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Income Taxes | 12 Months Ended
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Dec. 31, 2018
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) |  | 2018 |  | 2017 |  | 2016
(Loss) income from continuing operations before income taxes |  | $ | (1,089 | ) |  | $ | 949 |  |  | $ | 1,590 |
Income from discontinued operations before income taxes |  | — |  |  | — |  |  | 1 |
(Loss) income before income tax |  | $ | (1,089 | ) |  | $ | 949 |  |  | $ | 1,591 |
The components of income tax (benefit) expense by location of taxing jurisdiction are:
| Edison International |  | SCE
| Years ended December 31,
(in millions) | 2018 |  | 2017 |  | 2016 |  | 2018 |  | 2017 |  | 2016
Current: |  |  |  |  |  |  |  |  |  |  |
Federal | $ | (57 | ) |  | $ | (221 | ) |  | $ | (46 | ) |  | $ | (51 | ) |  | $ | (253 | ) |  | $ | 75 |
State | (155 | ) |  | 4 |  |  | 33 |  |  | (93 | ) |  | (81 | ) |  | 93 |
| (212 | ) |  | (217 | ) |  | (13 | ) |  | (144 | ) |  | (334 | ) |  | 168 |
Deferred: |  |  |  |  |  |  |  |  |  |  |
Federal | (386 | ) |  | 570 |  |  | 176 |  |  | (354 | ) |  | 265 |  |  | 112 |
State | (141 | ) |  | (72 | ) |  | 14 |  |  | (198 | ) |  | 39 |  |  | (24 | )
| (527 | ) |  | 498 |  |  | 190 |  |  | (552 | ) |  | 304 |  |  | 88 |
Total continuing operations | (739 | ) |  | 281 |  |  | 177 |  |  | (696 | ) |  | (30 | ) |  | 256 |
Discontinued operations 1 | (34 | ) |  | — |  |  | (11 | ) |  | — |  |  | — |  |  | — |
Total | $ | (773 | ) |  | $ | 281 |  |  | $ | 166 |  |  | $ | (696 | ) |  | $ | (30 | ) |  | $ | 256 |
1 | In the fourth quarter of 2018, Edison International and SCE recognized tax benefits related to a settlement with the California Franchise Tax Board for tax years 1994 – 2006. See further discussion in Tax Disputes below.
The components of net accumulated deferred income tax liability are:
| Edison International |  | SCE
| December 31,
(in millions) | 2018 |  | 2017 |  | 2018 |  | 2017
Deferred tax assets: |  |  |  |  |  |  |
Property and software related | $ | 399 |  |  | $ | 358 |  |  | $ | 388 |  |  | $ | 357 |
Wildfire reserve 1 | 709 |  |  | — |  |  | 709 |  |  | — |
Nuclear decommissioning trust assets in excess of nuclear ARO liability | 323 |  |  | 404 |  |  | 323 |  |  | 404 |
Loss and credit carryforwards 2 | 1,375 |  |  | 1,346 |  |  | 154 |  |  | 150 |
Regulatory asset 3 | 798 |  |  | 812 |  |  | 798 |  |  | 812 |
Pension and postretirement benefits other than pensions, net | 171 |  |  | 178 |  |  | 46 |  |  | 50 |
Other | 188 |  |  | 277 |  |  | 184 |  |  | 236 |
Sub-total | 3,963 |  |  | 3,375 |  |  | 2,602 |  |  | 2,009 |
Less: valuation allowance 4 | 36 |  |  | 28 |  |  | — |  |  | — |
Total | 3,927 |  |  | 3,347 |  |  | 2,602 |  |  | 2,009 |
Deferred tax liabilities: |  |  |  |  |  |  |
Property-related | 7,497 |  |  | 6,970 |  |  | 7,497 |  |  | 6,962 |
Capitalized software costs | 188 |  |  | 160 |  |  | 188 |  |  | 160 |
Regulatory liability | 367 |  |  | 158 |  |  | 367 |  |  | 158 |
Nuclear decommissioning trust assets | 323 |  |  | 404 |  |  | 323 |  |  | 404 |
Other | 57 |  |  | 140 |  |  | 54 |  |  | 133 |
Total | 8,432 |  |  | 7,832 |  |  | 8,429 |  |  | 7,817 |
Accumulated deferred income tax liability, net 5 | $ | 4,505 |  |  | $ | 4,485 |  |  | $ | 5,827 |  |  | $ | 5,808 |
1 | Relates to a charge recorded for wildfire-related claims, net of expected recoveries from insurance and FERC customers. For further information, see Note 12.
2 | As of December 31, 2018, deferred tax assets for net operating loss and tax credit carryforwards are reduced by unrecognized tax benefits of $178 million and $97 million for Edison International and SCE, respectively.
3 Includes deferred tax asset of $788 million and $809 million, for December 31, 2018 and 2017, respectively, related to certain regulatory liabilities established as part of Tax Reform discussed below.
4 | As of December 31, 2018 Edison International has recorded a valuation allowance of $32 million for non-California state net operating loss carryforwards and $4 million for California capital loss generated from sale of SoCore Energy in 2018, which are estimated to expire before being utilized.
5 | 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. In December 2017, 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). In the absence of regulatory guidance specific to 2017 Tax Reform, SCE used judgment to interpret prior Commission decisions in determining which re-measurement amounts belong to customers and shareholders. Customer amounts were recorded to regulatory assets and liabilities. An income tax expense of $33 million was recorded for the re-measurement of deferred taxes attributable to shareholder-funded activities in 2017. Changes in the allocation of deferred tax re-measurement between customers and shareholders will be reflected in the financial statements and adjusted prospectively as information becomes available. The CPUC issued a ruling in January of 2019 that determined customers are only entitled to excess deferred taxes which were included in rate base, all other deferred tax re-measurement belongs to shareholders. As a result, an income tax benefit of approximately $70 million is expected to be recorded in the first quarter of 2019. In December 2017, SCE recorded estimated deferred taxes related to Tax Reform pertaining to the changes of bonus depreciation rules for property acquired and placed into service after September 27, 2017. In August 2018, the Internal Revenue Service ("IRS") and United States Treasury Department issued proposed regulations which taxpayers may rely on when determining bonus depreciation for such property. The application of the proposed regulations had an immaterial impact on Edison International's and SCE's statements of income and balance sheets. 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, 2018
(in millions) | Loss Carryforwards |  | Credit Carryforwards |  | Loss Carryforwards |  | Credit Carryforwards
Expire between 2021 to 2038 | $ | 1,073 |  |  | $ | 469 |  |  | $ | 203 |  |  | $ | 26 |
No expiration date | — |  |  | 11 |  |  | — |  |  | 22 |
Total | $ | 1,073 |  |  | $ | 480 |  |  | $ | 203 |  |  | $ | 48 |
Edison International consolidates for federal income tax purposes, but not for financial accounting purposes, a group of wind projects referred to as Capistrano Wind. The amount of net operating loss and tax credit carryforwards recognized as part of deferred income taxes includes $212 million and $199 million related to Capistrano Wind at December 31, 2018 and 2017, respectively. Under a tax allocation agreement, Edison International has recorded a corresponding liability 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) | 2018 |  | 2017 |  | 2016 |  | 2018 |  | 2017 |  | 2016
(Loss) income from continuing operations before income taxes | $ | (1,089 | ) |  | $ | 949 |  |  | $ | 1,590 |  |  | $ | (885 | ) |  | $ | 1,106 |  |  | $ | 1,755 |
Provision for income tax at federal statutory rate of 21% and 35%, respectively 1 | (229 | ) |  | 332 |  |  | 556 |  |  | (186 | ) |  | 387 |  |  | 614 |
Increase in income tax from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Items presented with related state income tax, net: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
State tax, net of federal benefit | (168 | ) |  | 2 |  |  | 29 |  |  | (155 | ) |  | 8 |  |  | 43 |
Property-related | (275 | ) |  | (439 | ) |  | (362 | ) |  | (275 | ) |  | (439 | ) |  | (362 | )
Change related to uncertain tax positions 2 | (66 | ) |  | (18 | ) |  | (4 | ) |  | (71 | ) |  | (13 | ) |  | (8 | )
Revised San Onofre Settlement Agreement 3 | — |  |  | 25 |  |  | — |  |  | — |  |  | 25 |  |  | — |
Share-based compensation 4 | (2 | ) |  | (55 | ) |  | (28 | ) |  | (1 | ) |  | (11 | ) |  | (13 | )
Deferred tax re-measurement 5 | — |  |  | 466 |  |  | — |  |  | — |  |  | 33 |  |  | — |
Other | 1 |  |  | (32 | ) |  | (14 | ) |  | (8 | ) |  | (20 | ) |  | (18 | )
Total income tax (benefit) expense from continuing operations | $ | (739 | ) |  | $ | 281 |  |  | $ | 177 |  |  | $ | (696 | ) |  | $ | (30 | ) |  | $ | 256 |
Effective tax rate | (67.9 | )% |  | 29.6 | % |  | 11.1 | % |  | (78.6 | )% |  | (2.7 | )% |  | 14.6 | %
1 Tax Reform reduced the federal corporate income tax rate from 35% to 21%, effective January 1, 2018. 2 In the fourth quarter of 2018, Edison International and SCE recognized tax benefits related to a settlement with the California Franchise Tax Board for tax years 1994 – 2006. See further discussion in Tax Disputes below. 3 Includes the write-off of an unrecovered tax regulatory asset related to the Revised San Onofre Settlement Agreement. See Note 12 for further information.
4 | Includes state taxes of $(11) million and $(4) million for Edison International and $(2) million and $(1) million for SCE for the years ended December 31, 2017 and 2016, respectively.
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 11. 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 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) | 2018 |  | 2017 |  | 2016 |  | 2018 |  | 2017 |  | 2016
Balance at January 1, | $ | 432 |  |  | $ | 471 |  |  | $ | 529 |  |  | $ | 331 |  |  | $ | 371 |  |  | $ | 353 |
Tax positions taken during the current year: |  |  |  |  |  |  |  |  |  |  |
Increases | 41 |  |  | 51 |  |  | 36 |  |  | 42 |  |  | 51 |  |  | 36 |
Tax positions taken during a prior year: |  |  |  |  |  |  |  |  |  |  |
Increases | — |  |  | — |  |  | 2 |  |  | — |  |  | — |  |  | — |
Decreases 1 | (108 | ) |  | (7 | ) |  | (96 | ) |  | (121 | ) |  | (13 | ) |  | (18 | )
Decreases for settlements during the period 2 | (27 | ) |  | (83 | ) |  | — |  |  | (3 | ) |  | (78 | ) |  | — |
Balance at December 31, | $ | 338 |  |  | $ | 432 |  |  | $ | 471 |  |  | $ | 249 |  |  | $ | 331 |  |  | $ | 371 |
1 | Decrease in 2018 was related to re-measurement as a result of a settlement with the California Franchise Tax Board for tax years 1994 – 2006. Decrease in 2016 was related 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 determined that it will not recognize these assets, so the tax benefit and related tax reserve were written off.
2 | In 2018, Edison International reached a settlement with the California Franchise Tax Board for tax years 1994 – 2006. In 2017, Edison International settled all open tax positions with the IRS for taxable years 2007 – 2012. See Tax Disputes below for further details.
As of December 31, 2018, 2017 and 2016, if recognized, $197 million, $308 million, and $347 million, respectively, of unrecognized tax benefits would impact Edison International's effective tax rate and $95 million, $167 million, and $243 million, respectively, of the unrecognized tax benefits would impact SCE's effective tax rate. Tax Disputes In 2017, Edison International settled all open tax positions with the IRS for tax years 2007 – 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 2015 – 2017 and 2010 – 2017, respectively. Edison International has settled all open tax positions with the IRS for taxable years prior to 2013. In the fourth quarter of 2018, Edison International reached a settlement with the California Franchise Tax Board for tax years 1994 – 2006 and has updated its uncertain tax positions to reflect this settlement. This update resulted in income tax benefits of $103 million and $70 million at Edison International and SCE, respectively. Of the $103 million tax benefits, $34 million was related to Edison Mission Energy ("EME"), a legacy business of Edison International with no ongoing operations. Accordingly, the amounts of the settlement related to EME were recorded to discontinued operations. As a result of the settlement, Edison International expects a refund of tax and interest from the California Franchise Tax Board in the amount of $65 million. 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) | 2018 |  | 2017 |  | 2018 |  | 2017
Accrued interest and penalties | $ | 37 |  |  | $ | 115 |  |  | $ | 6 |  |  | $ | 41 |
The net after-tax interest and penalties recognized in income tax (benefit) expense for continuing and discontinued operations are:
| Edison International |  | SCE
| December 31,
(in millions) | 2018 |  | 2017 |  | 2016 |  | 2018 |  | 2017 |  | 2016
Net after-tax interest and penalties tax (benefit) expense | $ | (62 | ) |  | $ | 6 |  |  | $ | 6 |  |  | $ | (25 | ) |  | $ | 4 |  |  | $ | 2 |

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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