ML13331B478

Annual Rept for Southern California Edison Co for CY89

ML13331B478
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Site:	San Onofre
Issue date:	12/31/1989
From:	Allen H Southern California Edison Co
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NUDOCS 9006200539
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Text

1989 Annual Report Date of Ltr Regulatory Docket File

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A Corporate Profile SCEcorp is the parent holding company of Southern California Edison Company, one of the nation's largest electric utilities, and four nonutility subsidiaries that together form The Mission Group. With its headquarters in Rosemead, California, SCEcorp is primarily an energy-services company whose subsidiaries have combined assets of $15.4 billion.

SCEcorp's largest subsidiary is Edison, a 103-year-old regulated utility that provides reliable electric service to 3.9 million customers in Central and Southern California. More than 10 million people live within its 50,000-square-mile service territory, which has one of the nation's most prosperous and diversified economies.

The Mission Group includes Mission Energy Company, Mission First Financial, Mission Land Company and Mission Power Engineering Company. They operate in 13 states and are generally engaged in businesses related to the corporation's expertise in the energy industry.

These nonutility subsidiaries focus on such areas as electric power generation, engineering and construction of electric facilities, real estate development, and financial investments.

2 The Year at a Glance 3

Letter to Shareholders 6

Year in Review 28 Financial Review 31 Board of Directors 32 Executive Officers 33 Financial Information 56 Shareholder Reference Guide

SCEcorp Highlights Five-year compound annual Increase growth 1989 1988 (decrease]

rate For the year (000):

Revenue

$6,904,386

$6,252,719 10.4%

7.1%

Net income

$778,241

$761,831 2.2 3.4 Common stock dividends paid

$550,524

$530,409 3.8 6.3 Weighted-average shares of common stock 218,463 218,332 0.1 1.0 At year end:

Assets (000)

$15,443,051

$14,866,276 3.9 5.3 Liabilities (000)

$8,198,907

$8,010,685 2.3 6.2 Common shareholders' equity (000)

$5,288,687

$5,064,848 4.4 4.5 Common shareholders of record 145,870 148,427 (1.7)

(2.1)

Employees 17,010 16,995 0.1 0.2 Per share:

Earnings

$3.56

$3.49 2.0 2.3 Dividends (current rate)

$2.56

$2.48 3.2 4.6 Book value

$24.21

$23.18 4.4 4.0 Market price

$393/

$32/8 21.6 11.6 Financial ratios:

Rate of return on common equity 15.0%

15.3%

Dividend payout (declared basis) 71.3%

70.3%

Dividend yield 6.5%

7.7%

Price-earnings ratio 11.1 9.3 Total shareholder return (price appreciation and dividends) 30.1%

14.4%

Earnings Per Share (SCEcorp)

Annual Dividend Rate Per Share (SCEcorp)

In dollars In dollars 3.26 2.39*

3.39 3.49 3.56

.84 2.56 Nonutility Consumer pnice index Utility 85 86 87 88 89 76 77 77 78 79 80 81 82 83 84 85 86 87 88 89

• Restated to reflect disallowance of nuclear plant construction costs.

The Year at a Glance SCEcorp's earnings per share of com-SCEcorp's earnings rose to a record The utility's sales to retail mon stock increased to a record

$778.2 million and revenue to a rec-customers increased 2.6% to 67.6

$3.56 in 1989. This was the ninth ord $6.9 billion, billion kilowatt-hours (kwh); total consecutive year of reported record electric sales, including those to earnings. However, new accounting Edison's revenue increased 10% to municipal and utility customers, rules effective in 1988 resulted in

$6.5 billion, although its earnings rose 1.8% to 69.1 billion kwh.

the restatement to a lower level of decreased 0.9% to $678.6 million, or 1986 earnings.

$3.10 per share.

The utility recorded a net gain of 109,293 new customers, the third The shareholders of SCEcorp, Edison The Mission Group had 31% higher largest annual increase in Edison's and San Diego Gas & Electric Com-earnings in 1989, contributing $99.9 history pany (SDG&E) approved the merger million, or 46 cents per share. The of SDG&E into Edison, SCEcorp's nonutility subsidiaries contributed SCEcorp's recorded return on com utility subsidiary. SCEcorp expects 13% of SCEcorp's earnings.

mon equity was 15.0%.

a decision on the proposed merger from the California Public Utilities SCEcorp common stock traded at an Edison agreed to cut nitrogen-oxide Commission (CPUC) and the Fed-all-time high of $41 per share on De-emissions from its power plants in eral Energy Regulatory Commission cember 27,1989. SCEcorp's common the Los Angeles Basin by 76% over (FERC) in late 1990.

shareholders had a total return of the next 10 years at a projected cost 30% from stock price appreciation of $630 million.

SCEcorp declared its 14th increase and dividends in 1989.

in common stock dividends in 13 The CPUC authorized rate changes years; the annual dividend is now in 1989 that increased Edison's rates

$2.56 per share.

by an average of 5.0% and revenue by $299 million annually Sources and Distribution of Revenue (SCEcorp)

In percent Edison established "good-faith" Sources Distribution goals to increase the number of 4 Other electric 3 Reinvested earnings qualified minorities and women in 6 Investment and other 7 Taxes and other 8 Public authorities 10 Depreciation and top corporate positions, to award 30%

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Jj ndsra18Ddendmisianintees more business contracts to minority Dand women-owned businesses and

$25 31 Residential and maintenance to sharply increase philanthropic contributions to low-income, minor 23nOperatio A

ity and women's organizations.

34 Commercial 39 Fuel and purchased power 2

Letter to Shareholders Record Financial Results In 1989, our company again achieved record earnings and increased dividends. SCEcorp stock reached an all-time high of $41, reflecting our position as one of the nation's most financially sound utility holding companies. SCEcorp shareholders realized a total return from stock appreciation and dividends of 30% in 1989. For the decade as a whole, total return averaged more than 20% annually. While achieving these record financial results, we continued to be an environmentally and socially responsible company.

Pending Merger Southern California Edison Company (Edison), our electric utility subsidiary, made steady progress in its proposed merger with San Diego Gas & Electric Company (SDG&E). Share holders of the companies approved the merger at their annual meetings in April. Under the merger agreement, each SDG&E common share will be exchanged for 1.3 newly issued SCEcorp common shares. Existing SDG&E preferred and preference shares will be ex changed for newly issued SCEcorp preferred and preference shares.

Edison and SDG&E have filed detailed testimony with the California Public Utilities Commission (CPUC) and the Federal Energy Regulatory Commission (FERC), both of which must approve the merger. Numerous parties, including California's attorney gen7 eral, have intervened to oppose the merger. The consumer advocacy division of the CPUC also has opposed the merger in its current form. We expect that the lengthy hearings will be completed and final decisions issued by the CPUC and FERC before the end of 1990.

We have demonstrated in our regulatory filings that the merger will produce $1.7 bil lion in savings in the decade of the 1990s and reduce electric rates for customers of Edison and SDG&E. In addition, it will mean better air quality, improved service and increased community support for San Diego. However, the merger continues to face opposition in the San Diego area, largely because of the loss of a hometown headquarters. In response, we have made great efforts to explain how the merger will benefit the customers, share holders, employees and communities served by both companies.

Cost Containment/

In 1987 Edison adopted a comprehensive five-year cost-containment program to help keep Operating Expenses customer electric rates down. By 1992, the program's goal is to reduce Edison's annual costs by $900 million from what they otherwise would have been. In 1989, we again achieved our cost-containment goals and, except for one-time costs associated with the regulatory proceedings in the SDG&E merger, kept increases in operating and mainte nance expenses to 1.5 percentage points below the rate of inflation.

3

Generating Resources The San Onofre Nuclear Generating Station was an excellent performer again in 1989, producing 16.1 billion kilowatt-hours of electricity, the fifth-highest output of 69 nuclear generating sites in the nation. The plant also was recognized by the Institute of Nuclear Power Operations for excellence and quality of operations and safety. Also, the American Nuclear Society honored San Onofre for outstanding performance in nuclear operations.

We still rely on nine different sources of energy to produce electricity -more than any other utility. Nuclear, gas-and coal-fired plants remain our primary generating resources.

In 1989, we burned more oil than anticipated because of gas-supply curtailments. An in creasing shortage of gas in Southern California has spurred our participation in projects to construct new pipelines to bring in gas from Wyoming and Canada.

Quality Service Quality customer service and low costs are keys to success in our changing business environment. A top priority again in 1989 has been to persuade some large commercial and industrial customers to continue to purchase their electric requirements from Edison rather than bypass the Edison system. These customers in the past often have had an in centive to leave the Edison system because rates were higher than the company's actual cost of service to them. With the support of the CPUC, the company has made consider able progress in developing rates and programs to retain these large customers. The company's success can be measured by 117 proposed bypass generating projects represent ing $195 million in annual revenue that were deferred or canceled in 1989.

Environmental and Our new 23,000-square-foot Customer Technology Application Center opened in January Social Issues 1990. The center demonstrates how energy-efficient electrotechnologies - such as ultravio let curing, radio-frequency drying and state-of-the-art lighting - can help our customers find more efficient ways to run their operations, conserve energy, reduce costs and meet increasingly stringent air-quality standards in our service territory.

After lengthy negotiations with the South Coast Air Quality Management District (AQMD), Edison agreed to install additional emission controls on our oil and gas power plants in the Los Angeles Basin. This will reduce Edison's nitrogen-oxide emissions by 76% over the next 10 years.

Our plants contribute about 3% of these emissions in the Los Angeles Basin, compared with 72% from vehicles powered by combustion engines. In 1989, we led efforts to improve air quality through electric vehicle research and commercialization. Over the next five years we will help put 10,000 electric vehicles on the road, aiding the implementation of the AQMD plan to have millions of these vehicles in the Los Angeles area by the year 2010.

Edison also strengthened its commitment to equal job opportunity in 1989, pledging a good-faith effort to have 30% of its top 500 positions and 20% of its top 100 jobs held by minorities and women by the year 2000. We also have pledged an effort to award 30% of our outside business contracts to minority-and women-owned businesses by 1998.

4

The Mission Group The Mission Group comprises our nonutility subsidiaries: Mission Energy, Mission First Financial, Mission Land and Mission Power Engineering. They conduct business pri marily in energy-related fields, which is consistent with our policy of diversifying into areas where we have expertise. All of these subsidiaries were profitable in 1989; the largest, Mission Energy, was the strongest performer. Together, they contributed 13% of SCEcorp's total earnings, up from 10% in 1988. Their outlook is for continued growth and profitability.

Management Changes In 1989, Edison elected four new officers: Ronald Daniels, vice president, Revenue Requirements; Lewis M. Phelps, vice president, Corporate Communications; Dr. Jacque J.

Sokolov, vice president and medical director; and Diana L. Peterson-More, secretary of the corporation. Our commitment to strengthen overall managerial knowledge and experience by changing officer assignments was reflected in several new assignments. Senior Vice President Larry T. Papay moved from Nuclear Operations to oversee Information Services, Health Care and Corporate Administrative Services. He assumed the duties of P L. Martin, who retired after 39 years of dedicated service to the company. Charles B. McCarthy Jr.,

and Robert H. Bridenbecker switched positions; Mr. McCarthy became vice president, Customer Service, while Mr. Bridenbecker became vice president and site manager, San Onofre Nuclear Generating Station. Harold B. Ray and Kenneth P Baskin also exchanged positions, with Mr. Ray becoming vice president, Nuclear Engineering, Safety and Licens ing, and Mr. Baskin becoming vice president, Fuel and Material Management.

Under our new Management Development Program, we have established formal train ing programs and cross-training assignments for talented middle managers with leadership potential to become senior company managers and officers.

H. Frederick Christie, president and chief executive officer of The Mission Group, retired on August 1 after 32 years of valuable service.

David J. Fogarty, executive vice president of Edison and SCEcorp, assumed Mr. Christie's responsibilities.

We at SCEcorp look forward to the decade of the 1990s. With the good work of our able and dedicated employees, the wisdom and leadership of our officers and board of directors, and the continued support of you, our shareholders, our company will continue to be financially strong and creatively managed. As we face the challenges and opportunities of the 1990s, our foundation is solid and our future is bright Howard P Allen Chairman, President and February 15, 1990 Chief Executive Officer 5

Year in Review Southern California Edison Company In 1989, Southern California Edison met its primary goals of serving customers well and providing shareholders with a competitive return. Edison also took steps to adapt to a changing business environment through its proposed merger with San Diego Gas & Elec tric Company (SDG&E) and by a continued commitment to quality service and cost control. The effective hard work and dedication of the company's 16,600 employees made all this possible.

Pending Merger with At their annual meetings in April 1989, the shareholders of SCEcorp, Edison and SDG&E SDG&E approved the merger of Edison and SDG&E into a single utility to serve customers in Southern and Central California. The boards of directors of SCEcorp, Edison and SDG&E had agreed to the merger in late November 1988.

Merging Edison and its southern neighbor will result in a utility with an estimated

$9 billion of annual revenue, 5 million customers, assets of $18 billion and a service terri tory of 54,100 square miles.

The merged company will be stronger financially and operationally than either utility standing alone and better able to compete in a changing business environment. The new company will produce more stable revenue and earnings, a more diverse customer base, better growth opportunities and overall savings of $1.7 billion in the 1990s.

These savings will result in lower electric rates for customers of both Edison and SDG&E. San Diego-area consumers also will benefit from improved service, better air quality and increased community support. Despite these benefits, various groups in the San Diego area have opposed the merger, in large part because they do not want to lose a hometown headquarters.

Edison's Service Territory Edison serves more than 3.9 million customers in a 50,000-square-mile service area covering much of Central and Southern California. This service terri San Francisco tory (shown in light blue) has one of the nation's most diversified and prosperous regional economies.

To the south is the area served by San Diego Gas

& Electric Company (shown in light gray).

LosAngel San Die_

6

In 1989, company representatives met repeatedly with San Diego leaders to respond to these concerns and discuss how the merger will benefit the community. This outreach program included frequent meetings with a wide variety of leaders from business, labor, government, charitable, minority and women's organizations.

The merger must be approved by the California Public Utilities Commission (CPUC),

-the Federal Eiergy Regulatory Commission (FERC) and other governmental regulatory aigehicie. To date, Edison has furnished more than 450,000 original documents responding to more than 7,000 questions from nearly 50 active parties involved in the regulatory pro ceedings. Intervenors will voice their concerns in state and federal regulatory hearings during 1990. This will include California's attorney general, the City of San Diego, various municipalities, out-of-state utilities and the CPUC's consumer advocacy division. Final decisions by the CPUC and FERC are expected before the end of the year.

In anticipation of the merger, Edison held a series of transition planning meetings and orientation sessions for SDG&E employees. On several occasions, employees from many levels of SDG&E participated in extensive orientation programs at Edison's Rosemead headquarters and field locations. Employees from Edison completed a similar program at SDG&E headquarters. These efforts were designed to improve understanding of operations at both utilities and ensure a smooth and productive transition for all employees.

Growth in Electric Sales In 1989, Edison had a net gain of 109,293 new customers, the third-highest in its 103-year and Customers history. The company spent about $270 million for new facilities to serve these additional customers. Residential customers represented about 87% of this total growth. Over the next five years, Edison forecasts a net gain of approximately 450,000 customers.

More customers helped boost Edison's revenue to a record $6.5 billion from $5.9 bil lion in 1988. Edison's retail electric sales increased 2.6% - to 67.6 billion kilowatt-hours (kwh) from 66.0 billion kwh in 1988. Total electric sales in 1989, including sales to other Ratio of Customers to Total Capacity, Peak Demand Employees (Utility) and Reserve Margin (Utility)

In thousands ofmegawatts 203 204 218 230 237 17.8 18.3 18.2 18.9 20.1 Reserve margin Peak demand Average for 15-largest electric utilities 85 86 87 88 89 85 86 87 88 89 7

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utilities and municipalities, rose 1.8% -to 69.1 billion kwh from 67.9 billion kwh in 1988.

This increase was achieved despite a continuing decline in wholesale electric purchases by six municipal utility customers. Over the years, these customers have obtained an increas ing proportion of their electric power from non-Edison sources.

In 1989, Edison's peak electricity demand was 15,632 megawatts (MW), set on July 20.

This was the second-highest peak demand ever. The all-time mark of 15,987 MW was set on September 6, 1988.

Clean-Air Plan Adopted In March, the South Coast Air Quality Management District (AQMD) approved a historic and far-reaching clean-air plan for the Los Angeles Basin. It is intended to bring the region of Los Angeles, Orange, Riverside and San Bernardino counties into compliance with federal clean-air standards by the year 2007. Under the plan, 120 different air-pollution requirements would impose extra costs on many businesses and consumers.

The AQMD also sought more stringent power-plant emission standards. After exten sive negotiations with the AQMD staff, Edison agreed in August to cut nitrogen-oxide emissions 76% over the next 10 years by placing additional emission controls on its oil and gas-fired generating units in the Los Angeles Basin. The company anticipates that these controls will require an investment of about $630 million over the next decade.

Better Service and As part of its planning for the future, Edison further developed research programs that A Cleaner Environment focus on ways to use energy more efficiently and provide customers with better value and Through Research more choice for their energy dollar.

Electrotechnologies The steady growth of electricity usage in the economy reflects its value as a clean, efficient and versatile form of energy. In the 1990s, new technologies using electricity will benefit Edison's customers by cutting their costs, boosting productivity and helping them comply with new air-quality rules.

Edison opened its Customer Technology Application Center in January 1990. This 23,000-square-foot facility provides useful information on the most advanced energy technologies to industrial, commercial and residential customers. Industrial customers can learn the advantages of such processes as ultraviolet curing, microwave and radio frequency heating and drying; commercial customers can learn about energy-efficient electric motors, heat pumps, lighting and new electric commercial-cooking technology; and residential customers and builders can see the electric "House of the Future," which includes the latest in energy-efficient electric appliances and home automation systems.

Edison also continues to support the use of electric vehicles in Southern California to reduce air pollution, traffic noise and gasoline consumption. At the same time, nighttime battery charging of these vehicles will increase off-peak electric load, resulting in more efficient use of Edison's generating capacity to the ultimate benefit of its customers.

9

In late 1989, Edison acquired 15 full-sized electric-powered vans. They will be loaned to Edison's major fleet customers in 1990 to demonstrate the performance and capabilities of electric vehicles. Edison also is sponsoring, with the Los Angeles Department of Water and Power, a project to have 10,000 electric vehicles operating in the Los Angeles Basin by 1995.

In 1989, the company's research program also continued to test a two-way electronic metering and communications network that links the utility with residential customers.

These "smart" meters offer customers a variety of energy management and informational services. Eventually, this network could allow Edison to remotely connect and disconnect service, and offer time-of-use pricing and other services to its customers.

Focus on Cost Control Under a five-year cost-containment program established in 1987, the company seeks to re and Productivity duce its annual costs by $900 million by 1992 from what they otherwise would have been.

Edison again achieved its cost-containment goals in 1989 and, except for one-time costs to secure regulatory approvals of the SDG&E merger, kept increases in operating and maintenance expenses to 1.5 percentage points below the rate of inflation.

The company's success in controlling costs is exemplified by changes in its health care program. Since 1980, Edison and other major U.S. companies have seen their medical costs rising at more than 20% annually. On January 1, 1989, Edison implemented an inno vative and comprehensive flexible-benefits program, including a major change in health care delivery, which gave employees the ability to choose the benefits best suited to their personal and family needs. The new health-care program reduced the growth in health care costs from 23% in 1988 to zero percent in 1989.

These savings stemmed from more favorable rates negotiated with doctors and hos pitals, a new system of managed care that reduces the number of unnecessary medical procedures, and a change in payment schedules for employees and their dependents. Over all, the new program continues to provide Edison employees with one of the best health care programs in the nation.

During the year, the company continued to restructure and streamline various depart ments to increase work-force efficiency. Despite a significant increase in new customers, total employment at Edison in 1989 decreased by 33 employees. Edison ranks first among the nation's 15 largest electric utilities in the ratio of customers to employees.

A Strong Commitment In 1989, Edison employees continued to demonstrate their commitment to quality service to Quality Service in field locations and offices throughout the service territory. Whenever severe winds and rainstorms struck, Edison emergency crews and other personnel mobilized quickly and worked around-the-clock to restore service. A new computerized system, implemented in 1989, has enhanced quality service by giving company personnel faster and more accurate information about customers affected by electric outages. As a result, the company can provide more timely assistance to its customers.

Edison's telephone centers handled more than 6.6 million calls from customers in 1989, a 24% increase over 1987. Furthermore, the number of customer calls outside regular 10

business hours increased 22% in 1989, due to widespread publicity given Edison's 24-hour a-day, 365-days-a-year telephone service. By interconnecting its telephone centers, Edison now can answer customer calls from anywhere in its 50,000-square-mile service territory with the first available representative. As a result, the average response time to calls is 30 seconds on a typical business day. The company also completed the consolidation of its telephone and customer accounting centers in 1989, reducing the locations from four to two. This consolidation has saved 55 positions and resulted in a more efficient use of per sonnel at the two remaining centers in Long Beach and San Bernardino. In addition, it saved customers about $1.8 million annually in operating costs.

Reflecting the rapidly changing demographics of Southern California, the company has expanded service for its non-English-speaking customers by translating informational materials on billing, energy conservation and safety. Edison also has established toll-free telephone service with representatives fluent in Spanish, Chinese (Mandarin and Can tonese), Vietnamese, Cambodian and Korean.

Company representatives made numerous presentations to senior-citizen organiza tions and provided them with information about energy usage, emergency preparedness and safety. In addition, the company's customer-contact personnel referred more than 600 elderly customers who needed assistance -with medical care, meals and transportation to various community organizations. Other major steps taken in 1989 to serve customers better included:

" assisting low-income and needy customers with various energy-management services, including bilingual help and free installation of energy-efficient equipment;

" promoting more efficient energy use by conducting 84,000 free energy surveys for residential customers and answering more than 100,000 customer calls received on Edison's toll-free conservation telephone number;

" helping to pay, for the seventh consecutive year, the winter electric bills of 12,000 low income, elderly and disabled customers through Edison's Winter Energy Assistance Fund and generous voluntary contributions from customers;

" expanding programs that recognize and reward Edison's managers and employees whose suggestions increase productivity, lower costs or provide better service;

" offering a 24-hour, toll-free telephone number for speech-and hearing-impaired customers; and a instituting a 15% discount on electric bills available to 740,000 residential customers eligible under a CPUC-authorized program for low-income households.

Specialized Service Since the late 1970s, CPUC-regulated electric rates subsidized residential customers at the to Large Customers expense of many commercial and industrial customers. This gave many large customers an incentive to generate their own electricity-and leave the Edison system-because their electric bills were significantly higher than what their costs would have been with self-generation.

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With the support and cooperation of the CPUC, Edison has made substantial progress in achieving a more equitable pricing system. Over the past few years, the CPUC estab lished rates that more closely reflect the costs of serving each customer class. In addition, the CPUC has given Edison the flexibility to negotiate special rates and services for large customers who otherwise would generate their own electricity. The loss of these commer cial and industrial customers from the Edison system would increase electricity prices to the remaining customers - particularly residential ones - because the company's fixed costs would be spread over a smaller customer base.

Edison has met the service and energy-related needs of its large customers through various programs. For example, the company has developed a highly trained group of pro fessionals to serve as individual contacts for its 230 largest customers. These customers represent about 20% of Edison's revenues. The company's service representatives advise customers on ways to cut costs, suggest economic alternatives to installing customer owned generating facilities, and help provide means of meeting increasingly stringent air-quality standards in Southern California.

Because of these efforts, Edison's large commercial and industrial customers deferred or cancelled 117 proposed generating projects in 1989, representing about 2.5 billion kwh or about $195 million-in annual sales for the company.

Planning for Flexibility Edison provides reliable electric service to its customers by using nine different generating and Diversity in resources, more than any other electric utility in the world. This diversity gives the com Generating Resources pany considerable flexibility in adapting to volatile world energy markets.

In the coming decade, the company's resource planning strategy seeks to add new transmission capacity to gain access to low-cost power and avoid construction of costly new power plants. Overall, the emphasis will be on reducing costs through greater pur chases of electricity, better energy management, efficiency improvements and repowering of existing oil-and gas-fueled power plants.

Generation Mix (Utility)

Construction Expenditures (Utility)

In percent In billions of dollars 4.9 4.2 21 Oil and gas 29 Oil and gas 33% Generation 17 Nuclear 26% Generation 67 Oil and gas 16 Nuclear 10 Coal 13% Transmission 15% Transmission 13 Coal 5 Hydro 4 Hydro 20 Purchases:

14 Nuclear 13 Pu elhies other utilities 43% Distribution Ii ICoal 13he Putilitses 5%Dsrbto Hydro 25Purchasesr e 27 Purchases:

4 sr 10 Purchases:

producers producers 7% Other otherutilities 1979 1989 1999 1985-1989 1990-1994 (Projected)

(Recorded)

(Projected) 14

Nuclear Power Edison's nuclear plants in Southern California and Arizona generated 16% of customers' electricity needs. This nuclear energy saved customers the cost of more than 20 million barrels of oil or its equivalent in natural gas, resulting in fuel savings of about $280 million.

The three units at the San Onofre Nuclear Generating Station generated nearly 15% of the electricity used by Edison's customers. Edison owns 80% of the 450-MW Unit 1 and 75% of Units 2 and 3, which have a combined capacity of 2,200 MW The company also manages and operates all three San Onofre units.

The three San Onofre units produced on average at 68% of their capacity for the year, exceeding the 1989 national average for nuclear plants. In 1989, Unit 1 was out of service for six months to complete its ninth refueling and to perform other maintenance and mod ifications, while Unit 2 completed its fourth refueling. Unit 3 operated at more than 94%

of capacity in 1989, making it the fourth-highest producer of electricity among the nation's 110 nuclear units.

After completion of an extensive independent evaluation in April, the Institute of Nu clear Power Operations recognized Edison for achieving excellence in the operation of the San Onofre plant. In addition, the American Nuclear Society recognized San Onofre for reducing the number of reactor shutdowns with an award for outstanding performance in nuclear operations.

The company also owns a 15.8% interest in the Palo Verde Nuclear Generating Station near Phoenix, Arizona. The three 1,221-MW Palo Verde units are managed by Arizona Pub lic Service Company (APS). After an excellent year of generating electricity in 1988, the three Palo Verde units had extended outages that significantly reduced production and in creased costs in 1989. Units 1 and 3 experienced refueling and maintenance outages during most of the year. At the end of 1989 Unit 2 was in full operation, while Unit 3 completed its first refueling outage and returned to normal service in January 1990. Unit 1 is sched uled to complete its extended refueling and maintenance outage and return to service in Spring 1990. Because of these unexpected and extended outages, Edison's share of Palo Verde operating costs was approximately $8 million more in 1989 than expected. Edison is disappointed in the plant's extended outages and increased costs. As a result, Edison and other plant owners have been meeting with APS concerning improvement in the manage ment and operation of the units.

Fossil-Fuel Power Plants Edison's 54 oil and natural gas units, with more than 10,000 MW of capacity, provided 29% of customers' electric needs in 1989. Most of these units are located within the Los Angeles Basin.

Two coal-fired power plants located outside of California produced an additional 13%.

Edison operates and owns 56% of the Mohave Generating Station in Nevada and owns 48% of the Four Corners Generating Station's Units 4 and 5 in New Mexico operated by APS. In early 1990, the company anticipates an award of about $7 million under the CPUC's coal-plant incentive program for the past performance of the two plants.

15

I High Ratings for Nuclear Power Plant In April, the Institute of Nuclear Power Operations recognized the company's San Onofre Nuclear Generating Station for excellence in its overall operations after an extensive independent evaluation. The three-unit San Onofre plant, located near San Clemente, California, also was honored in 1989 by the American Nuclear Society for outstanding performance in reducing the number of reactor shutdowns.

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Hydroelectric Power Low precipitation in 1988 and 1989 limited Edison's hydroelectric generation to only 4% of customers' electric needs in 1989. The Big Creek hydro system in California's Sierra Nevada is the primary source of this low-cost power, representing 1,000 MW of capacity. Edison also has an allotment of 277 MW of hydroelectric capacity from Hoover Dam on the Colorado River.

Purchased Power To meet customers' electric energy requirements, the company pur chases power from many outside sources. Total outside purchases rose to 38% of cus tomers' needs in 1989, compared with 34% in 1988. This increase resulted from greater purchases of more costly power from nonutility power producers as mandated by govern mental authorities.

Economy-Energy Purchases The company made short-term ("spot-market") purchases of low-cost electricity through the Western Systems Power Pool (WSPP) and from other utilities that saved customers $51 million in 1989, compared with the cost of generation using oil or natural gas at Edison's power plants. These economy-energy purchases sup plied about 7% of Edison customers' total electric needs in 1989 at an average cost of 2.1 cents per kwh, compared with 1.8 cents in 1988.

The company saved about $15 million by purchasing and exchanging power as an active member of the WSPP, the largest power pool in the nation. Pool members use a centralized computer to efficiently buy and sell low-cost surplus power, and make better use of existing generation and transmission facilities. Market forces, rather than regula tory agencies, determine power prices under this program.

The company played a major role in establishing the WSPP in 1987 as an experimental program under the auspices of the Federal Energy Regulatory Commission (FERC). Since then, it has grown to 31 public and investor-owned utilities serving more than 55 million people in 22 states, primarily in the West. Although the program is scheduled to end in May 1990, efforts are under way to extend it for at least another year while member util ities and the FERC decide whether to make the program permanent.

Firm-Energy Purchases Purchases under long-term contracts with other utilities sup plied 6% of Edison customers' electricity needs at an average cost of 4.1 cents per kwh.

A 20-year, power-purchase agreement signed in 1988 between Edison and the federal Bonneville Power Administration became effective July 1, 1989. Under it, Edison receives 250 MW of capacity and 1.2 billion kwh annually, or enough electricity to serve nearly 200,000 homes. The agreement will save Edison customers about $30 million annually, compared with the next lowest-cost alternative.

Purchases from Nonutility Producers Purchases of electricity from projects developed by nonutility power producers grew 45% in 1989 and supplied 25% of Edison's total sys tem energy requirements. These purchases are made under terms mandated by state regulation, and are generally more costly than other sources of power.

18

The Public Utility Regulatory Policies Act (PURPA), enacted by the U.S. Congress in 1978, was intended to encourage the development of alternative and renewable energy resources by requiring electric utilities to purchase power from qualifying nonutility producers. Each state was required to establish its own implementation rules. In Califor nia, CPUC policy directed Edison and other investor-owned utilities to buy electricity from these independent power producers under standard long-term contracts at specified prices. The law was well-intended, but the result has been that Edison and other utilities are required to buy electric power at costs much higher than what the company can pro duce itself or purchase from other sources.

Today, although fuel oil and natural gas prices have decreased significantly from levels forecasted in the early 1980s, Edison still is required to buy this high-cost electric power from independent power producers under long-term contracts. In 1989, the electricity pur chased from these outside producers cost an average of 6.9 cents per kwh, up 10% from the previous year. Overall, this high-cost electric power cost Edison's customers an additional

$300 million in 1989.

By contrast, Edison's customers benefited from purchases from projects involving Mis sion Energy Company, SCEcorp's nonutility power-production subsidiary. The net cost to Edison of electric power from Mission Energy projects is below that allowed under stan dard CPUC contracts. The average cost of these purchases was 5.7 cents per kwh. Mission Energy's participation in these projects resulted in nearly $50 million of savings for ratepayers during 1989.

At the end of 1989, 366 nonutility projects in operation were contributing 2,907 MW of capacity to the Edison system. Edison also has contracts - most signed in 1984 and 1985 for an additional 104 projects, representing another potential 1,292 MW of capacity. How ever, the company estimates that only about half of this contracted, but not built, capacity will go into service, primarily because of changes affecting nonutility producers in federal tax laws, air-quality considerations, and siting and permit requirements.

Higher Fuel Costs Fuel and purchased-power costs represent Edison's largest expense in supplying electricity and New Gas-Supply to customers. Under California regulation, Edison can recover these costs from ratepayers Agreements on a dollar-for-dollar basis so long as they are accurately forecasted. These costs are subject to annual reasonableness reviews by the CPUC.

These combined costs rose from $2.21 billion in 1988 to $2.63 billion in 1989, pri marily because of the substantial increases in purchases from nonutility power producers, as required under costly PURPA-mandated contracts.

Natural gas was the primary fuel used in Edison's gas and oil power plants, except when supplies were partially curtailed from February through May, then again in Novem ber and December. During the past two years, Edison's natural-gas supplies have been curtailed about 30% of the time, forcing Edison to burn more costly fuel oil. These curtail ments have underscored the need for more gas pipeline capacity into California.

19

To protect its customers, Edison has sought more secure sources of natural gas. Under a trial program approved by the CPUC, the company was able to rent gas storage space for the first time from Southern California Gas Company. In November, this stored gas was used instead of more costly oil, saving Edison customers about $3 million in fuel expenses.

In addition, the company reached agreements in 1989 with Wyoming-California Pipeline Company, a subsidiary of Pacific Gas & Electric Company and Southern Califor nia Gas Company on gas pipeline projects that eventually could provide Edison with 250 million cubic feet of low-cost gas daily from Canada and Wyoming. This volume of gas would have supplied about 40% of Edison's total natural-gas requirements in 1989. These projects are in their early stages of development and are scheduled for completion in the next few years. They should increase reliability of gas service and produce fuel savings for Edison customers in years to come. Final regulatory approvals for these projects are ex pected in 1990.

Expanding Transmission Over the years, the company has greatly expanded its transmission capacity to neighbor Capacity ing states to provide customers with more diverse sources of low-cost power. The major link for transmitting power between California and the Pacific Northwest is the Pacific Intertie transmission system. This major interconnection benefits both regions by allow ing each region to sell or exchange its electricity to the other region and take advantage of seasonal differences in electric demand. This farsighted transmission system has saved Edison's customers hundreds of millions of dollars in addition to providing greater reliabil ity and operational benefits.

Built in the 1960s, the Pacific Intertie includes two alternating current (AC) transmis sion lines and one direct current (DC) line, all capable of transmitting large amounts of electricity in either direction at extra-high voltages. In April, the completion of a joint expansion project with the Los Angeles Department of Water and Power boosted Edison's entitlement over the DC line by 221 MW to a total of 643 MW With other California utilities, Edison is seeking regulatory approval to build a third extra-high-voltage AC line to the Pacific Northwest. The proposed line, known as the California-Oregon Transmission Project and targeted for completion in 1992, would add about 1,600 MW of transmission capacity, including Edison's share of 281 MW Edison and 11 other utilities also are seeking a major expansion of transmission capac ity between California and the Southwest by building a second extra-high-voltage AC line from the Palo Verde Nuclear Generating Station near Phoenix, Arizona, to the company's Devers Substation, near Palm Springs. If approved by the CPUC, it would increase Edison's transmission capacity by 508 MW in the 1990s.

At year end, Edison had 1,632 MW of transmission access to the Pacific Northwest and 2,700 MW to the Southwest. After completion of planned improvements, Edison's overall transfer capacity to these regions will increase 789 MW to more than 5,100 MW 20

Employee Development Edison sponsored a variety of training programs for its employees in 1989 to enhance their and Safety professional skills and ability to serve customers better. In all, about 4,400 employees participated in these programs.

Reflecting the fact that a safe and healthful work environment remains a high priority at Edison, the Edison Electric Institute awarded 16 different organizations at Edison with certificates of excellence for working 1 million or more hours without a lost-time accident.

In 1989, industrial accidents declined 15% from 1988, while lost workdays dropped 31%.

Commitment to On September 27, Edison signed a comprehensive equal opportunity pledge with a broad Equal Opportunity coalition of minority and women's groups. Members of the coalition who signed the agree ment, including many of California's major black, Hispanic and Asian groups, praised it as a landmark and model for corporate America.

The plan will help Edison better meet its responsibilities to serve a demographically diverse, rapidly changing service territory. It calls for Edison to make a good-faith effort to meet the following goals:

" advance minorities and women in the company's management so that they hold at least 30% of Edison's top 500 positions and 20% of the top 100 jobs by the year 2000. All advancements and promotions will be based on merit and experience. To help implement these goals, the company is developing new training programs for its top 500 supervisors and managers, along with other new programs to help employees develop more skills to further advance their careers;

" increase representation of women and minorities on its board of directors;

" award 30% of Edison's estimated $1 billion in procurement contracts to minority-and women-owned businesses by 1998; o appoint an advisory council of community leaders who will meet quarterly and report directly to Edison's chief executive officer;

" increase charitable, cultural and community-related contributions to low-income, minority and women's organizations; and

" work with the CPUC to increase Edison's low-income assistance programs.

Percentage of Asian American Total male, female and Male Female Black American Indian Hispanic Minorities minority employees at year-end Year-end Year-end Year-end Year-end Year-end Year-end Year-end 1984 and 1989 1984 1989 1984 1989 1984 1989 1984 1989 1984 1989 1984 1989 1984 1989 Management(')

82.4 78.8 17.6 21.2 3.8 4.4 6.3 7.5 0.5 0.4 8.0 10.5 18.6 22.8 Administrative

&operative (2) 73.3 73.9 26.7 26.1 9.4 9.3 3.5 4.4 1.1 1.3 19.2 22.5 33.2 37.5 Total Edison (3 )

76.4 75.8 23.6 24.2 7.5 7.5 4.4 5.6 0.9 0.9 15.3 17.9 28.1 31.9 (1) Includes the "officials" and "professionals" affirmative action categories.

(2) Includes the "technicians," "office and clerical," "craftsmen," "operators" and "service workers" categories.

(3) Regular employees only 21

Employee Commitment to Quality Service Edison relies on teamwork and a strong commitment to excellence by employees working in many jobs behind the scenes -such as automotive mechanics, security personnel, carpenters and painters. In 1989, the dedication, hard work and high morale of Edison's 16,600 employees were a key reason for its financial and operating successes.

22

Today, women and minorities make up 46% of Edison's work force. In addition, the company has sought out many women-and minority-owned firms qualified to do business with Edison. Minority-and women-owned business contracts grew from 523 in 1984 to 1,963 at the end of 1989, with annual payments rising from $38 million to $128 million.

In 1989, Edison also established a new bank credit line and deposit program for minority-and women-owned financial institutions. Under it, the number of these institutions with whom Edison is doing business grew from 12 to 23 and its credit lines rose from $5 million to $27 million. The company also worked closely with five minority and women-owned firms that manage 8%, or $135 million, of the employee pension fund.

All of these financial services were cost-competitive with the company's other sources of financial services and were provided by firms staffed with professionally qualified people.

A Tradition of Throughout Edison's 103-year history, the company has supported a wide variety of civic, Community Service educational and charitable organizations in more than 800 communities throughout its 50,000-square-mile service territory. The company and its employees also have voluntarily participated in a wide range of community activities.

Employees showed their spirit of generosity during the 1989 United Way Campaign by pledging more than $2.4 million to help people in need. On a per-capita basis, Edison employees were among the leading contributors to the more than 900 charitable organizations supported by United Way. And they also donated thousands of hours of their own time as volunteers to various community organizations - such as helping battered women and children, the disabled and homeless.

As a public service, the company sponsored a major exhibit on electricity that opened in April at the California Museum of Science and Industry in Los Angeles. This highly popular exhibit features 17 modules that allow youngsters and visitors of all ages to learn about electricity and magnetic forces by direct involvement. It is the fourth rebuild of Edi son's exhibit in 25 years of continuous educational exhibits at the museum.

The company's support for education takes many forms. For example, Edison develops electric-related educational materials through various school programs in cooperation with teachers, administrators and community leaders. Students learn about energy conser vation, electric safety, disaster preparedness, environmental issues and other energy related topics. Edison also provides scholarships and grants on a competitive basis to stu dents throughout its service territory. Each year, the company provides four $12,000 scholarships, 20 career-development awards of $3,000, and 50 educational grants of $500.

It also awards two $12,000 scholarships annually to children of employees.

Another important educational program, known as the Science Connection, uses a 40 foot mobile classroom to stimulate interest in science and technology among elementary school children. Throughout Edison's service territory, this program provides scientific demonstrations to about 10,000 students each year.

23

Regulatory Review Rate Approvals Edison received approval for various revenue changes in 1989 that re sulted in a net annual rate increase of 5.0%, or $299 million in higher revenue. Additional changes effective February 1, 1990, further increased revenue by $60 million annually, or 0.9%. Actions contributing to these rate changes included:

o adjustments for changes in costs of fuel and purchased power-a $417-million annual increase effective July 1, 1989, and a partially offsetting decrease of $99 million effective February 1, 1990; o an annual attrition increase for 1990 of $41 million to cover increased costs of inflation, capital additions and financing; this allowance includes a reduction in Edison's authorized regulatory return on common equity from 13.0% in 1989 to 12.85% in 1990, or a decrease in revenue of $12 million; o a rate increase of $113 million as part of a CPUC-approved phased recovery of the company's investment in the Palo Verde Nuclear Generating Station in Arizona; and o inclusion in rate base of the $269-million cost of constructing the Balsam Meadow hydroelectric project and the $136-million cost of the Devers-Valley-Serrano transmis sion line, after the CPUC determined that these costs were prudently incurred.

1991 General Rate Case Deferral As a result of the pending merger with San Diego Gas & Electric Company, the CPUC deferred the company's next general rate case for one year. For 1991, Edison is authorized to file a modified attrition request.

Palo Verde Outage On December.18, the CPUC issued an Order Instituting Investigation (011) concerning Palo Verde.Units 1 and 3. OIIs are mandatory under a provision of the California Public Utilities Code whenever generation facilities remain out of service for nine or more consecutive months. However, Edison believes that an 011 should not be required in this case, because much of the outage for Palo Verde Units 1 and 3 was for planned refueling and modifications required by the Nuclear Regulatory Commission. If the 011 is not dismissed, the CPUC will determine whether certain portions of the revenue collected in rates for these units will be refunded to customers.

Assistance Program for Low-Income Customers As a result of California legislation and CPUC actions, Edison instituted a program to provide 15% discounts to residential customers meeting CPUC-approved low-income guidelines.

24

Purchased Power Reasonableness Review The CPUC periodically reviews the reasonableness of Edison's fuel and purchased-power expenses. In 1989, CPUC proceedings focused on the reasonableness of Edison's expenses for power purchases from nonutility sources. Under the Public Utility Regulatory Policies Act (PURPA), federal regulations allow utilities to own up to a 50% interest in nonutility power producers, and require utilities to purchase nonutility power at prices established by the state regulatory commissions.

In this ongoing review, the CPUC's consumer advocacy staff, the Division of Ratepayer Advocates (DRA), alleges that Edison acted imprudently in negotiating and administering some of its contracts with nonutility producers. The DRA has recommended that the CPUC disallow $124 million of Edison's expenses incurred between late 1984 and 1987 under 18 of these PURPA-mandated contracts. Edison's position is that it acted prudently and consistent with state and federal regulations when it negotiated these 18 contracts.

One of these contracts involves a nonutility power producer in which Edison's Mission Energy affiliate has a 50% ownership interest - the 300-MW Kern River Cogeneration Company (KRCC). This contract amounts to $37 million of the $124 million proposed disallowance. The largest part of the DRAs recommended disallowance for the KRCC contract is based on its position that the contract is essentially for the purchase of non firm, rather than firm power. This is inconsistent with the contract and the facts. Edison presented testimony to the CPUC in 1989 proving that the KRCC contract is more bene ficial to Edison's customers than purchases mandated under standard contracts authorized by the CPUC. From late 1984 to 1987, payments under the KRCC contract alone saved Edison customers more than $24 million when compared with a CPUC-mandated standard contract.

For each of the 17 other contracts under review, none of which involves an Edison affiliate, Edison demonstrated that it consistently acted in accordance with the law and for the benefit of its customers.

In addition to these 18 contracts involving payments made between 1984 and 1987, Edison filed documents in May 1989 with the CPUC supporting the reasonableness of its fuel and purchased-power expenses, including purchases from nonutility power producers, incurred between December 1987 and March 1989. During this period Edison paid $1.08 billion under 262 PURPA-mandated.contracts, including 10 contracts with projects involving Mission Energy. The DRA has not completed its analysis of Edison's filing on these additional contracts or taken any position on them, and the CPUC has not yet scheduled any hearings on these 262 contracts.

25

Year in Review The Mission Group The Mission Group consists of four nonutility subsidiaries: Mission Energy, Mission First Financial, Mission Land and Mission Power Engineering. These subsidiaries, which achieved considerable success in 1989, are focused generally on energy-related businesses and investments in 13 states. In 1989, revenue from these nonutility subsidiaries rose to

$409.1 million from $333.1 million in 1988; net income increased to $99.9 million, or 46 cents per share, from $77.8 million, or 35 cents per share in 1988. At year end, The Mission Group had assets totaling $1.4 billion, with SCEcorp's equity investment amounting to

$735.3 million.

The Mission Group earnings represent 13% of SCEcorp's total 1989 earnings, compared with 10% the previous year.

Mission Energy Company Mission Energy is a national leader in the development, ownership and operation of major cogeneration and geothermal projects. It manages engineering and construction work, provides operating and maintenance services and assists in obtaining permits and financ ing for power generating facilities.

In June 1989, the Cogeneration Institute of the Association of Energy Engineers recog nized Mission Energy as the 1988 Cogeneration Company of the Year. At year end, Mission Energy jointly owned 17 operating projects totaling 1,939 megawatts (MW) of capacity in six states, including 11 projects, totaling 791 MW which were added in 1989. Another 15 projects with more than 2,200 MW of capacity are under construction or development out side of Edison's service territory in eight states.

During 1989, Mission Energy opened an office in Fairfax, Virginia, to take further advantage of business opportunities in the eastern United States. Additionally, Mission Energy has entered the international market by actively pursuing a project exceeding 150 MW in Canada and participating in a feasibility study for a large-scale cogeneration proj ect in Great Britain.

Mission Energy is the largest subsidiary of The Mission Group, with revenue of $127.8 million in 1989, and a net income of $56.0 million, or 26 cents per share. By comparison, it had revenue of $88.2 million in 1988, and a net income of $38.6 million, or 18 cents per share. At year end, equity investment in the company totaled $391.7 million.

Mission First Financial Mission First Financial participates in investment opportunities involving leveraged leasing, project financing, cash management and venture capital. The company plans to expand its project-and lease-financing activities over the next five years, primarily focus ing on domestic and international energy-related investments.

In 1989, Mission First Financial agreed to help finance the sale and leaseback of the 1,370-MW Midland cogeneration plant in Michigan. The company also completed an aircraft sale and leaseback with United Airlines. In addition, Mission First Financial 26

invested in seven projects that will provide affordable housing for low-and medium income families and individuals. The company's other key investments include participa tion in a sale and leaseback of a nuclear power plant in Pennsylvania; participation in a paper mill and cogeneration plant in Minnesota; and management of a money-market in vestment program. About 80% of this subsidiary's investment portfolio is energy related.

In 1989, Mission First Financial had revenue of $25.7 million, with a net income of

$15.3 million, or 7 cents per share. By comparison, it had revenue of $21.7 million in 1988, and a net income of $13.7 million, or 6 cents per share. At year end, equity investment in this subsidiary totaled $110.8 million.

Mission Land Company Mission Land invests in real estate. The company owns, develops and operates industrial parks, as well as office, retail and residential properties. The company's active business development program has resulted in agreements for 14 new joint-venture partnerships in 1989.

This subsidiary owns and manages five industrial parks covering nearly 400 acres in Southern California and Arizona. These parks contain about 2.5-million square feet of leasable space.

During 1989, Mission Land's projects included the construction of buildings in Rancho Cucamonga and Corona, California; Munster, Indiana; and Phoenix, Arizona. Mission Land also became a partner in several joint ventures, including commercial projects in Ca marillo and Hawthorne, California; industrial projects in Oceanside, California, and Carol Stream, Illinois, near Chicago; and 2,690 apartment units, primarily near Dallas-Fort Worth, Texas.

Revenue for 1989 was $45.7 million, with net income of $21.7 million, or 10 cents per share. By comparison, it had revenue of $48.7 million in 1988 and net income of $20.2 million, or 9 cents per share. Year-end equity investment in this company totaled

$203.2 million.

Mission Power Mission Power Engineering performs consulting, engineering and construction in the Engineering Company energy field. Since its formation in 1984, this subsidiary's projects have included electric power generating units, transmission lines and substations.

During 1989, the company completed construction of three geothermal generating units, totaling 50 MW of capacity. At year end, it had an additional three units under con struction, totaling 90 MW of capacity. Mission Power Engineering ranked 26th among the nation's top 400 engineering and design firms, according to the "Engineering News Rec ord" published in 1989.

In 1989, it had revenue of $209.4 million and a net income of $6.6 million, or 3 cents per share. By comparison, it had revenue of $174.4 million in 1988 and a net income of

$7.6 million, or 3 cents per share. Year-end equity investment in this subsidiary totaled

$20.7 million.

27

Financial Review SCEcorp achieved another year of outstanding financial performance, providing share holders with an excellent return on their investment.

SCEcorp Record Earnings and Revenue SCEcorp's earnings rose in 1989 to a record $778 mil lion, compared with $762 million in 1988. Revenue grew to a record $6.9 billion from $6.3 billion in 1988.

Earnings per share in 1989 increased 2% to a record $3.56 from $3.49 in 1988. Edison's contribution to SCEcorp's earnings was $3.10 per share, or 87% of total earnings, a decline of 4 cents from 1988. The decline in utility earnings resulted from costs associated with the Palo Verde Nuclear Generating Station outage and the one-time proceedings to secure regulatory approvals for the Edison-SDG&E merger, which were partially offset by a small increase in Edison's authorized rate of return on common equity and tight controls on its cost of doing business.

The Mission Group provided 46 cents per share, or 13% of total earnings, an increase of 11 cents per share, or 31% more than last year. All four nonutility subsidiaries were profitable in 1989. The growth in earnings resulted largely from additional Mission Energy projects placed into operation, project-financing investments at Mission First Financial and the management and sale of Mission Land properties.

Dividend Increase In June, the board of directors increased the common stock divi dend for the 14th time in 13 years. The new annual dividend rate of $2.56 per share is 3.2%

higher than the previous annual rate of $2.48 per share. Dividends have been paid without interruption since the utility's incorporation in 1909.

Net Income (SCEcorp)

Nonutility Earnings Per Share In millions of dollars In cents per share 702 521*

739 762 778 19 35 46 Mison Power Enieering MisonFirst Financial

• M ssionLand

~~

Mission Energy 85 86 87 88 89 87 88 89

• Restated to reflect disallowance of nuclear plant construction costs.

28

Stock Price Performance and Shareholder Return On December 27, SCEcorp's com mon stock traded at an all-time high of $41. Total return to SCEcorp's common share holders from stock price appreciation and dividends was 30% in 1989. For each of the past five-, 10- and 15-year periods, the total return to shareholders has averaged more than 20%

annually, matching or exceeding returns from the Standard & Poor's 500 index and the Dow Jones utility average.

Southern California Corporate Financing In 1989, Edison internally generated all of its construction Edison Company expenditures and most of the funds needed to retire maturing debt and preferred stock ob ligations. In total, Edison's internal generation was 88% of capital requirements, nearly a record. The company raised $150 million in the capital markets during the year to repay maturing bonds, meet sinking-fund requirements on bonds and preferred stock redemption requirements and to redeem more costly debt. In addition, Edison took advantage of lower interest rates to restructure $300 million of existing debt to further reduce costs.

Edison has the lowest cost of capital of any California utility. Through a continuing program of refunding high-coupon debt, Edison's average cost of debt declined from a high of 10.5% in 1983 to 9.1% for 1989.

Edison continues to be the only major utility in California to have its bonds rated AA, meaning very strong. In September, Standard & Poor's raised Edison's bond-rating outlook from negative to stable, strengthening Edison's standing in the credit markets.

Global Commercial-Paper Program The company continued to expand its worldwide financing through its global commercial-paper program. This program enables Edison to borrow at the lowest interest rates available in the world. At the end of 1989, $75 million of Edison's commercial paper was outstanding in foreign markets, all at rates equal to or below those available in the domestic market.

Stock Price Range (SCEcorp)

Internal Generation of Funds (Utility)

In dollars In percent 28/2 383/4 37 34/2 41 High 65 74 77 100 88 26%

337/s 302 32/8 393%s Close 22/s 254 27/s 29V/

31 Low 85 86 87 88 89 85 86 87 88 89 29

Credit Watch Edison continues to lead the utility industry in protecting customers from the few financially troubled commercial and industrial customers who may not pay their electric bills. Once these customers are identified through its early-warning credit watch system, Edison makes arrangements to ensure collection of revenue by obtaining cash deposits, surety bonds or more frequent payments. The credit-watch program saved Edison's customers more than $450,000 in 1989 and more than $8 million since it began eight years ago.

SCEcorp and Edison In 1989, SCEcorp's return on common equity was 15.0%. This was down slightly from the Rates of Return 15.3% return earned in 1988, primarily because of good, but somewhat lower, rates of return earned in SCEcorp's nonutility businesses.

In 1989, Edison's authorized return on rate base was 10.9%, while its recorded return on rate base was 10.6%. For 1990, the CPUC reduced Edison's authorized rate of return on rate base to 10.7%.

15-Year Annual-Return Comparison

$1,000 Investment in SCEcorp Stock (Stock price appreciation and dividends)

In dollars In percent 15.9 16.4 18.3 20.6

$2,497 Price appreciation Dividends Initial investment 85 86 87 88 89 DJIA S&P 500 DJUA SCEcorp index stock 30

Board of Directors First row (from left):

Joan C. Hanley, Jack K. Horton,*

Howard P Allen, William R. Gould, Camilla C. Frost.

Second row:

Carl E Huntsinger, Henry T. Segerstrom, Warren Christopher, Walter B. Gerken, Norman Barker Jr., Edward Zapanta.

Third row:

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

• Retired from the board of directors, April 20, 1989.

Howard P. Allen William R. Gould James M. Rosser Chairman of the Board Chairman Emeritus President President and Chief Executive Officer (Retired Chairman of the Board California State University Los Angeles and Chief Executive Officer)

Los Angeles, California Roy A. Anderson Southern California Edison Company Chairman Emeritus Long Beach, California Henry T. Segerstrom Lockheed Corporation Managing Partner Burbank, California Joan C. Hanley C. J Segerstrom & Sons General Partner and Manager (real estate development)

Norman Barker Jr.

Miramonte Vineyards Costa Mesa, California Chairman of the Board Temecula, California Pacific American Income Shares, Inc.

E. L. Shannon Jr.

(a closed-end bond fund)

Carl F. Huntsinger President and Chief Executive Officer Los Angeles, California General Partner Santa Fe International Corporation DAE Limited Partnership, Ltd.

(oil service, engineering, petroleum Warren Christopher (agricultural management) exploration and production)

Chairman, O'Melveny & Myers Ojai, California Alhambra, California (a law firm)

Los Angeles, California Charles D. Miller Robert H. Smith Chairman of the Board and President and Chief Financial Officer Camilla C. Frost Chief Executive Officer Security Pacific Corporation Chairman of the Executive Committee Avery International Corporation Chairman of the Board Los Angeles County Museum of Art (manufacturer of self-adhesive products)

Security Pacific National Bank Los Angeles, California Pasadena, California Los Angeles, California Walter B. Gerken J. J. Pinola Edward Zapanta Chairman of the Executive Committee Chairman of the Board and Physician and Neurosurgeon Pacific Mutual Life Insurance Company Chief Executive Officer Monterey Park and Newport Beach, California First Interstate Bancorp East Los Angeles, California Los Angeles, California 31

Executive Officers SCEcorp Howard P. Allen Michael R. Peevey Michael L. Noel Chairman of the Board Executive Vice President Vice President and Treasurer President and Chief Executive Officer David N. Barry III Diana L. Peterson-More David J. Fogarty Vice President and General Counsel Secretary of the Corporation Executive Vice President Richard K. Bushey John E. Bryson Vice President and Controller Executive Vice President and Chief Financial Officer Southern California Edison Company Howard P. Allen Glenn J. Bjorklund Charles B. McCarthy Jr.

Chairman of the Board Vice President Vice President President and Chief Executive Officer (Power Supply)

(Customer Service)

David J. Fogarty Robert H. Bridenbecker Michael L. Noel Executive Vice President Vice President and Site Manager Vice President and Treasurer San Onofre Nuclear Generating Station John E. Bryson Lewis M. Phelps Executive Vice President Richard K. Bushey Vice President and Chief Financial Officer Vice President and Controller (Corporate Communications)

Michael R. Peevey Ronald Daniels Harold B. Ray Executive Vice President Vice President Vice President (Revenue Requirements)

(Nuclear Engineering, L.T.LPapay Safety and Licensing)

Senior Vice President Robert Dietch Vice President Jacque 1. Sokolov David N. Barry III (Engineering, Planning and Research)

Vice President and Medical Director Vice President and General Counsel John R. Fielder Diana L. Peterson-More Kenneth P. Baskin Vice President Secretary of the Corporation Vice President (Information Services)

(Fuel and Material Management)

Nonutility Subsidiaries David J. Fogarty Thomas R. McDaniel Robert E. Umbaugh President and Chief Executive Officer President President The Mission Group Mission First Financial Mission Land Company J. Jack Adrian James S. Pignatelli President President Mission Power Mission Energy Company Engineering Company 32

Financial Information 34 Responsibility for Financial Reporting 34 Report of Independent Public Accountants 35 Consolidated Statements of Income 36 Consolidated Balance Sheets 38 Consolidated Statements of Cash Flows 39 Consolidated Statements of Capitalization 40 Notes to Consolidated Statements of Capitalization 41 Consolidated Statements of Retained Earnings 41 Notes to Consolidated Financial Statements 50 Quarterly Financial Data 51 Electric Revenue and Kilowatt-Hour Sales 51 Electric Revenue by Rate Components 52 Selected Financial Data: 1985-1989 53 Management's Discussion and Analysis of Results of Operations and Financial Condition 33

Responsibility for Financial Reporting Report of Independent Public Accountants The management of SCEcorp (the "corporation") is responsible To the Shareholders and the Board of Directors, SCEcorp:

for preparing the accompanying financial statements. The statements were prepared in accordance with generally ac-We have audited the accompanying consolidated balance cepted accounting principles and necessarily include amounts sheets and statements of capitalization of SCEcorp (a Califor based on management's estimates and judgment. Management ma corporation hereinafter referred to as the "corporation")

believes other information in the annual report is consistent and its subsidiaries as of December 31,1989, and 1988, and the with the financial statements.

related consolidated statements of income, retained earnings Management maintains systems of internal control that and cash flows for each of the three years in the period ended provide reasonable assurance assets are safeguarded, transac-December 31,1989. These financial statements are the respon tions are properly executed in accordance with management's sibility of the corporation's management. Our responsibility authorization, and accounting records may be relied upon for is to express an opinion on these financial statements based on the preparation of financial statements and other financial in-our audits.

formation. The design of internal control systems involves We conducted our audits in accordance with generally ac management's judgment concerning the relative cost and ex-cepted auditing standards. Those standards require that we pected benefits of specific control measures. These systems plan and perform the audit to obtain reasonable assurance are augmented by internal audit programs through which the about whether the financial statements are free of material adequacy and effectiveness of internal controls, policies and misstatement. An audit includes examining, on a test basis, procedures are evaluated and reported to management.

evidence supporting the amounts and disclosures in the In addition, Arthur Andersen & Co., as part of its indepen-financial statements. An audit also includes assessing the dent audit of the corporation's financial statements, is accounting principles used and significant estimates made responsible under generally accepted auditing standards to by management, as well as evaluating the overall financial evaluate the internal control structures in order to determine statement presentation. We believe that our audits provide its auditing procedures for the purpose of expressing its opin-a reasonable basis for our opinion.

ion on the financial statements.

In our opinion, the financial statements referred to above Management believes the corporation's systems of internal present fairly in all material respects, the financial position of control are adequate to accomplish the objectives discussed the corporation and its subsidiaries as of December 31,1989, herein. Management has implemented all of the internal and and 1988, and the results of their operations and their cash external auditors' significant recommendations regarding the flows for each of the three years in the period ended December systems of internal control.

31, 1989, in conformity with generally accepted accounting The audit committee of the board of directors, which is principles.

composed entirely of non-employee directors, meets periodi-As discussed in Note 2 to the financial statements, the cally with both the external and internal auditors, who have corporation changed its method of accounting for unbilled rev unrestricted access to the committee. This committee recom-enue as of January 1,1987.

mends to the board of directors the annual appointment of a firm of independent public accountants, considers the audit scope and independence of the external auditor, discusses the ade quacy of internal controls, reviews financial reporting issues ARTHUR ANDERSEN & CO.

and is advised of management's actions regarding these matters.

Management is responsible for fostering a climate in which Los Angeles, California the corporation's affairs are conducted in accordance with the February 2, 1990 highest standards of personal and corporate conduct, which are reflected in the corporation's Standards of Conduct. Manage ment maintains programs to encourage and assess compliance with these standards.

John E. Bryson Howard P. Allen Executive Vice President Chairman of the Board, President and Chief Financial Officer and Chief Executive Officer February 2, 1990 34

Consolidated Statements of Income SCEcorp and Subsidiaries In thousands, except per-share amounts Year ended December 31, 1989 1988 1987 Electric revenue

$6,524,386

$5,931,682

$5,501,057 Investment and other 380,000 321,037 100,869 Total operating revenue 6,904,386 6,252,719 5,601,926 Fuel 996,026 972,973 1,091,973 Purchased power 1,638,495 1,235,110 780,599 Provisions for regulatory adjustment clauses-net 184,206 240,681 225,108 Other operating expenses 1,172,651 1,068,886 885,849 Maintenance 377,888 375,444 361,484 Depreciation and decommissioning 689,614 646,569 551,348 Income taxes 497,793 446,395 578,228 Property and other taxes 179,939 170,293 162,546 Total operating expenses 5,736,612 5,156,351 4,637,135 Operating income 1,167,774 1,096,368 964,791 Nuclear plant disallowance (Note 3)-

(148,963)

Income taxes-nuclear plant disallowance 78,616 Provision for rate phase-in plan 11 119,478 170,856 137,832 Allowance for equity funds used during construction 12,598 18,125 73,406 Interest income 168,331 121,708 93,213 Taxes on nonoperating income (78,555)

(79,547)

(80,490)

Other -net 7,148 (162) 20,144 Total other income-net 229,000 230,980 173,758 Income before interest and other e xpenses 1,396,774 1,327,348 1,138,549 Interest on long-term debt 467,096 439,842 404,767 Other interest expense 130,210 108,498 82,059 Allowance for borrowed funds used during construction (9,482)

(11,883)

(42,926)

Capitalized interest (13,797)

(17,636)

(25,933)

Preferred and preference stock dividend requirements of subsidiary 44,506 46,696 50,095 Total interest and other expenses - net 618,533 565,517 468,062 Income before cumulative effect of a change in accounting principle 778,241 761,831 670,487 Cumulative effect on prior years (to December 31, 1986) of accruing unbilled revenue - net of income taxes of $58,752,000 (Note 2) 68,044 Net income

$ 778,241

$ 761,831

$ 738,531 Weighted-average shares of common stock outstanding (000) 218,463 218,332 218,014 Earnings per share (Note 2):

Before cumulative effect of a change in accounting principle

$3.56

$3.49

$3.08 Cumulative effect of a change in accounting principle

.31 Total earnings per share

$3.56

$3.49

$3.39 The accompanying notes are an in tegral art of these financial statements.

35

Consolidated Balance Sheets In thousands December 31, 1989 1988 ASSETS Utility plant, at original cost

$16,439,476

$15,687,850 Less - accumulated provision for depreciation and decommissioning 5,095,086 4,529,938 11,344,390 11,157,912 Construction work in progress 593,760 676,175 Nuclear fuel, at amortized cost 394,124 475,764 12,332,274 12,309,851 Less - property-related accumulated deferred income taxes 1,051,527 914,532 Total utility plant 11,280,747 11,395,319 Nonutility property - less accumulated provision for depreciation of $36,017,000 and $22,570,000 at respective dates 97,060 107,851 Nuclear decommissioning trusts 270,069 157,086 Investments in partnerships and unconsolidated subsidiaries 773,682 480,458 Investments in leveraged leases 169,997 148,027 Other investments 52,140 31,978 Total other property and investments 1,362,948 925,400 Cash and equivalents 150,676 228,367 Receivables, including unbilled revenue, less allowances of $14,085,000 and

$13,187,000 for uncollectible accounts at respective dates 866,048 700,343 Fuel stock 89,895 125,303 Materials and supplies, at average cost 96,888 96,767 Regulatory balancing accounts -net 320,765 395,026 Prepayments and other current assets 150,486 113,556 Total current assets 1,674,758 1,659,362 Unamortized debt issuance and reacquisition expense 288,664 296,094 Rate phase-in plan 602,073 435,941 Other deferred charges 233,861 154,160 Total deferred charges 1,124,598 886,195 Total assets

$15,443,051

$14,866,276 The accompanying notes are an integral part of these financial statements.

36

SCEcorp and Subsidiaries In thousands December 31, 1989 1988 CAPITALIZATION AND LIABILITIES Common shareholders' equity

$ 5,288,687

$ 5,064,848 Preferred stock of subsidiary:

Not subject to mandatory redemption 358,755 358,755 Subject to mandatory redemption 223,800 239,037 Long-term debt of subsidiaries 5,282,764 5,421,747 Total capitalization (see accompanying statements) 11,154,006 11,084,387 Other long-term liabilities 154,819 136,810 Current portion of subsidiaries' long-term debt and redeemable subsidiary preferred stock 215,075 165,975 Short-term debt 793,967 658,418 Accounts payable 518,363 464,817 Accrued taxes 458,901 435,030 Accrued interest 132,284 117,477 Dividends payable 143,300 139,187 Accumulated deferred income taxes -net 100,669 166,754 Deferred unbilled revenue and other 398,765 304,470 Total current liabilities 2,761,324 2,452,128 Accumulated deferred investment tax credits 537,699 545,728 Accumulated deferred income taxes - net 542,736 398,827 Customer advances and other deferred credits 292,467 248,396 Total deferred credits 1,372,902 1,192,951 Commitments and contingencies (Notes 1, 3, 8, 9 and 10)

Total capitalization and liabilities

$15,443,051

$14,866,276 The accompanying notes are an integral part of these financial statements.

37

Consolidated Statements of Cash Flows SCEcorp and Subsidiaries In thousands Year ended December 31, 1989 1988 1987 Cash flows from operating activities:

Net income

$ 778,241

$ 761,831

$ 738,531 Adjustments for noncash items:

Depreciation and decommissioning 689,614 646,569 551,348 Amortization 157,454 156,732 157,304 Nuclear plant disallowance-net 70,347 Allowance for funds used during construction (22,080)

(30,008)

(116,332)

Rate phase-in plan (166,132)

(196,181)

(149,110)

Regulatory deferrals - energy exploration projects 61,637 Deferred income taxes and investment tax credits 203,337 176,614 198,417 Equity in income from partnerships and unconsolidated subsidiaries (127,036)

(87,070)

(51,739)

Income from leveraged leases (12,231)

(17,056)

(10,289)

Other-net (23,206)

(20,420) 22,443 Changes in working capital components:

Receivables (165,705)

(74,554)

(241,227)

Regulatory balancing accounts 74,261 226,609 (31,548)

Fuel stock, materials and supplies 35,287 2,047 133,518 Prepayments and other current assets 6,904 (12,689)

(3,713)

Accrued interest and taxes 38,638 (63,314) 8,607 Accounts payable and other current liabilities 134,170 (43,292) 267,883 Net cash provided by operating activities 1,601,516 1,425,818 1,606,077 Cash flows from financing activities:

Issuances of long-term debt 193,306 631,343 374,787 Repayment of long-term debt (168,368)

(350,383)

(325,967)

Redemption of subsidiary preferred and preference stock (15,363)

(48,775)

(17,712)

Nuclear-fuel financing (129,107)

(18,569)

(56,191)

Short-term debt financings -net 135,549 51,917 182,461 Dividends paid (550,524)

(530,409)

(507,808)

Net cash used by financing activities (534,507)

(264,876)

(350,430)

Cash flows from investing activities:

Capital expenditures (837,990)

(834,630)

(1,034,348)

Nuclear decommissioning trusts (112,983)

(157,086)

Investments in leveraged leases - net (6,101)

(200)

(102,865)

Investments in partnerships and unconsolidated subsidiaries (272,557)

(168,332)

(164,037)

Distributions from partnerships and unconsolidated subsidiaries 100,432 55,998 37,838 Proceeds from sale of assets 35,370 27,637 23,900 Other-net (50,871)

(19,388)

(18,217)

Net cash used by investing activities (1,144,700)

(1,096,001)

(1,257,729)

Net increase (decrease) in cash and equivalents (77,691) 64,941 (2,082)

Cash and equivalents, beginning of year 228,367 163,426 165,508 Cash and equivalents, end of year

$ 150,676

$ 228,367

$ 163,426 Noncash investing and financing activities:

Obligation to fund investment in partnerships and unconsolidated subsidiaries

$13,401 Conversion of subsidiary 5.20% convertible preference stock 2,108 414 Conversion of subordinated debentures 2,973 3,136 Conversion of partnership notes to equity 18,670 The accompanying notes are an integral part of these financial statements.

38

Consolidated Statements of Capitalization SCEcorp and Subsidiaries Notes to consolidated statements of capitalization are on page 40 In thousands December31, 1989 1988 Common shareholders' equity (a):

Common stock-no par value-400,000,000 shares authorized, 218,474,432 and 218,461,932 outstanding at respective dates (b)

$ 2,464,266

$ 2,463,762 Retained earnings (see accompanying statements) 2,824,421 2,601,086 Total 5,288,687 5,064,848 Preferred stock of subsidiary (c) (d):

December31, 1989 Not subject to mandatory Shares Redemption redemption:

Series Outstanding Price Cumulative preferred:

$25 par value:

4.08%

1,000,000

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

$100 par value:

7.58 750,000 101.00 75,000 75,000 8.70 500,000 104.00 50,000 50,000 8.96 500,000 104.00 50,000 50,000 Total 358,755 358,755 Subject to mandatory redemption (e):

Cumulative preferred:

$100 par value:

7.325%

517,381

$103.28 51,738 54,738 7.80 465,495 104.33 46,550 48,350 8.54 592,500 102.75 59,250 61,500 8.70A 419,999 104.56 42,000 43,312 12.31 360,000 105.83 36,000 43,000 Preferred stock to be redeemed within one year (11,738)

(11,863)

Total 223,800 239,037 Long-term debt of subsidiaries (e):

Maturity Interest Rates First and refunding mortgage bonds (f):

1990 through 1993 4/2% to 8%%

515,000 575,000 1994 through 1998 7/s% to 9%

1,175,000 1,175,000 1999 through 2003 81/4% to 9%%

700,000 700,000 2004 through 2008 9.95%

73,500 78,750 2009 through 2020 8%% to 13%

1,350,777 1,267,476 Pollution control bonds (g):

1999 through 2015 6 % to 10%% and variable 947,730 947,730 Funds held by trustees (g)

(11,945)

(11,119)

Debentures and notes (d) (h):

1990 through 1999 8.25% to 11% and variable 464,734 441,698 Nuclear fuel indebtedness (i) 292,517 424,168 Long-term debt due within one year (203,337)

(154,112)

Unamortized debt discount -net (21,212)

(22,844)

Total 5,282,764 5,421,747 Total capitalization

$11,154,006

$11,084,387 The accompanying notes are an integral part of these financial statements.

39

Notes to Consolidated Statements of Capitalization SCEcorp and Subsidiaries (a) Effective July 1, 1988, SCEcorp became the parent holding company (e) The following table presents the mandatory redemption require of Southern California Edison Company (Edison) and The Mission ments for preferred stock, long-term debt maturities and sinking-fund Group. Holders of Edison's common stock became holders of SCEcorp requirements for the five years subsequent to December 31, 1989:

common stock on a share-for-share basis. The California Public Utilities Commission's (CPUC) decision authorizing establishment Year ended December31, of a holding company requires Edison to maintain a capital structure In thousands 1990 1991 1992 1993 1994 consistent with the CPUC's most recently authorized capital struc-Preferred stock ture. As a result, Edison is limited as to the amount of dividends that it redemption may pay to SCEcorp. At December 31, 1989, Edison had the capacity to requirements

$ 11,738 $ 11,738 $ 11,738 $ 12,338

$ 12,338 pay approximately $700 million in additional dividends to SCEcorp and Long-term debt continue to maintain a capital structure consistent with that autho-maturities and rized by the CPUC.

sinking-fund The California Public Utilities Code also prohibits Edison from requirements 203,337 209,227 231,830 252,391 225,629 making loans or advances to SCEcorp or The Mission Group.

Total

$215,075 $220,965 $243,568 $264,729 $237,967 (b) Under Edison's Long-Term Incentive Compensation Plan, 1,477,500 (f) Substantially all utility properties are subject to the liens of trust shares of SCEcorp common stock were reserved at December 31, 1989, indentures, except for fuel inventories, which are financed with short for issue to key employees in various forms, including the exercise of stock options.

A summary of SCEcorp common shares subject to option at Decem-(g) Edison has issued first and refunding mortgage bonds and other ber 31, 1989, is as follows:

indebtedness to governmental agencies in exchange for proceeds Share Price from pollution control bonds. These proceeds have been deposited Range At with trustees and are used to finance construction of pollution con Options:

Shares Grant*

trol facilities. Certain pollution control bonds may be redeemed at Outstanding, beginning of year

-the discretion of bondholders. Edison has made arrangements with Granted 115,200

$32.00-$32.37 security dealers for the remarketing or purchase of the pollution Canceled (8,522) 2.37 control bonds in such cases. Edison arranged lines of credit for $515 Outstanding, end of year 106,678

$32.00-$32.37 million as of December 31, 1989, to refinance these bonds, should remarketing be unsuccessful.

Exercisable, end of year Sharesh)

SCEcorp's unregulated subsidiaries had debt outstanding in the beginning of year 1,490,000 amount of $99.0 million at December 31,1989, and December 31,1988, enni of year 1,490,000 supported by lines of credit aggregating $392 million at December 31, end of year 1,370,8221989, and $280 million at December 31,1988.

Share options accrue dividend equivalents at a rate equal to dividends declared on outstanding common shares. Such dividend equivalents may be utilized against the grant price at the time the share options are exercised.

December31, (c) In connection with the formation of SCEcorp, each outstanding In thousands 1989 1988 share of Edison's original preferred stock was converted into 2.1 shares Foreign-currency-denominated n

$ 62,950 of SCEcorp's common stock. Edison's authorized shares of original Commercial paper and noteS(2) 272,620 338,777 preferred, $25 cumulative preferred, $100 cumulative preferred,

$25 preference and $100 preference stock are 480,000, 24,000,000, 12,000,000, 10,000,000 and 2,000,000 shares, respectively. There were 292,517 424,168 no shares of original preferred or preference stock outstanding at Less: Current maturities 2,823 65,494 December 31, 1989, and December 31,1988. All series of cumulative Total

$289,694

$358,674 preferred stock are redeemable. The 360,000 shares of $100 cumulative preferred stock, 12.31% Series, are not subject to redemption until (1) Foreign-currency translation gains orlosseshave been deferred and May 1, 1992, other than pursuant to mandatory redemption provisions.

areincludedin the translated value of theliability The various series of $100 cumulative preferred stock are subject to cer tain restrictions on redemption forfinance nuclearfuel has been classified as long-term debt in connec (d) On May 31,1988, Edison either redeemed or converted its out-tion with refinancing terms underlines of credit with commercial standing shares of 5.20% Series convertible preference stock and banks. The long-term portion finances nuclearfuelnot scheduledfor converted all of the outstanding 122% convertible debentures at the consumption within 12months of the balance sheet dates.

conversion price of $16.1875. On April 30, 1989, Edison, at its option, (3) Pursuant to theNuclear Waste PolicyAct of 1982, Edison signed a redeemed, at par value, 35,000 shares of its outstanding 12.31% Series contract with the US. Department of Energyfor disposal of spent

$100 cumulative preferred stock in addition to those shares reacquired nuclearfuel from the San Onofre Nuclear Generating Station. The in connection with mandatory redemption provisions.

(4) In February 1990, foreign-currency denominated notes totaling ap proximately $40million were issued by a wholly owned subsidiary The notes mature 24 months from the date of issuance andhave been guaranteed by Edison.

40

Consolidated Statements of Retained Earnings SCEcorp and Subsidiaries In thousands, except per-share amounts Year ended December 31, 1989 1988 1987 Balance at beginning of year

$2,601,086

$2,375,915

$2,150,751 Net income 778,241 761,831 738,531 Dividends declared on common stock (554,906)

(536,660)

(513,367)

Balance at end of year

$2,824,421

$2,601,086

$2,375,915 Dividends declared per common share

$2.54

$2.45V2

$2.35/2 The accompanying notes are an integral part of these financial statements.

Notes to Consolidated Financial Statements SCEcorp and Subsidiaries Note 1. Corporate Restructuring and Proposed Merger Note 2. Summary of Significant Accounting Policies On July 1, 1988, SCEcorp acquired the outstanding common Consolidation Policy The consolidated financial statements stock of Southern California Edison Company (Edison) under a include the accounts of SCEcorp and its subsidiaries. The prin merger agreement approved by shareholders on April 21, 1988.

cipal subsidiaries are Edison and The Mission Group, whichis Edison's common shareholders became holders of SCEcorp's the parent company for all subsidiaries not subject to rate reg common stock on a share-for-share basis. Each share of Edison's ulation. SCEcorp uses the equity method of accounting to outstanding original preferred sto ck was converted into 2.1 report investments of 50% or less in partnerships and subsidi shares of SCEcorp's common stock. Edison's remaining preferred aries primarily engaged in cogeneration, geothermal and other stock and debt securities were not exchanged or transferred to energy-related facilities that are exempt from utility regula SCEcorp. Edison's equity investment in nonutility subsidiaries tion. All significant intercompany transactions have been was transferred to SCEcorp at book value on July 1, 1988.

eliminated, except intercompany profits from energy sales to On November 30,1988, SCEcorp, Edison, and San Diego Edison by unregulated, energy-producing affiliates, which are Gas & Electric Company (SDG&E) executed an agreement to allowed in customer rates.

merge SDG&E into Edison. Under the terms of the merger agreement, SCEcorp will exchange 1.3 shares of its newly Accounting Principles Edison is regulated by the CPUC and issued common stock for each SDG&E common share. SDG&E the FERC. The accompanying consolidated financial state preferred and preference stock will be exchanged for SCEcorp ments reflect the rate-making policies of these commissions, as preferred and preference stock with similar provisions, except applied to Edison, in conformity with generally accepted ac that dividends on each series will be increased between 10%

counting principles applicable to rate-regulated enterprises.

and 20%. During April 1989, the shareholders of SCEcorp, Edison and SDG&E approved the merger agreement. The merger is subject to approval by regulatory agencies, including the California Public Utilities Commission (CPUC) and the Federal Energy Regulatory Commission (FERC). Hearings before the FERC and the CPUC were scheduled to begin in February and April 1990, respecti vely and decisions are expected by year-end 1990.

41

Utility Plant The costs of plant additions, including replace-Nuclear Fuel The cost of nuclear fuel, including its disposal, ments and betterments, are capitalized and included in utility is amortized on the basis of generation and is charged to fuel plant. Capitalized costs include direct material and labor, expense. In accordance with rate-making procedures adopted construction overhead, and an allowance for debt and equity by the CPUC, nuclear-fuel financing costs are capitalized until funds used to finance construction. The cost of property that is the fuel is placed into production.

replaced or retired, and related removal costs, less salvage, is charged to the accumulated provision for depreciation. Accu-Research, Development and Demonstration (RD&D) mulated deferred income taxes related to utility plant are RD&D costs not related to a specific construction project are presented as a deduction from utility plant to conform with expensed in the year incurred. RD&D costs related to specific rate-making procedures used to determine rate base.

construction projects are capitalized until it is determined whether they will result in construction of plant. If con Construction Financing Costs Allowance for funds used struction does not result, the costs are charged to expense.

during construction (AFUDC) represents the cost of debt and RD&D costs are reflected in the following table:

equity funds that finance construction of utility plant. Cap-Year ended December 31, italized AFUDC is reported in the consolidated statements of In thousands 1989 1988 1987 income as a reduction of interest charges for the debt compo nent and as other income for the equity component. AFUDC RD&D costs charged/toe

$2,5 55 14,893 RD&D costs deferred/capitalized 12,601 17,455 14,855 and plant construction costs are recovered when completed Total RD&D costs

$55,156

$60,869

$57,748 projects are placed into commercial operation, and the recov ery of related depreciation is authorized through customer Commencing in 1988, a balancing account was established rates.

for RD&D costs charged to expense. Under this mechanism, The AFUDC rate, which reflects semiannual compounding, Edison is required to refund to ratepayers any authorized, but was 11.06% for 1989, 10.76% for 1988, and 11.57% for 1987.

unspent, RD&D funds at the end of each general rate-case Interest on loans that finance construction projects of part-cycle.

nerships and unconsolidated subsidiaries is capitalized until the projects are operational. Such capitalized interest is in-Unamortized Debt Issuance and Reacquisition Expense cluded in the consolidated statements of income as a reduction Debt premium, discount and issuance expenses are amortized of interest charges and in the consolidated balance sheets as over the lives of the related issuances. The expense of reacquir investments in partnerships and unconsolidated subsidiaries.

ing bonds that are redeemed without refunding is amortized over the period the debt would have remained outstanding.

Depreciation and Decommissioning Depreciation of utility The reacquisition expenses are amortized over the lives of the plant, except nuclear fuel, is computed on a straight-line, new debt issues when debt is reacquired with refunding.

remaining-life basis. Depreciation of nonutility properties is computed on a straight-line basis over their estimated useful Change in Accounting Principle Prior to 1987, electric oper lives.

ating revenue was recorded based on customer billings. On The estimated cost of decommissioning Edison's nuclear January 1, 1987, Edison began accruing estimated revenue for generating facilities is $788 million, in current-year dollars, electricity that had been delivered to customers through the and is recovered in rates through annual allowances charged end of each month but had not yet been billed. This account to depreciation expense. Retail rates include annual decom-ing change conforms to the Tax Reform Act of 1986, which missioning revenue requirements which are deposited in requires utilities to include unbilled revenue in taxable in trusts until decommissioning begins. Trust fund contributions come commencing in 1987 and results in a better matching of are invested in high-grade securities, which are reported at the revenue and expense.

lower of cost or market value. At December 31, 1989, the mar ket value of the trusts was $275.3 million. Approximately 83%

of the trust fund contributions qualify as tax deductions.

42

Regulatory Balancing Accounts Interest and Taxes Interest on regulatory balancing accounts, except for MAAC, is accrued at the three-month prime corn Operating Revenue An electric revenue adjustment mechanism mercial paper rate. The weighted-average interest rates were (ERAM) balancing account minimizes the effect on earnings of 8.85% for 1989, 760% for 1988, and 6.57% for 1987. Income retail sales fluctuations. Differences between authorized and tax effects on the changes in the regulatory balancing accounts recorded base-rate revenue are accumulated in the account un-are deferred.

til they are refunded to, or recovered from, utility customers through CPUC-authorized rate adjustments.

Palo Verde Rate Phase-In Plan Palo Verde Units 1, 2 and 3 I

have been in commercial operation, for rate-making purposes, Energy Costs An energy cost adjustment clause (ECAC) since February 1, 1986, September 19,1986, and January 20, balancing account adjusts results of operations for variations 1988, respectively The CPUC has adopted a 10-year rate between the recorded cost of fuel and purchased power, and phase-in plan, which defers $200 million of revenue during the revenue designated for recovery of such costs. Undercollected first four years of operation for each unit. Deferrals for each or overcollected energy costs are accumulated in the balancing unit, for years one through four, are $80 million, $60 million, account until they are recovered from, or refunded to, utility

$40 million, and $20 million, respectively The deferrals and customers through CPUC-authorized rate adjustments. Previ-related interest income on the deferred balance will be re ously, 90% of fuel and purchased-power costs were recovered covered on a level basis during the final six years of each unit's through ECAC, and the remaining 10% of such costs were rate phase-in plan. The deferred balance at December 31, 1989, recovered through the annual energy rate (AER). On June 1, is $602.1 million.

1988, the CPUC suspended the AER rate component. As a result, all fuel and purchased-power costs, which include Statements of Cash Flows Beginning in 1988, SCEcorp pre energy sales to Edison by unregulated energy-producing affili-sented statements of cash flows in conformity with a new ates, were recovered through ECAC. The 10% AER rate compo-accounting standard. Prior periods have been restated to be nent was reinstated effective February 1, 1990.

consistent with the current presentation. For purposes of the The CPUC has established performance incentives based consolidated statements of cash flows, SCEcorp considers on target generation levels for Edison's nuclear generating short-term temporary cash investments to be cash equiva stations. Fuel savings or costs attributable to levels above lents. Cash payments for interest were $512.6 million in 1989, or below the targeted ranges are divided equally between

$485.5 million in 1988, and $455.1 million in 1987 Edison and its customers through adjustments to the ECAC balancing account.

Reclassifications Certain items in prior periods have been reclassified to conform to the financial statement presenta Major Plant Additions Prior to 1988, Edison used major tions for December 31,1989.

additions adjustment clause (MAAC) balancing accounts to accumulate the differences between revenue required and reve-Note 3. Regulatory Matters nue authorized to provide recovery of ownership costs of San Onofre Nuclear Generating Station (San Onofre) Units 2 and 3 Energy Cost Proceedings In December 1988, the CPUCs and Palo Verde Nuclear Generating Station (Palo Verde) Units 1 Division of Ratepayer Advocates (DRA) recommended that the and 2.

CPUC disallow $124 million of energy costs incurred between Commencing in 1988, ownership costs of San Onofre Units late 1984 and late 1987. Approximately $120 million of this 2 and 3 are being recovered in base rates. The ownership costs proposed disallowance represented alleged overpayments to of Palo Verde Units 1, 2 and 3 also are recovered in base rates nonutility power producers, including electricity purchased by to the extent they are not deferred in accordance with the Palo Edison from a 300-MW cogeneration facility owned by Kern Verde rate phase-in plan, discussed below. Commencing in River Cogeneration Company (KRCC). Mission Energy Coi 1989, recovery of the remaining undercollections in the pany which is one of SCEcorp's nonutility subsidiaries, is a MAAC balancing accounts was authorized over a three-year partner in KRCC. Approximately $37 million ($44 million period. Edison records interest income on these undercollec-after escalation by the DRA to 1988 dollars) of the $120 million tions, excluding accumulated deferred income taxes, using the proposed disallowance represented the recommended dis annual AFUDC rate. At December 31, 1989, $82.9 million re-.

allowance for power purchases from KRCC. During hearings mains to be collected in rates charged to utility customers.

43

in early 1989, Edison demonstrated that the power purchases In its OR on December 18, 1989, the CPUC ordered the sub from KRCC actually saved its customers more than $24 mil-sequent collection of customer revenue in connection with the lion during the three years under consideration, compared ownership and operation of the Palo Verde units to be subject with the "standard offer" contract approved by the CPUC.

to refund pending the outcome of its outage review.

During the hearings, the DRA increased its proposed dis-Edison, which owns a 15.8% interest in Palo Verde, believes allowance for the KRCC contract to approximately $43 mil-the plant modifications and operating costs are reasonable and lion ($56 million after escalation by the DRA to 1988 dollars).

proper items for rate recovery. Although Edison cannot predict A decision on the reasonableness of the KRCC contract is with certainty whether the CPUC will ultimately allow expected in 1990.

recovery of costs subject to the 011 inquiry Edison believes The DRA also alleged approximately $83 million in overpay-that the amount of refund likely to result from the investiga ments by Edison under 17 other contracts negotiated with tion or the amount denied recovery, if any will not have a nonutility power producers that are not SCEcorp affiliates.

material effect on results of operations.

Edison signed these contracts during the early stages of Cali fornia's efforts to rapidly develop renewable and alternative CPUC Disallowances In July 1987, the CPUC issued a final energy resources. At that time the projected prices over the decision affirming an October 1986 decision, but reducing the lives of these 17 contracts were at, or below, avoided-cost stan-amount disallowed from $258.6 million to $198.9 million of dard-contract prices. Hearings are expected to commence in Edison's $3.4 billion investment in San Onofre Units 2 and 3.

1990 on the DRA allegations.

Recovery of Edison's $1.5 billion investment in Palo Verde In December 1988, the DRA also recommended a disal-was reduced by 19.33% of the amount disallowed for San lowance of approximately $3 million for alleged overpayments Onofre Units 2 and 3, under a rate-making agreement adopted made pursuant to a power purchase agreement with Pacific by the CPUC. The CPUC's investment disallowances for San Power and Light Company (PP&L) during mid-to late 1987. In Onofre and Palo Verde total $237 million.

September 1989, the DRA recommended an additional dis-In December 1986, the Financial Accounting Standards allowance of $26 million in energy costs incurred between late Board began requiring regulated enterprises to write off con 1987 and early 1989. Approximately $20 million of the Sep-struction costs not allowed in rate base. The new standard tember 1989 proposed disallowance relates to the PP&L provides for the restatement of prior-period financial state agreement, bringing the total proposed disallowance under ments for disallowances occurring before the standard's this agreement to $23 million.

effective date of January 1, 1988. Accordingly the 1986 consoli The probable effect that the outcome of these matters will dated statement of income included a one-time, after-tax have on net income cannot be determined at this time. Edison charge against earnings of approximately $193 million, reflect will work diligently to demonstrate that it reasonably entered ing the CPUCs final construction-cost disallowances arising into and administered the contracts under review.

from its decision.

In addition, revenue accrued to recover prior years' owner Palo Verde Outage Review During March 1989, Arizona ship costs, which is associated with the construction costs Public Service Company, operating agent for the Palo Verde disallowed by the CPUC, has been written off from the MAAC Nuclear Generating Station, removed Units 1 and 3 from ser-balancing account. Edison recorded an after-tax charge against vice for refueling and modifications of plant and management earnings of approximately $70 million for 1987 systems as required by regulatory agencies. The California Public Utilities Code requires Edison to notify the CPUC Resale Rates In accordance with FERC procedures, resale when a plant outage exceeds nine months. On December 6, revenue is subject to refund with interest if subsequently dis 1989, Edison advised the CPUC of the Palo Verde outage and allowed. Edison believes that any refunds resulting from on December 18, 1989, the CPUC initiated an Order Institut-pending rate proceedings will not have a material effect on ing Investigation (OII) to determine, for rate recovery or refund net income.

purposes, the reasonableness of certain costs incurred during the period the Palo Verde units were not in service.

44

Note 4. Short-Term Debt Note 5. Income Taxes SCEcorp maintains unrestricted de osits of approximately SCEcorp's subsidiaries are included in its consolidated federal

$3 million at commercial banks and pays annual commit-income tax and combined state franchise tax returns. Under ment fees of up to 0.125% to maintain lines of credit totaling income tax allocation agreements, each affiliate calculates its

$2.1 billion at December 31, 1989, which may be utilized at tax liability separately negotiated or bank index rates. Approximately $1.6 billion of these lines of credit support commercial paper and other bor-Current and Deferred Taxes Income tax expense, includes rowings to finance general cash requirements, fuel inventories the current tax liability from operations, and deferred income and undercollections in regulatory balancing accounts. The taxes provided on certain items of income and expense, which remaining $515 million of these lines of credit are available for are reported in different periods for tax and financial reporting the long-term refinancing of certain variable-rate pollution-purposes.

control indebtedness.

The current and deferred components of income tax expense On March 14 and 15, 1989, a wholly owned subsidiary of are:

Edison issued two series of fixed-rate notes, each in the princi-Year ended December 31, pal amount of $100 million, to replace a portion of commercial In thousands 1989 1988 1987 paper borrowings for nuclear-fuel financing. These notesC mature 18 and 12 months from the issuance dates, respectively Federal

$253,469

$241,917 $319,429 The subsidiary concurrently entered into interest-rate swap State 119,542 107,411 124,055 agreements to reduce the effective interest costs of the notes 373,011 349,328 443,484 below prevailing commercial paper rates. The subsidiary's Deferred -federal and state:

obligations pertaining to the notes and the interest-rate swap Investment and energy tax agreements are guaranteed by Edison.

Short-term debt of subsidiaries is comprised of:

Depreciation 207,703 173,380 188,186 Decmbr 1,Regulatory balancing accounts (24,995)

(79,774)

(23,871)

DecemberLeveraged leases 35,063 38,950 23,784 In millions 1989 1988 Nuclear plant disallowance (78,616)

General purpose 89.2 $ 67.1 Cumulative effect of accounting Leveraged leases 99.0 99.0 change-unbilled revenue 58,752 Balancing accounts 501.6 400.0 Fuelinventory (1,890) 26,573 14,299 Ful 8.6 533Unbilled revenue (31,803)

(24,420)

(27,467)

Fuel 481.6 535.3 Rate phase-in plan 66,682 78,743 68,797 Total borrowings supported by lines of credit 1,171.4 1,101.4 Accrued liabilities (21,929) 7,994 (14,178)

Amount reclassified as long-term (371.6)

(437.8)

Contributions in aid of Unamortized discount (5.8)

(5.3) construction (15,526)

(28,836)

(14,000)

Other short-term borrowings 0.1 Interest capitalized (6,909)

(7,747)

(21,605)

Net short-term debt

$ 794.0 $ 658.4 Other (728) 2,961 (19,062) 203,337 176,614 195,370 Commercial paper outstanding was $893 million at Total income tax expense

$576,348

$525,942

$638,854 December 31, 1989, and $1.1 billion at December 31, 1988.

Classification of income taxes:

Included in operating expenses

$497,793

$446,395

$578,228 Included in other income 78,555 79,547 80,490 Nuclear plant disallowance (78,616)

Related to cumulative effect of accounting change Tx-58,752 Total income tax expense

$576,348 $525,942 $638,854 45

Accumulated deferred investment tax credits are amortized Deferred income taxes for tax depreciation pnor to 1981 over the lives of the related properties.

and certain construction overheads have not been provided Cash payments for income taxes were $356.1 million in because the tax effects of such timing differences are not 1989, $421.9 million in 1988, and $466.7 million in 1987.

allowed for retail rate-making purposes until the taxes become The following table reconciles the differences between re-payable. The cumulative net amount of these timing differ corded state and federal income taxes and amounts determined ences was $1.8 billion at December 31,1989,1988 and 1987.

on income before taxes by applying the federal statutory tax rate. The federal and composite federal and state statutory Rate-making Investigation In 1986, the CPUC began an income tax rates are 34% and 40.138%, respectively, for 1989 investigation to evaluate the effects of the Tax Reform Act and 1988; and were 40% and 46.138%, respectively, for 1987.

of 1986 on rate-making procedures. Revenue for recovery of income tax expense for 1987 and subsequent periods was Year ended December 31, collected subject to refund pending a CPUC decision.

In thousands 1989 1988 1987 In October 1988, Edison refunded approximately $51 million Expected federal income through the ERAM balancing account, in compliance with an tax expense at statutory August 1988 CPUC interim resolution. Final CPUC approval rate

$ 460,560 $ 437,843 $ 550,954 of the amounts refunded is pending. Because Edison had previ Increase (decrease) in ously provided a reserve for this item, refunds to customers income tax expense rsing fromxpns have not had, and are not expected to have, any significant resulting from:

Allowance for equity effect on net income.

funds used during construction (4,282)

(6,163)

(29,362)

New Accounting Standard Under accounting rules currently Federal deduction for in effect, deferred income tax balances are not adjusted to state taxes on income (41,976)

(40,005)

(49,480) stat taes o inome 41,76) 40,05) 49,80)reflect changes in tax rates or laws. However, in 1987, the Depreciation and related timing difference not Financial Accounting Standards Board (FASB) released a new deferred 52,296 39,015 82,558 income tax accounting standard requiring such adjustments.

State tax provision 123,458 117,662 123,700 The FASB is considering requests to amend certain provi Nuclear plant sions of the standard and, as a consequence, its effective date disallowance (4,730) has been delayed three times by the FASB, most recently Subsidiary preferred and preference dividends 15,131 15,876 20,038 Investment and energy If the new income tax accounting standard becomes tax credits (28,799)

(34,869)

(31,251) effective in its current form, other significant balance sheet All other differences (40)

(3,417)

(23,573) adjustments will be recorded. SCEcorp will record additional Total income tax expense

$ 576,348

$ 525,942

$ 638,854 deferred income taxes related to the equity component of Pretax income

$1,354,589

$1,287,773

$1,377,385 AFUDC, which is currently recorded on an after-tax basis; the debt component of AFUDC, which was recorded on a net-of Effective tax rate (total tax basis prior to 1987; and other temporary differences for income tax expense +

pretax income) 42.5%

40.8%

46.4%tax depreciatin prided.

Additional balance sheet adjustments will be recorded for the net reduction in deferred income tax liabilities resulting from income tax rate changes; the recognition of deferred income tax assets attributable to the reduction of the book basis of property by unamortized investment tax credits; and to classify property-related accumulated deferred taxes as a 46

liability instead of a reduction of utility plant. The majority of In conformity with the accounting principles for rate additional deferred-tax assets and liabilities will be offset by regulated enterprises, regulatory adjustments have been recording regulatory assets and liabilities representing the recorded to reflect, in net income, the pension costs calculated anticipated effects of these adjustments on customer rates.

under the actuarial method used for rate-making purposes.

Such regulatory assets and liabilities will be adjusted as they The difference between pension costs calculated for accounting are recovered or refunded through the rate-making process and and rate-making purposes has been recorded as a deferred for changes in tax rates or laws. Accordingly, these changes are charge in the consolidated balance sheets.

not expected to significantly affect future earnings.

The plan's funded status is presented below:

Note 6. Employee Benefit Plans December 31, In thousands 1989 1988 Pension Plan SCEcorp has a noncontributory defined-benefit Actuarial present value of benefit obligations:

pension plan, administered by a trustee, covering substantially Vested benefits

$1,061,799

$ 905,190 all full-time employees who fulfill minimum service require-Nonvested benefits 32,781 68,531 ments. Benefits are based on years of accredited service and Accumulated benefit obligation 1,094,580 973,721 average compensation. SCEcorp's policy is to fund the plan on Value of projected future a level-premium actuarial method, provided that annual con-compensation levels 486,779 435,363 tributions meet the minimum funding requirements of the Projected benefit obligation

$1,581,359

$1,409,084 Employee Retirement Income Security Act and do not exceed Plan assets at fair value

$1,630,125

$1,326,635 the maximum deductible amount under income tax regula-Projected benefit obligations in tions. Prior service costs from pension plan amendments are excess of (less than) plan assets

$ (48,766) $

82,449 funded over 30-year periods.

Unrecognized net gain 172,849 49,021 Pension expense is comprised of the following components:

Unrecognized prior service cost (7,000)

Unrecognized net obligation being Year ended December 31, amortized over 17 years (84,117)

(89,640)

In thousands 1989 1988 1987 Accrued pension liability 32,966 41,830 Net pension expense:

Assumptions for defined benefit pension plan:

Service cost for benefits earned

$ 49,307 $ 43,340 $ 46,629 Discount rate 7.5%

8.0%

Interest cost on projected Rate of increase in future compensation 6.0%

6.0%

benefit obligation 108,341 102,249 91,025 Expected long-term rate of return on assets 8.5%

8.5%

Actual return on plan assets (306,493)

(133,687) (130,723)

Net amortization and deferral 199,260 40,610 46,699 Assets of the plan consist primarily of common stocks, Pension liability pursuant to corporate and government bonds, short-term investments accounting standards 50,415 52,512 53,630 and guaranteed investment contracts.

Regulatory adjustment l(4,210)

(6,416)

(3,481)

Net pension cost recognized

$ 46,205 $ 46,096 $ 50,149 Employee Stock Plans SCEcorp maintains an Employee Stock Ownership Plan (ESOP) and a Stock Savings Plus Plan (SSPP), designed to supplement employees' retirement income.

Contributions to the ESOP were funded primarily by federal income tax benefits and contributions by employees. SCEcorp contributions to the SSPP were $16.9 million each in 1989 and 1988, and $16.6 million in 1987.

47

Other Post-Employment Benefits Health care and life insur-Note 8. Leases ance are provided to retired employees and their dependents.

Health care is provided by a combination of SCEcorp facilities Investments in Leveraged Leases A wholly owned, non and insurance programs. Group life insurance is provided utility subsidiary is the lessor in several leveraged-lease through an insurance company. The costs of these benefits for agreements, under which property is leased for terms extend retirees were $21.2 million in 1989, $22.8 million in 1988, and ing from 24 to 29 years. All operating, maintenance, insurance

$18.0 million in 1987.

and decommissioning costs are the responsibility of the lessees. The total cost of these facilities was $636 million and Note 7. Jointly Owned Utility Projects

$609 million at December 31, 1989, and 1988, respectively The equity investments in these facilities represented 24%

Edison owns undivided interests in several generating stations of the purchase price. The remaining 76% was nonrecourse and transmission systems for which each participant provides debt, which is secured by first liens on the leased property its own financing. The proportionate share of expenses per-The lenders accept their security interests as their only remedy taining to such projects is included in the appropriate opera-in the event of default by the lessee. The components of the net ting expense category in the consolidated statements of investments in leveraged leases are provided in the following income.

table:

The table below presents the investments in each project as included in the consolidated balance sheet as of December 31, December 31, 1989:

In thousands 1989 1988 Rentals receivable (net of principal and Accumu lated wner interest on nonrecourse debt)

$257,782

$243,999 lated Owner Plant in Depre-Under Con-ship Less -unearned income 87,785 95,972 In thousands Service ciation struction Interest Investments in leveraged leases 169,997 148,027 El Dorado Less-deferred income taxes 107,611 74,453 Transmission Net investments in leveraged leases

$ 62,386 $ 73,574 System 23,627 $

9,198 952 60%(a)

Four Corners Coal Generating Station -

Operating Lease Commitments SCEcorp's subsidiaries lease Units 4 and 5 420,508 139,436 13,720 48 automotive, computer, office and miscellaneous equipment Mohave Coal Generating Station 234,180 98,991 8,144 56 through operating rental agreements with varying terms, Pacific Intertie DC provisions and expiration dates. At December 31,1989, esti Transmission mated remaining rental commitments for noncancelable oper System 180,925 39,496 3,049 50 ating leases were as follows:

Palo Verde Nuclear Generating Station 1,475,984 116,353 4,427 15.8 Year ended December 31, In thousands San Onofre Nuclear Generating Station 4,352,126 920,801 52,788 (b) 1990

$ 31,714 Yuma Axis 1991 27,566 Generating 1992 23,673 Station(c) 12,542 11,138 28 33.3 1993 18,986 1994 14,897 Total

$6,699,892 $1,335,413

$83,108 For periods thereafter 16,025 (a) Represents a composite rate.

Total future rental commitments

$132,861 (b) Ownership interest in Unit 1 is 80%; ownership interests in Units 2 and 3 and common facilities are 75.05%-75.87%.

(c) In January 1990, Edison entered into an agreement to sell its interest in this facility, subject to CPUC and FERC approval.

48

Note 9. Commitments Note 10. Contingencies Construction Program and Fuel Supply As of December31, Nuclear Insurance On August 22,1988, Congress amended 1989, construction expenditures for SCEcorp's subsidiaries are the Price-Anderson Act, extending it until August 1, 2002. It estimated to be $965 million for 1990, $825 million for 1991, increased - to $7.8 billion from $720 million - the limit on and $854 million for 1992. In addition, minimum long-term public liability claims that could arise from a nuclear incident.

commitments of approximately $1.66 billion existed as of Participants in San Onofre and Palo Verde have purchased the December 31, 1989, under fuel-supply contracts.

maximum private primary insurance available, which cur rently is $200 million. The balance is to be covered by the Long-Term Purchased-Power and Tansmission Contracts industry's retrospective rating plan, using deferred premium Edison has contracted to purchase a portion of the generating charges. This secondary level of financial protection is re output of a certain facility and to purchase firm transmission quired by the Nuclear Regulatory Commission (NRC). The service when appropriate. Although there is no investment maximum amount of the deferred premium that may be in the facility or transmission line,!! these contracts provide charged for each nuclear incident is $63 million per reactor, for minimum payments based, in part, on the debt service but not more than $10 million per reactor may be charged in requirements of the provider, whether or not the facility or any one year for each incident. Edison could be required to pay transmission line is operable. The power contract is not ex-a maximum of $183.6 million per nuclear incident, on the pected to provide more than 5% of current or estimated future basis of its ownership interests in San Onofre and Palo Verde, operating capacity.

but it would have to pay no more than $29.1 million per ci The cost of power and firm transmission service obtained dent in any one year. Such amounts include a 5% surcharge under these contracts, including payments made when the that would be applicable in the event that additional funds are facility or transmission line is not operating, is included under needed to satisfy public liability claims, and are subject to purchased power and other operating expenses in the con-adjustment for inflation.

solidated statements of income. Purchased-power costs are Property damage insurance, including decontamination generally recoverable through the ECAC balancing-account costs, covers losses up to $500 million at San Onofre and Palo procedure. Selected information pertaining to these contracts Verde. Decontamination liability and property damage cover at December 31, 1989, is summarized as follows:

age in excess of the primary $500-million layer also has been purchased in amounts exceeding NRC requirements. Insur Purchased Transmission ance covering part of the additional expense of replacement Power Service p

power, which could result from an accident-related nuclear Year contract expires 2017 2016 unit outage, also is provided. After the first 21 weeks of such Share of effective operating capacity megawatts 277.5 Share of energy output 5.54%

single unit for 52 weeks begins. An additional $1.9 million per Required minimum annual paymentsn week is provided for the next 52 weeks; and another $0.9 mil 1990

$ 4,000

$ 4,898 lion per week is provided for 52 more weeks. These policies are 1991 4,000 4,465 issued primarily by mutual insurance companies owned by 1992 4,000 4,287 utilities with nuclear facilities. If losses at any nuclear facility 1993 4,000 4,140 covered by the arrangement were to exceed the accumulated 1994 4,000 4,140 funds available for these insurance programs, Edison could be For periods thereafter 91,000 64,310 assessed retrospective premium adjustments of up to $52.2 Total

$111,000

$86,240 million per year. Insurance premiums are charged to operating expenses.

Purchased-power costs under this contract were $4.5 million in 1989, $3.8 million in 1988, and $2.3 million in 1987. Trans mission costs were $4.4 million in 1989, $5.3 million in 1988, and $5.3 million in 1987.

49

Antitrust Litigation In 1978, five resale customers filed a The foregoing proceedings involve complex issues of law and suit in federal district court, alleging violation of antitrust laws.

fact. Although Edison is unable to predict the final outcome, it The complaint seeks monetary damages, a trebling of such has categorically denied the resale customers' allegations.

damages, and certain injunctive relief. The complaint alleges that Edison engaged in anticompetitive behavior by charging Environmental Matters Edison is subject to numerous more for electricity it sold to resale customers than it charged environmental legislative and regulatory requirements in the certain classes of retail customers. The complaint also alleges areas of air and water pollution; waste management; haz that Edison acted alone and in concert with other utilities to ardous chemical use; noise abatement; land use; aesthetics; prevent or limit such resale customers from obtaining bulk and nuclear control. These requirements have caused, and will power supplies from other sources to reduce or replace the re-continue to cause, Edison to incur substantial additional costs sale customers' purchases from Edison. The plaintiffs estimate to operate its existing facilities, to construct and operate its that their actual damages, before trebling, were approximately new facilities and to clean up waste disposal sites for which it

$99.5 million from February 1, 1978, through December 31, may be responsible. The total potential costs of these environ 1985. The trial began on July 8, 1986, and concluded on Sep-mental requirements for Edison cannot be determined at this tember 26, 1986.

time. Edison believes that the costs incurred in complying Edison filed findings of fact and conclusions of law with the with these environmental requirements either will be covered court on November 21, 1986. A decision is pending.

by insurance or recognized by the CPUC or the FERC as rea In 1983, another resale customer also filed a suit in federal sonable and necessary costs of service for rate purposes. There district court, alleging violation of certain antitrust laws. The can be no assurance that these costs will be recoverable, but customer alleges that it has been denied access to Edison's Edison believes that any costs that are unrecovered will not transmission lines, which limits its ability to purchase lower have a significant impact on its financial position or results of cost power. On July 25, 1989, Edison received the customer's operations.

final antitrust-damage study alleging total damages of approxi mately $59.6 million before trebling. A trial date of March 20, 1990, has been set.

Quarterly Financial Data SCEcorp and Subsidiaries Unaudited 1989 1988 In millions, except per-share data Total Fourth Third Second First Total Fourth Third Second First Operatingarevenue

$6,904

$1,620

$2,182

$1,572

$1,530

$6,253

$1,539

$2,029

$1,353

$1,332 Operating income 1,168 213 497 243 215 1,096 196 476 228 196 Net income 778 119 401 141 117 762 107 392 146 117 Per share:

Earnings 3.56

.54 1.83

.65

.54 3.49

.49 1.79

.67

.54 Dividends declared 2.54

.64

.64

.64

.62 2.45 s

a

.62

.62

.62which

/

Common stock prices High

$41

$41

$377/8

$36 /

$331/8

$3412

$341/

$331/8

$341/

$34 Low 31 341/8 34 /

31 /

31 291/8 31 /

303/

30 291/8 Close 39t/h 393/e 35nio 34 et 31u 32i/

32e/m 32 te 32 b 30 50

Electric Revenue and Kilowatt-Hour Sales Class of Service J

Electric Revenue Kilowatt-Hour Sales In thousands In thousands

% of

% of 1989 Total 1989 1988 1987 1989 Total 1989 1988 1987 Residential 33.1

$2,155,328

$1,881,290

$1,613,740 30.9 21,355,283 20,900,569 19,760,244 Agricultural 1.6 105,982 96,073 86,629 1.6 1,082,919 1,049,376 1,014,737 Commercial 36.1 2,356,274 2,095,514 1,910,480 35.0 24,214,070 23,039,977 21,610,315 Industrial 17.9 1,170,246 1,155,651 1,211,606 22.0 15,221,756 15,415,694 15,727,488 Public authorities 8.6 558,811 513,089 505,840 8.3 5,761,603 5,544,301 5,380,388 Interdepartmental 118 109 95 1,232 1,258 1,119 Resale 1.3 84,979 114,510 120,273 2.2 1,498,885 1,934,586 2,045,190 Sales of electric energy 98.6 6,431,738 5,856,236 5,448,663 100.0 69,135,748 67,885,761 65,539,481 Other electric revenue 1.4 92,648 75,446 52,394 Total 100.0

$6,524,386

$5,931,682

$5,501,057 100.0 69,135,748 67,885,761 65,539,481 Electric Revenue by Rate Components Rate Components Electric Revenue

% of Total In thousands 1989 1988 1987 1989 1988 1987 Base rates - CPUC jurisdiction

$3,625,331

$3,397,923

$2,641,426 55.6 57.3 48.0 Energy cost adjustment billing fact or 2,743,451 2,126,224 1,919,668 42.0 35.8 34.9 Major additions adjustment billing factor 94,737 153,840 804,606 1.4 2.6 14.6 Other billing factors (133,641) 45,084 (45,604)

(2.0) 0.8 (0.8)

Resale rates (excluding fringe) 88,565 112,920 128,561 1.4 1.9 2.3 Unbilled revenue 13,295 20,245 6

0.2 0.3 Sales of electric energy 6,431,738 5,856,236 5,448,663 98.6 98.7 99.0 Other electric revenue 92,648 75,446 52,394 1.4 1.3 1.0 Total

$6,524,386

$5,931,682

$5,501,057 100.0 100.0 100.0 51

Selected Financial Data: 1985-1989 SCEcorp and Subsidiaries In thousands, except percent, per-share and ratio data 1989 1988 1987 1986 (a) 1985 SCEcorp and Subsidiaries Consolidated operating revenue

$ 6,904,386

$ 6,252,719

$ 5,601,926

$ 5,368,087

$ 5,217,167 Consolidated operating expenses 5,736,612 5,156,351 4,637,135 4,420,931 4,240,175 Consolidated net income 778,241 761,831 738,531 520,727 702,409 Weighted-average shares of common stock outstanding (000) 218,463 218,332 218,014 217,780 215,696 Per-share data:

Earnings

$3.56

$3.49

$3.39

$2.39

$3.26 Dividends declared 2.54 2.452 2.352 2.25 2.13 Book value (a) 24.21 23.18 22.16 21.13 21.04 Market value at year end 39%

32%

301/2 33/8 26/8 Dividend payout ratio (declared basis) 71.3%

70.3%

69.5%

94.1%

65.3%

Rate of return on common equity (a) 14.99%

15.33%

15.51%

11.09%

15.75%

Price/earnings ratio 11.1 9.3 9.0 14.2 8.2 Ratio of earnings to fixed charges 2.79 2.86 2.91 2.71 2.97 Total assets (a)

$15,443,051

$14,866,276

$14,350,664

$13,683,053

$13,256,054 Common stock-paid-in capital 2,464,266 2,463,762 2,457,819 2,454,318 2,450,754 Retained earnings 2,824,421 2,601,086 2,375,915 2,150,751 2,128,646 Common shareholders' equity (a) 5,288,687 5,064,848 4,833,734 4,605,069 4,579,400 Preferred and preference stock of subsidiary:

Not subject to mandatory redemption

. 358,755 358,755 361,238 361,654 462,500 Subject to mandatory redemption 223,800 239,037 277,538 299,049 395,074 Long-term debt of subsidiaries 5,282,764 5,421,747 5,150,883 5,122,243 5,175,624 Southern California Edison Company Financial data:

Earnings.available for common stock

$678,642

$684,689

$697,188

$503,198

$694,113 Earnings per share (b) 3.10 3.14 3.20 2.31 3.22 Internal generation of funds 88%

100%

77%

74%

65%

Operating and sales data:

Area peak demand (MW) 15,632 15,987 14,775 14,599 14,587 Area generating capacity at peak (MW) 20,136 18,893 18,206 18,320 17,776 Kilowatt-hour sales (000) 69,135,748 67,885,761 65,539,481 64,197,405 64,984,566 Customers.

3,940,949 3,831,656 3,717,262 3,589,414 3,490,325 Employees 16,627 16,660 17,086 17,553 17,182 The Mission Group Common shareholder's equity

$735,263

$505,371

$292,108

$166,381

$134,310 Net income 99,893 77,763 41,343 17,529 8,296 Earnings per share (b) 46C 35e 190 8

4 Percent of SCEcorp's earnings per share 12.9%

10.0%

5.6%

3.3%

1.2%

(a) Restated fornuclear-plant construction-cost disallowances described in "Notes to Consolidated Financial Statements."

(b) Based on weighted-average shares of SCEcorp common stock outstanding.

52

Management's Discussion and Analysis of SCEcorp and Subsidiaries Results of Operations and Financial Condition Results of Operations Operating Expenses Operating expenses in 1989 increased

$580.3 million, or 11.3%, over 1988, compared with increases of Earnings Summary Earnings per share for 1989 increased 7

$519.2 million, or 11.2%, in 1988, and $216.2 million, or 4.9%,

cents from $3.49 to $3.56. Net income rose to $778.2 million in in 1987.

1989 compared with $761.8 million in 1988 and $738.5 million The net increase in operating expenses resulted primarily in 1987. Revenue increased to $6.9 billion compared with $6.3 from utility operations. Energy costs increased $426.4 million, billion and $5.6 billion in 1988 and 1987, respectively. Factors or 19.3%, in 1989, compared with increases of $335.5 million in contributing to the increased earnings include continued em-1988, and $231.4 million in 1987. The increase in 1989 is pri phasis on cost containment and higher earnings from The marily attributable to an increase in purchased-power costs of Mission Group.

$403.4 million, or 32.7%, resulting from increased manda The Mission Group's contribution to earnings per share for tory purchases from nonutility power producers at CPUC 1989 was 46 cents, or 13%, of total SCEcorp earnings, compared mandated rates, which are higher than those for economy with 35 cents, or 10.0%, in 1988, and 19 cents, or 5.6%,

purchases, and a 2.4% increase in fuel expense as a result of in 1987. The Mission Group's net income for 1989 was $99.9 higher fuel costs. The effect on earnings of energy-cost fluctua million, up 28.5% from the $77.8 million earned in 1988. The tions is minimized by regulatory adjustment mechanisms higher earnings for the year resulted largely from additional established by the CPUC and the FERC.

Mission Energy projects placed into operation, project-The provisions for regulatory adjustment clauses for 1989 financing investments at Mission First Financial and the man-reflect net overcollections of $184.2 million, compared with agement and sale of Mission Land properties. The increased

$240.7 million in 1988 and $225.1 million in 1987. The over earnings of the nonutility businesses more than offset a slight collections are attributable to growth in kilowatt-hour sales, decline in utility earnings.

and CPUC-authorized recovery of previously deferred energy Utility earnings declined slightly in 1989 primarily as a costs through the Energy Cost Adjustment Clause. The over result of costs associated with the Palo Verde Nuclear Gener-collection in 1989 was less than in 1988, due primarily to higher ating Station (Palo Verde) outage, as discussed in Note 3 of energy costs during the year.

"Notes to Consolidated Financial Statements," and the one-Other operating expenses have increased $103.8 million in time effort to secure regulatory approvals of the proposed mer-1989 from 1988. The increase is due primarily to the costs asso ger with San Diego Gas & Electric Company (SDG&E).

ciated with the Palo Verde outage, the proposed merger with These costs were partially offset by an increase in Southern SDG&E, system growth and increased nonutility operations.

California Edison Company's (Edison) authorized rate of return Efforts to secure the regulatory approval of the proposed merger on common equity for 1989 and tight cost controls limiting with SDG&E will continue in 1990.

the growth in operation and maintenance expenses.

Income taxes on operating income for 1989 increased $51.4 million, or 11.5%, when compared to 1988, primarily as a result Operating Revenue and Sales More than 98% of electric of increased revenue and certain nonrecurring nuclear decom operating revenue is derived from retail sales, which are subject missioning tax benefits received in 1988.

to rate regulation by the California Public Utilities Commission (CPUC). The remaining revenue is from sales to wholesale customers, which are regulated by the Federal Energy Regulatory Commission (FERC). Electric operating revenue increased $592.7 million, or 10.0%, when compared to last year.

The increase in revenue is attributable to rate changes, includ ing the attrition increase that became effective January 1, 1989, changes which reflect CPUC authorization of the recovery of energy costs, and a 2.6% increase1 in retail sales that resulted primarily from the addition of approximately 109,000 new customers. Partially offsetting the i ncreases was a 22.5%

decline in resale sales volume due to the availability of alter native energy sources to resale customers.

Investment and other operating revenue increased approxi mately $59 million, or 18.4%, primarily as a result of the continued growth in the nonutility businesses.

53

Other Income and Deductions Pursuant to the Palo Verde Financial Condition Rate Phase-In Plan, discussed in Note 2 of the "Notes to the Consolidated Financial Statements," revenue deferrals for each Liquidity and Capital Resources SCEcorp's liquidity is of the three units start at $80 million for the first year of opera-affected primarily by dividend payments, and by the subsidi tions and decrease by $20 million in each of the next three aries' construction expenditures and debt maturities. Capital years. The declining amount of these deferrals resulted in re-resources include cash provided by the subsidiaries' operations ductions in the provision for rate phase-in plan of $51.4 million and external financings.

when compared to 1988.

Market conditions and other factors, including limitations Utility companies capitalize an Allowance for Funds Used imposed by Edison's Articles of Incorporation and Trust Inden During Construction (AFUDC), which represents the cost of ture, influence external financings. As of December 31,1989, debt and equity capital used to finance construction of plant Edison could issue approximately $4.3 billion of additional additions. AFUDC has declined steadily over the past three First and Refunding Mortgage bonds and $2.1 billion of pre years as a result of the completion of major utility construction ferred stock at current interest and dividend rates.

projects.

The majority of SCEcorp's capital requirements continue to The $46.6 million increase in interest income over 1988 re-be met by cash generated through operations. For 1989, cash sulted primarily from increased accumulated regulatory de-from operations increased 12.3% over last year, due primarily to ferrals, higher interest rates and increased investment balances.

declining revenue deferrals under the Palo Verde Rate Phase-In Plan and the completion of major construction projects, both Interest Expense Interest expense increased approximately with corresponding increases in cash revenue.

$49 million, or 8.9%, in 1989 compared with 1988, primarily Monthly revenue deferrals under the Palo Verde Rate Phase as a result of increased short-term borrowings and higher In Plan peaked in late 1988 and will continue to decline in fu interest rates.

ture periods with corresponding increases in cash revenue. The total accumulated deferral is expected to peak in 1990 and de New Accounting Standard As discussed further in Note 5 cline thereafter as it is collected.

of the "Notes to Consolidated Financial Statements," if the new SCEcorp raised $193.3 million in 1989 through the issuance income tax accounting standard becomes effective in its cur-of long-term debt, of which Edison raised $148.1 million, rent form, major balance sheet adjustments will be recorded.

primarily to repay bond maturities and meet sinking-fund The Financial Accounting Standards Board (FASB) is consider-requirements. The nonutility subsidiaries' long-term debt is ing requests to amend certain provisions of the new standard primarily used to finance their continued growth and meet and as a consequence, its effective date has been delayed three their capital requirements. In conformity with CPUC rate times by the FASB, most recently until 1992. These changes are not expected to significantly affect future earnings.

Balancing Account Undercollections and Rate Phase-in Plan (Utility)

In millions of dollars 862 831 923 Rate phase-in plan A

Regulatory balancing accounts 87 88 89 54

making procedures, Edison's short-term borrowings finance idends it may pay SCEcorp. At December31,1989, Edison had fuel inventories and balancing account undercollections. The the capacity to pay approximately $700 million in additional principal and interest related to these special purpose short-dividends to SCEcorp and continue to maintain a capital struc term borrowings are recovered through balancing account ture consistent with that authorized by the CPUC. Addition mechanisms. Total short-term debt increased $135.5 million in ally the California Public Utilities Code prohibits Edison 1989. Note 4 of "Notes to Consolidated Financial Statements" from making loans or advances to SCEcorp or The Mission discusses available lines of credit and related short-term Group. These restrictions are not expected to have an impact borrowings.

on SCEcorp's ability to meet its cash obligations.

Net cash used by investing activities in 1989 increased $48.7 Dividend payments and subsidiaries' construction expendi million over 1988, reflecting the subsidiaries' increased invest-tures continue to be the primary uses of capital. Edison's ments in nonutility businesses, offset partially by increased contributions to nuclear decommissioning trusts will continue distributions from partnerships and a decrease in Edison's con-until the nuclear units are decommissioned.

tributions to the nuclear decommissioning trusts. The initial contribution to nuclear decommissioning trusts in 1988 in-Capital Structure cluded contributions for prior years.

In June 1989, the CPUC authorized Edison a rate increase of SCEcorp's capital structure at December 31,1989, is reflected in

$201 million, or 3.3%, effective July 1, 1989. The principal rea-the following table:

son for the increase was to offset Edison's higher energy costs.

The CPUC's rate-making procedure for energy costs is designed Common equity 47.4%

to reimburse Edison for its actual costs without profit. In the fourth quarter of 1989, the CPUC authorized a rate increase of

$59.6 million for 1990, which includes an attrition rate increase Total 100.0%

of $41 million to offset Edison's higher nonfuel expenses. Addi tionally, the CPUC authorized a 12.85% return on common Pending Merger equity for 1990 for Edison, compared with 13.00% for 1989 and 12.75% for 1988.

As discussed in Note 1 of "Notes to Consolidated Financial The CPUC decision authorizing establishment of a holding Statements," during April 1989, the shareholders of SCEcorp, company requires Edison to maintain a capital structure con-Edison and SDG&E approved the merger of SDG&E into sistent with the CPUC's most recently authorized capital Edison. Under the terms of the merger agreement, SCEcorp will structure. As a result, Edison is limited as to the amount of div-exchange 1.3 shares of its newly issued common stock for each SDG&E common share. SDG&E preferred and preference stock will be exchanged for SCEcorp preferred and preference stock Projected Capital with similar provisions, except that dividends on each series Requirements (SCEcorp) will be increased between 10% and 20%. The proposed merger In billions of dollars remains subject to the approval of various regulatory agencies, including the CPUC and the FERC. These agencies have 1.88 1.74 1.79 1.79 1.78 established regulatory review schedules which are expected to lead to decisions in 1990.

Debt maturities and decommissioning contributions are presented in SCEcorp's 1989 Securities and Exchange Commission Form 10-K.

Dividends Construction expenditures 90 91 92 93 94 1

I Cons uctio

Shareholder Reference Guide SCEcorp and Subsidiaries Stock Listing and Trading Information Shareholders may call the 800 line or write to:

Shareholder Services SCEcorp common stock Listed on the New York, Pacific, PO. Box 400, Rosemead, California 91770 London and Tokyo stock exchanges under the ticker symbol FAX: (818) 302-4815 SCE. Shareholders can find the previous day's closing price in daily newspapers under the symbols SCEcp, or SCEcorp.

How to transfer stock Whenever there is a name change on a stock certificate, regulations require a transfer of stock.

Edison preferred stocks Listed on the American and This can happen when you sell the stock, make a gift of stock, Pacific stock exchanges under the ticker symbol SCE.

or add or delete owners of the certificate. The transfer can be Previous day's closing prices are listed in the American Stock made by filling in the stock assignment form on the back of Exchange listing table under the symbol SoCalEd. The the stock certificate and signing it exactly as the name 7.325%, 7.80%, 8.70%A and 12.31% series are not listed.

appears on the front. The signature of the individual trans ferring the stock must be guaranteed by a commercial bank Where to buy and sell stock The listed common and pre-or a brokerage firm that is a member of a national securities ferred stocks may be purchased through any brokerage firm.

exchange. A notary's acknowledgment is not acceptable. The Firms handling unlisted series can be located through your certificate should then be sent to Shareholder Services by broker.

registered or certified mail.

Dividend-reinvestment and deposit services Please call Annual Meetings of Shareholders or write the company's Shareholder Services for a prospectus on how SCEcorp's common stock shareholders can purchase The annual meetings of shareholders of SCEcorp and Edison additional shares by reinvesting their quarterly dividends.

will be held on Thursday, April 19,1990, at 10:00 a.m. at the The plan also allows optional cash payments of up to $10,000 Industry Hills and Sheraton Resort, One Industry Hills per calendar month. If you wish to have your dividend check Parkway City of Industry, California.

mailed directly to your bank for deposit, send instructions, including your shareholder account, your bank account and Shareholder Profile the complete address of the bank to SCEcorp.

As of December 31,1989, there were 145,870 SCEcorp Transfer Agent and Registrar common stock shareholders of record and 14,109 Edison preferred stock shareholders. Thousands of other shares Southern California Edison Company maintains shareholder are held in "street name" by securities brokers and nominees.

records and acts as transfer agent and registrar for SCEcorp Below is a profile of common stock shareholders.

common stock and Edison preferred stocks. Shareholders may call Shareholder Services at (800) 347-8625 between 8:00 a.m.

By account registration:

and 4:30 p.m. (Pacific time) every business day, regarding:

Women 48,385 a stock transfer and name-change requirements joint accounts 38,279

• address changes, including dividend addresses Men 33,344 a taxpayer identification number (Social Security number)

Fiduciaries 23,312 submission or changes Securities brokers, nominees, others 2,550

• replacement of dividend checks a duplicate 1099 forms and W-9 tax certification forms Bylgeora area:

a notices of lost or destroyed stock certificates Caior 77,80

" SCEcorp's Dividend Reinvestment Plan, including rein of t

es 6,0 enrollment, withdrawal, terminations, transfers and statements By shares owned:

1-99 38,877 100-300 55,580 301-500 20,419 501-1,000 19,059 1,001 or more 11,935 56

Corporate Offices SCEcorp 2244 Walnut Grove Avenue Rosemead, California 91770 (818) 302-2222 Southern California Edison Company 2244 Walnut Grove Avenue Rosemead, California 91770 (818) 302-1212 The Mission Group 3010 Old Ranch Parkway Seal Beach, California 90740 (213) 431-8488 This annual report and the statements and statistics contained herein have been assembled for general information purposes and are not intended to induce, or to be used 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.

2244 Walnut Grove Avenue Rosemead, California 91770 (818) 302-2222

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