QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-9936
_________________________
EDISON INTERNATIONAL
(Exact name of registrant as specified in its charter)
__________________________
California
95-4137452
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2244 Walnut Grove Avenue
(P.O. Box 976)
Rosemead, California
91770
(Address of principal executive offices)
(Zip Code)
(626) 302-2222
(Registrant's telephone number, including area code)
__________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes S No £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer S
Accelerated filer £
Non-accelerated filer £
(Do not check if a smaller reporting company)
Smaller reporting company £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes £ No S
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
The following terms and abbreviations appearing in the text of this report have the meanings indicated below.
2011 Form 10-K
Edison International's Annual Report on Form 10-K for the year-ended December 31, 2011
2010 Tax Relief Act
Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010
AFUDC
allowance for funds used during construction
Ambit project
American Bituminous Power Partners, L.P.
AOI
Adjusted Operating Income (Loss)
APS
Arizona Public Service Company
ARO(s)
asset retirement obligation(s)
BACT
best available control technology
BART
best available retrofit technology
Bcf
billion cubic feet
Big 4
Kern River, Midway-Sunset, Sycamore and Watson natural gas power projects
Btu
British thermal units
CAA
Clean Air Act
CAIR
Clean Air Interstate Rule
CAISO
California Independent System Operator
CAMR
Clean Air Mercury Rule
CARB
California Air Resources Board
CDWR
California Department of Water Resources
CEC
California Energy Commission
coal plants
Midwest Generation coal plants and Homer City plant
Commonwealth Edison
Commonwealth Edison Company
CPS
Combined Pollutant Standard
CPUC
California Public Utilities Commission
CSAPR
Cross-State Air Pollution Rule
CRRs
congestion revenue rights
DOE
U.S. Department of Energy
EME
Edison Mission Energy
EMG
Edison Mission Group Inc.
EMMT
Edison Mission Marketing & Trading, Inc.
EPS
earnings per share
ERRA
energy resource recovery account
Exelon Generation
Exelon Generation Company LLC
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
FGIC
Financial Guarantee Insurance Company
FIP(s)
federal implementation plan(s)
Four Corners
coal fueled electric generating facility located in Farmington, New Mexico in
which SCE holds a 48% ownership interest
GAAP
generally accepted accounting principles
GECC
General Electric Capital Corporation
GHG
greenhouse gas
iii
Global Settlement
A settlement between Edison International and the IRS that resolved federal tax disputes related to Edison Capital's cross-border, leveraged leases through 2009, and all other outstanding federal tax disputes and affirmative claims for tax years 1986 through 2002 and related matters with state tax authorities.
GRC
general rate case
GWh
gigawatt-hours
Homer City
EME Homer City Generation L.P., a Pennsylvania limited partnership that leases and operates three coal-fired electric generating units and related facilities located in Indiana County, Pennsylvania
Illinois EPA
Illinois Environmental Protection Agency
IRS
Internal Revenue Service
ISO
Independent System Operator
kWh(s)
kilowatt-hour(s)
LIBOR
London Interbank Offered Rate
MATS
Mercury and Air Toxics Standards
MD&A
Management's Discussion and Analysis of Financial Condition and Results
of Operations in this report
Midwest Generation
Midwest Generation, LLC, a Delaware limited liability company that owns and/or leases, and that operates, the Midwest Generation plants
Midwest Generation plants
Midwest Generation's power plants (fossil fuel) located in Illinois
MMBtu
million British thermal units
Mohave
two coal fueled electric generating facilities that no longer operate located
in Clark County, Nevada in which SCE holds a 56% ownership interest
Moody's
Moody's Investors Service
MRTU
Market Redesign and Technology Upgrade
MW
megawatts
MWh
megawatt-hours
NAAQS
national ambient air quality standards
NAPP
Northern Appalachian
NERC
North American Electric Reliability Corporation
Ninth Circuit
U.S. Court of Appeals for the Ninth Circuit
NOV
notice of violation
NOx
nitrogen oxide
NRC
Nuclear Regulatory Commission
NSR
New Source Review
NYISO
New York Independent System Operator
PADEP
Pennsylvania Department of Environmental Protection
Palo Verde
large pressurized water nuclear electric generating facility located near
Phoenix, Arizona in which SCE holds a 15.8% ownership interest
PBOP(s)
postretirement benefits other than pension(s)
PBR
performance-based ratemaking
PG&E
Pacific Gas & Electric Company
PJM
PJM Interconnection, LLC
PRB
Powder River Basin
PSD
Prevention of Significant Deterioration
QF(s)
qualifying facility(ies)
ROE
return on equity
RPM
Reliability Pricing Model
iv
RTO(s)
Regional Transmission Organization(s)
S&P
Standard & Poor's Ratings Services
San Onofre
large pressurized water nuclear electric generating facility located in south
San Clemente, California in which SCE holds a 78.21% ownership interest
SCE
Southern California Edison Company
SNCR
selective non-catalytic reduction
SDG&E
San Diego Gas & Electric
SEC
U.S. Securities and Exchange Commission
SIP(s)
state implementation plan(s)
SO2
sulfur dioxide
US EPA
U.S. Environmental Protection Agency
VIE(s)
variable interest entity(ies)
v
(This page has been left blank intentionally.)
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income
Edison International
Three months ended March 31,
(in millions, except per-share amounts, unaudited)
2012
2011
Electric utility
$
2,412
$
2,230
Competitive power generation
444
552
Total operating revenue
2,856
2,782
Fuel
283
258
Purchased power
615
508
Operation and maintenance
1,184
1,149
Depreciation, decommissioning and amortization
456
417
Asset impairments and other
14
—
Total operating expenses
2,552
2,332
Operating income
304
450
Interest and dividend income
3
4
Equity in loss from unconsolidated affiliates – net
(1
)
(5
)
Other income
31
41
Interest expense
(212
)
(196
)
Other expenses
(10
)
(13
)
Income from continuing operations before income taxes
115
281
Income tax expense
—
65
Income from continuing operations
115
216
Loss from discontinued operations, net of tax
(1
)
(2
)
Net income
114
214
Dividends on preferred and preference stock of utility
19
14
Other noncontrolling interests
2
—
Net income attributable to Edison International common shareholders
$
93
$
200
Amounts attributable to Edison International common shareholders:
Income from continuing operations, net of tax
$
94
$
202
Loss from discontinued operations, net of tax
(1
)
(2
)
Net income attributable to Edison International common shareholders
$
93
$
200
Basic earnings (loss) per common share attributable to Edison International common shareholders:
Weighted-average shares of common stock outstanding
326
326
Continuing operations
$
0.28
$
0.62
Discontinued operations
—
(0.01
)
Total
$
0.28
$
0.61
Diluted earnings (loss) per common share attributable to Edison International common shareholders:
Weighted-average shares of common stock outstanding, including effect of dilutive securities
329
328
Continuing operations
$
0.28
$
0.62
Discontinued operations
—
(0.01
)
Total
$
0.28
$
0.61
Dividends declared per common share
$
0.325
$
0.320
The accompanying notes are an integral part of these consolidated financial statements.
2
Consolidated Statements of Comprehensive Income
Edison International
Three months ended March 31,
(in millions, unaudited)
2012
2011
Net income
$
114
$
214
Other comprehensive income (loss), net of tax:
Pension and postretirement benefits other than pensions:
Amortization of net loss included in net income, net of income tax expense of $4 and $1 for 2012 and 2011, respectively
7
3
Unrealized gain (loss) on derivatives qualified as cash flow hedges:
Unrealized holding gain arising during the period, net of income tax expense of $17 and $4 for 2012 and 2011, respectively
25
6
Reclassification adjustments included in net income, net of income tax benefit of $8 and $6 for 2012 and 2011, respectively
(11
)
(10
)
Other comprehensive income (loss)
21
(1
)
Comprehensive income
135
213
Less: Comprehensive income attributable to noncontrolling interests
21
14
Comprehensive income attributable to Edison International
$
114
$
199
The accompanying notes are an integral part of these consolidated financial statements.
3
Consolidated Balance Sheets
Edison International
(in millions, unaudited)
March 31, 2012
December 31, 2011
ASSETS
Cash and cash equivalents
$
1,483
$
1,469
Receivables, less allowances of $76 and $75 for uncollectible accounts at respective dates
753
908
Accrued unbilled revenue
508
519
Inventory
579
624
Prepaid taxes
121
88
Derivative assets
90
106
Restricted cash and cash equivalents
187
103
Margin and collateral deposits
96
58
Regulatory assets
692
494
Other current assets
206
115
Total current assets
4,715
4,484
Nuclear decommissioning trusts
3,853
3,592
Investments in unconsolidated affiliates
522
525
Other investments
221
211
Total investments
4,596
4,328
Utility property, plant and equipment, less accumulated depreciation of $7,088 and $6,894 at respective dates
28,133
27,569
Competitive power generation and other property, plant and equipment, less accumulated depreciation of $1,478 and $1,408 at respective dates
4,547
4,547
Total property, plant and equipment
32,680
32,116
Derivative assets
117
128
Restricted deposits
60
51
Rent payments in excess of levelized rent expense under plant operating leases
798
760
Regulatory assets
5,713
5,466
Other long-term assets
705
706
Total long-term assets
7,393
7,111
Total assets
$
49,384
$
48,039
The accompanying notes are an integral part of these consolidated financial statements.
4
Consolidated Balance Sheets
Edison International
(in millions, except share amounts, unaudited)
March 31, 2012
December 31, 2011
LIABILITIES AND EQUITY
Short-term debt
$
343
$
429
Current portion of long-term debt
61
57
Accounts payable
1,067
1,419
Accrued taxes
112
52
Accrued interest
229
205
Customer deposits
195
199
Derivative liabilities
255
268
Regulatory liabilities
645
670
Other current liabilities
768
1,049
Total current liabilities
3,675
4,348
Long-term debt
14,131
13,689
Deferred income taxes
5,686
5,396
Deferred investment tax credits
88
89
Customer advances
141
138
Derivative liabilities
803
547
Pensions and benefits
2,882
2,912
Asset retirement obligations
2,730
2,688
Regulatory liabilities
5,103
4,670
Other deferred credits and other long-term liabilities
2,538
2,476
Total deferred credits and other liabilities
19,971
18,916
Total liabilities
37,777
36,953
Commitments and contingencies (Note 9)
Common stock, no par value (800,000,000 shares authorized; 325,811,206 shares issued and outstanding at each date)
2,325
2,360
Accumulated other comprehensive loss
(118
)
(139
)
Retained earnings
7,783
7,834
Total Edison International's common shareholders' equity
9,990
10,055
Preferred and preference stock of utility
1,374
1,029
Other noncontrolling interests
243
2
Total noncontrolling interests
1,617
1,031
Total equity
11,607
11,086
Total liabilities and equity
$
49,384
$
48,039
The accompanying notes are an integral part of these consolidated financial statements.
5
Consolidated Statements of Cash Flows
Edison International
Three months ended March 31,
(in millions, unaudited)
2012
2011
Cash flows from operating activities:
Net income
$
114
$
214
Less: Loss from discontinued operations
(1
)
(2
)
Income from continuing operations
115
216
Adjustments to reconcile to net cash provided by operating activities:
Depreciation, decommissioning and amortization
456
417
Regulatory impacts of net nuclear decommissioning trust earnings
77
41
Other amortization
26
37
Asset impairments and other
15
—
Stock-based compensation
8
7
Equity in loss from unconsolidated affiliates
1
5
Distributions from unconsolidated affiliates
—
5
Deferred income taxes and investment tax credits
(22
)
226
Income from leveraged leases
(1
)
(1
)
Proceeds from U.S. treasury grants
29
—
Changes in operating assets and liabilities:
Receivables
118
128
Inventory
44
(18
)
Margin and collateral deposits – net of collateral received
(36
)
15
Prepaid taxes
(33
)
(143
)
Other current assets
22
(6
)
Rent payments in excess of levelized rent expense
(38
)
(32
)
Accounts payable
(78
)
(49
)
Accrued taxes
322
1
Other current liabilities
(426
)
(207
)
Derivative assets and liabilities – net
295
106
Regulatory assets and liabilities – net
(254
)
(42
)
Other assets
(7
)
(7
)
Other liabilities
45
21
Operating cash flows from discontinued operations
(1
)
(2
)
Net cash provided by operating activities
677
718
Cash flows from financing activities:
Long-term debt issued
449
82
Long-term debt issuance costs
(8
)
(1
)
Long-term debt repaid
(9
)
(9
)
Preference stock issued – net
345
123
Short-term debt financing – net
(86
)
294
Settlements of stock-based compensation – net
(28
)
(7
)
Cash contributions from noncontrolling interests
238
—
Dividends and distributions to noncontrolling interests
(14
)
(13
)
Dividends paid
(106
)
(104
)
Net cash provided by financing activities
$
781
$
365
The accompanying notes are an integral part of these consolidated financial statements.
6
Consolidated Statements of Cash Flows
Edison International
Three months ended March 31,
(in millions, unaudited)
2012
2011
Cash flows from investing activities:
Capital expenditures
$
(1,276
)
$
(1,133
)
Proceeds from sale of nuclear decommissioning trust investments
602
622
Purchases of nuclear decommissioning trust investments and other
(684
)
(669
)
Proceeds from partnerships and unconsolidated subsidiaries, net of investment
1
5
Investments in other assets
(87
)
1
Net cash used by investing activities
(1,444
)
(1,174
)
Net increase (decrease) in cash and cash equivalents
14
(91
)
Cash and cash equivalents, beginning of period
1,469
1,389
Cash and cash equivalents, end of period
$
1,483
$
1,298
The accompanying notes are an integral part of these consolidated financial statements.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Summary of Significant Accounting Policies
Edison International has two business segments for financial reporting purposes: an electric utility segment (SCE) and a competitive power generation segment (EMG). SCE is an investor-owned public utility primarily engaged in the business of supplying electricity to an approximately 50,000 square mile area of southern California. EMG is the holding company for its principal wholly owned subsidiary, EME. EME is a holding company with subsidiaries and affiliates engaged in the business of developing, acquiring, owning or leasing, operating and selling energy and capacity from independent power production facilities. EME also engages in hedging and energy trading activities in competitive power markets through its Edison Mission Marketing & Trading, Inc. ("EMMT") subsidiary.
Basis of Presentation
Edison International's significant accounting policies were described in Note 1 of "Edison International Notes to Consolidated Financial Statements" included in the 2011 Form 10-K. The same accounting policies are followed for interim reporting purposes, with the exception of accounting principles adopted as of January 1, 2012, discussed below in "—New Accounting Guidance." This quarterly report should be read in conjunction with the financial statements and notes included in the 2011 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 of America for the periods covered by this quarterly report on Form 10-Q. The results of operations for the three month period ended March 31, 2012 are not necessarily indicative of the operating results for the full year.
The December 31, 2011 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
Cash Equivalents
Cash equivalents included investments in money market funds totaling $1.2 billion and $1.3 billion at March 31, 2012 and December 31, 2011, respectively. Generally, the carrying value of cash equivalents equals the fair value, as these investments have maturities of three months or less.
Edison International temporarily invests the ending daily cash balance in its primary disbursement accounts until required for check clearing. Edison International reclassified $178 million and $220 million of checks issued, but not yet paid by the financial institution, from cash to accounts payable at March 31, 2012 and December 31, 2011, respectively.
Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents at March 31, 2012 and December 31, 2011 included $97 million received from a wind financing that was held in escrow at those dates and is expected to be released in the second quarter of 2012 when the project achieves certain completion milestones. At March 31, 2012, restricted cash and cash equivalents also included $74 million to support outstanding letters of credit issued under EMG's letter of credit facilities.
Inventory
Inventory is stated at the lower of cost or market, cost being determined by the weighted-average cost method for fuel, and the average cost method for materials and supplies. Inventory consisted of the following:
(in millions)
March 31, 2012
December 31, 2011
Coal, gas, fuel oil and other raw materials
$
170
$
211
Spare parts, materials and supplies
409
413
Total inventory
$
579
$
624
8
Earnings Per Share
Edison International computes earnings per 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 stock options, performance shares and restricted stock units, which earn dividend equivalents on an equal basis with common shares. Stock options awarded during the period 2003 through 2006 received dividend equivalents. EPS attributable to Edison International common shareholders was computed as follows:
Three months ended March 31,
(in millions)
2012
2011
Basic earnings per share – continuing operations:
Income from continuing operations attributable to common shareholders, net of tax
$
94
$
202
Participating securities dividends
—
—
Income from continuing operations available to common shareholders
$
94
$
202
Weighted average common shares outstanding
326
326
Basic earnings per share – continuing operations
$
0.28
$
0.62
Diluted earnings per share – continuing operations:
Income from continuing operations available to common shareholders
$
94
$
202
Income impact of assumed conversions
—
1
Income from continuing operations available to common shareholders and assumed conversions
$
94
$
203
Weighted average common shares outstanding
326
326
Incremental shares from assumed conversions
3
2
Adjusted weighted average shares – diluted
329
328
Diluted earnings per share – continuing operations
$
0.28
$
0.62
Stock-based compensation awards to purchase 8,602,107 and 8,980,322 shares of common stock were outstanding for the three months ended March 31, 2012 and 2011, respectively, but were not included in the computation of diluted earnings per share because the exercise price of the awards was greater than the average market price of the common shares and therefore, the effect would have been antidilutive.
New Accounting Guidance
Accounting Guidance Adopted in 2012
Fair Value Measurement
In May 2011, the Financial Accounting Standards Board ("FASB") issued an accounting standards update modifying the fair value measurement and disclosure guidance. This guidance prohibits grouping of financial instruments for purposes of fair value measurement and requires the value be based on the individual security. This amendment also results in new disclosures primarily related to Level 3 measurements including quantitative disclosure about unobservable inputs and assumptions, a description of the valuation processes and a narrative description of the sensitivity of the fair value to changes in unobservable inputs. Edison International adopted this guidance effective January 1, 2012. For further information, see Note 4.
Presentation of Comprehensive Income
In June 2011 and December 2011, the FASB issued accounting standards updates on the presentation of comprehensive income. An entity can elect to present items of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate but consecutive statements. Edison International adopted this guidance January 1, 2012, and elected to present two separate but consecutive statements. The adoption of these accounting standards updates did not change the items that constitute net income and other comprehensive income.
9
Accounting Guidance Not Yet Adopted
Offsetting Assets and Liabilities
In December 2011, the FASB issued an accounting standards update modifying the disclosure requirements about the nature of an entity's rights of offsetting assets and liabilities in the statement of financial position under master netting agreements and related arrangements associated with financial and derivative instruments. The guidance requires increased disclosure of the gross and net recognized assets and liabilities, collateral positions and narrative descriptions of setoff rights. Edison International will adopt this guidance effective January 1, 2013.
Note 2. Consolidated Statements of Changes in Equity
The following table provides the changes in equity for the three months ended March 31, 2012.
Equity Attributable to Edison International
Noncontrolling Interests
(in millions)
Common Stock
Accumulated Other Comprehensive Loss
Retained Earnings
Subtotal
Other
Preferred and Preference Stock
Total Equity
Balance at December 31, 2011
$
2,360
$
(139
)
$
7,834
$
10,055
$
2
$
1,029
$
11,086
Net income
—
—
93
93
2
19
114
Other comprehensive income
—
21
—
21
—
—
21
Contributions from noncontrolling interests1
—
—
—
—
238
—
238
Transfer of assets to Capistrano Wind Partners2
(50
)
—
—
(50
)
—
—
(50
)
Common stock dividends declared ($0.325 per share)
—
—
(106
)
(106
)
—
—
(106
)
Dividends, distributions to noncontrolling interests and other
—
—
—
—
1
(19
)
(18
)
Stock-based compensation and other
8
—
(36
)
(28
)
—
—
(28
)
Noncash stock-based compensation and other
7
—
(2
)
5
—
—
5
Issuance of preference stock
—
—
—
—
—
345
345
Balance at March 31, 2012
$
2,325
$
(118
)
$
7,783
$
9,990
$
243
$
1,374
$
11,607
1
Funds contribution by third-party investors related to the Capistrano Wind equity capital raise are reported in noncontrolling interest. For further information, see Note 3.
2
Additional paid in capital was reduced $50 million related to a new tax basis in the assets transferred to Capistrano Wind Partners. For further information, see Note 3.
10
The following table provides the changes in equity for the three months ended March 31, 2011.
Equity Attributable to Edison International
Noncontrolling Interests
(in millions)
Common Stock
Accumulated Other Comprehensive Loss
Retained Earnings
Subtotal
Other
Preferred and Preference Stock
Total Equity
Balance at December 31, 2010
$
2,331
$
(76
)
$
8,328
$
10,583
$
4
$
907
$
11,494
Net income
—
—
200
200
—
14
214
Other comprehensive loss
—
(1
)
—
(1
)
—
—
(1
)
Common stock dividends declared ($0.32 per share)
—
—
(104
)
(104
)
—
—
(104
)
Dividends, distributions to noncontrolling interests and other
—
—
—
—
(1
)
(14
)
(15
)
Stock-based compensation and other
2
—
(9
)
(7
)
—
—
(7
)
Noncash stock-based compensation and other
7
—
(2
)
5
—
—
5
Issuance of preference stock
—
—
—
—
—
123
123
Balance at March 31, 2011
$
2,340
$
(77
)
$
8,413
$
10,676
$
3
$
1,030
$
11,709
Note 3. Variable Interest Entities
Categories of Variable Interest Entities
Projects or Entities that are Consolidated
At March 31, 2012 and December 31, 2011, EMG consolidated 16 and 13 projects, respectively, with a total generating capacity of 861 MW and 570 MW, respectively, that have noncontrolling interests held by others. Projects consolidated at March 31, 2012 increased from the projects consolidated at December 31, 2011, due to the Capistrano Wind equity capital transaction as discussed below. In determining that EMG was the primary beneficiary of the projects that are consolidated, key factors considered were EMG's ability to direct commercial and operating activities and EMG's obligation to absorb losses of the variable interest entities.
The following table presents summarized financial information of the projects that were consolidated by EMG:
(in millions)
March 31, 2012
December 31, 2011
Current assets
$
87
$
36
Net property, plant and equipment
1,194
675
Other long-term assets
18
5
Total assets
$
1,299
$
716
Current liabilities
$
32
$
28
Long-term debt net of current portion
179
57
Deferred revenues
174
69
Other long-term liabilities
56
22
Total liabilities
$
441
$
176
Noncontrolling interests
$
242
$
2
11
Assets serving as collateral for the debt obligations had a carrying value of $474 million and $136 million at March 31, 2012 and December 31, 2011, respectively, and primarily consist of property, plant and equipment.
Capistrano Wind Equity Capital
As part of its plan to obtain third-party equity capital to finance the development of a portion of EMG's wind portfolio, on February 13, 2012, Edison Mission Wind sold its indirect equity interests in the Cedro Hill wind project (150 MW in Texas), the Mountain Wind Power I project (61 MW in Wyoming) and the Mountain Wind Power II project (80 MW in Wyoming) to a new venture, Capistrano Wind Partners. Outside investors provided $238 million of the funding. Capistrano Wind Partners also agreed to acquire the Broken Bow I wind project (80 MW in Nebraska) and the Crofton Bluffs wind project (40 MW in Nebraska) for consideration expected to include $140 million from the same outside investors upon the satisfaction of specified conditions, including commencement of commercial operation and conversion of project debt financing to term. In March 2012, EME received a distribution of the proceeds from outside investors, which will be used for general corporate purposes. Through their ownership of Capistrano Wind Holdings, an indirect subsidiary of EME, Edison Mission Wind, and EME's parent company, Mission Energy Holding Company (MEHC), own 100% of the Class A equity interests in Capistrano Wind Partners, and the Class B preferred equity interests are held by outside investors. Under the terms of the formation documents, preferred equity interests receive 100% of the cash available for distribution, up to a scheduled amount to target a return and thereafter cash distributions are shared. Cash available for distribution includes 90% of the tax benefits realized by MEHC and contributed to Capistrano Wind Partners.
Edison Mission Wind retains indirect beneficial ownership of the common equity in the projects, net of a $4 million preferred investment made by MEHC, and retains responsibilities for managing the operations of Capistrano Wind Holdings and its projects, and accordingly, EMG will continue to consolidate these projects. The $238 million contributed by the third-party interests is reflected in "Other noncontrolling interests" on Edison International's consolidated balance sheets at March 31, 2012. This transaction was accounted for as a transfer among entities under common control and, therefore, resulted in no change in the book basis of the transferred assets. However, the transaction did trigger a taxable gain and new tax basis in the assets with a corresponding adjustment to deferred taxes and a reduction to equity of $50 million.
EMG's share in the earnings or losses of the Capistrano Wind entities is calculated under the hypothetical liquidation book value ("HLBV") method due to complex preferences in distribution provisions. The income from the Cedro Hill, Mountain Wind Power I and Mountain Wind Power II wind projects attributable to noncontrolling interests was $2 million for the first quarter of 2012.
Variable Interest in VIEs that are not Consolidated
SCE has 16 power purchase agreements ("PPAs") that have variable interests in VIEs, including 6 tolling agreements through which SCE provides the natural gas to fuel the plants and 10 contracts with qualifying facilities ("QFs") that contain variable pricing provisions based on the price of natural gas. SCE has concluded that it is not the primary beneficiary of these VIEs since it does not control the commercial and operating activities of these entities. In general, because payments for capacity are the primary source of income, the most significant economic activity for these VIEs is the operation and maintenance of the power plants.
As of the balance sheet date, the carrying amount of assets and liabilities in SCE's consolidated balance sheet that relate to its involvement with VIEs result from amounts due under the PPAs or the fair value of those derivative contracts. Under these contracts, SCE recovers the costs incurred through demonstration of compliance with its CPUC-approved long-term power procurement plans. SCE has no residual interest in the entities and has not provided or guaranteed any debt or equity support, liquidity arrangements, performance guarantees or other commitments associated with these contracts other than the purchase commitments described in Note 9. As a result, there is no significant potential exposure to loss as a result of SCE's involvement with these VIEs. The aggregate capacity dedicated to SCE for these VIE projects was 3,820 MW at March 31, 2012 and the amounts that SCE paid to these projects were $78 million and $86 million for the three months ended March 31, 2012 and 2011, respectively. These amounts are recoverable in customer rates, subject to reasonableness review.
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 which was not material as of March 31, 2012 and December 31, 2011.
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Assets and liabilities are categorized into a three-level fair value hierarchy based on valuation inputs used to determine fair value. The hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The following table sets forth assets and liabilities that were accounted for at fair value by level within the fair value hierarchy:
Represents the netting of assets and liabilities under master netting agreements and cash collateral across the levels of the fair value hierarchy. Netting among positions classified within the same level is included in that level.
2
Money market funds are included in cash and cash equivalents and restricted cash and cash equivalents on Edison International's consolidated balance sheets.
3
Approximately 69% and 70% of the equity investments were located in the United States at March 31, 2012 and December 31, 2011, respectively.
4
At March 31, 2012 and December 31, 2011, corporate bonds were diversified and included collateralized mortgage obligations and other asset backed securities of $38 million and $22 million, respectively.
5
Excludes net payables of $14 million and net receivables of $25 million at
