ML20196H893

SCE 1996 Annual Rept

ML20196H893
Person / Time
Site:	Palo Verde
Issue date:	12/31/1996
From:	SOUTHERN CALIFORNIA EDISON CO.
To:
Shared Package
ML17312B576	List: ML20196H893
References
NUDOCS 9708010101
Download: ML20196H893 (38)

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A Pr: film cf S:uth:rn Cclifornia Edison Campany 4 l I-Southern California Edison (SCE) is the nation's second-largest electric utility, based on the number of i customers. Headquartered in Flosemead, California, SCE is a subsidiary of Edison International, which is primarily an energy-services company. SCE, a 110-year-old investor-owned utility, serves 4.2 million customers in Central and Southern California. More than 11 million people live in its 50,000-square-mile service territory, i Contents 1 Selected Financial and Operating Data: 1992-1996 2 Management's Discussion and Analysis of Results of Operations and Financial Condition 11 Consolidated Financial Statements 15 Notes to Consolidated Financial Statements

31. Quarterly Financial Data 32 Responsibility for Financial Reporting 33 Report of Independent Public Accountants 34 B,.ard of Directors 34 Executive Officers i

l I l l. 1 l I i

S:lected Financial and Optrating Data: 1992-1996 Southem CaWoman Edhon Company i 1 Dollars in millions 1996 1995 1994 1993 1992 kmomo statement data: Operating revenue $ 7,503 $ 7,873 $ 7,799 $ 7,397 $ 7,722 Operating expenses 6,450 6.724 6,705 6,232 6,492 Fuel and purchased power expenses 3,336 3,197 3,403 3,290 3,086 income tax from operations 578 560 508 506 520 Mowance for funds used during construction 25 34 29 36 37 imerest expense--not 453 464 443 449 517 Not income 655 680 639 678 673 Earnings availaue for common stock 621 643 599 637 631 Ratio of earnings to fixed charges 3.54 3.52 3.43 3.39 3.16 Balance sheet data: 1 Assets $ 17,737 $ 18,155 $ 18,076 $ 18.098 $ 15.969 Gross utility plant 21.134 20,717 20,127 19,441 18,652 Accumulated provision for depreciation and decommissioning 9,431 8,569 7,710 7,138 6,544 Common shareholder's equity 5,045 5,144 5,039 4,932 4,775 Preferred stock: Not subject to mandatory redemption 284 284 359 359 359 Subject to mandatory redemption 275 275 275 275 278 Long-term debt 4,779 5.215 4,988 5,234 5,184 Capital structure: Common shareholder's equity 48.6% 47.1 % 47.3 % 45.7% 45.1 % Preferred stock: Not subject to mandatory rodemption 2.7% 2.6% 3.3% 3.3% 3.4% Subject to mandatory redemption 2.7% 2.5% 2.6% 2.5% 2.6% Long-term debt 46.0 % 47.8% 46.8 % 48.5% 48.9 % Operating data: Peak demand in megawatts (MW) 18,207 17,548 18,044 10,475 18,413 Generation capacity at peak (MW) 21,002 21,603 20,615 4606 20,712 Kilowatt-hour sales (kWh) (in millions) 75,572 74,296 77,986 72 308 74,186 Average annual kWh sales per residential i customer 6,322 6,188 6,259 6,070 6,311 Total energy requirement (kWh) (in millions) 84,236 81,924 85,011 81,328 82,199 Energy mix: Thermal 47.6% 51.6 % 59.5 % 53.8 % 59.8 % Hydro 6.5% 7.7% 39% 7.3% 3.4% Purchased power and other sources 45.5 % 40.7% 36.6 % 38 9% 36.8 % ) Customers (in millions) 4.22 4.18 4,15 4.12 4.11 Full-time employees

• 12,057 14,886 16,351 16,585 16,922
• 1992-1994 are based on twelve-month averages.

l i I i d (0 1

Managtment's Discussion End Analysis of Results of Operations and Financial Condition in the following Management's Discussion and Analysis of Results of Operations and Financial Condition and elsewhere in this annual report, the words " estimates," " expects," " anticipates," " believes," and other similar expressions, are intended to identify forward-looking information that involves risks and uncertainties. Actual results or outcomes could differ materially as a result of such important factors as the outcome of state and federal regulatory proceedings affecting the restructuring of the electric utility industry, the impacts of new laws and regulations relating to restructuring and other matters, the effects of increased competition in the electric utility business, and c!b ms in prices of electricity and costs for fuel. Results of Operations Eamings Southern California Edison Company's (SCE) 1996 earnings were $621 million, compared with $643 million in 1995 and $599 million in 1994. Included in earnings are special charges of $18 million in 1996, $15 million in 1995 and $18 million in 1994, primarily related to workforce management costs. Excluding special charges, SCE's 1996 earnings decreased $19 million over 1995. The decreased earnings are pnmarily attributable to a reduction in authorized rates of return and operating expenses, partially offset by improved operating performance. Excluding special charges, SCE's 1995 earnings increased $41 million over 1994, pr!marily due to a higher authorized return on common equity for 1995, partially offset by the financial effect of the 1995 general rate case settlement. Operating Revenue Operating revenue decreased 4% from 1995, as increased sales volume was offset by lower average rates. The lower rates are attributable to the Califomia Public Utilities Commission's (CPUC) decision to lower SCE's 1996 authorized revenue by 4.4%. Additionally, during 1996 SCE issued a one-time bill credit of $237 million to ratepayers as part of a CPUC-ordered refund of energy-cost balancing account overcollections. Operating revenue in 1995 increased slightly over 1994, mainly due to a 2.6% CPUC-authorized rate increase, partla!!y offset by a decrease in sales volume to resale cities and milder weather in 1995. In 1996, over 98% of operating revenue was from retail sales. Retait rates are regulated by the CPUC and wholesale rates are regulated by the Federal Energy Regulatory Commission (FERC). Due to warm weather during the summer months, operating revenue during the third quarter of each year is materially higher than the other quarters. The changes in operating revenue resulted from: In rnillions Year ended December 31, 1996 1995 1994 Operating revenue-Rate changes $ (522) $ 168 $ 112 Sales volume changes 206 (129) 308 Other 26 35 (18) Total $ (290) $ 74 $ 402 in March 1995, SCE announced its intention to freeze average rates for residential, small business and agricultural customers through 1996, and announced a five-year goal to reduce system average rates by 25% on an inflation-adjusted basis (from 10.7e per kilowatt-hour to below 10e per kilowatt-hour). In February 1996, the CPUC approved a system-wide rate reduction which will drop the average price per kilowatt hour from 10.7e to 10.1e. Legislation enacted in September 1996 provides for, among other things, at least a 10% rate reduction for residential and small commercial customers beginning in 1998 (see discussion under Competitive Environment). 2

i Southern California Edican Company Operating Expenses Fuel expense increased slightly in 1996 due to higher gas prices and changes in the fuel mix. Fuel expense decreased 27% in 1995 from 1994, since hydro generation was up significantly in 1995 due to greater rainfall, resulting in lower gas purchases. In addition, the San Onofre Nuclear Generating Station units were out of service a total of five months in 1995 for refueling and maintenance, causing a decrease in nuclear fuel expense. Lower overall gas prices in 1995 also contributed to the decrease in energy costs. Purchased-power expense increased s!'ghtly in 1996 and 1995, due to an increase in power purchased i under federally mandated contracts. SCE is required under federal law to purchase power from certain nonutility generators even though energy prices under these contracts are generally hi sources. In 1996, SCE paid about $1.7 billion (including energy and capacity payments)gher than other more for these power purchases than the cost of power available from other sources. The CPUC has mandated the prices for these contracts. Provisions for regulatory adjustment clauses decreased substantially in 1996 compared to 1995. The decrease is mainly due to the energy-cost balancing account-related refund as discussed above, lower base rate revenue and undercollections related to the accelerated recovery of SCE's remaining investment in San Onofre Units 2 and 3 (see discussion in Note 1 to the Consolidated Financial Statements). The provisions increased in 1995, as CPUC-authorized fuel and purchased-power cost estimates exceeded actual energy costs. Actual energy costs were lower than estimated in 1995, due to the increase in hydro generation and lower gas prices. %r operating expenses declined in both 1996 and 1995, due to ongoing cost reduction efforts and improved operating performance. Maintenance expense decreased 8% in 1996, due to lower overall costs at SCE's generation, transmission and distribution operating facilities. Maintenance expense increased 8% in 1995, due to higher expenses related to the scheduled refueling and maintenance outages at San Onofre Units 2 and 3. Depreciation and decommissioning expense increased 12% in 1996. The change is due to higher depreciation rates and the accelerated recovery of San Onofre Units 2 and 3. Income taxes increased slightly during 1996, mainly due to an increase in deferred taxes resulting from the accelerated recovery of San Onofre Units 2 and 3. Other Income and Deductions The provision for rate phase-in plan reflects a CPUC-authorized,10-year rate phase-in plan, which deferred the collection of revenue during the first four years of operation for the Palo Verde Nuclear Generating Station. The deferred revenue (including interest) is being collected evenly over the final six years of each unit's plan. The plan ended in February 1996 and September 1996 for Units 1 and 2, respectively. The plan ends in January 1998 for Unit 3. The provision is a non-cash offset to the collection of deferred revenue. Other nonoperating income decreased substantially in 1996, compared to 1995, primarily due to additional accruals for regulatory matters. Other nonoperating income decreased in 1995, as CPUC-authorized incentive awards were below 1994 levels. Interest Expense Other interest expense decreased in 1996, due to the lower levels of short-term debt and lower interest rates. Other interest expense increased 30% in 1995, due to higher interest rates and higher balances in the regulatory balancing accounts. Financial Condition SCE's liquidity is primarily affected by debt maturities, dividend payments and capital expenditures. Capital resources include cash from operations and extemal financings. In June 1994, SCE lowered its quarterly common stock dividend to its parent, Edison Intemational, by 30%, due to the uncertainty of future earnings levels arising from the changing nature of California's electric utility regulation. 3

Managtm:nt's Discussion and Analysis of Results of Op: rations and Financial Ccndition Currently, Edison International has authorized the repurchase of up to $800 million of its common stock. Edison International has repurchased 27.4 million shares ($497 million) through January 31,1997, funded by dividends from its subsidiaries and its lines of credit. As excess cash becomes available, SCE Intends to pay cash dividends to Edison International, while maintaining its CPUC-authorized capital structure. SCE's cash flow coverage of dividends during 1996 decreased to 2.2 times from 3.5 times in 1996 ano 3.1 times in 1994, due to the additional cash needs of Edison International for debt repayment and other cash needs. Cash Flows from Operating Activities Net cash provided by operating activities totaled $1.8 billion in 1996, $2.0 bililon in 1995 and $1.8 billion in 1994. Cash from operations exceeded capital requirements for all years presented. Cash Flows from Financing Activities Short-term debt is used to finance fuel inventories, balancing account undercollections and generai cash requirements. Long-term debt is used mainly to finance capital expenditures. External financings are influenced by market conditions and other factors, including limitations imposed by its articles of incorporation and trust indenture. As of December 31,1996, SCE could issue approximately $7.9 billion of additional first and refunding mortgage bonds and $4.5 billion of preferred stock at current interest and dividend rates. At December 31,1996, SCE had available lines of credit of $1.1 billion, with $600 million for short-term debt and $500 million for the long-term refinancing of its variable-rate pollution-control bonds. These unsecured lines of credit are at negotiated or bank index rates with various expiration dates; the majority have five-year terms. California law prohibits SCE from incurring or guaranteeing debt for its nonutility affiliates. Additionally, the CPUC regulates SCE's capital structure, limiting the dividends it may pay Edison International. At December 31,1996, SCE had the capacity to pay $112 million in additional dividends and continue to maintain its authorized capital structure. Cash Flows from Investing Activities The primary uses of cash for investing activities are additions to property and plant and funding of nuclear decommissioning trusts. Decommissioning costs are accrued and recovered in rates over the term of each nuclear generating facility's operating license through charges to depreciation expense. SCE estimates that it will spend approximately $12.7 billion between 2013-2070 to decommission its nuclear facilities. This estimate is based on SCE's current-dollar decommissioning costs ($2.0 billion), escalated using a 6.65% annual rate. These costs are expected to be funded from independent decommissioning trusts which receive SCE contributions of approximately $100 million per yo9r until decommissioning begins. Projected Capital Requirements SCE's projected construction expenditures for the next five years are: 1997--$802 million: 1998--$636 million; 1999-$664 million; 2000-$647 million; and 2001--$650 million. Long-term debt maturities and sinking fund requirements for the next five years are: 1997--$501 million; 1998- $447 million; 1999--$155 million; 2000-$325 million; and 2001--$400 million. Regulatory Matters SCE's 1997 CPUC-authorized rates remain unchanged from 1996 levels due to the recently enacted legislation which requires that system average rates remain frozen at the June 10,1996, level of 10.te per kilowatt-hour (see discussion in Competitive Environment). 4

Southem Califomia Edian Company The CPUC's 1997 cost-of-capital decision authorized an 11.6% return on common equity and a 48% a common equity ratio, both unchanged from 1996 levels. SCE's return on rate base was lowered from 9.55% to 9.49%. The decision, excluding the effects of other rate actions, would reduce 1997 earnings by approximately $5 million. A 1994 CPUC decision stated that SCE was liable for expenditures related to a 1985 accident at the Mohave Generating Station. In July 1996, the CPUC approved a settlement agreement between SCE and the Office of Ratepayer Advocates (ORA) which resulted in a $39 million (including interest) refund to SCE's customers. The refund, which had been previously reserved, was completed by year-end 1996. In May 1994, SCE filed its testimony in the non-Qualifying Facilities phase of the 1994 Energy Cost Adjustment Clause proceeding. In May 1995, the ORA filed its report on the reasonableness of SCE's gas supply costs for both the 1993 and 1994 record periods. The report recommends a disallowance of $13.3 million for excessive costs incurred from November 1993 through March 1994 associated with SCE's Canadian gas purchase and supply contracts. The report requests that the CPUC defer finding SCE's Canadian supply and transportation agreements reasonable for the duration of their terms and that the costs under these contracts be reviewed on a yearly basis. In October 1996, the ORA issued its report for the 1995 record period recommending a $37.6 million disallowance for excessive costs incurred from April 1994 through March 1995. Both proposed disallowances have been consolidated into one proceeding. SCE and the ORA have filed several rounds of testimony on this issue. Hearings began in January 1997 and are expected to conclude in February 1997. A decision is expected in late 1997. On December 23,1996, the CPUC issued a final decision on SCE's proposal for a new rate mechanism for its 15.8% share of the three units at Palo Verde. The decision adopts the Palo Verde All-Party Settlement filed with the CPUC on November 15,1996. The settlement was based on a Memorandum of Understanding signed by all of the active parties to the Palo Verde proceeding. Under the settlement, SCE has the opportunity to recover its remaining investment (approximately $1.2 billion) in Palo Verde beginning January 1,1997, and ending December 31,2001, eaming a reduced rate of retum on rate base of 7.35% instead of the current 9.49%. Also, SCE will utilize a balancing account to pass through Palo Verde's inctamental operating costs (considered reasonable as long as they do not exceed 30% of a baseline forecast and the site's gross annual capacity factor does not go below 55%) to ratepayers. Beginning January 1,1998, this balancing account will become part of the competition transition charge (CTC) mechanism. If SCE's actual costs are less than the forecast, the difference will benefit ratepayers as a credit to the CTC mechanism. The existing nuclear unit incentive procedure will continue only for purposes of calculating a reward for performance of any unit above an 80% capacity factor for a fuel cycle. After 2001, SCE's ratepayers will receive 50% of the benefits derived from the operation of Palo Verde. The decision is projected to reduce SCE's 1997 eamings by approximately $21 million. Competitive Environment SCE currently operates in a highly regulated environrnent in which it has an obligation to provide electric service to customers in return for an exclusive franchise within its service territory. This regulatory environment is changing. The generation sector has experienced competition from nonutility power producers and regulators are restructuring California's electric utility industry. On September 23,1996, the State of California enacted legislation to provide a transition to a competitive market structure. The legislation substantially adopts the CPUC's December 1995 restructuring decision (discussed below) by addressing stranded-cost recovery for utilities, providing a certain cost recovery time parlod for the transition costs associated with utility-owned generation-related assets. Transition costs related to power-purchase contracts would be recovered through the terms of their contracts while most of the remaining transition costs would be recovered through 2001. The legislation also includes provisions to finance a portion of the stranded costs that residential and small commercial customers would have paid between 1998 and 2001, thereby allowing SCE to give a rate reduction of at least 10% to these customers, beginning January 1,1998. The financing would occur with securities issued by the California infrastructure and Economic Development Bank, or an entity approved by the Bank. The legislation includes a rate freeze for all other customers, including large commercial and industrial customers, as well as provisions for continued funding for energy conservation, low-income programs and renewable resources. Despite the rate freeze, SCE expects to be able to recover its revenue requirement based on cost-of service regulation during the 1998-2001 transition period. In addition, the legislation mandates the implementation of a 5

Manag:m:nt's Discussion and Analysis of Results of Optrations and Financial Condition non-bypassable CTCthat provides utilities the opportunity to recover costs made uneconomic by electric a utility restructuring. Finally, the legislation contains provisions for the recovery (through 2006) of reasonable ) employee-related transition costs incurred and projected for retraining, severance, early retirement, outplacement and related expenses for utility workers. In light of the legislation, the CPUC is reassessing the need to prepare an environmental impact report. In December 1995, the CPUC issued its decision on restructuring California's electric utility industry. The transition to a new market structure, which is expected to provide competition and customer choice, would l begin January 1,1998, with all consumers participating by 2003 (changed to 2002 by the recently enacted legislation). Key elements of the CPUC decision include:

• Creation of an independent power exchange (PX) to manage electric supply and demand. California's investor-owned utilities would be required to purchase from and sell to the exchange all of their power during the transition period, while other generators could voluntarily participate.
• Creation of an independent system operator (ISO) to have operational control of the utilities' transmission facilities and, therefore, control the scheduling and dispatch of all electricity on the state's power grid.

l

• Availability of customer choice through time-of-use rates, direct customer accen to generation providers with transmission arrangements through the system operator, and customer-arranged

" contracts for differences" to manage price fluctuations from the PX.

• Recovery of costs to transition to a competitive market (utility investments, obligations incurred to serve customers under the existing framework and reasonable employee-related costs) through a non-bypassable charge, applied to all customers, called the CTC.
• CPUC-established incentives to encourage voluntary divestiture (through spin-off or sale to an unaffiliated entity) of at least 50% of utilities
• gas-fueled generation to address market power issues.
• Performance-based ratemaking (PBR) for those utility services not subject to competition.

In Aoril 1996, SCE, Pacific Gas & Electric Company and San Diego Gas & Electric Company filed a proposal with the FERC regarding the creation of the PX and the ISO. On November 26,1996, the FERC conditionally accepted the proposal and directed the three utilities to file more specific information by March 31,1997. In July 1996, the three utilities jointly filed en application with the CPUC requesting approval to establish a restructuring trust which would obtain loans up to $250 million for the development of the ISO and PX through January 1,1998. The loans would be backed by utility guarantees; SCE's share would be 45%. Once the ISO and PX are formed, they will repy the trust's loans and recover funds from future ISO and PX customers. In August 1996, the CPUC issued an interim order establishing the restructuring trust and the funding level of $250 million which will be used to build the hardware and software systems for the ISO and PX. Recovery of costs to transition to a competitive market would be implemented through a non-bypassable CTC. This charge would apply to all customers who were using or began using utility services on or after the December 20, 1995, decision date. In August 1996, in compliance with the CPUC's restructuring decision, SCE filed its application to estimate its 1998 transition costs. In October 1996, SCE amended its transition cost filing to reflect the effects of the legislation enacted in September 1996. Under the rate freeze codified in the legislation, the CTC will be determined residually (i.e., after subtracting other cost components for the PX, transmission and distribution (T&D), nuclear decommissioning and public benefit programs). Nevertheless, the CPUC directed that the amended application provide estimates of SCE's potential transition costs from 1998 through 2030. SCE provided two estimates between approximately $13.1 billion (1998 net present value), assuming the fossil plants have a market value equal to their net book value, and $13.8 billion l (1998 net present value), assuming the fossil plants have no market value. These estimates are based on incurred costs, and forecasts of future costs and assumed market prices. However, changes in the assumed i j market prices could materially affect these estimates. The potential transition costs are comprised of: i I 6 i t

Southem CaMomia Edison Company l $7.5 billion from SCE's qualifying facility contracts, which are the direct result of legislative and regulatory mandates; and $5.6 billion to $6.3 billion from costs pertaining to certain generating plants and regulatory commitments consisting of costs incurred (whose recovery has been deferred by the CPUC) to provide suvice to customers. Such commitments include the recovery of income tax benefits previously flowed-through to customers, postretirement be. Mit transition costs, accelerated recovery of San Onofre (as discussed in Note 1 to the Consolidated Fi..Wal Statements) and Palo Verde, nuclear decommissioning and certain other costs. On November 27, 996, SCE filed an application with the CPUC to voluntarily divest, by auction, all of its oil-and gas-fueled generation assets. This application builds on SCE's March 1996 plan which outlined how SCE proposed to divest 50% of these assets. Under the new proposal, SCE would continue to operate and maintain the divested power plants for at least two years following their sale, as mandated by the recent restructuring legislat on. In addition, SCE would offer workforce transition programs to those employees who may be impacted by divestiture-related job reductions. SCE's proposa! is contingent on the overall electric industry restructuring implementation process continuing on a satisfactory path. CPUC approval of the oil-and gas-fueled generation divestiture was requested for late 1997. In September 1996, the CPUC adopted a non-generation T&D PBB mechanism for SCE which began on January 1,1997. According to the CPUC decision, beginning in 1998, the transmission portion is to be separated from non-generation PBR and subject to ratemaking under the rules of the FERC. The distribution-only PBR will extend through December 2001. Key elements of the non-generation PBR include: T&D rates indexed for inflation based on the Consumer Price Index less a productivity factor; elimination of the kilowatt-hour sales adjustment; adjustments for cost changes that are not within SCE's control; a cost of capital trigger mechanism based on changes in a bond index; standards for service reliability and safety; and a net revenue-sharing mechanism that determines how customers and shareholders will share gains and losses from T&D operations. In July 1996, SCE filed a PBR proposal for its hydroelectric plants and a proposed structure for performance-based local reliability contracts for certain fossil-fueled plants. If approved, the hydro PBR would be in effect for three years and the initial terms of the local reliability contracts, which are subject to FERC approval, would be in effect for up to three years, both beginning January 1,1998. A final CPUC decision on hydro PBR is expected by year-end 1997. In July 1996, SCE filed a proposal with the CPUC related to the conceptual aspects of separating the costs associated with generation, transmission, distribution, public benefit programs and the CTC. The filing was in response to CPUC and FERC directives which require electric services, such as T&D, to be functionally separate and available to ali customers on a nondiscriminatory basis without cost-shifting among customers. On December 6,1996, SCE filed a more comprehensive plan for the functional unbundling of SCE's rates for electric service, beginning on January 1,1998. In response to CPUC and FERC orders, as well as the new restructuring legislation, this filing addressed the implementation-level detail for the functional unbundling of rates in separate charges for energy, transmission, distribution, the CTC, public benefit programs and nuclear decommissioning. The filing also included proposals for establishing new regulatory proceedings to replace current proceedings that will no longer be necessary during the rate freeze period. Although depreciation-mNted differences could result from applying a regulatory prescribed depreciation method IMraighHine, remaining-life method) rather than a method that would have been applied absent the regulatory process, SCE believes that the depreciable lives of its generation-related assets would not vary significantly from that of an unregulated enterprise, as the CPUC bases depreciab e lives on periodic studies that reflect the physical usefullives of the assets. SCE also believes that any depreciation-related differences would be recovered through the CTC. If events occur during the restructuring process that result in all or a portion of the CTC being improbable of recovery, SCE could have write-offs associated with these costs if they are not recovered through another regulatory mechanism. At this time, SCE cannot predict what other revisions will ultimately be made during the restructuring process in subsequent proceedings or implementation phases, or the effect, after the transition period, that competition will have on its results of operations or financial position. l 7

Manag:m:nt's Discussion and Analysis of Rasults of Op: rations and Financial Condition Subsequent Event if the CPUC's restructuring is implemented as outlined, SCE would be allowed to recover its CTC (subject to a lower retum on equity) and believes it should be allowed to continue to apply accounting standards that recognize the economic effects of rate regulation for its generation-related assets during the 1998-2001 transition period. However, in response to a request by the staff of the Securities and Exchange Commission (SEC), in December 1996, SCE submitted its views on the continued applicability of regulatory accounting standards for its generation-related assets. In its submittal, SCE and its independent accountants jointly concluded that, based on their current analysis, SCE will continue to meet the criteria for applying these accounting standards through the 1998-2001 transition period. In its February 1997 response, the SEC staff expressed continuing concem with SCE's conclusion and indicated that they wanted to meet further with SCE and the other major California electric otilities to resolve this matter SCE and its independent accountants continue to believe that SCE meets such criteria and plan to meet with the SEC staff to present additional and clarifying information seeking to convince the SEC stati of the merits of SCE's position. The authority to require SCE to discontinue applying regulatory accounting standards rests with the SEC. If SCE is required to discontinue the application of these accounting standards for its generation-related assets, it would have to write off generation-related regulatory assets, which at December 31, 1996, totaled approximately $600 million on an after tax basis, primarily for the recovery of income tax benefits previously flowed-through to customers, the Palo Verde phase-in plan and unamortized loss on reacquired debt. SCE believes that a proper application of regulatory accounting standards will result in it na longer meeting the criteria to apply these accounting standards to all of its non-hydroelectric generation-related assets after the end of the 1998-2001 transition period. If SCE continues the application of these accounting standards during the transition period, but during the transition period events occur that result in SCE no longer meeting the criteria for applying such standards, SCE may be required to write off the remaining balance of its recorded generation-related regulatory assets existing at that time. If a non-cash write-off is required, SCE believes that it should not affect the stranded-cost recovery plans set forth in the CPUC's December 1995 restructuring decision and legislation enacted by the State of California in September 1996. FERC Stranded Cost /Open Access Transmission Decision in April 1996, the FERC issued its decision on stranded cost recovery and open access transmission, effective July 1996. The decision requires all electric utilities subject to the FERC's jurisdiction to file transmission tariffs which provide competitors with increased access to transmission facilities for wholesale transactions and also establishes information requirements for the transmission utility. The decision also provides utilities with the recovery of stranded costs, which are prior-service costs incurred under tae current regulatory framework. In addition to providing recovery of stranded costs associated with existing wholesale customers, the FERC directed that it would have primary jurisdiction over the recovery of stranded costs associated with retall-turned-wholesale customers, such as the formation of a new municipal electric system. Retail stranded costs resulting from a state-authorized retail direct-access program are the responsibility of the states and the FERC would only address recovery of these costs if the state has no authority to do so. In compliance with the April 1996 FERC decision, SCE filed a revised open access tariff with the FERC in July 1996. The tariff became effective on an interim basis, subject to refund, as of its filing date. Several wholesale customers have filed protests with the FERC on the transmission rate levels, and a ruling from the FERC setting the rates to be decided at formal hearings is anticipated in early 1997. Environmental Protection SCE is subject to numerous environmental laws and regulations, which require it to incur substantial costs to operate existing facilities, construct and operate new facilities, and mitigate or remove the effect of past operations on the environment. As further discussed in Note 10 to the Consolidated Financial Statements, SCE records its environmental liabilities when site assessments and/or remedial actions are probable and a range of reasonably likely 8

Southem Califomia Edison Company cleanup costs can be estimated. SCE reviews its sites and measures the liability quarterly, by assessing a range of reasonably likely costs for each identified site. Unless there is a probable amount, SCE records the lower end of this likely range of costs. SCE's recorded estimated minimum liability to remediate its 55 identified sites was $114 million at December 31,1996. One of SCE's sites, a former pole-treating facility, is considered a federal Superfund site and represents 71% of its recorded liability. The ultimate costs to clean up SCE's identified sites may vary from its recorded liability due to numerous uncertainties inherent in the estimation process. SCE believes that, due to these uncertainties, it is reasonably possible that cleanup costs could exceed its recorded liability by up to $211 million. The upper limit of this range of costs was estimated using assumptions least favorable to SCE among a range of reasonably possible outcomes. The CPUC allows SCE to recover environmental-cleanup costs at 35 of its sites, representing $101 million of its recorded liability, through an incentive mechanism. Under this mechanism, SCE will recover 90% of cleanup costs through customer rates; shareholders fund the remaining 10%, with the opportunity to recover these costs from insurance carriers and other third parties. SCE has successfully settled insurance claims with a number of its carriers. Costs incurred at the remaining 20 sites are expected to be recovered through customer rates. SCE has recorded a regulatory asset of $104 million for its estimated minimum environmental-cleanup costs expected to be recovered through customer rates. SCE's identified sites include several sites for which there is a lack of currently available information, including the nature and magnitude of contamination, and the extent, if any, that SCE may be held responsible for contributing to any costs incurred for remediating these sites. Thus, no reasonable estimate of cleanup costs can be made for these sites. SCE expects to clean up its identified sites over a period of up to 30 years. Remediation costs in each of the next several years are expected to range from $4 million to $8 million. Recorded costs for 1996 were $7 million. Based on currently available information, SCE believes it is unlikely that it will incur amounts in excess of the upperlimit of the estimated range and, based upon the CPUC's regulatory treatment of environmental-cleanup costs, SCE be!! eves that costs ultimately recorded will not have a material adverse effect on its results of opera' ions or financial position. There can be no assurance, however, that future developments, including additional information about existing sites or the identification of new sites, will not require material revisions to such estimates. The 1990 federal Clean Air Act requires power producers to have emissions allowances to emit sulfur dioxide. Power companies receive emissions allowances from the federal government and may bank or sell excess allowar ces. SCE expects to have excess allowances under Phase il of the Clean Air Act (2000 and later). The act also calls for a study to determine if additional regulations are needed to reduce regional haze in the southwestern U.S. In addition, another study is in progress to determine the specific impact of air contaminant emissions from the Mohave Coal Generating Station on visibility in Grand Canyon National Park. The potential effect of these studies on sulfur dioxide emissions regulations for Mohave is unknown. SCE's projected capital expenditures to protect the environment are $900 million for the 1997-2001 period, mainly for aesthetics treatment, including undergrounding certain transmission and distribution lines. The possibility that exposure to electric and magnetic fields (EMF) emanating from power lines, household appliances and other electric sources may result in adverse health effects is receiving increased attention. The scientific community has not yet reached a consensus on the nature of any health effects of FMF. However, the CPUC has issued a decision which provides for a rate-recoverable research and public education program conducted by California electric utilities, and authorizes these utilities to take no-cost or low-cost steps to reduce EMF in new electric facilities. SCE is unable to predict when or if the scientific community will be able to reach a consensus on any health effects of EMF, or the effect that such a consensus, if reached, could have on future electric operations. ( 9

Manag;m;nt's Discussion and Analysis of R:sults of Op: rations and Financial Condition Palo Verde Steam Tube Rupture in 1993, a steam generator tube ruptured at Palo Verde Unit 2; additional cracking was found in other tubes. Arizona Public Service Company (APS), the operating agent for Palo Verde, has taken, and will continue to take, remedial actions that it believes have slowed the rate of steam generator tube degradation in all three units. APS believes that the steam generators in only one of the units will have to be replaced within five to ten years. Based on APS' 100% share estimate, SCE estimates its share of the costs to be between $22 million and $24 million, plus replacement power costs. SCE is evaluating APS' analyses, conducting its own review, and has not yet decided whether it supports replacement of the steam generators. Workforce Reductions During 1996, SCE offered a voluntary retirement program to certain eligible employees. Approximately 3,000 employees (2,200 non-represented and 800 represented employees) accepted the terms of this program. After allowance for the effects of pension settlement gains, SCE's net expense for this program was $4 million. Proposed New Accounting Standard During 1996, the Financial Accounting Standards Board issued an exposure draft that would establish accounting standards for the recognition and measurement of closure and removal obligations. The exposure draft would require the estimated present value of an obligation to be recorded as o liability, along with a corresponding increase in the plant or regulatory asset accounts when the obligation is incurred. If the exposure draft is approved in its present form, it would affect SCE's accounting practices for the decommissioning of its nuclear power plants, obligations for coal mine reclamation costs and any other activities related to the closure or removal of long-lived assets. SCE does not expect that the accounting changes proposed in the exposure draft would have an adverse effect on its results of operations even after deregulation due to its current and expected future ability to recover these costs through customer ratas. 10

Consolidat3d Statumsnts of incom3 Souetem Cantomia Edicon Company in thousands Year ended December 31, 1996 1995 1994 Operating revenue $ 7,583,382 $ 7,872,718 $ 7,798,601 Fuel 630,512 614,954 840,607 3 Purchased power 2,705,880 2,581,878 2,562,890 1 Provisions for regulatory adjustment clauses-net (225,908) 229,744 54,772 l Other operating expenses 1,178,316 1,226,534 1,315,249 Maintenance 329,371 356,693 330,161 Depreciation and decommissioning 1,063,505 954,141 890,656 income taxes 578,329 559,694 507,626 Property and other taxes 190,234 200,236 202,711 Total operating expenses 6,450,289 6,723,874 6,704,672 Operating income 1,133,093 1,148,844 1,093,929 I Provision for rate phase-in plan (84,288) (122,233) (136,596) Allowance for equity funds used during construction 15,579 19,082 14,348 Interest income 37,855 37,644 31,082 Other nonoperating income--net (3,623) 45,651 64,597 Total other income (deductions)-net (34,477) (19,856) (26,569) Income before interest expense 1,098,616 1,128,988 1,067,360 l Interest on long-term debt 380,812 385,187 381,827 Other interest expense 73,914 80,130 61,646 Allowance for borrowed funds used during construction (9,794) (14,489) (14,440) Capitalized interest (1,711) (1,531) (254) Total interest expense-net 443,221 449,297 428.779 Net income 655,395 679,691 638,581 Dividends on preferred stock 34,395 36,764 40,080 Earnings available for common stock $ 621,000 $ 642,927 $ 598,501 Consolidated Statements of Retained Earnings in thousands Year ended December 31, 1996 1995 1994 Balance at beginning of year $ 2,780,058 $ 2,683,568 $ 2,586,890 Net income 655,395 679,691 638,581 Dividends declared on common sinck (735,429) (545,672) (501,823) Dividends declared on preferred s:ock (34,395) (36,764) (40,080) Reacquired capital stock expense (17) (765) Balance at end of year $ 2,665,612 $ 2,780,058 $ 2,683.568 The accompanying notes are an integral part of these financial statements. l 4 11

Ccnsclidat:d Balanca Sht:ts in thousands December 31, 1996 1995 ASSETS Utility plant, at original cost $20,400,387 $19,850,179 Less-accumulated provision for depreciation and decommissioning 9,431,071 8,569,265 l 10,969,316 11,280,914 Construction work in progress 556,645 727,865 Nuclear fuel, at amortized cost 176,827 139,411 Total utility plant 11,702,788 12,148,190 Nonutility property-less accumulated provision for depreciation of $25,102 and $25,454 at respective dates 63,931 70,191 Nuclear decommissioning trusts 1,485,525 1,260,095 Other investments 103,973 65.963 Total other property and investments 1,653,429 1,396,249 Cash and equivalents 319,942 261,767 Receivables, including unbilled revenue, less allowances of $26,079 and $24,139 for uncollectible accounts at respective dates 921,083 911,963 Fuel inventory 72,480 114,357 Materials and supplies, at average cost 154,266 151,180 Accumulated deferred income taxes-net 240,429 476,725 Prepayments and other current assets 105,137 114,289 Total current assets 1,813,337 2,030,281 Unamortized debt issuance and reacquisition expense 346,834 350,563 Rate phase-in plan 50,703 129,714 Unamortized nuclear plant-net 67,185 Income tax-related deferred charges 1,741,091 1,723,605 Other deferred charges 428,370 309,328 Total deferred charges 2,566,998 2,580,395 Total assets $17,736,552 $18,155,115 The accompanying notes are an integral part of these financial statements. i t 12

Southem Califomia Edison Company in thousands, except share amounts December 31, 1996 1995 CAPITALIZATION AND LIABILITIES Common shareholder's equity: Common stock (434,888,104 shares outstanding at each date) $ 2,168,054 $ 2,168,054 Additional pald-in capital and other 210,857 195,815 Retained earnings 2,665,612 2,780,058 5,044,523 5,143,927 Preferred stock: Not subject to mandatory redemption 283,755 283,755 Subject to mandatory redemption 275,000 275,000 Long-term debt 4,778,703 5.215,117 Total capitalization 10,381,981 10,917,799 Other long-term liabilities 423,925 344,192 Current portion of long-term debt 501,470 1,375 Short-term debt 230,149 359,508 Acenunts payable 392,779 346,258 Accrued taxes 484,688 550,384 AccrGod Msa** 93,363 86,494 Dividends payable 108,563 138,334 Regulatory balancing accounts-net 181,488 337,867 Deferred unbilled revenue and other current liabilities 825,317 778,476 Total current liabilities 2,817,817 2,598,696 Accumulated deferred income taxes-net 3,170,696 3,323,190 Accumulated deferred investment tax credits 347,118 374,142 Customer advances and other deferred credits 595,015 597,096 Total deferred credits 4,112,829 4,294,428 Commitments and contingencies (Notes 2,8,9 and 10) Total capitalization and liabilities $17,736,552 $18,155,115 The accompanying notes are an integral part of these financial statements. 13

Csnsslidated Statim:nts cf Cash flows Souemm Canfomia Edison Company h thousands Year ended December 31, 1996 1995 1994 Cash flows from operating activities: Net. income $ 655,395 $ 679,691 $ 638,581 Adjustments for non-cash items: Depreciation and decommissioning 1,063,505 954,141 890,656 Amortization 90,931 68,064 126,131 Rate phase-in plan 79,011 111,016 123,479 Deferred income taxes and investment tax credits 46,122 (208,671) (95,210) Other long-term liabilities 79,7 % 33,129 44,468 Other--net (153,034) (261) (23,841) Changes in working capital: Receivables (9,120) (9,873) (64,311) Regulatory balancing accounts (156,379) 282,157 (2,222) Fuel inventory, materials and supplies 38,791 (19,499) (21,087) Prepayments and other current assets 9,152 (15,511) (1,260) Accrued interest and taxes (58,827) 34,704 117,819 Accounts payable and other current liabilities 93,362 45,355 89,682 Net cash provided by operating activities 1,778,642 1,954,442 1,822,877 Cash flows from financing activities: 1.ong-term debt Issued 396,309 393,829 964 Long-term debt repayments (403,957) (422,503) (170,224) Preferred stock redemptions (75,000) Nuclear fuel financing-net 41,803 31,134 (31,444) Snort-term debt financing-net (129,356) (316,006) 62,420 DMdends paid (799,593) (559,886) (588,917) Not cesh used by financing activities (894,797) (948.432) (727,201) Cash flows from investing activities: Additions to peperty and plant (616,427) (772,950) (981,894) Funding of nuclear decommissioning trustt (148,158) (150,595) (130,155) Unrealized gain in equity investments 14,900 8,483 9,999 Other-net (75,985) (21,273) (6.453) Net cash used by investing activities (825,670) (936,335) (1,108,503) Net increase (decrease) in cash and equivalents 58,175 69,675 (12,827) Cash and equivalents, beginning of year 261,767 192,092 204,919 Cash and equivalents, end of year $ 319,942 $ 261,767 $ 192,092 Cash payments for interest and taxes: Interest $ 348,691 $ 382,798 $ 365,126 Taxes 545,834 692,780 443,801 The accompanying notes are an integral part of these financial statements. l 1 l 14

Notes to Consolidated Financial Statements Souhn CaMomia Edison Company Note 1. Summary of Significant Accounting Policies Southern Califomia Edison Company's (SCE) outstanding common stock is owned entirely by its parent company, Edison international. SCE is a public utility which produces and supplies electric energy for its 4.2 million customers in Central and Southern California. The consolidated financial statements include SCE and its subsidiaries. Intercompany transactions have been eliminated. SCE's accounting policies conform with generally accepted accounting principles (GAAP), including the accounting principles for rate-regulated enterprises which reflect the rate-making poNeles of the California Public Utilities Commission (CPUC) and the Federal Energy Regulatory Commission (FERC). SCE currently operates in a highly regulated environment in which it has an obligation to provide electric service to customers in return for an exclusive franchise within its service territory. This regulatory environment is changing, as further discussed in Note 2 to the Consolidated Financial Statements. Financial statements prepared in compliance with GAAP require management to make estimates and assumptions that affecl Qe amounts reported in the financial statements and disclosure of contingencies. Actual resu!ts could differ from those estimates. Certain significant estimates related to electric utility ine ustry restructuring. decommissioning and contingencies, are further discussed in Notes 2,9 and 10, respectively. Certain prior-year amounts were reclassified to conform to the December 31,1996, financial statement presentation. Debt Issuance and Roacquisition Expense Debt premium, discount and issuance expenses are amortized over the life of each issue. Under CPUC rate-making procedures, debt reacquisition expenses are amortized over the remaining life of the reacquired debt or, if refinanced, the life of the new debt. FinancialInstruments SCE enters into interest rate swap and cap agreements to manage its interest rate exposure. Interest rate differentials and premiums for interest rate caps to be paid or received cre recorded as adjustments to interest expense. FuelInventory Fuel inventory is valueri under the last-in, first-out method for fuel oil and natural gas, and under the first-in, first-out method foi coal. Investments Cash equivalents include tax-exempt investments ($261 million at December 31,1996, and $235 mi!! ion at December 31,1995), and time deposits and other bvestments ($43 m!!! ion at December 31,1996, and $23 million at December 31,1995) with maturities of three months or less. Net unrealized gains (losses) in equity investments are rr corded as a separate component of shamholder's equity under " Additional pald-in capital and other." 11..ealized gains and losses on decommissioning trust funds are recorded in the accumulated provision for decommiss.ioning. All investments are classified as available-for-sale. Nucioar The CPUC authorized rate phase-in plans to defer the collect. n of $200 million in revenue for each unit at the Palo Verde Nuclear Generating Station during the first fou years of operation and recover the deferred revenue (including interest) evenly over the following six years The phase-in plans ended in February 1996 and September 1996 for Units 1 and 2, respectively. The pu ends in January 1998 for Unit 3. 15

Nat:s to Cnnsolidat d Fin ncial St:t:m:nts Decommissioning costs are accrued and recovered in rates over the term of each nuclear facility's operating license through charges to decommissioning expense (see Note 9). Under the Energy Policy Act of 1992, SCE is liable for its share of the estimated costs to decommission three federal nuclear enrichment facilities (based on purchases). These costs, which will be paid over 15 years, are recorded as a fuel cost and recovered through customer rates. In August 1992, the CPUC approved a settlement agreement between SCE and the CPUC's Office (formerly Division) of Ratepayer Advocates (ORA) to discontinue operation of San Onofre Nuclear Generating Station Unit 1 at the end of its then-current fuel cycle because operation of the unit was no longer cost-effone. j in November 1992, SCE discontinued operation of Unit 1. As part of the agreement, SCE recovered its remaining investment over a four-year period ending August 1996, earning an 8.98% rate of return on rate { base. In October 1994, the CPUC authorized accelerated recovery of SCE's nuclear plant investments by $75 million per year, with a corresponding deceleration in recovery of its transmission and distribution assets through revised depreciation estimates over their remaining useful lives. In April 1996, the CPUC authorized, and SCE began accelerating, the recovery of ts remaining investment of $2.6 billion in San Onofre Units 2 and 3. The accelerated recovery will continue through December 2001 (the original end date of 2003 was changed by legislation enacted in September 1996), eaming a 7.35% fixed rate of return (compared to the current 9.49%). Future operating costs, including nuclear fuel and nuclear-fuel financing costs and incremental capital expenditures at San Onofre Units 2 and 3, are subject to an incentive pricing plan whereby SCE receives about 4e per kilowatt-hour through 2003. Any differences between these costs and the incentive price will flow through to the shareholders. Beginning in 2004, SCE will be required to share equally with ratepyers the benefits received from operation of the units. Prior to January 1,1997, the cost of nuclear fuel for Palo Verde, including disoosal, was amortized to fuel expense on the basis of generation. Under CPUC rate-making procedures in effect for Palo Verde prior to January 1,1997, nuclear-fuel financing costs were capitalized until the fuel was placed into production. Regulatory Balancing Accounts The differences between CPUC-authorized and actual base-rate revenue from kilowatt-hour sales and CPUC-authorized and actual energy costs are accumulated in balancing accounts until they are refunded to, or recovered from, utility customers through authorized rate adjustments (with interest). Income tax effects on balancing account changes are deferred. Research, Development and Demonstration (RD&D) SCE capitalizes RD&D costs that are expected to result in plant construction. If constructinn does not occur, these costs are charged to expense. RD&D expenses are recorded in a balancing account and, at the end of the rate-case cycle, any authorized but unspent RD&D funds are refunded to customers. RD&D expenses were $21 million in 1996, $28 million in 1995 and $63 million in 1994. Revenue Operating revenue includes amounts for services rendered but unbillec' at the end of each year. Stockaed Compensation SCE n:easures ct mpensation expense relative to stock-based compensation by the intrinsic-value method. 16

Southem Cahtomia Edison Company UtilityPlant Plant additions, including replacements and betterments, are capitalized. Such costs include direct material and labor, construction overhead and an allowance for funds used during construction (AFUDC). AFUDC represents the estimated cost of debt and equity funds that finance utility-plant construction. AFUDC is capitalized during plant construction and reported in current earnings. AFUDC is recovered in rates through depreciation expense over the usefullife of the related asset. Depreciation of utility plant is computed on a straight-line, remaining-life basis. Replaced or retired propeny and removal costs less salvage are charged to the accumulated provision for depreciation. Depreciation expense stated as a percent of average original cost of depreciable utility plan'. was 4.2% for 1996, and 3.6% for both 1995 and 1994. Note 2. Regulatory Matters Electric Utility Industry Restructuring On September 23,1996, the State of California enacted legislation to provide a transition to a competitive market structu,s. The legislation substantially adopts the CPUC's December 1995 restructuring decision (discussed below) by addressing stranded-cost recovery for utilities, prosciding a certain cost recovery time period for the transition costs associated with utility-owned generation-related assets. Transition costs related to power-purchase contracts would be recovered through the terms of their contracts while most of the remaining transition costs would be recovered through 2001. The legislation also includes provisions to finance a portion of the stranded costs that residential and small commercial customers would have paid between 1998 and 2001, thereby allowing SCE to give a rate reduction of at least 10% to these customers, beginning January 1,1998. The financing would occur with securities issued by the California infrastructure and Economic Development Bank, or an entity approved by the Bank. The legislation includes a rate freeze for all other customers, including large commercial and Industrial customers, as well as provisions for continued funding for energy conservation, low-income programs and renewable resources. Despite the rate freeze, SCE expects to be able to recover its revenue requirement based on cost-of-service regulation durin0 the 1998-2001 transition period. In addition, the legislation mandates the implementation of a non-bypassable competition transition charge (CTC) that provides utilities the opportunity to recover costs made uneconomic by electric utility restructuring. Finally, the legislation contains provisions for the recovery (through 2006) of reasonable employee-related transition costs incurred and projected for retraining, severance, early retirement, outplacement and related expenses for utility workers. In light of the legislation, the CPUC is reassessing the need to prepare an environmental impact report. In December 1995, the CPUC issued its decision on restructuring California's electric utility industry. The transition to a new market structure, which is expected to provide competition and customer choice, would begin January 1,1998, with all consumers participating by 2003 (changed to 2002 by the recently enacted legislation). Key elements of the CPUC decision include:

• Creation of an independent power exchange (PX) to manage electric supply and demand. California's investor-owned utilities would be required to purchase from and sell to the exchange all of their power during the transition period, while other generators could voluntarily participate.
• Creation of an independent system operator (ISO) to have operational control of the utilities' transmission facilities and, therefore, control the scheduling and dispatch of all electricity on the state's power grid.
• Availability of customer choice through time-of-use rates, direct customer access to generation providers with transmission arrangements through the system operator, and customer-arranged

" contracts for differences" to manage price fluctuations from the PX.

• Recovery of costs to transition to a competitive market (utility investments, obligations incurred to serve customers under the existing framework and reasonable employee-related costs) through a non-bypassable charge, applied to all customers, called the CTC.
• CPUC-established incentives to encourap voluntary divestiture (through spin 6f or sale to an unaffiliated entity) of at least 50% c' M'9,' gas-fueled generation to address market power issues.

17

N:t:s to Ccnsolidat:d Financial Stat:m:nts l

• Performance-based ratemaking (PBR) for those utility services not subject to competition.

In April 1996, SCE, Pacific Gas & Electric Company and San Diego Gas & Electric Company filed a proposal with the FERC regarding the creation of the PX and the ISO. On November 26,1996, the FERC conditionally accepted the proposal and directed the three utilities to file more specific information by March 31,1997. l In July 1996, the three utilities jointly filed an application with the CPUC requesting approval to establish a l restructuring trust which would obtain loans up to $250 million for the development of the ISO and PX through January 1,1998. The loans would be backed by utiilty guarantees; SCE's share would be 45% Once the ISO and PX are formed, they will repay the trust's loans and recover funds from future ISO and PX customers. In August 1996, the CPUC issued an interim order establishing the restructuring trust and the funding level of $250 million which will be used to build the hardware and software systems for the ISO and PX. Recovery of costs to transition to a competitive market would be implemented through a non-bypassable CTC. This charge would apply to all customers who were using or began using utility services on or after the December 20, 1995, decision date. In August 1996, in compliance with the CPUC's restructuring decision, SCE filed its application to estimate ts 1998 transition costs. In October 1996, SCE amended its transition cost filing to reflect the effects of the legislation enacted in September 1996. Under the rate freeze j codified in the legislation, the CTC will be determined residually (i.e., after subtracting other cost components L for the PX, transmission and distribution (T&D), nuclear decommissioning and public benefit programs). Nevertheless, the CPUC directed that the amended application provide estimates of SCE's potential transition g costs from 1998 through 2030. SCE provided two estimates between approximately $13.1 billion (1998 net present value), assuming the fossil plants have a market value equal to their net book value, and $13.8 billion (1998 net present value), assuming the fossil plants have no market value. These estimates are based on incurred costs, and forecasts of future costs and assumed market prices. However, changes in the assumed market prices could materially affect these estimates. The potential transition costs are comprised of: $7.5 \\ billion from SCE's qualifying facility contracts, which are the direct result of legislative and regulatory J mandates; and $5.6 billion to $6.3 billion from costs pertaining to certain generating plants and regulatory commitments consisting of costs incurred (whose recovery has been deferred by the CPUC) to provide service to customers. Such commitments include the recovery of income tax benefits previously flowed-through to customers, postretirement benefit transition costs, accelerated recovery of San Onofre (as discussed in Note 1) and Palo Verde, nuclear decommissioning and certain other costs. On November 27,1996, SCE filed an application with the CPUC to voluntarily divest, by auction, all of its oil-and gas-fueled generation assets. This application builds on SCE's March 1996 plan which outlined how SCE proposed to divest 50% of these assets. Under the new proposal, SCE would continue to operate and maintain the divested power plants for at least two years following their sale, as mandated by the recent restructuritS egislation. In addition, SCE would offer workforce transition programs to those employees who l may be impacted by divestiture-related job reductions. SCE's proposal is contingent on the overall electric Industry restructuring implementation process continuing on a satisfactory path. CPUC approval of the oil-and gas-fueled generation divestiture was requested for ! ate 1997. In September 1996, the CPUC adopted a non-generation T&D PBR mechanism for SCE which began on January 1,1997. According to the CPUC decision, beginning in 1998, the transmission portion is to be separated from non-generation PBR and subject to ratemaking under the rules of the FERC. The distribution-only PBR will extend through December 2001. Key elements of the non-generation PBR include: T&D rates indexed for inflation based on the Consumer Price index less a productivity factor; elimination of the kilowatt-hour sales adjustment; adjustments for cost changes that are not within SCE's control; a cost of capital trigger mechanism based on changes in a bond index; standards for service reliability and safety; and a net revenue-sharing mechanism that determines how customers and shareholders will share gains and losses from T&D operations. In July 1996, SCE filed a PBR proposal for its hydroelectric plants and a proposed structure for performance-based local reliability contracts for certain fossil-fueled plants. If approved, the hydro PBR would be in effect for three years and the initial terms of the local reliability contracts, which are subject to FERC approval, would be in effect for up to three years, both beginning January 1,1998. A final CPUC decision on hydro PBR is expected by year-end 1997. In July 1996, SCE filed a proposal with the CPUC related to the conceptual aspects of separating the costs associated with generation, transmission, distribution, public benefit programs and the CTC. The filing was in response to CPUC and FERC directives which require electric services, such as T&D, to be functionally 18

Scuthem Califomia Edison Company separate and available to all customers on a nondiscriminatory basis without cost-shKting among customers. On December 6,1996, SCE filed a more comprehensive plan for the functional unbundling of SCE's rates for electric service, beginning on January 1,1998. In response to CPUC and FERC orders, as well as the new restructuring legislation, this filing addressed the implementation-level detail for tne functional unbundling of rates in separate charges for energy, transmission, distribution, the CTC, public benefit programs and nuclear decommissioning. The filing also included proposals for establishing new regulatory proceedings to replace current proceedings that will no longer be necessary during the rate freeze period. Although depreciation-related differences could result from applying a regulatory prescribed depreciation method (straight-line, remaining-life method) rather than a method that would have been applied absent the regulatory process, SCE believes that the depreciable lives of its generation-related assets would not vary significantly from that of an unregulated enterprise, as the CPUC bases depreciable lives on periodic studies that reflect the physical usefullives of the assets. SCE also believes that any depreclation-related differences would be recovered through the CTC. If events occur during the restructuring process that result in all or a portion of the CTC being improbable of recovery, SCE could have additional write-offs associated with these costs if they are not recovered through another regulatory mechanism. At this time, SCE cannot predict what other revisions will ultimately be made during the restructuring process in subsequent proceedings or implementation phases, or the effect, after the transition period, that competition will have on its results of operations or financial position. Subsequent Event if the CPUC's restructuring is implemented as outlined, SCE would be allowed to recover its CTC (subject to a lower return on equity) and believes it should be allowed to continue to apply accounting standards that recognize the economic effects of rate regulation for its generation-related assets during the 1998-2001 transition period. However, in response to a request by the staff of the Securities and Exchange Commission (SEC), in December 1996, SCE submitted its views on the continued applicability of regulatory accounting standards for its generation-related assets. In its submittal, SCE and its independent accountants jointly concluded that, based on their current analysis, SCE will continue to meet the criteria for applying these accounting standards through the 1998-2001 transition period. In its February 1997 response, the SEC staff expressed continuing concem with SCE's conclusion and indicated that they wanted to meet further with SCE and the other major California electric utilities to resolve this matter. SCE and its independent accountants continue to believe that SCE meets such criteria and plan to meet with the SEC staff to present additional and clarifying information seeking to convince the SEC staff of the merits of SCE's pos'llon. The authority to require SCE to discontinue applying regulatory accounting standards rests with the SEC. If SCE is required to discontinue the application of these accounting standards for its generation-related assets, it would have to write off generation-related regulatory assets, which at December 31, 1996, totaled approximately $600 million on an after-tax basis, primarily for the recovery of income tax benefits previously flowed-through to customers, the Palo Verde phase-in plan and unamortized loss on reacquired debt. SCE believes that a proper application of regulatory accounting standards will result in it no longer meeting the criteria to apply these accounting standards to all of its non-hydroe!ectric generation-related assets after the end of the 1998-2001 transition period. If SCE continues the application of these accounting standards during the transition period, but during the transition period events occur that result in SCE no longer meeting the criteria for applying such standards, SCE may be required to write off the remaining balance of its recorded generation-related regulatory assets existing at that time. If a non-cash write-off is required, SCE believes that it should not affect the stranded-cost recovery plans set forth in the CPUC's December 1995 restructuring decision and legislation enacted by the State of California in September 1996. FERC Stranded Cost /Open Access Transmission Decision in April 1996, the FERC issued its decision on stranded cost recovery and open access transmission, effective July 1996. The decision requires all electric utilities subject to the FERC's jurisdiction to file transmission tariffs which provide competitors with increased access to transmission facilities for wholesale transactions and also establishes information requirements for the transmission utility. The decision also provides utilities with the recovery of stranded costs, which are prior-service costs incurred under the current 19

Not:s to Consolidat:d Financial Stat m:nts regulatory framework. In addition to providing recovery of stranded costs associated with existing wholesale customers, the FERC directed that it would have primary jurisdiction over the recovery of stranded costs associated with retail-turned-wholesale customers, such as the formation of a new municipal electric system. Retail stranded costs resulting from a state-authorized retail direct-access program are the responsibility of the states and the FERC would only address recovery of these costs if the state has no authority to do so. In compliance with tha April 1996 FERC decision, SCE filed a revised open access tariff with the FERC in July 1996. The tariff became effective on an interim basis, subject to refund, as of its filing date. Several wholesale customers have filed protests with the FERC on the transmission ratelevels, and a ruling from the FERC setting the rates to be decided at formal hearings is anticipated in early 1997. Mohavo Generating Station A 1994 CPUC decision stated that SCE was liable for expenditures related to a 1985 accident at the Mohave Generating Station. In July 1996, the CPUC approved a sett!erent agreement between SCE and the ORA i which resulted in a $39 million (including interest) refund to SCE's customers. The refund, which had been previously reserved, was completed by year-end 1996. Canadian Gas Contracts l In May 1994, SCE filed its testimony in the non-Qualifying Facilities phase of the 1994 Energy Cost Adjustment Clause proceeding. In May 1995, the ORA filed its report on the reasonableness of SCE's gas supply costs for both the 1993 and 1994 record periods. The report recommends a disallowance of $13.3 million for excessive costs incurred from November 1993 through March 1994 associated with SCE's Canadian gas purchase and supply contracts. The report requests that the CPUC defer finding SCE's Canadian supply and transportation agreements reasonable for the duration of their terms and that the costs under these contracts be reviewed on a yearly basis. In October 1996, the ORA issued its report for the 1995 record period recommending a $37.6 million disallowance for excessive costs incurred from April 1994 through March 1995. Both proposed disallowances have been consolidated into one proceeding. SCE and the ORA have filed several rounds of testimony on this issue. Hearings began in January 1997 and are expected to conclude in February 1997. A decision is expected in late 1997. Palo Verdo Rate-making Mechanism On December 23,1996, the CPUC issued a final decision on SCE's proposal for a new rate mechanism for its 15.8% share of the three units at Palo Verde. The decision adopts the Palo Verde All-Party Settlement filed with the CPUC on November 15,1996. The settlement was based on a Memorandum of Understanding signed by all of the active parties to the Palo Verde proceeding. Under the settlement, SCE has the opportunity to recover its remaining investment (approximately $1.2 billion)in Palo Verde beginning i January 1,1997, and ending December 31,2001, earning a reduced rate of return on rate base of 7.35% instead of the current 9.49%. Also, SCE will utilize a balancing account to pass through Palo Verde's incremental operating costs (considered reasonable as long as they do not exceed 30% of a baseline forecast and the site's gross annual capacity factor does not go below 55%) to ratepayers. Beginning January 1,1938, this balancing account will become part of the CTC mechanism. If SCE's actual costs are less than the forecast, the difference will benefit ratepayers as a credit to the CTC mechanism. The existing nuclear unit incentive procedure will continue only for purposes of calculating a reward for performance of any unit above an 80% capacity factor for a fuel cycle. After 2001, SCE's ratepayers will receive 50% of the benefits derived from the operation of Palo Verde. Note 3. Financial Instruments Long-Term Debt California law prohibits SCE from incurring or guaranteeing debt for its nonutility affiliates. Almost all SCE properties are subject to a trust indenture lien. SCE has pledged first and refunding mortgage bonds as security for borrowed funds obtained from pollution-cor. trol bonds issued by govemment agencies. SCE uses these proceeds to finance construction of pollution-crsntrol facilities. Bondholders have limited discretion in redeeming certain pollution-control bonds, and SCE has arranged with securities dealers to remarket or purchase them if necessary. 20 l

southem califomic Ediera company Long-term debt maturities and sinking-fund requirements for the next five years are: 1997-$501 million; 1998-$447 million; 1999-$155 million; 2000-$325 million; and 2001-$400 million. Long-term debt consisted of: In millions Caember 31, 1996 1995 First and refunding mortgage bonds: 1997-2000 (5.45% to 7.5%) $ 1.025 $ 1,025 2001-2005 (5.625% to 6.25%) 450 450 2017-2026 (6.9% to 8.875%) 1,250 1,637 Pollution <:ontrol bonds: 1999-2027 (5.4% to 7.2% and variable) 1,204 1,205 Funds held by trustees (2) (2) Debentures and notes: 1998-2006 (5.6% to 8.25%) 1,195 795 Subordinated debentures: 2044 (8.375%) 100 100 Commercial paper for nucleat fuel 112 70 Long-term debt due within one year (5r (1) Unamortized debt discount-net (54) (64) Total $ 4.779 $ 5.215 Short-Term Debt SCE has lines of credit it can use at negotiated or bank index rates. At December 31,1996, available lines totaled $1.1 bi!! ion, with $600 million for short-term debt and $500 million available for the long-term refinancing of certain variable-rate pollution-control debt. Short-term debt consisted of commercial paper used to finance fuel inventories, balancing account undercollections and general cash requirements. Commercial paper outstanding at December 31,1996, and 1995, was $345 million and $433 million, respectively. Commercial paper intended to finance nuclear fuel scheduled to be used more than one year after the balance sheet date is classified as long-term debt in connection with refinancing terms under five-year term lines of credit with commercial banks. Weighted-average interest rates were 5.5% and 5.8%, at December 31,1996, and 1995, respectively. Other FinancialInstruments SCE's risk management policy allows the use of derivative financial instruments to manage financial exposure on its investments and fluctuations in interest rates, but prohibits the use of these instruments for speculative or trading purposes. Interest rate swaps cnd caps are used to reduce the potential impact of interest rate fluctuations on floating rate long-term debt. The interest rate swap agreement requires the parties to pledge collateral according to bond rating and market interest rate changes. At December 31,1996, SCE had pledged $16 million as collateral due to a decline in market interest rates. SCE is exposed to credit loss in the event of nonperformance by counterparties to these agreements, but does not expect the counterparties to fail to meet their obligations. For both balance sheet dates presented, SCE had the following derivative financial instruments: CateDory Contract Amount / Terms Purpose interest rate swap $196 million fix interest rate exposure due 2008 at 5.585% interest rate cap $30 million fix interest rate exposure expires 1997 at 6% over variable term of debt dus 2027 the debt 21

Net:s to Ccnsclidated Fin ncial Stat:m:nts I Fair values of financial instruments were: December 31 1996 1995 Cost Fair Cost Fair instrument in millions Basis Valus Basis Value j i 81nancial aseets. I Decommissioning trusts $1.217 $1,485 $ 1,069 $1,260 Equity investments 11 68 9 41 l Financial liabilmes. DOE decommissioning and decontamination fees 54 45 58 49 Interest rate swap and cap 16 18 Long-terrn debt 4,779 5,001 5,215 5,487 Preferred stock subject to mandatory redemption 275 286 275 288 Financial assete are carried at their fair value, which is based on quoted market prices. Financial liabilities are recorded a: cost. Financial liabilities' fair values are based on: termination costs for the interest rate swap; brokers' quotas for long-term debt, preferred stock and the cap; and discounted future cash flows for U.S. Department of Energy (DOE) decommissioning and decontar.iination fees. Due to their short maturities, amounts reported for cash equivalents and short-term debt approximate fair value. Gross unrealized holding gains on financial assets were: In millions December 31. 1996 1995 Decommissioning trusts: Municipal bonds $ 79 $ 52 Stocks 138 122 U.S. government issues 39 11 Short-term and other 12 6 268 191 Equity investments 57 32 Total $325 $223 There were no unrealized holding losses on financial assets for the years presented. Note 4. Equity The CPUC regulates SCE's capital structure, limiting the dividends it may pay Edison International. At December 31,1996, SCE had the capacity to pay $112 million in additional dividends and continue to maintain its authorized capital structure. Authorized common stock is 560 million shares with no par value. Authorized shares of preferred and preference stock are: $25 cumulative preferred-24 million; $100 cumulative preferred-12 million; and preterence-50 million. All cumulative preferred stocks are redeemable. Mandatorily redeemable preferred stocks are subject to sinking-fund provisions. When preferred shares are redeemed, the premlums paid are charged to common equity. There are no preferred stock redemption requirements for the next five years. 22 L_

Souemm Califomia Edsson Company Cumul tive pr:f:rred stock consisted of: Dollars in millions, except per-share amounts December 31, 1996 1995 December 31,1996 Shares Redemption Outstanding Price Not subject to mandabry redempbon- $25 par value: 4.08% Series 1,000,000 $ 25.50 $ 25 $ 25 4.24 1,200,000 25.80 30 30 4.32 1,653,429 28.75 41 41 4.78 1,296,769 25.80 33 33 5.80 2,200,000 25.25 55 55 7.36 4,000,000 25.00 100 100 Total $284 $ 284 Subgect to mandatory redempbon. $100 par value preferred stock: 6.05% Series 750,000 $100.00 $ 75 $ 75 6.45 1,000,000 100.00 100 100 7.23 1,000,000 100.00 100 100 Total $275 $ 275 in 1995,750,000 shares of Series 7.58% preferred stock were redeemed. There were no other preferred stock issuances or redemptions for the years presented. Note 5. Income Taxes SCE and its subsidiaries will be included in Edison International's consolidated federal income tax and combined state franchise tax returns. Under income tax allocation agreements, each subsidiary calculates its own tax liability, income tax expense includes the current tax !! ability from operations and the change in deferred income taxes during the year. investment tax credits are amortized over the lives of the related properties. The components of the net accumulated deferred locome tax liability were: In millions December 31, 1996 1995 Deferred tax assets: Property-related $ 247 $ 276 Investment tax credits 206 222 Regulatory balancing accounts 205 166 Decommissioning-related 208 73 Other 429 601 Total $ 1,295 $ 1,338 Deferred tax liabilities: Property-rebted $ 3,550 $ 3,670 Other 675 514 Total $ 4,225 $ 4,184 Amanulated deferred income taxee-net $ 2,930 $ 2.846 & " - r--i of accumulated deferred income taxes: included in deferred credits $ 3,170 $ 3,323 Included in current assets 240 477 23

Nst:s to Consolidat:d Financial Stat:m:nts The current and deferred components of income tax expense were: In millions Year ended December 31, 1996 1995 1994 Current Federal $386 $560 $431 State 129 165 123 515 725 554 Deferred-federal and state: Accrued charges (14) 1 (25) Depreciation (14) 21 46 investment and energy tax credits-net (24) (25) (22) Pension reserves 45 (3) (8) Rate phase-in plan (32) (46) (51) Regulatory balancing accounts 34 (118) (7) State tax privilege year 21 (12) (14) Other (20) (33) (21) (4) (215) (102) Total income tax expense $511 $510 $452 Classifk:ation of income taxes: Included in operating income $578 $560 $508 included in other income (67) (50) (56) The composite federal and state statutory income tax rate was 41.045% for all years presented. The federal statutory income tax rate is reconciled to the effective tax rate below: Year ended December 31, 1996 1995 1994 Federal statutory rate 35.0% 35.0% 35.0% Capitalized software (0.8) (0.8) (2.1) Depreciation and other 4.5 4.3 4.9 investment and energy tax credits (2.0) (2.2) (2.0) State tax-net of federal deduction 7.1 6.5 5.7 Fffective tax rate 43.8 % 42.8% 41.5% Note 6. Employee Benefit Plans Stock Option Plans Under its Long-Term !ncentive Compensation Plan, SCE participates in the use of 8.2 million shares of parent company common stock reserved for potential issuance under various stock compensation programs to directors, officers and senior managers of Edison International and its affiliates. Under these programs, there are currently outstanding to officers and senior managers of SCE, options on 2.9 million shares of Edison International common stock. Each option may be exercised to purchase one share of Edison International common stock, and is exercisable at a price equivalent to the fair market value of the underlying stock at the date of grant. Edison international stock options include a dividend equivalent feature. Generally, for options issued before 1994, amounts equal to dividends accrue on the options at the same time and at the same rate as would be payable on the number of shares of Edison International common stock covered by the options. The amounts accumulate without interest. The optionee has no right to payment of these dividend equivalents until the underlying stock options are exercised. For Edison International stock options issued subsequent to 1993, dividend equivalents are subject to reduction unless certain shareholder return performance criteria are met. 24

Edison International stock options have a 10 year term with one-third of the total award vesting after each of the first three years of the award term. The options are not transferable, except by will or domestic relations order. If an optionee retires, dies or is permanently and totally disabled during the three-year vesting period, the unvested options will vest and be exercisable to the extent of 1/36 of the grant for each full month of service during the vesting period. Unvested options of any person who has served in the past on the Edison international or SCE Management Committee will vest and be exercisable upon the member's retirement, death or permanent and total disability. Upon retirement, death or permanent and total disability, the vested options may continue to be exercised within their original terms by the recipient or beneficiary. If an optionee is terminated other than by retirement, death or permanent and total disability, options which had vested as of the prior anniversary date of the grant are forfeited unless exercised within 180 days of the date of termination. All unvested options are forfeited on the date of termination. Compensation expense recorded under the stock-compensation program was $8 million, $4 million and $(2) million for 1996,1995 and 1994, respectively. A decline during 1994 in the market value of the underlying shares optioned resulted in the recapture of previously recognized expense. Stock-based compensation expense under the fair-value method of accounting would have resulted in pro forma net income of approximately $653 million in 1996 and $677 million in 1995. The weighted-average fair value of options granted during 1996 and 1995, was $6.27 per share option and $6.92 per share option, respectively. The weighted-average remaining life of options outstanding, as of December 31,1996, and 1995, was 7 years and 8 years, respectively. The fair value for each option granted during 1996 and 1995, reflecting the basis for the above pro forma disclosures, was determined on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used in determining fair value through the model: 1996 1995 Expected hfe 7 years 8 years Risk-free interest rate 5.5% 7.9% F=nected volatility 17% 17% The recognition of dividend equivalents results in no dividends assumed for purposes of fair-value determination. The application of fair-value accounting in arriving at the pro forms disclosures above is not an indication of future income statement effects. The pro forma disclosures do not reflect the effect of fair-value accounting on stock-based compensation awards granted prior to 1995. Pension Plan SCE has a noncontributory, defined-benefit pension plan that covers employees meeting minimum service requirements. Benefits are based on years of accredited service and average base pay. SCE funds the plan on a level-premium actuarial method. These funds are accumulated in an Independent trust. Annual contributions meet minimum legal funding requirements and do not exceed the maximum amounts deductible for income taxes. Prior service costs from pension plan amendments are funded over 30 years. Plan assets are primarily common stocks, corporate and government bonds, and short-term investments. In 1996, SCE recorded pension gains from a special voluntary early retirement program. 25

Nat:s to Censslidat:d Financial Stattm:nts The plan's funded status was: In millions December 31, 1996 1995 Actuarial present value of benefit obHgations: J Vested benefits $1,G70 $1,696 Nonvested benefits 71 210 Accumulated benefit obligation 1,741 1,906 Value of projected future compensation levels 261 479 Prosocied benefit obhantion 12.002 12385~ Fair value of clan aseets 12.166 $2620 Projected benefit obligation less than plan assets $ (163) $ (235) Unrecognized not gain 300 326 Unrecognized prior service cost (190) (6) Unrecognized not obligation (17 year amortization) (43) (49) Pension liability (asset) $ (106) $ 36 Discount rate 7.75% 7.25 % Rate of increase in future compensation 5.0% 5.0% l Expected long-term rate of return on assets

4. 0%

8.0% SCE reccgnizes pension expense calculated under the actuarial method used for ratemaking. The components of pension expense were: ) in millions Year ended December 31, 1996 1995 1994 Service cost for benefits earned $ 49 $ 57 $ 67 Interest cost on projected benefit obligation 178 156 148 Actual return on plan assets (343) (454) (28) Not amortization and deferral 145 268 (140) axpense under accounting standards 29 27 47 Specimi termination benefits 3 15 Regulatory adjustment-deferred 22 22 1 Net pension expense recognized 51 52 63 Settlement gain (121) Total emense foain) $ (70) $ 52 $ 1 Postretirement Benefits Other Than Pensions Employees retiring at or after age 55 with at least 10 years of service (or those eligible under the 1996 special voluntary early retirement program), are eligible for postretirement health and dental care, life insurance and other benefits. Health and dental care benefits are subject to deductibles, copayment provisions and other limitations. SCE is amortizing its obligation related to prior service over 20 years. SCE funds these benefits (by contributions to independent trusts) up to tax 4eductible limits, in accordance with rate-making practices. In 1996, SCE recorded special termination expenses due to a special voluntary early retirement program. j Any difference between recognized expense and amounts authorized for rate recovery is not expected to be material (except for the impact of the early retirement program) and will be charged to eam!ngs. Trust assets are primarily common stocks, corporate and government bonds, and short-term investments. 26

Southem Califomia Edison Company The funded status of these benefits is reconciled to the recorded liability below: In millions December 31, 1996 1995 hctuanal present value of benefit obigeton: Flotirees $ 928 $ 402 Employees eligible to retire 35 103 Other employees 386 556 Accumulated benefit obhgabon $1,349 $1,061 Fair value of plan assets $ 617 $ 400 Plan assets less than accumulated benefit obligation $ 732 $ 661 Unrecognized transition obilgation (430) (457) Unrecognized not gain (loss) (231) (203) Recorded liability $ 71 1 Discount rate 7.75% 7.5% Expected long-term rate of return on assets 8.5% 8.5% The components of postretirement benefits other than pensions expense were: In millions Year ended December 31, 1996 1995 1994 Service cost for benefits earned $ 31 $ 35 $ 29 Interest cost on benefit obligation 90 77 72 Actual return on plan assets (4J) (28) (20) Amortization of loss 6 1 Amortization of transition obligation 27 27 36 hkt expense 111 112 117 Amortization of prior funding 2 Special termination expense 72 Total expense $ 183 $ 112 $ 119 The assumed rate of future Increases in the per-capita cost of health care benefits is 8.25% for 1997, gradually decreasing to 5% for 2004 and beyond. Increasing the health care cost trend rate by one percentage point would increase the accumulated obligation as of December 31,1996, by $206 million annual aggregate service and Interest costs by $24 million. Employee Savings Plan SCE has a 401(k) defined contribution savings plan designed to supplement employees' retirement income. The plan received employer contributions of $24 mihion in 1996, $19 million in 1995 and $21 million in 1994. 27

N::t:s to Consolidat:d Financial Statcm:nts i l l Note 7. Jointly Owned Utility Projects SCE owns interests in several generating stations and transmission systems for which each participant i provides its own financing. SCE's share of expenses for each project is included in the consolidated statements of income. The investment in each project, as included in the consolidated balance sheet as of December 31,1996, was: Plant in Accumulated Under Ownership in millions Service Depreciation Construction Interest l Transmiseson systems. Eldorado $ 29 8 $ 2 60% Pacific intertie 227 72 12 50 Generating stations. Four Corners Units 4 and 5 (coal) 458 236 2 48 Mohave (coal) 300 142 8 56 Palo Verde (nuclear) 1,596 425 6 16 San Onofre (nuclear) 4,186 1,836 28 75 Total $ 6,796 $2.719 $ 58 Note 8. Leases SCE has operating leases, primarily for vehicles, with varying terms, provisions and expiration dates. Estimated remaining commitments for noncancelable leases at December 31,1996, were: Year ended December 31, in millions 1997 $18 1998 15 1999 11 2000 9 2001 5 Thereafter 7 Total $65 Note 9. Commitments Nuclear Decommissioning SCE plans to decommission its nuclear generating facilities at the end of each facility's operating license by a prompt removal method authorized by the Nuclear Regulatory Commission. Decommissioning is estimated to cost $2.0 billion in current-year dollars, based on site-specific studies performed in 1993 for San Onofre and 1992 for Palo Verde. Changes in the estimated costs, timing of decommissioning, or the assumptions underlying these estimates could cause material revisions to the estimated total cost to decommission in the near term. Decommissioning is scheduled to begin in 2013 at San Onofre and 2024 at Palo Verde. San Onofre Unit 1, which shut down in 1992, is expected to be secured until decommissioning begins at the other San Onofre units. Decommissioning costs, which are recovered through customer rates, are recorded as a component of depreciation expense. Decommissioning expense was $148 million in 1996, $151 million in 1995 and $122 million in 1994. The accumulated provision for decommissioning was $949 million at December 31,1996, 28

~~ Southem Califomia Edison Company and $823 "l!!!on at December 31,1995. The estimated costs to decommission San Onofre Unit 1 ($263 mi!!.m) are recorded as a liability. Decommissioning funds collected in rates are placed in independent trusts, which, together with accumulated earnings, will be utilized solely for decommissioning. Trust investments include: Maturity December 31, Ir* millions Dates 1996 1995 Municipal bonds 1999-2021 $ 400 $ 348 Stocks 549 390 U.S. government issues 1998-2024 212 145 Short term and other 1996-2024 56 186 Trust fund baianos @t cost) $1.217 $1.069 Trust fund earnings (based on specific identification) increase the trust fund balance and the accumulated provision for decommissioning. Net earnings were $49 million in 1996, $51 million in 1995 and $26 million in 1994. Proceeds from the sales of securities (which are reinvested) were $1.0 billion in both 1996 and 1995, and $1.1 billion in 1994. Approximately 89% of the trust fund contributions were tax-deductible. The Financial Accounting Standards Board has issued an uposure draft related to accounting practices for removal costs, including decornmissioning of nuclear power plants. The exposure draft would require SCE to report its estimated decommissioning costs as a liability, rather than recognizing these costs over the term of each facility's operating license (current industry practice). SCE does not believe that the changes proposed in the exposure draft would have an adverse effect on its results of operations even after deregulation due to its current and expected future ability to recover these costs through customer rates. Other Commitments SCE has fuel supply contracts which require payment only if the fuel is made available for purchase. SCE has power-purchase contracts with certain qualifying facilities (cogenerators and small power producers) and other utilities. The qualifying facility contracts provide for capacity payments if a facility meets certain performance obligations and energy payments based on actual power supplied to SCE. There are no requirements to make debt-service payments. SCE has unconditional purchase obligations for part of a power plant's generating output, as well as firm transmission service from another utility. Minimum payments are based, in part, on the debt-service requirements of the provider, whether or not the plant or transmission line is operable. The purchased-power contract is not expected to provide more than 5% of current or estimated future operating capacity. SCE's minimum commitment under both contracts is approximately $205 million through 2017. Certain commitments for the years 1997 through 2001 are estimated below: In millions 1997 1998 1999 2000 2001 Projected construction expenditures $ 802 $ 636 $ 664 $ 647 $ 650 Fuel supply contracts 269 231 221 240 234 Purchased-power capacity payments 696 699 701 702 695 Unconditional purchase obligations 9 10 10 10 10 29

N:,t:s to Consolidat:d Financial Statum nts Note 10. Contingencies in addition to the matters disclosed in these notes, SCE is involved in legal, tax and regulatory proceedings before various courts and governmental agencies regarding matters arising in the ordinary course of business. SCE believes the outcome of these proceedings will not materially affect its results of operations or liquidity. Environmenta1 Protection SCE is subject to numerous environmental laws and regulations, which require it to incur substantial costs to operate existing facilities, construct and operate new facilities, and mitigate or remove the effect of past operations on the environment. SCE records its environmental liabilities when site assessments and/or remedial actions are probable and a range of reasonably likely cleanup costs can be estimated. SCE reviews its sites and measures the liability quarterly, by assessing a range of reasonably likely costs for each identified site using currently available information, including existing technology, presently enacted laws and regulations, experience gained at similar sites, and the probable level of involvement and financial condition of other potentia!!y responsible partles. These estimates include costs for site investigations, remediation, operations and maintenance, monitoring and site closure. Unless there is a probable amount, SCE records the lower end of this reasonably likely range of costs (classified as other long-term liabilities at undiscounted amounts). i While SCE has numerous insurance policies that it believes may provide coverage for some of these i liabilities, it does not recognize recoveries in its financial statements until they are realized. SCE's recorded estimated minimum liability to remediate its 55 identified sites was $114 mililon at December 31,1996. The ultimate costs to clean up SCE's identified sites may vary from its recorded liabil:ty due to numerous uncertainties inherent in the estimation process, such as: the extent and nature of contamination; the scarcity of reliable data for identified sites; the varying costs of alternative cleanup methods; developments resulting from investigatory studies; the possibility of identifying additional sites; and the time periods over which site remedir. tion is expected to occur. SCE believes that, due to these uncertainties, it is reasonably possible that cleanup costs could exceed its recorded liability by up to $211 million. The upper limit of this range of costs was estimated using assumptions least favorable to SCE among a range of reasonably possible outcomes. The CPUC allows SCE to recover environmental-cleanup costs at 35 of its sites, representing $101 million of its recorded liability, through an incentive mechanism. SCE may request to include additional sites. Under this mechanism, SCE will recover 90% of cleanup costs through customer rates; shareholders fund the remaining 10%, with the opportunity to recover these costs from insurance carriers and other third parties. SCE has successfully settled insurance claims with a number of its carriers. Costs incurred at the remaining 20 sites are expected to be recovered through customer rates. SCE has recorded a regulatory asset of $104 million for its estimated minimum environmental-cleanup costs expected to be recovered through customer rates. SCE's identified sites include several sites for which there is a lack of currently available information, including the nature and magnitude of contem! nation, and the extent, if any, that SCE may be held responsible for contributing to any costs incurred for remediating these sites. Thus, no reasonable estimate of cleanup costs can be made for these sites. SCE expects to clean up its identified sites over a period of up to 30 years. Remediation costs in each of the next several years are expected to range from $4 million to $8 million. Recorded costs for 1996 were $7 million. Based on currently available information, SCE believes it is unlikely that it will incur amounts in excess of the upper limit of the estimated range and, based upon the CPUC's regulatory treatment of environmental-cleanup costs, SCE believes that costs ultimately recorded will not have a material adverse effect on its resul's of operations or financial position. There can be no assurance, however, that future developments, 30 4 i

Southem Califomia Edison Company including additional information about existing sites or the identification of new sites, will not require material revisions to such estimates. Nuclearinsurarme Federal law limits public liability claims from a nuclear incident to $8.9 billion. SCE and other owners of San Onofre and Palo Verde have purchased the maximum private primary insurance available ($200 million). The balance is covt., red by the industry's retrospective rating plan that uses deferred premium charges to every reactor licensee if a nuclear incident at any licensed reactor in the U.S. results in claims and/or costs which exceed the primary insurance at that plant site. Federal regulations require this secondary level of financial protection. The Nuclear Regulatory Commission exempted San Onofre Unit 1 from this secondary level, effective June 1994. The maximum deferred premium for each nuclear incident is $79 million per reactor, but not more than $10 million per reactor may be charged in any one year for each incident. Based on its ownership interests, SCE could be required to pay a maximum of $158 million per nuclear incident. However, it would have to pay no more than $20 million per incident in any one year. Such amounts include a 5% surcharge if additional funds are needed to satisfy public liability claims and are subject to adjustment for inflation. If the public liability limit above is insufficient, federal regulations may impose further revenue-raising measures to pay claims, including a possible additional assessment on all licensed reactor operators. Property damage insurance covers losses up to $500 million, including decontamination costs, at San Onofre and Palo Verde. Decontamination liability and property damage coverage exceeding the primary $500 million has also been purchased in amounts greater than federal requirements. Additional insurance covers part of replacement power expenses during an accident-related nuclear unit outage. These policies are issued primarily by mutual insurance companies owned by uttities with nuclear facilities. If losses at any nuclear facility covered by the arrangement were to exceed the accumulated funds for these insurance programs, SCE could be assessed retrospective premium adjustments of up to $34 million per year. Insurance premiums are charged to operating expense. Quarterly Financial Data 1996 1995 in millions Total Fourth Third Second First Total Fourth Third Second First Operating revenue $ 7,583 $ 1,866 $2,346 $ 1,611 $ 1,760 $7,873 $1,903 $2.510 $1,738 $1,722 Operating income 1,133 231 382 257 263 1,149 246 369 261 273 Net income 655 121 256 131 147 680 130 251 150 149 Eamings available for common stock 621 113 247 123 138 643 121 243 140 139 Common dividends declared 735 196 178 180 181 546 136 136 137 137 I 31

Responsibility for Financial Reporting The management of Southern California Edison Company (SCE) is responsible for the integrity and objectivity of the accompanying financial statements. The statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis and are based, in part, on management estimates and judgment. SCE maintains systems of internal control to provide reasonable, but not absolute, assurance that assets are safeguarded, transactions are executed in accordance with management's authorization and the accounting records may be relied upon for the preparation of the financial statements. There are limits inherent in all systems of Internal control, the design of which involves management's judgment and the recognition that the costs of such systems should not exceed the benefits to be derived. SCE believes its systems of internal control achieve this appropriate balance. These systems are augmented by internal audit programs through which the adequacy and effectiveness of internal controls and polieles and procedures are monitored, evaluated and reported to management. Actions are taken to correct deficiencies as they are identified. SCE's independent public accountants, Arthur Andersen LLP, are engaged to audit the financial statements in accordance with generally accepted auditing standards and to express an informed opinion on the fairness, in all material respects, of SCE's reported results of operations, cash flows and financial position. As a further measure to assure the ongoing objectivity of financial information, the audit committee of the board of directors, which is composed of outside directors, meets periodically, both jointly and separately, with management, the independent public accountants and internal auditors, who have unrestricted access to the committee. The committee recommends annually to the board of directors the appointment of a firm of independent public accountants to conduct audits of its financial statements; considers the independence of such firm and the overall adequacy of the audit scope and SCE's systems of internal control; reviews financial reporting issues; and is advised of management's actions regarding financial reporting and internal control matters. SCE maintains high standards in selecting, training and developing personnel to assure that its operations are conducted in conformity with applicable laws and is committed to maintaining the highest standards of personal and corporate conduct. Management maintains programs to encourage and assess compliance with these standa ds. Wf ( Richard K Bushey John E. Bryson 3 Vice President Chairman of the Board and Controlier and Chief Executive Officer January 31,1997 /* l l 1 32

Report of Independent Public Accountants soutnem canfomia Edison Company To the Shareholders and the Board of Directors, Southern California Edison Company: We have audited the accompanying consolidated balance sheets of Southern California Edison Company (SCE, a California corporation) and its subsidiaries as of December 31,1996, and 1995, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31,1996. These financial statements are the responsibility of SCE's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audjt also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overal! financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SCE and its subsidiaries as of December 31,1996, and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31,1996, in conformity with generally accepted accounting principles. ~ k ARTHUR ANDERSEN LLP Los Angeles, California January 31,1997 (except with respect to the " Subsequent Event

• discussed und 3r " Electric Utility Industry Restructuring" in Note 2, as to which the date is February 21,1997).

33

Board of Directors Southem Califomia Edison Company John E Bryson Carl F. Huntsinger E L Shannon, Jr. Chairman of the Board and General Partner, Retired Chairman of the Board, CEO, Edison International DAE Umited Partnership Ltd., Santa Fe International Corporation, and SCE Ojai, California Alhambra, Califomia Howard P. Allen Charles D. Miller Robert H. Smith Chairman of the Executive Chairman of the Board Managing Director, Committee, Edison and CEO, Avery Dennison Gmith and Crowley incorporated, international and SCE Corporation, Pasadena, California Pasadena, Califomia Wirston H. Chen Thomas C. Sutton Chairman of the Paramitas Luis G. Nogales Chairman of the Board and CEO, Foundation and Chairman of President, Pacific Mutual Life insurance Paramitas investment Corporation, Nogales Partners, Company, Los Angeles, Califomia Santa Clara, California Los Angeles, Califomia Daniel M. Tellep Stephen E Frank Ronald L Olson Retired Chairman of the Board, President and Chief Operating Senior Partner of Munger, Lockheed Martin Corporation. Officer, SCE Tolles and Olson, Bethesda, Maryland Los Angeles, California Camilla C. Frost James D. Watkins Trustee, Chandler Trusts and J. J. Pinola Admiral USN, Retired, Director and Secretary-Treasures, Retired Chairman of the President, Joint Oceanographic Chandis Securities Company, Board and CEO, Institutions, Inc. and President, Los Angeles, California First Interstate Bancorp, Consortium for Oceanographic Los Angeles, California Research and Education, Joan C. Hanley Wa:hington, D.C. General Partner, James M. Rosser Miramonte Vineyards, President, Edward Zapanta. M.D. Rancho Palos Verdes. Califomia California State University Physician and Neurosurgeon, Los Angeles, South Pasadena, Califomia Los Angeles, California Executive OfflCers John E Bryson Pamela A Bass R W. Krieger Chairman of the Board and CEO Vice President, Vice President, Customer Solutions Business Unit Nuclear Generation Stephen E Frank President and Chief Richard K. Bushey J. Michael Mendez Operating Officer Vice President and Controller Vice President. Labor Relations Bryant C. Danner Theodora F. Craver, Jr. Executive Vice President and Vice President and Treasurer Dwight E Nunn General Counsel Vice President, John R Fielder Nuclear Engineering and AJan J. Fohrer Vice President, Technical Services Executive Vice President and Chief Regulatory Policy and Affairs Financial Officer Frank J. Quevedo Bruce C. Foster Vice President, Harold B. Ray Vice President, Equal Opportunity Executive Vice President, San Francisco Regulatory Affairs Generation Business Unit Richard Pt Rosenblum Li!!ian R Gorman Vice Pre. snt, l Vikram S. Budhraja Vice President, Distribution Business Unit Senior Vice President, Human Resources l Power Grid Business Unit Beverty P. Ryder Lawrence D. Hamlin Corporate Secretary and fbbert G. Foster Vice President, Special Assistant to the Senior Vice President, Power Production Chairman /CEO Public Affairs Thomas J. Higgins Emiko Banfield Vice President, Vice President, Corporate Communications Shared Services 34

Shareholder Information Annual Meeting of Shareholders Thursday, April 17,1997 10:00 a.m. The Industry Hills Sheraton Resort and Conference Center One Industry Hills Parkway City of Industry, California Stock Listing and Tradir.g information SCE Preferred Stocks The American and Pacific stock exchanges use the ticker symbol SCE. Previous day's closing prices, when traded, are listed in the daily newspapers in the American Stock Exchange table under the symbol SoCalEd. The 6.05%,6.45% and 7.23% series are not listed. Where to Buy and Sell Stock The listed preferred stocks may be purchased through any brokerage firm. Firms handling unlisted series can be located through your broker. Transfer Agent and Registrar Southem California Edison Ccmpany maintains shareholder records and is transfer agent and registrar for SCE preferred stock. Shareholders may call Shareho; der Services, (800) 347-8625, between 8:00 a.m. and 4.00 p.m. (Pacific time) every business day, regarding: o stock transfer and name-change requirements; o address changes, including dividend addresses; o electronic deposit of dividends; o taxpayer identification number submission or changes; o duplicate 1099 forms and W-9 forms; o notices of and replacement of lost or destroyed stock certificates and dividend checks; and o requests to eliminate multiple annual report mailings. The address of Shareholder Services is: P.O. Box 400, Rosemead, California 91770-0400 FAX: (818) 302-4815

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SCPPA BY DEFINITION The Southem Califomia Public Ibwer Authority (SCPPA) is a joint powers authority formed in 1980 to acquire reliable, cost-efficient electrical generation facilities and transmission systems for its members.The membership includes ten municipal utilities and one inigation district that deliver electricity to nearly two million customers from northern Los Angeles County to the Mexican border. Backed by its members' financial strength, SCPPA has issued $8.2 billion in bonds, notes and refunding bonds since its inception, of which $3.6 billion in principal remains outstanding. With these proceeds the SCPPA members have jointly purchased or refinanced interests in generating and transmission facilities throughout the southwestem United States. SCPPA's primary role has been to secure financing for these projects, but in light of pending electric industry restructuring, SCPPA has increasingly helped its members becorne more competitive and provided legislative and regulatory advocacy at the state and federal levels.This advocacy ensures that legislators and regulators will consider the needs of public power providers in this region as they propose sweeping changes in laws and regulations affecting the electric industry. Today's radically shifting economic and political climates pose major challenges for public power providers. SCPPA's sound financial basis and cooperative approach to industry problem-sohing will help its members weather the storm and deliver new benefits to their customers. SCPPA MEMBER $ j W q7 p muum-m Southern w%C. m.7 u ff f f-pr q< .y g '._ f:..

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s A EXECUTIVE DIRECTOR'S LETTER In last year's message I predicted that this fiscal year would be a watershed period for the nation's public utilities - and the events that unfolded proved my penchant for understatement. Debate about electric utility restructuring and competition was highly visible on the U.S. congressional agenda, and legislation that would direct states to begin retail customer access choice by the end of the year 2000 was proposed.The Federal Energy Regulatory Commission continued their move to ensure that the nation's transmission system is open to all in a fair, nondiscriminatory fashion. In California, discussion intensified and the realities of market transformation began to unfold. In a landmark decision in December, the Califomia Public Utilities Commission issued a policy decision setting January 1,1998 as the beginning of direct access for retail customers of the state's investor-owned utilities.The Deregulation Countdown on page 7 further illustrates the timing of the new market scenario. During this year SCPPA's staff and its member agencies infused their own considerable energy into representing and protecting public power agencies and their customers in the deregulation continuum. I canied these theraes to the U.S. Senate when I testified before its Energy and Natural Resources Committee at a restructuring hearing in March. As SCPPA representatives and ! visited with Members of Congress and st4f, we provided them a consumer-owned utility perspective on the CPUC decision and its impacts, and on proposed federal leg 6!ation.These views took on reality for congressional staff members as they toured several SCPPA facilities in April. L

b i } l { Uack at home the SCPPA staff worked to reduce project and overhead costs, and to restructure l project debt including a move to increased variable rate debt, thereby lowering project costs. l SCPPA members spent this year in high gear, delivering reliable power and quality energy l sen ices to their customers, while retooling to meet the demands of the corning open market emi- .nent.'he following pages further describe their strategies to reduce costs, increase efficiency, i e l deselop riew nwenue sources, and communicate with their customers, city administrators, and l l elected officials. SCPPA has served at a catalyst and resource for these efforts. c,

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'^f ') vp ' ' g. 2 p,g - -'; A ,i a : f% ~l~ ~ g.,;g ., c / QJW /: C 315,, i, R. 3 g A~ c s: e k i$ 'cidon A. Co mon Bill D. Carnahan Bernard V. Patk ofCRETARY PRE 51 DENT VICE PRESIDENT DanielW. Waters Thoma5 H. McQuass EXFCUTIVE DIRECTOR A5515 TANT SECRETARi Despite the current maelstrom of changing times and markets, SCPPA's mission is becoming i progressively clearer. We will continue to support our member utilities' economic strength and naarketir6 preser.ce as we enter the new millennium. 7 Daniel W. Waters ExrcunVE DIRifrok

PRESIDENT'S LETTER In this era of profound change, SCPPA's benefit is its ability to influence the develop-t ment of a new industry structure, ensuring that its member utilities can compete effectively.Two years ago we set a goal of making SCPPA the voice of the Southern Califomia n,icipal utilities in national forums, and we have made great progress in this regard. In the past year, SCPPA continued to become more prominent in its spheres of influence at the federal and state levels. SCPPA projects are critical to its member utilities' ability to compete. Over the past year we member utilities have worked to critically analyze our own operations, with efficiencies and cost reduction as our prime objectives. Our participation in SCPPA-funded projects provides us some of these efficiencies, such as expanding our access to low-cost power sources, in addition to its advocacy and financial benefits, SCPPA helps member agencies develop common strate;;ies, including how to establish Competition Transition Charges. SCPPA serves as a forum for identifying interactive issues and ferreting out solutions. Aided by our SCPPA membership, our customers will continue to reap the benefits of local control of public utilities. ' ' know our customers, operate our own generation and transmission e system, and can provide more opportunities for value-added energy services.These attributes will make the crucial difference as we head into the coming market emironment. Bill D. Camahan Ihsiixxt

1 1 l i THE RETAIL REVOLUTION In March 1896, an enterprising businessman bought a franchise from the City of Los Angeles for $100, permitting the operation of a power system within the city. He and his partners had built a small generating plant outside the city limits the previous December that would supply the proposed system. Since this franchise was to expire within two weeks, he and his three partners, along with their four employees, put on their overalls and feverishly strung wire through the streets and over rooftops of the city. At 4:55 p.m. on April 14,1896, the first electric lights lit up the City Hall tower. This tiny company owned the exclusi.'e ight to sell power to its customers, along pg 79 ,q with the exclusive responsibility to maintain near-perfect service and develop new ,(

• "*"88 y

gjtenlV power supplies to support the explosive growth to come. j Q,;,4 }gs e.Namenses.E This scencio was repeated in burgeoning cities throughout Southem Califomia in Quneureinse,mescW, senemmanu 7%,,,,,, the 1890s. Small companies built and operated generation resources and transmission J u en em,resismenewemine 1 {[; g g *g** @.. d e l infrastructure, and kept up with the insatiable thirst for power of a population fresh off l n enene.ssens, r n the new trains from the east. E ****=mu= 88a =* *82* 1 : mee ame==== =e= =nemm i ' ".Nb neelr meWIpen spany emme. Some of these cities later bought the electrical systems within their boundaries,

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' emat tuelness eussoman..ee.' acquiring the same exclusive nghts and responsibilities to their customers.To purchase go. .n..l wu l p.m n. e. nemy the new generation and transmission systerns they needed, they would subsequently fY ''' " benaiddbaz poc! their financial resources in the Southem California Public Ibwer Authority. In March 1996, descendants of private companies like that first private partnership filed to divest themselves of their generating plants voluntarily. This followed on the decision the previous December by the Califomia Public Utilities Commission to open market access to the power infra-structure initiated 100 years ago. A few weeks later, in April 1996, these private power companies filed to create a Ibwer Exchange,into which they would sell their generation, and an Independent System Operat.,r to operate and manage the state's transmission system.

sowano st. AeMeavase civv er Anawans As the City's sole power The municipal power companies, although not directly regulated by the An ubi Udl es De artme t now positioned itself for deregulation and competitiort in March 1996, commercial (pyC, gj}} participate and compete in this market-based entironment.. a whole and industrial customers saw a rate decrease of up to five percent. Residen-tial rates remained stable, already set new World. apprecimately 25 percent lower than those in neighboring communities.Taking advantage of a unique opportunity, the Department entered into a landmark WHY DEREGULATEt Historically, the regulatory compact provided exclusive public/ private partnership to utilize its fiber optic cable.This partnership will pro-vide th. community with access to a service tenitories and rates sufficient to cover utilities' costs. In the 1970s, utilities Universal Telecommunications System in 1997' were facing demand growth of seven percent per year, and were forbidden by Custome Served: 104.805 Pbwer Generated and Purchased ca Mes=tt.HourQ [ederaj jaw from byming natural gag in utj}jty boilers.This led to investments in Self-generated 880.715 Purchas.J. . l.973,110 ,,,,g,,,,4 2 852j25 nuclear and coal fueled generating plants. T l Total Revenues (000's) . $ 246,479 l oPwadng Costs (000's) . $ 197,695 [g 7ggggg, ears the Cahfornia govemment mandated investment in renewable i I l encrey sources and promotion of energy efficiency. In this era the utilities provided a complete l electric system.They also had the obligation to plan and develop facilities to cover future electric needs and were accountable for near-perfect service to all customers. As a result of the move to protect the environment and promote renewable resources, investor-owned utility (IOU) rates in l l Califomia were 50 percent higher than the national average.The rates of consumer-owned utilities like the SCPPA member agencies were generally 15 to 30 percent lower than those of the IOUs. l These high rates are driving the move to deregulat < n in California. New technology enables new projects to gr ?r:3:e electricity at lower cost using relatively inex-pensive natural gas. At the same time, global econamic forces are pressuring California's industries to become more competitive.These customers want the immediate benefit of the new generation technology and lower electricity bills. In the new world of deregulated power supply, industrial customers will have access to an open market in which they can buy electricity from the lowest bidder. l MEMBER AGENCIES IN ACTION The eleven SCPPA member agencies have been planning for the new market transformation for the last few years.This past fiscal year has seen the most active I l s A-

4 > y M W. eA85W MA; s . AseIWSMEIB=Seekere dj J who seek es bring espechar.. . ausessnare to esamen a %er es J-E chat they eenhur poseerininni,J DEREGULATlON COUNTDOWN ' anshing e psess en she cides SeeW WWIH ege1R AI W 8 sees S C084A00 (ETSp = A essM, ( bppensableGaspeldGuyseesR v,, t : musanneers em tok Geresseri <pWWeF8MN Er914beR N N Direct retail access for ,.o servien teen en M ' .Jhls $se seSems to > h[If - all customers begins. astrended, IOUs no longer must c% P'0 '"I II' *'88* ) bid generation into A payees W M east C the Power Exchange.  ? CTC ands' l' sedro deles and assupees falstp] 7J4UARY1: Five-year phase 4n .p. ,9 direct recall access for BOUs C' ?egep m RMWGAgges=; 3 begins: Large customers may .N l1 W fuesehelse$enemelst 3 hoose altervete generation j esqsended. ' sg suppliers. IOUs must bid all generation into Power Exchange National Energy - C00T WTN05

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?; and satisfy customers' energy Policy Arc gives FERC f f eastinsmeses er daarneses to 88 needs by buying imm the Power authority to order [bchange. Customers choosing CPen transmhs on . memspiereisitem seddendal. access. alternas suppliers pay CTC. J. SM ASW = AhEIhof a ; 1998 y es the seems aseen er@ d F b. power produser to selldire N gg d w.4 NOBWWWWIT SWBTW8 LAE [' sf [Q[ T.

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APRIL: q gge g,y, '3p 3j/ ' E}gh ?: Independset surnager of erens j" CPUC issues r y A-Jp draft rulemaking M sudestemhuse'mensuresesAs1 Jp L 1 envisioning future where endGilrtresslerafeine@ ' ' ~ W p>> customers choose among G 4ene generasere to esordsealen bRC to /E y competing generation b essupenlosG yy Providers, and performance- ,j apprme s based ratemaking replaces s erportti traditional cost of service g 'estructuringtfunctional anbundling. IOUs to file ratemaking. ,,,,,,g,,g,,,,g ; gg applicttions to transfer 'i eseptualma servisse,9mrles / h assets. CPUC to ensure i austenters, +y $ial consumer protection j. N-Wasures are in place. 995 AARMSABIIIO5 (BWIIV o h 5 Augulated fates based as : f(M W-ew noe : ' d l v 1996 MARCH: FERC issues Notice of Proposed , en aceumisemes. - Rulemaking (NOPR) proposing significant )' +. changes in transmission service regulation. k N

• A "m i MARCH: lOUs apply for Goal: to deny transmission facility owners
• 'P*'

i voluntary divestiture of unfair advantage over competitors. ' could sail ettoir eleceresley and 3 P'"" 50 percent of fossil [E/ toen wenich retail and w a. I'"*" tion

• MAY: CPUC issues proposal that electric l

} . could buy. gennte sM M power to Wendent ( -~ APRIL: Draft ofISO/ Power y[ : sIASTRUCTURIIe8 = system operator (ISO), which would distribute Exchange filing available power to Californians at lower price than llamenAguring else mortset to stakeholders. IOUs file currently paying. A new Power Exchange 4: 8ersscoure IIy enminaling the - pmposala *o establish ISO would create a wholesale power pool where b- . 1 en the essentier de-and Power Exchange. all suppliers could sell electricity according to !. tiens of ese einseric empersy. m m -The./ ?' "I JULY: lOUs apply for

shWey of gereden companim performance-based DECEMBER

CPUC adopts final policy U w breisers en esN dready to J.

g-which includes the following: Creates a Power b reemN m ueSaing rege. Exchange starting Jan. I,1998 Initiates direct Imend transseilusten Ames and also ' s. access for retall customers with five-year h esetueleneerwisesof andgelag g phase 4n and proposes competition transition QueAny _ Q; charge (CTC). Creates 150 for the trans- 'n 8E I mission grid. Develops performance-based rate 'naking for IOUs. Requires real-time rate ' M and time-of-use rate options. 4I b %,audishg uWey sosupanim i 6mmehus massinsi priese. - v 8 y.; N AM W an.4 - m Separean leanelmed 4dessyss deri j, L geenmann,eransnakseen,Cassib t-t unen,andemarserwines. }y. - - ,a! D" tN m M =4 G i Cememuner see selset tubisti L l eergdene they eene end entdsh 6 emagnesy pseutdar egent ;- a c e i 88515elselsteley esSullelande + i '1 hegeseeareessie es seenig g' g, y w

l l l fifillment of their transformation plans to date. The agencies have put significant time and effort 1 into many of these activities: 1 m Communicating with city councils, utility boards, and major customers about the deregulation process, its implications, and the saember agencies' preparation for it. jostru r. Hsu a Downsizing and reorganizing staff. m Transforming from engineering-based to customer-focused corporate culture. m Becoming more familiar with customer needs and planning new products and " *' ^"^ ],d',7],'j,,k ",,"l

senices, history Arusa purchased electricity whole sale from Southern California Edison

[*,,*,"*,,j,','l',,,','""8",,'""','j m. Aggressively cutting costs while maintaining service reliability. f acc.ess, Azusa began to obtain short. anc a Preparing new unbundled and time-of-use rate stnactures. long-term contracts with other utilities,e well a from SCPPA, by participating ir a Working on reducing transfers to their cities' general funds. [*j'* Q""','**', 'p*,"*["g,5'*["" 8 Generating Station Unit #2. By having the a Renegotiating power contracts to cut costs. abiiity to diversify its power suppiy opera tions,Azusa has maintained its retail ratei a Meeting off-balance sheet debt obligations. at the 19suevet.The e competitive rate will help the city make a less stressful tran. m Pursuing revenue enhancement opportunities, such as leasing poles and In*[,o, *,"n'"'

• "* ""**"'***d conduit for fiber optics and other telecommunications activities.

Customers served: 14,m Power Generated and Purchased l (in Megawatt. Hours) e Adopting a Competition Transition Charge. sen. gene,ated; el i Purchased:. 422,527 m Reducing project operating and maintenance costs.

• • l**a 220,isi Wholesale:

202.346 m Renegotiating fuel contracts.

• • '"-(**

. s zi.in Operating Costs (000s): . s 20,628' s Reducing debt senice by refinancing at lower interest rates. '""*d a Moving to more variable rate debt. 1 m Pursuing aggressive legislative advocacy. sCPl% IN ACTION The last three items above are the particular expertise and benefit that SCPPA brought its member agencies during this fiscal year. Moreover, SCPPA staff members have adopted the new streamlined business atmosphere of the member agencies by"doing more with less"in all aspects of operations. It has been a year of unprecedented energy and accomplishment. s

PAUL TooR .T.- r 19 /T v a G Q : [p. + ~. y ) .l OPERATIONS AND FINANCIALS crry or aANfeNG Established in 1913,the Banning electrical system now serves an area of approxb As of (ktadwr 31.19% tsta,urred Weighted Aurag &md Artmp mately 21 square miles.The city owns a $CPPA BOND $ .',[e Po+on of San Juan Unit 3 and a ponion d Mead-Adelanto and Head-Phoenia lhxwr Uprating Pnnect 6 11 Aa AA-tranonission lines. In arxtition, the city Southern Transnussion sptem Project 4.32 owns a estribution system and four sub-senior Lien ibnds Aa AA. stations to *irve the customers. Being a suturd nate t.ien !bnds' AaaNMIGl AAA/A l+ full service city. Banning's load mix is l'aloVetJe Pnvet 4 '/7 strengthened by hdustrial customers, senior Lien ibnds Al AA-with more industr6al projects on the way. IW2 sutxndinate I ien Ibnds' Aaa AAA Maj r distribution system improvements Sulurdinate 1.ien ibnds' AaaNMICl AAA/A 1+ are alSo I" Progress. Mead AdelantoTranstniwon Pnpt 5 40 customers served: 9.050 Insun J Refunding IbnJs' Aaa AAA Power Generated and Purchased Nonrefunded ibnds' A A (in Megawatt. Hours) Self-generated: 0 Mead Phoenix Transrniwon Pnvrt 5 4M p,w, ,,7,g y, insured Retunding ibnds' Aaa AAA Total. 117,871 Nonrefunded ibnds' A A Transmission (in miles) 122 Multipic Pnvit' 6.21 A A Total Revenues (000s): . $ 12.230 San

• "8

-. Juan. Una 3 Prop ct' 5.12 Aaa AAA 'Insumi 1%I Suhndmate %mable Rate hwnh %UMCy 1%r> Suhndmate Nm A &nuls (MBIA) 1'.Nt, Suhmli,uate blir,able h*r km B hmd (Iko. 'Imurrd 1M2 Sernor Lwn &mds tAAfMCL I+n suhmhnate Snuk WGlcr 1@r> Sukwdmate Sam A &mds (AAIMCy 1me. Suhndmate %naNe Rate Srm B and C &nsds WUMCy ' Insured 19% Sm A Sm,k (AhfMO ' Unwmnntled hmd gwwmb weum! by a guamntwd mte omstment anttrad 'imured 1%B S rws A &wuh (AfBLM ' A!!gnemtuon kmsh 4 wk all transnunm hwuk 512%. annbnwd g,wratum arut tmnsmnarnns 5 w% During the fiscal year, SCPPA continued to monitor the financial markets and address opportu-nities to reduce its fixed interest costs. SCPPA refunded $222.2 million in PaloVerde Project bonds which were originally issued in 1986 and 1987.The 1996 refunding bonds consisted of sales of $152.9 million in Series A fixed rate bonds in February, and $58.9 million in Series B variable rate obligations in April.These insured revenue bonds will produce estimated present value savings of $29.5 million, or 14 percent of the refunding bonds. As the fiscal year ended, SCPPA was working on a similar two-part refunding for the Southem l Transmission System, and an additional variable rate issue for BloVerde. i 1 Following is a status report on SCPPA's generating and transmission projects. PALO VERDE OPERATIONS - PALO VERDE NUCLEAR GENERATING epos-94 OPERATlONS Generanim Capacity (Millions of 1itiluahun N STATION (PVNGS) Ten SCPPA members (all but the City of Unit 1 98 W6 unit 2 92 su Anaheim) share a 5.91 percent interest in the three units of PVNGS, unit 3 9.3 sn 3 entitling them to 225 megawatts of power. SCPPA continues to ^ mesa'e 2" 3 Industry avetage tw 9 I

l 1 work with the operating agent, Arizona Public Service (APS), to increase output and lower costs in order to make PaloVerde a competitive and dependable resource. PaloVerde began a reengineering of work processes and organization in September 1993.Thus far, the reengineering effort has yielded lower costs, higher output, higher PaooucTioa co'T preyam%emy, p ysase_ tyn Calend.r

Cenu, ratings by the Nuclear Regulatory Commission (NRC) and the Institute of wa' ra m 1W3 2.02 Nuclear Ibwer Operations (INPO), shorter refueling outages, and better "3

1W5 1+1 teamwork and morale. ~ me m y ~~*p p y, 79g. ,7fp, yy - e v. 9 Y[ f <,p , Y_u "yj 1gh s

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-- t b 1 "' ' / I' y ( lq 4 (- 4. .i. 3 3 ' tW W: '1 974 7 ' p" s l , 6f 3 1%3i A Y j g- .9 &g.r l 0 ' :0 8, : lc@M, -l, b'& s ap. + ' m. .f h M d gp j%~'h A- % m v -4 -4 q

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gj;Q Y g_- 5.[ d-. m, \\-h 3 ph) [ 4 .,.c s, az a a o - w a._; t PsioVerda't Spring i996 refueling outage for Unit 2 was completed in a record 49 days. INPO conducted a two-week evaluation of PVNGS in October 1995 and issued its first "1" rating, indicating that IVNGS achieved the highest level of excellence in nuclear plant operation.The high rating is expected to reduce IVNGS' insurance costs by nearly $1 million per yrar. ~,, n y,^ mm.+4a a [:gua The NRC's latest Systematic Assessment of Licensee Ibrformance (SALP) report ~ ' jg g; [. nbD gave PVNGS ratings of"1"in Operations, Maintenance, and Engineering, and"2"in crry o, i;unaas.- sursank's rubiic Service Department began serving cus. NNe eNu[ Plant Support. "1"is the highest rating, and represents superior safety performance 8 a ti and residential growth 6n the 1940's and 1950's.Today the city receives power from which exceeds NRC standards. In the previous assessment period, PVNGS received three SCPPA projects, the Bonnevme Power Administration, as well as firm and incarruptibie suppiies from other utilities "2" ratings in all four categories. The NRC noted that APS has established new and govemment agencies. c 7s programs and processes necessary to achieve and sustain superior performance. so,m On Megawatt-Hours) Seitgenarmted 301,078 Purchased 928.011 Total 1,029.098 T.__. On Miles). 398 Total ?_. - (000's). .5 94,430 gg Operat6ng Costs (000's) . $ 93,744

l TwouAs K.ctanus ' ' g s Corrective measures implemented following a tube rupture in one of A4 crry or cotrow The Colton municipal Unit 2's steam generators in 1993 have allowed operation at full capacity, $*"* "*"l,',,,"f,y7$",,j",jo'l; I 986,the ciectric utiilty has changed from but the operating agent has recommended replacement of unit 2's two steam b*'",8 ','*ar,,,deP dent on Southern c,,, to being actively engaged in purchasing generators, perhaps within the next ten years, due to safety and economy Po-er from severai different sources, achieving significant cost savings in the i process. reasons. If the co-owners of PVNGS decide to replace the steam generators, c,,,,,,,,,,,,,,, Power Generated and Purchased SCPPA's share of the cost is estimated at approximately $9 million and would be 0","l5'**",;"*") g Purchated. 241,582 expended over approximately six years. ,,'***,,',,,,,,p,,,,,,,, 24' 5j Total Revenues (000's) . $ 26,072* One owner of PVNGS, El Ibso Electric Company, has been under vo.- bankruptcy protection since 1992, and filed its Fourth Amended Stand Alone Plan i in September 1995.The Bankruptcy Court approved the plan, and El Paso emerged from Chapter 11 bankruptcy on February 12,1996. All of El Paso's obligations regarding PVNGS during the bank-1 ruptcy period nave been met. i SAN JUAN OPERATIONS San Juan Unit 3 continued to be a dependable resource for the five SCPPA members (Azusa, Banning, Colton, Glendale, and Imperial Irrigation District) who own a 41.8 per-ct.,n shne of the unit through SCPPA. A second Interim Invoicing Agreement further encouraged high capacity iannAnn w PALxm-factors and lower per unit fuel costs. Despite the major scheduled maintenance outage in the spring, SCPPA members received nearly 1.5 million MWH from

rty oe GLANoALE Incorporated in 1906, ylendale purchased its electric utility in San Nn in W 1995-9h

. 909, obtdning power from outside sup-eliers. It rectived its first power from 4.ov.r osm in i937 and inaugurated the Installation of a nov limestone scrubber system for the removal of sulfur irst unit of its own steam generating .lant in 1941. Now called the Graysoni wr Piant, this facuity today has eight dioxide was approved late in the fiscal year. Besides improving emissions control,

ener:. ting units. Glendale continues to murchase 85 percent of its power from the three-year project will save SCPPA $3 million per year in operating and main-autside sourcss.

l ustomers Served:. 82.571 %wer Generned and Purrhased tenance Costs. en Megawrzt-Hours) Self-generated 163,499 Purchased. 939,094 Both the operating agent (Public Service Company of New Mexico) and the Total I,102.595 a._.. H (in miles) 69 fotal Revenues (000's) . $ 98,020 >pertting costs (000*s) . $ 85.026 I

coal supplier are actively exploring other ways to reduce costs and make San Juan Generating Station a competitive resource for its owners l MEAD-PHOENIX / MEAD-ADELANTO TRANSMisslON PROJECTS After more than a decade of plan-ning and two and a half years of construction the hiead-Phoenix and hiead-AdelantoTransmission 4 Lines went into commercial operation in April 1996. These two 500-kV AC transmission lines will cany power between the Phoenix area, the Las Vegas area, and Southern California. Nine W lhk 'hr + 5 + San Juan Generating Station SCPPA members own roughly one-fifth of hicad-Phoenix and one-third of hiead-Athlanto through SCPPA. WOOVER UPfGTING PROJECT The Ho(wer Uprating Project, which increased the rated capacity at floover Ibwer Pent by 35 percent, was declared complete this year. Nine SCPPA members (Anaheim, Azusa, Hanning, Burbank, Colton, Glendale, Ibsadena, Riverside, and Vernon) participated in the uprating and have obtained entitlements tota.. g 127 hiW of capacity and approximately le 3,000 hiWH per year in allocated energv.The cities of Anaheim, Riverside, Burbank, Azusa, Banning, and Colton financed their participation through SLt'PA. 'livo issues which may affect operations at Hoover are the proposed sale of the Federal Ibwer l l 12'

Rinu m. uou,R Marketing Administrations (PMAs) and possible required mitigation of effects on endangered species in the lower Colorado River area.These issues are discussed a.. . f, GMPE5uAL IRRIGATloN OtETRACT under Legislative Advocacy. IID entered the power industry in 1936 and today serves a peak load of 640 MW with 790 MW of generating resources. SouT*:ZRN TRANSMISSION SYSTIEM As usual, the SouthemTransmission System Z8 ",,]*,,"*d**"'",'"*",,"* American Canal, 307 MW of gas-fired (STS) continued to operate at or above design parameters, transmitting 11.3 mil- "*** *ad ***bia'd m'* "ai'5 *ad i 4 2 MW of peaking gas turbines. In addition to llD's share of SCPPA resources com-lion MWH of power over its 488 miles, compared with 12 million MWH in fiscal P isins iO4 MW at saa Juan and 14 MW at Palo Verde,llD has 179 MW of other resources under long-term purchase con-year 1994-95.The line operated at 70.5 percent of capability, with 99.53 percent tracts. Customers Served: 86,870 availability. STS, a 500-kV DC transmission line and associated converter hwer Generated and Purt'aned ( A 'gawatt-Hours) Se.* S

• rated 774,587 i

stations, moves power between the Intermountain Converter Station in Utah to P"",, hand ljHjM Transmission Facilities (in Miles) 1.637 the.Adelanto Converter Station in Southern Califomia. 7',',Z"',;),3

5 l"Z LEGISLATI'/E ADVOCACY In the past year, SCPPA played its most crucial role to date in representing public power issues in Washingtor,, D.C. By year end it had also made plans to maintain a continuous presence in the California legislature.The following examples underscore the value of SCPPA's advocacy in Congress.

ELECTRIC UTILITY INDUSTRY RESTRUCTURING Discussions about electric utility restructuring mon A.coTrow and ways to increase competition in the industry were prominent on the congres- .r7 m =., ' h sional agenda in 1996. SCPPA was actively involved ie this federal restructuring Ds ANGELES DEPARTMENT of WATER AND owtR in 1916, the City of Los Angeles debate. During visits with Members of Congress and staff in Washington, D.C., and gan distr'.suting electric power pur-e lPused from tae Pasadena Municipal an Apn.l congressional staff tour of several SCPPA facilities, SCPPA representatives wwer Pl:nt, r.nd the following year saugurtted its first generating capacity at "b 922 t c r the in Estribution syst m of Southern Cahfornia .aison Cornpany within the city simits.it SCPPA's view that federal legislation would be premature at this' time. In addition, i now the largest municipally owned elec-ric utility in the nation. Dur6ng 1995-96 it nderwent maior businea mtructurins Executive Director Dan Waters testified for SCPPA and the American Public Ibwer rocas to prepare for upcoming deregu-Association on March 29 at a restructuring hearing held by the Senate Energy and

ustomers Served

.

I,150.807 uwer Generated and Purenamed

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Natural Resources Committee, Self-generated 21,848,816 Purchased. 7,079,313 Tocd 28,928,129 ransmision (in miles) 3,743 r tal itevenues (000's). . 5 1,946,850 o >perating Costs (000's). 5 f,425.753 s

c,rv o,,AsAo. A Established in 1906, Utility restructuring and consumer choice issues are likely to be at the top of the city built its first electric gewating

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the energy agenda in the 105th Congress. SCPPA will continue to play a role in the [e ,,e u, Edison Electric. In 1909, Pasadena began [c"fayg*,P,emdons to dgygjopm"ot of legislation as the restructuring debate moves forward next year. op resulted in the replacement of an Edison electric service in the city by 1920. In Nate s 5,'ercen" *"* $tsNr needs. THE NUCLEAR WASTE POLICY ACT With a 5.91 percent interest in the PaloVerde f Customers Served: 58,732 Nuclear Generating Facility, SCPPA has a keen interest in pending legislation to Power Genemta and Pu,,hased (M Megawatt. Hours) Self generated 185,249 reauthorize the Nuclear Waste Iblicy Act of 1982, with amendments. Ibssage Purchased 984,057 Total . i,169,346 l T~.. - Facihties (in Miles). 57 of these proposed amendments would provide solutions for waste generated at Totai Revenues (000w S n 0,975 Operating Costs (000's) 5 95,654 f the station at an interim nuclear waste disposal facility by 1998 and later at a permanent disposal site atYucca Mountain, Nevada.The Senate bill was eventually approved, but a veto threat from Pres: dent Clinton and strong opposition from the Nevada delegation stopped efforts l to pass the legislation this year. PC#ER MARKETING ADMINISTRATIONS In its early years the Clinton administration attempted to soon federally owned power. marketing administrations (PMAs) for a one-time reduction in the federal deficit. One PMA earmarked for sale was the Westem Area Ibwer Administration (WAPA), which provides power to most SCPPA members.This proposed sale would privalize the Hoover 1 hydroelectric project, the Ibrker and Davis power plants, and their related transmission facilities. Sale of the PMAs would negatively affect public power operations unless the sales are 84LL D.CAnMAHAN made to existing contractors. Although no serious PMA auction effort surfaced in 1996, the federal power program was carefully scrutinized, and many legislators d nevension, River:6 Publ6j criv or Utilities is positionics itself *o offer com. remain staunch advocates of privatization. peueve mies in the c., dereguiad environment. Powee-and transmissied costs constitute the bulk of chan passed on to our customers throu ENDANGERED SPECIES ACT REAUTHORIZATION Republican leaders named rates. Cost reduction and restructure efforts at $CPPA have had significant impact on Riverside Public Utilitio% reauthorization of the Endangered Species Act as a top legislative priority, but their enores in meeong our lower opemu< cost targets. Additional efforts, especially legislation immediately met opposition from emironmental groups, Democrats, ,,'*[*'d* ""O", Do* s compete in future years. and many Republicans. Fearing anti-emironmental sentiment for the GOI: its Custome,s se,ved: Power Genented and Purchased (in Megawatt. Hours) Self-generated 299,ll Purchased. 1,390,3 Total 1,689,51 Tran. . (in miles) 2,08f Total Revenues (0004) 5172,21 g Operating Costs (000's) 5160,38t

leadership kept the legislation from being brought to the House floor for a vote this year. SCPPA continues to support ongoing voluntary efforts by California, Arizona, Nevada, and the Department of the Interior to protect endangered species in the i ower Colorado River region.These agencies are proceeding on the assumption that there will be no significant changes to the Endangered Species Act in the future. TAX-EXEMPT FUNDING Concentrated efforts by SCPPA members and the public power communiy

• b 4.4%

6 ,[; a' s,% ' . J. loover Dam to educate Members of Congress and staff of the value of tax-exempt financing = = "8 a*=^=a { c. provided a needed advantage in 1996. Investor-owned utilities (IOUs) have opposed tax-exemption for public power entities, claiming that this status would ("' a'""*" V*'"*"s ught and Power Department began serving indus. trial customers in 1933, with completion give pubhc power an unfair advantage under deregulation. Despite IOU attempts of its diesei seneratins P ant. in addition l to its own power from diesel units ;sius rece,tly installed gas turbines. Vernon to restrict tax-exempt financing in 1996 budget reconciliation legislation, no such now receives power from raio verde Hoover, and various utilities, includ8ag ^"5*"'S"""^*"d'""' proposals were approved. Customers Served: 2,040 Power Generated and Purchased (in Megawatt-Hours) RENEWABLE ENERGY PRODUCTION INCENTIVE The Department of Energy's 5 5:=a-ated 'n Purchased. .1,077.813 ' total .1,070,499 Renewable Energy Production Incentive (REPI) provides incentive payments to g*C'a ="p, 24 Operating costs (000's) . $ 37,162*

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energy providers who generate energy from such sources as wind, geothermal sources, and landfill gas. SCPIM and other REPI supporters obtained last-minute funding for the program during the fiscal year 1996 appropriations process. SCPPA member City of Glendale received the largest l l single payment of $946,921 for more than 60 million kilowatt-hours of power generated during 1995 at its Grayson landfill gas-fired facility. Intense efforts by SCPPA and other REPI supporters established fiscal year 1997 incentives as a major bipartisan platfomi during the appropriations debate. e t Adelanto Converter Station is the western terminus of the Southern Tranmission System. PERCENTAGE OF SCPPA MEMBER PARTICIPATION IN SCPPA'S INTEREST m - mes a nonvia vs ame m --- -m m m mamman m sam 7 m M M M M m m M M M 4% m en M M M M m M M M M M m m d IM Ih in lll m Ih.1 u t. l In .1llLI-in In . _.i_i_i mm__ 2;_ _ _ , _i_i. ,,l_ % -l I N N gitadu m Bam.6 = = => i4

1 REPORT OF INDEPENDENT ACCOUNTANTS September 10,1996 To the Ik>ard of Directors of the Southem Califomia Public Ibwer Authority In our opinion, the accompanying combined balance sheet and the related combined statements of operations and of cash flows present fairly, in all material respects, the financial position of the Southem Califamia Public Ibwer Authority (Authority) at June 30,1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.These financial statements are the responsibility of the Authority's management; our responsibility is to express an opinion on these fmancial statemen(s based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reason-able basis for the opinion expressed above. In our opinion, the accompanying separate balance sheets and the related separate statements of cash flows of the Authority's PaloVerde Project, Southem Transmission System Project, Hoover Uprating Project, Mead-Phoer.ix Project, Mead-Adelanto Project, Multiple Project Fund and San Juan Project and the separate statements of operations of the Authority's PaloVerde Project, Southem Transmission System Project, Hoover Uprating Project, Mead-Phoenix Project, Mead-Adelanto Project, and San Juan Project present fairly, in all material respects, the financial position of each of the Projects at June 30,1996, and their cash flows, and the results of operations of the Authority's PaloVerde Project, Southem Transmission System Project, lhiover Uprating Project, Mead-Phoenix Project, Mead-Adelanto Project and San Juan Project for the year then ended in conformity with generally accepted accounting principles.These financial statements are the responsibility of the Authority's management; our responsibility is to express an opinion on these financial state-ments based on our audits.We conducted cur audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disch)sures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. 'Ihe supplemental financial information, as listed on the accompanying index, is presented for purposes of additional analysis and is not a required part of the basic financial statements.This information is the responsibility of the Authority's management. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. / u u Price Waterhouse LLP Los Angeles, Califomia

SOUTHEltN CALIFOftNIA PUBLIC POWEFt AUTHORITY COMBINED B ALANCE SHEET Un tlwuuiruist - l" N I? - - nurtwrn la Trmwnuwn limr Air 1ul MmJ - Multtple San lurw 30. U rde Syston Lipratmg 1%ena Altlanto l% stt hum 1%5 1%p1 IWprt 1%p11 l% nit Pronrt.._... Turul 1%srt Tvtal D>tal ASSETS Utility plant: Pnx.luetion $ 613,608 $ 171,068 $ 183,309 $ 967,985 $ 7Y5,080 Transmission 14.146 $ 674,606 48,307 164 737,223 689,447 General 2,569 1R893 1,971 8,613 32N6 29,155 630,323 693.499 50,278 171,232 191,922 1,737,254 1,513,682 Less - Accumulated depreciation 250,021 194 127 846 1,255 36,622 482,871 418,688 380,302 499,372 49,432 169,977 155,300 1,254.383 1,094,994 Construction work in progress 9,503 3,116 3,501 16.120 20n,573 Nuclear fuel, at amortized cost 13,225 13,225 12,716 Net utthty plant 403,030 499 172 _ 52,548 169,977 _158 H01 _1,283,728 1,314.283 Special funds: Available for sale at fair value (Note 2). Decommissioning fund. 33 / 4 33,474 24,503 Investments ".,346 102,842 $ 9.62x 21,591 62,562 $ 250,888 34,170 597,427 682,442 Ikmw account - Crossover series 343,898 M3,898 343,921 Advance to Intermountain Ibwer Agency 19,550 19,550 19,550 Advances for capacity and energy, net 10,119 10,119 11,uo3 Interest receivable 1,512 2,169 6 841 2,285 9,220 67 16,100 16,541 Cash and cash equivalents 67,M9 40,324 _ _ 1 997 1,548 4,504 __ _J546 173y8 _ 120 6_10 1 218.611 558,783 21,750 23,980 69,351 260,108 41383 1,144,366 1,219,470 Accounts recenable 738 2,687 19 1,750 4.741 (6,402) 945 4,478 5,272 Materials and supphes 9,240 3,569 12,809 13,297 Costs recoverable from future billings to participants. 204,945 203,787 7,538 1,394 4.383 31,7Ea 453.827 411,031 Unrealized kas on investments in funds available for sale 456 2,865 3 9 28 4 3J65 2,335 Prepaid construction costs 5,536 l' repaid expenses, 26 66 92 Unamortued debt expenses,les xcumulated amortization of $132,265 and $127,197 m lwh and 1995 204 693 164,247 3,307 9,888 28,123 3,090 413,348 429,50H $ 1.041.713 f 1.431341 $ 32.617 $ 89 595 $ 276.669 $ 253.706 $ 239972 $ 3.366.013 $ 3,400,732 LIABILITIES I,ong term debt $ u81.155 $ 1034,757 $ 30,981 $ 86,417 $ 268 005 $ 242,786 $ 222,444 $ 2,866,545 $ 2.894.471 Subordinate Refunding Cneover Senes 347,388 347,388 347,782 Artutrage rebate payable 77 Deferred credits 2.664 2.664 1,141 Current habiht es Long term debt due within one >rar 25,690 10,845 1,085 6,035 43,655 38,790 A crued interest 24,535 38.436 4F9 2,588 7,884 8,256 5,994 88,182 45,288 Accounts payable and accrued expenses 10,333 315 62 SW 7B0 5,4W 17,579 '3,183 Total current habihties 60,558 49,596 1.636 3,178 8f64 8,256 17,528 149,416 157,261 Commitments and contingencies. $ 1.041.713 $ 1.431541 $ 32.617 $ 89.595 $ 276fi69 $ 253.70ti $ 239 972 $ 3,3m013 $ 3.400,732 Tb acamqunymg nws m an mtegrul wt ofIkvfmausi statements E

$OUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMfilNED STATEMENT OF CPE R ATIONS (in tlancumbd har Eminilune 30.19% Swthmi Iwo inmsmuum Ilrun Ahd hkJ San \\ ear Emkd Verde System Upratmg l%eux Aklanto pum jww 30, Ih _ _ _ Pmprt __ IYgnf 7htal Ip5 I*1 - _IM 4 Operatmg revenues. Sales of ekctnc energy $ 135,464 $ 3,349 $ 50,117 $ 188,930 $ 183,603 Sales of transmission services. $_85]97 $ __226 172 85,695 91,250 Total operaung rwenues 135,464 85.297 3,349 226 172 50,117 274.625 274.853 Operating expenses: Amoittion of nuclear fuel 7,949 7,449 8,150 Other op rations. 25,815 10,192 2,200 213 145 314 38,879 39,873 Maintenance 6,317 5,236 13 27 35,760 47,353 50A34 Depreciation 18,425 20,329 342 1,132 9,095 49,323 47,975 Dectunmis,ioning 12,497 3,113 15,610 16,513 Total operaung expenss 71,003 35,757 2.200 568 1,3a4 48,282 159,114 163,345 Operating income (loss) 64,461 49,540 1,149 (342) (1,132) 1,835 115,511 11L508 Investment income 10,886 28,943 874 410 1,174 2,062 44,399 23,884 Income tyfore debt expense 75,347 78,333 2,023 68 42 3,897 159,910 135,392 [M4 expense _ 82,777 49,16n _ _ 2,262 _ 1,462 4.425 _ 12.614

_202M, 174,140 Costs recoverable trom future bilhngs to participants

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I i $OUTHEftN CALIFORNIA PUBLIC POWER AUTHOltlTY COMBINED $TATEMENT OF CA$H FLOWS lin tremaruhJ 1aar Ended fune 30,14% Ssmtlwne \\ ear Ended 1% Trare,mmwn Ihw Mead - Aki-Multtple San Iww 30 Wrde Sywrn tlpmhng Phwmx Alelanto 1%pt Juan 1945 l%yct 1%y1 1%mrt I%nat Pront fund 1%wt1 ktal bral Cash fkavs from operating actmties Costs recoverable from future biihr to participants ($ 7,430) ($ 20.633) ($ 239) ($ 1,394) ($ 4,383) ($ 8,717) ($ 42,796) ($ 38,748) Adiustments to amw at net cash pnnided by (used for) operating activities - Deprecation 18,425 20,329 M2 L132 9,095 49,323 47,975 Decurnmissioning 12,497 3,113 15,610 16.513 Arnortizahon of nudear fuel 7,949 7,949 8,150 Arnortization of debt costs 24,428 11,739 294 167 482 626 37,736 29,050 Wnte off of construction work in progress costs 1,313 1,313 Changesin assets and liabihties Decomnussioning fund. (8,971) (8.971) (1,297) Interest receivable (289) (362) 20 405 691 2 467 437 Accounts receivable 174 (218) (19) 213 (72) 946 1,024 1,402 Materials and supphes 378 110 488 2,069 Other assets 55 L977 3,467 56 5,555 117 Accrued interest (6,150) (943) (11) (1) (7,105) 10,036 Accounts payable and accrued expenses _(6gl37) (1,943) 17) 556 745 1,482 (5,604) 3,090 Net cash punided by operating actmties 34.629 4,282 38 2,266 2,061 6,71 3 54,989 78,794 Cash fkavs from investmg activities: Inten st received on investments $ 18,380 18,380 M,037 Arbitrage payment (3,757) Payments for construction of facihties. (10,892) (13,208) (15,652) (1,938) (41,690) (1G1,088) j Purchases of investments. (154,685) ( 154,904) (22,665) (3,2M) (9,184) (1,868) (14,370) (3cv0,940) (230,693) Pnreeds from sale / maturity of investments. 182,309 195,593 20,705 14.474 23,000 8,867 444,948 299,265 Advances for capacity and energy, net 1,784 1,784 1,415 Reimbursement fiom WAPA 111 Net cash provided by (used for) investing activities 16,732 40,689 (176) JN8) j1836) 16,512 (7,441) 62,482 J710) Cash flows from capital and related financing actnities Payments of mterest on long-term debt. (16,512) (16,512) (37,092) Pmceeds from sale of bonds 229,483 229,483 lbvment for defcasance of revenue bonds. (233,632) (233,632) (5,798) Repayrnent of pnncipal on long term debt (23,855) (14,325) (610) (38,790) (36,900) Ibyment for bond issue costs (4,832) _(4,832) (40) Net cash used for capital and related financing activities (32,836) jl4325) (610) _(16,513 J64J83) (79,830) Net increast (decrease) in cash and cash equivalents 18,525 35,646 (748) 268 225 (728) 53,188 (4.746) Cash and cash equivalents at bepnning of war 49,3;4 54,678 2.74; 1,280 4.279 _,8,274 120.610 125,356 Cash and cash equivalents at end of gar S 67.879 $ 90.324 $ 1 997 1.548 $ 4 504 $ 7346 $173 798 $ 120.610 Supplemental dischsure of cash flow information: l Cash paid dunng the year for inten st (net of arnount capitahzed) $ M 499 $ 88,370 $ 1.978 $ 16,512 $ 11988 $1n347 $ 188.700 71w uwmpmyrng nows are an unwgral part of tu firumoal statnnents t

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50UTHERN CALIFORNIA PUBLIC POWER AUTHORITY N'JTES TO FIN ANCIAL STATEMENTS Note 4 - 0 -. and Pwposes Southem California Public Nwer A athority (Authority), a public Station in Utah to Southem Califomia. The Autho>.y entered entity organized under the laws c. the S' ate of Califomia, was into an agreement also dated as of May 1,1983 with six of it formed by a Joint Nwers Agreeme it dated as of November 1,1980 participants pursuant to which each member assigned its entitle-pursuant to the Joint Exercise of Nwers Act of the State c: ment to capacity of STS to the Authority in retum for the Califomia/Ihe Authority's participant membership consists of ten Authority's agreement to make payments-in-aid of construction to Southem Califomia cities and one public district of the State of IPA. STS commenced commercial operations in July 1986. The Califomia.The Authority was formed for the purpose of planning, Department of Water and Nwer of the City of Los Angeles finarcing, developing, acquiring, constructing, operating and (LADWP), a member of the Authority, serves as project manager maintaining projects for the generation and transmission of elec-and operating agent of the Intermountain Nwer Project (IPP). tric energy for sale to its participants.The Joint Nwers Agreement has a term of fifty years. Hoover Uprating Project - The Authority and six participants The members have the following participation percentages entered into an agreement dated as of March 1,1986, pursuant to in the Authority's interest in the projects at June 30,1996 and 1995: which each participant assigned its entitlement to capacity and associated firm energy to the Authority in rerum for the Authority's Lg agreement to make advance payments to the United States Bureau g gama gw m of Reclamation (USBR) on behalf of such participants.The USBR ~idi20 Angeles o 67.0 % 5k5% 24.8 % 35.7 % as Mad Oat b N% was Mady Mph as d Oty d Anaheim 17.6 42 6 % 24.2 13.5 September 30,1995 with minor work scheduled to be completed Oty d Rnerside 54 10.2 31.9 4.0 13.5 in the spring of 1997 The Authority has an 18.68% interest in the omtrkt 65 5t0% contingent capacity of the H(xwer Uprating Project (HU). All a,ydwnm 4.9 seventeen"uprated" generators of the HU have commenced com-Oty d Azusa 10 4.2 1.0 2.2 14.7 mercial operations. Gry d Banning 1.0 2.1 10 1.3 9.8 aty d caton 1.0 3.2 10 26 14.7 Mcad-Phoenix Projed -The Authority entered into an agreement oty a purbank 44 4.5 16 0 15 4 11 5 dated as of December 17,1991 to acquire an interest in the Mead-oiy or aendale 4.4 23 14.8 11.1 9.8 Phoenix Project (MP), a transmissioe line extending between the aiv d issadena 44 59 us s.6 Westwing substation in Arizona ar ? 'he Marketplace substation m Nevada. The agreement provWs the Authority with an imos unos im0% uno% teos imes 18.31% interest in the Westwing-Mead project component, a na n niw+ na nmeniw paaroc th uunce ew rua* 17.76% interest in the Mead Substation project component and a uew ramm pup.iion reti ct,in,ec o-nen.iue annponene, w i-ke g g ggg Authority has entered into transmission service contracts for the Ihlo Verde Pmject - The Authority, pursuant to an assignment entire cap bility ofits interest with nine members of the Authority agreement dated as of Au 'st 14,1981 with the Salt River Project ' P"O "'*' ^" r accmndng f r he separate owl (Salt River), purchased e 1% interest in the IhloVerde Nuclear Gcnerating Station (I% JS), a 3,810 megawatt nuclear-fueled """ " '.sp nsi ty ip

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$58,676,000 at June 30,1996 and 1995, respectively) for its interest. %lleyTransmission System (collectively, the IbloVerde Project). P"" I" #I ""b As of July 1,1981, ten participants had entered into power sales was provided by a transfer of funds from the Multiple Project I und contracts with the Authority to purchase the Authority,s share of IVNGS capacity and energy. Units 1,2 anJ 3 of the iblo Verde Project began commercial operations in January 1986, September h clanto Project -The Authority entered into an agreement 1986, and January 1988, respectively. dated as of December 17,1991 to acquire a 67.92% interest in the Mead-Adelanto Project (MA), a transmission line extending S<mthern Tmnsmission System Proj.ect - The Authority, pursuant t between the Adelanto substation in Southem Califomia and the an cgreement dated as of May 1,1983 with the Intermountain Marketplace substation in Nevada.The Authority has entered into Nwer Agency (IPA), has made payments-in-aid of construction t i n h 6 MW apabihty of its inter-IPA to defray all the costs of acquisition and construction of the est with nine members of the Authority on a*take or pay" basis. In Southem Transmission Systern Project (STS), which provides for M the Authority has administrative responsibility for the transmission of energy from the Intermountain Generating J

accounting for the separate ownership interest in the project by plant constmetion work in progress until a facility commences WAPA, who is providing separate funding ($17,088,000 and commercial operation. $16,282,000 u June 30,1996 and 1995, respectively) for its interest. He Authority's share of construction and betterment costs Funding was pmvided by a transfer of funds from the Multiple associated with IVNGS is included as utihty plant. Depreciation Project Fund (Note 4). Commercial operations commenced in expense is computed using the straight line method based on the April 1996. LADWP serves as both construction manager and estimated service life of thirty-five years. Nuclear fuel is amortized operations manager. and charged to expense an the basis of actual thermal energy pro-duced relative to total thermal energy expected to be produced Multiple Project Famd-During fiscal year 1990, the Authority issued over the life of the fuel. Under the punisions of the Nuclear Waste Multiple Project Revenue Bonds for net proceeds of approxi-Iblicy Act of 1982, the Authority is charged one mill per kilowatt-mately $600 million to provide funds to finance costs of construc-hour, by the federal govemment, on its share of electricity pro-tion and acquisition of ownership interests or capacity rights in one duced by PVNGS, and such funds will eventually be utilized by the { or more then unspecified projects for the generation or trans-federal govemment to provide for PVNGS' nuclear waste disposal. missior. : electric energy. The Authonty records this charge as a current year expense. In August 1992, the Authority's Board of Dirw.or3 approved a The Authority's share of construction and betterment costs resolution authorizing the use of certain proceeds of Multiple associated with STS, MP, MA and SJGS are included as utility Project Revenue Bonds to finance the Authority's ownership inter-plant. Depreciation expense is computed using the straight-line ests in the Mead-Phoenix and Mead Adelanto projects. Transfers method based on the estimated service lives, principally thirty-five made from the Multiple Project Fund are sufficient to provide years for STS, MA and MP and twenty-one years for 5]GS. I for the Authority's share of the estimated costs of acquisition and Interest costs incurred by the MP and MA projects through the construction of these two projects, including reimbursement of date commercial operations commenced (April 1996) are capital-planning, deveL>pment and other related costs. ized in utility plant. Total interest costs capitalized were $11,827,000 and $15,769,000 in fiscal 1996 and 1995, respectively, for the MA San Juan Project - Effective July 1,1993, the Authority purchased project and $3,881,000 and $5,175,000 in fiscal 1996 and 1995, a 41.80% interest in Unit 3, a 488 megawatt unit and related respectively, for the MP project. common SciHt;es, of the San Juan Generating Station (SJGS) from Century Ibwer Corporation. Unit 3 is one unit c,f a four-unit Advancesfor Capacity and Energy - Advance payments to USBR for coal-fired power generating station in New Mexico.The Authority the uprating of the 17 generators at the Hoover Tbwer Plant are alk>cated the $193 million purchase price to the estimated fair included in advances for capacity and energy.These advances are value of the utility plant ($190 million) and to materials and being reduced by credas on billings to participants for energy and supplies ($3 million)lhe purchase has been financed through the capacity. issuance of approximately $237 million (par value) of San Juan Project Revenue Bonds.The Authority has entered into power sales Nuclear Decommissioning - Decommi+ ' Ting of ITNGS is contracts for the entire capabihty of its interest with five members projected to commence subsequent to tl , m 2022. Based u}un of the Authority on a"take or pay" basis. an updated study performed by an independent engineering firm, the Auth mty's share of the estimated decommissioning costs is $855 milhon in 19F dollars ($390 million in 2022 dollars assum-Note 2 - Summary of Signmcant Accounung Pohcies: ing a 6% estimated annual inflation rate).The Authority is prosid-The financial statements of the Authority are presented in confor-ing for its share of the estimated future decommissioning costs mity with generally accepted accounting principles, and substan over the remaining life of the nuclear power plant (25 to 27 years) tially in conformity with accounting principles prescribed by the through annual charges to expense which amounted to $12.5 mil-Fedeal Energy Regulatory Commission and the Cahfomia Pubhc lion and $13.4 million in fiscal 1996 and 1995, respectively. Utilities Commission.The A ithority is not subject to regulation by The decommissioning liability is included as a component of ^ccu-either of these regulatory tw mulated depreciation and was $88.1 mi!! ion and $75.6 million at The financial statements repre; mt the / uthority's share in each June 30,1996 and 1995, respectively. jointly-owned project.The Authoncs sbre of direct expenses of A L)ecommissioning Fund has been established and partially jointly-owned projects are included - ae corresponding operat-funded at $33.9 million at June 30,149tt The Decommissioning ing expense of the statement of operations. Each owner of the Fund camed interest income of $700,000 during fiscal 1996. jaintly-owned projects is requiro.' to provide their own imancing. Demolition and Site Reclamation - Demolition and site reclamation Utility Plant -The Authority's share of all expenditures, includin8 of SIGS, which involves restoring the site to a" green" condition general administrative and other overhead expenses, payments-which existed prior to SJGS construction,is projected to commence in-aid of construction, interest net of related investment income, subsequent to the year 2014. Based upon a study performed by an deferred cost amortization and the fair value of test power gener-independent engineering firm, the Authority's share of the esti-ated and delivered to the participants are capitalized as utility mated demolition and site reclamation costs is $18.7 million in

1992 dollars ($65.3 million in 2014 dollars using a 6% estimated ing and each consecutive five years thereafter.The Authority made annual inflation rate).1he Authority is prosiding for its share of its first rebate payrnent of $3.8 million during fiscal year 1995.The the estimated future demolition costs over the remaining life of next rebate payment to the IRS is due in fiscal year 2000. the power plant (18 years) through annual charges to expense of $3.1 million.The demolition liability is included as a component of Reclassifications - Certain reclassifications have been made in the accumulated depreciation and was $9.3 miU. ion and $6.2 million at fiscal year 1995 financial statements to conform to the fiscal year June 30,1996 and 1995, respectively. 1996 presentation. As of June 30,1996, the Authority has not billed participants for the cost of demolition nor has it established a demolition fund. Use of Estimates -The preparation of financial statements in con-formity with generally accepted accounting principles requires Unamorti:cd Debt Expenses - Unamortized debt issue costs, management to make estimates and assumptions that affect the including the k>ss on refundings, are being amortized over the reported amounts of assets and liabilities and disclosure of contin-terms of the respective issues and are reported net of accumulated gent assets and liabilities at the date of the financial statements and amortization. Total deferred loss on refundings, net of accumulated the reported amounts of revenues and expenses during the report-amortization, was $378,070,0('O and $393,440,000 at June 30,1996 ing period. Actual results could differ from those estimates. and 1995, respectively. Investments - Investments include United States Govemment and mee 3 - specw n.ndu govemmental agency securities and repurchase agreements which The Ik>nd Indentures for the six projects and the hiultipic Project are collateralized by such securities. Additionally, the hiead-Fund require the following special funds to be established to Phoenix Project, the hiead-Adelanto Project and the Afultiple account for the Authority's receipts and disbursements. The Project Fund's investments are comprised of an investment agree-moneys and investments held in these funds are restricted in use ment with a financial institution caming a guaranteed rate of to the purposes stipulated in the Bond Indentures. A summary of retum.The Southern'Iiansmission System Project has debt senice these funds follows: resene funds associated with the 1991 and 1992 Subordinate Refunding Series Ikinds invested with a financial institution under C""""'"" I' daburse funds tbr the acquisit on and cnnstructon of the a specific investment agreement allowed under the Bond project. Indenture caming a guaranteed rcle of retum. MSe To pay inkmt and pnn pal re ated to the Revenue ikmds Investments available for sale are canied at aggregate fair value and changes in unrealized net gains or losses are recorded sepa-Revenue Ib initially receive all revenues and disburse them tu other I""*- rately. Investments are reduced to estimated net realizable value when necessary for declines in value considered to be other than operahng To pay operatmg expi-temporary. Gains and losses realized on the sale of investments arc ise,,,,na 30 pay <,p,tal impauements and make up deficienacs in generally determined using the specific identification method. Conungency other funds. As discussed in Note 3, all of the investments are restricted as to General Reserve To make up any deficiencies m other funds. l their use. - ~ ~ ' - - - ~ ~ ~ - - - - - - - - - - -- Advance Pavments lo disburse funds for the cost of acqumition of capaaty Cash and Cash Equivalents - Cash and cash equivalents include hoceea ^mmnt L inically nwive tne pnreeA of the sale of the Muluple h"i"" " " """ * " # cash and all investments with original maturities less than 90 days 1. __. _. _ _ _ _ _ _ _ Eammgs Account To receive investment cammgs on the Multiple pnyect R"nue Ik ma-Rcecmu's - Revenues consist of billings to participants for the sales of electric energy and of transmission service in accordance with Revolung Fund To pay the Authonty't. operahng exptm the participation agreements. Generally, revenues are fixed at m.ommeimng Fund To uumulate funds related to the future decommissioning a level to remver all operating and debt service costs over the of pVNGS commerciallife of the property (see Note 6). bue Fund L initu Iv nuwe pleh nwnues a ciated with the apphcable subordinated retunding senes' indenture of Trust Debt Expense - Debt expense indudes interest on debt and the and pay the related interest and onnoral. amortization of bond discounts, debt issuance expense and loss on Furow accouni - w ininally receive pledged revenues assonated with l refunding costs. subordmate component a uf the no subordmate Rerundmg cnwwer l Refunding Smes' indenture of Trust and pay the related interest C"'" *"' S""" '"dP"""P"' l Arbitrage Rebate - A rebate payable to the Internal Revenue Senice ORS) results from the investment of the proceeds from the hiultiple Acqumihon Ammnt To disburse funa for the acquisition and construction of the ""'d """"* ""'d ~ ^d"'""'" '"d S'" h" P'"*"- Project Revenue Bond offering in a taxable financial instrument that yields a higher rate of interest income than the cost of the associated funds. The excess of interest income over costs is All of 'he funds hsted above, except for the Revoking Fund, are payable to the IRS within five years of the date of the bond offer. held by the respective tmstees. I { { i U

- - - ~ - - -. - - - - - Palo Verde Project -The balances of the funds required by the Bond Hoover Uprating Project -The balances in the special funds required Indenture are as folkms, in thousands: by the Bond Indenture are as follows, in thousands: l June 30, June 30, 1M 1+6 19m 196 Amortued Fan Amettued Fau Amortued Fair Anrtued Far Get %1ue Gut %lue GW %iue CW %lue Debt Sersice Fand - . $ 52,457 $ 52A67 Operating %rking Capital Fund 804 804 563 563 Advance Paynrnts Fund - $ 2,437 $ 2,437 Debt Semcc Ammnt $ 51,386 $ 51,394 + Debt Semce Reserve Account 74429 74,160 81,497 81,077 Debt Service Fund - Rewnue Fund 5 5 1 1 Debt Smice Account 2,390 2,390 1,440 1A29 , Operating Fund 20,130 20,134 31,141 31,026 Debt Service Reserve Account 3.122 3,121 3,078 3,068 knerw and Contingency Fund 25,924 26,107 16,776 17,075 General Reserve Fund 5J18 5,316 2,911 2.914 DecomrnmsimingTrust Fund 34,131 33,740 24,503 24,503 Revolving Fund 13 13

1. uc Fund 13.026 13,026 12,486 12A86

$ 11.634 $ 11.631 $ 10.442 $ 10.424 w Revolving Fund 45 45 45 45 $ 219.067 $ 218.611 $ 218.906 $ 218,680 Catractual matuntis: Within one year $ 2,0[0 $ 2,003 Contractual rnaturthes: After one year through Within one year $ 69,781 $ 69,391 five pars 4.631 9,628 i Aher me par thnmgh $ 11A34 $ 11,631 Sve years t h 279 136,148 1 ^^" 8",,F'" 'h"*# In ddition, at June 30,1996 and 1995, the Authority had n7, 3,187 3,252 Aher ten yean 9,820 9,820 advances to USBR of $10,119,000 and $11,903,000, respectively, $ 219.067 $ 218.611 Mead-Phoenix Project -The balances in the special funds n quired I Southem Dansmission Systern Project 'Ihe balmees in the special by the Bond Indenture are as follows, in thousands: I funds required by the Bond Indenture are as follows, in thousands: l 1** 1*6 Anwwtired Fau Amortimi Fair im 1*6 Gwt %Iue Gut %lue wN ^' g$- Acquisition Account $ 12,571 $ 12,571 $ 19,830 $ 19,830 l ^"# n g Debt Service Fund - Debt Service Annunt 4.976 4.967 4.444 4.444 initial Facilities Ammnt 235 $ 235 $ 223 $ 223 e A 6,W 6,U2 6,D2 Debt Service Fund - Debt Service Ammnt 21,921 21,896 31A80 31,491 Debt Service Reserve Ament 86,220 86,189 66,672 66,857 9 Operating Fund 6,015 6,007 5,987 5,987 Revolving Fund b 6 6 6 General Reserw Fund 4.194 (194 9,533 9,542 issue Fund 77,024 76,794 r,768 77,579 $ 23.989 $ 23m $ 35336 $ 35.285 Facrow Account - b""" '"d'""I'" Subordmate Refunding Crossover Series 346A74 343,903 355,101 353,188

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I 2'389 I 2'309 Ahn me par thnm@ Revolving Fund 15 15 15 15 $ 542.098 $ 539.233 $ 546.779 $ 544.882 Ah n m 2 Contractual matunties: $ 21989 $ 219HO Within one year $ 102.008 $ 101,975 Ahn me year thnmgh Mend-Adelanto Project -lhe balances in the special funds required ann 6v pmthnm@ by the Bond Indenture are as follows, in thousands: ten pars Av72 34,189 Aher ten pars ,_322.2M 32n6 1 P6 $ 542.098 $ 539.231 Aantued Fan Anwstued Fair Gmi %lue Gmt %l_ue_ in addition, at June 30,19% and 1995, the Authority had non-Aniu= ton ^ccount $ 36,979 $ 36,979 $ 37,745 $ 37,745 interest bearing advances outstanding to IPA of $19,550,000. $gjj(unt 15,194 15,1n6 12,353 12,353 Debt Service Reserve Amunt 16,865 16,865 17,040 17,040 1ssue Fund 16,517 16,346 Revenue fund 71 71 Operating Fund 264 264 Revohing Fund 6 6 6 6 $ 69.379 $ 69.351 $ 81661 $ 81490 Contractual maturities: Witlun one year $ 6,794 $ 6,789 After one par through j 6ve years (161 (138 1 After ten years 58,424 58,424 $ 69379 $ 69351 ] u.

Multiple Pmject rund - The balances in the special funds required interest on all moneys or securities (other than in the Construction by the Ikind Indenture are as follows, in thousands: Fund) held pursuant to the Ilond Indenture and (3) all funds estab-lished by the Ik>nd Indenture. _ _mna At the option of the Authority, all outstanding Ibwer Project Revenue Ik>nds and Subordinate Refunding Term ik>nds are An M la An h la e-w ow w bject to redemption prior to maturit ' exce it for the 1996 Pnxwds Amont $ 2%830 $ 2%830 $ 25n100 $ 2%A10 Eanungs Anount 3,23 3,278 LW 1,W Subordinate Refunding Series A which is not redeemable. $ wuus $ 2n0.108 $ 2sa.214 $ 2 set 4 The Ik>nd Indenture requires mandatory sinking fund install- ~ ments to be made beginning in fiscal year 2003 (1986 Series A contractuat rnaturns Within one y ar $ 9,220 $ 9,220 lionds and 1987 Series A Iksnds),2005 (1989 Series A Ikinds),2010 Aher ten p m _ 23M8 _2R M8 (1993 Series A Ilonds), and 2008 (1996 Subordinate Refunding $ 2aum $ 2su* Series 11). Scheduk d principal maturities for the PaloVerde Project c during the five fiscal years following June 30,1996 are $25,690,000 San Juan Pmy. t -The balances in the special funds required by the in 1997, $22,220,000 in 1998, $23,580,000 in 1999, $25,145,000 in Bond indenture are as follows, m thousands: 2000, and $12,860,000 in 2001.The average interest rate on out-ML___ standing debt during fiscal year 1996 and 1995 was 5.8% and 6.0E __p M _. respectively. _ !"t _ _.9. __Sd _._ _W Cperat ng Ammnt $ 1,238 $ 1,238 $ 1,618 1,618 Operahng Resme Amiunt 7 7 2 2 Sontlu'm TNHSm/SSIDH System Pmject -To finance payments-in-aid Acquein Acwunt 527 527 112 112 of construction to IPA for constmetion of the S13, the Authority 1l n A n unt 8.607 8,597 6,017 6,017 issued Transmission Project Revenue ik>nds pursuant to the Wbt Semre Rem Anwnt 18,m1 Wm 18,026 18aen Authority's Indenture of Trust dated as of May 1,1983 (Senior ctesme and connngeng Fund 13 5'7 13,383 11,224 11,2s2 Indenture), as amended and supplemented.The Authority also has ~~ bd M b Mm%hsnm NM he h6 $ 41.7,i7 $ at7m $ 37] 53 1991 and 1992 Sutordinate Refunding Series issued under connanuat rnatunnes-Indentures of Trust dated as of March 1,1991 and June 1,1992, Within one p ar $ 7,613 $ 7,613 Aher one p ar ihnogh respectively.The 1991 and 1992 subordinated bonds were issued to (nee yem 16.149 16.14s advance refund certain tends previously issued under the Senior Aher ten years J e5 _ IR025 Indenture. 5 4 *7 54" 'lhe fond indentures provide that the Revenue ikinds and the Pnprt Imtstment Sales -There were no proceeds from sales of Subordinate Refunding Series Ik>nds shall be special, limited oblig-investments during fiscal 1996 or 1995. Hons of the Authority payable solely from and secured solely by (1) proceeds from the sale of lmnds, (2) all revenues, incomes, rents and receipts attributable to STS (see Note 6) and interest on all moneys or securities (other than in the Construction Fund) held Reference is made below to the Combined Schedule of Long-term pursu nt to the ik>nd Indenture and (3) all funds established by the Ik>nd Indenture. Debt at June 30,19% for details related to all of the Authority's out _ All outstanding 1iansmission Project Revenue and Refundmg standing tunds. ik>nds, at the option of the Authority, are subject to redemption iblo Verde Pnprt -To finance the purchase and construction of the pnor to matunty. Authoritys share of the lhlo Verde Project, the Authority issued 1he Bond Indenture requires mandatory sinking fund install-Ibwer broject Revenue Bonds pursuant to the Authority's ments to be made begmning in fiscal year 2003 (for the 1986 Series indentun of Trust dated as of July 1,1981 (Senior Indenture),'as A Bonds), 2002 (1986 Series B Ilonds) and 2007 (1988 Series A amended and supplemented.The Authority also has issued and Ilonds). Scheduled principal maturities for STS during the five fis-c 1 years folk > wing June 30,19% are $10,845,000 in 1997, has outstanding Ibwer Project Suhordinate Refunding Series $21,565,000 in 1998, $22,790,000 in 1999, $10,200,000 in 2000, and Ik>nds issued under an InJenture of Trust dated as of January 1, $10,115,000 in 2001.1he average interest rate on outstanding debt 1993 (Subordinate Indenture) Ihe Subordinate Refunding Ikinds were issued to advance refunJ certain bonds previously issued during fiscal year 1996 and 1995 was 8.3% under the Senior Indenture. He Upmting Pnprt -1b finance advance payments to USBR for lhe bond indentures pnwide that the Revenue ikinds and pplication to the costs of the lhwer Uprating Project, the Subordmate Refunding Ikinds shall be special, limited obligations Authority issued liydroelectric lbwer Project Revenue Ik>nds pur-of the Authority payable solely from and secured solely by (1) pro-suant to the Authority's indenture of Trust dated as of March 1, ceeds from the sale of bonds, (2) all revenues, incomes, rents and W (Bond Indenture). receipts attributable to the Palo Verde Project (see Note 6) and l w

The ik>nd indenture provides that the Revenue Ik>nds shall be Indenture).The proceeds from the Revenue Bonds, together with special, limited obligations of the Authority payable solely from drawdowns from the Debt Senice Fund and Project Acquisition and secured solely by (1) the proceeds from the sale of the bonds, Fund, were used to advance refund $64,840,000 of the hiultiple (2) all revenues from sales of energy to participants (see Note 6), Project Revenue Bonds previously transfened to the Mead-(3) interest or other receipts derived from any moneys or securities Phoenix Project. held pursuant to the Ik>nd Indenture and (4) all funds established The Bond indenture prosides that the Revenue Bonds shall be by the Bond Indenture (except for the Interim Advance Ibyments special, limited obligations of the Authority payable solely from, Account in the Advance Ibyments Fund). and secured solely by, (1) proceeds from the sale of bonds, (2) all At the option of the Authority, all outstanding Hydroelectric revenues, incomes, rents and receipts attributable to hicad-Ibwer Project Revenue Bonds are subject to redemption prior to Phoenix (see Note 6) and interest on all moneys or securities and maturity. (3) all funds established by the Ik>nd Indenture. The Bond Indenture requires mandatory sinking fund install-At the option of the Authority, all outstanding hiead-Phoenix ments to be made beginning in fiscal year 2007 for the 1991 Series Revenue Bonds are subject to redemption prior to maturity. A ik>nds maturing on October 1,2010 and fiscal year 2011 for The Bond Indenture requires mandatory sinking fund install-the 1991 Series A Ikinds maturing on October 1,2017. Scheduled ments to be made beginning in fiscal year 2018 for the 1994 Series principal maturities for the Hoover Uprating Project during the five Bonds. The first scheduled principal maturity for the Mead-fiscal years following June 30,199f are $1,085,000 in 1997, Phoenix Revenue Bonds is $1,293,000 in fiscal ycar 2000.The aver- $1,130,000 in 1998, $1,230,000 in 1999, $1,285,000 in 2000, and age interest rate on outstanding debt during fiscal year 1996 and $1,400,000 in 2001.The average interest rate on outstanding debt 1995 was 6.0E during fiscal year 1996 and 1995 was 5.8% and 6.1% respectively. During fiscal 1995, the Authority repurchased $340,000 of out-Aicad-Adelanto Pmject -To fmance the Authority's ownership inter-standing Hydroelectric Ibwer Project Revenue Ik>nds with excess est in the estimated cost of the project, $285,010,000 of the hiultiple funds in the Advance Ibyments Fund. Project Revenue Ikands were transferred to the Mead-Adelanto Project in October 1992. In March 1994, the Authority issued and Aitdtiple Pmject fund - To finance costs of construction and acqui-has outstanding $173,955,000 of Mead-Adelanto Revenue Bonds sition of ownership interests or capacity rights in one or more under an Indenture of Trust dated as of Janua y 1,1994 (Bond projects expected to be undertaken within five years after issuance, Indenture). The proceeds of the Revenue Bonds, together with the Authority issued Multi,0 = 'roject Revenue Bonds pursuant to drawdowns from the Debt Service Fund and Project Acquisition the Authority's Indenture a trust dated as of August 1,1989 (Bond Fund, were used to advance refund $178,310,000 of the hiultip:e Indenture), as amended and supplemented. Project Revenue Bonds previously transferred to the Mead-The Bond Indenture provides that the Revenue Bonds shall be Adelanto Project. special, limited obligations of the Authority payable solely from, The Bond Indenture provides that the Revenue Bonds shall be and secured solely by, (1) proceeds from the sale of bonds, (2) with special, limited obligations of the Authority payable solely from, respect to each authorized project, the revenues of such authorized and secured solely by,1) proceeds from the sale of bonds, (2) all project, and (3) all funds estabbshed by the 11ond Indenture. revenues, inwmes, rents and receipts attributable to Mead In October 1992, $103,640,000 and $285,010,000 of the Multiple Adelanto (see Note 6) and interest on all moneys or securities and Project Revenue Bonds were transferred to the Mead-Phoenix (3) all funds estabhshed by the Bond Indenture. Project and the Mead-Adelanto Project, respectively, to finance the At the option of the Authority, all outstanding Mead-Adelanto estimated costs of acquisition and construction of the projects. Revenue Bonds are subject to redemption prior to maturity. A total of $153,500,000 of the outstanding Multiple Project The Bond Indenture requires mandatory sinking fund install-Revenue Bonds are not subject to redemption prior to maturity. At ments to be made leginning in fiscal year 2018 for the 1995 Series the option of the Authonty, the balance of the outstanding bonds Bonds. The first scheduled principal maturity for the Mead-are subject to redemption prior to maturity. Adelanto Revenue Bonds is $3,560,000 in fiscal year 2000. The l The Bond Indenture requires mandatory sinking fund install-average interest rate on outstanding debt during fiscal year 1996 ments to be made beginning in fiscal year 2006 for the 1989 Series and 1995 was 5.9% and 6.0% respectively. Bonds. The first scheduled principal matutity for the Multiple Project Revenue Bonds is $8,645,000 in fiscal year 2000.The aver _ San Juan Pmject - To finance the costs of acquisition of an owner-age interest rate on outstanding debt during fiscal year 1996 and ship interest in Unit 3 of the SJCS, the Authority issued San Juan 1995 was 6.8% Project Revenue Bonds pursuant to the Authority's indenture of l Trust dated as of January 1,1993 (Bond Indenture). Mead-Phoenix Pmject-Ib f; nance the Authority's ownership inter-The Bond indenture provides that the Revenue Bonds shall be est in the estimated cost of the project, $103,640,000 of the Multiple special, limited obligations of the Authority payable solely from, Project Revenue Bonds were transferred to the Mead-Phoenix and secured solely by, (1) proceeds from the sale of bonds, (2) all Project in October 1992. In March 1994, the Authority issued and revenues, iricomes, rents and receipts attributable to San Juan (see has outstanding $51,835,000 of Mead-Phoenix Revenue Bonds Note 6) and interest on all moneys or securities and (3) all funds under an Indenture of Trust dated as of January 1,1994 (Bond established by the Bond indenture. l

At the option of the Authority, all outstanding San Juan Project interest on the bonds is payable from interest camed on invest-Revenue Ikinds are subject to redemption prior to maturity. ments with a financial institution under a specific investment The Bond Indenture requires mandatory sinking fund install-agreement purchased out of the proceeds of the sales and held in ments to be made beginning in fiscal. r 2012 for the 1993 Series bank escrow accounts. After the monies in the escrow accounts are A Bonds. The scheduled principal maturities for the San Juan apphed to redeem tt e bonds to be called, primarily through fiscal Project Revenue llonds during the five fiscal years following June 1997, interest on the bonds will be payable from revenues.The trust 30,1996 are $6,035,000 in 1998, $6,275,000 in 1999, $6,540,000 in account assets ($343,898,000 in escrow accounts and $2,410,000 in 2000 and $6,825,000 in 2001.The average interest rate on out-unamortized debt expense at June 30, 1996) and liabilities standing debt during fiscal year 1996 and 1995 was 5.35 ($347,388,000, net of bond discounts, at June 30,1996) for Component 3 are included in the Authority's financial statements. Refundmg ikmds - in April 1996, the Authority issued $152,905,000 The revenue bonds to be refunded are also included in the finan-of Ihlo Verde 1996 Subordinate Refunding Series A Bonds to cial statements until the scheduled call date, at which time the refund $163,355,000 of previously issued Iblo Verde 1987 refunded bonds and related trust account assets will be removed Refunding Series A Ik)nds and issued $58,870,000 of Ihlo Verde from the balance sheet and the cost of refunding the debt will be 1996 Sutordinate Refunding Series B Bonds to refund $18,555,000 included in unamortized debt expenses. and $40,315,000 of pnxiously issued Iblo Verde 1986 Refunding In January 1992, $70,680,000 of Iblo Verde Special Obligation Series B and 1987 Refunding Series A Bonds, respectively. The Crossover Series Bonds were issued, the proceeds of which were refunding is expected to reduce total debt senice payments o-r placed in an irrevocable trust and will be used to redeem the next 13 years by approximately $50,967,000 (the differene- $69,125,000 of bonds currently included within long term deb; at between the debt service payments on the old and new debt) scheduled call dates. and is expected to result in a net present value savings of approxi-Until the bonds to be refunded by the Iblo Verde Special mately $29,537,000. Obhgation Crossover Series Ilonds are called, interest on the Palo in hiarch 1994, the Authority issued $51,835,000 of hiead-Verde Special Ubligation Crossover Series Bonds is payable from Phoenix Project Revenue Bonds and $173,955,000 of hiead-interest eamed on securities of the United States Government pur-Adelanto Project Revenue Bonds to reftmd $243.150,000 of chased out of the proceeds of the sales and held in bank escrow previously issued hiultiple Project Revenue Bonds which were accounts. After the monies in the escrow accounts are applied to transferred to the hicad-Phoenix and hiead-Adelanto projects redeem the bonds to be called, primarily through 1996, interest on during fiscal year 1993.1he partial refunding of the original issue the Palo Verde Special Obligation Crossove. Series Bonds will be within five years ofits issuance triggered a recalculation of the arbi-payable from revenues.The trust account assets and the liability for trage yield. The recalculation resulted in a higher arbitrage yield the Palo Verde Special Obligation Crossover Series Bonds are not i which reduced the rebate liability of the Authority. At June 30, included in the Authority's financial statements. At June 30,1996 1996, cumulative savings due to the rebate calculation amounted to and 1995, $63,849,000 and $70,959,000, respectively, of these trust $6,401,924.This amount was alkicated $1,707,180 and $1,644,744 assets have been offset against the PaloVerde Special Obligation to the hicad-Phoenix and hiead-Adelanto Projects, respectively. Crossover Series Bonds. In July 1992, the Authority issued $175,000,000 of Southern On July 1,1995, the crossover date for the Iblo Verde Special Transmission Project Revenue Bonds to refund $385,365,000 of Obligation Bonds Series A, trust assets in eccrow of $7,131,000 previously issued bonds. Principal and interest with respect to the were used to advance refund $7,125,000 of previously issued 1992 hmds are aikicated into four separate components. Each of bonds. components 1,2 and 3 is secured by, and payable from, invest-At June 30,1996 and 1995, the aggregate amount of debt in all ments in its escrow fund until scheduled crossover dates. projects considered to be defcased was $3,535,075,000 and Component 4 proceeds of $14,100,000 were used to advance $3,305,725,000, respectively. refund approximately $9,000,000 of bonds in fiscal year 1993. On the Component 1 Crossover date Ganuary 1,1994), Component 1 Interest Rate Swap - In fiscal year 1991 ihe Authority entered into proceeds of $13,959,000 were used in fiscal 1994 to advance refund an Interest Rate Swap agreement with a third party for the purpose $13,455,000 of previously issued bonds. On the Component 2 of hedging against interest rate fluctuations arising from the Crossover date Canuary 1,1995), Component 2 proceeds of issuance of the Transmission Project Revenue Bonds,1991 $5,519,000 were used in fiscal 1995 to advance refund $5,335,000 Subordinate Refunding Series as variable rate obligations. The of previously issued bonds. Proceeds from Component 3 of notional amount of the Swap Agreement is equal to the par value i $343,921,000 were placed in an irrevocable trust and will be used of the bond ($291,700,000 and $292,000,000 at June 30,1996 and to redeem $313,050,000 of bonds currently included within long-1995, respectively). The Swap Agreement provides for the term debt at scheduled call dates. The combined refunding is Authority to make payments to the third party on a fixed rate basis expected to reduce total debt service payments over the next at 6.38% and for the third party to make reciprocal payments 25 years by approximately $52,585,000 and is expected to result in based on a vanable rate basis (3.1% and 3.9% at June 30,1996 and an overall net present value savings of approximately $25,060,000 1995, respectively).The bonds mature in 2019 Until the bonds to be refunded by Component 3 are called, 27 l t

COMfHNED SCHEDULE OF LONG-TERM DEllT AT JUNE 30,1996 On tiunaamM lhae Effwttw htatunty sm Pnyn1__ ofSale Inkmt Raw luly t lictal Principal. IbloWrde Pniect Revenue and Refundmg ikmds 1985A 05/22/85 9.7% 1996 to 1W9 1,070 1985B 07/02/85 91% 1996 to 2000 5,610 1986A 03/13/86 8.2% 1996 to 2(.Kb 71,220 1986B 12/16/86 7.2% 19% to 2017 %,450 1987A 02/11/87 6.9% 1996 to 2017 43,720 1989A 02/15/89 7.2% 1W6 to 2015 287,705 1W2A 01/01/92 6.0% 19% to 2010 7,2n5 1W2C 01/01/92 6.0% 1+6 to 2010 15,620 1W3Sub 03/01/93 5.5% 1996 to 2017 98,200 IW3A 03/01/93 5.5% 19% to 2017 270,035 1996A 02/13/96 4.4% 19% to 2017 152,905 19+ B 02/29/ % 4.4% 1W6 to 2017 58,870 1,108,670 SouthernTransmission System Pnvet Revenue and Refunding ikmds 1986A 03/18/86 8.0% 199n to 2021 107,300 1986B N/29/86 7J % 19% to 2023 401,570 1988A 11/22/88 7.2% 19% to 2015 154,085 IW1A 04/17/91 6.4% 2019 291,7tX) IW2 Comp 1,2,4 07/20/92 6.1% 199n to 2021 40,639 1992 Camp 3 07/20/92 6.1% 19% to 2021 431,766 1993A 07/01/93 5.4% 19% to 2023 125,865 1,552,925 lloover Uprating Ihicct Revenue and Refundmg ikmds 1986A 08/13'86 8.1% 1996 to 2017 4.1no 1991 08/01/91 6.2% 19% to 2017 31,495 35,655 Multiple Ihicct Revenue ik ods Mead-Phoenix Ihject 1989 01/04/90 7.1% 19W to 2020 38,800 Mead-Adelanto lhyect 1989 Ol/N/90 7.1% 19W to 2020 106,700 MulnpleIhvrt. 1989 01/N!90 71% 1999 to 2020 259.100 4N,600 Mead Phoerux Pniect Revenue ikinds 1994A 03/01/94 53% 200n to 2015 51,ftL5 Mead -Adelanto Project Revenue Ikinds 1W4A 03/01/94 53% 2006 to 2015 173,955 San Juan Pnject Revenue ikinds 1W3 06/01/93 5.6% 1997 to 2020 237,375 Total pnncipal amount 3,565,015 Unamortized tund discount: IbloWrde fhicct (101,823) SouthernTransmission System Prtiect (159,935) licover Uprating th ect (3,589) 9 Mead Phoenix Ikiprt (4,218) Mead Adelanto Pniect (12,f60) Multiple Ikiect Fund (16,313) San Juan Project (8fW) Total unanvrtized tond discount (307,427) long term debt due within one par _g3,655) Ltal long-term debt, net (including Sulurdmate Refunding Crossover Series) $ 3,213.933 Me Imk u4mh haw Im niumkl aw racludedpom the nkiule

f Note 5 - Disdosures about Fair Value of Financial Instruments: for their proportionate share of operating and maintenance l %e following methods and assumptions were used to estimate the expenses and debt service onTransmission Project Revenue Bonds i fair value of each class of financial instruments for which it is prac-and other debt.The contracts expire in 2027 and, as long as any ticable to estimate that value: Transmission Project Revenue Bonds are outstanding, cannot be terminated or amended in any manner which will impair or Cash and cash equivalents -The carrying value approximates fair adversely affect the rights of the bondholders. value because of the short maturity of those instruments. In March 1986, the Authority entered into power sales contracts Im'estments/Demininissioning fund / Escrow acmunt - Subordinate with six participants of the Hoover Uprating Project (see Note 1). Refunding Cnssowr Scries/Cmssowr escrow aavunts -%e fair values Under the terms of the contracts, the participants are entitled to of investments are estimated based on quoted market prices for the c pacity and associated firm energy of the Hoover Uprating Project same or similar investments. and are obligated to make payments on a"take or pay" basis for their proportionate share of operating and maintenance expenses long-term debt /Special OHigation Cmssoocr Series Bonds / Subordinate and debt service whether or not the Hoover Uprating Project or Refunding Crossowr Series -The fair value of the Authority's debt is any part thereof has been cernpleted, is operating or is operable, or estimated based on the quoted market prices for the same or sim-its senice is suspended, interfered with, reduced or cudailed or ter-ilar issues or on the current average rates offered to the Authority minated in whole or in part.The contracts expire in 2018, and as for debt of approximately the same remaining maturities, net of the long as any Hydroelectric Ibwer Project Revenue Bonds are out-effect of a related interest rate swap agreement. standing cannot be terminated or amended in any manner which ne fair values of the Authority's financial instruments are as willimpair or adversely affect the rights of the bondholders. follows (in thousands): In August 1992, the Authority entered into transmission senice contracts with nine participants of the Mead-Phoenix Project (see ML-Note 1). Under the terms of the contracts, the participants are enti-tied to transmission senice utilizing the Mead-Phoenix Project and Amed Fe Amed Fe c-w cm w are obligated to make payments on a"take or pay" basis for their proportionate share of operating and maintenance expenses and C sh and cash equwalents $ 173,7W $ 173.798 $ 120,610 $ 120.610 Esen= acmunt - debt service on the Multiple Project and Mead-Phoenix Revenue suhmhnate Retunamg Bonds and other debt, whether or not the Mead-Phoenix Project m1 kI7 r any part thereof has been completed, is operating and operable, una o inwstments 597,831 597A27 681916 MIM or its senice is suspended, interfered with, reduced or curtailed or terminated in whole or in part.Be contracts expire in 2030 and, as Da 1 910,200 3.2ta790 19n2ol 3.1w.sm long as any Multiple Project and Mead-Phoenix Revenue Bonds suhnainate Refunding are outstanding, cannot be terminated or amended in any manner cn-ms senes 347,3m 38s.s16 347.782 377.70 Md k & MW k d dbWMk of r,alam sint rmannal In August 1992, the Authority entered into transmission service (, contracts with nine participants of the Mead-Adelanto Project cn-ms snanas 63Als 67.739 7anso 7s.soo (see Note 1). Under the terms of the contracts, the participants are oosamy en-acmunes 63 m 6a m 7avs9 7avs* entitled to transmission senice utilizing the Mead-Adelanto Project and are obligated to make payments on a"take or pay" basis for their proportionate share of operating and maintenance Note O - Power $ ales and Transmisdon Serv 6ce Contracts: expenses and debt senice on the Multiple Project and Mead-The Authority has power sales contracts with ten participants of Adelanto Revenue Bonds and other debt, whether or not the the IbloVerde Project (see Note 1). Under the terms of the con-Mead-Adelanto Project or any part hereof has been completed, is tracts, the participants are entith'd to power output from the operating and operable, or its serv. e is suspended, interfered with, PVNGS and are obligated to make payments on a *take or pay" reduced or curtaik>d or terminated in whole or in part.The con-basis for their proportionate share of operating and maintenance tracts expire in 2030 and, as long as any Multiple Project expenses and debt senice on Ibwer Project Revenue Bonds and and Mead-Adelanto Revenue Bonds are outstanding, cannot be other debt.%e contracts expire in 2030 and, as long as any Ibwer terminated or amended in any manner which will impair or Project Revenue Ikands are outstanding, cannot be terminated or adversely affect the rights of the bondholders. amended in any manner which will impair or adversely affect the In January 1993, the Authority entered into power sales rights of the bondholders. contracts with five participants of Unit 3 of the San Juan Project The Authority has transmission senice contracts with six partic-(see Note 1). Under the terms of the contracts, the panicipants are j ipants of the SouthemTransmission System Project (see Note 1). entitled to their proportionate share of the power output of the l Under the terms of the contracts, the participants are entitk d to San Juan Project and are obligated to make payments on a"take or transmission senice utilizing the Southern Transmission System pay" basis for their proportionate share of operating and mainte-Project and are obligated to make payments on a*take or pay" basis nance expenses and debt senice on the San Juan Revenue Ikinds, a

whether or not Unit 3 of the San Juan Project er any part thereof is system established by the legislation.The Bill also mandates the operating or operable, or its senice is suspende( interfered with, collection of a public benefit charge from all electric utility reduced or curtailed or terminated in whole or 5 part.The con-customers in the state. Although these funds (currently estimated tracts expire in 2030 and, as long as any San Juan Revenue Bonds at 2.5% of gross revenues) must be spent on renewable resources, are outstanding, cannot be tenninated or amended in any manner conservation, research and development, or low income rate which will impair or adversely affect the rights of the bondholders. subsidies, the governing authority of each consumer-owned utility will control actual expenditures. As e participant in the ITNGS, the Authority could be subject Mste 7 - Costs RecoveraNe from Future Bemngs to Part6c6 pants: to assest ment of retroactive insurance premium adjustments in the Billings to participants are designed to recover" costs"as defined event of a nuclear incident at the IVNGS or at any other licensed by the power sales and transmission senice agreements. The reactor i, the United States. billings are structured to systematically provide for debt senice The \\uthority is involved in various legal actions. In the requirements, operating funds and reserves in accordance with opinior. of management, the outcome of such litigation or claims these agreements.Those expenses, according to generally accepted will not have a material effect on the financial position of the accounting principles (GAAP), which are not included as Authority or the respective separate projects. " costs"are deferred to such periods when it is intended that they be recovered through billings for the repayment of principal on related debt. Note 9 - Sutasequent Events: Costs recoverable from future billings to participants are On July 1,1996, the crossover date for the Iblo Verde Special comprised of the following-Obligation Bonds Series B, trust assets held in escrow of $63,415,000 were used to advance refund $62,000,000 of presiously ["E issued bonds. '+^ ^M 1** In August 1996, the Authority issued $89,570,000 of IhloVerde c.w aems not included in 1946 Subordinate Refunding Series C bonds to refund $95,015,000 Y>$r nt $ 348.328 $ 49.323 $ 397.esi of 1986 Refunding Series B bonds.The refunding is expected to o Amortuation of bond discount, reduce total debt service payments over the next 20 years &hsue coMs, ana aet by approximately $24,713,000 (the difference between the debt refundmg 206.470 37,74s 244,215 %,,ug,,nonyonon 33,33o 393 3y,343 service payments on the old and new debt) and is expected to twomn-oning even,e 75.233 7,610 82.8u result in a net present value savings of approximately $16,955,000. Interest evense 23.16s 22.798 4s*3 In September 1996, the Authority issued $42,245,000 of nona requin ments inauded in hihng Transmission Project Revenue Bonds,1996 Subordinate Refunding to W"'"rdnt$: Series A and $121,065,000 ofTransmission Project Revenue Bonds, tin ItN[ 1996 Subordinate Refunding Series B to refund $68,720,000 and is7,2sa) <2 30) <88.315) cmts or a<quisienin of capacity. s1s (18.aso) (18.380) $127,100,000 of the STS 1986 Refunding Series A and B, respec-Reducnon in debt sen,we NihnP tively. The refunding is expected to reduce total debt senice due to transter of ewess fund, 78.ess (11.0w) 67.559 Pnnapal repayments (222.130) 0 9.559) (261.e,89) payments over the next 10 years by approximately $6,029,000 mer 0 1.740) n8ss) os.s98) (the ditference between the debt senice payments on the old and sanam 5 42w s 4sa.827 new debt) and is expected to result in a net present value savings of approximately $3,372,000. Nste 8 - Commitments and Contingencies: On August 31,1996, the California State Legislature approved Bill AB 1840 (Bill) which provides for broad deregulation of the power generation industry in California. The Bill, which is pending approval by the Govemor, requires the participation of the state's three investor-owned utilities. Consumer-ownel utilities can participate on a voluntary basis but must hold ru.atic hearings as part of its decision making pmcess.'Ihe Bill, which was supported by the Authority, authorizes the collection of a transition charge for generation when a consumer-owned utility opens its senice area to competition and participates in the independent transmission 3e u

SOUTHERN CALIFORNIA PUllLIC POWER AUTHORITY SUPPLEMENTAL FINANCIAL INFORMATION INDEX Paloyenie Pmjut Supplemental Balance Sheet at June 30,1996 and 1995 Supplemental Statement of Operations for theYears Ended June 30,1996 and 1995 Supplemental Statement of Cash Flows for theYears Ended June 30,1996 and 1995 Supplemental Schedule of Receipts and Disbursements in Funds Required by the Bond Indenture for theYear Ended June 30,1996 Southern Transmission Syst_em_P_mject Supplemental Balance Sheet at June 30,1996 and 1995 Supplemental Statement of Operations for theYears Ended June 30,1996 and 1995 Supplemental Statement of Cash Flows for theYears Ended June 30,1996 and 1995 Supplemental Schedule of Receipts and Disbursements in Funds Requimd by the Bond Indenture for theYear Ended June 30,1996 Hoover Uprating Pmject Supplemental Balance Sheet at June 30,1996 and 1995 Supplemental Statement of Operations for theYears Ended June 30,1996 and 1995 Supplemental Statement of Cash Flows for theYears Ended June 30,1996 and 1995 Supplemental Schedule of Receipts and Disbursements in Funds Requimd by the Bond Indenture for theYear Ended June 30,1996 Mead-Phoenix Project Supplemental Balance Sheet at June 30,1996 and 1995 Supplemental Statement of Operations for theThree Months Ended June 30,1996 Supplemental Statement of Cash Flows for theYears Ended June 30,1996 and 1995 Supplemental Schedule of Receipts and Disbursements in Funds Required by the Bond Indenture for theYear Ended June 30,1996 Head-Adelanto Project Supplemental Balance Sheet at June 30,1996 and 1995 Supplemental Statement of Operations for theThree Months Ended June 30,1996 Supplemental Statement of Cash Flows for theYears Ended June 30,1996 and 1995 Supplemental Schedule of Receipts and Disbursements in Funds Required by the Bond indenture for theYear Ended June 30,19% M*i MPmjec! Fund P Supplemental Balance Sheet at June 30,1996 and 1995 Supplemental Statement of Cash Flows for theYears Ended June 30,1996 and 1995 Supplemental Schedule of Receipts and Disbursements in Funds Required by the Bond Indenture for theYear Ended June 30,1996 S*"Ju'a Pai"? Supplemental Balance Sheet at June 30,1996 and 1995 Supplemental Statement of Operations for theYears Ended June 30,1996 and 1995 Supplemental Statement of Cash Flows for theYears Ended June 30,1996 and 1995 Supplemental Schedule of Receipts and Disbursements in Funds Required by the Bond Indenture for theYear Ended June 30,1996

~ 7 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY PALO VERDE PROJECT SUPPLEMENTAL DALANCE SHEET Un slumsamM lurr 30, 19 % 1995 ASSETS Utility plant: ~ IWuctum 613,608 $ 611,771 Trannisskm 14,146 14,146 C'mai 2,569 2,574 630,323 628,491 less - Accumulated depreciatam _ 250,021 219,881 380,302 408,610 Construction work in progress 9,503 9m Nuclear fuel, at amortized cmt 13,225

123, Net utihty plant.

403,030 0 009 Speaal funds: Available for sale at fair value: Deannmissaming fund 33,474 24,503 investments 115,746 143,6(X) Interest nuwable 1,512 1,223 Cash and cash equivalents 67,879 49,354 218,611 218,680 Accounts reawable - 738 912 Materials and supples 9.240 9.618 Costs rearwrable from future billings to pa +iapants 204,945 197,515 Unrealized km on investments in furkis available fm sale 456 226 Unamortized debt expenses, kss accumulated amortuatkm of $65,7/5 and $71,525 204.693 2W740 Total awts $ 1.041,713 $ 1,067,700 UABIUTIES Long-term debt 981,155 996,390 Current liabilitas: e Long term debt due within one year 25,640 23,855 Accrued interest 24,535 30,te5 Accounts payable and aarued expenses 10,333 16,770 Total ament habilites 60,558 71,310 Gunmitments and contingennes Total habilitics $ j,o41,7j 3 $ j,gg7,7ggj f su me nifinamut aawrna 32 s

$0UTHERN CALIFOHNIA PUBLIC POWER AUTHORIT a PALO VERDE PROJECT $UPPLEMENTAL STATEMENT OF OPERATIONS Un tinumnds) kur EndedJune X 29 % 1995 O}vrating revenue: Sales of electric energy. 135,464 e 129,180 Operating expenses Nuclear fuel 7,949 8,150 Other operations 25,815 25,307 Maintenance 6.317 7,825 Depreciaton. 18,425 19,145 Decornmissioning 12,497 13,401 Totaloperatmgexpenses. 71,003 73,828 Operating income 64,461 55,352 Investment income 10,886 9,968 Income before debt expense 75,347 65,320 Debt expense 82,777 Te,976 Costs renwerable from future bilbngs to participants ($ 7.430) ($ 12.656) sv rees wfinamulstatements L

r. SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY PALO VERDE PROJECT SUPPLEMENTAL STATEMENT OF CASH FLOWS Un tiummmis) Wav Tmk1Iwr 30. 29 % 1995 Cash fknvs from operating activities: Costs recoverable from future bilhngs to participants ($ 7,430) ($ 12,656) Adjustments to amve at net cash pnwided by (used for) operating actnities - Depreciation. 18,425 19,145 Decommissioning 12,497 13,401 Amortization of nuclear fuel 7,949 8,150 Amortization of debt costs. 24,428 16,607 Changes in assets and habibties: Decommissioning fund (8,971) (1,297) Interest receivable (289) 127 Accounts receivable 174 131 Materials and supphes 378 729 Other assets 55 (2) Acaued interest (6,150) (71 9) Accounts payable and accrued expenses (6,437) 3,241 Net cash provided by operatmg activities. 34,629 46,857 Cash flows from investing actrvities: Ibunents for construction of facihty (10,892) (9,569) Purchases ofinvestments (154,685) (97,108) Proweds from sale /matunty of investments 182,309 68,891 Net cash provided by (used for) mvestmg activities. 16,732 (37,786) Cash flcus from capital and related financing activities: Ibyment of prinapal on long-term debt (23,855) (22,425) Ibyment of bond issue cmts (4,832) Payment for defeasance of revenue bonda (233,632) Proceeds from issuance of refunding bonds 229,483 Net cash used for capital and related fmancing activities (32,836) (22.425) Net increase (decrease) in cash and cash equivalents. 18,525 (13,354) Cash and cash equivalents at beginnirg of period 49.354 62,708 Cash and cash equivalents at end of year 67,879 49.354 Suhleniental disclosure of cash flow information: Cash paid dunng the year for interest (net of amount capitalized) 64.499 62.089 Su mses efirummtistatnnwnts. s 14

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY PALO VERDE PROJECT SUPPLEMENTAL SCHIDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE f OR THE YEAR ENDED JUNE 30.1996 Un enouatmis) Ekunnmm-Debt Rewroe & sunning Serne Revenue Qemhng Cemhrn:emy issue Timds fund Tund Eurul Fund fund I& ll Total Balance at June 30,1995 $ 132,133 - $ 30,948 $ 16,574 5 12,482 $ 24,490 $ 216,627 Additions: Investment earnings 4,409 31 83t 1,100 616 749 7,739 Distribution of investment earnings. (5,734) 8,604 (1,213) (1,000) (657) Discount on investment purthases 1,971 3 513 336 41 423 3,287 Revenue from power sales 49 129,180 37 6 129,272 Distribution of revenues 81,922 (138,843) 39,603 3,989 5,325 8,004 Transfers to escrow for refundings. (10,413) 78 (93) (2,886) 4D16 (9,268) Transfer from escrow for pnncipal and interest payments 379A34 951 (11,067) 10481 380,0W Total 451 A_38 4 28,614 12,126 9,371 9,176 511,129 Deductions: Construction expenditures 3,0tK) 3,060 Operating expenditures. 31,041 5 31,046 Fuelcosts. 8.457 8,457 Bond issue costs 3,173 3,173 Ihment of pnncipal 23,855 23,855 Interest paid 55,130 5,663 60,793 Prenuum and intenst paid on investments 202 115 58 131 506 f4 ment of principal and interest on escrow twods 380,099 380,099 Total 459,286 39,613 3,118 8A36 136 510,989 Balance at June 30,1996 $ 124.685 4 $ 19.949 $ 25.582 $ 13.017 $ 33.530 $ 216.767 1his schedule summanzes the receipts and disbursements in funds required under the Bemd Indmture and has been prepared from the trust statements.Tbc balances in the funds consist of cash and investments at onginal cost.These balances do not include accrued interest receivable of $1,245 and $1,223 and Decommissioning Fund accrued interest receivable of $267 and $138 at June 30,1996 and 1995, respectively, nor do they inchide total amortized net investment discounts of $788 and $918 at June 30,1996 and 1995, respectively.These balances also do not include unreahzed kwa on investments in funds available for sale of $456 and $226 at June 30,1996 and 1995, respectrvely.

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SOUTHERN TRANSMisslON SYSTEM PROJECT $UPPLEMENTAL BALANCE $HEET Un alwuwmM lue 30, 1946 1995 ASSETS btihty plant-Transmission 674,606 $ 675,301 General 18,893 18,893 693,499 694,194 Less - Accumulated depreciation _ 194,127 174,392 499,372 519,802 Constructwn work in progress 1,212 Net utihty plant, 499,372 521,014 Special funds: Available for sale at fair value: Inwstments 102,842 144476 Escrow account - Subordinate Refunding Cnssover Series M3,898 343,921 Advarte to Intermountain Ibwer Agency. 19,550 19,550 Interest receivable 2,169 1,Ml7 Cash and cash equivalents 90.324 54678 558,783 564,432 Acrounts receivable. 2,687 2.469 Costs recoverable from future bilhngs to participants 203,787 183,154 Unrealized loss on investments in funds available for sale 2,865 1,897 Unamortmed debt expenses, less accumulated amortization of $59,752 and $51,415 1e4247 172,780 Total assets $ 1,431.741 $ 1,445,746 UABlWTIES long term debt $ 1,034,757 $ 1,042,002 Subordinate Refunding Cnmover Series 347,388 347,782 Cunent liabihties; long tern debt due within one year 10,845 11325 Accrued interest 38,436 39,379 Accounts payable and accrued expenses 315 2,258 liital current habilities. 49,546 55,962 Commitments and contingtmcies. lotal habihties $ 1.43: 741 $ 1,445,746 Ser mes efinamulstatewnt. 36

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SOUTHERN TRANSMISSION $YSTEM PROJECT SUPPLEMENTAL STATEMENT OF OPERATIONS (in th<msamM Year EmkdIww 30, 1996 1995 Operating revenue: Sales of transmission viervices 85,297 91,250 Operating expenses: Other operations 10,192 11,839 Maintenance 5,2 % 4,498 Depreciation. 20,329 14,735 Totaloperatingexpenses. 35,757 36,072 Operating income 49,540 55,178 investment income 28,993 30,085 Income before debt expense 78,533 85,263 Debt expense 99,166 99,823 Costs recoverabic from future bilhngs to participants. ($ 20,633) ($ 14.560) S., mes efnwuol st<awnts.

SOUTHERN CALIFORNIA PUBLIC PCWER AUTHORITY SOUTHERN TRAN5Ml15 TON SYSTEM PROJECT $UPPLEMENTAL STAYLMENT OF CASH FLOWS Gn thousands) kw Ended June 30. 19 % 1995 Cash flows from operating acuvibes: Costs recoverable from future billings to participants ($ 20,633) ($ 14.560) Adjustments to arnve at net cash provided by (used for) operabng activities - Depreciation. 20,329 19,735 Amortization of debt custs. 11,739 11,545 Write-off of construction work in progress costs 1.313 Changes in assets and liabilities: Interest receinble (362) 315 Accounts receivable (218) 1,940 Other assets 17 Accrued interest (943) 10,773 Accounts payable and accrued expenses (1,943) (268) Net cash proviJed by operating actmtics. 9,282 29,497 Cash flows from investing acbvities: l'hyments for construction of facility (315) Purchases of investments (154,904) (94,425) Proceeds from sale /matunty of investments 195.593 90,462 Net cash provided by (used for) investing actmties 40,689 (4,278) Cash fkavs from capital and wlated financing acbvibes: Ihyment for defcasance of revenue bonds (5,479) Repayment of principal on long-term debt. (14,325) (13 615) Net cash used for capital and related financing actmties (14,325) (19,094) Net increase in cash and cash equivalents 35,646 6,125 Cash and cash equrvalents at beginning of year 54,678 48,553 Cash and cash equivalents at end of par 90.324 54.678 Supplemental disclosure of cash flow information: Cash paid during the year for interest (net of amount capital zed) 88.370 96.072 Siv m*s kifmunlalstahwarnfs, l 38

50UTHERN CALIFORNIA PUllLIC POWER AUTHORITY $0UTHERN TRANSMISSION SYSTEM PROj[CT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE 110ND INDENTURE FOR THE YEAR ENDED JUNE 30,1996 Un thousands) Constratwn Fund-Instml Drbt Ceneral Taahrws Sense Opmating Reserw lasue hcrow Aumnt fund fund Fund Tund fund 3btal Balance at june 30,1995 222 $ 105,959 e,022 $ 9,460 $ 77_128 $ 343,869 $ 542,660 Additicms: Investment camings 12 6,485 463 635 3,102 18,567 29,264 Distributun ofinvestment carrungs. (5,710) 9,408 (596) 6,182 (9,284) Revenue from transmission saks 83,953 83,953 Distribution of revenue 42,530 (78,891) (5,303) 50,942 (9,278) Transfer from escrow for principal and interest payments 12,911 12,911 Total 12 56,216 14,933 (3d6j) 60,226 5 126,128 Deductions: Operating expenses, 14,904 14,904 Thyment of pnncipal 14,325 14,325 Interest paid 41,576 19,286 60,862 [hyment of principal and interest on escrow bonds 12,921 26,575 39,496 lhemium and interest paid on inwstment purchases 1,267 39 1,306 Other 949 949 Total 55,764 14,904 39 61,135 131,842 Balance at June 30,1996 234 $ 106.411 6.051 4.157 $ 76,219 $ 343.874 $ 5%946 This schedule summarizes the receipts and disbursements in funds nx[uired unJer the Bond Indenture and has been prepared from the tnist statements.The balances in the funds consist of cash and investments at ongnal cost.These balances do not include accrued interest receivable of $2,169 and $1.807 at Junr 30, Iw6 and 1995, respect wly. nor do they indude total amortized net inwstment discounts of $2,983 and $2,312 at June 30,19% and 1995, respectiwly.These balances do not indude 2nrealim! kms on investments in funds available for sale of $2,865 and $1,897 at June 30,19% and 1995, respectively L

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY HOOVER UPRATING PROJECT $UPPLEMENTAL DALANCE SHEET Un thmwnds) fww 3(1 19 % 1995 ASSETS ipecial funds: C hwestments available for sale at fair value. 9,628 7,653 Advances for capacity and energy, net. 10,119 11,903 Intenst receivable 6 26 Cash and cash equivalents 1.997 2,745 21750 22,327 Accounts receivable. 19 Costs recoveraNe from future bilhngs to partiapants 7,538 7,299 Unrealized loss on investments in funds avadable for sale 3 Ig ) Unamoitized debt expenses, less accumulated amoruzation of $937 and $795 3,307 3.512 Total assets 32.617 33.156 LIABIUTIES Long term debt 30,931 31.977 Current liabibries: Long-term debt due within one year 1,085 610 Accrued interest 489 500 Accounts payable and accrued expenses 62 69 Total current habihhes. 1.636 1.179 Comnutments and contmgencies. Total habihties 32.617 33.156 Ser mm w(man,al stawments. \\ SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY HOOVER UPRATING PROJECT SUPPLEMENTAL STATEMENT OF OPERATIONS Un unmsanda ymr EruledIww 30. 3 Wei IWS Operanng revenue: Sales of electne enerU 3,349 3,569 Operaung expertses: Capacity charges. 1,011 1,207 Energy charges 844 832 Other optsatrins 342 M Reimbursement of advances for capacity and energ 3 12 Total operating expenses - 2,200 1411 Operabng income 1,149 1,158 investment inctwne 874 514 Income before debt expense 2.023 1,672 Debt expense 2.262 2,310 Costs recoverable trom future bilhngs to partupants. ($ 239) ($ 638) See mm wjfnam,al s+awmeras 40

50UTHERN CALIFORNIA PUBLIC POWER AUTHORITY HOOVT.R UPRATING PROJECT $UPPLEMENTAL STATEMENT OF CASH FLOWS On dwusamts) Year Duted June 30, 79 % 1995 Cash dows fnnn operating activities: Costs recoverable from future bi&ngs to participants ($ 239) ($ 638) Ad ustments to anive at net cash used for operating actmties: i Anuxtzation of debt costs. 294 288 Changes in assets and liabilities: Interest receivable 20 Accounts receivable (19) 54 Other assets 21 Accrued interest (11) (18) Accounts payable and accrued expenses g) (594) Net cash provided by (used) for operating activities 38 (H87) Cash flows from investing activities: Purchases of investments (22,665) (11,546) Proceeds from sale / maturity ofinvestments 20,705 9,491 Advances for capacity and energy, net 1,7M 1,415 Net cash used for investmg activities. (176) (640) Cash Dows from capital and related financing actrvities: Payment for defeasance of revenue bonds (319) Repayment of pnncipal on long-tenn debt. (610) (860) Net cash used for capital and related financing activities (610) (1,179) Net decrease in cash and cash equivalents (748) (2.706) Cash and cash equivalents at beginnmg of year 2,745 5,451 Cash and cash equivalents at end of year 1.997 2,745 Supplemental disclosure of cash Smv informatioir Cash paid during year for interest (net of amount capitahzed) 1,978 2.039 kr now sofimmaalstaarmens

I $0UTHERN CALIFORNIA PUBLIC POWER AUTHORITY HOOVER UPRATING PROJECT SUPPLEMENTAL SCHEDULL OF RECEIPT $ AND DISBURSEMENTS IN FUNDS REQUIRED HY THE HOND INDENTURE FOR THE YEAft ENDED JUNE 30,1996 Gn themsands) Debt Ahum Wimg Debt Smw Genem! nayum% Ogwmtung Rnwnue Captal Smme Resme Fesme Tumi fund fumi _ f_umi Aumnt Awunt Anmnt blal Balanw at June 30,1WS $ 2A10 $ 560 $ 1.435 3,083 2,876 $ 10,364 Additions: Investment earnings 16 2 2 29 33 152 3 237 Distribution of investment earnings 193 (2) 256 (29) (90) (115) (213) Discount on investment purchases 85 43 289 211 628 Revenue from power sales 3,330 3,330 Dictribution of revenues 165 (3,342) 3,177 Transfer from escrow for principal and interest payments (2,393) 147 (251) 2,433 2,382 2,318 Twal (2,0w) 355 {5) 5,842 37 2,383 6.513 Deductions: Advances for capacity :.ad energy 75 75 lbyment of pnncipal 610 610 Adrninustrative expenditures 236 117 (5) 348 Interest paid 1,478 1,978 Premium on investment purchases 37 37 Payment of pnncipal and interest on et. crow bonds 2,318 2,318 lotal 311 117 _g) 4,906 37 5,366 Balance at June 30,1996 238 $ 560 $ 2.371 3.083 5.259 $ 11.511 Ris rchedule surrunanzes the receipts and da,bursements in funds ruluired under the bond Indenture and has been prepared from the trust statements The balances in the funds runstst d ccsh and investments at onpnal ca:,t These balances do not include accrued interest receivable of $6 and $26 at June 30,1996 and 1W5, respciwely, nor do they include total amtutu.td net investment discount of $117 and $52 at June 30,1Wo rid 1WS, respectively Rese balances also do not include unrealmd loss on investments in funds available for sale of $3 and $18 at June 30,1W6 and 1995, respectrvely. i I I

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MEAD-PHOENIX PROJECT SUPPLEMENTAL BALANCE SHEET Que thousarkts) lurr 30. 1996 1995 Af. SETS Utihty plant: Transmission 48,307 General 1,971 50,278 Less: Accumulated depreciation 846 49,432 Construction work in progress 3,116 39,179 Net utility plant. 52,548 39,179 Special funds: Investments available for sale at fair value. 21,591 32,759 Interest rewivable 841 1,246 Cash and cash equivalents 1.548 1,280 23,980 35,285 Accounts receivable. 1,750 1,463 Costs recoverable from future bilhngs to participants 1,394 Unrealized kas on investments in funds available for sale. 9 51 Pnpaid expense 26 2,003 Unamortized debt expenses,less accumulated amortization of $1,297 and $736. 9,888 10,408 Total assets 89.595 88.889 LIABILITIES Long-term debt 86,417 86,267 Current habihties: Accnwd interest 2.588 2.588 Accounts payable. 590 34 Total current liabihtws. 3,178 2,622 Commitments and contingencies. Total liabihties 89.595 88.889 ser mes efinaeualstaavneira

SOUTHERN CAUFORNIA PUI1LIC POWER AUTHORITY MEAD-PHOENIX PROJECT SUPPLEMENTAL STATEMENT OF OPERATIONS THREE MONTH 5 ENDED JUNE 30,1996* On tlumsan M Operating revenue: Sales of transmission services 226 Operating expenses: Other operatums 213 Maintenance 13 Depreciation 342 Total operating expertses 568 Operattng loss (342) Investment inanne 410 income before debt expense 68 Debt expense. 1,462 Osts recoverable from future bilhngs to participants (5 1.394) Ser mes n>financwlstaterenu "Operatons comnumced April 19% l l l l e_---_-________------__-___-_-___-_---__--_----_.

$0UTHERN CALIFORNIA PUBLIC POWER AUTHORITY MEAD-PHOENIX PROJECT $UPPLEMENTAL $TATEMENT OF CASH FLOWS Un alwusands) War EndedJune 30. 29 % 1995 Cash flows from operatmg activities: Cost recoverable frcan future bilhngs to participants ($ 1,394) Adjustments to arnve at net cash provided by (used for) operating actrvities. Depreciation. 342 Amortizatxm of debt costs. 167 Changes in as,ets and liabilities: Interest receivable 405 Accounts receivable 213 Other assets 1,977 Accounts payable 556 Net cash provided by operating activities. 2,266 Cash flows from investing activities; Interest received on irwestments - 4,251 lbyments for construction of facility (13,208) (21,310) Purchases of investments (3,264) (2,725) Proceeds from sale / maturity of inwstments 14,474 26,078 Reimbursement fromWAPA. 83 Net cash (used for) provided by investing actnities. (1,998) 6,377 Cash Hows from capital and related financing activities: Ibyrnent c4inten st on long-term debt. (5,093) Payment fur bond issue costs (9) Net cash used for capital and related financing activities (5,102) Net increase in cash and cash equivalents 268 1,275 Cash and cash equivalents at beginning of par 1,280 5 Cash and cash equivalents at end of year 1.548 1.280 Supplemental disclosure of cash now information: Cash paid during the period for interest (net of amount capitalized) Seerum wJinandstanwnw

SOUTHERN CAUFORNIA PUBLIC POWER AUTHORITY MEAD-PHOENIX PROJECT $UPPLEMENTAL SCHEDULE OF RECEIPTS AND Di$BURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30,1996 On tlumsank L%t ikbt Servue Agusunon Servur Rem w Parnue twur Operanng Anmnt Arount humnt fund Fund fund Total Balance at June 30,1995 $ 18,972 4,288 5,916 4,994 - $ 34,170 Addithms: Investment earnings 1,564 286 435 2 154 2,441 Transfer of investments 435 (435) ) Reimbursement from WAl% 80 80 Transnussion rewnue. 360 360 Transfer of monthly transmission cmts (297) 297 Total 1,644 721 65 154 297 2,881 Deductions: Construction expenditures 8,536 8,536 Interest paid 2,642 2,534 5,176 J'remium and interest paid m inwstment purchases 89 89 Operating expenses. 60 60 Total 8,536 2,642 2,62 60 13,861 Dalance at June 30,19% $ 12,080 2,367 5,916 65 $ 2,525 237 $ 23,190 11us scheoule summani.es the receipts and disbunements in funds required under the Ikmd Indenture and has twn prepared frorn the trust statements'the balances in the funds coast of cash and investments at onginal cmt.1 hew balances dn not include acaued interest receivable of $N1 and $1,246 at June 30,1996 and 1995, respectively, nor do they include total amortized net investment pnmuums of $42 and $80 at June 30,19% and 1995, respectmly These balarum do not indude unmalized kms on investrnents in funds available for sale of $9 and $51 at June 30,19% and 1995, respectmly. i

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MEAD-ADELANTO PROJECT SUPPLEMENTAL HALANCE SHEET on tlwusands) fune 30, 1996 1995 _ _ ASSETS Utihty plant: Transmission 171,068 General 164 171,232 less: Accumulated depredation 1,255 Construction work in progress $ 154,011 Net utility plant. 169,977 154,011 Special funds: Investments available for sale at fair value. 62,562 76,235 Interest receivable 2,285 2,976 Cash and cash equivalents 4,504 4,279 69,351 83,490 Accounts receivable. 4,74 1 4,669 Costs recoverable from future billings to participants 4,383 Unrealized km on investments in funds available for sale. 28 171 Prepaid expense 66 3,533 Unamortized debt expenses, less accurnulated amortiz.atum of $3,582 and $2,098 28,123 29,607 Total assets 276.669 $ 275,481 LIABILITIES Long-term debt 268,005 $ 267,561 Current liahhties: Accrued interest 7,884 7,885 Accounts payable. 780 35 Total cunent liabihties - 8,664 7,920 Commitments and contmr.cies. Total habihties 276.669 5 275.481 Ser mes a>)inanaalstan~nents 47

o / $OUTHERN CALIFORNIA PULLIC POWER AUTHORITY MEAD-ADELANTO PROJECT SUPPLEMENTAL STATEMENT OF OPERAYlONS THREE MONTHS ENDED JUNE 30,1996* Un koands) Operating revenue: Sales of transmission semces 172 Operating expenses: Other operations 145 Maintenance 27 E reciation 1,132 T Total operating expenses 3,304 Operating kas _33g) Investment income 1,174 Income hare debt expense 42 Debt erw. 4.42' Ce is recoverable from future billings to participants ($ 4,383) Sa mes wfinannat stawmens. 'Operatums axnmenced April 1% 1 l l 48 e 4

$OUTHERN CALIFORNI A PullLIC POWER AUTHORITY MEAD-ADELANTO PROJECT $UPPLEMENTAL STATEMENT OF CASH FLOWS Un w anda June M 1996 1995 Cash ihms from operating activibes: Cost recoverable from future bilhngs to participants ($ 4,3&T) Adjustments to arnve at net cash provided by (used for) cperating activities: Depreciation. 1,132 Amortization of debt costs. 482 Changes in assets and liabihties: k%t rwivreble 691 Anounts reavable (72) Prepaid expens ? 3,467 Aarued interest (1) Accounts pavaHe 745 Net cash,,nwided by operating acuvities. 2,061 CA ikws from investing activities: Interest received on investments. 11,316 Payments for construction of facility (15,652) (71,033) liarchases of investments (9.184) (4,627) Proceeds from sale /matunty of investments 23,0lX) 84,113 Retmbursement from WAPA. 28 Net cash (used for) provided by investing activities. (1,&%) 19,797 Cash flows from capital and related financing activities: Payments ofinterest on long term debt (15,487) I'ayment fer bond issue ctsts (31) Net cash used for capital and related financing activities _J15.518) Net increase in cash and cash equivalents 225 4,279 Cash and cash equivalents at beginrung ofWar 4,279 Cash and cash equivalents at end of year (504 4,279 Supplemental diseksure of cash fLw information: Cash paid dunng the period for interest (net of amount capitahzed) Mes k>finannat starewas 49

SOUTHERN CALIFORNI A PUBLIC POWFR AUTHORITY MEAD-ADELANTO PROJECT SUPPLEMENTAL $CHEDULE OF HECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE 13OND INDENTURE FOR THE YEAR ENDED JUIC JO,1996 tin thumwub) den IWt Svent Aquesshos Svvu< r Rewrw O vrating Imur Rmmur t Aamnt Anmnt Awunt Twul fund fumi

• lotal Mance at June 30,19w5

$ 36,134 $ 11,793 16,267 16,760 $ 80,954 AdJinons: Investment carrungs 3,217 772 1,1% 1 517 1 5,704 Transfer of irwestment earnings. 1,1% (1,1%) Reimbursernent from WAPA 13 13 Transfers to operatmg fund 451 (451) Transmission revenue. 521 521 htal 3 'LW 1,%8 452 _ 517 71 6.238 Dedulons: Construction expenddee. 3,697 3.697 Interest paid 7,264 8,505 15,769 Premium and interest paid on investment purchases 248 298 Operating expenses. 2 l'49 191 lbral 3.699 7.264 189 8.803 19.955 Balance at June 30.1996 5 35.665 6.497 5 16.267 263 $ 8.474 5 71 $ 67.237 Tids schedule summanzes the nwipts and disbursements in funds required under the EkmJ Indenture and has been pnpared fnun the trust statements.The balances in the funds consist of cash and inwstments at ongni cost These balances do rwt mdude accrued interest recewable of $2.285 and $2.976 at June 30,19% and 1995, respectively nor do thq include total amortued net investment premiurrr of $143 and $269 at June 30,19% and 1995. respectively Thew balances do not indude unrealized kas on investments in funds available for sale of $28 and $171 at June 30, l'Nb and 1.E, res;wetwelv. J $8

w SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MULTIPLE PROJECT FUND SUPPLEMENTAL DALANCE SHEET Un t}um.ouls) h'"? 2% 7ws ASSETS Special funds. Investments available for sale at fair viilue. 250,888 $ 244,020 Interest receivabic 9,220 9,194 Total assets 260.108 $ 258.214 LIABILITIES Long-ttm debt 242,786 $ 242,107 Arbitrage rebate payable 77 Accounts payable to Mead Phoerux Project and Mead-Adelanto Pniect 6,402 6,632 Deferred credits 2,6t,4 1,141 Current liabihtics: Accrued intenst 8,256 8,257 Commitments and contingencies. Total habihties 260.108 $ 258.214 Sa m m sofim uu! m,nnits. SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MULTIPLE PROJECT FUND SUPPLEMENTAL STATEMENT OF CASH FLOWS Un tuumsands) hw bulalhmt 30, 1% 1%5 Cash flows fmm operating activitas Cash ihms frorn investing actwities-Interest received on insestments 18,380 18,470 Arbitrage payment. (3,757) Purchases of investments (1,8e>8) (1,958) Proceeds from sale /matunty of investments 3,757 Net cash provided by investing activities 16,512 16,512 Cash (kms from capital and related tmancing activities: Ihvments of interest on long term debt (16,512) (16,512) Net cash used for capital and financing actmties _ {16,512) (16,512) Net increase in cash and cash equivalents Cash and cash equivalents at begmning of, war Cash and cash equivalents at end of vear Ser mm km pnamus stawnnes 51

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MULTIPLE PROJECT FUND SUPPLEMENTAL SCHEDULE OF RECEIPTS AND D11BURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30,1996 On tiumsands) Ekbt c PnxwJa Servne larmngs Anmnt Awunt hamnt Total Balance at June 30,1995 217,727 1,293 249,020 Additions: Lwestrnent earninCs. 18,208 172 18,380 Transfer to earninp account (16,512) 16,512 Transfer to debt semcc account 16,512 (16,512) Total. 1/W6 16,512 172 18,380 Deductions: Interest paid 16,512 16,512 Tota!. 16,512 16,512 Balance at June 30,1996 249.423 1,465 5 250.888 This schedule summarues the neceipts and disburwments in funds required under the Bond Indenture and has been pn pared from the trust statements.The balances in the funds conset of awestments at ongmal cust Thew balances do not include accrued interest receivable of $9,220 and $9,194 at June 30,1946 and 1995, respectrvely. 52

SOUTHERN CAUFORNIA PullWC POWER AUTHORITY $AN JUAN PROJECT SUPPLEMENTAL HALANCE SHEET Un tiuuumde ]ww.w. 19 % 1945 ASSETS Utility plant: l'ruduction 183,309 $ 183,309 General 8.613 7,688 191.922 190,997 less - Accumulated depreciation 36,622 24,415 155,300 166,582 Construction work in process. 3,501 2,488 Net utibty plant. 158,801 169.070 Special funds: Investments available for sale at fair value. 34,170 28,699 l Interest recehable 67 69 Cash and cash equivalents 7,546 8,274 41,783 37,042 Accounts recchable. 945 1,891 Materials and supplies 3.569 3,679 Costs recoverable fium future bi!hngs to participants 31,780 23,063 Unreahzed loss (gain) on investments in funds available for sale 4 (28) Unamortized debt expenses, less accumulated amortization of $942 and $628. 3,0% 3,461 Total assets 239.972 $ 238.178 UABIUTIES long-term debt 222,444 $ 228.167 Current liabihties; Img-term debt due within one year 6,035 Accrued interest 5,994 5.994 Accountspayable. 5.499 4,017 Total current habihties. 17,528 10,011 Commitments and contin er ies n Total liabihties 239.972 $ 238.178 Ser mes elinasul staunwnts. 53

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SAN JUAN PftOJECT SUPPLEMENTAL STATEMENT OF OPERATION $ tin tlumamM kar EmkJ }urw 30, l'Nti 799'i Operating revenue: Saks of electric energy. 50,117 50.8_54 Operating expensa Other operations 314 316 l Maintenance 35,760 38,511 l Depreciatio t. 9.095 9,095 l Decomrnissioning 3,113 3.112 1 Total operating expenses 48,282 51,034 Operating incorne Goss) 1,835 (180) l l Investment income 2,062 1.884 income before debt expense 3,897 1,704 Debt expense 12,614 12,598 Costs recmcrable from future billings to participants. ($ 8.71 7) ($ 10.894) Scr me efirwmwlsanem,us 54

SOUTHERN CALirORNIA PUBLIC POWER AUTHf'RITY $AW JUAN PROJECT SUPPLEMENTAL STATEMENT OF CASH FLOWS Gn thtwamM inar Ermlevilutrw M

1. a Cash ihnvs from operating activities:

Costs recoverable from future billings to participants ($ 8,71 7) ($ 10,894) Adjustments to anive at net cash pnnided by (used for) operating activities - Depreciation. 9,095 9,095 Deconunissionmg costs 3,113 3,112 Amortization of debt costs. 626 610 Changes in assets and habilities: Interest receivable 2 (54) Accounts receivable 946 (669) Materials and supplies 110 1,340 Other assets 56 81 Accounts payable 1,482 711 Net cash pnwided by operating activities. 6,713 3,327 Cash (knvs from investing activities: Payrnents for construction of facihty (1,938) (1,861) Purchases of investments (14.370) (12,749) Proceeds from sale / maturity of inwstments 8,8t>7 10,918 Net cash used for investing activities (7,441) _J692) Net decrease in cash and cash equivalents. (728) (365) Cash and cash equivalents at beginning of par 8.274 8,639 Cash and cash equivak nts at end of year 7.546 8.274 Supplemental disckwure of cash fknv infonnation: Cash paid dunng the year for interest (net of amount capitalized) 11.988 11.988 See mes ofrwout statments I i

SOUTHERN CALIFORNI A PUBLIC POWER AUTHORITY SAN JUAN PROJECT $UPPLEMENTAL SCHEDULE OF RECEIPTS AND Di$BURSEMENTS IN FUNDS REQUIRED BY THE DOND INDENTURE FOR THE YEAR ENDED JUNE 30.1996 (In tiwusands) Operanng D+t Debt Smwr Reserve & Rerrnae Qvunng Renme hoject Serrur Resmm Connngeny fund Fund Amnt Fund Amnt Amnt Fund 1Mul Balance at June 30,1995 1,633 112 $ 5,994 $ 18,025 $ 11,179 $ 36,943 Additions: Investment earnings 32 54 12 54 1,061 537 1,750 Distribution of investment eamings 1,945 (64) (168) (1,061) (652) Discount on investment purchases 4 10 2 114 112 242 Revenue frorn power sales 52,933 52.933 Distribution of revenues (54,914) 38,249 5 14,515 2,145 Refund from Century fbwer Corporation 400 400 Total 38.249 5 414 14,515 2,142 55,325 Deductions: Ihyment for construction. 1,938 1,938 Administrative expenditures 36,691 36,691 Interest paid 11,988 11,988 Total 38,6!9 11,988 50,617 Balance at June 30,19% 1153 $ 5 $ 526 $ 8.521 $ 18 025 $ 13,321 $ 41.651 This schedule summanzes the receipts and disbursements in funds required under the Ikmd Indenture and has been prepared trorn the trust statements The balances in the funds consist of cash and investments at ongnal cost.These balances do not indude accrued interest rewivable of $67 and $69 at June 30,19% and 1995, respectvely, rur do they indude total arrartued net investment discount of $69 and $2 at June 30,19% and 1995, respectively.These balances do not include uruealized loss (gain) on investments in funds available for sale of $4 and ($28) at June 30,1996 and 1995, respettvely. 54

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