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Fair Value Measurements

9 Months Ended

Sep. 30, 2023

Fair Value Measurements

Fair Value Measurements

Note 4.Fair Value Measurements

Recurring Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (referred to as an "exit price"). Fair value of an asset or liability considers assumptions that market participants would use in pricing the asset or liability, including assumptions about nonperformance risk. As of September 30, 2023 and December 31, 2022, nonperformance risk was not material for Edison International and SCE.

Assets and liabilities are categorized into a three-level fair value hierarchy based on valuation inputs used to determine fair value.

Level 1 – The fair value of Edison International's and SCE's Level 1 assets and liabilities is determined using unadjusted quoted prices in active markets that are available at the measurement date for identical assets and liabilities. This level includes exchange-traded equity securities, U.S. treasury securities, mutual funds, and money market funds.

Level 2 – Edison International's and SCE's Level 2 assets and liabilities include fixed income securities, primarily consisting of U.S. government and agency bonds, municipal bonds and corporate bonds, and over-the-counter commodity derivatives. The fair value of fixed income securities is determined using a market approach by obtaining quoted prices for similar assets and liabilities in active markets and inputs that are observable, either directly or indirectly, for substantially the full term of the instrument.

The fair value of SCE's over-the-counter commodity derivative contracts is determined using an income approach. SCE uses standard pricing models to determine the net present value of estimated future cash flows. Inputs to the pricing models include forward published or posted clearing prices from an exchange (Intercontinental Exchange) for similar instruments and discount rates. A primary price source that best represents trade activity for each market is used to develop observable forward market prices in determining the fair value of these positions. Broker quotes, prices from exchanges, or comparison to executed trades are used to validate and corroborate the primary price source. These price quotations reflect mid-market prices (average of bid and ask) and are obtained from sources believed to provide the most liquid market for the commodity.

Level 3 – This level includes congestion revenue rights ("CRRs"), which are derivative contracts that trade infrequently with significant unobservable inputs (CAISO CRR auction prices). SCE employs a market valuation approach of utilizing historical CRR prices as a proxy for forward prices. Edison International Parent and Other does not have any Level 3 assets and liabilities.

Assumptions are made in order to value derivative contracts in which observable inputs are not available. In circumstances where fair value cannot be verified with observable market transactions, it is possible that a different valuation model could produce a materially different estimate of fair value. Modeling methodologies, inputs, and techniques are reviewed and assessed as markets continue to develop and more pricing information becomes available, and the fair value is adjusted when it is concluded that a change in inputs or techniques would result in a new valuation that better reflects the fair value of those derivative contracts. See Note 6 for a discussion of derivative instruments.

SCE

The following table sets forth assets and liabilities of SCE that were accounted for at fair value by level within the fair value hierarchy:


		September 30, 2023
											Netting
											and
(in millions)		Level 1			Level 2			Level 3			Collateral¹			Total
Assets at fair value
Derivative contracts		$	—		$	5		$	34		$	(5)		$	34
Money market funds and other			—			22			—			—			22
Nuclear decommissioning trusts:
Stocks²			1,550			—			—			—			1,550
Fixed Income³			927			1,339			—			—			2,266
Short-term investments, primarily cash equivalents			188			29			—			—			217
Subtotal of nuclear decommissioning trusts⁴			2,665			1,368			—			—			4,033
Total assets			2,665			1,395			34			(5)			4,089
Liabilities at fair value
Derivative contracts			—			45			—			(45)			—
Total liabilities			—			45			—			(45)			—
Net assets		$	2,665		$	1,350		$	34		$	40		$	4,089


		December 31, 2022
											Netting
											and
(in millions)		Level 1			Level 2			Level 3			Collateral¹				Total
Assets at fair value
Derivative contracts		$	—		$	392		$	67		$	(218)		$	241
Money market funds and other			647			22			—			—			669
Nuclear decommissioning trusts:
Stocks²			1,610			—			—			—			1,610
Fixed Income³			941			1,281			—			—			2,222
Short-term investments, primarily cash equivalents			137			64			—			—			201
Subtotal of nuclear decommissioning trusts⁴			2,688			1,345			—			—			4,033
Total assets			3,335			1,759			67			(218)			4,943
Liabilities at fair value
Derivative contracts			—			116			4			(119)			1
Total liabilities			—			116			4			(119)			1
Net assets		$	3,335		$	1,643		$	63		$	(99)		$	4,942

1	Represents the netting of assets and liabilities under master netting agreements and cash collateral.

2	Approximately 75% and 74% SCE's equity investments were in companies located in the United States at September 30, 2023 and December 31, 2022, respectively.

3	Includes corporate bonds, which were diversified by the inclusion of collateralized mortgage obligations and other asset backed securities, of $87 million and $49 million at September 30, 2023 and December 31, 2022, respectively.

4	Excludes net payables of $90 million and $85 million at September 30, 2023 and December 31, 2022, respectively, which consist of interest and dividend receivables as well as receivables and payables related to SCE's pending securities sales and purchases.

SCE Fair Value of Level 3

The following table sets forth a summary of changes in SCE's fair value of Level 3 net derivative assets and liabilities:


			Three months ended						Nine months ended
		September 30,						September 30,
(in millions)		2023			2022			2023			2022
Fair value of net assets at beginning of period		$	12		$	32		$	63		$	44
Sales			—			(1)			(1)			(7)
Settlements			(23)			(25)			(47)			(54)
Total realized/unrealized gains¹			45			47			19			70
Fair value of net assets at end of period		$	34		$	53		$	34		$	53

1	Due to regulatory mechanisms, SCE's realized and unrealized gains and losses are recorded as regulatory assets and liabilities.

There were no material transfers into or out of Level 3 during 2023 and 2022.

The following table sets forth the significant unobservable inputs used to determine fair value for Level 3 assets and liabilities:

Fair Value

Significant

Weighted

(in millions)

Unobservable

Range

Average

Assets

Liabilities

Input

(per MWh)

(per MWh)

Congestion revenue rights

September 30, 2023

$

34

$

—

CAISO CRR auction prices

$(2.86) - $45.78

$

0.29

December 31, 2022

67

4

CAISO CRR auction prices

(7.91) - 3,856.67

1.64

Level 3 Fair Value Uncertainty

For CRRs, increases or decreases in CAISO auction prices would result in higher or lower fair value, respectively.

Nuclear Decommissioning Trusts

SCE's nuclear decommissioning trust investments include equity securities, U.S. treasury securities, and other fixed income securities. Equity and treasury securities are classified as Level 1 as fair value is determined by observable market prices in active or highly liquid and transparent markets. The remaining fixed income securities are classified as Level 2. There are no securities classified as Level 3 in the nuclear decommissioning trusts.

Edison International Parent and Other

Edison International Parent and Other assets measured at fair value and classified as Level 1 consisted of money market funds of $120 million and $137 million at September 30, 2023 and December 31, 2022, respectively, and $5 million of equity investments at December 31, 2022. There are no assets classified as Level 2 at September 30, 2023. Assets measured at fair value and classified at Level 2 consisted of short-term investments of $2 million at December 31, 2022. There are no securities classified as Level 3 for Edison International Parent and Other.

Fair Value of Debt Recorded at Carrying Value

The carrying value and fair value of Edison International's and SCE's long-term debt (including the current portion of long-term debt) are as follows:


		September 30, 2023						December 31, 2022
		Carrying			Fair			Carrying			Fair
(in millions)		Value¹			Value²			Value¹			Value²
Edison International		$	32,471		$	28,700		$	29,639		$	26,824
SCE			28,398			24,688			26,258			23,469

1	Carrying value is net of debt issuance costs.

2	The fair value of long-term debt is classified as Level 2.

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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