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Summary of Significant Accounting Policies | 9 Months Ended
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Sep. 30, 2016
Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Organization and Basis of Presentation Edison International is the parent holding company of Southern California Edison Company ("SCE"). SCE is an investor-owned public utility primarily engaged in the business of supplying and delivering electricity to an approximately 50,000 square mile area of southern California. Edison International is also the parent company of Edison Energy Group, a company that holds interests in subsidiaries that are engaged in competitive businesses focused on providing energy solutions to commercial and industrial customers, including distributed resources, engaging in competitive transmission opportunities, and exploring distributed water treatment and recycling. Such competitive business activities are currently not material to report as a separate business segment. These combined notes to the consolidated financial statements apply to both Edison International and SCE unless otherwise described. Edison International's consolidated financial statements include the accounts of Edison International, SCE and other wholly owned and controlled subsidiaries. References to Edison International refer to the consolidated group of Edison International and its subsidiaries. References to Edison International Parent and Other refer to Edison International Parent and its nonutility subsidiaries. SCE's consolidated financial statements include the accounts of SCE and its wholly owned and controlled subsidiaries. All intercompany transactions have been eliminated from the consolidated financial statements. Edison International's and SCE's significant accounting policies were described in Note 1 of "Notes to Consolidated Financial Statements" included in the 2015 Form 10-K. This quarterly report should be read in conjunction with the financial statements and notes included in the 2015 Form 10-K. In the opinion of management, all adjustments, consisting of recurring accruals, have been made that are necessary to fairly state the consolidated financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States of America for the periods covered by this quarterly report on Form 10-Q. The results of operations for the three- and nine-month periods ended September 30, 2016 are not necessarily indicative of the operating results for the full year. The December 31, 2015 financial statement data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. Certain prior year amounts have been reclassified for consistency with the current period presentation. Cash Equivalents Cash equivalents included investments in money market funds. Generally, the carrying value of cash equivalents equals the fair value, as these investments have original maturities of three months or less. The cash equivalents were as follows:
|  | Edison International |  | SCE
(in millions) |  | September 30, 2016 |  | December 31, 2015 |  | September 30, 2016 |  | December 31, 2015
Money market funds |  | $ | 39 |  |  | $ | 37 |  |  | $ | 18 |  |  | $ | 8 |
Cash is temporarily invested until required for check clearing. Checks issued, but not yet paid by the financial institution, are reclassified from cash to accounts payable at the end of each reporting period as follows:
|  | Edison International |  | SCE
(in millions) |  | September 30, 2016 |  | December 31, 2015 |  | September 30, 2016 |  | December 31, 2015
Book balances reclassified to accounts payable |  | $ | 130 |  |  | $ | 162 |  |  | $ | 128 |  |  | $ | 158 |
Inventory Inventory is primarily composed of materials, supplies and spare parts, and stated at the lower of cost or market, cost being determined by the average cost method. Revenue Recognition Operating revenue is recognized when electricity is delivered and includes amounts for services rendered but unbilled at the end of each reporting period. During the first nine months of 2015, pending the outcome of the final decision in the 2015 GRC, SCE recognized revenue from CPUC activities largely based on the revenue requirement set forth in the 2015 proposed GRC decision received in September 2015. In the fourth quarter of 2015, SCE implemented the final 2015 GRC decision. Earnings Per Share Edison International computes earnings per common share ("EPS") using the two-class method, which is an earnings allocation formula that determines EPS for each class of common stock and participating security. Edison International's participating securities are stock-based compensation awards payable in common shares, including performance shares and restricted stock units, which earn dividend equivalents on an equal basis with common shares once the awards are vested. EPS attributable to Edison International common shareholders was computed as follows:
|  | Three months ended September 30, |  | Nine months ended September 30,
(in millions, except per-share amounts) |  | 2016 |  | 2015 |  | 2016 |  | 2015
Basic earnings per share – continuing operations: |  |  |  |  |  |  |  |
Income from continuing operations attributable to common shareholders |  | $ | 419 |  |  | $ | 378 |  |  | $ | 966 |  |  | $ | 1,056 |
Participating securities dividends |  | — |  |  | — |  |  | — |  |  | (1 | )
Income from continuing operations available to common shareholders |  | $ | 419 |  |  | $ | 378 |  |  | $ | 966 |  |  | $ | 1,055 |
Weighted average common shares outstanding |  | 326 |  |  | 326 |  |  | 326 |  |  | 326 |
Basic earnings per share – continuing operations |  | $ | 1.29 |  |  | $ | 1.16 |  |  | $ | 2.96 |  |  | $ | 3.24 |
Diluted earnings per share – continuing operations: |  |  |  |  |  |  |  |
Income from continuing operations available to common shareholders |  | $ | 419 |  |  | $ | 378 |  |  | $ | 966 |  |  | $ | 1,055 |
Income impact of assumed conversions |  | — |  |  | — |  |  | — |  |  | 1 |
Income from continuing operations available to common shareholders and assumed conversions |  | $ | 419 |  |  | $ | 378 |  |  | $ | 966 |  |  | $ | 1,056 |
Weighted average common shares outstanding |  | 326 |  |  | 326 |  |  | 326 |  |  | 326 |
Incremental shares from assumed conversions |  | 3 |  |  | 2 |  |  | 3 |  |  | 3 |
Adjusted weighted average shares – diluted |  | 329 |  |  | 328 |  |  | 329 |  |  | 329 |
Diluted earnings per share – continuing operations |  | $ | 1.27 |  |  | $ | 1.15 |  |  | $ | 2.94 |  |  | $ | 3.21 |
In addition to the participating securities discussed above, Edison International also may award stock options, which are payable in common shares and are included in the diluted earnings per share calculation. Stock option awards to purchase 42,890 and 2,054,876 shares of common stock for the three months ended September 30, 2016 and 2015, respectively, and 166,057 and 2,054,876 shares for the nine months ended September 30, 2016 and 2015, respectively, were outstanding, but were not included in the computation of diluted earnings per share because the exercise price of the awards was greater than the average market price of the common shares during the respective periods and, therefore, the effect would have been antidilutive. Goodwill Edison International assesses goodwill through annual goodwill impairment tests, at the reporting unit level, as of October 1st of each year. As of September 30, 2016, goodwill is comprised of $78 million at the Edison Energy reporting unit and $22 million at the SoCore Energy reporting unit. Edison International will update these tests between annual tests if events occur or circumstances change such that it is more likely than not that the fair value of a reporting unit is below its carrying value. New Accounting Guidance Accounting Guidance Adopted On April 7, 2015, the FASB issued an accounting standards update that requires debt issuance costs to be presented in the balance sheet as a direct reduction from the carrying amount of the related debt liability, consistent with debt discounts. Previously, accounting guidance required these costs to be presented as a deferred charge asset. Edison International and SCE adopted this guidance in the first quarter of 2016. At September 30, 2016, the amount of debt issuance costs that are reflected as a reduction of "Long-term debt" was $73 million for SCE and $79 million for Edison International. At December 31, 2015 the amount of debt issuance costs that have been reclassified from "Other long-term assets" to a reduction of "Long-term debt" was $77 million for SCE and $81 million for Edison International. On April 15, 2015, the FASB issued an accounting standards update on fees paid by a customer for software licenses. This new standard provides guidance about whether a cloud computing arrangement includes a software license which may be capitalized in certain circumstances. If a cloud computing arrangement does not include a software license, then the arrangement should be accounted for as a service contract. Edison International and SCE adopted this guidance prospectively, effective January 1, 2016. The adoption of this standard did not have a material impact on Edison International's and SCE's consolidated financial statements. Accounting Guidance Not Yet Adopted On May 28, 2014, the FASB issued an accounting standards update on revenue recognition including enhanced disclosures and further amended the standard in 2016. Under the new standard, revenue is recognized when (or as) a good or service is transferred to the customer and the customer obtains control of the good or service. On July 9, 2015, the FASB approved a one-year deferral, updating the effective date to January 1, 2018. Edison International and SCE are currently evaluating this guidance and cannot determine the impact of this standard at this time. Edison International and SCE anticipate adopting the standard using the modified retrospective application which means that Edison International and SCE would recognize the cumulative effect of initially applying the revenue standard as an adjustment to the opening balance of retained earnings in 2018. On January 5, 2016, the FASB issued an accounting standards update that amends the guidance on the classification and measurement of financial instruments. The amendments require equity investments (excluding those accounted for under the equity method or those that result in consolidation) to be measured at fair value, with changes in fair value recognized in net income. It also amends certain disclosure requirements associated with the fair value of financial instruments. In addition, the new guidance requires financial assets and financial liabilities to be presented separately in the notes to the financial statements, grouped by measurement category and form of financial asset. Edison International and SCE will adopt this guidance effective January 1, 2018. The adoption of this standard is not expected to have a material impact on Edison International's and SCE's consolidated financial statements. On February 25, 2016, the FASB issued an accounting standards update related to lease accounting including enhanced disclosures. Under the new standard, a lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified assets for a period of time in exchange for consideration. Lessees will classify leases with a term of more than one year as either operating or finance leases and will need to recognize a right-of-use asset and a lease liability. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. SCE, as a regulated entity, is permitted to continue to have straight-line expense for finance leases, assuming the rate recovery is based upon current payments. This guidance is effective January 1, 2019 but early adoption is permitted. Edison International and SCE are currently evaluating this new guidance and cannot determine the impact of this standard at this time. On March 30, 2016, the FASB issued an accounting standards update to simplify the accounting for share-based payments. Under this new guidance, the tax effects related to share based payments will be recorded through the income statement. Currently, tax benefits in excess of compensation cost ("windfalls") are recorded in equity, and tax deficiencies ("shortfalls") are recorded in equity to the extent of previous windfalls, and then to the income statement. In addition, as part of this new guidance an entity should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period, subject to normal valuation allowance considerations. The new standard also will revise reporting on the statement of cash flows. Edison International and SCE are planning to adopt this standard using the modified retrospective approach, effective January 1, 2016. As a result, when adopted, all excess tax benefits resulting from 2016 stock option exercises will be reflected in the income statement. If Edison International and SCE had adopted this new standard in the current period, income tax expense for the nine months ended September 30, 2016 would have been reduced by approximately $18 million and $13 million, respectively. In addition, upon adoption, Edison International and SCE will record an increase to beginning retained earnings for pre-2016 stock option exercises that had not been previously recorded in equity ($42 million and $6 million for Edison International and SCE, respectively). On June 16, 2016, the FASB issued an accounting standards update to amend the guidance on the impairment of financial instruments. The new guidance adds an impairment model, known as the current expected credit loss model, which was based on expected losses rather than incurred losses. This guidance applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and loan commitments. However, available-for-sale debt securities are excluded from the model's scope. This guidance is effective on January 1, 2020, but early adoption no earlier than January 1, 2019 is permitted. Edison International and SCE are currently evaluating this new guidance. On August 26, 2016, the FASB issued an accounting standards update to amend the guidance on the presentation and classification of certain cash receipts and cash payments in the statement of cash flows to reduce diversity in practice. This guidance addresses eight specific cash flow classification issues, including debt prepayment or extinguishment costs, proceeds from the settlement of corporate-owned life insurance, and distributions received from equity method investments. This standard also clarifies the application of the predominance principle where cash receipts and payments have aspects of more than one class of cash flows. The new standard is effective on January 1, 2018, but early adoption is permitted. Edison International and SCE are currently evaluating this new guidance.

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