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                     March 31, 1998
                               ------------------------------------------------
                                       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 May 11, 1998
----------------------------------------   ------------------------------------
    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 -- Three and
                     Twelve Months Ended March 31, 1998, and 1997            2

                  Consolidated Statements of Comprehensive Income --
                     Three and Twelve Months Ended March 31, 1998,
                     and 1997                                                2

                  Consolidated Balance Sheets -- March 31, 1998,
                     December 31, 1997, and March 31, 1997                   3

                  Consolidated Statements of Cash Flows --
                     Three and Twelve Months Ended
                     March 31, 1998, and 1997                                5

                  Consolidated Statements of Retained Earnings --
                     Three and Twelve Months Ended
                     March 31, 1998, and 1997                                6

                  Notes to Consolidated Financial Statements                 7

         Item 2.  Management's Discussion and Analysis of Results
                     of Operations and Financial Condition                   28

Part II. Other Information:

         Item 1.  Legal Proceedings                                          40

         Item 4.  Submission of Matters to a Vote of Security Holders        45

         Item 6.  Exhibits and Reports on Form 8-K                           45




<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 March 31, 1998,  December 31,  1997,  and March 31, 1997,  and the related
consolidated  statements of income,  comprehensive income, retained earnings and
cash flows for each of the three- and twelve-month periods ended March 31, 1998,
and 1997. 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  generally   accepted  auditing
standards.  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
March 31, 1998,  December 31, 1997, and March 31, 1997, and the results of their
operations and their cash flows for each of the three- and twelve-month  periods
ended March 31, 1998, and 1997, in conformity with generally accepted accounting
principles.



                                                          ARTHUR ANDERSEN LLP
                                                          ARTHUR ANDERSEN LLP



Los Angeles, California
May 4, 1998


<PAGE 1>



SOUTHERN CALIFORNIA EDISON COMPANY

CONSOLIDATED STATEMENTS OF INCOME
In thousands
<TABLE>
<CAPTION>

                                                                   3 Months Ended             12 Months Ended
                                                                     March 31,                   March 31,
------------------------------------------------------------------------------------------------------------------
                                                                 1998           1997         1998          1997
------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>            <C>          <C>            <C>       
Operating revenue                                            $1,622,691     $1,695,436   $7,880,638     $7,518,686
-------------------------------------------------------------------------------------------------------------------

Fuel                                                            118,684        144,616      855,539        663,536
Purchased power                                                 576,506        628,674    2,801,834      2,807,122
Provisions for regulatory
   adjustment clauses-- net                                    (238,017)       (88,173)    (560,780)      (411,904)
Other operating expenses                                        287,584        240,954    1,259,097      1,152,002
Maintenance                                                     101,870         95,878      411,537        343,017
Depreciation and decommissioning                                382,974        305,583    1,317,270      1,126,750
Income taxes                                                    125,604         95,297      612,339        565,181
Property and other taxes                                         39,518         38,875      129,680        168,768
-------------------------------------------------------------------------------------------------------------------

Total operating expenses                                      1,394,723      1,461,704    6,826,516      6,414,472
-------------------------------------------------------------------------------------------------------------------

Operating income                                                227,968        233,732    1,054,122      1,104,214
-------------------------------------------------------------------------------------------------------------------

Provision for rate phase-in plan                                     --        (11,309)     (37,177)       (66,519)
Allowance for equity funds
   used during construction                                       2,781          2,003        8,429         13,181
Interest and dividend income                                     18,312          6,856       56,092         34,508
Other nonoperating income (deductions)-- net                     (3,591)         4,649      (31,273)       (11,904)
-------------------------------------------------------------------------------------------------------------------

Total other income (deductions)-- net                            17,502          2,199       (3,929)       (30,734)
-------------------------------------------------------------------------------------------------------------------

Income before interest expense                                  245,470        235,931    1,050,193      1,073,480
-------------------------------------------------------------------------------------------------------------------

Interest on long-term debt                                      124,354         91,189      378,758        374,293
Other interest expense                                           18,020         27,491       91,607         82,309
Allowance for borrowed funds used
   during construction                                           (1,892)        (2,412)      (8,693)        (9,439)
Capitalized interest                                               (158)        (1,320)      (1,236)        (2,958)
-------------------------------------------------------------------------------------------------------------------

Total interest expense-- net                                    140,324        114,948      460,436        444,205
-------------------------------------------------------------------------------------------------------------------

Net income                                                      105,146        120,983      589,757        629,275
Dividends on preferred stock                                      6,759          8,599       27,648         34,395
-------------------------------------------------------------------------------------------------------------------

Earnings available for common stock                          $   98,387    $   112,384   $  562,109    $   594,880
-------------------------------------------------------------------------------------------------------------------




CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands

                                                                   3 Months Ended              12 Months Ended
                                                                     March 31,                    March 31,
----------------------------------------------------------- ----------------------------- --------------------------
                                                                  1998           1997        1998           1997
----------------------------------------------------------- ----------------------------- --------------------------

Net income                                                   $  105,146     $  120,983   $  589,757     $  629,275
Unrealized gains on securities--  net                            11,110          7,243       18,508         18,511
-------------------------------------------------------------------------------------------------------------------

Comprehensive income                                         $  116,256     $  128,226   $  608,265     $  647,786
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>






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


<PAGE 2>



SOUTHERN CALIFORNIA EDISON COMPANY

CONSOLIDATED BALANCE SHEETS
In thousands
<TABLE>
<CAPTION>

                                                                March 31,        December 31,         March 31,
                                                                  1998               1997                1997
-------------------------------------------------------------------------------------------------------------------

ASSETS
\
Transmission and distribution:
   Utility plant, at original cost, subject to
<S>                                                           <C>                   <C>                <C>        
   cost-based rate regulation                                 $11,333,083           $11,213,352        $11,090,635
Accumulated provision for depreciation                         (5,690,973)           (5,573,742)        (5,227,093)
Construction work in progress                                     482,386               492,614            433,763
-------------------------------------------------------------------------------------------------------------------

                                                                6,124,496             6,132,224          6,297,305
-------------------------------------------------------------------------------------------------------------------

Generation:
   Utility plant, at original cost,
      not subject to cost-based rate regulation                 9,367,923             9,522,127          9,447,242
Accumulated provision for depreciation
   and decommissioning                                         (5,241,980)           (4,970,137)        (4,460,028)
Construction work in progress                                     101,759               100,283             91,502
Nuclear fuel, at amortized cost                                   145,607               154,757            185,411
-------------------------------------------------------------------------------------------------------------------

                                                                4,373,309             4,807,030          5,264,127
-------------------------------------------------------------------------------------------------------------------

Total utility plant                                            10,497,805            10,939,254         11,561,432
-------------------------------------------------------------------------------------------------------------------

Nonutility property -- less accumulated
   provision for depreciation of $25,195, $24,730
   and $23,791 at respective dates                                 67,495                67,869             70,175
Nuclear decommissioning trusts                                  2,001,906             1,831,460          1,499,836
Other investments                                                 221,148               171,399            115,470
-------------------------------------------------------------------------------------------------------------------

Total other property and investments                            2,290,549             2,070,728          1,685,481
-------------------------------------------------------------------------------------------------------------------

Cash and equivalents                                              613,475               962,272            223,283
Receivables, including unbilled revenue, less
   allowances of $23,849, $26,453 and $24,525
   for uncollectible accounts at respective dates                 751,319               906,388            832,123
Fuel inventory                                                     53,464                58,059             58,626
Materials and supplies, at average cost                           131,278               132,980            153,458
Accumulated deferred income taxes-- net                                --               123,146            167,699
Regulatory balancing accounts-- net                               495,078               193,311                 --
Prepayments and other current assets                               54,439                93,098             59,794
-------------------------------------------------------------------------------------------------------------------

Total current assets                                            2,099,053             2,469,254          1,494,983
-------------------------------------------------------------------------------------------------------------------

Unamortized debt issuance and reacquisition
   expense                                                        369,163               359,304            339,654
Rate phase-in plan                                                     --                 3,777             40,013
Income tax-related deferred charges                             1,549,631             1,543,380          1,691,963
Other deferred charges                                            841,519               673,601            434,269
-------------------------------------------------------------------------------------------------------------------

Total deferred charges                                          2,760,313             2,580,062          2,505,899
-------------------------------------------------------------------------------------------------------------------

Total assets                                                  $17,647,720           $18,059,298        $17,247,795
-------------------------------------------------------------------------------------------------------------------
</TABLE>







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


<PAGE 3>



SOUTHERN CALIFORNIA EDISON COMPANY

CONSOLIDATED BALANCE SHEETS
In thousands, except share amounts
<TABLE>
<CAPTION>

                                                                March 31,        December 31,         March 31,
                                                                  1998               1997                1997
-------------------------------------------------------------------------------------------------------------------

CAPITALIZATION AND LIABILITIES
Common shareholder's equity:
   Common stock (434,888,104 shares
<S>                                                         <C>                     <C>                <C>        
      outstanding at each date)                             $ 2,168,054             $ 2,168,054        $ 2,168,054
   Additional paid-in capital                                   334,031                 334,031            177,774
   Accumulated other comprehensive income                        59,133                  48,023             40,625
   Retained earnings                                          1,408,330               1,407,834          2,603,439
-------------------------------------------------------------------------------------------------------------------

                                                              3,969,548               3,957,942          4,989,892
-------------------------------------------------------------------------------------------------------------------

Preferred stock:
   Not subject to mandatory redemption                          183,755                 183,755            283,755
   Subject to mandatory redemption                              275,000                 275,000            275,000
Long-term debt                                                5,807,485               6,144,597          4,660,831
-------------------------------------------------------------------------------------------------------------------

Total capitalization                                         10,235,788              10,561,294         10,209,478
-------------------------------------------------------------------------------------------------------------------

Other long-term liabilities                                     494,370                 479,637            452,048
-------------------------------------------------------------------------------------------------------------------

Current portion of long-term debt                               567,875                 692,875            426,470
Short-term debt                                                 345,241                 322,028            134,826
Accounts payable                                                400,592                 406,704            327,191
Accrued taxes                                                   566,292                 509,270            560,766
Accrued interest                                                 75,337                  85,406            104,677
Dividends payable                                                99,999                  95,146            106,102
Regulatory balancing accounts-- net                                  --                      --            106,505
Accumulated deferred income taxes-- net                          94,577                      --                 --
Deferred unbilled revenue and other current
   liabilities                                                  818,324                 931,856            787,819
-------------------------------------------------------------------------------------------------------------------

Total current liabilities                                     2,968,237               3,043,285          2,554,356
-------------------------------------------------------------------------------------------------------------------

Accumulated deferred income taxes-- net                       2,836,703               2,939,471          3,097,468
Accumulated deferred investment tax credits                     319,916                 326,728            342,042
Customer advances and other deferred credits                    791,865                 708,745            592,403
-------------------------------------------------------------------------------------------------------------------

Total deferred credits                                        3,948,484               3,974,944          4,031,913
-------------------------------------------------------------------------------------------------------------------

Minority interest                                                   841                     138                 --
-------------------------------------------------------------------------------------------------------------------

Commitments and contingencies
   (Notes 2, 8, 9 and 10)





Total capitalization and liabilities                        $17,647,720             $18,059,298        $17,247,795
-------------------------------------------------------------------------------------------------------------------
</TABLE>






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


<PAGE 4>



SOUTHERN CALIFORNIA EDISON COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
<TABLE>
<CAPTION>

                                                                   3 Months Ended              12 Months Ended
                                                                     March 31,                    March 31,
----------------------------------------------------------- ----------------------------- ---------------------------
                                                                1998           1997          1998           1997
----------------------------------------------------------- ----------------------------- ---------------------------

Cash flows from operating activities:
<S>                                                       <C>            <C>             <C>           <C>        
Net income                                                $   105,146    $   120,983     $  589,757    $   629,275
Adjustments for non-cash items:
   Depreciation and decommissioning                           382,974        305,583      1,317,270      1,126,750
   Amortization                                                26,156         12,164         95,355         75,207
   Rate phase-in plan                                           3,777         10,690         40,013         61,356
   Deferred income taxes and investment
      tax credits                                             101,892         43,554        121,717        122,157
   Other long-term liabilities                                 14,733         28,123         42,322         78,246
   Regulatory asset related to sale of utility plant          (98,041)            --        (98,041)            --
   Loss on sale of utility plant                               62,633             --         62,633             --
   Other-- net                                                (18,117)       (21,043)      (205,698)      (171,269)
Changes in working capital:
   Receivables                                                155,069         88,960         80,804         32,219
   Regulatory balancing accounts                             (301,767)       (74,983)      (601,583)      (332,849)
   Fuel inventory, materials and supplies                       6,297         14,662         27,342         49,505
   Prepayments and other current assets                        38,659         45,343          5,355         10,646
   Accrued interest and taxes                                  46,953         87,392        (23,814)       (96,055)
   Accounts payable and other current liabilities            (119,644)      (103,086)       103,906         47,037
-------------------------------------------------------------------------------------------------------------------

Net cash provided by operating activities                     406,720        558,342      1,557,338      1,632,225
-------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
Long-term debt repaid                                        (454,441)      (200,005)    (1,170,581)      (198,575)
Rate reduction notes issued                                    (4,757)            --      2,444,532             --
Rate reduction notes repaid                                   (12,354)            --        (12,354)            --
Preferred stock redeemed                                           --             --       (100,000)            --
Nuclear fuel financing-- net                                   (8,623)         6,031        (34,794)        56,271
Short-term debt financing-- net                                23,213        (95,323)       210,415       (171,709)
Capital transferred                                                --             --        153,000             --
Dividends paid                                               (101,084)      (185,617)    (1,787,412)      (840,710)
-------------------------------------------------------------------------------------------------------------------

Net cash used by financing activities                        (558,046)      (474,914)      (297,194)    (1,154,723)
-------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
Additions to property and plant                              (167,978)      (151,407)      (701,891)      (583,465)
Proceeds from sale of plant                                    29,801             --         29,801             --
Funding of nuclear decommissioning trusts                     (39,683)       (27,889)      (165,550)      (140,072)
Unrealized gain on securities-- net                            11,110          7,243         18,508         18,511
Other-- net                                                   (30,721)        (8,034)       (50,820)       (76,359)
-------------------------------------------------------------------------------------------------------------------

Net cash used by investing activities                        (197,471)      (180,087)      (869,952)      (781,385)
-------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash
   and equivalents                                           (348,797)       (96,659)       390,192       (303,883)
Cash and equivalents, beginning
   of period                                                  962,272        319,942        223,283        527,166
-------------------------------------------------------------------------------------------------------------------

Cash and equivalents, end of period                        $  613,475    $   223,283     $  613,475    $   223,283
-------------------------------------------------------------------------------------------------------------------

Cash payments for interest and taxes:
Interest-- net of amounts capitalized                     $    74,808   $     79,627     $  337,317    $   350,212
Taxes                                                              10             29        437,758        515,238

</TABLE>



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


<PAGE 5>



SOUTHERN CALIFORNIA EDISON COMPANY

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
In thousands
<TABLE>
<CAPTION>

                                                                   3 Months Ended              12 Months Ended
                                                                     March 31,                    March 31,
----------------------------------------------------------- ----------------------------- ---------------------------
                                                                1998          1997          1998           1997
----------------------------------------------------------- ----------------------------- ---------------------------

<S>                                                        <C>            <C>            <C>            <C>       
Balance at beginning of period                             $1,407,834     $2,665,612     $2,603,439     $2,737,651
Net income                                                    105,146        120,983        589,757        629,275
Dividends declared on common stock                            (95,564)      (174,557)    (1,750,046)      (729,075)
Dividends declared on preferred stock                          (6,759)        (8,599)       (27,648)       (34,395)
Stock option appreciation                                      (2,327)            --         (2,327)            --
Reacquired capital stock expense and other                         --             --         (4,845)           (17)
-------------------------------------------------------------------------------------------------------------------

Balance at end of period                                   $1,408,330     $2,603,439     $1,408,330     $2,603,439
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>








































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


<PAGE 6>



SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.       Summary of Significant Accounting Policies

Accounting Principles

Southern  California  Edison  Company's (SCE)  accounting  policies conform with
generally accepted accounting  principles,  including the accounting  principles
for  rate-regulated  enterprises  which reflect the rate-making  policies of the
California Public Utilities  Commission (CPUC) and the Federal Energy Regulatory
Commission (FERC). As a result of industry restructuring  legislation enacted by
the State of California  and a related  change in the  application of accounting
principles for rate-regulated  enterprises  adopted by the Financial  Accounting
Standards Board's Emerging Issues Task Force,  during the third quarter of 1997,
SCE began  accounting for its investment in generation  facilities in accordance
with accounting principles  applicable to enterprises in general.  Although this
change  did  not  result  in  any  adjustment  of the  carrying  value  of  such
investment,  SCE's Balance Sheets display a separate  caption for its investment
in generation.

Competition Transition Charge (CTC)

Beginning  January  1,  1998,  a  non-bypassable  charge is being  billed to all
customers, which provides SCE the opportunity to recover its costs to transition
to a competitive market.

Consolidation Policy

The  consolidated   financial  statements  include  SCE  and  its  subsidiaries.
Intercompany transactions have been eliminated.

Estimates

Financial  statements  prepared in compliance with generally accepted accounting
principles  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 electric utility restructuring, decommissioning and contingencies are
further discussed in Notes 2, 9 and 10 to the Consolidated Financial Statements,
respectively.

Fuel Inventory

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

Nature of Operations

SCE's outstanding  common stock is owned entirely by its parent company,  Edison
International.  SCE is a public  utility  which  produces and supplies  electric
energy for its 4.3 million  customers  in Central and Southern  California.  SCE
currently  operates  in a  highly  regulated  environment  in  which  it  has an
obligation to deliver  electric  service to customers in return for an exclusive
franchise within its service territory. This regulatory environment is changing,
as further discussed in Note 2 to the Consolidated Financial Statements.

Nuclear

The CPUC-authorized  rate phase-in plans (deferred the collection of revenue for
each unit at the Palo Verde  Nuclear  Generating  Station  during the first four
years of operation) ended in February 1996,  September 1996 and January 1998 for
Units 1, 2 and 3, respectively.


<PAGE 7>



SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Under  federal  law,  SCE is  liable  for its  share of the  estimated  costs to
decommission three federal nuclear  enrichment  facilities (based on purchases).
These costs,  which will be paid over 15 years,  are recorded as a fuel cost and
recovered through non-bypassable customer rates.

In April  1996,  the  CPUC  authorized  acceleration  of the  recovery  of SCE's
remaining  investment  of  $2.6  billion  in  San  Onofre  Units  2 and  3.  The
accelerated  recovery will continue through December 2001, earning a 7.35% fixed
rate of  return.  Operating  costs,  including  nuclear  fuel and  nuclear  fuel
financing costs, and incremental capital  expenditures at San Onofre Units 2 and
3 are  recovered  through an incentive  pricing plan which allows SCE to receive
about 4(cent) per  kilowatt-hour  through 2003.  Any  differences  between these
costs and the incentive price will flow through to the  shareholders.  Beginning
January 1, 1998, the accelerated  plant recovery and the incentive  pricing plan
became part of the CTC  mechanism.  Beginning  in 2004,  SCE will be required to
share equally with  ratepayers  the net benefits  received from operation of the
units.

In January  1997,  the CPUC  authorized an  acceleration  of the recovery of its
remaining  investment  of $1.2  billion  in Palo  Verde  Units  1, 2 and 3.  The
accelerated  recovery will continue through December 2001, earning a 7.35% fixed
rate of return.  The  accelerated  plant recovery,  as well as operating  costs,
including nuclear fuel and nuclear fuel financing costs, and incremental capital
expenditures, are subject to balancing account treatment through 2001. Beginning
January 1, 1998, the balancing  account  became part of the CTC  mechanism.  The
existing  nuclear unit  incentive  procedure  will continue only for purposes of
calculating a reward for  performance  of any unit above an 80% capacity  factor
for a fuel cycle.  Beginning in 2002, SCE will be required to share equally with
ratepayers the net benefits received from operation of Palo Verde.

Reclassifications

Certain prior-period amounts were reclassified to conform to the March 31, 1998,
financial statement presentation.

Regulatory Balancing Accounts

Prior to January 1, 1998, the  differences  between  CPUC-authorized  and actual
base-rate revenue from kilowatt-hour sales and CPUC-authorized and actual energy
costs were  accumulated  in balancing  accounts  until they were refunded to, or
recovered from,  utility  customers  through  authorized rate adjustments  (with
interest).  On January 1, 1998,  the balances in these  balancing  accounts were
transferred to a transition cost balancing account.  Also,  beginning January 1,
1998, the difference between  generation-related  revenue and generation-related
costs is being accumulated in the transition cost balancing account, effectively
eliminating  all other  balancing  accounts  except  those used to assist in the
administration  of  public  purpose  funds.  These  transition  costs  are being
recovered from utility customers (with interest) through the CTC mechanism.  For
further  details,  see discussion  under  California  Electric  Utility Industry
Restructuring in Note 2 to the  Consolidated  Financial  Statements.  Income tax
effects on all balancing account changes are deferred.

In  January  1997,  in  compliance  with  the  new  restructuring   legislation,
overcollections in the kilowatt-hour sales and energy cost balancing accounts at
December 31, 1996,  were  transferred to an interim  balancing  account and were
credited to the transition cost balancing account beginning in January 1998.

Research, Development and Demonstration (RD&D)

SCE capitalizes RD&D costs that are expected to result in plant construction. If
construction does not occur,  these costs are charged to expense.  RD&D expenses
were $0.4  million and $35 million for the three and twelve  months  ended March
31, 1998, respectively,  and $5 million and $22 million for the three and twelve
months ended March 31, 1997, respectively.


<PAGE 8>



SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue

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

Utility Plant

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. 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.

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 6.6% and 5.6% for the
three and twelve  months ended March 31, 1998,  respectively,  and 5.2% and 4.6%
for the three and twelve months ended March 31, 1997, respectively.

During the third quarter of 1997, SCE discontinued accounting for its investment
in   generation   facilities   using   accounting   principles   applicable   to
rate-regulated  enterprises  and  began  accounting  for such  investment  using
accounting  principles  applicable to enterprises in general. The carrying value
of such investment was unaffected by this change.

Note 2.       Regulatory Matters

California Electric Utility Industry Restructuring

Restructuring  Decision -- The CPUC's  December 1995  decision on  restructuring
California's  electric  utility  industry started the transition to a new market
structure,  which provides  competition  and customer  choice  starting April 1,
1998. Key elements of the CPUC's  restructuring  decision included:  creation of
the power exchange (PX) and independent  system operator (ISO);  availability of
customer  choice  for  electricity  supply  and  certain  billing  and  metering
services;  performance-based  ratemaking  (PBR) for those  utility  services not
subject to  competition;  voluntary  divestiture  of at least 50% of  utilities'
gas-fueled generation; and implementation of the CTC.

Restructuring  Legislation -- In September 1996, the State of California enacted
legislation  to provide a transition  to a  competitive  market  structure.  The
legislation   substantially  adopted  the  CPUC's  December  1995  restructuring
decision by  addressing  stranded-cost  recovery for  utilities  and providing a
certain  cost-recovery  time period for the  transition  costs  associated  with
utility-owned   generation-related   assets.   Transition   costs   related   to
power-purchase contracts would be recovered through the terms of their contracts
while most of the remaining  transition  costs would be recovered  through 2001.
The  legislation  also included  provisions to finance a portion of the stranded
costs that  residential and small  commercial  customers would have paid between
1998 and 2001,  which would  allow SCE to reduce  rates by at least 10% to these
customers, beginning January 1, 1998. The legislation included a rate freeze for
all other  customers,  including large commercial and industrial  customers,  as
well as provisions  for continued  funding for energy  conservation,  low-income
programs and  renewable  resources.  Despite the rate freeze,  SCE expects to be
able to recover its revenue requirement during the 1998-2001  transition period.
In  addition,  the  legislation  mandated  the  implementation  of the CTC  that
provides  utilities the opportunity to recover costs made uneconomic by electric
utility  restructuring.  Finally,  the legislation  contained provisions for the
recovery  (through  2006)  of  reasonable   employee-related  transition  costs,
incurred  and  projected,   for   retraining,   severance,   early   retirement,
outplacement and related expenses.



<PAGE 9>



SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Rate Reduction Notes -- In December 1997, after receiving approval from both the
CPUC and the California  Infrastructure and Economic Development Bank, a limited
liability  company  created by SCE  issued  approximately  $2.5  billion of rate
reduction  notes.  Residential and small  commercial  customers,  whose 10% rate
reduction began in January 1998, will repay the notes over the expected  10-year
term  through  non-bypassable  charges  based on  electricity  consumption.  For
further  details  see  discussion   under  Long-Term  Debt  in  Note  3  to  the
Consolidated Financial Statements.

Rate-setting -- In December 1996, SCE filed a comprehensive  plan addressing the
implementation-level detail for the functional unbundling of rates into separate
charges for energy, transmission, distribution, the CTC, public benefit programs
and  nuclear  decommissioning   beginning  January  1,  1998.  The  transmission
component of this rate  unbundling  process was  addressed at the FERC through a
March 1997 filing.  In December 1997, the FERC approved these rates,  subject to
refund,  to be effective on the date the ISO begins  operation.  In August 1997,
the CPUC issued a decision  which  adopted a  methodology  for  determining  CTC
residually  (see CTC  discussion  below) and adopted SCE's  revenue  requirement
components for public benefit programs and nuclear decommissioning. The decision
also adjusted SCE's proposed  distribution  revenue  requirement by reallocating
$76  million  of  it  annually  to  other   functions  such  as  generation  and
transmission.  Under  the  decision,  SCE  will be able to  recover  most of the
reallocated  amount  through market  revenue,  other  rate-making  mechanisms or
another review process later in its divestiture proceeding.

PX and ISO -- In April 1996, SCE,  Pacific Gas & Electric  Company and San Diego
Gas & Electric  Company filed a proposal with the FERC regarding the creation of
the PX and the ISO.  In  November  1996,  the FERC  conditionally  accepted  the
proposal  and  directed  the three  utilities,  the ISO, and the PX to file more
specific  information.  The filing was made in March 1997,  and  included  SCE's
proposed  transmission  revenue  requirement.  In  October  1997,  the FERC gave
conditional,  interim  authorization for operation of the PX and ISO to begin on
January  1,  1998.  The FERC  stated it would  closely  monitor  the PX and ISO,
require further studies and make modifications, where necessary. A comprehensive
review will be  performed  by the FERC after three years of  operation of the PX
and ISO.  The  start-up  of the PX and ISO was  delayed  by three  months due to
insufficient  testing of systems.  On March 31, 1998,  both the PX and ISO began
bidding and  scheduling  for April 1, 1998,  when the ISO took over  operational
control of the power system.

In 1996,  the CPUC issued an interim order  establishing a  restructuring  trust
which  would  obtain  loans up to $250  million  (increased  to $300  million in
November  1997)  backed by  utility  guarantees.  The  loans  were used to build
hardware  and  software  systems  for the ISO and PX.  SCE's  share  of the loan
guarantees is 45%, or $135 million.  The ISO and PX will repay the trust's loans
and recover funds from future ISO and PX customers.  In December  1997, the CPUC
approved the utilities' request that the restructuring implementation charge, to
be paid to the PX by the  utilities,  be  deemed a  non-bypassable  charge to be
recovered  from all  retail  customers.  The  amount  of the PX  charge  is $101
million,  plus interest and fees over the  four-year  transition  period;  SCE's
share is 45%, or $45 million.

Direct Customer Access -- In May 1997, the CPUC issued a decision describing how
all California  investor-owned-utility customers will be able to choose who will
provide  them with  electric  generation  service  beginning  January  1,  1998.
Effective  April 1, 1998,  after a three  month delay in the  implementation  of
direct access, customers are now able to choose to remain utility customers with
either bundled  electric  service or an hourly PX pricing option from SCE (which
will purchase its power through the PX), or choose  direct  access,  which means
the customer can contract  directly with either  independent  power producers or
retail  electric  service  providers  such  as  power  brokers,   marketers  and
aggregators. Additionally, all investor-owned-utility customers must pay the CTC
whether or not they choose to buy power  through SCE.  Electric  utilities  will
continue to provide the core  distribution  service of delivering energy through
its  distribution  system  regardless  of a  customer's  choice  of  electricity
supplier.  The CPUC will continue to regulate the prices and service obligations
related to distribution services. If the

<PAGE 10>



SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

new  competitive   market  cannot   accommodate  the  volume  of  direct  access
transactions,  the CPUC could implement a contingency  plan.  However,  the CPUC
believes it is likely that  interest in and  migration to direct  access will be
gradual.

Revenue Cycle Services -- A decision issued by the CPUC in May 1997,  introduced
customer  choice to  metering,  billing and  related  services  (referred  to as
revenue cycle services) that have been provided by  California's  investor-owned
utilities.  Under this revenue cycle services unbundling decision,  beginning in
April 1998 (delayed from January  1998),  energy  service  providers  (ESPs) can
provide their  customers with one  consolidated  bill for their services and the
utility's  services,  request the utility to provide a consolidated  bill to the
customer or elect to have both the ESP and the  utility  bill the  customer  for
their respective charges. In addition,  beginning in April 1998,  customers with
maximum  demand  above  20  kW  (primarily   industrial  and  medium  and  large
commercial)  can choose SCE or any other  supplier  to  provide  their  metering
service. All other customers will have this option beginning in January 1999. In
determining  whether any credit  should be provided by the utility to  customers
who elect to have ESPs providing customers with revenue cycle services,  and the
amount of any such credit,  the CPUC has indicated that it is appropriate to net
the cost incurred by the utility and the cost avoided by the utility as a result
of such services being provided by the other firm rather than by the utility.

PBR -- In September 1996, the CPUC adopted a non-generation  or transmission and
distribution  (T&D) PBR  mechanism  for SCE which  began on January 1, 1997.  In
accordance  with this CPUC  decision,  beginning in April 1998 the  transmission
portion was separated from  non-generation  PBR and subject to ratemaking  under
the rules of the FERC. The  distribution-only  PBR will extend through  December
2001.  Key elements of the  non-generation  PBR include:  T&D rates  indexed for
inflation  based  on  the  Consumer  Price  Index  less a  productivity  factor;
elimination of the kilowatt-hour sales adjustment;  adjustments for cost changes
that are not within SCE's control; a cost-of-capital  trigger mechanism based on
changes in a bond index; standards for service reliability and safety; and a net
revenue-sharing  mechanism that determines how customers and  shareholders  will
share gains and losses from T&D operations.

The CPUC has  announced  its  intention  to  consider  unbundling  SCE's cost of
capital by major utility  function.  On May 8, 1998, SCE filed an application on
this issue. A CPUC decision is expected by year-end.

In December  1997, the CPUC adopted a PBR-type  rate-making  mechanism for SCE's
hydroelectric  plants. The mechanism sets the hydroelectric  revenue requirement
in 1998 and  establishes  a formula for extending it through the duration of the
electric industry restructuring  transition period, or until market valuation of
the  hydroelectric  facilities,  whichever occurs first. The mechanism  provides
that  power  sales  revenue  from  hydroelectric  facilities  in  excess  of the
hydroelectric revenue requirement be credited against the costs to transition to
a competitive market (see CTC discussion below).

Divestiture  -- In  November  1996,  SCE filed an  application  with the CPUC to
voluntarily  divest,  by auction,  all 12 of its gas- and oil-fueled  generation
plants.  Under this  proposal,  SCE would  continue to operate and  maintain the
divested power plants for at least two years  following  their sale, as mandated
by the  restructuring  legislation  enacted in September 1996. In addition,  SCE
would offer workforce transition programs to those employees who may be impacted
by  divestiture-related  job  reductions.  In September  1997, the CPUC approved
SCE's proposal to auction the 12 plants.

In early December 1997, SCE filed a compliance filing with the CPUC stating that
it had  sold  10  plants;  the  CPUC  approved  the  sale  of the 10  plants  in
mid-December 1997. In the first quarter of 1998, SCE announced the pending sales
of the 11th and 12th plants.  SCE has received  CPUC approval of the sale of the
11th plant and  approval of the sale of the 12th plant is expected by the end of
second  quarter  1998.  The total sales price of the 12 plants is $1.2  billion,
over $500 million more than the combined  book value.  Net proceeds of the sales
will be used to reduce stranded costs, which otherwise were expected to

<PAGE 11>



SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

be  collected  through the CTC  mechanism.  The  transfer of ownership of the 12
plants is expected to be completed by the end of second quarter 1998.

CTC -- The CTC applies to all  customers  who were using or began using  utility
services on or after the CPUC's  December 20, 1995,  decision  date.  In October
1996, SCE amended its August 1996  transition cost filing to reflect the effects
of the  legislation  enacted  in  September  1996.  The CTC is being  determined
residually  (i.e.,  after  subtracting  other cost  components  for the PX, T&D,
nuclear  decommissioning  and public benefit programs).  Nevertheless,  the CPUC
directed  that the amended  application  provide  estimates  of SCE's  potential
transition  costs from 1998 through  2030.  SCE provided two  estimates  between
approximately  $13.1 billion (1998 net present value) assuming the fossil plants
had a market value equal to their net book value,  and $13.8  billion  (1998 net
present value)  assuming the fossil plants had no market value.  These estimates
were based on incurred  costs,  forecasts  of future  costs and  assumed  market
prices.  However,  changes in the assumed market prices could materially  affect
these estimates.  The potential transition costs were comprised of: $7.5 billion
from SCE's  qualifying  facility (QF) contracts,  which are the direct result of
prior legislative and regulatory mandates; and $5.6 billion to $6.3 billion from
costs pertaining to certain generating plants (successful completion of the sale
of SCE's  gas-fired  generating  plants would reduce this estimate of transition
costs  for  SCE-owned  generation  to  less  than  $5  billion)  and  regulatory
commitments  consisting of costs incurred  (whose  recovery has been deferred by
the CPUC) to provide service to customers. Such commitments include the recovery
of income tax benefits  previously  flowed through to customers,  postretirement
benefit transition costs,  accelerated  recovery of San Onofre Units 2 and 3 and
the Palo  Verde  units (as  discussed  in Note 1 to the  Consolidated  Financial
Statements),  and certain other costs.  In February 1997, SCE filed an update to
the  CTC  filing  to  reflect  approval  by the  CPUC of  settlements  regarding
ratemaking  for SCE's  share of Palo  Verde and the  buyout of a power  purchase
agreement,  as well as other minor data updates.  No substantive  changes in the
total CTC estimates  were  included.  This issue was separated  into two phases;
Phase 1 addressed the rate-making issues and Phase 2 the quantification issues.

A decision  on Phase 1 was  issued in June  1997,  which,  among  other  things,
required the  establishment  of a transition  cost balancing  account and annual
transition  cost  proceedings,  set a market rate  forecast for 1998  transition
costs,  and  required  that  generation-related  regulatory  assets be amortized
ratably  over a  48-month  period.  The Phase 2  decision,  which was  issued in
November 1997, established the calculation  methodologies and procedures for SCE
to collect its  transition  costs from 1998  through the end of the rate freeze.
The Phase 2 decision  also reduced  SCE's  authorized  rate of return on certain
assets   eligible  for   transition   cost  recovery   (primarily   fossil-  and
hydroelectric-generation  related  assets)  beginning  July  1997,  five  months
earlier than anticipated. SCE has filed an application for rehearing on the 1997
rate of return issue.

Accounting  for  Generation-Related  Assets -- If the CPUC's  electric  industry
restructuring  plan continues as outlined above, SCE would be allowed to recover
its CTC through  non-bypassable  charges to its distribution customers (although
its  investment  in  certain  generation  assets  would  be  subject  to a lower
authorized rate of return).  During the third quarter of 1997, SCE  discontinued
application of accounting  principles  for  rate-regulated  enterprises  for its
investment in generation facilities.  SCE took this action after a consensus was
reached by the Financial Accounting Standards Board's Emerging Issues Task Force
(EITF) in July 1997,  regarding the proper application of regulatory  accounting
standards in light of the electric industry restructuring legislation enacted by
the State of  California  in  September  1996 and the CPUC's  electric  industry
restructuring plan.

However,  implementation  of the EITF consensus did not require SCE to write off
any  of  its   generation-related   assets,   including   regulatory  assets  of
approximately  $900 million at March 31, 1998.  SCE has retained these assets on
its balance sheet because the  legislation  and  restructuring  plan referred to
above make probable their recovery through a non-bypassable  CTC to distribution
customers. These

<PAGE 12>



SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

regulatory  assets relate  primarily to the recovery of  accelerated  income tax
benefits  previously  flowed  through to  customers,  purchased  power  contract
termination payments, unamortized losses on reacquired debt, and the recovery of
amounts deferred under the Palo Verde rate phase-in plan. The consensus  reached
by the EITF also  permits the  recording  of new  generation-related  regulatory
assets during the  transition  period that are probable of recovery  through the
CTC mechanism.

If during the  transition  period events were to occur that made the recovery of
these  generation-related  regulatory  assets no longer  probable,  SCE would be
required  to write off the  remaining  balance  of such  assets  as a  one-time,
non-cash charge against earnings.  If such a write-off were to be required,  SCE
believes that it should not affect the recovery of stranded  costs  provided for
in the legislation and restructuring plan.

If events occur during the restructuring process that result in all or a portion
of the CTC being  improbable of recovery,  SCE could have additional  write-offs
associated with these costs if they are not recovered through another regulatory
mechanism. At this time, SCE cannot predict what other revisions will ultimately
be  made  during  the  restructuring   process  in  subsequent   proceedings  or
implementation  phases,  or  the  effect,  after  the  transition  period,  that
competition will have on its results of operations or financial position.

FERC Restructuring Decision

In April 1996, the FERC issued its decision on  stranded-cost  recovery and open
access transmission,  effective July 1996. The decision,  reaffirmed by the FERC
in its March and November 1997 orders,  requires all electric  utilities subject
to  the  FERC's   jurisdiction  to  file  transmission   tariffs  which  provide
competitors  with  increased  access to  transmission  facilities  for wholesale
transactions and also establishes information  requirements for the transmission
utility.  The decision also provides  utilities with the  opportunity to recover
stranded    costs    associated    with    existing     wholesale     customers,
retail-turned-wholesale  customers and retail wheeling when the state regulatory
body does not have authority to address retail stranded  costs.  Even though the
CPUC addressed stranded-cost recovery through the CTC proceedings,  the FERC has
also  asserted  primary   jurisdiction  over  the  recovery  of  stranded  costs
associated  with  retail-turned-wholesale  customers,  such  as a new  municipal
electric system or a municipal annexation. However, the FERC did clarify that it
does not intend to prevent or interfere with a state's authority and that it has
discretion  to defer to a state  stranded-cost-calculation  method.  In  January
1997,  the FERC  accepted  the open  access  transmission  tariff  SCE  filed in
compliance  with the April 1996 decision.  The rates included in the tariff were
collected subject to refund. In May 1997, SCE filed a revised open access tariff
to reflect the few revisions set forth in the March 1997 order.  The open access
transmission  tariff  was  terminated  as of April 1,  1998,  when the ISO began
operation.

Mojave Cogeneration Contract

In 1991,  SCE  filed  its  testimony  in the QF phase  of the 1991  Energy  Cost
Adjustment Clause proceeding.  In 1993, the CPUC's Office of Ratepayer Advocates
(ORA) filed its report on the  reasonableness  of SCE's QF contracts and alleged
that SCE had imprudently renegotiated a QF contract with the Mojave Cogeneration
Company.  The report recommended a disallowance of $32 million (1993 net present
value) over the contract's 20-year life. Subsequently, SCE and the ORA reached a
settlement  where  SCE  agreed  to  a  one-time  reduction  to  its  energy-cost
adjustment  clause balancing  account of $14 million plus interest.  Because SCE
and the ORA were  unable to  finalize  their  settlement,  hearings on the ORA's
disallowance  recommendations  were held in June 1997. During the hearings,  the
ORA presented testimony updating its assessment of ratepayer harm to $45 million
(1997 net present  value) over the  contract's  life. On April 9, 1998, the CPUC
issued a decision resulting in a $16 million disallowance,  which has been fully
reflected in SCE's financial statements.


<PAGE 13>



SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3.  Financial Instruments

Cash Equivalents

Cash and equivalents  include tax-exempt  investments ($392 million at March 31,
1998,  $936 million at December 31, 1997,  and $185 million at March 31,  1997),
and time deposits and other  investments  ($221  million at March 31, 1998,  $26
million at December 31, 1997, and $38 million at March 31, 1997) with maturities
of three months or less.

Derivative Financial Instruments

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

SCE  uses the  hedge  accounting  method  to  record  its  derivative  financial
instruments,   except  for  gas  call  options.  Hedge  accounting  requires  an
assessment that the transaction  reduces risk, that the derivative be 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.  Under hedge accounting,  the derivative itself is not recorded on SCE's
balance sheet.  Mark-to-market  accounting would be used if the hedge accounting
criteria were not met. Interest rate  differentials and amortization of premiums
for interest rate caps are recorded as adjustments to interest  expense.  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.

SCE uses the  mark-to-market  accounting method for its gas call options.  Gains
and losses  from  monthly  changes in market  prices are  recorded  as income or
expense.  However,  the costs of the  options and the market  price  changes are
recovered  through the  transition  cost  balancing  account.  As a result,  the
mark-to-market gains or losses have no effect on earnings.

SCE has gas call options that  mitigate its exposure to increases in natural gas
prices.  Increases  in  natural  gas  prices  tend  to  increase  the  price  of
electricity  purchased from the PX. The options cover various  periods from 1998
through 2001.

Interest rate swaps and caps are used to reduce the potential impact of interest
rate fluctuations on floating-rate long-term debt. At the balance sheet dates of
March 31, 1998,  December 31, 1997, and March 31, 1997, SCE had an interest rate
swap agreement  which fixed the interest rate at 5.585% for $196 million of debt
due 2008;  it expires  February  28,  2008.  The  interest  rate swap  agreement
requires  the parties to pledge  collateral  according to bond rating and market
interest  rate  changes.  At March 31,  1998,  SCE had  pledged  $22  million as
collateral due to a decline in market interest rates. At March 31, 1997, SCE had
an  interest  rate cap  agreement  which fixed the  interest  rate at 6% for $30
million of debt due 2027; it expired July 1, 1997.

SCE is exposed to credit loss in the event of nonperformance by the counterparty
to the  agreement,  but does not  expect  the  counterparty  to fail to meet its
obligations.



<PAGE 14>



SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value of Financial Instruments

Fair values of financial instruments were:
<TABLE>
<CAPTION>

                                        March 31,                    December 31,                March 31,
                                          1998                           1997                      1997
-------------------------------------------------------------------------------------------------------------------

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

Financial assets:
<S>                             <C>          <C>               <C>          <C>            <C>           <C>   
Decommissioning trusts          $1,411       $2,002            $1,371       $1,831         $1,245        $1,499
Equity investments                   9          109                 9           90             11            75
Gas call options                    47           51                34           34             --            --

Financial liabilities:
DOE decommissioning and
  decontamination fees              50           42                50           43             54            44
Interest rate hedges                --           20                --           24             --             9
Long-term debt                   5,807        6,006             6,145        6,456          4,661         4,727
Preferred stock subject to
  mandatory redemption             275          295               275          293            275           289
-------------------------------------------------------------------------------------------------------------------
</TABLE>

Financial  assets are carried at their fair value based on quoted  market prices
for decommissioning  trusts and equity investments,  and on financial models for
gas  call  options.  Financial  liabilities  are  recorded  at  cost.  Financial
liabilities'  fair values are based on:  termination costs for the interest rate
swap;  brokers'  quotes for  long-term  debt,  preferred  stock and the cap; 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 and short-term debt approximate fair value.

Gross unrealized holding gains on financial assets were:
<TABLE>
<CAPTION>

                                                                 March 31,        December 31,        March 31,
                                                                   1998               1997              1997
-------------------------------------------------------------------------------------------------------------------

Decommissioning trusts:
<S>                                                                <C>                <C>               <C> 
  Municipal bonds                                                  $158               $131              $ 77
  Stocks                                                            315                190               129
  U.S. government issues                                            109                 91                34
  Short-term and other                                                9                 48                14
-------------------------------------------------------------------------------------------------------------------
                                                                    591                460               254
Equity investments                                                  100                 81                64
Gas call options                                                      4                 --                --
-------------------------------------------------------------------------------------------------------------------
Total                                                              $695               $541              $318
-------------------------------------------------------------------------------------------------------------------
</TABLE>


There were no  unrealized  holding  losses on  financial  assets for the periods
presented.

Investments

Net unrealized  gains (losses) on equity  investments are recorded as a separate
component of shareholder's equity under the caption: 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.

Long-Term Debt

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


<PAGE 15>



SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 arranged with securities dealers to remarket or purchase them
if necessary.

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.

Long-term  debt   maturities  and   sinking-fund   requirements   for  the  five
twelve-month periods following March 31, 1998 are: 1999 -- $568 million; 2000 --
$716  million;  2001 -- $448  million;  2002 -- $446  million;  and 2003 -- $446
million.

In December 1997, SCE Funding LLC, a special  purpose entity (SPE), of which SCE
is the sole member, issued approximately $2.5 billion of rate reduction notes to
Bankers Trust Company of California,  as certificate  trustee for the California
Infrastructure  and  Economic  Development  Bank  Special  Purpose  Trust  SCE-1
(Trust),  which  is a  special  purpose  entity  established  by  the  State  of
California.  The terms of the rate reduction notes generally mirror the terms of
the  pass-through  certificates  issued  by the  Trust,  which are known as rate
reduction  certificates.  The proceeds of the rate reduction  notes were used by
the SPE to purchase from SCE an enforceable right known as transition  property.
Transition  property  is a  current  property  right  created  pursuant  to  the
restructuring  legislation  and a  financing  order  of the  CPUC  and  consists
generally  of the  right to be paid a  specified  amount  from a  non-bypassable
tariff levied on residential and small commercial customers. Notwithstanding the
legal sale of the transition  property by SCE to the SPE, the amounts  reflected
as assets on SCE's  balance  sheet  have not been  reduced  by the amount of the
transition property sold to the SPE, and the liabilities of the SPE for the rate
reduction notes are for accounting  purposes reflected as long-term  liabilities
on the consolidated balance sheet of SCE. SCE used the proceeds from the sale of
the transition property to retire debt and equity securities. The rate reduction
notes are secured solely by the transition  property and certain other assets of
the SPE, and there is no recourse to SCE or Edison International.

Although  the SPE is  consolidated  with  SCE in the  financial  statements,  as
required  by  generally  accepted  accounting  principles,  the  SPE is  legally
separate  from SCE, the assets of the SPE are not  available to creditors of SCE
or Edison International,  and the transition property is legally not an asset of
SCE or Edison International.

Long-term debt consisted of:
<TABLE>
<CAPTION>

                                                      March 31,                December 31,            March 31,
                                                         1998                      1997                  1997
-------------------------------------------------------------------------------------------------------------------

First and refunding mortgage bonds:
<S>                                                    <C>                       <C>                   <C>   
   1998 - 2026 (5.45% to 7.5%)                          $1,700                    $1,825                $2,525
Rate reduction notes:
   1998 - 2007 (5.98% to 6.42%)                          2,451                     2,463                    --
Pollution-control bonds:
   1999 - 2027 (5.4% to 7.2% and variable)               1,202                     1,202                 1,204
Funds held by trustees                                      (2)                       (2)                   (2)
Debentures and notes:
   1998 - 2006 (5.6% to 8.25%)                             870                     1,195                 1,195
Subordinated debentures:
   2044 (8.375%)                                           100                       100                   100
Commercial paper for nuclear fuel                           83                        92                   118
Long-term debt due within one year                        (568)                     (693)                 (426)
Unamortized debt discount-- net                            (29)                      (37)                  (53)
-------------------------------------------------------------------------------------------------------------------

Total                                                   $5,807                    $6,145                $4,661
-------------------------------------------------------------------------------------------------------------------
</TABLE>


<PAGE 16>



SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Short-Term Debt

SCE has lines of credit it can use at negotiated  or bank index rates.  At March
31, 1998, available lines totaled $1.8 billion, with $1.3 billion for short-term
debt and  $500  million  available  for the  long-term  refinancing  of  certain
variable-rate pollution-control debt.

Short-term debt consisted of commercial paper used to finance fuel  inventories,
balancing account  undercollections  and general cash  requirements.  Commercial
paper outstanding at March 31, 1998,  December 31, 1997, and March 31, 1997, was
$428 million,  $415 million and $254  million,  respectively.  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.
Weighted-average  interest  rates  were 5.8%,  6.0% and 5.5% at March 31,  1998,
December 31, 1997, and March 31, 1997, respectively.

Note 4.  Equity

The CPUC regulates  SCE's capital  structure,  limiting the dividends it may pay
Edison  International.  At March  31,  1998,  SCE had the  capacity  to pay $1.4
billion in additional  dividends and continue to maintain its authorized capital
structure.

Authorized  common  stock is 560 million  shares  with no par value.  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  March  31,  1998,  are:  1999  through  2002 -- zero and 2003 -- $105
million.

Cumulative preferred stock consisted of:
<TABLE>
<CAPTION>

                                                                        March 31,      December 31,      March 31,
Dollars in millions, except per share amounts                              1998            1997            1997
-------------------------------------------------------------------------------------------------------------------

                                              March  31, 1998
                                       --------------------------- 
                                          Shares        Redemption
                                       Outstanding         Price
                                       -----------      ----------
Not subject to mandatory redemption:
$25 par value:
<C>                                       <C>               <C>             <C>            <C>             <C> 
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
5.80                                      2,200,000          25.25            55             55              55
7.36                                             --             --            --             --             100
-------------------------------------------------------------------------------------------------------------------
Total                                                                       $184           $184            $284
-------------------------------------------------------------------------------------------------------------------

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                                      1,000,000         100.00           100            100             100
-------------------------------------------------------------------------------------------------------------------
Total                                                                       $275           $275            $275
-------------------------------------------------------------------------------------------------------------------
</TABLE>



<PAGE 17>



SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In the second quarter of 1997, 4 million shares of Series 7.36%  preferred stock
were redeemed.  There were no other preferred stock issuances or redemptions for
the periods presented.

A recently issued accounting standard requires companies to report comprehensive
income  starting in 1998. SCE  implemented  the new  accounting  standard in the
first quarter of 1998. Implementation of the new standard had no effect on SCE's
financial position or results of operations.

Accumulated other comprehensive income balances were:
<TABLE>
<CAPTION>

                                                                   3 Months Ended              12 Months Ended
                                                                     March 31,                    March 31,
----------------------------------------------------------- ----------------------------- --------------------------
                                                                1998           1997          1998        1997
----------------------------------------------------------- ----------------------------- --------------------------

<S>                                                       <C>              <C>            <C>          <C>      
Beginning balance                                         $  48,023        $  33,382      $  40,625    $  22,114
Unrealized gains on securities                               18,688            6,964         35,882       26,076
Tax effect                                                   (7,578)             279        (17,374)      (7,565)
-------------------------------------------------------------------------------------------------------------------

Ending balance                                            $  59,133        $  40,625      $  59,133    $  40,625
-------------------------------------------------------------------------------------------------------------------
</TABLE>

Note 5.  Income Taxes

SCE and its subsidiaries will be included in Edison International's consolidated
federal  income tax and combined state  franchise tax returns.  Under income tax
allocation agreements, each subsidiary calculates its own tax liability.

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.

The components of the net accumulated deferred income tax liability were:
<TABLE>
<CAPTION>

                                                                March 31,        December 31,         March 31,
                                                                  1998               1997                1997
-------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
<S>                                                            <C>               <C>               <C>      
Property-related                                               $    199          $    227          $     237
Unrealized gains or losses                                          326               273                191
Investment tax credits                                              157               192                202
Regulatory balancing accounts                                        78               180                111
Decommissioning-related                                             117               114                105
Other                                                               333               335                299
-------------------------------------------------------------------------------------------------------------------
Total                                                          $  1,210          $  1,321          $   1,145
-------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Property-related                                               $  3,139          $  3,272          $   3,489
Capitalized software costs                                          144               127                115
Other                                                               859               738                470
-------------------------------------------------------------------------------------------------------------------
Total                                                          $  4,142          $  4,137          $   4,074
-------------------------------------------------------------------------------------------------------------------
Accumulated deferred income taxes-- net                        $  2,932          $  2,816          $   2,929
-------------------------------------------------------------------------------------------------------------------
Classification of accumulated deferred income taxes:
Included in deferred credits                                   $  2,837          $  2,939          $   3,097
Included in current assets                                          (95)              123                168
</TABLE>



<PAGE 18>



SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The current and deferred components of income tax expense were:
<TABLE>
<CAPTION>

                                                                 3 Months Ended               12 Months Ended
                                                                   March 31,                     March 31,
--------------------------------------------------------- ----------------------------- ----------------------------

                                                             1998           1997            1998           1997
--------------------------------------------------------- -------------- ----------- -- -------------- -------------
Current:
<S>                                                         <C>          <C>                <C>           <C> 
Federal                                                     $ 24         $ 24               $374          $320
State                                                          4           19                 85           108
-------------------------------------------------------------------------------------------------------------------

                                                              28           43                459           428
-------------------------------------------------------------------------------------------------------------------
Deferred--federal and state:
Accrued charges                                              (30)          (2)               (61)          (14)
Depreciation                                                 (73)         (12)              (106)          (21)
Investment and energy tax credits-- net                       (4)          (5)               (20)          (22)
Rate phase-in plan                                            --           (4)               (15)          (24)
Regulatory balancing accounts                                109           26                225           109
Prior year state tax                                          32           27                  5             7
CTC amortization                                              28           --                 27            --
Unbilled revenue                                              14           --                 14            --
Other                                                         16           14                 25            39
-------------------------------------------------------------------------------------------------------------------

                                                              92           44                 94            74
-------------------------------------------------------------------------------------------------------------------

Total income tax expense                                    $120         $ 87               $553          $502
-------------------------------------------------------------------------------------------------------------------

Classification of income taxes:
Included in operating income                                $126         $ 95               $612          $565
Included in other income                                      (6)          (8)               (59)          (63)
</TABLE>

The composite  federal and state statutory  income tax rate was 40.551% for both
the three and twelve  months ended March 31,  1998,  and 40.551% and 40.921% for
the three and twelve months ended March 31, 1997, respectively.

The federal  statutory  income tax rate is  reconciled to the effective tax rate
below:
<TABLE>
<CAPTION>

                                                                 3 Months Ended               12 Months Ended
                                                                   March 31,                     March 31,
--------------------------------------------------------- ----------------------------- ----------------------------
                                                              1998           1997           1998           1997
--------------------------------------------------------- -------------- -------------- -------------- -------------

<S>                                                           <C>           <C>              <C>           <C>  
Federal statutory rate                                        35.0%         35.0%            35.0%         35.0%
Capitalized software                                          (3.9)         (0.9)            (1.5)         (0.8)
CTC amortization                                              12.3             --             2.0            --
Depreciation and other                                         5.7           2.0              8.0           4.9
Investment and energy tax credits                             (1.9)         (2.4)            (1.7)         (2.0)
State tax-- net of federal deduction                           5.3           8.1              6.4           7.3
-------------------------------------------------------------------------------------------------------------------
Effective tax rate                                            52.5%         41.8%            48.2%         44.4%
-------------------------------------------------------------------------------------------------------------------
</TABLE>

Note 6.     Employee Compensation and Benefit Plans

Stock Option Plans

On April 16, 1998,  the Edison  International  shareholders  approved the Edison
International   Equity  Compensation  Plan.  The  plan  replaces  the  Long-Term
Incentive Compensation Program,  consisting of officer, director, and management
plans,  which was adopted by  shareholders  in 1992.  No new awards will be made
under the prior program; however, it will remain in effect as long as any awards
remain outstanding under the prior program.


<PAGE 19>



SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The  prior  program  participated  in the use of 8.2  million  shares  of parent
company  common stock  reserved  for  potential  issuance  under  various  stock
compensation  programs  to  directors,  officers  and senior  managers of Edison
International and its affiliates.  Under these programs,  options on 3.4 million
shares  of  Edison  International  common  stock are  currently  outstanding  to
officers and senior managers of SCE.

The new plan  authorizes  the annual  issuance of shares equal to one percent of
the issued and  outstanding  shares of Edison  International  common stock as of
December 31 of the prior year. This  authorization  is cumulative so that to the
extent  shares are not  needed to meet new plan  requirements  in any year,  the
excess  authorized  shares  will  carry  over to  subsequent  years  until  plan
termination.  One  percent of the issued and  outstanding  Edison  International
common  stock on December 31, 1997 was 3.8 million  shares.  Under the new plan,
options on 1.0 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. Edison International stock options
include a dividend  equivalent  feature.  Generally,  for options  issued before
1994,  amounts equal to dividends  accrue on the options at the same time and at
the  same  rate  as  would  be  payable  on  the  number  of  shares  of  Edison
International  common  stock  covered by the  options.  The  amounts  accumulate
without interest.  For Edison  International  stock options issued subsequent to
1993,  dividend  equivalents are subject to reduction unless certain shareholder
return performance criteria are met.

The new plan's stock  options have a 10-year term with  one-fourth  of the total
award  vesting  after each of the first four years of the award term.  The prior
program's  stock  options have a 10-year term with  one-third of the total award
vesting  after each of the first three  years of the award term.  If an optionee
retires,  dies or is permanently and totally disabled during the vesting period,
the unvested  options will vest and be  exercisable to the extent of 1/36 (prior
program)  or 1/48 (the new plan) of the  grant  for each full  month of  service
during the vesting period.

Unvested  options  of any  person  who has  served  in the  past  on the  Edison
International or SCE Management  Committee will vest and be exercisable upon the
member's retirement,  death or permanent and total disability.  Upon retirement,
death or permanent and total  disability,  the vested options may continue to be
exercised  within their  original terms by the recipient or  beneficiary.  If an
optionee is terminated  other than by  retirement,  death or permanent and total
disability,  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.
All unvested options are forfeited on the date of termination.

SCE measures  compensation  expense  related to stock-based  compensation by the
intrinsic   value   method.    Compensation    expense    recorded   under   the
stock-compensation  program  was $1  million  and $5  million  for the three and
twelve months ended March 1, 1998, respectively,  and $7 million and $14 million
for the three and twelve months ended March 31, 1997, respectively.

Stock-based compensation expense under the fair-value method of accounting would
have  resulted in pro forma  earnings of $105  million and $591  million for the
three and twelve months ended March 31, 1998, respectively, and $122 million and
$630 million for the three and twelve months ended March 31, 1997, respectively.

The  weighted-average  fair value of options  granted  during the twelve  months
ended March 31, 1998,  and March 31, 1997,  was $6.33 per share option and $7.62
per share option,  respectively.  The weighted-average remaining life of options
outstanding  as of March 31, 1998,  December 31, 1997, and March 31, 1997, was 7
years.



<PAGE 20>



SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value for each option  granted,  reflecting 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:
<TABLE>
<CAPTION>

                                                                                        12 Months Ended
                                                                            ----------------------------------------
                                                                           March 31, 1998        March 31, 1997
-------------------------------------------------------------------------------------------------------------------

<S>                                                                             <C>                 <C>    
Expected life                                                                   7 years             7 years
Risk-free interest rate                                                           5.6%                 6.5%
Expected volatility                                                                17%                  17%
-------------------------------------------------------------------------------------------------------------------
</TABLE>

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.

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 1996, SCE recorded
pension gains from a special  voluntary early retirement  program.  In 1998, SCE
adopted a new accounting  standard that revises the disclosure  requirements for
pension plans. Prior periods have been restated.

Information on plan assets and benefit obligations is shown below:
<TABLE>
<CAPTION>

                                                         3 Months Ended         Year Ended         3 Months Ended
                                                            March 31,          December 31,           March 31,
In millions                                                   1998                 1997                 1997
-------------------------------------------------------------------------------------------------------------------

Change in benefit obligation
<S>                                                            <C>                <C>                   <C>   
Benefit obligation at beginning of period                      $2,094             $2,002                $2,002
Service cost                                                       14                 44                    11
Interest cost                                                      35                138                    35
Actuarial gain                                                     --                198                    --
Benefits paid                                                     (35)              (288)                 (147)
-------------------------------------------------------------------------------------------------------------------

Benefit obligation at end of period                            $2,108             $2,094                $1,901
-------------------------------------------------------------------------------------------------------------------

Change in plan assets
Fair value of plan assets at beginning of period               $2,298             $2,165                $2,165
Actual return on plan assets                                      266                369                    22
Employer contributions                                             17                 52                    10
Benefits paid                                                     (35)              (288)                 (147)
-------------------------------------------------------------------------------------------------------------------

Fair value of plan assets at end of period                     $2,546             $2,298                $2,050
-------------------------------------------------------------------------------------------------------------------

Funded status                                                  $  438             $  204                $  149
Unrecognized net gain                                            (524)              (304)                 (281)
Unrecognized net obligation (17-year amortization)                 37                 38                    42
Unrecognized prior service cost                                   179                184                   195
-------------------------------------------------------------------------------------------------------------------

Pension asset (liability)                                      $  130             $  122                $  105
-------------------------------------------------------------------------------------------------------------------

Discount rate                                                    7.0%               7.0%                 7.75%
Rate of compensation increase                                    5.0%               5.0%                  5.0%
Expected return on plan assets                                   8.0%               8.0%                  8.0%

</TABLE>


<PAGE 21>



SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of pension expense were:
<TABLE>
<CAPTION>

                                                                    3 Months Ended             12 Months Ended
                                                                      March 31,                   March 31.
-------------------------------------------------------------------------------------------------------------------

In millions                                                       1998           1997         1998          1997
-------------------------------------------------------------------------------------------------------------------


<S>                                                                 <C>           <C>         <C>          <C>  
Service cost                                                        $14           $ 11        $  47        $  43
Interest cost                                                        35             35          139          171
Expected return on plan assets                                      (45)           (40)        (165)        (193)
Net amortization and deferral                                         4              4           13            9
-------------------------------------------------------------------------------------------------------------------
Pension expense under accounting standards                            8             10           34           30
Regulatory adjustment-- deferred                                      5              3           18           21
-------------------------------------------------------------------------------------------------------------------
Net pension expense recognized                                       13             13           52           51
Settlement gain                                                      --             --           --         (121)
-------------------------------------------------------------------------------------------------------------------
Total expense (gain)                                                $13           $ 13        $  52        $ (70)
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>

Postretirement Benefits Other Than Pensions

Employees  retiring  at or after  age 55 with at least 10 years of  service  (or
those eligible under a 1996 special  voluntary early  retirement  program),  are
eligible for  postretirement  health and dental care,  life  insurance and other
benefits.  In 1996, SCE recorded special  termination  expenses from the special
voluntary  early  retirement  program.  In 1998,  SCE  adopted a new  accounting
standard that revises the disclosure  requirements  for  postretirement  benefit
plans. Prior periods have been restated.

Information on plan assets and benefit obligations is shown below:
<TABLE>
<CAPTION>


                                                         3 Months Ended         Year Ended         3 Months Ended
                                                            March 31,          December 31,           March 31,
                                                              1998                 1997                 1997
-------------------------------------------------------------------------------------------------------------------

Change in benefit obligation
<S>                                                            <C>                <C>                   <C>   
Benefit obligation at beginning of period                      $1,533             $1,349                $1,349
Service cost                                                        9                 30                     7
Interest cost                                                      26                 99                    25
Actuarial loss                                                     --                114                    --
Benefits paid                                                     (16)               (59)                  (14)
-------------------------------------------------------------------------------------------------------------------

Benefit obligation at end of period                            $1,552             $1,533                $1,367
-------------------------------------------------------------------------------------------------------------------

Change in plan assets
Fair value of plan assets at beginning of period              $   815            $   617               $   617
Actual return on plan assets                                       16                147                    13
Employer contributions                                             27                110                    27
Benefits paid                                                     (16)               (59)                  (14)
-------------------------------------------------------------------------------------------------------------------

Fair value of plan assets at end of period                    $   842            $   815               $   643
-------------------------------------------------------------------------------------------------------------------

Funded status                                                 $  (710)           $  (718)              $  (724)
Unrecognized net loss                                             243                244                   229
Unrecognized transition obligation (20-year
   amortization)                                                  396                403                   423
-------------------------------------------------------------------------------------------------------------------

Recorded asset (liability)                                    $   (71)           $   (71)              $   (72)
-------------------------------------------------------------------------------------------------------------------

Discount rate                                                    7.0%               7.0%                 7.75%
Expected return on plan assets                                   8.0%               8.0%                  8.5%

</TABLE>


<PAGE 22>



SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The components of postretirement benefits other than pensions expense were:
<TABLE>
<CAPTION>

                                                                         3 Months Ended          12 Months Ended
                                                                            March 31,               March 31,
-------------------------------------------------------------------------------------------------------------------

                                                                         1998      1997          1998       1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>        <C>          <C>         <C>  
Service cost                                                           $  9       $  7         $  32       $  29
Interest cost                                                            26         25           100          96
Expected return on plan assets                                          (16)       (13)          (53)        (47)
Amortization of loss                                                      1          2             3           6
Amortization of transition obligation                                     7          7            27          27
-------------------------------------------------------------------------------------------------------------------
Net expense                                                              27         28           109         111
Special termination expense                                              --         --            --          72
-------------------------------------------------------------------------------------------------------------------
Total expense                                                           $27        $28          $109        $183
-------------------------------------------------------------------------------------------------------------------
</TABLE>


The  assumed  rate of future  increases  in the  per-capita  cost of health care
benefits is 8.5% for 1998,  gradually  decreasing  to 5.25% for 2004 and beyond.
Increasing  the  health  care cost  trend  rate by one  percentage  point  would
increase the  accumulated  obligation  as of March 31, 1998, by $255 million and
annual  aggregate  service and  interest  costs by $28 million.  Decreasing  the
health  care  cost  trend  rate  by one  percentage  point  would  decrease  the
accumulated  obligation  as of  March  31,  1998,  by $218  million  and  annual
aggregate service and interest costs by $23 million.

Employee Savings Plan

SCE has a 401(k)  defined  contribution  savings  plan  designed  to  supplement
employees'  retirement  income.  The plan received employer  contributions of $4
million and $15 million for the three and twelve  months  ended March 31,  1998,
respectively,  and $3 million and $23  million  for the three and twelve  months
ended March 31, 1997, respectively.

Note 7.  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 included in the consolidated balance sheet as
of March 31, 1998, was:
<TABLE>
<CAPTION>

                                                     Plant in        Accumulated            Under       Ownership
                                                     Service         Depreciation        Construction   Interest
-------------------------------------------------------------------------------------------------------------------

Transmission systems:
<S>                                                 <C>                <C>                   <C>               <C>
  Eldorado                                          $   32             $    6                --               60%
  Pacific Intertie                                     242                 76              $  1               50
Generating stations:
  Four Corners Units 4 and 5 (coal)                    459                258                 3               48
  Mohave (coal)                                        307                155                 6               56
  Palo Verde (nuclear)                               1,603                727                 9               16
  San Onofre (nuclear)                               4,214              2,327                31               75
-------------------------------------------------------------------------------------------------------------------
Total                                               $6,857             $3,549               $50
-------------------------------------------------------------------------------------------------------------------
</TABLE>




<PAGE 23>



SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8.  Leases

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

Estimated  remaining  commitments for  noncancellable  leases at March 31, 1998,
were:

Year ended December 31,                                  In millions
------------------------------------------------------------------------
1998                                                          $11
1999                                                           12
2000                                                           10
2001                                                            7
2002                                                            4
Thereafter                                                      5
------------------------------------------------------------------------
Total                                                         $49
------------------------------------------------------------------------

Note 9.  Commitments

Nuclear Decommissioning

Decommissioning is estimated to cost $2.1 billion in current-year dollars, based
on  site-specific  studies  performed  in 1993 for San  Onofre and 1992 for Palo
Verde.  Changes  in the  estimated  costs,  timing  of  decommissioning,  or the
assumptions  underlying  these estimates  could cause material  revisions to the
estimated  total  cost  to  decommission  in  the  near  term.  SCE  planned  to
decommission  its nuclear  generating  facilities at the end of each  facility's
operating  license  by  a  prompt  removal  method  authorized  by  the  Nuclear
Regulatory  Commission.  Decommissioning  is  scheduled to begin in 2013 for San
Onofre Units 2 and 3 and 2027 at Palo Verde.  San Onofre Unit 1, which shut down
in 1992, is being evaluated for decommissioning prior to 2013.

Decommissioning  costs,  which are accrued and recovered through  non-bypassable
customer rates over the term of each nuclear facility's  operating license,  are
recorded as a component of depreciation expense. Decommissioning expense was $40
million and $158  million for the three and twelve  months ended March 31, 1998,
respectively,  and $36 million and $147 million for the three and twelve  months
ended   March  31,   1997,   respectively.   The   accumulated   provision   for
decommissioning was $1.1 billion at March 31, 1998, $1.1 billion at December 31,
1997,  and $980 million at March 31, 1997. The estimated  costs to  decommission
San Onofre Unit 1 ($280 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.

Trust investments include:
<TABLE>
<CAPTION>

                                            Maturity           March 31,         December 31,         March 31,
In millions                                   Dates               1998               1997                1997
-------------------------------------------------------------------------------------------------------------------

<S>                                         <C>                  <C>              <C>                   <C>   
Municipal bonds                             1998-2029            $  470           $  459                $  430
Stocks                                         --                   563              392                   549
U.S. government issues                      1999-2027               363              357                   201
Short-term and other                        2002-2028                15              163                    65
-------------------------------------------------------------------------------------------------------------------
Total                                                            $1,411           $1,371                $1,245
-------------------------------------------------------------------------------------------------------------------
</TABLE>

Trust fund earnings (based on specific  identification)  increase the trust fund
balance and the accumulated provision for decommissioning. Net earnings were $15
million and $58 million for the three and twelve  months  ended March 31,  1998,
respectively,  and $11 million  and $48 million for the three and twelve  months
ended March 31, 1997, respectively. Proceeds from sales of securities (which

<PAGE 24>



SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

are  reinvested)  were $208  million  and $656  million for the three and twelve
months ended March 31, 1998, respectively, and $147 million and $732 million for
the three and twelve months ended March 31, 1997.
Approximately 89% of the trust fund contributions were tax-deductible.

The Financial Accounting Standards Board has issued an exposure draft related to
accounting  practices for removal costs,  including  decommissioning  of nuclear
power  plants.  The  exposure  draft would  require SCE to report its  estimated
decommissioning  costs as a liability,  rather than recognizing these costs over
the term of each facility's  operating license (current industry practice).  SCE
does not believe that the changes  proposed in the exposure  draft would have an
adverse effect on its results of operations even after  deregulation  due to its
current and expected  future  ability to recover  these costs  through  customer
rates.

Other Commitments

SCE has fuel supply  contracts  which  require  payment only if the fuel is made
available for purchase.

SCE has power-purchase  contracts with certain QFs (cogenerators and small power
producers) and other utilities.  The QF 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.

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.  The
purchased-power  contract is not  expected to provide more than 5% of current or
estimated  future  operating  capacity.  SCE's  minimum  commitment  under  both
contracts is approximately $193 million through 2017.

Certain commitments for the years 1998 through 2002 are estimated below:
<TABLE>
<CAPTION>

In millions                                                      1998       1999      2000       2001       2002
-------------------------------------------------------------------------------------------------------------------

<S>                                                              <C>        <C>       <C>        <C>        <C> 
Projected construction expenditures                              $836       $703      $693       $690       $671
Fuel supply contracts                                             225        146       166        154        162
Purchased-power capacity payments                                 712        715       716        715        712
Unconditional purchase obligations                                  9          9        10          9         10
-------------------------------------------------------------------------------------------------------------------
</TABLE>

Note 10.  Contingencies

In addition to the matters  disclosed in these notes,  SCE is involved in 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  proceedings  will  not  materially  affect  its  results  of
operations or liquidity.

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,

<PAGE 25>



SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

operations  and  maintenance,  monitoring  and site  closure.  Unless there is a
probable  amount,  SCE records the lower end of this reasonably  likely range of
costs (classified as other long-term liabilities at undiscounted amounts).

SCE's recorded  estimated minimum liability to remediate its 50 identified sites
is $178 million.  The ultimate costs to clean up SCE's identified sites may vary
from its  recorded  liability  due to  numerous  uncertainties  inherent  in the
estimation  process,  such as:  the  extent  and  nature of  contamination;  the
scarcity of reliable data for identified sites; the varying costs of alternative
cleanup  methods;   developments   resulting  from  investigatory  studies;  the
possibility of  identifying  additional  sites;  and the time periods over which
site  remediation  is  expected  to  occur.  SCE  believes  that,  due to  these
uncertainties,  it is  reasonably  possible  that cleanup costs could exceed its
recorded liability by up to $246 million. The upper limit of this range of costs
was  estimated  using  assumptions  least  favorable  to SCE  among a  range  of
reasonably possible outcomes.

The CPUC allows SCE to recover  environmental-cleanup  costs at 41 of its sites,
representing  $90  million  of its  recorded  liability,  through  an  incentive
mechanism (SCE may request to include additional  sites).  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.  Costs  incurred at SCE's  remaining  sites are
expected to be recovered  through  customer rates. SCE has recorded a regulatory
asset of $150  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  costs in each of the next several  years are expected to range from
$4 million to $10 million.  Recorded costs for the twelve months ended March 31,
1998, were $6 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 $8.9
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 $79 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 $158  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,

<PAGE 26>



SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

federal regulations may impose further  revenue-raising  measures to pay claims,
including a possible additional assessment on all licensed reactor operators.

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.  These policies are issued primarily by mutual insurance  companies
owned by utilities with nuclear  facilities.  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 $28 million per year. Insurance premiums are charged to operating expense.



<PAGE 27>



SOUTHERN CALIFORNIA EDISON COMPANY

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

Results of Operations

Earnings

Southern  California  Edison  Company's  (SCE) earnings for the three and twelve
months ended March 31, 1998,  were $98 million and $562  million,  respectively,
compared  with $112 million and $595  million for the same periods in 1997.  The
$14 million quarterly decrease is primarily related to lower authorized revenue,
partially  offset  by the San  Onofre  Nuclear  Generating  Station's  operating
performance.  Excluding  special  charges of $18  million in 1996 for  workforce
management costs and reserves, the  twelve-months-ended  decrease in earnings is
mostly due to the  extended  outages and lower  return at San Onofre,  partially
offset by higher sales.

Operating Revenue

Operating revenue  decreased 4% during the first quarter of 1998,  compared with
the  same  period  in 1997,  as an 8%  decrease  in  average  residential  rates
(mandated by legislation enacted in September 1996) was partially offset by a 3%
increase in sales volume. For the twelve months ended March 31, 1998,  operating
revenue  increased  5%,  mostly due to an increase in sales  volume and customer
refunds in 1996.  There were no comparable  refunds in 1997.  During 1996, SCE's
customers  received a one-time  bill credit  totaling  $237 million as part of a
California  Public  Utilities  Commission  (CPUC)-ordered  refund of energy cost
balancing account overcollections.  Over 98% of operating revenue is from retail
sales.  Retail rates are regulated by the CPUC and wholesale rates are regulated
by the Federal Energy Regulatory Commission (FERC).

Legislation enacted in September 1996 provided for, among other things, at least
a 10% rate reduction (financed through the issuance of rate reduction notes) for
residential  and small  commercial  customers  in 1998 and other rates to remain
frozen at June 1996 levels (system average of 10.1(cent) per kilowatt-hour). See
discussion in Competitive Environment.

Operating Expenses

Fuel expense  decreased 18% for the three months ended March 31, 1998,  compared
with the same period in 1997. The quarterly decrease resulted from significantly
lower gas prices.  For the twelve  months  ended March 31,  1998,  fuel  expense
increased 29%,  compared to the year-earlier  period,  reflecting the effects of
the extended refueling outages at San Onofre Units 2 and 3 during the second and
third  quarters  of 1997,  as well as a $174  million gas  contract  termination
payment during third quarter 1997.

Purchased-power  expense decreased 8% for the three months ended March 31, 1998,
compared  to the same  period  last  year,  due to an  increase  in SCE's  power
generation  from San Onofre  Unit 2. San Onofre  Unit 2 was shut down the entire
first quarter of 1997 for a refueling  outage. A factor that increases  expenses
in all periods is the federal  requirement  that SCE purchase power from certain
nonutility  generators  even though  energy  prices  under these  contracts  are
generally higher than other sources. For the twelve months ended March 31, 1998,
SCE paid about $1.6 billion  (including  energy and capacity  payments) more for
these power purchases than the cost of power  available from other sources.  The
CPUC has mandated the prices for these contracts.

Provisions for regulatory  adjustment  clauses decreased  substantially for both
the quarter and twelve months ended March 31, 1998, compared to the year-earlier
periods,  primarily due to  undercollections  in the  transition  cost balancing
account.  Beginning in January 1998, the difference  between  generation-related
revenue and generation-related costs is being accumulated in the transition cost
balancing account,  effectively  eliminating all other balancing accounts except
those used in the administration of public-purpose funds. Also, in January 1998,
overcollections in the kilowatt-hour sales and energy cost

<PAGE 28>



balancing  accounts,  which were previously  transferred to an interim balancing
account,  were credited to the transition cost balancing  account.  The December
31, 1997,  balances in these  balancing  accounts were also  transferred  to the
transition cost balancing account.

Other operating expenses increased 19% and 9%,  respectively,  for the three and
twelve  months ended March 31, 1998,  compared to the same periods in 1997.  The
increases are primarily  related to direct access  activities,  as well as storm
damage   resulting   from  a  harsher   winter  in  1998.   In   addition,   the
twelve-month-ended  increase also reflects the 1997  reclassification of payroll
taxes to operation and maintenance expense.

Maintenance  expense  increased  20% for the twelve months ended March 31, 1998,
compared to the year-earlier  period,  reflecting the extended refueling outages
at San Onofre during the second and third quarters of 1997.

Depreciation and  decommissioning  expense increased 25% and 17%,  respectively,
for the quarter and twelve  months  ended March 31,  1998,  compared to the same
periods in 1997. The increases are primarily due to the accelerated  recovery of
the gas- and oil-fueled  generation  plants and the further  acceleration of the
San Onofre and Palo Verde Nuclear  Generating  Station  units.  The  accelerated
recoveries  implemented in 1998 are part of the  competition  transition  charge
(CTC)  mechanism.  (See further  discussion  under  California  Electric Utility
Industry  Restructuring.)  The  twelve-months-ended  increase  also reflects the
initial  accelerated  recovery of the Palo Verde  units,  which began in January
1997.

Income taxes increased 32% for the quarter ended March 31, 1998, compared to the
year-earlier  period,  primarily  due to  higher  pre-tax  income,  as  well  as
additional  amortization  related to the CTC  mechanism.  Also,  the  additional
amortization  related to the CTC mechanism will continue to cause an increase in
the effective tax rate.

Property  and other taxes  decreased  23% for the twelve  months ended March 31,
1998,  compared to same  period in 1997,  due to a  reclassification  of payroll
taxes to operation and maintenance expense, which began in January 1997.

Other Income and Deductions

The provision for rate  phase-in plan reflects a  CPUC-authorized,  10-year rate
phase-in  plan,  which  deferred the collection of revenue during the first four
years of operation  for the Palo Verde units.  The deferred  revenue  (including
interest) was collected evenly over the final six years of each unit's plan. The
plan ended in February 1996,  September 1996 and January 1998 for Units 1, 2 and
3,  respectively.  The  provision  is a  non-cash  offset to the  collection  of
deferred revenue.

Interest  and  dividend  income  increased  significantly  compared  to the same
periods in 1997,  mainly due to higher  investment  balances  and  increases  in
interest earned on higher balancing account undercollections.

Other  nonoperating  income  decreased  substantially  for the three and  twelve
months ended March 31, 1998, compared to the year-earlier periods, mostly due to
additional  accruals for regulatory matters associated with the restructuring of
California's electric utility industry.

Interest Expense

Interest on long-term  debt  increased 36% for the quarter ended March 31, 1998,
compared to the same period in 1997,  primarily  due to the issuance of the rate
reduction  notes in December 1997.  Interest on the rate reduction notes was $39
million and $47 million,  respectively,  for the quarter and twelve months ended
March 31, 1998.

Other interest expense  decreased 34% for the three months ended March 31, 1998,
and increased  11% for the twelve  months ended March 31, 1998,  compared to the
same periods in 1997. The quarterly  decrease  reflects a reduction in balancing
account interest as a result of higher undercollections in 1998.

<PAGE 29>



The  twelve-months-ended  increase is mainly due to higher  levels of short-term
debt used to retire first and refunding mortgage bonds in 1997.

Financial Condition

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

Edison International's Board of Directors has authorized the repurchase of up to
$2.3 billion of its outstanding shares of common stock. Edison International has
repurchased  85.9 million shares ($2.0 billion)  between January 1995 and May 4,
1998,  funded  by  dividends  from its  subsidiaries  and the  issuance  of rate
reduction notes.

For the first quarter of 1998,  SCE's cash flow coverage of dividends  increased
to 4.0 times from 3.0 times for the year-earlier  period.  For the twelve months
ended March 31, 1998, the cash flow coverage of dividends decreased to 0.9 times
from 1.9  times for the same  period in 1997.  The  decrease  reflects  the $1.2
billion special dividend SCE paid to Edison  International in December 1997 from
rate reduction note proceeds.

Cash Flows from Operating Activities

Net cash provided by operating activities totaled $407 million and $1.6 billion,
respectively,  for the three and twelve  months ended March 31,  1998,  compared
with $558  million  and $1.6  billion  for the same  periods in 1997.  Cash from
operations exceeded capital requirements for all periods presented.

Cash Flows from Financing Activities

At March 31, 1998, SCE had available lines of credit of $1.8 billion,  with $1.3
billion for general  purpose  short-term debt and $500 million for the long-term
refinancing of its variable-rate  pollution-control bonds. These unsecured lines
of credit are at negotiated or bank index rates with various  expiration  dates;
the majority have five-year terms.

Short-term  debt  is  used  to  finance  fuel  inventories,   balancing  account
undercollections and general cash requirements. Long-term debt is used mainly to
finance  capital  expenditures.  External  financings  are  influenced by market
conditions and other factors, including limitations imposed by SCE's articles of
incorporation  and trust  indenture.  As of March  31,  1998,  SCE  could  issue
approximately $11.1 billion of additional first and refunding mortgage bonds and
$3.9 billion of preferred stock at current interest and dividend rates.

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.  At March 31, 1998, SCE
had the capacity to pay $1.4  billion in  additional  dividends  and continue to
maintain its authorized capital structure.

In December 1997, SCE Funding LLC, a special  purpose entity (SPE), of which SCE
is the sole member, issued approximately $2.5 billion of rate reduction notes to
Bankers Trust Company of California,  as certificate  trustee for the California
Infrastructure  and  Economic  Development  Bank  Special  Purpose  Trust  SCE-1
(Trust),  which  is a  special  purpose  entity  established  by  the  State  of
California.  The terms of the rate reduction notes generally mirror the terms of
the  pass-through  certificates  issued  by the  Trust,  which are known as rate
reduction  certificates.  The proceeds of the rate reduction  notes were used by
the SPE to purchase from SCE an enforceable right known as transition  property.
Transition  property  is a  current  property  right  created  pursuant  to  the
restructuring  legislation  and a  financing  order  of the  CPUC  and  consists
generally  of the  right to be paid a  specified  amount  from a  non-bypassable
tariff levied on residential and small commercial customers. Notwithstanding the
legal sale of the transition  property by SCE to the SPE, the amounts  reflected
as assets on SCE's  balance  sheet  have not been  reduced  by the amount of the
transition property sold to the SPE, and the liabilities of the SPE for the rate
reduction notes are for accounting  purposes reflected as long-term  liabilities
on the consolidated

<PAGE 30>



balance  sheet of SCE.  SCE used the  proceeds  from the sale of the  transition
property to retire debt and equity securities.

The rate reduction notes have maturities  ranging from one to 10 years, and bear
interest at rates  ranging  from 5.98% to 6.42%.  The rate  reduction  notes are
secured solely by the  transition  property and certain other assets of the SPE,
and there is no recourse to SCE or Edison International.

Although  the SPE is  consolidated  with  SCE in the  financial  statements,  as
required  by  generally  accepted  accounting  principles,  the  SPE is  legally
separate  from SCE, the assets of the SPE are not  available to creditors of SCE
or Edison International,  and the transition property is legally not an asset of
SCE or Edison International.

Cash Flows from Investing Activities

Cash flows from  investing  activities are affected by additions to property and
plant,  proceeds  from the sale of plant (see  discussion  in  Divestiture)  and
funding of nuclear decommissioning trusts. Decommissioning costs are accrued and
recovered in rates over the term of each nuclear generating facility's operating
license  through  charges to  depreciation  expense.  SCE estimates that it will
spend  approximately  $12.7  billion  between 2013 -- 2070 to  decommission  its
nuclear   facilities.   This   estimate   is  based   on  SCE's   current-dollar
decommissioning costs ($2.1 billion), escalated using a 6.65% annual rate. These
costs are expected to be funded from independent  decommissioning  trusts, which
will  receive SCE  contributions  of  approximately  $100 million per year until
decommissioning begins.

Market Risk Exposures

SCE's primary market risk exposures arise from fluctuations in energy prices and
interest  rates.  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 has hedged a portion of its  exposure  to  increases  in natural gas prices.
Increases  in  natural  gas prices  tend to  increase  the price of  electricity
purchased  from the power  exchange  (PX).  SCE's  exposure  is also  limited by
regulatory  mechanisms  that protect SCE from much of the risk arising from high
electricity prices.

A 10% increase in market interest rates would result in a $6 million increase in
the fair value of SCE's interest rate hedge agreements. A 10% decrease in market
interest rates would result in a $6 million  decline in the fair market value of
interest  rate hedge  agreements.  A 10%  increase in natural  gas prices  would
result in a $43 million increase in the fair market value of gas call options. A
10% decrease in natural gas prices would result in a $27 million  decline in the
fair market value of gas call options.  A 10% change in market rates is expected
to have an immaterial effect on SCE's other financial instruments.

Projected Capital Requirements

SCE's projected  construction  expenditures  for the next five years are: 1998--
$836 million; 1999-- $703 million; 2000-- $693 million; 2001-- $690 million; and
2002-- $671 million.

Long-term  debt   maturities  and  sinking  fund   requirements   for  the  five
twelve-month  periods following March 31, 1998, are: 1999 -- $568 million;  2000
-- $716 million;  2001 -- $448 million;  2002 -- $446 million;  and 2003 -- $446
million.

Preferred  stock  redemption  requirements  for the  five  twelve-month  periods
following  March  31,  1998,  are:  1999  through  2002 -- zero and 2003 -- $105
million.

Regulatory Matters

Legislation  enacted in September 1996 provided for,  among other things,  a 10%
rate reduction for residential and small commercial  customers in 1998 and other
rates to remain frozen at June 1996 levels

<PAGE 31>



(system  average of 10.1(cent)  per  kilowatt-hour).  See further  discussion in
Competitive Environment -- Restructuring Legislation.

In 1998,  revenue is affected  by various  mechanisms  depending  on the utility
operation.  Revenue related to distribution  operations is determined  through a
performance-based  rate-making  mechanism  (PBR) (see  discussion in Competitive
Environment -- PBR) and the  distribution  assets have the opportunity to earn a
CPUC-authorized  9.49% return. Until the independent system operator (ISO) began
operation,  transmission  revenue  was  determined  by  the  same  mechanism  as
distribution   operations.   After  March  31,  1998,  transmission  revenue  is
determined through  FERC-authorized  rates and transmission  assets earn a 9.43%
return.  These rates are subject to refund.  See  discussions in the Competitive
Environment -- Rate-setting and FERC Restructuring Decision sections.

Revenue  from  generation-related  operations  is  determined  through  the  CTC
mechanism,  nuclear rate-making  agreements and the competitive market.  Revenue
related to fossil and hydroelectric  generation operations is recovered from two
sources. The portion that is made uneconomic by electric industry  restructuring
is  recovered  through  the CTC  mechanism.  The  portion  that is  economic  is
recovered  through  the market.  In 1998,  fossil and  hydroelectric  generation
assets  earn a  7.22%  return.  A more  detailed  discussion  is in  Competitive
Environment -- CTC.

The CPUC has authorized revised  rate-making plans for SCE's nuclear facilities,
which call for the accelerated  recovery of its nuclear  investments in exchange
for a lower  authorized  rate of return.  SCE's  nuclear  assets are  earning an
annual rate of return of 7.35%.  In addition,  the San Onofre plan  authorizes a
fixed rate of approximately  4(cent) per  kilowatt-hour  generated for operating
costs  including  incremental  capital costs,  and nuclear fuel and nuclear fuel
financing  costs.  The San Onofre  plan  commenced  in April  1996,  and ends in
December 2001 for the accelerated  recovery portion and in December 2003 for the
incentive pricing portion.  Palo Verde's operating costs,  including incremental
capital costs, and nuclear fuel and nuclear fuel financing costs, are subject to
balancing account  treatment.  The Palo Verde plan commenced in January 1997 and
ends in December 2001.  Beginning  January 1, 1998, both the San Onofre and Palo
Verde rate-making plans became part of the CTC mechanism.

The changes in revenue from the regulatory mechanisms discussed above, excluding
the effects of other rate actions, are expected to have a minimal impact on 1998
earnings.  However,  the issuance of the rate reduction  notes in December 1997,
which enables the repurchase of debt and equity,  will have a negative impact on
1998 earnings of approximately $97 million.

Prior to the restructuring of the electric utility  industry,  SCE recovered its
non-nuclear  capital  additions  to utility  plant  through  depreciation  rates
authorized  in the general rate case.  As part of the CTC Phase 2 decision,  the
CPUC  authorized  recovery of the December 31, 1995,  balances,  of  non-nuclear
generating  facilities  through  the CTC  mechanism.  The CPUC  stated that rate
recovery for capital additions to the non-nuclear  generating  facilities should
be sought through a separate  filing.  In October 1997, SCE filed an application
with the CPUC requesting  rate recovery of $61 million of net capital  additions
to its non-nuclear  generating  facilities in 1996.  Hearings were held in early
1998. The ORA and Toward  Utility  Reform  Network  recommended a combined total
disallowance of $37 million.  A CPUC decision is expected in third quarter 1998.
In third quarter  1998,  SCE plans to file an  application  for rate recovery of
capital additions to these same generating  facilities for the period January 1,
1997, through April 1, 1998 (or the date of divestiture).

In 1991, SCE filed its testimony in the Qualifying  Facilities (QF) phase of the
1991 Energy Cost  Adjustment  Clause  proceeding.  In 1993, the CPUC's Office of
Ratepayer  Advocates  (ORA) filed its report on the  reasonableness  of SCE's QF
contracts and alleged that SCE had  imprudently  renegotiated a QF contract with
the Mojave  Cogeneration  Company.  The report recommended a disallowance of $32
million (1993 net present value) over the contract's 20-year life. Subsequently,
SCE and the ORA reached a settlement where SCE agreed to a one-time reduction to
its  energy-cost  adjustment  clause  balancing  account  of  $14  million  plus
interest.  Because  SCE and the ORA were unable to  finalize  their  settlement,
hearings  on the ORA's  disallowance  recommendations  were  held in June  1997.
During the hearings,  the ORA  presented  testimony  updating its  assessment of
ratepayer harm to $45 million (1997 net present value) over the contract's life.
On April  9,  1998,  the  CPUC  issued a  decision  resulting  in a $16  million
disallowance, which has been fully reflected in SCE's financial statements.


<PAGE 32>



Competitive Environment

SCE  currently  operates in a highly  regulated  environment  in which it has an
obligation to deliver  electric  service to customers in return for an exclusive
franchise within its service territory. This regulatory environment is changing.
The  generation  sector  has  experienced   competition  from  nonutility  power
producers  and  regulators  are  restructuring   California's  electric  utility
industry.

California Electric Utility Industry Restructuring

Restructuring  Decision -- The CPUC's  December 1995  decision on  restructuring
California's  electric  utility  industry started the transition to a new market
structure,  which provides  competition  and customer  choice  starting April 1,
1998. Key elements of the CPUC's  restructuring  decision included:  creation of
the PX and ISO;  availability  of  customer  choice for  electricity  supply and
certain  billing and  metering  services;  PBR for those  utility  services  not
subject to  competition;  voluntary  divestiture  of at least 50% of  utilities'
gas-fueled generation; and implementation of the CTC.

Restructuring  Legislation -- In September 1996, the State of California enacted
legislation  to provide a transition  to a  competitive  market  structure.  The
legislation   substantially  adopted  the  CPUC's  December  1995  restructuring
decision by  addressing  stranded-cost  recovery for  utilities  and providing a
certain  cost-recovery  time period for the  transition  costs  associated  with
utility-owned   generation-related   assets.   Transition   costs   related   to
power-purchase contracts would be recovered through the terms of their contracts
while most of the remaining  transition  costs would be recovered  through 2001.
The  legislation  also included  provisions to finance a portion of the stranded
costs that  residential and small  commercial  customers would have paid between
1998 and 2001,  which would  allow SCE to reduce  rates by at least 10% to these
customers, beginning January 1, 1998. The legislation included a rate freeze for
all other  customers,  including large commercial and industrial  customers,  as
well as provisions  for continued  funding for energy  conservation,  low-income
programs and  renewable  resources.  Despite the rate freeze,  SCE expects to be
able to recover its revenue requirement during the 1998-2001  transition period.
In  addition,  the  legislation  mandated  the  implementation  of the CTC  that
provides  utilities the opportunity to recover costs made uneconomic by electric
utility  restructuring.  Finally,  the legislation  contained provisions for the
recovery  (through  2006)  of  reasonable   employee-related  transition  costs,
incurred  and  projected,   for   retraining,   severance,   early   retirement,
outplacement and related expenses.

Rate Reduction Notes -- In December 1997, after receiving approval from both the
CPUC and the California  Infrastructure and Economic Development Bank, a limited
liability  company  created by SCE  issued  approximately  $2.5  billion of rate
reduction  notes.  Residential and small  commercial  customers,  whose 10% rate
reduction began January 1, 1998, will repay the notes over the expected  10-year
term  through  non-bypassable  charges  based on  electricity  consumption.  For
further details, see the discussion under Cash Flows from Financing Activities.

Rate-setting -- In December 1996, SCE filed a comprehensive  plan addressing the
implementation-level detail for the functional unbundling of rates into separate
charges for energy, transmission, distribution, the CTC, public benefit programs
and  nuclear  decommissioning   beginning  January  1,  1998.  The  transmission
component of this rate  unbundling  process was  addressed at the FERC through a
March 1997 filing.  In December 1997, the FERC approved these rates,  subject to
refund,  to be effective on the date the ISO begins  operation.  In August 1997,
the CPUC issued a decision  which  adopted a  methodology  for  determining  CTC
residually  (see CTC  discussion  below) and adopted SCE's  revenue  requirement
components for public benefit programs and nuclear decommissioning. The decision
also adjusted SCE's proposed  distribution  revenue  requirement by reallocating
$76  million  of  it  annually  to  other   functions  such  as  generation  and
transmission.  Under  the  decision,  SCE  will be able to  recover  most of the
reallocated  amount  through market  revenue,  other  rate-making  mechanisms or
another review process later in its divestiture proceeding.

PX and ISO -- In April 1996, SCE,  Pacific Gas & Electric  Company and San Diego
Gas & Electric  Company filed a proposal with the FERC regarding the creation of
the PX and the ISO.  In  November  1996,  the FERC  conditionally  accepted  the
proposal  and  directed  the three  utilities,  the ISO, and the PX to file more
specific  information.  The filing was made in March 1997,  and  included  SCE's
proposed  transmission  revenue  requirement.  In  October  1997,  the FERC gave
conditional, interim authorization for

<PAGE 33>



operation  of the PX and ISO to begin on  January 1,  1998.  The FERC  stated it
would  closely  monitor  the  PX and  ISO,  require  further  studies  and  make
modifications,  where necessary. A comprehensive review will be performed by the
FERC after three years of  operation  of the PX and ISO.  The start-up of the PX
and ISO was delayed by three months due to insufficient  testing of systems.  On
March 31, 1998,  both the PX and ISO began bidding and  scheduling  for April 1,
1998, when the ISO took over operational control of the power system.

In 1996,  the CPUC issued an interim order  establishing a  restructuring  trust
which  would  obtain  loans up to $250  million  (increased  to $300  million in
November  1997)  backed by  utility  guarantees.  The  loans  were used to build
hardware  and  software  systems  for the ISO and PX.  SCE's  share  of the loan
guarantees is 45%, or $135 million.  The ISO and PX will repay the trust's loans
and recover funds from future ISO and PX customers.  In December  1997, the CPUC
approved the utilities' request that the restructuring implementation charge, to
be paid to the PX by the  utilities,  be  deemed a  non-bypassable  charge to be
recovered  from all  retail  customers.  The  amount  of the PX  charge  is $101
million,  plus interest and fees over the  four-year  transition  period;  SCE's
share is 45%, or $45 million.

Direct Customer Access -- In May 1997, the CPUC issued a decision describing how
all California  investor-owned-utility customers will be able to choose who will
provide  them with  electric  generation  service  beginning  January  1,  1998.
Effective  April 1, 1998,  after a three  month delay in the  implementation  of
direct access, customers are now able to choose to remain utility customers with
either bundled  electric  service or an hourly PX pricing option from SCE (which
will purchase its power through the PX), or choose  direct  access,  which means
the customer can contract  directly with either  independent  power producers or
retail  electric  service  providers  such  as  power  brokers,   marketers  and
aggregators. Additionally, all investor-owned-utility customers must pay the CTC
whether or not they choose to buy power  through SCE.  Electric  utilities  will
continue to provide the core  distribution  service of delivering energy through
its  distribution  system  regardless  of a  customer's  choice  of  electricity
supplier.  The CPUC will continue to regulate the prices and service obligations
related  to  distribution   services.  If  the  new  competitive  market  cannot
accommodate the volume of direct access transactions, the CPUC could implement a
contingency plan.  However,  the CPUC believes it is likely that interest in and
migration to direct access will be gradual.  As of April 1, 1998,  approximately
35,000 of SCE's 4.3 million customers have requested the direct access option.

Revenue Cycle Services -- A decision issued by the CPUC in May 1997,  introduced
customer  choice to  metering,  billing and  related  services  (referred  to as
revenue cycle services) that have been provided by  California's  investor-owned
utilities.  Under this revenue cycle services unbundling decision,  beginning in
April 1998 (delayed from January  1998),  energy  service  providers  (ESPs) can
provide their  customers with one  consolidated  bill for their services and the
utility's  services,  request the utility to provide a consolidated  bill to the
customer or elect to have both the ESP and the  utility  bill the  customer  for
their respective charges. In addition,  beginning in April 1998,  customers with
maximum  demand  above  20  kW  (primarily   industrial  and  medium  and  large
commercial)  can choose SCE or any other  supplier  to  provide  their  metering
service. All other customers will have this option beginning in January 1999. In
determining  whether any credit  should be provided by the utility to  customers
who elect to have ESPs providing customers with revenue cycle services,  and the
amount of any such credit,  the CPUC has indicated that it is appropriate to net
the cost incurred by the utility and the cost avoided by the utility as a result
of such  services  being  provided by the other firm rather than by the utility.
The unbundling of revenue cycle services will expose SCE to the possible loss of
revenue, higher stranded costs and a reduction in revenue security.

PBR -- In September 1996, the CPUC adopted a non-generation  or transmission and
distribution  (T&D) PBR  mechanism  for SCE which  began on January 1, 1997.  In
accordance  with the CPUC  decision,  beginning  in April 1998 the  transmission
portion was separated from  non-generation  PBR and subject to ratemaking  under
the rules of the FERC. The  distribution-only  PBR will extend through  December
2001.  Key elements of the  non-generation  PBR include:  T&D rates  indexed for
inflation  based  on  the  Consumer  Price  Index  less a  productivity  factor;
elimination of the kilowatt-hour sales adjustment;  adjustments for cost changes
that are not within SCE's control; a cost-of-capital  trigger mechanism based on
changes in a bond index; standards for service reliability and safety; and a net
revenue-sharing  mechanism that determines how customers and  shareholders  will
share gains and losses from T&D operations.


<PAGE 34>



The CPUC has  announced  its  intention  to  consider  unbundling  SCE's cost of
capital by major utility  function.  On May 8, 1998, SCE filed an application on
this issue. A CPUC decision is expected by year-end.

In December  1997, the CPUC adopted a PBR-type  rate-making  mechanism for SCE's
hydroelectric  plants. The mechanism sets the hydroelectric  revenue requirement
in 1998 and  establishes  a formula for extending it through the duration of the
electric industry restructuring  transition period, or until market valuation of
the  hydroelectric  facilities,  whichever occurs first. The mechanism  provides
that  power  sales  revenue  from  hydroelectric  facilities  in  excess  of the
hydroelectric revenue requirement be credited against the costs to transition to
a competitive market (see CTC discussion below).

Divestiture  -- In  November  1996,  SCE filed an  application  with the CPUC to
voluntarily  divest,  by auction,  all 12 of its gas- and oil-fueled  generation
plants.  Under this  proposal,  SCE would  continue to operate and  maintain the
divested power plants for at least two years  following  their sale, as mandated
by the  restructuring  legislation  enacted in September 1996. In addition,  SCE
would offer workforce transition programs to those employees who may be impacted
by  divestiture-related  job  reductions.  In September  1997, the CPUC approved
SCE's proposal to auction the 12 plants.

In early December 1997, SCE filed a compliance filing with the CPUC stating that
it had  sold  10  plants;  the  CPUC  approved  the  sale  of the 10  plants  in
mid-December 1997. In the first quarter of 1998, SCE announced the pending sales
of the 11th and 12th plants.  SCE has received  CPUC approval of the sale of the
11th plant and  approval of the sale of the 12th plant is expected by the end of
second  quarter  1998.  The total sales price of the 12 plants is $1.2  billion,
over $500 million more than the combined  book value.  Net proceeds of the sales
will be used to reduce  stranded  costs,  which  otherwise  were  expected to be
collected through the CTC mechanism.  The transfer of ownership of the 12 plants
is expected to be completed by the end of second quarter 1998.

CTC -- The costs to  transition  to a  competitive  market  are being  recovered
through a  non-bypassable  CTC.  This charge  applies to all  customers who were
using or began using utility  services on or after the CPUC's December 20, 1995,
decision  date. In October  1996,  SCE amended its August 1996  transition  cost
filing to reflect the effects of the legislation  enacted in September 1996. The
CTC  is  being  determined   residually  (i.e.,  after  subtracting  other  cost
components  for  the  PX,  T&D,  nuclear   decommissioning  and  public  benefit
programs).  Nevertheless, the CPUC directed that the amended application provide
estimates  of SCE's  potential  transition  costs from 1998  through  2030.  SCE
provided two  estimates  between  approximately  $13.1 billion (1998 net present
value)  assuming  the fossil  plants had a market  value equal to their net book
value, and $13.8 billion (1998 net present value) assuming the fossil plants had
no market value.  These  estimates  were based on incurred  costs,  forecasts of
future costs and assumed market prices.  However,  changes in the assumed market
prices could materially affect these estimates.  The potential  transition costs
were  comprised of: $7.5 billion from SCE's QF  contracts,  which are the direct
result of prior  legislative and regulatory  mandates;  and $5.6 billion to $6.3
billion  from  costs  pertaining  to  certain   generating  plants   (successful
completion of the sale of SCE's  gas-fired  generating  plants would reduce this
estimate of transition  costs for SCE-owned  generation to less than $5 billion)
and regulatory commitments consisting of costs incurred (whose recovery has been
deferred by the CPUC) to provide service to customers.  Such commitments include
the  recovery of income tax benefits  previously  flowed  through to  customers,
postretirement  benefit  transition  costs,  accelerated  recovery of San Onofre
Units 2 and 3 and the Palo Verde units (as discussed in Regulatory Matters), and
certain other costs.  In February 1997, SCE filed an update to the CTC filing to
reflect approval by the CPUC of settlements regarding ratemaking for SCE's share
of Palo Verde and the  buyout of a power  purchase  agreement,  as well as other
minor data  updates.  No  substantive  changes in the total CTC  estimates  were
included.  This issue was  separated  into two  phases;  Phase 1  addressed  the
rate-making issues and Phase 2 the quantification issues.

A decision  on Phase 1 was  issued in June  1997,  which,  among  other  things,
required the  establishment  of a transition  cost balancing  account and annual
transition  cost  proceedings,  set a market rate  forecast for 1998  transition
costs,  and  required  that  generation-related  regulatory  assets be amortized
ratably  over a  48-month  period.  The Phase 2  decision,  which was  issued in
November 1997, established the calculation  methodologies and procedures for SCE
to collect its  transition  costs from 1998  through the end of the rate freeze.
The Phase 2 decision  also reduced  SCE's  authorized  rate of return on certain
assets   eligible  for   transition   cost  recovery   (primarily   fossil-  and
hydroelectric-generation related assets)

<PAGE 35>



beginning  July 1997,  five months  earlier than  anticipated.  SCE has filed an
application for rehearing on the 1997 rate of return issue.

Accounting  for  Generation-Related  Assets -- If the CPUC's  electric  industry
restructuring  plan continues as outlined above, SCE would be allowed to recover
its CTC through  non-bypassable  charges to its distribution customers (although
its  investment  in  certain  generation  assets  would  be  subject  to a lower
authorized rate of return).  During the third quarter of 1997, SCE  discontinued
application of accounting  principles  for  rate-regulated  enterprises  for its
investment in generation facilities.  SCE took this action after a consensus was
reached by the Financial Accounting Standards Board's Emerging Issues Task Force
(EITF) in July 1997,  regarding the proper application of regulatory  accounting
standards in light of the electric industry restructuring legislation enacted by
the State of  California  in  September  1996 and the CPUC's  electric  industry
restructuring plan.

However,  implementation  of the EITF consensus did not require SCE to write off
any  of  its   generation-related   assets,   including   regulatory  assets  of
approximately  $900 million at March 31, 1998.  SCE has retained these assets on
its balance sheet because the  legislation  and  restructuring  plan referred to
above make probable their recovery through a non-bypassable  CTC to distribution
customers.   These  regulatory  assets  relate  primarily  to  the  recovery  of
accelerated  income  tax  benefits   previously  flowed  through  to  customers,
purchased power contract termination payments,  unamortized losses on reacquired
debt,  and the recovery of amounts  deferred  under the Palo Verde rate phase-in
plan.  The  consensus  reached by the EITF also  permits  the  recording  of new
generation-related  regulatory  assets  during the  transition  period  that are
probable of recovery through the CTC mechanism.

If during the  transition  period events were to occur that made the recovery of
these  generation-related  regulatory  assets no longer  probable,  SCE would be
required  to write off the  remaining  balance  of such  assets  as a  one-time,
non-cash charge against earnings.  If such a write-off were to be required,  SCE
believes that it should not affect the recovery of stranded  costs  provided for
in the legislation and restructuring plan.

If events occur during the restructuring process that result in all or a portion
of the CTC being  improbable of recovery,  SCE could have additional  write-offs
associated with these costs if they are not recovered through another regulatory
mechanism. At this time, SCE cannot predict what other revisions will ultimately
be  made  during  the  restructuring   process  in  subsequent   proceedings  or
implementation  phases,  or  the  effect,  after  the  transition  period,  that
competition will have on its results of operations or financial position.

FERC Restructuring Decision

In April 1996, the FERC issued its decision on  stranded-cost  recovery and open
access transmission,  effective July 1996. The decision,  reaffirmed by the FERC
in its March and November 1997 orders,  requires all electric  utilities subject
to  the  FERC's   jurisdiction  to  file  transmission   tariffs  which  provide
competitors  with  increased  access to  transmission  facilities  for wholesale
transactions and also establishes information  requirements for the transmission
utility.  The decision also provides  utilities with the  opportunity to recover
stranded    costs    associated    with    existing     wholesale     customers,
retail-turned-wholesale  customers and retail wheeling when the state regulatory
body does not have authority to address retail stranded  costs.  Even though the
CPUC addressed stranded-cost recovery through the CTC proceedings,  the FERC has
also  asserted  primary   jurisdiction  over  the  recovery  of  stranded  costs
associated  with  retail-turned-wholesale  customers,  such  as a new  municipal
electric system or a municipal annexation. However, the FERC did clarify that it
does not intend to prevent or interfere with a state's authority and that it has
discretion  to defer to a state  stranded-cost-calculation  method.  In  January
1997,  the FERC  accepted  the open  access  transmission  tariff  SCE  filed in
compliance  with the April 1996 decision.  The rates included in the tariff were
collected subject to refund. In May 1997, SCE filed a revised open access tariff
to reflect the few revisions set forth in the March 1997 order.  The open access
transmission  tariff  was  terminated  as of April 1,  1998,  when the ISO began
operation.



<PAGE 36>



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 10 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 reviews  its sites and  measures  the  liability  quarterly,  by
assessing a range of reasonably  likely costs for each identified  site.  Unless
there is a probable  amount,  SCE records the lower end of this likely  range of
costs.

SCE's recorded  estimated minimum liability to remediate its 50 identified sites
is $178  million.  One of SCE's  sites,  a  former  pole-treating  facility,  is
considered  a  federal  Superfund  site  and  represents  42%  of  its  recorded
liability.  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.  SCE  believes  that,  due to  these  uncertainties,  it is  reasonably
possible  that cleanup  costs could exceed its recorded  liability by up to $246
million.  The upper limit of this range of costs was estimated using assumptions
least favorable to SCE among a range of reasonably possible outcomes.

The CPUC allows SCE to recover  environmental-cleanup  costs at 41 of its sites,
representing  $90  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.  Costs
incurred at SCE's remaining sites are expected to be recovered  through customer
rates.  SCE has  recorded a regulatory  asset of $150 million for its  estimated
minimum  environmental-cleanup  costs expected to be recovered  through customer
rates.

SCE's  identified  sites  include  several  sites for  which  there is a lack of
currently  available   information,   including  the  nature  and  magnitude  of
contamination,  and the extent,  if any,  that SCE may be held  responsible  for
contributing  to any costs  incurred  for  remediating  these  sites.  Thus,  no
reasonable estimate of cleanup costs can be made for these sites.

SCE  expects to clean up its  identified  sites over a period of up to 30 years.
Remediation  costs in each of the next several  years are expected to range from
$4 million to $10  million.  Recorded  costs for the  twelve-month  period ended
March 31, 1998, were $6 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 1990  federal  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).
The act also calls for a study to determine if additional regulations are needed
to reduce regional haze in the southwestern  U.S. In addition,  another study is
in progress to determine the specific impact of air  contaminant  emissions from
the Mohave Coal Generating  Station on visibility in Grand Canyon National Park.
The potential  effect of these studies on sulfur dioxide  emissions  regulations
for Mohave is unknown.

SCE's projected capital expenditures to protect the environment are $935 million
for  the  1998-2002   period,   mainly  for  aesthetics   treatment,   including
undergrounding certain transmission and distribution lines.


<PAGE 37>



The  possibility  that exposure to electric and magnetic  fields (EMF) emanating
from power lines,  household appliances and other electric sources may result in
adverse health effects has been the subject of scientific  research.  After many
years of research, scientists have not found that exposure to EMF causes disease
in humans. Research on this topic is continuing.  However, the CPUC has issued a
decision which  provides for a  rate-recoverable  research and public  education
program  conducted  by  California  electric  utilities,  and  authorizes  these
utilities  to take  no-cost  or  low-cost  steps to reduce  EMF in new  electric
facilities. SCE is unable to predict when or if the scientific community will be
able to reach a consensus on any health  effects of EMF, or the effect that such
a consensus, if reached, could have on future electric operations.

San Onofre Steam Generator Tubes

The San Onofre Units 2 and 3 steam  generators  have performed  relatively  well
through  the  first 15 years of  operation,  with  low  rates of  ongoing  steam
generator tube degradation.  However,  during the Unit 2 scheduled refueling and
inspection outage, which was completed in Spring 1997, an increased rate of tube
degradation  was  identified,  which  resulted in the removal of more tubes from
service  than had been  expected.  The steam  generator  design  allows  for the
removal of up to 10% of the tubes before the rated  capacity of the unit must be
reduced. As a result of the increased degradation, a mid-cycle inspection outage
was conducted in early 1998 for Unit 2. Continued  degradation  was found during
this inspection. Monitoring of this degradation will occur at the next scheduled
refueling outage in January 1999. An additional  mid-cycle inspection outage may
be required early in 2000. With the results from the February 1998 outage, 7% of
the tubes have now been removed from service.

During Unit 3's refueling outage, which was completed in July 1997,  inspections
of structural  supports for steam generator tubes identified several areas where
the  thickness of the supports had been reduced,  apparently  by erosion  during
normal plant  operation.  A follow-up  mid-cycle  inspection  indicated that the
erosion  had been  stabilized.  Additional  monitoring  inspections  are planned
during the next  scheduled  refueling  outage in 1999.  To date,  5% of Unit 3's
tubes have been removed from service.  During Unit 2's February  1998  mid-cycle
outage, similar tube supports showed no significant levels of such erosion.

Accounting Rules

During 1996, the Financial  Accounting  Standards Board issued an exposure draft
that would establish accounting standards for the recognition and measurement of
closure and removal obligations.  The exposure draft would require the estimated
present  value of an  obligation  to be  recorded as a  liability,  along with a
corresponding  increase  in the  plant or  regulatory  asset  accounts  when the
obligation is incurred.  If the exposure  draft is approved in its present form,
it would  affect  SCE's  accounting  practices  for the  decommissioning  of its
nuclear power plants,  obligations for coal mine reclamation costs and any other
activities  related to the closure or removal of long-lived assets. SCE does not
expect that the accounting  changes proposed in the exposure draft would have an
adverse effect on its results of operations even after  deregulation  due to its
current and expected  future  ability to recover  these costs  through  customer
rates.

A recently  issued  accounting  rule  requires  that costs  related to  start-up
activities be expensed as incurred,  effective January 1999. SCE does not expect
this new  accounting  rule to  materially  affect its results of  operations  or
financial position.

Year 2000 Issue

Many of SCE's existing computer systems identify a year by using only two digits
instead of four. If not corrected, these programs could fail or create erroneous
results  beginning in 2000. This situation has been referred to generally as the
Year 2000 Issue.

SCE has developed  plans and is addressing the  programming  changes that it has
determined are necessary in order for its computer systems to function  properly
beginning in 2000.  Remediation of SCE's key financial systems for the Year 2000
Issue was completed in 1997. SCE's  informational  and operational  systems have
been assessed,  and detailed plans have been developed to address  modifications
required  to  be  completed,  tested  and  operational  by  December  31,  1999.
Preliminary

<PAGE 38>



estimates of the costs to complete  these  modifications,  including the cost of
new hardware and software application  modifications,  range from $55 million to
$80 million,  about half of which are expected to be capital costs. Current rate
levels for providing  electric  service should be sufficient to provide  funding
for these modifications. Remediation of existing critical systems is expected to
be 75%  complete by the end of 1998.  SCE expects its Year 2000 date  conversion
project to be completed on a timely basis,  with no material  adverse  impact to
its results of operations or financial position.

SCE's Year 2000 date  conversion  project  includes  an  assessment  of critical
interfaces with the computer systems of others and it does not expect a material
adverse effect on its operating and business functions from the Year 2000 Issue.

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 further actions by state and federal regulatory bodies
setting  rates  and  implementing  the  restructuring  of the  electric  utility
industry;  the effects of new laws and regulations relating to restructuring and
other  matters;  the effects of increased  competition  in the electric  utility
business,  including  the beginning of direct  customer  access to retail energy
suppliers  and the  unbundling  of revenue  cycle  services such as metering and
billing;  changes in prices of  electricity  and fuel  costs;  changes in market
interest rates; new or increased environmental liabilities; and other unforeseen
events.


<PAGE 39>



PART II  OTHER INFORMATION

Item 1.           Legal Proceedings

Wind Generators' Litigation

Between  January 1994 and October 1994, SCE was named as a defendant in a series
of eight lawsuits  brought by independent  power  producers of wind  generation.
Seven of the lawsuits were filed in Los Angeles  County  Superior  Court and one
was filed in Kern County  Superior  Court.  The lawsuits  allege SCE incorrectly
interpreted contracts with the plaintiffs by limiting fixed energy payments to a
single 10-year period rather than beginning a new 10-year period of fixed energy
payments for each stage of development.  In its responses to the complaints, SCE
denied the plaintiffs' allegations. In each of the lawsuits, the plaintiffs seek
declaratory  relief  regarding  the  proper  interpretation  of  the  contracts.
Plaintiffs  allege a combined  total of  approximately  $189 million in damages,
which includes  consequential damages claimed in seven of the eight lawsuits. On
March 1, 1995, the court in the lead Los Angeles Superior Court case granted the
plaintiffs'  motion seeking summary  adjudication  that the contract language in
question is not  reasonably  susceptible  to SCE's position that there is only a
single, 10-year period of fixed payments.  Following the March 1 ruling, a ninth
lawsuit was filed in the Los Angeles  Superior  Court raising  claims similar to
those alleged in the first eight. SCE subsequently responded to the complaint in
the new lawsuit by denying its material allegations. On April 5, 1995, SCE filed
a  petition  for  Writ of  Mandate,  Prohibition  or Other  Appropriate  Relief,
requesting that the Court of Appeal of the State of California, Second Appellate
District  issue a writ  directing the Los Angeles  Superior  Court to vacate its
March 1 order granting summary adjudication. In a decision filed August 9, 1995,
the Court of Appeal issued a writ directing that the order be overturned,  and a
new  order be  entered  denying  the  motion.  In light of the  Court of  Appeal
decision in the lead Los Angeles case, a summary adjudication motion in the Kern
County case was  withdrawn.  On March 25,  1996,  pursuant  to a  court-approved
stipulation, all but one of the cases were consolidated for trial in Los Angeles
Superior Court. Shortly thereafter, on April 3, 1996, pursuant to stipulation of
the  parties,  the Kern County case was ordered to be  coordinated  with the Los
Angeles  cases  so that it too  will  be  tried  in Los  Angeles.  Trial  of the
consolidated cases,  beginning with the lead case,  commenced on March 10, 1997.
The consolidated  cases are to be tried one after another in bifurcated  fashion
with  the  liability  phase of each  and all of the  cases  to be  tried  before
commencement of the damages phase, if applicable. Testimony and arguments in the
liability phase of the lead case concluded on May 20, 1997. On July 7, 1997, the
court issued a tentative  decision which effectively would resolve all liability
issues  in the lead  case in SCE's  favor.  A  proposed  Statement  of  Decision
consistent with the  conclusions in the tentative  decision was submitted by SCE
and  argument  on the same took  place at a hearing  on October  31,  1997.  The
hearing  was not  concluded  at that time and  further  argument  took  place on
November 17,  1997.  On December  22,  1997,  the judge ruled on the  objections
raised at the two  hearings  and ordered SCE to prepare a proposed  Statement of
Decision  incorporating her ruling.  SCE submitted this document to the court on
January 13, 1998. At a hearing on February 4, 1998, the court, after considering
additional  objections to parts of the proposed order, directed SCE to prepare a
further,  revised order which would not materially  change the court's previous,
tentative  rulings.  This final  statement  of decision was filed on February 6,
1998. In addition,  on February 20, 1998,  the court entered a judgment  against
one of the  Plaintiffs  in the lead  case.  (Judgment  has not yet been  entered
against  the other  plaintiff  in the lead case  because of  outstanding  issues
related  to  SCE's  damages  arising  from  cross-claims  by  SCE  against  that
plaintiff.)

SCE has recently  agreed to settle with the  plaintiffs in seven of the lawsuits
whereby SCE will waive its rights to recover  costs  against such  plaintiffs in
exchange  for their  agreement  that there is only one fixed price  period under
each of their power  purchase  contracts  with SCE and a mutual  dismissal  with
prejudice of claims.  SCE has also entered into a settlement  agreement with the
plaintiff in another of the lawsuits  which resolves the issue of multiple fixed
price  periods on the same terms and which also  resolves a related issue unique
to that plaintiff in exchange for a nominal  payment by SCE. This  settlement is
subject to bankruptcy court approval in proceedings involving the plaintiff.  On
April 24, 1998, the bankruptcy court issued an order approving the settlement.



<PAGE 40>



Geothermal Generators' Litigation

On June 9, 1997,  SCE filed a complaint  in Los Angeles  County  Superior  Court
against another  independent power producer of geothermal  generation and six of
its affiliated  entities  (collectively the  "Defendants").  SCE alleges that in
order  to  avoid  power   production   plant   shutdowns   caused  by  excessive
noncondensable  gas in the  geothermal  field brine,  the  Defendants  routinely
vented  highly  toxic  hydrogen  sulfide  gas from  unmonitored  release  points
beginning  in 1990  and  continuing  through  at least  1994,  in  violation  of
applicable  federal,  state and local environmental law. According to SCE, these
violations  constituted material breaches by the Defendants of their obligations
under their contracts and applicable law. The complaint seeks termination of the
contracts and damages for excess power purchase payments made to the Defendants.
The  Defendants'  motion to  transfer  venue to Inyo County  Superior  Court was
granted on August 31, 1997.

On December 19, 1997, SCE filed a second amended  complaint in response to which
the  Defendants  filed a motion to  strike,  which was  argued  and taken  under
submission by the court on March 13, 1998.  The  Defendants  also filed a motion
for  summary  judgment,  asserting  that SCE's  claims are  time-barred  or were
released in connection with the settlement of prior litigation among some of the
Defendants and two of SCE's affiliates,  Mission Power Engineering  Company, and
The Mission Group (the Mission Parties). SCE asserts that the earlier settlement
does not bar the claims it is  prosecuting  in this matter and that these claims
are not time-barred. The motion was argued on April 22, 1998, and the matter was
taken  under  submission  at that time.  SCE has also  filed a cross  motion for
summary  adjudication  with respect to the issues raised in Defendants'  summary
judgment motion. No hearing date has been scheduled for SCE's motion for summary
adjudication. In addition, the Defendants have filed a motion to stay SCE's case
pending  resolution of certain  technical  issues by the Great Basin Air Quality
Management District under the doctrine of primary  adjudication.  The motion was
argued on March 13,  1998.  On April 30,  1998,  the court denied the motion for
stay without prejudice.

The  Defendants  have also asserted  various  claims against SCE and the Mission
Parties in a cross-complaint  filed in the action commenced by SCE as well as in
a separate  action filed  against SCE by three of the  Defendants in Inyo County
Superior Court. Following a hearing on November 20, 1997, the court consolidated
these  actions for all  purposes  and ordered  the  Defendants  to file a second
amended cross-complaint.

The second amended  cross-complaint  asserts  nineteen  causes of action against
SCE, three of which are also asserted against the Mission  Parties,  and alleges
in excess of $75  million in  compensatory  damages and also  punitive  damages.
Included are claims for declaratory  relief;  breach of the implied  covenant of
good faith and fair dealing;  inducing breach of employee agreements;  breach of
contract;  disparagement,  and slander per se; injunctive relief and restitution
for unfair business  practices;  anticipatory  breach of contract;  violation of
Public  Utilities Code Sections 453, 707 and 2106; and negligent and intentional
misrepresentation.  Several of these  claims are premised on the theory that SCE
has incorrectly interpreted the  cross-complainants'  contracts as providing for
only  a  single   "fixed   price"   period   in  view  of  the  fact   that  the
cross-complainants developed their projects in phases. This theory has also been
asserted by other  independent  power  producers  in  litigation  pending in Los
Angeles Superior Court. (See, "Wind Generators  Litigation"  above.) SCE filed a
demurrer to the second  amended  cross-complaint,  which was argued on March 13,
1998, and taken under submission by the court.

Based on the common issues  asserted in the Wind  Generation  Litigation and the
Defendants' second amended  cross-complaint,  SCE filed a petition to coordinate
the  consolidated  actions  pending in Inyo County  Superior Court with the Wind
Generation   Litigation  pending  in  Los  Angeles  County  Superior  Court.  In
connection  with the petition to coordinate,  SCE also applied for a stay of all
proceedings in Inyo County.  Both the petition to coordinate and the application
for  stay  were  argued  before  the  judge  presiding  in the  Wind  Generators
Litigation and were denied without prejudice on April 9, 1998.

Electric and Magnetic Fields (EMF) Litigation

SCE is involved in three  lawsuits  alleging that various  plaintiffs  developed
cancer  as a result of  exposure  to EMF from SCE  facilities.  SCE  denied  the
material allegations in its responses to each of these lawsuits.


<PAGE 42>



The first lawsuit was filed in Orange County Superior Court and served on SCE in
June 1994. There are five named plaintiffs and six named  defendants,  including
SCE.  Three of the five  plaintiffs  are presently or were formerly  employed by
Grubb & Ellis, a real estate brokerage firm with offices located in a commercial
building known as the Koll Center in Newport Beach.  Two of the named plaintiffs
are spouses of the other plaintiffs. Grubb & Ellis and the owners and developers
of the Koll Center are also named as  defendants  in the  lawsuit.  This lawsuit
alleges, among other things, that the three plaintiffs employed by Grubb & Ellis
developed various forms of cancer as a result of exposure to EMF from electrical
facilities  owned by SCE and/or  the other  defendants  located  on Koll  Center
property.  No  specific  damage  amounts  are  alleged  in  the  complaint,  but
supplemental  documentation prepared by the plaintiffs indicates that plaintiffs
allege  compensatory  damages of  approximately  $8  million,  plus  unspecified
punitive  damages.  In December 1995, the court granted SCE's motion for summary
judgment  and  dismissed  the case.  Plaintiffs  have  filed a Notice of Appeal.
Briefs have been submitted but no date for oral argument has been set.

A second lawsuit was filed in Orange County  Superior Court and served on SCE in
January  1995.  This lawsuit  arises out of the same fact  situation as the June
1994 lawsuit  described above and involves the same  defendants.  There are four
named  plaintiffs,  two of whom were formerly  employed by Grubb & Ellis and now
allegedly have various forms of cancer. The other two plaintiffs are the spouses
of those  two  individuals.  No  specific  damage  amounts  are  alleged  in the
complaint,  but supplemental  documentation prepared by the plaintiffs indicates
that plaintiffs will allege compensatory damages of approximately $13.5 million,
plus  unspecified  punitive  damages.  In  April  1995,  Grubb &  Ellis  filed a
cross-complaint against the other co-defendants,  requesting indemnification and
declaratory  relief concerning the rights and  responsibilities  of the parties.
Although stayed for a time pending appellate review of sanctions imposed against
plaintiffs' attorneys by the trial court, the case has been remanded back to the
trial court  following  the Court of Appeal's  decision  modifying the sanctions
order. To date, no further proceedings have been scheduled.

A third  case was filed in Orange  County  Superior  Court and  served on SCE in
March 1995. The plaintiff alleges,  among other things, that he developed cancer
as a result of EMF emitted from SCE distribution lines which he alleges were not
constructed in accordance  with CPUC  standards.  No specific damage amounts are
alleged  in  the  complaint  but  supplemental  documentation  prepared  by  the
plaintiff  indicates  that  plaintiff  will  allege   compensatory   damages  of
approximately $5.5 million, plus unspecified punitive damages. No trial date has
been set in this case.

A California Court of Appeal  decision,  Cynthia Jill Ford et al. v. Pacific Gas
and  Electric  Co.  (Ford),  has  held  that  the  Superior  Courts  do not have
jurisdiction to decide issues, such as those concerning EMF, which are regulated
by the CPUC.  The  California  Supreme  Court  recently  denied the  plaintiffs'
petition  for review in Ford and it is now binding  throughout  California.  SCE
intends  to seek  dismissal  of these  cases in light of the  Court of  Appeal's
decision.

San Onofre Personal Injury Litigation

An SCE engineer  employed at San Onofre died in 1991 from cancer of the abdomen.
On February 6, 1995,  his  children  sued SCE and SDG&E,  as well as  Combustion
Engineering,  the  manufacturer  of the  fuel  rods for the  plant,  in the U.S.
District Court for the Southern District of California.  Plaintiffs alleged that
the former employee's  illness resulted from, and was aggravated by, exposure to
radiation at San Onofre,  including  contact  with  radioactive  fuel  particles
released from failed fuel rods.  Plaintiffs sought unspecified  compensatory and
punitive damages.  On April 3, 1995, the court granted the defendants' motion to
dismiss 14 of the  plaintiffs'  15 claims.  SCE's April 20, 1995,  answer to the
complaint  denied all  material  allegations.  On October  10,  1995,  the court
granted  plaintiffs' motion to include the Institute of Nuclear Power Operations
(an organization  dedicated to achieving excellence in nuclear power operations)
as a defendant in the suit. On December 7, 1995,  the court granted SCE's motion
for summary judgment on the sole outstanding claim against it, basing the ruling
on the worker's  compensation  system being the exclusive  remedy for the claim.
Plaintiffs have appealed this ruling to the Ninth Circuit Court of Appeals. Oral
argument on the appeal  took place on  December  4, 1997,  and the matter is now
under  submission.  All trial court  proceedings  have been  stayed  pending the
ruling  of the  Court of  Appeals.  The  impact  on SCE,  if any,  from  further
proceedings in this case against the remaining  defendants  cannot be determined
at this time.


<PAGE 42>



On July 5, 1995,  a former SCE reactor  operator and his wife sued SCE and SDG&E
in the U.S. District Court for the Southern  District of California.  Plaintiffs
also named  Combustion  Engineering,  the  manufacturer of the fuel rods for the
plant, and the Institute of Nuclear Power  Operations as defendants.  The former
employee died of leukemia  shortly  after the  complaint  was filed.  Plaintiffs
allege that the former operator's  illness resulted from, and was aggravated by,
exposure to radiation at San Onofre,  including  contact with  radioactive  fuel
particles   released  from  failed  fuel  rods.   Plaintiffs  seek   unspecified
compensatory  and punitive  damages.  On November 22, 1995,  the  complaint  was
amended to allege wrongful death and added the former employee's two children as
plaintiffs.  On  December  22,  1995,  SCE filed a motion to dismiss  or, in the
alternative, for summary judgment based on worker's compensation exclusivity. On
March 25, 1996, the court granted SCE's motion for summary judgment.  Plaintiffs
have appealed  this ruling to the Ninth Circuit Court of Appeals.  Oral argument
on the  appeal  took  place on  December  4,  1997,  and the matter is now under
submission.  All trial court  proceedings have been stayed pending the ruling of
the  Court  of  Appeals  in this  case and in the case  described  in the  above
paragraph.  The impact on SCE, if any,  from  further  proceedings  in this case
against the remaining defendants cannot be determined at this time.

On August 31,  1995,  the wife and  daughter  of a former  San  Onofre  security
supervisor  sued SCE and  SDG&E  in the U.S.  District  Court  for the  Southern
District  of  California.  Plaintiffs  also named  Combustion  Engineering,  the
manufacturer  of fuel rods for the plant,  and the  Institute  of Nuclear  Power
Operations as defendants.  The security officer worked for a contractor in 1982,
worked for SCE as a temporary employee  (1982-1984),  and later worked as an SCE
security  supervisor  (1984-1994).   The  officer  died  of  leukemia  in  1994.
Plaintiffs  allege that the former  officer's  illness  resulted  from,  and was
aggravated by, his exposure to radiation at San Onofre,  including  contact with
radioactive  fuel  particles  released  from failed fuel rods.  Plaintiffs  seek
unspecified  compensatory and punitive damages.  SCE's November 13, 1995, answer
to the complaint denied all material  allegations.  All trial court  proceedings
have been  stayed  pending  the  rulings  of the Court of  Appeals  in the cases
described in the above two paragraphs.

On November 17, 1995, an SCE employee and his wife sued SCE in the U.S. District
Court for the Southern District of California.  Plaintiffs also named Combustion
Engineering,  the  manufacturer  of the fuel rods for the San Onofre plant.  The
employee worked for SCE at San Onofre from 1981 to 1990. Plaintiffs alleged that
the employee transported  radioactive byproducts on his person,  clothing and/or
tools to his home where his wife was then exposed to  radiation  that caused her
leukemia.  Plaintiffs seek unspecified  compensatory and punitive damages. SCE's
December  19,  1995,  partial  answer  to  the  complaint  denied  all  material
non-employment  related  allegations.  SCE's  motion to dismiss  the  employee's
employment related  allegations based on worker's  compensation  exclusivity was
granted on March 19,  1996.  The  employee's  wife died on August 15,  1996.  On
September 20, 1996,  the complaint was amended to allege  wrongful  death and to
add the employee's two children as plaintiffs. SCE's motion for summary judgment
was  denied  on  April  9,  1997.  The  trial  in  this  case  took  place  over
approximately  22 days  between  January  and March 1998 and  resulted in a jury
verdict for both  defendants.  On March 19, 1998, the plaintiffs  filed a motion
for a new trial. Arguments for that motion are scheduled to be heard on June 11,
1998.

On November 28, 1995, a former contract worker at San Onofre,  her husband,  and
her son,  sued SCE in the U.S.  District  Court  for the  Southern  District  of
California.  Plaintiffs also named Combustion  Engineering,  the manufacturer of
the fuel  rods for the San  Onofre  plant.  Plaintiffs  allege  that the  former
contract worker transported radioactive byproducts on her person and clothing to
her home where her son was then exposed to radiation  that caused his  leukemia.
Plaintiffs seek unspecified  compensatory and punitive damages. SCE's January 2,
1996,  answer  denied all material  allegations.  On August 12, 1996,  the Court
dismissed the claims of the former worker and her husband with  prejudice.  This
case is expected to go to trial in late-1998 or early 1999.

On November 20, 1997, a former  contract  worker at San Onofre and his wife sued
SCE in the  Superior  Court of  California,  County of San Diego.  The  contract
worker  was an  ironworker  at San  Onofre  during a portion  of 1995.  The suit
alleges that SCE allowed  dangerous  conditions to exist at San Onofre,  causing
him  to  sustain  unspecified  personal  injuries.  His  wife  alleges  loss  of
consortium  and other  general  damages.  The case has been  removed to the U.S.
District Court for the Southern  District of  California.  SCE filed a motion to
dismiss  the  complaint  for  failure  to state a  claim.  In  April  1998,  the
plaintiffs and

<PAGE 43>



SCE  stipulated  that SCE's motion to dismiss be granted and that the plaintiffs
be given  leave to file an  amended  complaint  on or before May 11,  1998.  The
plaintiffs have not yet filed an amended complaint.

Oil Pipeline Litigation

On November 1, 1996,  plaintiff,  a crude oil pipeline company,  filed a lawsuit
against SCE and the City of Los Angeles (the City) in the United States District
Court for the Central District of California  claiming that SCE and the City had
interfered  with its  attempt to  construct  a proposed  132-mile  oil  pipeline
(Pacific  Pipeline)  designed to transport  oil from the San Joaquin  Valley and
Santa Barbara to the Los Angeles refineries.

Plaintiff  alleges,  among  other  things,  that  SCE  and the  City  wrongfully
initiated administrative and other legal proceedings in an attempt to derail and
obstruct the construction of the Pacific Pipeline.  Plaintiff alleges that these
acts  constitute  unfair  competition,   tortious   interference  with  economic
advantage and violate state and federal antitrust laws. Plaintiff further claims
that because of the alleged  delays,  it could  suffer  losses in excess of $300
million. Additionally, plaintiff seeks treble and punitive damages.

On June 30, 1997, SCE filed an answer to the complaint  denying the  substantive
allegations  and  raising  appropriate  defenses.  Plaintiff  and SCE  reached a
settlement of this dispute for nonmonetary compensation. An agreement to dismiss
the lawsuit was filed with the court on February 8, 1998.

False Claims Act Litigation

In  September  1997,  SCE  became  aware of a  complaint  filed in the  Southern
District  of the U.S.  District  Court of  California  by a  former  San  Onofre
employee,  acting at his own initiative on behalf of the United States under the
False  Claims Act,  against SCE and SDG&E.  The  complaint  alleges that SCE and
SDG&E have  submitted  fraudulent  claims to the United States  government,  the
State  of  California  and  their   customers   resulting  in  $491  million  in
overpayments  ($383 million of which is attributed to SCE). The employee alleges
that SCE and SDG&E provided the CPUC with data which inflated projected costs at
San Onofre while  minimizing  projected  revenue,  resulting in the CPUC setting
inflated rates. The amount sought in this complaint is subject to trebling, plus
civil  penalties  of $10,000  per false  claim  submitted  for  payment  (for an
unspecified  number of claims).  SCE and SDG&E filed separate motions to dismiss
this  lawsuit on November 6, 1997.  The  employee  responded  to both motions on
December 20, 1997. SCE and SDG&E replied to the  employee's  response on January
13, 1998.  Oral argument on the motion to dismiss was heard on January 20, 1998,
and the court has the matter under submission.

Mohave Generating Station Environmental Litigation

On February 19,  1998,  the Sierra Club and the Grand Canyon Trust filed suit in
the U.S.  District Court of Nevada against SCE and the other three  co-owners of
the Mohave Generating Station (Mohave). The lawsuit alleges that Mohave has been
violating   various   provisions   of  the  Clean  Air  Act,  the  Nevada  state
implementation  plan,  certain  Environmental   Protection  Agency  orders,  and
applicable  pollution  permits  relating to opacity and sulfur dioxide  emission
limits over the last five years.  The plaintiffs seek declaratory and injunctive
relief as well as civil  penalties.  Under the Clean Air Act, the maximum  civil
penalty  obtainable  is $25,000  per day per  violation.  SCE and the  co-owners
obtained an extension to respond to the complaint and on April 10, 1998, filed a
motion to dismiss.  The  plaintiffs'  opposition to the motion was due on May 8,
1998. The reply brief to plaintiffs' opposition will be due May 22, 1998.



<PAGE 44>



Item 4.  Submission of Matters to a Vote of Security Holders

Election of Directors

At SCE's Annual Meeting of Shareholders on April 16, 1998,  shareholders elected
sixteen  nominees to the Board of Directors.  The number of broker non-votes for
each  nominee  was zero.  The  number of votes cast for and  withheld  from each
Director-nominee were as follows:
<TABLE>
<CAPTION>
                                                                                Number of Votes
-------------------------------------------------------------------------------------------------------------------
                          Name                                        For                         Withheld
-------------------------------------------------------------------------------------------------------------------

<S>                                                                  <C>                           <C>    
         John E. Bryson                                              470,636,766                   483,036
         Winston H. Chen                                             470,645,298                   474,504
`        Warren Christopher                                          470,610,396                   509,406
         Stephen E. Frank                                            470,647,872                   471,930
         Joan C. Hanley                                              470,639,604                   480,198
         Carl F. Huntsinger                                          470,645,196                   474,606
         Charles D. Miller                                           470,627,832                   491,970
         Luis G. Nogales                                             470,623,140                   496,662
         Ronald L. Olson                                             470,633,922                   485,880
         James M. Rosser                                             470,641,032                   478,770
         E. L. Shannon, Jr.                                          470,638,530                   481,272
         Robert H. Smith                                             470,647,872                   471,930
         Thomas C. Sutton                                            470,646,084                   473,718
         Daniel M. Tellep                                            470,647,182                   472,620
         James D. Watkins                                            470,626,980                   492,822
         Edward Zapanta                                              470,645,670                   472,132
</TABLE>

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

          3.1  Restated  Articles of  Incorporation  as amended  through 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 Southern  California Edison Company as amended through June 1,
               1993 (File No. 1-2313,  Form 10-Q for the quarterly  period ended
               September 30, 1997)*

          3.3  Bylaws as adopted by the Board of Directors  effective January 1,
               1998 (File No. 1-2313,  Form 10-K for the year ended December 31,
               1997)*

          10.  Material Contracts

               10.1 Option Gain Deferral Plan

               10.2 Executive Deferred Compensation Plan

               10.3 Officer Long-term Incentive Compensation Plan

          23.  Consent of Independent Public Accountants

          27.  Financial Data Schedule



<PAGE 45>




(b)      Reports on Form 8-K:

         April 7, 1998
                  Item 5: Other Events:     Sale of SCE Generating Plants

---------------------

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





                                   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       R. K. BUSHEY
                           --------------------------------------------------
                           R. K. BUSHEY
                           Vice President and Controller



                  By       K. S. STEWART
                           -------------------------------------------------
                           K. S. STEWART
                           Assistant General Counsel and
                           Assistant Secretary

May 12, 1998