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


                                    FORM 10-Q

(Mark One)

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

For the quarterly period ended                      September 30, 2000
                               ------------------------------------------------
                                       OR

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

For the transition period from                      to
                              ---------------------    ------------------------

                          Commission File Number 1-2313

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

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

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

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

       Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes   X          No ___

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

              Class                           Outstanding at November 10, 2000
---------------------------------------    ------------------------------------
   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, Nine and
         Twelve Months Ended September 30, 2000, and 1999                  2

      Consolidated Statements of Comprehensive Income -
         Three, Nine and Twelve Months Ended September 30, 2000,
         and 1999                                                          2

      Consolidated Balance Sheets - September 30, 2000,
         December 31, 1999, and September 30, 1999                         3

      Consolidated Statements of Common Shareholder's
         Equity - Three, Nine and Twelve Months Ended
         September 30, 2000, and 1999                                      5

      Consolidated Statements of Cash Flows -
         Three, Nine and Twelve Months Ended
         September 30, 2000, and 1999                                      7

      Notes to Consolidated Financial Statements                           8

   Item 2.  Management's Discussion and Analysis of Results
               of Operations and Financial Condition                      30


Part II. Other Information:

    Item 1.  Legal Proceedings                                            44

    Item 6.  Exhibits and Reports on Form 8-K                             46



<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) and its subsidiaries as of September 30, 2000,
December 31, 1999, and September 30, 1999, and the related consolidated
statements of income, comprehensive income, common shareholder's equity and cash
flows for each of the three-, nine- and twelve-month periods ended September 30,
2000, and 1999. These financial statements are the responsibility of SCE's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SCE and its subsidiaries as of
September 30, 2000, December 31, 1999, and September 30, 1999, and the results
of their operations and their cash flows for each of the three-, nine- and
twelve-month periods ended September 30, 2000, and 1999, in conformity with
accounting principles generally accepted in the United States.


                                                     ARTHUR ANDERSEN LLP
                                                     ARTHUR ANDERSEN LLP


Los Angeles, California
November 8, 2000


                                       1
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

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

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

                                              2000         1999         2000        1999           2000         1999
-----------------------------------------------------------------------------------------------------------------------

<S>                                      <C>          <C>          <C>           <C>           <C>          <C>
Operating revenue                        $ 2,431,882  $ 2,309,752  $ 6,114,604   $ 5,720,353   $ 7,942,086  $ 7,618,824
-----------------------------------------------------------------------------------------------------------------------

Fuel                                          57,313       60,100      138,551       155,218       198,306      216,981
Purchased power - contracts                  855,711      823,470    1,719,315     1,856,130     2,282,332    2,471,762
Purchased power - PX/ISO - net             1,059,786      314,953    1,383,473       539,498     1,614,547      761,505
Provisions for regulatory
   adjustment clauses - net                 (861,442)    (200,678)    (855,781)     (560,947)   (1,057,486)    (743,367)
Other operating expenses                     347,357      371,452    1,045,669     1,226,869     1,388,097    1,588,450
Maintenance                                   81,230       84,819      248,234       280,448       331,707      386,628
Depreciation, decommissioning and
   amortization                              415,029      413,760    1,162,171     1,177,744     1,532,164    1,586,700
Income taxes                                 174,264      154,416      432,212       319,194       564,271      368,712
Property and other taxes                      29,487       29,323       97,898        96,928       122,600      122,974
Net loss (gain) on sale of utility plant         (86)         767       (6,618)       (2,158)       (7,496)     (15,669)
-----------------------------------------------------------------------------------------------------------------------

Total operating expenses                   2,158,649    2,052,382    5,365,124     5,088,924     6,969,042    6,744,676
-----------------------------------------------------------------------------------------------------------------------

Operating income                             273,233      257,370      749,480       631,429       973,044      874,148
-----------------------------------------------------------------------------------------------------------------------

Allowance for equity funds
   used during construction                    2,450        4,040        9,134         9,929        12,210       13,041
Interest and dividend income                  45,118       20,566       89,067        51,533       106,920       66,614
Other nonoperating income
   (deductions) - net                         (9,316)       4,989       (6,334)       24,490        13,165       (1,898)
-----------------------------------------------------------------------------------------------------------------------

Total other income - net                      38,252       29,595       91,867        85,952       132,295       77,757
-----------------------------------------------------------------------------------------------------------------------

Income before interest expense               311,485      286,965      841,347       717,381     1,105,339      951,905
-----------------------------------------------------------------------------------------------------------------------

Interest and amortization on long-term debt   93,862      101,072      283,374       299,527       376,739      401,600
Other interest expense                        42,961       20,889      109,558        64,492       136,624       78,701
Allowance for borrowed funds used
   during construction                        (2,133)      (3,505)      (7,952)       (8,619)      (10,621)     (10,718)
Capitalized interest                            (499)         (42)        (819)       (1,110)         (919)      (1,792)
-----------------------------------------------------------------------------------------------------------------------

Total interest expense - net                 134,191      118,414      384,161       354,290       501,823      467,791
-----------------------------------------------------------------------------------------------------------------------

Net income                                   177,294      168,551      457,186       363,091       603,516      484,114
Dividends on preferred stock                   5,612        8,445       15,831        20,253        21,467       25,865
-----------------------------------------------------------------------------------------------------------------------

Net income available for common stock      $ 171,682    $ 160,106    $ 441,355     $ 342,838     $ 582,049    $ 458,249
-----------------------------------------------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands

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

                                               2000         1999         2000         1999         2000           1999
-----------------------------------------------------------------------------------------------------------------------

Net income                                 $ 177,294    $ 168,551    $ 457,186     $ 363,091     $ 603,516    $ 484,114
Unrealized gain (loss) on securities - net    (1,852)      31,993        2,936        24,776         6,169       43,240
Reclassification adjustment for gains
   included in net income                         --      (13,654)     (24,487)      (45,899)      (24,508)     (63,735)
-----------------------------------------------------------------------------------------------------------------------

Comprehensive income                       $ 175,442    $ 186,890    $ 435,635     $ 341,968     $ 585,177    $ 463,619
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

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


                                       2
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

CONSOLIDATED BALANCE SHEETS
In thousands
<TABLE>
<CAPTION>

                                                             September 30,       December 31,       September 30,
                                                                 2000                1999               1999
-------------------------------------------------------------------------------------------------------------------
ASSETS

Utility plant, at original cost:
<S>                                                          <C>                 <C>                <C>
   Transmission and distribution                             $ 12,912,093        $ 12,439,059       $ 12,134,001
   Generation                                                   1,723,248           1,717,676          1,698,781
Accumulated provision for depreciation
   and decommissioning                                         (7,759,094)         (7,520,036)        (7,265,355)
Construction work in progress                                     674,910             562,651            703,742
Nuclear fuel, at amortized cost                                   126,705             132,197            148,785
-------------------------------------------------------------------------------------------------------------------

Total utility plant                                             7,677,862           7,331,547          7,419,954
-------------------------------------------------------------------------------------------------------------------

Nonutility property - less accumulated provision
   for depreciation of $7,892, $6,797
   and $8,794 at respective dates                                 102,042             103,644             72,248
Nuclear decommissioning trusts                                  2,541,921           2,508,904          2,326,847
Other investments                                                 335,543             160,241            181,560
-------------------------------------------------------------------------------------------------------------------

Total other property and investments                            2,979,506           2,772,789          2,580,655
-------------------------------------------------------------------------------------------------------------------

Cash and equivalents                                               49,855              26,046            227,718
Receivables, including unbilled revenue, less
   allowances of $23,098, $24,665 and $27,417
   for uncollectible accounts at respective dates               1,235,377           1,013,661          1,299,047
Fuel inventory                                                     21,376              49,989             51,150
Materials and supplies, at average cost                           130,555             122,866            120,064
Accumulated deferred income taxes - net                           545,691             188,143            143,441
Regulatory balancing accounts - net                                    --                  --            127,516
Prepayments and other current assets                              160,485             111,151            129,751
-------------------------------------------------------------------------------------------------------------------

Total current assets                                            2,143,339           1,511,856          2,098,687
-------------------------------------------------------------------------------------------------------------------

Unamortized nuclear investment - net                              782,582           1,365,848          1,564,807
Income tax-related deferred charges                             1,181,196           1,272,947          1,352,336
Regulatory balancing accounts - net                             1,350,938           1,714,973          1,250,085
Transition revenue account                                      2,358,080                  --                 --
Unamortized debt issuance and reacquisition
   expense                                                        317,802             335,044            341,786
Other deferred charges                                          1,049,430           1,352,302            997,630
-------------------------------------------------------------------------------------------------------------------

Total deferred charges                                          7,040,028           6,041,114          5,506,644
-------------------------------------------------------------------------------------------------------------------


Total assets                                                 $ 19,840,735        $ 17,657,306       $ 17,605,940
-------------------------------------------------------------------------------------------------------------------
</TABLE>



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


                                       3
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

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

                                                             September 30,       December 31,        September 30,
                                                                 2000                1999                1999
-------------------------------------------------------------------------------------------------------------------

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                                        334,030             335,038            335,014
Accumulated other comprehensive income                                 --              21,551             18,339
Retained earnings                                                 769,991             608,453            585,375
-------------------------------------------------------------------------------------------------------------------

                                                                3,272,075           3,133,096          3,106,782
Preferred stock:
   Not subject to mandatory redemption                            128,755             128,755            128,755
   Subject to mandatory redemption                                255,700             255,700            255,700
Long-term debt                                                  4,807,439           5,136,681          5,221,915
-------------------------------------------------------------------------------------------------------------------

Total capitalization                                            8,463,969           8,654,232          8,713,152
-------------------------------------------------------------------------------------------------------------------

Short-term debt                                                 1,276,368             795,988            605,003
Current portion of long-term debt                                 647,251             571,300            568,009
Accounts payable                                                  884,685             573,919            561,364
Accrued taxes                                                     573,928             500,709            984,560
Accrued interest                                                   67,317              82,554             88,778
Dividends payable                                                  95,082              94,407             94,350
Regulatory balancing accounts - net                               982,310              75,693                 --
Deferred unbilled revenue                                         412,265             300,339            314,212
Other current liabilities                                       1,247,769           1,140,048          1,100,123
-------------------------------------------------------------------------------------------------------------------

Total current liabilities                                       6,186,975           4,134,957          4,316,399
-------------------------------------------------------------------------------------------------------------------

Accumulated deferred income taxes - net                         3,359,881           2,938,661          2,768,891
Accumulated deferred investment tax credits                       174,605             205,197            217,822
Customer advances and other deferred credits                      771,439             823,992            824,537
Power purchase contracts                                          489,547             563,459            333,262
Accumulated provision for pension and benefits                    293,290             233,003            319,527
Other long-term liabilities                                       100,676             103,470            112,020
-------------------------------------------------------------------------------------------------------------------

Total deferred credits and other liabilities                    5,189,438           4,867,782          4,576,059
-------------------------------------------------------------------------------------------------------------------

Minority interest                                                     353                 335                330
-------------------------------------------------------------------------------------------------------------------

Commitments and contingencies
   (Notes 2, 10 and 11)

Total capitalization and liabilities                         $ 19,840,735        $ 17,657,306       $ 17,605,940
-------------------------------------------------------------------------------------------------------------------
</TABLE>



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


                                       4
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY
In thousands
<TABLE>
<CAPTION>

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

<S>                                        <C>              <C>           <C>            <C>            <C>
Balance at June 30, 1999                   $ 2,168,054      $ 334,031     $       --     $ 694,161      $ 3,196,246
---------------------------------------------------------------------------------------------------------------------

   Net income                                                                              168,551          168,551
   Unrealized gain on securities                                              53,815                         53,815
      Tax effect                                                             (21,822)                       (21,822)
   Reclassified adjustment for gain
      included in net income                                                 (22,967)                       (22,967)
      Tax effect                                                               9,313                          9,313
   Dividends declared on common stock                                                     (268,746)        (268,746)
   Dividends declared on preferred stock                                                    (8,445)          (8,445)
   Stock option appreciation                                                                  (146)            (146)
   Capital stock expense                                          983                                           983
---------------------------------------------------------------------------------------------------------------------

Balance at September 30, 1999              $ 2,168,054      $ 335,014       $ 18,339     $ 585,375      $ 3,106,782
---------------------------------------------------------------------------------------------------------------------

Balance at June 30, 2000                   $ 2,168,054      $ 334,031      $   1,852     $ 690,347      $ 3,194,284
---------------------------------------------------------------------------------------------------------------------

   Net income                                                                              177,294          177,294
   Unrealized gain on securities
      Tax effect                                                              (1,852)                        (1,852)
   Dividends declared on common stock                                                      (91,781)         (91,781)
   Dividends declared on preferred stock                                                    (5,612)          (5,612)
   Stock option appreciation                                                                  (257)            (257)
   Capital stock expense                                           (1)                                           (1)
---------------------------------------------------------------------------------------------------------------------

Balance at September 30, 2000              $ 2,168,054      $ 334,030             --     $ 769,991      $ 3,272,075
---------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1998               $ 2,168,054      $ 334,031       $ 39,462     $ 793,625      $ 3,335,172
---------------------------------------------------------------------------------------------------------------------

   Net income                                                                              363,091          363,091
   Unrealized gain on securities                                              43,493                         43,493
      Tax effect                                                             (18,717)                       (18,717)
   Reclassified adjustment for gain included in net income                   (77,206)                       (77,206)
      Tax effect                                                              31,307                         31,307
   Dividends declared on common stock                                                     (549,138)        (549,138)
   Dividends declared on preferred stock                                                   (20,253)         (20,253)
   Stock option appreciation                                                                (1,950)          (1,950)
   Capital stock expense                                          983                                           983
---------------------------------------------------------------------------------------------------------------------

Balance at September 30, 1999              $ 2,168,054      $ 335,014       $ 18,339     $ 585,375      $ 3,106,782
---------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1999               $ 2,168,054      $ 335,038       $ 21,551     $ 608,453      $ 3,133,096
---------------------------------------------------------------------------------------------------------------------

   Net income                                                                              457,186          457,186
   Unrealized gain on securities                                               8,056                          8,056
      Tax effect                                                              (5,120)                        (5,120)
   Reclassified adjustment for gain
      included in net income                                                 (41,190)                       (41,190)
      Tax effect                                                              16,703                         16,703
   Dividends declared on common stock                                                     (278,522)        (278,522)
   Dividends declared on preferred stock                                                   (15,831)         (15,831)
   Stock option appreciation                                                                (1,296)          (1,296)
   Capital stock expense and other                                                               1                1
   Reacquired capital stock expense                          (1,008)                                         (1,008)
---------------------------------------------------------------------------------------------------------------------

Balance at September 30, 2000              $ 2,168,054      $ 334,030    $        --     $ 769,991      $ 3,272,075
---------------------------------------------------------------------------------------------------------------------
</TABLE>


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


                                       5
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY
In thousands
<TABLE>
<CAPTION>

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

<S>                                        <C>            <C>               <C>          <C>            <C>
Balance at September 30, 1998              $ 2,168,054    $ 334,031         $ 38,834     $ 819,941      $ 3,360,860
---------------------------------------------------------------------------------------------------------------------

   Net income                                                                              484,114          484,114
   Unrealized gain on securities                                              59,427                         59,427
      Tax effect                                                             (16,187)                       (16,187)
   Reclassified adjustment for gain
      included in net income                                                (107,208)                      (107,208)
      Tax effect                                                              43,473                         43,473
   Dividends declared on common stock                                                     (690,282)        (690,282)
   Dividends declared on preferred stock                                                   (25,865)         (25,865)
   Stock option appreciation                                                                (2,533)          (2,533)
   Capital stock expense                                        983                                             983
---------------------------------------------------------------------------------------------------------------------

Balance at September 30, 1999              $ 2,168,054    $ 335,014       $   18,339     $ 585,375      $ 3,106,782
---------------------------------------------------------------------------------------------------------------------

   Net income                                                                              603,516          603,516
   Unrealized gain on securities                                              10,377                         10,377
      Tax effect                                                              (4,208)                        (4,208)
   Reclassified adjustment for gain
      included in net income                                                 (41,225)                       (41,225)
      Tax effect                                                              16,717                         16,717
   Dividends declared on common stock                                                     (395,268)        (395,268)
   Dividends declared on preferred stock                                                   (21,467)         (21,467)
   Stock option appreciation                                                                (2,165)          (2,165)
   Capital stock expense                                       (984)                                           (984)
---------------------------------------------------------------------------------------------------------------------

Balance at September 30, 2000              $ 2,168,054    $ 334,030      $        --     $ 769,991      $ 3,272,075
---------------------------------------------------------------------------------------------------------------------
</TABLE>


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




    The accompanying notes are an integral part of these financial statements


                                       6
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

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

                                              3 Months Ended             9 Months Ended          12 Months Ended
                                               September 30,              September 30,           September 30,
-------------------------------------------------------------------------------------------------------------------
                                             2000         1999        2000         1999        2000         1999
-------------------------------------------------------------------------------------------------------------------

Cash flows from operating activities:
<S>                                       <C>          <C>         <C>          <C>         <C>           <C>
Net income                                $ 177,294    $ 168,551   $ 457,186    $ 363,091   $ 603,516     $ 484,114
Adjustments for non-cash items:
   Depreciation, decommissioning and
      amortization                          415,029      413,760   1,162,171    1,177,744   1,532,164     1,586,700
   Other amortization                        24,671       26,295      75,162       69,419     100,803        95,426
   Deferred income taxes and
      investment tax credits                232,649      (81,249)    124,831      (14,233)    316,663        31,946
   Other long-term liabilities               22,833       22,511      57,305      103,822     (15,405)       55,001
   Regulatory balancing
      accounts - long-term               (1,450,566)    (424,415) (1,994,045)    (888,681) (2,458,933)     (849,088)
   Unrealized loss (gain) on gas
      call options                         (155,002)      (5,227)   (240,281)        (269)   (240,322)       16,559
   Other - net                                   12      (12,951)      8,248      (38,980)    (29,344)      (29,922)
Changes in working capital:
   Receivables                             (104,643)    (236,671)   (221,716)    (186,417)     63,670       (32,686)
   Regulatory balancing accounts            510,278      150,579     906,617      159,861   1,109,826      (120,977)
   Fuel inventory, materials and supplies    14,030       (2,060)     20,924       (3,656)     19,283           755
   Prepayments and other current assets    (110,282)    (112,281)    (49,334)     (37,759)    (30,734)       (2,583)
   Accrued interest and taxes               (55,251)     259,377      57,982      304,555    (432,093)      170,501
   Accounts payable and other
      current liabilities                   495,721      430,448     651,608      431,883     572,214       172,646
-------------------------------------------------------------------------------------------------------------------

Net cash provided by operating activities    16,773      596,667   1,016,658    1,440,380   1,111,308     1,578,392
-------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
Long-term debt issued                       218,000      135,300     465,698      490,840     465,698       490,840
Long-term debt repaid                            --     (145,410)   (325,000)    (362,872)   (325,000)     (532,872)
Rate reduction notes repaid                 (61,809)     (58,520)   (174,989)    (178,280)   (243,009)     (268,801)
Funds held in trust                        (219,400)          --    (219,400)          --    (219,400)           --
Nuclear fuel financing - net                 15,786      (13,828)     (6,137)     (22,844)    (20,580)        4,878
Short-term debt financing - net             420,961      197,888     480,330      135,438     671,315       499,223
Dividends paid                              (97,394)    (274,358)   (297,878)    (563,373)   (420,236)     (711,039)
-------------------------------------------------------------------------------------------------------------------

Net cash provided (used)
   by financing activities                  276,144     (158,928)    (77,376)    (501,091)    (91,212)     (517,771)
-------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
Additions to property and plant            (284,516)    (242,614)   (806,559)    (718,440) (1,073,742)   (1,031,267)
Funding of nuclear decommissioning trusts   (64,106)     (29,049)   (123,507)     (95,473)   (143,972)     (140,202)
Other - net                                    (357)     (10,797)     14,593       20,842      19,755        54,254
-------------------------------------------------------------------------------------------------------------------

Net cash used by investing activities      (348,979)    (282,460)   (915,473)    (793,071) (1,197,959)   (1,117,215)
-------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash
   and equivalents                          (56,062)     155,279      23,809      146,218    (177,863)      (56,594)
Cash and equivalents, beginning
   of period                                105,917       72,439      26,046       81,500     227,718       284,312
-------------------------------------------------------------------------------------------------------------------

Cash and equivalents, end of period      $   49,855    $ 227,718  $   49,855    $ 227,718  $   49,855     $ 227,718
-------------------------------------------------------------------------------------------------------------------

Cash payments for interest and taxes:
Interest - net of amounts capitalized    $   91,792   $   98,112   $ 236,965    $ 215,425   $ 308,492     $ 261,681
Taxes                                        90,379       92,616     293,317       92,628     633,313       171,533
</TABLE>


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


                                       7
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1.    Summary of Significant Accounting Policies

Nature of Operations

Southern California Edison Company (SCE) is a rate-regulated electric utility
which supplies electric energy for nearly 4.4 million customers in central,
coastal and southern California. SCE also produces electricity. All power
generated by SCE is sold through the California Power Exchange (PX) and the
California Independent System Operator (ISO) and delivered by SCE to its
customers. Utility rate-regulation is changing as California transitions toward
a more competitive utility environment.

Basis of Presentation

SCE's accounting policies conform with accounting principles generally accepted
in the United States, including the accounting principles for rate-regulated
enterprises which reflect the rate-making policies of the California Public
Utilities Commission (CPUC) and the Federal Energy Regulatory Commission (FERC).
SCE accounts for its investment in generation facilities in accordance with
accounting principles applicable to enterprises in general since 1997.
Application of such accounting principles to the generation assets did not
result in any adjustment of their carrying value.

The consolidated financial statements include SCE and its subsidiaries.
Intercompany transactions have been eliminated. Certain prior-period amounts
were reclassified to conform to the September 30, 2000, financial statement
presentation.

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

Estimates

Financial statements prepared in compliance with accounting principles generally
accepted in the United States require management to make estimates and
assumptions that affect the amounts reported in the financial statements and
disclosure of contingencies. Actual results could differ from those estimates.
Certain significant estimates related to regulatory matters, decommissioning and
contingencies are further discussed in Regulation of Utility Business and
Regulatory Assets and Liabilities (Note 1) and in Notes 2, 10 and 11 to the
Consolidated Financial Statements.

Cash Equivalents

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

Fuel Inventory

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

Revenue

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


                                       8
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investments

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

All investments are classified as available-for-sale.

Regulation of Utility Business

SCE, which is subject to rate-regulation by the CPUC and the FERC, 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 has changed over recent years and
continues to change as California moves toward a more competitive climate.

SCE's rates are unbundled into separate charges for energy, transmission,
distribution, the non-bypassable competition transition charge (CTC), public
benefit programs and nuclear decommissioning. The transmission component is
being collected through FERC-approved rates. Revenue related to distribution
operations is being determined through a performance-based rate-making
mechanism, and the distribution assets have the opportunity to earn a
CPUC-authorized 9.49% return on investment. Revenue related to SCE's
hydroelectric plants is also being recovered through a performance-based
mechanism. This mechanism sets the hydroelectric revenue requirement and
establishes a formula for extending it through the duration of the electric
industry restructuring transition period (not later than March 31, 2002), or
until market valuation of the hydroelectric facilities, whichever occurs first.
(See Hydroelectric Market Value Filing discussion in Note 2.) Revenue from
hydroelectric facilities in excess of the hydroelectric revenue requirement is
credited against the costs to transition to a competitive market and accumulated
in the transition cost balancing account (TCBA). Nuclear decommissioning costs
are being recovered through a CPUC-authorized non-bypassable charge.

California law and regulation provide SCE the opportunity to recover its
transition costs through the TCBA mechanism. There are three sources of revenue
available to SCE for transition cost recovery: CTC revenue, revenue from the
sale or valuation of generation assets in excess of book values, and net market
revenue from sale of SCE-controlled generation into the ISO and PX markets. CTC
revenue is determined residually (i.e., CTC revenue is the residual amount
remaining from monthly gross customer revenue under the rate freeze after
subtracting the revenue requirements for transmission, distribution, nuclear
decommissioning and public benefit programs, and ISO payments and power
purchases from the PX and ISO). Since May 2000, SCE has received insufficient
revenue from customers under frozen rates to cover all costs of providing
service. The amount by which this revenue is insufficient to cover costs is
recorded as an undercollection in the transition revenue account (TRA). This
undercollection was due to unusually high PX and ISO market prices. Under
existing CPUC decisions, SCE may carry over TRA undercollections, and recover
such undercollections from future CTC revenue until the end of the rate freeze
(not later than March 31, 2002). In past decisions, the CPUC has denied SCE
requests to allow recovery of such undercollections after the end of the rate
freeze. The CPUC has also stated that overcollections in the TCBA at the end of
the rate freeze will be refunded to customers. See detailed discussion of the
TRA in Note 2.

A portion of the stranded costs (SCE's generation-related assets and
obligations) that residential and small commercial customers would have paid
between 1998 and 2001 has been financed by the issuance of rate reduction notes,
allowing SCE to reduce rates by at least 10% to these customers, effective
January 1, 1998. The notes allow for the rate reduction by lowering the carrying
cost on a portion of the transition costs and by deferring recovery of a portion
of these transition costs until after the transition period.


                                       9
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Since April 1, 1998, SCE has been selling all of its electric generation through
the PX and ISO and scheduling delivery through the ISO, as mandated by the
CPUC's 1995 restructuring decision. By purchasing wholesale electricity through
the PX and ISO, SCE satisfies the electric energy needs of customers who did not
choose an alternative energy provider. These transactions are reported as
"Purchased power - PX/ISO - net."

Transactions through the PX and ISO were:
<TABLE>
<CAPTION>

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

     In millions                              2000        1999        2000        1999        2000        1999
--------------------------------------------------------------------------------------------------------------

<S>                                        <C>          <C>        <C>         <C>         <C>         <C>
     Purchases                             $ 3,079      $  880     $ 5,120     $ 1,747     $ 5,863     $ 2,326
     Generation sales                        2,019         565       3,737       1,208       4,248       1,564
--------------------------------------------------------------------------------------------------------------

     Purchased power - PX/ISO - net        $ 1,060      $  315     $ 1,383    $    539     $ 1,615    $    762
--------------------------------------------------------------------------------------------------------------
</TABLE>

The CPUC regulates SCE's capital structure, limiting the dividends it may pay
Edison International. At September 30, 2000, SCE had the capacity to pay $411
million in additional dividends and continue to maintain its authorized capital
structure.

Regulatory Balancing Accounts

The difference between certain generation-related revenue and generation-related
costs is being accumulated in the TCBA. Additionally, gains resulting from the
sale of 12 of SCE's generating plants during 1998 were credited to the TCBA; the
losses are being amortized over the remaining transition period and accumulated
in the TCBA. These transition costs are being recovered from utility customers
(with interest) through the CTC mechanism during the transition period.

In June 2000, SCE credited the TCBA for the estimated excess of the market value
over book value of its hydroelectric generation assets and simultaneously
recorded the same amount in the generation asset balancing account (GABA),
pursuant to a CPUC decision. This balance will remain in GABA until final market
valuation of the hydroelectric generation assets. If there is a difference in
the final market valuation, it will be credited to or recovered from customers
through the TCBA mechanism.

The coal and hydroelectric generation balancing accounts track the differences
between market revenue from coal and hydroelectric generation and the plants'
operating costs after April 1, 1998. Overcollections will be credited to the
TCBA; undercollections will be charged to shareholders.

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

Regulatory Assets and Liabilities

In accordance with accounting principles for rate-regulated enterprises, SCE
records regulatory assets, which represent probable future revenue associated
with certain costs that will be recovered from customers through the rate-making
process, and regulatory liabilities, which represent probable future reductions
in revenue associated with amounts that are to be credited to customers through
the rate-making process. SCE's discontinuance of the application of accounting
principles for rate-regulated

                                       10
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

enterprises to its generation assets did not result in a write-off of its
generation-related regulatory assets since the CPUC has approved recovery of
these assets through the TCBA mechanism.

Regulatory assets and liabilities included in the consolidated balance sheets
are:
<TABLE>
<CAPTION>

                                                               September 30,     December 31,      September 30,
       In millions                                                   2000             1999              1999
-------------------------------------------------------------------------------------------------------------------

       Generation-related:
<S>                                                               <C>                <C>             <C>
       Unamortized nuclear investment - net                       $   783            $ 1,366         $ 1,565
       Flow-through taxes                                             221                414             470
       Unamortized loss on sale of plant                               76                122             137
       Purchased-power settlements                                    458                531             301
       Transition-related balancing accounts:
          TCBA                                                       (159)             1,172             925
          GABA                                                        510                 --              --
          Coal and hydro balancing accounts                          (807)              (128)            (73)
       Other - net                                                     41                 47              48
-------------------------------------------------------------------------------------------------------------------

       Subtotal                                                     1,123              3,524           3,373
-------------------------------------------------------------------------------------------------------------------

       Rate reduction notes - transition cost deferral              1,001                707             619
-------------------------------------------------------------------------------------------------------------------

       TRA                                                          2,358                 --              --
-------------------------------------------------------------------------------------------------------------------

       Other:
       Flow-through taxes                                             960                859             883
       Unamortized loss on reacquired debt                            277                295             301
       Environmental remediation                                       52                111             114
       Regulatory balancing accounts and other                       (108)               (36)            (18)
-------------------------------------------------------------------------------------------------------------------

       Subtotal                                                     1,181              1,229           1,280
-------------------------------------------------------------------------------------------------------------------

       Total                                                      $ 5,663            $ 5,460         $ 5,272
-------------------------------------------------------------------------------------------------------------------
</TABLE>

Generation-related regulatory assets and liabilities are being recovered through
transition cost recovery mechanisms. The regulatory asset related to the rate
reduction notes will be recovered over the terms of the rate reduction notes.
The TRA balance consists of the undercollection arising from costs exceeding
revenue from frozen rates (due to unusually high PX and ISO market prices). SCE
has filed an application with the CPUC seeking authority to recover the TRA
balance after the end of the rate freeze. The other regulatory assets and
liabilities are being recovered through other components of the unbundled rates.

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

There are many factors that affect SCE's ability to recover its transition costs
and its TRA undercollections. Based on valuations of generating assets that have
been filed with the CPUC, SCE believes it is probable that it will be able to
recover its stranded costs that are recorded in the TCBA. SCE also believes it
is probable that SCE will be able to recover its costs that are recorded as
undercollections in the TRA. Recovery of SCE's TRA undercollections, however,
depends on favorable regulatory actions as described in Note 2, as well as other
factors such as weather conditions, market prices of gas and electricity, levels
of sales and economic conditions. At any time that all or a portion of the
existing TRA undercollections are not deemed to be probable of recovery, the
undercollections or a portion thereof must


                                       11
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

be charged to earnings. Thereafter, any further undercollections not probable of
recovery would also be charged to earnings.

Nuclear

SCE is recovering its investments in San Onofre Nuclear Generating Station Units
2 and 3 and Palo Verde Nuclear Generating Station on an accelerated basis, as
authorized by the CPUC. The accelerated recovery will continue through December
2001, earning a 7.35% fixed rate of return on investment. San Onofre's operating
costs, including nuclear fuel and nuclear fuel financing costs, and incremental
capital expenditures, 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. Palo Verde's 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 the
earlier of December 31, 2001, or the date when the rate freeze ends.

The San Onofre and Palo Verde rate recovery plans and the Palo Verde balancing
account are part of the TCBA. The benefits of operation of the San Onofre units
will be shared equally with ratepayers beginning in 2004. Palo Verde's 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. SCE has entered into an agreement to sell its investment in Palo Verde
(see further discussion in Note 2).

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 3.6%, 3.5% and 3.6%
for the three, nine and twelve months ended September 30, 2000, respectively,
and 3.4%, 3.6% and 3.8% for the three, nine and twelve months ended September
30, 1999, respectively.

SCE's net investment in generation-related utility plant was approximately $1
billion at September 30, 2000, December 31, 1999, and September 30, 1999.

Note 2.    Regulatory Matters

Generating Plant Divestiture

In October 1999, SCE filed an application with the CPUC to approve an auction
process to sell its 56% interest in Mohave Generating Station. In April 2000,
the CPUC approved the auction process and in May 2000, SCE agreed to sell its
interest in Mohave to AES Corporation for approximately $533 million. The
transaction is subject to approval by the CPUC and various federal regulatory
agencies. In June 2000, SCE submitted a compliance filing with the CPUC, seeking
approval of the auction results and the sale to AES. In response to the Utility
Workers Union of America's (UWUA) opposition to the sale and its motion to
intervene, a CPUC administrative law judge (ALJ) has indicated that he will
recommend to the

                                       12
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CPUC that consideration of the sale be deferred until the CPUC's ongoing
investigation of the current problems in the California electricity markets is
completed. SCE expects the sale to close in 2001, if approved by the CPUC on a
timely basis.

In April 2000, SCE agreed to sell its 15.8% interest in Palo Verde and its 48%
interest in Four Corners Generating Station to Pinnacle West Energy for $550
million, subject to certain adjustments. The sale of assets at Palo Verde will
be accompanied by an assignment of SCE's interest in the related decommissioning
fund. The transaction is subject to the approval of the CPUC, the Nuclear
Regulatory Commission, the FERC and other state and federal entities, and to the
receipt of a favorable ruling from the Internal Revenue Service. The Utility
Reform Network (TURN) and the UWUA have filed a motion with the CPUC
recommending that the CPUC reject the sale and require SCE to retain these
generating assets. The CPUC's Office of Ratepayer Advocates has supported this
motion. The CPUC has not ruled on the motion. Evidentiary hearings are scheduled
for February 2001. Until the end of November 2000, competing offers may be
solicited by SCE, subject to certain conditions, and any superior offers
obtained are subject to matching rights by Pinnacle West Energy. The transaction
is expected to close by the end of 2001, if approved by the CPUC on a timely
basis.

Proceeds from the sales of these assets will be credited to the TCBA and applied
toward transition cost recovery. SCE has asked the CPUC for approval to credit
the TCBA and debit the GABA with the aggregate net gain in the pending sales as
soon as possible.

Hydroelectric Market Value Filing

In December 1999, SCE filed an application with the CPUC establishing a market
value for its hydroelectric generation-related assets at approximately $1.0
billion (almost twice the assets' book value) and proposing to retain and
operate the hydroelectric assets under a performance-based, revenue-sharing
mechanism. The application has broad-based support from labor, ratepayer and
environmental groups. If approved by the CPUC, SCE would be allowed to recover
an authorized, inflation-indexed operations and maintenance allowance, as well
as a reasonable return on capital investment. A revenue-sharing arrangement
would be activated if revenue from the sale of hydroelectricity exceeds or falls
short of the authorized revenue requirement. SCE would then refund 90% of the
excess revenue to ratepayers or recover 90% of any shortfalls from ratepayers. A
final CPUC decision is expected in 2001.

Transition Revenue Account

Due to higher than expected wholesale market prices for electricity, SCE began
accruing large undercollections in the TRA beginning in May 2000. On October 4,
2000, SCE filed an emergency petition with the CPUC for expedited modification
of the CPUC's earlier decisions that would prohibit SCE from recovering TRA
balances after the transition period. In its petition, SCE requested that the
CPUC modify its prior decisions and allow SCE to recover TRA undercollections
incurred during the statutory rate freeze period, over a reasonable period of
time after the end of the rate freeze. On October 17, 2000, the assigned CPUC
commissioner and a CPUC ALJ issued a ruling stating that they will consider the
TRA and TCBA rate-making mechanisms and adopt a schedule that permits a decision
by year-end.

On October 25, 2000, SCE filed a prehearing conference statement required by the
October 17 ruling. The statement proposed that the CPUC take four key actions:
support market reform, including providing more opportunities for utilities to
contract for longer term supplies of power, completing review of bilateral
contract proposals, and urging other agencies to help rectify the market
structure problems that have become apparent; confirm that utility companies
will be permitted to recover their reasonable procurement costs incurred on
behalf of customers; implement a post-freeze rate stabilization plan, including
a modest

                                       13
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

near-term energy rate increase in the interest of avoiding a much larger rate
increase in 2002 and thereafter; and promptly decide whether the CPUC is going
to permit the sale of the utilities' remaining generation assets. SCE also
proposed a schedule leading to adoption of a new rate plan effective January 1,
2001.

At the October 27, 2000, CPUC prehearing conference, the ALJ extended the date
for responses to SCE's emergency motions to November 9, 2000, and set the same
date for responses to a petition filed by TURN that argued for undercollected
electricity costs to be treated as if such costs were unrecovered transition
costs. The parties were also given until the same date to file specific
proposals relating to the TRA undercollections. The ALJ stated that the scope of
this phase of the proceeding is limited to changes in the applicable
CPUC-authorized accounting and rate-making mechanisms, and is not intended to
address before the end of this year the question of whether prior CPUC decisions
should be modified to permit carryover of TRA undercollections past the end of
the rate freeze.

On November 1, 2000, the assigned CPUC commissioner issued a ruling confirming
that the proceeding will explore interim accounting and rate-making measures
that the CPUC can adopt by year-end. The ruling also stated that the assigned
commissioner will prepare an order instituting investigation for consideration
at the CPUC's December 21, 2000, meeting, which will allow the CPUC to consider
alternative ways of handling the residual cash flow problems from large TRA
undercollections that have not otherwise been resolved through CPUC accounting
and rate-making mechanisms.

On November 9, 2000, SCE filed with the CPUC its comments in response to the
assigned commissioner's ruling. SCE stated that there are no accounting and
rate-making mechanisms that will correct the problem of wholesale power
procurement costs exceeding revenue from frozen retail rates, and the only real
solution is to increase rates. However, as a mitigation measure, SCE proposed
that overcollections in the TCBA at the time new rates would go into effect,
that otherwise would be refunded, should be used to reduce TRA undercollections.
In the filing, SCE also opposed TURN's petition as being unlawful. On the same
date, SCE filed with the CPUC a request for approval to credit the TCBA (and
debit the GABA) as soon as possible with the aggregate net gain on the pending
sales of the Mohave, Four Corners and Palo Verde generating plants, which would
have the effect of substantially accelerating the end of SCE's statutory rate
freeze. Based on the valuations for those plants filed by SCE with the CPUC,
SCE's utility-owned transition costs were fully recovered no later than August
31, 2000.

SCE cannot predict what actions the CPUC will finally take in proceedings
described above or their financial impact on SCE. However, any actions that make
all or part of the TRA undercollections not probable of recovery would require
SCE to charge the TRA undercollections or a portion thereof to earnings under
generally accepted accounting principles and could have a material adverse
effect on SCE's financial condition and results of operations.

Wholesale Electricity Markets

On October 16, 2000, SCE filed a joint petition urging the FERC to immediately
find the California wholesale electricity market to be not workably competitive,
immediately impose a cap on the price for energy, and institute further
expedited proceedings regarding the market failure, mitigation of market power,
structural solutions and responsibility for refunds.

On November 1, 2000, the FERC issued a report and proposed order proposing
remedies for California wholesale electric markets. The FERC found that the
California market structure and rules, with the imbalance of supply and demand,
provide the opportunity for sellers to exercise market power and have caused,
and have the potential to continue to cause, unjust and unreasonable rates.
However, the FERC also found that the record before them does not support
refunds from power sellers for periods prior to

                                       14
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 2, 2000, but that subsequent rates would be subject to refund through
December 31, 2002. The FERC proposed several immediate remedies and certain
longer term structural reforms. The FERC is taking comments on the proposed
order and said it will issue a final order by the end of 2000.

Note 3.    Financial Instruments

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 used the mark-to-market accounting method for its gas call options which
were used to mitigate SCE's transition cost recovery exposure to increases in
energy prices. Gains and losses from monthly changes in market prices were
recorded as income or expense. However, costs of the options and the market
price changes are included in the TCBA. As a result, the mark-to-market gains or
losses had no effect on earnings. In October 2000, SCE sold its gas call
options. The options covered various periods through 2001. The gains were
credited to the TCBA.

The PX block forward market allows SCE to purchase monthly blocks of energy and
ancillary services for six days a week (excluding Sundays and holidays) for 8 to
16 hours a day. Purchases from the PX forward markets can be made up to 12
months in advance of the delivery date. The CPUC has increased SCE's PX block
forward market participation limits to a maximum of 5,200 MW in summer months.
In April 2000, the CPUC approved SCE's request to begin a demand responsiveness
program that would allow customers to be paid to curtail their load during times
of very high PX energy prices. On August 3, 2000, the CPUC approved SCE's
request to enter into bilateral contracts for delivery of electricity.

SCE has purchased block forward energy contracts through the PX, with various
terms and prices, to hedge its exposure to fluctuations in energy prices. As of
September 30, 2000, these contracts had a nominal value of $203 million, and
cover a small portion of SCE's energy purchases through 2001.

Interest rate swaps are used to reduce the potential impact of interest rate
fluctuations on floating-rate long-term debt. At September 30, 2000, December
31, 1999, and September 30, 1999, SCE had an interest rate swap agreement which
fixed the interest rate at 5.585% for $196 million of debt due 2008. The swap
agreement 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 September 30, 2000, SCE had pledged $11 million as collateral
due to a decline in market interest rates. 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 obligation.

                                       15
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value of Financial Instruments

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

                                               September 30,            December 31,              September 30,
       In millions                                 2000                     1999                      1999
-------------------------------------------------------------------------------------------------------------------

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

       Financial assets:
<S>                                        <C>         <C>           <C>         <C>          <C>          <C>
       Decommissioning trusts              $ 1,774     $ 2,542       $ 1,650     $ 2,509      $ 1,630      $ 2,327
       Equity investments                       --          --            --          33           --           --
       Gas call options                         19         251            28          20           31           23

       Financial liabilities:
       DOE decommissioning and
          decontamination fees                  40          33            40          35          $45          $39
       Interest rate swap                       --          13            --          13           --           14
       Long-term debt                        4,807       4,653         5,137       5,044        5,222        5,214
       Preferred stock subject to
          mandatory redemption                 256         250           256         259          256          261

-------------------------------------------------------------------------------------------------------------------
</TABLE>

Financial assets are carried at their fair value based on quoted market prices
for decommissioning trusts, equity investments and 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 and preferred stock; and discounted future cash flows for U.S. Department
of Energy (DOE) decommissioning and decontamination fees. Due to their short
maturities, amounts reported for cash equivalents and short-term debt
approximate fair value.

Gross unrealized holding gains on debt and equity investments were:
<TABLE>
<CAPTION>

                                                        September 30,       December 31,      September 30,
       In millions                                          2000                1999              1999
------------------------------------------------------------------------------------------------------------
       Decommissioning trusts:
<S>                                                       <C>                 <C>                <C>
       Municipal bonds                                    $  202              $  239             $  179
       Stocks                                                383                 454                348
       U.S. government issues                                126                 119                133
       Short-term and other                                   57                  47                 37
------------------------------------------------------------------------------------------------------------
                                                             768                 859                697
       Equity investments                                     --                  33                 --
------------------------------------------------------------------------------------------------------------
       Total                                              $  768              $  892             $  697
------------------------------------------------------------------------------------------------------------
</TABLE>

There were no unrealized holding losses for the periods presented.

In June 1998, a new accounting standard for derivative instruments and hedging
activities was issued. SCE will be required to implement the new standard, as
amended, on January 1, 2001, which requires all derivatives to be recognized on
the balance sheet at fair value. Gains or losses from changes in fair value
would be recognized in earnings in the period of change unless the derivative is
designated as a hedging instrument. Gains or losses from hedges of a forecasted
transaction or foreign currency exposure would be reflected in other
comprehensive income. Gains or losses from hedges of a recognized asset or
liability or a firm commitment would be reflected in earnings for the
ineffective portion of the hedge. SCE anticipates that most of its derivatives
under the new standard would qualify for hedge accounting.

                                       16
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SCE expects to recover in rates any market price changes from its derivatives
that could potentially affect earnings. Accordingly, implementation of this new
standard is not expected to affect earnings.

Note 4.    Long-Term Debt

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

Almost all SCE properties are subject to a trust indenture lien to secure SCE's
first and refunding mortgage bonds. SCE has issued such bonds in the past to
fund construction expenditures and for other corporate purposes. SCE also 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.

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

Long-term debt maturities and sinking-fund requirements for the five
twelve-month periods following September 30, 2000, are: 2001 - $647 million;
2002 - $247 million; 2003 - $572 million; 2004 - $372 million; and 2005 - $247
million.

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

                                       17
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                                                          September 30,       December 31,       September 30,
         In millions                                          2000                1999               1999
----------------------------------------------------------------------------------------------------------------

         First and refunding mortgage bonds:
<S>                                                         <C>                 <C>                <C>
            2002 - 2026 (5.625% to 7.25%)                   $ 1,175             $ 1,400            $ 1,400
         Rate reduction notes:
           2001 - 2007 (6.17% to 6.42%)                       1,795               1,970              2,039
         Pollution control bonds:
            2008 - 2040 (5.125% to 7.2% and variable)         1,415               1,196              1,196
         Funds held by trustees                                (219)                 (2)                (2)
         Debentures and notes:
            2001 - 2029 (5.875% to 7.625%)                    1,150               1,000              1,000
         Subordinated debentures:
            2044 (8.375%)                                       100                 100                100
         Commercial paper for nuclear fuel                       64                  71                 85
         Long-term debt due within one year                    (647)               (571)              (568)
         Unamortized debt discount - net                        (26)                (27)               (28)
----------------------------------------------------------------------------------------------------------------
         Total                                              $ 4,807             $ 5,137            $ 5,222
----------------------------------------------------------------------------------------------------------------
</TABLE>

On November 8, 2000, SCE issued $1.0 billion of 7.20% variable rate notes. These
notes have a stated maturity of November 2003, but may be redeemed at the option
of SCE, in whole or in part, at any time at a make-whole price.

Also, on November 8, 2000, SCE issued $300 million of floating rate notes due in
May 2002. The interest rate on these notes is reset quarterly. These floating
rate notes may not be redeemed prior to maturity.

Note 5.    Short-Term Debt

SCE has lines of credit totaling $1.65 billion with $336 million available for
commercial paper borrowings and $550 million available for the refinancing of
certain variable-rate pollution control debt. The lines can be drawn at
negotiated or bank index rates.

Short-term debt is used to finance fuel inventories, balancing account
undercollections and general cash requirements, including PX payments.
Commercial paper intended to finance nuclear fuel scheduled to be used more than
one year after the balance sheet date is classified as long-term debt in
connection with refinancing terms under five-year term lines of credit with
commercial banks. Weighted-average interest rates were 6.7%, 5.3% and 5.5% at
September 30, 2000, December 31, 1999, and September 30, 1999, respectively.

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

                                                    September 30,      December 31,        September 30,
         In millions                                    2000               1999                1999
---------------------------------------------------------------------------------------------------------
<S>                                                 <C>                   <C>                <C>
         Commercial paper                           $    764              $  696             $  695
         Bid loans                                       350                  --                 --
         Floating rate notes                             175                 175                 --
         Commercial notes                                 60                  --                 --
         Amount reclassified as long-term debt           (65)                (71)               (85)
         Unamortized discount                             (8)                 (4)                (5)
---------------------------------------------------------------------------------------------------------
         Total                                       $ 1,276              $  796             $  605
---------------------------------------------------------------------------------------------------------
</TABLE>

                                       18
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SCE is arranging additional bank credit facilities to finance current and
expected balancing account undercollections and other operating requirements.
SCE recently obtained a commitment from lenders to provide a 364-day credit
facility up to $1 billion, which would replace existing facilities totaling $600
million. The commitment is subject to documentation and other conditions.

Note 6.    Preferred Stock

Authorized shares of preferred and preference stock are: $25 cumulative
preferred - 24 million; $100 cumulative preferred - 12 million; and preference -
50 million. All cumulative preferred stocks are redeemable. Mandatorily
redeemable preferred stocks are subject to sinking-fund provisions. When
preferred shares are redeemed, the premiums paid are charged to common equity.

Preferred stock redemption requirements for the five twelve-month periods
following September 30, 2000, are: 2001 - zero; 2002 - $105 million; 2003 - $9
million; 2004 - $9 million; and 2005 - $9 million.

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

                                                                  September 30,     December 31,      September 30,
Dollars in millions, except per share amounts                          2000             1999               1999
-------------------------------------------------------------------------------------------------------------------

                                            September 30, 2000
                                    -------------------------------
                                         Shares       Redemption
                                    Outstanding             Price
                                    --------------    -------------

Not subject to mandatory redemption:
$25 par value:
<S>                                   <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
-------------------------------------------------------------------------------------------------------------------
Total                                                               $ 129            $ 129             $ 129
-------------------------------------------------------------------------------------------------------------------

Subject to mandatory redemption:
$100 par value:
6.05% Series                            750,000        $ 100.00    $   75           $   75            $   75
6.45                                  1,000,000          100.00       100              100               100
7.23                                    807,000          100.00        81               81                81
-------------------------------------------------------------------------------------------------------------------
Total                                                               $ 256            $ 256             $ 256
-------------------------------------------------------------------------------------------------------------------
</TABLE>

Note 7.    Income Taxes

SCE and its subsidiaries are 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.


                                       19
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                                                           September 30,       December 31,       September 30,
In millions                                                    2000                1999               1999
---------------------------------------------------------------------------------------------------------------

Deferred tax assets:
<S>                                                         <C>                 <C>                <C>
Property related                                            $   193             $   184            $   196
Unrealized gains and losses - decommissioning                   436                 453                408
Investment tax credits                                           90                 113                133
Regulatory balancing accounts                                    94                  67                133
Decommissioning related                                         103                 127                129
Fixed costs                                                     311                 247                211
Unbilled revenue                                                187                 122                124
Other                                                            80                  92                185
---------------------------------------------------------------------------------------------------------------
Total                                                       $ 1,494             $ 1,405            $ 1,519
---------------------------------------------------------------------------------------------------------------

Deferred tax liabilities:
Property related                                            $ 2,345             $ 2,629            $ 2,685
Capitalized software costs                                      251                 225                236
Regulatory balancing accounts                                 1,179                 448                434
Unrealized gains and losses - decommissioning                   333                 351                306
Other                                                           200                 502                484
---------------------------------------------------------------------------------------------------------------
Total                                                       $ 4,308             $ 4,155            $ 4,145
---------------------------------------------------------------------------------------------------------------
Accumulated deferred income taxes - net                     $ 2,814             $ 2,750            $ 2,626
---------------------------------------------------------------------------------------------------------------
Classification of accumulated deferred income taxes:
Included in deferred credits                                $ 3,360             $ 2,938            $ 2,769
Included in current assets                                      546                 188                143
</TABLE>


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

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

                                               2000         1999       2000         1999        2000        1999
-------------------------------------------------------------------------------------------------------------------

Current:
<S>                                           <C>          <C>        <C>          <C>         <C>         <C>
Federal                                       $ (48)       $ 199      $ 235        $ 263       $ 271       $ 261
State                                           (13)          52         56           69          66          70

-------------------------------------------------------------------------------------------------------------------
                                                (61)         251        291          332         337         331
-------------------------------------------------------------------------------------------------------------------
Deferred - federal and state:
Accrued charges                                 (17)         (54)       (66)         (38)       (103)        (57)
Contributions in aid of construction             (5)          (5)        (6)          (5)        (11)         (8)
Property related                                (46)         (52)      (139)        (148)       (185)       (211)
Investment and energy tax credits - net         (10)         (11)       (31)         (32)        (43)        (85)
Regulatory asset amortization                    11           10         25           22           9          33
Regulatory balancing accounts                   363           61        397          198         570         339
State tax privilege year                          4          (17)         7           10           4          10
Unbilled revenue                                (70)         (21)       (65)          (7)        (63)         23
Nonqualified decommissioning withdrawals          6            1         12            2          15           2
Other                                            (5)          (7)         2           (4)          5         (10)
-------------------------------------------------------------------------------------------------------------------
                                                231          (95)       136           (2)        198          36
-------------------------------------------------------------------------------------------------------------------
Total income tax expense                      $ 170        $ 156      $ 427        $ 330       $ 535       $ 367
-------------------------------------------------------------------------------------------------------------------
Classification of income taxes:
Included in operating income                  $ 174        $ 154      $ 432        $ 319       $ 564       $ 369
Included in other income                         (4)           2         (5)          11         (29)         (2)
</TABLE>


                                       20
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

                                              2000        1999         2000        1999        2000         1999
-------------------------------------------------------------------------------------------------------------------

<S>                                            <C>        <C>           <C>        <C>          <C>         <C>
Federal statutory rate                         35.0%      35.0%         35.0%      35.0%        35.0%       35.0%
Capitalized software                           (0.8)      (4.3)         (0.8)      (2.7)        (1.0)       (2.8)
Property-related and other                      6.8        8.8           7.0        8.3          7.9         8.2
Investment and energy tax credits              (3.0)      (3.2)         (3.5)      (4.5)        (3.7)       (9.7)
Regulatory asset amortization                   2.6        2.7           2.4        2.8          0.7         3.5
State tax - net of federal deduction            8.3        8.9           8.0        8.5          8.0         8.7
-------------------------------------------------------------------------------------------------------------------

Effective tax rate                             48.9%      47.9%         48.1%      47.4%        46.9%       42.9%
-------------------------------------------------------------------------------------------------------------------
</TABLE>

Note 8.    Employee Compensation and Benefit Plans

Employee Savings Plan

SCE has a 401(k) defined contribution savings plan designed as a source of
employees' retirement income. The plan received employer contributions of $8
million, $23 million and $29 million for the three-, nine- and twelve-month
periods ended September 30, 2000, respectively, and $6 million, $18 million and
$23 million for the three-, nine- and twelve-month periods ended September 30,
1999, respectively.

Pension Plan

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

                                       21
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                                                        9 Months Ended         Year Ended         9 Months Ended
                                                         September 30,        December 31,         September 30,
In millions                                                  2000                 1999                 1999
-------------------------------------------------------------------------------------------------------------------

Change in benefit obligation
<S>                                                       <C>                  <C>                  <C>
Benefit obligation at beginning of period                 $ 2,075              $ 2,251              $ 2,251
Service cost                                                   48                   66                   50
Interest cost                                                 117                  146                  114
Plan amendment                                                 --                  (22)                 (25)
Actuarial loss (gain)                                          --                 (224)                  --
Benefits paid                                                (142)                (142)                (105)
-------------------------------------------------------------------------------------------------------------------

Benefit obligation at end of period                       $ 2,098              $ 2,075              $ 2,285
-------------------------------------------------------------------------------------------------------------------

Change in plan assets
Fair value of plan assets at beginning of period          $ 3,078              $ 2,552              $ 2,552
Actual return on plan assets                                  204                  620                  241
Employer contributions                                         29                   48                   51
Benefits paid                                                (142)                (142)                (105)
-------------------------------------------------------------------------------------------------------------------

Fair value of plan assets at end of period                $ 3,169              $ 3,078              $ 2,739
-------------------------------------------------------------------------------------------------------------------

Funded status                                             $ 1,071              $ 1,003             $    454
Unrecognized net loss (gain)                               (1,012)              (1,018)                (463)
Unrecognized transition obligation                             25                   28                   30
Unrecognized prior service cost                               120                  132                  133
-------------------------------------------------------------------------------------------------------------------

Recorded asset                                           $    204             $    145             $    154
-------------------------------------------------------------------------------------------------------------------

Discount rate                                                7.75%                7.75%                6.75%
Rate of compensation increase                                5.0%                 5.0%                 5.0%
Expected return on plan assets                               7.5%                 7.5%                 7.5%
</TABLE>


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

                                              3 Months Ended          9 Months Ended             12 Months Ended
In millions                                    September 30,           September 30,              September 30,
-------------------------------------------------------------------------------------------------------------------
                                              2000        1999        2000        1999          2000        1999
-------------------------------------------------------------------------------------------------------------------

<S>                                          <C>         <C>         <C>         <C>           <C>         <C>
Service cost                                 $  16       $  16       $  48       $  50         $  64       $  67
Interest cost                                   39          38         117         114           149         150
Expected return on plan assets                 (57)        (48)       (171)       (144)         (215)       (179)
Net amortization and deferral                   (8)          2         (24)          7           (19)          9
-------------------------------------------------------------------------------------------------------------------
Pension expense (benefit) under
     accounting standards                      (10)          8         (30)         27           (21)         47
Regulatory adjustment - deferred                10           5          30          12            32           8
-------------------------------------------------------------------------------------------------------------------
Net pension expense recognized                $ --       $  13        $ --       $  39         $  11       $  55
-------------------------------------------------------------------------------------------------------------------
</TABLE>

Postretirement Benefits Other Than Pensions

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


                                       22
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                                                    9 Months Ended          Year Ended           9 Months Ended
                                                     September 30,         December 31,           September 30,
In millions                                              2000                  1999                   1999
-------------------------------------------------------------------------------------------------------------------

Change in benefit obligation
<S>                                                   <C>                   <C>                    <C>
Benefit obligation at beginning of period             $ 1,462               $ 1,545                $ 1,545
Service cost                                               27                    46                     33
Interest cost                                              87                   109                     78
Actuarial loss (gain)                                      --                  (185)                    --
Benefits paid                                             (45)                  (53)                   (45)
-------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of period                   $ 1,531               $ 1,462                $ 1,611
-------------------------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of period      $ 1,283               $ 1,029                $ 1,029
Actual return on plan assets                               69                   185                     57
Employer contributions                                     63                   122                     75
Benefits paid                                             (45)                  (53)                   (45)
-------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of period            $ 1,370               $ 1,283                $ 1,116
-------------------------------------------------------------------------------------------------------------------
Funded status                                        $   (161)             $   (179)              $   (495)
Unrecognized net loss (gain)                             (204)                 (207)                    84
Unrecognized transition obligation                        328                   349                    355
-------------------------------------------------------------------------------------------------------------------
Recorded asset (liability)                          $     (37)            $     (37)             $     (56)
-------------------------------------------------------------------------------------------------------------------
Discount rate                                             8.0%                  8.0%                  6.75%
Expected return on plan assets                            7.5%                  7.5%                  7.5%
</TABLE>

<TABLE>
<CAPTION>

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

                                             2000        1999        2000         1999         2000        1999
-------------------------------------------------------------------------------------------------------------------

<S>                                         <C>         <C>         <C>          <C>          <C>         <C>
Service cost                                $   9       $  11       $  27        $  33        $  40       $  47
Interest cost                                  29          26          87           78          118          99
Expected return on plan assets                (23)        (19)        (69)         (57)         (91)        (71)
Net amortization and deferral                   6           7          18           21           24          25
-------------------------------------------------------------------------------------------------------------------
Total expense                               $  21       $  25       $  63        $  75        $  91       $ 100
-------------------------------------------------------------------------------------------------------------------
</TABLE>

The assumed rate of future increases in the per-capita cost of health care
benefits is 11.75% for 2000, gradually decreasing to 5% for 2008 and beyond.
Increasing the health care cost trend rate by one percentage point would
increase the accumulated obligation as of September 30, 2000, by $238 million
and annual aggregate service and interest costs by $29 million. Decreasing the
health care cost trend rate by one percentage point would decrease the
accumulated obligation as of September 30, 2000, by $192 million and annual
aggregate service and interest costs by $23 million.

Stock Option Plans

In 1998, Edison International shareholders approved the Edison International
Equity Compensation Plan, replacing the Long-Term Incentive Compensation Program
(prior program), which had been adopted by shareholders in 1992. Under the prior
program, options on 1.6 million shares of Edison International common stock
remain outstanding to officers and senior managers of SCE. The 1998 plan
authorizes a limited annual award of Edison International common shares and
options on shares. The annual


                                       23
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

Under the 1998 and 2000 plans, options on 8.6 million shares of Edison
International common stock are currently outstanding to officers and senior
managers of SCE.

Each option may be exercised to purchase one share of Edison International
common stock, and is exercisable at a price equivalent to the fair market value
of the underlying stock at the date of grant. Options expire 10 years after date
of grant, and vest over a period of up to five years. Edison International stock
options awarded prior to 2000 include a dividend equivalent feature. Dividend
equivalents on stock options issued after 1993 are subject to reduction unless
certain performance criteria are met. The 2000 awards include performance shares
which are earned as a combination of Edison International common stock and cash.
Performance shares awarded in 2000 could result in the issuance of up to 258,000
shares of Edison International common stock. A special grant of stock options
only was awarded in May 2000 to officers and senior managers of SCE in lieu of
the regular option grants for 2001 and 2002. Performance share grants may still
be awarded in 2001 and 2002. No special stock option grant shares may be
exercised before five years have passed unless the stock price appreciates to
$25 (based on the average of 20 consecutive trading day closing prices).

The performance shares values are accrued ratably over a three-year performance
period. Performance shares are valued based on Edison International's stock
performance relative to the stock performance of other such entities comprising
the Dow Jones Electric Utility Index.

SCE measures compensation expense related to stock-based compensation by the
intrinsic value method. Compensation expense recorded under the
stock-compensation programs was $1 million, $2 million and $5 million for the
three, nine and twelve months ended September 30, 2000, respectively, and $2
million, $3 million and $5 million for the three, nine and twelve months ended
September 30, 1999, respectively.

Stock-based compensation expense under the fair-value method of accounting would
have resulted in pro forma net income available for common stock of $171
million, $439 million and $580 million for the three, nine and twelve months
ended September 30, 2000, respectively, and $160 million, $342 million and $458
million for the three, nine and twelve months ended September 30, 1999,
respectively.

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:

                                             12 Months Ended
                                               September 30,
-------------------------------------------------------------------------------

                                    2000                          1999
-------------------------------------------------------------------------------

 Expected life                   7-10 years                     7 years
 Risk-free interest rate         4.7% - 6.0%                  4.7% - 5.6%
 Expected volatility              17% - 38%                    17% - 18%
-------------------------------------------------------------------------------

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.

                                       24
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9.    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 September 30, 2000, was:
<TABLE>
<CAPTION>

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

-------------------------------------------------------------------------------------------------------------------
Transmission systems:
<S>                                              <C>                  <C>                <C>               <C>
   Eldorado                                      $      40            $     11           $    1            60%
   Pacific Intertie                                    230                  78                6            50%
Generating stations:
   Four Corners Units 4 and 5 (coal)                   459                 348                6            48%
   Mohave (coal)                                       327                 238                2            56%
   Palo Verde (nuclear)(1)                           1,621               1,337               16            16%
   San Onofre (nuclear)(1)                           4,267               3,646               17            75%
-------------------------------------------------------------------------------------------------------------------
Total                                            $   6,944            $  5,658           $   48
-------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Reported as "Unamortized nuclear investment - net."


Note 10.   Commitments

Leases

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

Estimated remaining commitments for noncancelable leases at September 30, 2000,
were:

         Year ended December 31,                                 In millions
-------------------------------------------------------------------------------
         2000                                                     $   4
         2001                                                        15
         2002                                                        11
         2003                                                        10
         2004                                                         8
         Thereafter                                                  17
-------------------------------------------------------------------------------
         Total                                                     $ 65
-------------------------------------------------------------------------------

Nuclear Decommissioning

Decommissioning is estimated to cost $2.1 billion in current-year dollars, based
on site-specific studies performed in 1998 for San Onofre and Palo Verde.
Changes in the estimated costs, timing of decommissioning, or the assumptions
underlying these estimates could cause material revisions to the estimated total
cost to decommission in the near term. SCE estimates that it will spend
approximately $8.6 billion through 2060 to decommission its nuclear facilities.
This estimate is based on SCE's current dollar decommissioning costs, escalated
at rates ranging from 0.3% to 10.0% (depending on the cost element) annually.
These costs are expected to be funded from independent decommissioning trusts,


                                       25
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

which, effective 1999, receive contributions of approximately $25 million per
year. SCE estimates annual after-tax earnings on the decommissioning funds of
3.9% to 4.9%.

SCE plans to decommission its nuclear generating facilities by a prompt removal
method authorized by the Nuclear Regulatory Commission. Decommissioning is
expected to begin after the plants' operating licenses expire. The operating
licenses expire in 2022 for San Onofre Units 2 and 3, and 2028 for Palo Verde.
Decommissioning costs, which are recovered through non-bypassable customer
rates, are recorded as a component of depreciation expense.

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

Decommissioning expense was $67 million, $128 million and $148 million for the
three, nine and twelve months ended September 30, 2000, respectively, and $34
million, $103 million and $149 million for the three, nine and twelve months
ended September 30, 1999, respectively. The accumulated provision for
decommissioning, excluding San Onofre Unit 1 and unrealized holding gains, was
$1.4 billion at September 30, 2000, and $1.3 billion at both December 31, 1999,
and September 30, 1999. The estimated cost recorded as a liability to
decommission San Onofre Unit 1 is approximately $354 million at September 30,
2000.

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

Trust investments (cost basis) include:
<TABLE>
<CAPTION>

                                       Maturity            September 30,    December 31,      September 30,
   In millions                           Dates                 2000             1999              1999
----------------------------------------------------------------------------------------------------------
<S>                                   <C>                  <C>              <C>               <C>
   Municipal bond                     2000 - 2033          $    629         $    684          $    571
   Stocks                                 --                    519              482               503
   U.S. government issues             2000 - 2030               413              351               447
   Short-term and other               2002 - 2040               213              133               109
----------------------------------------------------------------------------------------------------------
         Total                                              $ 1,774          $ 1,650           $ 1,630
----------------------------------------------------------------------------------------------------------
</TABLE>

Trust fund earnings (based on specific identification) increase the trust fund
balance and the accumulated provision for decommissioning. Net earnings were $47
million, $78 million and $87 million for the three, nine and twelve months ended
September 30, 2000, respectively, and $25 million, $49 million and $68 million
for the three, nine and twelve months ended September 30, 1999, respectively.
Proceeds from sales of securities (which are reinvested) were $1.0 billion, $3.5
billion and $4.3 billion for the three, nine and twelve months ended September
30, 2000, respectively, and $776 million, $1.8 billion and $2.1 billion for the
three, nine and twelve months ended September 30, 1999, respectively.
Approximately 90% of the trust fund contributions were tax-deductible.

Other Commitments

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

SCE has power-purchase contracts with certain qualifying facilities
(cogenerators and small power producers) and other utilities. These contracts
provide for capacity payments if a facility meets certain

                                       26
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

performance obligations and energy payments based on actual power supplied to
SCE. There are no requirements to make debt-service payments. As a result of the
utility industry restructuring, SCE has entered into purchased-power settlements
to end its contract obligations with certain qualifying facilities. The
settlements are reported as power purchase contracts. Settlement payments are
being recovered through the TCBA mechanism.

SCE has unconditional purchase obligations for part of a power plant's
generating output, as well as firm transmission service from another utility.
Minimum payments are based, in part, on the debt-service requirements of the
provider, whether or not the plant or transmission line is operable. SCE's
minimum commitment under both contracts is approximately $166 million through
2017. The purchased-power contract (approximately $30 million) is expected to
provide approximately 5.5% of current or estimated future operating capacity,
and is reported as power purchase contracts. The transmission service contract
requires a minimum payment of approximately $6 million a year.

Certain commitments for the years 2000 through 2004 are estimated below:
<TABLE>
<CAPTION>

         In millions                                        2000       2001       2002       2003       2004
--------------------------------------------------------------------------------------------------------------

<S>                                                      <C>        <C>          <C>        <C>        <C>
         Projected construction expenditures             $ 1,149    $ 1,072      $ 923      $ 905      $ 921
         Fuel supply contracts                               172        108        116        126        107
         Purchased-power capacity payments                   637        647        644        637        635
--------------------------------------------------------------------------------------------------------------
</TABLE>

Note 11.   Contingencies

In addition to the matters disclosed in these notes, SCE is involved in other
legal, tax and regulatory proceedings before various courts and governmental
agencies regarding matters arising in the ordinary course of business. SCE
believes the outcome of these 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, 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 44 identified sites
is $105 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 $269 million. The upper limit of this range of costs
was estimated using assumptions least favorable to SCE among a range of
reasonably


                                       27
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

possible outcomes. In 1998, SCE sold all of its gas- and oil-fueled generation
plants but has retained some liability associated with the divested properties.

The CPUC allows SCE to recover environmental-cleanup costs at certain sites,
representing $36 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 $70 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
$5 million to $15 million. Recorded costs for the twelve-month period ended
September 30, 2000, were $12 million.

Based on currently available information, SCE believes it is unlikely that it
will incur amounts in excess of the upper limit of the estimated range and,
based upon the CPUC's regulatory treatment of environmental-cleanup costs, SCE
believes that costs ultimately recorded will not materially affect its results
of operations or financial position. There can be no assurance, however, that
future developments, including additional information about existing sites or
the identification of new sites, will not require material revisions to such
estimates.

Nuclear Insurance

Federal law limits public liability claims from a nuclear incident to $9.5
billion. SCE and other owners of San Onofre and Palo Verde have purchased the
maximum private primary insurance available ($200 million). The balance is
covered by the industry's retrospective rating plan that uses deferred premium
charges to every reactor licensee if a nuclear incident at any licensed reactor
in the U.S. results in claims and/or costs which exceed the primary insurance at
that plant site. Federal regulations require this secondary level of financial
protection. The Nuclear Regulatory Commission exempted San Onofre Unit 1 from
this secondary level, effective June 1994. The maximum deferred premium for each
nuclear incident is $88 million per reactor, but not more than $10 million per
reactor may be charged in any one year for each incident. Based on its ownership
interests, SCE could be required to pay a maximum of $175 million per nuclear
incident. However, it would have to pay no more than $20 million per incident in
any one year. Such amounts include a 5% surcharge if additional funds are needed
to satisfy public liability claims and are subject to adjustment for inflation.
If the public liability limit above is insufficient, federal regulations may
impose further revenue-raising measures to pay claims, 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 by a mutual insurance company owned by
utilities with nuclear facilities. If losses at any nuclear facility covered by
the arrangement were to exceed the accumulated funds for these


                                       28
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

insurance programs, SCE could be assessed retrospective premium adjustments of
up to $19 million per year. Insurance premiums are charged to operating expense.

Spent Nuclear Fuel

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

SCE, as operating agent, has primary responsibility for the interim storage of
its spent nuclear fuel at San Onofre. Current capability to store spent fuel is
estimated to be adequate through 2005. Meeting spent-fuel storage requirements
beyond that period would require additional on-site storage capability, the
costs for which have not been determined. Extended delays by the DOE could lead
to consideration of costly alternatives involving siting and environmental
issues. SCE has paid the DOE the required one-time fee applicable to nuclear
generation at San Onofre through April 6, 1983 (approximately $24 million, plus
interest). SCE is also paying the required quarterly fee equal to one mill per
kilowatt-hour of nuclear-generated electricity sold after April 6, 1983.

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

SCE and other owners of nuclear power plants may be able to recover interim
storage costs arising from DOE delays in the acceptance of utility spent nuclear
fuel by pursuing relief under the terms of the contracts, as directed by the
courts, or through other court actions.


                                       29
<PAGE>

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, nine and
twelve months ended September 30, 2000, were $172 million, $441 million and $582
million, respectively, compared with $160 million, $343 million and $458 million
for the same periods in 1999. The increases were primarily due to the planned
refueling outages at San Onofre Nuclear Generating Station in the first half of
1999 (there have been no outages in 2000 through September 30), combined with
superior operating performance at San Onofre and higher kilowatt-hour sales.

Operating Revenue

As a result of electric utility industry restructuring, customers can choose to
have SCE purchase power on their behalf, or they can buy power directly from an
energy service provider, thus becoming direct access customers. Most direct
access customers continue to be billed by SCE, but are given a credit for the
generation portion of their bills.

Operating revenue increased for the three, nine and twelve months ended
September 30, 2000, compared to the year-earlier periods, primarily due to
warmer weather in the second and third quarters of 2000 as compared to the same
periods in 1999. The volume increases in operating revenue were partially offset
by the credit given to customers who chose direct access. Over 92% of operating
revenue was from retail sales. Retail rates are regulated by the California
Public Utilities Commission (CPUC) and wholesale rates are regulated by the
Federal Energy Regulatory Commission (FERC).

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

Operating Expenses

Fuel expense decreased for the three, nine and twelve months ended September 30,
2000, compared with the same periods in 1999. During second and third quarters
2000, SCE recorded fuel-related refunds resulting from a settlement with another
utility.

Prior to April 1998, SCE was required under federal law and CPUC orders to enter
into contracts to purchase power from qualifying facilities (QFs) at
CPUC-mandated prices even though energy and capacity prices under many of these
contracts are generally higher than other sources. Purchased-power
expense-contracts increased for the quarter and decreased for the nine and
twelve months ended September 30, 2000, compared to the year-earlier periods.
The quarterly increase is the result of significantly higher priced purchases
from certain QFs more than offsetting the lower volume of QF purchases. The
purchased-power expense-contracts decreases for the nine and twelve months ended
are mainly due to SCE's settlement agreements to terminate contracts with
certain QFs and the terms in some of the remaining QF contracts reverting to
lower prices. For the twelve months ended September 30, 2000, SCE paid about
$600 million (including energy and capacity payments) more for these power
purchases than the cost of power available from other sources. SCE is continuing
to purchase power under existing contracts from certain QFs and from other
utilities. SCE sells this power through the California Power Exchange (PX) and
the California Independent System Operator (ISO).

Since April 1, 1998, SCE has been required to sell all of its generated and
purchased power through the PX and ISO, schedule delivery of the power through
the ISO and acquire all of its power from the PX and ISO to distribute to its
retail customers. SCE nets these PX and ISO transactions for reporting purposes.
PX/ISO purchased-power expense significantly increased for the three, nine and
twelve months ended


                                       30
<PAGE>

September 30, 2000, compared to the same periods in 1999. During second quarter
and third quarter 2000, an increased volume of higher priced PX purchases was
partially offset by increases in PX sales revenue and ISO net revenue, as well
as an increase in the market value of gas call options. Increases in the
options' market value decreased purchased-power expense. These gas call options
mitigated SCE's transition cost recovery exposure to increases in energy prices.
In addition, the year-to-date and twelve-months ended increases in 2000 were
partially offset by the realization of hydroelectric-related ISO revenue (in
first quarter 2000) that had been previously deferred awaiting regulatory
approval. For a further discussion of SCE's hedging instruments and the recent
significant increases in PX prices, see Market Risk Exposures.

Provisions for regulatory adjustment clauses decreased for the three, nine and
twelve months ended September 30, 2000, compared to the year-earlier periods,
primarily due to undercollections related to the transition revenue account
(TRA) (see further discussion of the TRA in Status of Stranded-Asset Recovery),
partially offset by overcollections related to the transition cost balancing
account (TCBA). The quarterly provision decrease also reflects undercollections
related to the administration of public-purpose funds and the rate-making
treatment of the rate reduction notes. This rate-making treatment has allowed
for the deferral of the recovery of a portion of the transition-related costs,
from a four-year to a 10-year period. The year-to-date provision decrease also
reflects undercollections related to the administration of public-purpose funds.
The twelve-months ended net decrease in the provision also reflects
overcollections related to the administration of public purpose funds.

Other operating expenses decreased for the three, nine and twelve months ended
September 30, 2000, compared to the prior-year periods, primarily due to a
decrease in mandated transmission service (known as must-run reliability
services) expense, which was caused by SCE being contractually obligated for
fewer must-run units in 2000, compared to 1999. The nine- and twelve-months
ended decreases also reflect lower operating expenses at San Onofre in 2000 due
to scheduled refueling outages in the first half of 1999. The
twelve-months-ended decrease also results from lower expenses related to SCE's
direct access activities.

Maintenance expense decreased for the three, nine and twelve months ended
September 30, 2000, compared to the year-earlier periods, mainly due to the
absence of any refueling outages at San Onofre in 2000 through September 30.
During the first half of 1999, both of the San Onofre units were subject to a
planned refueling outage.

Income tax expense increased for the three, nine and twelve months ended
September 30, 2000, primarily due to higher pre-tax income. The increase in the
twelve-month period was caused by a one-time cumulative benefit for accelerated
amortization of deferred investment tax credits in October 1998.

Net loss (gain) on sale of utility plant resulted from the sale of SCE's
generating plants in 1998. Gains were credited to the TCBA and used to reduce
stranded costs. Losses will be recovered from customers over the transition
period through charges to the TCBA.

Other Income

Interest and dividend income increased for the three, nine and twelve months
ended September 30, 2000, primarily due to increases in interest earned on
higher balancing account undercollections. The twelve-months-ended increase was
partially offset by lower interest income resulting from lower investment
balances during the period.

Other nonoperating income decreased for the three and nine months ended
September 30, 2000, compared to the same periods in 1999, primarily due to the
gain on sale of an equity investment during third quarter 1999. The year-to-date
decrease also reflects the gains on sales of equity investments in the first
quarter of 1999. Other nonoperating income increased for the twelve months ended
September 30, 2000, compared to the same period in 1999, mainly due to the
one-time adjustment in fourth quarter 1999, resulting from an Internal Revenue
Service ruling that allowed SCE to record a tax benefit and additional


                                       31
<PAGE>

regulatory accruals in third quarter 1999, partially offset by the first and
third quarter 1999 gains on sales of equity investments discussed above.

Interest Expense

Other interest expense increased for the three, nine and twelve months ended
September 30, 2000, compared to the same periods in 1999, mostly due to higher
overall short-term debt balances necessary to meet general cash requirements
including PX and ISO payments during the periods and higher interest expense
related to balancing account overcollections.

Financial Condition

SCE's liquidity is primarily affected by power purchases, debt maturities,
dividend payments and capital expenditures. Capital resources include cash from
operations and external financings. Currently, SCE's liquidity is being
materially and adversely affected by the significant extent to which costs have
exceeded revenue under frozen rates and are continuing to exceed current
revenue, as well as by uncertainties about SCE's ability to recover these past
and future undercollections. Because of the TRA undercollections and their
effect on liquidity, SCE is taking various actions to control costs and limit
expenditures, including, among other things, freezing new hires, postponing
certain capital expenditures and ceasing new charitable contributions.
Additional actions may be necessary if the CPUC does not take action in the near
future, as requested by SCE. See further discussion in Status of Stranded-Asset
Recovery.

Edison International's Board of Directors authorized the repurchase of up to
$2.8 billion of its outstanding shares of common stock. Edison International
repurchased more than 21 million shares (approximately $400 million) of its
common stock through the first six months of 2000. These were the first
repurchases since first quarter 1999. Edison International repurchased $2.8
billion (approximately 122 million shares) of its outstanding shares of common
stock between January 1, 1995, and June 30, 2000, funded by dividends from its
subsidiaries (primarily from SCE).

Cash Flows from Operating Activities

Net cash provided by operating activities totaled $17 million, $1.0 billion and
$1.1 billion, respectively, for the three, nine and twelve months ended
September 30, 2000, compared with $597 million, $1.4 billion and $1.6 billion
for the same periods in 1999. The decrease in cash flows provided by operating
activities is primarily due to the unusually high prices SCE is paying for
energy and ancillary services procured through the PX and ISO.

SCE's cash flow coverage of dividends for the three, nine and twelve months
ended September 30, 2000, was 0.2 times, 3.4 times and 2.6 times, respectively,
compared to 2.2 times, 2.6 times and 2.2 times for the year-earlier periods. The
quarterly decrease in 2000 reflects a significant increase in SCE's balancing
account undercollections related to unusually high prices SCE is paying for
energy and ancillary services procured through the PX and ISO, partially offset
by a $175 million special dividend SCE paid to Edison International in third
quarter 1999. The year-to-date and twelve-months-ended increases in 2000 also
reflect a $75 million special dividend SCE paid to Edison International in first
quarter 1999.

Cash Flows from Financing Activities

At September 30, 2000, SCE had total credit lines of $1.65 billion, with $336
million available for commercial paper borrowings and $550 million available for
the refinancing of its variable-rate pollution-control bonds. These unsecured
lines of credit have various expiration dates and can be drawn down at
negotiated or bank index rates.

SCE is arranging additional bank credit facilities to finance current and
expected balancing account undercollections and other operating requirements.
SCE recently obtained a commitment from lenders to


                                       32
<PAGE>

provide a 364-day credit facility up to $1 billion, which would replace existing
facilities totaling $600 million. The commitment is subject to documentation and
other conditions.

Short-term debt is used to finance balancing account undercollections, fuel
inventories and general cash requirements, including PX and ISO payments.
Long-term debt is used mainly to finance capital expenditures. External
financings are influenced by market conditions and other factors. Although SCE's
articles of incorporation and first mortgage trust indenture would allow SCE to
issue up to $11.0 billion of additional first and refunding mortgage bonds and
$2.3 billion of preferred stock based on current interest and dividend rates and
its financial condition as of September 30, 2000, SCE must maintain its capital
structure within CPUC-authorized guidelines. SCE would require CPUC approval to
exceed the proportion of long-term debt presently authorized in its capital
structure.

On October 10, 2000, the CPUC authorized SCE to increase its level of balancing
account financing from $700 million to $2.0 billion for the purpose of
purchasing electric power for delivery to its retail customers.

On November 8, 2000, SCE issued $1.0 billion of 7.20% variable rate notes. These
notes have a stated maturity of November 2003, but may be redeemed at the option
of SCE, in whole or in part, at any time at a make-whole price.

Also, on November 8, 2000, SCE issued $300 million of floating rate notes due in
May 2002. The interest rate on these notes is reset quarterly. These floating
rate notes may not be redeemed prior to maturity. The variable rate and floating
rate notes were issued for, among other things, the purpose of financing SCE's
TRA undercollections.

SCE's ability to meet its obligations as they come due will depend in
significant part upon the willingness of regulatory bodies to allow SCE to
recover in rates the high purchase power costs it has experienced beginning in
May 2000. If SCE's TRA undercollections were at any time not deemed probable of
recovery, the resulting charge to earnings could materially and adversely affect
SCE's ability to issue first and refunding mortgage bonds or preferred stock,
regardless of whether the CPUC approves such issuances. See further discussion
in Status of Stranded-Asset Recovery.

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 September 30, 2000,
SCE had the capacity to pay $411 million in additional dividends and continue to
maintain its authorized capital structure. However, if events occur requiring
SCE to charge its TRA undercollections to earnings, SCE would no longer be able
to pay any dividends to Edison International.

In December 1997, $2.5 billion of rate reduction notes were issued on behalf of
SCE by SCE Funding LLC, a special purpose entity. These notes were issued to
finance the 10% rate reduction mandated by state law. The proceeds of the rate
reduction notes were used by SCE Funding LLC to purchase from SCE an enforceable
right known as transition property. Transition property is a current property
right created by the restructuring legislation and a financing order of the CPUC
and consists generally of the right to be paid a specified amount from
non-bypassable rates charged to residential and small commercial customers. The
rate reduction notes are being repaid over 10 years through these non-bypassable
residential and small commercial customer rates which constitute the transition
property purchased by SCE Funding LLC. The remaining series of outstanding rate
reduction notes have scheduled maturities beginning in 2001 and ending in 2007,
with interest rates ranging from 6.17% to 6.42%. The notes are secured by the
transition property and are not secured by, or payable from, assets of SCE or
Edison International. SCE used the proceeds from the sale of the transition
property to retire debt and equity securities. Although, as required by
generally accepted accounting principles, SCE Funding LLC is consolidated with
SCE and the rate reduction notes are shown as long-term debt in the consolidated
financial statements, SCE Funding LLC is legally separate from SCE. The assets
of SCE Funding LLC are not available to creditors of SCE or Edison International
and the transition property is legally not an asset of SCE or Edison
International.

                                       33
<PAGE>

Cash Flows from Investing Activities

Cash flows from investing activities are affected by additions to property and
plant and funding of nuclear decommissioning trusts. Decommissioning costs are
recovered in rates. SCE estimates that it will spend approximately $8.6 billion
through 2060 to decommission its nuclear facilities. This estimate is based on
SCE's current-dollar decommissioning costs ($2.1 billion), escalated at rates
ranging from 0.3% to 10.0% (depending on the cost element) annually. These costs
are expected to be funded from independent decommissioning trusts which receive
SCE contributions of approximately $25 million per year.

Projected Capital Requirements

SCE's projected construction expenditures for the next five years are: 2000 -
$1.1 billion; 2001 - $1.1 billion; 2002 - $923 million; 2003 - $905 million; and
2004 - $921 million.

Long-term debt maturities and sinking fund requirements for the five
twelve-month periods following September 30, 2000, are: 2001 - $647 million;
2002 - $247 million; 2003 - $572 million; 2004 - $372 million; and 2005 - $247
million.

Preferred stock redemption requirements for the five twelve-month periods
following September 30, 2000, are: 2001- zero; 2002 - $105 million; 2003 - $9
million; 2004 - $9 million; and 2005 - $9 million.

Market Risk Exposures

SCE's primary market risk exposures arise from fluctuations in both 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.

As a result of the rate freeze established in the 1996 restructuring
legislation, SCE's transition costs are recovered as the residual component of
rates once the costs for distribution, transmission, public benefit programs,
nuclear decommissioning and the cost of supplying power to its customers through
the PX and ISO have already been recovered, as discussed below in Status of
Stranded-Asset Recovery. Accordingly, more revenue generally will be available
to cover transition costs when market prices in the PX and ISO are low than when
PX and ISO prices are high. The effects of higher prices on transition cost
revenue are mitigated to some extent by increased revenue on energy sold to the
PX and ISO from SCE-controlled generation sources. Prior to the summer of 2000,
the PX and ISO market prices had generally been consistent, although some
irregular price spikes had occurred, but during the summer of 2000, there were
sustained periods during which market prices diverged from the level of prices
that should have come from properly functioning competitive markets. The ISO has
responded to price spikes in the market for reliability services (referred to as
ancillary services) by imposing a price cap on the market for such services
until certain actions have been completed to improve the functioning of those
markets. Similarly, the ISO currently maintains a cap on its market for
imbalance energy until adequate measures to improve the efficient operation of
the market have been implemented. The caps in these markets mitigate the risk of
costly price spikes that would reduce the revenue available to SCE to pay
transition costs. The ISO reduced the cap on imbalance energy and ancillary
services from $500/MWh to $250/MWh effective August 7, 2000. The ISO further
reduced the cap on replacement reserves to $100/MWh, effective July 1, 2000.
These price cap reductions were a response to sustained significantly higher
prices in the energy and ancillary services markets, beginning in May 2000.
Reacting to the recent price increases, which have continued throughout the
summer of 2000, government and regulatory bodies including the FERC, the CPUC,
the California Electricity Oversight Board, the California Legislature and the
California Attorney General, have initiated investigations or other actions
relating to aspects of the electricity markets. SCE cannot predict what actions
any of these entities may take or the potential effects of their actions. On
October 16, 2000, SCE filed a joint petition with the FERC urging them to impose
a $100/MWh cap on the markets run by the PX and ISO. In a November 1, 2000,
report and proposed order (see discussion in Wholesale Electricity Markets), the
FERC proposed modifying the auction procedures for the PX and ISO so that bids
above $150/MWh cannot set the market clearing price.

                                       34
<PAGE>

In 1997, SCE bought gas call options to mitigate its transition cost recovery
exposure to increases in energy costs. In October 2000, SCE sold its remaining
options; the gains were credited to the TCBA. In July 1999, SCE began
participating in forward purchases through a PX block forward market. In the PX
block forward market, SCE can purchase monthly blocks of energy or ancillary
services for six days a week (excluding Sundays and holidays) for 8 to 16 hours
a day. These purchases can be made up to 12 months in advance of the delivery
date. The CPUC originally limited SCE's use of the PX block forward market to a
maximum of approximately 2,000 MW in any month. The PX requested and was granted
authority from the FERC to sell other forward products including a peak product,
six days a week, for eight hours a day. In March 2000, the CPUC approved SCE's
request for rate-making treatment for its use of these additional products and
for an expansion of the limits from all forward PX products up to 5,200 MW in
summer months. In April 2000, the CPUC approved SCE's request to begin a demand
responsiveness program that would allow customers to be paid to curtail their
load during times of very high PX energy prices. On August 3, 2000, the CPUC
approved SCE's request to enter into bilateral contracts for delivery of
electricity. These contracts are limited in amount and must expire prior to
December 31, 2005. Despite the usage of hedging instruments, SCE experienced
significantly higher PX purchased-power expense during the summer of 2000.

A 10% increase in market interest rates would result in a $4 million increase in
the fair value of the interest rate swap agreement, as discussed in Note 3 to
the Consolidated Financial Statements. A 10% decrease in market interest rates
would result in a $6 million decline in the fair market value of the interest
rate swap agreement. A 10% increase in electricity prices would result in a $29
million increase in the fair market value of block forward contracts. A 10%
decrease in electricity prices would result in a $29 million decrease in the
fair market value of block forward contracts. A 10% change in market rates is
expected to have an immaterial effect on SCE's other financial instruments.

Regulatory 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 continues to
change as California moves toward a more competitive climate. SCE continues to
recover its stranded costs associated with generation-related assets through
transition cost recovery mechanisms, as described in Status of Stranded-Asset
Recovery. California's electric industry restructuring statute included
provisions to finance a portion of the stranded costs that residential and small
commercial customers would have paid between 1998 and 2001, which allowed SCE to
reduce rates by at least 10% to these customers, effective January 1, 1998. The
statute mandated other rates to remain frozen at June 1996 levels (system
average of 10.1(cent) per kilowatt-hour), including those for large commercial
and industrial customers, and included provisions for continued funding for
energy conservation, low-income programs and renewable resources. These frozen
rates were to remain in effect until the earlier of March 31, 2002, or the date
when the CPUC-authorized costs for utility-owned generation assets and
obligations were recovered.

In January 2000, SCE filed an application with the CPUC proposing rates that
would go into effect when the current rate freeze ends on March 31, 2002, or
earlier, depending on the pace of transition cost recovery. On July 7, 2000, SCE
updated this filing with more recent information. The proposal seeks CPUC
approval of a rate redesign that will result in reduced rates for most customers
when SCE completes the first phase of recovery of its transition costs. At the
time of the filing, the proposed new rates were expected to reduce SCE's system
average rates by about 12% from current frozen rate levels, based on certain
assumptions about competitive energy prices and unbundled revenue requirements
for 2002. In addition, SCE's filing proposes to redesign and establish separate
transmission and distribution rates to better reflect the actual costs to
deliver electricity and serve customers by recovering the fixed costs of
delivering electricity in fixed charges. This pricing approach is consistent
with CPUC policies requiring California's major utilities to move toward
cost-based transmission and distribution rates. In light of SCE's recent
four-point market reform and rate stabilization plan filed on October 25, 2000,
(see Status

                                       35
<PAGE>

of Stranded-Asset Recovery below), SCE is currently developing a rate
stabilization plan that may require altering some of the proposals in its
January 2000 post-rate freeze application.

Revenue is determined by various mechanisms depending on the utility operation.

Generation

Revenue from generation-related operations is being determined through the
market and the transition cost recovery mechanisms, which includes the nuclear
rate-making agreements. The portion of revenue related to coal generation plant
costs (Mohave Generating Station and Four Corners Generating Station) that is
made uneconomic by electric industry restructuring is recovered through the
transition cost recovery mechanisms. After April 1, 1998, coal generation
operating costs are recovered through the market. The excess of power sales
revenue from the coal generating plants over the plants' operating costs is
accumulated in a coal generation balancing account. SCE's costs associated with
its hydroelectric plants are being recovered through a performance-based
mechanism. The mechanism sets the hydroelectric revenue requirement 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 accumulated in a hydroelectric balancing account and
credited to the TCBA. In 2000, fossil and hydroelectric generation assets have
the opportunity to earn a 7.22% return on investment. SCE has filed an
application with the CPUC regarding the market valuation of all of its
non-nuclear generating facilities. See additional discussions below regarding
hydroelectric valuation, Mohave Generating Station auction and pending sale, and
pending Four Corners Generating Station sale.

SCE is recovering its investment in its nuclear facilities on an accelerated
basis in exchange for a lower authorized rate of return. SCE's nuclear assets
are earning an annual rate of return on investment 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,
nuclear fuel and nuclear fuel financing costs. The San Onofre plan commenced in
April 1996, and ends at the earlier of December 2001 or the date when the
statutory rate freeze ends 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 TCBA mechanism. SCE
has entered into an agreement to sell its investment in Palo Verde (see further
discussion below).

In October 1999, SCE filed an application with the CPUC to approve an auction
process to sell its 56% interest in Mohave Generating Station. In April 2000,
the CPUC approved the auction process. In May 2000, SCE agreed to sell its
interest in Mohave to AES Corporation for approximately $533 million. The
transaction is subject to approval by the CPUC and various federal regulatory
agencies. In June 2000, SCE submitted a compliance filing with the CPUC seeking
approval of the auction results and the sale to AES. In response to the Utility
Workers Union of America's opposition to the sale and its motion to intervene, a
CPUC administrative law judge (ALJ) has indicated that he will recommend that
CPUC consideration of the sale be deferred, until the CPUC's ongoing
investigation of the current problems in the California electricity markets is
completed; however, SCE expects the sale to close sometime in 2001, if approved
by the CPUC on a timely basis.

In December 1999, SCE filed an application with the CPUC establishing a market
value for its hydroelectric generation-related assets at approximately $1.0
billion (almost twice the assets' book value) and proposing to retain and
operate the hydroelectric assets under a performance-based, revenue-sharing
mechanism. The application has broad-based support from labor, ratepayer and
environmental groups. If approved by the CPUC, SCE would be allowed to recover
an authorized, inflation-indexed operations and maintenance allowance, as well
as a reasonable return on capital investment. A revenue-sharing arrangement
would be activated if revenue from the sale of hydroelectricity exceeds or falls
short of the authorized revenue requirement. SCE would then refund 90% of the
excess revenue to ratepayers or

                                       36
<PAGE>

recover 90% of any shortfalls from ratepayers. A final CPUC decision is expected
in 2001. In June 2000, SCE credited the TCBA with the estimated excess of market
value over book value of its hydroelectric generation assets and simultaneously
recorded the same amount in the generation asset balancing account (GABA),
pursuant to a CPUC decision. This balance will accrue interest and remain in
GABA until final market valuation of the hydroelectric assets. If there is a
difference in the final market value, it will be credited to or recovered from
customers through the TCBA.

In April 2000, SCE agreed to sell its 15.8% interest in Palo Verde and its 48%
interest in Four Corners Generating Station to Pinnacle West Energy for $550
million, subject to certain adjustments. The sale of assets at Palo Verde will
be accompanied by an assignment of SCE's interest in the related decommissioning
fund. The transaction is subject to the approval of the CPUC, the Nuclear
Regulatory Commission, the FERC and other state and federal entities, and to the
receipt of a favorable ruling from the Internal Revenue Service. The Utility
Reform Network (TURN) and the Utility Workers Union of America have filed a
motion to dismiss with the CPUC recommending that the CPUC reject the sale and
require SCE to retain these generating assets. The CPUC's Office of Ratepayer
Advocates has supported the motion. The CPUC has not ruled on the motion;
evidentiary hearings are scheduled for February 2001. Until the end of November
2000, competing offers may be solicited by SCE, subject to certain conditions,
and any superior offers received are subject to matching rights by Pinnacle West
Energy. The transaction is expected to close by the end of 2001, if approved by
the CPUC on a timely basis.

On November 9, 2000, SCE filed with the CPUC a request for approval to credit
the TCBA (and debit the GABA) as soon as possible with the aggregate net gain on
the pending sales of the Mohave, Four Corners and Palo Verde generation plants,
which would have the effect of substantially accelerating the end of SCE's
statutory rate freeze.

Accounting for Generation-Related Assets

In 1997, SCE discontinued application of accounting principles for
rate-regulated enterprises for its generation assets. SCE did not write off any
of its generation-related assets, including related regulatory assets because
the electric utility industry restructuring plan made probable their recovery
through a non-bypassable charge to distribution customers. The regulatory assets
are comprised of accelerated income tax benefits previously flowed through to
customers, purchased power contract termination payments and unamortized losses
on reacquired debt.

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

Status of Stranded-Asset Recovery

SCE's transition costs arise from QF contracts (which are the direct result of
prior legislative and regulatory mandates), costs pertaining to certain
generating assets and regulatory commitments consisting of recovery of costs
incurred 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 investment in San Onofre Units
2 and 3 and the Palo Verde units, and certain other costs. Transition costs
related to power-purchase contracts are being recovered through the terms of
each contract. Most of the remaining transition costs may be recovered through
the end of the transition period (not later than March 31, 2002).

There are three sources of revenue available to SCE for transition cost
recovery: competition transition charge (CTC) revenue, revenue from the sale or
valuation of generation assets in excess of book values, and net market revenue
from the sale of SCE-controlled generation into the ISO and PX markets. CTC
revenue is determined residually (i.e., CTC revenue is the residual amount
remaining from monthly gross


                                       37
<PAGE>

customer revenue under the rate freeze after subtracting the revenue
requirements for transmission, distribution, nuclear decommissioning and public
benefit programs, and ISO payments and power purchases from the PX and ISO). The
CTC applies to all customers who were using or began using utility services on
or after the CPUC's 1995 restructuring decision date.

Revenue from the sale or valuation of generation assets in excess of book value
is also applied to recovery of transition costs. During 1998, SCE sold all of
its gas- and oil-fueled generation plants for $1.2 billion, over $500 million
more than the combined book value. Net proceeds of the sales were used to reduce
stranded costs, which otherwise were expected to be collected through the CTC
mechanism. Pending sales or valuations of other generating assets are discussed
above.

As discussed above, net market revenue from sales of power and capacity from
SCE-controlled generation sources is also applied to transition cost recovery.
Increases in market prices for electricity affect SCE in two fundamental ways.
First, CTC revenue decreases because there is less or no residual revenue from
frozen rates due to higher cost PX power purchases. Second, transition costs
decrease because there is increased net market revenue due to sales from
SCE-controlled generation sources to the PX at higher prices (accumulated as an
overcollection in the coal and hydroelectric balancing accounts). Although the
second effect mitigates the first to some extent, the overall impact on
transition cost recovery is negative because SCE purchases more power than it
sells to the PX. In addition, higher market prices for electricity may adversely
affect SCE's ability to recover non-transition costs during the rate freeze
period. For example, if market prices for electricity are extremely high in a
given month and there is insufficient revenue from customers under the frozen
rates to cover all costs of providing service during that month, there will be
no residual CTC revenue. Under existing CPUC decisions, this undercollection is
accumulated in the TRA and is carried forward and recovered from future CTC
revenue during the rate freeze period. The existing decisions do not permit
recovery of TRA undercollections after the end of the statutory rate freeze.
California's restructuring legislation provides that the rate freeze will end on
the earlier of March 31, 2002, or the date on which the CPUC-authorized costs
for utility generation-related assets have been fully recovered. The CPUC has
ruled that the rate freeze will end when the balance in the TCBA is at zero or
is overcollected and the CPUC has completed its review of applications for
valuation of generation assets. The CPUC contemplated that its final approval
could take place some time after the TCBA reaches zero or is overcollected, in
which case the CPUC could make retroactive adjustments as though the rate freeze
had ended at an earlier date.

Since the beginning of the rate freeze (January 1, 1998), SCE has received CTC
revenue of $4.1 billion to recover its transition costs. As the result of
sustained higher market prices which began in May 2000 (further discussed in
Market Risk Exposures), SCE experienced the first month in which costs exceeded
revenue. SCE's costs to provide power have continued to exceed revenue from
frozen rates. The amount of undercollections recorded in SCE's TRA was $2.4
billion as of September 30, 2000, and $2.6 billion as of October 31, 2000.
Current published prices for future deliveries of wholesale electricity suggest
that wholesale prices and other costs of providing service to customers will
continue to exceed SCE's authorized rates for the foreseeable future, resulting
in continued increases in the undercollected TRA balance. Therefore, SCE
anticipates that it will be unable to recover its TRA undercollections before
the end of the statutory rate freeze. If the CPUC does not modify its past
decisions and SCE is unable to obtain other regulatory or judicial relief, SCE
likely will not be able to recover its TRA undercollections. That would result
in a charge against earnings, as discussed below.

On October 4, 2000, SCE filed with the CPUC an emergency petition for expedited
modification of the CPUC's earlier decisions that prohibited SCE's recovery of
its TRA undercollection after the end of the rate freeze or offsetting the
undercollection with overcollections of stranded costs in the TCBA. SCE's
emergency petition requested that the CPUC modify its prior decisions and allow
SCE to carry over its TRA undercollections incurred during the rate freeze
period, to the post-rate freeze period, and to recover those undercollections
over a reasonable period of time. On October 17, 2000, the assigned CPUC
commissioner and a CPUC ALJ issued a joint ruling that among other things,
directed SCE and other parties to file statements by October 25, 2000, that
propose initial steps in modifying the TCBA and TRA rate-making mechanisms to
provide interim relief, and a schedule that permits a decision on this matter by
the end of the year. The joint ruling also scheduled a prehearing conference for
October 27, 2000.

                                       38
<PAGE>

On October 17, 2000, TURN petitioned the CPUC to require all TRA
undercollections and overcollections to be transferred to the TCBA, thus
treating the TRA undercollections as unrecovered transition costs. SCE believes
such a requirement would preclude SCE from recovering a substantial portion of
its transition costs and ongoing power procurement costs.

On October 25, 2000, SCE filed a prehearing conference statement requesting the
CPUC to take four immediate steps to establish a framework for ensuring stable,
affordable customer rates and electric service reliability. SCE's statement
asked the CPUC to: support market reform; confirm SCE will be permitted to
recover reasonable procurement costs incurred on behalf of customers; implement
a post-rate freeze rate stabilization plan which would include an immediate 10%
rate increase as of January 1, 2001; and determine whether remaining generation
assets will be divested or retained.

At the October 27, 2000, prehearing conference, the ALJ extended the date for
responses to SCE's emergency motion to November 9, 2000, and set the same date
for responses to the TURN petition discussed above. The parties were also given
until the same date to file specific accounting and rate-making proposals
related to the TRA undercollections. The ALJ stated that the scope of this phase
of the proceeding is limited to changes in the applicable CPUC-authorized
accounting and rate-making mechanisms, and is not intended to address before the
end of this year the question of whether prior CPUC decisions should be modified
to permit carryover of TRA undercollections past the end of the rate freeze. On
November 1, 2000, the assigned commissioner issued a ruling confirming that this
phase of the proceeding will explore specific proposals related to the TRA and
TCBA that the CPUC can adopt by year-end 2000. The ruling also stated that the
assigned commissioner will prepare an order instituting investigation for
consideration at the CPUC's December 21, 2000, meeting, which will allow the
CPUC to consider alternative ways of handling residual cash flow problems from
large TRA undercollections that have not been resolved through accounting and
rate-making mechanisms.

By November 9, 2000, a number of ratepayer groups and energy marketers filed
responses opposing SCE's emergency motion described above. None of the filings,
except for the filing by Pacific Gas and Electric Company (PG&E) supported SCE's
motion.

On November 9, 2000, SCE filed its comments with the CPUC in response to the
assigned commissioner's ruling. SCE stated that there are no accounting and
rate-making mechanisms that will correct the problem of wholesale power
procurement costs exceeding revenue from frozen retail rates, and the only real
solution is to increase rates. However, as a mitigation measure, SCE proposed
that the overcollections in the TCBA at the time new rates would go into effect,
that otherwise would be refunded to ratepayers, should be used to reduce TRA
undercollections. In the filing, SCE also opposed TURN's petition as being
unlawful. On the same date, SCE filed with the CPUC a request for approval to
credit the TCBA (and debit the GABA) as soon as possible with the aggregate net
gain on the pending sales of the Mohave, Four Corners and Palo Verde generating
plants, which would have the effect of substantially accelerating the end of
SCE's statutory rate freeze. Based on the valuations for those plants filed by
SCE with the CPUC, SCE's utility-owned transition costs were fully recovered no
later than August 31, 2000.

On November 13, 2000, SCE filed a lawsuit against the CPUC in federal court in
California, seeking a ruling that SCE is entitled to full recovery of its costs
for wholesale purchases of electricity in accordance with the tariffs filed with
the FERC. The effect of such a ruling would be to overturn the prior decisions
of the CPUC restricting recovery of TRA undercollections. PG&E has filed a
similar action. (PG&E has also challenged the CPUC's prior decisions in
California state court and is currently pursuing an appeal before the California
Supreme Court of a lower court ruling against PG&E.)

SCE cannot predict what actions the CPUC will finally take in proceedings
described above or their financial impact on SCE. However, any actions that make
all or part of the TRA undercollections not probable of recovery would require
SCE to charge the TRA undercollections or a portion thereof to earnings under
generally accepted accounting principles and could have a material adverse
effect on SCE's financial condition and results of operations.

                                       39
<PAGE>

As of September 30, 2000, the book value of the stranded assets to be recovered
by the end of the rate freeze, less estimated credits from the market valuation
or pending sale of remaining generation assets, and the balance of the TRA are
as follows:

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

   Unamortized nuclear investment - net                           $   783
   Unamortized loss on sale of plant                                   76
   Transition-related balancing accounts:
      TCBA                                                           (159)
      GABA                                                            510
      Coal and hydro balancing accounts                              (807)
   Flow-through taxes                                                 221
   Other regulatory assets                                             40
-----------------------------------------------------------------------------

   Total regulatory assets                                            664
   Book value of remaining generation plant                           398
-----------------------------------------------------------------------------

   Total stranded assets                                            1,062
   Less estimated credits:
      Excess of market value over book for hydro assets              (500)
      Proceeds from pending sale of generating plants              (1,083)
-----------------------------------------------------------------------------

   Net amount of stranded assets                                  $  (521)
-----------------------------------------------------------------------------

   TRA undercollection                                            $ 2,358
-----------------------------------------------------------------------------


During the month of October 2000, SCE's TRA undercollections increased by $283
million, for a total undercollection of $2.641 billion as of October 31, 2000.

There are many factors that affect SCE's ability to recover its stranded costs
and its TRA undercollections. Based on the valuations of generating assets that
have been filed with the CPUC, SCE believes it is probable that it will be able
to recover its stranded costs that are recorded in the TCBA. SCE also believes
it is probable that it will be able to recover its costs that are recorded as
undercollections in the TRA. Recovery of SCE's TRA undercollections, however,
depends on favorable regulatory actions as described above, as well as other
factors such as weather conditions, market prices of gas and electricity, levels
of sales, and economic conditions. At any time that all or a portion of the
existing TRA undercollections are not deemed to be probable of recovery, the
undercollections or a portion thereof must be charged against earnings.
Thereafter, any further undercollections not probable of recovery also would be
charged to earnings. Substantial earnings charges at SCE could adversely affect
its financial condition and results of operations, as well as its ability to
declare and pay dividends.

On October 30, 2000, a class action securities lawsuit was filed in federal
district court in Los Angeles against SCE and Edison International alleging
fraud in over-reporting revenue and income and improperly accounting for the TRA
undercollections. SCE believes that its current accounting for the TRA
undercollections and related items, as described above, is appropriate and in
accordance with generally accepted accounting principles.

Distribution

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


                                       40
<PAGE>

a net revenue-sharing mechanism that determines how customers and shareholders
will share gains and losses from distribution operations.

Transmission

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

Wholesale Electricity Markets

On October 16, 2000, SCE filed a joint petition urging the FERC to immediately
find the California wholesale electricity market to be not workably competitive;
immediately impose a cap on the price for energy and ancillary services; and
institute further expedited proceedings regarding the market failure, mitigation
of market power, structural solutions and responsibility for refunds. On
November 1, 2000, the FERC issued a report and proposed order proposing remedies
for California wholesale electric markets. The FERC found that the California
market structure and rules, with the imbalance of supply and demand, provide the
opportunity for sellers to exercise market power and have caused, and have the
potential to continue to cause, unjust and unreasonable rates. However, the FERC
also found that the record before them does not support refunds from power
sellers prior to October 2, 2000, but that subsequent rates would be subject to
refund through December 31, 2002. The FERC proposed several immediate remedies
and certain longer term structural reforms. The immediate remedies include: the
elimination of the requirement to buy and sell power only through the ISO and
PX; new incentives to ensure that transactions occur outside the ISO's imbalance
energy market; the establishment of an independent, non-stakeholder governing
board for the ISO and PX; and the establishment of generation interconnection
procedures. The FERC also proposed modifying the auction procedures for the PX
and ISO so that bids above $150/MWh hour cannot set the market clearing price.
If implemented, the FERC auction procedures would supersede the market price
caps that have been adopted by the ISO. The FERC said it will take comments on
the proposed order and issue a final order by the end of 2000.

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 11 to the Consolidated Financial Statements, SCE
records its environmental liabilities when site assessments and/or remedial
actions are probable and a range of reasonably likely cleanup costs can be
estimated. SCE's recorded estimated minimum liability to remediate its 44
identified sites is $105 million. SCE believes that, due to the uncertainties
inherent in the estimation process, it is reasonably possible that cleanup costs
could exceed its recorded liability by up to $269 million. In 1998, SCE sold all
of its gas- and oil-fueled power plants but has retained some liability
associated with the divested properties.

The CPUC allows SCE to recover environmental-cleanup costs at certain sites,
representing $36 million of its recorded liability, through an incentive
mechanism, which is discussed in Note 11. SCE has recorded a regulatory asset of
$70 million for its estimated minimum environmental-cleanup costs expected to be
recovered through customer rates.

SCE's identified sites include several sites for which there is a lack of
currently available information. As a result, no reasonable estimate of cleanup
costs can be made for these sites. SCE expects to clean up its identified sites
over a period of up to 30 years. Remediation costs in each of the next several
years are expected to range from $5 million to $15 million. Recorded costs for
the twelve months ended September 30, 2000, were $12 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-


                                       41
<PAGE>

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

SCE's projected environmental capital expenditures are $850 million for the
2000-2004 period, mainly for undergrounding certain transmission and
distribution lines.

San Onofre Steam Generator Tubes

The San Onofre Units 2 and 3 steam generators have performed relatively well
through the first 16 years of operation. 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. Increased tube degradation was found during routine inspections in
1997. To date, 8% of Unit 2's tubes and 5.4% of Unit 3's tubes have been removed
from service. A decreasing (favorable) trend in degradation has been observed in
more recent inspections.

New Accounting Rule

In June 1998, a new accounting standard for derivative instruments and hedging
activities was issued. The new standard, which as amended SCE will be required
to implement on January 1, 2001, requires all derivatives to be recognized on
the balance sheet at fair value. Gains or losses from changes in fair value
would be recognized in earnings in the period of change unless the derivative is
designated as a hedging instrument. Gains or losses from hedges of a forecasted
transaction or foreign currency exposure would be reflected in other
comprehensive income. Gains or losses from hedges of a recognized asset or
liability or a firm commitment would be reflected in earnings for the
ineffective portion of the hedge. SCE anticipates that most of its derivatives
under the new standard would qualify for hedge accounting. SCE expects to
recover in rates any market price changes from its derivatives that could
potentially affect earnings. Accordingly, implementation of this new standard is
not expected to affect earnings.

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, adopting or modifying cost recovery,


                                       42
<PAGE>

accounting or rate-setting mechanisms, and implementing the restructuring of the
electric utility industry including the sale or retention and ongoing operation
of remaining generation assets; the effects, unfavorable interpretations and
implementations of new or existing laws and regulations relating to
restructuring, taxes and other matters; the effects of increased competition in
the electric utility business and other energy-related businesses, including
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 financial market conditions; the amount of revenue
available to recover both transition and non-transition costs; the ability to
sell or retain electric generation assets; the ultimate selling price of those
plants that are sold; new or increased environmental liabilities; the ability to
create and expand new businesses such as telecommunications; weather conditions;
and other unforeseen events.


                                       43
<PAGE>

PART II           OTHER INFORMATION

Item 1.           Legal Proceedings

                        Geothermal Generators' Litigation

As previously reported in Part 1, Item 3, of the Registrant's Annual Report on
Form 10-K for the year ending December 31, 1999, on June 9, 1997, SCE filed a
complaint in Los Angeles County Superior Court against an independent power
producer of geothermal generation and six of its affiliated entities (Coso
parties). The Coso parties' motion to transfer venue to Inyo County Superior
Court was granted on August 31, 1997.

The Coso parties filed a cross-complaint against SCE, The Mission Group, and
Mission Power Engineering Company (Mission parties), which contains claims for
breach of contract, unfair competition, interference with contract, defamation,
breach of an earlier settlement agreement between the Mission parties and the
Coso parties, and other claims. Edison International was named as a
cross-defendant, allegedly as an alter ego of SCE and the Mission parties. The
Coso parties voluntarily dismissed the claims against Edison International.

Three of the Coso Parties also filed a separate action in the Inyo County
Superior Court against SCE and Edison International, alleging claims for unfair
competition, false advertising and for violations of Public Utilities Code ss.
2106, and seeking injunctive relief, restitution, and punitive damages. The
Court ordered this action consolidated with the SCE action.

Effective February 8, 2000, the parties entered into confidential agreements
resolving all claims in the consolidated action and calling for dismissals with
prejudice and releases. The settlement is subject to the approval of the
California Public Utilities Commission ("CPUC" or the "Commission"). On February
10, 2000, the Court approved a stipulation staying all proceedings during the
period required to obtain CPUC approval. On April 26, 2000, SCE filed an
application to obtain such approval. The Commission has issued a draft decision
approving the settlement and is expected to act on this draft decision at its
November 16, 2000 meeting. If the Commission approves the draft decision
(approving the settlement), the decision will become final, i.e., no longer
subject to appeal, after the passage of thirty days from the approval date.
Assuming the decision becomes final, all claims in the consolidated action will
be dismissed with prejudice.

                      San Onofre Personal Injury Litigation

As previously reported in Part I, Item 3, of the Registrant's Annual Report on
Form 10-K for the year ending December 31, 1999, SCE is actively involved in
three lawsuits claiming personal injuries allegedly resulting from exposure to
radiation at San Onofre.

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 and the
Institute of Nuclear Power Operations as defendants. All trial court proceedings
were stayed pending ruling of the Ninth Circuit Court of Appeal, on an appeal of
a lower court's judgment in favor of SCE in two earlier cases raising similar
allegations. On May 28, 1998, the Court of Appeal affirmed these judgments.
Pursuant to an agreement of the parties as described below, all proceedings in
this matter have been stayed.

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 trial in this case resulted in a jury verdict for both
defendants. The plaintiffs' motion for a new trial was denied. Plaintiffs filed
an appeal of the trial court's judgment to the Ninth Circuit Court of Appeals.
On July 20, 2000, the Ninth Circuit issued an opinion reversing the trial
court's judgment and ordering a retrial as to both

                                       44
<PAGE>

defendants. The Court of Appeals concluded that the jury instructions were
flawed and unfairly prejudiced plaintiffs and that the trial court erroneously
dismissed the products liability claims against Combustion Engineering. The
Ninth Circuit did not decide the merits of plaintiffs' claims. This decision, if
not vacated or altered on rehearing or other further proceedings, would
constitute a "favorable determination" for plaintiffs in both of the other cases
at the U.S. District Court level (respectively mentioned in the immediately
preceding and immediately following paragraphs), for purposes of the stay
agreement described below. SCE and Combustion Engineering filed a petition for
rehearing or, alternatively, for a rehearing en banc, with the Ninth Circuit on
August 10, 2000. Several parties, including the United States Government, filed
amicus briefs supporting the SCE/Combustion rehearing petition. On August 18,
2000, the Ninth Circuit invited plaintiffs to respond to the SCE/Combustion
petition for rehearing. On September 7, 2000, plaintiffs filed a response to the
rehearing petition and on September 22, 2000, SCE and Combustion filed a reply
to plaintiffs' response. On October 13, 2000, the Ninth Circuit requested
further briefing from the parties in response to the amicus brief filed by the
United States.

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. On August 12, 1996,
the Court dismissed the claims of the former worker and her husband with
prejudice, leaving only the son as plaintiff. Pursuant to an agreement of the
parties as described below, all proceedings in the matter have been stayed.

In March of 1999, SCE reached an agreement with the plaintiffs in both of the
cases at the U.S. District Court level to stay all proceedings including trial,
pending the results of the case currently before the Ninth Circuit Court of
Appeal. The parties agreed that if the plaintiffs in that case do not receive a
favorable determination on appeal, then the two cases at the District Court
level will be dismissed. If, however, those plaintiffs receive a favorable
determination on their appeal, then the two District Court cases will be set for
trial. On March 23, 1999, the District Court approved the parties' stay
agreement in both cases. The stay will remain in effect until the conclusion of
the appellate process, including filing and disposition of any petitions for
rehearing in the Ninth Circuit or petitions for certiorari in the United States
Supreme Court.

SCE was previously involved, along with other defendants, in two earlier cases
raising allegations similar to those described above. Although SCE is no longer
actively involved in these actions, the impact on SCE, if any, from further
proceedings in those cases against the remaining defendants cannot be determined
at this time.

                             Shareholder Litigation

On October 30, 2000, a purported class action lawsuit was filed in federal
district court in Los Angeles against SCE and Edison International. The
complaint alleges that the companies are engaging in securities fraud, common
law fraud and unfair business practices by over-reporting revenues and income
and improperly accounting for the TRA undercollections. The complaint purports
to be filed on behalf of a class of persons who purchased or sold Edison
International common stock beginning as early as February 1, 2000, and
continuing until such time as TRA-related undercollections are recorded as
losses on SCE's income and balance statements.


                                       45
<PAGE>

Item 6.    Exhibits and Reports on Form 8-K

(a)  Exhibits

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

     3.2  Certificate of Correction of Restated Articles of Incorporation of SCE
          filed August 21, 1997 (File No. 1-2313, Form 10-Q for the quarter
          ended September 30, 1997)*

     3.3  Amended Bylaws of Southern California Edison Company as adopted by the
          Board of Directors on February 17, 2000 (File No. 1-2313, filed as
          Exhibit 3.3 to Form 10-K for the period ended December 31, 1999)*

     23.  Consent of Independent Public Accountants

     27.  Financial Data Schedule

(b)  Reports on Form 8-K:

     September 25, 2000  Item 5 - Other Events - Transition Revenue Account
                                  Undercollections



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


                                       46
<PAGE>


                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                             SOUTHERN CALIFORNIA EDISON COMPANY
                                                               (Registrant)



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



                                       By      KENNETH S. STEWART
                                               --------------------------------
                                               KENNETH S. STEWART
                                               Assistant General Counsel and
                                               Assistant Secretary
November 13, 2000