XML 91 R17.htm IDEA: XBRL DOCUMENT v2.4.1.9
Compensation and Benefit Plans
 12 Months Ended
Dec. 31, 2014
Compensation and Retirement Disclosure [Abstract]  
Compensation and Benefit Plans
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,
2014
$
71

 
$
70

2013
76

 
76

2012
85

 
84


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 $119 million and $92 million, respectively, for the year ending December 31, 2015. Annual contributions made by SCE 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, a regulatory asset has been recorded equal to the unfunded status (See Note 10).
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)
2014
 
2013
 
2014
 
2013
Change in projected benefit obligation
 
 
 
 
 
 
 
Projected benefit obligation at beginning of year
$
4,178

 
$
4,948

 
$
3,721

 
$
4,434

Service cost
133

 
174

 
124

 
154

Interest cost
181

 
182

 
159

 
164

Actuarial (gain) loss
469

 
(330
)
 
386

 
(277
)
Curtailment gain
(5
)
 
—

 
—

 
—

Benefits paid
(449
)
 
(796
)
 
(391
)
 
(754
)
Other
10

 
—

 
—

 
—

Projected benefit obligation at end of year
$
4,517

 
$
4,178

 
$
3,999

 
$
3,721

Change in plan assets
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
$
3,477

 
$
3,542

 
$
3,236

 
$
3,320

Actual return on plan assets
257

 
540

 
240

 
505

Employer contributions
169

 
191

 
132

 
165

Benefits paid
(449
)
 
(796
)
 
(391
)
 
(754
)
Fair value of plan assets at end of year
$
3,454

 
$
3,477

 
$
3,217

 
$
3,236

Funded status at end of year
$
(1,063
)
 
$
(701
)
 
$
(782
)
 
$
(485
)
Amounts recognized in the consolidated balance sheets consist of 1:
 
 
 
 
 
 
 
Current liabilities
$
(27
)
 
$
(15
)
 
$
(5
)
 
$
(5
)
Long-term liabilities
(1,036
)
 
(686
)
 
(777
)
 
(480
)
 
$
(1,063
)
 
$
(701
)
 
$
(782
)
 
$
(485
)
Amounts recognized in accumulated other comprehensive loss consist of:
 
 
 
 
 
 
 
Net loss
$
102

 
$
30

 
$
31

 
$
33

Amounts recognized as a regulatory asset:
 
 
 
 
 
 
 
Prior service cost
$
20

 
$
25

 
$
20

 
$
25

Net loss
640

 
328

 
640

 
328

 
$
660

 
$
353

 
$
660

 
$
353

Total not yet recognized as expense
$
762

 
$
383

 
$
691

 
$
386

Accumulated benefit obligation at end of year
$
4,356

 
$
4,015

 
$
3,881

 
$
3,599

Pension plans with an accumulated benefit obligation in excess of plan assets:
 
 
 
 
 
 
 
Projected benefit obligation
$
4,517

 
$
4,178

 
$
3,999

 
$
3,721

Accumulated benefit obligation
4,356

 
4,015

 
3,881

 
3,599

Fair value of plan assets
3,454

 
3,477

 
3,217

 
3,236

Weighted-average assumptions used to determine obligations at end of year:
 
 
 
 
 
 
 
Discount rate
3.85
%
 
4.75
%
 
3.85
%
 
4.75
%
Rate of compensation increase
4.0
%
 
4.0
%
 
4.0
%
 
4.0
%

1 
The SCE liability excludes a long-term payable due to Edison International Parent of $121 million and $95 million at December 31, 2014 and 2013, respectively, related to certain SCE postretirement benefit obligations transferred to Edison International Parent.
Edison International and SCE adopted new mortality tables that the Society of Actuaries released in October 2014 that reflect an increase in life expectancy. At December 31, 2014, this adoption resulted in an increase in Edison International's pension plans' projected benefit obligation of $214 million, including $199 million for SCE.
Pension expense components for continuing operations are:
 
Edison International
 
SCE
 
Years ended December 31,
(in millions)
2014
 
2013
 
2012
 
2014
 
2013
 
2012
Service cost
$
133

 
$
162

 
$
163

 
$
128

 
$
159

 
$
160

Interest cost
181

 
170

 
183

 
164

 
167

 
180

Expected return on plan assets
(229
)
 
(222
)
 
(217
)
 
(213
)
 
(222
)
 
(217
)
Settlement costs1
45

 
87

 
5

 
42

 
85

 
4

Curtailment gain
(4
)
 
—

 
—

 
—

 
—

 
—

Amortization of prior service cost
5

 
5

 
3

 
5

 
5

 
3

Amortization of net loss2
12

 
39

 
61

 
7

 
35

 
57

Expense under accounting standards
143

 
241

 
198

 
133

 
229

 
187

Regulatory adjustment (deferred)
8

 
(53
)
 
(19
)
 
8

 
(53
)
 
(19
)
Total expense recognized
$
151

 
$
188

 
$
179

 
$
141

 
$
176

 
$
168


1 
Includes the amount of net loss reclassified from other comprehensive loss. The amount reclassified for Edison International was $3 million and $2 million for the years ended December 31, 2014 and 2013, respectively.
2 
Includes the amount of net loss reclassified from other comprehensive loss. The amount reclassified for Edison International and SCE was $9 million and $4 million, respectively, for the year ended December 31, 2014. The amount reclassified for Edison International and SCE was $11 million and $7 million, respectively, for the year ended December 31, 2013.
Under GAAP, a settlement is recorded when lump-sum payments exceed estimated annual service and interest costs. Lump-sum payments to employees retiring in 2014 and 2013 from the SCE Retirement Plan (primarily due to workforce reductions described below) exceeded the estimated service and interest costs for those years. A settlement requires re-measurement of both the plan pension obligations and plan assets as of the date of the settlement. Re-measurement assumption changes result in actuarial gains and losses which are combined with previous unrecognized gains and losses. 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 SCE Retirement Plan experienced total actuarial losses of $374 million, including $357 million for SCE during 2014 and gains of $563 million, including $558 million for SCE during 2013. The actuarial losses in 2014 were primarily due to a decrease in the discount rate (from 4.75% at December 31, 2013 to 4.00% as of August 31, 2014 and 3.85% as of December 31, 2014) due to lower interest rates. The actuarial gains in 2013 were 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 better than expected performance of the plan assets.
Other changes in pension plan assets and benefit obligations recognized in other comprehensive loss for continuing operations:
 
Edison International
 
SCE
 
Years ended December 31,
(in millions)
2014
 
2013
 
2012
 
2014
 
2013
 
2012
Net (gain) loss
$
85

 
$
(33
)
 
$
36

 
$
37

 
$
(24
)
 
$
20

Amortization of net loss and other
(13
)
 
(13
)
 
(10
)
 
(4
)
 
(7
)
 
(6
)
Total recognized in other comprehensive loss
$
72

 
$
(46
)
 
$
26

 
$
33

 
$
(31
)
 
$
14

Total recognized in expense and other comprehensive loss
$
223

 
$
142

 
$
205

 
$
174

 
$
145

 
$
182


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 2015 for continuing operations are as follows:
(in millions)
Edison International
 
SCE
Unrecognized net loss to be amortized1
$
34

 
$
30

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 $12 million and $8 million, respectively.
Edison International and SCE used the following weighted-average assumptions to determine pension expense for continuing operations:
 
Years ended December 31,
 
2014
 
2013
 
2012
Discount rate
4.5
%
 
4.13
%
 
4.5
%
Rate of compensation increase
4.0
%
 
4.5
%
 
4.5
%
Expected long-term return on plan assets
7.0
%
 
7.0
%
 
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,
2015
$
489

 
$
448

2016
302

 
261

2017
302

 
263

2018
303

 
273

2019
316

 
281

2020 – 2024
1,557

 
1,414


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 (substantially all of which are expected to be made by SCE) for PBOP benefits are $59 million for the year ended December 31, 2015. Annual contributions related to SCE employees 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 is shown below:
 
Edison International
 
SCE
 
Years ended December 31,
(in millions)
2014
 
2013
 
2014
 
2013
Change in benefit obligation
 
 
 
 
 
 
 
Benefit obligation at beginning of year
$
2,220

 
$
2,460

 
$
2,211

 
$
2,452

Service cost
40

 
49

 
40

 
48

Interest cost
117

 
98

 
117

 
97

Special termination benefits
3

 
11

 
3

 
11

Actuarial (gain) loss
582

 
(313
)
 
582

 
(312
)
Plan participants' contributions
19

 
18

 
19

 
18

Benefits paid
(197
)
 
(103
)
 
(197
)
 
(103
)
Benefit obligation at end of year
$
2,784

 
$
2,220

 
$
2,775

 
$
2,211

Change in plan assets
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
$
2,065

 
$
1,800

 
$
2,065

 
$
1,800

Actual return on assets
180

 
317

 
180

 
317

Employer contributions
19

 
33

 
19

 
33

Plan participants' contributions
19

 
18

 
19

 
18

Benefits paid
(197
)
 
(103
)
 
(197
)
 
(103
)
Fair value of plan assets at end of year
$
2,086

 
$
2,065

 
$
2,086

 
$
2,065

Funded status at end of year
$
(698
)
 
$
(155
)
 
$
(689
)
 
$
(146
)
Amounts recognized in the consolidated balance sheets consist of:
 
 
 
 
 
 
 
Current liabilities
$
(15
)
 
$
(17
)
 
$
(15
)
 
$
(16
)
Long-term liabilities
(683
)
 
(138
)
 
(674
)
 
(130
)
 
$
(698
)
 
$
(155
)
 
$
(689
)
 
$
(146
)
Amounts recognized in accumulated other comprehensive loss consist of:
 
 
 
 
 
 
 
    Net loss
$
4

 
$
4

 
$
—

 
$
—

Amounts recognized as a regulatory asset (liability):
 
 
 
 
 
 
 
Prior service credit
$
(19
)
 
$
(54
)
 
$
(19
)
 
$
(54
)
Net loss
577

 
69

 
577

 
69

 
$
558

 
$
15

 
$
558

 
$
15

Total not yet recognized as expense
$
562

 
$
19

 
$
558

 
$
15

Weighted-average assumptions used to determine obligations at end of year:
 
 
 
 
 
 
 
Discount rate
4.16
%
 
5.0
%
 
4.16
%
 
5.0
%
Assumed health care cost trend rates:
 
 
 
 
 
 
 
Rate assumed for following year
7.75
%
 
7.75
%
 
7.75
%
 
7.75
%
Ultimate rate
5.0
%
 
5.0
%
 
5.0
%
 
5.0
%
Year ultimate rate reached
2021

 
2020

 
2021

 
2020


Edison International and SCE adopted new mortality tables that the Society of Actuaries released in October 2014 that reflect an increase in life expectancy. At December 31, 2014, this adoption resulted in an increase in Edison International's PBOP plans' accumulated projected benefit obligation of $308 million, including $307 million for SCE.
PBOP expense components for continuing operations are:
 
Edison International
 
SCE
 
Years ended December 31,
(in millions)
2014
 
2013
 
2012
 
2014
 
2013
 
2012
Service cost
$
40

 
$
49

 
$
47

 
$
40

 
$
48

 
$
47

Interest cost
117

 
98

 
108

 
117

 
97

 
108

Expected return on plan assets
(108
)
 
(114
)
 
(108
)
 
(108
)
 
(114
)
 
(109
)
Special termination benefits1
3

 
11

 
2

 
3

 
11

 
2

Amortization of prior service credit
(36
)
 
(36
)
 
(35
)
 
(35
)
 
(35
)
 
(35
)
Amortization of net loss
6

 
24

 
39

 
5

 
24

 
39

Total expense
$
22

 
$
32

 
$
53

 
$
22

 
$
31

 
$
52


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 2015 for continuing operations are as follows:
(in millions)
Edison International
 
SCE
Unrecognized net loss to be amortized
$
23

 
$
23

Unrecognized prior service credit to be amortized
(12
)
 
(12
)

Edison International and SCE used the following weighted-average assumptions to determine PBOP expense for continuing operations:
 
Years ended December 31,
 
2014
 
2013
 
2012
Discount rate
5.0
%
 
4.25
%
 
4.75
%
Expected long-term return on plan assets
5.5
%
 
6.7
%
 
7.0
%
Assumed health care cost trend rates:
 
 
 
 
 
Current year
7.8
%
 
8.5
%
 
9.5
%
Ultimate rate
5.0
%
 
5.0
%
 
5.25
%
Year ultimate rate reached
2020

 
2020

 
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, 2014
$
335

 
$
(271
)
 
$
334

 
$
(270
)
Effect on annual aggregate service and interest costs
15

 
(12
)
 
15

 
(12
)

The following benefit payments are expected to be paid:
 
Edison International
 
SCE
(in millions)
Years ended December 31,
2015
$
108

 
$
108

2016
114

 
113

2017
119

 
119

2018
124

 
124

2019
128

 
128

2020 – 2024
707

 
705


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 2014 pension plan assets were 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 2014 PBOP plan assets (except for Represented VEBA which is 85% for fixed income, 10% for opportunistic/private equities, and 5% global equities) 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, 2014 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
$
140

 
$
329

 
$
—

 
$
469

Corporate stocks2
716

 
14

 
—

 
730

Corporate bonds3
—

 
801

 
—

 
801

Common/collective funds4
—

 
524

 
—

 
524

Partnerships/joint ventures5
—

 
110

 
289

 
399

Other investment entities6
—

 
278

 
—

 
278

Registered investment companies7
113

 
30

 
—

 
143

Interest-bearing cash
10

 
—

 
—

 
10

Other
5

 
100

 
—

 
105

Total
$
984

 
$
2,186

 
$
289

 
$
3,459

Receivables and payables, net
 

 
 

 
 

 
(5
)
Net plan assets available for benefits
 

 
 

 
 

 
$
3,454

SCE's share of net plan assets
 
 
 
 
 
 
$
3,217

The following table sets forth the Master Trust investments 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

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 2014 and 2013, respectively, performance is primarily benchmarked against the Russell Indexes (59% and 51%) and Morgan Stanley Capital International (MSCI) index (41% and 49%).
3 
Corporate bonds are diversified. At December 31, 2014 and 2013, respectively, this category includes $102 million and $78 million for collateralized mortgage obligations and other asset backed securities of which $15 million and $15 million are below investment grade.
4 
At December 31, 2014 and 2013, 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 (32% and 27%), Russell 1000 indexes (18% and 28%) and the MSCI Europe, Australasia and Far East (EAFE) Index (20% and 15%). A non-index U.S. equity fund representing 27% and 23% of this category for 2014 and 2013, respectively, is actively managed. Another fund representing 3% and 6% of this category for 2014 and 2013, 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, 2014 and 2013, respectively, approximately 55% and 64% 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, 2014 and 2013, approximately 65% and 67%, 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)
2014
 
2013
Fair value, net at beginning of period
$
390

 
$
414

Actual return on plan assets:
 
 
 
Relating to assets still held at end of period
114

 
61

Relating to assets sold during the period
(44
)
 
10

Purchases
13

 
45

Dispositions
(184
)
 
(140
)
Transfers in and/or out of Level 3
—

 
—

Fair value, net at end of period
$
289

 
$
390


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, 2014 by asset class and level within the fair value hierarchy:
(in millions)
Level 1
 
Level 2
 
Level 3
 
Total
Common/collective funds1
$
—

 
$
431

 
$
—

 
$
431

Corporate stocks2
250

 
—

 
—

 
250

Corporate notes and bonds3
—

 
883

 
—

 
883

Partnerships4
—

 
19

 
105

 
124

U.S. government and agency securities5
207

 
36

 
—

 
243

Registered investment companies6
64

 
5

 
—

 
69

Interest bearing cash
29

 
—

 
—

 
29

Other7
5

 
125

 
—

 
130

Total
$
555

 
$
1,499

 
$
105

 
$
2,159

Receivables and payables, net
 

 
 

 
 

 
(73
)
Combined net plan assets available for benefits
 

 
 

 
 

 
$
2,086

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

1 
At December 31, 2014 and 2013, respectively, 38% 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. 41% 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. 4% and 6% of this category are invested in a privately managed bond fund and 17% and 7% 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 (47% and 50%) and the MSCI All Country World (ACWI) index (53% and 50%) for 2014 and 2013, respectively.
3 
Corporate notes and bonds are diversified and include approximately $31 million and $29 million for commercial collateralized mortgage obligations and other asset backed securities at December 31, 2014 and 2013, respectively.
4 
At December 31, 2014 and 2013, respectively, 50% and 78% 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 $111 million and $76 million of municipal securities at December 31, 2014 and 2013, respectively.
At December 31, 2014 and 2013, approximately 71% and 65%, 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)
2014
 
2013
Fair value, net at beginning of period
$
164

 
$
166

Actual return on plan assets
 
 
 
Relating to assets still held at end of period
18

 
24

Relating to assets sold during the period
(1
)
 
5

Purchases
9

 
23

Dispositions
(85
)
 
(54
)
Transfers in and/or out of Level 3
—

 
—

Fair value, net at end of period
$
105

 
$
164


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, 2014, Edison International had approximately 20 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)
2014
 
2013
 
2012
 
2014
 
2013
 
2012
Stock-based compensation expense1:
 
 
 
 
 
 
 
 
 
 
 
   Stock options
$
16

 
$
15

 
$
18

 
$
8

 
$
11

 
$
10

   Performance shares
16

 
4

 
7

 
8

 
2

 
4

   Restricted stock units
7

 
7

 
9

 
4

 
4

 
5

   Other
1

 
1

 
1

 
—

 
—

 
—

Total stock-based compensation expense
$
40

 
$
27

 
$
35

 
$
20

 
$
17

 
$
19

Income tax benefits related to stock compensation expense
$
16

 
$
11

 
$
14

 
$
8

 
$
7

 
$
8

Excess tax benefits (expense)2
15

 
5

 
(6
)
 
20

 
2

 
(13
)
1 
Reflected in "Operation and maintenance" on Edison International's and SCE's consolidated statements of income.
2 
Reflected in "Settlements of stock-based compensation, net" in the financing section of Edison International's and SCE's consolidated statements of cash flows and in "Common stock" in Edison International's consolidated balance sheets and "Additional paid-in capital" in SCE's consolidated balance sheets.
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,
 
2014
 
2013
 
2012
Expected terms (in years)
6.0
 
6.2
 
6.9
Risk-free interest rate
1.8% – 2.1%
 
1.0% – 2.1%
 
1.1% – 1.7%
Expected dividend yield
2.4% – 2.7%
 
2.7% – 3.1%
 
2.8% – 3.1%
Weighted-average expected dividend yield
2.7%
 
2.8%
 
3.0%
Expected volatility
17.8% – 19.1%
 
17.7% – 18.6%
 
17.4% – 18.3%
Weighted-average volatility
18.9%
 
17.7%
 
18.3%

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 2014. The volatility period used was 72 months, 74 months and 83 months at December 31, 2014, 2013 and 2012, 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, 2013
17,226,845

 
$
40.22

 
 
 
 

Granted
2,070,819

 
52.67

 
 
 
 

Expired
(20,841
)
 
49.95

 
 
 
 

Forfeited
(278,134
)
 
46.20

 
 
 
 

Exercised
(5,379,954
)
 
38.03

 
 
 
 

Outstanding at December 31, 2014
13,618,735

 
42.84

 
5.81
 
 

Vested and expected to vest at December 31, 2014
13,216,820

 
42.68

 
5.75
 
$
301

Exercisable at December 31, 2014
7,989,189

 
39.43

 
4.32
 
$
208

SCE:
 
 
 
 
 
 
 
Outstanding at December 31, 2013
9,045,998

 
$
40.28

 
 
 
 

Granted
1,194,281

 
53.21

 
 
 
 

Expired
(20,841
)
 
49.95

 
 
 
 

Forfeited
(205,286
)
 
47.27

 
 
 
 

Exercised
(3,210,425
)
 
38.54

 
 
 
 

Transfers, net
(801,567
)
 
37.95

 
 
 
 
Outstanding at December 31, 2014
6,002,160

 
43.82

 
6.29
 
 

Vested and expected to vest at December 31, 2014
5,762,299

 
43.63

 
6.22
 
$
126

Exercisable at December 31, 2014
2,997,941

 
39.61

 
4.63
 
$
78


At December 31, 2014, 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

 
$
9

Weighted-average period (in years)
2.3

 
2.4


Supplemental Data on Stock Options
 
Edison International
 
SCE
 
Years ended December 31,
(in millions, except per award amounts)
2014
 
2013
 
2012
 
2014
 
2013
 
2012
Stock options:
 
 
 
 
 
 
 
 
 
 
 
Weighted average grant date fair value per option granted
$
7.26

 
$
5.40

 
$
5.22

 
$
7.34

 
$
5.38

 
$
5.22

Fair value of options vested
17

 
17

 
17

 
9

 
10

 
10

Cash used to purchase shares to settle options
300

 
199

 
169

 
181

 
130

 
96

Cash from participants to exercise stock options
205

 
140

 
101

 
125

 
92

 
59

Value of options exercised
95

 
59

 
68

 
56

 
38

 
37

Tax benefits from options exercised
39

 
24

 
27

 
23

 
15

 
15


Performance Shares
A target number of contingent performance shares were awarded to executives in March 2014, 2013 and 2012 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. The portion of performance shares payable in common stock is classified as a share-based equity award. 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 defined in the grants, the number of performance shares expected to be earned is subject to revision and updated 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, 2013
156,697

 
$
51.17

 
156,304

 
$
51.72

Granted
61,599

 
61.10

 
61,448

 
 

Forfeited
(4,672
)
 
54.32

 
(4,664
)
 
 
Vested1
(85,324
)
 
51.42

 
(85,113
)
 
 

Nonvested at December 31, 2014
128,300

 
55.66

 
127,975

 
92.92

SCE:
 
 
 
 
 
 
 
Nonvested at December 31, 2013
90,661

 
$
51.19

 
90,357

 
$
51.22

Granted
35,516

 
61.85

 
35,390

 
 

Forfeited
(4,668
)
 
54.37

 
(4,664
)
 
 
Vested1
(44,293
)
 
51.47

 
(44,150
)
 
 

Affiliate transfers, net
(5,419
)
 
51.44

 
(5,413
)
 
 
Nonvested at December 31, 2014
71,797

 
56.06

 
71,520

 
92.33


1 
Relates to performance shares that will be paid in 2015 as performance targets were met at December 31, 2014.
Restricted Stock Units
Restricted stock units were awarded to Edison International's and SCE's executives in March 2014, 2013 and 2012 and vest and become payable in January 2017, 2016 and 2015, 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, 2013
539,689

 
$
42.70

 
292,839

 
$
42.98

Granted
142,704

 
52.67

 
82,114

 
53.17

Forfeited
(10,513
)
 
48.21

 
(10,509
)
 
48.23

Vested
(238,561
)
 
38.83

 
(115,772
)
 
38.98

Affiliate transfers, net
—

 
—

 
(17,308
)
 
44.23

Nonvested at December 31, 2014
433,319

 
47.89

 
231,364

 
48.26


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 a broad-based effort to reduce its costs and to improve its operational and service excellence. As part of this effort, SCE made a series of workforce reductions. In addition, in June 2013, SCE announced plans to permanently retire San Onofre, which resulted in additional workforce reductions. During 2014, SCE increased the estimated impact for workforce reductions related to transferring certain information technology activities to third parties and revised its estimate of remaining educational benefits expected to be incurred under the severance program. Through December 31, 2014, SCE's share of estimated cash severance for all of these workforce reductions totaled $215 million. The following table provides a summary of changes in the accrued severance liability associated with these reductions:
(in millions)
 
 
Balance at January 1, 2014
 
$
54

Additions
 
3

Payments
 
(22
)
Balance at December 31, 2014
 
$
35


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.