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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Current and Deferred Taxes Edison International's sources of income before income taxes are:
|  | Years ended December 31,
(in millions) |  | 2017 |  | 2016 |  | 2015
Income from continuing operations before income taxes |  | $ | 949 |  |  | $ | 1,590 |  |  | $ | 1,568 |
Income from discontinued operations before income taxes |  | — |  |  | 1 |  |  | 15 |
Income before income tax |  | $ | 949 |  |  | $ | 1,591 |  |  | $ | 1,583 |
The components of income tax expense (benefit) by location of taxing jurisdiction are:
| Edison International |  | SCE
| Years ended December 31,
(in millions) | 2017 |  | 2016 |  | 2015 |  | 2017 |  | 2016 |  | 2015
Current: |  |  |  |  |  |  |  |  |  |  |
Federal | $ | (221 | ) |  | $ | (46 | ) |  | $ | 18 |  |  | $ | (253 | ) |  | $ | 75 |  |  | $ | 72 |
State | 4 |  |  | 33 |  |  | 19 |  |  | (81 | ) |  | 93 |  |  | 127 |
| (217 | ) |  | (13 | ) |  | 37 |  |  | (334 | ) |  | 168 |  |  | 199 |
Deferred: |  |  |  |  |  |  |  |  |  |  |
Federal | 570 |  |  | 176 |  |  | 340 |  |  | 265 |  |  | 112 |  |  | 298 |
State | (72 | ) |  | 14 |  |  | 109 |  |  | 39 |  |  | (24 | ) |  | 10 |
| 498 |  |  | 190 |  |  | 449 |  |  | 304 |  |  | 88 |  |  | 308 |
Total continuing operations | 281 |  |  | 177 |  |  | 486 |  |  | (30 | ) |  | 256 |  |  | 507 |
Discontinued operations | — |  |  | (11 | ) |  | (21 | ) |  | — |  |  | — |  |  | — |
Total | $ | 281 |  |  | $ | 166 |  |  | $ | 465 |  |  | $ | (30 | ) |  | $ | 256 |  |  | $ | 507 |
The components of net accumulated deferred income tax liability are:
| Edison International |  | SCE
| December 31,
(in millions) | 2017 |  | 2016 |  | 2017 |  | 2016
Deferred tax assets: |  |  |  |  |  |  |
Property and software related | $ | 358 |  |  | $ | 549 |  |  | $ | 357 |  |  | $ | 548 |
Nuclear decommissioning trust assets in excess of nuclear ARO liability | 404 |  |  | 348 |  |  | 404 |  |  | 348 |
Loss and credit carryforwards 1 | 1,346 |  |  | 1,418 |  |  | 150 |  |  | — |
Regulatory asset 2 | 812 |  |  | 15 |  |  | 812 |  |  | 15 |
Pension and postretirement benefits other than pensions | 214 |  |  | 300 |  |  | 86 |  |  | 93 |
Other | 277 |  |  | 419 |  |  | 236 |  |  | 408 |
Sub-total | 3,411 |  |  | 3,049 |  |  | 2,045 |  |  | 1,412 |
Less valuation allowance | 28 |  |  | 24 |  |  | — |  |  | — |
Total | 3,383 |  |  | 3,025 |  |  | 2,045 |  |  | 1,412 |
Deferred tax liabilities: |  |  |  |  |  |  |
Property-related | 6,970 |  |  | 10,330 |  |  | 6,962 |  |  | 10,330 |
Capitalized software costs | 160 |  |  | 237 |  |  | 160 |  |  | 237 |
Regulatory liability | 158 |  |  | 134 |  |  | 158 |  |  | 134 |
Nuclear decommissioning trust assets | 404 |  |  | 348 |  |  | 404 |  |  | 348 |
Postretirement benefits other than pensions | 36 |  |  | 13 |  |  | 36 |  |  | 13 |
Other | 140 |  |  | 202 |  |  | 133 |  |  | 148 |
Total | 7,868 |  |  | 11,264 |  |  | 7,853 |  |  | 11,210 |
Accumulated deferred income tax liability, net 3 | $ | 4,485 |  |  | $ | 8,239 |  |  | $ | 5,808 |  |  | $ | 9,798 |
1 | As of December 31, 2017, Edison International has recorded a valuation allowance of $28 million for non-California state net operating loss carryforwards estimated to expire unused. In addition, as of December 31, 2017, deferred tax assets for net operating loss and tax credit carryforwards are reduced by unrecognized tax benefits of $77 million and $75 million for Edison International and SCE, respectively.
2 Includes an $809 million deferred tax asset, related to certain regulatory liabilities established as part of Tax Reform discussed below.
3 | Included in deferred income taxes and credits on the consolidated balance sheets.
On December 22, 2017, Tax Reform was signed into law. This comprehensive reform of tax law reduces the federal corporate income tax rate from 35% to 21% and is generally effective beginning January 1, 2018. US GAAP requires deferred tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. At the date of enactment, Edison International and SCE's deferred taxes were re-measured based upon the new tax rate. Accumulated deferred income tax liabilities, net, were reduced by $4.5 billion and $5.0 billion at Edison International and SCE, respectively. Edison International recorded income tax expense of $466 million at December 31, 2017, primarily related to the re-measurement of the federal net operating loss carryforwards (see below for more information). SCE's re-measurement of deferred taxes was recorded against regulatory assets and liabilities when the pre-tax amounts giving rise to the deferred taxes were created through ratemaking activities. SCE also had shareholder-funded pre-tax amounts that gave rise to the deferred tax assets resulting in income tax expense of $33 million. For property acquired and placed in service by regulated utilities after September 27, 2017, Tax Reform repeals 50% bonus depreciation. As a result, SCE is required to evaluate the contractual terms of its fourth quarter 2017 capital additions to determine whether they still qualify for the prior tax law's 50% bonus depreciation, as compared to no bonus depreciation pursuant to Tax Reform. As of December 31, 2017, SCE has not completed this analysis, but recorded a reasonable estimate of the effects of these changes. SCE expects to complete this analysis during 2018. Net Operating Loss and Tax Credit Carryforwards The amounts of net operating loss and tax credit carryforwards (after-tax) are as follows:
| Edison International |  | SCE
| December 31, 2017
(in millions) | Loss Carryforwards |  | Credit Carryforwards |  | Loss Carryforwards |  | Credit Carryforwards
Expire between 2018 to 2036 | $ | 901 |  |  | $ | 451 |  |  | $ | 162 |  |  | $ | 25 |
No expiration date | — |  |  | 71 |  |  | — |  |  | 38 |
Total 1 | $ | 901 |  |  | $ | 522 |  |  | $ | 162 |  |  | $ | 63 |
As a result of Tax Reform, Edison International and SCE's federal net operating losses were re-measured at 21%. The reduction in the federal corporate income tax rate does not change the gross dollar value of taxable income that may be offset by NOLs, however that taxable income will only be taxable at 21% in future periods, thus reducing the value of NOLs utilized after 2017. Tax Reform did not impact the valuation of tax credit carryforwards, which directly offset taxes due. Edison International consolidates for federal income tax purposes, but not for financial accounting purposes, a group of wind projects referred to as Capistrano Wind. As a result of Tax Reform, the amount of net operating loss and tax credit carryforwards recognized as part of deferred income taxes was re-measured ($199 million and $242 million related to Capistrano Wind at December 31, 2017 and 2016, respectively). Under a tax allocation agreement, Edison International has recorded a corresponding liability, which was also re-measured, as part of other long-term liabilities related to its obligation to make payments to Capistrano Wind of these tax benefits when realized. 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) | 2017 |  | 2016 |  | 2015 |  | 2017 |  | 2016 |  | 2015
Income from continuing operations before income taxes | $ | 949 |  |  | $ | 1,590 |  |  | $ | 1,568 |  |  | $ | 1,106 |  |  | $ | 1,755 |  |  | $ | 1,618 |
Provision for income tax at federal statutory rate of 35% | 332 |  |  | 556 |  |  | 549 |  |  | 387 |  |  | 614 |  |  | 566 |
Increase in income tax from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Items presented with related state income tax, net: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Regulatory asset write-off 1 | — |  |  | — |  |  | 382 |  |  | — |  |  | — |  |  | 382 |
State tax, net of federal benefit | 2 |  |  | 29 |  |  | 5 |  |  | 8 |  |  | 43 |  |  | 34 |
Property-related 2 | (439 | ) |  | (362 | ) |  | (341 | ) |  | (439 | ) |  | (362 | ) |  | (341 | )
Change related to uncertain tax positions | (18 | ) |  | (4 | ) |  | (67 | ) |  | (13 | ) |  | (8 | ) |  | (94 | )
Revised San Onofre Settlement Agreement 3 | 25 |  |  | — |  |  | — |  |  | 25 |  |  | — |  |  | — |
Share-based compensation 4 | (55 | ) |  | (28 | ) |  | — |  |  | (11 | ) |  | (13 | ) |  | — |
Deferred tax re-measurement 5 | 466 |  |  | — |  |  | — |  |  | 33 |  |  | — |  |  | — |
Other | (32 | ) |  | (14 | ) |  | (42 | ) |  | (20 | ) |  | (18 | ) |  | (40 | )
Total income tax expense (income)from continuing operations | $ | 281 |  |  | $ | 177 |  |  | $ | 486 |  |  | $ | (30 | ) |  | $ | 256 |  |  | $ | 507 |
Effective tax rate | 29.6 | % |  | 11.1 | % |  | 31.0 | % |  | (2.7 | )% |  | 14.6 | % |  | 31.3 | %
1 Includes federal and state.
2 | Includes incremental repair benefits. See discussion of repair deductions below. In addition, during 2017, SCE recorded $80 million ($135 million pre-tax) of tax benefits related to tax accounting method changes resulting from the filing of SCE's 2016 tax returns.
3 Includes the write-off of an unrecovered tax regulatory asset related to the Revised San Onofre Settlement Agreement. See Note 11 for further information.
4 | Includes state taxes of $(11) million and $(2) million for Edison International and SCE, respectively, for the year ended December 31, 2017. Includes state taxes of $(4) million and $(1) million for Edison International and SCE, respectively, for the year ended December 31, 2016. Refer to Note 1 for further information.
5 | In 2017, Edison International and SCE recorded a charge to earnings related to the re-measurement of deferred taxes resulting from Tax Reform. See further discussion above.
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. Flow-through items reduce current authorized revenue requirements in SCE's rate cases and result in a regulatory asset for recovery of deferred income taxes in future periods. The difference between the authorized amounts as determined in SCE's rate cases, adjusted for balancing and memorandum account activities, and the recorded flow-through items also result in increases or decreases in regulatory assets with a corresponding impact on the effective tax rate to the extent that recorded deferred amounts are expected to be recovered in future rates. For further information, see Note 10. Repair Deductions Edison International made voluntary elections in 2009 and 2011 to change its tax accounting method for certain tax repair costs incurred on SCE's transmission, distribution and generation assets. Incremental repair deductions represent amounts recognized for regulatory accounting purposes in excess of amounts included in the authorized revenue requirements through the general rate case ("GRC") proceedings. As part of the final decision in SCE's 2015 GRC, the CPUC adopted a rate base offset associated with the incremental tax repair deductions during 2012 – 2014. The 2015 rate base offset is $324 million and amortizes on a straight line basis over 27 years. As a result of the rate base offset included in the final decision, SCE recorded an after tax charge of $382 million in 2015 to write down the net regulatory asset for recovery of deferred income taxes related to 2012 – 2014 incremental tax repair deductions which is reflected in "Income tax expense" on the consolidated statements of income. The amount of tax repair deductions the CPUC used to establish the rate base offset was based on SCE's forecast of 2012 – 2014 tax repair deductions from the Notice of Intent filed in the 2015 GRC. The amount of tax repair deductions included in the Notice of Intent was less than the actual tax repair deductions SCE reported on its 2012 through 2014 income tax returns. In April 2016, the CPUC granted SCE's request to reduce SCE's base revenue requirement balancing account ("BRRBA") by $234 million in future periods subject to the timing and final outcome of audits that may be conducted by tax authorities. The refunds resulted in flowing incremental tax benefits for 2012 – 2014 to customers. SCE refunded $133 million ($79 million after-tax) during the second quarter of 2016. SCE did not record a gain or loss from this reduction. Regulatory assets recorded from flow through tax benefits are recovered through SCE's GRC proceedings. 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) | 2017 |  | 2016 |  | 2015 |  | 2017 |  | 2016 |  | 2015
Balance at January 1, | $ | 471 |  |  | $ | 529 |  |  | $ | 576 |  |  | $ | 371 |  |  | $ | 353 |  |  | $ | 441 |
Tax positions taken during the current year: |  |  |  |  |  |  |  |  |  |  |
Increases | 51 |  |  | 36 |  |  | 54 |  |  | 51 |  |  | 36 |  |  | 48 |
Tax positions taken during a prior year: |  |  |  |  |  |  |  |  |  |  |
Increases | — |  |  | 2 |  |  | 66 |  |  | — |  |  | — |  |  | 23 |
Decreases 1 | (7 | ) |  | (96 | ) |  | (165 | ) |  | (13 | ) |  | (18 | ) |  | (159 | )
Decreases for settlements during the period 2 | (83 | ) |  | — |  |  | (2 | ) |  | (78 | ) |  | — |  |  | — |
Balance at December 31, | $ | 432 |  |  | $ | 471 |  |  | $ | 529 |  |  | $ | 331 |  |  | $ | 371 |  |  | $ | 353 |
1 | Decreases in prior year tax positions for 2016 relate to state tax receivables on various claims. Due to the tax risks associated with these claims, the tax benefits were fully reserved at the time the asset was recorded. During 2016, the Company has determined that it will not recognize these assets so the tax benefit and related tax reserve were written off. Decreases in tax positions for 2015 relate primarily to re-measurement of uncertain tax positions in connection with receipt of the Internal Revenue Service ("IRS") Revenue Agent Report in June 2015. See discussions in Tax Disputes below.
2 | In the first quarter of 2017, Edison International settled all open tax positions with the IRS for taxable years 2007 through 2012.
As of December 31, 2017 and 2016, if recognized, $308 million and $347 million, respectively, of the unrecognized tax benefits would impact Edison International's effective tax rate; and $167 million and $243 million, respectively, of the unrecognized tax benefits would impact SCE's effective tax rate. Tax Disputes In the first quarter of 2017, Edison International resolved all open tax positions with the IRS for taxable years 2007 through 2012. Edison International has previously made cash deposits to cover the estimated tax and interest liability from this audit cycle and expects a $7 million refund of this deposited amount. Tax years that remain open for examination by the IRS and the California Franchise Tax Board are 2014 – 2016 and 2010 – 2016 respectively. Edison International has settled all open tax position with the IRS for taxable years prior to 2013. Tax years 1994 – 2006 are currently in settlement negotiations with the California Franchise Tax Board. While we expect to resolve these tax years within the next twelve months, the impacts cannot be reasonably estimated until further progress has been made. Tax years 2007 – 2009 are currently under protest with the California Franchise Tax Board. 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
| Years ended December 31,
(in millions) | 2017 |  | 2016 |  | 2017 |  | 2016
Accrued interest and penalties | $ | 115 |  |  | $ | 128 |  |  | $ | 41 |  |  | $ | 41 |
The net after-tax interest and penalties recognized in income tax expense for continuing and discontinued operations are:
| Edison International |  | SCE
| December 31,
(in millions) | 2017 |  | 2016 |  | 2015 |  | 2017 |  | 2016 |  | 2015
Net after-tax interest and penalties tax expense (benefit) | $ | 6 |  |  | $ | 6 |  |  | $ | (9 | ) |  | $ | 4 |  |  | $ | 2 |  |  | $ | (14 | )

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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 Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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