Discontinued Operations

6 Months Ended

Jun. 30, 2013

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Discontinued Operations

EME Chapter 11 Bankruptcy Filing

EME and certain of its subsidiaries, filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. On December 16, 2012, Edison International, EME and the Consenting Noteholders entered into a Transaction Support Agreement (the "Support Agreement"), that, subject to further documentation, Bankruptcy Court approval and certain other conditions, provided that:

• Edison International would cease to own EME when EME emerges from bankruptcy pursuant to a plan or reorganization.

• The tax allocation agreements with respect to EME would be extended through the earlier of the effective date of a plan of reorganization or December 31, 2014, and EME would remain bound to perform its obligations under such agreements.

• Edison International and EME would continue to provide ongoing shared services to each other in the ordinary course, consistent with the same terms and conditions on which those services have been provided in the past.

• Upon effectiveness of EME's plan of reorganization, Edison International would assume certain of EME's employee retirement related liabilities.

• Edison International, EME and the Consenting Noteholders who had signed the Support Agreement would exchange releases of claims, and EME and Edison International would cross-indemnify one another against liabilities arising from the conduct of their separate businesses.

The Support Agreement provided that, within 150 days following the Petition Date, EME was to seek authority from the Bankruptcy Court to enter into the Settlement Transaction, which was required to be obtained within 210 days following the Petition Date. EME did not seek such authority within the 150 day period, and the parties did not reach agreement on changes to the Support Agreement which would have altered the original schedule. The failure to meet the Support Agreement's milestones, however, rendered it terminable by Edison International or the Consenting Noteholders any time thereafter.

On July 25, 2013, a requisite majority of the Consenting Noteholders provided Edison International and EME with a notice terminating the Support Agreement, effective August 1, 2013. As a result, the extension of the Tax Allocation Agreement contemplated by the Support Agreement has also terminated, and the Tax Allocation Agreement is now due to expire by its terms on December 31, 2013. Furthermore, claims, which Edison International submitted in the EME bankruptcy on a contingency basis, will not be released, and inasmuch as Edison International will not be entitled to the benefits of the Settlement Transaction, it will remain subject to any claims of EME and potentially its creditors, including claims relating to or arising out of any shared services, the Tax Allocation Agreement, and any other relationships or transactions between the companies. Edison International cannot, at this time, predict whether the parties will reach other agreements or if the termination of the Support Agreement will result in the pursuit of potential disputes among the parties.

Deconsolidation

EME and those subsidiaries in Chapter 11 proceedings retain control of their assets and are authorized to operate their businesses as debtors-in-possession under the jurisdiction of the Bankruptcy Court. Effective December 17, 2012, Edison International no longer consolidates the earnings and losses of EME or its subsidiaries and has reflected its ownership interest in EME utilizing the cost method of accounting prospectively, under which Edison International's investment in EME is reflected as a single amount on the consolidated balance sheet of Edison International at December 31, 2012. Furthermore, Edison International has recorded a full impairment of the investment.

Edison International will not be affected by changes in EME's future financial results, other than those changes related to certain tax matters. Edison International has evaluated the continuing cash flows with EME and determined that these cash flows generated are indirect and immaterial. Edison International's continuing cash flows will not include any significant revenue-producing and cost-generating activities of EME.

Edison International considers EME to be an abandoned asset under generally accepted accounting principles, and, as a result, the operations of EME prior to December 17, 2012 and for all prior years, are reflected as discontinued operations in the consolidated financial statements. Included in Edison International's consolidated income statement was an income tax benefit of $12 million and $24 million for discontinued operations for the three- and six-months ended June 30, 2013, respectively. Operating revenue and loss before income taxes for discontinued operations were $406 million and $208 million, respectively, for the three months ended June 30, 2012, and $849 million and $383 million, respectively, for the six months ended June 30, 2012.

Contingencies

Edison International Parent has not guaranteed the obligations of EME, however, under the Internal Revenue Code and applicable state statutes, Edison International Parent is jointly liable for qualified retirement plans and federal and specific state tax liabilities. As a result of the deconsolidation and the existence of joint liabilities, Edison International has recorded liabilities of $80 million for qualified retirement plans related to plan participants of EME and $189 million of liabilities related to joint tax liabilities. Under the qualified plan documents and tax allocation agreements, EME is obligated to pay for such liabilities and, accordingly, Edison International has recorded receivables of $235 million from EME net of amounts recorded in accumulated other comprehensive income of $34 million (related to actuarial losses under the qualified retirement plans).

If the Settlement Transaction had been approved and implemented, Edison International Parent would not have been entitled to receive reimbursement of the net receivable of $46 million and would be obligated to assume certain other retirement liabilities as specified in such agreement (estimated at $104 million). Inasmuch as the Settlement Transaction has been terminated, Edison International Parent will seek recovery of such joint liabilities as part of the EME bankruptcy proceeding. The outcome of the EME bankruptcy proceeding is uncertain, as was the disposition of the Support Agreement. Accordingly, management judgment was required to assess the collectability of the receivables recorded and outcome of the bankruptcy proceeding. Management concluded that it is probable that a loss would be incurred and estimated a loss of $150 million. The outcome of the EME bankruptcy could result in losses different than the amounts recorded by Edison International and such amounts could be material.

For a discussion of other contingencies related to EME, see Tax Disputes discussed in Note 7.