Compensation and Benefit Plans

Employee Savings Plan

The 401(k) defined contribution savings plan is designed to supplement employees' retirement income. The following employer contributions were made for continuing operations:



	Edison International		SCE
(in millions)	Years ended December 31,
2013	$	76	$	76
2012	85		84
2011	84		83

Pension Plans and Postretirement Benefits Other Than Pensions

Pension Plans

Noncontributory defined benefit pension plans (some with cash balance features) cover most employees meeting minimum service requirements. SCE recognizes pension expense for its nonexecutive plan as calculated by the actuarial method used for ratemaking. The expected contributions (all by the employer) for Edison International and SCE are approximately $200 million and $173 million, respectively, for the year ending December 31, 2014. Annual contributions made to most of SCE's pension plans are anticipated to be recovered through CPUC-approved regulatory mechanisms. Annual contributions to these plans are expected to be, at a minimum, equal to the related annual expense.

The funded position of Edison International's pension is sensitive to changes in market conditions. Changes in overall interest rate levels significantly affect the company's liabilities, while assets held in the various trusts established to fund Edison International's long-term pension are affected by movements in the equity and bond markets. Due to SCE's regulatory recovery treatment, the unfunded status is offset by a regulatory asset.

Non-Executive Retirement Plan Liabilities of EME

The employees of EME and its subsidiaries participate in a number of qualified retirement plans that are sponsored by either Edison International or SCE. Under these benefit plans EME is obligated to make contributions to fund the costs of the plans. 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. As a result of the EME Chapter 11 bankruptcy filing, Edison International has a long-term liability of $35 million and $80 million at December 31, 2013 and 2012, respectively, related to employees of EME participation in these plans which is reflected in the table below. For further information on the EME Chapter 11 bankruptcy filing, refer to Note 16.

Transfer of Certain Pension Benefits to Edison International

In 2012, Edison International agreed to assume the liabilities for active employees of SCE and EME under the specified plans related to pension benefits. During bankruptcy, EME is obligated to fund costs incurred on an after tax basis each pay period while SCE is obligated to reimburse Edison International upon settlement of liabilities on an after tax basis.

Information on pension plan assets and benefit obligations for continuing and discontinued operations is shown below.



	Edison International						SCE
	Years ended December 31,
(in millions)	2013			2012			2013			2012
Change in projected benefit obligation
Projected benefit obligation at beginning of year	$	4,948		$	4,493		$	4,434		$	4,112
Service cost	174			179			154			156
Interest cost	182			196			164			176
Liability transferred to Edison International	—			23			—			(92		)
Actuarial (gain) loss	(330		)	370			(277		)	318
Curtailment	—			(26		)	—			—
Benefits paid	(796		)	(253		)	(754		)	(236		)
Deconsolidation of EME¹	—			(34		)	—			—
Projected benefit obligation at end of year	$	4,178		$	4,948		$	3,721		$	4,434
Change in plan assets
Fair value of plan assets at beginning of year	$	3,542		$	3,153		$	3,320		$	2,971
Actual return on plan assets	540			460			505			431
Employer contributions	191			182			165			154
Benefits paid	(796		)	(253		)	(754		)	(236		)
Fair value of plan assets at end of year	$	3,477		$	3,542		$	3,236		$	3,320
Funded status at end of year	$	(701	)	$	(1,406	)	$	(485	)	$	(1,114	)
Amounts recognized in the consolidated balance sheets consist of:
Current liabilities	$	(15	)	$	(19	)	$	(5	)	$	(6	)
Long-term liabilities	(686		)	(1,387		)	(480		)	(1,108		)
	$	(701	)	$	(1,406	)	$	(485	)	$	(1,114	)
Amounts recognized in accumulated other comprehensive loss consist of:
Net loss	$	30		$	127		$	33		$	40
Amounts recognized as a regulatory asset:
Prior service cost	$	25		$	30		$	25		$	30
Net loss	328			999			328			999
	$	353		$	1,029		$	353		$	1,029
Total not yet recognized as expense	$	383		$	1,156		$	386		$	1,069
Accumulated benefit obligation at end of year	$	4,015		$	4,609		$	3,599		$	4,171
Pension plans with an accumulated benefit obligation in excess of plan assets:
Projected benefit obligation	$	4,178		$	4,948		$	3,721		$	4,434
Accumulated benefit obligation	4,015			4,609			3,599			4,171
Fair value of plan assets	3,477			3,542			3,236			3,320
Weighted-average assumptions used to determine obligations at end of year:
Discount rate	4.75		%	3.75		%	4.75		%	3.75		%
Rate of compensation increase	4.0		%	4.5		%	4.0		%	4.5		%


¹	The retirement plan liabilities of EME have been deconsolidated as a result of the bankruptcy filing by EME, except for qualified pension plans that Edison International is jointly liable with EME under the Internal Revenue Code. See Note 16 for further information.

Pension expense components for continuing operations are:



	Edison International									SCE
	Years ended December 31,
(in millions)	2013			2012			2011			2013			2012			2011
Service cost	$	162		$	163		$	149		$	159		$	160		$	145
Interest cost	170			183			196			167			180			192
Expected return on plan assets	(222		)	(217		)	(226		)	(222		)	(217		)	(225		)
Settlement costs¹	87			5			—			85			4			—
Amortization of prior service cost	5			3			7			5			3			7
Amortization of net loss²	39			61			25			35			57			22
Expense under accounting standards	241			198			151			229			187			141
Regulatory adjustment (deferred)	(53		)	(19		)	(28		)	(53		)	(19		)	(28		)
Total expense recognized	$	188		$	179		$	123		$	176		$	168		$	113


¹	Includes the amount of net loss reclassified from other comprehensive loss. The amount reclassified for Edison International was $2 million for the year ended December 31, 2013.


²	Includes the amount of net loss reclassified from other comprehensive loss. The amount reclassified for Edison International and SCE was $11 million and $7 million for the year ended December 31, 2013, respectively.

Under GAAP, a settlement is recorded when lump-sum payments exceed estimated annual service and interest costs. Lump-sum payments to employees retiring in 2013 from the SCE Retirement Plan (primarily due to workforce reductions described below) exceeded the estimated service and interest costs for the year. A settlement requires re-measurement of both the plan pension obligations and plan assets as of the date of the settlement. The re-measurement of the SCE Retirement Plan during 2013 resulted in total actuarial gains of $563 million, including $558 million for SCE. The actuarial gains are primarily due to an increase in the discount rate (from 3.75% at December 31, 2012 to 4.25% as of May 31, 2013, 4.50% as of August 31, 2013 and 4.75% as of December 31, 2013) due to higher interest rates and performance of the plan assets.

After re-measurement, GAAP requires an acceleration of a portion of unrecognized net losses attributable to such lump-sum payments as additional pension expense as reflected in the above table. The additional pension expense related to SCE did not impact net income as such amounts are probable of recovery through future rates.

The projected benefit obligations exceeded the fair value of the SCE Retirement Plan assets by $478 million, including $449 million for SCE, at December 31, 2013 compared to $1.11 billion, including $1.07 billion for SCE, at December 31, 2012.

Other changes in pension plan assets and benefit obligations recognized in other comprehensive income for continuing operations:



	Edison International									SCE
	Years ended December 31,
(in millions)	2013			2012			2011			2013			2012			2011
Net (gain) loss	$	(33	)	$	36		$	13		$	(24	)	$	20		$	8
Amortization of net loss	(13		)	(10		)	(11		)	(7		)	(6		)	(7		)
Total recognized in other comprehensive loss	$	(46	)	$	26		$	2		$	(31	)	$	14		$	1
Total recognized in expense and other comprehensive income	$	142		$	205		$	125		$	145		$	182		$	114

In accordance with authoritative guidance on rate-regulated enterprises, SCE records regulatory assets and liabilities instead of charges and credits to other comprehensive income (loss) for the portion of SCE's postretirement benefit plans that are recoverable in utility rates. The estimated pension amounts that will be amortized to expense in 2014 for continuing operations are as follows:



(in millions)	Edison International		SCE
Unrecognized net loss to be amortized¹	$	5	$	2
Unrecognized prior service cost to be amortized	5		5


¹	The amount of net loss expected to be reclassified from other comprehensive loss for Edison International's continuing operations and SCE is $6 million and $4 million, respectively.

Edison International and SCE used the following weighted-average assumptions to determine pension expense for continuing operations:



	Years ended December 31,
	2013		2012		2011
Discount rate	4.13	%	4.5	%	5.25	%
Rate of compensation increase	4.5	%	4.5	%	5.0	%
Expected long-term return on plan assets	7.0	%	7.5	%	7.5	%

The following benefit payments, which reflect expected future service, are expected to be paid:



	Edison International		SCE
(in millions)	Years ended December 31,
2014	$	265	$	202
2015	240		208
2016	249		214
2017	254		219
2018	257		227
2019 – 2023	1,323		1,196

Postretirement Benefits Other Than Pensions ("PBOP(s)")

Most employees retiring at or after age 55 with at least 10 years of service may be eligible for postretirement medical, dental, vision and life insurance benefits. Eligibility for a company contribution toward the cost of these benefits in retirement depends on a number of factors, including the employee's years of service, hire date, and retirement date. Under the terms of the Edison International Health and Welfare Plan (“PBOP Plan”) each participating employer (Edison International or its participating subsidiaries) is responsible for the costs and expenses of all PBOP benefits with respect to its employees and former employees. A participating employer may terminate the PBOP benefits with respect to its employees and former employees, as may SCE (as Plan sponsor), and, accordingly, the participants' PBOP benefits are not vested benefits.

The expected contributions (all by the employer) for PBOP benefits for SCE are $14 million for the year ended December 31, 2014. Annual contributions made to SCE plans are anticipated to be recovered through CPUC-approved regulatory mechanisms and are expected to be, at a minimum, equal to the total annual expense for these plans.

SCE has established three voluntary employee beneficiary associations trusts (“VEBA Trusts”) that can only be used to pay for retiree health care benefits of SCE. Once funded into the VEBA Trusts, neither SCE nor Edison International can subsequently terminate benefits and recover remaining amounts in the VEBA Trusts. Participants of the PBOP Plan do not have a beneficial interest in the VEBA Trusts. The VEBA Trust assets are sensitive to changes in market conditions. Changes in overall interest rate levels significantly affect the company's liabilities, while assets held in the various trusts established to fund Edison International's other postretirement benefits are affected by movements in the equity and bond markets. Due to SCE's regulatory recovery treatment, the unfunded status is offset by a regulatory asset.

Information on PBOP Plan assets and benefit obligations for continuing and discontinued operations is shown below:



	Edison International						SCE
	Years ended December 31,
(in millions)	2013			2012			2013			2012
Change in benefit obligation
Benefit obligation at beginning of year	$	2,460		$	2,553		$	2,452		$	2,415
Service cost	49			47			48			47
Interest cost	98			108			97			108
Special termination benefits	11			2			11			2
Actuarial gain	(313		)	(86		)	(312		)	(86		)
Plan participants' contributions	18			16			18			16
Medicare Part D subsidy received	—			4			—			4
Benefits paid	(103		)	(54		)	(103		)	(54		)
Deconsolidation of EME¹	—			(130		)	—			—
Benefit obligation at end of year	$	2,220		$	2,460		$	2,211		$	2,452
Change in plan assets
Fair value of plan assets at beginning of year	$	1,800		$	1,570		$	1,800		$	1,570
Actual return on assets	317			212			317			212
Employer contributions	33			52			33			52
Plan participants' contributions	18			16			18			16
Medicare Part D subsidy received	—			4			—			4
Benefits paid	(103		)	(54		)	(103		)	(54		)
Fair value of plan assets at end of year	$	2,065		$	1,800		$	2,065		$	1,800
Funded status at end of year	$	(155	)	$	(660	)	$	(146	)	$	(652	)
Amounts recognized in the consolidated balance sheets consist of:
Current liabilities	$	(17	)	$	(18	)	$	(16	)	$	(18	)
Long-term liabilities	(138		)	(642		)	(130		)	(634		)
	$	(155	)	$	(660	)	$	(146	)	$	(652	)
Amounts recognized in accumulated other comprehensive loss (income) consist of:
Net loss	$	4		$	5		$	—		$	—
Amounts recognized as a regulatory asset (liability):
Prior service credit	$	(54	)	$	(89	)	$	(54	)	$	(89	)
Net loss	69			610			69			610
	$	15		$	521		$	15		$	521
Total not yet recognized as expense	$	19		$	526		$	15		$	521
Weighted-average assumptions used to determine obligations at end of year:
Discount rate	5.0		%	4.25		%	5.0		%	4.25		%
Assumed health care cost trend rates:
Rate assumed for following year	7.75		%	8.5		%	7.75		%	8.5		%
Ultimate rate	5.0		%	5.0		%	5.0		%	5.0		%
Year ultimate rate reached	2020			2020			2020			2020

The postretirement plan liabilities of EME have been deconsolidated as a result of the bankruptcy filing by EME. EME Homer City, a subsidiary of EME terminated the benefits of its employees in the PBOP Plan during 2012. In January 2014, EME settled and the Bankruptcy Court approved the settlement of all the EME Homer City employee claims to the EME Homer City PBOP Plan. EME has requested approval of the Bankruptcy Court to terminate the benefits of its employees and employees of its subsidiaries in the PBOP Plan upon confirmation of their Plan of Reorganization. Participation in the PBOP Plan by employees of EME and its subsidiaries (other than Homer City) has been permitted under EME's shared services agreement approved by the Bankruptcy Court subject to funding of paid claims. Edison International is not obligated to continue to provide benefits to EME employees under the PBOP Plan, nor can the VEBA Trusts be used to pay for benefits of EME participants. See Note 16 for further information.

PBOP expense components for continuing operations are:



	Edison International									SCE
	Years ended December 31,
(in millions)	2013			2012			2011			2013			2012			2011
Service cost	$	49		$	47		$	40		$	48		$	47		$	40
Interest cost	98			108			115			97			108			114
Expected return on plan assets	(114		)	(108		)	(111		)	(114		)	(109		)	(111		)
Special termination benefits¹	11			2			—			11			2			—
Amortization of prior service credit	(36		)	(35		)	(35		)	(35		)	(35		)	(35		)
Amortization of net loss	24			39			26			24			39			26
Total expense	$	32		$	53		$	35		$	31		$	52		$	34


¹	Due to the reduction in workforce, SCE has incurred costs for extended retiree health care coverage.

In accordance with authoritative guidance on rate-regulated enterprises, SCE records regulatory assets and liabilities instead of charges and credits to other comprehensive income (loss) for the portion of SCE's postretirement benefit plans that are recoverable in utility rates. The estimated PBOP amounts that will be amortized to expense in 2014 for continuing operations are as follows:



(in millions)	Edison International			SCE
Unrecognized prior service credit to be amortized	$	(36	)	$	(36	)

Edison International and SCE used the following weighted-average assumptions to determine PBOP expense for continuing operations:



	Years ended December 31,
	2013		2012		2011
Discount rate	4.25	%	4.75	%	5.5	%
Expected long-term return on plan assets	6.7	%	7.0	%	7.0	%
Assumed health care cost trend rates:
Current year	8.5	%	9.5	%	9.75	%
Ultimate rate	5.0	%	5.25	%	5.5	%
Year ultimate rate reached	2020		2019		2019

A one-percentage-point change in assumed health care cost trend rate would have the following effects on continuing operations:



	Edison International					SCE
(in millions)	One-Percentage-Point Increase		One-Percentage-Point Decrease			One-Percentage-Point Increase		One-Percentage-Point Decrease
Effect on accumulated benefit obligation as of December 31, 2013	$	229	$	(191	)	$	228	$	(190	)
Effect on annual aggregate service and interest costs	11		(9		)	11		(9		)

The following benefit payments are expected to be paid:



	Edison International		SCE
(in millions)	Years ended December 31,
2014	$	92	$	92
2015	101		100
2016	107		106
2017	113		113
2018	119		119
2019 – 2023	668		666

Plan Assets

Description of Pension and Postretirement Benefits Other than Pensions Investment Strategies

The investment of plan assets is overseen by a fiduciary investment committee. Plan assets are invested using a combination of asset classes, and may have active and passive investment strategies within asset classes. Target allocations for 2013 and 2012 pension plan assets are 30% for U.S. equities, 16% for non-U.S. equities, 35% for fixed income, 15% for opportunistic and/or alternative investments and 4% for other investments. Target allocations for 2013 and 2012 PBOP plan assets are 41% for U.S. equities, 17% for non-U.S. equities, 34% for fixed income, 7% for opportunistic and/or alternative investments, and 1% for other investments. Edison International employs multiple investment management firms. Investment managers within each asset class cover a range of investment styles and approaches. Risk is managed through diversification among multiple asset classes, managers, styles and securities. Plan, asset class and individual manager performance is measured against targets. Edison International also monitors the stability of its investment managers' organizations.

Allowable investment types include:


•	United States Equities: Common and preferred stocks of large, medium, and small companies which are predominantly United States-based.


•	Non-United States Equities: Equity securities issued by companies domiciled outside the United States and in depository receipts which represent ownership of securities of non-United States companies.


•	Fixed Income: Fixed income securities issued or guaranteed by the United States government, non-United States governments, government agencies and instrumentalities including municipal bonds, mortgage backed securities and corporate debt obligations. A portion of the fixed income positions may be held in debt securities that are below investment grade.

Opportunistic, Alternative and Other Investments:


•	Opportunistic: Investments in short to intermediate term market opportunities. Investments may have fixed income and/or equity characteristics and may be either liquid or illiquid.


•	Alternative: Limited partnerships that invest in non-publicly traded entities.


•	Other: Investments diversified among multiple asset classes such as global equity, fixed income currency and commodities markets. Investments are made in liquid instruments within and across markets. The investment returns are expected to approximate the plans' expected investment returns.

Asset class portfolio weights are permitted to range within plus or minus 3%. Where approved by the fiduciary investment committee, futures contracts are used for portfolio rebalancing and to reallocate portfolio cash positions. Where authorized, a few of the plans' investment managers employ limited use of derivatives, including futures contracts, options, options on futures and interest rate swaps in place of direct investment in securities to gain efficient exposure to markets. Derivatives are not used to leverage the plans or any portfolios.

Determination of the Expected Long-Term Rate of Return on Assets

The overall expected long-term rate of return on assets assumption is based on the long-term target asset allocation for plan assets and capital markets return forecasts for asset classes employed. A portion of the PBOP trust asset returns are subject to taxation, so the expected long-term rate of return for these assets is determined on an after-tax basis.

Capital Markets Return Forecasts

SCE's capital markets return forecast methodologies primarily use a combination of historical market data, current market conditions, proprietary forecasting expertise, complex models to develop asset class return forecasts and a building block approach. The forecasts are developed using variables such as real risk-free interest, inflation, and asset class specific risk premiums. For equities, the risk premium is based on an assumed average equity risk premium of 5% over cash. The forecasted return on private equity and opportunistic investments are estimated at a 2% premium above public equity, reflecting a premium for higher volatility and lower liquidity. For fixed income, the risk premium is based off of a comprehensive modeling of credit spreads.

Fair Value of Plan Assets

The PBOP Plan and the Southern California Edison Company Retirement Plan Trust (Master Trust) assets include investments in equity securities, U.S. treasury securities, other fixed-income securities, common/collective funds, mutual funds, other investment entities, foreign exchange and interest rate contracts, and partnership/joint ventures. Equity securities, U.S. treasury securities, mutual and money market funds are classified as Level 1 as fair value is determined by observable, unadjusted quoted market prices in active or highly liquid and transparent markets. Common/collective funds are valued at the net asset value ("NAV") of shares held. Although common/collective funds are determined by observable prices, they are classified as Level 2 because they trade in markets that are less active and transparent. The fair value of the underlying investments in equity mutual funds and equity common/collective funds are based upon stock-exchange prices. The fair value of the underlying investments in fixed-income common/collective funds, fixed-income mutual funds and other fixed income securities including municipal bonds are based on evaluated prices that reflect significant observable market information such as reported trades, actual trade information of similar securities, benchmark yields, broker/dealer quotes, issuer spreads, bids, offers and relevant credit information. Foreign exchange and interest rate contracts are classified as Level 2 because the values are based on observable prices but are not traded on an exchange. Futures contracts trade on an exchange and therefore are classified as Level 1. The partnerships classified as Level 2 can be readily redeemed at NAV and the underlying investments are liquid, publicly traded fixed-income securities which have observable prices. The remaining partnerships/joint ventures are classified as Level 3 because fair value is determined primarily based upon management estimates of future cash flows. Other investment entities are valued similarly to common collective funds and are therefore classified as Level 2. The Level 1 registered investment companies are either mutual or money market funds. The remaining funds in this category are readily redeemable at NAV and classified as Level 2 and are discussed further at footnote 7 to the pension plan master trust investments table below.

Edison International reviews the process/procedures of both the pricing services and the trustee to gain an understanding of the inputs/assumptions and valuation techniques used to price each asset type/class. The trustee and Edison International's validation procedures for pension and PBOP equity and fixed income securities are the same as the nuclear decommissioning trusts. For further discussion see Note 4. The values of Level 1 mutual and money market funds are publicly quoted. The trustees obtain the values of common/collective and other investment funds from the fund managers. The values of partnerships are based on partnership valuation statements updated for cash flows. SCE's investment managers corroborate the trustee fair values.

Pension Plan

The following table sets forth the Master Trust investments for Edison International and SCE that were accounted for at fair value as of December 31, 2013 by asset class and level within the fair value hierarchy:



(in millions)	Level 1		Level 2		Level 3		Total
U.S. government and agency securities¹	$	195	$	471	$	—	$	666
Corporate stocks²	653		—		—		653
Corporate bonds³	—		553		—		553
Common/collective funds⁴	—		546		—		546
Partnerships/joint ventures⁵	—		148		390		538
Other investment entities⁶	—		282		—		282
Registered investment companies⁷	112		81		—		193
Interest-bearing cash	12		—		—		12
Other	6		109		—		115
Total	$	978	$	2,190	$	390	$	3,558
Receivables and payables, net							(81		)
Net plan assets available for benefits							$	3,477
SCE's share of net plan assets							$	3,236
Edison International Parent and Other's share of net plan assets							6
EME's share of net plan assets							235

The following table sets forth the Master Trust investments that were accounted for at fair value as of December 31, 2012 by asset class and level within the fair value hierarchy:



(in millions)	Level 1		Level 2		Level 3		Total
U.S. government and agency securities¹	$	242	$	350	$	—	$	592
Corporate stocks²	743		—		—		743
Corporate bonds³	—		508		—		508
Common/collective funds⁴	—		635		—		635
Partnerships/joint ventures⁵	—		166		414		580
Other investment entities⁶	—		271		—		271
Registered investment companies⁷	98		28		—		126
Interest-bearing cash	24		—		—		24
Other	1		100		—		101
Total	$	1,108	$	2,058	$	414	$	3,580
Receivables and payables, net							(38		)
Net plan assets available for benefits							$	3,542
SCE's share of net plan assets							$	3,320
Edison International Parent and Other's share of net plan assets							7
EME's share of net plan assets							215


¹	Level 1 U.S. government and agency securities are U.S. treasury bonds and notes. Level 2 primarily relates to the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.


²	Corporate stocks are diversified. For 2013 and 2012, respectively, performance is primarily benchmarked against the Russell Indexes (51% and 60%) and Morgan Stanley Capital International (MSCI) index (49% and 40%).


³	Corporate bonds are diversified. At December 31, 2013 and 2012, respectively, this category includes $78 million and $65 million for collateralized mortgage obligations and other asset backed securities of which $15 million and $7 million are below investment grade.

⁴

At December 31, 2013 and 2012, respectively, the common/collective assets were invested in equity index funds that seek to track performance of the Standard and Poor's (S&P 500) Index (27% and 29%), Russell 1000 indexes (28% and 28%) and the MSCI Europe, Australasia and Far East (EAFE) Index (15% and 11%). A non-index U.S. equity fund representing 23% and 25% of this category for 2013 and 2012, respectively, is actively managed. Another fund representing 6% and 6% of this category for 2013 and 2012, respectively, is a global asset allocation fund.

⁵

Partnerships/joint venture Level 2 investments consist primarily of a partnership which invests in publicly traded fixed income securities, primarily from the banking and finance industry and U.S. government agencies. At December 31, 2013 and 2012, respectively, approximately 64% and 56% of the Level 3 partnerships are invested in (1) asset backed securities, including distressed mortgages and (2) commercial and residential loans and debt and equity of banks. The remaining Level 3 partnerships are invested in small private equity and venture capital funds. Investment strategies for these funds include branded consumer products, early stage technology, California geographic focus, and diversified US and non-US fund-of-funds.


⁶	Other investment entities were primarily invested in (1) emerging market equity securities, (2) a hedge fund that invests through liquid instruments in a global diversified portfolio of equity, fixed income, interest rate, foreign currency and commodities markets, and (3) domestic mortgage backed securities.


⁷	Level 1 of registered investment companies primarily consisted of a global equity mutual fund which seeks to outperform the MSCI World Total Return Index. Level 2 primarily consisted of a short-term bond fund.

At December 31, 2013 and 2012, approximately 67% and 66%, respectively, of the publicly traded equity investments, including equities in the common/collective funds, were located in the United States.

The following table sets forth a summary of changes in the fair value of Edison International's and SCE's Level 3 investments:



(in millions)	2013			2012
Fair value, net at beginning of period	$	414		$	448
Actual return on plan assets:
Relating to assets still held at end of period	61			88
Relating to assets sold during the period	10			13
Purchases	45			98
Dispositions	(140		)	(233		)
Transfers in and/or out of Level 3	—			—
Fair value, net at end of period	$	390		$	414

Postretirement Benefits Other than Pensions

The following table sets forth the VEBA Trust assets for SCE that were accounted for at fair value as of December 31, 2013 by asset class and level within the fair value hierarchy:



(in millions)	Level 1		Level 2		Level 3		Total
Common/collective funds¹	$	—	$	863	$	—	$	863
Corporate stocks²	451		—		—		451
Corporate notes and bonds³	—		250		—		250
Partnerships⁴	—		20		164		184
U.S. government and agency securities⁵	118		36		—		154
Registered investment companies⁶	52		5		—		57
Interest bearing cash	19		—		—		19
Other⁷	7		78		—		85
Total	$	647	$	1,252	$	164	$	2,063
Receivables and payables, net							2
Combined net plan assets available for benefits							$	2,065

The following table sets forth the VEBA Trust assets for SCE that were accounted for at fair value as of December 31, 2012 by asset class and level within the fair value hierarchy:



(in millions)	Level 1		Level 2		Level 3		Total
Common/collective funds¹	$	—	$	723	$	—	$	723
Corporate stocks²	361		—		—		361
Corporate notes and bonds³	—		210		—		210
Partnerships⁴	—		17		166		183
U.S. government and agency securities⁵	131		31		—		162
Registered investment companies⁶	68		—		—		68
Interest bearing cash	24		—		—		24
Other⁷	6		104		—		110
Total	$	590	$	1,085	$	166	$	1,841
Receivables and payables, net							(41		)
Combined net plan assets available for benefits							$	1,800

At December 31, 2013 and 2012, respectively, 60% and 60% of the common/collective assets are invested in a large cap index fund which seeks to track performance of the Russell 1000 index. 23% and 23% of the assets in this category are in index funds which seek to track performance in the MSCI Europe, Australasia and Far East (EAFE) Index. 6% and 6% of this category are invested in a privately managed bond fund and 7% and 6% in a fund which invests in equity securities the fund manager believes are undervalued.


²	Corporate stock performance is primarily benchmarked against the Russell Indexes (50% and 50%) and the MSCI All Country World (ACWI) index (50% and 50%) for 2013 and 2012, respectively.


³	Corporate notes and bonds are diversified and include approximately $29 million and $20 million for commercial collateralized mortgage obligations and other asset backed securities at December 31, 2013 and 2012, respectively.


⁴	At December 31, 2013 and 2012, respectively, 78% and 82% of the Level 3 partnerships category is invested in (1) asset backed securities including distressed mortgages, (2) distressed companies and (3) commercial and residential loans and debt and equity of banks.


⁵	Level 1 U.S. government and agency securities are U.S. treasury bonds and notes. Level 2 primarily relates to the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association.


⁶	Level 1 registered investment companies consist of an investment grade corporate bond mutual fund and a money market fund.


⁷	Other includes $76 million and $73 million of municipal securities at December 31, 2013 and 2012, respectively.

At December 31, 2013 and 2012, approximately 65% and 66%, respectively, of the publicly traded equity investments, including equities in the common/collective funds, were located in the United States.

The following table sets forth a summary of changes in the fair value of PBOP Level 3 investments:



(in millions)	2013			2012
Fair value, net at beginning of period	$	166		$	130
Actual return on plan assets
Relating to assets still held at end of period	24			20
Relating to assets sold during the period	5			5
Purchases	23			35
Dispositions	(54		)	(24		)
Transfers in and/or out of Level 3	—			—
Fair value, net at end of period	$	164		$	166

Stock-Based Compensation

Edison International maintains a shareholder approved incentive plan (the 2007 Performance Incentive Plan) that includes stock-based compensation. The maximum number of shares of Edison International's common stock authorized to be issued or transferred pursuant to awards under the 2007 Performance Incentive Plan, as amended, is 49.5 million shares, plus the number of any shares subject to awards issued under Edison International's prior plans and outstanding as of April 26, 2007, which expire, cancel or terminate without being exercised or shares being issued ("carry-over shares"). As of December 31, 2013, Edison International had approximately 23 million shares remaining for future issuance under its stock-based compensation plans.

The following table summarizes total expense and tax benefits (expense) associated with stock based compensation:



	Edison International							SCE
	Years ended December 31,
(in millions)	2013		2012			2011		2013		2012			2011
Stock-based compensation expense¹:
Stock options	$	15	$	18		$	14	$	11	$	10		$	9
Performance shares	4		7			5		2		4			3
Restricted stock units	7		9			6		4		5			4
Other	1		1			5		—		—			4
Total stock-based compensation expense	$	27	$	35		$	30	$	17	$	19		$	20
Income tax benefits related to stock compensation expense	$	11	$	14		$	12	$	7	$	8		$	8
Excess tax benefits (expense)²	5		(6		)	12		2		(13		)	11


¹	Reflected in "Operation and maintenance" on Edison International's and SCE's consolidated statements of income.

²Reflected in "Settlements of stock-based compensation, net" in the financing section of Edison International's and SCE's consolidated statements of cash flows.

Stock Options

Under various plans, Edison International has granted stock options at exercise prices equal to the average of the high and low price and, beginning in 2007, at the closing price at the grant date. Edison International may grant stock options and other awards related to or with a value derived from its common stock to directors and certain employees. Options generally expire 10 years after the grant date and vest over a period of four years of continuous service, with expense recognized evenly over the requisite service period, except for awards granted to retirement-eligible participants, as discussed in "Stock-Based Compensation" in Note 1. Additionally, Edison International will substitute cash awards to the extent necessary to pay tax withholding or any government levies.

The fair value for each option granted was determined as of the grant date using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires various assumptions noted in the following table:



	Years ended December 31,
	2013	2012	2011
Expected terms (in years)	6.2	6.9	7.0
Risk-free interest rate	1.0% – 2.1%	1.1% – 1.7%	1.4% – 3.1%
Expected dividend yield	2.7% – 3.1%	2.8% – 3.1%	3.1% – 3.5%
Weighted-average expected dividend yield	2.8%	3.0%	3.4%
Expected volatility	17.7% – 18.6%	17.4% – 18.3%	18.2% – 19.0%
Weighted-average volatility	17.7%	18.3%	18.9%

The expected term represents the period of time for which the options are expected to be outstanding and is primarily based on historical exercise and post-vesting cancellation experience and stock price history. The risk-free interest rate for periods within the contractual life of the option is based on a zero coupon U.S. Treasury STRIPS (separate trading of registered interest and principal of securities) whose maturity equals the option's expected term on the measurement date. Expected volatility is based on the historical volatility of Edison International's common stock for the length of the option's expected term for 2013. The volatility period used was 74 months, 83 months and 84 months at December 31, 2013, 2012 and 2011, respectively.

The following is a summary of the status of Edison International's stock options:



			Weighted-Average
	Stock options		Exercise Price		Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Edison International:
Outstanding at December 31, 2012	19,231,723		$	37.96
Granted	2,778,766		48.46
Expired	(158,107	)	49.69
Forfeited	(540,782	)	42.55
Exercised	(4,084,755	)	34.54
Outstanding at December 31, 2013	17,226,845		40.22		5.78
Vested and expected to vest at December 31, 2013	16,715,413		40.13		5.71	$	115
Exercisable at December 31, 2013	10,118,484		38.26		4.24	88
SCE:
Outstanding at December 31, 2012	10,308,461		$	37.73
Granted	1,792,688		48.48
Expired	(97,000	)	49.63
Forfeited	(402,548	)	43.47
Exercised	(2,643,487	)	34.94
Transfers, net	87,884		36.67
Outstanding at December 31, 2013	9,045,998		40.28		5.92
Vested and expected to vest at December 31, 2013	8,737,930		40.17		5.84	$	60
Exercisable at December 31, 2013	5,080,978		37.96		4.29	46

At December 31, 2013, total unrecognized compensation cost related to stock options and the weighted-average period the cost is expected to be recognized are as follows:



(in millions)	Edison International		SCE
Unrecognized compensation cost, net of expected forfeitures	$	13	$	10
Weighted-average period (in years)	2.2		2.3

Supplemental Data on Stock Options



	Edison International						SCE
	Years ended December 31,
(in millions, except per award amounts)	2013		2012		2011		2013		2012		2011
Stock options:
Weighted average grant date fair value per option granted	$	5.40	$	5.22	$	5.61	$	5.38	$	5.22	$	5.61
Fair value of options vested	17		17		18		10		10		10
Cash used to purchase shares to settle options	199		169		90		130		96		46
Cash from participants to exercise stock options	140		101		59		92		59		28
Value of options exercised	59		68		31		38		37		18
Tax benefits from options exercised	24		27		12		15		15		7

Performance Shares

A target number of contingent performance shares were awarded to executives in March 2013, 2012 and 2011 and vest at the end of a three year period for each grant. The vesting of the grants is dependent upon market and financial performance conditions and service conditions as defined in the grants for each of the years. The number of performance shares earned from each year's grants could range from zero to twice the target number (plus additional units credited as dividend equivalents). Performance shares earned are settled half in cash and half in common stock; however, Edison International has discretion under certain of the awards to pay the half subject to cash settlement in common stock. The portion of performance shares that can be settled in cash is classified as a share-based liability award. The fair value of these shares is remeasured at each reporting period and the related compensation expense is adjusted. Compensation expense related to these shares is based on the grant-date fair value, which for each share is determined as the closing price of Edison International common stock on the grant date; however, with respect to the portion of the performance shares payable in common stock that is subject to the financial performance condition described above, the number of performance shares expected to be earned is subject to revision and update at each reporting period, with a related adjustment of compensation expense. Performance shares expense is recognized ratably over the requisite service period based on the fair values determined (subject to the adjustments discussed above), except for awards granted to retirement-eligible participants.

The fair value of market condition performance shares is determined using a Monte Carlo simulation valuation model.

The following is a summary of the status of Edison International's nonvested performance shares:



	Equity Awards				Liability Awards
	Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Fair Value
Edison International:
Nonvested at December 31, 2012	242,421		$	38.86	242,071		$	46.23
Granted	73,679		50.87		73,483
Forfeited	(19,239	)	42.10		(19,197	)
Vested¹	(140,164	)	30.97		(140,053	)
Nonvested at December 31, 2013	156,697		51.17		156,304		51.72
SCE:
Nonvested at December 31, 2012	131,940		$	38.87	131,691		$	46.19
Granted	47,548		50.92		47,377
Forfeited	(13,065	)	43.42		(13,029	)
Vested¹	(76,705	)	31.02		(76,624	)
Affiliate transfers, net	943		40.15		942
Nonvested at December 31, 2013	90,661		51.19		90,357		51.22


¹	Relates to performance shares that will be paid in 2014 as performance targets were met at December 31, 2013.

Restricted Stock Units

Restricted stock units were awarded to Edison International's and SCE's executives in March 2013, 2012 and 2011 and vest and become payable in January 2016, 2015 and 2014, respectively. Each restricted stock unit awarded includes a dividend equivalent feature and is a contractual right to receive one share of Edison International common stock, if vesting requirements are satisfied. The vesting of Edison International's restricted stock units is dependent upon continuous service through the end of the three-calendar-year-plus-two-days vesting period.

The following is a summary of the status of Edison International's nonvested restricted stock units:



	Edison International				SCE
	Restricted Stock Units		Weighted-Average Grant Date Fair Value		Restricted Stock Units		Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2012	679,468		$	38.09	368,553		$	38.07
Granted	154,401		48.45		99,616		48.47
Forfeited	(38,343	)	42.15		(26,328	)	42.96
Vested	(255,837	)	34.17		(151,836	)	34.59
Affiliate transfers, net	—		—		2,834		38.10
Nonvested at December 31, 2013	539,689		42.70		292,839		42.98

The fair value for each restricted stock unit awarded is determined as the closing price of Edison International common stock on the grant date.

Workforce Reductions

In 2012, SCE commenced multiple efforts to reduce its workforce in order to reflect SCE's strategic direction to optimize its cost structure, moderate customer rate increases and align its cost structure with its peers. In addition, in June 2013, SCE announced plans to permanently retire San Onofre, which resulted in additional workforce reductions. See Note 9 for further information. Through December 31, 2013, SCE's share of estimated cash severance for these efforts totaled $213 million. The following table provides a summary of changes in the accrued severance liability associated with these reductions:



(in millions)
Balance at January 1, 2013	$	104
Additions	101
Payments	(151		)
Balance at December 31, 2013	$	54

The liability presented in the table above is reflected in "Other current liabilities" on the consolidated balance sheets. The severance costs are included in "Operation and maintenance" on the consolidated income statements.