ML20239A129

Southern California Edison Co 1986 Annual Rept

ML20239A129
Person / Time
Site:	Beaver Valley
Issue date:	12/31/1986
From:	Allen H, Christie H SOUTHERN CALIFORNIA EDISON CO.
To:
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ML20239A003	List: ML20239A002 ML20239A004 ML20239A006 ML20239A009 ML20239A011 ML20239A018 ML20239A025 ML20239A121 ML20239A129 ML20239A135
References
NUDOCS 8709170095
Download: ML20239A129 (145)

Text

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y y Southern California Edison Company

, 1986 Annual Report l'

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Southern California Edison Company celebrated

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_LUULF its centennial in 1986. Although the Company was incorporated in 1909. its beginnings can be traced to 1886 when  !

l predeerssor companies first supplied electricity to portions of Central '

and Southern Caiilbrnia. Durine the first 100 scars. lidison's record of l l

ilitio\ atior.. technoltyieal achieveiiieiits. environitiental protection. l clistollier service alk! linallCial ste% ardship to shareholders is a testament to the ettbrts of lidison people. past and present. w orking tigether

% Ith great dedicatioi). creatis its .iiid cotirage. Tlie) have iies er lost sight of our ea! 3operating principle- Gial Sen ice. Square Ikaling.

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, Cotilleotis treati))ellt. As we entel olir secolid celittiry of ser\ ice.

Me look at the past uith pride. but more I

importantly. to il.e l'uture w ith optimism. 1./ U V E.111TBIT /3 il R$$'2188M S$0'5 I

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1h Me d Comesses 2: The Year se aclwe 3: tener to Shareholders 7: Year in Review 21: PleaseW keyww 2$: Regulesory Review 27: Lagaledvs Review 28: Cemeencial-100 Years d Achievemsess 36: Responutdhey for Pleancial Sassements and

• Report dP hblic Meaussants

37. Pnnsacialh 54: Manassamen't Discusanon and Analysis of Resehe of Operemons and Financial Conditen ,

34: Selected P6nsacial Deen 1976-1986 .

O SosedofDuectors 62: Enerusive Oftecas l

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. Soutiners California Ed6 eon Coenpan)

Hiohliohts e e "~

c..'rnpian.s Annual e

• Persent Grou th 1986 1985 ch.ny, noe

,' Operating Resenues 1000 $5.311.733 55.168.848 2. N'4 5 64

,' Fuel and Purchawd Ptmer Cmts t000 $1.653.854 $2.389.087 t30 si iM.46

, Larrdnge. Available for Common and Or'Fmal Preterred Stak 1000i $713.933 5702.409 1.6 11.1

' Weighted Aserage Shares of Coinmon and Origmal Prel' . red Stwk iouth 217.732 215.649 1.0 4.9 e

' Earnings Per Share $3.28 53.26 0.6 5.9

( Dnidends Paid Per Common Share $2.22 $2.10 5.7 7.

Market Price Per Common Share-Year End $33% $26% 27.2 18.7 o

6 Book Wlue Per Comrnon Share $22.02 51l 04 4.7 5.5 i

Total Asiets t(XXH $13.244.952 $12.593.449 5.2

, 8.8 p _ Funds l'wd for Construction Esperplitures south $1.099.677 $ 1.076.495 1.2 2.6 l Kikmatt. Hour Sales tukle 64,197.405 M.984.566 i1.21 0.6

., Numher of Customers 3.58.414 3.490.325 2.M 2.I

> Numher of Empkiyees 17.553 17.182 2.2 38 i

Area Generatmg Capacity at Peak i legawattu 18.320 17.776 3.1 3.3 Farningo Per %are and Annual!*idend Rate """*dI*I * ""' ""'"""

i e i arnmg.  %*selftT* ll654fl8tuikse einnaknJ. e (4' . ( .*mws.ial e t? I wl .nma l% h4% J t%.m.e e 2m . N.sak sitial e ? I'. 4 sp sseeius ewi % tesia. new.

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t i The Year at ^ lance Earzings per share of coreaon stock increased nmderately over the 1985 lesel to an all-time high of

$3.28. the shth consecutive year of record earnings The common stock d vidend was incre ed in June t.y 5.t> percent to 52.28 a year. the lith increase in the past 10 years. .

' I The market price of common stock reached a record high ot 538% in August and closed the year at ,

S33%. 27 percent higher than Sear-end 1985.  :

Totl return to common stock shareholders from stock appreciation and dividends was almost 36 percent: total return oser the past tise years has aseraged 28.5 percent annuall). .

Customers increased by nearly 100.000, the largest increase in 20 years, and sales to customers within the Compan)\ wrsice territory rose 1.9 percent. Howeser. total kilowatt hour sales declined 1.2 percent. largel) because sales to other utilities declined. and some of Edison's municipal resale customers obtained more of their power from outside the Edison setem.

Four non. utility subsidiules v ere established to take adsantage of businew opportunities in areas other than the regulated utility business The Ca;ifornis Ouhlic Utilities Commission iCPUCI disallowed $258.6 million of 53.4 billion of the Companyi construction costs for San Onotre Nuclear Generating Station Units 2 and 3. The Company ha tiled for a rehearing on 5213.4 million of the disallowance.

The CPUC and Edison agreed to rate and rate.baw treatment for the Compan)\ 15.8 percent interest in the Palo Verde Nuclear Generatmp Station m Arizona. The agreement which asoided a lengthy prudeng resiew. phases rates in oser 10 years and ties the amount of Edison;insestment in Palo Verde that will be put in the rate baw to the outcome ut the San Onotre prt.Jency resiew. Based on the current CPUC decision, the disallowance for Edisoni $1.5 billion msestment in Palo Verde will total 550 million. .

Arthurized return c.. commam equit) was reduced by the CPUC trom 10. percent to 14.6 percent in l

lux 6 and to IL9 percent m 1987 because of lower lesels of intlation and lower mierest rates l

l Edisam Iwurd a record $1.7 billion ot debt, all of whNh was used to reimance higher cosi secuntiet -

t hn brought total rehnanemps of higher mst weunties lo s2.7 bilhon since 19M4. whwh will suse

• customers more than $70 unthon annually I

Fuel and purchased power costs deelmed il percent onman!) becauw ot lower oil and natural gas I prwcs f rom %2 39 bilhon m 19M5 to s165 bilhon m 1986. w hhh n reflected m lower msts to customers.

F. winent of the Electrk Consumers Protection Art of 19M ensured f ainww m lederal reheensmp of h)dniele6 tree plants The new law makes 6 tear that no preference emts lawnns municipal utihties met msestor owned utilities uhen low 6mt hydroelcein61.acihues are reiwenwd 2 l

m a.amam s _

Fellow Shareholders:

In 1986, we celebrated our corporate centennial We also are seeking to rr cucture rates. The with the best financial performance in the Com- California Public Utilities .ommission (CPUC).

pany's history. We recorded our sixth consecutive for various public policy reasons. over the years

, year of record earnings and our lith disidend in. has set industrial rates higher than the cost of pro-crease in the past 10 years. Our ec emon stock viding senice to industrial customers. In some

. price reached an all time high, ano total return to cases this has made it economically attractive for

. our shareholders from stock appreciation and divi-industrial customers to generate their own elec-

. dends was almost 36 percent. Today, we are one tricity and bypass the Edison system. If these cus-of the nation's largest and most financially sotmd tomers bypass the utility system. the result would

investor-owned electric utilities, be more expensive electrical service for the re-r Our 50.000 square-mile service territory, if a maining customers because the fixed costs of ser-separate nation, would have the 9th largest econ- vice would be spread acrow a smaller base. Our

omy of any country in the world. Future economie Company is taking a number of steps to try to cor-e growth could make our service territory the equiv- reet this inequitable situation and to continue serv-

! alent of the 10th largest economy in the world by ing these large industrial customers so they will l the turn of the century. pay their fair share of the cost of providing l Serving well the people who work and live in electric senice to all our customers.

> our service territory presents a continuing chal. At the same time, we are working closely with lenge. We are proud of the record we have estab- .large commercial and industrial customers to in-lished in our first centur) of seruce, and we are novatisel) meet their particular needs. We also confident of the future as we enter our second are increasing employee pniductisity and focuw century of " Good Service. Square Dealing. ing to an esen greater extent th.n presiously. on t

! Courteous Treatment." cost-control pn grams.

Another matter imoises ett arts I > some non-Changes in Business Emironment regulated power pniducers to obtain unlimited use The envinmment in which we do businew as a of oor transminion lines in order to sell their

, regulated electrie utility has changed substantially power whereser and wheneser they want This is i in the last few years An unanticipated effect of known as " mandatory wheeling" and would in-federal legislation and state implementing regula- crease costs to all but a few of our customers and tions, designed to cope with the energy crisis in reduce electric syste n reliability for all our cus-the 197(h. has been the emergence of unregulated somert We are opposing such efforb nationall) power producers from whom we are reiluired to and in Catitorma.

purchase power at prises often higher than it cosh Southern Calitornia Edi on remains eedicated us to generate it or purchase it elsewhere. The re- to its primary miwion as a regulated electric util sult has been an unfair cost burden on our custom- it). We are hos.eur, also ready to pnieeed in ;i ert We are workmg with regulatory authorities unregulated eminmment it public policy maken and the non regulated pniducen to reduce tha chaage the rules under which we do businew.

impact on our customert I.ast year we estabinhed new non utility subsidi-artes to deselop busmen opportunities in seseral unreputated m.arleb Une of them. M.wion En.

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l ergy Company, is a co-owner and operator of sev- our appeal to the CPUC for rehearing and a pos- )

eral cogeneration and alternative energy projects sible appeal to the California Supreme Court. For l in California and Nevada. Two other subsidiaries a further discussion of the financial implications {

are engaged, respectively. in industrial park devel- of this matter, please refer to the Financial Review i opment. and in engineering and construction of section of this report on page 21 and in Note 2 of electrical facilities; another will specialize in " Notes to the Financial Statements" on page 46. . j tinancial services. We achieved a major legislative victory in 1986 < l when Congress passed, and the President signed. l Regulatory and Legislative Matters a bill protecting the rights of investor-owned  ;

The only major disappointment for the Company utilities who own and operate federally licensed during the year was a regulatory decision in late hydroelectric fseilities. The new law should allow <

1986. The CPUC, following a four year prudency i

our customers to continue to enjoy the benefits of review. by a 3-to 2 vote disallowed $258.6 mil- low cost power from the hydro facilities that we  ;

lion, or 7.6 percent. of 53.4 billion of Edison's in- have built over the past 50 years. <

vestment in the San Onofre Nuclear Generating l Station Units 2 and 3. This decision was directly Our Second Century l contradictory to the findings of the CPUC Admin- '

t We have learned much from our first century of 1 istrative Law judge who heard all 95 days of service. One importam lesson is that things sel- .

public hearinFs and who recommended that no dom turn out the way experts predict. World en-financial penalt) be assessed against the con >true- ergy markets, forecasts about future electricity tion costs of San Onofre Units 2 and 3. We have demand, laws. regulations affecting our business, appealed to the CPUC for reconuderation of most and many other factors are hkely to change tomor-of the disallowance, anu a rulitig on our petition row in ways that are impossible to predict today, for rehearing is expected in March. Recognizing this, we have deseloped strategies to The CPUC decision on San Onofre Units 2 and cope with future changes by building considerable 3 alvi affects our 51.5 billion investrnent in the flexibility into our Company.

three nuclear units at Palo Verde. Arizona. In Our future resource plans provide clearly 1986. Edison and the CPUC agreed that the maPPE raths into the future no master how out-Comminion's decision on San Onerre Units 2 and side conditions change and regardlew of how 3 would be used as a basis for asoiding a pro- quickl> or slowly demand grows. We are pursuing tracted and costly prudency proceedit.g of Palo important new research efforts that will gise us Vcrde involving four state regulatory agenciet the technical ability to respond to more rapidly .

The agreement established u disallowance level changing customer needs. Our stratep> of uarting for Palo Verde amounting to 19 cents for each $1 to disersify into non utility businewes pises us an disallowed 41 San Onofre Units 2 and 3. Based on opportunity for earnings growth inhpeMent of ,

the cpl'C decision as it currently stands. 550 mil- powible changes in regulation.

• hon, or 3.3 percent, of Edimn's $1.5 billion msestment m Palo Verde would be disallowed.

The impact that the CPUC decision may hase i l ,o n earnings depends on the timing and outcome ot I

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Our commitment to good customer service will Our conhdence in the future is strengthened by continue as we enter our second century, for we the proven dedication. abilities and hard work of are convinced that our shareholders and investors our 17.500 employees, the prudent rounsel of our

, are best served if the needs of our customers are Directors and the continued support of you, our well met. shareholder <

Management Changes n _e - -- -

, Re 1ecting our diversification efforts, two of our 8

' Howard P. Allen i

, vice presidents resigned from the Company t

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become presidents of new Edison subsidiaries. Chairman of the Board j i Edward A. Myers. Jr., became president of and Chief E.tecutive Officer Mission Energy Company. and Robert E.

Umbaugh became president of Mission Land g*- .,g^. ,

Company. Their responsibilities at the pareni com- H. Frederick Christie pany were assumed by other officers as part of President l our progr:im to increase productivity and control costs. February 19.1987 Two other ofricers retired in 1986. Joe T. Head.

Jr.. sice president of Power Supply, retired in Sep- - .

tember after 37 years of dedicated service. His -

responsibilities were as umed by Dr. L. T. Papay. ~.

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senior vice president. Honor Muller. corporate ,

l secretary, retired at >eas end after 39 years of .

I, valued service, r

! In November the Board of Directors elected Jenmfer Moran presiously senior coenselin the 1.aw Department, as corporate secretary, effectne January 1.19M'I. l' Conndence for the Futurr As we enter our wernd centus) of wrvice, we ' 'r ,

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stand at the thresholJ of a new era of change in our industry. We hue positioned ourwises to take jt ,

advantage of new opportunities and meet new challenges. mle neser forgetting that our mam I -

businew is pnniding regulated electrie utility wr- l' "k"$ k ( 'h"*e l '"* d ' 'k" sice to the 10 million people w ho ine and work in our senice terntory.

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l (io.uls ontomer scrris e dernands e ttuunsu n vi as hdmenal ser.

a < <mrtnwng scars h for new wa;. s .:< cs to a vmmmunac bcrirr n nh to restuond to the rpn sfn needs of nom f;nelnh spcaluru custorntre tndu nheal< ustomerv Cantomer ser s u e spa mInn hic l.<wra f.s- F.n n before the anc of manicrn truda respond 1 nore than In c < omanunn armon tu knohourcs.

nulhorn alh anmrath toom < nn- f Jnon emplosccs, as seen at the nonten at the Coavunn's nte8lern. I eone Hvas h vlin c or in. u crc

< ontputer :< d Customer la le- dcdn <ard to the Compwn mono phonc Infor unation ('s nis rs f dl- vi'*thk%f%rsn<,\<judre u.n unplem< ntnla ncss juoerum I),nhng. Coto n oon locatme nt duo one IYM Aot nos luded she har-uly andIIatnute of psu I tintc < tro-ph s crs to handic < alls, and h

Yearin Review on me dunv0 reak nen.+ i.i adJit km. the Compan) h.h requested Cttstomer Senice m in recently oled 198K Cieneral Mate in 1986. S uthern Cahforn:a lyhmn Case that the Cahtornia Pubhe Os er the last luo y ean, the Company Company narked another ycar of Ctihties Commno n t CPCC i appnn e he recogm/ed the utal importanee of escelleni in nnanci.il pertormanee low er rato tot indettial and ammwr- poniding qualit) senice to ib custom-and sen e to cudomen, anal also in-ual customen to rerlect more chneh en. Thh senice h conwantly hemg creded . sopereing tieubihty to meet the onh of proudmp thcm sen ice. measured and impnned An esample the no challenge of a changing busi- Thn proposed new rate strusture. of this commitment o a cont nuing new enuronment and v. uncertam combmed with new etforS to meet abe search for new .md more effecta e

, world energy market. speaahied needs of large custonwn. w up to repond to tne specialized should reduce f uture by paw of the needs ni indnidual customen.

Customer Gro% th and Edium *) Men To athane thh Edison has otab-Energy Sales thhed pntgrann doigned to make Peak Demand empmyces more sensiinc io cusionwr Edium n corded stnmg growth durmg needs, including new t'aimng pro-The peak cunomer demand for elec- grams, screening of new emplo)eo

, 1986 m the number of customers it tri6ity in 19K6 w e 14.599 megaw ata lor a " desire to wne," tel foren wn o throughout ih 50.000 v.guare-WW) on Augua 20. On that day, the dedicated to speatie senice quality mde territor) m Central and Southern Compen had an electne roen e mar-Cahlorni.: The number os custo%r' and cost swuo. recognition of emplos-gm of 25 5 percent. The 1986 peak eo pan Ahng esemplar) wnice, and" nne by 99.0M9. the largot increase m we o i percent ahne the 19H5 high. mereced customer communication.

20 > ears There w a continued grow th

' but below the record peak of 15.189 The Company receno tne milhon m all wstort parucularly mdustttal.

MW set in 19M4 dunng unusually hot custonwr senice teleph<me calh annu-w here the number of cudomers in-

' summer weather. a;h in io in e telephone mlormatum crened by 4 6 percent, the highest

' centen, in 19Mb. the Compam si growth smce 19" Commeraal and roidenual(ustomer grow th mereased Energ,e Management canth increced the xeewibiIn> and gmti-by 2 9 pereem and 2.N percent.

pdWrmihW h *m l hC nnencrp managensent impnn ing the roponw t.nie to cus-t '#'PV"" # D i pnigrams reduce peak'Jemand by en. tomen h only one o .an) senice im-

% nh ihn grow th in the adual num-ber of su4 omen, the Company s 1986 we -

pnemenh achio ed m 19M6. Others i ele trico) from umes ut high uw to ins tude-l sales to cusionwn withm in seruse penods ol low use. Through 146

• A new pnyram proudng 1;dimn's terrnor) prew I 9 percent.

' T ual L dow att hour i KWili salo, thee pnyrams. w hh h unpnne the largot mdustrial and 6 ommeraal l unkm.in ot eshnng generatmg re. cu4omer with a s.nyle permn to himoer. dechned i 2 percent tnun wurco. h.ne reduced the need f or coordinate meeting their wn he l 65 o bdhon KM 11 m 19M5 to t>4 2 bil' hon KWll hecauw os two man ias-m4 3mW in clear apaan needs m 4 more etthient w a).

during peak p.the. niughh equn$ ' lak" ded othee houn to beth r i ion ili.:duip m Spot marLet .alo to other uhhho and 12 6 Jes reced en-km 4 w pqa149 M s Aeommidee oi4on n 4 sleded

{ eneratmg unit hicatums ergy purshaw,by lidium s sn rnale j ,

at) $ ustomers, w ho obtained an in-steemp propiruon of their pmer

. trom niin 1.utum murco, e%luding Cle of Seruce Kilow.itt llour Salo i.unirshipintero, by sacralin a t tah

.oal hred gener.m1g stahim 5 "I d" M'"'" ' 4 Othel f.htors atteamp l9Kh eles W " '"8dl W" N"- ' hang tra n3 sdo wcre mal sunmwr tempet Cimmictual iI J 20.144 l' .1 i t 54 atures thal enhwed ait. onJituimng Hewlential 29 2 in. W In.tx 4 Io uw asad ati nisicavsl iumib6 t ol lat yc Industrial 24 4 1%.5xh I.9307 ist Mi tiklustf a.al s ustosig n u ho do elolwd Pubbs %uthoritio '9 5.07M 4.nMS 19 nwis im n wil generation and bs pewd  % gin ultural i hhei IL n%l 1.ulo i t ri m the l shwn s) dem R lad bles 94 i hW4 %l 49.40.' l4 i dhoes h w otkoig appfessn eh to ggp 44 gy gg ,3 g

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• The completion of Sojultilree shaw trom other wurces l'hn tw er. - - - - -

g energ) sune)s for resi&ntul 6us- priemg. w hich will he about 51't5 Projected Peak Demand i

tomen urJ ar adattunal M.tx W t milhon m 19M7 and could reach $.150 and Rewrse Martin

! for mduurtal. commerod and milhon bs IWO. has unfairh towicased

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agricultural customers to promote efhoent energs om u.nption.

the cost of electriot) to customers. * (y'

- 'ihew unroyulated producen are i

• Hnarwini incentnes of fered to u w. n . .. . . ., .,

often large consumen of electricity.

60.0u0 customen amwd at partully The) are free to either sell the power i.itsettmg the nurchase of snergy. they generate to Ednon. or to use it - 2" eftivient equipment and applu wes. themsehet Some aho seek to sell the

~ a Ednon 4:w awnti d 60.utA) low. pawer sney produce to other large 'a i

aconw customen w hh a s anet) of induurial and comrnercial customen l , encry) managernent sen ices, ir.Jud. now sened by Ediwn. If they are me. e i

my the tree muallatum of encrey cewful m taking cr.worners away tMm -

} elisoent upphances the utility, the result uould te more

• An mIsirmaraml.rogram for senuir espernis e electra al sersice for the re-oluens insolutig wseral tdium t.. mammy . ustomen bec suw 'he fised l , tirees on a part tmw basn. ws cemy onh of wn te u ould be spread acrow -,

such subje6ts e satet), heat and oild a smaller baw.

urew and energ) use. Thn utuatum could v f"rther "

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• l'oll free telephone numhen mith aggrasated bewuse wwne un*cgulated 'im da' bhwm reprt ientain es fluent m Chi- power producen aho at welmg man- pm w, ,., , , ,

new. Winamese and Camhalun to .lator,. w heelmg. in "no nt.viled un a...i Ai,pn o u d en vee m ia..* w l awns th; gr.sweng numher of Siuth- awi% .ns on isw d,3 t#w Cetwn, tal a accew to msesto..ov neJ utilit) tram ces bun inmigranh not prothient mnuimimes ManJatory mhecimg 'N"N Pa C N r C'"'P " u m Enginh. thn popram augrnenn uould benefit a lew cu.tomen at the "

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tne esnemy capNhties sur Spannh- espense of all the rest Currently. .,,,,,m , , , , , ,

speakmg s uuomen Ihe Compn > subject to certam omtractualosmmar-

' ahootters cu tonwrs written nute- nwnh ant regulatory respairements.

ruls in kun lanyu.ges e well e Edeum he he right to determme w he .

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%pnnh to proude transtmwhm sen ice oser

. . . . . _ _ . . . . .. . hnes it ou ns .ind to yn e transmtwum T4'iNuaw *'"'e '""'he '"al)

• hen it u iH ruit micrtere aith the Compann psimary hndroniik*n! wn ne ohhp.itam to in cuwomen

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l M.indator) whechng. by umiret.

Ihe Pubin t tihn Regulakers Ibh w' w otild re. quire that transmnuim wt-At of Iv?h iPt kPA s wNsn i e quit m e k pm kled eten at it would of itw icynlathe en iced to. rect the mg.rtete with splem ecluNht) and "crweg) .rnn ' of the l'8'th lostered -

,,g ,gy gg. ,g gfjg g,q y, ,.3,gg I

, the entr) ot ewe us ht) ownp.inics mto i the ricoris ycewratum buunew ' ndet Murcoser, mMg A cimg would i pouk A N rn nh niMeap r power Pt MPA rum repp'atcJ pmer podue io g,,rgs uwes at ihr espense of higher

, ers are Alowed to bud.1t 'encratmy planti. and usihtws are nwalaicd to pncd clearim Ior hhwei revden nj, y,yg ,y,,,gj 4,ggy,j pue. haw one rlo trm at output it trsw g,qongn 1 l plants as p kv. .vt h) 4 tate revviativ)

Ihe riemp.ien a uppsung nunda

. hishe' tiwy mhechng .it the icked and Wale a

lida) 4ttsiugh aueioil arid viaturd poy. m M W h regwnesfuscilarreed uceuh in Witi..n t.. Pt NP A pd ..t A i anil,s i .hs. . .. enguies 61 en s iniinnai-

,,p.ius I.w wel generahim au man-lo hus pin es stian waine eum topulated p.mse pindu. cts piew spily m ini-de Mliner n the lat the under inw s weicui suic ergulated rate Mru6 bucun ord groth coul asce al t.nes . lasp uduesid Wehn 6udiennis

, pi.cs mu.h heyhce than the p.m er the g ,.we hw A0% shaWu one t .nsqung . an h.im pr.du.c iis pus of w% utrann 1ha a bruuw.

i oses the Ice 2ti)ca.s rato tiw farge i . W4switets m ere int r(ased b) thr t l'k i dhon' Atual6 Bstl fall!) tai l

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A I7%ron tr<unfornter Is pla< ral slurtne lYMb attel uIllI r hhwn's on IV:.4. the lonerst n ater Inrnurl nusuir the huur pon s rhouse farerst hulros plant n hen to br- no the norhlat the *nne In one e as crn vi the Hals<nn (fr<hhoss gun esperaHoon 800 lies rinber 148? nlonth, truners slug threonyh h4:

hulrewice sin pinojrs 1. husit l IMMl b < t vi granttr. then a Ice orni for l< s I teneh I grunnslIn Iht \n rra 1 98 . . *'stiltro phase sol the $hy har<! rve L tunnri < onstrus IIsort

.\ rnula a s an r sa nuon viI.<h. CerrL hubo prop < I, an I.<h wn iIns o<< ensi n as wrpaus sibs the son' shoe (rvelhulroeIr.trn norleoen ornphtral<vnsuas Halwns \lca< hon prop s t n hen .

. ,,nupir s Ihe :ta. me ganan tu.n of ahr I harens r I. ale funnel .rvuseusoatulI04Ih<t prop e Ipoven un elon u h< tin!r o */ tunnel In :: <la s s O .

z= M -

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erwourage enery) umsers ation and the 450 MW Unit I rett.rned to ser.

l parti) to subsidue residentui rates. s he m Jul) atter being taken out of j

Ediumi 19M General Rate Case gg g 1 vruce n Nmernher 1945 to repair pending betore the CPLC at:4mpts to damage to pipmg m tbc non nuclear brmy rateAL nio line w nh the cost part of the plant caused by an equip.

of senice. ment malluaction. During the outage, j

Unkketherum regulat dpmer the Compan) completed a wheduled pn=lucers. Edium and other electra {

refueling, and made whmie and oc.er utilities hate the obligatam to pros ide {

modiheations required b) the l'ederal electne scruce to all customers at rey. Nucleair Regulator) Commtuton. * '"d # *'

j

, ulated rates in tuluthrig thh respmsi- Edium has an 80 persent ow nership H 3an, bibt) and pu5he trust. Edium intends interest in Unit 8. and a 75 percent m-

, to do shat it can to e oid he mg un- teres' in Lnsh 2 and 3 The Compan) regulated pm er producers, w h.* hoc e responuble for managing and

' t.a rui hmet ce their pronts and no obbya. oper.yting the three hn Orkiire units.

• pu,u.,

tum to seru, from takmg Ah antage of Edium alwi has a 15.M percent inter- (htwe the snuller comrnercul, reudential est m the Palo Verde Nu6 lear Generat- L "8 "

l and agrwuhural cui, tome s the Com- mg Station, located near Ph<wnn. Pb be I pan) now .cnes Ari/ona The project. managed b) ihe intre as no

', Current law presenh Edium f rom  % .o An/on.: Publ6e Scruce Compan). ,c,, ,,,,,, p,,,,,

, competmp on a f air ben with thew w all be the !argest nuskar f aciht) m h. h a -

i unregulated pmer pn=lusert Unen l the Umted States u hen its three tu,,mp,,, w n, , a,ne,,ni ,,,,,3 l

{ an oppriumi) to do wi. the Company l.."l MW umb se completed. er-.ursn mi eeneraw twirm ut anne ihn any n omndem H san meet the needs of its Dunng the year tuol$alo Verde shrt eldd) m ehr m.wlJ in este s m.vu s ustonwn m a iair .and equitable umb went into coinmercut operatkm '""8 ' "'" ' 'h' ' J'""'" P"" 'd M' '"

nunner """"'""*"*"

i n t i on l chruat) I and Lm 2 t ..npan, Ns reamcJ ns Jetmwense . n .as j en September 19 Unit .4 n wheduled .na p i,,,m % , ,,, p.3 ,,, p. , ,n nm,,

dellerallfip Res0urces h" '"M"*f' MI "PCfd"*

• Id* M7 The Compan) uws mne ditlerent en. Hydro Resources ergy rewiurses to p ner.ste elestr Ait).

l nmer than arn inher uthh in the Cimstrusti.m umiinued on sshedulc morki in tisla)i world enery) pur. .snJ urwief hudye: on the 200 Mw Lsh where supply and denund for Haham Mealim pron st. a nutor tack san t hange drettsall) m a shore adshipm eo l diwmi Hig C.vcL hydro-Imv. thn dnerut) alw proude, clestr A sompics hsated twirthe,ne f.diwm nace ticuhikt) in wrung *>t l restmi. Lahtornu, m the swrra sustimters relubly at reau.nable rates %O ada f

%s heduled for operatam in l)es em

Nudear Power 'er Iva7. the irihn m ill he I.divir i

, largot hydroelestrh umt Ihe under Ihe Limipari)\ three unn at ih hn ground pmethouse will he named the

. 01oire Nu6 lear Generemy % A nin John % l# winsi hmer steion in l renerated shgh:1 3 iner 14,vr5ent of homw of the engirwer mhouitwci,ed i the c!cstrkit used b36 useimwts m Hw Hig CretL hydriclesirS s,nnpies l'mA lhe output ut these threr units I $la"n has resguosed auttuitiotion

(

o mAls the burnmy of ahuut 24 nuihim hone the Irderall netgs Negula..e a harsch of ini or ryun alent neural gn fi"""""hm alk! the CPt ( tot the  ;

un'icscu.an. saung iushinwn os y, Haham Mcadim prope t toogiac o j 42 40 nullne m luel onts m F#Pn .e ' pumgd shnage sg sicm li ihn (

th rmy Itw uar Ow 1 Hst MW %n Iwopewd sistem n appr ned wees j i (8intre i mh 2 assi 4 operated respe, w oulJ tv p.mpd up to a ny,ce,no g j incl > at ha Iveseni and '? pre cnt e t mWhl u'*F lv" openso e em c . then a ihm s aguutws . sutpanen; tiw natawul teleawd to df ne 4tw turhmr goic 4.s

> Hidustr) nerage leg nuile.,8 umt *IWMF 'l80'"W lWdk lWiksh I ho mill I mt 2 omipicicJ in wongs tctug.hng hcip the ( omguen s.Juse thi .osa on Juting lynn. .hile i ad I me taken lvisluming ekstanin ni svak sviksh out el % n s e lanuan l iva t tiu in b8 H'

• W'uSWn woumi es tus t...g I

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Coo, trol uy>crator Afarl Sten les aatjusts the suchly sophistas alcal.

< outputers:nl e ontrol rvenn retrap. )

r .cnt for !! rut 2 at the ibrnton)

Mna io evneranne plant on ilsnaval.

one lYMt). the Cowysun e ont-talunajor nunhtis anons to the

1. mreass an unit that enabinia y ,y_ 4 is 'm.*

• to operate at a loss er nuntmunt ,, ,- .

I,mul. Ihrorbs enone a era ater . , . .

IIruhul:Is aoul enha one overall F j ,(!

~ ,

WL. . _ ,

. .sts to o ustooners k. . - $.  :.

y ,

In an varhe r cra, sss on blunarst n ,

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e

< nntrollute units. sue l* as the one I Y .-

sa ine.\aona Ana kn er .Vo / qlp hs.oro *** .no that ss as < ornpletnlon - 4" . $ ',*

INVY, s . r e aan:u olls e,pe rato I. p' -

o paru : a eht.r a rse anel ,

ele sIvo th les orkunt.nn projN r ,

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geo s r I. s cis ,' .

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W ."'.'* .

Coal Power pnaducer contnbuong M5 MW to the energy and upacity that a utild)

Edimn >4em There are an adduitmal u ould otherw he generate trom ik ow n Ediwni oul-bred pmer plank m 198 projech under contrat fmm ' plants or obtam f rom other sours et Neudaaig Sew Meu operierated unreputated pnducer . repreentmp in Cahlorma. the CPL C prewnNd 14 percent of the electrait) the Cinn- another potential 3.513 MW. the terms for unimes to buy emes puny pnduced forits custonwn m 19M6. h r a number of reawirn. including trom unregulated pm er produsers The tuo umn it the Mehae (bngeon federalin law s. air quahty One pricing tormula we heed on Generatmg Statum in Neuda set a rec- omuderatuun, and utmg and permit 19M3 nwees4 of oilpnces Betore i ord in 1986 b) operatmg at 72 percent requirement. the Compan) estimato use a e suspended b) the CPLC m of capaoty. well Ane the natumat that only about 40 percent of planned Apn! IVMS. unregulated pm er pnds -

, ecrage for coal tired plantv Since projects wall actually be built. en submmed a large number of new owl n one of Ednonileet op:nsne The Cahhirma Energ) Commiwnm. contracts that obhgated Ediwin to pur-

, generahng rewiurvo. Moheci 19M6 which h the state beenung agency for i shase pmer at prwes ugmheanti) pnduction rneant ugmhc.snt wungs all thermal pnyeen of 50 MW or higher than ib current noided cost.

lor Edswn customert l

[ more. twued tww guidelmo .n 1986 Thh he resuked in unt.ur and un- I

. in 1936. the CPLC granted Ednen a on non-reputated pm er pnitech that necewar) onb to s ustomen for pm er i one time 1>27 milhon sew ard in rato should reduce unfair cost to custom. trom indepenant pros'ueers that n al-t

!. for the eftioent operation et :t coal- en Hrst. thew guidehne gne Edium realy on hne and additional costs tor e

hred plann m 1984. beed upm a Gul and inher Cahtornu unhtio the oppur- power tsojech not > et b.nli The Com.

l Plant incentne Program ot.ibinhed by tunity to nwet the electrie seruce pany n merking hard in a number ol

, the Comminum needs of large mduurut (ustonwn be. u ap to pnweet sonsumen f rom thn Ednon ow ns $6 percent of the 79th fore the) can undertake their om n en- unt.or priung msluding the shme l MW Mohne unit and 4M percent of ergy pnyects Secimd.allrww pmer m.vutormg and almmntratum of the two79tbMW oul hred unit at hiur purchec omtrach betw een utilitio tet r.n ot thew contrats Corners m New Meuco and non regulated pnducen must t iLe - -..

mto auunt the elsctric generatmg re.

(Mi and Natural Uas quiremens ot utihtio As a omse-Purehased Power

, quence, thn alkms unhtio to reduce in 1986. Edsm obramcJ 37 percent ot

> t bl. and natural go.hred generating then pmer purshen trom thew non-umh renum the haLhime at Ednoni the eledn@ o Fouded s ustomen regulated pnducers

• hen lew uwtl) dneruhed clattw generatmg spiem.

hom ouhide u>uno, pnnunh inkr ahernain e p..wcr n cadable such * ,

unht:o m the Paone Nerihwekt and ahkh helps to nuintam the relabihty pur6 hen of nonong energ3 tr un the

>  %>utha on w ho uw hs dni .md owl re.

of eleitrk wts he toit cusionwn Panth %wthwe I and Siuthmsx wiurso Most of thek pur haws were IWmm ho 47 oil and ge bred l'tw large numhet at sontrat' on the " spit market" ain) were ac-generatmg umb w ith a lot.il s apa ity between i dmm and non regulated of shghtin ener lu.tunt MW tnch wught b, hiium heuuv of l pm er produsen roulted imm the un-in luno. IJmm pridu.ed 25 p r. their hmer ont hsn with the sub plenwntahon ut l'L RPA i he tegnia-i sent of it sustomers electrwity Iron. qantui &s hne in oil and n.itaral ge tam requirnieintrn unhoo t" itsmi and naturalge fueled pmer pho, thew spw nurke punbws puts t'ee all th. renewable alternatne plants l'hn small unhi.itum of ml es! W s ueonwn Aiut W mainin

. met pridosed by mJcWndent p'"

durmy '9hb. ownpared uith uung l g.n remur6o n hcuus the Company uus ers at "einded ont" w ha h "

tuural ge .n a f uel in ib ow n perwr-purshawd 47 perient of its pmer uno detmed e the replaenwnt own of the atmy plann from outosle sourso. .t icu than the one of generating sintraity witnini

.* ye on nuptem Rr ourm from Non Regulated Power Producers t

t ader Cimera Hut Nit Huilt tin i uw L

• Non Regulated Pumer Pruducers

.g  % ot Mepwath  %. oi Mepw ath I

Mthieuph the sharp diop in the pr n o h"E' b dI# h"#*h dE# '"

.41 Ign I iHI an'egl flat seral gets hJs redus ed I$is tfilJgs Y

.' .. n.

Owone o mpetuneswwof nuns t .ysrus tum i4% "

42 41i serwwable aid akernains remursn, t souhrrnul 69h

?? 4 lisli etww tes hnoliyws omimus so frpe  % mall ligdro 2n (H 42 44 wm mipvum ownpownh of ith ! ear,  %. .l.o 17 44n ?I 1u4 guani dnetw riwryg e:wnstse mit wod n '41 44 94

\t etw rst ut 19nh itwre ade 211 gqg 3, g g skesi legulated ping f p.ogg's tw ow swgl and ogveaie, in unk pinicia pmen iI

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lainant nlus ationsal servin r rep- a laurenun nynoppnl n ith kners.

rrsentain es Jon krueo andJim ruin >ts, lifwr vinn s. s omputers Hurns e onJun I a u tron e demon- ami stair vi the art awir a nual strarnon for suth erade stude nn contponent, ,

a'Inort on slu Cornpans 's no.

'% orm e C nmn tron' edsn a- the Cominun's caris aim anan toonalprogram that n as man- poverunn n ere morr ' hands on' ,

s euratal tra 14Mb Ihe program. a than ' Ineh In h.' A'ar salen pro

\, toustI"oIn Iin I down and ths Jrt er ann. u hos h Iwcan m slu IV 4Hs. ,

, l'rotoodsum Iainnotor s. nIth sup. Iratured ont the s;n.Iin our; s in Ino t loeon the Natunsal .trounan tonenprn in s and \ pun e hlmannnaturn.

le arners a m.dulelugh in knologs

During the scar. Edium uorked i i of new transmionecapacity by accew polie), and h working m cim-merease in long term Aces to eco- 1991, afsludmg Edisimi share of juncinin uithinher Cahtornu public i nomical. out of state power by en. about2Mn M u and ms estor ow ned utiktio to hase tenng mio nea kmg termiontrxts The completam ot all planned im- thew piksin modined.

The Copipan) *igned a 25-) ear cim- pnnements m these lines willincrease trxt with Piwiland Ueneral Electrw the total transfer capuu) betw een Cal-Company thal should see Edium ein- iforma and the Pacttie Nonhwet to Fuel and Purchased tonwn ahim: 52tn millmn dunng . at approsimaiel) 7.790 M%~ with Edi. Psm er l,%

pernd. The new cimtract pnnido umi transmiwion .apabihty climbmg Ediv n with up to 300 MW' during u fnim 1.2M1 MW' to in er I .9011 M W. Edwm.sfuel and yrehawd pimer

• emmer peal perial and supplio cosh dropped 31 percent to 51.65 bil-i Porti.md General Electric with xcew Southwest Tran6 mission lum in torn E39 biHum in to pmer to meet in w mter peak. Pnmanly as a result onouer ml In additum. the Compan) and seo A mapw step in opanding transmis- an natural gas pnees. Although thee

' cr.ilother Califorma and PA i.w siim hetueen California and ihe South- cie wne lower than in an) year since

• ~

Nwthu et utihuemgned an agree- wot w e aLen when Edium nled an . fuel and pow a purs haso con-t tinued to be the single largot compo-nwnt uith Hntoh Columbia H)dro to appheation with the CPUC to con- l t- . stuJ) the teaubihty of a pn pned struct a second high sokage AC hne nem of thmal cost of proWing l 9iusMW hydnielectrw pnnect m #I'""# '#" E# * '""*#"' '#E'#'

' from the Palo Verde Nuclear Generat-Hntoh Columbia. ing Station near Phoenn. An/ima. to sen ng enh out of exh resenue the iksen Substation, near Pairn dollar.

Northwest Transmission Spnngs 11 appnned thh propined "T # ) # " * "#E O I#d l.2tu MW hne wiH pnnide Edium seseral reductions in the prwe of iS

,' 't he maior imL tor ewhangmg pmer 4 al Fas purehen that kept sup.

with about NIO MW' of new transmn. ,

i phen ot this fuel competitn e w uh the

' hetween C.shfornia and the Puitw won capuit) m l99th with the remain- l Northwot n the Pacaw interne trano ing No MW' being shared by wher deucaung pnee of oil Edium alvi i

! mnunn is stem, w hish w as buih Cahtorma utihtso. mas a c. tome not imw. to purchaw Junng the 1961 A it trwluJo awo '*" b"'"* '#' "I I"* *"" E -  !

ahernaung 6 urrent i ACs trJnMtusuon Son @g%ille Power Polic)

Imo.ind one direa 6 urrem al)Ci hne, # D"'#*

daredh from"'wweuiutode(a

"' *M. hlon ~

a resuh."#9 "' Ea,"*s " '*

all sapable of translating larW Ihe Honnsulle Powcr Admmatratum

' .muunn of eininut) m either dirce- iHPA s. a tederal pmer markenng hunpany crap gas n.m at otra.high ioltago aprs) in the PAits Nivthwe and a prne m 196152 .4M per nuthon Hiu iha tranutusuon s) stem hens'ils marr suppher of pmer purcheed bs* " " 1*" 40 E"#"' i"* #' 'h'"

hoth regnms, allowing ths Northwi .I i de%m, he adopted s arious piheio m 19MS I'ha redused fuel cush and J to market in uirplus pm cr and mal mienJed m ins tene ib resenue and ing ( ahlornia energ) wiurses .oailanic thow of Panic Northwet utiht o

{' ,

i to the Northwot t he Panth insertw from salo of surplus electrw h to "" "## * * "#" "' *' a tr.insmn.nm sutem he seed i Jewm i dnim ark! other Cahtornia uthsho sustonwts amlinmmt Jollars cah h ear Mint os thn clotrwit) wild by HPA

• '" " # ' ""E#'#

i urk e in sorntt Aihm n gnerated by low sost. Iederall) * " '"* " E"' '"' "'#' ## '#'

In( kioher,6onstrA tum began on J subuJi/ed hsdroelectrw tuihties E #" "'

1. '""' "") #"#E) prows to msreaw the tranumsuoe HPA he prard the surplus energs d'#

sapait) of the Paits Intertw IX' hne wiuuCahhuniaat tocis wellabo e "' 'h'* #"#'E) E" h"#' '" I9 kh *

• f rom I 94M to 2.9sm MW l ha low ns pnstin tam unb. and he rotrwied '.,""'E"

D" #"' "*

n puntI) om ned b) I dewm the I in a 6os to the Pa Hw Interne by Pa Hs

1. "'8# "' ' #"" E"

• Angle ikpartnwns of Wates and %wthmoi and wotan t analian n use the unt of pur l

• lim et arki the munk spal utshtio of unktws ihn he m6teced pr n o and E"* ## '" ' **""'

t ilvieale. Poalen.s ewi Hushank ecdused clo ern it salo to Cahtorma A hen the progsi n onnpktcJ m 1908 unhtoo iniktohrt. HPA nsued us " ""Ed*"" ' # "'E# i i dnon's transmouim s. epa th m u dratt propnal hw a i mg term pilm) tw m pani hw pun hawd enng) the hne will owrcee trom 421 MW to * "E" ") * * " " ' " ' ' ' "' {

im ascw to the Pa us intersee w hn h. I h4 4 M% I"* "'

it aloried. woukt turther its rcer t hiting itw scar. plei.nmg aho om thcw rnins thes w uh an ahche h% )I As Jew nhed echer, tha high emucd im shc omstr us th m ot a third inipatim ralahutaa utiht> $us.imien *** Ed"' "" " ' '

I M hne to the Paots %wth*of Ihew poln wwt HPA her entairh '""""#*'*

Ihe propiws!luw Lnima e Ow mi wecd run hawd pmrt ont i to "" E"* " E" '

l Cahtigma ihcyim tresmou.m isi,,s t. wime .u - l ,a., u%

( ,ihhvma cln trh omsumers i Jewm i - s m s , e .,us,u,c .,e sts '((

Pi N o Asl

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' M t A i;q "! title, "l'/korfyyj, 1 lic', N 'livtt, o,j, ,! that, ,g,

y Utl tnillf,. g OVA \./,gll,y,

1. AIbli.,/j e, ##

• tt//ljpg.11th,,jgj,

1. '//l;,4jj,Slott(*!k'rgy(. unify,y,;

4llig}; j, Is been,,,, "! !N'l(try. '

I' c.,, TuliHit 4 p U/kutie,g U llgg. UUrt/ $7,Uf t. /t.s fj v}ctj, Ultrify , U!t' sn ;;j, g, Alth3j,jj 'V Nery gj <,, /

"Vth7gg,g 'lPt / t/yy W'!kT*

• r.

o "lf1,ff,y) ,,, 'YUii^tif yy ,,j , #l'it';

lltry ,y,y. 'l' etlny, I!rtu

• l!ory ;j, Ittrhit ,'IHltri4jy IrtiMy '

b'! Uk are ,, Ul 4Ill.pp,,g

l0VFtjfjog l4 lllc let/c /y,g' f.'e/i,,,y Atatty/y y,, I 1/9tes, ' 'I"'UUHi-ly., 9 j," I' '"4 unne,; ,. Y"!!Nis i tun,y,'40% in ogD!\t* fll,,y

• jy"'! \stly, pg ' U11tiettep,, y /

"'N'\ttreg.,, I 'UVrtygg, j ,j'n!! /

/

"'UWitte gy,,, T'untlcqj ," UNI eq/

he /,j ,'l'4T4/1o9, ,,, '

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rhe as ailabiht) ol' natural gas. pur. fir 4 electrw utikt) in thesountry to businew opportun6 ties m ws eral unreg.

' ch.ised power, and to a lewer estent, of ter a tw o-w a) Jata communwatums ulated markets. These non utihty sub-

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renew able and alternatne rewurces helped nummi/e consoniptum of network to its customers The Companyi new rewsch thrust siduries are wparate f rom Ediumi regulated busmen and are not chgible luel .nl. The Company burned on!) aim meludes greater emphash on in tor remer) of emis or return through

{ l 3 rmilum barn!@lin 19Mh. nohigies that a ill help it to heumw a utihty ratemalmg.

compared to nearly $N nullion in the more disenihed suppher ot energ) The capital comnutted to these sen.

{ peak 3 ear of 1977 H) comparium. a sen wet These teshnohigies melude tures is mislest compared w ith Ede decade ago %n projected that it nuire pnsluetn e heatmg and air cimde umiirnohement in utiht) operations would neeu .c m. n more than W md- tionmp spterm. more energ> eHici.:nt At s ear.cnd 1986. Edisoni equn) m

, lam barrels of : set tuiin 1986. household apphances and udsanced these rum utaht) subsidiaries totaled I

cicetrical euuspment used by customert $147 million. In total. the subudiaries ,

e N'eu Manning' and in addition. the Company is testing contributed 6 cents per sh. ire to the seseral pnimnmg encrps storage tech- Compans's 19M6 earmngt Although Research Stratgies nou,,,es, ,nei, amp , m.yw pn,3.ci sman na in imie and under cenam that aillh: the worldilargest batter). circumstances these non regulated in 19M6. Ednim adopted a new strat-enery) s) tem when it goes mio opera, bustrww enterprnes could become l , eg) m its rewuree planmny pnwew to tam m 1988 more ugniheant contributors to the beter prepare the Company I'or future

(.ompati carningt unsertamtiet it Iocuws on lleubihty Coal Gulfication Miwam F:nergy Compan). the and tmwl) resemsnenew to shange largest subsidur). n hwated m Irune, by includmg contingerw) rewurce W Cmd %Ar CiulGasineaaon Cahtornia. and b engaged m the de-plans to nwei unforocen world and plani, hs;ated near Daggett. Cahlor. selopment of'electrw generation prni.

national ewnts or unpredstable nu, sus entully (ompleted the weond ects natumwide through tomt4cntur;;

$ hanges m rnergy supp63 and use k t a me. e seu pro rum tode. partnerships m the cogeneration .md a roult, ths C mipany n paitioned to proude 'eliJble cIektrk wrs hie lo g g, ,gn g .

,,.3 y g., gg gg .,g g g g gg gg suoomers es en uith continueJ tm teshnolog.o m an enuronmen. capacits m operation and another 6 hJngo m the busifwu enutor. ment gggy gg g g gg g

,g Jnd unNspatcJ growth pattern' sarect) of coah ins toding hip %al- Man r pr.ijects in operatairi in61ude in addmon. hdnon nan 6d to gg , g, ,g, g 3mg gu g y ,3. ,,

6 hange tne den tam ol us rocatch urbmo lo gener.ne electra u) taoht) near H.skersneld. .ind the l%

programs to proude ustimwis with a 1.mewums trom the de thquratam MW Heonaue peotherm.il plant near hetter s alue f or their energy dollar plant h.n e been .n low as one tenth ot Elto. Noada Mator oigeneranon it.o ec w .pproa h emphassies im-4 ' by the C % Fnuronmere protech under do clopment in Cahtor-pr.ned relub.ht) and quaht) os eles ,

,, protestum A e;w I.it soai planh ru .n61u& two m the Hakersticid area -

trk wru6e. gre.sier etigwrk) asst n6.'

wru6e opions lor 6 ust mwrs \tthe N komp p a d 3 pr d h WMW hawire and SMW i atuable inson.un.m u t% in hnot. Midaa) knwt proie6is There alw same Imw. the rww dirninen oin

%eW-iW i aW l Nah A 4 plenwnh the l ompanyiomtmued ,. d e i.m wnplamn MW %twn.ind the MO MW llehar rewar6 h on plant eperatu.n ,,,, , , ., g p,g g ,

mipnn etnenh. .alternata e lus h afkl

.Wher ps tiera:my re .ouri e . % nh iimire Mission i.ariJ Compan). b.esed in emiumm omtroh morabw nonomu 6.monums m ttw Garden Grose. Cahtornu os ns and

. A mator hgunit 1.dnon s tewarsh tuture.howoet. thn ahndm 6ouhl operato mdustrui peks m a number gwogism o the deulopnwns og a g, g, ,g ,

ol Nouthern Cahtorma 6 itws. m6luJ.

reluble. low one unnmunkatum' the o.umryiikmwoes . oai rewun o my I'.a.mmiunt Heca .md Garden n6 aorL hetaeen the Company and

,,,,p,g,,,,, ,,,, q, gg \ 4..nc Ihers aim.n. plans to Joelop ib .uv. mica as a means os proushng gg ,g ; ,. g

• ,g, p,g ,gg, 4,,g;p,g g g,y,g Ilwm .n6 s ew to ., s as set 3 of s nern

. F. h M4 mqa wrti.e ptograms and mhvuutne W A 1 h tCo iraio Gem M Masnin h m %crugCom seruin ihn ownmunsasnm ss den.

aould ouNe i dnon s ud mwn "

I Cm Wl1  % ... .m kled m in n Cahbenu Hoces h insutute and ite Japan hvouJes omsuhmg in oulude i henh feduse etwir esetallenern o.us M Cmd%m Pm tship os. engoiscru.g and omstrusihm wt -

shdting sisov of theil siegtfis om g gg.. g

%.mpum to low oiu gwrmmh

\ 6e.a twortanif.e ? %:1.odonwis -

g i, g . han uwtuded iransnu. sum tuws, sub g, ggg ., ,,

n % hed led b e in ? in descenmr the lhaung twh the (,omluns on.shhshes!

, g ,g ,gg, , g.,

leaubehts et t .ei gistos pogias.e Lehim p I itdies using Feisthernial afklother

.n stic Netw.wk i .wnmune. ali en W her n.m unha subwh.aen to d6,si, hip trsemn es tem Ilsu6ss% lt.i r dison g an d.' 57 the 17

t 4

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5

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ee "$ .

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h.'t$lson s HIllntt*t*?s pnllbf finsd tenu ho non Ihrer u nunne 14 foot-talle ntn on a sand ss utprurune e ontor sponwrrd bs t 'nued War of Ibrange ('.*unts to raise flends lor the nenh and underprn oleeni.

l l Ihe Compans and as rmphosen

• hase a hone toadtnon of donanne ,

nuesnn and soharterrune thru tune and a ns r gs to nurnerous a n os . s har aabIr. och goons etnd ,

publu ,*r es.no:<anons tinunghnout

• I deson's se n os e tro r aoor s .h an -

raois rsampir. alte o the IU t !

I one H< as h rar thstuale I dnon ,

emphnen le uma d throo e Irs to n 4 j e e solnoe aptsharu o soo Ihr He d Coo n pn otson brleIh aos nah lhh 1

• l Ih..c...no ,sI,o..s,Jm c ,,,,,s.n.d p .

Q y

_4-l poortabtr Las he on

- 'hy .,'I .. Il h) ,

1

i. .

i 1

%wam Fmancici Management rose to 19 percent f rom 1.17 percent. mental science, solar energ) and other Compan), as yet inactne. was tormed Edison estanhshed a Female and energ>-re!ated topict The Compan) to msest m high quality sceuatio. %nority Buunew pnyram uithm sts proudes estensn e educational maic.

leasmg actnitio and other enansial procurement dniuon m 1979 S nce ri.sh to whooh w nhm it, seruce tern.

undertakmgv I then, the number of f emale and mirior. tory. It also supports muth  !

it) businewo qualihed to do hu>inew organ /ations such as Junmr Achioe. I Edison People with Ednon has rnen by more than ment and the Esplorer Scout program.

300 percent, from 207 to M96 Total Dunng 1986. Ednon miroduced T1.e The succewo of 1986 reflect the hard contwts awarhompe'.tuscly to Science Connection. a new eJucation aork. Jedsati ui arwlinina ation ut thee firms irwraawd m salue frorn prograin atitwJ at stiinulating tudvait

+ 53 7 mdimn m 1979 to $75 mdlion more than 17.500 Edium empl.neet mterest in wience and technehy) and hee) are the Compan)\ greateEt awet. during 1986.

acquamtmg teachen w ith .: s anet) of whether they are the senice crew m and NgMcM64 kaMg rewmet in support perumnel uorLing long houn Comnmnih InWhement

• a partnenhip with the Jet Propukion Lhoratory and the Ntamal Aeronau.

, to rotore piw er Junng stormw power j plant operaton w ho keep the generat. In addit.on to sen my customen on the las and Space Admmntration. the j ing stations runrung srnoothly, or engi. .loh. the C9mpan) and its emplo>en unniue pnsjeet teatures the u.c of a 40 rwert acmuntants clerieel worken, wntribute m .: sanets of wao to im. l'ot s an sen mg as a nobde el.iw.

nwter readen ano thousands of other proung the quaint) oflife m the citto 9mim, equipped with lasert nihotw people working ef ficiently behind the hber optws and computert {

and commumiin the) sene.

weno to proude the bot powihte er. The Compan) encourago its em.

s ke lo cuuoi wn and a mmpetnne plo)co to partnipate m many commu. Emergene) Alert Sergice return to shareholJert nit) wn ke actn niet such .n ihe in recogn tun oi the many chango ) MC A .ind Y% C A. tl.e special in a new communn) wnice of tered tak mg plae in ihe c'ectrie utility m. t)l> mpio. woutmg and pnyrams I ir s)tema nie Jurmg ;9% Ednon i dustry. Edium (ontmue. to ereate an . senior uti/ ens lieuJo thew actni. H:

Plo)co 'n s chis to w ith t w oa.43 espand trammg. me. nto e and recop. Iso. the Comp n> aleuppirtu wide radios can now rela) alh for help outions pnyrams to impios e emplosce sanct) of suituraland educational trom cuisens to emergency agenoo.

work skith and attuudo lo help them pnigram m sommumtio throustout sus h as p.ramet t io, pils e and hre Je.

hetter resped to no shallenget its serua terrnary p.irtmenh Thoe LJnon schnle are identmed u nh .e decal reading "Emer.

AfHrmatise ktion Education Pror; rams gene Alen seruce. Li.o+ quipped l \ e% te '

Ldnon contmueJ to irkre w the pro- 1.diwn h.as .i long eradoum og proud.

l pwinn of h.nh . unoritio and aonwn mg suppor and .m.stanse to eJusation United Ma) Campaign m us uotL hirse durmy l$mo %not f or stuJcnn, the Company has three it) reprewnlatum row to 10 percent wparate wholar nsp progrann, anJ In IWh. FJimm emplo) o sontnbutcJ trom 291 pehent irn IWS. and female through sh i Jusati. nal Adusory %2 U imllion to ths t nited Way On a emplo)en msreavd to 24 7 per6cnt Coun6 d the Company worksslowly per (apit a basn. tha plAed 1-Jewm trom 24 2 per6cnt m the preuous year with tea hen. admmntral..rs and som. people anump the leading amtnbuton During the last toe years, numwitto mumt) le.aders to da elop ettes tne m California to L nucJ Way and the m management pnitums uh r: awJ to s Jus aten.il materish that ian be uwd simre than 9tithhearitable orpneta uns

, 20 percent inun 13 % persent. u hde lo tea h sim'.ut tual clestth al it suppirt man.ignent piutnins twlJ b) temalo (det), enere) umwrution, er. uron-1%rcenteer af Wan \ns o.an 1..ial

. \ tale.Irfmeleand Staic lemaic lilM biu w n hmhar ll.gani. %w.e me, 4.liaurits hnpletm '. '. '. '. '.

et irard ad h,as l ims

'. a.

)c.u i est '.s af i est has i nd icar i e.J icae i st )cas i igj 141 and 1996 tient 19mb P.nl 19mh 1941 1946 19ml avsn i9nl twet. aunt 49sh 19mt 19mn Whagnne. sh t ei b *4' tw u 42 i9 41 a* is 4 u4 e* s 8u 14 4 oo klmme.Hanoc A 4 ll ire.ain. 's. u 'l i 24 H l' 9 m9 94 41 4o Io if i' i fI si ip ; an j

1.444 4 ..ugi,un '9 4 '4 l Jie h je ' *u '4 4' 49 um is *s Ii n t e. a 24 4 to o

4. si n.4r n m . ng a. .. . m i .A see a se h. .,s. c. stan ... . . m.a n..s. .. ..n,. . .shn.s,.. p

.aq.v..

. k .n.n..o a... e.J e in e is... . nq.I .. . un I ah de l..hn. 4a. I m h. . ,mi i 1. e n e s.o. . w.4. e . . .aq. . ,

i a4sema n i ague.g . 9 .#=.e. e . .a 6

% i A . 4n i ... . .a . upi... . . .

l Edison common stock tradedat '

record-highprices in 1986 and outperformedboth the Dow Jones utility average and the DowJones industrialaverage.

Lois Ingham, manager ofInves-tor Relationsfor Edison, dis-cusses the trading activity of Edison common stock at the new PacJic Stock Exchange in lin i Angeles with Mike Harper. the

• specialist who executes buy and sellordersfor the Company's '

securities.

In 1917. the Company adoptedas \

one ofitsfundamentalpolicies l the sale ofstock directiv to cus.

tomers, employees and thelocal e public. Edison's Securities Depart.

mentfacilitatedthe sale ofstock l

directly to the public. including e the multi million dollarfinanciotg ofBig Creek hydroelectric '

projects in the 1920s.

t e

n I

!i . .

f

. ' 30

I L

The raic of retum earned on com-Financial Review mon equiry was is i perceni. exceed.

3,,,, p,,,, c,,,,,,,,,

ing the 14.6 percent level authonzed the Compai.) recorded significant by the CPUC. Howeser. the return on -

Anancial achiesemerus in 1986. common equity would have been 14.8 [j, including: percent without the coal plant incen- . w.

• Earmngs per share reached an all- tise anard authorized by the CPUC. '*'

• time high of $3.28 for the sixth con- Contributing to the high level of secutive year of record earnings: earnings for 1986 were lower interest

• The Board of Directors increased the comnum stock dividend 5.6 percent to costs and preferred dividends resulting from the Company's aggressive re-Y 3.

r

$2.28 per share annually, the lith financing program, continued empha-

, increase in the past 10 years; sis on cost control and productivity.

• Total return to common stock share- and the reward for favorable coal plaru n' holders from stock appreciation and operating performaxe. The increased dividends was almost 36 percent. sig- earnings were achieved despits a nincantly exceedirig both she Dow downward adjustment m the Com-

. Jones utility aserage and the Dow pany's authorized rate of return on -

Jones industrialaverage. TheCom- common equity from 16 percent t 1 pany's astrage compound annual re- 14.6 percent and tefunds to wholesale "

, ,,,,n , ,, ,

turn of 28.$ perten over the past Eve customers resulting frorrlederal years alsohas outpe. formed the Dow Energy Regulatory Commission rate Tim cu,npeny n seat pnce has inmand Jones averages over the same period; decisions.

a The rnarket price of common stock Earnings also reflected a $15 mil-("",',d"g" ,P'",,*['(('h

,,4 g, oo jo,,, ,,4.un.j o.,..

reached an all-time high of $38% per lion or 7 cents per share, charge shareon August 21.1996: against income related to the portion of

• The quality of earnings reached its the CPUC's investment disallowances highest level since 1974 as the pen it- for San Onofre and Palo Verde that the age of earnings esclusive of non-cash Company did not appeal.

Div6 deed lacreases Compared Allowance for Funds Used Dunng in terms of the hnancialimpact of ,gth InGatton Construction increased to 81 percent; the portion of the disa".owance being

• Taking advantage of declining appealed. it is cunently estimated that a sch Dw*nd Reie interest rates, the Company issued a if the appeals were denied in their en. - C'"uawr Pf u l'**

tacord 51.7 billion of debt, allof tirety, write offs for San Onofre and ' *

• W' which was used to re6 nance higher- Palo Verde wot.ld total 5314 million.

cost secunties. The Company reduced This amount. which may be affected m,

its weiglued average cost of outstand- by the timing and the outcome of both - ""

ing debt to 9.1 percent. lower than any the appealto the CPUC for rehearing other major Cahfornia utility; and a possible appeal to the California in a innerest coverage, although down Supreme Court. is comprised of $l02 slightly from the 1985 level, at 4.2 million, or 47 cents per share, for past times remains well above the industry revenue collections that would be -- - "

average; treated as a charge agamst camings in l

• Internal genersten of funds reached 1987 and 5212 million,or 97 cents per , i .,

30 percent ofcapnal requirements, share, for a one time rate base adjust.

[ the most favorable leselin over 25 meet that would be reRected as a years. restatement of prior earnings. These "a

,

• amounta and hnencial reporting '*2 '*' '*d '*' '**

i RecerilEaralap and Rewaves methods asume that the appeals will nr naa'd d"*a's -d the omd'ad be decidedduring 19M7. whichis ""'"" ""* 8 **

• C8 P" "A"" "

Earnings and revenues for 1986 set '*'",

tsaa thr eith inmene m ihr pesi 60 years.

currently anticipated.

n,,,,,,is inesw.cas,nsinise m e isina.

t new records at $714 mdima and 15.3 Fin addcionalinformation on the . ,,,,,,,,,4 t,y ihr cii.,,,,,, pra t e..

bilhon, senpectively. nnancialimplication of thismatter, i Earnings per share of cienmon stock Pl c.ne refer to Nine 2 of " Notes to of $3.28 were up moderseely inwn Fm6acial Statements" m page 46.

l $3.26 earned in 1985. Earnines per i

share have grown at an annual com-l pound ruer of S.Y percent oser the past Ave) tars.

t 21

_ _ _ _ _ ___m___ __- ___ m_s

l Rate of Return Reduced in the plan. These participants pur.

chased approximately I.7 milhon Pretna Intereu Cmermee The CPUC. m August, concluded its re. shares by investmg os er 552 million of  ;

siew of the authorized rate of return on dividends and optional payments.

common equity for all major Califor-nia energy utilities. This review was Credit Watch System i undertaken because of significantly

,, lower mAation and interest rates. The Edison was the fint U.S. utility to op-

.. 4 CPUC approved a stipulation negoti- crate an early warning credit system i ated between its Public Staff Division that tracks the credaworthiness of its and Edison regardmg rate of return on 350.000 commercial and industrial . i common equiry and cap.tal structure customers. The system is designed to j for 1986 and 1987. identif) customers w ho are in danger .

. The approved stipulation reduced of business failure. Once identified.

the Company) authonzed return on arrangements are made to ensure that common equity from 16 percent to those customers will remam current on i their electne bills through cash de-14.6 percent in 1986 and to 13.9 per-cent in 1987. De effect of these re- posits. surety bonds or more frequent -

duced returns was partially offset by payments. This saves money for all m: i .i im m. . , , increasing the equity portion of the Edison customers by reducing the Companyicapital structure from 45 amount written off as bad debt.

turnings het= income i se no inieresa chnu.. Jehi .cw 4 : urnes gremer on percent to 47 percent. The impact of in 1986.the Edison credit watch e tu werwe smas Eien stugh latonieress the decision. independent of other fac- system reduced write offs by $2.2 mil-umerage me Ji a slighti> ironi las. 4 r.im tors. mas to reduce authorized earning lion. bringing total savings to 56.5

.4 4 : ume,is eweneni at .amfun8') levels by 17 cents per share in 19% million since it bege iver years ago, luyhrr Nn the inJuse) een pe and by an additional 16 cents per share in 1987. Capitalization DMdeed Increase lhe Companyi total capitalization at year end was $10.1 bilhon. Oser the liternal Generution of Funds in keeping with the Company's intent past hve >can, capitalization has to provide a competitis e return to com- grown at an average annual rate of 6 8 mon shareholder, the Board of Direc- percent. The capital structure at ton in June increased the Companyi year end 1986 was comp.~ed of 47.3 i..r . common stock dividend for the lith percent common equity. 6.6 percent time in the past 10 yean. Over that prefe:Ted and preference stock and time, the annual dividend growth rate 46.1 percent long term debt.

has exceeded the rate ofinflation by

,,,, , , . . 2.5 percentage points. The new annual Corporate Financings

,,, dividend rate of $2.28 per share is 5.6

~-

percent higher than the previous an- In 1986. Edison entered the capital nua! rate of $2.16 per share. The cur- markets nine times, completmg 51.7

• > rent dividend prosided a b.7 percent bilhon of financings-the larpt si h-

• yield on Edisoni year end common nancing pmgram in the Companh stock market price of $33% per share. history. None of this amount reped sented requirements for new capital.

DMdend Reittwstment and Rather.the financings were used to ,

a Stock Purchase Plan refund higher cust securities with .

i. : .. .. m. i..

lower cou debt Thew retinanemgs w* m n* nr. nnermins 'milair *hara The Company contmues to effer a were accomplished thmugh aggrewisc l in awance ree . mere he heen +.i.nn.1 Dividend Reinvestment and Stock Pur.

imennemem in un.an inen.t pene'** "' chase Plan as an investment option for tenJs in Nuh. er Gamtw) nwt mN .4 as immoNk Mhob. M

'$Z"**:'[3 year end, over 40.000 shareholders, or ahnut 25 percent of the holden of E4i-son comrrum stock =cre participating l

22 l

j

l

)

use of call provisions. market tender 1986 Financing Program proFrams and open market purcha.cs. Terre Amount Weighted Aserage Cost

', since the Compen) beFan its re- 5'" ' ' '' ' * *"'as i of Long Terni Debt fmancing program in late 1984 when saw mtis

, interest rates started to decline. Edison Firii one Refrnaies Martaasre mondu

, has issued more than 52.7 bilhon of ae A. 9' a k> s vio debt, mostly to refinance higher cost A68. n%9 32 2m securitiesaaving customers oser 570 **C 8M 3' 25 m4. **

i million in i sterest costs annually. "'"'"C"""*

' 3 , iii .,

.o Durirg the past three years.'ihe a s<. . to 2uu g.. Company has actively utilized provi-sions of the federal tas hv to pursue set 7'a 10 20a 4

seJ. Pollut** c.minut. 7 29 29 s "

, , the benefits of tax-exempt financing of not s'A 3: 125 pollution controlequipment at the San Taal sins, loved 6.429

{ ,

Onofre and Palo Verde nuclear plants.

The resuh of these efforts mas the is-c ,,,,,,,,,, ,,,,, ,j,;,, 3,3 I"'N" 3""e, t.742 suance of over $575 million in sariable -

l.

, rate tax caempt bonds. The variable u rinsin rs 3

i rate structure of these bonds has pro- '

vided Edison with s. ,e of the lowest Menamee B+ ads: "

[

financing costs available in the capital

[and RMn g ,w ,,,,,,,,, ,,,,,,,,,,,,

calecir.:. 4%9 . tui 8

markets. The average rate for 1986 ^ "'"" " '"".'"* "'""8 P'M*" **'

was O percent, Ongeha to lower the Company.i neighted aserage cost s

sinkmg Fund Obligatums . t .4, or debt from the peak of 10 59 in 1983 to Dese financings, along with main-9 i9 in i9se. .b.ch .in me cuwomen over taining a high qualit) AA bond rating, stoa nieriow. $70 millum annually have contributed to the reduction of 7% g,,, y  %

[ Edisoni averste cost of debt from x34, o9 4,2on

' 10 $ percent at year end 1983 to 9.1 nender punha,ei is74 percent at year <nd 1%6. This is the M t a 'A d= 2** icalh i2t#i lowest cost among allthe major Cali- PP. ItA. dw 1996 acalh c20ui $1,000 lawstment in famia unlttics' ^ # *W m'*" ' 'h Edison Common Stock W.129. Jer 2012 itetiders a 16.11 Edison is the only majorCalifomia LL. in.9. Jw 1981 acath 1.vh ,%

utility whose bonds have not been asc.1899,aw 206 ,

. gww,3 downgraded by Moody's or Standard nei*r purdanei al15 . li.im in.na inicsm . "'

& Poor's since these agencies first """*d"'2'"*"' '"'

tited the Company's bondt Petenes centret Resener a=de o

Although the Company's irpproved 64A. ur Raie. due 2mit sealb fI w intemal generanon of funds has re- # # # ' d*' * '* ' "

duced the need for new money to fund E_ _ 2 -

iss . dw im i,ath sw its construction program. Edison foresees another actise fmancing pro. cemen.ow Pnterred si ctu <ui Fram in 1987. This program includes 52 P IW4 "*d' '"h financieg for a modemic amount of

• lj $l new money as wellas the redemption Te Remriu "

of high coupon debt, manring bond ,,,,,, , , ,,,y swues, snking funds, and the restruc-g.,,,,,,,,,,,,,A g ,,y

, turies of the nuclear fuelImancing. To --.

, meet these needs. Edison will continue ,,

,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,.,,,,,,, , .: i.,, i ,,u ,,, son to Ithmitnr the domestic. Eumpean and JaE"nese financial markets to seek the "*"**""dd**d

lowest cost sourVes of capital. hbism cumnte siisk prmided a returfi en i inveshirs ut sinane %9 in 19h6 A $1.nUD

&livesiflWhi in kditaS n'1JfiffhEn sliid $1 ffW ltrginning al IWE2 minuilt have ghi.fiin $3.h4 h) yearvnd 19tio, s 6,emrmiund einmal return inf 2119'4 i

6 23

l Throughout the 20th Century. '

Edison employees have been at theforefront ofdeveloping ,- ,,

new applications ofelectricity .

to benejit its customers and .

l communities. At the Orange CountyPerforraing Arts Center, ,,

Edison energy services represen- .

l tetive Douglas Quick discusses the operation ofa new, sophisticated l

air conditioning system with Jam Napier, the Center's chiefengi.

1 - .

neer. Edison has given the Center l

an energy-efficiency awardfor a ,

system thatfree:es water during .

of peak periods when electricity .

isless expensive to generate.

creating massive blocks ofice thatfilltwo basement tanks the l si:e ofrailroadcars, which in <

p l '

y turn are used to coolthe Center ,

during the heat ofthe day. ,

n . .

In the early1900s Company ., t .;

^

representatives worked with ice -

rnanufat turers to utili:elarge -

esectrac motors to run ammoma .

t

~ '

^

• compressors, which provided a continuous supply of25-pound .,

blods ofice to preserveperish-

~

ablefood andrefrigeratefresh . .

produce shtpred by railto distant marLets.

4D I t

24

Palo Vertie Rater:1akit.g l 1988 General Rate Request '

Reytilatot} RC\ICW Stipulation f'

Ednon applied to the C?UC on San Onofre Units 2 asul 3 in October, the CPLC appmved e December 26.1986, ior an merease in Reasonableness Review stipulation negotiated by its Public base revenues of $265 mdlion annually, l StatT Dis iuon and Edison to establish or 4.7 percent effectisc January 1.

De CPUC's four year pmdene) re- ratemaking treatrnent for the Com. 1988. Fuel and purchased pow er s iew to determine the reasonableness panti15 8 per6ent ounershipinterest espenses are handled in separate pro-of the construction and start up costs in the three unit Palo Verde Nuclear ceedings and are not included in this for San Onofre Units 2 and 3 resulted Generstmg Station application De requested increase is

, in a 3 2 Commission vote to remose Edison agreed to the stipulatmn to designed to proside an 11.79 percent i

5344 6 millbn of certain costs of the avoid the protracted hearings and sub. rate of return on rate base and a rate of

, units from atet base. Edisoni share of stantial expense that a formal reasona. return on common equitv of 14.75 the disallowance is $258 6 million. bleness review of the Palo Verde percent.

The Company has asked the CPUC construction process migs entail. The

• The Company also requested an for a rehearing on 5284.3 mdiion of San Onofre reasonableness resic* additional $37 million rate increase ef-the disallowance-1185.7 million in required four years to coraplete, and fective January 1.1988. for previously

i. alleged licensing delay costs and 598.6 the Palo Verde review could be more authorized Palo Verde Units I and 2 mdhon m indirect costs. The Com- complicated because four state public costs. Together these actions, if ap-panfs appeal challenges the disallow- utdity commissions could be invohed. proved, would increase rates $302 mil-l ance of these items because it is The stipulation provides: hat: lion. ar 5.4 percent. on January I.1988.

contrary to uncontested evidence in

• For esery dollar of Edison's San in its application, the Company re.

the case. Onofre Units 2 and 3 disallowance, quested that the Commission approve l The Commissionidecision uas 19.3 cents of Palo Verde construction a new rate design that would more unjust in niany respects. including: costs are to be disallowed. Based on

' closely reflect the costs of prosiding

• De CPUCi Administrative Law the CPUC's decision on San Onofre as service to various classes of customers.

) Judge-the one person who heard all it now stands, the disallowance for Current rates reflect a long.tirne 95 days of testimony by 37 wi:nesses Edison's $1.5 b liion i.nestment in CPUC practice of keeping residential forthe Company and 16 witnesses for Palo Verde would total $50 million.

rates low while increasing industrial the Piblic Staff Division of the CPLC.

• Palo Verde will be phase 1into rates and commercial rates above the cost of and read more than 4.300 ethibits and oser a 10 year period. A partion of the sers ice. As a result, some commercial I 'efs-recommended nodhallowance; j resenue requirement of the insestment and mdustrial :ustomers are findmg it t disallowances are nohupported is being deferred in the first four years, by s recordof thecase;and cost effectise to mstall their ow n elec.

' but wdl be reem ered fully, w ith inter. tric genersoon facilities. bypassing the

• Be Saa Onofre Umts 2 and 3 wcre est. mer the follow mg sis years. Edison system. The reduction in seles I budt fasterand at leu cmt than other

• A target capacity factor procedure to these customers results in reserue comparable plants in the nation. identical to the one applied to San losses w hich must be absorbed la'gely i Additionalinformation on the Onofre Units 2 and 3 will be estab- by residential, agneultural and smaller financial implication of this decthion lished for Palo Verde. The procedure commercial customers.Derefore, in is available in Note 2 of" Notes to the pmvides financial rewards if Palo

> its cu tent rate request. the Company Financial Statemerits" on page 46a Verdeicapacity factor <a measure of is asking the CPUC toincrease resi.

. The CPUC is aho reviewing the operating efficienep exceeds 80 per. dential rates and decrease mdustrial 1320 million capital investment that cent and assesses penalties if the

• rates in order to pratest residen.ial the Compan) has made, or will make. espacity factor falk below 55 percent customers fmm even higher rates in in San Onofre Umts 2 and 3 betseen during each fuel cycle period, the future, the uruts' commercial operating dates and January 1.19kN.

, 1987 Attrition Allowance San Onorre Unit i Rate Matters

! Effective January I.19N7. the Com. The Company is seeking to include in puny w as authorised a 12.9 mdlion an. rate base $125 mdhon of capital addi-nuai revenue merease as an "attntion t;ons that resulted from seismic design allowance." ohech is a change m rates upgrading of San Onofre Unit 1. man-to reflect changes in inflatism und espi-talemis m the ye T hetween general rate cases.

l 25

\

Jated by the Nuclear Regulatory actions were included in an Apnl1986 j Rate of Return ce Common Equits Commiw.n. during an outage he- decision on the reasonableness of j tween Fet ruary 1982 and November Edison's 1984 fuel and fuel-related 1984. The Company also is asking the expenses.

"""'""*"""d CPUC to determine that 5193.5 mil- During 1986, hearings .5ere held on '

y, lion of replacement energy costs that the reasonableness of Edison's 1985 l resulted from the outage were incurred ECACoperations. Adecisionis -

,,, ter onably. The CPUC is expected to espected in early 1987.

n s. i. announce a decision in spring 1987. On February 5.1987. Edison re- .

In 1980 and 1981, the Company quested a $111 million annual rate l

cipended 153 million to repair steam decrease under ECAC. effectise June 1.

generators at San Onofit Unit 1. In 1987. The projected rate decrease -

1986, the CPUC ordered the Compani is pssible because oflower oil and ,

, to refund tocustomers about 516 natural gas prices and increased avail-million of the 529 million already col- ability oflower-cost spot market f lected and to permanently forego purchased power. * '

collecting the remaining repair costs.

The Company will retain 113 million Chevron Settlement .

, of the amount already collected. and m mi m4 m3 $16 million will be refunded through Edison paid Chevron Corporation future rate adjustments. Edison filed a $350 rnillion in May 1985 to settle liti-j, ", laws:it against Westinghouse Electric gation begun in 1982 mhen the Com-esceeded the umanad icvet pnmanly as a ,,. Corporation in March 1983 to recover pany termmated an oil supply contract i suh of fasarable snel ptant operanng perfar- the Costs asscciated with the steam before completion of its 10-year term.

mame under an meauve prgram esubl*d j

generator repairs. In Apnl 1984, the As a part of settlement. Chevmn by the CNC. On average he lm earned court dismissed severalof the Com- agreed to supply oil at market price

[ ',"dy""" '"""" """" pany's claims, and in January 1987, the under a new 10-year standby contract, coun dismissed most of the remaining and Edison agreed to pay Chevron 59 claims. The Company is currently con- million per year for the standby ser-sidering whether to pursue a court vice. The early termmation and settle-app *al. ment saved Edison customers more than $1 billion, and the new contract Energy Cost Rate Matters will tower oilinventory costs by pro-viding the Company with a reliable The CPUC authorized Edisor.io and competitively priced alternative collect $27 million in Energy Cost source of oil. Heanngs were com-Adjustment Clause (ECACI rates as a picted in 1986 on Edikm's application reward for efficient operation of to the CPUC to recover the settlement the Company's coal ftred plants- payment over a 2% year period and to i Mohave Units I and 2 in Nevada and find the standby contract reasonable. I Four Comers Generating Station Units A decision is expected in spring 1987. l 4 and 5 in New Meaico. The CPUC .

granted this award in 1986 for the Revaluation of Fuel i plants'1984 performance, based on OilInventory -

the Coal P' ant incentive Program established by the Commission. The Edison and the CPUC's Public Staff CPUC, however, disallowed $3 mil- Division agreed to a stipulation that

• j lion of expenses for research relat*d will resolve the disparity hetween the ,

fueloiltesting, fmding that thew pnce of fuel oilin inventory and the

. capenses would be more suitably re- cunent market s alue of fueloil. The ,

covered through base rates in a genermi stipulation requires Edison to revalue rate case proceeding. Both of these the fuel oil inventory, w hich was pur- ,

chased when oil pnces m ere much higher than the current market price. l l

I l

u

Edison will recoser the approximately lives and loss ofinvestrnent tax 5%.5 milhon ditTerential throuFh credits. The reduced cash flow and rates, with interest, oser a *o-> car Funds Required for Construction the lowercorporate tax rate will be period begmnmg June I.1987. The reflected in customer rates. The new -

CPUC approved the stipulation m "

tax law should have Imic impact

' $"]"*

, j '"*

, December 1986. along with similar on earnings.

agreements l'or she other Cahfornia - 54 a electnc utilities. Hydro Relicensing 5" 4

New CPL'C Cosnimissioners Federal enactment of the Electrie Con-

, sumers Protection Act of 1986 con-Stanley W. Hulett. a San Francisco cluded a successful effort by Edison '

, energy consultant. was appointed by and other insestor owned utilities to Governor George Deukmejian to ensure fairness in the federal reticens- ,

the Commissioning May to replace irig of hydroelectric plants. The new Wilham i Bagley. G. Mitchell Wilk, law protects the interests of trullions 5,f a special assistant to the governor's investor. owned utility customers by +

, chief of staff, was appointed in De- allowing them tocontmue to benefit cember to replace Priscilla Grew. from low-cost hydroelectric power.

Hulett's term expires Decemter 31. The Federal Power Act of1920 gave

' y p,. ,,p,,,

1990r. Wilk's term enpires December preference to municipally owned 'R w e ' PW 31.1992. utilities over investor owned utilities u,,o,c, conmucuo, progr,, ,,, o,, ,,,,

In December. Hulett was elected in licensing the initial development of eve tem n esumud io ioia: u 5 tnn.on.

President of the CPUC, succeeding hydroelectric projects. The Act was comped to H 8 binion for the pasi sve Donald Vial, who will continue to unclear as to whether that preference  ?5 C**$insenan expendmm a profected g

serve as a commissioner and whose term espires December 31.1988.

applied to relicensing wheu original licenses expired. If such a preference

', ,j'jg"'*,

ditinbuuan systems.

The other commissioners were to apply upon relicensing,it

, Fredenck Duda, who was appointed would give an unfair advantage to the by Govemor Deukmejian in 1984 for a relatively few municipal utility cus-term expanng December 31.1990. tomers over the millions of investor-

, Victor Celvo, who was appointed to owned utihty customers who paid foe the Commnsion by former Governor the hydro facilities and who now enjoy j

Edmund G. Brown. Jr. in 1%I. com- the benefits of low-cost hydro power.

l l pleted his term on December 31.1986. The new law establishes that there is /

Governor Deukmejian is expected to no statutory preference given to any appoint a successor soon. apphcant, meluding municipal utilities, when existing hydroelectne facilities Legislative Review am relic'a5'd lastead it r*9ui'*5 that the Federal Energy Regulatory

? Thz Reform Act of1986 Commission. when evaluntmg competmg relicense applications, rnust The Tax Reform Act of1986 signifi- determine which applicant is best candy changsd the nation's tax system, adapted to serve the public interest.

The major impact of this law on Com- The Company appreciates the sup-pany operations,other than a lower p rt of the shareholders, customers,

, corpornic taa rate will be a modest legislators and regulators who helped l

> . decrease m imernal cad. generation achieve the passage of this important l resuking imm lorger depreciation consumer protection legislation.

t l

l l

1 1

t - .

27

_-m____._______ ____..

i I

$86-1986 bneAy lowered the fare fmm St.

Louis to Los Angeles tojust one dol-lar. While that amazing fare didn't last X X long,it provided the impetus for a flow of new settlers into this region  ;

that coruinues to this day.

These new tesidents demanded the 1 (c, same quality oflife they had enjoyed IURY OF wn .

1>muformers areJirst used so raise genmuor nedput voltagefor long- *

'"a= "--"~a of'a"n a'"

100 Years of or desa u onioor r w '

Achievements "'d'a*"'"'a"-

service w thin Southern California in the East, especially those "new.

h Pioneer Years was especially chnitensing. ii ,as a fengied electric lights. In addmon to

}$86 l()0() resion of f*Pid gmwth and change, Visalia's utility, other predecessor and a place where even the geography companies of Edison were organized CD Ibe evening of kly 4,1886, a of the land-with its long distances in Santa Barbara and at Highgmve, in predecessor of the Southern California betwee power plants and populanon Riversade County,in 1886 (though i Edenom Company Arst pmvided elec. cenaers, towering nuntairs and blis- they did not deliver electricity until tricity for street lights in Visolia Since tering deserts-tesaed the hion, the following ) car), i that important day, generanons of dedi. daring and creativity of the people cased electric utility employees have working to establish electne service. I been worbng hard to provide an ade. In the same year that Edison's nrst ~'

gjJ 4

quase and seliable supply of electric ancestral utility began providing 4 power wahin the 504100 square-mile electric service, Gene compestion ,- ; . It s ans of Ceeeral and Southerr. Califar-nia that now corupnses Edison's ser- ggy '

& tornaary ? M in that arts are Calpornia'sjirst coswerreial hydro- '

't .

mon M % ckties and commu- electric plant, bwlt by one of a trio of

^

senes, and needy 10 million people, ,,,erprises der comprised Edson's ',

• While unlity worten across the cerfiest predrres. sors, begins optro- 4 nation faced difhevines dunng the tion at Nit hgr ne is Riwrzide L ,

pescer years of the electric utility c,,,,y, ,p - N imemoryu the task of provuhng electric 35 hers. Cety, ha wtdes, and her assiment same to gases trem General Etscerle +

to esmessernes earty atsetric cookkg spe namess. -

f1II More than 2/100 real estate agents were regineered in Los Argeles Couary in 1888 and iti not too sur- .

, prihing that 60 communities and -

towns sprung up in the greater Las Angeles area tiud year. Coupled with the cemvenient travel offersd by the new tremecontinental railroad systems, a serious blizanrd h1 the East in March of less inade California's washine seem especialty annctive. As will whsma eshtream the Peart af Mp. SAIL, Moebe a ghe ghts, part of the esame.

emps pheur ehmeras samas asha speema, tesehs eier lhe seest h apper hdt sereer.

38

Consolidation 1901-1919 During the first decule of the Neo-ueth Century, the original piorar electric coeganies were consolidated ineo larger regbnal sysee:ns. This arnalgamaoon of electne compames resuhed in more reliable and lower cost electric service > Southern Cali-

' fornia commmuties Under the dvection a president,

. j Jotwa B. Miller,:he Edisoe Dectne

.#- j Courpeny of tms Angeles quickly ex. l

• pearkd. The utility eventually pro-  !

a 4* vided power to conunuaties as far

' south as Santa Ana, north to Santa

- . Barbara and east to Redlands. To re- )

.J Sect this expaesaan, the Company's l name was changed to Southern Basd wwtaum immenE the test seemsat d punemet pipe sc Sig Croatt Na,1.

California Edison and it was rein-N'"'F '*4, the A

pipshe had the lunged and sesspost drip huma reservoir to wmast wtad d aar r--- h the wwtd. corpraaed on July 6.1909.

i Enp6oyees d h ad onber oxers seday, many of the Essaerners electne utilities coser-d to build eso planned a

Jy to vacation on M new power plants and expand their the sunny Ps.iic Come stayd and EAsan's Santa Ana Alwr No.1 Eyeo

\

becasme new tesadents fl**' bel "1i OPerotion transnaim'ng The & d Les Angeles and Po**!in*0EDSAn8tlesOWfshe Orange Cousnes =as 33,400 in 1880. mands longest (U miles)powr line.

This increased more than Eve times over to 190.000 in just 10 yers. Dur. poopte to the area. In 1895. the re-i img the 1890s. electne companies gion's arr.ual oibstput reached one west formed in many commumties so million barrels.

• meet customer demand for a service in this time period. farmers began

~

~

, 5 ihet qmckly tecame a necepity to benent from electric water pump-of life. 4, making irrigation of citps easier. Dining At Horne Denas the 1890s. Southern Cali- la 18194. che Radianch Electnc Light b==*'==****-6=

fornis's oil industry boumed, and the and Power Company, a prekessor of panostial forjobs and egehh from UlmY. sm.*o.u25 Scudern California Ediano, became $ *.%,T

wek gow"i d e.ouedi of d nr miiity io oef. f-n eiec.

tric neraping.1hc Redlands utility

=,,, w;;M;

• == assame.

• o was able to do this har=u== in 1893 it a,, ,, s"a m,l,a,7,',", ./

l began operatmg its Mill Creek No. t **

, g' =%"** " ' '*'**d hA Ate plant, the nation's Arm Comu tato-dayandlet twee-phase ahernating current power us abow you the mer.

plaat. This new generseas technology its of this new lamp.

could operuse moeori boner and more thently, and it was eventually w y.me. ougw e  %%h%

Jc. . Unned States.

in 1977, the Edison Enoctnc Com-r- ,

' th ========= servimos tusenese tree ruptisenes dhiruse eas Ight hudio pesy, Southern Cahfornia Edlenn's * 'O""" 8" W 4 by em estuary top d the IAny De- direct predecessor, began operulone growing and for electricity for same perussa.This servtse was tuyertmut lighes, trolley lines, hams and busi-la W Angeks.

ta the esys preer to the wetsspread oss neanas, la 1907. Ed6aos Electric Com.

d as enders mandard serew hase O* pony & act a worW record for

, long distance power line construction i

I

4 wit a ll8-asile ime to im Angeks from a Kern River trydroelectric plus. That line was aho the Erst to be supywed entirety on saeel towers. ,

The Santined's '=uanaan and la- q desaries r=s-af to smw rapdy Casfonna became the nation's leading

'g oil pro 6scing sante in 1900, wi& the ,,,,,

et sput concastrated mainly in South-

n California. Sm Pedro Harbor E

,warians increased followissg a em par expansson program coen- -

lMed in 1903. That year President , ,

' , modne moonven doo signed me Panama Canal Tsary, which paved 'h.

• tas Angdse Na,3 Semen Plant was the norw center et the Emmsa syiames la 1912.

• g65 ceher bummess esserynees did much to lighting engmeers developed Sood-foaur growe in Southern California. lighting systems to enable movie Mr. Huntington's bummess ventures directors to use indoor studnu for inchsded electric, waser and gas nhaing.

unastues is addition to electric railways. During this penod, electricity He helped to establidi the Pacife unge also was incitasing rupdy in the Light and Power Company in 1902 in farming areas of Central California.

order to build power plants to asswe The Mount Wlutney Power Compar.y.

adequase electric power for his trolley a predecessor of Southern California Dertug Eheartemi prumpertly Weekis operations Edison establislied in 1899, sold most IstB the Congeur 3med eat an doctrk The acN industry of Southern wegen @hk % af M Califomia began in 1906 when avia-tion pioneer Glenn Curnas buik a the way for construction of a project commercial aircraft at his manufactur-that would dramancally increase ac- ing facility a Santa Ana. A few years ttvisy et California parts.

la 1901, the P= cine Electric Rail-y a way was by Henry E.

gg,,,,, g,,, gy,,,_g,, g,,,g,,

Hannages e provide nelley senrice 73,,,,, ,,i , g,, g, pg ,c,g j,,, ,,,,,

3"***' A *** ***** N arson, skr namon's longest f!!8 miles)

• • • "*S** med highrst whnge D KVIponsr Iksr, itis thr}rst liar in skr nation enaMy seppersrdon sarcl apusofor is, emaire lenge.

lueer, Donaht Douglas staned manu-facturing aircreA in Santa Monca, and he buik the Aret planes to fly cmard the world. His aircraA gave Raides a poow pah h Ipu W e the Unhed Stases a decidad strenegk ist et maande pesar. .

adveneage when the nation assered .

Worm %hr I la 1917. of its power to farmers la the San Dy 1910 another enQarindusry was Joaquin Vdley for crop irrigation.That forndes la Hollywood as certy movie utility buik power plass along the makars began operations that would Kaweak andinsle Rivers so easbie the noen have a sigalAcant innpact on en. mgion's fannera m benefk from low-tortasament the world over. Edisoni cost hydroelectric generation.

Another prodrcrssor company of thsama ut em oss ees tenerte Edinos, he Nevede poww, Mlaing N 8"*""I'd'*

and Milling Company, was organized

_m . ______ - _ _ - - - - _ -

in 1904 amt inuwA*ly begna con- cet to build a massive 250 mile-long y .e . ~- n . _-

sanction d hydroelectric pleas along Bishop Creek. This cxwnpeny pro.

gravity-now aqueduct to bnng waner f # k '.[ff

' to Los Angeles from tir Owens Q, -

videst power for de erHng operations Valley. The aqueduct was cc---M4 _

E '

(-

in the Nevada som of Tonopah and Goldneld, as well as to salier minieg f" .-?"

gg3 camps along the Califa.n-Nevada '

b***** Eduon predecessor, the Pac #ic Light :

and Poewr Corponmon, energises .~

Aldmough most d thae m. .amg

• • • • * ***0Y bu **"*'

Big Creet PowerHouseNo. I amf k .' - m *.

Big Creek-Eagle Rock Transmission

> . de hydroelectric plaats still operase .

today. As asung operancas closed A Ming shein W @

,,go,. s largest Aydrorferark prohr. 6 -

g

, down. she power fross those trydro-electric plaats at Bishop Cnet was

f. (

sold in yh m r st in 1913 and immediately spurred -. .

M W by electnc m, new giowth in the Los Angeles area. '

Also in 1913. Humungeon's Pacine Ine Saudiland's cositiaued W L ,.

, led to demands for exne edecencky, @db

'h' * """C""" g 8 als Cnsk No. 2 phat, pheespiyhed and also for more piennful waner sup. h an jun hisme senserweima er i

pines. The area's low samuel rainian N.I W N.2.The h adellemal unha begsm.

dont weser resources of the Sierra Nevada mountam range thus began producmg power for Cemeal and Difficult Decades sowha Califonda. Since ihm time.

,' 1920-1940 Big Cseek facilities have been ex-pended to provate as much low cost Hemons Will Rogers was popular i * '

bydre poon to customers as possible. throughout the nation in the 1920s.

The M--;  : of Big Creek was Ba he was especally popularin 4

,. 4 a challengus effort. Huntington had Sowhern California, where he lived.

. . g to build a railroad. the San Joaquin W ~

and Easeers, in order to haul supplies Regers prtmded comic relief to Cali-fornia residents and others throughout lE ye '.

E and men so the remnae area of Bis she estion who wise facing serious 4

.% Creek. That feat was acecemplished ir. dif$cuines in the years before and

_ ___ _h July 1912. less then sia .1:omshs aher during The Cnest Depressaan i

work began even though Hustagion la 1923 sad 1924. a drought caused

• j l had some of the kne==s and other economic pmblems for fanners and i wedern earthmoving equipment for electne utilities and their custom-used today. ers, since Edison solied alsnost en-l taes tuost teams peneth eye users k anser ohne es,esere unemme mind t Aere Lima Ma. I as an Ant eny of sceness.

was insuftcient to meel 9te water

=

needs of $$ growing numbers of homas and businesses, while edit pro.

vidlag enough waest for fannlands.

As menumity dry weseer cyc6 at emiers of en comwy endenessed

, fanners' wheat csept and focused the pubitc) ansation on the poembility of

, ser6ams waar ihonnen. Aner much public disevenicas,las Angeles vosers appn=d i erent neitie4ener pm}-

passe Ekstich " Big Bed Cars"lutredmeed reged treedt to Smulbers CaWurule and prended mesmee treampartsein : mammai af ansehadne ser swe esa i

IS Fears.

t L 31

tisely on i;i-a-y ic power passes One of the few causes for ale- ,w-for elecanewy. la the lens part of the branon during this period was the  :

l 1920s. ihe Company expanded its P of the magnificent Hoover , ,-

mese generneag piant a long Beach to peewee fatwe problems due a Dem in 1936 which is still today re-garded as one of the largest and most g -

N p*

weser shortages successful engineering mervels in the y .. g Mejor earthquakes struck Southern world. h -

=

California is 1925 and 1933, destroy. The Edman Electric Cornpany had l i ,

I ing homes, ben- and one considered building hydroelectric fa- p ,

d ,, I power plant. Many Edison Q-g cilities on the Colorado Riwr as early gr vah=*ard to help wish relief as 1902, be trwumission of power ' ,

efforts, and the Company dommeed would have been dif5 cult and costly. -

asphes to Red Cross food mana=, and thoec plans were shelved. In 1921.

g \

'g\tj.-

s g ,'

, ;g .

s *

• i \f 4, .

j. * .i

'? 1 I-g-' 3 Hoover Dam, eartshead try eaglesers .

Vg [' h asse, beaume e reesty is Im.

g ,

)]' , '.

i Edison's proposab to build its own fa-

,(T < -

cilities, a compromise was reached in i k**g. -

- *I 1930 that designated Edison as the S- - s

, , , utility that would operiue some of

,[

~g ,

g{h , .

Hoover Dem's generators for itself and other in coor-owned utilities.

).-

, , . ,7 y The same compromise allowed the Ims Angeles Cvw.u.: of Water and g

et .

.. ( [- Power to genersee power for the par-g  ; .. ucipering stases, municipal utilities U 4 ,

mad the Metropolitan Water Distnet, to IN2, abrtug the upsenho af the Big Creek pr(set, warhamme carved the "hmes Deter nes** esatie of read streed grealm steeg te prodpleses gorge egiprowd,'and construccon began on atshe hus Jeugate ther. the world*: highest dam-726 feet-ihme woeid enase the world's lorsen Anoder catiesrophe acurst with reanmate lake. The project was com-the coingee of the City of Las M pieted in October 1936, and neady Anestes'sc. Franc 6s Dem. 45 miles Eaa predemaar. er Sometra milk ridems ddu ims Angehs northwest of Las Asgeles, which led 33rrr88 PaWF C8"peny. hiEr er ,,, gg ,

to extensive Gooding. As soon as en Jlrs geoebermaalpower prodeerson wff M he Arm delig d eW Beison line poeminen sati6ed Edison da er Uad8td 3888'8-hose Hoover Dem. Tbdey, this projart Dhysacher J. D. Poe of the dom's l ceaspee a a srw minnen aan mig. -

Emmon. in coopersion wim the U.s.

night on March 13,1928. Poe Geoirigical Sarwy esas surveyore ,

imunedissely phoned wereings to to eclect posessiel mises for hydro-commmakiss in ihe pub oren aging ewirte piens sions me Coloredo Soodwesers. Posi gelck shiesting was River. Edison ofteseis were pleased .

cmdited eith enviet many lives. wish the resents and Aled federal ... .

' ~ * = tobuilddamsandgener. '

ering facilities et severallocations.

But several utilitise ami egencies E.

wanted to be involved in developie$

power resources along the Colorado River. Ahor neuch detste is Can.

pseas she BoulderCanyon Actof 1928 passed. Although it ruled out wwh en enlama samh meses rum easketuseneemme teen me see, s -m=Usene as ones emper ageremiers trah h test. amenehe os no Congmay menem is ime h verteww aughted, 22 m_ _-___m_ _ _ - _ _ _ - - _ -

==*==== to guovide power to the cus- ,

sooners of Edusam and oder utilities. '

Dunng this period of history, the l dar=rb s of the 1920s and 1930s the

• I service someones of Southern Califor. -

[ nia utilities changed. In May 1922, i the Mann r'ampany completed the - r emnsfer of destnbutum facilities - -

wishis the City of 1m Angeles to the city's Bureau of Power and I ight.

, which today is known as the im * '

T Aag&s Depennust of Wanir and Power.

% t ma=nsin ham =* the menen%seen powhg area at the and et WW II.

la A'aguet 19M, taman and the tricity needs during this so. called City ofim Aasenes eukenged addi. War and Postwar ponwar baby boom;' These new tiomet duenhunos facihaes. The city. 1941-1960 larse-sc* seacracia8 Pbts also helped to lower electricity prices be.

.. On December 7.1941. Japanese war cause of economics of scale. Dectnc.

planes bombed Peart Harbor. The ity was pientiful, and appliance U.S. now was at war with Japan. manufacturers coerinued to introduce O- f. Germany and Italy. Business and in, new products for the home.

destry all across the nation focused

, . . . , efforts on aiding the war effort. ggg7

, l ,. . . . . a le Southern California. individuals

, Edison ergiar a mstarrA pro)cer to and companies such as Southern Cali.

consrol visible emissions med ss@lsr 7' .e . fornia Edison parkipsed in scrap diaride at its steen plascr. 7%s

.O .e a' g ,. . . ,. a *i = =nea -PPer. hon. - i.  % , ,o,,,, ,,,h # , ,<.

h brass and rubber for war menerials.

Peopic learned to live with less and Prorrom ofits kind in the industry.

supported goverrunent food and gas .

• , . . **.g0 _ runoning programs. Edison also Edison's gedng capeex.y soared a @ ts from one million kilowatts a the end

' -

• how m **ligk.

. proof" their homes to comply with *

!I " N *" "E" lion kilowatts m 1965. Although oil

. blackan gish la one of the more unusual events 888 ****'" M l Edhen't "lMk and Cress" Gemarus n Edison's history. Soviet Union ofil- f r die buk of his new generming w m heading spues as enn te n Pech Mtoon also doubled he mapin cials vis ned Edison's tag Beach which had purchased 4w tm Angelse Steer Plant so coordinsee the dis.

', Oss asJ Electr6c Corporanon in early rnant;mg at a generming unit. The i 1937, saw to Edison facilities outside fedesel gowrnment oincially seineJ '

l of the eky liniits that formerty be, the unit and ordered Edison to turn it - -

. lossed to LA. Ces and Electric, in over to Ow Soviet Union, a U.S. ally -

' meers, Edison gew to the city es. during Wu war. ,

tribsfon faciHeise in areas that had it.: U.S. and its allies prevailed. ,

been annesad bylas Argeles since Gennawy surrendered in May 1945. =- 4 l the original sales agreement between Three monahs later sher atomic k. ,

Edison and he city in 1922. bombs fell on Hiroshima and Nagasaki, Japan also surrendend f -

g Sidnerbs sprouted up acrees the pg

,' country as retutning U.S. treeps marted families and used Glloans to .

j .

x t

g i buy homes. Many of the weerans who T e

had trained at California military \

f lunes feloceaed their families to this "Amy Susens" ses the ayuhet of "8 ' '

88'eyde earts to 19864 Besen servisela me fossess and POP'II88' perted, hushed wheAdlag mry iteress, Edison anti other utilities across the sumsmur meter.

l .

cauary began building messive new power plants to most gruwing elec.

i r

'Ihe Modern Era anstrum= d me san oefre .- --

gg Nuclear Generating Station. That nrst San Onofre unit wes dedicated in ~ ~ A bsu'"

e di

la California, the 1960s was a de- January 1%8. pnits 2 W 3 wem ,

cade d dramene growth. In 1%2. im operata in 1983 and IW, l

California surpassed New Yort as the '*8P'C85IY-

• most populous stase. On December 31, ln 1%7, the Company completed the construeta of a major transmis-

1. g y ' -

1963. California Electne Power Co., , _

sm IM wis se Paci6c Northwest, i -

t ,

which served some 450.000 people in a 41.500 square-trule suvice territory, enabling customers to bene 6 from >.i g .

j the purchase of low cost surplus hy-W wis Eduan dmelectric power from the federally ^

owned Bonneville Power Mministra- -

p .

,414 tion. A secord transtrussion linit to the Paci6c Northwest was completed San Oasdre nedser unit No I emaered in 1970 as a joint project with the Los Angeles RFtw.a of War and 6cial aman reef, designed to enhann Power. At the time it was the highest marine life, was constructed off the -

capacity and longest direct cwrent Califormis coast as a joint venture transmission line in the world. between Edreon and the California Electne utilities have faced Rpi ;of Fish and Game.

dramanc changes in recent years, in- Another of Edison's many environ-ciuding increased public concern for mental projects involves the success-the environment, a more unstable ful use of by-product heat from world energy market, a shift away coastal generanng stations to cukivase froen the coast uctus of large scale lobseers and abalone. The warm water power plants, hL, .; of sherne- accelerates their smwth. Edison has tive and renewabic energy resources. pre vided thousands of juvenile and a changing business environment aba:one to the California Fish and 1th baser at the Garta Stuer Paper Southern Califerais Edison has re- Game for placement in ocean waters.

Cameaur was Eena's trat Muertd sponded well to these changes and is World energy supplies were plenti-agamuseshumaAmeenhema&ra

" f9C0$nited as one of the most sue.

cessful and innovative electric utility g Seashern California Edman con- compames in the world.

Edison began environmental studies h W rk 6 Angeles Depart. i timmed to expand its facilities to meet  !

g.h and P

. dedi.

the increasing demands for electncity related to air quality a the late 1940s ,gg gg. l by its cwaomers and ermed e nuclear and has implemeand a venery of en-power to moet some of that tecreasing vironsnental prtgrams since that time,

,,,,,,,,,,,,,,,,,,,,,g;,,,,,,,,, l g, ,

demand. la 1963 ihe Company began For example Califortda's largest arti-

,,,, , g 4,,,g,,, g ,, g highest cmacin andlongest daance DC traninussion line in he worid, and theJirst estro-Alghmohage DC line built in the Umrod Sants. .

Sal and prices stable for the period ex-tadsg froen the end of World War 11 untilI'v3 when the oil embargo dre- 1 maelmily twm M the pr6ce of oil, a j

, primary fuel for p.=:W3 niants.

Bdison respondad to the volatile ghf ' changes la the world oil markets by

.. promoting conservatlan and develop-

.o lag a wide range of energy resources

, Sines the 1973 oil emberpo. Edisce and other utilities have encouraged

]

= 0 customers to practice energy conser-fts carvent h====t Osmaral omes was esopheed and assuytsd hs 1971.

M

vasion and load management ("give , , ,

your apphances the afternoon off").

,b%

Fd== developed a number of conser-i N99 -

-r,, ,. ..

Eetson is the}lrst electric utility in the ',Me.<

o / e, . .

,a ,a ,,

' * ,t 'A nanion so maar a large scale commit. '.*

9 '

4' mar to thr dckm ofreneuaMe ..d ' ' ."

amtehernate energy resources. )

, varion programs to help residential

,, and Insiness customers reduce their

, emergy consumption. These programs i help to make maximum use of exist-

,- ing resources and reduce the need for budding new genernung facilities.

' Although Edison was involved in

. seier one, ne mese g erst M N m k W he several ahernative and renewable en- Grst power in 9982, ergy projects before October 1980.

dunng that month the Company pub. Tb take advantage of business op.

licly rnade a large-scale commitment p nunides beyond the traditional util. N to develop renewable and ahernate ity area. Edison established four Edison and Texaco, ine . jointly place energy resnuttes. Today, Edison pro-n n-utility subsidiaries in 1986. The into operation the woritsfrst vides electricity to its cuseomers from

• an Missi n Energy Com. coaunercial scale coolganfrarion a

nine different energy resources. pony, which is involved in cogenera- Pl ant that converts coalinto a clean anose than any other electric utility in tion and ahernate energy projects; burning gar so twduce e!cerricity.

l die world. Missson land Company, which is in.

' volved in commercialland develop- by the Company's president, John B.

' rwnt; Mission Power Estgineering Miller,in 1905, That morto has not Company, which provides energy en- changed. The people of Edison pro.

vide more than reliable electri scr-

! 1933 vice at !(reasonable cost. They help y Edsson o6sains ett ric powerfrom the cocvnunities in which they work nine prinaary energy resourres- ased iim, they have a genuine con-weser, oil .astural gas, mruniam, cool. cern fce the environment; they are teor 4crmal, wind, solar and ado, comrnined to providing quality ser-mass-more ersources #4an any otArr vice to customers; and their success j eiertric arility in werfd. over thfnars has benef'tsod share-

, f holder) / enabling them to earn a

' fair ret A on their investment and m ion m 'm

. e and Mis ion Financial Management , s Company, which will engage in Anan-ciel inwatments '.

Edbes leeredmeed a new esapany lege Edison and its employees have re. l I .

8'8 "8" N #

, aponded well to the dramatic chanprs -l -

, le 142. Southern California Ednan of recent years. Their combined ef. .

, , , saa th: pralgious Thomas A Edi. forts have enabled the Company to i

nos Award frorn the Edison Electric sh scognition for innovadon wnhin lassieuse, an association of electic the electric utility industry, and foi attheles dwoughanet the United Stases. being a good corporsee citizen in the The sumshorn CsApersie gehen Cess.

I lidiaan has received eel's top honor communities it serves, peep has wee es prudelses Themes four dmes since the award was estab- Edinon's long standing morio of A. E*= AwmW men does than any

" Good Servke. Sean Dealing, ashoe sWlph guld medals Der the lished in 1922, more times than any asher utility. Edhon won the award Cnuriscus Treatment" was Aru stand

• • • '"3 " "' "

g

= amear. nn. and age in ,",,,,,',,

ch.r A.C ,,, "'t'u,d., we. is .

1944.1%3 and 1932. The IN4 Award ves a eeresseee

' rusher Ihas a medal besogne of war.

thus ehertages.

I _

35

(

l ,s h e. r na-.h m - c.=,s.1 i

l Responsibility for Financial Statements Report of Independent Public Accountants l j i

j l

The management of Southern California Edison Company is To the Shareholder and the Board of Directors, f

remporisible for the information and representations con- Southern California Edison Company: i tained in the Gnancial statements and the related financial . l informanon presented in this report. The financial state- We have examined the balance sheets and statements or ,

meets have been prepared in conformity with gerwally ac- capitalization of Southern California Edison Con., any * ,

cepted accounting principles applied on a consiso nt basis (a California corporation, hereinafter referred to as tr.

and inchde amounts based on judgments and e .umates

)

" Company"), as of December 31,1986 and 1985 and the -

{

of rnanagement. related statements of income, common shareholder' equity 1he Company maintains internal accounting control sys- and sourses of funds used for construction expenditures for tems and related policies and procedures designed to pro- each of the three years in the period ended December 31, vide reasonable assurance that assets are safeguarded, that 1986. Our examina; ions were made in accordance with gen- .

transactions are execused in accordance with management's erally accepted auditing stsadanis and, accordingly, in- ,

authorization and properly recorded, and that accouming cluded such tests of the accouming records and such other .

records may be relied upon for the peeparanon of financial auditing procedures as we considered necessary in the sensements and other Gnancial informanon. The design of circumstances.

meernal accountmg control sysums involves management's As discussed funhet in Note 2, the California Public Judgmem concerning the relative wet and expected benefits Utilities Commission (CPUC) has issued a decision dated of specif e control measures. These systems are augmented October 29,1986 in connection with its review of $3.4 bil-by programs of inwrnal audits through which the adequacy lion of the Company's investment in San Onofre Nuclear and effecoveness of internal accounting controls, policies, Genersong Station Units 2 and 3. This decision ordered that and procedures are evaluated and reported to management. $258.6 million of the Company's investment should be dis.

The Company's Anancial statemens have been examined allowed. In addition, as a result of a stipulation agreed to by 6.m / .a with generally accepted auditing standards by the Company and adopted by the CPUC on October 1,1986, independent public accountants who have expressed their $50 rnillion of the Company's investment in Palo Verde j opmion with respect to the fairness of these stancments. Nelear Oenerating Station Units I,2 and 3 would be disa!-

The Audit Committee of the Board of Directors, lowed based on the above CPUC decision. The Company composed entistly of non employee directors, meets peri- has appealed $254.6 million of tre San Onofre and stipu- l odically with the independent public accountanc., intemal lated Palo Verde disallowances by Aling an application for  !

auditors and management. This Comminee, which rehearing with the CPUC. It is not possible for the Com-socornmends the annual appointment of the independent pany to determires the probable nnancial effect that the final public accountants, also considers the audit scope and outcome of the CPUC proceedings in this matter will natu e of other services provided, discusses the whequacy have on the Company's financial position and results of of internal accounting contruls, reviews Saancial and operations.

toporting issues and is advised of management actions m in our opinion, subject to the effects of such adjustments, these maners. Both the independent public accountants and if any, as might have been required had the outcome of the the inumal auditors have full and free access to the Audit matter referred to in the precsding paragraph been known, Commmee. the Anancial statements referred to above p:esent fairly the -

financial position of the Company as of Dacember 31,1986 and 1985 and the results of its nperations and the sources of its funds used for construction expenditures for each of the ,

three yen s in the period ended December 31,1966, in ,,

conformity with generally accepted accounting principles apphed on a consiswnt basis.

M4 ,

Los Angeles, California, anilwa ANDeastN A co.

February 11,1967.

l 36

I

. Senshern Caheereis Emmen Compney i Statements ofIncome Year Ended December 31. 1906 1985 1984

' (ln Thousands)

Operating Reveemes: i Sales (Noses l and 2) . .. . .. . . . . .. . 55.275,547 55.141.735 54.842.959

. Other . . . . . . . . . . . . .. .. .. . ..... 36,186 27.113 56.193 Total operating revenues . . ... ... . . .. 5,311,733 5.168.848 4.899.152 Operating Espenses:

. Fuel (Noets l and 2; . .. 878,040

. . .. . . . . .... .. 1.683.363 1.478.236 Purenased power (Nose 8J . . . . . 775,814 606,705

, .. .. .. .. .. . 705.724 f

. Provisions for regulatory adjustment clauses-net (Note 1) . 168,812 (607.036)

(460.337)

Other operaung expenses (Note 8). ... . .. . 809,080 755.325 728.625

. Maintenance . . .. .... .... . . 352,696 352.635 419.458 Deprecianon (Note 1) . ...

.. .. .. . .. 504.791 454.574 398.623

, lacome taxes (Note 4) . . . . . . . . ... ... . . 711,493 720.938 639.875

Property and other taxes . . . . .. . .. . . 143,274 130.571 121.342

' Total operating expenses. . l

. ... . . . ... . . 6 343,830 4.1%.094 3.932.527 Oper.Aias lecene .. .. . ..

967.903 t

972.754 966.625

' OqSer lacomm:

Allowance for equity funds used during construction (Note 1) . . 108,744 123.179 145 % 7 5

Interest income . . . . . . . . . . . . . . . ..... . 96,533 83.867 67.601

.[ 7hnes on manyting income-credit (Note 4) . . . . . 10,743 11.928 29.666 Other income and income deductions- net . . . . 41.MI 35.664 4,071

, Tbtal other income . ... . . . . . .. 254.091 254.638 247.305 Theal laceae Before laserest Charges . . . ... . 1.221.994 1.227172 1.213.930

, lakrest Charges:

Insevest on iting-term debt and amortization (Arc IJ . . 432.608 449,834

. . .. .. 426.783 Other inserest charges. .... ..... . 99,247 61,017 i

80.488 Totalinserest charles . . .. . 482,855 487.800 530.322 Allowance for borrowed funds used during construction (Note 1) . . (29,478) (34.515) (48,820)

Net interest charges . ...

483JM 453.285 481.502 Net I=*==* ........... . .... .... 768,617

. .. 774.107 732.428 Dividends on Cumulative Preferred and Preference Stock Se,684 71.698 73.043 Earnings AvaBable for Commen and Original Ptifttred Stack . S 713,933 I 702.409 5 659.385

. W.igheed-Average Shares of Coenmon and Orige.al Preferred

. S;xk Outstanding (000). . .. . . 217,732

.. 215.649 207.576 EaralasiPerShare. . . . .

. $3.28 53.26 53.1e

$ Div6dseen Doctared he Comunam Share .. . $2.28 51.13 52.01 i

p Ihr ad11ayestyerg strafra aery en integrealpart #per1rjnong solignesreirntJ.

l l

l r I

i w - 37

i Sesshara Ca0 ferule a % Campany

' Balance Sheets ,

1 i

Aas ..ts At December 31. 1986 1985 lin Thousesds)

~ Uttity Plast: j Utility plant, at original cost (Notes 1. 2 and 6) . . . . . . 513,676,746 $11.853.442 ,'

less- Accumulated depreciation (Noses I and 6) . . ...... . .. .. 3,506,000 3,152,141 .

10,090,666 8.701,301 Castruction work in progress (Nores 1 and 6J . ... .. . . .. 1,342,169 2.041.738 l Nuclear fuel, at amortized cos . . .. . ... . ... .. . 95,627 95.180 ,

11,528,462 10.838.219 Less-Property-related sensmulated deferred income taxes (Notes I and 41. . . . 708.436 531.746 .

Total mility plant . . . . .. . . .... . . .. . . 10,820.026 10.306.473-Other Property and lewataments:

Non. utility property and other investments, at cost-less accumulated depreciation . . 48,546 38.501 Special funds (Note IJ . . . . . . . . . . . . . . . .. . . . .. . .. .. .. .. -

24.326 Investments in and advances to subsidiaries (Nort IJ . . . . .. . .. . . . 207,282 162.786 Total other property and investments . . . . . .... . .. .. . 252,828 225.613 Current Assets:

Cash and equit lents (Note 31. . . . . . . .. . . 33,643 37,757 Cash investmr ats-financing subsidiary (Noac t) . .. . . . . . 65,545 163.979 Receivables tess reserves of $11.874,000 and 59.833.000 for uncollectible accou% at respective dates . . . . . . . .. . .. .... 364,396 351,095 V wk, at cost inrst.in, Arst.out)(Note 1). . . 133,528 255.508

!!.sterials and supplies, at average cost . .... . .. . . .. .. 123,400 106.178

- Regulatory balancing accounts-net (Notes 1 and 21 . .. . .. . 739,450 792,011

.".., ,a..:s and other . . . .. . ... . ... .. . 72,000 100.663 Total current assets . , . . ........... ... .. .. . .. .. . 1,632,414 1.807.191 Dohered Chargaat ,

Unarry.wtired debt issuance and reacquisition espense fNote 11 . . .. . 383,599 144.977 Rate phase in pla3 (Nuar 2A . . . .... ... .. . 99,690 -

Othre deferred charges tNewe ## .. ,, , . . ,... . . .. 145,439 109.195 Totaldefermicharges 4 . . . . . 530.68B 254.172 Total Aswis . .. . .. . . .. . .. . .. .. ... $13.244.982 512.593.449 Yar eniempwnme =m m en emerarsipers y thesejiawa-nd sawrawm.

3 11 M

e, e mh. n Camernia Edison Company e'.pandattoo and Liabilities At December 31, 1996 1985 (In Thousands)

C pie aimen-:

Common stock, at per value,216.906.527 and 216,676.897 shares

outstanding at respective dates, , . . ..,. . S 903,777 5 902,821 l Additional paid-in captal . .... . 1,546,541 1.543,933

. .. Earnings reinvested in the business . . . . . ... . . . .. . 2.343,957 2,128.646 r

+

Comnion shareholders' equity . . . . . ... 4,794,275 4.575,400

l. Preferred and preference stock without mandatory redemption requirements .. 365,654 466,500

?

'

• Preferred and preference stock with iriandatory redemption requirenwnts . . . 299,049 395.074 Img-term debt .. .. .. .... . . . 4.667,091 4.717.411

, Total capitalization . .. .... . . . . . ... . . .. 10,126,869 10,154.385 Ime-term Obligatieas:

Accumulated provisions for pensions. insurance and other (Note 5) . . .. .. 95,600 91.126 Current Umbulties:

Preferred and preference stock to be redeemed within one year . . . . . .. 18,213 20.463 Ims term debt due within one year . . . ... . .. .. ... 143,315 65,110 Short-term borrowings (Nore JJ , . . 328,000

.. .. 15.000 Short term borrowings-financing subsidiary (Nores 1 and 3) . . . . 48,000 148,850 Accounts payable . .... . . ... ... 401,489

. . .. 415.118 Accrued taxes (Note 41 . .. . .. . ... .. 460,171 233.722 Accrued interest . . .,.. . .. .. . .. 109,034 110.394 Dividends payable . . . . .. . . . . . . 127,783 122,347 Accumulated deferred incone taxes-net (Nort 41 . .. .. ,.. . . ... . 340,952 391,781 Other . .... . ... .. ... ... . 134,174

.. .. .. . 106.240 Total current liabilities . . . . .. . . .. . 2,085.560

_ l.595.3 % )

Deterred Credhs:

Accumulated deferred investment tax credits (Note 41 .. ...... , 544,866 485.614 Accumulated defereed income taxes-net (Note 4) . .. 121,943 32.062 Customer advances and other deferred credits . . . 270,434 234.866 Total deferiod credits . . . . . .. .. . . . . . 936,843 752.542 l Cimmenisments and Centlegencies (No:rs 2, 7, 8 and VI i <

i Tbtal Capitalization and Liabilities . . . . $l3.344,952 112.593.449

.  ; Thr emanpenysns nous m en weret part dohesopmancut swenments.

L 39

a.mn.r.c.ane.h rmi c y l Statements of Sources of Funds Used for Construction Expenditures Year Ended December 31, 1986 1985 1984 (In ThousandsI FUNDS PROVIDED BY-y+

Net income . . . . .. .. . . .. . .... . ... . ... . $ 768,617 5 774.107 5 732,428 hems in net income not affecting working capital-Depreciation . .. .. ,, . ... 504,791 454,574 398,623 , ,

Allowance for equity and bonowed funds used j during constrwtion . . . .. . ... ,, (135,222) (157,694) (194,787) , ,

Rase phase-in pl.n . . . ..... ... ...... .. .. . (90,654) - -

i Deferred income taxes . . .. .. 266,571 192,575 174.4 % '

Defernd investment tax credits-net . . . . . .. 59,252 84,134 55,323 Other-net . . . . . . . . . . 19,894 5.102 40.408 ,'

~

' Total funds provided by operations ... . .. .. 1,393,163 1,352,798 1,206,491 Dividends . . . . . . . . . . ... ... .. . . . (544,282) (532.265) (492.049)

Tbtel tends provided by operatione-reisweted . .. 8 4 8,8111 820.533 714.442 Ims wrm Fhancing:

Sales of securities-Common stock . .. .. .. . .. 3,504 90.770 209,321 lag term debt . . ...... ...... . ... . .. 1,427,426 1.111.880 627,860 Reduction for preferred and preference stock to be redeemed within one year . . . . .. . ... . .. . (18.283) (20.463) (18.213)

Conversion of preference stock . . , , ..... .... .

(845) (758) (1,764)

Inctease in other long tenn debt. . . ,. .. .. , - - 2,638 Reduction for long terrn debt due within one year .. . (183,315) (45.110) (101.250s Refunding and early retirement of prefened stock and long-serm debt-net. .. . .. .. .. . . (1,738,NB) (653.632) (403.896)

Total feede provided by (used far) long. tern Raaeclog . (412,731) 482.687 314,696 lbtallhads provided. . . .... . . . . 436,190 1,303.220 1.029.138 OTHER SOURCES (USES) OF FUNDS-Wertdes capitel changee:

Cash and equivalents and cash investments . . .... . . 102,588 20.268 189,669 Receivables-net . . .... .. . ......... ... ... . ... (13,381) 20,455 (70.859) ,

Fuel stuck, materials and supplies . . . .. . . .. . . .. 4.678 154.659 5.835 Accumulated defened income taxes- net . . . , .. .. . . . (90,829) 392,6(P 216.663 -

Presemd and prefennce isock and long term dete due within one year . 58,985 (53,890) 31, % 3 Short-term borrowings . . . . . . . . . . . .... . .. .. .. 212,980 21,900 (56,020)

Accounts payable . . ...... .. .. .. . .. . 13,629 6.005 31.028 ,

Accrued tases . . . . ... . . . . . . .... .. .. 136,d49 (2.653) (71.028) .

Regulatory balancing accounts-net . . . . .. . . , . . 51,961 (773.656) (394.603)

Ottwr changes in worklas capital . . . . .. .. ... ... ... 99,868 19.658 (9.9101 Net (increase) d$ctuat: in working capital. . . . . . . . .. 464,948 (194,446) (127.262) het centract settlement payseents, est of deferred tanse . . - (62.402) -

Specialihnds and other-est . . .... . .. .... . (1,410) 30.123 (49.602) h ether neerces tenes) et hieds . ... . .. . . .. 463.827 (226.715) (176.864) heen Used for Constreetles Espeediteres. . . . . . . . . . . . . . . 31,009.477 $1.076.495 5 852.274 rn,.n w .e .u,w ,,,,o w wu ,.

40

l l

.- j

,. Someers Camfornia Eausea Comipesy Statements of Capitalization December 31.19e6 Sharse Redempoon

Outstande.g Pnce 1986 1985 (In TAceaandr)

Cemenen Barssiders' Equity--detailed on page 42. ,, , 216,906.527 -

$ 4,794.275 5 4,575,400 Pntreal and Preference Stock-wshout mandasory :tdenywion requuernents (sKb):

, Onginal Preferred-5%, pnar, cumunative, participating, est redeemable, per value $8% per share , 400,000 4,006 4,000

Cwoulanve Preferred-pm value 125 per share (i): 4 00% Series . . 1,000,000 $ 25.50 25,000 25,000 l 4.24% Series . , 1,200,000 a

25.80 30,000 30,000 4.32% Series , 1,653,429 41,236 28.75 41,336 4.78% Series -. 1,296,769 25.00 32,419 e 32,419 5.00% Senes , 2,200,000 55,000

' =

23.25 55,000 I 8.65% Series , -

, - - 50,000 {

' 9.20% Series . . ,. - - - 50,000 l

, $100 Ceaulative Prefened-par value '

=

, $100 per shase: 7.58% Senes . 750,000 102.50 75,000 75,000 8.70% Senes . , , 500,000 104.00 N,000 50,000 i 8.96% Series . . 500,000 r

. . 104.00 S0,000 50,000 Preference-par value 525 per shase: 5.20% Convertible Series . 115,957 25.00 2,090 3,745 j $100 Pwference-par value $100 per share , , , -

6 lbial Preferred and Pwierence Stock-without mandatory rulempt.on requirements , 365,684 466,500

$ Preferred and Preterance Stock-with mandatory redemption requirements (axc):

> 5000 Cumulative Prefened-par value

, $100 per share (i); 7,325% Senes . , ,, 630,000 $104.04 63,000 66,000 7.30% Senes , , ,, ,. 524,995 l10.00 52,800 55,499 8.54% Series , 660,000 46,000 105.65 bd 250 -

8.70% Senes A . . 485,624 110.00 40,862 31,188 12 00% Senes . . - - - 75,000 12.31% Senes , 500,000 {

, , 105.83 2,000 50,000 Pisiennce-per value 125 per shanr 7.375% Senes . , 1,488,000 25.00 37,300 49.600 317,362 415,537 Psefened and Prefemece Seack to be redeemed within one year. .

(10,313) (20,463)

Total Pmferred and Preference Stock- with snandesary redernption requimments . 300.00P 395,074 Im e,eergs Debt-

, First and Refunding h4cngage Boeds (dWeXfWi): I"*"*'

Due 1987 through 1990, , 4%%-10% 308,000 Due 1991 through 1995 . . , , , ,

. 5%%-4%% 410,000 475,000 810,000

) 1 Due 1996 through 2000, 7%-0%% 890,030 490,030 Due 2001 thsough 2005. .. 0%%-9.95% 647,200 857,750 Due 2006 through 2021, , 7%%-16%

• and Variable 1,406,913 1,0P2,037 Firm henrypse Bonds

• (CalecincHdHe) Dec 1987 through 1991. 4%%-5%% N,000 46,000 Debeneau Due 1992 duough 1993 . 10 % % -11 4 300,000 200,000 j Pesensseory Notes (bMeMgXi) Due 1909 theough 1997 . ,

11 5 -13 % 196,100 233,958 Pellenan Conoci ladshesensastfWil Due 2008 through 2009, Vanshne 370,400 575,400 Odest 1.cas-tenn Dets leWh) .. ,, ,

10.57 % 36,7Ff 20,657 Petacipal amouns cumeending ,, , , ., , , 4.700,4 0 4,006,832 Lang,tena debt ese wtilen one year (e), ., ,

1945,318)

Unaman6and date premhum or (discount)-not t45.110)

(17,000) (i1,364)

Secunues held by trusases(f) . ..

l (11,223) (M,947) l 1beelImg.tenn De.J . ,,

4,007,3 1 4,717,411 1stelCephetseelso 384,136,000 $1u,IM.)as l ,

Naars so saeresernrs dCannee6iaerkus are on page 4,f.

)

l

> \

{

The atunpanysag mers m en taesmt pen 4 Aror)keancsel aaemnres i

41 j

i 8eathere CaWarmia Edisse Campesy Statements of Common Sitareholders' Equity 1986 1985 1984 (In Thousands)

Ceemmes Stock-par value 54W per share, 280.000.000 shares authorized.

216.906.527,216.676.897 and 212.552.728 outstanding es December 31 of respective years (a)(b): , $ 903,777 5 902.821 5 885.637 Additlemal Paini la Capital:

Balance at January I . . . . . . . $1,543,933 51.470.347 51.307.413

• Premium received on sale of Common Stock and conversions (a)(b): . . . . 2.664 73.652 163.774 Capital stock expense . . . .. ... . . (56) (66) (840)

Additional Paid-in Capital at December 31. . .. 51,546,541 51.543.933 51.470.347 Earniers Reisnested in the Busteess: ,

Balance at January 1. . .. . . 52,128,646 51.886,804 $1,646.425 Add:

Net income . . . . ... 76A,617 774.107 732.428 2,897,263 2.660.9II 2.378.85)

Less:

Dividends declared on capital stock-Common-52.25 per share for 1986.

52.13 per share for 1985 and 52.01 per share for 1984. . . . 487,778 458.551 417.115 Original Preferred . . . .. 2,131 2.016 1.891 Curriutative Preferred . . .. .. .. 51.311 67.676 68.203 Preference . . . . 3,062 4.022 4.840 544,282 492.049 532.265_

Loss on reacquired Preferred Stock . . 9.824 -

Eemings Reinvested at December 31 (c) . . .. . $2.M3,957 52.128,646 $1.886.804 Tetal Comunes Shareheuers' Equity at Decesaber 31 . . $4,794,295 54.575.400 54.242.788 l

Nases n $wemens of Common SharrhoJders' Equay arr <a page 4.1. l l

The ammpangen ,wes are en inornmtpart of sheseJfnannat surmonr..

e e

42

semahara CaNenents Fenom Ceampmay 4

L

! MM Not es to Statements of Capiteusatissi-aw As of Damamm 31.19es, ameansed les rw pmfermd and Preremace seces wie Manamwy aseempion aeqwmnenis, se aggregne emes far th: Onsmal Pmfened. $25 Casmus- mandmary miempean requuemems for lhe Eve years sutnequem to December 31.1986 m as ase Pteisned $100 Cunnianve Peeferml $23 follows:

Pteiseum and $100 Pmfenem Stock wese

! 440 ABB. 24 A00400,12.000A00.10 A00.000. No of Yew Ended Decembu 3i.

and 21alDA00 shoes, reopensep All nones sham Commewmg mi tvan 19ee 1990 199:

. of osemianw pmfaned. SiOO Cum i nve Pa. gion c,,,,,, y,,,,,,

, fened sad Pwforence Seock are redsamatde at p,q,,,,

es spame of ihn Company. The $00.000 shares of $100 Caunutsove Pwiened $anck.12.3m 7 32R 30m 7 3 a) s8.500 3m 53m $3m 5)m 53m not nabgact to sah sedssapuan unal 7 Bue 13.000* 14 30 83 1.800 1.800 1.800 1.000 Sansa, u,y 1, i s,e,2. The venous nones of $100s $4e . 22.M0" 600.se - -

2.250 2.250 ' 2.250

.. Cumulasw Prefened Stock. ed he Pmfer. 8 709 A 13.125 600 s$ l.31.1 1.333 6.30 i,j t 3 t.3 t 3 amor $ansk 747$4 Sensa, ase suhpect kicer. 12112 35 m *" 4 30 as -

LSCO LS00 3.3?$ 3.37$

tem suersetsans on fedengutaan f refundag P"""*

. ,, puyness 7.3 7se . , 496.000 2 04 e5 12.400 12.400 12.400 - -

(bl As af Deceester 31.146. $le conversion 515.213 122.01) 124.263 111.738 588.734 pace of en Pmfasons: Sanct. $.209 Conwn. summma am ammmes amma ammunens illes $snes was $15.75 per share. The 82%% *tacmans in 18.000 sham her. sins in its:

Cuevenelem.e Doheanmes Due ~45.aa0 sham relmies no 19s? and less have teve acgend ihnmen opus antes purcham i 1997. esamed by $embern Cahforana Edsson "*Dureams so 33.'50 seam besinaams in Apni I**0 Femens Company N.V . are convertdde osa Cangany conurum neach a the congruan Dunng 1986, the Campany made apuanal monasons of T.$00. l$ A00 and 13.123 4 ares of es prise of $161975 per share.

$100 Comnulattw Pmfened Stat. 5.549 Senes 7 005 Senes and 8.709 A Senes, mopectively.

Swh opuanal ._. messe me anal wres of enandesary redernpian meumneius.

(d) $ahmeseally su cf the paportan of de tf) F.ru and Refi.nhas Martgage Bands and on $l30.000400 and M.100 A00 pnneipal Campany em subject to the hans of These ashef indsheedaeu how have iuued to powen.

learuum amaum of the Ophrasists are, mpestively, un.

enemsel agences in eachange for the proceedn c=d==4y guaranssed and guarenesed on a frees the annuance of Polluuan Canoni Rew. whordinansd bases by the Congsany. The Sub.

tel Wesurams and sekas fund mpuements nue tone, and PoHusan Consol Revenue of long.asnn dahi for the Ave yeen ushesquest osdenesed Debenauei am conwetable imo the Refunding tonen. The proceedi have been. Campany's Cuauman Seach to December 31.1996 are as follows. deponsesd wah Trunases and are hnas mihard to defroy the conneset.an and asher sponAnd ths Pwomani to the Nuclear Wenee raisry Act Yese Lanse listias fama coast of poHutaan cuamot facihtari and etwe. o(1982 i Acts, the Cuanpan) han enseml uno a )

Dersoner b tessween teemreassi Tenni eses of seamanns ishears, $uch Bandi may be cannert e sh she U.S Dogmaires of Emergy

,,,,,,,, redesmed a ihe elecoun of me tend headers (= dispanni af pem nuclear fut fw se san 1987 . $ 98.06$ $$.230 $103.31$ The Campany ha6 essered vuo agmaeas. Unufm Nuclose Genermung Seahan 1988. 74.292 S.230 79.$42 wah seemey dralers which proude fur me m.

gegt 62.M4 $.230 anstetens or pochene of the Bands when much ,

67.794 til The $2$ Comedesm Pwfened Seach. 8 3516 >

1980 349.B23 $.725 335.$48 elsstaans am ande and 9 204 Senes and er $100 Cumulauw twl 144.134 6,230 172.364 Pwiewed.12 009 5enti ewd aderated .

t31 Pyonunnary Notes payahie ki $autern eering 1986 The Casapuny also reactpswed Cahfornia Edhean Finance Cangany N V $1..I'l A00A00 of hesh insema rear lung tenn 4Finanael have been enausd a eschange iur she debe swuugh ereder allers and spee market  ;

promods fnun te inamance of Dehsamurs >> pushmen 1 Pisana Ptyawas of the pnaspel and unema e

suun Neles es Senesensass of Cosmeen Shegeholders' Equity-sai 4:Deweher 31. Iveh aam uf Camsme ' Thew pian,sciuse en Diude imem .

=

% 4 mortalIntneuant som e6luttomi snase,i e4 ia m. is mean and Seus4 Pwchee Plan IDRPs. Seat 6ar

$evisgn Flem Plan ($$pPi and kniplayes Samt upp 2342.tu Am2iu Sheen Owasnhqp Plee lWOP) C mune Sast ew. ttur 2eu.us.

1.214.au C,evenam eif Pmessence houst. 888) 8488'd I"' the piani am pruesend 4 2M nerwe 4t att es.uuu i12 ott 9 304 Cemiesthis nones ine.ute 8"*l$ 8P88 8h848' Pu'dumet H-(,uneenne uf 12w9 Convenshte W Dehnnese, she Dennanimen a the capaal naust amamah tum 439 *14 LiH 129 ; 402 maa

[ hse 19tt. I.easd by Suutern ehering 14st.145$ and 1464 mee614tw innamme

' N Caldmune nahme Famenw C m, n .,,,,, 'd simmun

,.sa.. inutt esuu,gh me.n.or,nm u u u mai,.puntme un e.d ( 7. = ,,jg","g

• Sea,4 p ,en,m ,enn, 4.2 m'$79 Iu.as7 aam a ihe mess 1m pan id Pws.r. annend now mil earney sw me II seit lead. 9 Jout C evenshte Serses t$ Jirt 6mam toilere4 lamed liMbuelssirm pruent.

eM,M,$ t %4De ARE8 as Deweese 24.14ab

, leness see maanse and Ds unte.nen s.sure, Da i.cut a. 12We Canvenele 43 3 i

,ssemer. cam widen as r r -y

~ Notes to Financial Statements i

1 MOTE l m====ry of Sigelsenet Acessating Felicies Deproclaslem -

For Anancial reparung purposes, depreciation of utility J

Repubtise- plant, other than nuclear fuel, is compund on a straight- j The Company is regulated by the California Public Utilities line, remaining life basis using the composite service lives .  !

Comanesson (CPUC) and the Federal Energy Regulatory _by classes of depreciable property Commision (FERC). Accounting reconis are maintained Esamsted nuclear generating station decommissioning in accontarce widithe Uniform System of Accounts pre- costs, aggmgating $328,085,000 as of th 31,1986, . '

scribed by the FERC and adopted by the CPUC. The 6aan- are being recovered in rates through an annual allowance '

ciel mesoments reflect the resemalung pobces of these

• and chstged to depreciation espense. i comrissinas in conformity with generally accepied account-  ; $

ing pnaciples applicahie to rate-regulated enwrprises. Neelear hel- .

The cost of owned and leased nuclear fuel, including its dis- l UIWty Plaat- posal, is amor.ized on the units of production methort on the ,i 1he cost of additions, including replacements of units of basis of generation over its service life. Nuclear fuel costs l pmpany and bemerments, is capitalized and included in are recovered through regulatory balancing account  ?

utility plant. Costs include contracted work, direct matenal mechanisms.

and Irbor, coassucnon overhead, and en allowance for lhadi med during construction. Special Fands- , 3 ndaunenance, repairs, and minor replacements of and Restricuans were plated on a porton of the proceeds from I addhoons to geeperty, are charged to mameenance expense, ces tain pollution coneml indebtedness pursuant to conditions The cost of property replaced, renewed, as otherwise in the related tax esempt loan agreement. In compliance j resired plus nnnuval or cisposal costs, less salvage, is - with loan condidnes, such proceeds were utilized for the re-charged to accumulated depreciation. demption of indebodness incurred during the period in ptoporty relsend accamulased deferred income tases which me pollution concol facilities were constructed am deduced from utility plant in conformity with the rese-malung seethod used to detsnnier rase bene. Raseersk med C.. ';- - t (R&D)- 1 R&D costs are expensed as incurr if they are of a general l Asswomes See Feeds Uesd During norwc R&D costs relating to speciAc projects in advance of Cemetrostles (AFUDC)- constructeue are capitalized until a determination is made as AFUDC represents the cost of debt and equity funds, met of to whether sucn projects will result in the constr.sction of appiscehle income tanes,lhet Ammace the construcuan of sleetnc plant. If the weseuenan of electric plant does not asw facilities. The amount of APUDC capitaliaad is also re- ultimanely result, the costs are charged te :spense parted in the Statemenes of income as a reduction of interest ,, ,,

g,, g,,,, % 3,, ,,

charges for the honowed funds component and as caber in. g c:uas for the equity funds component. Aldeough APUDC ps.in nac som meress e nosen. . Htin us.esa ,

ire,' esses est inconc, it dees not represent cash semings. a&D som aessom,carnatuse R R 3 Ths caen recovery of APUDC, as well as other coess of hai R&D ensemensen gggg gyg g,g =

cunemecena, occurs when completed projects are placed ines camamenal opendon and mined depreenden is amho.

riast' to be recovered throupi roses.

The APU0C rees, which is compowided semiannually, ,

was 10.33 porosas for 19to,10.e0 percent for 1985, sad 0.14 parcent for 1964. These roses were calculosed in assentence wth a presenbod PERC fannula.

c1

h 4'

Sesshers CaWornia Etes Campany Pesesse lhass- The one-tinw write-down, aggregating S96 5 million. will

, Defermd income tases are provided for certam benents real. be recorded in the EiCAC balancing account pending futme imod frern depreciation deducocos uti'iaad for tax purposes, race recovery. '

repslasary balancing accounts, debt reacquisition expenses, The CPUC has established perforunnce incentive mecha-and certain coher sperine items. Income tax accounting nisms for San Onofre Nuclear Units 2 and 3 and the Palo policies an discussed further in Note 4. Verde Nuclear O===% Station which set forth a targeted

-a

' range of genersoon levels. Fuel savings or costs attnhutable Unassertiand Debt lasmance and to generemon levels above or below the target range are di-

1. =T e88= h F.spense- . vided equally between shareholders and customers Debt prennuni, discount, and related issuance expenses are amornand over the lives of the issus to which they pertain. Major Plant Addleless-Debt mecqmaman expenses are ariortised over the remann- Major Additions Adjustrnent Clause (MAAC) balancing

, ing lives c,f the reti.ed indebtedness when reacquimd with- account mechanisms have been established to account for mt refundmg and over the lives of the new deb: issues when the diNerence between revenues speci6cally authorised to reacquired with refunding. provide recovery of San Onofre Units 2 and 3 and Palo Venie Units I and 2 ownership costs and those actually Reveness- ir. curred.

Revenues are recorded based on cycle billings rendered to heterest on regulatory balancing accounts is accrued at the most recent three month prime commercial paper rate as

, published by the Federal Reserve. The weigheed average in-g , g terest reses for the years 1986 and 1985 were 6.65% and hlschanism that removes the eNect on earnings of fluctus-

" I"# ** * * **** ***"8**'"

ticas in kilowan hour sales to retail customers. Under this "8" *"# "8 *** "" *" ""'

nu chanum, diNerences between authorized and reconled " "# *"""" " ""

l be e re c revenues art accrued in a regulatory balancing act ount.

Faergy Cases- Investments in unconsolidated subsidiary companies are Am Energy Cost Adjustment Clauw WCAC) balancing ac- accounted for by the aquity method except subsidiarm couet a4uses moults of opersoons for vananons between the engaged in Eurodebenture 6nancings. tw these sub-rectsited Asel and purchased power costs and revenues sidimies, cash investments and short term borrowings colkssed to scover such costs. Differences are accumulated are presemed separnetly on the Balance Sheet. Other sub-l in the balancing account until diey att recovered frorn or re- sedianes are not considered signincent for Anancial report-l .

haded to customers iluough fueue ruse adjustments. In 1936. ing purposes

, the ECAC balancing secomit incheded a heel oil ca.1rying chargt based on sher uri)inessest reses. In print periods, am_ ,

i auch a arrying chargei wars based on the earned rose of Certain isenn how been reclassiAed in prior periods to con-maarn on rose base, form them to the classincations at December 31,1936.

Commenetag in 193 ?, Ibn CPUC has authorised a one-tune welesalown of she cost of heel oil levensory to motet pr6ces and the subsequent une of the lass ta. Aret<mt method for measurlag Ihe recoverable coat of fuel oil consumpt6on l

he= enc.ne.,mia> Edinem Csempany Nones to fmsnu asd $wements IGmunueJo i 9

I NOTE 2-RaguAasary Matters . A 10. year rate phase-in plan, which provides for the de-ferral during the hrst four years of operations of 5200 '

Neelanr Generating Facilkies million of investment related resenue for Wi of the Pela Verde Unita 1,2 and 3- three units commencing on their commen ial operation

% . ' M Rate Thatsment and Disallowance- date. Revenue deferred for each unit under the plan for .

Palo Verde Units I and 2 have been in commercial operation years I through 4 is $80 million. 560 million. 540 mil- I fx ratemaking purposes since iebruary I. and September lion and $20 million, respectively. Such deferuls are .

19.1986. respectively. Unit 3 is scheduled for commercial to be recovered, with interes:, during the final sis years operation in late 1987. On May 31,1985. as application was of the phase-in plan.

• 61ed with the CPUC for rate recovery of Unit I operating + A target capacity factor operating performance incentive I and ownership costs. This hiing requested raie recovery on mechanism substantially identical to the procedure in .

the basis of traditional rasemaking practices commencing effect for San Onofre Units 2 and 3.

when the unit achieved commercial operation. Because Palo Verde Units I ar'd 2 were placed in com- ,

On June 17.1%5. in response to a CPUC order to inves- mercial operation before the investigation of attemative ligate ratemaking alternatives for the :nvestment in Palo ratemaking methods could be ecmpleted the CPUC autho.

Verde. the CPUC 15blic Staff recommended an unconven- rized the . implementation of an mterim balancing account tional ratemrking method for the output of the Palo Verde procedure for the costs of owning and operstmg Units I units. This rasemaking method, which is knowa as and 2. With CPUC approvel of the stipulation, a reclassifi-

" avoided cost," was designed for non utility power plants. .ation from the interim balancing account to a defe red asset Under this method, generation is priced based upon the cost account was nade during 1986 to record the phase in plan of other generation sources, the use of which would be deferrals for Units I and 2. The deferred asset balance avoided thmugh the operation of the Palo Verde units. On aggregates 190.6 n.i; lion, including interest, as of Decem-December 18.1985, the CPUC rejeewJ the use of " avoided her 31.1986.

cmt" ratemakin; and directed the Company and the CPUC The Financial Accounting Standards Board is considering

. Put& Staff to investigate other ratemaking methods which the appropriate accounting treatment for rate phase in plans.

satisfy the CPUC's objectises of ensuring cost effectivenea The FASB expects to issue revised accounting standards for i and fairly allocating the plant's costs between current and such plans during 1987, tuture ta epayers. As more fully discussed below, the CPUC issued its deci.

In responw to the Comminion's directive and to avoid the sion on the casonablenen of $3.4 billion of the Company's pruirected hearings and substantial espense tha.: a formal investment in San Onofre Units 2 and 3 orderms that reamonablenen review might have entailed. the Company $258.6 million of costs be disallowed for ratemaking pur.

and the Public Staff negotiated an agreement an Palo Verde poses. Based on this decision,150 million of the estimaied raiemaking inues and, on June 2.",1986, filed a joint $1.5 billion investment in Palo Vetde would also be stipulation with the CPUC. The stipulation appetwed by disalkswed.

the CPUC on October 1.1996, provules for:

• A disallowance of the Company's Paki Verde investment San Onetre Unha 2 and 3-for ratemaking purpmes hused on 19.'IM of the amount Rate 1katseet- .

desallowed in the San Onofre Units 2 and 3 ressunabic. When San Oncfre Ursits 2 and 3 were placed in commercial new review. operation in 1983 and 1954, respectively, the CPUC did not I

authartse recovery of the full co6: of these units through ,

customer renes. Instead, the CPUC authorized the secovery ,

of a portum of custs and directed the accrual, m a MAAC balancing account, of the portion of sevenues not incliuled in roses. These accrued tevenues have been included in reported earnings without benefiting cas Acw.

Smce January 1.19uS, the total authorized customer raies for San Onofre Units 2 and ) have appmsimated invest.

ment relat:d costs.

dA

i 8sulhara CsMarnia ui== Campan)

CPUC Disatewance- the remaining disa:lowance of San Onofre and Palo Verde The CPUC has concluded its review of 53.4 billion o(ihe construction costs and 5212 million will be recorded as a Company's investrnent in San Onofre Units 2 and 3 to one time restatement as discussed below.

determine the reasonableness of construction costs for rate The Financial Accounting Standards Board recently recovery purposes, adopted a new accounting standard requiring the wrne off of On October 24.1986, the Adminiurative Law Judge construction costs disallowed and escluded from rate base.

.. ( AU) who presided over the wasonableness review proceed- The new accouming standard, which becomes effective for ings issued his recommended decision in this case. The the Company on January 1.1988, provides for the estate-AU's decision recommended that none of the San Onofre ment of prior period financial statements for cost disallow-Units 2 and 3 investment costs be disallowed for rate- ances occurring prior to the effective date of the new

. making purposes. nandard.

On Ossaber 29.1986 the CPUC issued its decision in Accordingly, assummg that the Company's appeals are

, this pmceeding. Based on the Company's 75.05% ownership deculed in 1987, as anticipsed. in 1988 (mancial staienent interest, the CPUC disallowance for resemaking purposes presentations meluding 1986 and 1987 nnancial seawments, would be 523d 6 milhon of the 53.4 bilhon investment in the disallc,wance will result in a one-time restatement of the San Onofre Units 2 and 3 under review. Under the Palo 1986 haancial statements. If the Company's appeals are de-Verde stipulation discussed above. 550 million of the Com-nied in their entirety, in its 1988 financial statement presen-pany's cuimated $1.5 billion Palo Verde investment would taions the Company will record an after tas charge agains also he disallowed for raiemaking purpows. The Company's 1986 earnings in the amount of 5212 milhon tincluding the share of the disallowances for San Onofre Units 2 and 3 and eher tas effect of the uncontested 554 million disallow.

.- Palo Verde is 5308.6 million. ance), or 97 cents per share. to re6ect the one time rate base On December 8.1986, the Company filed an application adjustment. The related restatement of shareholders' equity

., for whearing of 5213.4 million of the 5258.6 million disal- will be renected in the 1988 presentation of 19tl6 and 1987 lowance siih the CPUC. The unconiesied 545.2 milhon of hnancial statements.

,. San Onofre disallowance has been increased by 19.339 in if the Company's appeals are decided after 1987, the new i compliance u nh the stipulated resemaking agreement for

' accounting standard requires that any resulting wnie-ofh he Palo Verde investment com. bringing the total unconteueu tressed as a charge against camings m the year of the deci.

i disariowance to 554 million. Ic the fourth quarwr of 1986, sion. Under these circumstances, only the after tas efTeet of l an after tas wnic off of $15 million, or 7e per share, was re- the unconieued SM million investment disallowance would

[ conied to reverse earnings previously Gowed through the m- be recorded as a one-time restatenmnt in 1986.

come stawnwne stated to the unconfessed $54 million the Company cannot determine the prohable hnancial disallowance, effect that the hnal outcome of this matter will have on its The ultimate amount of disallowance may be atTected by haancial position and reschs of operations.

the timing and outcome of our appeal to the CPUC for re-hearing or by a pmsible appeal to the California Supreme Fiset Supply Cameract $sellensents and Proposed Court, if our appeals are decided in 1987, as anticipated. Dhatewanee-e and an denied in their ensuety, the Company curwntly eni- Durms 1985, an agreemeen mas reached with a major fuel mates that an additional eher tas wrne off in the anmunt of mi supplier to netde litigation artsing frum the termmation 1314 million will he ressweed, of which $102 millian, or 47 of a fuel supply contract. In acconlangt with the agreement.

, cents per sham, will be recunted in 1987 to reverse earnings 5350 milhon was paid to the suppler and a ten >est opsite

, previously reescwd in the meome Masernect missed to agisement for the purchane of low sulfur (wl oil was entered into. Under the terms of the uption agreement.

59 pulhon is paid annuall) for the sieppher's commitment to deliver fuel oil em mlatively shtsrt skiisce at current market pr:6ts.

I i

47  !

,5emebers Camernia Eases Compnay I.%es w Fanaati.d Statemenrs IComtmurJI Uranium supply contract termination agreements have The Company beheves that the terms and conditions of been reac hed to cancel contractual purchase obliganons with these fuel supply settlement agreements are reasonable and two uranium supphers. As of December 31,1%6, the Com. in the best interest of the Company and its ratepayers. Al-pney he,5 paad an 518.2 million settlement amount relating to though unable to determine whether the CPUC will allow '

one of the supphers and 555.8 million as a partial settlement recovery of costs under or resulting from the opnon and set- .

of a 563.9 milhon termmation obhgation relating to the tiement agnements, the Company believes that such costs other uranium suppher. are a proper item for rate recovery and does not expect that .

On July 29.1986, the CPUC Public Staff recommended it will be denied recovery of amounts that will have a mate- '

that 595 million of the sectiement with the major fuel oil rial advene effect on its financial condition. The portion

• supplier be disallowed. Dunng 1986, heanngs took place in of such witlement costs attribut ble to wholesale customers ,

which the Company presemed its rebuttal to the Public was included in resale rates effective March 7,1986. .

Staffs recommendations. Approximsicly 534 milhon of the dettlement payments for fuel oil and uranium contracts proposed disallowance, alleged to be unrea.onab!c by the have been recordes! in a regulatory balancing account pend- ,

Public Staff, represents the diiTerence between the settle- ing a decision by the CPUC regarding rate recovery.

ment payment and an amount referred to in a memorandum prepared for internal uw by the Company. The proposed Tha Reform-dnallowance is also based on the Public Staffs allegations As cxplained more fully in Nme 4, the CPUC is investigat-that the ERC rate settlement reached in 1986 with the ing the regulatory impact of the Tax Reform Act of 1986.

Company's rewle customers provided for. on a jurisdic. Commencmg January 1,19g7, revenue designed to recover tonelly comparable basis, a settlement amount less than the federal income tan expenu is being collected subject to se.

f;ll 5350 million fuct oil serJement. The Public Staff also fund pending the outcome of the investigation.

alleges that the wetlement is in cacess of an amount equive-lent to that paid by another California utility dunrig 1984 in Renale Rates-connection with a similar litigation settlement. The nmain- In accordance with ERC procedures, resale rate increaus der of the disallom ance inn jes interest through June I, are subject to refund with interest to the catent that they are 1987 and approximately $29 million based on a 109 nsk- subwquently determined by the ERC to be inappropriate, sharmg proposal. Operiing bnefs were filed in December As of December 31,1986, revenues subject to refund aggre-1986 and clmmg bnefs were filed in January 1987. In its gated approximately 571i2 million. The Company believes opening brief, the Public Staff proposed wveral new baws that the amount of refunds,if any,likely to result from the for disallowance including amounts ranging from 535 mil- outstandmg proceedings would not have a matenal effect on lion to as much as 5100 emilion. The Pubhc Staff also pro- results of operauons, powd that the allomable portion of settlement cost be ecovered without interest over four years A decision is ca. NOTE 3-Short term Barrowlags pected by mid 1987.

The Public Staff has also recommended that payments Unrestricted deposits aggregating approximately 57 million under the 10 year purchase option agreement with the fuel are maintained at commercial banks in order to continue oil suppher be dnallowed as unreasonable because they al- vanous lines of credit for general corporaie purposes. In ad- .

lege that the fact oil supply contract is currently unnecessary dation, commencing in 1986 fuel oil inventory is being and that the payments am vet cost effective. As an aherne- financed by commercial paper borrowings supported by new tise, the Pubik Staff pmpmes that the Company recover the and wperate lines of credit. Commercial paper issued by a opton agreement pe)mems to the entent that they are othet wholly owned subauliary is being used for the capitahration by wvmps from reduced fuel oil mventory levels.

)

of an affilisse engaged in Eurodebenture barrowings. The The reasonablenew of the uranium stetraiel witlements wbsidiary's commercial paper has lesen guarameed by the n hemp addrewed as part of a Commasum investigation ort Company and is presented on its Balance Sheet.

uranium pmeurement practices for whwh heanngs com-

%ced m August 1986.

\

a

, $suiksen Cagferais Edises Coaspesy I

e

-t Amounts and weighted average interest rates for the lines For ratemaking purposes, pmperty related secumulated of credit are as follows:

deferred federal income taxes are deducted from rate base

, ennemi

" and amortized or otherwise applied as a reduction (or in-crease)in fedrral income tax expense in future years. Accu-tmai w cadm . , ssot.o 5 o so o sasi.o mulated deferred investment tax credits (ITC) are amortized Amamm oumendmg. tis o 213 o 4s.: 376.3 over the lives of the related properties. Tax deductions relat-p . Weighed Awege

, lames name . .. 7.05 ing to construction overheali such as interest. pension pro-64% 649 6s%

visions and taxes charged to construction are acenunted for

.-* N

' as current reductions in income tax provisions. Deferred Lan of Cmdu . $572 0 - S 96 4* $468.4

'8 ' - # ' income taxes for such deductions and tas depreciation prior

' (' .

husmaame. s.9e -- s.2% s 2, to 1981 have not been provided because the tax effects of such timing difference reversals are not allowed for retail

, *tarmemes 6e aceu at sensassary tan d eredi me supponed try eeneral rase-making until the taxes .ecome payable. The cumulative

'"'"" '*" # #"d' '

net amounts of these timing differences wer: $1.903 million

' E ***"' at December 31.1986 and $2.014 million at December 31.1985.

The following table reflects the differences between state Carrent and Deferred flines-

and federal income taxes reported and the tax amount The curient and deferred w.. pts of income tax expense are as follows'- determined on im bek taxe@ @ig h W statmory tax rate. The federal and the composite federal Year Endsel Deconder 31. 1986 1985 1964 and state statutory income tax rates see 46 percent and u.raamuing,, $1.184 percent, respectively.

Caram:

1 Federal 1324.733 S t)9.edM)) 5140.$10 Year Ended December 31. 1986 1985 19a4

$#8e -  !.129 24.I4,} h ?.@

5.6 un Th-e#

_4,]3,913 0 4.759) 197.270 Espected federal mcasne un Defened-Fedwel and %sse: expenw as momeary re e ',

$ 675.908 $ 642.234 1 6 t ?.64) loweeament Ian svedus-net . 59.252 84,134 $3.323 enemane (Decmanei in tacums las Accelevened cou vocovery .

espense resulung frans.

synesia psuperty . 170.848 145.957 129,aos Allowance for equay and Dets seampmassaan enpenen 88.96s 24.453 31180 bornmed funds owd Reeviseury talancing accouse t)9.7441 365.29e 205.R dunas coenswtson . se2.202) 672.$39: te9.e02 Fuel ensurert wetenessa . 9.328 91.681 sis.104 Federal dodestane far isaar Oeue ,114,,,tijl ,,,,!)14l 6.714 tates on income

, 155.J$$1 (54.$7s e 146.414)

,jg7,ti,7 ,y,32,7gg ,,4,,12y,29 Nemocionan umms diftemaco n i en e m ..,,,a .

g, ' ggg ggg i. difermd

$iew v provtuon 80s.s9e 130.337 92.900 118.647 77.s4i 100.900

• apsme 1711.49) 17 2.938 96)9.57$ ' ' N i.e me ==. = rinded in "'*"""'"** 1.3e2 L.LatM L.taa' aser nr ,ttg;f}i ,ttig,3gi ,,t3tgggi Puma meone

((JgLjg2 g,lf,W, gQg,gg mainw memi nee.m. gggg ggg ggg erwave m ren aeus co ins openw- Pman mesmen g ,,,,,,,11 3 g Total income tan esponse includes the current tan liabihty

, penormoed from operssions and deferm! income taus pro-vided on certain seems of 6ncome and empenne which are reported ni different periods for tas anJ Anancial sporting purposes. Consistent widi curvent raietnaking procedures, l she paspr items for which deferred ine une tases are pro- 1 l wided include regulatory balancing arcsivat psovisions.

L necelerseed deprecianon under the pnnisions of the Accel-ermed Cant Itecovery System, and delst resequmtion costi.

l 49

___.a,_._ _ _ .__ _a-... - " - " -

Sasahara Caggarnie Eenas Campany Noors ro FunauwlStatements IComomurdi list Refeess- NOTE 5-Employee Benett Plans The Tam Reform Act of 1986 ( Act) retroactively -taled

' ITC for pmperty placed into service afwr December 31, Pension Plan-

' 1985, except for property then under construction for which A trusteed, non-contributory pension plan is maintained ,

there are various transitional rules. However, the Act re- which covers substantially all employees. The annual nor- i quires a 100% reduction in depreciable basis for any tran- mal rest of the plan is funded by contributions determined '

sitional ITC, Because the Compacy defers the recognition of ' on the basis of a level premium funding method. Unfunded .

ITC its elimination has not signi6 candy impacted earnings. prior service costs relating to 198?. and 1985 plan amend- '

Commencing in 1987. tne Ac: requires the capitalization ments are being funded over 30-year pe-iods. Pension costs _

• of construction overhead and Anancing costs for determin. are pmvided on the basis of actuarial determinations and ing the depreciable basis of certain properties for tax pur. amounted to 548.579.000. 557.859.000 and 154.820.000 for .

poses.1his change will inenase taxable income and reduce the yean 1986.1985, and 1984, respectively.

the diNerences between construction costs for tax and Anancial accounting purpows. ^*"O'- ' * '*

• The Act will also reduce federal income tax rates to 40 d' M8 percent in 1967 and 34 percent in 1988 and later years. The wa.d 5653.2m seos.240 pmvicions of the Act are not expected to adversely affect Non mud . S t .ter so.eao art inicome. MZZ jlEE Under present accounting standards, deferred income tax Na m available for plan bewan . gg l halances are not adjusted to reflect changes in income tas tai wu awabie h law or rates. However, an amendment to present accounting g ,, g ,g; requirements has been pmposed which would require adjust.

k i vald W ph Wt 8%

mer.. of defernd tas balances to reflect the effects of such and 7.5% as of January 1.1986 and 1985, respectively.

changes commencing m 1988.

ENW s 1987, e a mW W win Mfy pension plan accounting practices. Under existing regulatory The CPUC has in tieted an investigation to determine the "*"I' * " ' " ' ' ' '

will be recognized to the extent that cumulative pension eMeet of tan reform on racemaking practices. The investiga-tma will consider whether end to m hat extent reductions in s b h Ws hid a-certain non property related deferred tan balances should be W the acWal W mi% h new sW conv2yed to custamen through reduced rates. Any refunds

, g_

ultimately required by the CPUC should not adversely aRect An Employee Stock Ownership Plan (ESOP) and a Stock earnings but would prevent the retention of the benents of g ,; g,, p,g ggpp, , ,; ,

W tan nice m h the Canpany.

ployees' retirement income. Contributions to the ESOP are funded primarily by Federal income tan benents and con- .

tributions made by participating ernployees. Contributions to the 55PP amounted to $15.445.000. Si3.878.000 ed

$12.539.000 for the yeen 1986,1985 and 1984, respectively.

9 I

30

_____-____._____m.______m -

Smatlhces Californie Ediese Coogas)

Other Post-Retirement Beseets- NOTE 7-Leases Certain hedth care and life insurance benefits are provided for retired employees and their dependents. Group life Rental payments charged to operating expenses amounted to insurance benefits are provided through an insurance com. $130.497.000, $112,284.000 and $127.022,000 for the years

> pany. Heakh care benefits are provided through a combina. 19%,1985 and 1984, respectively.

tion of Company facilities and insurance programs. The cost The Company leases nuclear fuel to meet a portion of its

. of provLiing these benefits to retirees was $15,415,000, energy requirements. Under the terms of the lease agree-

$13.100,000 and $8,900.000 for the years 1986,1985 and ment, quarterly payments are based upon consumption of 1984. respectively. the nuclear fuel and are designed to return the accumulated

' investment ira nuclear fuel and a financing charge on unre-

. NOTE 6-Jointly-Owned Uttity Projects covend costs to the lessor. Such payments are recoverable through the ECAC procedure.

, The Company owns undivided interests in several jointly- The nuclear fuel lease meets the criteria requiring capital.

owned generating stations and trarnmission systems for ization under generally accepted accounting principles for which each participant must provide its own financing. The unregulated enterprises. Had this lease been capitalized, the proportionate share of expenses pertaining to such projects Balance Sheets would have included additional assets and is included in the appropriate category of operating *Apenses liabilities of approximately 5524 rnillion and 1551 million at l in the Statements of Income. The amounts in the table December 31.1986 and 1985, respectively. In accordance below represent the invesunent in each such project as re- with an accounting standard apolicable to rate regulated en-ported on the Balance Sheet as of December 31,1986: terprises, the assets and obligations of the nuclear fuel lease uu, r ,.. will be recorded on the Balance Sheet commencing in 1987.

. E. I,"U A",'.* ~'.'

i At December 31.1986, estimated rental commitments for rInThomsondu non cancelable operating leases censisted of the following:

El DoradoDansaumon Sperm 1 21.373 $ 7.424 $ $4 6000:1 Year Emded December 31.

Four Cornen Con!

,f, 7w ,

h*8 I"."*

-. t'aiu 4 & $ .tRS.234 R2.812 9.585 48 0 1987 gggg 12U 996 g g,3, Genereung $4maan 19s9. 16.515 200.5 4 79.127 2.270 $6 0 1990 P80' I"""" DC 14131 1 1991 Dennaussana Speem 103.363 19.719 2.800 50 0 12.022 l Fur Penads Thenaher i3.$5%

{

San Onofre Nwlear aan 46.1.200 14.537 491.108 l$ R '

N l Gracrums 5m== -  !

Oasil NOTE 8-Coseenitments j 440.132 113.4a0 24.066 80 0 Lens 2 A 3 2.919.30$ 310.269 24.565 7$ 05 i

ca.on. Fugnm 1

. Ceestructies Program and Finet Supply- l taan 2 & 3 s t2.722 64.i3s a.230 75 05 Significant purchase commitments cxist in connection with

• C"""'* Fad 8* -

t 165.154 the continuing construction, program. As of December 31, i

17.2:2 9.?aa 75 s7 1 g ,, ,,

swa. is.nna 15. 35 - no r St.033,228.000 for 1987,5813,567,000 for 19r8 and

, has Am Canhand 1893,89) 000 for 1989. Minimum long-term commitments rni Gensrums s.a. um _.uu - '25

" n.t2.1 M M Ihk I f

$1 1

. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ . _ _ _ _ _ - - ----o

=  !

,S.=ms=rs Caufernia Edines Csempney Notes no financial Stasements ICinrinuedi \

l of approximately 51,478,000,000, exclusive of the amounts transmission line is not operating, is included h Purchased required by the contract settlements with major fuel sup- Power and Other Operating Expenses, respectively, pliers discussed in Note 1 existed on December 31,1986 in the Statements of Income. Purchased power costs are under fuel supply and transportation arrangements, generally recoverable through the ECAC balancing account j procedure. Selected information as of December 31,1986 N=rtmar Waste Placy Act- pertaining to purchased power contracts is summarued in Pursuant to tir, Nuclear Waste Ivlicy Act of 1982, contra ts the following table: .

have been catered into with the U.:t. Department of Energy (DOE) for disposal of spent nuclear hel. Under contract Sh" Eff** 0F""8 C""'7 -

• i terms, a quarterly fee of one mill per lulowart. hour is paid D

3,,,,,, ,g, to the DOE for nuclear generation on and after Apnl 7 Total Eummed Amal Cost W . 5110.141.000

• 1983. For generation prior to April 7,1983, payment of a Compesy's Ponma at Eanmand Aamuel Com one-time fee equivalent to one mill per Itilowatt hour plus 4r'" to supplars' Annual nimimum Dent ,

accrued interest is ruluired. This one time fee has been S*" **'3"h ""'"") - 5 88 36' 000 Company s Alnucable Postma of teema of supphm recorded as a deferred charge pendmg future rate recovery, taciudad in Annual Mausman Dean semce. s 17.e93.000 and including accrued interest, approximated 526,091.000 g,i,,e %w o,,, ,, g,,,,, o,p cs December 31,1986. The obligation for this one-time rs amt Name fee is being discharged by equal payments ove 40 quarters. m 4,,,,,,, ,,,,,3,,,  %,, u,, ,epaned previously ese ii> die Such payments commenced during 1985. The arnounts actumoa or a contreet wiuch a no lanser icaserm.

charged to income for current generation were $10,740.000. * ^"d*8 "

• P"'" ** d * **""* "

'h' C P"7 '"".'

or energy campus from the coneneted facdiry venes at diffensa tunes 58.925400 and 57,707.000 for the years ended December 31,1986,1985 and 19A. ; respectively. Expenses associated Additional iefmh a of Decch 31,1986 mg eiMsposal of spent nuclear fuel are recovered through to both purchased power and transmission service contracts the ECAC procedure. is summarized in the following table:

Pmhssed nemieussen lang4erm Piarha=d Power and Tranandesion Centracts- Pimer m samee Under firm contracts, the Company has agreed to purchase Dem at Empirinae . 1e47-19eo 19eo-2016 portions of the generating output of certain facilities and to wnshan componeau of coereca . m e pun; hue titre transmission service where appropriate.

Although there is no investment in such facilities, these coe-

"Y toes .

s r'fs 36.310 Y\.524 t1.548 tracts provide for the payment of certain minimum amewnts twe. 41.547 9.612 e.*hich are based at least in part on the debt service require.

ments of the provider) whether or not the facility or trans.

II( ,'$

L,,,, yeen . ,

3 mission line is operating. None .uf these power contracts Toni . isa.252 134,797 provides, or is expected to provide, in excess of S percent of Las Amous Repmune lamme e current or estimated future operating capacity. The cost of

"**"" * *

• E' E

• PuelaPmwat wew gg g,gg

• pewer and firm transmission service obtained under these bias m far ee % w contracts, including payments made w'nen a Incihty or o c.,ew 3i.

ites . $ tis.322 1 12.007 taas . ei.42: to.oso asa4 . 32.02) 7.910 .

m Amause have base meured fran mais spanos pawnedy des no es

• eutenaan d a coupect wturn a no hunger long una (b) De vanable resignmenn of cenas remreets are tened on a pre.resa abert GI actaal operetag. mente, artes and fWel costa er ce the U S.

Ouverenssos a mi of iemee l

l

$2

(  :

5 Sauters CaMuruin Edisen Company i

~

i N(FIT.9-Consingescles The above licenses expire at various times between 1987 and 2009.1he licenses comain wmerous restrictions and Nuelser Insurance- .

obligations on the part of the Company. including the right .

,- The Price Anderson Act curantly limits the public liability of the United States to acquire Company properties cr. )

[ claisis tas could arise from a nuclear incident to a max. under certen conditions, the FERC to issue a license to a ,

! imum amount of $690 million for each licensed nuclear new licensee upon the payment to the Company of specined

=

facility. Privene insurance for this exposure has been pur- compensanon. Applications for te relicensing of certain chased b> the perncipants in the San Onofre and Palo Verde hydmelectric plants referred to above with aggregaae effec-Nuclear Ocaeranng Swiens, in the maximum available tive opersang capacity of 61 megawatts are pendag.

samar, presently $160 million with the balance to be pro- Any new licennes received are expected to be issued upon

. vided by a l_, Anancial protecnon required by the Nu. terms and conditions less favorable than those of the clear Regulesary Commission (NRC). Under the agreement empired licenses.

, with the NRC. retrospective premium adjustments of up to

$26.170/100 per year could be assessed in the event of nu- Antitrust Litigation-clear incidents involving any licensed reactor in the United la March 1978. Ave resale customers Aled a suit in federal Star-s. Ha Price Anderson Act is scheduled to empire in court alleging violation of certain antitrust laws. The com-1987; however. Congass is considering proposals to amend plaint seeks monetary damages, a trebling of such damages l and extend the act. and certam injunctive relief. The complant alleges that the Pmperty damage coverage is provided for losses up to Company (i) is engaging in anricompetitive behavior by

$$00 million at the San Onofre and Palo Verde Nuclear charging more for electricity sold to the resale cuatoeners Generanns Stations. Decontammanon liability and property than is charged to certain classes of its retail customers damage insurance in excess of the primary $500 million (" price squeeze"), and (ii) has taken action alone and in layer has aho been purchased. Insurance to cover a portion concert wie other utilities to prevent or limit such resale of the addinosal expense of replacement power resulting customers from obtaining bulk power supphes from other fman an accident-related outage of a nuclear unit is also pro- sources to reduce or replace the resale customers' purchases vided. A maair.mun weekly indemnity in the amount of fmen the Company (" foreclosure"). The plaintiffs estimated

$3.100.000 for a single unit for $2 weeks commences aher their actual damages for alleged price squeeze, before tre-the Arst 26 weeks of such an outage. An additional bling, at appmaimately $22.700.000 and foreclosure dam-

$1.5$0/100 per week is provuled for the nest $2 weeks. ages saemnung trom alleged loss of ener5y sad capacity at These policie are primarily provided through enusualinsur- approximately $76,000.000 before noblint , for the period sem compenses owned by utilities with nuclear facilities. February 1.1978 to l>cember 31.1945. The trial began on .

Iflosses at any nuclear facility covered by the arrangement July 8.1906 and concluded on Sg..h 26.1986. Find-were tu cacced the accumulated funds available for these ings of Fact and Conclusions of law we:e tied by the Com-insurance programs. the Company could be assessed retro- pony with the Court en Noveniber 21.1986. No date has speedve premman a4usenents of up to $$9.003J100 per been given for the decision. The foregoing pmceedings in-year. lasurance premiums are charged to Operating volve comptes issues of law and fact and, although the a Esponess. Company is unable to predict their naal outcorne, it has cenegorically denied the allegations of diese avsale Generassent IJeoness- cuseomers i

, The tevens and provisions of licenses grensed by the United

, Senses cover the Company's major and certain minor hydro-electric planes, with a total effective operating capacity of 943 messweets. These licenses also cover certain storage and segulating reservoirs and related treW; ion facihties.

l t

s3

W Caufsenis FAnos Campany Management's Disciission and Analysis of Results of Operations and Financist Condition RESULTS OF GPERATIONS Operating Revenues and Sales Appmximately % percent of the Company's opemting reve-Earudags Sessinary nues are subject to the jurisdiction of the CPUC The re-Reconi carnmgs per share of 53.28 were ach;eved for 1986, maining 4 percent represents sales to wholesale customers

)

up rnoderately fmm 53.26 in 1985. Net income declined which are regulated by the FERC.

)

slightly for 1986 reflecting the CPUC's reduction of the Operatmg revenues increase over the prior year by $143 )

l Compaay's authorized rate of return from 16 percent to 14.6 million or 2.8 percent despite a 1.2 percent decline in .

I '

percent, a charge to earnings related to the uncontested por- kilowatt hour sales resulting fmm mild temperatures and re.

tion of the CPUC's nuclear plant investment cost disallow. duced sales to resale arW industrial et stomers who obtained

• ances and refunds to wholesale customers resulting from more of their power fmm outside the: Edim system or fmm i l Federal Energy Regulasocy Com.nissbn (FERC) decisions. self generation. Increases in operating revenues totaling . I The effec *s of these regulatory adjustments were partially 1270 million or 5.5 percent in 1985 and 5435 million or 9.7 onset by a favorable coal plant incentive reward Reduc. percent in 1984 renr.t. in addition to the effect of rate ,

tians in interest and preferred dividends resulting from the changes, increases in kilowatt-hout sales of 2.6 percent and Cornpany's aggressive rennancing program contributed to 5.7 peirent, respectively.

)

the higher level of Earnings Available fer Common ard The net effect of changes in rates was to increase the Original Preferred Stock. overall revenue per kilowatt-hour by 3.9 percent in 1986.

As shown in the chart below, earnings exclusive of non. 3.4 percent in 1985, and 3.8 percent in 1984.

cash Allowance for Furr.ls Used During Construction The chart belew shows the changes in the major compo.

( AFUDC) as a pesceninge of total earnings increased to 81 nent. of operateg revenues which contributed to the overall percent in i?86, the highest level since 1974. Continued im. increase for the past thne years, provemera in earnir.gs quality is expected in 1987 and 1988 Effective January 1,19R7. the CPUC authortred an attri-as major nuclear and hydmelectric projects are placed it.:o tior, allowance increasing annual revenues by 52.9 million.

commercial operanon and included in rate base. The attntion allowance re.:ognizes increases in rate base and Qinelley of Earaines Operating Resesses-Changes i

e m - -.t. - em=n,

{

(namecomann u o sden ww Ounen

%, a Balmas Acuwe =mc changes um.m. sem O it II U y g, e

54

. _ . _ _ . _ _ . . _ U

Sesehers CalKerale Edisse Company cperating costs and reduced capital costs. The decline in come tax expense will be accompanied by a reduction capital costs resulted fmm the CPUC's downward r,djust- in customer rates and thus is expected to have little ce no ment in the Company's authorized return on common equiry impact on net income, from 14.6 percant in 1986 to 13.9 percent in 1987 and lower Any refunds which rnay result from the CPUC's m resti-interest rues from re6nancing activities. gation to determine the effects of tax reform on ratemaking Revenuo collected in 19tl7 for the recovery of federal practices are not expected to signi6cantly affect net income

. encome tax expense are subject to refund pending the out- but would prevent the Company from retaining the benents come of a CPUC investigation of the effects of the Tax of reduced deferred tax balances resulting from declines in Reform Act of 1986 on customer rates. corporate income tax rates.

. Opseating Expenses Othee leessee Fuel expenses declined over $800 million compared to the Utilities are permitted to capitalize the cost of debt and

, prior year nSecting reduced natural gas prices and in- equity funds used to 6 nance the construction of utility plant, creased use oilowef cost nuclear and coal generation. In This is accomplished through non< ash Allowances for addition.1985 fuel experses were greater due to fuel Funds Used During Construction.

contract settlement payments. .

The decline in AFUDC and accompanying non operating The effect on earnings of Suctuations in the Company's income taxes from prior year levels resuhed from a 34 per-fuel and purchased power expenses have been minimized by cera ce 1700 million decline in Construction Work in agulesary adjustment clauses established by the CPUC and Piegnsa. The decline is due primarily to the transfer of the FERC.

Palo Verde Units I and 2 to Utility Plant during 1986.

Increases in maintenance, other operstmg. and depmcia- Interest income increased by $12.7 million over 1985 tion eapenses continue to be in8uenced b / system growth. renecting interest accrued on increased balancing account including the commer W meration of Palo Verde Nuclear undercollections and revenue deferred pursuant to the Palo Generating Station Unit I on Fehn.ary 1,1986 and Unit 2 on Verde Phase in Plan.

Septernher D,1986 'shese . rends are expec:ed to continue as the costs of operming and maintain.ag Palo Verde Units I Peedias Cast Disallowance Appsel l and 2 are reRected in future periods and when Unit 31. The Company has submitted a petition for rehearing on placed imo corrmercial operation. s hich is scheduled for {

$213.4 million of its 52$8.6 million share of San Onofre no-laic 1987.

clear plant investment coats disallowed by the CPUC. The Romery of deprecision expense minbutable to San impact this maner may have on aarnmgs depends on the Onofre Units 2 and 3 and Palo Verde Units I ano 2 is amho- tuning and outcome of our appeal to the CPUC for rehear-riaed through the Major Additioris Mjustment Clause and ing and a possible appeal to the California Supreme Court.

the Palo Verde Phaie in Plan increases in depreciation en- For a further discussion of the Anancialimplications of this pense related to these units which are not recovered through maner. refer to Nose 2 of " Noses to Financial Statements."

• curmet reses are recorded in botancing and deferred annet accounts pending future rase recovery and, therefore, Jo not 3

affect earnings. -

The reduction in income tan espene is annhutable to decreenes in pre taa income and deferred i.tcome tas

, provinans.

, As espleined more fully m None 4 of "Nr.ts to Fmancial Sassements." the dochne m the corporate las feet under the l Tas Rekem An of tw6 ( Acts wdl reduce incorne las es-

penw in tw7 and inwe years. The . eduction m federal in.

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l Sesshere CaAmenia Edissa Campany issusvewar's normu.m sad Aastrm # Aesmers af opvousisms sad Fhemarent Candman (Centammeds t

FINANCIAL CONDITION Capital Requireanests The following table presents the Company's projected luternal Generades of Fonds . capital requirements for 1937 through 1991:

During the past tiuse years, the Company has obtained the test toes isee avec mi magority of its sequued wc*ing capetal from opersions. ri. ti no Almost 80 percent of the f.ompany's capital requirements Com.rucuan Espendemos St.03) $ 084 5 sed 5 se9 $ 310

' b 1906 wem provided by intemally generated funds, the . *j,*,Yne Dean.

• g 103 to se 356 I?2 highest level in over 25 years. The increased level -)f funds a.densvians er rwrevied gamermeed insemally is pnmarily att*!butable to placing com- "arwr - samt. ie ,,,,,,3 24 12 12 -

pleesd nuclear facilities into ruse base and tan benents CasaalA m m eim . g @ Q 52 Q resshing from growth in the Company's investmerit in ~ .

.. plant meets.

Projected construction expenditures include major lhe Tan Itaform Act il1986 will have a negative effect transmission and hydroelectric projects. .

on the Compeay's internal genersten of funds. The negative impact results from the retroactive speal c(the investment Capitalh aan cralit and educal snowabie h for depreciated. The Company's leag-term goal is to rneintain a capital struc-Amy mfuod of prior years

• deferred tan balances ultimately

, ,;g, ,pp,,,;,,,3y g ,,,,,, og g,g ,,g ,q,;,y,

'*luual by the CPUC m mAmet corpmu tan mac reductions The Company's capital structue as of December 31.1986 is resulting fruen the Act would have a further negative impact reflectad in the tab;e below:

on internally peserwed funds.

The Company's cash flow and liquidity will also be ad-Coinmon Equity . ... ... ... . . 47.34 Sersely affected try mvenues drferred W fuuse resemaking Pmferred and Preference Stock . . . . ... 6.6 P'n*ls pursuant to the Palo Venic Phaw.in Plan. The Lag Timn Debt . . . . . ....... .. .. .. . 46.1 todas and amount of revenue deferred under this plan is di ed in Now 2 of " Nones to Financial Steerements."

D Laquidity and Capital Resources The Company completed $1.4 billion of long-term Ananc-The Company's liquidity is affected principally by its con- ings dunns 1906. The proceeds of these Anancings and struction yngram. naancing asseeissed with segulatory additional short.wrm borrowings wem used primanly to balancing accounts and by celer capital requirements includ- manence higher cost secunties.

ing debt and capital neock maturitws. The capital resources Ensctive January I.1986, the CPUC as==aded its energy avslable to meet thcee mquirennents include funds from in- cost ratemakir.g policy to provide recovery of furt oil even-temal praeration and ensurnal neancing. Internally gener- tory Anancing cosas beeci upon short.serm debt inseres seed funds depend upon economec con 6tions and the roers. Recovery of such ce.aes was paviously bawd on the adryvacy of timely faer miief. Eaternal Saancing through Company's samed rear of meurs on rees bene. In confernuty ,

hort. term honowings and secanty masences is iaAusaced with the revised procednes, the Company uteliaes short-by marbre m maan a and oder factors including lieuesteuns term borrowings to Anance fuel oil invensary. The $313 mil. -

imp =ed by the Company's Articles of lacorporation and ten incmase in thort.asem borrowiats in 1986 is annbutable Trud Irdensue. At December 31.1986, the Company could pnmarily so fuel oilinventory Anancing. Detals of the innue appronimeerly $4.4 billion af ad6donal First and Company's ines of esodit and related short wrm borrowings ,

Refundsshloripape lands ce $4.3 billion of puformd are dncuaned in Nose 3 of "Noets to Financial 54awmrats." .

isork as curmat sneesent and 6*iiiread salen.

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^

Operating Revenues and Kilowatt-Hour Sales C!m .4 Servu:e Operaung Revenues Kilowan Hour Sales (Otth

% ot . ton Thouwadst  % S ol  %

19a6 tones 1986 1985 ch 1986 asal 1906 1985 g Residential. . .. 28.4 $1.510,925 $1.449.424 4.2 29.2 18.7M.947 18.582.806 1.0 Agricultural . . .. 1.4 73.260 84.282 (13.11 1.3 851.862

~' 1.014.564 (16.0)

Coneneicial . . ... . 33.4 1.777.551 1.625.179 9.4 31.4 .20.143.5,3 19.110.414 5.4 Industrial . 23.0 1.219.822 1.207.470 1.0 24.3 15.567.730 15.v7.038 (0.8)

Public Authorities . . . 8.7 461.3 % 427.704 7.9 7.9 5.017.729 4.885.200 3.9 Interdepartenental . . . -

81 98 (17.3) -

970 1.106 (12.3)

Resale . .. 4.4 232.542 347.578 (33.1) 5.9 3.7M.589 5.683.378 (33.7)

Sales of Electne

.; Er.ergy . . . 99.3 5.275.547 5.141.735 2.6

• 100.0 64.197.405 64.984.5M (1,2)

Other Electric Revenues . ..,

0.7 36.186 27.ll3 33.5 - - - -

.g -

Total., .. .. . 100.0 $5.311.733 $5.16s.848 2.8 100.0 64.I'17.405 64.984 4 6 (1.21 Operating ReveriIes by Rate Components l e l Raar Cgsarmin Operung Resenues Pmven ut Tosal de T4seuesado twu6 1953 144 1986 14s3 1464 Bane Rates-CPUC Jurisdiction $2.522.M5 $2.411.8% 52.382.081 47.5 46.7 48.6 Emergy Coat Adjustment Billing Factor 1.798.e97 1.587.763 1.413.433 33.s 30.7 28.9 Annaal Energy Rose 12.173 115,027 218.103 0.2 2.2 43 Major Addite Adjustment Billing i actor . . 801.276 732.232 395.545 15.1 14.2 v.I Oince Billing Factors 191.7t.91 152.617 145.522 1.71 (1.0) 2.0 Resale Rates (escluding in. , . . 232.601 347.494 295.275 4.4 6.7 6.0

, Sales of Electric Energy . .. 5.275.547 !141.735 4.842.959 99.3 99.! 94 9 Other Electric Revenues . . . M.186 27.113  %.193 0.7 0.5 1.1 Total . . . .

$5.311.733 $5.168.A48 54.u99.152 l'.10.0 100.0 100 0 ammum = = =ames mamme -

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4eushere Caggarnia Emune Campany Selected Financial Data 1976-1986 1906 1985 Senemary of Operat6ene Operming Revenues . .. . .. S 5,311,733 $ 5.168.848

- (4 thaeuands. Operating Espenws. . . . .. 4,363.830 4.1% 094 careptparrent and Fuel and Puerhasc41 Fewer Costs (a) . . . .... . 1,653,854 2.389.087 i per sherr dese) - Income Taxes Ia) . .. . .. . . . ... . .. 711.493 720.938 l Allowance for Equity and Borrowed Funds Used During Construction . . . . . . . . . . . .. .. ....... . . 135,222 157.694 ,

Total inserest Charges . . .. ... ., . 482,855 487.800 Net income . . . . . . . . . . .. . . 768,617 774.107 .

Earnings Available for Common and Jriginal .

Preferred Stock . . .. . .. . . .. S 713,933 $ 702.409 ,, .j "

Weigheed-Average Shams of Common and Original Preferiod Stock Outstanding (000) . . . ... 217,732 215.649 Per Share Desa:

Eernings Per Common Share . . ...... . . $3.28 $3.26 Dividends Declared Per Common Share. . . . .. $2.25 52.13 Dividend Payout Ratio (paid basis) .. . . . . . . . 67.7 % 64.4%

Raes of Return on Common Equity . . . . . . ... .. 15.M % 15.75 %  !

Ratio of Earnings to Fixed Charges . 3.83 3.30 i h Shast Data Total Assets (b) . . . . . $13.244,953 $12.593.449 (in A We. Gross Utility Plant. . . . . . . . 18.114,54:: 13.990.360 except perrent sad Accumulated Depreciation . ... . . 3. 2 6,000 3.152.141 per share does) Percent of Gross Utility Plant . 23.78b 22.5 %

l Common Stock at par value . . . S 943,777 $ 902.821 Additional Paid in Capital . .. .. 1,84,548 1.543.933 Earness Reinvessed in the Business 2,30.957 2.128,646 Common Shareholdm' Fouity . , . 4,794,278 4.575.400 Preferred and Pmference Stock

-without mandatory redemption requiremems. . Mf,684 466.500

-with mandssory redemption requiremems ici . . . 299,649 395.074 1.ong. Term Debt ici . . . .. ... . $ 4 M7,891 5 4.717.411 Capital Seusture <yercentt Common Shamholdm' Equny . . . . .. 47.3 % 45.1%

hrferred and Prefemece Stock

-wishout mandatory redemption requirernents. . . 3.6 4.6

-with snandesary redemption requiremerus (el . 3.0 3,9 Lang.1 brin Debt (c) . . . . . 46.1% 46.4 % .

Rook Value Per Common Sham . . . $12.02 521.04 Opersling and Ased hak Demand iMW1. 14,899 14.587 Estes Data Area Generating Capacity at Peak iMWi . . 18,330 17,776 .

Tosal Energy Raquerernent iKWH1 suoDi . 73,308,698 73.755, % ) .

Ptn*u Energy Requimimmt Tier r.ai . . .. as.6% $s.7s Renewable / Ahermative tixtuding hydrul 7.9 6.0 Pwchemed Poeve and Other sources ad). M.8% 35.3%

Kdoesn Huur Sales 10001 64,197.408 64,954.546 betage Anm.at KWH Salen Pei Residemial Censomer 8.999 6.099 Number of Cuneomers 3,NO.414 3.490.325 Number of Eniplayeen 17,883 17.182

... i i us.4 ur.. , t., .

is. tis. ii e e s =in. n ..

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l 1984 1983 1982 1981 1980 1979 1978 1977 1976 5 4.899.152 5 4.464.256 5 4.302.602 54.054.356 53.661.117 52.563.974 52.328,798 52.064.914 51.846.540 3.932.527 3.760.225 3.765.875 . 3.56? 201 3.288.983 2.178.978 2.004.197 1.734.192 1.539,400 1.084,941 2.027.756 2.227,901 2.558.2 % 2.010.227 1.532.903 1.204.749 1.189.597 903.447 639.875 497.236 177.251 197.865 38.683 100.292 72.803 68.792 59.506

, 194.787  %$856 303.118 232.552- 162.287 118.566 . 78.421 60.238 47.610 530.322 539.377 420.282 340.977 282.6 % 205.082 182.658 161.078 144.368

.. 732.428 690.780 555,754 489.912 317.536 346.219 251.683 251.979 226.798

, 5 659.385 5 617.303 5 483.358 5 422,024 5 256.586 5 292.481 5 202.226 5 206.330 $ 185.047 207.576 198.348 188.514 171.220 146.482 128.404 e 114.954 108.694 97.356 53.18 53.11 52.56 $2.46 51.75 52.28 51.76 51.90 $1.90

$2.01 51.83 $1.69 51.55 51.42 51.30 $1.15 51.03 5 .84 61.9 % $7.7% 64.5 9 61.59 79.4 9 55.79 63.69 50.5 % 44.2 %

16.3 9 17.0 % 14.99 14.99 10.4 % 13.6 % 10.79 12.09 12.4 %

3.38 2.91 2.44 2.72 2.09 2.90 2.53 2.78 2.83 l

511.358.710 511.035.060 $10.157.56. 58.699.721 57.706.933 56.949.917 56.030.045 $5.698.06B $4,993.330 I

12.835.031 11.886.610 10.764.078 9.517.570 B.406.309 ?.577.670 6.810.891 6.191.733 5.658.433

, 2.763.651 2.426.368 2.185.667 2.015.212 1.840.233 1.676.148 1.519.174 1.383.009 1.258.327

21.5 9 20.4 % 20.3% 21.25 21.99 22.1 9 22.39 22.3 9 22.2%

$ 885.637 5 839.501 5 805.766 5 730.027 5 632.115 5 540.791 5 521.138 5 455.387 5 442.739 1.470.347 1.307.413 1.193.318 999.764 805.325 638.046 595.701 458.096 427.424 l 1.886.804 1.646.425 1.3 93.7110 1.238.317 1.092.137 1.054.296 911.217 862.9 % 769.425 4.242.788 3.793.339 3.392.864 2.963.108 2.529.577 2.233.133 2.048.056 1,776.439 1.639.588

1. 7.258 469.025 471.020 476.30s 482.652 489.822 503.650 $18.172 537.753

, 422.286 440.500 445.000 399.500 399.500 324.500 197.000 197.000 75.000 l 5 4.248.647 5 4.051.8% 5 3.970.400 $3.444.080 52.945.824 52.746.207 52.477.474 $2.314.874 $2.151.86 45.29 43.39 41.09 40 79 39 89 45.5'e l 39.29 37.09 37.2 %

I S.O 5.4 5.7 6.5 7.6

• 5.5 9.6 10.8 12.2 4.3 5.0 5.4 5.5 6.3 56 3.5 4.1 1.7 e 45.39 46.39 47.99 47.39 46.39 47.49 47.49 L 48.1 9 44.9 9

$19119 $18.76 517.48 516 37 516.60 $17.11 516.29 516.15 515.34 I '

15.189 13.464 13.149 13.7.15 12.N41 12.662 12.159 11.564 11.315 e 17.354 16.M5 15. 4 9 15.592 15.504 15.071 14.966 14.278 14.071 e

72.4.11.6N9 6N.020.197 66.578.540 69.179.641 65.459.278 66.216.910 6.1.877.116 6.1. 4 4.706 59.427.973 54 09 48.5 9 55.5 9 67 69 11.29 N2.09 73 M9 57.49 75.1 9 76 10 4 9.7 5.5 92 77 93 2.5 4.4 M.49 41.19 34 59 26 69 19 69 10 19 16 94 10.19 20.5 9 6.1.110,047 59.8'92.58.1 59.326.85.1 62.451.319 59.915.lu7 59.517.p61 57.027.035 $7.726.273 $3.685.378 6.141 5.uN $,685 5.NM 5.9.19 6.010 5 H) 5.6.10 5.650

.1,400. lu2 3.325,3tul 1.275.144 .1.232.6s f 3.16.1.96m 1.0u2,42 2.9u6.545 2,900.856 2.514.403 16.544 16.242 15.797 14.569 14.157 12,917 12.545 12.671 12.510

.. e ies .. een pi.e ida leiteepe men DJeane ineaed seeensees alteenssies maorie.

' 59

0 .

SouternCaiserale Emmon Conspee3

' Board of Directors Hosard P. Atien Chcirman of the Bewed and Chief Executtvr Officer Roy A. Andenon Chastman <f the Etreutore Commettre. Lakheed Corporation. Calabasas. Calofornia NormNn Barker,Jr. Fewmer Chairman of the B<wrd. Fint la tentate Bank of Csd@wnia. Los Angelr<. Calife enia H. Frederick Christic President ,

Warren Chrinophcr Seniew Partner. law firm etO'Melveny & Myers. Los Angeles. Caloftwnia Camilla C. Feost Chairman uf thr Etecutive Committer, Los Angeles Countv Museum ofA rt. lcs Angeles. Calufarnia Wsiter 8.Gerken Chairman of the Bewrd. Partfic Mutuallele Insurance Cennpany. Newport Beach. Calpenia William R.Gould Chairnaan af the Bowrd Emeritus and t :msultant iRetired Chairnum eithe Board and Chief Eterutive Oplcer. Southern Calf wnia Edisum Canpanys. Long Beach. Calof<enia Joen C. Hanicy General Partner and Manager. Miramonte Vineyards. Rancha Cad +wnia. Calfwnia lack K.Horton Chairman of the Eter. nave Commorrer and Consultant tRetired Chairman of the B<wrd and Chief Esecutive Ofu er. Southern Cal $wma fJnom CennpansI, bus Angeles. Calpenia Cart F. Hentsinger General Partner <f DAE hmitrJ Partnenhop. Ltd. I Agricultural Mana erment s. Ojan. Cal $wnia J.J. Fmois Chaurnean of the BowrJ and Chief f:tecutive Officer. Fint intentate Bancewp.

bn Anneles. Cal +wnia 1ames M 9.owt Presodent. Calofornsa State Unn en tv at Lan AntrIrs. bn Angeles. Cal $wnia Henry T.Septruttom Managing Partner. C. J. Segentremt & Sons t Real Estate Developments. Costa Mesa. Caloforma ti. L Shannon.Jr. Chant man eithe SturJ and Chief f.tecuruve Offu vr. Santa Fr Imernatumal Cowporatum IOJ Servu e. f:nnmerreng. PetruJrum Esploranon and Prominctiren o. Alhanehra. Cal +wnia d'H RunellSmith Chairnman sithe f:terutive teunmrtter. As en InternatumalIManufan turer of Self.Adhesis e Preninctsl. Pasadena. Cal $wma tidaued Zapente. M.D. Phssocion andNeuranurserm. M<mteres Park Calo.otenia ,

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e mum's a04:005 tustrions (seated frum kft t han C. Hanky; Jack K. Morton; Howani P. Alkn; ll. Frederick Christie; William R. Gould:.Camilla C. Fnnt. Standmg frum kft: Edw ard Zapants. M.D.; Waher B. Gerken; Roy A. Andenam;

{

• Henry T. Segerstrom; Norman Barker. Jr ; Warna Christopher; H Ruwll Smith; E. L Shanam. Jr ; Carl F. Huntunger; Jones M. Rowr;J. J Pimda.

I i

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a W CatWorain Edinos Censpea)

Executive Officers I

Howard P. Allen . Chairnean cf the Boardand Chief Executive Opicer t

H. Frederick Christie President lohn E. Bryson Erecutive Vice Presidens and ChiefFinancial Oficer David J. Fngarty Executive Vice presidew Michael R.Ptsvey Ertrative Vice Presidem - ,

V. L. Martin Senior Vkt President .

L.T. Papey Seniew Vice President Kenneth P. 8askin Vice President tNuclear Engineering. Safety and Licensing)

Glenn J.9)orklund Vice President ISystem Plowning and Researchl Robert H. htidenbecker Vice Presiden tfuelSupplyl John R. 8ery Vice President andGeneralCounsel Rickard K. Bushey Vice PresidentandComorodler Robert Diesch Vice President IEnginecring and CemstructumJ .

1 C. E. Hathaway Vice Presidens tHunaan Resourcess Charles E. McCarthy.Jr. Vice Presidens tCunenner Servoces Michael L. Noel VicePresidens andhrasurer ifatuid8. Ray Vice President n.nd Site Manager, San Ontfre Nuclear Generating Statron

"* Honor Muller Carpwore Secretary

'2'Jennifer Moran Carpresse Serresary

" ta timmer reamt rariIn, tan marr M. tus ti Werum nas ein ardreepinese Sriereen r)e ene Asamen f.tw? .

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Quarterly Financial Data Quarterly financial information for 1986 and 1985 are re. declared and paid quarterly. The Indenture securinF the First flected in the table below. The Company's common stock is and Refunding Mortgage Bonds provides, in substance, that traded on the New York. Pacific and London Stock Es- cash dividends shall not be paid except out of earnings rein-t hanges. There were approximately 158.000 common stock vested in the business and net income.

shareholders of record at December 31.1986. Dividends are Per 5twe sal Praen Operstmg Operstmg Net On usends Resenues income Imome Earnings Declared High toe tin Mollunu. Escept tre $hmvr Dum 1986 First Quarter . 51.240 5250 $199 5 .84 5 .54 531 % $25%

Second Quarter. 1.211 235 194 .83 .57 32 % 28 %

Third Quarter . l.550 267 217 .94 .57 38 % M%

• Foarth Quarter . 1.31I 216 159 .67 .57 36 31 % l 1

Total- 55.312 $968 5769 13 28 j

- - - - _52.25 ,.

g 1985 Fint Quarter . 51.217 5251 5201 5 .86 5 .51 524 % $22%

Second Quarter. 1.228 241 190 .80 .54 27 % 23 %

Third Quarter . 1.452 264 210 .89 .54 27 % 22 %

i Fourth Quarter . 1.272 214 3 .71 .54 28 % 22 %

Total 55.169 5973 5774 53.26 52.13

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4

. ,$etahr-e Camformin Edison Cesnpeny Distribution of Record Shareholders and Shares as of December 31.1986 Shareholders Shares Preferred 9 Common 9 Preferred 9 Common 9 Total 19.473 100.0 157.695 100.0 13.984.774 100.0 216.906.527 100.0 Class oflonestor Males 3.749 19.2 36.06l 22.9 562.253 4.0 15.865.748 7.3 Females 8.063 41.4 54.422 34.5 1.098.217 7.9 20.392.883 9.4 Joint Accounts 4.673 24.0 43.609 27.7 894.626 6.4 18.598.049 8.6 Fiduciaries 1.885 9.7 19.861 12.6 377.111 2.7 8.946.409 4.1 ,,

Religious. Cha itable. Fraterital I and Educationalinstitutions 115 0.6 530 0.3 51.0 tv 0.4 767.305 0.4 ,

FinancialInstitutions 384 2.0 1.095 0.7 8.964.232 64.I 148.611.388 68.5 .

Other 604 3.1 2.117 1.3 2.037.316 14.5 3.724.545 1.7 s Amount <fHoldings I to 99 shares 10.015 51.4 38.571 24.4 267.804 1.9 1.410.148 0.7 100 diares 3.343 17.2 Il.236 7.I 334.300 2.4 1.123.600 0.5 e 10l to 499 shares 4.070 20.9 70.266 44.6 985.437 7.0 18.171.053 8.4 500 to 999 shares 1.102 5.7 20.6 t ' 13.1 658.355 4.7 13.675.930 6.3 1.000 or more shares 943 48 17.010 10.8 11.738.878 d4.0182.525.7% 84.I GroeraphscalLocathm Senice Territory 5.070 26.0 38.098 24.2 1.505.697 10.8 27.679. % I 12.8 Remainderof Calvornia 6.366 32 7 45.834 29.1 3.241.642 23.2 45.823.636 21.1 United Statesietape Cahfornial and Phenions 7.996 41.1 73.219 46.4 9.232.464 66.0 143.173.120 66.0 Foreign Counrzies 41 02 544 0.3 4.971 0.0 229.8IO 0.t 1987 AnnualSherdioiders' Meeting: Diviseed Reimestment and Statistleal Supplement:

The annual meeting of shareholders of Stock Purchasa Plan Agent: A comprehensive financial and statuti-Southern Cahfornia Edison Company Southem Cahforma Ednon Company cat supplement to this repor* a as sil-will be held at 10 a.m.. Thursday. Secretary's Department-Room 240 able in hmHed quntity. A copy ma)

Apnl16.19u7 at the Industry Hills Post Other Bos 400 be requested by wnting to the Manager and Sheraton Resort.One industry Rosemead.Califorma 1770 of investor Relations. Southern Hills Parku ay. City of Industry. Telephone iltlui 30211852 or California Ednon Company P.O.

Cahforma 91744. t81813021995 tha 1800. Rowmead. California 91770.

For lavesser Relations: Resistcar of Stock: Thn Annaul Arpet and the uatemenn Indn uisalSkerholden cantact: Secunty Pacinc Natsunal Bank and uuttsucs amtasned herrsn have Southern Cahforma Ednan Company Los Angeles. California hrrn assemble 4/or erneralinforma-

• Secretary's Department- Roorn 240 en r purpo>rs andare not oniended to yg g Post Othcc Bim 400 p 3g mJm r. << fin m en n=ncrrion m eth. .

Rmentad.Cahfornia 91770 uns sair orpurs hase at sn urunes.

m 3y Teleptuec iMini 3021997 -

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Land a %k Esshange .

Manager. Insestor Relations d ProPn '8A *

• d$ an Mn 4 Telephone eplui.ki2 25tt h rfenedund Prr/nrn.c h =Li to sc#. .< the soln nan.= 4 an <@

American Stock kschange l

to hen. uni ari areters 1 Stock hamsfee Agents t' acing Stock Eschenge Southern Cabforn a hinam Compen)

Secretary s Ikpartment-Riswn 240 hNW 3pg. gg l Pmt Othcc Sus doti  ;

j Rowmead Calthwma91770 Newspaper $tock Tbbie I.lating: I l T11cphime t MINI .k12 1393 te SCaeld l

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l Seediers Camrate 54een series soiscos. Of the Company-owned Pederal Esse Reguleenry Commes-l maarty IInames posph ha a facillnes, de paces was compoemd enoa, as well as der meners, iacted.

I i 98,000 squarumes eerdes terrthery

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Someets Cailf armie Sema Company Ared geestming unks socommand for 15 of new phet coasmecdse se suh)ect amovides slowie serv 6cs la a 30A00 percent ed il percoat, peepectivdy, to sus juttededom of the Cal 60ern6s Be-g = equsNHRiis 544 Of Cbearel and and 4 percent was la hydroelectric orgy ComunientoR. Besos also is seb.

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i Seudern Californir Edisse Company 2244 Walnut Grove Avenue. Rosemead.CA 91770 Telephone:(818) M21212 * '

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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 i Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF .

I THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31,1986 Commission file number 1-2313 SOUTHERN(Exact CALIFORNIA EDISON COMPANY name of registrant as specified in its charter)

]

Califomia 95 1240335 (state or other gunsdiction of (i.R.s. Employer incorporation or organization) identification No.)

2244 Walnut Grove Avenue (818) 302 1212 Rosemead, California 91770 (Reg..trent . teiophone number.

( Address of pnncipal esecutive offices) (Zip Code) including area code)

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange Title of each class on which regstered Capital Stock Onginal Preferred Amencan and Pacific Cumu'ative Preferred American and Pacific t 08% Senes 24% Senes

'2% Senes

~3% Senes 30% Series

$1 J Cumulative Prefened American and Pacific 7.58% Senes 8 54% Senes 8.70% Series 8.96% Series Preference American and Pacific 5.20% Convertible Series Common New York, Pacific and London First and Refunding Mortgage Bonds American Senes O through Senes S, Senes Y through Senes CC, Senes FF through Senes HH, Senes JJ, Senes TT, Senes UU. Ser.es ZZ, Senes 85A, Senes 85B and Senes 861 Securities registered pursuant to Section 12(g) of the Act: None indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or forr such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES v NO The aggregate market value of registrant's voting stock held by non-affil!ates was approximately

$8,082,347,059 on or about February 28,1987, based upon prices reported in the Western Edition of The Wall Street Journal. The market values of certain privately placed series of $100 Cumulative Preferred and Preference Stock, for which market pnces are not available, were derived by dividing the annual dividend rate of each such series of stock by the average yield of all of the Company's Cumulative Preferred and $100 Cumulative Preferred Stock outstanding for which market prices were available. The market values of the various classes of voting stock so determined were as follows: ORIGINAL PREFERRED STOCK $31,920,000; CUMULATIVE PREFERRED STOCK $118,602,889: $100 CUMULATIVE PREFERRED STOCK $496,078,090; PREFERENCE STOCK $33,653,223; COMMON STOCK $7,402,092.857, At March 20,1987 there were 216,925.362 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents listed below have been incorporated by reference into the parts of this report so indicated.

(1) Designated portions of the Annual Report to Shareholders for the year ended December 31,1986 - Parts I,11 and IV (2) Designated portions of the proxy statement dated March 5,1987 relating to the 1987 annual meeting of shareholders . Part til l

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1 TABLE OF CONTENTS Part I st

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. 1. Busine ss . . . . . . . . . . . . r . . . . . . . . ....... .. .. ............. ....... .. ..... '1 g

l Regulation . . . . . . . .. . . ............. .... .... ......... .. .. ...... . 1 .

Rate Matters . . . . .... . . . . . . . . . . . . . . . . ........... .................. . .... . . 1 .,

i Fuel Supply . . . . . . . . . . . . . . . . . . . . . . . ............... .... ...., . 7 1 Environmental Matters . . . . . . . . . . . . . . , . ... . .... .. .. .. ... ...... 9

~2. . Properties ~. . . . . . . . . . . . . . . . . . . . ........ ........ . . .. . .. . ..... 10 Existing Generating Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ... ....

10 Construction Program and Capital Expenditures . . . . . . . . . . .. . . ... 12 Certain Nuclear Power Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... 13 Nuclear Waste Policy, Act .. . . . . . . . . . . . . . . . . . . ..... .... ... . . ... . .. 14 Potential Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . 14 [

3. Legal Proceedings . . . . . . . . . . . .. . ...... ...... ............... . . .... 15 Antitrust Matters . . . . . . . . . . . . . . . ... . ........... . ... ........ . . . . 15 Other Litigation . . . . .. . . . . . . . . . . . . . . . . . . . . . . .

.. ..... ....... . .. 16 4.' Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . 18 Executive Officers of the Registrant. . . . ........ .... . ... .......... ... .. . 19 Part il

5. . Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . 21

6. Selected Financial Data . . . . . . . . ........... .. ................................. 21

- 7. Management's Discussion and Analysis of Results of Operation and Financial Condition . . . . . . . . . . . . . . . . ........ ..... ......... ......... ............ 21

8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . ... 21

9. Disagreements on Accounting and Financial Disclosure .. .. ............... . ... 21 Part 111

10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . .. . . . . 21

11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... ... ... 21

12. Security. Ownership of Certain Beneficial Owners and Management . . . . . ...... 21 13, Certain Relationships and Related Transactions ..... .. .. ... ............... . 21 Part IV '

.14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . 22 =!

Report of Independent Public Accountants on Supplemental Schedules . . . . . . . . . . . . 23 Sig n atu re s . . . . . . . . . . . . . . . . . . . . .. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Ex hibit I ndex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... .. . .......... 37 i

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PARTl item 1. Business Southern California Edison Company (" Company") was incorporated in 1909 under California law and is a public utility primarily engaged in the business of supplying electric energy to a 50,000 square-mile area of central and southern California, excluding the City of Los Angeles and certain other cities. This area includes some 800 cities and communities and a population of nearly ten million people. As of December 31,1986, the Company had 17,553 employees. During 1986,34% of the Company's total operating revenues were derived from commercial customers, 28% from residential customers,23% from industrial customers,9% from public authorities,4% from resale customers and 2% from agricultural customers and other sources.

Regulation The retail operations of the Company are subject to regulation by the California Public Utilities Commission ("CPUC"), which has the authority to regulate, among other things, retail rates, issuances of securities and accounting and depreciation practices. The Company's resale opera-tions are subject to regulation by the Federal Energy Regulatory Commission ("FERC") for resale rates as well as other matters, including transmission service pricing, accounting and depreciation practices and licensing of hydroelectric projects.

The Company is subject to the jurisdiction of the Nuclear Regulatory Commission ("NRC")

with respect to its nuclear power plants. NRC regulations govern the granting of licenses for the construction and operation of nuclear power plants and subject such power plants to continuing review and regulation.

The Company's plant construction, planning and siting within California are subject to the jurisdiction of the California Energy Commission. The Company is subject to rules and regulations promulgated by the California Air Resources Board and local air pollution control districts with respect to the emission of pollutants into the atmosphere, and the regulatory requirements of the California State Water Resources Control Board and regional boards with respect to the discharge of pollutants Jnto waters of the state. The Company is also subject to regulation by the Environmen-tal Protection Agency (" EPA"), which administers certain federal statutes relating to environmental matters, and to certain other federal, state and local laws and regulations relating to environmental protection and land use.

The Department of Energy (" DOE") has regulatory authority over certain aspects of Company operations or business relating to energy conservation, solar energy development, power plant fuel use and disposal, coal conversion, international transmission, public utility regulatory policy and natural gas pricing.

Rate Matters CPUC Retail Ratemaking The CPUC has established various ratemaking mechanisms to facilitate equitable changes in retail utility rates. The principal mechanisms are described as follows:

Attrition Year Allowance. Base Rate adjustment in the years between General Rate Case test years to recover, without lengthy hearings, expected changes in the Base Rate revenue require-ment. The Attrition Year Allowance is designed to improve the Company's opportunity to earn its authorized rate of return in the years between General Rate Case decisions.

Balancing Account. Ratemaking mechanism which reflects differences between recorded revenues and recorded costs over time. For a given period, recorded revenues and recorded costs are compared, and any difference is reflected in the balancing account. The balance in the balancing .

l account, including an interest component, is periodically amortized through rate changes which l l

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o return overcollections to customers or collect W9 collections from customers. The costs recorded in a balancing account are subject to review by the CPUC and allowed for rate recovery to the extent they are found to be reasonable.

Base Rates. Rates determined in a General Rate Case which are designed to recover the revenue requirement, excluding costs recovered through balancing account procedures.

Coal Plant incentive Procedure ("CPIP"). An incentive Procedure to encourage efficient operation of the Company's coal plants, Mohave Generating Station Units 1 and 2 and Four Corners Generating Station Units 4 and 5, by providing a set of performance standards for each coal plant, which are applied annually by use of a formula that converts recorded unit gross heat rate and a four year recorded gross capacity factor to dollars of reward or penalty. The amount of reward or penalty is based upon: (1) the difference in cost between producing energy from coal-fueled generation and incremental-fueled generation, and (2) the deviation in recorded unit performance from the performance standard.

Electric Revenue Adjustment Mechanism ("ERAM"). Balancing account mechanism which periodically adjusts revenues, which are not subject to other balancing account treatment, for changes primarily due to fluctuations in kilowatt-hour sales.

Energy Cost Adjustment Clause ("ECAC"). Balancing account mechanism which is designed to recover the reasonably incurred fuel and energy related costs of providing electrical service.

Certain incentive provisions are included in the ECAC which can affect the amount of fuel and energy related costs actually recovered. The Company is required to make one ECAC filing per year for a June 1 revision date. A second filing for a December 1 revision date may be filed, depending on whether the level of ECAC rate change would exceed 5% of total annual revenues.

General Rate Case. Regulatory proceeding before the CPUC to establish Base Rates in accordance with the Rate Case Plan which critically reviews the operations and general costs (excluding energy costs and,in certain instances, major plant additions) of the Company ?o provide electrical service. The revenue requirement for items such as depreciation, taxes, cost of capital, operation, maintenance, and administrative and general expenses, are determined on a forecasted test year basis.

Interim Major Additions Adjustrrent Clause ("lMAAC"). Balancing account mechanism which reflects the revenue requirements associated with the costs of owning Palo Verde Units 1 and 2 except for the revenue deferred pursuant to the Phase-in Plan (See Palo Verde Phase-in Plan).

Major Additions Adjustment Clause ("MAAC"). Balancing account mechansim which reflects the revenue requirement associated with the costs of owning, operating and maintaining major new facilities not included in General Rate Cases.

Nuclear Unit incentive Procedure commonly referred to as the Target Capacity Factor

("TCF"). An incentive ratemaking procedure for the Company's nuclear units which provides for a sharing of additional energy costs or savings between the Company and ratepayers when operation of San Onofre Units 2 and 3 and Palo Verde Units 1,2 and 3 are outside a 55% to 80% capacity factor range. The capacity factor range for San Onofre Unit 1 is 55% to 75% (see " Rate Matters -

San Onofre Unit 1"). I Palo Verde Phase In Plan. A 10-year rate phase-in plan, which provides for the deferral during the first four years of operations of $200,000.000 of investment-related revenue for each of the three Palo Verde units commencing on their commercial operation date. Revenue deferred for each unit under the plan for years 1 through 4 is $80,000,000, $60,000.000, $40,000,000 and $20,000,000, respectively. Such deferrals are to be recovered, with interest, during the final six years of the phase-in plan.

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i Rate Case Plan. Regulatory plan designed by the CPUC to ensure that General Rate Cases are processed and a decision is issued twelve months after a formal application is filed. Under this Plan, the Company can file a General Rate Case application once every three years.

Revenue Requirement. The forecast level of the cost of providing service to customers, including the cost of capital. The total revenue requirement is often separated into components which are covered by specific rate proceedings. The CPUC establishes a Base Rate revenue requirement in the General Rate Case and the ECAC, MAAC and IMAAC revenue requirements in the respective ECAC and MAAC (see Major Additions Adjustment Clause) and IMAAC proceedings.

General Rate Case On December 27,1985, the CPUC allowed the Company a $146,300,000 attrition revenue increase for 1986. The increase was collected subject to refund, pending further CPUC review of the l Company's cost of capital. Resolution of the cost of capitalissue was achieved by the Company and l Public Staff of the CPUC by a joint stipulation which reduced the Company's return on common l equity from 16% to 14.6% for 1986 and 13.9% for 1987. Two interveners objected to the stipulation, requesting a CPUC rehearing. The CPUC denied their request. The matter is now pending before ,

the California Supreme Court. A ruling on the interveners' petition is expected later this year.

The Company filed a $40,400,000 attrition allowance request for 1987 (not giving effect to the stipulation). The attrition revenue increase, including the effect of the stipulation, will be $2,900,000.

By resolution dated December 17,1986, the CPUC authorized, subject to refund, a 1987 attrition increase of $2,900,000, pending the interveners' appeal before the Court. l t

On December 26,1986, the Company filed the application for a general rate increase. The revenue increase requested is $264,500,000 for test year 1988, $125,700,000 for attrition year 1980 and $97,700,000 for attrition year 1990. At the requested rate of return on common equity of 14.75%,

the rates proposed are estimated to produce a rate of return on rate base of approximately 11.79%

for test year 1988. On March 9,1987, the Public Staff of the CPUC recommenced that rates te.

reduced by $269,000,000. The Public Staff recommends the return on common equity be reduced to 12.00%. Hearings will take place in mid-1987, and a decision is expected in late 1987.

Major Additions Adjustment Clause Palo Verde Nuclear Generating Station MAAC Proceedings. On May 31,1985, the Company filed an application with the CPUC requesting authority to reflect in rates through the MAAC procedure the Company's 15.8% share of the costs of owning, operating and maintaining Palo Verde Nuclear Generating Station ("Palo Verde") Unit 1. On October 2,1985, the CPUC issued a decision which adopted interim ratemaking treatment for Palo Verde Unit 1. Specifically, the CPUC authorized the Company to establish an IMAAC procedure and to establish IMAAC rates at an amount equal to and offsetting the decrease in energy rates associated with the fuel savings attributable to Palo Verde l Unit 1, Such interim ratemaking treatment became effective on February 1,1986, when Unit I went I into commercial operation. On February 21,1986, the Company filed an application with the CPUC requesting authority to reflect in rates through the MAAC procedure the costs of owning, operating and maintaining Palo Verde Unit 2. On July 16,1986, the CPUC issued a decision on the interim ratemaking treatment for Palo Verde Unit 2. Specifically, the CPUC authorized the Company to recover Palo Verde Unit 2 investment-related costs through the IMAAC procedure and to increase  ;

IMAAC rates by an amount equal to and offsetting the decrease in energy rates associated with the fuel savings attributable to Palo Verde Unit 2. The decision also authorized the recovery of operating and maintenance expenses for Palo Verde Units 1 and 2 through Base Rates instead of through the IMAAC procedure. Recovery of Palo Verde Unit 1 operating and maintenance expenses through 3

e Base Rates began on July 23,1986. The interim ratemaking treatments for Palo Verde Unit 2 became effective on September 19,1986, when Unit 2 went into commercial operation.

The CPUC divided proceedings related to the ratemaking of the Company's Palo Verde investment into three phases. The first phase of the CPUC proceedings addressed the issue of whether a value based pricing approach or a cost-based approach should be adopted. In that phase the CPUC Public Staff, on June 17,1985, recommended that value-based ratemaking be applied to ,

the Company's share of the energy output from the Palo Verde Units. A CPUC decision on Phase 1 l l

of the proceedings was issued on December 18,1985. The CPUC decision rejected the Public Staff's value-based ratemaking proposal. However, the Public Staff and the Company were directed to further examine additional alternative ratemaking methods for Palo Verde in the second phase of the proceedings.

In response to the CPUC's directive and to avoid the protracted hearings and substantial .

expense that a formal reasonableness review might have entailed, the Company and the Public Staff negotiated an agreement on Palo Verde ratemaking issues and, on June 25,1986, filed a joint i stipulation with the CPUC. The stipulation, approved by the CPUC on October 1,1986, provides for:

= A disallowance of the Company's Palo Verde investment for ratemaking purposes based on 19.33% of the Company's share of the amount disallowed in the San Onofre Units 2 and 3 reasonableness review.  ;

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. A 10-year rate phase-in plan, which provides for the deferral during the first four years of operations of $200.000,000 of investment-related revenue for each of the three Units commencing on their respective commercial operation dates. Revenue deferred for each unit under the plan for years 1 through 4 is $80,000,000, $60,000,000, 540,000.000 and

$20,000,000, respectively. Such deferrals are to be recovered, with interest, during the final six years of the phase-in plan for each unit.

• A target capacity factor operating performance incentive mechanism substantially identical to the procedure in effect for San Onofre Units 2 and 3.

Because Palo Verde Units 1 and 2 were placed in commercial operation before the investigation of alternative ratemaking methods could be completed, the CPUC authorized the implementation of the IMAAC procedure for recovery of the costs of owning and operating Units 1 and 2. With CPUC approval of the stipulation, a reclassification from the IMAAC balancing account to a deferred asset account was made during 1986 to record the phase-in plan deferrals for Units 1 and 2. The deferred asset balance aggregates $90,600,000, including interest, as of December 31,1986.

As more fully discussed below, the CPUC issued its decision on the reasonableness of San Onofre Units 2 and 3 ordering that $258,600,000 of the Company's $3.4 billion investment under review be disallowed for ratemaking purposes. Based on this decision, $50,000,000 of the estimated

$1.5 billion investment in Palo Verde would also be disallowed.

San Onofre Nuclear Generating Station MAAC Proceedings. During 1982 and 1983, the Com-pany filed applications with the CPUC requesting authority to reflect in rates the costs of owning, operating and maintaining San Onofre Nuclear Generating Station (" San Onofre") Units 2 and 3.

The CPUC divided proceedings relating to each of these applications into two phases-the first phase dealing with, among other issues, the procedure and the implementation of rates to recover these costs, and the second phase dealing with the reasonableness of the Company's investment in l the units.

CPUC decisions rendered in 1983 and 1984 have resolved all first phase issues. These 6 decisions established the MAAC balancing account and the TCF procedures and authorized f inclusion in rates of the estimated operating costs, and a portion of the investment related costs, of l Units 2 and 3. A 1984 decision authorized an annual MAAC rate increase which was designed to I fully reflect in rates the estimated investment-related revenue requirement of the Units. However, as )

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of December 31, 1986, a revenue requirement undercollection of approximately $448,700,000, accumulated since October 1983, remained in the MAAC balancing account subject to future collection. Rate recovery of the amounts in the MAAC balancing account will be addressed during 1987.

San Onofre Reasonableness Review. In the second phase of the San Onofre MAAC proceed-ings, the CPUC conducted a review of $3.4 billion of the Company's investment in San Onofre Units 2 and 3 to determine the reasonableness of construction costs for rate recovery purposes.

During this review, the CPUC Public Staff revised their recommended amount of disallowance numerous times. The Public Staff's last recommendation called for a $845,000.000 disallowance, if  ;

the CPUC adopted their " risk sharing" proposal or a disallowance of $1,331 million of specific and )

indirect construction costs if the " risk sharing" proposal was rejected.

The CPUC issued its decision in this proceeding on October 29,1986. The CPUC found that

$344,600,000 of the $4,509 million of investment that was subject to the reasonableness review should be disallowed for ratemaking purposes. The Company's share of the San Onofre Units 2 and 3 disallowance is $258,600,000.

On December 8,1986, the Company filed an application with the CPUC for a rehearing on the licensing costs ($185,800,000 total, $139,400,000 Company share) and indirect costs ($98,600,000 total, $74,000,000 Company share) issues. In its application, the Company cited legal errors contained in the CPUC decision as the basis for a rehearing. San Diego Gas & Electric Company

("SDG&E") filed a companion application on December 8,1986. The California Coastal Commis-sion filed a similar application on November 28,1986, requesting a rehearing on the beach access mitigation issue ($3,400,000 total, $2,550,000 Company share) which costs were considered reasonable by the CPUC in their October 29,1986 decision. On March 17,1987, the CPUC issued an order granting limited rehearing on two issues aggregating $102,000,000 ($76,550,000 Company share). The CPUC has scheduled oral arguments en banc on April 27,1987 on these issues. The Company is currently evaluating the likely outcome of the issues for which the CPUC has indicated it will not hear oral arguments on April 27,1987.

For further discussion of the financial implications of this matter, see Note 2 to the Company's Financial Statements in the 1986 Annual Report to Shareholders which is incorporated herein by reference as Exhibit 13.

Energy Cost Adjustment Clause On February 5,1986, the Company filed its annual ECAC application for a June 1,1986 revision date. The Company requested a $696,500,000 increase in ECAC revenues. On April 8,1986, the Company filed a motion to withdraw the requested rate relief because of declining fuel and purchased power costs and the April 2,1986 CPUC decision which amortizes the undercollection in the ECAC balancing account. On May 28,1986, the CPUC granted the Company's motion and ordered the Company to file an advisory updated forecast of operations. The Company filed the advisory updated forecast on June 17,1986. Still pending is a CPUC decision on the Company's 1985 reasonableness of operations. The CPUC Public Staff is recommending approximately

$57,300,000 in energy-related disallowances. The Company does not agree with the Staff's recommendations and has filed rebuttal testimony concerning these issues. Hearings were held in January 1987, and a CPUC decision is expected by mid-1987.

On February 5,1987, the Company filed its annual ECAC application for a June 1,1987 revision date. The Company requested a $111,400,000 decrease in ECAC revenues.

For information concerning CPUC review of the reasonableness of settlement agreoments the Company has entered into with certain fuel oil and uranium suppliers, see Note 2 to the Company's Financial Statements in the 1986 Annual Report to Shareholders which is incorporated herein by reference as Exhibit 13.

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San Onofre Unit 1 1

in December 1985, the CPUC issued a decision finding that continued operation of San Onofre  !

Unit 1 is cost effective and authorized the Company, as operating agent, to spend up to j

$201,000,000 (in 1986 prices) for modifications to San Onofre Unit 1. The modifications are to be implemented during the next three cycles of operation, extending through approximately 1991. The first and largest phase of these modifications was completed during the Cycle 9 refueHng outage which ended in July 1986. The Company is required to report to the CPUC events which may affect this cost estimate. If it appears that the modifications will exceed $201,000,000, the Company would be required to file an application requesting authority to make additional expenditures. However, in that event it is likely that the CPUC would re-examine the cost-effectiveness of continued operation of the Unit. The Company expects that the modifications that will be made through the three cycles )

of operation will be completed within the cost cap established by the'CPUC. The decision also adopted a TCF procedure for San Onofre Unit 1 similar to the TCF adopted for San Onofre Units 2 l and 3. The details of the TCF were addressed in the hearings which were held in March 1986.

Pending acceptance by the CPUC, the Company and the Public Staff have agreed to a 55% to 75%

capacity factor range for Unit 1. The TCF for San Onofre Unit 1 became effective on July 26,1986, when Unit 1 returned to service from the last refueling outage. These hearings also addressed the )

reasonableness of the San Onofre Unit 1 seismic upgrade outage that occurred from February 1982 through November 1984. The outage resulted in $193,500,000 in replacement energy costs and

$142,500,000 in capital expenditures. In testimony filed in February 1986, the CPUC Public Staff  !

recommended that $44,400,000 of replacement energy expenses and approximately $2,000.000 of (

Allowance for Funds Used During Construction ("AFUDC") related ta the capital expenditures be I disallowed from recovery through rates. The Company is challenging the Public Staff's proposed disallowance. Hearings on the reasonableness phase ended in April 1986. A decision on these issues is expected in mid 1987. The Company cannot predict what other effects, if any, future legislative or regulatory actions may have upon it or upon the construction, licensing or future operations of Unit 1 or the extent of any additional costs it may incur as a result thereof.

Mohave Order Instituting Investigation }

On July 1,1986, the Company filed its response to the CPUC's Order instituting Investigation

("Oll") regarding the outage resulting from the rupture of a high pressure steam line at the Company's Mohave Generating Station on June 9,1985. The CPUC's Oli will review the Company's share of repair costs and replacement fuel and energy related costs associated with the outage. On July 28,1986, the Company filed an addendum to the July 1,1986 response asserting that the CPUC's adoption of the CPIP precludes any review of reasonableness by the CPUC regarding replacement fuel and purchased power costs incurred during the outage. The Public Staff's reply is expected during 1987.

FERC Resale Ratemaking The Company sells electricity to six Southern California cities ( Anaheim, Azusa, Banning, Colton, Riverside and Vernon), the Southern California Water Company and Arizona Public Service Company ("AP$") under rates subject to FERC jurisdiction. These sales accounted for approxi.

mately 4.4% of total operating revenues in 1986. Rate increases made effective by the Company in ,

1981,1982,1984, and 1986 are under review by FERC. I As of December 31,1986, approximately $782,000.000 of resale rate revenue was subject to refund. The Company believes that, based on present facts, the amount of refunds likely to result l from the outstanding FERC proceedings would not have a material effect on the results of  !

operations.

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Fuel Supply Fuel and purchased power costs amounted to approximately $1.7 billion in 1986, 31% lower than for 1985. Sources of energy and unit costs of fuel for 1982 through 1986 were as follows:

Average Cost Per Mimon sources of Energy btu's(1)

Year Ended oecember 31, Year Ended December 31, 1982 1983 1984 1985 1988 1982 1983 1984 1985 1988 Oil . 4% 3% 1% 2% 1% $7.30 $7.30 $6.52 $6.54 $7.09 Natural gas . 37 29 29 37 25 4.99 4.86 4.78 4.11 2.58 Coal. 14 15 14 8 14 .84 .90 .92 1.06 1.02 Nuclear (2) . 1 1 10 11 16 - 1.18 1.30 1.06 1.08 All fuels . 56 48 54 58 56 4.41 4.03 3.48 3.29 2.01 Renewable talternate (including hydro)(3) . 10 10 8 6 8 Purchased and interchanged power . 34 42 38 36 36 WWWWW (1 ) British Thermal Unit (" BTU") is the standard unit of measure for the heat content of fuels. One BTU is the amount of heat required to raise the temperature of one pound of water, at 39.1 degrees Fahrenheit, by one degree Fahrenheit.

(2) Because San Onofre Unit 1 was not in service for a significant portion of 1982, and all of 1983, nuclear fuel costs relating to Unit 1 for these years are not reflected in the table. The 1983 average cost is based on the operation of Unit 2, while the average cost for 1984 and 1985 is based on the operation of Units 1,2 and 3. For 1986, Palo Verde Units 1 and 2 have also been included.

(3) There are no fuel costs associated with the Company's renewablela! ternate generation.

Average fuel costs, expressed in cents per kilowatt-hour, for the year ended December 31, 1986 were: oil 7.304C, natural gas 2.795C, coal 1.118C, and nuclear 1.1596.

Natural Gas and Fuel Oil Supply A nurrber of the Company's major steam electric generating units are designed to burn oil or ]

natural gas as primary boiler fuels. Although increased supplies of natural gas have become I available to the Company and natural gas is expected to be the Company's principal fuel during the next several years, the extent of the Company's use of natural gas as boiler fuelis dependent upon i l the amount of gas available from the Company's primary gas supplier as well as upon applicable l federal and state laws and regulations. To the extent the Company's use of natural gas is restricted, it will be forced to rely more heavily on fuel oil.

Air pollution controllaws and regulations applicable to most of the Company's oil- and gas-fired steam electric generating plants have required that fuel oil utilized by the Company not exceed a l sulfur level of 0.25% As of December 31,1986, the Company had in inventory approximately 6.3 l million barrels of fuel oil. To the extent oil utilization exceeds current forecasts, additional supplies I are expected to be available from purchases made on the spot market and under an option agreement.

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Nuclear Fuel Supply The Company has contractual arrangements covering 100% of the nuclear fuel cycle require-ments for San Onofre through the years indicated below:

units unit 1 2&3 Mining and milling to produce concentrates (1) 1988 1988

.. 1988 1988 Conversion . . .. .

Enrichment . . 2013 2013 1999 1990 Fabrication. . .. . . .

Spent fuel storage (2) ... .. .. . 1997 1997 (1) Assumes (a) the San Onofre Participants will provide their supply obligations in a time:y I

manner as required by the Company's inventory practice and (b) the Company will supply its l generation entitlement share of Palo Verde Units 1,2 and 3 uranium requirements from the Company's share of contractual deliveries.

(2) The dates indicated assume full utilization of the capacities for on-site storage now existing and normal operation of these units, including interpool transfers and no full core reserve, if additional storage or permanent disposal is unavailable when storage limits are reached, other arrangements will be required, the availability or cost of which the Company cannot predict at this time. The Nuclear Waste Policy Act of 1982 requires the DOE to provide at least one repository which will be utilized for the disposal of spent nuclear fuel or high level radioactive waste by 1998.

Participants in Palo Verde have purchased uranium concentrates sufficient to meet require-ments through 1989, and have contract options which would extend the supply through 1999 if exercised. The Company will be furnishing its share of uranium concentrates requirements for this project through at least 1987 from existing inventories, independent of arrangements made by other participants. A contract to provide conversion services covers requirements through 1989.

Although the Palo Verde Participants have no commitments for off site storage of fuel discharged from reactors, on-site storage for spent fuel is being planned to accommodate normal operation through 2002 for Unit 1 and through later dates for Units 2 and 3. The timing and extent of off-site storage requirements cannot be accurately projected at this time. -

Indian Tax and Royalty Matters The Navajo Tribal Council adopted two resolutions in 1978 which established a possessory interest tax and a business actfvity tax. These resolutions were amended in late 1984, and implementing regulations were subsequently adopted with an effective date of December 28,1984.

Litigation challenging the Navajo Nation's authority to impose these taxes without approval of the Secretary of the Interior delayed implementation and collection of the taxes. However, on April 16, 1985, the United States Supreme Court ruled that the Secretary of the interior's approval is not required, thereby validating the taxes. The Navajo Nation immediately took steps to implement and collect the taxes.

Both taxes apply to the coal supplier for the Mohave Project. The initial tax payments were made by the coal supplier on November 15,1985. The coal supplier has initiated an appeal to the Navajo Tax Commission of tax assessments under provitions of the implementing regulations. The Four Corners Project lease, amended on April 25,1985, affirms previously granted waivers on all taxes except for possibly the possessory interest tax on the coal supplier. The Four Corners Project's coal supplier's initial possessory interest tax payment was paid into an escrow account in late November,1985 pending review of assessments and other matters as provided for under the regulations and leases. The Company's contracts with the coal suppliers provide that such taxes will 8

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I be reflected by an increase in the Company's fuel supply costs. The Company believes that these j costs are a proper item for rate recovery. 1 The Area Director of the Bureau of Indian Affairs notified the coal supplier to the Navajo and Mohave plants that, effective in August 1984 and pursuant to one of the coal leases, the royalties payable to the Navajo Tribe would ir: crease. The coal supplier and the Navajo and Mohave participants, to whom any increase would be passed through, have appealed the Area Director's decision to the Commissioner of Indian Affairs. The matter is still pending. The Company believes that any increased royalty costs are a proper item for rate recovery.

l Environmental Matters i.egislation and Regulation Legislative and regulatory activities in the areas of air pollution, water pollution, waste management, noise abatement, land use, aesthetics and nuclear control continue to result in the imposition of numerous restrictions on the operation by the Company of its existing facilities and on the timing, cost, location, design, construction and operation by the Company of new facilities required to meet !to future lead requirements. These activities substantially affect future planning and will continue to reqeire modifications of the Company's existing tacilities and operating procedures. They also in6re.ese the risk of forced abandonment of construction projects with a resultant loss of design, en@eering and construction costs and the payment of cancellation charges which 'in the aggregate could be substantial.

The Clean Air Act provides the statutory framework to implemont a program for achieving national ambient air quality standards and provides for maintenance of air quality in areas exceeding such standards. As a result, the Company may incur additional expenses in reducing or eliminating emissions at existing facilities and in constructing new facilities.

RegulaYonk under the Clean Water Ar;t require the obtaining of permits for the discharge of certain pollu.Pnts into the waters of the Mited States. Under this act the EPA issues effluent limitation gubelines, retreatment standmis and new source performance standards for the control of certain pollutants. Individual states may impose still reore stringent limitations. In order to comply with guidelines and standards appliceWto steam electr!c power plants, the Company is incurring additional exp9nses and capital expenditures. The Company presently has discharge perrhits for all applicable facilities. Additional regulations will be issued but the Company is unable to predict the extent to which such additional regulations will affect its operations and capital expenditure requirements. Recent changes in legislation (Toxic Pits Cleanup Act of 1984) and ru!emaking (Discharge of WastGs to Land) have changed how utilities must operate their surface impound-ments. Surface impoundments which contain hazardous waste face possible closure or implemen-tation of costly monitorir'g and upgrading using double lined systems. The Company has a total of 30 surface impoundments at its coastal and inland generating stations subject to tasse regulations.

The Sta 9 of California has adopted a policy discouraging the use of fresh water for plant cooling purposes at inland locations. Such a policy, when taken in conjunction with existing federal cnd state uter quality regulations and coastal zone land use restrictions, could substantially increase the difficuity of siting new generating plants anywhere in California.

The Resource Conservation and Recovery Act provides the statutory authority for the EPA to implement a rt.;ulatory program for the safe treatment, recycling, storage and disposal of solid and hazardous wastes. Thus far, the EPA's regulations have had only a minimal economic impact on environmental expenditures.

Individual states may implement their own EPA approved hazardous wasts programs in place of the federal scheme and may impose more stringent controls. The State of California has obtained interim EPA authorization to administer its own program, and has passed legislation which 9

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l establishes design criteria and monitoring requirements for underground tanks. The regulations i implementing the law apply to tanks containing hazardous substances, which include motor fuels, '

I solvents and transformer oils. To comply with this law, all of the Company's existing tanks will require leak detection monitoring systems or will need to be replaced with tanks that have j secondary containment. The Company has over 300 existing tanks which are affected. As a  !

consequerece of the uncertainty in the future of the regulatory program, it is difficult to assess the  !

extent to which operations and capital expenditures will be affected.

The Toxic Substance Control Act and accompanying regulations govern the manufacturing, processing, distribution in commerce, use and disposal of polychlorinated biphenyls ("PCBs"), a toxic substance used in certain electrical equipment. Regulations and policies governing the use and disposal of PCBs are currently the subject of administrative proceedings. Regulations to date have had a substantial impact on environmental expenditures.

The effect of the Company's use of low-sulfur fuel oil required by air quality regulation is j discussed in " Natural Gas and Fuel Oil Supply" under " Fuel Supply". .

Environmental Expenditures The Company's capitalized expenditures for environmental protection for the years 1969 through 1986 and its currently estimated capital expenditures for si,ch purpose for the years 1987 through 1991 are as follows:

(Thousands of collars)

Air Water soud Noise Additional Pollution Pollution W este Abate- Plant Miscel-Years Total Control Control oisposal ment Aesthetics capacity laneous 1969-1986. $1.924,226 $194,625 5139.044 $23,856 $7,254 $1,307.938 $3,7 6 $247,763 1987. 150.117 3,171 1,190 121 340 143,422 - 1,873 1988. 135,988 - 173 - 266 135,172 -

377 1989. , 128,991 - 630 - 147 127,568 - 646 1900. .. . 127,683 - 3.831 - 107 123,472 - 273 1991, . . .

132,882 - 6,789 - 101 125.913 -

79 These estimates include budgeted and forecast plant expenditures responsive to currently effective legislation. Projected capital expenditures for environmental protection are subject to continuous review and periodic revisions because of escalation in engineering and construction costs, additions and deletions of olanned facilities, changes in technology, evolving environmental regulatory requirements and other betors beyond the Company's control. The Company believes that costs incurred for these environmemal purposes will be recognized by the CPUC and the FERC as reasonable and necessary costs of service for rate purpose 3.

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' Item 2. Properties Existing Generating Facilities The Company cwns and operates 12 oil- and gas-fueled electric generating plants, one diesel-fueled generating plant,37 hydroelectric plants and an undivided 80% interest (349 megawatts

("MW") net) in Unit 1 and an undivided 75.05% interest (1,614 MW net) in Units 2 and 3 at San ]

Onofre. These plants are located in central and southern California. The Palo Verde nuclear facility

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(15.8% Company-owned) is located near Phoenix, Arizona. Palo Verde Unit 1 and Unit 2 started j commercial operation on February 1,1986 and September % 1986, respectively. Unit 3 is i undergoing the initial phases of pre-release operation with commerical operation expected in late ]

1987. The Company owns two units at a small oil- and gas-fueled electric generating plant in i Arizona and a 48% undivided interest (753 MW) in Units 4 and 5 at a coal-fueled steam electric generating plant in New Mexico ("Four Corners Project"), all of which are operated by other utilities. The Company operates and owns a 56% undivided interest (885 MW) in two coal-fueled steam electric generating units in Clark County, Nevada ("Mohave Project"). The Company also 10

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operates certain hydroelectric generating units owned by others at the Hoover Dam Project in j

Arizona. During 1986, the existing Company-owned generating capacity was approximately 67.4% '

dependent on gas and oil,15.5% on nuclear fuel,10.9% on coal and 6.2% on renewable / alternative resources (including hydroelectric),

San Onofre, the Four Comers Project, certain of the Company's substations and certain portions of its transmission, distribution and communication systems are located on lands of the 1 United States or others under (with minor exceptions) licenses, permits, easements or leases or or, public streets or highways pursuant to franchites. Certain of such documents obligate the Com-pany, under specified circumstances and at its expense, to relocate transmission, distribution and communication facilities located on lands owned or controlled by federal, state or local governments.

With certain exceptions, major and certain minor hydroelectric projects, with related reservoirs, current ly having an effective operating capacity of 943 MW and located in whole or in part on lands of the United States, are owned and operated under governmentallicenses which expire at various times between 1987 and 2009. Such licenses impose numerous restrictions and obligations on the Company, including the rignt of the United States to acquire the project upon payment of specified compensation. When original licenses expire, FERC has authority to issue new licenses to third parties, but only upon payment of specified compensation to the Company. Any new licenses issued to the Company are expected to be issued upon terms and conditions less favorable than those of the expired licenses. Applications of the Company for the relicensing of certain of the hydroelectric projects referred to above with an aggregate effective operating capacity of 61.0 MW are pending.

The Company has been issued annual licenses for its projects which will stay in effect until all relicensing issues have bee.1 resolved.

A major obstacle to the Company's prior relicensing efforts has diminished with the enactment of the Electric Consumers Protection Act of 1986. In the past, municipal utilities claimed they had a preferential status when hydre projects were due to be relicensed. The new law makes clear that no

" preference" exists that would favor municipal utilities over investor-owned utilities.

The record peak area demand experienced on the Company's system through December 31, 1986, remained at 15,189 MW recorded on September 5,1984. The 1986 annual peak demand of 14,599 MW occurred on August 20,1986. At the time of this annual peak, the total area system operating capacity available to the Company was approximately 18,320 MW.

Substantially all of the properties of the Company are subject to the lien of a trust indenture securing First and Refunding Mortgage Bonds, of which approximately $4 billion principal amount was outstanding at December 31, 1986. Such lien and the Company's title to its properties are subject to the terms of franchises, licenses, etsements, leases, permits, contracts and other instruments under which properties are held or operated, certain statutes and governmental regulations, liens fur taxes and assessments, the lien of another trust indenture to the extent referred to below, and tiens of the trustees under such indentures, in addition, such liens and the Company's title to its properties are subject to certain other tiens, prior rights and other encum-brances, none of which, with minor or unsubstantial exceotions, aff6 cts the Company's right to use such properties in its business, unless the rmettss witn respect to the Company's interest in the Four Corners Project and the related eksement and lease referred to below may be so considered.

The properties acquired by the Company pursuant to the merger in 1963 with California Electric Power Company, toget'ler with all substitutions., replacements, additions, alterations, improvements and enlargements to, of, or upon such properties are, with certain exceptions, also subject to the prior lien of another trust indenture securing $38.000,000 principal amount of First Mortgage Bonds originally issued by that company and outstanding on December 31,1986.

The Company's rights in the Four Corners Project, which is located on land of The Navajo Tribe of hdians under an essement from the United States and a lease from The Navajo Tnbe, may be t1 hs-- .

. 1 subject to possible defects. These defects include possible conflicting grants or encumbrances not ascertainable because of the absence of or inadequacies in the applicable recording law and the record system of the Bureau of Indian Affairs and The Navajo Tribe, the possible inability of the Company to resort to legal process to enforce its rights against The Navajo Tribe without Congressional consent and, in the case of the lease, possible impairment or termination under certain circumstances by Congress or the Secretary of the Interior. The Company cannot predict what effect, if any, such possible defects may have on its interest in the Four Corners Project.

Construction Program and Capital Expenditures The Company presently anticipates that it will add approximately 5,970 MW of additional energy resources to serve its projected service area needs through 1996. The Company has an interest in approximately 580 t/.W of new nuclear generating facilities which are in commercial operation, or start-up activities (Palo Verde Units 1,2 and 3) and the Company plans to cbia;n approximately 1,700 MW from other generating resources. Approximately 350 MW of firm generating capacity owned by the Company's resale customers wiil be integrated during this timeframe, along with 340 MW of peaking generation. The Company intends to obtain substantially all of its remaining energy resource requirements (approximately 3,000 MW) from renewable and alternative energy re-sources (e.g., hydroelectric, including the 200 MW Balsam Meadow plant under construction, other large hydro, cogeneration, geothermal, solar, wind, biomass, synthetic fuels and fuel cells).

Funds required by the Company for its construction expenditures totaled $852,274,000 in 1984,

$1,076,495,000 in 1985 and $1,089,677,000 in 1986. Construction expenditures for the 1987 1991 period are estimated (as of December 18,1986, the date of the Company's latest approved budget) as follows:

(Millions of Dollars) 1987 1988 1989 1990 1991 Total Electric generating plants . . . . . . .

$' 369 $199 $207 $234 $270 $1,279 Electric transmission lines and substations. . . . . 199 205 213 186 109 912 Electric distribution lines and substations . . ... 442 436 429 426 400 2,133 Other expenditures .. .. 133 84 85 83 71 456 Total construction additions . . .. .. 1,143 924 934 929 850 4,780 Less allowance for funds used during construction . . . . . . . . . . 110 40 40 40 40 270 Funds required for construction expenditures $1.033 $884 $894 $889 $810 $4.510 Approximately 2% of the " Total construction additions" for the years 1987 through 1991 are related to the construction of new nuclear units at Palo Verde. The Company's share of the total cost of construction and start-up testing of these units was budgeted, as of December 18,1986, at $1.5 billion, of which approximately $1,422,000,000 had been expended through December 31,1986. As of December 31,1986, construction of Palo Verde Units 1 and 2 were completed and Unit 3 was 99%

completed. Approximately 10% of the " Total construction additions" for the years 1987 through 1991 are related to nuclear fuel and capital expenditures to be made at San Onofre Units 1,2 and 3.

The Company's construction program and related expenditures are continuously reviewed and periodically revised because of changes in estimated system load growth, rates of inflation, receipt of adequate and timely rate relief, the availability and timing of environmental, siting and other regulatory approvals, the scope of modifications required by regulatory agencies, the availability and costs of external sources of capital, the development of new technology and other factors beyond the Company's control.

Due to the completion of San Onofre Units 2 and 3 and Palo Verde Units 1 and 2, construction work in progress has been significantly reduced. The reduction in construction work in progress caused AFUDC, which does not represent current cash income of the Company, to decline to 19% of earnings for the year 1986. AFUDC constituted 22% and 30% of earnings, respectively, for the years 1985 and 1984.

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'. i L .For the five years 1987 through 1991, funds required for construction are estimated at $4.5  ;

billion, and $867,000,000 is required to meet long-term debt maturities, sinking fund requirements )

and preferred stock redemption requirements. A majority of these capital needs is expected to be l provided from internally generated sources. I The Company's estimateL of funds available from operations for the five years through 1991 I assume among other things the receipt of adequate and timely rate relief and the realization of its assumptions regarding cost increases, including the cost of capital. The Company's estimates and underlying assumptions are subject to continuous review and periodic revision.

The timing, type and amount of all additionallong term financing are also influenced by market conditions, rate relief and other factors, including limitations imposed by the Company's Articles of Incorporation and Trust Indenture.

Certain Nuclear Power Matters Although higher energy costs will be incurred for replacement generation during the periods that the San Onofre and Palo Verde Units are not in operation, substantially all such costs will be included in future ECAC filings. The Company cannot predict what other effects, if any, legislative or regulatory actions may have upon it or upon the construction, licensing or future operation of the San Onofre or Palo Verde Units or the extent of any additional costs it may incur as a result thereof, except for those that follow.

San Onofre Unit 1 In order to meet NRC design requirements, San Onofre Unit 1 was shut down in February 1982 for an inspection of the steam generators and for various plant modifications. Unit 1 resumed operation in November 1984 after receiving NRC authorization. On February 12,1985, the NRC denied an intervenor's request for additional public hearings and for a stay of the decision which allowed the restart of Unit 1.The interveners have filed a petition in federal court seeking a review of the NRC decision. The Company believes that the NRC action has a sound legal and technical basis and should be upheld on judicial review.

A method for determining schedules for implementation of plant modifications at Unit 1 has been agreed upon with the NRC. The integrated Living Schedule takes into account all projects, including those resulting from NRC requirements as well as those planned for plant betterment, and {

integrates them into one schedule spanning several plant refueling outages. The NRC has en- l' couraged such schedules after determining 9at the hurried manner in which backfit modifications often have been implemented is not conducive to achieving the maximum benefit from the Dackfit.

On November 21,1985, San Onofre Unit 1 experienced a water hammer event which damaged some of the plant piping. As a result, on that date, the Company began the refueling outage previously scheduled to start on November 30,1985. In addition to a normal refueling, the Company completed a number of plant modifications (equired by the NRC during the outage. Repairs required as a result of the water hammer damage, as well as some design modifications, were also completed. Other design modifications will be completed during the next fuel cycle. The estimated cost of the modifications is $7.360.000. Unit 1 returned to service on July 26,1986.

Nuclear Facility Decommissioning To consider alternatives to assure that adequate funds will be available to decommission nuclear facilities upon their retirement from service, the CPUC initiated an Oli on January 21,1981.  ;

The three Califomia non-municipal utilities which own nuclear facilities, the Company, Pacific Gas ,

and Electric Company, and SDG&E, were named respondents. Following hearings in 1981 and 1982, the CPUC issued a decision on April 6,1983. This decision ordered the Company, among other i things, to develop procedures to fund nuclear decommissioning costs which make use of an externally managed trust. Implementation of this order was delayed, however, pending adoption of i

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I the tax regulations which directly affected such trusts. Although signed into law on July 18,1984, the Internal Revenue Service ("lRS") did not issue regulations which implemented the applicable portion of the Tax Reform Act of 1984 until July 10,1986. Once these IRS regulations were issued, imptomentation of the CPUC decision became possible.

To meet the requirements of the IRS regulations, the Oli has been established as the ratemaking proceeding for the Company's share of the decommissioning costs of both the San Onofre and Palo Verde facilities. On January 30,1987, the Company filed testimony with the CPUC which identified the expected decorrmissioning costs for the facilities and the procedures by which the Company would establish and maintain external trust funds which would handle the collected decommissioning revenue. A CPUC decision is scheduled by June 1987. This schedule supports the necessary June 29,1987, filing with the IRS which will allow the Company to take advantage of tax deductions offered for nuclear facMity decommissioning cost external trusts.

The decommissioning costs for San Onofre Unit 1 are estimated to be $165,000,000; for San Onofre Unit 2, $177,000,000; for San Onofre Unit 3, $245,000,000; for Palo Verde Unit 1,

$33,000,000; for Palo Verde Unit 2, $31,000,000; and for Palo Verde Unit 3, $34,000,000. These costs are all in 1986 dollars and represent the Company's share of the total estimated decommis-sioning costs for each Unit.

Nuclear Insurance The Company operates its nuclear units in accordance with prudent utility practices and in conformity with NRC regulations The Company generally carries the maximum insurance coverage reasonably available to protect against damage to its nuclear units and replacement energy cost in the unlikely ever;t of an accident at any nuclear unit. A description of this insurance is included in Note 9 to the Financial Statements of the 1986 Annual Report to Shareholders and is incorporated herein by reference. Although the Company believes that an accident at its nuclear urits is extremely unlikely,in the event of an accident, regardless of fault, the Company's insurance coverage might be inadequate to cover the losses to the Company, in addition, such an accident could result in action by the NRC to suspend operations of the damaged unit. Furthermore, the NRC could suspend operations at the Company's undamaged nuclear units and the CPUC and FERC could deny rate recovery of related costs. Such an accident, therefore, could materially and adversely affect the operations and earnings of the Company, Nuclear Waste Policy Act Pursuant to the Nuclear Waste Policy Act of 1982, the Company, acting as agent for the San Onofre participants, has entered into a contract with the DOE for disposal of spent nuclear fsel for San Onofre Units 1,2 and 3. Under the terms of the contract, the Company is required to pay a quarterly fee of one mill per kilowatt hour to the DOE for net nuclear power generated and sold on and after April 7,1983. For generation prior to April 7,1983, the contract requires payment of a one-time fee equivalent to one mill per kilowatt hour, plus accrued interest. This one-time fee has been recorded as a deferred asset pending future rate recovery and, including accrued interest, approximated $26,091,000 on December 31, 1986. The obligation for this one-time fee is being discharged by equal payments over 40 quarters. Such payments commenced during 1985. The amounts charged to income for current generation were $10,740,000,58,925,000 and $7,707,000 for the years ended December 31,1986,1985 and 1984, respectively. Expenses associated with disposal of spent nuclear fuel are recovered through the ECAC procedure.

Potential Competition Under various acts of Congress, federal power projects have been constructed in California and I neighboring states. Municipally-owned utilities, cooperative utilities and other public bodies have 14

Certain preference over investor owned utilities in the purchase of electric power provideo by federally funded power projects and, in addition, have certain preference over investor-owned utilities in connection with the acquisition of licenses to build hydroelectric power plants on federal lands. Any energy which is or may be generated at these projects and transmitted for the account of such other utilities and public bodies over present or future government or utility owned lines into the territory or markets served by the Company would result in a loss of sales by the Company.

Under the laws of California, utility districts may be formed and may include incorporated as well as unincorporated territory. Such districts, as well as municipalities, have the right to construct, purchase or condemn and operate 61ectric facilities. In addition, when a city owning an ebetnc system annexes adjacent unincorporated territory which the Company has previously served the Company may experience a loss of customers.

The Company's construction permits for San Onofre Units 2 and 3 contain certain conditions which require the Company (i) to permit privately- or publicly-owned utilities, including the Company's resale customers, within or adjacent to the Company's service area, on timely notice, to participate on mutually agreeable terms in future nuclear units initiated by the Company, and (ii) to interconnect and coordinate reserves with, furnish emergency service to, sell bulk power to and purchase bulk power from, and provide certain transmission services for, such utilities. The Company has also entered into agreements with certain of its resale customers which contemplate their possible participation in jointly-owned generating projects initiated by the Company, and the integration of power sources acquired by each such customer, including the dispatching, reserve sharing, partial power supply requirements and transmission service required in conjunction with such integrated operations. Pursuant to these agreements, two resale customers exercised an option to participate in the Company's ownership entitlement in San Onofre Units 2 and 3. Effective November 1,1977, the Company sold an undivided 3.45% interest in San Onofre Units 2 and 3 to these two resale customers for approximately $90,000,000. Effective September 1,1981, a further 1.5% interest in Units 2 and 3 was sold to one of these resale customers for approximately

$50,000,000. The foregoing conditions and agreements involve the potential additional loss of generation and transmission capacity and sales of power. The Company is unable to determine what effect such potential additional losses will have on its business and operations.

The Public Utility Regulatory Policy Act of 1978 ("PURPA") has fostered the entry of non-utility companies into the electric generation business. Under PURPA, non-utility power producers are allowed to construct " qualified facilities" ("OFs") for the production of electricity from certain alternative or renewable energy resources, and utilities are required to purchase the electrical output of these OFs at prices set by state regulatory bodies.

At the present time, in light of the significant decline in the prices of oil and gas, the Company is required by state regulation to continue to buy power generated by OFs, principally in the biomass and geothermal areas, at prices much higher than the power the Company can produce or purchase from other sources. Further, certain operators of OFs have sought to sell power they produce to large industrial and commercial customers of the Company. Reflecting CPUC policy, such industrial customers presently are required to pay the Company more for electricity than warranted by the ,

cost of providing industrial service. This situation may be further aggravated in the future as a result i of attempts by these producers to institute mandatory " wheeling"-unlimited access to public utility transmission lines. The Company is presently seeking ways to lower the cost to it of power produced by OFs and opposes any attempt to impose mandatory wheeling.

Item 3, Legal Proceedings Antitrust Matters On March 2,1978, five resale customers (the California cities of Anaheim, Azusa, Banning, Colton and Riverside) filed suit against the Company in the United States District Court for the Central District of California alleging violation of certain antitrust laws. The complaint seeks 15 j

monetary damages, a trebling of such damages and certain injunctive relief. The complaint alleges that the Company (i) is engaging in anti-competitive behavior by charging more for electricity sold i

to the resale customers than the Company charges certain classes of its retail customers (" price squeeze"), and (ii) has taken action alone and in concert with other utilities to prevent or limit such resale customers from obtaining bulk power supplies from other sources to reduce or replace the resale customers' purchases from the Company (" foreclosure"). The plaintiffs estimated their actual damages for alleged price squeeze, before trebling, at approximately $22,780,000 and  ;

foreclosure damages stemming from alleged loss of energy and capacity at approximately i l $76,800,000 before trebling, for the period February 1,1978 to December 31,1985. The trial began on July 8,1986, and concluded on Septcmber 26,1986. Findings of Fact and Conclusions of Law were filed by the Company with the Court on November 21,1986. No date has been given for the decision.

!n an administrative law proceeding before the FERC in which many of the issues raised are similar to the foreclosure issues raised by the resale customero in the federal court action discussed above, the Company received the administrative law judge's final initial decision on February 10, 1984. The decision represents a favorable result for the Company at this point in the proceeding.

In 1983 another resale customer, the City of Vernon, filed a complaint against the Company in the United States District Court for the Central District of California and alleged violation of certain antitrust laws. The complaint alleges that the Company has engaged in anti-competitive behavior in the form of price squeeze and foreclosure as described above. In addition, the complaint includes breach of contract and fraud issues and alleges that the Company has refused to provide Vernon with a fair and reasonable integrated operations agreement to permit Vernon to obtain other bulk power supplies. The complaint seeks monetary damages in excess of $150,000,000 before trebling and certain injunctive relief. Trial was originally scheduled to begin in January 1986, but has been indefinitely postponed.

The foregoing proceedings involve complex issues of law and fact and, although the Company is unable to predict their final outcome on the proceedings, it has categorically denied the allegations of these resale customers.

Other Litigation Palo Verde - Supply of Cooling Water in connection with the construction of Palo Verde, the Company, APS and the otner participants entered into e' fluent contracts with the City of Phoenix and certain other municipalities ("Municipali-ties") granting APS the right to purchase effluent for cooling purposes. The validity of these contracts and the right to the use of the effluent water for cooling purposes are the subject of several lawsuits.

The first of these lawsuits ("A Tumbling T") was initiated in November 1982, in Maricopa County Supenor Court (" State Court") by certain downstream users of the effluent. It challenged the legality of the effluent contracts under Arizona water law. A second lawsuit was initiated in Federal District Court by John F. Long ("Long"), a real estate developer in the Phoenix area, in December 1983. Among other things, this lawsuit charged violations of federal reclamation laws and the National Environmental Policy Act, and based allegations of unconstitutional takings on state water rights law. Faced with conflicting claims to the effluent in two forums, APS filed a lawsuit for declaratory relief in State Court naming both the A Tumbling T parties and Long as defendants.

Pursuant to an APS motion, the APS case and the A Tumbling T case were consolidated in February, 1984.

After considering cross-motions for summary judgment in the consolidated A Tumbling T and l

APS declaratory action cases, summary judgment was granted in the State Court in favor of APS l

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and the other participants on October 2,1985, primarily on the basis that effluent is not subject to regulation under state water rights law. These proceedings were appealed by both APS and the defendants, the appeal was granted and the case subsequently transferred to the Arizona Supreme Court. Oral arguments were held on February 20,1987.

Pursuant to an APS motion, on November 22, 1985, the District Court entered judgment dismissing Long's Federal case. It did so primarily on the basis of the State Court's water rights ruling, but also made favorable rulings on the merits of other unrelated causes of action.This case is now on appeal to the Ninth Circuit.

On November 22,1985, the Municipalities instituted a new action for declaratory relief in State Court against Long. In this fourth case, the Municipalities seek a declaration that the effluent supply contracts are valid. Long answered and also filed special action counterclaims seeking to have the l

contracts declared void because of alleged violations of municipal law. The court dismissed Long's l counterclaims on March 11,1986. APS filed a motion for summary judgment in these proceedings ]

based primarily on the prior trial court determinations in the consolidated State Court case that is J now on appeal. On June 2,1986, the court granted APS's motion for summary judgment and j declared that the primary effluent contract is valid and enforceable. Long filed a Notice of Appeal on August 27,1986. The final brief scheduled in the appeal by all parties is due by April 27,1987.

In yet a fifth case involving the effluent supply, the Salt River Pima Maricopa Indian Community

(" Community") filed a first amended complaint on June 23,1982, in Federal District Court against the United States, the Secretary of the Interior and additional defendants, including the Company and the other Palo Verde participants, alleging, among other things, that the primary effluent contract is invalid. A motion for judgment on the pleadings filed by Salt River Project ("SRP") (one of the participants) was set for hearing in April 1986. The Federal Government has filed a similar i motion. Although the Company and certain other defendants are not parties to these motions, a favorable determination on both motions should lead to a judgment in favor of all participants.

However, the portion of the action challenging the effluent contract has been stayed while the Community litigates its claims against the Department of the Interior and other defendants for wrongful expulsion from the SRP, a federal reclamation project. The Company anticipates that neither the various lawsuits nor any renegotiations of existing contracts would have a material adverse impact on the completion, licensing, or operation of the Palo Verde Units.

Department of Water and Power ("DWP") Service to California Department of Water Resources ("CDWR") j in October 1979, DWP advised CDWR that DWP would terminate service under a supplier's i contract and would cease supplying energy under that contract. The supplier's contract provides j that DWP and other suppliers, including the Company, will furnish energy at the fixed rate of three j mills per kilowatt-hour. On November 6,1979, the Company sought and received a preliminary 1 injunction enjcining DWP from terminating service. The contract has now been fully performed.

If DWP were to prevail with its defense at the coming trial and succeed in its legal argument that it should have been able to unilaterally terminate its obligation to supply energy to CDWR under the supplier's contract, and CDWR were to prevail in its position that the Company must furnish 43% of DWP's obligation at the fixed three mills per kilowatt-hour price, the additional revenue deficiency from the Company's share of DWP's obligation up to the April 1983 termination date of the supplier's contract is estimated to be approximately $57,000,000, based on supply figures prepared by DWP.

Steam Generator Repair / Westinghouse Electric Corporation On March 31,1983, the Company and SDG&E filed a complaint in the U.S. District Court for the Central District of California against Westinghouse for the recovery of damages related to San Onofre Unit 1 sleeving. The complaint seeks approximately $190,000,000 in damages resulting from 17 -

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the cost of repair of the steam generators and the replacement cost of power during the period of ,

time the steam generators were under repair. A number of claims in the original lawsuit were l dismissed on a summary judgment motion. The remaining claims allege negligent or intentional misrepresentation arising out of Westinghouse's failure to disclose to the Company information and problems relating to and concerning the steam generators. Westinghouse has filed an answer and counterclaims alleging abuse of process against both plaintiffs and breach of warranty of authority to execute documents against SDG&E. A motion by the Company to dismiss the abuse of process claim was denied on July 16,1984. Westinghouse has not alleged any specific damage amount with respect to the abuse of process claim and is seeking an award of punitive damages. Although an award of punitive damages could be made, the Company does not believe such an award is likely. In November 1986, Westinghouse filed another motion for summary judgment as to the fraud claims.

On January 29,1987, the Court granted Westinghouse's motion, based on the release executed by the Company in September,1978. This ruling disposes of all fraud claims, both pre-release and post release. This leaves only two claims: the Company's overfilling claim and Westinghouse's abuse of process claim. The Company and SDG&E have filed a motion for reconsideration of the Court's ruling to the extent it bars plaintiff's post 1978 claims. The Company and SDG&E have filed anott.or, notion for summary judgment on Westinghouse's abuse of process claim. Both motions will be hearo on April 20,1987.

Hoover Dam Power Allotment in August 1984, the Hoover Power Plant Act of 1984 was signed into law. This provides for resolving the litigation brought by the State of Nevada in the U.S. District Court in Nevada against various federal parties and the six California Hoover power allottees, including the Company, it also requires any party that desires renewal of its Hoover power allocation for 30 years effective May 1, 1987, to file a concurrent stipulation for voluntary dismissal and release with respect to its claims in this action. These matters are expected to be concluded during March 1987.

Item 4. Submission of Matters to a Vote of Security Holders inapplicable.

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Pursuant to General Instruction G(3), the following information is included as an additional item in Part 1:

Executive Officers of the Rcgistrant oecem r Effective Executive Officer _31,1986 Cornpany Position Date Howard P. Allen 61 Chairman of the Board, Chief November 1,1984 Executive Officer and Director '

H. Frederic. Christie 53 President and Director January 1,1985 John E. Bryson 43 - Executive Vice President and Chief January 1,1985 Financial Officer David J. Fogarty 59 Executive Vice President January 1,1982 Michael R. Peevey 48 Executive Vice President January 1,1986 P. L. Martin 57 Senior Vice President May 19,1983 L.T.Papay 50 Senior Vice President May 19,1983 Kenne;h P. Baskin 48 Vice President (Nuclear September 1,1983 Engineering, Safety and Licensing)

Glenn J. Bjorklund 54 Vice President (System Planning May 1,1906 and Research)

R. H. Bridenbecker 43 Vice President (Fuel Supply) May 1,1982 John R. Bury 59 Vice President and General Counsel January 1,1982 Richard K. Bushey 46 Vice President and Controller January 1,1984 Robert Dietch 48 Vice President (Engineering and May 1,1986 Construction)

C. E. Hathaway 52 Vice President (Human Resources) January 1,1980 Charles B. McCarthy, Jr. 46 'Vice President (Customer Service) May 1,1985 Michael L Noel 45 Vice President and Treasurer July 1,1980 Harold B. Ray 46 Vice President and Site Manager, November 1,1983 San Onofre Nuclear Generating Station Jennifor Moran 37 Secretary January 1,1987 None of the Company's executive officers are related to each other by blood or marriage. As set forth in Article IV of the Company's Bylaws, the officers of the Company are chosen annurstly by and serve ::t the pleasure of the Company's Board of Directors and hold their respective offices until their resignation, removal, other disqualification from service, or until their respective successors are elected. All of the executive officers have been actively engaged in the business of the Company for more than five years except for Messrs. John E. Bryson and Michael R. Peevey. Those officers who have not held their present position for the past five years had the following business experience during that period:

Howard P. Allen President and Director July 1980 to October 1984 H. Frederick Christie President, Chief Financial November 1984 to Officer and Director December 1984 Executive Vice President, April 1984 to Chief Financial Officer and Director October 1984 Executive Vice President July 1980 to and Chief Financial Officer April 1984 19

1 John E. Bryson(1) Senior Mce President February 1984 to December 1984 Partner - Law Firm of- December 1982 to q Morrison & Foerster(3) January 1984 ,

l President - CPUC(3) January 1979 to -

December 1982

- Michael R. Peevey(2) Senior Vice President January 1985 to )

December 1985 Vice President - Revenue Requirements February 1984 to and Governmental Affairs December 1984 President - California Council June 1973 to for Environmental and Economic January 1984 Balance (3) ,

P. L. Martin Vice President - Customer Service September 1978 and Conservation to May 1983 L T. Papay Vice President- Advanced Engineering January 1980 to May 1983 Kenneth P. Baskin Manager of Nuclear Engineering, Safety January 1980 to and Licensing - Nuciaar Engineering August 1983 and Operations Department Glenn J. Bjorklu~.d Vice President - Engineering February 1984 to and Construction April 1986 Vice President-System Development August 1979 to January 1984 R. H. Bridenbecker Manager of Fuel Supply February 1980 to April 1982 Richard K. Bushey Assistant Comptroller December 1975 to December 1983 Robert Dietch Vice President- Advanced Engineering May 1985 to April 1986 Vice President-Gustomer Service July 1983 to April 1985 Vice President - Nuclear Engineering January 1980 to and Operations June 1983 Charles B. McCarthy, Jr. Vice President- Advanced Engineering July 1983 to April 1985 Manager of Fuel Supply July 1982 to June 1933 Manager of Mono Power Company June 1981 to June 1982 Harold B. Ray Station Manager- San Onofre August 1981 to 06tober 1663 Jennifer Moran Senior Counsel- Law Department December 1984 to December 1986 Attorney June 1979 to December 1984 l

(1) During the period in which Mr. Bryson was at the law firm of Morrison & 1 oerster, he was in the firm's business department. The CPUC, of which Mr. Bryson was president, regulates electric. ,

gas, water and telephone utilities and trucking, rail, rapid transit and inter city bus services in California. -

(2) As president of the California Council for Environmental and Economic Balance, a non profit i corporation, Mr. Peevey administered and directed programs in the energy, environment and resource management fields.

(3) This entity is not a parent, subsidiary or other affiliate of the Company.

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I PART11 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Information responding to item 5 is included in the Company's Annual Report to Shareholders for the year ended December 31,1986 (" Annual Report") under " Quarterly Financial Data" on page 63 and is incorporated by reference pursuant to Form 10-K's General instruction (" General Instruction") G(2). The number of Common Stock shareholders is included in the Annual Report under "Distribt. tion of Record Shareholders and Shares" on page 64. Additional information concerning the market for the Company's Common Stock is set forth on the cover page.

Item 6. Selected Financial Data information responding to item 6 is included in the Annual Report under " Selected Financial Data 1976-1986" on pages 58 and 59 and is incorporated herein by reference pursuant to General Instruction G(2),

item 7. Management's Discussion and Analysis of Results of Operation and Financial Condition Information responding to item 7 is included in the Annual Report under " Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 54 through 56 and is incorporated herein by reference pursuant to General Instruction G(2).

Item 8. Financial Statements and Supplementary Data Certain information responding to item 8 is set forth after item 14 in Part IV. Other information responding to ftem 8 is included in the Annual Report on pages 36 through 53 and is incorporated herein by reference pursuant to General Instruction G(2).

Itere 9. Disagreements on Accounting and Financial Disclosure

! None.

PART 111 Item 10. Directors and Executive Officers of the Registrant Information concerning executive officers of the Company is set forth in Part 1 in accordance with General Instruction G(3), pursuant to Instruction 3 to item 401(b) of RegtMtion G-K. Other information responding to item 10 is included in a proxy statement filed by the Company on iMarch 6, 1987, with the Commission pursuant to Regulation 14A (" Proxy Statement"), on pages 2 through 6.

and is incorporated herein by reference pursuant to General Instruction G(3).

Item 11. Executive Compensation Information responding to item 11 is included in the Proxy Statement on pages 8 through 15 and is incorporated herein by reference pursuant to General Instruction G(3),

item 12. Security Ownership of Certain Beneficial Owners and Management information responding to item 12 is included in the Proxy Statement on pages 7 and 25 and is incorporated herein by reference pursuant to General Instruction G(3).

Item 13. Certain Relationships and Related Transactions Information responding to item 13 is included in the Proxy Statement on page 13 and is incorporated herein by reference pursuant to General instruction G(3).

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i PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8 K (a)(1) Financial Statements The following items contained in the 1986 Annual Report to Shareholders are incorporated by j reference in this report.

Responsibility for Financial Statements 1 i

Report of independent Public Accountants i Statements of income- Years Ended December 31,1986,1985 and 1984 Balance Sheets - December 31,1986 and 1985 j Statements of Sources of Funds Used for Construction Expenditures-Years Ended  !

December 31,1986,1985 anct 1984 i Statements of Capitalization - December 31,1986 and 1985 Statements of Common Shareholders' Equity-Years Ended December 31,1986,1985 and 1984 Notes to Financial Statements Management's Discussion and Analysis of Results of Operations and Financial Condition (2) Report of Independent Public Accountants and Schedules Supplementing Financial Statements The following documents may be found in this report at the indicated page numbers.

Page Report of independent Public Accountant on Supplemental Schedules . . . .. 23 Schedule V - Property, Plant and Equipment for the Years Ended December 31, 1986,1985 and 1984 . . . . . . . . . . . .... . . 24 Schedule VI - Accumulated Depreciation and Amortization of Property, Plant, and Equipment for the Years Ended December 31,1986,1985 and 1984. . . . . . ... . . . 27 Schedule Vill - Valuation and Qualifying Accounts for the Years Ended December 31,1986,1985 and 1984 . .. . .. ... .. . .. 30 Schedule IX - Short Term Borrowings For Each of the Three Years in the Period Ended December 31,1986. .... . . .. . . . . . 33 Schedule X - supplementary income Statement Information For Each of the Three Years in the Period Ended Dece:nber 31,1986. . . . 34 Schedules I to Xill, inclusive, except those referred to above, art omitted as not required or not applicable.

(3) Exhibits See Exhibit index on page 40 of this report.

(b) Reports on Form 8-K December 4,1986 Item 5: Other Events - First and Refunding Mortgage Bonds, Series 86K, Due 2017 December 9,1986 Itcm 5: Other Events - CPUC Disallowance 22

6 4 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

- ON SUPPLEMENTAL SCHEDULES l

1 i- To Southern California Edison Company: 1 in connection with our examinations of the financial statements included in the 1986 Annual Report to Shareholders of Southern California Edison Company and incorporated by reference in this Form 10 K. we have also examined the supplemental schedules listed in Part IV of this Form 10-K. Our examinations of the financial statements were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules are presented for purposes of complying with the Securities and Exchange Commission's rules and regulations under '

the Securities Exchange Act of 1934, and are not otherwise a required part of the basic financial statements. The supplemental schedules have been subjected to the auditing procedures applied in the examinations of the basic financial statements and, in our opinion, subject to the effects on the schedules of property, plant and equipment of such adjustments, if any, as might have been required had the final outcome of the California Public Utilities Commission's proceedings related to

.certain construction costs for San Onofre Nuclear Generating Station Units 2 and 3 and Palo Verde Nuclear Generating Station Units 1,2 and 3 been known, fairly state in all material respects the l financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN & CO. I i

- Los Angeles, California, ]

February 11,1987. j I

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1 SOUTHERN CALIFORNIA EDISON COMPANY i

SCHEDULE V-PROPERTY, PLANT AND EQUlPMENT For the Year Ended December 31,1986 Balance at Add (oeduct) g , gene ,

Beginn of Additions Other at End Classification P at Cost Retirements Changes of Period (in Thousands)

St:am Production . . . . . . . . . .... $ 1,735,565 $ 44,668 $ (3,473) $ ' - $ 1,776,760 Nuclear Production . . .. .. . .. . 4,092,099 1.218,570 (274) (15.142) 5,295,253 Hydro Production . . . . . . . . . . . . . . . . . . 264,037 7,294 (382) - 270,949 Oth:r Production . . ...... . .. ..... 384,642 8,973 (310) - 393,305 Transmission . . . . . . . . . ....... 1,673,513 164,349 (7,167) (379) 1,830,316 Distribution . . . . . . ..... . .... . .. 3,191,511 367,615 (40,014) (502) 3,518,610 Ge ner al . . . . . . . . . . . . . . . . . . . . . . . . . . . . 426,647 84,693 (4,355) 881 507,866

. Plant Held for Future Use .. . . . . . . . 23,778 (879) (135) - 22,764 Experimental Electric Plant Unclassified . . 54,667 121 (904) - 53,884 Oth:r Utility Plant . . . . . . . ... . 6,983 89 (33) - 7,039 El:ctric Plant Purchased . . . . .. .....

Electric Plant Acquisition Adjustments... - - - - -

Subtotal- Utility Plant . . .. . . 11,853,442 1,895.493 (57,047) (15,142) 13,676,746 Construction Work in Progress . . . ... 2,041,738 (692,208)(a) (7,361) - 1,342,169 Nuclear Fuel . . . . . . . . . . . . . . . . . . . . . . 121,740 19.895 -

(32,340) 109.295 Gross Utility Plant . . . . . . . . . . . . . $14,016.920 $1.223,180 (b) $(64,408) $(47.482) $15.128,210 Nonutility Property . . . . . . . . . . . . . , . . . $ 29,789 $ 263 ,$ (1.290) $ _

$ 28,762 (a) Additions to construction work in progress are net of transfers to plant in service which are shown as additions to the various operating plant classifications.

(b) Gross utility plant addnions of $1,223,180,000, less allowance for funds used during construction of i

$124,103,000, and San Onofre Unit 1 sleeving amortization of $15,142,000, plus write-off of estimated plutonium value of t,)ent nuclear fuel of $7,051,000, plus nonutility property additions of $263,000 and  !

less miscellaneous reclassifications of $1,572,000, equals funds used for construction expenditures of

$1,089,677,000, as reported in the 1986 Annual Report to Shareholders.

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SOUTHERN CALIFORNIA EDISON COMPANY SCHEDULE V-PROPERTY, PLANT AND EQUIPMENT For the Year Ended December 31,1985 A d (Deduct) Balance Balance at r Beginning of Additions other at End  !

Classification Period at Cost , Retirements Chengus of Period j

(}n Thousands)

Steam Production . . .

$ 1,567,555 $ 179,671 $ (1,570) $ (10,091) $ 1,735,565 Nuclear Production . . .. . .

3,857,731 258,529 (92) (24,069) 4,092,099 i Hydro Production . .. .. . .. 251,024 13,267 (254) - 264,037 Other Production . . . .. .. 385,851 1,092 (2,746) 445 384,642 Transmit sion . . . . . . . . . . . 1,506,625 168,303 (2,511) 1,096 1,673.L13 Distribaion. . . . .. . . .. .. 2,933,115 294,510 (34,354) (1,760) 3.191,511 General . . . . . 309,639 104,640 (4,659) 17,027 426,647 Plant Held for Future Use 23,610 626 (458) - 23,778 Experimental Electric Plant Unclassified 63,430 3,099 (11,862) - 54,667 Other Utility Plant. .. . . .

6,815 193 (25) - 6,983 Electric Plant Purchased .. .. 412 (412) - - -

Electric Plant Acquisition Adjustments . (88) 88 - - -

Subtotal - Utility Plant . . . . . . . . 10,905,719 1,023,606 (58,531) (17,352) 11,853,442 Construction Work in Progress . .. 1,849,204 196,232(a) (3,698) - 2,041,738 Nucleat Fuel ..... . .. ... ..... . 105,397 16.343 - - 121,740 Gross Utility Plant . . . . . . . ... . $12,860.320 $1,236,181(b) $(62.229) $ (17,352) $14.016.920 Nonutility Property . . . . .. . $ 14,391 $ 18,175 $ (2.777) $ -

$ 29.789 (a) Additions to construction work in progress are net of transfers to plant in service which are shown as additions to the various operating plant classifications.

(b) Gross utility plant additions of $1,238,181,000, less allowance for funds used during construction of

$160,804,000, and San Onofre Unit 1 sleeving amortization of $17,352,000, plus nonutility property additions of $18,175,000 and miscellaneous reclassifications of $295,000, equals funds used for con-struction expenditures of $1,076,495,000, as reported in the 1985 Annual Report to Shareholders.

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L SOUTHERN CALIFORNIA EDISON COMPANY SCHEDULE V-PROPERTY, PLANT AND EQUIPMENT For the Yest Ended December 31,1984 Bolence at Add (Doduct) Balance

• Beginning of Addit 6ons Other at End Clase4fication Ported at Cost Retirements Changes _ of Period (in Thousands)

St:am Production . . . . . . . . . . . . . . . . . $ 1,537,770 $ 38,996 $(13,169) $ 3,958 $ 1,567,555 Nuclear Production . . . . . . . . . . .. 2,146,257 1,726,361 (16) (14,871) 3.857,731 Hydro Production. . . . . . ... . .. .. 248.637 3.584 (397) (800) 251,024 Other Production . . . . . . . . . . . . . . . . . 3E9,047 767 (6) '(3,957) 385,851 Transmission. . . . ... ....... ..... 1,462,734 51,566 (8.893) 1.218 1,506.625 Distribution ......,... ....... . 2,738.802 229.909 (34,762) (834) 2,933,115 G:neral . , . . . . . . . .... . . . . . . . . 266,454 49.029 (6,260) 416 309,639 Plant Held for Future Use . . . . . . . . . . 23,815 (205) - - 23,610 Experimental Electric Plant Unclassified 63,232 198 - -

63.430 Oth:r Utility Plant. . . . . .. ....... 6,771 66 (22) -

6.815 Electric Plant Purchased . . . . . . . . . . . -

412 - -

412 El:ctric Plant Acquisition Adjustments . -

(88) - -

(88)

Subtotal - Utility Plant. . . . . . . . . . 8,883,519 _2,100,595 (63,525) (14,870) 10,905,719 C:nstruction Work in Progress . . . . . . . 2,940,356 (1,093.362)(a) 2,210 - 1,849,204 Nuclear Fuel . . . . . . , . .'. . . . . . . . . . . 88.024 17.373 .

_ 105.397 Gross Utility Plant . . . . . . . . . . . . . . . . $11.911.899 $ 1,024.606 (b) $(61.315) $(14.870) $12.860.320 Nonutility Property . . . . . .. . . . . . . . ... $ 14.652 $ -

$ (261)$ 14,391-(a) Additions to construction work in progress are net of transfers to plant in service which are shown as additions to the various operating plant classifications.

(b) Gross utility plant additions of $1,094,606,000, less allowance for funds used during construction of  ;

$189,585,000, San Onofre Unit 1 sleeving amortization of $14,057,000, and San Onofre Unit 2 deprecia-tion expense of $1,553,000 that was deferred until the Unit was placed in service for ratemaking purposes, plus Cool Water Coal Gasification investment of $31,937,000 and miscellaneous reclassifica-tions of $926,000, equals funds used for constr'uction expenditures of $852,274,000, as reported in the 1984 Annual Report to Sharabolders, l

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SOUTHERN CALIFORNIA EDISON COMPANY SCHEDULE VI~ ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EOUIPMENT(a)

For the Year Ended December 31,1986 a 6, ions

,.eien e .; f."LW Aa g> ._

sejeacge.

Description Yr6.7 Expenses Retirements Changes (b) salvage Period (in Thousanas)

Steam Production . . . . . . . . . . . . . $ 852,362 $ 73,091 $ (2,179) $ (396) $ 29 $ 922,907

. Nuclear Production . . ... . 398,397 173,870 (275) 3 115 572,110 Hydro Production . . ... .. . 106.410 3,668 (374) (204) 55 109,555 Other Production . .. ..... 153,005 16,752 (126) (36) - 169,595 Transmission . . . . . . . . . . 468,147 46,519 (5,411) (3,406) 2,323 508.172 Distribution . . . . . . . . . . . .

1,055,316 163,961 (39,066) (19,574) 7,933 1,168,570 Generat . ,, . ,,..... .. . . 91,010 21,290 (4,307) 1,210 1,094 110,297 Experimental Electric Plant Unclassified . . . . . . . . . . . . , , , 34,582 11,374 (905) (1) -

45.050 Retirement Work in Progress (9,040) -

(10,862) (2,334) (86) (22,322)

Other Utility Plant Reserves . 1,952 189 (32) 37 ,- 2,146 Subtotal. . . . ..... ... 3,152.141 510,714 (63,537) (24,701) 11,463 3,586,080 Nuclear Fuel Amortization . . . . 26,560 12.397 -

(25.289) - 13,668 Total Utility Plant Reserves . . 53,178,701 $523.111 _$N3.537) $(49.990) $11,463 $3.599,748 Nonutility Property Reserves... $ 2,149 $ 1,137 $ (1,074) $ 483 $ -

$ 2.695 (a) Depletion is not applicable.

(b) includes removal costs related to facilities retired, damage claims and relocation costs collected from others, and various other adjustments of depreciation and amortization.

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., i SOUTHERN CALIFORNIA EDISON COMPANY SCHEDULE VI- ACCUMULATED DEPRECIATION AND AMORTIZATION

• OF PROPERTY, PLANT AND EQUIPMENT (a) f l

For the Year Ended December 31,1985

• )

Additions Charged Balance at to Costs Add (oeduct) Balance at Beginning of and other End of Per6od Expenses Retirements Changes (b) salvage _ Period description (in Thousands)

$ 782,906 $ 71,791 $ (1,569) $ (832) $ 66 $ B52,362 Steam Production . . . ... .. .

204,668 143,618(c) (57) 168 - 398,397 Nuclear Production . . . . . . . . . . . . 106,410 103,221 3,522 (254) (91) 12 Hydro Production . .. . .

138,296 16,714 (2,747) 739 3 153,005 Other Production . . . . .. .

468,147 428,650 42,658 (2,539) (1,219) 597 Transmission . . .. . . ..

1,055,316 949,609 149,253 (34,295) (10,071) 6,820 Distribution . . . . . ..

91,010 76,185 17,612 (4,656) 1,265 604 General . . . . . ... . ...... .

Experimental Electric Plant 34,582 34,756 11,738 (11,811) (101) -

Unclassified . ... .. .. .. ..

(6,444) - (6,140) (3,051) 6,595 (9,040)

Retirement Work in Progress. . . . , ,

1.804 _. 184 , (24_) (12) - 1.952 Other Utility Plant Resc eves , . . . . . . . _ _ _2.763,651 Subtotal . . . . . . . . . . . . . . . . . . ..

457,090 (64,092) (19.205) 14,697 _ 3,152,141 25.289 1.271 - - - 26,560 Nuclear Fuel Amortization.. .. ..

Total Utility Plant Reserves ... .

$2,788.940 $458.361 $(64,092) $(19.205) $14,697 $3.178,701

$ 2,771 $ 420 9 (1,423) $ 381_ $ - $ 2,149 Nonutility Property Reserves . . . . ..

(a) Depletion is not applicable.

(b) Includes removal costs related to facilities retired, damage claims and relocation costs collected from others, and various other adjustments of depreciation and amortization.

(c) includes $2,990,000 of depreciation expense related to San Onofre Nuclear Generating Station Unit 2 that was deferred for ratemaking purposes.

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SCHEDULE VI- ACCUMULATED DEPRECIATION AND AMORTIZATION {

OF PROPERTY, PLANT AND EOUlPMENT(a)

For the Year Ended December 31,1984 Addittens i Beience et AM (Dede) asience Chereed to Beginn of Costs and other et End Deectlption ' P ' Espenses Retirements Changes (b) selvage of Per60d (in Thousande)

- Steam Production . . . . . . . . . . . . $ 728.092 $ 62,956 $(13,169) $ 4,917 '$ 110 $ 782,906 Nuclear Production . . . . . . . . . . 122,640 132,071(c) (16) (28) 1 254,668 Hydro Production . . . . . . . . . 100,424 3.238 (397) (49) 5 103.221 Other Production . . . . . . ... . 126,647 16,913 (6) (5.264) 6 138.296 Transmission. . . . . . . . . . . . . . . 386,188 50.556 (8,749) (863) 1,518 428,650

. Distribution . . . . . . . . . . . . 881,674 109,200 (34,720) (13,379) 6,834 949,609 General . . . . . . . . . . . . . . .. . . 64,853 16,814 (6,263) 228 553 76,185 Experimental Electric Plant Unclassified . . . . . . . . . . . . . . . . 22.091 12.665 - - - 34,756 Retirement Work in Progress . . (7,889) - 1,976 566 (1,097) (6,444)

Other Utility Plant Reserves . . . 1,648 179 (22) (1) - 1,804 Subtotal . . . . . . . . . . . . . . . . 2,426,368 404,592 (61,366) (13.-873) 7,930 2,763,651 Nuclear Fuel Amortization . . . . . 25.289 - - - -

25.289 Total Utility Plant Reserves,, $2.451,657 $404.592 $(61,366) $(13.873) $7.930 $2.788.940 Nonutility Property Reserves .. $ 2.603 $ 279 $ (186) $ 75 $- $ 2.771 (a) Depletion is not applicable.

(b) includes removal costs related to facilities retired, damage claims and relocation costs collected from others, and various other adjustments of depreciation and amortization.

(c) includes $1,553.000 of depreciation expense related to San Onofre Nuclear Generating Station Unit 2 that was deferred for ratomaking purposes.

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SOUTHERN CALIFORNIA EDISON COMPANY SCHEDULE Vlli-VALUATION AND QUALIFYlNG ACCOUNTS For the Year Ended December 31,1986 Additions Balance at Charged to Charged to Balance seetming of Costs and Other at End Description Pwrted Expenses Accounts Deductions of Ported (in Thousands)

Group A:

Uncollectible Accounts Customers . . . . . . . . . . $ 5,962 $10.558 $- $10,265 $ 6.255 All Other . . . . . . . . 3.871 3.125 128 1,505 5.619 Total . . . . ........ . S 9.833 $13.683 $ 128 $11.770(a) $11,874 Group B:

Pension and Benefits . , . . . . $35.642 $11,125 $16,310(b) $20.966(c) $42,111 Insurance, Casualty and Other . . . . . . .. .. , 46.799 43.681 577 46.767(d) 44.290 Total . . . . . . . . . . . . . $82.441 $54,806 $16,887 $67.733 $86.401 (a) Accounts written off, net.

(b) Principally, charges are transfers from the accrued p&id absence allowance account for required additions tc the comprehensive disability plan faccounts.

l (c) includes pension payments to retired employees, amounts paid to active empbyees during periods of illness and the funding of certain pension benefits.

(d) Principally, charges from work orders closed and amounts charged to operations that were not covered by insurance.

l l

l 30 l

1 l _

.4 SOUTHERN CALIFORNIA EDISON COMPANY -

SCHEDULE Vill-VALUATION AND QUALIFYlNG ACCOUNTS i

For the Year Ended December 31,1985

' Additione asience et charged to c to sesence

^

of Coote and at End Description *:Verd Espensee Accounte Deductione of Period (in Thousands)

Group A: j Uncollectible Accounts 1 Customers. . . . . . . . $ 7,279 $10,059 $- $11,376 $ 5,962 l All Other .....,... 3.120 2,645 - 1,894 3,871

- Total . . . . . . . . . . ' $10.399

$12,704 $- $13.270(a) $ 9,833 -

Group 'B:

Pension and Benefits $31,573 $ 8,621 - $14,745(b) $19,297(c) $35,642 insurance, Casualty and Other . . . . . , , 35,437 29,956 8,031 26.625(d) . 46,799 Total , , , , , . . , , . $67,010 $38.577 $22.776 $45,922 $82,441 (a) Accounts written off, net.

(b) Principally, charges are transfers.from the accrued paid absence allowance account for required additions to the comprehensive disability plan accounts.

(c) includes pension payments to retired employees, amounts paid to active employees during-periods of illness and the funding of certain pension benefits.-

(d) Principally, charges from work orders closed and amounts charged to operations that were not covered by insurance.

i l

l i

31

L SOUTHERN CALIFORNIA EDISON COMPANY SCHEDULE Vill-VALUATION AND QUALIFYING ACCOUNTS For the Year Ended December 31,1984 Additions Balance at Charged to Charged to Balance Beginning of Costs and Other at End Descr6ption Perlos Espenses Accounts Deductions __ of Period (in Thousands)

Group A: q Uncollectible Accounts t Customers. . . .... S 7,618 $ 9,094 $- S 9,433 5 7,279 All Other . .. . 2.933 2.097 - 1,910 3,120 Totat . . . . .. $10,551 $11.191 5 -

$11.343(a) $10.399 )i Group B:

Pension and Benefits $28,579 5 9,380 $13,746(b) $20,132(c) 531,573 i insurance, Casualty I and Other . . . . . . 40,953 44.393 23 49.932(d) 35.437 I Totat . . . . . . $69.532 553.773 513.769 $70.064 $67.010 I I

(a) f.ccounts written off, net.

(b) Principally, charges are transfers from the accrued paid absence allowance account for -i required additions to the comprehensive disability plan accounts.

(c) includes pension payments to retired employees, amounts paid to active employees during {

periods of illness and the funding of certain pension benefits.

)

(d) Principally, charges from work orders closed and amounts charged to operations that were not covered by insurance.

l l

l l

l 1

l l

l 32 l

1

3 SOUTHERN CALIFORNIA EDISON COMPANY SCHEDULE IX-SHORT TERM BORROWINGS For Each of the Three Years in the Period Ended December 31,1986 Weighted Maximum Average Average Weighted Amount Amount interest Balance Average outstanding outstanding Rate alEnd Interest ouring During During of Period R'ste the Penod the Penod the Penod (000) (000) (000)(a) (b)

December 31,1986:

Payable to holders of commercial paper - general purpose . . . $115.000 6.98% $200.000 $ 40,3B5 6.94%

Payable to holders of commercial paper - fuel oil . . ... .... 213,000 6.32 275,000 220,113 6.80 Payable to holders of commercial paper

-financing subsidiary . ..... .... 48.800 6.37 148,850 76.495 7.12 December 31,1985:

Payable to holders of commercial paper - SCE . . . . . . . . . . ... . .. 15,000 8.92 0 5,755 105,262 8.27 Payable to holders of commercial paper

-financing subsidiary ...... .. .. 148,850 8.15 152,600 147,324 8.11 December 31,1984:

Notes payable to banks - SCE . . . . . . . - - 6,151 2.243 9.88 Payable to holde'rs of commercial paper - SCE . . ...... .... . .

95.000 6,027 10.32 Payable to holders of commercial paper

- financing subsidiary . . . . . . ..... 141,950 8.56 166,950 157,315 10.31 Pollution Control Loans Payable. . ..

119.500 87,588 7.34 (a) Average amount outstanding during the year is computed by dividing the total of daily outstanding principal balances by 365. j (b) Weighted average interest rate during the year is computed by dividing the total interest expense by the l average amount outstanding.  !

A l

33 w,. ,,-

L SOUTHERN CALIFORNIA EDISON COMPANY SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION For Each of the Three Years in the Period Ended December 31,1986 charged to .

Expense (000)

YCar Ended December 31,1986:

Property Taxes . . . . . . . . . . . . . . . . . . . . . .. . . .. .. . .. . . .. $108,952 Payroll and Other Taxes ... ... .... . ... . . .. . .. . . . ... . 34,322 Year Ended December 31,1985:

Property Taxes . . . . ...... . .. . . . . .. . .... ... . . .. . 98.738 Payroll and Other Taxes ..... . ..... . .... . . .. . . . .. . . . . . 31,833 Year Ended December 31,1984:

Property Taxes . . . . . . . . .. . ... .. .. .. . . ... . . 88,248 Payroll and Other Taxes . . . . . . . . . ... ... ... .. . . . .. . 33,094 Not0: Depreciation and maintenance expense appear on the Statements of income. Royalties paid and advertising costs included in Other Operating Expenses are less than 1% of total operating revenues.

?

34

SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto du!y authorized.

SOUTHERN CALIFORNIA EDISON COMPANY By T. R. McDANIEL (T. R. McDaniel, Assistant Treasurer)

Date: March 23,1987 Pursuent to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Title Date Principal Executive Officer:

Howard P. Allen

• Chairman of the Board, March 23,1987 Chief Executive Officer and Director Principal Financial Officer:

John E. Bryson* Executive Vice President March 23,1987 and Chief Financial Officer Controller or Principal Accou'nting Officer:

Richard K. Bushey* Vice President and March 23,1987 Controller Majority of Board of Directors:

N. Barker, Jr.* Director March 23,1987 Warren Christopher

• Director March 23,1987 Camilla C. Frost

• Director March 23,1987 Walter B. Gerken* Director March 23,1987 William R. Gould* Director March 23,1987 Joan C. Hanley* Director March 23,1987 J. K. Horton* Director March 23,1987 Carl F. Huntsinger* Director March 23,1987 J. J. Pinola" Director March 23,1987 James M. Rosser* Director March 23,1987 Henry T. Segerstrom* Director March 23,1987 Edward Zapanta' Director March 23,1987

• By T. R. McDANIEL (T. R. McDaniel, Attorney in-Fact) 35

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report (the Report of Independent Public Accountants) appearing on Page 36 of the 1986 Annual . ,

Report to Shareholders of Southern California Edison Company (Exhibit 13 included herein) in this {

Annual Report on Form 10-K for the year ended December 31,1986 of Southern California Edison .

Company. .

[

l We further consent to the incorporation by reference of the above-mentioned Report of independent Public Accountants, incorporated by reference in this Annual Report on Form 10 K, and to the incorporation by reference of our report (the Report of independent Public Accountants on Supplemental Schedules), appearing on Page 23 of this Annual Report on Form 10-K, in the Registration Statement on Form S 3 which became effective January 15,1987 (File No. 33-11241),

in the Registration Statement on Form S 3 which became effective August 20,1986 (File No. 33-8027),in Post Effective Amendment No. 2 to the Registration Statement on Form S 8 which became effective August 8,1986 (File No. 2 94889), in the Registration Statement on Form S-3 which became effective on March 11,1986 (File No. 33-3778), in the Registration Statement on Form S-3 which became effective on November 7,1985 (File No.33-972),in Post-Effective Amendment No.1 to the Registration Statement on Form S-8 which became effective on July 6,1984 (File No. 2-82092) and in the Registration Statenient on Form S 3 which became effective on September 10, 1982 (File No. 2-78940).

ARTHUR ANDERSEN & CO.

Los Angeles, California,

, March 23,1987.

36

j . .

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1 m

EXHISIT INDEX L l

4 '

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j i' '

Exhibit 4

. 1 g

Humber oo ,

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3.1 Restated Articles of incomoration as amended through July 6/19P i A '

i (Registration No. 2 8C445) * . . . ...... ....... . . . . .- ., . . ,

'l ;

3.2 Bylaws as atiopted by the Board of Directors on April.17,193S h j 4.1 Trust Indentu% da M is of October 1,1923 (RegistraS6n No. 2- '

1369)* . ...... . ..'.. ... . ' ./ . .... j. " ' .c ..

' 1 4.2 Supplemental indenture dattel as of March 1, 5927 (RegMstion No. 2-1369) * . . . . . . .q...... .i. ..... .. . . .

x. J l 4.3 Second Supplementalindemure, dated as of April 25,1935 (Reg;s. , ij tration No. 2-1472) * . . 1.Lx

. . .s ... . . . . . . ... .

9 ,

4.4 Third Supplem.,ntal indenten dated as of June 24,1935 (Regis-tration No. 21SO2)* . . . (. ... . .. .... . .g . . . ..

3 4.5 Fourth Suppletsntal Indeifure, dated as of S6ptsmber 1,1935 (Registration No. 2 4522)* . . ... ...... ; ... . .. .

Fifth S;pplem4$tal Incenture, dated as of August 15,1939 (Regis-4.6 tration No. 2-t'?22) * . . .... .. . . . , .

'])

4.7 Sixth Supplermntal in4!snture, dated as of September U 1940 )j (Registration No. 2 4522)*, .. . . .... .

.. . ,.. . s 4.8 Seventh Supflamer2at indenturm date'.i as of January 40,1948 (Registration Nd. S7369) * . . ' , . . . ,

1 4.9 Eighth Supplementalindenture, oated as of Aug'.m 15, (Bf.0 (Re- i gistration No. 2 76;0) * . . . . . . , . . . . . .... . .. .

l 4.10 Ninth Supl/a.meital Indenture, dated as of February 15, 1951 (Registration Nu/ 2 8781)* . ........ . ....'... ...

4.11 Tenth Supplemyn'al Indenture, dated as of August 15,1951 (Re-gistration No. 2 7968) * . . . . . . . . . . /. . . v, . . . ..~.

4.12 Eleventh Supp!amental Indenture, rat % e.s of Aagust 15,19F3 (Registration No. 2-10396)* .. .;q ,. . . ..

4.13 Twelfth Supplemental Indenture, Umtg as of August 15, 1954:

(Registration No. 2-11049 ) * . . . . . . . . , . .

Thirteenth Supplemental Indenture, dnc.vt as of April 15,1956

[]

4.14 (Registration No. 212341)* ... .. .. . . . . ... . .

4.15 Fourteenth Supplemental indenture, da. tad as of February 15,1J57 (Registration No. 2-13030)* . . . . .. . . .... .. .

l 4.16 Fifteenth Supplemental indenture, dated as of July 1,1957 (Regis-tration No. 2-13418)* . .. ... . . . . . . . . . .. 1 ii 4.17 Sixteenth Supplemental Indenture, dated as oi August 15,1957 k t

(Registration No. 2-13516)* . .. . . .. ...... .

4.18 Seventeenth Supplemental Indenture, cit $d as of August 15,1958, (Registration No. 2-14285)* .. . .... .. . ..

4.19 Eighteenth Suppipantal Inder,ture dated ts of January 15, IoSG (Registration No. 21f906)' i 4.20 Nineteenth Supplemental ladenture, dated as 0150 gust '15,1960 (Registration No. bi6820)* ..... .. . . .. ... ..

4 37

)

i N ap - > N i m A1 i

,n '

I t) 0 Exhibit

, Number Description a 4.21

, , Twentieth Supplemental Indenture, dated as of April 1,1961 (Re-

< gistration No. 2-17668)* . . .. ,

4.22 Twenty First Supplemental Indenture, dated as of May 1,1962 3 (Registration No. 2-20221)* .

% 4.23 Twenty Second Supplemental indenture, dated as of October 15, 1962 (Registration No. 2-20791)* . .

4.24 Twenty Third Supplemental Indenture, dated as of May 15,1963  :

(Registration No. 2-21346) * . .

l

,~ 4.25 Twenty-Fourth Supplemental Indenture, dated as of February 15, 1964 (Registration No. 2 22056)* . .

A , 4.26 Twenty-Fifth Supplemental indenture, dated as of February 1,1965  !

(Reg;stration No. 2 23082)* .. .

j 4.27 Twenty-Sixth Supplemental Indenture, dated as of May 1,1966 (Registration No. 2-24835)* . .. .

4.28 Twenty Seventh Supplemental indenture, dated as of August 15, 1966 (Registration No. 2-25314)* .. .. . .. . . .. .

{

4.29 Twenty-Eighth Supplemental indenture, dated as of May 1,1967 l (Registration No. 2-26323)* . . . ...

4.30 Twenty-Ninth Supplemental Indenture, dated as of February 1, 1968 (Registration No. 2-28000)* . . .... . ..

4.31 Thirtieth Supplemental Indenture, dated as of January 15,1969 (Registration No. 2-31044)* . ... .. .

4.32 Thirty-First Supplemental Indenture, dated as of October 1,1969 (Registration No. 2-34839)* . . . . . .. .

4.33 Thirty-Second Supplemental Indenture, dated as of December 1, 1970 (Registration No. 2 38713)* . . . ..

4.34 Thirty Third Supplemental Indenture, dated as of September 15,

1971 (Registration No. 2-41527)* . .. . ..

4.35 Thirty-Fourth Supplemental Indenture, dated as of August 15,1972 (Registration No 2 45046)* .. .. .. . .

4.33 Thirty-Fifth Supplemental indenture, dated as of February 1,1974 (Registration No. 2-50039)*. ... . . ...

4.'37 Thirty-Sixth Supplemental Indenture, dated as of July 1,1974 (Registration No. 2-59199)* . . .. . . . ..

4.38 Thirty Seventh Supplemental Indenture, dated as of November 1, 1974 (Registration No. 2 52160)* . . .. . .

4.39 Thirty-Eighth Supplemental indenture, dated as of March 1,1975 (Registration No. 2 52776)* . . ..

4.40 Thirty-Ninth Supplemental indenture, dated as of March 15,1976 (Registration No. 2-55463)* . .

4.41 Fortieth Supplemental Indenture, dated as of July 1,1977 (Regis-tration No. 2-59199)* . . . .. .. .

I 4.42 Forty-First Supplemental Indenture, dated as of November 1,1978 (Registration No. 2 62609)* . .

38 l

b

__ m -

ExhitWt Number description 4.43 Forty-Second Supplemental Indenture, dated as of June 15,1979 (File No.1-2313)* . . . . .. .. ... . . . .

4.44 Forty-Third Supplemental Indenture, dated as of September 15, 1979 (File No.12313)* , . . . . ..... ..

4.45 Forty-Fourth Supplemental Indenture, dated as of October 1,1979 (Registration No. 2-65493)* . ... . ....

4.46 Forty Fifth Supplemental Indenture, dated as of April 1,1980 (Re-gistration No. 2-66896)* .. .. . . . ... .

4.47 Forty Sixth Supplemental indenture, dated as of November 15, 1980 (Registration No. 2-69609)*. . . . . .

4.48 Forty Seventh SupplementalIndenture, dated as of May 15,1981 l (Registration No. 2-71948 ) * . . . . . . . .. l 4.49 Forty Eighth Supplemental indenture, dated as of Auguet 1,1981 (File No.1-2313)* . .... . . .. ... . ..

4.50 Forty Ninth Supplementalindenture, dated as of December 1,1981 j (Repstration No. 2-74339 ) * . . . . . .. . ....... . ..

4.51 Fiftieth Supplemental Indenturo, dated as of January 16,1982 (File No.1-2313) * ... . .. .... .. ...

4.52 Fifty-First Supplemental indenture, dated as of April 15, 1982 (Registration No. 2-76626)* .. . . . .

4.53 Fifty Second Supplemental indenture, dated as of November 1, 1982 (Registration No. 2 79672)* . ... .. . . . . . .

4.54 Fifty-Third Supplemental indenture, dated as of November 1,1982 (File No.1 2313) * . . . . ... ... . .. .. .

4.55 Fifty-Fourth Supplemental indenture, dated as of January 1,1983 (File No.12313)* . .. . . .. .. . .. ..

4.56 Fifty Fifth Supplemental indenture, datea as of May 1,1983 (File No.1 2313) * . . . . . . ... ... .... .. . ..

4.57 Fifty-Sixth Supplemental Indenture, dated as of December 1,1984 (Registration No. 2-94512)* .. . .. . .. . .

4.58 Fifty-Seventh Supplemental indenture, dated as of March 13,1985 (Registration No. 2-96181) * .. .. . .. . ..

4.59 Fifty-Eighth Supplemental indenture, dated as of October 1,1985 (File No.1-2313)* ... .. .. . .. ..

4.60 Fifty Ninth Supplemental indenture, dated as of October 15,1985

( File No.1-2313) * . . . . . . . . . .. .. .. . . .

4.61 Sixtieth Supplemental indenture, dated as of March 1,1986 (File No.1 2313) * .. . .. . .. . .. . . . .

4.62 Sixty First Supplemental Indenture, dated as ol March 15,1986 (File No.1 2313) * . . . .  ;

4.63 Sixty-Second Supplemental Indenture, dated as of April 15,1986 (File No.1 2313) * . . . . .. . .. . .. . ..

4.64 Sixty Third Supplemental Indenture, dated as of April 15,1986 (a) Resolution creating First and Refunding Mortgage Bonds, Series 86 D E F and G .. .

39 i

(

ExhitWt Number Description 4.65 Sixth-Fourth SupplementalIndenture, dated as of July 1,1986 (File '

No.1-2313) * . . . . . ..... .. . .... ... .. . .

4.66 Sixty-Fifth Supplemental indenture, dated as of September 1,1986 y (File No.12313)* .. . . . . .. ... .. ,

4.67 Sixty-Sixth Supplementalindenture, dated as of September 1,1986 (a) Resolution creating First and Refunding Mortgage Bonds, Series 86J . . . . ..... . .. . .

4.68 Sixty-Seventh Supplemental indenture, dated as of December 1, 1986 ( File No.1 2313) * . . . . . . . ...

=

4.69 First Mortgage Indenture, dated October 1,1943, between Califor-nis Electric Power Company and The International Trust Company and Leo A. Steinhardt as Trustees (Registration No. 2 18234)*..

4.70 Second Supplemental indenture, dated June 1,1946, between j

California Electric Power Company and The international Trust Company and Leo A. Steinhardt as Trustees (Registration No. 2-

] 18234)* .. . .. . . . .. ... . . .. .

4.71 Third Supplemental Indenture, dated June 1,1948, between Cali-fornia Electric Power Company and The International Trust Com-pany and Leo A. Steinhardt as Trustees (Registration No. 2-18234)* . . . ... . .. .. . . .. . ...

4.72 Fourth Supplemental indenture, dated June 1,1950, between Cali-fornia Electric Power Company and The International Trust Com-pany and Leo A. Steinhardt as Trustees (Registration No. 2-18234)*.... . . . .. .. . . . .. .

4.73 Fifth Supplemental indenture, dated April 1,1953, between Califor-nia Electric Power Ccmpany and The international Trust Company and Leo A. Steinhardt as Trustees (Registration No. 2-18234)* .

4.74 Sixth Supplemental indenture, dated May 1,1954, between Califor-nia Electric Power Company and The International Trust Company i and Elmer W. Johnson as Trustees (Registration No. 218234)* I 4.75 Seventh Supplemental Indenture, dated September 1,1955, be-tween California Electric Power Company and The International Trust Company and Elmer W. Johnson as Trustees (Registration No. 2-18234) * . . .. ...... . . ... .. ..

4.76 Eighth Supplemental Indenture, dated October 1,1956, between California Electric Power Company and The international Trust Company and Elmer W. Johnson as Trustees (Registration No. 2-18234)* . .... . . .. ... ... .. ...

4.77 Ninth Supplemental Indenture, dated April 1,1957, between Califor-nia Electric Power Company and The International Trust Company and Elmer W. Johnson as Trustees (Registration No. 2-18234)*

- 4.78 Tenth Supplemental indenture, dated March 1,1958, between California Electric Power Company and The international Trust Company and Elmer W. Johnson as Trustees (Registration No. 2-18234)*. . .. . . . . .

]

40 1

1 3 f

Exhibit Numb *f Description j 4.79 Eleventh Supplemental Indenture, dated May 1,1960, between California Electric Power Company and The First National Bank of  ;

Denver and Elmer W. Johnson as True. tees (Registration No. 2- ]

18234)* .... . . .

l 4.80 Twelfth Suppltimental Indenture, dated July 1,1961, between Cali- i fornia Electric Power Company and The First National Bank of {

Denver and Elmer W. Johnson as Trustees (Registration No. 2- j 22056)' . .. .. . .. .

j 4.81 Thirteenth Supplemental Indenture, dated as of December 31,  !

1963, between Southern California Edison Company and The First National Bank of Denver and Elmer W. Johnson as Trustees (Registration No. 2-22056)* . . .

10.1 Executive Supplemental Benefit Program (File No.1-2313)* ,

l 10.2 1981 Deferred Compensation Agreement (File No.1-2313)* j 10.3 1985 Deferred Compensation Agreement for Executives

• l 10.4 1985 Deferred Compensation Agreement for Directors * .

10.5 1987 Deferred Compensation Plan for Executives . .

10.6 1987 Deferred Compensation Plan for Directors.

10.7 Executive Retirement Plan as amended December 31,1985* .

10.8 Employment Agreement with Jack K. Horton (File No.1-2313)*

10.9 Employment Agreement with Howard P. Allen (File No.12313)*

1 10.10 1987 Executive incentive Compensation Plan . .

j 10.11 Retirement Plan for Directors (File No.1-2313)* l

11. Computation of Primary and Fully Diluted Earnings Per Share .

12. Computations of Ratios of Earnings to Fixed Charges . ....

13. Annual Report to Shareholders for year ended December 31,1986 (except for those portions which are expressly incorporated herein by reference, such Annual Report is furnished for the information of  !

this Commission and is not deemed to be " filed" herein) . . .

24. Consent of Independent Public Accountants (See page 36 hereof) 25.1 Power of Attornay . . . .. .

{

25.2 Certified copy of Resolution of Board of Directors Authorizing Sig'ature . . . . .. .. . ..

l 1

28.1 Form 11 K information for the Company's Stock Savings Plus Plan j pursuant to Rule 15d-21 . . .. . .

28.2 Form 11-K information for the Company's Employee Stock Owner- I ship Plan pursuant to Rule 15d-21 .

l Incorporated by reference pursuant to Rule 12b-32.

41 l

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I l t .

l l

6 l l

)

1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q l

Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 l

I For Quarter Ended June 30,1987 Commission File Number 1-2313 SOUTHERN CALIFORlWA EDISON COMPANY (Exact narne of registrant as specified in its charter)

CALIFORNIA 95 1240335 (State or other junsdiction of (1.R S. Employer incorporation or organization) Identification No.)

2244 Walnut Grove Avenue {

(P.O. Box 800) )

Rosemead, California 91770 l

( Address of principal executive offices, including zip code) q 818-302-1212 (Registrant's telephone nu nber. including area code) {

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes v No Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date:

Class outstanding et August 10,1987 ;

Common Stock, S4% par value 216,968,078

.. 1 SOUTHERN CALIFORNIA EDISON COMPANY j l

L INDEX i

Page i No.

Part 1. Financial Information:

Report of independent Public Accountants . . ...... .. .. ......... ......... 2 l item 1. Financial Statements:

! Statements of Income -Three, Six and Twelve Months Ended June 30,1987 and 1986 ... ... ............. ... .. .............. ...... ... .... . . . .. . 3 l Balance Sheets -June 30,1987, December 31,1986 and June 30,1986....... . 4 Statements of Sources of Funds Used for Construction Expenditures-Three, Six l:

' and Twelve Months Ended June 30,1987 and 1986 . . . . . . . . . .. . . . . . . . . . . , .. 6

, Statements of Common Shareholders' Equity-Three, Six and Twelve Months Ended .

June 30,1987 and 1986 . .................................. ... .. ... 7

! Statements of Capitalization-June 30,1987, December 31,1986 and June 30,1986 8 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . .... ........... ..... 10 item 2. Management's Discussion and Analysis of Results of Operations and FinancL Condition . . . . . . ................ .. .... .. ..... ..... ... .......... .... 24 Part 11. Other Information:

Item 1. Legal Proceedings. . . . . ..... . .. . ...... . . .... .... ... .. ... 28 Item 5. Other Information . . . . . . . . . . . .. . . ... . . ... . . . . ... . . 28 Item 6. Exhibits and Reports on Form 8-K . . . . . .. ... . ...... ... . . 29 l

I i 1 l

w_ ._ _ _ _ _ _ _ _ _ _ _ _ - _ - - - _ _ _ _ _ _ - - _ _ _ _ - _ _ _ _ --

PART 1 - FINANCIAL INFORMATION REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Southern' California Edison Company:

We have examined the balance sheets and statements of capitalization of Southern California Edison Company (a California corporation, hereinafter referred to as the " Company") as of June 30,1987, December 31,1986 and June 30,1986 and the related statements of income, common shareholders' equity and sources of funds used for construction expenditures for the three , six ,

and twelve-month periods ended June 30,1987 and 1986. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the financial statements referred to above present fairly the financial position of the Company as of June 30,1987, December 31, 1986 and June 30,1986 and the results of its operations and the sources of its funds used for construction expenditures for each of the three ,

six , and twelve-month periods ended June 30,1987 arid 1986, in conformity with generally accepted accounting principles which, except for the change, with which we concur, in accounting for unbilled revenues as discussed in Note 1 to the financial statements, were applied on a consistent basis.

ARTHUR ANDERSEN & CO.

Los Angeles, California, August 7,1987.

f 2

1 o

FINANCIAL STATEMENTS SOUTHERN CAUFORNIA EDISON COMPANY STATEMENTS OF INCOME 3 Months Ended 6 Months Ended 12 Months Ended June 30. June 30, June 30, 1987 1986 1987 1986 1987 1986 (in Thousands)

Operating Revenues:

Saies (Notes 7 and 2) 51,324.527 $1,212,518 $2,598.990 52.451,799 $5.422,739 $5,169.498 Other . . 7.029 (1.652) 16.264 -(944) 53.392 5.545 Total operating revenues . 1.331,556 1.210.866 2.615.254 2.450.855 5.476.131 5.175.043 Operating Expenses:

253.512 177.272 502.989- 404.824 976.206 1.295,754 Fuel (Note 2) ............

332,087 375,448 732,453 Purchased power (Note 8) . . . ... 169.702 183.356 793.549 Provisions for regulatory adjustment clauses -

9,074 8.650 53.481 (39,405) 229,751 (327,443) not (Note f) . ..... ... ......

196,253 399,407 383.104 825.301 780,457 Other operating expenses (Notes 7 and BJ 200.262 84,878 97.394 171,494 190.307 333,884 366.170 Maintenance (Note 1) 245,009 473.732 Depreciation (Note 7) . 136.196 124.275 270.775 530.467 income taxes / Note 4) . 173,909 154.549 310.390 335.060 707.653 698.226 Property end other taxes. . 42.207 34.234 84.089 71.126 156.236 131.375 1.069.740 975.983 2,124.712 1,965.473 4,491.951 4.211.820 j Total operating expenses .

261.816 234.883 490.542 485.382 984,180 963.223 Operating locome , , .

Other income and Deductions:

loss related to nuclear plant disallowance (137,377) -

(171.218) -

(Nore 2) . ... ....

Inco;ne taxes related to nuclear plar:1 loss

- - 71,442 -

92.271 -

(Note 4) . . ........ .....

Allowance for equity funds used during con- 122,186 19,154 28.046 37,219 57,319 85.644 struction (Note 7) . 40,145 59,186 81,387 100,103 Interest income . .. ..... .... 18.917 30.305 Taxes on non-operating income (Note 4) . . . . 333 (8,766) 179 (1,831) 12,754 4.341 4.160 29.023 19.102 33.539 26.632 58.362 Other income and income deductions - net .

42.564 78.608 30,710 148.213 125.470 284.992 Total other income (deductions) .

Income Before interest Charges 304.380 313.491 521.252 633.595 1.109.650 1.248.215 I

interest Charges:

Interest on long-term debt and amortization 440,518 (Note f ) . . . . . , ,

99,527 111,359 200,141 225.215 407.534 16.266 15.874 29.419 31.446 48.221 66.278 Other interest charges ,,, ,

115.793 127,233 229,500 256.661 455,755 506,796 Total interest charges . . ...... .

Allowance for borrowed funds used during con-struction (Note f) , . (11.201) (7.818) (21,765) (15.979) (35.265) (34.381) 104.592 119.415 207,795 240.682 420,490 472.415 Not interest charges . .,,

income Before Cumulative Effect of a Change in 199,788 194,076 313.457 392.913 689,160 775.800 Accounting Principle ....... ... ....

Cumulative effect on prior years (to December 31, 1986) of accruing unbilled revenue - net of income taxes of $58,752,000 (Notes f and 4) - - 68,044 - 68.044 -

199,788 194,076 381.501 392.913 757,204 775.800 Net income . . . . . . . . . . . . . . . ... ........

Olvidends on Cumulative Preferred and Preference 29,107 50,843 64.719 Stock. . 12.579 12.961 25.266 Earnings Available for Common and Original Preferred Stock . $ 187.209 5 181,115 5 356.235 5 363.806 5 706.361 5 711.001 tfdeighted Average Shares of Common and Origi- 217,676 217,834 217,153 nal Preferred Stock Outstanding (000) - 217,903 217,690 217,889 Eamings Per Share:

Before cumulative effect of a change in account-S.86 S.83 $1.32 $1.67 S2.93 $3.27 ing principle . . . . . . . . .

Cumulative effect of a change in accounting

- .31 - .31 -

, pnnciple (Note 7) -

S.86 S.83 $1.63 $1.67 $3.24 $3.27

! Total S.59 % S.57 $1.16% S1.11 S2.30W $2.19 Dividends Declared Per Common Share f

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

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S SOUTHERN CALIFORNIA EDISON COMPANY BALANCE SHEETS ASSETS June 30, December 31, June 30, 1987 1986 ' 1986 (in Thousands)

Utility Plant:

Utility plant, at original cost (Notes 7 and 6) . $14,050,958 $13,676,746 $12,723,560 Less - Accumulated depreciation (Notes 1 and 6) . 3,793,930 3.586,080 3.359.593 10,257,028 10,090,666 9,363,967 Construction work in progress (Notes 7 and 6) .. 1,414,616 1,342,169 1,742,623 Nuclear fuel, at amortized cost (Notes 1,3, and 7) . 572,512 619,343 643,362 12.244,156 12,052,178 11,749,952 Less - Property related accumulated deferred income taxes (Notes f and 4) . .. .. 774,502 708,436 619.676 Total utility plant . . ...... . . . . . 11.469,654 11,343,742 11,130,276 Other Property and investments:

Nonutility property and other investments, at cost-less accumulated depreciation . 51,830 45,546 47,701 investments in and advances to subsidiaries (Note 7) . . . .. .... . .. . . 209.492 207,282 195.283 '

Total other property and investments. 261,322 252.828 242.984 Current Assets:

Cash and equivalents (Note 3) .. .. .. . 106,775 33,603 58,757 Cash investments - financing subsidiary (Note 7) 32,993 65,545 112,374 Receivables, including unbilled revenues, less .

reserves of $12,080,000, $11,874,000 and )

$9,722,000 for uncollectible accounts at respective dates (Note f) . .. . . ... . . . 600,034 364,396 383,774 Fuel stock (Note f) . . . . .. ... ... 117,994 233,528 277,216 Materials and supplies, at average cost . .. 121,889 123,480 115,954 i Regulatory balancing accounts - net I (Notes 7 and 2) . . .. . ... .. . . 582,095 739,050 888,173 Prepayments and other . . ... . . . . .. 23.873 72,808 44,761 Total current assets. . ... . . ..... . 1.585,653 1,632,410 1,881,029 l

Deferred Charges: l Unamortized debt issuance and reacquisition l expense (Note 7) .... .. . .. . . 299,995 303,599 205,101 ,

Rate phase-in plan (Note 2) . .. . 164,006 90,650 - 1 Other deferred charges (Note B) . ... 154,635 145,439 130,546 Total deferred charges . . . . . . . . ., . ., 618.636 539.688 335,647 Total Assets. . . . $13,935.265 $13,768,668 $13.589.936

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

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SOUTHERN CALIFORNIA EDISON COMPANY BALANCE SHEETS CAPITALIZATION AND LIABILITIES June 30, December 31, June 30,

= 1987 1986 1986 (in Thousands)

Capitalization:

Common stock, at par value, 216,956,326, 216,906,527 and 216,736,732 shares outstanding at respective dates . ... ... .. . $ 903,985 $ 903,777 $ 903,070

} Additional paid-in capital . . . . . . . ... .. 1,547,004 1,546,541 1,544,315 g

Earnings reinvested in the business . . . 2.446,349 2,343.957 2.242,180

[ .

4,897,338 4,794.275 4,689,565 Common shareholders' equity . .

Preferred and preference stock without mandatory redernption requirements . ... . . . . 365,332 365,654 365,987

- Preferred and preference stock with mandatory redemption requirements . .. . .

282,338 299,049 305,049 Long. term debt (Note 1) . . .. .

4,502,605 4,667.891 4,715.230 Total capitalization . . . 10.047.613 10.126.869 10,075,831

} .. . ..

Long Term Obligations:

Nuclear fuel obligation - financing subsidiary (Notes f,3 and 7) . . .. 371,443 410,487 422,590 Accumulated provisions for pensions, insurance, and other (Note 5) . . .. ... . . .

96,521 95,680 93.964 Totallong term obligations . . . 467.964 506,167 516.554 Current Liabilities:

Preferred and preference stock to be redeemed within one year . . . 21,713 18,213 18,213 Long-term debt due within one year. . 129,425 103.315 111,210 l Short-term borrowings (Note 3) ,, 520,277 328,000 317,500 i Short-term borrowings - financing subsidiaries (Notes 7,3 and 7) . . . .

179,687 162,029 216,112 Accounts payable . . . . . . . . 421,171 415,118 386.590 438,151 460,171 344,358 Accrued taxes (Note 4) . . ... .

Accrued interest . . . . . . . .. . ... 109,345 109,034 105,759 Dividends payable . . . .. . . . ... 133,231 127,783 127,769 Accumulated deferred income taxes - net (Note 4) 284,534 340,952 445,754 Other . . .. . .. . .. .. . 250,781 134,174 85,948 Total current liabilities . . .. . 2,488,315 2,198,789 2,159.213 Deferred Credits:

Accumulated deferred investment tax credits 534,319 544,866 519,807 (Note 4) . . ... . . . . .

Accumulated deferred income taxes -net (Note 4) 151,403 121,943 60,878 Customer advances and other deferred credits. .. 245.651 270,034 257,653 Total deferred credits . . . .. 931,373 936,843 838,338 Commitments and Contingencies (Notes 2, 7, 8 and 9)

Total Capitalization and Liabilities . .

$13,935.265 $13,768,6S8 $13.589,936 The accompanying notes are an integral part of these financial statements.

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SOUTHERN CALIFORNIA EDISON COMPANY STATEMENTS OF SOURCES OF FUNDS USED FOR CONSTRUCTION EXPENDITURES 3 Months Ended 6 Monthe Ended 12 Months Ended June 30. June 30, June 30, 1987 1986 1987 1986 1987 1986 (in Thousands)

FUNDS PROVIDED BY-Oper:tions:

Net income . S 199,788 $ 194.076 5 381,501 5 392,913 5 757.204 5 775,800 items in net income not affecting working capital -

Depreciation . ..

136,196 124,275 270,775 245,009 530,467 473,732 Amortization of nuclear fuel. . 38,305 18,146 02,619 36,820 119,738 76,131 Allowance for equity and borrowed funds l used dunng construction (30,355) (35,864) (58,984) (73,298) (120.909) (156,567) l Rate phare-ir', plan . . (35,402) -

(73,356) - (164,006) -

l Deferred income taxes . 78.811 62,187 95.526 116,746 245,351 198,250 l Deferred investment tax credit - net . (6,097) 18,798 (10,547) 34,193 14,512 79,403 Other - net . . 5.343 2,763 (3.910) 2,295 13.690 3.892 Total funds provided by operations , 336.589 384,381 663.624 754,678 1,396.047 1,450,641 Dividends . (142,229) (157 019) (279,109) (270,418) (552.973) (540.691)

Total funds provided by operations

- reinvested . 244,360 247,362 384.515 484.260 843.074 909,u50 Long-Term Financing:

Sales of secunties-Common stock . . 362 326 671 633 3,542 47,334 Long-term debt . . 288 396,859 3,002 905,408 524,620 1,665,909 increase in nuclear fuel obligation . 9.446 7,772 18,990 28,200 57,498 63,779 Reduction for preferred and preference stock to be redeemed within one year . (4,813) (1,313) (13.149) (13,713) (17,649) (18,213)

Conversior, of preference stock , (98) (159) (321) (513) (653) (936)

Reduction for long-term debt due within one year . . (65,815) (51,759) (78,366) (102,255) (79,426) (110.366)

Reduction in nuclear fuel obligation due within one year . . . . (29,418) (38,305) (58,034) (62,618) (108,645) (119,737)

Refunding and early retirement of preferred stock and long-term deot - net , f 95.912) (723,463) (98.316) (1,055.629) (773.575) (1.430.776)

Total funds provided (used) by long-term financing , . (185,960) (410 042) (225.523) (300.487) (394.268) 96,994 Total funds provided (used) . 58.400 (162,680) 158.992 183,773 448,786 1,006.944 OTHER SOURCES (USES) OF FUNDS-Working capital changes:

Cash and equivalents and cash investments 12,958 388,389 (40,620) 30.605 31,363 70,083 Receivables - net . , , . (50,210) (39,034) (235,638) (32,679) (216,260) (31,553)

Fuel stock, materials and supplies. .

19,955 (10,621) 117,125 (31,484) 153,287 34,712 Regulatory balancing accounts - net. 181,793 (31,339) 156,955 (96,162) 306,078 (483,733)

Accumulated deferred income taxes - net . (44,834) 14,491 (56.s 1) 53,973 (161,220) 246,371 Preferred and preference stock and long.

term debt due within one year 17,556 16,051 29.610 63,850 21,715 5,960 Short term borrowings 166,527 74,60S 209,935 275.823 166.352 124,531 Accounts payable . (2,798) 24,932 6.053 (14,899) 34.581 (38,704)

Accrued taxes . . . .. (9,840) 35,646 (22,020) 110,636 93,753 214,095 Deferred unbilled revenue . 19,097 - 117,163 - 117,163 -

Other changes in working capital. (114.889) (15.597) 54,138 36,377 77.626 40,736 Net decrease in working capital . 195,315 457,526 336.283 396,040 624,478 182,498 Oth:r - not , (8.280) (3,725) (15.369) (2.910) (13.877) (21,716)

Total other sources of funds . 187,0M 453.801 320.914 393.130 610.601 160,782 Funds Used for Construction Expenditures. 5 245 435 S 291.121 S 479.906 5 576.903 $ 1.059.387 5 1.167,726 The accompanying notes are an integral part of these financial statements.

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. i SOUTHERN CALIFORNIA EDISON COMPANY ]

1 STATEMENTS OF COMMON SHAREHOLDERS' EQUITY 3 Months Ended 6 Months Ended 12 Months Ended June 30, June 30. June 30, <

1987 1986 1987 1986 1987 1986 (In Thousar,ds) l i

Common Stock - par value $4ts per share, 280,000,000 shares authorized. 216,956,326 and j 216,736,732 outstanding at j respective dates (a) , , .

$ 903,985 $ 903,070 $ 903.985 $ 903,070 $ 903.985 $ 903.070 Additional Pald-in Capital:

Balance at beginning of period , $1,546,769 $1,544,076 $1,546,541 $1,543,933 $1,544,315 $1.506,090 Premium received on sale of 1 Common Stock and security l 255 243 483 418 2,729 38,310 l conversions (a) .

Capital stock expense . , ., (20) (4) (20) (36) (40) (85) l Balance at end of period. ,

$1,547,004 $1,544,315 $1,547,004 $1,544,315 $1,547,004 $1,544,315 -

i Errnings Reinvested in the Businese:

Baiance at beginning of period ,, $2,388,790 $2,185,123 $2,343,957 $2,128,646 $2.242,180 $2,016,032  !

Add:

Net income . . , , , ,

199,788 194,076 381,501 392,913 757,204 775.800 2.588,578 2,379,199 2.725,458 2.521.559 2.999.384 2,791,832 Less: (

Dividends declared on capital {

stock -

Common .

129,103 123,540 252,748 240,567 499,960 474,191 Original Preferred . 547 518 1,095 1,036 2,189 2,073 Cumulative Preferred . 12,015 12,233 24,029 27,202 48,138 60,885 564 728 1.237 1,613 2.686 .3,542 Preference . ,

142,229 137,019 279.109 270,418 552,973 540,691  ;

Loss on reacquired capital 8,961 l

stock , , , ,

- - - 8,961 62 Balance at end of period (b) ,

$2.446,349 $2,242,180 $2,446,349 $2.242,180 $2,446,349 $2.242,180 Tttal Common Shareholders' Equity at End of Period , ,

$4,897,338 $4,689,565 $4,897.338 $4,689,565 $4,897,338 $4,689.565 (a) At June 30,1987, shares of Common Stock reserved for issuance were as follows:

shares Conversion of Preference Stock. 5.20% Convert;ble Senes . . . 163.652 Conversion of 12W% Convertible Subordinated Debentures, Due 1997, issued by Southern California Edison Finance 459,182 Company N.V.

Stock purchase plans . 4.238.575*

Total , d.861.409 l l

• These plans include the Dividend Reinvestment and Stock Purchase Plan, Stock Savings Plus Plan and Employee Stock Ownership Plan.

Common stock required for the plans are provided through open market purchases.

I (b) includes undistnbuted earnings of unconsolidated subsidianes of $27,683.000 and appropriated reinvested earnings related to certain federally.hcensed nydroelectnc projects of s4,274,000 at June 30,1987.

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

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e SOUTHERN CALIFORNIA EDISON COMPANY STATEMENTS OF CAPITALIZATION June 30,1987 Shares Redemption June 30, December 31 June 30, Outstanding Price 1987 1986 1986 (in Thousands)

Common Shareholders' Equity - detailed on page 7 . , 216.956.326 -

$ 4.897.338 - $ 4.794.275 $ 4.689.565 Preferred and Preference stock - without mandatory redemption requir:ments(a)(b):

. Onginal Preferred - 5%, pnor, cumulative, participating, not redeemable, par value $8W per share . 480.000 -

4.000 4.000 4.000 Cumulative Preferred-par value

$25 p:r share: 4.08% Senes . . 1.000.000 $ 25.50 25.000 25,000 25.000 41!4% Series . 1.200.000 25.80 30.000 30.000 30.000 4.32% Series. 1.653.429 28.75 41.336 41.336 41,336 i 4.78% Senes . 1.296.769 25.80 32.419 32.419 32.419 i 5.80% Senes . 2.200.000 25.25 55.000 55.003 55.000 l

$100 Cumulative Preferred - par value

$100 per share: 7.58% Series . 750.000 101.00 75.000 75.000 75.000 8.70% Senes . 500,000 104.00 50.000 50 000 50.000 8.96% Senes . , 500.000 104.00 50.000 50.000 50.000 l 5.20% Convertible d Pr:f:r:oco -par value $25 per share: Senes. 103.097 25.00 2.577 2.899 3.232

$100 Pr:rerence - par value $100 per share , . .. - - - - -

]

g Total Preferred and Preference Stock - witnout mandatory redemption requirements . . 365.332 365.654 365.987  !

Preferred end Preference Stock - with mandatory redemption requirements (a)(c):

$100 Cumulative Preferred - par value ,

$100 per share: 7.325% Senes. 630.000 104.04 63.000 63.000 66.000 i 7.80 % Series. 524,995 110.00 52.500 52.500 55.500 8.54 % Series . 637.500 105.65 63,750 66,000 66.000 8.70 % Senes A. 459.374 110.00 45.937 48.562 48.562 12.31 % Series. 500.000 105.83 50,000 50.000 50.000 i Prefirince - par value $25 per share: 7.375% Senes. 1,154.546 25.00 28.864 37.200 37.200 j 304.051 317.262 323.262 I Pref;rred and Preference Stock to be redeemed within one year . (21.713) (18.213) (18.213)

Total Preferred and Preference Stock - with mandatory redemption requirements . 282.338 299.049 305.049  ;

Long Term Debt- Interest Rates )

First and Refunding Mortgage Bonds (d)(e):

Due 1987 through 1991 4%% - 10% 542,000 588.000 646.000 Due 1992 through 1996 5%-8% 955.000 955.000 555.000 j Due 1997 through 2001 7%-8% 500.000 500.000 500.000 I Due 2002 through 2006 8%%- 9.95% 409.000 414.250 414.250 Due 2007 through 2019 8% - 13% 1.085.413 1.101.612 1.493.826 3.491.413 3.558.862 3.609,076 Pollution Control indebtedness (f): Due 1999 through 2015 7% - 10% and Vanable 857,730 857.730 857.730 D bentures and Promissory Not:s(b)(e)(g): Due 1990 through 1997 10 % -13% 280.633 356.109 358.516 Other Long-term Debt (e)(h): 10.57% 25.792 26.797 27.751 Pnncipal Amounts Outstanding ... 4.655.568 4.799.498 4.853.073 Long. term Debt Due Within One Year-net (e) (129.425) (103.315) (111.210)

Unamortized Debt Premium or (Discount) - net . (15.698) (17,069) (10.807)

Secunt::s Held By Trustees (f) . .

(7.840) (11.223) (15.826)

. Total Long-term Debt. 4.502.605 4.667.891 4.715.230 Total CePitalisation . $10.047.613 $10.126.869 $10.075.831 Notes to Statements of Capitalization are on page 9.

The accompanying notes are an integral part of these financial statements. j l

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SOUTHERN CALIFORNIA EDISON COMPANY Notes to Statements of Capitalization-(a) As of June 30,1987, authorized shares for the Onginal Preferred. $25 Cumulative Preferred. $100 Cumulative Preferred. $25 Preference and $100 Preference Stock were 480.000. 24.000.000.12.000,000.10.000.000, and 2.000.000 shares. respectively. All senes of Cumulative Preferred. $100 Cumulative Preferred and Preference Stock are redeemable at the option of the Company. The 500.000 shares of $100 Cumulative Preferred Stock 12.31% Senes, are not subject to such redemption until May 1.1992. The vanous senes of $100 Cumulative Preferred Stock. and the Preference Stock. 7.375% Senes, are subject to certain restnctions on redemption for refunding purposes.

(b) As of June 30,1987, the conversion once of the Preference Stock. 5.20% Convertible Senes was $15.75 per share. The 12%

Convertible Subordinated Debentures due 1997, issued by Southern California Edison Finance Company N.V. (Finance), are convertible into Company Common Stock at the conversion pnce of $16.1875 per share. ,

(c) For Preferred and Preference Stock with mandatory redemption requirements, the aggregate mandatory redemption requirements for the five twelve month penods subsequent to June 30.1987 are as follows:

12 Months Ended June 30.

No. of Shares Commencing 1988 1989 1990 1991 1992

$100 Cumulative (in Thousands)

Preferred 7.325 % . 30.000 7/31/83 $ 3.000 $ 3.000 $ 3.000 $ 3.000 $ 3.000 7.80% . 15.000* 11/30/83 1.500 1.800 1.800 1.800 1.800 8.54% . 22.500 " 6/30/86 - -

2.250 2.250 2.250 8.70%A 13.1U 6/30I85 1.313 1.313 1.313 1.313 1.313 12.31 % . 35.000* " 4/30/88 3.500 3.500 3.375 3.375 3.375 Preference 7.375 % . 496.000 2I01185 12.400 12.400 4.063 - -

$21.713 $22.013 $15.801 $11.738 $11.738

• Increases to 18.000 shares beginning in November 1988.

• 45.000 shares relating to 1988 and 1989 have been acquired through open market purchases.

• " Decreases to 33.750 shares beginning in Apnl 1990.

(d) Substantially all of the properties of the Company are subject to the liens of Trust indentures.

(e) Matunties and sinking fund requirements of long-term debt for the five twelve-month penods subsequent to June 30.1987 are as Vollows:

Twelve Months Sinking Fund Ended June 30. Maturities Requirements Total On Thousands) 1988. $124.175 $5.250 $129.425 1989. 62,414 5.250 67.664 1990. 74.680 5.250 79.930 1991 277.974 5.725 283.699 1992. 271.301 6.230 277.531 (f) First and Refunding Mortgage Bonds and other indebtedness have been issued to governmental agencies in exchange for the proceeds from the issuance of Pollution Control Revenue Bonds and Pollution Control Revenue Refunding Bonds. The proceeds have been deposited with Trustees and ore being utilized to defray the construction and other specified costs of pollution control facilities and retirement of matunng issues. Such Bonds may be redeemed at the election of the Bond holders. The Company has entered into agreements with secunty dealers which provide for the marketing or purchase of the Bonds when such elections are made.

(g) Promissory Notes payable to Finance have been issued in exchance for proceeds from the issuance of Debentures by Finance. As of June 30.1987, payment of the pnncipal and interest on $75.000.600 and $5.633.000 pnncipal amounts of the Debentures were, respectively, unconditionally guaranteed and guaranteed on a subordinated basis by the Company. The Subordinated Debentures are convertible into the Company s Common Stock.

(h) Pursuant to the Nuclear Waste Policy Act of 1982. the Company has entered into a contract with the U.S. Department of Energy for disposal of spent nuclear fuel for the San Onofre Nuclear Generating Station, 9

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SOUTHERN CALIFORNIA EDISON COMPANY j

( NOTES TO FINANCIAL STATEMENTS l

NOTE 1 -Summary of Significant Accounting Policies Regulation -

The Company is regulated by the California Public Utilities Commission (CPUC) and the Federal Energy Regulatory Commission (FERC). Accounting records are maintained in accordance with the Uniform System of Accounts prescribed by the FERC and adopted by the CPUC. The financial statements reflect the ratemaking policies of these commissions in conformity with generally accepted accounting principles applicable to rate-regulated enterprises.

Utility Plant-The cost of additions, including replacements of units of property and betterments,is capital-ized and included in utility plant. Costs include contracted work, direct material and labor, construc-tion overhead, and an allowance for funds used during construction.

Maintenance, repairs, and minor replacements of and additions to property are charged to maintenance expense. The cost of property replaced, renewed, or otherwise retired, plus removal or disposal costs, less salvage, is charged to accumulated depreciation.

Property-related accumulated deferred income taxes are deducted from utility plant in conform-ity with the ratemaking method used to determine rate base.

Allowance for Funds Used During Construction (AFUDC) -

AFUDC represents the cost of de'bt and equity funds that finance the construction of new facilities. AFUDC capitalized is also reported in the Statements of income as a reduction of interest charges for the borrowed funds component and as other income for the equity funds component.

Although AFUDC increases net income, it does not represent cash earnings. The cash recovery of AFUDC, as well as other construction costs, occurs when completed projects are placed into commercial operation and related depreciation is authorized to be recovered through rates.

The Tax Reform Act of 1986 requires interest costs on debt related to certain plant construction to be capitalized for determining depreciable tax basis. As a result, commencing in 1987, the debt component of AFUDC is computed using interest expense which has not been adjusted for applicable income taxes. Prior to 1987, interest was included in the AFUDC calculation net of the tax benefit realized from deducting such amounts from taxable income. The AFUDC rate, which reflects semiannual compounding, is 11.57% for 1987 under the gross method and was 10.53% for 1986 under the net-of-tax method. These rates were calculated in accordance with a prescribed FERC formula.

Depreciation -

For financial reporting purposes, depreciation of utility plant, other than nuclear fuel, is computed on a straight-line, remaining life basis using the composite service lives by classes of depreciable property.

Nuclear generating station decommissioning costs of $328 million are being recovered in rates through an annual allowance and charged to depreciation expense.

Nuclear Fuel-

! The cost of owned and leased nuclear fuel, including its disposal, is amortized on the units of f production method on the basis of generation over its service life. Nuclear fuel costs are recovered i

10

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I SOUTHERN CALIFORNIA EDISON COMPANY NOTES TO FINANCIAL STATEMENTS (Continued) I NOTE 1 - Summary of Significant Accounting Policies (continued) through regulatory balancing account mechanisms. Leased nuclear fuel is discussed further in {

J Note 7.

I Research and Development (RSO) -

R&D costs are expensed as incurred if they are of a general nature. R&D costs relating to specific projects in advance of construction are capitalized until a determination is made as to whether such projects will result in the construction of electric plant. If the construction of electric plant does not ultimately result, the costs are charged to expense.

3 Months Ended 6 Months Ended 12 Months Ended  :

June 30, June 30, June 30.  !

1987 1986 1987 1986 1987 1986 (In Thousande)

R&D costs charged to expense , , . $ 9.886 $ 9.737 $17,741 $18.021 $46.842 $50.008 R&D costs deferred / capitalized. 2.410 (100) 3.397 (33) 7.319 4f7 Total R&D expenditures. , ' $12.296 $ 9.637 $21.138 $17.988 $54.161 $50.425 Income Taxes -

Deferred income taxes are provided for certain benefits realized from depreciation deductions utilized for tax purposes, regulatory balancing accounts, debt reacquisition expenses, and certain other specific items. Income tax accounting policies are discussed further in Note 4.

Unamortized Debt issuance and Reacquisition Expense -

Debt premium, discount, and related issuance expenses are amortized over the lives of the issues to which they pertain. Debt reacquisition expenses are amortized over the remaining lives of the retired indebtedness when reacquired without refunding and over the lives of the new debt issues when reacquired with refunding.

Revenues -

Change in Accounting Principle -

Prior to 1987, revenues were recorded based on cycle billings rendered to customers. Effective I January 1,1987, the Company began accruing estimated unbilled revenues for electricity delivered to customers subsequent to cycle billing dates through the end of each month. The accounting chsnge conforms to provisions of the Tax Reform Act of 1986 requiring utilities to include unbilled revenues in taxable income commencing in 1987 and provides a better matching of revenues and expenses.

The after tax effect of this accounting change increased net income by $10.193,000 for the three months ended June 30,1987 due to seasonal variations in sales levels. For the six and twelve months ended June 30,1987 the after-tax effect of this accounting change increased net income by l

$68,535,000 including the cumulative effect of accruing unbilled revenue net of applicable income taxes as of December 31,1986, which amounted to $68,044,000.

11

l I

SOUTHERN CALIFORNIA EDISON COMPANY I NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 1 - Summary of Significant Accounting Policies (continued) I The table below provides pro forma Net income and Earnings Per Share as if the new method had been in effect prior to the income statement periods presented. The 1987 pro forma amounts in the table are adjusted to remove the cumulative effect of the chang

• in accounting method.

As Reported Pro Forma Net Ptr Net Per income share income share l (In Thousands, Except Per share Amounts)

June 30,1986 Three months ended $194.076 $ .83 s207.371 $ .89 i Sis months ended . . . . . 392.913 1.6'i 396.680 1.69 Twelve months ended 775.800 327 768.897 3.24 June 30,1987 Three months ended $199.788 $ 86 $199.788 $ .86 Six months ended . . . . . 381.501 1 63 313.4s7 1.32 Twelve months ended . 757.204 314 681,870 2.90 Regulatory Balancing Accounts -

Operating Revenues -

The CPUC has authorized an Electric Revenue Adjustment Mechanism that removes the effect on earnings of fluctuations in kilowatt hour sales to retail customers. Under this mechanism, differences between authorized and recorded base rate revenues are accrued in a regulatory j balancing account. '

Energy Costs -

An Energy Cost Adjustment Clause (ECAC) balancing account adjusts results of operations for variations between the recorded fuel and purchased power costs and revenues collected to recover ,

such costs. Differences are accumulated in the balancing account until they are recovered from or l

refunded to customers through future rate adjustments. Commencing in 1986, the ECAC balancing '

account includes a fuel oil carrying charge based on short-term interest rates. In prior periods, such carrying charges were based on the rate of return earned on rate base.

Commencing in 1987, the CPUC authorized a one-time write-down of the cost of fuel oil inventory to market prices and the subsequent use of the last-in, first-out method for measuring the recoverable cost of fuel oil consumption. The one-time write-down, aggregating $96.5 million, has  !

been recorded in the ECAC balancing account pending future rate recovery. l i

The CPUC has established performance incentive mechanisms for San Onofre Nuclear Units 2 and 3 and the Palo Verde Nuclear Generating Station which set forth a targeted range of generation levels. Fuel savings or costs attributable to generation levels above or below the target range are divided equally between shareholders and customers. I Major Plant Additions -

Major Additions Adjustment Clause (MAAC) balancing account mechanisms have been estab-I lished to account for the differences between revenues specifically authorized to provide recovery of San Onofre Units 2 and 3 and Palo Verde Units 1 and 2 ownership costs and those actually incurred.

12 l __-_ . _ _ _ _

. 1 i

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SOUTHERN CALIFORNIA EDISON COMPANY j

)

NOTES TO FINANCIAL. STATEMENTS (Continued) {

l NOTE 1 - Summary of Significant Accounting Policies (continued)

Interest and Taxes -

Interest on regulatory balancing accounts is accrued at the most recent three-month prime commercial paper rate as published by the Federal Reserve. The weighted-average interest rates were 6.47%, 6.22%, and 6.12% for the three, six, and twelve months ended June 30, 1987, respectively, and were 6.81%,7.25%, and 7.45% for the three, six, and twelve months ended June ,

30,1986, respectively. The income tax effects of the changes in the regulatory balancing accounts )

are deferred.  !

Subsidiaries -

Investments in unconsolidated subsidary companies are accounted for by the equity method f except subsidiaries engaged in Eurodebenture and nuclear fuel financings. For these subsidiaries, j cash investments, short-term borrowings, and the long-term portion of the nuclear fuel obligation )

are presented separately on the Balance Sheets. Nuclear fuel owned by the subsidiary is included j with directly owned nuclear fuel. Other subsidiaries are not considered significant for financial reporting purposes.

Restatements -

Balance Sheets prior to June 30,1987 have been restated to reflect leased nuclear fuel and the related obligations in accordance with amended disclosure requirements for rate regulated enter-prises. For a further discussion of the effects of this restatement refer to Note 7.

Reclassifications -

Certain items have been reclassified in prior periods to conform them to the financial statement presentations at June 30,1987.

NOTE 2 - Regulatory Matters Nuclear Generating Facilites Palo Verde Units 1,2 and 3 -

Stipulated Rate Treatment and Olsallowance -

Palo Verde Units 1 and 2 have been in commercial operation for ratemaking purposes since February 1, and September 19,1986, respectively. Unit 3 is scheduled for commercial operation in late 1987. On May 31,1985, an application was filed with the CPUC for rate recovery of Unit 1 operating and ownership costs on the basis of traditional ratemaking practices commencing when the unit achieved commercial operation.

In response to a Commission directive and to avoid the protracted hearings and substantial expense that a formal reasonableness review might have entailed, the Company and the Public Staff negotiated an agreement on Palo Verde ratemaking issues and, on June 25,1986, filed a joint stipulation with the CPUC. The stipulation, approved by the CPUC on October 1,1986, provides for:

. A disallowance of the Company's Palo Verde investrnent for ratemaking purposes based on 19.33% of the amouqt disallowed in the San Onofre Units 2 and 3 reasonableness review.

. A 10-year rate phase-in plan, which provides for the deferral during the first four years of operations of $200 million of investment related revenue for each of the three units commencing on their commercial operation date. Revenue deferred for each unit under the 13

SOUTHERN CALIFORNIA EDISON COMPANY NOTES TO FINANCIAL STATEMENTS (ContMued)

NOTE 2 - Regulatory Matters (continued) plan for years 1 through 4 is $80 million, $60 million, $40 million and $20 million, respectively.

Such deferrals and related interest are to be recovered on a straight-line basis during the final six years of the phase-in plan.

• A target capacity factor operating performance incentive mechanism substantially identical to the procedure in effect for San Onofre UniM ? and 3.

Because Palo Verde Units 1 and 2 were placod in commercial operation before the investigation of alternative ratemaking methods could be completed, the CPUC authorized the implementation of an interim balancing account procedure for the costs of owning and operating Units 1 and 2. With CFUC approval of the stipulation, a reclassification from the interim balancing account to a deferred asset account was made during 1986 to record the initial phase-in plan deferrals for Units 1 and 2.

Additional deferrals are continuing pursuant to the phase-in plan. The deferred asset balance aggregates $164 million, including interest, as of June 30,1987.

The Financial Accounting Standards Board is considering the appropriate accoJnting treatment for rate phase-in plans and is expected to issue an accounting standard for such plans during 1987.

The effect of recent CPUC decisions on recovery of the Company's investment in Palo Verde is discussed below in connection with the San Onofre Units 2 and 3 disallowance.

San Onofre Units 2 and 3 -

Rate Treatment-When San Onofre Units 2 and 3 were placed in commercial operation in 1983 and 1984, respectively, the CPUC did not authorize recovery of the full cost of these units through customer rates. Instead, the CPUC authorized the recovery of a portion of costs and directed the accrual, in a MAAC balancing account, of the portion of revenues not included in rates. These accrued revenues have been included in reported earnings without benefiting cash flow.

Since January 1,1985, the total authorized customer rates for San Onofre Units 2 and 3 have approximated investment related costs.

CPUC Disallowance -

The CPUC has concluded its review of $3.4 billion of the Company's investment in San Onofre Units 2 and 3 to determine the reasonableness of construction costs for rate recovery purposes.

On October 24,1986, the Administrative Law Judge ( ALJ) who presided over the reasonable-ness review proceedings issued his recommended decision in this case. The ALJ's decision recommended that none of the San Onofre Units 2 and 3 investment costs be disallowed for ratomaking purposes.

On October 29,1986, the CPUC issued its initial decision in this proceeding which, based on the Company's 75.05% ownership interest, disallowed for ratemaking purposes $258.6 million of the

$3.4 billion investment in San Onofre Units 2 and 3 under review. Under the Palo Verde stipulation discussed above, $50 million of the Company's estimated $1.5 billion Palo Verde investment was also disallowed for ratemaking purposes.

Since the CPUC's initial decision, the following regulatory actions have taken place:

. On December 8,1986, the Company filed an application for rehearing on $213.4 million of the

$258.6 million San Onofre disallowance with the CPUC. The uncontested $45.2 million of San Onofre investment disallowance was increased by 19.33% in compliance with the stipulated ratemaking agreement for Palo Verde investment costs, bringing the total uncontested disallowance to $54 million.

14

SOUTHERN CALIFORNIA EDISON COMPANY NOTES TO FINANCIAL STATEMENTS (C:,ntinued)

NOTE 2 -Regulatory Matters (continued)

• On March 17,1987, the CPUC agreed to renear $74 million of the $213.4 million of the San Onofre disallowance petitioned for rehearing. The $139.4 million of investment disallowance which was not reheard equates to $166.3 million after including the stipulated 19.33% Palo Verde disallowance of $26.9 million.

• On July 29,1987, the CPUC disallowed $14.3 million of the $74 million investment disallow-ance granted rehearing which equates to a total of $17 million after including the stipulated 19.33% or $2.7 million disal!owance relating to Palo Verde.

To reverse previously recorded revenues associated with the San Onofre and Palo Verde disallowances, the Company wrote-off $15 million after income taxes in the fourth quarter of 1986 for the portion of disallowance the Company decided not to appeal. The Company wrote-off $66 million after income taxes in the first quarter of 1987 for the portion of the disallowance which the Company appealed but which was denied rehearing by the CPUC. The CPUC's final decision will not significantly impact earr,ings and concludes the write-off to current earnings for this matter.

In December 1986, the Financial Accounting Standards Board adopted a new accounting standard . requiring the wthe-off of construction costs disallowed and excluded from rate base. The new accounting standard, which becomes effectrve for the Company on January 1,1988, provides for the restatement of prior period financial statements for cost disallowances occurring prior to the effective date of the new standard.

Accordingly, in 1988 financial statement presentations including 1986 and 1987 financial statements, the disallowance will result in a one-time restatement of the 1986 financial statements.

In its 1988 financial statement presentations, the Company will record an attentax charge against 1986 earnings in the amount of approximately $176 million, or 80 cents per share, to reflect the one-time rate base adjustment. The related restatement of shareholders' equity will be reflected in the 1988 presentation of 1986 and 1987 financial statements.

Fuel Supply Contract Settlements and Proposed Disallowance -

During 1985, an agreement was reached with a major fuel oil supplier to settle litigation arising from the termination of a fuel supply contract. In accordance with the agreement, $350 million was paid to the supplier and a ten-year option agreement for the purchase of low sulfur fuel oil was entered into. Under the terms of the option agreement $9 million is paid annually for the supplier's commitment to deliver fuel oil on relatively short notice at current market prices. On June 15,1987, the CPUC authorized recovery of $344.6 million of the $350 million settlement payment plus 90% of the annual commitment fee. Such recovery is to be completed by the end of 1989 and includes interest since the payment date.

The Company has entered into two uranium supply contract termination agreements which required payments totaling $82.1 million. The reasonableness of these agreements is being addressed as part of a Commission investigation on uranium procurement practices for which hearings were completed in February 1987.

The Company believes that the terms and conditions of theso uranium termination agreements are reasonable and in the best interest of the Company and ita ratepayers. Although unable to determine whether the CPUC will allow recovery of costs incurred pursuant to the termination agreements, the Company believes that such costs are a proper item for rate recovery and does not i

15 l

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. . . _ j

SOUTHERN CALIFORNIA EDISON COMPANY NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 2 - Regulatory Matters (continued) expect that it will be denied recovery of amounts that will have a material adverse effect on its financial condition. The portion of fuel supply and uranium contract settlement costs attributable to wholesale customers was included in resale rates effective March 7,1986.

Settlement payments for fuel oil and uranium contracts have been recorded in a regulatory ,

balancing account and will be amortized in accordance with CPUC decisions regarding rate recovery.

Tax Reform -

As explained more fully in Note 4, the CPUC is investigating the regulatory impact of the Tax Reform Act of 1986. Commencing January 1,1987, revenue designed to recover federalincome tax expense is being collected subject to refund pending the outcome of the investigation.

Rasale Rates -

In accordance with FERC procedures, resale rate increases are subject to refund with interest I to the extent that they are subsequently disallowed by the FERC. As of June 30,1987, revenues subject to refund aggregated approximately $822 million. The Company believer that the amount of j refunds, if any, likely to result from the outstanding proceedings would not have a material effect on j the results of operations.

j NOTE 3 - Short Term Borrowings 1

Unrestricted deposits aggregating approximately $7 million are maintained at commercial banks i in order to continue lines of credit. The lines of credit are available to support commercial paper l

borrowings to finance general cash requirements, fuel oil inventory and, commencing in 1987, i various regulatory balancing accounts.

Commercial paper, supported by separate lines of credit, is issued by a wholly-owned  !

subsidiary and used for the capitalization of an affiliate engaged in Eurodebenture borrowings.

Effective June 11, 1987, commercial paper supported by the Company's lines of credit was also '

issued to finance an affiliate engaged in leasing nuclear fuel to the Company. The subsidiary's commercial paper has been guaranteed by the Company and is presented on the Company's Balance Sheet.

Amounts outstanding and weighted average interest rates are as follows:

June 30, December 31, June 30. I 1987 1986 1986 (in Millions)

Total Lines of Credit . $ 1.127.0 $ 851.0 $ 953.4 Amounts Outstanding:

General Purpose 5 -

$ 115.0 $ 56.0 Balancing Accounts and Fuel Oil . 520.3 213.0 261.5 Subsidiary 551.1* 48 8 96.4 Totals g 1,071.4 $ 376.8 5 413.9 l Weighted Average Interest Rates 7.04 % 6.53% 7.02 %

• Under credit agreements with commercial banks which allow the Company to refinance short term borrowings on a long.

term basis. $371.4 million of the Subsidiary's borrowings have been reclassified as long-term obligations on the Balance Sheet to reflect the timing of anticipated payments for leased nuclear fuel.

16 l

l SOUTHERN CALIFORNIA EDISON COMPANY f

!' NOTES TO FINANCIAL STATEMENTS (Cortinued)

NOTE 4 -Income Taxes Current and Deferred Taxes -

The current and deferred components of income tax expense are as follows:

3 Months Ended 6 Months Ended 12 Months Ended June 30. June 30. June 30.

1987 1986 1987 1986 1987 1986 (in Thousands)

Current:

Federal . $117.800 $ 53.492 $209.720 $ 98.532 $435,921 $115.842 27.898 21.582 56.152 40.745 123.697 61.360 state.

145.698 75.074 265.872 139.277 559.618 177.202 Deferred - Federal and state:

(4.450) 18.798 (8.900) 34.193 18.643 79.403 Investment tax cref4s - net .

Accelerated cost recovery system property 37.574 52.387 80.010 95.556 155.302 171.703 Regulatory balancing accounts . (17.830) 20.877 (36.942) 54.648 (104.814) 241.379 Debt reacquisition expenses , 336 17.496 (990) 29.499 51.479 40.420 15.213 2.450 17.215 5.882 20.602 13.317 Fuel contract settlements .

Loss related to nuclear plant disallowances . . . . .

(71.442) -

(92.271) -

Cumulative effect of accounting change . - - 58.752 - 58.752 -

other. (2.965) (23.767) (6.054) (22.164) (5.931) (29.539) 27.878 88.241 31.649 197.614 101.762 516.683 Total income tax expense. $173.576 $163.315 $297.521 $336.891 $661.380 $693.885 Classification of income Taxes:

Included in operating expenses. $173.909 $154.549 $310.390 $335.060 $707.653 $698.226 included in other income . (333) 8.766 (179) 1.831 (12.754) (4.341)

Loss related to nuclear plant disallowance - - (71,442) -

(92.271) -

Related to cumulative effect of accounting Change. - - 58.752 - 58.752 -

Totalincome tax expense. $173.576 $163.315 $297.521 $336.891 $661.380 $693.885 Total income tax expense includes the current tax liability generated from operations and l j

deferred income taxes provided on certain items of income and expense which are reported in i

different periods for tax and financial reporting purposes. Consistent with current ratemaking procedures, the major items for which deferred income taxes are provided include regulatory balancing account provisions, phase-in plan deferrals, accelerated depreciation under the provi-  ;

l sions of the Accelerated Cost Recovery System, and debt reacquisition costs.

Pursuant to the Tax Reform Act (Act) of 1986, the cumulative effect of accruing unbilled l revenues is included in taxabie income over a period of four years beginning on January 1,1987. l Deferred income taxes have been provided on the portion of unbilled revenues which have been reported for financial reporting purposes but not yet included in taxable income.

For ratemaking purposes, property-related accumulated deferred federal income taxes are l i

deducted from rate base and amortized or otherwise applied as a reduction (or increase) in federal income tax expense in future years. Accumulated deferreo investment tax credits (lTC) are amortized over the lives of the related properties. Prior to 1987, tax deductions relating to construction overheads such as interest, pension provisions and taxes charged to construction were accounted for as current reductions in income tax provisions.

Commencing in 1987, the Act requires the capitalization of construction overhead and financing costs for determining the depreciable basis of certain properties for tax purposes. This change has increased taxable income and has reduced the differences between construction costs for tax and financial accounting purposes.

Deferred income taxes for construction overheads and tax depreciation prior to 1981 have not been provided because the tax effects of such timing difference reversals are not allowed for retai(

17

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p SOUTHERN CALIFORNIA EDISON COMPANY l NOTES.TO FINANCIAL STATEMENTS (Continued)

NOTE 4-Income Taxes (continued) rate-making purposes until the taxes become payable. The cumulative net amounts of these timing differences were $2,266 million at June 30,1987, $2.196 million at December 31,1986, and $1,992 million at June 30,1986.-

The following table reflects the differences between state and federal income _ taxes reported and the tax amount determined on income before taxes by applying the federal statutory tax rate.

The federal and the composite federal and state statutory income tax rates are 46% and 51.184%,

respectively, for.jeriods presented prior to January 1,1987, and .40% and 46.336%, respectively, for -

1987.

3 Months Ended 6 Monthe Ended ~ 12 Months Ended June 30, June 30, June 30.

1987 1946 1987 1986 1987- 1986 (In Thousands)

Expected federalincome tax expense at statutory  ;

rate . ... ...... . , ,,

$149,346 $164,400 $271.609 $335,710 $ 611.807 $ 676,055 increase (oecrease) in income tax expense resulting from:

Allowance for equity and borrowed funds used dunng construction . . .. . (6.952) (16,497) (13.509) (33,717) (41,995)- (72.021)

' Federal deduction for state taxes on income., , (13,295) (11.228) (22.023) (24,711) (51,546)

(52.667) oopreciation timing difference not deferred .- 24.883 - 27.406 46.586 50,401 98,081 97,673 State tax provision .. , ... . .. 33,237 24.408 55,057 53,720 121,674 112.056

' All other differences .. , . . (13.643) (25,174) (40.159) -(44.512)

(75.520) (68.332)

L Totat income tax expense. , , , ,

$173.576 $163.315 $297,521 $336.891 $ 661.380 $ 693.885 Pretax income . ,, . ., , ..

$373.364 $357.391 $679.022 $729.804 $1.418.584 $1.469.685 ,

Effective tax rate (Totalincome tax expense +

protax income) ,. ,, ,,, 46.5 % 45.7% 43.8% 46.2 % 46.6 % 47.2%

)

7sx neform- i

)

In addition to the changes discussed above, the Act retroactively repealed ITC for property l placed into service after December 31,1985, except for property then under construction for which 1

there are various transitional rules. However, the Act requires a 100% reduction in depreciable basis l

for any transitional ITC. Because the Company defers the recognition of ITC, its elimination has not significantly impacted earnings. )

j

-l The Act also reduced federalincome tax rates to 40% in 1987 and 34% in 1988 and later years.  !

' The provisions of the Act are not expected to adversely affect net income.

Under present accounting standards, deferred income tax balances are not adjusted to reflect ')

changes in income tax law or rates. However, an amendment to present accounting requirements has been proposed which would require adjustment of deferred tax balances to reflect the effects of {

such changes commencing in 1988,

^ Retemaking Investigation -

The CPUC has initiated an investigation to determine the effects of tax reform on ratemaking practices. The investigation may consider whether and to what extent reductions in certain non.

property related deferred tax balances should be conveyed to customers through reduced rates.

Any refunds ultimately required by the CPUC should not adversely affect earnings but would prevent the retention of the benefits of the tax rate reductions by the Company.

18 l 1 1 _ _ _ _ _ _ _ __ - - . .

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SOUTHERN CALIFORNIA EDISON COMPANY NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 5 - Employee Benefit Plans Pension Plan -

The Company maintains a trusteed, non-contributory pension plan which covers substantially all employees. Benefits paid to retirees are based upon age at retirement, years of credited service, and average earnings. Annual contributions to the plan are determined on a level premium actuarial funding method. Prior service costs relating to 1982 and 1985 plan amendments are being funded over 30-year periods. Pension costs amounted to $13.1 million, $29.4 million, and $49.0 mihion for the three, six, and twelve months ended June 30,1987, respectively; and $12.7 million $28.9 million, and $56.3 million for the three, six, and twelve months ended June 30,1986, respectively.

At January 1, 1986(a) 198s (in Thousands)

Actuanal present value of accumulated pit.n benefits:

Vested . $653.216 $608.240 Non-vested . 51.761 49.460

$704.977 $657.700 Net assets available for plan benefits . $972.063 $795.845 (a) Latest available data.

Actuarial rate of return assumptions used in determining the present value of accumulated plan benefits were 8% and 7.5% as of January 1,1986 and 1985, respectively.

Commencing in 1987, a new pension accounting standard for defined benefit plans requires tiu use of a standardized actuarial method for measuring the Company's annual pension obligation.

Under current regulatory procedures, authorized revenues for recovery of pension expense are based on annual pension plan contributions. In order to match revenue and expenses, utilities receiving such ratemaking treatment are permitted to continue to expense pension contributions instead of pension expense as computed under the new accounting standard. However, an asset or liability must be recognized to the extent that cumulative pension contributions are above or below the level determined under pension accounting methods. For 1987, the difference between the funding level and accounting expense is expected to be insignificant.

Employee Stock Plans -

An Employee Stock Ownership Plan (ESOP) and a Stock Savings Plus Plan (SSPP) are maintained to supplement employees' retirement income. Contributions to the ESOP are funded ,

1 primarily by federal income tax benefits and contributions made by participating employees.

Contributions to the SSPP amounted to $4.4 million, $8.3 million, and $16.1 million for the three, six, and twelve months ended June 30,1987, respectively and were $4 million, $7.6 million, and $14.5 million for the three, six, and twelve months ended June 30,1986, respectively.

. Other Post Retirement Benefits -

Certain health care and life insurance benefits are provided for reitred employees and their dependents. Group life insurance benefits are provided through an insurance company. Health care benefits are provided through a combination of Company facilities and insurance programs. The l

cost of providing these benefits to retirees was $4.6 milhon, $8.8 million and $16 million for the three, six, and twelve months ended June 30,1987, respectively and was $3.9 million, $7.8 million, and

$14.9 million for the three, six, and twelve months ended June 30,1986, respectively, l l 19 )

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SOUTHERN CALIFORNIA EDISON COMPANY NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 6-Jointly-Owned Utility Projects The Company owns undivided interests in several jointly-owned generating stations and )

transmission systems for which each participant must provide its own financing. The proportionate  !

share of expenses pertaining to such projects is included in the appropriate category of operating I expenses in the Stctements of income. The amounts in the table below represent the investment in each such project as reported on the Balance Sheet as of June 30,1987.

utility Construction Plant in Accumulated work in ownership Projects servce Depreciation Progress . Interest (in Thousands)

El Dorado Transmission System . 5 21.526 5 7.658 5 72 60.c0%(a)

Four Corners Coat Generating Station - Units 4 and 5 . 399.907 92.260 1,191 48.00 Mohave Coal Generating Station . 229.886 83.363 710 56.00 Pacific Intertie DC Transmission System , 111.874 31.038 5.745 50.00 Palo Verde Nuclear Generating Station . 983.538 '9.874 542.866 15.80 San Onofre Nuclear Generating Station:

Unit 1. 501.057 124.474 23.595 80.00 Units 2 and 3. 2.944.704 363.273 16.081 75.05 Common Facilities - Units 2 and 3 819.802 76.394 7.926 75.05 Common Facilities - Units 1. 2 and 3 . 174.505 20.163 3.504 75.87 Solar One Generating Station . 18.072 17.276 -

80.00 Yuma Axis Combined Cycle Generating Station 12.369 9,757 - 33.30 California. oregon 500 KV Transmission Line . . - - 4.292 18.71 Total . s6.217.240 $855.530 s605.991 (a) Represents a composite rate.

NOTE 7 - Leases The Company obtains a portion of its nuclear fuel requirements under a capital lease. Under the terms of the lease agreement, quarterly payments are based upon consumption of nuclear fuel and are designed to return the accumulated investment in nuclear fuel and a financing charge on unrecovered costs to the lessor, in accordance with an accounting standard applicable to rate regulated enterprises, the Company began recording the asset and obligation associated with the nuclear fuel lease in 1987. All Balance Sheets and Statements of Sources of Funds Used For Construction Expenditures presented for periods prior to 1987 have been restated to reflect the capitalization of leased nuclear fuel. The effect of this restatement increased nuclear fuel and the related obligations at June 30,1986 and December 31,1986 in the amount of $542.3 million and

$523.7 million, respectively, This change did not impact revenues, net income, or retained earnings.

On June 10,1987, a wholly owned subsidiary of the Company purchased the nuclear fuel .

leasing company. The cost of the acquisition, which approximated $521.2 million, was financed primarily by the assumption of the lease company's commercial paper obligations. The Company has presented leased nuclear fuel indebtedness on its Balance Sheets.

Rental payments representing interest and amortization under the nuclear fuel lease which were charged to operating expenses were $43.2 million, $71.5 million, and $137.4 million for the three, six, and twelve months ended June 30,1987, respectively, and $21.7 million, $44.1 million, and $90.6 million for the three, six, and twelve months ended June 30,1986, respectively. Such payments are recoverable through balancing account procedures. Future minimum lease payments under the nuclear fuel lease cannot be reasonably estimated due to variations in the consumption of nuclear 20

l

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SOUTHERN CALIFORNIA EDISON COMPANY- q NOTES TO FINANCIAL STATEMENTS (Continued) l NOTE 7 -Leases (continued) fuel. Leased nuclear fuel, net of accumulated amortization, totals $480.1 mill;on, $523.7 million, and

$542.3 million at June 30,1987. December 31,1986, and June 30,1986, respectively.

The Company also leases automotive, computer, office, and miscellaneous equipment through i operating rental agreements. These leases have varying terms, provisions, and expiration dates.

At June 30,1987, estimated rental corn..nitments for noncancellable operating leases consisted of the following:

Year Ended oecember 31, (In Thousands) i 1987 . . $ 11.968 21.990 l 1988 19.529 1989 ,

17,024 1990 14,727 l 1991 ..

1992~

11.926 For periods thereafter. ,

14.218 Total Future Rental Commstmonts. $111.382

[

NOTE 8 - Commitments Construction Program and Fuel Supply -

Significant purchase commitments exist in connection with the continuing construction pro-gram. As of July 16,1987, budgeted construction expenditures are estimated at $1,022.8 million for 1987, $869.1 million for 1988 and $858.5 million for 1989. Minimum long-term commitments of ,

approximately $1,676 million, exclusive of the amounts required by the contract settlements with major fuel suppliers discussed in Note 2, existed on June 30,1987 under fuel supply transportation arrangements.

Nuclear Weste PoIIcy Act-Pursuant to the Nuclear Waste Policy Act of 1982, contracts have been entered into with the U.S. Department of Energy (DOE) for disposal of spent nuclear fuel. Under contract terms, a quarterly fee of one mill per kilowatt-hour is paid to the DOE for nuclear generation on and after April 7,1983. For generation prior to April 7,1983, payment of a one-time fee equivalent to one mill per kilowatt-hour plus accrued interest is required. This one-time fee has been recorded as a deferred charge pending future rate recovery and, including accrued interest, approximated $25.1 million at June 30,1987, The obligation for this one time fee is being discharged by equal payments over 40 quarters. Such payments commenced during 1985. The amounts charged to income for current generation were $4.5 million,07,3 million, and 13.9 million for the three, six, and twelve months ended June 30,1987, respectively, and $2.2 million, $4.2 million, and $8.6 million for the three, six, and twelve months ended June 30,1986, respectively. Expenses associated with disposal of spent nuclear fuel are recovered through the ECAC procedure.

Long-Term Purchased Power and Transmission Contracts -

Under firm contracts, the Company has agreed to purchase portions of the generating output of certain f acilities and to purchase firm transmission service where appropriate. Although there is no investment in such facilities, these contracts provide for the payment of certain minimum amounts (which are based in part on the debt service requirements of the provider) whether or not the facility or transmission line is operating. None of these power contracts provides, or is expected to provide, 21

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. l SOUTHERN CALIFORNIA EDISON COMPANY NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 8 - Commitments (continued) in excess of 5% of current or estimated future operating capacity. The cost of power and firm i transmission service obtained under these contracts, including payments made when a facility or transmission line is not operating, is included in Purchased Power and Other Operating Expenses, respectively, in the Statements of income. Purchased power costs are generally recoverable i through the ECAC balancing accourt ptocedure. Selected information as of June 30, 1987 pertaining to purchased power contracts is summarized in the following table:

Share of Effective operating Capacity- I Megawatts ( a )( b ) . . . . . . . . . . . 350 Share of Energy output (e)(b) . . 100%

Total Estimated Annual cost (s) . . . ....................... ... .... ...... $110.141.000 Company's Portion of Estimated Annual Cost Apphcable to Suppher's Annual Mansmum Debt. .......

Service Requirement (s) ...... ....... ... ............... ..... ......... $ 18.369.000 Company's Allocable Portion of Interest of Supphers included in Annual Minimum Deta Service. $ 17.653.000 Related Long-term Debt or Lease obhgations Outstanding. None (a) Amounts have been reduced from those reported prwsous.y due to the exclusion of a corttract which is no loriger long.

term.

(b) According to the provisions of a certain contract, the Company's shara of energy output from the contracted facinty vanes at different times.

Additional information as of June 30,1987 permining to both purchased power and transmisscn SSrvice contracts is summarized in the following tr.ble:

Purchased Transmisalon Power (s) service Dates of Expiration . . , . . . . . . . . . . . 1990 1990-2016 Vanable Components of Contracts.. ...

(b) (b)

Required Futi:re Minimum Annual Payments (in Thousands) 1987 . $ 28.689 $ 5.762 1988. . 56.310 11.588 1989. ... 41.547 9.812 1990. . 13.017 6.473 1991 , -

4.474 Later years . .

94.926 Total . . . ...... .... ... . ....................... ....... 139.563 133.035 j Less Amount Representing Interett to Reduce Total to Present Value . ,,,.(2),197 ) (69.226)

Total at Present Value . $115 966 5 63.809 Total Purchases for the Three Months Ended June 30. l 1987. G fz7.515 $ 2.241 1986.......................................... . 29.830 2.941 Total Purchases for the Six Months Ended June 30, 1987. . . . $ 54.979 $ 5.065 1986....................................... 57.419 6.025 )

Total Purchases for the Twelve Months Ended June 30..... {

1987. $116.717 $ 11.047 1986. 119.463 12.038 (a) Amounts have been reduced from those reported previously due to the exclusion of a contact which is no longer long. ]

term.

(b) The variable components of certain contracts are based on a pro-rata share of actual operating, maintenance. and fuel i costs or on the U.S. Government cost of service.

I NOTE 9-Contingencies Nuclest Insurance -

The Price-Anderson Act currernly limits the public liability claims that could arise from a nuclear incident to a maximum amount of $710 million for each licensed nuclear f acility. Private insurance for this exposure has been purchased by the participants in San Onofre and Palo Verde in the maximum available amount, presently $160 million, with the balance to be provided by secondary financial protection required by the Nuclear Regulatory Commission (NRC). Under the agreement with the l

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9 i ( } , r SOUTHERN CALIF 0FMilA EDISOM COMPANY NOTES TO FINANCIAL STATEMENTS (Contir,wd) 9 NOTE 9 - Contingencies (continued)

NRC, retrospective premium adjustments of up to $9,7.7 rr,11 ion per year could be assessed in the event of nuclear incidents involving any licensed reactor ir$ the United States. The Price Anderson Act is scheduled to expire in 1987; however, Ct,igresy is considering proposals to amend and extend the act. 1 Property damage coverage is provided for losses up to $500 million at San Onofre and Palo Verde. Decontamination liability and property damage insurance in excess of the primary $500 million layer has also been purchased, insurance to cover a portion of the additicnal expense of i

replacement power resulting from an accident related outage of a nuclear unit is also provided. A maximum weekly indemnny in the arnount of $3.1 million for a single unit for 52 weeks commences ..

after the first 26 weeks of such an outage. An additional $1.5 million per week is provided for the next 52 weeks. These policies' are primarily provided through mutual insurance companies owned by utilities with nuclear facilities. If losses at any nuclear facility covered by the arrangement were to exceed the accumulated funds available for these insurarce programs, the Company could be assessed retrospective premium adjustments of up to $59.7 million per ye&r Insurance premiums are charged to Operating Expenses.

Government Ucenses -

The terms and provisions of licenses granted by the United States cover the Company's major and certain minor hydroelectric plants, with a total effective operating capacity of 943 megawatts.

These licenses also cover certain storage and regulating reservoirs and related transmission facilities.

The above licenses expire at various times between 1987 and 2009. The licenses contain numerous restrictions and obligations on the part of the Company, including the right of the United States to acquire Company properties or, under certain conditions, the FERC to issue a license to a new licensee upon the payment to the Company of specified compensation. Applications for the relicensing of certain hydroelectric plants referred to above with aggregate effective operating capacity of 61 megawatts are pending. Any rew licenses received tire expected to be issued under terms and conditions less favorable than those of the expired licentes.

Antitrust Utigation -

I In March 1978, five resale customers filed a suit in federal court alleging violation of certain antitrust laws. The complaint seeks monetary damages, a trebling of such damages and certain injunctive relief. The complaint alleges that the Company (i) is engaging in anticompetitive behavior b$ charging more for electricity sold to the resale customers than is cht.rged to certain classes of its r stpil customers (" price squeeze"), and (ii) has taken action alone and in concert with other utilities to prevent or limit such retale customers from obtaining bulk power supplies from cther sources to reduce or replace the resale custome$ purchases from the Company (" foreclosure").

The plaintiffs estimated their actual damages for aileged price squeeze, before trebling, at approxi-mately $22.7 million and foreclosure damages stemmw g rom sileged loss of energy and capacity at approximately $76.8 million before trebling, for the period February 1,1978 to December 31,1985.

The trial began on July 8,1986, and concluded on September 26,1986. Findings of Fact and Conclusions of Law were filed by the Company witn the Court on November 21,1986. No date has bem given for the decision. The foregoing proceeding involves comp!ex issues of law and fact and, although the Company is unable to predict their final outcome, it has categorically denied the allegations of these resale customers.

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'l J M # MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

.,A 2 Results of Operations

., Earnings Summary

" ,, Earnings per share for the second quarter of 1987 were 86C compared with 83C for the same period last year. For the six- and twelve-months ended June 30,1987, earnings per share were J

k'," $1.63 and $3.24 compared with $1.67 and $3.27, respectively, in 1986. The moderate improvement for the quarter is primarily attributable to increased sales volume and was achieved even though the i.

1 authorized rate of return on common equity was adjusted downward from 14.6% for 1986 to 13.9%

for 1987.

1 Earnings for the six and twelve-months ended June 33,1987 include the adoption of an accounting change in the first quarter of 1987 to include revenues from electricity which has been c'elivored to customers but for which bills have not yet been sent, charges related to the disallowed nuclear plant icvestment costs, and a provision for the cost of additional retirement benefits and severance payraents islated to an early retirement program. Reductions in interest expense and preferred divide ids for all periods ended June 30,1987 are the result of the Company's refinancing program and totter interest rates.

Operating Rennues and Sales for the twelve months ended June 30,1987, approximately 97% of the Company's revenues from sales were subject to the jurisdiction of the CPUC The remaining 3% represents sales to

' wholesal0 customers which are regulated by the Federal Energy Regulatory Commission (FERC).

The decline in FERC regulated sales is expected to continue as the wholesale customers receive more power from sources outside the Company's system.

Electric operating revenues for the three , six , and twelve-months ended June 30, 1987, increased from comparable periods in 1986 by 10.0%,6.7%, and 5.8%, respectively. This reflected, in addition to the not effect of changes in rates, an increase in kilowatthour sales of 2.9% for the q;arter and 2.8% for the six-month periods. Due to mild temperatures during the last half of 1986 and reducud sales to resale and industrial customers who are obtaining more of their power from i outside tho system or from self generation, kilowatthour sales for the twelve-months ended June 30, 1987 decreased by approximately 0.1% from the twelve-months ended June 30,1986.  !

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The net effect of changes in rates, including the effect of accruing unbilled revenue, was to  !

increase the overall revenue per kilowatthour by 6.2%,3.1%, and 5.0% for the three, six, and twelve months ended June 30,1987, respectively, when compared to the same periods in 1986.

The table below shows the changes in major components of operating revenues which contributed to the overall variation from the same periods in 1986.

Increase (Decrease)

From Prior Periode June 30,1987 3 Months 6 Months 12 Months Ended Ended Ended operating Revenues - Sales  !

Base rate changes. S 61.7 5 29,9 5 95.2 Balancing account rate changes . 2.9 36.7 129.9 Sales volume changes - Retail . 71.8 117.8 146.1 Sales volume changes - Resale. (24.4) other , (37.2) (117.9) l 8.7 17.2 47.8 Total $120 7 5164.4 5301.1 1

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Revenues coilseted in 1987 for the recovery of federal income tax expense are subject to refund j pending the outcome of a CPUC investigation of the effects of the Tax Reform Act of 1986 on customer rates. jl i

Operating Expenses Fuel expenses increased by $76.2 million and $98.2 million for the quarter and six-months ended June 30, 1987 reflecting increased use of Company owned generating facilities which became more economical and replaced economy power purchac,es. Fuel expenses decreased

$319.5 million for the twelve months ended June 30,1987 when compared to the same period a year  ;

ago due to reduced natural gas prices and increased use of lower cost nuclear and coal generation. 1 The effect on earnings of fluctuations in the Company's fuel and purchased power expenses is ,

minimized by regulatory adjustment clauses established by the CPUC and the FERC. {

Increases in other operating and depreciation expenses continue to be influenced by system l growth, including the commercial operation of Palo Verde Nuclear Generating Station Unit 1 on  !

February 1,1986 and Unit 2 on September 19,1986. These trends are expected to continue as the costs of operating Palo Verde Units 1 and 2 are reflected in future periods and when Unit 3 is placed into commercial operation, which is scheduled for later this year.

Due to a reduction in the level of required maintenance activities, maintenance expense ]

der:reased for the three , six , and twelve-months ended June 30,1987 when compared to the same i periods in 1986 by $12.5 million, $18.8 million, and $32.3 mWion, respectively, l J

Recovery of depreciation expense attributable to San Onofre Units 2 and 3 and Palo Verde Units 1 and 2 is authorized through Major Additions Adjustment Clauses. For these units, increases in depreciation expense exceeding amounts currently being recovered in rates are recorded in balancing accounts pending future rate recovery and, therefore, do not affect earnings.

The $19.4 million increase in operating income tax expense for the quarter ended June 30, 1987, when compared to the same period in 1986,is due to increased pre-tax income and deferred income tax provisions which are only partially offset by the lower corporate tax rate.

As explained more fully in Note 4 of " Notes to Financial Statements," the decline in the  !

corporate tax rate under the Tax Reform Act of 1986 reduces federal income tax expense in 1987 {

and future years. This reduction will be accompanied by a reduction in customer rates and thus is expected to have little or no impact on net income.

Any refunds which may result from the CPUC's investigation to determine the effects of tax reform on ratemaking practices are not expected to significantly affect net income but would prevent the Company from retaining the benefits of reduced deferred tax balances resulting from declines in corporate income tax rates.

l Other income i 1

Utilities are permitted to capitatze the cost of debt and equity funds used to finance the i construction of utility plant. This is accomplished through the non-cash Allowances for Funds Used i During Construction ( AFUDC). The Tax Reform Act of 1986 requires interest on debt related to certain plant construction to be capitalized for determining depreciable tax basis. As a result, commencing in 1987, the Company has not reduced the debt component of AFUDC for the related deferred taxes. Accordingly, the related tax benefit is no longer required to be recorded as a reduction of non-operating income tax expense. The overall effect is to increase AFUDC and increase non-operating income tax cxpense without affecting net income.

The decline in AFUDC for the three , six , and twelve-months ended June 30.1987 resulted from a 19% or $328 million decrease in Construction Work in Progress, due primarily to the transfer .

l of Palo Verde Units 1 and 2 to Utility Plant during 1986.  !

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Interest income decreased by $11.4 million, $19.0 million, and $18.7 million for the three , six ,

and twelve-months ended June 30,1987 compared to the same periods of the preceding year reflecting a decline in cash investments and reduced balancing account undercollections.

Financial Condition Internal Generation of Ft&

During the past three years, the Company has obtained the majority of its required working capital from operations.

Approximately 85% of the 2mpany's capital requirements for the twelve months ended June 30,1987 were provided by internally generated funds, which compares to 68% for the same period ,

last year. The increased level of funds generated internally is primarily attributable to placing completed nuclear facilities into rate base, the tax benefits resulting from growth in the Company's investment in plant assets, and the reduction in balancing account undercollections.

During the twelve-months ended June 30,1987, the internal generation of funds has been positively affected by a $306 million reduction in net balancing account undercollections which was partially offset by $164 million of revenue deferred pursuant to the Palo Verde Phase-In Plan. The CPUC has authorized recovery, by the end of 1989, of $392 million of fuel supply contract settlement costs which will benefit the internal generation of funds during the recovery period.

The Tax Reform Act of 1986 is having a negative effect on the Company's internal generation of funds. The negative impact results from the retroactive repeal of the investment tax credit and reduced allowable deductions for depreciation. Any refund of prior years' deferred tax balances ultimately required by the CPUC to reflect corporate tax rate reductions resulting from the Act would have a further negative impact on internally generated funds.

The Company's cash flow and liquidity will also be affected by revenues deferred to future ratemaking periods pursuant to the Palo Verde Phase-In Plan and collections on balancing account undercollections. The timing and amount of rever ue deferred under the phase-in plan are discussed in Note 2 of " Notes to Financial Statements."

Liquidity and Capital Resources in conformity with the CPUC's energy cost ratemaking policy, the Company utilizes short-term borrowings to finance fuel oil inventory. Effective in 1987, the Company also commenced financing balancing account undercollections with short-term borrowings. The $202.8 million increase in short-term borrowings from June 30,1986 to June 30, 1987 is attributable primarily to such financing. The cost J these borrowings is recovered through balancing account precedures. Details of the Company's lines of credit and related short-term borrowings are discussed in Note 3 of

" Notes to Financial Statements."

In addition to the short-term financings discussed above, the Company's liquidity is affected by the construction program and other capital requirements including debt and capital stock maturities.

The capital resources available to meet those requirements include funds from internal generation and external financing. Internally generated funds depend upon economic conditions and the adequacy of timely rate relief. External financing through short-term borrowings and security issuances is influenced by market conditions and other factors including limitations imposed by the Company's Articles of incorporation and Trust Indenture. At June 30,1987, the Company could issue approximately $3.6 billion of additional First and Refunding Mortgage Bonds or $4.2 billion of preferred stock at current interest and dividend rates.

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l Capital Requirements The following table presents the Company's projected capital requirements for 1987 through 1991:

1987 1988 1989 1990 1991 (in Millions)

Construction Expenditures . , $1.023 $869 $859 $ 799 $772 Matunties of Long-Term Debt . 103 80 68 281 172 Redemptions of Preferred and Preference Stock. 18 22 24 12 12 Capital Requirements . $1.144 $971 $951 $1.092 $956 Capital Structure t

. The Company's long-term goal is to maintain a capital structure with aeoroximately equal amounts of debt and equity. The Company's capital structure as of June 30,198'iis reflected in the table below:

Common Equity. .

48 8%

Preferred and Preference Stock . 6.4 Long Term Debt . 44 8 Total . 100.0 %

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h I PART11 OTHER INFORMATION ltem 1. Legal Proceedings Rate Matters General Rate Case On December 26,1986, the Company filed an application with the California Public Utilities Commission ("CPUC") for a general rate increase. On March 20,1987, the Company submitted revised cost of capital testimony in which the requested rate of return on common equity was reduced from 14.75% to 13.75% The impact of this change, plus a revision to the Company's  !

requested energy management program funding level, lowered the Company's request by $89 .

million. Allowing for transfer of certain costs from proposed base rates and other revenue requirement adjustments, the Company's current rate request for the test year is approximately

$154 mipion. Hearings were concluded on June 25,1987, and a decision is expected in late 1987.

" General Rate Case" was previously discussed in Form 10-K for the year ended December 31, 1986.

Major Additions Adjustment Clause ("MAAC")

The information on MAAC set forth in Part I, Note 2 of the Financial Statements is incorporated herein by this reference.

"MAAC" was previously discussed in Form 10-K for the year ended December 31,1986 and in Form 10-0 for the quarter ended March 31,1987.

Antitrust Matters The information concerning the antitrust litigation which commenced on March 2,1978 is set forth in Part 1, Note 9, of the Notes to Financial Statements and is incorporated herein by this reference.

" Antitrust Matters" were previously discussed in Form 10-K for the year ended December 31, 1986 and in Form 10-Q for the quarter ended March 31,1987.

Item 5. Other information Holding Company Formation-Regulatory Approval Sought On April 16,1987, the Company announced it will seek approval from the CPUC to create a holding company. The CPUC application was filed May 6,1987 with hearings scheduled for September. A decislan by the CPUC is anticipated by the end of the year. The Company also filed a request for a ruling from the Intemal Revenue Service ("lRS") determining that the reorganization is a tax-free event for the Company and its shareholders. A ruling by the IRS is anticipated in early fall.

On August 6,1987, an application was filed with the Federal Energy Regulatory Commission

("FERC") for an order granting authorization for the proposed corporate reorganization. In addition to obtaining the approval of the CPUC and FERC, the Company will seek from the Securities and Exchange Commission an exemption from the provisions of the Public Utility Holding Company Act of 1935 ("Act") as an intrastate holding company under Section 3(a)(1) of the Act. Shareholder approval of the holding company will be sought in April 1988.

In anticipation of formation of the holding company, H. Frederick Christie will resign as President and Director of the Company effective September 1, ivd7. As of that date he will become 28

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Presicent of the Mission Group, a California corporation. The Mission Group will become a subsidiary of the holding company and will engage in non-regulated businesses.

" Holding Company Formation" was previously discussed in Form 10-0 for the quarter ended March 31,1987.

Construction Program and Capital Expenditures Construction expenditures for the 1987-1991 period are estimated (as of July 16,1987, the date of the Company's latest approved budget) as follows:

1987 1988 1989 1990 1991 Total (In Millions)

Electric generating plants. $ 384 $197 $229 $239 $256 $1.305

, Electne transmission lines and substations. 185 204 205 134 68 796 Electric distnbution lines and substations . 420 419 388 392 412 2,031 Otner expenditures . 144 89 77 74 76 460 Total construction additions. 1,133 909 899 839 812 4.592 l Less allowance for funds used dunng construction . 110 40 40 40 40 270 Funds required for construction expenditures . 51.023 g {59 g y $4.322 Approximately 2% of the " Total construction additions" for the years 1987 through 1991 are related to the construction of nuclear units at Palo Verde. The Company's share of the total cost of construction and start-up testing of these units was budgeted, as of July 16,1987, at $1.5 billion, of which approximately $1,462 million had been expended through June 30,1987. As of June 30,1987, construction of.the Palo Verde Units were substantially completed. Approximately 10% of the " Total construction additions" for the years 1987 through 1991 are related to cap;tal expenditures to be made at San Onofre Units 1,2 and 3.

Item 6. Exhibits and Reports on Form 8 K (a) Exhibits See Exhibit index on paga 31.

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1 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SOUTHERN CALIFORNIA EDISON COMPANY (Registrant)

By M. L. NOEL M. L. Noel Vice President and Treasurer .

By R.K.BUSHEY R. K. Bushey Vice President and Controller I

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9 EXHIBIT INDEX Sequentially Number Numbered Exhibit Page

11. Computation of Primary and Fully Diluted Earnings Per Share. .

24. Consent of Independent Public Accountants .. . .

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SOUTHERN CALIFORNIA EDISON COMPANY l

Computation of Primary and Fully Diluted Earning 8 Per' Share 3 Months Ended 6 Months Ended 12 Months Ended June 30, June 30, June 30, 1987 1986 1987 1984 ,

1987 1986 (In Thousands, Except Per share Data)

Net income . . . . . .. . . . . . . . . $~ 199,788 $ 194,076 $ 381,501 $ 392,913 $ - 757.,204 $ 775,800

' Less Preferred and Prefer-cnce Dividend Require-m2nts.,,. .......... .. 13,126 13,479 26,361 30,143 53.022 66,792 Add Ori inal Preferred Divi-dend requirements . . . . . 547 518 1,095 1,036 2,189 2.073 Earnings Available for Com-mon and Original Preferred Stock . . .. . .. . .., 187,209 181,115 356,235 363,806 706,361 711,081 Add 5.20% Convertible Pref-Gr;nce dividend require-ments.... ......... . . 32 42 69 86 147 186  ;

Add Interest on 12%% Con- l vertible Debentures . . . . . 204 296 419 600 922 1,442 l Less Tax Effect of Interest on 12%% Convertible De-l b;ntures( A) . . . . . . . . . . 94 152 194 307 427 738 Adjust d Earnings Available .. $ 187,351 $ 181,301 $ 356,529 $ 364,185 $ 707.003 $ 711,971 Weight:d Average Shares:

Original Preferred . . . . . . . . . 960,000 960,000 960,000 960,000 960,000 960,000

. Common Stock . . . . , . . . . . 216,943,479 216,730,243 216.928,578 216.715.824 216,873,867 216,193,402 Primary Weighted Average Shar;s . . . . .,, ,.. ... 217,903,479 217.690,243 217,888.578 217.675,824 217,833.867 217,153,402 Weight:d Average Shares Ad-

Justed (B) .. ....... .,.. 217,916,326 217,696,732 217,916,326 217,696,732 217,916,326 217,696,732 Common Shares Reserved for Conv:rsion of: '

12%% Convertible Deben-tur;s... .. .,,. .,. .. . 347,985 526,088 347,985 526,088 347,985 526,088 Prstzrence Stock 5.20%

Convertible Series . . , , . . 163,652 205,190 163.652 205.190 163.652 205,190

' Fully Diluted Weighted Aver-ag 3 Shares . , , , , . . . . ... 218,427,963 218,428,010 218,427.963 ,218,428.010 218.427,963 218.428.010 Primary Earnings Per Share .. $0.86 $0.83 $1.63 $1.67 $3.24 $3.27 Fully Diluted Earnings Per Share (C) . .... . . .. $0.86 $0.83 $1.63 $1.67 $3.24 $3.26

, ( A) Composite tax rate used is 46.336% for 1987 and 51.184% for 1986. I

- (S) Common shares issued due to conversion during the periods are adjusted as if they were outstanding at the beginning of each penod.

. (C) This calculation is submmed in accordance with Regulation S-K item 601(b)(11) aithough not required by footnote 2 to paragraph 14 of APB Opinion 15 because it results in dilution of less than 3%.

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EXHIBIT 24 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report appearing in this quarterly report on Form 10-0 for the quarter ended June 30,1987 of Southern California Edison Company in the Registration Statement for SCE Capital Company, a wholly-owned subsidiary of Southern California Edison Company, on Form S-3 which became effective June 11,1987 (File No. 33-14785), in the Registration Statement on Form S-3 which became effective August 20,1986 (File No. 33-8027), in Post Effective Amendment No. 2 to the Registration Statement on Form S-8 which became effective August 8,1986 (File No. 2-94889), in the Registration Statement on Form S-3 which became effective March 11,1986 (File No. 33-3778),

in the Registration Statement on Form S 3 which became effective November 7,1985 (File No. 33-

.) 972),in Post-Effective Amendment No.1 to the Registration Statement on Form S-8 which became effective July 6,1984 (File No. 2-82092), and in the Registration Statement on Form S-3 which became effective September 10,1982 (File No. 2-78940).

i ARTHUR ANDERSEN & CO.

Los Angeles, California, August 11,1987, h

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