Income Taxes

12 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

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

	Year Ended September 30
	2021		2020		2019
	(Thousands)
Current Income Taxes —
Federal	$	(10)	$	(42,548)	$	(41,645)
State	8,699		6,974		4,601
Deferred Income Taxes —
Federal	90,970		4,538		98,514
State	15,023		49,775		23,751
Total Income Taxes	$	114,682	$	18,739	$	85,221

On December 22, 2017, federal tax legislation referred to as the “Tax Cuts and Jobs Act” (the 2017 Tax Reform Act) was enacted. The 2017 Tax Reform Act repealed the corporate alternative minimum tax (AMT) and provides that the Company’s existing AMT credit carryovers are refundable, if not utilized to reduce tax, beginning in fiscal 2019. As of September 30, 2018, the Company had $85.0 million of AMT credit carryovers. The Company received the first installment for $42.5 million of AMT credit refunds related to fiscal 2019 in January 2020. On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security (CARES) Act” was signed into law. The CARES Act, among other things, includes provisions relating to AMT credit refunds discussed above, refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, and modifications to the net interest deduction limitation. The Company filed for the acceleration of the remaining AMT credit refunds (under CARES) of $42.5 million, which were received in June 2020.

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

	Year Ended September 30
	2021		2020		2019
	(Thousands)
U.S. Income (Loss) Before Income Taxes(1)	$	478,327	$	(105,046)	$	389,420
Income Tax Expense (Benefit), Computed at U.S. Federal Statutory Rate of 21%	$	100,449	$	(22,060)	$	81,778
State Valuation Allowance(2)	(5,560)		63,205		—
State Income Taxes (Benefit)(3)	24,300		(18,374)		22,397
Amortization of Excess Deferred Federal Income Taxes(4)	(5,215)		(4,749)		(3,185)
Plant Flow Through Items	(1,503)		(2,848)		(1,544)
Stock Compensation	2,239		3,867		(1,491)
Federal Tax Credits	(310)		(217)		(7,361)
Impact of 2017 Tax Reform Act(5)	—		—		(5,000)
Miscellaneous	282		(85)		(373)
Total Income Taxes	$	114,682	$	18,739	$	85,221

(1)Amounts include the impact of deferred investment tax credits reported in Other Income (Deductions) on the Consolidated Statements of Income.

(2)During fiscal 2020, a valuation allowance was recorded against certain state deferred tax assets, as discussed below.

(3)The state income tax expense (benefit) shown above includes adjustments to the estimated state effective tax rates utilized in the calculation of deferred income taxes and the impact of state enhanced oil recovery tax credits.

(4)Represents amortization of net excess deferred federal income taxes under the 2017 Tax Reform Act.

(5)The $5.0 million benefit in fiscal 2019 represents the reversal of the estimated sequestration of AMT credit refunds.

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

	At September 30
	2021		2020
	(Thousands)
Deferred Tax Liabilities:
Property, Plant and Equipment	$	920,692	$	874,607
Pension and Other Post-Retirement Benefit Costs	23,240		54,066
Other	35,081		23,377
Total Deferred Tax Liabilities	979,013		952,050
Deferred Tax Assets:
OCI Hedging	(170,155)		(9,546)
Tax Loss and Credit Carryforwards	(120,725)		(179,363)
Pension and Other Post-Retirement Benefit Costs	(53,765)		(95,599)
Other	(31,593)		(34,693)
Total Gross Deferred Tax Assets	(376,238)		(319,201)
Valuation Allowance	57,645		63,205
Total Deferred Tax Assets	(318,593)		(255,996)
Total Net Deferred Income Taxes	$	660,420	$	696,054

The following is a summary of changes in valuation allowances for deferred tax assets:

	Year Ended September 30
	2021		2020		2019
	(Thousands)
Balance at Beginning of Year	$	63,205	$	—	$	5,000
Additions	—		63,205		—
Deductions	5,560		—		5,000
Balance at End of Year	$	57,645	$	63,205	$	—

A valuation allowance for deferred tax assets, including net operating losses and tax credits, is recognized when it is more likely than not that some or all of the benefit from the deferred tax assets will not be realized. The Company continually assesses the realizability of its deferred tax assets, including factors such as future taxable income, reversal of existing temporary differences, and tax planning strategies. The Company considers both positive and negative evidence related to the likelihood of the realization of the deferred tax assets. During fiscal 2019, there was a $5.0 million benefit recorded to reverse the valuation allowance established at September 30, 2018 related to the potential sequestration of estimated alternative minimum tax credit refunds as

a result of the 2017 Tax Reform Act. As of September 30, 2020, the Company recorded a valuation allowance against certain state deferred tax assets in the amount of $63.2 million based on its conclusion, considering all available objective evidence and the Company’s history of subsidiary state tax losses, that it was more likely than not that the deferred tax assets would not be realized. The valuation allowance decreased to $57.6 million as of September 30, 2021 as a result of certain state net operating loss and tax credit activity. Changes in judgment regarding future realization of these deferred tax assets may result in a reversal of all or a portion of the valuation allowance. The Company will continue to re-assess this position each quarter.

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 $354.1 million and $357.5 million at September 30, 2021 and 2020, 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 $122.0 million and $118.3 million at September 30, 2021 and 2020, respectively.

The Company is in the Bridge Phase of the IRS Compliance Assurance Process (“CAP”) for fiscal 2021. The Bridge Phase is intended for taxpayers with a low risk of non-compliance who are cooperative and transparent with few, if any, material issues that require resolution. The IRS will not accept any disclosures, conduct any reviews or provide any letters of assurance for the Bridge year. The federal statute of limitations remains open for fiscal 2018 and later years. 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. Net operating losses being carried forward from prior years remain subject to examination on a future return until they are utilized, upon which time the statute of limitation begins. The Company has no unrecognized tax benefits as of September 30, 2021, 2020, or 2019.

During fiscal 2009, preliminary 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, subject to final guidance. The Company is awaiting the issuance of IRS guidance addressing the issue for natural gas utilities.

Tax carryforwards available, prior to valuation allowance, at September 30, 2021, were as follows:

Jurisdiction	Tax Attribute	Amount (Thousands)		Expires
Federal Pre-Fiscal 2019	Net Operating Loss	$	55,832	2033-2038
Federal Post-Fiscal 2018	Net Operating Loss	83,356		Unlimited
Pennsylvania	Net Operating Loss	385,093		2030-2041
California	Net Operating Loss	201,997		2030-2039
Federal	Enhanced Oil Recovery Credit	26,790		2029-2039
California	Enhanced Oil Recovery Credit	7,903		2031-2039
California	Alternative Minimum Tax Credit	8,737		Unlimited
Federal	R&D Tax Credit	6,919		2031-2041