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.

In March 2020, the CARES Act was enacted which includes several significant business tax provisions that modify or temporarily suspend certain provisions of the 2017 Tax Reform Act. The CARES Act provisions are intended to improve cash flow and liquidity by, among other things, providing a temporary five-year carryback for certain net operating losses, accelerating the refund of previously generated corporate alternative minimum tax credits and temporarily increasing the business interest limitation to 50% of adjusted taxable income for certain businesses. DESC utilized the income tax provisions of the CARES Act to accelerate the recognition of certain tax attributes, but they did not provide a material benefit.

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. See Note 3 for more information and current year developments.

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

Year Ended December 31,	2020			2019			2018
(millions)
Current:
Federal	$	(139	)	$	—		$	(16	)
State		3			34			0
Total current expense (benefit)		(136	)		34			(16	)
Deferred:
Federal
Taxes before operating loss carryforwards, investment tax credits and tax reform		158			(90	)		(216	)
2017 Tax Reform Act impact		—			—			(176	)
Tax utilization expense of operating loss carryforwards		33			102			46
State		17			(57	)		(52	)
Total deferred expense (benefit)		208			(45	)		(398	)
Investment tax credit-amortization		(1	)		(1	)		(2	)
Total income tax expense (benefit)	$	71		$	(12	)	$	(416	)

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 SEMI’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,	2020			2019			2018
U.S. statutory rate		21.0	%		21.0	%		21.0	%
Increases (reductions) resulting from:
State taxes, net of federal benefit		4.2			3.9			3.8
State investment tax credits		—			—			0.3
AFUDC - equity		(0.1	)		—			0.2
Amortization of federal investment tax credits		(0.4	)		0.1			0.2
Production tax credits		—			0.4			0.9
Reversal of excess deferred income taxes		(6.0	)		(1.4	)		—
Federal legislative change		—			—			17.5
NND Project impairment		—			(2.4	)		(2.3	)
Write-off of regulatory asset		—			(15.8	)		—
Changes in unrecognized tax benefits		—			(5.1	)		—
Other		0.1			0.2			(0.2	)
Effective tax rate		18.8	%		0.9	%		41.4	%

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 2020, 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 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.

At December 31,	2020			2019
(millions)
Deferred income taxes:
Total deferred income tax assets	$	1,101		$	1,258
Total deferred income tax liabilities		1,941			1,868
Total net deferred income tax liabilities	$	840		$	610
Total deferred income taxes:
Depreciation method and plant basis differences	$	1,098		$	1,007
Excess deferred income taxes		(233	)		(231	)
Unrecovered nuclear plant cost		529			553
DESC rate refund		(140	)		(169	)
Toshiba settlement		(204	)		(219	)
Nuclear decommissioning		(51	)		(43	)
Deferred state income taxes		208			200
Federal benefit of deferred state income taxes		(44	)		(42	)
Deferred fuel, purchased energy and gas costs		(12	)		7
Pension benefits		39			46
Other postretirement benefits		(37	)		(35	)
Loss and credit carryforwards		(382	)		(391	)
Other		69			(73	)
Total net deferred income tax liabilities	$	840		$	610
Deferred Investment Tax Credits-Regulated Operations		18			19
Total Deferred Taxes and Deferred Investment Tax Credits	$	858		$	629

At December 31, 2020, DESC had the following deductible loss and credit carryforwards:

(millions)	Deductible Amount		Deferred Tax Asset		Expiration Period
Federal losses	$	1,052	$	221	2037
Federal production and other credits		—		31	2035-2038
State losses		2,418		121	2037
State investment and other credits		—		36	2026-2031
Total	$	3,470	$	409

(millions)	2020		2019			2018
Balance at January 1	$	132	$	106		$	98
Increases-prior period positions		5		76			8
Decreases-prior period positions		—		(53	)		—
Increases-current period positions		1		3			0
Balance at December 31	$	138	$	132		$	106

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 2013. The IRS is currently examining DESC’s federal returns from 2013 through 2017. DESC is no longer subject to state and local income tax examinations by tax authorities for years prior to 2013.

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 $4 million. Otherwise, with regard to 2020 and prior years, DESC cannot estimate the range of reasonably possible changes to unrecognized tax benefits that may occur in 2021.

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.