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Fair Value Measurements | 12 Months Ended
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Dec. 31, 2011
Fair Value Measurements Disclosure [Abstract] |
Fair Value Measurements | Fair Value Measurements Recurring Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date referred to as an exit price. Fair value of an asset or liability should consider assumptions that market participants would use in pricing the asset or liability, including assumptions about nonperformance risk. SCE categorizes financial assets and liabilities into a fair value hierarchy based on valuation inputs used to determine fair value. The hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The following table sets forth assets and liabilities that were accounted for at fair value by level within the fair value hierarchy:
|  | December 31, 2011
(in millions) |  | Level 1 | Level 2 | Level 3 | Netting and Collateral | Total
Assets at Fair Value |  |  |  |  |  |
Money market funds 1 |  | $ | 21 |  | $ | — |  | $ | — |  | $ | — |  | $ | 21 |
Derivative contracts 2: |  |  |  |  |  |
Electricity |  | — |  | — |  | 1 |  | — |  | 1 |
Natural gas |  | — |  | 5 |  | — |  | (3 | ) | 2 |
CRRs |  | — |  | — |  | 122 |  | — |  | 122 |
Tolling |  | — |  | — |  | 10 |  | — |  | 10 |
Subtotal of derivative contracts |  | — |  | 5 |  | 133 |  | (3 | ) | 135 |
Long-term disability plan |  | 8 |  | — |  | — |  | — |  | 8 |
Nuclear decommissioning trusts: |  |  |  |  |  |
Stocks 3 |  | 1,899 |  | — |  | — |  | — |  | 1,899 |
Municipal bonds |  | — |  | 756 |  | — |  | — |  | 756 |
U.S. government and agency securities |  | 433 |  | 147 |  | — |  | — |  | 580 |
Corporate bonds 4 |  | — |  | 317 |  | — |  | — |  | 317 |
Short-term investments, primarily cash equivalents 5 |  | — |  | 15 |  | — |  | — |  | 15 |
Subtotal of nuclear decommissioning trusts |  | 2,332 |  | 1,235 |  | — |  | — |  | 3,567 |
Total assets 6 |  | 2,361 |  | 1,240 |  | 133 |  | (3 | ) | 3,731 |
Liabilities at Fair Value |  |  |  |  |  |
Derivative contracts: |  |  |  |  |  |
Electricity |  | — |  | 5 |  | 65 |  | (2 | ) | 68 |
Natural gas |  | — |  | 234 |  | 23 |  | (53 | ) | 204 |
Tolling |  | — |  | — |  | 799 |  | — |  | 799 |
Subtotal of derivative contracts |  | — |  | 239 |  | 887 |  | (55 | ) | 1,071 |
Total liabilities |  | — |  | 239 |  | 887 |  | (55 | ) | 1,071 |
Net assets (liabilities) |  | $ | 2,361 |  | $ | 1,001 |  | $ | (754 | ) | $ | 52 |  | $ | 2,660 |
|  | December 31, 2010
(in millions) |  | Level 1 | Level 2 | Level 3 | Collateral | Total
Assets at Fair Value |  |  |  |  |  |
Money market funds 1 |  | $ | 243 |  | $ | — |  | $ | — |  | $ | — |  | $ | 243 |
Derivative contracts 2: |  |  |  |  |  |
Electricity |  | — |  | — |  | 119 |  | — |  | 119 |
Natural gas |  | — |  | 69 |  | 11 |  | — |  | 80 |
CRRs |  | — |  | — |  | 137 |  | — |  | 137 |
Tolling |  | — |  | — |  | 118 |  | — |  | 118 |
Subtotal of derivative contracts |  | — |  | 69 |  | 385 |  | — |  | 454 |
Long-term disability plan |  | 9 |  | — |  | — |  | — |  | 9 |
Nuclear decommissioning trusts: |  |  |  |  |  |
Stocks 3 |  | 2,029 |  | — |  | — |  | — |  | 2,029 |
Municipal bonds |  | — |  | 790 |  | — |  | — |  | 790 |
Corporate bonds 4 |  | — |  | 346 |  | — |  | — |  | 346 |
U.S. government and agency securities |  | 215 |  | 73 |  | — |  | — |  | 288 |
Short-term investments, primarily cash equivalents 5 |  | 1 |  | 31 |  | — |  | — |  | 32 |
Subtotal of nuclear decommissioning trusts |  | 2,245 |  | 1,240 |  | — |  | — |  | 3,485 |
Total assets 6 |  | 2,497 |  | 1,309 |  | 385 |  | — |  | 4,191 |
Liabilities at Fair Value |  |  |  |  |  |
Derivative contracts: |  |  |  |  |  |
Electricity |  | — |  | 1 |  | 24 |  | — |  | 25 |
Natural gas |  | — |  | 285 |  | 11 |  | (4 | ) | 292 |
Tolling |  | — |  | — |  | 344 |  | — |  | 344 |
Subtotal of derivative contracts |  | — |  | 286 |  | 379 |  | (4 | ) | 661 |
Total liabilities |  | — |  | 286 |  | 379 |  | (4 | ) | 661 |
Net assets |  | $ | 2,497 |  | $ | 1,023 |  | $ | 6 |  | $ | 4 |  | $ | 3,530 |
1 | Money market funds are included in cash and cash equivalents on SCE's consolidated balance sheets.
2 | Represents the netting of assets and liabilities under master netting agreements and cash collateral across the levels of the fair value hierarchy. Netting among positions classified within the same level is included in that level.
3 | Approximately 70% and 67% of the equity investments were located in the United States at December 31, 2011 and 2010, respectively.
4 | At December 31, 2011 and 2010, corporate bonds were diversified and included collateralized mortgage obligations and other asset backed securities of $22 million and $27 million, respectively.
5 | Excludes net receivables of $25 million and net liabilities of $5 million at December 31, 2011 and 2010, respectively, of interest and dividend receivables and receivables related to pending securities sales and payables related to pending securities purchases.
6 | Excludes $31 million at both December 31, 2011 and 2010, of cash surrender value of life insurance investments for deferred compensation.
The following table sets forth a summary of changes in the fair value of Level 3 assets and liabilities:
|  | December 31,
(in millions) |  | 2011 |  | 2010
Fair value of derivative contracts, net liabilities at beginning of period |  | $ | 6 |  |  | $ | (111 | )
Total realized/unrealized gains (losses), net: |  |  |  |
Included in regulatory assets 1 |  | (806 | ) |  | 58 |
Purchases |  | 47 |  |  | 38 |
Settlements |  | (1 | ) |  | 5 |
Transfers into Level 3 |  | — |  |  | — |
Transfers out of Level 3 |  | — |  |  | 16 |
Fair value of derivative contracts, net assets (liabilities) at end of period |  | $ | (754 | ) |  | $ | 6 |
Change during the period in unrealized gains (losses) related to assets and liabilities held at the end of period |  | $ | (789 | ) |  | $ | 130 |
1 | Due to regulatory mechanisms, SCE's realized and unrealized gains and losses are recorded as regulatory assets and liabilities.
SCE determines the fair value for transfers in and transfers out of each level at the end of each reporting period. There were no significant transfers between levels during 2011 and 2010. Valuation Techniques Used to Determine Fair Value Level 1 Includes financial assets and liabilities where fair value is determined using unadjusted quoted prices in active markets that are available at the measurement date for identical assets and liabilities. Financial assets and liabilities classified as Level 1 include exchange-traded equity securities, exchange traded derivatives, U.S. treasury securities and money market funds. Level 2 Pricing inputs include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the derivative instrument. Financial assets and liabilities utilizing Level 2 inputs include fixed-income securities and over-the-counter derivatives. Derivative contracts that are over-the-counter traded are valued using pricing models to determine the net present value of estimated future cash flows and are generally classified as Level 2. Inputs to the pricing models include forward published or posted clearing prices from exchanges (New York Mercantile Exchange and Intercontinental Exchange) for similar instruments and discount rates. A primary source that best represents traded activity for each market is used to develop observable forward market prices in determining the fair value of these positions. Broker quotes or prices from exchanges are used to validate and corroborate the primary source. These price quotations reflect mid-market prices (average of bid and ask) and are obtained from sources believed to provide the most liquid market for the commodity. Broker quotes are incorporated when corroborated with other information which may include a combination of prices from exchanges, other brokers and comparison to executed trades. Level 3 Includes financial assets and liabilities where fair value is determined using techniques that require significant unobservable inputs. Over-the-counter options, bilateral contracts, capacity contracts, QF contracts, derivative contracts that trade infrequently (such as congestion revenue rights ("CRRs") in the California market and over-the-counter derivatives at illiquid locations), long-term power agreements, and derivative contracts with counterparties that have significant nonperformance risks are generally valued using pricing models that incorporate unobservable inputs and are classified as Level 3. Assumptions are made in order to value derivative contracts in which observable inputs are not available. In circumstances where SCE cannot verify fair value with observable market transactions, it is possible that a different valuation model could produce a materially different estimate of fair value. As markets continue to develop and more pricing information becomes available, SCE continues to assess valuation methodologies used to determine fair value. For derivative contracts that trade infrequently (CRRs), changes in fair value are based on models forecasting the value of those contracts. The models' inputs are reviewed and the fair value is adjusted when it is concluded that a change in inputs would result in a new valuation that better reflects the fair value of those derivative contracts. For illiquid long-term power agreements, fair value is based upon the discounting of future electricity and natural gas prices derived from a proprietary model using the risk free discount rate for a similar duration contract, adjusted for credit risk and market liquidity. Changes in fair value are based on changes to forward market prices, including forecasted prices for illiquid forward periods. The fair value of the majority of SCE's derivatives that are classified as Level 3 is determined using uncorroborated non-binding broker quotes and models which may require SCE to extrapolate short-term observable inputs in order to calculate fair value. Broker quotes are obtained from several brokers and compared against each other for reasonableness. Nonperformance Risk The fair value of the derivative assets and liabilities are adjusted for nonperformance risk. To assess nonperformance risks, SCE considers the probability of and the estimated loss incurred if a party to the transaction were to default. SCE also considers collateral, netting agreements, guarantees and other forms of credit support when assessing nonperformance. The nonperformance risk adjustment represented an insignificant amount at both December 31, 2011 and 2010. Nuclear Decommissioning Trusts SCE's nuclear decommissioning trust investments include equity securities, U.S. treasury securities and other fixed-income securities. Equity and treasury securities are classified as Level 1 as fair value is determined by observable market prices in active or highly liquid and transparent markets. The remaining fixed-income securities are classified as Level 2. The fair value of these financial instruments is based on evaluated prices that reflect significant observable market information such as reported trades, actual trade information of similar securities, benchmark yields, broker/dealer quotes, issuer spreads, bids, offers and relevant credit information. SCE's investment policies and CPUC requirements place limitations on the types and investment grade ratings of the securities that may be held by the nuclear decommissioning trust funds. These policies restrict the trust funds from holding alternative investments and limit the trust funds' exposures to investments in highly illiquid markets. Except for Level 3 investments, valuation is based on observable market inputs and assumptions used by market participants. With respect to equity and fixed income securities, the trustee obtains prices from third-party pricing services which SCE is able to independently corroborate as described below. A primary price source is identified by the trustee based on asset type, class or issue for each security. The trustee monitors prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given security if the trustee or SCE's investment managers challenge an assigned price and determine that another price source is considered to be preferable. The trustee “scrubs” prices against defined parameters at established times throughout the day. Variances that do not meet the parameters are researched and resolved. Unpriced and stale priced securities, as well as any unusual variations in market price or overall market value are investigated. Price variance reports are reviewed on the basis of predetermined tolerances. Variances identified outside of tolerance are then researched and resolved. Parameters and predetermined tolerance thresholds are established by asset class based on past experience and an understanding of valuation process techniques. Questionable prices are reported to the vendor who provided the price and pricing specialists then follow-up with the vendors. If the prices are validated, the primary price source is used. If not, a secondary source price which has passed the applicable tolerance check is used. The trustee monitors and grades the performance of pricing vendors. SCE reviewed the process/procedures of both the pricing services and the trustee to gain an understanding of the inputs/assumptions and valuation techniques used to price each asset type/class and to reach a conclusion that their pricing controls are satisfactory. This consisted of SCE's review of their written detailed process/procedures and service organization control (SOC 1-formerly SAS 70) reports, as well as follow-up conversations based on our written questions. This assists SCE in determining if the valuations represent exit price fair value and that investments are appropriately classified in the fair value hierarchy. Additionally, SCE corroborates the fair values of securities by comparison to other market-based price sources obtained by SCE's investment managers. Differences outside established thresholds are followed-up with the trustee and resolved. The results of this process have demonstrated that vendor and trustee pricing controls are satisfactory. For each reporting period, SCE reviews the trustee determined fair value hierarchy and overrides the trustee level classification when appropriate. Due to its regulatory treatment, SCE's fair value transactions are recovered in rates. Fair Value of Long-Term Debt Recorded at Carrying Value The carrying value and fair value of long-term debt are:
|  | December 31,
|  | 2011 |  | 2010
(in millions) |  | Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
Long-term debt, including current portion |  | $ | 8,431 |  |  | $ | 10,129 |  |  | $ | 7,627 |  |  | $ | 8,285 |
Fair values of long-term debt are based on evaluated prices that reflect significant observable market information such as reported trades, actual trade information of similar securities, benchmark yields, broker/dealer quotes of new issue prices and relevant credit information. The fair value of long-term debt is classified as Level 2. The carrying value of trade receivables, payables and short-term debt approximates fair value.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13433-108611 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13504-108611 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13537-108611 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 3, 10, 14, 15 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15B -Subparagraph a, b -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32, 33, 34 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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