IDACORP INC.

INCOME TAXES

A reconciliation between the statutory federal income tax rate and the effective tax rate is as follows:



	IDACORP									Idaho Power
	2017			2016			2015			2017			2016			2015
	(thousands of dollars)
Federal income tax expense at 35% statutory rate	$	91,378		$	82,151		$	84,154		$	90,163		$	79,250		$	83,724
Change in taxes resulting from:
AFUDC	(10,318		)	(11,278		)	(11,140		)	(10,318		)	(11,278		)	(11,140		)
Capitalized interest	1,513			2,000			2,693			1,513			2,000			2,693
Investment tax credits	(3,081		)	(2,922		)	(2,963		)	(3,081		)	(2,922		)	(2,963		)
Removal costs	(6,280		)	(5,559		)	(4,807		)	(6,280		)	(5,559		)	(4,807		)
Capitalized overhead costs	(11,200		)	(10,500		)	(8,750		)	(11,200		)	(10,500		)	(8,750		)
Capitalized repair costs	(28,700		)	(28,000		)	(28,700		)	(28,700		)	(28,000		)	(28,700		)
Bond redemption costs	—			(4,997		)	(6,459		)	—			(4,997		)	(6,459		)
Remeasurement of deferred taxes	1,690			—			—			1,970			—			—
State income taxes, net of federal benefit	8,153			5,071			7,343			8,108			4,880			7,503
Depreciation	18,953			18,673			17,149			18,953			18,673			17,149
Share-based compensation	(1,508		)	(1,614		)	—			(1,483		)	(1,583		)	—
Affordable housing tax credits	(2,559		)	(2,579		)	(3,258		)	—			—			—
Affordable housing investment distributions	(1,124		)	(1,717		)	—			—			—			—
Affordable housing investment amortization	1,271			1,380			1,519			—			—			—
Other, net	(9,528		)	(3,680		)	(1,021		)	(8,383		)	(2,779		)	(22		)
Total income tax expense	$	48,660		$	36,429		$	45,760		$	51,262		$	37,185		$	48,228
Effective tax rate	18.6%			15.5%			19.0%			19.9%			16.4%			20.2%

The items comprising income tax expense are as follows:



	IDACORP									Idaho Power
	2017			2016			2015			2017			2016			2015
	(thousands of dollars)
Income taxes current:
Federal	$	11,726		$	1,181		$	4,831		$	51,575		$	7,639		$	16,470
State	5,418			2,158			2,704			10,562			3,766			6,056
Total	17,144			3,339			7,535			62,137			11,405			22,526
Income taxes deferred:
Federal	24,018			33,205			34,770			(13,002		)	27,506			27,696
State	(154		)	100			626			(5,298		)	(2,031		)	(2,486		)
Total	23,864			33,305			35,396			(18,300		)	25,475			25,210
Investment tax credits:
Deferred	10,506			3,227			3,455			10,506			3,227			3,455
Restored	(3,081		)	(2,922		)	(2,963		)	(3,081		)	(2,922		)	(2,963		)
Total	7,425			305			492			7,425			305			492
Affordable housing investments	227			(520		)	2,337			—			—			—
Total income tax expense	$	48,660		$	36,429		$	45,760		$	51,262		$	37,185		$	48,228

The components of the net deferred tax liability are as follows:



	IDACORP				Idaho Power
	2017		2016		2017		2016
	(thousands of dollars)
Deferred tax assets:
Regulatory liabilities	$	98,744	$	51,326	$	98,744	$	51,326
Deferred compensation	21,066		29,490		21,025		29,424
Deferred revenue	31,086		40,354		31,086		40,354
Tax credits	109,673		142,627		44,106		33,589
Partnership investments	3,540		6,543		—		—
Retirement benefits	94,493		132,362		94,493		132,362
Other	8,636		11,401		8,435		11,069
Total	367,238		414,103		297,889		298,124
Deferred tax liabilities:
Property, plant and equipment	306,002		500,987		306,002		500,987
Regulatory assets	584,329		948,540		584,329		948,540
Power cost adjustments	—		21,077		—		21,077
Fixed cost adjustment	8,016		17,376		8,016		17,376
Partnership investments	5,182		12,371		980		5,554
Retirement benefits	103,407		140,083		103,407		140,083
Other	21,242		17,919		21,097		15,922
Total	1,028,178		1,658,353		1,023,831		1,649,539
Net deferred tax liabilities	$	660,940	$	1,244,250	$	725,942	$	1,351,415

IDACORP's tax allocation agreement provides that each member of its consolidated group compute its income taxes on a separate company basis. Amounts payable or refundable are settled through IDACORP and are reported as taxes accrued or income taxes receivable, respectively, on the consolidated balance sheets of Idaho Power. See Note 1 - "Summary of Significant Accounting Policies" for further discussion of accounting policies related to income taxes.

Tax Credit Carryforwards

As of December 31, 2017, IDACORP had $72.0 million of general business credit carryforwards for federal income tax purposes and $37.7 million of Idaho investment tax credit carryforward. The general business credit carryforward period expires from 2026 to 2037, and the Idaho investment tax credit expires from 2022 to 2031.

Uncertain Tax Positions

IDACORP and Idaho Power believe that they have no material income tax uncertainties for 2017 and prior tax years. Both companies recognize interest accrued related to unrecognized tax benefits as interest expense and penalties as other expense.

IDACORP and Idaho Power are subject to examination by their major tax jurisdictions - U.S. federal and the State of Idaho. The open tax years for examination are 2017 for federal and 2013-2017 for Idaho. In May 2009, IDACORP formally entered the U.S. Internal Revenue Service (IRS) Compliance Assurance Process (CAP) program for its 2009 tax year and has remained in the CAP program for all subsequent years. The CAP program provides for IRS examination and issue resolution throughout the current year with the objective of return filings containing no contested items. In 2017, the IRS completed its examination of IDACORP's 2016 tax year with no unresolved income tax issues.

Tax Cuts and Jobs Act

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law, which significantly reforms the Internal Revenue Code of 1986, as amended. Effective January 1, 2018, the Tax Cuts and Jobs Act permanently lowers the corporate tax rate to 21 percent from the existing maximum rate of 35 percent, provides for expanded bonus depreciation, limits the deductibility of interest expense, eliminates alternative minimum tax, repeals the manufacturing deduction, and imposes additional limitations on the deductibility of executive compensation. Public utility companies, such as Idaho Power, retain the full deductibility of interest expense and are excluded from the bonus depreciation provisions; however, traditional accelerated tax depreciation methods are still available.

Due to the enactment of the Tax Cuts and Jobs Act and following generally accepted accounting principles, at December 31, 2017, IDACORP and Idaho Power remeasured all deferred income tax assets and liabilities. The effects of these adjustments resulted in a net tax expense as shown in the rate reconciliation table above. Additionally, as shown in the deferred income tax table above, the net deferred tax liabilities at both companies decreased significantly. Idaho Power's regulatory asset deferred income tax liability item decreased as the related regulatory asset was reduced in two primary ways: 1) the decrease in the federal income tax rate decreased the future cost to customers for funding the net deferred income tax liabilities resulting from the cumulative impacts of using the flow-through income tax accounting method for regulatory purposes and 2) the decrease in the federal income tax rate also reduced the net-to-gross multiplier that increases the regulatory asset to a revenue requirement carrying value. The change in income tax law also reduced the deferred income tax liability for depreciation-related timing differences under the normalized tax accounting method. As this reduction will flow back to customers in the future under the statutorily prescribed average rate assumption method, it was recorded as a regulatory liability on the consolidated balance sheets of the companies. See Note 3 - "Regulatory Matters" for more information.

The 2017 consolidated financial statements reflect the implementation of federal income tax reform as enacted and current regulatory policies. Additional adjustments may be required in future periods based upon technical corrections to the federal law, changes to state income tax policies, additional technical guidance from tax authorities, or orders from Idaho Power's regulators.