(Edison International letterhead)
August 19, 2009
Mr. William Thompson
Branch Chief
Division of Corporation Finance
United States Securities and Exchange Commission
Washington, D.C. 20549-3561
Dear Mr. Thompson:
This letter is submitted on behalf of Edison International and Southern
California Edison Company (SCE) in response to comments from the staff
of the Division of Corporation Finance of the Securities and Exchange
Commission (the Commission) with respect to the companies' (1) Form
10-K for the fiscal year ended December 31, 2008; (2) Definitive Proxy
Statement on Schedule 14A; and (3) Form 10-Q for the fiscal quarter
ended March 31, 2009, as set forth in your letter to Mr. Theodore F.
Craver, Chairman of the Board, President and Chief Executive Officer of
Edison International, dated July 14, 2009.
For reference purposes, the text of your letter has been reproduced in
this letter, with our responses appearing below each numbered comment.
Edison International
Form 10-K for Fiscal Year Ended December 31, 2008
Item 9A. Controls and Procedures, page 51
1. We refer you to your response to comment one in our letter dated
August 9, 2007 submitted on August 30, 2007. In the response,
you indicated that you intended to disclose in future annual
report filings that (i) the scope of your evaluation of internal
control over financial reporting does not include an evaluation
of internal control over financial reporting for certain variable
interest entities consolidated pursuant to FIN 46(R) together
with key sub-totals such as total and net assets, revenues and
net income that result from consolidation of such entities and
(ii) your conclusion regarding the effectiveness of internal
control over financial reporting does not extend to the internal
controls of such VIEs. Please tell us why you concluded the
additional disclosures you intended to provide are not required.
Otherwise, please include the disclosures in future annual report
filings. Also, please tell
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us whether the scope of your
evaluation of internal control over financial reporting includes
entities that you proportionately consolidate. If the scope of
your evaluation does not include proportionately consolidated
entities, please provide similar disclosures in regard to those
entities. The additional disclosures should also note that the
financial statements include the accounts of certain entities
consolidated pursuant to FIN 46(R) and/or accounted for via
proportionate consolidation in accordance with EITF 00-1 but that
management has been unable to assess the effectiveness of
internal control at those entities due to the fact that you do
not have the ability to dictate or modify the controls of the
entities and do not have the ability, in practice, to assess
those controls. Please refer to Questions 1 of "Frequently Asked
Questions Regarding Management's Report on Internal Control Over
Financial Reporting and Certification of Disclosure in Exchange
Act Periodic Reports" available on our website at
www.sec.gov/info/accountants/controlfaq.htm.
Response:
Variable Interest Entities:
Edison International will add the following additional disclosure
in its 2009 Form 10-K:
Edison International consolidates four variable interest
entities under FIN 46(R), but does not control the
operating activities of these entities or have the ability
to dictate or modify the controls of these entities.
Accordingly, the scope of evaluation of internal control
over financial reporting does not include an evaluation of
internal control over financial reporting for these
variable interest entities. A summary of the key
sub-totals of these entities is set forth in the following
table (in millions):
----------------------------------------------------
2008
----------------------------------------------------
At December 31,
Total Assets $416
For the year ended December 31,
Revenue $410
Operating Expenses $243
Net Income $ 88
----------------------------------------------------
Accordingly, the conclusion regarding the effectiveness of
internal control over financial reporting does not extend
to the internal controls of such variable interest
entities.
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Jointly Owned Utility Plants -
Edison International proportionately records its share of
expenses for jointly owned utility projects as described in Note
13 to the Consolidated Financial Statements. Edison
International's scope of evaluation of internal control over
financial reporting includes SCE's interests in such jointly
owned utility projects.
Schedule II Valuation and Qualifying Accounts, page 58
2. Please disclose the nature of amounts charged to other accounts.
Refer to Rule 12-09 of Regulation S-X.
Response:
Edison International will add the following footnote to describe
the nature of $48 million charged to other accounts in our 2009
Form 10-K.
New Footnote to Schedule II, Valuation and Qualifying Accounts
On September 15, 2008, Lehman Brothers Holdings filed for
protection under Chapter 11 of the U.S. Bankruptcy Code. EME
had power contracts with Lehman Brothers Commodity Services,
Inc., a subsidiary of Lehman Brothers Holdings, for Midwest
Generation for 2009 and 2010. Lehman Brothers Commodity
Services also filed for bankruptcy protection on October 3,
2008. The obligations of Lehman Brothers Commodity Services
under the power contracts were guaranteed by Lehman Brothers
Holdings. EME has established claims in the amount of $48
million related to the contracts terminated with Lehman
Brothers Holdings and its subsidiary through the termination
provisions of its master netting agreements with a Lehman
Brothers Holdings subsidiary. Such claims have been fully
reserved and are included net in "Receivables, less allowances
for uncollectible accounts" on Edison International's
Consolidated Balance Sheet.
Exhibit 12 - Computation of Ratios of Earnings to Fixed Charges and
Preferred and Preference Stock
3. Please show us your calculation of earnings for the most recent
year in a format that identifies each of the items in instruction
(C) of Item 503(d) of Regulation S-K. In addition, tell us why
your treatment of minority interest, equity in income from equity
investees and distributed income from equity investees in your
earnings computations comply with the instructions to Item 503(d)
Regulation S-K. In future filings please show your computations
to derive income from continuing operations before fixed charges
and taxes starting with income from continuing operations before
tax and minority interest.
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Response:
Attachment A includes a copy of Edison International's
calculation for 2008 in the format requested. The Ratios of
Earnings to Fixed Charges and Preferred and Preference Stock are
not materially different than presented in the 2008 Form
10-K.
Edison International will revise the format of the Ratio of
Earnings to Fixed Charges and Preferred and Preference Stock
calculation to be consistent with instruction (C) of Item 503(d)
in its 2009 Form 10-K.
Exhibit 13 - Selected Portions of the Annual Report to Shareholders
from the Year Ended December 31, 2008
Management's Discussion and Analysis of Financial Condition and Results
of Operations, page 8
Edison International (Consolidated) Results of Operations and
Historical Cash Flow Analysis, page 64
4. Your presentation of average realized prices, as computed in the
footnotes to the tables on pages 72 and 75, appear to represent
non-GAAP financial measures since you exclude certain GAAP
amounts in the calculations. Please tell us whether you
consider average realized prices of the Illinois plants and Homer
City facilities statistical measures that are based on GAAP
numbers and explain the basis for your conclusion. Otherwise,
please revise your disclosures to identify the measures as
non-GAAP financial measures, provide a reconciliation of
operating revenues of the nonutility power generation segment to
realized revenues of the Illinois plants and Homer City
facilities and disclose the reasons why management believes that
the presentation of the non-GAAP financial measures provides
useful information to investors regarding your results of
operations. Please refer to Item 10(e) of Regulation S-K.
Response:
Additional disclosure has been added to the second quarter of
2009 Form 10-Q together with a reconciliation of the operating
revenues of the Illinois Plants and Homer City to the operating
revenues of the non-utility power generation segment.
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Critical Accounting Estimates and Policies, page 87
5. Please revise to describe the material implications of
uncertainties associated with the methods, assumptions and
estimates underlying your critical accounting measurements that
have had or that you reasonably expect will have a material
impact on financial condition and operating performance and on
the comparability of reported information among periods. Your
disclosures should supplement, not duplicate, the accounting
policies disclosed in the notes to the financial statements. For
example, you should analyze to the extent material, such factors
as how you arrived at each estimate, how accurate the
estimate/assumption has been in the past, how much the
estimate/assumption has changed in the past and whether the
estimate/assumption is reasonably likely to change in the
future. We would expect you to provide quantitative as well as
qualitative disclosure when quantitative information is
reasonably available and to provide greater insight into the
quality and variability of information regarding financial
condition and operating performance. Also, since each critical
accounting estimate and related assumptions are based on matters
that are uncertain or difficult to measure, you should analyze
and disclose their specific sensitivity to change, based on other
outcomes that are reasonably likely to occur and would have a
material effect. Please refer to Item 303(a)(3)(ii) of
Regulation S-K as well as the Commission's Guidance Regarding
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Response:
Edison International will enhance its Critical Accounting
Estimates and Policies disclosures to describe the material
implications of uncertainties associated with the methods,
assumptions and estimates under Item 303(a)(3)(ii) of Regulation
S-K in its 2009 Form 10-K.
Notes to Consolidated Financial Statements, page 125
Note 1. Summary of Accounting Policies, page 125
Earnings Per Share, page 128
6. Please clarify whether you allocate undistributed earnings to the
participating securities for purposes of computing basic earnings
per share. Refer to Issue 3 of EITF 03-6. Please note any
participant rights that are contingent or subject to discretion
should be disclosed in accordance with paragraph 4 of SFAS 129.
Also, please tell us the nature of the adjustments related to
assumed conversions in the diluted earnings per share calculation.
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Response:
Under the two-class method, we allocate undistributed earnings to
common stock and participating securities on a one to one ratio,
as if all of the earnings for the period have been distributed.
Edison International's participating securities provide the
holder with the ability to participate in all dividends declared
with the holders of common stock on an equal basis as disclosed
in Note 1 to the Consolidated Financial Statements:
"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..."
Edison International only includes vested stock-based awards in
the computation of basic earnings per share and does not have
participating securities with contingencies or that are subject
to discretion.
Edison International uses the treasury stock method under
paragraph 17 of SFAS 128 to calculate diluted EPS. In applying
the treasury method, all dilutive potential common shares,
regardless of whether they are exercisable, are treated as if
they have been exercised. All Edison International stock-based
awards payable in stock are assumed to be converted and are
considered in the diluted computation, taking into consideration
proceeds received upon exercise, compensation cost attributable
to future services not yet recognized, and the amount of excess
tax benefits, if any. Edison International then ranks the
dilutive impacts of the stock-based awards beginning with non
participating securities followed by participating securities.
Note 4. Income Taxes, page 144
Accounting for Uncertainty in Income Taxes, page 146
7. Please tell us how the liability for unrecognized tax benefits is
classified in your consolidated balance sheet for each year
presented. In addition, please tell us the nature of the items
netted against the liability as disclosed in note 3 to the table
of commitments on page 95.
Response:
At December 31, 2008, the liability was recorded within the
captions "Accrued taxes" and "Other deferred credits and other
long term liabilities" on the
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Consolidated Balance Sheet. At
December 31, 2007, the liability was recorded within the captions
"Other current assets" and "Other deferred credits and other long
term liabilities" on the Consolidated Balance Sheet.
At December 31, 2008, Edison International had a consolidated net
liability recorded for uncertain tax positions of $450 million,
compared to a liability for unrecognized tax benefits of $2.237
billion. The difference is mainly due to the presentation of
potential affirmative claim refunds. The $450 million net
liability for uncertain tax positions includes liabilities
expected to be paid to taxing authorities net of refunds expected
to be received from taxing authorities, by tax jurisdiction. We
have also netted potential refunds from affirmative claims.
During the second quarter of 2009, Edison International completed
a settlement of tax matters with the Internal Revenue Service
(referred to as the "Global Settlement"). The Global Settlement
is described on page 21 of Edison International's Form 10-Q for
the quarter ended June 30, 2009. As a result of the Global
Settlement, unrecognized tax benefits were reduced by $1.8
billion during the second quarter with a remaining balance of
unrecognized tax benefits of $639 million at June 30, 2009.
Note 5. Compensation and Benefits Plans, page 151
Stock-Based Compensation, page 158
8. We note your disclosure in the second paragraph on page 139 that
you have issued restricted stock units since 2007. Please tell
us why you have not disclosed the information in paragraph A240
of SFAS 123(R) for restricted stock units.
Response:
Beginning in 2007, Edison International awarded restricted stock
units as part of its stock-based compensation. Such amounts have
not been material (less than $3 million per year) to add the
disclosures set forth in paragraph A240 of SFAS 123(R). Such
amounts are included in the total stock-based compensation
expense set forth in Note 5 to our 2008 Consolidated Financial
Statements. However, we currently evaluate the disclosure of all
stock-based awards at least annually and will consider additional
disclosure in our 2009 Form 10-K.
Stock Options, page 158
9. Please tell us your rationale for using historical volatility for
the most recent 36 months in estimating the fair value of stock
options as opposed to
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historical volatility over a period
commensurate with the expected or contractual term of the
awards. Refer to Question 2 of SAB Topic 14:D.
Response:
Edison International considers historical volatility in
estimating the fair value of stock options. SFAS123(R) indicates
that "in computing historical volatility, an entity might
disregard an identifiable period of time in which its share price
was extraordinarily volatile because of a failed takeover bid if
a similar event is not expected to recur during the expected or
contractual term." Due to the California Energy Crisis, Edison
International believed it was reasonable to exclude historical
volatility during the period 2000 through 2002 since (1) the
volatility was impacted by an event that was specific to the
deregulation of the California Electric industry and (2) the
event is not reasonably expected to occur again during the
estimated term. For 2006 and 2007, we used the last three years'
historical volatility to determine the fair value of our stock
options. In 2008, we revised the historical volatility period to
62 months to more closely reflect the expected term of the stock
option awards without including the period of the California
Energy Crisis. In 2009, we further revised the historical
volatility period to 74 months consistent with our objective to
use the expected term of the awards excluding the California
Energy Crisis. We will revise our disclosure in the 2009 Form
10-K to clarify the period used for historical volatility.
Performance Shares, page 160
10. Please tell us what consideration you gave to presenting separate
disclosure of awards classified as equity and those classified as
liabilities. Refer to paragraph A240f of SFAS 123(R).
Response:
To the extent that performance shares are earned under the terms
of the performance share plan, awards are settled half in cash
and half in common stock. The portion of the performance shares
settled in cash are classified as share-based liability awards
while the portion of the performance shares settled in common
stock are classified as share-based equity awards. Edison
International has followed the requirements under SFAS 123(R),
Paragraph A240f, and properly separated its equity and liability
performance share disclosures. We considered the differences in
settlement, fair value, accounting recognition and dividend
equivalent feature in determining that separate disclosure was
appropriate.
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Note 6. Commitments and Contingencies, page 161
Lease Commitments, page 161
11. Please disclose the information for capital leases required by
paragraphs 16.a of SFAS 13 or tell us why such disclosures are
not required.
Response:
Edison International disclosed the aggregate future commitments
for power purchase contracts which met the requirements for
capital leases, whether or not yet reflected on the consolidated
balance sheets (certain lease terms do not begin until 2010 and
2011). Edison International disclosed in its second quarter of
2009 Form 10-Q, and will continue to disclose prospectively (as
applicable), the minimum lease payments for each of the five
succeeding years and the gross and net carrying amounts of assets
recorded under capital leases. The disclosure of future lease
payments in the second quarter of 2009 Form 10-Q reflect all
capital leases, whether or not reflected on the consolidated
balance sheets. In addition, Edison International disclosed there
were no subleases and that the contingency rentals were less than
$1 million.
Other Commitments, page 163
12. Please tell us how you are accounting for the power purchase
settlements with qualifying facilities and the basis in GAAP for
your accounting treatment. In addition, please disclose the
amount of QF settlements for each year presented.
Response:
SCE reached settlements with certain qualifying facilities to
buyout/terminate the power purchase agreements between SCE and
those qualifying facilities. The buyouts resulted in SCE paying
a fixed payment to the qualifying facilities in accordance with a
negotiated schedule and relieving the qualifying facilities from
any obligation to provide power to SCE. The fixed payment
obligation met the definition of a liability as defined by
Concepts Statement No. 3. As a result, upon execution of the
buyouts, SCE recognized a liability equal to the present value of
the future payment stream in accordance with APB No. 21,
"Interest on Payables and Receivables." The liabilities were
reported in "Other deferred credits and other long-term
liabilities" on the consolidated balance sheet. Because SCE
recovered these payments from ratepayers through authorized
rates, in accordance with SFAS 71, "Accounting for the Effects of
Certain Types of Regulation," Paragraph 9, SCE recorded an
offsetting "Regulatory asset" instead of
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immediately recording
purchased-power expense. At the end of each quarter, SCE
reflected accretion of the liability for the current-period
portion of the difference between the discounted and nominal
value of the settlement agreement. The accretion of the
liability was offset by a regulatory asset instead of recording
interest expense, as this amount was also recoverable in future
rates. The regulatory asset was amortized to purchased-power
expense as part of the authorized recovery of costs from
ratepayers in accordance with regulatory commission actions.
The settlement payments were $6 million, $28 million and $53
million for 2008, 2007 and 2006, respectively. The balance sheet
amounts of these settlements at December 31, 2008 and 2007 were
zero and $8 million, respectively.
Contingencies, page 167
Midwest Generation New Source Review Notice of Violation, page 171
13. Please tell us whether you have agreed to indemnify Commonwealth
Edison for liabilities, costs and expenses that may be incurred
in connection with the notice of violation from US EPA received
by Midwest Generation. If so, tell us the maximum amount of
future payments you could be required to make under the
indemnification and whether you have accrued a liability.
Response:
EME did not agree to indemnify Commonwealth Edison. Rather, EME
and Commonwealth Edison have entered into a standstill agreement
in response to the indemnity requested by Commonwealth Edison for
liabilities, costs and expenses that may be incurred in
connection with the notice of violation from US EPA received by
Midwest Generation. The parties have agreed to postpone
resolution of whether the indemnity is applicable while jointly
working together to respond to the US EPA. As disclosed, Midwest
Generation cannot predict the outcome of the notice of violation
with US EPA or estimate the impact on its facilities, its results
of operations, financial position or cash flows. In addition,
Midwest Generation cannot estimate the maximum amount of future
payments that it could be required to make under the indemnity.
No liability has been recorded at June 30, 2009.
Note 14. Variable Interest Entities, page 185
Categories of Variable Interest Entities, page 186
14. Please explain to us in detail how you account for EME's
investments in wind projects under joint development agreements.
Please address whether you account for the investments as debt or
equity and the basis for your
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accounting treatment, how you
allocate earnings to the minority interest holders and how you
apply the equity method in accounting for minority interest
together with any other information you deem necessary.
Response:
Background
The following description of EME's business development
activities was set forth on page 21 of the 2008 Form 10-K in the
business section and may be helpful in providing the context of
our accounting.
"In seeking to find and invest in new wind projects, EME has
entered into joint development agreements with third-party
development companies that provide for funding by an EME
subsidiary of development costs including through loans (referred
to as development loans) and joint decision-making on key
contractual agreements such as power purchase contracts, site
agreements and permits. Joint development agreements and
development loans may be for a specific project or a group of
identified and future projects and generally grant EME the
exclusive right to acquire related projects. In addition to joint
development agreements, EME may purchase wind projects from
third-party developers in various stages of development,
construction or operation.
In general, EME funds development costs under joint development
agreements through development loans which are secured by project
specific assets. A project's development loans are repaid upon
the completion of the project. If the project is purchased by
EME, repayment is made from proceeds received from EME in
connection with the purchase. In the event EME declines to
purchase a project, repayment is to be made from proceeds
received from the sale of the project to third parties or from
other sources as available."
Accounting during the Development Phase
During the development phase, EME incurs development costs
directly and through expenditures made by joint developers from
loans provided by EME. Such costs are generally expensed as
incurred. In one case (referred to as U.S. Wind Force), EME made
an initial loan to the developer to fund a redemption of a
membership interest held by another party, repayment of loans and
equity distributions to the equity holders. In this case, EME
concluded the loan was a variable interest and EME was the
primary beneficiary under FIN 46(R). Through consolidation of
this entity at inception, EME reflected the project development
rights as an intangible asset and eliminated the loan receivable
from U.S. Wind Force with the loan payable of this variable
interest entity. With
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respect to the operating activities of
U.S. Wind Force, EME absorbs losses during the development phase
and reflects operating activities as development costs.
Under other joint development arrangements, the local developer
generally does not fund development costs and has little to no
equity at risk. As a result, EME records the losses in excess of
joint developers' equity at risk. By way of analogy, the
substance of the joint development arrangement and accounting
treatment is the same as EME paying a third party for services to
conduct development.
Accounting upon Successful Completion of Development of a Project
Upon successful completion of a project, EME and the joint
developer finalize a purchase price for EME's acquisition of the
project from the local developer. The purchase price is then
used, in part, by the local developer to repay the development
loan. Depending on the commercial agreement, the local developer
may also retain a small minority interest. As a result of the
acquisition, EME consolidates the project company and presents
the underlying assets (generally construction in progress) in its
consolidated financial statements. In accounting for the
acquisition of the project from the local developer, EME
eliminates the repayment of the development loan (previously
recorded as an expense during the development phase) from the
purchase price as a consolidation adjustment.
At December 31, 2008, a minority interest was held by others in
two projects (neither were joint developers) that represents the
substantial majority of the minority interest included in the
summarized financial information of wind projects in Note 14 to
the Consolidated Financial Statements (25% held by a third party
in the San Juan Mesa project and 33.3% held by local partners
that purchased interests in the Elkhorn Ridge project).
Subsequent to the acquisition of a project, EME allocates income
to the minority interest holders based on their ownership
percentage except in cases where cash is allocated using a method
that will result in a deficiency in the event of liquidation. In
these cases, earnings are allocated using the prorated share that
is anticipated to be earned over the life of the project.
Form 10-Q for Fiscal Quarter Ended March 30, 2009
15. Please address the above comments in future filings to the extent
applicable.
Response:
To the extent applicable, Edison International will revise its
quarterly disclosures as addressed above.
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Note 4. Income Taxes, page 20
16. In future filings please consider clarifying your disclosures
related to the impact of the Global Settlement on your financial
statements. For example, consider disclosing the following items:
o The nature and amounts of each of the significant adjustments to
income tax expense and/or benefits resulting from the
global settlement and resolution of disputes related to the
cross border leases;
o The effects of the termination of the cross border leases; and
o The expected proceeds from the termination of the cross border
leases and refunds of tax deposits.
Response:
The impact of the Global Settlement and lease terminations were
recorded during the second quarter of 2009 and related
disclosures were appropriately updated in the Form 10-Q for the
quarter ended June 30, 2009, taking into consideration the items
noted above. Information on the Global Settlement was included in
the following sections of the Form 10-Q: Federal and State Income
Taxes on page 52; Intercompany Tax-Allocation Agreement on page
87; Leveraged Leases on page 110; and Note 4 to the Consolidated
Financial Statements.
Definitive Proxy Statement on Schedule 14A
Executive Compensation Program Objectives and Overview, page 20
17. We note here and in your discussion of long term incentives that
you have set your compensation for each named officer at
approximately the median level for that position among the peer
group companies. Please expand your disclosure to explain why
the Compensation Committee determined to set executive
compensation at median level.
Response:
In future filings, Edison International and SCE will expand the
disclosure in their joint proxy statement to explain the
Compensation Committee's determination to use the median or other
applicable level, which in the past has been based on the
recommendation of the Committee's independent compensation
consultant.
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18. We note that the Compensation Committee selected, with some
adjustments, the Philadelphia Utility Index as your compensation
peer group for 2008. It appears that you are benchmarking your
executive compensation against this peer group. Please identify
the component companies for your peer group, pursuant to Item
402(b)(2)(xiv) of Regulation S-K.
Response:
The Compensation Committee selected the Philadelphia Utility Index
minus AES Corporation plus Sempra Energy as the peer group for 2008,
which included the following companies:
Ameren FirstEnergy
American Electric Power FPL Group
CenterPoint Energy Northeast Utilities
Consolidated Edison Pacific Gas & Electric
Constellation Energy Progress Energy
Dominion Resources Public Service Enterprise Group
DTE Energy Sempra Energy
Duke Energy Southern Company
Entergy Xcel Energy
Exelon
In future filings, Edison International and SCE will identify the
relevant component companies of the Philadelphia Utility Index, or
other relevant index, used as our compensation peer group.
Annual Bonuses, page 121
19. We note that you have disclosed that the Compensation Committee
sets specific goals at the beginning of the year for named
officers to achieve in order that they may receive an annual
bonus, but you have not provided a quantitative discussion of the
terms of the necessary goals. If you omitted this information
because you believe it would result in competitive harm as
provided under Instruction 4 to Item 402(b), please tell us your
reasons. If disclosure of the performance-related factors would
cause competitive harm, please discuss how difficult it will be
for the executive or how likely it will be for the registrant to
achieve the target levels or other factors. Please also discuss
any discretion that may be exercised in paying the bonus absent
attainment of the stated performance goal. Please see
Instruction 4 to Item 402(b) of Regulation S-K.
Page 15
Response:
For 2008, the only bonus formula adopted by the Compensation
Committee was the formula adopted under the 2008 Executive Bonus
Program, which was based on 1.5% of Edison International's
consolidated earnings from continuing operations during 2008, all
as disclosed on page 23 of the Proxy Statement. The Committee
did not adopt any other bonus formula, or assign quantitative
values or weightings to any other goals, for purposes of making
bonus determinations.
As noted on page 21 of the Proxy Statement, target and maximum
bonus opportunities were established by the Committee for each
Named Officer. The target and maximum bonus amounts served as
guidelines for final bonus determinations at the end of the
year. However, these targets and maximums were not tied to any
pre-established performance goals or targets other than the
maximum bonus amounts ultimately produced under the 2008
Executive Bonus Program.
The Compensation Committee did adopt certain business goals at
the start of the year to be used as the basis for evaluating
performance, but the Committee retained total discretion to
determine bonus amounts (within the maximums established under
the 2008 Executive Bonus Program), including the discretion to
base bonus determinations on criteria not included in the
business goals adopted at the start of the year, and the
discretion to pay no bonus regardless of any level of
performance. Page 22 of the Proxy Statement includes a detailed
list of the material performance factors taken into account by
the Committee in making its subjective (within the maximums
established under the 2008 Executive Bonus Program) determination
of bonuses for 2008. Included among the factors is the decline in
the Company's stock price, which was not related to the business
goals set at the beginning of the year, but was an important
factor taken into account by the Committee in determining bonuses
for 2008.
In future filings for fiscal years with respect to which the
Committee has discretion in determining Named Officer bonuses, we
will clarify (consistent with our comments in the foregoing
paragraphs) the level of discretion involved.
Stock Ownership of Directors and Executive Officers, page 60
20. We note that you provided disclosure as of January 31, 2009.
Please provide ownership information as of a date closer to the
date of your proxy. In addition, please indicate and include
shares that could be acquired within 60 days.
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Response:
In future filings, Edison International and SCE will provide
stock ownership information as of a date closer to the date of
their joint proxy statement. The disclosure will also continue
to indicate and include shares that could be acquired within 60
days of such date.
Certain Relationships and Related Transactions, page 62
21. You mention here that the appropriate committee will review any
related party transaction that is required to be disclosed in
your proxy. Please revise this discussion to provide additional
information regarding your policies and procedures relating to
the review and approval of such transactions, as required
pursuant to Item 404(b) of Regulation S-K. In this regard, we
note your statement that the disclosed transactions were
comparable to those that would have been undertaken with
nonaffiliated entities. Please indicate whether the related
party transactions you describe were reviewed in accordance with
your policy and, if not, state why they did not require such
review.
Response:
In future filings, Edison International and SCE will enhance the
disclosure required by Item 404(b) of Regulation S-K to provide
additional information regarding our policies and procedures
relating to the review and approval of related party
transactions. The related party transactions described in the
Proxy Statement were reviewed in accordance with our policy. In
future filings, we will indicate whether related party
transactions were reviewed in accordance with our policy.
Southern California Edison
Form 10-K for Fiscal Year Ended December 31, 2008
Item 9A. Controls and Procedures, page 20
22. We note that the scope of your evaluation of internal control
over financial reporting does not include an evaluation of
internal control over financial reporting for certain variable
interest entities consolidated pursuant for FIN 46(R). In future
filings please disclose key sub-totals such as total and net
assets, revenues and net income that result from consolidation of
such entities and that your conclusion regarding the
effectiveness of internal control over
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financial reporting does
not extend to the internal controls of such VIEs. Also, please
tell us whether the scope of your evaluation of internal control
over financial reporting includes entities that you
proportionately consolidate. If the scope of your evaluation
does not include proportionately consolidated entities, please
provide similar disclosures in regard to those entities. The
additional disclosures should also note that the financial
statements include the accounts of certain entities consolidated
pursuant to FIN 46(R) or accounted for via proportionate
consolidation in accordance with EITF 00-1 but that management
has been unable to assess the effectiveness of internal control
at those entities due to the fact that you do not have the
ability to dictate or modify the controls of the entities and do
not have the ability, in practice, to assess those controls.
Please refer to Questions 1 of "Frequently Asked Questions
Regarding Management's Report on Internal Control Over Financial
Reporting and Certification of Disclosure in Exchange Act
Periodic Reports" available on our website at
www.sec.gov/info/accountants/controlfaq.htm.
Response:
Variable Interest Entities:
SCE will add the following additional disclosure in its 2009 Form
10-K:
SCE consolidates four variable interest entities under FIN
46(R), but does not control the operating activities of
these entities or have the ability to dictate or modify the
controls of these entities. Accordingly, the scope of
evaluation of internal control over financial reporting
does not include an evaluation of internal control over
financial reporting for these variable interest entities.
A summary of the key sub-totals of these entities is set
forth in the following table (in millions):
----------------------------------------------------
2008
----------------------------------------------------
At December 31,
Total Assets $419
For the year ended December 31,
Revenue $410
Operating Expenses $245
Net Income --
----------------------------------------------------
Accordingly, the conclusion regarding the effectiveness of
internal control over financial reporting does not extend
to the internal controls of such variable interest
entities.
Page 18
Jointly Owned Utility Plants -
SCE's scope of evaluation of internal control over financial
reporting includes its Jointly Owned Utility Projects.
Exhibit 12 - Computation of Ratios of Earnings to Fixed Charges
23. Please show us your calculation of earnings for the most recent
year in a format that identifies each of the items in instruction
(C) of Item 503(d) of Regulation S-K. In addition, tell us why
your treatment of minority interest, equity in income from equity
investees and distributed income from equity investees in your
earnings computations comply with the instructions to Item 503(d)
Regulation S-K. In future filings please show your computations
to derive income from continuing operations before fixed charges
and taxes starting with income from continuing operations before
tax and minority interest.
Response:
Attachment A includes a copy of SCE's calculation for 2008 in the
format requested.
SCE will revise the format of the ratio of earnings to fixed
charges calculation to be consistent with instruction (C) of Item
503(d) in its 2009 Form 10-K.
Exhibit 13 - Selected Portions of the Annual Report to Shareholders for
the Year Ended December 31, 2008
Critical Accounting Estimates and Policies, page 44
24. Please revise to describe the material implications of
uncertainties associated with the methods, assumptions and
estimates underlying your critical accounting measurements that
have had or that you reasonably expect will have a material
impact on financial condition and operating performance and on
the comparability of reported information among periods. Your
disclosures should supplement, not duplicate, the accounting
policies disclosed in the notes to the financial statements. For
example, you should analyze to the extent material, such factors
as how you arrived at each estimate, how accurate the
estimate/assumption has been in the past, how much the
estimate/assumption has changed in the past and whether the
estimate/assumption is reasonably likely to change in the
future. We would
Page 19
expect you to provide quantitative as well as
qualitative disclosure when quantitative information is
reasonably available and to provide greater insight into the
quality and variability of information regarding financial
condition and operating performance. Also, since each critical
accounting estimate and related assumptions are based on matters
that are uncertain or difficult to measure, you should analyze
and disclose their specific sensitivity to change, based on other
outcomes that are reasonably likely to occur and would have a
material effect. Please refer to Item 303(a)(3)(ii) of
Regulation S-K as well as the Commission's Guidance Regarding
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Response:
See Edison International's response to comment 5 above.
Notes to Consolidated Financial Statements, page 125
Note 4. Income Taxes, page 144
Accounting for Uncertainty in Income Taxes, page 74
25. Please tell us how the liability for unrecognized tax benefits is
classified in your consolidated balance sheet for each year
presented. In addition, please tell us the nature of the items
netted against the liability as disclosed in note 3 to the table
of commitments on page 50.
Response:
The classification of unrecognized tax benefits and the nature of
the items netted against the liability for Southern California
Edison are the same as described in Edison International's
response to comment 7 above.
Note 5. Compensation and Benefit Plans, page 76
Stock-Based Compensation, page 84
26. We note your disclosure in the second paragraph on page 69 that
you have issued restricted stock units since 2007. Please tell
us why you have not disclosed the information in paragraph A240
of SFAS 123(R) for restricted stock units.
Page 20
Response:
See Edison International's response to comment 8 above.
Stock Options, page 84
27. Please tell us your rationale for using historical volatility for
the most recent 36 months in estimating the fair value of stock
options as opposed to historical volatility over a period
commensurate with the expected or contractual term of the
awards. Refer to Question 2 of SAB Topic 14:D.
Response:
See Edison International's response to comment 9 above.
Performance Shares, page 86
28. Please tell us what consideration you gave to presenting separate
disclosure of awards classified as equity and those classified as
liabilities. Refer to paragraph A240f of SFAS 123(R).
Response:
See Edison International's response to comment 10 above.
Note 6. Commitments and Contingencies, page 161
Lease Commitments, page 87
29. Please disclose the information for capital leases required by
paragraphs 16a of SFAS 13 or tells us why such disclosures are
not required.
Response:
See Edison International's response to comment 11 above.
Other Commitments, page 89
30. Please tell us how you are accounting for the power purchase
settlements with qualifying facilities and the basis in GAAP for
your accounting treatment. In addition, please disclose the
amount of QF settlements for each year presented.
page 21
Response:
See Edison International's response to comment 12 above.
Form 10-Q for Fiscal quarter Ended March 30, 2009
31. Please address the above comments in future filings to the extent
applicable.
Response:
To the extent applicable, SCE will revise its quarterly
disclosures as addressed above.
In connection with our response to the comments of the Staff set forth
herein, we acknowledge that:
o Each of Edison International and SCE are responsible for the
adequacy and accuracy of the disclosure in their respective
filings;
o Staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with respect to the filing; and
o Neither Edison International nor SCE may assert staff comments as
a defense in any proceeding initiated by the Commission or any
person under the federal securities laws of the United States.
Should you have any questions or comments on the above responses,
please advise us by letter or by calling me at (626)302-2278 or via
e-mail at mark.clarke@edisonintl.com, or Jeff Duran at (626)302-4513 or
via e-mail at jeff.duran@sce.com.
Sincerely,
/s/ Mark Clarke /s/ Linda G. Sullivan
- --------------- ---------------------
Mark Clarke Linda G. Sullivan
Vice President and Controller Senior Vice President & Chief
Edison International Financial Officer
Acting Controller
Southern California Edison
