Docoh
Loading...

SCE-PL SOUTHERN CALIFORNIA EDISON

Filed: 28 Jul 21, 8:00pm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended   June 30, 2021

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                        to

Commission
File Number

   

Exact Name of Registrant
as specified in its charter

State or Other Jurisdiction of
Incorporation or Organization

   

IRS Employer
Identification Number

1-9936

EDISON INTERNATIONAL

California

95-4137452

1-2313

SOUTHERN CALIFORNIA EDISON COMPANY

California

95-1240335

EDISON INTERNATIONAL

SOUTHERN CALIFORNIA EDISON COMPANY

2244 Walnut Grove Avenue

2244 Walnut Grove Avenue

(P.O. Box 976)

(P.O. Box 800)

Rosemead, California 91770

Rosemead, California 91770

(Address of principal executive offices)

(Address of principal executive offices)

(626) 302-2222

(626) 302-1212

(Registrant's telephone number, including area code)

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Edison International:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

EIX

NYSE LLC

Southern California Edison Company: None.

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

Edison International

Yes  No ☐

Southern California Edison Company

Yes  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Edison International

Yes  No ☐

Southern California Edison Company

Yes  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-12 of the Exchange Act.

Edison International

   

Large Accelerated Filer

   

Accelerated Filer

   

Non-accelerated Filer

   

Smaller Reporting Company

   

Emerging growth company

Southern California Edison Company

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Edison International

Southern California Edison Company

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

Edison International

Yes  No 

Southern California Edison Company

Yes No 

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

Common Stock outstanding as of July 22, 2021:

Edison International

379,704,799 Shares

Southern California Edison Company

434,888,104 Shares

Changes in Internal Control Over Financial Reporting

80

Jointly Owned Utility Plant

80

LEGAL PROCEEDINGS

80

Part II, Item 1

2017/2018/Wildfire/Mudslide Events

80

Environmental Proceedings

80

RISK FACTORS

80

Part II, Item 1A

EXHIBITS

82

Part II, Item 6

SIGNATURES

84

This is a combined Form 10-Q separately filed by Edison International and Southern California Edison Company. Information contained herein relating to an individual company is filed by such company on its own behalf.

iii

GLOSSARY

The following terms and abbreviations appearing in the text of this report have the meanings indicated below.

2017/2018 Wildfire/Mudslide Events

    

the Thomas Fire, the Koenigstein Fire, the Montecito Mudslides and the Woolsey Fire, collectively

2019/2020 Wildfires

wildfires that originated in Southern California in 2019 and 2020 where SCE's equipment may be alleged to be associated with the fire's ignition

2020 Form 10-K

Edison International's and SCE's combined Annual Report on Form 10-K for the year ended December 31, 2020

AB 1054

California Assembly Bill 1054, executed by the governor of California on July 12, 2019

AB 1054 Excluded Capital Expenditures

 

approximately $1.6 billion in wildfire risk mitigation capital expenditures that SCE will exclude from the equity portion of SCE's rate base as required under AB 1054

AB 1054 Liability Cap

 

a cap on the aggregate requirement to reimburse the Wildfire Insurance Fund over a trailing three calendar year period which applies if certain conditions are met and is equal to 20% of the equity portion of the utility's transmission and distribution rate base, excluding general plant and intangibles, in the year of the applicable prudency determination

ARO(s)

asset retirement obligation(s)

BRRBA

 

Base Revenue Requirement Balancing Account

CAISO

 

California Independent System Operator

Capital Structure Compliance Period

January 1, 2020 to December 31, 2022, the current compliance period for SCE's CPUC authorized capital structure

CAPP

California Arrearage Payment Program

CCAs

 

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

CEMA

Catastrophic Event Memorandum Accounts

COVID-19

Coronavirus disease 2019

CPUC

California Public Utilities Commission

CSRP

Customer Service Re-platform, a SCE project to implement a new customer service system

DERs

distributed energy resources

Edison Energy

 

Edison Energy, LLC, a wholly-owned subsidiary of Edison Energy Group that is engaged in the competitive business of providing data-driven energy solutions to commercial, institutional and industrial customers

Edison Energy Group

 

Edison Energy Group, Inc., an indirect wholly-owned subsidiary of Edison International, that is a holding company for subsidiaries engaged in competitive businesses

Edison International Proxy Statement

Proxy Statement filed with the SEC in connection with Edison International's Annual Meeting of Shareholders' held on April 22, 2021

Electric Service Provider

 

an entity that offers electric power and ancillary services to retail customers, other than electrical corporations (like SCE) and CCAs

ERRA

 

Energy Resource Recovery Account

FERC

 

Federal Energy Regulatory Commission

FHPMA

 

Fire Hazard Prevention Memorandum Account

Fitch

Fitch Ratings, Inc.

GAAP

generally accepted accounting principles

GHG

greenhouse gas

GRC

general rate case

GS&RP

    

Grid Safety and Resiliency Program

Koenigstein Fire

a wind-driven fire that originated near Koenigstein Road in the City of Santa Paula in Ventura County, California, on December 4, 2017

iv

kV

unit of electrical potential equal to 1000 volts

MD&A

Management's Discussion and Analysis of Financial Condition and Results
of Operations

Montecito Mudslides

the debris flows and flooding in Montecito, Santa Barbara County, California, that occurred in January 2018

Moody's

Moody's Investors Service, Inc.

NERC

North American Electric Reliability Corporation

NRC

Nuclear Regulatory Commission

OEIS

Office of Energy Infrastructure Safety of the California Natural Resources Agency (previously, the OEIS was the Wildfire Safety Division (or WSD) of the CPUC)

PABA

Portfolio Allocation Balancing Account

Palo Verde

nuclear electric generating facility located near Phoenix, Arizona in which SCE holds a 15.8% ownership interest

PBOP(s)

postretirement benefits other than pension(s)

PG&E

Pacific Gas & Electric Company

PSPS

Public Safety Power Shutoffs

ROE

return on common equity

RPS

renewables portfolio standard

S&P

Standard & Poor's Financial Services LLC

San Onofre

retired nuclear generating facility located in south San Clemente, California in which SCE holds a 78.21% ownership interest

SCE

Southern California Edison Company, a wholly-owned subsidiary of Edison International

SDG&E

San Diego Gas & Electric

SEC

U.S. Securities and Exchange Commission

SED

Safety and Enforcement Division of the CPUC

Tax Reform

Tax Cuts and Jobs Act signed into law on December 22, 2017

Thomas Fire

a wind-driven fire that originated in the Anlauf Canyon area of Ventura County, California, on December 4, 2017

TKM

collectively, the Thomas Fire, the Koenigstein Fire and the Montecito Mudslides

TKM Subrogation Plaintiffs

the plaintiffs party to the TKM Subrogation Settlement, representing all the insurance subrogation plaintiffs in the TKM litigation at the time of the settlement

TKM Subrogation Settlement

a settlement entered into by Edison International and SCE in September 2020 in the TKM litigation to which the TKM Subrogation Plaintiffs are party

VCFD

Ventura County Fire Department

WEMA

Wildfire Expense Memorandum Account

WMP

a wildfire mitigation plan required to be filed under AB 1054 to describe a utility's plans to construct, operate, and maintain electrical lines and equipment that will help minimize the risk of catastrophic wildfires caused by such electrical lines and equipment

Wildfire Insurance Fund

the insurance fund established under AB 1054

Woolsey Fire

a wind-driven fire that originated in Ventura County in November 2018

Woolsey Subrogation Plaintiffs

the plaintiffs party to the Woolsey Subrogation Settlement, representing all the insurance subrogation plaintiffs in the Woolsey Fire litigation at the time of the settlement

Woolsey Subrogation Settlement

a settlement entered into by Edison International and SCE in January 2021 in the Woolsey litigation to which the Woolsey Subrogation Plaintiffs are party

v

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect Edison International's and SCE's current expectations and projections about future events based on Edison International's and SCE's knowledge of present facts and circumstances and assumptions about future events and include any 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 through regulated rates, including uninsured wildfire-related and debris flow-related costs, costs incurred to mitigate the risk of utility equipment causing future wildfires, costs incurred to implement SCE's new customer service system and costs incurred as a result of the COVID-19 pandemic;
ability of SCE to implement its WMP;
risks of regulatory or legislative restrictions that would limit SCE's ability to implement PSPS when conditions warrant or would otherwise limit SCE's operational PSPS practices;
risks associated with implementing PSPS, including regulatory fines and penalties, claims for damages and reputational harm;
ability of SCE to maintain a valid safety certification;
ability to obtain sufficient insurance at a reasonable cost, including insurance relating to SCE's nuclear facilities and wildfire-related claims, and to recover the costs of such insurance or, in the event liabilities exceed insured amounts, the ability to recover uninsured losses from customers or other parties;
extreme weather-related incidents (including events caused, or exacerbated, by climate change, such as wildfires, debris flows, droughts, high wind events and extreme heat events) and other natural disasters (such as earthquakes), which could cause, among other things, public safety issues, property damage, operational issues (such as rotating outages and issues due to damaged infrastructure), PSPS activations and unanticipated costs;
risks associated with AB 1054 effectively mitigating the significant risk faced by California investor-owned utilities related to liability for damages arising from catastrophic wildfires where utility facilities are alleged to be a substantial cause, including the longevity of the Wildfire Insurance Fund and the CPUC's interpretation of and actions under AB 1054, including its interpretation of the new prudency standard established under AB 1054;
ability of SCE to effectively manage its workforce, including its contract workers;
decisions and other actions by the CPUC, the FERC, the NRC and other governmental authorities, including decisions and actions related to nationwide or statewide crisis, determinations of authorized rates of return or return on equity, the recoverability of wildfire-related and debris flow-related costs, issuance of SCE's wildfire safety certification, wildfire mitigation efforts, and delays in executive, regulatory and legislative actions;
ability of Edison International or SCE to borrow funds and access bank and capital markets on reasonable terms;

1

risks associated with the decommissioning of San Onofre, including those related to worker and public safety, public opposition, permitting, governmental approvals, on-site storage of spent nuclear fuel, delays, contractual disputes, and cost overruns;
pandemics, such as COVID-19, and other events that cause regional, statewide, national or global disruption, which could impact, among other things, Edison International's and SCE's business, operations, cash flows, liquidity and/or financial results and cause Edison International and SCE to incur unanticipated costs;
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, employee and customer data;
risks associated with cost allocation resulting in higher rates for utility bundled service customers because of possible customer bypass or departure for other electricity providers such as CCAs and Electric Service Providers;
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 worker and public safety issues, the risk of utility assets causing or contributing to wildfires, failure, availability, efficiency, and output of equipment and facilities, and availability and cost of spare parts;
actions by credit rating agencies to downgrade Edison International or SCE's credit ratings or to place those ratings on negative watch or negative outlook;
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 future taxable income, or changes in tax law, that would limit Edison International's and SCE's realization of expected net operating loss and tax credit carryover benefits prior to expiration;
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, and changes in the United States' and California's environmental priorities that lessen the importance the state places on GHG reduction;
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; and
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.

2

Additional information about risks and uncertainties, including more detail about the factors described in this report, is contained throughout this report and in the 2020 Form 10-K, including the "Risk Factors" section. Readers are urged to read this entire report, including information incorporated by reference, as well as the 2020 Form 10-K, and carefully consider the risks, uncertainties, and other factors that affect Edison International's and SCE's businesses. Forward-looking statements speak only as of the date they are made and neither Edison International nor SCE are obligated to publicly update or revise forward-looking statements. Readers should review future reports filed by Edison International and SCE with the SEC. Edison International and SCE post or provide direct links to (i) certain SCE and other parties' regulatory filings and documents with the CPUC and the FERC and certain agency rulings and notices in open proceedings in a section titled "SCE Regulatory Highlights," (ii) certain documents and information related to Southern California wildfires which may be of interest to investors in a section titled "Southern California Wildfires," and (iii) presentations, documents and information that may be of interest to investors in a section titled "Presentations" at www.edisoninvestor.com in order to publicly disseminate such information. The reports, presentations, documents and information contained on, or connected to, the Edison investor website are not deemed part of, and are not incorporated by reference into, this report.

The MD&A for the six months ended June 30, 2021 discusses material changes in the consolidated financial condition, results of operations and other developments of Edison International and SCE since December 31, 2020 and as compared to the six months ended June 30, 2020. This discussion presumes that the reader has read or has access to Edison International's and SCE's MD&A for the calendar year 2020 (the "2020 MD&A"), which was included in the 2020 Form 10-K.

Except when otherwise stated, references to each of Edison International, SCE, or Edison Energy Group 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 and "Edison International Parent" mean Edison International on a stand-alone basis, not consolidated with its subsidiaries. Unless otherwise described, all the information contained in this report relates to both filers.

3

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 Edison Energy which is engaged in the competitive business of providing data-driven energy solutions to commercial, institutional and industrial customers. Edison Energy's business activities are currently not material to report as a separate business segment.

Three months ended

Six months ended

June 30, 

June 30, 

(in millions)

    

2021

    

2020

    

 Change

    

2021

    

2020

    

 Change

Net income (loss) attributable to Edison International

 

  

 

  

 

  

 

  

 

  

 

  

SCE

$

359

$

381

$

(22)

$

655

$

600

$

55

Edison International Parent and Other

 

(41)

 

(63)

 

22

 

(78)

 

(99)

 

21

Edison International

 

318

 

318

 

 

577

 

501

 

76

Less: Non-core items

 

  

 

  

 

  

 

  

 

  

 

  

SCE

 

  

 

  

 

  

 

 

 

  

2017/2018 Wildfire/Mudslide Events expenses

(6)

(9)

3

(10)

(9)

(1)

Wildfire Insurance Fund expense

 

(39)

 

(60)

 

21

 

(77)

 

(120)

 

43

Sale of San Onofre nuclear fuel

7

37

(30)

7

37

(30)

Re-measurement of tax liabilities

18

(18)

Edison International Parent and Other

 

  

 

  

 

 

 

 

Goodwill impairment

 

 

(25)

 

25

 

 

(25)

 

25

Re-measurement of tax liabilities

(3)

3

Total non-core items

 

(38)

 

(57)

 

19

 

(80)

 

(102)

 

22

Core earnings (losses)

 

  

 

  

 

  

 

  

 

  

 

  

SCE

 

397

 

413

 

(16)

 

735

 

674

 

61

Edison International Parent and Other

 

(41)

 

(38)

 

(3)

 

(78)

 

(71)

 

(7)

Edison International

$

356

$

375

$

(19)

$

657

$

603

$

54

Edison International's earnings are prepared in accordance with GAAP. Management uses core earnings (losses) internally for financial planning and for analysis of performance. Core earnings (losses) are also used when communicating with investors and analysts regarding Edison International's earnings results to facilitate comparisons of the company's performance from period to period. Core earnings (losses) are a non-GAAP financial measure and may not be comparable to those of other companies. Core earnings (losses) are defined as earnings attributable to Edison International shareholders less non-core items. Non-core items include income or loss from discontinued operations 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 income and expense related to changes in law, outcomes in tax, regulatory or legal proceedings, and exit activities, including sale of certain assets and other activities that are no longer continuing.

Edison International's second quarter 2021 earnings remained unchanged from the second quarter of 2020, resulting from a decrease in SCE's earnings of $22 million and a decrease in Edison International Parent and Other's losses of $22 million. SCE's lower earnings consisted of $16 million of lower core earnings and $6 million of higher non-core losses. Edison International's earnings for the six months ended June 30, 2021 increased $76 million from the six months ended June 30, 2020, resulting from an increase in SCE's earnings of $55 million and a decrease in Edison International Parent and Other's

4

losses of $21 million. SCE's higher earnings consisted of $61 million of higher core earnings and $6 million of higher non-core losses.

The decrease in SCE's core earnings for the second quarter 2021 from the same period in 2020 was primarily due to higher depreciation, partially offset by higher FERC revenue and lower expenses related to wildfire mitigation activities.

The increase in SCE's core earnings for the six months ended June 30, 2021 from the same period in 2020 was primarily due to lower expenses related to wildfire mitigation activities, employee benefits and lower customer uncollectibles as well as higher FERC revenue, partially offset by higher depreciation.

The decrease in Edison International Parent and Other's net loss for the three months and six months ended June 30, 2021 was due to higher core losses of $3 million and $7 million, respectively, and lower non-core losses of $25 million and $28 million, respectively. Edison International's increase in core losses was primarily due to higher preferred dividends as a result of the preferred equity issuance in 2021, partially offset by the recognition of unrealized gains from the increase in fair value of an investment in Proterra Inc, an electric vehicle technology manufacturer, and lower corporate expenses.

Consolidated non-core items for the six months ended June 30, 2021 and 2020 primarily included:

Charges of $107 million ($77 million after-tax) recorded in 2021 and $167 million ($120 million after-tax) recorded in 2020 from the amortization of SCE's contributions to the Wildfire Insurance Fund. See "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies" for further information.
Charges of $14 million ($10 million after-tax) recorded in 2021 and $12 million ($9 million after-tax) recorded in 2020 for 2017/2018 Wildfire/Mudslide Events expenses.
Gains of $10 million ($7 million after-tax) recorded in 2021 and $52 million ($37 million after-tax) recorded in 2020 for SCE's sale of San Onofre nuclear fuel.
An impairment charge of $34 million ($25 million after-tax) recorded in 2020 for Edison International Parent and Other related to Edison Energy's goodwill.
An income tax benefit of $18 million and income tax expense of $3 million recorded in 2020 for SCE and Edison International Parent and Other, respectively, due to re-measurement of uncertain tax positions related to the 2010 – 2012 California state tax filings currently under audit.

See "Results of Operations" for discussion of SCE and Edison International Parent and Other results of operations.

2021 General Rate Case

The 2021 GRC consists of four separate tracks. Track 1 is similar to previous GRCs and addresses revenue requirements for the three-year period of 20212023. Tracks 2 and 3 address the reasonableness of 20182019 and 2020 wildfire mitigation costs that were incremental to amounts authorized in the 2018 GRC, respectively. In January 2020, a CPUC decision introduced a third attrition year in current and future GRCs. As a result, track 4 will address the revenue requirement for 2024. SCE is scheduled to submit its testimony for track 4 in May 2022.

In July 2021, the CPUC issued a proposed decision on track 1 of the 2021 GRC, which if adopted, would result in a base rate revenue requirement of $6.9 billion in 2021, an increase of $342 million over revenue requirements authorized for 2020. This is a decrease of $744 million from SCE's requested revenue requirement primarily related to lower authorized expenses for wildfire insurance, vegetation management, employee benefits and depreciation. The proposed decision, if adopted, would provide a balancing account for cost recovery of up to 115% of authorized vegetation management expenses. The proposed decision would also provide regulatory mechanisms to seek recovery of vegetation management expenses above 115% of authorized levels and incremental wildfire insurance expenses through reasonableness review applications. SCE expects

5

vegetation management costs to exceed authorized levels due to increased labor rates required by state legislation in October 2019. If adopted, the proposed decision would lead to a non-core impairment of utility property, plant and equipment of up to $78 million ($56 million after-tax) related to disallowed historical capital expenditures of pole replacements the CPUC determined were performed prematurely.

The proposed decision would allow escalation of wildfire capital additions based on forecast spending for both 2022 and 2023. It would also allow operation and maintenance expenses to be escalated for 2022 and 2023 through the use of various escalation factors for labor, non-labor and medical expenses. The methodology set forth in the proposed decision would, if adopted by the CPUC, result in a revenue requirement of $7.2 billion in 2022 and $7.6 billion in 2023.

The CPUC has approved the establishment of a memorandum account making the authorized revenue requirement changes effective January 1, 2021. Under the proposed decision the increase in January 2021 to September 2021 authorized revenues would be collected over a 27-month period beginning October 1, 2021.

SCE cannot predict the revenue requirement the CPUC will ultimately authorize. SCE is recognizing revenue based on the 2020 authorized revenue requirement until a final GRC decision is issued. SCE expects a final decision on the track 1 GRC application for the 2021 test year in the third quarter of 2021. A final decision could result in material changes to the proposed decision.

This table sets out the authorized revenue and costs of service under the 2018 GRC and the 2021 GRC proposed decision:

(in millions)

    

2020 Authorized
Revenue

    

Adjustments1

    

2020 Adjusted Authorized
Revenue

    

2021 Proposed
Decision Authorized Revenue

Increase
(Decrease)

  

Authorized revenue

$

5,898

$

645

$

6,543

$

6,885

$

342

Cost of service:

 

  

 

 

  

 

  

 

  

Operation and maintenance

 

1,676

 

595

 

2,271

 

2,216

 

(55)

Depreciation

 

1,759

 

17

 

1,776

 

1,906

 

130

Property and payroll taxes

 

360

 

2

 

362

 

397

 

35

 

Income taxes

 

138

 

 

138

 

215

 

77

 

Authorized return

 

1,965

 

31

 

1,996

 

2,151

 

155

 

Total

$

5,898

$

645

$

6,543

$

6,885

$

342

 

1Adjustments to 2020 GRC authorized revenue to include authorized Grid Safety and Resiliency Program Memorandum Account ("GSRPMA") and authorized WEMA revenue requirements for costs from 2018 to 2020 which were recorded in 2020. The adjustment includes revenue requirements of $37 million and $344 million which relate to 2018 and 2019 for GSRPMA and WEMA, respectively. Revenue requirements of $497 million for operation and maintenance expense and depreciation incurred in 2020 are subject to reasonableness review in track 3 of the 2021 GRC and are not reflected above.

The proposed decision, if adopted, would authorize total capital expenditures of $4.6 billion for 2021, $577 million lower than SCE's request. The most significant reduction to SCE's request is related to SCE's Wildfire Covered Conductor Program ("WCCP"), SCE's largest wildfire risk mitigation program. SCE had requested $3.4 billion of capital expenditures to install 6,272 miles from 2019 to 2023. If approved, the proposed decision would authorize $1.5 billion of capital expenditures for SCE to install 2,750 miles of covered conductor from 2019 to 2023 and a balancing account to track the difference between actual WCCP costs and amounts authorized. If spending is less than authorized, SCE would refund those amounts to customers. If spending exceeds authorized, SCE would recover spending up to 110% of the authorized amount from customers. SCE would be eligible to submit a subsequent reasonableness review application if spending is in excess of 110% of authorized amounts.

6

This table sets out SCE's authorized capital expenditures, net of amounts collectible for customer requested modifications, under the 2021 GRC proposed decision, as well as SCE's forecast of CPUC jurisdictional non-GRC capital expenditures and FERC jurisdictional capital expenditures:

Total

(in billions)

    

2021

    

2022

    

2023

    

2021 – 2023

Total company capital expenditure as described above

$

4.71

$

4.7

$

4.6

$

14.0

1SCE is currently continuing to execute a capital spending plan for 2021 in line with previous projections, for additional information see "—Capital Program."

Reflected below is SCE's estimated weighted average annual rate base for 2021 – 2023 incorporating the 2021 GRC proposed decision, expected rate base from CSRP if approved, other CPUC non-GRC projects or programs that have been approved and forecast FERC capital expenditures. The table below does not reflect the $1.6 billion of AB 1054 Excluded Capital Expenditures, or approximately $350 million of rate base associated with 2020 wildfire restoration capital expenditures which SCE anticipates will be included in future CEMA applications. The table below reflects the July 2021 reduction in rate base from a $400 million payment from a third party for the 30-year use of a portion of the West of Devers transmission project.

In July 2021, the CPUC issued a proposed decision which, if adopted, would deny without prejudice SCE's application to recover all restoration costs related to six 2017 wildfires. The proposed decision, if adopted, could lead to a $165 million reduction in forecast rate base in 2021. For additional information see "Liquidity and Capital Resources—SCE—Regulatory Proceedings—Wildfire Related Regulatory Proceedings—2019 CEMA Application" and "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingences."

(in billions)

    

2021

    

2022

    

2023

Total company rate base as described above

$

35.7

$

38.0

$

40.0

For more information on tracks 2 and 3 of the 2021 GRC, see "Liquidity and Capital Resources—SCE—Regulatory Proceedings—Wildfire Related Regulatory Proceedings—2021 General Rate Case Wildfire Mitigation Memorandum Account Balances."

Capital Program

Total capital expenditures (including accruals) were $2.3 billion for the first six months of both 2021 and 2020.

In the absence of a 2021 GRC final decision, SCE continues to execute a capital spending plan for 2021 that would result in spending in the range of $5.4 billion to $5.5 billion.

SCE will adjust spending for what is ultimately authorized in the 2021 GRC final decision while minimizing the risk of disallowed spending. If the 2021 GRC proposed decision is adopted, recovery of any wildfire mitigation spending above authorized amounts would be subject to subsequent reasonableness review.

In addition to a final GRC decision, actual capital spending may be affected by changes in regulatory, environmental and engineering design requirements, permitting and project delays, cost and availability of labor, equipment and materials and other factors. For further information regarding the capital program see "Liquidity and Capital Resources—SCE—Capital Investment Plan" in this filing and "Management Overview—Capital Program" in the 2020 MD&A.

7

Southern California Wildfires and Mudslides

California has experienced unprecedented weather conditions in recent years and SCE's service territory remains susceptible to additional wildfire activity in 2021 and beyond. The worsening conditions across California increase the likelihood of wildfires, including those where SCE's equipment may be alleged to be associated with the fire's ignition. In response to worsening weather and fuel conditions and increased wildfire activity over the past several years, SCE has developed and is implementing its 2020 – 2022 WMP to reduce the risk of SCE equipment contributing to the ignition of wildfires. In addition, California has increased its investment in wildfire prevention and fire suppression capabilities.

In addition to the investments SCE is making as part of its WMP, SCE also uses its PSPS program to proactively de-energize power lines to mitigate the risk of catastrophic wildfires during extreme weather events. SCE may be subject to mandated changes to, or restrictions on, its operational PSPS practices, regulatory fines and penalties, claims for damages and reputational harm if SCE does not execute PSPS in compliance with applicable rules and regulations or if it is determined that SCE has placed excessive or unreasonable reliance on PSPS. In June 2021, the CPUC issued a final decision which, among other things, will reduce future authorized revenue for the volumetric reductions in electricity sales resulting from PSPS events initiated after June 2021 until the CPUC determines that improvements in the PSPS program have been made.

Wildfires in SCE's territory in December 2017 and November 2018 caused loss of life, substantial damage to both residential and business properties, and service outages for SCE customers. Edison International and SCE have incurred material losses in connection with the 2017/2018 Wildfire/Mudslide Events.

SCE's equipment has been, and may further be, alleged to be associated with several wildfires that have originated in Southern California subsequent to 2018. Edison International and SCE expect that any losses incurred in connection with those fires will be covered by insurance, subject to self-insured retentions and co-insurance, and expect that any such losses after insurance recoveries will not be material.

2017/2018 Wildfire/Mudslide Events

As discussed in the 2020 Form 10-K, multiple lawsuits related to the 2017/2018 Wildfire/Mudslide Events have been initiated against SCE and Edison International.

Through June 30, 2021, Edison International and SCE have recorded total pre-tax charges of $6.2 billion, expected recoveries from insurance of $2.0 billion and expected recoveries through FERC electric rates of $233 million related to the 2017/2018 Wildfire/Mudslide Events. The after-tax net charges to earnings recorded through June 30, 2021 have been $2.9 billion.

As of June 30, 2021, SCE had paid $4.7 billion under executed settlements and had $141 million to be paid under executed settlements related to the 2017/2018 Wildfire/Mudslide Events. As of the same date, SCE had recovered $2.0 billion through insurance and $139 million through FERC-jurisdictional electric rates.

After giving effect to all settlements entered into through June 30, 2021, Edison International and SCE's best estimate of expected losses for remaining alleged and potential claims related to the 2017/2018 Wildfire/Mudslide Events was $1.4 billion. The remaining estimated losses for the 2017/2018 Wildfire/Mudslide Events do not include an estimate of any potential fines or penalties that could be levied against SCE in connection with the 2017/2018 Wildfire/Mudslide Events. Edison International and SCE are currently unable to reasonably estimate the magnitude of any such fines or penalties, or the associated timing if they were to be imposed. Estimated losses for the 2017/2018 Wildfire/Mudslide Events litigation are based on a number of assumptions and are subject to change as additional information becomes available. Actual losses incurred may be higher or lower than estimated based on several factors, including: the uncertainty as to the legal and factual determinations to be made during litigation, including uncertainty as to the contributing causes of the 2017/2018 Wildfire/Mudslide Events, the complexities associated with fires that merge, whether inverse condemnation will be held applicable to SCE with respect to damages caused by the Montecito Mudslides, uncertainties related to the litigation

8

processes, the uncertainty in estimating damages that may be alleged, and the uncertainty as to how these factors impact future settlements.

SCE will seek CPUC-jurisdictional rate recovery of prudently-incurred, actual losses realized in connection with the 2017/2018 Wildfire/Mudslide Events in excess of available insurance. SCE believes that, in light of the CPUC's decision in a cost recovery proceeding involving SDG&E arising from several 2007 wildfires in SDG&E's service area, there is substantial uncertainty regarding how the CPUC will interpret and apply its prudency standard to an investor-owned utility in future wildfire cost-recovery proceedings for fires ignited prior to July 12, 2019. Accordingly, while the CPUC has not made a determination regarding SCE's prudency relative to any of the 2017/2018 Wildfire/Mudslide Events, SCE is unable to conclude, at this time, that uninsured CPUC-jurisdictional wildfire-related costs are probable of recovery through electric rates.

Current Wildfire Insurance Coverage

SCE has approximately $1.0 billion of wildfire-specific insurance coverage for events that may occur during the period July 1, 2021 through June 30, 2022, subject to $50 million of self-insured retention and up to approximately $75 million of co-insurance, which results in net coverage of approximately $875 million. Various coverage limitations within the policies that make up SCE's wildfire insurance coverage could result in additional material self-insured costs, for instance in the event of multiple wildfire occurrences during a policy period or with a single wildfire with damages in excess of the policy limits. SCE believes that its insurance coverage for the July 1, 2021 through June 30, 2022 period meets its obligation to maintain reasonable insurance coverage under AB 1054.

2019 Wildfire Legislation

In July 2019, AB 1054 was signed by the governor of California and became effective immediately. The summary of the wildfire legislation in this report is based on SCE's interpretation of the legislation and is qualified in its entirety by, and should be read together with, AB 1054 and companion Assembly Bill 111.

AB 1054 Prudency Standard

Under AB 1054, the CPUC must apply a new standard when assessing the prudency of a utility in connection with a request for recovery of wildfire costs for wildfires ignited after July 12, 2019. Utilities with a valid safety certification will be presumed to have acted prudently related to a wildfire ignition unless a party in the cost recovery proceeding creates serious doubt as to the reasonableness of the utility's conduct, at which time, the burden shifts back to the utility to prove its conduct was prudent. If a utility does not have a valid safety certification, it will have the burden to prove, based on a preponderance of evidence, that its conduct was prudent.

Wildfire Insurance Fund

AB 1054 also provided for the Wildfire Insurance Fund to reimburse a utility for payment of certain third-party damage claims arising from certain wildfires that exceed, in aggregate in a calendar year, the greater of $1.0 billion or the insurance coverage required to be maintained under AB 1054. Through June 30, 2021, the participating investor-owned utilities, PG&E, SCE and SDG&E, have collectively contributed approximately $8.1 billion to the Wildfire Insurance Fund and have not sought reimbursement of wildfire claims from the fund.

Participating investor-owned utilities will be reimbursed from the Wildfire Insurance Fund for eligible claims, subject to the fund administrator's review. Utilities participating in the Wildfire Insurance Fund are not required to reimburse the fund for amounts withdrawn from the fund that the CPUC finds were prudently incurred and can recover such prudently incurred wildfire costs through electric rates if the fund has been exhausted. SCE will reimburse the fund for any withdrawn amounts if SCE receives payment of such amounts under an indemnification agreement or from an insurance provider or other third-party. SCE will also be required to reimburse the fund for withdrawn amounts that the CPUC disallows subject to the AB

9

1054 Liability Cap. A utility will not be eligible for the AB 1054 Liability Cap if it does not maintain a valid safety certification or its actions or inactions that resulted in the wildfire are found to constitute conscious or willful disregard of the rights and safety of others. Based on SCE's forecasted weighted-average 2021 transmission and distribution rate base, excluding general plant and intangibles, and using the equity portion of SCE's CPUC authorized capital structure of 52%, SCE's requirement to reimburse the Wildfire Insurance Fund for eligible claims disallowed in 2021 would be capped at approximately $3.2 billion. SCE will not be allowed to recover borrowing costs incurred to reimburse the fund for amounts that the CPUC disallows. The Wildfire Insurance Fund and, consequently, the AB 1054 Liability Cap, will terminate when the administrator determines that the fund has been exhausted.

Safety Certification and Wildfire Mitigation Plan

Under AB 1054, SCE can obtain an annual safety certification upon the submission of certain required safety information, including an approved WMP. On September 17, 2020, SCE obtained a safety certification that will be valid for 12 months. Notwithstanding its 12-month term, if SCE requests a new safety certification by September 13, 2021, then its current safety certification will remain valid until the OEIS acts on SCE's request for a new safety certification. SCE expects to request a new safety certification by September 13, 2021 and expects the OEIS to act on its request by December 13, 2021.

SCE submitted its 2020 – 2022 WMP in February 2020. In June 2020, the CPUC ratified the OEIS's conditional approval of SCE's 2020 – 2022 WMP. The approval was conditioned on SCE providing requested information to the OEIS, including additional descriptions of how SCE is implementing, and will implement, certain requirements imposed by the OEIS. SCE submitted updates to its 2020 – 2022 WMP in February 2021 to, among other things, report on implementation of its plan in 2020 and describe new and ongoing wildfire mitigation activities. In June 2021, SCE submitted revised updates to its 2020 – 2022 WMP in response to a revision notice received from the OEIS. In July 2021, the OEIS issued a draft resolution approving SCE's updates, and a draft action statement requiring SCE to remedy certain specified issues, including by reevaluating the scope and pace of its covered conductor program and providing additional clarity and consistency on risk mitigation analysis. If the draft action statement is approved, SCE will be required to submit a report regarding its progress on remedying these issues on November 1, 2021 and in its 2022 WMP update. Final approval of the draft resolution and the draft action statement is expected in August 2021.

Capital Expenditure Requirement

Under AB 1054, approximately $1.6 billion of spending by SCE on wildfire risk mitigation capital expenditures made after August 1, 2019, cannot be included in the equity portion of SCE's rate base. SCE can apply for irrevocable orders from the CPUC to finance these AB 1054 Excluded Capital Expenditures, including through the issuance of securitized bonds, and can recover any prudently incurred financing costs. In November 2020, the CPUC issued an irrevocable order permitting SCE to finance approximately $340 million, comprised of AB 1054 Excluded Capital Expenditures incurred in connection with GS&RP and prudently incurred financing costs, through the issuance of securitized bonds. As of June 30, 2021, SCE has spent all of the approximately $1.6 billion in AB 1054 Excluded Capital Expenditures.

SCE issued securitized bonds in the amount of $338 million in February 2021. In June 2021, SCE filed an application with the CPUC requesting to finance up to $1.0 billion of wildfire mitigation and customer uncollectible costs and associated financing costs through the issuance of securitized bonds. The $1.0 billion request included approximately $518 million of AB 1054 Excluded Capital Expenditures. SCE expects to seek additional irrevocable orders from the CPUC to finance the remaining AB 1054 Excluded Capital Expenditures. See "Liquidity and Capital Resources—SCE—Regulatory Proceedings—Financing Order" for further details.

For further information, see "Notes to Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies—Initial and annual contributions to the wildfire insurance fund established pursuant to California Assembly Bill 1054" in the 2020 Form 10-K and "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Southern California Wildfires and Mudslides" in this report.

10

CSRP

In April 2021, SCE implemented a new customer service system, which replaced a majority of SCE's customer systems. The project is referred to as the Customer Service Re-Platform (CSRP). SCE has tracked the cost of the CSRP system implementation in a previously approved memorandum account. Forecasted expenditures for the CSRP project are approximately $540 million in capital and $90 million in operations and maintenance expenses from inception through 2021.

In July 2021, SCE filed an application with the CPUC requesting approval of $483 million of capital expenditures and $40 million of operations and maintenance expenses recorded in the CSRP memorandum account through April 2021 resulting in revenue requirements of $411 million from 2021 to 2024. SCE expects to seek recovery of costs incurred from May 2021 through December 2021 in a future application anticipated to be filed in 2022.

COVID-19

As discussed in the 2020 Form 10-K, the COVID-19 pandemic is having a significant impact on global society and economies. As a result of the pandemic, Edison International and SCE have experienced increased costs, but the pandemic has not had a pervasive impact on SCE's or Edison International's ability to operate their business.

As a result of the pandemic and increased estimates of uncollectible expenses, largely related to the economic impacts of the pandemic on SCE's customers, SCE has recognized $250 million of incremental costs as of June 30, 2021, of which $78 million has been deferred to memorandum accounts for future CPUC reasonableness review and $172 million has been transferred to balancing accounts pending recovery. In addition to the increases in expected uncollectible accounts, SCE has incurred incremental costs associated with sequestering certain SCE employees at essential work locations and coordination of SCE's response to the emergency.

In April 2021, the CPUC issued a decision to adopt a COVID-19 disconnection moratorium for medium-large commercial and industrial electric customers and established a memorandum account to track, and seek recovery of, the resulting costs.

SCE has requested an irrevocable financing order to securitize up to $78 million of incremental uncollectible expenses. SCE plans to recover a further $34 million of incremental residential uncollectible expenses associated with the economic effects of the COVID-19 pandemic and eligible for securitization through the ERRA balancing account.

California's state assembly is considering legislation to authorize, fund and implement the CAPP, which could reduce SCE's 2020 and 2021 customer arrearages for certain residential customers. To the extent SCE's total uncollectible expenses are offset by the CAPP, no recovery will be sought through other mechanisms. See "Liquidity and Capital Resources—SCE—Regulatory Proceedings—Financing Order" for further details.

For further information see "Notes to the Consolidated Financial Statements—Note 11. Regulatory Assets and Liabilities" in this filing and "Management Overview—COVID-19" and "Risk Factors" in the 2020 MD&A.

Wildfire Mitigation, Wildfire Insurance and Restoration Expenses

As discussed in the 2020 Form 10-K, in response to the increase in wildfire activity, and faster progression of and increased damage from wildfires across SCE's service territory and throughout California, SCE is currently incurring wildfire mitigation, wildfire insurance and wildfire and drought restoration related spending at levels significantly exceeding amounts authorized in its 2018 GRC.

As of June 30, 2021, SCE has recognized approximately $1.1 billion of regulatory assets related to incremental wildfire mitigation expenses, including depreciation expense from $2.0 billion of total incremental wildfire mitigation capital expenditures. The regulatory assets include $401 million of operations and maintenance expense authorized for recovery in the GRC track 2 proceeding in January 2021. SCE expects to securitize this amount, subject to approval of a financing order by the CPUC. See "Liquidity and Capital Resources—SCE—Regulatory Proceedings—Financing Order" for further details.

11

In the event these costs are not authorized for securitization, SCE will include the costs in customer rates as soon as practicable. In February 2021, the AB 1054 Excluded Capital Expenditures incurred in connection with GS&RP and prudently incurred financing costs previously deferred to memorandum accounts were recovered through a previous securitization.

Additionally, SCE has recognized $396 million of regulatory assets associated with drought and wildfire restoration and $342 million of regulatory assets related to incremental wildfire insurance expenses. While SCE believes such costs are probable of future recovery, there is no assurance that SCE will collect all amounts currently deferred as regulatory assets.

In July 2021, the CPUC issued a proposed decision which, if approved, would authorize full recovery of requested drought restoration costs and approve a revenue requirement of $81 million. However, the proposed decision, if adopted, would reject recovery of the $8 million revenue requirement associated with all $60 million of requested wildfire restoration costs related to 2017 wildfires, but would allow SCE to submit a subsequent cost recovery application for those costs. For additional information, see "Liquidity and Capital Resources—SCE—Regulatory Proceedings— Wildfire Related Regulatory Proceedings—2019 CEMA Application."

For additional information, see "Liquidity and Capital Resources—SCE" and "Liquidity and Capital Resources—SCE—Regulatory Proceedings—Wildfire Related Regulatory Proceedings."

RESULTS OF OPERATIONS

SCE

SCE's results of operations are derived mainly through two sources:

Earning activities – representing revenue authorized by the CPUC and the 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, as well as non-bypassable rates collected for SCE Recovery Funding LLC. 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), certain operation and maintenance expenses, and repayment of bonds and financing costs of SCE Recovery Funding LLC. SCE earns no return on these activities.

12

The following table is a summary of SCE's results of operations for the periods indicated.

Three months ended June 30, 2021 versus June 30, 2020

    

Three months ended June 30, 2021

Three months ended June 30, 2020

Cost-

Cost-

Earning

Recovery

Total

Earning

 Recovery

Total

(in millions)

    

 Activities

    

  Activities

    

 Consolidated

  

  

 Activities

    

 Activities

    

 Consolidated

Operating revenue

$

1,830

$

1,476

$

3,306

$

1,775

$

1,205

$

2,980

Purchased power and fuel

1,283

 

1,283

1,068

 

1,068

Operation and maintenance

512

223

 

735

575

166

 

741

Wildfire Insurance Fund expense

54

 

54

83

 

83

Depreciation and amortization

532

1

 

533

489

 

489

Property and other taxes

117

 

117

103

 

103

Other operating income, net of impairment

(11)

 

(11)

(52)

 

(52)

Total operating expenses

 

1,204

 

1,507

2,711

 

1,198

 

1,234

2,432

Operating income (loss)

 

626

 

(31)

595

 

577

 

(29)

548

Interest expense

 

(196)

(2)

(198)

 

(193)

 

(193)

Other income

 

31

33

64

 

53

 

29

82

Income before taxes

 

461

 

461

 

437

 

437

Income tax expense

 

76

76

 

26

 

26

Net income

 

385

 

385

 

411

 

411

Less: Preferred and preference stock dividend requirements

 

26

26

 

30

 

30

Net income available for common stock

$

359

$

$

359

$

381

$

$

381

Net income available for common stock

$

359

$

381

Less: Non-core expense

 

  

 

  

 

(38)

 

  

 

  

 

(32)

Core earnings1

  

 

  

$

397

 

  

 

  

$

413

1See use of non-GAAP financial measures in "Management Overview—Highlights of Operating Results."

Earning Activities

Earning activities were primarily affected by the following:

Higher operating revenue of $55 million primarily due to the following:
An increase in CPUC-related revenue of $30 million primarily due to lower incremental tax benefits (offset in income taxes as discussed below).
An increase in FERC-related revenue and other operating revenue of $25 million primarily due to FERC rate base growth and a $10 million increase in 2021 due to a change in estimate under the FERC formula rate mechanism.
Lower operation and maintenance costs of $63 million primarily due to the following:
Lower expenses of $7 million related to wildfire-mitigation costs including inspections and preventive maintenance.
Lower expenses of $23 million subject to balancing account treatment.
Decreased other expenses of $33 million primarily due to lower legal expenses, environmental remediation and customer uncollectible costs. Customer uncollectible costs were lower as a result of CPUC authorized cost recovery of residential uncollectible costs.

13

Lower Wildfire Insurance Fund expense of $29 million due to the change in the estimated life of the Wildfire Insurance Fund which increased the amortization period of SCE contributions in 2021. See "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingences" for further information.
Higher depreciation and amortization expense of $43 million primarily due to increased plant balances in 2021.
Higher property and other taxes of $14 million primarily due to higher property assessed values in 2021.
Lower other operating income, net of impairment of $41 million primarily consisting of gains of $10 million and $52 million related to the sale of San Onofre nuclear fuel in 2021 and 2020, respectively. As a result of the January 2018 Revised San Onofre Order Instituting Investigation ("OII") Settlement Agreement among OII Parties, the proceeds from the sale of nuclear fuel will not be returned to customers.
Lower other income of $22 million primarily due to lower insurance benefits and AFUDC equity income.
Higher income tax expense of $50 million primarily due to lower income tax benefits related to the flow-through of property-related items refunded to customers through balancing accounts (as discussed above) and higher pre-tax income.
Lower preferred and preference stock dividends of $4 million due to the redemption of preferred securities in 2020.

Cost-Recovery Activities

Operating revenue and the corresponding operating expenses in cost-recovery activities were primarily affected by the following:

Higher purchased power and fuel costs of $215 million primarily due to higher power and gas prices and higher capacity costs.
Higher operation and maintenance costs of $57 million due to the authorization to recover uncollectible costs through the RUBA and higher spending on customer service programs.

14

Six months ended June 30, 2021 versus June 30, 2020

    

Six months ended June 30, 2021

Six months ended June 30, 2020

Cost-

Cost-

Earning

Recovery

Total

Earning

Recovery

Total

(in millions)

    

 Activities

    

  Activities

    

 Consolidated

  

  

 Activities

    

  Activities

    

 Consolidated

Operating revenue

$

3,597

$

2,662

$

6,259

$

3,516

$

2,244

$

5,760

Purchased power and fuel

 

2,296

 

2,296

2

1,994

 

1,996

Operation and maintenance

 

1,133

429

 

1,562

1,292

308

 

1,600

Wildfire Insurance Fund expense

 

107

 

107

167

 

167

Depreciation and amortization

 

1,056

1

 

1,057

972

 

972

Property and other taxes

 

241

1

 

242

213

 

213

Other operating income, net of impairment

 

(11)

 

(11)

(52)

 

(52)

Total operating expenses

 

2,526

 

2,727

5,253

 

2,594

 

2,302

4,896

Operating income

 

1,071

 

(65)

1,006

 

922

 

(58)

864

Interest expense

 

(380)

(2)

(382)

 

(387)

(387)

Other income

 

69

67

136

 

76

58

134

Income before taxes

 

760

 

760

 

611

 

611

Income tax expense (benefit)

 

52

52

 

(49)

(49)

Net income

 

708

 

708

 

660

 

660

Less: Preferred and preference stock dividend requirements

 

53

53

 

60

60

Net income available for common stock

$

655

$

$

655

$

600

$

$

600

Net income available for common stock

$

655

$

600

Less: Non-core expense

 

  

 

  

 

(80)

 

  

 

  

 

(74)

Core earnings1

  

 

  

$

735

 

  

 

  

$

674

1See use of non-GAAP financial measures in "Management Overview—Highlights of Operating Results."

Earning Activities

Earning activities were primarily affected by the following:

Higher operating revenue of $81 million primarily due to the following:
An increase in CPUC-related revenue of $41 million primarily due to lower incremental tax benefits (offset in income taxes as discussed below).
An increase in FERC-related revenue and other operating revenue of $40 million primarily due to FERC rate base growth and a $10 million increase in 2021 due to a change in estimate under the FERC formula rate mechanism.
Lower operation and maintenance costs of $159 million primarily due to the following:
Lower expenses of $43 million related to wildfire-mitigation costs including inspections and preventive maintenance.
Lower expenses of $25 million subject to balancing account treatment.
Lower employee benefit expenses of $22 million from short-term incentive compensation.
Decreased expenses of $20 million related to the COVID-19 pandemic, primarily customer uncollectibles, as a result of CPUC authorized cost recovery of residential uncollectible costs.
Decreased other expenses of $49 million primarily due to environmental remediation costs, legal expenses and worker's compensation costs.

15

Lower Wildfire Insurance Fund expense of $60 million due to the change in the estimated life of the Wildfire Insurance Fund which increased the amortization period of SCE contributions in 2021. See "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingences" for further information.
Higher depreciation and amortization expense of $84 million primarily due to increased plant balances in 2021.
Higher property and other taxes of $28 million primarily due to higher property assessed values in 2021.
Lower other operating income, net of impairment of $41 million primarily consisting of gains of $10 million and $52 million related to the sale of San Onofre nuclear fuel in 2021 and 2020, respectively.
Lower other income of $7 million primarily due to lower interest income on balancing accounts and lower insurance benefits, partially offset by higher AFUDC equity income.
Higher income tax expense of $101 million primarily due to higher pre-tax income, lower income tax benefits related to the flow-through of property-related items refunded to customers through balancing accounts (as discussed above) and a tax benefit in 2020 from the re-measurement of uncertain tax positions.
Lower preferred and preference stock dividends of $7 million due to the redemption of preferred securities in 2020.

Cost-Recovery Activities

Operating revenue and the corresponding operating expenses in cost-recovery activities were primarily affected by the following:

Higher purchased power and fuel costs of $302 million primarily due to higher power and gas prices from extreme winter weather in February 2021 and higher power and gas demand and higher capacity costs, partially offset by a CAISO generation surcharge of $59 million incurred in 2020.
Higher operation and maintenance costs of $121 million due to the CAISO transmission refund received in 2020 for $66 million related to the CAISO generation surcharge mentioned above and the authorization to recover uncollectible costs through the RUBA and higher spending on customer service programs, partially offset by lower transmission access charges.
Higher other income of $9 million due to primarily driven by higher net periodic benefit income related to the non-service cost components for SCE's other post-retirement benefit plans. See "Notes to Consolidated Financial Statements—Note 9. Compensation and Benefit Plans" for further information.

Supplemental Operating Revenue Information

SCE's retail billed and unbilled revenue (excluding wholesale sales) was $3.0 billion and $2.7 billion for the three months ended June 30, 2021 and 2020 respectively, and $5.7 billion and $5.3 billion for the six months ended June 30, 2021 and 2020, respectively.

The increase for the three months and six months ended June 30, 2021 compared to the same periods in 2020 is primarily due to higher cost-recovery activities related to higher purchased power and fuel costs driven by higher power and gas prices. See "—Cost-Recovery Activities" for further details.

As a result of the CPUC-authorized decoupling mechanism, SCE earnings are not affected by changes in retail electricity sales.

16

Income Taxes

SCE's income tax expense increased by $50 million and $101 million for the three and six months ended June 30, 2021 compared to the same period in 2020. The increase for the three months ended June 30, 2021 is primarily due to higher pre-tax income and lower flow-through tax benefits. The increase for the six months ended June 30, 2021 is primarily due to higher pre-tax income, lower flow-through tax benefits and a tax benefit recorded in 2020 from the re-measurement of uncertain tax positions.

The effective tax rates were 16.5% and 5.9% for the three months ended June 30, 2021 and 2020, respectively. The effective tax rates were 6.8% and (8.0)% for the six months ended June 30, 2021 and 2020, respectively. SCE's effective tax rate is below the federal statutory rate of 21% 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.

See "Notes to Consolidated Financial Statements—Note 8. Income Taxes" for a reconciliation of the federal statutory rate to the effective income tax rates.

Edison International Parent and Other

Results of operations for Edison International Parent and Other include amounts from other subsidiaries that are not significant as a reportable segment, as well as intercompany eliminations.

Loss from Operations

The following table summarizes the results of Edison International Parent and Other:

Three months ended June 30, 

Six months ended June 30, 

(in millions)

    

2021

    

2020

    

2021

    

2020

Edison Energy Group and subsidiaries

$

(2)

$

(27)

$

(5)

$

(29)

Corporate expenses and other subsidiaries

 

(39)

 

(36)

 

(73)

 

(70)

Total Edison International Parent and Other

$

(41)

$

(63)

$

(78)

$

(99)

Less: Non-core expense

(25)

(28)

Core losses1

$

(41)

$

(38)

$

(78)

$

(71)

1See use of non-GAAP financial measures in "Management Overview—Highlights of Operating Results."

The loss from operations of Edison International Parent and Other decreased $22 million for the three months ended June 30, 2021 and decreased $21 million for the six months ended June 30, 2021 compared to the same period in 2020.

The decrease of losses for the three and six months ended June 30, 2021 is primarily due recognition of unrealized gains on investment in Proterra (see "Notes to Consolidated Financial Statements—Note 10. Investments"), and a goodwill impairment charge of $34 million ($25 million after-tax) recorded in 2020 related to Edison Energy stemming from the economic impact of COVID-19, partially offset by higher preferred dividend expense as a result of Edison International's preferred equity issuance in 2021.

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 to and equity contributions from Edison International, obligations to preference shareholders, and the outcome of tax, regulatory and legal matters.

In the next 12 months, SCE expects to fund its cash requirements through operating cash flows, capital market financings, and equity contributions from Edison International Parent, as needed. SCE also has availability under its credit facilities to fund cash requirements.

In addition, in June 2021, SCE filed an application with the CPUC requesting to finance up to $1.0 billion of wildfire mitigation and customer uncollectible costs and associated financing costs through the issuance of securitized bonds. For further details, see "—Regulatory Proceedings—Financing Order."

In June 2021, SCE issued $475 million floating rate first and refunding mortgage bonds due in 2022, $450 million first and refunding mortgage bonds due in 2031 and $450 million first and refunding mortgage bonds due in 2051. For further details, see "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements." The proceeds were used to finance or refinance eligible sustainable projects, repay commercial paper borrowings and for general corporate purposes. Eligible sustainable projects include categories such as renewable energy, clean transportation, energy efficiency and carbon reduction, climate change adoption, and socioeconomic advancement and empowerment. SCE maintains processes to ensure that proceeds from the sale of the bonds are only used for projects that are aligned with the Edison International sustainable financing framework issued in June 2021.

In May 2021, SCE entered into a term loan in the amount of $1.2 billion with a termination date of May 2022. For further details, see "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements." SCE used the proceeds to finance certain capital projects that meet the green loan principles set forth by international loan market organizations including the Loan Syndications and Trading Association, including ongoing funding of projects that meet the green loan principles such as SCE's WCCP related to wildfire mitigation and repaying all outstanding indebtedness under its 364-day revolving credit agreement and term loan credit agreement, both entered into during March 2020 and previously used to fund such projects.

In April 2021, SCE issued $400 million of floating rate first and refunding mortgage bonds due in 2023, $400 million of floating rate first and refunding mortgage bonds due in 2024, $350 million of first and refunding mortgage bonds due in 2023 and $700 million of first and refunding mortgage bonds due in 2024. The floating rate bonds will pay interest at a floating rate equal to the Secured Overnight Financing Rate ("SOFR") plus a spread. For further details, see "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements." The proceeds of these issuances were used to fund the payment of wildfire claims exceeding insurance proceeds, including amounts paid under the Woolsey Subrogation Settlement.

In the first quarter of 2021, SCE Recovery Funding LLC, a bankruptcy remote, wholly owned special purpose subsidiary of SCE, issued $338 million of Senior Secured Recovery Bonds Series 2021-A ("Recovery Bonds") in three tranches, of $138 million, $100 million and $100 million with final maturities in 2033, 2040 and 2045, respectively, and used the proceeds of the Recovery Bonds to acquire SCE's right to collect charges associated with the AB 1054 Excluded Capital Expenditures from certain existing and future SCE customers ("Recovery Property"). SCE used the proceeds it received from the sale of the Recovery Property to reimburse itself for previously incurred AB 1054 Excluded Capital Expenditures, including the retirement of related debt and financing costs. For further details, see "Notes to Consolidated Financial

18

Statements—Note 3. Variable Interest Entities," "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements" and "Notes to Consolidated Financial Statements—Note 11. Regulatory Assets and Liabilities."

In the first quarter of 2021, SCE issued $150 million and $750 million first and refunding mortgage bonds due in 2030 and 2051, respectively. For further details, see "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements." The proceeds were primarily used to repay SCE's commercial paper borrowings and for general corporate purposes.

During the first and second quarters of 2021, Edison International made equity contributions to SCE of $900 million and $325 million, respectively.

Edison International is issuing securities with equity content as viewed by rating agencies, such as common or preferred stock, in 2021, to enable SCE to issue debt to finance payments for resolution of wildfire claims related to the 2017/2018 Wildfire/Mudslide Events, including the debt SCE issued in April 2021 and for future resolution of claims, while allowing Edison International and SCE to maintain investment grade credit ratings. For further details, see "—Edison International Parent and Other."

The following table summarizes SCE's current, long-term issuer credit ratings and outlook from the major credit rating agencies:

    

Moody's

    

Fitch

    

S&P

Credit Rating

 

Baa2

 

BBB-

 

BBB

Outlook

 

Stable

 

Stable

 

Negative

SCE's credit ratings may be further affected if, among other things, regulators fail to successfully implement AB 1054 in a consistent and credit supportive manner or the Wildfire Insurance Fund is depleted by claims from catastrophic wildfires. Credit rating downgrades increase the cost and may impact the availability of short-term and long-term borrowings, including commercial paper, credit facilities, bond financings or other borrowings. In addition, some of SCE's power procurement contracts require SCE to pay related liabilities or post additional collateral if SCE's credit rating were to fall below investment grade. Incremental collateral requirements for power procurement contracts and environmental remediation obligations would result from a potential downgrade of SCE's credit rating to below investment grade. For further details, see "—Margin and Collateral Deposits."

The cost of capital mechanism set by the CPUC could impact SCE's results of operations and cash flows. The benchmark value for the current mechanism is the 12-month, October 1, 2018 through September 30, 2019, average Moody's Baa utility bond yield of 4.5%. If the difference between the benchmark and the average of the same index for the 12-month period to September 30, 2021 exceeds 100-basis points, SCE's CPUC-authorized ROE will be adjusted for 2022 by half the amount of the difference (up or down). If the mechanism is triggered, SCE's costs of long-term debt and preferred equity will also be adjusted for 2022 to reflect the then current embedded costs and projected interest rates. The average Moody's Baa utility bond yield between October 1, 2020 and July 22, 2021 was 3.36%. The spot rate for Moody's Baa utility bond was 3.18% on July 22, 2021 and an average Moody's Baa utility bond yield of 4.04% or less from July 23, 2021 through September 30, 2021 will trigger the mechanism. SCE is required to file its next cost of capital application by April 2022 for rates effective beginning January 2023. For further information see "Business—SCE— Overview of Ratemaking Process" in the 2020 Form 10-K.

19

Available Liquidity

At June 30, 2021, SCE had cash on hand of $51 million.

In April 2021, SCE amended its June 2019 revolving credit facility to increase the commitment amount by $350 million, bringing the total to $3.4 billion and extend the termination date to May 2025. For further details, see "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements." The aggregate maximum principal amount under the SCE revolving credit facility may be increased up to $4.0 billion, provided that additional lender commitments are obtained. At June 30, 2021 SCE had $175 million outstanding commercial paper, net of discount, at a weighted-average interest rate of 0.23%.

SCE may finance balancing account undercollections and working capital requirements to support operations and capital expenditures with commercial paper, its credit facilities or other borrowings, subject to availability in the bank and capital markets. As necessary, SCE will utilize its available liquidity, capital market financings, other borrowings or parent company contributions to SCE equity in order to meet its obligations as they become due, including costs related to the 2017/2018 Wildfire/Mudslide Events. For further information, see "Management Overview—Southern California Wildfires and Mudslides."

Debt Covenant

SCE's credit facilities and term loan require a debt to total capitalization ratio as defined in the applicable agreements of less than or equal to 0.65 to 1. At June 30, 2021, SCE's debt to total capitalization ratio was 0.53 to 1.

At June 30, 2021, SCE was in compliance with all financial covenants that affect access to capital.

Regulatory Proceedings

Wildfire Related Regulatory Proceedings

2021 General Rate Case Wildfire Mitigation Memorandum Account Balances

SCE's GRC track 2 expenditures, which occurred during 2018 and 2019, predominantly related to enhanced overhead inspections, an expanded vegetation management program and expert consultant contract labor costs supporting SCE's wildfire mitigation activities. The majority of these expenditures were recorded in the WMP memorandum account and the FHPMA.

In January 2021, the CPUC approved a settlement between the parties to track 2 of the 2021 GRC, which led to a $41 million increase to regulatory deferrals for 2018 – 2019 in the fourth quarter of 2020. The revenue requirement under the settlement was $391 million, after adjusting for flow-through taxes. Due to the determination that the AB 1054 Excluded Capital Expenditures associated with track 2 were reasonably incurred, they were eligible for recovery through securitization, and were not part of the settlement revenue requirement. For information on securitization of the approved expense, see "—Financing Order."

In March 2021, SCE made its 2021 GRC track 3 filing with the CPUC. In its filing, SCE requested reasonableness review of approximately $1.2 billion of wildfire mitigation costs incurred prior to 2021, consisting of $476 million of incremental operations and maintenance expenses and $679 million of incremental capital expenditures. The track 3 expenditures predominantly related to grid hardening, vegetation management, PSPS activities and enhancements to grid operations. The capital expenditures included $502 million of GS&RP capital expenditures not previously subject to settlement.

The $679 million in incremental capital expenditures to be reviewed by the CPUC in track 3 are AB 1054 Excluded Capital Expenditures. After receipt of a final decision in track 3, SCE intends to seek a financing order from the CPUC to securitize

20

these expenses if such expenses are deemed reasonable by the CPUC. In its track 3 filing, SCE requested recovery through customer rates of the $497 million of incremental operations and maintenance expenses and other costs.

The CPUC schedule for SCE's 2021 GRC includes a proposed decision on track 3 in the first quarter of 2022.

2020 Emergency Wildfire Restoration

Multiple wildfires occurred during 2020 which caused damage within SCE's service territory and to SCE's Big Creek hydroelectric facility. Restoration work is ongoing in relation to these wildfires. Through the second quarter of 2021, SCE has recorded $228 million of incremental operation and maintenance expenses and $316 million of incremental capital expenditures in relation to these restoration efforts. SCE expects to file CEMA requests for recovery of amounts incremental to authorized revenue requirements. If approved, the CEMA applications are expected to add approximately $350 million to rate base by 2023.

2019 CEMA Application

In July 2019, SCE filed a CEMA application with the CPUC to seek recovery of $79 million of operation and maintenance expenses related to 2017 – 2018 drought mitigation efforts and $8 million of revenue requirement associated with $60 million of capital expenditures and capital related expenses related to six 2017 wildfires.

In July 2021, the CPUC issued a proposed decision which, if approved, would authorize full recovery of requested drought restoration costs and approve a revenue requirement of $81 million. However, the proposed decision, if adopted, would deny without prejudice SCE's application to recover a revenue requirement for all six 2017 wildfires on the basis that SCE did not demonstrate that it was prudent in relation to the Thomas and Rye fires. CAL FIRE has determined that the Thomas and Rye fires were caused by SCE equipment. While the proposed decision, if adopted, would allow SCE to submit additional applications with the CPUC to recover those costs, SCE must segregate the restoration costs attributable to each of the six fires in any future applications for recovery. The proposed decision also directs that SCE must prove it was prudent in relation to the Thomas and Rye fires in any future application for recovery of those costs and must file any such application within 18 months of a final decision. SCE challenged some aspects of the proposed decision, including the application of the prudency standard with regards to fires in a CEMA proceeding and the 18-month deadline to file an application if the prudency standard is applied.

As of June 30, 2021, SCE has $189 million recorded in property, plant and equipment in relation to restoration costs related to the 2017/2018 Wildfire/Mudslide Events which may not be recoverable. These assets would be impaired if permanently disallowed by the CPUC in future cost recovery proceedings, which would reduce authorized rate base.

Financing order

In June 2021, SCE filed an application for an irrevocable order from the CPUC to finance up to $1.0 billion of wildfire mitigation and customer uncollectible costs and associated financing costs through the issuance of securitized bonds. These costs consist of approximately $518 million of AB 1054 Excluded Capital Expenditures, comprised of $219 million approved in the 2021 GRC track 2 settlement and $299 million to be incurred in 2021 and pending authorization in track 1 of the GRC, $401 million of wildfire-related operations and maintenance expenditures approved in the GRC track 2 settlement, and $78 million of incremental residential uncollectible expenses associated with the economic effects of the COVID-19 pandemic. To the extent SCE's total uncollectible expenses are offset by the CAPP, SCE would reduce the residential uncollectible expenses amount to be securitized by the amount offset by the CAPP.

2022 FERC Formula Rate Annual Update

In June 2021, SCE provided its preliminary 2022 annual transmission revenue requirement update to interested parties. The update reflects an increase in SCE's transmission revenue requirement of $311 million or 28.6% higher than amounts

21

included in the 2021 annual rates. The increase is primarily due to the portion of charges for wildfire-related claims recorded in 2020 subject to recovery from FERC customers, increased plant in service and recovery of prior year undercollections. SCE expects to file its 2021 annual update with the FERC by December 1, 2021 with the proposed rates effective January 1, 2022.

CAISO mid-term reliability

In June 2021, the CPUC issued a decision addressing the mid-term reliability needs of the CAISO electric system by requiring at least an aggregate of 11,500 MW of additional net qualifying capacity to be procured collectively by all of the load-serving entities subject to the CPUC's integrated resource planning authority. The aggregate additional capacity is required by 2026, with 2,000 MW required by 2023, an additional 6,000 MW required by 2024, an additional 1,500 MW required by 2025, and an additional 2,000 MW required by 2026. SCE's allocation of the requirements is 687 MW by 2023, 2,060 MW by 2024, 515 MW by 2025, 687 MW by 2026, for a total of 3,949 MW.

Capital Investment Plan

Major Transmission Projects

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. The project was placed in service in May 2021.

In July 2021, Morongo Transmission LLC ("Morongo") paid SCE $400 million for use of a portion of the project's transfer capability. Under the terms of the agreement with Morongo, SCE will provide Morongo with use of a portion of the West of Devers transmission line transfer capability for a period of 30 years. After the 30-year contract term, the use of the transfer capability will revert to SCE. For further details, see "Notes to Consolidated Financial Statements—Note 7. Revenue."

Eldorado-Lugo-Mohave Upgrade

Construction for the project began in November 2020 and the project is expected to be operational in June 2022. On January 20, 2021, the Secretary of the Interior issued a suspension order that effectively placed a 60-day hold on any new project construction on federal land. In February 2021, the Department of the Interior issued a waiver of the suspension order allowing the project to proceed.

Margin and Collateral Deposits

Certain derivative instruments, power and energy procurement contracts and other contractual arrangements contain collateral requirements. In addition, certain environmental remediation obligations require financial assurance that may be in the form of collateral postings. Future collateral requirements may differ from the requirements at June 30, 2021 due to the addition of incremental power and energy procurement contracts with collateral requirements, if any, the impact of changes in wholesale power and natural gas prices on SCE's contractual obligations and the impact of SCE's credit ratings falling below investment grade.

The table below provides the amount of collateral posted by SCE to its counterparties as well as the potential collateral that would have been required as of June 30, 2021, if SCE's credit rating had been downgraded to below investment grade as of that date. The table below also provides the potential collateral that could be required due to adverse changes in wholesale power and natural gas prices over the remaining lives of existing power and energy procurement contracts.

In addition to amounts shown in the table, power and fuel contract counterparties may also institute new collateral requirements, applicable to future transactions to allow SCE to continue trading in power and fuel contracts at the time of a

22

downgrade or upon significant increases in market prices. Furthermore, SCE may also be required to post up to $50 million in collateral in connection with its environmental remediation obligations, within 120 days of the end of the fiscal year in which the downgrade occurs.

(in millions)

    

Collateral posted as of June 30, 20211

$

127

Incremental collateral requirements for purchased power and fuel contracts resulting from a potential downgrade of SCE's credit rating to below investment grade2

 

66

Incremental collateral requirements for purchased power and fuel contracts resulting from adverse market price movement3

 

27

Posted and potential collateral requirements

$

220

1

Net collateral provided to counterparties and other brokers consisted of $127 million in letters of credit and surety bonds.

2

Represents collateral requirements for accounts payable and market-to-market valuation at June 30, 2021. Requirement varies throughout the period and is generally lower at the end of the month.

3

Incremental collateral requirements were based on potential changes in SCE's forward positions as of June 30, 2021 due to adverse market price movements over the remaining lives of the existing power contracts using a 95% confidence level.

Edison International Parent and Other

In the next 12 months, Edison International expects to fund its net cash requirements through cash on hand, dividends from SCE, and capital market and bank financings. Edison International may finance its ongoing cash requirements, including common stock dividends, working capital requirements, payment of obligations, and capital investments, including capital contributions to subsidiaries, with short-term or other financings, subject to availability in the bank and capital markets.

At June 30, 2021, Edison International Parent had cash on hand of $33 million.

In April 2021, Edison International Parent amended its June 2019 revolving credit facility to extend the termination date to May 2025. At June 30, 2021 Edison International Parent had $25 million outstanding commercial paper, net of discount, at a weighted-average interest rate of 0.32% on its $1.5 billion revolving credit facility. The aggregate maximum principal amount under the Edison International Parent revolving credit facility may be increased up to $2.0 billion, provided that additional lender commitments are obtained.

Edison International is issuing securities with equity content as viewed by rating agencies, such as common or preferred stock, up to approximately $1.0 billion in 2021 to enable SCE to issue debt to finance payments for resolution of wildfire claims related to the 2017/2018 Wildfire/Mudslide Events, including the debt SCE issued in April 2021 and debt for future resolution of claims, while allowing Edison International and SCE to maintain investment grade credit ratings.

In the first quarter of 2021, Edison International issued 1,250,000 shares of its 5.375% Fixed-Rate Reset Cumulative Perpetual Preferred Stock, Series A, liquidation value of $1,000 per share (the "Series A Preferred Stock"), regarded by rating agencies as having 50% equity content. The proceeds were used to repay Edison International's commercial paper borrowings and for general corporate purposes, including making a $575 million equity contribution to SCE. For further details, see "Notes to Consolidated Financial Statements—Note 13. Equity."

Edison International will consider issuing additional preferred equity, common stock through employee compensation and stock purchase programs and if needed further issuances through the existing at-the-market program to satisfy any remaining equity needs.

Edison International Parent expects to make further capital contributions to SCE in 2021 to maintain the common equity component of SCE's capital structure, after CPUC allowed exclusions, at 52% on a weighted average basis over the Capital Structure Compliance Period. For further information, see "—SCE—SCE Dividends" in the 2020 MD&A.

23

Edison International Parent and Other's liquidity and its ability to pay operating expenses and pay dividends to common shareholders are dependent on access to the bank and capital markets, dividends from SCE, realization of tax benefits and its ability to meet California law requirements for the declaration of dividends. Prior to declaring dividends, Edison International's Board of Directors evaluates available information, including when applicable, information pertaining to the 2017/2018 Wildfire/Mudslide Events, to ensure that the California law requirements for the declarations are met. For information on the California law requirements on the declaration of dividends, see "—SCE—SCE Dividends" in the 2020 MD&A. 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's ability to declare and pay common dividends may be restricted under the terms of the Series A Preferred Stock. For further information see "Notes to Consolidated Financial Statements—Note 13. Equity."

Edison International Parent's credit facility requires a consolidated debt to total capitalization ratio as defined in the applicable agreements of less than or equal to 0.70 to 1. At June 30, 2021, Edison International's consolidated debt to total capitalization ratio was 0.60 to 1.

At June 30, 2021, Edison International Parent was in compliance with all financial covenants that affect access to capital.

The following table summarizes Edison International Parent's current long-term issuer credit ratings and outlook from the major credit rating agencies:

    

Moody's

    

Fitch

    

S&P

Long-term Issuer Credit Rating

 

Baa3

 

BBB-

 

BBB

Outlook

 

Stable

 

Stable

 

Negative

Edison International Parent's credit ratings may be further affected if, among other things, regulators fail to successfully implement AB 1054 in a consistent and credit supportive manner or the Wildfire Insurance Fund is depleted by claims from catastrophic wildfires. Credit rating downgrades increase the cost and may impact the availability of short-term and long-term borrowings, including commercial paper, credit facilities, note financings or other borrowings.

Historical Cash Flows

SCE

Six months ended June 30, 

(in millions)

    

2021

    

2020

Net cash (used in) provided by operating activities

$

(1,283)

$

683

Net cash provided by financing activities

 

3,689

 

1,931

Net cash used in investing activities

 

(2,411)

 

(2,384)

Net (decrease) increase in cash, cash equivalents and restricted cash

$

(5)

$

230

24

Net Cash (Used in) Provided by Operating Activities

The following table summarizes major categories of net cash (used in) provided by operating activities as provided in more detail in SCE's consolidated statements of cash flows for the six months ended June 30, 2021 and 2020.

Six months ended June 30, 

Change in cash flows

(in millions)

    

2021

    

2020

    

2021/2020

Net income

    

$

708

    

$

660

    

  

Non-cash items1

 

1,189

 

1,067

 

  

Subtotal

 

1,897

1,727

 

$

170

Changes in cash flow resulting from working capital2

 

(309)

 

(120)

 

(189)

Regulatory assets and liabilities

 

(574)

 

(927)

 

353

Other noncurrent assets and liabilities3

 

(2,297)

 

3

 

(2,300)

Net cash (used in) provided by operating activities

$

(1,283)

$

683

$

(1,966)

1Non-cash items include depreciation and amortization, allowance for equity during construction, deferred income taxes, Wildfire Insurance Fund amortization expenses and other.
2Changes in working capital items include receivables, accrued unbilled revenue, prepaid expenses, inventory, accounts payable, tax receivables and payables, and other current assets and liabilities.
3Includes changes in wildfire-related insurance receivables and wildfire-related claims. Also includes nuclear decommissioning trusts. See "Nuclear Decommissioning Activities" below for further information.

Net cash (used in) provided by operating activities was impacted by the following:

Net income and non-cash items increased in 2021 by $170 million primarily due to lower expenses related to wildfire mitigation activities and employee benefits and higher FERC revenue.

Net cash outflow for working capital was $309 million and $120 million during the six months ended June 30, 2021 and 2020, respectively. Net cash outflow for working capital increased in 2021 mainly due to an increase in unbilled revenue and customer receivables of $523 million in 2021 compared to $245 million in 2020.

Net cash used in regulatory assets and liabilities, including increases in net undercollections recorded in balancing accounts, was $574 million and $927 million during the six months ended June 30, 2021 and 2020, respectively. SCE has a number of balancing and memorandum 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:

2021

Net undercollections of BRRBA were $665 million and $622 million at June 30, 2021 and December 31, 2020, respectively. Net undercollections increased by $43 million primarily driven by current year undercollections due to timing of billing during CSRP implementation, partially offset by recovery of prior year undercollections, including WEMA and GS&RP to be collected over a two-year and one-year period, respectively, starting October 2020.
Undercollections of $300 million related to wildfire-related expenses that are probable of future recovery from customers, including wildfire risk mitigation costs, insurance premiums, service restoration and damage repair costs. See "Notes to Consolidated Financial Statements—Note 11. Regulatory Assets and Liabilities" for further information.
Undercollections of $35 million of revenue requirements related to service restoration and damage repair costs that were tracked in CEMA accounts, primarily due to wildfire events in 2020. See "Notes to Consolidated Financial Statements—Note 11. Regulatory Assets and Liabilities" for further information.

25

Net undercollections for ERRA, PABA and the New System Generation Balancing Account increased by $22 million primarily due to current year undercollections due to higher gas and power prices, partially offset by recovery of prior PABA and NSGBA undercollections.
Net undercollections of $59 million related to customer uncollectible expenses from COVID-19-related memorandum and balancing accounts.
Undercollection of $31 million in the CSRP memorandum account related to CSRP implementation costs.

2020

Net undercollections of BRRBA were $239 million at June 30, 2020, compared to net overcollections of $328 million at December 31, 2019. Net undercollections increased by $567 million primarily due to refunds of prior overcollections (including incremental tax benefits and overcollections of distribution revenue that are being refunded over an 18-month period, starting in July 2019, as part of SCE's 2018 GRC decision) and current year undercollections primarily due to a delay in rate change in 2020 and lower than forecasted sales volume.
Undercollections of $311 million related to wildfire-related expenses that are probable of future recovery from customers, including wildfire risk mitigation costs, insurance premiums, service restoration and damage repair costs.
Lower cash due to issuance of California climate credits of $314 million to customers. The second semi-annual payment normally made in the fourth quarter was brought forward into the second quarter of 2020 pursuant to an April 2020 CPUC decision, partially offset by $232 million of overcollections related to GHG auction revenue and low carbon fuel standard credit sales.
Net undercollections of FERC balancing accounts were $32 million at June 30, 2020, compared to net overcollections of $127 million at December 31, 2019. Net undercollections increased by $159 million primarily due to refunds of prior overcollections, lower than forecasted sales volumes and higher operation and maintenance costs mainly due to vegetation management and overhead line maintenance.
Net undercollections for ERRA, PABA and the New System Generation Balancing Account decreased by $178 million primarily due to recovery of prior ERRA undercollections, current year overcollection resulting from lower gas and energy prices, partially offset by lower sales than forecasted in rates in ERRA, refunds of prior overcollections from the New System Generation Balancing Account and refund of 2019 and 2018 overcollections of generation revenue over an 18-month period, starting in July 2019, as part of SCE's 2018 GRC decision.

Cash flows (used in) provided by other noncurrent assets and liabilities were primarily related to wildfire claim payments of $(2.9) billion, partially offset by insurance recoveries of $708 million in the first six months of 2021. In the same period in 2020 there were wildfire related insurance recoveries of $73 million and no wildfire claims payments. Cash flow for other noncurrent assets and liabilities also includes payments of decommissioning costs ($128 million in 2021 and $98 million in 2020, respectively), and SCE's net (losses) earnings from nuclear decommissioning trust investments ($(15) million in 2021 and $49 million in 2020, respectively). See "Nuclear Decommissioning Activities" below for further discussion.

26

Net Cash Provided by Financing Activities

The following table summarizes cash provided by financing activities for the six months ended June 30, 2021 and 2020. Issuances of debt are discussed in "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements."

    

Six months ended June 30, 

(in millions)

2021

    

2020

Issuances of first and refunding mortgage bonds, including premium/discount and net of issuance costs

$

3,952

$

2,330

Long-term debt repaid or repurchased

 

(991)

 

(414)

Commercial paper financing, net

 

(551)

 

(550)

Short-term debt financing, net

 

751

 

475

Capital contributions from Edison International Parent

 

1,225

 

888

Payment of common stock dividends to Edison International

 

(650)

 

(738)

Payment of preferred and preference stock dividends

 

(53)

 

(60)

Other

 

6

 

Net cash provided by financing activities

$

3,689

$

1,931

Net Cash Used in Investing Activities

Cash flows used in investing activities are primarily due to capital expenditures related to transmission and distribution investments ($2.6 billion and $2.5 billion for the six months ended June 30, 2021 and 2020, respectively). In addition, SCE had a net redemption of nuclear decommissioning trust investments of $127 million and $62 million during the six months ended June 30, 2021 and 2020, respectively. See "Nuclear Decommissioning Activities" below for further discussion.

Nuclear Decommissioning Activities

SCE's consolidated statements of cash flows include nuclear decommissioning activities, which are reflected in the following line items:

Six months ended June 30, 

(in millions)

    

2021

    

2020

Net cash used in operating activities:

Net (losses) earnings from nuclear decommissioning trust investments

$

(15)

$

49

SCE’s decommissioning costs

 

(128)

 

(98)

Net cash provided by investing activities:

 

 

Proceeds from sale of investments

2,542

3,225

Purchases of investments

 

(2,415)

 

(3,163)

Net cash impact

$

(16)

$

13

Net cash used in operating activities relates to interest and dividends less administrative expenses, taxes and SCE's decommissioning costs. Investing activities represent the purchase and sale of investments within the nuclear decommissioning trusts, including the reinvestment of earnings from nuclear decommissioning trust investments. The net cash impact reflects timing of decommissioning payments ($128 million and $98 million in 2021 and 2020, respectively) and reimbursements to SCE from the nuclear decommissioning trust ($112 million and $111 million in 2021 and 2020, respectively).

27

Edison International Parent and Other

The table below sets forth condensed historical cash flow from operations for Edison International Parent and Other, including intercompany eliminations.

    

Six months ended June 30, 

(in millions)

    

2021

    

2020

Net cash used in operating activities

$

(91)

$

(58)

Net cash provided by financing activities

 

93

 

292

Net cash used in investing activities

 

(1)

 

(8)

Net increase in cash and cash equivalents

$

1

$

226

Net Cash Used in Operating Activities

Net cash used in operating activities was impacted by the following:

$91 million and $58 million cash outflow from operating activities in 2021 and 2020, respectively, primarily due to payments relating to interest and operating costs.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was as follows:

    

Six months ended June 30, 

(in millions)

    

2021

    

2020

Dividends paid to Edison International common shareholders

$

(494)

$

(454)

Dividends received from SCE

 

650

 

738

Capital contributions to SCE

 

(1,225)

 

(888)

Issuance of common stock

 

25

 

884

Issuance of preferred stock, net of issuance costs

1,235

Long-term debt issuance, net of discount and issuance costs

 

 

396

Long-term debt repayments

 

 

(400)

Commercial paper repayment, net

 

(105)

 

Other

 

7

 

16

Net cash provided by financing activities

$

93

$

292

Contingencies

SCE has contingencies related to wildfire and debris flow events, wildfire insurance, environmental remediation, nuclear insurance, spent nuclear fuel and the Upstream Lighting Program, which are discussed in "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies."

MARKET RISK EXPOSURES

Edison International's and SCE's primary market risks are described in the 2020 Form 10-K. For further discussion of market risk exposures, including commodity price risk, credit risk, and interest rate risk, see "Notes to Consolidated Financial Statements—Note 4. Fair Value Measurements" and "—Note 6. Derivative Instruments."

Commodity Price Risk

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 fair value of outstanding derivative instruments used to mitigate exposure to commodity price risk was reflected as a net asset of $89 million and $108 million on SCE's consolidated balance sheets at June 30, 2021 and December 31, 2020, respectively. For further discussion of fair value

28

measurements and the fair value hierarchy, see "Notes to Consolidated Financial Statements—Note 4. Fair Value Measurements" and "— Note 6. Derivative Instruments."

Credit Risk

Credit risk exposure from counterparties for power and gas trading activities is measured as the sum of net accounts receivable (accounts receivable less accounts payable) and the current fair value of net derivative assets (derivative assets less derivative liabilities) reflected on the consolidated balance sheets. SCE enters into master agreements which typically provide for a right of setoff. Accordingly, SCE's credit risk exposure from counterparties is based on a net exposure under these arrangements. SCE manages the credit risk on the portfolio of counterparties based on credit ratings 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. Based on SCE's policies and risk exposures related to credit, SCE does not anticipate a material adverse effect on their financial statements as a result of counterparty nonperformance. At June 30, 2021, SCE's power and gas trading counterparty credit risk exposure was $85 million, which is associated with entities that have an investment grade rating of A or higher. SCE assigns a credit rating to counterparties based on the lower of a counterparty's S&P or Moody's rating.

For more information related to credit risks, see "Notes to Consolidated Financial Statements—Note 6. Derivative Instruments."

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

For a discussion of Edison International's and SCE's critical accounting policies, see "Critical Accounting Estimates and Policies" in the 2020 MD&A.

NEW ACCOUNTING GUIDANCE

New accounting guidance is discussed in "Notes to Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies—New Accounting Guidance."

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information responding to this section is included in the MD&A under the heading "Market Risk Exposures" and is incorporated herein by reference.

29

FINANCIAL STATEMENTS

Consolidated Statements of Income

Edison International

Three months ended

Six months ended

June 30, 

June 30, 

(in millions, except per-share amounts, unaudited)

    

2021

    

2020

    

2021

    

2020

Total operating revenue

$

3,315

$

2,987

$

6,275

$

5,777

Purchased power and fuel

 

1,283

 

1,068

 

2,296

 

1,996

Operation and maintenance

 

754

 

762

 

1,598

 

1,643

Wildfire Insurance Fund expense

 

54

 

83

 

107

 

167

Depreciation and amortization

 

533

 

489

 

1,058

 

973

Property and other taxes

 

117

 

103

 

243

 

214

Other operating income, net of impairment

 

(11)

 

(18)

 

(11)

 

(18)

Total operating expenses

 

2,730

 

2,487

 

5,291

 

4,975

Operating income

 

585

 

500

 

984

 

802

Interest expense

 

(232)

 

(229)

 

(449)

 

(454)

Other income

 

76

 

81

 

148

 

133

Income before income taxes

 

429

 

352

 

683

 

481

Income tax expense (benefit)

 

68

 

4

 

32

 

(80)

Net income

 

361

 

348

 

651

 

561

Preferred and preference stock dividend requirements of SCE

 

26

 

30

 

53

 

60

Preferred stock dividend requirement of Edison International

17

21

Net income attributable to Edison International common shareholders

$

318

$

318

$

577

$

501

Basic earnings per share:

 

  

 

  

 

  

 

  

Weighted average shares of common stock outstanding

 

380

 

375

 

379

 

367

Basic earnings per common share attributable to Edison International common shareholders

$

0.84

$

0.85

$

1.52

$

1.37

Diluted earnings per share:

 

  

 

  

 

  

 

  

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

 

380

 

376

 

380

 

368

Diluted earnings per common share attributable to Edison International common shareholders

$

0.84

$

0.85

$

1.52

$

1.36

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

30

Consolidated Statements of Comprehensive Income

Edison International

Three months ended

Six months ended

June 30, 

June 30, 

(in millions, unaudited)

    

2021

    

2020

    

2021

    

2020

Net income

$

361

$

348

$

651

$

561

Other comprehensive income, net of tax:

 

  

 

  

 

  

 

  

Pension and postretirement benefits other than pensions

 

2

 

2

 

4

 

4

Other comprehensive income, net of tax

 

2

 

2

 

4

 

4

Comprehensive income

 

363

 

350

 

655

 

565

Less: Comprehensive income attributable to noncontrolling interests

 

26

 

30

 

53

 

60

Comprehensive income attributable to Edison International

$

337

$

320

$

602

$

505

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

31

Consolidated Balance Sheets

Edison International

June 30, 

December 31, 

(in millions, unaudited)

    

2021

    

2020

ASSETS

 

  

 

  

Cash and cash equivalents

$

84

$

87

Receivables, less allowances of $270 and $188 for uncollectible accounts at respective dates

 

1,314

 

1,130

Accrued unbilled revenue

 

863

 

521

Insurance receivable

 

 

708

Income tax receivables

0

68

Inventory

 

406

 

405

Prepaid expenses

 

57

 

281

Regulatory assets

 

1,795

 

1,314

Wildfire Insurance Fund contributions

 

204

 

323

Other current assets

 

198

 

224

Total current assets

 

4,921

 

5,061

Nuclear decommissioning trusts

 

4,886

 

4,833

Marketable securities

21

Other investments

 

58

 

53

Total investments

 

4,965

 

4,886

Utility property, plant and equipment, less accumulated depreciation and amortization of $10,878 and $10,681 at respective dates

 

48,800

 

47,653

Nonutility property, plant and equipment, less accumulated depreciation of $96 and $94 at respective dates

 

189

 

186

Total property, plant and equipment

 

48,989

 

47,839

Regulatory assets (includes $329 at June 30, 2021 related to Variable Interest Entities "VIEs")

 

7,810

 

7,120

Wildfire Insurance Fund contributions

 

2,462

 

2,443

Operating lease right-of-use assets

 

1,047

 

1,088

Long-term insurance receivables

75

75

Other long-term assets

 

893

 

860

Total long-term assets

 

12,287

 

11,586

Total assets

$

71,162

$

69,372

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

32

Consolidated Balance Sheets

Edison International

June 30, 

December 31, 

(in millions, except share amounts, unaudited)

    

2021

    

2020

LIABILITIES AND EQUITY

 

  

 

  

Short-term debt

$

2,821

$

2,398

Current portion of long-term debt

 

415

 

1,029

Accounts payable

 

1,797

 

1,980

Wildfire-related claims

141

2,231

Customer deposits

 

207

 

243

Regulatory liabilities

 

492

 

569

Current portion of operating lease liabilities

 

216

 

215

Other current liabilities

 

1,726

 

1,612

Total current liabilities

 

7,815

 

10,277

Long-term debt (includes $320 at June 30, 2021 related to VIEs)

 

22,891

 

19,632

Deferred income taxes and credits

 

5,614

 

5,368

Pensions and benefits

 

543

 

563

Asset retirement obligations

 

2,894

 

2,930

Regulatory liabilities

 

8,960

 

8,589

Operating lease liabilities

 

831

 

873

Wildfire-related claims

 

1,519

 

2,281

Other deferred credits and other long-term liabilities

 

2,782

 

2,910

Total deferred credits and other liabilities

 

23,143

 

23,514

Total liabilities

 

53,849

 

53,423

Commitments and contingencies (Note 12)

 

  

 

  

Preferred stock (50,000,000 shares authorized; 1,250,000 shares issued and outstanding at June 30, 2021)

1,235

Common stock, 0 par value (800,000,000 shares authorized; 379,695,134 and 378,907,147 shares issued and outstanding at respective dates)

 

6,013

 

5,962

Accumulated other comprehensive loss

 

(65)

 

(69)

Retained earnings

 

8,229

 

8,155

Total Edison International's shareholders' equity

 

15,412

 

14,048

Noncontrolling interests – preference stock of SCE

 

1,901

 

1,901

Total equity

 

17,313

 

15,949

Total liabilities and equity

$

71,162

$

69,372

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

33

Consolidated Statements of Cash Flows

Edison International

Six months ended June 30, 

(in millions, unaudited)

    

2021

    

2020

Cash flows from operating activities:

 

  

 

  

Net income

$

651

$

561

Adjustments to reconcile to net cash provided by operating activities:

 

 

  

Depreciation and amortization

 

1,090

 

1,005

Allowance for equity during construction

 

(60)

 

(51)

Impairment and other

 

(11)

 

(18)

Deferred income taxes

 

30

 

(58)

Wildfire Insurance Fund amortization expense

 

107

 

167

Other

 

11

 

32

Nuclear decommissioning trusts

 

(127)

 

(62)

Changes in operating assets and liabilities:

 

  

 

  

Receivables

 

(293)

 

(108)

Inventory

 

(3)

 

(19)

Accounts payable

 

128

 

14

Tax receivables and payables

 

91

 

31

Other current assets and liabilities

 

(244)

 

(23)

Regulatory assets and liabilities, net

 

(574)

 

(927)

Wildfire-related insurance receivable

 

708

 

73

Wildfire-related claims

 

(2,852)

 

0

Other noncurrent assets and liabilities

 

(26)

 

8

Net cash (used in) provided by operating activities

 

(1,374)

 

625

Cash flows from financing activities:

 

  

 

  

Long-term debt issued, plus premium and net of discount and issuance costs of $(36) and $26 for the respective periods

 

3,953

 

2,726

Long-term debt repaid or repurchased

 

(991)

 

(814)

Short-term debt issued

 

2,106

 

1,275

Short-term debt repaid

 

(1,355)

 

(800)

Common stock issued

 

25

 

884

Preferred stock issued, net

 

1,235

 

Commercial paper repayment, net of borrowing

 

(656)

 

(550)

Dividends and distribution to noncontrolling interests

 

(53)

 

(60)

Dividends paid

 

(494)

 

(454)

Other

 

12

 

16

Net cash provided by financing activities

 

3,782

 

2,223

Cash flows from investing activities:

 

  

 

  

Capital expenditures

 

(2,593)

 

(2,514)

Proceeds from sale of nuclear decommissioning trust investments

 

2,542

 

3,225

Purchases of nuclear decommissioning trust investments

 

(2,415)

 

(3,163)

Other

 

54

 

60

Net cash used in investing activities

 

(2,412)

 

(2,392)

Net (decrease) increase in cash, cash equivalents and restricted cash

 

(4)

 

456

Cash, cash equivalents and restricted cash at beginning of period

 

89

 

70

Cash, cash equivalents and restricted cash at end of period

$

85

$

526

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

34

Consolidated Statements of Income

Southern California Edison Company

Three months ended

Six months ended

June 30, 

June 30, 

(in millions, unaudited)

    

2021

    

2020

    

2021

    

2020

Operating revenue

$

3,306

$

2,980

$

6,259

$

5,760

Purchased power and fuel

 

1,283

 

1,068

 

2,296

 

1,996

Operation and maintenance

 

735

 

741

 

1,562

 

1,600

Wildfire Insurance Fund expense

 

54

 

83

 

107

 

167

Depreciation and amortization

 

533

 

489

 

1,057

 

972

Property and other taxes

 

117

 

103

 

242

 

213

Other operating income, net of impairment

 

(11)

 

(52)

 

(11)

 

(52)

Total operating expenses

 

2,711

 

2,432

 

5,253

 

4,896

Operating income

 

595

 

548

 

1,006

 

864

Interest expense

 

(198)

 

(193)

 

(382)

 

(387)

Other income

 

64

 

82

 

136

 

134

Income before taxes

 

461

 

437

 

760

 

611

Income tax expense (benefit)

 

76

 

26

 

52

 

(49)

Net income

 

385

 

411

 

708

 

660

Less: Preferred and preference stock dividend requirements

 

26

 

30

 

53

 

60

Net income available for common stock

$

359

$

381

$

655

$

600

Consolidated Statements of Comprehensive Income

Southern California Edison Company

Three months ended

Six months ended

June 30, 

June 30, 

(in millions, unaudited)

    

2021

    

2020

    

2021

    

2020

Net income

$

385

$

411

$

708

$

660

Other comprehensive income, net of tax:

 

  

 

  

 

  

 

  

Pension and postretirement benefits other than pensions

 

1

 

1

 

3

 

3

Other comprehensive income, net of tax

 

1

 

1

 

3

 

3

Comprehensive income

$

386

$

412

$

711

$

663

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

35

Consolidated Balance Sheets

Southern California Edison Company

June 30, 

December 31, 

(in millions, unaudited)

    

2021

    

2020

ASSETS

 

  

 

  

Cash and cash equivalents

$

51

$

55

Receivables, less allowances of $270 and $188 for uncollectible accounts at respective dates

 

1,305

 

1,126

Accrued unbilled revenue

 

863

 

521

Insurance receivable

0

440

Insurance receivable from affiliate

0

268

Income tax receivables

 

 

69

Inventory

 

406

 

405

Prepaid expenses

 

56

 

280

Regulatory assets

 

1,795

 

1,314

Wildfire Insurance Fund contributions

 

204

 

323

Other current assets

 

191

 

216

Total current assets

 

4,871

 

5,017

Nuclear decommissioning trusts

 

4,886

 

4,833

Other investments

 

50

 

37

Total investments

 

4,936

 

4,870

Utility property, plant and equipment, less accumulated depreciation and amortization of $10,878 and $10,681 at respective dates

 

48,800

 

47,653

Nonutility property, plant and equipment, less accumulated depreciation of $87 and $86 at respective dates

 

183

 

180

Total property, plant and equipment

 

48,983

 

47,833

Regulatory assets (includes $329 at June 30, 2021 related to VIEs)

 

7,810

 

7,120

Wildfire Insurance Fund contributions

 

2,462

 

2,443

Operating lease right-of-use assets

 

1,040

 

1,085

Long-term insurance receivables

75

75

Other long-term assets

 

861

 

843

Total long-term assets

 

12,248

 

11,566

Total assets

$

71,038

$

69,286

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

36

Consolidated Balance Sheets

Southern California Edison Company

June 30, 

December 31, 

(in millions, except share amounts, unaudited)

    

2021

    

2020

LIABILITIES AND EQUITY

 

  

 

  

Short-term debt

$

2,796

$

2,268

Current portion of long-term debt

 

415

 

1,029

Accounts payable

 

1,799

 

1,983

Wildfire-related claims

141

2,231

Customer deposits

 

207

 

243

Regulatory liabilities

 

492

 

569

Current portion of operating lease liabilities

 

216

 

214

Other current liabilities

 

1,288

 

1,294

Total current liabilities

 

7,354

 

9,831

Long-term debt (includes $320 at June 30, 2021 related to VIEs)

 

19,756

 

16,499

Deferred income taxes and credits

 

7,052

 

6,783

Pensions and benefits

 

131

 

144

Asset retirement obligations

 

2,894

 

2,930

Regulatory liabilities

 

8,960

 

8,589

Operating lease liabilities

 

824

 

871

Wildfire-related claims

 

1,519

 

2,281

Other deferred credits and other long-term liabilities

 

2,661

 

2,708

Total deferred credits and other liabilities

 

24,041

 

24,306

Total liabilities

 

51,151

 

50,636

Commitments and contingencies (Note 12)

 

  

 

  

Preference stock

 

1,945

 

1,945

Common stock, 0 par value (560,000,000 shares authorized; 434,888,104 shares issued and outstanding at respective dates)

 

2,168

 

2,168

Additional paid-in capital

 

6,616

 

5,387

Accumulated other comprehensive loss

 

(38)

 

(41)

Retained earnings

 

9,196

 

9,191

Total equity

 

19,887

 

18,650

Total liabilities and equity

$

71,038

$

69,286

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

37

Consolidated Statements of Cash Flows

Southern California Edison Company

Six months ended June 30, 

(in millions, unaudited)

    

2021

    

2020

Cash flows from operating activities:

 

  

 

  

Net income

$

708

$

660

Adjustments to reconcile to net cash provided by operating activities:

 

 

Depreciation and amortization

 

1,086

 

1,001

Allowance for equity during construction

 

(60)

 

(51)

Impairment and other income

 

(11)

 

(52)

Deferred income taxes

 

51

 

(22)

Wildfire Insurance Fund amortization expense

 

107

 

167

Other

 

16

 

24

Nuclear decommissioning trusts

 

(127)

 

(62)

Changes in operating assets and liabilities:

 

  

 

Receivables

 

(288)

 

(114)

Inventory

 

(3)

 

(19)

Accounts payable

 

127

 

(12)

Tax receivables and payables

 

91

 

47

Other current assets and liabilities

 

(236)

 

(22)

Regulatory assets and liabilities, net

 

(574)

 

(927)

Wildfire-related insurance receivable

 

708

 

73

Wildfire-related claims

 

(2,852)

 

0

Other noncurrent assets and liabilities

 

(26)

 

(8)

Net cash (used in) provided by operating activities

 

(1,283)

 

683

Cash flows from financing activities:

 

  

 

  

Long-term debt issued, plus premium and net of discount and issuance costs of $(36) and $30 for the respective periods

 

3,952

 

2,330

Long-term debt repaid

(991)

(414)

Short-term debt borrowed

 

2,106

 

475

Short-term debt repaid

 

(1,355)

 

0

Capital contributions from Edison International Parent

 

1,225

 

888

Commercial paper repayment, net of borrowing

 

(551)

 

(550)

Dividends paid

 

(703)

 

(798)

Other

 

6

 

0

Net cash provided by financing activities

 

3,689

 

1,931

Cash flows from investing activities:

 

  

 

  

Capital expenditures

 

(2,591)

 

(2,512)

Proceeds from sale of nuclear decommissioning trust investments

 

2,542

 

3,225

Purchases of nuclear decommissioning trust investments

 

(2,415)

 

(3,163)

Other

 

53

 

66

Net cash used in investing activities

 

(2,411)

 

(2,384)

Net (decrease) increase in cash, cash equivalents and restricted cash

 

(5)

 

230

Cash, cash equivalents and restricted cash at beginning of period

 

56

 

24

Cash, cash equivalents and restricted cash at end of period

$

51

$

254

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

38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1.Summary of Significant Accounting Policies

Organization and Basis of Presentation

Edison International is the parent holding company of Southern California Edison Company ("SCE") 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 an indirect wholly-owned subsidiary of Edison International and a holding company for Edison Energy, LLC ("Edison Energy") which is engaged in the competitive business of providing data driven energy solutions to commercial, institutional and industrial customers. Edison Energy's 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 and "Edison International Parent" refer to Edison International on a stand-alone basis, not consolidated with its subsidiaries. SCE's consolidated financial statements include the accounts of SCE, its wholly owned and controlled subsidiaries and a variable interest entity of which SCE is the primary beneficiary, SCE Recovery Funding LLC. All intercompany transactions have been eliminated from the consolidated financial statements.

Edison International's and SCE's significant accounting policies were described in the "Notes to Consolidated Financial Statements" included in Edison International's and SCE's combined Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Form 10-K"). This quarterly report should be read in conjunction with the financial statements and notes included in the 2020 Form 10-K.

In the opinion of management, all adjustments, consisting only of adjustments of a normal recurring nature, have been made that are necessary to fairly state the consolidated financial position, results of operations, and cash flows in accordance with accounting principles generally accepted in the United States ("GAAP") for the periods covered by this quarterly report on Form 10-Q. The results of operations for the six-month periods ended June 30, 2021 are not necessarily indicative of the operating results for the full year. Certain prior period amounts have been conformed to the current period's presentation.

The December 31, 2020 financial statement data was derived from audited financial statements but does not include all disclosures required by GAAP.

Cash, Cash Equivalents and Restricted Cash

Cash equivalents include investments in money market funds. Generally, the carrying value of cash equivalents equals the fair value, as these investments have original maturities of three months or less. The cash equivalents were as follows:

Edison International

SCE

June 30, 

December 31, 

June 30, 

December 31, 

(in millions)

2021

    

2020

    

2021

    

2020

Money market funds

$

47

$

62

$

20

$

38

39

Cash is temporarily invested until required for check clearing. Checks issued, but not yet paid by the financial institution, are reclassified from cash to accounts payable at the end of each reporting period as follows:

    

Edison International

    

SCE

June 30, 

December 31, 

June 30, 

December 31, 

(in millions)

     

2021

     

2020

     

2021

     

2020

Book balances reclassified to accounts payable

$

61

$

69

$

61

$

69

The following table sets forth the cash, cash equivalents and restricted cash included in the consolidated statements of cash flows:

June 30, 

    

December 31, 

(in millions)

    

2021

    

2020

Edison International:

  

  

Cash and cash equivalents

$

84

$

87

Short-term restricted cash1

 

1

 

2

Total cash, cash equivalents, and restricted cash

$

85

$

89

SCE:

 

 

  

Cash and cash equivalents

$

51

$

55

Short-term restricted cash1

 

 

1

Total cash, cash equivalents, and restricted cash

$

51

$

56

1Reflected in "Other current assets" on Edison International's and SCE's consolidated balance sheets.

Allowance for Uncollectible Accounts

The allowance for uncollectible accounts is recorded based on SCE's estimate of expected credit losses and adjusted over the life of the receivables as needed. Since the customer base of SCE is concentrated in Southern California and exposes SCE to a homogeneous set of economic conditions, the allowance is measured on a collective basis on the historical amounts written-off, assessment of customer collectability and current economic trends, including unemployment rates and any likelihood of recession for the region. At June 30, 2021, this included the estimated impacts of the COVID-19 pandemic.

The following tables set forth the changes in allowance for uncollectible accounts for SCE:

Three months ended

Three months ended

June 30, 2021

June 30, 2020

(in millions)

Customers

All others

Total

Customers

All others

Total

Beginning balance

 

$

210

 

$

16

$

226

$

47

 

$

13

$

60

Plus: current period provision for uncollectible accounts

Included in operation and maintenance expenses

 

12

 

3

 

15

 

12

 

5

 

17

Deferred to regulatory assets

 

32

 

 

32

 

21

 

 

21

Less: write-offs, net of recoveries

 

 

3

 

3

 

5

 

3

 

8

Ending balance

 

$

254

 

$

16

$

270

$

75

 

$

15

$

90

Six months ended

Six months ended

June 30, 2021

June 30, 2020

(in millions)

Customers

All others

Total

Customers

All others

Total

Beginning balance

 

$

175

 

$

13

$

188

$

35

 

$

14

$

49

Plus: current period provision for uncollectible accounts

Included in operation and maintenance expenses

 

18

 

7

 

25

 

28

 

7

 

35

Deferred to regulatory assets

 

66

 

 

66

 

21

 

 

21

Less: write-offs, net of recoveries

 

5

 

4

 

9

 

9

 

6

 

15

Ending balance

 

$

254

 

$

16

$

270

$

75

 

$

15

$

90

40

Revenue Recognition

Regulatory Proceedings

2021 General Rate Case

In July 2021, the CPUC issued a proposed decision on track 1 of the 2021 GRC, which if adopted, would result in a base rate revenue requirement of $6.9 billion in 2021, an increase of $342 million over revenue requirement authorized for 2020.

If adopted, the proposed decision would lead to an impairment of utility property, plant and equipment of up to $78 million ($56 million after-tax) related to disallowed historical capital expenditures.

The CPUC has approved the establishment of a memorandum account making the authorized revenue requirement changes effective January 1, 2021. SCE cannot predict the revenue requirement the CPUC will ultimately authorize. SCE is recognizing revenue based on the 2020 authorized revenue requirement until a GRC decision is issued.

Employee Stock Purchase Plan

In April 2021, the Edison International Employee Stock Purchase Plan ("ESPP") was approved by the shareholders and was effective beginning July 1, 2021. The maximum aggregate numbers of shares of Edison International's common stock that may be issued under the ESPP is 3,000,000 shares. The ESPP is administered by the SCE Benefits Committee and allows eligible employees to purchase shares of common stock. Eligible employees may authorize payroll deductions of between 1% and 10% of their compensation, up to a maximum of $25,000, to purchase shares of common stock at 97% of the market price of the common stock on the date of purchase, which is the last day of each six months offering period. The ESPP is considered non-compensatory and stock issuances under the ESPP will be recorded directly in equity.

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, which earn dividend equivalents on an equal basis with common shares once the awards are vested. See Note 13 for further information.

41

EPS attributable to Edison International common shareholders was computed as follows:

    

Three months ended June 30, 

    

Six months ended June 30, 

(in millions, except per-share amounts)

    

2021

    

2020

    

2021

    

2020

Basic earnings per share:

Net income attributable to common shareholders

$

318

$

318

$

577

$

501

Participating securities dividends

 

 

 

Net income available to common shareholders

$

318

$

318

$

577

$

501

Weighted average common shares outstanding

 

380

 

375

 

379

367

Basic earnings per share

$

0.84

$

0.85

$

1.52

$

1.37

Diluted earnings per share:

 

 

Net income attributable to common shareholders

$

318

$

318

$

577

$

501

Participating securities dividends

 

 

 

Net income available to common shareholders

$

318

$

318

$

577

$

501

Income impact of assumed conversions

 

 

 

Net income available to common shareholders and assumed conversions

$

318

$

318

$

577

$

501

Weighted average common shares outstanding

 

380

 

375

 

379

367

Incremental shares from assumed conversions

 

 

1

 

1

1

Adjusted weighted average shares – diluted

 

380

 

376

 

380

368

Diluted earnings per share

$

0.84

$

0.85

$

1.52

$

1.36

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 11,327,374 and 9,187,178 shares of common stock for the three months ended June 30, 2021 and 2020, respectively, and 11,369,725 and 8,587,661 shares of common stock for the six months ended June 30, 2021 and 2020, respectively were outstanding, but were not included in the computation of diluted earnings per share because the effect would have been antidilutive.

New Accounting Guidance

Accounting Guidance Adopted

In August 2020, the FASB issued an accounting standards update to simplify the accounting for certain financial instruments with characteristics of liabilities and equity. The amendments in this update affect entities that issue convertible instruments indexed to or potentially settled in an entity's own equity. This guidance also simplifies an entity's application of the derivatives scope exception for contracts in its own equity and amends certain aspects of the EPS guidance. Edison International and SCE have adopted this standard on January 1, 2021 using modified retrospective adoption approach. The adoption of this standard did not have a material impact on Edison International's and SCE's financial position or results of operations.

42

Note 2.Consolidated Statements of Changes in Equity

The following table provides Edison International's changes in equity for the three and six months ended June 30, 2021:

Noncontrolling

Equity Attributable to Edison International Shareholders

Interests

Accumulated

Other

Preferred

Common

Comprehensive

Retained

Preference

Total

(in millions, except per share amounts)

    

Stock

Stock

    

Loss

    

Earnings

    

Subtotal

    

Stock

    

Equity

Balance at December 31, 2020

$

$

5,962

$

(69)

$

8,155

$

14,048

$

1,901

$

15,949

Net income

 

 

 

263

 

263

 

27

 

290

Other comprehensive income

 

 

2

 

 

2

 

 

2

Common stock issued, net of issuance cost

 

21

 

 

 

21

 

 

21

Preferred stock issued, net of issuance cost

1,237

1,237

1,237

Common stock dividends declared ($0.6625 per share)

 

 

 

(251)

 

(251)

 

 

(251)

Preferred stock dividend accrued ($3.434 per share)

(4)

(4)

(4)

Dividends to noncontrolling interests ($15.625 - $35.936 per share for preference stock)

 

 

 

 

 

(27)

 

(27)

Noncash stock-based compensation

 

6

 

 

 

6

 

 

6

Balance at March 31, 2021

$

1,237

$

5,989

$

(67)

$

8,163

$

15,322

$

1,901

$

17,223

Net income

 

 

 

335

 

335

 

26

 

361

Other comprehensive income

 

 

2

 

 

2

 

 

2

Common stock issued, net of issuance cost

 

14

 

 

 

14

 

 

14

Preferred stock issuance cost

(2)

(2)

(2)

Common stock dividends declared ($0.6625 per share)

 

 

 

(252)

 

(252)

 

 

(252)

Preferred stock dividend accrued ($13.2882 per share)

(17)

(17)

(17)

Dividends to noncontrolling interests ($15.625 - $35.936 per share for preference stock)

 

 

 

 

 

(26)

 

(26)

Noncash stock-based compensation

 

10

 

 

 

10

 

 

10

Balance at June 30, 2021

$

1,235

$

6,013

$

(65)

$

8,229

$

15,412

$

1,901

$

17,313

43

The following table provides Edison International's changes in equity for the three and six months ended June 30, 2020:

Noncontrolling

Equity Attributable to Edison International Shareholders

Interests

Accumulated

Preferred

Other

and

Preferred

Common

Comprehensive

Retained

Preference

Total

(in millions, except per share amounts)

    

Stock

Stock

    

Loss

    

Earnings

    

Subtotal

    

Stock

    

Equity

Balance at December 31, 2019

$

$

4,990

$

(69)

$

8,382

$

13,303

$

2,193

$

15,496

Net income

 

 

 

 

183

 

183

 

30

 

213

Other comprehensive income

 

 

 

2

 

 

2

 

 

2

Common stock issued, net of issuance cost

88

88

88

Common stock dividends declared ($0.6375 per share)

 

 

 

 

(232)

 

(232)

 

 

(232)

Dividends to noncontrolling interests ($0.255 - $0.299 per share for preferred stock; $15.625 - $35.936 per share for preference stock)

 

 

 

 

 

 

(30)

 

(30)

Noncash stock-based compensation

 

 

7

 

 

 

7

 

 

7

Balance at March 31, 2020

$

$

5,085

$

(67)

$

8,333

$

13,351

$

2,193

$

15,544

Net income

 

 

 

 

318

 

318

 

30

 

348

Other comprehensive income

 

 

 

2

 

 

2

 

 

2

Common stock issued, net of issuance cost

815

815

815

Common stock dividends declared ($0.6375 per share)

 

 

 

 

(241)

 

(241)

 

 

(241)

Dividends to noncontrolling interests ($0.255 - $0.299 per share for preferred stock; $15.625 - $35.936 per share for preference stock)

 

 

 

 

 

 

(30)

 

(30)

Noncash stock-based compensation

 

 

8

 

 

 

8

 

 

8

Balance at June 30, 2020

$

$

5,908

$

(65)

$

8,410

$

14,253

$

2,193

$

16,446

44

The following table provides SCE's changes in equity for the three and six months ended June 30, 2021:

Accumulated

Additional

Other

Preference

Common

Paid-in

Comprehensive

Retained

Total

(in millions, except per share amounts)

    

Stock

    

Stock

    

Capital

    

Loss

    

Earnings

    

Equity

Balance at December 31, 2020

$

1,945

$

2,168

$

5,387

$

(41)

$

9,191

$

18,650

Net income

 

 

 

 

 

323

 

323

Other comprehensive income

 

 

 

 

2

 

 

2

Capital contribution from Edison International Parent

 

 

 

900

 

 

 

900

Dividends declared on common stock ($0.7473 per share)

 

 

 

 

 

(325)

 

(325)

Dividends on preference stock ($15.625 - $35.936 per share)

 

 

 

 

 

(27)

 

(27)

Stock-based compensation

 

 

 

(4)

 

 

 

(4)

Noncash stock-based compensation

 

 

 

3

 

 

 

3

Balance at March 31, 2021

$

1,945

$

2,168

$

6,286

$

(39)

$

9,162

$

19,522

Net income

 

 

 

 

 

385

 

385

Other comprehensive income

 

 

 

 

1

 

 

1

Capital contribution from Edison International Parent

 

 

 

325

 

 

 

325

Dividends declared on common stock ($0.7473 per share)

 

 

 

 

 

(325)

 

(325)

Dividends declared on preference stock ($15.625 - $35.936 per share)

 

 

 

 

 

(26)

 

(26)

Noncash stock-based compensation

 

 

 

5

 

 

 

5

Balance at June 30, 2021

$

1,945

$

2,168

$

6,616

$

(38)

$

9,196

$

19,887

45

The following table provides SCE's changes in equity for the three and six months ended June 30, 2020:

Preferred

Accumulated

and

Additional

Other

Preference

Common

Paid-in

Comprehensive

Retained

Total

(in millions, except per share amounts)

    

Stock

    

Stock

    

Capital

    

Loss

    

Earnings

    

Equity

Balance at December 31, 2019

$

2,245

$

2,168

$

3,939

$

(39)

$

9,514

$

17,827

Net income

 

 

 

 

 

249

 

249

Other comprehensive income

 

 

 

 

2

 

 

2

Capital contribution from Edison International Parent

269

269

Dividends declared on common stock ($0.6185 per share)

 

 

 

 

 

(269)

 

(269)

Dividends declared on preferred stock ($0.255 - $0.299 per share) and preference stock (15.625 - $35.936 per share)

 

 

 

 

 

(30)

 

(30)

Stock-based compensation

 

 

 

(5)

 

 

 

(5)

Noncash stock-based compensation

 

 

 

4

 

 

(1)

 

3

Balance at March 31, 2020

$

2,245

$

2,168

$

4,207

$

(37)

$

9,463

$

18,046

Net income

 

 

 

 

 

411

 

411

Other comprehensive income

 

 

 

 

1

 

 

1

Capital contribution from Edison International Parent

 

 

 

619

 

 

 

619

Dividends declared on common stock ($0.6185 per share)

(269)

(269)

Dividends declared on preferred and preference stock ($0.255 - $0.299 per share for preferred stock; $15.625 - $35.936 per share for preference stock)

 

 

 

 

 

(30)

 

(30)

Noncash stock-based compensation

 

 

 

3

 

 

 

3

Balance at June 30, 2020

$

2,245

$

2,168

$

4,829

$

(36)

$

9,575

$

18,781

Note 3.Variable Interest Entities

A variable interest entity ("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. Commercial and operating activities are generally the factors that most significantly impact the economic performance of such VIEs. Commercial and operating activities include construction, operation and maintenance, fuel procurement, dispatch and compliance with regulatory and contractual requirements.

Variable Interest in VIEs that are Consolidated

SCE Recovery Funding LLC is a bankruptcy remote, wholly owned special purpose subsidiary, consolidated by SCE. SCE Recovery Funding LLC is a VIE and SCE is the primary beneficiary. SCE Recovery Funding LLC was formed in 2021 for the purpose of issuing and servicing securitized bonds related to SCE's AB 1054 Excluded Capital Expenditures.

During the first quarter of 2021, SCE Recovery Funding LLC issued $338 million of securitized bonds in three tranches and used the proceeds to acquire SCE's right, title and interest in and to non-bypassable rates and other charges to be collected from certain existing and future customers in SCE's service territory, associated with the AB 1054 Excluded Capital

46

Expenditures ("Recovery Property"), until the bonds are paid in full and all financing costs have been recovered. The securitized bond is secured by the Recovery Property and cash collections from the non-bypassable rates and other charges are the sole source of funds to satisfy the debt obligation. The bondholders have no recourse to SCE. For further details, see Note 5.

The following table summarizes the impact of SCE Recovery Funding LLC on SCE's and Edison International's consolidated balance sheets.

(in millions)

June 30, 2021

Regulatory assets

$

2

Other current assets

6

Regulatory assets: Non-current

329

Current portion of long-term debt

(14)

Other current liabilities

(3)

Long-term debt1

 

(320)

1The bondholders have no recourse to SCE.

Variable Interest in VIEs that are not Consolidated

Power Purchase Agreements ("PPAs")

SCE has PPAs that are classified as variable interests in VIEs, including agreements through which SCE provides the natural gas to fuel the plants and fixed price contracts for renewable energy. 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 sheets that relate to involvement with VIEs result from amounts due under the PPAs. Under these contracts, SCE recovers the costs incurred through demonstration of compliance with its CPUC-approved long-term power procurement plans. SCE has no residual interest in the entities and has not provided or guaranteed any debt or equity support, liquidity arrangements, performance guarantees, or other commitments associated with these contracts other than the purchase commitments described in Note 12 of the 2020 Form 10-K. As a result, there is no significant potential exposure to loss to SCE from its variable interest in these VIEs. The aggregate contracted capacity dedicated to SCE from these VIE projects was 3,889 megawatts ("MW") and 6,583 MW at June 30, 2021 and 2020, respectively, and the amounts that SCE paid to these projects were $153 million and $150 million for the three months ended June 30, 2021 and 2020, respectively, and $312 million and $301 million for the six months ended June 30, 2021 and 2020, respectively. These amounts are recoverable in customer rates, subject to reasonableness review.

Unconsolidated Trusts of SCE

SCE Trust II, Trust III, Trust IV, Trust V, and Trust VI were formed in 2013, 2014, 2015, 2016, and 2017, respectively, for the exclusive purpose of issuing the 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 II, Trust III, Trust IV, Trust V and Trust VI issued to the public trust securities in the face amounts of $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 G, Series H, Series J, Series K, and Series L Preference Stock issued by SCE in the principal amounts of $400 million, $275 million,

47

$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 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 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. 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.

The Trust II, Trust III, Trust IV, Trust V and Trust VI balance sheets as of June 30, 2021 and December 31, 2020 consisted of investments of $220 million, $275 million, $325 million, $300 million, and $475 million in the Series G, Series H, Series J, Series K and Series L Preference Stock, respectively, $220 million, $275 million, $325 million, $300 million, and $475 million of trust securities, respectively, and $10,000 each of common stock.

The following table provides a summary of the trusts' income statements:

Three months ended June 30, 

(in millions)

    

Trust II

    

Trust III

    

Trust IV

    

Trust V

    

Trust VI

2021

 

Dividend income

$

5

$

4

$

5

$

4

$

6

Dividend distributions

 

5

 

4

 

5

 

4

 

6

2020

 

  

 

  

 

  

 

  

 

  

Dividend income

$

5

$

4

$

5

$

4

$

6

Dividend distributions

 

5

 

4

 

5

 

4

 

6

Six months ended June 30, 

(in millions)

    

Trust II

    

Trust III

    

Trust IV

    

Trust V

    

Trust VI

2021

 

Dividend income

$

10

$

8

$

9

$

8

$

12

Dividend distributions

 

10

 

8

 

9

 

8

 

12

2020

 

  

 

  

 

  

 

  

 

  

Dividend income

$

10

$

8

$

9

$

8

$

12

Dividend distributions

 

10

 

8

 

9

 

8

 

12

Note 4.Fair Value Measurements

Recurring Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (referred to as an "exit price"). Fair value of an asset or liability considers assumptions that market participants would use in pricing the asset or liability, including assumptions about nonperformance risk. As of June 30, 2021 and December 31, 2020, 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.

48

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 an exchange (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 an 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.

SCE

The following table sets forth assets and liabilities of SCE that were accounted for at fair value by level within the fair value hierarchy:

    

June 30, 2021

Netting

 and 

 

(in millions)

    

Level 1

    

Level 2

    

Level 3

    

Collateral1

    

Total

Assets at fair value

Derivative contracts

$

0

$

55

$

77

$

(43)

$

89

Money market funds and other

 

20

 

23

 

0

 

 

43

Nuclear decommissioning trusts:

 

 

 

  

 

  

 

Stocks2

 

1,905

 

0

 

0

 

 

1,905

Fixed Income3

 

891

 

1,745

 

0

 

 

2,636

Short-term investments, primarily cash equivalents

 

253

 

166

 

0

 

 

419

Subtotal of nuclear decommissioning trusts4

 

3,049

 

1,911

 

0

 

 

4,960

Total assets

 

3,069

 

1,989

 

77

 

(43)

 

5,092

Liabilities at fair value

 

  

 

  

 

  

 

  

 

  

Derivative contracts

 

0

 

7

 

10

 

(17)

 

0

Total liabilities

 

0

 

7

 

10

 

(17)

 

0

Net assets

$

3,069

$

1,982

$

67

$

(26)

$

5,092

49

    

December 31, 2020

Netting

 and 

 

(in millions)

    

Level 1

    

Level 2

    

Level 3

    

Collateral1

    

Total

Assets at fair value

Derivative contracts

$

$

6

$

120

$

(18)

$

108

Money market funds and other

 

39

 

23

 

 

 

62

Nuclear decommissioning trusts:

 

  

 

  

 

  

 

  

 

  

Stocks2

 

1,908

 

 

 

 

1,908

Fixed Income3

 

519

 

2,113

 

 

 

2,632

Short-term investments, primarily cash equivalents

 

447

 

52

 

 

 

499

Subtotal of nuclear decommissioning trusts4

 

2,874

 

2,165

 

 

 

5,039

Total assets

 

2,913

 

2,194

 

120

 

(18)

 

5,209

Liabilities at fair value

 

  

 

  

 

  

 

  

 

  

Derivative contracts

 

 

10

 

12

 

(22)

 

Total liabilities

 

 

10

 

12

 

(22)

 

Net assets

$

2,913

$

2,184

$

108

$

4

$

5,209

1Represents the netting of assets and liabilities under master netting agreements and cash collateral.
2Approximately 73% and 71% of SCE's equity investments were in companies located in the United States at June 30, 2021 and December 31, 2020, respectively.
3Includes corporate bonds, which were diversified by the inclusion of collateralized mortgage obligations and other asset backed securities, of $32 million and $29 million at June 30, 2021 and December 31, 2020, respectively.
4Excludes net payables of $74 million and $206 million at June 30, 2021 and December 31, 2020, respectively, which consist of payables and receivables related to SCE's pending securities purchases and sales as well as interest and dividend receivables.

Edison International Parent and Other

Edison International Parent and Other assets measured at fair value and classified as Level 1 consisted of $21 million in an equity investment as of June 30, 2021 and money market funds of $27 million and $24 million at June 30, 2021 and December 31, 2020, respectively, and classified as Level 2 consisted of short-term investments of $4 million and $5 million at June 30, 2021 and December 30, 2020, respectively.

SCE Fair Value of Level 3

The following table sets forth a summary of changes in SCE's fair value of Level 3 net derivative assets and liabilities:

    

Three months ended

    

Six months ended

June 30, 

June 30, 

(in millions)

2021

2020

2021

2020

Fair value of net assets at beginning of period

$

91

$

52

$

108

$

78

Purchases

8

Sales

(1)

(3)

(1)

(4)

Settlements

 

(2)

 

(6)

 

(16)

 

(26)

Total realized/unrealized losses 1,2

 

(21)

 

(9)

 

(24)

 

(22)

Fair value of net assets at end of period

$

67

$

34

$

67

$

34

1Due to regulatory mechanisms, SCE's realized and unrealized gains and losses are recorded as regulatory assets and liabilities.
2There were no material transfers into or out of Level 3 during 2021 and 2020.

50

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

Significant

Weighted

(in millions)

Valuation

Unobservable

Range

Average

    

Assets

    

Liabilities

    

Technique

    

 Input

    

(per MWh)

    

(per MWh)

Congestion revenue rights

  

  

  

  

  

  

June 30, 2021

$

77

$

10

 

Auction prices

 

CAISO CRR auction prices

 

$(1.39) - $44.46

$

2.31

December 31, 2020

 

120

 

12

 

Auction prices

 

CAISO CRR auction prices

 

(9.67) - 300.47

2.75

Level 3 Fair Value Uncertainty

For CRRs, increases or decreases in CAISO auction prices would result in higher or lower fair value, respectively, as of June 30, 2021.

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. There are no securities classified as Level 3 in the nuclear decommissioning trusts.

Fair Value of Debt Recorded at Carrying Value

The carrying value and fair value of Edison International's and SCE's long-term debt (including current portion of long-term debt) are as follows:

    

June 30, 2021

    

December 31, 2020

Carrying 

Fair 

Carrying 

Fair 

(in millions)

    

Value1

    

Value2

    

Value1

    

Value2

Edison International

$

23,306

$

25,527

$

20,337

$

23,824

SCE

 

20,171

 

22,156

 

17,204

 

20,365

1Carrying value is net of debt issuance costs.
2The fair value of Edison International's and SCE's short-term and long-term debt is classified as Level 2.

Note 5.Debt and Credit Agreements

Long-Term Debt

In the first quarter of 2021, SCE issued $150 million of 2.25% first and refunding mortgage bonds due in 2030 and $750 million of 2.95% first and refunding mortgage bonds due in 2051. The proceeds were primarily used to repay SCE's commercial paper borrowings and for general corporate purposes.

In April 2021, SCE issued $400 million of Secured Overnight Financing Rate ("SOFR") plus 0.64% first and refunding mortgage bonds due in 2023, $400 million of SOFR plus 0.83% of first and refunding mortgage bonds due in 2024, $350 million of 0.70% first and refunding mortgage bonds due in 2023 and $700 million of 1.10% first and refunding mortgage bonds due in 2024. The proceeds of these issuances were used to fund the payment of wildfire claims exceeding insurance proceeds and repay commercial paper borrowings that were used to fund the payment of wildfire claims, including amounts paid under the Woolsey Subrogation Settlement.

51

In June 2021, SCE issued $450 million of 2.50% first and refunding mortgage bonds due in 2031 and $450 million of 3.65% first and refunding mortgage bonds due in 2051. The proceeds were used to finance or refinance eligible sustainable projects.

Senior Secured Recovery Bonds

During the first quarter of 2021, SCE Recovery Funding LLC issued $338 million of Senior Secured Recovery Bonds, Series 2021-A, in three tranches ("Recovery Bonds") and used the proceeds to acquire SCE's right, title and interest in and to non-bypassable rates and other charges associated with the AB 1054 Excluded Capital Expenditures to be collected from certain existing and future customers in SCE's service territory ("Recovery Property"). The three tranches of Recovery Bonds consisted of: $138 million, 0.86% with final maturity in 2033; $100 million, 1.94% with final maturity in 2040; and $100 million, 2.51% with final maturity in 2045. The Recovery Bonds are payable only from and secured by the Recovery Property. SCE Recovery Funding LLC is consolidated by SCE for financial reporting purposes, however, the Recovery Bonds do not constitute a debt or other legal obligation of, or interest in, SCE or any of its affiliates, except for SCE Recovery Funding LLC. SCE used the proceeds it received from the sale of Recovery Property to reimburse itself for previously incurred AB 1054 Excluded Capital Expenditures, including the retirement of related debt and financing costs. For further details, see Note 3.

Credit Agreements and Short-Term Debt

The following table summarizes the status of the credit facilities at June 30, 2021:

(in millions, except for rates)

Execution

Termination

SOFR

Outstanding

Outstanding

Amount

date

date

plus (bps) 

Use of proceeds

    

Commitment

    

borrowings

    

letters of credit

    

available

Edison International Parent

June 2019

May 2025

128

Support commercial paper borrowings and general corporate purposes1, 2

$

1,500

$

25

$

$

1,475

Total Edison International Parent:

$

1,500

$

25

$

$

1,475

SCE

June 2019

May 2025

108

Support commercial paper borrowings and general corporate purposes2, 3

$

3,350

$

175

$

120

$

3,055

Total SCE:

$

3,350

$

175

$

120

$

3,055

Total Edison International:

$

4,850

$

200

$

120

$

4,530

1At June 30, 2021 Edison International Parent had $25 million outstanding commercial paper, net of discount, at a weighted-average interest rate of 0.32%.
2In April 2021, SCE and Edison International Parent amended their respective revolving credit facilities to extend each of the termination dates to May 2025 and implement the transition from LIBOR to SOFR. Additionally, SCE and the lenders agreed to increase the commitment amount by $350 million, bringing the total to $3.4 billion. The aggregate maximum principal amount under the SCE and Edison International Parent revolving credit facilities may be increased up to $4.0 billion and $2.0 billion, respectively, provided that additional lender commitments are obtained.
3At June 30, 2021 SCE had $175 million outstanding commercial paper, net of discount, at a weighted-average interest rate of 0.23%.

Term loan and other short-term debt

In May 2021, SCE borrowed $1.2 billion under a term loan agreement due in May 2022 with a variable interest rate based on SOFR plus 0.60%. SCE used the proceeds to repay all outstanding indebtedness under SCE's 364-day revolving credit agreement and term loan credit agreement, both entered into during March 2020, for $800 million and $148 million,

52

respectively, and to finance certain capital projects related to wildfire mitigation that meet the green loan principles set forth by international loan market organizations including the Loan Syndications and Trading Association.

In June 2021, SCE issued $475 million of SOFR plus 0.35% first and refunding mortgage bonds due in 2022. The proceeds were used to repay commercial paper borrowings and for general corporate purposes.

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, Qualifying Facilities 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 and gas 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 and gas 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 were less than $1 million as of June 30, 2021 and December 31, 2020, for which SCE posted no collateral to its counterparties for its derivative liabilities and related outstanding payables for both periods. If the credit-risk-related contingent features underlying these agreements were triggered on June 30, 2021, SCE would be required to post $4 million of collateral, all of which is related to outstanding payables.

53

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 also offset against margin and cash collateral deposits. In addition, SCE has provided collateral in the form of letters of credit. Collateral requirements can vary depending upon the level of unsecured credit extended by counterparties, changes in market prices relative to contractual commitments and other factors. See Note 4 for a discussion of fair value of derivative instruments. The following table summarizes the gross and net fair values of SCE's commodity derivative instruments:

June 30, 2021

Derivative Assets

Derivative Liabilities

(in millions)

    

Short-Term1

    

Long-Term2

    

Subtotal

    

Short-Term

    

Long-Term

    

Subtotal

    

Net Assets

Commodity derivative contracts

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Gross amounts recognized

$

115

$

16

$

131

$

12

$

4

$

16

$

115

Gross amounts offset in the consolidated balance sheets

 

(12)

 

(4)

 

(16)

 

(12)

 

(4)

 

(16)

 

0

Cash collateral posted3

 

(26)

 

0

 

(26)

 

0

 

0

 

0

 

(26)

Net amounts presented in the consolidated balance sheets

$

77

$

12

$

89

$

0

$

0

$

0

$

89

December 31, 2020

Derivative Assets

Derivative Liabilities

(in millions)

    

Short-Term1

    

Long-Term2

    

Subtotal

    

Short-Term

    

Long-Term

    

Subtotal

    

Net Assets

Commodity derivative contracts

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Gross amounts recognized

$

103

$

23

$

126

$

16

$

6

$

22

$

104

Gross amounts offset in the consolidated balance sheets

 

(12)

 

(6)

 

(18)

 

(12)

 

(6)

 

(18)

 

0

Cash collateral posted3

 

0

 

0

 

0

 

(4)

 

0

 

(4)

 

4

Net amounts presented in the consolidated balance sheets

$

91

$

17

$

108

$

0

$

0

$

0

$

108

1Included in "Other current assets" on Edison International's and SCE's consolidated balance sheets.
2Included in "Other long-term assets" on Edison International's and SCE's consolidated balance sheets.
3At June 30, 2021, SCE received cash collateral of $30 million, of which $26 million was offset against net derivative assets and $4 million was reflected in "Other current liabilities" on the consolidated balance sheets. At December 31, 2020, SCE posted $17 million of cash, of which $4 million was offset against derivative liabilities and $13 million was reflected in "Other current assets" on the consolidated balance sheets.

Financial Statement Impact of Derivative Instruments

SCE recognizes realized gains and losses on derivative instruments as purchased power and fuel 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.

54