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Income Taxes
 3 Months Ended
Mar. 31, 2020
Income Taxes INCOME TAXES

The disclosures in this note apply to all Registrants unless indicated otherwise.

Federal Legislation

In March 2020, the "Coronavirus Aid, Relief, and Economic Security Act" (CARES Act) was signed into law.  The CARES Act includes several significant changes to the Internal Revenue Code that will have an impact on the Registrants.  The CARES Act includes certain tax relief provisions applicable to the Registrants including a) the immediate refund of the corporate Alternative Minimum Tax credit, b) the ability to carryback net operating losses five years for tax years 2018 through 2020 and c) delayed payment of employer payroll taxes.  As of March 31, 2020, AEP, OPCo and APCo have a $20 million, $9 million and $7 million AMT credit refund recorded, respectively, in anticipation of a refund from the U.S. Treasury.  AEP was most recently a taxpayer in 2014 and management is currently evaluating the ability to recover cash taxes paid in 2014 under the 5-year net operating loss carryback provision.

Effective Tax Rates (ETR)

The Registrants’ interim ETR reflect the estimated annual ETR for 2020 and 2019, adjusted for tax expense associated with certain discrete items. The interim ETR differ from the federal statutory tax rate of 21% primarily due to amortization of Excess ADIT, tax credits and other book/tax differences which are accounted for on a flow-through basis.

The Registrants include the amortization of Excess ADIT not subject to normalization requirements in the annual estimated ETR when regulatory proceedings instruct the Registrants to provide the benefits of Tax Reform to customers over multiple interim periods.  Certain regulatory proceedings instruct the Registrants to provide the benefits of Tax Reform to customers in a single period (e.g. by applying the Excess ADIT not subject to normalization requirements against an existing regulatory asset balance) and in these circumstances, the Registrants recognize the tax benefit discretely in the period recorded. The annual amount of Excess ADIT approved by the Registrant’s regulatory commissions may not impact the ETR ratably during each interim period due to the variability of pretax book income between interim periods and the application of an annual estimated ETR.

The ETR for each of the Registrants are included in the following tables:
 
 
Three Months Ended March 31, 2020
 
 
AEP
 
AEP Texas
 
AEPTCo
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
U.S. Federal Statutory Rate
 
21.0
 %
 
21.0
 %
 
21.0
 %
 
21.0
 %
 
21.0
 %
 
21.0
 %
 
21.0
 %
 
21.0
 %
Increase (decrease) due to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
State Income Tax, net of Federal benefit
 
2.5
 %
 
1.5
 %
 
2.9
 %
 
3.0
 %
 
3.2
 %
 
0.7
 %
 
4.6
 %
 
2.7
 %
Tax Reform Excess ADIT Reversal
 
(9.4
)%
 
(6.2
)%
 
0.4
 %
 
(13.0
)%
 
(19.6
)%
 
(10.2
)%
 
(23.1
)%
 
(94.7
)%
Production and Investment Tax Credits
 
(4.3
)%
 
(0.4
)%
 
—
 %
 
—
 %
 
(1.9
)%
 
—
 %
 
(1.3
)%
 
(0.5
)%
Flow Through
 
0.5
 %
 
0.1
 %
 
0.5
 %
 
1.5
 %
 
0.2
 %
 
1.0
 %
 
0.6
 %
 
(1.0
)%
AFUDC Equity
 
(1.4
)%
 
(2.6
)%
 
(2.6
)%
 
(1.0
)%
 
(1.1
)%
 
(1.0
)%
 
(0.7
)%
 
(0.4
)%
Parent Company Loss Benefit
 
—
 %
 
(0.2
)%
 
(0.9
)%
 
(3.3
)%
 
(3.9
)%
 
(0.1
)%
 
(2.2
)%
 
(2.4
)%
Discrete Tax Adjustments
 
—
 %
 
—
 %
 
—
 %
 
—
 %
 
2.7
 %
 
—
 %
 
—
 %
 
—
 %
Other
 
(0.4
)%
 
0.3
 %
 
—
 %
 
0.1
 %
 
(0.2
)%
 
—
 %
 
0.1
 %
 
7.2
 %
Effective Income Tax Rate
 
8.5
 %
 
13.5
 %
 
21.3
 %
 
8.3
 %
 
0.4
 %
 
11.4
 %
 
(1.0
)%
 
(68.1
)%


 
 
Three Months Ended March 31, 2019
 
 
AEP
 
AEP Texas
 
AEPTCo
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
U.S. Federal Statutory Rate
 
21.0
 %
 
21.0
 %
 
21.0
 %
 
21.0
 %
 
21.0
 %
 
21.0
 %
 
21.0
 %
 
21.0
 %
Increase (decrease) due to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
State Income Tax, net of Federal benefit
 
2.1
 %
 
1.5
 %
 
2.9
 %
 
3.4
 %
 
2.0
 %
 
0.9
 %
 
4.6
 %
 
0.2
 %
Tax Reform Excess ADIT Reversal
 
(13.6
)%
 
(7.6
)%
 
0.4
 %
 
(42.2
)%
 
(17.4
)%
 
(7.6
)%
 
(21.9
)%
 
(17.0
)%
Production and Investment Tax Credits
 
(2.2
)%
 
(1.0
)%
 
—
 %
 
—
 %
 
(2.0
)%
 
—
 %
 
(1.7
)%
 
(0.8
)%
Flow Through
 
(0.2
)%
 
0.3
 %
 
0.2
 %
 
(0.9
)%
 
(2.4
)%
 
0.7
 %
 
0.6
 %
 
(0.9
)%
AFUDC Equity
 
(1.4
)%
 
(1.6
)%
 
(2.5
)%
 
(1.0
)%
 
(1.9
)%
 
(0.7
)%
 
(0.4
)%
 
(1.1
)%
Parent Company Loss
 
—
 %
 
(2.3
)%
 
(1.0
)%
 
(2.4
)%
 
(1.8
)%
 
(1.1
)%
 
(1.8
)%
 
(0.5
)%
Discrete Tax Adjustments
 
1.7
 %
 
—
 %
 
—
 %
 
0.4
 %
 
—
 %
 
—
 %
 
—
 %
 
—
 %
Other
 
(0.2
)%
 
0.1
 %
 
(0.1
)%
 
(0.3
)%
 
(0.3
)%
 
0.2
 %
 
0.2
 %
 
1.5
 %
Effective Income Tax Rate
 
7.2
 %
 
10.4
 %
 
20.9
 %
 
(22.0
)%
 
(2.8
)%
 
13.4
 %
 
0.6
 %
 
2.4
 %


Federal and State Income Tax Audit Status

AEP and subsidiaries are no longer subject to U.S. federal examination by the IRS for all years through 2015. During the third quarter of 2019, AEP and subsidiaries elected to amend the 2014 and 2015 federal returns and as such the IRS may examine only the amended items on the 2014 and 2015 federal returns.