Summary of Significant Accounting Policies

Organization and Basis of Presentation

Edison International is the parent holding company of Southern California Edison Company ("SCE") and Edison Energy Group, Inc. ("Edison Energy Group"). SCE is an investor-owned public utility primarily engaged in the business of supplying and delivering electricity to an approximately 50,000 square mile area of southern California. Edison Energy Group is a holding company for subsidiaries engaged in competitive business opportunities, including Edison Energy, LLC ("Edison Energy") which provides energy services to commercial and industrial customers. Edison Energy Group's business activities are currently not material to report as a separate business segment. These combined notes to the consolidated financial statements apply to both Edison International and SCE unless otherwise described. Edison International's consolidated financial statements include the accounts of Edison International, SCE, and other wholly owned and controlled subsidiaries. References to Edison International refer to the consolidated group of Edison International and its subsidiaries. References to "Edison International Parent and Other" refer to Edison International Parent and its competitive subsidiaries and "Edison International Parent" refer to Edison International on a stand-alone basis, not consolidated with its subsidiaries. SCE's consolidated financial statements include the accounts of SCE and its wholly owned and controlled subsidiaries. All intercompany transactions have been eliminated from the consolidated financial statements.

Edison International's and SCE's significant accounting policies were described in Note 1 of "Notes to Consolidated Financial Statements" included in Edison International's and SCE's combined Annual Report on Form 10-K for the year-ended December 31, 2017 (the "2017 Form 10-K"). This quarterly report should be read in conjunction with the financial statements and notes included in the 2017 Form 10-K.

In the opinion of management, all adjustments, consisting of recurring accruals, have been made that are necessary to fairly state the consolidated financial position, results of operations, and cash flows in accordance with accounting principles generally accepted in the United States ("GAAP") for the periods covered by this quarterly report on Form 10-Q. The results of operations for the three- and six- month period ended June 30, 2018 are not necessarily indicative of the operating results for the full year.

The December 31, 2017 financial statement data was derived from audited financial statements, but does not include all disclosures required by GAAP.

Effective January 1, 2018, Edison International and SCE adopted several accounting standards retrospectively. Prior year financial statements have been reclassified and updated to reflect the retrospective application of these standards as applicable. For further information, see "New Accounting Guidance" below.

Sale of SoCore Energy

On February 28, 2018, Edison International agreed to sell SoCore Energy LLC ("SoCore Energy"), a subsidiary of Edison Energy Group, to a third party, subject to the completion of closing conditions, which were satisfied on April 16, 2018. As a result, the assets and liabilities of SoCore Energy were not reflected in the June 30, 2018 consolidated Edison International balance sheet and Edison International recognized a pre-tax loss of $63 million ($46 million after-tax) for the six months ended June 30, 2018.

Cash, Cash Equivalents and Restricted Cash

Cash equivalents include investments in money market funds. Generally, the carrying value of cash equivalents equals the fair value, as these investments have original maturities of three months or less. The cash equivalents were as follows:



	Edison International				SCE
(in millions)	June 30, 2018		December 31, 2017		June 30, 2018		December 31, 2017
Money market funds	$	57	$	1,024	$	—	$	483

Cash is temporarily invested until required for check clearing. Checks issued, but not yet paid by the financial institution, are reclassified from cash to accounts payable at the end of each reporting period as follows:



	Edison International				SCE
(in millions)	June 30, 2018		December 31, 2017		June 30, 2018		December 31, 2017
Book balances reclassified to accounts payable	$	16	$	64	$	16	$	63

Edison International's restricted cash at June 30, 2018 and December 31, 2017 was $8 million and $41 million, respectively. Restricted cash at December 31, 2017 primarily relates to funds held by SoCore Energy and its consolidated affiliates pursuant to project financing or purchase agreements, most of which lapsed during six months ended June 30, 2018. As a result of the sale of SoCore Energy, the assets and liabilities of SoCore Energy were not included in the June 30, 2018 consolidated Edison International balance sheet as discussed above.

The following table sets forth the cash, cash equivalents and restricted cash included in the consolidated statements of cash flows:



(in millions)	June 30, 2018		December 31, 2017
Edison International:
Cash and cash equivalents	$	99	$	1,091
Short-term restricted cash ¹	1		40
Long-term restricted cash ²	7		1
Total cash, cash equivalents, and restricted cash	$	107	$	1,132
SCE:
Cash and cash equivalents	$	25	$	515
Short-term restricted cash¹	1		—
Total cash, cash equivalents, and restricted cash	$	26	$	515


¹	Reflected in "Other current assets" on Edison International's and SCE's consolidated balance sheets.


²	Reflected in "Other long-term assets" on Edison International's consolidated balance sheets.

Revenue Recognition

During the first six months of 2018, pending the outcome of the 2018 GRC decision, SCE recognized GRC-related revenue based on the 2017 authorized revenue requirement, adjusted for the July 2017 cost of capital decision and the impact of Tax Reform. The amounts billed to customers for the first six months of 2018 were based on the 2017 authorized revenue requirement and a regulatory liability has been established to record the associated adjustments. See Note 11 for further details. The CPUC has authorized the establishment of a GRC memorandum account, which will make the 2018 revenue requirement ultimately adopted by the CPUC effective as of January 1, 2018. SCE cannot predict the revenue requirement the CPUC will authorize or provide assurance on the timing of a final decision. In December 2017, the FERC issued an order setting the effective date of SCE's new FERC formula rate as of January 1, 2018, subject to settlement procedures and refund. Pending resolution of the FERC formula rate proceeding, SCE is recognizing revenue based on the FERC formula rate adjusted for the impact of Tax Reform and other adjustments.

Earnings Per Share

Edison International computes earnings per common share ("EPS") using the two-class method, which is an earnings allocation formula that determines EPS for each class of common stock and participating security. Edison International's participating securities are stock-based compensation awards payable in common shares, including restricted stock units, which earn dividend equivalents on an equal basis with common shares once the awards are vested. EPS attributable to Edison International common shareholders was computed as follows:



	Three months ended June 30,				Six months ended June 30,
(in millions, except per-share amounts)	2018		2017		2018		2017
Basic earnings per share – continuing operations:
Income from continuing operations attributable to common shareholders	$	276	$	278	$	494	$	640
Participating securities dividends	—		—		—		—
Income from continuing operations available to common shareholders	$	276	$	278	$	494	$	640
Weighted average common shares outstanding	326		326		326		326
Basic earnings per share – continuing operations	$	0.85	$	0.85	$	1.52	$	1.96
Diluted earnings per share – continuing operations:
Income from continuing operations attributable to common shareholders	$	276	$	278	$	494	$	640
Participating securities dividends	—		—		—		—
Income from continuing operations available to common shareholders	$	276	$	278	$	494	$	640
Income impact of assumed conversions	—		—		—		—
Income from continuing operations available to common shareholders and assumed conversions	$	276	$	278	$	494	$	640
Weighted average common shares outstanding	326		326		326		326
Incremental shares from assumed conversions	1		3		1		3
Adjusted weighted average shares – diluted	327		329		327		329
Diluted earnings per share – continuing operations	$	0.84	$	0.85	$	1.51	$	1.95

In addition to the participating securities discussed above, Edison International also may award stock options, which are payable in common shares and are included in the diluted earnings per share calculation. Stock option awards to purchase 6,223,964 and 1,327,310 shares of common stock for the three months ended June 30, 2018 and 2017, respectively, and 6,223,964 and 1,370,200 shares for the six months ended June 30, 2018 and 2017, respectively, were outstanding, but were not included in the computation of diluted earnings per share because the effect would have been antidilutive.

New Accounting Guidance

Accounting Guidance Adopted

In May 2014, the Financial Accounting Standards Board ("FASB") issued an accounting standards update on revenue recognition and further amended the standard in 2016 and 2017. Under the new standard, revenue is recognized when a good or service is transferred to the customer and the customer obtains control of the good or service. Some revenue arrangements, such as alternative revenue programs which include balancing account overcollections and undercollections, are excluded from the scope of the new standard and, therefore, will be accounted for and presented separately from revenue recognized from contracts with customers in the disclosures. Edison International and SCE adopted this standard effective January 1, 2018, using the modified retrospective method for contracts that were not completed as of the adoption date. Edison International recognized a cumulative effect adjustment to increase the opening balance of retained earnings by approximately $5 million ($7 million pre-tax) on January 1, 2018. This adjustment is related to variable consideration recognized at Edison Energy which is not subject to potential significant reversal and has no further performance obligations. See Note 7 for further details.

In January 2016, the FASB issued an accounting standards update that amends the guidance on the classification and measurement of financial instruments, and further amended the guidance in 2018. Under the new guidance, equity investments (excluding those accounted for under the equity method or those that result in consolidation) are required to be measured at fair value, with changes in fair value recognized in net income. The new guidance also amends certain disclosure requirements associated with the fair value of financial instruments and requires financial assets and financial liabilities to be presented separately in the notes to the financial statements, grouped by measurement category and form of financial assets. Edison International and SCE adopted this guidance effective January 1, 2018. Edison International recognized a cumulative effect adjustment to increase the opening balance of retained earnings and accumulated other comprehensive loss by $5 million ($8 million pre-tax) on January 1, 2018. See Note 2 for further details.

In August and November 2016, the FASB issued two accounting standards updates to clarify the presentation and classification of certain cash receipts and payments in the statement of cash flows and to require restricted cash to be presented with cash and cash equivalents in the statement of cash flows. Edison International and SCE adopted these standards effective January 1, 2018, using the retrospective approach. The adoption of these standards did not have a material impact on Edison International's and SCE's consolidated statement of cash flows.

In March 2017, the FASB issued an accounting standards update on the presentation of the components of net periodic benefit cost for an entity's defined benefit pension and other postretirement plans. Edison International and SCE adopted this guidance retrospectively with respect to the income statement presentation requirement and prospectively for the capitalization requirement, effective January 1, 2018. The adoption of this standard did not have a material impact on Edison International's and SCE's consolidated financial statements, but did result in the separate presentation of service costs as an operating expense and non-service costs within other income and expenses and the limitation of the capitalization of benefit costs to the service cost component. During the three and six months ended June 30, 2017, non-service costs (benefits) totaled $1 million and $(7) million, respectively, for Edison International and $(9) million and $(18) million, respectively, for SCE, which were reclassified from "Operation and maintenance" to "Other income and expenses." See Note 9 and Note 14 for further details.

Accounting Guidance Not Yet Adopted

In February 2016, the FASB issued an accounting standards update related to lease accounting and further amended the standard in 2018. The new guidance is effective January 1, 2019. Under the new standard, a lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified assets for a period of time in exchange for consideration. Lessees will need to recognize leases on the balance sheet as a right-of-use asset and a related lease liability, and classify the leases as either operating or finance. The liability will be equal to the present value of the lease payments. The asset will be based on the liability, subject to adjustments, such as initial direct costs. Edison International's operating leases will result in straight-line expense while finance leases will result in a higher initial expense pattern due to the interest component. SCE, as a regulated entity, is permitted to continue to recognize expense using the timing that conforms to the regulatory rate treatment. In accordance with the new guidance, Edison International and SCE will elect to exclude from the balance sheet short-term contracts of one year or less. In addition, Edison International and SCE will elect the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification, and initial direct costs and are currently evaluating the impact of an optional transition method to not restate periods prior to the adoption date. Although permitted, Edison International and SCE have elected not to adopt this guidance prior to January 1, 2019. The adoption of this standard will increase right-of-use assets and lease liabilities in Edison International's and SCE's consolidated balance sheets. Edison International and SCE are currently implementing a new lease accounting system and are evaluating the impact this standard will have quantitatively on the consolidated balance sheets and the lease disclosures.

The FASB issued an accounting standards update related to the impairment of financial instruments, effective January 1, 2020. The new guidance provides an impairment model, known as the current expected credit loss model, which is based on expected credit losses rather than incurred losses. Edison International and SCE are currently evaluating the impact of this new guidance.

In January 2017, the FASB issued an accounting standards update to simplify the accounting for goodwill impairment. This accounting standards update changes the procedural steps to apply the goodwill impairment test. After the adoption of this accounting standards update, a goodwill impairment will be measured as the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Edison International will apply this guidance to goodwill impairment tests beginning in 2020.

In February 2018, the FASB issued an accounting standards update to provide entities an election to reclassify stranded tax effects resulting from Tax Reform from accumulated other comprehensive income to retained earnings. The new guidance is effective January 1, 2019, with early adoption permitted. Stranded tax effects originated in December 2017 when deferred taxes were re-measured at the lower federal corporate tax rate with the impact included in operating income but the tax effects of items within accumulated other comprehensive income were not similarly adjusted. Edison International and SCE will adopt this guidance on January 1, 2019 and reclassify stranded tax effects from accumulated other comprehensive income to retained earnings in the period of adoption. The adoption of the standard is not expected to have a material impact on Edison International's and SCE's consolidated financial statements.