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Compensation and Benefit Plans
 12 Months Ended
Dec. 31, 2012
Compensation and Retirement Disclosure [Abstract]  
Compensation and Benefit Plans
Compensation and Benefit Plans (EME and Midwest Generation, except as noted)
Employee Savings Plan
A 401(k) plan is maintained to supplement eligible employees' retirement income. The EME 401(k) plan received contributions from EME of $17 million, $15 million and $14 million in 2012, 2011 and 2010, respectively. The Midwest Generation 401(k) plan received contributions from Midwest Generation of $7 million, $6 million and $5 million in 2012, 2011 and 2010, respectively.
Pension Plans and Postretirement Benefits Other than Pensions
EME and Midwest Generation employees are currently eligible for various EIX sponsored benefits plans. If the Support Agreement is consummated pursuant to a confirmed plan of reorganization, EIX will assume approximately $200 million of EME's employee retirement related liabilities and will cease to own EME when EME emerges from bankruptcy. If EIX ceases to own EME, EME and Midwest Generation employees will terminate in the EIX sponsored plans. However, GAAP requires that the change in ownership of EME must occur prior to changes in certain pension plan assumptions. For further discussion, see Note 16—Restructuring Activities.
Pension Plans
EME noncontributory defined benefit pension plans (the non-union plan has a cash balance feature) cover most employees meeting minimum service requirements. The expected contributions (all by the employer) are approximately $20 million, including Midwest Generation, for the year ended December 31, 2013.
Midwest Generation maintains a pension plan specifically for the benefit of its union employees. A portion of Midwest Generation's non-union employees participate in the EIX pension plan. Eligibility depends on a number of factors, including the employee's hire date. Both plans are noncontributory, defined benefit pension plans and cover employees who fulfill minimum service requirements. The EIX plan has a cash balance feature. The expected contributions (all by employer) for the plans are approximately $16.5 million for the year ended December 31, 2013.
The funded position of the company's pension is very 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 the company's long-term pension are affected by movements in the equity and bond markets. The market value of the investments (reflecting investment returns, contributions and benefit payments) within the plan trusts declined 35% during 2008. This reduction in value of plan assets combined with increased liabilities has resulted in a change in the pension plan funding status from a surplus to a material deficit, which will result in increased future expense and cash contributions. The company pension remains underfunded as liabilities have increased significantly as a result of steady declines in interest rates.
Information on plan assets and benefit obligations is shown below:
 
Years Ended December 31,
 
2012
 
2011
(in millions)
Midwest Generation
 
Other EME Subsidiaries1
 
EME
 
Midwest Generation
 
Other EME Subsidiaries1
 
EME
Change in projected benefit obligation
 
 
 
 
 
 
 
 
 
 
 
Projected benefit obligation at beginning of year
$
195

 
$
121

 
$
316

 
$
164

 
$
123

 
$
287

Service cost
14

 
2

 
16

 
13

 
3

 
16

Interest cost
8

 
6

 
14

 
8

 
6

 
14

Actuarial (gain) loss
13

 
14

 
27

 
13

 
(1
)
 
12

Curtailment gain
—

 
(9
)
 
(9
)
 
—

 
—

 
—

Transfers out2
—

 
(23
)
 
(23
)
 
—

 
—

 
—

Benefits paid
(5
)
 
(6
)
 
(11
)
 
(3
)
 
(10
)
 
(13
)
Projected benefit obligation at end of year
$
225

 
$
105

 
$
330

 
$
195

 
$
121

 
$
316

Change in plan assets
 
 
 
 
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
$
121

 
$
56

 
$
177

 
$
109

 
$
55

 
$
164

Actual return on plan assets
19

 
7

 
26

 
2

 
—

 
2

Employer contributions
14

 
9

 
23

 
13

 
11

 
24

Benefits paid
(5
)
 
(6
)
 
(11
)
 
(3
)
 
(10
)
 
(13
)
Fair value of plan assets at end of year
$
149

 
$
66

 
$
215

 
$
121

 
$
56

 
$
177

Funded status at end of year
$
(76
)
 
$
(39
)
 
$
(115
)
 
$
(74
)
 
$
(65
)
 
$
(139
)
Amounts recognized on consolidated balance sheets:
 
 
 
 
 
 
 
 
 
 
 
Long-term liabilities
$
(76
)
 
$
(39
)
 
$
(115
)
 
$
(74
)
 
$
(65
)
 
$
(139
)
Amounts recognized in accumulated other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
$
1

 
$
—

 
$
1

 
$
1

 
$
—

 
$
1

Net loss
40

 
27

 
67

 
38

 
31

 
69

Accumulated benefit obligation at end of year
$
195

 
$
105

 
$
300

 
$
168

 
$
110

 
$
278

Pension plans with an accumulated benefit obligation in excess of plan assets:
 
 
 
 
 
 
 
 
 
 
 
Projected benefit obligation
$
225

 
$
105

 
$
330

 
$
195

 
$
121

 
$
316

Accumulated benefit obligation
195

 
105

 
300

 
168

 
110

 
278

Fair value of plan assets
148

 
68

 
216

 
121

 
56

 
177

Weighted-average assumptions used to determine obligations at end of year:
 
 
 
 
 
 
 
 
 
 
 
Discount rate
4.50
%
 
4.50
%
 
4.50
%
 
4.50
%
 
4.50
%
 
4.50
%
Rate of compensation increase
4.50
%
 
4.50
%
 
4.50
%
 
4.50
%
 
4.50
%
 
4.50
%
1 
Includes Homer City.
2 
Represents amount of EME's executive post retirement benefits liability assumed by EIX.
Expense components and other amounts recognized in other comprehensive (income) loss
Expense components:
 
Years Ended December 31,
 
2012
 
2011
 
2010
(in millions)
Midwest Generation
 
Other EME Sub- sidiaries1
 
EME
 
Midwest Generation
 
Other EME Sub- sidiaries1
 
EME
 
Midwest Generation
 
Other EME Sub- sidiaries1
 
EME
Service cost
$
14

 
$
—

 
$
14

 
$
13

 
$
2

 
$
15

 
$
12

 
$
3

 
$
15

Interest cost
8

 
4

 
12

 
8

 
4

 
12

 
8

 
4

 
12

Expected return on plan assets
(9
)
 
(3
)
 
(12
)
 
(9
)
 
(1
)
 
(10
)
 
(7
)
 
(1
)
 
(8
)
Net amortization
2

 
4

 
6

 
1

 
2

 
3

 
—

 
2

 
2

Special termination charges
—

 
2

 
2

 
—

 
—

 
—

 
—

 
—

 
—

Total expense
$
15

 
$
7

 
$
22

 
$
13

 
$
7

 
$
20

 
$
13

 
$
8

 
$
21

1 
Excludes Homer City.
Other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss:
 
Years Ended December 31,
 
2012
 
2011
 
2010
(in millions)
Midwest Generation
 
Other EME Sub- sidiaries1
 
EME
 
Midwest Generation
 
Other EME Sub- sidiaries1
 
EME
 
Midwest Generation
 
Other EME Sub- sidiaries1
 
EME
Net loss
$
4

 
$
2

 
$
6

 
$
20

 
$
5

 
$
25

 
$
4

 
$
8

 
$
12

Amortization of net loss
(2
)
 
(4
)
 
(6
)
 
(1
)
 
(2
)
 
(3
)
 
—

 
(2
)
 
(2
)
Total in other comprehensive (income) loss
$
2

 
$
(2
)
 
$
—

 
$
19

 
$
3

 
$
22

 
$
4

 
$
6

 
$
10

Total in expense and other comprehensive (income) loss
$
17

 
$
5

 
$
22

 
$
32

 
$
10

 
$
42

 
$
17

 
$
14

 
$
31

1 
Includes Homer City.
The estimated amortization amounts expected to be reclassified from other comprehensive (income) loss for 2013 are $0.4 million and $0.2 million for prior service costs and $5 million and $2 million for net loss for EME and Midwest Generation, respectively.
The following are weighted-average assumptions used to determine expenses:
 
Years Ended December 31,
 
2012
 
2011
 
2010
 
Midwest Generation
 
Other EME Sub- sidiaries1
 
EME
 
Midwest Generation
 
Other EME Sub- sidiaries1
 
EME
 
Midwest Generation
 
Other EME Sub- sidiaries1
 
EME
Discount rate
4.50
%
 
4.50
%
 
4.50
%
 
5.25
%
 
5.25
%
 
5.25
%
 
6.00
%
 
6.00
%
 
6.00
%
Rate of compensation increase
4.50
%
 
4.50
%
 
4.50
%
 
5.00
%
 
4.5% - 6.0%

 
4.5% - 6.0%

 
5.00
%
 
4.5% - 6.0%

 
4.5% - 6.0%

Expected long-term return on plan assets
7.50
%
 
7.50
%
 
7.50
%
 
7.50
%
 
7.50
%
 
7.50
%
 
7.50
%
 
7.50
%
 
7.50
%
1 
Includes Homer City.
The following are benefit payments, which reflect expected future service, expected to be paid:
Years Ending December 31,
(in millions)
Midwest Generation
 
Other EME Subsidiaries1
 
EME
2013
$
8

 
$
4

 
$
12

2014
9

 
5

 
14

2015
10

 
5

 
15

2016
12

 
4

 
16

2017
13

 
4

 
17

2018-2022
68

 
21

 
89

1 
Excludes Homer City.
In connection with EME’s transfer of substantially all the remaining assets and certain specified liabilities of Homer City to an affiliate of GECC, the employees of Homer City transferred with the plan and, a curtailment adjustment of $9 million was made to the projected pension benefit obligation to reflect the departure of the Homer City employees. For further discussion see Note 14—Discontinued Operations.
In March 2012, EIX agreed to assume the liabilities for active employees of EME and its subsidiaries under specified plans related to executive deferred compensation and executive post retirement benefits. In consideration for such assumption, EME and its subsidiaries paid EIX $25 million, the after-tax amount of such liabilities as of March 1, 2012.
Postretirement Benefits Other Than Pensions
EME and Midwest Generation non-union 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 coverage. Eligibility for a company contribution toward the cost of these benefits in retirement depends on a number of factors, including the employee's hire date. Midwest Generation union-represented employees who retire at age 55 with at least 10 years of service may be eligible for access to postretirement medical, dental, vision and hearing coverage by paying the full cost for these benefits. The expected contributions (all by the employer) for the postretirement benefits other than pensions are $2 million and $1 million for EME and Midwest Generation, respectively for the year ended December 31, 2013.
On December 14, 2012, the divestiture by Homer City of substantially all of its remaining assets and certain specified liabilities closed. An affiliate of General Electric Capital Corporation (GECC) assumed control of Homer City and as part of the closing, Homer City's obligation to establish and fund voluntary employee beneficiary association trusts was waived. As of December 31, 2012, EME had $31 million of postretirement benefits other than pensions (PBOP) related obligations on its consolidated balance sheet related to Homer City employees, of which $11 million was funded through an EIX sponsored retirement plan for non-bargaining unit employees, and $20 million was funded by Homer City through a separate retirement plan for bargaining unit employees.
Information on plan assets and benefit obligations is shown below:
 
Years Ended December 31,
 
2012
 
2011
(in millions)
Midwest Generation
 
Other EME Subsidiaries1
 
EME
 
Midwest Generation
 
Other EME Subsidiaries1
 
EME
Change in benefit obligation
 
 
 
 
 
 
 
 
 
 
 
Benefit obligation at beginning of year
$
59

 
$
71

 
$
130

 
$
54

 
$
68

 
$
122

Service cost
1

 
2

 
3

 
2

 
1

 
3

Interest cost
3

 
3

 
6

 
2

 
4

 
6

Actuarial (gain) loss
(3
)
 
(5
)
 
(8
)
 
2

 
(1
)
 
1

Benefits paid
(1
)
 
(2
)
 
(3
)
 
(1
)
 
(1
)
 
(2
)
Benefit obligation at end of year
$
59

 
$
69

 
$
128

 
$
59

 
$
71

 
$
130

Change in plan assets
 
 
 
 
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Employer contributions
1

 
2

 
3

 
1

 
1

 
2

Benefits paid
(1
)
 
(2
)
 
(3
)
 
(1
)
 
(1
)
 
(2
)
Fair value of plan assets at end of year
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Funded status at end of year
$
(59
)
 
$
(69
)
 
$
(128
)
 
$
(59
)
 
$
(71
)
 
$
(130
)
Amounts recognized on consolidated balance sheets:
 
 
 
 
 
 
 
 
 
 
 
Long-term liabilities
$
(59
)
 
$
(69
)
 
$
(128
)
 
$
(59
)
 
$
(71
)
 
$
(130
)
Amounts recognized in accumulated other comprehensive income:

 
 
 
 
 
 
 
 
 
 
Prior service cost (credit)
$
10

 
$
(2
)
 
$
8

 
$
11

 
$
(3
)
 
$
8

Net loss
9

 
5

 
14

 
12

 
11

 
23

Weighted-average assumptions used to determine obligations at end of year:
 
 
 
 
 
 
 
 
 
 
 
Discount rate
4.25
%
 
4.25
%
 
4.25
%
 
4.75
%
 
4.75
%
 
4.75
%
Assumed health care cost trend rates:

 
 
 
 
 
 
 
 
 
 
Rate assumed for following year
8.50
%
 
8.50
%
 
8.50
%
 
9.50
%
 
9.50
%
 
9.50
%
Ultimate rate
5.00
%
 
5.00
%
 
5.00
%
 
5.25
%
 
5.25
%
 
5.25
%
Year ultimate rate reached
2020

 
2020

 
2020

 
2019

 
2019

 
2019

1 
Includes Homer City.
Expense components and other amounts recognized in other comprehensive (income) loss
Expense components:
 
Years Ended December 31,
 
2012
 
2011
 
2010
(in millions)
Midwest Generation
 
Other EME Sub- sidiaries1
 
EME
 
Midwest Generation
 
Other EME Sub- sidiaries1
 
EME
 
Midwest Generation
 
Other EME Sub- sidiaries1
 
EME
Service cost
$
1

 
$
1

 
$
2

 
$
2

 
$
—

 
$
2

 
$
1

 
$
—

 
$
1

Interest cost
3

 
1

 
4

 
2

 
2

 
4

 
2

 
3

 
5

Net amortization
1

 
—

 
1

 
1

 
(1
)
 
—

 
—

 
(1
)
 
(1
)
Total expense
$
5

 
$
2

 
$
7

 
$
5

 
$
1

 
$
6

 
$
3

 
$
2

 
$
5

1 
Excludes Homer City.
Other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss:
 
Years Ended December 31,
 
2012
 
2011
 
2010
(in millions)
Midwest Generation
 
Other EME Sub- sidiaries1
 
EME
 
Midwest Generation
 
Other EME Sub- sidiaries1
 
EME
 
Midwest Generation
 
Other EME Sub- sidiaries1
 
EME
Net (gain) loss
$
(3
)
 
$
(4
)
 
$
(7
)
 
$
1

 
$
(1
)
 
$
—

 
$
5

 
$
7

 
$
12

Prior service cost
—

 
—

 
—

 
—

 
—

 
—

 
11

 
—

 
11

Net amortization
(1
)
 
—

 
(1
)
 
(1
)
 
1

 
—

 
—

 
—

 
—

Total in other comprehensive (income) loss
$
(4
)
 
$
(4
)
 
$
(8
)
 
$
—

 
$
—

 
$
—

 
$
16

 
$
7

 
$
23

Total in expense and other comprehensive (income) loss
$
1

 
$
(2
)
 
$
(1
)
 
$
5

 
$
1

 
$
6

 
$
19

 
$
9

 
$
28

1 
Includes Homer City.
The estimated amortization amounts expected to be reclassified from other comprehensive (income) loss for 2013 are $0.5 million and $1 million for prior service cost and $0.5 million and $0.4 million for net loss for EME and Midwest Generation, respectively.
The following are weighted-average assumptions used to determine expense:
 
Years Ended December 31,
 
2012
 
2011
 
2010
 
Midwest Generation
 
Other EME Sub- sidiaries1
 
EME
 
Midwest Generation
 
Other EME Sub- sidiaries1
 
EME
 
Midwest Generation
 
Other EME Sub- sidiaries1
 
EME
Discount rate
4.75
%
 
4.75
%
 
4.75
%
 
5.50
%
 
5.50
%
 
5.50
%
 
6.00
%
 
6.00
%
 
6.00
%
Assumed health care cost trend rates:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current year
9.50
%
 
9.50
%
 
9.50
%
 
9.75
%
 
9.75
%
 
9.75
%
 
8.25
%
 
8.25
%
 
8.25
%
Ultimate rate
5.25
%
 
5.3
%
 
5.3
%
 
5.5
%
 
5.5
%
 
5.5
%
 
5.5
%
 
5.5
%
 
5.5
%
Year ultimate rate reached
2019

 
2019

 
2019

 
2019

 
2019

 
2019

 
2016

 
2016

 
2016

1 
Includes Homer City.
Increasing the health care cost trend rate by one percentage point would increase the accumulated benefit obligation as of December 31, 2012, by $18 million and $9 million and annual aggregate service and interest costs by $1 million and $1 million for EME and Midwest Generation, respectively. Decreasing the health care cost trend rate by one percentage point would decrease the accumulated benefit obligation as of December 31, 2012, by $16 million and $8 million and annual aggregate service and interest costs by $1 million and $1 million for EME and Midwest Generation, respectively.
The following benefit payments are expected to be paid:
Years Ending December 31,
(in millions)
Midwest Generation
 
Other EME Subsidiaries1
 
EME
2013
$
1

 
$
1

 
$
2

2014
1

 
1

 
2

2015
2

 
1

 
3

2016
2

 
1

 
3

2017
2

 
2

 
4

2018-2022
16

 
11

 
27

1 
Excludes Homer City.
Discount Rate
The discount rate enables EME and Midwest Generation to state expected future cash flows at a present value on the measurement date. EME and Midwest Generation select its discount rate by performing a yield curve analysis. This analysis determines the equivalent discount rate on projected cash flows, matching the timing and amount of expected benefit payments. Two corporate yield curves were considered, Citigroup and AON-Hewitt.
Plan Assets
Description of Pension 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 2012 and 2011 pension plan assets are 30% for US equities, 16% for non-US equities, 35% for fixed income, 15% for opportunistic and/or alternative investments and 4% for other investments. EIX 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. EIX 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.
Capital Markets Return Forecasts
The capital markets return forecast methodologies primarily use a combination of historical market data, current market conditions, proprietary forecasting expertise, and 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 liquidity. For fixed income, the risk premium is based off of a comprehensive modeling of credit spreads.
Fair Value of Plan Assets
The plan assets for EME and Midwest Generation pension are included in the SCE Company Retirement Plan Trust (Master Trust) assets which include investments in equity securities, US 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, US 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. Two of the partnerships are classified as Level 2 since this investment 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.
EIX 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. For further discussion on the valuation techniques used by EME to determine fair value, see Note 4—Fair Value Measurements. 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.
Pension Plan
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
Corporate stocks1
$
743

 
$
—

 
$
—

 
$
743

Common/collective funds2
—

 
635

 
—

 
635

U.S. government and agency securities3
242

 
350

 
—

 
592

Partnerships/joint ventures4
—

 
166

 
414

 
580

Corporate bonds5
—

 
508

 
—

 
508

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

EME's share of net plan assets
 
 
 
 
 
 
$
215

Midwest Generation's share of net plan assets
 
 
 
 
 
 
$
149

The following table sets forth the Master Trust investments that were accounted for at fair value as of December 31, 2011 by asset class and level within the fair value hierarchy:
(in millions)
Level 1
 
Level 2
 
Level 3
 
Total
Corporate stocks1
$
642

 
$
—

 
$
—

 
$
642

Common/collective funds2
—

 
582

 
—

 
582

U.S. government and agency securities3
104

 
351

 
—

 
455

Partnerships/joint ventures4
—

 
140

 
448

 
588

Corporate bonds5
—

 
497

 
—

 
497

Other investment entities6
—

 
247

 
—

 
247

Registered investment companies7
79

 
29

 
—

 
108

Interest-bearing cash
5

 
—

 
—

 
5

Other
(1
)
 
69

 
—

 
68

Total
$
829

 
$
1,915

 
$
448

 
$
3,192

Receivables and payables, net
 
 
 
 
 
 
$
(39
)
Net plan assets available for benefits
 
 
 
 
 
 
3,153

EME's share of net plan assets
 
 
 
 
 
 
$
177

Midwest Generation's share of net plan assets
 
 
 
 
 
 
$
121

1 
Corporate stocks are diversified. For both 2012 and 2011, performance is primarily benchmarked against the Russell Indexes (60%) and Morgan Stanley Capital International (MSCI) index (40%).
2 
At December 31, 2012 and 2011, 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 (29% and 29%), Russell 200 and Russell 1000 indexes (28% and 27%) and the MSCI Europe, Australasia and Far East (EAFE) Index (11% and 10%). A non-index U.S. equity fund representing 25% and 23% of this category for 2012 and 2011, respectively, is actively managed. Another fund representing 6% and 8% of this category for 2012 and 2011, respectively, is a global asset allocation fund.
3 
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.
4 
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, 2012 and 2011, respectively, approximately 56% and 55% 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.
5 
Corporate bonds are diversified. At December 31, 2012 and 2011, respectively, this category includes $65 million and $53 million for collateralized mortgage obligations and other asset backed securities of which $7 million and $10 million are below investment grade.
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 consisted of a global equity mutual fund which seeks to outperform the MSCI World Total Return Index. Level 2 primarily consisted of short-term, emerging market, high yield bond funds and government inflation-indexed bonds and short-term bond fund.
At December 31, 2012 and 2011, approximately 66% and 69%, 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 Level 3 investments for 2012 and 2011:
(in millions)
2012
 
2011
Fair value, net at beginning of period
$
448

 
$
345

Actual return on plan assets:
 
 
 
Relating to assets still held at end of period
88

 
6

Relating to assets sold during the period
13

 
22

Purchases
98

 
130

Dispositions
(233
)
 
(55
)
Transfers in and /or out of Level 3
—

 
—

Fair value, net at end of period
$
414

 
$
448


Stock-Based Compensation (EME only)
EME participated in an EIX shareholder-approved incentive plan (the 2007 Performance Incentive Plan) that includes stock-based compensation. In conjunction with the commencement of the Chapter 11 Cases, EME ceased participating in EIX's long-term incentive compensation programs, and does not expect that any new EIX stock-based compensation will be awarded to EME employees.
Stock Options
Under various plans, EIX had granted stock options to EME employees 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, EIX 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. Stock options granted in 2003 through 2006 accrue dividend equivalents for the first five years of the option term. Stock options granted in 2007 and later have no dividend equivalent rights except for options granted to EIX's Board of Directors in 2007. Unless transferred to nonqualified deferral plan accounts, dividend equivalents accumulate without interest. Dividend equivalents are paid in cash after the vesting date. EIX has discretion to pay certain dividend equivalents in shares of EIX common stock. Additionally, EIX 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,
 
2012
 
2011
 
2010
Expected terms (in years)
6.9


7.0


7.3

Risk-free interest rate
1.1% - 1.7%

 
1.4% - 3.1%


2.0% - 3.2%

Expected dividend yield
2.8% - 3.1%

 
3.1% - 3.5%


3.3% - 4.0%

Weighted-average expected dividend yield
3.0
%
 
3.4
%
 
3.8
%
Expected volatility
17% - 18%

 
18% - 19%


19% - 20%

Weighted-average volatility
18.3
%
 
18.9
%
 
19.8
%

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 issued 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 EIX's common stock for the length of the options expected term for 2012. The volatility period used was 83 months, 84 months and 87 months at December 31, 2012, 2011 and 2010, respectively.
A summary of the status of EIX's stock options granted to EME employees is as follows:
 
 
 
Weighted-Average
 
 
 
Stock
Options
 
Exercise
Price
 
Remaining
Contractual
Term (Years)
 
Aggregate
Intrinsic
Value
(in millions)
Outstanding, December 31, 2011
3,344,611

 
$
34.05

 
 
 
 
Granted
660,222

 
43.16

 
 
 
 
Expired
(112,129
)
 
47.39

 
 
 
 
Transferred to affiliates
(270,312
)
 
33.13

 
 
 
 
Forfeited
(41,094
)
 
39.88

 
 
 
 
Exercised
(881,064
)
 
26.39

 
 
 
 
Outstanding, December 31, 2012
2,700,234

 
38.23

 
6.24

 
 
Vested and expected to vest at December 31, 2012
2,586,910

 
38.23

 
6.16

 
$
20

Exercisable at December 31, 2012
1,286,055

 
38.30

 
4.22

 
10

At December 31, 2012, there was $4 million of total unrecognized compensation cost related to stock options, net of expected forfeitures. That cost is expected to be recognized over a weighted-average period of approximately 2 years.
Performance Shares
A target number of contingent performance shares were awarded to EME executives in March 2010, March 2011 and March 2012, and vest at the end of December 2012, 2013 and 2014, respectively. Performance shares awarded contain dividend equivalent reinvestment rights. An additional number of target contingent performance shares will be credited based on dividends on EIX common stock for which the ex-dividend date falls within the performance period. The vesting of EIX's performance shares is dependent upon a market condition and three years of continuous service subject to a prorated adjustment for employees who are terminated under certain circumstances or retire, but payment cannot be accelerated. The market condition is based on EIX's total shareholder return relative to the total shareholder return of a specified group of peer companies at the end of a three-calendar-year period. The number of performance shares earned is determined based on EIX's ranking among these companies. Performance shares earned are settled half in cash and half in common stock; however, EIX has discretion under certain of the awards to pay the half subject to cash settlement in common stock. EIX also has discretion to pay certain dividend equivalents in EIX common stock. Additionally, cash awards are substituted to the extent necessary to pay tax withholding or any government levies. 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. Performance shares expense is recognized ratably over the requisite service period based on the fair values determined, except for awards granted to retirement-eligible participants.
The fair value of performance shares is determined using a Monte Carlo simulation valuation model. The Monte Carlo simulation valuation model requires various assumptions noted in the following table:
 
Years Ended December 31,
 
2012
 
2011
 
2010
Equity awards
 
 
 
 
 
Grant date risk-free interest rate
0.4
%
 
1.2
%
 
1.3
%
Grant date expected volatility
13.2
%
 
20.4
%
 
21.6
%
Liability awards1
 
 
 
 
 
Expected volatility
12.1
%
 
15.9
%
 
20.6
%
Risk-free interest rate
 
 
 
 
 
2012 awards
0.4
%
 
*

 
*

2011 awards
0.2
%
 
0.3
%
 
*

2010 awards
*

 
0.2
%
 
0.6
%
1 
The portion of performance shares classified as share-based liability awards are revalued at each reporting period.
*
Not applicable.
The risk-free interest rate is based on the daily spot rate on the grant or valuation date on U.S. Treasury zero coupon issue or STRIPS with terms nearest to the remaining term of the performance shares and is used as proxy for the expected return for the specified group of peer companies. Expected volatility is based on the historical volatility of EIX's (and the specified group of peer companies') common stock for the most recent 36 months. Historical volatility for each company in the specified group is obtained from a financial data services provider.
A summary of the status of EIX nonvested performance shares granted to EME employees is as follows:
 
Equity Awards
 
Liability Awards
 
Shares
 
Weighted-Average Grant-Date Fair Value
 
Shares
 
Weighted-Average Fair Value
Nonvested at December 31, 2011
84,313

 
$
27.50

 
84,313

 
$
29.48

Granted
16,797

 
51.41

 
16,750

 
 
Forfeited
(1,514
)
 
37.56

 
(1,508
)
 
 
Vested1
(52,650
)
 
25.71

 
(52,678
)
 
 
Transferred to affiliates
(5,717
)
 
27.62

 
(5,716
)
 
 
Nonvested at December 31, 2012
41,229

 
39.14

 
41,161

 
46.48

1 
Includes performance shares that were paid as performance targets were met.
The current portion of nonvested performance shares classified as liability awards is reflected in accrued liabilities and the long-term portion is reflected in other long-term liabilities on the consolidated balance sheets.
At December 31, 2012, there was $4.0 million (based on the December 31, 2012 fair value of performance shares classified as equity awards) of total unrecognized compensation cost related to performance shares. That cost is expected to be recognized over a weighted-average period of approximately two years.
Restricted Stock Units
Restricted stock units were awarded to EME executives in March 2010, March 2011 and March 2012 and vest and become payable in January 2013, 2014 and 2015, respectively. Each restricted stock unit awarded is a contractual right to receive one share of EIX common stock, if vesting requirements are satisfied. Restricted stock units awarded contain dividend equivalent reinvestment rights. An additional number of restricted stock units will be credited based on dividends on EIX common stock for which the ex-dividend date falls within the performance period. The vesting of EIX's restricted stock units is dependent upon continuous service through the end of the three-calendar-year-plus-two-days vesting period. Vesting is subject to a pro-rated adjustment for employees who are terminated under certain circumstances or retire. Cash awards are substituted to the extent necessary to pay tax withholding or any government levies.
The following is a summary of the status of EIX nonvested restricted stock units granted to EME employees:
 
Restricted
Stock Units
 
Weighted-Average
Grant-Date
Fair Value
Nonvested at December 31, 2011
129,750

 
$
32.11

Granted
39,918

 
43.16

Forfeited
(2,911
)
 
38.85

Paid Out
(45,488
)
 
26.24

Affiliate transfers—net
(10,049
)
 
31.42

Nonvested at December 31, 2012
111,220

 
38.36


The fair value for each restricted stock unit awarded is determined as the closing price of EIX common stock on the grant date.
Compensation expense related to these shares, which is based on the grant-date fair value, is recognized ratably over the requisite service period, except for awards whose holders become eligible for retirement vesting during the service period, in which case recognition is accelerated into the year the holders become eligible for retirement vesting. At December 31, 2012, there was $1.6 million of total unrecognized compensation cost related to restricted stock units, net of expected forfeitures, which is expected to be recognized as follows: $1 million in 2013 and $0.5 million in 2014.
Supplemental Data on Stock-Based Compensation
 
Years Ended December 31,
(in millions, except per award amounts)
2012
 
2011
 
2010
Stock-based compensation expense1
 
 
 
 
 
Stock options
$
3

 
$
2

 
$
4

Performance shares
1

 
1

 
2

Restricted stock units
1

 
2

 
1

Other
2

 
2

 
2

Total stock-based compensation expense
$
7

 
$
7

 
$
9

Income tax benefits related to stock compensation expense
$
3

 
$
3

 
$
4

Excess tax benefits2
5

 
2

 
1

Stock options
 
 
 
 
 
Weighted average grant date fair value per option granted
$
5.22

 
$
5.61

 
$
4.92

Fair value of options vested
3

 
3

 
3

Cash used to purchase shares to settle options
44

 
18

 
11

Cash from participants to exercise stock options
26

 
12

 
6

Value of options exercised
18

 
6

 
4

Tax benefits from options exercised
6

 
2

 
2

Performance shares3 classified as equity awards
 
 
 
 
 
Weighted average grant date fair value per share granted
$
51.41

 
$
31.14

 
$
32.50

Fair value of shares vested
1.4

 
0.8

 
0.9

Restricted stock units
 
 
 
 
 
Weighted average grant date fair value per unit granted
$
43.16

 
$
38.03

 
$
33.30

Value of shares settled
$
1

 
$
2

 
$
—

Tax benefits realized from settlement of awards
$
—

 
$
1

 
$
—

1 
Reflected in administration and general on the consolidated statements of operations.
2 
Reflected in excess tax benefits related to stock-based awards in cash flows from financing activities on the consolidated statements of cash flows.
3 
There were no settlements of awards for performance shares in 2012, 2011 and 2010 as performance targets were not met.