ML18192B811

Prospectus, Employee Stock Purchase Plan of Southern California Edison Company

ML18192B811
Person / Time
Site:	Palo Verde
Issue date:	07/11/2018
From:	Southern California Edison Co
To:
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Download: ML18192B811 (38)

Text

PRELIMINARY PROSPECTUS DATED SEPTEMBER 29, 1975 9

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c4 Ol an IO THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE

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~ IC ~ II Pl The date of this Prospectus is November ., 1975.

TABLE OF CONTENTS PART I EMPLOYEE STOCK PURCHASE PLAN Page Page I

Introduction .. .... Voting of Stock .. 6 Eligibility Claims and Appeal Procedures . 6 Contributions by Participants,.... Administration 6 Contributions by Company ......... Trustee .

Restrictions on Trustee Purchases ".

7.

Vesting of Contributions ..... 4 7

t Amendment or Termination of Plan 8 Withdrawals 5 Financial Statements of the Plan .. 8 Distributions 5 Report of Independent Public Benefits Not Assignable 6 Accountants, 12 PART II SOUTHERN CALIFORNIA EDISON COMPANY Page Page II Tge Company......, 13 Financial Statements, ...,....... 17 Market Prices of the Management's Discussion and Analysis

, Company's Common Stock ...... 13 of Statements of Income ....,.... 32 Principal Security Holders,,....... 13 Regulation and Rates .............. 33 Legal Opinions .......,......, .. 13 Tax Status of the Plan .............. 35 Description of Capital Stock ... 14 Fair Employment Practices Matters ... 36 PART I EMPLOYEE STOCK PURCHASE PLAN DESCRIPTION OF THE PLAN Introduction The Plan was adopted by the Southern California Edison Cor;pany's (the "Company" )

Board of Directors on September 27, 1963, and became effective January 1, 1964. The Plan was amended July 1, 1968 and, as amended, became effective on July 1, 1968, August 1, 1968, or September 1, 1968 for different groups of employees. The Plan was amended again on September 24, 1975, and, as amended will become effective January 1, 1976. The Plan, as amended, is incorporated in, and subject to the terms of agreements between the Company and Local 47, International Brotherhood of Electrical Workers, AFL-CIO, Local 246, Utility Workers Union of America, AFL-CIO, and Local 986, International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America, dated July 18, 1973, July 31, 1973, and August 31, 1973, respectively.

I The Plan was adopted to provide eligible employees with an opportunity to sup-plement their incomes after retirement by means of regular and systematic purchases, from their current income by payroll deduction, of Common Stock of the Company. Contributions by both participants and the Company are invested by a trustee in such Common Stock and are held by the trustee in trust for distribution to participants or their beneficiaries in accordance with the provisions of the Plan. Cash and stock dividends received on account of such Common Stock are similarly invested and held. The mailing address of the Company and the Employee Benefits Committee is P.O. Box 800, Rosemead, California 91770. The telephone number of the Company is 213-572-1212, and the telephone number of the Secretary of the Committee is 213-572-1241.

The following summary of certain of the provisions ot the Plan and the Trust Agreement between the Company and United California Bank (the "Trustee" ) reflects amendments of these documents occasioned by (1) the Employee Retirement Income Security Act of 1974 ("ERISA"),

and (2) the addition of provisions whereby the Trustee's purchases of Common Stock are to be made primarily from the Company pursuant to an o'riginal issue of such shares, rather than through the market purchase of outstanding shares.

A number of the requirements imposed by ERISA are subject to regulations to be issued by the Federal Departments of Labor and the Treasury. In some areas, regulations have been promulgated, while in other important areas they have not. Pending further interpretation and regulation under ERISA, which is a complex and, in places, obscurely drafted statute, it is impossible presently to determine what, if any further amendments to the Plan will be required, either to conform to ERISA or to continue the status of the Plan as a qualified trust under Internal Revenue Code Section 401. (For a discussion of the tax consequences to the Company, the Plan and the participants, see "Tax Status of the Plan".) Therefore, the provisions summarized herein are subject to change as regulations, case law or other interpretative rulings evolve (see "Amendment or Termination of the Plan" on p. 8).

Eligibility An employee of the Company is entitled to participate in the Plan as of the first day of any calendar quarter following the earlier of (i) the date of completion of three years of service with the Company, or (ii) the date upon which the employee has both attained the age of 25 and completed at least one year of service. For purposes of determining eligibility under the Plan, a "year of service" is defined as a twelve consecutive month period commencing with the date of hire, or any anniversary thereof, in which an employee completes not less than 1,000 hours0 days <br />0 hours <br />0 weeks <br />0 months <br /> of service.

An employee who is reemployed with the Company after a break in service (as defined) is eligible to participate as soon as he becomes eligible under the rules applicable to new employees. However, if such employee has not attained the age of 25 before completing one year of service following reemployment he or she may become eligible at an earlier date to participate, i.e., on the first day of any calendar quarter following the date when the years of service before the break in service plus the year or years of service after reemployment add up to at least three years of service (unless the number of years in the break in service equal or exceed the pre-break years of service, in which case no pre-break years will be taken into account).

A "break in service" is any twelve consecutive month period, determined with reference to an employee's most recent date of hire, in which he or she fails to complete more than 500 hours0.00579 days <br />0.139 hours <br />8.267196e-4 weeks <br />1.9025e-4 months <br /> of service.

The various types of hours of service for purposes of completing a year of service are different than those for a break in service; both include hours for which compensation is received, but the former exclude certain time for which benefits are received for non-industrial accident or illness, while the latter does not. There are other minor differences more fully described in the Plan.

Participation in the Plan is entirely voluntary. An eligible employee may join the Plan by completing an application form and returning it to the Secretary of the Employee Benefits Com-mittee located in the Employee Benefits Division of the Employee Relations Department at least one month before the beginning of the quarter in which such employee becomes eligible or any quarter thereafter.

As of July 1, 1975, there were 9,021 employees, or approximately 83% of those eligible, participating in the Plan.

Contributions by Participants Each participant contributes by monthly payroll deduction a percentage of regular monthly straight-time base pay specified by such participant in accordance with the following schedule which is based on years of service:

Eligible Years of Service Contribution Percentage At least 1 but iess than 8 1% or 2%

At least 8 but less than 13 1%, 2% ol' <o At least 13 but less than 18 1%, 2%, 3% or 4%

At least 18 but less than 23 1%, 2%, 3%, 4% OI'%

23 years or more 1%, 2%, 3%, 4%, 5% or 6%

But not less than the number of years of service required for eligibility.

Changes in the amount deducted resulting from a permanent change in regular monthly straight-time base pay will be made at the beginning of the calendar quarter coincident with or following such change. Changes in the percentage contributed may also be made, not more often than once in a calendar year, by giving notice to the Secretary of the Employee Benefits Committee, located in the Employee Benefits Division of the Employee Relations Department, at least one month prior to the beginning of the calendar quarter in which such change is to commence.

A participant may also discontinue contributions by giving notice to do so at least one month prior to the calendar quarter in which such discontinuance is to become effective. Such discontinuance will not terminate participation; however,' participant may not resume contributions for four calendar quarters thereafter.

If a participant's earnings, reduced by all other deductions, are insufficient to cover the deduction authorized under the Plan, contributions will be suspended. In determining the su'fficiency of the participant's earnings, Workers'ompensation and Long Term Disability Plan benefits will be excluded. At such time as the participant's earnings again become sufficient, deductions of contributions to the Plan will automatically resume, so long as the participant is otherwise eligible and has not theretofore directed discontinuance of contributions.

Contributions by Company The Company contributes one-half of the aggregate contributions of all participants during a,quarter less any forfeitures attributable to prior Company contributions (explained in "Participant Contributions" under "Withdrawals" ) occurring during the preceding calendar quarter. Each participant will be conditionally credited with an amount from Company contribu-tions equal to one-half of the amount of such participant's own contributions during each quarter.

I Vesting of Contributions All stock and cash, including related income, attributable to contributions made by a participant are unconditionally vested in such participant. On the other hand, the stock and cash, including related income, attributable to the Company's contributions are only condition-ally credited to a participant's account until the December 31st of the fifth year following the year in;which such contributions were made, at which time they become vested in the participant's account. For example, Company contributions made during calendar year 1976 (meaning the stock and cash and related income attributable to such contributions for that year) will be vested on and after December 31, 1981. Notwithstanding the fact that such contributions vest in the participant at such time, a participant ha no right to immediately withdraw stock and cash t

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attributable to such vested Company contributions, but must wait until the occurrence of events described in "Company Contributions'nder "Withdrawals".

Withdrawals Participant Contributions: A participant may, while participating in the Plan, withdraw all or any portion of the stock and related income attributable to the participant's own contributions at any time (i) by giving not less than one month's notice prior to the end of the calendar quarter when such withdrawal is to be effective, or (ii) by foregoing the election to receive cash in lieu of stock on distribution, and giving 30 days'otice, determined from the date of receipt thereof by the Employee Benefits Committee (the "Special Withdrawal Right" ). However, if a participant makes any withdrawal, such participant forfeits (i.e., permanently loses all rights to) stock and dividends attributable to Company contributions not then vested which were made in the same year or years as the participant's contributions being withdrawn. In the case of partial withdrawal, the participant is deemed to have withdrawn the stock and related income attribut-able to the contributions last made.

A participant withdrawing contributions, in whole or in part, may not continue to contribute to the Plan until four calendar quarters have elapsed after such withdrawal. Contributions may thereafter be resumed on not less than one month's notice prior to the beginning of the quarter in which the participant desires (if such participant is then so entitled) to elect such resumption.

No withdrawal may be retroactively reinstated.

Company Contributions: A participant may not withdraw stock, and related income, attributable to vested Company contributions until termination of participation in the Plan; this occurs on (i) termination of employment; (ii) total and permanent disability; (iii) retirement; or (iv) death. However, in the last three cases mentioned, all theretofore nonvested Company contributions will vest fully and immediately in the participant or the participant's beneficiary.

Distributions Distributions are made in stock (plus cash in lieu of any fractional share) unless the with-drawing participant or the participant's beneficiary elects to take cash in lieu of stock (an election not available to a participant exercising the Special Withdrawal Right). All distributions are made by the Trustee at or as soon as practicable after the indicated distribution date. In the case of termination of service other than retirement or withdrawals other than pursuant to the Special Withdrawal Right, this occurs after the close of the calerdar quarter in which such termination or withdrawal occurs. In the case of retirements, distribution will be made not later than March 1 following the year in which a participant retires unless the participant, at least one month prior to retirement, elects to have distribution made after the end of (i) the calendar quarter in which such retirement occurs, or (ii) the first calendar quarter of the calendar year following the year in which such participant retired. Participants retiring in 1975 whose distribution will be made at the time indicated in (ii) because.,they did not exercise their election to receive their distribution at the time specified in (i) above may on 30 prior to January 1, 1976 receive distribution on or before the earlier March 1, 1976 date.

days'otice In the case of a participant exercising the Special Withdrawal Right, the participant will receive stock attributable to the participant's own contributions and allocated to his or her account as of the end of the calendar qua'rter preceding the effective date of the withdrawal, and cash in the amount of all contributions of the participant made and dividends at'tributed to such stock received after the end of such preceding calendar quarter and prior to the effective date of withdrawal.

Even if participation in the Plan continues after termination of employment, contributions of both the participant and the Company terminate. If a participant should die prior to the time when

the distribution would otherwise be made, distribution will be made to the participant's beneficiary, or, if none is then living, to such participant's estate, as soon as practicable after the end of the calendar quarter in which such death occurs.

By written notice given not later than the end of the quarter in which participation ends or a withdrawal (other than pursuant to the Special Withdrawal Right) becomes effective, the person entitled to such distribution may receive cash in lieu of the stock which is distributable. In such case the amount distributable will be the market value of the stock determined by the last sale price on the New York Stock Exchange in the calendar quarter in which participation ended or a withdrawal became effective. Such last sale price may reflect a lower price for such stock because, under certain circumstances, it might then be trading on an ex-dividend b'asis. In addition, any person electing to receive cash in lieu of stock will not be'entitled to receive dividends, or funds equivalent to dividends, which might otherwise be payable with respect to such stock after the end of the calendar quarter in which participation ended or a withdrawal became effective.

Benefits Not Assignable The benefits provided by the Plan are intended for the personal security of each partici-pant or respective beneficiary and, unless otherwise required by law, are not subject to debts or liabilities nor may such benefits be assignable in any manner, either voluntarily or involuntarily.

Voting of Stock Each participant will be given the opportunity to give the Trustee confidential instructions as to how to vote the stock vested and conditionally credited to the participant on matters which are from time to time submitted to the vote of holders of shares of Common Stock of the Company. The Trustee is required to vote such stock as so directed if such instructions are received in time to do so. Otherwise the Trustee may vote such stock as it deems proper in its sole discretion.

Claims and Appeal Procedures Any claim for benefits or demand for determination of rights under the Plan must be submitted I

in writing, addressed to the Secretary of the Employee Benefits Committee, within a reasonable time (not to exceed 120 days) after the claimant bec-:.me aware or should have become aware of the facts upon which such claim or demand could be based. Upon receipt of such claim or demand the Secretary of the Employee Benefits Committee will investigate the matter and advise the claimant in writing of his determination. If the claimant is not satisfied w'ith such determination the matter may be appealed to the Employee Benefits Committee.

Notwithstanding the foregoing, if prior to payment of any benefit the Company is notified of conflicting claims to such benefits the benefits may be withheld until such time as the conflict is resolved.

A'dministration The Employee Stock Purchase Plan is administered by the Employee Benefits Committee

>d'esignated by the Board of Directors of the Company, which Committee may make such rules,

• regulations and decisions as it deems necessary for the uniform, non-discriminatory and

'efficient administration of the Plan. The Company pays the administrative costs of the Plan, including the fees of the Trustee. The Committee is composed of six employees appointed by the Board of Directors to serve until their successors are similarly appointed. Those currently serving are: S. F. Buese, Vice President, Chairman of the Committee; Robert N.

Coe, Senior Vice President; H. Fred Christie, Vice President and Treasurer; J. B. Moore, Vice President; G. E. Wilcox, Vice President; and C. Robert Simpson, Jr., Manager of Employee Relations.

Any notices provided for under the Plan or communications relating to rights thereunder may be made directly or through the immediate supervisor of each participant or eligible employee. Available forms relating to such notices may similarly be obtained through such supervisor. Such notices or communications should be directed to the attention of the Secretary of the Employee Benefits Committee, located in the Employee Benefits Division of the Employee Relations Department. The Chairman of the Committee is the agent for service of legal process against the Plan.

The plan is maintained on a calendar year basis and records are maintained on yearly and quarterly bases. Each participant in the Plan will receive, as soon as practicable after the close of the calendar year, a statement of such participant's interest in the Plan reflecting the status of the participant's and the Company's annual contributions and of the vested and conditionally credited stock held for such participant.

Trustee The United California Bank, 700 Wilshire Blvd., Los Angeles, California, is the Trustee of the Plan.'unds contributed by the participants and by the Company for each calendar quarter are used by the Trustee to purchase Common Stock of the Company. Funds not immediately required to purchase Common Stock may be invested by the Trustee in certain short-term obligations. Purchases of Common Stock are to be made (i) by direct purchase of such stock from the Company, at a price based on the average of all daily highs and lows reported for each trading.day of the New York Stock Exchange during the calendar quarter for which such purchase is made, or (ii) through brokers or from securities dealers, if the Company should become unable to issue the necessary additional Common Stock. The pricing formula used for direct purchases is designed to approximate the price effect of the present daily market purchases by the Trustee (although the cost of brokerage commissions or other charges on acquisition will be eliminated), and the use of high-low averages minimizes the impact of unusual market fluctuations, such as might occur if a single pricing date were used and such date were to coincide with institutional sales or purchases of large blocks of stock. If the Trustee must resume purchases through brokers or from dealers, the nature of purchase trans-actions and the amounts and timing of such purchases would be determined at the uncontrolled discretion of the Trustee (subject to certain restrictions imposed unde; Securities and Exchange Commission rules hereafter referred to), but such purchases would have to be made at total costs not exceeding the total costs of purchasing such stock on the New York or Pacific Stock Exchanges on such day. In such case, the costs incurred by the Trustee in purchasing stock would be included in the purchase price and would be paid from funds in the Trust. There will be no costs to the Trustee in connection with the purchase of shares from the Company (other than possible original issue taxes v hich might be levied in the future).

Restrictions on Trustee Purchases The staff of the Securities and Exchange Commission has taken the position that certain of its rules restricting purchases of outstanding Common Stock by the Company would apply Mr. J. K. Horton, Chairman of the Board and Chief Executive Officer, and four other directors of the Company are members of United California Bank's board of directors. In September, 1969, the boards of the Company and the Trustee each adopted a resolution stating that it was its policy not to influence the timing, amount or manner of market purchases of Common Stock by the stock buyers of the Trustee. These resolutions have not been rescinded but would only be applicable in the event the Company is unable to effect a direct issue of stock for the Plan.

to market purchases of'Common Stock bythe Trustee under the Plan. If the Company should become unable to issue sufficient Common Stock for direct purchase by the Trustee, such rules would affect the Trustee purchases of Common Stock. While taking the position that these rules would not so apply, the Company has obtained an exemption from certain of the more restrictive provisions of these rules, which could adversely affect the timing or amounts of stock purchased by the Trustee on the open market; this exemption is for an indefinite term but is subject to the possibility of termination or modification on five days notice by the Commission.

Amendment or Termination of Plan The Company expects to continue the Plan indefinitely, but reserves the right to amend or terminate it at any time. The power to amend the Plan has been conferred on the Employee Benefits Committee with respect to (i) ministerial matters, (ii) changes occasioned by applicable law or regulation, or (iii) changes of any nature to implement directives of the Chief Executive Officer of the Company. However, benefits under the Plan will not be reduced prior to July 1, 1978 except as may be (i) required by any applicable law or regulation, (ii) necessary to minimize any adverse cost impact imposed by law, tax or regulatory authority, or (iii) necessary or appropriate to the continued qualification of the Plan as a qualified trust under Section 401(a) of the Internal Revenue Code (see "Tax Status of the Plan" ). No benefits may be reduced retroactively, nor may any amendment authorize the use of the stock and cash held by the Trustee for any purpose other than for the exclusive benefit of participants and their beneficiaries.

One of the amendments to the Plan required by ERISA involves a reduction in the minimum service required for eligibility to participate. (See "Eligibility".) Since the qualified status of the Plan under the Internal Revenue Code is, in part, dependent upon the percentage of eligible employees who participate, this amendment could have a detrimental effect upon the Plan's qualified status if the employees in the expanded class eligible fail to participate in numbers sufficient to maintain the applicab!e qualifying percentages of participation.

Should the Plan be terminated, all nonvested Company contributions would immediately vest in the participants and the Trust would continue until all stocks and cash had been distributed to the participants or their beneficiaries in accordance with the Plan.

FINANCIAL STATEMENTS OF THE PLAN The following statement of the financial condition of the Plan as of December 31, 1974, and the statement of income and changes in plan equity for the year then ended and the related notes have been examined by Arthur Andersen & Co., independent public accountants, as set forth in their report included elsewhere herein. The statements for the 6 months ended June 30, 1975 have been prepared by the Company and have not been examined by Arthur Andersen &

Co., and in the opinion of the Company reflect all necessary adjustments (which include only normal recurring adjustments) for a fair presentation of the results of operations for such period in'conformity with generally accepted accounting principles.

EMPLOYEE STOCK PURCHASE PLAN of SOUTHERN CALIFORNIA EDISON COMPANY STATEMENT OF FINANCIAL CONDITION ASSETS June 30, December 31, 1975 1974 (Unaudited)

Investment in Stock (at cost):

Southern California Edison Company Common Stock 1,989,015 shares and 2,214,292 shares at respective dates (quoted market value at respective dates of $ 34,807,762 and $ 45,946,559) (Notes 1 and 3) ......,...... $ 52,167,718 $ 55,848,387 Cash (Payable to Southern California Edison Company)

(Note 6) 2,742 (2,133)

Total .. $ 52,170,460 $ 55,846,254 LIABILITIES Plan Equity (Note 5) $ 52,170,460 $ 55,846,254 STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY 6 Months Ended Year Ended June 30, December 31, 1975 1974 (Unaudited)

Investment Income:

Cash dividends received on Common Stock of Southern California Edison Company ...... $ 2,802,129 $ 1,722,713 Interest received on temporary investments (Note 1),...., 28,027 25,673 Total investment income (Note 2),..., .. 2,830,156 1,748,386 Contributions:

Southern California Edison Company (including market value of forfeitures of $ 174,404 and $ 72,366 at respective dates)

(Note 4) 2,446,493 1,343,003 Participating employees ..... 4,892,985 2,686,005 Total contributions ..., . 7,339,478 4,029,008 Total investment income and contributions ..... 10,169,634 5,777,394 Deductions (Note 4):

Distributions to participants or their beneficiaries ...,...,. 2,926,198 2,013,465 Employer contributions and dividends forfeited .....,...... 234,518 88,135 Total deductions....,.....,....,......,...., 3,160,716 2,101,600 Net change in plan equity for the period .... 7,008,918 3,675,794 Plan Equity:

Balance at beginning of period,, 45,161,542 52,170,460 Balanceatendof period .. ~,.......,....., ..;....... $ 52,170,460 $ 55;646,254 The accompanying notes are an integral part of these statements.

NOTES TO FINANCIAL STATETMENTS OF'THE PLAN (Data for the period ended after December 31, 1974 is unaudited)

Note i

1 Investment Program The Trustee invests all contributions in Common Stock of Southern California Edison Com-pany, as required by the Trust Agreement. However, the Trustee has invested and is expected in the future to invest funds not immediately required for such purpose in certain short-term obligations. P

, The number of participating employees was 8,813, and 9,009 at December 31, 1974 and June 30, 1975, respectively.

I Note 2 Federal Income Taxes The Plan is a qualified trust under Section 401(a) of the Internal Revenue Code and, as such, is exempt from Federal income taxes under Section 501(a). The Plan, as amended July 1, 1968, was approved as a qualified trust by the Internal Revenue Service by letter dated August 29, 1969; however, the Internal Revenue Service has on occasion questioned, the contin-ued qualification of the Plan. For a current discussion regarding the qualification of the Plan for the years subsequent to 1971, see "Tax Status of the Plan" on page 36. As long as the Plan remains qualified, participants are not liable for Federal income taxes on amounts allocated to their accounts from Plan earnings and employer contributions until such time as they partially or completely withdraw from the Plan.

The Company has reserved the right to amend or terminate the Plan at any time. For amend-ments which will be required pursuant to the Employee Retirement Income Security Act of 1974 and possible effects thereof on the Plan's continued qualification, see under "Introduction" and "Amendment or Termination of Plan" on pages 3 and 8.

Note 3 Unrealized Market Depreciation The excess of cost over quoted market value of investment in stock was $ 16,653,304 at December 31, 1973, $ 17,359,956 at December 31, 1974, and $ 9,901,828 at June 30, 1975, an increase in such excess of $ 706,652 during the year 1974 and a decrease of $ 7,458,128 at June 30, 1975.

Note 4 Distributions and Forfeitures

'he balances in the accounts of participating employees withdrawn for any reason from the Plan during the year, and amounts disbursed to such employees in settlement thereof, were as follows:

6 Months 6 Months Ended Ended December 31 ~

December 31, June 30. June 30, 1974 1974 1975 1975 Book Equity Market Value Book Equity Market Value Balances of employees'ccounts $ 3,160,716 $ 2,093,381 $ 2,101,600 $ 1,463,146 Amounts disbursed in settlements thereof cash or securities ... 2,926,198 1,918,977 2,013,465 1,390,780 Balance forfeited nonvested portion .. $ 234,518 $ 174,404 $ 88,135 $ 72,366 1

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NOTES TO FINANCIAL"STATEMENTS OF THE PLAN (Continued)

(Data for the period ended after December 31, 1974 is unaudited)

The market value of stock in withdrawing employees'ccounts is based on the average purchase price of stock for the calendar quarter immediately prior to the distribution date, unless the withdrawing participant or the participant's beneficiary elects to receive cash in lieu of stock, in which case such stock is valued at the last sale price on the New York Stock Exchange in the calendar quarter immediately prior to such cash distribution. Cash contributions by Southern California Edison Company are reduced by the difference between the balances of (so calculated) and the amounts disbursed in settlement thereof (so calculated), which employees'ccounts difference is deemed to be, for purposes of the Plan, the market value of stock forfeited by withdrawing participants.

Note 5 Plan Equity The Plan Equity as of December 31, 1974 and June 30, 1975 includes accounts aggregating

$ 1,724,858 and $ 1,057,052, respectively, of participants withdrawing from the Plan.

At December 31, 1974, there were 1,989,015 shares (i.e., units) held by the Trustee for the Plan, which shares had an average carrying value (at cost) of $ 26.23 per share, which does not reflect an average unrealized market depreciation of $ 8.73 per share. However, the average unrealized market depreciation per share referred to above is not necessarily the same as the un-realized market depreciation per share of a particular participant. Each participant's average unrealized maket depreciation per share at December 31, 1974 can be determined as the differ-ence between the average cost of all shares purchased for the participant's account and the quoted market price of $ 17.50 per share at such date. The average cost of all shares purchased for a participant's account is reflected on each participant's annual statement of participation in the Plan.

At June 30, 1975, there were 2,214,292 shares (i.e., units) held by the Trustee for the Plan, which shares had an average carrying value (at cost) of $ 25.22 per share, which does not reflect an average unrealized market depreciation of $ 4.47 per share. However, the average unrealized market depreciation per share referred to above is not necessarily the same as the unrealized market depreciation per share of a particular participant. Each participant's average unrealized market depreciation per share at June 30, 1975 can be determined as the difference between the average cost of all shares purchased for the participant's account and the quoted market price of $ 20.75 per share at such date.

Note 6 Cash The credit cash balance principally represents contributions by the Company in excess of requirements. This excess was used by the Trustee to purchase shares during the period ended June 30, 1975 and will be deducted from subsequent Company contributions.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Participants in the Employee Stock Purchase Plan and The Board of Directors, Southern California Edison Company:

We have examined the statement of financial condition of the Employee Stock Purchase Plan of Southern California Edison Company as of December 31, 1974, and the related statement of income and changes in plan equity for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the accompanying financial statements referred to above present fairly the financial condition of the Plan as of December 31, 1974,,and the income and changes in plan equity for the year then ended in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year.

ARTHUR ANDERSEN & CO.

Los Angeles, California February 25, 1975 12

PART II SOUTHERN CALIFORNIA EDISON COMPANY THE COMPANY Southern California Edison Company (the "Compa'ny"), incorporated in 1909 under the laws of California, is a public utility primarily engaged in the business of supplying electric energy in portions of central and southern California, excluding The City of Los Angeles and certain other cities.

MARKET PRICES OF THE COMPANY'S COMMON STOCK 1

The Common Stock of the Company is listed on the New York and Pacific Stock Exchanges.

The reported high and low sale prices per share on the New York Stock Exchange for the periods indicated were as follows:

High Low High Low 1971 ......... $ 33 1/a $ 25 1/4 1975 1972 .......... 31>/a 23 First Quarter ..., $ 19s/4 $ 17s/e 1973 ...,...,.. 28t/z 17 t/4 Second Quarter .. 21 t/z 16s/4 1974 Third Quarter First Quarter ..... 19>/e 18'/4 (through Second Quarter .. 191/2 17 /e September 24) 207/e 17 Third Quarter .... 187/e 14s/e Fourth Quarter ... l8r/e 15~/4 The reported closing price on the New York Stock Exchange on September 24, 1975 was

$ 18s/e per share.

PRIN'CIPAL SECURITY HOLDERS The records of the Company show that at June 30, 1975, no person owned of record, or was known by the Company to have owned beneficially, more than 10% of any class of its voting securities except for the following:

Type of Amount Percent Name and Address Title of Class Ownership Owned of Class Metropolitan Life Insurance Company $ 100 Record and 750,000 30%

1 Madison Avenue Cumulative Beneficially Shares New York, New York 10010 Preferred k C. A. England 8 Co.

c/o Chemical Bank, N.Y.

Trust Co. Original Record 54,500 11.35%

P.O. Box 1368, Church Street Preferred Shares Station York, New York 10008

'ew LEGAL OPINIONS Messrs. O'Melveny & Myers, 611 West Sixth Street, Los Angeles, California 90017, special counsel for the Company, and Rollin E. Woodbury, Vice President and General Counsel, and/or Robert J Cahall, Assistant General Counsel, of the Company will deliver opinions to

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the effect that the securities offered hereby will be, when issued as described herein, legally and validly issued under California law, fully paid and non-assessable.

13

The Statements of Law and Legal Conclusions under the caption "Tax Status of the Plan" on page 32 have been prepared or reviewed by and have been included herein under the authority of Messrs. Mackay, McGregor, Bennion & Walch, special tax counsel to the Company.

,Messrs. Woodbury and Cahall are regular employees of the Company and as such are salaried and share in the benefits accruing to such regular employees. Mr. Woodbury has an employment contract with the Company which provides for the posthumous payment of 120 monthly installments of $ 858.33 plus 2% interest on the unpaid balance, and as of June 30, 1975, had a direct or indirect interest (partially as a trustee) in the following securities of the Company: Common Stock, 4,906 shares; Original Preferred Stock, 2,202 shares; Cumulative Preferred Stock, 4.32% Series, 118 shares; and, as of June 30, 1975, Mr. Cahall had a direct or indirect interest in 2,267 shares of the Company's Common Stock. In each case the number of shares of Common Stock referred to includes shares credited and conditionally credited to their respective accounts as of June 30, 1975, under the Plan.

I DESCRIPTION OF CAPITAL STOCK i

Generai

. The following information is, except as otherwise indicated, a brief summary of pertinent provisions of the Articles of Incorporation of the Company as now amended, and the Certificates of Determination of Preferences relating to outstanding series of preferred stock.

"The authorized capital stock of the Company consists of the following classes, listed in order of preferential rank:

(1) Original Preferred Stock ($ 8ih par value);

(2) Cumulative Preferred Stock ($ 25 par value) and $ 100 Cumulative Preferred Stock

($ 100 par value);

(3) Preference Stock ($ 25 par value) and $ 100 Preference Stock ($ 100 par value);

and (4) Common Stock ($ 8'/3 par value).

There is no $ 100 Preference Stock outstanding at the present time.

I All classes other than the Original Preferred Stock and the Common Stock may be authorized by the Board of Directors to be issued from time to time in series and the Board is authorized, as to any wholly unissued series, to fix the number of shares thereof and the dividend rights, dividend rate, conversion rights, voting rights (in addition to the voting rights provided in the Articles), rights and terms of tedemption (including sinking fund provisions),

redemption price or prices, and/or voluntary liquidation preferences thereof.

Transfers of the Common Stock are effected by Bankers Trust Company, New York, New York, Transfer Agent, and the Company, Rosemead, California. The registrars for such stock are Manufacturers Hanover Trust Company, New York, New York, and Security Pacific National Bank, Los Angeles, California. The Common Stock is listed on the New York and Pacific Stock Exqhanges and the Company has applied for listing of the New- Common Stock on such Exchanges.

Dividend Rights The Indenture securing the Company's First and Refunding Mortgage Bonds provides, in su6stance, that the Company shall not pay any cash dividends except out of its surplus at'

December 31, 1921, and out of earnings, (as defined) subsequent thereto. None of the Com-pany's present earned surplus is restricted by this provision.

The Original Preferred Stock is entitled to cumulative quarterly dividends, as declared, at the rate of 5% (of the par value thereof) per annum in preference to all other classes of stock and in addition, has certain participating rights with each other class, including the Common Stock. Subject to the prior dividend rights of all senior classes of securities and the partici-pating rights of the Original Preferred Stock, the Common Stock is entitled to receive such dividends as may be lawfully declared by the Board of Directors. For dividend rates of senior classes of securities, see Note 10 of "Notes to Financial Statements."

Voting Rights Shares of all outstanding classes except the Cumulative Preferred Stock are entitled to one vote per share. Shares of Cumulative Preferred Stock are entitled to three votes per share.

Votes may be cumulated in electing directors. The preferred capital stock may be increased or diminished by a vote of the holders of at clast two-thirds of the entire subscribed or issued capital stock.

The affirmative vote of the holders of various specified percentages, voting as a class or series, of Cumulative Preferred Stock and $ 100 Cumulative Preferred Stock is required to effect certain changes in the capitalization of the Company or the rights, preferences and privileges of such class or series, and to authorize certain other transactions (including the consolidation or merger of the Company or the sale, lease, conveyance or parting with control of substantially all of the Company's property'or business) which might affect their rights.

Under the California Corporations Code, the authorized number of shares of Common Stock may be increased by resolution of the Board of Directors and the vote or written consent of shareholders holding at least a majority of the voting power of the Company.

Liquidation Rights On any liquidation of the Company, the Original Preferred Stock is entitled to be paid its par value, plus unpaid accrued dividends, before payment to any classes junior thereto. Subject to the prior rights of the class or classes senior thereto, the other classes of preferred stock, in order of preferential rank as set out under "General" in this "Description of Capital Stock,"

are entitled to be paid upon involuntary liquidation their respective par values per share, together with unpaid accrued dividends, and upon voluntary liquidation, the liquidation pref-erence fixed by the Board of Directors for each series, such preference, in the case of the series now outstanding, being an amount corresponding to their respective then current redemp-tion prices, including unpaid accrued dividends. Subject to the prior rights of the other classes of stock, upon any liquidation of the Company the Common Stock is entitled to its par value.

Any assets and funds of the Company remaining after such distribution are to be distributed ratably to the Original Preferred Stock and Common Stock.

Other Provisions The Original Preferred Stock is not redeemable. Outstanding series of other classes of preferred stock are redeemable under certain circumstances at prices set forth in Note 10 of "Notes to Financial Statements." The $ 100 Cumulative Preferred Stock, 7.325% Series, has a cumulative sinking fund provision requiring the redemption of 30,000 shares annually at $ 100 per share, plus accumulated unpaid dividends, commencing July 31, 1983 and con-tinuing until all the shares are retired.

15

Neither the Original Preferred Stock nor any outstanding series of Cumulative Preferred Stock or $ 100 Cumulative Preferred Stock has any conversion rights.

The 3'/8% Convertible Debentures, Due 1980, and the Preference Stock, 5.20% Convertible Series, are convertible at the option of their holders into shares of Common Stock at any time prior to maturity (in the case of the Debentures) or redemption, at the respective conversion prices of $ 41.50 and $ 37.00 per share. Each of such conversion prices is subject to adjustment upon the happening of certain events, including but not limited to certain issuances of Common Stock for a consideration less than the conversion price. See Note 10 of "Notes to Financial Statements" for adjustments in such conversion prices as an incident of the issuance of the New Stock.

None of the classes of stock of the Company has any preemptive rights. All of the shares now outstanding are, and the New Stock, when issued, will be, fully paid and nonassessable.

16

FINANCIAL STATEMENTS SOUTHERN CALIFORNIA EDISON COMPANY STATEMENTS OF INCOME The following statements of income of the Company should be read in conjunction with the other financial statements, related notes and "Management's Discussion and Analysis of Statements of Income" included in this Prospectus. The statements of income for the five years ended December 31, 1974 have been examined by Arthur Andersen & Co., independent public accountants, as set forth in their report included elsewhere herein. The statement for the 12 months ended June 30, 1975 has been prepared by the Company and has not been examined by Arthur Andersen & Co., and in the opinion of the Company reflects all necessary adjustments (which include only normal recurring adjustments) for a fair presentation of the results of operations for such period in conformity with generally accepted accounting principles.

(Thousands of Dollars) 12 Months Ended Year Ended December 31 June 30, 1975 1970 1971 1972 1973 1974 (Unaudited)

Operaling Revenues:

Sales (Notes 1 and 3) , $ 714,035 $ 794,456 $ 922,309 $ 1,070,180 $ 1,471,952 $ 1,611,722 Other 6,626 7>978 8 907 9>168 ..,11>480, 10>956 Total operating revenues 720,661 802,434 931,216 1,079,348 1,483,432 1,622,678 Operating Expenses:

Fuel (Note 3) . 126,592 164,891 220,630 321,080 505,209 701,994 Other operation expenses (Notes 4 and 6) 147,885 170,335 182,139 194,038 237,409 246,782 Maintenance (Note 1) 55,327 59,992 70,586 85,184 91,905 98,871 Provision for depreciation (Notes 1 and 6) 86,239 94,398 104,434 109>878 116,189 120,437 Taxes on income (Note 6) 38,635 38,542 46,382 48,274 135,137 69,206 Property and other taxes (Note 6) 81,168 84,574 87,393 86,854 86,919 90,041 Total operating expenses . .... 535,846 612,732 711,564 845,308 1,172,768 1,327,331 Operating Income 184,815 189,702 219,652 234,040 310,664 295,347 Other Income and Income Deductions:

Allowance for funds used during construction (Note 7) 17,007 15,859 7,152 10,190 'i6,163 20,418 Other Net (Notes 2 and 6) 3,306 4,044 2,298 1,229 4,430 7,929 Total other income and income deductions 20>313 19,903 9,450 11>419 20,593 28,347 Total Income before Interest Charges . 205,128 209,605 229,102 245,459 331,257 323,694 Interest Charges:

Interest on long-term debt (Note 9), 72,252 81,379 90,888 95,473 104,145 114,551 Other interest and amortization (Note 1) 5,381 929 864 2,255 ~8814 4,605 Total interest charges 77,633 82,308 91,752 97,728 112,959 1~19 156 Net income,... 127,495 127,297 137,350 147,731 218,298 204,538 Dividends on Cumulative Preferred and Preference Stock 16,998 21,545 25,179 28,842 35,688 37,304 Earnings Available for Common and Original Preferred Stock $ 1 10,497 $ 105,752 $ 112,171 $ 118,889 $ 182~610 $ 167,234 Weighted Average Shares of Common and Original Preferred Stock Outstanding (000) 40,963 43,041 43,965 43,965 44,580 46,426 Earnings Per Share (Note 8):

Primary $ 2.70 $ 2.46 $ 2.55 $ 2.70 $ 4.10 $ 3.60 Fully Diluted $ 2.59 $ 2.37 $ 2.46 $ 2.60 $ 3.89 $ 3.43 Dividends Declared per Common Share (Note 10) $ 1.50 $ 1.515 $ 1.56 $ 1.56 $ 1.68 $ 1.68 The accompanying note s are an integral part of these statements.

17

SOUTHERN CALIFORNIA EDISON COMPANY BALANCE SHEETS ASSETS (Thousands of Dotlars)

June 30, December 31, 1975 1974 (Unaudited)

UTILITY PLANT:

Utilityplant, at original cost less contributions (Notes 1 and 3), $ 4,320,577 $ 4,369,649 Less Accumulated provision for depreciation 1,102,004 (Note 1) 1,051,024 Net utility plant 3,269,553 3,267,645 Construction work in progress (Note 4) . 422,834 534,804 Nuclear fuel, at amortized cost .. 22,764 21,280 f Total utility plant 3,715,151 3,823,729 OTHER PROPERTY AND INVESTMENTS:

Real estate and other, at cost less accumulated provision

,for depreciation .. 15,605 14,505 Subsidiary companies, at equity (Notes 1 and 2) ....... .... 72,961 77,355 Total other property and investments ....... 88,566 91,860 CURRENT ASSETS:

Cash (Note 3) . 8,003 19,082 Temporary cash investments .. 66,673 64,683 Receivables, less reserves of $ 6,054,000 and $ 5,262,000 for uncollectible accounts at respective dates (Notes I and 9) 122,487 108,674 Materials and supplies, at average cost 26,547 28,376 Fuel stock, at cost (first-in, first-out) .. 276,268 322,248 Prepayments and other (taxes, insurance, etc.) (Note 3) 82,848 12,645 Total current assets 582,826 555,708 DEFERRED DEBITS 17,401 16,289

$ 4,403,944 $ 4,487,586 The accompanying notes are an integral part of these balance sheets.

18

SOUTHERN CALIFORNIA EDISON COMPANY BALANCE SHEETS CAPITALIZATION AND LIABILITIES (Thousands of Doltars)

June 30, December 31, 1975 1974 (Unaudited)

SHAREHOLDERS'QUITY:

Original preferred stock . $ 4,000 $ 4,000 Cumulative preferred stock 483,755 533,755 Preference stock 74,998 74,998 Common stock, including additional stated capital ......... 395,709 395,709 Total capital stock stated value (Note 10) . 958,462 1,008,462 Additional paid-in capital .........,..... ........, 350,503 350,503 Retained earnings (Note 2) 677,839 708,873 Total shareholders'quity ............... 1,986,804 2,067,838 LONG-TERM DEBT (Notes 1 and 9) .. 1,944,272 2,097,632 Total capitalization 3,931,076 4,165,470 CURRENT LIABILITIES:

Accounts payable . 114,748 102,675 Taxes accrued (Note 6) .... 160,639 44,551 Interest accrued 31,134 35,642 Customer deposits 10,958 11,222 Dividends declared ... 24,820 26,555 Other (Note 3) ., 45,345 11,727 Total current liabilities, 387,644 232,372 COMMITMENTS AND CONTINGENCIES (Note 3)

RESERVES AND DEFERRED CREDITS:

Customer advances and other deferred credits ...,, .. 25,601 28,601 Accumulated deferred income taxes and investment tax credit (Note 6), 29,678 30,766 Reserves for pensions, insurance, etc. (Notes 3 and 5) ... 29,945 30,377 Total reserves and deferred credits,........., ., 85,224 89,744

$ 4,403,944 $ 4,487,586 The accompanying notes are an integral part of these balance sheets.

19

SOUTHERN CALIFORNIA EDISON COMPANY STATEMENTS OF RETAINED EARNINGS AND ADDITIONAL PAID-IN (Thousands of Dollars) CAPITAL'970 12 Months Ended Year Ended December 31 June 30, 1975 1971 1972 1973 1974 (Unaudited)

RETAINED EARNINGS:

Balance at Beginning of Period . $ 381,040 $ 430,477 $ 470,754 $ 5 l 3,866 $ 573,261 $ 624,084 Add-Net income 127,495 127,297 137,350 147,731 218,298 204,538 Adjustments net (Note 2) 9,550 (2,136) (2,136) 508,535 557,774 608,104, 671,147 789,423 826,486 Deduct Dividends declared on capital stock (Note 10)

Original Preferred ....,..., .. 708 720 749 749 792 806 Cumulative Preferred ........ 12,725 17,645 21,753 25,401 32,157 33,251 Preference 3,900 3,900 3,900 3,900 3,900 3,900 17,333 22,265 26,402 30,050 36,849 37,957 Common 60,725 64,755 67,836 67,836 74,735 78,095 Capital stock expense . 1,561 78,058 87,020 94,238 97,886 111,584 117,613 Balance at End of Period(a) ... $ 430,477 $ 470,754 $ 513,866 $ 573,261 $ 677,839 $ 708,873 ADDITIONAL PAID-IN CAPITAL:

Balance at Beginning of Period ..... $ 243,437 $ 243,437 $ 316,636 $ 316,636 $ 316,636 $ 316,636 Premium received on sale of common stock............. 73,199 33,867 33,867 Balance at End of Pe'riod ...,,,.... $ 243,437 $ 316,636 $ 316,636 $ 316,636 $ 350,503 $ 350,503'a)

Includes undistributed earnings of unconsolidated subsidiary companies of $ 12,702,000 at Decem-ber 31, 1974 and $ 12,915,000 at June 30, 1975.

The accompanying notes are an integral part of these statements.

20

SOUTHERN CALIFORNIA EDISON COMPANY STATEMENTS OF CHANGES IN FINANCIAL POSITION (Thousands of Dollars) 12 Months Ended Year ended December 31 June 30, 1975 1970 1971 1972 1973 1974 (Unaudited)

FUNDS PROVIDED BY:

Operations-Net income . $ 127 495 $ 127i297 $ 137 350 $ 147 731 $ 218>298 $ 204 538 Non-fund Items Depreciation ...., 86,239 94,398 104,434 109,878 116,189 120,437 Equity in earnings of unconsolidated subsidiaries (Notes 1 and 2) (995) (1,040) (891 )

Allowance for funds used during construction (Note 7) (17,007) (15,859) (7,152) (10,190) (16,163) (20,418)

Investment tax credit net (Note 6) .. (781) (781) (781) (781) (781) 1,769 Other (net) 1,597 1 ~ 117 1,645 2,530 6,603 3,436 Total from operations 197,543 206,172 235,496 248,173 323,106 308,871 Long-term financlng-Preferred stock 100,000 75,000 75,000 50,000 50,000 Long-term debt 100,438 107,553 125,000 4,558 222,486 274,904 Common stock 98,130 67,200 67,200 Total from long-term financings ...,... 200,438 205,683 200,000 79,558 339.686 392,104 Other sources Construction advances and other ........,........ (2,994) 2,111 1,440 7,540 169 (1,036)

Decrease in working capital items .. .....,. 148,784 Total from other sources ~(2.994 2,111 1,440 156,324 169 1,036)

Total funds provided, $ 394,987 $ 413,966 $ 436,936 $ 484,055 $662,961 $ 699,939 FUNDS APPLIED TO:

Construction additions net $ 293,463 $ 280,226 $ 260,796 $ 325,681 $ 335,784 $ 356,769 Less allowance for funds used during construction (Note 7) 17,007 15,859 7,152 10,190 16,163 20,418 Funds used for capital expenditures ......,,.... . 276,456 264,367 253,644 315,491 319,621 336,351 Advances to unconsolidated subsidiaries ......,. 13,870 6,362 Dividends 78,058 87,020 94,238 97,886 111,584 116,052 Repayment of long-term debt . 70,678 Other 8,571 24,478 14,508 4,210 3,642 Increase in working capital items .........,.......,. 31,902 38,101 74,546 213,676 237,532 Total funds applied . $ 394,987 $ 413,966 $ 436,936 $ 484,055 $ 662,961 $ 699,939 WORKING CAPITAL CHANGES:

Receivables and temporary cash Investments .....;. $ 7,087 $ 42,063 $ 85,677 $ (94,242) $ 98,352 $ 72,146 Fuel stock and materials and supplies ......,,... (12,151) 13,299 15,492 85,948 139,951 64,204 Prepayments and other . 4,098 (104) 73 (914) 40,931 (8,741)

Notes and accounts payable ...., ~..........,....,, 41,563 (15,421) (13,462) (127,359) 42,338 51,798 Taxes and interest accrued (4,779) 84 (11,161) (9,695) (100,706) 51,962 Other (net)

$ 3.916) (1,820) (2,073) (2,522) (7,190) 6,163 Increase (Decrease) in working capital ... $ 31,902 S 38,101 $ 74,546 $ (148,784) $ 213,676 $ 237,532 The accompanying notes are an integral part of these statements.

21

SOUTHERN CALIFORNIA EDISON COMPANY NOTES TO FINANCIAL STATEMENTS (Data for the period ended after December 31, 1974 is unaudited)

Note l

1 Summary of Significant Accounting Policies The accounting records of the Company are maintained in accordance with the uniform system of accounts prescribed by the Federal Power Commission ("FPC") and adopted by the California Public Utilities Commission ("PUC").

J Additions to utility plant and replacements of retirement units of property are capitalized at orjginal cost less contributions, which cost includes labor, material, indirect charges for engineering, supervision, transportation, etc., and an allowance for funds used during construc-tion (see Note 7 of "Notes to Financial Statements" ). Maintenance is charged with the cost of, repairs and minor renewals; plant accounts with the replacement of property units; and the depreciation reserve with the cost, less net salvage, of property units retired.

Depreciation of utility plant is computed on a straight-line remaining life basis for financial statement purposes and approximated 2.8% of average depreciable plant for 1970-1973, 2.9%

fop 1974 and 3.0% for the 12 months ended June 30, 1975. Current income tax expense has been reduced by the current tax reductions ari.ing from the use of liberalized methods and lives in',computing depreciation for income tax purposes and investment tax credits (see'Note 6 of "Notes to Financial Statements" ). Provisions are being made to normalize the effect of certain additional investment tax credits made available by the Tax Reduction Act of t975..

Debt premium or discount and related expenses are being amortized to income over the lives of the issues to which they pertain.

Customers are billed monthly', except for most residential customers who are billed bi-monthly. Revenues are recorded when customers are billed.

N Investments in unconsolidated subsidiary companies, all of which are wholly owned, are sthted on an equity basis.

Note 2 Changes in Accounting Methods Retained earnings were increased in 1973 by $ 9,550,000, which onsisted of the balance of. undistributed earnings of unconsolidated subsidiary companies of $ 10,667,000 at the date the Company adopted the equity method of accounting, less $ 1,117,000 transferred from retained earnings to increase the required reserve'for certain federally licensed hydroelectric projects. On December 31, 1974, the unamortized balance of capital stock expense, $ 2,136,000, was transferred to retained earnings since it is the Company's intention to charge retained earnings direct for capital stock expenses incurred in future periods. In 1974 and prior years, capital stock expense was amortized to income over a five-year period from the dates incurred.

These accounting changes have not had a significant effect on net income and are in compliance I

with the orders and authorizations of the regulatory agencies exercising jurisdiction over the Company's accounting.

Note 3 I

Commitments and Contingencies Construction program, Environmental The Company has significant purchase commitments in connection with its continuing construction program. The construction program is currently estimated at $ 430,000,000 for 1975 and $ 541,000,000 for 1976.

22

SOUTHERN CALIFORNIA EDISON COMPANY NOTES TO FINANCIAL STATEMENTS (Continued)

(Data for the period ended after December 31, 1974 is unaudited)

Note 3 Commitments and Contingencies (continued)

Increasingly stringent air quality standards imposed in Nevada and New Mexico affecting coal-fired generating plants have required the Company to participate with the other co-owners of the Mohave and Four Corners Projects in the development of additional pollution control equipment. The Company presently is unable to estimate the cost of such equipment at the Mohave Project. However it is estimated that the Company will spend $ 51,000,000 for such devices at Four Corners.

Fuel supp/y Long-term commitments, expected to approximate a minimum of $ 8 billion (including $ 6.7 billion covered by a letter of intent'hich is the basis of current negotiations for a definitive contract), exist under the Company's fuel supply and transportation arrangements. The Com-pany's fuel supply arrangements include short-term commitments under a fuel supply arrange-ment entered into in 1974 with a trust, whereby the Company concurrently assigned its principal long-term fuel supply contract to the trust and agreed to purchase fuel oil delivered to the trust by the original fuel supplier. Payments to the trust for fuel oil purchases consist of the trust's cost of oil determined on a first-in, first-out basis plus related administrative and carrying costs.

For financial reporting purposes, purchase" of the trust are assumed to have been made on behalf of the Company. Accordingly, the balance sheet at December 31, 1974 and June 30, 1975 includes $ 33,453,000 and $ 5,456,000, respectively, recorded in current assets prepay-ments and other, and current liabilities other, reflecting the Company's commitments to purchase the trust's fuel oil inventory during 1975.

Government licenses Major hydroelectric plants together with certain reservoirs are located in whole or in part on lands of the United States under Government licenses and permits which expire between 1976 and 2009. Such licenses and permits contain numerous restrictions and obligations, in'eluding the right of the United States to acquire the projects, under certain conditions, upon payment of specified compensation..

Revenues Pursuant to FPC authorizations, the Coinpany has increased rates during 1973 and 1974 for certain of its resale customers prior to the final determination of the rate cases pending before the FPC. Additional revenues of approximately $ 34,100,000 and $ 66,300,000 collected thereunder at December 31, 1974 and June 30, 1975, respectively, are subject to refund with interest to the extent that any portion of the increases are subsequently determined by the FPC to be inappropriate. The Company believes that, based on present facts, the amount of revenues, if any, which may be required to be refunded would not have a significant effect on net income in 1973, 1974 or the 12 months ended June 30, 1975.

Compensating balances and short-term debt-In order to continue lines of credit with various banks, which amounted to approximately

$ 157,000,000 at December 31, 1974 and June 30, 1975, the Company maintains deposits aggre-gating approximately $ 15,000,000, which are not legally restricted as to withdrawal. None of such lines of credit was used at such dates. Of such lines of credit, $ 8,000,000 may be utilized only for the repayment of commercial paper.

23

SOUTHERN CALIFORNIA EDISON COMPANY NOTES TO FINANCIAL STATEMENTS (Continued)

(Data for the period ended after December 31, 1974 is unaudited)

Note 3 Commitments and Contingencies (continued)

The variation between cash reported on the Company's balance sheet and the minimum aggregate deposits recorded by the banks is "float," which is due to timing differences in rec'ording deposits and withdrawals by the Company and the banks.

, There were no notes payable to banks outstanding at December 31, 1974 or June 30, 1975. The maximum amount of short-term borrowing during 1974 and the 12 months ended June 30, 1975, was $ 115,250,000 and $ 65,000,000, respectively, with average daily borrowings outstanding during such periods of $ 48,127,000 and $ 15,040,000, respectively. The approximate weighted average interest rate for these borrowings (total interest divided by average daily borrowings) was 10.15% for 1974 and 11.67% for the 12 months ended June 30, 1975.

The maximum amount of commercial paper outstanding during 1974 and the 12 months en'ded June 30, 1975 was $ 88,900,000 with average daily borrowings outstanding during such periods of $ 28,463,000 and $ 16,775,000, respectively. The approximate weighted average interest rate for these borrowings (total interest divided by average daily borrowings) was 10.83% for 1974 and 11.36% for the 12 months ended June 30, 1975.

Legal matters-For discussion of claims against the Company arising out of alleged discriminatory employ-ment practices, see "Fair Employment Practices Matters."

P'arly Retirements-On July 18, 1975, the Company offered to certain eligible employees inducements to encourage them to elect early retirement. The cost of these inducements is estimated to total

$ 5,500,000 and will be paid over a period of approximately five years commencing jn October 1975. The accounting for these costs is dependent upon the ratemaking treatment yet to be determined by the PUC.

I Note 4 Research and Development i

Plant related research and development ("R8 D") expenditures are accumulated in construction work in progress ("CWIP") until a determination is made whether or not such projects will result in construction of electric plant. If no construction of electric plant ultimately results, the expenditures are charged to operating expense. The balance of R&D expenditures included in CWIP at December 31, 1974 and June 30, 1975 was $ 8,399,000 and $ 11,122,000, re-spectively. R8D expenditures are expensed currently if they are of a general nature. Total R&D expenditures amounted to $ 3,594,000 in 1970; $ 4,137,000 in 1971; $ 11,107,000 in 1972;

$ 1$ ,441,000 in 1973; $ 15,402,000 in 1974 and $ 14,559,000 for the 12 months ended June 30, 1975. The net amounts of RBD charged to CWIP amounted to $ 689,000 in 1970; $ 1,006,000 in 1971; $ 4,190,000 in 1972; $ 9,407,000 in 1973; $ (542,000) in 1974; and $ (1,782,000) for the 12 months ended June 30, 1975. During the same period the amounts of R8D expensed were:

$ 2,'905,000 in 1970; $ 3,131,000 in 1971; $ 6,917,000 in 1972; $ 8,034,000 in 1973; $ 15,944,000 in 1974; and $ 16,341,000 for the 12 months ended June 30, 1975.

Note 5 Retirement Plans The Company's current pension program is based on a trusteed non-contributory pension plan. Since January 1, 1966, the required Company contributions have been determined on the basis of a level premium funding method. Past service costs incurred prior to that date have been funded. Pension costs are funded or reserved for on an actuarial basis and amounted to "$ 12,249,000 for 1970; $ 13,238,000 for 1971; $ 12,519,000 for 1972; $ 14,895,000 for 1973;

$ 19,789,000 for 1974; and $ 21,146,000 for the 12 months ended June 30, 1975.

24 I

SOUTHERN CALIFORNIA EDISON COMPANY NOTES TO FINANCIAL STATEMENTS (Continued)

(Data for the period ended after December 31, 1974 is unaudited)

Note 5 Retirement Plans (continued)

Provisions of the Employee Retirement Income Security Act of 1974, which will become effective in 1976, will require the Company to amend its pension plan which amendments will have the effect of increasing the annual pension cost by approximately $ 1,250,000 commencing in 1976.

Under the employee stock purchase plan adopted to supplement employees'ncome after retirement, employees may elect to contribute specified percentages of their compensation to a trustee for the purchase of Company Common Stock and the Company contributes to the plan an amount equivalent to one-half of the aggregate contributions of employees, less forfeitures. The Company's contribution amounted to $ 1,716,000 for 1970; $ 1,850,000 for 1971; $ 2,015,000 for 1972; $ 2,080,000 for 1973; $ 2,272,000 for 1974; and $ 2,391,000 for the 12 months ended June 30, 1975.

Note 6 Supplementary Income Data Taxes-As required by the California Public Utilities Commission ("PUC") no provisions are made for income tax reductions (net) which result from reporting certain transactions tax purposes in a period different from that in which they are reported in the financial for'ncome statements. The most significant of these transactions is the deduction of additional deprecia-tion in income tax returns as a result of using liberalized methods and lives. Provisions to account for the deferral of income taxes due to accelerated amortization were permitted by the PUC in certain prior years, and the accumulated amounts deferred are being amortized to income as such taxes become payable.

The estimated amount of investment tax credit generated over the five-year period 1970 through 1974 has been applied as a reduction of income tax expense. In addition, investment tax credits deferred in certain prior years were amortized to income in equal annual amounts pursuant to PUC authorizations. At December 31, 1974, the balance of these deferred investment tax credits had been completely amortized.

Additional investment tax credits have been made available to the Company under pro-visions of the Tax Reduction Act of 1975 ("Act") provided that the policies adopted for accounting purposes are also applied for ratemaking purposes by the regulatory authorities exercising jurisdiction over the Company's rates. Pursuant to provisions of the Act, the Company elected for accounting and ratemaking purposes to defer that portion of the additional invest-ment tax credit subject to normalization and to amortize it to income ratably over the book lives of the properties generating the credit.

The provision for state taxes on income is provided on taxable income of the current year; however, for federal purposes such taxes are not deductible until the following year. The provision for 1973 state taxes on income includes approximately $ 3,000,000 for under-provisions of prior years.

25

SOUTHERN CALIFORNIA EDISON COMPANY NOTES TO FINANCIAL STATEMENTS (Continued)

(Data for the period ended after December 31, 1974 is unaudited)

Note 6 Supplementary Income Data (continued)

Supplementary information regarding taxes charged to operating expenses is set forth bejow:

(Thousands of Dollars) 12 Months Year Ended December 31 Ended June 30, 1970 1971 1972 1973 1974 1975 Computed "expected" current federal income tax S 80,090 5 78.136 S 88,073 S 92.398 $ 168,468 $ 130,550 Reduction in tax:

i Excess of tax over book depreciation . (22,940) (24,831) (27,591) (27,495) (27,631) (26,705)

I Allowance for funds used during construction . (8,367) (7,612) (3,433) (4,891) (7,758) (9,801)

~ Removal costs expensed for tax purposes .. (5,136) '5,023)

(5,228)

State taxes on income ...........,...... (2,581 ) (2,549) (2,463) (3,272) (3,614) (7,574)

~

Other timing differences ....,......... (5,928) (5,284) (9,112) (6,451 ) (5,132) (18,359)

I Investment tax credit .........,......... (7,289) (5,040) (4,475) (8,460) ( 7,951 ) (9,696)

Federal tax provision 32,985 32,820 40,999 36,693 111,359 53,187 State tax provision . 5,245 5,562 8,031 10,980 24,241 14,634 Total current provision for taxes on income .. , 38,230 38,382 49,030 47,673 135,600 67,821 Amortization of previously deferred:

Taxes on income (2,147) (2,101) (2,101) (2,114) (2,129) (2,136)

Investment tax credits . (781) (781) (781) (781) (781) (391)

Deferred investment tax credit .......,....... 2,160 Taxes on income (credit) allocated to other income 3,333 3,042 234 3,496 2,447 1,752 Taxes on income included in operating expenses S 38,635 S 38,542 S 46,382 S 48,274 $ 135,137 $ 69,206 Pretax I

income $ 162,797 $ 162,797 $ 183,498 $ 192,509 $ 350,988 $ 271,992 Effective tax rate (Taxes on income, included in operating expenses + Pretax income) ...... 23 7% 23 7% 25 3% 25 1% 38.5% 25 4%

Prdperty and other taxes included in operating expenses:

i Property $ 77,461 S 80,821 S 82,019 $ 80,201 $ 80,448 $ 82,520 Payroll and other 3,707 3,753 5,374 6,653 6,471 7,521

$ 81,168 $ 84,574 $ 87,393 $ 86,854 $ 86,919 $ 90,041 Leases and Rentals The Company rents or leases computer equipment, office space and other incidental equipment and property. The total annual gross lease expenses in 1974 and for the 12 months ended June 30, 1975 are less than 1% of operating revenues.

The present value of the minimum commitments of non-capitalized financing leases at December 31, 1974 and June 30, 1975 is less than 5% of capitalization. The majority of the Company's expenses under lease commitntents is charged to other operation expenses. The impact on net income, had these commitments been required to be capitalized, would not have been significant.

26

SOUTHERN CALIFORNIA EDISON COMPANY NOTES TO FINANCIAL STATEMENTS (Continued)

(Data for the period ended after December 31, 1974 is unaudited)

Note 6 Supplementary Income Data (continued)

Other The amounts of taxes, depreciation and maintenance charged to other accounts and royalties paid are not significant. Advertising costs included in other operation expenses are less than 1% of revenues.

Note 7 Allowance For Funds Used During Construction Allowance for funds used during construction ("ADC") is the generally accepted utility accounting procedure designed to capitalize the cost of both debt and equity funds used to finance plant additions during construction periods and to restore net income to that which

. would have been experienced without the construction program through a transfer of such costs from the income statement to the balance sheet as utility plant construction work in progress. Although ADC is reported under other income and income deductions it does not represent current cash earnings. Such funds are recovered from ratepayers as a cost of service through provisions for depreciation in future periods. The ADC rate authorized by the PUC was 7.5% from 1970 to 1973, and 8.0% thereafter.

I For the purpose of calculating the following percentages, the sources of construction funds used are assumed to be in the same ratios as the capitalization ratios at the end of each respective period and the cost of such funds is based on the weighted average cost experienced (or estimated for periods during which no such securities were issued) in each respective period for long-term debt (net of income tax effect) and preferred stock. On this basis, the common equity portion of ADC as related to earnings available for Common and Original Preferred Stock was 9% in 1970 and 1971, 4% in 1972, 5% in 1973 and 1974 and 7% for the 12 months ended June 30, 1975.

Note 8 Earnings Per Share Primary earnings per share are based on the weighted average shares of Common and Original Preferred Stock outstanding in each period, giving effect to the participating provisions of the Original Preferred Stock, and after providing for preferred and preference dividend requirements. Fully diluted earnings per share also give effect to the dilution which would result from the conversion of the Preference Stock, 5.20% Convertible Series and the 3~/e%

Convertible Debentures.

27

SOUTHERN CALIFORNIA EDISON COMPANY

'I NOTES TO FINANCIAL STATEMENTS (Continued)

(Data for the period ended after December 31, 1974 Is unaudited)

Note 9 Long-Term Debt A summary of long-term debt outstanding at December 31, 1974 and June 30, 1975 and related unamortized premium or discount follows:

(Thousands of Dollars)

December 31, 1974 June 30, 1975 Unamortized Unamortized Interest Principal Premium Principal Premium Series Maturity Rate Amounts (Discount) Amounts (Discount)

First and Refunding Mortgage Bonds .. C" E

D 1976 1976 1978 2r/s %

3Vs 3%I

$ 35.000 30,000

'5 14 $ 35,000 30,000

$ 7 18 30,000 (24) 30,000 (21)

F 1979 3 30,000 1 30,000 1 G 1981 3% 40,000 (173) 40,000 (159)

H 1982 4Vs 37,500 (74) 37,500 (69) t 'f982 4s/s 40,000 (20) 40,000 (19)

J 1982 4r/s 40,000 47 40,000 44 K 'l983 4S 50,000 40 50,000 38 L 1985 5 30,000 56 30,000 53 M 1985 4/s 60,000 (189) 60,000 (181)

N 1986 4Vz 30,000 65 30,000 62 0 1987 4Vs 40,000 (134) 40,000 (129)

P 1987 4Vs 50,000 (82) 50,000 (79)

Q 1988 4% 60,000 9 60,000 8 R 1989 4% 60,000 (268) 60,000 (258) s 1990 4Vs 60,000 118 60,000 114 T 1991 5Vs 75,000 (383) 75,000 (371),

U 199'l 61/s 80,000 (260) 80,000 (252)

V 1992 5~/s 80,000 122 80,000 119 W 1993 6% 100,000 (408) 100,000 (397)

X 1994 7 Vs 75,000 (48) 75,000 (47)

Y 1994 8Vs 100,000 (693) 100,000 (675)

Z 1995 7r/s 100,000 (483) 100,000 (471)

AA 1996 8 100,000 (459) 100,000 (448)

BB 1997 7Vs 125,000 (1,108) 125,000 (1,083)

CC 1899 8Vs 100,000 172 '100,000 169 DDP 1999 7 15,030 15,030 EE 1981 9 100,000 (1,220), 100,000 (1,131)

FF 2000 8% 150,000 (2,198) 1,772,530 (5,357) 1,922,530 (7,355)

First Mortgage Bonds (Calectrlc) .... 1976-1991 2r/s-5Vs 87,340 31 87,340 Convertible Debentures 1980 3Vs 74,902 499 74,902 455 Promissory Notes ..... 1979-1982 5Vs 14,327 19,738 1

Principal Amounts Outstanding .......... 1,949,099 2,104,510 Unamortized Premium or Discount (net) ........ (4.827) $ (4,827) (6,878) $ (6,878)

Total Long-Term Debt $ 1,844,272 $ 2,097,632 28

SOUTHERN CALIFORNIA EDISON COMPANY NOTES TO FINANCIAL STATEMENTS (Continued)

(Data for the period ended after December 31, 1974 is unaudited)

Note 9 Long-Term Debt (continued)

/he authorized principal amount of each series of First and Refunding Mortgage Bonds is equal to the amount outstanding. The Trust Indenture under which these bonds are issued permits the issuance from time to time of additional bonds thereunder pursuant to the restric-tions and conditions contained therein. The indenture also requires semiannual deposits with the Trustees of 1'/2% of the principal amount of its outstanding First and Refunding Mortgage Bonds and the First Mortgage Bonds of Calectric. The amount authorized for each series of First Mortgage Bonds is equal to or greater than the amount outstanding. The Calectric inden-ture requires an annual deposit with the Trustee of 1% of the principal amount of First Mortgage, Bonds issued less certain bonds retired, plus an amount equivalent to the excess of 15%

of gross operating revenues over costs of maintenance of the property subject to the lien of such indenture. These deposit requirements of such indentures may be and have been satisfied by property additions and replacements, and by delivery and cancellation of bonds outstanding under the applicable indenture. The Series DDP, First and Refunding Mortgage Bonds are subject to a mandatory sinking fund commencing on July 1, 1990.

The amount of long-term debt maturing in the 12 month periods ending June 30, will be:

$ 50,840,000 for 1976; $ 30,000,000 for 1977; $ 5,500,000 for 1978; $ 32,850,000 for 1979; for 1980. and'41,744,000 At December 31, 1974 and June 30, 1975, the 3~/e% Convertible Debentures, Due 1980, were convertible at the adjusted rate of one share of Common Stock for each $ 41.50 of the principal amount of such debentures. Any such debentures which are converted may not be reissued.

The Company has entered into a financing agreement, as amended, with certain English banks pursuant to which it expects to issue over a period ending not later than January 31, 1977, promissory notes payable in pounds sterling in the maximum aggregate principal amount of 811,833,624 (but not to exceed $ 28,400,000). At December 31, 1974 and June 30, 1975, promissory notes were outstanding in the amounts of E5,966,800 (recorded at $ 14,327,000) and R8,263,500 (recorded at $ 19,738,000), respectively. These notes were issued at various dates, are secured by a pledge of the Company's customer accounts receivable and are recorded at historical exchange rates. At the December 31, 1974 exchange rate ($ 2.347 per R), the Company had an unrecognized exchange gain of approximately $ 322,000 and, at the June 30, 1975 exchange rate ($ 2.190 per R), the Company had an unrecognized exchange gain of approximately $ 1,640.000.

Note 10 Capital Stock Transactions in the capital stock accounts for the five years ended December 31, 1974 reflect the issuance of the following: in 1970, 500,000 shares of $ 100 Cumulative Preferred Stock, 8.70% Series, and 500,000 shares of $ 100 Cumulative Preferred Stock, 8.96% Series; in 1971, 3,000,000 shares of Common Stock, and 1,933 shares of Common Stock due to conversion of

$ 85,000 principal amount of 3'/8% Convertible Debentures, Due 1980; in 1972, 750,000 shares of

$ 100 Cumulative Preferred Stock, 7.58% Series; in 1973, 750,000 shares of $ 100 Cumulative Preferred Stock, 7.325% Series; and in 1974, 2,000,000 shares of Cumulative Preferred Stock, 29

SOUTHERN CALIFORNIA EDISON COMPANY NOTES TO FINANCIAL STATEMENTS (Continued)

(Data for the period ended after December 31, 1974 is unaudited)

Note 10 Capital Stock (continued) 8.85%%d Series ($ 25 par value) and 4,000,000 shares of Common Stock. On June 19, 1975, 2,000,000 shares of Cumulative Preferred Stock, 9.20/o Series ($ 25 par value) were issued.

II

, The quarterly dividend rate was increased from 35lt! to 37'/2g per share effective with the dividend paid on Common Stock April 30, 1970, and on Original Preferred Stock June 30, 1970; to 394 per share effective with the dividend paid on Common Stock January 31, 1972, and on Original Preferred Stock March 31, 1972; and to 42ft.'per share effective with the dividend paid on Common Stock April 30, 1974, and on Original Preferred Stock June 30, 1974.

A summary of the capital stock accounts at December 31, 1974 and June 30, 1975 follows:

(Thousands of Dollars)

Redemp-Shares tion Price Decem-Out- Per ber 31, June 30, standing Share 1974 1975 Original Preferred 5/o, prior, cumulative, participating, not redeemable, authorized 480,000 shares, par value $ 8t/s per share ... 480,000 $ 4,000 $ 4,000 Cumulative Preferred authorized 12,000,000 shares, par value $ 25 per share (a) 4.08/o Series 1,000,000 $ 25.50 25,000 25,000 4.24 /o Series 1,200,000 25.80 30,000 30,000

"'.32'/o Series 1,653,429 28.75 41,336 41,336

~

4.78 /o Series 1,296,769 25.80 32,419 32,419 5.80 /o Series 2,200,000 27.00 55,000 55,000 "8.85'/o Series .....,,...,.............. 2,000,000 27.20 50,000 50,000

'.20 /o Series 2,000,000 27.25 50,000

$ 100 Cumulative Preferred authorized 6,000,000 shares, par value $ 100 per share (a) 7.325 /o Series 750,000 115.00 75,000 75,000 7.58 /o Series 750,000 108.00 75,000 75,000 8.70'/o Series . 500,000 111.00 50,000 50,000 8.96 /o Series 500,000 111.00 50,000 50,000 483,755 533,755 Preference authorized 10,000,000 shares, par value $ 25 per share (a) (b) 5.20/o Convertible Series ............., 2,999,900 25.00 74,998 74,998 Common authorized 60,000,000 shares, par stated capital (b)

Total capital stock value $ 8t/s per share, including additional stated value (c) 47,484,883 395,709

$ 958,462 $

395,709 1,008,462 (a) ",All series of $ 100 Cumulative Preferred, Cumulative Preferred and Preference Stock are "redeemable at the option of the Company. The various series of $ 100 Cumulative Preferred 30

SOUTHERN CALIFORNIA EDISON COMPANY NOTES TO FINANCIAL STATEMENTS (Continued)

(Data for the period ended after December 31, 1974 is unaudited)

Note 10 Capital Stock (continued)

Stock and the Cumulative Preferred Stock, 8.85% Series, are subject to certain restrictions on redemption for refunding purposes. The $ 100 Cumulative Preferred Stock, 7.325% Series has a cumulative sinking fund provision requiring the redemption of 30,000 shares annually at $ 100 per share, plus accumulated unpaid dividends, commencing July 31, 1983, and continuing until all shares are redeemed.

(b) Under a prescribed formula, the conversion prices of convertible securities are adjusted when additional shares of Common Stock are sold by the Company, as occurred in 1974.

At December 31, 1974 and June 30, 1975, the shares of Common Stock reserved for the Preference Stock, 5.20% Convertible Series amounted to 2,026,960, reflecting the adjust-ment of the conversion price from $ 39.00 to $ 37.00 per share. An additional 1,804,868 shares of Common Stock were reserved at those dates for the conversion of 3~/8% Convertible Debentures, Due 1980 at a conversion price adjusted from $ 43.50 to $ 41.50 per share.

However, no adjustment will be made to the conversion price until such time as an appropri-ate number of shares of the New Common Stock are sold to make it necessary.

(c) The Company's Articles of Incorporation authorize the issue of 2,000,000 shares of $ 100 Preference Stock, $ 100 par value, none of which was outstanding as of December 31, 1974 and June 30, 1975.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Southern California Edison Company:

We have examined the balance sheet of Southern California Edison Company (a California corporation, hereinafter referred to as the "Company" ) as of December 31, 1974, and the related statements of income (included under "Statements of Income" ), retained earnings, additional paid-in capital and changes in financial position for the five years then ended.

Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the financial statements referred to above present fairly the financial position of the Company as of December 31, 1974, and the results of its operations and the changes in its financial position for the five years then ended, in conformity with generally accepted accounting principles consistently applied during the periods.

ARTHUR ANDERSEN 8 CO.

Los Angeles, California January 31, 1975 31

MANAGEMENT'S DISCUSSION AND ANALYSIS OF STATEMENTS OF INCOME II Operating Revenues Total operating revenues for 1973, 1974 and the 12 months ended June 30, 1975 increased by $ 148,132,000, $ 404,084,000 and $ 364,802,000 over the respective prior periods. These in-creases were principally due to general rate increases and upward fuel cost adjustments in the Company's rates. (For information concerning the Company's rates, see "Regulation and Rates".) However, the Company experienced a decrease in the level of energy consump-tion by its customers which amounted to a 5.6% reduction of total kwh sales,",for 1974 arid a 2.2% reduction for the 12 months ended June 30, 1975 as compared with the respective comparable prior periods. This situation was due to customer reaction to sharply higher costs per kwh which, for 1974 and the 12 months ended June 30, 1975, averaged 45.5% and 32.1%

higher than for the respective comparable prior periods, as well as voluntary and mandatory state and federal governmental restraints on energy usage. Revenues for 1973, 1974 and the 12 months ended June 30, 1975 of $ 4,395,000, $ 29,681,000 and $ 53,040,000 (a total of

$ 66,300,000 has been collected through June 30, 1975) are attributable to increased rates for certain resale customers and are subject to refund with interest to the extent that any of the increases are subsequently determined by the Federal Power Commission (the "FPC") to be inappropriate. (See Note 3 of "Notes to Financial Statements".)

Fuel Expense Fuel expense increased during 1973, 1974 and the 12 months ended June 30, 1975 primarily because of decreased availability of natural gas and increased prices of environmentally acceptable low-sulphur fuel oil used as an alternative fuel. During the first three quarters of 1974, the Company, due to circumstances set forth under "Net Income and Earnings" below, used less than anticipated amounts of higher-cost fuel oil. Similar circumstances" have not occurred in 1975. In addition, the Company has been advised that no significant quantities of gas will be available to it as a fuel for generation in 1976 and subsequent years. The Company expects to be relying more heavily on fuel oil with resulting increases in fuel expense.

II II Taxes and ADC The increase in taxes on income from 1974 over 1973 resulted from an increase in net income before taxes with no commensurate increase in tax reductions. The decrease in taxes on income for the 12 months ended June 30, 1975 was due primarily to lower net income before taxes and additional tax reductions. (See Note 6 of "Notes to Financial Statements".)

The increase in allowance for funds used during construction ("ADC") for 1973 reflects the impact of an increase in construction activities, and the increase of ADC for 1974 and the 12 months ended June 30, 1975 reflects in part an increase in the ADC rate from 7.5/o to 8.0%

and in part an increase in construction activity and related costs. (See Note 7 of "Notes to Financial Statements".)

Net Income and Earnings The significant increase in net income for 1974 over 1973 of $ 70,567,000 is unusual. Sub-stantially all of the increase was due to significantly greater than average-year availability of low-cost hydroelectric power from the Company's own facilities and to an even greater extent from the Pacific Northwest, a greater amount of natural gas available than projected and a less than projected use of higher-cost fuel oil, in conjunction with the Company's general rates which increased in late 1973 (retail) and in 1974 (resale) and the fuel adjustment clause discussed in "Regulation and Rates". This combination of favorable operating circumstances occurred primarily in the first three quarters of 1974 and such favorable circumstances have not occurred to the same degree in 1975.

I 32

As a result, net income for the six months ended June 30, 1975 decreased from the comparable prior period by 13.1% primarily due to increases in the quantity of fuel oil burned resulting from a return to conditions more nearly approximating an average year, and increases in the price of fuel oil burned without any adjustment by the PUC in the Company's fuel cost adjustment billing factor to reflect such increases during such period. For information con-cerning the operation and status of the Company's fuel adjustment clause, see "Regulation and Rates". In addition, earnings available for common and original preferred stock for the six months ended June 30, 1975 decreased by 17.5% from the same period in 1974, primarily reflecting the matters referred to above and an increase in the preferred dividend requirements.

Primary earnings per share for such period decreased from the comparable prior period by 24.0% primarily due to the combination of factors discussed above and a greater average number of shares outstanding during such period. Net income, earnings available for common and original preferred stock and primary earnings per share in 1975 are expected to be substantially less than in 1974.

REGULATION AND RATES The Company's retail operations are subject to regulation as a public utility by the PUC, which has the power, among other things, to establish retail rates and to regulate security issues, accounting and depreciation. The Company's resale operations are subject to regula-tion by the FPC as to rates on sales for resale, as well as other matters including accounting and depreciation. The Company is also subject to various governmental licensing requirements and to certain federal, state and local laws and regulations dealing with nuclear energy, environ-mental protection and fuel supplies.

The Company's applicable rates subject to PUC jurisdiction (accounting for approximately 90% of sales during 1974) have been determined by the PUC in both general rate increase proceedings and fuel cost adjustment filings on the basis of projected revenues and expenses (including projected fuel costs) for an average year, i.e., a year in which the amounts of power available to the Company from hydroelectric facilities of the Company and others are those which would be available under historical average weather conditions and the amounts of natural gas available to the Company are those which its suppliers advise should be available under historical average weather conditions. To the extent that the availability of hydroelectric power and gas is greater or lesser than projected under average-year conditions, the Company may incur fuel costs in a lesser or greater amount than projected, and net income will be affected accordingly.

The Company, on June 7, 1974, filed an application with the PUC requesting a general rate increase which the Company estimated would produce a rate of return of 9.6% (15% on common equity) and additional annual revenues of approximately $ 339,000,000, based on the Company's estimated 1976 level of sales, expenses and other operations subject to regulation by the PUC and the inclusion in the Company's rate base of a portion of non-operative construc-tion work in progress, which has not been included previously in the Company's rate base.

Among the factors necessitating this request were declining customer usage, increases in the cost of capital and general inflationary pressures. Hearings are in progress and are presently scheduled into November 1975.

On October 1, 1974. the PUC issued an Order Instituting Investigation to consider changes in the rate structure of electric utilities designed to encourage conservation of energy. The Company is awaiting a decision on this matter. The PUC was requested by the California Legislature to report its findings and recommendations and has sought an extension of time to make such report. In September 1975 the State of California enacted legislation which requires the PUC to establish "lifeline" quantities of gas and electricity necessary to supply

the minimum energy needs of an average residential user for certain domestic purposes. The PUC also is required to cause utilities to file a schedule of "lifeline" rates which cannot be greater than the rates in effect on January 1, 1976 and may not increase such rates until the average system rates of a utility increase by 25% or more. In a recent PUC general rate increase decision for another California utility the PUC adopted a "lifeline" concept for res-idential service. The Company contemplates that the PUC will require it to include a "lifeline" concept in its rates. The Company is unable to predict the effect on customer usage or the Company's revenues or earnings which may result from an inclusion of a "lifeline" concept in its rates.

In May 1972, the PUC authorized an expedited procedure, consistent with the average-year method followed in establishing the Company's base rates, for making upward and downward adjustments in billings for service no more frequently than every three months, to reflect changes in fossil fuel costs. This procedure is set forth in a fuel adjustment clause designed to adjust I

billings in such a manner as to produce changes in revenues which track fossil fuel expenses projected on an average-year basis. Since the fuel adjustment clause provides for a projection of fuel costs during a 12-month period based on the average cost of fuel in inventory at the beginning of the period and the cost of fuel necessary for the remainder of the period utilizing prices in effect at the proposed commencement of the period, and because fuel expense is accounted for by the Company on a first-in, first-out basis, during a period when fidel prices are falling, the fuel adjustment clause may be implemented to produce decreases in revenues greater than decreases in fuel costs.

Changes in the fuel cost adjustment billing factor applicable to retail sales must be author-ized by the PUC. In the case of four of the Company's filings made in 1974, the PUG "authorized fuel cost adjustment billing factor increases less than those proposed by the Company. In con-nection with the Company's January 3, 1975 request for an increased fuel cost adjustment billing factor which was requested to become effective on February 1, 1975, and was designed to produce additional revenues of $ 65,400,000 on an annual basis, the PUC asked the Company toI provide specified information with respect to historical and projected operation of the fuel adjustment clause. For the first time since such clause was authorized, the pUC set the Com-pany's request for public hearings, which were concluded on March 14, 1975. As hearings before the PUC are adversary in nature, the PUC Staff and intervenors in the proceedings make recommendations to the PUC which are frequently inconsistent with the Company's proposals, and are subject to cross examination and rebuttal testimony. The Staff of the PUC, in the hearings on the Company's January 3 request, urged the Commission in early February to reduce the Company's existing fuel cost adjustment billing factor by an amount which, if taken in context with the other elements applicable to such billing factor, would reduce the Company's revenues by $ 23,800,000 on an annual basis. The Company believes that the b'ases upon which the Staff made its recommendation are improper and it therefore opposed such recommendation in the hearings. On March 31, 1975 and on July 2, 1975, the Company niade additional fuel cost adjustment filings. These filings were proposed to become effective on May 1, 1975 and August 1, 1975, respectively. The PUC has not acted on any of these filings.

On March 18, 1975, the PUC issued an Order Instituting Investigation of the Company's and tHree other California electric utilities'uel adjustment clauses for the purpose of reviewing the operation of such clauses to determine what, if any, changes should be made in them. Hearings in such proceedings commenced in August and are scheduled to continue through October 1975. During recent months, there has been increasing public comment by private individuals, pbblic officials, including certain PUC Commissioners, and the California Joint Legislative Audit Committee, expressing concern about the operation of the fuel adjustment clauses approved by the PUC for inclusion in the rates of the Company's and certain other California 34

electric utilities. The cause for such expressed concern is primarily due to a difference between fuel cost adjustment revenues and related fuel expenses recorded for non-average year results of operations in 1974 (see "Net Income and Earnings" under "Management's Discussion and Analysis of Statements of Income" ). The Company believes that such difference does not indicate excessive or unlawful collection of revenue since its fuel adjustment clause and base rates are established on the basis of average-year operating conditions, 'and the Company has during the period involved charged customers rates authorized by the PUC which have not produced unreasonable rates of return. The Company cannot predict what changes, if any, may be made in its present fuel adjustment clause. On September 5, 1975, a class action complaint (Cfaremont Professional Building, et al. v. Southern California Edison Company) was filed in Los Angeles Superior Court alleging misrepresentation and fraud by the Company in overstating the cost of fuel to the PUC in rate proceedings before it with the result that the PUC approved electric rates in excess of those which would have been approved in the absence of such alleged fraud. The complaint has not as of the date hereof been sewed on the Company.

It alleges damages to the Company's customers, on whose behalf the action was filed, in the total amount of in excess of $ 140,000,000, plus exemplary damages of no less than $ 100,000,000.

Because the Company believes that such charges are unfounded, it intends, among other things, categorically to deny the allegations of fraud and misrepresentation and vigorously to defend the action.

On September 7, 1973 and August 4, 1974, the FPC permitted resale rate increases to become effective, subject to refund, and on May 2, 1974, the FPC permitted the Company to put

'nto effect, subject to refund, and on May 2, 1974, the FPC permitted the Company to put into effect, subject to refund, a fuel adjustment clause. Certain resale customers have inter-vened to oppose these filings.'he FPC has reopened its proceedings on the fuel adjustment clause on certain issues. Revenues collected subject to refund amounted to approximately

$ 66,300,000 through June 30, 1975. The Company believes that, based on present facts, the amount of revenues, if any, which may be required to be refunded would not have a significant effect, on net income.

The timing and extent of rate increases (or decreases) which may be ordered in the foregoing rate proceedings and the results of proceedings which may affect the Company's rate structure, including its fuel adjustment clause, are beyond the control of the Company and cannot be predicted. Deferrals or denials of the Company's requests for fuel cost adjustment billing factor increases while fuel costs are increasing, or any reductions in the present billing factor without a corresponding reduction in fuel costs, could have a material adverse effect upon the Company's net income, the extent of which cannot presently be determined.

TAX STATUS OF THE PLAN In 1971 and 1972, the Internal Revenue Service took the position that the Plan failed to qualify for the taxable years 1966 and 1967 under Section 401(a) of the Internal Revenue Code because, in the opinion of the Internal Revenue Service, the Plan discriminated in favor of highly compensated employees in that the allocation of Company contributions to employees above the median income level represented a greater percentage of compensation than that which was allocatedto employees whose compensation was at lower levels. The Company disagreed with the Service and the dispute was settled in favor of the Company for taxable years 1966 through 1971 by a closing agreement dated September 20, 1973. The Company has been advised informally by Internal Revenue agents auditing its 1971 and 1972 returns that their present intention is not to raise this issue with respect to the year 1972, although such decision is not yet final.

35

The effect of a successful contention by the Internal Revenue Service that the Plan was nOt qualified for Federal income tax purposes would (1) subject the Company to additional tax liability for disallowed deductions of contributions; (2) subject the operations of the Trust to liability for income taxes (reimbursable by the Company under provisions of the Trust Agree-ment); and (3) subject a participant in the plan to liability, both for past and future years, for a larger tax (i.e. larger portion of the tax might be at ordinary income tax rates) and at earlier dates than at present. Assuming that current operations of the Plan reflect little significant differences from its 1966 operations, counsel for the Company is of the opinion that the Company should prevail if the Internal Revenue Service were to reopen the issue discussed in the pre-c'eding paragraph for the year 1972 or years thereafter.

FAIR EMPLOYMENT PRACTICES MATTERS A complaint was filed in 1971 by various civil rights groups with the California Fair Employment Practice Commission (the "FEPC") alleging that the Company was discriminating in its hiring and promotion practices in regard to women and certain minorities. The Com-pany submitted a revised affirmative action program which involved revised goals for minority employees and new goals for female employees. The FEPC conditionally accepted the Company's revised program and goals, subject to subsequent demonstrated performance, and suspended the complaint in July 1972.

In connection with a charge filed with the Federal Equal Employment Opportunity Com-mission (the "EEOC" ) on January 31, 1972 against the Company and two labor unions, the EEOC, on September 6, 1973 and on March 22, 1974, determined that there is reasonable cause to believe that, with respect to certain of the allegations, the Company and the unions have engaged in employment practices, with regard to women and certain minorities, which are in violation of Title Vll of the Civil Rights Act of 1964. The EEOC, the Company, the two unions and the representatives of the plaintiffs mentioned below are currently meeting in conciliation in an attempt to resolve the alleged discriminatory practices. While denying'hat it has engaged in any unlawful practices, the Company will endeavor to resolve the issues raised by the determination in these proceedings.

lI On January 15, 1974, a class action suit was filed against the Company and the two labor unions in the U. S. District Court for the Central District of California. This suit alleges that the defendants have engaged and are continuing to engago in unlawful employment practices, with'espect to Blacks and Mexican-Americans, which are in violation of certain civil rights acts and encompasses a number of the issues raised by the EEOC determination mentioned above. If the plaintiffs in such action should prevail against the Company, the court, in addition to awarding monetary damages and back pay to class members (plaintiffs'laim is in excess of $ 20,000,000), could enjoin any employment practices it determines are unlawful and order that the. Company undertake further affirmative action with respect to future hiring and promotional practices, as well as such other equitable relief as the court deems appropriate. Settlements, consent decrees and decisions arising out of charges filed against other employers under such civil rights acts have resulted-in the imposition of un-economical hiring, promotional and other employment practices and requirements, as well as substantial monetary awards or settlements.

I In the opinion of Company counsel, although there are no controlling judicial precedents concerning a number of issues presented by the charge and the case, the Company has numerous defenses which should be sustained by a court and which, among other things, have the effect of limiting, eliminating or mitigating claims for damages. The Company believes, based on its investigations to date, that the amount of any recovery of monetary damages, I

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including back pay, should not have a material effect on the financial statements of the Company.

In addition to the above class action, class actions could be instituted by the EEOC if the matter is not resolved in conciliation, and by others raising issues other than those included in the class action now pending. Also, other proceedings alleging discrimination could be instituted against the Company by other federal agencies for the termination of contracts for the processing of nuclear fuel, the sale or purchase of power or purchase of water, and of easements, rights of way and permits over federal lands on which numerous Company transmission and distribution facilities are located or are planned to be located in the future.

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