ML13331B445

Southern California Edison Co 1987 Annual Rept

ML13331B445
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Site:	San Onofre
Issue date:	12/31/1987
From:	Allen H Southern California Edison Co
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1987 Annual Report Southern Quality service California in a changing Edison business Company environment 00 0

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• Service territory A Fossil (includes coal gasification) 4 Wind

• Extra high voltage (EHV)transmission lines

• Nuclear 0 Solar

• Hydroelectric

Geothermal 0 Biomass Contents:

Southern California Edison Company 2:

The Year at a Glance provides electric service to a 50,000-3:

Letter to Shareholders square-mile area of Central and Southern 7:

Year in Review California. With headquarters in 16:

Regulatory Review Rosemead, California, Edison is an 18:

Legislative Review investor-owned, regulated utility serving 19:

Non-Utility Subsidiaries 10 million people in one of the nation's 21:

Financial Review most dynamic and prosperous regional 24:

Responsibility for Financial Statements and economies. The Company supplies 3.7 Report of Independent Public Accountants million customers with electricity from 25:

Financial Statements nine energy resources, more resources 40:

Management's Discussion and Analysis of than any other electric utility in the Results of Operations and Financial Condition world.

44:

Selected Financial Data 1977-1987 47:

Board of Directors 48:

Executive Officers

Highlights Southern California Edison Company Five-Year Compound Annual Percent Growth 1987 1986 Change Rate Operating revenues (000)

$5,492,669

$5,311,733 3.4%

5.0%

Fuel and purchased power costs (000)

$1,870,788

$1,653,854 13.1 (3.4)

Net income (000)

$788,626

$768,617 2.6 7.3 Earnings available for Common and Original Preferred Stock (000)

$738,531

$713,933 3.4 8.8 Weighted average shares of Common and Original Preferred Stock (000) 217,966 217,732 0.1 2.9 Earnings per share

$3.39

$3.28 3.4 5.7 Dividends paid per common share

$2.33

$2.22 5.0 7.1 Market price per common share-year-end

$30/2

$337/s (10.0) 11.7 Book value per common share

$23.05

$22.02 4.7 5.7 Total assets (000)

$14,218,570

$13,768,668 3.3 7.0 Funds used for construction expenditures (000)

$1,021,178

$1,156,385 (11.7) 0.5 Kilowatt-hour sales (000) 65,539,481 64,197,405 2.1 2.0 Number of customers 3,717,262 3,589,414 3.6 2.6 Number of employees 17,083 17,553 (2.7) 1.6 Area generating capacity at peak (megawatts) 18,206 18,320 (0.6) 3.5 Sources and Distribution Earnings Per Share Dividend Increases of Revenues

" Non-utility earnings Sources Distribution

" Utility earnings Resale cities 2%

Per share $4

$2.50 Agriculture 2%

Reinvested

$3.18 $3.26 $3.28 $3.39 Public earnings

$3.1 2.00 authorities Depreciation 3

Taxes and

$2.56 Industrial other Dividends 1.50 and interest 2

Residential Operation and 1.00 maintenance Fuel and

.50 Commercial purchased power 82 83 84 85 86 87 0

76 77 77 78 79 80 81 82 83 84 85 86 87 0

For the calendar year 1987, the Company In June, Edison increased the dividend on The Company's 1987 sources of revenue achieved its seventh consecutive year of common stock 4.4% to $2.38 per share, the reflect a reasonably balanced contribution record earnings. Earnings from non-utility 12th increase in the past 11 years.

among the three major customer classes subsidiaries more than doubled in 1987, commercial, residential and industrial. Fuel contributing 190, or 5.6%, of total earnings.

and purchased power costs continued to represent the largest portion of the distribution of revenues.

The Year at a Glance m Earnings per share of common stock rose to an The Calfornia Public Utilities Commission all-time high of $3.39, the seventh consecutive year of (CPUC) issued itsfinal decision on construction costs record earnings.

of Edison's nuclear plants, allowing the Company to recover in rates 94% of its investment in San Onofre The Board ofDirectors increased the common Units 2 and 3, 98% of its investment in Palo Verde stock dividend 4.4% in June to $2.38 per share, the Units 1, 2 and 3, and 100% of the seismic upgrading 12th increase in the past 11 years.

costsdfor San Onofre Unit].

Net income rose to a record $788.6 million and Edison's three units at the San Onofre Nuclear revenues to a record $5.5 billion.

Generating Station produced almost 17% of the Com pany's electrical generation in 1987, and produced the Although the price of Edison common stock second highest output of any nuclear plant in the declined in 1987, it outperformed the Dow Jones utility nation.

average for the year. Its financial strength was exhibited during the stock market's October 19 plunge The CPUC's 1988 general rate case decision as Edison's common stock price decreased 14%,

brought customer rates more closely in line with the compared with 23% for the Dow Jones industrial Company's actual cost ofproviding service; although average. Edison stock has since recovered all that it the Commission lowered the authorized rate of return lost during the market plunge.

on common equityfrom 13.9% in 1987 to 12.75% in 1988, it adopted more realistic expense levels than in Compound annual return to shareholders over past decisions.

the past five years was 21% from stock appreciation and dividends, exceeding the Dow Jones industrial The 207-megawatt Balsam Meadow hydroelec and utility averages, as well as the Standard & Poor's tric unit went into service ahead of schedule and $44 500 index.

million under budget on December 1,1987, afterfour years of construction with an excellent safety record.

Internal generation offunds rose to 77%, the highest level in more than 25 years.

Edison initiated an ambitiousfive-year Cost Containment Plan designed to reduce projected 1992 The Company had a net increase of nearly revenue requirementsfrom customers by $900 million.

128,000 customers in 1987, the highest growth in its history, surpassing 1986 growth by 29%.

The CPUC authorized theformation of a hold ing company, to be called SCEcorp. Subject to share Sales to retail customers increased 5.1%; total holder approval, it will commence operation on sales, including municipal and utility customers, rose July 1, providing a better separation of utility and 2.1%, despite a 46% reduction in sales to Edison's six non-utility businesses.

resale cities that obtained most of their powerGfrom other sources.

2

Fellow Shareholders:

An Outstanding Year By every important measure, 1987 was one of the most successful years in your Company's history. In addition to setting new financial and operating records, Edison laid the foundation in 1987 for future success despite signifi cant changes in our business environment.

Our earnings per share of $3.39 in 1987-the seventh consecutive year of record earnings-are particularly noteworthy in light of the many changing business conditions and regulatory actions that occurred during the year.

Among these were the California Public Utilities Commission (CPUC) action lowering our authorized rate of return on common equity to 13.9% in 1987 from 14.6% in 1986, and disallowing $237 million of the construction costs of our San Onofre and Palo Verde nuclear power plants.

Regulatory Issues Resolved On the positive side, we resolved many of the major regulatory issues that had been pending before the CPUC-some for many years. These included recovery of the safety and seismic upgrading and replacement fuel costs of San Onofre Unit 1, the recovery of almost all the costs of settling fuel oil and uranium supply contracts, and the CPUC decision on our 1988 general rate case application. However, one part of the rate case decision will result in dramatic distortions of quarterly earnings comparisons between 1987 and 1988 quarters, but will have little or no effect on full-year results. This matter is more fully explained on page 17.

Many important issues still face us in today's changing business, govern mental and regulatory environment. We are working hard to remain flexible and innovative to meet whatever the future holds. One major issue is efforts at the federal level to deregulate the electric utility business. While continu ing to believe that this is not in our customers' best interests, we are prepared to protect our shareholders and customers if it comes about.

Customer Self-Generation Another immediate challenge is the threat that some of our large industrial and commercial customers will bypass the Edison system and generate their own electricity, increasing costs to the remaining customers, especially resi dential ones. Bypass has appeared attractive to some customers because their cost of self-generated electricity sometimes is lower than prices Edison has been required to charge them under the rates set by the CPUC. In brief, the Commission in the past has set residential rates too low, and large commercial and industrial customer rates too high, when compared with our cost of serving these customer classes.

3

Meeting Business Challenges We are meeting this challenge on three fronts by:

• Working with the CPUC to restructure our rates so that rates for all cus tomer classes will more nearly reflect the actual cost of serving them. Under the plan, which the CPUC has approved, we expect to remove the artificial financial incentive for many of our large commercial and industrial cus tomers to generate their own electricity.

• Launching new programs to strengthen our ability to provide Quality Ser vice to these customers. We have sharply expanded communications and service assistance programs for our 200 largest commercial and industrial customers, who provide about one-fifth of our revenues.

• Establishing a Cost Containment Plan that substantially cuts our operating costs in 1988 and beyond, thus lowering our cost of providing service to all customers and making our cost of service more competitive. Our Cost Con tainment Plan calls for reducing our customer revenue requirements by $900 million by 1992, compared with what they would have been without these actions.

These ambitious goals will be difficult to achieve, but your management is committed to keeping the Company competitive. Together, these steps should assure our continued ability to provide quality customer service at reasonable and competitive rates and a fair return to our shareholders.

With our near-term major power plant construction program behind us, we are beginning to generate more funds than are needed for investment in our utility business. Moreover, returns from the utility business alone are not expected to give us the future earnings growth we wish to achieve. Accord ingly, to achieve the earnings growth we desire, we are seeking ways to invest prudently and profitably in other enterprises.

Holding Company Proposal To achieve this and ensure a better separation of our utility and non-utility businesses, management and the Board of Directors have proposed to share holders the creation of a holding company, to be called SCEcorp. If share holders approve our proposal at the annual meeting in April, we anticipate that the holding company will commence operations on July 1, 1988.

As part of these efforts, H. Frederick Christie resigned the presidency of Southern California Edison in September to become President of The Mis sion Group, our subsidiary that oversees the operation of Edison's non utility businesses. During this transition period, your Chairman assumed the additional title of President.

4

Management Changes Effective January 1, 1988, several officers were assigned new responsibilities to broaden their management experience. Charles B. McCarthy, Jr., a nuclear engineer who had been our Vice President-Customer Service, became Vice President and Site Manager at our San Onofre nuclear generating facility. Harold B. Ray, who previously headed operations at San Onofre, became Vice President-Fuel and Material Management. Robert H.

Bridenbecker, previously Vice President-Fuel Supply, succeeded Mr. McCarthy as head of our Customer Service Department. In addition, Michael L. Noel, Vice President and Corporate Treasurer, assumed officer responsibility for the Company's Health Care Department.

We also have had some changes in our Board of Directors. Charles D. Miller, Chairman and Chief Executive Officer of Avery International, was elected to succeed H. Russell Smith, who ably served on Edison's board for 13 years.

Robert H. Smith, President and Chief Executive Officer of Security Pacific Bank, joined the Board in September, succeeding Mr. Christie.

Our achievements in 1987, and our ability to quickly and prudently adapt to new business conditions, make me proud to lead an outstanding officer and management team and our 17,000 able, dedicated and hard-working employ ees. With the continuing wise counsel of our Board of Directors, and the support of you, our shareholders, I look forward to a successful 1988.

Howard P. Allen Chairman of the Board, President and ChiefExecutive Officer February 18, 1988 5

A Growing Service Territory Ray Cervantes, a distribution crew foreman, oversees the installation of under ground electric service at a new housing development in Chino Hills, located in the "Inland Empire" east of Los Angeles. This area covers the two fastest growing counties in California-Riverside and San Bernardino. During 1987, Edison gained an all-time record of nearly 128,000 new customers, continuing a trend of significant growth in recent years.

6

Year In Review Customer Growth 1987 was an excellent year for South-The peak customer demand for elec ern California Edison Company in tricity was 14,775 megawatts (MW) on terms of service to customers, opera-September 2, 1987. This was the sec tional achievements and financial per-ond highest peak in Edison's history, formance. Management leadership, surpassed only by the 15,189 MW rec-Thousands 150 together with teamwork among 17,000 ord set during an extended heat wave 128 employees, contributed greatly to this in September 1984.

success. In a changing business en vironment, Edison continued to Customer Self-Generation strongly emphasize quality service for Despite growth in its customers and customers, a competitive return electric sales, the Company has faced for its shareholders, and creation of a a business environment in which some rewarding work environment for its commercial and industrial customers employees.

have decided to generate their own electricity, thereby leaving the Coin-4215 pany's electric system. This problem Customer Growth and of customer self-generation is faced by Energy Sales many electric utilities across the country.

Edison serves 3.7 million customers, In California, the incentive for self-82 83 84 85 86 87 0

the second highest number of any elec-generation largely arises from a Cali-In 1987, almost 128,000 customers were tric utility in the nation. Its generally fornia Public Utilities Commission added to the Edison system. This represents prosperous and rapidly growing ser-(CPUC) past practice-encouraged by the largest annual increase in the Company's vice territory covers 50,000 square legislative policy-of establishing within in'ice territor miles in Central and Southern rates that subsidize residential custom California.

ers at the expense of commercial and The Company recorded the highest industrial users. Because of this rate customer growth in its history, with a structure, large customers have paid an d eserve man net increase of nearly 128,000 custom-significantly more than what it costs ers during 1987. This increase sur-Edison to serve them, and often more U Reserve margin passed growth in 1986 by 29%, and than it would cost them to generate U Peak demand was nearly 9% above the previous rec-their own electricity. Unfortunately, ord set in 1964. Residential customers the departure of these large customers Megawatts (000) 24 represented about 88% of the total could substantially increase electricity customer growth.

prices to the remaining customers, New customers were the main rea-especially residential customers.

20 son that retail electric sales grew 5.1%

The Company did a number of

-from 60.4 billion kilowatt-hours things during the year to help correct 16 (kwh) in 1986 to 63.5 billion kwh dur-this situation. In its 1988 general rate ing 1987. Electric sales would have case, decided by the CPUC in Decem been even higher except for mild sum-ber 1987, Edison sought and obtained 12 mer temperatures that reduced air-approval of a rate structure based conditioning use.

more closely on the costs of serving 8

Edison's total electric sales, includ-each class of customers-residential, ing sales to other utilities and munici-commercial and industrial. Effective palities, increased by 2.1%-from January 1, 1988, the CPUC approved 64.2 billion kwh in 1986 to 65.5 bil-average rate increases for residential lion kwh during 1987. These gains customers of 4.9%, while rates for 1987 1989 1991 1993 1995 1997 0

were achieved despite a 46% decline large commercial and industrial cus-(Recorded) in energy purchases by Edison's six re-tomers were reduced an average 4.7%.

The Company's reserve margin in 1987 sale city customers, who now obtain The Commission also granted Edison's assured system reliability on September 2 most of their electric power from request for more flexibility in negotiat-when peak customer demand for electricity rtreached 14,775 megawatts. With the recent ras n

e M

re completion of the Balsam Meadow hydro customers. The 1988 general rate case project and Palo Verde nuclear unit 3, the decision should go a long way in help-Company will continue to have sufficient ing to reduce self-generation by mak-generating capacity to meet sales growth.

ing Edison's rates more competitive.

7

Serving Large Customers V

I Ron Frontino, a major account executive in the Customer Service Department, has helped the Kimberly-Clark Company cut electricity bills at its paper products manufacturing plant in Fullerton. With his assistance, Kimberly-Clark was able to take advantage of lower rates available to customers willing to curtail their electricity use when there is excessive demand on the Edison system. Major account executives serve as single points of contact for meeting promptly and efficiently all the energy-related needs of Edison's 200 largest customers.

R

In addition, the Company's energy reduced to 16 in 1987, a decrease of tional despite the extensive non-struc service representatives work with five over the last three years.

tural damage it sustained.

commercial and industrial customers During the year, the Company also At the same time, employees in the to develop better alternatives to self-consolidated its five geographic divi-field worked long hours to repair generation, including ways to reduce sions into four, thereby cutting costs damaged power lines and substation electricity costs through special rates and achieving a more efficient facilities, quickly restoring electric and the installation of more energy-utilization of personnel and physical service to some 325,000 customers efficient equipment. Further, the resources.

who lost power because of the earth Company expanded its special service quake. The Company's generating fa program to cover the 200 largest cilities were not damaged by the quake.

commercial and industrial customers, Customer Service Quality service by Edison played a twice as many as before. These large major part in another of the Company's customers represent about one-fifth of A key element in the Company's ap-important successes of 1987. The city Edison's revenues. Under the pro-proach to large and small customers council of South Gate, a city with a gram, major account executives serve alike has been its strong commitment population of 79,000 in southern Los as a single point of contact in deter-to excellent service. Quality service Angeles County, proposed to take over mining and meeting all the energy-has been the cornerstone of Edison's the Company's facilities and form a related needs of these customers way of doing business throughout its municipal utility. In response, the citi promptly and efficiently.

101-year history. Since its early days, zens of South Gate gave strong grass the Company's motto guiding all its roots support to Edison, sending the Cost Control operations has been, "Good Service, city over 6,000 post cards objecting to To remain competitive in a changing Square Dealing, Courteous the proposed acquisition. At a city business environment, Edison is Treatment."

council meeting in August, more than committed to reducing substantially Good customer service at Edison 1,000 people turned out to protest the the costs of doing business in 1988 and takes many forms. When emergencies proposed acquisition, voicing their beyond without compromising its high arise, Edison employees mobilize overwhelming satisfaction with the quality of service to customers. This rapidly to restore service. Nowhere quality of service Edison has provided commitment has resulted in the five-was their dedication more evident than over the years. Shortly thereafter, the year Cost Containment Plan, put into during fires, heat waves, rain and South Gate City Council cancelled its effect in 1987, with the goal of windstorms in 1987 as service crews plans to take over Edison's facilities.

reducing previously projected 1992 and support personnel worked around-This is a good example of how quality revenue requirements from customers the-clock to restore service.

service is good business.

by $900 million.

As part of its public responsibility, The Company's energy management These steps include sharply reducing Edison has developed extensive plans programs continued to help customers the Company's planned construction to ensure rapid and appropriate re-reduce energy consumption and hold expenditures for 1988-1992; holding sponse to both natural and man-caused down their electricity bills. These pro annual increases in the operations disasters. These plans were imple-grams encourage customers to con and maintenance budget below the mented on October 1, when a major serve energy and shift electricity use rate of inflation; and reducing fuel and earthquake occurred with an epicenter from periods of high use to times of purchased power costs.

less than a mile from Edison's head-lower demand. This reduces peak de Though the Company has a lean and quarters. The quake, which registered mand and allows Edison to use its highly productive work force, it also 5.9 on the Richter scale, required im-generating facilities more efficiently.

has been seeking ways to establish mediate evacuation of the headquarters At the end of 1987, the Company's better control of the number of em-complex where about 4,000 employees energy management programs resulted ployees and cut costs even more. In work.

in a total reduction of more than 1987, Edison streamlined various depart-Management teams rapidly re-1,500 MW in electric demand during ments and took a number of actions to located key functions to designated peak periods, or the equivalent of the increase the efficiency and productiv-locations. Other groups began an im-output of one-and-a-half large nuclear ity of its work force. Total employ-mediate inspection of the headquarters generating units.

ment at the end of 1987 was 17,083, a facilities to determine the extent and During the year, the Company de decline of 470 from the 1986 level.

nature of the damage and to ensure that veloped a new program to further The number of corporate officers was the buildings were safe for occupancy.

Edison people worked through the night to make the main building func 9

Excellence in Nuclear Training Robert Clement, Jr., one of the Company's highly skilled nuclear training instruc tors, conducts intensive training sessions for control room operators at the San Onofre Nuclear Generating Station near San Clemente, California. The simulator at the training facility contains the same gauges and instruments found in the con trol room of Units 2 and 3. Thanks to the professionalism and dedication of San Onofre employees, the Company's training programs in 10 key areas received full accreditation by the Institute of Nuclear Power Operations during 1987, and Edison attained full membership in the National Academy for Nuclear Training.

10

Generation Energy Mix enhance the quality of each depart-Vietnamese and Cambodian to assist ment's level of service. The program the growing number of non-English focuses on reliability, consistency, and speaking customers; responsiveness. To encourage these

• providing energy management assis goals, the Company developed awards tance to 72,000 low-income custom giving greater recognition to employ-ers, including bilingual educational ees who come up with innovative ideas services and free installation of energy-Oil and gas that increase productivity, lower costs, efficient equipment.

or provide better service. As a result, the number of employees making such Nuclear suggestions has doubled. Quality ser-Generating Resources vice teams were established to better coordinate responses to customers' The Company makes electricity from Hydro needs. Furthermore, Edison initiated nine different energy resources, more Purchases:

other increased communications to heighten than any other utility in the world utilities employees' awareness of the need to This resource diversity gives Edison keep costs low and service quality flexibility in adapting to unforeseen Purchases:

high.

changes in world energy markets.

other power These programs fostered a number producers of improvements, such as:

Nuclear Power 1977 1987 1997

• reducing from 69 to 20 days the time Nuclear power plants in Southern (Projected) needed to provide customers with cost California and Arizona are important The Company's resource goals include a estimatesbalanced generation mix without dependence estiate fo reocaionof disn elmens o th Copan's esorceon any one fuel source. Edison has reduced its facilities; mix, generating 20% of customers' dependence on oil and gas from 71% in 1977

• implementing a postcard survey sys-electricity needs during 1987, up from to 37% in 1987. Purchases from other power tem that seeks feedback from custom-16% in 1986. This increase resulted producers are expected to increase from 10%

ers. About 95% of customer comments from two factors: sharply improved of the Company's energy mix in 1987 to 25%

have been favorable; customer service operating performance at the San by 1997.

managers contact each customer who Onofre Nuclear Generating Station, has a concern. This survey sup-and the first full year of operation of Funds Required for Construction plements other means of measuring Units 1 and 2 at the Palo Verde Nuclear H Generation M Distribution customer satisfaction; Generating Station in Arizona.

U Transmission U Other

• analyzing power quality for custom-Edison's three nuclear units at the ers with sensitive electronic equip-San Onofre plant generated almost ment, and helping them solve any 17% of customers' electricity needs problems discovered; in 1987. Edison owns 80% of the

• developing greater coordination 450-MW Unit 1, and 75% of the between two departments to improve 2,200-MW combined capacities of efficiency of switching distribution Units 2 and 3. It manages and operates circuits while line work is done, say-all three San Onofre units.

ing about $500,000 in labor costs.

Total generation from the three San Other steps the Company took dur-Onofre units was the second highest ing 1987 to provide customers with among all nuclear plants in the United quality service included:

States. The output of the three San

• reducing the average time needed to Onofre units displaced the equivalent answer customer telephone calls from of about 26 million barrels of oil in 84 seconds to less than 30 seconds, as 1987, thereby saving customers over well as reducing lost calls 45%, by

$215 million in fuel costs.

interconnecting the Company's four During the year, all three San telephone information centers, which Onofre units operated above the 19831987 19881992 0

receive 5 million calls annually; national industry average of 59% for (Recorded)

(Projected)

• furnishing toll-free telephone num-nuclear units. Unit 1, which completed With the completion of major generating projects, the Company's construction program bers answered by Edison representa-its 20th year of commercial operation, over the next five years is estimated to decline tives fluent in Spanish, Chinese, operated at 72% of its capacity, Unit 2 to $3.9 billion, compared with $4.8 billion for at 66% and Unit 3 at 80%. Also, the the past five years.

ersincudin biingul eucatona

Improved 'Iransmission Access Bill Wedesweiler, project manager in the Engineering and Construction Depart ment, managed the engineering and construction of a major transmission line that improves Edison's ability to import bulk power from the Southwest to serve the growing areas of Riverside, Orange and Los Angeles counties. This 82-mile link, between the Company's Devers Substation near Palm Springs and the Serrano Substation in Orange County, traversed the rugged mountains of the Cleveland National Forest.

12

Company completed the third refuel-duction record for its 18-year history.

Economy Energy Purchases Edi ing for Unit 2, and the second for Edison was awarded $15.5 million in son's short-term electricity purchases Unit 3.

1987 for their high output under the on the "spot market" from the Pacific Edison has continued intensive ef-CPUC's coal plant incentive program.

Northwest and Southwest saved Edi forts to reduce costs at the three San son customers about $50 million dur Onofre units. In 1987, there was a 14%

Hydro Power ing 1987, compared with the cost of reduction in total operations and main-The Big Creek hydroelectric system in generation on the Edison system using tenance costs per kwh produced from the Sierra Nevada is an important natural gas. The cost of this electric the previous year.

source of low-cost power, representing power averaged about 1.6 cents per Furthermore, Edison personnel took 1,000 MW of capacity. Today this huge kwh. Economy energy purchases sup the initiative in repairing the main hydroelectric system, which was plied about 8% of customers' total transformer at Unit 3 rather than return started in 1911, includes six dams, nine electric energy needs in 1987.

it to the manufacturer. This saved the major tunnels and nine powerhouses Edison played a major role in devel Company $3 million.

with 24 generating units.

oping the Western Systems Power Pool The Company also owns a 15.8%

During 1987, the Company cor-(WSPP), the largest power pool in the interest in the Palo Verde Nuclear pleted the four-year Balsam Meadow nation. It began operations in May Generating Station near Phoenix, Ari-construction project, a 207-MW addi-1987 as a two-year experiment to pur zona. The three 1,221-MW units, tion to the Big Creek system and Edi-chase and exchange economy energy which are managed by the Arizona Pub-son's largest hydro unit. That $277 among 24 public and investor-owned lic Service Company, comprise the million unit went into service on De-utilities in 10 Western states and Mex largest nuclear plant in the United cember 1, a month ahead of schedule, ico. The power pool allows members States. Units 1 and 2 went into

$44 million under budget, and with an to use a centralized computer to shop commercial operation in 1986. Startup excellent construction safety record, around more efficiently for low-cost testing for Unit 3 took place in 1987; Edison designed and managed the surplus power and to make better use the unit began commercial operation in Balsam Meadow project, which in-of existing generation and transmis January 1988.

cluded special measures to protect sion facilities. Under this program, Palo Verde Units 1 and 2 operated at wildlife and the environment. It was market forces, rather than regulatory capacity factors of 49% and 77%,

built by blasting four miles of tunnels agencies, determine power prices.

respectively, for the year. The first through solid granite to connect Hun refueling outage for Unit I was begun tington and Shaver lakes. The power Firm Purchases Purchases under in 1987, while refueling for Unit 2 station is 1,000 feet below ground in a long-term contracts with other utilities is scheduled for early 1988.

huge, excavated cavern. Edison represented about 6% of customers' named the station in honor of John S.

electricity needs. The average cost for Fossil Fuel Resources Eastwood, the visionary engineer who these purchases was about 4.0 cents The Company's 47 generating units, conceived the Big Creek hydroelectric per kwh.

which bum oil or natural gas, remain system in the late 1800s.

In March, the Company signed a the foundation of its generating sys-new 30-year contract with the U.S.

tem. These units represent more than Purchased Power Department of Energy to renew Edi 10,000 MW of capacity and provided The purchase of power from a diver-son's entitlement to low-cost hydro 37% of customers' energy needs dur-sity of outside sources gives Edison electric power from the Hoover Dam ing the year. In 1987, they were fueled flexibility in meeting its customers' on the Colorado River. The agreement almost entirely by natural gas.

electric needs. Furthermore, the Coi-gives Edison 277 MW of capacity.

Edison owns 56% and 48% of two pany continues to save customers The Company has concluded mutu coal-fired plants-the Mohave money by buying less expensive elec-ally beneficial agreements with Cali Generating Station in Nevada and the tic power from utilities in the Pacific fornia's two largest water agencies that Four Corners Generating Station in Northwest and the Southwest.

result in more efficient utilization of New Mexico, respectively. They pro-During 1987, the Company bought energy and water resources. In April, vided 14% of customers' electricity about 24% of its customers' electric Edison signed a long-term agreement needs in 1987. The Mohave plant oper-needs from non-Edison sources, with the California Department of ated at 63% of its maximum capacity, compared with 37% in 1986. Low Water Resources, which will give the and Four Coners at 79%d-a new pro-precipitation in the Pacific Northwest Company access to 225 MW of capa and California, and greater use of less city during its peak demand periods.

expensive natural gas in Edison's generating plants, caused this decline in purchased power.

13

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In June, Edison and the Metropolitan that only about one-half of these 156 linking the Company with its residen Water District (MWD) of Southern projects will be built.

tial customers. This network is de California reached a 30-year agree-Although the sharp drop in oil and signed to provide customers with ment for sharing electrical services.

natural gas prices has reduced the cost-information services and new options It integrates MWD's generation and competitiveness of many renewable for reducing electricity costs by shift pumping facilities into the Edison and alternative resources, these tech-ing their electricity usage to low-cost electric system.

nologies remain important components periods. These all-electronic devices The Company also signed a 20-year of the Company's diverse energy re-also are expected to reduce Company contract with Pacific Power and Light source mix, particularly if oil and gas costs by allowing remote meter read in Oregon for 200 to 300 MW of power become scarce or costly in the future.

ing from Edison offices.

during peak-use periods. This contract The Company is cooperating in the is expected to save Edison customers development of electric vehicles and more than $200 million over its life.

Fuel and Purchased Power Costs new advances in battery technology.

Widespread use of electric vehicles in Purchases from Non-Utility The largest portion of the Company's Southern California would reduce air Power Producers About 10% of cus-cost to supply electricity to customers pollution, traffic noise and excessive tomers' energy needs came from alter-comes from the combined costs of fuel dependence on oil. Furthentore, native and renewable energy projects for its generating plants and power pur-nighttime battery charging would in developed by non-utility power pro-chased from outside sources. Under crease off-peak electric load, resulting ducers. This power is generally much California regulation, Edison is al-in a more efficient use of Edison's more costly than the other types of lowed to pass these costs to customers, generating capacity. The Company is purchased power or production on the subject to annual reasonableness working closely with state and federal Edison system. During 1987, the aver-reviews by the CPUC.

governmental agencies on demonstra age cost for this electric power was 6.2 The Company's combined fuel and tion projects for electric vehicles.

cents per kwh.

purchased power costs increased from The Company also is testing energy The federal Public Utility Regula-

$1.65 billion in 1986 to $1.87 billion in storage technology at a 10-MW project tory Policies Act (PURPA) of 1978 1987. This increase resulted from more in Chino, California, that will be the encouraged the development of purchases from non-utility power pro-world's largest battery-energy storage alternative and renewable energy by ducers under earlier contracts Edison system. The system will charge bat requiring electric utilities to purchase was ordered to sign, and from reduced teries at night, when demand is low electric power from qualifying, non-hydro production in the Pacific North-and electricity less expensive, and utility producers. The legislation, as west and California because of below-supply electricity during the day implemented in California, forced average precipitation.

when power costs and peak demand Edison and other utilities to purchase During 1987, new CPUC rules al-are much higher. It is scheduled for power which, in most cases, was not lowed Edison to purchase natural gas operation in May 1988.

needed, and at costs much higher than directly from sources other than the Edison continues to be a major sup the electric power the Company can traditional supplier. Under these new porter of the Electric Power Research now produce or purchase from other rules, Edison obtained 35% of the total Institute (EPRI), a research and devel sources.

263 billion cubic feet of gas it burned opment association in the electric util At the end of 1987, there were 305 from these new sources, which saved ity industry. EPRI conducts research power projects in service, which were the Company about $5 million. This into energy technologies and scientific owned and operated by non-utility pro-helped to reduce Edison's average cost developments that could benefit cus ducers and contributed 1,250 MW of of natural gas from $2.58 per million tomers by reducing overall energy effective capacity to the Edison sys-Btu in 1986 to $2.55 in 1987.

costs, improving reliability of electric tem. Edison has signed CPUC-man-service and protecting the environment.

dated contracts with non-utility producers for an additional 156 proj-Planning and Research ects, representing another potential Human Resources 3,070 MW.

In 1987, the Company's resource plan For many reasons, including fing strategy increasingly emphasized The dedication, hard work and high changes in federal tax laws, air quality maximum flexibility in adapting to fu-morale of Edison's 17,000 employees considerations, and siting and permit ture uncertainties in energy supply and were a key part of the Company's finan requirements, the Company estimates demand.

cial and operating successes during 1987.

Edison is testing a two-way, elec tronic communications network 15

The Company expanded and up-Community Service Regulatory Review graded its employee training pro-Edison and its employees have played grams. During the year, Edison an important part in the civic and cul-The California Public Utilities sponsored a variety of companywide tural life of communities throughout Commission (CPUC) issued a number training programs in which slightly Central and Southern California. In of key decisions affecting the Coi more than 5,000 employees 1987, employees voluntarily partici-pany in 1987.

participated.

pated in a wide range of community The Company also places a high activities and programs, including Reasonableness Review of priority on maintaining a safe work Junior Achievement, the Special San Onofre Units 2 and 3 environment for its employees. In 1987, Olympics, the Junior Chamber of Construction Costs total industrial accidents declined 14%

Commerce, YMCA, YWCA and In October 1986, the CPUC concluded from the previous year, and lost work-Scouting.

a four-year reasonableness review of days decreased 9%. In addition, 21 In the 1987 United Way campaign, the construction and start-up costs for Company organizations earned awards Edison employees showed this spirit Units 2 and 3 of the San Onofre Nu from the Edison Electric Institute for individually by generously giving a clear Generating Station by ruling that 1 million or more safe work-hours record $2.7 million to help those in

$258.6 million of Edison's $3.4 billion without a lost-time accident.

need. On a per-capita basis, this placed investment should be disallowed.

Edison people among the leading con-The Commission made its ruling de Affirmative Action tributors in California to the more than spite a finding by the administrative Minority representation rose from 900 charitable organizations supported law judge who heard the entire case 26.3% of total employment in 1982 to by United Way.

that all costs incurred were prudent 30.7% in 1987. The proportion of In education, the Company worked and reasonable. Following an appeal female employees increased from closely with teachers, administrators by Edison, the Commission reduced 21.9% to 24.9% in the same period.

and community leaders to develop Edison's disallowance nearly $60 mil Edison established a Female and educational materials in schools lion in July 1987. As a result of this de Minority Business Development pro-throughout its service territory. Stu-cision, Edison will recover in rates gram within its procurement division dents learned about electrical safety, 94% of its investment in the two San in 1979. Over the last five years, the energy conservation, disaster Onofre units.

number of female-and minority-owned preparedness, environmental issues The Company thinks no disallow enterprises meeting qualifications to and other energy-related topics. Edi-ance was justified because Units 2 and do business with Edison has more than son's Science Connection program 3 were built faster and at less cost than doubled, from 372 to 799. Annual helped stimulate greater interest in most of the 34 other comparable nu payments to these firms rose from science and technology among ele-clear plants in the nation. Despite this

$14.3 million, or 2.1% of total pro-mentary school children using a 40-disallowance, Edison fared better than curement in 1982, to $67 million, or foot van as a mobile classroom for sci-most utilities that have undergone nu 7.2% of the total in 1987.

entific demonstrations to more than clear construction cost reasonableness 8,000 youngsters during 1987. Edison reviews.

is a partner with the Jet Propulsion Laboratory and the National Aeronau tics and Space Administration in this unique program.

Percentage of Asian American Total Male, Female and Male Female Black American Indian Hispanic Minorities Minority Employees v

at Year-end Year-end Year-end Year-end Year-end Year-end Year-end Year-end 1982 and 1987 1982 1987 1982 1987 1982 1987 1982 1987 1982 1987 1982 1987 1982 1987 Management("~

84.9 80.4 15.1 19.6 3.5 3.9 5.7 7.0 0.5 0.5 6.8 9.3 16.5 20.7 Administrative

& Operative (2 )

74.6 72.2 25.4 27.8 9.1 9.4 3.2 4.1 1.1 1.2 17.8 21.5 31.3 36.2 Total Company (3) 78.1 75.1 21.9 24.9 7.2 7.4 4.1 5.1 0.9 1.0 14.1 17.2 26.3 30.7 (1) Includes the "Officials" and "Professionals" Affirmative Action Categories.

(2) Includes the "Technicians," "Office and Clerical," "Craftsmen," "Operators," "Laborers" and "Service Workers" categories.

(3) Includes all classes of employees.

16

San Onofre Unit 1 1, 2 and 3. These units began commer-Consequently, some large customers In August 1987, the Commission au-cial operation on February 1, 1986, found it economical to install their thorized Edison to recover $197.4 mil-September 19, 1986, and January 20, own generating facilities. The loss of lion for seismic upgrading and other 1988, respectively. The costs for own-these customers from the Edison sys Nuclear Regulatory Commission-ing, operating and maintaining the tem forces the remaining commercial mandated work completed on Unit 1 three units were reflected in rates in and residential customers to absorb since February 1982. The CPUC also accordance with the stipulation.

higher costs. The new CPUC-adopted determined that the $193.5 million in rate structure, to be phased in over replacement energy costs, incurred Holding Company Formation several years, should significantly while Unit I was out of service for up-On January 28,1988, the CPUC ap-reduce the economic incentive to by grading, was reasonable.

proved Edison's application to form a pass Edison's electric system. The holding company to provide a better Commission approved an average rate Palo Verde corporate separation between Edison's reduction for large commercial and in In late 1986, the CPUC approved the utility and non-utility businesses. The dustrial customers of 4.7%, an in stipulation between Edison and the holding company plan requires share-crease of less than 1% for the CPUC staff establishing a formula holder approval at the Annual Share-remaining commercial customers, and which would eliminate the need for an holders' Meeting on April 21, 1988.

an average increase of 4.9% for resi extended and expensive construction dential customers. In addition, the cost reasonableness review of this nu-Nuclear Decommissioning CPUC significantly changed the de clear project. The formula relates the Implementing a 1985 state law requir-mand component of the rate structure construction cost disallowance of the ing nuclear utilities to establish exter-for many large commercial and indus Palo Verde nuclear units in Arizona to nally managed trusts to pay for the trial customers.

the result of the CPUC reasonableness eventual retirement of their nuclear This change in the demand compo review on the construction costs for power plants, the CPUC authorized nent of the rate structure will cause San Onofre Units 2 and 3. The San the Company to begin recovering in dramatic variations in comparisons of Onofre reasonableness review required rates $106 million a year to pay for de-1987 and 1988 quarterly earnings, but four years to complete, and the Palo commissioning Edison's share of the should have little or no effect on Verde review could have been even San Onofre and Palo Verde nuclear comparisons of full-year 1987 and more complicated because as many as plants. Under the law, Edison has es-1988 earnings. For example, had the four state public utility commissions tablished a trust for these funds that new rate structure been in effect during could have been involved.

is managed by independent trustees 1987, per-share earnings in the first, The stipulation approved by the appointed by the Company, subject to second and fourth quarters would have CPUC provided that, for every dollar approval by the CPUC.

been approximately 23 cents, 26 cents, disallowed from Edison's investment and 25 cents lower, respectively, than in San Onofre Units 2 and 3, 19.3 1988 General Rate Case actually recorded in 1987; third quarter cents of Palo Verde construction costs As part of its three-year rate review 1987 earnings, however, would have would be disallowed from rate recov-procedure, the CPUC on January 1, been 74 cents higher. Full-year results ery. Accordingly, the final resolution 1988, reduced Edison's rates by $48.5 for 1987 would have been unchanged of San Onofre's construction costs re-million, or 0.9%. The rate decrease re-from what was recorded.

sulted in a $38 million disallowance of flected in large part a reduction by the The distorted, quarter-to-quarter the Company's $1.5 billion investment CPUC in Edison's authorized regula-earnings comparisons caused by the in the three-unit Palo Verde plant.

tory return on common equity from change in rate structure will occur only The CPUC-approved ratemaking 13.9% in 1987 to 12.75% for 1988.

for comparisons of 1987 and 1988 stipulation also includes a 10-year plan In its rate case application, Edison quarterly earnings and not in years be for phasing into rates $1.5 billion of requested and the CPUC approved a yond. However, there will continue to construction costs for Palo Verde Units rate design that brings overall rates be a substantial variation in quarterly more in line with actual costs of ser-earnings in each year, with third quar vice. Under past rate structures ap-ter earnings sharply higher than earn proved by the Commission, large ings in the other three quarters.

commercial and industrial customers paid much more than the cost of pro viding electric service to them, while residential customers paid less.

17

These quarterly variations result specified quantities of low-sulfur fuel Legislative Review from a new seasonal charge added to oil from Chevron as needed and pay the bills of many large commercial and Chevron the current market price.

Congress and the national administra industrial customers in summer The early termination of the original tion took action on a number of impor months and a reduction in winter contract saved Edison customers more tant matters affecting the Company months. Previously, the demand com-than $1 billion. The new agreement and the electric utility industry in 1987.

ponent of the rates, which is the por-provides Edison with a reliable, com tion of the bill based on the highest petitively priced source of fuel oil and Nuclear Waste Policy Act daytime usage during the billing period, enables the Company to carry less oil In December 1987, Congress amended was, for the most part, spread evenly in inventory, the Nuclear Waste Policy Act of 1982, over the year. Under the new rate designating a single site for the na structure, a much greater portion of Uranium Contract Settlement tion's first high-level nuclear waste re the demand charge is recovered during When uranium fuel costs were pro-pository. This site is Yucca Mountain, the four summer months, when elec-jected to increase substantially, and Nevada, about 100 miles northwest of tricity consumption is highest on the uranium was expected to be in short Las Vegas. The new law, supported by Edison system. The new rate structure supply, Edison entered into long-term Edison and other utilities operating nu is intended to encourage these custom-contracts with Bear Creek Uranium clear power plants, directs the U.S.

ers to shift their electricity consump-Company and Homestake Mining Department of Energy to proceed with tion from high-use to low-use periods.

Company to protect its customers. By geological suitability studies at the 1985, however, supply was plentiful Nevada site and to stop work at other Fuel-Related Rate Proceedings and market prices had decreased possible sites in Texas and Washington.

The Energy Cost Adjustment Clause significantly. In response, Edison (ECAC) is designed to adjust rates an-negotiated early termination of these Tax-Exempt Bonds nually to reflect changes in Edison's contracts. This allowed Edison to buy The Budget Reconciliation Act of 1987 fuel and purchased power costs. As a lower-cost uranium from other sources included a provision that places re result of the Company's lower energy and save its customers an estimated strictions on the use of tax-exempt costs, the CPUC reduced Edison's

$190 million in fuel expense.

bonds to acquire investor-owned utility rates by $194.8 million, effective De-Edison applied to the CPUC to re-property. These restrictions, strongly cember 1, 1987. The action will have cover $78 million of the payments supported by Edison, substantially little effect on electric bills because the made to terminate the contracts. In limit the use of tax-exempt bonds to ECAC rate reduction was offset by October 1987, the CPUC authorized finance the takeover of investor-owned other authorized rate increases (see Edison to recover $75 million. The utility property by municipalities or Chevron Settlement, Uranium Con-Federal Energy Regulatory Commis-other government entities. This cor tract Settlement, and Nuclear Decom-sion authorized recovery of an addi-rects an unfair U.S. taxpayer subsidy missioning elsewhere in this section).

tional $4 million in payments under its of possible attempts to take over jurisdiction, investor-owned electric utilities.

Chevron Settlement In June, the CPUC authorized Edison New CPUC Commissioner to recover in rates about 98% of the John B. Ohanian, former Chief Dep

$350 million fuel-oil contract litigation uty Director of the California Gov settlement negotiated in 1985 with ernor's Office of Planning and Chevron Corporation. The Commis-Research, was appointed to the CPUC sion also authorized Edison to collect in March 1987 by Governor George in rates 90% of the $9 million annual Deukmejian. From 1966 to 1983, fixed cost of a new, long-term standby Mr. Ohanian served the CPUC as an supply agreement with Chevron. Un-engineer, and later, as a representa der this agreement, Edison can order tive responsible for enforcement and compliance. He replaces Commis sioner Victor Calvo, whose term ex piredt Mr. Ohanian's term expires January 1, 1993.

18

Federal Utility Services Non-Utility Subsidiaries industrial property development in Reflecting efforts by Edison and sev-Chicago, Illinois.

eral other utilities, Congress imposed a Edison formed The Mission Group in During 1987, approximately permanent ban on federal agencies 1987 to manage its four non-utility 300,000 square feet of warehouse and shopping around for electricity or ser-subsidiaries: Mission Energy, Mission distribution floor space were cor vices from a utility other than the one Land, Mission Power Engineering and pleted in four business parks. In addi franchised to serve the area.

Mission First Financial.

tion, all of the 3,000-acre Calabasas The capital invested in these subsid-Park residential and commercial prop Federal Energy Regulatory iaries is small compared with Edison's erty joint venture, located in the west Commission Proposal investment in utility operations.

em end of Los Angeles County, has In mid-1987, the Chairman of the Fed-Nevertheless, at year-end 1987, Edi-been sold, is under contract of sale, or eral Energy Regulatory Commission son's investment in The Mission is being developed. Part of this devel (FERC) announced that the Commis-Group totaled $292 million. Revenues opment includes approximately 300 sion would be considering changes in for 1987 from The Mission Group acres on which Mission Land and a the Public Utility Regulatory Policies were $107.6 million, producing a net partner are building 600 residential Act of 1978, essentially deregulating income of $41.4 million, or 19 cents units.

new sources of electrical generating per share, compared with 8 cents per capacity. Also, the FERC proposal share in 1986. Non-utility subsidiary Mission Power would reduce federal regulation of in-earnings represent 5.6% of Edison's Engineering Company dependent power producers.

1987 total earnings, and are projected Mission Power Engineering provides Edison opposes this effort because, to increase in the years to come.

engineering and construction services in the Company's opinion, the changes related to the energy field.

would not be in the long-term interests Mission Energy Company The company has grown steadily of consumers, and would reduce the Since commencing operations in May since its formation in 1984, with $79 long-term reliability of the nation's 1986, Mission Energy has become a million in contracts executed in 1987.

electricity supply. The issue is still national leader in the ownership, de-Major engineering and construction pending before FERC and, at the end velopment and operation of major jobs include a 16-MW coal-fired, of 1987, the U.S. House of Represen-cogeneration projects that are exempt fluidized-bed-combustion power plant tatives and U.S. Senate were reviewing from utility regulation.

in the California desert, 45 miles the matter.

Mission Energy provides a full southwest of Las Vegas, Nevada; two In addition, Edison supported other range of services, including manage-30-MW geothermal power plants at federal legislative measures that were ment of engineering and construction, the China Lake Naval Weapons enacted during 1987, including ade-permitting, financing, and operations Center, about 130 miles north of Los quate funding for clean coal technol-and maintenance. At year-end 1987, Angeles; and an 18.5-mile, 230 ogy, amendments to the Fuel Use Act Mission Energy jointly owned, and had kilovolt transmission line and substa to allow burning of natural gas in in operation, 795 MW of capacity and tion for the Imperial Irrigation District new electric generating plant boilers, another 620 MW under construction.

in Southern California.

and establishment of national home These included five major cogenera appliance efficiency standards.

tion projects in California, totaling Mission First Financial 1,290 MW; a 110-MW cogeneration Mission First Financial is the invest project in Virginia; and a 15-MW ment subsidiary, whose principal areas geothermal project in Nevada.

of investment are high-quality, short term securities, leveraged leasing and Mission Land Company energy-related venture capital.

Mission Land is in the business of Since it began operations in Septem owning, developing and operating in-ber 1987, Mission First Financial has dustrial parks with medium-sized made several investments including warehouses and distribution buildings.

participation with a group of investors The company owns and manages in a sale and leaseback for a portion of about 300 acres of land and more than the Beaver Valley Unit 2 Nuclear 2.4-million square feet of leasable Power Plant near Pittsburgh, Pennsyl space in Southern California. Mission vania, and a sale and leaseback of a Land also is developing industrial paper plant in Duluth, Minnesota.

property it owns in Phoenix, Arizona, and is participating in a joint-venture 19

Innovative Financing Jim Scilacci, manager of corporate finance, negotiates with investment bankers on innovative ways to reduce Edison's financing costs to benefit both customers and shareholders. In August, the Company issued the equivalent of $60 million in New Zealand-dollar "Kiwi" notes. This transaction made Edison the first utility to issue foreign currency-denominated debt in the United States and will save more than $400,000 in interest expense.

20

$1,000 Investment in SCE Stock Financial Review Record Net Income

• Price appreciation and Revenues M Dividends The Company continued its record of Earnings per share of $3.39 increased

• $1,000 initial investment strong financial performance during 3.4% from the previous year's $3.28 1987:

as the Company's net income rose to a

$4,000

• Earnings per share reached an all-record $788.6 million and revenues to time high of $3.39, the seventh con-a record $5.5 billion.

secutive year of record per-share A number of factors contributed to earnings; Edison's increased earnings. These in

• Net income reached $788.6 million, cluded strong emphasis on productiv an increase of 2.6% over the 1986 ity improvements and cost control; an level; accounting change to include in earn

• The common stock dividend was in-ings the revenues from electricity creased for the 12th time in 11 years, which has been delivered to custom up 4.4% from $2.28 to $2.38 per ers, but for which bills have not been share; sent; the contribution of non-utility

• Edison's non-utility subsidiaries con-subsidiaries; and a reward for the tributed 19 cents per share, or 5.6%, to Company's favorable coal-plant Company earnings; operating performance approved by

• A total of $1.3 billion of debt was re-the CPUC. These gains were achieved 82 83 84 85 86 87 0

financed to reduce debt costs; Edison's despite downward pressure on earn-A $1,000 investment in Edison common stock weighted-average cost of outstanding ings from write-offs related to at the beginning of 1982 would have grown to debt remained lower than any other in-the nuclear plant construction cost over $3,500 by year-end 1987.

vestor-owned California energy utility; disallowances at San Onofre and Palo

• Interest coverage, at 3.9 times, Verde, and the reduction of the Cor remains above the industry average pany's authorized rate of return on of 3.3 times; common equity by the CPUC.

• Internal generation of funds climbed to 77% of capital requirements, the Dividend Increase highest level in more than a quarter In keeping with the Company's efforts U High/Low century, reducing the need for new to provide shareholders with a financings; competitive return, the Board of Di

• Although the price of Edison's com-rectors in June increased the common

$40 mon stock fell 10% during 1987, it stock dividend for the 12th time in 11 outperformed the Dow Jones utility years. The new annual dividend rate of average, which fell 15%; and,

$2.38 per share is 4.4% higher than

• Over the past five years, the Com-the previous year's $2.28. The current pany's compound annual return to dividend provided a 7.8% yield based common stock shareholders from price o

dsnsya-n aktpieo appreciation and dividends was 21%,

$30 per share. For the past 11 years, outperforming the Dow Jones indus-Edison's annual dividend growth has trial and utility averages, as well as the exceeded the average annual rate of in Standard & Poor's 500 index.

flation by 3.5 percentage points.

Stock Performance Edison's common stock performed well, relative to other stocks, in the stock market decline on October 19.

82 83 84 85 86 87 0

The Dow Jones industrial average fell Although the Company's stock price declined 508 points, or 23%, on that day. Edi slightly in 1987, the Company's total return to son's stock price declined 4 points, common stock shareholders averaged over or 14%. After October 19, many inves-20% annually for the past five-year and six-year periods-exceeding the Dow Jones industrial and utility averages as well as the Standard & Poor's 500 index.

21

Corporate Recorded Financial Rate of Return on Common Equity tors m oved their funds to stocks and 1987 Financing Program bonds of companies that had demon strated financial strength. By Novem-Term Amount ber 5, Edison's stock price had Series Years Millions 20%

regained what it had lost on October 19 NEW ISSUES 170%

and was again trading at $32.

First and Refunding Mortgage Bonds:

16.3%

87A-D, Pollution Control, 15.8%

14.9%

15.1% 14.9%Authorized Regulatory Variable Rate 21

$ 135 15 Rate of Return Reduced 87E-H, Pollution Control, Variable Rate 21 100 After a review conducted in 1986, the 871, 83 %

3 100 CPUC reduced the authorized regula-Pollution Control Revenue Bonds:

10 tory return on common equity for all 1987 Series A, Pollution Control, California utilities. This reduction re-Variable Rate 21 40 flected lower inflation and interest Commercial Paper:

rates. Edison's authorized regulatory Nuclear Fuel Lease 490 return on common equity was reduced Balancing Accounts 388 from 14.6% in 1986 to 13.9% for 1987.

Commercial Paper Indexed:

Nuclear Fuel Lease (Kiwi) 60 Financial and Regulatory Balancing Accounts (STILBS) 12 82 83 84 85 86 87 0

Returns Differ Total new issues 1,325 Edison's recorded financial return on common The CPUC authorizes the Company to RETIREMENTS equity in 1987 was 14.9%, down only slightly earn a return on its regulatory rate First and Refunding Mortgage Bonds:

from 15. 1% in 1986. Utilities across the base, which is the value of the Coin-Calectric, 45/8%

(6) country have recorded lower financial returns pany's assets that are used to serve cus-0, 41/%

(40) on common equity in recent years because of toesThauorzdegloyP,4/%(0 reductions in their authorized regulatory rates toe.Thauorzdegloy (0

of return reflecting lower rates of inflation and return on rate base is designed to allow Ongoing:

interest.

the Company to recover the costs of Sinking Fund Obligations (23) long-term debt, preferred stock and the REDEMPTIONS*

Internal Generation of Funds authorized regulatory return on com-First and Refunding Mortgage Bonds:

mon equity.

85C, 13% (purchase)

(2)

In 1987, Edison's authorized regula-IT 16% (call)

(16) tory return on rate base was 11.2%,

ZZ, 121/% (purchase)

(1) and authorized regulatory return on Pollution Control Revenue Bonds:

90% 9% common equity was 13.9%. For 1987, 85A-D, Var. Rate, due 2008 (call)

(135) 7% 80 the Company's recorded regulatory re-84,VrRaedu208(l)(1) 67%

7%turn on rate base was 10. 2%, and its Eurodebentures:

67%

6%101/%,

due 1990 (call)

(76) 65%

70 recorded regulatory return on common 11'/%, due 1990 (call)

(76) 60 equity was 11.6%.

Commercial Paper:

The Company's recordedfinancial Fuel Oil Inventory (99) 50 return on common equity shown in fi-Nuclear Fuel Lease (632) 38%

nancial reports-as distinguished Total retirements and redemptions (1,256) 40 from the regulatory return on common Net capital raised in 1987 69 30 equity -is based upon all Company operations, and includes several fac-

• Includes debt reacquisition expenses, if any.

1%20 tors that can cause it to differ from the authorized regulatory return on corn 10 mon equity. These factors include the effect of the federal investment tax 82 83 84 85 86 87 0

credits, CPUC-established awards for The Company generated 77% of its capital high output from designated power needs internally in 1987. This was the highest plants, and the earnings of non-utility level of internally generated funds in over 25 subsidiaries. In 1987, the Company's years and reduced Edison's need to raise new mone inthecaptalmarets rord oed finanilrurn ton cmokn dequity was 14.9%, compared with 15.1% in 1986.

22

Weighted-Average Cost of Long-Term Debt Capitalization Global Financing Since 1982, the Company has reduced During the year, the Company ex its dependence on external financing panded its global financing to obtain as the internal generation of funds has access to the lowest-cost funds improved from 16% to 77% of capital throughout the world. For example, 11%

requirements. During this same pe-Edison became the first utility to sell 10.4% 10.4%

riod, long-term debt has decreased foreign currency-denominated debt in from 47.9% of capital to 44.6%, pre-the United States when it issued the ferred and preference stock have fallen equivalent of $60 million of two-year from 11.1% to 6.3%, and common notes denominated in New Zealand equity has increased from 41.0% to dollars. These so-called "Kiwi" notes 49.1%.

will save Edison's customers $400,000 The reduced need for debt financing in interest costs.

has helped Edison maintain its high-Edison also became the first utility quality, AA bond rating with both to sell Short-Term Index-Linked Bor Moody's and Standard & Poor's. Edi-rowings (STILBS) in the United King son is the only California investor-dom that allow investors to exclude owned utility with an AA bond rating from taxation under British law the from both Moody's and Standard &

part of interest earnings attributable to Poor's, and whose bonds have never inflation. The Company has issued 82 83 84 85 86 87 6

been downgraded by either rating these securities at rates well below As a result of Edison's global financing agency.

more traditional forms of financing.

program and aggressive efforts to refinance at In addition, the Company estab-attractive rates, the Company's average cost Corporate Financing lished a short-term-debt, commercial Cfoetia ee lties In 1987, Edison's financings totaled paper program in Europe to comple

$1.3 billion. Refunding and restructur-ment its domestic program. As a re ing of existing financings saved cus-sult, Edison can sell commercial paper tomers $6 million in interest and in either market and take advantage of Pretax Interest Coverage administrative costs. This is in addi-the lowest available interest rate on a tion to $70 million in annual interest daily basis. Although the European savings from refinancings of higher-market still is developing, the Coi cost securities from 1984 to 1986.

pany sold $175 million of commercial During the year, Edison converted paper in Europe during 1987-all at Times 5

$235 million of tax-exempt pollution rates equal to or below domestic control bonds into tax-exempt commercial paper rates.

3.9 3.9 commercial paper, to give the Com-In December, Edison listed its com-4 pany greater flexibility to move be-mon stock on the Tokyo Stock Ex-3.4 tween fixed and floating interest rates change, the world's largest exchange as market conditions warranted. In ad-in terms of market capitalization. This 2.6 dition, the Company issued $40 mil-listing will improve the Company's lion of new tax-exempt bonds using name recognition in one of the world's the same flexible structure to finance most important financial centers.

2 pollution control facilities for its Mohave Generating Station. Further-Credit Watch more, the Company saved customers In 1987, Edison's early-warning,

$2 million annually through a reduc-credit-watch system reduced bad debt tion in administrative costs for its nu-write-offs by $500,000, increasing to clear fuel lease.

tal savings for the six-year program to 82 83 84 85 86 87 0

These financings, along with main-

$7 million. The system tracks the Interest coverage of 3.9 ines for 1987, tenance of a high-quality AA bond rat-credit records of the Company's although down slightly from previous years, ing from both Moody's and S&P, have 500,000 non-residential customers and remains well above the industry average made Edison's average cost of debt the identifies those in danger of business of 3.3 times. Interest coverage declined as a lowest among investor-owned Califor-failure. Arrangements are then made result of including nuclear fuel leases on the nia nery uiliies toensre tat disn'srevnueis ro-balance sheet for the first time, and a lowering Derueurof the authorized return.

tected through cash deposits, surety bonds or more frequent payments.

23

Responsibility for Financial Statements Report of Independent Public Accountants The management of Southern California Edison Company To the Shareholders and the Board of Directors, is responsible for the information and representations con-Southern California Edison Company:

tained in the financial statements and the related financial information presented in this report. The financial state-We have examined the balance sheets and statements ments have been prepared in conformity with generally ac-of capitalization of Southern California Edison Company cepted accounting principles applied on a consistent basis (a California corporation, hereinafter referred to as the and include amounts based on judgments and estimates "Company"), as of December 31, 1987 and 1986 and the of management.

related statements of income, common shareholders' equity The Company maintains internal accounting control sys-and sources of funds used for construction expenditures for tems and related policies and procedures designed to pro-each of the three years in the period ended December 31, 1987.

vide reasonable assurance that assets are safeguarded, that Our examinations were made in accordance with gen transactions are executed in accordance with management's erally accepted auditing standards and, accordingly, in authorization and properly recorded, and that accounting cluded such tests of the accounting records and such other records may be relied upon for the preparation of financial auditing procedures as we considered necessary in the statements and other financial information. The design of circumstances.

internal accounting control systems involves management's In our opinion, the financial statements referred to above judgment concerning the relative cost and expected benefits present fairly the financial position of the Company as of of specific control measures. These systems are augmented December 31, 1987 and 1986 and the results of its operations by programs of internal audits through which the adequacy and the sources of its funds used for construction expen and effectiveness of internal accounting controls, policies, ditures for each of the three years in the period ended and procedures are evaluated and reported to management.

December 31, 1987, in conformity with generally accepted The Company's financial statements have been examined accounting principles which, except for the change, with in accordance with generally accepted auditing standards by which we concur, in accounting for unbilled revenues as independent public accountants who have expressed their discussed in Note 1 to the financial statements, were applied opinion with respect to the fairness of these statements.

on a consistent basis.

The Audit Committee of the Board of Directors, composed entirely of non-employee directors, meets peri-4 WX444.

-k odically with the independent public accountants, internal auditors and management. This Committee, which recommends the annual appointment of the independent February 5, 1988.

public accountants, also considers the audit scope and nature of other services provided, discusses the adequacy of internal accounting controls, reviews financial and reporting issues and is advised of management actions on these matters. Both the independent public accountants and the internal auditors have full and free access to the Audit Committee.

24

Statements of Income Southern California Edison Company In thousands, except per share amounts Year ended December 31, 1987 1986 1985 Sales (Notes I and 2)

$5,448,663

$5,275,547

$5,141,735 Other 44,006 36,186 27,113 Total operating revenues 5,492,669 5,311,733 5,168,848 Fuel (Notes l and 2) 1,090,189 878,040 1,683,363 Purchased power (Note 8) 780,599 775,814 705,724 Provisions for regulatory adjustment clauses-net (Note 1) 87,276 136,865 (607,036)

Other operating expenses (Notes 7 and 8) 838,373 809,000 755,325 Maintenance (Note 1) 361,201 352,696 352,635 Depreciation (Note 1) 549,089 504,701 454,574 Income taxes (Notes 1 and 4) 624,464 732,322 720,938 Property and other taxes 161,562 143,274 130,571 Total operating expenses 4,492,753 4,332,712 4,196,094 Operating income 999,916 979,021 972,754 Loss related to nuclear plant disallowance (Note 2)

(148,963)

(35,841)

Income taxes related to nuclear plant loss (Note 4) 78,616 20,829 Earnings from non-utility subsidiaries 41,425 16,702 9,377 Allowance for equity funds used during construction (Note 1) 73,406 105,744 123,179 Interest income 83,879 100,427 83,867 Taxes on non-operating income (Note 4)

(9,510) 10,743 11,928 Other income and deductions-net 15,926 24,369 26,287 Total other income 134,779 242,973 254,638 Income before interest charges 1,134,695 1,221,994 1,227,392 Interest on long-term debt and amortization (Note 1) 395,944 432,608 426,783 Other interest charges 61,095 50,247 61,017 Total interest charges 457,039 482,855 487,800 Allowance for borrowed funds used during construction (Note 1)

(42,926)

(29,478)

(34,515)

Net interest charges 414,113 453,377 453,285 Income before cumulative effect of a change in accounting principle 720,582 768,617 774,107 Cumulative effect on prior years (to December 31, 1986) of accruing unbilled revenue-net of income taxes of $58,752,000 (Notes I and 4) 68,044 Net income 788,626 768,617 774,107 Dividends on Cumulative Preferred and Preference Stock 50,095 54,684 71,698 Earnings available for Common and Original Preferred Stock

$ 738,531

$ 713,933

$ 702,409 Weighted-average shares of Common and Original Preferred Stock outstanding (000) 217,966 217,732 215,649 Earnings per share:

Before cumulative effect of a change in accounting principle

$3.08

$3.28

$3.26 Cumulative effect of a change in accounting principle (Note 1)

.31 Total earnings per share

$3.39

$3.28

$3.26 Dividends declared per common share

$2.35/2

$2.25

$2.13 The accompanying notes are an integral part of these financial statements.

25

Balance Sheets Southern California Edison Company In thousands At December 31, 1987 1986 Assets Utility plant, at original cost (Notes 1, 2, and 6)

$14,733,811

$13,676,746 Less-Accumulated depreciation (Notes] and 6) 4,024,478 3,586,080 10,709,333 10,090,666 Construction work in progress (Notes 1 and 6) 1,232,990 1,342,169 Nuclear fuel, at amortized cost (Notes 1, 3, and 7) 547,786 619,343 12,490,109 12,052,178 Less-Property-related accumulated deferred income taxes (Notes 1 and 4) 858,109 708,436 Total utility plant 11,632,000 11,343,742 Non-utility property and other investments, at cost-less accumulated depreciation 54,631 45,546 Investments in and advances to subsidiaries (Note 1) 291,915 207,282 Total other property and investments 346,546 252,828 Cash and equivalents (Note 3) 14,517 33,603 Cash investments-financing subsidiary (Note 1) 14,789 65,545 Receivables, including unbilled revenues, less reserves of $14,829,000 and $11,874,000 for uncollectible accounts at respective dates (Note 1) 615,119 364,396 Fuel stock (Note 1) 118,540 233,528 Materials and supplies, at average cost 105,577 123,480 Regulatory balancing accounts-net (Notes 1 and 2) 621,635 739,050 Prepayments and other 76,325 72,808 Total current assets 1,566,502 1,632,410 Unamortized debt issuance and reacquisition expense (Note 1) 301,741 303,599 Rate phase-in plan (Note 2) 239,760 90,650 Other deferred charges (Note 8) 132,021 145,439 Total deferred charges 673,522 539,688 Total assets

$14,218,570

$13,768,668 The accompanying notes are an integral part of these financial statements.

26

Southern California Edison Company In thousands At December 31, 1987 1986 Capitalization and Liabilities Common stock, at par value, 217,126,601 and 216,906,527 shares outstanding at respective dates 904,694 903,777 Additional paid-in capital 1,549,125 1,546,541 Earnings reinvested in the business 2,569,121 2,343,957 Common shareholders' equity 5,022,940 4,794,275 Preferred and preference stock without mandatory redemption requirements 365,238 365,654 Preferred and preference stock with mandatory redemption requirements 277,538 299,049 Long-term debt (Note I) 4,561,032 4,667,891 Total capitalization 10,226,748 10,126,869 Nuclear fuel obligation-financing subsidiary (Notes 1, 3, and 7) 354,296 410,487 Accumulated provisions for pensions, insurance, and other (Note 5) 113,348 95,680 Total long-term obligations 467,644 506,167 Preferred and preference stock to be redeemed within one year 22,013 18,213 Long-term debt due within one year 79,542 103,315 Short-term borrowings (Note 3) 534,025 328,000 Short-term borrowings-financing subsidiaries (Notes1, 3, and 7) 131,814 162,029 Accounts payable 486,382 415,118 Accrued taxes (Note 4) 469,581 460,171 Accrued interest 104,875 109,034 Dividends payable 133,281 127,783 Accumulated deferred income taxes-net (Note 4) 256,746 340,952 Deferred unbilled revenue and other 347,444 134,174 Total current liabilities 2,565,703 2,198,789 Accumulated deferred investment tax credits (Note 4) 526,033 544,866 Accumulated deferred income taxes-net (Note 4) 172,063 121,943 Customer advances and other deferred credits 260,379 270,034 Total deferred credits 958,475 936,843 Commitments and contingencies (Notes 2, 7, 8, and 9)

Total capitalization and liabilities

$14,218,570

$13,768,668 The accompanying notes are an integral part of these financial statements.

27

Statements of Sources of Funds Southern California Edison Company Used for Construction Expenditures In thousands Year ended December 31, 1987 1986 1985 Funds provided by:

Net income

$ 788,626

$ 768,617

$ 774,107 Items in net income not affecting working capital:

Depreciation 549,089 504,701 454,574 Amortization of nuclear fuel 139,511 113,387 75,617 Allowance for borrowed and equity funds used during construction (116,332)

(135,222)

(157,694)

Rate phase-in plan (149,110)

(90,650)

Deferred income taxes 199,793 266,571 192,575 Deferred investment tax credits-net (18,833) 59,252 84,134 Other-net (22,357) 446 3,831 Total funds provided by operations 1,370,387 1,487,102 1,427,144 Dividends (563,462)

(544,282)

(532,265)

Total funds provided by operations-reinvested 806,925 942,820 894,879 Sales of securities:

Common stock 3,500 3,504 90,770 Long-term debt 129,412 1,427,026 1,111,880 Increase in nuclear fuel obligation 58,223 66,708 77,515 Reduction for preferred and preference stock to be redeemed within one year (17,950)

(18,213)

(20,463)

Conversion of preference stock (414)

(845)

(758)

Reduction for long-term debt due within one year (79,542)

(103,315)

(45,110)

Reduction in nuclear fuel obligation due within one year (114,412)

(113,229)

(93,939)

Refunding and early retirement of preferred stock and long-term debt-net (175,273)

(1,730,888)

(653,632)

Total funds provided (used) by long-term financing (196,456)

(469,252) 466,263 Total funds provided 610,469 473,568 1,361,142 Other sources (uses) of funds:

Cash and equivalents and cash investments 69,842 102,588 20,268 Receivables-net (250,723)

(13,301) 20,455 Fuel stock, materials, and supplies 132,891 4,678 154,659 Regulatory balancing accounts-net 117,415 52,961 (773,656)

Accumulated deferred income taxes-net (84,206)

(50,829) 392,808 Preferred and preference stock and long-term debt due within one year (19,973) 55,955 (53,890)

Net short-term borrowings 175,810 232,240 41,493 Accounts payable 71,264 13,629 6,005 Accrued taxes 9,410 226,449 (2,653)

Deferred unbilled revenue 111,492 Other changes in working capital 99,600 59,865 19,658 Net (increase) decrease in working capital 432,822 684,235 (174,853)

Fuel contract settlement payments, net of deferred taxes (62,402)

Special funds and other -net (22,113)

(1,418) 30,123 Total other sources (uses) of funds 410,709 682,817 (207,132)

Funds used for construction expenditures

$1,021,178

$1,156,385

$1,154,010 The accompanying notes are an integral part of these financial statements.

28

Statements of Capitalization Southern California Edison Company December 31, 1987 at December 31, Shares Redemption 1987 1986 Notes to Statements of Capitalization are on page 31.

outstanding price In thousands Common shareholders' equity (detailed on page 30) 217,126,601

$ 5,022,940

$ 4,794,275 Original Preferred-5%, prior, cumulative, participating, not redeemable, par value $81/3 per share 480,000 4,000 4,000 Cumulative Preferred-par value $25 per share:

4.08% Series 1,000,000

$ 25.50 25,000 25,000 4.24% Series 1,200,000 25.80 30,000 30,000 4.32% Series 1,653,429 28.75 41,336 41,336 4.78% Series 1,296,769 25.80 32,419 32,419 5.80% Series 2,200,000 25.25 55,000 55,000

$100 Cumulative Preferred-par value

$100 per share:

7.58% Series 750,000 101.00 75,000 75,000 8.70% Series 500,000 104.00 50,000 50,000 8.96% Series 500,000 104.00 50,000 50,000 Preference-par value $25 per share:

5.20% Convertible Series 99,337 25.00 2,483 2,899

$100 Preference-par value $100 per share Total Preferred and Preference Stock (without mandatory redemption requirements) (a) (b) 365,238 365,654

$100 Cumulative Preferred-par value $100 per share:

7.325% Series 600,000 103.79 60,000 63,000 7.80% Series 509,995 104.91 51,000 52,500 8.54% Series 637,500 105.65 63,750 66,000 8.70% Series A 459,374 110.00 45,937 48,562 12.31% Series 500,000 105.83 50,000 50,000 Preference-par value $25 per share:

7.375% Series 1,154,546 25.00 28,864 37,200 299,551 317,262 Preferred and Preference Stock to be redeemed within one year (22,013)

(18,213)

Total Preferred and Preference Stock (with mandatory redemption requirements) (a)(c) 277,538 299,049 First and refunding mortgage bonds (d) (e):

Interest rates Due 1988 through 1991 (42%-10%)

592,000 588,000 Due 1992 through 1996 (5%%-8's%)

955,000 955,000 Due 1997 through 2001 (7/%-8%%)

500,000 500,000 Due 2002 through 2006 (81/4%-9.95%)

409,000 414,250 Due 2007 through 2019 (8/%-13%)

1,084,413 1,101,612 Pollution control indebtedness (f):

Due 1999 through 2015 (7%-10%%

897,730 857,730 and variable)

Debentures and promissory notes (b)(e)(g):

Due 1992 through 1997 (102%-13%)

202,973 356,109 Other long-term debt (e) (h)

(10.57%)

24,733 26,797 Principal amounts outstanding 4,665,849 4,799,498 Long-term debt due within one year-net (e)

(79,542)

(103,315)

Unamortized debt premium or (discount)-net (14,803)

(17,069)

Securities held by trustees (f)

(10,472)

(11,223)

Total long-term debt 4,561,032 4,667,891 Total capitalization

$10,226,748

$10,126,869 The accompanying notes are an integral part of these financial statements.

29

Statements of Common Shareholders' Equity Southern California Edison Company Notes to Statements of Common Shareholders' Equity are on page 31.

1987 1986 1985 Common Stock-par value $4/6 per share, 280,000,000 shares In thousands authorized, 217,126,601, 216,906,527, and 216,676,897 outstanding at December 31 of respective years (a) (b):

$ 904,694

$ 903,777

$ 902,821 Additional paid-in capital:

Balance at beginning of period

$1,546,541

$1,543,933

$1,470,347 Premium received on sale of Common Stock and security conversions (a) (b) 2,608 2,664 73,652 Capital stock expense (24)

(56)

(66)

Balance at end of period

$1,549,125

$1,546,541

$1,543,933 Earnings reinvested in the business:

Balance at beginning of period

$2,343,957

$2,128,646

$1,886,804 Add:

Net income 788,626 768,617 774,107 3,132,583 2,897,263 2,660,911 Less:

Dividends declared on capital stock Common-$2.35 V2 per share for 1987,

$2.25 per share for 1986, and

$2.13 per share for 1985 511,130 487,778 458,551 Original Preferred 2,237 2,131 2,016 Cumulative Preferred 47,730 51,311 67,676 Preference 2,365 3,062 4,022 563,462 544,282 532,265 Loss on reacquired capital stock 9,024 Balance at end of period (c)

$2,569,121

$2,343,957

$2,128,646 Total common shareholders' equity at December 31,

$5,022,940

$4,794,275

$4,575,400 The accompanying notes are an integral part of these financial statements.

30

Southern California Edison Company Notes to Statements of Capitalization (a) As of December 31, 1987, authorized (c) For Preferred and Preference Stock with Mandatory Redemption Requirements, the aggregate shares for the Original Preferred, $25 Cumula-mandatory redemption requirements for the five years subsequent to December 31, 1987, are as tive Preferred, $100 Cumulative Preferred, $25 follows:

Preference, and $100 Preference Stock were 480,000, 24,000,000, 12,000,000, 10,000,000, No. of Year ended December 31, and 2,000,000 shares, respectively. All series Shares Commencing 1988 1989 1990 1991 1992 of Cumulative Preferred, $100 Cumulative Pre-

$100 Cumulative In thousands ferred, and Preference Stock are redeemable at Preferred the option of the Company. The 500,000 shares of $100 Cumulative Preferred Stock, 12.31%

7.325%

30,000 7/31/83

$ 3,000

$ 3,000

$ 3,000

$ 3.000

$ 3.000 Series, are not subject to such redemption until 7.80%

18,000 11/30/83 1,800 1,800 1,800 1,800 1,800 May 1, 1992. The various series of $100 8.54%

22,500*

6/30/86 2,250 2,250 2,250 Cumulative Preferred Stock, and the Prefer-8.70%A 13,125 6/30/85 1,313 1,313 1,313 1.313 1,313 ence Stock, 7.375% Series, are subject to cer-12.31%

35,000**

4/30/88 3,500 3,500 3,375 3,375 3,375 tain restrictions on redemption for refunding Preference purposes.

7.375%

496,000 2/01/85 12,400 12,400 4063 (b) As of December 31, 1987, the conversion price of the Preference Stock, 5.20% Convert ible Series was $15.75 per share. The 121/2%

• 45,000 shares relating to 1988 and 1989 have been acquired through open market purchases.

Convertible Subordinated Debentures Due "Decreases to 33,750 shares beginning in April 1990.

1997, issued by Southern California Edison Finance Company N.V., are convertible into During 1987, the Company made optional redemptions of 22,500 and 13,125 shares of the $100 Company common stock at the conversion Cumulative Preferred Stock, 8.54% Series and 8.70% Series A, respectively. Such optional redemp price of $161875 per share.

tions reduce the final series of mandatory redemption requirements.

(d) Substantially all of the properties of the (f) First and Refunding Mortgage Bonds and (g) Promissory Notes payable to Southern Company are subject to the liens of Trust other indebtedness have been issued to govern-California Edison Finance Company NV.

Indentures, mental agencies in exchange for the proceeds (Finance) have been issued in exchange for the from the issuance of Pollution Control Reve-proceeds from the issuance of Debentures by (e) Maturities and sinking fund requirements nue Bonds and Pollution Control Revenue Finance. Payment of the principal and interest of long-term debt for the five years subsequent Refunding Bonds. The proceeds have been on $2,973,000 principal amount of the Deben to December 31, 1987 are as follows:

deposited with Trustees and are being utilized tures, which are convertible into the Company's to defray the construction and other specified Common Stock, is guaranteed on a subordinated Yearended Sinking Fund costs of pollution control facilities and retire-basis by the Company.

December 31, Maturities Requirements Total ment of maturing issues. Such Bonds may be In thousands redeemed at the election of the Bond holders.

(h) Pursuant to the Nuclear Waste Policy Act 1988

$ 74,292

$5,250

$ 79,542 The Company has entered into agreements of 1982, the Company has entered into a 1989 62,58 5,250 67,794 with security dealers which provide for the re-contract with the U.S. Department of Energy 1990 299,823 5,725 305,548 marketing or purchase of the Bonds when such for disposal of spent nuclear fuel for the San 1991 166,134 6,230 172,364 elections are made.

Onofre Nuclear Generating Station.

1992 183,478 6,300 189,778 Notes to Statements of Common Shareholders' Equity (a) At December 31, 1987, shares of Common

• These plans include the Dividend Reinvest-Shares issued 1987 1986 1985 Stock reserved for issuance were as follows:

ment and Stock Purchase Plan (DRP), Stock DRP 2,942,754 Savings Plus Plan (SSPP), and Employee Stock SSpp-Shares Ownership Plan (ESOP). Common Stock cur-ESOP-Conversion of Preference Stock, rently required for the plans are provided 5.20% Series 26,359 53.656 48090 5.20% Convertible Series 157,683 through open market purchases.

12 % Convertible

• • Decrease to1Debentures 193,715 175,974 1.133,325 Subordinated Debentures, (b) Transactions in the capital stock accounts Due 1997, Issued by Southern during 1987, 1986, and 1985 reflect the issu-(c)

Includes undistributed earnings of uncon California Edison Finance ance of common stock through stock pur-solidated subsidiaries of $46,953,000 and Company NV.

294,858 chase plans, the conversion of 16,620, 33,825 appropriated reinvested earnings related to Stock purchase plans 4,238,575*

and 30,323 shares in the respective years of certain federally licensed hydroelectric projects reference Stock, 5.20% Convertible Series of $4,197,000 at December 31, 1987.

Total 4,691,116 (5.20% Series), and conversion of 12%

Con vertible Subordinated Debentures, Due 1997, as follows:

31

Notes to Financial Statements Southern California Edison Company Note 1. Summary of Significant Accounting Policies Depreciation Depreciation of utility plant, other than nuclear fuel, is com Regulation puted on a straight-line, remaining-life basis using the The Company is regulated by the California Public Utilities composite service lives by classes of depreciable property.

Commission (CPUC) and the Federal Energy Regulatory Nuclear generation station decommissioning costs are Commission (FERC). Accounting records are maintained recovered in rates through an annual allowance and charged according to the Uniform System of Accounts prescribed by to depreciation expense. As of December 31, 1987, nuclear the FERC and adopted by the CPUC. The financial state-decommissioning costs are estimated to aggregate $713 mil ments reflect ratemaking policies of these commissions and lion. Estimated annual decommissioning expense recovered conform to generally accepted accounting principles that are in retail rates for 1988 and certain prior years are being applicable to rate-regulated enterprises.

deposited in trust funds until the decommissioning of nuclear facilities takes place. A portion of such fund contributions Utility Plant are tax deductible pursuant to federal and state income tax The cost of additions, including replacements of units of legislation adopted in 1987.

property and betterments, is capitalized and included in util ity plant. Costs include contracted work, direct material and Nuclear Fuel labor, construction overhead, and an allowance for funds The cost of nuclear fuel, including its disposal, is amortized used during construction.

based on generation over its service life. Nuclear fuel costs Property maintenance, repairs, and minor replacements are recovered through regulatory balancing account mecha and additions are charged to maintenance expense. The cost nisms. Leased nuclear fuel is discussed further in Note 7.

of property that is replaced, renewed, or retired, plus removal or disposal costs, less salvage, is charged to accu-Research and Development (R&D) mulated depreciation.

General R&D costs are expensed as incurred. R&D costs re Property-related accumulated deferred income taxes are lated to specific projects are capitalized until a determina deducted from utility plant in conformity with the rate-tion is made as to whether such projects will result in the making method used to determine rate base.

construction of electric plant. If the construction of electric plant does not ultimately result, the costs are charged to Allowance for Funds Used During expense.

Construction (AFUDC)

AFUDC represents the cost of debt and equity funds that fi-In thousands 1987 1986 1985 nance the construction of new facilities. AFUDC capitalized R&D costs charged to expense

$42,893

$47,122

$44,139 is also reported in the Statements of Income as a reduction R&D costs deferred/capitalized 14,855 3,888 1,030 of interest charges for the borrowed funds component and as Total R&D expenditures

$57,748

$51,010 45,169 other income for the equity funds component. Although Income Taxes AFUDC increases net income, it does not represent cash earnings.ized from depreciation deductions utilized for tax purposes, construction costs, occurs when completed projects are placed into commercial operation and related depreciation is raory ing accot t acquitin peses authorized to be recovered through rates.

The Tax Reform Act of 1986 requires interest costs on debt related to certain plant construction to be capitalized Unamortized Debt Issuance and Reacquisition Expense for determining depreciable tax basis. As a result, commencing in 1987, the debt component of AFUDC was D

eb peu diso te issuance exenssiar computed on the basis of pretax interest expense. Prior to amortiz ed t

ives ofdtei es Det reauisition 1987, interest was included in the AFUDC calculation net of expee te to s e reeed ithut reud are the tax benefit realized from deducting such amounts from aied ovetheio the etireie wlh re taxable income. The AFUDC rate, which reflects semi-ing hen e isoreired ith refund annual compounding, is 11.57% for 1987 under the gross ne et exo method and was 10.53% and 10.40% for 1986 and 1985, respectively, under the net-of-tax method.

Change in Accounting Principle Prior to 1987, revenues were recorded based on customer billings. Effective January 1, 1987, the Company began ac 32

cruing estimated unbilled revenues for electricity delivered Palo Verde Units 1 and 2 ownership costs and revenues that after billing dates through the end of each month. This ac-are authorized.

counting change conforms to the Tax Reform Act of 1986 Commencing in 1988, ownership costs related to the which required utilities to include unbilled revenues in tax-Company's investment in San Onofre Units 2 and 3 are able income, commencing in 1987, and provides a better recovered in base rates. Ownership costs pertaining to the matching of revenues and expenses.

Palo Verde Nuclear Generating Station will be recovered in The table below provides pro forma Net Income and base rates in 1988 to the extent they are not deferred pursuant Earnings Per Share as if the new method were in effect be-to the Palo Verde Rate Phase-In Plan. Rate recovery of un fore the income statement periods presented. The pro forma dercollections recorded in MAAC balancing accounts have amounts are adjusted to remove the cumulative effect of the been authorized over a three-year period beginning in 1988.

change in accounting method.

In thousands, Pro Forma Palo Verde Rate Phase-In Plan Palo Verde Units 1, 2, exAsp Reportedamunt (Unaudited) and 3 have been in commercial operation for ratemaking except per share amountsAsRpre (Uadt)

Net Per Net Per Year ended December 31, Income Share Income Share purposes since February 1 and September 19, 1986, and 1986

$768,617 $3.28 $765,945 $3.27 January 20, 1988, respectively. The CPUC has adopted a 1985

$774,107 $3.26 $773,699 $3.26 10-year rate phase-in plan which provides for the deferral of

$200 million of revenue during the first four years of opera Regulatorytion for each of the three units commencing on their Reguatoy Blancng ccontscommercial operation dates. Revenue to be deferred for Operatingeach unit for years one through four is $80 million, $60 mil tric Revenue Adjustment Mechanism that removes the effect lion, $40 million, and $20 million, respectively. These de tricRevnueAdjstmnt echnismtha reove th efect ferrals and related interest are to be recovered on a levelized on earnings of retail sales fluctuations. Under this mecha-basis during the final six years of each unit's phase-in plan.

nism, differences between authorized and recorded base rate revenues are accrued in a regulatory balancing account.

Interest and Taxes Interest on regulatory balancing accounts and Palo Verde rate phase-in plan deferrals are Energy Costs An Energy Cost Adjustment Clause (ECAC) accrued at the most recent three-month prime commercial balancing account is used to record monthly entries to adjust paper rate published by the Federal Reserve. The weighted the results of operations for variations between 90% of re corded fuel and purchased power costs and those included in 1986, respectively. Income taxes on the changes in the regu rates. Such variations are deferred and accumulated in the lator balancin accounts are deferred.

balancing account until they are refunded to, or recovered from, utility customers through CPUC-authorized rate ad-Subsidiaries justments. The Company has been authorized Annual En-Investments in unconsolidated subsidiary companies are ergy Rate (AER) revenues to recover the remaining 10% of accounted for by the equity method except subsidiaries forecasted fuel and purchased power costs.

In 1987, the CPUC authorized a ot e

engaged in Eurodebenture and nuclear fuel financings. For In 187,theCPU auhorzed on-tie witedow of these subsidiaries, cash investments, commercial borrow the cost of fuel oil inventory to market prices and use of the ings, and nuclear fuel are presented separately on the Cor last-in, first-out method for measuring the recoverable cost pany's Balance Sheets. Other subsidiaries are not considered of fuel oil consumption. The one-time write-down, aggre-significant for financial reporting purposes. A new account gating $108.7 million, including interest, has been recorded ing standard will require all subsidiaries to be reported on a in the ECAC balancing account.

consolidated basis at year-end 1988.

The CPUC has established performance incentive mecha nisms for the Company's Nuclear Generating Stations based Restatements on targeted ranges of generation levels. Fuel savings or Balance Sheets prior to 1987 have been restated to include costs attributable to generation levels above or below the leased nuclear fuel and the related obligations according to targeted ranges are divided equally between shareholders amended disclosure requirements for rate-regulated enter and customers. Under an incentive procedure adopted for prises. Further discussion of the effects of this restatement coal plant operations, rewards and penalties are computed is in Note 7.

by comparing certain recorded performance criteria with designated standards.

Reclassilications MajorCertain items have been reclassified in prior periods to Clause (MAAC) balancing account mechanisms were estab-ceme 31 1987.

lished to account for the difference between revenues re quired to provide recovery of San Onofre Units 2 and 3 and 33

Note 2. Regulatory Matters Resale Rates In accordance with FERC procedures, resale rate increases CPUC Disallowances are subject to refund with interest to the extent that they are In October 1986 the CPUC issued a decision on the reason-subsequently disallowed by the FERC. As of December 31, ableness of $3.4 billion of the Company's investment in San 1987, revenues subject to refund aggregated approximately Onofre Units 2 and 3, disallowing $258.6 million. The Com-

$849 million. The Company believes that the amount of pany appealed the decision in December 1986 by filing for refunds, if any, likely to result from the outstanding pro rehearing on $213.4 million of the disallowed costs. In ceedings would not have a material effect on results of March 1987 the Commission granted rehearing on issues operations.

pertaining to indirect construction costs and in July 1987 is sued a decision which reduced the original $258.6 million Note 3. Commercial Borrowings disallowance to $198.9 million.

Pursuant to a ratemaking agreement adopted by the Short-Term CPUC, the recovery of the Company's $1.5 billion invest-Unrestricted deposits of approximately $7 million are main ment in the Palo Verde Nuclear Generating Station is tamed at commercial banks in order to continue certain lines reduced by an amount equal to 19.33% of the amount disal-of credit. These lines support commercial paper and other lowed for San Onofre Units 2 and 3. After giving effect to borrowings to finance general cash requirements, fuel oil this agreement, the CPUC's investment disallowances for inventory and, commencing in 1987, cost undercollections San Onofre and Palo Verde total $237.3 million.

recorded in regulatory balancing accounts.

Revenues for recovery of prior years' ownership costs as-Commercial paper issued by a wholly-owned finance sub sociated with San Onofre and Palo Verde plant investment sidiary is supported by its own lines of credit in addition to disallowed by the CPUC have been written-off from the the Company's and is used primarily for financing nuclear MAAC balancing account. The Company wrote off $15 mil-fuel. The commercial paper is guaranteed by the Company lion after income taxes in December 1986 for the portion of and is presented on the Balance Sheet.

disallowances the Company did not appeal and approxi-Borrowings outstanding and weighted-average interest mately $70 million after income taxes during 1987 for disal-rates are as follows:

December 31, lowances reflected in the CPUC's final decisions on the In millions 1987 1986 Company's petition for rehearing.

Total lines of credit

$1,041.0

$851.0 In December 1986 the Financial Accounting Standards Board adopted a new accounting standard requiring the Amounts outstanding:

write-off of construction costs disallowed and excluded General purpose 16.9

$115.0 Balancing accounts and fuel oil 517.1 213.0 from rate base. The new standard, which is effective for Subsidiary 420.1 48.8 1988, provides for the restatement of prior period financial Totals

$ 954.1

$376.8 statements for cost disallowances occurring prior to the ef fective date of the new standard. Accordingly, in the 1988 financial statement presentations which include 1986 and

• Under credit agreements with commercial banks which allow the Company to 1987 comparative financial statements, the disallowances refinance short-term borrowings on a long-term basis, $354 million of the sub finacia staemetssidiary's commercial borrowings, including intermediate-term indebtedness, will result in a one-time restatement of 1986 financial state-have been reclassified as long-term obligations on the Balance Sheet to reflect ments resulting in an after-tax charge against 1986 earnings the anticipated timing of payments for leased nuclearfuel.

and common shareholders' equity of approximately $193 Intermediate-Term million, or 89 cents per share.

millon, r 8 cens pr shre.Foreign currency denominated notes were issued by a Fuel Supply Contract Settlements wholly-owned subsidiary on September 1, 1987, to replace a On June 15, 1987, the CPUC authorized recovery of $392 portion of commercial paper borrowings for nuclear fuel fi million of the $403 million of oil supply contract litigation nancing. The notes, which mature 24 months from the date settlement costs. Such recovery through the ECAC proce dure is to be completed by 1989.

on December 31, 1987. Under a currency exchange agree On October 16, 1987, the CPUC disallowed recovery of ment, a securities firm pays the foreign currency de

$3.2 million of $82.1 million in uranium contract termina-nominated interest and principal and assumes all currency tion payments. The allowed portion of the termination costs translation gains and losses. The Company's subsidiary pays willbe ecovredthrogh he CAC alacingaccuntinterest on the proceeds of the issuance based on the average will be recovered through the ECAC balancing account procedure.

daily commercial paper rate. The average rate paid during 1987 was 7.09%. Currency translation gains or losses have been deferred and included in the translated value of the lia bility. The foreign currency denominated notes are guaran teed by the Company and are included in the Company's Balance Sheet in U.S. dollars.

34

Note 4. Income Taxes accounted for as current reductions in income tax provisions.

Current and Deferred Taxes Commencing in 1987, the Act requires the capitalization The current and deferred components of income tax expense of construction overhead and financing costs for determin are as follows:

ing the depreciable basis of certain properties for tax pur Year ended December 31, poses. This change has increased taxable income and has In thousands 1987 1986 1985 reduced differences in construction costs for tax and finan Current:

cial accounting purposes.

Federal

$391,899

$324,733

$(39,600)

Deferred income taxes for tax depreciation prior to 1981 State 121,471 108,290 24,841 and construction overheads have not been provided because 513,370 433,023 (14,759) the tax effects of such timing difference reversals are not al Deferred-Federal and State:

lowed for retail rate-making purposes until the taxes become Investment tax credits-net (15,824) 61,737 84,134 payable. The cumulative net amounts of these timing differ Accelerated cost recovery ences were $2,044 million on December 31, 1987, and system property 173,226 170,848 145,957 Regulatory balancing accounts (23,445)

(21,400) 365,296 Debt reacquisition expenses (1,390) 81,968 24,453 The following table reflects the differences between re Fuel contract settlements 16,002 9,528 91,681 ported state and federal income taxes and amounts deter Loss related to nuclear plant mined on income before taxes by applying the federal disallowance (78,616)

(20,829) statutory tax rate. The federal and the composite federal and Cumulative effect of accounting change 44,064 staterstatutor ta tare 46

% and 1%

rpte, Other (13,277)

(14,125) 12,248 100,740 267,727 723,769 respectively, for 1987.

Total income tax expense

$614,110

$700,750

$709,010 In thousands 1987 1986 1985 Classification of income taxes:

Included in operating expenses

$624,464

$732,322

$720,938 Expected federal income tax Included in other income 9,510 (10,743)

(11,928) expense at statutory rate

$ 561,094 $ 675,908 $ 682,234 Loss related to nuclear plant Increase (decrease) in income tax disallowance (78,616)

(20,829)

-expense resulting from:

Cumulative effect of Allowance for equity and accounting change 58,752 borrowed funds used Total income tax expense

$614,110

$700,750

$709,010 deral deduction or state taxes on income (45,917)

(55,355)

(54,578)

Total income tax expense includes the current tax liability Depreciation timing difference generated from operations and deferred income taxes pro-not deferred 100,269 101,896 92,900 vided on certain items of income and expense which are reported in different periods for tax and financial reporting Al oe taxfexens 81,110 $7,750 57,010 purposes. Consistent with current ratemaking procedures, the major items for which deferred income taxes are pro-Pretax income

$1,402,735 $1,469,367 $1,483,117 vided include regulatory balancing account provisions, Effective tax rate (total income phase-in plan deferrals, accelerated depreciation under the tax expense -pretax income) 43.8%

47.7%

47.8%

Accelerated Cost Recovery System, and debt reacquisition costs.

In addition to the above changes, the Act retroactively Pursuant to the Tax Reform Act of 1986 (Act), the repealed ITC for property placed in service after Decem cumulative effect of accruing unbilled revenues is included ber 31, 1985, except for property then under construction in taxable income over a period of four years beginning on which is covered by various transitional rules. However, January 1, 1987. Deferred income taxes have been provided the Act requires a 100% reduction in depreciable basis for on the portion of unbilled revenues reported for financial re-any transitional ITC. Because the Company defers the rec porting purposes but not yet included in taxable income.

ognition of ITC, its elimination has not significantly im For ratemaking purposes, property-related accumulated pacted earnings. The Act also reduced federal income tax deferred federal income taxes are deducted from rate base rates to 40% in 1987 and 34% in 1988 and later years.

and amortized or otherwise applied as a reduction (or in-In September 1987 California adopted income tax reform crease) in federal income tax expense in future years. Accu-legislation, retroactive to January 1, 1987, to conform to mulated deferred investment tax credits (ITC) are amortized the Act. Significant provisions include the capitalization of over the lives of the related properties. Prior to 1987, tax de-overheads and interest and accrual of unbilled revenues.

ductions relating to construction overheads such as interest, Additionally, the California law reduces the general tax pension provisions, and taxes charged to construction were 35

rate for corporations from 9.6% to 9.3%. Because the contributions meet the minimum funding requirements of effect of state and federal tax reform legislation is the Employee Retirement Income Security Act and do not reflected in customer rates, the effect on net income is exceed the maximum deductible amount under income tax not significant.

regulations. Prior service costs relating to pension plan amendments are funded over 30-year periods.

Ratemaking Investigation The CPUC has completed an In 1987, a new accounting standard for defined benefit investigation to evaluate the impact of the Act on ratemaking plans was implemented for determining pension cost for fi procedures. Revenue pertaining to the recovery of income nancial reporting purposes. Pension cost under the new stan tax expense during 1987 was collected subject to refund dard is comprised of the components listed below using the pending a decision by the CPUC on the effects of the Tax projected unit credit actuarial cost method. The expected Reform Act of 1986. In January 1988, the CPUC issued its long term rate of retum on assets was 8.5%. For prior years, initial decision ordering $44 million be refunded. The Com-pension cost was based on the actuarial method used to de pany provided a reserve for this item and other pending is-termine annual contributions to the plan.

sues. The refund to customers will not affect earnings.

In thousands New Accounting Standard Under present accounting Serviecstor enefir 6,2 standards, deferred income tax balances are not adjusted to Interest cost on projected benefit obligation 91,025 reflect changes in income tax law or rates. However, a new Return on plan assets (130,723) accounting standard will require adjustment of deferred tax Net amortization and deferral 46,699 balances to reflect the effects of such changes commencing Pension liability pursuant to accounting standards 53,630 not later than 1989. The Company has not determined Regulatory adjustment (3,481) whether it will reflect the initial application of this statement as a cumulative effect of a change in accounting principle in Net pension cost recognized

$ 50,149 the year of adoption or as a restatement of prior years' fi nancial statements.

In conformity with accounting principles applicable to The new standard requires significant balance sheet ad-rate-regulated enterprises, a regulatory adjustment is re justments to record additional deferred income taxes related corded to reflect in results of operations the pension costs to the equity component of AFUDC which is currently re-determined under the actuarial method used for ratemaking corded on an after-tax basis, the debt component of AFUDC purposes. As a result of this adjustment, approximately $3.5 which was recorded on a net-of-tax basis prior to 1987 and million has been recorded in a deferred debit account. Pen other temporary differences for which deferred income taxes sion expense amounted to $48.6 million and $57.9 million have not been provided. Balance sheet adjustments will also for 1986 and 1985, respectively. The following table reflects be recorded for the net reduction in deferred income tax the plan's funded status at December 31, 1987 and 1986:

liabilities resulting from income tax rate changes, the recog nition of deferred income tax assets attributable to the In thousands 1987 1986 reduction of the book basis of property by unamortized in vestment tax credits and to classify property related accumu-Vested benefits

$ 800,952

$ 760,587 lated deferred taxes as a liability instead of a reduction of Nonvested benefits 57,306 57,906 utility plant.

Accumulated benefit obligation 858,258 818,493 The majority of additional deferred tax assets and Value of projected future compensation levels 372,095 418,868 liabilities will be offset by recorded regulatory assets and Projected benefit obligation

$1,230,353

$1,237,361 liabilities representing the anticipated impact of these adjust-Plan assets at falr value

$1,201,550

$1,076,519 ments on customer rates. Such regulatory assets and liabilities will be adjusted as they are recovered or refunded Benefit obligation in excess of plan assets

$ (28,803) $ (160,842) through the ratemaking process.(101,579) throgh te rtemaingprocss.Unrecognized net obligation being amortized Note 5. Employee Benefit Plansyears 95,163 100,686 Not 5 Eplye BneitPlnsAccrued pension liability

$ (35,219)

$ (60,156)

Pension Plan Plan assets consist primarily of common stocks, corporate The Company has a trusteed, noncontributory defined ben-and government bonds, short-term investments, and guaran efit pension plan covering substantially all full-time employ-teed investment contracts.

ees who fulfill minimum age and service requirements. Plan The weighted-average discount rates used to determine benefits are based on years of accredited service and aver-the present value of the projected benefit obligation were age compensation. The Company's policy is to fund the plan 8.5% and 7.5% for 1987 and 1986, respectively. The on a level premium actuarial method provided that annual assumed rate of increase in future compensation was 6%.

36

Employee Stock Plans Note 7. Leases An Employee Stock Ownership Plan (ESOP) and a Stock Savings Plus Plan (SSPP) are maintained to supplement em-The Company obtains a portion of its nuclear fuel under a ployees' retirement income. Contributions to the ESOP are capital lease. Under the terms of the lease agreement, funded primarily by federal income tax benefits and con-monthly payments are based on nuclear fuel consumption tributions by participating employees. Contributions to the and are designed to return to the lessor the accumulated in SSPP amounted to $16.6 million, $15.4 million, and $13.9 vestment in nuclear fuel and a financing charge on unre million for the years 1987, 1986, and 1985, respectively.

covered costs. In accordance with an accounting standard applicable to rate regulated enterprises, the Company began Other Post-Employment Benefits recording the asset and obligation associated with the nu Health care and life insurance benefits are provided for re-clear fuel lease in 1987. All Balance Sheets and Statements tired employees and their dependents. Group life insurance of Sources of Funds Used for Construction Expenditures benefits are provided through an insurance company. Health presented for periods prior to 1987 have been restated to re care benefits are provided through a combination of Com-fiect the capitalization of leased nuclear fuel. The effect of pany facilities and insurance programs. The cost of these this restatement increased nuclear fuel and the related obli benefits for retirees was $18.0 million, $15.4 million, and gations at December 31, 1986 in the amount of $523.7 mil

$13.1 million for the years 1987, 1986, and 1985, respectively.

lion. This change did not affect revenues, net income, or retained earnings.

Note 6. Jointly-Owned Utility Projects On June 10, 1987, a wholly-owned subsidiary purchased the nuclear fuel leasing company. The acquisition cost of The Company owns undivided interests in several jointly-approximately $521.2 million was financed primarily by the owned generating stations and transmission systems for assumption of the lease company's commercial paper obliga which each participant must provide its own financing. The tions. The Company has presented leased nuclear fuel in proportionate share of expenses pertaining to such projects debtedness on its Balance Sheets.

is included in the appropriate category of operating expenses Rental payments representing interest and amortization in the Statements of Income. Below are the investments in under the nuclear fuel lease which were charged to operat each project as reported on the Balance Sheet as of Decem-mg expenses were $136.5 million, $109.9 million, and ber 31, 1987:

$89.3 million for 1987, 1986, and 1985, respectively. Such Utility Construction payments are recoverable through regulatory balancing ac Plant in Accumulated Work in Ownership In thousands Service Depreciation Progress Interest unt mechanisms. Future minimum nuclear fuel lease pay Projects:

ments cannot be reasonably estimated due to variations in El Dorado Transmission nuclear fuel consumption. Leased nuclear fuel, net of accu System 21,156

$ 7,894 241 60.0%(a) mulated amortization, totals $462.6 million and $523.7 mil Four Corners Coal lion at December 31, 1987 and 1986, respectively.

Generating Station The Company also leases automotive, computer, office,

-Units 4 & 5 400,325 101,357 1,652 48.0 and miscellaneous equipment through operating rental Mohave Coal Generating Station 231,105 85,816 6,644 56.0 agreements with varying terms, provisions, and expiration Pacific Intertie DC dates.

Transmission System 111,938 32,384 29,656 50.0 At December 31, 1987, estimated remaining rental com Palo Verde Nuclear mitments for non-cancelable operating leases were:

Generating Station 981,927 43,176 583,239 15.8 San Onofre Nuclear Year ended December 31, In thousands Generating Station:

1988

$ 24,381 Unit 1 519,288 134,358 14,692 80.0 1989 21,741 Units 2 & 3 2,971,073 415,159 22,478 75.05 19,119 Common Facilities-1991 16,660 Units 2 & 3 821,496 87,821 544 75.05 1992 13,662 Common Facilities-For periods thereafter 15675 Units 1, 2 & 3 173,072 22,480 2,704 75.87 Solar One Generating Station 18,062 17,410 80.0 Yuma Axis Combined Cycle Generating Station 12,369 10,029 33.3 California-Oregon 500 Kv Transmission Line 5,467 18.71 Total

$6,261,811

$957,884

$667,317 (a) Represents a composite rate.

37

Note 8. Commitments Dollars in thousands Share of effective operating capacity Construction Program and Fuel Supply Megawatts (a) 627.5 There are significant purchase commitments in connection Share of energy output 5.54%-100%

with the continuing construction program. As of December Total estimated annual cost

$117,081 31, 1987, budgeted construction expenditures are estimated Company's portion of estimated annual cost applicable to supplier's annual minimum debt at $874 million for 1988, $811 million for 1989, and $728 service requirement 18,891 million for 1990. Minimum long-term commitments of Company's allocable portion of interest approximately $1,547 million existed on December 31, 1987 of suppliers included in annual under fuel supply transportation arrangements.

minimum debt service 18,102 Related long-term debt or lease obligations Nuclear Waste Policy ActNone Nuclar Wste olic Act(a)

Effective operating capacity may vary according to water availability and Under the Nuclear Waste Policy Act of 1982, contracts for other conditions.

disposal of spent nuclear fuel have been entered into with the U.S. Department of Energy (DOE). A quarterly fee of Additional information as of December 31, 1987 regard one mill per kilowatt-hour is paid to the DOE for nuclear ing both purchased power and transmission service contracts generation on and after April 7, 1983. Generation before is summarized below:

April 7, 1983 requires payment of a one-time fee equivalent Purchased Transission to one mill per kilowatt-hour plus accrued interest. The one time fee has been recorded as a deferred charge pending Dates of expiration 1990-2017 1990-2016 future rate recovery, and including accrued interest, approx-rirfe mn ents on chousan imated $24.1 million at December 31, 1987. Commencing in 1988 f

64,767 a

10,751 1985, the obligation for this one-time fee is being discharged 1989 40,092 9,234 by equal payments over 40 quarters. Amounts charged 1990 14,081 6,109 to income for current generation were $14.6 million, $10.7 1991 2,500 4,474 million, and $8.9 million for 1987, 1986, and 1985, respec-1992 2,500 4,422 tively. Expenses associated with disposal of spent nuclear fuel are recovered through the ECAC procedure.

Total 185,815 125,488 Less amount representing interest to Long-Term Purchased Power and Transmission Contracts Total at present value

$2,13 65,12 Under firm contracts, the Company has agreed to purchase portions of the generating output of certain facilities and to Total purchases for the years ended purchase firm transmission service where appropriate.

1987 91 Although there is no investment in such facilities, these con-1986 115,322 12,007 tracts provide for minimum payments based in part on the 1985 91,421 10,090 debt service requirements of the provider whether or not the debtserice equremnts f te povidr wethr ornotthe (a) The variable components of certain contracts are based on a pro-rota facility or transmission line is operating. None of these share of actual operating, maintenance, andfuel costs or on the U.S. Govern power contracts provide, or are expected to provide, more ment cost of service.

than 5% of current or estimated future operating capacity.

The cost of power and firm transmission service obtained under these contracts, including payments made when a facility or transmission line is not operating, is included in Purchased Power and Other Operating Expenses, respec tively, in the Statements of Income. Purchased power costs are generally recoverable through the ECAC balancing ac count procedure. Selected information as of December 31, 1987 pertaining to purchased power contracts is summarized as follows:

38

Note 9. Contingencies Antitrust Litigation In March 1978, five resale customers filed a suit in federal Nuclear Insurance court alleging violation of antitrust laws. The complaint The Price-Anderson Act currently limits the public liability seeks monetary damages, a trebling of such damages and claims that could arise from a nuclear incident to a maxi-certain injunctive relief. The complaint alleges that the mum amount of $720 million for each licensed nuclear Company (i) is engaging in anticompetitive behavior by facility. Private insurance for this exposure has been pur-charging more for electricity sold to the resale customers chased by the participants in San Onofre and Palo Verde in than is charged to certain classes of its retail customers the maximum available amount, presently $160 million,

("price squeeze"), and (ii) has acted alone and in concert with the balance to be provided by secondary financial pro-with other utilities to prevent or limit such resale customers tection required by the Nuclear Regulatory Commission from obtaining bulk power supplies from other sources to (NRC). Under the NRC agreement, retrospective premium reduce or replace the resale customers' purchases from the adjustments of up to $27.7 million per year could be as-Company ("foreclosure"). The plaintiffs estimated their ac sessed in the event of nuclear incidents involving any tual damages for alleged price squeeze, before trebling, at licensed reactor in the United States. The Price-Anderson approximately $22.7 million and foreclosure damages stem Act expired for nuclear units not currently licensed; how-ming from alleged loss of energy and capacity at approxi ever, the act remains in effect on existing and licensed units mately $76.8 million before trebling, for the period until new legislation is passed.

February 1, 1978 to December 31, 1985. The trial began on Property damage insurance covers losses up to $500 mil-July 8, 1986, and concluded on September 26, 1986. Find lion at San Onofre and Palo Verde. Decontamination liabil-ings of Fact and Conclusions of Law were filed by the Coi ity and property damage insurance in excess of the primary pany with the Court on November 21, 1986. No date has

$500 million layer has also been purchased. Also provided been given for the decision. The foregoing proceedings in is insurance covering part of the additional expense of re-volve complex issues of law and fact and, although the placement power resulting from an accident-related nuclear Company is unable to predict their final outcome, it has unit outage. After the first 26 weeks of such an outage, categorically denied the allegations of these resale maximum weekly indemnity of $2.6 million for a single customers.

unit for 52 weeks begins. An additional $1.3 million per week is provided for the next 52 weeks. These policies are provided primarily through mutual insurance companies owned by utilities with nuclear facilities. If losses at any nu clear facility covered by the arrangement were to exceed the accumulated funds available for these insurance programs, the Company could be assessed retrospective premium ad justments of up to $56.3 million per year. Insurance pre miums are charged to Operating Expenses.

Government Licenses The terms and provisions of federal licenses cover the Com pany's major and certain minor hydroelectric plants. These licenses also cover certain storage and regulating reservoirs as well as related transmission facilities.

These licenses expire at various times between 1988 and 2009. They contain numerous restrictions and obligations on the part of the Company, including the right of the United States to acquire Company properties or, under certain con ditions, the FERC to issue a license to a new licensee upon the payment to the Company of specified compensation.

Applications are pending for the relicensing of certain hy droelectric plants referred to above with aggregate effective operating capacity of 61 megawatts. The terms of any new licenses are expected to be less favorable than those of the expired licenses.

39

Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations Operating Revenues and Sales Electric operating revenue increased over the prior year by Earnings Summary

$181 million, or 3.4%. This increase reflects a 5.1% in Earnings per share for 1987 reached an all time high of crease in retail sales volume due largely to record customer

$3.39, representing a 3.4% increase over the previous year's growth and the effect of rate changes that caused revenue

$3.28 as shown in the chart below. This represents the per kilowatt-hour to increase by 1.2%. This increase seventh consecutive year of record earnings. Net income was achieved despite a $112 million decrease in sales to rose to a record $788.6 million and revenues to a record wholesale customers who obtained most of their power from

$5.5 billion. Significant factors contributing to the earnings other sources. Increases in operating revenues of 2.8% in increase include strong emphasis on productivity improve-1986 and 5.5% in 1985 reflect the effects of rate changes ments and cost control; the cumulative effect of an account-and a 1.2% sales decline in 1986 and a 2.6% sales increase ing change to include revenues from electricity delivered to in 1985. The chart below shows the changes in major com customers, but for which bills have not been sent; increased ponents of operating revenue that contributed to the overall income contributed by non-utility subsidiaries; and a coal variations for the past three years.

plant operating performance reward approved by the Cali-Rate changes effective January 1, 1988, will reduce rates fornia Public Utilities Commission (CPUC).

by $33 million or 0.6% annually, reflecting the CPUC's Strong financial performance was achieved in 1987 de-general rate case decision and other rate adjustments spite write-offs of previously accrued revenues related to decided by the Commission during 1987. The rate decrease nuclear plant construction disallowances and a decrease in reflected in large part a reduction by the CPUC in Edison's the authorized rate of return on common equity to 13.9%

authorized rate of return on common equity from 13.9% in in 1987 from 14.6% in 1986.

1987 to 12.75% in 1988.

Earnings Per Share Operating Revenues-Changes E Base rate changes c Sales volume changes g Balancing account rate changes Per share

$4 Millions $600

$3.39

$3.11 $3.18 $3.26 $3.28 340

$2.56 220 82 83 84 85 86 87 0

1985 1986 1987

-200 40

Revenue pertaining to the recovery of income tax expense Other Income and Income Deductions during 1987 was collected subject to refund pending a deci-Interest income decreased by $16.5 million for 1987 reflect sion by the CPUC on the effects of the Tax Reform Act of ing lower interest rates, a decline in cash investments, and 1986. In January 1988, the CPUC issued its initial decision lower balancing account undercollections. Reductions in ordering $44 million be refunded. The Company provided a interest expense and preferred dividends during 1987 are reserve for this item and other pending issues. The refund to the result of the Company's aggressive refinancing program customers will not affect earnings.

and lower interest rates.

The Company's non-utility subsidiaries continued to Operating Expenses expand operations during 1987 providing $100.9 million in Fuel expense increased by $212 million for 1987 reflecting revenue and $41.4 million in net income, or 19 cents per the reduced availability of hydro resources and increased use share, which compares to 8 cents per share in 1986. Non of Company-owned generating facilities. This increase was utility subsidiary earnings represent 5.6% of total 1987 partially offset by reduced natural gas prices and increased earnings.

use of lower cost nuclear and coal generation. The effect on earnings of fluctuations in the Company's fuel and pur-Significant Accounting Changes chased power expenses is minimized by regulatory adjust-Recently adopted amendments to accounting standards will ment clauses established by the CPUC and the Federal require significant adjustments to the Company's financial Energy Regulatory Commission (FERC).

statements. As discussed in Note 2 of "Notes to Financial Increases in other operating, depreciation, and mainte-Statements," the Company recorded a one-time, after-tax nance expenses continue to be influenced by system growth, charge against common equity of approximately $193 mil including the commercial operation of Palo Verde Nuclear lion in January 1988 because of a new accounting standard Generating Station Unit I on February 1, 1986, and Unit 2 requiring plant investment costs disallowed for ratemaking on September 19, 1986. This trend will continue in 1988 with purposes to be written off. This adjustment will be reported the costs of operating the Balsam Meadow Hydro Project as a restatement of 1986 net income.

and Palo Verde Unit 3, which were placed into commer-In conformity with other new accounting standards, the cial operation on December 1, 1987, and January 20, 1988, Company will be required to present consolidated financial respectively.

statements by year-end 1988 and, commencing in 1989, will The recovery of depreciation expense attributable to San record major balance sheet adjustments in accordance with Onofre Units 2 and 3 and Palo Verde Units I and 2 was income tax accounting amendments. These changes are not authorized through the Major Additions Adjustment Clause.

expected to significantly impact future earnings.

For these units, depreciation expense exceeding amounts If approved by shareholders, the formation of a holding recovered through rates was recorded in balancing accounts company will result in the transfer of the Company's invest pending future rate recovery and, therefore, did not ad-ment in non-utility subsidiaries and related earnings to the versely affect earnings. Commencing in 1988, the costs of holding company.

owning and operating these units are being recovered through base rates to the extent they are not deferred pur suant to the Palo Verde Rate Phase-In Plan discussed further Financial Condition in Note 1 of "Notes to the Financial Statements."

Tax expense on operating income for 1987 decreased by Internal Generation of Funds

$107.9 million reflecting lower corporate tax rates and lower The majority of capital requirements continue to be obtained pretax income. As explained more fully in Note 4 of "Notes from operations. For 1987, approximately 77% of such to Financial Statements," the decline in corporate tax rates requirements were provided by internally generated funds, under the Tax Reform Act of 1986 will further reduce fed-compared to 74% for 1986 and 65% for 1985. The in eral income tax expense in future years. This reduction will be accompanied by a reduction in customer rates and is expected to have little or no impact on net income.

41

creased level of funds generated internally is principally the 1987, the Company could issue approximately $3.5 billion result of placing completed nuclear facilities into rate base of additional First and Refunding Mortgage Bonds or $3.3 and tax benefits resulting from growth in the Company's billion of preferred stock at current interest and dividend investment in plant assets.

rates, respectively.

While internal generation of funds remains at favorable levels, the repeal of the investment tax credit and reduced Capital Requirements tax deductions for depreciation under the Tax Reform Act of The following table presents the Company's projected capi 1986 negatively impacts cash flow.

tal requirements for 1988 through 1992:

Cash flow and liquidity during 1988 will be favorably In millions 1988 1989 1990 1991 1992 affected by the recovery of balancing account undercollec tions and unfavorably affected by revenues deferred to Cntrtion lontreb 8

$8 3 7 72

$60 future ratemaking periods resulting from the Palo Verde Redemptions of preferred and Phase-In Plan. The timing and amount of revenue deferred preference stock 22 24 12 12 12 under the Phase-In Plan are discussed in Note 1 of "Notes Capital requirements

$976

$903 $1.046

$946

$882 to Financial Statements."

Liquidity and Capital ResourcesStructure Short-and intermediate-term borrowings are used to finance Te in the ital below:

fuel oil inventory, leased nuclear fuel, and commencing in 1987, balancing account undercollections. The cost of these Common equity 49.1%

borrowings is recovered through balancing account proce-Preferred and preference stock 6.3 dures. The increase in short-term borrowings during 1987 is Long-term debt 44.6 the result of utilizing short-term financing for balancing Total 100.0%

account undercollections, which is partially offset by a decrease in requirements for general corporate purposes.

The one-time charge against common equity of approxi Details of available lines of credit and related short-term mately $193 million for the nuclear construction cost disal borrowings are discussed in Note 3 of "Notes to Financial lowances will reduce the common equity component of the Statements."

Company's capital ratio by approximately 1%.

In addition to short-term financings, liquidity is affected by construction expenditures and other capital requirements including debt and capital stock maturities. Capital re sources available to meet these requirements include funds from internal generation and external financings. External financing through short-term borrowings and security is suances is influenced by market conditions and other factors including limitations imposed by the Company's Articles of Incorporation and Trust Indenture. As of December 31, 42

Operating Revenues and Kilowatt-Hour Sales Southern California Edison Company Operating Revenues Kilowatt-Hour Sales (000)

% of In thousands

% of

% of

% of Class of Service 1987 Total 1987 1986 Change 1987 Total 1987 1986 Change Residential 29.4

$1,613,740

$1,510,925 6.8 30.2 19,760,244 18,766,947 5.3 Agricultural 1.6 86,629 73,260 18.2 1.5 1,014,737 851,862 19.1 Commercial 34.8 1,910,480 1,788,590 6.8 33.0 21,610,315 20,270,295 6.6 Industrial 22.0 1,211,606 1,208,783 0.2 24.0 15,727,488 15,463,013 1.7 Public authorities 9.2 505,840 461,366 9.6 8.2 5,380,388 5,077,729 6.0 Interdepartmental 95 81 17.3 1,119 970 15.4 Resale 2.2 120,273 232,542 (48.3) 3.1 2,045,190 3,766,589 (45.7)

Sales of electric energy 99.2 5,448,663 5,275,547 3.3 100.0 65,539,481 64,197,405 2.1 Other electric revenues 0.8 44,006 36,186 21.6 Total 100.0

$5,492,669

$5,311,733 3.4 100.0 65,539,481 64,197,405 2.1 Operating Revenues by Rate Components Operating Revenues Percent of Total In thousands Rate Components 1987 1986 1985 1987 1986 1985 Base rates-CPUC jurisdiction

$2,641,426

$2,522,565

$2,411,836 48.1 47.5 46.7 Energy cost adjustment billing factor 1,919,668 1,798,697 1,587,763 35.0 33.8 30.7 Annual energy rate 5,834 12,173 115,027 0.1 0.2 2.2 Major additions adjustment billing factor 804,606 801,276 732,232 14.6 15.1 14.2 Other billing factors (51,432)

(91,765)

(52,617)

(0.9)

(1.7)

(1.0)

Resale rates (excluding fringe) 128,561 232,601 347,494 2.3 4.4 6.7 Sales of electric energy 5,448,663 5,275,547 5,141,735 99.2 99.3 99.5 Other electric revenues 44,006 36,186 27,113 0.8 0.7 0.5 Total

$5,492,669

$5,311,733

$5,168,848 100.0 100.0 100.0 43

Selected Financial Data 1977-1987 1987 1986 Summary of Operations Operating revenues

$ 5,492,669

$ 5,311,733 In thousands, except percent Operating expenses 4,492,753 4,332,712 and per share data Fuel and purchased power costs (a) 1,870,788 1,653,854 Income taxes (a) 624,464 732,322 Allowance for equity and borrowed funds used during construction 116,332 135,222 Total interest charges 457,039 482,855 Net income 788,626 768,617 Earnings available for common and original preferred stock 738,531 713,933 Weighted-average shares of common and original preferred stock outstanding (000) 217,966 217,732 Per share data:

Earnings per common share

$3.39

$3.28 Dividends declared per common share

$2.35/2

$2.25 Dividend payout ratio (paid basis) 68.7 %

67.7 %

Rate of return on common equity 14.91%

15.06%

Ratio of earnings to fixed charges 3.62 3.83 Balance Sheet Data Total assets (b)

$14,218,570

$13,768,668 In thousands, except percent Gross utility plant (b) 16,514,587 15,638,258 and per share data Accumulated depreciation 4,024,478 3,586,080 Percent of gross utility plant 24.4%

22.9%

Common stock, at par value 904,694 903,777 Additional paid-in capital 1,549,125 1,546,541 Earnings reinvested in the business 2,569,121 2,343,957 Common shareholders' equity 5,022,940 4,794,275 Preferred and preference stock

-without mandatory redemption requirements 365,238 365,654

-with mandatory redemption requirements (c) 277,538 299,049 Long-term debt (c)

$ 4,561,032

$ 4,667,891 Capital structure (percent):

Common shareholders' equity 49.1%

47.3%

Preferred and preference stock

-without mandatory redemption requirements 3.6 3.6

-with mandatory redemption requirements (c) 2.7 3.0 Long-term debt (c) 44.6%

46.1%

Book value per common share

$23.05

$22.02 Operating and Area peak demand (MW) 14,775 14,599 Sales Data Area generating capacity at peak (MW) 18,206 18,320 Total energy requirement (KWH) (000) 74,142,513 73,208,697 Percent energy requirement:

Thermal 70.8%

55.6%

Renewable/alternative (including hydro) 4.7 7.9 Purchased power and other sources (d) 24.5%

36.5%

Kilowatt-hour sales (000) 65,539,481 64,197,405 Average annual KWH sales per residential customer 6,117 5,999 Number of customers 3,717,262 3,589,414 Number of employees 17,083 17,553 (a) Included in Operating Expenses.

(b) The years 1977 through 1981 have been restated to reflect the deduction of property-related accumulated deferred income taxes from Utility Plant, and the years 1977 through 1986 have been restated to include nuclear fuel leased from an affiliate and the related obligation for comparison to such assets and liabilities reported as of December 31, 1987.

44

1985 1984 1983 1982 1981 1980 1979 1978 1977

$ 5,168,848

$ 4,899,152

$ 4,464,256

$ 4,302,602

$4,054,356

$3,661,117

$2,563,974

$2,328,798

$2,064,914 4,196,094 3,932,527 3,760,225 3,765,875 3,563,201 3,288,983 2,178,978 2,004,197 1,734,192 2,389,087 2,084,941 2,027,756 2,227,901 2,558,206 2,010,227 1,532,903 1,204,749 1,189,597 720,938 639,875 497,236 177,251 197,865 38,683 100,292 72,803 68,792 157,694 194,787 365,856 303,118 232,552 162,287 118,566 78,421 60,238 487,800 530,322 539,377 420,282 340,977 282,656 205,082 182,658 161,078 774,107 732,428 690,780 555,754 489,912 317,536 346,219 251,683 251,979 702,409 659,385 617,303 483,358

$ 422,024

$ 256,586

$ 292,481

$ 202,226

$ 206,330 215,649 207,576 198,348 188,514 171,220 146,482 128,404 114,954 108,694

$3.26

$3.18

$3.11

$2.56

$2.46

$1.75

$2.28

$1.76

$1.90

$2.13

$2.01

$1.83

$1.69

$1.55

$1.42

$1.30

$1.15

$1.03 64.4 %

61.9%

57.7%

64.5%

61.5%

79.4%

55.7%

63.6%

50.5%

15.75%

16.3%

17.0%

14.9%

14.9%

10.4%

13.6%

10.7%

12.0%

3.80 3.38 2.91 2.44 2.72 2.09 2.90 2.53 2.78

$13,144,396

$11,906,508

$11,550,874

$10,593,440

$9,009,939

$7,947,093

$7,109,307

$6,123,941

$5,751,348 14,541,307 13,382,809 12,402,424 11,199,954 9,827,888 8,646,469 7,737,060 6,904,787 6,245,013 3,152,141 2,763,651 2,426,368 2,185,667 2,015,212 1,840,233 1,676,148 1,519,174 1,383,009 21.7%

20.7%

19.6%

19.5%

20.5%

21.3%

21.7%

22.0%

22.1%

902,821 885,637 839,501 805,766

$ 730,027

$ 632,115

$ 540,791

$ 521,138

$ 455,387 1,543,933 1,470,347 1,307,413 1,193,318 999,764 805,325 638,046 595,701 458,096 2,128,646 1,886,804 1,646,425 1,393,780 1,238,317 1,092,137 1,054,296 931,217 862,956 4,575,400 4,242,788 3,793,339 3,392,864 2,968,108 2,529,577 2,233,133 2,048,056 1,776,439 466,500 467,258 469,025 471,020 476,308 482,652 489,822 503,650 518,172 395,074 422,286 440,500 445,000 399,500 399,500 324,500 197,000 197,000

$ 4,717,411

$ 4,248,647

$ 4,051,836

$ 3,970,400

$3,444,080

$2,945,824

$2,746,207

$2,477,474

$2,314,874 45.1%

45.2%

43.3%

41.0%

40.7%

39.8%

38.5%

39.2%

37.0%

4.6 5.0 5.4 5.7 6.5 7.6 8.5 9.6 10.8 3.9 4.5 5.0 5.4 5.5 6.3 5.6 3.8 4.1 46.4%

45.3%

46.3%

47.9%

47.3%

46.3%

47.4%

47.4%

48.1%

$21.04

$19.89

$18.76

$17.48

$16.87

$16.60

$17.11

$16.29

$16.15 14,587 15,189 13,464 13,149 13,738 12,841 12,662 12,159 11,564 17,776 17,354 16,365 15,349 15,592 15,504 15,071 14,966 14,337 73,755,963 72,431,625 68,020,197 66,578,540 69,179,641 65,459,278 66,216,910 63,877,116 63,344,706 58.7%

54.1%

48.6%

55.5%

67.6%

71.2%

82.0%

73.8%

87.5%

6.0 7.5 10.3 9.7 5.8 9.2 7.7 9.3 2.4 35.3%

38.4%

41.1%

34.8%

26.6%

19.6%

10.3%

16.9%

10.1%

64,984,566 63,310,047 59,892,583 59,326,853 62,451,319 59,915,187 59,517,861 57,027,035 57,726,273 6,099 6,147 5,879 5,685 5,879 5,939 6,010 5,883 5,630 3,490,325 3,400,182 3,325,308 3,275,144 3,232,687 3,163,968 3,082,382 2,986,545 2,900,856 17,182 16,844 16,292 15,797 14,569 14,157 12,917 12,845 12,671 (c) Excludes current portion.

(d) Includes non-Edison owned renewable/alternative sources.

45

Seated from left: Joan C. Hanley, Jack K. Horton, Howard P. Allen, William R. Gould, Camilla C. Frost. Second row from left: Carl F. Huntsinger, Henry T. Segerstrom, Warren Christopher, Walter B. Gerken, Norman Barker, Jr., Edward Zapanta.

Third row from left: Charles D. Miller, Roy A. Anderson, Robert H. Smith, James M. Rosser, E. L. Shannon, Jr., J. J. Pinola.

46

Board of Directors Southern California Edison Company Howard P. Allen Chairman of the Board, President and Chief Executive Officer Roy A. Anderson Chairman of the Executive Committee, Lockheed Corporation Calabasas, California Norman Barker, Jr.

Chairman of the Board, Pacific American Income Shares, Inc.

Los Angeles, California Warren Christopher Senior Partner, Law Firm of O'Melveny & Myers Los Angeles, California Camilla C. Frost Chairman of the Executive Committee, Los Angeles County Museum of Art Los Angeles, California Walter B. Gerken Chairman of the Executive Committee, Pacific Mutual Life Insurance Company Newport Beach, California William R. Gould Chairman of the Board Emeritus and Consultant (Retired Chairman of the Board and Chief Executive Officer, Southern California Edison Company)

Long Beach, California Joan C. Hanley General Partner and Manager, Miramonte Vineyards Rancho California, California Jack K. Horton Chairman of the Executive Committee and Consultant (Retired Chairman of the Board and Chief Executive Officer, Southern California Edison Company)

Los Angeles, California Carl F. Huntsinger General Partner, DAE Limited Partnership, Ltd. (Agricultural Management)

Ojai, California Charles D. Miller Chairman of the Board and Chief Executive Officer, Avery International Corporation (Manufacturer of Self-Adhesive Products)

Pasadena, California J. J. Pinola Chairman of the Board and Chief Executive Officer, First Interstate Bancorp Los Angeles, California James M. Rosser President, California State University, Los Angeles Los Angeles, California Henry T. Segerstrom Managing Partner, C. J. Segerstrom & Sons (Real Estate Development)

Costa Mesa, Calfornia E. L. Shannon, Jr.

President, Chief Executive Officer and Director, Santa Fe International Corporation (Oil Service, Engineering, Petroleum Exploration and Production)

Alhambra, California Robert H. Smith President and Chief Executive Officer, Security Pacific National Bank and Vice Chairman of the Board, Security Pacific Corporation Los Angeles, California Edward Zapanta Physician and Neurosurgeon Monterey Park and East Los Angeles, California 47

Executive Officers Southern California Edison Company Howard P. Allen Chairman of the Board, President and Chief Executive Officer David J. Fogarty Executive Vice President John E. Bryson Executive Vice President and Chief Financial Officer Michael R. Peevey Executive Vice President P. L. Martin Senior Vice President L. T. Papay Senior Vice President Kenneth P. Baskin Vice President (Nuclear Engineering, Safety and Licensing)

Glenn J. Bjorklund Vice President (System Planning and Research)

Robert H. Bridenbecker Vice President (Customer Service)*

John R. Bury Vice President and General Counsel Richard K. Bushey Vice President and Controller Robert Dietch Vice President (Engineering and Construction)

Charles B. McCarthy, Jr.

Vice President and Site Manager, San Onofre Nuclear Generating Station*

Michael L. Noel Vice President and Treasurer Harold B. Ray Vice President (Fuel and Material Management)*

Jennifer Moran Secretary of the Corporation

• Effective as of January 1, 1988.

Executive Officers of Non-Utility Subsidiaries H. Frederick Christie President and Chief Executive Officer, The Mission Group J. Jack Adrian President, Mission Power Engineering Company Thomas R. McDaniel President, Mission First Financial Edward A. Myers, Jr.

President, Mission Energy Company Robert E. Umbaugh President, Mission Land Company 48

Ouarterly Financial Data Southern California Edison Company 1987 1986 In millions, except per share data Total Fourth Third Second First Total Fourth Third Second First Operating revenues

$5,493

$1,390

$1,487

$1,332

$1,284

$5,312

$1,311

$1,550

$1,211

$1,240 Operating income 1,000 239 270 262 229 979 227 267 235 250 Net income 789 183 224 200 182*

769 159 217 194 199 Per share:

Earnings

$3.39

.78

.97

.86

.78*

$3.28

.67

.94

.83

.84 Dividends declared

$2.351 2

.591/2

.59/2

.59V2

.57

$2.25

.57

.57

.57

.54 Common Stock prices High

$37

$333%

$33/8

$32/s

$37

$383%

$36

$383%

$32Vs

$31/8 Low

$275/

$27/s

$29%

$2 8'Vs

$31/4

$25/4

$31%

$303/

$28/s

$25/

• Includes $68 million, or 31 cents per share, resulting from an accounting change. (See Note I in "Notes to Financial Statements.")

Corporate Information 1988 Annual Shareholders' Meeting:

Stock Exchange Listings:

The annual meeting of shareholders of Southern California Edison Common Stock:

Company will be held at 10 a.m., Thursday, April 21, 1988, at the New York Stock Exchange Industry Hills and Sheraton Resort, One Industry Hills Parkway, Pacific Stock Exchange City of Industry, California 91744.

London Stock Exchange Tokyo Stock Exchange Individual Shareholders

Contact:

Southern California Edison Company Preferred and Preference Stocks:

Shareholder Services, Room 240 American Stock Exchange P.O. Box 400, Rosemead, California 91770 Pacific Stock Exchange Telephone (818) 302-1937 licker Symbol:

Institutional Investors

Contact:

SCE (Common Stock)

Manager, Investor Relations Telephone (818) 302-2515 Newspaper Stock Table Listing:

SCalEd Stock 'ransfer Agent:

Southern California Edison Company Non-Utility Subsidiaries:

Stock Transfer, Room 240 3010 Old Ranch Parkway, Suite 400 P.O. Box 400, Rosemead, California 91770 Seal Beach, California 90740-2750 Telephone (818) 302-1393 or (818) 302-1936 Telephone (213) 431-8488 Dividend Reinvestment and Statistical Supplement:

Stock Purchase Plan Agent:

A comprehensive financial and statistical supplement Southern California Edison Company to this report is available in limited quantity.

Shareholder Relations, Room 240 A copy may be requested by writing:

P.O. Box 400, Rosemead, California 91770 Manager of Investor Relations Telephone (818) 302-1852 or (818) 302-1995 Southern California Edison Company P.O. Box 800, Rosemead, California 91770.

This Annual Report and the statements and statistics contained herein have been assembled for general information purposes and are not intended to induce, or for use in connection with, any sale or purchase of securities. Under no circumstances is this report or any part of its contents to be considered a prospectus, or as an offer to sell, or the solicitation of an offer to buy, any securities.

Southern California Edison Company 2244 Walnut Grove Avenue, Rosemead, CA 91770 Telephone: (818) 302-1212