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Fair Value Measurements

12 Months Ended

Dec. 31, 2020

Recurring Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (referred to as an "exit price"). Fair value of an asset or liability considers assumptions that market participants would use in pricing the asset or liability, including assumptions about nonperformance risk. As of December 31, 2020 and 2019, nonperformance risk was not material for Edison International and SCE.

Assets and liabilities are categorized into a three-level fair value hierarchy based on valuation inputs used to determine fair value.

Level 1 – The fair value of Edison International's and SCE's Level 1 assets and liabilities is determined using unadjusted quoted prices in active markets that are available at the measurement date for identical assets and liabilities. This level includes exchange-traded equity securities, U.S. treasury securities, mutual funds and money market funds.

Level 2 – Edison International's and SCE's Level 2 assets and liabilities include fixed income securities, primarily consisting of U.S. government and agency bonds, municipal bonds and corporate bonds, and over-the-counter derivatives. The fair value of fixed income securities is determined using a market approach by obtaining quoted prices for similar assets and liabilities in active markets and inputs that are observable, either directly or indirectly, for substantially the full term of the instrument.

The fair value of SCE's over-the-counter derivative contracts is determined using an income approach. SCE uses standard pricing models to determine the net present value of estimated future cash flows. Inputs to the pricing models include forward published or posted clearing prices from an exchange (Intercontinental Exchange) for similar instruments and discount rates. A primary price source that best represents trade activity for each market is used to develop observable forward market prices in determining the fair value of these positions. Broker quotes, prices from exchanges or comparison to executed trades are used to validate and corroborate the primary price source. These price quotations reflect mid-market prices (average of bid and ask) and are obtained from sources believed to provide the most liquid market for the commodity.

Level 3 – The fair value of SCE's Level 3 assets and liabilities is determined using the income approach through various models and techniques that require significant unobservable inputs. This level includes derivative contracts that trade infrequently such as congestion revenue rights ("CRRs"). Edison International Parent and Other does not have any Level 3 assets and liabilities.

Assumptions are made in order to value derivative contracts in which observable inputs are not available. In circumstances where fair value cannot be verified with observable market transactions, it is possible that a different valuation model could produce a materially different estimate of fair value. Modeling methodologies, inputs, and techniques are reviewed and assessed as markets continue to develop and more pricing information becomes available and the fair value is adjusted when

it is concluded that a change in inputs or techniques would result in a new valuation that better reflects the fair value of those derivative contracts. See Note 6 for a discussion of derivative instruments.

SCE

The following table sets forth assets and liabilities of SCE that were accounted for at fair value by level within the fair value hierarchy:


	December 31, 2020
(in millions)	Level 1		Level 2		Level 3		Netting and Collateral1		Total
Assets at fair value
Derivative contracts	$	—	$	6	$	120	$	(18)	$	108
Other	39		23		—		—		62
Nuclear decommissioning trusts:
Stocks2	1,908		—		—		—		1,908
Fixed Income3	519		2,113		—		—		2,632
Short-term investments, primarily cash equivalents	447		52		—		—		499
Subtotal of nuclear decommissioning trusts4	2,874		2,165		—		—		5,039
Total assets	2,913		2,194		120		(18)		5,209
Liabilities at fair value
Derivative contracts	—		10		12		(22)		—
Total liabilities	—		10		12		(22)		—
Net assets	$	2,913	$	2,184	$	108	$	4	$	5,209


	December 31, 2019
(in millions)	Level 1		Level 2		Level 3		Netting and Collateral1		Total
Assets at fair value
Derivative contracts	$	—	$	19	$	83	$	(15)	$	87
Other	4		14		—		—		18
Nuclear decommissioning trusts:
Stocks2	1,765		—		—		—		1,765
Fixed Income3	738		2,024		—		—		2,762
Short-term investments, primarily cash equivalents	98		48		—		—		146
Subtotal of nuclear decommissioning trusts4	2,601		2,072		—		—		4,673
Total assets	2,605		2,105		83		(15)		4,778
Liabilities at fair value
Derivative contracts	—		11		5		(15)		1
Total liabilities	—		11		5		(15)		1
Net assets	$	2,605	$	2,094	$	78	$	—	$	4,777

1 Represents the netting of assets and liabilities under master netting agreements and cash collateral.

2 Approximately 71% and 72% of SCE's equity investments were located in the United States at December 31, 2020 and 2019, respectively.

3 Includes corporate bonds, which were diversified and included collateralized mortgage obligations and other asset backed securities of $29 million and $46 million at December 31, 2020 and 2019, respectively.

4 Excludes net payables of $206 million and $111 million at December 31, 2020 and 2019, respectively, which consist of interest and dividend receivables as well as receivables and payables related to SCE's pending securities sales and purchases.

Edison International Parent and Other

Edison International Parent and Other assets measured at fair value and classified as Level 1 consisted of money market funds of $24 million and $31 million at December 31, 2020 and 2019, respectively. Edison International Parent and Other assets measured at fair value and classified as Level 2 consisted of short-term investments of $5 million at December 31, 2020. Edison International Parent and Other had no short-term investments as of December 31, 2019.

SCE Fair Value of Level 3

The following table sets forth a summary of changes in SCE's fair value of Level 3 net derivative assets and liabilities:


	December 31,
(in millions)	2020		2019
Fair value of net assets at beginning of period	$	78	$	141
Purchases	8		6
Sales	(5)		(5)
Settlements	(117)		(60)
Total realized/unrealized gains (losses) 1,2	144		(4)
Fair value of net assets at end of period	$	108	$	78

1 Due to regulatory mechanisms, SCE's realized and unrealized gains and losses are recorded as regulatory assets and liabilities.

2 There were no material transfers into or out of Level 3 during 2020 and 2019.

The following table sets forth SCE's valuation techniques and significant unobservable inputs used to determine fair value for significant Level 3 assets and liabilities:


	Fair Value (in millions)					Significant	Range (per MWh)	Weighted Average (per MWh)
	Assets		Liabilities		Valuation Technique	Unobservable Input
Congestion revenue rights
December 31, 2020	$	120	$	12	Auction prices	CAISO CRR auction clearing prices	$(9.67) - $300.47	$2.75


December 31, 2019	83		5		Auction prices	CAISO CRR auction clearing prices	(3.59) - 25.32	1.97

Level 3 Fair Value Uncertainty

For CRRs, increases or decreases in CAISO auction price would result in higher or lower fair value, respectively.

Nuclear Decommissioning Trusts

SCE's nuclear decommissioning trust investments include equity securities, U.S. treasury securities and other fixed income securities. Equity and treasury securities are classified as Level 1 as fair value is determined by observable market prices in active or highly liquid and transparent markets. The remaining fixed income securities are classified as Level 2. The fair value of these financial instruments is based on evaluated prices that reflect significant observable market information such as reported trades, actual trade information of similar securities, benchmark yields, broker/dealer quotes, issuer spreads, bids, offers and relevant credit information. There are no securities classified as Level 3 in the nuclear decommissioning trusts.

SCE's investment policies and CPUC requirements place limitations on the types and investment grade ratings of the securities that may be held by the nuclear decommissioning trust funds. These policies restrict the trust funds from holding alternative investments and limit the trust funds' exposures to investments in highly illiquid markets. With respect to equity and fixed income securities, the trustee obtains prices from third-party pricing services which SCE is able to independently corroborate as described below. The trustee monitors prices supplied by pricing services, including reviewing prices against defined parameters' tolerances and performs research and resolves variances beyond the set parameters. SCE corroborates the fair values of securities by comparison to other market-based price sources obtained by SCE's investment managers. Differences outside established thresholds are followed-up with the trustee and resolved. For each reporting period, SCE reviews the trustee determined fair value hierarchy and overrides the trustee level classification when appropriate.

Nonrecurring Fair Value Measurements

Edison International assesses goodwill at the reporting unit level. The fair value of the Edison Energy reporting unit is classified as Level 3 and is estimated using the income approach. During the second quarter of 2020 and fourth quarter of 2019, Edison International evaluated the recoverability of goodwill and recorded impairment charges of Edison Energy's goodwill totaling $34 million ($25 million after-tax) and $25 million ($18 million after-tax), respectively. See Note 1 for further details.

Fair Value of Debt Recorded at Carrying Value

The carrying value and fair value of Edison International's and SCE's long-term debt (including current portion of long-term debt) are as follows:


	December 31, 2020				December 31, 2019
(in millions)	Carrying Value1		Fair Value2		Carrying Value1		Fair Value2
Edison International	$	20,337	$	23,824	$	18,343	$	20,137
SCE	17,204		20,365		15,211		16,892

1 Carrying value is net of debt issuance costs.

2 The fair value of Edison International's and SCE's long-term debt is classified as Level 2.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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