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:



	Three months ended June 30,						Six months ended June 30,
(in millions)	2015			2014			2015			2014
Edison International:
Income from continuing operations before income taxes	$	412		$	466		$	837		$	671
Provision for income tax at federal statutory rate of 35%	144			164			293			235
Increase (decrease) in income tax from:
State tax, net of federal benefit	5			6			16			7
Property-related	(69		)	(55		)	(129		)	(106		)
Change related to uncertain tax positions	(77		)	(21		)	(62		)	(14		)
San Onofre OII settlement	—			—			—			(40		)
Other	3			(10		)	(5		)	(17		)
Total income tax expense from continuing operations	$	6		$	84		$	113		$	65
Effective tax rate	1.5		%	18.0		%	13.5		%	9.7		%
SCE:
Income from continuing operations before income taxes	$	419		$	490		$	860		$	712
Provision for income tax at federal statutory rate of 35%	147			171			301			249
Increase (decrease) in income tax from:
State tax, net of federal benefit	2			9			16			10
Property-related	(69		)	(55		)	(129		)	(106		)
Change related to uncertain tax positions	(75		)	(17		)	(65		)	(10		)
San Onofre OII settlement	—			—			—			(40		)
Other	2			(10		)	(8		)	(17		)
Total income tax expense from continuing operations	$	7		$	98		$	115		$	86
Effective tax rate	1.7		%	20.0		%	13.4		%	12.1		%

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. 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.

Property-related items include recognition of income tax benefits from repair deductions. The CPUC classifies repair deductions as a flow-through item which affects earnings to the extent actual income tax benefits from repair deductions differ from the estimated amounts included in authorized revenue. Income tax benefits for repair deductions in excess of the amounts recorded as a reduction in revenue on an after tax basis were $8 million and $24 million for the three months ended June 30, 2015 and 2014, respectively, and were $15 million and $49 million for the six months ended June 30, 2015 and 2014, respectively.

During the three months ended June 30, 2015, SCE recorded $18 million of additional income taxes for revisions to estimated net operating loss carrybacks, interest and state income taxes.

Tax Disputes

Tax Years 2007 – 2009

Edison International received a Revenue Agent Report from the IRS in February 2013 which included a proposed adjustment to disallow a component of SCE's percentage repair allowance deduction. The proposed adjustment, if sustained, would result in a federal tax liability of approximately $79 million, including interest through June 30, 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 June 30, 2015. The IRS also proposed an adjustment for 2008 and 2009 to disallow deductions related to certain capitalized overhead expenses. If this adjustment were sustained, it would result in a federal tax liability of approximately $123 million, including interest through June 30, 2015. Edison International disagrees with the proposed adjustment and has appealed.

Tax Years 2010 – 2012

The IRS Revenue Agent Report was received in June 2015. As a result, Edison International and SCE have re-measured its Federal and State uncertain tax positions and recorded $94 million and $100 million, respectively, of income tax benefits including interest and penalty during the second quarter of 2015. The Revenue Agent Report included a proposed adjustment to disallow deductions related to certain capitalized overhead expenses. If this adjustment is sustained, it would result in a federal tax liability of approximately $99 million, including interest through June 30, 2015. Edison International disagrees with the proposed adjustment and plans to appeal. SCE has agreed to the remaining proposed adjustments in the Revenue Agent Report.