TAXES
Income tax expense is comprised of the following components.
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
| (In Thousands) |
Income Tax Expense (Benefit): | | | | | |
Current income taxes: | | | | | |
Federal | $ | 126 |
| | $ | (1,007 | ) | | $ | 327 |
|
State | 359 |
| | 318 |
| | 341 |
|
Deferred income taxes: | | | | | |
Federal | 122,757 |
| | 155,230 |
| | 124,891 |
|
State | 30,675 |
| | 32,892 |
| | 29,484 |
|
Investment tax credit amortization | (2,762 | ) | | (2,893 | ) | | (3,043 | ) |
Income tax expense | $ | 151,155 |
| | $ | 184,540 |
| | $ | 152,000 |
|
The tax effect of the temporary differences and carryforwards that comprise our deferred tax assets and deferred tax liabilities are summarized in the following table.
|
| | | | | | | |
| As of December 31, |
| 2017 | | 2016 |
| (In Thousands) |
Deferred tax assets: | | | |
Tax credit carryforward (a) | $ | 323,518 |
| | $ | 265,750 |
|
Income taxes refundable to customers, net | 230,348 |
| | — |
|
Deferred employee benefit costs | 95,913 |
| | 137,337 |
|
Net operating loss carryforward (b) | 70,041 |
| | 86,693 |
|
Deferred state income taxes | 63,838 |
| | 73,294 |
|
Alternative minimum tax carryforward (c) | 52,187 |
| | 29,412 |
|
Deferred compensation | 21,600 |
| | 31,981 |
|
Deferred regulatory gain on sale-leaseback | 17,148 |
| | 30,868 |
|
Accrued liabilities | 13,193 |
| | 21,757 |
|
La Cygne dismantling costs | 7,840 |
| | 10,972 |
|
Disallowed costs | 5,800 |
| | 9,600 |
|
Other | 45,484 |
| | 47,200 |
|
Total deferred tax assets | $ | 946,910 |
| | $ | 744,864 |
|
| | | |
Deferred tax liabilities: | | | |
Plant-related | $ | 1,483,276 |
| | $ | 1,925,270 |
|
Deferred employee benefit costs | 95,913 |
| | 137,337 |
|
Acquisition premium | 76,574 |
| | 147,868 |
|
Deferred state income taxes | 46,940 |
| | 61,110 |
|
Debt reacquisition costs | 26,539 |
| | 41,753 |
|
Amounts due from customers for future income taxes, net | — |
| | 124,020 |
|
Other | 33,411 |
| | 60,282 |
|
Total deferred tax liabilities | $ | 1,762,653 |
| | $ | 2,497,640 |
|
| | | |
Net deferred income tax liabilities | $ | 815,743 |
| | $ | 1,752,776 |
|
_______________
| |
(a) | Based on filed tax returns and amounts expected to be reported in current year tax returns (December 31, 2017), we had available federal general business tax credits of $100.0 million and state investment tax credits of $223.5 million. The federal general business tax credits were primarily generated from production tax credits. These tax credits expire beginning in 2020 and ending in 2037. The state investment tax credits expire beginning in 2024 and ending in 2033. |
| |
(b) | As of December 31, 2017, we had a federal net operating loss carryforward of $181.1 million, which is available to offset federal taxable income and a state net operating loss of $470.4 million, which is available to offset state taxable income. The federal net operating losses will expire beginning in 2032 and ending in 2036 and the state net operating losses will expire beginning in 2020 and ending in 2027. |
| |
(c) | As of December 31, 2017, we had available an alternative minimum tax credit carryforward of $52.2 million. This credit is refundable by tax year 2021, if not fully utilized. |
The TCJA, which was signed into law in December 2017, significantly reforms the IRC and is generally effective January 1, 2018. The TCJA contains significant changes to federal corporate income taxation, including, in general and among other things, a federal corporate income tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, limiting the deduction for net operating losses, eliminating net operating loss carrybacks for losses after 2017 and eliminating our use of bonus depreciation on new capital investments. As a result, we decreased deferred income tax liabilities by approximately $1.0 billion and made corresponding adjustments to regulatory assets and regulatory liabilities. In addition, in 2017 we decreased non-regulated net deferred income tax assets by approximately $12.2 million and correspondingly recorded an increase in income tax expense, which increased our effective tax rate by 2.5%.
We have recorded a regulatory liability for our obligation to reduce the prices charged to customers for deferred income taxes recovered from customers in earlier periods when corporate income tax rates were higher than current income tax rates under the TCJA. Most of this regulatory liability is related to depreciation and will be returned to the customer through lower rates over the life of the applicable property. Also, in accordance with various orders, we have reduced our prices to reflect the income tax benefits associated with certain accelerated income tax deductions, thereby passing on these benefits to customers at the time we received them. We believe it is probable that the net future increases in income taxes payable will be recovered from customers when these temporary income tax benefits reverse in future periods. We have recorded a regulatory asset for these amounts, which is offset against the regulatory liability. The income tax-related regulatory assets and liabilities as well as unamortized investment tax credits are also temporary differences for which deferred income taxes have been provided.
Our effective income tax rates are computed by dividing total federal and state income taxes by the sum of such taxes and net income. The difference between the effective income tax rates and the federal statutory income tax rates are as follows.
|
| | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Statutory federal income tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
Effect of: | | | | | |
Production tax credits | (6.9 | ) | | (1.8 | ) | | (2.1 | ) |
State income taxes | 4.1 |
| | 4.0 |
| | 4.3 |
|
COLI policies | (3.1 | ) | | (4.2 | ) | | (4.4 | ) |
Federal income tax rate reduction (TCJA) | 2.5 |
| | — |
| | — |
|
Flow through depreciation for plant-related differences | 2.3 |
| | 3.1 |
| | 2.6 |
|
Non-controlling interest | (0.9 | ) | | (0.9 | ) | | (0.8 | ) |
Share based payments | (0.9 | ) | | (0.5 | ) | | (0.1 | ) |
Amortization of federal investment tax credits | (0.6 | ) | | (0.5 | ) | | (0.7 | ) |
AFUDC equity | (0.2 | ) | | (0.8 | ) | | (0.2 | ) |
Other | (0.3 | ) | | 0.4 |
| | (0.1 | ) |
Effective income tax rate | 31.0 | % | | 33.8 | % | | 33.5 | % |
We file income tax returns in the U.S. federal jurisdiction as well as various state jurisdictions. The income tax returns we file will likely be audited by the Internal Revenue Service (IRS) or other tax authorities. With few exceptions, the statute of limitations with respect to U.S. federal or state and local income tax examinations by tax authorities remains open for tax year 2014 and forward.
The unrecognized income tax benefits decreased from $2.8 million at December 31, 2016, to $1.7 million at December 31, 2017. The net decrease for unrecognized income tax benefits was primarily attributable to tax positions expected to be taken with respect to potential deductions related to an environmental settlement agreement. We do not expect significant changes in the unrecognized income tax benefits in the next 12 months. A reconciliation of the beginning and ending amounts of unrecognized income tax benefits is as follows:
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| (In Thousands) |
Unrecognized income tax benefits as of January 1 | $ | 2,766 |
| | $ | 2,901 |
| | $ | 3,188 |
|
Additions based on tax positions related to the current year | 165 |
| | 434 |
| | 410 |
|
Additions for tax positions of prior years | 20 |
| | — |
| | — |
|
Reductions for tax positions of prior years | (870 | ) | | (1 | ) | | (86 | ) |
Lapse of statute of limitations | (361 | ) | | (568 | ) | | (611 | ) |
Unrecognized income tax benefits as of December 31 | $ | 1,720 |
| | $ | 2,766 |
| | $ | 2,901 |
|
The amounts of unrecognized income tax benefits that, if recognized, would favorably impact our effective income tax rate, were $1.6 million, $2.7 million and $2.9 million (net of tax) as of December 31, 2017, 2016 and 2015, respectively.
Interest related to income tax uncertainties is classified as interest expense and accrued interest liability. As of December 31, 2017 and 2016, we had $0.1 million and no amounts accrued for interest on our liability related to unrecognized income tax benefits, respectively. We accrued no penalties at either December 31, 2017 or 2016.
As of December 31, 2017 and 2016, we had recorded $0.4 million and $1.5 million, respectively, for probable assessments of taxes other than income taxes.