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 2017 and 2016. 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. The CPUC has also established a tax accounting memorandum account ("TAMA") to track tax benefits or costs associated with certain events to be adjusted annually in rates, including tax accounting method changes, changes in tax laws and regulations impacting depreciation or tax repair deductions, forecasted and actual differences in tax repair deductions.

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)	2017		2016
Current:
Regulatory balancing accounts	$	484	$	135
Power contracts and energy derivatives	203		150
Unamortized investments, net of accumulated amortization	5		49
Other	11		16
Total current	703		350
Long-term:
Deferred income taxes, net of liabilities	3,143		4,478
Pensions and other postretirement benefits	271		710
Power contracts and energy derivatives	799		947
Unamortized investments, net of accumulated amortization	123		80
San Onofre	72		857
Unamortized loss on reacquired debt	168		184
Regulatory balancing accounts	143		66
Environmental remediation	144		126
Other	51		7
Total long-term	4,914		7,455
Total regulatory assets	$	5,617	$	7,805

SCE's regulatory assets related to power contracts and energy derivatives are primarily an offset to unrealized losses on derivatives. The liabilities for the power contracts will be amortized over the remaining contract terms, approximately 3 to 6 years and will not earn a rate of return.

SCE's current and long-term unamortized investments include legacy meters retired as part of the Edison SmartConnect^® program and beyond the meters. SCE's unamortized investments related to legacy meters were fully recovered in 2017 and earned a rate of return of 6.46% in 2017 and 2016.

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. As a result of Tax Reform, SCE re-measured its deferred tax assets and liabilities as of December 31, 2017. For further information, see Note 7.

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 has long-term unamortized investments which primarily include nuclear assets related to Palo Verde. Nuclear assets related to Palo Verde are expected to be recovered by 2047 and earned a return of 7.90% in 2017 and 2016.

In accordance with the Revised San Onofre Settlement Agreement, SCE wrote down the San Onofre regulatory asset. SCE has requested to apply $72 million of the U.S. Department of Energy ("DOE") proceeds, currently reflected as a regulatory liability in the DOE litigation memorandum account, against the remaining San Onofre regulatory asset. See Note 11 for further information.

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 35 years or the amortization period of life of the new issue if the debt is refunded or refinanced.

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)	2017		2016
Current:
Regulatory balancing accounts	$	1,009	$	736
Energy derivatives	74		—
Other	38		20
Total current	1,121		756
Long-term:
Costs of removal	2,741		2,847
Re-measurement of deferred taxes	2,892		—
Recoveries in excess of ARO liabilities	1,575		1,639
Regulatory balancing accounts	1,316		1,180
Other postretirement benefits	26		—
Other	64		60
Total long-term	8,614		5,726
Total regulatory liabilities	$	9,735	$	6,482

SCE's regulatory liabilities related to costs of removal represent differences between asset removal costs recorded 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 an increase in regulatory liabilities which is subject to change based on the outcome of the regulatory process. 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. For further information, see Note 7.

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 9 for further discussion.

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)	2017			2016
Asset (liability)
Energy resource recovery account	$	464		$	(20	)
New system generation balancing account	(197		)	(6		)
Public purpose programs and energy efficiency programs	(1,145		)	(992		)
Base revenue requirement balancing account	(200		)	(426		)
Tax accounting memorandum account and pole loading balancing account	(259		)	(142		)
DOE litigation memorandum account	(156		)	(122		)
Greenhouse gas auction revenue	(22		)	31
FERC balancing accounts	(205		)	(69		)
Other	22			31
Liability	$	(1,698	)	$	(1,715	)