Entity information:
(12)           Income Taxes

Income tax expense (benefit) is comprised of the following (in thousands):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Federal
 
 
 
 
 
Current
$
806

 
$
723

 
$
(3,527
)
Deferred
17,378

 
(2,054
)
 
33,031

Investment tax credits
166

 
(196
)
 
(232
)
State
 
 
 
 
 
Current
33

 
10

 
(90
)
Deferred
(5,015
)
 
(6,130
)
 
855

Income Tax Expense (Benefit)
$
13,368

 
$
(7,647
)
 
$
30,037



The following table reconciles our effective income tax rate to the federal statutory rate:
 
Year Ended December 31,
 
2017
 
2016
 
2015
Federal statutory rate
35.0
 %
 
35.0
 %
 
35.0
 %
State income tax, net of federal provisions
(1.9
)
 
(2.4
)
 
0.1

Flow-through repairs deductions
(17.3
)
 
(26.3
)
 
(13.3
)
Production tax credits
(6.3
)
 
(7.0
)
 
(3.2
)
Plant and depreciation of flow through items
(1.3
)
 
(2.9
)
 
(1.6
)
Share-based compensation
(0.2
)
 
(1.1
)
 
—

Prior year permanent return to accrual adjustments
(0.3
)
 
(0.1
)
 
0.1

Other, net
(0.1
)
 
(0.1
)
 
(0.5
)
Effective tax rate
7.6
 %
 
(4.9
)%
 
16.6
 %

                
The following table summarizes the significant differences in income tax expense (benefit) based on the differences between our effective tax rate and the federal statutory rate (in thousands):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Income Before Income Taxes
176,071

 
156,525

 
181,246

 
 
 
 
 
 
Income tax calculated at 35% federal statutory rate
61,625

 
54,784

 
63,436

 
 
 
 
 
 
Permanent or flow through adjustments:
 
 
 
 
 
State tax income, net of federal provisions
(3,258
)
 
(3,714
)
 
301

Flow-through repairs deductions
(30,490
)
 
(41,111
)
 
(24,079
)
Production tax credits
(11,032
)
 
(10,941
)
 
(5,721
)
Plant and depreciation of flow through items
(2,208
)
 
(4,604
)
 
(2,893
)
Share-based compensation
(363
)
 
(1,646
)
 
—

Prior year permanent return to accrual adjustments
(629
)
 
(128
)
 
207

Other, net
(277
)
 
(287
)
 
(1,214
)
 
(48,257
)
 
(62,431
)
 
(33,399
)
 
 
 
 
 
 
Income Tax Expense (Benefit)

13,368

 
(7,647
)
 
30,037



During the twelve months ended December 31, 2016, we recorded an income tax benefit of approximately $17.0 million due to the adoption of a tax accounting method change related to the costs to repair generation assets, which allowed us to take a current tax deduction for a significant amount of repair costs that were previously capitalized for tax purposes. Approximately $12.5 million of this deduction related to 2015 and prior tax years. This is reflected in the flow-through repairs deductions line due to the regulatory treatment.
 
Tax Cuts and Jobs Act

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law, which enacts significant changes to U.S. tax and related laws. The primary impact to us is a reduction of the federal corporate income tax rate from 35% to 21% effective January 1, 2018. We revalued our net deferred tax liability as of December 31, 2017 based on the reduction in the overall future tax impact expected to be realized at the lower tax rate. This resulted in a reduction in our net deferred tax liability of approximately $321 million, which was offset in regulatory assets and liabilities.

Our effective tax rate typically differs from the federal statutory tax rate primarily due to the regulatory impact of flowing through the federal and state tax benefit of repairs deductions, state tax benefit of accelerated tax depreciation deductions (including bonus depreciation when applicable) and production tax credits. The lower statutory tax rate will reduce the impact of these deductions. The regulatory accounting treatment of these deductions requires immediate income recognition for temporary tax differences of this type, which is referred to as the flow-through method. When the flow-through method of accounting for temporary differences is reflected in regulated revenues, we record deferred income taxes and establish related regulatory assets and liabilities.

The components of the net deferred income tax liability recognized in our Consolidated Balance Sheets are related to the following temporary differences (in thousands):
 
December 31,
 
2017
 
2016
NOL carryforward
$
68,840

 
$
72,964

Production tax credit
28,067

 
17,034

Pension / postretirement benefits
26,887

 
45,847

AMT credit carryforward
13,599

 
13,599

Compensation accruals
12,113

 
18,715

Customer advances
11,949

 
15,837

Unbilled revenue
5,944

 
12,743

Environmental liability
5,821

 
9,698

Interest rate hedges
4,323

 
7,192

Reserves and accruals
1,126

 
1,121

Property taxes
432

 
3,767

QF obligations
234

 
1,025

Regulatory liabilities
114

 
2,290

Other, net
1,138

 
3,173

Deferred Tax Asset
180,587

 
225,005

Excess tax depreciation
(356,938
)
 
(459,588
)
Goodwill amortization
(117,971
)
 
(168,165
)
Flow through depreciation
(45,998
)
 
(160,604
)
Regulatory assets
(409
)
 
(12,230
)
Deferred Tax Liability
(521,316
)
 
(800,587
)
Deferred Tax Liability, net
$
(340,729
)
 
$
(575,582
)


The revaluation of deferred income taxes reflects our estimate of the impact of the Tax Cuts and Jobs Act. We will continue to evaluate subsequent regulations and interpretations and assumptions made, which could materially change our estimate. Deferred income taxes relate primarily to the difference between book and tax methods of depreciating property, amortizing tax-deductible goodwill, the difference in the recognition of revenues and expenses for book and tax purposes, certain natural gas and electric costs which are deferred for book purposes but expensed currently for tax purposes, and NOL carry forwards. We have elected under Internal Revenue Code Section 46(f)(2) to defer investment tax credit benefits and amortize them against expense and customer billing rates over the book life of the underlying plant.

At December 31, 2017 we estimate our total federal NOL carryforward to be approximately $420.8 million prior to consideration of unrecognized tax benefits. If unused, our federal NOL carryforwards will expire as follows: $105.2 million in 2031; $13.3 million in 2033; $73.3 million in 2034; $174.6 million in 2036 and $54.4 million in 2037. We estimate our state NOL carryforward as of December 31, 2017 is approximately $315.7 million. If unused, our state NOL carryforwards will expire as follows: $67.0 million in 2018; $10.5 million in 2020; $58.3 million in 2021; $135.9 million in 2023 and $44.0 million in 2024. We believe it is more likely than not that sufficient taxable income will be generated to utilize these NOL carryforwards.

Uncertain Tax Positions

We recognize tax positions that meet the more-likely-than-not threshold as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. The change in unrecognized tax benefits is as follows (in thousands):

 
2017
 
2016
 
2015
Unrecognized Tax Benefits at January 1
$
88,429

 
$
92,387

 
$
95,929

Gross increases - tax positions in prior period
—

 
—

 
44

Gross decreases - tax positions in prior period
(22,973
)
 
—

 
(2,903
)
Gross increases - tax positions in current period
—

 
—

 
494

Gross decreases - tax positions in current period
(7,983
)
 
(3,958
)
 
(1,177
)
  Lapse of statute of limitations
—

 
—

 
—

Unrecognized Tax Benefits at December 31
$
57,473

 
$
88,429

 
$
92,387



The reduction in unrecognized tax benefits during the twelve months ended December 31, 2017 reflects the effect of the lower statutory rate in the Tax Cuts and Jobs Act. Our unrecognized tax benefits include approximately $47.8 million and $66.5 million related to tax positions as of December 31, 2017 and 2016, respectively that, if recognized, would impact our annual effective tax rate. We do not anticipate that total unrecognized tax benefits will significantly change due to the settlement of audits or the expiration of statutes of limitation within the next twelve months.

Our policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. During the years ended December 31, 2017 and 2016, we recognized $0.8 million and $0.7 million, respectively, of expense for interest and penalties in the Consolidated Statements of Income. As of December 31, 2017 and 2016, we had $1.5 million and $0.7 million, respectively, of interest accrued in the Consolidated Balance Sheets.

Our federal tax returns from 2000 forward remain subject to examination by the IRS.