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)	2016			2015			2016			2015
Edison International:
Income from continuing operations before income taxes	$	571		$	487		$	1,162		$	1,324
Provision for income tax at federal statutory rate of 35%	200			170			407			463
Increase in income tax from:
State tax, net of federal benefit	20			6			30			23
Property-related¹	(79		)	(79		)	(296		)	(207		)
Change related to uncertain tax positions	(5		)	10			(4		)	(53		)
Other	(14		)	(25		)	(24		)	(31		)
Total income tax (benefit) expense from continuing operations	$	122		$	82		$	113		$	195
Effective tax rate	21.4		%	16.8		%	9.7		%	14.7		%
SCE:
Income from continuing operations before income taxes	$	607		$	509		$	1,291		$	1,370
Provision for income tax at federal statutory rate of 35%	212			178			452			480
Increase in income tax from:
State tax, net of federal benefit	25			8			40			23
Property-related¹	(79		)	(79		)	(296		)	(207		)
Change related to uncertain tax positions	(7		)	9			(9		)	(56		)
Other	(10		)	(24		)	(25		)	(33		)
Total income tax (benefit) expense from continuing operations	$	141		$	92		$	162		$	207
Effective tax rate	23.2		%	18.1		%	12.5		%	15.1		%


¹	During the second quarter of 2016, SCE recorded $79 million for 2012 – 2014 incremental tax benefits related to repair deductions, which were flowed-through to customers ($133 million pre-tax).

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 as determined in SCE's rate cases, adjusted for balancing and memorandum account activities, 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.

Repair Deductions

Previously, SCE recognized earnings and a regulatory asset for deferred income taxes related to 2012 – 2014 tax repair deductions. As a result of the CPUC's rate base offset in the 2015 GRC decision, SCE wrote down this regulatory asset in full during 2015. The after-tax charge was reflected in "Income tax expense" on the December 31, 2015 consolidated statement of income. The amount of tax repair deductions the CPUC used to establish the rate base offset was based on SCE's forecast of 2012 – 2014 tax repair deductions from the Notice of Intent filed in the 2015 GRC. The amount of tax repair deductions included in the Notice of Intent was less than the actual tax repair deductions SCE reported on its 2012 through 2014 income tax returns. In April 2016, the CPUC granted SCE's request to reduce SCE's Base Revenue Requirement Balancing Account ("BRRBA") by $234 million in future periods subject to the timing and final outcome of audits that may be conducted by tax authorities. The refunds will result in flowing incremental tax benefits for 2012 – 2014 to customers. SCE refunded $133 million ($79 million after-tax) during the second quarter of 2016. SCE did not record a gain or loss from this reduction. Regulatory assets recorded from flow through tax benefits are recovered through SCE's general rate case proceedings.

Tax Disputes

Tax Years 2007 – 2012

Edison International has reached a tentative settlement agreement with the IRS for the 2007 – 2012 tax years. The final agreement, when approved, is not expected to have a material impact on the financial statements.

During the second quarter of 2015, the Company received the IRS Revenue Agent Report for the 2010 – 2012 tax years. Edison International's and SCE's tax reserves were re-measured at that time and $94 million and $100 million, respectively, of income tax benefits were recorded in the comparable quarter for the prior year.

Tax years that remain open for examination by the IRS and the California Franchise Tax Board are 2007 – 2015 and 2003 – 2015, respectively.