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 September 30,						Nine months ended September 30,
(in millions)	2015			2014			2015			2014
Edison International:
Income from continuing operations before income taxes	$	487		$	744		$	1,324		$	1,414
Provision for income tax at federal statutory rate of 35%	170			260			463			495
Increase (decrease) in income tax from:
State tax, net of federal benefit	6			28			23			34
Property-related	(79		)	(73		)	(207		)	(179		)
Change related to uncertain tax positions	10			10			(53		)	(4		)
San Onofre OII settlement	—			—			—			(40		)
Other	(25		)	(5		)	(31		)	(22		)
Total income tax expense from continuing operations	$	82		$	220		$	195		$	284
Effective tax rate	16.8		%	29.6		%	14.7		%	20.1		%
SCE:
Income from continuing operations before income taxes	$	509		$	755		$	1,370		$	1,466
Provision for income tax at federal statutory rate of 35%	178			264			480			513
Increase (decrease) in income tax from:
State tax, net of federal benefit	8			31			23			42
Property-related	(79		)	(73		)	(207		)	(179		)
Change related to uncertain tax positions	9			9			(56		)	(1		)
San Onofre OII settlement	—			—			—			(40		)
Other	(24		)	(7		)	(33		)	(25		)
Total income tax expense from continuing operations	$	92		$	224		$	207		$	310
Effective tax rate	18.1		%	29.7		%	15.1		%	21.1		%

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.

During the first nine months of 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 $80 million, including interest through September 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 $17 million, including interest through September 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 $124 million, including interest through September 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 September 30, 2015. Edison International disagrees with the proposed adjustment and has appealed. SCE has agreed to the remaining proposed adjustments in the Revenue Agent Report.