Regulatory Assets and Liabilities

Included in SCE's regulatory assets and liabilities are regulatory balancing accounts. CPUC authorized balancing account mechanisms require SCE to refund or recover any differences between forecasted and actual costs. The CPUC has authorized balancing accounts for specified costs or programs such as fuel, purchased-power, demand-side management programs, nuclear decommissioning and public purpose programs. Certain of these balancing accounts include a return on rate base of 8.74% for both 2012 and 2011. The CPUC also authorizes the use of a balancing account to recover from or refund to customers differences in revenue resulting from actual and forecasted electricity sales.

Balancing account over and under collections represent differences between cash collected in current rates for specified forecasted costs and these costs that are actually incurred. Under-collections are recorded as regulatory balancing account assets. Over-collections are recorded as regulatory balancing account liabilities. With some exceptions, SCE seeks to adjust rates on an annual basis or at other designated times to recover or refund the balances recorded in its balancing accounts. Regulatory balancing accounts that SCE does not expect to collect or refund in the next 12 months are reflected in the long-term section of the consolidated balance sheets. Under and over collections accrue interest based on a three-month commercial paper rate published by the Federal Reserve.

Amounts included in regulatory assets and liabilities are generally recorded with corresponding offsets to the applicable income statement accounts.

Regulatory Assets

Edison International's and SCE's regulatory assets included on the consolidated balance sheets are:



	December 31,
(in millions)	2012		2011
Current:
Regulatory balancing accounts	$	502	$	223
Energy derivatives	70		264
Other	—		7
Total Current	572		494
Long-term:
Deferred income taxes, net	2,663		2,020
Pensions and other postretirement benefits	1,550		1,703
Energy derivatives¹	900		836
Unamortized investments, net	507		484
Unamortized loss on reacquired debt	228		249
Nuclear-related investment, net	141		156
Regulatory balancing accounts	73		69
Other	360		298
Total Long-term	6,422		5,815
Total Regulatory Assets	$	6,994	$	6,309


¹	Included in 2011 is the regulatory offset of a power purchase agreement between SCE and EME with a fair market value of $349 million, which was eliminated in the Edison International consolidated financial statements.

SCE's regulatory assets related to energy derivatives are primarily an offset to unrealized losses on derivatives. The regulatory asset changes based on fluctuations in the fair market value of the contracts, which expire in 1 to 11 years.

SCE's regulatory assets related to deferred income taxes represent tax benefits passed through to customers. The CPUC requires SCE to pass through certain deferred income tax benefits to customers by reducing electricity rates, thereby deferring recovery of such amounts to future periods. Deferred income taxes for 2012 includes the results of SCE's 2012 General Rate Case, see Note 7. Based on current regulatory ratemaking and income tax laws, SCE expects to recover its regulatory assets related to deferred income taxes over the life of the assets that give rise to the accumulated deferred income taxes, ranging from 1 to 45 years.

SCE's regulatory assets related to pensions and other post-retirement plans represent the unfunded net loss and prior service costs of the plans (see "Pension Plans and Postretirement Benefits Other than Pensions" discussion in Note 8). This amount is being recovered through rates charged to customers as the plans are funded.

SCE's unamortized investments include nuclear assets related to San Onofre which in the ordinary course would be recovered by 2022, nuclear assets related to Palo Verde which are expected to be recovered by 2027 and SCE's unamortized coal plant investment which is being recovered through June 2016. Unamortized investments also include legacy meters retired as part of the EdisonSmartConnect^® program which are expected to be recovered by 2017. Although SCE's unamortized investments are classified as regulatory assets on the consolidated balance sheets, they continue to be a component of rate base and earned a rate of return of 8.74% in 2012 and 2011, except for the Mohave generating station, which did not earn a rate of return in 2012 and the legacy meters, which earned a rate of return of 6.46% in 2012.

SCE's net regulatory asset related to its unamortized loss on reacquired debt will be recovered over the remaining original amortization period of the reacquired debt over periods ranging from 1 to 26 years.

SCE's nuclear-related investment include assets and accumulated depreciation related to the AROs for San Onofre and Palo Verde, which are expected to be recovered by 2022 and 2027, respectively. These assets are included in rate base and earned a return of 8.74% in 2012 and 2011.

Regulatory Liabilities

Edison International's and SCE's regulatory liabilities included on the consolidated balance sheets are:



	December 31,
(in millions)	2012		2011
Current:
Regulatory balancing accounts	$	484	$	661
Other	52		9
Total Current	536		670
Long-term:
Costs of removal	2,731		2,697
Asset Retirement Obligations	1,385		1,105
Regulatory balancing accounts	1,091		864
Other	7		4
Total Long-term	5,214		4,670
Total Regulatory Liabilities	$	5,750	$	5,340

SCE's regulatory liabilities related to costs of removal represent differences between asset removal costs recorded and amounts collected in rates for those costs.

SCE's regulatory liabilities related to the AROs represent timing differences between the AROs and the assets of the nuclear decommissioning trust. The balance varies due to changes in the AROs as well as nuclear decommissioning trust investment activities.