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Income Taxes | 12 Months Ended
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Dec. 31, 2012
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Current and Deferred Taxes Edison International's sources of income (loss) before income taxes are:
|  | Years ended December 31,
(in millions) |  | 2012 |  | 2011 |  | 2010
Income from continuing operations before income taxes |  | $ | 1,861 |  |  | $ | 1,668 |  |  | $ | 1,479 |
Discontinued operations before income taxes |  | (2,235 | ) |  | (1,931 | ) |  | 191 |
Income (loss) before income tax |  | $ | (374 | ) |  | $ | (263 | ) |  | $ | 1,670 |
The components of income tax expense (benefit) by location of taxing jurisdiction are:
| Edison International |  | SCE
| Years ended December 31,
(in millions) | 2012 |  | 2011 |  | 2010 |  | 2012 |  | 2011 |  | 2010
Current: |  |  |  |  |  |  |  |  |  |  |
Federal | $ | — |  |  | $ | (279 | ) |  | $ | (143 | ) |  | $ | — |  |  | $ | (275 | ) |  | $ | (145 | )
State | — |  |  | 80 |  |  | (104 | ) |  | 50 |  |  | 91 |  |  | (71 | )
| — |  |  | (199 | ) |  | (247 | ) |  | 50 |  |  | (184 | ) |  | (216 | )
Deferred: |  |  |  |  |  |  |  |  |  |  |
Federal | 132 |  |  | 727 |  |  | 614 |  |  | 136 |  |  | 757 |  |  | 663 |
State | 135 |  |  | 40 |  |  | (32 | ) |  | 28 |  |  | 28 |  |  | (7 | )
| 267 |  |  | 767 |  |  | 582 |  |  | 164 |  |  | 785 |  |  | 656 |
Total continuing operations | 267 |  |  | 568 |  |  | 335 |  |  | 214 |  |  | 601 |  |  | 440 |
Discontinued operations | (549 | ) |  | (853 | ) |  | 27 |  |  | — |  |  | — |  |  | — |
Total | $ | (282 | ) |  | $ | (285 | ) |  | $ | 362 |  |  | $ | 214 |  |  | $ | 601 |  |  | $ | 440 |
The components of net accumulated deferred income tax liability for continuing operations are:
| Edison International |  | SCE
| December 31,
(in millions) | 2012 |  | 2011 |  | 2012 |  | 2011
Deferred tax assets: |  |  |  |  |  |  |
Property and software related | $ | 600 |  |  | $ | 728 |  |  | $ | 600 |  |  | $ | 728 |
Unrealized gains and losses | 491 |  |  | 385 |  |  | 477 |  |  | 374 |
Loss and credit carryforwards | 1,515 |  |  | 689 |  |  | 125 |  |  | 15 |
Regulatory balancing accounts | 80 |  |  | 89 |  |  | 80 |  |  | 89 |
Pension and PBOPs | 275 |  |  | 179 |  |  | 99 |  |  | 173 |
Other | 723 |  |  | 696 |  |  | 625 |  |  | 480 |
Sub-total | $ | 3,684 |  |  | $ | 2,766 |  |  | $ | 2,006 |  |  | $ | 1,859 |
Less valuation allowance | 1,017 |  |  | — |  |  | — |  |  | — |
Total | $ | 2,667 |  |  | $ | 2,766 |  |  | $ | 2,006 |  |  | $ | 1,859 |
Deferred tax liabilities: |  |  |  |  |  |  |
Property-related | $ | 7,289 |  |  | $ | 6,502 |  |  | $ | 7,279 |  |  | $ | 6,492 |
Capitalized software costs | 325 |  |  | 324 |  |  | 325 |  |  | 324 |
Regulatory balancing accounts | 296 |  |  | 301 |  |  | 296 |  |  | 301 |
Unrealized gains and losses | 477 |  |  | 374 |  |  | 477 |  |  | 374 |
Other | 471 |  |  | 419 |  |  | 379 |  |  | 238 |
Total | $ | 8,858 |  |  | $ | 7,920 |  |  | $ | 8,756 |  |  | $ | 7,729 |
Accumulated deferred income tax liability, net | $ | 6,191 |  |  | $ | 5,154 |  |  | $ | 6,750 |  |  | $ | 5,870 |
Classification of accumulated deferred income taxes, net: |  |  |  |  |  |  |
Included in deferred credits and other liabilities | $ | 6,127 |  |  | $ | 5,065 |  |  | $ | 6,669 |  |  | $ | 5,781 |
Included in current liabilities | 64 |  |  | 89 |  |  | 81 |  |  | 89 |
As of December 31, 2012, Edison International had $309 million of federal tax credit carryforwards of which $287 million expire between 2029 and 2032 and the remainder has no expiration date. Additionally, there were $1.2 billion of net operating loss carryforwards (tax effected) of which $26 million expire between 2015 and 2024, and the remainder expire in 2031 and 2032. As of December 31, 2012, SCE had $42 million of federal tax credit carryforwards of which $28 million expire between 2030 and 2032 and the remainder has no expiration date. Additionally, there were $83 million of net operating loss carryforwards (tax effected) of which $12 million expire between 2015 and 2016, and the remainder expire in 2031 and 2032. Edison International recorded deferred tax assets of $1.5 billion related to net operating losses and tax carryforwards that pertain to Edison International's consolidated or combined federal and state tax returns, including EME. Edison International continues to consolidate EME for federal and certain combined state tax returns. Under federal and state tax regulations, a tax deconsolidation of EME in future periods, as expected through the bankruptcy proceeding, would result in EME retaining a portion of such carryforward benefits and reducing the amounts that Edison International would be eligible to use in future periods. As a result of the expected future tax deconsolidation and separation of EME from Edison International, Edison International has recorded a valuation allowance of $1.0 billion based on the estimated amount of such benefits as of December 31, 2012, as calculated under the applicable federal and state tax regulations. The net loss Edison International recognized for the deconsolidation of EME in fiscal year ending December 31, 2012 includes the tax impact of recognition of net operating loss carryforwards less the valuation allowance. During the period that EME continues to be included in the consolidated and/or combined federal and state tax returns of Edison International, and subject to the existing tax allocation agreements, EME will continue to receive or make tax allocation payments. If EME tax attributes were utilized while EME is a member of the Edison International consolidated tax group, for example, a cash payment to EME could be required commensurate with the value of EME tax attributes utilized. Changes in the amount of tax attributes may impact the amount of the valuation allowance and thereby, affect income or losses from discontinued operations (see Note 18). As of December 31, 2012, Edison International has a tax basis of $542 million (tax-effected) in the stock of EME. To the extent that Edison International's tax basis in EME is positive upon tax deconsolidation, Edison International will be entitled to claim a capital loss deduction equal to its tax basis in the stock of EME upon tax deconsolidation, which is expected when EME emerges from bankruptcy and the stock is transferred. A capital loss deduction can only be utilized to offset capital gains. A change in tax basis of the stock in EME can result from a number of items, including, but not limited to, utilization of net operating loss carryforwards and tax payments. Edison International has not recorded a deferred tax asset due to uncertainty around whether there will be a positive tax basis upon tax deconsolidation or, whether, in the event that the tax basis is positive, whether future capital gains would be generated to offset a capital loss. See Note 17 for additional information on joint tax liabilities of Edison International and EME. Effective Tax Rate The table below provides a reconciliation of income tax expense computed at the federal statutory income tax rate to the income tax provision:
| Edison International |  | SCE
| Years ended December 31,
(in millions) | 2012 |  | 2011 |  | 2010 |  | 2012 |  | 2011 |  | 2010
Income from continuing operations before income taxes | $ | 1,861 |  |  | $ | 1,668 |  |  | $ | 1,479 |  |  | $ | 1,874 |  |  | $ | 1,745 |  |  | $ | 1,532 |
Provision for income tax at federal statutory rate of 35% | 652 |  |  | 584 |  |  | 518 |  |  | 656 |  |  | 611 |  |  | 536 |
Increase (decrease) in income tax from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Items presented with related state income tax, net: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Repair deductions 1 | (231 | ) |  | — |  |  | — |  |  | (231 | ) |  | — |  |  | — |
Global Settlement related 2 | — |  |  | — |  |  | (159 | ) |  | — |  |  | — |  |  | (95 | )
Change in tax accounting method for asset removal costs 3 | — |  |  | — |  |  | (40 | ) |  | — |  |  | — |  |  | (40 | )
State tax, net of federal benefit | 108 |  |  | 85 |  |  | 44 |  |  | 54 |  |  | 80 |  |  | 59 |
Health care legislation 4 | — |  |  | — |  |  | 39 |  |  | — |  |  | — |  |  | 39 |
Property-related 5 | (223 | ) |  | (46 | ) |  | (92 | ) |  | (223 | ) |  | (46 | ) |  | (92 | )
Accumulated deferred income tax adjustments | (41 | ) |  | (30 | ) |  | — |  |  | (41 | ) |  | (30 | ) |  | — |
Tax reserve | 40 |  |  | — |  |  | 44 |  |  | 36 |  |  | (3 | ) |  | 45 |
Other | (38 | ) |  | (25 | ) |  | (19 | ) |  | (37 | ) |  | (11 | ) |  | (12 | )
Total income tax expense from continuing operations | $ | 267 |  |  | $ | 568 |  |  | $ | 335 |  |  | $ | 214 |  |  | $ | 601 |  |  | $ | 440 |
Effective tax rate | 14.3 | % |  | 34.1 | % |  | 22.7 | % |  | 11.4 | % |  | 34.4 | % |  | 28.7 | %
1 | As discussed below, SCE recorded a $231 million earnings benefit in the fourth quarter of 2012, resulting from the flow-through regulatory treatment for certain repair costs for 2009 – 2011 as adopted in the 2012 GRC.
2 | During 2010, Edison International and SCE recognized an earnings benefit of $159 million and $95 million, respectively, from the acceptance by the California Franchise Tax Board of the IRS tax positions finalized in 2009 and receipt of the final interest determination from the Franchise Tax Board.
3 | During the second quarter of 2010, the IRS approved Edison International's request to change its tax accounting method for asset removal costs primarily related to SCE's infrastructure replacement program. As a result, Edison International and SCE recognized a $40 million earnings benefit (of which $28 million relates to asset removal costs incurred prior to 2010) from deducting asset removal costs earlier in the construction cycle. These deductions were recorded on a flow-through basis as required by the CPUC.
4 | During the first quarter of 2010, Edison International and SCE recorded a $39 million non-cash charge to reverse previously recognized federal tax benefits eliminated by the federal health care legislation enacted in March 2010. The health care law eliminated the federal tax deduction for retiree health care costs to the extent those costs are eligible for federal Medicare Part D subsidies.
5 | Incremental repair benefit recorded in 2012. See discussion of repair deductions below.
The CPUC requires flow-through ratemaking treatment for the current tax benefit arising from certain property-related and other temporary differences which reverse over time. The accounting treatment for these temporary differences results in recording regulatory assets and liabilities for amounts that would otherwise be recorded to deferred income tax expense. 2012 GRC Earnings Benefit from Repair Deductions Edison International made a voluntary election in 2009 to change its tax accounting method for certain repair costs incurred on SCE's transmission, distribution and generation assets. Regulatory treatment for the incremental deductions taken after the 2009 election to change SCE's tax accounting method for certain repair costs was included as part of SCE's 2012 GRC. The 2012 GRC decision retained flow-through treatment of repair deductions for regulatory purposes, which resulted in SCE recognizing an earnings benefit of $231 million from these incremental deductions taken in 2009, 2010 and 2011. The earnings benefit results from recognition of a regulatory asset for recovery of deferred income taxes in future periods due to the flow-through treatment of repair deduction for income tax purposes. The 2012 earnings benefits from incremental repair deductions following the same regulatory treatment was $115 million (classified as property related in the above table). Accounting for Uncertainty in Income Taxes Authoritative guidance related to accounting for uncertainty in income taxes requires an enterprise to recognize, in its financial statements, the best estimate of the impact of a tax position by determining if the weight of the available evidence indicates it is more likely than not, based solely on the technical merits, that the position will be sustained upon examination. The guidance requires the disclosure of all unrecognized tax benefits, which includes both the reserves recorded for tax positions on filed tax returns and the unrecognized portion of affirmative claims. Unrecognized Tax Benefits The following table provides a reconciliation of unrecognized tax benefits for continuing and discontinued operations:
| Edison International |  | SCE
| December 31,
(in millions) | 2012 |  | 2011 |  | 2010 |  | 2012 |  | 2011 |  | 2010
Balance at January 1, | $ | 631 |  |  | $ | 565 |  |  | $ | 664 |  |  | $ | 373 |  |  | $ | 329 |  |  | $ | 482 |
Tax positions taken during the current year: |  |  |  |  |  |  |  |  |  |  |
Increases | 33 |  |  | 39 |  |  | 42 |  |  | 35 |  |  | 34 |  |  | 47 |
Tax positions taken during a prior year: |  |  |  |  |  |  |  |  |  |  |
Increases | 177 |  |  | 102 |  |  | 273 |  |  | 169 |  |  | 82 |  |  | 140 |
Decreases | (11 | ) |  | (75 | ) |  | (332 | ) |  | (6 | ) |  | (72 | ) |  | (272 | )
Decreases – Deconsolidation of EME 1 | (18 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Decreases for settlements during the period | — |  |  | — |  |  | (82 | ) |  | — |  |  | — |  |  | (68 | )
Balance at December 31, | $ | 812 |  |  | $ | 631 |  |  | $ | 565 |  |  | $ | 571 |  |  | $ | 373 |  |  | $ | 329 |
1 | Unrecognized tax benefits of EME have been deconsolidated as a result of the bankruptcy filing by EME, except for tax liabilities that Edison International is jointly liable with EME under the Internal Revenue Code and applicable state statues. See Note 17 for further information.
As of December 31, 2012 and 2011, if recognized, $622 million and $532 million respectively, of the unrecognized tax benefits would impact Edison International's effective tax rate; and $388 million and $282 million, respectively, of the unrecognized tax benefits would impact SCE's effective tax rate. Tax Disputes Edison International's federal income tax returns and its California combined franchise tax returns are currently open for years subsequent to 2002. In addition, specific California refund claims made by Edison International for years 1991 through 2002 are currently under review by the Franchise Tax Board. The IRS examination phase of tax years 2003 through 2006 was completed in the fourth quarter of 2010, which included proposed adjustments for the following two items:
• | A proposed adjustment increasing the taxable gain on the 2004 sale of EME's international assets, which if sustained, would result in a federal tax payment of approximately $198 million, including interest and penalties through December 31, 2012 (the IRS has asserted a 40% penalty for understatement of tax liability related to this matter), see Note 17.
• | A proposed adjustment to disallow a component of SCE's repair allowance deduction, which if sustained, would result in a federal tax payment of approximately $96 million, including interest through December 31, 2012.
Edison International disagrees with the proposed adjustments and filed a protest with the IRS in the first quarter of 2011. The appeals process to date has not resulted in a change in the proposed adjustment by the IRS on the taxable gain on the 2004 sale of EME's international assets. If a deficiency notice is issued on this item, it would require payment of the tax, interest and any penalties within 90 days of its issuance or a filing of a petition in United States Tax Court. Tax Years 2007 – 2009 The IRS examination phase of tax years 2007 through 2009 is expected to be completed in the first quarter of 2013. Edison International expects a Revenue Agent Report to be issued no later than March 1, 2013. Accrued Interest and Penalties The total amount of accrued interest and penalties related to income tax liabilities for continuing and discontinued operations are:
| Edison International |  | SCE
| December 31,
(in millions) | 2012 |  | 2011 |  | 2012 |  | 2011
Accrued interest and penalties | $ | 278 |  |  | $ | 242 |  |  | $ | 87 |  |  | $ | 75 |
The net after-tax interest and penalties recognized in income tax expense are:
| Edison International |  | SCE
| December 31,
(in millions) | 2012 |  | 2011 |  | 2010 |  | 2012 |  | 2011 |  | 2010
Net after-tax interest and penalties tax benefit (expense) | $ | (10 | ) |  | $ | (8 | ) |  | $ | 166 |  |  | $ | (11 | ) |  | $ | (8 | ) |  | $ | 80 |

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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