INCOME TAXES

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the TCJA. The TCJA reduced the U.S. federal corporate tax rate from 35% to 21%. As such, the Company has remeasured the deferred income taxes at the 21% federal tax rate as of December 31, 2017. As a result of the revaluation at December 31, 2017, deferred tax assets and liabilities were reduced by approximately $103 million. Of the $103 million, approximately $97 million was reclassified to a regulatory liability. As of December 31, 2018 we have a regulatory liability associated with TCJA related items of $100 million. A significant portion of the excess deferred taxes are subject to the average rate assumption method, as prescribed by the IRS, and will generally be amortized as a reduction of customer rates over the remaining lives of the related assets. As of December 31, 2018, the Company has amortized $0.9 million of this regulatory liability. The portion that was eligible for amortization under the average rate assumption method in 2018, but is awaiting resolution of the treatment of these amounts in future regulatory proceedings, has not been recognized and may be refunded in customer rates at any time in accordance with the resolution of pending or future regulatory proceedings.

Income tax expense for the years ended December 31 was as follows (in thousands):



	2018			2017		2016
Current:
Federal	$	5,454		$	13,124	$	1,838

Deferred:
Federal	5,958			1,004		20,690
Excess deferred tax amortization	(740		)	—		—
	$	5,218		$	1,004	$	20,690

Total income tax expense	$	10,672		$	14,128	$	22,528

The temporary differences, which gave rise to the net deferred tax liability, for the years ended December 31 were as follows (in thousands):



	2018			2017
Deferred tax assets:
Employee benefits	$	2,404		$	3,012
Regulatory liabilities	25,587			24,984
Other	2,317			1,678
Total deferred tax assets	30,308			29,674

Deferred tax liabilities:
Accelerated depreciation and other plant related differences	(125,594		)	(122,002		)
Regulatory assets	(7,147		)	(7,008		)
Employee benefits	(2,719		)	(2,595		)
Deferred costs	(8,572		)	(8,447		)
Other	(285		)	(240		)
Total deferred tax liabilities	(144,317		)	(140,292		)

Net deferred tax liability	$	(114,009	)	$	(110,618	)

The effective tax rate differs from the federal statutory rate for the years ended December 31, as follows:



	2018	2017	2016
Federal statutory rate	21.0%	35.0%	35.0%
Amortization of excess deferred and investment tax credits	(1.3)	(0.1)	(0.4)
AFUDC Equity	0.1	(1.0)	(0.9)
Flow-through adjustments ^(a)	(1.7)	(1.8)	(0.9)
Tax credits	—	—	(0.1)
TCJA corporate rate reduction ^(b)	2.5	(9.2)	—
Other	(1.7)	(1.3)	0.6
	18.9%	21.6%	33.3%

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(a)	Flow-through adjustments related primarily to an accounting method change for tax purposes that allows us to take a current tax deduction for repair costs. We recorded a deferred income tax liability in recognition of the temporary difference created between book and tax treatment and we flowed the tax benefit through to tax expense.

(b)

On December 22, 2017, the TCJA was signed into law reducing the federal corporate rate from 35% to 21%, effective January 1, 2018. The 2017 effective tax rate reduction reflects the revaluation of deferred income taxes required by the change. During the year ended December 31, 2018, we recorded approximately $0.9 million of additional tax expense associated with changes in the prior estimated impacts of TCJA related items.

The following table reconciles the total amounts of unrecognized tax benefits, without interest, included in Other deferred credits and other liabilities on the accompanying Balance Sheet (in thousands):



	2018			2017
Unrecognized tax benefits at January 1	$	302		$	493
Additions for current year tax positions	—			13
Additions for prior year tax positions	2			—
Reductions for prior year tax positions	(55		)	(204		)
Unrecognized tax benefits at December 31	$	249		$	302

The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is not material to the financial results of the Company.

It is the Company’s continuing practice to recognize interest and/or penalties related to income tax matters in income tax expense. During the years ended December 31, 2018 and 2017, the interest expense recognized was not material to the financial results of the Company.

We do not anticipate that total unrecognized tax benefits will significantly change due to the settlement of any audits or the expiration of statutes of limitations on or before December 31, 2019.

We file income tax returns in the United States federal jurisdictions as a member of the BHC consolidated group.