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Regulatory Assets and Liabilities

12 Months Ended

Dec. 31, 2019

Regulatory Assets and Liabilities Disclosure [Abstract]

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 7.61% in both 2019 and 2018, respectively. The CPUC 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)	2019		2018
Current:
Regulatory balancing and memorandum accounts	$	798	$	814
Power contracts¹	189		305
Other	22		14
Total current	1,009		1,133
Long-term:
Deferred income taxes, net of liabilities	4,026		3,589
Pension and other postretirement benefits	87		271
Power contracts¹	434		700
Unamortized investments, net of accumulated amortization²	119		118
Unamortized loss on reacquired debt	142		153
Regulatory balancing and memorandum accounts	981		360
Environmental remediation	237		134
Other	62		55
Total long-term	6,088		5,380
Total regulatory assets	$	7,097	$	6,513


¹	In 2018, SCE amended the termination date of two power purchase agreements. As a result of this amendment, SCE is required to make early termination payments totaling $206 million by 2021. The unpaid portion of $29 million and $206 million were reflected as a regulatory asset in the consolidated balance sheets as of December 31, 2019 and 2018, respectively.


²	Relates to a regulatory asset that earns a rate of return. See below for further information.

In accordance with the accounting standards applicable to rate-regulated enterprises, SCE defers costs as regulatory assets that are probable of future recovery from customers and has recorded regulatory assets for these incremental costs at December 31, 2019. While SCE believes such costs are probable of future recovery, there is no assurance that SCE will collect all amounts currently deferred as regulatory assets.

SCE's regulatory assets related to power contracts primarily represent derivative contracts that were designated as normal purchases and normal sales contracts. The liabilities for these power contracts are amortized over the remaining contract terms, approximately 2 to 5 years. For further information, see Note 1.

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. For further information, see Note 8.

SCE's regulatory assets related to pension and other post-retirement plans represent the unfunded net loss and prior service costs of the plans. This amount is being recovered through rates charged to customers. See "Pension Plans and Postretirement Benefits Other than Pensions" discussion in Note 9.

SCE has long-term unamortized investments which include nuclear assets related to Palo Verde and the beyond the meter program. Nuclear assets related to Palo Verde and the beyond the meter program are expected to be recovered by 2044 and 2027, respectively, and both earned returns of 7.61% in 2019 and 2018.

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 40 years or the life of the new issuance if the debt is refunded or refinanced.

SCE's regulatory assets related to environmental remediation represent a portion of the costs incurred at certain sites that SCE is allowed to recover through customer rates. See "Environmental Remediation" discussed in Note 12.

Regulatory Liabilities

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



	December 31,
(in millions)	2019		2018
Current:
Regulatory balancing and memorandum accounts	$	883	$	1,080
Energy derivatives	80		158
2018 GRC¹	—		274
Other	9		20
Total current	972		1,532
Long-term:
Costs of removal	2,674		2,769
Re-measurement of deferred taxes	2,424		2,776
Recoveries in excess of ARO liabilities	1,569		1,130
Regulatory balancing and memorandum accounts	1,261		1,344
Other postretirement benefits	416		185
Other¹	41		125
Total long-term	8,385		8,329
Total regulatory liabilities	$	9,357	$	9,861

During 2018, SCE recorded CPUC revenue based on the 2017 authorized revenue requirement adjusted for the July 2017 cost of capital decision and Tax Reform pending the outcome of the 2018 GRC. SCE recorded regulatory liabilities primarily associated with these adjustments. In May 2019, these regulatory liabilities were reversed due to the adoption of 2018 GRC final decision. For further information, see Note 1.

SCE's regulatory liabilities related to energy derivatives are primarily an offset to unrealized gains on derivatives.

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

As a result of Tax Reform, SCE's deferred tax assets and liabilities were re-measured at December 31, 2017, resulting in an increase in regulatory liabilities. In February 2019, the CPUC issued a final resolution holding that customers are only entitled to re-measurement of deferred taxes that were included when setting rates (i.e. included in rate base), and that all other deferred tax re-measurements belong to shareholders. As a result of the resolution, SCE recorded an income tax benefit of approximately $88 million in the year 2019. For further information, see Note 8.

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 10 for further discussion.

Net Regulatory Balancing and Memorandum Accounts

Balancing accounts track amounts that the CPUC or FERC have authorized for recovery. 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. Memorandum accounts are authorized to track costs for potential future recovery.

Regulatory balancing and memorandum 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 and memorandum accounts that do not have the right of offset are presented gross in the consolidated balance sheets. Under and over collections in balancing accounts and amounts recorded in memorandum accounts typically 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 and memorandum accounts included in the above tables of regulatory assets and liabilities:



	December 31,
(in millions)	2019			2018
Asset (liability)
Energy resource recovery account¹	$	(23	)	$	815
Portfolio allocation balancing account¹	537			—
New system generation balancing account¹	85			(74		)
Public purpose programs and energy efficiency programs	(1,235		)	(1,200		)
Base revenue requirement balancing account	(328		)	(628		)
Tax accounting memorandum account and pole loading balancing account	17			28
DOE litigation memorandum account	(35		)	(69		)
Greenhouse gas auction revenue and low carbon fuel standard revenue	(196		)	(81		)
FERC balancing accounts	(127		)	(180		)
Wildfire-related memorandum accounts²	868			272
Other	72			(133		)
Liability	$	(365	)	$	(1,250	)

SCE's cost-recovery mechanism for its fuel and purchased power-related costs is facilitated in three main balancing accounts, the Energy Resource Recovery Account ("ERRA"), the Portfolio Allocation Balancing Account ("PABA") and the New System Generation Balancing Account ("NSGBA"). In May 2019, the CPUC approved a PABA to determine and pro-ratably recover from responsible bundled service and departing load customers the "above-market" costs of all generation resources that are eligible for cost recovery. The ERRA and PABA balancing accounts are subject to a trigger mechanism that allows SCE to request an expeditious rate change if the sum of the ERRA balance and the bundled service customers' pro-rata share of the PABA balance either exceeds 5% of SCE's prior year generation rate revenue or exceeds 4% of SCE's prior year generation rate revenue and SCE does not expect the overcollection or undercollection to fall below 4% within 120 days. For 2020, the 4% and 5% trigger amounts are approximately $200 million and $250 million, respectively. SCE will begin recovering the combined ERRA, PABA and NSGBA undercollection from customers in rates beginning in April 2020, which will be fully recovered in April 2021.

The wildfire-related memorandum accounts regulatory assets represent wildfire-related costs that are probable of future recovery from customers, subject to a reasonableness review. The Fire Hazard Prevention Memorandum Account ("FHPMA") is used to track costs related to fire safety and to implement fire prevention corrective action measures in extreme and very high fire threat areas. The Catastrophic Event Memorandum Account ("CEMA") is used to track costs related to restoring service and damage repair, upon declaration of disasters by state or federal authorities. During 2018, the CPUC approved the establishment of the Wildfire Expense Memorandum Account ("WEMA") to track incremental wildfire insurance costs and uninsured wildfire-related financing, legal and claims costs. In March 2019, the CPUC approved a fire risk mitigation memorandum account to track costs related to the reduction of fire risk that are incremental to the amount in SCE's any other revenue requirement. In June 2019, the CPUC approved a wildfire mitigation plan memorandum account to track costs incurred to implement SCE's Wildfire Mitigation Plan that are not currently reflected in SCE's revenue requirements.