear decommissioning trust investments include equity securities, U.S. treasury securities and other fixed income
securities. Equity and treasury securities are classified as Level 1 as fair value is determined by observable market prices in
active or highly liquid and transparent markets. The remaining fixed income securities are classified as Level 2. The fair
value of these financial instruments is based on evaluated prices that reflect significant observable market information such as
reported trades, actual trade information of similar securities, benchmark yields, broker/dealer quotes, issuer spreads, bids,
offers and relevant credit information. There are no securities classified as Level 3 in the nuclear decommissioning trusts.
SCE's investment policies and CPUC requirements place limitations on the types and investment grade ratings of the
securities that may be held by the nuclear decommissioning trust funds. These policies restrict the trust funds from holding
alternative investments and limit the trust funds' exposures to investments in highly illiquid markets. With respect to equity
and fixed income securities, the trustee obtains prices from third-party pricing services which SCE is able to independently
corroborate as described below. The trustee monitors prices supplied by pricing services, including reviewing prices against
defined parameters' tolerances and performs research and resolves variances beyond the set parameters. SCE corroborates the
fair values of securities by comparison to other market-based price sources obtained by SCE's investment managers.
Differences outside established thresholds are followed-up with the trustee and resolved. For each reporting period, SCE
reviews the trustee determined fair value hierarchy and overrides the trustee level classification when appropriate.
70
Fair Value of Debt Recorded at Carrying Value
The carrying value and fair value of Edison International's and SCE's long-term debt (including current portion of long-term
debt) are as follows:
(in millions)
Edison International
SCE
1 Carrying value is net of debt issuance costs.
December 31, 2017
December 31, 2016
Carrying
Value1
Fair
Value
Carrying
Value1
Fair
Value
$
$
12,123
10,907
$
13,760
12,547
$
11,156
10,333
12,368
11,539
The fair value of Edison International's and SCE's short-term and long-term debt is classified as Level 2 and is based on
evaluated prices that reflect significant observable market information such as reported trades, actual trade information of
similar securities, benchmark yields, broker/dealer quotes of new issue prices and relevant credit information.
The carrying value of Edison International's and SCE's trade receivables and payables, other investments, and short-term debt
approximates fair value.
Note 5. Debt and Credit Agreements
Long-Term Debt
The following table summarizes long-term debt (rates and terms are as of December 31, 2017) of Edison International and
SCE:
(in millions)
Edison International Parent and Other:
Debentures and notes:
2020 – 2023 (2.125% to 2.95%)
Other long-term debt
Current portion of long-term debt
Unamortized debt discount and issuance costs, net
Total Edison International Parent and Other
SCE:
First and refunding mortgage bonds:
2018 – 2047 (1.845% to 6.05%)
Pollution-control bonds:
2028 – 2035 (1.375% to 5.0%)1
Debentures and notes:
2029 – 2053 (5.06% to 6.65%)
Current portion of long-term debt
Unamortized debt discount and issuance costs, net
Total SCE
Total Edison International
December 31,
2017
2016
$
$
1,200
29
(2)
(13)
1,214
9,779
909
307
(479)
(88)
10,428
11,642
$
$
800
32
(402)
(9)
421
9,357
774
307
(579)
(105)
9,754
10,175
1 Excludes outstanding bonds that have not been retired and may be remarketed to investors in the future. These
bonds have variable rates and are due in 2031 at December 31, 2017 and 2031 and 2033 at December 31, 2016.
71
Edison International and SCE long-term debt maturities over the next five years are the following:
(in millions)
2018
2019
2020
2021
2022
Project Financings
$
Edison
International
481
81
481
580
777
SCE
$
479
79
79
579
364
As of December 31, 2017 and 2016, indirect subsidiaries of Edison Energy Group owning solar projects had approximately
$31 million (includes short-term debt of $16 million) and $22 million outstanding project debt financings with maturity dates
to 2022 with weighted average interest rates of 4.50% and 4.86%. Remaining borrowings available under these agreements
are approximately $67 million.
Under two of the tax equity financings, tax equity investors in related solar projects receive 99% of taxable profits and losses
and tax credits of the projects as determined for federal income tax purposes for a 6-year period following the completion of
the portfolio of projects and receive a priority return of 2% of their investment per year. After the 6-year period, the tax equity
investors receive 5% of the taxable profits and losses and cash flow. A subsidiary of Edison Energy Group has a call option
for a 9-month period following 5 years after completion of the portfolio of projects to purchase the tax equity investors
interest and each tax equity investor has the right to put its ownership interest to such subsidiary in the event that the call
option is not exercised. Remaining tax equity financings under these agreements are approximately $21 million.
Under a third tax equity financing completed in 2017, the tax equity investor in the related solar projects will receive an
initial allocation of 99% of taxable losses and tax credits, followed by 67% of taxable income and losses after the initial
period and 28.4% of cash flows until certain conditions are met, including attaining a specified rate of return. A subsidiary of
Edison Energy Group has the option after certain conditions are met to purchase the tax equity investor's interest at the higher
of fair value or the after-tax amount necessary to achieve a specified 20-year rate of return. Remaining tax equity financings
under these agreements are approximately $38 million.
An indirect subsidiary of Edison Energy Group also entered into a non-recourse debt financing to support equity
contributions in certain solar projects. The maturity date of the borrowings under this agreement is December 31, 2036. As of
December 31, 2017 and 2016, there was $10 million outstanding under this agreement at a weighted average interest rate of
9%.
Liens and Security Interests
Almost all of SCE's properties are subject to a trust indenture lien. SCE has pledged first and refunding mortgage bonds as
collateral for borrowed funds obtained from pollution-control bonds issued by government agencies. SCE has a debt
covenant that requires a debt to total capitalization ratio be met. At December 31, 2017, SCE was in compliance with this
debt covenant and all other financial covenants that affect access to capital.
All of the properties subject to the Edison Energy Group project financings discussed above are subject to a lien.
Credit Agreements and Short-Term Debt
The following table summarizes the status of the credit facilities at December 31, 2017:
(in millions)
Commitment
Outstanding borrowings
Outstanding letters of credit
Amount available
Edison
International
Parent
$
$
$
1,250
(1,139)
—
111
$
SCE
2,750
(1,238)
(99)
1,413
72
SCE and Edison International Parent have multi-year revolving credit facilities of $2.75 billion and $1.25 billion,
respectively, with both maturing in July 2022. SCE's credit facility is generally used to support commercial paper borrowings
and letters of credit issued for procurement-related collateral requirements, balancing account undercollections and for
general corporate purposes, including working capital requirements to support operations and capital expenditures. Edison
International Parent's credit facility is used to support commercial paper borrowings and for general corporate purposes.
At December 31, 2017, commercial paper supported by SCE's credit facility, net of discount, was $738 million at a weighted-
average interest rate of 1.75%. In December 2017, SCE borrowed $500 million from the credit facility which had an interest
rate of 2.46% on December 31, 2017. In January 2018, SCE repaid its $500 million borrowings with cash on hand.
At December 31, 2017, letters of credit issued under SCE's credit facility aggregated $99 million and are scheduled to expire
in twelve months or less. At December 31, 2016, the outstanding commercial paper, net of discount, was $769 million at a
weighted-average interest rate of 0.9%.
At December 31, 2017, Edison International Parent's outstanding commercial paper, net of discount, was $639 million at a
weighted-average interest rate of 1.70%. This commercial paper was supported by the $1.25 billion multi-year revolving
credit facility. In December 2017, Edison International borrowed $500 million from the credit facility which had an interest
rate of 2.56% on December 31, 2017. In January 2018, Edison International repaid its $500 million borrowings with cash on
hand. At December 31, 2016, the outstanding commercial paper, net of discount, was $538 million at a weighted-average
interest rate of 0.97%.
Debt Financing Subsequent to December 31, 2017
In January 2018, Edison International Parent borrowed $500 million under a Term Loan Agreement due in January 2019,
with a variable interest rate based on the London Interbank Offered Rate plus 60 basis points. The proceeds were used to
repay Edison International Parent's commercial paper borrowings discussed above.
Note 6. Derivative Instruments
Derivative financial instruments are used to manage exposure to commodity price risk. These risks are managed in part by
entering into forward commodity transactions, including options, swaps and futures. To mitigate credit risk from
counterparties in the event of nonperformance, master netting agreements are used whenever possible and counterparties may
be required to pledge collateral depending on the creditworthiness of each counterparty and the risk associated with the
transaction.
Commodity Price Risk
Commodity price risk represents the potential impact that can be caused by a change in the market value of a particular
commodity. SCE's electricity price exposure arises from energy purchased from and sold to wholesale markets as a result of
differences between SCE's load requirements and the amount of energy delivered from its generating facilities and PPAs.
SCE's natural gas price exposure arises from natural gas purchased for the Mountainview power plant and peaker plants, QF
contracts where pricing is based on a monthly natural gas index and PPAs in which SCE has agreed to provide the natural gas
needed for generation, referred to as tolling arrangements.
Credit and Default Risk
Credit and default risk represent the potential impact that can be caused if a counterparty were to default on its contractual
obligations and SCE would be exposed to spot markets for buying replacement power or selling excess power. In addition,
SCE would be exposed to the risk of non-payment of accounts receivable, primarily related to the sales of excess power and
realized gains on derivative instruments.
Certain power contracts contain master netting agreements or similar agreements, which generally allow counterparties
subject to the agreement to offset amounts when certain criteria are met, such as in the event of default. The objective of
netting is to reduce credit exposure. Additionally, to reduce SCE's risk exposures counterparties may be required to pledge
collateral depending on the creditworthiness of each counterparty and the risk associated with the transaction.
Certain power contracts contain a provision that requires SCE to maintain an investment grade rating from each of the major
credit rating agencies, referred to as a credit-risk-related contingent feature. If SCE's credit rating were to fall below
investment grade, SCE may be required to post additional collateral to cover derivative liabilities and the related outstanding
payables. The net fair value of all derivative liabilities with these credit-risk-related contingent features was $1 million and
$12 million as of December 31, 2017 and 2016, respectively, for which SCE has posted collateral of less than $1 million and
$12 million collateral to its counterparties at the respective dates for its derivative liabilities and related outstanding payables.
73
If the credit-risk-related contingent features underlying these agreements were triggered on December 31, 2017, SCE would
be required to post $20 million of additional collateral of which $19 million is related to outstanding payables that are net of
collateral already posted.
Fair Value of Derivative Instruments
SCE presents its derivative assets and liabilities on a net basis on its consolidated balance sheets when subject to master
netting agreements or similar agreements. Derivative positions are offset against margin and cash collateral deposits. In
addition, SCE has provided collateral in the form of letters of credit. Collateral requirements can vary depending upon the
level of unsecured credit extended by counterparties, changes in market prices relative to contractual commitments and other
factors. See Note 4 for a discussion of fair value of derivative instruments. The following table summarizes the gross and net
fair values of SCE's commodity derivative instruments:
(in millions)
Short-Term Long-Term
Subtotal
Short-Term Long-Term
Subtotal2
Net Asset
December 31, 2017
Derivative Assets
Derivative Liabilities
Commodity derivative contracts
Gross amounts recognized
Gross amounts offset in the
consolidated balance
sheets
Cash collateral posted1
Net amounts presented in the
consolidated balance sheets
$
106
$
5
$
111
$
3
$
— $
3
$
108
(1)
—
—
—
(1)
—
(1)
(1)
—
—
(1)
(1)
—
1
$
105
$
5
$
110
$
1
$
— $
1
$
109
(in millions)
Short-Term Long-Term
Subtotal
Short-Term Long-Term
Subtotal
December 31, 2016
Derivative Assets
Derivative Liabilities
Net
Liability
Commodity derivative contracts
Gross amounts recognized
Gross amounts offset in the
consolidated balance
sheets
Cash collateral posted1
Net amounts presented in the
consolidated balance sheets
$
74
$
1
$
75
$
217
$
941
$
1,158
$
1,083
(1)
—
—
—
(1)
—
(1)
—
—
—
(1)
—
—
—
$
73
$
1
$
74
$
216
$
941
$
1,157
$
1,083
1 At December 31, 2016, SCE had received $2 million of cash collateral that is not offset against derivative assets and is reflected in
"Other current liabilities" on the consolidated balance sheets.
2 During the third quarter of 2017, SCE designated certain derivative contracts as normal purchase and normal sale contracts, which
resulted in a reclassification of $914 million from derivative liabilities to other liabilities. These liabilities will be amortized over the
remaining contract terms.
Income Statement Impact of Derivative Instruments
SCE recognizes realized gains and losses on derivative instruments as purchased power expense and expects that such gains
or losses will be part of the purchased power costs recovered from customers. As a result, realized gains and losses do not
affect earnings, but may temporarily affect cash flows. Due to expected future recovery from customers, unrealized gains and
losses are recorded as regulatory assets and liabilities and therefore also do not affect earnings. The remaining effects of
derivative activities and related regulatory offsets are reported in cash flows from operating activities in the consolidated
statements of cash flows.
74
The following table summarizes the components of SCE's economic hedging activity:
(in millions)
Realized losses
Unrealized gains (losses)
Notional Volumes of Derivative Instruments
Years ended December 31,
2017
2016
2015
$
$
(14)
106
$
(59)
84
(148)
(182)
The following table summarizes the notional volumes of derivatives used for SCE hedging activities:
Commodity
Electricity options, swaps and forwards
Natural gas options, swaps and forwards
Congestion revenue rights
Tolling arrangements
Note 7.
Income Taxes
Current and Deferred Taxes
Unit of
Measure
GWh
Bcf
GWh
GWh
Economic Hedges
December 31,
2017
2016
475
143
78,765
—
1,816
36
93,319
61,093
Edison International's sources of income before income taxes are:
(in millions)
Income from continuing operations before income taxes
Income from discontinued operations before income taxes
Income before income tax
Years ended December 31,
2017
2016
2015
$
$
949
—
949
$
$
1,590
1
1,591
$
$
1,568
15
1,583
The components of income tax expense (benefit) by location of taxing jurisdiction are:
(in millions)
Current:
Federal
State
Deferred:
Federal
State
Total continuing operations
Discontinued operations
Total
Edison International
2017
2016
2015
2017
Years ended December 31,
SCE
2016
2015
$
$
18
19
37
340
109
449
486
(21)
465
$
$
(253)
(81)
(334)
265
39
304
(30)
—
(30)
$
$
75
93
168
112
(24)
88
256
—
256
$
$
72
127
199
298
10
308
507
—
507
$
$
(221)
4
(217)
570
(72)
498
281
—
281
$
$
(46)
33
(13)
176
14
190
177
(11)
166
75
The components of net accumulated deferred income tax liability are:
(in millions)
Deferred tax assets:
Property and software related
Nuclear decommissioning trust assets in excess of
nuclear ARO liability
Loss and credit carryforwards1
Regulatory asset2
Pension and postretirement benefits other than
pensions
Other
Sub-total
Less valuation allowance
Total
Deferred tax liabilities:
Property-related
Capitalized software costs
Regulatory liability
Nuclear decommissioning trust assets
Postretirement benefits other than pensions
Other
Total
Accumulated deferred income tax liability, net3
$
Edison International
SCE
December 31,
2017
2016
2017
2016
$
358
$
549
$
357
$
404
1,346
812
214
277
3,411
28
3,383
6,970
160
158
404
36
140
7,868
4,485
$
348
1,418
15
300
419
3,049
24
3,025
10,330
237
134
348
13
202
11,264
8,239
$
404
150
812
86
236
2,045
—
2,045
6,962
160
158
404
36
133
7,853
5,808
$
548
348
—
15
93
408
1,412
—
1,412
10,330
237
134
348
13
148
11,210
9,798
1 As of December 31, 2017, Edison International has recorded a valuation allowance of $28 million for non-California state net operating
loss carryforwards estimated to expire unused. In addition, as of December 31, 2017, deferred tax assets for net operating loss and tax
credit carryforwards are reduced by unrecognized tax benefits of $77 million and $75 million for Edison International and SCE,
respectively.
2 Includes an $809 million deferred tax asset, related to certain regulatory liabilities established as part of Tax Reform discussed below.
3
Included in deferred income taxes and credits on the consolidated balance sheets.
On December 22, 2017, Tax Reform was signed into law. This comprehensive reform of tax law reduces the federal corporate
income tax rate from 35% to 21% and is generally effective beginning January 1, 2018. US GAAP requires deferred tax assets
and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled.
At the date of enactment, Edison International and SCE's deferred taxes were re-measured based upon the new tax rate.
Accumulated deferred income tax liabilities, net, were reduced by $4.5 billion and $5.0 billion at Edison International and
SCE, respectively. Edison International recorded income tax expense of $466 million at December 31, 2017, primarily related
to the re-measurement of the federal net operating loss carryforwards (see below for more information). SCE's re-
measurement of deferred taxes was recorded against regulatory assets and liabilities when the pre-tax amounts giving rise to
the deferred taxes were created through ratemaking activities. SCE also had shareholder-funded pre-tax amounts that gave rise
to the deferred tax assets resulting in income tax expense of $33 million.
For property acquired and placed in service by regulated utilities after September 27, 2017, Tax Reform repeals 50% bonus
depreciation. As a result, SCE is required to evaluate the contractual terms of its fourth quarter 2017 capital additions to
determine whether they still qualify for the prior tax law's 50% bonus depreciation, as compared to no bonus depreciation
pursuant to Tax Reform. As of December 31, 2017, SCE has not completed this analysis, but recorded a reasonable estimate of
the effects of these changes. SCE expects to complete this analysis during 2018.
76
Net Operating Loss and Tax Credit Carryforwards
The amounts of net operating loss and tax credit carryforwards (after-tax) are as follows:
(in millions)
Expire between 2018 to 2036
No expiration date
Total1
Edison International
SCE
December 31, 2017
Loss
Carryforwards
Credit
Carryforwards
Loss
Carryforwards
Credit
Carryforwards
$
$
901
—
901
$
$
451
71
522
$
$
162
—
162
$
$
25
38
63
As a result of Tax Reform, Edison International and SCE's federal net operating losses were re-measured at 21%. The
reduction in the federal corporate income tax rate does not change the gross dollar value of taxable income that may be offset
by NOLs, however that taxable income will only be taxable at 21% in future periods, thus reducing the value of NOLs utilized
after 2017. Tax Reform did not impact the valuation of tax credit carryforwards, which directly offset taxes due.
Edison International consolidates for federal income tax purposes, but not for financial accounting purposes, a group of wind
projects referred to as Capistrano Wind. As a result of Tax Reform, the amount of net operating loss and tax credit
carryforwards recognized as part of deferred income taxes was re-measured ($199 million and $242 million related to
Capistrano Wind at December 31, 2017 and 2016, respectively). Under a tax allocation agreement, Edison International has
recorded a corresponding liability, which was also re-measured, as part of other long-term liabilities related to its obligation to
make payments to Capistrano Wind of these tax benefits when realized.
Effective Tax Rate
The table below provides a reconciliation of income tax expense computed at the federal statutory income tax rate to the
income tax provision:
(in millions)
Income from continuing operations
Edison International
SCE
Years ended December 31,
2017
2016
2015
2017
2016
2015
before income taxes
$
949
$
1,590
$
1,568
$ 1,106
$
1,755
$
1,618
332
556
549
387
614
566
Provision for income tax at federal
statutory rate of 35%
Increase in income tax from:
Items presented with related state
income tax, net:
Regulatory asset write-off1
State tax, net of federal benefit
Property-related2
Change related to uncertain tax
Revised San Onofre Settlement
Agreement3
Share-based compensation4
Deferred tax re-measurement5
Other
Total income tax expense
(income)from continuing
operations
Effective tax rate
1 Includes federal and state.
positions
(18 )
(4 )
(67 )
(13 )
—
2
(439 )
—
29
(362 )
382
5
(341 )
—
8
(439 )
25
(55 )
466
(32 )
—
(28 )
—
(14 )
—
—
—
(42 )
25
(11 )
33
(20 )
—
43
(362 )
(8 )
—
(13 )
—
(18 )
382
34
(341 )
(94 )
—
—
—
(40 )
$
281
$
177
$
486
$
(30 )
$
256
$
507
29.6 %
11.1 %
31.0 %
(2.7 )%
14.6 %
31.3 %
2
Includes incremental repair benefits. See discussion of repair deductions below. In addition, during 2017, SCE recorded $80 million
($135 million pre-tax) of tax benefits related to tax accounting method changes resulting from the filing of SCE's 2016 tax returns.
77
3 Includes the write-off of an unrecovered tax regulatory asset related to the Revised San Onofre Settlement Agreement. See Note 11 for
further information.
4
5
Includes state taxes of $(11) million and $(2) million for Edison International and SCE, respectively, for the year ended December 31,
2017. Includes state taxes of $(4) million and $(1) million for Edison International and SCE, respectively, for the year ended
December 31, 2016. Refer to Note 1 for further information.
In 2017, Edison International and SCE recorded a charge to earnings related to the re-measurement of deferred taxes resulting from Tax
Reform. See further discussion above.
The CPUC requires flow-through ratemaking treatment for the current tax benefit arising from certain property-related and
other temporary differences which reverse over time. Flow-through items reduce current authorized revenue requirements in
SCE's rate cases and result in a regulatory asset for recovery of deferred income taxes in future periods. The difference
between the authorized amounts as determined in SCE's rate cases, adjusted for balancing and memorandum account
activities, and the recorded flow-through items also result in increases or decreases in regulatory assets with a corresponding
impact on the effective tax rate to the extent that recorded deferred amounts are expected to be recovered in future rates. For
further information, see Note 10.
Repair Deductions
Edison International made voluntary elections in 2009 and 2011 to change its tax accounting method for certain tax repair
costs incurred on SCE's transmission, distribution and generation assets. Incremental repair deductions represent amounts
recognized for regulatory accounting purposes in excess of amounts included in the authorized revenue requirements through
the general rate case ("GRC") proceedings.
As part of the final decision in SCE's 2015 GRC, the CPUC adopted a rate base offset associated with the incremental tax
repair deductions during 2012 – 2014. The 2015 rate base offset is $324 million and amortizes on a straight line basis over
27 years. As a result of the rate base offset included in the final decision, SCE recorded an after tax charge of $382 million in
2015 to write down the net regulatory asset for recovery of deferred income taxes related to 2012 – 2014 incremental tax
repair deductions which is reflected in "Income tax expense" on the consolidated statements of income. The amount of tax
repair deductions the CPUC used to establish the rate base offset was based on SCE's forecast of 2012 – 2014 tax repair
deductions from the Notice of Intent filed in the 2015 GRC. The amount of tax repair deductions included in the Notice of
Intent was less than the actual tax repair deductions SCE reported on its 2012 through 2014 income tax returns. In April 2016,
the CPUC granted SCE's request to reduce SCE's base revenue requirement balancing account ("BRRBA") by $234 million in
future periods subject to the timing and final outcome of audits that may be conducted by tax authorities. The refunds resulted
in flowing incremental tax benefits for 2012 – 2014 to customers. SCE refunded $133 million ($79 million after-tax) during
the second quarter of 2016. SCE did not record a gain or loss from this reduction. Regulatory assets recorded from flow
through tax benefits are recovered through SCE's GRC proceedings.
Accounting for Uncertainty in Income Taxes
Authoritative guidance related to accounting for uncertainty in income taxes requires an enterprise to recognize, in its financial
statements, the best estimate of the impact of a tax position by determining if the weight of the available evidence indicates it
is more likely than not, based solely on the technical merits, that the position will be sustained upon examination. The
guidance requires the disclosure of all unrecognized tax benefits, which includes both the reserves recorded for tax positions
on filed tax returns and the unrecognized portion of affirmative claims.
78
Unrecognized Tax Benefits
The following table provides a reconciliation of unrecognized tax benefits for continuing and discontinued operations:
(in millions)
2017
2016
2015
2017
2016
2015
Balance at January 1,
$
471
$
529
$
576
$
371
$
353
$
441
Edison International
SCE
December 31,
Tax positions taken during the
current year:
Increases
Tax positions taken during a prior
year:
Increases
Decreases1
Decreases for settlements during
the period2
Balance at December 31,
$
51
36
54
51
36
48
—
(7)
(83)
432
$
2
(96)
—
471
66
(165)
(2)
529
$
$
—
(13)
(78)
331
$
—
(18)
—
371
$
23
(159)
—
353
1 Decreases in prior year tax positions for 2016 relate to state tax receivables on various claims. Due to the tax risks associated with these
claims, the tax benefits were fully reserved at the time the asset was recorded. During 2016, the Company has determined that it will not
recognize these assets so the tax benefit and related tax reserve were written off. Decreases in tax positions for 2015 relate primarily to
re-measurement of uncertain tax positions in connection with receipt of the Internal Revenue Service ("IRS") Revenue Agent Report in
June 2015. See discussions in Tax Disputes below.
2
In the first quarter of 2017, Edison International settled all open tax positions with the IRS for taxable years 2007 through 2012.
As of December 31, 2017 and 2016, if recognized, $308 million and $347 million, respectively, of the unrecognized tax
benefits would impact Edison International's effective tax rate; and $167 million and $243 million, respectively, of the
unrecognized tax benefits would impact SCE's effective tax rate.
Tax Disputes
In the first quarter of 2017, Edison International resolved all open tax positions with the IRS for taxable years 2007 through
2012. Edison International has previously made cash deposits to cover the estimated tax and interest liability from this audit
cycle and expects a $7 million refund of this deposited amount.
Tax years that remain open for examination by the IRS and the California Franchise Tax Board are 2014 – 2016 and 2010 –
2016 respectively. Edison International has settled all open tax position with the IRS for taxable years prior to 2013.
Tax years 1994 – 2006 are currently in settlement negotiations with the California Franchise Tax Board. While we expect to
resolve these tax years within the next twelve months, the impacts cannot be reasonably estimated until further progress has
been made. Tax years 2007 – 2009 are currently under protest with the California Franchise Tax Board.
79
Accrued Interest and Penalties
The total amount of accrued interest and penalties related to income tax liabilities for continuing and discontinued operations
are:
(in millions)
Accrued interest and penalties
Edison International
SCE
2017
Years ended December 31,
2016
2017
2016
$
115
$
128
$
41
$
41
The net after-tax interest and penalties recognized in income tax expense for continuing and discontinued operations are:
(in millions)
2017
2016
2015
2017
Edison International
December 31,
SCE
2016
2015
Net after-tax interest and penalties
tax expense (benefit)
$
6
$
6
$
(9)
$
4
$
2
$
(14)
Note 8. Compensation and Benefit Plans
Employee Savings Plan
The 401(k) defined contribution savings plan is designed to supplement employees' retirement income. The following
employer contributions were made for continuing operations:
(in millions)
2017
2016
2015
Edison
International
SCE
Years ended December 31,
$
$
70
69
73
69
68
72
Pension Plans and Postretirement Benefits Other Than Pensions
Pension Plans
Noncontributory defined benefit pension plans (some with cash balance features) cover most employees meeting minimum
service requirements. SCE recognizes pension expense for its nonexecutive plan as calculated by the actuarial method used
for ratemaking. The expected contributions (all by the employer) for Edison International and SCE are approximately
$66 million and $50 million, respectively, for the year ending December 31, 2018. Annual contributions made by SCE to
most of SCE's pension plans are anticipated to be recovered through CPUC-approved regulatory mechanisms.
The funded position of Edison International's pension is sensitive to changes in market conditions. Changes in overall interest
rate levels significantly affect the company's liabilities, while assets held in the various trusts established to fund Edison
International's pension are affected by movements in the equity and bond markets. Due to SCE's regulatory recovery
treatment, a regulatory asset has been recorded equal to the unfunded status (See Note 10).
80
Information on pension plan assets and benefit obligations for continuing and discontinued operations is shown below.
(in millions)
Change in projected benefit obligation
Projected benefit obligation at beginning of year
Service cost
Interest cost
Actuarial gain
Benefits paid
Projected benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Benefits paid
Fair value of plan assets at end of year
Funded status at end of year
Amounts recognized in the consolidated balance sheets consist of 1:
Long-term assets
Current liabilities
Long-term liabilities
Amounts recognized in accumulated other comprehensive loss
consist of:
Prior service cost
Net loss1
Amounts recognized as a regulatory asset
Total not yet recognized as expense
Accumulated benefit obligation at end of year
Pension plans with an accumulated benefit obligation in excess of
plan assets:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Edison International
SCE
Years ended December 31,
2017
2016
2017
2016
$
$
$
$
$
$
$
$
$
$
$
$
$
4,284
137
164
(46)
(360)
4,179
3,388
483
105
(360)
3,616
(563)
7
(17)
(553)
(563)
(1)
77
76
271
347
4,022
4,179
4,022
3,616
$
$
$
$
$
$
$
$
$
$
$
$
$
4,374
139
171
(125)
(275)
4,284
3,298
262
103
(275)
3,388
(896)
2
(50)
(848)
(896)
(1)
93
92
574
666
4,138
4,284
4,138
3,388
$
$
$
$
$
$
$
$
$
$
$
$
$
3,791
129
144
(74)
(288)
3,702
3,172
442
64
(288)
3,390
(312)
$
$
$
$
$
— $
(4)
(308)
(312)
$
— $
21
21
271
292
3,585
3,702
3,585
3,390
$
$
$
$
$
3,878
132
150
(140)
(229)
3,791
3,080
239
82
(229)
3,172
(619)
—
(4)
(615)
(619)
—
24
24
574
598
3,683
3,791
3,683
3,172
Weighted-average assumptions used to determine obligations at end
of year:
Discount rate
Rate of compensation increase
3.46%
4.10%
3.94%
4.00%
3.46%
4.10%
3.94%
4.00%
1 The SCE liability excludes a long-term payable due to Edison International Parent of $114 million and $124 million at December 31,
2017 and 2016, respectively, related to certain SCE postretirement benefit obligations transferred to Edison International Parent. SCE's
accumulated other comprehensive loss of $21 million and $24 million at December 31, 2017 and 2016, respectively, excludes net loss
of $19 million and $20 million related to these benefits.
81
Net periodic pension expense components for continuing operations are:
Edison International
SCE
Years ended December 31,
(in millions)
Service cost
Interest cost
$
Expected return on plan assets
Settlement costs1
Amortization of prior service cost
Amortization of net loss2
Expense under accounting standards
Regulatory adjustment (deferred)
Total expense recognized
$
2017
2016
2015
2017
2016
2015
138
164
(212)
6
3
21
120
(28)
92
$
139
$
142
$
133
$
136
$
172
(220)
—
4
27
122
(21)
101
$
170
(233)
—
5
40
124
(6)
118
$
149
(199)
—
3
17
103
(28)
75
$
156
(205)
—
4
23
114
(21)
93
$
$
139
155
(217)
—
5
35
117
(6)
111
1 Under GAAP, a settlement is recorded when lump-sum payments exceed estimated annual service and interest costs. Lump sum
payments made in 2017 to Edison International executives retiring in 2016 from the Executive Retirement Plan exceeded the estimated
service and interest costs, resulting in a partial settlement of that plan. A settlement loss of approximately $6.4 million ($3.8 million
after-tax) was recorded at Edison International for the year ended December 31, 2017.
2
Includes the amount of net loss reclassified from other comprehensive loss. The amount reclassified for Edison International was
$10 million, $10 million and $14 million for the years ended December 31, 2017, 2016 and 2015, respectively. The amount reclassified
for SCE was $6 million, $6 million and $8 million, respectively, for the years ended December 31, 2017, 2016 and 2015, respectively.
Other changes in pension plan assets and benefit obligations recognized in other comprehensive loss for continuing
operations:
Edison International
SCE
Years ended December 31,
(in millions)
Net loss (gain)
Settlement charges
Amortization of net loss
Total recognized in other
comprehensive loss
Total recognized in expense and
other comprehensive loss
2017
2016
2015
2017
2016
2015
$
$
$
— $
6
$
7
$
(6)
(10)
(16)
76
$
$
—
(10)
(4)
97
$
$
—
(15)
(8)
110
$
$
3
—
(6)
(3)
72
$
$
$
4
—
(6)
(2)
91
$
$
$
(9)
—
(9)
(18)
93
In accordance with authoritative guidance on rate-regulated enterprises, SCE records regulatory assets and liabilities instead
of charges and credits to other comprehensive income (loss) for the portion of SCE's postretirement benefit plans that are
recoverable in utility rates.
The estimated pension amounts that will be amortized to expense in 2018 for continuing operations are as follows:
(in millions)
Unrecognized net loss to be amortized1
Unrecognized prior service cost to be amortized
Edison
International
$
SCE
$
8
3
6
3
1 The amount of net loss expected to be reclassified from other comprehensive loss for Edison International's continuing operations and
SCE is $8 million and $6 million, respectively.
82
Edison International and SCE used the following weighted-average assumptions to determine pension expense for continuing
operations:
Discount rate
Rate of compensation increase
Expected long-term return on plan assets
Years ended December 31,
2017
2016
2015
3.94%
4.00%
6.50%
4.18%
4.00%
7.00%
3.85%
4.00%
7.00%
The following benefit payments, which reflect expected future service, are expected to be paid:
(in millions)
2018
2019
2020
2021
2022
2023 – 2027
Edison
International
SCE
Years ended December 31,
$
$
338
343
327
324
309
304
303
293
287
281
1,453
1,299
Postretirement Benefits Other Than Pensions ("PBOP(s)")
Employees hired prior to December 31, 2017 who are retiring at or after age 55 with at least 10 years of service may be
eligible for postretirement medical, dental, and vision benefits. Eligibility for a company contribution toward the cost of these
benefits in retirement depends on a number of factors, including the employee's years of service, age, hire date, and
retirement date. Under the terms of the Edison International Health and Welfare Benefit Plan ("PBOP Plan"), each
participating employer (Edison International or its participating subsidiaries) is responsible for the costs and expenses of all
PBOP Plan benefits with respect to its employees and former employees. A participating employer may terminate the PBOP
Plan benefits with respect to its employees and former employees, as may SCE (as PBOP Plan sponsor), and, accordingly, the
participants' PBOP Plan benefits are not vested benefits.
The expected contributions (substantially all of which are expected to be made by SCE) for PBOP benefits are $12 million
for the year ended December 31, 2018. Annual contributions related to SCE employees made to SCE plans are anticipated to
be recovered through CPUC-approved regulatory mechanisms and are expected to be, at a minimum, equal to the total annual
expense for these plans.
SCE has established three voluntary employee beneficiary associations trusts ("VEBA Trusts") that can only be used to pay
for retiree health care benefits of SCE. Once funded into the VEBA Trusts, neither SCE nor Edison International can
subsequently terminate benefits and recover remaining amounts in the VEBA Trusts. Participants of the PBOP Plan do not
have a beneficial interest in the VEBA Trusts. The VEBA Trust assets are sensitive to changes in market conditions. Changes
in overall interest rate levels significantly affect the company's liabilities, while assets held in the various trusts established to
fund Edison International's other postretirement benefits are affected by movements in the equity and bond markets. Due to
SCE's regulatory recovery treatment, the unfunded status is offset by a regulatory asset.
83
Information on PBOP Plan assets and benefit obligations is shown below:
(in millions)
Change in benefit obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Special termination benefits
Plan Amendments
Actuarial loss (gain)
Plan participants' contributions
Benefits paid
Benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Actual return on assets
Employer contributions
Plan participants' contributions
Benefits paid
Fair value of plan assets at end of year
Funded status at end of year
Amounts recognized in the consolidated balance sheets consist of:
Long-term assets
Current liabilities
Long-term liabilities
Amounts recognized in accumulated other comprehensive loss
consist of:
Net loss
Amounts recognized as a regulatory (liability) asset
Total not yet recognized as (income) expense
Weighted-average assumptions used to determine obligations at
end of year:
Discount rate
Assumed health care cost trend rates:
Rate assumed for following year
Ultimate rate
Year ultimate rate reached
Edison International
SCE
Years ended December 31,
2017
2016
2017
2016
$
$
$
$
$
$
$
$
$
2,276
31
86
1
—
24
24
(105)
2,337
2,102
297
12
24
(105)
2,330
(7)
6
(13)
—
(7)
4
(26)
(22)
$
$
$
$
$
$
$
$
$
2,350
35
97
2
(6)
(110)
19
(111)
2,276
2,036
137
21
19
(111)
2,102
(174)
—
(14)
(160)
(174)
4
136
140
$
$
$
$
$
$
$
$
$
2,266
31
85
1
—
23
24
(105)
2,325
2,102
297
12
24
(105)
2,330
5
17
(12)
—
5
—
(26)
(26)
$
$
$
$
$
$
$
$
$
2,341
34
97
2
(6)
(110)
19
(111)
2,266
2,036
137
21
19
(111)
2,102
(164)
—
(13)
(151)
(164)
—
136
136
3.70%
4.29%
3.70%
4.29%
6.75%
5.00%
2029
7.00%
5.00%
2022
6.75%
5.00%
2029
7.00%
5.00%
2022
84
Net periodic PBOP expense components for continuing operations are:
(in millions)
Service cost
Interest cost
Expected return on plan assets
Special termination benefits1
Amortization of prior service credit
Amortization of net loss
Total expense
Edison International
SCE
Years ended December 31,
2017
2016
2015
2017
2016
2015
$
$
31
86
(110)
1
(3)
—
5
$
35
$
46
$
31
$
34
$
97
(112)
2
(2)
—
102
(116)
1
(12)
3
85
(110)
1
(2)
—
97
(112)
2
(2)
—
$
20
$
24
$
5
$
19
$
46
102
(116)
1
(12)
2
23
1 Due to the reduction in workforce, SCE has incurred costs for extended retiree health care coverage.
In accordance with authoritative guidance on rate-regulated enterprises, SCE records regulatory assets and liabilities instead
of charges and credits to other comprehensive income (loss) for the portion of SCE's postretirement benefit plans that are
recoverable in utility rates. The estimated PBOP amounts that will be amortized to expense in 2018 for continuing operations
are as follows:
(in millions)
Unrecognized prior service credit to be amortized
Edison
International
SCE
$
(1)
$
(1)
Edison International and SCE used the following weighted-average assumptions to determine PBOP expense for continuing
operations:
Discount rate
Expected long-term return on plan assets
Assumed health care cost trend rates:
Current year
Ultimate rate
Year ultimate rate reached
Years ended December 31,
2017
2016
2015
4.29%
5.30%
7.00%
5.00%
2022
4.55%
5.60%
7.50%
5.00%
2022
4.16%
5.50%
7.75%
5.00%
2021
A one-percentage-point change in assumed health care cost trend rate would have the following effects on continuing
operations:
(in millions)
Edison International
SCE
One-
Percentage-
Point
Increase
One-
Percentage-
Point
Decrease
One-
Percentage-
Point
Increase
One-
Percentage-
Point
Decrease
Effect on accumulated benefit obligation as of December 31, 2017 $
247
$
Effect on annual aggregate service and interest costs
9
(203)
(8)
$
246
$
9
(202)
(8)
85
The following benefit payments are expected to be paid:
(in millions)
2018
2019
2020
2021
2022
2023 – 2027
Plan Assets
Edison
International
SCE
Years ended December 31,
$
$
93
96
100
103
107
582
93
96
100
103
106
580
Description of Pension and Postretirement Benefits Other than Pensions Investment Strategies
The investment of plan assets is overseen by a fiduciary investment committee. Plan assets are invested using a combination
of asset classes, and may have active and passive investment strategies within asset classes. Target allocations for 2017
pension plan assets were 29% for U.S. equities, 17% for non-U.S. equities, 35% for fixed income, 15% for opportunistic and/
or alternative investments and 4% for other investments. Target allocations for 2017 PBOP plan assets (except for
Represented VEBA which is 85% for fixed income, 5% for opportunistic/private equities, and 10% global equities) are 58%
for global equities, 29% for fixed income, and 13% for opportunistic and/or alternative investments. Edison International
employs multiple investment management firms. Investment managers within each asset class cover a range of investment
styles and approaches. Risk is managed through diversification among multiple asset classes, managers, styles and securities.
Plan asset classes and individual manager performances are measured against targets. Edison International also monitors the
stability of its investment managers' organizations.
Allowable investment types include:
• United States Equities: Common and preferred stocks of large, medium, and small companies which are predominantly
United States-based.
• Non-United States Equities: Equity securities issued by companies domiciled outside the United States and in depository
receipts which represent ownership of securities of non-United States companies.
• Fixed Income: Fixed income securities issued or guaranteed by the United States government, non-United States
governments, government agencies and instrumentalities including municipal bonds, mortgage backed securities and
corporate debt obligations. A portion of the fixed income positions may be held in debt securities that are below
investment grade.
Opportunistic, Alternative and Other Investments:
• Opportunistic: Investments in short to intermediate term market opportunities. Investments may have fixed income and/or
equity characteristics and may be either liquid or illiquid.
• Alternative: Limited partnerships that invest in non-publicly traded entities.
• Other: Investments diversified among multiple asset classes such as global equity, fixed income currency and
commodities markets. Investments are made in liquid instruments within and across markets. The investment returns are
expected to approximate the plans' expected investment returns.
Asset class portfolio weights are permitted to range within plus or minus 3%. Where approved by the fiduciary investment
committee, futures contracts are used for portfolio rebalancing and to reallocate portfolio cash positions. Where authorized, a
few of the plans' investment managers employ limited use of derivatives, including futures contracts, options, options on
futures and interest rate swaps in place of direct investment in securities to gain efficient exposure to markets. Derivatives are
not used to leverage the plans or any portfolios.
86
Determination of the Expected Long-Term Rate of Return on Assets
The overall expected long-term rate of return on assets assumption is based on the long-term target asset allocation for plan
assets and capital markets return forecasts for asset classes employed. A portion of the PBOP trust asset returns are subject to
taxation, so the expected long-term rate of return for these assets is determined on an after-tax basis.
Capital Markets Return Forecasts
SCE's capital markets return forecast methodologies primarily use a combination of historical market data, current market
conditions, proprietary forecasting expertise, complex models to develop asset class return forecasts and a building block
approach. The forecasts are developed using variables such as real risk-free interest, inflation, and asset class specific risk
premiums. For equities, the risk premium is based on an assumed average equity risk premium of 5% over cash. The
forecasted return on private equity and opportunistic investments are estimated at a 2% premium above public equity,
reflecting a premium for higher volatility and lower liquidity. For fixed income, the risk premium is based off of a
comprehensive modeling of credit spreads.
Fair Value of Plan Assets
The PBOP Plan and the Southern California Edison Company Retirement Plan Trust (Master Trust) assets include
investments in equity securities, U.S. treasury securities, other fixed-income securities, common/collective funds, mutual
funds, other investment entities, foreign exchange and interest rate contracts, and partnership/joint ventures. Equity securities,
U.S. treasury securities, mutual and money market funds are classified as Level 1 as fair value is determined by observable,
unadjusted quoted market prices in active or highly liquid and transparent markets. The fair value of the underlying
investments in equity mutual funds are based on stock-exchange prices. The fair value of the underlying investments in fixed-
income mutual funds and other fixed income securities including municipal bonds are based on evaluated prices that reflect
significant observable market information such as reported trades, actual trade information of similar securities, benchmark
yields, broker/dealer quotes, issuer spreads, bids, offers and relevant credit information. Foreign exchange and interest rate
contracts are classified as Level 2 because the values are based on observable prices but are not traded on an exchange.
Futures contracts trade on an exchange and therefore are classified as Level 1. Common/collective funds and partnerships are
measured at fair value using the net asset value per share ("NAV") and have not been classified in the fair value hierarchy.
Other investment entities are valued similarly to common/collective funds and are therefore classified as NAV. The Level 1
registered investment companies are either mutual or money market funds. The remaining funds in this category are readily
redeemable and classified as NAV and are discussed further at Note 8 to the pension plan master trust investments table
below.
Edison International reviews the process/procedures of both the pricing services and the trustee to gain an understanding of
the inputs/assumptions and valuation techniques used to price each asset type/class. The trustee and Edison International's
validation procedures for pension and PBOP equity and fixed income securities are the same as the nuclear decommissioning
trusts. For further discussion, see Note 4. The values of Level 1 mutual and money market funds are publicly quoted. The
trustees obtain the values of common/collective and other investment funds from the fund managers. The values of
partnerships are based on partnership valuation statements updated for cash flows. SCE's investment managers corroborate
the trustee fair values.
87
Pension Plan
The following table sets forth the Master Trust investments for Edison International and SCE that were accounted for at fair
value as of December 31, 2017 by asset class and level within the fair value hierarchy:
(in millions)
Level 1
Level 2
Level 3
NAV1
Total
U.S. government and agency securities2
$
Corporate stocks3
Corporate bonds4
Common/collective funds5
Partnerships/joint ventures6
Other investment entities7
Registered investment companies8
Interest-bearing cash
Other
Total
Receivables and payables, net
Net plan assets available for benefits
SCE's share of net plan assets
Corporate stocks3
Corporate bonds4
Common/collective funds5
Partnerships/joint ventures6
Other investment entities7
Registered investment companies8
Interest-bearing cash
Other
Total
Receivables and payables, net
Net plan assets available for benefits
SCE's share of net plan assets
$
184
718
—
—
—
—
140
9
—
507
11
676
—
—
—
—
—
106
$
— $
— $
—
—
—
—
—
—
—
—
—
—
705
396
262
—
—
—
691
729
676
705
396
262
140
9
106
$ 1,051
$ 1,300
$
— $ 1,363
$ 3,714
(98)
$ 3,616
$ 3,390
$
217
720
—
—
—
—
124
42
—
309
15
725
—
—
—
—
—
112
$
— $
— $
—
—
—
—
—
—
—
—
—
—
692
333
253
6
—
—
526
735
725
692
333
253
130
42
112
$ 1,103
$ 1,161
$
— $ 1,284
$ 3,548
(160)
$ 3,388
$ 3,172
The following table sets forth the Master Trust investments that were accounted for at fair value as of December 31, 2016 by
asset class and level within the fair value hierarchy:
(in millions)
Level 1
Level 2
Level 3
NAV1
Total
U.S. government and agency securities2
$
1 These investments are measured at fair value using the net asset value per share practical expedient and have not been classified in
the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value
hierarchy to the net plan assets available for benefits.
2 Level 1 U.S. government and agency securities are U.S. treasury bonds and notes. Level 2 primarily relates to the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation.
3 Corporate stocks are diversified. At December 31, 2017 and 2016, respectively, performance for actively managed separate
accounts is primarily benchmarked against the Russell Indexes (54%) and (62%) and Morgan Stanley Capital International
(MSCI) index (46%) and (38%).
4 Corporate bonds are diversified. At December 31, 2017 and 2016, respectively, this category includes $65 million and $76 million
for collateralized mortgage obligations and other asset backed securities of which $18 million and $27 million are below
investment grade.
88
5 At December 31, 2017 and 2016, respectively, the common/collective assets were invested in equity index funds that seek to track
performance of the Standard and Poor's 500 Index (41% and 45%) and Russell 1000 indexes (15%). At both December 31, 2017
and 2016, 15% of the assets in this category are in index funds which seek to track performance in the MSCI All Country World
Index exUS. At December 31, 2017 and 2016, a non-index U.S. equity fund representing 25% and 23% of this category for 2017
and 2016, respectively, is actively managed.
6 At both December 31, 2017 and 2016, 55% are invested in private equity funds with investment strategies that include branded
consumer products, clean technology and California geographic focus companies. At December 31, 2017 and 2016, respectively,
23% and 22% are invested in publicly traded fixed income securities, 20% and 18% are invested in a broad range of financial
assets in all global markets and 2% and 4% of the remaining partnerships are invested in asset backed securities, including
distressed mortgages and commercial and residential loans and debt and equity of banks.
7 Other investment entities were primarily invested in (1) emerging market equity securities, (2) a hedge fund that invests through
liquid instruments in a global diversified portfolio of equity, fixed income, interest rate, foreign currency and commodities
markets, and (3) domestic mortgage backed securities.
8 Level 1 registered investment companies primarily consisted of a global equity mutual fund which seeks to outperform the MSCI
World Total Return Index.
At December 31, 2017 and 2016, respectively, approximately 67% and 69% of the publicly traded equity investments,
including equities in the common/collective funds, were located in the United States.
Postretirement Benefits Other than Pensions
The following table sets forth the VEBA Trust assets for Edison International and SCE that were accounted for at fair value
as of December 31, 2017 by asset class and level within the fair value hierarchy:
(in millions)
Level 1
Level 2
Level 3
NAV1
Total
U.S. government and agency securities2
$
Corporate stocks3
Corporate notes and bonds4
Common/collective funds5
Partnerships6
Registered investment companies7
Interest bearing cash
Other8
Total
Receivables and payables, net
Combined net plan assets available for benefits
$
398
254
—
—
—
37
42
5
33
—
845
—
—
—
—
84
$
— $
— $
—
—
—
—
—
—
—
—
—
569
82
—
—
—
431
254
845
569
82
37
42
89
$
736
$
962
$
— $
651
$
$
2,349
(19)
2,330
89
The following table sets forth the VEBA Trust assets for SCE that were accounted for at fair value as of December 31, 2016
by asset class and level within the fair value hierarchy:
(in millions)
Level 1
Level 2
Level 3
NAV1
Total
U.S. government and agency securities2
$
$
— $
— $
Corporate stocks3
Corporate notes and bonds4
Common/collective funds5
Partnerships6
Registered investment companies7
Interest bearing cash
Other8
Total
Receivables and payables, net
Combined net plan assets available for benefits
$
222
230
—
—
—
48
48
4
59
—
877
—
—
—
—
103
—
—
—
—
—
—
—
—
—
462
79
1
—
—
281
230
877
462
79
49
48
107
2,133
(31)
2,102
$
$
$
552
$
1,039
$
— $
542
1 These investments are measured at fair value using the net asset value per share practical expedient and have not been classified in the
fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the
net plan assets available for benefits.
2 Level 1 U.S. government and agency securities are U.S. treasury bonds and notes. Level 2 primarily relates to the Federal Home Loan
Mortgage Corporation and the Federal National Mortgage Association.
3 Corporate stock performance for actively managed separate accounts is primarily benchmarked against the Russell Indexes (64% and
47%) and the MSCI All Country World Index (36% and 53%) for 2017 and 2016, respectively.
4 Corporate notes and bonds are diversified and include approximately $36 million and $47 million for commercial collateralized
mortgage obligations and other asset backed securities at December 31, 2017 and 2016, respectively.
5 At December 31, 2017 and 2016, respectively, 75% and 39% of the common/collective assets are invested in index funds which seek to
track performance in the MSCI All Country World Index Investable Market Index and MSCI Europe, Australasia and Far East (EAFE)
Index. 17% and 18% are invested in a non-index U.S. equity fund which is actively managed. The remaining assets in this category are
primarily invested in emerging market fund at December 31, 2017 and a large cap index fund which seeks to track performance of the
Russell 1000 index at December 31, 2016.
6 At December 31, 2017 and 2016, respectively, 56% and 59% of the partnerships are invested in private equity and venture capital
funds. Investment strategies for these funds include branded consumer products, clean and information technology and healthcare. 33%
and 31% are invested in a broad range of financial assets in all global markets. 9% of the remaining partnerships category for both years
is invested in asset backed securities including distressed mortgages, distressed companies and commercial and residential loans and
debt and equity of banks.
7 At December 31, 2017, registered investment companies were primarily invested in (1) a money market fund, (2) exchange rate trade
funds which seek to track performance of MSCI Emerging Market Index, Russell 2000 Index, and international small cap equities. At
December 31, 2016, Level 1 registered investment companies consist of a money market fund.
8 Other includes $60 million and $76 million of municipal securities at December 31, 2017 and 2016, respectively.
At December 31, 2017 and 2016, respectively, approximately 61% and 63% of the publicly traded equity investments,
including equities in the common/collective funds, were located in the United States.
Stock-Based Compensation
Edison International maintains a shareholder-approved incentive plan (the 2007 Performance Incentive Plan) that includes
stock-based compensation. The maximum number of shares of Edison International's common stock authorized to be issued
or transferred pursuant to awards under the 2007 Performance Incentive Plan, as amended, is 66 million shares, plus the
number of any shares subject to awards issued under Edison International's prior plans and outstanding as of April 26, 2007,
which expire, cancel or terminate without being exercised or shares being issued. As of December 31, 2017, Edison
International had approximately 30 million shares remaining available for new award grants under its stock-based
compensation plans.
90
The following table summarizes total expense and tax benefits (expense) associated with stock based compensation:
Edison International
2017
2016
2015
2017
Years ended December 31,
SCE
2016
2015
(in millions)
Stock-based compensation expense1:
Stock options
Performance shares
Restricted stock units
Other
Total stock-based compensation
expense
Income tax benefits related to stock
compensation expense2
$
$
Excess tax benefits2
$
14
$
2
6
1
23
72
—
$
$
14
13
6
1
34
41
—
$
14
$
7
7
1
29
12
15
$
$
$
$
$
$
$
8
2
3
—
13
15
—
$
$
$
7
6
3
—
16
20
—
8
4
4
—
16
7
23
1 Reflected in "Operation and maintenance" on Edison International's and SCE's consolidated statements of income.
2 Under new accounting guidance adopted in 2016, share-based payments may create a permanent difference between the amount of
compensation expense recognized for book and tax purposes. Beginning January 1, 2016, the excess tax impact of this permanent
difference is recognized in earnings in the period it is created.
Stock Options
Under the 2007 Performance Incentive Plan, Edison International has granted stock options at exercise prices equal to the
closing price at the grant date. Edison International may grant stock options and other awards related to, or with a value
derived from, its common stock to directors and certain employees. Options generally expire 10 years after the grant date and
vest over a period of four years of continuous service, with expense recognized evenly over the requisite service period,
except for awards granted to retirement-eligible participants, as discussed in "Stock-Based Compensation" in Note 1.
Additionally, Edison International will substitute cash awards to the extent necessary to pay tax withholding or any
government levies.
The fair value for each option granted was determined as of the grant date using the Black-Scholes option-pricing model. The
Black-Scholes option-pricing model requires various assumptions noted in the following table:
Expected terms (in years)
Risk-free interest rate
Expected dividend yield
Weighted-average expected dividend yield
Expected volatility
Weighted-average volatility
Years ended December 31,
2017
5.7
2.1% - 2.3%
2.7% - 3.8%
2.7%
2016
5.9
1.2% – 2.2%
2.5% – 3.0%
2.9%
2015
5.9
1.6% – 2.1%
2.6% – 3.2%
2.6%
17.8% - 20.9%
17.2% – 17.5%
16.4% – 17.0%
17.9%
17.4%
16.5%
The expected term represents the period of time for which the options are expected to be outstanding and is primarily based
on historical exercise and post-vesting cancellation experience and stock price history. The risk-free interest rate for periods
within the contractual life of the option is based on a zero coupon U.S. Treasury STRIPS (separate trading of registered
interest and principal of securities) whose maturity equals the option's expected term on the measurement date. Expected
volatility is based on the historical volatility of Edison International's common stock for the length of the option's expected
term for 2017. The volatility period used was 68 months, 71 months and 71 months at December 31, 2017, 2016 and 2015,
respectively.
91
The following is a summary of the status of Edison International's stock options:
Weighted-Average
Stock
options
Exercise
Price
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
(in millions)
Edison International:
Outstanding at December 31, 2016
11,544,501
$
Granted
Expired
Forfeited
Exercised
Outstanding at December 31, 2017
Vested and expected to vest at December 31, 2017
Exercisable at December 31, 2017
SCE:
Outstanding at December 31, 2016
Granted
Expired
Forfeited
Exercised
Transfers, net
Outstanding at December 31, 2017
Vested and expected to vest at December 31, 2017
1,359,599
—
(163,449)
(4,918,086)
7,822,565
7,740,798
4,241,658
4,727,416
699,538
—
(77,165)
(987,161)
83,074
4,445,702
4,402,254
$
$
Exercisable at December 31, 2017
2,555,160
$
50.26
79.23
—
69.76
43.77
58.98
58.81
50.48
51.81
79.12
—
66.27
48.63
46.47
56.46
56.28
46.94
6.37
6.35
5.09
5.99
5.96
4.52
$
$
$
$
62
58
45
43
At December 31, 2017, total unrecognized compensation cost related to stock options and the weighted-average period the
cost is expected to be recognized are as follows:
(in millions)
Unrecognized compensation cost, net of expected forfeitures
Weighted-average period (in years)
Edison
International
SCE
$
$
13
2.4
7
2.3
92
Supplemental Data on Stock Options
Edison International
SCE
Years ended December 31,
(in millions, except per award amounts)
2017
2016
2015
2017
2016
2015
Stock options:
Weighted average grant date fair
value per option granted
Fair value of options vested
Cash used to purchase shares to
settle options
Cash from participants to exercise
stock options
Value of options exercised
Tax benefits from options
exercised
Performance Shares
$
10.65
$
11
293
167
126
51
$
7.38
11
220
136
84
34
7.54
20
170
113
57
23
$
10.63
$
7.50
$
7.53
5
77
48
29
12
5
118
77
41
17
11
69
45
24
10
A target number of contingent performance shares were awarded to executives in March 2017, 2016 and 2015 and vest at
December 31, 2019, 2018 and 2017, respectively. The vesting of the grants is dependent upon market and financial
performance and service conditions as defined in the grants for each of the years. The number of performance shares earned
from each year's grants could range from zero to twice the target number (plus additional units credited as dividend
equivalents). Performance shares that are earned are settled solely in cash, and are classified as a share-based liability award.
The fair value of these shares is re-measured at each reporting period, and the related compensation expense is adjusted.
Performance shares expense is recognized ratably over the requisite service period based on the fair values determined
(subject to the adjustments discussed above), except for awards granted to retirement-eligible participants.
The fair value of market condition performance shares is determined using a Monte Carlo simulation valuation model for the
total shareholder return. The fair value of the financial performance condition is determined using Edison International's
earnings per share compared to pre-established targets.
The following is a summary of the status of Edison International's nonvested performance shares:
Edison International:
Nonvested at December 31, 2016
Granted
Forfeited
Vested1
Nonvested at December 31, 2017
SCE:
Nonvested at December 31, 2016
Granted
Forfeited
Vested1
Affiliate transfers, net
Nonvested at December 31, 2017
Weighted-
Average
Fair Value
Shares
207,497
$
84.30
81,874
(53,002)
(57,247)
179,122
63.85
96,667
$
84.25
42,569
(25,061)
(26,427)
974
88,722
64.01
1 Relates to performance shares that will be paid in 2018 as performance targets were met at December 31, 2017.
93
Restricted Stock Units
Restricted stock units were awarded to executives in March 2017, 2016 and 2015 and vest and become payable on January 2,
2020, 2019 and 2018, respectively. Each restricted stock unit awarded includes a dividend equivalent feature and is a
contractual right to receive one share of Edison International common stock, if vesting requirements are satisfied. The vesting
of Edison International's restricted stock units is dependent upon continuous service through the end of the vesting period,
except for awards granted to retirement-eligible participants.
The following is a summary of the status of Edison International's nonvested restricted stock units:
Edison International
SCE
Restricted
Stock Units
Weighted-
Average
Grant Date
Fair Value
Restricted
Stock Units
Weighted-
Average
Grant Date
Fair Value
Nonvested at December 31, 2016
345,395
$
Granted
Forfeited
Vested
Affiliate transfers, net
Nonvested at December 31, 2017
91,528
(7,311)
(126,561)
—
303,051
61.05
79.23
71.16
51.08
—
69.52
160,788
$
47,100
(3,903)
(64,266)
1,699
141,418
60.80
79.12
67.65
53.64
60.35
69.96
The fair value for each restricted stock unit awarded is determined as the closing price of Edison International common stock
on the grant date.
Note 9.
Investments
Nuclear Decommissioning Trusts
Future decommissioning costs related to SCE's nuclear assets are expected to be funded from independent decommissioning
trusts.
The following table sets forth amortized cost and fair value of the trust investments (see Note 4 for a discussion of fair value
of the trust investments):
(in millions)
Stocks
Municipal bonds
U.S. government and agency securities
Corporate bonds
Short-term investments and receivables/payables1
Total
Longest
Maturity Date
—
2054
2067
2057
One-year
Amortized Cost
Fair Value
December 31,
2017
2016
2017
2016
$
236
$
319
$
1,596
$
643
1,235
579
110
659
1,131
600
75
768
1,319
643
114
1,547
766
1,191
659
79
$
2,803
$
2,784
$
4,440
$
4,242
1 Short-term investments include $29 million and $114 million of repurchase agreements payable by financial institutions which earn
interest, are fully secured by U.S. Treasury securities and mature by January 2, 2018 and January 4, 2017 as of December 31, 2017 and
2016, respectively.
Trust fund earnings (based on specific identification) increase the trust fund balance and the ARO regulatory liability.
Unrealized holding gains, net of losses, were $1.6 billion and $1.5 billion at December 31, 2017 and 2016, respectively, and
other-than-temporary impairments of $143 million and $170 million at the respective periods.
Trust assets are used to pay income taxes. Deferred tax liabilities related to net unrealized gains at December 31, 2017 were
$404 million. Accordingly, the fair value of trust assets available to pay future decommissioning costs, net of deferred income
taxes, totaled $4.0 billion at December 31, 2017.
Gross realized gains were $244 million, $92 million and $326 million for the years ended December 31, 2017, 2016 and 2015,
respectively. Gross realized losses were $23 million, $19 million and $26 million for the years ended December 31, 2017,
94
2016 and 2015, respectively. Due to regulatory mechanisms, changes in assets of the trusts from income or loss items have no
impact on operating revenue or earnings.
Acquisitions
On December 31, 2015, Edison Energy acquired three businesses for an aggregate purchase price of approximately
$100 million, of which $90 million was allocated to goodwill and identifiable intangibles. Under the terms of the acquisition
of one of the agreements, the sellers were entitled to additional consideration (earn-out) in the event that certain financial
thresholds were achieved. During the second quarter of 2016, Edison Energy entered into an agreement to buy-out this earn-
out provision and recorded an after-tax charge of $13 million. The buy-out was completed, together with modification to
employment contracts, in order to align long-term incentive compensation.
During 2016 and 2017, a subsidiary of SoCore Energy acquired 100% equity interests in six solar garden development
projects (42 MWdc) in Minnesota from SunEdison for $19.4 million. SoCore Energy also reimbursed SunEdison $2.6 million
of project-specific interconnection costs.
Note 10. Regulatory Assets and Liabilities
Included in SCE's regulatory assets and liabilities are regulatory balancing accounts. CPUC authorized balancing account
mechanisms require SCE to refund or recover any differences between forecasted and actual costs. The CPUC has authorized
balancing accounts for specified costs or programs such as fuel, purchased-power, demand-side management programs,
nuclear decommissioning and public purpose programs. Certain of these balancing accounts include a return on rate base of
7.90% in 2017 and 2016. The CPUC authorizes the use of a balancing account to recover from or refund to customers
differences in revenue resulting from actual and forecasted electricity sales. The CPUC has also established a tax accounting
memorandum account ("TAMA") to track tax benefits or costs associated with certain events to be adjusted annually in rates,
including tax accounting method changes, changes in tax laws and regulations impacting depreciation or tax repair deductions,
forecasted and actual differences in tax repair deductions.
Amounts included in regulatory assets and liabilities are generally recorded with corresponding offsets to the applicable
income statement accounts.
Regulatory Assets
SCE's regulatory assets included on the consolidated balance sheets are:
(in millions)
Current:
Regulatory balancing accounts
Power contracts and energy derivatives
Unamortized investments, net of accumulated amortization
Other
Total current
Long-term:
Deferred income taxes, net of liabilities
Pensions and other postretirement benefits
Power contracts and energy derivatives
Unamortized investments, net of accumulated amortization
San Onofre
Unamortized loss on reacquired debt
Regulatory balancing accounts
Environmental remediation
Other
Total long-term
Total regulatory assets
95
December 31,
2017
2016
$
$
484
203
5
11
703
135
150
49
16
350
3,143
4,478
271
799
123
72
168
143
144
51
710
947
80
857
184
66
126
7
4,914
5,617
$
7,455
7,805
$
SCE's regulatory assets related to power contracts and energy derivatives are primarily an offset to unrealized losses on
derivatives. The liabilities for the power contracts will be amortized over the remaining contract terms, approximately 3 to 6
years and will not earn a rate of return.
SCE's current and long-term unamortized investments include legacy meters retired as part of the Edison SmartConnect®
program and beyond the meters. SCE's unamortized investments related to legacy meters were fully recovered in 2017 and
earned a rate of return of 6.46% in 2017 and 2016.
SCE's regulatory assets related to deferred income taxes represent tax benefits passed through to customers. The CPUC
requires SCE to flow through certain deferred income tax benefits to customers by reducing electricity rates, thereby deferring
recovery of such amounts to future periods. Based on current regulatory ratemaking and income tax laws, SCE expects to
recover its regulatory assets related to deferred income taxes over the life of the assets that give rise to the accumulated
deferred income taxes, approximately from 1 to 60 years. As a result of Tax Reform, SCE re-measured its deferred tax assets
and liabilities as of December 31, 2017. For further information, see Note 7.
SCE's regulatory assets related to pensions and other post-retirement plans represent the unfunded net loss and prior service
costs of the plans (see "Pension Plans and Postretirement Benefits Other than Pensions" discussion in Note 8). This amount is
being recovered through rates charged to customers.
SCE has long-term unamortized investments which primarily include nuclear assets related to Palo Verde. Nuclear assets
related to Palo Verde are expected to be recovered by 2047 and earned a return of 7.90% in 2017 and 2016.
In accordance with the Revised San Onofre Settlement Agreement, SCE wrote down the San Onofre regulatory asset. SCE has
requested to apply $72 million of the U.S. Department of Energy ("DOE") proceeds, currently reflected as a regulatory
liability in the DOE litigation memorandum account, against the remaining San Onofre regulatory asset. See Note 11 for
further information.
SCE's net regulatory asset related to its unamortized loss on reacquired debt will be recovered over the original amortization
period of the reacquired debt over periods ranging from 10 to 35 years or the amortization period of life of the new issue if the
debt is refunded or refinanced.
SCE's regulatory assets related to environmental remediation represents a portion of the costs incurred at certain sites that SCE
is allowed to recover through customer rates. See "Environmental Remediation" discussed in Note 11.
Regulatory Liabilities
SCE's regulatory liabilities included on the consolidated balance sheets are:
(in millions)
Current:
Regulatory balancing accounts
Energy derivatives
Other
Total current
Long-term:
Costs of removal
Re-measurement of deferred taxes
Recoveries in excess of ARO liabilities
Regulatory balancing accounts
Other postretirement benefits
Other
Total long-term
Total regulatory liabilities
96
December 31,
2017
2016
$
1,009
$
74
38
1,121
2,741
2,892
1,575
1,316
26
64
8,614
9,735
$
$
736
—
20
756
2,847
—
1,639
1,180
—
60
5,726
6,482
SCE's regulatory liabilities related to costs of removal represent differences between asset removal costs recorded and
amounts collected in rates for those costs.
As a result of Tax Reform, SCE's deferred tax assets and liabilities were re-measured at December 31, 2017 resulting in an
increase in regulatory liabilities which is subject to change based on the outcome of the regulatory process. The regulatory
liabilities are generally expected to be refunded to customers over the lives of the assets and liabilities that gave rise to the
deferred taxes. For further information, see Note 7.
SCE's regulatory liabilities related to recoveries in excess of ARO liabilities represents the cumulative differences between
ARO expenses and amounts collected in rates primarily for the decommissioning of the SCE's nuclear generation facilities.
Decommissioning costs recovered through rates are primarily placed in nuclear decommissioning trusts. This regulatory
liability also represents the deferral of realized and unrealized gains and losses on the nuclear decommissioning trust
investments. See Note 9 for further discussion.
Net Regulatory Balancing Accounts
Balancing account over and under collections represent differences between cash collected in current rates for specified
forecasted costs and such costs that are actually incurred. Undercollections are recorded as regulatory balancing account
assets. Overcollections are recorded as regulatory balancing account liabilities. With some exceptions, SCE seeks to adjust
rates on an annual basis or at other designated times to recover or refund the balances recorded in its balancing accounts.
Regulatory balancing accounts that SCE does not expect to collect or refund in the next 12 months are reflected in the long-
term section of the consolidated balance sheets. Regulatory balancing accounts do not have the right of offset and are
presented gross in the consolidated balance sheets. Under and over collections accrue interest based on a three-month
commercial paper rate published by the Federal Reserve.
The following table summarizes the significant components of regulatory balancing accounts included in the above tables of
regulatory assets and liabilities:
(in millions)
Asset (liability)
Energy resource recovery account
New system generation balancing account
Public purpose programs and energy efficiency programs
Base revenue requirement balancing account
Tax accounting memorandum account and pole loading balancing account
DOE litigation memorandum account
Greenhouse gas auction revenue
FERC balancing accounts
Other
Liability
December 31,
2017
2016
$
$
464
(197)
(1,145)
(200)
(259)
(156)
(22)
(205)
22
(1,698)
$
$
(20)
(6)
(992)
(426)
(142)
(122)
31
(69)
31
(1,715)
97
Note 11. Commitments and Contingencies
Power Purchase Agreements
SCE entered into various agreements to purchase power, electric capacity and other energy products. At December 31, 2017,
the undiscounted future expected payments for the SCE power purchase agreements (primarily related to renewable energy
contracts), which were approved by the CPUC and met other critical contract provisions (including completion of major
milestones for construction), were as follows:
(in millions)
2018
2019
2020
2021
2022
Thereafter
Total future commitments
Total
2,513
2,513
2,614
2,582
2,562
27,093
39,877
$
$
Additionally, SCE has signed contracts (including capacity reduction contracts with customers) that have not met the critical
contract provisions that would increase contractual obligations by $29 million in 2018, $109 million in 2019, $231 million in
2020, $312 million in 2021, $301 million in 2022 and $3.8 billion thereafter, if all critical contract provisions are completed.
Costs incurred for power purchase agreements were $3.6 billion in 2017, $3.3 billion in 2016 and $3.2 billion in 2015, which
include costs associated with contracts with terms of less than one year.
Certain power purchase agreements that SCE entered into with independent power producers are accounted for as leases. The
following table shows the future minimum lease payments due under the contracts that are treated as operating and capital
leases (these amounts are also included in the table above). Due to the inherent uncertainty associated with the reliability of
the fuel source, expected purchases from most renewable energy contracts do not meet the definition of a minimum lease
payment and have been excluded from the operating and capital lease table below but remain in the table above. The future
minimum lease payments for capital leases are discounted to their present value in the table below using SCE's incremental
borrowing rate at the inception of the leases. The amount of this discount is shown in the table below as the amount
representing interest.
(in millions)
2018
2019
2020
2021
2022
Thereafter
Total future commitments
Amount representing executory costs
Amount representing interest
Net commitments
Operating
Leases
Capital
Leases
$
$
335
262
234
198
174
1,222
2,425
$
$
$
2
2
2
3
3
21
33
(15)
(8)
10
Operating lease expense for power purchase agreements was $2.3 billion in 2017, and $1.9 billion in 2016 and
$1.7 billion in 2015 (including contingent rents of $1.8 billion in 2017, $1.4 billion in 2016 and $1.1 billion in 2015).
Contingent rents for capital leases were $99 million in 2017, $109 million in 2016 and less than $1 million in 2015. The
timing of SCE's recognition of the lease expense conforms to ratemaking treatment for SCE's recovery of the cost of
electricity and is included in purchased power.
98
Other Lease Commitments
The following summarizes the estimated minimum future commitments for SCE's non-cancelable other operating leases
(primarily related to vehicles, office space and other equipment):
(in millions)
2018
2019
2020
2021
2022
Thereafter
Total future commitments
Total
$
48
37
27
20
15
99
$
246
Operating lease expense for other leases were $59 million in 2017, $68 million in 2016 and $80 million in 2015. Certain leases
on office facilities contain escalation clauses requiring annual increases in rent. The rentals payable under these leases may
increase by a fixed amount each year, a percentage over base year, or the consumer price index.
Other Commitments
The following summarizes the estimated minimum future commitments for SCE's other commitments:
(in millions)
2018
2019
2020
2021
2022
Thereafter
Total
Other contractual obligations
$
127
$
72
$
69
$
45
$
46
$
345
$
704
Costs incurred for other commitments were $75 million in 2017, $141 million in 2016 and $182 million in 2015. SCE has fuel
supply contracts for Palo Verde which require payment only if the fuel is made available for purchase. SCE also has
commitments related to maintaining reliability and expanding SCE's transmission and distribution system.
The table above does not include asset retirement obligations, which are discussed in Note 1.
Indemnities
Edison International and SCE have various financial and performance guarantees and indemnity agreements which are issued
in the normal course of business.
Edison International and SCE have provided indemnifications through contracts entered into in the normal course of business.
These are primarily indemnifications against adverse litigation outcomes in connection with underwriting agreements, and
indemnities for specified environmental liabilities and income taxes with respect to assets sold. Edison International's and
SCE's obligations under these agreements may or may not be limited in terms of time and/or amount, and in some instances
Edison International and SCE may have recourse against third parties. Edison International and SCE have not recorded a
liability related to these indemnities. The overall maximum amount of the obligations under these indemnifications cannot be
reasonably estimated.
SCE has indemnified the City of Redlands, California in connection with the Mountainview power plant's California Energy
Commission permit for cleanup or associated actions related to groundwater contaminated by perchlorate due to the disposal
of filter cake at the City's solid waste landfill. The obligations under this agreement are not limited to a specific time period or
subject to a maximum liability. SCE has not recorded a liability related to this indemnity.
Contingencies
In addition to the matters disclosed in these Notes, Edison International and SCE are involved in other legal, tax and
regulatory proceedings before various courts and governmental agencies regarding matters arising in the ordinary course of
business. Edison International and SCE believe the outcome of these other proceedings will not, individually or in the
aggregate, materially affect its financial position, results of operations and cash flows.
Southern California Wildfires
In December 2017, several wind-driven wildfires (the "December 2017 Wildfires") impacted portions of SCE's service
territory and caused substantial damage to both residential and business properties and service outages for SCE customers.
99
The largest of these fires, known as the Thomas Fire, originated in Ventura County and burned acreage located in both Ventura
and Santa Barbara Counties. According to the most recent California Department of Forestry and Fire Protection ("Cal Fire")
incident information reports, the Thomas Fire burned over 280,000 acres, destroyed an estimated 1,063 structures, damaged an
estimated 280 structures and resulted in two fatalities. During 2017, SCE incurred approximately $35 million of capital
expenditures related to restoration of service resulting from the December 2017 Wildfires.
The causes of the December 2017 Wildfires are being investigated by Cal Fire and other fire agencies. SCE believes the
investigations include the possible role of SCE's facilities. SCE expects that one or more of the fire agencies will ultimately
issue reports concerning the origins and causes of the December 2017 Wildfires but cannot predict when these reports will be
released or if any findings will be issued before the investigations are completed.
Any potential liability of SCE for December 2017 Wildfire-related damages will depend on a number of factors, including
whether SCE is determined to have substantially caused, or contributed to, the damages and whether parties seeking recovery
of damages will be required to show negligence in addition to causation. Certain California courts have previously found
utilities to be strictly liable for property damage, regardless of fault, by applying the theory of inverse condemnation when a
utility's facilities were determined to be a substantial cause of a wildfire that caused the property damage. The rationale stated
by these courts for applying this theory to investor-owned utilities is that property losses resulting from a public improvement,
such as the distribution of electricity, can be spread across the larger community that benefited from such improvement.
However, in December 2017, the CPUC issued a decision denying the investor-owned utility's request to include in its rates
uninsured wildfire-related costs arising from several 2007 fires, finding that the investor-owned utility did not prudently
manage and operate its facilities prior to or at the outset of the 2007 wildfires.
In addition to liability for property damages, when inverse condemnation is found to be applicable to a utility, the utility may
be held liable, without regard to fault, for associated interest and attorney's fees (collectively, "Property Losses"). If inverse
condemnation is held to be inapplicable to SCE in connection with the December 2017 Wildfires, SCE could still be held
liable for Property Losses if those losses were found to have been proximately caused by SCE’s negligence. If SCE was found
negligent, SCE also could be held liable for fire suppression costs, business interruption losses, evacuation costs, medical
expenses and personal injury/wrongful death claims. These potential liabilities, in the aggregate, could be substantial.
Additionally, SCE could potentially be subject to fines for alleged violations of CPUC rules and laws in connection with the
December 2017 Wildfires.
SCE is aware of multiple lawsuits filed related to the December 2017 Wildfires naming SCE as a defendant. One of these
lawsuits also named Edison International as a defendant. At least four of these lawsuits were filed as purported class actions.
The lawsuits, which have been filed in the superior courts of Ventura, Santa Barbara and Los Angeles Counties allege, among
other things, negligence, inverse condemnation, trespass, private nuisance, and violations of the public utility and health and
safety codes. SCE expects to be the subject of additional lawsuits related to the December 2017 Wildfires. The litigation could
take a number of years to be resolved because of the complexity of the matters and the time needed to complete the ongoing
investigations.
Given the preliminary stages of the investigations and the uncertainty as to the causes of the December 2017 Wildfires, and the
extent and magnitude of potential damages, Edison International and SCE are currently unable to reasonably estimate whether
SCE will incur material losses and, if so, the range of possible losses that could be incurred.
SCE has approximately $1 billion of wildfire-specific insurance coverage, subject to a self-insured retention of $10 million per
occurrence, for wildfire-related claims for the period ending on May 31, 2018. SCE also has approximately $300 million of
additional insurance coverage for wildfire-related occurrences for the period from December 31, 2017 to December 31, 2018
which may be used in addition to the $1 billion in wildfire insurance for wildfire events occurring on or after December 31,
2017 and on or before May 31, 2018, and would be available for new wildfire events, if any, occurring after May 31, 2018 and
on or before December 30, 2018. Various coverage limitations within the policies that make up SCE's wildfire insurance
coverage could result in material self-insured costs in the event of multiple wildfire occurrences during a policy period. SCE
also has other general liability insurance coverage of approximately $450 million but it is uncertain whether these other
policies would apply to liabilities alleged to be related to wildfires. Should responsibility for damages be attributed to SCE for
a significant portion of the losses related to the December 2017 Wildfires, SCE's insurance may not be sufficient to cover all
such damages. SCE or its vegetation management contractors may experience coverage reductions and/or increased insurance
costs in future years. No assurance can be given that future losses will not exceed the limits of insurance coverage.
In addition, SCE may not be authorized to recover its uninsured damages through customer rates if, for example, the CPUC
finds that the damages were incurred because SCE was not a prudent manager of its facilities. The CPUC's Safety and
Enforcement Division ("SED") is conducting an investigation to assess the compliance of SCE’s facilities with applicable
rules and regulations in areas impacted by the December 2017 Wildfires.
100
Edison International and SCE are pursuing legislative, regulatory and legal solutions to the application of a strict liability
standard to wildfire-related damages without the ability to recover resulting costs from customers. Edison International and
SCE cannot predict whether or when a solution mitigating the significant risk faced by a California investor-owned utility
related to wildfires will be achieved.
Montecito Mudslides
In January 2018, torrential rains in Santa Barbara County produced mudslides and flooding in Montecito and surrounding
areas (the "Montecito Mudslides"). According to Santa Barbara County, the Montecito Mudslides destroyed an estimated
135 structures, damaged an estimated 324 structures, and resulted in at least 21 fatalities, with two additional fatalities
presumed.
Six of the lawsuits mentioned above allege that SCE has responsibility for the Thomas Fire and that the Thomas Fire
proximately caused the Montecito Mudslides, resulting in the plaintiffs' claimed damages. SCE expects that additional
lawsuits related to the Montecito Mudslides will be filed.
As noted above, the cause of the Thomas Fire has not been determined. In the event that SCE is determined to have liability
for damages caused by the Thomas Fire, SCE cannot predict whether the courts will conclude that the Montecito Mudslides
were caused by the Thomas Fire or that SCE is responsible or liable for damages caused by the Montecito Mudslides. As a
result, Edison International and SCE are currently unable to reasonably estimate whether SCE will incur material losses and, if
so, the range of possible losses that could be incurred. If it is determined that the Montecito Mudslides were caused by the
Thomas Fire and that SCE is responsible or liable for damages caused by the Montecito Mudslides, then SCE's insurance
coverage for such losses may be limited to its wildfire insurance. Additionally, if SCE is determined to be liable for a
significant portion of costs associated with the Montecito Mudslides, SCE's insurance may not be sufficient to cover all such
damages and SCE may be unable to recover any uninsured losses.
If it is ultimately determined that SCE is legally responsible for losses caused by the Montecito Mudslides, SCE could be held
liable for resulting Property Losses if inverse condemnation is found applicable. If SCE is determined to have been negligent,
in addition to Property Losses, SCE could be liable for business interruption losses, evacuation costs, clean-up costs, medical
expenses and personal injury/wrongful death claims associated with the Montecito Mudslides. These liabilities, in the
aggregate, could be substantial. SCE cannot predict whether it will be subjected to regulatory fines related to the Montecito
Mudslides.
Permanent Retirement of San Onofre
Replacement steam generators were installed at San Onofre in 2010 and 2011. On January 31, 2012, a leak suddenly occurred
in one of the heat transfer tubes in San Onofre's Unit 3 steam generators. The Unit was safely taken off-line and subsequent
inspections revealed excessive tube wear. Unit 2 was off-line for a planned outage when areas of unexpected tube wear were
also discovered. On June 6, 2013, SCE decided to permanently retire Units 2 and 3.
San Onofre CPUC Proceedings
In November 2014, the CPUC approved the San Onofre OII Settlement Agreement by and among The Utility Reform
Network ("TURN"), the CPUC's Office of Ratepayers Advocates ("ORA"), San Diego Gas & Electric ("SDG&E"), the
Coalition of California Utility Employees, and Friends of the Earth (the "Prior San Onofre Settlement Agreement"), which, at
the time, resolved the CPUC's investigation regarding the steam generator replacement project at San Onofre and the related
outages and subsequent shutdown of San Onofre. Subsequently, the San Onofre Order Instituting Investigation ("OII")
proceeding record was reopened by a joint ruling of the Assigned Commissioner and the Assigned administrative law judge
("ALJ") to consider whether, in light of the Company not reporting certain ex parte communications on a timely basis, the
Prior San Onofre Settlement Agreement remained reasonable, consistent with the law and in the public interest, which is the
standard the CPUC applies in reviewing settlements submitted for approval.
Entry into Revised Settlement and Utility Shareholder Agreements
On January 30, 2018, SCE, SDG&E, The Alliance for Nuclear Responsibility, The California Large Energy Consumers
Association, California State University, Citizens Oversight dba Coalition to Decommission San Onofre, the Coalition of
California Utility Employees, the Direct Access Customer Coalition, Ruth Henricks, ORA, TURN, and Women's Energy
Matters (the "OII Parties") entered into a Revised San Onofre Settlement Agreement in the San Onofre OII proceeding (the
"Revised San Onofre Settlement Agreement"). If approved by the CPUC, the Revised San Onofre Settlement Agreement will
resolve all issues under consideration in the San Onofre OII and will modify the Prior San Onofre Settlement Agreement. If
approved by the CPUC, the Revised San Onofre Settlement Agreement will also result in the dismissal of a federal lawsuit
currently pending in the 9th Circuit Court of Appeals challenging the CPUC's authority to permit rate recovery of San Onofre
101
costs. The Revised San Onofre Settlement Agreement was the result of multiple mediation sessions in 2017 and January 2018
and was signed on January 30, 2018 following a settlement conference in the OII, as required under CPUC rules.
Implementation of the terms of the Revised San Onofre Settlement Agreement is subject to the approval of the CPUC, as to
which there is no assurance. The OII Parties have agreed to exercise their best efforts to obtain CPUC approval, but there can
be no certainty of when or what the CPUC will actually decide.
On February 6, 2018, the San Onofre OII Assigned Commissioner and Assigned ALJ issued a joint ruling advising the parties,
among other things, that (i) the CPUC will need additional information and that the parties should be prepared to submit joint
testimony in support of the Revised San Onofre Settlement Agreement on March 26, 2018; (ii) there will be public
participation hearings and at least one additional status conference; and (iii) another ruling will be issued with further
direction.
Disallowances, Refunds and Recoveries
If the Revised San Onofre Settlement Agreement is approved by the CPUC, SCE and SDG&E (the "Utilities") will cease rate
recovery of San Onofre costs as of the date their combined remaining San Onofre regulatory assets equal $775 million (the
"Cessation Date"). SCE has previously requested the CPUC to authorize SCE to reduce the San Onofre regulatory asset by
applying $72 million of proceeds received from litigation with the DOE related to DOE's failure to meet its obligation to begin
accepting spent nuclear fuel from San Onofre. If that request is approved by the CPUC, the Cessation Date is estimated to be
December 19, 2017. If that request is not approved by the CPUC, the Cessation Date is estimated to be April 21, 2018. The
Utilities will refund to customers San Onofre-related amounts recovered in rates after the Cessation Date. SCE will retain
amounts collected under the Prior San Onofre Settlement Agreement before the Cessation Date. SCE also will retain
$47 million of proceeds received in 2017 from arbitration with Mitsubishi Heavy Industries ("MHI") over MHI's delivery of
faulty steam generators. In the Revised San Onofre Settlement Agreement, SCE retains the right to sell its stock of nuclear fuel
and not share such proceeds with customers, as was provided in the Prior San Onofre Settlement Agreement. SCE intends to
sell its nuclear fuel inventory as market conditions warrant. Sales of nuclear fuel may be significant.
Under the Prior San Onofre Settlement Agreement, the Utilities agreed to fund $25 million for a Research, Development and
Demonstration program that is intended to develop technologies and methodologies to reduce greenhouse gas emissions
("GHG Reduction Program"). The Utilities' funding obligation is reduced to $12.5 million under the Revised San Onofre
Settlement Agreement.
If approved by the CPUC, the Revised San Onofre Settlement Agreement will also provide certain exclusions from the
determination of SCE's ratemaking capital structure. Notwithstanding that SCE will no longer recover its San Onofre
regulatory asset, the debt borrowed to finance the regulatory asset will continue to be excluded from SCE's ratemaking capital
structure. Additionally, SCE may exclude the after-tax charge resulting from the implementation of the Revised San Onofre
Settlement Agreement from its ratemaking capital structure.
Accounting and Financial Impacts
Under the Prior San Onofre Settlement Agreement, GAAP required that previously incurred costs related to San Onofre Units
2 & 3 be reflected as a regulatory asset to the extent that management concluded the costs were probable of recovery through
future rates. GAAP also requires that amounts collected that are probable of refund to customers be recorded as regulatory
liabilities. In the fourth quarter of 2017, regulatory assets and liabilities were adjusted based on the probable approval of the
Revised San Onofre Settlement Agreement.
102
In connection with the Revised San Onofre Settlement Agreement, and in exchange for the release of certain San Onofre-
related claims, the Utilities entered into an agreement ("Utility Shareholder Agreement") in which SCE has agreed to pay
SDG&E the amounts SDG&E would have received in rates under the Prior San Onofre Settlement Agreement but will not
receive upon implementation of the Revised San Onofre Settlement Agreement. As of December 19, 2017, SDG&E's
regulatory asset was approximately $151 million. In the fourth quarter of 2017, SCE recorded an accrued liability of
$143 million for the estimated present value of this obligation. The following table summarizes the financial impact of the
Revised San Onofre Settlement Agreement and the Utility Shareholder Agreement:
(in millions)
San Onofre base regulatory asset
DOE litigation regulatory liability
MHI Arbitration regulatory liability
GHG Reduction Program
Other
Present value of Utility Shareholder Agreement
Total pre-tax charge
Total after-tax charge
$
$
$
696
(72)
(47)
(10)
6
143
716
448
Additional Challenges related to the Settlement of San Onofre CPUC Proceedings
A federal lawsuit challenging the CPUC's authority to permit rate recovery of San Onofre costs and an application to the
CPUC for rehearing of its decision approving the San Onofre OII Settlement Agreement were filed in November and
December 2014, respectively. In April 2015, the federal lawsuit was dismissed with prejudice and the plaintiffs in that case
appealed the dismissal to the Ninth Circuit in May 2015. In light of the San Onofre OII meet-and-confer sessions, the Ninth
Circuit cancelled the hearing that had been scheduled for February 9, 2017 and ordered the parties to notify the Ninth Circuit
of the status of the San Onofre OII by May 1, 2017 and periodically thereafter. In October 2017, the Ninth Circuit scheduled a
hearing for February 13, 2018 and directed the parties to file a status report on January 30, 2018. As part of the Revised San
Onofre Settlement Agreement, the plaintiffs agreed to dismiss this case with prejudice.
In July 2015, a purported securities class action lawsuit was filed in federal court against Edison International, its then Chief
Executive Officer and its then Chief Financial Officer. The complaint was later amended to include SCE's former President as
a defendant. The lawsuit alleges that the defendants violated the securities laws by failing to disclose that Edison International
had ex parte contacts with CPUC decision-makers regarding the San Onofre OII that were either unreported or more extensive
than initially reported. The initial complaint purports to be filed on behalf of a class of persons who acquired Edison
International common stock between March 21, 2014 and June 24, 2015 (the "Class Period"). In September 2016, the federal
court granted defendants' motion to dismiss the complaint, with an opportunity for plaintiff to amend the complaint. Plaintiff
filed an amended complaint, which the federal court dismissed again with an opportunity for the plaintiff to amend the
complaint. Plaintiff filed a third amended complaint and defendants again moved to dismiss the complaint in October 2016.
Also in July 2015, a federal shareholder derivative lawsuit was filed against members of the Edison International Board of
Directors for breach of fiduciary duty and other claims. The federal derivative lawsuit is based on similar allegations to the
federal class action securities lawsuit and seeks monetary damages, including punitive damages, and various corporate
governance reforms. An additional federal shareholder derivative lawsuit making essentially the same allegations was filed in
August 2015 and was subsequently consolidated with the July 2015 federal derivative lawsuit. In September 2016, the federal
court granted defendants' motion to dismiss the consolidated complaint, with an opportunity for plaintiff to amend the
complaint. Plaintiff did not file an amended complaint by the required date. Plaintiffs' deadline to appeal the federal court's
order granting defendants' motion to dismiss lapsed in March 2017 and no appeal was filed.
In October 2015, a shareholder derivative lawsuit was filed in California state court against members of the Edison
International Board of Directors for breach of fiduciary duty and other claims, making similar allegations to those in the
federal derivative lawsuits discussed above. In light of the ruling in the parallel federal derivative lawsuit discussed above,
plaintiff requested that the court voluntarily dismiss the state court action. The action was dismissed in April 2017.
In November 2015, a purported securities class action lawsuit was filed in federal court against Edison International, its then
Chief Executive Officer and its Treasurer by an Edison International employee, alleging claims under the Employee
Retirement Income Security Act. The complaint purports to be filed on behalf of a class of Edison International employees
who were participants in the Edison 401(k) Savings Plan and invested in the Edison International Stock Fund between
March 27, 2014 and June 24, 2015. The complaint alleges that defendants breached their fiduciary duties because they knew
103
or should have known that investment in the Edison International Stock Fund was imprudent because the price of Edison
International common stock was artificially inflated due to Edison International's alleged failure to disclose certain ex parte
communications with CPUC decision-makers related to the San Onofre OII. In July 2016, the federal court granted the
defendants' motion to dismiss the lawsuit with an opportunity for the plaintiff to amend her complaint. Plaintiff filed an
amended complaint in July 2016, that dismissed Edison International as a named defendant and the remaining defendants filed
a motion to dismiss in August 2016. These defendants' motion was heard by the court in November 2016. In June 2017, the
federal court again granted defendants' motion to dismiss the lawsuit with an opportunity for the plaintiff to amend her
complaint. Plaintiff filed an amended complaint in early July 2017. Defendants have filed motion to dismiss the amended
complaint, which was heard by the court in October 2017, and are awaiting a ruling.
Edison International and SCE cannot predict the outcome of these proceedings.
Environmental Remediation
SCE records its environmental remediation liabilities when site assessments and/or remedial actions are probable and a range
of reasonably likely cleanup costs can be estimated. SCE reviews its sites and measures the liability quarterly, by assessing a
range of reasonably likely costs for each identified site using currently available information, including existing technology,
presently enacted laws and regulations, experience gained at similar sites, and the probable level of involvement and financial
condition of other potentially responsible parties. These estimates include costs for site investigations, remediation, operation
and maintenance, monitoring and site closure. Unless there is a single probable amount, SCE records the lower end of this
reasonably likely range of costs (reflected in "Other long-term liabilities") at undiscounted amounts as timing of cash flows is
uncertain.
At December 31, 2017, SCE's recorded estimated minimum liability to remediate its 20 identified material sites (sites with a
liability balance as of December 31, 2017, in which the upper end of the range of the costs is at least $1 million) was
$146 million, including $93 million related to San Onofre. In addition to these sites, SCE also has 16 immaterial sites with a
liability balance at December 31, 2017 for which the total minimum recorded liability was $4 million. Of the $150 million
total environmental remediation liability for SCE, $144 million has been recorded as a regulatory asset. SCE expects to
recover $49 million through an incentive mechanism that allows SCE to recover 90% of its environmental remediation costs at
certain sites (SCE may request to include additional sites) and $95 million through a mechanism that allows SCE to recover
100% of the costs incurred at certain sites through customer rates. SCE's identified sites include several sites for which there is
a lack of currently available information, including the nature and magnitude of contamination, and the extent, if any, that SCE
may be held responsible for contributing to any costs incurred for remediating these sites. Thus, no reasonable estimate of
cleanup costs can be made for these sites.
The ultimate costs to clean up SCE's identified sites may vary from its recorded liability due to numerous uncertainties
inherent in the estimation process, such as: the extent and nature of contamination; the scarcity of reliable data for identified
sites; the varying costs of alternative cleanup methods; developments resulting from investigatory studies; the possibility of
identifying additional sites; and the time periods over which site remediation is expected to occur. SCE believes that, due to
these uncertainties, it is reasonably possible that cleanup costs at the identified material sites and immaterial sites could exceed
its recorded liability by up to $129 million and $8 million, respectively. The upper limit of this range of costs was estimated
using assumptions least favorable to SCE among a range of reasonably possible outcomes.
SCE expects to clean up and mitigate its identified sites over a period of up to 30 years. Remediation costs for each of the next
4 years are expected to range from $5 million to $21 million. Costs incurred for years ended December 31, 2017, 2016 and
2015 were $9 million, $4 million and $5 million, respectively.
Based upon the CPUC's regulatory treatment of environmental remediation costs incurred at SCE, SCE believes that costs
ultimately recorded will not materially affect its results of operations, financial position or cash flows. There can be no
assurance, however, that future developments, including additional information about existing sites or the identification of new
sites, will not require material revisions to estimates.
Nuclear Insurance
Federal law limits public offsite liability claims for bodily injury and property damage from a nuclear incident to the amount
of available financial protection, which is currently approximately $13.4 billion. As of January 1, 2017, SCE and other owners
of San Onofre and Palo Verde have purchased the maximum private primary insurance available ($450 million) through a
Facility Form issued by American Nuclear Insurers ("ANI"). The balance is covered by a loss sharing program among nuclear
reactor licensees. If a nuclear incident at any licensed reactor in the United States results in claims and/or costs which exceed
the primary insurance at that plant site, all nuclear reactor licensees could be required to contribute their share of the liability
in the form of a deferred premium.
104
The ANI Facility Form coverage includes broad liability protection for bodily injury or offsite property damage caused by the
nuclear energy hazard at San Onofre, or while in transit to or from San Onofre. The Facility Form, however, includes several
exclusions. First, it excludes onsite property damage to the nuclear facility itself and onsite cleanup costs, but as discussed
below SCE maintains separate Nuclear Electric Insurance Limited ("NEIL") property damage coverage for such events.
Second, tort claims of onsite workers are excluded, but SCE also maintains an ANI Master Worker Form policy that provides
coverage for non-licensee workers. This program provides a shared industry aggregate limit of $450 million. Industry losses
covered by this program could reduce limits available to SCE. Third, offsite environmental costs arising out of government
orders or directives, including those issued under the Comprehensive Environmental Response, Compensation and Liability
Act, also known as CERCLA, are excluded, with minor exceptions from clearly identifiable accidents.
Based on its ownership interests, SCE could be required to pay a maximum of approximately $255 million per nuclear
incident. However, it would have to pay no more than approximately $38 million per incident in any one year. If the public
liability limit above is insufficient, federal law contemplates that additional funds may be appropriated by Congress. This
could include an additional assessment on all licensed reactor operators as a measure for raising further federal revenue.
NEIL, a mutual insurance company owned by entities with nuclear facilities, issues nuclear property damage and accidental
outage insurance policies. The amount of nuclear property insurance purchased for San Onofre and Palo Verde exceeds the
minimum federal requirement of $1.06 billion. These policies include coverage for decontamination liability. Property damage
insurance also covers damages caused by acts of terrorism up to specified limits. Additional outage insurance covers part of
replacement power expenses during an accident-related nuclear unit outage. The accidental outage insurance at San Onofre
has been canceled as a result of the permanent retirement, but that insurance continues to be in effect at Palo Verde.
If losses at any nuclear facility covered by the arrangement were to exceed the accumulated funds for these insurance
programs, SCE could be assessed retrospective premium adjustments of up to approximately $52 million per year. Insurance
premiums are charged to operating expense.
Spent Nuclear Fuel
Under federal law, the DOE is responsible for the selection and construction of a facility for the permanent disposal of spent
nuclear fuel and high-level radioactive waste. The DOE has not met its contractual obligation to accept spent nuclear fuel.
Extended delays by the DOE have led to the construction of costly alternatives and associated siting and environmental issues.
Currently, both San Onofre and Palo Verde have interim storage for spent nuclear fuel on site sufficient for their current
license period.
In June 2010, the United States Court of Federal Claims issued a decision granting SCE and the San Onofre co-owners
damages of approximately $142 million (SCE share $112 million) to recover costs incurred through December 31, 2005 for
the DOE's failure to meet its obligation to begin accepting spent nuclear fuel from San Onofre. SCE received payment from
the federal government in the amount of the damage award. In April 2016, SCE, as operating agent, settled a lawsuit on behalf
of the San Onofre owners against the DOE for $162 million, including reimbursement for legal costs (SCE share
$124 million) to compensate for damages caused by the DOE's failure to meet its obligation to begin accepting spent nuclear
fuel for the period from January 1, 2006 to December 31, 2013. The settlement also provides for a claim submission/audit
process for expenses incurred from 2014 – 2016, where SCE will submit a claim for damages caused by the DOE failure to
accept spent nuclear fuel each year, followed by a government audit and payment of the claim. This process will make
additional legal action to recover damages incurred in 2014 – 2016 unnecessary. The first such claim covering damages for
2014 – 2015 was filed on September 30, 2016 for approximately $56 million. In February 2017, the DOE reviewed the 2014 –
2015 claim submission and reduced the original request to approximately $43 million (SCE share was approximately
$34 million) primarily due to DOE allocation limits. SCE accepted the DOE's determination, and the government paid the
2014 – 2015 claim under the terms of the settlement. In October 2017, SCE filed a claim covering damages for 2016 for
approximately $59 million. All damages recovered by SCE are subject to CPUC review as to how these amounts would be
distributed among customers, shareholders, or to offset fuel decommissioning or storage costs.
Note 12. Preferred and Preference Stock of Utility
SCE's authorized shares are: $100 cumulative preferred – 12 million shares, $25 cumulative preferred – 24 million shares and
preference with no par value – 50 million shares. SCE's outstanding shares are not subject to mandatory redemption. There
are no dividends in arrears for the preferred or preference shares. Shares of SCE's preferred stock have liquidation and
dividend preferences over shares of SCE's common stock and preference stock. All cumulative preferred shares are
redeemable. When preferred shares are redeemed, the premiums paid, if any, are charged to common equity. No preferred
shares were issued or redeemed in the years ended December 31, 2017, 2016 and 2015. There is no sinking fund requirement
for redemptions or repurchases of preferred shares.
105
Shares of SCE's preference stock rank junior to all of the preferred stock and senior to all common stock. Shares of SCE's
preference stock are not convertible into shares of any other class or series of SCE's capital stock or any other security. There
is no sinking fund requirement for redemptions or repurchases of preference shares.
Preferred stock and preference stock is:
(in millions, except shares and per-share amounts)
Cumulative preferred stock
$25 par value:
4.08% Series
4.24% Series
4.32% Series
4.78% Series
Preference stock
No par value:
6.25% Series E (cumulative)
5.625% Series F (cumulative)
5.10% Series G (cumulative)
5.75% Series H (cumulative)
5.375% Series J (cumulative)
5.45% Series K (cumulative)
5.00% Series L (cumulative)
SCE's preferred and preference stock
Less issuance costs
Edison International's preferred and preference stock of utility
Shares
Outstanding
Redemption
Price
December 31,
2017
2016
650,000
$
1,200,000
1,653,429
1,296,769
$
25.50
25.80
28.75
25.80
350,000
190,004
160,004
110,004
130,004
120,004
190,004
1,000.00
2,500.00
2,500.00
2,500.00
2,500.00
2,500.00
2,500.00
$
16
30
41
33
350
—
400
275
325
300
475
16
30
41
33
350
475
400
275
325
300
—
2,245
(52)
2,193
$
2,245
(54)
2,191
$
Shares of Series E preference stock issued in 2012 may be redeemed at par, in whole or in part, on or after February 1, 2022.
Shares of Series G, H, J, K and L preference stock, issued in 2013, 2014, 2015, 2016 and 2017, respectively, may be
redeemed at par, in whole, but not in part, at any time prior to March 15, 2018, March 15, 2024, September 15, 2025,
March 15, 2026 and June 26, 2022, respectively, if certain changes in tax or investment company law or interpretation (or
applicable rating agency equity credit criteria for Series L only) occur and certain other conditions are satisfied. On or after
March 15, 2018, March 15, 2024, September 15, 2025, March 15, 2026 and June 26, 2022, SCE may redeem the Series G, H,
J, K and L shares, respectively, at par, in whole or in part. For shares of Series H, J and K preference stock, distributions will
accrue and be payable at a floating rate from and including March 15, 2024, September 15, 2025 and March 15, 2026,
respectively. Shares of Series G, H, J, K and L preference stock were issued to SCE Trust II, SCE Trust III, SCE Trust IV,
SCE Trust V and SCE Trust VI, respectively, special purpose entities formed to issue trust securities as discussed in Note 3.
The proceeds from the sale of the shares of Series L were used to redeem $475 million of the Company's Series F preference
stock. Preference shares are not subject to mandatory redemption.
At December 31, 2017, declared and unpaid dividends related to SCE's preferred and preference stock were $12 million.
106
Note 13. Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive loss, net of tax, consist of:
(in millions)
Beginning balance
Pension and PBOP – net gain (loss):
Other comprehensive income (loss) before
reclassifications
Reclassified from accumulated other comprehensive loss1
Other
Change
Ending balance
Edison International
SCE
Years ended December 31,
2017
2016
2017
2016
$
(53) $
(56) $
(20) $
(22)
3
7
—
10
(43) $
(4)
6
1
3
(53) $
(2)
3
—
1
(19) $
(2)
3
1
2
(20)
$
1 These items are included in the computation of net periodic pension and PBOP expenses. See Note 8 for additional information.
Note 14. Interest and Other Income and Other Expenses
Interest and other income and other expenses are as follows:
(in millions)
SCE interest and other income:
Equity allowance for funds used during construction
Increase in cash surrender value of life insurance policies and life insurance
benefits
Interest income
Other
Total SCE interest and other income
Other income of Edison International Parent and Other1
Total Edison International interest and other income
SCE other expenses:
Civic, political and related activities and donations
Other
Total SCE other expenses
Other expenses of Edison International Parent and Other
Total Edison International other expenses
Years ended December 31,
2016
2015
2017
$
$
$
$
87
42
7
9
145
1
146
(34)
(14)
(48)
(3)
(51)
$
$
$
$
74
39
3
7
123
—
123
(32)
(12)
(44)
—
(44)
$
$
$
$
87
26
4
6
123
51
174
(35)
(24)
(59)
—
(59)
1 Reflects Edison Capital's income related to the sale of affordable housing projects for the year ended December 31, 2015.
107
Note 15. Supplemental Cash Flows Information
Supplemental cash flows information for continuing operations is:
Edison International
SCE
Years ended December 31,
(in millions)
2017
2016
2015
2017
2016
2015
Cash payments for interest and taxes:
Interest, net of amounts capitalized
$
548
$
Tax payments, net of refunds
1
504
18
$
512
$
509
$
1
2
475
78
$
478
144
Non-cash financing and investing activities:
Dividends declared but not paid:
Common stock
Preferred and preference stock
Details of debt exchange:
$
197
12
$
177
12
$
156
14
$
212
12
Pollution-control bonds redeemed (2.875%)
Pollution-control bonds issued (1.875%)
—
—
—
—
(203)
203
—
—
$ — $ —
12
—
—
14
(203)
203
SCE's accrued capital expenditures at December 31, 2017, 2016 and 2015 were $652 million, $540 million, and $543 million,
respectively. Accrued capital expenditures will be included as an investing activity in the consolidated statements of cash
flow in the period paid.
During 2015, SCE amended a power contract classified as a capital lease, which resulted in a reduction in the lease obligation
and asset by $147 million.
Note 16. Related-Party Transactions
Edison International and SCE provide and receive various services to and from its subsidiaries and affiliates. Services
provided to Edison International by SCE are priced at fully loaded cost (i.e., direct cost of good or service and allocation of
overhead cost). Specified administrative services such as payroll, employee benefit programs, all performed by Edison
International or SCE employees, are shared among all affiliates of Edison International. Costs are allocated based on one of
the following formulas: percentage of time worked, equity in investment and advances, number of employees, or multi-factor
(operating revenue, operating expenses, total assets and number of employees). Edison International allocates various
corporate administrative and general costs to SCE and other subsidiaries using established allocation factors.
108
Note 17. Quarterly Financial Data (Unaudited)
Edison International's quarterly financial data is as follows:
(in millions, except per-share amounts)
Operating revenue
Operating income (loss)
Income (loss) from continuing operations1,2
Income (loss) from discontinued operations, net
Net income (loss) attributable to common shareholders
Basic earnings (loss) per share:
Continuing operations
Discontinued operations
Total
Diluted earnings (loss) per share:
Continuing operations
Discontinued operations
Total
Dividends declared per share
Common stock prices:
High
Low
Close
Total
$ 12,320
1,493
668
—
565
$
$
$
$
$
1.73
—
1.73
1.72
—
1.72
2.2325
83.38
62.67
63.24
Fourth
2017
Third
Second
First
$
$
$
$
$
$
3,220
(16)
(534)
—
(545)
(1.67)
—
(1.67)
(1.66)
—
(1.66)
0.6050
83.38
62.67
63.24
$
$
$
$
$
$
3,672
561
501
—
470
1.44
—
1.44
1.43
—
1.43
0.5425
81.58
76.38
77.17
$
$
$
$
$
$
2,965
469
309
—
278
0.85
—
0.85
0.85
—
0.85
0.5425
82.82
77.21
78.19
$
$
$
$
$
$
2,463
479
392
—
362
1.11
—
1.11
1.10
—
1.10
0.5425
81.33
70.57
79.61
1
2
In the fourth quarter of 2017, Edison International Parent and Other recorded a charge of $433 million related to the re-measurement
of deferred taxes as a result of Tax Reform.
In the fourth quarter of 2017, SCE recorded impairment and other charges of $716 million ($448 million after-tax) related to the
Revised San Onofre Settlement Agreement.
(in millions, except per-share amounts)
Operating revenue
Operating income
Income from continuing operations
Income (loss) from discontinued operations, net
Net income attributable to common shareholders
Basic earnings (loss) per share:
Continuing operations
Discontinued operations
Total
Diluted earnings (loss) per share:
Continuing operations
Discontinued operations
Total
Dividends declared per share
Common stock prices:
High
Low
Close
Fourth
2016
Third
Second
First
$
$
$
$
$
$
2,884
566
347
13
329
0.97
0.04
1.01
0.96
0.04
1.00
0.5425
73.81
67.44
71.99
$
$
$
$
$
$
3,767
695
451
—
421
1.29
—
1.29
1.27
—
1.27
0.4800
78.72
71.31
72.25
$
$
$
$
$
$
2,777
381
310
(2)
280
0.87
(0.01)
0.86
0.86
(0.01)
0.85
0.4800
77.71
67.71
77.67
$
$
$
$
$
$
2,440
448
305
1
281
0.86
—
0.86
0.85
—
0.85
0.4800
72.34
57.97
71.89
Total
$ 11,869
2,092
1,413
12
1,311
$
$
$
$
$
3.99
0.03
4.02
3.94
0.03
3.97
1.9825
78.72
57.97
71.99
109
SCE's quarterly financial data is as follows:
(in millions)
Operating revenue
Operating income (loss)
Net income (loss)1
Net income (loss) available for common stock
Common dividends declared
Total
$ 12,254
1,598
1,136
1,012
785
$
Fourth
3,193
(4)
(79)
(109)
212
$
2017
Third
3,652
578
497
465
191
Second
First
$
2,953
517
338
307
191
$
2,456
507
380
349
191
1
In the fourth quarter of 2017, SCE recorded impairment and other charges of $716 million ($448 million after-tax) related to the
Revised San Onofre Settlement Agreement.
(in millions)
Operating revenue
Operating income
Net income
Net income available for common stock
Common dividends declared
Total
Fourth
2016
Third
Second
First
$ 11,830
$
2,874
$
3,752
$
2,768
$
2,435
2,217
1,499
1,376
701
594
359
328
191
721
466
435
170
429
349
318
170
472
325
295
170
Due to the seasonal nature of Edison International and SCE's business, a significant amount of revenue and earnings are
recorded in the third quarter of each year. As a result of rounding, the total of the four quarters does not always equal the
amount for the year.
110
SELECTED FINANCIAL DATA
Selected Financial Data: 2013 – 2017
(in millions, except per-share amounts)
Edison International
Operating revenue
Operating expenses
Income from continuing operations
Income from discontinued operations, net of tax
Net income
Net income attributable to common shareholders
Weighted-average shares of common stock
outstanding
Basic earnings (loss) per share:
Continuing operations
Discontinued operations
Total
Diluted earnings per share:
Continuing operations
Discontinued operations
Total
Dividends declared per share
Total assets1, 2
Long-term debt excluding current portion
Capital lease obligations excluding current portion
Preferred and preference stock of utility
Common shareholders' equity
Southern California Edison Company
Operating revenue
Operating expenses
Net income
Net income available for common stock
Total assets2
Long-term debt excluding current portion
Capital lease obligations excluding current portion
Preferred and preference stock
Common shareholder's equity
Capital structure3:
Common shareholder's equity
Preferred and preference stock
Long-term debt
2017
2016
2015
2014
2013
$ 12,320
$ 11,869
$ 11,524
$ 13,413
$ 12,581
10,827
668
—
668
565
326
1.73
—
1.73
1.72
—
1.72
$
$
$
$
9,777
1,413
12
1,425
1,311
326
3.99
0.03
4.02
3.94
0.03
3.97
$
$
$
$
9,516
1,082
35
1,117
1,020
326
3.02
0.11
3.13
2.99
0.11
3.10
$
$
$
$
10,941
10,866
1,536
185
1,721
1,612
326
4.38
0.57
4.95
4.33
0.56
4.89
$
$
$
$
979
36
1,015
915
326
2.70
0.11
2.81
2.67
0.11
2.78
$
$
$
$
2.2325
1.9825
1.7325
1.4825
1.3675
$ 52,580
$ 51,319
$ 50,229
$ 49,734
$ 46,225
11,642
10
2,193
11,671
10,175
10,883
6
2,191
11,996
7
2,020
11,368
10,234
196
2,022
10,960
9,825
203
1,753
9,938
$ 12,254
$ 11,830
$ 11,485
$ 13,380
$ 12,562
10,656
1,136
1,012
$ 51,515
10,428
10
2,245
12,427
9,613
1,499
1,376
$ 50,891
9,754
6
2,245
12,238
9,405
1,111
998
$ 49,795
10,460
7
2,070
11,602
10,851
1,565
1,453
$ 49,456
9,624
196
2,070
10,811
1,000
900
$ 45,786
9,422
203
1,795
11,212
10,343
49.5%
9.0%
41.5%
50.5%
9.3%
40.2%
48.1%
8.6%
43.3%
49.0%
9.0%
42.0%
48.0%
8.3%
43.7%
1 Total assets includes assets from continuing and discontinued operations.
2 Effective December 31, 2015, Edison International and SCE adopted an accounting standard, retrospectively, that requires all deferred
income tax assets and liabilities be presented as noncurrent in the consolidated balance sheet.
3 This capital structure is based on the financial statements as reported under generally accepted accounting principles and does not factor
in the adjustments required to calculate CPUC ratemaking capital structure.
111
The selected financial data was derived from Edison International's and SCE's audited financial statements and is qualified in
its entirety by the more detailed information and financial statements, including notes to these financial statements, included
in this annual report. References to Edison International refer to the consolidated group of Edison International and its
subsidiaries.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Based on an evaluation of Edison International's and SCE's disclosure controls and procedures, as defined in Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of December 31, 2017, Edison
International's and SCE's respective principal executive officers and principal financial officers have concluded that such
controls and procedures are effective to ensure that information required to be disclosed by Edison International and SCE in
reports that the companies file or submit under the Exchange Act is recorded, processed, summarized, and reported within the
time periods specified in the SEC rules and forms. In addition, Edison International's and SCE's respective principal
executive officers and principal financial officers have concluded that such controls and procedures were effective in
ensuring that information required to be disclosed by Edison International and SCE in the reports that Edison International
and SCE file or submit under the Exchange Act is accumulated and communicated to Edison International's and SCE's
management, including Edison International's and SCE's respective principal executive officers and principal financial
officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management's Report on Internal Control Over Financial Reporting
Edison International's and SCE's respective management are responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f), for Edison
International and its subsidiaries and SCE, respectively. Under the supervision and with the participation of their respective
principal executive officer and principal financial officer, Edison International's and SCE's management conducted an
evaluation of the effectiveness of their respective internal controls over financial reporting based on the framework set forth
in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on their evaluations under the COSO framework, Edison International's and SCE's respective
management concluded that Edison International's and SCE's respective internal controls over financial reporting were
effective as of December 31, 2017. Edison International's internal control over financial reporting as of December 31, 2017
has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report
on the financial statements included in this report, which is incorporated herein by this reference. This annual report does not
include an attestation report of SCE's independent registered public accounting firm regarding internal control over financial
reporting. Management's report for SCE is not subject to attestation by the independent registered public accounting firm.
Changes in Internal Control Over Financial Reporting
There were no changes in Edison International's or SCE's internal control over financial reporting during the fourth quarter of
2017 that have materially affected, or are reasonably likely to materially affect, Edison International's or SCE's internal
control over financial reporting.
Jointly Owned Utility Plant
Edison International's and SCE's respective scope of evaluation of internal control over financial reporting includes their
Jointly Owned Utility Projects.
OTHER INFORMATION
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
112
BUSINESS
CORPORATE STRUCTURE, INDUSTRY AND OTHER INFORMATION
Edison International was incorporated in 1987 as the parent holding company of SCE, a California public utility. Edison
International also owns and holds interests in subsidiaries through the Edison Energy Group that are engaged in competitive
businesses.
The principal executive offices of Edison International and SCE are located at 2244 Walnut Grove Avenue, P.O. Box 976,
Rosemead, California 91770, and the telephone numbers are (626) 302-2222 for Edison International and (626) 302-1212 for
SCE.
This is a combined Annual Report on Form 10-K for Edison International and SCE. Edison International and SCE make
available at www.edisoninvestor.com: Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, Proxy Statements and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act, as soon as reasonably practicable after Edison International and SCE electronically file such
material with, or furnishes it to, the SEC. Such reports are also available on the SEC's internet website at www.sec.gov. The
information contained on, or connected to, the Edison investor website is not incorporated by reference into this report.
Subsidiaries of Edison International
SCE – Public Utility
SCE is an investor-owned public utility primarily engaged in the business of supplying and delivering electricity through
SCE's electrical infrastructure to an approximately 50,000 square-mile area of southern California. SCE serves approximately
5 million customers in its service area. SCE's total number of customers by class were as follows:
(in thousands)
Residential
Commercial
Industrial
Public authorities
Agricultural and other
Total
2017
2016
2015
4,448
4,417
4,393
569
10
46
22
5,095
565
10
46
23
644
561
11
46
22
5,033
In 2017, SCE's total operating revenue of $12.3 billion was derived as follows: 42.9% commercial customers, 39.6%
residential customers, 4.3% industrial customers, 4.8% public authorities, 1.7% agricultural and other, and 6.7% other
operating revenue.
CPUC and FERC rates decouple authorized revenue from the volume of electricity sales and the price of energy procured so
that SCE has the opportunity to receive revenue equal to amounts authorized by the relevant regulatory agencies. As a result,
the volume of electricity sold to customers does not have a direct impact on SCE's financial results. See "SCE—Overview of
Ratemaking Process—CPUC" and "—FERC" for further information.
Edison Energy Group – Energy Service Provider
Edison Energy Group is a holding company for subsidiaries engaged in pursuing competitive business opportunities across
energy and managed portfolio services and distributed solar solutions to commercial and industrial customers. Energy
services are provided through its subsidiary, Edison Energy, LLC, to help commercial and industrial customers improve
managing their energy costs and risks in dealing with increasingly complex tariff and technology choices. Solar energy
solutions are provided through Edison Energy Group's subsidiary SoCore Energy and take the form of behind the meter sales
of power under power purchase agreements or the sale of distributed generation systems directly to the customer (build/
transfer contracts). SoCore Energy has also developed ground mounted solar projects selling power to rural cooperatives or to
subscribers in community solar programs.
During the third quarter of 2017, Edison International completed a strategic review of Edison Energy Group's competitive
businesses. The competitive businesses are undertaken through Edison Energy Group and include energy services provided
by Edison Energy and distributed solar solutions provided by SoCore Energy. Edison International decided to evaluate
strategic options, including potential sale of SoCore Energy, and has begun to consolidate management across Edison Energy
113
Group. Edison Energy will continue to pursue a proof of concept of its existing energy services and managed portfolio
solutions practice for large energy users in the United States. Under the proof of concept, Edison Energy will seek to achieve
a breakeven earnings run rate and 5% target customer penetration by the end of 2019. For more information on the
accounting status of SoCore Energy, see "Results of Operations—Edison International Parent and Other" in the MD&A.
To date, investments in Edison Energy Group are below 1% of the total consolidated assets and operating revenue, therefore,
not material to be reported as a business segment.
Regulation of Edison International as a Holding Company
As a public utility holding company, Edison International is subject to the Public Utility Holding Company Act. The Public
Utility Holding Company Act primarily obligates Edison International and its utility subsidiaries to provide access to their
books and records to the FERC and the CPUC for ratemaking purposes.
Edison International is not a public utility and its capital structure is not regulated by the CPUC. The 1988 CPUC decision
authorizing SCE to reorganize into a holding company structure, however, imposed certain obligations on Edison
International and its affiliates. These obligations include a requirement that SCE's dividend policy continue to be established
by SCE's Board of Directors as though SCE were a stand-alone utility company, and that the capital requirements of SCE, as
deemed to be necessary to meet SCE's electricity service obligations, shall receive first priority from the Boards of Directors
of Edison International and SCE. The CPUC has also promulgated Affiliate Transaction Rules, which, among other
requirements, prohibit holding companies from (1) being used as a conduit to provide non-public information to a utility's
affiliates and (2) causing or abetting a utility's violation of the rules, including providing preferential treatment to its
affiliates.
Employees and Labor Relations
At December 31, 2017, Edison International and its consolidated subsidiaries had an aggregate of 12,521 full-time
employees, 12,234 of which were full-time employees at SCE.
Approximately 3,975 of SCE's full-time employees are covered by collective bargaining agreements with the International
Brotherhood of Electrical Workers ("IBEW"). The IBEW collective bargaining agreements expire on December 31, 2019.
Insurance
Edison International maintains a property and casualty insurance program for itself and its subsidiaries and excess liability
insurance covering liabilities to third parties for bodily injury or property damage resulting from operations. These policies
are subject to specific retentions, sub-limits and deductibles, which are comparable to those carried by other utility companies
of similar size. SCE also has separate insurance programs for nuclear property and liability, workers compensation, solar
rooftop construction and wildfires. For further information on nuclear and wildfire insurance, see "Notes to Consolidated
Financial Statements—Note 11. Commitments and Contingencies—Contingencies."
SCE
Regulation
CPUC
The CPUC has the authority to regulate, among other things, retail rates, energy purchases on behalf of retail customers, SCE
capital structure, rate of return, issuance of securities, disposition of utility assets and facilities, oversight of nuclear
decommissioning funding and costs, and aspects of the transmission system planning, site identification and construction,
including safety and environmental mitigation.
FERC
The FERC has the authority to regulate wholesale rates as well as other matters, including unbundled transmission service
pricing, rate of return, accounting practices, and licensing of hydroelectric projects. The FERC also has jurisdiction over a
portion of the retail rates and associated rate design.
CAISO
Major transmission projects required for reliability and accessing renewable resources are recommended by the CAISO
through a regular transmission planning process that highlights the need for and key issues associated with each project.
Much of SCE's current transmission investment program is for transmission projects that facilitate access to renewable
114
energy resources in desert and mountain regions east and north of its load center to meet the 33% renewable mandate by
2020. The CAISO will similarly be initiating long-term transmission planning to meet the 2030 mandate for SCE to deliver
50% of its energy from qualifying renewable resources.
NERC
The FERC assigned administrative responsibility to the NERC to establish and enforce reliability standards and critical
infrastructure protection standards, which protect the bulk power system against potential disruptions from cyber and
physical security breaches. The critical infrastructure protection standards focus on controlling access to critical physical and
cyber security assets, including supervisory control and data acquisition systems for the electric grid. Compliance with these
standards is mandatory. The maximum penalty that may be levied for violating a NERC reliability or critical infrastructure
protection standard is $1 million per violation, per day.
SCE has a formal cyber security program that covers SCE's information technology systems as well as customer data.
Program staff is engaged with industry groups as well as public-private initiatives to reduce risk and to strengthen the security
and reliability of SCE's systems and infrastructure. The program is also engaged in the protection of SCE's customer
information.
Nuclear Power Plant Regulation
The NRC has jurisdiction with respect to the safety of San Onofre and Palo Verde Nuclear Generating Stations. The NRC
regulates commercial nuclear power plants through licensing, oversight and inspection, performance assessment, and
enforcement of its requirements. In June 2013, SCE decided to permanently retire and decommission San Onofre. For further
information, see "Liquidity and Capital Resources—SCE—Decommissioning of San Onofre" in the MD&A.
Other Regulatory Agencies
The construction, planning and project site identification of SCE's transmission lines and substation facilities require the
compliance with various laws and approval of many governmental agencies in addition to the CPUC and FERC. These
include various state regulatory agencies depending on the project location; the CAISO, and other environmental, land
management and resource agencies such as the Bureau of Land Management, the U.S. Forest Service, the California
Department of Fish and Game, and the California Coastal Commission; and regional water quality control boards. In
addition, to the extent that SCE transmission line projects pass through lands owned or controlled by Native American tribes,
consent and approval from the affected tribes and the Bureau of Indian Affairs are also necessary for the project to proceed.
Overview of Ratemaking Process
CPUC
Revenue authorized by the CPUC through triennial GRC proceedings is intended to provide SCE a reasonable opportunity to
recover its costs and earn a return on its net investments in generation and distribution assets and general plant (also referred
to as "rate base") on a forecast basis. The CPUC sets an annual revenue requirement for the base year which is made up of the
operation and maintenance costs, depreciation, taxes and a return consistent with the authorized cost of capital (discussed
below). In the GRC proceedings, the CPUC also generally approves the level of capital spending on a forecast basis.
Following the base year, the revenue requirements for the remaining two years are set by a methodology established in the
GRC proceeding, which generally, among other items, includes annual allowances for escalation in operation and
maintenance costs and additional changes in capital-related investments. The CPUC is conducting a triennial safety model
assessment proceeding ("S-MAP") to evaluate the utility models used to prioritize safety risks, examine the utilities'
assessment of their key risks and their proposed mitigation programs, and develop requirements for annual reporting of risk
spending and mitigation results. The risk assessment approach developed in the S-MAP will be incorporated into SCE's
triennial GRC through a Risk Assessment and Mitigation Phase (RAMP), which will be initiated by November 15 in the year
preceding each GRC application filing date. SCE's first RAMP will be filed in November 2018 for its 2021 GRC. The
purpose of the RAMP is to provide information about the utility's assessment of its key safety risks and its proposed
programs and spending for mitigating those risks. The information developed during the RAMP will inform the utility's
recommended projects and funding requests in the subsequent phase of the GRC.
SCE's 2015 GRC authorized revenue requirements for 2016 and 2017 were $5.391 billion, and $5.663 billion, respectively. In
September 2016, SCE filed its 2018 GRC Application, which covers 2018 – 2020. For further discussion of the 2018 GRC,
see "Management Overview—2018 General Rate Case" in the MD&A.
The CPUC regulates SCE's cost of capital, including its capital structure and authorized rates of return. SCE's authorized
capital structure is 43% long-term debt, 9% preferred equity and 48% common equity. SCE's 2017 authorized cost of capital
115
consisted of: cost of long-term debt of 5.49%, cost of preferred equity of 5.79% and return on common equity of 10.45%. In
July 2017, the CPUC approved the agreement among SCE, the other Investor-Owned Utilities, and ORA and TURN to
postpone the filing of new cost of capital applications from April 2017 to April 2019, reset the respective Investor-Owned
Utilities' authorized costs of long-term debt and preferred stock, and reduce the Investor-Owned Utilities respective return on
common equity, effective January 1, 2018. For further discussion of the Cost of Capital, see "Liquidity and Capital Resources
—SCE—Regulatory Proceedings—Cost of Capital" in the MD&A.
SCE's authorized return on investment is established by multiplying an authorized rate of return, determined in separate cost
of capital proceedings, by SCE's authorized CPUC rate base.
CPUC rates decouple authorized revenue from the volume of electricity sales and the price of energy procured so that SCE
receives revenue equal to amounts authorized. Differences between amounts collected and authorized levels are either
collected from or refunded to customers, and, therefore, such differences do not impact operating revenue. Accordingly, SCE
is neither benefited nor burdened by the volumetric or price risk related to retail electricity sales.
Cost-recovery balancing accounts (also referred to as cost-recovery mechanisms) are used to track and recover SCE's
decoupled costs of fuel and purchased-power, as well as certain operation and maintenance expenses, including energy
efficiency and demand-side management program costs. SCE earns no return on these activities and although differences
between forecasted and actual costs do not impact earnings, such differences do impact cash flows and can change rapidly.
SCE has other capital-related balancing accounts on which it earns a return, such as the pole loading balancing account.
SCE's balancing account for fuel and power procurement-related costs is referred to as the ERRA. SCE sets rates based on an
annual forecast of the costs that it expects to incur during the subsequent year. In addition, the CPUC has established a
"trigger" mechanism for the ERRA. The trigger mechanisms allows for an expeditious rate change if the balancing account
overcollection or undercollection exceeds 5% of SCE's prior year generation rate revenue. For 2018, the trigger amount is
approximately $246 million. At December 31, 2017, SCE's undercollection in the ERRA was approximately $464 million,
which is being collected from customers in rates beginning on January 1, 2018.
The majority of procurement-related costs eligible for recovery through cost-recovery rates are pre-approved by the CPUC
through specific decisions and a procurement plan with predefined standards that establish the eligibility for cost-recovery. If
such costs are subsequently found to be non-compliant with this procurement plan, then this could negatively impact SCE's
earnings and cash flows. In addition, the CPUC retrospectively reviews outages associated with utility-owned generation and
SCE's power procurement contract administration activities through the annual ERRA review proceeding. A CPUC finding
that SCE was unreasonable or imprudent with respect to its utility-owned generation outages and contract administration
activities, could negatively impact SCE's earnings and cash flows.
FERC
Transmission capital and operating costs that are prudently incurred, including a return on its net investment in transmission
assets (also referred to as "rate base"), are recovered through revenue authorized by the FERC. Since 2012, SCE has used a
formula rate to determine SCE's FERC transmission revenue requirement, including its construction work in progress
("CWIP") revenue requirement. Under operation of the formula rate, transmission revenue will be updated to actual cost of
service annually. The transmission revenue requirement and rates are updated each December, to reflect a forecast of costs for
the upcoming rate period, as well as a true up of the transmission revenue to actual costs incurred by SCE in the prior
calendar year on its formula rate. In 2017, the FERC weighted average ROE, including project and other incentives, was
comparable to the CPUC ROE of 10.45% and can vary based on the mix of project costs that have different incentives. For
further information on the current FERC formula rates, related transmission revenue requirements and rate changes, see
"Liquidity and Capital Resources—SCE—Regulatory Proceedings—FERC Formula Rate" in the MD&A.
Retail Rates Structure and Residential Rate Design
To develop retail rates, the authorized revenue requirements are allocated among all customer classes (residential,
commercial, industrial, agricultural and street lighting) on a functional basis (i.e., generation, distribution, transmission, etc.).
Specific rate components are designed to recover the authorized revenue allocated to each customer class.
SCE has a two-tier residential rate structure with a separate High Usage Charge (HUC) for customers consuming more than
400% of average usage. The first tier is priced at below-average cost and is intended to cover the customer's basic electricity
needs. The second tier is priced at a higher rate per kilowatt hour, and the surcharge rate is set at more than twice the rate of
Tier 1. During 2014 – 2015, the CPUC approved changes to the prior rate structure including a reduction over time to the
number of tiers, increases to Tier 1 and 2 rates, and set a multi-tier road map to smaller rate differentials between the tiers. By
2019, the price differential between the first and second tiers will be 25%, with the separate HUC. The CPUC has also
116
ordered a transition from tiered to time-of-use (TOU) rates for most residential customers unless they opt to stay on the tiered
rate structure, and SCE is seeking authority to begin its transition in 2020. To recover a portion of the fixed costs of serving
no- or low-usage residential customers, SCE assesses a minimum charge of $10 per month ($5 for low-income customers),
and will seek higher residential fixed charges to be implemented one year after the transition to TOU rates. For information
on residential rates for customers with renewable generation systems, see "—Competition" below.
Energy Efficiency Incentive Mechanism
In September 2013, the CPUC adopted an energy efficiency incentive mechanism called the Energy Savings and
Performance Incentive Mechanism ("ESPI"). The ESPI is comprised of performance/savings rewards and management fees
based on actual energy efficiency expenditures and does not contain any provisions for penalties. The proposed ESPI
schedule anticipates payments of the incentive rewards occurring between one and two years after the relevant program year.
For further information on the energy efficiency awards, see "Liquidity and Capital Resources—SCE—Regulatory
Proceedings—Energy Efficiency Incentive Mechanism" in the MD&A.
Purchased Power and Fuel Supply
SCE obtains the power, energy, and local grid support needed to serve its customers primarily from purchases from external
parties. Approximately 20% of the needed power is provided by SCE's own generating facilities.
Natural Gas Supply
SCE requires natural gas to meet contractual obligations for power tolling agreements (power contracts in which SCE has
agreed to provide or pay for the natural gas used to generate electricity). SCE also requires natural gas to fuel its
Mountainview and peaker plants, which are generation units that operate in response to wholesale market signals related to
power prices and reliability needs. The physical natural gas purchased by SCE is sourced in competitive interstate markets.
SoCalGas provides the in-state pipeline transportation service to the gas-fueled generation stations that SCE controls. In
2015 – 2016, SoCalGas experienced a significant natural gas fuel leak at its Aliso Canyon underground gas storage facility.
As a result, there are limitations on the use and capability of the facility. To date, SCE has found that increased gas-use
restrictions increased the cost of electricity for customers but did not impact grid reliability. There is no certainty that these
restrictions will not impact grid reliability in the future. However, the price increase would not affect SCE's earnings because
decoupled costs of fuel and purchased-power are recovered from customers through balancing accounts. For more
information on cost-recovery mechanisms, see "—Overview of Ratemaking Process" above. SCE is actively monitoring
legislative and regulatory processes that are addressing pipeline and electric grid operations impacted by the Aliso Canyon
leak, including an OII issued by the CPUC in February 2017 to consider the feasibility of minimizing or eliminating the use
of the Aliso Canyon facility. SCE has also made additional procurement efforts to alleviate the impact of the partial closure of
Aliso Canyon, including acceleration of existing contracts for new capacity, energy storage procurement from third-parties,
contracting for design, build, and transfer of utility-owned storage, additional demand response procurement, and additional
energy efficiency procurement.
CAISO Wholesale Energy Market
The CAISO operates a wholesale energy market primarily in California through which competing electricity generators offer
their electricity output to market participants, including electricity retailers. The CAISO schedules power in hourly
increments with hourly prices through a day-ahead market in California and schedules power in fifteen-minute and five-
minute increments with fifteen-minute and five-minute prices through two real-time markets that cover California and
portions of six neighboring states through the Energy Imbalance Market. Both markets optimize energy procurement,
ancillary service procurement, unit commitment and congestion management. SCE participates in the day-ahead and real-
time markets for the sale of its own generation and generation under contract purchases for its load requirements.
Competition
SCE faces retail competition in the sale of electricity to the extent that federal and California laws permit other entities to
provide electricity and related services to customers within SCE's service area. While California law provides only limited
opportunities for customers in SCE's service area to choose to purchase power directly from an energy service provider other
than SCE, a limited, phased-in expansion of customer choice (direct access) for nonresidential customers was permitted
beginning in 2009. SCE also faces competition from governmental entities formed by cities, counties, and certain other
public agencies to generate and/or purchase electricity for their local residents and businesses, known as CCAs. As of year-
end 2017, SCE had three CCAs in its service territory (Apple Valley, City of Lancaster, and Pico Rivera) that represent less
than 2% of SCE's total service load but there are several more cities and counties that are exploring the possibility of
becoming CCAs in SCE's service territory. Competition between SCE and other electricity providers is conducted mainly on
117
the basis of price. In September 2017, the CPUC issued a Scoping Memo for its rulemaking to review, revise, and consider
alternatives to the Power Charge Indifference Adjustment ("PCIA"), which is a charge that is applied to departing load
customers (including CCA formation) and is intended to maintain bundled service customer indifference to legacy authorized
procurement costs. The Scoping Memo adopts an overall goal of implementing the existing California statutory requirements
regarding customer indifference for the proceeding. The CPUC has adopted a schedule with an expected resolution by the
third quarter of 2018. In addition, in December 2017, the CPUC's Energy Division issued a draft resolution to address cost
shifting to bundled services customers associated with utilities' short-term resource adequacy purchases for CCAs in their
launch or expansion year. The Draft Resolution, if adopted, would require new and expanding CCAs to submit
Implementation Plans by January 1 in order to serve customers in the following year. If approved, the Draft Resolution would
also require new and expanding CCAs to participate in the Commission's year-ahead resource adequacy program prior to
beginning service.
Customer-owned power generation and storage alternatives, such as roof-top solar facilities and battery systems, are
increasingly used by SCE's customers as a result of technological developments, federal and state subsidies, and declining
costs of such alternatives.
California legislation passed in 1995 encouraged private residential and commercial investment in renewable energy
resources by requiring SCE to offer a NEM billing option to customers who install eligible power generation systems to
supply all or part of their energy needs. NEM customers are interconnected to SCE's grid and credited for the net difference
between the electricity SCE supplied to them through the grid and the electricity the customer exported to SCE over a twelve
month period. SCE is required to credit the NEM customer for most of the power they sell back to SCE at the retail rate.
Through the credit they receive, NEM customers effectively avoid paying certain grid-related costs. NEM customers are also
exempted from non-bypassable, standby and departing load charges and interconnection fees.
In January 2016, the CPUC issued a decision implementing AB 327, a rate reform bill enacted in 2013 that instructed the
CPUC to develop new standard rates for customers with renewable generation systems. The changes that the CPUC decision
made to the existing NEM tariff do not significantly impact the NEM subsidy. Specifically, the decision requires customers
that take service on SCE's NEM tariff after June 2017 to continue to be compensated at the retail rate, minus certain non-
bypassable charges. NEM customers also continue to be exempted from standby and departing load charges, but will be
required to pay a $75 interconnection fee and to select a Time-of-Use ("TOU") retail rate. The CPUC will consider making
additional adjustments to the NEM tariff when it adopts default TOU rates in 2019.
The effect of these types of competition on SCE generally is to reduce the amount of electricity purchased by customers.
Customers who use alternative electricity providers typically continue to utilize and pay for SCE's transmission and
distribution services, however, NEM customers utilize, but do not pay the full cost for, those services. While changes in
volume or rates generally do not impact SCE, increased retail electricity sales have the effect of increasing utility rates
because the costs of the distribution grid are not currently borne by all customers that benefit from its use. See "Risk Factors
—Risks Relating to Southern California Edison Company—Competitive and Market Risks."
In the area of transmission infrastructure, SCE has experienced increased competition from independent transmission
providers under the FERC's transmission planning requirements rules, effective in 2011, that removed the incumbent public
utility transmission owners' federally-based right of first refusal to construct certain new transmission facilities and mandated
regional and interregional transmission planning. Regional entities, such as independent system operators, have processes for
regional and interregional transmission planning and the competitive solicitation and selection of developers (including
incumbent utilities) to build and own certain types of new transmission projects. The CAISO has held competitive
solicitations pursuant to these rules and independent service providers were selected.
118
Properties
SCE supplies electricity to its customers through extensive transmission and distribution networks. Its transmission facilities,
which include sub-transmission facilities and are located primarily in California but also in Nevada and Arizona, deliver
power from generating sources to the distribution network and consist of lines ranging from 33 kV to 500 kV and substations.
SCE's distribution system, which takes power from substations to customers, includes over 53,000 line miles of overhead
lines, 38,000 line miles of underground lines and approximately 800 substations, all of which are located in California. SCE
owns the generating facilities listed in the following table:
Generating Facility
Location
(in CA, unless
otherwise noted)
Fuel Type
Operator
SCE's
Ownership
Interest (%)
Net Physical
Capacity
(in MW)
Hydroelectric Plants (33)
Pebbly Beach Generating Station
(including battery storage)
Various
Hydroelectric
Catalina Island Diesel/Liquid
Petroleum Gas
Mountainview Units 3 and 4
Peaker Plants (3)
Enhanced Peaker Plants (2)
(gas turbine and battery storage)
Redlands
Various
Various
Natural Gas
Natural Gas
Natural gas
Palo Verde Nuclear Generating
Phoenix, AZ
Nuclear
Station
Solar PV Plants (25)
Fuel Cells (2)
Mira Loma Energy Storage
Energy Storage Projects (4)
Total
Various
Various
Mira Loma
Various
Photovoltaic
Natural Gas
Electricity
Electricity
SCE
SCE
SCE
SCE
SCE
APS
SCE
SCE
SCE
SCE
SCE's
Capacity
pro rata share
(in MW)
1,153
11 1
1,050
147
591
91
2
20
1,153
11 1
1,050
147
91
2
20
12.4
6,323.4
12.4
3,175.4
98 2
98 2
15.8%
3,739
100%
100%
100%
100%
100%
100%
100%
100%
100%
1 Pebbly Beach Generating Station consists of 11 MW of diesel generators and liquid petroleum gas micro-turbines supported by 1 MW of
battery storage capacity.
2 Enhanced peaker plants consist of 98 MW of gas turbine supported by 20 MW of battery storage capacity.
Certain of SCE's substations, and portions of its transmission, distribution and communication systems are located on lands
owned by the federal, state or local governments under licenses, permits, easements or leases, or on public streets or highways
pursuant to franchises. Certain of the documents evidencing such rights obligate SCE, under specified circumstances and at its
expense, to relocate such transmission, distribution, and communication facilities located on lands owned or controlled by
federal, state, or local governments.
The majority of SCE's hydroelectric plants and related reservoirs are located in whole or in part on U.S.-owned lands and are
subject to FERC licenses. Slightly over half of these plants have FERC licenses that expire at various times between 2021 and
2046. FERC licenses impose numerous restrictions and obligations on SCE, including the right of the United States to acquire
projects upon payment of specified compensation. When existing licenses expire, the FERC has the authority to issue new
licenses to third parties that have filed competing license applications, but only if their license application is superior to SCE's
and then only upon payment of specified compensation to SCE. New licenses issued to SCE are expected to contain more
restrictions and obligations than the expired licenses because laws enacted since the existing licenses were issued require the
FERC to give environmental objectives greater consideration in the licensing process. In addition, SCE expects additional
opposition to new licenses by environmental stakeholder groups. Substantially all of SCE's properties are subject to the lien of
a trust indenture securing first and refunding mortgage bonds. See "Notes to Consolidated Financial Statements—Note 5. Debt
and Credit Agreements."
Seasonality
Due to warm weather during the summer months and SCE's rate design, operating revenue during the third quarter of each
year is generally higher than the other quarters.
119
ENVIRONMENTAL CONSIDERATIONS
Greenhouse Gas Regulation
Edison International recognizes that its industry and the global economy are in the midst of a profound transformation toward
a low-carbon future as a response to climate change. SCE plans to be a key enabler of the adoption of new energy
technologies that benefit customers of the electric grid. See "Management Overview—Electricity Industry Trends" in the
MD&A.
Approximately 20% of power delivered to SCE's customers comes from utility-owned generation. In 2017, the sources of
utility-owned generation were 6% natural gas, 6 % nuclear, 7% large hydroelectric, 1% small hydroelectric, and less than 1%
solar generation. Approximately 30% of power that SCE delivered to customers in 2017 came from renewable sources.
Federal Regulation
In 2015, the US EPA issued rules governing GHG emission standards for existing fossil-fuel power plants. Known as the
Clean Power Plan, the rules established state-specific goals and guidelines for the reduction of GHG emissions from existing
sources. In 2016, the US Supreme Court blocked the implementation of the Clean Power Plan pending the completion of
judicial challenges. The US EPA also issued an Advanced Notice of Proposed Rulemaking indicating that the agency intends
to issue a full replacement of the Clean Power Plan. SCE does not expect the impact of either the original Clean Power Plan,
or its replacement, to be material because it does not own or purchase power from coal-fired generating facilities and a
significant portion of the power it delivers to its customers comes from renewable resources.
California Regulation
In 2006, California adopted a law that established a comprehensive program to reduce GHG emissions. The law required the
California Air Resources Board ("CARB") to develop regulations that would reduce California's GHG emissions to 1990
levels by 2020. In 2012, the CARB regulations established a California cap-and-trade program and in July 2017, California
law extended California’s market-based GHG reduction regulatory framework, which includes the Cap-and-Trade and Low
Carbon Fuel Standard programs, to 2030. In the California cap-and-trade program, all covered GHG emitters, including SCE,
are subject to a "cap" on their emissions designed to encourage entities to reduce emissions from their operations. Covered
entities must remit a compliance instrument for each ton of carbon dioxide equivalent gas emitted and can do so buying state-
issued emission allowances at auction or purchasing them in the secondary allowance market. GHG emitters can also meet up
to 8% of their cap-and-trade obligations by participating in verified offset programs, such as reforestation, that have
recognized effects on reducing atmospheric GHGs.
Additionally, the CPUC and the California Energy Commission adopted GHG emission performance standards that apply to
California investor-owned and publicly owned utilities' long-term arrangements for the purchase of electricity. The standards
that have been adopted prohibit these entities, including SCE, from entering into long-term financial commitments with
generators, such as coal plants, that emit more than a combined-cycle natural gas turbine generator.
California law also requires California retail sellers of electricity to deliver 33% of their customers' electricity requirements
from renewable resources, as defined in the statute. The CPUC set delivery quantity requirements applicable to SCE that
incrementally increase to 33% over several periods between January 2011 and December 2020. In October 2015, California
enacted a law that increased the amount of electricity from renewable resources that California retail sellers must deliver after
2020 to 40% of retail sales by December 2024, 45% of retail sales by December 2027, and 50% of retail sales by December
2030. SCE's delivery of eligible renewable energy to customers was approximately 21% of its total energy portfolio for the
compliance period 2011 – 2013, which met SCE's goal for that period. SCE also met its compliance goal for the compliance
period 2014 – 2016 by supplying its customer load with approximately 23% eligible renewable energy. SCE estimates its
2017 eligible renewable energy deliveries to be approximately 32% of its total energy portfolio. SCE anticipates that it will
comply with the requirements through 2030.
California has also enacted a law that requires the reduction of GHG emissions across the entire state economy to 40% below
1990 levels by 2030. California also supports climate action to meet the December 2015 Paris Agreement. Edison
International supports these California environmental initiatives and believes that this change in focus will likely lead to
increased electrification of the transportation and industrial sectors. A companion bill to the emission reduction law
prioritized direct emission reductions, established joint-legislative oversight committee on climate change, and highlighted
the increasing California legislative focus on disadvantaged community impacts of air pollution and climate change. See
"Management Overview—Electricity Industry Trends" in the MD&A.
120
Since 2010, SCE has reported its annual emissions from utility-owned generation each year to the US EPA by March 31 of
the following year. SCE's 2017 GHG emissions from utility-owned generation are estimated to be approximately 1.6 million
metric tons.
Environmental Risks
For more information on risks related to climate change, environmental regulation, and SCE's business strategy, see "Risk
Factors—Risks Relating to Southern California Edison Company—Operating Risks."
UNRESOLVED STAFF COMMENTS
None.
PROPERTIES
As a holding company, Edison International does not directly own any significant properties other than the stock of its
subsidiaries. The principal properties of SCE are described above under "Business—SCE—Properties."
LEGAL PROCEEDINGS
December 2017 Wildfires Litigation
The December 2017 Wildfires impacted portions of SCE's service territory and caused substantial damage to both residential
and business properties and service outages for SCE customers. The largest of these fires, known as the Thomas Fire,
originated in Ventura County and burned acreage located in both Ventura and Santa Barbara Counties. According to the most
recent California Department of Forestry and Fire Protection ("Cal Fire") incident information report, the Thomas Fire
burned over 280,000 acres, destroyed an estimated 1,063 structures, damaged an estimated 280 structures and resulted in two
fatalities.
As of February 20, 2018, SCE was aware of at least 17 lawsuits against it related to December 2017 Wildfires. One of these
lawsuits also mentions Edison International as a defendant. At least four of these lawsuits were filed as purported class
actions. The lawsuits, which have been filed in the superior courts of Ventura, Santa Barbara and Los Angeles Counties
allege, among other things, negligence, inverse condemnation, trespass, private nuisance, and violations of the public utility
and health and safety codes.
Montecito Mudslides Litigation
In January 2018, torrential rains in Santa Barbara County produced mudslides in Montecito and surrounding areas.
According to Santa Barbara County, the Montecito Mudslides destroyed an estimated 135 structures, damaged an estimated
324 structures, and resulted in at least 21 fatalities, with two additional fatalities presumed.
Six of the 17 lawsuits mentioned under "December 2017 Wildfires Litigation" above allege that SCE has responsibility for
the Thomas Fire and that the Thomas Fire proximately caused the Montecito Mudslides, resulting in the plaintiffs’ claimed
damages.
121
EXECUTIVE OFFICERS OF EDISON INTERNATIONAL
Executive Officer
Pedro J. Pizarro
Maria Rigatti
Adam S. Umanoff
Janet T. Clayton
J. Andrew Murphy
Gaddi H. Vasquez
Jacqueline Trapp
Kevin M. Payne
Ronald O. Nichols
Age at
February 22, 2018
Company Position
52
54
58
62
57
63
50
57
64
President and Chief Executive Officer
Executive Vice President and Chief Financial Officer
Executive Vice President and General Counsel
Senior Vice President, Corporate Communications
Senior Vice President, Strategic Planning
Senior Vice President, Government Affairs
Vice President, Human Resources
Chief Executive Officer, SCE
President, SCE
As set forth in Article IV of Edison International's and the relevant subsidiary's Bylaws, the elected officers of Edison
International and its subsidiaries are chosen annually by, and serve at the pleasure of, Edison International and the relevant
subsidiary's Board of Directors and hold their respective offices until their resignation, removal, other disqualification from
service, or until their respective successors are elected. All of the officers of Edison International and its subsidiaries have
been actively engaged in the business of Edison International and its subsidiaries for more than five years, except for
Messrs. Umanoff, Nichols, and Murphy, and have served in their present positions for the periods stated below. Additionally,
those officers who have had other or additional principal positions in the past five years had the following business
experience during that period:
Executive Officers
Pedro J. Pizarro
Maria Rigatti
Adam S. Umanoff
Janet T. Clayton
J. Andrew Murphy
Gaddi H. Vasquez
Jacqueline Trapp
Kevin M. Payne
Ronald O. Nichols
Company Position
Chief Executive Officer, Edison International
President, Edison International
President, SCE
President, EME1
Executive Vice President, Chief Financial Officer
Senior Vice President and Chief Financial Officer, SCE
President, Edison Mission Reorganization Trust (EME Reorg Trust)2
Senior Vice President, Chief Financial Officer, EME1
Executive Vice President and General Counsel
Edison International
Partner, Akin Gump Strauss Hauer & Feld3
Senior Vice President, Corporate Communications,
Edison International
Senior Vice President, Corporate Communications, SCE
Effective Dates
September 2016 to present
June 2016 to present
October 2014 to June 2016
January 2011 to March 2014
September 2016 to present
July 2014 to September 2016
April 2014 to June 2014
March 2011 to March 2014
January 2015 to present
May 2011 to December 2014
April 2011 to present
April 2013 to present
Senior Vice President, Strategic Planning, Edison International
Senior Managing Director, Macquarie Infrastructure and Real Assets4
September 2015 to present
January 2012 to August 2015
Senior Vice President, Government Affairs, Edison International and
SCE
Senior Vice President, Public Affairs, SCE
May 2013 to present
July 2009 to May 2013
Vice President, Human Resources, Edison International and SCE
Director, Executive Talent and Rewards, Edison International
June 2016 to present
July 2012 to June 2016
Chief Executive Officer, SCE
Senior Vice President, Customer Service, SCE
Vice President, Engineering and Technical Services, SCE
President, SCE
Senior Vice President, Regulatory Affairs, SCE
General Manager/Chief Executive Officer, Los Angeles Department of
Water and Power5
June 2016 to present
March 2014 to June 2016
September 2011 to February
2014
June 2016 to present
April 2014 to June 2016
January 2011 to February 2014
1 EME is a wholly-owned subsidiary of Edison International and an affiliate of SCE. EME filed for bankruptcy on December 17, 2012.
2 EME Reorg Trust was an entity formed as part of the EME bankruptcy to hold creditors' interests after the sale of EME's assets to NRG
and is not a parent, affiliate or subsidiary of SCE.
3 Akin Gump Strauss Hauer & Feld is a global law firm and is not a parent, affiliate or subsidiary of Edison International.
122
4 Macquarie Infrastructure and Real Assets is a global infrastructure management company and is not a parent, affiliate or subsidiary of
Edison International.
5 Los Angeles Department of Water and Power is a municipal water and power utility company and is not a parent, affiliate or subsidiary
of Edison International.
EXECUTIVE OFFICERS OF SOUTHERN CALIFORNIA EDISON COMPANY
Executive Officer
Kevin M. Payne
Ronald O. Nichols
William M. Petmecky III
Russell C. Swartz
Philip R. Herrington
Stuart R. Hemphill
Caroline Choi
Age at
February 22, 2018
57
64
48
66
55
54
49
Company Position
Chief Executive Officer
President
Senior Vice President and Chief Financial Officer
Senior Vice President and General Counsel
Senior Vice President, Transmission and Distribution
Senior Vice President, Customer and Operational Services
Senior Vice President, Regulatory Affairs
As set forth in Article IV of SCE's Bylaws, the elected officers of SCE are chosen annually by, and serve at the pleasure of,
SCE's Board of Directors and hold their respective offices until their resignation, removal, other disqualification from
service, or until their respective successors are elected. All of the above officers have been actively engaged in the business
of SCE, its parent company Edison International, and/or one of SCE's subsidiaries or other affiliates for more than five
years, except for Messrs. Nichols and Herrington, and have served in their present positions for the periods stated below.
Additionally, those officers who have had other or additional principal positions in the past five years had the following
business experience during that period:
Executive Officer
Kevin M. Payne
Ronald O. Nichols
William M. Petmecky
III
Russell C. Swartz
Philip R. Herrington
Company Position
Chief Executive Officer, SCE
Senior Vice President, Customer Service, SCE
Vice President, Engineering and Technical Services, SCE
President, SCE
Senior Vice President, Regulatory Affairs, SCE
General Manager/Chief Executive Officer, Los Angeles Department of
Water and Power1
Senior Vice President and Chief Financial Officer, SCE
Vice President and Treasurer, SCE
Vice President and Treasurer, EME2
Senior Vice President and General Counsel, SCE
Senior Vice President, Transmission and Distribution, SCE
Vice President, Power Production, SCE
President, US Competitive Generation/Market Business Lead, The AES
Corporation President and Chief Executive Officer, Dayton Power and
Light
Effective Dates
June 2016 to present
March 2014 to June 2016
September 2011 to March 2014
June 2016 to present
April 2014 to June 2016
January 2011 to February 2014
September 2016 to present
September 2014 to September 2016
September 2011 to March 2014
February 2011 to present
September 2017 to present
August 2015 to September 2017
July 2013 to July 2015
March 2012 to March 2014
Stuart R. Hemphill
Caroline Choi
Senior Vice President, Customer and Operational Services, SCE
Senior Vice President, Power Supply and Operational Services, SCE
Senior Vice President, Power Supply, SCE
Senior Vice President, Regulatory Affairs, SCE
Vice President Integrated Planning and Environmental Affairs, SCE
June 2016 to present
July 2014 to June 2016
January 2011 to July 2014
June 2016 to present
January 2012 to June 2016
1 Los Angeles Department of Water and Power is a municipal water and power utility company and is not a parent, affiliate or
subsidiary of SCE.
2 EME is a wholly-owned subsidiary of Edison International and an affiliate of SCE. EME filed for bankruptcy on December 17, 2012.
123
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information concerning executive officers of Edison International is set forth above under "Executive Officers of Edison
International." Information concerning executive officers of SCE is set forth above under "Executive Officers of Southern
California Edison Company." Other information responding to this section will appear in Edison International's and SCE's
Joint Proxy Statement under the headings "Item 1: Election of Directors," and is incorporated herein by this reference.
The Edison International Employee Code of Conduct is applicable to all officers and employees of Edison International and
its subsidiaries. The Code is available on Edison International's Internet website at www.edisoninvestor.com at "Corporate
Governance." Any amendments or waivers of Code provisions for the Company's principal executive officer, principal
financial officer, principal accounting officer or controller, or persons performing similar functions, will be posted on Edison
International's Internet website at www.edisoninvestor.com.
EXECUTIVE COMPENSATION
Information responding to this section will appear in the Joint Proxy Statement under the headings "Compensation
Discussion and Analysis," "Compensation Committee Interlocks and Insider Participation," "Executive Compensation"
"Director Compensation" and "Compensation Committee Report," and is incorporated herein by this reference.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information responding to this section will appear in the Joint Proxy Statement under the heading "Our Stock Ownership," and
is incorporated herein by this reference.
Equity Compensation Plans
All of Edison International's equity compensation plans that were in effect as of December 31, 2017 have been approved by
security holders. The following table sets forth, for each of Edison International's equity compensation plans, the number of
shares of Edison International Common Stock subject to outstanding options, warrants and rights to acquire such stock, the
weighted-average exercise price of those outstanding options, warrants and rights, and the number of shares remaining
available for future award grants as of December 31, 2017.
Plan Category
Equity compensation plans approved by
security holders
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities remaining
for future issuance under equity
compensation plans (excluding
securities reflected in column
(a)(c)
8,305,488 1
58.98
30,388,425 2
1 This amount includes 7,822,565 shares covered by outstanding stock options, 322,281 shares covered by outstanding restricted stock
unit awards, and 160,642 shares covered by outstanding deferred stock unit awards, with the outstanding shares covered by
outstanding restricted stock unit and deferred stock unit awards including the crediting of dividend equivalents through December 31,
2017. The weighted-average exercise price of awards outstanding under equity compensation plans approved by security holders
reflected in column (b) above is calculated based on the outstanding stock options under these plans as the other forms of awards
outstanding have no exercise price. Awards payable solely in cash are not reflected in this table.
2 This amount is the aggregate number of shares available for new awards under the Edison International 2007 Performance Incentive
Plan as of December 31, 2017, and includes shares that have become available from the Edison International Equity Compensation
Plan and the Edison International 2000 Equity Plan (together, the "Prior Plans"). However, no additional awards may be granted under
the Prior Plans. The maximum number of shares of Edison International Common Stock that may be issued or transferred pursuant to
awards under the Edison International 2007 Performance Incentive Plan is 66,000,000 shares, plus the number of any shares subject to
awards issued under the Prior Plans and outstanding as of April 26, 2007 that expire, cancel or terminate without being exercised or
shares being issued. Shares available under the Edison International 2007 Performance Incentive Plan may generally, subject to certain
limits set forth in the plan, be used for any type of award authorized under that plan, including stock options, restricted stock,
performance shares, restricted or deferred units, and stock bonuses.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information responding to this section will appear in the Joint Proxy Statement under the headings "Certain Relationships and
Related Transactions," and "Our Corporate Governance—Is SCE subject to the same corporate governance stock exchange
rules as EIX?", "—How does the Board determine which directors are independent?", "—Which directors has the Board
124
determined are independent to serve on the Board?" and "Where can I find the Company's corporate governance documents?"
and is incorporated herein by this reference.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information responding to this section will appear in the Joint Proxy Statement under the heading "Independent Auditor
Fees," and is incorporated herein by this reference.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
Edison International
Edison International Common Stock is traded on the New York Stock Exchange under the symbol "EIX."
Market information responding to this section is included in "Notes to Consolidated Financial Statements—Note 17.
Quarterly Financial Data (Unaudited)." There are restrictions on the ability of Edison International's subsidiaries to transfer
funds to Edison International that materially limit the ability of Edison International to pay cash dividends. Such restrictions
are discussed in the MD&A under the heading "Liquidity and Capital Resources—SCE—SCE Dividends," and in "Notes to
Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies—SCE Dividend Restrictions." The
number of common stockholders of record of Edison International was 32,278 on February 20, 2018. In addition, Edison
International cannot pay dividends if it does not meet California law requirements on retained earnings and solvency.
Southern California Edison Company
As a result of the formation of a holding company described under the heading "Business" above, all of the issued and
outstanding common stock of SCE is owned by Edison International and there is no market for such stock. Information with
respect to frequency and amount of cash dividends is included in "Notes to the Consolidated Financial Statements—Note 17.
Quarterly Financial Data (Unaudited)." There are restrictions on SCE's ability to pay dividends to Edison International. Such
restrictions are discussed in the MD&A under the heading "Liquidity and Capital Resources—SCE—SCE Dividends," and in
"Notes to Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies—SCE Dividend
Restrictions."
Purchases of Equity Securities by Edison International and Affiliated Purchasers
The following table contains information about all purchases of Edison International Common Stock made by or on behalf of
Edison International in the fourth quarter of 2017.
Period
October 1, 2017 to October 31, 2017
November 1, 2017 to November 30, 2017
December 1, 2017 to December 31, 2017
(a) Total
Number of
Shares
(or Units)
Purchased1
47,999
410,890
668,154
Total
1,127,043
$
(b) Average
Price Paid per
Share (or Unit)1
78.25
$
81.45
69.63
74.31
(c) Total
Number of Shares
(or Units)
Purchased
as Part of
Publicly
Announced
Plans or
Programs
(d) Maximum
Number (or
Approximate
Dollar Value)
of Shares
(or Units) that May
Yet Be Purchased
Under the Plans or
Programs
—
—
—
—
—
—
—
—
1 The shares were purchased by agents acting on Edison International's behalf for delivery to plan participants to fulfill requirements in
connection with Edison International's: (i) 401(k) Savings Plan; (ii) Dividend Reinvestment and Direct Stock Purchase Plan; and
(iii) long-term incentive compensation plans. The shares were purchased in open-market transactions pursuant to plan terms or
participant elections. The shares were never registered in Edison International's name and none of the shares purchased were retired as a
result of the transactions.
125
Comparison of Five-Year Cumulative Total Return
$250
$200
$150
$100
12/12
12/13
12/14
12/15
12/16
12/17
Edison International
S&P 500 Index
Philadelphia Utility Index
Edison International
S & P 500 Index
Philadelphia Utility Index
2012
2013
2014
2015
2016
2017
$ 100
$ 105
$ 153
$ 142
$ 178
$ 161
100
100
132
111
150
143
153
134
171
157
208
178
Note: Assumes $100 invested on December 31, 2012 in stock or index including reinvestment of dividends. Performance of the Philadelphia Utility Index is
regularly reviewed by management and the Board of Directors in understanding Edison International's relative performance and is used in conjunction with
elements of Edison International's compensation program.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) Financial Statements
See Consolidated Financial Statements listed in the Table of Contents of this report.
(a) (2) Report of Independent Registered Public Accounting Firm and Schedules Supplementing Financial Statements
Edison International
The following documents may be found in this report at the indicated page numbers under the headings "Financial Statements
and Supplementary Data" and "Exhibits and Financial Statement Schedules" in the Table of Contents of this report.
Report of Independent Registered Public Accounting Firm - Edison International
Schedule I – Condensed Financial Information of Edison International Parent
Schedule II – Valuation and Qualifying Accounts of Edison International
Schedules III through V, inclusive, for Edison International are omitted as not required or not applicable.
Southern California Edison Company
The following documents may be found in this report at the indicated page numbers under the headings "Financial Statements
and Supplementary Data" and "Exhibits and Financial Statement Schedules" in the Table of Contents of this report.
Report of Independent Registered Public Accounting Firm - SCE
Schedule II – Valuation and Qualifying Accounts of SCE
Schedules I and III through V, inclusive, for SCE are omitted as not required or not applicable.
(a) (3) Exhibits
126
EXHIBIT INDEX
Exhibit
Number
Description
Edison International
3.1
3.2
Certificate of Restated Articles of Incorporation of Edison International, effective December 19, 2006 (File
No. 1-9936, filed as Exhibit 3.1 to Edison International's Form 10-K for the year ended December 31, 2006)*
Bylaws of Edison International, as amended October 27, 2016 (File No. 1-9936, filed as Exhibit 3.1 to Edison
International's Form 10-Q dated November 1, 2016 and filed November 1, 2016)*
Southern California Edison Company
3.3
3.4
Restated Articles of Incorporation of Southern California Edison Company, effective March 2, 2006, together
with all Certificates of Determination of Preference Stock issued since March 2, 2006 (File No. 1-2313 filed as
Exhibit 3.1 to Southern California Edison Company's Form 10-Q for the quarter ended June 30, 2017)*
Bylaws of Southern California Edison Company, as amended October 27, 2016 (File No. 1-2313, filed as
Exhibit 3.2 to Southern California Edison Company's Form 10-Q dated November 1, 2016 and filed November 1,
2016)*
Edison International
4.1
Senior Indenture, dated September 10, 2010 (File No. 1-9936, filed as Exhibit 4.1 to Edison International's
Form 10-Q for the quarter ended September 30, 2010)*
Southern California Edison Company
4.2
4.3
Southern California Edison Company First Mortgage Bond Trust Indenture, dated as of October 1, 1923 (File
No. 1-2313, filed as Exhibit 4.2 to Southern California Edison Company's Form 10-K for the year ended
December 31, 2010)*
Southern California Edison Company Indenture, dated as of January 15, 1993
Edison International and Southern California Edison Company
10.1**
10.2**
10.3**
10.3.1**
10.3.2**
10.4**
10.5**
10.6**
10.6.1**
10.7**
Edison International Director Deferred Compensation Plan, as amended effective June 19, 2014 (File No.
1-9936, filed as Exhibit 10.3 for the quarter ended June 30, 2014)*
Edison International 2008 Director Deferred Compensation Plan, as amended and restated effective June 19,
2014 (File No. 1-9936, filed as Exhibit No. 10.2 for the quarter ended June 30, 2014)*
Director Grantor Trust Agreement, dated August 1995 (File No. 1-9936, filed as Exhibit 10.10 to Edison
International's Form 10-K for the year ended December 31, 1995)*
Director Grantor Trust Agreement Amendment 2002-1, effective May 14, 2002 (File No. 1-9936, filed as
Exhibit 10.4 to Edison International's Form 10-Q for the quarter ended June 30, 2002)*
Executive and Director Grantor Trust Agreements Amendment 2008-1 (File No. 1-9936, filed as Exhibit
No. 10.6.2 to Edison International's Form 10-K for the year ended December 31, 2008)*
Edison International Executive Deferred Compensation Plan, as amended and restated effective June 19, 2014
(File No. 1-9936, filed as Exhibit 10.4 for the quarter ended June 30, 2014)*
Edison International 2008 Executive Deferred Compensation Plan, as amended and restated effective
December 9, 2015* (File No. 1-9936, filed as Exhibit No. 10.5 to Edison International's Form 10-K for the year
ended December 31, 2015)*
Executive Grantor Trust Agreement, dated August 1995 (File No. 1-9936, filed as Exhibit 10.12 to Edison
International's Form 10-K for the year ended December 31, 1995)*
Executive Grantor Trust Agreement Amendment 2002-1, effective May 14, 2002 (File No. 1-9936, filed as
Exhibit 10.3 to Edison International's Form 10-Q for the quarter ended June 30, 2002)*
Southern California Edison Company Executive Retirement Plan, as amended effective June 19, 2014 (File No.
1-9936, filed as Exhibit 10.7 for the quarter ended June 30, 2014)*
10.7.1**
Edison International 2008 Executive Retirement Plan, as amended and restated effective August 24, 2016
10.8**
10.9**
Edison International Executive Incentive Compensation Plan, as amended and restated effective August 24, 2016
Edison International 2008 Executive Disability Plan, as amended and restated effective January 1, 2016 (File No.
1-9936, filed as Exhibit No. 10.2 to Edison International's Form 10-Q for the quarter ended March 31, 2016)*
127
Exhibit
Number
10.10**
Description
Edison International 2007 Performance Incentive Plan as amended and restated effective May 2, 2016 (File No.
1-9936, filed as Exhibit 10.1 to Edison International's Form 8-K dated April 28, 2016 and filed April 29, 2016)*
10.10.1**
Edison International 2008 Long-Term Incentives Terms and Conditions (File No. 1-9936, filed as Exhibit 10.2 to
Edison International's Form 10-Q for the quarter ended March 31, 2008)*
10.10.2**
Edison International 2009 Long-Term Incentives Terms and Conditions (File No. 1-9936, filed as Exhibit 10.2 to
Edison International's Form 10-Q for the quarter ended March 31, 2009)*
10.10.3**
Edison International 2010 Long-Term Incentives Terms and Conditions (File No. 1-9936, filed as Exhibit 10.2 to
Edison International's Form 10-Q for the quarter ended March 31, 2010)*
10.10.4**
Edison International 2011 Long-Term Incentives Terms and Conditions (File No. 1-9936, filed as Exhibit 10.2 to
Edison International's Form 10-Q for the quarter ended March 31, 2011)*
10.10.5**
Edison International 2012 Long-Term Incentives Terms and Conditions (File No. 1-9936, filed as Exhibit 10.2 to
Edison International's Form 10-Q for the quarter ended March 31, 2012)*
10.10.6**
Edison International 2013 Long-Term Incentives Terms and Conditions (File No. 1-9936, filed as Exhibit 10.2 to
Edison International's Form 10-Q for the quarter ended March 31, 2013)*
10.10.7**
Edison International 2014 Long-Term Incentives Terms and Conditions (File, No. 1-9936, filed as Exhibit 10.3 to
Edison International's Form 10-Q for the quarter ended March 31, 2014)*
10.10.8**
Edison International 2015 Long-Term Incentives Terms and Conditions (File, No. 1-9936, filed as Exhibit 10.2 to
Edison International's Form 10-Q for the quarter ended March 31, 2015)*
10.10.9**
Edison International 2016 Long-Term Incentives Terms and Conditions (File, No. 1-9936, filed as Exhibit 10.4 to
Edison International's Form 10-Q for the quarter ended March 31, 2016)*
10.10.10** Edison International 2017 Long-Term Incentives Terms and Conditions (File, No. 1-9936, filed as Exhibit 10.2 to
Edison International's Form 10-Q for the quarter ended March 31, 2017)*
10.11**
10.12**
Director Nonqualified Stock Option Terms and Conditions under the 2007 Performance Incentive Plan
(File 1-9936, filed as Exhibit 10.2 to Edison International's Form 10-Q for the quarter ended March 31, 2007)*
Edison International and Edison Mission Energy Affiliate Option Exchange Offer Summary of Deferred
Compensation Alternatives, dated July 3, 2000 (File No. 1-13434, filed as Exhibit 10.94 to the Edison Mission
Energy's Form 10-K for the year ended December 31, 2001)*
10.12.1**
Edison International and Edison Mission Energy Affiliate Option Exchange Offer Circular, dated July 3, 2000
(File No. 1-13434, filed as Exhibit 10.93 to the Edison Mission Energy's Form 10-K for the year ended
December 31, 2001)*
10.13**
Edison International 2008 Executive Severance Plan, as amended and restated effective December 31, 2017
10.14**
10.15**
10.16
10.16.1
10.16.2
10.16.3
Edison International and Southern California Edison Company Director Compensation Schedule, as adopted
August 24, 2017 (File No. 1-9936 filed as Exhibit 10.1 to Edison International’s Form 10-Q for the quarter ended
September 30, 2017)*
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)*
Amended and Restated Agreement for the Allocation of Income Tax Liabilities and Benefits among Edison
International, Southern California Edison Company and The Mission Group dated September 10, 1996 (File
No. 1-9936, filed as Exhibit 10.3 to Edison International's Form 10-Q for the quarter ended September 30,
2002)*
Amended and Restated Tax-Allocation Agreement among The Mission Group and its first-tier subsidiaries dated
September 10, 1996 (File No. 1-9936, filed as Exhibit 10.3.1 to Edison International's Form 10-Q for the quarter
ended September 30, 2002)*
Amended and Restated Tax-Allocation Agreement between Edison Capital and Edison Funding Company
(formerly Mission First Financial and Mission Funding Company) dated May 1, 1995 (File No. 1-9936, filed as
Exhibit 10.3.2 to Edison International's Form 10-Q for the quarter ended September 30, 2002)*
Amended and Restated Tax-Allocation Agreement between Mission Energy Holding Company and Edison
Mission Energy dated February 13, 2012 (File No. 333-68630, filed as Exhibit 10.11 to Edison Mission Energy's
Form 10-K for the year ended December 31, 2011)*
128
Exhibit
Number
10.16.4
10.16.5
10.17**
10.18**
10.19**
Description
Modification No. 1 to the Amended and Restated Tax-Allocation Agreement between Mission Energy Holding
Company and Edison Mission Energy dated February 13, 2012 (File No. 333-68630, filed as Exhibit 10.1 to
Edison Mission Energy's Form 8-K dated November 15, 2012 and filed November 21, 2012)*
Amended and Restated Administrative Agreement Re Tax Allocation Payments, dated February 13, 2012, among
Edison International and subsidiary parties. (File No. 333-68630, filed as Exhibit 10.12 to Edison Mission
Energy's Form 10-K for the year ended December 31, 2011)*
Form of Indemnity Agreement between Edison International and its Directors and any officer, employee or other
agent designated by the Board of Directors (File No. 1-9936, filed as Exhibit 10.5 to Edison International's
Form 10-Q for the period ended June 30, 2005, and filed on August 9, 2005)*
Edison International 2017 Executive Annual Incentive Program (File No. 1-9936, filed as Exhibit 10.1 to Edison
International's Form 10-Q for the quarter ended March 31, 2017)*
Section 409A and Other Conforming Amendments to Terms and Conditions (File No. 1-9936, filed as Exhibit
No. 10.37 to Edison International's Form 10-K for the year ended December 31, 2008)*
10.19.1**
Section 409A Amendments to Director Terms and Conditions (File No. 1-9936, filed as Exhibit No. 10.37.1 to
Edison International's Form 10-K for the year ended December 31, 2008)*
10.2
10.21
10.22
10.23
10.24
21
23.1
23.2
24.1
24.2
31.1
31.2
32.1
32.2
101.1
Amended and Restated Credit Agreement, dated as of July 14, 2015 among Edison International and the Lenders
named therein (File 1-9936, filed as Exhibit 10.1 to Edison International's Form 8-K dated July 14, 2015 and
filed July 17, 2015)*
Amended and Restated Credit Agreement, dated as of July 14, 2015, among Southern California Edison
Company and the Lenders named therein (File 1-2313, filed as Exhibit 10.2 to Southern California Edison
Company's Form 8-K dated July 14, 2015 and filed July 17, 2015)*
Term Loan Credit Agreement, dated as of January 26, 2018, among Edison International, the several banks and
other financial institutions from time to time parties thereto, and Wells Fargo Bank, N.A., as administrative agent
for the lenders (File 1-2313, filed as Exhibit 10.1 to Southern California Edison Company's Form 8-K dated
January 26, 2018 and filed January 26, 2018)*
Amended and Restated Settlement Agreement between Southern California Edison Company, San Diego Gas &
Electric Company, the Office of Ratepayer Advocates, The Utility Reform Network, Friends of the Earth, and the
Coalition of California Utility Employees, dated September 23, 2014 (File No. 1-9936, filed as Exhibit 10.1 to
Edison International's Form 10-Q for the quarter ended September 30, 2014)*
Revised San Onofre Settlement Agreement dated January 30, 2018 (File No. 1-9936, filed as exhibit 10.1 to
Edison International's Form 8-K dated January 30, 2018 and filed January 31, 2018)*
Subsidiaries of the Registrants
Consent of Independent Registered Public Accounting Firm (Edison International)
Consent of Independent Registered Public Accounting Firm (Southern California Edison Company)
Powers of Attorney of Edison International and Southern California Edison Company
Certified copies of Resolutions of Boards of Edison International and Southern California Edison Company
Directors Authorizing Execution of SEC Reports
Certifications of the Chief Executive Officer and Chief Financial Officer of Edison International pursuant to
Section 302 of the Sarbanes-Oxley Act
Certifications of the Chief Executive Officer and Chief Financial Officer of Southern California Edison
Company pursuant to Section 302 of the Sarbanes-Oxley Act
Certifications of the Chief Executive Officer and the Chief Financial Officer of Edison International required by
Section 906 of the Sarbanes-Oxley Act
Certifications of the Chief Executive Officer and the Chief Financial Officer of Southern California Edison
Company required by Section 906 of the Sarbanes-Oxley Act
Financial statements from the annual report on Form 10-K of Edison International for the year ended
December 31, 2017, filed on February 22, 2018, 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; (v) Consolidated Statements of Changes in Equity and (vi) the Notes to
Consolidated Financial Statements
129
Exhibit
Number
101.2
Description
Financial statements from the annual report on Form 10-K of Southern California Edison Company for the year
ended December 31, 2017, filed on February 22, 2018, 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; (v) Consolidated Statements of Changes in Equity and (vi) the
Notes to Consolidated Financial Statements
________________________________________
*
Incorporated by reference pursuant to Rule 12b-32.
** Indicates a management contract or compensatory plan or arrangement, as required by Item 15(a)(3).
Edison International and SCE will furnish a copy of any exhibit listed in the accompanying Exhibit Index upon written request
and upon payment to Edison International or SCE of their reasonable expenses of furnishing such exhibit, which shall be limited
to photocopying charges and, if mailed to the requesting party, the cost of first-class postage.
130
SCHEDULES SUPPLEMENTING FINANCIAL STATEMENTS
EDISON INTERNATIONAL
SCHEDULE I – CONDENSED FINANCIAL INFORMATION OF PARENT
CONDENSED BALANCE SHEETS
(in millions)
Assets:
Cash and cash equivalents
Other current assets
Total current assets
Investments in subsidiaries
Deferred income taxes
Other long-term assets
Total assets
Liabilities and equity:
Short-term debt
Current portion of long-term debt
Other current liabilities
Total current liabilities
Long-term debt
Other long-term liabilities
Total equity
Total liabilities and equity
$
$
$
December 31,
2017
2016
$
524
340
864
6
261
267
13,659
13,459
500
91
15,114
1,139
—
467
1,606
1,193
644
$
$
646
108
14,480
539
400
484
1,423
397
664
11,671
11,996
$
15,114
$
14,480
131
EDISON INTERNATIONAL
SCHEDULE I – CONDENSED FINANCIAL INFORMATION OF PARENT
CONDENSED STATEMENTS OF INCOME
For the Years Ended December 31, 2017, 2016 and 2015
(in millions)
Interest income from affiliates
Operating expenses and interest expense
Loss before equity in earnings of subsidiaries
Equity in earnings of subsidiaries
Income before income taxes
Income tax expense (benefit)
Income from continuing operations
Income from discontinued operations, net of tax
Net income
$
2017
2016
2015
$
— $
6
$
3
92
(92)
739
647
82
565
—
565
86
(80)
1,337
1,257
(42)
1,299
12
78
(75)
1,025
950
(35)
985
35
$
1,311
$
1,020
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31, 2017, 2016 and 2015
(in millions)
Net income
Other comprehensive income, net of tax
Comprehensive income
2017
2016
2015
$
$
565
10
575
$
$
1,311
3
1,314
$
$
1,020
2
1,022
132
EDISON INTERNATIONAL
SCHEDULE I – CONDENSED FINANCIAL INFORMATION OF PARENT
CONDENSED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2017, 2016 and 2015
(in millions)
Net cash provided by operating activities
Cash flows from financing activities:
Long-term debt issued
Long-term debt issuance costs
Long-term debt matured
Payable due to affiliates
Short-term debt financing, net
Payments for stock-based compensation
Receipts for stock-based compensation
Dividends paid
Net cash provided by (used in) financing activities
Capital contributions to affiliate
Loans to affiliate
Net cash used in investing activities:
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Note 1. Basis of Presentation
2017
2016
2015
$
462
$
493
$
641
798
(5)
(400)
8
600
(260)
144
(707)
178
(122)
—
(122)
518
6
400
(3)
—
34
(108)
(95)
51
(626)
(347)
(147)
—
(147)
(1)
7
$
524
$
6
$
—
—
—
54
26
(114)
72
(544)
(506)
(30)
(106)
(136)
(1)
8
7
The accompanying condensed financial statements of Edison International Parent should be read in conjunction with the
consolidated financial statements and notes thereto of Edison International and subsidiaries ("Registrant") included in this
Form 10-K. Edison International's Parent significant accounting policies are consistent with those of the Registrant, SCE and
other wholly owned and controlled subsidiaries.
Dividends Received
Edison International Parent received cash dividends from SCE of $573 million, $701 million and $758 million in 2017, 2016
and 2015, respectively. During the fourth quarter of 2017, SCE declared a dividend to Edison International of $212 million,
which was paid on January 31, 2018.
Dividend Restrictions
The CPUC regulates SCE's capital structure which limits the dividends it may pay Edison International. Under CPUC
regulations, SCE may make distributions to Edison International as long as the common equity component of SCE's capital
structure remains at or above 48% on a 13-month average basis, or otherwise satisfies the CPUC requirements.
If the Revised San Onofre Settlement Agreement is approved by the CPUC, SCE may exclude the $448 million after-tax
charge resulting from the implementation of the Revised San Onofre Settlement Agreement from its ratemaking capital
structure. At December 31, 2017, without excluding the $448 million after-tax charge, SCE's 13-month average common
equity component of total capitalization was 50.0% and the maximum additional dividend that SCE could pay to Edison
International under this limitation was approximately $511 million, resulting in a restriction on net assets of approximately
$14.2 billion. If the Revised San Onofre Settlement Agreement had been approved by the CPUC at December 31, 2017, the
common equity component of SCE's capital structure would have been 50.1% on a 13-month average basis.
133
Note 2. Debt and Credit Agreements
Long-Term Debt
During the first quarter of 2017, Edison International issued $400 million of 2.125% senior notes due in 2020. The proceeds
were used to repay commercial paper borrowings and for general corporate purposes. In August 2017, Edison International
issued $400 million of 2.40% senior notes due in 2022. In addition, at December 31, 2017 and 2016, respectively, Edison
International Parent had $400 million of 2.95% senior notes due in 2023 and $400 million of 3.75% senior notes, which were
paid in September 2017 with the proceeds from the August 2017 issuance as discussed above.
Credit Agreements and Short-Term Debt
The following table summarizes the status of the credit facility at December 31, 2017:
(in millions)
Commitment
Outstanding borrowings
Amount available
$
$
1,250
(1,139)
111
During the second quarter of 2017, Edison International Parent amended the credit facility to extend the maturity date for the
$1.25 billion credit facility to July 2022. At December 31, 2017, the outstanding commercial paper, net of discount, was
$639 million at a weighted-average interest rate of 1.70%. This commercial paper was supported by the $1.25 billion multi-
year revolving credit facility. In December 2017, Edison International Parent borrowed $500 million from the credit facility
which had an interest rate of 2.56% on December 31, 2017. In January 2018, Edison International repaid its $500 million
borrowings with cash on hand. At December 31, 2016, the outstanding commercial paper, net of discount, was $538 million
at a weighted-average interest rate of 0.97%.
In January 2018, Edison International Parent borrowed $500 million under a Term Loan Agreement due in January 2019,
with a variable interest rate based on the London Interbank Offered Rate plus 60 basis points. The proceeds were used to
repay Edison International Parent's commercial paper borrowings discussed above.
The debt covenant in Edison International's credit facility requires a consolidated debt to total capitalization ratio of less than
or equal to 0.65 to 1. At December 31, 2017, Edison International's consolidated debt to total capitalization ratio was 0.51
to 1.
Note 3. Related-Party Transactions
Edison International's Parent expense from services provided by SCE was $3 million annually in 2017, 2016 and 2015.
Edison International's Parent interest expense from loans due to affiliates was $5 million in 2017, $3 million in 2016 and
$6 million in 2015. Edison International Parent had current related-party receivables of $256 million and $262 million and
current related-party payables of $235 million and $221 million at December 31, 2017 and 2016, respectively. During 2017, a
related-party note receivable of $184 million was converted into a capital contribution. Edison International Parent had long-
term related-party receivables of $81 million and $103 million at December 31, 2017 and 2016, respectively, and long-term
related-party payables of $200 million and $243 million at December 31, 2017 and 2016, respectively.
Note 4. Contingencies
For a discussion of material contingencies see "Notes to Consolidated Financial Statements—Note 7. Income Taxes" and
"—Note 11. Commitments and Contingencies."
134
EDISON INTERNATIONAL
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
(in millions)
For the Year ended December 31, 2017
Allowance for uncollectible accounts
Customers
All others
Total allowance for uncollectible amounts
Tax valuation allowance
For the Year ended December 31, 2016
Allowance for uncollectible accounts
Customers
All others
Total allowance for uncollectible amounts
Tax valuation allowance
For the Year ended December 31, 2015
Allowance for uncollectible accounts
Customers
All others
Total allowance for uncollectible amounts
Tax valuation allowance
a Accounts written off, net.
Additions
Balance at
Beginning
of
Period
Charged to
Costs and
Expenses
Charged to
Other
Accounts
Deductions
Balance at
End of
Period
$
$
$
$
$
$
$
$
$
41.2
20.6
61.8
24.0
46.2
15.5
61.7
32.0
48.9
23.3
72.2
29.0
$
$
$
$
$
$
$
$
$
12.9
13.5
26.4
$
$
— $
— $
—
— $
4.0 c $
17.5
$
16.8
34.3 a $
— $
17.7
15.9
33.6
$
$
— $
— $
—
— $
— $
22.7
$
10.8
33.5 a $
8.0 b $
23.9
18.0
41.9
3.0
$
$
$
— $
—
— $
— $
26.6
$
25.8
52.4 a $
— $
36.6
17.3
53.9
28.0
41.2
20.6
61.8
24.0
46.2
15.5
61.7
32.0
b
In 2016, Edison International determined that $8 million of the assets subject to a valuation allowance had no expectation of recovery
and were written off.
c As a result of Tax Reform, Edison International recorded an additional valuation allowance of $4 million for non-California state net
operating loss carryforwards estimated to expire unused.
135
SOUTHERN CALIFORNIA EDISON COMPANY
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
(in millions)
For the Year ended December 31, 2017
For the Year ended
Customers
All others
Total allowance for uncollectible accounts
For the Year ended December 31, 2016
Allowance for uncollectible accounts
Customers
All others
Total allowance for uncollectible accounts
For the Year ended December 31, 2015
Allowance for uncollectible accounts
Customers
All others
Total allowance for uncollectible accounts
a Accounts written off, net.
Additions
Balance at
Beginning
of
Period
Charged to
Costs and
Expenses
Charged to
Other
Accounts
Deductions
Balance at
End of
Period
$
$
$
$
$
$
40.5
20.6
61.1
46.2
15.5
61.7
48.9
18.7
67.6
$
$
$
$
$
$
12.9
13.5
26.4
17.0
15.9
32.9
23.9
18.0
41.9
$
$
$
$
$
$
— $
—
— $
17.4
$
16.8
34.2 a $
36.0
17.3
53.3
— $
—
— $
22.7
$
10.8
33.5 a $
40.5
20.6
61.1
— $
—
— $
26.6
$
21.2
47.8 a $
46.2
15.5
61.7
136
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrants have duly caused
this report to be signed on their behalf by the undersigned, thereunto duly authorized.
EDISON INTERNATIONAL
SOUTHERN CALIFORNIA EDISON COMPANY
By:
/s/ Aaron D. Moss
By:
/s/ Aaron D. Moss
Aaron D. Moss
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
Aaron D. Moss
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
Date: February 22, 2018
Date: February 22, 2018
137
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrants and in the capacities and on the date indicated.
Signature
A. Principal Executive Officers
Pedro J. Pizarro*
Kevin Payne*
B. Principal Financial Officers
Maria Rigatti*
William M. Petmecky III*
C. Principal Accounting Officers
Aaron D. Moss
Aaron D. Moss
D. Directors (Edison International and
Southern California Edison Company,
unless otherwise noted)
Michael C. Camuñez*
Vanessa C.L. Chang*
Louis Hernandez, Jr.*
James T. Morris*
Pedro J. Pizarro*
Kevin Payne (SCE only)*
Timothy T. O’Toole*
Linda G. Stuntz*
William P. Sullivan*
Ellen O. Tauscher*
Peter J. Taylor*
Brett White*
Title
President,
Chief Executive Officer and Director
(Edison International)
Chief Executive Officer and SCE Director
(Southern California Edison Company)
Executive Vice President and Chief Financial Officer
(Edison International)
Senior Vice President and Chief Financial Officer
(Southern California Edison Company)
Vice President and Controller
(Edison International)
Vice President and Controller
(Southern California Edison Company)
Director
Director
Director
Director
Director
Director
Director
Director
Chair of the Edison International Board and Director
Director
Director
Director
*By:
/s/ Aaron D. Moss
*By:
/s/ Aaron D. Moss
Aaron D. Moss
Vice President and Controller
(Attorney-in-fact for EIX Directors and Officers)
Aaron D. Moss
Vice President and Controller
(Attorney-in-fact for SCE Directors and Officers)
Date: February 22, 2018
Date: February 22, 2018
138
Edison International and Southern California Edison 2017 Annual Report
Board of Directors
Edison International
William P. Sullivan 3, 4
Chair of the Board
Retired Chief Executive Officer
Agilent Technologies
Director since 2015
Pedro J. Pizarro
President and Chief Executive Officer
Edison International
Director of EIX since 2016
Director of SCE since 2014
Michael C. Camuñez 1, 4
President and Chief Executive Officer
Monarch Global Strategies LLC
Director since 2017
Ellen O. Tauscher 3, 4
Strategic Advisor
Baker, Donelson, Bearman,
Caldwell & Berkowitz
Director since 2013
Peter J. Taylor 1, 2
President
ECMC Foundation
Director since 2011
Brett White 2, 4
Chairman and
Chief Executive Officer
Cushman & Wakefield
Director since 2007
1 Audit Committee
2 Compensation and Executive
Personnel Committee
3 Finance, Operations &
Safety Oversight Committee
4 Nominating/Corporate Governance
Committee
Vanessa C.L. Chang 1, 2
Director
EL & EL Investments
Director since 2007
James T. Morris 1, 2
Chairman, President and
Chief Executive Officer
Pacific Life Insurance Co.
Director since 2016
Timothy T. O’Toole 2, 3
Chief Executive Officer
FirstGroup plc
Director since 2017
Linda G. Stuntz 3, 4
Partner
Stuntz, Davis & Staffier, P.C.
Director since 2014
Pedro J. Pizarro
President and
Chief Executive Officer
Maria C. Rigatti
Executive Vice President and
Chief Financial Officer
Adam S. Umanoff
Executive Vice President and
General Counsel
Janet T. Clayton
Senior Vice President
Corporate Communications
J. Andrew Murphy
Senior Vice President
Strategy and Corporate
Development
Jacqueline Trapp
Senior Vice President
Human Resources
Gaddi H. Vasquez
Senior Vice President
Government Affairs
Robert C. Boada
Vice President and Treasurer
David J. Heller
Vice President
Enterprise Risk Management
and Insurance, and General Auditor
Barbara E. Mathews
Vice President
Associate General Counsel,
Chief Governance Officer and
Corporate Secretary
Michael D. Montoya
Vice President and
Chief Ethics and
Compliance Officer
Aaron D. Moss
Vice President and
Controller
Sam Ramraj
Vice President
Investor Relations
Oded J. Rhone
Vice President
M&A and Corporate Development
Andrea L. Wood
Vice President
Tax
45841 Merrill A293647 8459.17_EIX AR_BOD_Final.indd 3
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Edison International and Southern California Edison 2017 Annual Report
Southern California Edison
Edison Energy
Jay B. Zoellner
President and
Chief Executive Officer
SoCore Energy
Robert L. Scheuermann
President
Kevin M. Payne
Chief Executive Officer
Ronald O. Nichols
President
Caroline Choi
Senior Vice President
Regulatory Affairs
Janet T. Clayton
Senior Vice President
Corporate Communications
Stuart R. Hemphill
Senior Vice President
Customer & Operational Services
Philip R. Herrington
Senior Vice President
Transmission & Distribution
Todd L. Inlander
Senior Vice President and
Chief Information Officer
William M. Petmecky, III
Senior Vice President and
Chief Financial Officer
Russell C. Swartz
Senior Vice President and
General Counsel
Jacqueline Trapp
Senior Vice President
Human Resources
Gaddi H. Vasquez
Senior Vice President
Government Affairs
Kevin E. Walker
Senior Vice President
Power Supply
Jill C. Anderson
Vice President
Customer Programs & Services
Douglas R. Bauder
Vice President
Operational Services
Colin E. Cushnie
Vice President
Energy Procurement & Management
Chris C. Dominski
Vice President
Operational Finance
Gregory M. Ferree
Vice President
Distribution
Paul J. Grigaux
Vice President
Transmission, Substations
and Operations
Michael Marelli
Vice President
Business Customer Division
Andrew S. Martinez
Vice President
Safety, Security and
Business Resiliency
Nestor Martinez
Vice President
Engineering & Technical Services
Barbara E. Mathews
Vice President
Associate General Counsel,
Chief Governance Officer and
Corporate Secretary
Michael D. Montoya
Vice President and
Chief Ethics and Compliance Officer
Aaron D. Moss
Vice President and Controller
Thomas J. Palmisano
Vice President
Decommissioning and
Chief Nuclear Officer
Steven D. Powell
Vice President
Strategy, Integrated Planning
and Performance
J. Christopher Thompson
Vice President
Local Public Affairs
Marc L. Ulrich
Vice President
Customer Service Operations
Andrea L. Wood
Vice President
Tax
Daniel Wood
Vice President and
Treasurer
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2017 FINANCIAL HIGHLIGHTS
Dollar amounts in millions, except per-share data
Years ended December 31,
Operating revenue
Basic earnings (1)
Less: non-core items
2017
2016
2015
$12,320 $11,869 $11,524
$565
$1,311
$1,020
Write -down, impairment and other charges
Re-measurement of deferred taxes
Discontinued operations
Other
(448)
(466)
–
13
Total non-core items (901)
- (382)
-
12
5
17
-
35
31
(316)
Core earnings (1)
Basic earnings per share (1)
Core earnings per share (1)
Total assets at December 31
Dividends paid per common share
Total shareholder return
Total employees
B U S I N E S S H I G H L I G H T S
Southern California Edison
Rate base (2)
Capital expenditures (2)
Peak demand (megawatts)
Total system sales (kilowatt-hours, in millions)
$1,466
$1,294
$1,336
$1.73 $4.02 $3.13
$4.50
$3.97
$4.10
$52,580 $51,319 $50,229
$2.17
$1.92
$1.67
(9.5)% 24.9% (6.9)%
12,521
12,390 12,768
$27,816
$25,923 $24,596
$3,835
$3,527
$3,867
23,508
23,091
23,079
85,879
85,977
87,544
(1) Edison International’s earnings are prepared in accordance with generally accepted accounting principles (GAAP) used in the
United States. Management uses core earnings and core earnings per share (EPS) internally for financial planning and for analysis
of performance. Core earnings and core EPS are also used when communicating with analysts and investors regarding our earnings
results to facilitate comparisons of the Company’s performance from period to period. Core earnings and core EPS are non-GAAP
financial measures and may not be comparable to those of other companies. Core earnings and core EPS are defined as basic
earnings and basic EPS excluding income or loss from discontinued operations and income or loss from significant discrete items
that management does not consider representative of ongoing earnings. Basic earnings refer to net income attributable to Edison
International shareholders.
(2) Represents year-end rate base at December 31, which includes capital expenditures related to certain FERC-approved projects
during the construction phase. Capital expenditures for each year include accruals.
Inquiries may also
be directed to:
EQ Shareowner Services
1110 Centre Point Curve, Suite 101
Mendota Heights, MN 55120-4100
Fax:
(651) 450-4033
EQ Shareowner Services
www.shareowneronline.com
Investor Relations
www.edisoninvestor.com
Email: invrel@sce.com
Phone: (877) 379-9515
Online account information:
www.shareowneronline.com
Dividend Reinvestment and
Direct Stock Purchase Plan
A prospectus and enrollment forms
for Edison International’s common
stock Dividend Reinvestment and
Direct Stock Purchase Plan are
available from EQ Shareowner
Services upon request.
Edison International
Annual Meeting
The annual meeting of shareholders
will be held on Thursday, April 26,
2018, at 9:00 a.m., Pacific Time, at the
Hilton Los Angeles San Gabriel Hotel,
225 West Valley Boulevard,
San Gabriel, California 91776.
Corporate Governance
Practices
A description of Edison International’s
corporate governance practices is
available on our Web site at
www.edisoninvestor.com. The Edison
International Board Nominating/
Corporate Governance Committee
periodically reviews the Company’s
corporate governance practices and
makes recommendations to the
Company’s Board that the practices
be updated from time to time.
Stock Listing and
Trading Information
Common Stock: The New York Stock
Exchange uses the ticker symbol EIX;
daily newspapers list the stock as
EdisonInt.
SCE’s 4.08%, 4.24%, 4.32% and 4.78%
Series of $25 par value cumulative
preferred stock are listed on the NYSE
MKT stock exchange. Shares of SCE’s
preference stock are not listed on an
exchange. SCE Trust II, SCE Trust III, SCE
Trust IV, SCE Trust V, and SCE Trust VI,
subsidiaries of SCE, have issued Trust
Preference Securities which are listed
on the New York Stock Exchange.
Transfer Agent and Registrar
Equiniti Trust Company, which
maintains shareholder records,
is the transfer agent and registrar
for Edison International’s common
stock and Southern California Edison
Company’s preferred and preference
stock. Shareholders may call
EQ Shareowner Services,
(800) 347-8625, between 7 a.m. and
7 p.m. (Central Time), Monday
through Friday, to speak with a
representative (or to use the
interactive voice response unit
24 hours a day, seven days a
week) regarding:
n stock transfer and name-change
requirements;
n address changes, including dividend
payment addresses;
n electronic deposit of dividends;
n taxpayer identification number
submissions or changes;
n duplicate 1099 and W-9 forms;
n notices of, and replacement of
destroyed stock certificates and
dividend checks;
n Edison International’s Dividend
Reinvestment and Direct
Stock Purchase Plan, including
enrollments, purchases,
withdrawals, terminations,
transfers, sales, duplicate
statements and direct debit
of optional cash for dividend
reinvestment; and
n requests for access to online
account information.
Leading the transformation
of the electric power industry
Edison International and
Southern California Edison
2017 Annual Report
E
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2244 Walnut Grove Avenue
Rosemead, CA 91770
www.edison.com
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