Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Sources of income (loss) before income 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

Components of income tax expense (benefit) by location of taxing jurisdiction

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

Components of net accumulated deferred income tax liability

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

Reconciliation of income tax expense

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 deductions¹	(231		)	—			—			(231		)	—			—
Global Settlement related²	—			—			(159		)	—			—			(95		)
Change in tax accounting method for asset removal costs³	—			—			(40		)	—			—			(40		)
State tax, net of federal benefit	108			85			44			54			80			59
Health care legislation⁴	—			—			39			—			—			39
Property-related⁵	(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.

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.

Reconciliation of 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 EME¹	(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.

Schedule of interest and penalties related to income tax liabilities

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