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TABLE OF CONTENTS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2010 |
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
Commission File Number 1-2313
SOUTHERN CALIFORNIA EDISON COMPANY
(Exact name of registrant as specified in its charter)
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California
(State or other jurisdiction of incorporation or organization) |
95-1240335
(I.R.S. Employer Identification No.) |
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2244 Walnut Grove Avenue (P.O. Box 800) Rosemead, California (Address of principal executive offices) |
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91770 (Zip Code) |
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(626) 302-1212 (Registrant's telephone number, including area code) |
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
Name of each exchange
on which registered |
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|---|---|---|
| Cumulative Preferred Stock | American | |
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4.08%Series 4.32%Series 4.24%Series 4.78%Series |
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "accelerated filer," "large accelerated filer," and "smaller reporting company" in Rule 12b-12 of the Exchange Act. (Check One):
| Large Accelerated Filer o | Accelerated Filer o | Non-accelerated Filer þ | Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of February 24, 2011, there were 434,888,104 shares of Common Stock outstanding, all of which are held by the registrant's parent holding company. The aggregate market value of registrant's voting and non-voting common equity held by non-affiliates was zero.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents listed below have been incorporated by reference into the parts of this report so indicated.
i
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When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below.
| 2010 Tax Relief Act | Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 | |
| AFUDC | allowance for funds used during construction | |
| APS | Arizona Public Service Company | |
| ARO(s) | asset retirement obligation(s) | |
| Bcf | Billion cubic feet | |
| CAA | Clean Air Act | |
| CAIR | Clean Air Interstate Rule | |
| CAISO | California Independent System Operator | |
| CAMR | Clean Air Mercury Rule | |
| CARB | California Air Resources Board | |
| CDWR | California Department of Water Resources | |
| CEC | California Energy Commission | |
| CPUC | California Public Utilities Commission | |
| CRRs | congestion revenue rights | |
| DOE | U. S. Department of Energy | |
| ERRA | energy resource recovery account | |
| FASB | Financial Accounting Standards Board | |
| FERC | Federal Energy Regulatory Commission | |
| FGIC | Financial Guarantee Insurance Company | |
| FIP(s) | federal implementation plan(s) | |
| Four Corners | coal fueled electric generating facility located in Farmington, New Mexico in which SCE holds a 48% ownership interest | |
| GAAP | generally accepted accounting principles | |
| GHG | greenhouse gas | |
| Global Settlement | A settlement between Edison International and the IRS that resolves all of SCE's federal income tax disputes and affirmative claims for tax years 1986 through 2002 and related matters with state tax authorities. | |
| GRC | General Rate Case | |
| IRS | Internal Revenue Service | |
| ISO | Independent System Operator | |
| kWh(s) | kilowatt-hour(s) | |
| MD&A | Management's Discussion and Analysis of Financial Condition and Results of Operations in this report | |
| Mohave | two coal fueled electric generating facilities that no longer operate located in Clark County, Nevada in which SCE holds a 56% ownership interest | |
| Moody's | Moody's Investors Service | |
| MRTU | Market Redesign Technical Upgrade | |
| MW | megawatts | |
| MWh | megawatt-hours | |
| NAAQS | national ambient air quality standards | |
| NERC | North American Electric Reliability Corporation | |
| Ninth Circuit | U.S. Court of Appeals for the Ninth Circuit | |
| NO x | nitrogen oxide | |
| NRC | Nuclear Regulatory Commission | |
| NSR | New Source Review | |
| Palo Verde | large pressurized water nuclear electric generating facility located near Phoenix, Arizona in which SCE holds a 15.8% ownership interest | |
| PBOP(s) | postretirement benefits other than pension(s) | |
| PBR | Performance-based ratemaking |
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| PG&E | Pacific Gas & Electric Company | |
| PSD | Prevention of Significant Deterioration | |
| QF(s) | qualifying facility(ies) | |
| ROE | return on equity | |
| S&P | Standard & Poor's Ratings Services | |
| San Onofre | large pressurized water nuclear electric generating facility located in south San Clemente, California in which SCE holds a 78.21% ownership interest | |
| SCAQMD | South Coast Air Quality Management District | |
| SCE | Southern California Edison Company | |
| SDG&E | San Diego Gas & Electric | |
| SEC | U.S. Securities and Exchange Commission | |
| SIP(s) | state implementation plan(s) | |
| SO 2 | sulfur dioxide | |
| SRP | Salt River Project Agricultural Improvement and Power District | |
| US EPA | U.S. Environmental Protection Agency | |
| VIE(s) | variable interest entity(ies) | |
vii
This Annual Report on Form 10-K contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect SCE's current expectations and projections about future events based on SCE's knowledge of present facts and circumstances and assumptions about future events and include any statement that does not directly relate to a historical or current fact. Other information distributed by SCE that is incorporated in this report, or that refers to or incorporates this report, may also contain forward-looking statements. In this report and elsewhere, the words "expects," "believes," "anticipates," "estimates," "projects," "intends," "plans," "probable," "may," "will," "could," "would," "should," and variations of such words and similar expressions, or discussions of strategy or of plans, are intended to identify forward-looking statements. Such statements necessarily involve risks and uncertainties that could cause actual results to differ materially from those anticipated. Some of the risks, uncertainties and other important factors that could cause results to differ from those currently expected, or that otherwise could impact SCE, include, but are not limited to:
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See "Risk Factors" in Part I, Item 1A of this report for additional information on risks and uncertainties that could cause results to differ from those currently expected or that otherwise could impact SCE or its subsidiaries.
Additional information about risks and uncertainties, including more detail about the factors described in this report, is contained throughout this report. Readers are urged to read this entire report, including the information incorporated by reference, and carefully consider the risks, uncertainties and other factors that affect SCE's business. Forward-looking statements speak only as of the date they are made and SCE is not obligated to publicly update or revise forward-looking statements. Readers should review future reports filed by SCE with the U.S. Securities and Exchange Commission.
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SCE is an investor-owned public utility primarily engaged in the business of supplying electricity to an approximately 50,000-square-mile area of southern California. The SCE service territory contains a population of over 13 million people. In 2010, SCE's total operating revenue was derived as follows: 43.5% commercial customers, 39.5% residential customers, 6.0% industrial customers, 1.3% resale sales, 5.8% public authorities, and 3.9% agricultural and other customers. SCE had 18,230 full-time employees at December 31, 2010. SCE's operating revenue was approximately $10 billion in 2010.
Sources of power to serve SCE's customers during 2010 were approximately: 42% purchased power; 24% CDWR; and 34% SCE-owned generation.
SCE files separately an Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act. SCE also files a joint Proxy Statement with its parent, Edison International. Such reports and Proxy Statement are available at www.edisoninvestor.com or on the SEC's internet website at www.sec.gov. The information contained on, or connected to, the Edison investor website is not incorporated by reference into this report.
SCE's retail operations are subject to regulation by the CPUC. The CPUC has the authority to regulate, among other things, retail rates, energy purchases on behalf of retail customers, rate of return, rates of depreciation, issuance of securities, disposition of utility assets and facilities, oversight of nuclear decommissioning funding and costs, and aspects of the transmission system planning, site identification and construction. The governing body of the CPUC consists of five Commissioners who are appointed by the Governor of California, confirmed by the California Senate and serve for six-year staggered terms.
SCE's wholesale operations (including sales of electricity into the wholesale markets) are subject to regulation by the FERC. The FERC has the authority to regulate wholesale rates as well as other matters, including unbundled transmission service pricing, accounting practices, and licensing of hydroelectric projects.
The NERC establishes and enforces reliability standards and critical infrastructure protection standards for the bulk power system. The critical infrastructure protection standards focus on controlling access to critical physical and cyber security assets. Compliance with these standards is mandatory. The maximum penalty that may be levied for violating a NERC reliability or critical infrastructure protection standard is $1 million per violation, per day.
Transmission and Substation Facilities Regulation
The construction, planning and project site identification of SCE's transmission lines and substation facilities require the approval of many governmental agencies and compliance with various laws. These agencies include utility regulatory commissions such as the CPUC and other state regulatory agencies depending on the project location; the CAISO, and other environmental, land management and resource agencies such as the Bureau of Land Management, the U.S. Forest Service, and the California Department of Fish and Game; and regional water quality control boards. In addition, to the extent that SCE transmission line projects pass through lands owned or controlled by Native American tribes, consent and
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approval from the affected tribes and the Bureau of Indian Affairs are also necessary for the project to proceed.
The construction, planning, and project site identification of SCE's power plants of 50 MW or greater within California are subject to the jurisdiction of the CEC. The CEC is also responsible for forecasting future energy needs. These forecasts are used by the CPUC in determining the adequacy of SCE's electricity procurement plans.
Nuclear Power Plant Regulation
SCE is subject to the jurisdiction of the NRC with respect to its San Onofre and Palo Verde Nuclear Generating Stations. NRC requirements govern the granting, amendment, and extension of licenses for the construction and operation of nuclear power plants and subject those power plants to continuing oversight, inspection, and performance assessment.
The NRC has continued to affirm that San Onofre is being operated safely. However, SCE has had to address a number of regulatory and performance issues for which corrective action is required to mitigate exposure to events that could have safety significance. In its September 1, 2010 mid-cycle performance review letter the NRC noted that although San Onofre had developed corrective actions to resolve previously noted human performance and problem identification and resolution issues, the corrective actions that had been implemented had not been fully effective. The NRC is conducting inspections over its baseline program, including inspections to evaluate progress on these issues, and to assess actions taken to improve the working environment for employees to feel free to raise safety concerns. The NRC is also conducting additional public meetings to discuss these issues. To address these regulatory and performance issues, SCE has applied increased management focus and other resources to San Onofre, with an associated impact on operations and maintenance costs. SCE anticipates that its corrective actions, and related additional management focus and operations and maintenance costs, will continue. If issues identified by the NRC remain uncorrected, these issues could have a material adverse effect on SCE.
Overview of Ratemaking Mechanisms
SCE sells electricity to retail customers at rates authorized by the CPUC. SCE sells transmission service and wholesale power at rates authorized by the FERC.
Base rates authorized by the CPUC and the FERC are intended to provide SCE a reasonable opportunity to recover its costs and earn a return on its net investment in generation, transmission and distribution facilities (or "rate base"). These base rates provide for recovery of operations and maintenance costs, capital-related carrying costs (depreciation, taxes and interest) and a return or profit, on a forecast basis.
Base rates for SCE's generation and distribution functions provide a rate of return and are authorized by the CPUC through triennial GRC proceedings. The CPUC sets an annual revenue requirement for the base year which is made up of the carrying cost on capital investment (depreciation, return and taxes), plus the authorized level of operations and maintenance expense. The return is established by multiplying an authorized rate of return, determined in separate cost of capital proceedings (as discussed below), by SCE's investment in the generation and distribution rate base. In the GRC proceedings, the CPUC also generally approves the level of capital spending on a forecast basis. Adjustments to the revenue requirement for the remaining two years of a typical three-year GRC cycle are requested, based on criteria established in the GRC proceeding, which generally, among other items, include annual allowances for escalation in operation and maintenance costs, forecasted changes in capital-related investments and the timing and number of expected nuclear refueling outages. SCE's GRC decision for the 2009-2011 period was issued in March
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2009 and was effective as of January 1, 2009. In the 2009 GRC, the CPUC determined the 2010 and 2011 authorized revenues by escalating the entire revenue requirement. 2009's authorized revenue requirement of $4.83 billion was escalated by 4.25% to create the 2010 authorized amount, which was in turn escalated by 4.35% to create the 2011 authorized amount. SCE filed its 2012 GRC application with the CPUC on November 23, 2010, to be effective on January 1, 2012. The CPUC has authorized a revenue decoupling mechanism, which allows the difference between the revenue authorized and the actual volume of electricity sales to be collected from or refunded to ratepayers. Accordingly, SCE is neither benefited nor burdened by the volumetric risk related to retail electricity sales.
The CPUC regulates SCE's capital structure and authorized rate of return. SCE's current authorized capital structure is 48% common equity, 43% long-term debt and 9% preferred equity. SCE's current authorized cost of capital consists of: cost of long-term debt of 6.22%, authorized cost of preferred equity of 6.01% and authorized return on common equity of 11.5%. In 2008, the CPUC approved a multi-year cost of capital mechanism, which allows for annual adjustments if certain thresholds are reached. In 2009, the CPUC granted SCE's request to extend SCE's existing capital structure and authorized rate of return of 11.5% through December 2012, absent any future potential annual adjustments. The revised mechanism will be subject to CPUC review in 2012 for the cost of capital established for 2013 and beyond. SCE's earnings may be impacted when actual financing costs are above or below its authorized costs for long-term debt and preferred equity financings.
Base rates for SCE's transmission functions provide a rate of return and are authorized by the FERC in periodic proceedings that are similar to the CPUC GRC and cost of capital proceedings. Requested rate changes at the FERC are generally implemented before final approval of the application, with revenue collected prior to a final FERC decision being subject to refund. FERC-approved base rate revenues that vary from forecast are not recoverable or refundable and will therefore impact earnings.
Cost-recovery mechanisms allow SCE to recover its costs, but do not allow a return. These mechanisms are used to recover SCE's costs of fuel, purchased-power, demand-side management programs, nuclear decommissioning, public purpose programs, certain operation and maintenance expenses, and depreciation expense related to certain projects. Although the CPUC authorizes balancing account mechanisms for such costs to refund or recover any differences between forecasted and actual costs, under- or over-collections in these balancing accounts do impact cash flows and can build rapidly.
The CPUC also authorizes the use of a balancing account to eliminate the effect on earnings from differences in revenue resulting from actual and forecasted electricity sales. Under this mechanism, the difference in revenue between actual and forecast electricity sales is recovered from or refunded to ratepayers and therefore does not impact SCE's earnings.
SCE's balancing account for fuel and power procurement-related costs is established under the Energy Resource Recovery Account ("ERRA") Mechanism. SCE files annual forecasts of the costs that it expects to incur during the following year and sets rates using forecasts. The CPUC has established a "trigger" mechanism for the ERRA balancing account that allows for a rate adjustment if the balancing account over-collection or under-collection exceeds 5% of SCE's prior year's generation revenue. For 2011, the trigger amount is approximately $252 million.
The majority of costs eligible for recovery through cost-recovery rates are subject to CPUC reasonableness reviews, and thus could negatively impact earnings and cash flows if found to be unreasonable and disallowed.
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Energy Efficiency Shareholder Risk/Reward Incentive Mechanism
The CPUC has adopted an Energy Efficiency Risk/Reward Mechanism ("Energy Efficiency Mechanism") which allows SCE to earn incentives based on SCE's performance toward meeting CPUC energy efficiency goals. In December 2010, the CPUC modified and extended the existing Energy Efficiency Mechanism to apply to the 2009 energy efficiency program. Under the modified mechanism, SCE has the opportunity to earn an incentive of 7% of the value of the total energy efficiency savings created, if SCE achieves 85% or more of the CPUC's energy efficiency goals for the 2009 energy efficiency program year.
In November 2010, the CPUC issued a draft decision in a new rulemaking intended to review the framework of the Energy Efficiency Mechanism and to establish a mechanism applicable to performance during the 2010 – 2012 energy efficiency program cycle. SCE cannot predict when a final decision will be issued, the content of such final decision or the amount of earnings, if any, that SCE may receive as a result of the adoption of a new mechanism.
As a result of the California energy crisis, in 2001 the California Department of Water Resources ("CDWR") entered into contracts to purchase power for sale at cost directly to SCE's retail customers and issued bonds to finance those power purchases. The CDWR's total statewide power charge and bond charge revenue requirements are allocated by the CPUC among the customers of the investor-owned utilities (SCE, PG&E and SDG&E). SCE bills and collects from its customers the costs of power purchased and sold by the CDWR, CDWR bond-related charges and direct access exit fees. The CDWR-related charges and a portion of direct access exit fees that are remitted directly to the CDWR are not recognized as electric utility revenue; but do affect customer rates. The remaining CDWR power contracts that were allocated to SCE terminate by the end of 2011. The bond-related charges and direct access exit fees continue until 2022.
Because SCE is an electric utility company operating within a defined service territory pursuant to authority from the CPUC, SCE faces retail competition only to the extent that federal and California laws permit other entities to provide electricity and related services to customers within SCE's service territory. While California law provides only limited opportunities for customers to choose to purchase power directly from an energy service provider other than SCE, a California statute was adopted in 2009 that permits a limited, phased-in expansion of customer choice (direct access) for nonresidential customers. SCE also faces some competition from cities and municipal districts that create municipal utilities or community choice aggregators. In addition, customers may install their own on-site power generation facilities.
Competition with SCE is conducted mainly on the basis of price, as customers seek the lowest cost power available. The effect of competition on SCE generally is to reduce the number of customers purchasing power from SCE, but those customers typically continue to utilize and pay for SCE's transmission and distribution services.
In the area of transmission infrastructure, SCE may experience increased competition from merchant transmission providers.
Purchased Power and Fuel Supply
SCE obtains the power needed to serve its customers from its generating facilities and from sales by qualifying facilities, independent power producers, renewable power producers, the CAISO, and other utilities. In addition, power is provided to SCE's customers through purchases by the CDWR under contracts with third parties.
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SCE requires natural gas to meet contractual obligations for power tolling agreements (power contracts in which SCE has agreed to provide or pay for the natural gas needed for generation under those power contracts) and to serve demand for gas at SCE's Mountainview and peaker plants, which are supplemental plants that only operate when demand for power is high. The physical gas purchased by SCE is subject to competitive bidding.
For San Onofre Units 2 and 3, contractual arrangements are in place covering 100% of the projected nuclear fuel requirements through the years indicated below:
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Uranium concentrates |
2020 | |||
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Conversion |
2020 | |||
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Enrichment |
2020 | |||
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Fabrication |
2015 | |||
For Palo Verde, contractual arrangements are in place covering 100% of the projected nuclear fuel requirements through the years indicated below:
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Uranium concentrates |
2017 | |||
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Conversion |
2018 | |||
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Enrichment |
2020 | |||
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Fabrication |
2016 | |||
On January 1, 2010, SCE and the other Four Corners participants entered into a Four Corners Coal Supply Agreement with the BHP Navajo Coal Company, under which coal will be supplied to Four Corners Units 4 and 5 until July 6, 2016. In November 2010, SCE entered into an agreement to sell its interest in Four Corners subject to certain conditions and regulatory approvals.
In California and other states, wholesale energy markets exist through which competing electricity generators offer their electricity output to electricity retailers. Each state's wholesale electricity market is generally operated by its state ISO or a regional RTO. California's wholesale electricity market is operated by the CAISO. The CAISO schedules power in hourly increments with hourly prices through a real-time and day-ahead market that combines energy, ancillary services, unit commitment and congestion management. SCE participates in the day-ahead and real-time markets for the sale of its generation and purchases of its load requirements.
The CAISO uses a nodal locational pricing model, which sets wholesale electricity prices at system points ("nodes") that reflect local generation and delivery costs. Generally, SCE schedules its electricity generation to serve its load but when it has excess generation or the market price of power is more economic than its own generation, SCE may sell power from utility-owned generation assets and existing power procurement contracts on, or buy generation and/or ancillary services to meet its load requirements from, the day-ahead market. SCE will offer to buy its generation at nodes near the source of the generation, but will take delivery at nodes throughout SCE's service territory. Congestion may occur when available energy cannot be delivered to all loads due to transmission constraints, which results in transmission congestion charges and differences in prices at various nodes. The CAISO also offers congestion revenue rights or CRRs, a commodity that entitles the holder to receive (or pay) the value of transmission congestion between specific nodes, acting as an economic hedge against transmission congestion charges.
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SCE supplies electricity to its customers through extensive transmission and distribution networks. Its transmission facilities, which are located primarily in California but also in Nevada and Arizona, deliver power from generating sources to the distribution network and consist of lines ranging from 33 kV to 500 kV and substations. SCE's distribution system, which takes power from substations to customers, includes over 60,000 circuit miles of overhead lines, 43,500 circuit miles of underground lines and over 700 distribution substations, all of which are located in California.
SCE owns the generating facilities (and operates all of these facilities except Palo Verde and Four Corners, which are operated by Arizona Public Service Company ("APS")) listed in the following table.
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Generating Facility
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Location
(in CA, unless otherwise noted) |
Fuel Type
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SCE's
Ownership Interest (%) |
Net Physical
Capacity (in MW) |
SCE's Capacity
pro rata share (in MW) |
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San Onofre Nuclear
Generating Station |
South of San Clemente | Nuclear | 78.21% | 2,150 | 1,760 | |||||||||||
| Hydroelectric Plants (36) | Various | Hydroelectric | 100% | 1,176 | 1,176 | |||||||||||
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Pebbly Beach Generating
Station |
Catalina Island | Diesel | 100% | 9 | 9 | |||||||||||
| Mountainview | Redlands | Natural Gas | 100% | 1,050 | 1,050 | |||||||||||
| Peaker Plants (4) | Various | Gas fueled Combustion Turbine | 100% | 196 | 196 | |||||||||||
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Palo Verde Nuclear
Generating Station |
Phoenix, AZ | Nuclear | 15.8% | 3,739 | 591 | |||||||||||
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Four Corners
Units 4 and 5 |
Farmington, NM | Coal-fired | 48% 1 | 1,500 | 720 | |||||||||||
| Total | 9,820 | 5,502 | ||||||||||||||
San Onofre, Four Corners, certain of SCE's substations, and portions of its transmission, distribution and communication systems are located on lands owned by the United States or others under licenses, permits, easements or leases, or on public streets or highways pursuant to franchises. Certain of the documents evidencing such rights obligate SCE, under specified circumstances and at its expense, to relocate such transmission, distribution, and communication facilities located on lands owned or controlled by federal, state, or local governments.
Twenty-eight of SCE's 36 hydroelectric plants and related reservoirs are located in whole or in part on U.S.-owned lands pursuant to 30- to 50-year FERC licenses that expire at various times between 2011 and 2040. Such licenses impose numerous restrictions and obligations on SCE, including the right of the United States to acquire projects upon payment of specified compensation. When existing licenses expire, the FERC has the authority to issue new licenses to third parties that have filed competing license applications, but only if their license application is superior to SCE's and then only upon payment of specified compensation to SCE. New licenses issued to SCE are expected to contain more restrictions and obligations than the expired licenses because laws enacted since the existing licenses were issued require the FERC to give environmental objectives greater consideration in the licensing process.
Substantially all of SCE's properties are subject to the lien of a trust indenture securing first and refunding mortgage bonds. See "Item 8. SCE Notes to Consolidated Financial Statements Note 5. Debt and Credit Agreements."
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SCE's rights in Four Corners, which is located on land of the Navajo Nation under an easement from the United States and a lease from the Navajo Nation, may be subject to defects. These defects include possible conflicting grants or encumbrances not ascertainable because of the absence of, or inadequacies in, the applicable recording law and record systems of the Bureau of Indian Affairs and the Navajo Nation, the possible inability of SCE to resort to legal process to enforce its rights against the Navajo Nation without Congressional consent, the possible impairment or termination under certain circumstances of the easement and lease by the Navajo Nation, Congress, or the Secretary of the Interior, and the possible invalidity of the trust indenture lien against SCE's interest in the easement, lease, and improvements on Four Corners. For more information on SCE's sale of its interest in Four Corners, see "Item 8. SCE Notes to Consolidated Financial Statements Note 2. Property, Plant and Equipment."
SCE participates in the property and casualty insurance program of its parent, Edison International. This program includes excess liability insurance covering liabilities to third parties for bodily injury or property damage resulting from operations. For further information on wildfire insurance issues, see "Item 8. SCE Notes to Consolidated Financial Statements—Note 10. Regulatory and Environmental Developments." SCE also has separate insurance programs for nuclear property and liability, workers compensations and solar rooftop construction liability.
Due to warm weather during the summer months and SCE's rate design, operating revenue during the third quarter of each year is generally higher than the other quarters.
Legislative and regulatory activities by federal, state, and local authorities in the United States relating to energy and the environment impose numerous restrictions on the operation of SCE's existing facilities and affect the timing, cost, location, design, construction and operation of new facilities, as well as the cost of mitigating the environmental impacts of past operations. The environmental regulations and other developments discussed below have the largest impact on fossil-fuel fired power plants, and therefore the discussion in this section focuses mainly on regulations applicable to the states of California and New Mexico, where such facilities are located.
SCE continues to monitor legislative and regulatory developments and to evaluate possible strategies for compliance with environmental regulations. Additional information about environmental matters affecting SCE, including projected environmental capital expenditures, is included in the MD&A under the heading "Liquidity and Capital Resources—Capital Investment Plan" and in "Item 8. SCE Notes to Consolidated Financial Statements—Note 9. Commitments and Contingencies—Environmental Remediation" and "—Note 10. Regulatory and Environmental Developments."
There have been a number of federal and state legislative and regulatory initiatives to reduce GHG emissions. Any climate change regulation or other legal obligation that would require substantial reductions in emissions of GHGs or that would impose additional costs or charges for the emission of GHGs could significantly increase the cost of generating electricity from fossil fuels, and especially from coal-fired plants, as well as the cost of purchased power, which could adversely affect SCE.
Federal Legislative/Regulatory Developments
Efforts to pass comprehensive federal climate change legislation have not yet been successful. The timing, content and potential effects on SCE of any legislation that may be enacted remain uncertain. However, the US EPA has begun to issue federal GHG regulations that are likely to impact the operations of SCE.
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In June 2010, the US EPA issued the Prevention of Significant Deterioration ("PSD") and Title V Greenhouse Gas Tailoring Rule, known as the "GHG tailoring rule." This regulation generally subjects newly constructed sources of GHG emissions and newly modified existing major sources to the PSD air permitting program beginning in January 2011 (and later, to the Title V permitting program under the CAA); however the GHG tailoring rule significantly increases the emissions thresholds that apply before facilities are subjected to these programs. The emissions thresholds for CO 2 equivalents in the final rule vary from 75,000 tons per year to 100,000 tons per year depending on the date and whether the sources are new or modified.
A challenge to the GHG tailoring rule (along with other GHG regulations and determinations issued by the US EPA) is pending before the U.S. Court of Appeals for the D.C. Circuit. Regulation of GHG emissions pursuant to the PSD program could affect efforts to modify SCE's facilities in the future, and could subject new capital projects to additional permitting and pollution control requirements that could delay such projects. If SCE is required to install controls in the future or otherwise modify its operations in order to reduce GHG emissions, the potential impact of the GHG tailoring rule will depend on the nature and timing of the controls or modifications, which remain uncertain.
In December 2010, the US EPA announced that it had entered into a settlement with various states and environmental groups to resolve a long-standing dispute over regulation of GHGs from electrical generating units pursuant to the New Source Performance Standards in the CAA. Under the pending settlement, the US EPA will propose performance standards for GHG emissions from new and modified power plants and emissions guidelines for existing power plants, in July 2011, and will finalize such regulations by May 2012, with compliance dates for existing power plants expected to be in 2015 or 2016. The specific requirements will not be known until the regulations are finalized.
Since January 2010, the US EPA's Final Mandatory GHG Reporting Rule required all sources within specified categories, including electric generation facilities, to monitor emissions, and to submit annual reports to the US EPA by March 31 of each year, with the first report due on March 31, 2011. SCE's 2010 GHG emissions were approximately 6.5 million metric tons.
Regional Initiatives and State Legislation
Regional initiatives and state legislation may also require reductions of GHG emissions and it is not yet clear whether or to what extent any federal legislation would preempt them. If state and/or regional initiatives remain in effect after federal legislation is enacted, utilities and generators could be required to satisfy them in addition to federal standards.
SCE's operations in California are subject to two laws governing GHG emissions. The first law, the California Global Warming Solutions Act of 2006 (also referred to as AB 32), establishes a comprehensive program to reduce GHG emissions. AB 32 requires the California Air Resources Board ("CARB") to develop regulations, effective in 2012, that would reduce California's GHG emissions to 1990 levels in yearly increments by 2020. In December 2010, the CARB finalized regulations establishing a California cap-and-trade program, which include revisions to the CARB's mandatory GHG emissions reporting regulation. The regulations and the cap-and-trade program itself are being challenged by various citizens' groups under the California Environmental Quality Act.
The second law, SB 1368, required the CPUC and the CEC to adopt GHG emission performance standards restricting the ability of California investor owned and publicly owned utilities, respectively, to enter into long-term arrangements for the purchase of electricity. The standards that have been adopted prohibit these entities, including SCE, from entering into long-term financial commitments with generators that emit more than 1,100 pounds of CO 2 per MWh, the performance of a combined-cycle gas turbine generator. Accordingly, the prohibition applies to most coal-fired plants.
SB 1368 also affects the ability of utilities to make long-term capital investments in generators that do not meet the emission performance standards. SB 1368 may prohibit SCE from making emission control
10
expenditures at Four Corners. See "Item 8. SCE Notes to Consolidated Financial Statements—Note 2. Property, Plant and Equipment" for information on the sale of SCE's interest in Four Corners.
California law also requires SCE to increase its electricity generated from renewable resources by at least 1% of its annual retail electricity sales per year so that 20% of its annual electricity sales are provided from such resources (the "RPS Program") by no later than December 31, 2010 or such later date as flexible compliance requirements permit. Through December 31, 2010, SCE estimates its delivery of eligible renewable resources to customers to be 19% of its total energy portfolio. In accordance with the procurement rules and regulations, SCE expects to demonstrate full compliance with the RPS Program in its March 2011 filing. In addition, in September 2010, the CARB adopted a Renewable Electricity Standard, which requires SCE to demonstrate renewable energy production equal to 33% of its sales to retail customers for 2020 and each year thereafter. Subsequently, in February 2011, a California Senate bill was introduced that would impose a similar requirement that California utilities purchase 33% of their electricity requirements from renewable resources. It is unclear whether the legislation will preempt the CARB's standard, if it is enacted.
SCE's operations in California and New Mexico may also be affected by the Western Climate Initiative ("WCI"), an agreement entered into by California, other western states and certain Canadian provinces, to develop strategies to reduce GHG emissions in the region to 15% below 2005 levels by 2020. In July 2010, the WCI partners released a comprehensive strategy for a regional cap-and-trade program, with a planned start date of January 2012, to help achieve their reduction goal. Recent political developments make it uncertain whether this regional program will proceed and what form it might take. As noted above, California is implementing its own program to reduce GHG emissions.
Litigation alleging that GHG is a public and private nuisance may affect SCE, whether it is named as a defendant. The law is unsettled on whether or not this litigation presents questions capable of judicial resolution or political questions that should be resolved by the legislative or executive branches.
In December 2010, the U.S. Supreme Court agreed to review a case in which an appellate panel had endorsed the availability of judicial remedies for nuisance allegedly caused by GHG emissions associated with climate change. Oral argument before the Supreme Court is scheduled for April 2011. Currently pending while the Supreme Court considers the matter before it, is an appeal before the Ninth Circuit of a federal district order dismissing a case against SCE's parent company, Edison International, and other defendants brought by the Alaskan Native Village of Kivalina in which the plaintiffs seek damages of up to $400 million for the cost of relocating the village, which the plaintiffs claim is no longer protected from storms because the Arctic sea ice has melted as the result of climate change. Edison International and the other defendants in the lawsuit recently requested the Ninth Circuit to defer oral argument on the appeal pending the Supreme Court's decision on related issues.
SCE cannot predict whether the legal principles emerging from the Supreme Court or any of the cases in the appellate courts will result in the filing of new actions with similar claims or whether Congress, in considering climate legislation, will address directly the availability of courts to resolve claims associated with climate change.
The CAA, which regulates air pollutants from mobile and stationary sources, has a significant impact on the operation of fossil fuel plants, especially coal-fired plants. The CAA requires the US EPA to establish concentration levels in the ambient air for six criteria pollutants to protect public health and welfare. These concentration levels are known as National Ambient Air Quality Standards, or NAAQS. The six criteria pollutants are carbon monoxide, lead, nitrogen dioxide, ozone, particulate matter, and SO 2 .
Federal environmental regulations of these criteria pollutants require states to adopt state implementation plans, known as SIPs, for certain pollutants, which detail how the state will attain the standards that are
11
mandated by the relevant law or regulation. The SIPs must be equal to or more stringent than the federal requirements and must be submitted to the US EPA for approval. Each state identifies the areas within its boundaries that meet the NAAQS (attainment areas) and those that do not (non-attainment areas), and must develop a SIP both to bring non-attainment areas into compliance with the NAAQS and to maintain good air quality in attainment areas. If the attainment status of areas changes, states may be required to develop new SIPs that address the changes. Much of Southern California is in a non-attainment area for several criteria pollutants.
Proposed NAAQS for Sulfur Dioxide
In June 2010, the US EPA finalized the primary NAAQS for SO 2 by establishing a new one-hour standard at a level of 75 parts per billion. Revisions to SIPs to achieve compliance with the new standard are due to be submitted to the US EPA by February 2014, with a compliance deadline of August 2017.
National Ambient Air Quality Standards
In January 2010, the US EPA proposed a revision to the primary and secondary NAAQS for 8-hour ozone that it had finalized in 2008. The 8-hour ozone standard established in 2008 was 0.075 parts per million. In January 2010, the US EPA proposed establishing a primary 8-hour ozone NAAQS between 0.060 and 0.070 parts per million and a distinct secondary standard to protect sensitive vegetation and ecosystems. The US EPA is expected to finalize the revision to the ozone NAAQS by July 2011. It is expected that once the US EPA finalizes the revised ozone NAAQS, it will propose a second Transport Rule that may further affect electric power generating units. The US EPA is also expected to propose revised fine particulate matter NAAQS in 2011, which could result in further emission reduction requirements in future years.
Mercury/Hazardous Air Pollutants
Clean Air Mercury Rule/Hazardous Air Pollutant Regulations
The CAMR was established by the US EPA as an attempt to reduce mercury emissions from existing coal-fired power plants using a cap-and-trade program. In February 2007, the U.S. Court of Appeals for the D.C. Circuit vacated both the CAMR and the related US EPA decision to remove oil- and coal-fired power plants from the list of sources to be regulated under the provisions of the CAA governing the emissions of HAPs.
In accordance with a consent decree entered in April 2010, the US EPA committed to proposing regulations by March 2011 limiting emissions of HAPs from coal- and oil-fired electrical generating units that are major sources of HAPs, and to finalizing such regulations by November 2011. The emissions standards must be designed to achieve the maximum degree of emission reduction that the US EPA determines is achievable for the affected units, taking into account costs and non-air quality environmental and health benefits (also referred to as maximum achievable control technology, or MACT, standard). Unlike the CAMR, the US EPA must regulate all of the HAPs emitted by these generating units. Compliance with the MACT standards will be required three years after the effective date of the final regulations. Until the US EPA's regulations are finalized, SCE cannot determine what actions will be required to address its obligations under the new HAPs regulations.
The regional haze rules under the CAA are designed to prevent impairment of visibility in certain federally designated areas. The goal of the rules is to restore visibility in mandatory federal Class I areas, such as national parks and wilderness areas, to natural background conditions by 2064. Sources such as power plants that are reasonably anticipated to contribute to visibility impairment in Class I areas may be required
12
to install best available retrofit technology ("BART") or implement other control strategies to meet regional haze control requirements. The US EPA issued a final rulemaking on regional haze in 2005 requiring emission controls that constitute BART for industrial facilities that emit air pollutants which reduce visibility by causing or contributing to regional haze. These amendments required states to develop SIPs to comply with BART by December 2007, to identify the facilities that will have to reduce SO 2, NO x and particulate matter emissions, and then to set BART emissions limits for those facilities. Failure to do so would result in the imposition of a federal implementation plan ("FIP"). Because the Four Corners plant is located on the Navajo Reservation there is no applicable SIP and the plant will be subject only to a FIP.
In relation to Four Corners, the US EPA issued its proposed FIP in October 2010. The proposed FIP would require the installation of SCR pollution control equipment by approximately 2016 on all Four Corners units. In November 2010, SCE and APS entered into an agreement for the sale of SCE's Four Corners interest to APS, subject to regulatory approvals and other conditions. A final FIP is expected in 2011. Due to the investment constraints of SB 1368, the California law on GHG emission performance standards discussed above in "—Climate Change—Regional Initiatives and State Legislation," SCE does not expect to be a Four Corners participant after the 2016 expiration of the current participant agreements and does not expect to participate in any investment in Four Corners SCRs. See "Item 8. SCE Notes to Consolidated Financial Statements—Note 2. Property, Plant and Equipment," for more information on the sale of SCE's interest in Four Corners.
New Source Review Requirements
The NSR regulations impose certain requirements on facilities, such as electric generating stations, if modifications are made to air emissions sources at the facility. Since 1999, the US EPA has pursued a coordinated compliance and enforcement strategy to address NSR compliance issues at the nation's coal-fired power plants. The strategy has included both the filing of suits against a number of power plant owners, and the issuance of administrative NOVs to a number of power plant owners alleging NSR violations.
In April 2009, APS, as operating agent of Four Corners, received a US EPA request pursuant to Section 114 of the CAA for information about Four Corners, including information about Four Corners' capital projects from 1990 to the present. SCE understands that in other cases the US EPA has utilized responses to similar Section 114 letters to examine whether power plants have triggered NSR requirements under the CAA. In May 2010, four environmental organizations (Dine CARE, National Parks Conservation Association, Sierra Club, and To Nizhoni Ani) served SCE and the other Four Corners owners with a notice of intent to sue under the CAA alleging violations of NSR requirements. The US EPA has not initiated any NSR enforcement-related proceedings with respect to Four Corners. SCE has entered into an agreement to sell Four Corners. See "Item 8. SCE Notes to Consolidated Financial Statements—Note 2. Property, Plant and Equipment," for more information on the sale of SCE's interest in Four Corners.
Regulations under the federal Clean Water Act govern critical parameters at generating facilities, such as the temperature of effluent discharges and the location, design, and construction of cooling water intake structures at generating facilities. The US EPA is rewriting these regulations following a 2009 U.S. Supreme Court decision holding that the US EPA may consider, but is not required to use, a cost-benefit analysis for this purpose. The Supreme Court set a deadline of March 2011 for draft regulations, which are to be finalized by July 2011.
California—Prohibition on the Use of Ocean-Based Once-Through Cooling
California has a US EPA-approved program to issue individual or group (general) permits for the regulation of Clean Water Act discharges. California also regulates certain discharges not regulated by the
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US EPA. In May 2010 the California State Water Resources Control Board issued a final policy, which establishes closed-cycle wet cooling as required technology for retrofitting existing once-through cooled plants like SCE's San Onofre and many of the existing fossil-fueled power plants along the California coast. The final policy, which took effect on October 1, 2010, requires an independent engineering study to be completed prior to the fourth quarter of 2013 regarding the feasibility of compliance by California's two coastal nuclear power plants, which may result in significant capital expenditures at San Onofre and may affect its operations. The policy could adversely affect California's nineteen once-through cooled power plants, which provide over 21,000 MW of combined, in-state generation capacity, including over 9,100 MW of capacity interconnected within SCE's service territory. The policy may also significantly impact SCE's ability to procure generating capacity from fossil-fuel plants that use ocean water in once-through cooling systems, system reliability and the cost of electricity if other coastal power plants in California are forced to shut down or limit operations.
US EPA regulations currently classify coal ash and other coal combustion residuals as solid wastes that are exempt from hazardous waste requirements. This classification enables beneficial uses of coal combustion residuals, such as for cement production and fill materials.
In June 2010, the US EPA published proposed regulations relating to coal combustion residuals. Two different proposed approaches are under consideration. The first approach, under which the US EPA would list these residuals as special wastes subject to regulation as hazardous wastes, could require SCE to incur additional capital and operating costs without assurance that the additional costs could be recovered. To the extent such expenditures are for long-term extended operation of Four Corners, SCE does not expect to participate in any such expenditures consistent with SB 1368, the California law on GHG emission performance standards (see "—Climate Change—Regional Initiatives and State Legislation" above for a description of SB 1368). The second approach, under which the US EPA would regulate these residuals as nonhazardous wastes, would establish minimum technical standards for units that are used for the disposal of coal combustion residuals, but would allow procedural and enforcement mechanisms (such as permit requirements) to be exclusively a matter of state law. Many of the proposed technical standards are similar under both proposed options, but the second approach would not require the retrofitting of landfills used for the disposal of coal combustion residuals.
SCE's financial results depend upon its ability to recover its costs in a timely manner from its customers through regulated rates.
SCE's ongoing financial results depend on its ability to recover from its customers in a timely manner its costs, including the costs of electricity purchased for its customers, through the rates it charges its customers as approved by the CPUC, and its ability to pass through to its customers in rates its FERC-authorized revenue requirements. SCE's financial results also depend on its ability to earn through the rates it is allowed to charge an adequate return on capital, including long-term debt and equity. SCE's capital investment plan, California's commitment to renewable power, increasing environmental regulations, sensitivity to increasing natural gas costs and moderating demand, collectively place continuing upward pressure on customer rates. If SCE is unable to obtain a sufficient rate increase or to recover material amounts of its costs in rates in a timely manner or recover an adequate return on capital, its financial condition and results of operations could be materially adversely affected. For further information on SCE's rate requests, see "Management Overview—SCE Rate Cases" in the MD&A.
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SCE's energy procurement activities are subject to regulatory and market risks that could adversely affect its financial condition and liquidity.
SCE obtains energy, capacity, renewable attributes and ancillary services needed to serve its customers from its own generating plants, as well as through contracts with energy producers and sellers. California law and CPUC decisions allow SCE to recover through the rates it is allowed to charge its customers reasonable procurement costs incurred in compliance with an approved procurement plan. Nonetheless, SCE's cash flows remain subject to volatility resulting from its procurement activities, including exposure to commodity price and counterparty credit risks. In addition, SCE is subject to the risks of unfavorable or untimely CPUC decisions about the compliance of procurement activities with SCE's procurement plan and the reasonableness of certain procurement-related costs.
SCE may not be able to hedge its risk for commodities on economic terms or fully recover the costs of hedges through the rates it is allowed to charge its customers, which could adversely affect SCE's liquidity and results of operations, see "Market Risk Exposures" in the MD&A.
SCE is subject to extensive regulation and the risk of adverse regulatory decisions and changes in applicable regulations or legislation.
SCE operates in a highly regulated environment. SCE's business is subject to extensive federal, state and local energy, environmental and other laws and regulations. The CPUC regulates SCE's retail operations, and the FERC regulates SCE's wholesale operations. The NRC regulates SCE's nuclear power plants. The construction, planning, and project site identification of SCE's power plants and transmission lines in California are also subject to the jurisdiction of the California Energy Commission (for plants 50 MW or greater) and the CPUC. The construction, planning and project site identification of transmission lines that are outside of California are subject to the regulation of the relevant state agency.
SCE must periodically apply for licenses and permits from these various regulatory authorities and abide by their respective orders. Should SCE be unsuccessful in obtaining necessary licenses or permits or should these regulatory authorities initiate any investigations or enforcement actions or impose penalties or disallowances on SCE, SCE's business could be adversely affected.
This extensive governmental regulation creates significant risks and uncertainties for SCE's business. Existing regulations may be revised or reinterpreted and new laws and regulations may be adopted or become applicable to SCE, or its facilities or operations in a manner that may have a detrimental effect on SCE's business or result in significant additional costs.
SCE is subject to extensive environmental regulations that may involve significant and increasing costs and adversely affect SCE.
SCE is subject to extensive and frequently changing environmental regulations and permitting requirements that involve significant and increasing costs and substantial uncertainty. SCE devotes significant resources to environmental monitoring, pollution control equipment and emission allowances to comply with existing and anticipated environmental regulatory requirements. However, the current trend is toward more stringent standards, stricter regulation, and more expansive application of environmental regulations. The adoption of laws and regulations to implement greenhouse gas controls could adversely affect operations, particularly of the coal-fired plants. SCE may also be exposed to risks arising from past, current or future contamination at its former or existing facilities or with respect to off site waste disposal sites that have been used in its operations. Other environmental laws, particularly with respect to air emissions, disposal of ash, wastewater discharge and cooling water systems, are also generally becoming more stringent. The continued operation of SCE facilities, particularly the coal-fired facilities, may require substantial capital expenditures for environmental controls or cessation of operations. Current and future state laws and regulations in California also could increase the required amount of energy that must be procured from
15
renewable resources. See "Item 1. Business—Environmental Matters" for further discussion of environmental regulations under which SCE operates.
SCE's financial condition and results of operations could be materially adversely affected if it is unable to successfully manage the risks inherent in operating and improving its facilities.
SCE is engaged in one of the largest infrastructure investment programs in its history, which involves multiple large-scale projects in multiple locations. This substantial increase in activity from SCE's historical levels elevates the operational risks and the need for superior execution in its activities. SCE's financial condition and results of operations could be materially adversely affected if it is unable to successfully manage these risks as well as the risks inherent in operating and improving its facilities, the operation of which can be hazardous. SCE's inherent operating risks include such matters as the risks of human performance, workforce capabilities, system limitations and degradation, failure or breaches of critical information technology systems and interruptions in necessary supplies. See "Liquidity and Capital Resources—Capital Investment Plan" in the MD&A.
There are inherent risks associated with operating nuclear power generating facilities.
Continued NRC scrutiny of regulatory and performance issues at San Onofre may result in additional corrective actions that will increase operations and maintenance costs or require additional capital expenditures.
As discussed in "Item 1. Business—Regulation—Nuclear Power Plant Regulation," the NRC is conducting additional inspections and public meetings to assess the corrective actions taken at San Onofre in connection with various regulatory and performance issues. This scrutiny may result in SCE being required to take additional corrective actions and incur increased operations and maintenance expenses or new capital expenditures. If SCE is unable to take effective corrective actions, the NRC has the authority to impose fines or shut down a unit, or both, depending upon the NRC's assessment of the severity of the situation, until compliance is achieved.
Existing insurance and ratemaking arrangements may not protect SCE fully against losses from a nuclear incident.
Federal law limits public liability claims from a nuclear incident to the amount of available financial protection which is currently approximately $12.6 billion. SCE and other owners of the San Onofre and Palo Verde Nuclear Generating Stations have purchased the maximum private primary insurance available of $375 million per site. If nuclear incident liability claims were to exceed $375 million, the remaining amount would be made up from contributions of approximately $12.2 billion made by all of the nuclear facility owners in the U.S., up to an aggregate total of $12.6 billion. There is no assurance that the CPUC would allow SCE to recover the required contribution made in the case of a nuclear incident claim(s) that exceeded $375 million. If this public liability limit of $12.6 billion is insufficient, federal law contemplates that additional funds may be appropriated by Congress. There can be no assurance of SCE's ability to recover uninsured costs in the event the additional federal appropriations are insufficient.
Spent fuel storage capacity could be insufficient to permit long-term operation of SCE's nuclear plants.
The U.S. Department of Energy has defaulted on its obligation to begin accepting spent nuclear fuel from commercial nuclear industry participants by January 31, 1998. If SCE or the operator of Palo Verde were unable to arrange and maintain sufficient capacity for interim spent-fuel storage now or in the future, it could hinder the operation of the plants and impair the value of SCE's ownership interests until storage could be obtained, each of which may have a material adverse effect on SCE.
16
SCE's insurance coverage for wildfires arising from its ordinary operations may not be sufficient and Edison International may not be able to obtain sufficient insurance on SCE's behalf for such occurrences.
Edison International has been experiencing increased costs and difficulties in obtaining insurance coverage for wildfires that could arise from SCE's ordinary operations. In addition, the insurance Edison International has obtained on SCE's behalf for wildfire liabilities may not be sufficient. Uninsured losses and increases in the cost of insurance may not be recoverable in customer rates. A loss which is not fully insured or cannot be recovered in customer rates could materially and adversely affect Edison International's and SCE's financial condition and results of operations. Furthermore, insurance for wildfire liabilities may not continue to be available at all or at rates or on terms similar to those presently available to Edison International. See "Item 8. SCE Notes to Consolidated Financial Statements—Note 10. Regulatory and Environmental Developments."
As a capital intensive company, SCE relies on access to the capital markets. If SCE were unable to access capital markets or the cost of capital was to substantially increase, its liquidity and operations would be adversely affected.
SCE regularly accesses capital markets to finance its activities and is expected to do so by its regulators as part of its obligation to serve as a regulated utility. SCE's needs for capital for its ongoing infrastructure investment program are substantial. SCE's ability to arrange financing, as well as its ability to refinance debt and make scheduled payments of principal and interest, are dependent on numerous factors, including SCE's levels of indebtedness, maintenance of acceptable credit ratings, its financial performance, liquidity and cash flow, and other market conditions. SCE's failure to obtain additional capital from time to time would have a material adverse effect on SCE's liquidity and operations. See "Liquidity and Capital Resources—Capital Investment Plan" and "Liquidity and Capital Resources—Historical Consolidated Cash Flows" in the MD&A.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
The principal properties of SCE are described above under the heading "Business—Properties."
California Coastal Commission Potential Environmental Proceeding
In May 2010, the California Coastal Commission issued a NOV to SCE, its contractor, and certain property owners related to activity on a property that was used for equipment storage related to a nearby SCE electricity line undergrounding construction project. The NOV alleged that SCE, through its contractor, violated the California Coastal Act by removing without the appropriate permits approximately one acre of vegetation from the property, which was located in a protected coastal zone within and adjacent to the City of Newport Beach, California. In the NOV, the Coastal Commission indicated an interest in negotiating a settlement of the alleged violations but no settlement has been reached. The Coastal Act provides for penalties of up to $30,000 per violation, which may be increased by up to $15,000 per day per violation for knowing and intentional violations. SCE has sought indemnification from its contractor for liability associated with the NOV.
For a discussion of other material pending legal proceedings affecting SCE, see "Item 8. SCE Notes to the Consolidated Financial Statements—Note 9. Commitments and Contingencies."
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Pursuant to Form 10-K's General Instruction G(3), the following information in included as an additional item in Part I:
EXECUTIVE OFFICERS OF THE REGISTRANT
|
Executive Officer
|
Age at
December 31, 2010 |
Company Position
|
||
|---|---|---|---|---|
| Ronald L. Litzinger | 51 | President | ||
| Stephen E. Pickett | 60 | Executive Vice President, External Relations | ||
| Russell C. Swartz | 59 | Senior Vice President and General Counsel | ||
| Peter T. Dietrich | 46 | Senior Vice President and Chief Nuclear Officer | ||
| Stuart R. Hemphill | 47 | Senior Vice President, Power Supply | ||
| Linda G. Sullivan | 47 | Senior Vice President and Chief Financial Officer | ||
| Chris C. Dominski | 44 | Vice President and Controller | ||
| Lynda L. Ziegler | 58 | Executive Vice President, Power Delivery Services | ||
As set forth in Article IV of SCE's Bylaws, the elected officers of SCE are chosen annually by, and serve at the pleasure of, SCE's Board of Directors and hold their respective offices until their resignation, removal, other disqualification from service, or until their respective successors are elected. All of the above officers have been actively engaged in the business of SCE, Edison International, and/or one of SCE's subsidiaries or other affiliates for more than five years, except for Mr. Dietrich, and have served in their present positions for the periods stated below. Additionally, those officers who have had other or additional principal positions in the past five years had the following business experience during that period:
|
Executive Officer
|
Company Position
|
Effective Dates
|
||
|---|---|---|---|---|
| Ronald L. Litzinger | President, SCE | January 2011 to present | ||
| Chairman of the Board, President and Chief Executive Officer, Edison Mission Group Inc. | April 2008 to December 2010 | |||
| Senior Vice President, Transmission and Distribution, SCE | May 2005 to March 2008 | |||
| Stephen E. Pickett | Executive Vice President, External Relations, SCE | February 2011 to present | ||
| Executive Vice President, External Relations and General Counsel, SCE | January 2011 to February 2011 | |||
| Senior Vice President and General Counsel, SCE | January 2002 to December 2010 | |||
| Russell C. Swartz | Senior Vice President and General Counsel, SCE | February 2011 to present | ||
| Vice President and Associate General Counsel, SCE | February 2010 to February 2011 | |||
| Associate General Counsel, SCE | March 2007 to February 2010 | |||
| Assistant General Counsel, SCE | February 2002 to February 2007 | |||
| Peter T. Dietrich | Senior Vice President and Chief Nuclear Officer, SCE | December 2010 to present | ||
| Senior Vice President, SCE | November 2010 to present | |||
|
Site Vice President, Entergy
Nuclear Operations, Inc. James A. Fitzpatrick Nuclear Plant 1 |
April 2006 to November 2010 | |||
|
General Manager Plant Operations,
Entergy's Pilgrim Nuclear Station |
January 2006 to April 2006 | |||
| Stuart R. Hemphill | Senior Vice President, Power Supply | January 2011 to present | ||
| Senior Vice President, Power Procurement, SCE | July 2009 to December 2010 | |||
| Vice President, Renewable and Alternative Power | March 2008 to June 2009 | |||
| Director of Renewable and Alternative Power | April 2006 to March 2008 | |||
| Linda G. Sullivan | Senior Vice President and Chief Financial Officer, SCE | March 2010 to present | ||
| Senior Vice President, Chief Financial Officer and Acting Controller, SCE | July 2009 to March 2010 | |||
| Vice President and Controller, Edison International | June 2005 to August 2009 | |||
| Vice President and Controller, SCE | June 2005 to June 2009 | |||
| Chris C. Dominski | Vice President, and Controller, SCE | March 2010 to present | ||
| Assistant Controller, Edison International | March 2007 to April 2010 | |||
| Assistant Controller, SCE | March 2007 to March 2010 | |||
| Manager, Financial Planning and Analysis, SCE | July 2006 to March 2007 | |||
| Lynda L. Ziegler | Executive Vice President, Power Delivery Services, SCE | January 2011 to present | ||
| Senior Vice President, Customer Service, SCE | March 2006 to December 2010 | |||
| Vice President, Customer Programs and Services Division, SCE | May 2005 to February 2006 | |||
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Certain information responding to Item 5 with respect to frequency and amount of cash dividends is included in "Item 8. SCE Notes to the Consolidated Financial Statements—Note 17. Quarterly Financial Data." As a result of the formation of a holding company described in Item 1 above, all of the issued and outstanding common stock of SCE is owned by Edison International and there is no market for such stock.
Item 201(d) of Regulation S-K, "Securities Authorized for Issuance under Equity Compensation Plans," is not applicable because SCE has no compensation plans under which equity securities of SCE are authorized for issuance.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data: 2006 – 2010
|
(Dollars in millions)
|
2010
|
2009
|
2008
|
2007
|
2006
|
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Income statement data: |
|||||||||||||||||
|
Operating revenue |
$ | 9,983 | $ | 9,965 | $ | 11,248 | $ | 10,233 | $ | 9,859 | |||||||
|
Operating expenses |
8,119 | 8,047 | 9,595 | 8,492 | 8,003 | ||||||||||||
|
Net income |
1,092 | 1,371 | 904 | 1,063 | 1,102 | ||||||||||||
|
Net income available for common stock |
1,040 | 1,226 | 683 | 707 | 776 | ||||||||||||
|
Balance sheet data: |
|||||||||||||||||
|
Total assets |
$ | 35,906 | $ | 32,474 | $ | 32,568 | $ | 27,477 | $ | 26,110 | |||||||
|
Long-term debt including current portion |
7,627 | 6,740 | 6,362 | 5,081 | 5,567 | ||||||||||||
|
Common shareholder's equity |
8,287 | 7,446 | 6,513 | 6,228 | 5,447 | ||||||||||||
|
Preferred and preference stock |
920 | 920 | 920 | 929 | 929 | ||||||||||||
|
Capital structure: |
|||||||||||||||||
|
Common shareholder's equity |
49.2% | 49.3% | 47.2% | 50.9% | 45.6% | ||||||||||||
|
Preferred and preference stock |
5.5% | 6.1% | 6.7% | 7.6% | 7.8% | ||||||||||||
|
Long-term debt |
45.3% | 44.6% | 46.1% | 41.5% | 46.6% | ||||||||||||
The selected financial data was derived from SCE's audited financial statements and is qualified in its entirety by the more detailed information and financial statements, including notes to these financial statements, included in this annual report.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During 2009 and 2010, SCE focused on the execution of its capital investment program. Capital expenditures under the program were primarily for: upgrading, maintaining and expanding SCE's transmission and distribution system; extending the useful life of generation assets; and installing smart meters. Total capital expenditures were $2.9 billion in 2009 and $3.8 billion in 2010. A description of SCE's capital program for 2011 – 2014 and status of major rate cases is discussed below.
Highlights of Operating Results
|
(in millions)
|
2010
|
2009
|
Change
|
2008
|
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net Income available for common stock |
$ | 1,040 | $ | 1,226 | $ | (186 | ) | $ | 683 | |||||
|
Non-Core Items |
||||||||||||||
|
Global Settlement |
95 | 306 | (211 | ) | — | |||||||||
|
Tax impact of health care legislation |
(39 | ) | — | (39 | ) | — | ||||||||
|
Regulatory items |
— | 46 | (46 | ) | (49 | ) | ||||||||
|
Total non-core items |
56 | 352 | (296 | ) | (49 | ) | ||||||||
|
Core Earnings |
$ | 984 | $ | 874 | $ | 110 | $ | 732 | ||||||
SCE's earnings are prepared in accordance with generally accepted accounting principles used in the United States. Management uses core earnings for financial planning and for analysis of performance. Core earnings are also used when communicating with analysts and investors regarding SCE's earnings results to facilitate comparisons of the performance from period to period. Core earnings are a non-GAAP financial measure and may not be comparable to those of other companies. Core earnings are defined as earnings attributable to SCE less income or loss from significant discrete items that management does not consider representative of ongoing earnings, such as: settlement of certain tax, regulatory or legal matters or proceedings.
The increase in core earnings of $110 million was primarily due to higher operating income and capitalized financing costs (AFUDC), both driven by higher rate base growth, and lower income tax expense. The lower tax expense in 2010 includes a change in the method of tax accounting for asset removal costs primarily related to SCE's infrastructure replacement program.
Consolidated non-core items for SCE included:
See "Results of Operations" for discussion of SCE results of operations, including a comparison of 2009 results to 2008.
20
SCE's capital program for 2011 – 2014 is focused primarily in the following areas:
SCE forecasts capital expenditures in the range of $15.6 billion to $17.5 billion for 2011 – 2014. The rate of actual capital spending may be affected by permitting, regulatory, market and other factors as discussed further under "Liquidity and Capital Resources—Capital Investment Plan." SCE plans to utilize cash generated from its operations, tax benefits and issuance of additional debt and preferred equity to fund its capital needs.
On November 23, 2010, SCE filed its 2012 GRC application requesting a 2012 base rate revenue requirement of $6.3 billion. After considering the effects of sales growth, SCE's request would be an $866 million increase in 2012 base rate revenue. The requested revenue requirement increase is driven by investments in capital projects to maintain system reliability and accommodate customer load growth, as well as an increase in operation and maintenance expenses primarily for capital-related projects, information technology, insurance premiums and pension contributions. If the CPUC approves the requested rate increase, the system average rate increase over base rate and total revenue requirement is estimated to be 16.2% and 7.6%, respectively. The increase excludes the impact of rate changes not associated with the CPUC GRC, such as rates to recover purchased power. The application also proposes a ratemaking mechanism that would result in 2013 and 2014 incremental base rate revenue requirement increases, net of sales growth of $246 million and $527 million, respectively, driven by the same reasons.
SCE is required to update its 2012 GRC request to reflect, among other items, the impacts of governmental and legislative actions. As part of this update, SCE expects the base rate revenue requirement will be reduced to reflect bonus depreciation (discussed below in "—Bonus Depreciation"). Bonus depreciation is an acceleration of future tax deductions which results in a reduction to rate base. SCE intends to update its 2012 GRC request after the IRS issues final regulations.
The current schedule anticipates a final decision on SCE's 2012 GRC by the end of 2011. SCE cannot predict the revenue requirement the CPUC will ultimately authorize or when a final decision will be adopted.
In February 2011, the FERC approved a settlement agreement in SCE's 2010 FERC rate case that provides a FERC retail base revenue requirement of $490 million, an increase of $42 million, or 9.4%, over the 2009 FERC base revenue requirement. The increased revenue requirement is primarily due to an increase in transmission capital investments and will be retroactive to March 1, 2010. As of December 31, 2010, SCE had collected revenue, subject to refund, of $58 million that will be refunded to ratepayers. SCE did not previously recognize revenue for the amount that will be refunded.
21
SCE continues to apply increased management focus and other resources to San Onofre to address regulatory and performance issues identified by the NRC (see "Item 1. Business—Regulation—Nuclear Power Plant Regulation" for further discussion).
The Small Business Jobs Act of 2010 and The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 extended 50% bonus depreciation for qualifying property through 2012 and created a new 100% bonus depreciation for qualifying property placed in service between September 9, 2010 and December 31, 2011. In addition to the update of the 2012 GRC discussed above, these provisions are expected to:
The impact on cash flow represents an acceleration of tax benefits that would have otherwise been deductible over the life of the qualifying assets.
For a discussion of environmental regulation developments regarding Greenhouse Gas Regulation, and California Once-Through Cooling issues, see "Item 8. SCE Notes to Consolidated Financial Statements—Note 10. Regulatory and Environmental Developments."
SCE's results of operations are derived mainly through two sources:
Utility earning activities include base rates that are designed to recover forecasted operation and maintenance costs, certain capital-related carrying costs, interest (including interest on balancing accounts), taxes and a return, including the return on capital projects recovered through balancing account mechanisms. Differences between authorized amounts and actual results impact earnings. Also, included in utility earning activities are revenues or penalties related to incentive mechanisms, other operating revenue, and regulatory charges or disallowances, if any.
Utility cost-recovery activities include rates that provide for recovery, subject to reasonableness review, of fuel costs, purchased power costs, public purpose related-program costs (including energy efficiency and demand-side management programs), certain operation and maintenance expenses, and depreciation expense related to certain projects. There is no return for cost-recovery expenses.
22
Electric Utility Results of Operations
The following table is a summary of SCE's results of operations for the periods indicated. The presentation below separately identifies utility earning activities and utility cost-recovery activities.
|
|
2010
|
2009
|
2008
|
||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||||||||||||||||||||||
|
(in millions)
|
Utility
Earning Activities |
Utility
Cost- Recovery Activities 1,2 |
Total
Consolidated |
Utility
Earning Activities |
Utility
Cost- Recovery Activities 1,2 |
Total
Consolidated |
Utility
Earning Activities |
Utility
Cost- Recovery Activities 1,2 |
Total
Consolidated |
||||||||||||||||||||
|
Operating revenue |
$ | 5,606 | $ | 4,377 | $ | 9,983 | $ | 5,303 | $ | 4,662 | $ | 9,965 | $ | 4,856 | $ | 6,392 | $ | 11,248 | |||||||||||
|
Fuel and purchased power |
— | 3,293 | 3,293 | — | 3,472 | 3,472 | — | 5,245 | 5,245 | ||||||||||||||||||||
|
Operations and maintenance |
2,271 | 1,020 | 3,291 | 2,111 | 1,043 | 3,154 | 2,079 | 934 | 3,013 | ||||||||||||||||||||
|
Depreciation
|
1,213 | 60 | 1,273 | 1,124 | 54 | 1,178 | 1,055 | 59 | 1,114 | ||||||||||||||||||||
|
Property taxes and other |
260 | 3 | 263 | 244 | — | 244 | 232 | — | 232 | ||||||||||||||||||||
|
Gain on sale of assets |
— | (1 | ) | (1 | ) | — | (1 | ) | (1 | ) | — | (9 | ) | (9 | ) | ||||||||||||||
|
Total operating expenses |
3,744 | 4,375 | 8,119 | 3,479 | 4,568 | 8,047 | 3,366 | 6,229 | 9,595 | ||||||||||||||||||||
|
Operating income |
1,862 | 2 | 1,864 | 1,824 | 94 | 1,918 | 1,490 | 163 | 1,653 | ||||||||||||||||||||
|
Net interest expense and
|
(330 | ) | (2 | ) | (332 | ) | (298 | ) | — | (298 | ) | (414 | ) | 7 | (407 | ) | |||||||||||||
|
Income before income
|
1,532 | — | 1,532 | 1,526 | 94 | 1,620 | 1,076 | 170 | 1,246 | ||||||||||||||||||||
|
Income tax expense |
440 | — | 440 | 249 | — | 249 | 342 | — | 342 | ||||||||||||||||||||
|
Net income |
1,092 | — | 1,092 | 1,277 | 94 | 1,371 | 734 | 170 | 904 | ||||||||||||||||||||
|
Net income attributable
|
— | — | — | — | 94 | 94 | — | 170 | 170 | ||||||||||||||||||||
|
Dividends on preferred and
|
52 | — | 52 | 51 | — | 51 | 51 | — | 51 | ||||||||||||||||||||
|
Net income available for
|
$ | 1,040 | $ | — | $ | 1,040 | $ | 1,226 | $ | — | $ | 1,226 | $ | 683 | $ | — | $ | 683 | |||||||||||
|
Core Earnings 3 |
$ | 984 | $ | 874 | $ | 732 | |||||||||||||||||||||||
|
Non-Core Earnings: |
|||||||||||||||||||||||||||||
|
Global tax settlement |
95 | 306 | — | ||||||||||||||||||||||||||
|
Tax impact of health care
|
(39 | ) | — | — | |||||||||||||||||||||||||
|
Regulatory items |
— | 46 | (49 | ) | |||||||||||||||||||||||||
|
Total SCE GAAP Earnings |
$ | 1,040 | $ | 1,226 | $ | 683 | |||||||||||||||||||||||
Utility earning activities were primarily affected by the following:
23
SCE completed the replacement of the steam generators at San Onofre Unit 2 and Unit 3 in April 2010 and February 2011, respectively. During the San Onofre Unit 2 scheduled outage, SCE identified and completed additional work unrelated to the steam generator replacement that resulted in increased operation and maintenance expense and extended the outage beyond SCE's initial estimated timeframe. The San Onofre Unit 3 outage was briefly extended beyond SCE's initial estimated timeframe.
The CPUC previously adopted a mechanism establishing thresholds for review and recovery of SCE's incurred capital costs for the steam generator replacements. Based on preliminary cost information, SCE does not expect a reasonableness review will be required. SCE will file an application with the CPUC setting forth its final costs and compliance with the adopted mechanism.
See "—Income Taxes" below for discussion of higher income taxes during 2010 compared to the same period in 2009.
Utility earning activities were primarily affected by:
24
See "—Income Taxes" below for discussion of lower income taxes during 2009 compared to the same period in 2008.
Utility Cost-Recovery Activities
Utility cost-recovery activities excludes the impact of the consolidation of the Big 4 projects in 2009 for comparability purposes. The following amounts were excluded for 2009: $370 million for purchased power expense to reflect the elimination of sales between the VIEs and SCE; $368 million for fuel expense; and $94 million for operation and maintenance expense. Utility cost-recovery activities were primarily affected by:
25
$50 million primarily due to decreased kWh purchases associated with overall lower kWh demand; and lower net ISO-related and other energy costs of $50 million primarily due to milder weather experienced during 2010 compared to 2009. These decreases were partially offset by the purchase of replacement power costs related to the San Onofre Unit 2 extended outage and higher QF and renewable purchased power expense of $85 million primarily due to higher natural gas prices.
Utility cost-recovery activities excludes the impact of the consolidation of the Big 4 projects in 2009 and 2008 for comparability purposes. In addition to the 2009 amounts noted above, the following amounts were excluded for 2008: $692 million for purchased power expense to reflect the elimination of sales between the VIEs and SCE; $813 million for fuel expense; and $90 million for operation and maintenance expense. Utility cost-recovery activities were primarily affected by:
Supplemental Operating Revenue Information
SCE's retail billed and unbilled revenue (excluding wholesale sales and balancing account over/undercollections) was $10 billion, $9.5 billion and $9.3 billion for 2010, 2009 and 2008. The 2010 and 2009 increases reflect a rate increase of $777 million and $564 million, respectively, and a sales volume decrease of $255 million and $380 million, respectively. The 2010 rate increase was due to higher system average rates for 2010 compared to the same periods in 2009 mainly due to the implementation of the CPUC 2009 GRC decision and approved FERC transmission rate changes. The 2010 sales volume decrease was primarily due to milder weather experienced during 2010 compared to the same period in 2009. Economic conditions continued to contribute to the sales volume decrease. The 2009 rate increase reflects a rate change effective April 4, 2009 due to the implementation of both revenue allocation and rate design changes authorized in Phase 2 of the 2009 GRC and the FERC transmission rate changes authorized in the 2009 FERC Rate Case. The 2009 sales volume decrease was due to the economic downturn as well as the milder weather experienced in 2009 compared to the same period in 2008. As a result of the CPUC-authorized decoupling mechanism, SCE does not bear the volumetric risk related to retail electricity sales (see "Item 1. Business—Overview of Ratemaking Mechanisms").
26
SCE remits to CDWR and does not recognize as revenue the amounts that SCE bills and collects from its customers for electric power purchased and sold by the CDWR to SCE's customers, CDWR bond-related costs and a portion of direct access exit fees. The amounts collected and remitted to CDWR were $1.2 billion, $1.8 billion and $2.2 billion for years ended December 31, 2010, 2009 and 2008, respectively. Effective January 1, 2010, the CDWR-related rates were decreased to reflect lower power procurement expenses and to refund operating reserves that CDWR can release as their contracts terminate. The power contracts that CDWR allocated to SCE will terminate by the end of 2011. SCE's revenue and related purchased power expense is expected to increase as these CDWR contracts are replaced by power purchase agreements entered into by SCE.
The table below provides an analysis of the principal factors impacting SCE's effective tax rate.
|
|
Years ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010
|
2009
|
2008
|
|||||||||
|
Income from continuing operations before income taxes |
$ | 1,532 | $ | 1,620 | $ | 1,246 | ||||||
|
Net income attributable to noncontrolling interests in the Big 4 projects |
— | (94 | ) | (170 | ) | |||||||
|
Adjusted income from continuing operations before income taxes |
$ | 1,532 | $ | 1,526 | $ | 1,076 | ||||||
|
Provision for income tax at federal statutory rate of 35% |
$ |
536 |
$ |
534 |
$ |
377 |
||||||
|
Increase (decrease) in income tax from: |
||||||||||||
|
Items presented with related state income tax, net |
||||||||||||
|
Global settlement related |
(95 | ) | (306 | ) | — | |||||||
|
Change in tax accounting method for asset removal costs 1 |
(40 | ) | — | — | ||||||||
|
State tax – net of federal benefit |
59 | 67 | 37 | |||||||||
|
Health care legislation 2 |
39 | — | — | |||||||||
|
Property-related and other |
(59 | ) | (46 | ) | (72 | ) | ||||||
|
Total income tax expense from continuing operations |
$ | 440 | $ | 249 | $ | 342 | ||||||
|
Effective tax rate |
28.7% | 16.3% | 31.8% | |||||||||
LIQUIDITY AND CAPITAL RESOURCES
SCE's ability to operate its business, complete planned capital projects, and implement its business strategy are dependent upon its cash flow and access to the capital markets to finance its activities. SCE's overall cash flows fluctuate based on, among other things, its ability to recover its costs in a timely manner from its customers through regulated rates, changes in commodity prices and volumes, collateral requirements, dividend payments made to Edison International, and the outcome of tax and regulatory matters.
SCE expects to fund its continuing obligations and projected capital expenditures for 2011 and dividends to Edison International through cash and equivalents on hand, operating cash flows, tax benefits and capital market financings of debt and preferred equity, as needed. SCE also has availability under its credit facilities if additional funding and liquidity are necessary to meet operating and capital requirements.
27
As of December 31, 2010, SCE had approximately $257 million of cash and equivalents. SCE had two credit facilities: a $2.4 billion five-year credit facility that matures in February 2013, with four one-year options to extend by mutual consent, and a $500 million three-year credit facility that matures in March 2013.
|
(in millions)
|
Credit Facilities
|
|||
|---|---|---|---|---|
|
Commitment |
$ | 2,894 | ||
|
Outstanding borrowings |
— | |||
|
Outstanding letters of credit |
(24 | ) | ||
|
Amount available |
$ | 2,870 | ||
SCE has a debt covenant in its credit facilities that limits its debt to total capitalization ratio to less than or equal to 0.65 to 1. At December 31, 2010, SCE's debt to total capitalization ratio was 0.46 to 1.
SCE's capital expenditures for 2011 – 2014 include a capital forecast in the range of $15.6 billion to $17.5 billion. The 2011 planned capital expenditures for projects under CPUC jurisdiction are recovered through the authorized revenue requirement in SCE's 2009 GRC or through other CPUC-authorized mechanisms. Recovery of the 2012 – 2014 planned capital expenditures for projects under CPUC jurisdiction and not already approved through other CPUC-authorized mechanisms, is subject to the outcome of the 2012 CPUC GRC or other CPUC approvals. The 2011 planned capital expenditures for projects under FERC jurisdiction are recovered through the authorized FERC revenue requirement. Recovery of the 2012 – 2014 planned capital expenditures under FERC jurisdiction will be requested in future FERC transmission filings, as applicable.
The completion of projects, the timing of expenditures, and the associated cost recovery may be affected by permitting requirements and delays, construction schedules, availability of labor, equipment and materials, financing, legal and regulatory approvals and developments, weather and other unforeseen conditions.
SCE's capital expenditures (including accruals) in 2010 were $3.8 billion. The estimated capital expenditures for the next four years may vary from SCE's current forecast in a range of $15.6 billion to $17.5 billion based on the average variability experienced in 2009 and 2010 of 10.5%. SCE's 2010 capital expenditures and the 2011 – 2014 capital expenditures forecast, including the two-year historical average variability to the current forecast, is set forth in the table below:
|
(in millions)
|
2010
Actual |
2011
|
2012
|
2013
|
2014
|
Total
|
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Distribution |
$ | 1,875 | $ | 1,964 | $ | 2,336 | $ | 2,366 | $ | 2,440 | $ | 9,106 | |||||||
|
Transmission |
712 | 1,127 | 1,556 | 1,268 | 1,006 | 4,957 | |||||||||||||
|
Generation |
643 | 657 | 550 | 579 | 543 | 2,329 | |||||||||||||
|
EdisonSmartConnect™ |
413 | 400 | 266 | — | — | 666 | |||||||||||||
|
Solar Rooftop Program |
137 | 202 | 141 | 71 | — | 414 | |||||||||||||
|
Total Estimated Capital Expenditures 1 |
$ | 3,780 | $ | 4,350 | $ | 4,849 | $ | 4,284 | $ | 3,989 | $ | 17,472 | |||||||
|
Total Estimated Capital Expenditures
|
$ | 3,893 | $ | 4,340 | $ | 3,833 | $ | 3,571 | $ | 15,638 | |||||||||
28
Distribution expenditures include projects and programs to meet customer load growth requirements, reliability and infrastructure replacement needs, information and other technology and related facility requirements. Of the total forecasted distribution expenditures, $2.0 billion are recoverable through rates authorized in SCE's 2009 CPUC GRC decision, and $7.1 billion are subject to review and approval in the 2012 CPUC GRC proceeding.
SCE's has planned the following significant transmission projects:
Generation expenditures of $2.3 billion include:
29
SCE's EdisonSmartConnect™ project involves installing state-of-the-art "smart" meters in approximately 5.3 million households and small businesses through its service territory. In March 2008, SCE was authorized by the CPUC to recover $1.63 billion in customer rates for the deployment phase of EdisonSmartConnect™. In 2009, SCE began full deployment of meters to all residential and small business customers under 200 kW. SCE anticipates completion of the deployment in 2012.
In June 2009, the CPUC approved SCE's Solar Photovoltaic Program to develop up to 250 MW of utility-owned Solar Photovoltaic generating facilities generally ranging in size from 1 to 2 MW each, on commercial and industrial rooftops and other space in SCE's service territory. The CPUC has authorized recovery of reasonable costs and allowed for a return on its investment. In February 2011, SCE filed an application with the CPUC to reduce the maximum utility owned solar projects from 250 MW to 125 MW and to allow SCE to purchase power from new solar projects up to 125 MW in a separate solicitation not subject to the same parameters as the original Program. SCE filed this application to permit greater competition and reduce overall solar program customer costs. SCE's capital expenditures for the period 2011 – 2014 reflect this reduction in procurement obligations and related estimated cost savings.
Energy Efficiency Shareholder Risk/Reward Incentive Mechanism
In December 2010, the CPUC issued a decision approving a $24 million final payment for 2006 – 2008 performance under the Energy Efficiency Mechanism and also modifying the mechanism. The modified mechanism will also be applied to the 2009 energy efficiency program year. SCE anticipates filing an application with the CPUC for incentives related to the 2009 program year performance, in the first half of 2011.
Based on the modified mechanism, SCE may recognize a 2009 program year payment of up to an estimated $27 million by December 2011; however, there is no assurance that SCE will receive any payment for that period. Additionally, the CPUC may further modify or eliminate this mechanism. See "Item 1. Business—Regulation—Energy Efficiency Shareholder Risk/Reward Incentive Mechanism" for further information on the Energy Efficiency Mechanism for the 2009 program year and the potential 2010 – 2012 mechanism.
Ratemaking Mechanism to Track Bonus Depreciation
The CPUC has proposed a resolution that establishes a memorandum account to track the base rate revenue requirement reduction, if any, associated with the Small Business Jobs Act of 2010 and the 2010 Tax Relief Act from the effective date of the resolution to the effective date of SCE's 2012 GRC decision. The CPUC will determine at a future date whether rates should be changed to reflect any benefits attributable to these Acts. The impact on the 2011 base rate revenue requirement is dependent upon, the ratemaking mechanism adopted, the final IRS regulations, the timing and amount of actual capital expenditures, working capital requirements and work order closings.
30
The CPUC regulates SCE's capital structure and limits the dividends it may pay Edison International. In SCE's most recent cost of capital proceeding, the CPUC set an authorized capital structure for SCE which included a common equity component of 48%. SCE may make distributions to Edison International as long as the common equity component of SCE's capital structure remains at or above the 48% authorized level on a 13-month weighted average basis. At December 31, 2010, SCE's 13-month weighted-average common equity component of total capitalization was 51% resulting in the capacity to pay $497 million in additional dividends.
During 2010, SCE made a total of $300 million of dividend payments to its parent, Edison International, and in February 2011 declared a $115 million dividend to Edison International which is payable in March 2011. Future dividend amounts and timing of distributions are dependent upon several factors including the actual level of capital expenditures, operating cash flows and earnings.
In 2009, Edison International made a voluntary election to change its tax accounting method for certain repair costs incurred on SCE's transmission, distribution and generation assets. The change in tax accounting method resulted in a $192 million cash benefit realized in the fourth quarter of 2009. This initial benefit was based on an estimated cumulative catch-up deduction for certain repair costs that were previously capitalized and depreciated over the tax depreciable life of the property. The deduction reflected on the 2009 income tax return was consistent with this cash benefit. The amount claimed on the 2009 tax return may be revised in the future based on further guidance from the IRS. The income tax benefit from the change in accounting for repair costs represents a timing difference which will reverse over the estimated remaining tax life of the assets. This method change, and incremental deductions taken in 2009 and 2010, did not impact SCE's 2009 or 2010 results of operations. Regulatory treatment for future increases in income taxes related to this matter will be addressed in SCE's 2012 GRC. SCE has not recognized an earnings benefit or regulatory asset, as the regulatory treatment is pending.
Margin and Collateral Deposits
Derivative Instruments and Power Procurement Contracts
Certain derivative instruments and power procurement contracts under SCE's power and natural gas hedging activities contain collateral requirements. SCE has historically provided collateral in the form of cash and/or letters of credit for the benefit of counterparties. Collateral requirements can vary depending upon the level of unsecured credit extended by counterparties, changes in market prices relative to contractual commitments, and other factors. Future collateral requirements may be higher (or lower) than requirements at December 31, 2010, due to the addition of incremental power and energy procurement contracts with collateral requirements, if any, and the impact of changes in wholesale power and natural gas prices on SCE's contractual obligations.
Certain of these power procurement contracts contain a provision that requires SCE to maintain an investment grade credit rating from the major credit rating agencies. If SCE's credit rating were to fall below investment grade, SCE may be required to pay the liability or post additional collateral. The table
31
below illustrates the amount of collateral posted by SCE to its counterparties as well as the potential collateral that would be required as of December 31, 2010.
Potential Regulation of Swaps under the Dodd-Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") provides the Commodity Futures Trading Commission and the SEC ("Agencies") with jurisdiction to regulate financial derivative products, including swaps, options and other derivative products ("Swaps"). These Agencies are required to issue rules and regulations that implement regulation of Swaps markets by July 2011.
The Dodd-Frank Act subjects Swaps to new mandatory clearing and trading requirements, if no exemption applies. It may also impose capital requirements on non-exempt market participants. The clearing and trading requirements could result in increased margining requirements which may increase the costs of hedging activity. SCE uses Swap transactions to hedge commodity price risk and is subject to oversight by the CPUC.
If new clearing, trading or other requirements are applicable to SCE under the Dodd-Frank Act rules and regulations, the potential impact will depend on the content of those rules and regulations, which remains uncertain.
Workers Compensation Self-Insurance Fund
SCE is self-insured for workers compensation claims. SCE assesses workers compensation claims that have been asserted and those that have been incurred but not reported to determine the probable amount of losses that should be recorded. The Department of Industrial Relations for the State of California requires companies that are self-insured for workers compensation to post collateral (in the form of cash and/or letters of credits) based on the estimated workers' compensation liability if a company's bond rating were to fall below "B." As of December 31, 2010, if SCE's bond rating were to fall below a "B" rating, SCE would be required to post $209 million for its workers compensation self-insurance plan.
SCE's cash flows are affected by regulatory balancing account over or under collections. Balancing account over and under collections represent differences between cash collected in current rates and the costs incurred related to these regulatory mechanisms. In general, SCE seeks to adjust rates on an annual basis to recover or refund the balances recorded in certain balancing accounts. However, some over collections relate to specific programs that the CPUC has established annual funding levels in which funds must be spent by a certain date and therefore these over collections are not necessarily included in annual rate changes. Balancing account under collections and over collections accrue interest based on a three-month commercial paper rate published by the Federal Reserve.
As of December 31, 2010, balancing account net over collections were $1.3 billion primarily related to base rate differences, fuel and power procurement-related costs (ERRA) and various public purpose related-
32
program costs. SCE expects to refund the base rate and ERRA combined over collection of $516 million through a rate adjustment beginning on June 1, 2011. The remaining over collections are expected to decrease as costs are incurred, amounts are refunded to ratepayers, or used to fund future programs established by the CPUC. Balancing account over or under collections may fluctuate due to, among other things, changes in: sales volume driven by growth or declines in customer base and weather; procurement-related costs driven both by market prices and sales volumes; and timing of expenditures under certain public purpose programs.
Historical Consolidated Cash Flows
The table below sets forth condensed historical cash flow information for SCE.
Condensed Consolidated Statement of Cash Flows
|
(in millions)
|
2010
|
2009
|
2008
|
|||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
Net cash provided by operating activities |
$ | 3,386 | $ | 4,069 | $ | 1,622 | ||||
|
Net cash provided (used) by financing activities |
503 | (1,999 | ) | 2,024 | ||||||
|
Net cash used by investing activities |
(4,094 | ) | (3,219 | ) | (2,287 | ) | ||||
|
Net increase (decrease) in cash and cash equivalents |
$ | (205 | ) | $ | (1,149 | ) | $ | 1,359 | ||
Net Cash Provided by Operating Activities
Cash provided by operating activities decreased $683 million in 2010, compared to the same period in 2009. The cash flows provided by operating activities were primarily due to the following:
Cash provided by operating activities increased $2.4 billion in 2009, compared to the same period in 2008. The cash flows provided by operating activities were primarily due to the following:
33
Net Cash Provided (Used) by Financing Activities
Cash provided (used) by financing activities mainly consisted of net repayments of short-term debt and long-term debt issuances (payments).
Cash provided by financing activities for 2010 was $503 million consisting of the following significant events:
Cash used by financing activities for 2009 was $2.0 billion consisting of the following significant events:
34
Cash provided by financing activities for 2008 was $2.0 billion consisting of the following significant events:
Net Cash Used by Investing Activities
Cash flows from investing activities are driven primarily by capital expenditures and funding of nuclear decommissioning trusts. Capital expenditures were $3.8 billion, $3.0 billion and $2.3 billion for 2010, 2009 and 2008, respectively, primarily related to transmission and distribution investments. Net purchases of nuclear decommissioning trust investments and other were $219 million, $199 million and $7 million for 2010, 2009 and 2008, respectively.
Contractual Obligations and Contingencies
SCE's contractual obligations as of December 31, 2010, for the years 2011 through 2015 and thereafter are estimated below.
|
(in millions)
|
Total
|
Less than
1 year |
1 to 3 years
|
3 to 5 years
|
More than
5 years |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Long-term debt maturities and interest 1 |
$ | 15,631 | $ | 408 | $ | 817 | $ | 2,070 | $ | 12,336 | |||||||
|
Power purchase agreements 2 : |
|||||||||||||||||
|
Renewable energy contracts |
13,676 | 340 | 1,062 | 1,267 | 11,007 | ||||||||||||
|
Qualifying facility contracts |
3,723 | 429 | 822 | 809 | 1,663 | ||||||||||||
|
Other power purchase agreements |
6,354 | 548 | 1,364 | 1,105 | 3,337 | ||||||||||||
|
Other operating lease obligations 3 |
528 | 61 | 116 | 96 | 255 | ||||||||||||
|
Purchase obligations 4 : |
|||||||||||||||||
|
Fuel supply contract payments |
1,584 | 260 | 367 | 309 | 648 | ||||||||||||
|
Other commitments |
34 | 5 | 13 | 13 | 3 | ||||||||||||
|
Employee benefit plans contributions 5 |
840 | 156 | 449 | 235 | — | ||||||||||||
|
Total 6,7 |
$ | 42,370 | $ | 2,207 | $ | 5,010 | $ | 5,904 | $ | 29,249 | |||||||
35
December 31, 2010, minimum capital lease payments for power purchase agreements were $33 million in 2011, $71 million 2012, $131 million for 2013, $153 million for 2014, $154 million for 2015, and $2.5 billion for the thereafter period (amounts include executory costs and interest of $628 million and $1.2 billion, respectively). For further discussion, see "Item 8. SCE Notes to Consolidated Financial Statements—Note 9. Commitments and Contingencies."
SCE has contingencies related to FERC Rate Case, the Navajo Nation Litigation, nuclear insurance and spent nuclear fuel, which are discussed in "Item 8. SCE Notes to Consolidated Financial Statements—Note 9. Commitments and Contingencies."
SCE records its environmental remediation liabilities when site assessments and/or remedial actions are probable and a range of reasonably likely cleanup costs can be estimated. SCE reviews its sites and measures the liability quarterly, by assessing a range of reasonably likely costs for each identified site using currently available information, including existing technology, presently enacted laws and regulations, experience gained at similar sites, and the probable level of involvement and financial condition of other potentially responsible parties. These estimates include costs for site investigations, remediation, operations and maintenance, monitoring and site closure. Unless there is a probable amount, SCE records the lower end of this reasonably likely range of costs (classified as "Other long-term liabilities") at undiscounted amounts as timing of cash flows is uncertain.
As of December 31, 2010, SCE identified 23 sites for remediation and recorded an estimated minimum liability of $50 million. SCE expects to recover 90% of its remediation costs at certain sites. See "Item 8. SCE Notes to Consolidated Financial Statements—Note 9. Commitments and Contingencies" for further discussion.
SCE's primary market risks include fluctuations in interest rates, commodity prices and volumes, and counterparty credit. Fluctuations in interest rates can affect earnings and cash flows. Fluctuations in commodity prices and volumes and counterparty credit losses may temporarily affect cash flows, but are not expected to affect earnings due to expected recovery through regulatory mechanisms. SCE uses derivative instruments, as appropriate, to manage its market risks.
SCE is exposed to changes in interest rates primarily as a result of its financing and short-term investing activities used for liquidity purposes, to fund business operations and to fund capital investments. The nature and amount of SCE's long-term and short-term debt can be expected to vary as a result of future business requirements, market conditions and other factors. SCE's authorized return on common equity was 11.5% for 2010, 2009 and 2008, respectively, and has been authorized to remain at 11.5% through
36
December 2012 absent any future potential annual adjustment. SCE's authorized return on common equity is established in a multi-year cost of capital mechanism, which allows for annual adjustments if certain thresholds are reached. Variances in actual financing costs compared to authorized financing costs impact earnings either positively or negatively.
At December 31, 2010, the fair market value of SCE's long-term debt (including current portion of long-term debt) was $8.3 billion, compared to a carrying value of $7.6 billion. A 10% increase in market interest rates would have resulted in a $404 million decrease in the fair market value of SCE's long-term debt. A 10% decrease in market interest rates would have resulted in a $444 million increase in the fair market value of SCE's long-term debt.
SCE is exposed to commodity price risk which represents the potential impact that can be caused by a change in the market value of a particular commodity. SCE's hedging program reduces ratepayer exposure to variability in market prices related to SCE's power and gas activities. SCE expects recovery of its related hedging costs through the ERRA balancing account, and as a result, exposure to commodity price is not expected to impact earnings, but may impact the timing of cash flows.
SCE's hedging program reduces ratepayer exposure to variability in market prices. As part of this program, SCE enters into energy options, swaps, forward arrangements, tolling arrangements, and congestion revenue rights ("CRRs"). The transactions are pre-approved by the CPUC or executed in compliance with CPUC-approved procurement plans. For further discussion on derivative instruments entered into to mitigate commodity price exposures, see "Item 8. SCE Notes to Consolidated Financial Statements Note 6. Derivative Instruments and Hedging Activities."
Fair Value of Derivative Instruments
SCE records its derivative instruments on its consolidated balance sheets at fair value unless they meet the definition of a normal purchase or sale exception. Derivative instrument fair values are marked to market at each reporting period. Any fair value changes are expected to be recovered from or refunded to customers through regulatory mechanisms and, therefore, SCE's fair value changes have no impact on purchased-power expense or earnings. SCE does not use hedge accounting for these transactions due to this regulatory accounting treatment. For further discussion on fair value measurements and the fair value hierarchy, see "Item 8. SCE Notes to Consolidated Financial Statements Note 4. Fair Value Measurements."
The fair value of outstanding derivative instruments used at SCE to mitigate its exposure to commodity price risk was a net liability of $207 million and $251 million at December 31, 2010 and 2009, respectively. The following table summarizes the increase or decrease to the fair values of outstanding derivative instruments as of December 31, 2010, if the electricity prices or gas prices were changed while leaving all other assumptions constant:
|
(in millions)
|
December 31,
2010 |
|||
|---|---|---|---|---|
|
Increase in electricity prices by 10% |
$ | 440 | ||
|
Decrease in electricity prices by 10% |
(585 | ) | ||
|
Increase in gas prices by 10% |
(302 | ) | ||
|
Decrease in gas prices by 10% |
126 | |||
For information related to credit risks and how SCE manages credit risk, see "Item 8. SCE Notes to Consolidated Financial Statements—Note 6. Derivative Instruments and Hedging Activities."
37
Credit risk exposure from counterparties for power and gas trading activities is measured as the sum of net accounts receivable (accounts receivable less accounts payable) and the current fair value of net derivative assets (derivative assets less derivative liabilities) reflected on the consolidated balance sheets. SCE enters into master agreements which typically provide for a right of setoff. Accordingly, SCE's credit risk exposure from counterparties is based on a net exposure under these arrangements. SCE manages the credit risk on the portfolio for both rated and non-rated counterparties based on credit ratings using published ratings of counterparties and other publicly disclosed information, such as financial statements, regulatory filings, and press releases, to guide it in the process of setting credit levels, risk limits and contractual arrangements, including master netting agreements. As of December 31, 2010, the amount of balance sheet exposure as described above broken down by the credit ratings of SCE's counterparties, was as follows:
|
|
December 31, 2010 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
Exposure
2
|
Collateral
|
Net Exposure
|
|||||||
|
S&P Credit Rating 1 |
||||||||||
|
A or higher |
$ | 168 | $ | — | $ | 168 | ||||
|
A- |
37 | — | 37 | |||||||
|
BBB+ |
— | — | — | |||||||
|
BBB |
— | — | — | |||||||
|
BBB- |
— | — | — | |||||||
|
Below investment grade |
— | — | — | |||||||
|
Not rated |
118 | (34 | ) | 84 | ||||||
|
Total |
$ | 323 | $ | (34 | ) | $ | 289 | |||
The credit risk exposure set forth in the table above is composed of $7 million of net account receivables and $316 million representing the fair value, adjusted for counterparty credit reserves, of derivative contracts.
Four counterparties comprise 88% of the net exposure in the table above. The largest single net exposure was with the CAISO, mainly related to the CRRs' fair value, comprising 47% of the total net exposure in the table above.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
The accounting policies described below are considered critical to obtaining an understanding of SCE's consolidated financial statements because their application requires the use of significant estimates and judgments by management in preparing the consolidated financial statements. Management estimates and judgments are inherently uncertain and may differ significantly from actual results achieved. Management considers an accounting estimate to be critical if the estimate requires significant assumptions and changes in the estimate or, the use of alternative estimates, that could have a material impact on SCE's results of operations or financial position. For more information on SCE's accounting policies, see "Item 8. SCE Notes to Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies."
Nature of Estimate Required. SCE follows the accounting principles for rate-regulated enterprises which are required for entities whose rates are set by regulators at levels intended to recover the estimated costs of providing service, plus a return on net investment, or rate base. Regulators may also impose certain penalties or grant certain incentives. Due to timing and other differences in the collection of revenue, these principles allow a cost that would otherwise be charged as an expense by a unregulated entity to be capitalized as a regulatory asset if it is probable that such cost is recoverable through future rates;
38
conversely the principles allow creation of a regulatory liability for amounts collected in rates to recover costs expected to be incurred in the future or amounts collected in excess of costs incurred.
Key Assumptions and Approach Used. SCE's management assesses at the end of each reporting period whether regulatory assets are probable of future recovery by considering factors such as the current regulatory environment, the issuance of rate orders on recovery of the specific or a similar incurred cost to SCE or other rate-regulated entities in California, and other factors that would indicate that the regulator will treat an incurred cost as allowable for ratemaking purposes. Using these factors, management has determined that existing regulatory assets and liabilities are probable of future recovery or settlement. This determination reflects the current regulatory climate in California and is subject to change in the future.
Effect if Different Assumption Used. Significant management judgment is required to evaluate the anticipated recovery of regulatory assets, the recognition of incentives and revenue subject to refund, as well as the anticipated cost of regulatory liabilities or penalties. If future recovery of costs ceases to be probable, all or part of the regulatory assets and liabilities would have to be written off against current period earnings. At December 31, 2010, the consolidated balance sheets included regulatory assets of $4.7 billion and regulatory liabilities of $5.3 billion. If different judgments were reached on recovery of costs and timing of income recognition, SCE's earnings and cash flows may vary from the amounts reported.
Nature of Estimates Required. As part of the process of preparing its consolidated financial statements, SCE is required to estimate its income taxes for each jurisdiction in which it operates. This process involves estimating actual current period tax expense together with assessing temporary differences resulting from differing treatment of items, such as depreciation, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within SCE's consolidated balance sheet.
SCE takes certain tax positions it believes are applied in accordance with the applicable tax laws. However, these tax positions are subject to interpretation by the IRS, state tax authorities and the courts. SCE determines its uncertain tax positions in accordance with the authoritative guidance.
Key Assumptions and Approach Used. Accounting for tax obligations requires management judgment. Management uses judgment in determining whether the evidence indicates it is more likely than not, based solely on the technical merits, that a tax position will be sustained, and to determine the amount of tax benefits to be recognized. Judgment is also used in determining the likelihood a tax position will be settled and possible settlement outcomes. In assessing its uncertain tax positions SCE considers, among others, the following factors: the facts and circumstances of the position, regulations, rulings, and case law, opinions or views of legal counsel and other advisers, and the experience gained from similar tax positions. Management evaluates uncertain tax positions at the end of each reporting period and makes adjustments when warranted based on changes in fact or law.
Effect if Different Assumptions Used. Actual income taxes may differ from the estimated amounts which could have a significant impact on the liabilities, revenue and expenses recorded in the financial statements. SCE continues to be under audit or subject to audit for multiple years in various jurisdictions. Significant judgment is required to determine the tax treatment of particular tax positions that involve interpretations of complex tax laws. A tax liability has been recorded with respect to tax positions in which the outcome is uncertain and the effect is estimable. Such liabilities are based on judgment and a final determination could take many years from the time the liability is recorded. Furthermore, settlement of tax positions included in open tax years may be resolved by compromises of tax positions based on current factors and business considerations that may result in material adjustments to income taxes previously estimated. See "Item 8. SCE Notes to Consolidated Financial Statements—Note 7. Income Taxes" for a further discussion on income taxes.
39
Nature of Estimate Required. Regulations by the NRC require SCE to decommission its nuclear power plants which is expected to begin after the plants' operating licenses expire. In accordance with authoritative guidance, SCE is required to record an obligation to decommission its nuclear facilities. Nuclear decommissioning costs are recovered in utility rates through contributions that are reviewed every three years by the CPUC. Due to regulatory accounting treatment, nuclear decommissioning activities are not expected to affect SCE earnings.
Key Assumptions and Approach Used. The liability to decommission SCE's nuclear power facilities is based on site-specific studies performed in 2008 and 2007 for San Onofre and Palo Verde, respectively, which estimate that SCE will spend approximately $8.6 billion through 2053 to decommission its active nuclear facilities. Decommissioning cost estimates are updated in each Nuclear Decommissioning Triennial Proceeding. The current estimate is based on the following assumptions from the 2008 and 2007 site-specific study:
Effect if Different Assumptions Used. The ARO for decommissioning SCE's active nuclear facilities was $2.4 billion and $3.1 billion at December 31, 2010 and 2009, respectively. The ARO liability decrease in 2010 was mainly due to a decrease in escalation rates. Changes in the estimated costs or timing of decommissioning, or in the assumptions and judgments by management underlying these estimates, could cause material revisions to the estimated total cost to decommission these facilities which could have a material effect on the recorded liability and related regulatory asset. The following table illustrates the increase to the ARO and regulatory asset if the escalation rate was adjusted while leaving all other assumptions constant:
|
(in millions)
|
Increase to
ARO and regulatory asset at December 31, 2010 |
|||
|---|---|---|---|---|
|
Uniform increase in escalation rate of 25 basis points |
$ | 140 | ||
Pensions and Postretirement Benefits Other than Pensions
Nature of Estimate Required. Authoritative accounting guidance requires companies to recognize the overfunded or underfunded status of defined benefit pension and other postretirement plans as assets and
40
liabilities in the balance sheet; the assets and/or liabilities are normally offset through other comprehensive income (loss). In accordance with authoritative guidance for rate-regulated enterprises, regulatory assets and liabilities are recorded instead of charges and credits to other comprehensive income (loss) for its postretirement benefit plans that are recoverable in utility rates. SCE has a fiscal year-end measurement date for all of its postretirement plans.
Key Assumptions of Approach Used. Pension and other postretirement obligations and the related effects on results of operations are calculated using actuarial models. Two critical assumptions, discount rate and expected return on assets, are important elements of plan expense and liability measurement. Additionally, health care cost trend rates are critical assumptions for postretirement health care plans. These critical assumptions are evaluated at least annually. Other assumptions, which require management judgment, such as retirement, mortality and turnover, are evaluated periodically and updated to reflect actual experience.
As of December 31, 2010, SCE's pension plans had a $3.7 billion benefit obligation and total expense for these plans was $97 million for 2010. As of December 31, 2010, SCE's PBOP plans had a $2.3 billion benefit obligation and total expense for these plans was $53 million for 2010. The following are critical assumptions used to determine expense for pension and other postretirement benefit for 2010:
|
(in millions)
|
Pension
Plans |
Postretirement
Benefits Other than Pensions |
||
|---|---|---|---|---|
|
Discount rate 1 |
6.0% | 6.0% | ||
|
Expected long-term return on plan assets 2 |
7.5% | 7.0% | ||
|
Assumed health care cost trend rates 3 |
— | 8.25% | ||
Pension expense is recorded for SCE based on the amount funded to the trusts, as calculated using an actuarial method required for ratemaking purposes, in which the impact of market volatility on plan assets is recognized in earnings on a more gradual basis. Any difference between pension expense calculated in accordance with ratemaking methods and pension expense calculated in accordance with authoritative accounting guidance for pension is accumulated as a regulatory asset or liability, and will, over time, be recovered from or returned to customers. As of December 31, 2010, this cumulative difference amounted to a regulatory asset of $77 million, meaning that the accounting method has recognized more in expense than the ratemaking method since implementation of authoritative guidance for employers' accounting for pensions in 1987.
SCE's pension and PBOP plans are subject to limits established for federal tax deductibility. SCE funds its pension and PBOP plans in accordance with amounts allowed by the CPUC. Executive pension plans and PBOP plans have no plan assets.
Effect if Different Assumptions Used. Changes in the estimated costs or timing of pension and other postretirement benefit obligations, or the assumptions and judgments used by management underlying these estimates, could have a material effect on the recorded expenses and liabilities. SCE's total annual contributions for SCE are recovered through CPUC-approved regulatory mechanisms and are expected to be, at a minimum, equal to SCE's total annual expense.
41
A one percentage point increase in the discount rate would decrease the projected benefit obligation for pension by $304 million. A one percentage point decrease in the discount rate would increase the projected benefit obligation for pension by $326 million. A one percentage point increase in the expected rate of return on pension plan assets would decrease the expense by $27 million.
A one percentage point increase in the discount rate for PBOP would decrease the projected benefit obligation by $283 million. A one percentage point decrease in the discount rate for the PBOP would increase the projected benefit obligation by $330 million. A one percentage point increase in the expected rate of return on PBOP plan assets would decrease the expense by $15 million. Increasing the health care cost trend rate by one percentage point would increase the accumulated benefit obligation as of December 31, 2010 by $263 million and annual aggregate service and interest costs by $15 million. Decreasing the health care cost trend rate by one percentage point would decrease the accumulated benefit obligation as of December 31, 2010 by $219 million and annual aggregate service and interest costs by $13 million.
Accounting for Contingencies, Guarantees and Indemnities
Nature of Estimates Required. SCE records loss contingencies when it determines that the outcome of future events is probable of occurring and when the amount of the loss can be reasonably estimated. When a guarantee or indemnification subject to authoritative guidance is entered into, SCE records a liability for the estimated fair value of the underlying guarantee or indemnification. Gain contingencies are recognized in the financial statements when they are realized.
Key Assumptions and Approach Used. The determination of a reserve for a loss contingency is based on management judgment and estimates with respect to the likely outcome of the matter, including the analysis of different scenarios. Liabilities are recorded or adjusted when events or circumstances cause these judgments or estimates to change. In assessing whether a loss is a reasonable possibility, SCE may consider the following factors, among others: the nature of the litigation, claim or assessment, available information, opinions or views of legal counsel and other advisors, and the experience gained from similar cases. SCE provides disclosures for material contingencies when there is a reasonable possibility that a loss or an additional loss may be incurred. Some guarantees and indemnifications could have a significant financial impact under certain circumstances, and management also considers the probability of such circumstances occurring when estimating the fair value.
Effect if Different Assumptions Used. Actual amounts realized upon settlement of contingencies may be different than amounts recorded and disclosed and could have a significant impact on the liabilities, revenue and expenses recorded on the consolidated financial statements. In addition, for guarantees and indemnities actual results may differ from the amounts recorded and disclosed and could have a significant impact on SCE's consolidated financial statements. For a discussion of contingencies, guarantees and indemnities, see "Item 8. SCE Notes to Consolidated Financial Statements—Note 9. Commitments and Contingencies."
New accounting guidance is discussed in "Item 8. SCE Notes to Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies—New Accounting Guidance."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Information responding to Item 7A is included in the MD&A under the heading "Market Risk Exposures."
42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
43
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and
Shareholder of Southern California Edison Company
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Southern California Edison Company (the "Company") and its subsidiaries at December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for variable interest entities and fair value disclosure principles as of January 1, 2010.
/s/
PricewaterhouseCoopers LLP
Los Angeles, California
February 28, 2011
44
|
|
Years ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
2010
|
2009
|
2008
|
|||||||
|
Operating revenue |
$ | 9,983 | $ | 9,965 | $ | 11,248 | ||||
|
Fuel |
363 | 721 | 1,400 | |||||||
|
Purchased power |
2,930 | 2,751 | 3,845 | |||||||
|
Operation and maintenance |
3,291 | 3,154 | 3,013 | |||||||
|
Depreciation, decommissioning and amortization |
1,273 | 1,178 | 1,114 | |||||||
|
Property and other taxes |
263 | 244 | 232 | |||||||
|
Gain on sale of assets |
(1 | ) | (1 | ) | (9 | ) | ||||
|
Total operating expenses |
8,119 | 8,047 | 9,595 | |||||||
|
Operating income |
1,864 | 1,918 | 1,653 | |||||||
|
Interest income |
7 | 11 | 22 | |||||||
|
Other income |
141 | 160 | 101 | |||||||
|
Interest expense – net of amounts capitalized |
(429 | ) | (420 | ) | (407 | ) | ||||
|
Other expenses |
(51 | ) | (49 | ) | (123 | ) | ||||
|
Income before income taxes |
1,532 | 1,620 | 1,246 | |||||||
|
Income tax expense |
440 | 249 | 342 | |||||||
|
Net income |
1,092 | 1,371 | 904 | |||||||
|
Less: Net income attributable to noncontrolling interests |
— | 94 | 170 | |||||||
|
Dividends on preferred and preference stock |
52 | 51 | 51 | |||||||
|
Net income available for common stock |
$ | 1,040 | $ | 1,226 | $ | 683 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
45
|
|
December 31, | ||||||
|---|---|---|---|---|---|---|---|
|
(in millions)
|
2010
|
2009
|
|||||
|
ASSETS |
|||||||
|
Cash and cash equivalents |
$ | 257 | $ | 462 | |||
|
Receivables, less allowances of $85 and $53 for uncollectible accounts at respective dates |
715 | 719 | |||||
|
Accrued unbilled revenue |
442 | 347 | |||||
|
Inventory |
332 | 337 | |||||
|
Prepaid taxes |
168 | 33 | |||||
|
Derivative assets |
87 | 160 | |||||
|
Regulatory assets |
378 | 120 | |||||
|
Other current assets |
81 | 151 | |||||
|
Total current assets |
2,460 | 2,329 | |||||
|
Nuclear decommissioning trusts |
3,480 | 3,140 | |||||
|
Other investments |
68 | 67 | |||||
|
Total investments |
3,548 | 3,207 | |||||
|
Utility property, plant and equipment, net |
24,778 | 21,966 | |||||
|
Nonutility property, plant and equipment, net |
71 | 324 | |||||
|
Total property, plant and equipment |
24,849 | 22,290 | |||||
|
Derivative assets |
367 | 187 | |||||
|
Regulatory assets |
4,347 | 4,139 | |||||
|
Other long-term assets |
335 | 322 | |||||
|
Total long-term assets |
5,049 | 4,648 | |||||
|
Total assets |
$ |
35,906 |
$ |
32,474 |
|||
The accompanying notes are an integral part of these consolidated financial statements.
46
| Consolidated Balances Sheets | Southern California Edison Company | |
|
|
December 31, | ||||||
|---|---|---|---|---|---|---|---|
|
(in millions, except share amounts)
|
2010
|
2009
|
|||||
|
LIABILITIES AND EQUITY |
|||||||
|
Current portion of long-term debt |
$ | — | $ | 250 | |||
|
Accounts payable |
1,271 | 1,282 | |||||
|
Accrued taxes |
45 | 9 | |||||
|
Accrued interest |
169 | 162 | |||||
|
Customer deposits |
217 | 238 | |||||
|
Derivative liabilities |
212 | 102 | |||||
|
Regulatory liabilities |
738 | 367 | |||||
|
Other current liabilities |
663 | 637 | |||||
|
Total current liabilities |
3,315 | 3,047 | |||||
|
Long-term debt |
7,627 | 6,490 | |||||
|
Deferred income taxes |
4,829 | 3,651 | |||||
|
Deferred investment tax credits |
118 | 97 | |||||
|
Customer advances |
112 | 119 | |||||
|
Derivative liabilities |
449 | 496 | |||||
|
Pensions and benefits |
1,838 | 1,681 | |||||
|
Asset retirement obligations |
2,507 | 3,198 | |||||
|
Regulatory liabilities |
4,524 | 3,328 | |||||
|
Other deferred credits and other long-term liabilities |
1,380 | 1,652 | |||||
|
Total deferred credits and other liabilities |
15,757 | 14,222 | |||||
|
Total liabilities |
26,699 | 23,759 | |||||
|
Commitments and contingencies (Note 9) |
|||||||
|
Common stock, no par value (560,000,000 shares authorized; 434,888,104 shares
|
2,168 | 2,168 | |||||
|
Additional paid-in capital |
572 | 551 | |||||
|
Accumulated other comprehensive loss |
(25 | ) | (19 | ) | |||
|
Retained earnings |
5,572 | 4,746 | |||||
|
Total common shareholder's equity |
8,287 | 7,446 | |||||
|
Preferred and preference stock |
920 | 920 | |||||
|
Noncontrolling interests |
— | 349 | |||||
|
Total equity |
9,207 | 8,715 | |||||
|
Total liabilities and equity |
$ | 35,906 | $ | 32,474 | |||
The accompanying notes are an integral part of these consolidated financial statements.
47
|
|
Years ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
2010
|
2009
|
2008
|
||||||||
|
Cash flows from operating activities: |
|||||||||||
|
Net income |
$ | 1,092 | $ | 1,371 | $ | 904 | |||||
|
Adjustments to reconcile to net cash provided by operating activities: |
|||||||||||
|
Depreciation, decommissioning and amortization |
1,273 | 1,178 | 1,114 | ||||||||
|
Regulatory impacts of net nuclear decommissioning trust earnings (reflected
|
189 | 158 | (10 | ) | |||||||
|
Other amortization |
106 | 109 | 97 | ||||||||
|
Stock-based compensation |
17 | 13 | 18 | ||||||||
|
Deferred income taxes and investment tax credits |
973 | 574 | 131 | ||||||||
|
Changes in operating assets and liabilities: |
|||||||||||
|
Receivables |
(25 | ) | (9 | ) | 14 | ||||||
|
Inventory |
(11 | ) | 28 | (74 | ) | ||||||
|
Margin and collateral deposits – net of collateral received |
2 | 63 | (16 | ) | |||||||
|
Prepaid taxes |
(135 | ) | 178 | (66 | ) | ||||||
|
Other current assets |
(101 | ) | (29 | ) | 31 | ||||||
|
Accounts payable |
(166 | ) | 43 | (107 | ) | ||||||
|
Accrued taxes |
36 | (331 | ) | 298 | |||||||
|
Other current liabilities |
118 | 26 | (18 | ) | |||||||
|
Derivative assets and liabilities – net |
(43 | ) | (413 | ) | 634 | ||||||
|
Regulatory assets and liabilities – net |
278 | 1,457 | (2,946 | ) | |||||||
|
Other assets |
(10 | ) | 48 | 275 | |||||||
|
Other liabilities |
(207 | ) | (395 | ) | 1,343 | ||||||
|
Net cash provided by operating activities |
3,386 | 4,069 | 1,622 | ||||||||
|
Cash flows from financing activities: |
|||||||||||
|
Long-term debt issued |
1,135 | 750 | 1,500 | ||||||||
|
Long-term debt issuance costs |
(16 | ) | (11 | ) | (20 | ) | |||||
|
Long-term debt repaid |
(259 | ) | (154 | ) | (3 | ) | |||||
|
Bonds repurchased |
— | (219 | ) | (212 | ) | ||||||
|
Preferred stock redeemed |
— | — | (7 | ) | |||||||
|
Short-term debt financing – net |
— | (1,893 | ) | 1,393 | |||||||
|
Settlements of stock-based compensation – net |
(5 | ) | 4 | (15 | ) | ||||||
|
Distributions to noncontrolling interests |
— | (125 | ) | (236 | ) | ||||||
|
Dividends paid |
(352 | ) | (351 | ) | (376 | ) | |||||
|
Net cash provided (used) by financing activities |
503 | (1,999 | ) | 2,024 | |||||||
|
Cash flows from investing activities: |
|||||||||||
|
Capital expenditures |
(3,780 | ) | (2,999 | ) | (2,267 | ) | |||||
|
Proceeds from sale of nuclear decommissioning trust investments |
1,432 | 2,217 | 3,130 | ||||||||
|
Purchases of nuclear decommissioning trust investments and other |
(1,651 | ) | (2,416 | ) | (3,137 | ) | |||||
|
Customer advances for construction and other investments |
(3 | ) | (21 | ) | (13 | ) | |||||
|
Effect of deconsolidation of variable interest entities |
(92 | ) | — | — | |||||||
|
Net cash used by investing activities |
(4,094 | ) | (3,219 | ) | (2,287 | ) | |||||
|
Net increase (decrease) in cash and cash equivalents |
(205 | ) | (1,149 | ) | 1,359 | ||||||
|
Cash and cash equivalents, beginning of year |
462 | 1,611 | 252 | ||||||||
|
Cash and cash equivalents, end of year |
$ | 257 | $ | 462 | $ | 1,611 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
48
|
|
Equity Attributable to SCE |
|
|
|
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
Common
Stock |
Additional
Paid-in Capital |
Accumulated
Other Comprehensive Income (Loss) |
Retained
Earnings |
Preferred
and Preference Stock |
Noncontrolling
Interests |
Total
Equity |
|||||||||||||||
|
Balance at December 31, 2007 |
$ | 2,168 | $ | 507 | $ | (15 | ) | $ | 3,568 | $ | 929 | $ | 446 | $ | 7,603 | |||||||
|
Net income |
— | — | — | 734 | — | 170 | 904 | |||||||||||||||
|
Other comprehensive income |
— | — | 1 | — | — | — | 1 | |||||||||||||||
|
Dividends declared on common stock |
— | — | — | (400 | ) | — | — | (400 | ) | |||||||||||||
|
Dividends declared on preferred and preference stock |
— | — | — | (51 | ) | — | — | (51 | ) | |||||||||||||
|
Preferred stock redeemed, net of gain |
— | 2 | — | — | (9 | ) | — | (7 | ) | |||||||||||||
|
Distributions to noncontrolling interests |
— | — | — | — | — | (236 | ) | (236 | ) | |||||||||||||
|
Stock-based compensation – net |
— | 4 | — | (19 | ) | — | — | (15 | ) | |||||||||||||
|
Noncash stock-based compensation and other |
— | 19 | — | (5 | ) | — | — | 14 | ||||||||||||||
|
Balance at December 31, 2008 |
$ | 2,168 | $ | 532 | $ | (14 | ) | $ | 3,827 | $ | 920 | $ | 380 | $ | 7,813 | |||||||
|
Net income |
— | — | — | 1,277 | — | 94 | 1,371 | |||||||||||||||
|
Other comprehensive loss |
— | — | (5 | ) | — | — | — | (5 | ) | |||||||||||||
|
Dividends declared on common stock |
— | — | — | (300 | ) | — | — | (300 | ) | |||||||||||||
|
Dividends declared on preferred and preference stock |
— | — | — | (51 | ) | — | — | (51 | ) | |||||||||||||
|
Distributions to noncontrolling interests |
— | — | — | — | — | (125 | ) | (125 | ) | |||||||||||||
|
Stock-based compensation – net |
— | 7 | — | (3 | ) | — | — | 4 | ||||||||||||||
|
Noncash stock-based compensation and other |
— | 12 | — | (4 | ) | — | — | 8 | ||||||||||||||
|
Balance at December 31, 2009 |
$ | 2,168 | $ | 551 | $ | (19 | ) | $ | 4,746 | $ | 920 | $ | 349 | $ | 8,715 | |||||||
|
Net income |
— | — | — | 1,092 | — | — | 1,092 | |||||||||||||||
|
Other comprehensive loss |
— | — | (6 | ) | — | — | — | (6 | ) | |||||||||||||
|
Deconsolidation of variable interest entities (See Note 3) |
— | — | — | — | — | (349 | ) | (349 | ) | |||||||||||||
|
Dividends declared on common stock |
— | — | — | (200 | ) | — | — | (200 | ) | |||||||||||||
|
Dividends declared on preferred and preference stock |
— | — | — | (52 | ) | — | — | (52 | ) | |||||||||||||
|
Stock-based compensation and other |
— | 4 | — | (9 | ) | — | — | (5 | ) | |||||||||||||
|
Noncash stock-based compensation and other |
— | 17 | — | (5 | ) | — | — | 12 | ||||||||||||||
|
Balance at December 31, 2010 |
$ | 2,168 | $ | 572 | $ | (25 | ) | $ | 5,572 | $ | 920 | $ | — | $ | 9,207 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
SCE is an investor-owned public utility primarily engaged in the business of supplying electricity to an approximately 50,000 square-mile area of southern California. SCE is a wholly-owned subsidiary of Edison International.
The consolidated financial statements include SCE and its subsidiaries. Effective January 1, 2010, SCE deconsolidated four cogeneration projects in accordance with authoritative guidance for Variable Interest Entities ("VIEs"). Intercompany transactions have been eliminated.
SCE's accounting policies conform to accounting principles generally accepted in the United States of America, including the accounting principles for rate-regulated enterprises, which reflect the ratemaking policies of the CPUC and the FERC. SCE applies authoritative guidance for rate-regulated enterprises to the portion of its operations in which regulators set rates at levels intended to recover the estimated costs of providing service, plus a return on capital. Regulators may also impose certain penalties or grant certain incentives. Due to timing and other differences in the collection of operating revenue, these principles allow an incurred cost that would otherwise be charged to expense by a nonregulated entity to be capitalized as a regulatory asset if it is probable that the cost is recoverable through future rates; and conversely the principles require recording of a regulatory liability for amounts collected in rates to recover costs expected to be incurred in the future or amounts collected in excess of costs incurred. SCE assesses, at the end of each reporting period, whether regulatory assets are probable of future recovery. See Note 14 for composition of regulatory assets and liabilities.
The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. SCE's outstanding common stock is owned entirely by its parent company, Edison International.
Cash equivalents included investments in money market funds totaling $243 million and $360 million at December 31, 2010 and 2009, respectively. Generally, the carrying value of cash equivalents equals the fair value, as all investments have maturities of three months or less.
SCE temporarily invests the ending daily cash balance in its primary disbursement accounts until required for check clearing. SCE reclassified $196 million and $224 million of checks issued against these accounts, but not yet paid by the financial institution, from cash to accounts payable at December 31, 2010 and 2009, respectively.
Allowance for Uncollectible Accounts
SCE records an allowance for uncollectible accounts, generally determined by the average percentage of amounts written-off in prior periods. Generally, SCE assesses its customers a late fee of 0.9% per month, beginning 21 days after the bill is prepared. Inactive accounts are written off after 180 days.
Inventory is stated at the lower of cost or market, cost being determined by the average cost method for fuel and materials and supplies.
50
Utility Property, Plant and Equipment
Utility plant additions, including replacements and betterments, are capitalized. Such costs include direct material and labor, construction overhead, a portion of administrative and general costs capitalized at a rate authorized by the CPUC, and AFUDC.
In May 2003, the Palo Verde units returned to traditional cost-of-service ratemaking while San Onofre Units 2 and 3 returned to traditional cost-of-service ratemaking in January 2004. SCE's nuclear plant investments made prior to the return to cost-of-service ratemaking are recorded as regulatory assets. Since the return to cost-of-service ratemaking, capital additions are recorded in utility plant. These classifications do not affect the ratemaking treatment for these assets.
Estimated useful lives (authorized by the CPUC) and weighted-average useful lives of SCE's property, plant and equipment, are as follows:
|
|
Estimated Useful Lives
|
Weighted-Average
Useful Lives |
||
|---|---|---|---|---|
|
Generation plant |
25 years to 70 years | 40 years | ||
|
Distribution plant |
30 years to 60 years | 40 years | ||
|
Transmission plant |
35 years to 65 years | 46 years | ||
|
Other plant |
5 years to 60 years | 22 years | ||
Depreciation of utility property, plant and equipment is computed on a straight-line, remaining-life basis. Depreciation expense stated as a percent of average original cost of depreciable utility plant was, on a composite basis, 4.1%, 4.2% and 4.3% for 2010, 2009 and 2008, respectively. Replaced or retired property costs are charged to the accumulated provision for depreciation. Cash payments for removal costs less salvage reduce the liability for AROs.
Nuclear fuel is recorded as utility plant (nuclear fuel in the fabrication and installation phase is recorded as construction in progress) in accordance with CPUC ratemaking procedures. Nuclear fuel is amortized using the units of production method.
AFUDC represents the estimated cost of debt and equity funds that finance utility-plant construction and is capitalized during certain plant construction. AFUDC is recovered in rates through depreciation expense over the useful life of the related asset. AFUDC – equity represents a method to compensate SCE for the estimated cost of equity used to finance utility plant additions and is recorded as part of construction in progress. AFUDC – equity was $100 million, $116 million and $54 million in 2010, 2009 and 2008, respectively. AFUDC – debt was $41 million, $32 million and $27 million in 2010, 2009 and 2008, respectively.
The FERC issued an order granting ROE incentive adders, recovery of the ROE and incentive adders during the construction phase (referred to as CWIP) and recovery of abandoned plant costs for several of SCE's transmission projects. In addition, the FERC granted an incentive for CAISO participation. The order permits SCE to include 100% of prudently-incurred capital expenditures in rate base during construction of the three projects and earn a return on equity, rather than capitalizing AFUDC.
Certain plant facilities and equipment require periodic major maintenance. These costs are expensed as incurred.
51
The fair value of a liability for an asset retirement obligation ("ARO") is recorded in the period in which it is incurred, including a liability for the fair value of a conditional ARO, if the fair value can be reasonably estimated even though uncertainty exists about the timing and/or method of settlement. When an ARO liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is increased for accretion expense each period and the capitalized cost is depreciated over the useful life of the related asset. Settlement of an ARO liability for an amount other than its recorded amount results in an increase or decrease in expense. AROs related to decommissioning of SCE's nuclear power facilities are based on site-specific studies. Those site-specific studies are updated with each Nuclear Decommissioning Cost Triennial Proceeding ("NDCTP"). The initial establishment of a nuclear-related ARO is at fair value. Subsequent layers of an ARO are established for updated site-specific decommissioning cost estimates stemming from the approved NDCTP. For further discussion, see "Nuclear Decommissioning" below and Notes 4 and 15. A reconciliation of the changes in the ARO liability is as follows:
|
(in millions)
|
2010
|
2009
|
2008
|
|||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
Beginning balance |
$ | 3,198 | $ | 3,007 | $ | 2,877 | ||||
|
Accretion expense |
195 | 186 | 175 | |||||||
|
Revisions 1 |
(867 | ) | 6 | (10 | ) | |||||
|
Liabilities settled |
(1 | ) | (1 | ) | (35 | ) | ||||
|
Transfers in or out 2 |
(18 | ) | — | — | ||||||
|
Ending balance |
$ | 2,507 | $ | 3,198 | $ | 3,007 | ||||
The ARO liability as of December 31, 2010 includes $2.4 billion related to nuclear decommissioning.
Impairment of Long-Lived Assets
SCE evaluates the impairment of its long-lived assets based on a review of estimated future cash flows expected to be generated whenever events or changes in circumstances indicate that the carrying amount of such investments or assets may not be recoverable. If the carrying amount of a long-lived asset exceeds expected future cash flows, undiscounted and without interest charges, an impairment loss is recognized in the amount of the excess of fair value over the carrying amount. SCE's impaired assets are recorded as a regulatory asset if it is deemed probable that such amounts will be recovered from ratepayers.
Power purchase agreements entered into by SCE contain leases as described under "Power Purchase Agreements" below. SCE has entered into a number of agreements to lease property and equipment in the normal course of business. Minimum lease payments under operating leases for property, plant and equipment are levelized (total minimum lease payments divided by the number of years of the lease) and recorded as rent expense over the terms of the leases. Lease payments in excess of the minimum are recorded as rent expense in the year incurred.
Capital leases are reported as long-term obligations on the consolidated balance sheets under "Other deferred credits and other long-term liabilities." As a rate regulated enterprise, SCE's capital lease amortization expense and interest expense are reflected in "Purchased power" on the consolidated statements of income.
52
In 2003, SCE recorded the fair value of its liability for AROs related to the decommissioning of its nuclear power facilities. At that time, SCE adjusted its nuclear decommissioning obligation, capitalized the initial costs of the ARO into a nuclear-related ARO regulatory asset and also recorded an ARO regulatory liability as a result of timing differences between the recognition of costs and the recovery of costs through the ratemaking process. Decommissioning cost estimates are updated in each NDCTP. Once a Commission decision is rendered, a revised ARO layer reflecting the updated cost estimate is established and accreted over the lives of San Onofre and Palo Verde.
SCE plans to decommission its nuclear generating facilities by a prompt removal method authorized by the NRC. Decommissioning is expected to begin after expiration of the plants' operating licenses. The plants' initial operating licenses are currently set to expire in 2022 for San Onofre Units 2 and 3, unless license renewal proves feasible, and 2024, 2025 and 2027 for Palo Verde units 1, 2 and 3, respectively. Decommissioning costs, which are recovered through nonbypassable customer rates over the term of each nuclear facility's operating license, are recorded as a component of depreciation expense, with a corresponding credit to the ARO regulatory liability. Amortization of the ARO asset (included within the unamortized nuclear investment) and accretion of the ARO liability are deferred as increases to the ARO regulatory liability account, resulting in no impact on earnings.
SCE has collected in rates amounts for the future costs of removal of its nuclear assets, and has placed those amounts in independent trusts. The cost of removal amounts, in excess of fair value collected for assets not legally required to be removed, are classified as regulatory liabilities.
Due to regulatory recovery of SCE's nuclear decommissioning expense, nuclear decommissioning activities do not affect SCE's earnings.
SCE's nuclear decommissioning trust investments primarily consist of debt and equity investments that are classified as available-for-sale. Due to regulatory mechanisms, earnings and realized gains and losses (including other-than-temporary impairments) have no impact on electric utility revenue. Unrealized gains and losses on decommissioning trust funds increase or decrease the trust assets and the related regulatory asset or liability and have no impact on electric utility revenue or decommissioning expense. SCE reviews each security for other-than-temporary impairment on the last day of each month. If the fair value on the last day of two consecutive months is less than the cost for that security, SCE recognizes a loss for the other-than-temporary impairment. If the fair value is greater or less than the cost for that security at the time of sale, SCE recognizes a related realized gain or loss, respectively.
Debt premium, discount and issuance expenses incurred in connection with obtaining financing are deferred and amortized on a straight-line basis as interest expense over the term of the related debt. Under CPUC ratemaking procedures, debt reacquisition expenses are amortized over the remaining life of the reacquired debt or, if refinanced, the life of the new debt. SCE had unamortized losses on reacquired debt of $268 million and $287 million at December 31, 2010 and 2009, respectively, reflected in "Regulatory assets" in the long-term section of the consolidated balance sheets. SCE had unamortized debt issuance costs of $60 million and $50 million at December 31, 2010 and 2009, respectively, reflected in "Other long-term assets" on the consolidated balance sheets. Amortization of deferred financing costs charged to interest expense was $30 million, $27 million and $26 million in 2010, 2009 and 2008, respectively.
Operating revenue is recognized when electricity is delivered and includes amounts for services rendered but unbilled at the end of each reporting period. Rates charged to customers are based on CPUC-authorized and FERC-approved revenue requirements. CPUC rates are implemented upon final approval. FERC rates are often implemented on an interim basis at the time the rate change is filed. Revenue collected prior to a final FERC approval decision is subject to refund.
53
SCE recognizes revenue from base rates and cost-recovery rates, and could potentially recognize revenue or incur penalties under incentive mechanisms. Base rate activities provide for recovery of operation and maintenance costs, capital-related carrying costs and a return or profit, on a forecast basis, as well as a return on certain capital-related projects approved through balancing account mechanisms, separate from the GRC process. Cost-recovery rates provide for recovery for fuel, purchased power, demand-side management programs, nuclear decommissioning, public purpose programs, certain operation and maintenance expenses, and depreciation expense related to certain projects. There is no markup for return or profit for cost-recovery expenses (revenue recognized under cost-recovery rates is equal to expenses incurred under these mechanisms), except for a return on certain capital-related balancing account projects.
The CPUC-authorized decoupling revenue mechanisms allow differences in revenue resulting from actual and forecast volumetric electricity sales to be collected from or refunded to ratepayers; and therefore, such differences do not impact operating revenue. Differences between authorized operating costs included in SCE's base rate revenue requirement and actual operating costs incurred, other than pass-through costs, do not impact operating revenue, but have an impact on earnings.
Power purchased by the CDWR related to long-term contracts it executed on behalf of SCE's customers between January 17, 2001 and December 31, 2002 is not considered a cost to SCE because SCE is acting as an agent for these transactions. Furthermore, amounts billed to ($1.2 billion, $1.8 billion, and $2.2 billion in 2010, 2009 and 2008, respectively) and collected from SCE's customers for these power purchases, CDWR bond-related costs (effective November 15, 2002 and expected to continue until 2022) and a portion of direct access exit fees (effective January 1, 2003 and expected to continue until 2022) are being remitted to the CDWR and are not recognized as operating revenue by SCE.
SCE, generally as the purchaser, enters into long-term power purchase agreements in the normal course of business. Accounting for long-term power purchase agreements is complex and varies based on the terms and conditions of each agreement. A power purchase agreement may be considered a variable interest in a variable interest entity. Under this classification, the power purchase agreement is evaluated to determine if it is the primary beneficiary in the variable interest entity, in which case, such entity would be consolidated. None of SCE's contracts resulted in consolidation of a variable interest entity at December 31, 2010. See Note 3 for further discussion of power purchase agreements that are considered variable interests.
A power purchase agreement may also contain a lease for accounting purposes. This generally occurs when a power purchase agreement (signed or modified after June 30, 2003) designates a specific power plant in which the buyer purchases substantially all of the output and does not otherwise meet a fixed price per unit of output exception. SCE has a number of power purchase agreements that contain leases. SCE's recognition of lease expense conforms to the ratemaking treatment for SCE's recovery of the cost of electricity. See Note 9 for further discussion of SCE's power purchase agreements, including agreements that are classified as capital leases for accounting purposes.
A power purchase agreement that does not contain a lease may be classified as a derivative. SCE records its derivative instruments on its consolidated balance sheets at fair value unless they qualify for the normal purchase and sale exception, in which case, the power purchase agreement is classified as an executory contract. Most of SCE's QF contracts are not required to be recorded on the consolidated balance sheets because they either do not meet the definition of a derivative or meet the normal purchase and sale exception. However, SCE purchases power from certain QFs in which the contract pricing is based on a normal gas index, but the power is not generated with natural gas. These contracts are not eligible for the normal purchase and sale exception and are recorded as a derivative on the consolidated balance sheets at fair value. See Note 6 for further information on derivatives and hedging activities.
Power purchase agreements that do not meet the above classifications are accounted for on the accrual basis.
54
Derivative Instruments and Hedging Activities
SCE records derivative instruments on its consolidated balance sheets as either assets or liabilities measured at fair value unless otherwise exempted from derivative treatment as normal purchases or sales. The normal purchases and sales exception requires, among other things, physical delivery in quantities expected to be used or sold over a reasonable period in the normal course of business. Changes in the fair value of derivative instruments are expected to be recovered from or refunded to customers through regulatory mechanisms and, therefore, SCE's fair value changes have no impact on purchased-power expense or earnings. SCE does not use hedge accounting for derivative transactions due to regulatory accounting treatment.
Where SCE's derivative instruments are subject to a master netting agreement and certain criteria are met, SCE presents its derivative assets and liabilities on a net basis on its consolidated balance sheets. In addition, derivative positions are offset against margin and cash collateral deposits. The results of derivative activities are recorded as part of cash flows from operating activities on the consolidated statements of cash flows. See Note 6 for further information on derivative and hedging activities.
SCE bills certain sales and use taxes levied by state or local governments to its customers. Included in these sales and use taxes are franchise fees, which SCE pays to various municipalities (based on contracts with these municipalities) in order to operate within the limits of the municipality. SCE bills these franchise fees to its customers based on a CPUC-authorized rate. These franchise fees, which are required to be paid regardless of SCE's ability to collect from the customer, are accounted for on a gross basis and reflected in operating revenue and other operation and maintenance expense. SCE's franchise fees billed to customers and recorded as operating revenue were $102 million, $102 million and $103 million for the years ended December 31, 2010, 2009 and 2008, respectively. When SCE acts as an agent and when the tax is not required to be remitted as not having been collected from the customer, the taxes are accounted for on a net basis. Amounts billed to and collected from customers for these taxes are for remission to the taxing authorities and are not recognized as operating revenue.
Stock options, performance shares, deferred stock units and restricted stock units have been granted under Edison International's long-term incentive compensation programs. Edison International usually does not issue new common stock for equity awards settled. Rather, a third party is used to facilitate the exercise of stock options and the purchase and delivery of outstanding common stock for settlement of option exercises, performance shares and restricted stock units. 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 Edison International's common stock. Deferred stock units granted to management are settled in cash, and represent a liability. Restricted stock units are settled in common stock; however, Edison International will substitute cash awards to the extent necessary to pay tax withholding or any government levies.
SCE recognizes stock-based compensation expense on a straight-line basis over the requisite service period. SCE recognizes stock-based compensation expense for awards granted to retirement-eligible participants as follows: for stock-based awards granted prior to January 1, 2006, SCE recognized stock-based compensation expense over the explicit requisite service period and accelerated any remaining unrecognized compensation expense when a participant actually retired; for awards granted or modified after January 1, 2006, to participants who are retirement-eligible or will become retirement-eligible prior to the end of the normal requisite service period for the award, stock-based compensation is recognized on a prorated basis over the initial year or over the period between the date of grant and the date the participant first becomes eligible for retirement.
55
The CPUC regulates SCE's capital structure and limits the dividends it may pay Edison International. In SCE's most recent cost of capital proceeding, the CPUC sets an authorized capital structure for SCE which included a common equity component of 48%. SCE may make distributions to Edison International as long as the common equity component of SCE's capital structure remains at or above the 48% authorized level on a 13-month weighted average basis. At December 31, 2010, SCE's 13-month weighted-average common equity component of total capitalization was 51% resulting in the capacity to pay $497 million in additional dividends.
SCE and its subsidiaries are included in Edison International's consolidated federal income tax and combined state franchise tax returns. Pursuant to an income tax-allocation agreement approved by the CPUC, SCE's tax liability is computed as if it filed its federal and state income tax returns on a separate return basis. SCE estimates its income taxes for each jurisdiction in which it operates. This involves estimating current period tax expense along with assessing temporary differences resulting from differing treatment of items (such as depreciation) for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within SCE's consolidated balance sheets. Income tax expense includes the current tax liability from operations and the change in deferred income taxes during the year. Interest income, interest expense and penalties associated with income taxes are reflected in "Income tax expense" on the consolidated statements of income. Investment tax credits are deferred and amortized to income tax expense over the lives of the properties.
Management evaluates its uncertain tax positions at each reporting date. Liabilities for uncertain tax positions are reflected in "Accrued taxes" and "Other deferred credits and long-term liabilities" on the consolidated balance sheets.
Specified administrative services such as payroll and employee benefit programs, performed by SCE employees, are shared among all subsidiaries of Edison International, and the cost of these corporate support services are allocated to all subsidiaries. Costs are allocated based on one of the following formulas: relative amount of equity in investment, number of employees, or multi-factor method (operating revenue, operating expenses, total assets and number of employees). In addition, services of SCE employees are sometimes directly requested by an Edison International subsidiary and these services are performed for the subsidiary's benefit. Labor and expenses of these directly requested services are specifically identified and billed at cost. SCE participates in the insurance program of Edison International, including property, general liability, workers' compensation and various other specialty policies. SCE's insurance premiums are generally based on SCE's share of risk related to each policy.
Accounting Guidance Adopted in 2010
Consolidation—Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities
This Financial Accounting Standards Board ("FASB") update changes how a company determines when an entity, that is insufficiently capitalized or is not controlled through voting (or similar rights), should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, its ability to direct the activities of the entity that most significantly impact the entity's economic performance and whether the entity has an obligation to absorb losses or the right to receive expected returns of the entity. This guidance requires a company to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. SCE adopted this guidance prospectively effective January 1, 2010. The impact of adopting
56
this guidance resulted in the deconsolidation of projects related to four QF contracts. For further discussion, see Note 3.
Fair Value Measurements and Disclosures
This FASB accounting standards update provides for new disclosure requirements related to fair value measurements. The requirements, which SCE adopted effective January 1, 2010, include separate disclosure of significant transfers in and out of Levels 1 and 2 and the reasons for the transfers. The update also clarified existing disclosure requirements for the level of disaggregation, inputs and valuation techniques. Since this guidance impacts disclosures only, the adoption did not have an impact on SCE's consolidated results of operations, financial position or cash flows. In addition, effective January 1, 2011, the Level 3 reconciliation of fair value measurements using significant unobservable inputs should include gross rather than net information about purchases, sales, issuances and settlements. The guidance impacts disclosures only. For further discussion, see Note 4.
Note 2. Property, Plant and Equipment
Utility Property, Plant and Equipment
Utility property, plant and equipment included on the consolidated balance sheets is composed of the following:
|
|
December 31, | ||||||
|---|---|---|---|---|---|---|---|
|
(in millions)
|
2010
|
2009
|
|||||
|
Transmission and distribution |
$ | 20,689 | $ | 19,192 | |||
|
Generation |
3,371 | 2,743 | |||||
|
General plant and other |
3,377 | 2,946 | |||||
|
Accumulated depreciation |
(6,319 | ) | (5,921 | ) | |||
|
|
21,118 | 18,960 | |||||
|
Construction work in progress |
3,291 | 2,701 | |||||
|
Nuclear fuel, at amortized cost |
369 | 305 | |||||
|
Total utility property, plant and equipment |
$ | 24,778 | $ | 21,966 | |||
Jointly Owned Utility Projects
SCE owns interests in several generating stations and transmission systems for which each participant provides its own financing. SCE's proportionate share of these projects is reflected in the consolidated balance sheets and included in the above table. SCE's proportionate share of expenses for each project is reflected in the consolidated statements of income.
The following is SCE's investment in each project as of December 31, 2010:
|
(in millions)
|
Investment
in Facility |
Accumulated
Depreciation and Amortization |
Ownership
Interest |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
Transmission systems: |
|||||||||||
|
Eldorado |
$ | 74 | $ | 12 | 60 | % | |||||
|
Pacific Intertie |
183 | 65 | 50 | ||||||||
|
Generating stations: |
|||||||||||
|
Four Corners Units 4 and 5 (coal) |
596 | 499 | 48 | ||||||||
|
Mohave (coal) |
347 | 312 | 56 | ||||||||
|
Palo Verde (nuclear) |
1,899 | 1,543 | 16 | ||||||||
|
San Onofre (nuclear) |
5,369 | 4,080 | 78 | ||||||||
|
Total |
$ | 8,468 | $ | 6,511 | |||||||
57
All of the investments in the Mohave generating station and a portion of the investments in San Onofre and Palo Verde generating stations are included in regulatory assets on the consolidated balance sheets—see Note 14.
On November 8, 2010, SCE entered into an agreement to sell its ownership interest in Units 4 and 5 of the Four Corners coal-fired electric generating facility to the operator of the facility, Arizona Public Service Company. The sale price is $294 million, subject to certain adjustments. The closing of the sale is contingent upon the receipt of regulatory approvals and other specified closing conditions and is currently estimated to occur in the second half of 2012. Any gain on the sale will be for the benefit of SCE's ratepayers and, therefore, will not affect SCE's earnings.
Nonutility Property, Plant and Equipment
As of December 31, 2009, nonutility property, plant and equipment was primarily composed of the VIEs which SCE deconsolidated as of January 1, 2010.
|
|
December 31,
|
||||||
|---|---|---|---|---|---|---|---|
|
(in millions)
|
2010
|
2009
|
|||||
|
Furniture and equipment |
$ | 3 | $ | 3 | |||
|
Building, plant and equipment |
131 | 1,034 | |||||
|
Land (including easements) |
27 | 28 | |||||
|
Construction in progress |
10 | 3 | |||||
|
|
171 | 1,068 | |||||
|
Accumulated provision for depreciation |
(100 | ) | (744 | ) | |||
|
Nonutility property – net |
$ | 71 | $ | 324 | |||
Note 3. Variable Interest Entities
Effective January 1, 2010, SCE adopted the FASB's new guidance regarding VIEs. A VIE is defined as a legal entity whose equity owners do not have sufficient equity at risk, or, as a group, the holders of the equity investment at risk lack any of the following three characteristics: decision-making rights, the obligation to absorb losses, or the right to receive the expected residual returns of the entity. Under this new qualitative model, the primary beneficiary is identified as the variable interest holder that has both the power to direct the activities of the VIE that most significantly impact the entity's economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. The primary beneficiary is required to consolidate the VIE. Commercial and operating activities are generally the factors that most significantly impact the economic performance of VIEs in which SCE has a variable interest. Commercial and operating activities include construction, operation and maintenance, fuel procurement, dispatch and compliance with regulatory and contractual requirements.
Variable Interests in VIEs that are not Consolidated
SCE has 16 power purchase agreements ("PPAs") that are considered variable interests in VIEs, including 6 tolling agreements where SCE provides the natural gas to operate the plants and 10 contracts with QFs (including the Big 4 projects) that contain variable pricing provisions based on the price of natural gas. SCE has concluded that it is not the primary beneficiary of these VIEs since it does not control the commercial and operating activities of these entities. In general, because payments for capacity are the primary source of income, the most significant economic activity for SCE's VIEs is the operation and maintenance of the power plants. See further discussion of the Big 4 projects below.
As of the balance sheet date, the carrying amount of assets and liabilities in SCE's consolidated balance sheet that relate to its involvement with VIEs result from amounts due under the PPAs or the fair value of
58
those derivative contracts, which are accounted for at fair value. SCE recovers the costs incurred under these contracts under its approved long-term power procurement plans. Further, SCE has no residual interest in the entities and has not provided or guaranteed any debt or equity support, liquidity arrangements, performance guarantees or other commitments associated with these contracts other than the purchase commitments described in Note 9, so there is no significant potential exposure to loss as a result of SCE's involvement with these VIEs. The aggregate capacity dedicated to SCE for these VIE projects was 3,820 MW at December 31, 2010 and the amounts that SCE paid to these projects were $534 million and $524 million for the years ended December 31, 2010 and 2009, respectively. These amounts are recoverable in customer rates.
Big 4 Projects Consolidated Prior to 2010
SCE has variable interests in the Big 4 Projects through power contracts between SCE and the Big 4 Projects containing variable contract pricing provisions based on the price of natural gas. Prior to 2010, SCE had determined that it was the primary beneficiary of these four VIEs and, therefore, consolidated these projects. SCE prospectively deconsolidated the Big 4 Projects at January 1, 2010 since it does not control the commercial and operating activities of these projects. The deconsolidation did not result in a gain or loss.
SCE's consolidated balance sheet captions impacted by VIE activities prior to 2010 are presented below:
|
|
December 31, 2009 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
Electric
Utility |
VIEs
|
Eliminations
|
SCE
|
|||||||||
|
Cash and equivalents |
$ | 370 | $ | 92 | $ | — | $ | 462 | |||||
|
Accounts receivable – net |
689 | 62 | (32 | ) | 719 | ||||||||
|
Inventory |
321 | 16 | — | 337 | |||||||||
|
Other current assets |
94 | 3 | — | 97 | |||||||||
|
Nonutility property – net of accumulated depreciation |
71 | 253 | — | 324 | |||||||||
|
Other long-term assets |
318 | 4 | — | 322 | |||||||||
|
Total assets |
32,076 | 430 | (32 | ) | 32,474 | ||||||||
|
Accounts payable |
$ | 1,031 | $ | 59 | $ | (32 | ) | $ | 1,058 | ||||
|
Other current liabilities |
632 | 5 | — | 637 | |||||||||
|
Asset retirement obligations |
3,181 | 17 | — | 3,198 | |||||||||
|
Noncontrolling interests |
— | 349 | — | 349 | |||||||||
|
Total liabilities and equity |
32,076 | 430 | (32 | ) | 32,474 | ||||||||
59
SCE's consolidated statements of income impacted by VIE activities prior to 2010 are presented below:
|
(in millions)
|
Electric
Utility |
VIEs
|
Eliminations
|
SCE
|
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Year ended December 31, 2009 | ||||||||||||
|
Operating revenue |
$ | 9,746 | $ | 589 | $ | (370 | ) | $ | 9,965 | ||||
|
Fuel |
353 | 368 | — | 721 | |||||||||
|
Purchased power |
3,121 | — | (370 | ) | 2,751 | ||||||||
|
Operation and maintenance |
3,060 | 94 | — | 3,154 | |||||||||
|
Depreciation, decommissioning and amortization |
1,145 | 33 | — | 1,178 | |||||||||
|
Property and other taxes |
244 | — | — | 244 | |||||||||
|
Gain on sale of assets |
(1 | ) | — | — | (1 | ) | |||||||
|
Total operating expenses |
7,922 | 495 | (370 | ) | 8,047 | ||||||||
|
Operating income |
1,824 | 94 | — | 1,918 | |||||||||
|
Interest income |
11 | — | — | 11 | |||||||||
|
Other income |
160 | — | — | 160 | |||||||||
|
Interest expense – net of amounts capitalized |
(420 | ) | — | — | (420 | ) | |||||||
|
Other expenses |
(49 | ) | — | — | (49 | ) | |||||||
|
Income before income taxes |
1,526 | 94 | — | 1,620 | |||||||||
|
Income tax expense |
(249 | ) | — | — | (249 | ) | |||||||
|
Net income |
1,277 | 94 | — | 1,371 | |||||||||
|
Less: Net income attributable to noncontrolling interests |
— | (94 | ) | — | (94 | ) | |||||||
|
Dividends on preferred and preference stock |
(51 | ) | — | — | (51 | ) | |||||||
|
Net income available for common stock |
$ | 1,226 | $ | — | $ | — | $ | 1,226 | |||||
|
|
Year ended December 31, 2008 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Operating revenue |
$ | 10,838 | $ | 1,102 | $ | (692 | ) | $ | 11,248 | ||||
|
Fuel |
587 | 813 | — | 1,400 | |||||||||
|
Purchased power |
4,537 | — | (692 | ) | 3,845 | ||||||||
|
Operation and maintenance |
2,923 | 90 | — | 3,013 | |||||||||
|
Depreciation, decommissioning and amortization |
1,080 | 34 | — | 1,114 | |||||||||
|
Property and other taxes |
232 | — | — | 232 | |||||||||
|
Gain on sale of asset |
(9 | ) | — | — | (9 | ) | |||||||
|
Total operating expenses |
9,350 | 937 | (692 | ) | 9,595 | ||||||||
|
Operating income |
1,488 | 165 | — | 1,653 | |||||||||
|
Interest income |
19 | 3 | — | 22 | |||||||||
|
Other income |
99 | 2 | — | 101 | |||||||||
|
Interest expense – net of amounts capitalized |
(407 | ) | — | — | (407 | ) | |||||||
|
Other expenses |
(123 | ) | — | — | (123 | ) | |||||||
|
Income before income taxes |
1,076 | 170 | — | 1,246 | |||||||||
|
Income tax expense |
(342 | ) | — | — | (342 | ) | |||||||
|
Net income |
734 | 170 | — | 904 | |||||||||
|
Less: Net income attributable to noncontrolling interests |
— | (170 | ) | — | (170 | ) | |||||||
|
Dividends on preferred and preference stock |
(51 | ) | — | — | (51 | ) | |||||||
|
Net income available for common stock |
$ | 683 | $ | — | $ | — | $ | 683 | |||||
60
Note 4. Fair Value Measurements
Recurring Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (referred to as an "exit price"). Fair value of an asset or liability should consider assumptions that market participants would use in pricing the asset or liability, including assumptions about nonperformance risk.
SCE categorizes financial assets and liabilities into a fair value hierarchy based on valuation inputs used to derive fair value. The hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The following table sets forth assets and liabilities that were accounted for at fair value by level within the fair value hierarchy:
|
|
As of December 31, 2010 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
Level 1
|
Level 2
|
Level 3
|
Netting and
Collateral 1 |
Total
|
|||||||||||||
|
Assets at Fair Value |
||||||||||||||||||
|
Money market funds 2 |
$ | 243 | $ | — | $ | — | $ | — | $ | 243 | ||||||||
|
Derivative contracts: |
||||||||||||||||||
|
Electricity |
— | — | 119 | — | 119 | |||||||||||||
|
Natural gas |
— | 69 | 11 | — | 80 | |||||||||||||
|
CRRs |
— | — | 137 | — | 137 | |||||||||||||
|
Tolling |
— | — | 118 | — | 118 | |||||||||||||
|
Subtotal of derivative contracts |
— | 69 | 385 | — | 454 | |||||||||||||
|
Long-term disability plan |
9 | — | — | — | 9 | |||||||||||||
|
Nuclear decommissioning trusts |
||||||||||||||||||
|
Stocks 3 |
2,029 | — | — | — | 2,029 | |||||||||||||
|
Municipal bonds |
— | 790 | — | — | 790 | |||||||||||||
|
Corporate bonds 4 |
— | 346 | — | — | 346 | |||||||||||||
|
U.S. government and agency securities |
215 | 73 | — | — | 288 | |||||||||||||
|
Short-term investments, primarily cash equivalents 5 |
1 | 31 | — | — | 32 | |||||||||||||
|
Sub-total of nuclear decommissioning trusts |
2,245 | 1,240 | — | — | 3,485 | |||||||||||||
|
Total assets 6 |
2,497 | 1,309 | 385 | — | 4,191 | |||||||||||||
|
Liabilities at Fair Value |
||||||||||||||||||
|
Derivative contracts: |
||||||||||||||||||
|
Electricity |
— | 1 | 24 | — | 25 | |||||||||||||
|
Natural gas |
— | 285 | 11 | (4 | ) | 292 | ||||||||||||
|
Tolling |
— | — | 344 | — | 344 | |||||||||||||
|
Subtotal of derivative contracts |
— | 286 | 379 | (4 | ) | 661 | ||||||||||||
|
Total liabilities |
— | 286 | 379 | (4 | ) | 661 | ||||||||||||
|
Net assets |
$ | 2,497 | $ | 1,023 | $ | 6 | $ | 4 | $ | 3,530 | ||||||||
61
|
|
As of December 31, 2009 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
Level 1
|
Level 2
|
Level 3
|
Netting and
Collateral 1 |
Total
|
|||||||||||||
|
Assets at Fair Value |
||||||||||||||||||
|
Money market funds 2 |
$ | 360 | $ | — | $ | — | $ | — | $ | 360 | ||||||||
|
Derivative contracts: |
||||||||||||||||||
|
Electricity |
— | — | 1 | — | 1 | |||||||||||||
|
Natural gas |
— | 10 | 76 | — | 86 | |||||||||||||
|
CRRs |
— | — | 217 | — | 217 | |||||||||||||
|
Tolling |
— | — | 43 | — | 43 | |||||||||||||
|
Subtotal of derivative contracts |
— | 10 | 337 | — | 347 | |||||||||||||
|
Long-term disability plan |
8 | — | — | — | 8 | |||||||||||||
|
Nuclear decommissioning trusts |
||||||||||||||||||
|
Stocks 3 |
1,772 | — | — | — | 1,772 | |||||||||||||
|
Municipal bonds |
— | 634 | — | — | 634 | |||||||||||||
|
Corporate bonds 4 |
— | 393 | — | — | 393 | |||||||||||||
|
U.S. government and agency securities |
240 | 68 | — | — | 308 | |||||||||||||
|
Short-term investments, primarily cash equivalents 5 |
1 | 14 | — | — | 15 | |||||||||||||
|
Sub-total of nuclear decommissioning trusts |
2,013 | 1,109 | — | — | 3,122 | |||||||||||||
|
Total assets 6 |
2,381 | 1,119 | 337 | — | 3,837 | |||||||||||||
|
Liabilities at Fair Value |
||||||||||||||||||
|
Derivative contracts: |
||||||||||||||||||
|
Electricity |
— | — | 25 | — | 25 | |||||||||||||
|
Natural gas |
— | 150 | 21 | — | 171 | |||||||||||||
|
Tolling |
— | — | 402 | — | 402 | |||||||||||||
|
Subtotal of derivative contracts |
— | 150 | 448 | — | 598 | |||||||||||||
|
Total liabilities |
— | 150 | 448 | — | 598 | |||||||||||||
|
Net assets (liabilities) |
$ | 2,381 | $ | 969 | $ | (111 | ) | $ | — | $ | 3,239 | |||||||
62
The following table sets forth a summary of changes in the fair value of Level 3 assets and liabilities:
|
|
December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
2010
|
2009
|
||||||
|
Fair value of derivative contracts, net liabilities at beginning of period |
$ | (111 | ) | $ | (518 | ) | ||
|
Total realized/unrealized gains, net: |
||||||||
|
Included in regulatory assets and liabilities 1 |
58 | 312 | ||||||
|
Purchases and settlements, net |
43 | 70 | ||||||
|
Transfers into Level 3 |
— | — | ||||||
|
Transfers out of Level 3 |
16 | 25 | ||||||
|
Fair value of derivative contracts, net assets (liabilities) at end of period |
$ | 6 | $ | (111 | ) | |||
|
Change during the period in unrealized gains related to assets and liabilities
|
$ | 130 | $ | 385 | ||||
SCE determines the fair value for transfers in and transfers out of each level at the end of each reporting period. There were no significant transfers between levels during 2010 and 2009.
Valuation Techniques Used to Determine Fair Value
Level 1
Includes assets and liabilities where fair value is determined using unadjusted quoted prices in active markets that are available at the measurement date for identical assets and liabilities. Financial assets and liabilities classified as Level 1 include exchange-traded equity securities, exchange traded derivatives, U.S. treasury securities and money market funds.
Level 2
Pricing inputs include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the derivative instrument. Financial assets and liabilities utilizing Level 2 inputs include fixed-income securities and over-the-counter derivatives.
Derivative contracts that are over-the-counter traded are valued using pricing models to determine the net present value of estimated future cash flows and are generally classified as Level 2. Inputs to the pricing models include forward published or posted clearing prices from exchanges (New York Mercantile Exchange and Intercontinental Exchange) for similar instruments and discount rates. A primary source that best represents traded activity for each market is used to develop observable forward market prices in determining the fair value of these positions. Broker quotes or prices from exchanges are used to validate and corroborate the primary source. These price quotations reflect mid-market prices (average of bid and ask) and are obtained from sources believed to provide the most liquid market for the commodity. Broker quotes are incorporated when corroborated with other information which may include a combination of prices from exchanges, other brokers and comparison to executed trades.
Level 3
Includes financial asset and liabilities where fair value is determined using techniques that require significant unobservable inputs. Over-the-counter options, bilateral contracts, capacity contracts, QF contracts, derivative contracts that trade infrequently (such as congestion revenue rights ("CRRs") in the California market and over-the-counter derivatives at illiquid locations), long-term power agreements, and derivative contracts with counterparties that have significant nonperformance risks are generally valued using pricing models that incorporate unobservable inputs and are classified as Level 3. Assumptions are made in order to value derivative contracts in which observable inputs are not available. In circumstances where SCE cannot verify fair value with observable market transactions, it is possible that a different
63
valuation model could produce a materially different estimate of fair value. As markets continue to develop and more pricing information becomes available, SCE continues to assess valuation methodologies used to determine fair value.
For derivative contracts that trade infrequently (illiquid financial transmission rights and CRRs), changes in fair value are based on models forecasting the value of those contracts. The models' inputs are reviewed and the fair value is adjusted when it is concluded that a change in inputs would result in a new valuation that better reflects the fair value of those derivative contracts. For illiquid long-term power agreements, fair value is based upon the discounting of future electricity and natural gas prices derived from a proprietary model using the risk free discount rate for a similar duration contract, adjusted for credit risk and market liquidity. Changes in fair value are based on changes to forward market prices, including forecasted prices for illiquid forward periods. The fair value of the majority of SCE's derivatives that are classified as Level 3 is determined using uncorroborated non-binding broker quotes and models which may require SCE to extrapolate short-term observable inputs in order to calculate fair value. Broker quotes are obtained from several brokers and compared against each other for reasonableness.
The fair value of the derivative assets and liabilities are adjusted for nonperformance risk. To assess nonperformance risks, SCE considers the probability of and the estimated loss incurred if a party to the transaction were to default. SCE also considers collateral, netting arrangements, guarantees and other forms of credit support when assessing nonperformance. The nonperformance risk adjustment represented an insignificant amount at both December 31, 2010 and 2009.
Nuclear Decommissioning Trusts
The SCE nuclear decommissioning trust investments include equity securities, U.S. treasury securities and other fixed-income securities. Equity and treasury securities are classified as Level 1 as fair value is determined by observable market prices in active or highly liquid and transparent markets. The remaining fixed-income securities are classified as Level 2. The fair value of these financial instruments is 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.
Fair Value of Long-Term Debt Recorded at Carrying Value
The carrying amounts and fair values of long-term debt are:
|
|
December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | |||||||||||
|
(in millions)
|
Carrying
Amount |
Fair
Value |
Carrying
Amount |
Fair
Value |
|||||||||
|
Long-term debt, including current portion |
$ | 7,627 | $ | 8,285 | $ | 6,740 | $ | 7,202 | |||||
Fair values of long-term debt 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 of new issue prices and relevant credit information.
The carrying value of trade receivables, payables and short-term debt approximates fair value and therefore are not included in the table above.
64
Note 5. Debt and Credit Agreements
The following table summarizes long-term debt (rates and terms are as of December 31, 2010):
|
|
December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
2010
|
2009
|
||||||
|
First and refunding mortgage bonds: |
||||||||
|
2014 – 2040 (4.15% to 6.05%) |
$ | 6,475 | $ | 5,475 | ||||
|
Pollution-control bonds: |
||||||||
|
2015 – 2035 (2.88% to 5.55%) |
1,196 | 1,196 | ||||||
|
Bonds repurchased |
(324 | ) | (468 | ) | ||||
|
Debentures and notes: |
||||||||
|
2029 – 2053 (5.06% to 6.65%) |
307 | 557 | ||||||
|
Long-term debt due within one year |
— | (250 | ) | |||||
|
Unamortized debt discount – net |
(27 | ) | (20 | ) | ||||
|
Total |
$ | 7,627 | $ | 6,490 | ||||
In 2009, SCE purchased two issues of its tax-exempt bonds totaling $219 million that were subject to remarketing and also converted those issues to a variable rate structure. In 2010, SCE reissued $144 million of these bonds and continues to hold the remaining $75 million of these bonds which remain outstanding and have not been retired or cancelled.
Long-term debt maturities for the next five years are: 2011 – zero; 2012 – zero; 2013 – zero; 2014 – $1.1 billion; and 2015 – $308 million.
Almost all SCE properties are subject to a trust indenture lien. SCE has pledged first and refunding mortgage bonds as collateral for borrowed funds obtained from certain pollution-control bonds issued by government agencies. SCE has a debt covenant that requires a debt to total capitalization ratio be met. At December 31, 2010, SCE was in compliance with this debt covenant.
SCE has two revolving credit facilities with various banks; a $2.4 billion five-year credit facility that terminates in February 2013, with four one-year options to extend by mutual consent, and a $500 million three-year credit facility that terminates in March 2013. Borrowings under these credit facilities are generally used to finance fuel inventories, balancing accounts undercollections and general, temporary cash requirements including power purchase payments. At December 31, 2010, letters of credit issued under SCE's credit facilities are scheduled to expire in twelve months or less.
The following table summarizes the status of SCE's credit facilities at December 31, 2010:
|
(in millions)
|
Credit
Facilities |
|||
|---|---|---|---|---|
|
Commitment |
$ | 2,894 | ||
|
Outstanding borrowings |
— | |||
|
Outstanding letters of credit |
(24 | ) | ||
|
Amount available |
$ | 2,870 | ||
65
Note 6. Derivative Instruments and Hedging Activities
SCE uses derivative financial instruments to manage exposure to commodity price risk. SCE manages these risks in part by entering into forward commodity transactions, including options, swaps and futures. SCE is exposed to credit loss in the event of nonperformance by counterparties. To mitigate credit risk from counterparties, master netting agreements are used whenever possible and counterparties may be required to pledge collateral depending on the creditworthiness of each counterparty and the risk associated with the transaction.
SCE is exposed to commodity price risk which represents the potential impact that can be caused by a change in the market value of a particular commodity. SCE's hedging program reduces ratepayer exposure to variability in market prices related to SCE's power and gas activities. As part of this program, SCE enters into energy options, swaps, forward arrangements, tolling arrangements and CRRs. These transactions are pre-approved by the CPUC or executed in compliance with CPUC-approved procurement plans. SCE recovers its related hedging costs through the ERRA balancing account, and as a result, exposure to commodity price risk is not expected to impact earnings, but may impact cash flows.
SCE's electricity price exposure arises from energy produced and sold in CAISO's MRTU market as a result of differences between SCE's load requirements versus the amount of energy delivered from its generating facilities, existing bilateral contracts and CDWR contracts allocated to SCE.
A portion of SCE's purchased power supply is subject to natural gas price volatility. SCE's natural gas price exposure arises from purchasing natural gas for generation at the Mountainview power plant and peaker plants, from bilateral contracts where pricing is based on natural gas prices (this includes contract energy prices for most renewable QFs which are based on the monthly index price of natural gas delivered at the southern California border), and power contracts in which SCE has agreed to provide the natural gas needed for generation, referred to as tolling arrangements.
Notional Volumes of Derivative Instruments
The following table summarizes the notional volumes of derivatives used for hedging activities:
|
|
|
Economic Hedges | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
Unit of Measure
|
December 31,
|
||||||||
|
Commodity
|
2010
|
2009
|
||||||||
|
Electricity options, swaps and forward arrangements |
GWh | 32,138 | 14,868 | |||||||
|
Natural gas options, swaps and forward arrangements |
Bcf | 250 | 266 | |||||||
|
Congestion revenue rights |
GWh | 181,291 | 195,367 | |||||||
|
Tolling arrangements 1 |
GWh | 114,599 | 116,398 | |||||||
66
Fair Value of Derivative Instruments
The following table summarizes the gross and net fair values of commodity derivative instruments at December 31, 2010:
|
|
Derivative Assets | Derivative Liabilities |
|
||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
Short-
Term |
Long-
Term |
Subtotal
|
Short-
Term |
Long-
Term |
Subtotal
|
Net
Liability |
||||||||||||||||
|
Non-trading activities |
|||||||||||||||||||||||
|
Economic hedges |
$ | 87 | $ | 367 | $ | 454 | $ | 216 | $ | 449 | $ | 665 | $ | 211 | |||||||||
|
Netting and collateral |
— | — | — | (4 | ) | — | (4 | ) | (4 | ) | |||||||||||||
|
Total |
$ | 87 | $ | 367 | $ | 454 | $ | 212 | $ | 449 | $ | 661 | $ | 207 | |||||||||
The following table summarizes the gross and net fair values of commodity derivative instruments at December 31, 2009:
|
|
Derivative Assets | Derivative Liabilities |
|
||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
Short-
Term |
Long-
Term |
Subtotal
|
Short-
Term |
Long-
Term |
Subtotal
|
Net
Liability |
||||||||||||||||
|
Non-trading activities |
|||||||||||||||||||||||
|
Economic hedges |
$ | 160 | $ | 187 | $ | 347 | $ | 102 | $ | 496 | $ | 598 | $ | 251 | |||||||||
Income Statement Impact of Derivative Instruments
SCE recognizes realized gains and losses on derivative instruments as purchased-power expense and expects to recover these costs from ratepayers. As a result, realized gains and losses are not reflected in earnings, but may temporarily affect cash flows. Due to expected future recovery from ratepayers, unrealized gains and losses are recorded as regulatory assets and liabilities and therefore are also not reflected in earnings. The results of derivative activities and related regulatory offsets are recorded in cash flows from operating activities in the consolidated statements of cash flows.
The following table summarizes the components of economic hedging activity:
|
|
Years ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
2010
|
2009
|
2008
|
|||||||
|
Realized gains/(losses) |
$ | (156 | ) | $ | (344 | ) | $ | (60 | ) | |
|
Unrealized gains/(losses) |
36 | 470 | (638 | ) | ||||||
Contingent Features/Credit Related Exposure
Certain derivative instruments and power procurement contracts under SCE's power and natural gas hedging activities contain collateral requirements. SCE has historically provided collateral in the form of cash and/or letters of credit for the benefit of counterparties. These requirements can vary depending upon the level of unsecured credit extended by counterparties, changes in market prices relative to contractual commitments and other factors.
Certain of these power contracts contain a provision that requires SCE to maintain an investment grade credit rating from each of the major credit rating agencies, referred to as a "credit-risk-related contingent feature." If SCE's credit rating were to fall below investment grade, SCE may be required to pay the derivative liability or post additional collateral. The aggregate fair value of all derivative liabilities with these credit-risk-related contingent features was $67 million and $91 million as of December 31, 2010 and 2009, respectively, for which SCE has posted $4 million collateral to its counterparties. If the credit-risk-related contingent features underlying these agreements were triggered on December 31, 2010, SCE would be required to post an additional $2 million of collateral.
67
As part of SCE's procurement activities, SCE contracts with a number of utilities, energy companies, financial institutions, and other companies, collectively referred to as counterparties. If a counterparty were to default on its contractual obligations, SCE could be exposed to potentially volatile spot markets for buying replacement power or selling excess power. In addition, SCE would be exposed to the risk of non-payment of accounts receivable, primarily related to sales of excess energy and realized gains on derivative instruments. However, all of the contracts that SCE has entered into with counterparties are either entered into under SCE's short-term or long-term procurement plan which has been approved by the CPUC, or the contracts are approved by the CPUC before becoming effective. As a result of regulatory recovery mechanisms, losses from non-performance are not expected to affect earnings, but may temporarily affect cash flows.
To manage credit risk, SCE looks at the risk of a potential default by counterparties. Credit risk is measured by the loss that would be incurred if counterparties failed to perform pursuant to the terms of their contractual obligations. To mitigate credit risk from counterparties, master netting agreements are used whenever possible and counterparties may be required to pledge collateral when deemed necessary.
Margin and Collateral Deposits
Margin and collateral deposits include cash deposited with counterparties and brokers, and cash received from counterparties and brokers as credit support under energy contracts. The amount of margin and collateral deposits generally varies based on changes in the fair value of the related positions. SCE nets counterparty receivables and payables where balances exist under master netting arrangements. SCE presents the portion of its margin and collateral deposits netted with its derivative positions on its consolidated balance sheets. The following table summarizes margin and collateral deposits provided to and received from counterparties:
|
|
December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
2010
|
2009
|
||||||
|
Collateral provided to counterparties: |
||||||||
|
Offset against derivative liabilities |
$ | 4 | $ | — | ||||
|
Reflected in other current assets |
5 | 6 | ||||||
|
Collateral received from counterparties: |
||||||||
|
Reflected in other current liabilities |
$ | 60 | $ | 59 | ||||
The components of income tax expense by location of taxing jurisdiction are:
|
|
Years ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
2010
|
2009
|
2008
|
|||||||
|
Current: |
||||||||||
|
Federal |
$ | (145 | ) | $ | (82 | ) | $ | 53 | ||
|
State |
(71 | ) | 173 | 43 | ||||||
|
|
(216 | ) | 91 | 96 | ||||||
|
Deferred: |
||||||||||
|
Federal |
663 | 200 | 232 | |||||||
|
State |
(7 | ) | (42 | ) | 14 | |||||
|
|
656 | 158 | 246 | |||||||
|
Total |
$ | 440 | $ | 249 | $ | 342 | ||||
68
The components of net accumulated deferred income tax liability are:
|
|
December 31, | ||||||
|---|---|---|---|---|---|---|---|
|
(in millions)
|
2010
|
2009
|
|||||
|
Deferred tax assets: |
|||||||
|
Property and software related |
$ | 655 | $ | 630 | |||
|
Regulatory balancing accounts |
230 | 229 | |||||
|
Unrealized gains and losses |
389 | 315 | |||||
|
Pensions and PBOPs |
176 | 213 | |||||
|
Other |
490 | 525 | |||||
|
Total |
$ | 1,940 | $ | 1,912 | |||
|
Deferred tax liabilities: |
|||||||
|
Property-related |
$ | 5,520 | $ | 4,371 | |||
|
Capitalized software costs |
293 | 286 | |||||
|
Regulatory balancing accounts |
293 | 257 | |||||
|
Unrealized gains and losses |
389 | 315 | |||||
|
Other |
264 | 256 | |||||
|
Total |
$ | 6,759 | $ | 5,485 | |||
|
Accumulated deferred income tax liability – net |
$ | 4,819 | $ | 3,573 | |||
|
Classification of accumulated deferred income taxes – net: |
|||||||
|
Included in deferred credits and other liabilities |
$ | 4,829 | $ | 3,651 | |||
|
Included in current assets |
$ | 10 | $ | 78 | |||
The table below provides a reconciliation of income tax expense computed at the federal statutory income tax rate to the income tax provision from continuing operations.
|
|
Years ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010
|
2009
|
2008
|
|||||||||
|
Income from continuing operations before income taxes |
$ | 1,532 | $ | 1,620 | $ | 1,246 | ||||||
|
Net income attributable to noncontrolling interests in the Big 4 projects |
— | (94 | ) | (170 | ) | |||||||
|
Adjusted income from continuing operations before income taxes |
$ | 1,532 | $ | 1,526 | $ | 1,076 | ||||||
|
Provision for income tax at federal statutory rate of 35% |
$ |
536 |
$ |
534 |
$ |
377 |
||||||
|
Increase (decrease) in income tax from: |
||||||||||||
|
Items presented with related state income tax, net |
||||||||||||
|
Global settlement related |
(95 | ) | (306 | ) | — | |||||||
|
Change in tax accounting method for asset removal costs 1 |
(40 | ) | — | — | ||||||||
|
State tax – net of federal benefit |
59 | 67 | 37 | |||||||||
|
Health care legislation 2 |
39 | — | — | |||||||||
|
Property-related and other |
(59 | ) | (46 | ) | (72 | ) | ||||||
|
Total income tax expense from continuing operations |
$ | 440 | $ | 249 | $ | 342 | ||||||
|
Effective tax rate |
28.7% | 16.3% | 31.8% | |||||||||
69
The CPUC requires flow-through ratemaking treatment for the current tax benefit arising from certain property-related and other temporary differences which reverse over time. The accounting treatment for these temporary differences results in recording regulatory assets and liabilities for amounts that would otherwise be recorded to deferred income tax expense.
Edison International and the IRS finalized the terms of a Global Settlement on May 5, 2009. The Global Settlement resolved all of SCE's federal income tax disputes and affirmative claims through tax year 2002. During 2009, SCE recorded after-tax earnings of approximately $306 million. During 2010, SCE recorded a $95 million earnings benefit from the acceptance by the California Franchise Tax Board of the IRS tax positions finalized in 2009 and a revision to interest recorded on the federal Global Settlement. The net cash impacts of the Global Settlement, including the state impact, was $26 million and $875 million in 2010 and 2009, respectively.
Accounting for Uncertainty in Income Taxes
Authoritative guidance related to accounting for uncertainty in income taxes requires an enterprise to recognize, in its financial statements, the best estimate of the impact of a tax position by determining if the weight of the available evidence indicates it is more likely than not, based solely on the technical merits, that the position will be sustained on audit. The guidance requires the disclosure of all unrecognized tax benefits, which includes both the reserves recorded for tax positions on filed tax returns and the unrecognized portion of affirmative claims.
The following table provides a reconciliation of unrecognized tax benefits:
|
(in millions)
|
2010
|
2009
|
2008
|
||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
Balance at January 1 |
$ | 482 | $ | 2,066 | $ | 1,950 | |||||
|
Tax positions taken during the current year |
|||||||||||
|
Increases |
47 | 14 | 111 | ||||||||
|
Tax positions taken during a prior year |
|||||||||||
|
Increases |
140 | 200 | 162 | ||||||||
|
Decreases |
(272 | ) | (212 | ) | (157 | ) | |||||
|
Decreases for settlements during the period |
(68 | ) | (1,586 | ) | — | ||||||
|
Balance at December 31 |
$ | 329 | $ | 482 | $ | 2,066 | |||||
Unrecognized tax benefits were reduced by $68 million during 2010 related to the California Franchise Tax Board's acceptance of the federal Global Settlement as discussed above and $1.6 billion during 2009 primarily due to completion of the federal Global Settlement as discussed above.
Edison International's federal income tax returns and its California combined franchise tax returns are currently open for years subsequent to 2002. In addition, specific California refund claims made by Edison International for years 1991 through 2002 remain subject to audit. The IRS examination phase of tax years 2003 through 2006 was completed in the fourth quarter of 2010, which included a proposed adjustment to disallow a component of SCE's repair allowance deduction. Edison International disagrees with the proposed adjustment and filed a protest with the IRS on January 28, 2011. If sustained, the proposed disallowance would result in a federal tax payment of $90 million, including interest.
During the fourth quarter of 2010, SCE made a tax and interest deposit of $131 million primarily related to rollforward issues included in the Global Settlement that subsequently impacted tax years 2003 through 2006.
70
As of December 31, 2010 and 2009, respectively, if recognized, $225 million and $179 million of the unrecognized tax benefits would impact the effective tax rate.
Accrued Interest and Penalties
The total amount of accrued interest and penalties related to SCE's income tax liabilities was $61 million and $79 million as of December 31, 2010 and 2009, respectively.
The net after-tax interest and penalties recognized in income tax expense was a benefit of $80 million and $279 million in 2010 and 2009, respectively, compared to an expense of $14 million in 2008.
Note 8. Compensation and Benefit Plans
SCE has a 401(k) defined contribution savings plan designed to supplement employees' retirement income. The plan received employer contributions of $76 million in 2010, $70 million in 2009 and $65 million in 2008.
Pension Plans and Postretirement Benefits Other Than Pensions
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) are approximately $102 million for the year ending December 31, 2011. Annual contributions made to most of SCE's pension plans are recovered through CPUC-approved regulatory mechanisms. Annual contributions to these plans are expected to be, at a minimum, equal to the related annual expense.
Volatile market conditions have affected the value of SCE's trusts established to fund its future long-term pension benefits. The market value of the investments (reflecting investment returns, contributions and benefit payments) within the plan trusts declined 35% during 2008. This reduction in the value of plan assets resulted in a change in the pension plan funding status from overfunded to underfunded and will also result in increased future expense and increased future contributions. Improved market conditions in 2009 and 2010 partially offset the impacts of the 2008 market conditions.
Changes in the plan's funded status also affect the assets and liabilities recorded on the consolidated balance sheets. Due to SCE's regulatory recovery treatment, the recognition of the funded status is offset by regulatory liabilities and assets. In the 2009 GRC, SCE requested recovery of and continued balancing account treatment for amounts contributed to these trusts. The Pension Protection Act of 2006 established new minimum funding standards and placed various restrictions on underfunded plans.
71
Information on plan assets and benefit obligations is shown below:
|
|
Years ended
December 31, |
||||||
|---|---|---|---|---|---|---|---|
|
(in millions)
|
2010
|
2009
|
|||||
|
Change in projected benefit obligation |
|||||||
|
Projected benefit obligation at beginning of year |
$ | 3,389 | $ | 3,175 | |||
|
Service cost |
132 | 107 | |||||
|
Interest cost |
193 | 191 | |||||
|
Amendments |
5 | 21 | |||||
|
Actuarial loss |
185 | 57 | |||||
|
Benefits paid |
(172 | ) | (162 | ) | |||
|
Projected benefit obligation at end of year |
$ | 3,732 | $ | 3,389 | |||
|
Change in plan assets |
|||||||
|
Fair value of plan assets at beginning of year |
$ | 2,726 | $ | 2,238 | |||
|
Actual return on plan assets |
414 | 551 | |||||
|
Employer contributions |
98 | 99 | |||||
|
Benefits paid |
(172 | ) | (162 | ) | |||
|
Fair value of plan assets at end of year |
$ | 3,066 | $ | 2,726 | |||
|
Funded status at end of year |
$ | (666 | ) | $ | (663 | ) | |
|
Amounts recognized in the consolidated balance sheets: |
|||||||
|
Current liabilities |
$ | (6 | ) | $ | (5 | ) | |
|
Long-term liabilities |
(660 | ) | (658 | ) | |||
|
|
$ | (666 | ) | $ | (663 | ) | |
|
Amounts recognized in accumulated other comprehensive loss
|
|||||||
|
Net loss |
$ | 42 | $ | 31 | |||
|
Amounts recognized as a regulatory asset: |
|||||||
|
Prior service cost |
$ | 40 | $ | 42 | |||
|
Net loss |
500 | 556 | |||||
|
|
$ | 540 | $ | 598 | |||
|
Total not yet recognized as expense |
$ | 582 | $ | 629 | |||
|
Accumulated benefit obligation at end of year |
$ | 3,436 | $ | 3,086 | |||
|
Pension plans with an accumulated benefit obligation in excess of
|
|||||||
|
Projected benefit obligation |
$ | 3,732 | $ | 3,389 | |||
|
Accumulated benefit obligation |
3,436 | 3,086 | |||||
|
Fair value of plan assets |
3,066 | 2,726 | |||||
|
Weighted-average assumptions used to determine obligations at end
|
|||||||
|
Discount rate |
5.25% | 6.0% | |||||
|
Rate of compensation increase |
5.0% | 5.0% | |||||
72
Expense components and other amounts recognized in other comprehensive income:
Expense components are:
|
|
Years ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
2010
|
2009
|
2008
|
|||||||
|
Service cost |
$ | 132 | $ | 107 | $ | 104 | ||||
|
Interest cost |
193 | 191 | 184 | |||||||
|
Expected return on plan assets |
(201 | ) | (162 | ) | (249 | ) | ||||
|
Amortization of prior service cost |
8 | 11 | 17 | |||||||
|
Amortization of net loss |
17 | 54 | 3 | |||||||
|
Expense under accounting standards |
$ | 149 | $ | 201 | $ | 59 | ||||
|
Regulatory adjustment—deferred |
(52 | ) | (94 | ) | (5 | ) | ||||
|
Total expense recognized |
$ | 97 | $ | 107 | $ | 54 | ||||
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
|
|
Years ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
2010
|
2009
|
2008
|
|||||||
|
Net loss (gain) |
$ | 15 | $ | 11 | $ | (2 | ) | |||
|
Amortization of net loss |
(4 | ) | (4 | ) | (3 | ) | ||||
|
Total recognized in other comprehensive (income) loss |
$ | 11 | $ | 7 | $ | (5 | ) | |||
|
Total recognized in expense and other comprehensive income |
$ | 107 | $ | 114 | $ | 49 | ||||
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 its postretirement benefit plans that are recoverable in utility rates. The estimated net loss and prior service cost that will be amortized to expense in 2011 are $17 million and $7 million, respectively; $6 million of the net loss is expected to be reclassified from accumulated other comprehensive income.
The following are weighted-average assumptions used to determine expense:
|
|
Years ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010
|
2009
|
2008
|
|||||||
|
Discount rate |
6.0% | 6.25% | 6.25% | |||||||
|
Rate of compensation increase |
5.0% | 5.0% | 5.0% | |||||||
|
Expected return on plan assets |
7.5% | 7.5% | 7.5% | |||||||
The following are benefit payments, which reflect expected future service, expected to be paid:
|
(in millions)
|
Years ended
December 31, |
|||
|---|---|---|---|---|
|
2011 |
$ | 262 | ||
|
2012 |
271 | |||
|
2013 |
278 | |||
|
2014 |
285 | |||
|
2015 |
296 | |||
|
2016 – 2020 |
1,542 | |||
73
Postretirement Benefits Other Than Pensions
Most non-union employees retiring at or after age 55 with at least 10 years of service may be eligible for postretirement medical, dental, vision and life insurance and other benefits. Eligibility for a company contribution toward the cost of these benefits in retirement depends on a number of factors, including the employee's hire date. The expected contributions (all by the employer) to the PBOP trust are $54 million for the year ending December 31, 2011. Annual contributions made to SCE plans are recovered through CPUC-approved regulatory mechanisms and are expected to be, at a minimum, equal to the total annual expense for these plans.
Volatile market conditions have affected the value of Edison International's trusts established to fund its future other postretirement benefits. The market value of the investments (reflecting investment returns, contributions and benefit payments) within the plan trust declined 33% during 2008. This reduction in the value of plan assets resulted in an increase in the plan's underfunded status and will also result in increased future expense and increased future contributions. Improved market conditions in 2009 and 2010 partially offset the impacts of the 2008 market conditions.
Changes in the plan's funded status affect the assets and liabilities recorded on SCE's consolidated balance sheets. Due to SCE's regulatory recovery treatment, the recognition of the funded status is offset by regulatory liabilities and assets. In the 2009 GRC, SCE requested recovery of and continued balancing account treatment for amounts contributed to this trust.
74
Information on plan assets and benefit obligations is shown below:
|
|
Years ended
December 31, |
|||||||
|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
2010
|
2009
|
||||||
|
Change in benefit obligation |
||||||||
|
Benefit obligation at beginning of year |
$ | 2,011 | $ | 2,247 | ||||
|
Service cost |
34 | 28 | ||||||
|
Interest cost |
121 | 116 | ||||||
|
Amendments |
12 | (63 | ) | |||||
|
Actuarial loss (gain) |
203 | (233 | ) | |||||
|
Plan participants' contributions |
17 | 15 | ||||||
|
Medicare Part D subsidy received |
5 | 5 | ||||||
|
Benefits paid |
(108 | ) | (104 | ) | ||||
|
Benefit obligation at end of year |
$ | 2,295 | $ | 2,011 | ||||
|
Change in plan assets |
||||||||
|
Fair value of plan assets at beginning of year |
$ | 1,459 | $ | 1,212 | ||||
|
Actual return on assets |
175 | 256 | ||||||
|
Employer contributions |
58 | 75 | ||||||
|
Plan participants' contributions |
17 | 15 | ||||||
|
Medicare Part D subsidy received |
5 | 5 | ||||||
|
Benefits paid |
(108 | ) | (104 | ) | ||||
|
Fair value of plan assets at end of year |
$ | 1,606 | $ | 1,459 | ||||
|
Fund status at end of year |
$ | (689 | ) | $ | (552 | ) | ||
|
Amounts recognized in the consolidated balance sheets consist of: |
||||||||
|
Current liabilities |
$ | (17 | ) | $ | (16 | ) | ||
|
Long-term liabilities |
(672 | ) | (536 | ) | ||||
|
|
$ | (689 | ) | $ | (552 | ) | ||
|
Amounts recognized as a regulatory asset (liability): |
||||||||
|
Prior service credit |
$ | (161 | ) | $ | (209 | ) | ||
|
Net loss |
718 | 625 | ||||||
|
Total not yet recognized as expense |
$ | 557 | $ | 416 | ||||
|
Weighted-average assumptions used to determine obligations at end of year: |
||||||||
|
Discount rate |
5.5% | 6.0% | ||||||
|
Assumed health care cost trend rates: |
||||||||
|
Rate assumed for following year |
9.75% | 8.25% | ||||||
|
Ultimate rate |
5.5% | 5.5% | ||||||
|
Year ultimate rate reached |
2019 | 2016 | ||||||
75
Expense components and other amounts recognized in other comprehensive income:
Expense components are:
|
|
Years ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
2010
|
2009
|
2008
|
|||||||
|
Service cost |
$ | 34 | $ | 28 | $ | 38 | ||||
|
Interest cost |
121 | 116 | 130 | |||||||
|
Expected return on plan assets |
(100 | ) | (81 | ) | (122 | ) | ||||
|
Amortization of prior service credit |
(37 | ) | (32 | ) | (29 | ) | ||||
|
Amortization of net loss |
35 | 44 | 14 | |||||||
|
Total expense |
$ | 53 | $ | 75 | $ | 31 | ||||
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 its postretirement benefit plans that are recoverable in utility rates. The estimated net loss and prior service cost (credit) that will be amortized to expense in 2011 are $36 million and $(36) million, respectively.
The following are weighted-average assumptions used to determine expense:
|
|
Years ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010
|
2009
|
2008
|
|||||||
|
Discount rate |
6.0 | % | 6.25 | % | 6.25 | % | ||||
|
Expected return on plan assets |
7.0 | % | 7.0 | % | 7.0 | % | ||||
|
Assumed health care cost trend rates: |
||||||||||
|
Current year |
8.25 | % | 8.75 | % | 8.75 | % | ||||
|
Ultimate rate |
5.5 | % | 5.5 | % | 5.0 | % | ||||
|
Year ultimate rate reached |
2016 | 2016 | 2015 | |||||||
Increasing the health care cost trend rate by one percentage point would increase the accumulated benefit obligation as of December 31, 2010 by $263 million and annual aggregate service and interest costs by $15 million. Decreasing the health care cost trend rate by one percentage point would decrease the accumulated benefit obligation as of December 31, 2010 by $219 million and annual aggregate service and interest costs by $13 million.
The following benefit payments are expected to be paid:
|
|
Years ended
December 31, |
||||||
|---|---|---|---|---|---|---|---|
|
(in millions)
|
Before
Subsidy 1 |
Net
|
|||||
|
2011 |
$ | 93 | $ | 88 | |||
|
2012 |
108 | 102 | |||||
|
2013 |
118 | 111 | |||||
|
2014 |
126 | 119 | |||||
|
2015 |
133 | 125 | |||||
|
2016 – 2020 |
796 | 742 | |||||
76
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 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 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 small portion of the fixed income positions may be held in debt securities that are below investment grade.
Opportunistic, Alternative and Other Investments:
Opportunistic: Investments in short to intermediate term market opportunities. Investments may have fixed income and/or equity characteristics and may be either liquid or illiquid.
Alternative: Limited partnerships that invest in non-publicly traded entities.
Other: Investments diversified among multiple asset classes such as global equity, fixed income currency and commodities markets. Investments are made in liquid instruments within and across markets. The investment returns are expected to approximate the plans' expected investment returns.
Asset class portfolio weights are permitted to range within plus or minus 3%. Where approved by the fiduciary investment committee, futures contracts are used for portfolio rebalancing and to reallocate portfolio cash positions. Where authorized, a few of the plans' investment managers employ limited use of derivatives, including futures contracts, options, options on futures and interest rate swaps in place of direct investment in securities to gain efficient exposure to markets. Derivatives are not used to leverage the plans or any portfolios.
Determination of the Expected Long-Term Rate of Return on Assets
The overall expected long-term rate of return on assets assumption is based on the long-term target asset allocation for plan assets and capital markets return forecasts for asset classes employed. 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.
77
Capital Markets Return Forecasts
Capital markets return forecasts are based on long-term strategic planning assumptions from an independent firm which uses its research, modeling and judgment to forecast rates of return for global asset classes. In addition, a separate analysis of expected returns is conducted. The estimated total return for fixed income securities is based on historic long-term United States government bonds data. The estimated total return for intermediate United States government bonds is based on historic and projected data. The estimated rate of return for U.S. equities, non-U.S. equities and hedge funds includes a 3% premium over the estimated total return for intermediate United States government bonds. The rate of return for private equity is estimated to be a 3% premium over public equity, reflecting a premium for higher volatility and illiquidity.
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. One of the partnerships is classified as Level 2 since this investment can be readily redeemed at NAV and the underlying investments are liquid publicly traded fixed-income securities which have observable prices. The remaining partnerships/joint ventures are classified as Level 3 because fair value is determined primarily based upon management estimates of future cash flows. Other investment entities are valued similarly to common collective funds and are therefore classified as Level 2. The Level 1 registered investment companies are either mutual or money market funds. The remaining funds in this category are readily redeemable at NAV and classified as Level 2 and are discussed further at footnote 6 to the pension plan master trust investments table below.
78
The following table sets forth the Master Trust investments that were accounted for at fair value as of December 31, 2010 by asset class and level within the fair value hierarchy:
|
(in millions)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Corporate stocks 1 |
$ | 786 | $ | — | $ | — | $ | 786 | |||||
|
Common/collective funds 2 |
— | 600 | — | 600 | |||||||||
|
Corporate bonds 3 |
— | 555 | — | 555 | |||||||||
|
Partnerships/joint ventures 4 |
— | 155 | 345 | 500 | |||||||||
|
U.S. government and agency securities 5 |
84 | 316 | — | 400 | |||||||||
|
Registered investment companies 6 |
84 | 169 | — | 253 | |||||||||
|
Other investment entities 7 |
— | 159 | — | 159 | |||||||||
|
Interest-bearing cash |
5 | — | — | 5 | |||||||||
|
Other |
2 | 30 | — | 32 | |||||||||
|
Total |
$ | 961 | $ | 1,984 | $ | 345 | $ | 3,290 | |||||
|
Receivables and payables, net |
(55 | ) | |||||||||||
|
Net plan assets available for benefits |
$ | 3,235 | |||||||||||
|
SCE's share of net plan assets |
$ | 3,066 | |||||||||||
The following table sets forth the Master Trust investments that were accounted for at fair value as of December 31, 2009 by asset class and level within the fair value hierarchy:
|
(in millions)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Corporate stocks 1 |
$ | 678 | $ | — | $ | — | $ | 678 | |||||
|
Common/collective funds 2 |
— | 612 | — | 612 | |||||||||
|
Corporate bonds 3 |
— | 469 | — | 469 | |||||||||
|
Partnerships/joint ventures 4 |
— | 101 | 240 | 341 | |||||||||
|
U.S. government and agency securities 5 |
104 | 352 | — | 456 | |||||||||
|
Registered investment companies 6 |
73 | 58 | — | 131 | |||||||||
|
Other investment entities 7 |
— | 135 | — | 135 | |||||||||
|
Interest-bearing cash |
5 | — | — | 5 | |||||||||
|
Foreign exchange contracts |
— | 6 | — | 6 | |||||||||
|
Other |
— | 7 | — | 7 | |||||||||
|
Total |
$ | 860 | $ | 1,740 | $ | 240 | $ | 2,840 | |||||
|
Receivables and payables, net |
17 | ||||||||||||
|
Net plan assets available for benefits SCE's share of net plan assets |
$ | 2,857 | |||||||||||
|
|
$ | 2,726 | |||||||||||
79
At December 31, 2010 and 2009, approximately 69% and 67%, respectively, of the publicly traded equity investments, including equities in the common/collective funds, were located in the United States.
The following table sets forth a summary of changes in the fair value of Level 3 investments for 2010 and 2009:
|
(in millions)
|
2010
|
2009
|
||||||
|---|---|---|---|---|---|---|---|---|
|
Fair value, net at beginning of period |
$ | 240 | $ | 111 | ||||
|
Actual return on plan assets: |
||||||||
|
Relating to assets still held at end of period |
42 | 34 | ||||||
|
Relating to assets sold during the period |
24 | 6 | ||||||
|
Purchases and dispositions, net |
39 | 89 | ||||||
|
Transfers in and /or out of Level 3 |
— | — | ||||||
|
Fair value, net at end of period |
$ | 345 | $ | 240 | ||||
Postretirement Benefits Other than Pensions
The following table sets forth the PBOP Plan's financial assets that were accounted for at fair value as of December 31, 2010 by asset class and level within the fair value hierarchy:
|
(in millions)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Common/collective funds 1 |
$ | — | $ | 657 | $ | — | $ | 657 | |||||
|
Corporate stocks 2 |
344 | — | — | 344 | |||||||||
|
Corporate notes and bonds 3 |
— | 184 | — | 184 | |||||||||
|
Registered investment companies 4 |
144 | 1 | — | 145 | |||||||||
|
Partnerships 5 |
— | 16 | 92 | 108 | |||||||||
|
U.S. government and agency securities 6 |
50 | 38 | — | 88 | |||||||||
|
Interest bearing cash |
12 | — | — | 12 | |||||||||
|
Other 7 |
4 | 76 | — | 80 | |||||||||
|
Total |
$ | 554 | $ | 972 | $ | 92 | $ | 1,618 | |||||
|
Receivables and payables, net |
(12 | ) | |||||||||||
|
Combined net plan assets available for benefits |
$ | 1,606 | |||||||||||
80
The following table sets forth the PBOP Plan's financial assets that were accounted for at fair value as of December 31, 2009 by asset class and level within the fair value hierarchy:
|
(in millions)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Common/collective funds 1 |
$ | — | $ | 648 | $ | — | $ | 648 | |||||
|
Corporate stocks 2 |
250 | — | — | 250 | |||||||||
|
Corporate notes and bonds 3 |
— | 151 | — | 151 | |||||||||
|
Registered investment companies 4 |
213 | — | — | 213 | |||||||||
|
Partnerships 5 |
— | — | 49 | 49 | |||||||||
|
U.S. government and agency securities 6 |
39 | 28 | — | 67 | |||||||||
|
Interest bearing cash |
14 | — | — | 14 | |||||||||
|
Other 7 |
3 | 74 | — | 77 | |||||||||
|
Total |
$ | 519 | $ | 901 | $ | 49 | $ | 1,469 | |||||
|
Receivables and payables, net |
(10 | ) | |||||||||||
|
Combined net plan assets available for benefits |
$ | 1,459 | |||||||||||
At December 31, 2010 and 2009, approximately 67% and 76%, 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 for 2010 and 2009:
|
(in millions)
|
2010
|
2009
|
||||||
|---|---|---|---|---|---|---|---|---|
|
Fair value, net at beginning of period |
$ | 49 | $ | 12 | ||||
|
Actual return on plan assets |
||||||||
|
Relating to assets still held at end of period |
14 | 12 | ||||||
|
Relating to assets sold during the period |
— | 1 | ||||||
|
Purchases and dispositions, net |
29 | 27 | ||||||
|
Transfers in and /or out of Level 3 |
— | (3 | ) | |||||
|
Fair value, net at end of period |
$ | 92 | $ | 49 | ||||
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 in 2009, is 21.5 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,
81
2010, Edison International had approximately 9 million shares remaining for future issuance under its stock-based compensation plans.
Under various plans, SCE 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.
Stock options granted in 2003 through 2006 accrue dividend equivalents for the first five years of the option term. Stock options granted in 2007 and later have no dividend equivalent rights except for options granted to Edison International's Board of Directors in 2007. Unless transferred to nonqualified deferral plan accounts, dividend equivalents accumulate without interest. Dividend equivalents are paid in cash after the vesting date. Edison International has discretion to pay certain dividend equivalents in shares of Edison International common stock. 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.
|
|
Years ended December 31, | |||||
|---|---|---|---|---|---|---|
|
|
2010
|
2009
|
2008
|
|||
|
Expected terms (in years) |
7.3 | 7.4 | 7.4 | |||
|
Risk-free interest rate |
2.0% – 3.2% | 2.8% – 3.5% | 2.6% – 3.8% | |||
|
Expected dividend yield |
3.3% – 4.0% | 3.6% – 5.0% | 2.3% – 3.9% | |||
|
Weighted-average expected dividend yield |
3.8% | 4.9% | 2.5% | |||
|
Expected volatility |
18.8% – 19.8% | 20% – 21% | 17% – 19% | |||
|
Weighted-average volatility |
19.8% | 20.6% | 17.3% | |||
The expected term represents the period of time for which the options are expected to be outstanding and is primarily based on historical exercise and post-vesting cancellation experience and stock price history. The risk-free interest rate for periods within the contractual life of the option is based on a zero coupon U.S. Treasury issued STRIPS (separate trading of registered interest and principal of securities) whose maturity equals the option's expected term on the measurement date. Expected volatility is based on the historical volatility of Edison International's common stock for the lesser of 1) the period from January 1, 2003 through the last month-end prior to the grant date or 2) the length of the option's expected term. The volatility period used was 87 months, 84 months and 72 months at December 31, 2010, 2009 and 2008, respectively.
82
The following is a summary of the status of Edison International stock options granted to SCE employees:
|
|
|
Weighted-Average |
|
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Stock
Options |
Exercise
Price |
Remaining
Contractual Term (Years) |
Aggregate
Intrinsic Value |
|||||||||
|
Outstanding at December 31, 2009 |
8,749,015 | $ | 31.91 | ||||||||||
|
Granted |
2,199,716 | $ | 33.38 | ||||||||||
|
Expired |
(10,587 | ) | $ | 49.03 | |||||||||
|
Forfeited |
(145,516 | ) | $ | 31.32 | |||||||||
|
Exercised |
(756,446 | ) | $ | 22.94 | |||||||||
|
Affiliate transfers – net |
28,554 | $ | 36.33 | ||||||||||
|
Outstanding at December 31, 2010 |
10,064,736 | $ | 32.86 | 6.32 | |||||||||
|
Vested and expected to vest at December 31, 2010 |
9,815,717 | $ | 32.88 | 6.26 | 80,399,824 | ||||||||
|
Exercisable at December 31, 2010 |
5,283,358 | $ | 33.30 | 4.55 | 44,826,129 | ||||||||
At December 31, 2010, there was $11 million of total unrecognized compensation cost related to stock options, net of expected forfeitures. That cost is expected to be recognized over a weighted-average period of approximately two years.
A target number of contingent performance shares were awarded to executives in March 2008, March 2009 and March 2010, and vest at the end of December 2010, 2011 and 2012, respectively. Performance shares awarded contain dividend equivalent reinvestment rights. An additional number of target contingent performance shares will be credited based on dividends on Edison International common stock for which the ex-dividend date falls within the performance period. The vesting of Edison International's performance shares is dependent upon a market condition and three years of continuous service subject to a prorated adjustment for employees who are terminated under certain circumstances or retire, but payment cannot be accelerated. The market condition is based on Edison International's total shareholder return relative to the total shareholder return of a specified group of peer companies at the end of a three-calendar-year period. The number of performance shares earned is determined based on Edison International's ranking among these companies. 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. Edison International also has discretion to pay certain dividend equivalents in Edison International common stock. Additionally, cash awards are substituted to the extent necessary to pay tax withholding or any government levies. The portion of performance shares that can be settled in cash is classified as a share-based liability award. The fair value of these shares is remeasured at each reporting period and the related compensation expense is adjusted. The portion of performance shares payable in common stock is classified as a share-based equity award. Compensation expense related to these shares is based on the grant-date fair value. Performance shares expense is recognized ratably over the requisite service period based on the fair values determined, except for awards granted to retirement-eligible participants.
83
The fair value of performance shares is determined using a Monte Carlo simulation valuation model. The Monte Carlo simulation valuation model requires various assumptions noted in the following table.
|
|
Years ended December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
|
|
2010
|
2009
|
2008
|
|||||
|
Equity awards |
||||||||
|
Grant date risk-free interest rate |
1.3% | 1.3% | 3.9% | |||||
|
Grant date expected volatility |
21.6% | 21.4% | 17.4% | |||||
|
Liability awards 1 |
||||||||
|
Expected volatility |
20.6% | 21.9% | 19.2% | |||||
|
Risk-free interest rate: |
||||||||
|
2010 awards |
0.6% | — | — | |||||
|
2009 awards |
0.3% | 1.1% | — | |||||
|
2008 awards |
— | 0.5% | 0.8% | |||||
The risk-free interest rate is based on the daily spot rate on the grant or valuation date on U.S. Treasury zero coupon issue or STRIPS with terms nearest to the remaining term of the performance shares and is used as a proxy for the expected return for the specified group of peer companies. Expected volatility is based on the historical volatility of Edison International's (and the specified group of peer companies') common stock for the most recent 36 months. Historical volatility for each company in the specified group is obtained from a financial data services provider.
At December 31, 2010, there was $2 million (based on the December 31, 2010 fair value of performance shares classified as equity awards) of total unrecognized compensation cost related to performance shares. That cost is expected to be recognized over a weighted-average period of approximately two years.
The following is a summary of the status of Edison International nonvested performance shares:
|
|
Equity Awards | Liability Awards | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Shares
|
Weighted-Average
Grant Date Fair Value |
Shares
|
Weighted-Average
Fair Value |
|||||||||
|
Nonvested at December 31, 2009 |
172,604 | $ | 36.65 | 172,604 | |||||||||
|
Granted |
83,306 | $ | 32.19 | 83,306 | |||||||||
|
Forfeited |
(36,797 | ) | $ | 54.51 | (36,797 | ) | |||||||
|
Affiliate transfers – net |
791 | $ | 41.62 | 791 | |||||||||
|
Nonvested at December 31, 2010 |
219,904 | $ | 32.15 | 219,904 | $ | 37.68 | |||||||
The current portion of nonvested performance shares classified as liability awards is reflected in "Other current liabilities" and the long-term portion is reflected in "Pensions and benefits" on the consolidated balance sheets.
Restricted stock units were awarded to executives in March 2008, March 2009 and March 2010 and vest and become payable in January 2011, 2012 and 2013, respectively. Each restricted stock unit awarded is a contractual right to receive one share of Edison International common stock, if vesting requirements are satisfied. Restricted stock units awarded contain dividend equivalent reinvestment rights. An additional number of restricted stock units will be credited based on dividends on Edison International common stock for which the ex-dividend date falls within the performance period. 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. Vesting is subject to a pro-rated adjustment for employees who
84
are terminated under certain circumstances or retire. Cash awards are substituted to the extent necessary to pay tax withholding or any government levies.
The following is a summary of the status of Edison International nonvested restricted stock units granted to SCE employees:
|
|
Restricted
Stock Units |
Weighted-Average
Grant Date Fair Value |
|||||
|---|---|---|---|---|---|---|---|
|
Nonvested at December 31, 2009 |
238,835 | $ | 32.87 | ||||
|
Granted |
160,684 | 33.38 | |||||
|
Forfeited |
(9,292 | ) | 33.47 | ||||
|
Paid Out |
(5,619 | ) | 37.68 | ||||
|
Affiliate transfers – net |
1,269 | 46.82 | |||||
|
Nonvested at December 31, 2010 |
385,877 | $ | 32.90 | ||||
The fair value for each restricted stock unit awarded is determined as the closing price of Edison International common stock on the grant date.
Compensation expense related to these shares, which is based on the grant-date fair value, is recognized ratably over the requisite service period, except for awards whose holders become eligible for retirement vesting during the service period, in which case recognition is accelerated into the year the holders become eligible for retirement vesting. At December 31, 2010, there was $4 million of total unrecognized compensation cost related to restricted stock units, net of expected forfeitures, which is expected to be recognized as follows: $3 million in 2011 and $1 million in 2012.
85
Supplemental Data on Stock Based Compensation
|
|
Years ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions, except per award amounts)
|
2010
|
2009
|
2008
|
||||||||
|
Stock Based Compensation Expense 1 |
|||||||||||
|
Stock options |
$ | 10 | $ | 8 | $ | 12 | |||||
|
Performance shares |
6 | 3 | — | ||||||||
|
Restricted stock units |
5 | 3 | 2 | ||||||||
|
Other |
6 | 6 | 1 | ||||||||
|
Total stock based compensation expense |
$ | 27 | $ | 20 | $ | 15 | |||||
|
Income tax benefits related to stock compensation expense |
$ | 11 | $ | 8 | $ | 6 | |||||
|
Excess tax benefits 2 |
4 | 7 | 4 | ||||||||
|
Stock options |
|||||||||||
|
Weighted average grant date fair value per option granted |
$ | 4.87 | $ | 3.06 | $ | 10.19 | |||||
|
Fair value of options vested |
11 | 8 | 12 | ||||||||
|
Cash used to purchase shares to settle options |
27 | 9 | 30 | ||||||||
|
Cash from participants to exercise stock options |
18 | 6 | 17 | ||||||||
|
Value of options exercised |
9 | 3 | 13 | ||||||||
|
Tax benefits from options exercised |
4 | 1 | 5 | ||||||||
|
Performance Shares Classified as Equity Awards |
|||||||||||
|
Weighted average grant date fair value per share granted |
$ | 32.19 | $ | 21.56 | $ | 55.55 | |||||
|
Fair value of shares vested |
3 | 1 | 2 | ||||||||
|
Value of shares settled |
— | — | 5 | ||||||||
|
Tax benefits realized from settlement of awards |
— | — | 2 | ||||||||
|
Performance Shares Classified as Liability Awards |
|||||||||||
|
Value of shares settled |
$ | — | $ | — | $ | 6 | |||||
|
Tax benefits realized from settlement of awards |
— | — | 2 | ||||||||
|
Restricted Stock units 3 |
|||||||||||
|
Weighted average grant date fair value per unit granted |
$ | 33.38 | $ | 25.32 | $ | 49.83 | |||||
Note 9. Commitments and Contingencies
Third-Party Power Purchase Agreements
SCE enters into various agreements to purchase power and electric capacity, including:
86
("QFs"). As of December 31, 2010, SCE had 170 QF contracts which expire at various dates between 2011 and 2026.
At December 31, 2010, the undiscounted future expected payments for power purchase agreements that have been approved by the CPUC and have completed major milestones for construction were as follows:
|
(in millions)
|
Renewable
Energy Contracts |
QF Power
Purchase Agreements |
Other Purchase
Agreements |
|||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
2011 |
$ | 340 | $ | 429 | $ | 548 | ||||
|
2012 |
494 | 411 | 616 | |||||||
|
2013 |
568 | 411 | 748 | |||||||
|
2014 |
633 | 410 | 638 | |||||||
|
2015 |
634 | 399 | 468 | |||||||
|
Thereafter |
11,007 | 1,663 | 3,336 | |||||||
|
Total future commitments |
$ | 13,676 | $ | 3,723 | $ | 6,354 | ||||
Some of the power purchase agreements that SCE entered into with independent power producers are treated as operating and capital leases. The following table shows the future fixed capacity payments due under the contracts that are treated as operating and capital leases (these amounts are also included in the table above). The fixed capacity payments for capital leases are discounted to their present value in the table below using SCE's incremental borrowing rate at the inception of the leases. The amount of this discount is shown in the table below as the amount representing interest.
|
(in millions)
|
Operating
Leases |
Capital
Leases |
|||||
|---|---|---|---|---|---|---|---|
|
2011 |
$ | 740 | $ | 33 | |||
|
2012 |
717 | 71 | |||||
|
2013 |
761 | 131 | |||||
|
2014 |
708 | 153 | |||||
|
2015 |
693 | 154 | |||||
|
Thereafter |
8,741 | 2,479 | |||||
|
Total future commitments |
$ | 12,360 | $ | 3,021 | |||
|
Amount representing executory costs |
(628 | ) | |||||
|
Amount representing interest |
(1,168 | ) | |||||
|
Net commitments |
$ | 1,225 | |||||
Operating lease expense for these power purchase agreements was $350 million in 2010, $358 million in 2009 and $328 million in 2008. The timing of SCE's recognition of the lease expense conforms to ratemaking treatment for SCE's recovery of the cost of electricity. The amounts above do not include payments related to CDWR purchases for the benefit of SCE's customers, as SCE is acting as an agent for the CDWR.
At December 31, 2010 and 2009, net capital leases reflected in "Utility plant" on the consolidated balance sheets were $227 million and $235 million, including amortization of $22 million and $13 million, respectively. SCE had $5 million and $8 million included in "Other current liabilities" and $222 million and $227 million included in "Other deferred credits and other liabilities," representing the present value of the fixed capacity payments due under these contracts recorded on the consolidated balance sheets at December 31, 2010 and 2009, respectively.
87
Both capital and operating leases have varying terms, provisions and expiration dates. The contingent rentals for capital leases were less than $1 million for both 2010 and 2009.
The following summarizes the estimated minimum future commitments for noncancelable other operating leases (excluding power purchase agreements discussed above):
|
(in millions)
|
Operating
Leases – Other |
|||
|---|---|---|---|---|
|
2011 |
$ | 61 | ||
|
2012 |
60 | |||
|
2013 |
56 | |||
|
2014 |
51 | |||
|
2015 |
45 | |||
|
Thereafter |
255 | |||
|
Total future commitments |
$ | 528 | ||
Operating lease expense for other leases (primarily related to vehicles, office space and other equipment) were $62 million in 2010, $47 million in 2009 and $47 million in 2008. Operating leases have varying terms, provisions and expiration dates.
Nuclear Decommissioning Commitment
SCE has collected in rates amounts for the future costs of removal of its nuclear assets, and has placed those amounts in independent trusts. The recorded liability to decommission SCE's nuclear power facilities is $2.4 billion as of December 31, 2010, based on site-specific studies performed in 2008 for San Onofre and 2007 for Palo Verde. Changes in the estimated costs, timing of decommissioning or the assumptions underlying these estimates could cause material revisions to the estimated total cost to decommission. SCE estimates that it will spend approximately $8.6 billion through 2053 to decommission its active nuclear facilities. This estimate is based on SCE's decommissioning cost methodology used for ratemaking purposes, escalated at rates ranging from 1.8% to 6.9% (depending on the cost element) annually. These costs are expected to be funded from independent decommissioning trusts, which currently receive contributions of approximately $23 million per year. Contributions received in prior years were approximately $46 million. SCE estimates annual after-tax earnings on the decommissioning funds of 4.2% to 5.7%. If the assumed return on trust assets is not earned, it is probable that additional funds needed for decommissioning will be recoverable through rates in the future. If the assumed return on trust assets is greater than estimated, funding amounts may be reduced through future decommissioning proceedings.
All of SCE's San Onofre Unit 1 decommissioning costs will be paid from its nuclear decommissioning trust funds and are subject to CPUC review. The estimated remaining cost to decommission San Onofre Unit 1 is recorded as an ARO liability of $63 million at December 31, 2010. Total expenditures for the decommissioning of San Onofre Unit 1 were $596 million from the beginning of the project in 1998 through December 31, 2010.
Decommissioning expense under the ratemaking method was $30 million in 2010 and $46 million in both 2009 and 2008. The ARO for decommissioning SCE's active nuclear facilities was $2.4 billion and $3.1 billion at December 31, 2010 and 2009, respectively. See Note 4 and Note 15 for discussion on the nuclear decommissioning trusts.
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Certain other commitments for the years 2011 through 2015 are estimated below:
|
(in millions)
|
2011
|
2012
|
2013
|
2014
|
2015
|
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Fuel supply contracts |
$ | 260 | $ | 178 | $ | 189 | $ | 143 | $ | 166 | ||||||
|
Other contractual obligations |
5 | 7 | 7 | 7 | 7 | |||||||||||
SCE has fuel supply contracts which require payment only if the fuel is made available for purchase. SCE has a coal fuel contract that requires payment of certain fixed charges whether or not coal is delivered.
Indemnity Provided as Part of the Acquisition of Mountainview
In connection with the acquisition of the Mountainview power plant, SCE agreed to indemnify the seller with respect to specific environmental claims related to SCE's previously owned San Bernardino Generating Station, divested by SCE in 1998 and reacquired as part of the Mountainview acquisition. SCE retained certain responsibilities with respect to environmental claims as part of the original divestiture of the station. The aggregate liability for either party to the purchase agreement for damages and other amounts is a maximum of $60 million. This indemnification for environmental liabilities expires on or before March 12, 2033. SCE has not recorded a liability related to this indemnity.
Mountainview Filter Cake Indemnity
The Mountainview power plant utilizes water from on-site groundwater wells and City of Redlands ("City") recycled water for cooling purposes. Unrelated to the operation of the plant, the groundwater contains perchlorate. The pumping of the water removes perchlorate from the aquifer beneath the plant and concentrates it in the plant's wastewater treatment "filter cake." Use of this impacted groundwater for cooling purposes was mandated by Mountainview's California Energy Commission permit. SCE has indemnified the City for cleanup or associated actions related to groundwater contaminated by perchlorate due to the disposal of filter cake at the City's solid waste landfill. The obligations under this agreement are not limited to a specific time period or subject to a maximum liability. SCE has not recorded a liability related to this indemnity.
SCE provides other indemnifications through contracts entered into in the normal course of business. These are primarily indemnifications against adverse litigation outcomes in connection with underwriting agreements, and specified environmental indemnities and income taxes with respect to assets sold. SCE's obligations under these agreements may be limited in terms of time and/or amount, and in some instances SCE may have recourse against third parties for certain indemnities. The obligated amounts of these indemnifications often are not explicitly stated, and the overall maximum amount of the obligation under these indemnifications cannot be reasonably estimated. SCE has not recorded a liability related to these indemnities.
In addition to the matters disclosed in these Notes, SCE is involved in other legal, tax and regulatory proceedings before various courts and governmental agencies regarding matters arising in the ordinary course of business. SCE believes the outcome of these other proceedings will not materially affect its results of operations or liquidity.
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The Navajo Nation filed a complaint in June 1999 against SCE, among other defendants, arising out of the coal supply agreement for Mohave. Subsequently, the Hopi Tribe was added as an additional plaintiff. As amended in April 2010, the Navajo Nation's complaint asserts claims for, among other things, interference with fiduciary duties and contractual relations, fraudulent misrepresentations by nondisclosure, and various contract-related claims. The complaint claims that the defendants' actions prevented the Navajo Nation from obtaining the full value in royalty rates for the coal supplied to Mohave. The complaint seeks damages of not less than $600 million, plus interest thereon, and punitive damages of not less than $1 billion. No trial date has been set for this litigation. In April 2009, in a related case filed in December 1993 against the U.S. Government, the U.S. Supreme Court found that the Navajo Nation did not have a claim for compensation. In October 2010, the Hopi Tribe settled all of its claims and the remaining parties agreed to engage in mediation. SCE cannot predict the outcome of the Navajo Nation's complaint against SCE.
SCE records its environmental remediation liabilities when site assessments and/or remedial actions are probable and a range of reasonably likely cleanup costs can be estimated. SCE reviews its sites and measures the liability quarterly, by assessing a range of reasonably likely costs for each identified site using currently available information, including existing technology, presently enacted laws and regulations, experience gained at similar sites, and the probable level of involvement and financial condition of other potentially responsible parties. These estimates include costs for site investigations, remediation, operations and maintenance, monitoring and site closure. Unless there is a probable amount, SCE records the lower end of this reasonably likely range of costs (reflected in "Other long-term liabilities") at undiscounted amounts as timing of cash flows is uncertain.
As of December 31, 2010, SCE's recorded estimated minimum liability to remediate its 23 identified material sites (sites in which the upper end of the range of costs is at least $1 million) was $50 million, of which $20 million was related to San Onofre. In addition to its identified material sites SCE also has 34 immaterial sites for which the total recorded liability was $4 million. The ultimate costs to clean up SCE's identified sites may vary from its recorded liability due to numerous uncertainties inherent in the estimation process, such as: the extent and nature of contamination; the scarcity of reliable data for identified sites; the varying costs of alternative cleanup methods; developments resulting from investigatory studies; the possibility of identifying additional sites; and the time periods over which site remediation is expected to occur. SCE believes that, due to these uncertainties, it is reasonably possible that cleanup costs at these identified material sites and immaterial sites could exceed its recorded liability by up to $200 million and $7 million, respectively. The upper limit of this range of costs was estimated using assumptions least favorable to SCE among a range of reasonably possible outcomes.
The CPUC allows SCE to recover 90% of its environmental remediation costs at certain sites, representing $29 million of its recorded liability, through an incentive mechanism (SCE may request to include additional sites). Under this mechanism, SCE recovers 90% of cleanup costs through customer rates; shareholders fund the remaining 10%, with the opportunity to recover these costs from insurance carriers and other third parties. SCE has successfully settled insurance claims with all responsible carriers. SCE expects to recover costs incurred at its remaining sites through customer rates. SCE has recorded a regulatory asset of $51 million for its estimated minimum environmental cleanup costs expected to be recovered through customer rates.
SCE's identified sites include several sites for which there is a lack of currently available information, including the nature and magnitude of contamination and the extent, if any, that SCE may be held responsible for contributing to any costs incurred for remediating these sites. Thus, no reasonable estimate of cleanup costs can be made for these sites.
SCE expects to clean up its identified sites over a period of up to 30 years. Remediation costs in each of the next several years are expected to range from $3 million to $18 million. Recorded costs were
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$17 million, $11 million and $29 million for the years ended December 31, 2010, 2009 and 2008, respectively.
Based on currently available information, SCE believes it is unlikely that it will incur amounts in excess of the upper limit of the estimated range for its identified sites and, based upon the CPUC's regulatory treatment of environmental remediation costs, SCE believes that costs ultimately recorded will not materially affect its results of operations, financial position or cash flows. There can be no assurance, however, that future developments, including additional information about existing sites or the identification of new sites, will not require material revisions to such estimates.
In February 2011, the FERC approved a settlement agreement in SCE's 2010 FERC rate case that provides a FERC retail base revenue requirement of $490 million, an increase of $42 million, or 9.4%, over the 2009 FERC base revenue requirement. The increased revenue requirement is primarily due to an increase in transmission capital investments and will be retroactive to March 1, 2010. As of December 31, 2010, SCE had collected revenue, subject to refund, of $58 million that will be refunded to ratepayers. SCE did not previously recognize revenue for the amount that will be refunded.
Federal law limits public liability claims from a nuclear incident to the amount of available financial protection, which is currently approximately $12.6 billion. SCE and other owners of San Onofre and Palo Verde have purchased the maximum private primary insurance available ($375 million). The balance is covered by a loss sharing program among nuclear reactor licensees. If a nuclear incident at any licensed reactor in the United States results in claims and/or costs which exceed the primary insurance at that plant site, all nuclear reactor licensees could be required to contribute their share of the liability in the form of a deferred premium.
Based on its ownership interests, SCE could be required to pay a maximum of approximately $235 million per nuclear incident. However, it would have to pay no more than approximately $35 million per incident in any one year. If the public liability limit above is insufficient, federal law contemplates that additional funds may be appropriated by Congress. This could include an additional assessment on all licensed reactor operators as a measure for raising further federal revenue.
Property damage insurance covers losses up to $500 million, including decontamination costs, at San Onofre and Palo Verde. Decontamination liability and property damage coverage exceeding the primary $500 million also has been purchased in amounts greater than federal requirements. Additional insurance covers part of replacement power expenses during an accident-related nuclear unit outage. A mutual insurance company owned by entities with nuclear facilities issues these policies. If losses at any nuclear facility covered by the arrangement were to exceed the accumulated funds for these insurance programs, SCE could be assessed retrospective premium adjustments of up to approximately $43 million per year. Insurance premiums are charged to operating expense.
Under federal law, the Department of Energy ("DOE") is responsible for the selection and construction of a facility for the permanent disposal of spent nuclear fuel and high-level radioactive waste. The DOE did not meet its contractual obligation to begin acceptance of spent nuclear fuel by January 31, 1998. Extended delays by the DOE have led to the construction of costly alternatives and associated siting and environmental issues. Currently, both San Onofre and Palo Verde have interim storage for spent nuclear fuel on site sufficient for the current license period.
In January 2004, SCE, as operating agent of San Onofre, filed a complaint against the DOE in the United States Court of Federal Claims seeking damages for the DOE's failure to meet its obligation to begin accepting spent nuclear fuel from San Onofre. In June 2010, the United States Court of Federal Claims
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issued a decision granting SCE damages of approximately $142 million to recover costs incurred through December 31, 2005, which has been appealed by the DOE. Additional legal action would be necessary to recover damages incurred after that date. Any damages recovered would be returned to SCE ratepayers or used to offset past or future fuel decommissioning or storage costs for the benefit of ratepayers.
Note 10. Regulatory and Environmental Developments
Severe wildfires in California have given rise to large damage claims against California utilities for fire-related losses alleged to be the result of the failure of electric and other utility equipment. Invoking a California Court of Appeal decision, plaintiffs pursuing these claims have relied on the doctrine of inverse condemnation, which can impose strict liability (including liability for a claimant's attorneys' fees) for property damage. On September 1, 2010, SCE's parent, Edison International, renewed its insurance coverage, which included coverage for SCE's wildfire liabilities up to a $610 million limit (with an increased self-insured retention of $10 million per wildfire occurrence). Various coverage limitations within the policies that make up the insurance coverage could result in additional self-insured costs in the event of multiple wildfire occurrences during the policy period (September 1, 2010 to August 31, 2011). SCE may experience coverage reductions and/or increased insurance costs in future years. No assurance can be given that future losses will not exceed the limits of SCE's insurance coverage.
SCE is subject to numerous environmental laws and regulations, which typically require a lengthy and complex process for obtaining licenses, permits and approvals and require it to incur substantial costs to operate existing facilities, construct and operate new facilities, and mitigate the environmental impact of past operations.
Possible developments, such as the enactment of more stringent environmental laws and regulations, proceedings that may be initiated by environmental and other regulatory authorities, cases in which new theories of liability are recognized, and settlements agreed to by other companies that establish precedent or expectations for the power industry, could affect the costs and the manner in which business is conducted, and could cause substantial additional capital expenditures or operational expenditures or the ceasing of operations at certain facilities. There is no assurance that any additional costs arising from such developments would be recovered from customers or that SCE's financial position, results of operations and cash flows would not be materially affected by these developments.
There have been a number of federal and state legislative and regulatory initiatives to reduce greenhouse gas ("GHG") emissions. Any climate change regulation or other legal obligation that would require substantial reductions in GHG emissions or that would impose additional costs or charges for GHG emissions could significantly increase the cost of generating electricity from fossil fuels as well as the cost of purchased power, which could adversely affect SCE's business. In the case of utilities, like SCE, these costs are generally borne by customers.
Significant developments include the following:
92
existing generating plants. However, regulation of GHG emissions pursuant to this program could affect efforts to modify SCE's facilities in the future, and could subject new capital projects to additional permitting and pollution control requirements that could delay such projects.
Regulations under the federal Clean Water Act govern critical parameters at generating facilities, such as the temperature of effluent discharges and the location, design, and construction of cooling water intake structures at generating facilities. The US EPA is rewriting these regulations following a 2009 U.S. Supreme Court decision that held that the US EPA may consider, but is not required to use, a cost-benefit analysis for this purpose. The Supreme Court set a deadline of March 2011 for draft regulations, which are to be finalized by July 2011. The new regulations will not allow the use of restoration to achieve compliance, but it is unknown whether they will use a cost-benefit analysis for determining the best technology available for compliance.
A new rule could have a material impact on SCE's operations but SCE cannot determine the financial impact until the final compliance criteria have been published. Significant capital expenditures may be required.
California has a US EPA-approved program to issue individual or group (general) permits for the regulation of Clean Water Act discharges. California also regulates certain discharges not regulated by the US EPA. In May 2010, the California State Water Resources Board issued a final policy, which establishes closed-cycle wet cooling as required technology for retrofitting existing once-through cooled plants like San Onofre and many of the existing fossil-fueled power plants along the California coast. The final policy, which took effect on October 1, 2010, requires an independent engineering study to be completed prior to the fourth quarter of 2013 regarding the feasibility of compliance by California's two coastal nuclear power plants. Depending on the results of the study, the required compliance may result in significant capital expenditures at San Onofre and may affect its operations. The policy could adversely affect California's nineteen once-through cooled power plants, which provide over 21,000 MW of combined, in-state generation capacity, including over 9,100 MW of capacity interconnected within SCE's service territory. The policy may also significantly impact SCE's ability to procure generating capacity from fossil-fueled plants that use ocean water in once-through cooling systems, system reliability and the cost of electricity to the extent other coastal power plants in California are forced to shut down or limit operations.
93
Note 11. Accumulated Other Comprehensive Loss
SCE's accumulated other comprehensive income consists of:
|
(in millions)
|
Pension
and PBOP – Net Loss |
Pension and
PBOP – Prior Service Cost |
Accumulated
Other Comprehensive Loss |
|||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
Balance at December 31, 2008 |
$ | (13 | ) | $ | (1 | ) | $ | (14 | ) | |
|
Change for 2009 |
(5 | ) | — | (5 | ) | |||||
|
Balance at December 31, 2009 |
(18 | ) | (1 | ) | (19 | ) | ||||
|
Change for 2010 |
(7 | ) | 1 | (6 | ) | |||||
|
Balance at December 31, 2010 |
$ | (25 | ) | $ | — | $ | (25 | ) | ||
Note 12. Supplemental Cash Flows Information
SCE's supplemental cash flows information is:
|
|
Years ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
2010
|
2009
|
2008
|
|||||||||
|
Cash payments(receipts) for interest and taxes: |
||||||||||||
|
Interest – net of amounts capitalized |
$ | 369 | $ | 352 | $ | 303 | ||||||
|
Tax payments (refunds) – net |
(127 | ) | (658 | ) | 251 | |||||||
|
Noncash investing and financing activities: |
||||||||||||
|
Details of debt exchange: |
||||||||||||
|
Pollution-control bonds redeemed |
$ | (378 | ) | $ | — | $ | — | |||||
|
Pollution-control bonds issued |
378 | — | — | |||||||||
|
Details of capital lease obligations: |
||||||||||||
|
Capital lease purchased |
$ | — | $ | (223 | ) | $ | — | |||||
|
Capital lease obligation issued |
— | 223 | — | |||||||||
|
Deconsolidation of variable interest entities: |
||||||||||||
|
Assets other than cash |
$ | 306 | $ | — | $ | — | ||||||
|
Liabilities and noncontrolling interests |
(398 | ) | — | — | ||||||||
|
Dividends declared but not paid: |
||||||||||||
|
Common stock |
$ | — | $ | 100 | $ | 100 | ||||||
|
Preferred and preference stock |
13 | 13 | 13 | |||||||||
Note 13. Preferred and Preference Stock
SCE's authorized shares are: $100 cumulative preferred – 12 million shares $25 cumulative preferred – 24 million shares and preference with no par value – 50 million shares. SCE's outstanding shares are not subject to mandatory redemption. There are no dividends in arrears for the preferred stock or preference shares. Shares of SCE's preferred stock have liquidation and dividend preferences over shares of SCE's common stock and preference stock. All cumulative preferred stock is redeemable. When preferred shares are redeemed, the premiums paid, if any, are charged to common equity. No preferred stock was issued or redeemed in the years ended December 31, 2010 and 2009. There is no sinking fund requirement for redemptions or repurchases of preferred stock.
Shares of SCE's preference stock rank junior to all of the preferred stock and senior to all common stock. Shares of SCE's preference stock are not convertible into shares of any other class or series of SCE's capital stock or any other security. The preference shares are noncumulative and have a $100 liquidation value. There is no sinking fund for the redemption or repurchase of preference stock.
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Preferred stock and preference stock is:
The Series A and B preference stock were issued in 2005 and the Series C preference stock was issued in 2006. SCE may, at its option, redeem the Series A, B, or C preference stock in whole or in part. No preference stock was redeemed in the last three years.
At December 31, 2010 accrued dividends related to SCE's preferred and preference stock were $13 million.
Note 14. Regulatory Assets and Liabilities
Included in SCE's regulatory assets and liabilities are regulatory balancing accounts. Sales balancing accounts accumulate differences between recorded electric utility revenue and revenue SCE is authorized to collect through rates. Cost balancing accounts accumulate differences between recorded costs and costs SCE is authorized to recover through rates. Under-collections are recorded as regulatory balancing account assets. Over-collections are recorded as regulatory balancing account liabilities. SCE's regulatory balancing accounts accumulate balances until they are refunded to or received from SCE's customers through authorized rate adjustments. Primarily all of SCE's balancing accounts can be classified as one of the following types: generation-revenue related, distribution-revenue related, generation-cost related, distribution-cost related, transmission-cost related or public purpose and other cost related.
Balancing account under-collections and over-collections accrue interest based on a three-month commercial paper rate published by the Federal Reserve.
Amounts included in regulatory assets and liabilities are generally recorded with corresponding offsets to the applicable income statement accounts.
95
Regulatory assets included on the consolidated balance sheets are:
|
|
December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
2010
|
2009
|
||||||
|
Current: |
||||||||
|
Regulatory balancing accounts |
$ | 213 | $ | 94 | ||||
|
Energy derivatives |
162 | 25 | ||||||
|
Other |
3 | 1 | ||||||
|
|
378 | 120 | ||||||
|
Long-term: |
||||||||
|
Deferred income taxes – net |
1,855 | 1,561 | ||||||
|
Pensions and other postretirement benefits |
1,097 | 1,014 | ||||||
|
Unamortized generation investment – net |
355 | 413 | ||||||
|
Unamortized loss on reacquired debt |
268 | 287 | ||||||
|
Energy derivatives |
177 | 357 | ||||||
|
Nuclear-related ARO investment – net |
154 | 258 | ||||||
|
Unamortized distribution investment – net |
105 | — | ||||||
|
Regulatory balancing accounts |
56 | 43 | ||||||
|
Other |
280 | 206 | ||||||
|
|
4,347 | 4,139 | ||||||
|
Total Regulatory Assets |
$ | 4,725 | $ | 4,259 | ||||
SCE's regulatory assets related to energy derivatives are primarily an offset to unrealized losses on derivatives. Based on current regulatory ratemaking and income tax laws, SCE expects to recover its net regulatory assets related to income taxes over the life of the assets that give rise to the accumulated deferred income taxes. SCE's regulatory assets related to pensions and other post-retirement plans represents the recoverable portion of the additional amounts recorded in accordance with authoritative guidance on accounting for pensions and post-retirement plans (see "Pension Plans and Postretirement Benefits Other than Pensions" discussion in Note 8). This amount will be recovered through rates charged to customers. SCE's unamortized generation investment includes nuclear assets related to San Onofre which are expected to be recovered by 2022, nuclear assets related to Palo Verde which are expected to be recovered by 2027 and SCE's unamortized coal plant investment which is being recovered through June 2016. Unamortized distribution investment includes legacy meters retired as part of the EdisonSmartConnect™ program which are expected to be recovered by 2025. Although SCE's unamortized generation and distribution investments are classified as regulatory assets on the consolidated balance sheets, they continue to be a component of rate base and earned an 8.75% return in both 2010 and 2009. SCE's net regulatory asset related to its unamortized loss on reacquired debt will be recovered over the remaining original amortization period of the reacquired debt over periods ranging from one year to 28 years.
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Regulatory liabilities included on the consolidated balance sheets are:
|
|
December 31, | ||||||
|---|---|---|---|---|---|---|---|
|
(in millions)
|
2010
|
2009
|
|||||
|
Current: |
|||||||
|
Regulatory balancing accounts |
$ | 733 | $ | 363 | |||
|
Other |
5 | 4 | |||||
|
|
738 | 367 | |||||
|
Long-term: |
|||||||
|
Costs of removal |
2,623 | 2,515 | |||||
|
ARO |
1,099 | 171 | |||||
|
Regulatory balancing accounts |
802 | 642 | |||||
|
|
4,524 | 3,328 | |||||
|
Total Regulatory Liabilities |
$ | 5,262 | $ | 3,695 | |||
SCE's regulatory liability related to the ARO represents timing differences between the ARO and the assets of the nuclear decommissioning trust. The balance varies due to changes in the ARO as well as nuclear decommissioning trust investment activities. SCE's regulatory liabilities related to costs of removal represent operating revenue collected for asset removal costs that SCE expects to incur in the future. These balances will be returned to ratepayers in a future ratemaking proceeding, be charged against expense to the extent that future expenses exceed amounts recoverable through the ratemaking process, or be applied as otherwise directed by the CPUC.
Nuclear Decommissioning Trusts
Future nuclear decommissioning costs of removal of nuclear assets are expected to be funded from independent decommissioning trusts, which currently receive contributions of approximately $23 million per year included in SCE customer rates. Contributions to the decommissioning trusts are reviewed every three years by the CPUC. If additional funds are needed for decommissioning, it is probable that the additional funds will be recoverable through customer rates. Funds collected, together with accumulated earnings, will be utilized solely for decommissioning. The CPUC has set certain restrictions related to the investments of these trusts.
The following table sets forth amortized cost and fair value of the trust investments:
|
|
|
Amortized Cost
|
Fair Value
|
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
||||||||||||||
|
|
Longest Maturity
|
December 31,
|
December 31,
|
||||||||||||
|
(in millions)
|
Dates
|
2010
|
2009
|
2010
|
2009
|
||||||||||
|
Stocks |
– | $ | 895 | $ | 822 | $ | 2,029 | $ | 1,772 | ||||||
|
Municipal bonds |
2049 | 706 | 545 | 790 | 634 | ||||||||||
|
Corporate bonds |
2044 | 288 | 309 | 346 | 393 | ||||||||||
|
U.S. government and agency securities |
2040 | 270 | 287 | 288 | 308 | ||||||||||
|
Short-term investments and receivables/payables |
One-year | 26 | 33 | 27 | 33 | ||||||||||
|
Total |
$ | 2,185 | $ | 1,996 | $ | 3,480 | $ | 3,140 | |||||||
Trust fund earnings (based on specific identification) increase the trust fund balance and the ARO regulatory liability. Proceeds from sales of securities (which are reinvested) were $1.4 billion, $2.2 billion and $3.1 billion for the years ended December 31, 2010, 2009 and 2008, respectively. Unrealized holding
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gains, net of losses, were $1.3 billion and $1.1 billion at December 31, 2010 and 2009, respectively. Approximately 92% of the cumulative trust fund contributions were tax-deductible.
The following table sets forth a summary of changes in the fair value of the trust for the years ended December 31:
|
(in millions)
|
2010
|
2009
|
2008
|
|||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
Balance at beginning of period |
$ | 3,140 | $ | 2,524 | $ | 3,378 | ||||
|
Realized gains (losses) – net |
121 | 95 | (65 | ) | ||||||
|
Unrealized gains (losses) – net |
148 | 526 | (545 | ) | ||||||
|
Other-than-temporary impairments |
(27 | ) | (111 | ) | (317 | ) | ||||
|
Interest, dividends, contributions and other |
98 | 106 | 73 | |||||||
|
Balance at end of period |
$ | 3,480 | $ | 3,140 | $ | 2,524 | ||||
Due to regulatory mechanisms, earnings and realized gains and losses (including other-than-temporary impairments) have no impact on operating revenue or earnings.
Note 16. Other Income and Expenses
Other income and expenses are as follows:
|
|
Years ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
2010
|
2009
|
2008
|
||||||||
|
Other income: |
|||||||||||
|
Equity AFUDC |
$ | 100 | $ | 116 | $ | 54 | |||||
|
Increase in cash surrender value of life insurance policies |
25 | 23 | 24 | ||||||||
|
Energy settlement |
5 | 9 | 3 | ||||||||
|
Other |
11 | 12 | 20 | ||||||||
|
Total other income |
$ | 141 | $ | 160 | $ | 101 | |||||
|
Other expenses: |
|||||||||||
|
Penalties |
$ | — | $ | — | $ | 59 | |||||
|
Civic, political and related activities and donations |
28 | 28 | 34 | ||||||||
|
Marketing services |
7 | 11 | 11 | ||||||||
|
Other |
16 | 10 | 19 | ||||||||
|
Total other expenses |
$ | 51 | $ | 49 | $ | 123 | |||||
During 2009, the CPUC and FERC authorized the transfer of the Mountainview power plant to utility rate base which resulted in a one time, non-cash accounting benefit of approximately $46 million. This non-cash accounting benefit primarily resulted from the establishment of regulatory assets to recognize $50 million in differences in the accounting treatment for non-regulated and rate-regulated entities mainly related to equity AFUDC. There was no economic impact to customers from this change as compared to the FERC-approved power-purchase agreement. The transfer resulted in a $603 million increase in SCE's utility property, plant and equipment.
The 2008 penalty primarily resulted from a CPUC decision in September 2008 related to SCE incentives claimed under a CPUC-approved PBR mechanism.
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Note 17. Quarterly Financial Data (Unaudited)
|
(in millions)
|
Total
|
Fourth
|
Third
|
Second
|
First
|
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 | |||||||||||||||
|
Operating revenue |
$ | 9,983 | $ | 2,479 | $ | 3,098 | $ | 2,247 | $ | 2,159 | ||||||
|
Operating income |
1,864 | 383 | 696 | 404 | 380 | |||||||||||
|
Net income |
1,092 | 194 | 407 | 314 | 177 | |||||||||||
|
Net income available for common stock |
1,040 | 181 | 394 | 301 | 164 | |||||||||||
|
Common dividends declared |
200 | 100 | 100 | — | — | |||||||||||
|
|
2009 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Operating revenue |
$ | 9,965 | $ | 2,434 | $ | 3,069 | $ | 2,273 | $ | 2,189 | ||||||
|
Operating income |
1,918 | 361 | 696 | 423 | 441 | |||||||||||
|
Net income |
1,371 | 189 | 415 | 534 | 233 | |||||||||||
|
Net income available for common stock |
1,226 | 172 | 346 | 499 | 208 | |||||||||||
|
Common dividends declared |
300 | 100 | 100 | 100 | — | |||||||||||
Due to the seasonal nature of SCE's business, a significant amount of revenue and earnings are recorded in the third quarter of each year. As a result of rounding, the total of the four quarters does not always equal the amount for the year. SCE recorded after-tax earnings benefits of $53 million and $42 million in the second and third quarters of 2010, respectively, and recorded after-tax earnings benefits of $300 million and $6 million in the second and fourth quarters of 2009, respectively, related to the Global Settlement.
99
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
SCE's management, under the supervision and with the participation of the company's President and Chief Financial Officer, has evaluated the effectiveness of SCE's disclosure controls and procedures (as that term is defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the President and Chief Financial Officer concluded that, as of the end of the period, SCE's disclosure and procedures were effective.
Management's Report on Internal Control Over Financial Reporting
SCE's management is responsible for establishing and maintaining adequate internal control over financial reporting (as that term is defined in Rule 13a-15(f) under the Exchange Act) for SCE. Under the supervision and with the participation of its President and Chief Financial Officer, SCE's management conducted an evaluation of the effectiveness of SCE's internal control over financial reporting based on the framework set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its evaluation under the COSO framework, SCE's management concluded that SCE's internal control over financial reporting was effective as of December 31, 2010.
Change in Internal Control Over Financial Reporting
There were no changes in SCE's internal control over financial reporting during the quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, SCE's internal control over financial reporting.
SCE's scope of evaluation of internal control over financial reporting includes its Jointly Owned Utility Projects.
On February 24, 2011, the SCE Board of Directors elected Russell C. Swartz as Senior Vice President and General Counsel. Stephen E. Pickett, who had served as SCE's General Counsel from January 2002 to February 2011, will continue as Executive Vice President, External Relations at SCE.
100
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information concerning executive officers of SCE is set forth in Part I in accordance with General Instruction G(3), pursuant to Instruction 3 to Item 401(b) of Regulation S-K. Other information responding to Item 10 will appear in SCE's definitive Proxy Statement to be filed with the SEC in connection with SCE's Annual Shareholders' Meeting to be held on April 28, 2011, under the headings "Item 1: Election of Directors," "Board Committees," and "Corporate Governance–Q: Which Director nominees has the Board determined are independent?" and is incorporated herein by this reference.
The Edison International Ethics and Compliance Code is applicable to all Directors, officers and employees of Edison International and its majority-owned subsidiaries, including SCE. The Code is available on Edison International's Internet website at www.edisonethics.com. Any amendments or waivers of Code provisions for SCE's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, will be posted on Edison International's Internet website at www.edisonethics.com.
ITEM 11. EXECUTIVE COMPENSATION
Information responding to Item 11 will appear in the Proxy Statement under the headings "Compensation Discussion and Analysis," "Compensation Committee Report," "Compensation Committee Interlocks and Insider Participation," "Summary Compensation Table," "Grants of Plan-Based Awards," "Outstanding Equity Awards at Fiscal Year-End," "Option Exercises and Stock Vested," "Pension Benefits," "Non-Qualified Deferred Compensation," "Potential Payments Upon Termination or Change in Control," and "Director Compensation," and is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information responding to Item 12 will appear in the Proxy Statement under the headings "Stock Ownership of Director Nominees and Executive Officers" and "Stock Ownership of Certain Shareholders," and is incorporated herein by this reference.
Item 201(d) of Regulation S-K, "Securities Authorized For Issuance Under Equity Compensation Plans," is not applicable because SCE has no compensation plans under which equity securities of SCE are authorized for issuance.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information responding to Item 13 will appear in the Proxy Statement under the headings "Certain Relationships and Related Transactions," and "Corporate Governance–Q: Is SCE subject to the same corporate governance stock exchange listing standards as EIX?,–Q: How does the Board determine which Directors are considered independent?–Q: Which Director nominees has the Board determined are independent?" and "Where can I find the Company's corporate governance documents?" and is incorporated herein by this reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information responding to Item 14 will appear in the Proxy Statement under the heading "Independent Registered Public Accounting Firm Fees," and is incorporated herein by this reference.
101
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
See Index to Consolidated Financial Statements in Item 8 of this report.
(a)(2) Report of Independent Registered Public Accounting Firm and Schedules Supplementing Financial Statements
|
|
Page
|
|
|---|---|---|
|
Schedule II – Valuation and Qualifying Accounts |
103 |
Schedules I and III through V, inclusive, are omitted as not required or not applicable.
(a)(3) Exhibits
See Exhibit Index beginning on page 106 of this report.
SCE will furnish a copy of any exhibit listed in the accompanying Exhibit Index upon written request and upon payment to SCE of its reasonable expenses of furnishing such exhibit, which shall be limited to photocopying charges and, if mailed to the requesting party, the cost of first-class postage.
102
Southern California Edison Company
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
|
|
|
Additions |
|
|
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
Balance at
Beginning of Period |
Charged to
Costs and Expenses |
Charged to
Other Accounts |
Deductions
|
Balance at
End of Period |
||||||||||||
|
For the Year ended December 31, 2010 |
|||||||||||||||||
|
Uncollectible accounts |
|||||||||||||||||
|
Customers |
$ | 33.9 | $ | 27.0 | $ | — | $ | 24.8 | $ | 36.1 | |||||||
|
All others |
19.0 | 14.8 | 22.8 | 7.2 | 49.4 | ||||||||||||
|
Total |
$ | 52.9 | $ | 41.8 | $ | 22.8 | $ | 32.0 | a | $ | 85.5 | ||||||
|
For the Year ended December 31, 2009 |
|||||||||||||||||
|
Uncollectible accounts |
|||||||||||||||||
|
Customers |
$ | 28.4 | $ | 28.7 | $ | — | $ | 23.2 | $ | 33.9 | |||||||
|
All others |
10.3 | 20.6 | — | 11.9 | 19.0 | ||||||||||||
|
Total |
$ | 38.7 | $ | 49.3 | $ | — | $ | 35.1 | a | $ | 52.9 | ||||||
|
For the Year ended December 31, 2008 |
|||||||||||||||||
|
Uncollectible accounts |
|||||||||||||||||
|
Customers |
$ | 20.6 | $ | 28.7 | $ | — | $ | 20.9 | $ | 28.4 | |||||||
|
All others |
13.9 | 8.2 | — | 11.8 | 10.3 | ||||||||||||
|
Total |
$ | 34.5 | $ | 36.9 | $ | — | $ | 32.7 | a | $ | 38.7 | ||||||
103
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
||
|---|---|---|---|---|
| SOUTHERN CALIFORNIA EDISON COMPANY | ||||
|
|
|
By: |
|
/s/ Chris C. Dominski Chris C. Dominski Vice President and Controller (Duly Authorized Officer and Principal Accounting Officer) |
Date: February 28, 2011
104
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
|
Signature
|
Title
|
|
|---|---|---|
| Principal Executive Officer: | ||
| Ronald L. Litzinger* | President | |
| Principal Financial Officer: | ||
| Linda G. Sullivan* | Senior Vice President and Chief Financial Officer | |
| Principal Accounting Officer: | ||
| Chris C. Dominski | Vice President and Controller | |
| Board of Directors: | ||
| Jagjeet S. Bindra* | Director | |
| Vanessa C.L. Chang* | Director | |
| France A. Córdova* | Director | |
| Theodore F. Craver, Jr.* | Director | |
| Charles B. Curtis* | Director | |
| Bradford M. Freeman* | Director | |
| Ronald L. Litzinger* | Director | |
| Luis G. Nogales* | Director | |
| Ronald L. Olson* | Director | |
| James M. Rosser* | Director | |
| Richard T. Schlosberg, III* | Director | |
| Thomas C. Sutton* | Director | |
| Brett White* | Director | |
|
|
|
|
|---|---|---|
| *By: |
/s/ Chris C. Dominski
Chris C. Dominski Vice President and Controller (Attorney-in-fact) |
Date: February 28, 2011
105
|
Exhibit
Number |
Description
|
||
|---|---|---|---|
|
|
|||
| 3.1 | Certificate of Restated Articles of Incorporation of Southern California Edison Company, effective March 2, 2006 (File No. 1-2213, filed as Exhibit 3.1 to Southern California Edison Company's Form 10-K for the year ended December 31 2005)* | ||
|
|
3.2 |
|
Amended Bylaws of Southern California Edison Company, as Adopted by the Board of Directors effective January 1, 2011 (File No. 1-9936, filed as Exhibit 3.2 to Southern California Edison Company's Form 8-K for dated December 10, 2010)* |
|
|
4.1 |
|
Edison International Senior Indenture, dated September 10, 2010 (File No. 1-9936, filed as Exhibit 4.1 to Edison International's Form 10-Q for the quarter ended September 30, 2010) * |
|
|
4.2 |
|
Southern California Edison Company First Mortgage Bond Trust Indenture, dated as of October 1, 1923, Restated with all Amendments |
|
|
4.3 |
|
Southern California Edison Company Indenture, dated as of January 15, 1993 (File No. 1-2313, Form 8-K dated January 28, 1993)* |
|
|
10.1** |
|
Amendment to 1985 Deferred Compensation Plan Agreement for Directors with James M. Rosser, dated December 31, 2003 (File No. 1-2313, filed as Exhibit 10.36 to Southern California Edison Company's Form 10-K for the year ended December 31, 2003)* |
|
|
10.2** |
|
Director Deferred Compensation Plan as amended December 31, 2008 (File No. 1-9936, filed as Exhibit No. 10.4 to Edison International's Form 10-K for the year ended December 31, 2008) * |
|
|
10.3** |
|
2008 Director Deferred Compensation Plan, effective December 31, 2008 (File No. 1-9936, filed as Exhibit No. 10.5 to Edison International's Form 10-K for the year ended December 31, 2008)* |
|
|
10.4** |
|
Director Grantor Trust Agreement, dated August 1995 (File No. 1-9936, filed as Exhibit 10.10 to Edison International's Form 10-K for the year ended December 31, 1995)* |
|
|
10.4.1** |
|
Director Grantor Trust Agreement Amendment 2002-1, effective May 14, 2002 (File No. 1-9936, filed as Exhibit 10.4 to Edison International's Form 10-Q for the quarter ended June 30, 2002)* |
|
|
10.4.2** |
|
Executive and Director Grantor Trust Agreements Amendment 2008-1 (File No. 1-9936, filed as Exhibit No. 10.6.2 to Edison International's Form 10-K for the year ended December 31, 2008)* |
|
|
10.5** |
|
Executive Deferred Compensation Plan, as amended and restated December 31, 2008 (File No. 1-9936, filed as Exhibit No. 10.7 to Edison International's Form 10-K for the year ended December 31, 2008)* |
|
|
10.6** |
|
2008 Executive Deferred Compensation Plan, effective December 31, 2008 (File No. 1-9936, filed as Exhibit No. 10.8 to Edison International's Form 10-K for the year ended December 31, 2008)* |
|
|
10.7** |
|
Executive Grantor Trust Agreement, dated August 1995 (File No. 1-9936, filed as Exhibit 10.12 to Edison International's Form 10-K for the year ended December 31, 1995)* |
|
|
10.7.1** |
|
Executive Grantor Trust Agreement Amendment 2002-1, effective May 14, 2002 (File No. 1-9936, filed as Exhibit 10.3 to Edison International's Form 10-Q for the quarter ended June 30, 2002)* |
|
|
10.8** |
|
Executive Supplemental Benefit Program, as amended December 31, 2008 (File No. 1-9936, filed as Exhibit No. 10.10 to Edison International's Form 10-K for the year ended December 31, 2008)* |
106
|
Exhibit
Number |
Description
|
||
|---|---|---|---|
|
|
|||
| 10.9** | Executive Retirement Plan as restated effective December 31, 2008 (File No. 1-9936, filed as Exhibit No. 10.12 to Edison International's Form 10-K for the year ended December 31, 2008) * | ||
|
|
10.10** |
|
2008 Executive Retirement Plan effective December 31, 2008 (File No. 1-9936, filed as Exhibit No. 10.13 to Edison International's Form 10-K for the year ended December 31, 2008)* |
|
|
10.11** |
|
Edison International Executive Incentive Compensation Plan, as amended in February 2009 (File No. 1-9936, filed as Exhibit 10.1 to Edison International's Form 10-Q for the quarter ended June 30, 2009)* |
|
|
10.12** |
|
2008 Executive Disability Plan, effective December 31, 2008 (File No. 1-9936, filed as Exhibit No. 10.15 to Edison International's Form 10-K for the year ended December 31, 2008)* |
|
|
10.13** |
|
2008 Executive Survivor Benefit Plan, effective December 31, 2008 (File No. 1-9936, filed as Exhibit No. 10.16 to Edison International's Form 10-K for the year ended December 31, 2008)* |
|
|
10.14** |
|
Retirement Plan for Directors, as amended and restated effective December 31, 2008 (File No. 1-9936, filed as Exhibit No. 10.17 to Edison International's Form 10-K for the year ended December 31, 2008)* |
|
|
10.15** |
|
Equity Compensation Plan as restated effective January 1, 1998 (File No. 1-9936, filed as Exhibit 10.1 to Edison International's Form 10-Q for the quarter ended June 30, 1998)* |
|
|
10.15.1** |
|
Equity Compensation Plan Amendment No. 1, effective May 18, 2000 (File No. 1-9936, filed as Exhibit 10.4 to Edison International's Form 10-Q for the quarter ended June 30, 2000) * |
|
|
10.15.2** |
|
Amendment of Equity Compensation Plans, adopted October 25, 2006 (File No. 1-9936, filed as Exhibit 10.52 to Edison International's Form 10-K for the year ended December 31, 2006)* |
|
|
10.16** |
|
2000 Equity Plan, effective May 18, 2000 (File No. 1-9936, filed as Exhibit 10.1 to Edison International's Form 10-Q for the quarter ended June 30, 2000)* |
|
|
10.17** |
|
Edison International 2007 Performance Incentive Plan, as amended and restated in February 2009 (File No. 1-9936, filed as Exhibit 10.3 to the Edison International's Form 10-Q for the quarter ended June 30, 2009)* |
|
|
10.17.1** |
|
Edison International 2008 Long-Term Incentives Terms and Conditions (File No. 1-9936, filed as Exhibit 10.2 to Edison International's Form 10-Q for the quarter ended March 31, 2008)* |
|
|
10.17.2** |
|
Edison International 2009 Long-Term Incentives Terms and Conditions (File No. 1-9936, filed as Exhibit 10.2 to Edison International's Form 10-Q for the quarter ended March 31, 2009)* |
|
|
10.17.3** |
|
Edison International 2010 Long-Term Incentives Terms and Conditions (File No. 1-9936 filed as Exhibit 10.2 to Edison International Form 10-Q for the quarter ended March 31, 2010)* |
|
|
10.18** |
|
Terms and conditions for 2002 long-term compensation awards under the Equity Compensation Plan and 2000 Equity Plan (File No. 1-9936, filed as Exhibit 10.1 to Edison International's Form 10-Q for the quarter ended March 31, 2002)* |
|
|
10.18.1** |
|
Terms and conditions for 2003 long-term compensation awards under the Equity Compensation Plan and 2000 Equity Plan (File No. 1-9936, filed as Exhibit 10.1 to Edison International's Form 10-Q for the quarter ended March 31, 2003)* |
|
|
10.18.2** |
|
Terms and conditions for 2004 long-term compensation awards under the Equity Compensation Plan and 2000 Equity Plan (File No. 1-9936, filed as Exhibit 10.1 to Edison International's Form 10-Q for the quarter ended March 31, 2004)* |
107
|
Exhibit
Number |
Description
|
||
|---|---|---|---|
|
|
|||
| 10.18.3** | Terms and conditions for 2005 long-term compensation award under the Equity Compensation Plan and 2000 Equity Plan (File No. 1-9936, filed as Exhibit 99.2 to Edison International's Form 8-K dated December 16, 2004 and filed on December 22, 2004)* | ||
|
|
10.18.4** |
|
Terms and conditions for 2006 long-term compensation awards under the Equity Compensation Plan and 2000 Equity Plan (File No. 1-9936, filed as Exhibit 10.29 to Edison International's Form 10-K for the year ended December 31, 2005)* |
|
|
10.18.5** |
|
Terms and conditions for 2007 long-term compensation awards under the Equity Compensation Plan and the 2007 Performance Incentive Plan (File No. 1-9936, filed as Exhibit 10.1 to Edison International's Form 10-Q for the quarter ended March 31, 2007)* |
|
|
10.19** |
|
Director Nonqualified Stock Option Terms and Conditions under the Equity Compensation Plan (File No. 1-9936, filed as Exhibit 10.1 to Edison International's Form 10-Q for the quarter ended June 30, 2002)* |
|
|
10.19.1** |
|
Director 2004 Nonqualified Stock Option Terms and Conditions under the Equity Compensation Plan (File No. 1-9936, filed as Exhibit 10.1 to Edison International's Form 10-Q for the quarter ended June 30, 2004)* |
|
|
10.19.2* |
|
Director Nonqualified Stock Option Terms and Conditions under the 2007 Performance Incentive Plan (File 1-9936, filed as Exhibit 10.2 to Edison International's Form 10-Q for the quarter ended March 31, 2007)* |
|
|
10.20** |
|
Edison International and Edison Capital Affiliate Option Exchange Offer Circular, dated July 3, 2000 (File No. 1-9936, filed as Exhibit 10.1 to Edison International's Form 10-Q for the quarter ended September 30, 2000)* |
|
|
10.20.1** |
|
Edison International and Edison Capital Affiliate Option Exchange Offer Summary of Deferred Compensation Alternatives, dated July 3, 2000 (File No. 1-9936, filed as Exhibit 10.2 to Edison International's Form 10-Q for the quarter ended September 30, 2000)* |
|
|
10.20.2** |
|
Edison International and Edison Mission Energy Affiliate Option Exchange Offer Circular, dated July 3, 2000 (File No. 1-13434, filed as Exhibit 10.93 to the Edison Mission Energy's Form 10-K for the year ended December 31, 2001)* |
|
|
10.20.3** |
|
Edison International and Edison Mission Energy Affiliate Option Exchange Offer Summary of Deferred Compensation Alternatives, dated July 3, 2000 (File No. 1-13434, filed as Exhibit 10.94 to the Edison Mission Energy's Form 10-K for the year ended December 31, 2001)* |
|
|
10.21** |
|
Estate and Financial Planning Program as amended December 31, 2008 (File No. 1-9936, filed as Exhibit No. 10.24 to Edison International's Form 10-K for the year ended December 31, 2008)* |
|
|
10.22** |
|
2008 Executive Severance Plan, as amended and restated effective December 31, 2008 (File No. 1-9936, filed as Exhibit No. 10.26 to Edison International's Form 10-K for the year ended December 31, 2008)* |
|
|
10.22.1** |
|
Amendment to 2008 Executive Severance Plan, effective December 8, 2010 (File No. 1-9936, filed as Exhibit 10.21.1 to Edison International's Form 10-K for the year ended December 31, 2010)* |
|
|
10.23** |
|
Edison International Director Compensation Schedule, as adopted June 18, 2009 (File No. 1-9936, filed as Exhibit 10.2 to Edison International's Form 10-Q for the quarter ended June 30, 2009)* |
|
|
10.24** |
|
Edison International Director Matching Gifts Program, as adopted June 24, 2010 (File No. 1-9936, filed as Exhibit 10.1 to Edison International's Form 10-Q for the quarter ended June 30, 2010)* |
108
|
Exhibit
Number |
Description
|
||
|---|---|---|---|
|
|
|||
| 10.25** | Edison International Director Nonqualified Stock Options 2005 Terms and Conditions (File No. 1-9936, filed as Exhibit 99.3 to Edison International's Form 8-K dated May 19, 2005, and filed on May 25, 2005)* | ||
|
|
10.26 |
|
Amended and Restated Agreement for the Allocation of Income Tax Liabilities and Benefits among Edison International, Southern California Edison Company and The Mission Group dated September 10, 1996 (File No. 1-9936, filed as Exhibit 10.3 to Edison International's Form 10-Q for the quarter ended September 30, 2002)* |
|
|
10.26.1 |
|
Amended and Restated Tax Allocation Agreement among The Mission Group and its first-tier subsidiaries dated September 10, 1996 (File No. 1-9936, filed as Exhibit 10.3.1 to Edison International's Form 10-Q for the quarter ended September 30, 2002)* |
|
|
10.26.2 |
|
Amended and Restated Tax Allocation Agreement between Edison Capital and Edison Funding Company (formerly Mission First Financial and Mission Funding Company) dated May 1, 1995 (File No. 1-9936, filed as Exhibit 10.3.2 to Edison International's Form 10-Q for the quarter ended September 30, 2002)* |
|
|
10.26.3 |
|
Tax Allocation Agreement between Mission Energy Holding Company and Edison Mission Energy dated July 2, 2001 (File No. 1-9936, filed as Exhibit 10.3.3 to Edison International's Form 10-Q for the quarter ended September 30, 2002)* |
|
|
10.26.4 |
|
Administrative Agreement re Tax Allocation Payments among Edison International, Southern California Edison Company, The Mission Group, Edison Capital, Mission Energy Holding Company, Edison Mission Energy, Edison O&M Services, Edison Enterprises, and Mission Land Company dated July 2, 2001 (File No. 1-9936, filed as Exhibit 10.3.4 to Edison International's Form 10-Q for the quarter ended September 30, 2002)* |
|
|
10.27** |
|
Form of Indemnity Agreement between Edison International and its Directors and any officer, employee or other agent designated by the Board of Directors (File No. 1-9936, filed as Exhibit 10.5 to Edison International's Form 10-Q for the period ended June 30, 2005, and filed on August 9, 2005)* |
|
|
10.28 |
|
Edison International 2010 Executive Annual Incentive Program (File No. 1-9936, filed as Exhibit 10.1 to the Edison International's Form 10-Q for the quarter ended March 31, 2010)* |
|
|
10.29** |
|
Edison International Executive Perquisites (File No. 1-9936, filed as Exhibit No. 10.36 to Edison International's Form 10-K for the year ended December 31, 2008)* |
|
|
10.30** |
|
Section 409A and Other Conforming Amendments to Terms and Conditions (File No. 1-9936, filed as Exhibit No. 10.37 to Edison International's Form 10-K for the year ended December 31, 2008)* |
|
|
10.30.1** |
|
Section 409A Amendments to Director Terms and Conditions (File No. 1-9936, filed as Exhibit No. 10.37.1 to Edison International's Form 10-K for the year ended December 31, 2008)* |
|
|
10.31 |
|
Amended and Restated Credit Agreement, dated as of February 23, 2007, among Southern California Edison Company and JP Morgan Chase Bank, N.A., as Administrative Agent, Citicorp North America, Inc., as Syndication Agent, Credit Suisse, Lehman Commercial Paper Inc., and Wells Fargo Bank, N.A., as Documentation Agents, and the lenders thereto (File No. 1-2313, filed as Exhibit 10.1 to Southern California Edison Company's Form 8-K dated and filed February 27, 2007)* |
|
|
10.31.1 |
|
First Amendment to Amended and Restated Credit Agreement, dated as of February 14, 2008 (File No. 1-2313, filed as Exhibit 10.1 to Southern California Edison Company's Form 8-K dated and filed March 19, 2008)* |
109
|
Exhibit
Number |
Description
|
||
|---|---|---|---|
|
|
|||
| 10.31.2 | Second Amendment to Amended and Restated Credit Agreement, dated as of December 19, 2008 (File No. 1-9936, filed as Exhibit 10.41 to Edison International's Form 10-K for the year ended December 31, 2008)* | ||
|
|
10.32 |
|
Credit Agreement dated as of March 5, 2010 among Southern California Edison Company and Bank of America, N.A., as Administrative Agent, Wells Fargo Bank, N.A., as Syndication Agent, and Barclays Bank PLC, Morgan Stanley Bank, N.A., SunTrust Bank, UBS Loan Finance LLC, US Bank, National Association, BNP Paribas, Royal Bank of Canada, and The Bank of Nova Scotia as Co-Documentation Agents, and the lenders thereto. (File No. 1-2313, filed as Exhibit 10 to Southern California Edison Company form 8-K dated March 5, 2010)* |
|
|
23 |
|
Consent of Independent Registered Public Accounting Firm |
|
|
24.1 |
|
Power of Attorney |
|
|
24.2 |
|
Certified copy of Resolution of Board of Directors Authorizing Signature |
|
|
31.1 |
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act |
|
|
31.2 |
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act |
|
|
32 |
|
Statement Pursuant to 18 U.S.C. Section 1350 |
|
|
101*** |
|
Financial statements from the annual report on Form 10-K of Southern California Edison Company for the year ended December 31, 2010, filed on February 28, 2011, formatted in XBRL: (i) the Consolidated Statements of Income; (ii) the Consolidated Statements of Comprehensive Income; (iii) the Consolidated Balance Sheets; (iv) the Consolidated Statements of Cash Flows; (v) Consolidated Statements of Changes in Equity and (vi) the Notes to Consolidated Financial Statements tagged as blocks of text |
|
|
|||
110
TRUST INDENTURE
SOUTHERN CALIFORNIA EDISON COMPANY
TO
HARRIS TRUST AND SAVINGS BANK
PACIFIC-SOUTHWEST TRUST & SAVINGS BANK
Trustees
Dated as of October 1, 1923
RESTATED WITH ALL AMENDMENTS
The following is the working copy of the Southern California Edison Company Trust Indenture as amended by the First (as of March 1, 1927), Third (as of June 24, 1935), Fourth (as of September 1, 1935), Fifth (as of August 15, 1939), Sixth (as of September 1, 1940), Eighth (as of August 15, 1948), Twenty-Fourth (as of February 15, 1964), and Eighty-Eighth (as of July15, 1992) Supplements thereto.
This working copy is for informational purposes only; and the executed originals of the Trust Indenture and Supplemental Indentures are the definitive versions thereof.
This working copy varies from the original Trust Indenture in the following respects:
Specific terms and conditions applicable to any individual series of Bonds issued under the Trust Indenture may be found in the Resolution creating such series or in the Supplemental Indenture applicable to such series.
i
ii
iii
iv
v
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SECTION 11. Trustees may advance money for certain purposes and be protected. |
69 | |||||
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ARTICLE SEVENTEEN. CERTAIN WORDS DEFINED. |
69 | |||||
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SECTION 1. Covenants of Company binding on successors. |
69 | |||||
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SECTION 2. Definitions. |
70 | |||||
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ARTICLE EIGHTEEN. ADDITIONAL PROVISIONS CONCERNING THE TRUSTEE. |
71 | |||||
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SECTION 1. Additional provisions concerning the Trustees. |
71 | |||||
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Trustee liable only for performance of duties specifically set forth. |
71 | |||||
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Trustee may rely upon certificates or opinions subject to duty to examine. |
71 | |||||
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In case of Event of Default, Trustee to exercise rights and powers as would a prudent man in conduct of own affairs. |
71 | |||||
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Trustee not liable for error of judgment by officers. |
71 | |||||
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Holders of bonds may direct Trustees; Trustee not liable for action or nonaction. |
71 | |||||
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Trustee liable for negligence or willful misconduct except as provided in this subdivision. |
72 | |||||
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Trustee not responsible for correctness or validity of Indenture or bonds. |
72 | |||||
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Trustee liable only for performance of duties specifically set forth. |
72 | |||||
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Trustee not required to pay interest on deposited moneys. |
72 | |||||
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Action of bondholder shall bind future owners of same bond. |
72 | |||||
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Trustee not obligated to take action requested by bondholders. |
72 | |||||
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Trustee may act upon opinion of counsel. |
72 | |||||
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Trustee entitled to compensation, reimbursement and indemnity. |
73 | |||||
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Trustee may rely on officers' certificate. |
73 | |||||
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Trustee may rely on documents believed genuine. |
73 | |||||
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Provisions of Subdivision (a) to contol. |
73 | |||||
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Which bonds to be disregarded in determining whether required percentage of outstanding bonds have concurred in action. |
75 | |||||
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When an Event of Default shall be deemed to have occurred. |
75 | |||||
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Definition of "responsible officer." |
75 | |||||
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SECTION 2: Duty of Harris Trust to advise bondholders of occurrence of default. |
76 | |||||
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Duty of other Trustees to advise Harris Trust of occurrence of default. |
76 | |||||
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Definition of "default." |
76 | |||||
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SECTION 3: Trustee acquiring conflict of interest to eliminate conflict or resign. |
76 | |||||
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Definition of "conflict of interest." |
77 | |||||
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SECTION 4: Limitations on right of Trustee as creditor. |
79 | |||||
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Definition of "default" and "indenture security holder." |
81 | |||||
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Certain creditor relationships excluded. |
81 | |||||
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Definition of certain terms. |
82 | |||||
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SECTION 5: Certain powers of Trustees in case of default. |
82 | |||||
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SECTION 6: One Trustee must meet eligibility requirements. |
83 | |||||
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SECTION 7: Appointment of additional trustee; terms and conditions. |
83 | |||||
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SECTION 8: Person becoming obligor on bonds after September 1, 1940. |
84 | |||||
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ARTICLE NINETEEN. BONDHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEES. |
84 | |||||
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SECTION 1: Company to furnish Trustee with names and addresses of bondholders. |
84 | |||||
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Trustee to preserve information received in capacity of paying agent. |
85 | |||||
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Names and addresses filed by bondholders to receive reports. |
85 | |||||
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SECTION 2: Trustee to make name and address information available or to mail communications to bondholders. |
85 | |||||
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Company and Trustee not accountable for disclosure of information. |
86 | |||||
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SECTION 3: Reports to be filed by Company with Trustee. |
86 | |||||
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SECTION 4: Trustee to mail annual reports to bondholders. |
87 | |||||
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Trustee to mail further reports to bondholders. |
88 | |||||
vi
vii
RECITALS
Parties.
This Indenture, made as of the first day of October, 1923, by and between SOUTHERN CALIFORNIA EDISON COMPANY, a corporation duly organized and existing under and by virtue of the laws of the State of California and having its principal office in the City of Los Angeles, County of Los Angeles in said State (hereinafter sometimes termed "the Company"), party of the first part, and HARRIS TRUST AND SAVINGS BANK, a corporation duly organized and existing under and by virtue of the laws of the State of Illinois and having its principal office in the City of Chicago in said State [Note: Now "The Bank of New York, Successor Trustee"] , and PACIFIC-SOUTHWEST TRUST & SAVINGS BANK, a corporation duly organized and existing under and by virtue of the laws of the State of California and having its principal office in the City of Los Angeles in said State [Note: Now "D.G. Donovan, Successor Trustee"] , as Trustees (hereinafter sometimes termed "the Trustees"), parties of the second part,
WITNESSETH:
Recital as to plants owned, etc.
WHEREAS, the Company owns and operates plants for the generation, transmission and distribution of electricity, and other properties, in the counties of Los Angeles, San Bernardino, Riverside, Orange, Ventura, Santa Barbara, Kern, Tulare, Kings, Fresno and Madera in the State of California and may from time to time acquire other plants, properties, facilities and utilities and extend, enlarge, add to and develop the properties now owned by it as well as such properties as may be hereafter acquired by it in such state or other states; and
Company desires to provide funds for corporate purposes, etc.
WHEREAS, the Company requires, and desires to provide, funds for its corporate purposes, including the acquisition of such properties, and the extension, enlargement and improvement of its properties whether now owned or hereafter [*2*] acquired, and also desires to provide for the refunding, paying and discharging of bonds heretofore issued by the Company and other bonds the payment of which has been, or shall be, assumed by the Company, and which are, or shall be, secured by mortgages or deeds of trust constituting liens or charges on properties now owned or hereafter acquired by the Company; and
Stockholders have authorized creation of additional bonded indebtedness.
WHEREAS, pursuant to the laws of the State of California the stockholders of the Company have duly authorized the creation of an additional bonded indebtedness of the Company of $250,000,000, to be represented by bonds of the Company payable at such time or different times, bearing such rate or different rates of interest and in such denomination or denominations as may from time to time be determined by the Board of Directors of the Company; and
Further bonded indebtedness may be authorized.
WHEREAS, the creation of further and additional bonded indebtedness may hereafter from time to time be authorized by the stockholders of the Company; and
Directors have authorized this Indenture.
WHEREAS, the Board of Directors of the Company has by resolution adopted by said Board, at a meeting regularly called and held, authorized the execution and delivery of this Indenture to secure the payment of all bonds issued pursuant to its provisions, including not only bonds representing said
1
bonded indebtedness of $250,000,000 already authorized by the stockholders of the Company, but also bonds representing further bonded indebtedness which may be hereafter authorized by said stockholders; and
Recital as to Debentures of 1919.
WHEREAS, by the terms of a certain Indenture entered into as of the 15th day of January, 1919, between the Company and Bankers Trust Company, a corporation organized under the laws of the State of New York, securing an issue of $8,000,000 principal amount of Seven Per Cent Gold Debenture Bonds of the Company (hereinafter called "Debentures of 1919"), dated January 15, 1919, and maturing serially in [*3*] the principal amount of $1,000,000 annually on the 15th day of January in each of the years 1921 to 1928, both inclusive, it is provided that no mortgage shall be made by the Company except upon the condition that the Debentures aforesaid at the time outstanding, and the interest coupons pertaining thereto, shall be entitled to the security afforded by such mortgage; and
Directors have determined that this Indenture shall secure Debentures of 1919.
WHEREAS, the Board of Directors of the Company by said resolution authorizing the execution and delivery of this Indenture did determine that all Debentures of 1919 outstanding at the date hereof and the interest coupons pertaining thereto should be entitled to the security afforded by this Indenture; and
Stockholders have consented to execution of this Indenture.
WHEREAS, the execution and delivery of a mortgage or deed of trust of the nature of this Indenture has been duly consented to by the stockholders of the Company; and
Directors have determined that bonded indebtedness be represented by bonds issued in series, etc.
WHEREAS, the Board of Directors of the Company did by said resolution determine that said bonded indebtedness of $250,000,000, the creation of which was authorized by the stockholders, should be represented by bonds to be issued in one or more series, each series to be dated as of such date, bear such rate of interest, mature at such time or times, bear such designation and contain such other specifications and provisions as are in this Indenture provided or permitted, and that such bonds might be coupon bonds payable to bearer with privilege of registration as to principal (hereinafter called "coupon bonds") or be registered bonds without coupons (hereinafter called "fully registered bonds"); and
Designation of initial series of bonds, etc.
WHEREAS, said Board by said resolution did further determine that the initial series of bonds to be issued under this Indenture should be designated "Series of 6's, Due 1943," and that the coupon bonds of said series, the interest coupons to be attached to such coupon bonds, the fully registered
2
bonds of said series, and the Trustee's certificate to be endorsed [*4*] upon all of said bonds, should be substantially in the following forms, to wit:
Form of coupon bond of Series of 6's due 1943.
(Form of Coupon Bond, Series of 6's, Due 1943.)
| No | $ | |||
|
|
|
UNITED STATES OF AMERICA STATE OF CALIFORNIA SOUTHERN CALIFORNIA EDISON COMPANY Refunding Mortgage Gold Bond Series of 6's, Due 1943 |
|
|
SOUTHERN CALIFORNIA EDISON COMPANY, a corporation organized and existing under and by virtue of the laws of the State of California (hereinafter called the "Company"), for value received hereby promises to pay to the bearer, or if registered, to the registered owner hereof, on the first day of October, 1943, at Harris Trust and Savings Bank, Chicago, Illinois, or at the office or agency of the Company in the Borough of Manhattan, City of New York, at the option of the bearer or registered owner, Dollars ($ ), in gold coin of the United States of America of or equal to the standard of weight and fineness existing on October 1, 1923, and to pay interest thereon from the date hereof until said principal sum shall be paid, at the rate of six per centum (6%) per annum, payable semi-annually in like gold coin on the first day of April and the first day of October in each year, at Harris Trust and Savings Bank, Chicago, Illinois, or at the office or agency of the Company in the Borough of Manhattan, City of New York, or at Pacific-Southwest Trust & Savings Bank, Los Angeles, California, at the option of the bearer of the interest coupons hereto annexed, upon presentation and surrender of the respective coupons as they severally become due.
All payments on this bond, both of principal and interest, shall be made without deduction for any tax, assessment or other governmental charge (except succession and inheritance taxes and that portion of any Federal income tax which may be in excess of two per centum of such interest) which the Company, its successors or assigns, may be required to pay thereon, or authorized to deduct or retain therefrom, under any present or future law or requirement of the United [*5*] States of America, or of any state, county, municipality or other taxing authority therein.
This bond is one of a series designated "Series of 6's, Due 1943," of a duly authorized issue of bonds of the Company, known as its "Refunding Mortgage Gold Bonds," issued and to be issued in one or more series under and (except as to any sinking fund which may be established for the exclusive benefit of one or more particular series of such bonds) all equally and ratably secured by, an Indenture of mortgage or deed of trust, dated as of October 1, 1923, duly executed, acknowledged and delivered by the Company to Harris Trust and Savings Bank, Chicago, Illinois, and Pacific-Southwest Trust & Savings Bank, Los Angeles, California, as Trustees, to which Indenture reference is hereby made for a description of the property, rights and franchises thereby mortgaged and pledged, the nature and extent of the security thereby created, the rights of the holders of said bonds and of the Trustees in respect to such security, and the terms, restrictions and conditions upon which the bonds are issued and secured.
If default shall be made in the payment of any installment of interest on this bond or in the performance or observance of any of the covenants and agreements in said Indenture, then the principal of this bond may be declared and become due and payable as provided in said Indenture.
3
This bond shall pass by delivery unless registered on the books of the Company in the name of the owner at Harris Trust and Savings Bank, Chicago, Illinois, or at the office or agency of the Company in the Borough of Manhattan, City of New York, registry being noted hereon as provided in said Indenture. After such registration no transfer shall be valid unless made on said books by the registered owner in person or by attorney duly authorized in writing, and similarly noted hereon, but this bond may be discharged from registry by being in like manner transferred to bearer, and thereupon transferability by delivery shall be restored; but this bond may again, from time to time, be registered in the name of the owner or transferred to bearer as before. No registration, however, shall affect the negotiability of the coupons, which shall continue to be transferable by delivery, notwithstanding the registry hereof.
[ *6*] As provided in said Indenture, coupon bonds of this issue, series and maturity at any time outstanding, when surrendered with all unmatured coupons attached, and upon the payment of charges, may be exchanged for an equal aggregate principal amount of coupon bonds of this issue, series and maturity, of any other denomination or denominations and of numbers not contemporaneously outstanding, with all unmatured coupons attached.
As provided in said Indenture, and upon the payment of charges, the holder of any coupon bond or bonds of this issue, series and maturity, of the aggregate principal amount of $1,000 or some multiple thereof, may at his option surrender such bond or bonds with all unmatured coupons thereunto appertaining in exchange for an equal aggregate principal amount of fully registered bonds of the denomination of $1,000, $5,000 or $10,000 each of this issue, series and maturity. Such fully registered bonds may in like manner as provided in said Indenture be exchanged for coupon bonds of this issue, series and maturity and of an equal aggregate principal amount bearing all unmatured coupons.
This bond may, at the option of the Company, be redeemed on any interest date prior to its maturity, after notice by publication in the Borough of Manhattan, in the City and State of New York, and in the City of Chicago, Illinois, and in the City of Los Angeles, California, once a week for four successive weeks, by payment of the principal hereof and interest hereon to the date fixed for such redemption and a premium determined as follows: If redeemed prior to or during the calendar year 1933, five per centum (5%) of the principal hereof; and in each calendar year thereafter as hereinafter indicated, to wit: In 1934, four and one-half per centum (4-1/2%); in 1935, four per centum (4%); in 1936, three and one-half per centum (3-1/2%); in 1937, three per centum (3%); in 1938, two and one-half per centum (2-1/2%); in 1939, two per centum (2%); in 1940, one and one-half per centum (1-1/2%); in 1941, one per centum (1%); in 1942, one-half per centum (1/2%); and in 1943 this bond may be redeemed at par and accrued interest to date of redemption; all in the manner and upon the conditions provided in said Indenture.
No recourse shall be had for the payment of the principal or the interest of this bond, or any part thereof, or for or on account of the consideration therefor or for any claim based thereon, or otherwise in respect [*7*] thereof or of said Indenture, against any past, present or future stockholder, officer or director of the Company, or of any predecessor or successor company, whether for amounts unpaid on stock subscriptions or by virtue of any statute or constitution or by the enforcement of any assessment or penalty or because of any representation or inference arising from the capitalization of the Company or of such predecessor or successor company, or otherwise, all such liability being, by the acceptance hereof and as part of the consideration of the issue hereof, expressly released.
This bond shall not be valid or obligatory for any purpose until it shall have been authenticated by the execution of the certificate of Harris Trust and Savings Bank, Trustee, or its successor in trust, endorsed hereon.
4
IN WITNESS WHEREOF said Southern California Edison Company has caused this bond to be signed in its name by its President or one of its Vice Presidents, and its corporate seal to be hereto affixed and attested by its Secretary or one of its Assistant Secretaries, and the said interest coupons to be executed by the engraved facsimile signature of its Treasurer, as of the first day of October, 1923.
| SOUTHERN CALIFORNIA EDISON COMPANY, | ||||
| By | ||||
|
Vice President. |
||||
|
Attest: |
|
|
|
|
|
Assistant Secretary. |
||||
Form of coupon.
(Form of Coupon.)
| No | $ |
On the first day of , 19 , Southern California Edison Company (unless the bond herein mentioned is called for previous redemption) will pay to bearer at Harris Trust and Savings Bank, Chicago, Illinois, or at the office or agency of the Company in the Borough of Manhattan, City of New York, or at Pacific-Southwest Trust & Savings Bank, Los Angeles, California, at the option of the bearer, dollars in gold coin of the United States of America of or equal to the standard of weight and fineness existing on October 1, 1923, without deduction for taxes or governmental [*8*] charges as provided in said bond, being six months' interest due on the date first above specified on its Refunding Mortgage Gold Bond, Series of 6's, Due 1943, No. .
|
|
Treasurer. |
Form of fully registered bond, Series of 6's, due 1943.
(Form of Fully Registered Bond, Series of 6's, Due 1943.)
| No | $ | |||
|
|
|
UNITED STATES OF AMERICA STATE OF CALIFORNIA SOUTHERN CALIFORNIA EDISON COMPANY Refunding Mortgage Gold Bond Series of 6's, Due 1943 |
|
|
Southern California Edison Company, a corporation organized and existing under and by virtue of the laws of the State of California (hereinafter called the "Company"), for value received hereby promises to pay to the registered owner hereof, on the first day of October, 1943, at Harris Trust and Savings Bank, in the City of Chicago, Illinois, or at the office or agency of the Company in the Borough of Manhattan, City of New York, at the option of the registered owner hereof, Dollars ($ ) in gold coin of the United States of America of the standard of weight and fineness existing on October 1, 1923, and to pay to the
5
registered owner hereof, interest thereon in like gold coin from at the rate of six per centum (6%) per annum, until said principal sum shall be paid, semi-annually on the first day of April and the first day of October in each year, at Harris Trust and Savings Bank, Chicago, Illinois, or at the office or agency of the Company in the Borough of Manhattan, City of New York, or at Pacific Southwest Trust & Savings Bank, Los Angeles, California, at the option of the registered owner hereof.
All payments on this bond, both of principal and interest, shall be made without deduction for any tax, assessment or other governmental charge, (except succession and inheritance taxes and that portion of any [*9*] Federal income tax which may be in excess of two per centum of such interest) which the Company, its successors or assigns, may be required to pay thereon, or authorized to deduct or retain therefrom, under any present or future law or requirement of the United States of America, or of any state, county, municipality or other taxing authority therein.
This bond is one of a series designated "Series of 6's, Due 1943," of a duly authorized issue of bonds of the Company, known as its "Refunding Mortgage Gold Bonds," issued and to be issued in one or more series under, and (except as to any sinking fund which may be established for the exclusive benefit of one or more particular series of such bonds) all equally and ratably secured by, an Indenture of mortgage or deed of trust, dated as of October 1, 1923, duly executed, acknowledged and delivered by the Company to Harris Trust and Savings Bank, Chicago, Illinois, and Pacific-Southwest Trust & Savings Bank, Los Angeles, California, as Trustees, to which Indenture reference is hereby made for a description of the property, rights and franchises thereby mortgaged and pledged, the nature and extent of the security thereby created, the rights of the holders of said bonds and of the Trustees in respect to such security, and the terms, restrictions and conditions upon which the bonds are issued and secured.
If default shall be made in the payment of any installment of interest on this bond or in the performance or observance of any of the covenants and agreements in said Indenture, then the principal of this bond may be declared and become due and payable as provided in said Indenture.
This bond is transferable only on the books of the Company at the office of Harris Trust and Savings Bank, Trustee, Chicago, Illinois, or at the office or agency of the Company in the Borough of Manhattan, City of New York, by the registered owner or by his attorney duly authorized in writing, on surrender hereof properly endorsed, and upon such surrender hereof, and the payment of charges, a new registered bond or bonds, of this issue, series and maturity will be issued to the transferee in lieu hereof, as provided in said Indenture.
As provided in said Indenture, and upon the payment [*10*] of charges, this bond is exchangeable for a coupon bond or bonds of this issue, series and maturity and for an equal aggregate principal amount and bearing all unmatured coupons. Any coupon bond or bonds of this issue, series and maturity of the aggregate principal amount of $1,000, or some multiple thereof, with all unmatured coupons thereto appertaining, may in like manner be exchanged for a fully registered bond or bonds in the denomination of $1,000, $5,000 or $10,000 of this issue, series and maturity and in principal amount equal to the aggregate principal amount of such coupon bonds.
This bond may, at the option of the Company, be redeemed on any interest date prior to its maturity, after notice by publication in the Borough of Manhattan, in the City and State of New York, and in the City of Chicago, Illinois, and in the City of Los Angeles, California, once a week for four successive weeks, by payment of the principal hereof and interest hereon to the date fixed for such redemption and a premium determined as follows: If redeemed prior to or during the calendar year 1933, five per centum (5%) of the principal hereof; and in each calendar year thereafter as hereinafter indicated, to wit: In 1934, four and one-half per centum (4-1/2%); in 1935, four per centum (4%); in 1936, three and one-half per centum (3-1/2%); in 1937, three per centum (3%); in 1938, two and one-half per centum (2-1/2%); in 1939, two per centum (2%); in
6
1940, one and one-half per centum (1-1/2%); in 1941, one per centum (1%); in 1942, one-half per centum (1/2%); and in 1943 this bond may be redeemed at par and accrued interest to date of redemption; all in the manner and upon the conditions provided in said Indenture.
No recourse shall be had for the payment of the principal or the interest of this bond, or any part thereof, or for or on account of the consideration therefor or for any claim based thereon, or otherwise in respect thereof or of said Indenture, against any past, present or future stockholder, officer or director of the Company, or of any predecessor or successor company, whether for amounts unpaid on stock subscriptions or by virtue of any statute or constitution or by the enforcement of any assessment or penalty or because of any representation or inference arising from the capitalization of the Company or of such predecessor or successor company, or otherwise, all such liability [*11*] being, by the acceptance hereof and as part of the consideration of the issue hereof, expressly released.
This bond shall not be valid or obligatory for any purpose until it shall have been authenticated by the execution of the certificate of Harris Trust and Savings Bank, Trustee, or its successor in trust, endorsed hereon.
IN WITNESS WHEREOF said Southern California Edison Company has caused this bond to be signed in its name by its President or one of its Vice Presidents, and its corporate seal to be hereto affixed and attested by its Secretary or one of its Assistant Secretaries, as of the first day of October, 1923.
| SOUTHERN CALIFORNIA EDISON COMPANY, | ||||
| By | ||||
|
Vice President. |
||||
|
Attest: |
|
|
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Assistant Secretary. |
||||
Form of Trustee's certificate for all bonds.
(Form of Trustee's Certificate for Both Coupon and Fully Registered Bonds.)
This is to certify that this is one of the bonds, of the series designated thereon, described and referred to in the Indenture within mentioned.
|
HARRIS TRUST AND SAVINGS BANK,
Trustee. |
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By |
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Assistant Secretary. |
||||||
All corporate acts to make Indenture valid performed.
and
WHEREAS, all acts and things required by law and by the articles of incorporation and by-laws of the Company, including all action requisite on the part of its stockholders, directors and officers, necessary to make this Indenture a valid and binding mortgage and deed of trust for the security of said Debentures of 1919 and of all bonds which may be issued hereunder have been done and performed, and the execution and delivery of this Indenture have been in all respects duly authorized;
7
Granting and pledging clause.
NOW, THEREFORE, in order to secure the payment of the principal and interest of all bonds of the Company at any time outstanding hereunder and of all said Debentures of 1919 outstanding at the date hereof, and to secure the [*12*] performance and observance of each and every the covenants, conditions and agreements herein contained, and for and in consideration of the premises and of the purchase and acceptance of such bonds, and of the sum of one dollar to the Company duly paid by the Trustees at or upon the ensealing and delivery of these presents (the receipt whereof is hereby acknowledged), Southern California Edison Company, hereby grants, bargains, sells, aliens, releases, conveys, assigns, transfers, warrants, mortgages and pledges unto the parties of the second part, and to their successor or successors in the trust hereby created, all the following (hereinafter sometimes called the "mortgaged and pledged property"), to wit:
General description of mortgaged property.
All and singular the plants, properties, equipment and generating, transmission, feeding, storing and distributing systems, and facilities and utilities of the Company in the Counties of Los Angeles, San Bernardino, Riverside, Orange, Ventura, Santa Barbara, Kern, Tulare, Kings, Fresno and Madera, in the State of California, with all and singular the franchises, ordinances, grants, easements, permits, privileges, contracts, appurtenances, tenements and other rights and property thereunto appertaining or belonging, as the same now exist and as the same or any and all parts thereof may hereafter exist or be improved, added to, enlarged, extended, or acquired in said counties, or elsewhere in said State or any other State or States; particularly including (without in anywise limiting or impairing, by specific enumeration in any of the following paragraphs, or elsewhere in this Indenture, the scope, intent or effect of the foregoing or of any general property description in this Indenture) all and singular the following described lands, tenements, hereditaments, premises, estates, rights, stocks, bonds and other securities and obligations and other interests and properties, real, personal and mixed, tangible and intangible, to wit:
[Note: Property Descriptions omitted.]
[*92*]
VIII.
PROPERTY HEREAFTER CONVEYED.
Property hereafter conveyed to Trustees.
[Note: Collateral supplemented by granting clauses in Sixth Supplemental Indenture, as follows: "NOW, THEREFORE, in order further to secure the payment of the principal and interest on all of the bonds of the Company at any time outstanding under the Original Indenture, as amended, including specifically, but without limitation, First and Refunding Mortgage Gold Bonds, Series [*SS13*] of 3-1/4s, Due 1964, of the aggregate principal amount of $30,000,000, all of said bonds having been heretofore issued and being now outstanding, and First and Refunding Mortgage Bonds, Series of 3s, Due 1965, of the aggregate principal amount of $108,000,000, to be presently issued and outstanding; and to secure the performance and observance of each and every the covenants and agreements in the Original Indenture, as amended, contained, and without in any way limiting (except as hereinafter specifically provided) the generality or effect of the Original Indenture or any of said supplemental indentures executed and delivered prior to the execution and delivery of this Sixth Supplemental Indenture in so far as by any provision of any said indenture any of the properties hereinafter referred to are subject to the lien and operation thereof, but to such extent (except as hereinafter specifically provided) confirming such lien and operation, and for and in consideration of the premises, and of the sum of One Dollar ($1.00) to the Company duly paid by the Trustees, at or
8
upon the unsealing and delivery of these presents (the receipt whereof is hereby acknowledged), the holders of all of the outstanding First and Refunding Mortgage Gold Bonds, Series of 3-1/4s, Due 1964, of the aggregate principal amount of $30,000,000, having assented thereto, the Company has executed and delivered this Sixth Supplemental Indenture and has granted, bargained, sold, aliened, released, conveyed, assigned, transferred, warranted, mortgaged and pledged, and by these presents does grant, bargain, sell, alien, release, convey, assign, transfer, warrant, mortgage and pledge unto the Trustees, their successors in trust and their assigns forever, in trust, with power of sale, all the following:
[*SS14*] All and singular the plants, properties, equipment and generating, transmission, feeding, storing and distributing systems, and facilities and utilities of the Company in the Counties of Fresno, Kern, Kings, Los Angeles, Madera, Merced, Orange, Riverside, San Bernardino, Santa Barbara, Stanislaus, Tulare and Ventura, in the State of California, Clark, in the State of Nevada, and Mohave, in the State of Arizona, or elsewhere either within or without said States, with all and singular the franchises, ordinances, grants, easements, rights, rights of way, permits, privileges, contracts, appurtenances, tenements and other rights and property thereunto appertaining or belonging, as the same now exist and as the same or any and all parts thereof may hereafter exist or be improved, added to, enlarged, extended or acquired in said Counties, or elsewhere within or without said States; particularly including (without in anywise limiting or impairing the generality of the foregoing) all and singular the following described lands, tenements, hereditaments, premises, estates, rights, permits, licenses and other interests and properties, real, personal and mixed, tangible and intangible, to wit:
All the right, title and interest of the Company in and to those certain interests and properties, real, personal and mixed, bargained, granted, sold, conveyed, transferred, assigned, and set over unto the Company, its successors and assigns, by, and described in, that certain Deed, Transfer, Bill of Sale, and Assignment from The City of Los Angeles and Department of Water and Power of The City of Los Angeles to the Company, dated August 23, 1939, which said Deed, Transfer, Bill of Sale, and Assignment is recorded [*SS15*] in Book 16,889 of Official Records of Los Angeles County, California, at page 277;
TOGETHER with, to the extent permitted by law, all other properties, real, personal and mixed (except as herein expressly excepted), of every kind, nature and description, now or hereafter owned, held, possessed, acquired or enjoyed now or hereafter owned, held, possessed, acquired or enjoyed by or in any manner conferred upon or appertaining to the Company, and the reversion and reversions, remainder and remainders, tolls, incomes, revenues, rents, issues and profits thereof; it being hereby intended and expressly agreed that all the business, franchises and properties, real, personal and mixed (except as herein expressly excepted), of every kind and nature whatsoever and wherever situate, now owned, held, possessed, acquired or enjoyed, and which may hereafter be in anywise owned, held, possessed, acquired or enjoyed by the Company or for the Company, shall be as fully embraced within the provisions hereof and be subject to the lien created hereby and by the Original Indenture and said supplemental indentures executed and delivered prior to the execution and delivery of this Sixth Supplemental Indenture, as if said properties were particularly described herein;
SAVING AND EXCEPTING, HOWEVER, anything contained herein or in the granting clauses of the Original Indenture, the Supplemental Indenture, the Second Supplemental Indenture, the Third Supplemental Indenture, the Fourth Supplemental Indenture, or the Fifth Supplemental Indenture, or elsewhere contained in the Original Indenture or said supplemental indentures, to the contrary notwithstanding, [*SS16*] from the property hereby or thereby mortgaged and pledged, all of the following property (whether now owned by the Company or hereafter acquired by it): all bills, notes, warrants, customers' service and extension deposits, accounts receivable, cash on hand or deposited in banks or with any governmental agency, contracts, choses in action, operating agreements and leases to others (as distinct from the property leased and without limiting any rights of the Trustees with respect thereto under any of the provisions of the Original Indenture, as amended), all bonds,
9
obligations, evidences of indebtedness, shares of stock and other securities, and certificates or evidences of interest therein, all office furniture and office equipment, motor vehicles and tools therefor, all materials, goods, merchandise and supplies acquired for the purpose of sale in the ordinary course of business or for consumption in the operation of any property of the Company, and all electrical energy and other materials or products produced by the Company for sale, distribution or use in the ordinary conduct of its business—other than any of the foregoing which has been or may be specifically transferred or assigned to or pledged or deposited with the Trustees, or any of them, under the Original Indenture, as amended, or required by the provisions of the Original Indenture, as amended, so to be; provided, however, that if, upon the occurrence of a default under the Original Indenture, as amended, the Trustees, or any of them, or any receiver appointed under the Original Indenture, as amended, shall enter upon and take possession of the mortgaged and pledged property, the Trustees, or such Trustee or such receiver may, to the extent permitted [*SS17*] by law, at the same time likewise take possession of any and all of the property excepted by this paragraph then on hand which is used or useful in connection with the business of the Company, and collect, impound, use and administer the same to the same extent as if such property were part of the mortgaged and pledged property and had been specifically mortgaged and pledged hereunder, unless and until such default shall be remedied or waived and possession of the mortgaged and pledged property restored to the Company, its successors and assigns, and provided further, that upon the taking of such possession and until possession shall be restored as aforesaid, all such excepted property of which the Trustees, or such Trustee or such receiver shall have so taken possession, shall be and become subject to the lien hereof, subject, however, to any liens then existing on such excepted property."]
All property which at any time hereafter, by delivery, or by an indenture supplemental hereto, may be expressly conveyed, mortgaged or pledged to the Trustees hereunder by the Company or by a successor corporation, or by anyone in its behalf or with its written consent as and for additional security hereunder; the Trustees being hereby authorized at any and all times to receive any such conveyance, mortgage, pledge or delivery and to hold and apply any such property upon and subject to the terms and provisions of this Indenture.
General descriptions including after-acquired property.
Together with all appurtenances of all the hereinbefore described properties, and all water rights, rights of way for ditches, pole lines, flumes, aqueducts, tunnels, reservoirs, reservoir embankments, penstocks and all other rights of way; all permits, rights, licenses, franchises, ordinances, [*93*] grants, privileges and easements; all dams, ditches, flumes, aqueducts, tunnels, conduits, subways, pipe lines, canals and their apparatus and appliances; all power houses, shops, barns, distributing stations, substations, transformer stations, switching stations, lightning arrester houses, mains, appliances, oil storage, wells, buildings, fixtures, structures, plants, works and other improvements; all electric distributing systems and other transmission or distributing lines and systems and railways; all boilers, engines, motors, cars, rolling stock, automobiles, pumps, generators, dynamos, transformers, regulators, exciters, switchboards, poles, wires, insulators, cross-arms, meters, pipes, water-wheels, governors, buckets, gates and other apparatus, machinery, appliances, tools, furniture, supplies, facilities and utilities and other personal property; all tolls, revenues, earnings, income, rents, issues and profits thereof; all the estate, rights, title, interest, property, possession, claim and demand whatsoever, as well in law as in equity, of the Company of, in and to the properties, interests and rights in this Indenture described and every part and parcel thereof; all rights and contracts to sell or furnish electric light and power, or other commodity; all business and good will; all rights, franchises and consents to construct, operate and maintain lines, mains, wires, subways, pipes, tracks, conduits, railways and other facilities, utilities or properties for conveying gas, water, steam, electricity or other commodity or utility for power, heating and lighting purposes, or for operating railways or for any other purpose or purposes, through, under and over public streets, public highways, or public places; all franchises, ordinances, privileges, permits, licenses, agreements, contracts, rights, easements, rights of way, leases and leasehold
10
interests, grants, privileges and immunities; and all other property, real, personal and mixed, of every kind, nature and description now or hereafter owned, held, possessed, acquired or enjoyed by, or in any manner conferred [*94*] upon, or appertaining to the Company, and the reversion and reversions, remainder and remainders, tolls, incomes, revenues, rents, issues and profits thereof; it being hereby intended and expressly agreed that all the business, franchises and properties, real, personal and mixed, of every kind and nature whatsoever and wherever situate, now owned, held, possessed, acquired or enjoyed and which may hereafter be in anywise owned, held, possessed, acquired or enjoyed by the Company or for the Company, shall be as fully embraced within the provisions hereof and subject to the lien hereby created as if said properties were particularly described herein and specifically mortgaged, pledged, conveyed, transferred and assigned hereby.
Colorado River development not included herein.
[Note: Property expressly excepted hereby relating to Boulder Dam was brought under lien of Indenture by Fifth Supplemental Indenture, which stated as follows: "WHEREAS, the United States has entered into a contract of date April 26, 1930, as amended by supplemental contracts dated May 28, 1930, and September 23, 1931, and as supplemented by agreement July 6, 1938, with The City of Los Angeles, a municipal corporation, and its Department of Water and Power, and the Company, severally, for the lease and for the operation and maintenance by the Company of a government-built power plant constructed at Boulder Dam, in the County of Mohave, State of Arizona, together with the right to generate electric energy; and
WHEREAS, The United States of America has entered into a contract with the Company, dated October 14, 1938, for the purchase of certain energy to be generated at the said government-built power plant constructed at said Boulder Dam, in the County of Mohave, State of Arizona, said agreement covering the period prior to the time the Company is obligated or required to take energy under the contract of April 26, 1930, as amended; and
WHEREAS, the Company now owns certain properties comprising the Company's transmission line and facilities between Boulder Dam, Nevada, and Chino, California, which by the express provisions of said Original Indenture were excepted from the property thereby mortgaged but which by said Second Supplemental Indenture the Company expressly covenanted that it would subject to the lien of said Original Indenture and said Supplemental Indenture; and the Company also now owns certain real and personal properties not specifically described in said Original Indenture or any of said Supplemental Indentures but which by virtue of the after-acquired property clause or other clauses of said Original Indenture are mortgaged and pledged thereunder and are now subject to the lien and effect thereof; and the Company now desires in this Fifth Supplemental Indenture to convey to the Trustees the aforesaid transmission line and facilities and, by way of further assurance, all of said real and personal properties."]
EXPRESSLY EXCEPTING, however, from the property of the Company hereby mortgaged, all right, title, interest and estate, which the Company now owns, or may hereafter acquire, under and by virtue of its several applications filed with the Federal Power Commission for preliminary permits and licenses for power development upon the Colorado River, and its several applications filed with, and now pending before, the State Water Commissioner of Arizona and the State Engineer of Nevada, for permits to appropriate and use the waters of the Colorado River for the generation of electric power, and all rights, rights of way, easements, or other servitudes, which the Company now owns, or may hereafter acquire, in connection with any power development on the said Colorado River, and any and all power houses, dams, tunnels, and generating equipment which the Company may construct or acquire and own and operate for the purpose of generating electric power by use of the waters of the Colorado River; provided, however, that any of such property may hereafter, at the election of the Company, by an Indenture supplemental hereto, be conveyed and mortgaged to the Trustees hereunder
11
subject to the terms and conditions of [*95*] this Indenture and thereby become a part of the mortgaged property.
SUBJECT, NEVERTHELESS, as to the properties respectively embraced therein or subject thereto, to the lien of:
Underlying mortgages.
(a) A Mortgage or Deed of Trust, dated July 1, 1917, and executed by Southern California Edison Company to Harris Trust and Savings Bank and Los Angeles Trust & Savings Bank, Trustees, recorded in the office of the County Recorder of Los Angeles County, California, in Book 6540 of Deeds, page 1, and in the offices of the County Recorders of divers other counties; also a supplement to said Mortgage or Deed of Trust, dated February 1, 1919, from Southern California Edison Company to the same trustees, and recorded in the office of the County Recorder of Los Angeles County, California, in Book 6760 of Deeds, page 135, and in the offices of the County Recorders of divers other counties; also a supplement to said Mortgage or Deed of Trust, dated June 25, 1920, from Southern California Edison Company to the same trustees, and recorded in the office of the County Recorder of Los Angeles County, California, in Book 7445 of Deeds, page 4, and in the offices of the County Recorders of divers other counties; also a supplement to said Mortgage or Deed of Trust, dated October 10, 1922, from Southern California Edison Company to the same trustees, and recorded in the office of the County Recorder of Los Angeles County, California, in Book 1683 of Official Records, page 151, and in the offices of the County Recorders of divers other counties;
Under said Mortgage or Deed of Trust there are outstanding at the date of this Indenture $54,144,000, par value of bonds, dated as of July 1, 1917, due February 1, 1944.
(b) A Mortgage or Deed of Trust, dated November 1, 1909, executed by Southern California Edison Company to Harris Trust and Savings Bank and Los Angeles Trust & Savings Bank, Trustees, recorded in the office of the County Recorder of Los Angeles County, California, in Book 3998 of Trust Deeds, page 66, and in the offices of the County Recorders of divers other counties; also a supplement to said Mortgage or Deed of Trust, dated August 31, 1910, from Southern California Edison [*96*] Company to the same trustees, and recorded in the office of the County Recorder of Los Angeles County, California, in Book 4287 of Deeds, page 218, and in the offices of the County Recorders of divers other counties; also a supplement to said Mortgage or Deed of Trust, dated July 25, 1913, from Southern California Edison Company to the same trustees, and recorded in the office of the County Recorder of Los Angeles County, California, in Book 5540 of Deeds, page 292, and in the offices of the County Recorders of divers other counties; also a supplement to said Mortgage or Deed of Trust, dated June 25, 1920, from Southern California Edison Company to the same trustees, and recorded in the office of the County Recorder of Los Angeles County, California, in Book 7445 of Deeds, page 4, and in the offices of the County Recorders of divers other counties; also a supplement to said Mortgage or Deed of Trust, dated October 10, 1922, from Southern California Edison Company to the same trustees, and recorded in the office of the County Recorder of Los Angeles County, California, in Book 1683 of Official Records, page 151, and in the offices of the County Recorders of divers other counties;
Under said Mortgage or Deed of Trust there are outstanding at the date of this Indenture $13,360,000 par value of bonds, dated November 1, 1909, due November 1, 1939.
(c) A Mortgage or Deed of Trust, dated December 1, 1901, executed by the Mentone Power Company to Union Trust Company of San Francisco, as Trustee, recorded in the office of the County Recorder of San Bernardino County, California, in Book 315, page 148 of Deeds.
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Under said Mortgage or Deed of Trust there are outstanding at the date of this Indenture $37,000 par value of bonds, dated December 1, 1901, due December 1, 1931.
(d) A Mortgage or Deed of Trust, dated September 1, 1902, executed by Pacific Light & Power Company to Union Trust Company of San Francisco, as Trustee, recorded in the office of the County Recorder of Los Angeles County, California, in Book 1649 of Trust Deeds, page 26, and in the offices of the County Recorders of divers other counties.
Under said Mortgage or Deed of Trust there are outstanding in the hands of the public at the date of this [*97*] Indenture, $6,370,000 par value of bonds, dated July 1, 1902, due July 1, 1942.
(e) A Mortgage or Deed of Trust, dated November 20, 1911, executed by Pacific Light & Power Corporation to United States Mortgage and Trust Company of New York, Trustee, recorded in the office of the County Recorder of Los Angeles County, California, in Book 2935 of Mortgages, page 1, and in the offices of the County Recorders of divers other counties.
Under said Mortgage or Deed of Trust there have been issued at the date of this Indenture a total of $14,258,000 par value of bonds, dated September 1, 1911, and due September 1, 1951, of which amount $6,073,000 principal amount are at the date of this Indenture outstanding in the hands of the public, and $2,594,000 principal amount are deposited and pledged by the Company under its Trust Indentures, dated November 1, 1909 and July 1, 1917, hereinbefore described, and $5,591,000 principal amount have been acquired by, or in the interest of, the Company, and are held alive in the sinking fund provided for in said Mortgage or Deed of Trust.
(f) A Mortgage or Deed of Trust dated November 1, 1906, from Ventura County Power Company to Title Insurance & Trust Company, Los Angeles, as Trustee, recorded in the office of the Recorder of Ventura County, California, in Book 55, Page 13, of Mortgages.
Under said Mortgage or Deed of Trust there are outstanding at the date of this Indenture $362,000 par value of bonds, dated November 1, 1906, due November 1, 1936.
(g) A Mortgage or Deed of Trust dated October 1, 1909, from Mt. Whitney Power & Electric Company to Bankers Trust Company, New York, as Trustee, recorded in the office of the Recorder of Tulare County, California, in Book 86, page 86 of Mortgages, and also in the offices of the Recorders of Kings and Kern Counties, California.
Under said Mortgage or Deed of Trust there are outstanding at the date of this Indenture, $3,338,000 par value of bonds, dated October 1, 1909, due October 1, 1939.
(h) A Mortgage or Deed of Trust dated July 1, 1916, from Santa Barbara Gas & Electric Company to Los Angeles Trust & Savings Bank, Trustee, recorded in [*98*] the office of the Recorder of Santa Barbara County, California, in Book 79, page 333 of Mortgages.
Under said Mortgage or Deed of Trust there are outstanding at the date of this Indenture, $730,700 par value of bonds, dated July 1, 1916, of which amount $10,000 par value are due on July 1st of each year from 1924 to 1940 inclusive, making a total of $170,000, and $560,700 are due July 1, 1941.
Habendum.
TO HAVE AND TO HOLD all and singular the mortgaged and pledged property unto the Trustees and their successor or successors in the trust hereby created, forever;
Declaration of trust.
BUT IN TRUST NEVERTHELESS for the equal and proportionate benefit and security of all present and future holders of the bonds and interest obligations issued and to be issued hereunder,
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without preference of any bond over any other bond by reason of priority in date of issuance, negotiation, time of maturity, or for any other cause whatsoever, except as hereinafter otherwise expressly provided, and of all holders of the Debentures of 1919 outstanding at the date hereof and the coupons appertaining thereto, and to secure the payment of the Debentures of 1919 in accordance with the terms and provisions of the Indenture securing the same, and to secure the payment of the bonds issued hereunder and the performance of and compliance with the covenants and conditions of this Indenture, and under and subject to the provisions and conditions and for the uses hereinafter set forth; it being hereby agreed as follows, to wit:
ARTICLE I. DESIGNATION, FORM, DENOMINATIONS, EXECUTION,
AUTHENTICATION AND REGISTRATION OF BONDS.
SECTION 1. Bonds to be payable in gold coin.
[Note: Modified by Part V, Sixth Supplemental Indenture, as follows: "Notwithstanding anything to the contrary contained in the Original Indenture, or in any indentures supplemental thereto which have been heretofore executed and delivered, or in this Sixth Supplemental Indenture, the principal of and interest on all bonds which may at any time hereafter be outstanding under the Original Indenture, as amended, shall be payable solely in such coin or currency of the United States of America as at the time of payment shall be legal tender for public and private debts; and, in the discretion of the Board of Directors of the Company, the word "gold" may be omitted from the designation or title of any such bonds issued subsequent to the execution and delivery of this Sixth Supplemental Indenture."]
SECTION 1. The bonds to be issued hereunder, except as hereinafter otherwise provided, shall be payable in United States gold coin of or equal to the standard of weight and [*99*] fineness existing on October 1, 1923, and shall be designated as the Company's "Refunding Mortgage Gold Bonds." They shall be issued in series from time to time as the Board of Directors of the Company shall determine.
Bonds issuable in series.
Each series of bonds shall be distinguished from every other series by some appropriate designation on the face thereof.
Details as to initial series.
The initial series to be issued hereunder shall bear the designation "Series of 6's, Due 1943," and shall be dated as of October 1, 1923, shall mature October 1, 1943, and shall bear interest at the rate of six per centum (6%) per annum payable semi-annually on the first day of April and the first day of October, in each year, and such bonds may be either coupon bonds or fully registered bonds, and they and the interest coupons to be attached to the coupon bonds and the certificate of the Harris Trust and Savings Bank, Trustee, for the authentication of all bonds shall be substantially in the respective forms hereinbefore set forth.
SECTION 2. Denominations and numbering of bonds, etc.
[Note: First clause of first sentence amended by Part III, Section A(1), Twenty-Fourth Supplemental Indenture.]
SECTION 2. [The coupon bonds to be issued hereunder shall be in such denomination or denominations as may from time to time be specified in the resolutions of the Board of Directors of the Company authorizing such bonds]; fully registered bonds of Series of 6's, Due 1943, shall be in the denominations of $1,000, $5,000 and $10,000; fully registered bonds of any other series may be in such denomination or denominations as may from time to time be specified in the resolution of the Board
14
of Directors of the Company authorizing the same. Of coupon bonds of Series of 6's, Due 1943, those in the denomination of $1,000 shall be numbered from M-1 upward, and those in the denomination of $500 shall be numbered from D-1 upward, and those in the denomination of $100 shall be numbered from C-1 upward. Of fully registered bonds of Series of 6's, Due 1943, those in the denomination of $1,000 shall be numbered from RM-1 upward, and those in the denomination of $5,000 shall be numbered from RV-1 upward, and those in the denomination of $10,000 shall be numbered from RX-1 upward. Any other [*100*] and further bonds (whether fully registered bonds or coupon bonds) which may be authenticated under this Indenture shall be numbered in such manner as may be determined by the Company and approved by the Harris Trust and Savings Bank, Trustee.
Additional provisions to comply with stock exchange rules.
Any bond may bear such additional letter or letters and other designation and may contain therein or have imprinted thereon such provisions as may be required to comply with the rules of any brokers' board or exchange or with the order of any governmental body having jurisdiction in the premises or to conform to usage.
SECTION 3. Signing and sealing of bonds.
[Note: Amended by Part III, Section A(2), Twenty-Fourth Supplemental Indenture.]
[SECTION 3. All bonds to be secured hereby shall be signed by the President, or one of the Vice Presidents, of the Company, and the corporate seal of the Company shall be thereto affixed and attested by its Secretary, or one of its Assistant Secretaries. The signatures of any of such officers on any of such bonds may be facsimile. In case any officer who shall sign or seal, or whose facsimile signature shall have been used on, any bond shall cease to be such officer before the bond so signed or sealed, or which bears such facsimile signature, shall have been actually authenticated and delivered by the Harris Trust and Savings Bank, Trustee, such bond may, nevertheless, be issued, authenticated and delivered as though such person had not ceased to be an officer of the Company. Any bond to be secured hereby may be signed or sealed by, or may bear the facsimile signature of, the person who may be the proper officer of the Company at the time of such signing, sealing or impressing of facsimile signature, although such person may not have been such officer at the date of such bond.]
SECTION 4. Authentication of coupons.
SECTION 4. The coupons to be attached to coupon bonds shall be authenticated by the facsimile signature of the present Treasurer or any future Treasurer of the Company, it being intended that the Company may adopt and use for that purpose the facsimile signature of any such Treasurer notwithstanding that he may have ceased to be the Treasurer of the Company at the time when said bonds shall be authenticated and delivered.
[*101*]
SECTION 5. Trustee to authenticate and deliver bonds only as provided in this Indenture.
SECTION 5. All bonds, when executed by the Company, shall be delivered to the Harris Trust and Savings Bank, Trustee, to be authenticated by it, and the Harris Trust and Savings Bank, Trustee, shall authenticate and deliver the same only as provided in this Indenture.
Only bonds which bear trustee's certificate are entitled to benefit of Indenture.
Only such bonds as shall bear thereon the certificate of the Harris Trust and Savings Bank, Trustee, duly signed, shall be secured by this Indenture or entitled to any lien or benefit hereunder, and such certificate of the Harris Trust and Savings Bank, Trustee, upon any such bond executed on behalf of the
15
Company shall be conclusive evidence that the bond so authenticated has been duly issued hereunder and is entitled to the benefits of the trust hereby created.
SECTION 6. Coupon bonds of one denomination exchangeable for coupon bonds of other denominations.
[Note: Amended by Part III, Section A(3), Twenty-Fourth Supplemental Indenture.]
[SECTION 6. The holder of any coupon bond or bonds of any series outstanding hereunder shall have the right to exchange the same for a like principal amount of coupon bonds hereby secured of any other authorized denomination or denominations, but of the same issue, series and maturity as the bonds presented for exchange, and upon surrender of any such outstanding bonds to the Harris Trust and Savings Bank, Trustee, with all unmatured coupons thereto appertaining, the Company shall execute, and the Harris Trust and Savings Bank, Trustee, shall authenticate and deliver, new coupon bonds hereby secured for the same aggregate principal amount and of the same issue, series and maturity, with all unmatured coupons thereto appertaining.]
SECTION 7. Company to keep books for registration of bonds.
SECTION 7. The Company shall keep at such place or places of registration as may be specified in the bonds from time to time issued hereunder books for the registry and transfer, as in this Indenture and in bonds issued hereunder provided, of bonds issued hereunder. Such books shall, in addition to the name of the owner of each registered bond (with or without coupons), show the address of such owner.
[*102*]
SECTION 8. Registration of coupon bonds.
SECTION 8. All coupon bonds hereby secured shall be negotiable and pass by delivery unless registered in the name of the owner thereof on the books of the Company at the office of the Harris Trust and Savings Bank, Trustee, Chicago, Illinois, or at the office or agency of the Company in the Borough of Manhattan, City of New York, or at such other place of registration as may be specified in said bonds. Such registration shall be noted on said bonds in such form or forms as shall from time to time be determined by the Harris Trust and Savings Bank, Trustee. After such registration no transfer shall be valid unless made on said books by the registered owner in person, or by his duly authorized attorney, and similarly noted on the bond. Upon presentation at any such place of registration of any such coupon bond so registered, accompanied by a written instrument of transfer, in form approved by the Harris Trust and Savings Bank, Trustee, executed by the registered owner, such bond shall be transferred upon such books. The registered owner of any such coupon bond so registered shall have the right to cause the same to be discharged from registry by transfer to bearer, in which case transferability by delivery shall be restored, and thereafter the principal of such bond, when due, shall be payable to the person presenting the bond. Any such bond registered as payable to bearer may be registered again in the name of the owner with the same effect as a first registration thereof. Successive registrations and transfers as aforesaid may be made from time to time as desired.
Registration of coupon bonds not to affect negotiability of coupons.
Registration of any coupon bond, however, shall not affect the negotiability of the coupons appertaining to such bond, but title to every such coupon shall continue to pass by delivery and it shall remain payable to bearer.
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Registered owner of bonds to be deemed absolute owner thereof.
As to any coupon bonds so registered, and as to fully registered bonds, the person in whose name the same shall be registered shall, for [*103*] all purposes of this Indenture, be deemed and regarded as the absolute owner thereof, and payment of or on account of the principal of such bonds, shall be made only to or upon the order of the registered owner thereof. All such payments so made shall be valid and effectual to satisfy and discharge the liability upon such bonds to the extent of the sum or sums so paid.
Bearer of bond not registered and of coupons to be deemed owner thereof.
The bearer of any coupon bond hereby secured which shall not at the time be registered as hereinbefore authorized, and the holder of any coupon for interest on any such bond, whether such bond shall be registered or not, shall for all purposes of this Indenture, be deemed and regarded as the absolute owner of such bond or coupon, as the case may be, for the purpose of receiving payment thereof, and for all other purposes, and neither the Company nor the Trustees or either of them, shall be affected by any notice to the contrary.
SECTION 9. Coupon bonds exchangeable for registered bonds.
[Note: First sentence deleted by Part IV, Section A, Sixth Supplemental Indenture.]
SECTION 9. [First sentence deleted.] Whenever any coupon bond or bonds of the same issue, series and maturity, of the aggregate principal amount of $1,000, or some multiple thereof, with all unmatured coupons thereunto appertaining, shall be surrendered for exchange for a fully registered bond, the Company shall supply and execute, and the Harris Trust and Savings Bank, Trustee, shall authenticate, and in exchange for such coupon bond or bonds shall deliver, a fully registered bond or bonds of the same issue, series and maturity as, and in principal amount equal to the aggregate principal amount of, the surrendered bond or bonds, and wherein interest shall be stated to accrue from the date of maturity of the last installment of interest matured in respect of such coupon bond or bonds. The Harris Trust and Savings Bank, Trustee, shall endorse upon each such fully registered bond the number or numbers of the coupon bonds surrendered in exchange therefor, and shall preserve [*104*] such coupon bonds intact, and may in its discretion cause the same to be registered in its name.
Registered bonds exchangeable for coupon bonds.
Whenever any fully registered bond, accompanied by a written instrument of transfer, in form approved by the Harris Trust and Savings Bank, Trustee, shall be surrendered for exchange for coupon bonds, the Harris Trust and Savings Bank, Trustee, in exchange for such fully registered bond shall deliver the coupon bonds the numbers whereof are revealed by endorsement appearing on such fully registered bond, with all coupons appertaining thereto and evidencing interest unpaid in respect of the indebtedness evidenced thereby.
Registered bonds transferable only on books of Company—new registered bond to issue to transferee.
A fully registered bond is transferable only on the books of the Company at the office of Harris Trust and Savings Bank, Trustee, Chicago, Illinois, or at the office or agency of the Company in the Borough of Manhattan, City of New York, or at such other place of registration as may be specified in said bonds, by the registered owner in person or by his duly authorized attorney on surrender of said bond properly endorsed. Upon such surrender the Company shall supply and execute and the Harris Trust and Savings Bank, Trustee, shall authenticate and deliver to the transferee a new fully registered bond or bonds in the name of such transferee and having endorsed thereon the same coupon bond
17
number or numbers as were endorsed on, and of the same issue, series and maturity as, the surrendered bond and for a like aggregate principal amount.
Interest upon fully registered bonds paid by check.
The Harris Trust and Savings Bank, Trustee, upon being furnished with funds sufficient for the payment of interest accruing on any interest payment day upon all fully registered bonds outstanding hereunder, shall mail checks for such interest as and when the same becomes due and payable upon their respective bonds, to all owners of fully registered bonds, directed to their last address as shown on the books of registration in respect of such bonds.
[*105*]
SECTION 10. Charges upon exchange or transfer of bonds.
SECTION 10. For any exchange of bonds for bonds of another denomination, or of coupon bonds for fully registered bonds, or of fully registered bonds for coupon bonds, for any registration of coupon bonds, and for any transfer of registered bonds with or without coupons, the Company, at its option, may require the payment of a sum sufficient to reimburse it for any stamp tax or governmental charge, and in addition (except in the case of the registration or transfer after registration of coupon bonds) a further sum not exceeding the cost of the preparation of each new bond, if any, issued upon such transfer or exchange and the charges of the Harris Trust and Savings Bank, Trustee, and of the Bond Registrar. In every case of such transfer or exchange (except in the case of coupon bonds surrendered in exchange for fully registered bonds), the Harris Trust and Savings Bank, Trustee, forthwith shall cancel the surrendered bond or bonds and coupons, and upon demand shall deliver the same to the Treasurer of the Company or upon his written order.
SECTION 11. Variations in form of bonds of different series.
[Note: Clause (3) amended by Part III, Section A(4), Twenty-Fourth Supplemental Indenture.]
SECTION 11. The bonds of any series which may be issued hereunder, other than Series of 6's, Due 1943, shall be in substantially the same form as the bonds of Series of 6's, Due 1943, subject to such variations, additions, substitutions and omissions as are required or permitted by this Indenture. The bonds of any such other series may (1) be dated as of such date, (2) bear such rate of interest payable at such times, [(3) mature at such time (and in the case of bonds of serial maturities at such times), not more than forty years from their date,] (4) be payable and subject to registration and transfer at such place or places, (5) contain such provisions as to payment of, or payment without deduction for, or reimbursement for, ally tax or taxes, (6) contain such provisions for a sinking fund and exchange for or conversion into shares of stock or other securities, (7) be redeemable upon such terms, and (8) contain such other provisions, not inconsistent [*106*] with the terms of this Indenture, as may be specified in such bonds and in the resolution of the Board of Directors and in the Supplemental Indenture, if any, providing for the issuance of such series. All bonds of any one series shall be identical in all respects, except that in the case of bonds with serial maturities, they may differ as to time of maturity and redemption price. Any series of bonds may comprise both fully registered and coupon bonds.
Bonds to be printed in English language but may also be printed in foreign languages.
All bonds and the coupons appertaining thereto shall be printed in the English language, and any such bonds may also, at the election of the Company, be printed in one or more foreign languages, but in the case of every bond so printed the English text shall govern in the construction thereof, and both or all texts shall constitute a single obligation.
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SECTION 12. Deleted
[Note: Section 12 deleted by Part IV, Section B, Sixth Supplemental Indenture.]
[*107*]
SECTION 13. No series to have preference over any other except as to special sinking fund.
SECTION 13. No series of bonds issued hereunder shall have any preference as to the security afforded by this Indenture over any other series of bonds issued or to be issued hereunder and no bond of any series shall have any such preference over any other bond of the same or any other series; provided, however, that the Company may at any time establish a sinking fund or sinking funds for the exclusive benefit of any particular series (one or more) of such bonds, and the holders of any bonds other than those for whose exclusive [*108*] benefit any such sinking fund or sinking funds shall have been so established shall have no interest therein or benefit therefrom whether upon default under the provisions of this Indenture or otherwise.
SECTION 14. Procedure for creation of new series.
SECTION 14. Whenever the Company shall determine to create a new series of bonds secured by this Indenture, it shall file with the Harris Trust and Savings Bank, Trustee, a copy of a resolution duly adopted by its Board of Directors and certified by its Secretary or one of its Assistant Secretaries, and under its corporate seal, describing such series, and the Company may, and if requested by the Harris Trust and Savings Bank, Trustee, shall, execute, acknowledge and deliver a Supplemental Indenture likewise describing such series and containing such other provisions as may be necessary or appropriate in the premises, and thereafter bonds of such series may be issued from time to time in accordance with the provisions of this Indenture and any such Supplemental Indenture. Whenever the Company shall be entitled under any provision of this Indenture to issue additional bonds, it may issue bonds of any one or more series then or theretofore created.
SECTION 15. Temporary bonds.
SECTION 15. Pending the preparation of any definitive bonds to be issued under and secured by this Indenture, the Company may execute and deliver temporary printed or typewritten bonds without any, or with one or more, interest coupons, substantially of the tenor of the definitive bonds, of any denomination. Any such temporary bonds shall be authenticated by the Harris Trust and Savings Bank, Trustee, in the same manner as the definitive bonds and such authentication shall constitute conclusive evidence that the temporary bonds so authenticated have been duly issued under this Indenture and that the holders thereof are entitled to the benefits of the trust hereby created. Such temporary bonds issued and authenticated as [*109*] aforesaid shall be exchangeable, without expense to the holder, for definitive bonds to be issued under and secured by this Indenture, and upon any such exchange such temporary bonds shall be forthwith canceled by the Harris Trust and Savings Bank, Trustee, and delivered to the Treasurer of the Company or upon his written order. Any such temporary bonds may also be exchanged for other temporary bonds of different denominations of the same issue, series and maturity and for the same aggregate principal amount. Without unnecessary delay the Company will execute and will furnish such definitive bonds to be exchanged for such temporary bonds.
SECTION 16. Mutilated, lost or destroyed bonds.
SECTION 16. In case any of the bonds or coupons issued hereunder shall, prior to the payment thereof, become mutilated or be lost or destroyed, new bonds or coupons of like tenor and date may, in the discretion of the Company and the Harris Trust and Savings Bank, Trustee, be executed, authenticated and delivered in exchange or substitution therefor. All mutilated bonds or coupons presented for exchange or substitution shall be surrendered to and canceled by the Harris Trust and
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Savings Bank, Trustee. In case of the loss or destruction of any of said bonds or coupons, the applicant for a substituted bond or coupon shall furnish to the Company and to the Harris Trust and Savings Bank, Trustee, evidence of the loss or destruction of such bond or coupon satisfactory to the Company and to the Harris Trust and Savings Bank, Trustee; and shall also furnish indemnity satisfactory to the Company and to the Harris Trust and Savings Bank, Trustee. Any such applicant shall pay to said Trustee for the account of the Company the cost of printing or engraving such substituted bond or coupon and in addition thereto the reasonable charges of said Trustee for its services in connection with the issuance thereof.
SECTION 17. Change of designation of bonds.
SECTION 17. Whenever, in the opinion of counsel approved [*110*] by the Harris Trust and Savings Bank, Trustee, the lien created by this Indenture upon the trust property shall have so changed that the bonds issued hereunder may be more appropriately designated and described by some title other than "Refunding Mortgage Gold Bonds," then and in that event, at the option of the Company expressed in a resolution adopted by its Board of Directors, a certified copy whereof shall be filed with the Harris Trust and Savings Bank, Trustee, all bonds thereafter authenticated by the Harris Trust and Savings Bank, Trustee, under the provisions of this Indenture may be designated by some new title approved by such counsel, but in the event of the exercise of such option by the Company the holder of any bond theretofore authenticated by the Harris Trust and Savings Bank, Trustee, hereunder shall be entitled, without charge, upon surrender to the Harris Trust and Savings Bank, Trustee, of such previously authenticated bond, to receive in lieu thereof a new bond (which shall be duly executed by the Company and authenticated by the Harris Trust and Savings Bank, Trustee) designated by the new title but otherwise in all respects of the same tenor as the surrendered bond, and any such new bond so authenticated shall, as to the security afforded by this Indenture, stand in the same position as the bond in exchange for which it was so issued. Any such surrendered bond as well as any such new bond shall be accompanied by all unmatured interest coupons thereto appertaining. All bonds and coupons so surrendered shall be forthwith canceled and delivered to the Treasurer of the Company or upon his written order. Any new title which may have been so adopted for the bonds hereby secured may from time to time, in like manner and upon similar conditions, again be changed.
[*111*]
ARTICLE TWO. ISSUANCE OF BONDS.
SECTION 1. Amount of authorized bonded indebtedness at date of this Indenture.
SECTION 1. At the date of this Indenture the amount of the authorized bonded indebtedness of the Company which may be represented by bonds issuable under this Indenture is Two Hundred and Fifty Million Dollars ($250,000,000).
Increase of authorized bonded indebtedness.
Whenever the Company shall in accordance with law authorize any increase of its bonded indebtedness and shall desire to provide for the issuance of bonds hereunder to represent such increase of its authorized bonded indebtedness, the Company shall present to the Harris Trust and Savings Bank, Trustee, a certificate signed by its President or by one of its Vice Presidents and its Secretary or one of its Assistant Secretaries, and under its corporate seal, accompanied by an opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, stating that the authorized bonded indebtedness of the Company has been so increased in accordance with law, and thereupon the aggregate principal amount of bonds which may be issued and outstanding hereunder shall be correspondingly increased; and the Company shall also execute and deliver to the Trustees hereunder such Supplemental Indenture as the Harris Trust and Savings Bank, Trustee, may reasonably require,
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which Supplemental Indenture shall set forth the increase in the aggregate principal amount of bonds which may be issued and outstanding under this Indenture.
SECTION 2. $9,844,000 bonds to be issued forthwith.
SECTION 2. Upon the execution and delivery of this Indenture the Company shall execute and deliver to the Harris Trust and Savings Bank, Trustee, Nine Million, Eight Hundred Forty-four Thousand Dollars ($9,844,000) principal amount of bonds of the Series of 6's, Due 1943, and the Harris Trust and Savings Bank, Trustee, shall thereupon [*112*] authenticate and deliver the same to the Company upon receipt of:
I. The written order of the Company, signed by its President or one of its Vice Presidents and by its Secretary or one of its Assistant Secretaries under its corporate seal;
II. A copy of a resolution of the Board of Directors of the Company, certified by its Secretary or one of its Assistant Secretaries under its corporate seal, authorizing such order and specifying the denominations and numbers of the bonds requested to be delivered;
III. A certified copy of an authorizing order or certificate of consent or approval of the Railroad Commission of California relative to the making of this Indenture and the issuance of such bonds;
IV. Evidence satisfactory to the Harris Trust and Savings Bank, Trustee, establishing the payment of any recording or other fees or charges or taxes required by law in connection with the authorization or issuance of such bonds, or the authorization or making of this Indenture, or an opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, that no such recording or other fees or charges or taxes are required by law.
SECTION 3. Bonds shall be reserved to acquire or retire underlying bonds, etc.
[Note: Modified by Article Three, Section 9, Fourth Supplemental Indenture, as follows: "That the Company will not issue, after August 31, 1935, any bonds under the provisions of Section 3 and/or Section 12 of Article Two of said Original Indenture against underlying bonds and bonds previously issued under said Original Indenture retired prior to September 1, 1935, and not theretofore used as the basis of the issuance of bonds under said Original Indenture except to the extent of bonds in the principal amount of $700,000."]
[Note: Subsection VII amended by Article 3, Section 5, Fourth Supplemental Indenture.]
SECTION 3. Out of the total amount of bonds at any time issuable hereunder there shall be reserved to be issued from time to time on account of the acquisition or retirement of the following described debentures, bonds and other evidences of indebtedness, an amount of bonds (hereinafter called "reserved bonds"), of a principal amount equal to the principal amount of such debentures, bonds and other evidences of indebtedness at the time outstanding:
Schedule of underlying bonds.
(a) $4,884,000 principal amount of Southern California Edison Company Seven Per Cent Gold Debenture Bonds secured by Indenture between Southern California Edison Company and Bankers Trust Company, of New York, as Trustee, dated January 15, 1919, being the amount outstanding in the hands of the public as of the date of this Indenture;
(b) $6,073,000 principal amount of Pacific Light & Power Corporation First and Refunding Mortgage Five [*113*] Per Cent Sinking Fund Gold Bonds, secured by deed of trust made by Pacific Light & Power Corporation to the United States Mortgage and Trust Company, New York,
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Trustee, dated November 20, 1911, being the amount outstanding in the hands of the public as of the date of this Indenture;
(c) $6,370,000 principal amount of Pacific Light and Power Company First Mortgage Five Per Cent Gold Bonds, secured by deed of trust made by Pacific Light and Power Company to Union Trust Company, San Francisco, Trustee, dated September 1, 1902, being the amount outstanding in the hands of the public as of the date of this Indenture;
(d) $37,000 principal amount of Mentone Power Company First Mortgage Five Per Cent Gold Bonds, secured by deed of trust made by Mentone Power Company to Union Trust Company, San Francisco, Trustee, dated December 1, 1901, being the amount outstanding in the hands of the public as of the date of this Indenture;
(e) $3,338,000 principal amount of Mt. Whitney Power & Electric Company First Mortgage Six Per Cent Sinking Fund Gold Bonds secured by deed of trust made by Mt. Whitney Power & Electric Company to Bankers Trust Company, New York, Trustee, dated October 1, 1909, being the amount outstanding in the hands of the public as of the date of this Indenture.
(f) $362,000 principal amount of Ventura County Power Company Sinking Fund Thirty-Year Six Per Cent Bonds, secured by deed of trust made by Ventura County Power Company to Title Insurance & Trust Company, Los Angeles, Trustee, dated November 1, 1906, being the amount outstanding in the hands of the public as of the date of this Indenture.
(g) $13,360,000 principal amount of Southern California Edison Company General Mortgage Five Per Cent Thirty-Year Gold Bonds, secured by Trust Indenture made by Southern California Edison Company to Harris Trust and Savings Bank, Chicago, and Los Angeles Trust & Savings Bank, Los Angeles, Trustees, dated November 1, 1909, being the amount outstanding in the hands of the public as of the date of this Indenture;
[*114*]
(h) $54,144,000 principal amount of Southern California Edison Company General and Refunding Mortgage Gold Bonds secured by Trust Indenture made by Southern California Edison Company to Harris Trust and Savings Bank, Chicago, and Los Angeles Trust & Savings Bank, Los Angeles, Trustees, dated July 1, 1917, being the amount outstanding in the hands of the public as of the date of this Indenture.
(i) $730,700 principal amount of Santa Barbara Gas & Electric Company First Mortgage Serial Sinking Fund Gold Bonds secured by deed of trust made by Santa Barbara Gas & Electric Company to Los Angeles Trust & Savings Bank, Trustee, dated July 1, 1916, being the amount outstanding in the hands of the public as of the date of this Indenture.
(j) $13,000 principal amount of Edison Electric Company of Los Angeles, California, First Mortgage Five Per Cent 30 Year Gold Bonds due September 1, 1929, being the amount outstanding in the hands of the public as of the date of this Indenture.
(k) $11,000 principal amount of Edison Electric Company of Los Angeles, California, 30 Year Gold Bonds, due November 1, 1927, being the amount outstanding in the hands of the public as of the date of this Indenture.
(l) The principal amount of any bonds or other evidences of indebtedness secured by mortgage lien upon any property of a subsidiary corporation as hereinafter defined existing upon the date when such corporation shall become a subsidiary corporation, or upon any property hereafter acquired by the Company or any of its subsidiary corporations, whenever bonds are required to be reserved hereunder to purchase or retire the same as provided in Sections 8 and 10 of this Article Two.
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The bonds and other evidences of indebtedness scheduled above in subparagraphs (b) to (l), inclusive are hereinafter sometimes referred to as "underlying bonds" and the mortgages or instruments of trust securing the same, respectively, are hereinafter sometimes referred to as "underlying mortgages."
Reserved bonds not used may be trusted as residue bonds.
Any bonds reserved for issue under the provision of this [*115*] Section 3 for the purpose of acquiring or paying underlying bonds and Debentures of 1919 and not required for such purpose on account of the payment or cancellation of any such underlying bonds and Debentures of 1919 by other means than the issue of bonds under this Indenture, as evidenced by the certificate of the President or one of the Vice Presidents, and the Secretary or one of the Assistant Secretaries of the Company, may be withdrawn from reservation and may be treated as residue bonds as hereinafter defined.
Procedure for authentication of reserved bonds against Debentures of 1919 and underlying bonds.
Reserved bonds which shall from time to time be executed by the Company and delivered to the Harris Trust and Savings Bank, Trustee, shall be authenticated and delivered to the Company, subject to the provisions of this Indenture, by the Harris Trust and Savings Bank, Trustee, to the principal amount of Debentures of 1919 and underlying bonds acquired or retired, upon receipt by the Harris Trust and Savings Bank, Trustee, of:
I. The written order of the Company signed by its President, or one of its Vice Presidents and by its Secretary, or one of its Assistant Secretaries, under its corporate seal;
II. A copy of a resolution of the Board of Directors of the Company, certified by its Secretary, or one of its Assistant Secretaries under its corporate seal, authorizing such order and specifying, subject to the provisions of this Indenture, the series, date or dates of maturity, numbers and denominations of the bonds requested to be delivered;
III. Either
(a) Underlying bonds, uncanceled, in bearer form, with all unmatured coupons appertaining thereto; or
(b) A certificate of the trustee of such underlying mortgage as in the opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, shall be requisite in the premises, stating that there have been deposited with it underlying bonds, uncanceled, in bearer form, with all unmatured coupons appertaining thereto; or [*116* ]
(c) A certificate or certificates of the trustee or trustees of the mortgage or mortgages securing such underlying bonds, or other evidence satisfactory to the Harris Trust and Savings Bank, Trustee, stating or showing that such underlying bonds have been paid or redeemed or otherwise retired and canceled out of funds other than those applicable to the payment of such underlying bonds under and by virtue of any insurance or partial release or sinking fund or other similar provisions of the mortgage securing such underlying bonds, or any other underlying mortgage; or a certificate of the Bankers Trust Company, trustee under the indenture securing said Debentures of 1919 stating or showing such Debentures have been paid or redeemed or otherwise retired and canceled.
IV. A certified copy of an authorizing order or certificate of consent or approval of the Railroad Commission of California, or similar public authority having jurisdiction in the premises or an opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, that no such order or certificate is required by law;
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V. Evidence satisfactory to the Harris Trust and Savings Bank, Trustee, establishing the payment of any recording or other fees or charges or taxes required by law in connection with the authorization or issuance of such bonds, or an opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, that no such recording or other fees or charges or taxes are required by law.
VI. In case the underlying bonds so acquired or retired are bonds secured by mortgage upon the property of a subsidiary corporation, as hereinafter defined, an amount of bonds of such subsidiary corporation of the character described in Section 10 of this Article, at least equal to the principal amount of the bonds to be issued hereunder, or in lieu thereof, a certificate of the trustee of such underlying mortgage as in the opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, shall be requisite, stating that there have been deposited with it such new bonds of such subsidiary, uncanceled, in bearer form, with all unmatured coupons appertaining thereto.
[Note: Subsection VII amended by Article 3, Section 5, Fourth Supplemental Indenture.]
VII. In case reserved bonds are requested on account of underlying bonds or Debentures of 1919 theretofore matured or redeemed, and any residue bonds shall have [*117*] been authenticated and delivered hereunder after the date of such maturity or redemption and prior to the date of filing such request, a sworn statement of the President or one of the Vice Presidents, and the Treasurer or one of the Assistant Treasurers of the Company, showing that the net earnings of the Company as in Section 5 of this Article Two defined, for the period of twelve (12) consecutive months ending not more than sixty (60) days prior to the date of filing such request were at least equal to [two and one-half] times the total annual bond interest charge of the Company as in said Section 5 defined, including the bonds, the delivery of which is requested, but not including the underlying bonds or Debentures of 1919 matured or redeemed as aforesaid.
Underlying bonds deposited hereunder to be held as part of mortgaged property.
All underlying bonds at any time delivered to the Harris Trust and Savings Bank, Trustee, under the provisions of this Section 3 shall be held by said Harris Trust and Savings Bank, Trustee, uncanceled as a part of the mortgaged and pledged property hereunder and subject to the provisions of Article Six of this Indenture.
SECTION 4. Procedure for issuance of reserved bonds against deposit of cash.
SECTION 4. At any time or times within twelve months prior to the maturity of any Debentures of 1919 or underlying bonds in respect of which bonds may be issued hereunder, or within twelve months prior to the date which may be fixed for the redemption of such Debentures or underlying bonds, the Company, in order to provide the means to pay or redeem such Debentures of 1919 or such of said underlying bonds as shall not theretofore have been delivered to the Harris Trust and Savings Bank, Trustee, or to the trustee of an underlying mortgage for deposit and pledge, or retired or canceled, and which are about to mature or be redeemed within twelve months, may execute and deliver to the Harris Trust and Savings Bank, Trustee, an aggregate principal amount of reserved bonds equal to the principal amount of Debentures of 1919 or underlying bonds to be paid or redeemed, and the Harris Trust and Savings Bank, Trustee, shall, subject to the provisions of this Indenture, authenticate and deliver such reserved bonds upon receipt by it of
I. The written order of the Company signed by its President, or one of its Vice Presidents, and by its Secretary [*118*] or one of its Assistant Secretaries under its corporate seal;
II. An amount of cash equal to the aggregate principal amount of bonds requested to be delivered, plus any premium requisite to permit the payment of any such Debentures of 1919 or
24
underlying bonds prior to their maturity, together with interest to such date of redemption or maturity;
III. A copy of a resolution of the Board of Directors of the Company certified by its Secretary or one of its Assistant Secretaries under its corporate seal, authorizing such order, specifying the Debentures of 1919 or the underlying bonds to be paid or redeemed, the date of maturity of such Debentures of 1919 or of such bonds, or if they are to be redeemed, the date fixed for such redemption, and specifying further, subject to the provisions of this Indenture, the series, date or dates of maturity, numbers and denominations of the bonds requested to be delivered, and containing such directions as shall be appropriate to enable the Harris Trust and Savings Bank, Trustee, to expend the deposited cash in or about the payment or redemption of such Debentures of 1919 or underlying bonds;
IV. A certified copy of an authorizing order or certificate of consent or approval of the Railroad Commission of California, or similar public authority having jurisdiction in the premises, or an opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, that no such order or certificate is required by law;
V. Evidence satisfactory to the Harris Trust and Savings Bank, Trustee, establishing the payment of any recording or other fees or charges or taxes required by law in connection with the authorization or issuance of such bonds or an opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, that no such recording or other fee or charges or taxes are required by law.
Application of cash deposited against reserved bonds.
The cash deposited by the Company with the Harris Trust and Savings Bank, Trustee, under this Section, or so much thereof as shall be necessary, shall be applied by the Harris Trust and Savings Bank, Trustee, in such manner as in the directions aforesaid shall be specified, to the payment or redemption of such Debentures of 1919 or of such underlying bonds for the payment or redemption of which such cash [*119*] shall have been deposited. If any part of such deposited cash shall remain in the possession of the Harris Trust and Savings Bank, Trustee, after all of such underlying bonds shall have been delivered to the Harris Trust and Savings Bank, Trustee, or after there shall have been delivered by the Company to the Harris Trust and Savings Bank, Trustee, a certificate satisfactory to it made by the trustee under the Indenture securing such Debentures of 1919, or by the trustee under the mortgage securing such underlying bonds, certifying either (a) that all such Debentures of 1919 or such underlying bonds as have not been deposited with the Harris Trust and Savings Bank, Trustee, have been canceled, or (b) that an amount of cash sufficient to pay all such Debentures of 1919 or underlying bonds, not theretofore paid, retired and canceled, or deposited with the Harris Trust and Savings Bank, Trustee, together with interest to date of redemption or maturity, has been deposited with the trustee under the indenture securing such Debentures of 1919 or with the trustee under such underlying mortgage, and certifying further, in the case of underlying bonds, that such underlying mortgage has been released and discharged or will be released and discharged in due course, then any such cash so remaining in the hands of Harris Trust and Savings Bank, Trustee, shall be paid to or upon the written order of the Company signed by its President or one of its Vice Presidents and by its Secretary or one of its Assistant Secretaries under its corporate seal.
SECTION 5. Definition of residue bonds.
[Note: Amended by Article Three, Section 6, Fourth Supplemental Indenture.]
SECTION 5. All bonds issuable hereunder not reserved as hereinabove in this Article Two provided, and excepting bonds issuable under the provisions of Sections 2, 12 and 13 of this Article Two, are hereinafter referred to as "residue bonds."
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Residue bonds not to issue unless net earnings equal two and one-half bond interest.
None of the residue bonds shall be authenticated and delivered unless and until the net earnings of the Company for a period of twelve (12) consecutive calendar months ending not more than sixty (60) days prior to the date of the filing with the Harris Trust and Savings Bank, Trustee, of the request of the Company for the delivery of such bonds, shall have been in each case equal to at least [two and one-half] times the total annual bond interest charge of the Company. [*120* ]
Net earnings defined.
The term "net earnings" of the Company as used in this Article shall in the case of each request for the authentication of residue bonds mean the amount remaining after deducting from the earnings derived from the plants and properties of the Company, and its subsidiary corporations, as hereinafter defined, owned at the date of such request, all operating expenses, including taxes, governmental charges, rentals, insurance, and reasonable and proper expenditures for maintenance and repairs, eliminating all intercompany, duplicating and offsetting items, in accordance with standard accounting practice employed to ascertain the consolidated earnings of a corporation and its affiliated corporations; provided, that in any such computation of earnings, there may be included, for the purposes hereof, the earnings and expenses for the same period of any property acquired as an entirety by the Company or by a subsidiary company, or of any property of a company which became a subsidiary company, prior to or simultaneously with the authentication and delivery of bonds hereunder. Earnings from and operating expenses of any plants, properties and equipment of any corporation (not a subsidiary corporation) leased to the Company, or to a subsidiary corporation, as an entirety or substantially as an entirety and operated by or for the Company, and any interest or dividends exceeding in amount seven and one-half per cent (7-1/2%) of the aggregate net earnings of the Company received in such period of twelve months from or on account of any stocks, bonds or other securities or evidences of indebtedness owned by the Company, or by a subsidiary corporation, shall be excluded in determining the net earnings of the Company.
Annual bond interest charge defined.
The term "annual bond interest charge" as used in this Article shall mean the annual interest charge on
(a) all outstanding Debentures of 1919 and all bonds then outstanding hereunder (excluding all Debentures of 1919 and bonds for the redemption or payment of which the necessary funds shall have been deposited under the terms of Section 4 or Section 13 of this Article Two or under the terms of Article Five of this Indenture).
(b) all bonds, the delivery of which is requested,
(c) all outstanding underlying bonds, and all other [*121*] bonds or evidences of indebtedness secured by a lien or liens prior to that of this Indenture on the mortgaged property, or any part thereof, excluding any such bonds or evidences of indebtedness held by the Harris Trust and Savings Bank, Trustee, under the terms of Article Six hereof or subjected to the lien of this Indenture and held by the trustee of any underlying mortgage, and excluding underlying bonds for the payment or redemption of which bonds shall have been authenticated and delivered and cash shall have been deposited pursuant to Section 4 of this Article Two, and
(d) all bonds or other obligations or evidences of indebtedness of any subsidiary corporation, excluding any such bonds or other obligations or evidences of indebtedness held by the Harris Trust and Savings Bank, Trustee, under the terms of Article Six hereof or held by the trustee under any underlying mortgage or held by the trustee of any mortgage of a subsidiary corporation.
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SECTION 6. Extent to which residue bonds may be issued against additional property.
[Note: Amended by Article Three, Section 1, Fourth Supplemental Indenture.]
SECTION 6. Residue bonds are issuable hereunder, as hereinafter in this Article Two provided, to the extent that [sixty-six and two-thirds per cent (66 2/3%)] of the net amount of additional property, as that term is hereinafter in Section 7 of this Article Two defined, which the Company shall purchase, construct or otherwise acquire subsequent to August 31, 1923, and which its subsidiaries shall purchase, construct or otherwise acquire after the dates upon which they respectively became subsidiaries, shall exceed the aggregate principal amount of all bonds, if any, which shall after the date of this Indenture be established as "underlying bonds" under the provisions of Sections 8 and 10 of this Article Two.
SECTION 7. Additional property defined.
SECTION 7. The term "additional property" as used in this Indenture shall mean and comprise additional land, structures, equipment and other property (including construction work in progress) acquired or constructed for use by the Company or its subsidiaries in the construction, extension or operation of the electric, water or other [*122*] utility system of the Company and its subsidiaries, which are properly chargeable to tangible fixed capital accounts. It shall not include stocks, bonds or other securities, nor shall it include any leasehold interest of the Company or of any of its subsidiaries in any plant or system.
Acquired utility property defined.
It shall include the physical properties of another corporation owning an electric, gas, water or railway system in territory which is the same as or adjacent to that served by the Company and its subsidiaries, or, in the case of an electric system, which at the time of its acquisition is within commercially efficient transmission distance from the electric power plants of the Company and its subsidiaries, and which shall be acquired as an entirety or substantially as an entirety by the Company or by a subsidiary corporation. Such properties of another corporation are hereinafter referred to as "acquired utility property."
Retired property defined.
The term "retired property" as hereinafter used shall mean property of the same character as additional property, which has been retired, discontinued or abandoned otherwise than through sale or through the exercise of the power of eminent domain, and which it is proper to credit to tangible fixed capital accounts.
Net amount of additional property defined.
The "net amount of additional property" for any period of time shall be the actual cost or fair value (whichever shall be less) to the Company or its subsidiaries of additional property charged during such period to tangible fixed capital accounts less the original cost of retired property credited during the same period to such accounts. In the case of acquired utility property, as hereinbefore in this Section 7 defined, which at the time of acquisition is subject to a mortgage or other instrument securing bonds or other evidences of indebtedness, the fair value of such property to the Company, shall, for the purpose of this Indenture, be determined as if such property were free of the lien of such mortgage or other instrument, and the aggregate principal [*123*] amount of bonds or other evidences of indebtedness secured by such mortgage or other instrument shall be included as a part of the cost to the Company of such acquired utility property.
In the case of an item of property retired through fire or other casualty covered by insurance, the deduction to be made shall be its original cost as credited to tangible fixed capital accounts less the
27
amount of any insurance moneys recovered by the Company and deposited with the Harris Trust and Savings Bank, Trustee, under the provisions of this Indenture, or with the trustee of an underlying mortgage in accordance with the provisions of such mortgage.
SECTION 8. Upon acquisition of acquired utility property company will file certificates as to cost and other data.
[Note: Amended by Article Three, Section 2, Fourth Supplemental Indenture.]
[Note: Modified by Article Three, Section 10, Fourth Supplemental Indenture, as follows: "That the Company will not at any time or from time to time use as the basis for the issuance of bonds or the withdrawal of cash or absorption of excess indebtedness, as defined in Section 8, Article Two of the Original Indenture, under any of the provisions of said Original Indenture or to offset any retired property credited after August 31, 1935, to tangible fixed capital accounts of the Company or its subsidiaries, additional property acquired prior to September 1, 1935 and not theretofore made the basis for issuance of bonds or the withdrawal of cash or absorption of excess indebtedness under any of the provisions of said Original Indenture in excess of a "net amount of additional property" in the sum of Sixty-seven Million Five Hundred Thousand Dollars ($67,500,000), and will not at any time or from time to time issue residue bonds against said "net amount of additional property" in principal amount in excess of sixty-six and two-thirds per cent (66-2/3%) of said "net amount of additional property" in the sum of Sixty-seven Million Five Hundred Thousand Dollars ($67,500,000) as shall not theretofore have been made the basis for the issue of bonds or the withdrawal of cash or absorption of excess indebtedness under any of the provisions of said Original Indenture."]
SECTION 8. Whenever the Company or one of its subsidiaries shall acquire as an entirety or substantially as an entirety the plants, property and equipment of another corporation owning an electric, gas, water or railway system of such character as to be acquired utility property as defined in Section 7 of this Article Two, and such acquired utility property is subject at the time of its acquisition to mortgages or other instruments (one or more) securing bonds or other evidences of indebtedness, the lien of which is superior to the lien of this Indenture, the Company shall, and it hereby covenants that it will, as soon after such acquisition as is reasonably practicable, file with the Harris Trust and Savings Bank, Trustee, (1) a certificate of the President or one of the Vice Presidents and the Secretary or one of the Assistant Secretaries of the Company under its corporate seal, stating that the Company or one of its subsidiaries has made such acquisition and the nature and cost thereof, and describing and specifying the principal amount of, the bonds or other evidences of indebtedness secured by the lien of any such mortgages or other instruments; and (2) a certificate of a person appointed by the Company and approved by the Harris Trust and Savings Bank, Trustee, stating: [*124* ]
(a) That said acquired utility property consists of an electric, gas, water or railway system located in territory which is the same as or adjacent to that served by the Company and its subsidiaries, or, in the case of an electric system, which is at the time of its acquisition within commercially efficient transmission distance from the electric power plants of the Company and its subsidiaries.
(b) That in his opinion the acquisition of such acquired utility property is advisable from the standpoint of the Company, the Trustees and the bondholders; and
(c) The fair value of said acquired utility property to the Company or to its subsidiary after making due allowance for depreciation.
When bonds of acquired utility may be established as underlying bonds.
If it shall appear from such certificates that the principal amount of such bonds or other evidences of indebtedness is not greater than [sixty-six and two-thirds per cent (66 2/3%)] of the fair value of the acquired utility property to the Company or to its subsidiary, or the cost thereof, whichever shall be
28
less, said bonds or other evidences of indebtedness shall be deemed established as underlying bonds and bonds issuable hereunder in principal amount equal to the principal amount of such underlying bonds shall be thenceforth reserved hereunder in accordance with the provisions of Section 3 of this Article Two.
Procedure as to absorption of excess indebtedness of acquired utility.
If, however, it shall appear from such certificates that the aggregate principal amount of such bonds or other evidences of indebtedness is greater than [sixty-six and two-thirds per cent (66 2/3%)] of the fair value of said acquired utility property to the Company or to its subsidiary, or the cost thereof, whichever shall be less, such bonds or other evidences of indebtedness shall not be established as underlying bonds until the excess of such indebtedness, hereinafter referred to as "excess indebtedness," has been absorbed by either
(1) the retirement and cancellation, in aggregate principal amount equal to the amount of such excess indebtedness, of either (a) such bonds or other evidences of indebtedness, [*125*] or (b) bonds issued and outstanding under this Indenture, or (c) Debentures of 1919 or underlying bonds as defined in Section 3 of this Article Two; or
(2) the acquisition by the Company prior to maturity, and the pledge hereunder, of either such bonds secured by the lien of mortgages or other instruments on said acquired utility property, or such underlying bonds; or
(3) a net amount of additional property not previously used as a basis for the issuance of bonds or the withdrawal of cash from "advance construction account" as hereinafter in Section 11 of this Article Two defined, equal to [one and one-half] times the principal amount of said excess indebtedness.
No residue bonds issuable while excess indebtedness is not absorbed.
During any period which may exist between the acquisition of acquired utility property and the absorption in the manner above prescribed of any excess indebtedness thereon no further residue bonds shall be authenticated or delivered under this Indenture.
SECTION 9. Procedure for issue of residue bonds against property.
SECTION 9. Residue bonds which shall from time to time be executed by the Company and delivered to the Harris Trust and Savings Bank, Trustee, shall be authenticated and delivered to the Company, subject to the provisions of this Indenture, by the Harris Trust and Savings Bank, Trustee, upon receipt by it of
I. The written order of the Company signed by its President or one of its Vice Presidents and by its Secretary or one of its Assistant Secretaries, under its corporate seal.
II. A copy of a resolution of the Board of Directors of the Company certified by its Secretary or one of its Assistant Secretaries under its corporate seal, authorizing such order and specifying, subject to the provisions of this Indenture, the series, date or dates of maturity, numbers and denominations of the bonds requested to be delivered.
III. A certificate verified by the oath of the President or one of the Vice Presidents and the Treasurer or one of the Assistant Treasurers of the Company containing
(a) A description of all additional property acquired [*126*] by the Company and its subsidiaries and charged to tangible fixed capital accounts, within a specified period of time the first day of which shall be the day next succeeding the last day of the period of time covered by the last such certificate furnished by the Company to the Harris Trust and Savings Bank, Trustee,
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such description to give such detail as to disclose the general nature and character, and in the case of land, the particular identity, of such additional property.
(b) A statement of the net amount of additional property acquired by the Company and its subsidiaries during the period covered, derived by deducting from the actual cost or fair value (whichever shall be less) of all additional property acquired during said period, the original cost of all retired property credited during said period to tangible fixed capital accounts of the Company or its subsidiaries, with a statement that all items of retired property which should properly have been credited to such accounts during said period have been so credited.
(c) A statement of the aggregate amount of all items included in the additional property described in the certificate which owing to the fact that title has not been cleared or other circumstances, is not then available as a basis for the issuance of bonds or the withdrawal of cash from advance construction account. Such items are hereinafter referred to as "additional property in suspense."
(d) If, since the date of the last such certificate, items of additional property in suspense included in any such certificate previously furnished, have been cleared, that is, title defects or other circumstance which caused such items to be included in additional property in suspense have been removed or eliminated, a statement specifying such items of additional property and showing the manner in which such items have been cleared. Such items are hereinafter referred to as "additional property cleared from suspense."
(e) A statement that there is no real property (or interest therein) included in the additional property described in the certificate (other than specified items of additional property in suspense), or in any additional [*127*] property cleared from suspense described in the certificate, which has not been, or is not simultaneously with the issuance of bonds the delivery of which is requested, subjected to the lien of this Indenture or, as the case may require, to the lien of an indenture securing mortgage bonds of a subsidiary corporation of the character mentioned in Section 10 of this Article Two.
(f) A statement that none of said additional property, except specified items of additional property in suspense, was, immediately prior to the time of its acquisition, subject to any valid vendor's, contractor's, laborer's or mechanic's liens or any judgment or other lien except taxes not then delinquent, and except, in the case of acquired utility property, the lien of any mortgage or other instrument securing bonds or other evidences of indebtedness; that no items of said additional property cleared from suspense are at the date of the certificate subject to any valid vendor's, contractor's, laborer's or mechanic's liens or any judgment or other lien superior to the lien of this Indenture except the lien of underlying mortgages and taxes not then delinquent.
(g) A summary statement of the accounting between the Company and the Harris Trust and Savings Bank, Trustee, for additional property and its use as a basis for the issuance of bonds or the withdrawal of cash from advance construction account, such statement to be made up as follows:
From the sum of the following items:
(1) Balance of amount of unbonded additional property carried forward from the certificate furnished with the last previous request of the Company hereunder for the issuance of bonds or the withdrawal of cash from advance construction account,
(2) The net amount of additional property shown in the certificate,
(3) The amount of additional property cleared from suspense as shown by the certificate,
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shall be deducted the sum of:
(1) The aggregate amount of additional property in suspense as stated in the certificate pursuant to subparagraph (c) hereof, [*128* ]
(2) The amount of all cash which since the date of the last previous request of the Company hereunder for the issuance of bonds or the withdrawal of cash from advance construction account has been withdrawn by the Company under Articles of this Indenture other than this Article Two (except subparagraph (c) of Section 2 of Article Four), or under the provisions of any underlying mortgages, on account of additional property, as herein defined, or additions to and betterments of the property hereby mortgaged or some portion thereof,
[Note: Amended by Article Three, Section 3, Fourth Supplemental Indenture.]
(3) An amount equal to [one and one-half] times the remainder obtained by deducting from the principal amount of bonds or other evidences of indebtedness secured by lien upon any acquired utility property included in the certificate at the time of its acquisition by the Company, the principal amount of any excess indebtedness which has been or is to be presently absorbed otherwise than by a net amount of additional property.
The remainder thus derived is herein referred to as "unbonded additional property."
From such amount of unbonded additional property shall then be deducted the total amount of unbonded additional property to be presently used as the basis for issuance of the bonds requested to be delivered, and any balance remaining shall be carried forward into the summary statement of accounting included in the next certificate which shall be furnished hereunder.
(h) A statement of the net earnings of the Company for a period of twelve consecutive calendar months ending not more than sixty days prior to the date of filing such request with the Harris Trust and Savings Bank, Trustee, and the annual bond interest charge of the Company in detail, all as defined in Section 5 of this Article Two.
In case the certificate includes additional property acquired by a subsidiary corporation, such property shall be separately described in the certificate and the statements relating thereto required by subparagraphs (b), (c) and (d) hereof shall be made separately for each subsidiary corporation. [*129* ]
If there is a balance of unbonded additional property shown in the certificate furnished with the last previous request of the Company hereunder for the issuance of bonds or the withdrawal of cash from advance construction account, it shall, as to an amount of net additional property equal to such balance, be sufficient compliance with subparagraphs (a), (b), (c), (d), (e) and (f) hereof, if the certificate shall refer to said certificate furnished with said last previous request and to the description and statements contained therein.
IV. In case there is included in the certificate items of additional property purchased, constructed or otherwise acquired by a subsidiary corporation, mortgage bonds of such subsidiary corporation of a principal amount not less than the principal amount of bonds issuable hereunder on account of such additional property of such subsidiary, and of the character described in Section 10 of this article, or in lieu of such bonds, a certificate of the trustee or trustees of such underlying mortgage or mortgages as in the opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, shall be requisite, that such bonds have been deposited with it or them.
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V. In case any acquired utility property is included in the additional property described in the certificate,
(1) the certificates required by the provisions of Section 8 of this Article Two, if they shall not previously have been filed;
(2) if any excess indebtedness on said acquired utility property has been or is presently to be absorbed by the retirement of bonds issued and outstanding hereunder, such bonds uncanceled in bearer form with all unmatured coupons appertaining thereto; if by the retirement and cancellation of Debentures of 1919 the certificate of Bankers Trust Company, the trustee named in the Indenture securing said Debentures, that a principal amount of such Debentures of 1919 have been paid or otherwise retired and canceled; if by the retirement and cancellation of underlying bonds or of bonds secured by the lien of mortgages or other instruments on said acquired utility property, the certificate of the trustee or trustees of such underlying mortgages as in the opinion of counsel satisfactory [*130*] to the Harris Trust and Savings Bank shall be requisite, or of the trustee or trustees of the mortgage or mortgages on said acquired utility property or other instrument which is a lien thereon, stating that a principal amount of such bonds have been paid or otherwise retired and canceled out of funds other than funds applicable to the payment of such bonds by virtue of any insurance or partial release or sinking fund or other similar provision;
(3) if any excess indebtedness on said acquired utility property not theretofore absorbed is presently to be absorbed by the acquisition and pledge hereunder of bonds secured by the lien of mortgages or instruments on said acquired utility property or of underlying bonds, such bonds uncanceled in bearer form with all unmatured coupons appertaining thereto, or a certificate of the trustee or trustees of such mortgage as in the opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, shall be requisite, stating that a principal amount of such bonds have been deposited with it or them uncanceled in bearer form with the unmatured coupons appertaining thereto;
(4) an opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, stating that such acquired utility property has been duly and lawfully acquired by the Company and that title thereto has duly vested and that immediately prior to the time of said acquisition there were no existing liens or encumbrances upon any part of said property except the lien of mortgages or instruments securing bonds to be established as underlying bonds.
VI. In case the certificate required by subdivision III hereof shows expenditures in respect to the development of water power, an opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, that the Company directly or through a subsidiary corporation is vested with usual and proper title to such water power development and its appurtenances, together with the usual and proper rights, permits, privileges or franchises to operate the same.
VII. Such Supplemental Indenture or instruments of [*131*] further assurance as may be necessary to subject to the lien of this Indenture any additional property described in the certificate required by subdivision III hereof, accompanied by an opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, that such Supplemental Indenture or instrument of further assurance is sufficient for such purpose, or the opinion of such counsel that no such Supplemental Indenture or instrument of further assurance is necessary.
VIII. A certified copy of an authorizing order or certificate of consent or approval of the Railroad Commission of California, or similar public authority having jurisdiction in the premises, or an opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, that no such order or certificate is required by law.
IX. Evidence satisfactory to the Harris Trust and Savings Bank, Trustee, establishing the payment of any recording or other fees or charges or taxes required by law in connection with the
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authorization or issuance of such bonds, or the authorization or making of any Supplemental Indenture or other instrument of further assurance, or an opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, that no such recording or other fees or charges or taxes are required by law.
SECTION 10. Subsidiary defined.
SECTION 10. The term "subsidiary" or "subsidiary corporation" as used in this Indenture shall mean any corporation owning and operating an electric, gas, water or railway system located in the same territory as, or in territory adjacent to that served by the Company and its subsidiaries, or, in the case of an electric system, located within commercially efficient transmission distance from the electric power plants of the Company and its subsidiaries, not less than ninety-five per cent (95%) of whose total outstanding capital stock shall subsequent to the date of this Indenture, be acquired by the Company and subjected to the lien of this Indenture, and deposited with the Harris Trust and Savings Bank, Trustee, or with the trustee of such underlying mortgage as in the opinion of counsel satisfactory to the Harris [*132*] Trust and Savings Bank, Trustee, shall be requisite; provided, however, that the Santa Barbara and Suburban Railway Company and the San Joaquin and Eastern Railroad Company, or either of them, may in the discretion of the Harris Trust and Savings Bank, Trustee, become a subsidiary corporation if and when there shall be filed with said Trustee a copy of a resolution of the Board of Directors of the Company certified by its Secretary or one of its Assistant Secretaries under its corporate seal, so requesting, and a certificate by a person appointed by the Company and approved by the Harris Trust and Savings Bank, Trustee, stating the fair value of the physical properties of the corporation mentioned in the resolution after making due allowance for depreciation, and stating further that in his opinion it is advisable from the standpoint of the Company, the Trustees and the bondholders that such corporation should become a subsidiary.
Property of subsidiary deemed to be acquired utility property for purpose of accounting.
In the event that any corporation shall become a subsidiary corporation as above defined, all of its plants, property and system owned at the time shall for the purpose of accounting for additional property hereunder be deemed to be acquired utility property, and all of the provisions of Sections 8 and 9 of this Article Two relating to acquired utility property, bonds or other evidences of indebtedness secured by mortgage or other instrument constituting a lien thereon and absorption of excess indebtedness, shall be deemed to apply to the property, outstanding bonds and excess indebtedness of a corporation becoming a subsidiary; provided, however, that before the property of a corporation becoming a subsidiary shall be deemed additional property there shall be furnished by the Company to the Harris Trust and Savings Bank, Trustee, the following:
But not until certain certificates are filed and bonds of subsidiary are deposited, etc.
(a) Certificates relating to the property of said corporation of the same character as those required to be furnished under the provisions of Section 8 of this Article [*133*] Two in the case of the acquisition by direct purchase of acquired utility property.
(b) Certificates for such capital stock of such subsidiary corporation duly endorsed in blank for transfer, or a certificate of the Trustee of such underlying mortgage as in the opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, shall be requisite that such stock certificates have been deposited and pledged under such underlying mortgage.
(c) A certificate of the President or of one of the Vice Presidents and the Secretary or one of the Assistant Secretaries of the Company stating that the stock acquired constitutes at least ninety-five per cent (95%) of the capital stock of such corporation issued and outstanding.
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(d) An opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, stating that such stock has been lawfully issued, duly acquired by the Company and effectually subjected to the lien of this Indenture.
(e) Mortgage bonds of such subsidiary of a principal amount at least equal to the principal amount of bonds issuable hereunder on account of the property of such subsidiary, or in lieu of such bonds a certificate or certificates satisfactory to the Harris Trust and Savings Bank, Trustee, that such bonds have been duly deposited and pledged with the trustee of such underlying mortgage as in the opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, shall be requisite. Such mortgage bonds shall be payable on demand or, if at a fixed maturity, shall be payable on or prior to the date of the latest maturity of any bonds at the time outstanding hereunder at the date of the execution of the mortgage or trust indenture securing such bonds, shall bear interest at a rate or rates not less than five per cent (5%) per annum and shall be in such form and denominations and contain such terms and conditions as are satisfactory to the Harris Trust and Savings Bank, Trustee.
Provisions of mortgage securing bonds of subsidiary.
The mortgage or trust indenture securing any such bonds shall provide that the bonds secured thereby shall be issuable for additional property acquired by such subsidiary and [*134*] for the acquisition or refunding of any bonds or evidences of indebtedness secured by any lien or liens upon its property or any part thereof which shall be superior to the lien of said mortgage, and shall be of such form and contain such terms, provisions and limitations as are satisfactory to the Harris Trust and Savings Bank, Trustee, and shall be executed to a trustee or trustees (which may be the Trustees of this Indenture or either of them) designated by the Company and approved by the Harris Trust and Savings Bank, Trustee.
Mortgage of subsidiary, opinion of counsel.
At the time of the execution of such mortgage or trust indenture there shall be delivered to the Harris Trust and Savings Bank, Trustee, a copy thereof and an opinion of counsel satisfactory to it stating that such mortgage has been fully authorized and that the same is a valid lien upon the property of such subsidiary corporation.
Issue of bonds under existing mortgage of subsidiary.
If at the time any corporation becomes a subsidiary there shall exist against its plants, properties or system, or any part thereof, a mortgage or deed of trust securing bonds of such corporation under which additional bonds are issuable, the Company may upon the written consent of the Harris Trust and Savings Bank, Trustee, deposit bonds thereafter issued under such mortgage in lieu of bonds of the character hereinabove described.
Procedure on deposit of bonds of a subsidiary.
Whenever mortgage bonds of a subsidiary corporation are deposited with the Harris Trust and Savings Bank, Trustee, under the provisions of this section, or there is furnished to it the certificate of the trustee of an underlying mortgage that such bonds have been duly deposited and pledged with such trustee, such bonds or such certificates shall be accompanied by
I. An opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, approving the form of the mortgage securing said bonds and all proceedings in any way pertinent to the making and issuance of said bonds and stating that [*135* ]
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(1) Such bonds have been duly issued and are the valid, legal and binding obligations of such subsidiary corporation and that they have been, or will be, upon deposit with the Harris Trust and Savings Bank, Trustee, effectually subjected to the lien of this Indenture; and
(2) That said bonds are secured either by a first mortgage upon all the property of the subsidiary corporation issuing the same, or if such property is subject also to the prior lien or liens of a mortgage or mortgages securing underlying bonds that bonds of the issue so deposited or pledged are duly reserved to acquire, redeem and retire all such underlying bonds.
II. Certified copy of an authorizing order or certificate or approval of the Railroad Commission of California or similar public authority having jurisdiction in the premises authorizing the issuance and pledge of such bonds and the execution of such mortgage, or an opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, that no such order or certificate is required by law.
III. Evidence satisfactory to the Harris Trust and Savings Bank, Trustee, establishing the payment of any recording or other fees or charges or taxes required by law in connection with the authorization of issuance or execution of such bonds and mortgage, or an opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, that no such recording or other fees or charge or taxes are required by law.
SECTION 11. Issuance of residue bonds against deposit of cash.
[Note: Modified by Article Three, Section 4, Fourth Supplemental Indenture, as follows: "That the Company will, and does hereby limit its right and privilege under the said Original Indenture, to withdraw cash from the "Advance Construction Account" pursuant to Section 11 of Article Two of said Original Indenture upon the filing with the Trustee of the orders, certificates, evidences and other showings required to be furnished under the provisions of Section 9 of Article Two of said Original Indenture, in accordance with the covenants of this Supplemental Indenture."]
SECTION 11. Residue bonds which shall be executed by the Company and delivered to the Harris Trust and Savings Bank, Trustee, shall from time to time be authenticated and delivered by the Harris Trust and Savings Bank, Trustee, upon the receipt from the Company of an amount of cash equal to the principal amount of bonds requested to be delivered, accompanied by the order, certificates, evidence and other showings required to be furnished under the provisions of Subdivisions I, II, VIII and IX and subparagraph (h) of Subdivision III of Section 9 of this [*136*] Article Two. Such cash so deposited by the Company shall be held by said Harris Trust and Savings Bank, Trustee under a special account designated for all purposes of this Indenture "Advance Construction Account," and may be subsequently withdrawn by the Company upon its written order therefor signed by its President or one of its Vice Presidents and by its Secretary or one of its Assistant Secretaries under its corporate seal, accompanied by the certificates, opinions, documents and other showings mentioned in Subdivisions III (except subparagraph (h) thereof), IV, V, VI and VII of Section 9 of this Article Two, with such variations of form and language as shall be pertinent to the withdrawal of cash.
No bonds to issue against deposited cash in excess of $10,000,000.
Bonds shall not be authenticated and delivered under the provisions of this section of such principal amount that the cash to be deposited as a basis for the issuance thereof shall together with any remaining balance in Advance Construction Account exceed the sum of $10,000,000 unless the prior written consent of the Harris Trust and Savings Bank, Trustee, shall have been first obtained upon application of the Company therefor accompanied by a copy of a resolution of its Board of Directors certified by its Secretary or one of its Assistant Secretaries under its corporate seal, requesting such consent.
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SECTION 12. Surrender of bonds issued under this Indenture for bonds of another series hereunder.
[Note: Modified by Article Three, Section 9, Fourth Supplemental Indenture, as follows: "That the Company will not issue, after August 31, 1935, any bonds under the provisions of Section 3 and/or Section 12 of Article Two of said Original Indenture against underlying bonds and bonds previously issued under said Original Indenture retired prior to September 1, 1935, and not theretofore used as the basis of the issuance of bonds under said Original Indenture except to the extent of bonds in the principal amount of $700,000."]
[Note: Subsection III amended by Article Three, Section 7, Fourth Supplemental Indenture.]
SECTION 12. Whenever, at any time or times, the Company shall deliver to the Harris Trust and Savings Bank, Trustee, (1) uncanceled bonds of any series (in either temporary or definitive form) previously authenticated and delivered hereunder, with all unmatured coupons appertaining to coupon bonds, or (2) bonds which the Company shall have paid or redeemed (and which shall not previously have been used as the basis for the issuance of bonds hereunder, or have been paid or redeemed out of insurance moneys, the proceeds of released property, or any sinking fund or special trust fund or other similar fund), the Harris Trust and Savings Bank, Trustee, shall cancel all bonds so delivered not theretofore canceled. At any time thereafter the Company may execute and deliver to the Harris Trust and Savings Bank, Trustee, and said Harris Trust and Savings Bank, Trustee, shall thereupon, subject to the provisions of this Indenture, [*137*] authenticate and deliver to the Company, an aggregate principal amount of bonds of another series (one or more) equal to the aggregate principal amount of bonds so delivered, upon receipt by it of:
I. The written order of the Company signed by its President or one of its Vice Presidents or by its Secretary or one of its Assistant Secretaries, under its corporate seal;
II. A copy of a resolution of the Board of Directors of the Company certified by its Secretary or one of its Assistant Secretaries under its corporate seal, authorizing such order and specifying the bonds theretofore delivered to the Harris Trust and Savings Bank, Trustee, for exchange, and specifying the series, date or dates of maturity, numbers and denominations of the bonds requested to be delivered.
III. In case any of the bonds requested to be delivered shall bear a higher rate of interest than the bonds so delivered for exchange, a sworn statement of the President or one of the Vice Presidents, and the Treasurer or one of the Assistant Treasurers of the Company, showing that the net earnings of the Company, as in this Article Two defined, for the period of twelve (12) consecutive months ending not more than sixty (60) days prior to the date of filing such request were at least equal to [two and one-half] times the total annual bond interest charge of the Company, as in this Article Two defined, including the new bonds the delivery of which is requested, but not including the bonds so delivered for exchange; provided, that in case the bonds so delivered for exchange shall mature by their terms (and not by call for redemption) with in two years from the date of filing such request, no such sworn statement shall be required;
IV. A certified copy of an authorizing order or certificate of consent or approval of the Railroad Commission of California or similar public authority having jurisdiction in the premises, or an opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, that no such order or certificate is required by law;
V. Evidence satisfactory to the Harris Trust and Savings Bank, Trustee, establishing the payment of any recording or other fees or charges or taxes required by law in connection with the authorization or issuance of such bonds or an opinion of counsel satisfactory to the [*138*] Harris Trust and Savings Bank, Trustee, that no such recording or other fee or charges or taxes are required by law;
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VI. If any new bonds are requested to be delivered on account of bonds theretofore paid or redeemed and any residue bonds shall have been authenticated and delivered hereunder after the date of such payment or redemption and prior to the date of filing such request, a sworn statement of the net earnings of the Company in the form, for the period, and showing the amount of net earnings specified in subdivision III hereof.
The bonds so delivered by the Company to the Harris Trust and Savings Bank, Trustee, and canceled, shall be delivered to the Treasurer of the Company or upon his written order.
SECTION 13. Issue of bonds under this Indenture on deposit of cash to pay or redeem bonds issued hereunder.
[Note: Subsection IV amended by Article Three, Section 8, Fourth Supplemental Indenture.]
SECTION 13. At any time or times, at or prior to the maturity of any bonds issued hereunder, the Company, in order to provide means to pay or redeem such bonds, may execute and the Harris Trust and Savings Bank, Trustee, shall, subject to the provisions of this Indenture, authenticate and deliver to the Company, a like principal amount of new bonds, upon receipt by it of
I. The written order of the Company signed by its President or one of its Vice Presidents or by its Secretary or one of its Assistant Secretaries, under its corporate seal;
II. An amount of cash equal to the aggregate principal amount of bonds requested to be delivered plus any premium requisite to permit the redemption of bonds, if any, to be redeemed, together with interest to the date of redemption or maturity;
III. A copy of a resolution of the Board of Directors of the Company, certified by its Secretary or one of its Assistant Secretaries under its corporate seal, authorizing such order and specifying, subject to the provisions of this Indenture, the series, date or dates of maturity, numbers and denominations of the bonds requested to be delivered.
IV. In case any of the bonds requested to be delivered shall bear a higher rate of interest than the bonds proposed to be paid or redeemed, a sworn statement of the President or one of the Vice Presidents, or the Treasurer or one of the Assistant Treasurers of the Company, [*139*] showing that the net earnings of the Company, as in this Article Two defined, for the period of twelve (12) consecutive months ending not more than sixty (60) days prior to the date of filing such request were at least equal to [two and one-half] times the total annual bond interest charge of the Company, as in this Article defined, including the new bonds the delivery of which is requested, but not including the bonds proposed to be paid or redeemed; provided that in case the bonds to be paid or redeemed shall mature by their terms (and not by call for redemption) within two years from the date of filing such request, no such sworn statement shall be required.
V. A certified copy of an authorizing order or certificate of consent or approval of the Railroad Commission of California or similar public authority having jurisdiction in the premises, or an opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, that no such order or certificate is required by law.
VI. Evidence satisfactory to the Harris Trust and Savings Bank, Trustee, establishing the payment of any recording or other fees or charges or taxes required by law in connection with the authorization or issuance of such bonds or an opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, that no such recording or other fee or charges or taxes are required by law.
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Application of cash so deposited.
The cash so deposited shall be paid out by the Harris Trust and Savings Bank, Trustee, from time to time in the manner following:
(a) In case the new bonds are issued to provide the means to pay bonds at maturity, the cash shall be paid out in payment of such maturing bonds upon their surrender to the Harris Trust and Savings Bank, Trustee, and the bonds so surrendered shall thereupon be canceled by the Harris Trust and Savings Bank, Trustee, and delivered to the Treasurer of the Company or upon his written order; or
(b) In case the new bonds are issued to provide the means to redeem bonds before maturity, the cash shall be applied by the Harris Trust and Savings Bank, Trustee, in accordance with the terms of the provisions relating to the redemption of such bends contained in this Indenture or in any supplemental indenture.
[*140*]
SECTION 14. No bonds to be issued to refund bonds paid out of insurance money, etc.
SECTION 14. Anything in this Indenture to the contrary notwithstanding, no bond or bonds shall be authenticated and delivered hereunder for the purpose of refunding or in exchange for any bond or bonds issued hereunder and purchased, redeemed or paid out of insurance moneys, or the proceeds of released property, or out of any special trust fund, sinking fund or other similar fund, now or hereafter established under the terms of this Indenture or of any indenture supplemental hereto.
SECTION 15. No bonds to be certified if Trustee knows of existing default.
SECTION 15. The Harris Trust and Savings Bank, Trustee, shall not be required to certify or deliver any bonds hereunder when the Company, to the knowledge of the Harris Trust and Savings Bank, Trustee, shall be in default in respect of any covenant or condition herein contained.
SECTION 16. Coupons matured at date of authentication of bond to be detached.
SECTION 16. Upon certifying or delivering any bond hereunder all coupons thereof then matured shall be detached and canceled by the Harris Trust and Savings Bank, Trustee, and be delivered to the Treasurer of the Company or upon his written order.
ARTICLE THREE. PARTICULAR COVENANTS OF THE COMPANY.
The Company covenants with the Trustees and with the respective holders of bonds issued hereunder as follows:
SECTION 1. Company will pay bonds as specified therein.
SECTION 1. The Company will duly and punctually pay the principal and interest of every bond issued hereunder at the dates and place or places and in the manner specified in such bonds, or in the coupons thereto appertaining; as the coupons annexed to coupon bonds are paid they shall be canceled; in respect to all bonds of Series of 6's, Due 1943, said principal and interest shall be paid without deduction for any tax, assessment or other governmental charge (except succession and inheritance taxes and that portion of any Federal income tax which may be in excess of two per centum of such interest) which the Company, its successors or assigns may be required to pay thereon, or authorized to deduct or retain therefrom, under any present or future law or requirement of the United States of America, or of any [*141*] state, county, municipality or other taxing authority therein.
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SECTION 2. Company will not extend time for payment of interest nor permit subsidiaries to do so.
SECTION 2. The Company will not directly or indirectly extend or assent to the extension of the time for payment of any coupons or claims for interest on any of the bonds or Debentures of 1919 secured hereby or on any underlying bonds, by purchase or funding of such coupons or claims for interest or by any other arrangement. In case the time for payment of any such coupon or claim for interest shall be so extended, such coupon or claim for interest shall not be entitled in case of any default hereunder to the benefit or security of this Indenture, except subject to the prior payment in full of the principal of all bonds issued and outstanding hereunder, and of the principal of all outstanding Debentures of 1919, and of so much of the interest due or accrued thereon as shall not be represented by such extended coupons or claims for interest. The Company will not cause or permit any of its subsidiary corporations, directly or indirectly, to extend or assent to the extension of the time for payment of any coupons or claims for interest on any of the bonds of such subsidiary corporation.
SECTION 3. Warranty as to title.
SECTION 3. Subject to the underlying mortgages and except as to that part of the mortgaged and pledged property which may be hereafter acquired, the Company is now well seized of the premises, property interests and rights herein mortgaged and pledged or intended so to be, and has good right, full power and lawful authority to grant, bargain, sell and warrant, and to convey, mortgage and pledge the same in the manner and form herein done or intended, and that it has and, subject to the provisions hereof, will preserve good and indefeasible title to all the mortgaged and pledged property and will warrant and forever defend the same to the Trustees against the claims of all persons whomsoever;
Company will preserve franchises, etc.
the Company will do or cause to be done all things necessary to preserve and keep in full force and effect all rights, privileges and franchises now owned and hereafter acquired by the Company and by its subsidiary [*142*] corporations and to comply with the laws of the State of California and with the laws of any other state or of the United States and with the regulations of any department or bureau of the government of any state or of the United States in such manner and form as counsel, satisfactory to Harris Trust and Savings Bank, Trustee, shall advise;
Company will cure defects in titles.
as to any portions of the generation, transmission or distribution systems of the Company or of any subsidiary corporation which are, or may be at the time of the acquisition thereof by the Company or by any subsidiary corporation subject to any defect of title or right, or to any liens or encumbrances prior to the lien of this Indenture or of any underlying mortgage or of a mortgage of any subsidiary corporation, the Company, in case the peaceable possession thereof shall be interfered with or threatened by reason of any such defect of title or right or such lien or encumbrance, will take or cause to be taken such proceedings as in each instance may be necessary and appropriate to acquire the absolute title thereto by the exercise of the right of eminent domain or otherwise to preserve such peaceable possession and the continued right of operation and use thereof;
Company will pay taxes.
the Company will promptly pay or cause to be paid, all lawful taxes, charges and assessments at any time levied, assessed or charged upon or against the mortgaged and pledged property and against the property of subsidiary corporations and the income or profits therefrom and the interest of the Trustees and the bondholders in the same; provided, however, that the Company shall not be required to pay any such tax, charge or assessment so long as it may in good faith contest the validity thereof and if it
39
shall provide security for the payment of the same satisfactory to the Harris Trust and Savings Bank, Trustee;
Company will not create or suffer any prior liens.
there are not now outstanding, and the Company will not at any time create or allow to accrue or exist, any liens prior to the [*143*] lien of this indenture upon the mortgaged and pledged property or any part thereof, except underlying mortgages and any mortgage or mortgages or other liens on any property hereafter acquired by the Company, which may exist at the date of the acquisition of such property by the Company; neither the value of the mortgaged and pledged property, nor the lien of this Indenture, will be diminished or impaired in any way as a result of any action, or nonaction, on the part of the Company.
SECTION 4. Company will pay Debentures of 1919 and underlying bonds.
SECTION 4. The principal and interest of the Debentures of 1919 and of all bonds and other evidences of indebtedness of a subsidiary or controlled corporation, and of all bonds and other evidences of indebtedness now or hereafter secured by a lien or liens prior to that of this Indenture upon any part of the mortgaged and pledged property will be paid at or before the respective maturities of said Debentures of 1919 and such bonds and other evidences of indebtedness; all the covenants, conditions and agreements of the respective mortgages or other instruments securing said Debentures of 1919 and such bonds or other evidences of indebtedness will be in all respects fully complied with.
SECTION 5. No bonds secured by prior lien to be issued except for deposit hereunder.
SECTION 5. Except in substitution for mutilated, lost or destroyed bonds no additional bonds or other evidences of indebtedness secured by mortgage, the lien of which is or shall be prior to that of this Indenture upon any part of the mortgaged and pledged property, will be issued unless such bonds or other evidences of indebtedness shall be forthwith deposited with the Harris Trust and Savings Bank, Trustee, to be held and disposed of in accordance with the provisions of Article Six of this Indenture, or subjected to the lien of this Indenture and held by the trustee of such underlying mortgage as in the opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, shall be requisite.
[*144*]
SECTION 6. Company will execute deeds of further assurance, etc.
SECTION 6. Upon the written request of the Trustees or either of them, the Company will forthwith execute, acknowledge and deliver all such further, other and supplemental instruments, and will take all such further action, as may reasonably be required for better assuring and confirming unto the Trustees the mortgaged and pledged property, or any part thereof.
SECTION 7. Company will carry on business efficiently and maintain its property.
SECTION 7. The Company's business and the business of its subsidiary corporations will be carried on and conducted in an efficient manner; all property, plants, appliances, systems and equipment of the Company and every subsidiary corporation useful and necessary in the carrying on of its business will be kept in thorough repair and maintained in a state of high operating efficiency corresponding to the progress of the industry, and if worn out or injured will be replaced by other property, suitable to the business of the Company or such subsidiary corporation respectively; it now has complete and lawful authority and privilege to maintain and operate its entire plants and properties and no rights, franchises or privileges of the Company or of a subsidiary corporation will be allowed to lapse or be forfeited through any act or omission of the Company or of a subsidiary corporation, so
40
long as the same shall be necessary for carrying on the business of the Company or of such subsidiary corporation.
SECTION 8. No cash dividends on Company's stock except out of surplus.
SECTION 8. Neither the Company nor any of its subsidiary corporations will declare or pay any cash dividends on capital stock except out of the surplus of the Company as of December 31, 1921, as shown by its books and accounts, and out of income or earnings subsequent to December 31, 1921, remaining after deduction of operating expenses, including current maintenance and repairs, taxes, rentals and all interest charges.
SECTION 9. Company will not suffer insolvency proceedings.
SECTION 9. The Company will not go or suffer itself or any [*145*] of its subsidiary corporations to be put into bankruptcy or insolvency, or suffer a receiver to be appointed for itself or any of its subsidiary corporations, or for the mortgaged property or any part thereof.
SECTION 10. Company will keep books of account; Trustee may inspect books.
SECTION 10. The Company will keep and cause to be kept proper books of record and account, in which full, true and correct entries will be made, of all dealings or transactions of, or in relation to, the plants, properties, business and affairs of the Company and of its subsidiary corporations, and will furnish to the Harris Trust and Savings Bank, Trustee, at least once a month, and as often as said Harris Trust and Savings Bank, Trustee, shall reasonably request, statements in full detail, showing the earnings, expenses and financial condition of the Company, and such data as to such plants, property and equipment as said Harris Trust and Savings Bank, Trustee, shall reasonably request, and also, if said Harris Trust and Savings Bank, Trustee, shall so request, such statements in relation to its subsidiary corporations, and all books documents and vouchers relating to such plants, properties, business and affairs, and such plants, properties and equipment shall at all times be open to the inspection of such accountant or other agent as the Harris Trust and Savings Bank, Trustee, may from time to time designate;
Annual audit.
on or before the first day of May of each year subsequent to 1923, it will file with the Harris Trust and Savings Bank, Trustee, duplicate full reports of an audit made by a competent accountant or accountants selected by the Company and approved by the Harris Trust and Savings Bank, Trustee, covering the operations of the Company for the twelve calendar months ended on the 31st day of December next preceding and showing the earnings and expenses of the Company and of its subsidiaries for said twelve months' period, and in such detail as said Harris Trust and Savings Bank, Trustee, may request, the assets, liabilities and financial condition of the [*146*] Company and of its subsidiaries on said 31st day of December. Said report shall also cover an examination and audit of the books of the Company and the certificates furnished to the Harris Trust and Savings Bank, Trustee, under the provisions of Sections 9, 10 and 11 of Article Two and of subparagraph (c) of Section 2 of Article Four hereof, to determine the correctness of the accounting of the Company under said provisions during said year; said examination and audit to take up said accounting at the point where the next preceding such examination and audit left off, and to extend to such date near the end of the calendar year as is reasonably practicable. The report on such examination and audit shall be certified, and shall give a summary of the accounting of the Company for the entire period covered, and shall set forth specifications of exceptions, if any, taken to said accounting.
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Adjustment of accounts.
Upon receipt of such a report specifying exceptions, the Harris Trust and Savings Bank, Trustee, shall make such further investigation as to it shall seem advisable, and may in its discretion if it appears that the exceptions taken are well founded, require the Company to meet such exceptions by proper adjustments, and permit such adjustments to be made in its future accounting under the same provisions.
SECTION 11. No sale or consolidation to be made which impairs lien of this Indenture.
SECTION 11. The Company covenants that no sale, lease, consolidation or merger of the Company or of any subsidiary corporation or of any of the mortgaged and pledged property or of the property of any subsidiary corporation shall be made or allowed to remain in force which shall, in the opinion of counsel or other expert, or both, satisfactory to the Harris Trust and Savings Bank, Trustee, in any manner diminish, or impair the lien of the Indenture or any of the rights or powers of the Trustees or of the bondholders hereunder.
SECTION 12. Company will maintain office in Borough of Manhattan.
SECTION 12. The Company will maintain an office, or agency in the Borough of Manhattan, City of New York, [*147*] while any bonds issued under this Indenture shall be outstanding, where notices, presentations and demands to or upon the Company in respect of this Indenture or said bonds or their coupons may be given or made, and for the payment of the principal and interest thereof, and the Company will from time to time give written notice to the Harris Trust and Savings Bank, Trustee, of the location of such office or agency. In case the Company shall fail to maintain such office or agency or to give the Harris Trust and Savings Bank, Trustee, written notice thereof, any such notice, presentation or demand in respect of such bonds or coupons or this Indenture may be given or made to or upon the Harris Trust and Savings Bank, Trustee, at its office in the City of Chicago, Illinois.
SECTION 13. Company will keep this Indenture and underlying mortgages properly recorded.
SECTION 13. The Company will cause this Indenture and any and all underlying mortgages at all times to be kept recorded and filed as real estate and personal property mortgages and otherwise in such manner and in such places as may be required by law in order to fully preserve and protect the security of the bondholders and all rights of the Trustees.
SECTION 14. Company will keep property insured.
SECTION 14. The Company will at all times keep or cause to be kept insured such of the plants, buildings, stations, machinery, equipment and apparatus of the Company and of its subsidiary corporations and of all other corporations at least a majority of whose capital stock is owned by the Company, as are usually insured by companies operating like properties, to the reasonable insurable value thereof, in responsible companies, against destruction or damage by fire or other accident against which insurance is usually carried by companies operating like properties; all policies for such insurance shall be so drawn as to make any losses thereunder payable to the Trustees hereunder as their interest may appear, and upon the written request of the Harris Trust [*148*] and Savings Bank, Trustee, said policies will be deposited with it; provided, however, that if any property of the Company or of a subsidiary corporation so insured is covered by any mortgage or other instrument, the lien of which on such property shall be prior to that of this Indenture, the losses under the policies for such insurance, until the final satisfaction and release of such mortgage, may be made payable to, and such policies may be deposited with, the mortgagee or trustee under such mortgage, the Company hereby agreeing that upon the satisfaction or release of such mortgage, any insurance moneys then in the hands of the mortgagee or trustee thereunder shall forthwith be paid to the Harris Trust and Savings Bank, Trustee,
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hereunder. In case of any loss covered by any policy of insurance so payable to the Trustees any appraisement or adjustment of such loss and settlement and payment of indemnity therefor which shall be agreed upon between the insured and any insurance company, and which shall be approved in writing by some person appointed by the insured and approved by the Harris Trust and Savings Bank, Trustee, shall, upon the written request of the insured be consented to and accepted by the Trustees.
Company may establish its own insurance fund.
Instead of insuring its property and the property of its subsidiary corporations or its controlled corporations, the Company may, at its election, establish an adequate insurance fund and maintain the same out of its earnings and the earnings of its subsidiary corporations and controlled corporations, which fund shall be established, maintained, invested and disbursed in case of loss, in such manner and under such terms and conditions as may at the time of the establishment thereof be determined by three persons appointed by the Company and approved by the Harris Trust and Savings Bank, Trustee. Such fund may at any time be discontinued and all accumulations therein used by the Company, provided the Company shall first insure its property and the property of its subsidiary corporations, and [*149*] controlled corporations, in accordance with this Section 14. Such fund may be established and discontinued, in accordance with the terms hereof, from time to time, at the election of the Company.
Disposition of money derived from insurance policies.
All insurance moneys received hereunder by the Harris Trust and Savings Bank, Trustee, shall be held by the Harris Trust and Savings Bank, Trustee, as part of the mortgaged and pledged property and shall, subject to the provisions of any prior mortgage, be paid out from time to time upon orders or drafts drawn by the Company either for the purpose of paying the reasonable cost of replacing part or all of the property destroyed or injured, or for any of the purposes for which cash may be withdrawn under the provisions of Article Four hereof (except subparagraph (c) of Section 2 of said Article Four); provided, however, that any insurance moneys so received by the Harris Trust and Savings Bank, Trustee, on account of any single loss, not exceeding Five Thousand Dollars ($5,000), may, at the discretion of the Harris Trust and Savings Bank, Trustee be forthwith paid over to the Company upon its request to be used by the Company for the purposes aforesaid. All such orders or drafts of the Company for the withdrawal of insurance moneys, except as aforesaid, shall be signed by the President or one of the Vice Presidents and the Treasurer or one of the Assistant Treasurers of the Company, and shall be accompanied by a certificate verified by their respective oaths showing that such orders or drafts are drawn for one or more of the purposes for which insurance moneys may be paid out under the provisions of this Section. The Harris Trust and Savings Bank, Trustee, however, shall have the right, but shall not be obliged, to require the Company to furnish such further evidence in the premises as said Trustee may deem necessary in order to establish the right of the Company to the payment of such orders or drafts.
[*150*]
ARTICLE FOUR. SPECIAL TRUST FUND.
SECTION 1. Company will make semi-annual deposits in special trust fund.
[Note: Amended by Third Supplemental Indenture.]
SECTION 1. For the purpose of maintaining the security afforded by this Indenture against the effects upon the mortgaged property of age, wear, obsolescence, inadequacy or other factor causing lessening in value of said properties, the Company covenants that it will deposit in a Special Trust Fund with the Harris Trust and Savings Bank, Trustee, on the first day of May and on the first day of November in each and every year beginning with the year 1924, an amount of cash equal in each case to [one and one-half per cent (1.5%)] of the aggregate principal amount of (1) all bonds of the
43
Company which shall at the time be outstanding hereunder and which have not been previously called for redemption under the provisions of Article Five of this Indenture or for the payment or redemption of which bonds shall not have been authorized and delivered and cash deposited pursuant to Section 13 of Article Two and (2) all Debentures of 1919 and underlying bonds which shall at the time be outstanding and not then held by the Harris Trust and Savings Bank, Trustee, or by the trustee of any underlying mortgage, or by the trustee of any mortgage of a subsidiary corporation, and for the payment or redemption of which bonds shall not have been authenticated and delivered and cash deposited pursuant to Section 4 of Article Two, deducting from such amount (a) the amount of cash which the Company shall have paid during the six months next preceding the date of such deposit under and in accordance with the provisions of mortgages securing underlying bonds, in respect of sinking funds or other similar funds, and, (b) the amount of cash paid to the trustee or trustees of underlying mortgages as interest on bonds secured thereby and held in a sinking fund or sinking funds established by the [*151*] terms thereof; provided, however, that if such sinking fund provisions of any such underlying mortgage have been complied with by delivering bonds secured thereby (otherwise than pursuant to a sale of such bonds to the trustee of such mortgage), then there shall be deducted also the principal amount of the underlying bonds so delivered; provided further, that there shall be excluded from such total deductions such portion of the same paid into the sinking fund or other similar funds of any underlying mortgage as was obtained by draft upon the sinking or other similar fund of another underlying mortgage. In case on any May 1st or November 1st the amount of deductions or credits as herein provided exceeds the amount which would then be due hereunder except for such deductions and credits, the excess of credits shall be deducted from the next succeeding May 1st or November 1st payment as the case may be; provided, however, that no such credit shall be carried forward for more than six months.
SECTION 2. Disposition of cash held in special trust fund.
SECTION 2. Cash deposited in said Special Trust Fund shall be held by the Harris Trust and Savings Bank, Trustee, as part of the mortgaged property and shall be paid out from time to time upon orders or drafts drawn by the Company for any of the following purposes:
(a) The payment or redemption, or purchase at a price not exceeding the price at which such bonds are at the time subject to redemption, of bonds secured by this Indenture; such bonds so purchased, paid or redeemed to be canceled by the Harris Trust and Savings Bank, Trustee, and delivered to the Treasurer of the Company or upon his written order; or
(b) The payment or redemption or purchase at a price not exceeding the price at which such bonds are at the time subject to redemption, of underlying bonds; such bonds, if purchased prior to maturity, to be subjected to the lien of this Indenture and deposited and pledged with the Harris Trust and Savings Bank, Trustee, and held uncanceled under and in accordance with [*152*] the provisions of Article Six of this Indenture, or (for other than sinking fund purposes) with the trustee of such underlying mortgage as in the opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, shall be requisite; or
(c) To reimburse the Company for the acquisition since August 31, 1923, of "additional property" as defined in Section 7 of Article Two of this Indenture, the cost of which or its fair value to the Company (whichever shall be less), is equal to such portion of the original cost of "retired property," as defined in said section, as was at the time (not prior to September 1, 1923) of its retirement properly chargeable to an appropriate depreciation or retirement reserve account.
(d) To reimburse the Company for the acquisition since August 31, 1923, of a "net amount of additional property" as defined in said Section 7 of Article Two of this Indenture not previously used as a basis for the issuance of bonds or the withdrawal of cash or absorption of excess indebtedness under any of the provisions of this Indenture.
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Procedure for withdrawal of cash from special trust fund.
The orders or drafts of the Company upon said Special Trust Fund shall be signed by the President or one of the Vice Presidents and by the Treasurer or one of the Assistant Treasurers of the Company, and shall be accompanied by a certificate verified by their respective oaths showing the purpose for which the cash is to be paid out. If the purpose or one of the purposes is that specified in subparagraph (c) of this section such certificate shall contain a general description of the retired property (which must include all items of such property credited to tangible fixed capital accounts during a specified period of time), shall show the original cost thereof and such portion of such original cost as was at the time of retirement properly chargeable to an appropriate depreciation or retirement reserve account, and shall state that additional property has been acquired by the Company the cost of which or its fair value to the Company (whichever shall be less) is equal to the amount of such charges and that such additional property has not previously been used [*153*] as a basis for an order or draft upon said Special Trust Fund. If the purpose or one of the purposes is that specified in subparagraph (d) of this section such certificate shall specify by reference to a particular period or periods of time the net amount of additional property for which reimbursement is claimed in whole or in part, and shall, so far as appropriate, contain such statements in reference thereto as are required under the provisions of subparagraphs (a), (b), (c), (e) and (f) of subdivision III of Section 9 of Article Two of this Indenture, to be contained in the certificate accompanying a request for the delivery of bonds; such certificate shall also state that the net amount of additional property specified therein has not previously been used as a basis for the issuance of bonds or the withdrawal of cash or absorption of excess indebtedness under any of the provisions of this Indenture. There shall also be furnished to the Company with any order or draft upon said Special Trust Fund for the purpose specified in said subparagraph (d), so far as appropriate, such of the documents, certificates, opinions and other showings as are required under the provisions of subdivisions IV, V, VI and VII of Section 9 of Article Two of this Indenture to accompany a request for the delivery of bonds.
SECTION 3. Basis of deposits in special trust fund may be changed.
SECTION 3. For the purpose of maintaining a proper relation between the amount of the Special Trust Fund in this Article Four provided, and the purposes for which it is created, the percentage specified in Section 1 of this Article Four and any other percentage which may hereafter be fixed in lieu thereof, as hereinafter in this Section 3 provided, may, from time to time after five years from the date of this Indenture, but not within five years from the last previous redetermination, be redetermined and a different percentage fixed, effective as of the date for the payment of cash into said special trust fund, as fixed in said Section 1, next succeeding the date of such redetermination. Any such, [*154*] redetermination may be made and a new percentage fixed by agreement between the Company and the Trustee expressed in such supplemental indenture as in the opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, may be requisite. The report and opinion of one or more independent engineers or engineering firms or corporations appointed by the Trustee to advise it in respect of any such redetermination, shall be full warrant, authority and protection for any action taken or omitted by the Trustee in reliance thereon and shall be binding upon all holders of bonds issued hereunder, but the Harris Trust and Savings Bank, Trustee, shall in no case be under any obligation to take any action or enter into any agreement in the premises.
ARTICLE FIVE. REDEMPTION OF BONDS PRIOR TO MATURITY.
SECTION 1. Procedure for redemption of bonds prior to maturity.
[Note: Amended by Part IV, Section C, Sixth Supplemental Indenture.]
[SECTION 1. Any bond issued hereunder which is subject to redemption by its terms may be redeemed by the Company in accordance with its terms. If the Company shall elect to redeem any of
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the bonds hereunder, it shall notify the Harris Trust and Savings Bank, Trustee, in writing, at least forty days prior to the date on which it is proposed so to redeem such bonds, specifying the aggregate principal amount, the particular series (one or more), and, in the case of serial bonds with different maturities, the particular maturities, of bonds which the Company desires to redeem. If it is desired to redeem less than all of the bonds of any particular series, or less than all of the bonds of any particular maturity in the case of serial bonds with different maturities, the bonds of such particular series or maturity to be redeemed shall be selected by the Harris Trust and Savings Bank, Trustee, by lot, and it shall certify to the Company the numbers of the bonds so selected and the names and addresses of any registered owners thereof.
The Company or the Harris Trust and Savings Bank, Trustee, shall thereupon publish a notice that said bonds are called for payment on the day fixed for the redemption thereof, at least once a week for four successive weeks in a newspaper printed in English and published and of general circulation in the City of Chicago, State of Illinois, and in a like newspaper in the Borough of Manhattan, The City of New York, State of New York, and in a like newspaper in The City of Los Angeles, State of California, the first publication of said notice to be at least thirty days before the date fixed for the redemption of such bonds, or such number of days, not less than thirty, as may be fixed by the Board of Directors at the time of the creation of the series of bonds, all or part of which are to be so redeemed. If less than all of the bonds of a series are to be redeemed, such notice shall state the numbers of the bonds to be so redeemed. Within ten days after the first publication thereof, the Company or the Harris Trust and Savings Bank, Trustee, shall mail a copy of such notice to the holder of any registered bond so called for redemption whose address is shown on the registry books of the Company; but such mailing shall not be a condition precedent to such redemption, and failure so to mail any such notice shall not affect the validity of the redemption proceedings.
In respect of any series of bonds, the Company may, at the time of the creation of such series, provide in such bonds and in any supplemental indenture executed pursuant hereto, for a different notice of redemption of the bonds of any such series and for a different method of selecting the bonds of such series to be so redeemed.]
SECTION 2. If funds deposited to redeem bonds properly called, such bonds not entitled to security hereunder after redemption date.
[Note: Amended by Part IV, Section D, Sixth Supplemental Indenture.]
[SECTION 2. Upon the deposit with the Harris Trust and Savings Bank, Trustee, as a trust fund, on or prior to the redemption date, of the amount necessary to redeem any bonds called for redemption as provided in Section 1 of this Article Five, and the interest accrued thereon to such redemption date, and upon the giving to the said Trustee of irrevocable instructions to publish the notice of redemption in the manner required by Section 1 of this Article Five, or by the resolutions of the Board of Directors creating the series of bonds, all or part of which are to be called for redemption, or upon the publishing of such notice in such manner, such bonds shall cease to bear interest after such redemption date, anything in said bonds, or the coupons appertaining thereto, or this Indenture, or any supplemental indenture, to the contrary notwithstanding, and such bonds shall not be entitled to the benefit and security of the trust property and shall not be deemed to be issued and outstanding for any purposes of this Indenture, and on and after such redemption date the Company shall be under no further obligation with respect to said bonds and such deposit with Harris Trust and Savings Bank, Trustee, shall constitute full payment of said bonds to the holders thereof. Bonds so called for redemption shall remain payable, at the holder's option, in the same places in which they are payable by their terms, and the Harris Trust and Savings Bank, Trustee, shall make the necessary arrangements for the transfer of funds to effect such payment. As and when said bonds are surrendered to the Harris Trust and Savings Bank, Trustee, they shall be cancelled and delivered to the Company. If the Company so directs at the time of making such deposit with, and giving such irrevocable
46
instructions to, Harris Trust and Savings Bank, Trustee, the holders of the bonds so to be redeemed shall be entitled, at any time after the making of such deposit (whether or not prior to the redemption date), to receive payment in full of the redemption price (including interest accrued to such redemption date) upon presentation for cancellation of the bonds in proper form for transfer with the unmatured coupons, if any, appertaining thereto. If any bond called for payment shall not be presented for payment on the redemption date (or on or before the redemption date, if the Company permits payment prior to the redemption date), the amount payable in respect of such bond shall be held by the Harris Trust and Savings Bank, Trustee, for the account of the holder thereof, and shall be paid to the holder of such bond, upon presentation for cancellation of such bond in proper form for transfer with the unmatured coupons, if any, appertaining thereto. The Harris Trust and Savings Bank, Trustee, shall not be chargeable with interest on moneys deposited with it for the redemption of bonds.]
ARTICLE SIX. PLEDGED SECURITIES.
SECTION 1. Delivery of pledged securities, indorsement, etc.
SECTION 1. All shares of stock (excepting shares of stock of any corporation for the purpose of qualifying directors of such corporation) and any and all bonds, and other securities and obligations, and the certificates therefor and the evidences thereof (hereinafter sometimes referred to as "pledged securities") subjected or to be subjected to the lien of this Indenture shall as and when acquired by the Company be assigned, transferred, pledged and (in so far as manual delivery thereof is possible) delivered to the Harris Trust and Savings Bank, Trustee, or to the trustee of such underlying mortgage as in the opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, may be requisite, duly indorsed in blank if not already in bearer form; all such securities shall be at all times subject to the lien and trusts of this Indenture, and upon the release or discharge of any underlying mortgage under [*157*] the provisions of which pledged securities may be held the Company shall forthwith deposit or cause such pledged securities to be deposited with the Harris Trust and Savings Bank, Trustee, or with the trustee of such other underlying mortgage as in the opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, may be requisite.
Trustee may accept deposit of securities for pledge hereunder.
The Harris Trust and Savings Bank, Trustee, may at any time accept any assignment or transfer of any shares of stock, bonds, notes, securities, indebtedness claims and other obligations which any person or corporation may make or deliver to the said Trustee, and the same if accepted by the said Trustee shall thereupon become a part of the pledged securities.
Trustee may assume validity of securities, signatures, etc.
The Harris Trust and Savings Bank, Trustee, shall not be obliged as a condition precedent to the acceptance thereof to examine into or pass upon the validity or genuineness of any of the pledged securities, or of any assignment or transfer thereof, and the Harris Trust and Savings Bank, Trustee, shall be entitled to assume that any pledged securities as presented for deposit hereunder are genuine and valid and what they purport to be and that any transfers and assignments thereof are genuine and legal.
Trustee may accept certificate of Trustee of underlying mortgage.
As to any pledged securities deposited with the trustee of any underlying mortgage, the Harris Trust and Savings Bank, Trustee, may accept a certificate of such trustee that such pledged securities have been so deposited with it as conclusive evidence of such deposit, of the validity and genuineness of such pledged securities and of the sufficiency, genuineness and legality of any transfer and assignment thereof.
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SECTION 2. Trustee may cause securities to be assigned to it, etc.
SECTION 2. The Harris Trust and Savings Bank, Trustee, may at any time cause any or all of the pledged securities deposited with it to be assigned, endorsed or transferred into its name or into the name of its nominee or such other person or persons or corporation as the Company may designate and the Harris Trust and Savings Bank, Trustee, may approve. [*158* ]
Trustee may stamp securities, etc.
All the pledged securities upon their delivery to the Harris Trust and Savings Bank, Trustee, may in its discretion be stamped with a stamp in such form as the Harris Trust and Savings Bank, Trustee, may determine, showing that they are held subject to the provisions of this Indenture. Upon the request of the Harris Trust and Savings Bank, Trustee, the Company will cause the trustee or trustees of any underlying mortgages to stamp any pledged securities deposited with it or them with a similar appropriate stamp, showing that such pledged securities are subject to the lien of this Indenture.
Trustee may sell and deliver underlying bonds to trustee of underlying mortgage for cancellation.
The Harris Trust and Savings Bank, Trustee, at its discretion and upon the written request of the Company, authorized by resolution of its Board of Directors, may sell and deliver to the trustee of any underlying mortgage bonds deposited under this Indenture and secured by such underlying mortgage (other than such bonds delivered to the trustee of such underlying mortgage for the purpose of satisfying sinking fund or special trust provisions of such underlying mortgage), for the purpose of cancellation, upon receipt by the Harris Trust and Savings Bank, Trustee, of an amount in cash equal to the face value of such bonds. The proceeds of such sale shall be held by the Harris Trust and Savings Bank, Trustee, to be held and applied in accordance with the provisions of Article Four of this Indenture, except subparagraph (c) of Section 2 thereof.
Company may sell pledged underlying bonds to trustee of underlying mortgages for sinking fund.
The Company shall have the right to sell any underlying bonds held under the provisions of this Article Six to the trustee of the mortgage securing such bonds for the purpose of complying with the sinking fund of other similar provisions thereof. The proceeds of any such sale shall be paid over to the Harris Trust and Savings Bank, Trustee, to be held and applied in accordance with the provisions of Article Four of this Indenture, except subparagraph (c) of Section 2 thereof.
[*159*]
Trustee may take necessary action to preserve corporate existence of corporation whose stock is pledged.
The Harris Trust and Savings Bank, Trustee, may do whatever may in its opinion be necessary for the purpose of maintaining or preserving the corporate existence of any corporation, all or any part of whose capital stock shall be included in the pledged securities and for such purpose, may from time to time sell, assign, transfer and deliver or assent to the sale, assignment, transfer and delivery of such shares of stock deposited with it as may be necessary to qualify persons to act as directors of, or in any other official relation to such corporations, and may consent to any such act or procedure in respect to any such stock deposited with the trustee of any underlying mortgage. In any such case the Harris Trust and Savings Bank, Trustee, may make such arrangements as counsel satisfactory to it shall deem necessary for the protection of the trust hereunder.
Trustee may give consents contemplated by provisions of underlying mortgage.
The Harris Trust and Savings Bank, Trustee, is hereby authorized and empowered, with the same force and effect as if it were the absolute owner of any bonds or other obligations included in the pledged securities, to give every consent, exercise every discretion, make every election and take every
48
step and proceeding which by the mortgage or other instrument securing such bonds or obligations is provided for or contemplated.
SECTION 3. Company may vote pledged securities while not in default hereunder.
SECTION 3. Unless and until the Company shall be in default hereunder and such default shall continue as in Section 2 of Article Seven provided, the Company shall have the right to vote all pledged securities having voting powers with the same force and effect as if the same were not subject to the lien hereof,
Trustee to execute proxies to the Company.
and to that end the Harris Trust and Savings Bank, Trustee, as agent or attorney for both the Trustees, shall execute and deliver or consent to the execution and delivery of such proxies or powers of attorney as the Company may reasonably request; provided, however, that such proxies or powers of attorney shall be at all times revocable by said Harris Trust and Savings Bank, Trustee [*160*] (whether or not coupled with an interest) and shall contain such limitations, restrictions and provisions as counsel satisfactory to said Harris Trust and Savings Bank, Trustee, may think advisable or necessary in order to protect the interests of the Trustees and the bondholders hereunder, and particularly to insure the observance of the covenants and agreements of the Company contained in this Indenture.
In case of default Trustee may revoke proxies, etc.
In case there shall be a default hereunder and such default shall continue as in Section 2 of Article Seven provided, then during the continuance of any such default, in addition to the other remedies in this Indenture provided, the Harris Trust and Savings Bank, Trustee, if it shall deem it advisable may revoke any such proxies or powers of attorney and may vote or consent to be voted any pledged securities having voting powers, in such manner as it may deem proper to protect the rights of the Trustees and the interests of the holders of the bonds issued hereunder; provided that if any such default shall have been made good or shall have been waived as in Article Seven of this Indenture provided, the right of the Company to vote any such shares and the duty of the Harris Trust and Savings Bank, Trustee, to execute such proxies and powers shall revive and shall continue as if no such default had taken place.
SECTION 4. Company to receive income from pledged securities while not in default.
SECTION 4. Unless and until the Company shall be in default hereunder and such default shall continue as in Section 2 of Article Seven provided, the Company from time to time shall be entitled to receive and collect all dividends (other than stock dividends) that may be declared on any of the pledged securities, and as well all sums that become due and payable for interest upon or in respect thereof, and the Harris Trust and Savings Bank, Trustee, on request of the Company, from time to time shall deliver to it suitable assignments and orders for the payment to the Company of all dividends that from time to time may be declared or may [*161*] become payable on any of the pledged securities, and shall deliver (if held by the Harris Trust and Savings Bank, Trustee, hereunder) or consent to the delivery to the Company of the coupons for or suitable assignments and orders for the payment of the interest due on any of the pledged securities, and said Harris Trust and Savings Bank, Trustee, from time to time shall, upon request of the Company pay or consent to payment to the Company, of any and all sums which shall be received or collected for such dividends and interest; provided, however, that (1) the Company shall not be entitled to receive and the Harris Trust and Savings Bank, Trustee, shall not pay or consent to payment to the Company of any part of the principal of any of the pledged securities; (2) the Company shall not be entitled to receive and the Harris Trust and Savings Bank, Trustee, shall not pay or consent to payment to the Company of any interest on any of the pledged securities which shall have been collected or paid out of the proceeds of any sale of the property
49
covered by a mortgage securing any of the pledged securities or out of the proceeds of the sale of any other property of the corporation liable, directly or by assumption, upon such pledged securities in case of a dissolution or liquidation of such corporation; it being the intention hereof that the Company shall be entitled to receive payments made only out of the rents, revenues, or income from the properties of such corporations; (3) the Company shall not sell, assign or transfer any coupon or right to interest or dividend delivered or assigned to it in respect of the pledged securities hereunder; (4) the Company shall not collect any coupons or interest or any other claim or judgment in respect of the pledged securities by legal proceeding or by enforcement of any security therefor except with the assent of the Harris Trust and Savings Bank, Trustee, nor in any manner which the Harris Trust and Savings Bank, Trustee, shall deem prejudicial to the trusts hereby [*162*] created; and (5) until actually paid, released or discharged every coupon or right to interest or dividends and all other rights and claims in respect of the pledged securities shall remain subject to the lien hereof.
Upon payment or satisfaction of any such coupon or claim delivered to the Company in accordance with the provisions hereof, the Company, upon the demand of the Harris Trust and Savings Bank, Trustee, shall furnish satisfactory evidence of such payment or satisfaction and of the cancellation of such coupon or claim; and if any such coupon or claim shall not be paid or satisfied within sixty days after delivery thereof to the Company the Company shall return the same to said Harris Trust and Savings Bank, Trustee, or to the trustee of the appropriate underlying mortgage as part of the pledged securities.
In case of default Trustee shall collect income from pledged securities.
In case there shall be a default hereunder and such default shall continue as in Section 2 of Article Seven provided, then during the continuance of such default, and in addition to the other remedies herein provided, the Harris Trust and Savings Bank, Trustee, shall revoke any and all such assignments, consents, powers, proxies and orders and collect and receive all such dividends and interest upon or in respect to the pledged securities, or order or consent that the same be paid to the trustee of such underlying mortgage as in the opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, may be requisite, and all sums so collected and received or paid prior to any sale hereunder shall be applicable to the payment of interest that shall become due on the bonds issued hereunder, subject, however, to the lien, if any, of any underlying mortgage in respect thereto; provided that if any such default by the Company shall have been made good or shall have been waived, as in Article Seven of this Indenture provided, the right of the Company to receive and collect such dividends and such interest and the duty of the Harris Trust and Savings Bank, Trustee, to execute [*163*] such assignments, consents and orders shall revive and continue as if no such default had taken place.
Trustee to receive stock dividends or payments on account of principal of pledged securities.
The Harris Trust and Savings Bank, Trustee, shall be entitled, in case and to the extent that any such moneys shall not by the terms of an underlying mortgage be required to be paid over or otherwise disposed of, to receive all moneys paid on account of the principal of any of the pledged securities, and all stock dividends and dividends payable otherwise than out of earnings in respect of any shares of stock included in the pledged securities, and all moneys at any time payable in respect of any of the pledged securities derived from any sale of the property of any corporation, all or any part of whose stock shall be included in the pledged securities, or on dissolution or liquidation of such corporation, or upon any proceeding in eminent domain or otherwise. Until the Harris Trust and Savings Bank, Trustee, is advised to the contrary it shall be entitled to assume that all cash dividends have been properly paid out of earnings. Except to the extent that the same may be used on account of the purchase price of property purchased pursuant to Section 8 of this Article the Harris Trust and Savings Bank, Trustee shall transfer all such moneys so received by it to the Special Trust Fund mentioned in
50
Article Four of this Indenture, as a payment to such fund in addition to and without deduction from the sums by said Article Four required to be paid, and such additional payments shall be disposed of in accordance with the provisions of said Article Four, except subparagraph (c) thereof.
SECTION 5. Company will preserve corporate existence of corporations whose securities are pledged.
SECTION 5. The Company covenants that it will at all times take such action as from time to time may be necessary, in the opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, to preserve the corporate existence and corporate rights of each and all of the corporations, all or any part of whose stocks, bonds or other securities or obligations shall be included in the pledged securities, [*164*] unless and until the Company shall have lawfully acquired and subjected to the lien of this Indenture the legal title to all the property rights and franchises of such corporation not already thus subject.
SECTION 6. Company will not permit subsidiaries to become indebted except as specified.
SECTION 6. The Company covenants that it will not cause, suffer or permit any of the subsidiary corporations (1) to borrow money or to become indebted or incur any liability whatsoever except (a) from or to the Company, provided that in every case where the indebtedness or liability of any such subsidiary corporation to the Company shall not be discharged within six months after the date of incurring the same or within such shorter period as the Harris Trust and Savings Bank, Trustee, may specify, there shall forthwith be subjected to the lien of this Indenture and delivered to the Harris Trust and Savings Bank, Trustee, or to the trustee of such underlying mortgage as in the opinion of counsel satisfactory to said Harris Trust and Savings Bank, Trustee, may be requisite, as part of the pledged securities hereunder, the bonds, notes, other obligations or shares of stock of such subsidiary corporation of at least an equivalent principal amount, accompanied by suitable instruments of assignment (which bonds, notes, other obligations or shares of stock and instruments of assignment shall be in form and legal effect satisfactory to counsel selected or approved by the Harris Trust and Savings Bank, Trustee), and (b) for current expenses incurred in the ordinary course of its business operations, provided that in every case such indebtedness and liabilities for current expenses of such subsidiary corporation shall be represented or covered by current operating receipts or cash and accounts receivable of such corporation then on hand of at least an equivalent value, and provided further that all such indebtedness and liabilities for current expenses shall from time to time be promptly discharged in the ordinary course of business;
Company will not permit subsidiary to mortgage or sell its properties except as specified.
or (2) to sell, convey, mortgage, incumber or otherwise dispose of any of [*165*] its assets, properties, rights or franchises except (a) to the Company, or (b) to another subsidiary corporation; or (c) subject to the partial release provisions of the mortgage or trust indenture executed and delivered by such subsidiary pursuant to Section 10 of Article Two of this Indenture; provided that such sale or conveyance will not, in the opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, impair in any way the value of the security or the rights of the Trustees and the bondholders hereunder;
Company will not permit subsidiary to increase stock except as specified.
or (3) to create or issue any additional shares of stock unless effective provision be simultaneously made that certificates for such additional stock to the amount which, on the basis of the amount of capital stock of such subsidiary corporation then owned, the Company shall be entitled to receive or subscribe for, shall be when issued, forthwith pledged hereunder and deposited with the Harris Trust and Savings Bank, Trustee, or with the trustee of such underlying mortgage as in the opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, may be requisite.
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SECTION 7. Consolidation, etc., with the Company of corporations whose securities are pledged.
SECTION 7. The assignment and pledge hereunder of any shares of stock of any corporation or any interest therein shall not prevent the consolidation or merger of any one or more of such corporations with or the conveyance or lease of the property of any such corporation to the Company; provided, however, that such consolidation, merger, conveyance or lease shall be made only upon such terms as shall not, in the opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, in any manner impair or prejudice the value of the security or the rights of the Trustees and the bondholders hereunder. In the event of the consolidation or merger of any one or more of such corporations with the Company, or the conveyance or lease of its property to the Company, this Indenture immediately shall become and be a lien upon the property of the corporation so [*166*] consolidated or merged with or conveyed to the Company or upon the leasehold interest of the Company therein.
Subsidiary corporations may consolidate with each other.
The assignment or pledge hereunder of any shares of stock of any subsidiary corporation, or of any controlled corporation, shall not prevent the consolidation or merger of any such corporation with any other subsidiary corporation, nor shall it prevent the conveyance or lease of the property of any such subsidiary corporation to any other subsidiary corporation; provided, however, that any such consolidation, merger, conveyance or lease shall be made only upon such terms as shall not, in the opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, in any manner impair or prejudice the value of the security or the rights of the Trustees and the bondholders hereunder.
SECTION 8. Trustee may purchase property of corporation whose securities are deposited, on liquidation, etc.
SECTION 8. In case (1) at any time any corporation, all or any part of whose stocks, bonds or other securities or obligations shall be included in the pledged securities, shall be dissolved, or its property or assets or any part thereof, shall be liquidated, sold or transferred; or in case (2) all or any part of the property of any such corporation shall be sold upon the insolvency thereof, or under proceedings for the collection or enforcement of any bonds, securities or other obligations hereunder, or otherwise at any judicial or other sale; or in case (3) any property covered by a mortgage or other agreement securing any bonds, securities or other obligations included in the pledged securities shall be sold upon the foreclosure of such mortgage or by enforcement of such other agreement;
Or may permit Company to do so.
then in any such event the Harris Trust and Savings Bank, Trustee, at the request of the Company, either may purchase or cause to be purchased or may permit the Company to purchase such property and assets either in the name of or on behalf of the Company or by purchasing agents or trustees, and shall use, or permit the Company or such purchasing agent or trustees to use, any of the pledged shares of stocks, bonds, securities or other [*167*] obligations issued by or held against the corporation involved in any of the proceedings aforesaid, so far as may be, to make payment for any such property or assets. In case of any such purchase, the Harris Trust and Savings Bank, Trustee, shall take such steps as to it may seem advisable to cause such property to be vested in the Company or in some other corporation organized or to be organized and having powers to acquire and manage such property, or partly in the Company and partly in such other corporation, as the Harris Trust and Savings Bank, Trustee, may deem advisable, in either and every event subject to the lien and provisions of this Indenture; provided in the case of any such transfer to such other corporation, (1) that a mortgage or other instrument securing a bond or bonds or a note or notes equal to at least the face amount of the securities (included in the pledged securities) which are used to pay therefor, shall be made to the Trustees hereunder; and (2) that any bonds and other evidences of indebtedness and all the capital stock of such corporation, organized or to be organized (except the shares required to qualify directors)
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shall be assigned, transferred and delivered as hereinbefore provided as part of the pledged securities hereunder.
Trustee may surrender deposited stock in order to permit decrease of capital stock.
In case of the decrease of the capital stock of any of such corporations, the Harris Trust and Savings Bank, Trustee, in its discretion may surrender or permit to be surrendered such part of the shares of stock included in the pledged securities as shall be proportionate to the amount of such decrease.
SECTION 9. Trustee may permit pledged securities to be exchanged for securities of same corporation or of another corporation acquiring its property.
SECTION 9. The Harris Trust and Savings Bank, Trustee, in its discretion, may at any time permit any pledged securities to be exchanged for other shares of stock, bonds or other securities or obligations of the same corporation or of any other corporation which shall have acquired the property of such corporation, issued in lieu of such pledged securities; provided such exchange and the terms and conditions thereof [*168*] shall be approved by a person selected or approved by the Harris Trust and Savings Bank, Trustee, as being advisable from the standpoint of the Company, the bondholders and the Trustees.
SECTION 10. Trustee may permit pledged stock of corporation not a subsidiary to be exchanged for stock in like corporation.
SECTION 10. The Harris Trust and Savings Bank, Trustee, in its discretion, may at any time permit any capital stock (included in the pledged securities) of any corporation not a subsidiary corporation to be exchanged for capital stock of another corporation itself owning and operating or controlling through stock ownership a corporation owning and operating, an electric, gas, water or railway system (as its principal business) located in the same territory as or in territory adjacent to that served by the Company or by a subsidiary corporation, or, in the case of an electric system, located within commercially efficient transmission distance from the electric power plants of the Company and its subsidiaries; provided, that prior to or simultaneously with such exchange there shall be included in the pledged securities hereunder such capital stock received in exchange for such stock so released for exchange, and provided further that such exchange and the terms and conditions thereof shall be approved in writing by a person selected or approved by the Harris Trust and Savings Bank, Trustee, as being advisable from the standpoint of the Company, the bondholders and the Trustees.
SECTION 11. Trustee may exercise any power for the enforcement of pledged securities.
SECTION 11. Anything in this Indenture to the contrary notwithstanding the Harris Trust and Savings Bank, Trustee, with or without the request of the Company, in respect of any of the bonds or other securities or obligations included in the pledged securities, is hereby authorized in its discretion to give any consent, do any act, exercise any power or take any step for the enforcement thereof or otherwise under the several mortgages or other agreements under which the said bonds or other securities or obligations are respectively issued. The Harris Trust and Savings Bank, Trustee, [*169*] shall be under no duty or obligation to demand payment of the principal of any of such bonds or other securities or obligations, or of any of the interest accruing thereon, or to do any act, exercise any power or take any steps under the several mortgages or other agreements under which said bonds or other securities or obligations are respectively issued, proper or permitted to be demanded, done, exercised or taken by the holders thereof, or, prior to the maturity of bonds issued and outstanding hereunder, to demand payment of any of the pledged securities which by their terms will mature prior thereto, unless and until, in every instance, (1) specifically directed to that end by the Company, or by the holders of ten per cent in amount of the bonds then outstanding hereunder; or (2) default shall occur on the part
53
of the maker of any of such pledged securities in respect of the mortgage or other agreement pursuant to which the same may be issued, and only in such latter event in case in the opinion of counsel selected or approved by the Harris Trust and Savings Bank, Trustee, the continuing obligation to make payment of the principal of such pledged securities or of the interest to accrue in respect of such principal shall be adversely affected, or (3) in case of any default in the observance of any of the covenants in this Indenture contained, and such default shall continue as in Section 2 of Article Seven provided. In event of default on the part of the maker with respect to the payment of the interest upon any of such pledged securities, the interest then accrued and thereafter to accrue upon such principal shall, notwithstanding any failure of the Harris Trust and Savings Bank, Trustee, to take any action to collect the same at or after the maturity thereof, become forthwith payable to the Harris Trust and Savings Bank, Trustee, or to the trustee of such underlying mortgage as in the opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, may be requisite; provided, however, [*170*] that no such interest shall be so payable to said Trustee; if all the capital stock and outstanding bonds or other securities of the corporation in default shall be owned by the Company.
SECTION 12. With consent of Company Trustee may protect its interests and that of bondholders hereunder in respect of pledged securities.
SECTION 12. With the written consent of the Company evidenced by resolution of its Board of Directors, the Harris Trust and Savings Bank, Trustee, upon being furnished with the funds deemed by it necessary in the premises or upon being indemnified to its reasonable satisfaction, may at any time take such steps as it in its discretion may deem advisable to protect the interests of the Trustees and of the bondholders hereunder in respect of any of the pledged securities; and with the consent of the Company so evidenced, Harris Trust and Savings Bank, Trustee, if it shall deem it advisable, may join in any plan of reorganization or adjustment in respect of any such pledged securities and may accept the new securities issued in exchange therefor under the provisions of such plan or such adjustment.
Consent not required if Company in default.
In case there shall be at any time a default hereunder and such default shall continue as in Section 2 of Article Seven provided, the Harris Trust and Savings Bank, Trustee, if it shall deem it advisable, may join in any such plan without the consent of the Company.
SECTION 13. Cancellation of deposited securities and release of mortgages upon conveyance to Company of property represented by such securities.
SECTION 13. Whenever all the property of any corporation, all or any part of whose stock, bonds or other securities or obligations are included in the securities shall have been conveyed to the Company and subjected to the lien of this indenture, the Harris Trust and Savings Bank, Trustee, in its discretion and upon receiving the opinion of counsel satisfactory to it to the effect that the rights and security of the bondholders and of the Trustees hereunder will not be impaired thereby, may cancel or consent to the cancellation of all or any of such stock, bonds or other securities or [*171*] obligations of such corporation and the certificates therefor or the evidences thereof, issued by or held against such corporation, and in such case the Harris Trust and Savings Bank, Trustee, may cause or consent to be entered of record a satisfaction of any mortgage or other agreement under which such pledged securities are issued.
SECTION 14. Cancellation of deposited securities and release of underlying mortgage upon provision for retirement of all securities of same issue not so deposited.
SECTION 14. Whenever (1) the Company shall deposit, in accordance with the terms of any underlying mortgage securing any pledged securities, sufficient funds for the full and final payment or redemption of all obligations which shall at the time be outstanding under such mortgage and which
54
shall not then be held hereunder, or which shall not be held uncanceled under the provisions of any underlying mortgage; or (2) all the outstanding issue of any pledged securities shall have been deposited hereunder (except those securities of such issue as may be held uncanceled under the provisions of any underlying mortgage), and there shall be delivered to the Harris Trust and Savings Bank, Trustee, an opinion of counsel satisfactory to it that there is no mortgage junior in lien to the mortgage securing such pledged securities and prior in lien hereto, then and in either of said events (1) and (2) the Harris Trust and Savings Bank, Trustee, may, in its discretion, cause or consent that such pledged securities be canceled and delivered to the Treasurer of the Company or upon his written order; provided that the Company shall, in case of such payment or deposit in respect of any such issue, forthwith take such steps as may be necessary (a) to procure the cancellation and delivery to it of all pledged securities of such issue, held uncanceled under the provisions of any underlying mortgage, and (b) to procure the release and satisfaction of the mortgage securing such pledged securities, but no such opinion shall be required if such pledged securities have matured. Whenever all the outstanding issue of any pledged securities, except as aforesaid, [*172*] shall have been deposited hereunder the Harris Trust and Savings Bank, Trustee, may in its discretion waive the performance of any covenant or requirement of, or give any consent with respect to the mortgage securing the same.
SECTION 15. Trustee may do whatever counsel deem necessary to preserve rights in deposited securities.
SECTION 15. The Harris Trust and Savings Bank, Trustee, from time to time in its discretion may do or cause to be done whatever in the opinion of counsel may be necessary or advisable for the purpose of maintaining and preserving the rights of the Company, the Harris Trust and Savings Bank, Trustee, and the holders of the bonds hereby secured in respect of the deposited securities, including the right to assent to or join in any plan of reorganization or adjustment in respect thereto.
SECTION 16. Company to pay or provide for expenditures under this Article.
SECTION 16. The Company covenants that it will forthwith on demand of the Harris Trust and Savings Bank, Trustee, pay or satisfactorily provide for all expenditures made by said Trustee under any provision of this Article Six, including all sums required to obtain and perfect the ownership and title to any property which the Harris Trust and Savings Bank, Trustee, shall cause or permit to be purchased pursuant to the provisions of Section 8 of this Article Six; and in case the Company shall fail to do so, then without impairment of or prejudice to any of its rights hereunder by reason of the default of the Company, the Harris Trust and Savings Bank, Trustee, in its discretion may advance all such expenses and other moneys required or may procure such advances to be made by others, and such advances made by the Harris Trust and Savings Bank, Trustee, or by others, with interest thereon at the rate of six per cent per annum or other agreed rate, shall be secured by a lien prior to the bonds secured hereby upon all the mortgaged and pledged property.
[*173*]
ARTICLE SEVEN. REMEDIES IN CASE OF DEFAULT.
SECTION 1. Upon default principal of bonds may be declared due.
[Note: Amended by Part IV, Section E, Sixth Supplemental Indenture.]
[SECTION 1. In case
(a) Default shall be made in the due and punctual payment of the principal of any bond hereby secured when and as the same shall become due and payable, whether at maturity or otherwise;
(b) Default shall be made in the due and punctual payment of any installment of interest on any bond hereby secured or in the due and punctual payment or satisfaction of any Special Trust
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Fund or sinking or purchase fund obligation, when and as such interest installment or Special Trust Fund or sinking or purchase fund obligation, as the case may be, shall become due and payable as in such bond or in this Indenture expressed, and such default shall continue for a period of sixty (60) days;
(c) Default shall be made by the Company in the performance or observance of any other of the covenants, agreements or conditions on its part in this Indenture or in the bonds hereby secured contained, and such default shall continue for a period of sixty (60) days after written notice thereof to the Company by Harris Trust and Savings Bank, Trustee;
(d) The Company shall (1) admit in writing its inability to pay its debts generally as they become due; (2) file a petition in bankruptcy; (3) make an assignment for the benefit of its creditors; (4) consent to the appointment of a receiver of or for itself or the whole or any substantial part of its property, or the property of any subsidiary corporation, or (5) on a petition in bankruptcy filed against the Company, be adjudicated a bankrupt;
(e) An order, judgment or decree shall be entered by any court of competent jurisdiction appointing, without the consent of the Company, a receiver of or for the Company or the whole or any substantial part of its property, or the property of any subsidiary corporation, and such order, judgment or decree shall not be vacated or set aside or stayed within sixty (60) days from the date of such appointment;
(f) The Company shall (1) file a petition under the provisions of Chapter X of An Act to establish a uniform system of bankruptcy throughout the United States, approved July 1, 1898, as amended, or (2) file an answer seeking the relief provided in said Chapter X;
(g) A Court of competent jurisdiction shall enter an order, judgment or decree approving a petition filed against the Company under the provisions of said Chapter X, and such order, judgment or decree shall not be vacated or set aside or stayed within sixty (60) days from the date of the entry of such order, judgment or decree, or a stay of such proceedings be thereafter set aside;
(h) Under the provisions of any law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the Company or the whole or any substantial part of its property, or the property of any subsidiary corporation, and such custody or control shall not be terminated within sixty (60) days from the date of assumption of such custody or control; or
(i) Final judgment for the payment of money in excess of One hundred thousand Dollars ($100,000) shall be rendered against the Company and the Company shall not discharge the same or provide for its discharge in accordance with its terms or procure a stay of execution thereon within sixty (60) days from the entry thereof or shall not within said period of sixty (60) days, or such longer period during which execution on such judgment shall have been stayed, appeal therefrom or from the order, decree or process upon which or pursuant to which said judgment shall have been granted, passed or entered and cause the execution thereof to be stayed during such appeal;
then, and in each and every such case, either Harris Trust and Savings Bank, Trustee, or the holders of not less than one-fourth in interest of the bonds then outstanding hereunder may declare the principal of all bonds hereby secured and then outstanding, if not already due and payable, to be immediately due and payable; and upon any such declaration all such bonds shall become and be immediately due and payable, anything in this Indenture, or in any of said bonds, to the contrary notwithstanding. Any such declaration by Harris Trust and Savings Bank, Trustee, may be made by notice in writing by such Trustee to the Company, and any such declaration by the holders of not less than one-fourth in interest of the bonds then outstanding hereunder may be made by notice in writing by such holders to the Company and to such Trustee.]
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SECTION 2. Upon defaults Trustee may enter or take other action.
[Note: Amended by Part IV, Section E, Sixth Supplemental Indenture.]
[SECTION 2. Upon the happening of any of the events specified in Subdivisions (a) to (i), inclusive, of Section 1 of this Article Seven, and the continuance of such event for the period of grace, if any, specified therein, the Trustees, or either of them: (a) may enter upon and take possession of the mortgaged and pledged property or any part or parts thereof, collect and receive all rents, issues, income and profits therefrom and operate and conduct the business of the Company to the same extent and in the same manner as the Company might lawfully do; (b) may cause this Indenture to be foreclosed and the mortgaged and pledged property, or any part or parts thereof, to be sold; (c) may proceed to protect and enforce the rights of the Trustees and the bondholders hereunder, whether for the specific performance of any covenant, condition or agreement herein contained, or in aid of the execution of any power herein granted, or for the enforcement of such other legal or equitable remedy as may in the opinion of the Trustees, or such Trustee, as the case may be, be most effectual to protect and enforce the rights aforesaid; and (d) shall be entitled as of right, without notice, to the appointment of a receiver of the mortgaged and pledged property or any part thereof, and the Company does hereby irrevocably consent to such appointment. The Trustees shall take any such action if requested so to do by the holders of a majority in interest of the bonds then outstanding hereunder and if indemnified to their reasonable satisfaction.]
SECTION 3. Deleted.
[Note: Section 3 deleted by Part IV, Section F, Sixth Supplemental Indenture.]
SECTION 4. Waiver of defaults.
SECTION 4. The Harris Trust and Savings Bank, Trustee, may in its discretion and shall, upon the written request of a majority in interest of the holders of the bonds at any time outstanding hereunder, waive any default hereunder and its consequences and rescind any declaration of maturity of principal, except (1) a default in the payment of the principal of said bonds at the date of maturity specified therein, and except (2) a default in the payment of interest unless prior to such waiver or rescission, all arrears of interest, with interest at the rate of six per cent (6%) per annum on overdue instalments of interest, and all expenses of the Trustees, shall have been paid or provided for; and in case of any such waiver or rescission, or in case any proceedings taken by the Trustees on account of any such default shall have been discontinued or abandoned, or determined adversely, then and in every such case the Company, the Trustees, and the bondholders shall be restored to their former positions and rights hereunder respectively, but no such waiver or rescission of any default shall constitute a waiver [*176*] or rescission of any subsequent or other default, or impair any right consequent thereon, and the acceptance of interest shall not constitute a waiver or rescission of default.
SECTION 5. Waiver by Company of rights under stay and redemption laws.
SECTION 5. The Company will not, at any time, insist upon or plead, or in any manner whatever claim, or take the benefit or advantage of, any stay or extension law now or at any time hereafter in force, nor will it claim, take or insist upon any benefit or advantage from any law now or hereafter in force, providing for the valuation or appraisement of the mortgaged and pledged property, or any part thereof, prior to any sale or sales thereof to be made pursuant to any provision herein contained, or to the decree, judgment or order of any court of competent jurisdiction; nor, after any such sale or sales, will it claim or exercise any right under any statute now or hereafter made or enacted by any state, or otherwise, to redeem the property so sold, or any part thereof; and it hereby expressly waives all benefit and advantage of any such law or laws, and it covenants that it will not invoke or utilize any such law or laws in order to hinder, delay or impede the execution of any power herein granted to the
57
Trustees, or either of them, but that it will suffer and permit the execution of every such power as though no such law or laws had been made or enacted.
SECTION 6. Disposition of proceeds of judicial sale of mortgaged property.
SECTION 6. The proceeds of any judicial sale of the mortgaged property or any part thereof, shall, subject to all the provisions of Section 2 of Article Three hereof, be applied as follows: First—To payment of all costs of such sale and of the suit or suits wherein such sale may have been ordered, including all reasonable fees and expenses of the Trustees, together with reasonable counsel fees and all costs of advertising, and conveyance. Second—To the payment of all other expenses of the trust hereby created, including all moneys advanced by the Trustees, or either of them, or the bondholders hereunder for taxes, tax deeds, assessments, [*177*] abstracts, maintenance, repairs, liens and insurance, with interest thereon at the rate of six per cent per annum. Third—To the pro rata payment of all interest accrued and remaining unpaid, with interest on all overdue installments of interest at the rate borne by the bonds in respect of which such interest accrued. Fourth—To the pro rata payment of the principal of the bonds issued hereunder remaining unpaid.
The balance of such proceeds, if any, shall then be paid to the Company or whomsoever shall be lawfully entitled thereto.
SECTION 7. Trustees or bondholders may bid at judicial sale of Company's property and apply bonds on purchase price.
SECTION 7. In case of any such judicial sale of the mortgaged property, or any part thereof, any bondholder or bondholders, and the Trustees, or either of them, may bid for and purchase such property, and, upon compliance with the terms of sale, may hold, retain, possess and dispose of such property in their own absolute right, without further accountability, and shall be entitled, for the purpose of making settlement or payment for the property purchased, to use and apply any bonds and any matured and unpaid coupons or claims for interest hereby secured, by presenting such bonds, coupons and claims for interest, in order that there may be credited thereon the sum apportionable and applicable thereto out of the net proceeds of such sale; and thereupon such purchaser shall be credited on account of such purchase price payable by him, with the sum apportionable and applicable out of such net proceeds to the payment of or as credit on the bonds, coupons and claims for interest so presented.
Upon any sale of the mortgaged and pledged property under any of the provisions of this Article, all bonds then outstanding, if not previously due shall forthwith be and become due and payable.
SECTION 8. Rights of action vested in Trustees exclusively.
SECTION 8. No holder of any bond or coupon hereby secured shall have any right as such holder to institute any [*178*] suit, action or proceeding in equity or at law, on account of any such bond or coupon, or for the foreclosure of this Indenture or for the execution of any trust hereof, or for the appointment of a receiver, or for any other remedy hereunder, or by reason hereof, all rights of action hereunder and on account of the bonds and coupons hereby secured being vested exclusively in the Trustees.
SECTION 9. Remedies of Trustees are cumulative, and are not prejudiced by delay in enforcing.
SECTION 9. No remedy herein conferred upon or reserved to the Trustees is intended to be exclusive of any other remedy or remedies; but each and every such remedy shall be cumulative, and shall be in addition to every other remedy given hereunder, or now or hereafter existing at law or in equity or by statute. No delay or omission of the Trustees or either of them, or of any bondholder, to exercise any right or power accruing upon any default continuing as aforesaid, shall impair any such
58
right or power or shall be construed to be a waiver of any such default, or acquiescence therein; and every such right and power may be exercised from time to time and as often as may be deemed expedient.
ARTICLE EIGHT. RELEASE OF MORTGAGED PROPERTY.
SECTION 1. Trustees may execute partial releases.
[Note: Subsection (2) amended by Part IV, Section G, Sixth Supplemental Indenture.]
SECTION 1. Whenever the Company shall have sold or exchanged or contracted to sell or exchange any part or parts of the property hereby mortgaged and pledged (including any sale of any part or parts of such property to any municipality) the Trustees upon and in accordance with a written request of the Company, signed by its President or one of its Vice Presidents and attested by its Secretary or one of its Assistant Secretaries, under its corporate seal, may execute a release of such property, or if such property shall be in the possession or control of the Harris Trust and Savings Bank, Trustee, or of the trustees of any underlying mortgage, may [*179*] surrender or consent to the surrender of such property; provided, however, that:
But may not release mortgaged property as an entirety, etc.
(1) This section shall not be construed to authorize the release of the mortgaged property as an entirety, or substantially as an entirety, or (except as otherwise provided in Section 2 of Article Six of this Indenture) to authorize the surrender of any pledged securities which shall be held under and subject to the provisions of said Article Six, except only as and subject to the limitations and restrictions in subparagraph (6) of this Section 1 specified.
Disposition of proceeds of released property.
(2) In the case of property sold, the proceeds from the sale thereof shall on or before delivery of the release of such property be deposited with the Harris Trust and Savings Bank, Trustee, provided that if any property so sold shall be subject to any mortgage or other instrument the lien of which shall be prior to that of this Indenture, the proceeds from the sale of such property may be deposited with the trustee or trustees under such prior mortgage or other instrument to be held and applied in accordance with the provisions thereof, the Company hereby agreeing and directing that upon the satisfaction or release of such prior mortgage or other instrument, any such proceeds from the sale of the released property remaining in the possession or control of such trustee or trustees shall be forthwith paid to and deposited with the Harris Trust and Savings Bank, Trustee, to be held and applied in accordance with the provisions of this Section 1. [The cash proceeds of the sale of any released property deposited with the Harris Trust and Savings Bank, Trustee, under any of the provisions of this Section, shall be held by the Harris Trust and Savings Bank, Trustee, as part of the mortgaged property and shall be paid out from time to time upon orders or drafts drawn by the Company for any of the purposes for which cash may be withdrawn from the Special Trust Fund mentioned in Article Four of this Indenture, except the purpose specified in subparagraph (c) of Section 2 of said Article Four; provided that if the aggregate cash proceeds from any sale or sales (whether voluntary or resulting from condemnation or eminent domain proceedings) of any released property or properties to either the federal or any state government or to any federal, state, municipal, or other public corporation, subdivision, body, agency or district, so deposited with the Harris Trust and Savings Bank, Trustee, during any period of twelve consecutive calendar months shall be in excess of $1,000,000, then in such event such aggregate cash proceeds may not be withdrawn for the purposes specified in subparagraphs (a) and (b) of said Section 2 except for the payment, redemption or purchase, in accordance with the provisions of said subparagraphs, of bonds secured by this Indenture or underlying bonds, as the case may be, which, immediately prior to such payment, redemption or
59
purchase, were not held by the Company, or any subsidiary of the Company, or the Harris Trust and Savings Bank, Trustee, or the trustee of any underlying mortgage, and such aggregate cash proceeds may not be withdrawn for the purpose specified in subparagraph (d) of said Section 2 except to reimburse the Company for the acquisition, subsequent to September 1, 1940, of a "net amount of additional property", as defined in Section 7 of Article Two of this Indenture, not previously used as a basis for the issuance of bonds or withdrawal of cash or absorption of excess indebtedness under any of the provisions of this Indenture.] All such orders and drafts of the Company for the payment of such cash shall be signed by the President or one of the Vice Presidents, and by the Treasurer or one of the Assistant Treasurers of the Company, and shall be accompanied by the certificates, documents, opinions, and other showings required by the provisions of Section 2 of said Article Four, and appropriate to the purpose for which such cash is to be used.
Securities representing proceeds of sale to be subjected to lien of this Indenture.
(3) In case the proceeds from the sale of any property shall consist wholly or partly of bonds, stocks or other securities, such securities shall forthwith be subjected to the lien of this Indenture and shall be deemed pledged securities within the meaning of Article Six hereof, and shall forthwith be deposited with the Harris Trust and Savings Bank, Trustee, subject to the provisions of said Article Six, or with the trustee of such underlying mortgage as, in the opinion of counsel satisfactory to the Harris Trust and Savings Bank, Trustee, shall be requisite.
Property received in exchange to be subjected to lien of this Indenture.
(4) In the case of property exchanged, the property acquired by the Company in exchange therefor shall forthwith be and become subject to the lien of this Indenture. Upon request of the Harris Trust and Savings Bank, Trustee, however, the Company shall transfer the same to the Trustees, in such manner as the Harris Trust and Savings Bank, Trustee, may specify or require.
Procedure in case of release of mortgaged property.
(5) Every request of the Company for the release of mortgaged property under the provisions of this Section shall be accompanied by a certified copy of a resolution of the Board of Directors of the Company and sworn statements of one or more persons (not to exceed three) appointed by the Company and approved by the Harris Trust and Savings Bank, Trustee, showing the terms of the sale or exchange of the property to be released, and also showing that in the opinion [*181*] of said Board of Directors and the persons so appointed (a) the proceeds realized or to be realized from the sale of the property to be released represent the full value thereof, or the value of the property received in exchange therefor is at least equal to that of the property to be released; and (b) such sale or exchange is advisable from the standpoint of the Company, the Trustees and the holders of the bonds hereby secured; provided that in any and all cases of sale where the proceeds are less than $10,000, and in any and all cases of exchange where the value of the property taken in exchange is less than $10,000, it shall be sufficient if the showing hereinabove required is made by the sworn statements of the President or one of the Vice Presidents and the Treasurer or one of the Assistant Treasurers of the Company.
Procedure in case of release of pledged securities.
(6) Every request of the Company for the release of pledged securities under the provisions of this Section 1 shall be accompanied by a certified copy of a resolution of the Board of Directors of the Company and a certificate signed by one or more competent engineers or other experts or persons appointed by the Company and approved by the Harris Trust and Savings Bank, Trustee, showing the terms of the sale or exchange of the pledged securities to be released, and also showing that, in the opinion of said Board of Directors and the person or persons so appointed (a) the release of the
60
pledged securities mentioned in said resolution and certificate will not in any manner prejudice or impair the value of the security of the holders of bonds hereby secured, and that it is no longer necessary or advisable, from the standpoint of the Company, the Trustees and the holders of the bonds hereby secured, that such pledged securities be retained as part of the property of the Company, or as part of the security for the bonds hereby secured, and (b) the proceeds realized or to be realized from the sale of the pledged securities to be released represent the full value thereof; provided, however, that in no case shall a portion only of the [*182*] pledged securities issued by, or representing a lien upon or interest in the property of, the same company, be released, except with the prior written consent of the Harris Trust and Savings Bank, Trustee.
Trustees may require additional evidence in regard to releases.
(7) The Harris Trust and Savings Bank, Trustee, or the Trustees, may in its or their discretion and at the expense of the Company require additional evidence in respect of any of the matters in this Section 1 mentioned. The Trustees, and each of them, however, shall be fully protected in acting upon any request, certificate, copy of resolution or sworn statement hereinabove referred to.
SECTION 2. Application of proceeds of property taken under eminent domain.
SECTION 2. In case any part or parts of the mortgaged property or any interest therein shall be taken under any condemnation or eminent domain proceedings, the net proceeds realized by the Company therefrom shall be treated in the same manner as though realized from a voluntary sale of such property under the provisions hereof.
SECTION 3. Purchaser of released property protected.
SECTION 3. In favor of every purchaser from the Company and of every person claiming any interest therein by, through or under the Company, every release of property from the lien of this Indenture by the Trustees under the provisions of this Article Eight shall be valid, and no such purchaser or person need inquire as to the power or authority of said Trustee or Trustees to give any such release or see to the application of the purchase money.
SECTION 4. Receiver of Company's property or Trustees in possession may exercise powers of Company.
SECTION 4. In case the mortgaged premises shall be in the possession of a receiver lawfully appointed, the powers in and by this Article Eight conferred upon the Company may be exercised by such receiver, with the approval of the Harris Trust and Savings Bank, Trustee, and if the Trustees shall be in possession of the mortgaged premises under any provision of this Indenture, then all the powers of this Article Eight conferred upon the Company may be exercised by the Trustees in their discretion.
[*183*]
SECTION 5. Company may sell merchandise, etc., free of lien.
SECTION 5. The Company and its subsidiary corporations may from time to time sell, free from the lien of this Indenture, such electrical apparatus and other merchandise and supplies as are commonly dealt in by companies operating like properties, such sale or sales being in the usual course of trade with the customers of the Company.
SECTION 6. Company may sell worn out materials, etc., free of lien.
SECTION 6. At any time when there is no default hereunder the Company, and its subsidiary corporations, anything in this Indenture to the contrary notwithstanding, may sell, exchange, or otherwise dispose of, free from the lien of this Indenture, any materials or other movable property,
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including machinery, which, may have become worn out, disused or undesirable for use by the Company; provided, however, that upon or before doing so the Company shall renew the same or substitute therefor other property suitable to its business, and shall subject such renewed or substituted property to the lien hereof.
SECTION 7. Trustees may release property to enable such property to be subjected to lien of underlying mortgage.
SECTION 7. For the purpose of enabling the Company to subject to the lien of an underlying mortgage a part or parts of the property mortgaged by this Indenture, and on account thereof to withdraw cash deposited with the trustee or trustees of such underlying mortgage, the Trustees hereunder may release such part or parts of the property hereby mortgaged upon receipt of the written request of the Company therefor signed by its President or one of its Vice Presidents and attested by its Secretary or one of its Assistant Secretaries under its corporate seal, accompanied by a certified copy of a resolution of the Board of Directors of the Company and a sworn statement of one or more persons (not to exceed three) appointed by the Company and approved by the Harris Trust and Savings Bank, Trustee, specifying the underlying mortgage to the lien of which it is desired to subject the property to be released and the amount of cash deposited with the trustee of such underlying [*184*] mortgage which it is desired to withdraw on account thereof, and stating the fair cash value of the property requested to be released and that the whole transaction is in the opinion of said Board of Directors and said person or persons so appointed advisable from the standpoint of the Company, the Trustees and the bondholders hereunder.
Disposition of cash received where property is released to enable it to be subjected to lien of underlying mortgage.
The Company shall, at the time such release is delivered, deposit with Harris Trust and Savings Bank, Trustee, an amount of cash equal to the full cash value of the released property as shown in the resolution of the Board of Directors and the opinion hereinabove required to accompany the request for release. The cash so deposited shall be held by the Harris Trust and Savings Bank, Trustee, as part of the mortgaged property and shall be paid out upon drafts or orders upon the procedure and for the purposes provided in Section 1 of this Article Eight with reference to moneys deposited on account of sales of property; provided, however, that in the case of additional property only such additions and extensions of the Company's properties can be used as a basis for the withdrawal by the Company of cash so deposited, as shall come under the lien of this Indenture, subject only to the lien, if any, of the indentures made by the Company, dated, respectively, November 1, 1909, and July 1, 1917, hereinbefore described.
ARTICLE NINE. POSSESSION UNTIL DEFAULT.
Company to retain possession of mortgaged property, etc., until default.
Unless default shall have been made in the due and punctual payment of the principal or interest of the bonds hereby secured, or of some part thereof, or in the due and punctual performance and observance of some covenant, condition or agreement hereof obligatory upon the Company, and unless such default shall have continued beyond the period of grace, if any, hereinbefore provided in respect thereof, the Company shall be suffered and permitted to retain actual possession and control of all the mortgaged property, and to manage, operate and use the same and every [*185*] part thereof, with the rights and franchises appertaining thereto, and to collect, receive, take, use and enjoy the tolls, earnings, income, rents, issues and profits thereof, subject, however, to the provisions of Articles Four and Six of this Indenture.
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ARTICLE TEN. DEFEASANCE AND RECONVEYANCE.
Upon payment of bonds mortgaged property to be released.
When all of the bonds and coupons hereby secured shall have been paid or redeemed or the Company shall have provided for such payment or redemption by depositing in cash with the Harris Trust and Savings Bank, Trustee, the entire amount necessary for such payment or redemption, and shall also have paid, or caused to be paid, all sums accrued and payable hereunder by the Company, then and in that case, all the mortgaged and pledged property shall revert to the Company, and the estate, rights, title and interest of the Trustees in respect thereof shall thereupon cease, determine and become void; and the Trustees in such case, upon the cancellation of all bonds and coupons for the payment of which cash shall not have been deposited in accordance with the provisions of this Indenture, shall, upon request of the Company and at its cost and expense, execute and deliver to the Company or its order proper instruments acknowledging satisfaction of this Indenture, and releasing the lien hereby created and reconveying and assigning all of the mortgaged properties, and the Harris Trust and Savings Bank, Trustee, shall surrender to the Company or its order all cash and deposited securities which shall then be held hereunder as a part of the mortgaged and pledged property.
Deposit of cash with Trustee for benefit of bondholders.
Cash deposited for the payment of bonds and coupons under the provisions of this Indenture, shall be held by the Harris Trust and Savings Bank, Trustee, as a special trust fund for the account of the holder or holders of said bonds and coupons, and be applied to the payment of such bonds and coupons upon presentation and surrender thereof. After the deposit of such cash as aforesaid [*186*] said bonds and coupons shall not be entitled to any benefits of this Indenture.
Procedure when bondholders do not claim funds deposited with Trustee.
Whenever, pursuant to any of the provisions of this Indenture, the Company shall deposit with the Harris Trust and Savings Bank, Trustee, funds for the payment of any bonds issued under this Indenture, or of any interest thereon, to be held by the Harris Trust and Savings Bank, Trustee, for the benefit of the holder or holders of any such bonds, and any such funds shall remain unclaimed with the Harris Trust and Savings Bank, Trustee, for a period of ten (10) years from the date of such deposit, then upon application of the Company, any such funds so unclaimed shall be paid to the Company upon the written order of its Treasurer, and thereafter the Harris Trust and Savings Bank, Trustee, shall be absolved from any further liability based upon or arising out of such deposit of funds, and thenceforth the holder of any bond, or of any coupon or claim for interest for whose benefit such deposit of funds was made shall look only to the Company for payment; the legal liability of the Company for the payment of such bonds and coupons or claims for interest being fully restored by such repayment as aforesaid.
ARTICLE ELEVEN. IMMUNITY OF STOCKHOLDERS, OFFICERS AND DIRECTORS.
No recourse against officers, stockholders, etc., of Company.
No recourse under or upon any obligation, covenant or agreement contained in this Indenture or in any bond or coupon, or under or upon any indebtedness hereby secured, or because of the creation of any indebtedness hereby secured, or for or on account of the consideration therefor, shall be had against any past, present or future stockholder, officer or director of the Company, or of any predecessor or successor company, either directly or through the Company, by the enforcement of any assessment, [*187*] or through any receiver, assignee or trustee in bankruptcy, or by any other legal or equitable proceedings, whether for amounts unpaid on stock subscriptions or for stock liability or any other liability or penalty, or on the ground of any representation, implication or inference arising from
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or concerning the capitalization of the Company, or of any predecessor, assignee, grantee, or successor company, or otherwise, and whether by virtue of any statute, constitution, contract express or implied, rule of law, or otherwise; it being expressly agreed and understood that this Indenture and the obligations hereby secured, are solely corporate obligations, and that no personal liability whatever shall attach to, or be incurred by, the incorporators or past, present or future stockholders, officers or directors of the Company, or of any predecessor or successor company, or any of them, because of the incurring of the indebtedness hereby authorized, or under or by reason of any of the obligations, covenants or agreements contained in this Indenture or in any of the bonds or coupons, or to be implied therefrom; and that any and all personal liability of every name and nature, and any and all rights and claims against every such past, present or future stockholder, officer or director, whether arising at common law or in equity, or created or to be created by statute or constitution, are hereby expressly released and waived as a condition of, and as a part of the consideration for, the execution of this Indenture and the issue of the bonds and interest obligations hereby secured.
ARTICLE TWELVE. BENEFITS OF INDENTURE LIMITED TO PARTIES.
Indenture is for sole benefit of parties hereto and holders of debentures and bonds secured hereby.
Nothing expressed or to be implied from this Indenture, or the bonds issued hereunder, is intended or shall be construed to give to any person or corporation, other than the [*188*] parties hereto, and the holders of the Debentures of 1919 and the bonds and coupons secured by this Indenture, any legal or equitable right, remedy or claim under or in respect of this Indenture, or any covenants, conditions and provisions herein contained; this Indenture and all the covenants, conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of the parties hereto and the holders of said Debentures and of said bonds and coupons.
ARTICLE THIRTEEN. EXECUTION OF INSTRUMENTS BY BONDHOLDERS.
Requests of bondholders and proof thereof.
Any request, direction or other instrument required by this Indenture to be signed and executed by the bondholders may be in any number of concurrent writings of similar tenor and may be signed or executed by such bondholders in person or by agent appointed in writing. Proof of the execution of any such request, direction or other instrument or of the writing appointing any such agent and of the ownership of bonds, if made in the following manner, shall be sufficient for any of the purposes of this Indenture, and shall be conclusive in favor of the Harris Trust and Savings Bank, Trustee, or of the Trustees, as the case may be, with regard to any action taken by it or them under such request or other instrument, namely:
(a) The fact and date of the execution by any person of any such writing may be proved by the certificate of any officer in any jurisdiction who by law has power to take acknowledgments within said jurisdiction, that the person signing such writing acknowledged before him the execution thereof; or by an affidavit of the witness of such execution.
(b) The fact of the holding by any bondholder of bonds and coupons transferable by delivery and the amounts and numbers of such bonds, and the date of his holding the same, may be proved by a certificate [*189*] executed by any trust company, bank, bankers or other depositary (wherever situated) if such certificate shall be deemed by the Harris Trust and Savings Bank, Trustee, to be satisfactory, showing that at the date therein mentioned such person had on deposit with such trust company, bank, bankers or other depositary the bonds and coupons described in such certificate. The ownership of registered coupon bonds or of fully registered bonds shall be proved by the registers of such bonds.
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ARTICLE FOURTEEN. CHANGES IN THIS INDENTURE.
SECTION 1. Procedure for modification of this Indenture.
[Note: Amended in its entirety by First Supplemental Indenture.]
[Note: Last sentence amended by Part IV, Section H, Sixth Supplemental Indenture.]
[SECTION 1. From time to time the holders of four-fifths in amount of all bonds issued under this Indenture for the time being outstanding (not including bonds owned or controlled directly or indirectly by the Company or by any corporation which directly or indirectly controls the Company), by an instrument or instruments in writing signed by such holders, shall have power (1) without prejudice to the powers conferred upon the Trustees and the Company by Articles Six and Eight hereof, to assent to and authorize the release of any part of the trust property, and (2) to waive any default, and any rights arising by reason of any default, under any provision of this Indenture, and (3) to assent to and authorize any modification of any of the provisions of this Indenture that shall be proposed by the Company and consented to by the Harris Trust and Savings Bank, Trustee; and any action herein authorized to be taken with the assent or authority given as aforesaid of the holders of four-fifths in amount of the bonds hereby secured for the time being outstanding shall be binding upon the holders of all of the bonds hereby secured and upon the Trustees, as fully as though such action were specifically and expressly authorized by the terms of this Indenture; provided, always (a) that the obligation of the Company to pay the principal of said bonds and of the Debentures of 1919, at their respective maturities, and the interest thereon, shall continue unimpaired, and (b) that no modification hereof shall give to any bond or bonds hereby secured or any Debentures of 1919, any preference over any other bond or bonds hereby secured or any other Debentures of 1919, and (c) that no waiver of any default shall extend to or affect any subsequent default or impair any right consequent thereon, and (d) that no waiver or modification of any rights which shall have been specially provided in respect of any particular series of bonds shall be effective unless assented to by the holders of four-fifths in amount of the bonds of such particular series and (e) that no such modification shall authorize the creation of any lien prior to the lien of this Indenture upon any of the trust property, and (f) that no modification will ever be proposed by the Company of the provisions of Section 5 of Article Two relating to the issuance of residue bonds which will reduce the requirement of relation of net earnings of the Company to total annual bond interest charge below one and three-quarters times; that no modification will ever be proposed by the Company of the provisions of Section 6 of said Article Two which will increase the amount of bonds issuable with respect to additional property over the amount now provided for in said section; that no modification will ever be proposed by the Company of the provisions of Section 11 of Article Two which will authorize withdrawals from "advance construction account" provided for therein in greater amounts with relation to additional property than is now provided for therein and in the other sections of the Original Indenture referred to in said Section 11; that no modification will ever be proposed by the Company of the provisions of this sub-paragraph (f) of Section 1 of Article Fourteen. Any modification of the provisions of this Indenture so made as aforesaid shall be set forth in a supplemental indenture between the Trustees and the Company which shall be recorded in the same manner as this Indenture, and any such supplemental indenture executed and delivered after September 1, 1940 shall comply with the provisions of the Trust Indenture Act of 1939 as in effect at the time of such execution and delivery.]
ARTICLE FIFTEEN. SUCCESSOR CORPORATIONS.
SECTION 1. Consolidation, merger, etc.
SECTION 1. Nothing contained in this Indenture, or in any bond hereby secured, shall prevent any consolidation or merger of the Company with or into any other corporation, or the consolidation or merger of any other corporation with or into the Company, or any sale, conveyance or transfer, (subject to the continuing lien of this Indenture and to all the provisions hereof), of all of the trust
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property as an entirety to a corporation at that time existing under the laws of the United States or of any state or states or territories therein, and entitled to acquire, own, maintain and operate the same; provided, that such consolidation, merger, sale, conveyance or transfer, shall not impair the lien and security of this Indenture or any of the rights or [*191*] powers of the Trustees or of any bondholder hereunder, and that upon any such consolidation, merger, sale, conveyance or transfer, the due and punctual payment of the principal and interest of all the bonds secured hereby and the due and punctual performance and observance of all the covenants and conditions of this Indenture shall be assumed by the corporation formed by such consolidation or merger or purchasing the trust property as aforesaid.
SECTION 2. When bonds may continue to issue hereunder after sale of mortgaged property to another corporation.
SECTION 2. In case the Company shall sell, convey or transfer all of the trust property to another corporation organized for the sole purpose of acquiring such property and continuing the business of the Company and not at the time of such sale, conveyance or transfer, engaged in any other business, such corporation (hereinafter called "successor corporation"), may, with the written consent of the Harris Trust and Savings Bank, Trustee, succeed to, and be substituted for, the Company, with the same effect as if it had been named herein as party of the first part, upon executing, and causing to be recorded, an indenture to the Trustees, satisfactory to the Harris Trust and Savings Bank, Trustee, whereby such successor corporation shall assume the due and punctual payment of the principal and interest of the bonds secured hereby and the performances of all the covenants and conditions of this Indenture on the part of the Company to be performed; and such successor corporation thereupon may cause to be signed, and may issue, either in its own name or in the name of the Company, any or all of the bonds authorized to be issued hereunder which shall not theretofore have been issued; and upon the order of said successor corporation in lieu of the Company, and subject to all the terms, conditions and restrictions herein prescribed, the Harris Trust and Savings Bank, Trustee, shall authenticate and deliver any of such bonds which shall have been previously signed and delivered by the officers of the [*192*] Company to the Harris Trust and Savings Bank, Trustee, for authentication, and any of such bonds which such successor corporation shall thereafter cause to be signed and delivered to the Harris Trust and Savings Bank, Trustee for that purpose. All the bonds so issued shall in all respects have the same legal rank and security as the bonds theretofore or thereafter issued in accordance with the terms of this Indenture.
"Company" includes successor complying with provisions of this section.
The word "Company" wherever used in this Indenture shall include any such successor so complying with the provisions of this Section 2 of this Article, and in any such case the certificates of the officers or resolutions of the Board of Directors of the Company required by the provisions of this Indenture may be made or adopted by the like officials or body of such successor corporation.
SECTION 3. Trustee may submit to counsel the matter of its consent to consolidation or sale.
SECTION 3. The Harris Trust and Savings Bank, Trustee, may, if it shall so elect, submit the matter of granting or withholding any consent or approval by it under the provisions of this Article Fifteen to such experts or counsel as shall be satisfactory to it.
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ARTICLE SIXTEEN. CONCERNING THE TRUSTEES.
SECTION 1. Rights, duties, immunities and compensation of Trustees.
SECTION 1. The Trustees, and each of them, hereby accept the trusts imposed upon them, and each of them, by this Indenture, but only upon and subject to the following express terms and conditions:
[Note: Subdivisions (a) to (k) inclusive of Section 1 superseded by Article 18, Sixth Supplemental Indenture.]
(a) Superseded.
(b) Superseded.
(c) Superseded.
(d) Superseded.
(e) Superseded.
(f) Superseded.
(g) Superseded.
(h) Superseded.
(i) Superseded.
(j) Superseded.
(k) Superseded.
SECTION 2. Compensation of Trustee not limited.
[Note: First sentence of Section 2 superseded by Article 18 (see Sixth Supplemental Indenture).]
SECTION 2. [First sentence deleted—superseded.] The compensation of the Trustees shall not be limited to or by any provision of law in regard to the compensation of a trustee of an express trust.
SECTION 3. Trustee may resign.
SECTION 3. Either, or both, of the Trustees may at any time resign from the trust hereby created by giving thirty (30) days' written notice to the Company, and to the other Trustee, if any, and such resignation shall take effect at the end of said thirty (30) days. Such notice may be served personally or sent by registered mail.
[*197*]
SECTION 4. Trustees may be removed.
SECTION 4. Either or both, of the Trustees may be removed at any time by an instrument or concurrent instruments in writing, delivered to both of the Trustees, and to the Company, and signed by the holders of a majority in amount of the bonds hereby secured and then outstanding.
SECTION 5. In case of resignation, removal or dissolution of Pacific-Southwest Trust & Savings Bank, then Harris Trust and Savings Bank to appoint successor Trustee.
SECTION 5. In case the Pacific-Southwest Trust & Savings Bank, or its successor, shall at any time resign, or be removed, or be dissolved, or otherwise become incapable of acting hereunder, said Harris Trust and Savings Bank, if then acting as Trustee hereunder, may by an instrument in writing, signed by
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its President or one of its Vice Presidents, and attested by its Secretary or one of its Assistant Secretaries, and under its corporate seal, appoint a successor Trustee to fill such vacancy.
SECTION 6. Pacific-Southwest Trust & Savings Bank to become sole Trustee hereunder in case of resignation, removal or dissolution of Harris Trust and Savings Bank.
SECTION 6. The Pacific-Southwest Trust & Savings Bank, or its successor hereunder, is hereby appointed the successor of the Harris Trust and Savings Bank, Trustee, in case said Harris Trust and Savings Bank shall at any time resign, or be removed, or be dissolved, or otherwise be or become incapable of acting hereunder, and in any such event, the Pacific-Southwest Trust & Savings Bank, or its successor, shall at once be and become sole Trustee hereunder, and have and exercise all the estate, rights, powers and duties by this Indenture vested in or imposed upon the Trustees, and each of them, including the rights, powers and duties of said Harris Trust and Savings Bank, Trustee, in respect of the authentication and registration of bonds hereby secured, and the custody of any of the mortgaged property, then held by said Harris Trust and Savings Bank, Trustee.
SECTION 7. If Pacific-Southwest Trust and Savings Bank becomes sole Trustee and resigns or is removed, or is dissolved, then bondholders may appoint Trustee.
SECTION 7. In case the Pacific-Southwest Trust & Savings Bank, or its successor, shall become sole Trustee hereunder, and shall thereafter resign or be removed, or be dissolved, [*198*] or otherwise become incapable of acting hereunder, a successor may be appointed by the holders of a majority in interest of the bonds hereby secured and then outstanding by an instrument or concurrent instruments in writing, signed by such holders, or by their attorneys in fact, duly authorized; provided, nevertheless, that in case of such vacancy the Company by an instrument executed by order of its Board of Directors, and signed by its President or one of its Vice Presidents, and attested by its Secretary or one of its Assistant Secretaries, and under its corporate seal, may appoint a temporary Trustee to fill such vacancy until a successor Trustee shall be appointed by the bondholders in the manner above provided; and any such temporary Trustee so appointed by the Company shall immediately and without further act be superseded by the Trustee so appointed by such bondholders. Every such temporary Trustee so appointed by the Company shall be a trust company in good standing, having a capital and surplus of not less than $2,000,000, if there be such a trust company willing, qualified and able to accept the trust upon reasonable or customary terms.
SECTION 8. Successor Trustee to accept trusts hereunder, etc.
SECTION 8. Any Trustee appointed hereunder as successor to the Pacific-Southwest Trust & Savings Bank, or its successor, shall execute, acknowledge and deliver to its predecessor and also to the Company, an instrument in writing accepting such appointment hereunder, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become fully vested with all the estates, properties, rights, powers, trusts, duties and obligations of its predecessor; but such predecessor shall, nevertheless, on the written request of the Company, or of the successor Trustee, execute and deliver an instrument transferring to such successor Trustee, all the estate, properties, rights, powers, and [*199*] trusts of such predecessor hereunder, and shall duly assign, transfer and deliver all property and moneys held by it to its successor.
Company to execute instruments necessary to vest new Trustee with proper powers.
Should any deed, conveyance or instrument in writing from the Company be required by any successor Trustee for more fully and certainly vesting in such Trustee the estates, rights, powers and duties hereby vested in the Trustees, or either of them, any and all such deeds, conveyances and instruments in writing shall, on request, be executed, acknowledged and delivered by the Company. The resignation of any Trustee and the instrument or instruments removing any Trustee and appointing a successor Trustee
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hereunder, together with all deeds, conveyances, and other instruments provided for in this Article shall, at the expense of the Company, be forthwith filed for record in the county or counties wherein the mortgaged properties are located.
SECTION 9. Pacific-Southwest Trust & Savings Bank, Trustee, appointed agent of bondholders for certain purposes.
SECTION 9. The Pacific-Southwest Trust & Savings Bank, Trustee, is hereby constituted and appointed the agent and attorney of the holders of the bonds and coupons issued and to be issued hereunder for the purpose of making any affidavits or of taking any other steps necessary or proper, under any present or future law, in order to preserve the full lien and priority of this Indenture, but said Trustee is not required to act as such agent or attorney unless requested so to do in writing by the holders of bonds affected, and indemnified to its satisfaction for any possible cost, expense, counsel fees, charge or liability because of such action, and any affidavit made or other step taken by it, shall be deemed and taken to be on behalf of and the act of the several and respective holders, for the time being, of all of said bonds and coupons, and for their use and benefit, whether so expressed or not.
SECTION 10. Trustees may raise money upon security of mortgaged property.
SECTION 10. The Trustees may raise and borrow money on the security of the mortgaged property, or any part [*200*] thereof, for the purpose of paying off or discharging any mortgage or charge for the time being charged on the mortgaged property, or any part thereof, in priority to this Indenture. The Trustees may raise and borrow such moneys as aforesaid at such rate of interest and generally on such terms and conditions as the Trustees shall think fit, and may secure the repayment of the moneys so raised or borrowed with interest on the same, by mortgaging or otherwise charging the mortgaged property, or any part thereof, in such manner and form as the Trustees shall think fit. There are excepted from the provisions of this section the hereinbefore mentioned underlying mortgages.
SECTION 11. Trustees may advance money for certain purposes and be protected.
[Note: Amended by Part IV, Section I, Sixth Supplemental Indenture.]
[SECTION 11. In case the Company shall fail seasonably to pay any tax, assessment or governmental or other charge upon any part of the mortgaged property, or shall fail to pay when due the principal or interest of any indebtedness constituting a lien prior to this Indenture on any part of the mortgaged property, or to procure and maintain reasonable and proper insurance thereon as aforesaid, the Trustees, or either of them, may pay such tax, assessment or governmental charge or principal or interest, or procure and maintain such insurance, without prejudice, however, to any rights of the Trustees or the bondholders hereunder arising in consequence of such failure; and any amount at any time so paid under this Section, with interest thereon from the date of payment at the rate of six per cent (6%) per annum, shall be repaid by the Company upon demand, and shall become so much additional indebtedness secured by this Indenture, and the same shall be given a preference in payment of any of said bonds, and shall be paid out of the proceeds of any sale of the mortgaged property, if not otherwise paid by the Company; but neither of the Trustees shall be under any obligation to make any such payment unless a prudent man in the conduct of his own affairs, under the circumstances, would make such payment.]
ARTICLE SEVENTEEN. CERTAIN WORDS DEFINED.
SECTION 1. Covenants of Company binding on successors.
SECTION 1. All the covenants, stipulations, promises, undertakings and agreements herein contained, by or on behalf of the Company, shall bind its successors and assigns, whether so expressed or not.
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SECTION 2. Definitions.
[Note: Fifth and sixth sentences amended by Part IV, Section J, Sixth Supplemental Indenture.
Last sentence added by
Eighty-Eighth Supplemental Indenture.]
SECTION 2. The words "bond hereby secured," "bonds issued hereunder," "bonds outstanding hereunder" and words of similar import descriptive of the instruments hereby secured, and the words "owner," "holder" and "bondholder," and the like, whenever used in this Indenture, shall mean and include, respectively, the Debentures of 1919, and the owners or holders thereof, wherever necessary or appropriate, to give to such Debentures of 1919, and to every owner or holder thereof the security afforded by this Indenture, and all rights and remedies in respect thereto. Words in the singular shall include the plural as well as the singular number, unless otherwise expressly indicated. The word "coupons" refers to the interest coupons attached to the bonds secured hereby. The word "person" shall include associations or corporations. [The word "Trustees", whenever used in this Indenture or in the bonds hereby secured, means the Trustees hereunder for the time being, whether the Trustees originally named herein, or successor Trustees, or Trustees appointed pursuant to the provisions of Section 7 of Article Eighteen of this Indenture. The words "Harris Trust and Savings Bank, Trustee," wherever used in this Indenture or in the bonds hereby secured, shall mean Harris Trust and Savings Bank, or its successor for the time being in the trust hereby created, so long as said Harris Trust and Savings Bank or said successor, as the case may be, shall be a Trustee hereunder and shall be a corporation organized and doing business under the laws of the United States or of any State, having a combined capital and surplus of not less than $5,000,000, being authorized under the laws of the jurisdiction of its incorporation to exercise corporate trust powers, and being subject to supervision or examination by Federal or State authority; if at any time said Harris Trust and Savings Bank or said successor, as the case may be, shall not be a Trustee hereunder or shall not be such a corporation, then said words "Harris Trust and Savings Bank, Trustee," shall be deemed to mean such other of the then existing Trustees hereunder as is such a corporation, and if at such time there is more than one such corporation acting as Trustee hereunder, then said words shall be deemed to mean the one thereof having the greatest combined capital and surplus; if a corporate Trustee hereunder publishes reports of condition at least annually, pursuant to law or to the requirements of a Federal or State supervising or examining authority, the combined capital and surplus of such corporate Trustee shall, for the purposes of this sentence, be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.] The words "Pacific-Southwest Trust & Savings Bank, Trustee," whenever used in this Indenture or in the bonds hereby secured, shall include its successor or successors in the trust hereby created. [The words "resolution of the Board of Directors" and "resolution adopted by the Board of Directors," or words to the same effect, shall mean any resolution duly adopted by the Board of Directors or any resolution duly adopted by any duly authorized committee of the Board of Directors or officers of the Company pursuant to authority delegated to such committee or officers by the Board of Directors or a committee thereof; and the words "Board of Directors", with respect to any determination or opinion of, or any fixing of dates or order to be executed by, the Board of Directors of the Company, or words to the same effect, shall mean any determination, opinion, fixing or order, as the case may be, of the Board of Directors or any duly authorized committee of the Board of Directors or officers of the Company pursuant to authority delegated to such committee or officers by the Board of Directors or a committee thereof.]
[Note: Articles Eighteen through Twenty-One added by Sixth Supplemental Indenture.]
[*SS19*]
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ARTICLE EIGHTEEN. ADDITIONAL PROVISIONS CONCERNING THE TRUSTEE.
The provisions of Section 1 of this Article Eighteen shall supersede and take the place of the whole of Subdivisions (a) to (k), inclusive, of Section 1 and the first sentence of Section 2 of Article Sixteen of this Indenture.
SECTION 1. Additional provisions concerning the Trustees.
SECTION 1. (a) Prior to the occurrence of any Event of Default and after all Events of Default which may have occurred shall have ceased to be continuing:
Trustee liable only for performance of duties specifically set forth.
(1) The duties and obligations of each Trustee shall be determined solely by the express provisions of this Indenture, and a Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture with respect to such Trustee, and no implied covenants or obligations shall be read into this Indenture against a Trustee; and
Trustee may rely upon certificates or opinions subject to duty to examine.
(2) Each Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, in the absence of bad faith on the part of such Trustee, upon any certificates or opinions furnished to any Trustee hereunder; but in the case of any such certificates or opinions which by any provision of this Indenture are specifically required to be furnished to the Trustees, or either of them, then the Trustees, or Trustee, to whom any such certificates or opinions must be furnished, shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture.
[*SS20*]
In case of Event of Default, Trustee to exercise rights and powers as would a prudent man in conduct of own affairs.
In case any Event of Default shall occur and be continuing each Trustee shall exercise such of the rights and powers vested in such Trustee by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.
Trustee not liable for error of judgment by officers.
A Trustee shall not be liable for any error of judgment made in good faith by a responsible officer or officers of such Trustee unless it shall be proved that such Trustee was negligent in ascertaining the pertinent facts.
Holders of bonds may direct Trustees; Trustee not liable for action or nonaction.
The holders of a majority in principal amount of the bonds at the time outstanding may direct the time, method and place of conducting any proceeding for any remedy available to any Trustee, or exercising any trust or power conferred upon any Trustee, hereunder, and a Trustee shall not be liable with respect to any action taken or omitted to be taken by such Trustee in good faith in accordance with any such direction.
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Trustee liable for negligence or willful misconduct except as provided in this subdivision.
Except as provided in this Subdivision (a), no provision of this Indenture shall be construed to relieve any Trustee from liability for such Trustee's own negligent action, negligent failure to act or wilful misconduct.
Trustee not responsible for correctness or validity of Indenture or bonds.
(b)(1) The recitals and the statements of fact herein and in the bonds and coupons contained shall be taken as the statements of the Company, and the Trustees assume no responsibility for the correctness thereof. The Trustees make no representation as to the validity of this Indenture, or of any bonds or coupons issued hereunder, nor as to the security hereby afforded, nor as to the title of the Company to the property hereby mortgaged.
[*SS21*]
Trustee liable only for performance of duties specifically set forth.
(2) A Trustee shall not be accountable for the use of any bond delivered hereunder or the application of the proceeds of the same.
Trustee not required to pay interest on deposited moneys.
(3) A Trustee shall not be required to pay interest upon any moneys deposited with it hereunder save such as from time to time it shall agree with the Company to pay. Each Trustee may buy, sell or deal in the bonds and coupons secured hereby, and deal with the Company, as freely as if it were not Trustee hereunder, and no trust relationship shall arise hereunder as to any such bonds or coupons which may be owned by such Trustee.
Action of bondholder shall bind future owners of same bond.
(4) Any request, consent or vote of the owner of any bond shall bind all future owners of the same bond in respect of anything done or suffered by a Trustee in pursuance thereof.
Trustee not obligated to take action requested by bondholders.
(5) A Trustee shall be under no obligation to exercise any of the trusts or powers hereof at the request, order or direction of any of the bondholders, pursuant to the provisions of this Indenture, unless such bondholders shall have offered to such Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities to be incurred therein or thereby; nothing herein contained shall, however, relieve any Trustee of the obligation, in case any Event of Default shall occur and be continuing, to exercise such of the rights and powers vested in it by this Indenture, and to use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.
Trustee may act upon opinion of counsel.
(6) A Trustee may, in its discretion, advise with legal counsel to be selected and employed by it at the expense [*SS22*] of the Company (who may be of counsel to the Company), and, to the extent permitted by Subdivision (a) of this Section, shall be fully protected in any action under this Indenture taken by it in good faith in accordance with the opinion of such counsel.
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Trustee entitled to compensation, reimbursement and indemnity.
(7) The Company agrees, from time to time, on demand, to pay to each Trustee reasonable compensation for its services, to reimburse each Trustee for all its reasonable expenditures, and to indemnify and save each Trustee harmless against any liabilities which it may incur without negligence or bad faith in the exercise and performance of its powers and duties hereunder; and for such indemnification, reimbursement and compensation a first lien is hereby imposed by the Company in favor of each Trustee upon the trust estate.
Trustee may rely on officers' certificate.
(8) Whenever, in the administration of the trusts of this Indenture, any Trustee shall deem it necessary or desirable that any matter be proved or established prior to such Trustee taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, to the extent permitted by Subdivision (a) of this Section, be deemed to be conclusively proved and established by a certificate signed by the President or a Vice-President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Company and delivered to such Trustee, and such certificate shall, to the extent permitted by Subdivision (a) of this Section, be full warrant to such Trustee for any action taken or suffered by it under the provisions of this Indenture on the faith thereof; but in its discretion such [*SS23*] Trustee may require such further or additional evidence as to it may seem reasonable. To the extent permitted by Subdivision (a) of this Section, any resolution of the Board of Directors of the Company shall be sufficiently evidenced by a copy thereof certified by the Secretary or any Assistant Secretary of the Company under its corporate seal.
Trustee may rely on documents believed genuine.
(9) A Trustee, to the extent permitted by Subdivision (a) of this Section, may rely and shall be protected in acting upon or in accordance with any notice, request, consent, certificate, bond, coupon or other document believed by it to be genuine and to have been signed or presented by the proper person or duly authorized or properly made
Provisions of Subdivision (a) to contol.
(c) If and to the extent that any provision contained in any Section of this Indenture limits, qualifies, conflicts with, or is contrary to the provisions of Subdivision (a) of this Section, the provisions of said Subdivision (a) shall be deemed to control and govern. Specifically, but without in any way limiting the generality of the foregoing,
(1) The provisions of Subdivision (a) of this Section shall control the application of the following provisions of this Indenture, and none of the following provisions of this Indenture, or any other provisions of this Indenture, shall, prior to the occurrence of any Event of Default and after all Events of Default which may have occurred shall have ceased to be continuing, be construed as [*SS24*] relieving any Trustee from liability for the performance of such duties and obligations as are specifically set forth in this Indenture with respect to such Trustee, or shall, in case any Event of Default shall occur and be continuing, be construed as relieving any Trustee from the duty of exercising such of the rights and powers vested in such Trustee by this Indenture, and using the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs; provided, however, that each Trustee shall be protected from liability hereunder if it acts in accordance with the provisions of Subdivision (a) of this Section:
(i) The provisions contained in Section 3 of Article Four to the effect that the reports and opinions therein provided for shall be full warrant, authority and protection for any action taken or omitted by Harris Trust and Savings Bank, Trustee, in reliance thereon and shall be binding upon
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all holders of bonds issued hereunder, but that Harris Trust and Savings Bank, Trustee, shall in no case be under any obligation to take any action or enter into any agreement under said Section;
(ii) The provisions contained in Section 1 of Article Six to the effect that Harris Trust and Savings Bank, Trustee, shall not be obliged as a condition precedent to the acceptance of any pledged securities to examine into or pass upon the validity or genuineness thereof, or of any assignment or transfer thereof, and shall be entitled to assume that any pledged securities as presented for deposit hereunder are genuine and valid and what they purport to be and that any transfers and assignments thereof are genuine and legal, and that as to any pledged securities deposited with the trustee of any underlying mortgage, Harris Trust and Savings Bank, Trustee, may accept a certificate of [*SS25*] such trustee that such pledged securities have been so deposited as conclusive evidence of such deposit, of the validity and genuineness of such pledged securities and of the sufficiency, genuineness and legality of any transfer and assignment thereof;
(iii) The provision contained in Section 4 of Article Six to the effect that until Harris Trust and Savings Bank, Trustee, is advised to the contrary, it shall be entitled to assume that all cash dividends on pledged securities have been properly paid out of earnings;
(iv) The provisions contained in Section 7 of Article Six to the effect that the consolidations, mergers, conveyances or leases thereby permitted shall be made only upon such terms as shall not, in the opinion of counsel satisfactory to Harris Trust and Savings Bank, Trustee, in any manner impair or prejudice the value of the security or the rights of the Trustees and the bondholders hereunder;
(v) The provisions contained in Section 11 of Article Six to the effect that Harris Trust and Savings Bank, Trustee, shall be under no duty or obligation to demand payment of the principal of any of the pledged securities, or of any of the interest accruing thereon, or to do any act, exercise any power or take any steps under the several mortgages or other agreements under which securities included in the pledged securities are respectively issued, proper or permitted to be demanded, done, exercised or taken by the holders thereof or, prior to the maturity of bonds issued and outstanding hereunder, to demand payment of any of the pledged securities [*SS26* ] which by their terms will mature prior thereto, until the occurrence of certain specified events;
(vi) The provision contained in Section 12 of Article Six to the effect that under certain circumstances Harris Trust and Savings Bank, Trustee, upon being furnished with the funds deemed by it necessary in the premises or upon being indemnified to its reasonable satisfaction, may at any time take such steps as it in its discretion may deem advisable to protect the interests of the Trustees and of the bondholders hereunder in respect of any of the pledged securities;
(vii) The provision contained in Section 13 of Article Six to the effect that in certain circumstances, Harris Trust and Savings Bank, Trustee, in its discretion and upon receiving the opinion of counsel satisfactory to it to the effect that the rights and security of the bondholders and of the Trustees hereunder will not be impaired thereby, may cancel or consent to the cancellation of securities included in the pledged securities;
(viii) The provision contained in Section 15 of Article Six to the effect that Harris Trust and Savings Bank, Trustee, from time to time in its discretion may do or cause to be done whatever in the opinion of counsel may be necessary or advisable for the purpose of maintaining and preserving the rights of the Company, Harris Trust and Savings Bank, Trustee, and the holders of bonds hereby secured in respect of the deposited securities;
(ix) To the extent that the Trustees, or either of them, are acting on behalf of the bondholders in bidding [*SS27*] for and purchasing the mortgaged property, the provision contained in Section 7 of Article Seven to the effect that the Trustees, or either of them, may hold, retain, possess and dispose of such property without further accountability;
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(x) The provision contained in Subdivision (7) of Section 1 of Article Eight to the effect that the Trustees, and each of them, shall be fully protected in acting upon any request, certificate, copy of resolution or sworn statement referred to in said Section;
(xi) The provision contained in Article Thirteen to the effect that proof of the execution of any of the instruments therein provided for, if made in the manner therein provided for, shall be sufficient for any of the purposes of this Indenture, and shall be conclusive in favor of Harris Trust and Savings Bank, Trustee, or of the Trustees, as the case may be, with regard to any action taken by it or them under such instrument;
(xii) The provisions contained in Section 9 of Article Sixteen to the effect that Pacific-Southwest Trust & Savings Bank, Trustee, (now Security-First National Bank of Los Angeles) is not required to act under said Section unless requested so to do in writing by the holders of bonds affected, and indemnified to its satisfaction for any possible cost, expense, counsel fees, charge or liability because of such action.
(2) Notwithstanding any provision contained in Section 11 of Article Six, or elsewhere in this Indenture, but subject, nevertheless, to the provisions of Section 2 of Article [*SS28*] Nineteen of this Indenture, no Trustee hereunder shall be required or obligated to take any action hereunder upon the request or direction of the holders of less than a majority in principal amount of the bonds then outstanding hereunder.
Which bonds to be disregarded in determining whether required percentage of outstanding bonds have concurred in action.
(d) In any case under this Indenture where a Trustee is requested or directed to take any action by the holders of a specified percentage of the bonds then outstanding, in determining whether the holders of the required percentage of the bonds then outstanding have concurred in any such request or direction, bonds owned by any obligor thereon, or by any person directly or indirectly controlling or controlled by or under direct or indirect common control with any obligor thereon, shall be disregarded, except that for the purposes of determining whether a Trustee shall be protected in relying on any such request or direction, only bonds which the Trustee knows are so owned shall be so disregarded.
When an Event of Default shall be deemed to have occurred.
(e) For the purposes of Section 1 of this Article Eighteen, an Event of Default shall be deemed to have occurred if any of the events specified in Subdivisions (a) to (i), inclusive, of Section 1 of Article Seven of this Indenture shall have occurred and shall have continued for the period of grace, if any, specified therein.
Definition of "responsible officer."
(f) For the purposes of Sections 1 and 2 of this Article Eighteen, the term "responsible officer" of a Trustee is defined to mean the chairman of the board of directors, the president, every vice-president, the secretary, the treasurer, every trust officer, every assistant trust officer and every other officer and assistant officer of such Trustee customarily performing functions similar to those performed by the [*SS29*] persons who at the time shall be such officers respectively or to whom any corporate trust matter is referred because of his knowledge of and familiarity with a particular subject.
SECTION 2: Duty of Harris Trust to advise bondholders of occurrence of default.
SECTION 2. (a) Harris Trust and Savings Bank, Trustee, shall mail to the holders of bonds whose names and addresses appear in the information preserved at the time by such Trustee in accordance
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with the provisions of Section 1 of Article Nineteen of this Indenture and to the registered holders of coupon bonds registered as to principal and of registered bonds without coupons, notice of the happening of all defaults known to such Trustee within ninety (90) days after the occurrence thereof, unless such defaults shall have been cured before the giving of such notice; provided, however, that in the case of any default of the character specified in Subdivision (c) of Section 1 of Article Seven of this Indenture, no such notice shall be given until at least sixty (60) days after the occurrence thereof; and further provided that, except in the case of default in the payment of the principal of or interest on any of the bonds, or in the payment or satisfaction of any sinking, purchase or Special Trust Fund obligation, such Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors and/or responsible officers of such Trustee in good faith determine that the withholding of such notice is in the interests of the bondholders.
Duty of other Trustees to advise Harris Trust of occurrence of default.
(b) Each Trustee additional to Harris Trust and Savings Bank, Trustee, shall mail to Harris Trust and Savings Bank, Trustee, notice of the happening of all defaults [*SS30*] known to such additional Trustee within ten (10) days after the occurrence thereof, unless such defaults shall have been cured before the giving of such notice, and as to such defaults shall join with Harris Trust and Savings Bank, Trustee, in the mailing of the notice provided for in Subdivision (a) of this Section
Definition of "default."
(c) For the purposes of this Section, the term "default" shall mean any default specified in Section 1 of Article Seven of this Indenture, not including in the case of the defaults specified in Subdivisions (b) or (c) thereof any periods of grace provided for therein.
SECTION 3: Trustee acquiring conflict of interest to eliminate conflict or resign.
SECTION 3. If any Trustee hereunder, whether a Trustee originally named herein, or a successor Trustee, or a Trustee appointed pursuant to the provisions of Section 7 of this Article Eighteen, has or shall acquire any conflicting interest, as defined in this Section, such Trustee shall, within ninety (90) days after ascertaining that it has such conflicting interest, either eliminate such conflicting interest or resign in the manner provided in Section 3 of Article Sixteen of this Indenture, such resignation (notwithstanding anything to the contrary contained in said Section 3) to become effective upon the appointment of a successor trustee and such successor's acceptance of such appointment, and the Company, subject to the right of the bondholders to appoint a successor trustee as provided in Section 7 of said Article Sixteen, shall take prompt steps to appoint a successor in the manner provided in said Section 7.
(A) In the event that Harris Trust and Savings Bank, Trustee, shall fail to comply with the foregoing provisions of this Section, it shall, within ten (10) days after the expiration of such ninety-day period, transmit [*SS31*] notice of such failure by mail to the holders of the bonds whose names and addresses appear in the information preserved at the time by Harris Trust and Savings Bank, Trustee, in accordance with the provisions of Section 1 of Article Nineteen of this Indenture and to the registered holders of coupon bonds registered as to principal and of registered bonds without coupons; and any bondholder who has been a bona fide holder of bonds for at least six (6) months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of such Trustee, and the appointment of a successor, if such Trustee fails, after written request therefor by such holder, to comply with said foregoing provisions of this Section.
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(B) In the event that any Trustee hereunder other than Harris Trust and Savings Bank, Trustee, shall fail to comply with the foregoing provisions of this Section, such Trustee (x) shall, within ten (10) days after the expiration of such ninety-day period, notify the Company and Harris Trust and Savings Bank, Trustee, in writing of such failure, and (y) shall ipso facto cease to be a Trustee hereunder.
Definition of "conflict of interest."
For the purposes of this Section, a Trustee shall be deemed to have a conflicting interest if
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The specification of percentages in Subdivisions (e) to (i), inclusive, of this Section shall not be construed as indicating that the ownership of such percentages of the securities of a person is or is not necessary or sufficient to constitute direct or indirect control for the purposes of Subdivision (c) or (g) of this Section.
For the purposes of Subdivisions (f), (g), (h) and (i) of this Section, (1) the terms "security" and "securities" shall include only such securities as are generally known as corporate securities, but shall not include any note or other evidence of indebtedness issued to evidence an obligation to repay moneys lent to a person by one or more banks, trust companies, or banking firms, or any certificate of interest or participation in any such note or evidence of indebtedness; (2) an obligation shall be deemed to be in default when a [*SS36*] default in payment of principal shall have continued for thirty (30) days or more, and shall not have been cured; and (3) a Trustee shall not be deemed the owner or bolder of (i) any security which it holds as collateral security (as trustee or otherwise) for an obligation which is not in default as defined above, or (ii) any security which it holds as collateral security under this Indenture, irrespective of any default hereunder, or (iii) any security which it holds as agent for collection, or as a custodian, escrow agent, or depositary, or in any similar representative capacity.
For the purposes of this Indenture, the term "underwriter", when used with reference to the Company, means every person who, within three (3) years prior to the time as of which the determination is made, was an underwriter (as defined in Section 303(4) of the Trust Indenture Act of 1939) of any security of the Company outstanding at the time of such determination.
For the purposes of this Indenture, the terms "director", "executive officer" and "voting security" shall have the meanings assigned to such terms in Section 303 of the Trust Indenture Act of 1939.
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For the purposes of this Indenture, the term "person" shall have the meaning assigned to such term in Section 2 of the Securities Act of 1933.
The percentages of voting securities and other securities specified in this Section shall be calculated in accordance with the following provisions:
(1) A specified percentage of the voting securities of a person means such amount of the outstanding voting [*SS37*] securities of such person as entitles the holder or holders thereof to cast such specified percentage of the aggregate votes which the holders of all the outstanding voting securities of such person are entitled to cast in the direction or management of the affairs of such person.
(2) A specified percentage of a class of securities of a person means such percentage of the aggregate amount of securities of the class outstanding.
(3) The term "amount", when used in regard to securities, means the principal amount if relating to evidences of indebtedness, the number of shares if relating to capital shares, and the number of units if relating to any other kind of security.
(4) The term "outstanding" means issued and not held by or for the account of the issuer. The following securities shall not be deemed outstanding within the meaning of this definition:
(a) Securities of an issuer held in a sinking fund relating to securities of the issuer of the same class;
(b) Securities of an issuer held in a sinking fund relating to another class of securities of the issuer, if the obligation evidenced by such other class of securities is not in default as to principal or interest or otherwise;
(c) Securities pledged by the issuer thereof as security for an obligation of the issuer not in default as to principal or interest or otherwise;
(d) Securities held in escrow if placed in escrow by the issuer thereof; [*SS38* ]
provided, however, that any voting securities of an issuer shall be deemed outstanding if any person other than the issuer is entitled to exercise the voting rights thereof.
(5) A security shall be deemed to be of the same class as another security if both securities confer upon the holder or holders thereof substantially the same rights and privileges; provided, however, that, in the case of secured evidences of indebtedness, all of which are issued under a single indenture, differences in the interest rates or maturity dates of various series thereof shall not be deemed sufficient to constitute such series different classes; and provided, further, that, in the case of unsecured evidences of indebtedness, differences in the interest rates or maturity dates thereof shall not be deemed sufficient to constitute them securities of different classes, whether or not they are issued under a single indenture.
SECTION 4: Limitations on right of Trustee as creditor.
SECTION 4. (a) Subject to the provisions of Subdivision (f) of this Section, if in its individual capacity a Trustee hereunder, whether a Trustee originally named herein, or a successor Trustee, or a Trustee appointed pursuant to the provisions of Section 7 of this Article Eighteen, shall be or shall become a creditor, directly or indirectly, secured or unsecured, of the Company within four (4) months prior to a default, as defined in Subdivision (e) of this Section, or subsequent to such a default, then, unless and until such default shall be cured, such Trustee shall set apart and hold in a special account
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for the benefit of [*SS39*] such Trustee individually and of the indenture security holders, as defined in said Subdivision (e):
(1) an amount equal to any and all reductions in the amount due and owing to such Trustee upon any claim as such creditor in respect of principal or interest, effected after the beginning of such four months' period and valid as against the Company and its other creditors, except any such reduction resulting from the receipt or disposition of any property described in subparagraph (2) of this Subdivision (a), or from the exercise of any right of set-off which such Trustee could have exercised if a petition in bankruptcy had been filed by or against the Company upon the date of such default; and
(2) all property received by such Trustee in respect of any claim as such creditor, either as security therefor, or in satisfaction or composition thereof, or otherwise, after the beginning of such four months' period, or an amount equal to the proceeds of any such property, if disposed of, subject, however, to the rights, if any, of the Company and its other creditors in such property or such proceeds.
(b) Nothing contained in this Section shall affect the right of a Trustee:
(1) to retain for its own account (i) payments made on account of any such claim described in Subdivision (a) of this Section by any person, other than the Company, who is liable thereon, and (ii) the proceeds of the bona fide sale of any such claim by such Trustee [*SS40*] to a third person, and (iii) distributions made in cash, securities, or other property in respect of claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Bankruptcy Act or applicable State law;
(2) to realize, for its own account, upon any property held by it as security for any such claim, if such property was so held prior to the beginning of such four-months' period;
(3) to realize, for its own account, but only to the extent of the claim hereinafter mentioned, upon any property held by it as security for any such claim, if such claim was created after the beginning of such four months' period and such property was received as security therefor simultaneously with the creation thereof, and if such Trustee shall sustain the burden of proving that at the time such property was so received such Trustee had no reasonable cause to believe that a default, as defined in Subdivision (e) of this Section, would occur within four (4) months; or
(4) to receive payment on any claim referred to in subparagraph (2) or (3) of this Subdivision (b), against the release of any property held as security for such claim as provided in subparagraph (2) or (3), as the case may be, of this Subdivision (b), to the extent of the fair value of such property.
For the purposes of subparagraphs (2), (3) and (4) of this Subdivision (b), property substituted after the beginning of such four-months' period for property held as [*SS41*] security at the time of such substitution shall, to the extent of the fair value of the property released, have the same status as the property released, and, to the extent that any claim referred to in any of such subparagraphs is created in renewal of or in substitution for or for the purpose of repaying or refunding any preexisting claim of such Trustee as such creditor, such claim shall have the same status as such preexisting claim.
(c) If a Trustee shall be required to account as in this Section provided, the funds and property held in such special account and the proceeds thereof shall be apportioned between such Trustee and the indenture security holders in such manner that such Trustee and the indenture security holders realize, as a result of payments from such special account and payments of dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Bankruptcy Act or applicable State law, the same percentage of their respective claims, figured before crediting to the claim of such Trustee anything on account of the receipt by such Trustee from the
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Company of the funds and property in such special account and before crediting to the respective claims of such Trustee and of the indenture security holders, dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Bankruptcy Act or applicable State law, but after crediting thereon receipts on account of the indebtedness represented by their respective claims from all sources other than from such dividends and from the funds and property so held in such special account. As used in this Subdivision (c) with [*SS42*] respect to any claim, the term "dividends" shall include any distribution with respect to such claim, in bankruptcy or receivership or in proceedings for reorganization pursuant to the Bankruptcy Act or applicable State law, whether such distribution is made in cash, securities, or other property, but shall not include any such distribution with respect to the secured portion, if any, of such claim. The court in which such bankruptcy, receivership or proceeding for reorganization is pending shall have jurisdiction (i) to apportion between such Trustee and the indenture security holders, in accordance with the provisions of this Subdivision (c), the funds and property held in such special account and the proceeds thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to the provisions of this Subdivision (c) due consideration in determining the fairness of the distributions to be made to such Trustee and the indenture security holders with respect to their respective claims, in which event it shall not be necessary to liquidate or to appraise the value of any securities or other property held in such special account or as security for any such claim, or to make a specific allocation of such distributions as between the secured and unsecured portions of such claims, or otherwise to apply the provisions of this Subdivision (c) as a mathematical formula.
(d) If a Trustee shall have resigned or been removed after the beginning of such four-months' period, it shall nevertheless be subject to the provisions of this Section as though such resignation or removal had not occurred. If a Trustee shall have resigned or been removed prior to the beginning of such four-months' period, it shall nevertheless [*SS43*] be subject to the provisions of this Section, as though such resignation or removal had not occurred, if and only if the receipt of property or reduction of claim which would have given rise to the obligation to account, if such Trustee had continued as such Trustee, occurred after the beginning of such four-months' period and within four (4) months after such resignation or removal.
Definition of "default" and "indenture security holder."
(e) As used in this Section, the term "default" means any failure to make payment in full of principal or interest, when and as the same becomes due and payable, under any indenture which has been qualified under the Trust Indenture Act of 1939, and under which the particular Trustee is trustee and the Company is an obligor; and the term "indenture security holders", notwithstanding anything contained in Section 2 of Article Seventeen of this Indenture, means all holders of securities outstanding under any such indenture under which any such default exists.
Certain creditor relationships excluded.
(f) A Trustee shall not be required to account, as provided in this Section, if the creditor relationship arises from:
(1) the ownership or acquisition of securities issued under any indenture, or any security or securities having a maturity of one (1) year or more at the time of acquisition by such Trustee;
(2) advances authorized by a receivership or bankruptcy court of competent jurisdiction, or by the terms and provisions of this Indenture, for the purpose of preserving the property subject to the lien hereof or of discharging tax liens or other prior liens or encumbrances [*SS44*] on the trust estate, if notice of such advance and of the circumstances surrounding the making thereof is given to the bondholders, at the time and in the manner provided in this Indenture;
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(3) disbursements made in the ordinary course of business in the capacity of trustee under an indenture, transfer agent, registrar, custodian, paying agent, fiscal agent or depositary, or other similar capacity;
(4) an indebtedness created as a result of services rendered or premises rented; or an indebtedness created as a result of goods or securities sold in a cash transaction, as defined in this Subdivision (f);
(5) the ownership of stock or of other securities of a corporation organized under the provisions of Section 25 (a) of the Act approved December 23, 1913, known as the Federal Reserve Act, as amended, which is directly or indirectly a creditor of the Company; or
(6) the acquisition, ownership, acceptance, or negotiation of any drafts, bills of exchange, acceptances, or obligations which fall within the classification of self-liquidating paper, as defined in this Subdivision (f).
Definition of certain terms.
The term "security" or "securities", as used in this Subdivision (f), shall have the same meaning as the definition of the term "security" in Section 2 of the Securities Act of 1933.
The term "cash transaction", as used in subparagraph (4) of this Subdivision (f), means any transaction in which full payment for goods or securities sold is made [*SS45*] within seven (7) days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand.
The term "self-liquidating paper", as used in subparagraph (6) of this Subdivision (f), means any draft, bill of exchange, acceptance or obligation which is made, drawn, negotiated or incurred by the Company for the purpose of financing the purchase, processing, manufacture, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of or a lien upon, the goods, wares or merchandise or the receivables or proceeds arising from the sale of the goods, wares or merchandise previously constituting the security, provided the security is received by the Trustee simultaneously with the creation of the creditor relationship with the Company arising from the making, drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation.
SECTION 5: Certain powers of Trustees in case of default.
SECTION 5. In the case of a default in the payment of the principal of any bond, when and as the same shall become due and payable, or in the case of a default in the payment of the interest on any bond, when and as the same shall become due and payable and the continuance of such default after sixty (60) days, a Trustee or the Trustees may recover judgment in its own name or their own names and as trustee or trustees of an express trust against the Company (or any successor thereto) for the whole amount of such principal and interest remaining unpaid. A Trustee or the Trustees may file such proofs [*SS46*] of claim or other papers or documents as may be necessary or advisable in order to have the claims of a Trustee or the Trustees and of the bondholders allowed in any judicial proceedings relative to the Company (or any successor thereto), its creditors, or its property. Harris Trust and Savings Bank, Trustee, is hereby irrevocably appointed (and the successive respective holders of the bonds and of the coupons by taking and holding the same shall be conclusively deemed to have so appointed such Trustee) the true and lawful attorney-in-fact of the respective holders of the bonds and of the coupons, with authority to make and file in the respective names of the holders of the bonds or of the coupons, or on behalf of the holders of the bonds or of the coupons as a class, subject to deduction from any such claims of the amounts of any claims filed by any of the holders of the bonds or of the coupons themselves, any proof of debt, amendment of proof of debt, claims, petition or other
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documents in any such proceedings and to receive payment of any sums becoming distributable on account thereof, and to execute any other papers and documents and to do and perform any and all acts and things for and on behalf of such holders of the bonds and of the coupons, as may be necessary or advisable in the opinion of such Trustee in order to have the respective claims of such Trustee and of the holders of the bonds and of the coupons against the Company or its property allowed in any such proceeding, and to receive payment of or on account of such claims; provided, however, that nothing contained in this Indenture shall be deemed to give to such Trustee any right to accept or consent to any plan of reorganization or otherwise by action of any character in any [*SS47*] such proceeding to waive or change in any way any right of any bondholder.
SECTION 6: One Trustee must meet eligibility requirements.
SECTION 6. Anything in Article Sixteen of this Indenture to the contrary notwithstanding, at least one of the Trustees hereunder shall at all times be a corporation organized and doing business under the laws of the United States or of any State, having a combined capital and surplus of not less than $5,000,000, which is authorized under the laws of the jurisdiction of its incorporation to exercise corporate trust powers and is subject to supervision or examination by Federal or State authority. If such Trustee publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, the combined capital and surplus of such Trustee shall, for the purposes of this Section, be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.
SECTION 7: Appointment of additional trustee; terms and conditions.
SECTION 7. (a) If at any time or times it shall be necessary or prudent in order to conform to any law of any state in which the Company shall at the time hold any property subject to the lien hereof, or Harris Trust and Savings Bank, Trustee, shall be advised by counsel, satisfactory to it, that it is so necessary or prudent in the interest of the bondholders, or a majority of the bondholders shall in writing so request Harris Trust and Savings Bank, Trustee, and the Company, Harris Trust and Savings Bank, Trustee, and the Company shall execute and deliver all instruments and agreements necessary or proper to constitute another bank or trust company or one or more persons approved by Harris Trust and Savings Bank, Trustee, and the Company, either to [*SS48*] act as co-Trustee or co-Trustees of all or any of the property subject to the lien hereof, jointly with the Trustees originally named herein or any successor or successors, or to act as separate Trustee or Trustees of any such property. In the event the Company shall not have joined in the execution of such instruments and agreements within ten days after the receipt of a written request from Harris Trust and Savings Bank, Trustee, so to do, or in case an Event of Default, as defined in Section 1 of this Article Eighteen, shall have occurred and be continuing, Harris Trust and Savings Bank, Trustee, may act under the foregoing provisions of this Section without the concurrence of the Company; and the Company hereby appoints Harris Trust and Savings Bank, Trustee, its agent and attorney to act for it under the foregoing provisions of this Section in either of such contingencies. The Company and Harris Trust and Savings Bank, Trustee, at any time, by an instrument in writing executed by them jointly, may remove any Trustee appointed pursuant to the provisions of this Section, and in that case, by an instrument in writing executed by them jointly, may appoint a successor or successors to such Trustee or Trustees, as the case may be, anything herein contained to the contrary notwithstanding. In the event that the Company shall not have joined in the execution of any such instrument within ten (10) days after the receipt of a written request from Harris Trust and Savings Bank, Trustee, so to do, Harris Trust and Savings Bank, Trustee, shall have the power to remove any such Trustee and to appoint a successor Trustee without the concurrence of the Company; the Company hereby appointing Harris Trust and Savings Bank, Trustee, its agent and attorney to act for it in such connection in [*SS49*] such contingency. In the event that Harris Trust and Savings Bank, Trustee, alone shall have appointed a Trustee or Trustees or co-Trustee or co-Trustees pursuant to the provisions of this Section, it may at any time, by an instrument in writing,
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remove any such Trustee or co-Trustee so appointed, the successor to any such Trustee or co-Trustee so removed to be appointed by the Company and Harris Trust and Savings Bank, Trustee, or by Harris Trust and Savings Bank, Trustee, alone, as hereinbefore in this Section provided.
(b) Every Trustee hereunder, whether a Trustee originally named herein, or a successor Trustee, or a Trustee appointed pursuant to the provisions of Subdivision (a) of this Section, shall be appointed and act and be such, subject to the following provisions and conditions, namely:
(1) the bonds shall be authenticated and delivered and all powers, duties, obligations and rights conferred upon the Trustees in respect of the custody, control and management of moneys, papers or securities, shall be exercised solely by Harris Trust and Savings Bank, Trustee;
(2) all rights, powers, duties and obligations conferred or imposed upon the Trustees or any of them shall be conferred or imposed upon and exercised or performed by either Harris Trust and Savings Bank, Trustee, or Harris Trust and Savings Bank, Trustee, and any additional Trustee or Trustees jointly, except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed, Harris Trust and Savings Bank, Trustee, shall [*SS50*] be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations shall be exercised and performed by such additional Trustee or Trustees as are competent or qualified under such law to perform such act or acts;
(3) no power given hereby to, or which it is provided may be exercised by, any Trustee or Trustees additional to Harris Trust and Savings Bank, Trustee, shall be exercised hereunder by such additional Trustee or Trustees, except jointly with, or with the consent in writing of, said Harris Trust and Savings Bank, Trustee, anything herein contained to the contrary notwithstanding; and
(4) no Trustee hereunder shall be personally liable by reason of any act or omission of any other Trustee hereunder.
SECTION 8: Person becoming obligor on bonds after September 1, 1940.
[Note: Subdivision (a) amended by Part VI, Eighth Supplemental Indenture.]
SECTION 8. In the event that any person shall at any time after September 1, 1940, become an obligor upon any of the bonds issued under this Indenture, so long as such person shall continue to be an obligor upon such bonds,
[(a) the provisions of Section 5 and Subdivisions (a) to (i), inclusive, of Section 3 of this Article Eighteen, of Subparagraph (4) of Subdivision (a) of Section 4 of Article Nineteen of this Indenture, and of Subdivision (b) of Section 1 of Article Twenty-One of this Indenture shall be applicable to the Trustees and such obligor with the same effect as if the name of such obligor were substituted for that of the Company therein; and]
(b) the provisions of Section 4 of this Article Eighteen, in addition to being applicable to the Trustees and the Company, shall be applicable to the Trustees and such obligor with the same effect as if the name of such obligor were substituted for that of the Company in said Section 4.
[*SS51*]
ARTICLE NINETEEN. BONDHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEES.
SECTION 1: Company to furnish Trustee with names and addresses of bondholders.
SECTION 1. (a) The Company covenants and agrees that it will furnish or cause to be furnished to Harris Trust and Savings Bank, Trustee, semiannually not less than forty-five (45) days nor more
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than sixty (60) days after each interest payment date for the bonds of each series outstanding hereunder, and at such other times as such Trustee may request in writing, a list in such form as such Trustee may reasonably require containing all the information in the possession or control of the Company or of any of its paying agents (other than such Trustee), as to the names and addresses of the holders of bonds of such series obtained since the date as of which the next previous list, if any, was furnished, but no such list need include the names or addresses of holders of coupon bonds registered as to principal or of registered bonds without coupons. Any such list may be dated as of a date not more than fifteen (15) days prior to the time such information is furnished or caused to be furnished, and need not include information received after such date. Such Trustee shall preserve any list so furnished to it until the receipt of a new list for the same series of bonds so furnished, but upon receipt of a new list may destroy any previous list or lists for the same series of bonds which it may have received.
Trustee to preserve information received in capacity of paying agent.
(b) Harris Trust and Savings Bank, Trustee, shall preserve, in as current form as is reasonably practicable, [*SS52*] all information as to the names and addresses of holders of bonds received by it in the capacity of paying agent for the bonds of any series outstanding hereunder; provided, however, that not earlier than forty-five (45) days after any interest payment date for bonds of any series such Trustee in its capacity as paying agent may deliver to itself as such Trustee a list containing the names and addresses of the holders of bonds of such series obtained from such information since the delivery of the next previous list for such series, if any, and thereupon may destroy any information received by it as paying agent for the bonds of such series and any previous list or lists for such series so delivered.
Names and addresses filed by bondholders to receive reports.
(c) The name and address of any bondholder may be filed by such bondholder with Harris Trust and Savings Bank, Trustee, for the purpose of receiving reports pursuant to the provisions of this Indenture. Such Trustee shall preserve for a period of two years, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of bonds so filed with it, but may destroy any such information upon the expiration of two years from the date of filing the same.
SECTION 2: Trustee to make name and address information available or to mail communications to bondholders.
SECTION 2. In case three or more holders of bonds (hereinafter referred to as "applicants") apply in writing to Harris Trust and Savings Bank, Trustee, and furnish to such Trustee reasonable proof that each such applicant has owned a bond for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other [*SS53*] holders of bonds with respect to their rights under this Indenture or under the bonds, and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then such Trustee shall, within five business days after the receipt of such application, at its election, either
(1) afford such applicants access to the information as to holders of bonds preserved at the time by such Trustee in accordance with the provisions of Section 1 of this Article Nineteen and to a list of the registered holders of coupon bonds registered as to principal and of registered bonds without coupons; or
(2) inform such applicants as to the approximate number of holders of bonds whose names and addresses appear in the information preserved at the time by such Trustee in accordance with the provisions of Section 1 of this Article Nineteen and the approximate number of registered holders of coupon bonds registered as to principal and of registered bonds without coupons, and as
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to the approximate cost of mailing to such bondholders the form of proxy or other communication, if any, specified in such application.
If such Trustee shall elect not to afford to such applicants access to such information, such Trustee shall, upon the written request of such applicants, mail to each bondholder whose name and address appears in the information preserved at the time by such Trustee in accordance with the provisions of Section 1 of this Article Nineteen and to [*SS54*] each registered holder of coupon bonds registered as to principal and of registered bonds without coupons, a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to such Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of such mailing, unless within five days after such tender such Trustee shall mail to such applicants, and file with the Securities and Exchange Commission together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of such Trustee, such mailing would be contrary to the best interests of the holders of bonds, or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If said Commission, after opportunity for hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections, or if, after the entry of an order sustaining one or more of such objections, said Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, such Trustee shall mail copies of such material to all such bondholders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise such Trustee shall be relieved of any obligation or duty to such applicants respecting their application.
Company and Trustee not accountable for disclosure of information.
Each and every holder of the bonds and coupons, by receiving and/or holding the same, agrees with the Company and such Trustee that neither the Company nor such [*SS55*] Trustee shall be held accountable by reason of the disclosure of any information as to the names and addresses of the holders of bonds, in accordance with the provisions of this Section, regardless of the source from which such information was derived, and that such Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under this Section.
SECTION 3: Reports to be filed by Company with Trustee.
SECTION 3. The Company covenants and agrees
(a) to file with Harris Trust and Savings Bank, Trustee, within fifteen (15) days after the Company is required to file the same with the Securities and Exchange Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as such Commission may from time to time by rules and regulations prescribe pursuant to Section 314(a) of the Trust Indenture Act of 1939) which the Company may be required to file with such Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934; or, if the Company is not required to file information, documents or reports pursuant to either of such sections, then to file with such Trustee and the Securities and Exchange Commission, in accordance with the rules and regulations prescribed from time to time by said Commission pursuant to Section 314(a) of the Trust Indenture Act of 1939, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934 in respect of [*SS56*] a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations;
(b) to file with Harris Trust and Savings Bank, Trustee, and the Securities and Exchange Commission, in accordance with the rules and regulations prescribed from time to time by said
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Commission pursuant to Section 314(a) of the Trust Indenture Act of 1939, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants provided for in this Indenture as may be required from time to time by such rules and regulations, including, in the case of annual reports, if required by such rules and regulations, certificates or opinions of independent public accountants as to compliance with conditions or covenants, compliance with which is subject to verification by accountants, but no such certificate or opinion shall be required as to (i) dates or periods not covered by annual reports required to be filed by the Company, in the case of conditions precedent which depend upon a state of facts as of a date or dates or for a period or periods different from that required to be covered by such annual reports, or (ii) the amount and value of property additions (other than certificates or opinions of engineers, appraisers or other experts as to the fair value to the Company of any property additions made the basis for the authentication and delivery of bonds, the withdrawal of cash constituting a part of the trust estate, or the release of property or securities subject to the lien of this Indenture, [*SS57*] which are required to be filed with Harris Trust and Savings Bank, Trustee, by the provisions of Subdivision (c) of Section 2 of Article Twenty of this Indenture) or (iii) the adequacy of depreciation, maintenance or repairs;
(c) to transmit by mail to the holders of bonds whose names and addresses appear in the information preserved at the time by Harris Trust and Savings Bank, Trustee, in accordance with the provisions of Section 1 of this Article Nineteen, and to the registered holders of coupon bonds registered as to principal and of registered bonds without coupons, within thirty (30) days after the filing thereof with such Trustee, such summaries of any information, documents and reports required to be filed by the Company pursuant to Subdivisions (a) and (b) of this Section as may be required to be so transmitted by the rules and regulations prescribed from time to time by the Securities and Exchange Commission pursuant to Section 314(a) of the Trust Indenture Act of 1939; and
(d) to furnish to Harris Trust and Savings Bank, Trustee, (1) with or as a part of each annual report and each other document or report filed with such Trustee pursuant to Subdivision (a) or (b) of this Section, a certificate signed by the President or a Vice-President of the Company stating that such annual report or other document or report complies with the requirements of such Subdivision (a) or (b), and (2), upon request of such Trustee, after the Company shall [*SS58*] have mailed to the holders of bonds any summary of information, documents or reports pursuant to Subdivision (c) of this Section, a certificate signed by the President or a Vice-President of the Company stating that such summary complies with the requirements of such Subdivision (c).
SECTION 4: Trustee to mail annual reports to bondholders.
SECTION 4. (a) Harris Trust and Savings Bank, Trustee, shall transmit by mail, on or before April 1 in each year beginning with the year 1941, to the holders of bonds whose names and addresses appear in the information preserved at the time by such Trustee in accordance with the provisions of Section 1 of this Article Nineteen and to the registered holders of coupon bonds registered as to principal and of registered bonds without coupons, a brief report dated as of February 1 of such year with respect to
(1) its qualifications under Section 3 of Article Eighteen hereof and its eligibility under Section 6 of Article Eighteen hereof, or in lieu thereof, if to the best of its knowledge it has continued to be qualified and eligible under such Sections, a written statement to such effect;
(2) the qualifications under Section 3 of Article Eighteen hereof of each additional Trustee, if any, or in lieu thereof, if the reports furnished to Harris Trust and Savings Bank, Trustee, by the respective additional Trustees as hereinafter in Section 5 of this Article Nineteen provided shall state that, to the best of the knowledge and belief of such additional Trustees, respectively,
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[*SS59*] they have continued to be qualified under said Section 3 of Article Eighteen, a written statement to such effect;
(3) the character and amount of any advances (and if Harris Trust and Savings Bank, Trustee, elects so to state, or if any additional Trustee making such advances requests Harris Trust and Savings Bank, Trustee, so to state, the circumstances surrounding the making thereof) made by Harris Trust and Savings Bank, Trustee, or by any additional Trustee as such, which remain unpaid on the date of such report, and for the reimbursement of which Harris Trust and Savings Bank, Trustee, or any additional Trustee claims or may claim a lien or charge, prior to that of the bonds, on the trust estate, including property or funds held or collected by it as Trustee, if such advances so remaining unpaid aggregate more than one-half of one per cent (1/2%) of the principal amount of the bonds outstanding on the date of such report;
(4) the amount, interest rate, and maturity date of all other indebtedness owing by the Company to Harris Trust and Savings Bank, Trustee, or to any additional Trustee, in its individual capacity on the date of such report, with a brief description of any property held as collateral security therefor, except an indebtedness based upon a creditor relationship arising in any manner described in subparagraphs (2), (3), (4), or (6) of Subdivision (f) of Section 4 of Article Eighteen hereof; [*SS60* ]
(5) the property and funds physically in the possession of Harris Trust and Savings Bank, Trustee, or any additional Trustee, as such, or of a depositary for any such Trustee, on the date of such report;
(6) any release, or release and substitution, of property subject to the lien of this Indenture (and the consideration therefor, if any) made subsequent to September 1, 1940 which it has not previously reported; provided, however, that if the aggregate value of all the property the release of which is so reported, as shown by the certificates or opinions filed pursuant to the provisions of Section 2 of Article Twenty hereof does not exceed one per cent (1%) of the principal amount of the bonds then outstanding, the report need only indicate the number of such releases, the total value of property released as shown by such certificates or opinions, the aggregate amount of cash and purchase money obligations and the aggregate value of other securities and property substituted therefor as shown by such certificates or opinions;
(7) any additional issue of bonds made subsequent to September 1, 1940 which it has not previously reported; and
(8) any action taken subsequent to September 1, 1940 by Harris Trust and Savings Bank, Trustee, or by any additional Trustee in the performance of its or his duties under this Indenture which Harris Trust and Savings Bank, Trustee, has not previously reported and which in the opinion of the Trustee which shall have taken such action materially affects the bonds [*SS61*] or the trust estate, except action in respect of a default, notice of which has been or is to be withheld by Harris Trust and Savings Bank, Trustee, in accordance with the provisions of Section 2 of Article Eighteen hereof.
Trustee to mail further reports to bondholders.
(b) Harris Trust and Savings Bank, Trustee, shall transmit by mail to the holders of bonds whose names and addresses appear in the information preserved at the time by it in accordance with the provisions of Subdivision (c) of Section 1 of this Article Nineteen and to the registered holders of coupon bonds registered as to principal and of registered bonds without coupons, within ninety
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(90) days after the making, subsequent to September 1, 1940, of any release or advance as hereinafter specified, a brief report with respect to—
(1) the release, or release and substitution, of property subject to the lien of this Indenture (and the consideration therefor, if any) unless the fair value of such property, as set forth in the certificate or opinion required by Section 2 of Article Twenty hereof, is less than ten per cent (10%) of the principal amount of the bonds outstanding at the time of such release, or such release and substitution; and
(2) the character and amount of any advances (and if Harris Trust and Savings Bank, Trustee, elects so to state, or if any additional Trustee making such advances requests Harris Trust and Savings Bank, Trustee, so to state, the circumstances surrounding the making thereof) made by Harris Trust and Savings Bank, Trustee, or by any additional Trustee, as such, [*SS62*] since the date of the last report transmitted pursuant to the provisions of Subdivision (a) of this Section 4 (or if no such report has yet been so transmitted, since September 1, 1940), for the reimbursement of which Harris Trust and Savings Bank, Trustee, or any additional Trustee claims or may claim a lien or charge, prior to that of the bonds, on the trust estate, including property or funds held or collected by it as Trustee, and which it has not previously reported pursuant to this subparagraph (2), if such advances remaining unpaid at any time aggregate more than ten per cent (10%) of the principal amount of the bonds outstanding at such time.
Copies of reports to be filed with stock exchange and SEC.
(c) A copy of each such report shall, at the time of such transmission to bondholders, be filed by Harris Trust and Savings Bank, Trustee, with each stock exchange upon which the bonds are listed and also with the Securities and Exchange Commission.
Trustee not liable for statements made on basis of reports.
(d) Harris Trust and Savings Bank, Trustee, may state in any report made pursuant to the provisions of this Section 4, if such be the fact, that any or all information therein contained in respect of any additional Trustee is based on reports made to Harris Trust and Savings Bank, Trustee, by such additional Trustee pursuant to the provisions of Section 5 of this Article Nineteen, and, subject to the provisions of Subdivision (a) of Section 1 of Article Eighteen hereof, shall incur no liability for any statement made on the basis of any such report. If any additional Trustee shall fail to furnish to Harris Trust and Savings Bank, Trustee, pursuant to the provisions of said Section 5, [*SS63*] within a reasonable time before Harris Trust and Savings Bank, Trustee, is required to make any report under this Section 4, the information required to be included in such report in respect of such additional Trustee, Harris Trust and Savings Bank, Trustee, shall be under no liability for failure to include such information in such report, but shall state in such report (if it knows that such information was required to be furnished) that such additional Trustee failed to furnish such information.
SECTION 5: Reports made to Harris Trust by additional trustees.
SECTION 5. Each additional Trustee, if any, shall report to Harris Trust and Savings Bank, Trustee, in writing, not less than fifteen (15) days before Harris Trust and Savings Bank, Trustee, is required to make any report pursuant to the provisions of Subdivision (a) of Section 4 of this Article Nineteen, all information concerning such additional Trustee which Harris Trust and Savings Bank, Trustee, is required to report to bondholders pursuant to subparagraphs (2), (3), (4), (5), (6) and (8) of said Subdivision (a).
In case of any release of property or any advance by any additional Trustee which Harris Trust and Savings Bank, Trustee, would be required to report pursuant to the provisions of Subdivision (b) of Section 4 of this Article Nineteen such additional Trustee shall, within sixty (60) days after such release
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or such advance shall have been made, furnish to Harris Trust and Savings Bank, Trustee, in writing, all information necessary to enable Harris Trust and Savings Bank, Trustee, to make the required report regarding such release or such advance. [*SS64* ]
ARTICLE TWENTY. ADDITIONAL PROVISIONS AS TO CERTIFICATES AND OPINIONS.
SECTION 1: Evidence of compliance of conditions precedent to be furnished by Company to Trustee.
SECTION 1. In the case of conditions precedent provided for in this Indenture (including any covenants compliance with which constitutes a condition precedent) which relate to the authentication and delivery of bonds under this Indenture, to the release or the release and substitution of property subject to the lien of this Indenture, to the satisfaction and discharge of this Indenture, or to any other action to be taken by the Trustees at the request or upon the application of the Company (including, without limiting the generality of the foregoing, (i) the conditions precedent provided for in Article Two with respect to the issuance of bonds, (ii) the conditions precedent provided for in Section 14 of Article Three with respect to the release of insurance moneys (except that insurance moneys received by Harris Trust and Savings Bank, Trustee, in accordance with the provisions of said Section 14 on account of any single loss, not exceeding Five thousand Dollars ($5,000), may, at the discretion of such Trustee, be forthwith paid over to the Company upon its request to be used by the Company for the purposes specified in said Section 14 without compliance by the Company with the provisions of this Section 1), (iii) the conditions precedent provided for in Section 2 of Article Four with respect to the release of cash deposited in the Special Trust Fund, (iv) the conditions precedent provided for in Section 2 of Article Six with respect to the release of pledged securities, (v) the conditions precedent provided for in Section 3 of Article Six with [*SS65*] respect to the voting of pledged securities by the Company, (vi) the conditions precedent provided for in Section 4 of Article Six with respect to the receipt by the Company of income from the pledged securities, (vii) the conditions precedent provided for in Section 8 of Article Six with respect to the action therein permitted to be taken by Harris Trust and Savings Bank, Trustee, at the request of the Company, (viii) the conditions precedent provided for in Sections 9 and 10 of Article Six with respect to the exchange of pledged securities, (ix) the conditions precedent provided for in Sections 13 and 14 of Article Six with respect to the cancellation of pledged securities and the satisfaction of agreements under which pledged securities are issued, (x) the conditions precedent provided for in Sections 1 and 7 of Article Eight with respect to the release of mortgaged property, and (xi) the conditions precedent provided for in Article Ten with respect to defeasance and reconveyance), the Company covenants and agrees that it will furnish to Harris Trust and Savings Bank, Trustee, as evidence of compliance with such conditions precedent, in addition to or as a part of the certificates or the opinions, if any, required in such cases by other applicable provisions of this Indenture:
(a) A certificate or opinion signed by the President or a Vice-President of the Company stating that in the opinion of such officer such conditions precedent have been complied with;
(b) An opinion of counsel (who may be counsel to the Company) stating that in the opinion of such counsel such [*SS66*] conditions precedent have been complied with; and
(c) In the case of the authentication and delivery of additional bonds under any of the provisions of Article Two of this Indenture which requires, as a condition precedent to such authentication and delivery, a showing as to the Company's net earnings, a certificate or opinion of an accountant as to compliance by the Company with such net earnings requirement; such accountant shall be an independent public accountant if the aggregate principal amount of such bonds and of other bonds authenticated and delivered under the Indenture since the commencement of the then current calendar year (other than those with respect to which a certificate or opinion of an accountant is not required, or with respect to which a certificate or opinion of an independent public accountant has previously been furnished) is ten per cent (10%)
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or more of the aggregate principal amount of the bonds at the time outstanding; but no such certificate or opinion need be made by any person other than the Treasurer or an Assistant Treasurer or the Comptroller or an Assistant Comptroller of the Company as to:
(A) dates or periods not covered by annual reports required to be filed by the Company with Harris Trust and Savings Bank, Trustee, in the case of conditions precedent which depend upon a state of facts as of a date or dates or for a period or periods different from that required to be covered by such annual reports; [*SS67* ]
(B) the amount and value of additional property, except as provided in Subdivision (c) of Section 2 of this Article Twenty; or
(C) the adequacy of depreciation, maintenance or repairs.
SECTION 2: Certificate of engineer, appraiser or other expert furnished by Company to Trustee.
SECTION 2. Notwithstanding any other provision in this Indenture, the Company covenants and agrees that it will furnish to Harris Trust and Savings Bank, Trustee, in addition to or as part of any certificate or opinion required by other applicable provisions of this Indenture:
(a) A certificate or opinion of an engineer, appraiser, or other expert as to the fair value to the Company of any property or securities to be released from the lien of this Indenture pursuant to the provisions of Sections 9 or 10 of Article Six or of Sections 1 or 7 of Article Eight, which certificate or opinion shall state that in the opinion of the person making the same the proposed release will not impair the security under this Indenture in contravention of the provisions hereof; such certificate or opinion shall be made by an independent engineer, appraiser, or other expert, if the fair value of such property or securities and of all other property or securities so released since the commencement of the then current calendar year, as set forth in the certificates or opinions required by this Subdivision (a), is ten per cent (10%) or more of the aggregate principal amount of bonds at the time outstanding; but such a certificate or opinion of an independent engineer, appraiser, or other [*SS68*] expert shall not be required in the case of any release of property or securities, if the fair value thereof as set forth in the certificate or opinion required by this Subdivision (a) is less than Twenty-five thousand Dollars ($25,000) or less than one per cent (1%) of the aggregate principal amount of bonds at the time outstanding;
(b) A certificate or opinion of an engineer, appraiser, or other expert as to the fair value to the Company of any securities (other than bonds issued under this Indenture and securities secured by a lien prior to the lien of this Indenture upon property subject to the lien hereof), the deposit of which with the Trustees is to be made the basis for the release, pursuant to the provisions of Sections 9 or 10 of Article Six or of Section 1 of Article Eight, of property or securities subject to the lien of this Indenture; if the fair value to the Company of such securities and of all other such securities made the basis of any such release since the commencement of the then current calendar year, as set forth in the certificates or opinions required by this Subdivision (b), is ten per cent (10%) or more of the aggregate principal amount of the bonds at the time outstanding, such certificate or opinion shall be made by an independent engineer, appraiser, or other expert; but such a certificate of an independent engineer, appraiser, or other expert shall not be required with respect to any securities so deposited if the fair value thereof to the Company as set forth in the certificate or opinion [*SS69*] required by this Subdivision (b) is less than Twenty-five thousand Dollars ($25,000) or less than one per cent (1%) of the aggregate principal amount of the bonds at the time outstanding; and
(c) A certificate or opinion of an engineer, appraiser, or other expert as to the fair value to the Company, as of approximately the date of the application for the authentication and delivery of bonds, the withdrawal of cash, or the release of property or securities, as the case may be, of
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any property, the subjection of which to the lien of this Indenture is to be made the basis (pursuant to the provisions of Sections 6, 9 or 11 of Article Two, or Section 2 of Article Four, or Section 1 of Article Eight) for the authentication and delivery of bonds, the withdrawal of cash constituting a part of the trust estate, or the release of property or securities subject to the lien of this Indenture; and if
(1) within six (6) months prior to the date of acquisition thereof by the Company, such property has been used or operated by a person or persons other than the Company in a business similar to that in which it has been or is to be used or operated by the Company; and
(2) the fair value to the Company of such property as set forth in such certificate or opinion is not less than Twenty-five thousand Dollars ($25,000) and not less than one per cent (1%) of the aggregate principal amount of bonds at the time outstanding. [*SS70*] Such certificate or opinion shall be made by an independent engineer, appraiser, or other expert, and, in the case of the authentication and delivery of bonds, shall cover the fair value to the Company (which may be as of the date of the valuation set forth in the certificate or opinion previously furnished Harris Trust and Savings Bank, Trustee, in connection therewith) of any property so used or operated which has been subjected to the lien of this Indenture and used as the basis for any action as aforesaid since the commencement of the then current calendar year, and as to which a certificate or opinion of an independent engineer, appraiser, or other expert has not previously been furnished.
SECTION 3: Additional provisions relating to certificates or opinions by public accountants, engineers, appaisers or other experts.
SECTION 3. In cases under this Article Twenty in which a certificate or opinion is required to be made by an independent person, such certificate or opinion shall be made by an independent public accountant, engineer, appraiser, or other expert, as the case may be, selected or approved by Harris Trust and Savings Bank, Trustee, in the exercise of reasonable care, and such certificate or opinion shall state that such person is "independent", as that term is defined in Section 3 of Article Twenty-One of this Indenture; in cases where such certificate or opinion is not required to be made by an independent person, such certificate or opinion may, except as otherwise provided in this Article Twenty, be made by the President or any Vice-President or the Treasurer or any Assistant Treasurer or the Comptroller or any Assistant Comptroller of the Company or by any accountant, engineer, appraiser, or other expert, as the case [*SS71*] may be, employed by or otherwise holding office in the Company.
SECTION 4: Company to furnish Trustee with opinion of counsel re recording of supplemental indentures.
SECTION 4. The Company covenants and agrees that it will, so long as any bonds are outstanding hereunder, furnish to the Trustees:
(a) Promptly after the execution and delivery of each indenture supplemental hereto, executed and delivered after September 1, 1940, (including the Sixth Supplemental Indenture) an opinion of counsel (who may be counsel to the Company) either stating that in the opinion of such counsel such supplemental indenture has been properly recorded and filed so as to make effective the lien, if any, intended to be created thereby, and reciting the details of such action, or stating that in the opinion of such counsel no such action is necessary to make such lien, if any, effective. The requirements of this Subdivision (a) shall have been complied with if such opinion of counsel shall state that such supplemental indenture has been received for record or filing in each public office in which it is required to be recorded or filed and that in the opinion of such counsel such receipt for record or filing makes effective the lien thereof, if any; and if such opinion of counsel is delivered to the Trustees within such time, following the date of the execution and delivery of such
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supplemental indenture, as shall be practicable having due regard to the location and number of the public offices in which the same is required to be recorded or filed; and [*SS72* ]
(b) On or before September 1 in each year, beginning with the year 1941, an opinion of counsel (who may be counsel to the Company) either stating that in the opinion of such counsel such action has been taken with respect to the recording, filing, re-recording and refiling of this Indenture and of each indenture supplemental hereto as is necessary to maintain the lien thereof, if any, and reciting the details of such action, or stating that in the opinion of such counsel no such action is necessary to maintain such lien, if any.
SECTION 5: Statements to be included in any certificate or opinion re compliance with Indenture provisions.
SECTION 5. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include (a) a statement that the person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not in the opinion of such person, such condition or covenant has been complied with.
[*SS73*]
ARTICLE TWENTY-ONE. ADDITIONAL PROVISIONS.
SECTION 1: Moneys received by Trustee or paying agent to be held in trust.
SECTION 1. (a) All moneys received by any Trustee whether as Trustee or paying agent shall, until used or applied as in this Indenture provided, be held in trust for the purposes for which they were paid, but need not be segregated from other funds except to the extent required by law.
(b) The Company will require each paying agent (other than the Company and the Trustees) to execute and deliver to the Trustees an undertaking that, subject to the provisions of this Section, such paying agent will hold in trust for the benefit of the bondholders or holders of coupons, as the case may be, all sums held by such paying agent for the payment of the principal of or interest on the bonds and will give to the Trustees notice of any default by the Company in the making of any such payments. Such paying agent shall not be obligated to segregate such sums from other sums of such paying agent except to the extent required by law.
(c) Anything in this Section to the contrary notwithstanding, the Company may at any time, for the purpose of obtaining a release or satisfaction of this Indenture or for any other purpose, cause to be paid to the Trustees all sums held in trust by any paying agent as required by this Section, such sums to be held by the Trustees upon the trusts herein contained.
SECTION 2: Bondholders' right to receive payment of principal and interest not to be impaired.
SECTION 2. Nothing in Sections 2 or 8 of Article Seven of this Indenture or elsewhere in this Indenture contained [*SS74*] shall affect or impair the right of any bondholder, which is absolute and unconditional, to enforce the payment of the principal of and interest on his bonds at and after the maturity thereof as therein expressed or as accelerated by call for redemption thereof, or the obligation of the Company, which is also absolute and unconditional, to pay the principal of and interest and premium, if any, on each of the bonds issued hereunder to the respective holders thereof at the time and place expressed in said bonds and the coupons appertaining thereto and in said notice of redemption, if any; provided, however, that no bondholder shall be entitled to take any action or institute any such suit to enforce the payment of his bonds, whether for principal, interest or premium,
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if and to the extent that the taking of such action or the institution or prosecution of any such suit or the entry of judgment therein would under applicable law result in a surrender, impairment, waiver or loss of the lien of this Indenture upon the mortgaged and pledged property, or any part thereof, as security for bonds held by any other bondholder.
SECTION 3: Definitions of "independent" and "control."
SECTION 3. For the purposes of this Indenture, the term "independent", when applied to any accountant, engineer, appraiser or other expert, shall mean such a person who (a) is in fact independent; (b) does not have any substantial interest, direct or indirect, in the Company or in any other obligor upon the bonds issued hereunder or in any person directly or indirectly controlling, or controlled by, or under direct or indirect common control with, the Company or any such other obligor; and (c) is not connected with the Company or any other obligor upon the [*SS75*] bonds issued hereunder or any person directly or indirectly controlling, or controlled by, or under direct or indirect common control with, the Company or any such other obligor, as an officer, employee, promoter, underwriter, trustee, partner, or person performing similar functions.
For the purposes of this Indenture, the term "control" shall mean the power to direct the management and policies of a person, directly or through one or more intermediaries, whether through the ownership of voting securities, by contract, or otherwise, and the terms "controlling" and "controlled" shall have meanings correlative to the foregoing.
SECTION 4: Right of court to require filing of undertaking to pay costs.
SECTION 4. Notwithstanding anything to the contrary contained elsewhere in this Indenture, the parties to this Indenture and the bondholders agree that the court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against any Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; provided, however, that the provisions of this Section shall not apply to any suit instituted, directly or through an agent or agents, by any Trustee, to any suit instituted by any bondholder, or group of bondholders, holding in the aggregate more than ten per cent (10%) in principal amount of the bonds outstanding, [*SS76*] or to any suit instituted by any bondholder for the enforcement of the payment of the principal of or interest on his bonds at and after the maturity of such principal or interest as expressed in such bonds.
[*202*]
Attestation.
IN WITNESS WHEREOF, the party of the first part has caused its corporate name and seal to be hereunto affixed and this Indenture to be signed by its President, or one of its Vice Presidents, and attested by the signature of its Secretary, or one of its Assistant Secretaries, for and in its behalf; and the said Harris Trust and Savings Bank and Pacific-Southwest Trust & Savings Bank, to evidence their acceptance of the trusts hereby created, have caused their corporate names and seals to be hereunto affixed, and this Indenture to be signed, respectively, by a Vice President and attested by the signature of an Assistant Secretary, all as of the first day of October, A. D. 1923.
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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-161379) of Southern California Edison Company of our report dated February 28, 2011 relating to the financial statements and financial statement schedule, which appears in this Form 10-K.
/s/
PricewaterhouseCoopers LLP
Los Angeles, California
February 28, 2011
SOUTHERN CALIFORNIA EDISON COMPANY
10-K, 10-Q, AND 8-K POWER OF ATTORNEY
The undersigned, SOUTHERN CALIFORNIA EDISON COMPANY, a California corporation, and certain of its officers and/or directors do each hereby constitute and appoint, STEPHEN E. PICKETT, LINDA G. SULLIVAN, BARBARA E. MATHEWS, ROBERT C. BOADA, CHRIS C. DOMINSKI, POLLY L. GAULT, GEORGE T. TABATA, JEFFERY D. DURAN, PAIGE W. R. WHITE, MICHAEL A. HENRY, KEITH J. LARSON, KATHLEEN BRENNAN DE JESUS, JEFFREY C. WEEKLEY, DARLA F. FORTE, BONITA J. SMITH, MARGA ROSSO, VICTORIA A. PRIETO and MARTHA K. SOLIS or any of them, to act as attorney-in-fact, for and in their respective names, places, and steads, to execute, sign, and file or cause to be filed an Annual Report on Form 10-K for the fiscal year ended December 31, 2010, Quarterly Reports on Form 10-Q for each of the first three quarters of fiscal year 2011, any Current Reports on Form 8-K from time to time during 2011 and through December 8, 2011, or in the event this Board of Directors does not meet on December 8, 2011, through the next succeeding date on which this Board holds a regular meeting, and any and all supplements and amendments thereto, to be filed by Southern California Edison Company with the Securities and Exchange Commission, under the Securities Exchange Act of 1934 as amended, (the "Act"), for the purpose of complying with Sections 13 or 15(d) of the Act, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform all and every act and thing whatsoever requisite, necessary and appropriate to be done in and about the premises as fully and to all intents and purposes as the undersigned or any of them might or could do if personally present, hereby ratifying and approving the acts of each of said attorneys-in-fact.
Executed at Rosemead, California, as of this 9th day of December, 2010.
| SOUTHERN CALIFORNIA EDISON COMPANY | ||||
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By: |
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/s/ Alan J. Fohrer Alan J. Fohrer Chairman of the Board and Chief Executive Officer |
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Attest: |
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/s/ Barbara E. Mathews Barbara E. Mathews |
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Vice President, Associate General Counsel,
Chief Governance Officer, and Corporate Secretary |
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2011 Southern California Edison Company
10-K, 10-Q, and 8-K Power of Attorney
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/s/ Alan J. Fohrer Alan J. Fohrer |
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Chairman of the Board, Chief Executive Officer, and Director |
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Principal Financial Officer: |
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/s/ Linda G. Sullivan Linda G. Sullivan |
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Senior Vice President and Chief Financial Officer |
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Controller and Principal Accounting Officer: |
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/s/ Chris C. Dominski Chris C. Dominski |
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Vice President and Controller |
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Additional Directors: |
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/s/ Theodore F. Craver, Jr. Theodore F. Craver, Jr. |
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Director |
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/s/ Luis G. Nogales Luis G. Nogales |
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Director |
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/s/ Jagjeet S. Bindra Jagjeet S. Bindra |
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Director |
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/s/ Ronald L. Olson Ronald L. Olson |
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Director |
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/s/ Vanessa C.L. Chang Vanessa C.L. Chang |
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Director |
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/s/ James M. Rosser James M. Rosser |
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Director |
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/s/ France A. Córdova France A. Córdova |
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Director |
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/s/ Richard T. Schlosberg, III Richard T. Schlosberg, III |
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Director |
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/s/ Charles B. Curtis Charles B. Curtis |
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Director |
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/s/ Thomas C. Sutton Thomas C. Sutton |
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Director |
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/s/ Bradford M. Freeman Bradford M. Freeman |
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Director |
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/s/ Brett White Brett White |
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Director |
RESOLUTION
OF THE BOARD OF DIRECTORS OF
SOUTHERN CALIFORNIA EDISON COMPANY
Adopted: December 9, 2010
RE: FORMS 10-K, 10-Q, AND 8-K
WHEREAS, the Securities Exchange Act of 1934, as amended, and regulations thereunder, require that Annual, Quarterly, and Current Reports be filed with the Securities and Exchange Commission ("Commission"), and it is desirable to effect such filings over the signatures of attorneys-in-fact;
NOW, THEREFORE, BE IT RESOLVED, that each of the officers of this corporation is hereby authorized to file or cause to be filed with the Commission the Annual Report on Form 10-K of this corporation for the fiscal year ended December 31, 2010, Quarterly Reports on Form 10-Q for each of the first three quarters of fiscal year 2011, Current Reports on Form 8-K from time to time during 2011 through December 8, 2011, or in the event this Board of Directors does not meet on December 8, 2011, through the next succeeding date on which this Board holds a regular meeting, and any required or appropriate supplements or amendments to such reports, all in such forms as the officer acting or counsel for this corporation considers appropriate.
BE IT FURTHER RESOLVED, that each of the officers of this corporation is hereby authorized to execute and deliver on behalf of this corporation a power or powers of attorney appointing Stephen E. Pickett, Linda G. Sullivan, Polly L. Gault, Barbara E. Mathews, Robert C. Boada, Chris C. Dominski, George T. Tabata, Jeffery D. Duran, Paige W. R. White, Michael A. Henry, Keith J. Larson, Kathleen Brennan de Jesus, Jeffrey C. Weekley, Darla F. Forte, Bonita J. Smith, Marga Rosso, Victoria A. Prieto, and Martha K. Solis, and each of them, to act severally as attorney-in-fact in their respective names, places and steads, and on behalf of this corporation, for the purpose of executing and filing with the Commission the above-described reports and any amendments and supplements thereto.
ADOPTED:
/s/
Barbara E. Mathews
Corporate Secretary
CERTIFICATION
I, RONALD L. LITZINGER, certify that:
1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2010, of Southern California Edison Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 28, 2011
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/s/ RONALD L. LITZINGER
RONALD L. LITZINGER President |
CERTIFICATION
I, LINDA G. SULLIVAN, certify that:
1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2010, of Southern California Edison Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 28, 2011
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/s/ LINDA G. SULLIVAN
LINDA G. SULLIVAN Chief Financial Officer |
STATEMENT PURSUANT TO 18 U.S.C. SECTION 1350, AS
ENACTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Annual Report on Form 10-K for the year ended December 31, 2010 (the "Annual Report"), of Southern California Edison Company (the "Company"), and pursuant to 18 U.S.C. Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned certifies, to the best of his or her knowledge, that:
Date: February 28, 2011
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/s/ RONALD L. LITZINGER
Ronald L. Litzinger President Southern California Edison Company |
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/s/ LINDA G. SULLIVAN Linda G. Sullivan Chief Financial Officer Southern California Edison Company |
This statement accompanies the Annual Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.