Judgment and the use of estimates are required in developing the provision for income taxes and reporting of tax-related assets and liabilities. The interpretation of tax laws involves uncertainty, since tax authorities may interpret the laws differently. DESC is routinely audited by federal and state tax authorities. Ultimate resolution of income tax matters may result in favorable or unfavorable impacts to net income and cash flows, and adjustments to tax-related assets and liabilities could be material.

The 2017 Tax Reform Act included a broad range of tax reform provisions. The 2017 Tax Reform Act reduced the corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. At the date of enactment, deferred tax assets and liabilities were remeasured based upon the new 21% enacted tax rate expected to apply when temporary differences are realized or settled. The specific provisions related to regulated public utilities in the 2017 Tax Reform Act generally allow for the continued deductibility of interest expense, changed the tax depreciation of certain property acquired after September 27, 2017, and continued certain rate normalization requirements for accelerated depreciation benefits.

As indicated in Note 2, DESC’s operations, including accounting for income taxes, are subject to regulatory accounting treatment. For regulated operations, many of the changes in deferred taxes represent amounts probable of collection from or refund to customers, and were recorded as either an increase to a regulatory asset or liability. The 2017 Tax Reform Act included provisions that stipulate how these excess deferred taxes may be passed back to customers for certain accelerated tax depreciation benefits. Potential sharing of other deferred taxes will be determined by our regulators. See Note 3 for more information.

DESC has completed the accounting for the effects of the 2017 Tax Reform Act, although changes could occur as additional guidance is issued and finalized, particularly as it relates to the deductibility of interest expense in consolidated groups such as Dominion Energy. In addition, the major states in which DESC operates have addressed conformity with some or all of the provisions of the 2017 Tax Reform Act, although they may have modified certain provisions.

Details of income tax expense for continuing operations including noncontrolling interests were as follows:

Year Ended December 31,	2019			2018			2017
(millions)
Current:
Federal	$	—		$	(16	)	$	(410	)
State		34			—			(18	)
Total current expense (benefit)		34			(16	)		(428	)
Deferred:
Federal
Taxes before operating loss carryforwards, investment tax credits and tax reform		(90	)		(216	)		262
2017 Tax Reform Act impact		—			(176	)		(1	)
Tax utilization expense of operating loss carryforwards		102			46			—
State		(57	)		(52	)		(2	)
Total deferred expense (benefit)		(45	)		(398	)		259
Investment tax credit-amortization		(1	)		(2	)		(2	)
Total income tax expense (benefit)	$	(12	)	$	(416	)	$	(171	)

The 2017 Tax Reform Act reduced the statutory federal income tax rate to 21% beginning in January 2018. Accordingly, current and deferred income taxes are recorded at the new 21% rate.

Subsequent to the SCANA Combination, DESC’s annual utilization of its net operating losses are restricted by the tax law, however in certain circumstances the utilization may be increased if SCANA recognizes built-in gains on certain sales of assets. In December 2019, SCANA recognized a gain on the sale of SCANA Energy Marketing, Inc.’s assets to Dominion Energy, which increased the amount of DESC’s 2019 net operating loss utilization by approximately $79 million.

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

Year Ended December 31,	2019			2018			2017
U.S. statutory rate		21.0	%		21.0	%		35.0	%
Increases (reductions) resulting from:
State taxes, net of federal benefit		3.9			3.8			2.3
State investment tax credits		—			0.3			1.5
AFUDC - equity		—			0.2			1.5
Amortization of federal investment tax credits		0.1			0.2			0.6
Production tax credits		0.4			0.9			2.3
Domestic production activities deduction		—			—			5.2
Reversal of excess deferred income taxes		(1.4	)		—			—
Federal legislative change		—			17.5			0.3
NND Project impairment		(2.4	)		(2.3	)		—
Write-off of regulatory asset		(15.8	)		—			—
Changes in unrecognized tax benefits		(5.1	)		—			—
Other		0.2			(0.2	)		1.2
Effective tax rate		0.9	%		41.4	%		49.9	%

At DESC, deferred taxes will reverse at the weighted average rate used to originate the deferred tax liability, which in some cases will be 35%. DESC has recorded an estimate of the portion of excess deferred income tax amortization in 2019, and changes in estimates of amounts probable of collection from or return to customers. The reversal of these excess deferred income taxes will impact the effective tax rate, and may ultimately impact rates charged to customers. See Note 3 for current year developments.

In connection with the SCANA Combination, Dominion Energy committed to forgo, or limit, the recovery of certain income tax-related regulatory assets associated with the NND Project. DESC’s effective tax rate reflects deferred income tax expense of $194 million in satisfaction of this commitment. In addition, DESC recorded deferred income tax expense of $30 million with a corresponding increase to regulatory liabilities by $40 million and deferred tax assets by $10 million related to adjustments of amounts probable of return to customers on the nuclear project.

In connection with the remeasurement of federal deferred income tax assets and liabilities resulting from the lower federal income tax rate, DESC recorded a deferred income tax benefit of approximately $1 million in the statements of operations for the year ended December 31, 2017. As a result of the filing of the 2017 tax return in the fourth quarter of 2018 and the additional impairment charges recorded in 2018, adjustments to such excess deferred income taxes of approximately $176 million were recorded. Also in connection with the additional impairment charges, DESC recorded additional adjustments to deferred income taxes in the aggregate amount of approximately $23 million. In addition, certain states in which DESC operates may or may not conform to some or all of the provisions of the 2017 Tax Reform Act. Ultimate resolution or clarification of these matters may result in favorable or unfavorable impacts to results of operations and cash flows, and adjustments to tax-related assets and liabilities, and such impacts or adjustments could be material.

At December 31,	2019			2018
(millions)
Deferred income taxes:
Total deferred income tax assets	$	1,258		$	971
Total deferred income tax liabilities		1,868			1,960
Total net deferred income tax liabilities	$	610		$	989
Total deferred income taxes:
Depreciation method and plant basis differences	$	1,007		$	998
Excess deferred income taxes		(231	)		(148	)
Unrecovered nuclear plant cost		553			584
DESC rate refund		(169	)		(1	)
Toshiba settlement		(219	)		(231	)
Nuclear decommissioning		(43	)		(9	)
Deferred state income taxes		200			296
Federal benefit of deferred state income taxes		(42	)		(62	)
Deferred fuel, purchased energy and gas costs		7			1
Pension benefits		46			46
Other postretirement benefits		(35	)		(35	)
Loss and credit carryforwards		(391	)		(520	)
Other		(73	)		70
Total net deferred income tax liabilities	$	610		$	989
Deferred Investment Tax Credits-Regulated Operations		19			19
Total Deferred Taxes and Deferred Investment Tax Credits	$	629		$	1,008

At December 31, 2019, DESC had the following deductible loss and credit carryforwards:

(millions)	Deductible Amount		Deferred Tax Asset		Expiration Period
Federal losses	$	1,207	$	254	2037
Federal production and other credits		—		38	2031-2038
State losses		1,849		92	2037
State investment and other credits		—		31	2026-2031
Total	$	3,056	$	415

(millions)	2019			2018		2017
Balance at January 1	$	106		$	98	$	350
Increases-prior period positions		76			8		—
Decreases-prior period positions		(53	)		—		(273	)
Increases-current period positions		3			—		21
Balance at December 31	$	132		$	106	$	98

Throughout 2019, the evaluation of federal and state income tax positions taken in DESC’s tax returns prior to the SCANA Combination increased unrecognized tax benefits by $79 million and increased income tax expense by $67 million. In the fourth quarter of 2019, DESC also remeasured its beginning unrecognized tax benefits by $53 million. These changes were offset by a $45 million reduction in credit carryforward deferred tax assets and a $7 million increase to accrued taxes resulting in a $1 million benefit to income tax expense.

Certain unrecognized tax benefits, or portions thereof, if recognized, would affect the effective tax rate. Changes in these unrecognized tax benefits may result from remeasurement of amounts expected to be realized, settlements with tax authorities and expiration of statutes of limitations. If recognized, all the unrecognized tax benefits would impact the effective tax rate.

The statute is closed for IRS examination of years prior to 2010, except for certain outstanding refund claims. The IRS has completed examinations of DESC’s federal returns through 2012. The IRS is currently examining DESC’s federal returns from 2013 through 2017. With few exceptions, DESC is no longer subject to state and local income tax examinations by tax authorities for years prior to 2012.

It is reasonably possible that these unrecognized tax benefits may decrease by $65 million within the next twelve months. If such changes were to occur, other than revisions of the accrual for interest on tax underpayments and overpayments, earnings could increase by up to $4 million. Otherwise, with regard to 2019 and prior years, DESC cannot estimate the range of reasonably possible changes to unrecognized tax benefits that may occur in 2020.

DESC is also obligated to report adjustments resulting from IRS settlements to state tax authorities. In addition, if DESC utilizes operating losses or tax credits generated in years for which the statute of limitations has expired, such amounts are generally subject to examination.