Note 5. Income Taxes

For continuing operations, including noncontrolling interests, the statutory U.S. federal income tax rate reconciles to the Companies' effective income tax rate as follows:

	Dominion Energy						Virginia Power						Dominion Energy Gas
Three Months Ended March 31,	2018			2017			2018			2017			2018			2017
U.S. statutory rate		21.0	%		35.0	%		21.0	%		35.0	%		21.0	%		35.0	%
Increases (reductions) resulting from:
State taxes, net of federal benefit		4.1			2.8			4.5			3.8			4.3			0.3
Investment tax credits		(0.5	)		(4.2	)		(0.9	)		(0.8	)		—			—
Production tax credits		(0.6	)		(0.8	)		(0.7	)		(0.6	)		—			—
Reversal of excess deferred income taxes		(1.4	)		—			(2.0	)		—			(1.0	)		—
Other, net		(2.1	)		(3.8	)		(0.3	)		(0.6	)		(0.4	)		(0.6	)
Effective tax rate		20.5	%		29.0	%		21.6	%		36.8	%		23.9	%		34.7	%

The 2017 Tax Reform Act reduced the statutory federal income tax rate to 21% beginning in January 2018. Accordingly, current income taxes, and deferred income taxes that originate in 2018, are being recorded at the new 21% rate. For the Companies’ rate-regulated entities, deferred taxes will reverse at the weighted average rate used to originate the deferred tax liability, which in some cases will be 35%. For the three months ended March 31, 2018, the Companies have recorded an estimate of the portion of excess deferred income tax amortization expected to occur in 2018. The reversal of these excess deferred income taxes will impact the effective tax rate, and may ultimately impact rates charged to customers. As described in Note 13 to the Consolidated Financial Statements, the Companies decreased revenue and increased regulatory liabilities to offset these deferred tax impacts in accordance with applicable regulatory commission orders or formula rate mechanisms.

Beginning in 2018, the 2017 Tax Reform Act limits the deductibility of interest expense to 30% of adjusted taxable income for certain businesses, with any disallowed interest carried forward indefinitely. Subject to additional guidance in yet to be issued regulations, the Companies expect interest expense to be deductible in 2018.

The Companies continue to evaluate the changes in accelerated depreciation for income tax purposes and state conformity to the provisions of the 2017 Tax Reform Act. As of March 31, 2018, there have been no changes to the provisional amounts recorded at December 31, 2017. See Note 5 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2017 for a discussion of the impacts of the 2017 Tax Reform Act.