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 March 31, 2018
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        o        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 April 27, 2018:
 
 
Edison International
 
325,811,206 shares
Southern California Edison Company
 
434,888,104 shares
 
 
 
 
 
 
















TABLE OF CONTENTS
 
 
 
 
 
 
SEC Form 10-Q Reference Number
 
 
Part I, Item 2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part I, Item 3
Part I, Item 1
 
 
 
 


i






 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part I, Item 4
 
 
 
 
 
 
Part II, Item 1
 
 
 
 
Part II, Item 2
 
 
Part II, Item 6
 
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.



ii






GLOSSARY
The following terms and abbreviations appearing in the text of this report have the meanings indicated below.
2017 Form 10-K
 
Edison International's and SCE's combined Annual Report on Form 10-K for the year-ended December 31, 2017
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
Cal Fire
 
California Department of Forestry and Fire Protection
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
CPUC
 
California Public Utilities Commission
DOE
 
U.S. Department of Energy
DERs
 
distributed energy resources
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
EME Settlement Agreement
 
Settlement Agreement by and among Edison Mission Energy, Edison International and the Consenting Noteholders identified therein, dated February 18, 2014
ERRA
 
Energy Resource Recovery Account
FASB
 
Financial Accounting Standards Board
FERC
 
Federal Energy Regulatory Commission
GAAP
 
generally accepted accounting principles
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 26, 2018
MD&A
 
Management's Discussion and Analysis of Financial Condition and Results
of Operations in this report
MHI
 
Mitsubishi Heavy Industries, Inc. and related companies
MW
 
megawatts
MWdc
 
megawatts measured for solar projects representing the accumulated peak capacity of all the solar modules
NDCTP
 
Nuclear Decommissioning Cost Triennial Proceeding
NEIL
 
Nuclear Electric Insurance Limited
NEM
 
net energy metering
NERC
 
North American Electric Reliability Corporation
NOL
 
net operating loss


iii






NRC
 
Nuclear Regulatory Commission
ORA
 
CPUC's Office of Ratepayers Advocates
OII
 
Order Instituting Investigation
OII Parties
 
SCE, SDG&E, The Alliance for Nuclear Responsibility, The California Large Energy Consumers Association, California State University, Citizens Oversight dba Coalition to Decommission San Onofre, the Coalition of California Utility Employees, the Direct Access Customer Coalition, Ruth Henricks, ORA, TURN, and Women's Energy Matters, all of whom are parties to the Revised San Onofre Settlement Agreement
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)
Prior San Onofre Settlement Agreement
 
San Onofre OII Settlement Agreement by and among TURN, ORA, SDG&E, the Coalition of California Utility Employees, and Friends of the Earth, dated November 20, 2014
Revised San Onofre
Settlement Agreement
 
Revised San Onofre OII Settlement Agreement among OII Parties, dated January 30, 2018
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
SoCalGas
 
Southern California Gas Company
SoCore Energy
 
SoCore Energy LLC, a former subsidiary of Edison Energy Group that was sold in April 2018
TAMA
 
Tax Accounting Memorandum Account
Tax Reform
 
Tax Cuts and Jobs Act signed into law on December 22, 2017
TURN
 
The Utility Reform Network
US EPA
 
U.S. Environmental Protection Agency




iv






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 uninsured wildfire-related and mudslide-related liabilities, spending on grid modernization and other capital spending incurred prior to explicit regulatory approval;
ability to obtain sufficient insurance at a reasonable cost, including insurance relating to SCE's nuclear facilities and wildfire-related and mudslide-related exposure, and to recover the costs of such insurance or, in the absence of insurance, the ability to recover uninsured losses;
decisions and other actions by the CPUC, the FERC, the NRC and other regulatory authorities, including determinations of authorized rates of return or return on equity, the 2018 GRC, the recoverability of wildfire-related and mudslide-related costs, and delays in regulatory actions;
ability of Edison International or SCE to borrow funds and access the bank and capital markets on reasonable terms;
risks associated with the decommissioning of San Onofre, including those related to public opposition, permitting, governmental approvals, on-site storage of spent nuclear fuel, and cost overruns;
extreme weather-related incidents and other natural disasters, including earthquakes and events caused, or exacerbated, by climate change, such as wildfires;
risks associated with cost allocation resulting in higher rates for utility bundled service customers because of possible customer bypass or departure due to CCAs;
risks inherent in SCE's transmission and distribution infrastructure investment program, including those related to project site identification, public opposition, environmental mitigation, construction, permitting, power curtailment costs (payments due under power contracts in the event there is insufficient transmission to enable acceptance of power delivery), changes in the CAISO's transmission plans, and governmental approvals;
risks associated with the operation of transmission and distribution assets and power generating facilities, including public safety issues, failure, availability, efficiency, and output of equipment and availability and cost of spare parts;
physical security of Edison International's and SCE's critical assets and personnel and the cybersecurity of Edison International's and SCE's critical information technology systems for grid control, and business, employee and customer data;
ability of Edison International to develop competitive businesses, manage new business risks, and recover and earn a return on its investment in newly developed or acquired businesses;
changes in tax laws and regulations, at both the state and federal levels, or changes in the application of those laws, that could affect recorded deferred tax assets and liabilities and effective tax rate;
changes in the fair value of investments and other assets;
changes in interest rates and rates of inflation, including escalation rates (which may be adjusted by public utility regulators);
governmental, statutory, regulatory, or administrative changes or initiatives affecting the electricity industry, including the market structure rules applicable to each market adopted by the NERC, CAISO, Western Electricity Council, and similar regulatory bodies in adjoining regions;

1






availability and creditworthiness of counterparties and the resulting effects on liquidity in the power and fuel markets and/or the ability of counterparties to pay amounts owed in excess of collateral provided in support of their obligations;
cost and availability of labor, equipment and materials;
potential for penalties or disallowance for non-compliance with applicable laws and regulations; 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.
Additional information about risks and uncertainties, including more detail about the factors described in this report, is contained throughout this report and in the 2017 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 2017 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 certain SCE and other parties' regulatory filings and documents with the CPUC and the FERC and certain agency rulings and notices in open proceedings at www.edisoninvestor.com (SCE Regulatory Highlights) so that such filings, rulings and notices are available to all investors. Edison International and SCE post or provide direct links to certain documents and information related to Southern California wildfires which may be of interest to investors at www.edisoninvestor.com (Southern California Wildfires) in order to publicly disseminate such information. 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 three months ended March 31, 2018 discusses material changes in the consolidated financial condition, results of operations and other developments of Edison International and SCE since December 31, 2017, and as compared to the three months ended March 31, 2017. This discussion presumes that the reader has read or has access to Edison International's and SCE's MD&A for the calendar year 2017 (the "year-ended 2017 MD&A"), which was included in the 2017 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.

2






MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT OVERVIEW
Highlights of Operating Results
Edison International is the parent holding company of SCE and Edison Energy Group. SCE is an investor-owned public utility primarily engaged in the business of supplying and delivering electricity to an approximately 50,000 square mile area of southern California. Edison Energy Group is a holding company for subsidiaries engaged in pursuing competitive business opportunities across energy services and managed portfolio solutions to commercial and industrial customers. Edison Energy Group's business activities are currently not material to report as a separate business segment. References to Edison International refer to the consolidated group of Edison International and its subsidiaries. References to Edison International Parent and Other refer to Edison International Parent and its competitive subsidiaries. Unless otherwise described, all the information contained in this report relates to both filers.
 
 
Three months ended March 31,
 
 
(in millions)
 
2018
 
2017
 
Change
Net income (loss) attributable to Edison International
 
 
 
 
Continuing operations
 
 
 
 
 
 
SCE
 
$
286

 
$
349

 
$
(63
)
Edison International Parent and Other
 
(68
)
 
13

 
(81
)
Edison International
 
218

 
362

 
(144
)
Less: Non-core items
 
 
 
 
 
 
     SCE
 

 

 

     Edison International Parent and Other
 
(44
)
 

 
(44
)
Total non-core items
 
(44
)
 

 
(44
)
Core earnings (losses)
 
 
 
 
 
 
SCE
 
286

 
349

 
(63
)
Edison International Parent and Other
 
(24
)
 
13

 
(37
)
Edison International
 
$
262

 
$
362

 
$
(100
)
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 write downs, asset impairments and other gains and losses related to certain tax, regulatory, or legal settlements or proceedings, and exit activities, including sale of certain assets and other activities that are no longer continuing.
Edison International's first quarter 2018 earnings decreased $144 million from the first quarter of 2017, comprised of a decline in SCE's earnings of $63 million and an increase in Edison International Parent and Other's losses of $81 million. SCE's lower core earnings resulted from the impact of the July 2017 cost of capital decision on GRC revenue, higher operation and maintenance expenses and higher net financing costs.
Edison International Parent and Other's increase in losses for the three months ended March 31, 2018 was due to higher core losses of $37 million and higher non-core losses of $44 million. The increase in core losses was due to lower income tax benefits related to stock option exercises and the impact of Tax Reform on pre-tax losses.

3






Consolidated non-core items for the first quarter of 2018 and 2017 included:
Impairment and other charges of $66 million ($48 million after tax) in the first quarter of 2018 resulting from Edison International's agreement to sell SoCore Energy to a third party. The net assets of SoCore Energy have been recorded at fair value, less expected transaction costs (see "Results of Operations—Edison International Parent and Other—Strategic Review of Edison Energy Group Competitive Business—Sale of SoCore Energy").
Income of $6 million ($4 million after-tax) and less than $1 million for the first quarter of 2018 and 2017, respectively, related to losses (net of distributions) allocated to tax equity investors under the HLBV accounting method. Edison International core earnings reflected the operating results of the solar projects, related financings and the priority return to the tax equity investor. The losses allocated to the tax equity investor under HLBV accounting method results in income allocated to subsidiaries of Edison International, neither of which is due to the operating performance of the projects but rather due to the allocation of income tax attributes under the tax equity financing. Accordingly, Edison International has included the non-operating allocation of income as a non-core item. For further information on HLBV, see Note 1 of "Notes to Consolidated Financial Statements" included in the 2017 Form 10-K.
Southern California Wildfires
In December 2017, several wind-driven wildfires (the "December 2017 Wildfires") impacted portions of SCE's service territory and caused substantial damage to both residential and business properties and service outages for SCE customers. The largest of these fires, known as the Thomas Fire, originated in Ventura County and burned acreage located in both Ventura and Santa Barbara Counties. According to the most recent California Department of Forestry and Fire Protection ("Cal Fire") incident information reports, the Thomas Fire burned over 280,000 acres, destroyed an estimated 1,063 structures, damaged an estimated 280 structures and resulted in one fatality.
Determining wildfire origin and cause is often a complex and time-consuming process, and several investigations into the facts and circumstances of the Thomas Fire are believed to be ongoing. SCE has been advised that the origins and causes of the fire are being investigated by Cal Fire and the Ventura County Fire Department. In connection with its investigation of the Thomas Fire, Cal Fire has removed and retained certain of SCE's equipment that was located near suspected ignition points of the fire. The CPUC's SED is also conducting an investigation to assess the compliance of SCE and its facilities with applicable rules and regulations in areas impacted by the Thomas Fire. In addition, as it does in all wildfire matters in which its facilities may or are alleged to be involved, SCE is conducting its own investigation of the Thomas Fire. At this time, SCE cannot predict when its own investigation, or the investigations of Cal Fire, the Ventura County Fire Department or the SED, will be completed.
SCE is aware of multiple lawsuits filed related to the Thomas Fire naming SCE as a defendant. Several of the lawsuits also name Edison International as a defendant. Certain California courts have previously found utilities to be strictly liable for property damage, regardless of fault, by applying the theory of inverse condemnation when a utilities’ facilities were determined to be a substantial cause of a wildfire that caused property damage. Any potential liability for December 2017 Wildfire-related damages will depend on a number of factors, including whether SCE substantially caused, or contributed to, the damages and whether parties seeking recovery of damages will be required to show negligence in addition to causation.
Given the preliminary stages of the investigations and the uncertainty as to the causes of the Thomas Fire, and the extent and magnitude of potential damages, Edison International and SCE are currently unable to predict the outcome of the claims made against SCE and Edison International or reasonably estimate a range of losses that may be incurred. SCE and Edison International’s potential liability related to the Thomas Fire could be substantial.
SCE has approximately $1 billion of wildfire-specific insurance coverage, subject to a self-insured retention of $10 million per occurrence, for wildfire-related claims for the period ending on May 31, 2018. SCE also has approximately $300 million of additional insurance coverage for wildfire-related occurrences for the period from December 31, 2017 to December 31, 2018, which may be used in addition to the $1 billion in wildfire insurance for wildfire events occurring on or after December 31, 2017 and on or before May 31, 2018, and would be available for new wildfire events, if any, occurring after May 31, 2018 and on or before December 30, 2018. Various coverage limitations within the policies that make up SCE's wildfire insurance coverage could result in material self-insured costs in the event of multiple wildfire occurrences during a policy period. Should responsibility for a significant portion of the damages related to the December 2017 Wildfires be attributed to SCE, SCE's insurance may not be sufficient to cover all such damages. In addition, SCE may not be authorized to recover its uninsured damages through electric service rates if, for example, the CPUC finds that the damages were incurred because SCE was not a prudent manager of its facilities.

4






Edison International and SCE are pursuing legislative, regulatory and legal strategies to address the application of a strict liability standard to wildfire-related damages without the ability to recover resulting damages in rates. Edison International and SCE cannot predict whether or when a solution mitigating the significant risk faced by a California investor-owned utility related to wildfires will be achieved.
For further information, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Southern California Wildfires" and "Legal Proceedings—December 2017 Wildfire Litigation."
Montecito Mudslides
In January 2018, torrential rains in Santa Barbara County produced mudslides and flooding in Montecito and surrounding areas (the "Montecito Mudslides"). According to Santa Barbara County initial reports, the Montecito Mudslides destroyed an estimated 135 structures, damaged an estimated 324 structures and resulted in at least 21 fatalities, with two additional fatalities presumed.
Of the lawsuits mentioned above, several allege that SCE has responsibility for the Thomas Fire and that the Thomas Fire proximately caused the Montecito Mudslides, resulting in the plaintiffs' claimed damages. Some of the Montecito Mudslides lawsuits also name Edison International as a defendant. Edison International and SCE are currently unable to predict the outcome of the claims made against SCE and Edison International or reasonably estimate a range of losses that may be incurred. SCE and Edison International's potential liability related to the Montecito Mudslides could be substantial, SCE's insurance may not be sufficient to cover such damages, and SCE may not be authorized to recover any uninsured damages in rates.
For further information, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Montecito Mudslides" and "Legal Proceedings—Montecito Mudslides Litigation."
Permanent Retirement of San Onofre
Entry into Revised Settlement and Utility Shareholder Agreements
As discussed in the year-ended 2017 MD&A, on January 30, 2018, the OII Parties entered into a Revised San Onofre Settlement Agreement in the CPUC OII proceeding regarding the steam generator replacement project at San Onofre and the related outages and subsequent shutdown of San Onofre. If approved by the CPUC, the Revised San Onofre Settlement Agreement will resolve all issues under consideration in the San Onofre OII and will modify the Prior San Onofre Settlement Agreement. If approved by the CPUC, the Revised San Onofre Settlement Agreement will also result in the dismissal of a federal lawsuit currently pending in the Ninth Circuit Court of Appeals challenging the CPUC's authority to permit rate recovery of San Onofre costs. The Revised San Onofre Settlement Agreement was the result of multiple mediation sessions in 2017 and January 2018 and was signed on January 30, 2018 following a settlement conference in the OII, as required under CPUC rules.
Implementation of the terms of the Revised San Onofre Settlement Agreement is subject to the approval of the CPUC, as to which there is no assurance. The OII Parties have agreed to exercise their best efforts to obtain CPUC approval, but there can be no certainty of when or what the CPUC will actually decide.
The San Onofre OII Assigned Commissioner and Assigned ALJ have issued joint rulings that, among other things, (i) direct the parties to submit joint testimony to the CPUC in support of the Revised San Onofre Settlement Agreement on April 27, 2018; (ii) direct all parties to submit briefing on whether an attorneys' fees provision in a related settlement agreement pertaining to the dismissal of a federal lawsuit challenging the Prior San Onofre Settlement Agreement impacts the integrity of the CPUC's intervenor compensation program; and (iii) schedule a public participation hearing and a status conference. In lieu of the joint testimony, with the ALJ's consent, the parties submitted a joint stipulation of facts in support of the Revised San Onofre Settlement Agreement on April 27, 2018.

5






Capital Program
Total capital expenditures (including accruals) were $853 million and $647 million for the first three months of 2018 and 2017, respectively. SCE's first quarter capital spending was consistent with its 2018 plan and SCE continues to project 2018 capital expenditures of approximately $4.2 billion for 2018. As discussed in the year-ended 2017 MD&A in the absence of a 2018 GRC decision, SCE has developed, and is executing against, a 2018 capital expenditure plan that will allow SCE to ramp up its capital spending program over the three-year GRC period to meet what is ultimately authorized in the 2018 GRC decision while minimizing the associated risk of unauthorized spending. Forecasted expenditures for capital projects are subject to change due to, among other things, timeliness of permitting, licensing, regulatory approvals, and contractor bids. For further information regarding the capital program see "Liquidity and Capital Resources—SCE—Capital Investment Plan" and the year-ended 2017 MD&A, "Management Overview—Capital Program."
Distribution Grid Development
Transportation Electrification Plan
In January 2017, SCE filed a transportation electrification plan with the CPUC to accelerate the adoption of electric transportation, which is critical to California's climate change and GHG reduction objectives. The plan proposes a five-year program to fund medium- and heavy-duty vehicle charging infrastructure that follows the model developed for SCE's Charge Ready program. The proposal has an estimated five-year cost of $554 million ($532 million capital) in 2016 dollars. In March 2018, the CPUC issued a proposed decision granting SCE $208 million in 2016 dollars to install the charging infrastructure at a minimum of 700 sites to support the electrification of at least 6,500 medium-and-heavy-duty electric vehicles. If adopted as proposed, the decision will allow customers the option to own the charging infrastructure, which would reduce the costs it can attribute to capital spending. SCE has filed comments on the proposed decision opposing treating customer-owned charging infrastructure as an expense and advocating to remove minimum site requirements based on incorrect cost estimates. SCE expects a final decision in the second quarter of 2018. SCE plans to propose additional programs and pilots in the future. The capital costs for these proposed projects are not included in SCE's capital spending and rate base forecasts.
2018 General Rate Case
As discussed in the year-end 2017 MD&A, in December 2017 SCE filed an update in the GRC proceedings for the three-year period 2018 – 2020. SCE updated its 2018 revenue requirement request from $5.885 billion to $5.673 billion, a $33 million increase over the 2017 GRC authorized revenue requirement, and proposed post-test year increases in 2019 and 2020 of $477 million and $554 million, respectively. In February 2018, SCE further updated its request to incorporate the changes associated with Tax Reform, which resulted in a revenue requirement request of $5.534 billion, a decrease of $139 million from the December update filing and a $106 million decrease from the 2017 GRC authorized revenue requirement. SCE proposed post-test year increases in 2019 and 2020 of $292 million and $319 million, respectively, decreases from the December update filing of $185 million and $235 million, respectively.
A final 2018 GRC decision is not expected until later in 2018. Until a GRC decision is issued, SCE is recognizing revenue in 2018 based on the 2017 authorized revenue requirement, adjusted for the July 2017 cost of capital decision and Tax Reform. The CPUC has approved the establishment of a GRC memorandum account, which will make the 2018 revenue requirement adopted by the CPUC effective as of January 1, 2018. SCE cannot predict the revenue requirement the CPUC will authorize or provide assurance on the timing of a final decision.
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.

6






The following table is a summary of SCE's results of operations for the periods indicated.
Three months ended March 31, 2018 versus March 31, 2017
 
Three months ended March 31, 2018
Three months ended March 31, 2017
(in millions)
Earning
Activities
Cost-
Recovery
Activities
Total
Consolidated
Earning Activities
Cost-Recovery Activities
Total Consolidated
Operating revenue
$
1,513

$
1,041

$
2,554

$
1,552

$
904

$
2,456

Purchased power and fuel

926

926


784

784

Operation and maintenance1
509

142

651

450

130

580

Depreciation and amortization
459


459

497


497

Property and other taxes
105


105

97


97

Other operating income
(1
)

(1
)



Total operating expenses
1,072

1,068

2,140

1,044

914

1,958

Operating income
441

(27
)
414

508

(10
)
498

Interest expense
(155
)

(155
)
(141
)

(141
)
Other income and expenses1
24

27

51

25

10

35

Income before income taxes
310


310

392


392

Income tax expense (benefits)
(6
)

(6
)
12


12

Net income
316


316

380


380

Preferred and preference stock dividend requirements
30


30

31


31

Net income available for common stock
$
286

$

$
286

$
349

$

$
349

Net income available for common stock
 
 
$
286

 
 
$
349

Less:
 
 
 
 
 
 
   Non-core earnings
 
 

 
 

Core earnings2
 
 
$
286

 
 
$
349

1 
Expenses for the three months ended March 31, 2017 were updated to reflect the implementation of the accounting standard update for net periodic benefit costs related to the defined benefit pension and other postretirement plans. For further information, see Note 1 in the "Notes to Consolidated Financial Statements."
2 
See use of non-GAAP financial measures in "Management Overview—Highlights of Operating Results."
Earning Activities
Earning activities were primarily affected by the following:
Lower operating revenue of $39 million primarily due to the following:
A decrease of $36 million in CPUC revenue related to recognizing revenue based on the 2017 authorized revenue requirement, adjusted for the July 2017 cost of capital decision and the impact of Tax Reform. See "Management Overview—2018 General Rate Case" for further information.
A decrease in FERC revenue of $15 million primarily due to the reduction in the federal corporate income tax rate resulting from Tax Reform.
A decrease in revenue of $10 million related to $18 million resulting from the amortization of excess deferred tax assets as a result of Tax Reform (offset in income taxes below) partially offset by $8 million of lower 2018 incremental tax benefits refunded to customers (offset in income taxes below). See the year-end 2017 MD&A, "Management Overview—Tax Reform" for further information.
In 2017, revenue related to San Onofre were reduced by $22 million, resulting from a $65 million reduction related to the tax abandonment of San Onofre (offset in income taxes below) partially offset by revenue of $43 million related to the recovery of amortization of the San Onofre regulatory asset and authorized return as provided by the Prior San Onofre Settlement Agreement. There is no revenue recorded in 2018 for San Onofre as a result of the Revised San

7






Onofre Settlement Agreement (see "Management Overview—Permanent Retirement of San Onofre" for further information).
Higher operation and maintenance costs of $59 million primarily due to higher insurance premiums associated with additional wildfire insurance coverage entered into in December 2017, higher transmission and distribution costs for line clearing and other maintenance expenses.
Lower depreciation and amortization expense of $38 million primarily related to the amortization of the San Onofre regulatory asset in 2017 (offset in revenue above) and lower intangible plant amortization.
Higher property and other taxes of $8 million primarily due to higher assessed values for property taxes in 2018.
Higher interest expense of $14 million primarily due to increased borrowings.
Lower income tax expense of $18 million primarily due to lower pre-tax income for the first quarter of 2018 at a lower federal income tax rate partially offset by higher tax benefits in 2017 primarily related to the ratemaking treatment on the San Onofre tax abandonment. In addition, SCE had lower tax benefits refunded to customers in 2018 offset by tax benefits from the amortization of excess deferred tax assets as a result of Tax Reform (offset in revenue above). See the year-end 2017 MD&A, "Management Overview—Tax Reform" for further information.
Cost-Recovery Activities
Cost-recovery activities were primarily affected by the following:
Higher purchased power and fuel costs of $142 million primarily driven by higher power prices and volume experienced in 2018 relative to 2017, partially offset by higher congestion revenue right credits.
Higher operation and maintenance expense of $12 million primarily driven by higher transmission access charges, partially offset by lower spending on various public purpose programs.
Higher other income and expenses of $17 million primarily driven by higher net periodic benefit income - non-service cost components in 2018 relative to 2017. 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 $2.4 billion and $2.3 billion for the three months ended March 31, 2018 and 2017, respectively.
Retail billed and unbilled revenue for the three months ended March 31, 2018 was higher compared to the same period in 2017 primarily due to the implementation of the 2018 ERRA rate increase.
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 2017 Form 10-K).
Income Taxes
SCE's income tax expense decreased by $18 million for the three months ended March 31, 2018 compared to the same periods in 2017.
The effective tax rates were (1.9)% and 3.1% for the three months ended March 31, 2018 and 2017, respectively. SCE's effective tax rate is below the federal statutory rate of 21% and 35% for the three months ended March 31, 2018 and 2017, respectively, primarily due to CPUC's ratemaking treatment for the current tax benefit arising from certain property-related and other temporary differences, which reverse over time. The accounting treatment for these temporary differences results in recording regulatory assets and liabilities for amounts that would otherwise be recorded to deferred income tax expense. The effective tax rate decrease for the three months ended March 31, 2018 was primarily due to lower pre-tax income at a lower federal tax rate partially offset by higher tax benefits in 2017 primarily related to the ratemaking treatment on the San Onofre tax abandonment.
See "Notes to Consolidated Financial Statements—Note 8. Income Taxes" for a reconciliation of the federal statutory rate to the effective income tax rates.

8






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
Sale of SoCore Energy
On February 28, 2018, Edison International agreed to sell SoCore Energy LLC ("SoCore Energy"), a then subsidiary of Edison Energy Group, to a third party, subject to the completion of closing conditions, which were subsequently satisfied on April 16, 2018. As a result, Edison International accounted for the assets and liabilities of SoCore Energy as held for sale as of March 31, 2018 and recognized a pre-tax loss of $66 million ($48 million after-tax). See "Notes to Consolidated Financial Statements—Note 10. Investments" for further information.
Income from Continuing Operations
The following table summarizes the results of Edison International Parent and Other:
 
 
Three months ended March 31,
(in millions)
 
2018
 
2017
Edison Energy Group and subsidiaries1
 
$
(52
)
 
$
(6
)
Corporate expenses and other subsidiaries
 
(16
)
 
19

Total Edison International Parent and Other
 
$
(68
)
 
$
13

1  
Includes income of $4 million and less than $1 million for the three months ended March 31, 2018 and 2017, respectively, related to losses (net of distributions) allocated to tax equity investors under the HLBV accounting method.
The loss from continuing operations of Edison International Parent and Other was $68 million for the three months ended March 31, 2018 compared to income of $13 million for the same period in 2017. The increase in loss was primarily due to a $48 million after-tax impairment charge that resulted from the sale of SoCore Energy (as discussed above), lower income tax benefits of $35 million related to stock option exercises, and the impact of Tax Reform on pre-tax losses.
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 any dividend payments to Edison International and preferred and preference shareholders, and the outcome of tax and regulatory matters.
In the next 12 months, SCE expects to fund its cash requirements through operating cash flows, tax benefits, and capital market financings of debt and preferred equity, as needed. SCE also has availability under its credit facility to fund cash requirements.
Available Liquidity
At March 31, 2018, SCE had approximately $2.58 billion available under its $2.75 billion credit facility. The credit facility is available for borrowing needs until July 2022. In March 2018, SCE issued $1.25 billion of first and refunding mortgage bonds. The proceeds from these bonds were used to repay commercial paper borrowings and for general corporate purposes. For further details, see "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements."
SCE may finance balancing account undercollections and working capital requirements to support operations and capital expenditures with commercial paper, its credit facility or other borrowings, subject to availability in the bank and capital markets. As necessary, SCE will utilize its available liquidity, capital market financings of debt and preferred equity or parent company contributions to SCE equity in order to meet its obligations as they become due, including any potential costs related to the December 2017 Wildfires and Montecito Mudslides (see "Management Overview—Southern California Wildfires" and "—Montecito Mudslides" for further information).

9






Debt Covenant
A 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 March 31, 2018, SCE's debt to total capitalization ratio was 0.45 to 1.
At March 31, 2018, 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 2017 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 2017 MD&A.
Major Transmission Projects
Alberhill System
The Alberhill System Project would consist of constructing a new 500-kV substation, two 500-kV transmission lines to connect the proposed substation to the existing Serrano-Valley 500-kV transmission line, telecommunication equipment and subtransmission lines in unincorporated and incorporated portions of western Riverside County. The Project was designed to meet long-term forecasted electrical demand in the proposed Alberhill Project area and to increase electrical system reliability. In April 2018, the CPUC issued a proposed decision denying SCE’s request for a certificate of public convenience and necessity based on the presiding administrative law judge's conclusion that the Alberhill System Project is not needed. SCE continues to believe the Alberhill System Project is needed to serve forecasted local area demand and to increase operating flexibility. SCE has filed comments requesting that the CPUC deny the proposed decision as currently proposed and instead grant the certificate of public convenience and necessity for the Alberhill System Project. A final CPUC decision is anticipated in 2018. SCE is unable to predict the outcome of this matter.
Approximately 48% of the Alberhill System Project costs spent to date would be subject to recovery through CPUC revenue and 52% through FERC revenue. In October 2017, SCE obtained approval from the FERC for abandoned plant treatment for the Alberhill System Project, which allows SCE to seek recovery of 100% of all prudently-incurred costs after the approval date and 50% of prudently incurred costs prior to the approval date. Excluding land costs, which may be recovered through sale to a third party, SCE has incurred $39 million of capital expenditures, including overhead costs, as of March 31, 2018, of which $29 million may not be recoverable if the project is cancelled. SCE's total capital expenditures for the Alberhill System Project are estimated to be $486 million, of which approximately $175 million is included in the 2018 – 2020 capital program period.
Riverside Transmission Reliability
The Riverside Transmission Reliability Project is a joint project between SCE and Riverside Public Utilities (RPU), the municipal utility department of the City of Riverside. While RPU would be responsible for constructing some of the Project's facilities within Riverside, SCE's portion of the Project consists of constructing upgrades to its system, including a new 230-kV Substation; certain interconnection and telecommunication facilities and transmission lines in the cities of Riverside, Jurupa Valley and Norco and in portions of unincorporated Riverside County. The purpose of the Project is to provide RPU and its customers with adequate transmission capacity to serve existing and projected load, to provide for long-term system capacity for load growth, and to provide needed system reliability. Due to changed circumstances since the time the Project was originally developed, SCE informed the CPUC in August 2016 that it supports revisions to the proposed Project. In April 2018, the CPUC issued a subsequent environmental impact report which included a new route alternative, different from SCE’s proposed project, as the environmentally preferred project and proposed an additional 220-kV underground power line. SCE is assessing the potential cost impacts of the new route alternative and underground power line. SCE expects a CPUC decision in late 2018 or early 2019.
Dividend Restrictions
On January 31, 2018, SCE paid Edison International a dividend of $212 million that was declared during the fourth quarter of 2017. On February 22, 2018, SCE declared a dividend to Edison International of $212 million that will be paid in the second quarter of 2018.
The CPUC regulates SCE's capital structure which limits the dividends it may pay Edison International. Under CPUC regulations, SCE may make distributions to Edison International as long as the common equity component of SCE's capital structure remains at or above 48% on a 13-month weighted average basis, or otherwise satisfies the CPUC requirements. If the Revised San Onofre Settlement Agreement is approved by the CPUC, SCE may exclude the $448 million after-tax charge

10






resulting from the implementation of the Revised San Onofre Settlement Agreement from its ratemaking capital structure (see "Notes to Consolidated Financial Statements— Note 12. Commitment and Contingencies" for further information on the Revised San Onofre Settlement Agreement). At March 31, 2018, without excluding the $448 million after-tax charge, SCE's 13-month average common equity component of total capitalization was 49.7% and the maximum additional dividend that SCE could pay to Edison International under this limitation was approximately $446 million, resulting in a restriction on net assets of approximately $14.3 billion. If the Revised San Onofre Settlement Agreement had been approved by the CPUC at March 31, 2018, the common equity component of SCE's capital structure would have been 50.0% on a 13-month average basis.
As a California corporation, SCE's ability to pay dividends is also governed by its obligations under the California General Corporation Law. California law requires that for a dividend to be declared: (a) retained earnings must equal or exceed the proposed dividend, or (b) immediately after the dividend is made, the value of the corporation's assets must exceed the value of its liabilities plus amounts required to be paid in order to liquidate stock senior to the shares receiving the dividend. Additionally, a California corporation may not declare a dividend if it is, or as a result of the dividend would be, likely to be unable to meet its liabilities as they mature.
The timing and amount of future dividends are also dependent on a number of other factors including SCE's requirements to fund other obligations and capital expenditures, and its ability to access the capital markets, and generate operating cash flows and earnings. If SCE incurs significant costs related to the December 2017 Wildfires or the Montecito Mudslides and is unable to recover such costs through insurance or from customers or access capital markets on reasonable terms, SCE may be limited in its ability to pay future dividends to Edison international and its preferred and preference shareholders.
Margin and Collateral Deposits
Certain derivative instruments, power procurement contracts and other contractual arrangements contain collateral requirements. Future collateral requirements may differ from the requirements at March 31, 2018, due to the addition of incremental power and energy procurement contracts with collateral requirements, if any, and the impact of changes in wholesale power and natural gas prices on SCE's contractual obligations.
Some of the power procurement contracts contain provisions that require SCE to maintain an investment grade credit rating from the major credit rating agencies. If SCE's credit rating were to fall below investment grade, SCE may be required to pay the liability or post additional collateral.
The table below provides the amount of collateral posted by SCE to its counterparties as well as the potential collateral that would have been required as of March 31, 2018.
(in millions)
 
 
Collateral posted as of March 31, 20181
 
$
106

Incremental collateral requirements for power procurement contracts resulting from a potential downgrade of SCE's credit rating to below investment grade
 
36

Incremental collateral requirements for power procurement contracts resulting from adverse market price movement2
 
1

Posted and potential collateral requirements
 
$
143

1 Net collateral provided to counterparties and other brokers consisted of $105 million in letters of credit and surety bonds and $1 million of cash.
2 
Incremental collateral requirements were based on potential changes in SCE's forward positions as of March 31, 2018 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 cash requirements through operating cash flows, tax benefits and bank and capital market financings, as needed. Edison International also has availability under its credit facility. 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 its access to the bank and capital markets. In addition to having sufficient liquidity, Edison International's ability to pay dividends is dependent upon meeting California law requirements for the declaration of dividends. For information on the California law requirements on the declaration of dividends, see "—SCE—Dividend Restrictions." Edison International intends to maintain its target payout ratio of 45% – 55% of SCE's core earnings, subject to the factors identified above. Edison International may also finance working capital

11






requirements, payment of obligations, capital investments, including capital contributions to subsidiaries, and any common stock dividends with short-term or other financings, subject to availability in the bank and capital markets.
As a result of the expected sale of SoCore Energy, Edison Energy Group made several distributions to Edison International Parent including dividend payments of $55 million in the first quarter of 2018 and dividend payments of $46 million in April 2018. For further information, see "Notes to Consolidated Financial Statements—Note 10. Investments."
At March 31, 2018, Edison International Parent had approximately $58 million of cash and cash equivalents and $1.25 billion available of net borrowing capacity under its $1.25 billion multi-year revolving credit facility. The credit facility is available for borrowing needs until July 2022. In January 2018, Edison International Parent issued a $500 million term loan. In March 2018, Edison International Parent issued $550 million of 4.125% senior notes. The proceeds from the March 2018 issuance were used to repay the $500 million term loan discussed above and for general corporate purposes. For further details, see "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements."
A 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 March 31, 2018, Edison International Parent's consolidated debt to total capitalization ratio was 0.50 to 1.
At March 31, 2018, Edison International Parent was also in compliance with all other financial covenants that affect access to capital.
Historical Cash Flows
Southern California Edison Company
 
Three months ended March 31,
(in millions)
2018
 
20171
Net cash provided by operating activities
$
801

 
$
936

Net cash (used in) provided by financing activities
(216
)
 
56

Net cash used in investing activities
(1,085
)
 
(931
)
Net (decrease) increase in cash, cash equivalents and restricted cash
$
(500
)
 
$
61

1 
Net cash for the three months ended March 31, 2017 was updated to reflect the implementation of the accounting standards updates for cash flows related to cash receipts and restricted cash.
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 three months ended March 31, 2018 and 2017.
 
Three months ended March 31,
 
Change in cash flows
(in millions)
2018
 
20174
 
2018/2017
Net income
$
316

 
$
380

 
 
Non-cash items1
465

 
728

 
 
    Subtotal
$
781

 
$
1,108

 
$
(327
)
Changes in cash flow resulting from working capital2
(354
)
 
(165
)
 
(189
)
Regulatory assets and liabilities
405

 
129

 
276

Other noncurrent assets and liabilities3
(31
)
 
(136
)
 
105

Net cash provided by operating activities
$
801

 
$
936

 
$
(135
)
1 
Non-cash items include depreciation 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.
4 
Cash flow for the three months ended March 31, 2017 was updated to reflect the implementation of the accounting standards updates for cash flows related to cash receipts and restricted cash.

12






Net cash provided by operating activities was impacted by the following:
Net income decreased in 2018 by $64 million primarily due to the impact of the July 2017 cost of capital decision on GRC revenue, higher operation and maintenance expenses and higher net financing costs. During the first three months of 2018, the amounts billed to customers was based on the 2017 authorized GRC revenue requirement and therefore, a regulatory liability (see below) has been established to record any associated adjustments.
Net cash for working capital was $(354) million and $(165) million during the three months ended March 31, 2018 and 2017, respectively. The net cash for each period was primarily related to the reductions of payables (including payments for payroll-related costs and purchased power) of $235 million and $230 million during the first quarters of 2018 and 2017, respectively, and changes in receivables from customers of $(222) million in 2018 and $133 million in 2017.
Net cash provided by regulatory assets and liabilities, including changes in over (under) collections of balancing accounts was $405 million and $129 million during the three months ended March 31, 2018 and 2017, 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:
2018
Higher cash due to $143 million of overcollections for the public purpose and energy efficiency programs resulting from lower program spending.
BRRBA overcollections increased by $122 million during the first three months of 2018 primarily due to the timing of revenue, partially offset by the refund of 2016 TAMA overcollections.
Higher cash of $42 million due to cash collected for San Onofre under the Prior San Onofre Settlement Agreement. For further information, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Permanent Retirement of San Onofre."
Higher cash reflected in regulatory liabilities of approximately $90 million primarily due to the delay in the 2018 GRC decision. Until a final 2018 GRC decision is issued, SCE recognized revenue for the first quarter of 2018 largely based on the 2017 authorized revenue requirement (see discussion above).
2017
Higher cash due to $64 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. For further information on the MHI claims, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Permanent Retirement of San Onofre."
BRRBA overcollections decreased by $66 million during the first three months of 2017 primarily due to the refund of 2015 overcollections resulting from the implementation of the 2015 GRC decision, which was authorized to be refunded to customers over a two-year period.
Higher cash of approximately $84 million primarily due to lower spending for the new system generation program, which records the benefits and costs of power purchase agreements and SCE-owned peaker generation units associated with new generation resources.
Cash flows used in other noncurrent assets and liabilities were primarily related to net earnings from nuclear decommissioning trust investments ($30 million and $27 million in 2018 and 2017, respectively) and SCE's payments of decommissioning costs ($41 million and $45 million in 2018 and 2017, respectively). See "Nuclear Decommissioning Activities" below for further discussion.

13






Net Cash (Used in) Provided by Financing Activities
The following table summarizes cash provided by financing activities for the three months ended March 31, 2018 and 2017. Issuances of debt and preference stock are discussed in "Notes to Consolidated Financial Statements—Note 5. Debt and Credit Agreements—Long-Term Debt."
 
Three months ended March 31,
(in millions)
2018
 
2017
Issuances of first and refunding mortgage bonds, net of discount and issuance costs
$
1,239

 
$
692

Issuance of term loan

 
300

Remarketing of pollution control bonds, net of issuance costs

 
134

Long-term debt matured or repurchased
(40
)
 
(40
)
Short-term debt repayments, net of borrowings and discount
(1,168
)
 
(769
)
Payments of common stock dividends to Edison International
(212
)
 
(191
)
Payments of preferred and preference stock dividends
(36
)
 
(36
)
Other
1

 
(34
)
Net cash (used in) provided by financing activities
$
(216
)
 
$
56

Net Cash Used in Investing Activities
Cash flows used in investing activities are primarily due to capital expenditures related to transmission and distribution investments ($1.1 billion and $934 million for the three months ended March 31, 2018 and 2017, respectively). In addition, during the first three months of 2018, SCE had a net redemption of nuclear decommissioning trust investments of $24 million. 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:
 
Three months ended March 31,
(in millions)
2018
 
2017
Net cash used in operating activities:
   Net earnings from nuclear decommissioning trust investments
$
30

 
$
27

SCE's decommissioning costs
(41
)
 
(45
)
Net cash provided by investing activities:
   Proceeds from sale of investments
931

 
1,718

   Purchases of investments
(907
)
 
(1,719
)
Net cash impact
$
13

 
$
(19
)
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 10. 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 ($41 million and $45 million in 2018 and 2017, respectively) and reimbursements to SCE from the nuclear decommissioning trust ($54 million and $26 million in 2018 and 2017, respectively).

14






Edison International Parent and Other
The table below sets forth condensed historical cash flow from operations for Edison International Parent and Other.
 
Three months ended March 31,
(in millions)
2018
 
20171
Net cash provided by (used in) operating activities
$
58

 
$
(52
)
Net cash (used in) provided by financing activities
(529
)
 
56

Net cash used in investing activities
(12
)
 
(10
)
Net decrease in cash and cash equivalents
$
(483
)
 
$
(6
)
1 
Net cash for the three months ended March 31, 2017 was updated to reflect the implementation of the accounting standards updates for cash flows related to cash receipts and restricted cash.
Net Cash Provided by (Used in) Operating Activities
Net cash provided by (used in) operating activities was impacted by the following:
$75 million cash inflow from tax refunds in 2018.
$17 million and $52 million cash outflow from operating activities in 2018 and 2017, respectively, primarily due to payments relating to interest and operating costs.
Net Cash (Used in) Provided by Financing Activities
Net cash (used in) provided by financing activities was as follows:
 
Three months ended March 31,
(in millions)
2018
 
2017
Dividends paid to Edison International common shareholders
$
(197
)
 
$
(177
)
Dividends received from SCE
212

 
191

Payment for stock-based compensation, net of receipt from stock option exercises
(6
)
 
(116
)
Issuance of long-term debt, net of discount and issuance costs
544

 
398

Short-term debt repayments, net of borrowings and discount
(1,093
)
 
(244
)
Other1
11

 
4

Net cash (used in) provided by financing activities
$
(529
)
 
$
56

1  
During the three months ended March 31, 2018, Edison International Parent received dividend payments of $55 million from Edison Energy Group.
Contingencies
SCE has contingencies related to San Onofre Related Matters, Nuclear Insurance, December 2017 Wildfires, Montecito Mudslides, Environmental Remediation, and Spent Nuclear Fuel, 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 2017 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
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 $94 million and $109 million on SCE's consolidated balance sheets at March 31, 2018 and December 31, 2017, 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."

15






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 March 31, 2018, the amount of balance sheet exposure as described above broken down by the credit ratings of SCE's counterparties, was as follows:
 
March 31, 2018
(in millions)
Exposure2
 
Collateral
 
Net Exposure
S&P Credit Rating1
 
 
 
 
 
A or higher3
$
95

 
$

 
$
95

1 
SCE assigns a credit rating based on the lower of a counterparty's S&P 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 credit ratings from S&P or Moody's.
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.
3 
Exposure to companies with S&P Credit Rating below A is immaterial.
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 2017 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.

16



























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17






FINANCIAL STATEMENTS
Consolidated Statements of Income

Edison International
 


 
 

Three months ended March 31,
(in millions, except per-share amounts, unaudited)

2018
 
2017
Total operating revenue

$
2,564

 
$
2,463

Purchased power and fuel

926

 
784

Operation and maintenance

675

 
604

Depreciation and amortization

462

 
499

Property and other taxes
 
107

 
100

Impairment and other charges
 
66

 
5

Other operating income

(2
)
 

Total operating expenses

2,234

 
1,992

Operating income

330

 
471

Interest expense

(170
)
 
(152
)
Other income and expenses

51

 
33

Income from continuing operations before income taxes

211

 
352

Income tax benefit

(31
)
 
(40
)
Income from continuing operations

242

 
392

Net income

242

 
392

Preferred and preference stock dividend requirements of SCE

30

 
31

Other noncontrolling interests
 
(6
)
 
(1
)
Net income attributable to Edison International common shareholders

$
218

 
$
362

Amounts attributable to Edison International common shareholders:

 
 
 
Income from continuing operations, net of tax

$
218

 
$
362

Net income attributable to Edison International common shareholders

$
218

 
$
362

Basic earnings per common share attributable to Edison International common shareholders:

 
 
 
Weighted-average shares of common stock outstanding

326

 
326

Continuing operations

$
0.67

 
$
1.11

Total

$
0.67

 
$
1.11

Diluted earnings per common share attributable to Edison International common shareholders:

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

327

 
329

Continuing operations

$
0.67

 
$
1.10

Total

$
0.67

 
$
1.10

Dividends declared per common share

$
0.6050

 
$
0.5425


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

18







Consolidated Statements of Comprehensive Income
 
Edison International
 
 
 
 
 
 
 
 
Three months ended March 31,
(in millions, unaudited)
 
2018
 
2017
Net income
 
$
242
 
 
$
392
 
Other comprehensive income (loss), net of tax:
 
 
 
 
Pension and postretirement benefits other than pensions:
 
 
 
 
Net gain or loss arising during the period plus amortization included in net income
 
2
 
 
2
 
Other
 
(5
)
 
2
 
Other comprehensive (loss) income, net of tax
 
(3
)
 
4
 
Comprehensive income
 
239
 
 
396
 
Less: Comprehensive income attributable to noncontrolling interests
 
24
 
 
30
 
Comprehensive income attributable to Edison International
 
$
215
 
 
$
366
 


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

19






Consolidated Balance Sheets
Edison International
 






(in millions, unaudited)
March 31,
2018

December 31,
2017
ASSETS
 

 
Cash and cash equivalents
$
105


$
1,091

Receivables, less allowances of $53 and $54 for uncollectible accounts at respective dates
628


717

Accrued unbilled revenue
511


212

Inventory
247


242

Income tax receivables
132

 
224

Prepaid expenses
164

 
233

Derivative assets
92


105

Regulatory assets
678


703

Other current assets
165


202

Assets of business held for sale
270

 

Total current assets
2,992


3,729

Nuclear decommissioning trusts
4,334


4,440

Other investments
81


73

Total investments
4,415


4,513

Utility property, plant and equipment, less accumulated depreciation and amortization of $9,254 and $9,355 at respective dates
39,152


38,708

Nonutility property, plant and equipment, less accumulated depreciation of $74 and $114 at respective dates
83


342

Total property, plant and equipment
39,235


39,050

Regulatory assets
4,932


4,914

Other long-term assets
369


374

Total long-term assets
5,301


5,288

















































 
 
 
 
 
 
 
 
Total assets
$
51,943


$
52,580



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

20






Consolidated Balance Sheets
Edison International
 

 

 
(in millions, except share amounts, unaudited)
March 31,
2018

December 31,
2017
LIABILITIES AND EQUITY
 

 
Short-term debt
$
70


$
2,393

Current portion of long-term debt
479


481

Accounts payable
1,033


1,503

Accrued taxes
92


23

Customer deposits
287


281

Regulatory liabilities
1,347


1,121

Other current liabilities
1,197


1,266

Liabilities of business held for sale
142

 

Total current liabilities
4,647


7,068

Long-term debt
13,367


11,642

Deferred income taxes and credits
4,685


4,567

Pensions and benefits
909


943

Asset retirement obligations
2,878


2,908

Regulatory liabilities
8,683


8,614

Other deferred credits and other long-term liabilities
2,885


2,953

Total deferred credits and other liabilities
20,040


19,985

Total liabilities
38,054


38,695

Commitments and contingencies (Note 12)





Redeemable noncontrolling interest

 
19

Common stock, no par value (800,000,000 shares authorized; 325,811,206 shares issued and outstanding at respective dates)
2,531


2,526

Accumulated other comprehensive loss
(46
)

(43
)
Retained earnings
9,211


9,188

Total Edison International's common shareholders' equity
11,696


11,671

Noncontrolling interests  preferred and preference stock of SCE
2,193


2,193

Other noncontrolling interests


2

Total Equity
13,889


13,866













 
 
 
 
 
 
 
 
Total liabilities and equity
$
51,943


$
52,580



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

21






Consolidated Statements of Cash Flows
Edison International
 



Three months ended March 31,
(in millions, unaudited)
2018

2017
Cash flows from operating activities:
 

 
Net income
$
242


$
392

Adjustments to reconcile to net cash provided by operating activities:


 
Depreciation and amortization
479


520

Allowance for equity during construction
(22
)

(19
)
Impairment and other charges
66


5

Deferred income taxes and investment tax credits
4


(13
)
Other
17


9

Nuclear decommissioning trusts
(24
)
 
1

Changes in operating assets and liabilities:


 
Receivables
77


27

Inventory
(7
)

2

Accounts payable
(216
)

(226
)
Tax receivables and payables
162

 
34

Other current assets and liabilities
(277
)

39

Regulatory assets and liabilities, net
405


129

Other noncurrent assets and liabilities
(47
)

(16
)
Net cash provided by operating activities
859


884

Cash flows from financing activities:
 

 
Long-term debt issued or remarketed, net of discount and issuance costs of $17 and $11 for respective periods
1,783


1,524

Long-term debt matured
(41
)

(40
)
Short-term debt financing, net
(2,261
)

(1,013
)
Payments for stock-based compensation
(10
)
 
(313
)
Receipt from stock option exercises
2

 
174

Dividends and distribution to noncontrolling interests
(36
)

(37
)
Dividends paid
(197
)

(177
)
Other
15

 
(6
)
Net cash (used in) provided by financing activities
(745
)

112

Cash flows from investing activities:
 

 
Capital expenditures
(1,137
)

(944
)
Proceeds from sale of nuclear decommissioning trust investments
931


1,718

Purchases of nuclear decommissioning trust investments
(907
)

(1,719
)
Other
16


4

Net cash used in investing activities
(1,097
)

(941
)
Net (decrease) increase in cash, cash equivalents and restricted cash including cash held for sale
(983
)

55

Less: Net increase in cash held for sale
43

 

Net (decrease) increase in cash, cash equivalents and restricted cash
(1,026
)
 
55

Cash, cash equivalents and restricted cash at beginning of period
1,132


114

Cash, cash equivalents and restricted cash at end of period
$
106


$
169


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

22






Consolidated Statements of Income
Southern California Edison Company

 
 
 
 
 
 
 
 
Three months ended March 31,
(in millions, unaudited)
 
2018
 
2017
Operating revenue
 
$
2,554

 
$
2,456

Purchased power and fuel
 
926

 
784

Operation and maintenance
 
651

 
580

Depreciation and amortization
 
459

 
497

Property and other taxes
 
105

 
97

Other operating income
 
(1
)
 

Total operating expenses
 
2,140


1,958

Operating income
 
414


498

Interest expense
 
(155
)
 
(141
)
Other income and expenses
 
51

 
35

Income before income taxes
 
310


392

Income tax (benefit) expense
 
(6
)
 
12

Net income
 
316


380

Less: Preferred and preference stock dividend requirements
 
30

 
31

Net income available for common stock
 
$
286


$
349


Consolidated Statements of Comprehensive Income
Southern California Edison Company
 
 
 
 
 
 
Three months ended March 31,
(in millions, unaudited)
2018
 
2017
Net income
$
316
 
 
$
380
 
Other comprehensive income (loss), net of tax:
 
 
 
Pension and postretirement benefits other than pensions:
 
 
 
Net loss arising during the period plus amortization included in net income
2
 
 
1
 
Other
(5
)
 
1
 
Other comprehensive (loss) income, net of tax
(3
)
 
2
 
Comprehensive income
$
313
 
 
$
382
 


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

23






Consolidated Balance Sheets
Southern California Edison Company
(in millions, unaudited)
March 31,
2018
 
December 31, 2017
ASSETS
 
 
 
Cash and cash equivalents
$
15

 
$
515

Receivables, less allowances of $53 for uncollectible accounts at both dates
617

 
693

Accrued unbilled revenue
510

 
212

Inventory
246

 
242

Income tax receivables
218

 
229

Prepaid expenses
164

 
228

Derivative assets
92

 
105

Regulatory assets
678

 
703

Other current assets
162

 
160

Total current assets
2,702

 
3,087

Nuclear decommissioning trusts
4,334

 
4,440

Other investments
61

 
52

Total investments
4,395

 
4,492

Utility property, plant and equipment, less accumulated depreciation and amortization of $9,254 and $9,355 at respective dates
39,152

 
38,708

Nonutility property, plant and equipment, less accumulated depreciation of $71 and $97 at respective dates
76

 
77

Total property, plant and equipment
39,228

 
38,785

Regulatory assets
4,932

 
4,914

Other long-term assets
243

 
237

Total long-term assets
5,175

 
5,151

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
$
51,500

 
$
51,515


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

24






Consolidated Balance Sheets
Southern California Edison Company
(in millions, except share amounts, unaudited)
March 31,
2018
 
December 31, 2017
LIABILITIES AND EQUITY
 
 
 
Short-term debt
$
70

 
$
1,238

Current portion of long-term debt
479

 
479

Accounts payable
1,036

 
1,519

Accrued taxes
94

 
24

Customer deposits
287

 
281

Regulatory liabilities
1,347

 
1,121

Other current liabilities
1,181

 
1,225

Total current liabilities
4,494

 
5,887

Long-term debt
11,629

 
10,428

Deferred income taxes and credits
6,005

 
5,890

Pensions and benefits
453

 
483

Asset retirement obligations
2,878

 
2,892

Regulatory liabilities
8,683

 
8,614

Other deferred credits and other long-term liabilities
2,610

 
2,649

Total deferred credits and other liabilities
20,629

 
20,528

Total liabilities
36,752

 
36,843

Commitments and contingencies (Note 12)


 


Common stock, no par value (560,000,000 shares authorized; 434,888,104 shares issued and outstanding at each date)
2,168

 
2,168

Additional paid-in capital
673

 
671

Accumulated other comprehensive loss
(22
)
 
(19
)
Retained earnings
9,684

 
9,607

Total common shareholder's equity
12,503

 
12,427

Preferred and preference stock
2,245

 
2,245

Total equity
14,748

 
14,672

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities and equity
$
51,500

 
$
51,515



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

25






Consolidated Statements of Cash Flows
Southern California Edison Company
 
Three months ended March 31,
(in millions, unaudited)
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
316

 
$
380

Adjustments to reconcile to net cash provided by operating activities:
 
 
 
Depreciation and amortization
475

 
517

Allowance for equity during construction
(22
)
 
(19
)
Deferred income taxes and investment tax credits
(3
)
 
223

Other
15

 
7

Nuclear decommissioning trusts
(24
)
 
1

Changes in operating assets and liabilities:
 
 
 
Receivables
70

 
29

Inventory
(7
)
 
5

Accounts payable
(230
)
 
(226
)
Tax receivables and payables
81

 
(33
)
Other current assets and liabilities
(268
)
 
60

Regulatory assets and liabilities, net
405

 
129

Other noncurrent assets and liabilities
(7
)
 
(137
)
Net cash provided by operating activities
801

 
936

Cash flows from financing activities:
 
 
 
Long-term debt issued or remarketed, net of discount and issuance costs of $11 and $9 for the respective periods
1,239

 
1,126

Long-term debt matured or repurchased
(40
)
 
(40
)
Short-term debt financing, net
(1,168
)
 
(769
)
Payments for stock-based compensation
(3
)
 
(56
)
Receipt from stock option exercises
1

 
33

Dividends paid
(248
)
 
(227
)
Other
3

 
(11
)
Net cash (used in) provided by financing activities
(216
)
 
56

Cash flows from investing activities:
 
 
 
Capital expenditures
(1,124
)
 
(934
)
Proceeds from sale of nuclear decommissioning trust investments
931

 
1,718

Purchases of nuclear decommissioning trust investments
(907
)
 
(1,719
)
Other
15

 
4

Net cash used in investing activities
(1,085
)

(931
)
Net (decrease) increase in cash, cash equivalents and restricted cash
(500
)
 
61

Cash, cash equivalents and restricted cash at beginning of period
515

 
40

Cash, cash equivalents and restricted cash at end of period
$
15

 
$
101


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

26






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 a holding company for subsidiaries, including Edison Energy, LLC ("Edison Energy"), engaged in pursuing competitive business opportunities across energy services and managed portfolio solutions for commercial and industrial customers. Such business activities are currently not material to report as a separate business segment. These combined notes to the consolidated financial statements apply to both Edison International and SCE unless otherwise described. Edison International's consolidated financial statements include the accounts of Edison International, SCE, and other wholly owned and controlled subsidiaries. References to Edison International refer to the consolidated group of Edison International and its subsidiaries. References to Edison International Parent and Other refer to Edison International Parent and its competitive subsidiaries. SCE's consolidated financial statements include the accounts of SCE and its wholly owned and controlled subsidiaries. All intercompany transactions have been eliminated from the consolidated financial statements.
Edison International's and SCE's significant accounting policies were described in Note 1 of "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, 2017 (the "2017 Form 10-K"). This quarterly report should be read in conjunction with the financial statements and notes included in the 2017 Form 10-K.
In the opinion of management, all adjustments, consisting of recurring accruals, have been made that are necessary to fairly state the consolidated financial position, results of operations, and cash flows in accordance with accounting principles generally accepted in the United States ("GAAP") for the periods covered by this quarterly report on Form 10-Q. The results of operations for the three-month period ended March 31, 2018 are not necessarily indicative of the operating results for the full year.
The December 31, 2017 financial statement data was derived from audited financial statements, but does not include all disclosures required by GAAP.
Effective January 1, 2018, Edison International and SCE adopted several accounting standards retrospectively. Prior year financial statements have been updated to reflect the retrospective application of these standards as applicable. For further information, see "New Accounting Guidance" below.
Sale of SoCore Energy
On February 28, 2018, Edison International agreed to sell SoCore Energy LLC ("SoCore Energy"), a then subsidiary of Edison Energy Group, to a third party, subject to the completion of closing conditions, which were satisfied on April 16, 2018. As a result, Edison International accounted for the assets and liabilities of SoCore Energy as held for sale as of March 31, 2018 on the consolidated Edison International balance sheet. See Note 10 for further information.
Cash, Cash Equivalents and Restricted Cash
Cash equivalents includes investments in money market funds. Generally, the carrying value of cash equivalents equals the fair value, as these investments have original maturities of three months or less. The cash equivalents were as follows:
 
 
Edison International
 
SCE
(in millions)
 
March 31,
2018
 
December 31, 2017
 
March 31,
2018
 
December 31, 2017
Money market funds
 
$
43

 
$
1,024

 
$

 
$
483


27






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
(in millions)
 
March 31,
2018
 
December 31, 2017
 
March 31,
2018
 
December 31, 2017
Book balances reclassified to accounts payable
 
$
40

 
$
64

 
$
40

 
$
63

Edison International's restricted cash at March 31, 2018 and December 31, 2017 was $27 million and $41 million, respectively. Restricted cash primarily relates to funds held by SoCore Energy and its consolidated affiliates pursuant to project financing or purchase agreements, most of which are expected to lapse during 2018. As discussed above, Edison International accounted for the assets and liabilities of SoCore Energy as held for sale as of March 31, 2018 (see Note 10 for further information).
The following table sets forth the cash, cash equivalents and restricted cash included in the consolidated statements of cash flows:
(in millions)
 
March 31, 2018
 
December 31, 2017
Edison International:
 
 
 
 
 Cash and cash equivalents
 
$
105

 
$
1,091

 Short-term restricted cash 1
 
1

 
40

 Long-term restricted cash 2
 

 
1

Total cash, cash equivalents, and restricted cash3
 
$
106

 
$
1,132

SCE:
 
 
 
 
 Cash and cash equivalents
 
$
15

 
$
515

Total cash, cash equivalents, and restricted cash
 
$
15

 
$
515

1 
Reflected in "Other current assets" on Edison International's consolidated balance sheets.
2 
Reflected in "Other long-term assets" on Edison International's consolidated balance sheets.
3 
Excludes SoCore Energy's cash and cash equivalents of $18 million and short-term and long-term restricted cash of $26 million at March 31, 2018, which were reflected in "Assets of business held for sale" on Edison International's consolidated balance sheets (see Note 10 for additional information).
Revenue Recognition
During the first three months of 2018, pending the outcome of the 2018 GRC decision, SCE recognized GRC-related revenue based on the 2017 authorized revenue requirement, adjusted for the July 2017 cost of capital decision and the impact of Tax Reform. The amounts billed to customers for the first three months of 2018 was also based on the 2017 authorized revenue requirement and a regulatory liability has been established to record any associated adjustments. The CPUC has authorized the establishment of a GRC memorandum account, which will make the 2018 revenue requirement ultimately adopted by the CPUC effective as of January 1, 2018. SCE cannot predict the revenue requirement the CPUC will authorize or provide assurance on the timing of a final decision. In December 2017, the FERC issued an order setting the effective date of SCE's new FERC formula rate as January 1, 2018, subject to settlement procedures and refund. Pending resolution of the FERC formula rate proceeding, SCE is recognizing revenue based on the FERC formula rate adjusted for the impact of Tax Reform and other adjustments.

28






Earnings Per Share
Edison International computes earnings per common share ("EPS") using the two-class method, which is an earnings allocation formula that determines EPS for each class of common stock and participating security. Edison International's participating securities are stock-based compensation awards payable in common shares, including restricted stock units, which earn dividend equivalents on an equal basis with common shares once the awards are vested. EPS attributable to Edison International common shareholders was computed as follows:
 
 
Three months ended March 31,
(in millions, except per-share amounts)
 
2018
 
2017
Basic earnings per share – continuing operations:
 
 
 
 
Income from continuing operations attributable to common shareholders
 
$
218

 
$
362

Participating securities dividends
 

 

Income from continuing operations available to common shareholders
 
$
218

 
$
362

Weighted average common shares outstanding
 
326

 
326

Basic earnings per share – continuing operations
 
$
0.67

 
$
1.11

Diluted earnings per share – continuing operations:
 
 
 
 
Income from continuing operations attributable to common shareholders
 
$
218

 
$
362

Participating securities dividends
 

 

Income from continuing operations available to common shareholders
 
$
218

 
$
362

Income impact of assumed conversions
 

 

Income from continuing operations available to common shareholders and assumed conversions
 
$
218

 
$
362

Weighted average common shares outstanding
 
326

 
326

Incremental shares from assumed conversions
 
1

 
3

Adjusted weighted average shares – diluted
 
327

 
329

Diluted earnings per share – continuing operations
 
$
0.67

 
$
1.10

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 6,222,294 and 1,355,930 shares of common stock for the three months ended March 31, 2018 and 2017, 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 May 2014, the Financial Accounting Standards Board ("FASB") issued an accounting standards update on revenue recognition and further amended the standard in 2016 and 2017. Under the new standard, revenue is recognized when a good or service is transferred to the customer and the customer obtains control of the good or service. Some revenue arrangements, such as alternative revenue programs which include balancing account overcollections and undercollections, are excluded from the scope of the new standard and, therefore, will be accounted for and presented separately from revenue recognized from contracts with customers in the disclosures. Edison International and SCE adopted this standard effective January 1, 2018, using the modified retrospective method for contracts that were not completed as of the adoption date. Edison International recognized a cumulative effect adjustment to increase the opening balance of retained earnings by approximately $5 million ($7 million pre-tax) on January 1, 2018. This adjustment is related to variable consideration recognized at Edison Energy which is not subject to potential significant reversal and has no further performance obligations. See Note 7 for further details.
In January 2016, the FASB issued an accounting standards update that amends the guidance on the classification and measurement of financial instruments, and further amended the guidance in 2018. Under the new guidance, equity investments (excluding those accounted for under the equity method or those that result in consolidation) are required to be measured at fair value, with changes in fair value recognized in net income. The new guidance also amends certain disclosure requirements associated with the fair value of financial instruments and requires financial assets and financial liabilities to be presented separately in the notes to the financial statements, grouped by measurement category and form of financial assets.

29






Edison International and SCE adopted this guidance effective January 1, 2018. Edison International recognized a cumulative effect adjustment to increase the opening balance of retained earnings and accumulated other comprehensive loss by $5 million ($8 million pre-tax) on January 1, 2018. See Note 2 for further details.
The FASB issued two accounting standards updates related to the statement of cash flows. One standard update clarifies the presentation and classification of certain cash receipts and payments in the statement of cash flows and other requires restricted cash to be presented with cash and cash equivalents in the statement of cash flows. Edison International and SCE adopted these standards effective January 1, 2018, using the retrospective approach. The adoption of these standards did not have a material impact on Edison International's and SCE's consolidated statement of cash flows.
In March 2017, the FASB issued an accounting standards update on the presentation of the components of net periodic benefit cost for an entity's defined benefit pension and other postretirement plans. Edison International and SCE adopted this guidance effective January 1, 2018. The adoption of this standard did not have a material impact on Edison International's and SCE's consolidated financial statements, but did result in the separate presentation of service costs as an operating expense and non-service costs within other income and expenses and limits the capitalization of benefit costs to the service cost component. The standard was adopted retrospectively with respect to the income statement presentation requirement and prospectively for the capitalization requirement. During the three months ended March 31, 2017, non-service costs (benefits) totaled $(8) million and $(9) million for Edison International and SCE, respectively, which were reclassified from "Operation and maintenance" to "Other income and expenses." See Note 9 and Note 14 for further details.
Accounting Guidance Not Yet Adopted
In February 2016, the FASB issued an accounting standards update related to lease accounting and further amended the standard in 2018. The updated standard is effective January 1, 2019. Under the new standard, a lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified assets for a period of time in exchange for consideration. Lessees will need to recognize leases on the balance sheet as a right-of-use asset and a related lease liability, and classify the leases as either operating or finance. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustments, such as initial direct costs. Edison International's operating leases will result in straight-line expense while finance leases will result in a higher initial expense pattern due to the interest component. SCE, as a regulated entity, is permitted to continue to recognize expense using the timing that conforms to the regulatory rate treatment. Lessees can elect to exclude from the balance sheet short-term contracts of one year or less. This standard requires retrospective application to previously issued financial statements for 2018 and 2017. Although permitted, Edison International and SCE has elected not to adopt this standard prior to January 1, 2019. The standard will provide entities with an optional transition method to apply the new requirements in the period of adoption without retrospective application to previous periods. Edison International and SCE are evaluating whether to elect this optional transition method. The adoption of this standard will increase right-of-use assets and lease liabilities in Edison International's and SCE's consolidated balance sheets. Edison International and SCE are currently implementing a new lease accounting system and are evaluating the impact this standard will have on the consolidated balance sheets and lease disclosures.
The FASB issued an accounting standards update related to the impairment of financial instruments, effective January 1, 2020. The new guidance provides an impairment model, known as the current expected credit loss model, which is based on expected credit losses rather than incurred losses. Edison International and SCE are currently evaluating the impact of this new guidance.
In January 2017, the FASB issued an accounting standards update to simplify the accounting for goodwill impairment. This accounting standards update changes the procedural steps in applying the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Edison International will apply this guidance to the goodwill impairment test beginning in 2020.
In February 2018, the FASB issued an accounting standards update related to stranded income tax effects due to the 2017 Tax Reform enacted on December 22, 2017. As a result of the lower federal corporate tax rate, deferred taxes were re-measured with the impact included in operating income in December 2017. The tax effects of items within AOCI were appropriately left unadjusted (i.e. stranded tax effects) and, therefore, are not stated at the revised tax rate. The new accounting guidance provides entities with an election to reclassify from AOCI to retained earnings for stranded income tax effects resulting from the 2017 Tax Reform. The new guidance should be applied either in the period of adoption or retrospectively to each period(s) in which the effect of the rate change is recognized. The new guidance is effective January 1, 2019 with early adoption permitted. Edison International and SCE are in the process of evaluating the new guidance.

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Note 2.    Consolidated Statements of Changes in Equity
The following table provides Edison International's changes in equity for the three months ended March 31, 2018:
 
Equity Attributable to Common Shareholders
 
Noncontrolling Interests
 
 
(in millions, except per-share amounts)
Common
Stock
 
Accumulated
Other
Comprehensive Loss
 
Retained
Earnings
 
Subtotal
 
Other
Preferred
and
Preference
Stock
 
Total
Equity
Balance at December 31, 2017
$
2,526

 
$
(43
)
 
$
9,188

 
$
11,671

 
$
2

$
2,193

 
$
13,866

Net income

 

 
218

 
218

 
(3
)
30

 
245

Other comprehensive income

 
2

 

 
2

 


 
2

Cumulative effect of accounting changes1