Income Tax

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Tax [Text Block]

INCOME TAX

The following table provides a reconciliation between income taxes calculated at the statutory federal tax rate and the provision for income taxes reflected in the NW Holdings and NW Natural statements of comprehensive income or loss for December 31:

	NW Holdings			NW Natural
Dollars in thousands	2021	2020	2019	2021	2020	2019
Income taxes at federal statutory rate	$22,275	$19,185	$16,370	$22,996	$19,248	$17,438
Increase (decrease):
State income tax, net of federal	9,962	6,389	4,422	10,150	6,385	4,716
Differences required to be flowed-through by regulatory commissions	(4,655)	(3,960)	(5,772)	(4,738)	(3,960)	(5,772)
Regulatory settlement	—	—	(1,129)	—	—	(1,129)
Other, net	(176)	(532)	(1,249)	(75)	(578)	(1,188)
Total provision for income taxes	$27,406	$21,082	$12,642	$28,333	$21,095	$14,065
Effective tax rate	25.8%	23.1%	16.2%	25.9%	23.0%	16.9%

The NW Holdings and NW Natural effective income tax rates for 2021 compared to 2020 changed primarily due to Oregon Corporate Activity Tax (CAT), the majority of which is incurred because of Oregon regulated operations and for which rate recovery began on November 1, 2020.

The NW Holdings and NW Natural effective income tax rates for 2020 compared to 2019 changed primarily as a result of higher pre-tax income, Oregon CAT effective January 1, 2020, and amortization of excess deferred income tax benefits as ordered by regulatory commissions.

The provision for current and deferred income taxes consists of the following at December 31:

	NW Holdings						NW Natural
In thousands	2021		2020		2019		2021		2020		2019
Current
Federal	$	6,508	$	10,106	$	5,530	$	7,570	$	11,092	$	6,755
State	6,281		5,971		1,667		7,540		5,357		2,101
Total current income taxes	12,789		16,077		7,197		15,110		16,449		8,856
Deferred
Federal	8,289		2,888		1,515		7,915		1,921		1,340
State	6,328		2,117		3,930		5,308		2,725		3,869
Total deferred income taxes	14,617		5,005		5,445		13,223		4,646		5,209
Income tax provision	$	27,406	$	21,082	$	12,642	$	28,333	$	21,095	$	14,065

The following table summarizes the tax effect of significant items comprising NW Holdings and NW Natural's deferred income tax balances recorded at December 31:

	NW Holdings				NW Natural
In thousands	2021		2020		2021		2020
Deferred tax liabilities:
Plant and property	$	310,471	$	297,078	$	303,928	$	290,105
Leases receivable	38,123		39,396		38,123		39,396
Pension and postretirement obligations	23,097		25,066		23,097		25,066
Income tax regulatory asset	14,818		17,104		14,818		17,104
Lease right of use assets	21,362		21,613		21,350		21,596
Other	7,793		—		8,003		—
Total deferred income tax liabilities	$	415,664	$	400,257	$	409,319	$	393,267
Deferred income tax assets:
Income tax regulatory liability	$	50,447	$	52,590	$	50,193	$	52,366
Lease liabilities	21,376		21,622		21,365		21,606
Other intangible assets	3,484		4,485		—		—
Net operating losses and credits carried forward	126		861		44		80
Other	—		1,407		—		1,181
Total deferred income tax assets	$	75,433	$	80,965	$	71,602	$	75,233
Total net deferred income tax liabilities	$	340,231	$	319,292	$	337,717	$	318,034

At December 31, 2021 and 2020, regulatory income tax assets of $12.4 million and $14.6 million, respectively, were recorded by NW Natural, a portion of which is recorded in current assets. These regulatory income tax assets primarily represent future rate recovery of deferred tax liabilities, resulting from differences in NGD plant financial statement and tax bases and NGD plant removal costs, which were previously flowed through for rate making purposes and to take into account the additional future taxes, which will be generated by that recovery. These deferred tax liabilities, and the associated regulatory income tax assets, are currently being recovered through customer rates. At December 31, 2021 and 2020, regulatory income tax assets of $2.4 million and $2.5 million, respectively, were recorded by NW Natural, representing future recovery of deferred tax liabilities resulting from the equity portion of AFUDC. At December 31, 2021 and 2020, regulatory income tax assets of $0.4 million and $1.7 million, respectively, were recorded by NW Natural, representing future recovery of Oregon CAT that was deferred between January 1, 2020 and October 31, 2020. In October 2020, the OPUC issued an order providing for recovery of deferred Oregon CAT as well as CAT incurred prospectively beginning November 1, 2020.

At December 31, 2021 and 2020, deferred tax assets of $50.2 million and $52.4 million, respectively, were recorded by NW Natural representing the future income tax benefit associated with the excess deferred income tax regulatory liability recorded as a result of the lower federal corporate income tax rate provided for by the Tax Cuts and Jobs Act (TCJA). At December 31, 2021 and 2020, regulatory liability balances representing the benefit of the change in deferred taxes as a result of the TCJA of $189.6 million and $197.8 million, respectively, were recorded by NW Natural.

NW Holdings and NW Natural assess the available positive and negative evidence to estimate if sufficient taxable income will be generated to utilize their respective existing deferred tax assets. Based upon this assessment, NW Holdings and NW Natural determined that it is more likely than not that all of their respective deferred tax assets recorded as of December 31, 2021 will be realized.

The Company estimates it has net operating loss (NOL) carryforwards of $0.2 million for federal taxes and $0.2 million for state taxes at December 31, 2021. We anticipate fully utilizing these NOL carryforward balances before they begin to expire in 2033 for federal and 2028 for state. California alternative minimum tax (AMT) credits and Idaho investment tax credits (ITC) of $0.1 million are also available. The AMT credits do not expire. The ITC credits begin to expire in 2033.

Uncertain tax positions are accounted for in accordance with accounting standards that require an assessment of the anticipated settlement outcome of material uncertain tax positions taken in a prior year, or planned to be taken in the current year. Until such positions are sustained, the uncertain tax benefits resulting from such positions would not be recognized. No reserves for uncertain tax positions were recorded as of December 31, 2021, 2020, or 2019.

The federal income tax returns for tax years 2017 and earlier are closed by statute. The IRS Compliance Assurance Process (CAP) examination of the 2018 and 2019 tax years have been completed. There were no material changes to these returns as filed. The 2020 and 2021 tax years are currently under IRS CAP examination. The 2022 CAP application has been filed. Under the CAP program, NW Holdings and NW Natural work with the IRS to identify and resolve material tax matters before the tax return is filed each year.

As of December 31, 2021, income tax years 2017 through 2020 remain open for examination by the State of California. Income tax years 2018 through 2020 are open for examination by the State of Idaho. The State of Oregon examined the Oregon corporate income tax returns for tax years 2015, 2016, and 2017. No material changes occurred as a result of this examination. Tax years 2018 through 2020 are open for examination by the State of Oregon.