Edgar Filing: EDISON INTERNATIONAL

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2017
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to



Commission File Number	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 (P.O. Box 976) Rosemead, California 91770 (Address of principal executive offices)		2244 Walnut Grove Avenue (P.O. Box 800) Rosemead, California 91770 (Address of principal executive offices)
(626) 302-2222 (Registrant's telephone number, including area code)		(626) 302-1212 (Registrant's telephone number, including area code)

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

Edison International Yes þ No o Southern California Edison Company Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Edison International Yes þ No o Southern California Edison Company Yes þ 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. (Check One):
Edison International	Large Accelerated Filer þ	Accelerated Filer ¨	Non-accelerated Filer ¨	Smaller Reporting Company ¨	Emerging growth company ¨
Southern California Edison Company	Large Accelerated Filer ¨	Accelerated Filer ¨	Non-accelerated Filer þ	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 þ Southern California Edison Company Yes ¨ No þ

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 25, 2017:
Edison International		325,811,206 shares
Southern California Edison Company		434,888,104 shares

TABLE OF CONTENTS



					SEC Form 10-Q Reference Number
GLOSSARY				iii
FORWARD-LOOKING STATEMENTS				1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS				3	Part I, Item 2
	MANAGEMENT OVERVIEW			3
		Highlights of Operating Results		3
		Capital Program		4
		Regulatory Proceedings		5
	RESULTS OF OPERATIONS			6
	Southern California Edison Company			6
		Three months ended June 30, 2017 versus June 30, 2016		7
			Earning Activities	7
			Cost-Recovery Activities	8
		Six months ended June 30, 2017 versus June 30, 2016		8
			Earning Activities	8
			Cost-Recovery Activities	9
	Supplemental Operating Revenue Information			10
	Income Taxes			10
	Edison International Parent and Other			10
		Strategic Review of Edison Energy Group		10
		Income from Continuing Operations		11
	LIQUIDITY AND CAPITAL RESOURCES			11
	Southern California Edison Company			11
		Available Liquidity		11
		Capital Investment Plan		12
		Dividend Restrictions		12
		Margin and Collateral Deposits		13
	Edison International Parent and Other			13
	Historical Cash Flows			14
		Southern California Edison Company		14
		Edison International Parent and Other		16
	Contingencies			17
	MARKET RISK EXPOSURES			17
	Commodity Price Risk			17
	Credit Risk			17
	CRITICAL ACCOUNTING ESTIMATES AND POLICIES			17
	NEW ACCOUNTING GUIDANCE			17
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK				17	Part I, Item 3
FINANCIAL STATEMENTS				18	Part I, Item 1
	Edison International Consolidated Statements of Income			18
	Edison International Consolidated Statements of Comprehensive Income			19



	Edison International Consolidated Balance Sheets		20
	Edison International Consolidated Statements of Cash Flows		22
	SCE Consolidated Statements of Income		23
	SCE Consolidated Statements of Comprehensive Income		23
	SCE Consolidated Balance Sheets		24
	SCE Consolidated Statements of Cash Flows		26
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		27
		Note 1. Summary of Significant Accounting Policies	27
		Note 2. Consolidated Statements of Changes in Equity	30
		Note 3. Variable Interest Entities	31
		Note 4. Fair Value Measurements	33
		Note 5. Debt and Credit Agreements	36
		Note 6. Derivative Instruments	37
		Note 7. Income Taxes	39
		Note 8. Compensation and Benefit Plans	41
		Note 9. Investments	42
		Note 10. Regulatory Assets and Liabilities	43
		Note 11. Commitments and Contingencies	44
		Note 12. Preferred and Preference Stock of SCE	48
		Note 13. Accumulated Other Comprehensive Loss	49
		Note 14. Interest and Other Income and Other Expenses	49
		Note 15. Supplemental Cash Flows Information	50
CONTROLS AND PROCEDURES			50	Part I, Item 4
	Disclosure Controls and Procedures		50
	Changes in Internal Control Over Financial Reporting		50
	Jointly Owned Utility Plant		50
LEGAL PROCEEDINGS			50	Part II, Item 1
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			51	Part II, Item 2
	Purchases of Equity Securities by Edison International and Affiliated Purchasers		51
EXHIBITS			52	Part II, Item 6
SIGNATURES			53

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. Each company makes representations only as to itself and makes no other representation whatsoever as to any other company.

GLOSSARY

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



2016 Form 10-K		Edison International's and SCE's combined Annual Report on Form 10-K for the year-ended December 31, 2016
AFUDC		allowance for funds used during construction
ALJ		administrative law judge
ARO(s)		asset retirement obligation(s)
Bcf		billion cubic feet
Bonus Depreciation		Current federal tax deduction of a percentage of the qualifying property placed in service during periods permitted under tax laws
BRRBA		Base Revenue Requirement Balancing Account
CAISO		California Independent System Operator
CPUC		California Public Utilities Commission
DERs		distributed energy resources
DOE		U.S. Department of Energy
DRP		Distributed Resources Plan
Edison Energy		Edison Energy, LLC, a wholly-owned subsidiary of Edison Energy Group that advises and provides energy solutions to large energy users
Edison Energy Group		Edison Energy Group, Inc., the holding company for subsidiaries engaged in competitive businesses focused on providing energy services, including distributed generation, and/or storage to commercial and industrial customers
EME		Edison Mission Energy
EMG		Edison Mission Group Inc., a wholly owned subsidiary of Edison International and the parent company of EME and Edison Capital
ERRA		energy resource recovery account
FERC		Federal Energy Regulatory Commission
GAAP		generally accepted accounting principles used in the United States
GHG		greenhouse gas
GRC		general rate case
GWh		gigawatt-hours
HLBV		hypothetical liquidation at book value
IRS		Internal Revenue Service
Joint Proxy Statement		Edison International's and SCE's definitive Proxy Statement filed with the SEC in connection with Edison International's and SCE's Annual Shareholders' Meeting held on April 27, 2017
MD&A		Management's Discussion and Analysis of Financial Condition and Results of Operations in this report
MHI		Mitsubishi Heavy Industries, Inc. and related companies
MW		megawatts
MWdc		megawatts measured for solar projects representing the accumulated peak capacity of all the solar modules
NEIL		Nuclear Electric Insurance Limited
NEM		net energy metering
NERC		North American Electric Reliability Corporation
NRC		Nuclear Regulatory Commission
ORA		CPUC's Office of Ratepayers Advocates
OII		Order Instituting Investigation
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)
QF(s)		qualifying facility(ies)

iii



ROE		return on common equity
S&P		Standard & Poor's Ratings Services
San Onofre		retired nuclear generating facility located in south San Clemente, California in which SCE holds a 78.21% ownership interest
San Onofre OII Settlement Agreement		Settlement Agreement by and among SCE, TURN, ORA, SDG&E, the Coalition of California Utility Employees, and Friends of the Earth, dated November 20, 2014
SCE		Southern California Edison Company
SDG&E		San Diego Gas & Electric
SEC		U.S. Securities and Exchange Commission
SED		Safety and Enforcement Division of the CPUC, formerly known as the Consumer Protection and Safety Division or CPSD
SoCalGas		Southern California Gas Company
SoCore Energy		SoCore Energy LLC, a subsidiary of Edison Energy Group that provides solar energy and energy storage solutions
TURN		The Utility Reform Network
US EPA		U.S. Environmental Protection Agency

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 in a timely manner from its customers through regulated rates, including costs related to San Onofre and proposed spending on grid modernization;


•	decisions and other actions by the CPUC, the FERC, the NRC and other regulatory authorities, including determinations of authorized rates of return or return on equity, the outcome of San Onofre CPUC proceedings, and the 2018 GRC, and delays in regulatory actions;


•	ability of Edison International or SCE to borrow funds and access the capital markets on reasonable terms;

•

risks associated with cost allocation, including the potential movement of costs to certain customers, caused by the ability of cities, counties, and certain other public agencies to generate and/or purchase electricity for their local residents and businesses, along with other possible customer bypass or departure due to increased adoption of DERs or technological advancements in the generation, storage, transmission, distribution, and use of electricity, and supported by public policy, government regulations and incentives;


•	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), and governmental approvals;


•	risks associated with the operation of transmission and distribution assets and power generating facilities, including public safety issues, failure, availability, efficiency, and output of equipment and availability and cost of spare parts;


•	risks associated with the decommissioning of San Onofre, including those related to public opposition, permitting, governmental approvals, and cost overruns;


•	physical security of Edison International's and SCE's critical assets and personnel and the cybersecurity of Edison International's and SCE's critical information technology systems for grid control, and business and customer data;


•	the outcome of the strategic review of Edison Energy Group, which may include changes to existing competitive business models and/or exit of certain business activities;


•	cost and availability of electricity, including the ability to procure sufficient resources to meet expected customer needs in the event of power plant outages or significant counterparty defaults under power purchase agreements;


•	environmental laws and regulations, at both the state and federal levels, or changes in the application of those laws, that could require additional expenditures or otherwise affect the cost and manner of doing business;


•	changes in tax laws and regulations, at both the state and federal levels, or changes in the application of those laws, that could affect recorded deferred tax assets and liabilities and effective tax rate;


•	changes in the fair value of investments and other assets;


•	changes in interest rates and rates of inflation, including escalation rates, which may be adjusted by public utility regulators;


•	governmental, statutory, regulatory, or administrative changes or initiatives affecting the electricity industry, including the market structure rules applicable to each market adopted by the NERC, CAISO, Western Electricity Coordination Council, and similar regulatory bodies in adjoining regions;


•	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;


•	ability to obtain sufficient insurance, including insurance relating to SCE's nuclear facilities and wildfire-related liability, and to recover the costs of such insurance or in the absence of insurance the ability to recover uninsured losses;


•	potential for penalties or disallowance for non-compliance with applicable laws and regulations;


•	cost of fuel for generating facilities and related transportation, which could be impacted by, among other things, disruption of natural gas storage facilities, to the extent not recovered through regulated rate cost escalation provisions or balancing accounts;


•	disruption of natural gas supply due to unavailability of storage facilities, which could lead to electricity service interruptions; and


•	weather conditions and natural disasters.

Additional information about risks and uncertainties, including more detail about the factors described in this report, is contained throughout this report and in the 2016 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 2016 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 provide direct links to SCE's regulatory filings with the CPUC and the FERC in open proceedings most important to investors at www.edisoninvestor.com (SCE Regulatory Highlights) so that such filings are available to all investors upon SCE filing with the relevant agency. Edison International and SCE also routinely post or provide direct links to presentations, documents and other information that may be of interest to investors at www.edisoninvestor.com (Events and Presentations) in order to publicly disseminate such information.

The MD&A for the six months ended June 30, 2017 discusses material changes in the consolidated financial condition, results of operations and other developments of Edison International and SCE since December 31, 2016, and as compared to the six months ended June 30, 2016. This discussion presumes that the reader has read or has access to Edison International's and SCE's MD&A for the calendar year 2016 (the "year-ended 2016 MD&A"), which was included in the 2016 Form 10-K.

Except when otherwise stated, references to each of Edison International, SCE, EMG, Edison Energy Group, EME or Edison Capital mean each such company with its subsidiaries on a consolidated basis. References to "Edison International Parent and Other" mean Edison International Parent and its consolidated competitive subsidiaries.

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. SCE is a public utility primarily engaged in the business of supplying and delivering electricity to an approximately 50,000 square mile area of southern California. Edison International is also the parent company of Edison Energy Group, a holding company for subsidiaries engaged in pursing competitive business opportunities across energy services and distributed solar to commercial and industrial customers. Such business activities are currently not material to report as a separate business segment. References to Edison International refer to the consolidated group of Edison International and its subsidiaries. References to Edison International Parent and Other refer to Edison International Parent and its competitive subsidiaries. Unless otherwise described, all of the information contained in this report relates to both filers.



	Three months ended June 30,									Six months ended June 30,
(in millions)	2017			2016¹			Change			2017			2016¹			Change
Net income (loss) attributable to Edison International
Continuing operations
SCE	$	307		$	318		$	(11	)	$	656		$	612		$	44
Edison International Parent and Other	(29		)	(36		)	7			(16		)	(50		)	34
Discontinued operations	—			(2		)	2			—			(1		)	1
Edison International	278			280			(2		)	640			561			79
Less: Non-core items
SCE	—			—			—			—			—			—
Edison International Parent and Other	—			2			(2		)	1			4			(3		)
Discontinued operations	—			(2		)	2			—			(1		)	1
Total non-core items	—			—			—			1			3			(2		)
Core earnings (losses)
SCE	307			318			(11		)	656			612			44
Edison International Parent and Other	(29		)	(38		)	9			(17		)	(54		)	37
Edison International	$	278		$	280		$	(2	)	$	639		$	558		$	81


¹	The earnings for the three and six months ended June 30, 2016 were updated to reflect the implementation of the accounting standard for share-based payments effective January 1, 2016. See "Notes to Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies" for further information.

Edison International's earnings are prepared in accordance with GAAP. Management uses core earnings 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, income resulting from allocation of losses to tax equity investors under the HLBV accounting method, and income or loss from significant discrete items that management does not consider representative of ongoing earnings, such as exit activities, including sale of certain assets and other activities that are no longer continuing, write downs, asset impairments and other gains and losses related to certain tax, regulatory, or legal settlements or proceedings.

Edison International's second quarter 2017 earnings decreased $2 million from the second quarter of 2016, comprised of a decrease in SCE's earnings of $11 million, a decrease in Edison International Parent and Other's losses of $7 million, and a decrease in losses from discontinued operations of $2 million. The decrease in earnings at SCE was primarily due to a reduction in CPUC revenue related to prior overcollections.

Edison International's earnings for the six months ended June 30, 2017 increased $79 million from the six months ended June 30, 2016, comprised of an increase in SCE's earnings of $44 million, a decrease in Edison International Parent and Other's losses of $34 million, and a decrease in losses from discontinued operations of $1 million. The increase in earnings at SCE was primarily related to an increase in revenue from the escalation mechanism set forth in the 2015 GRC decision and lower operation and maintenance expenses, partially offset by the CPUC revenue adjustment discussed above and higher net financing costs.

Edison International Parent and Other's decrease in losses for the three and six months ended 2017 was due to lower core losses of $9 million and $37 million, respectively, and lower non-core earnings of $2 million and $3 million, respectively. The decrease in core losses was due to higher income tax benefits related to stock option exercises and the 2017 settlement of federal income tax audits for 2007 – 2012.

Capital Program

SCE's capital expenditures forecast for the 2017 – 2020 period has been revised since the filing of the 2016 Form 10-K, as indicated in the table below. The update reflects a reduction in 2017 capital expenditures primarily due to the lack of approval of a grid modernization memorandum account (see below for further information), lower than expected new customer meters and delays on FERC projects. The update also reflects SCE's revised requested capital expenditures for 2018 – 2020 resulting from SCE's 2018 GRC rebuttal testimony, filed in June 2017.

The 2017 capital program had originally included expenditures of $182 million for grid modernization capital spending. SCE has requested CPUC approval of a memorandum account to facilitate recovery in rates of such expenditures. The memorandum account has not yet been approved by the CPUC and may not be approved. Certain of the grid modernization capital expenditures promote safety and reliability as well as facilitating integration of distributed energy resources and are the focus of SCE's reduced grid modernization capital expenditures in 2017. This spending also would allow for a timely ramp-up of grid modernization capital expenditures in subsequent years. These expenditures are included in traditional distribution capital expenditures for 2017 in the table below. SCE may receive further guidance on grid modernization spending from the CPUC as part of the DRP proceeding in the second half of 2017.

Traditional capital expenditures for 2017 reflects SCE's forecast capital expenditures for CPUC and FERC capital projects. Traditional capital expenditures for 2018 – 2020 reflect the amounts requested in the 2018 GRC filing and subsequently updated in SCE's rebuttal testimony as well as the expected spending for FERC capital projects. Recovery for 2017 – 2020 planned expenditures for traditional capital projects under FERC jurisdiction will be pursued through FERC-authorized mechanisms. The CPUC has approved 81%, 89%, and 92% of the traditional capital expenditures requested in the 2009, 2012, and 2015 GRC decisions, respectively. While SCE cannot predict the level of traditional capital spending that will be approved in the 2018 GRC decision, management is not aware of factors that would cause the percentage of SCE's request that is ultimately approved to be materially different from what has been approved in recent GRC decisions. SCE does not have prior approval experience with grid modernization capital expenditures and, therefore, is unable to predict an expected outcome. Forecasted expenditures for FERC capital projects are subject to change due to timeliness of permitting, licensing and regulatory approvals. For further information regarding updates for large transmission and substation projects, see "Liquidity and Capital Resources—SCE—Capital Investment Plan."

Total capital expenditures (including accruals) were $1.4 billion and $1.6 billion for the first six months of 2017 and 2016, respectively. The following table sets forth a summary of forecasted capital expenditures for 2017 – 2020 on the basis described above:



(in millions)	2017		2018		2019		2020		Total 2017 – 2020
Traditional capital expenditures¹
Distribution²	$	3,080	$	3,174	$	3,119	$	3,048	$	12,421
Transmission	501		956		1,003		1,046		3,506
Generation	199		220		212		201		832
Total requested traditional capital expenditures^{1, 3}	$	3,780	$	4,350	$	4,334	$	4,295	$	16,759
Grid modernization capital expenditures²	$	—	$	538	$	649	$	608	$	1,795
Total capital expenditures	$	3,780	$	4,888	$	4,983	$	4,903	$	18,554


¹	Includes Energy Storage of $60 million in the 2017 – 2020 period. Also, includes $12 million Charge Ready Pilot in 2017.


²	2017 capital expenditures related to grid modernization are included in traditional distribution capital expenditures.


³	Capital expenditures for 2017 reflect management's expectations based on the 2015 GRC decision.

SCE's estimated weighted average annual rate base for 2017 – 2020 using the capital expenditures set forth in the table above is as follows:



(in millions)	2017		2018		2019		2020
Rate base for requested traditional capital expenditures	$	26,212	$	28,997	$	31,088	$	33,122
Rate base for requested grid modernization capital expenditures	—		261		695		1,195
Total rate base	$	26,212	$	29,258	$	31,783	$	34,317

The rate base above does not reflect reductions from the amounts requested in the 2018 GRC that may be included in a final decision.

Regulatory Proceedings

2018 General Rate Case

In September 2016, SCE filed its 2018 GRC application for the three-year period 2018 – 2020, which requested a 2018 revenue requirement of $5.885 billion, an increase of $222 million over the projected 2017 GRC authorized revenue requirement. In June 2017 in its rebuttal testimony, SCE revised its requested 2018 revenue requirement to $5.859 billion, which would be a $196 million increase. The rebuttal testimony also proposed post-test year increases in 2019 and 2020 of $480 million and $556 million, respectively.

In April 2017, the ORA recommended that SCE's original requested 2018 base revenue requirement be decreased by approximately $208 million, comprised of approximately $164 million in operations and maintenance expense reductions and approximately $44 million in capital-related revenue requirement reductions largely related to the proposed reduction of 100% of grid modernization capital spending. To the extent any spending is authorized, the ORA proposed capturing grid modernization spending in a memorandum account for review in the 2021 GRC. TURN recommended reductions of 78% of grid modernization capital expenditures in 2018 and rate base adjustments of approximately $700 million of historical capital expenditures, primarily related to certain distribution infrastructure replacement programs. The impact of TURN's recommendations would decrease SCE's original requested 2018 base revenue requirement by approximately $93 million.

SCE requested that the CPUC issue a final decision by the end of 2017. If the schedule for a final decision is delayed, SCE will request the CPUC to issue an order directing that the authorized revenue requirement changes be effective January 1, 2018. SCE cannot predict the revenue requirement the CPUC will ultimately authorize for 2018 through 2020 or forecast the timing of a final decision.

Permanent Retirement of San Onofre

Replacement steam generators were installed at San Onofre in 2010 and 2011. On January 31, 2012, a leak suddenly occurred in one of the heat transfer tubes in San Onofre's Unit 3 steam generators. The Unit was safely taken off-line and subsequent inspections revealed excessive tube wear. Unit 2 was off-line for a planned outage when areas of unexpected tube wear were also discovered. On June 6, 2013, SCE decided to permanently retire Units 2 and 3.

San Onofre CPUC Proceedings

As discussed in the year-ended 2016 MD&A, in a December 2016 joint ruling, the Assigned Commissioner and the Assigned ALJ expressed concerns about the extent to which the failure to timely report ex parte communications had impacted the settlement negotiations and directed SCE and SDG&E to meet and confer with the other parties in the San Onofre OII to consider changing the terms of the San Onofre OII Settlement Agreement. In March 2017, SCE and the parties participating in the meet-and-confer process initiated a mediation of the issues identified in the December 2016 joint ruling. The CPUC has established a joint report deadline of August 15, 2017, at which time the parties must report on the outcome of the meet-and-confer process.

SCE has recorded a regulatory asset of $772 million at June 30, 2017 to reflect the expected recoveries under the San Onofre OII Settlement Agreement. SCE assessed the San Onofre regulatory asset at June 30, 2017 and continues to conclude that the asset is probable, though not certain, of recovery based on SCE's knowledge of facts and judgment in applying the relevant regulatory principles to the issue. Such judgment is subject to uncertainty, and regulatory principles and precedents are not necessarily binding and are capable of interpretation.

MHI Claims

In March 2017, SCE received a decision from the International Chamber of Commerce International Court of Arbitration on claims against MHI regarding failure of the replacement steam generators that MHI supplied for San Onofre. The net recovery awarded to SCE was initially determined to be $52 million. An adjustment to the interest awarded to SCE subsequently reduced the net recovery to $47 million. SCE has determined that it will not appeal the decision. As a result of uncertainty associated with the allocation of the award under the San Onofre OII Settlement Agreement, SCE recorded a regulatory liability for the net recovery.

For more information on the challenges to the settlement of the San Onofre OII, the arbitration tribunal decision on MHI, and the San Onofre regulatory asset, see "Notes to Consolidated Financial Statements—Note 11. Commitments and Contingencies—Contingencies—San Onofre Related Matters."

Cost of Capital

In July 2017, the CPUC issued a final decision that adopted the petition previously filed by SCE, Pacific Gas & Electric Company, SDG&E, and SoCalGas (collectively, the "Investor-Owned Utilities"), ORA, and TURN to modify the prior CPUC decisions addressing the Investor-Owned Utilities' costs of capital. The decision extended the deadline for the next Investor-Owned Utilities cost of capital application to April 2019, reset SCE's authorized cost of long-term debt and preferred stock beginning January 1, 2018; and established SCE's authorized ROE at 10.30%, beginning January 1, 2018. For more information on the terms of the settling parties' petition, see "Management Overview—Regulatory Proceedings—Cost of Capital" in the year-ended 2016 MD&A.

FERC Formula Rates

In June 2017, SCE provided its preliminary 2018 annual transmission revenue requirement update to interested parties. The update reflects a decrease in SCE's transmission revenue requirement of $15 million or 1.3% lower than amounts currently authorized in rates. SCE expects to file its 2018 annual update with the FERC by October 31, 2017 with the proposed rates effective January 1, 2018. In addition, SCE expects to file a new formula rate with the FERC by October 31, 2017. Once the new formula rate is accepted by the FERC, it will supersede the existing formula rate, including the 2018 annual update, and could become effective as early as January 1, 2018. FERC has the authority and commonly suspends new rates for up to five months. If the new formula rate is suspended by the FERC, the 2018 transmission revenue requirement rate established in the 2018 annual update will be effective from January 1, 2018 until the end of the suspension of the new formula rate. The new formula rate will be subject to refund from the end of the suspension until it is ultimately approved by the FERC.

RESULTS OF OPERATIONS

Southern California Edison Company

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

•

Earning activities – representing revenue authorized by the CPUC and FERC which is intended to provide SCE a reasonable opportunity to recover its costs and earn a return on its net investment in generation, transmission, and distribution assets. The annual revenue requirements are comprised of authorized operation and maintenance costs, depreciation, taxes, and a return consistent with the capital structure. Also, included in earnings activities are revenues or penalties related to incentive mechanisms, other operating revenue, and regulatory charges or disallowances.

•

Cost-recovery activities – representing CPUC- and FERC- authorized balancing accounts which allow for recovery of specific project or program costs, subject to reasonableness review or compliance with upfront standards. Cost-recovery activities include rates which provide recovery, subject to reasonableness review of, among other things, fuel costs, purchased power costs, public purpose related-program costs (including energy efficiency and demand-side management programs), and certain operation and maintenance expenses. SCE earns no return on these activities.

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

Three months ended June 30, 2017 versus June 30, 2016



	Three months ended June 30, 2017								Three months ended June 30, 2016
(in millions)	Earning Activities			Cost- Recovery Activities		Total Consolidated			Earning Activities			Cost- Recovery Activities		Total Consolidated
Operating revenue	$	1,584		$	1,369	$	2,953		$	1,509		$	1,259	$	2,768
Purchased power and fuel	—			1,175		1,175			—			1,064		1,064
Operation and maintenance	473			193		666			492			195		687
Depreciation, decommissioning and amortization	510			—		510			503			—		503
Property and other taxes	84			1		85			85			—		85
Total operating expenses	1,067			1,369		2,436			1,080			1,259		2,339
Operating income	517			—		517			429			—		429
Interest expense	(146		)	—		(146		)	(134		)	—		(134		)
Other income and expenses	24			—		24			22			—		22
Income before income taxes	395			—		395			317			—		317
Income tax expense	57			—		57			(32		)	—		(32		)
Net income	338			—		338			349			—		349
Preferred and preference stock dividend requirements	31			—		31			31			—		31
Net income available for common stock	$	307		$	—	$	307		$	318		$	—	$	318
Net income available for common stock						$	307							$	318
Less:
Non-core earnings						—								—
Core earnings¹						$	307							$	318


¹	See 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 $75 million primarily due to the following:

•

An increase in CPUC revenue of approximately $58 million primarily due to the escalation mechanism as set forth in the 2015 GRC decision and $10 million of higher operating costs subject to balancing account treatment (primarily offset in depreciation expense below). These increases were partially offset by $9 million of lower revenue related to the extension of bonus depreciation and a $17 million revenue reduction for the expected refund to customers of prior overcollections identified in the second quarter of 2017.


•	An increase in revenue of $77 million related to incremental tax benefits refunded to customers (offset in taxes below). The increase in revenue resulted from a 2016 revenue refund to customers of $133 million related to 2012 – 2014 incremental income tax deductions, partially offset by higher year-over-year incremental tax benefits recognized in balancing accounts for 2017 activities.


•	A decrease in FERC-related revenue of $31 million primarily due to $19 million amortization of the regulatory asset associated with the Coolwater-Lugo transmission project recognized in 2016 (offset in depreciation below) and a $7 million reduction to FERC revenue due to a change in estimate under the FERC formula rate mechanism.


•	Lower operation and maintenance costs of $19 million primarily due to the impact of SCE's operational and service excellence initiatives and lower storm-related activities partially offset by higher transmission and distribution costs for line clearing.


•	Higher depreciation, decommissioning, and amortization expense of $7 million primarily related to depreciation on transmission and distribution investments partially offset by amortization of the regulatory asset related to Coolwater-Lugo plant recorded in 2016.


•	Higher interest expense of $12 million primarily due to increased borrowings.


•	Higher income taxes of $89 million primarily due to the following:


•	Lower income tax benefits of $45 million due to $79 million of flow-through incremental benefits for 2012 – 2014 to customers recorded in 2016 partially offset by higher income tax benefits in 2017 of $34 million related to flow through of incremental tax benefits for TAMA and the pole loading balancing accounts (offset in revenue above).


•	Lower net income tax benefits in 2017 for other property-related items, including cost of removal and depreciation deductions.


•	Higher pre-tax income for the second quarter of 2017, as discussed above.

Cost-Recovery Activities

Cost-recovery activities were primarily affected by the following:


•	Higher purchased power and fuel costs of $111 million primarily driven by higher power and gas prices experienced in 2017 relative to 2016, partially offset by lower realized losses on hedging activities ($3 million in 2017 compared to $25 million in 2016).

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

Six months ended June 30, 2017 versus June 30, 2016



	Six months ended June 30, 2017								Six months ended June 30, 2016
(in millions)	Earning Activities			Cost- Recovery Activities		Total Consolidated			Earning Activities			Cost- Recovery Activities		Total Consolidated
Operating revenue	$	3,136		$	2,273	5,409			$	3,031		$	2,173	$	5,204
Purchased power and fuel	—			1,959		1,959			—			1,858		1,858
Operation and maintenance	924			313		1,237			975			315		1,290
Depreciation, decommissioning and amortization	1,007			—		1,007			978			—		978
Property and other taxes	181			1		182			176			—		176
Total operating expenses	2,112			2,273		4,385			2,129			2,173		4,302
Operating income	1,024			—		1,024			902			—		902
Interest expense	(287		)	—		(287		)	(265		)	—		(265		)
Other income and expenses	50			—		50			46			—		46
Income before income taxes	787			—		787			683			—		683
Income tax expense	69			—		69			10			—		10
Net income	718			—		718			673			—		673
Preferred and preference stock dividend requirements	62			—		62			61			—		61
Net income available for common stock	$	656		$	—	$	656		$	612		$	—	$	612
Net income available for common stock						$	656							$	612
Less:
Non-core earnings						—								—
Core earnings¹						$	656							$	612


¹	See 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 $105 million primarily due to the following:

•

An increase in CPUC revenue of approximately $117 million primarily due to the escalation mechanism as set forth in the 2015 GRC decision and $19 million of higher operating costs subject to balancing account treatment (primarily offset in depreciation expense below). These increases were partially offset by $16 million of lower revenue related to the extension of bonus depreciation and a $17 million revenue reduction for the expected refund to customers of prior overcollections identified in the second quarter of 2017.

•

An increase in revenue of $42 million related to tax benefits refunded to customers (offset in income taxes below). The increase in revenue resulted from a 2016 revenue refund to customers of $133 million related to 2012 – 2014 incremental income tax deductions, partially offset by higher year-over-year incremental tax benefits recognized in balancing accounts for 2017 activities and a $65 million revenue reduction related to the tax abandonment of San Onofre.


•	A decrease in FERC-related revenue of $30 million primarily related to higher operating costs in 2016 including amortization of the regulatory asset associated with the Coolwater-Lugo transmission project (offset in depreciation below) and a $7 million reduction to FERC revenue due to a change in estimate under the FERC formula rate mechanism.


•	Lower operation and maintenance costs of $51 million primarily due to the impact of SCE's operational and service excellence initiatives, lower storm-related activities partially offset by higher transmission and distribution costs for line clearing.


•	Higher depreciation, decommissioning, and amortization expense of $29 million primarily related to depreciation on transmission and distribution investments partially offset by amortization of the regulatory asset related to Coolwater-Lugo plant recorded in 2016.


•	Higher interest expense of $22 million primarily due to increased borrowings and higher interest on balancing accounts in 2017.


•	Higher income taxes of $59 million primarily due to the following:

•

Lower income tax benefits of $25 million due to $79 million of flow-through incremental tax benefits for 2012 – 2014 to customers recorded in 2016 partially offset by higher income tax benefits in 2017 of $39 million related to a tax deduction for the abandonment of San Onofre and higher income tax benefits in 2017 of $15 million related to incremental tax benefits for TAMA and the pole loading balancing accounts (offset in revenue above)


•	Higher net income tax benefits in 2017 for other property-related items, including cost of removal and depreciation deductions.


•	Higher pre-tax income for the six months ended June 30, 2017, as discussed above.

Cost-Recovery Activities

Cost-recovery activities were primarily affected by the following:

Higher purchased power and fuel costs of $101 million primarily driven by higher power and gas prices experienced in 2017 relative to 2016, partially offset by lower realized losses on hedging activities ($5 million in 2017 compared to $52 million in 2016).

Supplemental Operating Revenue Information

SCE's retail billed and unbilled revenue (excluding wholesale sales and balancing account overcollections/undercollections) was $2.6 billion and $5.0 billion for the three and six months ended June 30, 2017, respectively, compared to $2.5 billion and $4.9 billion for the respective period in 2016.

Retail billed and unbilled revenue for the three and six months ended June 30, 2017 and 2016 reflects a rate increase of $102 million and $214 million, respectively, and a sales volume decrease of $32 million and $111 million, respectively. The rate increases were due to implementation of the 2017 ERRA rate increase. The sales volume decreases were primarily due to warmer weather experienced in the first and second quarter of 2016 compared to the same period in 2017.

As a result of the CPUC-authorized decoupling mechanism, SCE earnings are not affected by changes in retail electricity sales (see "Business—SCE—Overview of Ratemaking Process" in the 2016 Form 10-K).

Income Taxes

SCE's income tax expense increased by $89 million and $59 million for the three and six months ended June 30, 2017 compared to the same periods in 2016.

The effective tax rates were 14.4% and (10.1)% for the three months ended June 30, 2017 and 2016, respectively. The effective tax rates were 8.8% and 1.5% for the six months ended June 30, 2017 and 2016, respectively. SCE's effective tax rate is lower than the statutory rate primarily due to CPUC's ratemaking treatment for the current tax benefit arising from certain property-related and other temporary differences, which reverse over time. The accounting treatment for these temporary differences results in recording regulatory assets and liabilities for amounts that would otherwise be recorded to deferred income tax expense. The effective tax rate increase for the three and six months ended June 30, 2017 was primarily due to the $133 million revenue refund to customers that was recorded in 2016. The increase in the effective tax rate for the six month period was partially offset by the ratemaking treatment on the San Onofre tax abandonment recorded in 2017.

See "Notes to Consolidated Financial Statements—Note 7. Income Taxes" for a reconciliation of the federal statutory rate of 35% to the effective income tax rates.

Edison International Parent and Other

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

Strategic Review of Edison Energy Group Competitive Businesses

Edison International is in the process of completing a strategic review of Edison Energy Group's competitive businesses. The competitive businesses are undertaken through Edison Energy Group and include energy services provided by Edison Energy and distributed solar solutions provided by SoCore Energy. While not all aspects of the strategic review have been finalized, Edison International has concluded that it will evaluate potential sale opportunities for SoCore Energy and consolidate management across Edison Energy Group. Edison Energy will continue to pursue the growth of its existing energy services and portfolio advisory service practice for large energy users in the United States.

In connection with the strategic review, Edison International evaluated the recoverability of goodwill and recorded an impairment of SoCore Energy's goodwill totaling $16.5 million ($10 million after-tax) in the second quarter of 2017. In light of the decision to evaluate sale opportunities for SoCore Energy, Edison International considered the application of held for sale accounting treatment under the applicable accounting guidance. However, Edison International concluded that, as of June 30, 2017, it was not probable that the investment in SoCore Energy would be sold within one year, therefore the long-lived assets of SoCore Energy were not subject to held for sale accounting treatment. Under held for sale accounting treatment, the net assets of SoCore Energy ($209 million at June 30, 2017) would be recorded at the lower of book value or as net realizable value, including transaction costs.

Income from Continuing 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)	2017			2016			2017			2016
Edison Energy Group and subsidiaries¹	$	(17	)	$	(17	)	$	(23	)	$	(22	)
Edison Mission Group and subsidiaries	(1		)	(4		)	(2		)	(4		)
Corporate expenses and other²	(11		)	(15		)	9			(24		)
Total Edison International Parent and Other	$	(29	)	$	(36	)	$	(16	)	$	(50	)


¹	Includes income of less than $1 million and $1 million for the three and six months ended June 30, 2017, respectively, compared to income of $2 million and $4 million for the same periods in 2016, respectively, related to losses (net of distributions) allocated to tax equity investors under the HLBV accounting method.


²	Includes interest expense (pre-tax) of $12 million and $9 million for the three months ended June 30, 2017 and 2016, respectively, and $22 million and $17 million for the six months ended June 30, 2017 and 2016, respectively.

The loss from continuing operations of Edison International Parent and Other decreased $7 million and $34 million for the three and six months ended June 30, 2017, respectively, compared to the same periods in 2016 primarily due to:


•	Higher income tax benefits related to stock option exercises ($2 million and $1 million for the three months ended June 30, 2017 and 2016, respectively, and $37 million and $4 million for the six months ended June 30, 2017 and 2016, respectively) and income tax benefits in 2017 related to settlements with the IRS for taxable years 2007 – 2012.


•	In the second quarter of 2017, Edison Energy Group recorded a $10 million after-tax charge from a goodwill impairment on the SoCore Energy reporting unit and a $13 million after-tax charge during the second quarter of 2016 from a buy-out of an earn-out provision contained in one of the 2015 acquisitions.

LIQUIDITY AND CAPITAL RESOURCES

Southern California Edison Company

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 and dividend payments to Edison International, and the outcome of tax and regulatory matters.

In the next 12 months, SCE expects to fund its obligations, capital expenditures, and dividends through operating cash flows, tax benefits, and capital market financings, as needed. SCE also has availability under its credit facilities to fund liquidity requirements.

Available Liquidity

At June 30, 2017, SCE had approximately $2.48 billion available under its $2.75 billion multi-year revolving credit facility. In January 2017, SCE borrowed $300 million under a Term Loan Agreement and reissued $135 million of pollution control bonds. In March 2017, SCE issued $700 million of first and refunding mortgage bonds. In June 2017, SCE issued $475 million of preference stock. For further details, see "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements" and "—Note 12. Preferred and Preference Stock of SCE."

Debt Covenant

The debt covenant in SCE's credit facility limits its debt to total capitalization ratio to less than or equal to 0.65 to 1. At June 30, 2017, SCE's debt to total capitalization ratio was 0.43 to 1.

At June 30, 2017, SCE was in compliance with all other financial covenants that affect access to capital.

Capital Investment Plan

Below are updates for large transmission and substation projects since the filing of the 2016 Form 10-K. SCE is currently evaluating the timing of its major construction projects. For further information on these projects, see "Liquidity and Capital Resources—SCE—Capital Investment Plan—Major Transmission Projects" in the year-end 2016 MD&A.

Major Transmission Projects

West of Devers

In March 2017, the CPUC issued a decision denying ORA's September 2016 Application for Rehearing regarding the West of Devers Upgrade Project which sought additional project modifications and environmental mitigation measures. This action confirmed SCE's proposed project, which is on track to be placed in service in 2021. SCE expects to obtain competitive bids for the Project in the second half of 2017, which may result in a change to the expected cost of the Project.

Mesa Substation

In February 2017, the CPUC issued a final decision approving the Mesa Substation Project largely consistent with SCE's proposed project and rejected alternative project configurations proposed by CPUC staff. SCE expects to obtain competitive bids for the Project in the second half of 2017, which may result in a change to the expected cost of the Project. Preconstruction requirements for obtaining other permits and approvals are progressing and construction is planned to begin the third quarter of 2017. SCE expects the Mesa Substation project to go into service in 2022.

Alberhill System

In April 2017, the CPUC issued a final environmental impact report for the Alberhill System Project. This report rejected different alternatives recommended by CPUC staff and intervenors, selecting SCE's proposed project as the environmentally superior project. A final CPUC decision to approve the Project for construction is anticipated during 2018. As SCE prepares for the commencement of construction, updated annual capital spending will be incorporated into the capital program forecast.

Riverside Transmission Reliability

The Riverside Transmission Reliability Project is a joint project between SCE and Riverside Public Utilities (RPU), the municipal utility department of the City of Riverside. Due to changed circumstances since the time the Project was originally developed, SCE informed the CPUC in August 2016 that it supports revisions to the proposed Project. The CPUC continues to collect information regarding the revised Project in support of a supplemental environmental review. Potential revisions to the Project have not been reflected in the direct expenditures or scheduled in service date of 2021, however, revisions are likely to increase the total direct expenditures and delay the completion of the Project.

Eldorado-Lugo-Mohave Upgrade

The Eldorado-Lugo-Mohave Upgrade Project will increase capacity on existing transmission lines to allow additional renewable energy to flow from Nevada to southern California. SCE is evaluating the competitive bids received and expects to award the bid for the Project in the second half of 2017, which may result in a change to the expected cost of the Project.

Coolwater-Lugo

In the first quarter of 2017, the FERC approved a settlement allowing SCE to recover 100% of the requested $37.1 million of costs incurred by SCE related to the cancelled Coolwater-Lugo transmission project.

Dividend Restrictions

The CPUC regulates SCE's capital structure which limits the dividends it may pay Edison International. SCE may make distributions to Edison International as long as the common equity component of SCE's capital structure remains at or above 48% on a 13-month weighted average basis. At June 30, 2017, SCE's 13-month weighted-average common equity component of total capitalization was 50.2% and the maximum additional dividend that SCE could pay to Edison International under this limitation was approximately $564 million, resulting in a restriction on net assets of approximately $14.6 billion.

In the second quarter of 2017, SCE declared and paid a dividend to Edison International of $191 million. Future dividend amounts and timing of distributions are dependent on a number of factors including the level of capital expenditures, operating cash flows and earnings.

Margin and Collateral Deposits

Certain derivative instruments, power contracts and other contractual arrangements contain collateral requirements. Future collateral requirements may differ from the requirements at June 30, 2017, due to the addition of incremental power and energy procurement contracts with collateral requirements, if any, and the impact of changes in wholesale power and natural gas prices on SCE's contractual obligations.

Some of the power contracts contain provisions that require SCE to maintain an investment grade credit rating from the major credit rating agencies. If SCE's credit rating were to fall below investment grade, SCE may be required to pay the liability or post additional collateral.

The table below provides the amount of collateral posted by SCE to its counterparties as well as the potential collateral that would have been required as of June 30, 2017.



(in millions)
Collateral posted as of June 30, 2017¹	$	54
Incremental collateral requirements for power contracts resulting from a potential downgrade of SCE's credit rating to below investment grade	65
Incremental collateral requirements for power contracts resulting from adverse market price movement²	4
Posted and potential collateral requirements	$	123


¹	Net collateral provided to counterparties and other brokers consisted of $55 million in letters of credit and surety bonds and $1 million of cash reflected in "Other current liabilities" on the consolidated balance sheets.


²	Incremental collateral requirements were based on potential changes in SCE's forward positions as of June 30, 2017 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

Edison International Parent and Other's liquidity and its ability to pay operating expenses and pay dividends to common shareholders are dependent on dividends from SCE, realization of tax benefits, and access to bank and capital markets. Edison International may also finance working capital requirements, payment of obligations, and capital investments, including capital contributions to subsidiaries, with commercial paper or other borrowings, subject to availability in the bank and capital markets.

At June 30, 2017, Edison International Parent had $906 million available under its $1.25 billion multi-year revolving credit facility. In March 2017, Edison International issued $400 million of senior notes. For further details, see "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements."

The debt covenant in Edison International Parent's credit facility requires a consolidated debt to total capitalization ratio as defined in the credit agreement of less than or equal to 0.65 to 1. At June 30, 2017, Edison International Parent's consolidated debt to total capitalization ratio was 0.46 to 1.

At June 30, 2017, Edison International Parent was also in compliance with all other financial covenants that affect access to capital.

Historical Cash Flows

Southern California Edison Company



	Six months ended June 30,
(in millions)	2017			2016
Net cash provided by operating activities	$	1,521		$	1,516
Net cash provided by financing activities	101			149
Net cash used in investing activities	(1,622		)	(1,671		)
Net decrease in cash and cash equivalents	$	—		$	(6	)

Net Cash Provided by Operating Activities

The following table summarizes major categories of net cash provided by operating activities as provided in more detail in SCE's consolidated statements of cash flows for the six months ended June 30, 2017 and 2016.



	Six months ended June 30,						Change in cash flows
(in millions)	2017			2016			2017/2016
Net income	$	718		$	673
Non-cash items¹	1,198			980
Subtotal	$	1,916		$	1,653		$	263
Changes in cash flow resulting from working capital²	(221		)	(120		)	(101		)
Derivative assets and liabilities	(19		)	15			(34		)
Regulatory assets and liabilities	39			90			(51		)
Other noncurrent assets and liabilities³	(194		)	(122		)	(72		)
Net cash provided by operating activities	$	1,521		$	1,516		$	5


¹	Non-cash items include depreciation, decommissioning and amortization, allowance for equity during construction, deferred income taxes and investment tax credits, and other.


²	Changes in working capital items include receivables, inventory, accounts payable, prepaid and accrued taxes, and other current assets and liabilities.

³ Includes the nuclear decommissioning trusts.

Net cash provided by operating activities was impacted by the following:

Net income increased in 2017 by $45 million primarily due to higher revenue in 2017 due to the escalation mechanism set forth in the 2015 GRC decision and lower operation and maintenance expenses, partially offset by reductions in CPUC revenue related to prior overcollections and higher financing costs. The refund to customers was recorded to correct cost sharing between customers and shareholders.

Net cash for working capital was $(221) million and $(120) million during the six months ended June 30, 2017 and 2016, respectively. The reduction in net cash for working capital for each period was primarily related to the increase in receivables from customers ($147 million and $177 million in 2017 and 2016, respectively), and the timing of disbursements (including payments for payroll-related costs and purchased power). During the first six months of 2017, there was a reduction in payables of $55 million compared to an increase in payables of $30 million for the same period in 2016.

Net cash provided by regulatory assets and liabilities, including changes in over (under) collections of balancing accounts was $39 million and $90 million during the six months ended June 30, 2017 and 2016, respectively. SCE has a number of balancing accounts, which impact cash flows based on differences between timing of collection of amounts through rates and accrual expenditures. Cash flows were primarily impacted by the following:

2017


•	Higher cash due to $72 million of overcollections for the public purpose and energy efficiency programs. Overcollections for public purpose and energy efficiency programs increased due to lower spending for these programs.

•

Higher cash due to realization of $47 million in proceeds from the MHI arbitration and approximately $34 million from the Department of Energy related to spent nuclear fuel. For further information on the MHI claims and spent nuclear fuel, see "Notes to Consolidated Financial Statements—Note 11. Commitments and Contingencies—Contingencies—San Onofre Related Matters" and "—Spent Nuclear Fuel."


•	ERRA undercollections for fuel and purchased power were $228 million in 2017 compared to overcollections of $20 million in 2016. ERRA undercollections increased $248 million during the first six months of 2017 primarily due to seasonal rates and a refund of prior year overcollections.

•

BRRBA overcollections decreased by $169 million during the first six months of 2017 primarily due to the refunds of 2016 overcollections related to TAMA, a revenue refund to customers of $133 million for 2012 – 2014 incremental tax benefits related to repair deductions, and 2015 overcollections resulting from the implementation of the 2015 GRC decision, which was authorized to be refunded to customers over a two year period. The BRRBA tracks the differences between amounts authorized by the CPUC in the GRC proceedings and amounts billed to customers.


•	An increase in cash of approximately $303 million primarily due to recovery of prior FERC undercollections and lower spending for the new system generation program including lower capacity payments. The new system generation program records the benefits and costs of power purchase agreements and SCE-owned peaker generation units associated with new generation resources.

2016


•	Higher cash due to an increase in overcollections of $145 million for the public purpose and energy efficiency programs due to higher funding and lower spending for these programs during the first six months of 2016.


•	ERRA overcollections for fuel and purchased power decreased by $187 million during the first six months of 2016 primarily due to the implementation of the 2016 ERRA rate decrease in January 2016, partially offset by lower than forecasted power and gas prices experienced in 2016.


•	An increase in cash of approximately $132 million primarily due to a $122 million refund from the Department of Energy's failure to meet its obligation to begin accepting spent nuclear fuel from San Onofre. See "Notes to Consolidated Financial Statements—Note 11. Commitments and Contingencies—Contingencies—Spent Nuclear Fuel" for further discussion.

Cash flows used in other noncurrent assets and liabilities were primarily related to net earnings from nuclear decommissioning trust investments ($26 million and $9 million in 2017 and 2016, respectively) and SCE's payments of decommissioning costs ($98 million and $88 million in 2017 and 2016, respectively). See "Nuclear Decommissioning Activities" below for further discussion.

Net Cash Provided by Financing Activities

The following table summarizes cash provided by financing activities for the six months ended June 30, 2017 and 2016. Issuances of debt and preference stock are discussed in "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements—Long-Term Debt" and "—Note 12. Preferred and Preference Stock of SCE."



	Six months ended June 30,
(in millions)	2017			2016
Issuances of first and refunding mortgage bonds, net of discount and issuance costs	$	692		$	—
Issuance of term loan	300			—
Remarketing of pollution control bonds, net of issuance costs	134			—
Long-term debt matured or repurchased	(441		)	(41		)
Issuances of preference stock, net of issuance costs	463			294
Redemptions of preference stock	—			(125		)
Short-term debt (repayments), net of borrowings and discount	(550		)	457
Payments of common stock dividends to Edison International	(382		)	(340		)
Payments of preferred and preference stock dividends	(62		)	(61		)
Other	(53		)	(35		)
Net cash provided by financing activities	$	101		$	149

Net Cash Used in Investing Activities

Cash flows used in investing activities are primarily due to capital expenditures related to transmission and distribution investments ($1.7 billion and $1.8 billion for the six months ended June 30, 2017 and 2016, respectively). In addition, in the first six months of 2017 and 2016, SCE had a net redemption of nuclear decommissioning trust investments of $73 million and $144 million, respectively. See "Nuclear Decommissioning Activities" below for further discussion.

Nuclear Decommissioning Activities

SCE's statement of cash flows includes nuclear decommissioning activities, which are reflected in the following line items:



	Six months ended June 30,
(in millions)	2017			2016
Net cash used in operating activities: Net earnings from nuclear decommissioning trust investments	$	26		$	9
SCE's decommissioning costs	(98		)	(88		)
Net cash flow from investing activities: Proceeds from sale of investments	3,046			1,391
Purchases of investments	(2,973		)	(1,247		)
Net cash impact	$	1		$	65

Net cash used in operating activities relate to interest and dividends less administrative expenses, taxes, and SCE's decommissioning costs. See "Notes to Consolidated Financial Statements—Note 9. Investments" for further information. Investing activities represent the purchase and sale of investments within the nuclear decommissioning trusts, including the reinvestment of earnings from nuclear decommissioning trust investments. The net cash impact reflects timing of decommissioning payments ($98 million and $88 million in 2017 and 2016, respectively) and reimbursements to SCE from the nuclear decommissioning trust ($99 million and $153 million in 2017 and 2016, respectively). The 2016 net cash impact included reimbursements for 2016 and a portion of 2015, 2014, and 2013 decommissioning costs.

Edison International Parent and Other

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



	Six months ended June 30,
(in millions)	2017			2016
Net cash used in operating activities	$	(88	)	$	(84	)
Net cash provided by financing activities	122			50
Net cash used in investing activities	(32		)	(10		)
Net increase (decrease) in cash and cash equivalents	$	2		$	(44	)

Net Cash Provided by Financing Activities

Net cash provided by financing activities was as follows:



	Six months ended June 30,
(in millions)	2017			2016
Dividends paid to Edison International common shareholders	$	(354	)	$	(313	)
Dividends received from SCE	382			340
Payment for stock-based compensation, net of receipt from stock option exercises	(120		)	(21		)
Long-term debt issuance, net of discount and issuance costs	397			397
Short-term debt repayments, net of borrowings and discount	(192		)	(351		)
Other	9			(2		)
Net cash provided by financing activities	$	122		$	50

Contingencies

SCE has contingencies related to San Onofre Related Matters, Nuclear Insurance, Wildfire Insurance, and Spent Nuclear Fuel, which are discussed in "Notes to Consolidated Financial Statements—Note 11. Commitments and Contingencies."

MARKET RISK EXPOSURES

Edison International's and SCE's primary market risks are described in the 2016 Form 10-K. For a further discussion of market risk exposures, including commodity price risk, credit risk, and interest rate risk, see "Notes to Consolidated Financial Statements—Note 4. Fair Value Measurements" and "—Note 6. Derivative Instruments."

Commodity Price Risk

The fair value of outstanding derivative instruments used to mitigate exposure to commodity price risk was a net liability of $999 million and $1.1 billion at June 30, 2017 and December 31, 2016, respectively. For further discussion of fair value 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 for both rated and non-rated counterparties based on credit ratings using published ratings of counterparties and other publicly disclosed information, such as financial statements, regulatory filings, and press releases, to guide it in the process of setting credit levels, risk limits, and contractual arrangements, including master netting agreements.

As of June 30, 2017, the amount of balance sheet exposure as described above broken down by the credit ratings of SCE's counterparties, was as follows:



	June 30, 2017
(in millions)	Exposure²		Collateral		Net Exposure
S&P Credit Rating¹
A or higher	$	59	$	—	$	59


¹	SCE assigns a credit rating based on the lower of a counterparty's S&P, Fitch or Moody's rating. For ease of reference, the above table uses the S&P classifications to summarize risk, but reflects the lower of the three credit ratings.


²	Exposure excludes amounts related to contracts classified as normal purchases and sales and non-derivative contractual commitments that are not recorded on the consolidated balance sheets, except for any related net accounts receivable.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

For a complete discussion on Edison International's and SCE's critical accounting policies, see "Critical Accounting Estimates and Policies" in the year-ended 2016 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.

FINANCIAL STATEMENTS



Consolidated Statements of Income	Edison International

	Three months ended June 30,						Six months ended June 30,
(in millions, except per-share amounts, unaudited)	2017			2016			2017			2016
Total operating revenue	$	2,965		$	2,777		$	5,428		$	5,218
Purchased power and fuel	1,175			1,064			1,959			1,858
Operation and maintenance	707			721			1,303			1,350
Depreciation, decommissioning and amortization	512			505			1,011			982
Property and other taxes	86			85			186			178
Impairment and other charges	16			21			21			21
Total operating expenses	2,496			2,396			4,480			4,389
Operating income	469			381			948			829
Interest and other income	37			33			70			65
Interest expense	(159		)	(144		)	(311		)	(284		)
Other expenses	(12		)	(11		)	(20		)	(19		)
Income from continuing operations before income taxes	335			259			687			591
Income tax expense (benefit)	26			(51		)	(14		)	(24		)
Income from continuing operations	309			310			701			615
Income from discontinued operations, net of tax	—			(2		)	—			(1		)
Net income	309			308			701			614
Preferred and preference stock dividend requirements of SCE	31			31			62			61
Other noncontrolling interests	—			(3		)	(1		)	(8		)
Net income attributable to Edison International common shareholders	$	278		$	280		$	640		$	561
Amounts attributable to Edison International common shareholders:
Income from continuing operations, net of tax	$	278		$	282		$	640		$	562
Income from discontinued operations, net of tax	—			(2		)	—			(1		)
Net income attributable to Edison International common shareholders	$	278		$	280		$	640		$	561
Basic earnings per common share attributable to Edison International common shareholders:
Weighted-average shares of common stock outstanding	326			326			326			326
Continuing operations	$	0.85		$	0.87		$	1.96		$	1.72
Discontinued operations	—			(0.01		)	—			—
Total	$	0.85		$	0.86		$	1.96		$	1.72
Diluted earnings per common share attributable to Edison International common shareholders:
Weighted-average shares of common stock outstanding, including effect of dilutive securities	329			330			329			330
Continuing operations	$	0.85		$	0.86		$	1.95		$	1.70
Discontinued operations	—			(0.01		)	—			—
Total	$	0.85		$	0.85		$	1.95		$	1.70
Dividends declared per common share	$	0.5425		$	0.4800		$	1.0850		$	0.9600

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



Consolidated Statements of Comprehensive Income	Edison International

	Three months ended June 30,				Six months ended June 30,
(in millions, unaudited)	2017		2016		2017		2016
Net income	$	309	$	308	$	701	$	614
Other comprehensive income, net of tax:
Pension and postretirement benefits other than pensions:
Amortization of net loss included in net income	1		1		3		3
Other	—		—		2		—
Other comprehensive income, net of tax	1		1		5		3
Comprehensive income	310		309		706		617
Less: Comprehensive income attributable to noncontrolling interests	31		28		61		53
Comprehensive income attributable to Edison International	$	279	$	281	$	645	$	564

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



Consolidated Balance Sheets	Edison International

(in millions, unaudited)	June 30, 2017		December 31, 2016
ASSETS
Cash and cash equivalents	$	98	$	96
Receivables, less allowances of $58 and $62 for uncollectible accounts at respective dates	833		714
Accrued unbilled revenue	399		370
Inventory	235		239
Derivative assets	58		73
Regulatory assets	634		350
Other current assets	289		281
Total current assets	2,546		2,123
Nuclear decommissioning trusts	4,381		4,242
Other investments	87		83
Total investments	4,468		4,325
Utility property, plant and equipment, less accumulated depreciation and amortization of $8,914 and $9,000 at respective dates	37,267		36,806
Nonutility property, plant and equipment, less accumulated depreciation of $106 and $99 at respective dates	245		194
Total property, plant and equipment	37,512		37,000
Regulatory assets	7,850		7,455
Other long-term assets	377		416
Total long-term assets	8,227		7,871











Total assets	$	52,753	$	51,319

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



Consolidated Balance Sheets	Edison International

(in millions, except share amounts, unaudited)	June 30, 2017			December 31, 2016
LIABILITIES AND EQUITY
Short-term debt	$	566		$	1,307
Current portion of long-term debt	581			981
Accounts payable	1,113			1,342
Accrued taxes	15			50
Customer deposits	275			269
Derivative liabilities	190			216
Regulatory liabilities	903			756
Other current liabilities	959			991
Total current liabilities	4,602			5,912
Long-term debt	11,662			10,175
Deferred income taxes and credits	8,709			8,327
Derivative liabilities	869			941
Pensions and benefits	1,377			1,354
Asset retirement obligations	2,618			2,590
Regulatory liabilities	5,961			5,726
Other deferred credits and other long-term liabilities	2,143			2,102
Total deferred credits and other liabilities	21,677			21,040
Total liabilities	37,941			37,127
Commitments and contingencies (Note 11)
Redeemable noncontrolling interest	12			5
Common stock, no par value (800,000,000 shares authorized; 325,811,206 shares issued and outstanding at respective dates)	2,515			2,505
Accumulated other comprehensive loss	(48		)	(53		)
Retained earnings	9,679			9,544
Total Edison International's common shareholders' equity	12,146			11,996
Noncontrolling interests – preferred and preference stock of SCE	2,654			2,191
Total equity	14,800			14,187



Total liabilities and equity	$	52,753		$	51,319

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



Consolidated Statements of Cash Flows	Edison International

	Six months ended June 30,
(in millions, unaudited)	2017			2016
Cash flows from operating activities:
Net income	$	701		$	614
Less: loss from discontinued operations	—			(1		)
Income from continuing operations	701			615
Adjustments to reconcile to net cash provided by operating activities:
Depreciation, decommissioning and amortization	1,048			1,025
Allowance for equity during construction	(41		)	(42		)
Impairment and other charges	21			—
Deferred income taxes and investment tax credits	(12		)	(40		)
Other	11			11
Nuclear decommissioning trusts	(73		)	(144		)
EME insurance proceeds	—			1
Changes in operating assets and liabilities:
Receivables	(115		)	(33		)
Inventory	8			(41		)
Accounts payable	34			67
Prepaid and accrued taxes	(40		)	1
Other current assets and liabilities	(113		)	(135		)
Derivative assets and liabilities	(19		)	15
Regulatory assets and liabilities	39			90
Other noncurrent assets and liabilities	(16		)	42
Net cash provided by operating activities	1,433			1,432
Cash flows from financing activities:
Long-term debt issued or remarketed, net of discount and issuance costs of $12 and $3 for respective periods	1,523			397
Long-term debt matured	(442		)	(41		)
Preference stock issued, net	463			294
Preference stock redeemed	—			(125		)
Short-term debt financing, net	(742		)	106
Settlements of stock-based compensation, net	(152		)	(61		)
Dividends to noncontrolling interests	(62		)	(61		)
Dividends paid	(354		)	(313		)
Other	(11		)	3
Net cash provided by financing activities	223			199
Cash flows from investing activities:
Capital expenditures	(1,749		)	(1,828		)
Proceeds from sale of nuclear decommissioning trust investments	3,046			1,391
Purchases of nuclear decommissioning trust investments	(2,973		)	(1,247		)
Other	22			3
Net cash used in investing activities	(1,654		)	(1,681		)
Net increase (decrease) in cash and cash equivalents	2			(50		)
Cash and cash equivalents at beginning of period	96			161
Cash and cash equivalents at end of period	$	98		$	111

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



Consolidated Statements of Income	Southern California Edison Company

	Three months ended June 30,						Six months ended June 30,
(in millions, unaudited)	2017			2016			2017			2016
Operating revenue	$	2,953		$	2,768		$	5,409		$	5,204
Purchased power and fuel	1,175			1,064			1,959			1,858
Operation and maintenance	666			687			1,237			1,290
Depreciation, decommissioning and amortization	510			503			1,007			978
Property and other taxes	85			85			182			176
Total operating expenses	2,436			2,339			4,385			4,302
Operating income	517			429			1,024			902
Interest and other income	36			33			69			65
Interest expense	(146		)	(134		)	(287		)	(265		)
Other expenses	(12		)	(11		)	(19		)	(19		)
Income before income taxes	395			317			787			683
Income tax expense	57			(32		)	69			10
Net income	338			349			718			673
Less: Preferred and preference stock dividend requirements	31			31			62			61
Net income available for common stock	$	307		$	318		$	656		$	612



Consolidated Statements of Comprehensive Income	Southern California Edison Company

	Three months ended June 30,					Six months ended June 30,
(in millions, unaudited)	2017			2016		2017		2016
Net income	$	338		$	349	$	718	$	673
Other comprehensive income, net of tax:
Pension and postretirement benefits other than pensions:
Amortization of net loss included in net income	1			1		2		2
Other	(1		)	—		—		—
Other comprehensive income, net of tax	—			1		2		2
Comprehensive income	$	338		$	350	$	720	$	675

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



Consolidated Balance Sheets	Southern California Edison Company



(in millions, unaudited)	June 30, 2017		December 31, 2016
ASSETS
Cash and cash equivalents	$	39	$	39
Receivables, less allowances of $57 and $61 for uncollectible accounts at respective dates	816