Income Taxes

12 Months Ended

Dec. 31, 2019

Income Taxes

The components of income before income taxes from continuing operations for each of the years ended December 31 were as follows:



	2019			2018			2017
	(In thousands)
United States	$	398,532		$	317,655		$	350,064
Foreign	(87		)	(784		)	(37		)
Income before income taxes from continuing operations	$	398,445		$	316,871		$	350,027

Income tax expense (benefit) from continuing operations for the years ended December 31 was as follows:



	2019			2018			2017
	(In thousands)
Current:
Federal	$	(3,502	)	$	(15,901	)	$	74,272
State	3,366			3,651			16,192
	(136		)	(12,250		)	90,464
Deferred:
Income taxes:
Federal	50,218			50,755			(24,497		)
State	12,098			7,206			(864		)
Investment tax credit - net	1,099			1,774			(62		)
	63,415			59,735			(25,423		)
Total income tax expense	$	63,279		$	47,485		$	65,041

In accordance with the accounting guidance on accounting for income taxes, the tax effects of the change in tax laws or rates are to be recorded in the period of enactment. The TCJA was enacted on December 22, 2017, as discussed in Note 1. Therefore, the reduction in the corporate tax rate from 35 percent to 21 percent required the Company to prepare a one-time revaluation of the Company's deferred tax assets and liabilities in the fourth quarter of 2017, the period of enactment. The deferred taxes were revalued at the new tax rate because deferred taxes should reflect what the Company expects to pay or receive in future periods under the applicable tax rate. As a result of the revaluation, the Company reduced the value of these assets and liabilities and recorded a tax benefit from continuing operations of $39.5 million on the Consolidated Statements of Income for the year ended December 31, 2017. Included in the tax benefit from continuing operations was income tax expense of $7.7 million related to amounts in accumulated other comprehensive loss and $1.0 million related to the Company's assets held for sale.

The Company's regulated operations prepared a one-time revaluation of the Company's regulatory deferred tax assets and liabilities in the fourth quarter of 2017 related to the enactment of the TCJA. The revaluation was deferred under regulatory accounting as the Company worked with the various regulators to determine the amount and timing of amounts to be returned to customers. In the third quarter of 2018, the Company reversed a regulatory liability recorded in 2017 based on a FERC final accounting order being issued, which resulted in a $4.2 million tax benefit.

The changes included in the TCJA were broad and complex. The SEC issued rules that allowed for a measurement period of up to one year after the enactment date of the TCJA to finalize the recording of the related tax impacts. The Company reviewed the impacts of the TCJA and completed its assessment of the transitional impacts during the period ending December 31, 2018, of which there were no such material adjustments.

Components of deferred tax assets and deferred tax liabilities at December 31 were as follows:



	2019		2018
	(In thousands)
Deferred tax assets:
Postretirement	$	51,075	$	51,930
Compensation-related	37,330		29,885
Operating lease liabilities	24,459		—
Asset retirement obligations	7,450		7,083
Customer advances	7,325		7,734
Legal and environmental contingencies	6,601		6,729
Federal renewable energy credit	5,343		8,015
Alternative minimum tax credit carryforward	—		13,404
Other	32,533		37,347
Total deferred tax assets	172,116		162,127
Deferred tax liabilities:
Depreciation and basis differences on property, plant and equipment	511,867		476,832
Postretirement	48,927		44,432
Operating lease right-of-use-assets	24,436		—
Intangible asset amortization	18,930		17,752
Other	61,385		39,712
Total deferred tax liabilities	665,545		578,728
Valuation allowance	13,154		13,484
Net deferred income tax liability	$	506,583	$	430,085

As of December 31, 2019 and 2018, the Company had various state income tax net operating loss carryforwards of $149.8 million and $153.2 million, respectively, and federal and state income tax credit carryforwards, excluding alternative minimum tax credit carryforwards, of $43.7 million and $43.5 million, respectively. Included in the state credits are various regulatory investment tax credits of approximately $37.4 million and $32.2 million at December 31, 2019 and 2018, respectively. The federal income tax credit carryforwards expire in 2040 if not utilized and state income tax credit carryforwards are due to expire between 2020 and 2033. Changes in tax regulations or assumptions regarding current and future taxable income could require additional valuation allowances in the future.

The following table reconciles the change in the net deferred income tax liability from December 31, 2018, to December 31, 2019, to deferred income tax expense:



	2019
(In thousands)
Change in net deferred income tax liability from the preceding table	$	76,498
Deferred taxes associated with other comprehensive loss	1,631
Deferred taxes associated with TCJA enactment for regulated activities	(11,904		)
Other	(2,810		)
Deferred income tax expense for the period	$	63,415

Total income tax expense differs from the amount computed by applying the statutory federal income tax rate to income before taxes. The reasons for this difference were as follows:



Years ended December 31,	2019					2018					2017
	Amount			%		Amount			%		Amount			%
	(Dollars in thousands)
Computed tax at federal statutory rate	$	83,674		21.0		$	66,543		21.0		$	122,509		35.0
Increases (reductions) resulting from:
State income taxes, net of federal income tax	14,029			3.5		12,190			3.8		10,724			3.1
Federal renewable energy credit	(15,843		)	(4.0	)	(11,759		)	(3.7	)	(13,958		)	(4.0	)
Tax compliance and uncertain tax positions	(2,739		)	(.7	)	(2,725		)	(.9	)	(643		)	(.2	)
Domestic production deduction	—			—		—			—		(6,849		)	(2.0	)
Excess deferred income tax amortization	(11,904		)	(3.0	)	(9,319		)	(2.9	)	(397		)	—
TCJA revaluation	—			—		(5,947		)	(1.9	)	(47,242		)	(13.5	)
TCJA revaluation related to accumulated other comprehensive loss balance	—			—		(42		)	—		7,735			2.2
Other	(3,938		)	(.9	)	(1,456		)	(.4	)	(6,838		)	(2.0	)
Total income tax expense	$	63,279		15.9		$	47,485		15.0		$	65,041		18.6

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state, local and foreign jurisdictions. The Company is no longer subject to U.S. federal or non-U.S. income tax examinations by tax authorities for years ending prior to 2015. With few exceptions, as of December 31, 2019, the Company is no longer subject to state and local income tax examinations by tax authorities for years ending prior to 2015.

For the years ended December 31, 2019, 2018 and 2017, total reserves for uncertain tax positions were not material. The Company recognizes interest and penalties accrued relative to unrecognized tax benefits in income tax expense.