10-Q - Edison International

Nuclear Decommissioning TrustsSCE's nuclear decommissioning trust investments include equity securities, U.S. treasury securities and other fixed-incomesecurities. Equity and treasury securities are classified as Level 1 as fair value is determined by observable market prices inactive or highly liquid and transparent markets. The remaining fixed-income securities are classified as Level 2. The fairvalue of these financial instruments is based on evaluated prices that reflect significant observable market information such asreported trades, actual trade information of similar securities, benchmark yields, broker/dealer quotes, issuer spreads, bids,offers and relevant credit information.Fair Value of Long-Term Debt Recorded at Carrying ValueThe carrying value and fair value of long-term debt are:March 31, 2012 December 31, 2011(in millions)CarryingValueFairValueCarryingValueFairValueLong-term debt, including current portion $ 8,827 $ 10,095 $ 8,431 $ 10,129Fair value of short-term and long-term debt is classified as Level 2 and is based on evaluated prices that reflect significantobservable market information such as reported trades, actual trade information of similar securities, benchmark yields,broker/dealer quotes of new issue prices and relevant credit information.The carrying value of trade receivables, payables and short-term debt approximates fair value.Note 5.Debt and Credit AgreementsLong-Term DebtIn March 2012, SCE issued $400 million of 4.05% first and refunding mortgage bonds due in 2042. The proceeds from thesebonds were used to repay commercial paper borrowings and to fund SCE's capital program.Credit Agreements and Short-Term DebtAt March 31, 2012, SCE's outstanding commercial paper was $330 million at a weighted-average interest rate of 0.40%. Thiscommercial paper was supported by a $2.3 billion credit facility. At December 31, 2011, the outstanding short-term debt was$419 million at a weighted-average interest rate of 0.44%. At March 31, 2012, letters of credit issued under SCE's creditfacilities aggregated $63 million and are scheduled to expire in twelve months or less.Note 6.Derivative Instruments and Hedging ActivitiesCommodity Price RiskSCE is exposed to commodity price risk which represents the potential impact that can be caused by a change in the marketvalue of a particular commodity. SCE's hedging program reduces customer exposure to variability in market prices related toSCE's power and gas activities. As part of this program, SCE enters into options, swaps, forwards, tolling arrangements andCRRs. These transactions are approved by the CPUC or executed in compliance with CPUC-approved procurement plans.SCE recovers its related hedging costs through the energy resource recovery account ("ERRA") balancing account, and as aresult, exposure to commodity price risk is not expected to impact earnings, but may impact cash flows.SCE's electricity price exposure arises from energy purchased from and sold to wholesale markets as a result of differencesbetween SCE's load requirements and the amount of energy delivered from its generating facilities and power purchaseagreements.SCE's natural gas price exposure arises from natural gas purchased for the Mountainview power plant and peaker plants, QFcontracts where pricing is based on a monthly natural gas index and power purchase agreements in which SCE has agreed toprovide the natural gas needed for generation, referred to as tolling arrangements.12