Compensation and Benefit Plans | 12 Months Ended |
Dec. 31, 2013 |
Compensation and Retirement Disclosure [Abstract] | ' |
Compensation and Benefit Plans | ' |
Compensation and Benefit Plans |
Employee Savings Plan |
The 401(k) defined contribution savings plan is designed to supplement employees' retirement income. The following employer contributions were made for continuing operations: |
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| Edison International | | SCE | | | | | | | | | | | | | | | | |
(in millions) | Years ended December 31, | | | | | | | | | | | | | | | | |
2013 | $ | 76 | | | $ | 76 | | | | | | | | | | | | | | | | | |
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2012 | 85 | | | 84 | | | | | | | | | | | | | | | | | |
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2011 | 84 | | | 83 | | | | | | | | | | | | | | | | | |
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Pension Plans and Postretirement Benefits Other Than Pensions |
Pension Plans |
Noncontributory defined benefit pension plans (some with cash balance features) cover most employees meeting minimum service requirements. SCE recognizes pension expense for its nonexecutive plan as calculated by the actuarial method used for ratemaking. The expected contributions (all by the employer) for Edison International and SCE are approximately $200 million and $173 million, respectively, for the year ending December 31, 2014. Annual contributions made to most of SCE's pension plans are anticipated to be recovered through CPUC-approved regulatory mechanisms. Annual contributions to these plans are expected to be, at a minimum, equal to the related annual expense. |
The funded position of Edison International's pension is 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 Edison International's long-term pension are affected by movements in the equity and bond markets. Due to SCE's regulatory recovery treatment, the unfunded status is offset by a regulatory asset. |
Non-Executive Retirement Plan Liabilities of EME |
The employees of EME and its subsidiaries participate in a number of qualified retirement plans that are sponsored by either Edison International or SCE. Under these benefit plans EME is obligated to make contributions to fund the costs of the plans. Edison International Parent has not guaranteed the obligations of EME, however, under the Internal Revenue Code and applicable state statutes, Edison International Parent is jointly liable for qualified retirement plans. As a result of the EME Chapter 11 bankruptcy filing, Edison International has a long-term liability of $35 million and $80 million at December 31, 2013 and 2012, respectively, related to employees of EME participation in these plans which is reflected in the table below. For further information on the EME Chapter 11 bankruptcy filing, refer to Note 16. |
Transfer of Certain Pension Benefits to Edison International |
In 2012, Edison International agreed to assume the liabilities for active employees of SCE and EME under the specified plans related to pension benefits. During bankruptcy, EME is obligated to fund costs incurred on an after tax basis each pay period while SCE is obligated to reimburse Edison International upon settlement of liabilities on an after tax basis. |
Information on pension plan assets and benefit obligations for continuing and discontinued operations is shown below. |
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| Edison International | | SCE | | | | | | | | |
| Years ended December 31, | | | | | | | | |
(in millions) | 2013 | | 2012 | | 2013 | | 2012 | | | | | | | | |
Change in projected benefit obligation | | | | | | | | | | | | | | | |
Projected benefit obligation at beginning of year | $ | 4,948 | | | $ | 4,493 | | | $ | 4,434 | | | $ | 4,112 | | | | | | | | | |
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Service cost | 174 | | | 179 | | | 154 | | | 156 | | | | | | | | | |
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Interest cost | 182 | | | 196 | | | 164 | | | 176 | | | | | | | | | |
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Liability transferred to Edison International | — | | | 23 | | | — | | | (92 | ) | | | | | | | | |
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Actuarial (gain) loss | (330 | ) | | 370 | | | (277 | ) | | 318 | | | | | | | | | |
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Curtailment | — | | | (26 | ) | | — | | | — | | | | | | | | | |
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Benefits paid | (796 | ) | | (253 | ) | | (754 | ) | | (236 | ) | | | | | | | | |
Deconsolidation of EME1 | — | | | (34 | ) | | — | | | — | | | | | | | | | |
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Projected benefit obligation at end of year | $ | 4,178 | | | $ | 4,948 | | | $ | 3,721 | | | $ | 4,434 | | | | | | | | | |
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Change in plan assets | | | | | | | | | | | | | | | |
Fair value of plan assets at beginning of year | $ | 3,542 | | | $ | 3,153 | | | $ | 3,320 | | | $ | 2,971 | | | | | | | | | |
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Actual return on plan assets | 540 | | | 460 | | | 505 | | | 431 | | | | | | | | | |
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Employer contributions | 191 | | | 182 | | | 165 | | | 154 | | | | | | | | | |
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Benefits paid | (796 | ) | | (253 | ) | | (754 | ) | | (236 | ) | | | | | | | | |
Fair value of plan assets at end of year | $ | 3,477 | | | $ | 3,542 | | | $ | 3,236 | | | $ | 3,320 | | | | | | | | | |
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Funded status at end of year | $ | (701 | ) | | $ | (1,406 | ) | | $ | (485 | ) | | $ | (1,114 | ) | | | | | | | | |
Amounts recognized in the consolidated balance sheets consist of: | | | | | | | | | | | | | | | |
Current liabilities | $ | (15 | ) | | $ | (19 | ) | | $ | (5 | ) | | $ | (6 | ) | | | | | | | | |
Long-term liabilities | (686 | ) | | (1,387 | ) | | (480 | ) | | (1,108 | ) | | | | | | | | |
| $ | (701 | ) | | $ | (1,406 | ) | | $ | (485 | ) | | $ | (1,114 | ) | | | | | | | | |
Amounts recognized in accumulated other comprehensive loss consist of: | | | | | | | | | | | | | | | |
Net loss | $ | 30 | | | $ | 127 | | | $ | 33 | | | $ | 40 | | | | | | | | | |
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Amounts recognized as a regulatory asset: | | | | | | | | | | | | | | | |
Prior service cost | $ | 25 | | | $ | 30 | | | $ | 25 | | | $ | 30 | | | | | | | | | |
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Net loss | 328 | | | 999 | | | 328 | | | 999 | | | | | | | | | |
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| $ | 353 | | | $ | 1,029 | | | $ | 353 | | | $ | 1,029 | | | | | | | | | |
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Total not yet recognized as expense | $ | 383 | | | $ | 1,156 | | | $ | 386 | | | $ | 1,069 | | | | | | | | | |
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Accumulated benefit obligation at end of year | $ | 4,015 | | | $ | 4,609 | | | $ | 3,599 | | | $ | 4,171 | | | | | | | | | |
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Pension plans with an accumulated benefit obligation in excess of plan assets: | | | | | | | | | | | | | | | |
Projected benefit obligation | $ | 4,178 | | | $ | 4,948 | | | $ | 3,721 | | | $ | 4,434 | | | | | | | | | |
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Accumulated benefit obligation | 4,015 | | | 4,609 | | | 3,599 | | | 4,171 | | | | | | | | | |
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Fair value of plan assets | 3,477 | | | 3,542 | | | 3,236 | | | 3,320 | | | | | | | | | |
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Weighted-average assumptions used to determine obligations at end of year: | | | | | | | | | | | | | | | |
Discount rate | 4.75 | % | | 3.75 | % | | 4.75 | % | | 3.75 | % | | | | | | | | |
Rate of compensation increase | 4 | % | | 4.5 | % | | 4 | % | | 4.5 | % | | | | | | | | |
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1 | The retirement plan liabilities of EME have been deconsolidated as a result of the bankruptcy filing by EME, except for qualified pension plans that Edison International is jointly liable with EME under the Internal Revenue Code. See Note 16 for further information. | | | | | | | | | | | | | | | | | | | | | | |
Pension expense components for continuing operations are: |
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| Edison International | | SCE |
| Years ended December 31, |
(in millions) | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
Service cost | $ | 162 | | | $ | 163 | | | $ | 149 | | | $ | 159 | | | $ | 160 | | | $ | 145 | |
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Interest cost | 170 | | | 183 | | | 196 | | | 167 | | | 180 | | | 192 | |
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Expected return on plan assets | (222 | ) | | (217 | ) | | (226 | ) | | (222 | ) | | (217 | ) | | (225 | ) |
Settlement costs1 | 87 | | | 5 | | | — | | | 85 | | | 4 | | | — | |
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Amortization of prior service cost | 5 | | | 3 | | | 7 | | | 5 | | | 3 | | | 7 | |
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Amortization of net loss2 | 39 | | | 61 | | | 25 | | | 35 | | | 57 | | | 22 | |
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Expense under accounting standards | 241 | | | 198 | | | 151 | | | 229 | | | 187 | | | 141 | |
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Regulatory adjustment (deferred) | (53 | ) | | (19 | ) | | (28 | ) | | (53 | ) | | (19 | ) | | (28 | ) |
Total expense recognized | $ | 188 | | | $ | 179 | | | $ | 123 | | | $ | 176 | | | $ | 168 | | | $ | 113 | |
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1 | Includes the amount of net loss reclassified from other comprehensive loss. The amount reclassified for Edison International was $2 million for the year ended December 31, 2013. | | | | | | | | | | | | | | | | | | | | | | |
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2 | Includes the amount of net loss reclassified from other comprehensive loss. The amount reclassified for Edison International and SCE was $11 million and $7 million for the year ended December 31, 2013, respectively. | | | | | | | | | | | | | | | | | | | | | | |
Under GAAP, a settlement is recorded when lump-sum payments exceed estimated annual service and interest costs. Lump-sum payments to employees retiring in 2013 from the SCE Retirement Plan (primarily due to workforce reductions described below) exceeded the estimated service and interest costs for the year. A settlement requires re-measurement of both the plan pension obligations and plan assets as of the date of the settlement. The re-measurement of the SCE Retirement Plan during 2013 resulted in total actuarial gains of $563 million, including $558 million for SCE. The actuarial gains are primarily due to an increase in the discount rate (from 3.75% at December 31, 2012 to 4.25% as of May 31, 2013, 4.50% as of August 31, 2013 and 4.75% as of December 31, 2013) due to higher interest rates and performance of the plan assets. |
After re-measurement, GAAP requires an acceleration of a portion of unrecognized net losses attributable to such lump-sum payments as additional pension expense as reflected in the above table. The additional pension expense related to SCE did not impact net income as such amounts are probable of recovery through future rates. |
The projected benefit obligations exceeded the fair value of the SCE Retirement Plan assets by $478 million, including $449 million for SCE, at December 31, 2013 compared to $1.11 billion, including $1.07 billion for SCE, at December 31, 2012. |
Other changes in pension plan assets and benefit obligations recognized in other comprehensive income for continuing operations: |
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| Edison International | | SCE |
| Years ended December 31, |
(in millions) | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
Net (gain) loss | $ | (33 | ) | | $ | 36 | | | $ | 13 | | | $ | (24 | ) | | $ | 20 | | | $ | 8 | |
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Amortization of net loss | (13 | ) | | (10 | ) | | (11 | ) | | (7 | ) | | (6 | ) | | (7 | ) |
Total recognized in other comprehensive loss | $ | (46 | ) | | $ | 26 | | | $ | 2 | | | $ | (31 | ) | | $ | 14 | | | $ | 1 | |
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Total recognized in expense and other comprehensive income | $ | 142 | | | $ | 205 | | | $ | 125 | | | $ | 145 | | | $ | 182 | | | $ | 114 | |
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In accordance with authoritative guidance on rate-regulated enterprises, SCE records regulatory assets and liabilities instead of charges and credits to other comprehensive income (loss) for the portion of SCE's postretirement benefit plans that are recoverable in utility rates. The estimated pension amounts that will be amortized to expense in 2014 for continuing operations are as follows: |
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(in millions) | Edison International | | SCE | | | | | | | | | | | | | | | | |
Unrecognized net loss to be amortized1 | $ | 5 | | | $ | 2 | | | | | | | | | | | | | | | | | |
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Unrecognized prior service cost to be amortized | 5 | | | 5 | | | | | | | | | | | | | | | | | |
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1 | The amount of net loss expected to be reclassified from other comprehensive loss for Edison International's continuing operations and SCE is $6 million and $4 million, respectively. | | | | | | | | | | | | | | | | | | | | | | |
Edison International and SCE used the following weighted-average assumptions to determine pension expense for continuing operations: |
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| Years ended December 31, | | | | | | | | | | | | | | | |
| 2013 | | 2012 | | 2011 | | | | | | | | | | | | | | | |
Discount rate | 4.13 | % | | 4.5 | % | | 5.25 | % | | | | | | | | | | | | | | | |
Rate of compensation increase | 4.5 | % | | 4.5 | % | | 5 | % | | | | | | | | | | | | | | | |
Expected long-term return on plan assets | 7 | % | | 7.5 | % | | 7.5 | % | | | | | | | | | | | | | | | |
The following benefit payments, which reflect expected future service, are expected to be paid: |
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| Edison International | | SCE | | | | | | | | | | | | | | | | |
(in millions) | Years ended December 31, | | | | | | | | | | | | | | | | |
2014 | $ | 265 | | | $ | 202 | | | | | | | | | | | | | | | | | |
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2015 | 240 | | | 208 | | | | | | | | | | | | | | | | | |
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2016 | 249 | | | 214 | | | | | | | | | | | | | | | | | |
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2017 | 254 | | | 219 | | | | | | | | | | | | | | | | | |
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2018 | 257 | | | 227 | | | | | | | | | | | | | | | | | |
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2019 – 2023 | 1,323 | | | 1,196 | | | | | | | | | | | | | | | | | |
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Postretirement Benefits Other Than Pensions ("PBOP(s)") |
Most 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 benefits. Eligibility for a company contribution toward the cost of these benefits in retirement depends on a number of factors, including the employee's years of service, hire date, and retirement date. Under the terms of the Edison International Health and Welfare Plan (“PBOP Plan”) each participating employer (Edison International or its participating subsidiaries) is responsible for the costs and expenses of all PBOP benefits with respect to its employees and former employees. A participating employer may terminate the PBOP benefits with respect to its employees and former employees, as may SCE (as Plan sponsor), and, accordingly, the participants' PBOP benefits are not vested benefits. |
The expected contributions (all by the employer) for PBOP benefits for SCE are $14 million for the year ended December 31, 2014. Annual contributions made to SCE plans are anticipated to be recovered through CPUC-approved regulatory mechanisms and are expected to be, at a minimum, equal to the total annual expense for these plans. |
SCE has established three voluntary employee beneficiary associations trusts (“VEBA Trusts”) that can only be used to pay for retiree health care benefits of SCE. Once funded into the VEBA Trusts, neither SCE nor Edison International can subsequently terminate benefits and recover remaining amounts in the VEBA Trusts. Participants of the PBOP Plan do not have a beneficial interest in the VEBA Trusts. The VEBA Trust assets are 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 Edison International's other postretirement benefits are affected by movements in the equity and bond markets. Due to SCE's regulatory recovery treatment, the unfunded status is offset by a regulatory asset. |
Information on PBOP Plan assets and benefit obligations for continuing and discontinued operations is shown below: |
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| Edison International | | SCE | | | | | | | | |
| Years ended December 31, | | | | | | | | |
(in millions) | 2013 | | 2012 | | 2013 | | 2012 | | | | | | | | |
Change in benefit obligation | | | | | | | | | | | | | | | |
Benefit obligation at beginning of year | $ | 2,460 | | | $ | 2,553 | | | $ | 2,452 | | | $ | 2,415 | | | | | | | | | |
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Service cost | 49 | | | 47 | | | 48 | | | 47 | | | | | | | | | |
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Interest cost | 98 | | | 108 | | | 97 | | | 108 | | | | | | | | | |
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Special termination benefits | 11 | | | 2 | | | 11 | | | 2 | | | | | | | | | |
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Actuarial gain | (313 | ) | | (86 | ) | | (312 | ) | | (86 | ) | | | | | | | | |
Plan participants' contributions | 18 | | | 16 | | | 18 | | | 16 | | | | | | | | | |
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Medicare Part D subsidy received | — | | | 4 | | | — | | | 4 | | | | | | | | | |
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Benefits paid | (103 | ) | | (54 | ) | | (103 | ) | | (54 | ) | | | | | | | | |
Deconsolidation of EME1 | — | | | (130 | ) | | — | | | — | | | | | | | | | |
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Benefit obligation at end of year | $ | 2,220 | | | $ | 2,460 | | | $ | 2,211 | | | $ | 2,452 | | | | | | | | | |
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Change in plan assets | | | | | | | | | | | | | | | |
Fair value of plan assets at beginning of year | $ | 1,800 | | | $ | 1,570 | | | $ | 1,800 | | | $ | 1,570 | | | | | | | | | |
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Actual return on assets | 317 | | | 212 | | | 317 | | | 212 | | | | | | | | | |
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Employer contributions | 33 | | | 52 | | | 33 | | | 52 | | | | | | | | | |
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Plan participants' contributions | 18 | | | 16 | | | 18 | | | 16 | | | | | | | | | |
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Medicare Part D subsidy received | — | | | 4 | | | — | | | 4 | | | | | | | | | |
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Benefits paid | (103 | ) | | (54 | ) | | (103 | ) | | (54 | ) | | | | | | | | |
Fair value of plan assets at end of year | $ | 2,065 | | | $ | 1,800 | | | $ | 2,065 | | | $ | 1,800 | | | | | | | | | |
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Funded status at end of year | $ | (155 | ) | | $ | (660 | ) | | $ | (146 | ) | | $ | (652 | ) | | | | | | | | |
Amounts recognized in the consolidated balance sheets consist of: | | | | | | | | | | | | | | | |
Current liabilities | $ | (17 | ) | | $ | (18 | ) | | $ | (16 | ) | | $ | (18 | ) | | | | | | | | |
Long-term liabilities | (138 | ) | | (642 | ) | | (130 | ) | | (634 | ) | | | | | | | | |
| $ | (155 | ) | | $ | (660 | ) | | $ | (146 | ) | | $ | (652 | ) | | | | | | | | |
Amounts recognized in accumulated other comprehensive loss (income) consist of: | | | | | | | | | | | | | | | |
Net loss | $ | 4 | | | $ | 5 | | | $ | — | | | $ | — | | | | | | | | | |
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Amounts recognized as a regulatory asset (liability): | | | | | | | | | | | | | | | |
Prior service credit | $ | (54 | ) | | $ | (89 | ) | | $ | (54 | ) | | $ | (89 | ) | | | | | | | | |
Net loss | 69 | | | 610 | | | 69 | | | 610 | | | | | | | | | |
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| $ | 15 | | | $ | 521 | | | $ | 15 | | | $ | 521 | | | | | | | | | |
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Total not yet recognized as expense | $ | 19 | | | $ | 526 | | | $ | 15 | | | $ | 521 | | | | | | | | | |
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Weighted-average assumptions used to determine obligations at end of year: | | | | | | | | | | | | | | | |
Discount rate | 5 | % | | 4.25 | % | | 5 | % | | 4.25 | % | | | | | | | | |
Assumed health care cost trend rates: | | | | | | | | | | | | | | | |
Rate assumed for following year | 7.75 | % | | 8.5 | % | | 7.75 | % | | 8.5 | % | | | | | | | | |
Ultimate rate | 5 | % | | 5 | % | | 5 | % | | 5 | % | | | | | | | | |
Year ultimate rate reached | 2020 | | | 2020 | | | 2020 | | | 2020 | | | | | | | | | |
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1 | The postretirement plan liabilities of EME have been deconsolidated as a result of the bankruptcy filing by EME. EME Homer City, a subsidiary of EME terminated the benefits of its employees in the PBOP Plan during 2012. In January 2014, EME settled and the Bankruptcy Court approved the settlement of all the EME Homer City employee claims to the EME Homer City PBOP Plan. EME has requested approval of the Bankruptcy Court to terminate the benefits of its employees and employees of its subsidiaries in the PBOP Plan upon confirmation of their Plan of Reorganization. Participation in the PBOP Plan by employees of EME and its subsidiaries (other than Homer City) has been permitted under EME's shared services agreement approved by the Bankruptcy Court subject to funding of paid claims. Edison International is not obligated to continue to provide benefits to EME employees under the PBOP Plan, nor can the VEBA Trusts be used to pay for benefits of EME participants. See Note 16 for further information. | | | | | | | | | | | | | | | | | | | | | | |
PBOP expense components for continuing operations are: |
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| Edison International | | SCE |
| Years ended December 31, |
(in millions) | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
Service cost | $ | 49 | | | $ | 47 | | | $ | 40 | | | $ | 48 | | | $ | 47 | | | $ | 40 | |
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Interest cost | 98 | | | 108 | | | 115 | | | 97 | | | 108 | | | 114 | |
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Expected return on plan assets | (114 | ) | | (108 | ) | | (111 | ) | | (114 | ) | | (109 | ) | | (111 | ) |
Special termination benefits1 | 11 | | | 2 | | | — | | | 11 | | | 2 | | | — | |
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Amortization of prior service credit | (36 | ) | | (35 | ) | | (35 | ) | | (35 | ) | | (35 | ) | | (35 | ) |
Amortization of net loss | 24 | | | 39 | | | 26 | | | 24 | | | 39 | | | 26 | |
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Total expense | $ | 32 | | | $ | 53 | | | $ | 35 | | | $ | 31 | | | $ | 52 | | | $ | 34 | |
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1 | Due to the reduction in workforce, SCE has incurred costs for extended retiree health care coverage. | | | | | | | | | | | | | | | | | | | | | | |
In accordance with authoritative guidance on rate-regulated enterprises, SCE records regulatory assets and liabilities instead of charges and credits to other comprehensive income (loss) for the portion of SCE's postretirement benefit plans that are recoverable in utility rates. The estimated PBOP amounts that will be amortized to expense in 2014 for continuing operations are as follows: |
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(in millions) | Edison International | | SCE | | | | | | | | | | | | | | | | |
Unrecognized prior service credit to be amortized | $ | (36 | ) | | $ | (36 | ) | | | | | | | | | | | | | | | | |
Edison International and SCE used the following weighted-average assumptions to determine PBOP expense for continuing operations: |
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| Years ended December 31, | | | | | | | | | | | | | | | |
| 2013 | | 2012 | | 2011 | | | | | | | | | | | | | | | |
Discount rate | 4.25 | % | | 4.75 | % | | 5.5 | % | | | | | | | | | | | | | | | |
Expected long-term return on plan assets | 6.7 | % | | 7 | % | | 7 | % | | | | | | | | | | | | | | | |
Assumed health care cost trend rates: | | | | | | | | | | | | | | | | | | | | |
Current year | 8.5 | % | | 9.5 | % | | 9.75 | % | | | | | | | | | | | | | | | |
Ultimate rate | 5 | % | | 5.25 | % | | 5.5 | % | | | | | | | | | | | | | | | |
Year ultimate rate reached | 2020 | | | 2019 | | | 2019 | | | | | | | | | | | | | | | | |
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A one-percentage-point change in assumed health care cost trend rate would have the following effects on continuing operations: |
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| Edison International | | SCE | | | | | | | | |
(in millions) | One-Percentage-Point Increase | | One-Percentage-Point Decrease | | One-Percentage-Point Increase | | One-Percentage-Point Decrease | | | | | | | | |
Effect on accumulated benefit obligation as of December 31, 2013 | $ | 229 | | | $ | (191 | ) | | $ | 228 | | | $ | (190 | ) | | | | | | | | |
| | | | | | | |
Effect on annual aggregate service and interest costs | 11 | | | (9 | ) | | 11 | | | (9 | ) | | | | | | | | |
| | | | | | | |
The following benefit payments are expected to be paid: |
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| Edison International | | SCE | | | | | | | | | | | | | | | | |
(in millions) | Years ended December 31, | | | | | | | | | | | | | | | | |
2014 | $ | 92 | | | $ | 92 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
2015 | 101 | | | 100 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
2016 | 107 | | | 106 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
2017 | 113 | | | 113 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
2018 | 119 | | | 119 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
2019 – 2023 | 668 | | | 666 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Plan Assets |
Description of Pension and Postretirement Benefits Other than Pensions 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 2013 and 2012 pension plan assets are 30% for U.S. equities, 16% for non-U.S. equities, 35% for fixed income, 15% for opportunistic and/or alternative investments and 4% for other investments. Target allocations for 2013 and 2012 PBOP plan assets are 41% for U.S. equities, 17% for non-U.S. equities, 34% for fixed income, 7% for opportunistic and/or alternative investments, and 1% for other investments. Edison International 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. Edison International 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. | | | | | | | | | | | | | | | | | | | | | | |
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• | 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. A portion of the PBOP trust asset returns are subject to taxation, so the expected long-term rate of return for these assets is determined on an after-tax basis. |
Capital Markets Return Forecasts |
SCE's capital markets return forecast methodologies primarily use a combination of historical market data, current market conditions, proprietary forecasting expertise, 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 lower liquidity. For fixed income, the risk premium is based off of a comprehensive modeling of credit spreads. |
Fair Value of Plan Assets |
The PBOP Plan and the Southern California Edison Company Retirement Plan Trust (Master Trust) assets include investments in equity securities, U.S. 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, U.S. 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. The partnerships classified as Level 2 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. |
Edison International 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. The trustee and Edison International's validation procedures for pension and PBOP equity and fixed income securities are the same as the nuclear decommissioning trusts. For further discussion see Note 4. 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. SCE's investment managers corroborate the trustee fair values. |
Pension Plan |
The following table sets forth the Master Trust investments for Edison International and SCE that were accounted for at fair value as of December 31, 2013 by asset class and level within the fair value hierarchy: |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Level 1 | | Level 2 | | Level 3 | | Total | | | | | | | | |
U.S. government and agency securities1 | $ | 195 | | | $ | 471 | | | $ | — | | | $ | 666 | | | | | | | | | |
| | | | | | | |
Corporate stocks2 | 653 | | | — | | | — | | | 653 | | | | | | | | | |
| | | | | | | |
Corporate bonds3 | — | | | 553 | | | — | | | 553 | | | | | | | | | |
| | | | | | | |
Common/collective funds4 | — | | | 546 | | | — | | | 546 | | | | | | | | | |
| | | | | | | |
Partnerships/joint ventures5 | — | | | 148 | | | 390 | | | 538 | | | | | | | | | |
| | | | | | | |
Other investment entities6 | — | | | 282 | | | — | | | 282 | | | | | | | | | |
| | | | | | | |
Registered investment companies7 | 112 | | | 81 | | | — | | | 193 | | | | | | | | | |
| | | | | | | |
Interest-bearing cash | 12 | | | — | | | — | | | 12 | | | | | | | | | |
| | | | | | | |
Other | 6 | | | 109 | | | — | | | 115 | | | | | | | | | |
| | | | | | | |
Total | $ | 978 | | | $ | 2,190 | | | $ | 390 | | | $ | 3,558 | | | | | | | | | |
| | | | | | | |
Receivables and payables, net | | | | | | | | | | (81 | ) | | | | | | | | |
| | | | | | | |
Net plan assets available for benefits | | | | | | | | | | $ | 3,477 | | | | | | | | | |
| | | | | | | |
SCE's share of net plan assets | | | | | | | $ | 3,236 | | | | | | | | | |
| | | | | | | |
Edison International Parent and Other's share of net plan assets | | | | | | | 6 | | | | | | | | | |
| | | | | | | |
EME's share of net plan assets | | | | | | | 235 | | | | | | | | | |
| | | | | | | |
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 | | | | | | | | | |
| | | | | | | |
U.S. government and agency securities1 | $ | 242 | | | $ | 350 | | | $ | — | | | $ | 592 | | | | | | | | | |
| | | | | | | |
Corporate stocks2 | 743 | | | — | | | — | | | 743 | | | | | | | | | |
| | | | | | | |
Corporate bonds3 | — | | | 508 | | | — | | | 508 | | | | | | | | | |
| | | | | | | |
Common/collective funds4 | — | | | 635 | | | — | | | 635 | | | | | | | | | |
| | | | | | | |
Partnerships/joint ventures5 | — | | | 166 | | | 414 | | | 580 | | | | | | | | | |
| | | | | | | |
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 | | | | | | | | | |
| | | | | | | |
SCE's share of net plan assets | | | | | | | $ | 3,320 | | | | | | | | | |
| | | | | | | |
Edison International Parent and Other's share of net plan assets | | | | | | | 7 | | | | | | | | | |
| | | | | | | |
EME's share of net plan assets | | | | | | | 215 | | | | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
1 | 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. | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
2 | Corporate stocks are diversified. For 2013 and 2012, respectively, performance is primarily benchmarked against the Russell Indexes (51% and 60%) and Morgan Stanley Capital International (MSCI) index (49% and 40%). | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
3 | Corporate bonds are diversified. At December 31, 2013 and 2012, respectively, this category includes $78 million and $65 million for collateralized mortgage obligations and other asset backed securities of which $15 million and $7 million are below investment grade. | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
4 | At December 31, 2013 and 2012, 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 (27% and 29%), Russell 1000 indexes (28% and 28%) and the MSCI Europe, Australasia and Far East (EAFE) Index (15% and 11%). A non-index U.S. equity fund representing 23% and 25% of this category for 2013 and 2012, respectively, is actively managed. Another fund representing 6% and 6% of this category for 2013 and 2012, respectively, is a global asset allocation fund. | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
5 | 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, 2013 and 2012, respectively, approximately 64% and 56% 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. | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
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 primarily consisted of a global equity mutual fund which seeks to outperform the MSCI World Total Return Index. Level 2 primarily consisted of a short-term bond fund. | | | | | | | | | | | | | | | | | | | | | | |
At December 31, 2013 and 2012, approximately 67% and 66%, 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 Edison International's and SCE's Level 3 investments: |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | 2013 | | 2012 | | | | | | | | | | | | | | | | |
Fair value, net at beginning of period | $ | 414 | | | $ | 448 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Actual return on plan assets: | | | | | | | | | | | | | | | | | | | |
Relating to assets still held at end of period | 61 | | | 88 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Relating to assets sold during the period | 10 | | | 13 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Purchases | 45 | | | 98 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Dispositions | (140 | ) | | (233 | ) | | | | | | | | | | | | | | | | |
Transfers in and/or out of Level 3 | — | | | — | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Fair value, net at end of period | $ | 390 | | | $ | 414 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Postretirement Benefits Other than Pensions |
The following table sets forth the VEBA Trust assets for SCE that were accounted for at fair value as of December 31, 2013 by asset class and level within the fair value hierarchy: |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Level 1 | | Level 2 | | Level 3 | | Total | | | | | | | | |
Common/collective funds1 | $ | — | | | $ | 863 | | | $ | — | | | $ | 863 | | | | | | | | | |
| | | | | | | |
Corporate stocks2 | 451 | | | — | | | — | | | 451 | | | | | | | | | |
| | | | | | | |
Corporate notes and bonds3 | — | | | 250 | | | — | | | 250 | | | | | | | | | |
| | | | | | | |
Partnerships4 | — | | | 20 | | | 164 | | | 184 | | | | | | | | | |
| | | | | | | |
U.S. government and agency securities5 | 118 | | | 36 | | | — | | | 154 | | | | | | | | | |
| | | | | | | |
Registered investment companies6 | 52 | | | 5 | | | — | | | 57 | | | | | | | | | |
| | | | | | | |
Interest bearing cash | 19 | | | — | | | — | | | 19 | | | | | | | | | |
| | | | | | | |
Other7 | 7 | | | 78 | | | — | | | 85 | | | | | | | | | |
| | | | | | | |
Total | $ | 647 | | | $ | 1,252 | | | $ | 164 | | | $ | 2,063 | | | | | | | | | |
| | | | | | | |
Receivables and payables, net | | | | | | | | | | 2 | | | | | | | | | |
| | | | | | | |
Combined net plan assets available for benefits | | | | | | | | | | $ | 2,065 | | | | | | | | | |
| | | | | | | |
The following table sets forth the VEBA Trust assets for SCE 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 | | | | | | | | |
Common/collective funds1 | $ | — | | | $ | 723 | | | $ | — | | | $ | 723 | | | | | | | | | |
| | | | | | | |
Corporate stocks2 | 361 | | | — | | | — | | | 361 | | | | | | | | | |
| | | | | | | |
Corporate notes and bonds3 | — | | | 210 | | | — | | | 210 | | | | | | | | | |
| | | | | | | |
Partnerships4 | — | | | 17 | | | 166 | | | 183 | | | | | | | | | |
| | | | | | | |
U.S. government and agency securities5 | 131 | | | 31 | | | — | | | 162 | | | | | | | | | |
| | | | | | | |
Registered investment companies6 | 68 | | | — | | | — | | | 68 | | | | | | | | | |
| | | | | | | |
Interest bearing cash | 24 | | | — | | | — | | | 24 | | | | | | | | | |
| | | | | | | |
Other7 | 6 | | | 104 | | | — | | | 110 | | | | | | | | | |
| | | | | | | |
Total | $ | 590 | | | $ | 1,085 | | | $ | 166 | | | $ | 1,841 | | | | | | | | | |
| | | | | | | |
Receivables and payables, net | | | | | | | | | | (41 | ) | | | | | | | | |
| | | | | | | |
Combined net plan assets available for benefits | | | | | | | | | | $ | 1,800 | | | | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
1 | At December 31, 2013 and 2012, respectively, 60% and 60% of the common/collective assets are invested in a large cap index fund which seeks to track performance of the Russell 1000 index. 23% and 23% of the assets in this category are in index funds which seek to track performance in the MSCI Europe, Australasia and Far East (EAFE) Index. 6% and 6% of this category are invested in a privately managed bond fund and 7% and 6% in a fund which invests in equity securities the fund manager believes are undervalued. | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
2 | Corporate stock performance is primarily benchmarked against the Russell Indexes (50% and 50%) and the MSCI All Country World (ACWI) index (50% and 50%) for 2013 and 2012, respectively. | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
3 | Corporate notes and bonds are diversified and include approximately $29 million and $20 million for commercial collateralized mortgage obligations and other asset backed securities at December 31, 2013 and 2012, respectively. | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
4 | At December 31, 2013 and 2012, respectively, 78% and 82% of the Level 3 partnerships category is invested in (1) asset backed securities including distressed mortgages, (2) distressed companies and (3) commercial and residential loans and debt and equity of banks. | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
5 | Level 1 U.S. government and agency securities are U.S. treasury bonds and notes. Level 2 primarily relates to the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association. | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
6 | Level 1 registered investment companies consist of an investment grade corporate bond mutual fund and a money market fund. | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
7 | Other includes $76 million and $73 million of municipal securities at December 31, 2013 and 2012, respectively. | | | | | | | | | | | | | | | | | | | | | | |
At December 31, 2013 and 2012, approximately 65% and 66%, 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 PBOP Level 3 investments: |
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| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | 2013 | | 2012 | | | | | | | | | | | | | | | | |
Fair value, net at beginning of period | $ | 166 | | | $ | 130 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Actual return on plan assets | | | | | | | | | | | | | | | | | | | |
Relating to assets still held at end of period | 24 | | | 20 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Relating to assets sold during the period | 5 | | | 5 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Purchases | 23 | | | 35 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Dispositions | (54 | ) | | (24 | ) | | | | | | | | | | | | | | | | |
Transfers in and/or out of Level 3 | — | | | — | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Fair value, net at end of period | $ | 164 | | | $ | 166 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Stock-Based Compensation |
Edison International maintains a shareholder approved incentive plan (the 2007 Performance Incentive Plan) that includes stock-based compensation. The maximum number of shares of Edison International's common stock authorized to be issued or transferred pursuant to awards under the 2007 Performance Incentive Plan, as amended, is 49.5 million shares, plus the number of any shares subject to awards issued under Edison International's prior plans and outstanding as of April 26, 2007, which expire, cancel or terminate without being exercised or shares being issued ("carry-over shares"). As of December 31, 2013, Edison International had approximately 23 million shares remaining for future issuance under its stock-based compensation plans. |
The following table summarizes total expense and tax benefits (expense) associated with stock based compensation: |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Edison International | | SCE |
| Years ended December 31, |
(in millions) | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
Stock-based compensation expense1: | | | | | | | | | | | |
Stock options | $ | 15 | | | $ | 18 | | | $ | 14 | | | $ | 11 | | | $ | 10 | | | $ | 9 | |
|
Performance shares | 4 | | | 7 | | | 5 | | | 2 | | | 4 | | | 3 | |
|
Restricted stock units | 7 | | | 9 | | | 6 | | | 4 | | | 5 | | | 4 | |
|
Other | 1 | | | 1 | | | 5 | | | — | | | — | | | 4 | |
|
Total stock-based compensation expense | $ | 27 | | | $ | 35 | | | $ | 30 | | | $ | 17 | | | $ | 19 | | | $ | 20 | |
|
Income tax benefits related to stock compensation expense | $ | 11 | | | $ | 14 | | | $ | 12 | | | $ | 7 | | | $ | 8 | | | $ | 8 | |
|
Excess tax benefits (expense)2 | 5 | | | (6 | ) | | 12 | | | 2 | | | (13 | ) | | 11 | |
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1 | Reflected in "Operation and maintenance" on Edison International's and SCE's consolidated statements of income. | | | | | | | | | | | | | | | | | | | | | | |
2 Reflected in "Settlements of stock-based compensation, net" in the financing section of Edison International's and SCE's consolidated statements of cash flows. |
Stock Options |
Under various plans, Edison International has granted stock options 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. Edison International 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. Additionally, Edison International 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: |
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| Years ended December 31, | | | | | | | | | | | | | | | | | | |
| 2013 | | 2012 | | 2011 | | | | | | | | | | | | | | | | | | |
Expected terms (in years) | 6.2 | | 6.9 | | 7 | | | | | | | | | | | | | | | | | | |
Risk-free interest rate | 1.0% – 2.1% | | 1.1% – 1.7% | | 1.4% – 3.1% | | | | | | | | | | | | | | | | | | |
Expected dividend yield | 2.7% – 3.1% | | 2.8% – 3.1% | | 3.1% – 3.5% | | | | | | | | | | | | | | | | | | |
Weighted-average expected dividend yield | 2.80% | | 3.00% | | 3.40% | | | | | | | | | | | | | | | | | | |
Expected volatility | 17.7% – 18.6% | | 17.4% – 18.3% | | 18.2% – 19.0% | | | | | | | | | | | | | | | | | | |
Weighted-average volatility | 17.70% | | 18.30% | | 18.90% | | | | | | | | | | | | | | | | | | |
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 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 Edison International's common stock for the length of the option's expected term for 2013. The volatility period used was 74 months, 83 months and 84 months at December 31, 2013, 2012 and 2011, respectively. |
The following is a summary of the status of Edison International's stock options: |
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| | | Weighted-Average | | | | | | | | | | | | | |
| Stock options | | Exercise | | Remaining | | Aggregate | | | | | | | | | | | |
Price | Contractual | Intrinsic Value | | | | | | | | | | | |
| Term (Years) | (in millions) | | | | | | | | | | | |
Edison International: | | | | | | | | | | | | | | | | | | |
Outstanding at December 31, 2012 | 19,231,723 | | | $ | 37.96 | | | | | | | | | | | | | | | | | |
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Granted | 2,778,766 | | | 48.46 | | | | | | | | | | | | | | | | | |
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Expired | (158,107 | ) | | 49.69 | | | | | | | | | | | | | | | | | |
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Forfeited | (540,782 | ) | | 42.55 | | | | | | | | | | | | | | | | | |
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Exercised | (4,084,755 | ) | | 34.54 | | | | | | | | | | | | | | | | | |
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Outstanding at December 31, 2013 | 17,226,845 | | | 40.22 | | | 5.78 | | | | | | | | | | | | | | |
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Vested and expected to vest at December 31, 2013 | 16,715,413 | | | 40.13 | | | 5.71 | | $ | 115 | | | | | | | | | | | | |
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Exercisable at December 31, 2013 | 10,118,484 | | | 38.26 | | | 4.24 | | 88 | | | | | | | | | | | | |
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SCE: | | | | | | | | | | | | | | | | | | |
Outstanding at December 31, 2012 | 10,308,461 | | | $ | 37.73 | | | | | | | | | | | | | | | | | |
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Granted | 1,792,688 | | | 48.48 | | | | | | | | | | | | | | | | | |
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Expired | (97,000 | ) | | 49.63 | | | | | | | | | | | | | | | | | |
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Forfeited | (402,548 | ) | | 43.47 | | | | | | | | | | | | | | | | | |
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Exercised | (2,643,487 | ) | | 34.94 | | | | | | | | | | | | | | | | | |
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Transfers, net | 87,884 | | | 36.67 | | | | | | | | | | | | | | | | |
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Outstanding at December 31, 2013 | 9,045,998 | | | 40.28 | | | 5.92 | | | | | | | | | | | | | | |
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Vested and expected to vest at December 31, 2013 | 8,737,930 | | | 40.17 | | | 5.84 | | $ | 60 | | | | | | | | | | | | |
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Exercisable at December 31, 2013 | 5,080,978 | | | 37.96 | | | 4.29 | | 46 | | | | | | | | | | | | |
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At December 31, 2013, total unrecognized compensation cost related to stock options and the weighted-average period the cost is expected to be recognized are as follows: |
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(in millions) | Edison International | | SCE | | | | | | | | | | | | | | | | |
Unrecognized compensation cost, net of expected forfeitures | $ | 13 | | | $ | 10 | | | | | | | | | | | | | | | | | |
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Weighted-average period (in years) | 2.2 | | | 2.3 | | | | | | | | | | | | | | | | | |
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Supplemental Data on Stock Options |
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| Edison International | | SCE |
| Years ended December 31, |
(in millions, except per award amounts) | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
Stock options: | | | | | | | | | | | |
Weighted average grant date fair value per option granted | $ | 5.4 | | | $ | 5.22 | | | $ | 5.61 | | | $ | 5.38 | | | $ | 5.22 | | | $ | 5.61 | |
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Fair value of options vested | 17 | | | 17 | | | 18 | | | 10 | | | 10 | | | 10 | |
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Cash used to purchase shares to settle options | 199 | | | 169 | | | 90 | | | 130 | | | 96 | | | 46 | |
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Cash from participants to exercise stock options | 140 | | | 101 | | | 59 | | | 92 | | | 59 | | | 28 | |
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Value of options exercised | 59 | | | 68 | | | 31 | | | 38 | | | 37 | | | 18 | |
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Tax benefits from options exercised | 24 | | | 27 | | | 12 | | | 15 | | | 15 | | | 7 | |
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Performance Shares |
A target number of contingent performance shares were awarded to executives in March 2013, 2012 and 2011 and vest at the end of a three year period for each grant. The vesting of the grants is dependent upon market and financial performance conditions and service conditions as defined in the grants for each of the years. The number of performance shares earned from each year's grants could range from zero to twice the target number (plus additional units credited as dividend equivalents). Performance shares earned are settled half in cash and half in common stock; however, Edison International has discretion under certain of the awards to pay the half subject to cash settlement in common stock. 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. Compensation expense related to these shares is based on the grant-date fair value, which for each share is determined as the closing price of Edison International common stock on the grant date; however, with respect to the portion of the performance shares payable in common stock that is subject to the financial performance condition described above, the number of performance shares expected to be earned is subject to revision and update at each reporting period, with a related adjustment of compensation expense. Performance shares expense is recognized ratably over the requisite service period based on the fair values determined (subject to the adjustments discussed above), except for awards granted to retirement-eligible participants. |
The fair value of market condition performance shares is determined using a Monte Carlo simulation valuation model. |
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The following is a summary of the status of Edison International's nonvested performance shares: |
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| Equity Awards | | Liability Awards | | | | | | | | | | |
| Shares | | Weighted-Average | | Shares | | Weighted-Average | | | | | | | | | | |
Grant Date | Fair Value | | | | | | | | | | |
Fair Value | | | | | | | | | | | |
Edison International: | | | | | | | | | | | | | | | | | |
Nonvested at December 31, 2012 | 242,421 | | | $ | 38.86 | | | 242,071 | | | $ | 46.23 | | | | | | | | | | | |
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Granted | 73,679 | | | 50.87 | | | 73,483 | | | | | | | | | | | | | | |
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Forfeited | (19,239 | ) | | 42.1 | | | (19,197 | ) | | | | | | | | | | | | |
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Vested1 | (140,164 | ) | | 30.97 | | | (140,053 | ) | | | | | | | | | | | | | |
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Nonvested at December 31, 2013 | 156,697 | | | 51.17 | | | 156,304 | | | 51.72 | | | | | | | | | | | |
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SCE: | | | | | | | | | | | | | | | | | |
Nonvested at December 31, 2012 | 131,940 | | | $ | 38.87 | | | 131,691 | | | $ | 46.19 | | | | | | | | | | | |
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Granted | 47,548 | | | 50.92 | | | 47,377 | | | | | | | | | | | | | | |
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Forfeited | (13,065 | ) | | 43.42 | | | (13,029 | ) | | | | | | | | | | | | |
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Vested1 | (76,705 | ) | | 31.02 | | | (76,624 | ) | | | | | | | | | | | | | |
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Affiliate transfers, net | 943 | | | 40.15 | | | 942 | | | | | | | | | | | | | |
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Nonvested at December 31, 2013 | 90,661 | | | 51.19 | | | 90,357 | | | 51.22 | | | | | | | | | | | |
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1 | Relates to performance shares that will be paid in 2014 as performance targets were met at December 31, 2013. | | | | | | | | | | | | | | | | | | | | | | |
Restricted Stock Units |
Restricted stock units were awarded to Edison International's and SCE's executives in March 2013, 2012 and 2011 and vest and become payable in January 2016, 2015 and 2014, respectively. Each restricted stock unit awarded includes a dividend equivalent feature and is a contractual right to receive one share of Edison International common stock, if vesting requirements are satisfied. The vesting of Edison International's restricted stock units is dependent upon continuous service through the end of the three-calendar-year-plus-two-days vesting period. |
The following is a summary of the status of Edison International's nonvested restricted stock units: |
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| Edison International | | SCE | | | | | | | | | | |
| Restricted | | Weighted-Average | | Restricted | | Weighted-Average | | | | | | | | | | |
Stock Units | Grant Date | Stock Units | Grant Date | | | | | | | | | | |
| Fair Value | | Fair Value | | | | | | | | | | |
Nonvested at December 31, 2012 | 679,468 | | | $ | 38.09 | | | 368,553 | | | $ | 38.07 | | | | | | | | | | | |
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Granted | 154,401 | | | 48.45 | | | 99,616 | | | 48.47 | | | | | | | | | | | |
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Forfeited | (38,343 | ) | | 42.15 | | | (26,328 | ) | | 42.96 | | | | | | | | | | | |
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Vested | (255,837 | ) | | 34.17 | | | (151,836 | ) | | 34.59 | | | | | | | | | | | |
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Affiliate transfers, net | — | | | — | | | 2,834 | | | 38.1 | | | | | | | | | | | |
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Nonvested at December 31, 2013 | 539,689 | | | 42.7 | | | 292,839 | | | 42.98 | | | | | | | | | | | |
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The fair value for each restricted stock unit awarded is determined as the closing price of Edison International common stock on the grant date. |
Workforce Reductions |
In 2012, SCE commenced multiple efforts to reduce its workforce in order to reflect SCE's strategic direction to optimize its cost structure, moderate customer rate increases and align its cost structure with its peers. In addition, in June 2013, SCE announced plans to permanently retire San Onofre, which resulted in additional workforce reductions. See Note 9 for further information. Through December 31, 2013, SCE's share of estimated cash severance for these efforts totaled $213 million. The following table provides a summary of changes in the accrued severance liability associated with these reductions: |
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(in millions) | | | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2013 | | $ | 104 | | | | | | | | | | | | | | | | | | | | |
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Additions | | 101 | | | | | | | | | | | | | | | | | | | | |
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Payments | | (151 | ) | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2013 | | $ | 54 | | | | | | | | | | | | | | | | | | | | |
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The liability presented in the table above is reflected in "Other current liabilities" on the consolidated balance sheets. The severance costs are included in "Operation and maintenance" on the consolidated income statements. |