Fitch Ratings Upgrades Edison International & SoCalEd; Positive Outlook.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 7, 2002

Fitch Ratings has raised Edison International (EIX) and Southern California Edison's (SCE) senior unsecured debt ratings to 'B' and 'BB-', respectively; the senior unsecured notes of EIX and SCE were previously rated 'CC'. Fitch has withdrawn EIX and SCE's commercial paper rating because the past-due notes have been repaid and no commercial paper remains outstanding. EIX and SCE's securities have been removed from Rating Watch Positive. The changes to EIX and SCE's ratings are summarized below. The new ratings reflect actions taken by the California Public Utilities Commission (CPUC) to implement its settlement agreement with EIX/SCE, and the payment of roughly $5.5 billion of SCE's past due obligations on March 1, 2002. The Utility Reform Network's (TURN) challenge to the federal court decision adopting the settlement agreement between the CPUC, EIX, and SCE remains pending. Future court action overturning the settlement agreement on appeal is a relatively improbable outcome, in our view; nonetheless, the current ratings reflect the potential for further court review. The Rating Outlook is Positive based on the more likely view that the settlement agreement will remain in force, strengthening financial ratios at SCE and, to a lesser degree, EIX. EIX's very high financial leverage and weak interest coverage measures continue to overshadow the dramatic recovery projected for SCE.

Cash coverage ratios at the parent, EIX, improve as a result of the settlement, but debt leverage remains very high through 2003. The slower recovery at EIX reflects asset write-downs booked in 2001, weak fundamental performance, and high debt associated with its non-regulated businesses, Edison Mission Energy (EME), and Edison Capital (EC). At EME earnings have been restrained by weak energy prices in the UK. In the third quarter of 2001, EIX booked an estimated $1.154 billion impairment charge related to the sale of its U.K. power stations, Fiddler's Ferry and Ferrybridge; the sale was completed in December 2001. EIX subsidiary, Edison Enterprises (EE), exited most of its business lines in 2001, resulting in an anticipated $127 million asset impairment charge. EE closed on those sales by year-end 2001. In compliance with SFAS 144, operating losses and losses from asset sales are classified as discontinued operations. In 2001, total losses from discontinued operations associated with EME and EE totaled $1.3 67 billion. Earnings at EC, in 2001, declined 38% to $84 million, reflecting the run-off of the lease portfolio and asset sales. Under the settlement agreement with the CPUC, SCE is barred from paying common dividends to EIX until all procurement-related obligations are fully recovered. SCE will continue to remit its separate tax liability to EIX. Based on Fitch's rating methodology for related corporate entities, SCE's return to an investment grade rating will require fundamental improvement at EIX's unregulated-businesses.

SCE's significantly improved fundamental outlook results from its October 2001 settlement agreement with the CPUC, and the repayment of all of SCE's past due obligations. In accordance with the settlement agreement, the CPUC, on Jan. 23, 2002, approved the creation of the Procurement-Related Obligations Account (PROACT). The creation of the PROACT and related accounting mechanisms by the CPUC are designed to facilitate recovery of $3.6 billion of unrecovered energy procurement obligations by year-end 2003. If the PROACT balance is not recovered by the end of 2003, the unrecovered amount will be proportionally amortized in retail rates by the end of 2005. The major goals of the settlement include eventual restoration of an investment grade rating for SCE and resumption of energy procurement responsibility, currently provided by the state, for SCE's customers. The pace of recovery of the PROACT balance and related debt reduction will be a function of the amount of cash flow provided by SCE's frozen rates (including surcharges) versus normal cost of service rates as determined by the CPUC. Cash and earnings collected in excess of cost-of-service rates will be used to amortize the PROACT balance and repay related debt. While elements of the company's cost of service rates will be determined in future proceedings before the CPUC, Fitch assumes that SCE will recover its entire PROACT balance by the end of 2003. Financial recovery at SCE will be more rapid than the pace of improvement at its parent, EIX. Fitch estimates SCE will realize earnings coverage ratios in line with weak 'BBB' ratings in 2002, with further improvement anticipated in 2003. By the end of 2003, Fitch expects SCE's debt-to-total capitalization ratio to fall to 50%.

Under the terms of the settlement agreement, the CPUC will maintain rates at current levels through the end of 2003, unless SCE is able to recover its PROACT balance before that time. Rates may be adjusted by the CPUC under specific circumstances, including changes to Department of Water Resources (DWR) procurement-related revenue requirements and potential cost savings through securitization of procurement costs. SCE will apply 100% of any recovery it receives from refund proceedings at the FERC, along with any proceeds from litigation by the state to recover alleged over-charges from energy suppliers and marketers to reduce its PROACT balance and associated debt. Under the terms of the agreement, SCE will not pay common stock dividends before Dec. 31, 2003, or until the PROACT balance is recovered. If the PROACT balance is not repaid by the end of 2003, the CPUC will have discretion to determine whether SCE will pay a dividend in 2004; SCE may resume dividend payments January 1, 2005.

Given the volatility of California's political and regulatory environment, the settlement agreement between the CPUC and SCE is a very important factor in SCE's financial recovery. The agreement was entered into in settlement of federal litigation , and thus the federal court's ruling adopting the settlement appears to be beyond the reach of state legislative, judicial, or ballot initiatives. TURN, a group representing consumers, has alleged in its appeal to a federal court of appeals that it was denied due process by the CPUC's implementation of the settlement in violation of a California statutory rate freeze. While TURN's appeal does not appear to have a strong legal basis, we cannot entirely rule out the possibility of an adverse outcome.

On March 1, 2002, SCE closed on a $1.6 billion syndicated senior credit facility, and issued $195 million of pollution control revenue bonds. In total, SCE paid down approximately $5.5 billion of debt, including $531 million principal, plus accrued interest, for outstanding commercial paper balances, and $400 million of principal and accrued interest on its senior unsecured notes (5 7/8% series due January 2001 and 6 1/2% series due June 2001). As a result, SCE no longer has any commercial paper outstanding, and has cured existing payment defaults under its note indenture.

Southern California Edison 

--Senior secured debt to 'BB' from 'CCC';

--Senior unsecured debt to 'BB-' from 'CC';

--Preferred stock to 'B' from 'C';

--Subordinated debt to 'BB' from 'CCC';

--Insured pollution control bonds affirmed at 'AAA';

--Commercial paper rating withdrawn.

Edison International

--Senior unsecured to 'B' from 'CC';

--Trust preferred to 'CCC' from 'C';

--Commercial paper rating withdrawn.