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Income Tax
 9 Months Ended
Sep. 30, 2019
Income Tax Disclosure [Abstract]  
Income Tax INCOME TAX

An estimate of annual income tax expense is made each interim period using estimates for annual pre-tax income, regulatory flow-through adjustments, tax credits, and other items. The estimated annual effective tax rate is applied to year-to-date, pre-tax income to determine income tax expense for the interim period consistent with the annual estimate. Discrete events are recorded in the interim period in which they occur or become known.

The effective income tax rate varied from the combined federal and state statutory tax rates due to the following:
 
 
Three Months Ended September 30,
 
 
NW Holdings
 
NW Natural
In thousands
 
2019
 
2018
 
2019

2018
Income taxes at statutory rates (federal and state)
 
$
(6,507
)
 
$
(4,136
)
 
$
(6,177
)
 
$
(4,183
)
Increase (decrease):
 
 
 
 
 
 
 
 

Differences required to be flowed-through by regulatory commissions
 
2,090

 
(266
)
 
2,090

 
(266
)
Other, net
 
74

 
117

 
74

 
116

Total provision for income taxes on continuing operations
 
$
(4,343
)
 
$
(4,285
)
 
$
(4,013
)
 
$
(4,333
)
Effective tax rate for continuing operations
 
19.0
%
 
27.8
%
 
18.6
%
 
27.8
%
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
 
NW Holdings
 
NW Natural
In thousands
 
2019
 
2018
 
2019
 
2018
Income taxes at statutory rates (federal and state)
 
$
8,500

 
$
11,097

 
$
9,363

 
$
11,081

Increase (decrease):
 
 
 
 
 
 
 
 

Differences required to be flowed-through by regulatory commissions
 
(3,207
)
 
569

 
(3,207
)
 
569

Other, net
 
(336
)
 
(475
)
 
(336
)
 
(476
)
Total provision for income taxes on continuing operations
 
$
4,957

 
$
11,191

 
$
5,820

 
$
11,174

Effective tax rate for continuing operations
 
15.5
%
 
26.8
%
 
16.5
%
 
26.8
%



The NW Holdings and NW Natural effective income tax rates for the three and nine months ended September 30, 2019 compared to the same periods in 2018 changed primarily as a result of regulatory amortization of deferred TCJA benefits as approved in the March 2019 OPUC order. See "U.S. Federal TCJA Matters" below and Note 10 in the 2018 Form 10-K for more detail on income taxes and effective tax rates.

The IRS Compliance Assurance Process (CAP) examination of the 2017 tax year was completed during the first quarter of 2019. There were no material changes to the return as filed. The 2018 tax year is subject to examination under CAP and the 2019 tax year CAP application has been accepted by the IRS. The Oregon State examination of tax years 2015, 2016, and 2017 was completed in January 2019. There were no material changes to the returns as originally filed.

U.S. Federal TCJA Matters
On December 22, 2017, the TCJA was enacted and permanently lowered the U.S. federal corporate income tax rate to 21% from the previous maximum rate of 35%, effective for the tax year beginning January 1, 2018. The TCJA included specific provisions related to regulated public utilities that provide for the continued deductibility of interest expense and the elimination of bonus tax depreciation for property both acquired and placed into service on or after January 1, 2018. See Note 10 in the 2018 Form 10-K.

NW Natural previously filed applications with the OPUC and WUTC to defer the NGD net income tax benefits resulting from the TCJA. In March 2019, the OPUC issued an order addressing the regulatory amortization of the income tax benefits from the TCJA that NW Natural deferred for Oregon customers in December of 2017. Under the order, NW Natural will provide the benefit of these TCJA income tax deferrals to Oregon customers through ongoing annual credits to customer base rates and as a one-time recovery of a portion of the pension balancing account regulatory asset balance. On an annualized basis, it is anticipated
that the income tax benefits from the provision of these TCJA benefits to customers should approximate the reduction to pretax income that occurs as a result of the customer base rate credits and one-time recovery of a portion of the pension balancing account.

In October 2019, the WUTC issued an order addressing the regulatory amortization of the income tax benefits from the TCJA that NW Natural deferred for Washington customers in December of 2017. Under the order, NW Natural will provide deferred income tax benefits from the TCJA to customers through base rate credits for a five-year period beginning November 1, 2019.