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Income Taxes
12 Months Ended
Dec. 31, 2018
Income Taxes [Line Items]  
Income Taxes
Income Taxes
A reconciliation of reported income tax expense for PSEG with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 21% in 2018 and 35% in 2017 and 2016 is as follows:
 
 
 
 
 
 
 
 
 
 
 
 
Years Ended December 31,
 
 
PSEG
 
2018
 
2017
 
2016
 
 
 
 
Millions
 
 
Net Income
 
$
1,438

 
$
1,574

 
$
887

 
 
Income Taxes:
 
 
 
 
 
 
 
 
Operating Income:
 
 
 
 
 
 
 
 
Current (Benefit) Expense:
 
 
 
 
 
 
 
 
Federal
 
$
(97
)
 
$
86

 
$
(74
)
 
 
State
 
83

 
(31
)
 
61

 
 
Total Current
 
(14
)
 
55

 
(13
)
 
 
Deferred Expense (Benefit):
 
 
 
 
 
 
 
 
Federal
 
373

 
(482
)
 
311

 
 
State
 
71

 
92

 
28

 
 
Total Deferred
 
444

 
(390
)
 
339

 
 
Investment Tax Credit (ITC)
 
(13
)
 
29

 
85

 
 
Total Income Tax Expense (Benefit)
 
$
417

 
$
(306
)
 
$
411

 
 
Pre-Tax Income
 
$
1,855

 
$
1,268

 
$
1,298

 
 
Tax Computed at Statutory Rate @ 21% in 2018 and 35% in 2017 and 2016
 
$
390

 
$
444

 
$
454

 
 
Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
 
 
 
 
 
 
 
 
State Income Taxes (net of federal income tax)
 
123

 
36

 
56

 
 
Uncertain Tax Positions
 
(24
)
 
(3
)
 
(31
)
 
 
Manufacturing Deduction
 

 
(13
)
 
(17
)
 
 
NDT Fund
 
(13
)
 
19

 
3

 
 
Plant-Related Items
 
(10
)
 
(23
)
 
(20
)
 
 
Tax Credits
 
(16
)
 
(22
)
 
(25
)
 
 
Audit Settlement
 

 
6

 

 
 
Tax Adjustment Credit
 
(30
)
 

 

 
 
Deferred Tax Expense (Benefit) - Tax Act
 
3

 
(755
)
 

 
 
Other
 
(6
)
 
5

 
(9
)
 
 
Sub-Total
 
27

 
(750
)
 
(43
)
 
 
Total Income Tax Expense (Benefit)
 
$
417

 
$
(306
)
 
$
411

 
 
Effective Income Tax Rate
 
22.5
%
 
(24.1
)%
 
31.7
%
 
 
 
 
 
 
 
 
 
 


 
The following is an analysis of deferred income taxes for PSEG:
 
 
 
 
 
 
 
 
 
 
As of December 31,
 
 
PSEG
 
2018
 
2017
 
 
 
 
Millions
 
 
Deferred Income Taxes
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Noncurrent
 
 
 
 
 
 
Regulatory Liability Excess Deferred Tax
 
$
606

 
$
602

 
 
OPEB
 
163

 
217

 
 
Related to Uncertain Tax Position
 
71

 
142

 
 
Total Noncurrent Assets
 
$
840

 
$
961

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Noncurrent:
 
 
 
 
 
 
Plant-Related Items
 
$
4,817

 
$
4,257

 
 
New Jersey Corporate Business Tax
 
756

 
674

 
 
Leasing Activities
 
307

 
384

 
 
AROs and NDT Fund
 
196

 
233

 
 
Pension Costs
 
111

 
123

 
 
Taxes Recoverable Through Future Rates (net)
 
89

 
80

 
 
Other
 
12

 
171

 
 
Total Noncurrent Liabilities
 
$
6,288

 
$
5,922

 
 
Summary of Accumulated Deferred Income Taxes:
 
 
 
 
 
 
Net Noncurrent Deferred Income Tax Liabilities
 
$
5,448

 
$
4,961

 
 
ITC
 
265

 
279

 
 
Net Total Noncurrent Deferred Income Taxes and ITC
 
$
5,713

 
$
5,240

 
 
 
 
 
 
 
 

The deferred tax effect of certain assets and liabilities is presented in the table above net of the deferred tax effect associated with the respective regulatory deferrals.
In December 2017, new tax legislation was enacted, reducing the statutory U.S. corporate income tax rate from a maximum of 35% to 21%, effective January 1, 2018. PSEG is subject to ASC 740, which requires that the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate was enacted.



A reconciliation of reported income tax expense for PSE&G with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 21% in 2018 and 35% in 2017 and 2016 is as follows:
 
 
 
 
 
 
 
 
 
 
 
 
Years Ended December 31,
 
 
PSE&G
 
2018
 
2017
 
2016
 
 
 
 
Millions
 
 
Net Income
 
$
1,067

 
$
973

 
$
889

 
 
Income Taxes:
 
 
 
 
 
 
 
 
Operating Income:
 
 
 
 
 
 
 
 
Current (Benefit) Expense:
 
 
 
 
 
 
 
 
Federal
 
$
(62
)
 
$
(52
)
 
$
(153
)
 
 
State
 
1

 
(1
)
 
10

 
 
Total Current
 
(61
)
 
(53
)
 
(143
)
 
 
Deferred Expense:
 
 
 
 
 
 
 
 
Federal
 
287

 
492

 
551

 
 
State
 
122

 
129

 
102

 
 
Total Deferred
 
409

 
621

 
653

 
 
ITC
 
(4
)
 
(5
)
 
5

 
 
Total Income Tax Expense
 
$
344

 
$
563

 
$
515

 
 
Pre-Tax Income
 
$
1,411

 
$
1,536

 
$
1,404

 
 
Tax Computed at Statutory Rate @ 21% in 2018 and 35% in 2017 and 2016
 
$
296

 
$
538

 
$
491

 
 
Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
 
 
 
 
 
 
 
 
State Income Taxes (net of federal income tax)
 
98

 
83

 
72

 
 
Uncertain Tax Positions
 
(1
)
 
(9
)
 
(18
)
 
 
Plant-Related Items
 
(10
)
 
(23
)
 
(20
)
 
 
Tax Credits
 
(8
)
 
(9
)
 
(7
)
 
 
Tax Adjustment Credit
 
(30
)
 

 

 
 
Deferred Tax Benefit - Tax Act
 

 
(10
)
 

 
 
Other
 
(1
)
 
(7
)
 
(3
)
 
 
Sub-Total
 
48

 
25

 
24

 
 
Total Income Tax Expense
 
$
344

 
$
563

 
$
515

 
 
Effective Income Tax Rate
 
24.4
%
 
36.7
%
 
36.7
%
 
 
 
 
 
 
 
 
 
 














The following is an analysis of deferred income taxes for PSE&G:
 
 
 
 
 
 
 
 
 
 
As of December 31,
 
 
PSE&G
 
2018
 
2017
 
 
 
 
Millions
 
 
Deferred Income Taxes
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Noncurrent:
 
 
 
 
 
 
     Regulatory Liability Excess Deferred Tax
 
$
606

 
$
602

 
 
OPEB
 
114

 
116

 
 
Total Noncurrent Assets
 
$
720

 
$
718

 
 
Liabilities:
 
 
 
 
 
 
Noncurrent:
 
 
 
 
 
 
Plant-Related Items
 
$
3,622

 
$
3,311

 
 
New Jersey Corporate Business Tax
 
486

 
378

 
 
Pension Costs
 
159

 
152

 
 
Conservation Costs
 
36

 
24

 
 
Taxes Recoverable Through Future Rates (net)
 
89

 
80

 
 
Other
 
84

 
86

 
 
Total Noncurrent Liabilities
 
$
4,476

 
$
4,031

 
 
Summary of Accumulated Deferred Income Taxes:
 
 
 
 
 
 
Net Noncurrent Deferred Income Tax Liabilities
 
$
3,756

 
$
3,313

 
 
ITC
 
74

 
78

 
 
Net Total Noncurrent Deferred Income Taxes and ITC
 
$
3,830

 
$
3,391

 
 
 
 
 
 
 
 

The deferred tax effect of certain assets and liabilities is presented in the table above net of the deferred tax effect associated with the respective regulatory deferrals.
In December 2017, new tax legislation was enacted, reducing the statutory U.S. corporate income tax rate from a maximum of 35% to 21%, effective January 1, 2018. PSE&G is subject to ASC 740, which requires that the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate was enacted.





A reconciliation of reported income tax expense for Power with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 21% in 2018 and 35% in 2017 and 2016 is as follows:
 
 
 
 
 
 
 
 
 
 
 
 
Years Ended December 31,
 
 
Power
 
2018
 
2017
 
2016
 
 
 
 
Millions
 
 
Net Income
 
$
365

 
$
479

 
$
18

 
 
Income Taxes:
 
 
 
 
 
 
 
 
Operating Income:
 
 
 
 
 
 
 
 
Current (Benefit) Expense:
 
 
 
 
 
 
 
 
Federal
 
$
(164
)
 
$
95

 
$
107

 
 
State
 
24

 
(17
)
 
40

 
 
Total Current
 
(140
)
 
78

 
147

 
 
Deferred Expense (Benefit):
 
 
 
 
 
 
 
 
Federal
 
214

 
(804
)
 
(222
)
 
 
State
 
1

 
(37
)
 
(68
)
 
 
Total Deferred
 
215

 
(841
)
 
(290
)
 
 
ITC
 
(9
)
 
34

 
82

 
 
Total Income Tax Expense (Benefit)
 
$
66

 
$
(729
)
 
$
(61
)
 
 
Pre-Tax Income (Loss)
 
$
431

 
$
(250
)
 
$
(43
)
 
 
Tax Computed at Statutory Rate @ 21% in 2018 and 35% in 2017 and 2016
 
$
91

 
$
(88
)
 
$
(15
)
 
 
Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
 
 
 
 
 
 
 
 
State Income Taxes (net of federal income tax)
 
21

 
(36
)
 
(18
)
 
 
Manufacturing Deduction
 

 
(13
)
 
(17
)
 
 
NDT Fund
 
(13
)
 
19

 
3

 
 
Tax Credits
 
(7
)
 
(12
)
 
(18
)
 
 
Uncertain Tax Positions
 
(24
)
 
7

 
9

 
 
Audit Settlement
 

 
1

 

 
 
Deferred Tax Benefit - Tax Act
 
(1
)
 
(610
)
 

 
 
Other
 
(1
)
 
3

 
(5
)
 
 
Sub-Total
 
(25
)
 
(641
)
 
(46
)
 
 
Total Income Tax Expense (Benefit)
 
$
66

 
$
(729
)
 
$
(61
)
 
 
Effective Income Tax Rate
 
15.3
%
 
291.6
%
 
141.9
%
 
 
 
 
 
 
 
 
 
 


The following is an analysis of deferred income taxes for Power:
 
 
 
 
 
 
 
 
 
 
As of December 31,
 
 
Power
 
2018
 
2017
 
 
 
 
Millions
 
 
Deferred Income Taxes
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Noncurrent:
 
 
 
 
 
 
Related to Uncertain Tax Positions
 
$
60

 
$
45

 
 
Pension Costs
 
52

 
40

 
 
Contractual Liabilities & Environmental Costs
 
9

 
12

 
 
Other
 
98

 
93

 
 
Total Noncurrent Assets
 
$
219

 
$
190

 
 
Liabilities:
 
 
 
 
 
 
Noncurrent:
 
 
 
 
 
 
Plant-Related Items
 
$
1,189

 
$
935

 
 
AROs and NDT Fund
 
197

 
235

 
 
New Jersey Corporate Business Tax
 
260

 
225

 
 
Total Noncurrent Liabilities
 
$
1,646

 
$
1,395

 
 
Summary of Accumulated Deferred Income Taxes:
 
 
 
 
 
 
Net Noncurrent Deferred Income Tax Liabilities
 
$
1,427

 
$
1,205

 
 
ITC
 
192

 
201

 
 
Net Total Noncurrent Deferred Income Taxes and ITC
 
$
1,619

 
$
1,406

 
 
 
 
 
 
 
 

PSEG, PSE&G and Power each provide deferred taxes at the enacted statutory tax rate for all temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities irrespective of the treatment for rate-making purposes. Management believes that it is probable that the accumulated tax benefits that previously have been treated as a flow-through item to PSE&G customers will be recovered from or refunded to PSE&G’s customers in the future. See Note 7. Regulatory Assets and Liabilities.
In December 2017, the U.S. government enacted comprehensive tax legislation. The Tax Act establishes new tax laws that took effect in 2018, including, but not limited to (1) reduction of the U.S. federal corporate tax rate from a maximum of 35% to 21%; (2) elimination of the corporate alternative minimum tax (AMT); (3) a new limitation on deductible interest expense; (4) the repeal of the manufacturing deduction; (5) limitations on the deductibility of certain executive compensation; and (6) limitations on net operating losses (NOLs) generated after December 31, 2017, to 80% of taxable income with an indefinite carryforward period. In addition, certain changes were made to the bonus depreciation rules that impacted 2017. In 2018 and beyond, it is expected that Power will be entitled to 100% expensing and bonus depreciation will no longer apply to PSE&G.
As required under ASC 740, the ending 2017 deferred tax balances were adjusted to reflect the enacted lower tax rate, which resulted in a deferred tax benefit of $755 million, including $610 million related to Power and $149 million related to Energy Holdings (including other impacts related to the new tax legislation, PSEG’s net non-cash provisional earnings benefit was $745 million, including $588 million related to Power and $147 million related to Energy Holdings). There were no further material deferred tax benefits recorded in 2018 as a result of the Tax Act. In addition, PSE&G had excess deferred taxes of approximately $2.1 billion as of December 31, 2017 and recorded a $2.9 billion revenue impact of these excess deferred taxes as Regulatory Liabilities. In 2018, PSE&G recorded an additional $34 million of excess deferred taxes and a $46 million revenue impact of these excess taxes as Regulatory Liabilities associated with the 2017 return to accrual. PSEG, PSE&G and Power completed their accounting for the Tax Act based on the current regulatory guidance available at the end of the Staff Accounting Bulletin No. 118 measurement period, not to extend beyond one year from the enactment date of the Tax Act.
The Tax Act has led to lower customer rates due to lower income tax expense recoveries and the BPU and FERC have approved our proposals to refund excess deferred income tax Regulatory Liabilities. See Note 7. Regulatory Assets and Liabilities for additional information.
In August 2018, the IRS issued a Notice of Proposed Rulemaking (Notice) regarding the application of tax depreciation rules as amended by the Tax Act. While the Notice provides some guidance as to the application of the changes made by the Tax Act to the bonus depreciation rules, certain aspects still remain unclear. Further, in November 2018 the IRS issued Proposed Regulations addressing the interest disallowance rules contained in the Tax Act. For non-regulated businesses, these rules set a cap on the amount of interest that can be deducted in a given year. Any amount that is disallowed can be carried forward indefinitely. For 2018, PSEG and Power expect that a portion of the interest will be disallowed in the current period but realized in future periods. As a result, PSEG and Power recorded a deferred tax asset of $54 million and $8 million, respectively, in 2018. However, certain aspects of the proposed regulations are unclear; therefore, PSEG recorded taxes based on its interpretation of the relevant statute.
Depreciation amounts recorded in 2018 were based on PSEG’s interpretation of the Tax Act and the depreciation rules contained in the Notice. Such amounts are subject to change based on several factors, including but not limited to, the IRS and state taxing authorities issuing final guidance and/or further clarification. Any further guidance or clarification could impact PSEG’s, PSE&G’s and Power’s financial statements.
The Protecting Americans from Tax Hikes Act of 2015 (2015 Tax Act), among other provisions, included an extension of the bonus depreciation rules and the 30% investment tax credit for qualified property placed into service after 2016. Qualified property that is placed into service from January 1, 2015 through December 31, 2017 is eligible for the 50% bonus depreciation. The provisions of the 2015 Tax Act have generated significant cash tax benefits for PSEG, PSE&G and Power through tax benefits related to the accelerated depreciation. For the period beginning September 28, 2017, subject to the transition rules, the Tax Act has modified the bonus depreciation rules of the 2015 Tax Act.
In 2018, Power generated a $14 million consolidated federal income tax NOL and PSE&G generated a $21 million New Jersey Corporate Business tax NOL. Both PSE&G and Power expect to fully realize their respective NOLs. There are no other material tax carryforwards in other jurisdictions.
PSEG recorded the following amounts related to its unrecognized tax benefits, which were primarily comprised of amounts recorded for PSE&G, Power and Energy Holdings:
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
PSEG
 
PSE&G
 
Power
 
Energy
Holdings
 
 
 
 
Millions
 
 
Total Amount of Unrecognized Tax Benefits as of January 1, 2018
 
$
334

 
$
135

 
$
142

 
$
53

 
 
Increases as a Result of Positions Taken in a Prior Period
 
11

 
4

 
4

 
3

 
 
Decreases as a Result of Positions Taken in a Prior Period
 
(70
)
 
(31
)
 
(37
)
 
(2
)
 
 
Increases as a Result of Positions Taken during the Current Period
 
52

 
3

 
48

 

 
 
Decreases as a Result of Positions Taken during the Current Period
 
(3
)
 
(3
)
 

 

 
 
Decreases as a Result of Settlements with Taxing Authorities
 
(6
)
 

 
(6
)
 

 
 
Decreases due to Lapses of Applicable Statute of Limitations
 

 

 

 

 
 
Total Amount of Unrecognized Tax Benefits as of December 31, 2018
 
$
318

 
$
108

 
$
151

 
$
54

 
 
Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits
 
(173
)
 
(57
)
 
(104
)
 
(12
)
 
 
Regulatory Asset—Unrecognized Tax Benefits
 
(46
)
 
(46
)
 

 

 
 
Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)
 
$
99

 
$
5

 
$
47

 
$
42

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
PSEG
 
PSE&G
 
Power
 
Energy
Holdings
 
 
 
 
Millions
 
 
Total Amount of Unrecognized Tax Benefits as of January 1, 2017
 
$
328

 
$
140

 
$
128

 
$
57

 
 
Increases as a Result of Positions Taken in a Prior Period
 
40

 
15

 
18

 
8

 
 
Decreases as a Result of Positions Taken in a Prior Period
 
(32
)
 
(11
)
 
(10
)
 
(13
)
 
 
Increases as a Result of Positions Taken during the Current Period
 
12

 
5

 
6

 
1

 
 
Decreases as a Result of Positions Taken during the Current Period
 
(1
)
 
(1
)
 

 

 
 
Decreases as a Result of Settlements with Taxing Authorities
 

 

 

 

 
 
Decreases due to Lapses of Applicable Statute of Limitations
 
(13
)
 
(13
)
 

 

 
 
Total Amount of Unrecognized Tax Benefits as of December 31, 2017
 
$
334

 
$
135

 
$
142

 
$
53

 
 
Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits
 
(157
)
 
(73
)
 
(72
)
 
(12
)
 
 
Regulatory Asset—Unrecognized Tax Benefits
 
(56
)
 
(56
)
 

 

 
 
Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)
 
$
121

 
$
6

 
$
70

 
$
41

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
PSEG
 
PSE&G
 
Power
 
Energy
Holdings
 
 
 
 
Millions
 
 
Total Amount of Unrecognized Tax Benefits as of January 1, 2016
 
$
386

 
$
181

 
$
111

 
$
93

 
 
Increases as a Result of Positions Taken in a Prior Period
 
12

 
3

 
6

 
2

 
 
Decreases as a Result of Positions Taken in a Prior Period
 
(62
)
 
(23
)
 
(1
)
 
(38
)
 
 
Increases as a Result of Positions Taken during the Current Period
 
19

 
6

 
12

 

 
 
Decreases as a Result of Positions Taken during the Current Period
 

 

 

 

 
 
Decreases as a Result of Settlements with Taxing Authorities
 

 

 

 

 
 
Decreases due to Lapses of Applicable Statute of Limitations
 
(27
)
 
(27
)
 

 

 
 
Total Amount of Unrecognized Tax Benefits as of December 31, 2016
 
$
328

 
$
140

 
$
128

 
$
57

 
 
Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits
 
(200
)
 
(106
)
 
(74
)
 
(20
)
 
 
Regulatory Asset—Unrecognized Tax Benefits
 
(31
)
 
(31
)
 

 

 
 
Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)
 
$
97

 
$
3

 
$
54

 
$
37

 
 
 
 
 
 
 
 
 
 
 
 

PSEG and its subsidiaries include accrued interest and penalties related to uncertain tax positions required to be recorded, as Income Tax Expense in the Consolidated Statements of Operations. Accumulated interest and penalties that are recorded on the Consolidated Balance Sheets on uncertain tax positions were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated Interest and Penalties
on Uncertain Tax Positions
as of December 31,
 
 
 
 
2018
 
2017
 
2016
 
 
 
 
Millions
 
 
PSE&G
 
$
12

 
$
25

 
$
22

 
 
Power
 
9

 
24

 
17

 
 
Energy Holdings
 
22

 
21

 
20

 
 
Total
 
$
43

 
$
70

 
$
59

 
 
 
 
 
 
 
 
 
 

It is reasonably possible that total unrecognized tax benefits will significantly increase or decrease within the next twelve months due to either agreements with various taxing authorities upon audit, the expiration of the Statute of Limitations, or other pending tax matters. These potential increases or decreases are as follows:
 
 
 
 
 
 
Possible (Increase)/Decrease in Total Unrecognized Tax Benefits
 
Over the next
12 Months
 
 
 
 
Millions
 
 
PSEG
 
$
112

 
 
PSE&G
 
$
62

 
 
Power
 
$
34

 
 
 
 
 
 

A description of income tax years that remain subject to examination by material jurisdictions, where an examination has not already concluded are:
 
 
 
 
 
 
 
 
 
 
 
  
PSEG
 
PSE&G
  
Power
 
 
United States
  
 
 
 
  
 
 
 
Federal
  
2011-2017
 
N/A
  
N/A
  
 
New Jersey
  
2006-2017
 
2011-2017
  
N/A
  
 
Pennsylvania
  
2015-2017
 
2015-2017
  
N/A
  
 
Connecticut
  
2016-2017
 
N/A
  
N/A
  
 
California
  
2006-2017
 
N/A
  
N/A
  
 
New York
  
2017
 
N/A
  
2017
  
 
 
 
 
 
 
 
 
 

New Jersey State Tax Reform
In July 2018, the State of New Jersey made changes to its income tax laws, including imposing a temporary surtax on allocated corporate taxable income of 2.5% effective January 1, 2018 and 2019 and 1.5% in 2020 and 2021, as well as requiring corporate taxpayers to file in a combined reporting group as defined under New Jersey law starting in 2019. Both provisions include an exemption for public utilities. At this time, PSEG believes PSE&G meets the definition of a public utility and, therefore, will not be impacted by the temporary surtax or be included in the combined reporting group. In 2018, PSEG’s non-utility business recorded $7 million of surtax as a result of these new provisions. This New Jersey tax legislation did not have a material impact on PSEG’s deferred income tax balance.
PSE&G [Member]  
Income Taxes [Line Items]  
Income Taxes
Income Taxes
A reconciliation of reported income tax expense for PSEG with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 21% in 2018 and 35% in 2017 and 2016 is as follows:
 
 
 
 
 
 
 
 
 
 
 
 
Years Ended December 31,
 
 
PSEG
 
2018
 
2017
 
2016
 
 
 
 
Millions
 
 
Net Income
 
$
1,438

 
$
1,574

 
$
887

 
 
Income Taxes:
 
 
 
 
 
 
 
 
Operating Income:
 
 
 
 
 
 
 
 
Current (Benefit) Expense:
 
 
 
 
 
 
 
 
Federal
 
$
(97
)
 
$
86

 
$
(74
)
 
 
State
 
83

 
(31
)
 
61

 
 
Total Current
 
(14
)
 
55

 
(13
)
 
 
Deferred Expense (Benefit):
 
 
 
 
 
 
 
 
Federal
 
373

 
(482
)
 
311

 
 
State
 
71

 
92

 
28

 
 
Total Deferred
 
444

 
(390
)
 
339

 
 
Investment Tax Credit (ITC)
 
(13
)
 
29

 
85

 
 
Total Income Tax Expense (Benefit)
 
$
417

 
$
(306
)
 
$
411

 
 
Pre-Tax Income
 
$
1,855

 
$
1,268

 
$
1,298

 
 
Tax Computed at Statutory Rate @ 21% in 2018 and 35% in 2017 and 2016
 
$
390

 
$
444

 
$
454

 
 
Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
 
 
 
 
 
 
 
 
State Income Taxes (net of federal income tax)
 
123

 
36

 
56

 
 
Uncertain Tax Positions
 
(24
)
 
(3
)
 
(31
)
 
 
Manufacturing Deduction
 

 
(13
)
 
(17
)
 
 
NDT Fund
 
(13
)
 
19

 
3

 
 
Plant-Related Items
 
(10
)
 
(23
)
 
(20
)
 
 
Tax Credits
 
(16
)
 
(22
)
 
(25
)
 
 
Audit Settlement
 

 
6

 

 
 
Tax Adjustment Credit
 
(30
)
 

 

 
 
Deferred Tax Expense (Benefit) - Tax Act
 
3

 
(755
)
 

 
 
Other
 
(6
)
 
5

 
(9
)
 
 
Sub-Total
 
27

 
(750
)
 
(43
)
 
 
Total Income Tax Expense (Benefit)
 
$
417

 
$
(306
)
 
$
411

 
 
Effective Income Tax Rate
 
22.5
%
 
(24.1
)%
 
31.7
%
 
 
 
 
 
 
 
 
 
 


 
The following is an analysis of deferred income taxes for PSEG:
 
 
 
 
 
 
 
 
 
 
As of December 31,
 
 
PSEG
 
2018
 
2017
 
 
 
 
Millions
 
 
Deferred Income Taxes
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Noncurrent
 
 
 
 
 
 
Regulatory Liability Excess Deferred Tax
 
$
606

 
$
602

 
 
OPEB
 
163

 
217

 
 
Related to Uncertain Tax Position
 
71

 
142

 
 
Total Noncurrent Assets
 
$
840

 
$
961

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Noncurrent:
 
 
 
 
 
 
Plant-Related Items
 
$
4,817

 
$
4,257

 
 
New Jersey Corporate Business Tax
 
756

 
674

 
 
Leasing Activities
 
307

 
384

 
 
AROs and NDT Fund
 
196

 
233

 
 
Pension Costs
 
111

 
123

 
 
Taxes Recoverable Through Future Rates (net)
 
89

 
80

 
 
Other
 
12

 
171

 
 
Total Noncurrent Liabilities
 
$
6,288

 
$
5,922

 
 
Summary of Accumulated Deferred Income Taxes:
 
 
 
 
 
 
Net Noncurrent Deferred Income Tax Liabilities
 
$
5,448

 
$
4,961

 
 
ITC
 
265

 
279

 
 
Net Total Noncurrent Deferred Income Taxes and ITC
 
$
5,713

 
$
5,240

 
 
 
 
 
 
 
 

The deferred tax effect of certain assets and liabilities is presented in the table above net of the deferred tax effect associated with the respective regulatory deferrals.
In December 2017, new tax legislation was enacted, reducing the statutory U.S. corporate income tax rate from a maximum of 35% to 21%, effective January 1, 2018. PSEG is subject to ASC 740, which requires that the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate was enacted.



A reconciliation of reported income tax expense for PSE&G with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 21% in 2018 and 35% in 2017 and 2016 is as follows:
 
 
 
 
 
 
 
 
 
 
 
 
Years Ended December 31,
 
 
PSE&G
 
2018
 
2017
 
2016
 
 
 
 
Millions
 
 
Net Income
 
$
1,067

 
$
973

 
$
889

 
 
Income Taxes:
 
 
 
 
 
 
 
 
Operating Income:
 
 
 
 
 
 
 
 
Current (Benefit) Expense:
 
 
 
 
 
 
 
 
Federal
 
$
(62
)
 
$
(52
)
 
$
(153
)
 
 
State
 
1

 
(1
)
 
10

 
 
Total Current
 
(61
)
 
(53
)
 
(143
)
 
 
Deferred Expense:
 
 
 
 
 
 
 
 
Federal
 
287

 
492

 
551

 
 
State
 
122

 
129

 
102

 
 
Total Deferred
 
409

 
621

 
653

 
 
ITC
 
(4
)
 
(5
)
 
5

 
 
Total Income Tax Expense
 
$
344

 
$
563

 
$
515

 
 
Pre-Tax Income
 
$
1,411

 
$
1,536

 
$
1,404

 
 
Tax Computed at Statutory Rate @ 21% in 2018 and 35% in 2017 and 2016
 
$
296

 
$
538

 
$
491

 
 
Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
 
 
 
 
 
 
 
 
State Income Taxes (net of federal income tax)
 
98

 
83

 
72

 
 
Uncertain Tax Positions
 
(1
)
 
(9
)
 
(18
)
 
 
Plant-Related Items
 
(10
)
 
(23
)
 
(20
)
 
 
Tax Credits
 
(8
)
 
(9
)
 
(7
)
 
 
Tax Adjustment Credit
 
(30
)
 

 

 
 
Deferred Tax Benefit - Tax Act
 

 
(10
)
 

 
 
Other
 
(1
)
 
(7
)
 
(3
)
 
 
Sub-Total
 
48

 
25

 
24

 
 
Total Income Tax Expense
 
$
344

 
$
563

 
$
515

 
 
Effective Income Tax Rate
 
24.4
%
 
36.7
%
 
36.7
%
 
 
 
 
 
 
 
 
 
 














The following is an analysis of deferred income taxes for PSE&G:
 
 
 
 
 
 
 
 
 
 
As of December 31,
 
 
PSE&G
 
2018
 
2017
 
 
 
 
Millions
 
 
Deferred Income Taxes
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Noncurrent:
 
 
 
 
 
 
     Regulatory Liability Excess Deferred Tax
 
$
606

 
$
602

 
 
OPEB
 
114

 
116

 
 
Total Noncurrent Assets
 
$
720

 
$
718

 
 
Liabilities:
 
 
 
 
 
 
Noncurrent:
 
 
 
 
 
 
Plant-Related Items
 
$
3,622

 
$
3,311

 
 
New Jersey Corporate Business Tax
 
486

 
378

 
 
Pension Costs
 
159

 
152

 
 
Conservation Costs
 
36

 
24

 
 
Taxes Recoverable Through Future Rates (net)
 
89

 
80

 
 
Other
 
84

 
86

 
 
Total Noncurrent Liabilities
 
$
4,476

 
$
4,031

 
 
Summary of Accumulated Deferred Income Taxes:
 
 
 
 
 
 
Net Noncurrent Deferred Income Tax Liabilities
 
$
3,756

 
$
3,313

 
 
ITC
 
74

 
78

 
 
Net Total Noncurrent Deferred Income Taxes and ITC
 
$
3,830

 
$
3,391

 
 
 
 
 
 
 
 

The deferred tax effect of certain assets and liabilities is presented in the table above net of the deferred tax effect associated with the respective regulatory deferrals.
In December 2017, new tax legislation was enacted, reducing the statutory U.S. corporate income tax rate from a maximum of 35% to 21%, effective January 1, 2018. PSE&G is subject to ASC 740, which requires that the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate was enacted.





A reconciliation of reported income tax expense for Power with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 21% in 2018 and 35% in 2017 and 2016 is as follows:
 
 
 
 
 
 
 
 
 
 
 
 
Years Ended December 31,
 
 
Power
 
2018
 
2017
 
2016
 
 
 
 
Millions
 
 
Net Income
 
$
365

 
$
479

 
$
18

 
 
Income Taxes:
 
 
 
 
 
 
 
 
Operating Income:
 
 
 
 
 
 
 
 
Current (Benefit) Expense:
 
 
 
 
 
 
 
 
Federal
 
$
(164
)
 
$
95

 
$
107

 
 
State
 
24

 
(17
)
 
40

 
 
Total Current
 
(140
)
 
78

 
147

 
 
Deferred Expense (Benefit):
 
 
 
 
 
 
 
 
Federal
 
214

 
(804
)
 
(222
)
 
 
State
 
1

 
(37
)
 
(68
)
 
 
Total Deferred
 
215

 
(841
)
 
(290
)
 
 
ITC
 
(9
)
 
34

 
82

 
 
Total Income Tax Expense (Benefit)
 
$
66

 
$
(729
)
 
$
(61
)
 
 
Pre-Tax Income (Loss)
 
$
431

 
$
(250
)
 
$
(43
)
 
 
Tax Computed at Statutory Rate @ 21% in 2018 and 35% in 2017 and 2016
 
$
91

 
$
(88
)
 
$
(15
)
 
 
Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
 
 
 
 
 
 
 
 
State Income Taxes (net of federal income tax)
 
21

 
(36
)
 
(18
)
 
 
Manufacturing Deduction
 

 
(13
)
 
(17
)
 
 
NDT Fund
 
(13
)
 
19

 
3

 
 
Tax Credits
 
(7
)
 
(12
)
 
(18
)
 
 
Uncertain Tax Positions
 
(24
)
 
7

 
9

 
 
Audit Settlement
 

 
1

 

 
 
Deferred Tax Benefit - Tax Act
 
(1
)
 
(610
)
 

 
 
Other
 
(1
)
 
3

 
(5
)
 
 
Sub-Total
 
(25
)
 
(641
)
 
(46
)
 
 
Total Income Tax Expense (Benefit)
 
$
66

 
$
(729
)
 
$
(61
)
 
 
Effective Income Tax Rate
 
15.3
%
 
291.6
%
 
141.9
%
 
 
 
 
 
 
 
 
 
 


The following is an analysis of deferred income taxes for Power:
 
 
 
 
 
 
 
 
 
 
As of December 31,
 
 
Power
 
2018
 
2017
 
 
 
 
Millions
 
 
Deferred Income Taxes
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Noncurrent:
 
 
 
 
 
 
Related to Uncertain Tax Positions
 
$
60

 
$
45

 
 
Pension Costs
 
52

 
40

 
 
Contractual Liabilities & Environmental Costs
 
9

 
12

 
 
Other
 
98

 
93

 
 
Total Noncurrent Assets
 
$
219

 
$
190

 
 
Liabilities:
 
 
 
 
 
 
Noncurrent:
 
 
 
 
 
 
Plant-Related Items
 
$
1,189

 
$
935

 
 
AROs and NDT Fund
 
197

 
235

 
 
New Jersey Corporate Business Tax
 
260

 
225

 
 
Total Noncurrent Liabilities
 
$
1,646

 
$
1,395

 
 
Summary of Accumulated Deferred Income Taxes:
 
 
 
 
 
 
Net Noncurrent Deferred Income Tax Liabilities
 
$
1,427

 
$
1,205

 
 
ITC
 
192

 
201

 
 
Net Total Noncurrent Deferred Income Taxes and ITC
 
$
1,619

 
$
1,406

 
 
 
 
 
 
 
 

PSEG, PSE&G and Power each provide deferred taxes at the enacted statutory tax rate for all temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities irrespective of the treatment for rate-making purposes. Management believes that it is probable that the accumulated tax benefits that previously have been treated as a flow-through item to PSE&G customers will be recovered from or refunded to PSE&G’s customers in the future. See Note 7. Regulatory Assets and Liabilities.
In December 2017, the U.S. government enacted comprehensive tax legislation. The Tax Act establishes new tax laws that took effect in 2018, including, but not limited to (1) reduction of the U.S. federal corporate tax rate from a maximum of 35% to 21%; (2) elimination of the corporate alternative minimum tax (AMT); (3) a new limitation on deductible interest expense; (4) the repeal of the manufacturing deduction; (5) limitations on the deductibility of certain executive compensation; and (6) limitations on net operating losses (NOLs) generated after December 31, 2017, to 80% of taxable income with an indefinite carryforward period. In addition, certain changes were made to the bonus depreciation rules that impacted 2017. In 2018 and beyond, it is expected that Power will be entitled to 100% expensing and bonus depreciation will no longer apply to PSE&G.
As required under ASC 740, the ending 2017 deferred tax balances were adjusted to reflect the enacted lower tax rate, which resulted in a deferred tax benefit of $755 million, including $610 million related to Power and $149 million related to Energy Holdings (including other impacts related to the new tax legislation, PSEG’s net non-cash provisional earnings benefit was $745 million, including $588 million related to Power and $147 million related to Energy Holdings). There were no further material deferred tax benefits recorded in 2018 as a result of the Tax Act. In addition, PSE&G had excess deferred taxes of approximately $2.1 billion as of December 31, 2017 and recorded a $2.9 billion revenue impact of these excess deferred taxes as Regulatory Liabilities. In 2018, PSE&G recorded an additional $34 million of excess deferred taxes and a $46 million revenue impact of these excess taxes as Regulatory Liabilities associated with the 2017 return to accrual. PSEG, PSE&G and Power completed their accounting for the Tax Act based on the current regulatory guidance available at the end of the Staff Accounting Bulletin No. 118 measurement period, not to extend beyond one year from the enactment date of the Tax Act.
The Tax Act has led to lower customer rates due to lower income tax expense recoveries and the BPU and FERC have approved our proposals to refund excess deferred income tax Regulatory Liabilities. See Note 7. Regulatory Assets and Liabilities for additional information.
In August 2018, the IRS issued a Notice of Proposed Rulemaking (Notice) regarding the application of tax depreciation rules as amended by the Tax Act. While the Notice provides some guidance as to the application of the changes made by the Tax Act to the bonus depreciation rules, certain aspects still remain unclear. Further, in November 2018 the IRS issued Proposed Regulations addressing the interest disallowance rules contained in the Tax Act. For non-regulated businesses, these rules set a cap on the amount of interest that can be deducted in a given year. Any amount that is disallowed can be carried forward indefinitely. For 2018, PSEG and Power expect that a portion of the interest will be disallowed in the current period but realized in future periods. As a result, PSEG and Power recorded a deferred tax asset of $54 million and $8 million, respectively, in 2018. However, certain aspects of the proposed regulations are unclear; therefore, PSEG recorded taxes based on its interpretation of the relevant statute.
Depreciation amounts recorded in 2018 were based on PSEG’s interpretation of the Tax Act and the depreciation rules contained in the Notice. Such amounts are subject to change based on several factors, including but not limited to, the IRS and state taxing authorities issuing final guidance and/or further clarification. Any further guidance or clarification could impact PSEG’s, PSE&G’s and Power’s financial statements.
The Protecting Americans from Tax Hikes Act of 2015 (2015 Tax Act), among other provisions, included an extension of the bonus depreciation rules and the 30% investment tax credit for qualified property placed into service after 2016. Qualified property that is placed into service from January 1, 2015 through December 31, 2017 is eligible for the 50% bonus depreciation. The provisions of the 2015 Tax Act have generated significant cash tax benefits for PSEG, PSE&G and Power through tax benefits related to the accelerated depreciation. For the period beginning September 28, 2017, subject to the transition rules, the Tax Act has modified the bonus depreciation rules of the 2015 Tax Act.
In 2018, Power generated a $14 million consolidated federal income tax NOL and PSE&G generated a $21 million New Jersey Corporate Business tax NOL. Both PSE&G and Power expect to fully realize their respective NOLs. There are no other material tax carryforwards in other jurisdictions.
PSEG recorded the following amounts related to its unrecognized tax benefits, which were primarily comprised of amounts recorded for PSE&G, Power and Energy Holdings:
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
PSEG
 
PSE&G
 
Power
 
Energy
Holdings
 
 
 
 
Millions
 
 
Total Amount of Unrecognized Tax Benefits as of January 1, 2018
 
$
334

 
$
135

 
$
142

 
$
53

 
 
Increases as a Result of Positions Taken in a Prior Period
 
11

 
4

 
4

 
3

 
 
Decreases as a Result of Positions Taken in a Prior Period
 
(70
)
 
(31
)
 
(37
)
 
(2
)
 
 
Increases as a Result of Positions Taken during the Current Period
 
52

 
3

 
48

 

 
 
Decreases as a Result of Positions Taken during the Current Period
 
(3
)
 
(3
)
 

 

 
 
Decreases as a Result of Settlements with Taxing Authorities
 
(6
)
 

 
(6
)
 

 
 
Decreases due to Lapses of Applicable Statute of Limitations
 

 

 

 

 
 
Total Amount of Unrecognized Tax Benefits as of December 31, 2018
 
$
318

 
$
108

 
$
151

 
$
54

 
 
Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits
 
(173
)
 
(57
)
 
(104
)
 
(12
)
 
 
Regulatory Asset—Unrecognized Tax Benefits
 
(46
)
 
(46
)
 

 

 
 
Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)
 
$
99

 
$
5

 
$
47

 
$
42

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
PSEG
 
PSE&G
 
Power
 
Energy
Holdings
 
 
 
 
Millions
 
 
Total Amount of Unrecognized Tax Benefits as of January 1, 2017
 
$
328

 
$
140

 
$
128

 
$
57

 
 
Increases as a Result of Positions Taken in a Prior Period
 
40

 
15

 
18

 
8

 
 
Decreases as a Result of Positions Taken in a Prior Period
 
(32
)
 
(11
)
 
(10
)
 
(13
)
 
 
Increases as a Result of Positions Taken during the Current Period
 
12

 
5

 
6

 
1

 
 
Decreases as a Result of Positions Taken during the Current Period
 
(1
)
 
(1
)
 

 

 
 
Decreases as a Result of Settlements with Taxing Authorities
 

 

 

 

 
 
Decreases due to Lapses of Applicable Statute of Limitations
 
(13
)
 
(13
)
 

 

 
 
Total Amount of Unrecognized Tax Benefits as of December 31, 2017
 
$
334

 
$
135

 
$
142

 
$
53

 
 
Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits
 
(157
)
 
(73
)
 
(72
)
 
(12
)
 
 
Regulatory Asset—Unrecognized Tax Benefits
 
(56
)
 
(56
)
 

 

 
 
Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)
 
$
121

 
$
6

 
$
70

 
$
41

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
PSEG
 
PSE&G
 
Power
 
Energy
Holdings
 
 
 
 
Millions
 
 
Total Amount of Unrecognized Tax Benefits as of January 1, 2016
 
$
386

 
$
181

 
$
111

 
$
93

 
 
Increases as a Result of Positions Taken in a Prior Period
 
12

 
3

 
6

 
2

 
 
Decreases as a Result of Positions Taken in a Prior Period
 
(62
)
 
(23
)
 
(1
)
 
(38
)
 
 
Increases as a Result of Positions Taken during the Current Period
 
19

 
6

 
12

 

 
 
Decreases as a Result of Positions Taken during the Current Period
 

 

 

 

 
 
Decreases as a Result of Settlements with Taxing Authorities
 

 

 

 

 
 
Decreases due to Lapses of Applicable Statute of Limitations
 
(27
)
 
(27
)
 

 

 
 
Total Amount of Unrecognized Tax Benefits as of December 31, 2016
 
$
328

 
$
140

 
$
128

 
$
57

 
 
Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits
 
(200
)
 
(106
)
 
(74
)
 
(20
)
 
 
Regulatory Asset—Unrecognized Tax Benefits
 
(31
)
 
(31
)
 

 

 
 
Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)
 
$
97

 
$
3

 
$
54

 
$
37

 
 
 
 
 
 
 
 
 
 
 
 

PSEG and its subsidiaries include accrued interest and penalties related to uncertain tax positions required to be recorded, as Income Tax Expense in the Consolidated Statements of Operations. Accumulated interest and penalties that are recorded on the Consolidated Balance Sheets on uncertain tax positions were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated Interest and Penalties
on Uncertain Tax Positions
as of December 31,
 
 
 
 
2018
 
2017
 
2016
 
 
 
 
Millions
 
 
PSE&G
 
$
12

 
$
25

 
$
22

 
 
Power
 
9

 
24

 
17

 
 
Energy Holdings
 
22

 
21

 
20

 
 
Total
 
$
43

 
$
70

 
$
59

 
 
 
 
 
 
 
 
 
 

It is reasonably possible that total unrecognized tax benefits will significantly increase or decrease within the next twelve months due to either agreements with various taxing authorities upon audit, the expiration of the Statute of Limitations, or other pending tax matters. These potential increases or decreases are as follows:
 
 
 
 
 
 
Possible (Increase)/Decrease in Total Unrecognized Tax Benefits
 
Over the next
12 Months
 
 
 
 
Millions
 
 
PSEG
 
$
112

 
 
PSE&G
 
$
62

 
 
Power
 
$
34

 
 
 
 
 
 

A description of income tax years that remain subject to examination by material jurisdictions, where an examination has not already concluded are:
 
 
 
 
 
 
 
 
 
 
 
  
PSEG
 
PSE&G
  
Power
 
 
United States
  
 
 
 
  
 
 
 
Federal
  
2011-2017
 
N/A
  
N/A
  
 
New Jersey
  
2006-2017
 
2011-2017
  
N/A
  
 
Pennsylvania
  
2015-2017
 
2015-2017
  
N/A
  
 
Connecticut
  
2016-2017
 
N/A
  
N/A
  
 
California
  
2006-2017
 
N/A
  
N/A
  
 
New York
  
2017
 
N/A
  
2017
  
 
 
 
 
 
 
 
 
 

New Jersey State Tax Reform
In July 2018, the State of New Jersey made changes to its income tax laws, including imposing a temporary surtax on allocated corporate taxable income of 2.5% effective January 1, 2018 and 2019 and 1.5% in 2020 and 2021, as well as requiring corporate taxpayers to file in a combined reporting group as defined under New Jersey law starting in 2019. Both provisions include an exemption for public utilities. At this time, PSEG believes PSE&G meets the definition of a public utility and, therefore, will not be impacted by the temporary surtax or be included in the combined reporting group. In 2018, PSEG’s non-utility business recorded $7 million of surtax as a result of these new provisions. This New Jersey tax legislation did not have a material impact on PSEG’s deferred income tax balance.
Power [Member]  
Income Taxes [Line Items]  
Income Taxes
Income Taxes
A reconciliation of reported income tax expense for PSEG with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 21% in 2018 and 35% in 2017 and 2016 is as follows:
 
 
 
 
 
 
 
 
 
 
 
 
Years Ended December 31,
 
 
PSEG
 
2018
 
2017
 
2016
 
 
 
 
Millions
 
 
Net Income
 
$
1,438

 
$
1,574

 
$
887

 
 
Income Taxes:
 
 
 
 
 
 
 
 
Operating Income:
 
 
 
 
 
 
 
 
Current (Benefit) Expense:
 
 
 
 
 
 
 
 
Federal
 
$
(97
)
 
$
86

 
$
(74
)
 
 
State
 
83

 
(31
)
 
61

 
 
Total Current
 
(14
)
 
55

 
(13
)
 
 
Deferred Expense (Benefit):
 
 
 
 
 
 
 
 
Federal
 
373

 
(482
)
 
311

 
 
State
 
71

 
92

 
28

 
 
Total Deferred
 
444

 
(390
)
 
339

 
 
Investment Tax Credit (ITC)
 
(13
)
 
29

 
85

 
 
Total Income Tax Expense (Benefit)
 
$
417

 
$
(306
)
 
$
411

 
 
Pre-Tax Income
 
$
1,855

 
$
1,268

 
$
1,298

 
 
Tax Computed at Statutory Rate @ 21% in 2018 and 35% in 2017 and 2016
 
$
390

 
$
444

 
$
454

 
 
Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
 
 
 
 
 
 
 
 
State Income Taxes (net of federal income tax)
 
123

 
36

 
56

 
 
Uncertain Tax Positions
 
(24
)
 
(3
)
 
(31
)
 
 
Manufacturing Deduction
 

 
(13
)
 
(17
)
 
 
NDT Fund
 
(13
)
 
19

 
3

 
 
Plant-Related Items
 
(10
)
 
(23
)
 
(20
)
 
 
Tax Credits
 
(16
)
 
(22
)
 
(25
)
 
 
Audit Settlement
 

 
6

 

 
 
Tax Adjustment Credit
 
(30
)
 

 

 
 
Deferred Tax Expense (Benefit) - Tax Act
 
3

 
(755
)
 

 
 
Other
 
(6
)
 
5

 
(9
)
 
 
Sub-Total
 
27

 
(750
)
 
(43
)
 
 
Total Income Tax Expense (Benefit)
 
$
417

 
$
(306
)
 
$
411

 
 
Effective Income Tax Rate
 
22.5
%
 
(24.1
)%
 
31.7
%
 
 
 
 
 
 
 
 
 
 


 
The following is an analysis of deferred income taxes for PSEG:
 
 
 
 
 
 
 
 
 
 
As of December 31,
 
 
PSEG
 
2018
 
2017
 
 
 
 
Millions
 
 
Deferred Income Taxes
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Noncurrent
 
 
 
 
 
 
Regulatory Liability Excess Deferred Tax
 
$
606

 
$
602

 
 
OPEB
 
163

 
217

 
 
Related to Uncertain Tax Position
 
71

 
142

 
 
Total Noncurrent Assets
 
$
840

 
$
961

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Noncurrent:
 
 
 
 
 
 
Plant-Related Items
 
$
4,817

 
$
4,257

 
 
New Jersey Corporate Business Tax
 
756

 
674

 
 
Leasing Activities
 
307

 
384

 
 
AROs and NDT Fund
 
196

 
233

 
 
Pension Costs
 
111

 
123

 
 
Taxes Recoverable Through Future Rates (net)
 
89

 
80

 
 
Other
 
12

 
171

 
 
Total Noncurrent Liabilities
 
$
6,288

 
$
5,922

 
 
Summary of Accumulated Deferred Income Taxes:
 
 
 
 
 
 
Net Noncurrent Deferred Income Tax Liabilities
 
$
5,448

 
$
4,961

 
 
ITC
 
265

 
279

 
 
Net Total Noncurrent Deferred Income Taxes and ITC
 
$
5,713

 
$
5,240

 
 
 
 
 
 
 
 

The deferred tax effect of certain assets and liabilities is presented in the table above net of the deferred tax effect associated with the respective regulatory deferrals.
In December 2017, new tax legislation was enacted, reducing the statutory U.S. corporate income tax rate from a maximum of 35% to 21%, effective January 1, 2018. PSEG is subject to ASC 740, which requires that the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate was enacted.



A reconciliation of reported income tax expense for PSE&G with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 21% in 2018 and 35% in 2017 and 2016 is as follows:
 
 
 
 
 
 
 
 
 
 
 
 
Years Ended December 31,
 
 
PSE&G
 
2018
 
2017
 
2016
 
 
 
 
Millions
 
 
Net Income
 
$
1,067

 
$
973

 
$
889

 
 
Income Taxes:
 
 
 
 
 
 
 
 
Operating Income:
 
 
 
 
 
 
 
 
Current (Benefit) Expense:
 
 
 
 
 
 
 
 
Federal
 
$
(62
)
 
$
(52
)
 
$
(153
)
 
 
State
 
1

 
(1
)
 
10

 
 
Total Current
 
(61
)
 
(53
)
 
(143
)
 
 
Deferred Expense:
 
 
 
 
 
 
 
 
Federal
 
287

 
492

 
551

 
 
State
 
122

 
129

 
102

 
 
Total Deferred
 
409

 
621

 
653

 
 
ITC
 
(4
)
 
(5
)
 
5

 
 
Total Income Tax Expense
 
$
344

 
$
563

 
$
515

 
 
Pre-Tax Income
 
$
1,411

 
$
1,536

 
$
1,404

 
 
Tax Computed at Statutory Rate @ 21% in 2018 and 35% in 2017 and 2016
 
$
296

 
$
538

 
$
491

 
 
Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
 
 
 
 
 
 
 
 
State Income Taxes (net of federal income tax)
 
98

 
83

 
72

 
 
Uncertain Tax Positions
 
(1
)
 
(9
)
 
(18
)
 
 
Plant-Related Items
 
(10
)
 
(23
)
 
(20
)
 
 
Tax Credits
 
(8
)
 
(9
)
 
(7
)
 
 
Tax Adjustment Credit
 
(30
)
 

 

 
 
Deferred Tax Benefit - Tax Act
 

 
(10
)
 

 
 
Other
 
(1
)
 
(7
)
 
(3
)
 
 
Sub-Total
 
48

 
25

 
24

 
 
Total Income Tax Expense
 
$
344

 
$
563

 
$
515

 
 
Effective Income Tax Rate
 
24.4
%
 
36.7
%
 
36.7
%
 
 
 
 
 
 
 
 
 
 














The following is an analysis of deferred income taxes for PSE&G:
 
 
 
 
 
 
 
 
 
 
As of December 31,
 
 
PSE&G
 
2018
 
2017
 
 
 
 
Millions
 
 
Deferred Income Taxes
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Noncurrent:
 
 
 
 
 
 
     Regulatory Liability Excess Deferred Tax
 
$
606

 
$
602

 
 
OPEB
 
114

 
116

 
 
Total Noncurrent Assets
 
$
720

 
$
718

 
 
Liabilities:
 
 
 
 
 
 
Noncurrent:
 
 
 
 
 
 
Plant-Related Items
 
$
3,622

 
$
3,311

 
 
New Jersey Corporate Business Tax
 
486

 
378

 
 
Pension Costs
 
159

 
152

 
 
Conservation Costs
 
36

 
24

 
 
Taxes Recoverable Through Future Rates (net)
 
89

 
80

 
 
Other
 
84

 
86

 
 
Total Noncurrent Liabilities
 
$
4,476

 
$
4,031

 
 
Summary of Accumulated Deferred Income Taxes:
 
 
 
 
 
 
Net Noncurrent Deferred Income Tax Liabilities
 
$
3,756

 
$
3,313

 
 
ITC
 
74

 
78

 
 
Net Total Noncurrent Deferred Income Taxes and ITC
 
$
3,830

 
$
3,391

 
 
 
 
 
 
 
 

The deferred tax effect of certain assets and liabilities is presented in the table above net of the deferred tax effect associated with the respective regulatory deferrals.
In December 2017, new tax legislation was enacted, reducing the statutory U.S. corporate income tax rate from a maximum of 35% to 21%, effective January 1, 2018. PSE&G is subject to ASC 740, which requires that the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate was enacted.





A reconciliation of reported income tax expense for Power with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 21% in 2018 and 35% in 2017 and 2016 is as follows:
 
 
 
 
 
 
 
 
 
 
 
 
Years Ended December 31,
 
 
Power
 
2018
 
2017
 
2016
 
 
 
 
Millions
 
 
Net Income
 
$
365

 
$
479

 
$
18

 
 
Income Taxes:
 
 
 
 
 
 
 
 
Operating Income:
 
 
 
 
 
 
 
 
Current (Benefit) Expense:
 
 
 
 
 
 
 
 
Federal
 
$
(164
)
 
$
95

 
$
107

 
 
State
 
24

 
(17
)
 
40

 
 
Total Current
 
(140
)
 
78

 
147

 
 
Deferred Expense (Benefit):
 
 
 
 
 
 
 
 
Federal
 
214

 
(804
)
 
(222
)
 
 
State
 
1

 
(37
)
 
(68
)
 
 
Total Deferred
 
215

 
(841
)
 
(290
)
 
 
ITC
 
(9
)
 
34

 
82

 
 
Total Income Tax Expense (Benefit)
 
$
66

 
$
(729
)
 
$
(61
)
 
 
Pre-Tax Income (Loss)
 
$
431

 
$
(250
)
 
$
(43
)
 
 
Tax Computed at Statutory Rate @ 21% in 2018 and 35% in 2017 and 2016
 
$
91

 
$
(88
)
 
$
(15
)
 
 
Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
 
 
 
 
 
 
 
 
State Income Taxes (net of federal income tax)
 
21

 
(36
)
 
(18
)
 
 
Manufacturing Deduction
 

 
(13
)
 
(17
)
 
 
NDT Fund
 
(13
)
 
19

 
3

 
 
Tax Credits
 
(7
)
 
(12
)
 
(18
)
 
 
Uncertain Tax Positions
 
(24
)
 
7

 
9

 
 
Audit Settlement
 

 
1

 

 
 
Deferred Tax Benefit - Tax Act
 
(1
)
 
(610
)
 

 
 
Other
 
(1
)
 
3

 
(5
)
 
 
Sub-Total
 
(25
)
 
(641
)
 
(46
)
 
 
Total Income Tax Expense (Benefit)
 
$
66

 
$
(729
)
 
$
(61
)
 
 
Effective Income Tax Rate
 
15.3
%
 
291.6
%
 
141.9
%
 
 
 
 
 
 
 
 
 
 


The following is an analysis of deferred income taxes for Power:
 
 
 
 
 
 
 
 
 
 
As of December 31,
 
 
Power
 
2018
 
2017
 
 
 
 
Millions
 
 
Deferred Income Taxes
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Noncurrent:
 
 
 
 
 
 
Related to Uncertain Tax Positions
 
$
60

 
$
45

 
 
Pension Costs
 
52

 
40

 
 
Contractual Liabilities & Environmental Costs
 
9

 
12

 
 
Other
 
98

 
93

 
 
Total Noncurrent Assets
 
$
219

 
$
190

 
 
Liabilities:
 
 
 
 
 
 
Noncurrent:
 
 
 
 
 
 
Plant-Related Items
 
$
1,189

 
$
935

 
 
AROs and NDT Fund
 
197

 
235

 
 
New Jersey Corporate Business Tax
 
260

 
225

 
 
Total Noncurrent Liabilities
 
$
1,646

 
$
1,395

 
 
Summary of Accumulated Deferred Income Taxes:
 
 
 
 
 
 
Net Noncurrent Deferred Income Tax Liabilities
 
$
1,427

 
$
1,205

 
 
ITC
 
192

 
201

 
 
Net Total Noncurrent Deferred Income Taxes and ITC
 
$
1,619

 
$
1,406

 
 
 
 
 
 
 
 

PSEG, PSE&G and Power each provide deferred taxes at the enacted statutory tax rate for all temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities irrespective of the treatment for rate-making purposes. Management believes that it is probable that the accumulated tax benefits that previously have been treated as a flow-through item to PSE&G customers will be recovered from or refunded to PSE&G’s customers in the future. See Note 7. Regulatory Assets and Liabilities.
In December 2017, the U.S. government enacted comprehensive tax legislation. The Tax Act establishes new tax laws that took effect in 2018, including, but not limited to (1) reduction of the U.S. federal corporate tax rate from a maximum of 35% to 21%; (2) elimination of the corporate alternative minimum tax (AMT); (3) a new limitation on deductible interest expense; (4) the repeal of the manufacturing deduction; (5) limitations on the deductibility of certain executive compensation; and (6) limitations on net operating losses (NOLs) generated after December 31, 2017, to 80% of taxable income with an indefinite carryforward period. In addition, certain changes were made to the bonus depreciation rules that impacted 2017. In 2018 and beyond, it is expected that Power will be entitled to 100% expensing and bonus depreciation will no longer apply to PSE&G.
As required under ASC 740, the ending 2017 deferred tax balances were adjusted to reflect the enacted lower tax rate, which resulted in a deferred tax benefit of $755 million, including $610 million related to Power and $149 million related to Energy Holdings (including other impacts related to the new tax legislation, PSEG’s net non-cash provisional earnings benefit was $745 million, including $588 million related to Power and $147 million related to Energy Holdings). There were no further material deferred tax benefits recorded in 2018 as a result of the Tax Act. In addition, PSE&G had excess deferred taxes of approximately $2.1 billion as of December 31, 2017 and recorded a $2.9 billion revenue impact of these excess deferred taxes as Regulatory Liabilities. In 2018, PSE&G recorded an additional $34 million of excess deferred taxes and a $46 million revenue impact of these excess taxes as Regulatory Liabilities associated with the 2017 return to accrual. PSEG, PSE&G and Power completed their accounting for the Tax Act based on the current regulatory guidance available at the end of the Staff Accounting Bulletin No. 118 measurement period, not to extend beyond one year from the enactment date of the Tax Act.
The Tax Act has led to lower customer rates due to lower income tax expense recoveries and the BPU and FERC have approved our proposals to refund excess deferred income tax Regulatory Liabilities. See Note 7. Regulatory Assets and Liabilities for additional information.
In August 2018, the IRS issued a Notice of Proposed Rulemaking (Notice) regarding the application of tax depreciation rules as amended by the Tax Act. While the Notice provides some guidance as to the application of the changes made by the Tax Act to the bonus depreciation rules, certain aspects still remain unclear. Further, in November 2018 the IRS issued Proposed Regulations addressing the interest disallowance rules contained in the Tax Act. For non-regulated businesses, these rules set a cap on the amount of interest that can be deducted in a given year. Any amount that is disallowed can be carried forward indefinitely. For 2018, PSEG and Power expect that a portion of the interest will be disallowed in the current period but realized in future periods. As a result, PSEG and Power recorded a deferred tax asset of $54 million and $8 million, respectively, in 2018. However, certain aspects of the proposed regulations are unclear; therefore, PSEG recorded taxes based on its interpretation of the relevant statute.
Depreciation amounts recorded in 2018 were based on PSEG’s interpretation of the Tax Act and the depreciation rules contained in the Notice. Such amounts are subject to change based on several factors, including but not limited to, the IRS and state taxing authorities issuing final guidance and/or further clarification. Any further guidance or clarification could impact PSEG’s, PSE&G’s and Power’s financial statements.
The Protecting Americans from Tax Hikes Act of 2015 (2015 Tax Act), among other provisions, included an extension of the bonus depreciation rules and the 30% investment tax credit for qualified property placed into service after 2016. Qualified property that is placed into service from January 1, 2015 through December 31, 2017 is eligible for the 50% bonus depreciation. The provisions of the 2015 Tax Act have generated significant cash tax benefits for PSEG, PSE&G and Power through tax benefits related to the accelerated depreciation. For the period beginning September 28, 2017, subject to the transition rules, the Tax Act has modified the bonus depreciation rules of the 2015 Tax Act.
In 2018, Power generated a $14 million consolidated federal income tax NOL and PSE&G generated a $21 million New Jersey Corporate Business tax NOL. Both PSE&G and Power expect to fully realize their respective NOLs. There are no other material tax carryforwards in other jurisdictions.
PSEG recorded the following amounts related to its unrecognized tax benefits, which were primarily comprised of amounts recorded for PSE&G, Power and Energy Holdings:
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
PSEG
 
PSE&G
 
Power
 
Energy
Holdings
 
 
 
 
Millions
 
 
Total Amount of Unrecognized Tax Benefits as of January 1, 2018
 
$
334

 
$
135

 
$
142

 
$
53

 
 
Increases as a Result of Positions Taken in a Prior Period
 
11

 
4

 
4

 
3

 
 
Decreases as a Result of Positions Taken in a Prior Period
 
(70
)
 
(31
)
 
(37
)
 
(2
)
 
 
Increases as a Result of Positions Taken during the Current Period
 
52

 
3

 
48

 

 
 
Decreases as a Result of Positions Taken during the Current Period
 
(3
)
 
(3
)
 

 

 
 
Decreases as a Result of Settlements with Taxing Authorities
 
(6
)
 

 
(6
)
 

 
 
Decreases due to Lapses of Applicable Statute of Limitations
 

 

 

 

 
 
Total Amount of Unrecognized Tax Benefits as of December 31, 2018
 
$
318

 
$
108

 
$
151

 
$
54

 
 
Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits
 
(173
)
 
(57
)
 
(104
)
 
(12
)
 
 
Regulatory Asset—Unrecognized Tax Benefits
 
(46
)
 
(46
)
 

 

 
 
Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)
 
$
99

 
$
5

 
$
47

 
$
42

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
PSEG
 
PSE&G
 
Power
 
Energy
Holdings
 
 
 
 
Millions
 
 
Total Amount of Unrecognized Tax Benefits as of January 1, 2017
 
$
328

 
$
140

 
$
128

 
$
57

 
 
Increases as a Result of Positions Taken in a Prior Period
 
40

 
15

 
18

 
8

 
 
Decreases as a Result of Positions Taken in a Prior Period
 
(32
)
 
(11
)
 
(10
)
 
(13
)
 
 
Increases as a Result of Positions Taken during the Current Period
 
12

 
5

 
6

 
1

 
 
Decreases as a Result of Positions Taken during the Current Period
 
(1
)
 
(1
)
 

 

 
 
Decreases as a Result of Settlements with Taxing Authorities
 

 

 

 

 
 
Decreases due to Lapses of Applicable Statute of Limitations
 
(13
)
 
(13
)
 

 

 
 
Total Amount of Unrecognized Tax Benefits as of December 31, 2017
 
$
334

 
$
135

 
$
142

 
$
53

 
 
Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits
 
(157
)
 
(73
)
 
(72
)
 
(12
)
 
 
Regulatory Asset—Unrecognized Tax Benefits
 
(56
)
 
(56
)
 

 

 
 
Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)
 
$
121

 
$
6

 
$
70

 
$
41

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
PSEG
 
PSE&G
 
Power
 
Energy
Holdings
 
 
 
 
Millions
 
 
Total Amount of Unrecognized Tax Benefits as of January 1, 2016
 
$
386

 
$
181

 
$
111

 
$
93

 
 
Increases as a Result of Positions Taken in a Prior Period
 
12

 
3

 
6

 
2

 
 
Decreases as a Result of Positions Taken in a Prior Period
 
(62
)
 
(23
)
 
(1
)
 
(38
)
 
 
Increases as a Result of Positions Taken during the Current Period
 
19

 
6

 
12

 

 
 
Decreases as a Result of Positions Taken during the Current Period
 

 

 

 

 
 
Decreases as a Result of Settlements with Taxing Authorities
 

 

 

 

 
 
Decreases due to Lapses of Applicable Statute of Limitations
 
(27
)
 
(27
)
 

 

 
 
Total Amount of Unrecognized Tax Benefits as of December 31, 2016
 
$
328

 
$
140

 
$
128

 
$
57

 
 
Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits
 
(200
)
 
(106
)
 
(74
)
 
(20
)
 
 
Regulatory Asset—Unrecognized Tax Benefits
 
(31
)
 
(31
)
 

 

 
 
Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)
 
$
97

 
$
3

 
$
54

 
$
37

 
 
 
 
 
 
 
 
 
 
 
 

PSEG and its subsidiaries include accrued interest and penalties related to uncertain tax positions required to be recorded, as Income Tax Expense in the Consolidated Statements of Operations. Accumulated interest and penalties that are recorded on the Consolidated Balance Sheets on uncertain tax positions were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated Interest and Penalties
on Uncertain Tax Positions
as of December 31,
 
 
 
 
2018
 
2017
 
2016
 
 
 
 
Millions
 
 
PSE&G
 
$
12

 
$
25

 
$
22

 
 
Power
 
9

 
24

 
17

 
 
Energy Holdings
 
22

 
21

 
20

 
 
Total
 
$
43

 
$
70

 
$
59

 
 
 
 
 
 
 
 
 
 

It is reasonably possible that total unrecognized tax benefits will significantly increase or decrease within the next twelve months due to either agreements with various taxing authorities upon audit, the expiration of the Statute of Limitations, or other pending tax matters. These potential increases or decreases are as follows:
 
 
 
 
 
 
Possible (Increase)/Decrease in Total Unrecognized Tax Benefits
 
Over the next
12 Months
 
 
 
 
Millions
 
 
PSEG
 
$
112

 
 
PSE&G
 
$
62

 
 
Power
 
$
34

 
 
 
 
 
 

A description of income tax years that remain subject to examination by material jurisdictions, where an examination has not already concluded are:
 
 
 
 
 
 
 
 
 
 
 
  
PSEG
 
PSE&G
  
Power
 
 
United States
  
 
 
 
  
 
 
 
Federal
  
2011-2017
 
N/A
  
N/A
  
 
New Jersey
  
2006-2017
 
2011-2017
  
N/A
  
 
Pennsylvania
  
2015-2017
 
2015-2017
  
N/A
  
 
Connecticut
  
2016-2017
 
N/A
  
N/A
  
 
California
  
2006-2017
 
N/A
  
N/A
  
 
New York
  
2017
 
N/A
  
2017
  
 
 
 
 
 
 
 
 
 

New Jersey State Tax Reform
In July 2018, the State of New Jersey made changes to its income tax laws, including imposing a temporary surtax on allocated corporate taxable income of 2.5% effective January 1, 2018 and 2019 and 1.5% in 2020 and 2021, as well as requiring corporate taxpayers to file in a combined reporting group as defined under New Jersey law starting in 2019. Both provisions include an exemption for public utilities. At this time, PSEG believes PSE&G meets the definition of a public utility and, therefore, will not be impacted by the temporary surtax or be included in the combined reporting group. In 2018, PSEG’s non-utility business recorded $7 million of surtax as a result of these new provisions. This New Jersey tax legislation did not have a material impact on PSEG’s deferred income tax balance.