Regulatory Assets and Liabilities

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 7.90% in 2015 and 2014. The CPUC also 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)	2015		2014
Current:
Regulatory balancing accounts	$	382	$	1,088
Energy derivatives	159		159
Other	19		7
Total current	560		1,254
Long-term:
Deferred income taxes, net	3,757		3,405
Pensions and other postretirement benefits	849		1,218
Energy derivatives	1,027		850
Unamortized investments, net	182		255
San Onofre	1,043		1,288
Unamortized loss on reacquired debt	201		201
Regulatory balancing accounts	36		44
Environmental remediation	129		107
Other	288		244
Total long-term	7,512		7,612
Total regulatory assets	$	8,072	$	8,866

SCE's regulatory assets related to energy derivatives are primarily an offset to unrealized losses on derivatives. The regulatory asset changes based on fluctuations in the fair market value of the contracts, in which the original contracts expire in 2 to 45 years.

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.

SCE's regulatory assets related to pensions and other post-retirement plans represent the unfunded net loss and prior service costs of the plans (see "Pension Plans and Postretirement Benefits Other than Pensions" discussion in Note 8). This amount is being recovered through rates charged to customers.

SCE's unamortized investments primarily include nuclear assets related to Palo Verde and legacy meters retired as part of the Edison SmartConnect^® program. Nuclear assets related to Palo Verde are expected to be recovered by 2047 and earned a return of 7.90% in 2015 and 2014. SCE's unamortized investments related to legacy meters are expected to be recovered by 2017 and earned a rate of return of 6.46% in 2015 and 2014.

In accordance with the San Onofre OII Settlement Agreement, SCE is authorized to recover in rates its San Onofre regulatory asset, generally over a ten-year period commencing February 1, 2012. Under the San Onofre OII Settlement Agreement (see Note 11), SCE was allowed to earn a rate of return of 2.62% for the period 2014 – 2015 and is authorized to continue to earn this rate as adjusted during the amortization period thereafter with changes in SCE's authorized return on debt and preferred equity. SCE's regulatory assets related to San Onofre nuclear fuel will earn a return equal to commercial paper rate that the CPUC uses to calculate interest on balancing accounts.

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 1 to 35 years.

SCE's regulatory assets related to environmental remediation represents a portion of the costs incurred at certain sites that SCE is allowed to recover through customer rates. See "Environmental Remediation" discussed in Note 11.

Regulatory Liabilities

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



	December 31,
(in millions)	2015		2014
Current:
Regulatory balancing accounts	$	1,106	$	380
Other	22		21
Total current	1,128		401
Long-term:
Costs of removal	2,781		2,826
Recoveries in excess of ARO liabilities¹	1,502		1,956
Regulatory balancing accounts	1,314		1,083
Other	79		24
Total long-term	5,676		5,889
Total regulatory liabilities	$	6,804	$	6,290

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 9).

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

SCE's regulatory liability equal to nuclear decommissioning trust assets in excess of the related asset retirement obligations which represent future refunds to customers if such assets are not used to decommission the related nuclear facilities. The decrease in this regulatory liability resulted from SCE's obtaining access of decommissioning funds for Units 2 and 3 and changes in market value for decommissioning trust funds for nuclear assets. For further information, see Note 1 and Note 9.

Net Regulatory Balancing Accounts

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



	December 31,
(in millions)	2015			2014
Asset (liability)
Energy resource recovery account	$	(439	)	$	1,028
New system generation balancing account	(171		)	35
Public purpose programs and energy efficiency programs	(683		)	(874		)
Base rate recovery balancing account	(319		)	(5		)
Tax accounting memorandum account and pole loading	(248		)	—
Greenhouse gas auction revenue	(75		)	(182		)
FERC balancing accounts	74			(32		)
Generator settlements	(4		)	(197		)
Other	(137		)	(104		)
Liability	$	(2,002	)	$	(331	)

The 2015 GRC established a tax accounting memorandum account (referred to as "TAMA"), which provides that additional 2015 – 2017 tax benefits or costs associated with the following events be tracked: (1) tax accounting method changes, (2) changes in tax laws and regulations impacting depreciation or tax repair deductions, (3) forecasted and actual differences in tax repair deductions, and (4) the impact, if any, of a private letter ruling related to compliance with normalization regulations of the IRS. As a result of this memorandum account, together with the balancing account for pole loading expenditures, any differences between the forecasted tax repair deductions and actual tax repair deductions for 2015 – 2017 will be adjusted annually through customer rates. The TAMA will also reflect the revenue requirement impact of the extension of bonus depreciation.

SCE had participated in proceedings seeking recovery of refunds from certain sellers of electricity and natural gas during the energy crisis in California in 2000 – 2001. SCE is authorized to refund to customers any refunds actually realized by SCE, net of litigation costs and amounts retained by SCE as a shareholder incentive pursuant to an established sharing arrangement. During 2014, the FERC approved generator settlement agreements which resulted in total refunds to customers of $219 million of which $15 million is subject to a shareholder incentive.