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:



	Edison International						SCE
	Three months ended March 31,
(in millions)	2015			2014			2015			2014
Income from continuing operations before income taxes	$	424		$	205		$	440		$	222
Provision for income tax at federal statutory rate of 35%	148			71			154			78
Increase (decrease) in income tax from:
State tax, net of federal benefit	11			1			14			1
Property-related	(60		)	(51		)	(60		)	(51		)
Change related to uncertain tax positions	15			7			10			7
San Onofre OII settlement	—			(40		)	—			(40		)
Other	(8		)	(7		)	(11		)	(7		)
Total income tax expense (benefit) from continuing operations	$	106		$	(19	)	$	107		$	(12	)
Effective tax rate	25.0		%	(9.3		)%	24.3		%	(5.4		)%

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. Flow-through items reduce current authorized revenue requirements in SCE's rate cases and result in a regulatory asset for recovery of deferred income taxes in future periods. The difference between the authorized amounts in SCE's rate cases and the recorded flow-through items also result in increases or decreases in regulatory assets with a corresponding impact on the effective tax rate to the extent that recorded deferred amounts are expected to be recovered in future rates. 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. It is reasonably possible that by the end of 2015, unrecognized tax benefits may decrease by approximately $96 million due to a change in estimate of tax positions subject to flow-through regulatory treatment.

Property-related items include recognition of income tax benefits from repair deductions for income tax purposes.

Tax Disputes

Tax Years 2007 – 2009

The IRS examination phase of tax years 2007 through 2009 was completed during the first quarter of 2013. Edison International received a Revenue Agent Report from the IRS on February 28, 2013 which included a proposed adjustment to disallow a component of SCE's percentage repair allowance deduction (similar to the 2003 – 2006 tax years). The proposed adjustment to disallow a component of SCE's percentage repair allowance deduction, if sustained, would result in a federal tax liability of approximately $77 million, including interest through March 31, 2015. Edison International has tentatively reached an agreement with the IRS regarding SCE’s percentage repair allowance deduction, which if finalized, would result in a federal tax liability of approximately $16 million, including interest through March 31, 2015.

Tax Years 2010 – 2012

A Revenue Agent Report from the IRS is expected to be received from the examination phase of tax years 2010 through 2012 within the next six months. After receipt of the Revenue Agent Report, SCE expects to update its assessment of uncertain tax positions.