Variable Interest Entities

Effective January 1, 2010, Edison International adopted the FASB's new guidance regarding VIEs. A VIE is defined as a legal entity whose equity owners do not have sufficient equity at risk, or, as a group, the holders of the equity investment at risk lack any of the following three characteristics: decision-making rights, the obligation to absorb losses, or the right to receive the expected residual returns of the entity. The primary beneficiary is identified as the variable interest holder that has both the power to direct the activities of the VIE that most significantly impact the entity's economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. The primary beneficiary is required to consolidate the VIE. Commercial and operating activities are generally the factors that most significantly impact the economic performance of VIEs in which Edison International has a variable interest. Commercial and operating activities include construction, operation and maintenance, fuel procurement, dispatch and compliance with regulatory and contractual requirements.

Description of Use of Variable Interest Entities

EMG and its subsidiaries and affiliates have used VIEs as part of joint development agreements and constructing or acquiring full or partial interests in power generation facilities and ancillary facilities, referred to by EMG as a project. EMG's subsidiaries and affiliates have financed the development and construction or acquisition of its projects by capital contributions from EMG and the incurrence of debt or lease obligations by its subsidiaries and affiliates owning the operating facilities. These project level debt or lease obligations are generally secured by project specific assets and structured as non-recourse to EMG, with several exceptions, including EMG's guarantee of the Powerton and Joliet leases as part of a refinancing of indebtedness incurred by its project subsidiary to purchase the Midwest Generation plants.

Categories of Variable Interest Entities

Projects or Entities that are Consolidated

At December 31, 2011 and 2010, EMG consolidated 13 and 14 projects, respectively, with a total generating capacity of 570 MW and 580 MW, respectively, that have minority interests held by others. In April 2011, EMG sold its 75% ownership interest in a Minnesota wind project.

The following table presents summarized financial information of the projects that were consolidated by EMG:



(in millions)	December 31, 2011		December 31, 2010
Current assets	$	36	$	26
Net property, plant and equipment	675		739
Other long-term assets	5		6
Total assets	$	716	$	771
Current liabilities	$	28	$	25
Long-term debt net of current portion	57		71
Deferred revenues	69		71
Other long-term liabilities	22		21
Total liabilities	$	176	$	188
Noncontrolling interests	$	2	$	4

Assets serving as collateral for the debt obligations had a carrying value of $136 million and $163 million at December 31, 2011 and 2010, respectively, and primarily consist of property, plant and equipment. Effective January 1, 2010, EMG prospectively consolidated the Ambit project (a 50% interest in American Bituminous Power Partners, L.P.) and deconsolidated the Elkhorn Ridge and San Juan Mesa wind projects.

During 2011, EMG purchased the remaining interests in Pinnacle Wind Force, LLC and Broken Bow I, LLC and all assets of the Crofton Bluffs project. During 2010, EMG purchased a noncontrolling interest in Laredo Ridge. All these projects are now 100% owned by EMG. The purchases of the noncontrolling interest were accounted for as equity transactions between controlling and noncontrolling interest holders.

Capistrano Wind Equity Capital - 2012

As part of its plan to obtain third-party equity capital to finance the development of a portion of EMG's wind portfolio, on February 13, 2012, Edison Mission Wind sold its indirect equity interests in the Cedro Hill wind project (150 MW in Texas), the Mountain Wind Power I project (61 MW in Wyoming) and the Mountain Wind Power II project (80 MW in Wyoming) to a new venture, Capistrano Wind Partners. Outside investors provided $238 million of the funding. Capistrano Wind Partners also agreed to acquire the Broken Bow I wind project (80 MW in Nebraska) and the Crofton Bluffs wind project (40 MW in Nebraska) for consideration expected to include $141 million from the same outside investors upon the satisfaction of specified conditions, including commencement of commercial operation and completion of project debt financing. The proceeds from outside investors, net of costs on the projects to be completed, are expected to be distributed to EMG and available for general corporate purposes.

An indirect subsidiary of EME, Edison Mission Wind, and EME's parent company, Mission Energy Holding Company (MEHC), own 100% of the Class A equity interests in Capistrano Wind Partners, and the Class B preferred equity interests are held by outside investors. Under the terms of the formation documents, preferred equity interests receive 100% of the cash available for distribution, up to a scheduled amount to target a return and thereafter cash distributions are shared. Cash available for distribution includes 90% of the tax benefits realized by MEHC and contributed to Capistrano Wind Partners.

Edison Mission Wind retains indirect beneficial ownership of the common equity in the projects, net of a $4 million preferred investment made by MEHC, and retains responsibilities for managing the operations of Capistrano Wind Holdings and its projects, and accordingly, EMG will continue to consolidate these projects. The amount contributed by the third-party interests will be reflected as a noncontrolling interest in the consolidated financial statements. Edison Mission Wind plans to distribute to EMG the amounts received from the sale of the projects, net of costs on the projects to be completed, which will then be available to EMG for general corporate purposes.

Variable Interest in VIEs that are not Consolidated

Power Purchase Contracts

SCE has 16 power purchase agreements ("PPAs") that have variable interests in VIEs, including 6 tolling agreements through which SCE provides the natural gas to fuel the plants and 10 contracts with qualifying facilities ("QFs") (including the Big 4 projects) that contain variable pricing provisions based on the price of natural gas. SCE has concluded that it is not the primary beneficiary of these VIEs since it does not control the commercial and operating activities of these entities. In general, because payments for capacity are the primary source of income, the most significant economic activity for SCE's VIEs is the operation and maintenance of the power plants.

As of the balance sheet date, the carrying amount of assets and liabilities in SCE's consolidated balance sheet that relate to its involvement with VIEs result from amounts due under the PPAs or the fair value of those derivative contracts. Under these contracts, SCE recovers the costs incurred through demonstration of compliance with its CPUC-approved long-term power procurement plans. SCE has no residual interest in the entities and has not provided or guaranteed any debt or equity support, liquidity arrangements, performance guarantees or other commitments associated with these contracts other than the purchase commitments described in Note 9. As a result, there is no significant potential exposure to loss as a result of SCE's involvement with these VIEs. The aggregate capacity dedicated to SCE for these VIE projects was 3,820 MW at December 31, 2011 and the amounts that SCE paid to these projects were $477 million and $534 million for the years ended December 31, 2011 and 2010, respectively. These amounts are recoverable in customer rates.

Equity Interests

EMG accounts for the majority of its investments in domestic gas and wind energy projects in which it has less than a 100% ownership interest, and does not have both the right to direct the commercial and operating activities and the obligation to absorb losses or receive benefits from the VIEs, under the equity method. As of December 31, 2011 and 2010, EMG had significant variable interests in five natural gas projects that are not consolidated, consisting of the Big 4 projects and the Sunrise project. A subsidiary of EMG operates three of the four Big 4 projects and the Sunrise project and EMG's partner provides the fuel management services for the Big 4 projects. In addition, the executive director of these gas projects is provided by EMG's partner. Commercial and operating activities of these gas projects are jointly controlled by a management committee of each VIE. Accordingly, EMG accounts for its variable interests in these projects under the equity method.

At December 31, 2011, EMG also accounted for its interest in the Community Wind North wind project, which achieved commercial operation on May 28, 2011, under the equity method. The commercial and operating activities of this entity are jointly directed by representatives of each partner. Thus EMG is not the primary beneficiary of this project.

The following table presents the carrying amount of EMG's investments in unconsolidated VIEs and the maximum exposure to loss for each investment:



	December 31, 2011
(in millions)	Investment		Maximum Exposure
Natural gas-fired projects	$	315	$	315
Wind projects	208		208

EMG's exposure to loss in its VIEs accounted for under the equity method is generally limited to its investment in these entities. At December 31, 2011 and 2010, outstanding debt for projects that are not consolidated consisted of long-term debt that was secured by a pledge of project entity assets, but does not provide for recourse to EMG. At December 31, 2011, such outstanding indebtedness was $62 million, of which $16 million was proportionate to EMG's ownership in the project. At December 31, 2010, such outstanding indebtedness was $116 million, of which $41 million was proportionate to EMG's ownership interest in the projects.

EMG has also invested in affordable housing projects utilizing partnership or limited liability companies. With a few exceptions, an unrelated general partner or managing member exercises operating control of these projects. At December 31, 2011, projects that EMG has accounted for under the equity method had indebtedness of approximately $1.2 billion, of which approximately $318 million is proportionate to its ownership interest in these projects. At December 31, 2010, projects that EMG has accounted for under the equity method had indebtedness of approximately $1.3 billion, of which approximately $451 million is proportionate to its ownership interest in these projects. Substantially all of this debt is nonrecourse to Edison Capital.

The following table presents summarized financial information of the investments in unconsolidated affiliates accounted for by the equity method:



	Years Ended December 31,
(in millions)	2011		2010		2009
Revenues	$	971	$	1,043	$	581
Expenses	839		934		506
Net income	$	132	$	109	$	75



	December 31,
(in millions)	2011		2010
Current assets	$	337	$	352
Noncurrent assets	2,098		2,437
Total assets	$	2,435	$	2,789
Current liabilities	$	144	$	227
Noncurrent liabilities	1,230		1,312
Equity	1,061		1,250
Total liabilities and equity	$	2,435	$	2,789

The difference between the carrying value of these equity investments and the underlying equity in the net assets was $10 million at December 31, 2011. The difference is being amortized over the life of the projects. The majority of noncurrent liabilities are composed of project financing arrangements that are nonrecourse to EMG. The undistributed earnings of equity method investments were $19 million and $28 million at December 31, 2011 and 2010, respectively.

The following table presents, as of December 31, 2011, the investments in unconsolidated affiliates accounted for by the equity method that represent at least 5% of EMG's loss before tax, excluding asset impairment charges, or in which EMG has an investment balance greater than $50 million:



Unconsolidated Affiliates	Location	Investment at December 31, 2011 (in millions)		Ownership Interest at December 31, 2011	Operating Status
San Juan Mesa	Elida, NM	$	84	75%	Operating wind-powered facility
Elkhorn Ridge	Bloomfield, NE	81		67%	Operating wind-powered facility
Sunrise	Fellows, CA	173		50%	Operating gas-fired facility
Sycamore	Bakersfield, CA	34		50%	Operating cogeneration facility
Kern River	Bakersfield, CA	21		50%	Operating cogeneration facility
Watson	Carson, CA	42		49%	Operating cogeneration facility

The following table presents summarized financial information of the investments in unconsolidated affiliates:



	December 31,
(in millions)	2011		2010
Investments in Unconsolidated Affiliates
Equity investments	$	517	$	550
Cost investments	8		9
Total	$	525	$	559