Regulatory Assets and Liabilities

12 Months Ended

Dec. 31, 2020

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 7.68% and 7.61% in 2020 and 2019, 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)	2020		2019
Current:
Regulatory balancing and memorandum accounts	$	1,127	$	798
Power contracts	165		189

Other	22		22
Total current	1,314		1,009
Long-term:
Deferred income taxes, net of liabilities	4,475		4,026
Pension and other postretirement benefits	12		87
Power contracts	239		434
Unamortized investments, net of accumulated amortization1	114		119

Unamortized loss on reacquired debt	133		142

Regulatory balancing and memorandum accounts	1,794		981
Environmental remediation	247		237

Other	106		62
Total long-term	7,120		6,088
Total regulatory assets	$	8,434	$	7,097

1 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, 2020. 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 3 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 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 earned returns of 7.68% and 7.61% in 2020 and 2019, respectively.

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)	2020		2019
Current:
Regulatory balancing and memorandum accounts	$	471	$	883

Energy derivatives	87		80
Other	11		9
Total current	569		972
Long-term:
Costs of removal	2,595		2,674
Re-measurement of deferred taxes	2,283		2,424
Recoveries in excess of ARO liabilities	1,930		1,569
Regulatory balancing and memorandum accounts	1,062		1,261
Other postretirement benefits	671		416
Other	48		41
Total long-term	8,589		8,385
Total regulatory liabilities	$	9,158	$	9,357

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 in depreciation 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 the initial recording of regulatory liabilities. The amount was further adjusted for CPUC's final resolution in February 2019, which stated 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. The regulatory liabilities are generally expected to be refunded to customers over the lives of the assets and liabilities that gave rise to the deferred taxes.

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.

SCE's regulatory liabilities related to other postretirement benefits represent the overfunded net actuarial gain. This amount will be refunded through rates charged to customers. See "Pension Plans and Postretirement Benefits Other than Pensions" discussion in Note 9.

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)	2020		2019
Asset (liability)
Energy resource recovery account	$	(89)	$	(23)
Portfolio allocation balancing account	497		537

New system generation balancing account	(10)		85
Public purpose programs and energy efficiency programs	(1,130)		(1,244)
Base revenue requirement balancing account	622		(328)


Greenhouse gas auction revenue and low carbon fuel standard revenue	(125)		(196)
FERC balancing accounts	12		(127)

Wildfire and drought restoration accounts1	361		120

Wildfire-related memorandum accounts2	1,104		748
COVID-19-related memorandum accounts3	176		—
Other	(30)		63
Asset (Liability)	$	1,388	$	(365)

1 The wildfire and drought restoration accounts regulatory assets represent restorative costs that are recorded in a Catastrophic Event Memorandum Account ("CEMA").

2 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 Wildfire Expense Memorandum Account ("WEMA") is used to track incremental wildfire insurance costs and uninsured wildfire-related financing, legal and claims costs. During 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, a Grid Safety and Resiliency Program Memorandum Account ("GSRPMA") to track the costs of SCE's GS&RP that are incremental to costs approved for recovery in SCE's 2018 GRC and a fire risk mitigation memorandum account to track costs related to the reduction of fire risk that are incremental to costs approved for recovery in SCE's 2018 GRC that are not tracked in any other wildfire-related memorandum account.

3 In July 2020, the CPUC approved establishment of the COVID-19 Pandemic Protection Memorandum Account ("CPPMA"), to track incremental consumer protection costs for residential and small commercial customers. A CEMA is used to track other incremental COVID-19 costs, including costs of sequestering employees at essential work locations. Both memorandum accounts were effective beginning March 2020.