Income Taxes

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.



	Three months ended March 31,
(in millions)	2012			2011
Income from continuing operations before income taxes	$	115		$	281
Provision for income tax at federal statutory rate of 35%	40			98
Increase (decrease) in income tax from:
State tax benefit – net of federal tax expense	(9		)	—
Production and housing credits	(19		)	(18		)
Property-related	(10		)	(11		)
Other	(2		)	(4		)
Total income tax expense from continuing operations	$	—		$	65
Effective tax rate	*			23		%


^*	Not meaningful

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.

Tax Dispute

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 EMG's international assets, which if sustained, would result in a federal tax payment of approximately $194 million, including interest and penalties through March 31, 2012 (the IRS has asserted a 40% penalty for understatement of tax liability related to this matter).


•	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 $94 million, including interest through March 31, 2012.

Edison International disagrees with the proposed adjustments and filed a protest with the IRS in the first quarter of 2011. Federal income taxes of Edison International and its consolidated subsidiaries are generally the joint and several liabilities of members of the group under applicable tax laws and are paid by Edison International as the group's consolidated taxpayer, subject to internal tax-allocation agreements.

Tax Election at Homer City

On March 15, 2012, Homer City LP filed an election with the Internal Revenue Service to be treated as a partnership for federal and state income tax purposes effective for tax year 2011. As a result of this election, Homer City LP was treated for income tax purposes as though it had distributed all of its assets and liabilities to its partners, both of which are wholly-owned subsidiaries of EME. This distribution triggered a tax deduction of approximately $1.0 billion, which will be included on Edison International's 2011 federal and state income tax returns.

Loss and Credit Carryforwards

Including the tax deduction generated from the Homer City election, Edison International has recorded tax benefits for federal and state net operating loss carryforwards and federal tax credit carryforwards of approximately $1.2 billion as of March 31, 2012.