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 7.90% in 2016 and 2015. 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.

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

Regulatory Assets

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



	December 31,
(in millions)	2016		2015
Current:
Regulatory balancing accounts	$	135	$	382
Energy derivatives	150		159
Unamortized investments, net	49		—
Other	16		19
Total current	350		560
Long-term:
Deferred income taxes, net	4,478		3,757
Pensions and other postretirement benefits	710		849
Energy derivatives	947		1,027
Unamortized investments, net	80		182
San Onofre	857		1,043
Unamortized loss on reacquired debt	184		201
Regulatory balancing accounts	66		36
Environmental remediation	126		129
Other	7		288
Total long-term	7,455		7,512
Total regulatory assets	$	7,805	$	8,072

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, in which the original contracts expire in 10 to 45 years.

SCE's current and long-term unamortized investments include legacy meters retired as part of the Edison SmartConnect^® program. SCE's unamortized investments related to legacy meters are expected to be recovered by 2017 and earned a rate of return of 6.46% in 2016 and 2015.

SCE's regulatory assets related to deferred income taxes represent tax benefits passed through to customers. The CPUC requires SCE to flow through certain deferred income tax benefits to customers by reducing electricity rates, thereby deferring recovery of such amounts to future periods. 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, approximately from 1 to 60 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.

SCE's unamortized investments long-term primarily include nuclear assets related to Palo Verde. Nuclear assets related to Palo Verde are expected to be recovered by 2047 and earned a return of 7.90% in 2016 and 2015.

In accordance with the San Onofre OII Settlement Agreement, SCE is authorized to recover in rates its San Onofre regulatory asset, generally over a ten-year period commencing February 1, 2012. Under the San Onofre OII Settlement Agreement (see Note 11), SCE was allowed to earn a rate of return of 2.62% in 2016 and 2015 and is authorized to continue to earn this rate as adjusted during the amortization period thereafter with changes in SCE's authorized return on debt and preferred equity. SCE's regulatory assets related to San Onofre nuclear fuel will earn a return equal to commercial paper rate that the CPUC uses to calculate interest on balancing accounts. In a December 2016 joint ruling, the Assigned Commissioner and the Assigned ALJ directed SCE to meet and confer with the other parties in the OII to consider changing the terms of the San Onofre OII Settlement Agreement. See Note 11 for further information.

SCE's net regulatory asset related to its unamortized loss on reacquired debt will be recovered over the original amortization period of the reacquired debt over periods ranging from 10 to 35 years.

SCE's regulatory assets related to environmental remediation represents a portion of the costs incurred at certain sites that SCE is allowed to recover through customer rates. See "Environmental Remediation" discussed in Note 11.

Regulatory Liabilities

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



	December 31,
(in millions)	2016		2015
Current:
Regulatory balancing accounts	$	736	$	1,106
Other	20		22
Total current	756		1,128
Long-term:
Costs of removal	2,847		2,781
Recoveries in excess of ARO liabilities	1,639		1,502
Regulatory balancing accounts	1,180		1,314
Other	60		79
Total long-term	5,726		5,676
Total regulatory liabilities	$	6,482	$	6,804

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 recoveries in excess of ARO liabilities represents the cumulative differences between ARO expenses and amounts collected in rates primarily for the decommissioning of the SCE's nuclear generation facilities. Decommissioning costs recovered through rates are primarily placed in nuclear decommissioning trusts. This regulatory liability also represents the deferral of realized and unrealized gains and losses on the nuclear decommissioning trust investments. See Note 9.

Net Regulatory Balancing Accounts

Balancing account over and under collections represent differences between cash collected in current rates for specified forecasted costs and such costs that are actually incurred. Undercollections are recorded as regulatory balancing account assets. Overcollections 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. Regulatory balancing accounts do not have the right of offset and are presented gross in the consolidated balance sheets. Under and over collections accrue interest based on a three-month commercial paper rate published by the Federal Reserve.

The following table summarizes the significant components of regulatory balancing accounts included in the above tables of regulatory assets and liabilities:



	December 31,
(in millions)	2016			2015
Asset (liability)
Energy resource recovery account	$	(20	)	$	(439	)
New system generation balancing account	(6		)	(171		)
Public purpose programs and energy efficiency programs	(992		)	(683		)
Base revenue requirement balancing account	(426		)	(319		)
Tax accounting memorandum account and pole loading	(142		)	(248		)
DOE litigation memorandum account¹	(122		)	—
Greenhouse gas auction revenue	31			(75		)
FERC balancing accounts	(69		)	74
Other	31			(141		)
Liability	$	(1,715	)	$	(2,002	)

¹ Represents proceeds from the Department of Energy ("DOE") resulting from its failure to meet its obligation to begin accepting spent nuclear fuel from San Onofre. Damages recovered are subject to CPUC review as to how these amounts would be distributed among customers, shareholders, or to offset fuel decommissioning or storage costs. See Note 11 for further discussion.