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                      June 30, 1999
                               -----------------------------------------------
                                              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  (or 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 August 9, 1999
------------------------------------------------------------------------------
  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, Six and
               Twelve Months Ended June 30, 1999, and 1998                2

            Consolidated Statements of Comprehensive Income --
               Three, Six and Twelve Months Ended June 30, 1999,
               and 1998                                                   2

            Consolidated Balance Sheets -- June 30, 1999,
               December 31, 1998, and June 30, 1998                       3

            Consolidated Statements of Cash Flows --
               Three, Six and Twelve Months Ended
               June 30, 1999, and 1998                                    5

            Notes to Consolidated Financial Statements                    6

   Item 2.  Management's Discussion and Analysis of Results
                     of Operations and Financial Condition               27

Part II. Other Information:

         Item 1.  Legal Proceedings                                      37

         Item 6.  Exhibits and Reports on Form 8-K                       40

<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 June 30,  1999,
December 31, 1998, and June 30, 1998, and the related consolidated statements of
income,  comprehensive  income and cash flows for each of the  three-,  six- and
twelve-month  periods ended June 30, 1999, and 1998. These financial  statements
are the responsibility of SCE's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of SCE and its subsidiaries as of
June 30, 1999,  December 31, 1998,  and June 30, 1998,  and the results of their
operations  and their cash flows for each of the three-,  six- and  twelve-month
periods ended June 30, 1999,  and 1998, in conformity  with  generally  accepted
accounting principles.



                                            ARTHUR ANDERSEN LLP
                                            ARTHUR ANDERSEN LLP



Los Angeles, California
August 3, 1999


                                       1
<PAGE>



SOUTHERN CALIFORNIA EDISON COMPANY

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

                                            3 Months Ended            6 Months Ended             12 Months Ended
                                               June 30,                  June 30,                   June 30,
-----------------------------------------------------------------------------------------------------------------------

                                          1999          1998         1999         1998         1999          1998
-----------------------------------------------------------------------------------------------------------------------

<S>                                   <C>           <C>          <C>           <C>           <C>          <C>
Operating revenue                     $1,720,831    $1,618,782   $3,397,535    3,241,473     $7,655,582   $7,655,424
-----------------------------------------------------------------------------------------------------------------------

Fuel                                      45,122        59,184      105,430      177,868      251,278        768,534
Purchased power--contracts               422,754       525,355    1,032,660    1,101,862    2,556,698      2,739,529
Purchased power-- power exchange-- net    97,143        40,099      214,100       40,099     810,343          40,099
Provisions for regulatory
   adjustment clauses-- net              (81,718)      462,176     (360,748)     158,363     (991,629)      (160,549)
Other operating expenses                 446,019       400,055      850,297      687,629    1,643,312      1,368,546
Maintenance                              106,149        98,492      195,017      200,362      405,222        393,330
Depreciation, decommissioning
     and amortization                    377,018       375,919      763,295      758,898    1,550,133      1,381,705
Income taxes                              82,199        99,158      162,740      224,762      383,620        577,913
Property and other taxes                  29,186        31,246       67,471       70,763      125,112        129,582
Net loss (gain) on sale of utility plant    (724)     (684,838)     (2,925)     (619,038)      73,502       (620,052)
-----------------------------------------------------------------------------------------------------------------------

Total operating expenses               1,523,148     1,406,846    3,027,337    2,801,568    6,807,591      6,618,637
-----------------------------------------------------------------------------------------------------------------------

Operating income                         197,683       211,936      370,198      439,905      847,991      1,036,787
-----------------------------------------------------------------------------------------------------------------------

Provision for rate phase-in plan              --            --           --           --           --        (25,796)
Allowance for equity funds
   used during construction                3,056         2,908        5,892        5,690       12,028          9,440
Interest and dividend income              16,664        15,411       30,811       33,723       63,813         62,200
Other nonoperating income
   (deductions)--net                      10,672        (4,310)      23,388       (7,900)      26,904        (41,434)
-----------------------------------------------------------------------------------------------------------------------

Total other income (deductions)-- net     30,392        14,009       60,091       31,513      102,745          4,410
-----------------------------------------------------------------------------------------------------------------------

Income before interest expense           228,075       225,945      430,289      471,418      950,736      1,041,197
-----------------------------------------------------------------------------------------------------------------------

Interest and amortization
   on long-term debt                      99,819        91,511      198,460      215,868      404,451        379,716
Other interest expense                    19,334        16,090       43,470       34,109       73,585         89,414
Allowance for borrowed funds used
   during construction                    (2,652)       (1,979)      (5,113)      (3,871)      (9,288)        (8,388)
Capitalized interest                        (272)         (125)      (1,068)        (282)      (2,080)          (626)
-----------------------------------------------------------------------------------------------------------------------

Total interest expense--net              116,229       105,497      235,749      245,824      466,668        460,116
-----------------------------------------------------------------------------------------------------------------------

Net income                               111,846       120,448      194,540      225,594      484,068        581,081
Dividends on preferred stock               5,609         6,648       11,808       13,407       23,032         26,925
-----------------------------------------------------------------------------------------------------------------------

Earnings available for common stock    $ 106,237     $ 113,800    $ 182,732     $212,187     $461,036      $ 554,156
-----------------------------------------------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands

                                              3 Months Ended          6 Months Ended             12 Months Ended
                                                 June 30,                June 30,                   June 30,
------------------------------------------------------------------------------------------------------------------------------
                                          1999           1998         1999         1998        1999          1998
------------------------------------------------------------------------------------------------------------------------------
Net income                             $ 111,846     $ 120,448    $ 194,540     $225,594     $484,068      $ 581,081
Unrealized gain (loss) on
   securities--net                        (1,002)        1,332       (7,217)      12,442      (10,384)        12,635
Reclassification adjustment for gains
   included in net income                (14,874)           --      (32,245)          --      (50,081)            --
------------------------------------------------------------------------------------------------------------------------------
Comprehensive income                   $  95,970     $ 121,780    $ 155,078     $238,036     $423,603      $ 593,716
------------------------------------------------------------------------------------------------------------------------------
</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>

                                                                 June 30,          December 31,         June 30,
                                                                   1999                1998               1998
-------------------------------------------------------------------------------------------------------------------

ASSETS

Utility plant, at original cost:
<S>                                                            <C>                <C>               <C>
  Transmission and distribution                                $11,975,779        $11,771,678       $11,454,066
  Generation                                                     1,705,009          1,689,469         2,021,636
Accumulated provision for depreciation
  and decommissioning                                           (7,175,966)        (6,896,479)       (6,862,735)
Construction work in progress                                      654,516            516,664           567,235
Nuclear fuel, at amortized cost                                    163,281            172,250           133,070
-------------------------------------------------------------------------------------------------------------------

Total utility plant                                              7,322,619          7,253,582         7,313,272
-------------------------------------------------------------------------------------------------------------------

Nonutility property -- less accumulated
   provision for depreciation of $8,307, $25,682
   and $24,990 at respective dates                                  73,225             56,681            66,251
Nuclear decommissioning trusts                                   2,357,155          2,239,929         2,056,275
Other investments                                                  124,375            179,480           237,627
-------------------------------------------------------------------------------------------------------------------

Total other property and investments                             2,554,755          2,476,090         2,360,153
-------------------------------------------------------------------------------------------------------------------

Cash and equivalents                                                72,439             81,500           830,942
Receivables, including unbilled revenue, less
   allowances of $23,266, $22,230 and $20,754
   for uncollectible accounts at respective dates                1,062,376          1,112,630         1,030,792
Fuel inventory                                                      52,963             51,299            50,965
Materials and supplies, at average cost                            116,191            116,259           116,678
Accumulated deferred income taxes-- net                             92,795            274,833           313,360
Regulatory balancing accounts-- net                              1,103,765            648,781            50,234
Prepayments and other current assets                                17,470             91,992            15,140
-------------------------------------------------------------------------------------------------------------------

Total current assets                                             2,517,999          2,377,294         2,408,111
-------------------------------------------------------------------------------------------------------------------

Unamortized nuclear investment-- net                             1,763,390          2,161,998         2,561,325
Income tax-related deferred charges                              1,440,617          1,463,256         1,559,336
Unamortized debt issuance and reacquisition expense                343,126            348,816           362,125
Other deferred charges                                           1,032,117            865,892           816,595
-------------------------------------------------------------------------------------------------------------------

Total deferred charges                                           4,579,250          4,839,962         5,299,381
-------------------------------------------------------------------------------------------------------------------

Total assets                                                   $16,974,623        $16,946,928       $17,380,917
-------------------------------------------------------------------------------------------------------------------
</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>

                                                                 June 30,          December 31,         June 30,
                                                                   1999                1998               1998
-------------------------------------------------------------------------------------------------------------------

CAPITALIZATION AND LIABILITIES

Common shareholder's equity:
   Common stock (434,888,104 shares
<S>                                                         <C>                 <C>              <C>
      outstanding at each date)                             $   2,168,054       $   2,168,054    $   2,168,054
   Additional paid-in capital                                     334,031             334,031          334,032
   Accumulated other comprehensive income                               -              39,462           60,465
   Retained earnings                                              694,161             793,625        1,078,982
-------------------------------------------------------------------------------------------------------------------

                                                                3,196,246           3,335,172        3,641,533
-------------------------------------------------------------------------------------------------------------------

Preferred stock:
   Not subject to mandatory redemption                            128,755             128,755          128,755
   Subject to mandatory redemption                                255,700             255,700          256,700
Long-term debt                                                  5,297,014           5,446,638        5,540,461
-------------------------------------------------------------------------------------------------------------------

Total capitalization                                            8,877,715           9,166,265        9,567,449
-------------------------------------------------------------------------------------------------------------------

Other long-term liabilities                                       742,298             467,109          495,703
-------------------------------------------------------------------------------------------------------------------

Current portion of long-term debt                                 569,229             400,810          610,332
Short-term debt                                                   407,115             469,565          121,555
Accounts payable                                                  385,763             447,484          396,363
Accrued taxes                                                     698,505             678,955          895,472
Accrued interest                                                  115,456              89,828           94,448
Dividends payable                                                  94,347              91,742           92,893
Deferred unbilled revenue and other current liabilities         1,159,488           1,096,332        1,049,308
-------------------------------------------------------------------------------------------------------------------

Total current liabilities                                       3,429,903           3,274,716        3,260,371
-------------------------------------------------------------------------------------------------------------------

Accumulated deferred income taxes-- net                         2,877,011           2,993,142        2,956,964
Accumulated deferred investment tax credits                       228,586             250,116          308,380
Customer advances and other deferred credits                      818,785             795,266          790,980
-------------------------------------------------------------------------------------------------------------------

Total deferred credits                                          3,924,382           4,038,524        4,056,324
-------------------------------------------------------------------------------------------------------------------

Minority interest                                                     325                 314            1,070
-------------------------------------------------------------------------------------------------------------------

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

Total capitalization and liabilities                          $16,974,623         $16,946,928      $17,380,917
===================================================================================================================
</TABLE>


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


                                       4
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

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

                                              3 Months Ended              6 Months Ended             12 Months Ended
                                                 June 30,                    June 30,                   June 30,
------------------------------------------------------------------------------------------------------------------------
                                             1999         1998         1999         1998           1999          1998
------------------------------------------------------------------------------------------------------------------------

Cash flows from operating activities:
<S>                                        <C>         <C>          <C>          <C>             <C>         <C>
Net income                                 $111,846    $120,448     $194,540     $225,594        $484,068    $581,081
Adjustments for non-cash items:
   Depreciation, decommissioning and
       amortization                         377,018     375,919      763,295      758,898       1,550,133   1,381,705
   Other amortization                        22,506      24,376       43,124       37,532          94,915      86,914
   Deferred income taxes and
     investment tax credits                 (15,549)   (308,917)      67,016     (207,025)        179,537    (135,627)
   Other long-term liabilities               28,788       1,333       81,311       16,066          52,717     (10,363)
   Regulatory asset related to sale of
     oil & gas plant                             --      (9,950)         241     (107,991)       (112,000)   (107,991)
   Net loss (gain) on sale of oil & gas plant    14    (702,972)      (1,110)    (640,339)         74,606    (640,339)
   Other-- net                                4,117     (14,171)     (20,202)     (15,516)          2,912    (131,437)
Changes in working capital:
   Receivables                              (14,272)   (279,473)      50,254     (124,404)        (31,584)    (48,782)
   Regulatory balancing accounts           (129,575)    444,844     (454,984)     143,077      (1,053,531)   (136,750)
   Fuel inventory, materials and supplies     2,656      17,099       (1,596)      23,396          (1,511)     47,389
   Prepayments and other current assets      37,395      39,299       74,522       77,958          (2,330)      2,138
   Accrued interest and taxes                40,091     348,291       45,178      395,244        (175,959)    242,063
   Accounts payable and other
     current liabilities                     (5,187)    226,755        1,435      107,111          99,580     289,988
------------------------------------------------------------------------------------------------------------------------

Net cash provided by operating activities   459,848     282,881      843,024      689,601       1,161,553   1,419,989
------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
Long-term debt issued                       355,540          --      355,540           --         355,540          --
Long-term debt repaid                      (217,462)   (150,014)    (217,462)    (604,455)       (389,037) (1,320,545)
Rate reduction notes issued                      --          --           --           --              --   2,444,127
Rate reduction notes repaid                 (49,229)    (65,354)    (119,760)     (82,465)       (288,886)    (77,303)
Preferred stock redeemed                         --     (73,300)          --      (73,300)         (1,000)    (73,300)
Nuclear fuel financing-- net                   (180)    (10,248)      (9,016)     (18,871)         26,099     (31,950)
Short-term debt financing-- net            (222,082)   (223,686)     (62,450)    (200,473)        285,560     (23,689)
Capital transferred                              --          --           --           --              --     153,000
Dividends paid                             (116,890)   (451,938)    (289,015)    (553,022)       (865,804) (2,126,825)
------------------------------------------------------------------------------------------------------------------------

Net cash used by financing activities      (250,303)   (974,540)    (342,163)  (1,532,586)       (877,528) (1,056,485)
------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
Additions to property and plant            (244,293)   (169,068)    (475,137)    (337,046)       (998,928)   (738,720)
Proceeds from sale of oil and gas plant          --   1,115,238           --    1,145,039          58,000   1,145,039
Funding of nuclear decommissioning trusts   (29,298)    (37,198)     (66,424)     (76,881)       (152,467)   (156,064)
Unrealized gain (loss) on securities-- net  (15,876)      1,332      (39,462)      12,442         (60,465)     12,635
Other-- net                                  30,051      (1,178)      71,101      (31,899)        111,332     (34,833)
------------------------------------------------------------------------------------------------------------------------

Net cash provided (used) by
 investing activities                      (259,416)    909,126     (509,922)     711,655      (1,042,528)    228,057
------------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash
   and equivalents                          (49,871)    217,467       (9,061)    (131,330)       (758,503)    591,561
Cash and equivalents, beginning
   of period                                122,310     613,475       81,500      962,272         830,942     239,381
------------------------------------------------------------------------------------------------------------------------

Cash and equivalents, end of period        $ 72,439    $830,942    $  72,439     $830,942        $ 72,439    $830,942
------------------------------------------------------------------------------------------------------------------------

Cash payments for interest and taxes:
Interest-- net of amounts capitalized      $ 49,695   $  50,859     $117,313     $125,667        $255,390    $291,503
Taxes                                           --          416           12          426         407,919     420,956
</TABLE>


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


                                       5
<PAGE>


SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.    Summary of Significant Accounting Policies

Southern  California  Edison  Company (SCE) is a public  utility which  supplies
electric energy for its 4.3 million  customers in central,  coastal and Southern
California;  SCE also produces electricity.  The regulatory environment in which
SCE  operates  is  changing as a result of a 1995  California  Public  Utilities
Commission (CPUC) decision on electric utility industry  restructuring and state
legislation enacted in 1996.

Basis of Presentation

SCE's accounting policies conform with generally accepted accounting principles,
including the accounting principles for rate-regulated enterprises which reflect
the  rate-making  policies  of  the  CPUC  and  the  Federal  Energy  Regulatory
Commission (FERC). As a result of industry restructuring  legislation enacted by
the  State  of  California  and  related   changes  in  the   rate-recovery   of
generation-related  assets,  SCE  accounts  for  its  investment  in  generation
facilities in accordance with accounting principles applicable to enterprises in
general.  Application of such accounting  principles to SCE's generation assets,
beginning in 1997,  did not result in any  adjustment of their  carrying  value;
however,  in the second  quarter of 1998,  the carrying  value of SCE's  nuclear
investments  (excluding  decommissioning)  was  reduced by $2.6  billion,  and a
regulatory asset was established for the same amount.

The  consolidated   financial  statements  include  SCE  and  its  subsidiaries.
Intercompany  transactions have been eliminated.  Certain  prior-period  amounts
were  reclassified  to  conform  to  the  June  30,  1999,  financial  statement
presentation.

Since April 1, 1998, when the new market  structure  began, SCE has been selling
all of its generation through the power exchange (PX), as mandated by the CPUC's
1995 restructuring  decision.  Through the PX, SCE satisfies the electric energy
needs of customers  who did not choose an  alternative  energy  provider.  These
transactions with the PX are reported as Purchased power - power exchange - net.
Generation sales through the PX were $360 million, $642 million and $1.7 billion
for the three, six and twelve months ended June 30, 1999, respectively, and $304
million for each of the same periods ended June 30, 1998.  Purchases from the PX
were $457 million,  $856 million and $2.5 billion for the three,  six and twelve
months ended June 30, 1999, respectively,  and $344 million for each of the same
periods ended June 30, 1998.

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

Cash Equivalents

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

Estimates

Financial  statements  prepared in compliance with generally accepted accounting
principles  require management to make estimates and assumptions that affect the
amounts  reported in the financial  statements and disclosure of  contingencies.
Actual results could differ from those estimates.  Certain significant estimates
related to regulatory  matters,  decommissioning  and  contingencies are further
discussed  in  Notes  2,  9 and  10 to the  Consolidated  Financial  Statements,
respectively.

Fuel Inventory

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


                                       6
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nuclear

SCE is recovering its investment 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.  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 2001.

Beginning  January 1, 1998, San Onofre's  incentive pricing plan and accelerated
plant  recovery  and  the  Palo  Verde  balancing  account  became  part  of the
transition  cost balancing  account.  SCE will be required to share equally with
ratepayers the net benefits received from operation of Palo Verde,  beginning in
2002,  and from the  operation  of the San Onofre  units 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 through 2002.

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

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.

Effective  January 1, 1998, SCE's rates were 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, subject
to  refund.  SCE's  costs  associated  with its  hydroelectric  plants are 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
(March 31, 2002),  or until market  valuation of the  hydroelectric  facilities,
whichever occurs first.  Revenue from hydroelectric  facilities in excess of the
hydroelectric revenue requirement is credited against the costs to transition to
a  competitive  market.  Decommissioning  costs  are being  recovered  through a
CPUC-authorized non-bypassable charge.

The CTC provides SCE the  opportunity  to recover its costs to  transition  to a
competitive  market  (approximately  $10.6  billion  1998  net  present  value).
Transition costs related to power-purchase contracts are being recovered through
the terms of their contracts while most of the remaining  transition  costs will
be recovered  through 2001. A portion of the stranded costs 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.  Additionally,  the state  legislation
contained   provisions   for  the   recovery   (through   2006)  of   reasonable
employee-related  transition  costs,  incurred and  projected,  for  retraining,
severance, early retirement, outplacement and related expenses.

                                       7
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 accounting  principles for
rate-regulated  enterprises  to  its  generation  assets  did  not  result  in a
write-off  of its  generation-related  regulatory  assets  since  the  CPUC  has
approved recovery through the CTC.

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

                                                            June 30,            December 31,          June 30,
     In millions                                              1999                  1998                1998
----------------------------------------------------------------------------------------------------------------
     Generation-related:
<S>                                                        <C>                   <C>                 <C>
     Unamortized nuclear investment-- net                  $ 1,763               $ 2,162             $ 2,576
     Flow-through taxes                                        407                   614                 768
     Rate reduction notes-- transition cost deferral           515                   315                 209
     Unamortized loss on sale of plant                         152                   183                 101
     Purchased-power settlements                               311                   130                 138
     Environmental remediation                                  16                    16                  16
     Regulatory balancing accounts and other                   634                   354                 (33)
----------------------------------------------------------------------------------------------------------------
         Subtotal                                            3,798                 3,774               3,775
----------------------------------------------------------------------------------------------------------------
     Other:
     Flow-through taxes                                      1,034                   849                 791
     Unamortized loss of reacquired debt                       303                   308                 319
     Environmental                                             118                   125                 130
     Regulatory balancing accounts and other                    74                   110                  28
----------------------------------------------------------------------------------------------------------------

         Subtotal                                            1,529                 1,392               1,268
----------------------------------------------------------------------------------------------------------------

     Total                                                 $ 5,327               $ 5,166              $5,043
----------------------------------------------------------------------------------------------------------------
</TABLE>

Generation-related regulatory assets and liabilities are being recovered through
the CTC through March 31, 2002,  except for the rate reduction notes  regulatory
asset which will be recovered  over the terms of the rate reduction  notes.  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.  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.

If during the  transition  period events were to occur that made the recovery of
these  generation-related  regulatory  assets no longer  probable,  SCE would be
required to write off the remaining balance of such assets  (approximately  $1.8
billion,  after tax, at June 30, 1999) as a one-time,  non-cash  charge  against
earnings.

Regulatory Balancing Accounts

Beginning January 1, 1998, the difference between generation-related revenue and
generation-related  costs is being  accumulated in the transition cost balancing
account,  effectively eliminating all other balancing accounts except those used
to assist in the  administration  of public purpose funds.  Additionally,  gains
resulting from the sale of the gas- and oil-fueled generation plants during 1998
were


                                       8
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

credited  to the  transition  cost  balancing  account;  the  losses  are  being
amortized over the remaining transition period and accumulated in the transition
cost balancing account.  These transition costs are being recovered from utility
customers (with interest) through the CTC mechanism.

Prior to January 1, 1998, the  differences  between  CPUC-authorized  and actual
base-rate revenue from kilowatt-hour sales and CPUC-authorized and actual energy
costs were  accumulated  in balancing  accounts  until they were refunded to, or
recovered from,  utility  customers  through  authorized rate adjustments  (with
interest).  On January 1, 1998,  the balances in these  balancing  accounts were
transferred to the transition cost balancing account.

Income tax effects on all balancing account changes are deferred.

Research, Development and Demonstration (RD&D)

SCE capitalizes RD&D costs that are expected to result in plant construction. If
construction does not occur, these costs are charged to expense.

Revenue

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

Utility Plant

Plant additions,  including replacements and betterments, are capitalized.  Such
costs for utility  property  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 3.7%, for the three,
six and twelve  months  ended  June 30,  1999,  and 3.5%,  5.5% and 5.9% for the
three, six and twelve months ended June 30, 1998, respectively.

SCE's net  investment  in  generation-related  utility plant was $1.1 billion at
June 30, 1999, and December 31, 1998, and $4.4 billion at June 30, 1998.

Note 2.    Regulatory Matters

FERC Transmission Rate Case

SCE filed its first  FERC  transmission  rate  case in March  1997.  The  filing
proposed a transmission  revenue  requirement of $211 million.  In March 1999, a
proposed  FERC  decision  was  issued  recommending  a return on equity of 9.68%
(compared  to SCE's  current  CPUC rate for  distribution  of 11.6%) and a lower
revenue  requirement.  SCE filed briefs  opposing  the proposed  decision in May
1999. A final FERC decision is expected late 1999. SCE does not expect the final
decision to have a material  effect on its results of  operations  or  financial
position.

Recovery of Restructuring Implementation Costs

The  independent  system  operator  (ISO)  assumed  operational  control  of the
transmission  system after the ISO and PX began accepting bids and schedules for
electricity purchases on March 31, 1998. The restructuring  implementation costs
related  to the  start-up  and  development  of the PX,  which  were paid by


                                       9
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the utilities, were to be recovered from all retail customers over the four-year
transition period.  SCE's share of the charge is $45 million,  plus interest and
fees. SCE's share of the ISO's start-up and development costs (approximately $16
million per year) will be paid over a 10-year period.  In May 1998, SCE filed an
application  with the CPUC to identify the  categories of such costs  (including
costs  related to the  implementation  of direct  access),  and to establish the
reasonableness of those costs incurred in 1997.

Two  proposed  decisions  issued in March  1999  rejected  SCE's  request  for a
determination  of eligibility for several major categories of such costs. In May
1999,  SCE, the CPUC's  Office of Ratepayer  Advocates and several other parties
entered   into  a  settlement   agreement   that  would  allow  SCE  to  recover
substantially   all   (approximately   $319   million)   of  its   restructuring
implementation  costs  (incurred and  estimated)  for the period  1997-2001.  In
addition,  the settlement provides that up to $210 million of generation-related
costs  (transition  costs) that are  displaced by recovery of the  restructuring
implementation  costs during the rate freeze may be recovered after December 31,
2001,  the  date SCE  would  cease  to  recover  these  transition  costs  under
restructuring legislation. The CPUC has withdrawn its earlier proposed decisions
on SCE's application. On July 6, 1999, a proposed decision was issued that would
approve the settlement in its entirety.  A final CPUC decision on the settlement
is expected in third quarter 1999.

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 has gas call options that  mitigate its exposure to increases in natural gas
prices.  Increases  in  natural  gas  prices  tend  to  increase  the  price  of
electricity  purchased from the PX. The options cover various  periods from 1998
through 2001. Additionally, SCE has been granted CPUC approval to participate in
forward purchases through a PX block forward market.

SCE uses the  mark-to-market  accounting method for its gas call options.  Gains
and losses  from  monthly  changes in market  prices are  recorded  as income or
expense.  However,  the costs of the  options and the market  price  changes are
included  in  the  transition  cost  balancing   account.   As  a  result,   the
mark-to-market  gains or  losses  have no  effect  on  earnings.  Block  forward
purchases will receive the same accounting and ratemaking treatment as SCE's gas
call options.

Interest  rate swaps are used to reduce the  potential  impact of interest  rate
fluctuations on floating-rate long-term debt. At the balance sheet dates of June
30, 1999,  December 31, 1998,  and June 30, 1998,  SCE had an interest rate swap
agreement  which fixed the interest  rate at 5.585% for $196 million of debt due
2008; it expires  February 28, 2008. The interest rate swap  agreement  requires
the parties to pledge  collateral  according to bond rating and market  interest
rate changes. At June 30, 1999, SCE had pledged $26 million as collateral due to
a decline in market interest  rates.  SCE is exposed to credit loss


                                       10
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

in the event of  nonperformance  by the counterparty to the agreement,  but does
not expect the counterparty to fail to meet its obligation.

Fair Value of Financial Instruments

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

                                                June 30,               December 31,            June 30,
       In millions                                1999                     1998                  1998
--------------------------------------------------------------------------------------------------------------

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

       Financial assets:
<S>                                       <C>            <C>         <C>       <C>        <C>        <C>
       Decommissioning trusts              $1,601        $2,357      $1,534    $2,240     $1,448     $2,056
       Equity investments                      --            --           7        72          9        110
       Gas call options                        34            21          39        31         44         56

       Financial liabilities:
       DOE decommissioning and
         decontamination fees             $    45       $    39      $   45   $    40    $    50    $    44
       Interest rate swap                      --            19          --        28         --         25
       Long-term debt                       5,297         5,337       5,447     5,699      5,540      5,708
       Preferred stock subject to
         mandatory redemption                 256           264         256       274        257        273
==============================================================================================================
</TABLE>

Financial  assets are carried at their fair value based on quoted  market prices
for  decommissioning  trusts and equity  investments and on financial models for
gas  call  options.  Financial  liabilities  are  recorded  at  cost.  Financial
liabilities'  fair values are based on:  termination costs for the interest rate
swap;  brokers'  quotes for long-term debt 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 (losses) on financial assets were:
<TABLE>
<CAPTION>

                                                            June 30,        December 31,        June 30,
       In millions                                            1999              1998              1998
----------------------------------------------------------------------------------------------------------

       Decommissioning trusts:
<S>                                                           <C>               <C>               <C>
       Municipal bonds                                        $190              $196              $163
       Stocks                                                  401               365               311
       U.S. government issues                                  132               115               129
       Short-term and other                                     34                30                 5
----------------------------------------------------------------------------------------------------------

                                                               757               706               608
       Equity investments                                       --                65               101
       Gas call options                                        (13)               (8)               12
----------------------------------------------------------------------------------------------------------
       Total                                                  $744              $763              $721
==========================================================================================================
</TABLE>

There  were no  unrealized  holding  losses on  financial  assets  for the years
presented,  other than the  unrealized  holding  loss on the gas call options at
June 30, 1999, and December 31, 1998.

In June 1998, a new accounting  standard for derivative  instruments and hedging
activities  was issued.  The new  standard,  which as amended  will be effective
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


                                       11
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Investments

Net unrealized  gains (losses) on equity  investments 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.

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. SCE has pledged
first and refunding  mortgage bonds as security for borrowed funds obtained from
pollution-control  bonds issued by government agencies.  SCE uses these proceeds
to  finance  construction  of  pollution-control  facilities.  Bondholders  have
limited  discretion in redeeming  certain  pollution-control  bonds, and SCE has
arranged with securities dealers to remarket or purchase them if necessary.

Debt premium, discount and issuance expenses are amortized over the life of each
issue.  Under CPUC  rate-making  procedures,  debt  reacquisition  expenses  are
amortized over the remaining life of the reacquired debt or, if refinanced,  the
life of the new debt.

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 June 30, 1999, are: 2000 -- $569 million; 2001 --
$648  million;  2002 -- $246  million;  2003 -- $572  million;  and 2004 -- $247
million.

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

                                       12
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Although SCE Funding LLC is consolidated  with SCE in the financial  statements,
as required by  generally  accepted  accounting  principles,  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.

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

                                                        June 30,              December 31,          June 30,
     In millions                                          1999                    1998                1998
---------------------------------------------------------------------------------------------------------------

     First and refunding mortgage bonds:
<S>                                                       <C>                     <C>                 <C>           \
         2000 - 2026 (5.625% to 7.25%)                    $1,400                  $1,550              $1,550
     Rate reduction notes:
         1999 - 2007 (6.14% to 6.42%)                      2,096                   2,217               2,385
     Pollution-control bonds:
         1999 - 2029 (5.4% to 7.2% and
         variable)                                         1,201                   1,201               1,202
     Funds held by trustees                                   (2)                     (2)                 (2)
     Debentures and notes:
       2000 - 2029 (5.875% to 8.25%)                       1,000                     700                 870
     Subordinated debentures:
       2044 (8.375%)                                         100                     100                 100
     Commercial paper for nuclear fuel                        99                     108                  73
     Long-term debt due within one year                     (569)                   (401)               (610)
     Unamortized debt discount-- net                         (28)                    (26)                (28)
---------------------------------------------------------------------------------------------------------------
     Total                                                $5,297                  $5,447              $5,540
===============================================================================================================
</TABLE>

Short-Term Debt

SCE has lines of credit  totaling $1.3 billion that can be used at negotiated or
bank index rates.  At June 30, 1999,  $300 million was available for  short-term
debt and $500 million was  available for the  long-term  refinancing  of certain
variable-rate pollution-control debt.

Short-term debt consisted of commercial  paper used to finance fuel  inventories
and general cash  requirements.  Commercial paper  outstanding at June 30, 1999,
December 31, 1998,  and June 30, 1998,  was $508 million,  $581 million and $196
million,  respectively.  Commercial  paper  intended  to  finance  nuclear  fuel
scheduled  to be used  more  than one  year  after  the  balance  sheet  date is
classified  as  long-term  debt  in  connection  with  refinancing  terms  under
five-year term lines of credit with commercial banks.  Weighted-average interest
rates were 5.0%, 5.3% and 5.6% at June 30, 1999, December 31, 1998, and June 30,
1998, respectively.

Note 4.    Equity

The CPUC regulates  SCE's capital  structure,  limiting the dividends it may pay
Edison International. At June 30, 1999, SCE had the capacity to pay $694 million
in  additional  dividends  and  continue  to  maintain  its  authorized  capital
structure.


                                       13
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in SCE's common shareholder's equity were as follows:

Three months ended June 30, 1998, and 1999:

<TABLE>
<CAPTION>
                                                                         Accumulated                       Total
                                                         Additional         Other                         Common
                                             Common        Paid-in      Comprehensive     Retained     Shareholder's
In millions                                   Stock        Capital         Income         Earnings        Equity
---------------------------------------------------------------------------------------------------------------------
<S>                                          <C>            <C>         <C>              <C>             <C>
Balance at March 31, 1998                    $2,168         $  334      $   60           $1,408          $3,970
---------------------------------------------------------------------------------------------------------------------
Net income                                                                                  120             120
Unrealized gain on securities                                                1                                1
Dividends declared on common stock                                                         (442)           (442)
Dividends declared on preferred stock                                                        (7)             (7)
---------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998                     $2,168          $  334     $   61           $1,079          $3,642
---------------------------------------------------------------------------------------------------------------------

Balance at March 31, 1999                    $2,168          $  334     $   16           $  700          $3,218
---------------------------------------------------------------------------------------------------------------------
Net income                                                                                  112             112
Unrealized gain on securities                                               (2)                              (2)
   Tax effect                                                                1                                1
Reclassified adjustment for gains
   included in net income                                                  (25)                             (25)
   Tax effect                                                               10                               10
Dividends declared on common stock                                                         (111)           (111)
Dividends declared on preferred stock                                                        (6)             (6)
Stock option appreciation                                                                    (1)             (1)
---------------------------------------------------------------------------------------------------------------------

Balance at June 30, 1999                     $2,168           $  334       $ -           $  694          $3,196
---------------------------------------------------------------------------------------------------------------------

Six months ended June 30 1998, and 1999:

---------------------------------------------------------------------------------------------------------------------
Balance at December  31, 1997                $2,168           $  334       $   48        $1,408          $3,958
---------------------------------------------------------------------------------------------------------------------
Net income                                                                                  226             226
Unrealized gain on securities                                                  20                            20
   Tax effect                                                                  (7)                           (7)
Dividends declared on common stock                                                         (538)           (538)
Dividends declared on preferred stock                                                       (13)            (13)
Stock option appreciation                                                                    (3)             (3)
Required capital stock expense and other                                                     (1)             (1)
---------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998                    $2,168            $  334       $   61        $1,079          $3,642
---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998                $2,168            $  334       $   39          $794          $3,335
---------------------------------------------------------------------------------------------------------------------
Net income                                                                                  195             195
Unrealized gain on securities                                                (10)                           (10)
   Tax effect                                                                  3                              3
Reclassified adjustment for gains included
   in net income                                                             (54)                           (54)
Tax effect                                                                    22                             22
Dividends declared on common stock                                                         (280)           (280)
Dividends declared on preferred stock                                                       (12)            (12)
Stock option appreciation                                                                    (3)             (3)
---------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999                    $2,168            $  334         $ -           $694          $3,196
=====================================================================================================================
</TABLE>


                                       14
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Twelve months ended June 30, 1998, and 1999:
<TABLE>
<CAPTION>

                                                                         Accumulated                       Total
                                                         Additional         Other                         Common
                                             Common        Paid-in      Comprehensive     Retained     Shareholder's
In millions                                   Stock        Capital         Income         Earnings        Equity
---------------------------------------------------------------------------------------------------------------------
<S>                                          <C>          <C>             <C>            <C>             <C>
Balance at June 30, 1997                     $2,168       $  178          $   48         $2,554          $4,948
---------------------------------------------------------------------------------------------------------------------

Net income                                                                                  581             581
Unrealized gain on securities                                                 20                             20
     Tax effect                                                               (7)                            (7)
Dividends declared on common stock                                                       (2,022)         (2,022)
Dividends declared on preferred stock                                                       (27)            (27)
Stock option appreciation                                                                    (3)             (3)
Required capital stock expense and other                                                     (4)             (4)
Additional investment from parent company                     156                                           156
----------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998                     $2,168        $  334         $   61         $1,079          $3,642
----------------------------------------------------------------------------------------------------------------------
Net income                                                                                  484             484
Unrealized gain on securities                                                (17)                           (17)
     Tax effect                                                                6                              6
Reclassified adjustment for gains included
     in net income                                                           (84)                           (84)
     Tax effect                                                               34                             34
Dividends declared on common stock                                                         (843)           (843)
Dividends declared on preferred stock                                                       (23)            (23)
Stock option appreciation                                                                    (3)             (3)
---------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999                     $2,168         $  334        $  -             $694          $3,196
---------------------------------------------------------------------------------------------------------------------
</TABLE>

Authorized  common  stock is 560 million  shares  with no par value.  Authorized
shares of preferred and  preference  stock are: $25  cumulative  preferred -- 24
million;  $100 cumulative preferred -- 12 million; and preference -- 50 million.
All cumulative preferred stocks are redeemable. Mandatorily redeemable preferred
stocks  are  subject  to  sinking-fund  provisions.  When  preferred  shares are
redeemed, the premiums paid are charged to common equity.

Preferred  stock  redemption  requirements  for the  five  twelve-month  periods
following  June 30, 1999,  are: 2000 through  2001-- zero;  2002--$105  million;
2003-- $9 million; and 2004-- $9 million.


                                       15
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cumulative preferred stock consisted of:
<TABLE>
<CAPTION>
                                                               June 30,          December 31,          June 30,
     Dollars in millions, except per-share amounts               1999                1998                1998
------------------------------------------------------------------------------------------------------------------
                                         June 30, 1999
                                 ---------------------------
                                   Shares         Redemption
                                 Outstanding         Price
                                 ---------------------------

     Not subject to mandatory redemption:
     $25 par value:
<S>  <C>                         <C>              <C>             <C>                 <C>               <C>
     4.08% Series                1,000,000        $  25.50        $  25               $ 25              $  25
     4.24                        1,200,000           25.80           30                 30                 30
     4.32                        1,653,429           28.75           41                 41                 41
     4.78                        1,296,769           25.80           33                 33                 33
------------------------------------------------------------------------------------------------------------------
     Total                                                        $ 129               $129               $129
------------------------------------------------------------------------------------------------------------------

     Subject to mandatory redemption:
     $100 par value:
     6.05%                         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                 82
------------------------------------------------------------------------------------------------------------------
     Total                                                        $  256              $256              $ 257
------------------------------------------------------------------------------------------------------------------
</TABLE>

In the third quarter of 1998, 10,000 shares of Series 7.23% preferred stock were
redeemed.  In the second  quarter of 1998,  2.2  million  shares of Series  5.8%
preferred stock and 183,000 shares of Series 7.23% were redeemed.  There were no
preferred stock issuances for the periods presented.

Note 5.    Income Taxes

SCE and its subsidiaries will be included in its 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.


                                       16
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                                                            June 30,            December 31,             June 30,
In millions                                                   1999                  1998                   1998
----------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
<S>                                                           <C>                   <C>                     <C>
Property-related                                              $194                  $197                    $203
Unrealized gains or losses                                     402                   387                     326
Investment tax credits                                         140                   152                     156
Regulatory balancing accounts                                  122                    96                      77
Decommissioning-related                                        128                   126                     118
Unbilled revenue                                               103                   117                      48
Other                                                          321                   356                     364
----------------------------------------------------------------------------------------------------------------------
Total                                                       $1,410                $1,431                  $1,292
----------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Property-related                                            $2,817                $3,005                  $3,102
Capitalized software costs                                     221                   196                     156
Regulatory balancing accounts                                  337                   162                      --
Decommissioning-related                                        300                   284                     233
Other                                                          519                   502                     445
----------------------------------------------------------------------------------------------------------------------
Total                                                       $4,194                $4,149                  $3,936
----------------------------------------------------------------------------------------------------------------------
Accumulated deferred income taxes-- net                     $2,784                $2,718                  $2,644
----------------------------------------------------------------------------------------------------------------------
Classification of accumulated deferred income taxes:
Included in deferred credits                                $2,877                $2,993                  $2,957
Included in current assets                                      93                   275                     313

The current and deferred components of income tax expense were:

                                                3 Months Ended            6 Months Ended         12 Months Ended
                                                   June 30,                  June 30,               June 30,
-------------------------------------------------------------------------------------------------------------------
In millions                                     1999        1998         1999        1998       1999        1998
-------------------------------------------------------------------------------------------------------------------

Current:
Federal                                          $70        $331          $64         $355      $159          $554
State                                             21          74           18           78        41           123
-------------------------------------------------------------------------------------------------------------------
                                                  91         405           82          433       200           677
-------------------------------------------------------------------------------------------------------------------
Deferred -- federal and state:
Accrued charges                                  (34)         17           15          (14)      (14)          (34)
Ad valorem lien date adjustment                   (2)         (6)           4            2        (1)            2
Amortization of regulatory assets                  9         (38)          12          (10)       86           (10)
Contributions in aid of construction              (4)         (4)          --            2        (8)           (3)
Depreciation                                     (50)        (12)         (96)         (84)     (181)         (108)
Investment and energy tax credits-- net          (11)        (12)         (22)         (16)      (80)          (26)
Regulatory balancing accounts                     92        (225)         137         (116)      430           (12)
State tax-- privilege year                        (7)        (24)          28            7        20            (8)
Unbilled revenue                                   1         (12)          14            2       (55)           15
Other                                              1           8           --           11        --            31
-------------------------------------------------------------------------------------------------------------------
                                                  (5)       (308)          92         (216)      197          (153)
Total income tax expense                         $86        $ 97         $174         $217      $397          $524
===================================================================================================================

Classification of income taxes:
Included in operating income                     $82      $   99         $163         $225      $384          $578
Included in other income                           4          (2)          11           (8)       13           (54)
</TABLE>

The composite  federal and state  statutory  income tax rate was 40.551% for the
three, six and twelve months ended June 30, 1999, and 1998.


                                       17
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                                                3 Months Ended            6 Months Ended         12 Months Ended
                                                   June 30,                  June 30,               June 30,
---------------------------------------------------------------------------------------------------------------------
     In millions                              1999           1998        1999         1998       1999        1998
---------------------------------------------------------------------------------------------------------------------

<S>                                             <C>           <C>         <C>          <C>       <C>          <C>
     Federal statutory rate                     35.0%         35.0%       35.0%        35.0%     35.0%        35.0%
     Ad valorem lien date adjustment            (0.5)         (0.6)        0.7          --       (0.5)          --
     Amortization of regulatory assets           4.0         (17.4)        3.0         (2.2)      9.5         (0.9)
     Capitalized software                       (1.7)          2.0        (1.3)        (1.0)     (0.8)        (1.0)
     Property-related and other                  1.9          19.2         6.9         12.0       2.9          9.3
     Investment and energy tax credits          (5.2)         (2.0)       (5.6)        (2.0)     (8.7)        (1.7)
     State tax-- net of federal deduction        9.9           8.2         8.2          6.7       7.5          6.6
---------------------------------------------------------------------------------------------------------------------
     Effective tax rate                         43.4%         44.4%       46.9%        48.5%     44.9%        47.3%
---------------------------------------------------------------------------------------------------------------------
</TABLE>

Note 6. Employee Compensation and Benefit Plans

Employee Savings Plan

SCE has a 401(k)  defined  contribution  savings  plan  designed  to  supplement
employees'  retirement  income.  The plan received employer  contributions of $7
million,  $12 million and $21 million for the three, six and twelve months ended
June 30, 1999, respectively;  and $5 million, $8 million and $15 million for the
three, six and twelve months ended June 30, 1998, respectively.

Pension Plan

SCE has a  noncontributory,  defined-benefit  pension plan that covers employees
meeting minimum service requirements.  In April 1999, SCE adopted a cash balance
feature for its  non-represented  employees.  SCE recognizes  pension expense as
calculated by the actuarial  method used for ratemaking.  In 1998, SCE adopted a
new  accounting  standard that revises the disclosure  requirements  for pension
plans. Prior periods have been restated.


                                       18
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                                                         6 Months Ended         Year Ended         6 Months Ended
                                                            June 30,           December 31,           June 30,
In millions                                                   1999                 1998                 1998
-------------------------------------------------------------------------------------------------------------------
Change in benefit obligation
<S>                                                            <C>               <C>                   <C>
Benefit obligation at beginning of period                      $2,251            $ 2,094               $ 2,094
Service cost                                                       34                 59                    28
Interest cost                                                      76                141                    70
Plan amendments                                                   (25)                --                    --
Actuarial loss                                                     --                 90                    --
Benefits paid                                                     (66)              (133)                  (68)
-------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of period                            $2,270            $ 2,251               $ 2,124
-------------------------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of period               $2,552            $ 2,298               $ 2,298
Actual return on plan assets                                      218                334                   287
Employer contributions                                             34                 53                    30
Benefits paid                                                     (66)              (133)                  (68)
-------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of period                     $2,738            $ 2,552               $ 2,547
-------------------------------------------------------------------------------------------------------------------
Funded status                                                   $ 468            $   301               $   423
Unrecognized net loss (gain)                                     (490)              (372)                 (498)
Unrecognized transition obligation (17-year amortization)          31                 33                    36
Unrecognized prior service cost                                   136                168                   174
-------------------------------------------------------------------------------------------------------------------
Recorded asset (liability)                                      $ 145            $   130               $   135
-------------------------------------------------------------------------------------------------------------------
Discount rate                                                   6.75%               6.75%                  7.0%
Rate of compensation increase                                   5.0%                5.0%                   5.0%
Expected return on plan assets                                  7.5%                7.5%                   8.0%
</TABLE>

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

                                                3 Months Ended            6 Months Ended         12 Months Ended
                                                   June 30,                  June 30,               June 30,
-------------------------------------------------------------------------------------------------------------------
In millions                                   1999          1998       1999          1998        1999       1998
-------------------------------------------------------------------------------------------------------------------

<S>                                          <C>           <C>        <C>           <C>         <C>        <C>
Service cost                                 $  16         $  14      $  34         $  28       $  65      $  50
Interest cost                                   38            35         76            70         147        139
Expected return on plan assets                 (48)          (45)       (96)          (90)       (176)      (170)
Net amortization and deferral                    2             4          5             8          11         13
-------------------------------------------------------------------------------------------------------------------
Pension expense under accounting standards       8             8         19            16          47         32
Regulatory adjustment-- deferred                 5             5          7            10           8         20
-------------------------------------------------------------------------------------------------------------------
Net pension expense recognized               $  13         $  13      $  26         $  26       $  55      $  52
-------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       19
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.  In 1998,  SCE  adopted a new  accounting  standard  that  revises the
disclosure  requirements for  postretirement  benefit plans.  Prior periods have
been restated.

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

                                                   6 Months Ended        Year Ended         6 Months Ended
                                                      June 30,          December 31,           June 30,
     In millions                                        1999                1998                 1998
-------------------------------------------------------------------------------------------------------------------
Change in benefit obligation
<S>                                                  <C>                <C>                   <C>
Benefit obligation at beginning of period            $  1,545           $  1,533              $  1,533
Service cost                                               22                 41                    18
Interest cost                                              52                 99                    52
Actuarial loss (gain)                                      --                (74)                   --
Benefits paid                                             (30)               (54)                  (32)
-------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of period                  $  1,589           $  1,545              $  1,571
-------------------------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of period     $  1,029           $    815              $    815
Actual return on plan assets                               38                147                    32
Employer contributions                                     50                121                    54
Benefits paid                                             (30)               (54)                  (32)
-------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of period           $  1,087           $  1,029              $    869
-------------------------------------------------------------------------------------------------------------
Funded status                                        $   (502)          $   (516)             $   (702)
Unrecognized net loss                                      84                 84                   242
Unrecognized transition obligation (20-year
   amortization)                                          362                376                   389
-------------------------------------------------------------------------------------------------------------
Recorded asset (liability)                           $    (56)          $    (56)             $    (71)
-------------------------------------------------------------------------------------------------------------
Discount rate                                             6.75%             6.75%                  7.0%
Expected return on plan assets                            7.5%              7.5%                   8.0%
</TABLE>

The components of postretirement benefits other than pension expense were:

<TABLE>
<CAPTION>
                                                3 Months Ended            6 Months Ended       12 Months Ended
                                                   June 30,                  June 30,              June 30,
--------------------------------------------------------------------------------------------------------------
In millions                              1999          1998       1999          1998      1999         1998
--------------------------------------------------------------------------------------------------------------
<S>                                      <C>           <C>        <C>           <C>       <C>          <C>
Service cost                             $ 11          $  9       $ 22          $ 18      $ 45         $ 34
Interest cost                              26            26         52            52        99          101
Expected return on plan assets            (19)          (16)       (38)          (32)      (68)         (56)
Amortization of loss (gain)                --             1         --             2        (1)           2
Amortization of transition obligation       7             7         14            14        27           27
--------------------------------------------------------------------------------------------------------------

Total expense                            $ 25          $ 27       $ 50          $ 54     $ 102        $ 108
--------------------------------------------------------------------------------------------------------------
</TABLE>

The  assumed  rate of future  increases  in the  per-capita  cost of health care
benefits is 8.25% for 1999,  gradually  decreasing  to 5.0% for 2009 and beyond.
Increasing  the  health  care cost  trend  rate by one  percentage  point  would
increase the  accumulated  obligation  as of June 30, 1999,  by $268 million and
annual  aggregate  service and  interest  costs by $33 million.  Decreasing  the
health  care  cost  trend  rate  by one  percentage  point  would  decrease  the
accumulated obligation as of June 30, 1999, by $214 million and annual aggregate
service and interest costs by $25 million.

                                       20
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Option Plans

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

The prior program  participated in the use of 8.2 million shares of common stock
reserved for potential  issuance  under various stock  compensation  programs to
directors,  officers  and  senior  managers  of  Edison  International  and  its
affiliates.  Under  these  programs,  options  on 2.8  million  shares of Edison
International  common  stock are  currently  outstanding  to officers and senior
managers.

The new plan  authorizes  the annual  issuance of shares equal to one percent of
the issued and  outstanding  shares of Edison  International  common stock as of
December 31 of the prior year. This  authorization  is cumulative so that to the
extent  shares are not  needed to meet new plan  requirements  in any year,  the
excess  authorized shares carry over to subsequent years until plan termination.
One percent of the issued and outstanding Edison  International  common stock on
December  31,  1998,  and  December  31,  1997,  was 3.5 million and 3.8 million
shares,  respectively.  Under the new plan,  options  on 4.0  million  shares of
Edison  International  common stock are  currently  outstanding  to officers and
senior managers of SCE.

Each  option may be  exercised  to  purchase  one share of Edison  International
common stock,  and is exercisable at a price equivalent to the fair market value
of the underlying  stock at the date of grant.  All Edison  International  stock
options granted prior to 1999 include a dividend equivalent feature.  Generally,
for options issued before 1994, amounts equal to dividends accrue on the options
at the same  time and at the same  rate as would be  payable  on the  number  of
shares of Edison  International common stock covered by the options. The amounts
accumulate without interest. For Edison International stock options issued after
1993,  dividend  equivalents are subject to reduction unless certain shareholder
return   performance   criteria  are  met.   Beginning   with  the  1999  Edison
International  stock  option  awards,  some  stock  options  include a  dividend
equivalent feature,  and some stock options do not include a dividend equivalent
feature.

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

Unvested  options  of any  person  who has  served  in the  past  on the  Edison
International  or SCE  Management  Committee  (which was dissolved in 1993) will
vest and be  exercisable  upon the member's  retirement,  death or permanent and
total disability. Upon retirement,  death or permanent and total disability, the
vested  options may continue to be exercised  within their original terms by the
recipient or beneficiary. If an optionee is terminated other than by retirement,
death or  permanent  and total  disability,  options  which had vested as of the
prior  anniversary  date of the grant are forfeited  unless exercised within 180
days of the date of termination.  All unvested options are forfeited on the date
of termination.

SCE measures  compensation  expense  related to stock-based  compensation by the
intrinsic   value   method.    Compensation    expense    recorded   under   the
stock-compensation  program  was $2  million,  $3 million and $5 million for the
three, six and twelve months ended June 30, 1999, respectively,  and $1 million,
$2 million and $4 million for the three,  six and twelve  months  ended June 30,
1998, respectively.


                                       21
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-based compensation expense under the fair-value method of accounting would
have  resulted in pro forma  earnings  of $106  million,  $182  million and $460
million for the three, six and twelve months ended June 30, 1999,  respectively;
and $114  million,  $212 million and $553 million for the three,  six and twelve
months ended June 30, 1998, 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
                                          June 30,
----------------------------- -------------------------- --------------------
                                      1999                       1998
----------------------------- -------------------------- --------------------
Expected life                       7 years                     7 years
Risk-free interest rate           4.7% - 5.6%                    5.6%
Expected volatility                17% - 18%                      17%
----------------------------- -------------------------- --------------------

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.

Note 7.    Jointly Owned Utility Projects

SCE owns interests in several generating  stations and transmission  systems for
which each participant  provides its own financing.  SCE's share of expenses for
each project is included in the consolidated statements of income.

The investment in each project, as included in the consolidated balance sheet as
of June 30, 1999, 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                                 $    33               $     6               $ 3          60%
  Pacific Intertie                             239                    80                 8          50
Generating stations:
  Four Corners Units 4 and 5 (coal)            459                   311                 2          48
  Mohave (coal)                                319                   199                 6          56
  Palo Verde (nuclear)(1)                    1,608                 1,030                14          16
  San Onofre (nuclear)(1)                    4,257                 3,011                25          75
------------------------------------------------------------------------------------------------------------
Total                                      $ 6,915                $4,637               $58
------------------------------------------------------------------------------------------------------------
(1) Reported as "Unamortized nuclear investment -- net."
</TABLE>


                                       22
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8.    Leases

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

Estimated remaining commitments for noncancellable leases at June 30,1999, were:

       Year ended December 31,                      In millions
-------------------------------------------------------------------------
       1999                                               $  7
       2000                                                 12
       2001                                                  9
       2002                                                  6
       2003                                                  4
       Thereafter                                            7
-------------------------------------------------------------------------
       Total                                               $45
-------------------------------------------------------------------------

Note 9. Commitments

Nuclear Decommissioning

Decommissioning is estimated to cost $1.9 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,
which,  effective  June 3, 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 2013 for San Onofre  Units 2 and 3, and  2025-2027  for Palo
Verde.   In  June  1999,   the  CPUC   authorized  SCE  to  access  its  nuclear
decommissioning  trust  funds to commence  decommissioning  of San Onofre Unit 1
(shut  down  in  1992  pursuant  to a  CPUC  agreement)  effective  immediately.
Decommissioning  costs,  which are accrued and recovered through  non-bypassable
customer rates over the term of each nuclear facility's  operating license,  are
recorded as a component of depreciation expense.

Decommissioning  expense was $31  million,  $70 million and $157 million for the
three, six and twelve months ended June 30, 1999, respectively, and $37 million,
$77 million and $157 million for the three, six and twelve months ended June 30,
1998, respectively. The accumulated provision for decommissioning, excluding San
Onofre Unit 1, was $1.3 billion at June 30,  1999,  $1.2 billion at December 31,
1998, and $1.1 billion at June 30, 1998. The estimated costs to decommission San
Onofre Unit 1 ($368 million) are recorded as a liability.

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

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

                                             Maturity              June 30,       December 31,        June 30,
     In millions                               Dates                 1999             1998              1998
-----------------------------------------------------------------------------------------------------------------
<S>                                         <C>                    <C>             <C>                <C>
     Municipal bonds                        2000 - 2033             $  554          $  547             $  486
     Stocks                                      -                     533             550                535
     U.S. government issues                 1999 - 2029                417             355                425
     Short-term and other                   1999 - 2030                 97              82                  2
-----------------------------------------------------------------------------------------------------------------
     Total                                                         $ 1,601          $ 1,534            $ 1,448
-----------------------------------------------------------------------------------------------------------------
</TABLE>

                                       23
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Trust fund earnings (based on specific  identification)  increase the trust fund
balance and the accumulated provision for decommissioning. Net earnings were $10
million,  $24 million and $59 million for the three, six and twelve months ended
June 30, 1999,  respectively;  and $12 million,  $27 million and $57 million for
the three,  six and twelve  months ended June 30, 1998,  respectively.  Proceeds
from sales of securities (which are reinvested) were $689 million,  $1.1 billion
and $1.7  billion  for the three,  six and twelve  months  ended June 30,  1999,
respectively; and $362 million, $569 million and $903 million for the three, six
and twelve months ended June 30, 1998,  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.

SCE  has  power-purchase  contracts  with  certain  qualifying  facilities  (QF)
(cogenerators  and small power producers) and other  utilities.  These contracts
provide  for  capacity   payments  if  a  facility  meets  certain   performance
obligations and energy payments based on actual power supplied to SCE. There are
no  requirements  to make  debt-service  payments.  As a result  of the  utility
industry restructuring,  SCE has entered into purchased-power settlements to end
its contract  obligations with certain QFs. The settlements  (approximately $300
million) are reported as long-term  liabilities.  Settlement  payments are being
recovered through the CTC.

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  $172 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 a long-term liability.

Certain commitments for the years 1999 through 2003 are estimated below:
<TABLE>
<CAPTION>

In millions                                          1999       2000       2001       2002       2003
--------------------------------------------------------------------------------------------------------
<S>                                                   <C>        <C>       <C>        <C>        <C>
Projected construction expenditures                   $963       $816      $716       $643       $641
Fuel supply contracts                                  161        137       124        141        133
Purchased-power capacity payments                      654        629       627        625        620
Unconditional purchase obligations                       9         10        10          9         10
--------------------------------------------------------------------------------------------------------
</TABLE>

Note 10.     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 other  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,


                                       24
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 49 identified sites
is $167 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 $285 million. The upper limit of this range of costs
was  estimated  using  assumptions  least  favorable  to SCE  among a  range  of
reasonably  possible  outcomes.  SCE has sold  all of its  gas-  and  oil-fueled
generation  plants and has retained some liability  associated with the divested
properties.

The CPUC allows SCE to recover  environmental-cleanup  costs at 41 of its sites,
representing  $86  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 $134  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 June
30, 1999, were $14 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 $9.8
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


                                       25
<PAGE>

SOUTHERN CALIFORNIA EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 primarily by mutual insurance  companies
owned by utilities with nuclear  facilities.  If losses at any nuclear  facility
covered  by the  arrangement  were to  exceed  the  accumulated  funds for these
insurance programs,  SCE could be assessed  retrospective premium adjustments of
up to $21 million per year. Insurance premiums are charged to operating expense.

Spent Nuclear Fuel

Federal law requires the DOE to select and develop repositories for, and oversee
disposal  of, spent  nuclear  fuel and  high-level  radioactive  waste.  The law
requires  the  DOE to  provide  for the  disposal  of  spent  nuclear  fuel  and
high-level  radioactive waste from nuclear generation stations beginning January
31, 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 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.

SCE 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 new and separate interim storage facilities,  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.

Palo Verde on-site spent fuel storage capacity will accommodate needs until 2002
for Units 1 and 2, and until 2003 for Unit 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.


                                       26
<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,  six and
twelve  months ended June 30,  1999,  were $106  million,  $183 million and $461
million, respectively, compared with $114 million, $212 million and $554 million
for the same periods in 1998.  The  decreases  were mainly due to the  scheduled
refueling outages at San Onofre Nuclear  Generating Station Units 2 and 3 during
the first half of 1999. The  twelve-months-ended  decrease was also due to lower
authorized revenue, which resulted from reduced authorized returns on generation
assets and a lower earning asset base resulting from the accelerated recovery of
investments and divestiture of gas- and oil-fueled generation plants.

Operating Revenue

Operating  revenue  increased  6% and 5%,  respectively,  for the  three and six
months ended June 30, 1999, compared to the year-earlier  periods. The increases
resulted  primarily from maintenance  service SCE is providing the new owners of
the divested gas- and oil-fueled plants.  Over 93% 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.

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

Operating Expenses

Fuel expense  decreased 24%, 41% and 67%,  respectively,  for the three, six and
twelve  months  ended June 30,  1999,  compared  with the same  periods in 1998,
primarily due to the sale of the gas- and oil-fueled generation plants in 1998.

Since April 1, 1998,  SCE has been required to sell all of its  generated  power
through  the power  exchange  (PX) and  acquire  all of its power from the PX to
distribute to its retail customers.  These transactions with the PX are reported
net. PX  purchased-power  expense increased for the quarter ended June 30, 1999,
compared to the  year-earlier  period,  due to higher  prices in May and June of
1999. SCE is continuing to purchase power under existing  contracts from certain
nonutility generators (known as qualifying facilities) and from other utilities.
This  purchased  power  is sold  through  the  PX.  Purchased-power  expense  --
contracts  decreased  for the three,  six and twelve months ended June 30, 1999,
compared to the same  periods  last year,  primarily  due to SCE  entering  into
settlements  to  end  its  contractual   obligations  with  certain   qualifying
facilities.  SCE was required  under federal law to purchase  power from certain
qualifying  facilities at  CPUC-mandated  prices even though energy prices under
these contracts are generally  higher than other sources.  For the twelve months
ended June 30, 1999, SCE paid about $1.6 billion  (including energy and capacity
payments) more for these power  purchases than the cost of power  available from
other sources.

Provisions for regulatory  adjustment  clauses  decreased for the three, six and
twelve months ended June 30, 1999, compared to the year-earlier periods,  mostly
due to  undercollections  related to the difference  between  generation-related
revenue  and   generation-related   costs.   (See   discussion  in  Revenue  and
Cost-Recovery Mechanisms.)

Other  operating  expenses  increased  11%, 24% and 20%,  respectively,  for the
three,  six and twelve  months  ended June 30, 1999,  primarily  due to mandated
transmission  service (known as must-run


                                       27
<PAGE>

reliability  services)  payments to the independent  system operator (ISO).  The
six- and  twelve-months-ended  increases also reflect direct access  activities,
and PX and other ISO costs incurred by SCE.

Depreciation,  decommissioning  and amortization  expense  increased 12% for the
twelve months ended June 30, 1999, compared to the prior-year period,  primarily
due to the further  acceleration of recovery of San Onofre Units 2 and 3 and the
Palo Verde Nuclear  Generating Station units,  accelerated  recovery of the gas-
and  oil-fueled  generation  plants  (before  their sale during  1998),  and the
amortization of the loss on plant sales.  The  amortization of the loss on plant
sales, as well as the accelerated recoveries implemented in 1998 are part of the
competition transition charge (CTC) mechanism.

Income taxes decreased for the three, six and twelve months ended June 30, 1999,
compared to the same periods in 1998, primarily due to lower pre-tax income.

Net loss (gain) on sale of utility plant resulted from the sale of SCE's 12 gas-
and oil-fueled  generation  plants in 1998.  Gains were used to reduce  stranded
costs. Losses will be recovered from customers over the transition period.

Other Income and Deductions

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

Other nonoperating income  (deductions)  increased for the three, six and twelve
months ended June 30, 1999, compared to the prior-year periods, primarily due to
the gains on sales of equity  investments.  The  twelve-month-ended  increase is
also due to 1997 accruals for regulatory matters.

Interest Expense

Other  interest  expense  increased  for the three and six months ended June 30,
1999,  compared  to the same  periods  in 1998,  mostly  due to  higher  overall
short-term debt balances necessary to meet general cash requirements  during the
periods. For the twelve months ended June 30, 1999, compared to the year-earlier
period,  other  interest  expense  decreased  primarily  due  to  lower  overall
short-term  debt  balances,  particularly  short-term  debt used to finance fuel
inventories. The majority of these fuel inventories are no longer needed because
of the divestiture of the gas- and oil-fueled plants in 1998.

Financial Condition

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

Edison International's board of directors has authorized the repurchase of up to
$2.8  billion  (increased  from $2.3  billion in July  1998) of its  outstanding
shares of common  stock.  Edison  International  repurchased  approximately  101
million shares ($2.4 billion) between January 1995 and February 28, 1999, funded
by dividends from its  subsidiaries and the proceeds of the rate reduction notes
issuance.

SCE's cash flow coverage of dividends for the three, six and twelve months ended
June 30, 1999, was 3.9 times, 2.9 times and 1.3 times, respectively, compared to
0.6 times, 1.2 times and 0.7 times for the year-earlier  periods.  The increases
in 1999 reflect the special  dividends  SCE paid to Edison  International  ($350
million in second quarter 1998 from the gas- and oil-fueled plant sales proceeds
and $1.2 billion in December 1997 from the rate reduction note proceeds).

Cash Flows from Operating Activities

Net cash provided by operating activities totaled $460 million, $843 million and
$1.2 billion,  respectively, for the three, six and twelve months ended June 30,
1999,  compared  with $283  million,  $690 million and


                                       28
<PAGE>

$1.4 billion for the same periods in 1998. Cash from  operations  exceed capital
requirements for all periods presented.

Cash Flows from Financing Activities

At June 30, 1999, SCE had total credit lines of $1.3 billion,  with $300 million
available for general  purpose,  short-term debt and $500 million  available for
the long-term  refinancing of its variable-rate  pollution-control  bonds. These
unsecured  lines of credit are at  negotiated  or bank index rates and expire in
2002.

Short-term   debt  is  used  to  finance  fuel   inventories  and  general  cash
requirements.  Long-term  debt is used mainly to finance  capital  expenditures.
External  financings  are  influenced by market  conditions  and other  factors,
including  limitations  imposed by SCE's  articles  of  incorporation  and trust
indenture.  As of June 30, 1999, SCE could issue  approximately $11.4 billion of
additional  first and  refunding  mortgage  bonds and $3.7  billion of preferred
stock at current interest and dividend rates.

California  law  prohibits  SCE  from  incurring  or  guaranteeing  debt for its
nonutility affiliates. Additionally, the CPUC regulates SCE's capital structure,
limiting the dividends it may pay Edison  International.  At June 30, 1999,  SCE
had the capacity to pay $694  million in  additional  dividends  and continue to
maintain its authorized capital structure.

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

The  remaining  series  of  outstanding  rate  reduction  notes  have  scheduled
maturities  beginning  in 2000 and ending in 2007,  and bear  interest  at rates
ranging from 6.14% to 6.42%.  The rate reduction notes are secured solely by the
transition property and certain other assets of SCE Funding LLC, and there is no
recourse to SCE or Edison International.

Although SCE Funding LLC is consolidated  with SCE in the financial  statements,
as required by  generally  accepted  accounting  principles,  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.

Cash Flows from Investing Activities

Cash flows from  investing  activities are affected by additions to property and
plant, proceeds from the sale of plant (see discussion in Regulatory Environment
below) and funding of nuclear decommissioning trusts.  Decommissioning costs are
accrued  and  recovered  in  rates  over  the  term of each  nuclear  generating
facility's  operating  license.  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 ($1.9 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,  effective June 3, 1999,  receive SCE  contributions of approximately $25
million per year.


                                       29
<PAGE>


Market Risk Exposures

SCE's primary market risk exposures arise from fluctuations in energy prices and
interest  rates.  SCE's risk  management  policy  allows  the use of  derivative
financial  instruments to manage its financial exposures,  but prohibits the use
of these instruments for speculative or trading purposes.

As a result of the rate freeze  established  in the  restructuring  legislation,
SCE's transition costs are recovered as the residual component of rates once the
costs  for  distribution,   transmission,   public  purpose  programs,   nuclear
decommissioning  and the cost of supplying power to its customers through the PX
and ISO have already been recovered. Accordingly, more revenue 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 PX and ISO market prices to date have generally
been reasonable, although some irregular price spikes have occurred. The ISO has
responded to price spikes in the market for reliability services (referred to as
ancillary  services)  by  imposing a price cap of $250/MW 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 of $250/MWh 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 is in the process of replacing the price
caps currently used in its markets with a price volatility limit mechanism to be
implemented  after the summer of 1999. This limit mechanism would act to prevent
unduly large day-to-day increases in prices. SCE has entered into hedges against
high natural gas prices, since increases in natural gas prices tend to raise the
price  of   electricity   purchased  from  the  PX.  In  July  1999,  SCE  began
participating  in  forward  purchases  through a PX block  forward  market.  SCE
requested  permission  from  the  CPUC to  begin a pilot  demand  responsiveness
program that would allow customers to be paid to curtail their load during times
of very high prices.  This request was denied for 1999, but SCE will continue to
work with the CPUC and others to  implement  some form of demand  responsiveness
programs prior to the summer of 2000.

A 10% increase in market interest rates would result in a $7 million increase in
the fair value of SCE's interest rate hedge agreements. A 10% decrease in market
interest rates would result in a $7 million  decline in the fair market value of
interest  rate hedge  agreements.  A 10%  increase in natural  gas prices  would
result in a $18 million increase in the fair market value of gas call options. A
10% decrease in natural gas prices would result in an $11 million decline in the
fair market value of gas call options.  A 10% change in market rates is expected
to have an immaterial effect on SCE's other financial instruments.

Projected Capital Requirements

SCE's projected  construction  expenditures  for the next five years are: 1999--
$963 million; 2000-- $816 million; 2001-- $716 million; 2002-- $643 million; and
2003-- $641 million.

Long-term  debt   maturities  and  sinking  fund   requirements   for  the  five
twelve-month periods following June 30, 1999, are: 2000 -- $569 million; 2001 --
$648  million;  2002 -- $246  million;  2003 -- $572  million;  and 2004 -- $247
million.

Preferred  stock  redemption  requirements  for the  five  twelve-month  periods
following  June 30, 1999,  are: 2000 through  2001-- zero;  2002-- $105 million;
2003-- $9 million; and 2004-- $9 million.

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 is changing
as a result of a 1995  CPUC  decision  on  restructuring  and state  legislation
enacted in 1996.  The Statute  substantially  adopted  the CPUC's  restructuring
decision by  addressing  stranded-cost  recovery for  utilities  and providing a
certain  cost-recovery  time period for the  transition  costs  associated  with
generation-related  assets.  The Statute also  included  provisions to finance a
portion of the stranded costs that  residential and small  commercial  customers
would have paid between 1998 and 2001,  which  allowed SCE to reduce rates by at
least 10% to these  customers,  effective


                                       30
<PAGE>

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.
Despite  the  rate  freeze,  SCE  expects  to be able  to  recover  its  revenue
requirement during the 1998--2001  transition  period. In addition,  the Statute
mandated the  implementation  of the CTC (see  detailed  discussion  below) that
provides  utilities the opportunity to recover costs made uneconomic by electric
utility restructuring.

Revenue and Cost-Recovery Mechanisms

In 1999,  revenue is being  determined  by various  mechanisms  depending on the
utility  operation.   Revenue  related  to  distribution   operations  is  being
determined  through  a  performance-based  rate-making  mechanism  (PBR) and the
distribution assets have the opportunity to earn a CPUC-authorized 9.49% return.
The distribution-only 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 a net revenue-sharing  mechanism that determines how
customers  and  shareholders  will  share  gains and  losses  from  distribution
operations.  Transmission  revenue is being determined  through  FERC-authorized
rates that are subject to refund.

SCE's  transition costs are being recovered  through a non-bypassable  CTC. This
charge  applies to all customers who were using or began using utility  services
on or after the  CPUC's  December  1995  restructuring  decision  date.  SCE has
estimated  its  transition  costs to be  approximately  $10.6  billion (1998 net
present  value) from 1998  through  2030.  This  estimate  was based on incurred
costs, forecasts of future costs and assumed market prices. However,  changes in
the assumed market prices could materially  affect these  estimates.  Transition
costs related to power-purchase  contracts are being recovered through the terms
of  their  contracts  while  most  of the  remaining  transition  costs  will be
recovered  through 2001.  The potential  transition  costs are comprised of $6.4
billion from SCE's qualifying facilities contracts,  which are the direct result
of prior  legislative  and  regulatory  mandates,  and $4.2  billion  from costs
pertaining to certain  generating  assets (including the 1998 sale of SCE's gas-
and oil-fueled generation plants) and regulatory commitments consisting of costs
incurred  (whose  recovery has been deferred by the CPUC) to provide  service to
customers.  Such  commitments  include  the  recovery  of  income  tax  benefits
previously flowed through to customers, postretirement benefit transition costs,
accelerated  recovery of San Onofre Units 2 and 3 and the Palo Verde units,  and
certain  other  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.  If events
occur  during the  restructuring  process that result in all or a portion of the
transition  costs  being  improbable  of  recovery,  SCE could  have  write-offs
associated with these costs if they are not recovered through another regulatory
mechanism.

Revenue  from  generation-related  operations  is being  determined  through the
competitive  market  and the CTC  mechanism,  which  now  includes  the  nuclear
rate-making agreements.  Revenue related to fossil and hydroelectric  generation
operations is recovered from two sources. The portion that is made uneconomic by
electric  industry  restructuring  is recovered  through the CTC mechanism.  The
portion that is economic is recovered through the market. 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 credited against the costs to transition to a competitive
market. In 1999,  fossil and  hydroelectric  generation assets will earn a 7.22%
return.

The CPUC  authorized  revised  rate-making  plans for SCE's nuclear  facilities,
which call for the accelerated  recovery of the nuclear  investments in exchange
for a lower  authorized  rate of return.  SCE's  nuclear  assets are  earning an
annual rate of return of 7.35%.  In addition,  the San Onofre plan  authorizes a
fixed rate of approximately  4(cent) per  kilowatt-hour  generated for operating
costs  including  incremental


                                       31
<PAGE>

capital costs, and nuclear fuel and nuclear fuel financing costs. The San Onofre
plan  commenced  in April 1996,  and ends in December  2001 for the  accelerated
recovery portion and in December 2003 for the  incentive-pricing  portion.  Palo
Verde's operating costs,  including  incremental capital costs, and nuclear fuel
and nuclear fuel financing  costs, are subject to balancing  account  treatment.
The Palo  Verde  plan  commenced  in  January  1997 and ends in  December  2001.
Beginning  January 1, 1998, both the San Onofre and Palo Verde rate-making plans
became part of the CTC mechanism.

The changes in revenue from the regulatory mechanisms discussed above, excluding
the effects of other rate  actions,  are expected to have an  approximately  $20
million negative impact on 1999 earnings.

The CPUC  considered  unbundling  SCE's cost of capital by authorizing  separate
rates of return for generation, transmission and distribution operations. In May
1998,  SCE filed an  application  on this issue and hearings  were  completed in
October 1998. On June 10, 1999,  the CPUC issued a decision  which retains SCE's
return on equity at 11.6%.

In March 1997, SCE filed its first FERC transmission rate case. In March 1999, a
proposed FERC decision was issued which  recommended a reduced rate of return on
equity of 9.68% (compared to SCE's current CPUC rate for  distribution of 11.6%)
and a reduced return on  transmission  assets of 8.41%  (compared to the current
rate of 9.43%  being  earned on  transmission  assets).  SCE has filed  comments
opposing the proposed decision.  A final FERC decision is expected in late 1999.
SCE does not expect the final decision to have a material  effect on its results
of operations or financial position.

Restructuring Implementation Costs

The ISO assumed operational control of the transmission system after the ISO and
PX had begun accepting bids and schedules for electricity purchases on March 31,
1998.  The  restructuring  implementation  costs  related  to the  start-up  and
development  of the PX,  which are paid by the  utilities,  were to be recovered
from all retail customers over the four-year  transition period.  SCE's share of
the charge is $45  million,  plus  interest  and fees.  SCE's share of the ISO's
start-up and development costs (approximately $16 million per year) will be paid
over a 10-year  period.  In May 1998, SCE filed an application  with the CPUC to
identify  the  categories  of  such  costs   (including  costs  related  to  the
implementation  of direct access) and to establish the  reasonableness  of those
costs incurred in 1997.

Two  proposed  decisions  issued in March  1999  rejected  SCE's  request  for a
determination  of eligibility for several major categories of such costs. In May
1999,  SCE, the CPUC's  Office of Ratepayer  Advocates and several other parties
entered   into  a  settlement   agreement   that  would  allow  SCE  to  recover
substantially   all   (approximately   $319   million)   of  its   restructuring
implementation  costs  (incurred and  estimated)  for the period  1997-2001.  In
addition,  the settlement provides that up to $210 million of generation-related
costs  (transition  costs) that are  displaced by recovery of the  restructuring
implementation  costs during the rate freeze may be recovered after December 31,
2001,  the  date SCE  would  cease  to  recover  these  transition  costs  under
restructuring legislation. The CPUC has withdrawn its earlier proposed decisions
on SCE's application. On July 6, 1999, a proposed decision was issued that would
approve the settlement in its entirety.  A final CPUC decision on the settlement
is expected in third quarter 1999.

Accounting for Generation-Related Assets

If the CPUC's electric industry restructuring plan continues as described above,
SCE will be allowed to  recover  its  transition  costs  through  non-bypassable
charges  to its  distribution  customers  (although  its  investment  in certain
generation  assets would be subject to a lower  authorized  rate of return).  In
1997, SCE discontinued  application of accounting  principles for rate-regulated
enterprises for its investment in generation  facilities based on new accounting
guidance.  The  new  guidance  did  not  require  SCE to  write  off  any of its
generation-related assets, including related regulatory assets. SCE has retained
these assets on its balance  sheet  because the Statute and  restructuring  plan
referred to above make probable their recovery through a  non-bypassable  CTC to
distribution  customers.  The regulatory assets relate primarily to the recovery
of  accelerated  income tax benefits  previously  flowed  through to  customers,
purchased  power  contract   termination  payments  and  unamortized  losses  on
reacquired  debt. The new


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<PAGE>

accounting  guidance  also  permits  the  recording  of  new  generation-related
regulatory  assets  during the  transition  period that are probable of recovery
through the CTC mechanism.

During the second quarter of 1998,  additional guidance was developed related to
the  application  of asset  impairment  standards  to these  assets.  Using this
guidance resulted in SCE reducing its remaining nuclear plant investment by $2.6
billion (as of June 30, 1998) and  recording 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   future  net  cash  flows.   This
reclassification had no effect on SCE's results of operations.

If during the  transition  period events were to occur that made the recovery of
these  generation-related  regulatory  assets no longer  probable,  SCE would be
required to write off the remaining balance of such assets  (approximately  $1.8
billion,  after tax, at June 30, 1999) as a one-time,  non-cash  charge  against
earnings.  At this time, SCE cannot predict what other revisions will ultimately
be made  during the  restructuring  process  in  subsequent  proceedings  or the
effect,  after the transition period,  that competition will have on its results
of operations or financial position.

Environmental Protection

SCE is subject to numerous environmental laws and regulations,  which require it
to incur substantial costs to operate existing facilities, construct and operate
new  facilities,  and  mitigate or remove the effect of past  operations  on the
environment.

As further discussed in Note 10 to the Consolidated  Financial  Statements,  SCE
records its  environmental  liabilities  when site  assessments  and/or remedial
actions are  probable  and a range of  reasonably  likely  cleanup  costs can be
estimated.  SCE reviews  its sites and  measures  the  liability  quarterly,  by
assessing a range of reasonably  likely costs for each identified  site.  Unless
there is a probable  amount,  SCE records the lower end of this likely  range of
costs.

SCE's recorded  estimated minimum liability to remediate its 49 identified sites
is $167  million.  One of SCE's  sites,  a  former  pole-treating  facility,  is
considered  a  federal  Superfund  site  and  represents  40%  of  its  recorded
liability.  The ultimate costs to clean up SCE's  identified sites may vary from
its recorded liability due to numerous  uncertainties inherent in the estimation
process.  SCE  believes  that,  due to  these  uncertainties,  it is  reasonably
possible  that cleanup  costs could exceed its recorded  liability by up to $285
million.  The upper limit of this range of costs was estimated using assumptions
least favorable to SCE among a range of reasonably  possible  outcomes.  SCE has
sold all of its gas- and oil-fueled power plants and has retained some liability
associated with the divested properties.

The CPUC allows SCE to recover  environmental-cleanup  costs at 41 of its sites,
representing  $86  million  of its  recorded  liability,  through  an  incentive
mechanism.  Under this mechanism,  SCE will recover 90% of cleanup costs through
customer  rates;  shareholders  fund the remaining 10%, with the  opportunity to
recover these costs from  insurance  carriers and other third  parties.  SCE has
successfully  settled  insurance  claims with all  responsible  carriers.  Costs
incurred at SCE's remaining sites are expected to be recovered  through customer
rates.  SCE has  recorded a regulatory  asset of $134 million for its  estimated
minimum  environmental-cleanup  costs expected to be recovered  through customer
rates.

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

SCE  expects to clean up its  identified  sites over a period of up to 30 years.
Remediation  costs in each of the next several  years are expected to range from
$5 million to $15 million. Recorded costs for the twelve-month period ended June
30, 1999, were $14 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


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<PAGE>

results of operations or financial position. There can be no assurance, however,
that future developments,  including additional information about existing sites
or the  identification of new sites, will not require material revisions to such
estimates.

The 1990  Federal  Clean Air Act  requires  power  producers  to have  emissions
allowances to emit sulfur dioxide.  Power companies receive emissions allowances
from the federal government and may bank or sell excess allowances.  SCE expects
to have excess  allowances under Phase II of the Clean Air Act (2000 and later).
The act also calls for a study to determine if additional regulations are needed
to reduce regional haze in the southwestern U.S. In addition,  another study 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. On June 17,
1999, the Environmental  Protection Agency issued an advanced notice of proposed
rulemaking  regarding  assessment of visibility  impairment at the Grand Canyon.
SCE intends to file comments on the proposed  rulemaking.  At this time,  SCE is
unable to  predict  the  potential  effect of these  studies  on sulfur  dioxide
regulations  for  Mohave,  or what  effect the final  reports  may have on SCE's
results of operations or financial position.

SCE's  projected  environmental  capital  expenditures  are $900 million for the
1999--2003   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 15 years of  operation,  with  low  rates of  ongoing  steam
generator tube degradation.  However,  during the Unit 2 scheduled refueling and
inspection outage in 1997, an increased rate of tube degradation was identified,
which resulted in the removal of more tubes from service than had been expected.
The steam  generator  design  allows  for the  removal of up to 10% of the tubes
before  the  rated  capacity  of the unit  must be  reduced.  As a result of the
increased degradation, a mid-cycle inspection outage was conducted in early 1998
for Unit 2. Continued degradation was found during this inspection.  A favorable
or  decreasing  trend in  degradation  was  observed  during  inspection  in the
scheduled  refueling outage in January 1999.  Analysis of results of the January
1999 inspection determined that a mid-cycle inspection outage in early 2000 will
be unnecessary. With the results from the January 1999 outage, 7.5% of the tubes
have now been removed from service.

During Unit 3's  refueling  outage,  which was completed in May 1999, a complete
inspection of the steam  generator  tubes was performed.  Results  obtained were
within  expectations.  To date,  5.4% of Unit 3's tubes have been  removed  from
service.  During  the  refueling,  follow-up  inspections  of the  tube  support
thinning  problem  first  detected  in 1997 were  performed.  These  inspections
confirmed that corrective  actions taken in 1997 were effective and the thinning
has been stabilized.

New Accounting Rules

In June 1998, a new accounting  standard for derivative  instruments and hedging
activities  was issued.  The new  standard,  which as amended  will be effective
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.


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<PAGE>

Year 2000 Issue

Many of SCE's existing computer systems were originally  programmed to represent
any date by using six digits  (e.g.,  12/31/99)  rather than eight digits (e.g.,
12/31/1999).  Accordingly,  such programs, if not appropriately addressed, could
fail  or  create  erroneous  results  when  attempting  to  process  information
containing  dates after  December 31, 1999.  This situation has been referred to
generally as the Year 2000 Issue.

SCE has a comprehensive program in place to address potential Year 2000 impacts.
Edison International  provides overall coordination of this effort, working with
SCE and its  departments.  SCE divides  Year 2000  activities  into five phases:
inventory, impact assessment,  remediation, testing and implementation.  SCE met
its goal to have 100% of its critical systems Year 2000-ready by July 1, 1999. A
critical system is defined as those applications and systems, including embedded
processor  technology,  which  if  not  appropriately  remediated,  may  have  a
significant  impact on  customers,  the health  and safety of the public  and/or
personnel, the revenue stream, or regulatory compliance.  A system,  application
or physical asset is deemed to be Year  2000-ready if it is determined by SCE to
be suitable  for  continued  use  through  2028 (or through the last year of the
anticipated life of the asset,  whichever occurs first),  even though it may not
be fully Year 2000-compliant. A system, application, or physical asset is deemed
to be Year 2000-compliant if it accurately processes date/time data.

SCE has  structured  the  scope of the  program  to  focus  on  three  principal
categories: mainframe computing, distributed computing and physical assets (also
known as embedded  processors).  The mainframe and distributed  computing assets
consist of computer  application  systems  (software).  Physical  assets include
information technology infrastructure (hardware,  operating system software) and
embedded processor  technology in generation,  transmission,  distribution,  and
facilities components.

Included  among  the  critical  applications  that are Year  2000-ready  are the
financial,  customer  information and billing,  material  management,  and human
resource  systems.  Work has also been completed on critical  physical assets in
the areas of  information  technology  infrastructure,  and  embedded  processor
technology in generation, transmission,  distribution and facilities assets. SCE
filed a statement with the Nuclear Regulatory Commission (NRC) on June 28, 1999,
stating  that its Year  2000  readiness  program  has been  completed  for those
systems within the scope of its operating  license,  NRC  regulations  and other
critical systems required for continued operation of San Onofre Units 2 and 3.

Ongoing  efforts in 1999 will continue to focus on  non-critical  systems and on
guarding against  reintroduction of components that are not Year 2000-ready into
Year 2000-ready systems.

The other essential component of the Year 2000 program is to identify and assess
vendor products and business partners for Year 2000 readiness, as these external
parties may have the  potential  to impact  SCE's Year 2000  readiness.  SCE has
implemented a process to identify and contact  vendors and business  partners to
determine  their Year 2000 status.  Evaluation of responses and other  follow-up
activities  are  continuing.  SCE's  general  policy  requires  that  all  newly
purchased  products and  services be Year  2000-ready  or otherwise  designed to
allow SCE to  determine  whether such  products  and services  present Year 2000
issues.  SCE is also working to address Year 2000 issues  related to all ISO and
PX  interfaces,  as well as  joint  ownership  facilities.  SCE  exchanges  Year
2000-readiness  information  (including,  but not limited  to, test  results and
related data) with certain of its affiliates and other external  parties as part
of its Year 2000-readiness efforts.

SCE's  current  estimate  of its Year  2000  costs,  including  the costs of new
hardware and software  application  modification,  work on contingency  planning
efforts  discussed  below and continuing  work on  non-critical  assets,  is $72
million,  about 35% of which is  expected to be capital  costs.  SCE's Year 2000
costs expended through June 30, 1999, were $54 million. SCE expects current rate
levels for providing  electric  service to be sufficient to provide  funding for
utility-related modifications.

Although  SCE  expects  that  its  critical  facilities,   systems,  information
technology infrastructure and physical assets will remain fully Year 2000-ready,
there can be no  assurance  that the  facilities,  systems,  infrastructure  and
physical  assets of other  companies on which the systems and  operations of SCE
rely will be converted on a timely basis and/or  remain ready for the Year 2000.
SCE believes that prudent


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<PAGE>

business  practices  call for  development  of  contingency  plans.  These plans
include  provisions  for  monitoring,  validating  and  managing  the  continued
performance  of SCE Year  2000-sensitive  systems  and  assets  during  critical
transition  periods,  development of work-arounds  and expedited  fix-on-failure
strategies.  Where  appropriate,  contingency  plans  include  scheduling of key
personnel,  identification of alternate  suppliers and securing adequate on-site
supplies of critical materials.

SCE has implemented a Year 2000  contingency  planning  process as a part of its
Year 2000  remediation  program.  Each SCE  department is required to assess the
Year 2000 risks,  including both internal and external  risks and  dependencies,
associated  with  critical  systems  and  assets,  that are  date  aware or date
sensitive.  This includes assessment of Year 2000 risks for all indispensable or
critical business processes and key facilities.

Where  appropriate,  the plans  utilize or  supplement  the  existing  Corporate
Emergency  Response and  Recovery  Plan,  and  Information  Technology  disaster
recovery  plan,  for  identified  Year  2000-related  events.  SCE's  Year  2000
contingency  plans are designed to coordinate  and interface with the California
ISO and the PX and to satisfy  Western  System  Coordinating  Council (WSCC) and
North American Electric  Reliability Council (NERC)  recommendations and Nuclear
Energy  Institute  guidelines.  SCE has worked with,  and will  continue to work
with, these industry groups,  as well as the Electric Power Research  Institute,
regarding  its  contingency  plans.  Initial  development  of  these  plans  was
completed  in June 1999.  SCE filed a report on its  contingency  plans with the
CPUC on July 1,  1999.  Contingency  plans  will be used in  conducting  SCE and
electric  industry  drills  throughout  the rest of 1999.  SCE expects  that its
contingency plans will continue to be revised and enhanced as 2000 approaches.

Although SCE's Year 2000 contingency plans use risk-based methods, the plans are
being  evaluated  against the NERC/WSCC  suggested "More Probable" and "Credible
Worst Case  Scenarios." SCE believes that the most reasonably  likely worst case
Year 2000  scenario  would be small,  localized  interruptions  of service which
would be restored in a timeframe that is within normal service levels.

SCE does not expect the Year 2000 Issue to have a material adverse effect on its
results  of  operation  or  financial  position;  however,  if  not  effectively
remediated, and despite the adoption of contingency plans, negative effects from
Year 2000 issues, including those related to internal systems, vendors, business
partners, the ISO, the PX or customers, could cause results to differ.

Forward-looking Information

In the preceding  Management's  Discussion and Analysis of Results of Operations
and  Financial  Condition  and  elsewhere in this  quarterly  report,  the words
estimates,  expects,  anticipates,  believes,  and other similar expressions are
intended  to  identify  forward-looking  information  that  involves  risks  and
uncertainties. Actual results or outcomes could differ materially as a result of
such important factors as further actions by state and federal regulatory bodies
setting  rates  and  implementing  the  restructuring  of the  electric  utility
industry;  the effects of new laws and regulations relating to restructuring and
other  matters;  the effects of increased  competition  in the electric  utility
business,  including  direct customer access to retail energy  suppliers and the
unbundling  of revenue cycle  services such as metering and billing;  changes in
prices of electricity and fuel costs;  changes in market interest rates;  new or
increased  environmental  liabilities;  the  effects  of the  Year  2000  Issue;
municipalization and other unforeseen events.


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<PAGE>

PART II  OTHER INFORMATION

Item 1.           Legal Proceedings

                        Geothermal Generators' Litigation

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).  SCE alleges that in order to avoid power
production  plant  shutdowns  caused  by  excessive  noncondensable  gas  in the
geothermal field brine, the Coso parties  routinely vented highly toxic hydrogen
sulfide gas from  unmonitored  release  points  beginning in 1990 and continuing
through at least 1994,  in violation of  applicable  federal,  state,  and local
environmental  law.  According to SCE,  these  violations  constituted  material
breaches by the Coso parties of their obligations under their contracts with SCE
and  applicable  law. The  complaint  sought  termination  of the  contracts and
damages for excess power  purchase  payments made to the Coso parties.  The Coso
parties'  motion to transfer venue to Inyo County  Superior Court was granted on
August 31, 1997. On June 1, 1998, the Court struck SCE's request for termination
of the  contracts,  leaving SCE with its claim for damages and other relief.  On
February 16, 1999, the Court denied the Coso parties' motion for judgment on the
pleadings directed to SCE's first amended complaint.

The Coso  parties have also  asserted  various  claims  against SCE, The Mission
Group,  and  Mission  Power  Engineering  Company  (Mission  parties) in a cross
complaint  filed in the action  commenced by SCE as well as in a separate action
filed against SCE by three of the Coso parties in Inyo County Superior Court. In
November  1997,  the Court  struck all but two causes of action  asserted in the
separate  action on the grounds that they should have been raised as part of the
Coso  parties'  cross-complaint,  and ordered the remaining two causes of action
consolidated for all purposes with the action filed by SCE.

The Coso parties  subsequently filed second and third amended  cross-complaints.
The third  amended  cross-complaint  names SCE,  the Mission  parties and Edison
International.  As against SCE, the third  amended  cross-complaint  purports to
state causes of action for  declaratory  relief,  breach of the covenant of good
faith and fair dealing;  inducing breach of agreements  between the Coso parties
and their former employees;  breach of an earlier  settlement  agreement between
the Mission parties and the Coso parties; slander and disparagement,  injunctive
relief and restitution for unfair business practices; anticipatory breach of the
contracts;  and violations of Public Utilities Code ss.ss. 453, 702 and 2106. As
against the Mission parties, the third amended cross-complaint seeks damages for
breach of warranty of authority  with respect to the settlement  agreement,  and
for  equitable  indemnity.   The  Coso  parties  voluntarily   dismissed  Edison
International  from the third  amended  cross-complaint  on December 4, 1998. As
against SCE, the third amended  cross-complaint seeks restitution,  compensatory
damages in excess of $115 million,  punitive  damages in an amount not less than
$400 million,  interest,  attorney's fees,  declaratory  relief,  and injunctive
relief.

On September 21, 1998, SCE filed an answer to the third amended  cross-complaint
generally denying the allegations  contained  therein and asserting  affirmative
defenses.  In  addition,  SCE filed a  cross-complaint  for  reformation  of the
contracts  alleging that if they are not  susceptible  to SCE's  interpretation,
they should be reformed to reflect the parties' true intention. SCE subsequently
voluntarily filed a first amended  cross-complaint.  On February 26, 1999, after
the Court had  sustained a demurrer to its first  amended  cross-complaint,  SCE
filed a second amended cross-complaint for reformation.

Following  various  pre-trial  motions  filed by the Mission  parties and Edison
International,   the  Coso   parties   purported   to  file  a  fourth   amended
cross-complaint  on December 23, 1998,  against the Mission  Parties  only.  The
Mission parties' demurrer to and motion to strike directed to the fourth amended
cross-complaint was heard and taken under submission on March 10, 1999.

On December 15, 1998,  the Court granted the Coso parties leave to file a second
amended complaint in the separately filed (now consolidated)  action. The second
amended complaint,  which names SCE and Edison  International,  alleges that SCE
engaged in anti-competitive  conduct, false advertising,  and conduct proscribed
by Public Utilities Code ss. 2106, and seeks injunctive relief, restitution, and
punitive damages. On January 20, 1999, SCE filed three motions to strike several
portions of the second


                                       37
<PAGE>

amended  complaint  on the  grounds,  among  others,  that the CPUC or FERC have
either exclusive or primary  jurisdiction over the matters asserted therein, and
that SCE's alleged  conduct was in  furtherance  of  constitutionally  protected
rights of free speech and petition and therefore not  actionable.  These matters
were heard on February 22, 1999, and taken under submission at that time. Edison
International  also  filed a demurrer  and  motion to strike the second  amended
complaint.  The Court denied the motion to strike and  overruled the demurrer on
March 22, 1999.

On April 1, 1999,  the Court  signed a  stipulation  and order  submitted by the
parties  staying all  proceedings  to allow the parties to engage in  settlement
discussions.  The stay is in effect through and including September 30, 1999. As
a result of the stay, all discovery has been suspended.  Furthermore, during the
period of the stay,  the Court will not issue orders or rulings on matters taken
under submission.

The  Court  has set a trial  date of March 1,  2000,  but,  in light of the stay
currently  in effect,  has reserved  jurisdiction  to advance or to continue the
trial date. The materiality of net final judgments  against SCE in these actions
would be  largely  dependent  on the extent to which any  damages or  additional
payments which might result therefrom are recoverable through rates.

                     San Onofre Personal Injury Litigation

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 Appeals,  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.
Briefing  on the  appeal  was  completed  in January  1999 and the  parties  are
awaiting  a date for oral  argument  to be set by the Court.  A decision  is not
expected until at least early 2000.

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 this matter have been stayed.

In March of 1999,  SCE reached an agreement  with the  plaintiffs in both of the
above  cases  currently  pending 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 Appeals. 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.

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

                                       38
<PAGE>

               Mohave Generating Station Environmental Litigation

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

On June 4, 1998, the plaintiffs served SCE and the other Mohave co-owners with a
60-day supplemental notice of intent to sue. This supplemental notice identified
additional causes of action as well as an additional  plaintiff  (National Parks
and Conservation  Association) to be added to the  proceedings.  On November 12,
1998,  the court  bifurcated  the  liability  and damage  phases of the case and
granted  plaintiffs' motion to amend the complaint to add the National Parks and
Conservation Association as a plaintiff.

On December 8, 1998,  defendants  filed a supplemental  memorandum in support of
defendants'  opposition to plaintiffs'  motion for partial summary judgment.  On
February 4, 1999,  plaintiffs  filed their first  amended  complaint  to add the
National Parks and  Conservation  Association  as a plaintiff in the action.  On
March 10, 1999, defendants filed a motion for partial summary judgment. On March
11, 1999,  plaintiffs  filed a motion for partial summary  judgment to establish
emission limit violations as alleged in certain of the causes of action in their
first amended complaint.

On March 8, 1999, the parties filed a stipulated request for a 60-day stay which
was granted and ordered,  by the Court on March 9, 1999.  A subsequent  stay was
granted,  which was to expire on July 6, 1999 before being  extended to July 20,
1999.  No further stay has been sought or is in effect at this time.  On July 6,
1999,  each party filed an opposition to the other  parties'  motion for summary
judgment. On August 2, 1999, defendants filed a reply to plaintiffs' opposition.
On August 5, 1999, plaintiffs filed a reply to defendant's opposition. Settement
discussions are ongoing.

                            Navajo Nation Litigation

On June 18, 1999, SCE, was served with a complaint filed by the Navajo Nation in
the United States  District Court for the District of Columbia  against  Peabody
Holding  Company and certain of its  affiliates  (Peabody),  Salt River  Project
Agricultural  Improvement  and Power  District,  and SCE. The complaint  asserts
claims against the defendants for, among other things, violations of the federal
RICO statute,  interference  with fiduciary  duties and  contractual  relations,
fraudulent  misrepresentation  by  nondisclosure,  and various  contract-related
claims.  Peabody supplies coal from mines on Navajo Nation lands to Mohave.  The
complaint claims that the defendants'  actions  prevented the Navajo Nation from
obtaining  the full value in royalty  rates for the coal.  The  complaint  seeks
damages of not less than $600  million,  trebling of that  amount,  and punitive
damages of not less than $1 billion,  as well as a  declaration  that  Peabody's
lease  and  contract  rights  to mine  coal on  Navajo  Nation  lands  should be
terminated. SCE's response to the complaint is due on September 9, 1999.


                                       39
<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
          dated June 23, 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 April 15, 1999 (File No.  1-2313,  Form 10-Q for
          the quarter ended March 31, 1999)*

     10.1 Form  of  Agreement  for  1999   Director   Awards  under  the  Equity
          Compensation Plan

     10.2 Estate and Financial Planning Program as amended April 1, 1999

     23.  Consent of Independent Public Accountants

     27.  Financial Data Schedule

(b)      Reports on Form 8-K:

         June 18, 1999      Item 5: Other Events:    Navajo Nation Lawsuit*

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

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


                                       40
<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

August 12, 1999