Document:

Terms of 2004 Long-Term Compensation Awards

                                                EDISON INTERNATIONAL
                                              2004 Long-Term Incentives
                                                Terms and Conditions

Long-term  incentives (LTI) for the year 2004 for eligible persons (Holders) at Edison  International  (EIX) or its
participating  affiliates (the Companies, or individually,  the Company) include (i) EIX nonqualified stock options
to purchase  EIX Common  Stock (EIX  Options) to be awarded  under the Equity  Compensation  Plan (ECP) or the 2000
Equity Plan  (collectively,  the Plans),  (ii)  dividend  equivalents  to be awarded  under the ECP payable in cash
credited for the number of shares of EIX Common Stock covered by the EIX Options  awarded  (Dividend  Equivalents),
and (iii)  contingent EIX performance  units, 50% of which will be payable as Stock Grants under the ECP and 50% of
which  will be payable in cash  outside  of the Plans  (Performance  Shares),  with  related  dividend  equivalents
payable in cash (PS Dividends).  The LTI are subject to the following terms and conditions:

1.  PRICE
The  exercise  price of an EIX  Option  stated in the award  certificate  is the  average of the high and low sales
prices of EIX Common Stock on the New York Stock Exchange for the effective date of the award.

2.  VESTING
(a) The EIX Options and Dividend  Equivalents  vest over a four-year period as described in this Section 2 (Vesting
Period).  The initial  vesting date will be January 2nd of the year following the date of the grant,  or six months
after the date of the grant,  whichever  date is later.  The EIX  Options  and  Dividend  Equivalents  will vest as
follows:

o    On the initial vesting date, one-fourth will vest.
o    On January 2, 2006, an additional one-fourth will vest.
o    On January 2, 2007, an additional one-fourth will vest.
o    On January 2, 2008, the balance will vest.

(b) The vested portions of the EIX Options will  accumulate to the extent not exercised,  and be exercisable by the
Holder  subject to the  provisions of Section 3, in whole or in part, in any  subsequent  period but not later than
January 2,  2014.  The vested  portions of the Dividend  Equivalents  will  accumulate to the extent not exercised,
and be paid as provided in Section 4.

(c) The  Performance  Shares  and  related PS  Dividends  will vest and  become  payable  to the  extent  earned as
determined at the end of the  three-calendar-year  period  commencing on January 1, 2004,  and ending  December 31,
2006 (Performance Period), subject to the provisions of Section 5.

(d) If, during the EIX Option term or the  Performance  Period,  the Holder  terminates  employment on or after (A)
attaining  age 65 or (B)  attaining age  55 with five  "years of  service,"  as that term is  defined in the Edison
401(k)  Savings  Plan,  or (C)  such  earlier  date that  qualifies  the Holder for  retirement  under any  Company
retirement  plan,  then the vesting and exercise  provisions  of this Section 2(d) will apply.  The EIX Options and
Dividend  Equivalents  will  continue to vest as scheduled.  Once vested,  EIX Options will remain  exercisable  as
provided in Section 3 for the  remainder  of the  original EIX Option term.  Vested  Dividend  Equivalents  will be
exercisable as provided in Section 4. The  Performance  Shares and PS Dividends  will vest to the extent  necessary
to cause the number of vested  Performance  Shares and related PS  Dividends  to equal the product of 1/36th of the
number of Performance  Shares and related PS Dividends  granted  multiplied by the number of full months of service
the Holder has completed  during the  Performance  Period.  Performance  Shares and PS Dividends will be payable to
the  Holder on such pro rata basis on the  payment  date to the extent of the EIX total  shareholder  return  (TSR)
ranking achieved as specified in Section 5(a).

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Any fractional  EIX Options or Performance  Shares vested under this Section 2(d) will be rounded to the next whole
number.

(e) If, during the EIX Option term or the Performance  Period, the Holder's  employment  terminates due to death or
permanent  and total  disability,  the  provisions  of this Section  2(e) will apply.  Any unvested EIX Options and
Dividend  Equivalents  will vest.  The EIX Options will be  exercisable  as provided in Section 3 for the remainder
of the original EIX Option  term.  The Dividend  Equivalents  will be  exercisable  to the full extent  provided in
Section 4. The  Performance  Shares and  related PS  Dividends  will be vested on a pro rata basis as  provided  in
Section  2(d).  The  Performance  Shares and  related PS  Dividends  will be payable to the Holder on such pro rata
basis on the payment  date  specified  in Section 5(d) to the extent of the EIX total  shareholder  return  ranking
achieved as provided in Section 5(a). Any  fractional  EIX Options or Performance  Shares vested under this Section
2(e) will be rounded to the next whole number.

(f) Upon involuntary  termination of employment not for cause during the Vesting Period or Performance  Period, the
provisions  of this Section 2(f) shall apply.  Unvested EIX Options will vest to the extent  necessary to cause the
aggregate  number of shares  subject to vested EIX Options  (including any shares  acquired  pursuant to previously
exercised EIX Options) to equal the product of 1/48th of the number of shares  granted  multiplied by the number of
full months of service the Holder has  completed  during the Vesting  Period,  except that one  additional  year of
vesting  credit will apply.  The Holder will have one year  following the date of  termination in which to exercise
the EIX  Options,  or until the end of the  option  term,  whichever  occurs  earlier,  except  that if the  holder
qualifies for  retirement  the EIX Options will be  exercisable  for the remainder of the original EIX Option term.
The Dividend  Equivalents  will be vested on a pro-rata  basis as described  above with respect to the EIX Options,
including  the  additional  year of  vesting  credit.  The  Dividend  Equivalents  will be paid one year  after the
termination date or at the end of the original  five-year term,  whichever occurs earlier.  The Performance  Shares
and  related  PS  Dividends  will be vested on a pro rata  basis as  provided  in  Section  2(d),  except  that one
additional  year of vesting  credit will apply.  Such vested  Performance  Shares and related PS Dividends  will be
payable to the Holder on the payment  date  specified  in Section  5(d) to the extent of the EIX total  shareholder
return  ranking  achieved  as provided in Section  5(a).  For  purposes  of these  terms and  conditions  only,  an
involuntary  termination  of employment  will be deemed to occur on the date the Holder's  employing  Company is no
longer a member of the EIX controlled  group of corporations as defined in Section 1563(a) of the Internal  Revenue
Code,  regardless of whether  Holder's  employment  continues with that entity or a successor entity outside of the
EIX controlled  group.  Any  fractional  EIX Options or  Performance  Shares vested under this Section 2(f) will be
rounded up to the next whole number.

(g) Upon  termination  of  employment  during the EIX  Option  term for any reason  other than those  specified  in
Section  2(d),  (2(e) or 2(f),  only  those EIX  Options  that have  vested  as of the  prior  vesting  date may be
exercised,  and they may only be exercised  within 180 days  following the date of termination or by the end of the
applicable  EIX Option  term,  if that date is earlier.  If such  termination  occurs  while  Dividend  Equivalents
remain  outstanding,  any  Dividend  Equivalents  vested  as of the  prior  vesting  date  remaining  unpaid on the
termination  date  will be paid  within 30 days  following  the date of  termination.  If such  termination  occurs
during the  Performance  Period,  none of the  Performance  Shares and PS Dividends  will vest.  Any fractional EIX
Options will be rounded up to the next whole share.

(h)  Notwithstanding  the foregoing,  in the event of a "Change in Control of EIX" as defined in Appendix A hereto,
outstanding EIX Options and Dividend  Equivalents  will vest. The EIX Options and Dividend  Equivalents will remain
exercisable  for a period of 2 years if EIX Common Stock  remains  outstanding  after the Change in Control of EIX,
or until the end of their respective terms if earlier.  If EIX Common Stock does not remain  outstanding  after the
Change in Control of EIX,  and the EIX Options  and  Dividend  Equivalents  are not  replaced  by new owners,  cash
payout for unexercised EIX Options and Dividend Equivalents will

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occur.  Upon a Change in Control of EIX,  all  outstanding  Performance  Shares and PS  Dividends  will vest and be
paid in cash.  The amount of the  Performance  Share  payment will equal the greater of (i) the value of the target
number of  shares  and  dividends  equivalents  under the  award,  or (ii) the  value of the  number of shares  and
dividend  equivalents  that  would be paid  assuming  the  Performance  Period  ended on the date of the  Change in
Control of EIX and based on actual  performance  through  that date.  Any  fractional  EIX  Options or  Performance
Shares vested under this Section 2(h) will be rounded up to the next whole number.

3.  EIX OPTION EXERCISE
(a) The  Holder may  exercise  an EIX  Option by  providing  written  notice to EIX on the form  prescribed  by the
Administrator  for this purpose  accompanied by full payment of the applicable  exercise price.  Payment must be in
cash or its  equivalent  acceptable  to EIX.  At the  discretion  of the  Holder,  EIX Common  Stock  valued on the
exercise  date at a per share price equal to the  average of the high and low sales  prices of EIX Common  Stock on
the New York Stock Exchange may be used to pay the exercise  price,  provided the Company can comply with any legal
requirements.  A  broker-assisted  "cashless"  exercise may be  accommodated  for EIX Options at the  discretion of
EIX.  Until  payment  is  accepted,  the Holder  will have no rights in the  optioned  stock.  EIX  Options  may be
exercised at any time after they have vested  through  January 2, 2014,  except as  otherwise  provided in Sections
2(d), 2(e), 2(f), 2(g), 2(h) and 8.

(b) The Holder agrees that any  securities  acquired by him or her hereunder are being  acquired for his or her own
account for investment and not with a view to or for sale in connection with any  distribution  thereof and that he
or she  understands  that such  securities  may not be sold,  transferred,  pledged,  hypothecated,  alienated,  or
otherwise  assigned or disposed of without either  registration under the Securities Act of 1933 or compliance with
the exemption provided by Rule 144 or another applicable exemption under such act.

(c) The Holder will have no right or claim to any specific  funds,  property or assets of the Companies as a result
of the award.

4.  DIVIDEND EQUIVALENTS
A  Dividend  Equivalents  account  will be  established  on behalf  of the  Holder.  During  the  five-year  period
commencing  January 2, 2004, for each dividend paid on EIX Common Stock after the date of grant,  this account will
be  credited  with the amount of  dividends  that would have been paid on the number of shares of EIX Common  Stock
covered by the Holder's  corresponding  EIX Option award except as provided below.  The Dividend  Equivalents  will
be  credited  on the  ex-dividend  date for EIX  Options  held on that date  unless  the  Dividend  Equivalent  has
previously been paid or terminated.  Dividend  Equivalents will accumulate in this account without  interest.  Once
vested,  the  Dividend  Equivalents  will be paid in cash upon the  earlier of (i) the request of the Holder at any
time prior to January 2,  2008, regardless of whether the corresponding EIX Option is exercised,  (ii) the exercise
or  termination  of the  corresponding  EIX Option,  or (iii) January 2, 2009.  Upon payment or  termination of the
Dividend  Equivalent,  no further Dividend  Equivalents will accrue as to the corresponding EIX Option, even if the
EIX Option remains  outstanding  and  exercisable.  The Dividend  Equivalents  are subject to termination and other
conditions specified in Sections 2(d), 2(e), 2(f), 2(g), 2(h) and 8.

5.  PERFORMANCE SHARES AND PS DIVIDENDS
(a) Performance  Shares are EIX Common  Stock-based units subject to a performance  measure based on the percentile
ranking of EIX total  shareholder  return  (TSR)  compared to the TSR for each stock  comprising  the  Philadelphia
Utility Index,  deleting AES  Corporation  and adding Sempra Energy,  over all of the  Performance  Period.  TSR is
calculated  using a 20-day  trading  average on the  measurement  date. A target number of  contingent  Performance
Shares will be awarded.  The Performance Shares include PS

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Dividends  that will  accumulate  on the target  number of  Performance  Shares  awarded and be paid as provided in
Section  5(c).  The actual  amount of  Performance  Shares and PS  Dividends  to be paid will depend on the EIX TSR
percentile  ranking on the measurement  date. The target number of Performance  Shares and accumulated PS Dividends
will be paid if the EIX TSR rank is at the 50th  percentile.  Payment  may  range  from  nothing  if the EIX TSR is
below the 40th  percentile to three times the target number of Performance  Shares and  accumulated PS Dividends if
the EIX TSR  percentile  ranking is at the 90th  percentile  or higher.  The payment  multiples for the various EIX
TSR rankings are as follows:

                        -------------------------------------------------------------
                                         Performance Share Payment
                        ------------------------------- -----------------------------
                                 EIX TSR Rank               Payment Multiple(1)
                        ------------------------------- -----------------------------
                         At or Above 90th Percentile              3 times
                        ------------------------------- -----------------------------
                           75th to 89th Percentile         Between 2 and 3 times
                        ------------------------------- -----------------------------
                           50th to 74th Percentile         Between 1 and 2 times
                        ------------------------------- -----------------------------
                           40th to 49th Percentile        Between 0.25 and 1 times
                        ------------------------------- -----------------------------
                            Below 40th Percentile                 0 times
                        ------------------------------- -----------------------------
                           (1) The payment multiple is interpolated for performance
                           between the points indicated on a straight-line basis.

(b) The performance  measurement  date will be the last business day of the Performance  Period.  On that date, the
applicable  payment  multiple  will be  determined  using the table above based on the EIX TSR  percentile  ranking
achieved during the Performance Period.

(c) A PS Dividend  account will be  established  and credited with an amount equal to each dividend that would have
been paid during the Performance  Period on the number of shares of EIX Common Stock  equivalent to Holder's target
Performance  Share award.  The PS Dividends will be credited on the ex-dividend  date and will  accumulate  without
interest.  The PS Dividend  payment will be determined by multiplying  the amount  accumulated in the account as of
the measurement date by the TSR payment multiple determined under section 5(a).

(d)  Each  Performance  Share  earned  will be  worth  one  share  of EIX  Common  Stock.  One-half  of the  earned
Performance  Shares will be paid in EIX Common Stock as a Stock  Payment  under the ECP, and any  fractional  share
will be paid in cash.  The  remaining  one-half of the earned  Performance  Shares will be paid in cash.  The value
of each  Performance  Share paid in cash will be equal to the average of the high and low sales prices per share of
EIX Common  Stock on the New York  Stock  Exchange  for the  measurement  date.  The PS  Dividends  will be paid in
cash.  The shares of EIX Common  Stock and the cash  payable  for the earned  Performance  Shares and PS  Dividends
will be delivered  within 30 days  following  the end of the  Performance  Period.  The  Performance  Shares and PS
Dividends are subject to termination and other  conditions  specified in Sections 2(d),  2(e), 2(f), 2(g), 2(h) and 8.

6.  DELAYED PAYMENT OR DELIVERY OF LTI GAINS
Notwithstanding  the terms of any LTI,  Holders who are eligible to defer salary under the EIX  Executive  Deferred
Compensation  Plan (EDCP) may  irrevocably  elect to  alternatively  exercise  all or part of any vested EIX Option
pursuant to the terms of the Option Gain Deferral  Program (OGDP),  and/or may  irrevocably  elect to defer receipt
of all or a part of the cash portion of any Dividend  Equivalents or Performance  Shares and PS Dividends  pursuant
to the  terms of the EDCP.  To make  such an  election,  the  Holder  must  submit a signed  agreement  in the form
approved by the  Administrator  at least six months prior to the expiration date of the EIX Option,  or the payment
date of a Dividend  Equivalent or  Performance  Share.  An EIX Option or Dividend  Equivalent  may not be exercised
for six months thereafter except under

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the  limited  circumstances  specified  in the OGDP or the EDCP.  Any  subsequent  exercises  or  payments  will be
subject to the terms, conditions and restrictions of the OGDP or the EDCP, as applicable.

7.  TRANSFER AND BENEFICIARY
(a)  The LTI  will  not be  transferable  by the  Holder.  During  the  lifetime  of the  Holder,  the LTI  will be
exercisable  only by him or her. The Holder may  designate a beneficiary  who,  upon the death of the Holder,  will
be entitled to exercise the then vested  portion of the LTI during the remaining  term subject to the provisions of
the Plans and these  terms and  conditions.  To the extent an LTI,  or any portion  thereof,  is ordered  paid to a
third party pursuant to court order,  levy, or any other assessment  imposed by legal authority,  a cash award will
be substituted by EIX for such portion otherwise payable in EIX stock, rounded up to the next whole share.

(b)  Notwithstanding  the foregoing,  EIX Options of the CEOs of EIX,  Edison Mission Energy,  Edison Capital,  and
Southern  California Edison Company,  and the EVPs of EIX are transferable to a spouse,  children or grandchildren,
or trusts or other vehicles  established  exclusively for their benefit.  Any transfer request must specifically be
authorized  by EIX in  writing  and  shall be  subject  to any  conditions,  restrictions  or  requirements  as the
administrator may determine.

8.  TERMINATION OF LONG TERM INCENTIVES
(a) In the event of  termination  of the  employment  of the Holder for any reason  other than those  specified  in
Section 2(d), 2(e) or 2(f), the LTI will terminate as follows:  (i) the Holder's  unvested EIX Options and Dividend
Equivalents  will  terminate  for no value on the date such  employment  terminates,  (ii) the Holder's  vested EIX
Options  will  terminate  for no value 180 days from the date on which such  employment  terminated,  and (iii) the
Holder's Performance Shares and PS Dividends will be forfeited for no value.

(b)  If a  Holder's  employment  terminates  for a  reason  identified  in  Section  2(d),  the  Holder's  unvested
Performance  Shares and PS Dividends (after  application of the vesting  provisions of Section 2(d)) will terminate
for no value on the date of such employment termination.

(c) If a Holder's  employment  terminates for a reason  identified in Section 2(e) or 2(f),  the Holder's  unvested
EIX  Options,  Dividend  Equivalents,  Performance  Shares  and PS  Dividends  (after  application  of the  vesting
provisions of Section 2(e) or 2(f)) will terminate for no value on the date of such employment termination.

(d) The LTI, or any portion  thereof,  may be terminated if EIX elects to substitute  cash awards as provided under
Section 13 or in  conjunction  with a change in control as  described  in Section  2(h).  Any EIX Option  remaining
outstanding on January 2, 2014 will terminate for no value.

9.  ENGAGING IN COMPETITION WITH EIX OR ITS AFFILIATES
In the event that a Holder who is at the level of Senior Vice  President  or above  "competes"  (as defined  below)
with any of the Companies prior to, or during the six-month period  following,  any exercise of an EIX Option,  the
Committee,  in its sole  discretion,  may rescind such exercise within two years after such exercise.  In the event
of any such  rescission,  the Holder shall pay to EIX, or the Company by which Holder is or was last employed,  the
amount of any gain realized as a result of the rescinded  exercise in such manner and on such terms and  conditions
as the  Committee  may require,  and EIX or such  Company  shall be entitled to set-off the amount of any such gain
against any amount owed to the Holder by EIX or such  Company.  For  purposes of this  Section 9,  "compete"  shall
mean the Holder's  rendering of services for any  organization,  or engaging directly or indirectly in any business
that  competes with the business of EIX or any of the  Companies  without the prior written  consent of the General
Counsel of EIX.

10.  TAXES
EIX will have the right to retain and withhold  the amount of taxes  required by any  government  to be withheld or
otherwise deducted and remitted with respect to the exercise or payment of any LTI.  EIX has

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elected to  substitute  a cash award for the  lowest  number of whole  shares of Common  Stock  otherwise  issuable
pursuant  to the LTI having a fair  market  value on the  payment  date equal to the fair  market  value of the LTI
multiplied  by the  applicable  federal and state tax  withholding  rates,  less any cash received and not deferred
from payment of the LTI on the payment date.

11.  CONTINUED EMPLOYMENT
Nothing in the award  certificate  or these Terms and  Conditions  will be deemed to confer on the Holder any right
to continue in the employ of EIX or an EIX  affiliate  or  interfere  in any way with the right of the  employer to
terminate his or her employment at any time.

12.  NOTICE OF DISPOSITION OF SHARES AND SECTION 16
(a)  Holder  agrees  that if he or she  should  dispose  of any shares of stock  acquired  on the  exercise  of EIX
Options,  including a  disposition  by sale,  exchange,  gift or transfer of legal title within six months from the
date such shares are transferred to the Holder, the Holder will notify EIX promptly of such disposition.

(b) If an LTI is granted to a person who later becomes  subject to the  provisions of Section 16 of the  Securities
Exchange Act of 1934, as amended  (Section 16), the LTI will  immediately and  automatically  become subject to the
requirements of Rule 16b-3(d) and/or 16b-3(e) (Rule) and may not be exercised,  paid or transferred  until the Rule
has been satisfied.  In its sole discretion,  the  Administrator  may take any action to assure compliance with the
requirements  of the Rule,  including  withholding  delivery to Holder (or any other  person) of any security or of
any other  payment in any form until the  requirements  of the Rule have been  satisfied.  The Secretary of EIX may
waive  compliance  with the  requirements of the Rule if he or she determines the transaction to be exempt from the
provisions of paragraph (b) of Section 16.

13.  AMENDMENT
The LTI are subject to the terms of the Plans as amended from time to time.  EIX  reserves the right to  substitute
cash awards  substantially  equivalent  in value to the LTI. The LTI may not  otherwise be restricted or limited by
any Plan amendment or termination approved after the date of the award without the Holder's consent.

14.  FORCE AND EFFECT
The  various   provisions   herein  are  severable  in  their  entirety.   Any   determination   of  invalidity  or
unenforceability  of any one  provision  will have no effect on the  continuing  force and effect of the  remaining
provisions.

15.  GOVERNING LAW
The terms and conditions of the LTI will be construed under the laws of the State of California.

16.  NOTICE
Unless waived by EIX, any notice  required under or relating to the LTI must be in writing,  with postage  prepaid,
addressed to: Edison International, Attn: Corporate Secretary, P.O. Box 800, Rosemead, CA 91770.

EDISON INTERNATIONAL

/S/ BEVERLY P. RYDER
-------------------------------------------
BEVERLY P. RYDER
Vice President and Corporate Secretary

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                                                    APPENDIX A
                                  2004 LONG-TERM INCENTIVES TERMS AND CONDITIONS

                                                 CHANGE IN CONTROL

"Change in Control of EIX" shall be deemed to have occurred as of the first day that any one or more of the
following conditions shall have been satisfied:

         (a) Any Person (other than a trustee or other fiduciary holding securities under an employee
             benefit plan of EIX) becomes the Beneficial Owner, directly or indirectly, of securities of EIX
             representing thirty percent (30%) or more of the combined voting power of EIX's then
             outstanding securities.  For purposes of this clause, "Person" shall not include one or more
             underwriters acquiring newly-issued voting securities (or securities convertible into voting
             securities) directly from EIX with a view towards distribution.

         (b) On any day after the date of grant (the "Reference Date") Continuing Directors cease for any
             reason to constitute a majority of the Board.  A director is a "Continuing Director" if he or
             she either:

             (i)      was a member of the Board on the applicable Initial Date (an "Initial Director"); or

             (ii)     was elected to the Board, or was nominated for election by EIX's shareholders, by a
                      vote of at least two-thirds (2/3) of the Initial Directors then in office.

             A member of the Board who was not a Director on the applicable Initial Date shall be deemed to
             be an Initial Director for purposes of clause (b) above if his or her election, or nomination
             for election by EIX's shareholders, was approved by a vote of at least two-thirds (2/3) of the
             Initial Directors (including directors elected after the applicable Initial Date who are deemed
             to be Initial Directors by application of this provision) then in office.

             "Initial Date" means the later of (A) the date of grant or (B) the date that is two (2) years
             before the Reference Date.

         (c) EIX is liquidated; all or substantially all of EIX's assets are sold in one or a series of
             related transactions; or EIX is merged, consolidated, or reorganized with or involving any
             other corporation, other than a merger, consolidation, or reorganization that results in the
             voting securities of EIX outstanding immediately prior thereto continuing to represent (either
             by remaining outstanding or by being converted into voting securities of the surviving entity)
             more than fifty percent (50%) of the combined voting power of the voting securities of EIX (or
             such surviving entity) outstanding immediately after such merger, consolidation, or
             reorganization.  Notwithstanding the foregoing, a bankruptcy of EIX or a sale or spin-off of an
             EIX Affiliate (short of a dissolution of EIX or a liquidation of substantially all of EIX's
             assets, determined on an aggregate basis) will not constitute a Change in Control of EIX.

         (d) The consummation of such other transaction that the Board may, in its discretion in the
             circumstances, declare to be a Change in Control of EIX for purposes of the Plans.SEPARATION AND GENERAL RELEASE AGREEMENT

     This  Separation and General Release  Agreement (this  "Agreement") is made
and  entered  into by and  between  Bruce  Allenbaugh  ("Employee")  and  Safeco
Corporation (the "Company").

                                    RECITALS

     A.  Employee has been  employed by Company as its Senior Vice  President of
Marketing and  Communications.  Employee has tendered his notice of  resignation
from employment with the Company  effective  January 31, 2004, which resignation
is accepted by the Company.

     B. To resolve  any issues  between  Employee  and the Company or any of its
affiliates arising out of Employee's  employment,  Employee and the Company have
voluntarily  agreed to enter into this Agreement.  This Agreement sets forth the
complete  understanding  between Employee and the Company  regarding  Employee's
resignation  as an  officer  of any of the  Safeco  group of  companies  and his
resignation as an employee of the Company,  and the  commitments and obligations
arising out of the termination of the employment  relationship  between Employee
and the Company.

                                    AGREEMENT

1.   Employment Termination.

     1.1  Resignation.  In  consideration  of the  Severance  Payment  and other
compensation and benefits described herein,  Employee tenders his resignation of
employment,  including  resignation  as  an  officer  of  the  Company  and  its
affiliates, effective January 31, 2004 (the "Termination Date").

     1.2 Compensation  Through  Termination Date. The Company shall pay Employee
all base salary  through  the  Termination  Date.  Until the  Termination  Date,
Employee  shall  continue to be eligible  for employee  benefit  plan  coverages
available to employees of the Company and for continued vesting under the Safeco
Incentive  Stock  Option  Plan of 1987  (the  "1987  Plan")  and/or  the  Safeco
Long-Term Incentive Plan of 1997 (the "LTIP").

     1.3 Group Medical Benefits Coverage.  The Company shall continue to provide
coverage under any group medical  benefits plan under which Employee  and/or his
dependents  were  covered  on  the  date  hereof,   through  and  including  the
Termination Date. Employee shall be responsible to pay any amounts chargeable as
"employee premium contribution" amounts with respect to any such coverage.  From
and after the  Termination  Date,  the Company  shall  provide  Employee  and/or
Employee's  dependents with such benefits continuation or conversion coverage as
may be available or required under the terms of the Company's  benefits plans or
policies  (understanding that the Company retains the right to modify,  amend or
terminate any of the plans at any time without advance notice).  Employee and/or
Employee's  covered  spouse and  dependents may be eligible to elect a temporary
extension of group health plan coverage  under the  Consolidated  Omnibus Budget
Reconciliation Act of 1985, as subsequently amended ("COBRA").
<PAGE>

     1.4 Payment for Accrued  Vacation.  On the  Termination  Date,  the Company
shall pay  Employee  for  accrued  but  unused  vacation  that  exists as of the
Termination  Date,  which  amount the parties  agree equals Five  Thousand  Five
Hundred, Fifty-Two Dollars ($5,552.00).

     1.5  Reimbursement  for  Expenses  Incurred.  The Company  shall  reimburse
Employee for reasonable and necessary  business expenses incurred by Employee on
or before the  Termination  Date to the extent such  expenses  are  reimbursable
under the Company's normal expense  reimbursement  policies and procedures,  and
provided that receipts or other acceptable  documentation  for such expenses are
submitted to Human Resources by the Termination Date.

     1.6 Acknowledgment of Full Compensation to Date. Employee  acknowledges and
agrees that,  with the payment of his salary  through the  Termination  Date, he
will have received all  compensation  due and owing him (including  base salary,
bonus  or  other  incentive   payments)  for  services   performed  through  the
Termination Date.

     1.7 No  Authority  To Act or  Represent  the  Company.  From and  after the
Termination  Date,  Employee shall have no further authority to bind the Company
or any of its affiliates to any contract or agreement or to act on behalf of the
Company or to represent the Company at any industry or business functions.

     1.8 Return of Materials.  On or before the Termination Date, Employee shall
return to the Company all Company-owned equipment and materials,  including, but
not limited to, any computers, mobile phones, all documents (whether existing in
paper  or  electronic/digital  media),  compilations  of data,  files,  manuals,
letters,  notebooks,  reports,  diskettes and all other materials and records of
any kind, and any copies or other reproductions thereof, owned by the Company or
its affiliates and used by Employee in the course of Employee's employment.

     1.9 Agreement to Cooperate.  Employee  agrees to respond  promptly,  and to
cooperate with,  reasonable  requests for information  that the Company may make
relating  to matters  on which  Employee  worked  while he was  employed  by the
Company.

     1.10 Continued  Service on Alliance for Education Board. The Company agrees
that  Employee  may  continue to serve on the Board of Directors of the Alliance
for Education through the end of his existing term.
<PAGE>

2.   Payments; Contributions.

     2.1 Severance Payment. As compensation to Employee, and in consideration of
the termination of Employee's  role as an officer and Employee's  resignation as
an employee of the Company and its affiliates,  Employee's  release agreement in
Section 4 and other agreements made herein, in addition to the benefits provided
under  Section 1 above and the further  consideration  provided  under Section 3
below, the Company agrees to pay Employee a total sum of Four Hundred  Fifty-One
Thousand, Seventy-Five Dollars ($451,075) as a severance payment (the "Severance
Payment").  The Severance  Payment shall be subject to withholding and deduction
for payroll taxes and other deductions as are required by federal and state law.
The Severance  Payment shall be paid in a lump sum within ten (10) business days
of the Effective Date of the Agreement (see  Paragraph  11.4).  Employee and the
Company agree that the Severance Payment represents sufficient consideration for
the potential claims being released.

     2.2 Payment in Lieu of Leadership  Performance Plan Incentive.  The Company
agrees  to pay  Employee  the  sum  of  Three  Hundred  Fifty  Thousand  Dollars
($350,000) in lieu of any annual incentive  payment Employee might have received
in 2004 under the Leadership Performance Plan. Employee shall not be entitled to
any other bonus,  incentive  payment or other  variable pay for past services or
the current calendar year.

     2.3 Benefit Plan  Contributions.  Employee shall continue to be eligible as
an  "employee"  of  the  Company  through  the  Termination  Date  for  employer
contributions paid under the Company's employee benefit plans. Employee shall be
eligible  to  participate  in and shall  receive pro rata  contributions  to the
Safeco  401(k)/Profit  Sharing  Retirement Plan, as the same may be available to
other  employees  of  the  Company.  Employee  acknowledges  that  any  employer
contributions  to, or interest or other  income  credited  to, any of the Safeco
401(k)/Profit  Sharing  Retirement  Plan or Safeco  Employees' Cash Balance Plan
shall be additional  compensation  to Employee in excess of the total  Severance
Payment amount described above.

     2.4  Stock  Options  and  Accelerated  Vesting  of  Unvested  Options.  The
Compensation Committee of the Safeco Board of Directors has approved accelerated
vesting  of  all of  Employee's  outstanding  Non-Qualified  Stock  Options  and
Incentive Stock Options, such that each such Stock Option shall be fully vested,
fully  exercisable,  and  wholly  non-forfeitable  as of the  Termination  Date,
contingent upon Employee's execution of this Agreement and the expiration of the
revocation  period.  Pursuant  to the  provisions  of the 1987 Plan and the LTIP
relating to the termination of employment,  each outstanding Stock Option shall,
to the extent  that it is or becomes  exercisable  as of the  Termination  Date,
remain exercisable for three months thereafter,  until April 30, 2004; provided,
however, that no Stock Option shall remain exercisable beyond its maximum stated
term.  In the event that  Employee  accepts  competitive  employment  that would
result in forfeiture of gains from  exercise of her Stock  Options,  the Company
agrees that it will not seek or require  forfeiture of Employee's  gains so long
as  Employee  is in full  compliance  with  Employee's  obligations  under  this
Agreement.
<PAGE>

     2.5 Compensation for Restricted Stock Rights ("RSR"). Employee acknowledges
and agrees that he shall have no rights in,
or be entitled to any compensation for, any RSRs.

     2.6 Performance Stock Rights ("PSR"). Employee acknowledges and agrees that
he shall have no rights in, or be entitled to any compensation for, any PSRs.

3.   Transition Services.

     As  further   consideration  to  Employee  for  the  agreements  hereunder,
including the release  granted under  Section 5 of this  Agreement,  the Company
agrees to provide  Employee with  transition  services  through David Nelson and
Associates  for a period of up to one year from January 31,  2004.  Employee and
the Company  shall direct that  invoices for services  obtained by Employee from
David Nelson and Associates be forwarded directly to the Company for payment.

4.   Release and Settlement.

     4.1 Release.  In consideration  of the Company's  delivery of the Severance
Payment and other  consideration  and benefits  provided to Employee  under this
Agreement,  Employee hereby  releases the Company and its affiliated  companies,
insurers, employee benefit or stock option plans in which Employee participates,
and the employees,  agents, officers,  directors and shareholders of any of them
(including their respective spouses and marital  communities),  from all claims,
demands, actions, causes of action, or damages, of any kind or nature whatsoever
that  Employee  may now have or may ever have had against  any of them,  whether
such claims are known or unknown, and including but not limited to the Claims as
described  below.  However,  nothing in this Agreement shall create or imply any
waiver by Employee of any claims (a) with respect to Employee's  entitlement  to
compensation for vested benefits  arising under any Company pension,  retirement
or welfare benefit plan, program or agreement,  in accordance with the terms and
conditions of such plans, (b) arising under any insurance or investor account or
similar  client  relationship,  (c) with respect to any breach by the Company of
its obligations under this Agreement, all of which rights shall be preserved and
unaffected  by this  release,  or (d) with  respect  to  indemnification  by the
Company, to the extent that such indemnification rights may arise or be provided
under the Company's  Articles of  Incorporation  or Bylaws,  in connection  with
Employee's  official  actions (or omissions) on behalf of the Company during the
period Employee served as an officer of the Company.  EMPLOYEE  ACKNOWLEDGES AND
AGREES THAT THROUGH THIS RELEASE  EMPLOYEE IS GIVING UP ALL RIGHTS AND CLAIMS OF
EVERY KIND AND NATURE  WHATSOEVER,  KNOWN OR UNKNOWN,  CONTINGENT OR LIQUIDATED,
THAT  EMPLOYEE MAY HAVE AGAINST THE COMPANY,  AND THE OTHER  PERSONS  REFERENCED
ABOVE, EXCEPT FOR THE RIGHTS SPECIFICALLY EXCLUDED ABOVE.
<PAGE>

     4.2 The Claims. For the purposes of this Agreement, "Claims" shall mean and
include,  without limitation,  Claims with respect to any of the following:  (i)
breach  of  contract;  (ii)  discrimination,  retaliation,  or  constructive  or
wrongful  discharge;  (iii) lost wages,  lost  employee  benefits,  physical and
personal injury,  stress, mental distress,  or impaired reputation;  (iv) Claims
arising  under the Age  Discrimination  in Employment  Act  ("ADEA"),  the Older
Workers Benefit Protection Act, the Washington State Law Against Discrimination,
Title VII of the  Civil  Rights  Act,  the Equal  Pay Act,  the  Americans  with
Disabilities  Act, the Family Medical Leave Act, or any other federal,  state or
local laws or regulations prohibiting employment discrimination;  (v) attorneys'
fees; and (vi) any other Claim arising from or relating to Employee's employment
with the Company and/or Employee's separation from service.

     4.3  Consideration  for  Release.  The  Company  represents,  and  Employee
acknowledges,  that  the  Severance  Payment  and the  other  consideration  and
benefits  provided  hereunder  exceed any amount the  Company  may  arguably  be
required to pay under any agreement or  arrangement to which Employee is a party
or under which Employee claims some benefit,  or under the standard policies and
procedures of the Company, and represents valuable consideration to Employee for
the release of the Claims described above.

5.   No Admission.

     Employee  understands and acknowledges  that neither the Severance  Payment
nor the other  benefits  provided  hereunder,  nor the execution and delivery of
this  Agreement by the Company,  constitutes  an admission by the Company to (i)
any breach of an agreement with Employee, (ii) any violation of a federal, state
or local statute,  regulation or ordinance,  or (iii) any other wrongdoing.  The
Company  understands and acknowledges that neither Employee's  acceptance of the
Severance  Payment  and  other  benefits  provided  hereunder,   nor  Employee's
execution and delivery of this  Agreement,  constitutes an admission by Employee
to (i) any breach of an  agreement  with the  Company,  (ii) any  violation of a
federal,  state or local  statute,  regulation or ordinance,  or (iii) any other
wrongdoing.

6.   Confidential Information.

     6.1  Possession  of Non-Public  Information.  Employee  recognizes  that by
virtue  of  Employee's   employment  by  the  Company,   Employee  has  acquired
significant non-public information and trade secrets with respect to the Company
and  its  affiliated   companies,   and  their  operations  (the   "Confidential
Information").  Employee  recognizes  and  acknowledges  that  the  Confidential
Information  constitutes valuable,  special and unique assets of the Company and
its  affiliates,  access  to  and  knowledge  of  which  were  essential  to the
performance of Employee's duties during Employee's employment.

     6.2 Non-Disclosure. Employee agrees to hold the Confidential Information in
trust and confidence. Employee agrees not to (i) directly or indirectly make use
of the Confidential Information, (ii) reveal any Confidential Information to any
other  party,  or (iii)  divulge  or use any  Confidential  Information  for any
purpose  other than for the  benefit of the  Company,  except to the extent that
Employee may be required to disclose  such  Confidential  Information  by lawful
order or process of a court (in which event  Employee  will  provide  reasonable
advance  notice of such  disclosure to the Company and will  cooperate  with the
Company's  efforts  to  obtain   protective   treatment  for  such  Confidential
Information).
<PAGE>

     6.3  Materials.  Employee  shall not remove from the Company's  premises or
possession any documents,  compilations of data or other files or records of any
nature,  or  any  copy  or  reproduction   thereof,  that  contain  Confidential
Information or that belong to the Company.

7.   Non-Disparagement/Non-Solicitation.

     Employee agrees not to make any disparaging or derogatory remarks about the
Company, its affiliated companies or any of their officers, directors, employees
or agents at any  time.  This  Section  7 shall  not be  construed  to  prohibit
Employee from responding  truthfully and publicly to incorrect public statements
or from making  truthful  statements when required by law or order of a court or
other  person or body  having  jurisdiction.  Employee  agrees  that for six (6)
months following the Termination Date,  Employee will not directly or indirectly
solicit or entice any person who is an employee,  partner,  affiliate,  agent or
prospective  partner or agent of the Company to cease,  terminate  or reduce any
relationship with the Company.

8.   Legal Action.

     8.1 No Claims.  Employee  represents that Employee has not filed a Claim or
complaint  against the  Company or any of its  affiliated  companies,  or any of
their employees,  agents, officers,  directors or shareholders with any court or
agency.  The Company represents that it is not aware of any legal action pending
or potentially  pending against Employee for acts or omissions as an employee of
the Company.

     8.2  Indemnification.  To the extent provided as of the Termination Date in
the  indemnification  provisions of the Company's  articles of incorporation and
bylaws  and to the  maximum  extent  permitted  under  the laws of the  state of
Washington,  Employee shall be entitled to  indemnification,  and advancement of
expenses,  in respect of matters  that  occurred  during the time that he was an
officer of the company.

     8.3 No Action on Released Claims.  Employee agrees not to sue or pursue any
court or administrative action against the Company or any of its affiliates,  or
any of their employees,  agents,  officers,  directors or  shareholders,  to the
extent  allowed by  applicable  law,  regarding  any Claims  released  herein or
otherwise  arising from  Employee's  employment  with the Company or  Employee's
separation from service, except with respect to any breach by the Company of its
obligations  under this Agreement.  If any government agency brings any claim or
conducts any  investigation  against the Company,  Employee waives and agrees to
relinquish  any  damages  or other  individual  relief  that may be awarded as a
result of any such proceedings.
<PAGE>

     8.4  Liability  for Defense  Costs.  If,  notwithstanding  this  Agreement,
Employee should file any lawsuit or other  proceeding based on legal claims that
Employee has released  herein,  Employee  agrees to pay or reimburse the Company
for all reasonable costs, including attorneys' fees, that it, or its affiliates,
or their employees,  agents,  officers or directors,  incur in defending against
Employee's  claims.  This paragraph shall not apply to any claimed breach by the
Company of any of the terms or conditions of this Agreement.

9.   Agreement Confidential.

     9.1 Terms of Agreement. Employee and the Company agree that neither of them
shall  reveal  or  publicize  the  existence  of this  Agreement  or its  terms,
including  but not  limited to the amount of the  Severance  Payment,  except as
required by law,  including as required by annual  financial and other corporate
reporting  requirements.  Further, the parties agree that they shall not discuss
with or make to the public at large or to any  individual  person or persons any
statements  with  regard to this  Agreement,  or matters  relating to its terms.
Notwithstanding  the foregoing,  the parties may discuss the existence and terms
of this  Agreement  with  their  respective  attorneys,  accountants,  financial
advisors to obtain counsel and advice,  and, in Employee's case, with members of
Employee's  immediate  family,  and, in the Company's  case, with members of the
Company's Senior  Leadership  Team.  Nothing in this  confidentiality  provision
prohibits  Employee from  representing to third parties that Employee  "resigned
from the  Company  on  mutually  agreeable  terms" or that the  parties  "parted
amicably."

     9.2  Employment  References.  Employee  agrees to direct all  requests  for
employment  references  from  prospective  employers  to the  attention of Allie
Mysliwy, Senior Vice President and head of Human Resources for the Company. If a
prospective  employer  contacts  the Company for an  employment  reference  with
respect to Employee, the Company will provide, unless required otherwise by law,
only the following information:  Employee's dates of employment,  and Employee's
title and salary at the Termination Date.

10.  Costs.

     No later than the  Termination  Date, the Company shall pay Employee a lump
sum of One Thousand Five Hundred Dollars ($1,500) to defray any attorney and tax
advisor fees incurred in connection with  Employee's  separation from employment
with the  Company.  Except  for this  payment  to  Employee,  each  party  shall
separately  bear  their  costs and  expenses  incurred  in  connection  with the
negotiation and preparation of this Agreement.
<PAGE>

11.  Acknowledgment.

     11.1 Informed Agreement. Employee declares that Employee has read and fully
understands the terms of this Agreement and its  significance  and  consequence.
Employee  further  declares  that this  Agreement  is the  product of good faith
negotiations  between  Employee and the Company,  and that Employee  voluntarily
accepts  the same for the  purpose of  resolving  arrangements  with  respect to
Employee's resignation.

     11.2 Attorney.  Employee acknowledges that the Company has advised Employee
to  review  the terms of this  Agreement  with an  attorney  of  Employee's  own
choosing and that Employee has done so or knowingly  waived  Employee's right to
do so.

     11.3 Voluntary Act. Employee  acknowledges that this Agreement is voluntary
and has not been given as a result or any coercion.

     11.4 Review and Revocation Periods,  Effective Date. Employee  acknowledges
that the Company has given Employee at least  twenty-one  (21) days during which
to consider this  Agreement  prior to signing.  Negotiations  about the terms or
language of this Agreement shall not re-start the 21-day  consideration  period.
Employee  has seven (7) days after  signing in which  Employee  may revoke  this
Agreement.  This Agreement shall not become effective or enforceable  until such
seven-day period has expired (the "Effective Date of the  Agreement").  Employee
understands that she may revoke this Agreement by delivering a written notice to
the attention of Allie  Mysliwy at Safeco Plaza,  T-17,  Seattle,  WA 98185,  no
later than the close of business on the  seventh day after  Employee  signs this
Agreement.  Employee  understands and acknowledges that if Employee revokes this
Agreement it will not be effective or enforceable  and Employee will not receive
the payments or other benefits described herein.

12.  Entire Agreement.

     This Agreement along with the Product Ownership Agreement,  a copy of which
is attached as Exhibit A, constitute the entire  agreement  between Employee and
the  Company,  and they  supersede  and  replaces  all  prior  written  and oral
agreements and understandings  between the parties with respect to their subject
matter.  Neither the Company nor any affiliate has made any promises to Employee
other than those included within this Agreement.

13.  Waiver.

     No waiver of any  provision  of this  Agreement  shall be deemed,  or shall
constitute, a waiver of any other provisions,  whether or not similar, nor shall
any waiver  constitute a continuing  waiver.  No waiver shall be binding  unless
executed in writing by the party making the waiver.
<PAGE>

14.  Injunctive Relief.

     Employee  recognizes that irreparable and continuing injury for which there
is not  adequate  remedy at law will result to the Company and its  business and
property if Employee breaches  Employee's  obligations under this Agreement.  In
the event of any such breach or threatened breach, the Company shall be entitled
to seek temporary  injunctive relief upon a showing of such breach or threatened
breach  without  proof of actual  damage and without  posting a bond  therefore,
and/or an order of temporary and permanent specific  performance  enforcing this
Agreement,  and any other remedies  provided by applicable law.  Employee agrees
that in the event of any such proven  breach,  the Company  shall be entitled to
recover its costs associated with enforcing this Agreement, including reasonable
attorney's  fees.   Employee  further  understands  and  agrees  that  the  word
"temporary" as used herein shall include both temporary and  preliminary  relief
and/or remedies available.

15.  Amendment.

     No supplement, modification, or amendment of this Agreement shall be valid,
unless it is made in writing and signed by both parties hereto.

16.  Severability.

     In the event any  provision  or  portion  of this  Agreement  is held to be
unenforceable or invalid by any court of competent  jurisdiction,  the remainder
of this  Agreement  shall remain in full force and effect and shall in no way be
affected or invalidated thereby.

17.  Governing Law; Jurisdiction and Venue.

     The parties acknowledge that this Agreement shall be governed,  interpreted
and enforced in  accordance  with the laws of the state of  Washington,  without
regard to its conflict of law  principles.  Any suit or action arising out of or
in connection  with this Agreement,  or any breach hereof,  shall be brought and
maintained in the federal or state courts  located in Seattle,  Washington.  The
parties  irrevocably submit to the jurisdiction and venue of such courts for the
purpose of such suit or action and hereby  expressly and  irrevocably  waive, to
the fullest  extent  permitted by law, any  objection  they may now or hereafter
have to the venue of any such  suit or  action  in any such  court and any claim
that any such suit or action has been brought in an inconvenient forum.

(signature page follows)
<PAGE>

                             PLEASE READ CAREFULLY.

                  THIS SEPARATION AND GENERAL RELEASE AGREEMENT

               INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.

                                         /s/ Bruce Allenbaugh
                                         ------------------------------
                                             BRUCE ALLENBAUGH

                                      Date: January 31, 2004

                                          SAFECO CORPORATION

                                      By /s/ Michael S. McGavick
                                         ------------------------------
                                             MICHAEL S. MCGAVICK
                                      Its President and Chief Executive Officer

                                      Date: January 31, 2004

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