This MD&A for the three- and nine-month periods ended September 30, 2008 discusses material changes in the consolidated financial condition, results of operations and other developments of Edison International since December 31, 2007, and as compared to the three- and nine-month periods ended September 30, 2007. This discussion presumes that the reader has read or has access to Edison International's MD&A for the calendar year 2007 (the year-ended 2007 MD&A), which was included in Edison International's 2007 annual report to shareholders and incorporated by reference into Edison International's Annual Report on Form 10-K for the year ended December 31, 2007, filed with the Securities and Exchange Commission.

This MD&A contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect Edison International's current expectations and projections about future events based on Edison International's knowledge of present facts and circumstances and assumptions about future events and include any statement that does not directly relate to a historical or current fact. Other information distributed by Edison International that is incorporated in this report, or that refers to or incorporates this report, may also contain forward-looking statements. In this report and elsewhere, the words "expects," "believes," "anticipates," "estimates," "projects," "intends," "plans," "probable," "may," "will," "could," "would," "should," and variations of such words and similar expressions, or discussions of strategy or of plans, are intended to identify forward-looking statements. Such statements necessarily involve risks and uncertainties that could cause actual results to differ materially from those anticipated. Some of the risks, uncertainties and other important factors that could cause results to differ, or that otherwise could impact Edison International or its subsidiaries, include, but are not limited to:

• the cost of capital and the ability to borrow funds and access to capital markets on favorable terms, particularly in light of current credit conditions in the capital markets and uncertainty over the global economic outlook;

• the availability and creditworthiness of counterparties to enter into hedge transactions to reduce market price risk;

• the ability to procure sufficient resources to meet expected customer needs in the event of significant counterparty defaults under power-purchase agreements;

• changes in the fair value of investments and other assets;

• the ability of Edison International to meet its financial obligations and to pay dividends on its common stock if its subsidiaries are unable to pay dividends;

• the ability of SCE to recover its costs in a timely manner from its customers through regulated rates;

• decisions and other actions by the CPUC, the FERC and other regulatory authorities and delays in regulatory actions;

• market risks affecting SCE's energy procurement activities;

• changes in interest rates, rates of inflation beyond those rates which may be adjusted from year to year by public utility regulators, and foreign exchange rates;

• governmental, statutory, regulatory or administrative changes or initiatives affecting the electricity industry, including the market structure rules applicable to each market;

• environmental laws and regulations, both at the state and federal levels, that could require additional expenditures or otherwise affect the cost and manner of doing business;

• risks associated with operating nuclear and other power generating facilities, including operating risks, nuclear fuel storage, equipment failure, availability, heat rate, output, and availability and cost of spare parts and repairs;

• the ability to obtain sufficient insurance, including insurance relating to SCE's nuclear facilities;

• effects of legal proceedings, changes in or interpretations of tax laws, rates or policies, and changes in accounting standards;

• creditworthiness of suppliers and other project participants and their ability to deliver goods and services per their contractual obligations to EME and its subsidiaries;

• the outcome of disputes with the IRS and other tax authorities regarding tax positions taken by Edison International;

• the continued participation of Edison International's subsidiaries in tax-allocation and payment agreements;

• supply and demand for electric capacity and energy, and the resulting prices and dispatch volumes, in the wholesale markets to which EMG's generating units have access;

• the cost and availability of coal, natural gas, fuel oil, nuclear fuel, and associated transportation to the extent not recovered through regulated rate cost escalation provisions or balancing accounts;

• the cost and availability of emission credits or allowances for emission credits;

• transmission congestion in and to each market area and the resulting differences in prices between delivery points;

• the ability to provide sufficient collateral in support of hedging activities and purchased power and fuel;

• the risk of counterparty default in hedging transactions or power-purchase and fuel contracts;

• the extent of additional supplies of capacity, energy and ancillary services from current competitors or new market entrants, including the development of new generation facilities and technologies;

• the difficulty of predicting wholesale prices, transmission congestion, energy demand and other aspects of the complex and volatile markets in which EMG and its subsidiaries participate;

• general political, economic and business conditions;

• weather conditions, natural disasters and other unforeseen events; and

• the risks inherent in the development of generation projects as well as transmission and distribution infrastructure replacement and expansion including those related to siting, financing, construction, permitting, and governmental approvals.

Additional information about risks and uncertainties, including more detail about the factors described above, are discussed throughout this MD&A and in the "Risk Factors" section included in Part I, Item 1A of Edison International's Annual Report on Form 10-K. Readers are urged to read this entire report, including the information incorporated by reference, and carefully consider the risks, uncertainties and other factors that affect Edison International's business. Forward-looking statements speak only as of the date they are made and Edison International is not obligated to publicly update or revise forward-looking statements. Readers should review future reports filed by Edison International with the Securities & Exchange Commission.

Edison International is engaged in the business of holding, for investment, the common stock of its subsidiaries. Edison International's principal operating subsidiaries are SCE, a rate-regulated electric utility, and EMG. EMG is the holding company for its principal wholly owned subsidiaries, EME, which is engaged in the business of developing, acquiring, owning or leasing, operating and selling energy and capacity from independent power production facilities, and Edison Capital, a provider of capital and financial services.

In this MD&A, except when stated to the contrary, references to each of Edison International, SCE, EMG, EME or Edison Capital mean each such company with its subsidiaries on a consolidated basis. References to Edison International (parent) or parent company mean Edison International on a stand-alone basis, not consolidated with its subsidiaries.

This MD&A is presented in 8 major sections. The company-by-company discussion of SCE, EMG, and Edison International (parent) includes discussions of liquidity, market risk exposures, and other matters (as relevant to each principal business segment). The remaining sections discuss Edison International on a consolidated basis. The consolidated sections should be read in conjunction with the discussion of each company's section.

                                                                      PAGE
          Current Developments                                          42
          Southern California Edison Company                            47
          Edison Mission Group                                          63
          Edison International (Parent)                                 83
          Results of Operations and Historical Cash Flow Analysis       85
          New Accounting Pronouncements                                 97
          Commitments, Guarantees and Indemnities                       98
          Other Developments                                           101

The following section provides a summary of current developments related to Edison International's principal business segments. This section is intended to be a summary of those current developments that management believes are most important. This section is not intended to be an all-inclusive list of all current developments related to each principal business segment and should be read together with all sections of this MD&A.

EDISON INTERNATIONAL: CURRENT DEVELOPMENTS

Financial Markets and Economic Conditions

Global financial markets are experiencing severe credit tightening and a significant increase in volatility, causing access to capital markets to become subject to increased uncertainty and borrowing costs to rise dramatically. In response, U.S. and foreign governments and Central Banks have intervened with programs designed to increase liquidity.

Edison International's subsidiaries are capital intensive businesses and depend on access to the financial markets to fund capital expenditures, meet contractual obligations and support margin and collateral requirements. SCE has significant planned capital expenditures to replace and expand its distribution and transmission infrastructure, and to construct and replace generation assets. EMG has plans to expand its business development activities to grow and diversify its existing portfolio of power projects, including building new power plants, meeting its environmental commitments and making ongoing capital improvements to its existing generation fleet, all of which require liquidity and access to capital markets in the future. See "SCE: Liquidity," "EMG:
Liquidity," and "Commitments, Guarantees and Indemnities" for further discussion.

Due to the instability of the financial markets, and to provide protection against a dramatic liquidity crisis, in September 2008 Edison International and its subsidiaries borrowed under their various credit facilities a total of $2.1 billion (including $958 million for SCE, $898 million for EMG, and $250 million for Edison International (parent)), although there was no immediate need for such funds. The proceeds from these borrowings were invested in U.S. treasury securities and U.S. treasury and government agency money market funds. As of September 30, 2008, Edison International had $5.4 billion of available liquidity made up of $3.5 billion of cash and short-term investments, as well as $1.9 billion available under the credit facilities. In addition, in October 2008, SCE issued $500 million of 5.75% first and refunding mortgage bonds due in 2014. The bond proceeds further augmented SCE's cash position. Edison International and its subsidiaries do not have any material debt obligations that mature until 2012. See "SCE: Liquidity" and "EMG: Liquidity" for further discussion.

While the capital markets are expected to recover over time, it is uncertain how long before a recovery occurs. The level of future growth for SCE will largely be dependent on the outcome of SCE's 2009 GRC (see "SCE: Liquidity-Capital Expenditures" and "SCE: Regulatory Matters-Current Regulatory Developments-2009 General Rate Case Proceeding"). Also, SCE relies on power-purchase contracts to meet its resource requirements. The financial crisis may adversely affect the ability of counterparties to access the capital markets, as needed, to perform under contracts upon which SCE will rely to meet new generation and RPS requirements. Additionally, if counterparties fail to deliver under power-purchase contracts, SCE would be exposed to potentially volatile spot markets for buying replacement power, but would expect to recover any additional costs through regulatory mechanisms. The volatile market conditions have also affected the value of trusts established at SCE to fund future long-term pension, other postretirement benefits, and nuclear decommissioning obligations. The market decline has eroded the funded status of these plans and unless the market recovers, will result in increased future expense and higher funding levels. SCE currently recovers and expects to continue to recover its pension, other postretirement benefits, and decommissioning costs, through customer rates and therefore funded cost increases are not expected to impact earnings, but may impact the timing of cash flows (see "SCE: Liquidity" and "SCE: Other Developments" for further discussion).

EMG has made substantial capital commitments, especially for wind turbines. Pending recovery of the capital markets, EMG intends to preserve capital by focusing on a more selective growth strategy (primarily completion

of projects under construction, including the Big Sky project in Illinois, and development of sites for future renewable projects deploying current turbine commitments), and using its cash and future cash flow to meet its existing contractual commitments. Moreover, disruption in the financial markets appears to have reduced trading activity in power markets which may affect the level and duration of future hedging activity and potentially increase the volatility of earnings. See "EMG: Liquidity" for further discussion. Long-term disruption in the capital markets could adversely affect Edison International's business plans and potentially impact Edison International's financial position.

Bankruptcy of Lehman Brothers Holdings and Subsidiaries

On September 15, 2008, Lehman Brothers Holdings filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Three subsidiaries of Lehman Brothers Holdings are lenders in SCE's, EMG's and Edison International (parents)'s credit agreements representing, a total commitment of $260 million ($106 million for SCE, $80 million for EMG, and $74 million for Edison International (parent)). In September 2008, two of the three Lehman Brothers Holdings subsidiaries declined requests for funding under SCE's and one of EMG's credit agreements.

Another subsidiary of Lehman Brothers Holdings, Lehman Brothers Commodity Services, Inc., declined to meet a collateral call on power contracts at EMG, including hedge contracts for Midwest Generation for 2009 and 2010. The obligations of this Lehman Brothers Commodity Services, Inc. under the power contracts are guaranteed by Lehman Brothers Holdings. On October 3, 2008 Lehman Brothers Commodity Services, Inc. filed for protection under Chapter 11. The bankruptcy filings and failure to post collateral are events of default under the related agreements. In October 2008, these power contracts were terminated, resulting in claims against Lehman Brothers Holdings and its subsidiary in bankruptcy. As a result of the termination, EME recorded a pre-tax loss of $26 million related to power contracts during the third quarter of 2008 reflected in nonutility power generation revenue on Edison International's consolidated statement of income. See "EMG: Market Risk Exposures-Accounting for Energy Contracts."

Federal and State Income Taxes

Edison International is currently engaged in settlement negotiations with the IRS to reach a Global Settlement which, if consummated, would resolve cross-border, leveraged lease issues in their entirety and all other outstanding tax disputes for open tax years 1986 through 2002, including certain affirmative claims for unrecognized tax benefits. See "Edison International Notes to Consolidated Financial Statements-Note 3. Income Taxes." These negotiations have progressed to the point where Edison International and the IRS have reached nonbinding, preliminary understandings on the material principles for resolving the lease issues as part of the resolution of all issues included in the Global Settlement. Final resolution of such disputes, as part of the Global Settlement, is subject to reaching definitive agreements on final terms and calculations, mutually satisfactory documentation, and review of all or a portion of the Global Settlement by the Staff of the Joint Committee on Taxation, a committee of the United States Congress (the "Joint Committee"). While not assured, Edison International believes that the Global Settlement will be submitted or substantially ready to be submitted to the Joint Committee during the fourth quarter of 2008. See "Other Developments-Federal and State Income Taxes" for further information.

Enterprise-Wide Software System Project

On July 1, 2008, Edison International implemented SAP's Enterprise Resource Planning system for financial, supply chain, and certain work management modules at SCE. In addition, Edison International also implemented the human resources module including payroll and timekeeping, at SCE and EMG. Edison International expects to implement additional SAP modules in the future.

SCE: CURRENT DEVELOPMENTS

Investigation Regarding Performance Incentives Rewards CPUC Decision

On September 18, 2008, the CPUC adopted a decision in its investigation into SCE's incentives claimed under a CPUC-approved PBR mechanism that allowed SCE to earn rewards or incur penalties for the period 1997 - 2003 based on its performance in comparison to CPUC-approved standards of customer satisfaction and employee safety reporting. The adopted decision required refunds or to forego incentives of $48 million and $35 million related to previous customer satisfaction and employee safety reporting incentives, respectively. The decision also required SCE to refund $33 million for employee bonuses and imposed a statutory penalty of $30 million. During the third quarter, SCE recorded a charge of $49 million, after-tax reflected primarily in "Other nonoperating deductions" in the consolidated statements of income related to this decision. See "SCE: Regulatory Matters-Current Regulatory Developments-Investigations Regarding Performance Incentives Rewards" for further discussion.

2009 General Rate Case Proceeding

SCE filed its GRC application requesting a 2009 base rate revenue requirement of $5.16 billion. After considering the effects of sales growth and other offsets, SCE's request would be a $695 million increase over current authorized base rate revenue. On April 15, 2008, the DRA recommended that SCE's 2009 base rate revenue requirement be increased by approximately $19 million, $676 million less than SCE's revised request, mainly due to reductions in capital-related costs, operating and maintenance expense, administrative and general expense, and other miscellaneous proposed reductions. Testimony submitted by TURN, another intervenor, sought to reduce SCE's 2009 request by an additional $195 million over the DRA proposed adjustments, mainly due to reduced depreciation expense. In September 2008, SCE submitted updated testimony, limited to changes in the escalation rate forecast and known changes due to governmental action which increased the requested 2009 base rate revenue requirement to $5.21 billion, an increase of $739 million over current authorized base rate revenue. See "SCE:
Regulatory Matters-Current Regulatory Developments-2009 General Rate Case Proceeding" for further discussion. A final decision is expected prior to year-end 2008.

2009 FERC Rate Case

In September 2008, the FERC accepted SCE's revisions to its Transmission Owner Tariff, effective on March 1, 2009, subject to refund and settlement procedures. The revisions reflected changes to SCE's transmission revenue requirement and transmission rates for customers taking service over SCE's transmission facilities.

SCE requested a $129 million increase in its retail transmission revenue requirements (or a 39% increase over the current retail transmission revenue requirement). The requested increase amounts to a 1.2% system average rate increase due to an increase in transmission capital-related costs and increases in transmission operating and maintenance expenses that SCE expects to incur in 2009 to maintain grid reliability. The transmission revenue requirement is based on an overall return on equity of 12.7%, which is composed of a 12.0% base ROE and 0.7% in transmission incentives previously approved by the FERC (see "SCE:
Regulatory Matters-Current Regulatory Developments-FERC Construction Work in Progress Mechanism" for further information). As discussed in "SCE:
Liquidity-Capital Expenditures," SCE has significant planned expenditures to replace and expand its transmission infrastructure.

Solar Photovoltaic Program

On March 27, 2008, SCE filed an application with the CPUC to implement its Solar Photovoltaic (PV) Program to develop up to 250 MW of utility-owned Solar PV generating facilities ranging in size from 1 to 2 MW each. Targeted at commercial and industrial rooftop space in SCE's service territory, SCE's program will use rooftop space from entities that would not otherwise be typical candidates for the net energy metering tariff, which allows customers to offset their usage with electricity generated at their own facilities. SCE proposes to develop

these projects at a rate of approximately 50 MW per year at an average cost of $3.50/watt. The estimated base case capital cost for the Solar PV Program is $875 million (2008 dollars) over the period of the program (2008 - 2013). SCE proposes a reasonableness threshold of $963 million in nominal dollars. Subject to CPUC approval, the capital expenditures will be eligible to be included in SCE's earning asset base if the actual costs of the program are equal to or lower than the reasonableness threshold amount. SCE also proposes to apply the CPUC-approved 100 basis point incentive adder to SCE's allowed rate of return on rate base on the project as allowed by the CPUC decision for qualifying utility-owned renewable energy generation facilities. In September 2008, the CPUC granted SCE's request to track costs spent on projects up to $25 million incurred prior to the receipt of the CPUC's final decision in a memorandum account for potential future recovery. SCE expects to continue to move forward with projects in advance of the final CPUC decision subject to the authorized tracking account mechanism. In September 2008, several parties filed testimony opposing SCE's Solar PV program application. Evidentiary hearings are scheduled for November 2008 and a final decision for March 2009. SCE cannot predict the final outcome of this proceeding.

EMG: CURRENT DEVELOPMENTS

Industry Developments

Commodity Prices

Since June 30, 2008, forward energy prices have decreased substantially driven by lower natural gas prices and the financial market developments discussed above. The forward energy market prices for 2009 and 2010 at September 30, 2008 for the Northern Illinois Hub and PJM West Hub have decreased between 13% and 30% since June 30, 2008. At September 30, 2008, EME had entered into derivative hedge contracts that are recorded at fair value on its consolidated financial statements. Since forward energy prices have decreased since June 30, 2008, the fair value of derivative hedge contracts changed from a net liability position at June 30, 2008 to a net asset position at September 30, 2008, with the effective portion of the contracts recorded as an increase in shareholder's equity ($90 million, after tax). See "EMG: Market Risk Exposures-Commodity Price Risk" for further discussion.

Regulatory Developments

In July 2008, a three-judge panel of the District of Columbia Circuit Court of Appeals issued a decision to vacate the CAIR in its entirety and remand to the US EPA to issue a new rule consistent with the decision. In September 2008, US EPA and other parties requested a rehearing of its decision by the same three-judge panel or by the full District of Columbia Circuit Court. In October 2008, the Court ordered the petitioners in the CAIR litigation to file a response to the request for rehearing and specifically address whether any party is seeking to vacate the CAIR and whether the Court should stay its mandate until the US EPA promulgates a revised rule. Although EME cannot predict the outcome of this proceeding, this latest order suggests that the Court may be willing to leave the CAIR in place in some form. The Court's order vacating the CAIR will not become effective until the Court responds to the petitions for a rehearing of its decision; until then, compliance with the CAIR, including the annual NOX requirements, will be required. If the Court denies the petitions for rehearing and issues a mandate to vacate the CAIR, there will be substantial uncertainty as to the impact of this decision on the SIP regulations promulgated by Pennsylvania and Illinois in response to the CAIR.

Notwithstanding these developments, the Illinois plants and Homer City facilities continue to be governed by state rules as well as the existing "SIP Call" ozone season NOX cap-and-trade program (which was due to be replaced by the CAIR). For further discussion, see "Other Developments-Environmental Matters-Air Quality Regulation-Clean Air Interstate Rule."

Based on the CAIR requirements, Midwest Generation purchased annual NOX allowances under the new CAIR annual NOX program. Midwest Generation and EME Homer City continue to plan to meet the requirements of the CAIR as required under current law effective January 1, 2009. If the D.C. Circuit Court issues a mandate to vacate the CAIR, Midwest Generation would no longer need annual NO X allowances and would record an impairment of $48 million at the time of such action.

Extension of Production Tax Credits

New wind projects currently receive federal subsidies in the form of production tax credits. Production tax credits for a ten-year period are available for new projects placed in service prior to December 31, 2008. In October 2008, production tax credits were extended for projects placed in service by December 31, 2009 as part of the Emergency Economic Stabilization Act of 2008.

Growth Activities

Renewable Energy

At September 30, 2008, EME had 855 MW of wind projects in service and another . . .