-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
 MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
 TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
 RhexS2PCE7o3Y0hiNUrl042rE3mk5Yd6X46GUE4LgTV8hODa23Tl95gPmRJ59t8z
 SPY9oyl4GmyMwZBextzBvw==

<SEC-DOCUMENT>0000827052-01-500050.txt : 20020410
<SEC-HEADER>0000827052-01-500050.hdr.sgml : 20020410
ACCESSION NUMBER:		0000827052-01-500050
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20010930
FILED AS OF DATE:		20011114

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			SOUTHERN CALIFORNIA EDISON CO
		CENTRAL INDEX KEY:			0000092103
		STANDARD INDUSTRIAL CLASSIFICATION:	ELECTRIC SERVICES [4911]
		IRS NUMBER:				951240335
		STATE OF INCORPORATION:			CA
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-02313
		FILM NUMBER:		1785724

	BUSINESS ADDRESS:	
		STREET 1:		2244 WALNUT GROVE AVE
		STREET 2:		P O BOX 800
		CITY:			ROSEMEAD
		STATE:			CA
		ZIP:			91770
		BUSINESS PHONE:		6263021212

	MAIL ADDRESS:	
		STREET 1:		2244 WALNUT GROVE AVE
		CITY:			ROSEMEAD
		STATE:			CA
		ZIP:			91770
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>sce013q.htm
<DESCRIPTION>SCE THIRD QUARTER 10-Q 2001
<TEXT>
<HTML>
<HEAD>
<TITLE>SCE 3rd Qtr 10-Q 9-30-2001
</TITLE>
</HEAD>
<BODY>
<PRE>
===================================================================================================================

                                                   UNITED STATES
                                        SECURITIES AND EXCHANGE COMMISSION
                                              Washington, D.C. 20549

                                                     FORM 10-Q

(Mark One)

/X/    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

       For the quarterly period ended  September 30, 2001

                                                        OR

/  /   Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

       For the transition period from ___________________________ to ___________________________


                                           Commission File Number 1-2313

                                        SOUTHERN CALIFORNIA EDISON COMPANY
                              (Exact name of registrant as specified in its charter)

                          CALIFORNIA                                            95-1240335
               (State or other jurisdiction of                               (I.R.S. Employer
                incorporation or organization)                              Identification No.)

                   2244 Walnut Grove Avenue
                       (P. O. Box 800)
                     Rosemead, California
                    (Address of principal                                          91770
                      executive offices)                                        (Zip Code)

                                                  (626) 302-1212
                               (Registrant's telephone number, including area code)

       Indicate by check mark whether the registrant  (1) has filed all reports  required to be filed by Section 13
or 15(d) of the  Securities  Exchange Act of 1934 during the preceding 12 months (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   X           No ___

       Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the
latest practicable date:

                             Class                                        Outstanding at November 9, 2001
  -----------------------------------------------------------    ---------------------------------------------------
                  Common Stock, no par value                                        434,888,104

===================================================================================================================



<PAGE>





SOUTHERN CALIFORNIA EDISON COMPANY

INDEX


                                                                                                           Page
                                                                                                            No.
                                                                                                            ---
Part I.  Financial Information:

         Item 1.   Consolidated Financial Statements:

                   Report of Independent Public Accountants                                                 1

                   Consolidated Statements of Income (Loss) - Three, Nine and
                      Twelve Months Ended September 30, 2001, and 2000                                      2

                   Consolidated Statements of Comprehensive Income (Loss) -
                      Three, Nine and Twelve Months Ended September 30, 2001, and 2000                      2

                   Consolidated Balance Sheets - September 30, 2001,
                      December 31, 2000, and September 30, 2000                                             3

                   Consolidated Statements of Cash Flows -
                      Three, Nine and Twelve Months Ended
                      September 30, 2001, and 2000                                                          5

                   Consolidated Statements of Common Shareholder's
                      Equity - Three, Nine and Twelve Months Ended
                      September 30, 2001, and 2000                                                          6

                   Notes to Consolidated Financial Statements                                               8

         Item 2.   Management's Discussion and Analysis of Results
                      of Operations and Financial Condition                                                39

Part II. Other Information:

         Item 1.   Legal Proceedings                                                                       59

         Item 6.   Exhibits and Reports on Form 8-K                                                        61





<PAGE>



PART I  FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

Report of Independent Public Accountants

To Southern California Edison Company:

We have audited the accompanying consolidated balance sheets of Southern California Edison Company (SCE, a
California corporation) and its subsidiaries as of September 30, 2001, December 31, 2000, and September 30, 2000,
and the related consolidated statements of income (loss), comprehensive income (loss), cash flows and changes in
common shareholder's equity for each of the three-, nine- and twelve-month periods ended September 30, 2001, and
2000.  These financial statements are the responsibility of SCE's management.  Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the 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.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of SCE and its subsidiaries as of September 30, 2001, December 31, 2000, and September 30,
2000, and the results of their operations and their cash flows for each of the three-, nine- and twelve-month
periods ended September 30, 2001, and 2000, in conformity with accounting principles generally accepted in the
United States.

The accompanying financial statements have been prepared assuming that SCE will continue as a going concern.  As
discussed in Notes 2 and 3 to the consolidated financial statements, the recent energy crisis in California has
resulted in uncertainty for SCE associated with its ability to collect certain costs through the regulatory
process and has resulted in legal and regulatory uncertainties which have adversely impacted SCE's liquidity.
These issues raise substantial doubt about SCE's ability to continue as a going concern.  Management's plans in
regard to these matters are also described in Notes 2 and 3.  The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should SCE be unable to continue as a going concern.





ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP

Los Angeles, California
November 8, 2001




Page 1


SOUTHERN CALIFORNIA EDISON COMPANY

CONSOLIDATED STATEMENTS OF INCOME (LOSS)
In millions

                                                       3 Months Ended           9 Months Ended         12 Months Ended
                                                        September 30,           September 30,           September 30,
 --------------------------------------------------------------------------------------------------------------------------
                                                      2001         2000        2001         2000        2001        2000
 --------------------------------------------------------------------------------------------------------------------------

Operating revenue                                   $ 2,726      $ 2,432     $ 5,830      $ 6,115     $ 7,585     $ 7,942
- --------------------------------------------------------------------------------------------------------------------------

Fuel                                                     57           57         154          139         212         198
Purchased power                                         759        1,915       3,290        3,103       4,872       3,897
Provisions for regulatory adjustment clauses - net       (5)        (861)       (124)        (856)      3,033      (1,057)
Other operation and maintenance                         432          430       1,293        1,295       1,771       1,719
Depreciation, decommissioning and amortization          161          415         479        1,162         789       1,532
Property and other taxes                                 28           29          86           98         114         123
Net gain on sale of utility plant                        --           --          (9)          (7)        (27)         (7)
- --------------------------------------------------------------------------------------------------------------------------

Total operating expenses                              1,432        1,985       5,169        4,934      10,764       6,405
- --------------------------------------------------------------------------------------------------------------------------

Operating income (loss)                               1,294          447         661        1,181      (3,179)      1,537
Interest and dividend income                             25           45          76           89         159         107
Other nonoperating income                                 6            6          28           79          67         117
Interest expense - net of amounts capitalized          (221)        (136)       (581)        (392)       (761)       (512)
Other nonoperating deductions                            (2)         (15)        (18)         (74)        (54)       (111)
- --------------------------------------------------------------------------------------------------------------------------

Income (loss) before taxes                            1,102          347         166          883      (3,768)      1,138
Income tax expense (benefit)                            445          169          68          426      (1,380)        535
- --------------------------------------------------------------------------------------------------------------------------

Net income (loss)                                       657          178          98          457      (2,388)        603
Dividends on preferred stock                              6            6          17           16          22          21
- --------------------------------------------------------------------------------------------------------------------------

Net income (loss) available for common stock        $   651      $   172     $    81      $   441    $ (2,410)    $   582
- --------------------------------------------------------------------------------------------------------------------------




CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
In millions

                                                  3 Months Ended            9 Months Ended           12 Months Ended
                                                  September 30,              September 30,            September 30,
 -------------------------------------------------------------------------------------------------------------------------
                                                 2001          200019991999  2001         2000       2001         2000
 -------------------------------------------------------------------------------------------------------------------------

Net income (loss)                               $ 657        $ 178          $  98        $ 457   $ (2,388)       $ 603
Other comprehensive income, net of tax:
  Unrealized gain (loss) on securities - net       --           (2)            --            3         --            6
  Cumulative effect of change in
    accounting for derivatives                     --           --            397           --        397           --
  Unrealized loss on cash flow hedges               1           --           (420)          --       (420)          --
  Reclassification adjustment for gains
    included in net income (loss)                  --           --             --          (24)        --          (24)
- -------------------------------------------------------------------------------------------------------------------------

Comprehensive income (loss)                     $ 658        $ 176          $  75        $ 436   $ (2,411)       $ 585
- -------------------------------------------------------------------------------------------------------------------------





                    The accompanying notes are an integral part of these financial statements.


Page 2


SOUTHERN CALIFORNIA EDISON COMPANY

CONSOLIDATED BALANCE SHEETS
In millions

                                                                  September 30,       December 31,      September 30,
                                                                      2001                2000               2000
- --------------------------------------------------------------------------------------------------------------------

ASSETS

Cash and equivalents                                              $  2,775           $    583          $     50
Receivables, less allowances of $30, $23 and $23
   for uncollectible accounts at respective dates                    1,353                919               682
Accrued unbilled revenue                                               568                377               553
Fuel inventory                                                          12                 12                21
Materials and supplies, at average cost                                140                132               131
Accumulated deferred income taxes - net                                593                545               546
Prepayments and other current assets                                   196                124               160
- -------------------------------------------------------------------------------------------------------------------

Total current assets                                                 5,637              2,692             2,143
- -------------------------------------------------------------------------------------------------------------------


Nonutility property - less accumulated provision for
   depreciation of $15, $11 and $8 at respective dates                 142                102               102
Nuclear decommissioning trusts                                       2,268              2,505             2,542
Other investments                                                      112                 90               336
- -------------------------------------------------------------------------------------------------------------------

Total investments and other assets                                   2,522              2,697             2,980
- -------------------------------------------------------------------------------------------------------------------

Utility plant, at original cost:
   Transmission and distribution                                    13,453             13,129            12,912
   Generation                                                        1,725              1,745             1,723
Accumulated provision for depreciation and decommissioning          (7,852)            (7,834)           (7,759)
Construction work in progress                                          592                636               675
Nuclear fuel, at amortized cost                                        129                143               127
- -------------------------------------------------------------------------------------------------------------------

Total utility plant                                                  8,047              7,819             7,678
- -------------------------------------------------------------------------------------------------------------------



Regulatory assets - net                                              2,874              2,390             6,669
Other deferred charges                                                 513                368               371
- -------------------------------------------------------------------------------------------------------------------

Total deferred charges                                               3,387              2,758             7,040
- -------------------------------------------------------------------------------------------------------------------








Total assets                                                      $ 19,593           $ 15,966          $ 19,841
- -------------------------------------------------------------------------------------------------------------------








                    The accompanying notes are an integral part of these financial statements.

Page 3


SOUTHERN CALIFORNIA EDISON COMPANY

CONSOLIDATED BALANCE SHEETS
In millions, except share amounts

                                                             September 30,         December 31,       September 30,
                                                                   2001                2000               2000
- -------------------------------------------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDER'S EQUITY

Short-term debt                                               $  2,131           $  1,451            $  1,276
Long-term debt classified as due within one year                 2,797                646                 647
Preferred stock to be redeemed within one year                     105                 --                  --
Accounts payable                                                 3,315              1,055                 885
Accrued taxes                                                      713                536                 574
Regulatory liabilities - net                                       136                195               1,005
Other current liabilities                                        2,000              1,502               1,800
- -------------------------------------------------------------------------------------------------------------------

Total current liabilities                                       11,197              5,385               6,187
- -------------------------------------------------------------------------------------------------------------------

Long-term debt                                                   3,166              5,631               4,807
- -------------------------------------------------------------------------------------------------------------------


Accumulated deferred income taxes - net                          2,234              2,009               3,360
Accumulated deferred investment tax credits                        155                164                 175
Customer advances and other deferred credits                       801                755                 771
Power-purchase contracts                                           384                467                 490
Accumulated provision for pensions and benefits                    439                296                 293
Other long-term liabilities                                         97                 94                 101
- -------------------------------------------------------------------------------------------------------------------

Total deferred credits and other liabilities                     4,110              3,785               5,190
- -------------------------------------------------------------------------------------------------------------------

Commitments and contingencies
   (Notes 1, 2, 3, 11 and 12)

Preferred stock:
   Not subject to mandatory redemption                             129                129                 129
   Subject to mandatory redemption                                 151                256                 256
- -------------------------------------------------------------------------------------------------------------------

Total preferred stock                                              280                385                 385
- -------------------------------------------------------------------------------------------------------------------


Common stock (434,888,104 shares
   outstanding at each date)                                     2,168              2,168               2,168
Additional paid-in capital                                         335                334                 334
Accumulated other comprehensive income (loss)                      (23)                --                  --
Retained earnings (deficit)                                     (1,640)            (1,722)                770
- -------------------------------------------------------------------------------------------------------------------

Total common shareholder's equity                                  840                780               3,272
- -------------------------------------------------------------------------------------------------------------------




Total liabilities and shareholder's equity                    $ 19,593           $ 15,966            $ 19,841
- -------------------------------------------------------------------------------------------------------------------








                    The accompanying notes are an integral part of these financial statements.


Page 4


SOUTHERN CALIFORNIA EDISON COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
In millions

                                                         3 Months Ended          9 Months Ended        12 Months Ended
                                                         September 30,           September 30,          September 30,
 --------------------------------------------------------------------------------------------------------------------------
                                                        2001        2000         2001        2000        2001       2000
 --------------------------------------------------------------------------------------------------------------------------

Cash flows from operating activities:
Net income (loss)                                    $    657     $   178     $     98      $  457    $ (2,388)    $  603
Adjustments to reconcile net income (loss) to
 net cash provided by operating activities:
   Depreciation, decommissioning and amortization         161         415          479       1,162         789      1,532
   Other amortization                                      24          25           60          75          82        101
   Deferred income taxes and investment tax credits       123         233          (35)        125      (1,087)       317
   Regulatory assets - long-term - net                   (135)     (1,451)        (388)     (1,994)      3,365     (2,459)
   Net gain on sale of marketable securities               --                       --         (41)         --        (41)
   Other assets                                            (8)       (132)         (93)       (206)        158       (233)
   Other liabilities                                      (15)         (1)          60          30          17        (52)
   Changes in working capital:
      Receivables and accrued unbilled revenue           (488)       (105)        (620)       (222)       (681)        64
      Regulatory liabilities - short-term - net           (61)        510          (59)        907        (869)     1,110
      Fuel inventory, materials and supplies               (4)         14           (9)         21          (1)        19
      Prepayments and other current assets                (84)       (110)         (71)        (49)        (35)       (31)
      Accrued interest and taxes                          470         (55)         258          58         248       (432)
      Accounts payable and other current liabilities      337         496        2,662         652       2,598        572
- --------------------------------------------------------------------------------------------------------------------------

Net cash provided by operating activities                 977          17        2,342         975       2,196      1,070
- --------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
Long-term debt issued                                      --         218           --         466       1,293        466
Long-term debt repaid                                      --          --           --        (325)       (200)      (325)
Bonds repurchased and funds held in trust                  --        (219)        (130)       (219)       (350)      (219)
Rate reduction notes repaid                               (61)        (62)        (174)       (175)       (245)      (243)
Nuclear fuel financing - net                               (4)         15          (14)         (6)          1        (21)
Short-term debt financing - net                            10         421          680         480         855        671
Dividends paid                                             --         (97)          (1)       (298)        (98)      (420)
- --------------------------------------------------------------------------------------------------------------------------

Net cash provided (used) by financing activities          (55)        276          361         (77)      1,256        (91)
- --------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
Additions to property and plant                          (172)       (285)        (525)       (807)       (814)    (1,074)
Funding of nuclear decommissioning trusts                 (18)        (64)           3        (123)         57       (144)
Proceeds from sales of marketable securities               --          --           --          41          --         41
Sales of investments in other assets                       --          --           11          15          30         20
- --------------------------------------------------------------------------------------------------------------------------

Net cash used by investing activities                    (190)       (349)        (511)       (874)       (727)    (1,157)
- --------------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and equivalents           732         (56)       2,192          24       2,725       (178)
Cash and equivalents, beginning of period               2,043         106          583          26          50        228
- --------------------------------------------------------------------------------------------------------------------------

Cash and equivalents, end of period                   $ 2,775      $   50      $ 2,775     $    50    $  2,775    $    50
- --------------------------------------------------------------------------------------------------------------------------

Cash payments for interest and taxes:
Interest - net of amounts capitalized                $    107      $   92     $    310      $  237   $     376     $  308
Taxes                                                      --          90           --         293          13        633




                    The accompanying notes are an integral part of these financial statements.


Page 5


SOUTHERN CALIFORNIA EDISON COMPANY

CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY
In millions

                                                                           Accumulated                    Total
                                                          Additional          Other       Retained       Common
                                              Common        Paid-in       Comprehensive   Earnings    Shareholder's
                                               Stock        Capital       Income (Loss)   (Deficit)      Equity
- ---------------------------------------------------------------------------------------------------------------------

Balance at June 30, 2000                     $ 2,168          $ 334        $     2      $     690        $ 3,194
- ---------------------------------------------------------------------------------------------------------------------

   Net income                                                                                 178            178
   Unrealized gain on securities
      Tax effect                                                                (2)                           (2)
   Dividends declared on common stock                                                         (92)           (92)
   Dividends declared on preferred stock                                                       (6)            (6)
- ---------------------------------------------------------------------------------------------------------------------

Balance at September 30, 2000                $ 2,168          $ 334         $   --      $     770        $ 3,272
- ---------------------------------------------------------------------------------------------------------------------

Balance at June 30, 2001                     $ 2,168          $ 334         $  (24)      $ (2,291)      $    187
- ---------------------------------------------------------------------------------------------------------------------

   Net income                                                                                 657            657
   Unrealized loss on cash flow hedges                                           1                             1
   Dividends accrued on preferred stock                                                        (6)            (6)
   Capital stock expense and other                                1                                            1
- ---------------------------------------------------------------------------------------------------------------------

Balance at September 30, 2001                $ 2,168          $ 335         $  (23)      $ (1,640)      $    840
- ---------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1999                 $ 2,168          $ 335         $   22      $     608        $ 3,133
- ---------------------------------------------------------------------------------------------------------------------

   Net income                                                                                 457            457
   Unrealized gain on securities                                                 8                             8
      Tax effect                                                                (5)                           (5)
   Reclassified adjustment for gains
      included in net income                                                   (41)                          (41)
      Tax effect                                                                16                            16
   Dividends declared on common stock                                                        (279)          (279)
   Dividends declared on preferred stock                                                      (16)           (16)
   Stock option appreciation                                                                   (1)            (1)
   Capital stock expense and other                               (1)                            1             --
- ---------------------------------------------------------------------------------------------------------------------

Balance at September 30, 2000                $ 2,168          $ 334         $   --      $     770        $ 3,272
- ---------------------------------------------------------------------------------------------------------------------

Balance at December 31, 2000                 $ 2,168          $ 334         $   --       $ (1,722)      $    780
- ---------------------------------------------------------------------------------------------------------------------

   Net income                                                                                  98             98
   Cumulative effect of change in
      accounting for derivatives                                               397                           397
   Unrealized loss on cash flow hedges                                        (420)                         (420)
   Dividends accrued on preferred stock                                                       (17)           (17)
   Capital stock expense and other                                1                             1              2
- ---------------------------------------------------------------------------------------------------------------------

Balance at September 30, 2001                $ 2,168          $ 335         $  (23)      $ (1,640)      $    840
- ---------------------------------------------------------------------------------------------------------------------









                    The accompanying notes are an integral part of these financial statements.


Page 6


SOUTHERN CALIFORNIA EDISON COMPANY

CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY
In millions

                                                                           Accumulated                    Total
                                                          Additional          Other       Retained       Common
                                              Common        Paid-in       Comprehensive   Earnings    Shareholder's
                                               Stock        Capital       Income (Loss)   (Deficit)      Equity
- ---------------------------------------------------------------------------------------------------------------------

Balance at September 30, 1999                $ 2,168         $ 335         $    18      $     585       $ 3,106
- ---------------------------------------------------------------------------------------------------------------------

   Net income                                                                                 603           603
   Unrealized gain on securities                                                10                           10
      Tax effect                                                                (4)                          (4)
   Reclassified adjustment for gain
      included in net income                                                   (41)                         (41)
      Tax effect                                                                17                           17
   Dividends declared on common stock                                                        (395)         (395)
   Dividends declared on preferred stock                                                      (21)          (21)
   Stock option appreciation                                                                   (2)           (2)
   Capital stock expense and other                              (1)                                          (1)
- ---------------------------------------------------------------------------------------------------------------------

Balance at September 30, 2000                $ 2,168         $ 334          $   --      $     770       $ 3,272
- ---------------------------------------------------------------------------------------------------------------------

   Net income (loss)                                                                       (2,388)       (2,388)
   Cumulative effect of change in
       accounting for derivatives                                              397                          397
   Unrealized loss on cash flow hedges                                        (420)                        (420)
   Dividends accrued on preferred stock                                                       (22)          (22)
   Capital stock expense and other                               1                                            1
- ---------------------------------------------------------------------------------------------------------------------

Balance at September 30, 2001                $ 2,168         $ 335          $  (23)      $ (1,640)      $   840
- ---------------------------------------------------------------------------------------------------------------------


Authorized common stock is 560 million shares with no par value.























                    The accompanying notes are an integral part of these financial statements.



Page 7


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.  Summary of Significant Accounting Policies

Nature of Operations

Southern California Edison Company (SCE) is a rate-regulated electric utility that supplies electric energy to a
50,000 square-mile area of central, coastal and Southern California.  SCE also produces electricity.  SCE
operates in a highly regulated environment and has an exclusive franchise within its service territory.  SCE has
an obligation to deliver electric service to its customers and regulatory authorities have an obligation to
provide just and reasonable rates.  In the mid-1990s, state lawmakers and the California Public Utilities
Commission (CPUC) initiated an electric utility industry restructuring process.  SCE was directed by the CPUC to
divest the bulk of its generation portfolio.  Today, independent power companies own the divested generating
plants.  See Notes 2 and 3 for a further discussion of regulatory changes in the electric utility industry.

Basis of Presentation

The consolidated financial statements include SCE and its subsidiaries.  Intercompany transactions have been
eliminated.  Certain prior-period amounts were reclassified to conform to the September 30, 2001, financial
statement presentation.

SCE's accounting policies conform with accounting principles generally accepted in the United States, including
the accounting principles for rate-regulated enterprises, which reflect the rate-making policies of the CPUC and
the Federal Energy Regulatory Commission (FERC).  Since 1997, as a result of industry restructuring legislation
enacted by the State of California and related changes in the rate-recovery of generation-related assets, SCE has
used accounting principles applicable to enterprises in general for its investment in generation facilities.

Financial statements prepared in compliance with accounting principles generally accepted in the United States
require management to make estimates and assumptions that affect the amounts reported in the financial statements
and disclosure of contingencies.  Actual results could differ from those estimates.  Certain significant
estimates related to liquidity, regulatory matters, decommissioning and contingencies are further discussed in
Notes 2, 3, 11 and 12 to the Consolidated Financial Statements, respectively.

SCE's outstanding common stock is owned entirely by its parent company, Edison International.

Regulatory Balancing Accounts

During the four-year rate freeze period, recovery of generation-related transition costs has been tracked through
the transition cost balancing account (TCBA) mechanism.  The gains resulting from the sale of 12 of SCE's
generating plants during 1998 have been credited to the TCBA.

The coal and hydroelectric generation balancing accounts tracked the differences between market revenue from coal
and hydroelectric generation and the plants' operating costs after April 1, 1998.  Overcollections were credited
to the TCBA in 1998 and 1999, in accordance with a 1997 CPUC decision.  Due to a January 2001 interim CPUC
decision, the balance at year-end 2000 was not credited to the TCBA, pending further testimony and evidence on
the implications of crediting the overcollections to the transition revenue account (TRA) rather than the TCBA.
The TRA is a CPUC-authorized regulatory asset in which SCE recorded the difference between revenue received from
customers through currently frozen rates and the costs of providing service to customers, including power
procurement costs.  On March 27, 2001, the CPUC issued a decision stating, among other things, that the rate
freeze had not ended, and the TCBA mechanism was to remain in place.  However, the decision required SCE to
recalculate the TCBA retroactive to January 1, 1998, the beginning of the rate freeze period.  The new calculation


Page 8


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

required the coal and hydroelectric balancing accounting overcollections (which amounted to $1.5 billion as of
December 31, 2000) to be transferred monthly to the TRA, rather than annually to the TCBA.  In addition, it
required the TRA to be transferred to the TCBA on a monthly basis.  Previous rules had called only for
overcollections to be transferred to the TCBA monthly, while undercollections were to remain in the TRA until
they were recovered from future overcollections or the end of the rate freeze, whichever came first.  Based on
the new rules, the $4.5 billion TRA undercollection as of December 31, 2000, and the coal and hydroelectric
balancing account overcollections, were reclassified to the TCBA, and the TCBA balance as of December 31, 2000,
was determined to be a $2.9 billion undercollection.

Because the regulatory and legislative actions that made recovery of the TCBA probable were not taken, (as
discussed in Note 3), SCE was unable to conclude as of December 31, 2000, that the recalculated TCBA net
undercollection was probable of recovery through the rate-making process.  As a result, the TCBA undercollection
was charged to earnings as of that date.  An additional $1.1 billion in TCBA undercollections was charged to
earnings during 2001.

An October 2001 settlement between the CPUC and SCE calls for the end of the TCBA mechanism as of August 31,
2001, and continuation of the rate freeze (including surcharges) until the earlier of December 31, 2003, or the
date SCE recovers its previously incurred (undercollected) power procurement costs.  During fourth quarter 2001,
it is expected that the TCBA will become inactive retroactive to September 1, 2001, and the procurement-related
obligations account (PROACT) will be created in accordance with the October 2001 settlement agreement with the
CPUC.  During a period beginning on September 1, 2001, and ending on the earlier of the date that SCE has
recovered all of its procurement-related obligations recorded in the PROACT or December 31, 2005, SCE will apply
to the PROACT the difference between SCE's revenue from retail electric rates (including surcharges) and the
costs that SCE is authorized by the CPUC to recover in retail electric rates.  If SCE has not recovered the
entire balance by December 31, 2003, the unrecovered balance will be amortized for up to an additional two years.

Balancing account undercollections and overcollections accrue interest.  Income tax effects on all balancing
account changes are deferred.

Regulatory Assets and Liabilities

In accordance with accounting principles for rate-regulated enterprises, SCE records regulatory assets, which
represent probable future revenue associated with certain costs that will be recovered from customers through the
rate-making process, and regulatory liabilities, which represent probable future reductions in revenue associated
with amounts that are to be credited to customers through the rate-making process.  SCE's discontinuance of the
application of accounting principles for rate-regulated enterprises to its generation assets in 1997 did not
result in a write-off of its generation-related regulatory assets at that time since the CPUC had approved
recovery of these assets through the TCBA mechanism.

There are many factors that affect SCE's ability to recover its regulatory assets.  SCE assessed the probability
of recovery of its generation-related regulatory assets in light of the CPUC's March 27, 2001, decisions
(discussed in Note 3), including the retroactive transfer of balances from SCE's TRA to the TCBA and related
changes.  These decisions and other regulatory and legislative actions did not meet SCE's prior expectation that
the CPUC would provide adequate cost recovery mechanisms.  SCE was unable to conclude that its generation-related
regulatory assets were probable of recovery through the rate-making process as of December 31, 2000.  Therefore,
in accordance with accounting rules, SCE recorded a $2.5 billion after-tax charge to earnings at that time, to
write off the TCBA and other regulatory assets (see below).


Page 9


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In addition to the TCBA, generation-related regulatory assets totaling $1.3 billion (including unamortized
nuclear investment, flow-through taxes, unamortized loss on sale of plant, purchased-power settlements and other
regulatory assets) were written off as of December 31, 2000.

Regulatory assets and liabilities included in the consolidated balance sheets are:

                                                             September 30,      December 31,      September 30,
       In millions                                               2001               2000              2000
- ---------------------------------------------------------------------------------------------------------------

       Generation-related:
       Unamortized nuclear investment - net                   $     --          $     --         $     783
       Flow-through taxes                                           --                --               221
       Unamortized loss on sale of plant                            --                --                76
       Purchased-power settlements                                  --                --               458
       Regulatory balancing accounts and other                      --                --              (414)
- ---------------------------------------------------------------------------------------------------------------

       Subtotal                                                     --                --             1,124
- ---------------------------------------------------------------------------------------------------------------

       Rate reduction notes - transition cost deferral           1,366             1,090             1,001
- ---------------------------------------------------------------------------------------------------------------

       Transition revenue account                                   --                --             2,358
- ---------------------------------------------------------------------------------------------------------------

       Other:
       Flow-through taxes                                        1,075               874               960
       Unamortized loss on reacquired debt                         258               273               277
       Environmental remediation                                    60                52                52
       Regulatory balancing accounts and other                     (21)              (94)             (108)
- ---------------------------------------------------------------------------------------------------------------

       Subtotal                                                  1,372             1,105             1,181
- ---------------------------------------------------------------------------------------------------------------

       Total                                                   $ 2,738           $ 2,195           $ 5,664
- ---------------------------------------------------------------------------------------------------------------


The regulatory asset related to the rate reduction notes will be recovered over the terms of those notes.  The
other regulatory assets and liabilities are being recovered through other components of the unbundled rates.

The unamortized nuclear investment regulatory asset was created during the second quarter of 1998.  SCE reduced
its remaining nuclear plant investment by $2.6 billion (as of June 30, 1998) and recorded a regulatory asset on
its balance sheet for the same amount in accordance with asset impairment accounting standards.  For this
impairment assessment, the fair value of the investment was calculated by discounting expected future net cash
flows.  The reclassification had no effect on SCE's 1998 results of operations.

In accordance with the CPUC settlement agreement, in fourth quarter 2001, it is expected that the CPUC will issue
implementing decisions or orders allowing SCE to establish the PROACT regulatory asset for previously incurred
energy procurement costs, retroactive to August 31, 2001.

Nuclear

SCE had been recovering its investments in San Onofre Nuclear Generating Station Units 2 and 3 and Palo Verde
Nuclear Generating Station on an accelerated basis, as authorized by the CPUC.  The accelerated recovery was to
continue through December 2001, earning a 7.35% fixed rate of return on investment.  San Onofre's operating
costs, including nuclear fuel and nuclear fuel financing costs, and incremental capital expenditures, were
recovered through an incentive pricing plan that allows SCE to receive about 4(cent)per kilowatt-hour through 2003.
Any differences between these costs and the incentive price would flow through to the shareholders.  Palo Verde's
accelerated plant recovery, as well as operating costs, including nuclear fuel and nuclear fuel financing costs,
and incremental capital


Page 10


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

expenditures, were subject to balancing account treatment through December 31, 2001.  The San Onofre and Palo
Verde rate recovery plans and the Palo Verde balancing account were part of the TCBA.

The nuclear rate-making plans and the TCBA mechanism were to continue for rate-making purposes at least through
2001 for Palo Verde operating costs and through 2003 for the San Onofre incentive pricing plan.  However, due to
the various unresolved regulatory and legislative issues (as discussed in Note 3), as of December 31, 2000, SCE
was no longer able to conclude that the unamortized nuclear investment was probable of recovery through the
rate-making process.  As a result, this balance was written off as a charge to earnings at that time.

SCE requested in its utility-retained generation (URG) application to recover the unamortized cost of the nuclear
investment regulatory asset over a ten-year period, retroactive to January 1, 2001.  Should this application be
approved, SCE would reestablish for financial reporting purposes its unamortized nuclear investment and related
flow-through taxes as regulatory assets with a corresponding credit to earnings.

The benefits of operation of the San Onofre units and the Palo Verde units were required to be shared equally
with ratepayers beginning in 2004 and 2002, respectively.  In a June 2001 decision, the CPUC granted SCE's
request to eliminate the San Onofre post-2003 benefit sharing mechanism.  The CPUC based its action on compliance
with recently enacted state law.  In a September 2001 decision, the CPUC granted SCE's request to eliminate the
Palo Verde post-2001 benefit sharing mechanism and to continue the current rate treatment for Palo Verde,
including the continuation of the existing nuclear unit incentive procedure with a 5(cent)per kWh cap on replacement
power costs, until resolution of SCE's next general rate case or further CPUC action.  Palo Verde's existing
nuclear unit incentive procedure calculates a reward for performance of any unit above an 80% capacity factor for
a fuel cycle.

Cash Equivalents

Cash equivalents include time deposits and other investments with original maturities of three months or less.

Planned Major Maintenance

Certain plant facilities require major maintenance on a periodic basis.  All such costs are expensed as
incurred.

Fuel Inventory

Fuel inventory is valued under the last-in, first-out method for fuel oil and under the first-in, first-out
method for coal.

Revenue

Operating revenue includes amounts for services rendered but unbilled at the end of each period.

Investments

Net unrealized gains (losses) on equity investments are recorded as a separate component of shareholder's equity
under the caption "Accumulated other comprehensive income."  Unrealized gains and losses on decommissioning trust
funds are recorded in the accumulated provision for decommissioning.

All investments are classified as available-for-sale.

Page 11


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Derivative Financial Instruments

SCE uses the hedge accounting method to record its derivative financial instruments.  Hedge accounting requires
an assessment that the transaction reduces risk, that the derivative is designated as a hedge at the inception of
the derivative contract, and that the changes in the market value of a hedge move in an inverse direction to the
item being hedged.  Mark-to-market accounting would be used if the hedge accounting criteria were not met.  If
the derivatives were terminated before the maturity of the corresponding debt issuance, the realized gain or loss
on the transaction would be amortized over the remaining term of the debt.

On January 1, 2001, SCE adopted a new accounting standard for derivative instruments and hedging activities.  The
new standard requires all derivatives to be recognized on the balance sheet at fair value.  Prior to adoption,
hedges were not recorded on the balance sheet.  Gains or losses from changes in the fair value of a recognized
asset or liability or a firm commitment are reflected in earnings for the ineffective portion of the hedge.  For
a hedge of the cash flows of a forecasted transaction, the effective portion of the gain or loss is initially
recorded as a separate component of shareholder's equity under the caption "accumulated other comprehensive
income," and subsequently reclassified into earnings when the forecasted transaction affects earnings.  The
ineffective portion of the gain or loss is reflected in earnings immediately.  Under the new standard, SCE's
derivatives qualify for hedge accounting or for the normal purchase and sales exemption from derivatives
accounting rules.  See Note 4 for a further discussion.

Utility Plant

Utility plant additions, including replacements and betterments, are capitalized.  Such costs include direct
material and labor, construction overhead and an allowance for funds used during construction (AFUDC).  AFUDC
represents the estimated cost of debt and equity funds that finance utility-plant construction.  AFUDC is
capitalized during plant construction and reported in current earnings in other nonoperating income.  AFUDC is
recovered in rates through depreciation expense over the useful life of the related asset.  Depreciation of
utility plant is computed on a straight-line, remaining-life basis.

AFUDC - equity was $2 million, $6 million and $8 million for the three, nine and twelve months ended
September 30, 2001, respectively, and $2 million, $9 million and $12 million for the three, nine and twelve months
ended September 30, 2000, respectively.  AFUDC - debt was $2 million, $7 million and $9 million for the three,
nine and twelve months ended September 30, 2001, respectively, and $2 million, $8 million and $11 million for the
three, nine and twelve months ended September 30, 2000, respectively.

Replaced or retired property and removal costs less salvage are charged to the accumulated provision for
depreciation.  Depreciation expense stated as a percent of average original cost of depreciable utility plant was
3.5%, 3.6% and 3.6% for the three, nine and twelve months ended September 30, 2001, and 3.6%, 3.5% and 3.6% for
the three, nine and twelve months ended September 30, 2000, respectively.

SCE's net investment in generation-related utility plant was approximately $1.0 billion at September 30, 2001, at
December 31, 2000, and at September 30, 2000.

Related Party Transactions

Certain Edison Mission Energy (a wholly owned subsidiary of Edison International) subsidiaries have ownership
interests in partnerships that sell electricity generated by their project facilities to SCE under long-term
power purchase agreements.  Such sales to SCE were $106 million, $446 million and $560 million for the three,
nine and twelve months ended September 30, 2001, respectively, and $125 million,


Page 12


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

$242 million and $290 million for the three,  nine and twelve  months ended September 30, 2000, respectively.
As a result of SCE's liquidity crisis, SCE has deferred some payments for power purchases from these facilities.

Purchased Power

SCE purchased power through the California Power Exchange (PX) from April 1998 through mid-January 2001.  Since
January 18, 2001, power purchased by the California Department of Water Resources (CDWR) or through the ISO for
SCE's customers is not considered a cost to SCE, since SCE is acting as an agent for these transactions.
Further, amounts billed to and collected from its customers for these power purchases are being remitted to the
CDWR and are not considered revenue to SCE.  See further discussion in Note 3.  SCE also has bilateral forward
contracts with other entities (as discussed in Note 4) and power-purchase contracts with other utilities and
independent power producers classified as qualifying facilities (QFs).  Purchased power detail is provided below:

                                              3 Months Ended          9 Months Ended          12 Months Ended
                                               September 30,           September 30,           September 30,
- -------------------------------------------------------------------------------------------------------------------

In millions                                   2001        2000        2001        2000        2001        2000
- -------------------------------------------------------------------------------------------------------------------

PX/ISO:
Purchases                                    $  26     $ 3,079    $    660     $ 5,121     $ 3,988     $ 5,863
Generation sales                                 2       2,019         324       3,737       2,708       4,248
- -------------------------------------------------------------------------------------------------------------------

Purchased power - PX/ISO - net                  24       1,060         336       1,384       1,280       1,615
Purchased power - bilateral contracts           53          --         142          --         142          --
Purchased power - interutility/QF contracts    682         855       2,812       1,719       3,450       2,282
- -------------------------------------------------------------------------------------------------------------------

Total                                        $ 759     $ 1,915     $ 3,290     $ 3,103     $ 4,872     $ 3,897
- -------------------------------------------------------------------------------------------------------------------


Other Nonoperating Income and Deductions

Other nonoperating income and deductions was comprised of:

                                              3 Months Ended          9 Months Ended          12 Months Ended
                                               September 30,           September 30,           September 30,
- -------------------------------------------------------------------------------------------------------------------

In millions                                   2001        2000         2001      2000         2001       2000
- -------------------------------------------------------------------------------------------------------------------

Gain on sale of marketable securities          $--         $--         $ --      $ 41         $ --     $   41
AFUDC                                            4           5           12        17           17         23
Key person life insurance income (expense)      (1)         (6)           7         1           12          5
Other                                            3           7            9        20           38         48
- -------------------------------------------------------------------------------------------------------------------

Total other nonoperating income                $ 6         $ 6         $ 28      $ 79         $ 67      $ 117
- -------------------------------------------------------------------------------------------------------------------

Provisions for regulatory issues and refunds   $--         $ 1         $ (7)     $ 55         $ 16      $  85
O&amp;M services-- labor                            --           8           --         8           --          8
Other                                            2           6           25        11           38         18
- -------------------------------------------------------------------------------------------------------------------

Total other nonoperating deductions            $ 2         $15         $ 18      $ 74         $ 54      $ 111
- -------------------------------------------------------------------------------------------------------------------


New Accounting Standards

In October 2001, a new accounting standard was issued related to accounting for the impairment or disposal of
long-lived assets.  Although the statement supersedes a prior accounting standard related to the impairment of
long-lived assets, it retains the fundamental provisions of the impairment standard regarding
recognition/measurement of impairment of long-lived assets to be held and used and


Page 13


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

measurement of long-lived  assets to be disposed of by sale.  Under the new accounting  standard,  asset  write-downs
from  discontinuing a business segment will be treated the same as other assets held for sale.  The new  standard
also broadens the financial  statement  presentation  of  discontinued  operations to include the  disposal of
an asset group  (rather  than a segment of a business). The  standard is  effective  for SCE  beginning  January 1,
2002,  unless  early adoption is implemented.

In July and August 2001, three new accounting standards were issued:  Business Combinations; Goodwill and Other
Intangibles; and Accounting for Asset Retirement Obligations.

The new Business Combinations standard eliminates the pooling-of-interests method, effective June 30, 2001.
After that, all business combinations will be recorded under the purchase method (record goodwill for excess of
costs over the net assets acquired).

The new Goodwill and Other Intangibles standard requires that companies cease amortizing goodwill, effective
January 1, 2002.  Goodwill initially recognized after June 30, 2001, will not be amortized.  Goodwill on the
balance sheet at June 30, 2001, will be amortized until January 1, 2002.  Under the new standard, goodwill will
be tested for impairment using a fair-value approach when events or circumstances occur indicating that
impairment might exist.  Also, a benchmark assessment for goodwill is required within six months of the date of
adoption of the standard.

The Accounting for Asset Retirement Obligations standard requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is incurred.  When the liability is
initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived
asset.  Over time, the liability is increased to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset.  Upon settlement of the liability, an entity either
settles the obligation for its recorded amount or incurs a gain or loss upon settlement.  The standard is
effective for fiscal years beginning after June 15, 2002, with earlier application encouraged.

SCE is studying the impact of the new Asset Retirement Obligations and Asset Impairment standards, and is unable
to predict at this time the effect on its financial statements.  SCE does not anticipate any material impact on
its results of operations or financial position from the other two new accounting standards.

Note 2.  Liquidity Crisis

SCE's liquidity is primarily affected by debt maturities, dividend payments, capital expenditures and power
purchases.  Capital resources include cash from operations and external financings.

Undercollections in the TRA and TCBA mechanisms, coupled with SCE's anticipated near-term capital requirements
and the adverse reaction of the credit markets to regulatory uncertainty regarding SCE's ability to recover its
power procurement costs, materially and adversely affected SCE's liquidity.  As a result of its liquidity crisis,
SCE has taken and is taking steps to conserve cash so that it can continue to provide service to its customers.
As a part of this process, beginning in January 2001, SCE suspended payments of certain obligations for principal
and interest on outstanding debt and for purchased power.  As of October 31, 2001, SCE had $3.3 billion in
obligations that were unpaid and overdue including: (1) $940 million to the PX or the ISO; (2) $1.2 billion to
QFs; (3) $231 million in PX energy credits for energy service providers; (4) $531 million of matured commercial
paper; and (5) $400 million of principal on its 5-7/8% and 6-1/2% senior unsecured notes which were issued prior
to the energy crisis.  As applicable, unpaid obligations will continue to accrue interest.  At October 31, 2001,
SCE had estimated cash reserves of approximately $2.7 billion (after deducting $530 million of designated funds),
which is approximately $650 million less than its outstanding unpaid obligations and preferred stock dividends in



Page 14


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

arrears (see below),  not including its credit  facilities that are subject to forbearance agreements. If SCE
is found responsible for purchases of power by the ISO for delivery to SCE's customers on or after January 18,
2001, SCE's unpaid  obligations  as of October 31, 2001,  could  increase by as much as $1.6 billion.  This
amount  could  increase or  decrease  depending  on CPUC or FERC decisions regarding payments and refunds.
See additional  discussion in Note 3. These stated  amounts  representing  past or future  obligations  for
purchased power,  PX energy  credits and certain other items  include  amounts that are in dispute, and the
publishing  of these  amounts is not an  admission  by SCE of liability for any disputed amounts.

SCE's failure to pay when due the principal amount of the 5-7/8% and 6-1/2% senior unsecured notes constituted a
default on each series, entitling those noteholders to exercise their remedies (see Note 5).

SCE has been unable to obtain financing of any kind.  As a result of investors' concerns regarding the California
energy crisis and its impact on SCE's liquidity and overall financial condition, SCE has repurchased $550 million
of pollution-control bonds that could not be remarketed in accordance with their terms.  These bonds may be
remarketed in the future if SCE's credit status improves sufficiently.  In addition, SCE has been unable to
market its commercial paper and other short-term financial instruments.  As of March 31, 2001, SCE resumed
payment of interest on its debt obligations.  However, since June 30, 2001, SCE has deferred the interest
payments on its quarterly income debt securities (subordinated debentures), as allowed by the terms of the
securities.  All interest in arrears must be paid in full at the end of the deferral period.

In March 2001, the CPUC issued decisions ordering SCE and other investor-owned utilities to pay QFs for power
deliveries on a going forward basis, commencing with April 2001 deliveries, and on the California Procurement
Adjustment (CPA) calculation including the approval of a 3(cent)per kWh rate increase.  One of the CPUC decisions
also modified the formula used in calculating payments to QFs by substituting natural gas index prices based on
deliveries at the Oregon border rather than the index prices at the Arizona border.  The changes apply to all
QFs, where appropriate, regardless of whether they use natural gas or other resources such as solar or wind.

In light of SCE's liquidity crisis, its Board of Directors has not declared quarterly common stock dividends to
SCE's parent, Edison International, since September 2000.  Also, SCE's Board has not declared the regular
quarterly dividends for any of SCE's cumulative preferred stock in 2001.  The total preferred stock dividends in
arrears were $17 million as of October 31, 2001.  Dividends are additionally restricted as detailed in Note 3.

SCE has implemented other cost-cutting measures, such as freezing new hiring and postponing certain capital
expenditures.  SCE's current cost-cutting measures are intended to allow it to continue to operate while efforts
to restore its creditworthiness (such as that contemplated in the CPUC litigation settlement agreement) are
underway.

Unless the court of appeals issues a stay pending appeal (described below) or the settlement is successfully
challenged on appeal, SCE's litigation settlement agreement with the CPUC, if implemented, is expected to allow
SCE to obtain financing which, combined with SCE's increasing cash reserves arising from the 2001 surcharges,
should allow SCE to pay all of its past due obligations by the end of first quarter 2002.  Until these
obligations are paid, resolution of SCE's liquidity crisis and its ability to continue to operate outside
bankruptcy is uncertain.  SCE's independent public accountants' opinion on the accompanying financial statements
includes an explanatory paragraph which states that the issues associated with the California energy crisis
continue to raise substantial doubt about SCE's ability to continue as a going concern.

For a more detailed discussion of the matters discussed above, see Notes 3 through 7.


Page 15


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3.  Regulatory Matters

CPUC Litigation Settlement Agreement

In November 2000, SCE filed a lawsuit against the CPUC in federal district court in California, seeking a ruling
that SCE is entitled to full recovery of its past electricity procurement costs in accordance with the tariffs
filed with the FERC.  By agreement of the parties, a stay of the lawsuit was issued in April 2001 while SCE
sought implementation of legislative, regulatory and executive actions to resolve the California energy crisis
and SCE's related financial and liquidity problems.  On October 5, 2001, the district court entered a stipulated
judgment approving an agreement between the CPUC and SCE to settle the pending lawsuit.

Key elements of the settlement agreement include the following items:

o    The CPUC will establish an account called the procurement-related obligations account (PROACT) as of
     September 1, 2001, which will have an opening balance equal to the amount of SCE's procurement-related
     liabilities as of August 31, 2001 (approximately $6.4 billion), less SCE's cash and cash equivalents as of
     that date (approximately $2.5 billion), and less $300 million.  The opening balance of approximately $3.6
     billion has been verified by the CPUC.

o    During a period beginning on September 1, 2001, and ending on the earlier of the date that SCE has
     recovered all of its procurement-related obligations recorded in the PROACT or December 31, 2005, SCE will
     apply to the PROACT, on a monthly or other basis established by the CPUC, the difference between SCE's
     revenue from retail electric rates (including surcharges) and the costs that SCE is authorized by the CPUC
     to recover in retail electric rates.  Unrecovered obligations in the PROACT will accrue interest from
     September 1, 2001.

o    The parties agree that SCE will recover in retail electric rates its procurement-related obligations in
     the PROACT, with interest, by December 31, 2005.  Subject to certain adjustments, the CPUC will maintain
     current rates (including surcharges) in effect until December 31, 2003, or, if earlier, until the date that
     SCE recovers the entire PROACT balance.  If SCE has not recovered the entire balance by December 31, 2003,
     the unrecovered balance will be amortized for up to an additional two years.  The parties currently project
     that existing retail electric rates, including surcharges and as adjusted to reflect certain costs, will
     likely result in SCE recovering substantially all of its unrecovered procurement-related obligations prior
     to the end of 2003.

o    If the CPUC concludes that it is desirable to authorize a securitized financing of SCE's
     procurement-related obligations, the parties will work together to achieve the securitization.  Proceeds of
     any securitization will be credited to the PROACT when they are actually received.

o    During the period that SCE is recovering its procurement-related obligations, no penalty will be imposed
     by the CPUC on SCE for any noncompliance with CPUC-mandated capital structure requirements.

o    SCE intends to apply for CPUC approval to incur up to $250 million of recoverable costs to acquire
     financial instruments and engage in other transactions intended to hedge fuel cost risks associated with
     SCE's retained generation assets and power purchase contracts with qualifying facilities and other
     utilities.  The CPUC indicated that it will schedule proceedings reasonably promptly and consider SCE's
     application on an expedited basis.


Page 16


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

o    SCE will not declare or pay dividends or other distributions on its common stock (all of which is held by its
     parent) prior to the earlier of the date SCE has recovered all of its procurement-related obligations in the
     PROACT or January 1, 2005.  However, if SCE has not recovered all of its procurement-related obligations by
     December 31, 2003, SCE may apply to the CPUC for consent to resume common stock dividends, and the CPUC will
     not unreasonably withhold its consent.

o    To ensure the ability of SCE to continue to provide adequate service until the effectiveness of SCE's
     next general rate case, SCE may make capital expenditures above the level contained in current rates, up to
     $900 million per year, which will be treated as recoverable costs.

o    Subject to certain qualifications, SCE will cooperate with the CPUC and the California Attorney General
     to pursue and resolve SCE's claims and rights against sellers of energy and related services, SCE's defenses
     to claims arising from any failure to make payments to the PX or ISO, and similar claims by the State of
     California or its agencies against the same adverse parties.  During the recovery period discussed above,
     refunds obtained by SCE related to its procurement-related liabilities will be applied to the balance in the
     PROACT.

The settlement agreement states that one of its purposes is to restore the investment grade creditworthiness of
SCE as rapidly as reasonably practicable so that it will be able to provide reliable electrical service as a
state-regulated entity as it has in the past.  SCE cannot provide assurance that it will regain investment grade
credit ratings by any particular date.

The settlement agreement states that the CPUC shall adopt such decisions or orders it deems necessary to
implement and carry out the provisions of the agreement, with the understanding that the agreement and stipulated
judgment shall be binding and irrevocable upon the parties.  SCE expects that these implementing decisions or
orders will be issued during fourth quarter 2001.

On October 26, 2001, a California consumer group asked a federal court of appeals for a stay of judgment pending
appeal of the federal district court's judgment approving the settlement.  The group alleged that it was denied
due process and that the CPUC had no authority to agree with SCE to violate the statutory rate freeze.  On
October 30, 2001, the court of appeals granted a temporary stay, and instructed the consumer group to return to
district court to argue the merits of the stay.  On November 9, 2001, the district court denied the consumer
group's request for a stay.  The consumer group indicated that it intends to ask the court of appeals for a stay
of judgment pending appeal.  If the stay of judgment pending appeal is granted, or the settlement is successfully
challenged on appeal, the ability of SCE and the CPUC to implement the settlement agreement would be affected
adversely, which in turn would have an adverse effect on SCE's ability to restore its financial condition, repay
its creditors, and avoid an involuntary bankruptcy petition.

CDWR Power Purchases

In accordance with an emergency order signed by the Governor, the CDWR began making emergency power purchases for
SCE's customers on January 18, 2001.  Amounts SCE bills to and collects from its customers for electric power
purchased and sold by the CDWR and through the ISO are remitted directly to the CDWR and are not considered
revenue to SCE.  In February 2001, Assembly Bill 1 (First Extraordinary Session, AB 1X) was enacted into law.
AB 1X authorized the CDWR to enter into contracts to purchase electric power and sell power at cost directly to
retail customers being served by SCE, and authorized the CDWR to issue bonds to finance electricity purchases.

On March 27, 2001,  the CPUC issued an interim  order  requiring SCE to pay the CDWR a per-kWh price equal to
the applicable  generation-related retail rate per kWh for electricity  (based on rates in effect on January 5,
2001), for each kWh the CDWR sells to SCE's customers. The CPUC determined that the


Page 17


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


generation-related retail rate should be equal to the total bundled electric rate (including the 1(cent)per kWh
surcharge adopted by the CPUC on January 4, 2001) less certain nongeneration-related rates or charges.  For the
period January 19 through January 31, 2001, the CPUC ordered SCE to pay the CDWR at a rate of 6.277(cent)per kWh for
power delivered to SCE's customers.  The CPUC determined that the applicable rate component is 7.277(cent)per kWh
(which increased to 10.277(cent)per kWh for electricity delivered after March 27, 2001, due to the 3(cent)surcharge
discussed in Rate Stabilization Proceedings), for electricity delivered by the CDWR to SCE's retail customers
after February 1, 2001, until more specific rates are calculated.  The CPUC ordered SCE to pay the CDWR within 45
days after the CDWR supplies power to retail customers, subject to penalties for each day the payment is late.

On September 4, 2001, the CPUC issued a proposed decision authorizing a CDWR revenue requirement of $12.1 billion
to pay its bonds' costs and energy procurement costs for 2001 and 2002.  The proposed decision states that SCE's
allocated share of this revenue requirement (based on a cost-of-service approach) would be approximately $4
billion, and changes SCE's payment from 10.277(cent)per kWh to 10.03(cent)per kWh.  A balancing account would be
established to record the difference between the two rates, with the difference to be trued up in a subsequent
CPUC order.  In comments filed with the CPUC on September 12, 2001, SCE requested that the CPUC refrain from
adopting a final revenue requirement until hearings are held to determine how the revenue requirement was
calculated and its relationship to SCE's revenue requirement to be determined in the URG proceeding.  In a
November 5, 2001, filing with the CPUC, the CDWR reduced its revenue requirement to $10.0 billion, due to
conservation efforts, lower natural gas prices and other changes in market conditions.  The CPUC has not
determined SCE's share of the $10.0 billion.  A final decision on the URG and CDWR matters is not expected until
early 2002.

SCE believes that the intent of AB 1X was for the CDWR to assume full responsibility for purchasing all power
needed to serve the retail customers of electric utilities, in excess of the output of generating plants owned by
the electric utilities and power delivered to the utilities under existing contracts.  However, the CDWR stated
that it would only purchase power that it considers to be reasonably priced, leaving the ISO to purchase in the
short-term market the additional power necessary to meet system requirements.  The ISO, in turn, took the
position that it will charge SCE for the costs of power it purchases in this manner.  If SCE is found responsible
for purchases of power by the ISO for delivery to SCE's customers on or after January 18, 2001, SCE's
purchased-power costs for the nine months ended September 30, 2001, could increase by as much as $1.6 billion
(which includes bills received for January through July 2001, and an estimate for August and September 2001).
This amount could increase or decrease depending on CPUC or FERC decisions regarding payments and refunds.  In
its March 2001 interim order, the CPUC stated that it cannot assume that the CDWR will pay for the ISO purchases
and that it does not have the authority to order the CDWR to do so.  Litigation among certain power generators,
the ISO and the CDWR (to which SCE is not a party), and proceedings before the FERC (to which SCE is a party),
may result in rulings clarifying the CDWR's financial responsibility for purchases of power.  In April 2001, the
FERC issued an order confirming its February 2001 order that the ISO must have a creditworthy buyer for any
transactions.  SCE has not met the ISO's creditworthiness requirements since its credit ratings were downgraded
in mid-January 2001.  As a result, SCE has protested and returned the bills it has received from the ISO.  On
November 7, 2001, the FERC issued an order directing the ISO to invoice CDWR (within 15 days of the date of the
order) for all transactions it entered into on behalf of SCE's customers.  The ISO was also directed to file a
report with the FERC within 15 days from the date of the order indicating overdue amounts from CDWR and a
schedule for payments of those amounts within three months of the date of the order.  In any event, SCE takes the
position that it is not responsible for purchases of power by the CDWR or the ISO on or after January 18, 2001.
SCE cannot predict the outcome of any of these proceedings or issues.


Page 18


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Status of Transition and Power-Procurement Cost Recovery

The electric utility industry restructuring plan instituted a multi-year freeze on the rates that SCE could
charge its customers and transition cost recovery mechanisms designed to allow SCE to recover its stranded costs
associated with generation-related assets.  California's electric utility industry restructuring statute included
provisions to finance a portion of the stranded costs that residential and small commercial customers would have
paid between 1998 and 2001, which allowed SCE to reduce rates by at least 10% to these customers, effective
January 1, 1998.  These frozen rates (except for the surcharges effective in 2001) were to remain in effect until
the earlier of March 31, 2002, or the date when the CPUC-authorized costs for utility-owned generation assets and
obligations were recovered.  However, between May 2000 and June 2001, the prices charged by generators and other
sellers escalated far beyond what SCE could charge its customers. As a result, SCE incurred a $4 billion
undercollection in transition costs.

SCE's transition costs include power purchases from QF contracts (which are the direct result of prior
legislative and regulatory mandates), recovery of certain generating assets and other costs incurred to provide
service to customers.  Other costs include the recovery of income tax benefits previously flowed through to
customers, postretirement benefit transition costs and accelerated recovery of investment in SCE's nuclear
plants.  Recovery of costs related to power-purchase QF contracts is permitted through the terms of each
contract.  Legislation and regulatory decisions issued prior to the beginning of the rate freeze called for most
of the remaining transition costs to be recovered through the end of the four-year transition period (not later
than March 31, 2002).  Because regulatory and legislative actions that make such recovery probable were not taken
in a timely manner during the energy crisis, as of December 31, 2000, SCE was unable to conclude that the net
regulatory assets related to purchased-power settlements, the unamortized loss on SCE's generating plant sales in
1998, and various other generation regulatory assets were probable of recovery through the rate-making process.
As a result, these balances were written off as a charge to earnings at that time.

There were three sources of revenue available to SCE for transition cost recovery through the TCBA mechanism:
revenue from the sale or valuation of generation assets in excess of book values, net market revenue from the
sale of SCE-controlled generation into the ISO and PX markets and competition transition charge (CTC) revenue.
Revenue from the first two sources has not been available since January 2001.  Net proceeds of the 1998 plant
sales were used to reduce transition costs, which otherwise had been expected to be collected through the TCBA
mechanism.  State legislation enacted in January 2001 prohibits the sale of SCE's remaining generation assets
until 2006.  SCE stopped selling power from its generation into the ISO and PX markets in January 2001, after
SCE's credit ratings were downgraded and the PX suspended SCE's trading privileges.

CTC revenue was determined residually (i.e., CTC revenue was the residual amount remaining from monthly gross
customer revenue under the rate freeze after subtracting the revenue requirements for transmission, distribution,
nuclear decommissioning and public benefit programs, and ISO payments and power purchases from the PX and ISO).
The CTC applied to all customers who were using or began using utility services on or after the CPUC's 1995
restructuring decision date.  Residual CTC revenue was calculated through the TRA mechanism.   In accordance with
the March 27, 2001, rate stabilization decision, both positive and negative residual CTC revenue was transferred
from the TRA to the TCBA on a monthly basis, retroactive to January 1, 1998.  A previous decision had called only
for a transfer of positive residual CTC revenue (TRA overcollections) to the TCBA and there had not been any
positive residual CTC revenue between May 2000 and June 2001.  The cumulative transition cost undercollection (as
recalculated) was $4.0 billion as of September 30, 2001, and $2.9 billion as of December 31, 2000.


Page 19


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Rate Stabilization Proceedings

In January 2000, SCE filed an application with the CPUC proposing rates that would go into effect when the
four-year rate freeze was to end on March 31, 2002, or earlier, depending on the pace of transition cost
recovery.  In December 2000, SCE filed an amended rate stabilization plan application, stating that the statutory
rate freeze had ended in accordance with California law, and requesting the CPUC to approve an immediate 30%
increase to be effective, subject to refund, January 4, 2001.

In January 2001, independent auditors hired by the CPUC issued a report on the financial condition and solvency
of SCE and its affiliates.  The report confirmed what SCE had previously disclosed to the CPUC in public filings
about SCE's financial condition.  The audit report covered, among other things, cash needs, credit relationships,
accounting mechanisms to track stranded cost recovery, the flow of funds between SCE and Edison International,
and earnings of SCE's California affiliates.  In April 2001, the CPUC adopted an order instituting investigation
that reopens the past CPUC decision authorizing the utilities to form holding companies and initiates an
investigation into: whether the holding companies violated CPUC requirements to give priority to the capital
needs of their respective utility subsidiaries; whether ring-fencing actions by Edison International and PG&amp;E
Corporation and their respective nonutility affiliates also violated the requirements to give priority to the
capital needs of their utility subsidiaries; whether the payment of dividends by the utilities violated
requirements that the utilities maintain dividend policies as though they were comparable stand-alone utility
companies; any additional suspected violations of laws or CPUC rules and decisions; and whether additional rules,
conditions, or other changes to the holding company decisions are necessary.  SCE believes the holding company
decision refers to equity investment, not working capital for operating costs.  The CPUC ordered testimony and
briefing on these matters, which SCE filed in May and June 2001.  SCE cannot predict what effects this
investigation or any subsequent actions by the CPUC may have on SCE.

In March 2001, the CPUC ordered a rate increase in the form of a 3(cent)per kWh surcharge applied only to
going-forward electric power procurement costs, effective immediately, and affirmed that a 1(cent)interim surcharge
granted in January 2001 is now permanent.  The 3(cent)surcharge is to be added to the rate paid to the CDWR.
Although the 3(cent)increase was authorized as of March 27, 2001, the surcharge was not collected in rates until the
CPUC established a rate design in early June 2001.

Also, in the March 2001 order, the CPUC granted a petition previously filed by The Utility Reform Network and
directed that the balance in SCE's TRA account, whether over or undercollected, be transferred on a monthly basis
to the TCBA, retroactive to January 1, 1998.  Previous rules called only for TRA overcollections (residual CTC
revenue) to be transferred to the TCBA.  The CPUC also ordered SCE to transfer the coal and hydroelectric
balancing account overcollections to the TRA on a monthly basis before any transfer of residual CTC revenue to
the TCBA, retroactive to January 1, 1998.  Previous rules called for overcollections in these two balancing
accounts to be transferred directly to the TCBA on an annual basis.  Based upon the transfer of balances into the
TCBA, the CPUC denied SCE's December 2000 filing to have the current rate freeze end, and stated that the
four-year rate freeze will not end until recovery of all specified transition costs or March 31, 2002; and that
balances in the TRA cannot be recovered after the end of the rate freeze.  The CPUC also said that it will
monitor the balances remaining in the TCBA and consider how to address remaining balances in the ongoing
proceedings.  In accordance with the October 2001 settlement with the CPUC, it is expected that the TCBA
mechanism will be discontinued and the PROACT mechanism will be established retroactive to August 31, 2001.

Utility Retained Generation Proceeding

In order to implement the CPA and Rate Stabilization decisions, SCE filed a comprehensive proposal for new
cost-of-service ratemaking for utility retained generation through the end of 2002.  The URG proposal calls for
balancing accounts for SCE-owned generation, QF and interutility contracts,


Page 20


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

procurement costs and ISO charges based on either actual or CPUC-authorized revenue requirements.  Under the
proposal, the four new balancing accounts would be effective January 1, 2001, for capital-related costs, and
February 1, 2001, for non-capital-related costs.  In addition, SCE's unamortized nuclear investment would be
amortized and recovered in rates over a 10-year period effective January 1, 2001.  Should this application be
approved, SCE expects to reestablish for financial reporting purposes its unamortized nuclear investment and
related flow-through taxes as regulatory assets with a corresponding credit to earnings.  Hearings were held in
July 2001.  A final decision is not expected until early 2002.

Wholesale Electricity Markets

In October 2000, SCE filed a joint petition urging the FERC to immediately find the California wholesale
electricity market to be not workably competitive, immediately impose a cap on the price for energy and ancillary
services, and institute further expedited proceedings regarding the market failure, mitigation of market power,
structural solutions and responsibility for refunds.  In December 2000, the FERC took limited action and failed
to impose a price cap.  SCE filed an emergency petition in the federal Court of Appeals challenging the FERC
order and requesting the FERC to immediately establish cost-based wholesale rates.  The Court denied SCE's
petition in January 2001.

In its December 2000 order, the FERC established an "underscheduling" penalty applicable to scheduling
coordinators that do not schedule sufficient resources to supply 95% of their respective loads.  In May 2001, the
FERC indicated that it will make a determination regarding the suspension of the underscheduling penalty in a
future order in response to a complaint filed by SCE that asked the FERC to eliminate the penalty.  As of October
31, 2001, SCE's share of the accumulated penalties were estimated to be as much as $360 million.  The ISO has not
billed SCE for any amounts associated with the underscheduling penalty.  SCE cannot predict the outcome of this
matter.

On April 25, 2001, after months of extremely high power prices, the FERC issued an order providing for energy
price controls during ISO Stage 1 or greater power emergencies (7% or less in reserve power).  The order
establishes an hourly clearing price based on the costs of the least efficient generating unit during the
period.  Effective June 20, 2001, the FERC expanded the April 25, 2001, order to include non-emergency periods
and price mitigation in the 11-state western region.  The latest order is in effect until September 30, 2002.

After unsuccessful settlement negotiations among utilities, power sellers and state representatives, on July 25,
2001, the FERC issued an order that limits potential refunds from alleged overcharges to the ISO and PX spot
markets during the period from October 2, 2000, through June 20, 2001, and adopted a refund methodology based on
daily spot market gas prices.  An administrative law judge will conduct evidentiary hearings on this matter.  SCE
cannot predict the amount of any potential refunds.  Under the settlement of litigation with the CPUC, refunds
will be applied to the balance in the PROACT.

Note 4.  Financial Instruments

SCE's risk management policy allows the use of derivative financial instruments to manage financial exposure on
its investments, fluctuations in interest rates and energy prices, but prohibits the use of these instruments for
speculative or trading purposes.

SCE used the mark-to-market accounting method for its gas call options, which were used to mitigate SCE's
transition cost recovery exposure to increases in energy prices.  Gains and losses from monthly changes in market
prices were recorded as income or expense.  In addition, the options' costs and market price changes were
included in the TCBA.  As a result, the mark-to-market gains or losses had


Page 21


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

no effect on earnings.  In October 2000, SCE sold its gas call options resulting in a $190 million gain.  The
options covered various periods through 2001.  The gains were credited to the TCBA.

The PX block forward market allowed SCE to purchase monthly blocks of energy and ancillary services for six days
a week (excluding Sundays and holidays) for 8 to 16 hours a day, up to 12 months in advance of the delivery
date.

SCE purchased block forward energy contracts through the PX, with various terms and prices, to hedge its exposure
to fluctuations in energy prices.  Due to the downgrades in SCE's credit ratings and SCE's failure to pay its
obligations to the PX, the PX suspended SCE's market trading privileges and sought to liquidate SCE's block
forward contracts.  On February 2, 2001, SCE's motion for a preliminary injunction was denied, freeing the PX to
liquidate the contracts and apply the proceeds to amounts owed by SCE to the PX.  On the same day, the state
seized the contracts for the benefit of the state before the PX could sell them.  See further discussion below.

SCE also has bilateral forward contacts, which are considered normal purchases under accounting rules.  Due to
its deteriorating credit ratings, SCE has been unable to purchase additional bilateral forward contracts, and, in
early 2001, the counterparties terminated $379 million (nominal value) of SCE's contracts.  At September 30,
2001, SCE's bilateral forward contracts had a nominal value of $291 million.  SCE is exposed to credit loss in
the event of nonperformance by the counterparties to its bilateral forward contracts, but does not expect the
counterparties to fail to meet their obligations.  The counterparties are required to post collateral depending
on the creditworthiness of each counterparty.  SCE is exposed to market risk resulting from changes in the spot
market price for power.

SCE used an interest rate swap to reduce the potential impact of interest rate fluctuations on floating-rate
long-term debt.  At December 31, 2000, and September 30, 2000, SCE had an interest rate swap agreement which
fixed the interest rate at 5.585% for $196 million of debt due 2008; the receive rate on the swap averaged 3.839%
in 2000.  As a result of the downgrade in SCE's credit rating below the level allowed under the interest rate
hedge agreement, on January 5, 2001, the counterparty to this interest rate swap terminated the agreement.  As a
result of the termination of the swap, SCE is paying a floating rate on $196 million of its debt due 2008.  The
realized loss of $26 million is being amortized over a period ending in 2008.

On January 1, 2001, SCE adopted a new accounting standard for derivative instruments and hedging activities.  See
Note 1 for a further discussion.  On the implementation date, SCE recorded its interest rate swap agreement
(terminated January 5, 2001) and its block forward power-purchase contracts at fair value on its balance sheet.
As discussed above, on February 2, 2001, the state seized the contracts, which at that time had an unrealized
gain of approximately $500 million.  On September 30, 2001, a federal appeals court ruled that the Governor of
California acted illegally when he seized the power contracts held by SCE.  In conjunction with its settlement
agreement with the CPUC, SCE has agreed to release any claim for compensation against the state for these
contracts.



Page 22


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair values of financial instruments were:

                                              September 30,            December 31,          September 30,
       In millions                                2001                     2000                  2000
- ---------------------------------------------------------------------------------------------------------------

                                             Cost       Fair          Cost       Fair       Cost       Fair
       Instrument                            Basis      Value         Basis      Value      Basis      Value
- ---------------------------------------------------------------------------------------------------------------

       Financial assets:
       Decommissioning trusts              $ 1,717    $ 2,268       $ 1,720    $ 2,505    $ 1,774    $ 2,542
       Gas call options                         --         --            --         --         19        251

       Financial liabilities:
       DOE decommissioning and
          decontamination fees                  36         27            36         31         40         33
       Interest rate swap                       --         --            --         21         --         13
       Short-term debt                       2,131      2,032         1,451      1,339      1,276      1,276
       Long-term debt                        3,166      3,120         5,631      5,178      4,807      4,653
       Long-term debt classified as
          due within one year                2,797      2,678           646        632        647        651
       Preferred stock subject to
          mandatory redemption                 151         75           256        157        256        250
       Preferred stock to be redeemed
          within one year                      105         53            --         --         --         --
- ---------------------------------------------------------------------------------------------------------------


Financial assets are carried at their fair values based on quoted market prices.  Financial liabilities are
recorded at cost.  Financial liabilities' fair values are based on: quoted market prices for the interest rate
swap; brokers' quotes for short-term debt, long-term debt and preferred stock; and discounted future cash flows
for U.S. Department of Energy (DOE) decommissioning and decontamination fees.  Due to their short maturities,
amounts reported for cash equivalents approximated fair value at September 30, 2001, December 31, 2000, and
September 30, 2000.

Gross unrealized holding gains on debt and equity investments were:

                                                      September 30,       December 31,       September 30,
       In millions                                        2001                2000               2000
- -------------------------------------------------------------------------------------------------------------

       Decommissioning trusts:
       Municipal bonds                                  $  141              $  193             $  202
       Stocks                                              252                 384                383
       U.S. government issues                               89                 136                126
       Short-term and other                                 69                  72                 57
- -------------------------------------------------------------------------------------------------------------

       Total                                            $  551              $  785             $  768
- -------------------------------------------------------------------------------------------------------------


There were no unrealized holding losses for the periods presented.

Note 5.  Long-Term Debt

California law prohibits SCE from incurring or guaranteeing debt for its nonutility affiliates.

Almost all SCE properties are subject to a trust indenture lien.  SCE has pledged first and refunding mortgage
bonds as security for borrowed funds obtained from pollution control bonds issued by government agencies.  SCE
uses these proceeds to finance construction of pollution control facilities.  Bondholders have limited discretion
in redeeming certain pollution-control bonds, and SCE has arrangements with securities dealers to remarket or
purchase them if necessary.  As a result of investors'


Page 23


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

concerns regarding SCE's liquidity difficulties and overall financial condition, SCE had to repurchase $550
million of pollution control bonds in December 2000 and early 2001 that could not be remarketed in accordance
with their terms.  In addition, some of the long-term debt have subjective acceleration clauses.

In January 2001, three rating agencies lowered their credit ratings of SCE to substantially below investment
grade.

Debt premium, discount and issuance expenses are amortized over the life of each issue.  Under CPUC rate-making
procedures, debt reacquisition expenses are amortized over the remaining life of the reacquired debt or, if
refinanced, the life of the new debt.

Commercial paper intended to be refinanced for a period exceeding one year and used to finance nuclear fuel
scheduled to be used more than one year after the balance sheet date is classified as long-term debt.

In December 1997, SCE Funding LLC, a special purpose entity, issued $2.5 billion of rate reduction notes on
behalf of SCE.  These notes were issued to finance the 10% rate reduction mandated by state law.  The proceeds of
the rate reduction notes were used by SCE Funding LLC to purchase from SCE an enforceable right known as
transition property.  Transition property is a current property right created by the restructuring legislation
and a financing order of the CPUC and consists generally of the right to be paid a specified amount from
nonbypassable rates charged to residential and small commercial customers.  The rate reduction notes are being
repaid over 10 years through these nonbypassable residential and small commercial customer rates that constitute
the transition property purchased by SCE Funding LLC.  The notes are secured by the transition property and are
not secured by, or payable from, assets of SCE or Edison International.  SCE used the proceeds from the sale of
the transition property to retire debt and equity securities.  Although, as required by accounting principles
generally accepted in the United States, SCE Funding LLC is consolidated with SCE and the rate reduction notes
are shown as long-term debt in the consolidated financial statements, SCE Funding LLC is legally separate from
SCE.  The assets of SCE Funding LLC are not available to creditors of SCE or Edison International and the
transition property is legally not an asset of SCE or Edison International.  Due to SCE's credit downgrade, in
January 2001, SCE began remitting its customer collections related to the rate-reduction notes on a daily basis.



Page 24


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-term debt consisted of:

                                                         September 30,         December 31,         September 30,
      In millions                                            2001                  2000                 2000
- -------------------------------------------------------------------------------------------------------------------

      First and refunding mortgage bonds:
         2002 - 2026 (5.625% to 7.25%)                    $ 1,175               $ 1,175              $ 1,175
      Rate reduction notes:
        2002 - 2007 (6.22% to 6.42%)                        1,550                 1,724                1,795
      Pollution control bonds:
         2008 - 2040 (5.125% to 7.2% and variable)          1,217                 1,216                1,415
      Bonds repurchased                                      (550)                 (420)                  --
      Funds held by trustees                                  (20)                  (20)                (219)
      Debentures and notes:
         2001 - 2029 (5.875% to 7.625% and variable)        2,450                 2,450                1,150
      Subordinated debentures:
         2044 (8.375%)                                        100                   100                  100
      Commercial paper for nuclear fuel                        66                    79                   64
      Long-term debt classified as due within one year     (2,797)                 (646)                (647)
      Unamortized debt discount - net                         (25)                  (27)                 (26)
- -------------------------------------------------------------------------------------------------------------------

      Total                                               $ 3,166               $ 5,631              $ 4,807
- -------------------------------------------------------------------------------------------------------------------


Long-term debt maturities and sinking-fund requirements for the five twelve-month periods following September 30,
2001, are: 2002 - $947 million; 2003 - $572 million; 2004 - $1.4 billion; 2005 - $247 million; and 2006 -
$447 million.  These projections assume no acceleration of payments arising from default.  See further discussion
below.

As a result of its liquidity crisis, SCE has taken steps to conserve cash so that it can continue to provide
service to its customers.  As a part of this process, SCE has suspended payments of certain obligations.  As of
October 31, 2001, SCE has failed to pay $400 million of maturing principal on its 5-7/8% and 6-1/2% senior
unsecured notes.  SCE's failure to pay when due the principal amount of the 5-7/8% and 6-1/2% senior unsecured
notes constituted a default on each series, entitling those noteholders to exercise their remedies.  Such failure
and the failure to pay commercial paper when due could also constitute an event of default on all the other
series of senior unsecured notes if the trustee or holders of 25% in principal amount of the notes give a notice
demanding that the default be cured, and SCE does not cure the default within 30 days.  Such failures are also an
event of default under SCE's credit facilities and bilateral credit agreements, entitling those lenders to
exercise their remedies including potential acceleration of the outstanding borrowings of $1.65 billion (see Note
6).  If a notice of default is received, SCE could cure the default only by paying $531 million in overdue
principal to holders of commercial paper and $400 million to the holders of the 5-7/8% and 6-1/2% senior
unsecured notes which were issued prior to the energy crisis.  Making such payment would further impact SCE's
liquidity.  If a notice of default were received and not cured, and the trustee or noteholders were to declare an
acceleration of the outstanding principal amount of the senior unsecured notes, SCE would not have the cash to
pay the obligation and could be forced to declare bankruptcy.  As a result of the default of the two series of
senior unsecured notes, SCE's other senior unsecured notes and subordinated debentures have been classified as
due within one year in the accompanying financial statements.  Since June 30, 2001, SCE has deferred the interest
payments on its quarterly income debt securities (subordinated debentures), as allowed by the terms of the
securities.  All interest in arrears must be paid in full at the end of the deferral period.


Page 25


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6.  Short-Term Debt

Short-term debt is used to finance fuel inventories, balancing account undercollections and general cash
requirements, including power purchase payments.  Commercial paper intended to finance nuclear fuel scheduled to
be used more than one year after the balance sheet date is classified as long-term debt in connection with
refinancing terms under five-year term lines of credit with commercial banks.

Short-term debt consisted of:

                                                 September 30,         December 31,          September 30,
       In millions                                   2001                  2000                  2000
- -------------------------------------------------------------------------------------------------------------

       Commercial paper                           $    541               $   700              $   764
       Bank loans                                    1,650                   835                  410
       Floating rate notes                              --                    --                  175
       Other                                             6                    --                   --
       Amount reclassified as long-term debt           (66)                  (79)                 (64)
       Unamortized discount                             --                    (5)                  (9)
- -------------------------------------------------------------------------------------------------------------

       Total                                       $ 2,131               $ 1,451              $ 1,276
- -------------------------------------------------------------------------------------------------------------

       Weighted-average interest rate                6.2%                  6.9%                  6.7%


At September 30, 2001, SCE had lines of credit (including bilateral credit agreements) totaling $1.65 billion.
As of January 2001, SCE had borrowed the entire $1.65 billion in funds available under its credit lines.  The
proceeds were used in part to repurchase $550 million of pollution control bonds; the balance was retained as a
liquidity reserve.  When available, the lines can be drawn at negotiated or bank index rates.

SCE's $200 million, 364-day credit facility and $400 million in bilateral credit agreements expire on March 29,
2002.  SCE's $1.05 billion, five-year credit facility expires in May 2002.  The forbearance agreements on the
$1.65 billion in credit facilities expire on March 29, 2002.

SCE has conserved cash by deferring payment of $531 million of matured commercial paper as of October 31, 2001.

Note 7.  Preferred Stock

Authorized shares of preferred and preference stock are:  $25 cumulative preferred - 24 million; $100 cumulative
preferred - 12 million; and preference - 50 million.  All cumulative preferred stocks are redeemable.

Mandatorily redeemable preferred stocks are subject to sinking-fund provisions.  When preferred shares are
redeemed, the premiums paid are charged to common equity.

Preferred stock redemption requirements for the five twelve-month periods following September 30, 2001, are: 2002
- - $105 million; 2003 - $9 million; 2004 - $9 million; 2005 - $9 million; and 2006 - $9 million.



Page 26


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cumulative preferred stock consisted of:

                                                                      September 30,     December 31,     September 30,
Dollars in millions, except per share amounts                             2001              2000              2000
- -----------------------------------------------------------------------------------------------------------------------

                                              September 30, 2001
                                       ----------------------------------
                                           Shares         Redemption
                                       Outstanding            Price
                                       ---------------    ---------------

Not subject to mandatory redemption:
$25 par value:
4.08% Series                             1,000,000      $   25.50         $   25         $   25           $  25
4.24                                     1,200,000          25.80             30             30              30
4.32                                     1,653,429          28.75             41             41              41
4.78                                     1,296,769          25.80             33             33              33
- -----------------------------------------------------------------------------------------------------------------------

Total                                                                     $  129         $  129           $ 129
- -----------------------------------------------------------------------------------------------------------------------


Subject to mandatory redemption:
$100 par value:
6.05% Series                               750,000      $  100.00         $   75         $   75           $  75
6.45                                     1,000,000         100.00            100            100             100
7.23                                       807,000         100.00             81             81              81

Preferred stock to be redeemed within one year                              (105)            --              --
- -----------------------------------------------------------------------------------------------------------------------

Total                                                                     $  151         $  256           $ 256
- -----------------------------------------------------------------------------------------------------------------------


There were no preferred stock issuances or redemptions for the three, nine and twelve months ended September 30,
2001, and 2000.

In 2001, SCE's Board has not declared the regular quarterly dividends for any of SCE's cumulative preferred
stock.  As of October 31, 2001, SCE's preferred stock dividends in arrears were $17 million.  As long as these
dividends remain unpaid, SCE cannot declare or pay future cash dividends on any series of preferred stock or on
its common stock, and SCE cannot repurchase any shares of its common stock.  As a result of the $2.5 billion
charge to earnings during fourth quarter 2000, SCE's retained earnings are now in a deficit position and
therefore, under California law, SCE will be unable to pay dividends as long as a deficit remains.  Dividends are
additionally restricted as detailed in Note 3.

Note 8.  Income Taxes

SCE and its subsidiaries are included in Edison International's consolidated federal income tax and combined
state franchise tax returns.  Under an income tax allocation agreement approved by the CPUC, SCE calculates its
tax liability on a stand-alone basis.

Income tax expense includes the current tax liability from operations and the change in deferred income taxes
during the year.  Investment tax credits are amortized over the lives of the related properties.



Page 27


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of the net accumulated deferred income tax liability were:

                                                               September 30,    December 31,        September 30,
In millions                                                        2001             2000                2000
- -------------------------------------------------------------------------------------------------------------------

Deferred tax assets:
Property-related                                                $    197         $    277            $    193
Unrealized gains and losses                                          384              420                 436
Investment tax credits                                                75               81                  90
Regulatory balancing accounts                                      1,869            1,763                  94
Decommissioning                                                       79               98                 103
Accrued charges                                                      443              379                 311
Unbilled revenue                                                     181              101                 187
Other                                                                137               56                  80
- -------------------------------------------------------------------------------------------------------------------

Total                                                            $ 3,365          $ 3,175             $ 1,494
- -------------------------------------------------------------------------------------------------------------------

Deferred tax liabilities:
Property-related                                                 $ 2,259          $ 2,184             $ 2,345
Capitalized software costs                                           228              264                 251
Regulatory balancing accounts                                      1,907            1,632               1,179
Unrealized gains and losses                                          281              317                 333
Other                                                                331              242                 200
- -------------------------------------------------------------------------------------------------------------------

Total                                                            $ 5,006          $ 4,639             $ 4,308
- -------------------------------------------------------------------------------------------------------------------

Accumulated deferred income taxes - net                          $ 1,641          $ 1,464             $ 2,814
- -------------------------------------------------------------------------------------------------------------------

Classification of accumulated deferred income taxes:
Included in deferred credits                                     $ 2,234          $ 2,009             $ 3,360
Included in current assets                                           593              545                 546

The current and deferred components of income tax expense were:

                                              3 Months Ended           9 Months Ended            12 Months Ended
                                               September 30,            September 30,             September 30,
- -------------------------------------------------------------------------------------------------------------------

In millions                                  2001        2000         2001        2000        2001         2000
- -------------------------------------------------------------------------------------------------------------------

Current:
Federal                                     $ 322       $ (48)       $  27       $ 235   $    (312)       $ 271
State                                          --         (13)          --          56         (56)          66
- -------------------------------------------------------------------------------------------------------------------

                                              322         (61)          27         291        (368)         337
- -------------------------------------------------------------------------------------------------------------------

Deferred - federal and state:
Accrued charges                               (16)        (17)         (50)        (66)       (117)        (103)
Contributions in aid of construction           (6)         (5)          (9)         (6)        (14)         (11)
Property related                               60         (46)         178        (139)         15         (185)
Investment and energy tax credits - net        (2)        (10)          (5)        (31)        (15)         (43)
Operating loss carryforwards                  102          --          (10)         --         (24)          --
Regulatory assets                             (52)         11         (133)         25          93            9
Regulatory balancing accounts                 140         363          151         397        (986)         570
State tax privilege year                      (27)          4          (18)          7           5            4
Unbilled revenue                              (79)        (70)         (90)        (65)         (4)         (63)
Decommissioning fund withdrawals               10           6           21          12          26           15
Other                                          (7)         (6)           6           1           9            5
- -------------------------------------------------------------------------------------------------------------------

                                              123         230           41         135      (1,012)         198
- -------------------------------------------------------------------------------------------------------------------

Total                                       $ 445       $ 169        $  68       $ 426    $ (1,380)       $ 535
- -------------------------------------------------------------------------------------------------------------------




Page 28


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The composite federal and state statutory income tax rate was 40.551% for all periods presented.

The federal statutory income tax rate is reconciled to the effective tax rate below:

                                              3 Months Ended           9 Months Ended            12 Months Ended
                                               September 30,            September 30,             September 30,
- -------------------------------------------------------------------------------------------------------------------

                                              2001        2000         2001        2000        2001         2000
- -------------------------------------------------------------------------------------------------------------------

Federal statutory rate                        35.0%       35.0%        35.0%       35.0%       35.0%        35.0%
Capitalized software                          (0.2)       (0.8)        (4.3)       (0.8)        0.3         (1.0)
Property-related and other                    --           9.4          3.3         9.4        (3.5)         8.6
Investment and energy tax credits             (0.2)       (3.0)        (2.6)       (3.5)        0.4         (3.7)
State tax - net of federal deduction           5.8         8.3          9.2         8.0         4.4          8.0
- -------------------------------------------------------------------------------------------------------------------

Effective tax rate                            40.4%       48.9%        40.6%       48.1%       36.6%        46.9%
- -------------------------------------------------------------------------------------------------------------------


Note 9.  Employee Compensation and Benefit Plans

Employee Savings Plan

SCE has a 401(k) defined-contribution savings plan designed to supplement employees' retirement income.  The plan
received employer contributions of $8 million, $22 million and $29 million for the three, nine and twelve months
ended September 30, 2001, respectively, and $8 million, $23 million and $29 million for the three, nine and
twelve months ended September 30, 2000, respectively.

Pension Plan

SCE has a noncontributory, defined-benefit pension plan that covers employees meeting minimum service
requirements.  SCE recognizes pension expense as calculated by the actuarial method used for ratemaking.  In
April 1999, SCE adopted a cash balance feature for its pension plan.



Page 29


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information on plan assets and benefit obligations is shown below:

                                                        9 Months Ended         Year Ended         9 Months Ended
                                                         September 30,        December 31,         September 30,
In millions                                                  2001                 2000                 2000
- -------------------------------------------------------------------------------------------------------------------

Change in benefit obligation
Benefit obligation at beginning of period                  $ 2,200              $ 2,075              $ 2,075
Service cost                                                    51                   63                   48
Interest cost                                                  114                  155                  117
Actuarial loss                                                  --                   90                   --
Benefits paid                                                 (151)                (183)                (142)
- -------------------------------------------------------------------------------------------------------------------

Benefit obligation at end of period                        $ 2,214              $ 2,200              $ 2,098
- -------------------------------------------------------------------------------------------------------------------

Change in plan assets
Fair value of plan assets at beginning of period           $ 3,067              $ 3,078              $ 3,078
Actual return on plan assets                                  (374)                 143                  204
Employer contributions                                          --                   29                   29
Benefits paid                                                 (151)                (183)                (142)
- -------------------------------------------------------------------------------------------------------------------

Fair value of plan assets at end of period                 $ 2,542              $ 3,067              $ 3,169
- -------------------------------------------------------------------------------------------------------------------

Funded status                                             $    328             $    867              $ 1,071
Unrecognized net loss (gain)                                  (158)                (745)              (1,012)
Unrecognized transition obligation                              19                   22                   25
Unrecognized prior service cost                                106                  118                  120
- -------------------------------------------------------------------------------------------------------------------

Recorded asset                                            $    295             $    262             $    204
- -------------------------------------------------------------------------------------------------------------------

Discount rate                                                7.25%                7.25%                7.75%
Rate of compensation increase                                5.00%                5.00%                5.00%
Expected return on plan assets                               8.50%                8.50%                7.50%


The components of pension expense were:

                                              3 Months Ended          9 Months Ended            12 Months Ended
In millions                                    September 30,           September 30,             September 30,
- -------------------------------------------------------------------------------------------------------------------

                                              2001        2000        2001        2000         2001       2000
- -------------------------------------------------------------------------------------------------------------------

Service cost                                $   17      $   16      $   51      $   48       $   66     $   64
Interest cost                                   38          39         114         117          152        149
Expected return on plan assets                 (63)        (57)       (189)       (171)        (284)      (215)
Net amortization and deferral                   (3)         (8)         (9)        (24)         (25)       (19)
- -------------------------------------------------------------------------------------------------------------------
Pension expense (benefit) under
   accounting standards                        (11)        (10)        (33)        (30)         (91)       (21)
Regulatory adjustment - deferred                11          10          33          30           91         32
- -------------------------------------------------------------------------------------------------------------------
Net pension expense recognized               $  --       $  --       $  --       $  --        $  --     $   11
- -------------------------------------------------------------------------------------------------------------------


Postretirement Benefits Other Than Pensions

Employees retiring at or after age 55 with at least 10 years of service are eligible for postretirement health
and dental care, life insurance and other benefits.



Page 30


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information on plan assets and benefit obligations is shown below:

                                                   9 Months Ended          Year Ended           9 Months Ended
                                                    September 30,         December 31,           September 30,
In millions                                             2001                  2000                   2000
- -------------------------------------------------------------------------------------------------------------------

Change in benefit obligation
Benefit obligation at beginning of period            $ 1,762               $ 1,462                $ 1,462
Service cost                                              33                    39                     27
Interest cost                                             99                   121                     87
Actuarial loss                                            --                   202                     --
Benefits paid                                            (51)                  (62)                   (45)
- -------------------------------------------------------------------------------------------------------------------

Benefit obligation at end of period                  $ 1,843               $ 1,762                $ 1,531
- -------------------------------------------------------------------------------------------------------------------

Change in plan assets
Fair value of plan assets at beginning of period     $ 1,200                 1,283                $ 1,283
Actual return on plan assets                              78                   (40)                    69
Employer contributions                                    15                    19                     63
Benefits paid                                            (51)                  (62)                   (45)
- -------------------------------------------------------------------------------------------------------------------

Fair value of plan assets at end of period           $ 1,242               $ 1,200                $ 1,370
- -------------------------------------------------------------------------------------------------------------------

Funded status                                       $   (601)             $   (562)              $   (161)
Unrecognized net loss (gain)                             141                   141                   (204)
Unrecognized transition obligation                       305                   323                    328
- -------------------------------------------------------------------------------------------------------------------

Recorded asset (liability)                          $   (155)            $     (98)             $     (37)
- -------------------------------------------------------------------------------------------------------------------

Discount rate                                            7.5%                  7.5%                   8.0%
Expected return on plan assets                           8.2%                  8.2%                   7.5%


Expense components were:
                                              3 Months Ended          9 Months Ended             12 Months Ended
In millions                                    September 30,           September 30,              September 30,
- -------------------------------------------------------------------------------------------------------------------

                                             2001        2000        2001         2000         2001        2000
- -------------------------------------------------------------------------------------------------------------------

Service cost                                $  11      $    9       $  33        $  27        $  45       $  40
Interest cost                                  33          29          99           87          133         118
Expected return on plan assets                (26)        (23)        (78)         (69)        (115)        (91)
Net amortization and deferral                   6           6          18           18           27          24
- -------------------------------------------------------------------------------------------------------------------

Total expense                               $  24       $  21       $  72        $  63        $  90       $  91
- -------------------------------------------------------------------------------------------------------------------


The assumed rate of future increases in the per-capita cost of health care benefits is 11.0% for 2001, gradually
decreasing to 5.0% for 2008 and beyond.  Increasing the health care cost trend rate by one percentage point would
increase the accumulated obligation as of September 30, 2001, by $290 million and annual aggregate service and
interest costs by $31 million.  Decreasing the health care cost trend rate by one percentage point would decrease
the accumulated obligation as of September 30, 2001, by $250 million and annual aggregate service and interest
costs by $25 million.

Stock Option Plans

In 1998, Edison International shareholders approved the Edison International Equity Compensation Plan, replacing
the Long-Term Incentive Compensation Program (prior program), which had been adopted by shareholders in 1992.
Under the prior program, options on 1.4 million shares of Edison International common stock remain outstanding to
officers and senior managers of SCE.  The 1998 plan authorizes a limited annual award of Edison International
common shares and options on shares.  The annual


Page 31


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

authorization is cumulative, allowing subsequent issuance of previously unutilized awards.  In May 2000, Edison
International adopted an additional plan, the 2000 Equity Plan, which did not require shareholder approval.

Under the 1998 and 2000 plans, options on 8.2 million shares of Edison International common stock are currently
outstanding to officers and senior managers of SCE.

Each option may be exercised to purchase one share of Edison International common stock, and is exercisable at a
price equivalent to the fair market value of the underlying stock at the date of grant.  Options generally expire
10 years after the date of grant, and vest over a period of up to five years.  Stock option awards made in lieu
of grants for 2001 and 2002 (Special Option Grants) may not be exercised before five years have passed unless the
stock appreciates to $25 (based on the average of 20 consecutive trading day closing prices).

A portion of the 2000 executive long-term incentives was awarded in the form of performance shares.  The
performance shares were restructured as retention incentives in December 2000, which will pay as a combination of
Edison International common stock and cash if the executive remains employed at the end of the performance
period.  Additional performance shares were awarded in January 2001.  The 2001 performance shares vest December
31, 2003, and payment will be made in January 2004, half in shares of Edison International common stock and half
in cash.  The cash amount is the product of the number of shares to be paid in cash, times the average of the
high and low common stock price on the last market day of the year.  Retention Incentive Deferred Stock Units
were awarded on March 12, 2001.  These vest no later than March 12, 2003, and are paid out on that date in shares
of Edison International common stock, unless before that date the stock price averages at least $20 for 20
consecutive trading days.  In that case the units will vest and pay out on the later of March 12, 2002, or the
day following the period in which the $20 average price was achieved.

Edison International stock options awarded prior to 2000 include a dividend equivalent feature.  Dividend
equivalents on stock options issued after 1993 and prior to 2000 are accrued to the extent dividends are declared
on Edison International common stock, and are subject to reduction unless certain performance criteria are met.
Only a portion of the 1999 Edison International stock option awards included a dividend equivalent feature.  The
2000 stock option awards did not include dividend equivalents.  Future stock option awards are not expected to
include dividend equivalents.

Options issued after 1997 generally vest in 25% annual installments over a four-year period, although vesting for
the Special Option Grants does not begin until May 2002.  Stock options issued prior to 1998 had a three-year
vesting period with one-third of the total award vesting after each of the first three years of the award term.
If an option holder retires, dies or is permanently and totally disabled (qualifying event) during the vesting
period, the unvested options will vest on a pro rata basis.  If an option holder is terminated under a company
severance plan, the unvested options will vest on a pro rata basis with an additional year of service credit.

Unvested options of any person who has served in the past on the SCE Management Committee (which was dissolved in
1993) will vest and be exercised upon a qualifying event.  If a qualifying event occurs, the vested options may
continue to be exercised within their original terms by the recipient or beneficiary.  If an option holder is
terminated other than by a qualifying event, options which had vested as of the prior anniversary date of the
grant are forfeited unless exercised within 180 days of the date of termination; except that if the termination
is covered by a company severance plan, the terminated employee will receive one additional year of vesting
credit and must exercise vested options within 12 months.  All unvested options are forfeited on the date of
termination.


Page 32


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The performance share values are accrued ratably over a three-year performance period.  SCE measures compensation
expense related to stock-based compensation by the intrinsic value method.  Compensation expense recorded under
the stock-compensation programs was $2 million, $2 million and $3 million for the three, nine and twelve months
ended September 30, 2001, respectively, and $1 million, $2 million and $5 million for the three, nine and twelve
months ended September 30, 2000, respectively.

Stock-based compensation expense under the fair value method of accounting would have resulted in pro forma net
income (loss) available for common stock of $649 million, $75 million and $(2.417) billion for the three, nine
and twelve months ended September 30, 2001, respectively, and $171 million, $439 million and $580 million for the
three, nine and twelve months ended September 30, 2000, respectively.

The fair value for each option granted, providing the basis for the above pro forma disclosures, was determined
on the date of grant using the Black-Scholes option-pricing model.  The following assumptions were used in
determining fair value through the model:

                                                           September 30,               September 30,
                                                               2001                        2000
- ----------------------------------------------------------------------------------------------------------

         Expected life                                  7 years - 10 years            7 years - 10 years
         Risk-free interest rate                            4.7% - 6.1%                  4.7% - 6.0%
         Expected volatility                                 18% - 50%                    17% - 38%
- ----------------------------------------------------------------------------------------------------------


The application of fair-value accounting to calculate the pro forma disclosures above is not an indication of
future income statement effects.  The pro forma disclosures do not reflect the effect of fair-value accounting on
stock-based compensation awards granted prior to 1995.

Note 10.  Jointly Owned Utility Projects

SCE owns interests in several generating stations and transmission systems for which each participant provides
its own financing.  SCE's share of expenses for each project is included in the consolidated statements of income.

The investment in each project as of September 30, 2001, was:

                                                 Original           Accumulated
                                                  Cost of        Depreciation and       Under         Ownership
     In millions                                 Facility          Amortization     Construction      Interest
- -------------------------------------------------------------------------------------------------------------------

- -------------------------------------------------------------------------------------------------------------------
     Transmission systems:
       Eldorado                                $     41             $     12            $   1             60%
       Pacific Intertie                             230                   83                8             50%
     Generating stations:
       Four Corners Units 4 and 5 (coal)            463                  361                4             48%
       Mohave (coal)                                331                  245                2             56%
       Palo Verde (nuclear)(1)                    1,630                1,585               18             16%
       San Onofre (nuclear)(1)                    4,278                4,152               23             75%
- -------------------------------------------------------------------------------------------------------------------

     Total                                      $ 6,973              $ 6,438            $  56
- -------------------------------------------------------------------------------------------------------------------

     (1) Regulatory assets, which were written off as a charge to earnings as of December 31, 2000, as discussed
         in Notes 1 and 3.



Page 33


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11.  Commitments

Leases

SCE has operating leases, primarily for vehicles with varying terms, provisions and expiration dates.

Estimated remaining commitments for noncancelable leases at September 30, 2001, were:

         Year ended December 31,                                                   In millions
- -------------------------------------------------------------------------------------------------
         2001                                                                        $   4
         2002                                                                           14
         2003                                                                           12
         2004                                                                           11
         2005                                                                            8
         Thereafter                                                                     19
- -------------------------------------------------------------------------------------------------
         Total                                                                        $ 68
- -------------------------------------------------------------------------------------------------


Nuclear Decommissioning

Decommissioning is estimated to cost $2.2 billion in current-year dollars, based on site-specific studies
performed in 1998 for San Onofre and 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 in the near term.  SCE estimates that it will spend approximately $8.6 billion through 2060 to
decommission its nuclear facilities.  This estimate is based on SCE's current dollar decommissioning costs,
escalated at rates ranging from 0.3% to 10.0% (depending on the cost element) annually.  SCE expects these costs
to be funded from independent decommissioning trusts, which receive contributions of approximately $25 million
per year.  SCE estimates annual after-tax earnings on the decommissioning funds of 3.9% to 4.9%.

SCE plans to decommission its nuclear generating facilities by a prompt removal method authorized by the Nuclear
Regulatory Commission.  The operating licenses expire in 2022 for San Onofre Units 2 and 3, and in 2026 and 2028
for the Palo Verde units.  SCE could decommission San Onofre Units 2 and 3 as early as 2013.  Palo Verde is
planned to be decommissioned at the end of its operating licenses.  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.

Decommissioning of San Onofre Unit 1 (shut down in 1992 per CPUC agreement) started in 1999 and will continue
through 2008.  All of SCE's San Onofre Unit 1 decommissioning costs will be paid from its nuclear decommissioning
trust funds.

Decommissioning expense was $17 million, $44 million and $22 million for the three, nine and twelve months ended
September 30, 2001, respectively, and $67 million, $128 million and $148 million for the three, nine and twelve
months ended September 30, 2000.  The accumulated provision for decommissioning, excluding San Onofre Unit 1, was
$1.4 billion at September 30, 2001, at December 31, 2000, and at September 30, 2000.  The estimated costs to
decommission San Onofre Unit 1 (approximately $317 million) are recorded as a liability.

Decommissioning funds collected in rates are placed in independent trusts, which, together with accumulated
earnings, will be utilized solely for decommissioning.


Page 34


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Trust investments (cost basis) include:

                                             Maturity            September 30,    December 31,      September 30,
     In millions                               Dates                 2001             2000              2000
- -------------------------------------------------------------------------------------------------------------------
     Municipal bonds                        2002 - 2029          $    510         $    548          $    629
     Stocks                                     --                    598              531               519
     U.S. government issues                 2004 - 2029               344              421               413
     Short-term and other                      2001                   265              220               213
- -------------------------------------------------------------------------------------------------------------------
     Total                                                        $ 1,717          $ 1,720           $ 1,774
- -------------------------------------------------------------------------------------------------------------------


Trust fund earnings (based on specific identification) increase the trust fund balance and the accumulated
provision for decommissioning.  Net earnings were less than $1 million for the three months ended September 30,
2001;  the fund incurred losses of $16 million and $56 million for the nine and twelve months ended September 30,
2001, respectively, and earnings were $47 million, $78 million and $87 million for the three, nine and twelve
months ended September 30, 2000, respectively.  Proceeds from sales of securities (which are reinvested) were
$470 million, $1.8 billion and $2.9 billion for the three, nine and twelve months ended September 30, 2001,
respectively, and $1.0 billion, $3.5 billion and $4.3 billion for the three, nine and twelve months ended
September 30, 2000, respectively.  Approximately 91% of the trust fund contributions were tax-deductible.

Other Commitments

SCE has fuel supply contracts which require payment only if the fuel is made available for purchase.  Certain SCE
gas and coal fuel contracts require payment of certain fixed charges whether or not gas or coal is delivered.

SCE has power-purchase contracts with certain qualifying facilities (cogenerators and small power producers) and
other utilities.  These contracts provide for capacity payments if a facility meets certain performance
obligations and energy payments based on actual power supplied to SCE.  There are no requirements to make
debt-service payments.  In an effort to replace higher-cost contract payments with lower-cost replacement power,
SCE has entered into agreements to end its contract obligations with certain qualifying facilities.  The buyout
agreements are reported as power-purchase contracts on the balance sheets.

SCE has unconditional purchase obligations for part of a power plant's generating output, as well as firm
transmission service from another utility.  Minimum payments are based, in part, on the debt-service requirements
of the provider, whether or not the plant or transmission line is operable.  SCE's minimum commitment under both
contracts is approximately $159 million through 2017.  The purchased-power contract is expected to provide
approximately 5% of current or estimated future operating capacity, and is reported as power purchase contracts
(approximately $31 million).  The transmission service contract requires a minimum payment of approximately
$6 million a year.

Certain minimum commitments for the years 2001 through 2005 are estimated below:

     In millions                                          2001       2002       2003       2004       2005
- ------------------------------------------------------------------------------------------------------------

     Fuel supply contracts                                $142       $109       $109       $106       $111
     Purchased-power capacity payments                     596        629        629        627        624
- ------------------------------------------------------------------------------------------------------------



Page 35


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12.  Contingencies

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.

Energy Crisis Issues

In October 2000, a federal class action securities lawsuit was filed against SCE and Edison International.  As
amended in December 2000 and March 2001, the lawsuit involves securities fraud claims arising from alleged
improper accounting for the TRA undercollections.  The second amended complaint is supposedly filed on behalf of
a class of persons who purchased Edison International common stock between July 21, 2000, and April 17, 2001.
This lawsuit has been consolidated with another similar lawsuit filed on March 15, 2001.  A consolidated class
action complaint was filed on August 3, 2001.  On September 17, 2001, SCE and Edison International filed a motion
to dismiss for failure to state a claim.  The motion is scheduled for hearing on December 3, 2001.  SCE believes
that its current and past accounting for the TRA undercollections and related items is appropriate and in
accordance with accounting principles generally accepted in the United States.

Lawsuits have been filed against SCE by various QFs, including geothermal, wind and cogeneration suppliers.  The
lawsuits are seeking payments of at least $833 million for energy and capacity supplied to SCE under QF
contracts, and in some cases for additional damages as well.  Many of these QF lawsuits also seek an order
allowing the suppliers to stop providing power to SCE so that they may sell the power to other purchasers.  The
state court cases have been coordinated before a single trial judge.  SCE has reached agreements with QFs
representing about 97% of the QF renewable and cogeneration capacity provided to SCE.  The agreements provide for
stays of litigation, payments to the QFs upon occurrence of specified conditions, modifications in some cases to
the contract prices going forward, releases and dismissals of the litigation upon payment by SCE.  In light of
the litigation settlement with the CPUC, SCE is seeking to negotiate amendments to the agreements with QFs.

SCE cannot predict the outcome of any of these matters.

Environmental Protection

SCE is subject to numerous environmental laws and regulations, which require it to incur substantial costs to
operate existing facilities, construct and operate new facilities, and mitigate or remove the effect of past
operations on the environment.

SCE records its environmental 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 deferred credits) at undiscounted amounts.

SCE's recorded estimated minimum liability to remediate its 42 identified sites is $114 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


Page 36


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 could exceed its recorded liability by up to $269 million.  The upper limit of this
range of costs was estimated using assumptions least favorable to SCE among a range of reasonably possible
outcomes.  SCE has sold all of its gas-fueled generation plants and has retained some liability associated with
the divested properties.

The CPUC allows SCE to recover environmental-cleanup costs at certain sites, representing $45 million of its
recorded liability, through an incentive mechanism.  Under this mechanism, SCE will recover 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 the costs incurred at its remaining sites to be recovered through customer rates.  SCE has
recorded a regulatory asset of $60 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 now be made for these sites.

SCE expects to clean up its identified sites over a period of up to 30 years.  Remediation expenditures in each
of the next several years are expected to range from $10 million to $25 million.  Recorded expenditures for the
twelve months ended September 30, 2001, were $20 million.

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 and, based upon the CPUC's regulatory treatment of environmental-cleanup
costs, SCE believes that costs ultimately recorded will not materially affect its results of operations or
financial position.  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.

Nuclear Insurance

Federal law limits public liability claims from a nuclear incident to $9.5 billion.  SCE and other owners of San
Onofre and Palo Verde have purchased the maximum private primary insurance available ($200 million).  The balance
is covered by the industry's retrospective rating plan that uses deferred premium charges to every reactor
licensee if a nuclear incident at any licensed reactor in the U.S. results in claims and/or costs which exceed
the primary insurance at that plant site.  Federal regulations require this secondary level of financial
protection.  The Nuclear Regulatory Commission exempted San Onofre Unit 1 from this secondary level, effective
June 1994.  The maximum deferred premium for each nuclear incident is $88 million per reactor, but not more than
$10 million per reactor may be charged in any one year for each incident.  Based on its ownership interests, SCE
could be required to pay a maximum of $176 million per nuclear incident.  However, it would have to pay no more
than $20 million per incident in any one year.  Such amounts include a 5% surcharge if additional funds are
needed to satisfy public liability claims and are subject to adjustment for inflation.  If the public liability
limit above is insufficient, federal regulations may impose further revenue-raising measures to pay claims.

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.


Page 37


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Primarily, a mutual insurance company owned by utilities 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 $18 million per year.  This
amount is expected to increase to $35 million on November 15, 2001.  Insurance premiums are charged to operating
expense.

Spent Nuclear Fuel

Under federal law, the DOE is responsible for the selection and development of a facility for disposal of spent
nuclear fuel and high-level radioactive waste.  Such a facility was to be in operation by January 31, 1998.
However, the DOE did not meet its obligation.  It is not certain when the DOE will begin accepting spent nuclear
fuel from San Onofre or from other nuclear power plants.

SCE, as operating agent, has primary responsibility for the interim storage of its spent nuclear fuel at San
Onofre.  Current capability to store spent fuel is estimated to be adequate through 2005.  SCE is conducting
engineering studies and evaluating the cost of constructing an interim fuel storage facility for Units 2 and 3.
The development and construction of an interim fuel storage facility for Unit 1 is in progress as part of the
decommissioning project.  Costs for the interim fuel storage facility for Unit 1 are fully funded from the
decommissioning trust.

Extended delays by the DOE could lead to consideration of costly alternatives involving siting and environmental
issues.  SCE has paid the DOE the required one-time fee applicable to nuclear generation at San Onofre through
April 6, 1983 (approximately $24 million, plus interest).  SCE is also paying the required quarterly fee equal to
one mill per kilowatt-hour of nuclear-generated electricity sold after April 6, 1983.

Palo Verde on-site spent fuel storage capacity will accommodate needs until 2003 for Unit 2, and until 2004 for
Units 1 and 3.  Arizona Public Service Company, operating agent for Palo Verde, expects that an interim fuel
storage facility currently under construction will be completed in 2002.




Page 38



Item 2.    Management's Discussion and Analysis of Results of Operations and
           Financial Condition

California's investor-owned electric utilities, including Southern California Edison Company (SCE), have been
facing a crisis resulting from deregulation of the generation side of the electric industry through legislation
enacted by the California Legislature and decisions issued by the California Public Utilities Commission (CPUC).
Under the legislation and CPUC decisions, prices for wholesale purchases of electricity from power suppliers are
set by markets while the retail prices paid by utility customers for electricity delivered to them remain frozen
at June 1996 levels except for the 10% residential rate reduction starting in 1998 and the 4(cent)-per-kWh surcharge
effective in 2001.  See further discussion of the CPUC rate increases in Rate Stabilization Proceedings.
Beginning in May 2000, SCE's costs to obtain power (at wholesale electricity prices) for resale to its customers
substantially exceeded revenue from frozen rates.  The shortfall was accumulated in the transition revenue
account (TRA), a CPUC-authorized regulatory asset, prior to the retroactive transfer of the TRA balance to the
transition cost balancing account (TCBA), as discussed below.  SCE has borrowed significant amounts of money to
finance its electricity purchases, creating a severe liquidity crisis at SCE.

On October 5, 2001, a federal district court in California entered a stipulated judgment approving an October 2,
2001, agreement between the CPUC and SCE to settle a lawsuit.  SCE expects that the settlement agreement and the
CPUC actions contemplated in the agreement should enable SCE to recover its previously undercollected power
procurement costs and repay its outstanding overdue obligations.  According to the terms of the settlement
agreement, in the fourth quarter of 2001, it is expected that SCE will establish (retroactive to August 31, 2001)
a $3.6 billion account for these previously incurred procurement costs which will be called the
procurement-related obligations account (PROACT).  During a period beginning on September 1, 2001, and ending on
the earlier of the date that SCE has recovered all of its procurement-related obligations recorded in the PROACT
or December 31, 2005, SCE will apply to the PROACT the difference between SCE's revenue from retail electric
rates (including surcharges) and the costs that SCE is authorized by the CPUC to recover in retail electric
rates.  The settlement also calls for the end of the TCBA mechanism as of August 31, 2001, and continuation of
the rate freeze (including surcharges) until the earlier of December 31, 2003, or the date that SCE recovers the
account balance.  If SCE has not recovered the entire balance by the end of 2003, the remaining balance will be
amortized in retail rates for up to an additional two years.  For further details on the settlement with the
CPUC, see CPUC Litigation Settlement Agreement.  On October 26, 2001, a California consumer group asked a federal
court of appeals for a stay of judgment pending appeal of the federal district court's judgment approving the
settlement.  The group alleged that it was denied due process and that the CPUC had no authority to agree with
SCE to violate the statutory rate freeze.  On October 30, 2001, the court of appeals granted a temporary stay,
and instructed the consumer group to return to district court to argue the merits of the stay.  On November 9,
2001, the district court denied the consumer group's request for a stay.  The consumer group indicated that it
intends to ask the court of appeals for a stay of judgment pending appeal.  If the stay of judgment pending
appeal is granted, or the settlement is successfully challenged on appeal, the ability of SCE and the CPUC to
implement the settlement agreement would be affected adversely, which in turn would have an adverse effect on
SCE's ability to restore its financial condition, repay its creditors and avoid an involuntary bankruptcy petition.

Accounting principles generally accepted in the United States permit SCE to defer costs and record regulatory
assets if those costs are determined to be probable of recovery in future rates.  When SCE determines that
regulatory assets, such as the TRA and the TCBA, are no longer probable of recovery through future rates, they
are written off.  The TCBA is a regulatory balancing account that tracks the recovery of generation-related
transition costs, including stranded investments.  SCE assessed the probability of recovery of the undercollected
costs that were previously recorded in the TCBA in light of the CPUC's March 27, 2001, and April 3, 2001,
decisions, including the retroactive transfer of balances from SCE's TRA to its TCBA and related changes that are
discussed in more detail in Rate Stabilization Proceedings.  These decisions and other regulatory and legislative
actions did not meet SCE's prior expectation that the CPUC would provide adequate cost recovery mechanisms.  As a
result, SCE's financial results for the year ended December 31, 2000, included an after-tax charge of
approximately


Page 39


$2.5 billion ($4.2 billion on a pre-tax basis), reflecting a write-off of the TCBA and net regulatory assets to
be recovered through the TCBA mechanism, as of December 31, 2000.  Transition costs in excess of transition
revenue were also incurred during the first six months of 2001, resulting in a charge against earnings in the
amount of $724 million (after tax) through June 30, 2001.  This resulted in further material declines in reported
common shareholder's equity, particularly in light of the CPUC's failure to provide SCE with sufficient rate
increases to cover its ongoing costs and obligations during that period.

The following pages include a discussion of the history of the TRA and TCBA and related circumstances, the
significantly negative effect on the financial condition of SCE of undercollections recorded in the TRA and TCBA,
the current status of the undercollections, the impact of the CPUC's March 27, 2001, decisions and related
matters, and the expected resolution of the current crisis through implementation of the CPUC litigation
settlement agreement.

Results of Operations

Earnings

SCE earned $651 million and $81 million, respectively, for the three and nine months ended September 30, 2001,
and incurred a loss of $2.4 billion for the twelve months ended September 30, 2001.  SCE's third quarter earnings
included recovery of $518 million (after tax) of previously undercollected transition costs during the third
quarter of 2001 due to CPUC-approved surcharges that were billed beginning in June 2001.  The year-to-date
earnings and twelve-months-ended loss reflect $724 million (after tax) of transition costs in excess of
transition revenue during the first six months of 2001, partially offset by the $518 million overcollection
during the third quarter of 2001.  For financial reporting purposes, these undercollected or overcollected costs
are no longer accumulated in the TCBA.  The twelve-months-ended loss also included a write-off of the TCBA and
other generation-related regulatory assets and liabilities in the amount of $2.5 billion (after tax) as of
December 31, 2000.

Accounting principles generally accepted in the United States require SCE at each financial statement date to
assess the probability of recovering its regulatory assets through a regulatory process.  Based on the rules
arising from the CPUC's March 27, 2001, rate stabilization decision, the $4.5 billion TRA undercollection as of
December 31, 2000, and the coal and hydroelectric balancing account overcollections were reclassified, and the
TCBA balance was recalculated to be a $2.9 billion undercollection (see further discussion of the CPUC rate
increase in the Rate Stabilization Proceeding section and the components of the TCBA undercollection in the
Status of Transition and Power-Procurement Cost Recovery section of Regulatory Environment).  As a result, SCE
was unable to conclude that, under applicable accounting principles, the $2.9 billion TCBA undercollection (as
recalculated above) and $1.3 billion (book value) of other net regulatory assets that were to be recovered
through the TCBA mechanism by the end of the rate freeze, were probable of recovery through the rate-making
process as of December 31, 2000.  As a result, SCE's December 31, 2000, income statement included a $4.0 billion
charge to provisions for regulatory adjustment clauses and a $1.5 billion net reduction in income tax expense, to
reflect the $2.5 billion (after tax) write-off.

As stated above, SCE earned $651 million and $81 million, and recorded a loss of $2.4 billion, respectively, for
the three, nine and twelve months ended September 30, 2001, compared with earnings of $172 million, $441 million
and $582 million, respectively, for the same periods in 2000.  Excluding the $518 million (after tax) recovery of
previously undercollected transition costs, SCE's third quarter 2001 earnings were $133 million, down $39 million
from the prior-year period.  The quarterly decrease was mainly due to higher interest expense resulting from
SCE's deteriorated financial condition and lower kWh sales.  Excluding the $205 million (after tax) of net
undercollected transition costs expensed in 2001, SCE would have earned $286 million for the year-to-date period
ended September 30, 2001.  The $155 million decrease for the nine-month period ended September 30, 2001, from the
same period in 2000, was mostly due to lower earnings related to the February 2001 fire and resulting outage at
San Onofre, higher interest expense and lower kWh sales, partially offset by lower operating and maintenance
costs.  Excluding the $205 million (after tax) of net undercollected transition costs expended in 2001 and the


Page 40


$2.5 billion (after tax) December 31, 2000, write-off, SCE would have earned $317 million for the twelve months
ended September 30, 2001.  Excluding the $15 million one-time tax benefit SCE recorded in fourth quarter 1999 due
to an Internal Revenue Service ruling, SCE's earnings for the twelve months ended September 30, 2000, were $567
million.  The $250 million decrease (excluding the items mentioned above) for the twelve months ended September
30, 2001, from the prior-year period, was mainly the result of the outage at San Onofre Unit 3, higher interest
expense and lower kWh sales, partially offset by lower operating and maintenance costs.

Operating Revenue

From 1998 through mid-September 2001, SCE's customers were able to choose to purchase power directly from an
energy service provider (thus becoming direct access customers) or continue to have SCE purchase power on their
behalf.  Most direct access customers were billed by SCE, but given a credit for the generation portion of their
bills.  On September 20, 2001, the CPUC suspended the ability of retail customers to select alternative providers
of electricity until the California Department of Water Resources (CDWR) stops buying power for retail customers.

During 2000, as a result of the power shortage in California, SCE's customers on interruptible rate programs
(which provide for a lower generation rate with a provision that service can be interrupted if needed, with
penalties for noncompliance) were asked to curtail their electricity usage at various times.  As a result of
noncompliance with SCE's requests, those customers were assessed significant penalties.  On January 26, 2001, the
CPUC waived the penalties assessed to noncompliant customers after October 1, 2000, until the interruptible
programs can be reevaluated.

Operating revenue increased for the three months ended September 30, 2001, and decreased for the nine and twelve
months ended September 30, 2001, compared to the same periods in 2000.  Because SCE no longer supplies its
customers with all of their electricity needs (since mid-January 2001), operating revenue was reduced by $664
million, $1.4 billion and $1.4 billion, respectively, for the three, nine and twelve months ended September 30,
2001.  Amounts SCE bills to and collects from its customers for electric power purchased and sold by the CDWR or
through the Independent System Operator (ISO) on behalf of SCE's customers (beginning January 18, 2001) are being
remitted to the CDWR and are not considered revenue to SCE.  See CDWR Power Purchases discussion. The quarterly
operating revenue increase was primarily due to the effects of the 4(cent)-per-kWh (1(cent)in January and 3(cent)in June)
surcharge effective in 2001, as well as the credit given to direct access customers during third quarter 2000.
The direct access credits decreased during the third quarter of 2001 due to a fewer number of direct access
customers in 2001, as well as a lower basis used in calculating the amount of the credit.  The lower basis in
2001 relates to SCE's frozen rates, as opposed to the California Power Exchange (PX) market price, which was the
basis in 2000.  These increases were partially offset by an 8% decrease in retail sales volume.  The year-to-date
and twelve-months-ended decreases in operating revenue were the result of a decrease in retail sales volume
primarily attributable to conservation efforts, as well as a decrease in revenue related to operation and
maintenance services.  SCE is no longer providing these services to the independent power companies who now own
the generating stations SCE sold in 1998.  The effect of the reduced credits given to direct access customers
partially offsets the decreases discussed above for the year-to-date and twelve-months-ended periods.

More than 94% of operating revenue was from retail sales.  Retail rates are regulated by the CPUC and wholesale
rates are regulated by the Federal Energy Regulatory Commission (FERC).

Due to warmer weather during the summer months, operating revenue during the third quarter of each year is
significantly higher than other quarters.

Operating Expenses

Fuel expense increased for the nine months ended September 30, 2001, compared with the same period in 2000,
primarily due to a fuel-related refund resulting from a settlement with another utility recorded in the second
quarter of 2000.


Page 41



Purchased-power expense decreased for the three months ended September 30, 2001, and increased for the nine and
twelve months ended September 30, 2001, compared to the same periods in 2000.  The quarterly decrease was
primarily due to the absence of purchases from the PX and ISO in 2001, as well as a reduction in qualifying
facilities (QF) power costs. In December 2000, the FERC eliminated the requirement that SCE buy and sell all
power through the PX and ISO.  Due to SCE's noncompliance with the PX's tariff requirement for posting collateral
for all transactions in the day-ahead and day-of markets as a result of the downgrade in its credit rating, the
PX suspended SCE's market trading privileges effective mid-January 2001.  See further discussion of SCE's
liquidity crisis in Financial Condition. These quarterly decreases were partially offset by an increase related
to interutility contracts.  The year-to-date and twelve-months-ended increases were the result of increased
purchased-power expenses related to QFs, bilateral contracts and interutility contracts, partially offset by the
absence of PX/ISO purchased-power expense in 2001.  See Purchased Power table in Note 1 to the Consolidated
Financial Statements.  See further discussion in CDWR Power Purchases.

Prior to April 1998, federal law and CPUC orders required SCE to enter into contracts to purchase power from QFs
at CPUC-mandated prices even though energy and capacity prices under many of these contracts are generally higher
than other sources.  These contracts expire on various dates through 2025.  Purchased-power expense related to
QFs decreased for the three months ended September 30, 2001, and increased for the nine and twelve months ended
September 30, 2001, compared to the year-earlier periods.  The decrease is primarily due to lower priced natural
gas, which impacts the short-run avoided cost factor of the QF contracts.  The increases were primarily due to
the short-run avoided cost factor of the QF contracts causing a significant increase in the payments to QFs.  The
twelve-months-ended increase was partially offset by a fourth quarter 2000 contract adjustment, as well as the
terms in some of the QF contracts reverting to lower prices.  The increases related to bilateral contracts were
the result of SCE not having these contracts in 2000.  The quarterly decrease in purchased-power expense related
to interutility contracts, as well as the year-to-date and twelve-months-ended increases related to interutility
contracts were volume-driven.

PX/ISO purchased-power expense increased significantly between May 2000 and mid-January 2001, due to increased
demand for electricity in California, dramatic price increases for natural gas (a key input of electricity
production), and structural problems within the PX and ISO.

Provisions for regulatory adjustment clauses increased for the three, nine and twelve months ended September 30,
2001, compared to the year-earlier periods.  The increases resulted from SCE no longer accumulating
undercollected transition costs in the TCBA for financial reporting purposes.  The twelve-months-ended increase
also reflects a $4.0 billion charge to the provisions related to the write-off of regulatory assets and
liabilities as of December 31, 2000, as well as adjustments to reflect potential regulatory refunds related to
the outcome of the CPUC's reevaluation of the operation of the interruptible rate programs.  See further
discussion of the write-off in the Earnings section.  The increases were partially offset by undercollections
related to the administration of energy conservation programs and other public benefits programs in 2001 and
undercollections related to the coal generation and hydroelectric balancing accounts in 2001.

Depreciation, decommissioning and amortization expense decreased for the three, nine and twelve months ended
September 30, 2001, compared to the prior-year periods, primarily due to a decrease in SCE's nuclear investment
amortization expense.  SCE's unamortized nuclear investment regulatory asset was included in the December 31,
2000, write-off.

Other Income and Deductions

Interest and dividend income decreased for the three and nine months ended September 30, 2001, and increased for
the twelve months ended September 30, 2001, compared to the year-earlier periods.  The decreases were primarily
due to lower balancing account undercollections during the third quarter of 2001.


Page 42


The increase was primarily due to an overall higher cash balance as SCE conserves cash due to its liquidity
crisis.

Other nonoperating income decreased for the nine and twelve months ended September 30, 2001. The year-to-date
decrease was primarily due to the gains on sales of equity investments during second quarter 2000 and the result
of CPUC-approved shareholder incentives related to QF contract restructurings in first quarter 2000.  The
twelve-months-ended decrease was mainly the result of lower earnings from energy conservation programs, lower
earnings from life insurance investments for executives and lower gains on the sales of equity investments.

Interest expense - net of amounts capitalized increased for the three, nine and twelve months ended September 30,
2001, compared to the year-earlier periods.  The increases were primarily due to additional long-term debt and
higher short-term debt balances.  Higher interest expense resulting from balancing account overcollections also
contributed to the twelve-months-ended increase.

Other nonoperating deductions decreased for the three, nine and twelve months ended September 30, 2001, compared
to the same periods in 2000.  The decreases were primarily due to lower accruals for regulatory matters in 2001.

Income Taxes

Income taxes increased for the three months ended September 30, 2001, and decreased for the nine and twelve
months ended September 30, 2001, compared to the year-earlier periods.  The quarterly increase was mainly due to
the recovery of previously undercollected transition costs.  The year-to-date and twelve-months-ended decreases
reflect a $203 million income tax benefit arising from transition costs in excess of transition revenue during
the nine months of 2001.  The twelve-months-ended-decrease also reflects the $1.5 billion income tax benefit
related to the $2.5 billion (after tax) write-off as of December 31, 2000, of regulatory assets and liabilities.
Absent the tax benefits discussed above, the decreases in income tax expense were the result of lower pre-tax
income.

Financial Condition

SCE's liquidity has been primarily affected by power purchases, debt maturities, access to capital markets,
dividend payments and capital expenditures.  Capital resources include cash from operations and external
financings.  As a result of SCE's financial condition (further discussed in Liquidity Crisis), at September 30,
2001, the fair market value of $531 million of its short-term debt was approximately 80% of its carrying value.

Liquidity Crisis

Sustained higher wholesale energy prices that began in May 2000 persisted through June 2001.  This resulted in
undercollections in the TRA and TCBA.  Undercollections, coupled with SCE's anticipated near-term capital
requirements (detailed in the Cash Flows from Investing Activities section of Financial Condition) and the
adverse reaction of the credit markets to regulatory uncertainty regarding SCE's ability to recover its power
procurement costs, materially and adversely affected SCE's liquidity.  As a result of its liquidity crisis, SCE
has taken and is taking steps to conserve cash so that it can continue to provide service to its customers.  As a
part of this process, beginning in January 2001, SCE suspended payments of certain obligations for principal and
interest on outstanding debt and for purchased power.  As of October 31, 2001, SCE had $3.3 billion in
obligations that were unpaid and overdue including:  (1) $940 million to the PX or ISO; (2) $1.2 billion to QFs;
(3) $231 million in PX energy credits for energy service providers; (4) $531 million of matured commercial paper;
and (5) $400 million of principal on its 5-7/8% and 6-1/2% senior unsecured notes which were issued prior to the
energy crisis.  As applicable, unpaid obligations will continue to accrue interest.


Page 43



SCE's failure to pay when due the principal amount of the 5-7/8% and 6-1/2% senior unsecured notes constituted a
default on each series, entitling those noteholders to exercise their remedies.  Such failure and the failure to
pay commercial paper when due could also constitute an event of default on all the other series of senior
unsecured notes (totaling $2.2 billion of outstanding principal) if the trustee or holders of 25% in principal
amount of the notes give a notice demanding that the default be cured, and SCE does not cure the default within
30 days.  Such failures are also an event of default under SCE's credit facilities and bilateral credit
agreements, entitling those lenders to exercise their remedies including potential acceleration of the
outstanding borrowings of $1.65 billion.  If a notice of default is received, SCE could cure the default only by
paying $931 million in overdue principal to holders of commercial paper and the 5-7/8% and 6-1/2% senior
unsecured notes.  Making such payment would further impact SCE's liquidity and could result in a termination of
the forbearance agreements with bank lenders discussed below.  If a notice of default were received and not
cured, and the trustee or noteholders were to declare an acceleration of the outstanding principal amount of the
senior unsecured notes, SCE would not have the cash to pay the obligation and could be forced to declare
bankruptcy.  As a result of the default on the two series of senior unsecured notes, SCE's other senior unsecured
notes and subordinated debentures ($1.85 billion) have been classified as due within one year in the accompanying
financial statements.  If SCE is found responsible for purchases of power by the ISO for delivery to SCE's
customers on or after January 18, 2001, SCE's unpaid obligations as of October 31, 2001, could increase by as
much as $1.6 billion.  This amount could increase or decrease depending on CPUC or FERC decisions regarding
payments and refunds.  See additional discussion in CDWR Power Purchases.  These stated amounts representing past
or future obligations for purchased power, PX energy credits and certain other items include amounts that are in
dispute, and the publishing of these amounts is not an admission by SCE of liability for any disputed amounts.

Subject to certain conditions, the bank lenders under SCE's credit facilities totaling $1.65 billion agreed to
forbear until March 29, 2002, from exercising remedies, including acceleration of borrowed amounts, against SCE
with respect to the event of default arising from the failure to pay the 5-7/8% and 6-1/2% senior unsecured notes
and commercial paper when due.  Under the forbearance agreements, the maturity date of the $200 million
short-term bank credit facility and the $400 million in bilateral credit agreements has been extended until
March 29, 2002.  The maturity date of the $1.05 billion, five-year bank credit facility is May 22, 2002.  At
October 31, 2001, SCE had estimated cash reserves of approximately $2.7 billion (after deducting $530 million of
designated funds), which was approximately $650 million less than its outstanding unpaid obligations (discussed
above) not including its credit facilities that are subject to forbearance agreements, and overdue amounts of
preferred stock dividends (see below).  As of March 31, 2001, SCE resumed payment of interest on its debt
obligations.  However, since June 30, 2001, SCE has deferred the interest payments on its quarterly income debt
securities (subordinated debentures), as allowed by the terms of the securities.  All interest in arrears must be
paid in full at the end of the deferral period.  The settlement agreement with the CPUC, if implemented, is
expected to allow SCE to obtain financing which, combined with an increase in cash reserves, would give SCE
sufficient funds to pay all of its past due obligations by the end of first quarter 2002.

On March 27, 2001, the CPUC issued decisions ordering SCE and other investor-owned utilities to pay QFs for power
deliveries on a going forward basis, commencing with April 2001 deliveries, and on the California Procurement
Adjustment (CPA) calculation including the approval of a 3(cent)-per-kWh rate increase.  One of the CPUC decisions
also modified the formula used in calculating payments to QFs by substituting natural gas index prices based on
deliveries at the Oregon border rather than the index prices at the Arizona border.  The changes apply to all
QFs, where appropriate, regardless of whether they use natural gas or other resources such as solar or wind.

In light of SCE's liquidity crisis, its Board of Directors has not declared quarterly common stock dividends to
SCE's parent, Edison International, since September 2000.  Also, SCE's Board has not declared the regular
quarterly dividends for any of SCE's cumulative preferred stock in 2001.  As of October 31, 2001, SCE's preferred
stock dividends in arrears were $17 million.  Dividends are additionally restricted as detailed in the CPUC
Litigation Settlement discussion.


page 44



SCE has implemented other cost-cutting measures such as freezing new hires and postponing certain capital
expenditures.  SCE's current cost-cutting measures are intended to allow it to continue to operate while efforts
to restore its creditworthiness (such as that contemplated in the CPUC litigation settlement agreement) are
underway.  See further discussion in Status of Transition and Power-Procurement Cost Recovery.

For additional discussion on the impact of California's energy crisis on SCE's liquidity, see Cash Flows from
Financing Activities.  For a discussion on the settlement agreement with the CPUC to resolve SCE's crisis, see
CPUC Litigation Settlement Agreement.

The 2001 rate surcharges have allowed SCE's cash reserves (excluding designated funds) to grow by $1.0 billion
for the three-month period from July 31, 2001, to October 31, 2001.  Unless the federal court of appeals issues a
stay of judgment pending appeal or the settlement is successfully challenged on appeal, SCE's litigation
settlement agreement with the CPUC is expected to allow SCE to obtain financing which, combined with SCE's
expected additional increases in cash reserves, should allow SCE to pay all of its past due obligations by the
end of first quarter 2002.  Until these obligations are paid, resolution of SCE's liquidity crisis and its
ability to continue to operate outside of bankruptcy is uncertain.  SCE's independent accountants' opinion on the
accompanying financial statements includes an explanatory paragraph which states that the issues associated with
the California energy crisis continue to raise substantial doubt about SCE's ability to continue as a going
concern.

Cash Flows from Operating Activities

Despite SCE's net income of $657 million and $98 million and a loss of $2.4 billion, respectively, for the three,
nine and twelve months ended September 30, 2001, net cash provided by operating activities was $1.0 billion, $2.3
billion and $2.2 billion, primarily due to SCE suspending payments for interest on outstanding debt, purchased
power beginning in January 2001 and other obligations.  Cash provided by operating activities also reflects the
CPUC-approved surcharges (1(cent)per kWh in January and 3(cent)per kWh in June) that were billed in 2001.

Beginning with the first quarter 2001 calculation, the cash flow coverage of dividends is no longer meaningful
due to SCE's inability to pay dividends (discussed above in the Liquidity Crisis section).

Cash Flows from Financing Activities

At September 30, 2001, SCE had drawn on its entire credit lines of $1.65 billion.  These unsecured lines of
credit have various expiration dates and, when available, can be drawn down at negotiated or bank index rates.
Under terms of executed forbearance agreements, the maturity date of SCE's $200 million, 364-day credit facility
and its $400 million bilateral credit agreements has been extended until March 29, 2002.  Although SCE's
remaining $1.05 billion, five-year bank credit facility expires on May 22, 2002, it is also subject to a
forbearance agreement which expires on March 29, 2002.

Short-term debt is used to finance balancing account undercollections, fuel inventories and general cash
requirements, including purchased-power payments.  Long-term debt is used mainly to finance capital
expenditures.  External financings are influenced by market conditions and other factors.  Because of the $2.5
billion charge to earnings as of December 31, 2000, SCE does not currently meet the interest coverage ratios that
are required for SCE to issue additional first mortgage bonds or preferred stock.  In addition, because of its
liquidity and credit problems, SCE has been unable to obtain financing of any kind.

As a result of investors' concerns regarding the California energy crisis and its impact on SCE's liquidity and
overall financial condition, SCE had to repurchase $550 million of pollution-control bonds that could not be
remarketed in accordance with their terms.  These bonds may be remarketed in the future if SCE's credit status
improves sufficiently.  In addition, SCE has been unable to sell its commercial paper and other short-term
financial instruments.


Page 45



In January 2001, Fitch IBCA, Standard &amp; Poor's and Moody's Investors Service lowered their credit ratings of SCE
to substantially below investment grade.

California law prohibits SCE from incurring or guaranteeing debt for its nonutility affiliates.  Additionally,
the CPUC regulates SCE's capital structure, limiting the dividends it may pay Edison International.

In December 1997, $2.5 billion of rate reduction notes were issued on behalf of SCE by SCE Funding LLC, a special
purpose entity.  These notes were issued to finance the 10% rate reduction mandated by state law.  The proceeds
of the rate reduction notes were used by SCE Funding LLC to purchase from SCE an enforceable right known as
transition property.  Transition property is a current property right created by the restructuring legislation
and a financing order of the CPUC and consists generally of the right to be paid a specified amount from
nonbypassable rates charged to residential and small commercial customers.  The rate reduction notes are being
repaid over 10 years through these nonbypassable residential and small commercial customer rates, which
constitute the transition property purchased by SCE Funding LLC.  The remaining series of outstanding rate
reduction notes have scheduled maturities beginning in 2002 and ending in 2007, with interest rates ranging from
6.22% to 6.42%.  The notes are secured by the transition property and are not secured by, or payable from, assets
of SCE or Edison International.  SCE used the proceeds from the sale of the transition property to retire debt
and equity securities.  Although, as required by accounting principles generally accepted in the United States,
SCE Funding LLC is consolidated with SCE and the rate reduction notes are shown as long-term debt in the
consolidated financial statements, SCE Funding LLC is legally separate from SCE.  The assets of SCE Funding LLC
are not available to creditors of SCE or Edison International and the transition property is legally not an asset
of SCE or Edison International.  Due to its credit rating downgrade in late 2000, in January 2001, SCE began
remitting its customer collections related to the rate-reduction notes on a daily basis.

Long-term debt maturities and sinking fund requirements for the five twelve month periods following September 30,
2001, are:  2002 - $947 million; 2003 - $572 million; 2004 - $1.4 billion; 2005 - $247 million; and 2006 -
$447 million.  These projections assume no acceleration of payments arising from default.  See further discussion
in Liquidity Crisis.

Preferred stock redemption requirements for the five twelve month periods following September 30, 2001, are:
2002 - $105 million; 2003 - $9 million; 2004 - $9 million; 2005 - $9 million; and 2006 - $9 million.

Cash Flows from Investing Activities

Cash flows from investing activities are affected by additions to property and plant and funding of nuclear
decommissioning trusts.  Decommissioning costs are recovered in utility rates.  These costs are expected to be
funded from independent decommissioning trusts that receive SCE contributions of approximately $25 million per
year.  In 1995, the CPUC determined the restrictions related to the investments of these trusts.  They are: not
more than 50% of the fair market value of the qualified trusts may be invested in equity securities; not more
than 20% of the fair market value of the trusts may be invested in international equity securities; up to 100% of
the fair market values of the trusts may be invested in investment grade fixed-income securities including, but
not limited to, government, agency, municipal, corporate, mortgage-backed, asset-backed, non-dollar, and cash
equivalent securities; and derivatives of all descriptions are prohibited.  Contributions to the decommissioning
trusts are reviewed every three years by the CPUC.  The contributions are determined from an analysis of
estimated decommissioning costs, the current value of trust assets and long-term forecasts of cost escalation and
after-tax return on trust investments.  Favorable or unfavorable investment performance in a period will not
change the amount of contributions for that period.  However, trust performance for the three years leading up to
a CPUC review proceeding will provide input into future contributions.  SCE's costs to decommission San Onofre
Unit 1 are paid from the nuclear decommissioning trust funds.  These withdrawals from the decommissioning trusts
are netted with the contributions to the trust funds in the Statements of Cash Flows.


Page 46


SCE's projected construction expenditures for 2001 are $687 million.  This projection reflects SCE's cost-cutting
measures discussed above in the Liquidity Crisis section.

Market Risk Exposures

SCE's primary market risk exposures arise from fluctuations in both energy prices and interest rates.
Additionally, natural gas is a key input for the prices that all QFs (including non-gas QFs) may charge to SCE.
SCE is exposed to changes in the spot market price for natural gas.  SCE's risk management policy allows the use
of derivative financial instruments to manage its financial exposures, but prohibits the use of these instruments
for speculative or trading purposes.

SCE is exposed to changes in interest rates primarily as a result of its borrowing and investing activities used
for liquidity purposes and to fund business operations, as well as to finance capital expenditures.  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.  As a result of California's energy crisis, SCE has been
exposed to significantly higher interest rates, which has intensified its liquidity crisis (further discussed in
the Liquidity Crisis section of Financial Condition).

SCE does not believe that its short-term debt is subject to interest rate risk.  However, SCE does believe that
the fair market value of its fixed-rate long-term debt is subject to interest rate risk.

Since April 1998, the price SCE paid to acquire power on behalf of customers was allowed to float, in accordance
with the 1996 electric utility restructuring law.  Until May 2000, retail rates were sufficient to cover the cost
of power and other SCE costs.  However, between May 2000 and June 2001, market power prices escalated, creating a
substantial gap between costs and retail rates.  In response to the dramatically higher prices, the ISO and the
FERC have placed certain caps on the price of power (see further discussion in Wholesale Electricity Markets).

During the period when market power prices were escalating, SCE attempted to hedge a portion of its exposure to
increases in power prices.  However, the CPUC approved a very limited amount of hedging during the period.  In
November 2000, SCE began purchases of energy through bilateral forward contracts.  At September 30, 2001, the
nominal value of SCE's bilateral forward contracts was $291 million.  See further discussion of bilateral forward
contracts in Note 4 to the Consolidated Financial Statements.  Under the terms of the CPUC settlement agreement,
SCE purchased $209 million in hedging instruments in October and November 2001 to hedge a majority of its gas
price exposure for 2002 and 2003.

In accordance with a new accounting standard for derivatives, on January 1, 2001, SCE recorded its block forward
contracts at fair value on the balance sheet.  Because SCE has suspended payments for purchased power since
January 16, 2001, the PX sought to liquidate SCE's remaining block forward contracts.  Before the PX could do so,
on February 2, 2001, the state seized the contracts, which at that time had an unrealized gain of approximately
$500 million.  On September 20, 2001, a federal appeals court ruled that the governor of California acted
illegally when he seized the power contracts held by SCE.  In conjunction with its settlement agreement with the
CPUC (discussed in CPUC Litigation Settlement Agreement), SCE has agreed to release any claim for compensation
against the state for these contracts.  Due to its speculative grade credit ratings, SCE has been unable to
purchase additional bilateral forward contracts, and some of the existing contracts were terminated by the
counterparties.

In January 2001, the CDWR began purchasing power for delivery to utility customers.  On March 27, 2001, the CPUC
issued a decision directing SCE, among other things, to immediately pay amounts owed to the CDWR for certain past
purchases of power for SCE's customers.  See additional discussion of regulatory proceedings related to CDWR
activities in the Generation and Power Procurement section of Regulatory Environment.


Page 47


Regulatory Environment

SCE operates in a highly regulated environment and has an exclusive franchise within its service territory.  SCE
has an obligation to deliver electric service to its customers and regulatory authorities have an obligation to
provide just and reasonable rates.  In the mid-1990s, state lawmakers and the CPUC initiated the electric
industry restructuring process.  SCE was directed by the CPUC to divest the bulk of its generation portfolio.
Today, independent power companies own the divested generating plants.  The electric industry restructuring plan
also instituted a multi-year freeze on the rates that SCE could charge its customers and transition cost recovery
mechanisms (as described in Status of Transition and Power-Procurement Cost Recovery) designed to allow SCE to
recover its stranded costs associated with generation-related assets.  California's electric industry
restructuring statute included provisions to finance a portion of the stranded costs that residential and small
commercial customers would have paid between 1998 and 2001, which allowed SCE to reduce rates by at least 10% to
these customers, effective January 1, 1998.  These frozen rates (except for the surcharge effective in 2001) were
to remain in effect until the earlier of March 31, 2002, or the date when the CPUC-authorized costs for
utility-owned generation assets and obligations are recovered.  However, between May 2000 and June 2001, the
prices charged by sellers of power escalated far beyond what SCE could charge its customers.  As a result, SCE
has incurred $2.7 billion (after tax), or $4.6 billion on a pre-tax basis, in write-offs and net undercollected
transition costs during the past 12 months (see Earnings).  As indicated below, implementation of the PROACT
mechanism and CPUC approval of SCE's Utility-Retained Generation (URG) application is expected to allow SCE to
recover substantially all of the $4.6 billion.

Generation and Power Procurement

During the rate freeze, recovery of generation-related transition costs has been tracked through the TCBA
mechanism.  Revenue from generation-related operations was determined through the market and transition cost
recovery mechanisms, which included the nuclear rate-making agreements.  During fourth quarter 2001, it is
expected that the TCBA will become inactive retroactive to September 1, 2001, and a $3.6 billion PROACT
regulatory asset will be created in accordance with the October 2001 settlement agreement with the CPUC.  In
accordance with a state law passed in January 2001, SCE will continue to own its remaining generation assets,
which would be subject to cost-based ratemaking, through 2006 (see further discussion in URG Proceeding).

Through December 31, 2000, SCE had been recovering its investment in its nuclear facilities on an accelerated
basis in exchange for a lower authorized rate of return on investment.  SCE's nuclear assets were earning an
annual rate of return on investment of 7.35%.  However, due to the various unresolved regulatory and legislative
issues (as discussed in Status of Transition and Power-Procurement Cost Recovery), as of December 31, 2000, SCE
was no longer able to conclude that the $610 million balance of unamortized nuclear investment regulatory assets
was probable of recovery through the rate-making process.  As a result, this balance was written off as a charge
to earnings at that time (see further discussion in Earnings).  SCE requested in its URG application to recover
the unamortized cost of its nuclear investment regulatory asset over a ten-year period, retroactive to January 1,
2001.  Should this application be approved, SCE expects to reestablish for financial reporting purposes its
unamortized nuclear investment and related flow-through taxes as regulatory assets, with a corresponding credit
to earnings.

The San Onofre incentive pricing plan authorizes a fixed rate of approximately 4(cent)per kWh generated for operating
costs including incremental capital costs, nuclear fuel and nuclear fuel financing costs.  The San Onofre plan
started in April 1996 and ends in December 2003 for the incentive-pricing portion.  The Palo Verde Nuclear
Generating Station's operating costs, including incremental capital costs, and nuclear fuel and nuclear fuel
financing costs, were subject to balancing account treatment.  The Palo Verde plan started in January 1997 and
was to end in December 2001.  The benefits of operation of the San Onofre units and the Palo Verde units were
required to be shared equally with ratepayers beginning in 2004 and 2002, respectively. In a June 2001 decision,
the CPUC granted SCE's request to eliminate the San Onofre post-2003 benefit sharing mechanism based on
compliance with a recently enacted state law.  In a


Page 48


September 2001 decision, the CPUC granted SCE's request to eliminate the Palo Verde post-2001 benefit sharing
mechanism and continue the current rate treatment for Palo Verde, including the continuation of the existing
nuclear incentive procedure with a 5(cent)per kWh cap on replacement power costs, until resolution of SCE's General
Rate Case or further CPUC action.  Beginning January 1, 1998, both the San Onofre and Palo Verde rate-making
plans became part of the TCBA mechanism.  These rate-making plans and the TCBA mechanism were to continue for
rate-making purposes at least through the end of the rate freeze period.  However, in its URG application, SCE
proposed to move the recovery of nuclear costs to another balancing account mechanism (see discussion in URG
Proceeding).

CPUC Litigation Settlement Agreement

In November 2000, SCE filed a lawsuit against the CPUC in federal court in California, seeking a ruling that SCE
is entitled to full recovery of its past electricity procurement costs in accordance with the tariffs filed with
the FERC.  By agreement of the parties, a stay of the lawsuit was issued in April 2001 while SCE sought
implementation of legislative, regulatory and executive actions to resolve the California energy crisis and SCE's
related financial and liquidity problems.  On October 5, 2001, a federal district court in California entered a
stipulated judgment approving an October 2, 2001, agreement between the CPUC and SCE to settle the pending
lawsuit.

Key elements of the settlement agreement include the following items:

o    The CPUC will establish an account called the PROACT, as of September 1, 2001, which will have an
     opening balance equal to the amount of SCE's procurement-related liabilities as of August 31, 2001
     (approximately $6.4 billion), less SCE's cash and cash equivalents as of that date (approximately
     $2.5 billion), and less $300 million.

o    During a period beginning on September 1, 2001, and ending on the earlier of the date that SCE has
     recovered all of its procurement-related obligations recorded in the PROACT or December 31, 2005, SCE will
     apply to the PROACT, on a monthly or other basis established by the CPUC, the difference between SCE's
     revenue from retail electric rates (including surcharges) and the costs that SCE is authorized by the CPUC
     to recover in retail electric rates.  Unrecovered obligations in the PROACT will accrue interest from
     September 1, 2001.

o    The parties agree that SCE will recover in retail electric rates its procurement-related obligations in
     the PROACT, with interest, by December 31, 2005.  Subject to certain adjustments, the CPUC will maintain
     current rates (including surcharges) in effect until December 31, 2003, or, if earlier, until the date that
     SCE recovers the entire PROACT balance.  If SCE has not recovered the entire balance by December 31, 2003,
     the unrecovered balance will be amortized for up to an additional two years.  The parties currently project
     that existing retail electric rates, including surcharges and as adjusted to reflect certain costs, will
     likely result in SCE recovering substantially all of its unrecovered procurement-related obligations prior
     to the end of 2003.

o    If the CPUC concludes that it is desirable to authorize a securitized financing of SCE's
     procurement-related obligations, the parties will work together to achieve the securitization.  Proceeds of
     any securitization will be credited to the PROACT when they are actually received.

o    During the period that SCE is recovering its procurement-related obligations, no penalty will be imposed
     by the CPUC on SCE for any noncompliance with CPUC-mandated capital structure requirements.

o    SCE intends to apply for CPUC approval to incur up to $250 million of recoverable costs to acquire financial
     instruments and engage in other transactions intended to hedge fuel cost risks associated with SCE's
     retained generation assets and power purchase contracts with qualifying facilities and



Page 49


     other utilities.  The CPUC indicated that it will schedule proceedings reasonably promptly and consider
     SCE's application on an expedited basis.

o    SCE will not declare or pay dividends or other distributions on its common stock (all of which is held
     by its parent) prior to the earlier of the date SCE has recovered all of its procurement-related obligations
     in the PROACT or January 1, 2005.  However, if SCE has not recovered all of its procurement-related
     obligations by December 31, 2003, SCE may apply to the CPUC for consent to resume common stock dividends,
     and the CPUC will not unreasonably withhold its consent.

o    To ensure the ability of SCE to continue to provide adequate service until the effectiveness of SCE's
     next general rate case, SCE may make capital expenditures above the level contained in current rates, up to
     $900 million per year, which will be treated as recoverable costs.

o    Subject to certain qualifications, SCE will cooperate with the CPUC and the California Attorney General
     to pursue and resolve SCE's claims and rights against sellers of energy and related services, SCE's defenses
     to claims arising from any failure to make payments to the PX or ISO, and similar claims by the State of
     California or its agencies against the same adverse parties.  During the recovery period discussed above,
     refunds obtained by SCE related to its procurement-related liabilities will be applied to the balance in the
     PROACT.

The settlement agreement states that one of its purposes is to restore the investment grade creditworthiness of
SCE as rapidly as reasonably practicable so that it will be able to provide reliable electrical service as a
state-regulated entity as it has in the past.  SCE cannot provide assurance that it will regain investment grade
credit ratings by any particular date.

The settlement agreement states that the CPUC shall adopt such decisions or orders it deems necessary to
implement and carry out the provisions of the agreement, with the understanding that the agreement and stipulated
judgment shall be binding and irrevocable upon the parties.  SCE expects that these implementing decisions or
orders will be issued during fourth quarter 2001.

The minimum beginning balance of the PROACT, as verified by the CPUC, is calculated as follows:

         In millions
- ---------------------------------------------------------------------------------------------

         PX or ISO                                                              $    924
         QFs  1,219
         PX energy credits                                                           236
         Imbalance energy (CDWR)                                                     383
         Ancillary services for resale cities                                         30
- ---------------------------------------------------------------------------------------------

              Total past due bills                                                 2,792
         Credit facilities                                                         1,298
         Bilateral credit facilities                                                 415
         Defaulted commercial paper                                                  563
         Floating rate notes due May 2002                                            313
         Variable rate notes due November 2003                                     1,043
- ---------------------------------------------------------------------------------------------

              Total procurement-related liabilities                                6,424
         Less:  Cash and cash equivalents on hand                                 (2,547)
         Less:  Amount stipulated in agreement                                      (300)
- ---------------------------------------------------------------------------------------------

         Net PROACT balance as of August 31, 2001                               $  3,577
- ---------------------------------------------------------------------------------------------


On October 26, 2001, a California consumer group asked a federal court of appeals for a stay of judgment pending
appeal of the federal district court's judgment approving the settlement.  The group alleged that it was denied
due process and that the CPUC had no authority to agree with SCE to violate the statutory rate freeze.  On
October 30, 2001, the court of appeals granted a temporary stay, and instructed the


Page 50


consumer group to return to district court to argue the merits of the stay.  On November 9, 2001, the district
court denied the consumer group's request for a stay.  The consumer group indicated that it intends to ask the
court of appeals for a stay of judgment pending appeal.  If the stay of judgment pending appeal is granted, or
the settlement is successfully challenged on appeal, the ability of SCE and the CPUC to implement the settlement
agreement would be affected adversely, which in turn would have an adverse effect on SCE's ability to restore its
financial condition, repay its creditors and avoid an involuntary bankruptcy petition.

CDWR Power Purchases

In accordance with an emergency order signed by the Governor, the CDWR began making emergency power purchases for
SCE's customers on January 18, 2001.  Amounts SCE bills to and collects from its customers for electric power
purchased and sold by the CDWR and through the ISO are remitted directly to the CDWR and are not considered
revenue to SCE.  In February 2001, Assembly Bill 1 (First Extraordinary Session, AB 1X) was enacted into law.
AB 1X authorized the CDWR to enter into contracts to purchase electric power and sell power at cost directly to
retail customers being served by SCE, and authorized the CDWR to issue bonds to finance electricity purchases.

On March 27, 2001, the CPUC issued an interim order requiring SCE to pay the CDWR a per-kWh price equal to the
applicable generation-related retail rate per kWh for electricity (based on rates in effect on January 5, 2001),
for each kWh the CDWR sells to SCE's customers.  The CPUC determined that the generation-related retail rate
should be equal to the total bundled electric rate (including the 1(cent)-per-kWh temporary surcharge adopted by the
CPUC on January 4, 2001) less certain nongeneration-related rates or charges.  For the period January 19 through
January 31, 2001, the CPUC ordered SCE to pay the CDWR at a rate of 6.277(cent)per kWh for power delivered to SCE's
customers.  The CPUC determined that the applicable rate component is 7.277(cent)per kWh (which increased to 10.277(cent)
per kWh for electricity delivered after March 27, 2001, due to the 3(cent)-surcharge discussed in Rate Stabilization
Proceeding), for electricity delivered by the CDWR to SCE's retail customers after February 1, 2001, until more
specific rates are calculated.  The CPUC ordered SCE to pay the CDWR within 45 days after the CDWR supplies power
to retail customers, subject to penalties for each day the payment is late.

On September 4, 2001, the CPUC issued a proposed decision authorizing a CDWR revenue requirement of $12.1 billion
to pay its bonds' costs and energy procurement costs for 2001 and 2002.  The proposed decision states that SCE's
allocated share of this revenue requirement (based on a cost-of-service approach) would be approximately $4
billion, and changes SCE's payment from 10.277(cent)per kWh to 10.03(cent)per kWh.  A balancing account would be
established to record the difference between the two rates, with the difference to be trued up in a subsequent
CPUC order.  In comments filed with the CPUC on September 12, 2001, SCE requested that the CPUC refrain from
adopting a final revenue requirement until hearings are held to determine how the revenue requirement was
calculated and its relationship to SCE's revenue requirement to be determined in the URG proceeding.  In a
November 5, 2001, filing with the CPUC, the CDWR reduced its revenue requirement $10.0 billion, due to
conservation efforts, lower natural gas prices and other changes in market conditions.  The CPUC has not
determined SCE's share of the $10.0 billion.  A final decision on the URG and CDWR matters is not expected until
early 2002.

SCE believes that the intent of AB 1X was for the CDWR to assume full responsibility for purchasing all power
needed to serve the retail customers of electric utilities, in excess of the output of generating plants owned by
the electric utilities and power delivered to the utilities under existing contracts.  However, the CDWR stated
that it would only purchase power that it considers to be reasonably priced, leaving the ISO to purchase in the
short-term market the additional power necessary to meet system requirements.  The ISO, in turn, took the
position that it will charge SCE for the costs of power it purchases in this manner.  If SCE is found responsible
for purchases of power by the ISO for delivery to SCE's customers on or after January 18, 2001, SCE's
purchased-power costs for the nine months ended September 30, 2001, could increase by as much as $1.6 billion
(which includes bills received for January through July 2001, and an estimate for August and September 2001).
This amount could increase or decrease depending on CPUC or FERC decisions regarding payments and refunds.  In
its March 27, 2001, interim order, the CPUC


Page 51


stated that it cannot assume that the CDWR will pay for the ISO purchases and that it does not have the authority
to order the CDWR to do so.  Litigation among certain power generators, the ISO and the CDWR (to which SCE is not
a party), and proceedings before the FERC (to which SCE is a party), may result in rulings clarifying the CDWR's
financial responsibility for purchases of power.  In April 2001, the FERC issued an order confirming its February
2001 order that the ISO must have a creditworthy buyer for any transactions.  SCE has not met the ISO's
creditworthiness requirements since its credit ratings were downgraded in mid-January 2001.  As a result, SCE has
protested and returned the bills it received from the ISO.  On November 7, 2001, the FERC issued an order
directing the ISO to invoice CDWR (within 15 days of the date of the order) for all transactions it entered into
on behalf of SCE's customers.  The ISO was also directed to file a report with the FERC within 15 days from the
date of the order indicating overdue amounts from CDWR and a schedule for payments of those amounts within three
months of the date of the order.  In any event, SCE takes the position that it is not responsible for purchases
of power by the CDWR or the ISO on or after January 18, 2001.  SCE cannot predict the outcome of any of these
proceedings or issues.

Status of Transition and Power-Procurement Cost Recovery

SCE's transition costs include power purchases from QF contracts (which are the direct result of prior
legislative and regulatory mandates), recovery of certain generating assets and other costs incurred to provide
service to customers.  Other costs include the recovery of income tax benefits previously flowed through to
customers, postretirement benefit transition costs and accelerated recovery of investment in nuclear generating
units.  Recovery of costs related to power-purchase QF contracts is permitted through the terms of each
contract.  Legislation and regulatory decisions issued prior to the beginning of the rate freeze called for most
of the remaining transition costs to be recovered through the end of the four-year transition period (not later
than March 31, 2002).  Because regulatory and legislative actions that make such recovery probable were not taken
in a timely manner during the energy crisis, as of December 31, 2000, SCE was unable to conclude that the net
regulatory assets related to purchased-power settlements, the unamortized loss on SCE's generating plant sales in
1998, and various other generation regulatory assets were probable of recovery through the rate-making process.
As a result, these balances were written off as a charge to earnings at that time (see further discussion in
Earnings).

There were three sources of revenue available to SCE for transition cost recovery through the TCBA mechanism:
revenue from the sale or valuation of generation assets in excess of book values, net market revenue from the
sale of SCE-controlled generation into the ISO and PX markets and competition transition charge (CTC) revenue.
Revenue from the first two sources has not been available since January 2001.  Net proceeds of the 1998 plant
sales were used to reduce transition costs, which otherwise had been expected to be collected through the TCBA
mechanism.  However, state legislation enacted in January 2001 prohibits the sale of SCE's remaining generation
assets until 2006.  SCE stopped selling power from its generation into the ISO and PX markets in January 2001,
after SCE's credit ratings were downgraded and the PX suspended SCE's trading privileges (see discussion in
Generation and Power Procurement).

As discussed in the Status of Transition and Power-Procurement Cost Recovery in Note 3 to the Consolidated
Financial Statements, CTC revenue has been determined residually, the CTC applied to all customers who were using
or began using utility services on or after the CPUC's 1995 restructuring decision date, and residual CTC revenue
was calculated through the TRA mechanism.  In accordance with the March 27, 2001, rate stabilization decision,
both positive and negative residual CTC revenue was transferred from the TRA to the TCBA on a monthly basis,
retroactive to January 1, 1998 (see further discussion in Rate Stabilization Proceedings).  A previous decision
had called only for a transfer of positive residual CTC revenue (TRA overcollections) to the TCBA and there had
not been any positive residual CTC revenue between May 2000 and June 2001.  The cumulative transition cost
undercollection (as recalculated) was $4.0 billion as of September 30, 2001, and $2.9 billion as of December 31,
2000.

Because the regulatory and legislative actions that made such recovery probable were not taken, SCE was unable to
conclude as of December 31, 2000, that the recalculated TCBA net undercollection was probable of recovery through
the rate-making process.  As a result, the $2.9 billion TCBA net undercollection was written off as a charge to
earnings as of that date (see further discussion in Earnings),


Page 52


and an additional $1.1 billion in TCBA undercollections were charged to earnings during 2001.  For more details
on the matters discussed above, see Rate Stabilization Proceedings.

Litigation

In October 2000, a federal class action securities lawsuit was filed against SCE and Edison International.  As
amended in December 2000 and March 2001, the lawsuit involves securities fraud claims arising from alleged
improper accounting for the TRA undercollections.  The second amended complaint is supposedly filed on behalf of
a class of persons who purchased Edison International common stock between July 21, 2000, and April 17, 2001.
This lawsuit has been consolidated with another similar lawsuit filed on March 15, 2001.  A consolidated class
action complaint was filed on August 3, 2001.  On September 17, 2001, SCE and Edison International filed a motion
to dismiss for failure to state a claim.  The motion is scheduled for hearing on December 3, 2001.  SCE believes
that its current and past accounting for the TRA undercollections and related items is appropriate and in
accordance with accounting principles generally accepted in the United States.

In addition to the lawsuits filed against SCE and discussed above, SCE is involved in a number of state and
federal lawsuits filed by QFs.  The lawsuits have been filed by various parties, including geothermal, wind and
cogeneration suppliers.  The lawsuits are seeking payments of at least $833 million for energy and capacity
supplied to SCE under QF contracts, and in some cases for additional damages as well.  Many of these QF lawsuits
also seek an order allowing the suppliers to stop providing power to SCE so that they may sell the power to other
purchasers.  The state court cases have been coordinated before a single trial judge.  SCE has reached agreements
with QFs representing about 97% of the QF renewable and cogeneration capacity provided to SCE.  The agreements
provide for stays of litigation, payments to the QFs upon occurrence of specified conditions, modifications in
some cases to the contract prices going forward, releases and dismissals of the litigation upon payment by SCE.
In light of the settlement agreement with the CPUC, SCE is seeking to negotiate amendments to the agreements with
QFs.

SCE cannot predict the outcome of any of these matters.

Rate Stabilization Proceedings

In January 2000, SCE filed an application with the CPUC proposing rates that would go into effect when the
four-year rate freeze was to end on March 31, 2002, or earlier, depending on the pace of transition cost
recovery.  In December 2000, SCE filed an amended rate stabilization plan application, stating that the statutory
rate freeze had ended in accordance with California law, and requesting the CPUC to approve an immediate 30%
increase to be effective, subject to refund, January 4, 2001.

In January 2001, independent auditors hired by the CPUC issued a report on the financial condition and solvency
of SCE and its affiliates.  The report confirmed what SCE had previously disclosed to the CPUC in public filings
about SCE's financial condition.  The audit report covered, among other things, cash needs, credit relationships,
accounting mechanisms to track stranded cost recovery, the flow of funds between SCE and Edison International,
and earnings of SCE's California affiliates.  In April 2001, the CPUC adopted an order instituting investigation
that reopens the past CPUC decision authorizing the utilities to form holding companies and initiates an
investigation into:  whether the holding companies violated CPUC requirements to give priority to the capital
needs of their respective utility subsidiaries; whether ring-fencing actions by Edison International and PG&amp;E
Corporation and their respective nonutility affiliates also violated the requirements to give priority to the
capital needs of their utility subsidiaries; whether the payment of dividends by the utilities violated
requirements that the utilities maintain dividend policies as though they were comparable stand-alone utility
companies; any additional suspected violations of laws or CPUC rules and decisions; and whether additional rules,
conditions, or other changes to the holding company decisions are necessary.  SCE believes the holding company
decision refers to equity investment, not working capital for operating costs.  The CPUC ordered testimony and
briefing on these matters, which SCE filed in May and June 2001.  SCE cannot predict what effects this
investigation or any subsequent actions by the CPUC may have on SCE.


Page 53



In March 2001, the CPUC ordered an immediate rate increase in the form of a 3(cent)-per-kWh surcharge applied only to
going-forward electric power procurement costs and affirmed that a 1(cent)interim surcharge granted in January 2001
is permanent.  The 3(cent)surcharge is to be added to the rate paid to the CDWR (see CDWR Power Purchases).  Although
the 3(cent)-increase was authorized as of March 27, 2001, the surcharge was not collected in rates until the CPUC
established a rate design in early June 2001.

Also, in the March 2001 order, the CPUC granted a petition previously filed by The Utility Reform Network and
directed that the balance in SCE's TRA, whether over or undercollected, be transferred on a monthly basis to the
TCBA, retroactive to January 1, 1998.  Previous rules called only for TRA overcollections (residual CTC revenue)
to be transferred to the TCBA.  The CPUC also ordered SCE to transfer the coal and hydroelectric balancing
account overcollections to the TRA on a monthly basis before any transfer of residual CTC revenue to the TCBA,
retroactive to January 1, 1998.  Previous rules called for overcollections in these two balancing accounts to be
transferred directly to the TCBA on an annual basis (see further discussion of the recalculation of the TCBA in
Status of Transition and Power-Procurement Cost Recovery).  Based upon the transfer of balances into the TCBA,
the CPUC denied SCE's December 2000 filing requesting an end to the current rate freeze, and stated that the
four-year rate freeze will not end until recovery of all specified transition costs or March 31, 2002; and that
balances in the TRA cannot be recovered after the end of the rate freeze.  The CPUC also said that it would
monitor the balances remaining in the TCBA and consider how to address remaining balances in the ongoing
proceedings.  In accordance with the October 2001 settlement with the CPUC, it is expected that the TCBA
mechanism will be discontinued and the PROACT mechanism will be established retroactive to August 31, 2001 (see
further discussion in CPUC Litigation Settlement Agreement).

URG Proceeding

In order to implement the CPA and Rate Stabilization decisions, SCE filed a comprehensive proposal for new
cost-of-service ratemaking for utility retained generation through the end of 2002.  The URG proposal calls for
balancing accounts for SCE-owned generation, QF and interutility contracts, procurement costs and ISO charges
based on either actual or CPUC-authorized revenue requirements.  Under the proposal, the four new balancing
accounts would be effective January 1, 2001, for capital-related costs, and February 1, 2001, for
non-capital-related costs.  In addition, SCE's unamortized nuclear investment would be amortized and recovered in
rates over a 10-year period, effective January 1, 2001.  Should this application be approved as filed, SCE
expects to reestablish for financial reporting purposes regulatory assets related to purchased-power settlements,
unamortized nuclear investment and related flow-through taxes, with a corresponding credit to earnings.  Hearings
were held in July 2001.  A final decision is not expected until early 2002.

Accounting for Generation-Related Assets and Power Procurement Costs

In 1997, SCE discontinued application of accounting principles for rate-regulated enterprises for its generation
assets.  At that time, SCE did not write off any of its generation-related assets, including related regulatory
assets, because the electric utility industry restructuring plan made probable their recovery through a
nonbypassable charge to distribution customers.

During the second quarter of 1998, in accordance with asset impairment accounting standards, SCE reduced its
remaining nuclear plant investment by $2.6 billion (as of June 30, 1998) and recorded a regulatory asset on its
balance sheet for the same amount.  For this impairment assessment, the fair value of the investment was
calculated by discounting expected future net cash flows.  This reclassification had no effect on SCE's results
of operations.

As of December 31, 2000,  SCE assessed the  probability  of recovery of its generation-related  assets
and power  procurement  costs in light of the CPUC's March 27, 2001,  and April 3, 2001,  decisions,  and
could not conclude that its $2.9 billion TCBA  undercollection  (as redefined in the March 27 decisions) and
$1.3 billion (book value) of its net generation-related  regulatory assets to be amortized  into the TCBA,
were  probable  of recovery  through the  rate-making process.  As a result,  accounting  principles
generally accepted in the United States required that the balances in the accounts be written off as a
charge to


Page 54


earnings.  In addition to the $4.2 billion pre-tax write-off,  SCE incurred approximately $400 million in net
undercollected  transition costs during 2001 (see Earnings).

In accordance with the CPUC settlement agreement, in fourth quarter 2001, it is expected that the CPUC will issue
implementing decisions or orders allowing SCE to establish a $3.6 billion regulatory asset for previously
incurred energy procurement-related costs, to be called the PROACT, retroactive to August 31, 2001.  See further
discussion in CPUC Litigation Settlement Agreement.  CPUC approval of the URG application, as filed (see URG
Proceeding), together with implementation of the PROACT mechanism is expected to allow SCE to recover
substantially all of the $4.6 billion in write-offs and undercollected transition costs incurred during the past
12 months.

Distribution

Revenue related to distribution operations is determined through a performance-based rate-making (PBR) mechanism
and the distribution assets have the opportunity to earn a CPUC-authorized 9.49% return on investment.  The
distribution PBR will extend through December 2001.  Key elements of the distribution PBR include:  distribution
rates indexed for inflation based on the Consumer Price Index less a productivity factor; adjustments for cost
changes that are not within SCE's control; a cost-of-capital trigger mechanism based on changes in a utility bond
index; standards for customer satisfaction; service reliability and safety; and a net revenue-sharing mechanism
that determines how customers and shareholders will share gains and losses from distribution operations.

Transmission

Transmission revenue is determined through FERC-authorized rates and is subject to refund.

Wholesale Electricity Markets

In October 2000, SCE filed a joint petition urging the FERC to immediately find the California wholesale
electricity market to be not workably competitive, immediately impose a cap on the price for energy and ancillary
services, and institute further expedited proceedings regarding the market failure, mitigation of market power,
structural solutions and responsibility for refunds.  In December 2000, the FERC took limited action and failed
to impose a price cap.  SCE filed an emergency petition in the federal court of appeals challenging the FERC
order and requesting the FERC to immediately establish cost-based wholesale rates.  The court denied SCE's
petition in January 2001.

In its December 2000 order, the FERC established an "underscheduling" penalty applicable to scheduling
coordinators that do not schedule sufficient resources to supply 95% of their respective loads.  In May 2001, the
FERC indicated that it will make a determination regarding the suspension of the underscheduling penalty in a
future order in response to a complaint filed by SCE that asked the FERC to eliminate the penalty.  As of October
31, 2001, SCE's share of the statewide accumulated penalties were estimated to be as much as $360 million.  The
ISO has not billed SCE for any amounts associated with the underscheduling penalty.  SCE cannot predict the
outcome of this matter.

On April 25, 2001, after months of extremely high power prices, the FERC issued an order providing for energy
price controls during ISO Stage 1 or greater power emergencies (7% or less in reserve power).  The order
establishes an hourly clearing price based on the costs of the least efficient generating unit during the
period.  Effective June 20, 2001, the FERC expanded the April 25, 2001, order to include non-emergency periods
and price mitigation in the 11-state western region.  The latest order is in effect until September 30, 2002.

After unsuccessful settlement negotiations among utilities, power sellers and state representatives, on July 25,
2001, the FERC issued an order that limits potential refunds from alleged overcharges to the ISO and PX spot
markets during the period from October 2, 2000, through June 20, 2001, and adopted a refund methodology based on
daily spot market gas prices.  An administrative law judge will conduct


Page 55


evidentiary hearings on this matter.  SCE cannot predict the amount of any potential refunds.  Under the
settlement of litigation with the CPUC, refunds will be applied to the balance in the PROACT.

Environmental Protection

SCE is subject to numerous environmental laws and regulations, which require it to incur substantial costs to
operate existing facilities, construct and operate new facilities, and mitigate or remove the effect of past
operations on the environment.

As further discussed in Note 12 to the Consolidated Financial Statements, SCE records its environmental
liabilities when site assessments and/or remedial actions are probable and a range of reasonably likely cleanup
costs can be estimated.  SCE's recorded estimated minimum liability to remediate its 42 identified sites is $114
million.  SCE believes that, due to uncertainties inherent in the estimation process, it is reasonably possible
that cleanup costs could exceed its recorded liability by up to $269 million.  In 1998, SCE sold all of its
gas-fueled power plants but has retained some liability associated with the divested properties.

The CPUC allows SCE to recover environmental-cleanup costs at certain sites, representing $45 million of its
recorded liability, through an incentive mechanism, which is discussed in Note 12.  SCE has recorded a regulatory
asset of $60 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.  As a
result, 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 $10 million to $25 million.  Recorded costs for the twelve months ended September 30,
2001, were $20 million.

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 and, based upon the CPUC's regulatory treatment of environmental-cleanup
costs, SCE believes that costs ultimately recorded will not materially affect its results of operations or
financial position.  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.

The Clean Air Act requires power producers to have emissions allowances to emit sulfur dioxide.  Power companies
receive emissions allowances from the federal government and may bank or sell excess allowances.  SCE expects to
have excess allowances under Phase II of the Clean Air Act (2000 and later).  A study was undertaken to determine
the specific impact of air contaminant emissions from the Mohave Generating Station on visibility in Grand Canyon
National Park.  The final report on this study, which was issued in March 1999, found negligible correlation
between measured Mohave station tracer concentrations and visibility impairment.  The absence of any obvious
relationship cannot rule out Mohave station contributions to haze in Grand Canyon National Park, but strongly
suggests that other sources were primarily responsible for the haze.  In June 1999, the Environmental Protection
Agency (EPA) issued an advanced notice of proposed rulemaking regarding assessment of visibility impairment at
the Grand Canyon.  SCE filed comments on the proposed rulemaking in November 1999.  In 1998, several
environmental groups filed suit against the co-owners of the Mohave station regarding alleged violations of
emissions limits.  In order to accelerate resolution of key environmental issues regarding the plant, the parties
filed, in concurrence with SCE and the other station owners, a consent decree, which was approved by the court in
December 1999.  In a letter to SCE, the EPA has expressed its belief that the controls provided in the consent
decree will likely resolve the potential Clean Air Act visibility concerns.  The EPA is considering incorporating
the decree into the visibility provisions of its Federal Implementation Plan for Nevada.


Page 56


SCE's share of the costs of complying with the consent decree and taking other actions to continue operation of
the Mohave station is estimated to be approximately $560 million over the next four years.  However, SCE has
suspended its efforts to seek approval to install the Mohave controls because it has not obtained reasonable
assurance of an adequate water supply for mining and transporting the coal required for operating Mohave beyond
2005.  Accordingly, the above amount is not included in the environmental capital expenditure projections below.
The Navajo Nation and Hopi Tribe have not been willing to agree to continued use of the current source of water
from an aquifer in their joint use area after December 31, 2005.  Efforts by the Mohave co-owners to find
alternative sources of water have been unsuccessful, and it is unlikely that water rights can be obtained before
the time when the Mohave co-owners would need to make large financial commitments towards continued operation of
the Mohave station.  If adequate water rights are not obtained, it will become necessary to shut down the Mohave
station after December 31, 2005.

SCE's projected environmental capital expenditures are $1.2 billion for the 2001-2005 period, mainly for
undergrounding certain transmission and distribution lines.

San Onofre Nuclear Generating Station

In February 2001, SCE's San Onofre Unit 3 experienced a fire due to an electrical fault in the non-nuclear
portion of the plant.  The turbine rotors, bearings and other components of the turbine generator system were
damaged extensively.  In June 2001, Unit 3 returned to service.  Under the currently effective San Onofre
rate-recovery plan (discussed in the Generation and Power Procurement section of Regulatory Environment), SCE's
lost revenue was approximately $98 million as a result of the fire and related outage.

The San Onofre Units 2 and 3 steam generators' design allows for the removal of up to 10% of the tubes before the
rated capacity of the unit must be reduced.  Increased tube degradation was found during routine inspections in
1997.  To date, 8% of Unit 2's tubes and 6% of Unit 3's tubes have been removed from service.  A decreasing
(favorable) trend in degradation has been observed in more recent inspections.

New Accounting Standards

In October 2001, a new accounting standard was issued related to accounting for the impairment or disposal of
long-lived assets.  Although the statement supersedes a prior accounting standard related to the impairment of
long-lived assets, it retains the fundamental provisions of the impairment standard regarding
recognition/measurement of impairment of long-lived assets to be held and used and measurement of long-lived
assets to be disposed of by sale.  Under the new accounting standard, asset write-downs from discontinuing a
business segment will be treated the same as other assets held for sale.  The new standard also broadens the
financial statement presentation of discontinued operations to include the disposal of an asset group (rather
than a segment of a business).  The standard is effective for SCE beginning January 1, 2002, unless early
adoption is implemented.

In July and August 2001, three new accounting standards were issued:  Business Combinations; Goodwill and Other
Intangibles; and Accounting for Asset Retirement Obligations.

The new Business Combinations standard eliminates the pooling-of-interests method, effective June 30, 2001.
After that, all business combinations will be recorded under the purchase method (record goodwill for excess of
costs over the net assets acquired).

The new Goodwill and Other Intangibles standard requires that companies cease amortizing goodwill, effective
January 1, 2002.  Goodwill initially recognized after June 30, 2001, will not be amortized.  Goodwill on the
balance sheet at June 30, 2001, will be amortized until January 1, 2002.  Under the new standard, goodwill will
be tested for impairment using a fair-value approach when events or circumstances occur indicating that
impairment might exist.  Also, a benchmark assessment for goodwill is required within six months of the date of
adoption of the standard.


Page 57



The Accounting for Asset Retirement Obligations standard requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is incurred.  When the liability is
initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived
asset.  Over time, the liability is increased to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset.  Upon settlement of the liability, an entity either
settles the obligation for its recorded amount or incurs a gain or loss upon settlement.  The standard is
effective for fiscal years beginning after June 15, 2002, with earlier application encouraged.

SCE is studying the impact of the new Asset Retirement Obligations and Asset Impairment standards and is unable
to predict at this time the effect on its financial statements.  SCE does not anticipate any material impact on
its results of operations or financial position from the other two new accounting standards.

On January 1, 2001, SCE adopted a new accounting standard for derivative instruments and hedging activities.  The
new standard requires all derivatives to be recognized on the balance sheet at fair value.  Prior to adoption,
hedges were not recorded on the balance sheet.  Gains or losses from changes in the fair value of a recognized
asset or liability or a firm commitment are reflected in earnings for the ineffective portion of the hedge.  For
a hedge of the cash flows of a forecasted transaction, the effective portion of the gain or loss is initially
recorded as a separate component of shareholder's equity under the caption "accumulated other comprehensive
income," and subsequently reclassified into earnings when the forecasted transaction affects earnings.  The
ineffective portion of the gain or loss is reflected in earnings immediately.  Under the new standard, SCE's
derivatives qualify for hedge accounting or for the normal purchase and sales exemption from derivatives
accounting rules.  On the implementation date, SCE recorded its interest rate swap agreement (terminated January
5, 2001) and its block forward power purchase contracts (seized by the state on February 2, 2001) at fair value
on its balance sheet.  As of September 30, 2001, SCE did not have any derivatives as defined by the new
accounting standard.  SCE does not anticipate any earnings impact from any future derivatives, since it expects
that any market price changes will be recovered in rates.

Forward-looking Information

In the preceding Management's Discussion and Analysis of Results of Operations and Financial Condition and
elsewhere in this quarterly report, the words estimates, expects, anticipates, believes, and other similar
expressions are intended to identify forward-looking information that involves risks and uncertainties.  Actual
results or outcomes could differ materially as a result of such important factors as possible challenges to the
entry of the stipulated judgment or the provisions of the settlement agreement; possible ballot initiatives
attempting to undermine the provisions of the settlement agreement or otherwise adversely affecting SCE; changes
in prices of wholesale electricity and natural gas or SCE's costs, including the prices and costs that were
assumed in negotiating the settlement agreement, which could cause SCE's cost recovery to be less than
anticipated; the actions of securities rating agencies, including the determination of  whether or when to make
changes in SCE's credit ratings; the possible inability of SCE to refinance existing obligations and obtain new
financing on reasonable terms as needed; the possibility that SCE's creditors may file an involuntary bankruptcy
petition against SCE or pursue other remedies against SCE or its assets; the outcome of negotiations for
solutions to SCE's liquidity problems; further actions by state and federal regulatory bodies setting rates,
adopting or modifying cost recovery, accounting or rate-setting mechanisms and implementing the restructuring of
the electric utility industry; actions by lenders, investors and creditors in response to SCE's suspension of
payments for debt service and purchased power; the effects, unfavorable interpretations and applications of new
or existing laws and regulations relating to restructuring, taxes and other matters; the effects of increased
competition in energy-related businesses; the availability of credit, including SCE's ability to regain an
investment grade credit rating and re-enter the credit markets; changes in financial market conditions; the
amount of revenue available to both transition and non-transition costs; new or increased environmental
liabilities; the financial viability of new businesses, such as telecommunications; weather conditions; and other
unforeseen events.


Page 58


PART II           OTHER INFORMATION

Item 1.           Legal Proceedings

                                       San Onofre Personal Injury Litigation

As previously reported in Part 1, Item 3 of SCE's 2000 Form 10-K, and in Part II, Item 1 of SCE's Form 10-Qs for
the quarterly periods ending March 31, 2001 (First Quarter 10-Q) and June 30, 2001 (Second Quarter 10-Q), SCE is
actively involved in four lawsuits claiming personal injuries allegedly resulting from exposure to radiation at
San Onofre.

In the case filed against SCE on March 1, 2001, the Court has approved a stipulation of the parties staying
prosecution of the case pending the outcome of appellate proceedings in the matter brought against SCE on
November 17, 1995.  In that case, on September 27, 2001, the Ninth Circuit issued a new opinion affirming the
District Court's judgment in favor of SCE and the other defendants in the action.  On October 9, 2001, plaintiffs
in the November 17, 1995, action filed a petition for rehearing.

                                              Shareholder Litigation

As previously reported in Part 1, Item 3 of SCE's 2000 Form 10-K, and in Part II, Item 1 of SCE's First Quarter
10-Q and Second Quarter 10-Q, two purported class actions (referred to as the Stubblefield Action and King
Action) were filed in October 2000 and March 2001, and involve securities fraud claims arising from alleged
improper accounting by Edison International and SCE for undercollections in SCE's Transition Revenue Account
(TRA).

On August 3, 2001, the plaintiffs in the Stubblefield Action and King Action filed a consolidated complaint on
behalf of alleged shareholders of Edison International, naming as defendants SCE, Edison International, and
certain officers of Edison International.  The consolidated complaint alleges that defendants engaged in
securities fraud by misrepresenting and/or failing to disclose material facts concerning the financial condition
of Edison International and SCE, including that defendants allegedly over-reported income and improperly
accounted for the TRA undercollections.  The complaint purports to be filed on behalf of a class of persons who
purchased Edison International stock between July 21, 2000, and April 17, 2001.  Plaintiffs seek damages in an
unstated amount in connection with their purchase of securities during the class period.  On September 17, 2001,
the defendants filed a motion to dismiss for failure to state a claim.  Plaintiffs filed their opposition on
October 22, 2001.  The motion is scheduled for hearing on December 3, 2001.

                                       Qualifying Facilities (QF) Litigation

As previously reported in Part 1, Item 3 of SCE's 2000 Form 10-K, and in Part II, Item 1 of SCE's First Quarter
10-Q and Second Quarter 10-Q, SCE is involved in a number of legal actions brought by various QFs, alleging SCE
failed to timely pay for power deliveries made from November 2, 2000, through March 26, 2001.  The plaintiffs
include gas-fired QFs, geothermal and wind energy QFs, and owners of cogeneration projects.  The lawsuits, in
aggregate, seek payments of more than $833,000,000 for energy and capacity supplied to SCE under QF contracts,
and in some cases additional damages.  Many of these QF lawsuits also seek an order allowing the suppliers to
stop providing power to SCE so that they may sell to other purchasers.  The California court cases have been
coordinated before a single trial judge.  On September 13, 2001, the coordinated trial judge dismissed, with
prejudice, five of the six remaining cases on the basis that the issues in dispute are currently within the
jurisdiction of the CPUC.  The sixth case, which was filed in federal court and therefore was not within the
September 13 ruling, was stayed for 90 days by order issued on September 24, 2001, in order to permit the CPUC to
address the issues in dispute.  SCE has reached at least tentative settlement with four of the five QFs included
in the September 13 dismissal ruling.  SCE had settled with the fifth QF included in the September 13 order as
well but that settlement was contingent upon CPUC approval of the settlement being obtained by a particular date,
a condition which did not materialize.  Accordingly, that agreement has lapsed.  This


Page 59


nonsettling QF, whose claim is for approximately $10,500,000, has filed a notice of appeal from the coordination
trial judge's dismissal of its case.  In addition, to protect their rights, two of the other QFs whose cases were
dismissed in the coordinated state court proceeding have also filed appeals; however, the latter QFs and SCE
have, in one of the cases, jointly requested and, in the other case, will jointly request, a stay of the appeals
from the appellate court as required under the parties' settlement agreement.

During June, July and August 2001, SCE reached agreements with generators representing about 97% of the QF
renewable cogeneration capacity provided to SCE.  The agreements provide for stays of litigation, payments to the
QFs upon the occurrence of specified conditions, modifications in some cases to the contract prices going
forward, releases and dismissals of the litigation upon payment by SCE.

Rights to attach assets in connection with claims have been granted in four cases (Beowawe Power, L.L.C., Heber
Geothermal Company, City of Long Beach, and IMC Chemicals, Inc.) in the approximate amounts of $20,000,000,
$28,000,000, $9,000,000, and $7,500,000, respectively, contingent on the posting of bonds.  The plaintiffs in
three of these cases (Beowawe, Heber and IMC Chemicals) have not posted bonds as of this time and did not attach
any SCE assets.  Each of these four cases is now stayed pursuant to an agreement of the type referenced above.
Before entering into a stay agreement pursuant to the parties' settlement, Long Beach had attached one of SCE's
bank accounts.  As noted above, the Long Beach case has recently been dismissed without prejudice pursuant to the
dismissal order in the coordination proceeding, but the dismissal remains subject to Long Beach's appeal.  In
addition, prior to the dismissal, SCE initiated a writ proceeding before the California Court of Appeal to
challenge the right to attach order in the Long Beach case, and, in connection with that writ proceeding, SCE
obtained a temporary stay of enforcement of the attachment order.  That stay and the hearing on the writ petition
were recently continued by the Court of Appeal to January 2002, based on a joint motion of the parties in light
of the order of dismissal.  Under the parties' settlement agreement discussed above, the parties shall request
that the proceedings in the Court of Appeal related to Long Beach's attachment (which in addition to SCE's
petition for review includes an ancillary appeal by SCE and a cross appeal by Long Beach) be stayed for a period
concurrent with the standstill period specified in the settlement.

                                  Power Exchange (PX) Performance Bond Litigation

As previously reported in Part 1, Item 3 of SCE's 2000 Form 10-K, and in Part II, Item 1 of SCE's Second Quarter
10-Q, SCE was notified that due to failure to comply with its payment obligations to the PX, the PX issued a
demand to American Home Assurance Company (American Home).  As required under the indemnity agreement between SCE
and American Home, in February 2001, SCE deposited $20,200,000 in an account in trust to be available to satisfy
any judgment, should there be one, against American Home.  On or about September 13, 2001 the PX submitted a
demand for arbitration against American Home, asserting causes of action for breach of contract and bad faith
refusal to pay.  On September 25, 2001, American Home demanded that SCE indemnify and defend American Home in
connection with the demand for arbitration, pursuant to the operative documents between the parties.  SCE has
assumed the defense of this arbitration.




Page 60


Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

         3.1      Certificate of Amendment and Restated Articles of Incorporation of SCE effective June 1, 1993
                  (File No. 1-2313, Form 10-K for the year ended December 31, 1993)*

         3.2      Certificate of Correction of Restated Articles of Incorporation of SCE dated June 23, 1997
                  (File No. 1-2313, Form 10-Q for the quarter ended September 30, 1997)*

         3.3      Amended Bylaws of Southern California Edison Company as adopted by the Board of Directors on
                  October 18, 2001

         23.      Consent of Independent Public Accountants

(b)      Reports on Form 8-K:

         Date of Report                         Date Filed                      Item(s) Reported

         None

- ------------------
* Incorporated by reference pursuant to Rule 12b-32.



Page 61


                                                    SIGNATURES


Pursuant to the requirements 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
                                                                       (Registrant)


                                                     By       /THOMAS M. NOONAN/
                                                               THOMAS M. NOONAN
                                                              Vice President and Controller

                                                     By       /KENNETH S. STEWART/
                                                               KENNETH S. STEWART
                                                              Assistant General Counsel and
                                                              Assistant Secretary


November 13, 2001



Page 62


</PRE>
</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.(II)
<SEQUENCE>3
<FILENAME>scebl.htm
<DESCRIPTION>AMENDED BYLAWS OF SCE 10-18-01
<TEXT>
<HTML>
<HEAD>
<TITLE>
SCE Bylaws
</TITLE>
</HEAD>
<BODY>
<PRE>
                                        To Holders of the Company's Bylaws:




                                 Effective October 18, 2001, Article II, Section 2
                                  was amended to change the date of the 2002 and
                                     subsequent annual shareholders' meetings.





                                                 BEVERLY P. RYDER
                                                Corporate Secretary












                                                      BYLAWS

                                                        OF

                                        SOUTHERN CALIFORNIA EDISON COMPANY

                                            AS AMENDED TO AND INCLUDING

                                                 OCTOBER 18, 2001




<PAGE>



                                                       INDEX
                                                       -----

                                                                                                  Page
                                                                                                  ----
                                           ARTICLE I - PRINCIPAL OFFICE
Section  1.  Principal Office.......................................................................1

                                             ARTICLE II - SHAREHOLDERS
Section  1.  Meeting Locations......................................................................1
Section  2.  Annual Meetings........................................................................1
Section  3.  Special Meetings.......................................................................2
Section  4.  Notice of Annual or Special Meeting....................................................2
Section  5.  Quorum.................................................................................4
Section  6.  Adjourned Meeting and Notice Thereof...................................................4
Section  7.  Voting.................................................................................4
Section  8.  Record Date............................................................................6
Section  9.  Consent of Absentees...................................................................7
Section 10.  Action Without Meeting.................................................................7
Section 11.  Proxies................................................................................8
Section 12.  Inspectors of Election.................................................................8

                                              ARTICLE III - DIRECTORS
Section  1.  Powers.................................................................................9
Section  2.  Number of Directors...................................................................10
Section  3.  Election and Term of Office...........................................................10
Section  4.  Vacancies.............................................................................10
Section  5.  Place of Meeting......................................................................11
Section  6.  Organization Meeting..................................................................11
Section  7.  Special Meetings and Other Regular Meetings...........................................11
Section  8.  Quorum................................................................................12
Section  9.  Participation in Meetings by Conference Telephone.....................................12
Section 10.  Waiver of Notice......................................................................12
Section 11.  Adjournment...........................................................................13



<Page>


Section 12.  Fees and Compensation.................................................................13
Section 13.  Action Without Meeting................................................................13
Section 14.  Rights of Inspection..................................................................13
Section 15.  Committees............................................................................13

                                               ARTICLE IV - OFFICERS
Section  1.  Officers..............................................................................14
Section  2.  Election..............................................................................15
Section  3.  Eligibility of Chairman or President..................................................15
Section  4.  Removal and Resignation...............................................................15
Section  5.  Appointment of Other Officers.........................................................15
Section  6.  Vacancies.............................................................................15
Section  7.  Salaries..............................................................................16
Section  8.  Furnish Security for Faithfulness.....................................................16
Section  9.  Chairman's Duties; Succession to
                     Such Duties in Chairman's Absence or Disability...............................16
Section 10.  President's Duties....................................................................16
Section 11.  Chief Financial Officer...............................................................17
Section 12.  Vice Presidents' Duties...............................................................17
Section 13.  General Counsel's Duties..............................................................17
Section 14.  Associate General Counsel's and Assistant General
                      Counsel's Duties.............................................................17
Section 15.  Controller's Duties...................................................................17
Section 16.  Assistant Controllers' Duties.........................................................17
Section 17.  Treasurer's Duties....................................................................18
Section 18.  Assistant Treasurers' Duties..........................................................18
Section 19.  Secretary's Duties....................................................................18
Section 20.  Assistant Secretaries' Duties.........................................................19
Section 21.  Secretary Pro Tempore.................................................................19
Section 22.  Election of Acting Treasurer or Acting Secretary......................................19
Section 23.  Performance of Duties.................................................................20


<Page>


                                           ARTICLE V - OTHER PROVISIONS
Section  1.  Inspection of Corporate Records.......................................................20
Section  2.  Inspection of Bylaws..................................................................21
Section  3.  Contracts and Other Instruments, Loans, Notes
                     and Deposits of Funds.........................................................21
Section  4.  Certificates of Stock.................................................................22
Section  5.  Transfer Agent, Transfer Clerk and Registrar..........................................22
Section  6.  Representation of Shares of Other Corporations........................................22
Section  7.  Stock Purchase Plans..................................................................23
Section  8.  Fiscal Year and Subdivisions..........................................................23
Section  9.  Construction and Definitions..........................................................23

                                          ARTICLE VI - INDEMNIFICATION
Section  1.  Indemnification of Directors and Officers.............................................24
Section  2.  Indemnification of Employees and Agents...............................................25
Section  3.  Right of Directors and Officers to Bring Suit.........................................26
Section  4.  Successful Defense....................................................................26
Section  5.  Non-Exclusivity of Rights.............................................................26
Section  6.  Insurance.............................................................................26
Section  7.  Expenses as a Witness.................................................................27
Section  8.  Indemnity Agreements..................................................................27
Section  9.  Separability..........................................................................27
Section 10.  Effect of Repeal or Modification......................................................27

                                        ARTICLE VII - EMERGENCY PROVISIONS
Section  1.  General...............................................................................27
Section  2.  Unavailable Directors.................................................................28
Section  3.  Authorized Number of Directors........................................................28
Section  4.  Quorum................................................................................28
Section  5.  Creation of Emergency Committee.......................................................28
Section  6.  Constitution of Emergency Committee...................................................29



<Page>


Section  7.  Powers of Emergency Committee.........................................................29
Section  8.  Directors Becoming Available..........................................................29
Section  9.  Election of Board of Directors........................................................29
Section 10.  Termination of Emergency Committee....................................................30

                                             ARTICLE VIII - AMENDMENTS
Section   1.  Amendments...........................................................................30



<PAGE>



                                                       BYLAWS

                              Bylaws for the regulation, except as otherwise provided
                                    by statute or its Articles of Incorporation

                                                        of

                                        SOUTHERN CALIFORNIA EDISON COMPANY

                                            AS AMENDED TO AND INCLUDING
                                                 OCTOBER 18, 2001


                                           ARTICLE I - PRINCIPAL OFFICE

Section 1.        Principal Office.

          The Edison General Office,  situated at 2244 Walnut Grove Avenue,  in the City of Rosemead,  County of Los
Angeles,  State of California,  is hereby fixed as the principal  office for the transaction of the business of the
corporation.


                                             ARTICLE II - SHAREHOLDERS

Section 1.        Meeting Locations.

          All meetings of  shareholders  shall be held at the principal  office of the  corporation or at such other
place or places  within or without the State of  California  as may be  designated  by the Board of Directors  (the
"Board").  In the event such  places  shall  prove  inadequate  in capacity  for any  meeting of  shareholders,  an
adjournment  may be taken to and the meeting held at such other place of adequate  capacity as may be designated by
the officer of the corporation presiding at such meeting.

Section 2.        Annual Meetings.

          The 2002 annual meeting of shareholders  and all annual meetings of shareholders  thereafter shall be held
on the third  Thursday of the month of May of each year at such time as the  Chairman of the Board shall  designate
on said day to elect  directors  to hold  office for the year next  ensuing  and until  their  successors  shall be
elected,  and to consider and act upon such other matters as may lawfully be presented to such  meeting;  provided,
however,  that should said day fall upon a legal  holiday,  then any such annual meeting of  shareholders  shall be
held at such designated time and place on the next day thereafter ensuing which is not a legal holiday.


Page 1


Section 3.        Special Meetings.

          Special  meetings of the  shareholders  may be called at any time by the Board, the Chairman of the Board,
the President,  or upon written  request of any three members of the Board, or by the holders of shares entitled to
cast not less than ten  percent of the votes at such  meeting.  Upon  request in  writing  to the  Chairman  of the
Board,  the President,  any Vice President or the Secretary by any person (other than the Board) entitled to call a
special  meeting  of  shareholders,  the  officer  forthwith  shall  cause  notice to be given to the  shareholders
entitled to vote that a meeting  will be held at a time  requested  by the person or persons  calling the  meeting,
not less than  thirty-five  nor more than sixty days after the receipt of the  request.  If the notice is not given
within twenty days after receipt of the request, the persons entitled to call the meeting may give the notice.

Section 4.        Notice of Annual or Special Meeting.

          Written notice of each annual or special meeting of  shareholders  shall be given not less than ten (or if
sent by  third-class  mail,  thirty) nor more than sixty days  before the date of the  meeting to each  shareholder
entitled to vote  thereat.  Such notice  shall state the place,  date,  and hour of the meeting and (i) in the case
of a  special  meeting,  the  general  nature  of the  business  to be  transacted,  and no other  business  may be
transacted,  or (ii) in the case of an annual  meeting,  those matters which the Board,  at the time of the mailing
of the notice,  intends to present for action by the  shareholders,  but,  subject to the  provisions of applicable
law and these Bylaws,  any proper matter may be presented at an annual  meeting for such action.  The notice of any
special or annual  meeting at which  directors are to be elected  shall  include the names of nominees  intended at
the  time  of the  notice  to be  presented  by the  Board  for  election.  For any  matter  to be  presented  by a
shareholder at an annual meeting held after  December 31, 1993, but on or before  December 31, 1999,  including the
nomination  of any person  (other than a person  nominated by or at the direction of the Board) for election to the
Board,  written  notice must be received by the Secretary of the  corporation  from the  shareholder  not less than
sixty nor more than one hundred twenty days prior to the date of the annual  meeting  specified in these Bylaws and
to which the  shareholder's  notice relates;  provided  however,  that in the event the annual meeting to which the
shareholder's  written  notice relates is to be held on a date which is more than thirty days earlier than the date
of the annual meeting  specified in these Bylaws,  the notice from a shareholder  must be received by the Secretary
not later than the close of business on the tenth day  following  the date on which public  disclosure  of the date
of the annual  meeting was made or given to the  shareholders.  For any matter to be presented by a shareholder  at
an annual  meeting held after  December 31,  1999,  including  the  nomination  of any person  (other than a person
nominated by or at the direction of the Board) for election to the Board, written notice must be received

Page 2


by the Secretary of the  corporation  from the  shareholder not more than one hundred eighty days nor less than one
hundred  twenty days prior to the date on which the proxy  materials for the prior year's annual meeting were first
released to shareholders by the corporation;  provided  however,  that in the event the annual meeting to which the
shareholder's  written  notice relates is to be held on a date which is more than thirty days earlier or later than
the date of the annual  meeting  specified in these Bylaws,  the notice from a shareholder  must be received by the
Secretary  not  earlier  than two  hundred  twenty  days  prior  to the date of the  annual  meeting  to which  the
shareholder's  notice  relates  nor later than one  hundred  sixty days prior to the date of such  annual  meeting,
unless  less than one  hundred  seventy  days' prior  public  disclosure  of the date of the meeting is made by the
earliest possible  quarterly report on Form 10-Q, or, if impracticable,  any means reasonably  calculated to inform
shareholders  including  without  limitation  a report  on Form  8-K,  a press  release  or  publication  once in a
newspaper of general  circulation in the county in which the principal office is located,  in which event notice by
the  shareholder  to be timely must be received not later than the close of business on the tenth day following the
date  of  such  public  disclosure.  The  shareholder's  notice  to the  Secretary  shall  set  forth  (a) a  brief
description of each matter to be presented at the annual meeting by the shareholder;  (b) the name and address,  as
they appear on the corporation's  books, of the shareholder;  (c) the class and number of shares of the corporation
which are beneficially  owned by the shareholder;  and (d) any material  interest of the shareholder in the matters
to be presented.  Any  shareholder  who intends to nominate a candidate  for election as a director  shall also set
forth in such a notice (i) the name,  age,  business  address and residence  address of each nominee that he or she
intends to nominate at the meeting,  (ii) the principal  occupation or employment of each nominee,  (iii) the class
and number of shares of capital stock of the  corporation  beneficially  owned by each nominee,  and (iv) any other
information  concerning  the  nominee  that  would be  required  under the  rules of the  Securities  and  Exchange
Commission  in a proxy  statement  soliciting  proxies  for the  election  of the  nominee.  The notice  shall also
include a consent,  signed by the  shareholder's  nominees,  to serve as a director of the  corporation if elected.
Notwithstanding  anything in these Bylaws to the contrary,  and subject to the provisions of any applicable law, no
business shall be conducted at a special or annual  meeting  except in accordance  with the procedures set forth in
this Section 4.

          Notice of a  shareholders'  meeting shall be given either  personally or by  first-class  mail (or, if the
outstanding  shares of the  corporation  are held of  record  by 500 or more  persons  on the  record  date for the
meeting,  by  third-class  mail) or by other means of written  communication,  addressed to the  shareholder at the
address  of such  shareholder  appearing  on the  books  of the  corporation  or given  by the  shareholder  to the
corporation  for the  purpose  of  notice;  or, if no such  address  appears  or is given,  at the place  where the
principal office of the corporation is located or by publication at least once in a newspaper of general

Page 3


circulation  in the county in which the  principal  office is located.  Notice by mail shall be deemed to have been
given at the time a written  notice is deposited in the United States  mails,  postage  prepaid.  Any other written
notice shall be deemed to have been given at the time it is  personally  delivered to the recipient or is delivered
to a common  carrier  for  transmission,  or actually  transmitted  by the person  giving the notice by  electronic
means, to the recipient.

Section 5.        Quorum.

          A majority of the shares entitled to vote,  represented in person or by proxy,  shall  constitute a quorum
at any  meeting of  shareholders.  The  affirmative  vote of a majority of the shares  represented  and voting at a
duly held meeting at which a quorum is present  (which  shares  voting  affirmatively  also  constitute  at least a
majority of the  required  quorum)  shall be the act of the  shareholders,  unless the vote of a greater  number or
voting by classes is required by law or the Articles;  provided,  however,  that the shareholders present at a duly
called  or  held  meeting  at  which  a  quorum  is  present  may  continue  to  do  business  until   adjournment,
notwithstanding  the withdrawal of enough  shareholders to have less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to constitute a quorum.

Section 6.        Adjourned Meeting and Notice Thereof.

          Any shareholders'  meeting,  whether or not a quorum is present, may be adjourned from time to time by the
vote of a  majority  of the  shares,  the  holders of which are either  present in person or  represented  by proxy
thereat,  but in the absence of a quorum  (except as provided in Section 5 of this  Article) no other  business may
be transacted at such meeting.

          It shall not be  necessary  to give any  notice of the time and place of the  adjourned  meeting or of the
business to be transacted  thereat,  other than by announcement at the meeting at which such  adjournment is taken.
At the  adjourned  meeting,  the  corporation  may transact any business  which might have been  transacted  at the
original  meeting.  However,  when any  shareholders'  meeting is adjourned  for more than  forty-five  days or, if
after  adjournment a new record date is fixed for the adjourned  meeting,  notice of the adjourned meeting shall be
given as in the case of an original meeting.

Section 7.        Voting.

          The  shareholders  entitled to notice of any meeting or to vote at any such meeting  shall be only persons
in whose name shares stand on the stock  records of the  corporation  on the record date  determined  in accordance
with Section 8 of this Article.


Page 4


          Voting  shall  in all  cases  be  subject  to the  provisions  of  Chapter  7 of  the  California  General
Corporation Law, and to the following provisions:

          (a)      Subject to clause (g),  shares  held by an  administrator,  executor,  guardian,  conservator  or
custodian  may be voted by such  holder  either in person or by proxy,  without a transfer  of such shares into the
holder's  name;  and shares  standing in the name of a trustee may be voted by the trustee,  either in person or by
proxy,  but no trustee  shall be entitled to vote  shares  held by such  trustee  without a transfer of such shares
into the trustee's name.

          (b)      Shares  standing in the name of a receiver may be voted by such  receiver;  and shares held by or
under the control of a receiver  may be voted by such  receiver  without the transfer  thereof into the  receiver's
name if authority to do so is contained in the order of the court by which such receiver was appointed.

          (c)      Subject to the provisions of Section 705 of the  California  General  Corporation  Law and except
where  otherwise  agreed in writing between the parties,  a shareholder  whose shares are pledged shall be entitled
to vote such  shares  until the shares have been  transferred  into the name of the  pledgee,  and  thereafter  the
pledgee shall be entitled to vote the shares so transferred.

          (d)      Shares  standing  in the name of a minor may be voted and the  corporation  may treat all  rights
incident  thereto as exercisable by the minor,  in person or by proxy,  whether or not the  corporation has notice,
actual or  constructive,  of the non-age  unless a guardian of the minor's  property has been appointed and written
notice of such appointment given to the corporation.

          (e)      Shares  standing in the name of another  corporation,  domestic or foreign,  may be voted by such
officer,  agent or  proxyholder  as the bylaws of such other  corporation  may prescribe or, in the absence of such
provision,  as the  Board of  Directors  of such  other  corporation  may  determine  or,  in the  absence  of such
determination,  by the chairman of the board,  president or any vice  president  of such other  corporation,  or by
any other person  authorized to do so by the chairman of the board,  president or any vice  president of such other
corporation.  Shares  which  are  purported  to be voted or any proxy  purported  to be  executed  in the name of a
corporation  (whether  or not any title of the person  signing is  indicated)  shall be presumed to be voted or the
proxy executed in accordance with the provisions of this subdivision, unless the contrary is shown.

          (f)      Shares of the corporation  owned by any of its subsidiaries  shall not be entitled to vote on any
matter.



Page 5


          (g)      Shares of the  corporation  held by the  corporation in a fiduciary  capacity,  and shares of the
corporation held in a fiduciary  capacity by any of its subsidiaries,  shall not be entitled to vote on any matter,
except to the extent that the settlor or  beneficial  owner  possesses and exercises a right to vote or to give the
corporation binding instructions as to how to vote such shares.

          (h)      If shares stand of record in the names of two or more persons,  whether  fiduciaries,  members of
a partnership,  joint tenants, tenants in common, husband and wife as community property,  tenants by the entirety,
voting  trustees,  persons entitled to vote under a shareholder  voting  agreement or otherwise,  or if two or more
persons  (including  proxyholders)  have the same fiduciary  relationship  respecting  the same shares,  unless the
secretary  of the  corporation  is  given  written  notice  to the  contrary  and is  furnished  with a copy of the
instrument  or order  appointing  them or creating  the  relationship  wherein it is so  provided,  their acts with
respect to voting shall have the following effect:

         (i)      If only one votes, such act binds all;

         (ii)     If more than one vote, the act of the majority so voting binds all;

         (iii)    If more than one vote,  but the vote is evenly split on any particular  matter,  each faction may
                  vote the securities in question proportionately.

         If the  instrument  so filed or the  registration  of the shares  shows  that any such  tenancy is held in
unequal  interests,  a majority or even split for the purpose of this section  shall be a majority or even split in
interest.

         No  shareholder  of any class of stock of this  corporation  shall be entitled  to  cumulate  votes at any
election of directors of this corporation.

         Elections for directors need not be by ballot;  provided,  however,  that all elections for directors must
be by ballot upon demand made by a shareholder at the meeting and before the voting begins.

         In any  election  of  directors,  the  candidates  receiving  the  highest  number of votes of the  shares
entitled to be voted for them up to the number of directors to be elected by such shares are elected.

Section 8.        Record Date.

         The Board may fix,  in  advance,  a record  date for the  determination  of the  shareholders  entitled to
notice of any meeting or to vote or  entitled to receive  payment of any  dividend  or other  distribution,  or any
allotment of rights, or to

Page 6


exercise  rights in respect of any other  lawful  action.  The  record  date so fixed  shall be not more than sixty
days nor less than ten days prior to the date of the  meeting  nor more than sixty days prior to any other  action.
When a record date is so fixed,  only  shareholders of record at the close of business on that date are entitled to
notice of and to vote at the  meeting or to receive the  dividend,  distribution,  or  allotment  of rights,  or to
exercise the rights,  as the case may be,  notwithstanding  any transfer of shares on the books of the  corporation
after the record date,  except as otherwise  provided by law or these Bylaws.  A  determination  of shareholders of
record  entitled  to  notice of or to vote at a meeting  of  shareholders  shall  apply to any  adjournment  of the
meeting  unless the Board  fixes a new record  date for the  adjourned  meeting.  The Board  shall fix a new record
date if the meeting is adjourned for more than forty-five days.

         If no record date is fixed by the Board, the record date for determining  shareholders  entitled to notice
of or to vote at a meeting of  shareholders  shall be at the close of business on the business  day next  preceding
the day on which  notice is given  or, if notice is  waived,  at the close of  business  on the  business  day next
preceding  the day on which the  meeting is held.  The record  date for  determining  shareholders  for any purpose
other than as set forth in this  Section 8 or Section 10 of this  Article  shall be at the close of business on the
day on which the Board  adopts the  resolution  relating  thereto,  or the  sixtieth  day prior to the date of such
other action, whichever is later.

Section 9.        Consent of Absentees.

         The  transactions of any meeting of  shareholders,  however called and noticed,  and wherever held, are as
valid as though had at a meeting duly held after regular call and notice,  if a quorum is present  either in person
or by proxy,  and if,  either  before or after the meeting,  each of the persons  entitled to vote,  not present in
person or by proxy,  signs a written  waiver of notice or a consent to the holding of the meeting or an approval of
the minutes thereof.  All such waivers,  consents or approvals shall be filed with the corporate  records or made a
part of the minutes of the  meeting.  Neither the  business to be  transacted  at nor the purpose of any regular or
special  meeting of shareholders  need be specified in any written waiver of notice,  consent to the holding of the
meeting or approval  of the minutes  thereof,  except as  provided  in Section  601 (f) of the  California  General
Corporation Law.

Section 10.       Action Without Meeting.

         Subject to Section 603 of the California  General  Corporation Law, any action which,  under any provision
of the California  General  Corporation  Law, may be taken at any annual or special meeting of shareholders  may be
taken without a meeting and without prior notice if a consent in writing, setting forth the

Page 7


action so taken,  shall be signed by the holders of  outstanding  shares having not less than the minimum number of
votes that would be necessary  to  authorize or take such action at a meeting at which all shares  entitled to vote
thereon  were  present  and voted.  Unless a record  date for voting  purposes be fixed as provided in Section 8 of
this Article,  the record date for determining  shareholders  entitled to give consent pursuant to this Section 10,
when no prior action by the Board has been taken, shall be the day on which the first written consent is given.

Section 11.       Proxies.

         Every  person  entitled to vote shares has the right to do so either in person or by one or more  persons,
not to exceed three,  designated by a proxy  authorized by such shareholder or the  shareholder's  attorney in fact
and filed with the corporation,  in accordance with Cal. Corp. Codess.178.  Subject to the following  sentence,  any
proxy duly  authorized  continues in full force and effect until revoked by the person  authorizing it prior to the
vote  pursuant  thereto  by a writing  delivered  to the  corporation  stating  that the proxy is  revoked  or by a
subsequent  proxy  authorized  by the person  authorizing  the prior  proxy and  presented  to the  meeting,  or by
attendance  at the meeting and voting in person by the person  authorizing  the proxy;  provided,  however,  that a
proxy is not revoked by the death or  incapacity of the maker unless,  before the vote is counted,  written  notice
of such death or  incapacity  is received by this  corporation.  No proxy  shall be valid after the  expiration  of
eleven months from the date of its authorization unless otherwise provided in the proxy.

Section 12.       Inspectors of Election.

         In advance of any  meeting of  shareholders,  the Board may appoint  any  persons  other than  nominees as
inspectors  of election to act at such meeting and any  adjournment  thereof.  If inspectors of election are not so
appointed,  or if any persons so  appointed  fail to appear or refuse to act, the chairman of any such meeting may,
and on the request of any shareholder or  shareholder's  proxy shall,  make such  appointments at the meeting.  The
number of  inspectors  shall be either  one or three.  If  appointed  at a meeting  on the  request  of one or more
shareholders or proxies,  the majority of shares present shall determine  whether one or three inspectors are to be
appointed.

         The  duties of such  inspectors  shall be as  prescribed  by  Section  707 (b) of the  California  General
Corporation Law and shall include:  determining the number of shares  outstanding and the voting power of each, the
shares  represented  at the  meeting,  the  existence  of a quorum,  and the  authenticity,  validity and effect of
proxies;  receiving  votes,  ballots or consents;  hearing and  determining all challenges and questions in any way
arising in connection with the right to vote; counting and tabulating all votes or consents; determining when

Page 8



the polls shall  close;  determining  the result;  and doing such acts as may be proper to conduct the  election or
vote  with  fairness  to all  shareholders.  If there  are three  inspectors  of  election,  the  decision,  act or
certificate  of a majority is effective in all respects as the decision,  act or  certificate of all. Any report or
certificate made by the inspectors of election is prima facie evidence of the facts stated therein.

                                              ARTICLE III - DIRECTORS

Section 1.        Powers.

         Subject to limitations  of the Articles,  of these Bylaws and of the California  General  Corporation  Law
relating to action  required to be approved by the  shareholders  or by the  outstanding  shares,  the business and
affairs of the corporation  shall be managed and all corporate  powers shall be exercised by or under the direction
of the  Board.  The  Board  may  delegate  the  management  of the  day-to-day  operation  of the  business  of the
corporation  provided that the business and affairs of the  corporation  shall be managed and all corporate  powers
shall be  exercised  under the ultimate  direction of the Board.  Without  prejudice  to such general  powers,  but
subject to the same  limitations,  it is hereby  expressly  declared that the Board shall have the following powers
in addition to the other powers enumerated in these Bylaws:

         (a)      To select and remove all the other officers,  agents and employees of the corporation,  prescribe
the powers and duties for them as may not be  inconsistent  with law, with the Articles or these Bylaws,  fix their
compensation and require from them security for faithful service.

         (b)      To conduct,  manage and control the  affairs  and  business of the  corporation  and to make such
rules and regulations  therefor not inconsistent  with law, or with the Articles or these Bylaws,  as they may deem
best.

         (c)      To adopt,  make and use a corporate  seal, and to prescribe the forms of  certificates  of stock,
and to alter the form of such seal and of such  certificates  from time to time as in their  judgment they may deem
best.

         (d)      To authorize  the  issuance of shares of stock of the  corporation  from time to time,  upon such
terms and for such consideration as may be lawful.

         (e)      To borrow money and incur  indebtedness for the purposes of the  corporation,  and to cause to be
executed and delivered  therefor,  in the corporate name,  promissory  notes,  bonds,  debentures,  deeds of trust,
mortgages, pledges, hypothecations or other evidences of debt and securities therefor.


Page 9


Section 2.        Number of Directors.

         The authorized  number of directors  shall be not less than nine nor more than seventeen  until changed by
amendment of the Articles or by a Bylaw duly adopted by the  shareholders.  The exact number of directors  shall be
fixed,  within the limits  specified,  by the Board by adoption of a resolution or by the  shareholders in the same
manner provided in these Bylaws for the amendment thereof.

Section 3.        Election and Term of Office.

         The  directors  shall be  elected  at each  annual  meeting of the  shareholders,  but if any such  annual
meeting is not held or the directors are not elected  thereat,  the directors may be elected at any special meeting
of  shareholders  held for that purpose.  Each director shall hold office until the next annual meeting and until a
successor has been elected and qualified.

Section 4.        Vacancies.

         Any  director  may  resign  effective  upon  giving  written  notice to the  Chairman  of the  Board,  the
President,  the  Secretary or the Board,  unless the notice  specifies a later time for the  effectiveness  of such
resignation.  If the  resignation  is effective  at a future  time, a successor  may be elected to take office when
the resignation becomes effective.

         Vacancies in the Board,  except those existing as a result of a removal of a director,  may be filled by a
majority  of the  remaining  directors,  though  less  than a quorum,  or by a sole  remaining  director,  and each
director so elected shall hold office until the next annual  meeting and until such  director's  successor has been
elected  and  qualified.  Vacancies  existing  as a  result  of a  removal  of a  director  may  be  filled  by the
shareholders as provided by law.

         A vacancy  or  vacancies  in the  Board  shall be deemed  to exist in case of the  death,  resignation  or
removal of any director,  or if the authorized  number of directors be increased,  or if the shareholders  fail, at
any annual or special  meeting of  shareholders  at which any director or directors are elected,  to elect the full
authorized number of directors to be voted for at that meeting.

         The Board may declare  vacant the office of a director  who has been  declared of unsound mind by an order
of court or convicted of a felony.

         The  shareholders  may elect a director  or  directors  at any time to fill any vacancy or  vacancies  not
filled by the  directors.  Any such  election by written  consent  other than to fill a vacancy  created by removal
requires the consent of a

Page 10


majority of the outstanding  shares  entitled to vote. If the Board accepts the resignation of a director  tendered
to take  effect at a future  time,  the Board or the  shareholders  shall have power to elect a  successor  to take
office when the resignation is to become effective.

         No reduction of the  authorized  number of directors  shall have the effect of removing any director prior
to the expiration of the director's term of office.

Section 5.        Place of Meeting.

         Regular  or  special  meetings  of the Board  shall be held at any place  within or  without  the State of
California  which has been  designated  from  time to time by the  Board or as  provided  in these  Bylaws.  In the
absence of such designation, regular meetings shall be held at the principal office of the corporation.

Section 6.        Organization Meeting.

         Promptly following each annual meeting of shareholders the Board shall hold a regular meeting for the
purpose of organization, election of officers and the transaction of other business.

Section 7.        Special Meetings and Other Regular Meetings.

         Special  meetings and regular  meetings other than  organization  meetings of the Board for any purpose or
purposes may be called at any time by the Chairman of the Board, the President,  any Vice President,  the Secretary
or by any two directors.

         Such  meetings  of the Board shall be held upon four days'  notice by mail or  forty-eight  hours'  notice
delivered  personally or by telephone,  including a voice messaging  system or other system or technology  designed
to record and  communicate  messages,  telegraph,  telex,  facsimile,  electronic  mail or other  similar  means of
communication.  Any such notice  shall be  addressed or  delivered  to each  director at such  director's  address,
telephone number, telex number,  facsimile number, E-mail address, or other designated  location(s),  as shown upon
the  records of the  corporation  or as may have been given to the  corporation  by the  director  for  purposes of
notice or, if such  information  is not shown on such  records  or is not  readily  ascertainable,  at the place in
which the meetings of the directors are regularly held.  The notice need not specify the purpose of such meeting.

         Notice  by mail  shall be  deemed to have been  given at the time a  written  notice is  deposited  in the
United States mail,  postage  prepaid.  Any other written  notice shall be deemed to have been given at the time it
is  personally  delivered  to the  recipient  or is delivered  to a common  carrier for  transmission,  or actually
transmitted by the person giving the notice by electronic means to the recipient.

Page 11


Oral  notice  shall be deemed  to have  been  given at the time it is  communicated,  in  person  or by  telephone,
wireless,  or other  similar  means,  to the recipient or to a person at the office of the recipient who the person
giving the notice has reason to believe will promptly  communicate it to the recipient,  or actually transmitted to
the  recipient  by the person  giving  the  notice by a system or  technology  designed  to record and  communicate
messages.

Section 8.        Quorum.

         One-third of the number of authorized  directors  constitutes a quorum of the Board for the transaction of
business,  except to adjourn as provided  in Section ll of this  Article.  Every act or decision  done or made by a
majority  of the  directors  present at a meeting  duly held at which a quorum is present  shall be regarded as the
act of the  Board,  unless a greater  number is  required  by law or by the  Articles;  provided,  however,  that a
meeting at which a quorum is initially  present may continue to transact  business  notwithstanding  the withdrawal
of directors, if any action taken is approved by at least a majority of the required quorum for such meeting.

Section 9.        Participation in Meetings by Conference Telephone.

         Members  of the  Board may  participate  in a meeting  through  use of  conference  telephone  or  similar
communications  equipment,  so long as all  members  participating  in such  meeting  can  hear one  another.  Such
participation constitutes presence in person at such meeting.

Section 10.       Waiver of Notice.

         The  transactions  of any meeting of the Board,  however called and noticed or wherever held, are as valid
as though had at a meeting  duly held after  regular call and notice if a quorum is present and if,  either  before
or after the meeting,  each of the  directors not present  signs a written  waiver of notice,  a consent to holding
such meeting or an approval of the minutes  thereof.  All such waivers,  consents or approvals  shall be filed with
the corporate records or made a part of the minutes of the meeting.


Page 12


Section 11.       Adjournment.

         A majority  of the  directors  present,  whether or not a quorum is present,  may  adjourn any  directors'
meeting  to another  time and place.  Notice of the time and place of  holding  an  adjourned  meeting  need not be
given to absent  directors  if the time and place is fixed at the meeting  adjourned.  If the meeting is  adjourned
for more than  twenty-four  hours,  notice of any  adjournment to another time or place shall be given prior to the
time of the adjourned meeting to the directors who were not present at the time of the adjournment.

Section 12.       Fees and Compensation.

         Directors and members of committees may receive such  compensation,  if any, for their services,  and such
reimbursement for expenses, as may be fixed or determined by the Board.

Section 13.       Action Without Meeting.

         Any action  required or permitted  to be taken by the Board may be taken  without a meeting if all members
of the Board  shall  individually  or  collectively  consent in writing to such  action.  Such  written  consent or
consents  shall  have the same  force and  effect  as a  unanimous  vote of the  Board and shall be filed  with the
minutes of the proceedings of the Board.

Section 14.       Rights of Inspection.

         Every  director  shall have the  absolute  right at any  reasonable  time to  inspect  and copy all books,
records and  documents  of every kind and to inspect the physical  properties  of the  corporation  and also of its
subsidiary  corporations,  domestic or foreign.  Such inspection by a director may be made in person or by agent or
attorney and includes the right to copy and make extracts.

Section 15.       Committees.

         The Board may appoint one or more  committees,  each consisting of two or more directors,  to serve at the
pleasure of the Board.  The Board may delegate to such  committees  any or all of the authority of the Board except
with respect to:

         (a)      The  approval  of any action  for which the  California  General  Corporation  Law also  requires
shareholders' approval or approval of the outstanding shares;

         (b)      The filling of vacancies on the Board or in any committee;


Page 13



         (c)      The fixing of compensation of the directors for serving on the Board or on any committee;

         (d)      The amendment or repeal of Bylaws or the adoption of new Bylaws;

         (e)      The  amendment  or repeal of any  resolution  of the Board which by its  express  terms is not so
amendable or repealable;

         (f)      A distribution to the  shareholders  of the corporation  except at a rate or in a periodic amount
or within a price range determined by the Board; or

         (g)      The appointment of other committees of the Board or the members thereof.

         Any such committee,  or any member or alternate  member thereof,  must be appointed by resolution  adopted
by a majority of the exact number of  authorized  directors as  specified in Section 2 of this  Article.  The Board
shall have the power to prescribe  the manner and timing of giving of notice of regular or special  meetings of any
committee  and the manner in which  proceedings  of any committee  shall be  conducted.  In the absence of any such
prescription,  such  committee  shall  have the power to  prescribe  the manner in which its  proceedings  shall be
conducted.  Unless the Board or such  committee  shall  otherwise  provide,  the regular and special  meetings  and
other actions of any such  committee  shall be governed by the  provisions  of this Article  applicable to meetings
and actions of the Board.  Minutes shall be kept of each meeting of each committee.

                                               ARTICLE IV - OFFICERS

Section 1.        Officers.

         The  officers  of the  corporation  shall be a  Chairman  of the Board,  a  President,  a Chief  Financial
Officer,  one or more Vice  Presidents,  a General  Counsel,  one or more Associate  General  Counsel,  one or more
Assistant General Counsel,  a Controller,  one or more Assistant  Controllers,  a Treasurer,  one or more Assistant
Treasurers,  a  Secretary  and one or more  Assistant  Secretaries,  and such other  officers  as may be elected or
appointed in  accordance  with Section 5 of this  Article.  The Board,  the Chairman of the Board or the  President
may  confer  a  special  title  upon any Vice  President  not  specified  herein.  Any  number  of  offices  of the
corporation may be held by the same person.


Page 14


Section 2.        Election.

         The officers of the  corporation,  except such officers as may be elected or appointed in accordance  with
the  provisions  of Section 5 or Section 6 of this  Article,  shall be chosen  annually  by, and shall serve at the
pleasure  of the Board,  and shall  hold their  respective  offices  until  their  resignation,  removal,  or other
disqualification from service, or until their respective successors shall be elected.

Section 3.        Eligibility of Chairman or President.

         No person shall be eligible  for the office of Chairman of the Board or President  unless such person is a
member of the Board of the corporation; any other officer may or may not be a director.

Section 4.        Removal and Resignation.

         Any  officer  may be removed,  either  with or without  cause,  by the Board at any time or by any officer
upon whom such power or removal may be  conferred  by the Board.  Any such  removal  shall be without  prejudice to
the rights, if any, of the officer under any contract of employment of the officer.

         Any officer may resign at any time by giving written notice to the corporation,  but without  prejudice to
the rights,  if any, of the corporation  under any contract to which the officer is a party.  Any such  resignation
shall take effect at the date of the  receipt of such notice or at any later time  specified  therein  and,  unless
otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 5.        Appointment of Other Officers.

         The Board may appoint such other  officers as the business of the  corporation  may require,  each of whom
shall hold office for such period,  have such  authority,  and perform such duties as are provided in the Bylaws or
as the Board may from time to time determine.

Section 6.        Vacancies.

         A vacancy in any office  because  of death,  resignation,  removal,  disqualification  or any other  cause
shall be filled at any time deemed  appropriate  by the Board in the manner  prescribed in these Bylaws for regular
election or appointment to such office.



Page 15


Section 7.        Salaries.

         The salaries of the Chairman of the Board,  President,  Chief Financial Officer, Vice Presidents,  General
Counsel,  Controller,  Treasurer  and  Secretary of the  corporation  shall be fixed by the Board.  Salaries of all
other officers shall be as approved from time to time by the chief executive officer.

Section 8.        Furnish Security for Faithfulness.

         Any  officer or  employee  shall,  if  required  by the Board,  furnish to the  corporation  security  for
faithfulness to the extent and of the character that may be required.

Section 9.        Chairman's Duties; Succession to Such Duties in Chairman's Absence or Disability.

         The Chairman of the Board shall be the chief  executive  officer of the  corporation  and shall preside at
all  meetings of the  shareholders  and of the Board.  Subject to the Board,  the  Chairman of the Board shall have
charge of the  business  of the  corporation,  including  the  construction  of its plants and  properties  and the
operation  thereof.  The Chairman of the Board shall keep the Board fully  informed,  and shall freely consult them
concerning the business of the corporation.

         In the  absence  or  disability  of the  Chairman  of the  Board,  the  President  shall  act as the chief
executive  officer  of the  corporation;  in the  absence  or  disability  of the  Chairman  of the  Board  and the
President,  the next in order of election by the Board of the Vice Presidents shall act as chief executive  officer
of the corporation.

         In the absence or  disability  of the Chairman of the Board,  the  President  shall act as Chairman of the
Board at meetings of the Board;  in the absence or disability of the Chairman of the Board and the  President,  the
next,  in order of  election  by the  Board,  of the Vice  Presidents  who is a member  of the  Board  shall act as
Chairman  of the Board at any such  meeting of the Board;  in the  absence or  disability  of the  Chairman  of the
Board,  the  President,  and such Vice  Presidents  who are  members  of the Board,  the Board  shall  designate  a
temporary Chairman to preside at any such meeting of the Board.

Section 10.       President's Duties.

         The  President  shall  perform such other duties as the Chairman of the Board shall  delegate or assign to
such officer.



Page 16


Section 11.       Chief Financial Officer.

         The Chief Financial  Officer of the corporation  shall be the chief  consulting  officer in all matters of
financial import and shall have control over all financial matters concerning the corporation.

Section 12.       Vice Presidents' Duties.

         The Vice Presidents shall perform such other duties as the chief executive officer shall designate.

Section 13.       General Counsel's Duties.

         The General  Counsel shall be the chief  consulting  officer of the  corporation in all legal matters and,
subject to the chief  executive  officer,  shall have  control  over all  matters of legal  import  concerning  the
corporation.

Section 14.       Associate General Counsel's and Assistant General Counsel's Duties.

         The  Associate  General  Counsel  shall  perform such of the duties of the General  Counsel as the General
Counsel shall designate,  and in the absence or disability of the General Counsel,  the Associate  General Counsel,
in order of election to that office by the Board at its latest  organizational  meeting,  shall  perform the duties
of the General  Counsel.  The Assistant  General  Counsel  shall  perform such duties as the General  Counsel shall
designate.

Section 15.       Controller's Duties.

         The  Controller  shall be the chief  accounting  officer  of the  Corporation  and,  subject  to the Chief
Financial  Officer,  shall have control over all accounting  matters  concerning the  Corporation and shall perform
such other duties as the Chief Executive Officer shall designate.

Section 16.       Assistant Controllers' Duties.

         The Assistant  Controllers  shall perform such of the duties of the  Controller  as the  Controller  shall
designate, and in the absence or disability of the Controller,  the Assistant Controllers,  in order of election to
that office by the Board at its latest organizational meeting, shall perform the duties of the Controller.



Page 17


Section 17.       Treasurer's Duties.

         It shall be the duty of the Treasurer to keep in custody or control all money,  stocks,  bonds,  evidences
of debt,  securities  and other  items of value  that may  belong to, or be in the  possession  or control  of, the
corporation,  and to dispose of the same in such  manner as the Board or the chief  executive  officer  may direct,
and to perform all acts incident to the position of Treasurer.

Section 18.       Assistant Treasurers' Duties.

         The  Assistant  Treasurers  shall  perform  such of the duties of the  Treasurer  as the  Treasurer  shall
designate,  and in the absence or disability of the Treasurer,  the Assistant  Treasurers,  in order of election to
that office by the Board at its latest organizational  meeting,  shall perform the duties of the Treasurer,  unless
action is taken by the Board as contemplated in Article IV, Section 22.

Section 19.       Secretary's Duties.

         The  Secretary  shall  keep  or  cause  to be  kept  full  and  complete  records  of the  proceedings  of
shareholders,  the Board and its  committees  at all  meetings,  and shall affix the  corporate  seal and attest by
signing copies of any part thereof when required.

         The Secretary  shall keep, or cause to be kept, a copy of the Bylaws of the  corporation  at the principal
office in accordance with Section 213 of the California General Corporation Law.

         The Secretary  shall be the custodian of the corporate seal and shall affix it to such  instruments as may
be required.

         The  Secretary  shall  keep on hand a supply of blank  stock  certificates  of such forms as the Board may
adopt.

         The  Secretary  shall serve or cause to be served by  publication  or otherwise,  as may be required,  all
notices of meetings and of other  corporate  acts that may by law or otherwise be required to be served,  and shall
make or cause to be made and filed in the  principal  office  of the  corporation,  the  necessary  certificate  or
proofs thereof.

         An affidavit of mailing of any notice of a  shareholders'  meeting or of any report,  in  accordance  with
the provisions of Section 601 (b) of the California  General  Corporation  Law,  executed by the Secretary shall be
prima facie evidence of the fact that such notice or report had been duly given.


Page 18


         The Secretary may, with the Chairman of the Board, the President,  or a Vice President,  sign certificates
of  ownership  of stock in the  corporation,  and shall cause all  certificates  so signed to be delivered to those
entitled thereto.

         The Secretary shall keep all records required by the California General Corporation Law.

         The Secretary shall  generally  perform the duties usual to the office of secretary of  corporations,  and
such other duties as the chief executive officer shall designate.

Section 20.       Assistant Secretaries' Duties.

         Assistant  Secretaries  shall  perform  such  of the  duties  of the  Secretary  as  the  Secretary  shall
designate, and in the absence or disability of the Secretary,  the Assistant Secretaries,  in the order of election
to that  office by the Board at its latest  organizational  meeting,  shall  perform  the duties of the  Secretary,
unless action is taken by the Board as contemplated in Article IV, Sections 21 and 22 of these Bylaws.

Section 21.       Secretary Pro Tempore.

         At any meeting of the Board or of the  shareholders  from which the  Secretary is absent,  a Secretary pro
tempore may be appointed and act.

Section 22.       Election of Acting Treasurer or Acting Secretary.

         The Board may elect an Acting  Treasurer,  who shall  perform all the duties of the  Treasurer  during the
absence or  disability of the  Treasurer,  and who shall hold office only for such a term as shall be determined by
the Board.

         The Board may elect an Acting  Secretary,  who shall  perform all the duties of the  Secretary  during the
absence or  disability of the  Secretary,  and who shall hold office only for such a term as shall be determined by
the Board.

         Whenever the Board shall elect either an Acting  Treasurer or Acting  Secretary,  or both, the officers of
the  corporation  as set forth in Article IV, Section 1 of these Bylaws,  shall include as if therein  specifically
set out, an Acting Treasurer or an Acting Secretary, or both.




Page 19



Section 23.       Performance of Duties.

         Officers  shall  perform  the  duties of their  respective  offices  as stated in these  Bylaws,  and such
additional duties as the Board shall designate.


                                           ARTICLE V - OTHER PROVISIONS

Section 1.        Inspection of Corporate Records.

         (a)      A shareholder or  shareholders  holding at least five percent in the aggregate of the outstanding
voting shares of the  corporation  or who hold at least one percent of such voting shares and have filed a Schedule
14B with the United  States  Securities  and  Exchange  Commission  relating to the  election of  directors  of the
corporation shall have an absolute right to do either or both of the following:

                  (i)      Inspect  and copy the record of  shareholders'  names and  addresses  and  shareholdings
during usual business hours upon five business days' prior written demand upon the corporation; or

                  (ii)     Obtain from the transfer  agent, if any, for the  corporation,  upon five business days'
prior  written  demand and upon the tender of its usual  charges for such a list (the amount of which charges shall
be stated to the shareholder by the transfer agent upon request),  a list of the shareholders'  names and addresses
who are entitled to vote for the election of directors and their  shareholdings,  as of the most recent record date
for which it has been compiled or as of a date specified by the shareholder subsequent to the date of demand.

         (b)      The record of  shareholders  shall also be open to inspection  and copying by any  shareholder or
holder  of a voting  trust  certificate  at any time  during  usual  business  hours  upon  written  demand  on the
corporation,  for a purpose  reasonably  related to such holder's  interest as a shareholder  or holder of a voting
trust certificate.

         (c)      The accounting  books and records and minutes of proceedings  of the  shareholders  and the Board
and committees of the Board shall be open to inspection  upon written demand on the  corporation of any shareholder
or holder of a voting  trust  certificate  at any  reasonable  time  during  usual  business  hours,  for a purpose
reasonably related to such holder's interests as a shareholder or as a holder of such voting trust certificate.


Page 20


         (d)      Any  such  inspection  and  copying  under  this  Article  may be made in  person  or by agent or
attorney.

Section 2.        Inspection of Bylaws.

         The  corporation  shall keep in its principle  office the original or a copy of these Bylaws as amended to
date, which shall be open to inspection by shareholders at all reasonable times during office hours.

Section 3.        Contracts and Other Instruments, Loans, Notes and Deposits of Funds.

         The Chairman of the Board,  the President,  or a Vice President,  either alone or with the Secretary or an
Assistant  Secretary,  or  the  Secretary  alone,  shall  execute  in the  name  of the  corporation  such  written
instruments as may be authorized by the Board and,  without  special  direction of the Board,  such  instruments as
transactions  of the ordinary  business of the  corporation  may require  and,  such  officers  without the special
direction of the Board may authenticate,  attest or countersign any such instruments when deemed  appropriate.  The
Board  may   authorize   any  person,   persons,   entity,   entities,   attorney,   attorneys,   attorney-in-fact,
attorneys-in-fact,  agent or agents,  to enter into any contract or execute and deliver any  instrument in the name
of and on behalf of the corporation, and such authority may be general or confined to specific instances.

         No loans shall be contracted on behalf of the corporation and no evidences of such  indebtedness  shall be
issued in its name unless  authorized by the Board as it may direct.  Such  authority may be general or confined to
specific instances.

         All checks,  drafts,  or other similar orders for the payment of money,  notes, or other such evidences of
indebtedness  issued in the name of the  corporation  shall be signed by such officer or officers,  agent or agents
of the corporation and in such manner as the Board or chief executive officer may direct.

         Unless  authorized  by the Board or these  Bylaws,  no officer,  agent,  employee  or any other  person or
persons  shall have any power or authority to bind the  corporation  by any contract or engagement or to pledge its
credit or to render it liable for any purpose or amount.

         All funds of the  corporation  not otherwise  employed  shall be deposited from time to time to the credit
of the corporation in such banks, trust companies, or other depositories as the Board may direct.



Page 21


Section 4.        Certificates of Stock.

         Every holder of shares of the  corporation  shall be entitled to have a certificate  signed in the name of
the  corporation  by the Chairman of the Board,  the  President,  or a Vice  President  and by the  Treasurer or an
Assistant  Treasurer or the Secretary or an Assistant  Secretary,  certifying the number of shares and the class or
series of shares owned by the  shareholder.  Any or all of the signatures on the certificate  may be facsimile.  In
case any officer,  transfer agent or registrar who has signed or whose  facsimile  signature has been placed upon a
certificate  shall have ceased to be such officer,  transfer agent or registrar  before such certificate is issued,
it may be issued by the  corporation  with the same effect as if such person  were an  officer,  transfer  agent or
registrar at the date of issue.

         Certificates  for shares may be used prior to full payment under such  restrictions  and for such purposes
as the Board may provide;  provided,  however,  that on any certificate issued to represent any partly paid shares,
the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated.

         Except as provided in this Section,  no new  certificate  for shares shall be issued in lieu of an old one
unless the latter is surrendered  and canceled at the same time. The Board may,  however,  if any  certificate  for
shares is alleged to have been lost,  stolen or  destroyed,  authorize  the issuance of a new  certificate  in lieu
thereof,  and the  corporation  may  require  that  the  corporation  be given a bond or  other  adequate  security
sufficient  to indemnify  it against any claim that may be made  against it  (including  expense or  liability)  on
account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate.

Section 5.        Transfer Agent, Transfer Clerk and Registrar.

         The Board may, from time to time,  appoint  transfer  agents,  transfer  clerks,  and stock  registrars to
transfer  and  register  the  certificates  of the  capital  stock  of the  corporation,  and may  provide  that no
certificate of capital stock shall be valid without the signature of the stock  transfer  agent or transfer  clerk,
and stock registrar.

Section 6.        Representation of Shares of Other Corporations.

         The chief  executive  officer  or any  other  officer  or  officers  authorized  by the Board or the chief
executive  officer are each  authorized  to vote,  represent and exercise on behalf of the  corporation  all rights
incident to any and all shares of any other corporation or corporations standing in the name of the corporation.

Page 22


The  authority  herein  granted  may be  exercised  either by any such  officer  in  person or by any other  person
authorized so to do by proxy or power of attorney duly executed by said officer.

Section 7.        Stock Purchase Plans.

         The  corporation  may adopt and carry out a stock  purchase  plan or  agreement  or stock  option  plan or
agreement  providing for the issue and sale for such  consideration as may be fixed of its unissued  shares,  or of
issued shares  acquired,  to one or more of the employees or directors of the  corporation or of a subsidiary or to
a trustee on their behalf and for the payment for such shares in  installments  or at one time, and may provide for
such shares in  installments  or at one time, and may provide for aiding any such persons in paying for such shares
by compensation for services rendered, promissory notes or otherwise.

         Any such stock  purchase  plan or agreement or stock  option plan or  agreement  may include,  among other
features,  the fixing of eligibility for participation  therein, the class and price of shares to be issued or sold
under the plan or  agreement,  the number of shares which may be  subscribed  for, the method of payment  therefor,
the  reservation of title until full payment  therefor,  the effect of the  termination of employment and option or
obligation on the part of the  corporation  to repurchase the shares upon  termination of employment,  restrictions
upon  transfer of the  shares,  the time  limits of and  termination  of the plan,  and any other  matters,  not in
violation  of  applicable  law,  as may be  included  in the plan as  approved  or  authorized  by the Board or any
committee of the Board.

Section 8.        Fiscal Year and Subdivisions.

         The  calendar  year shall be the  corporate  fiscal  year of the  corporation.  For the  purpose of paying
dividends,  for making reports and for the convenient  transaction  of the business of the  corporation,  the Board
may divide the fiscal year into appropriate subdivisions.

Section 9.        Construction and Definitions.

         Unless the context  otherwise  requires,  the general  provisions,  rules of construction  and definitions
contained in the General Provisions of the California  Corporations Code and in the California General  Corporation
Law shall govern the construction of these Bylaws.




Page 23



                                           ARTICLE VI - INDEMNIFICATION

Section 1.        Indemnification of Directors and Officers.

         Each  person  who  was or is a  party  or is  threatened  to be  made a  party  to or is  involved  in any
threatened,  pending or completed action,  suit or proceeding,  formal or informal,  whether brought in the name of
the  corporation  or  otherwise  and  whether  of  a  civil,  criminal,   administrative  or  investigative  nature
(hereinafter  a  "proceeding"),  by reason  of the fact that he or she,  or a person of whom he or she is the legal
representative,  is or was a director  or officer of the  corporation  or is or was  serving at the  request of the
corporation as a director,  officer,  employee or agent of another corporation or of a partnership,  joint venture,
trust or other  enterprise,  including  service with respect to employee  benefit plans,  whether the basis of such
proceeding is an alleged  action or inaction in an official  capacity or in any other  capacity  while serving as a
director or officer,  shall,  subject to the terms of any agreement  between the  corporation  and such person,  be
indemnified and held harmless by the  corporation to the fullest extent  permissible  under  California law and the
corporation's Articles of Incorporation,  against all costs, charges,  expenses,  liabilities and losses (including
attorneys' fees,  judgments,  fines,  ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection  therewith,  and such  indemnification  shall continue
as to a person who has  ceased to be a director  or  officer  and shall  inure to the  benefit of his or her heirs,
executors and administrators;  provided,  however, that (A) the corporation shall indemnify any such person seeking
indemnification  in  connection  with a  proceeding  (or  part  thereof)  initiated  by  such  person  only if such
proceeding (or part thereof) was authorized by the Board of the  corporation;  (B) the corporation  shall indemnify
any such person seeking  indemnification  in connection with a proceeding (or part thereof) other than a proceeding
by or in the  name of the  corporation  to  procure  a  judgment  in its  favor  only if any  settlement  of such a
proceeding is approved in writing by the  corporation;  (C) that no such person shall be indemnified  (i) except to
the  extent  that the  aggregate  of losses to be  indemnified  exceeds  the  amount of such  losses  for which the
director or officer is paid pursuant to any directors' and officers'  liability  insurance policy maintained by the
corporation;  (ii) on account of any suit in which  judgment is rendered  against such person for an  accounting of
profits made from the purchase or sale by such person of securities of the  corporation  pursuant to the provisions
of Section  16(b) of the  Securities  Exchange  Act of 1934 and  amendments  thereto or similar  provisions  of any
federal,  state or local  statutory law; (iii) if a court of competent  jurisdiction  finally  determines  that any
indemnification  hereunder is unlawful;  and (iv) as to circumstances in which indemnity is expressly prohibited by
Section 317 of the  General  Corporation  Law of  California  (the  "Law");  and (D) that no such  person  shall be
indemnified  with  regard to any  action  brought by or in the right of the  corporation  for breach of duty to the
corporation and its

Page 24


shareholders (a) for acts or omissions involving  intentional  misconduct or knowing and culpable violation of law;
(b) for acts or  omissions  that the  director or officer  believes to be  contrary  to the best  interests  of the
corporation or its  shareholders  or that involve the absence of good faith on the part of the director or officer;
(c) for any transaction from which the director or officer derived an improper  personal  benefit;  (d) for acts or
omissions  that  show a  reckless  disregard  for  the  director's  or  officer's  duty to the  corporation  or its
shareholders  in  circumstances  in which the  director  or officer was aware,  or should  have been aware,  in the
ordinary  course  of  performing  his  or her  duties,  of a risk  of  serious  injury  to the  corporation  or its
shareholders;  (e) for acts or omissions that  constitute an unexcused  pattern of  inattention  that amounts to an
abdication  of the  director's  or officer's  duties to the  corporation  or its  shareholders;  and (f) for costs,
charges,  expenses,  liabilities  and  losses  arising  under  Section  310  or  316  of  the  Law.  The  right  to
indemnification  conferred in this Article shall include the right to be paid by the corporation  expenses incurred
in defending any proceeding in advance of its final  disposition;  provided,  however,  that if the Law permits the
payment of such  expenses  incurred by a director or officer in his or her  capacity as a director or officer  (and
not in any other  capacity  in which  service  was or is  rendered  by such  person  while a director  or  officer,
including,  without  limitation,  service to an employee  benefit  plan) in advance of the final  disposition  of a
proceeding,  such advances shall be made only upon delivery to the corporation of an  undertaking,  by or on behalf
of such director or officer,  to repay all amounts to the  corporation  if it shall be ultimately  determined  that
such person is not entitled to be indemnified.

Section 2.        Indemnification of Employees and Agents.

         A person who was or is a party or is  threatened  to be made a party to or is involved  in any  proceeding
by reason of the fact that he or she is or was an  employee  or agent of the  corporation  or is or was  serving at
the request of the  corporation as an employee or agent of another  enterprise,  including  service with respect to
employee benefit plans,  whether the basis of such action is an alleged action or inaction in an official  capacity
or in any other  capacity  while  serving as an  employee  or agent,  may,  subject  to the terms of any  agreement
between the  corporation  and such person,  be  indemnified  and held  harmless by the  corporation  to the fullest
extent permitted by California law and the  corporation's  Articles of Incorporation,  against all costs,  charges,
expenses,  liabilities and losses,  (including attorneys' fees,  judgments,  fines, ERISA excise taxes or penalties
and amounts  paid or to be paid in  settlement)  reasonably  incurred  or  suffered  by such  person in  connection
therewith.


Page 25


Section 3.        Right of Directors and Officers to Bring Suit.

         If a claim under Section 1 of this Article is not paid in full by the  corporation  within 30 days after a
written  claim has been received by the  corporation,  the claimant may at any time  thereafter  bring suit against
the  corporation  to recover the unpaid amount of the claim and, if  successful  in whole or in part,  the claimant
shall also be entitled to be paid the expense of  prosecuting  such claim.  Neither the failure of the  corporation
(including its Board,  independent legal counsel,  or its  shareholders) to have made a determination  prior to the
commencement of such action that  indemnification  of the claimant is permissible in the  circumstances  because he
or she has met the  applicable  standard  of  conduct,  if any,  nor an  actual  determination  by the  corporation
(including  its  Board,  independent  legal  counsel,  or its  shareholders)  that  the  claimant  has  not met the
applicable  standard of  conduct,  shall be a defense to the action or create a  presumption  for the purpose of an
action that the claimant has not met the applicable standard of conduct.

Section 4.        Successful Defense.

         Notwithstanding  any other  provision of this  Article,  to the extent that a director or officer has been
successful on the merits or otherwise  (including  the dismissal of an action  without  prejudice or the settlement
of a proceeding or action  without  admission of liability) in defense of any  proceeding  referred to in Section 1
or in defense of any claim,  issue or matter therein,  he or she shall be indemnified  against expenses  (including
attorneys' fees) actually and reasonably incurred in  connection therewith.

Section 5.        Non-Exclusivity of Rights.

         The right to  indemnification  provided by this  Article  shall not be  exclusive of any other right which
any  person  may  have  or  hereafter  acquire  under  any  statute,  bylaw,  agreement,  vote of  shareholders  or
disinterested directors or otherwise.

Section 6.        Insurance.

         The  corporation  may maintain  insurance,  at its expense,  to protect itself and any director,  officer,
employee  or  agent  of the  corporation  or  another  corporation,  partnership,  joint  venture,  trust  or other
enterprise  against  any  expense,  liability  or loss,  whether  or not the  corporation  would  have the power to
indemnify such person against such expense, liability or loss under the Law.



Page 26



Section 7.        Expenses as a Witness.

         To the extent  that any  director,  officer,  employee  or agent of the  corporation  is by reason of such
position,  or a position with another entity at the request of the  corporation,  a witness in any action,  suit or
proceeding,  he or she shall be indemnified  against all costs and expenses actually and reasonably incurred by him
or her on his or her behalf in connection therewith.

Section 8.        Indemnity Agreements.

         The  corporation  may  enter  into  agreements  with  any  director,  officer,  employee  or  agent of the
corporation  providing for  indemnification  to the fullest extent  permissible under the Law and the corporation's
Articles of Incorporation.

Section 9.        Separability.

         Each and every  paragraph,  sentence,  term and provision of this Article is separate and distinct so that
if any paragraph,  sentence,  term or provision hereof shall be held to be invalid or unenforceable for any reason,
such  invalidity  or  unenforceability  shall not affect the  validity or  enforceability  of any other  paragraph,
sentence,  term or provision hereof.  To the extent required,  any paragraph,  sentence,  term or provision of this
Article may be modified by a court of competent  jurisdiction  to preserve its validity and to provide the claimant
with,  subject  to the  limitations  set forth in this  Article  and any  agreement  between  the  corporation  and
claimant, the broadest possible indemnification permitted under applicable law.

Section 10.       Effect of Repeal or Modification.

         Any repeal or modification of this Article shall not adversely  affect any right of  indemnification  of a
director  or officer  existing at the time of such repeal or  modification  with  respect to any action or omission
occurring prior to such repeal or modification.


                                        ARTICLE VII - EMERGENCY PROVISIONS

Section 1.        General.

         The  provisions  of this  Article  shall be  operative  only during a national  emergency  declared by the
President of the United States or the person  performing the President's  functions,  or in the event of a nuclear,
atomic  or other  attack  on the  United  States  or a  disaster  making it  impossible  or  impracticable  for the
corporation to conduct its business without recourse to the provisions of this

Page 27


Article.  Said  provisions in such event shall  override all other Bylaws of the  corporation  in conflict with any
provisions  of this  Article,  and shall remain  operative so long as it remains  impossible  or  impracticable  to
continue  the business of the  corporation  otherwise,  but  thereafter  shall be  inoperative;  provided  that all
actions taken in good faith pursuant to such  provisions  shall  thereafter  remain in full force and effect unless
and until  revoked by action taken  pursuant to the  provisions  of the Bylaws  other than those  contained in this
Article.

Section 2.        Unavailable Directors.

         All directors of the  corporation  who are not available to perform their duties as directors by reason of
physical  or mental  incapacity  or for any other  reason or who are  unwilling  to perform  their  duties or whose
whereabouts  are  unknown  shall  automatically  cease to be  directors,  with like  effect as if such  persons had
resigned as directors, so long as such unavailability continues.

Section 3.        Authorized Number of Directors.

         The authorized  number of directors  shall be the number of directors  remaining after  eliminating  those
who have ceased to be directors  pursuant to Section 2, or the minimum number required by law,  whichever number is
greater.

Section 4.        Quorum.

         The number of directors  necessary to constitute a quorum shall be one-third of the  authorized  number of
directors as specified in the foregoing  Section,  or such other minimum  number as,  pursuant to the law or lawful
decree then in force, it is possible for the Bylaws of a corporation to specify.

Section 5.        Creation of Emergency Committee.

         In the event the number of directors  remaining  after  eliminating  those who have ceased to be directors
pursuant to Section 2 is less than the  minimum  number of  authorized  directors  required by law,  then until the
appointment of additional  directors to make up such required  minimum,  all the powers and  authorities  which the
Board could by law delegate,  including all powers and  authorities  which the Board could delegate to a committee,
shall be automatically  vested in an emergency  committee,  and the emergency committee shall thereafter manage the
affairs  of the  corporation  pursuant  to such  powers  and  authorities  and  shall  have all  other  powers  and
authorities  as may by law or lawful  decree be  conferred  on any  person  or body of  persons  during a period of
emergency.



Page 28


Section 6.        Constitution of Emergency Committee.

         The emergency  committee  shall consist of all the directors  remaining after  eliminating  those who have
ceased to be directors  pursuant to Section 2,  provided that such  remaining  directors are not less than three in
number.  In the event  such  remaining  directors  are less than  three in number  the  emergency  committee  shall
consist of three  persons,  who shall be the  remaining  director or  directors  and either one or two  officers or
employees of the  corporation,  as the  remaining  director or directors may in writing  designate.  If there is no
remaining  director,  the emergency  committee  shall consist of the three most senior  officers of the corporation
who are available to serve,  and if and to the extent that officers are not  available,  the most senior  employees
of the  corporation.  Seniority  shall be determined in accordance with any designation of seniority in the minutes
of the  proceedings  of the  Board,  and in the  absence  of  such  designation,  shall  be  determined  by rate of
remuneration.  In the event that there are no remaining  directors and no officers or employees of the  corporation
available,  the emergency  committee shall consist of three persons designated in writing by the shareholder owning
the largest number of shares of record as of the date of the last record date.

Section 7.        Powers of Emergency Committee.

         The  emergency  committee,  once  appointed,  shall  govern  its own  procedures  and shall  have power to
increase  the number of members  thereof  beyond the  original  number,  and in the event of a vacancy or vacancies
therein,  arising at any time, the remaining  member or members of the emergency  committee shall have the power to
fill such  vacancy  or  vacancies.  In the event at any time after its  appointment  all  members of the  emergency
committee shall die or resign or become  unavailable to act for any reason  whatsoever,  a new emergency  committee
shall be appointed in accordance with the foregoing provisions of this Article.

Section 8.        Directors Becoming Available.

         Any person who has ceased to be a director  pursuant  to the  provisions  of Section 2 and who  thereafter
becomes available to serve as a director shall automatically become a member of the emergency committee.

Section 9.        Election of Board of Directors.

         The  emergency  committee  shall,  as soon after its  appointment  as is  practicable,  take all requisite
action to secure the election of a board of directors,

Page 29



and upon such election all the powers and authorities of the emergency committee shall cease.

Section 10.       Termination of Emergency Committee.

         In the event, after the appointment of an emergency  committee,  a sufficient number of persons who ceased
to be directors  pursuant to Section 2 become  available to serve as  directors,  so that if they had not ceased to
be directors as aforesaid,  there would be enough directors to constitute the minimum number of directors  required
by law,  then all such persons  shall  automatically  be deemed to be  reappointed  as directors and the powers and
authorities of the emergency committee shall be at an end.


                                             ARTICLE VIII - AMENDMENTS

Section 1.        Amendments.

         These Bylaws may be amended or repealed  either by approval of the  outstanding  shares or by the approval
of the Board;  provided,  however,  that a Bylaw  specifying or changing a fixed number of directors or the maximum
or minimum  number or  changing  from a fixed to a variable  Board or vice versa may only be adopted by approval of
the  outstanding  shares.  The exact number of directors  within the maximum and minimum number  specified in these
Bylaws may be amended by the Board alone.




</PRE>
</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>4
<FILENAME>sceexh23.htm
<DESCRIPTION>CONSENT OF IND. PUBLIC ACCOUNTANTS
<TEXT>
<HTML>
<HEAD>
<TITLE>
Consent of Independent Public Accountants
</TITLE>
</HEAD>
<BODY>
<PRE>
                                                                 EXHIBIT 23





CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS



As independent public accountants, we hereby consent to the incorporation by reference of our report included in
this quarterly report on Form 10-Q for the quarter ended September 30, 2001, of Southern California Edison
Company into the previously filed Registration Statements which follow:

                 Registration Form               File No.                  Effective Date
                 -----------------               --------                  --------------

                  Form S-3                      33-50251                 September 21, 1993
                  Form S-3                      333-44778                September 7, 2000







ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP

Los Angeles, California
November 8, 2001


</PRE>
</BODY>
</HTML>

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
