Business Description

Rate Case 17 FERC Formula Rates 18 Capital Program 18 Environmental Developments 18 RESULTS OF OPERATIONS 19 Utility Earning Activities 20 Utility Cost-Recovery Activities 21 Supplemental Operating Revenue Information 21 Income Taxes 22 LIQUIDITY AND CAPITAL RESOURCES 23 Available Liquidity 23 Capital Investment Plan 23 Regulatory Proceedings 25 Dividend Restrictions 25 Margin and Collateral Deposits 25 Workers Compensation Self-Insurance Fund 26 i Table of Contents Regulatory Balancing Accounts 26 Historical Consolidated Cash Flows 26 Contractual Obligations and Contingencies 28 MARKET RISK EXPOSURES 29 Interest Rate Risk 29 Commodity Price Risk 30 Credit Risk 30 CRITICAL ACCOUNTING ESTIMATES AND POLICIES 31 Rate Regulated Enterprises 31 Nuclear Decommissioning – ARO 31 Pensions and Postretirement Benefits Other than Pensions 32 Income Taxes 34 Accounting for Contingencies, Guarantees and Indemnities 34 NEW ACCOUNTING GUIDANCE 35 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 35 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 35 CONSOLIDATED FINANCIAL STATEMENTS 35 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 36 Consolidated Statements of Income 37 Consolidated Statements of Comprehensive Income 37 Consolidated Balance Sheets 38 Consolidated Statements of Cash Flows 40 Consolidated Statements of Changes in Equity 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 42 Note 1. Summary of Significant Accounting Policies 42 Note 2. Property, Plant and Equipment 48 Note 3. Variable Interest Entities 49 Note 4. Fair Value Measurements 50 Note 5. Debt and Credit Agreements 55 Note 6. Derivative Instruments and Hedging Activities 55 Note 7. Income Taxes 58 Note 8. Compensation and Benefit Plans 62 Note 9. Commitments and Contingencies 77 Note 10. Environmental Developments 82 Note 11. Accumulated Other Comprehensive Loss 84 Note 12. Supplemental Cash Flows Information 85 Note 13. Preferred and Preference Stock 85 Note 14. Regulatory Assets and Liabilities 86 Note 15. Other Investments 88 Note 16. Other Income and Expenses 89 Note 17. Quarterly Financial Data (Unaudited) 90 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 90 ITEM 9A. CONTROLS AND PROCEDURES 90 ITEM 9B. OTHER INFORMATION 91 ii Table of Contents PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 91 ITEM 11. EXECUTIVE COMPENSATION 91 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 91 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 91 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 91 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 92 SIGNATURES 94 EXHIBIT INDEX 96 iii Table of Contents GLOSSARY The following terms and abbreviations appearing in the text of this report have the meanings indicated below. 2010 Tax Relief Act Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 AFUDC allowance for funds used during construction APS Arizona Public Service Company ARO(s) asset retirement obligation(s) Bcf billion cubic feet Big 4 Kern River, Midway-Sunset, Sycamore and Watson natural gas power projects CAA Clean Air Act CAIR Clean Air Interstate Rule CAISO California Independent System Operator CAMR Clean Air Mercury Rule CARB California Air Resources Board CDWR California Department of Water Resources CEC California Energy Commission CPUC California Public Utilities Commission CRRs congestion revenue rights DOE U. S. Department of Energy ERRA energy resource recovery account FASB Financial Accounting Standards Board FERC Federal Energy Regulatory Commission FGIC Financial Guarantee Insurance Company FIP(s) federal implementation plan(s) Four Corners coal fueled electric generating facility located in Farmington, New Mexico in which SCE holds a 48% ownership interest GAAP generally accepted accounting principles GHG greenhouse gas Global Settlement A settlement between Edison International and the IRS that resolves all of SCE's federal income tax disputes and affirmative claims for tax years 1986 through 2002 and related matters with state tax authorities.…