Income Taxes

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

Income Taxes

Note 3 – Income Taxes

Income tax expense differs from the amount computed by applying the statutory rate on book income subject to tax for the following reasons:

	(Thousands of Dollars)
	Years Ended December 31,
	2016			2015			2014
Income Tax at Statutory Rate	$	12,007		$	10,703		$	9,786
Tax Effect of:
Utility Plant Related		(1,059	)		(920	)		(572	)
State Income Taxes – Net		770			745			711
Employee Benefits		(5	)		7			(6	)
Other		22			16			18
Total Income Tax Expense	$	11,735		$	10,551		$	9,937

Income tax expense is comprised of the following:

	(Thousands of Dollars)
	Years Ended December 31,
	2016			2015			2014
Current:
Federal	$	7,305		$	(15,203	)	$	5,920
State		877			1,153			887
Deferred:
Federal		3,325			24,686			3,018
State		307			(6	)		191
Investment Tax Credits		(79	)		(79	)		(79	)
Total Income Tax Expense	$	11,735		$	10,551		$	9,937

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax purposes. The components of the net deferred tax liability are as follows:

	(Thousands of Dollars)
	December 31,
	2016			2015
Utility Plant Related	$	69,019		$	63,281
Customer Advances		(3,430	)		(3,510	)
Employee Benefits		6,904			5,796
Investment Tax Credits (ITC)		753			832
Net Operating Loss Carryforwards		—			2,311
Other		(421	)		(176	)
Total Deferred Tax Liability and ITC	$	72,825		$	68,534

As part of its 2014 Federal income tax return, the Company adopted the final IRS regulations pertaining to the tax deductibility of costs that qualify as repairs on tangible property. The adoption resulted in a net reduction of $17.6 million in taxes previously remitted to the IRS, for which the Company has already sought and received refunds pertaining to tax years 2012 through 2014 in accordance with IRS regulations. Subsequently, the Company’s 2014 federal income tax return was selected for examination by the IRS. Concurrently with the IRS examination, the Company agreed to extend the statutory review period for its 2012 tax year. It is unknown at this time whether the results of this examination will result in any changes to the filed 2014 tax return. While the Company believes that its treatment of qualifying tangible property repair costs is proper, its deductibility could be challenged as part of the current examination by the IRS. Therefore, the Company has recorded a provision against refundable taxes of $2.3 million.

It is probable that any net tax benefits that resulted from adopting the regulations will be considered in determining the revenue requirement used to set base rates for the Company in a future regulatory proceeding. Consequently, adoption of the new regulations did not and will not have a significant impact on the Company’s financial statements or effective tax rate.

The statutory review periods for income tax returns for the years prior to 2012 have been closed. In the event that there are interest and penalties associated with income tax adjustments in the current examination and future examinations, these amounts will be reported under interest expense and other expense, respectively. Other than the effects of the provision against refundable taxes discussed above, there are no unrecognized tax benefits resulting from prior period tax positions.