Income Taxes

The components of federal and state income taxes included in the Consolidated Statements of Income are as follows:



	Year Ended September 30
	2017			2016			2015
	(Thousands)
Current Income Taxes —
Federal	$	32,034		$	(6,658	)	$	25,064
State	10,673			20,903			13,387
Deferred Income Taxes —
Federal	103,046			(164,818		)	(244,336		)
State	14,929			(81,976		)	(113,251		)
	160,682			(232,549		)	(319,136		)
Deferred Investment Tax Credit	(173		)	(348		)	(414		)
Total Income Taxes	$	160,509		$	(232,897	)	$	(319,550	)
Presented as Follows:
Other Income	$	(173	)	$	(348	)	$	(414	)
Income Tax Expense (Benefit)	160,682			(232,549		)	(319,136		)
Total Income Taxes	$	160,509		$	(232,897	)	$	(319,550	)

Total income taxes as reported differ from the amounts that were computed by applying the federal income tax rate to income (loss) before income taxes. The following is a reconciliation of this difference:



	Year Ended September 30
	2017			2016			2015
	(Thousands)
U.S. Income (Loss) Before Income Taxes	$	443,991		$	(523,855	)	$	(698,977	)
Income Tax Expense (Benefit), Computed at U.S. Federal Statutory Rate of 35%	$	155,397		$	(183,349	)	$	(244,642	)
State Income Taxes (Benefit)	16,641			(39,697		)	(64,912		)
Federal Tax Credits	(6,679		)	(3,262		)	(732		)
Miscellaneous	(4,850		)	(6,589		)	(9,264		)
Total Income Taxes	$	160,509		$	(232,897	)	$	(319,550	)

The 2017 state income taxes (benefit) shown above includes income tax benefits related to state enhanced oil recovery tax credits and a decrease in the estimated state effective tax rates utilized in the calculation of deferred income taxes.

Significant components of the Company’s deferred tax liabilities and assets were as follows:



	At September 30
	2017			2016
	(Thousands)
Deferred Tax Liabilities:
Property, Plant and Equipment	$	1,141,432		$	1,049,100
Pension and Other Post-Retirement Benefit Costs	79,516			151,903
Unrealized Hedging Gains	19,127			50,179
Other	57,919			55,457
Total Deferred Tax Liabilities	1,297,994			1,306,639
Deferred Tax Assets:
Pension and Other Post-Retirement Benefit Costs	(123,532		)	(195,829		)
Tax Loss and Credit Carryforwards	(200,344		)	(194,875		)
Other	(82,831		)	(92,140		)
Total Deferred Tax Assets	(406,707		)	(482,844		)
Total Net Deferred Income Taxes	$	891,287		$	823,795

As explained in Note A - Summary of Significant Accounting Policies under the heading "New Authoritative Accounting and Financial Reporting Guidance," the Company adopted authoritative guidance issued by the FASB simplifying several aspects of the accounting for stock-based compensation effective as of October 1, 2016. Under this guidance, the Company recognizes excess tax benefits as incurred. As of September 30, 2016, the table of deferred tax liabilities and assets shown above does not include deferred tax assets of $31.9 million that arose directly from excess tax benefits related to stock-based compensation in prior periods. This amount was recognized as a cumulative effect adjustment, increasing retained earnings at October 1, 2016.

Regulatory liabilities representing the reduction of previously recorded deferred income taxes associated with rate-regulated activities that are expected to be refundable to customers amounted to $95.7 million and $93.3 million at September 30, 2017 and 2016, respectively. Also, regulatory assets representing future amounts collectible from customers, corresponding to additional deferred income taxes not previously recorded because of ratemaking practices, amounted to $181.4 million and $177.3 million at September 30, 2017 and 2016, respectively. Included in the above are regulatory liabilities and assets relating to the tax accounting method change noted below. The amounts are as follows: regulatory liabilities of $52.6 million as of September 30, 2017 and 2016 and regulatory assets of $99.4 million and $94.2 million as of September 30, 2017 and 2016, respectively.

The following is a reconciliation of the change in unrecognized tax benefits:



	Year Ended September 30
	2017			2016			2015
	(Thousands)
Balance at Beginning of Year	$	396		$	5,085		$	3,147
Additions for Tax Positions of Prior Years	1,251			396			2,504
Reductions for Tax Positions of Prior Years	(396		)	(1,314		)	(566		)
Reductions Related to Settlements with Taxing Authorities	—			(3,771		)	—
Balance at End of Year	$	1,251		$	396		$	5,085

As a result of certain examinations in progress (discussed below), the Company anticipates the balance of unrecognized tax benefits could be reduced during the next 12 months. As of September 30, 2017, the entire balance of unrecognized tax benefits would favorably impact the effective tax rate, if recognized.

The IRS is currently conducting examinations of the Company for fiscal 2017 in accordance with the Compliance Assurance Process (“CAP”). The CAP audit employs a real time review of the Company’s books and tax records by the IRS that is intended to permit issue resolution prior to the filing of the tax return. The federal statute of limitations remains open for fiscal 2009 and later years. During fiscal 2009, consent was received from the IRS National Office approving the Company’s application to change its tax method of accounting for certain capitalized costs relating to its utility property. While local IRS examiners issued no-change reports for fiscal 2009 through 2016, the IRS has reserved the right to re-examine these years, pending the anticipated issuance of IRS guidance addressing the issue for natural gas utilities.

The Company is also subject to various routine state income tax examinations. The Company’s principal subsidiaries operate mainly in four states which have statutes of limitations that generally expire between three to four years from the date of filing of the income tax return.

As of September 30, 2017, the Company has the following carryforwards available:



Jurisdiction	Tax Attribute	Amount (Thousands)		Expires
Federal	Net Operating Loss	$	184,289	2028-2033
Pennsylvania	Net Operating Loss	324,572		2030-2035
California	Net Operating Loss	169,723		2029-2035
Federal	Alternative Minimum Tax Credit	81,683		Unlimited
California	Alternative Minimum Tax Credit	5,873		Unlimited
Federal	Enhanced Oil Recovery Credit	10,502		2029-2037
California	Enhanced Oil Recovery Credit	5,061		2021-2037
Federal	R&D Tax Credit	5,694		2031-2036

Approximately $1.8 million of the federal Net Operating Loss carryforward is subject to certain annual limitations.

Subsequent to year-end, federal tax reform legislation was introduced which could have a material effect on the Company if enacted into law.