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Income Taxes | 12 Months Ended
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Sep. 30, 2024
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The components of federal and state income taxes included in the Consolidated Statements of Income are as follows:
| Year Ended September 30
| 2024 |  | 2023 |  | 2022
| (Thousands)
Current Income Taxes — |  |  |  |  |
Federal | $ | 6,453 |  |  | $ | 11,744 |  |  | $ | — |
State | 5,899 |  |  | 1,386 |  |  | 12,214 |
Deferred Income Taxes — |  |  |  |  |
Federal | 894 |  |  | 106,801 |  |  | 137,025 |
State | (3,504) |  |  | 44,602 |  |  | (32,610) |
Total Income Taxes | $ | 9,742 |  |  | $ | 164,533 |  |  | $ | 116,629 |
On July 8, 2022, House Bill 1342 was signed into law in Pennsylvania. The law reduces the corporate income tax rate to 8.99% for fiscal 2024. Starting with fiscal 2025, the rate is reduced by 0.5% annually until it reaches 4.99% for fiscal 2032. Under GAAP, the tax effects of a change in tax law must be recognized in the period in which the law is enacted. GAAP also requires deferred income tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. During fiscal 2022, the Company’s deferred income taxes were initially re-measured based upon the new tax rates. For the Company’s non-rate regulated activities, the change in deferred income taxes was $28.4 million as of the enactment date and was recorded as a reduction to income tax expense. For the Company’s rate regulated activities, the reduction in deferred income taxes of $37.2 million was recorded as a decrease to Recoverable Future Taxes of $19.8 million and an increase to Taxes Refundable to Customers of $17.4 million during the quarter ended September 30, 2022. As the rate reduction occurs through fiscal 2032, an annual re-measurement will be made. This amount is reflected in State Income Taxes. On August 16, 2022, the “Inflation Reduction Act” (IRA) was signed into law. The IRA, among other things, includes provisions to expand energy incentives, impose a corporate minimum tax, and impose an excise tax on corporate stock buybacks. The provisions of the IRA did not have a material impact on the accompanying financial statements, although some of the provisions may be applicable in future years. Total income taxes as reported differ from the amounts that were computed by applying the federal income tax rate to income before income taxes. The following is a reconciliation of this difference:
| Year Ended September 30
| 2024 |  | 2023 |  | 2022
| (Thousands)
U.S. Income Before Income Taxes | $ | 87,255 |  |  | $ | 641,399 |  |  | $ | 682,650 |
Income Tax Expense, Computed at U.S. Federal Statutory Rate of 21% | $ | 18,324 |  |  | $ | 134,694 |  |  | $ | 143,357 |
State Valuation Allowance (1) | — |  |  | — |  |  | (24,850) |
State Income Taxes (2) | 1,892 |  |  | 36,331 |  |  | 8,736 |
Amortization of Excess Deferred Federal Income Taxes | (5,607) |  |  | (6,053) |  |  | (5,184) |
Plant Flow Through Items | (6,135) |  |  | (2,856) |  |  | (814) |
Stock Compensation | 1,758 |  |  | 957 |  |  | 820 |
Federal Tax Credits | (5) |  |  | (6) |  |  | (5,701) |
Miscellaneous | (485) |  |  | 1,466 |  |  | 265 |
Total Income Taxes | $ | 9,742 |  |  | $ | 164,533 |  |  | $ | 116,629 |
(1)During fiscal 2022, the valuation allowance recorded against certain state deferred tax assets was removed. See discussion below. (2)The state income tax expense shown above includes adjustments to the estimated state effective tax rates utilized in the calculation of deferred income taxes, including the Pennsylvania rate change discussed above. Significant components of the Company’s deferred tax liabilities and assets were as follows:
| At September 30
| 2024 |  | 2023
| (Thousands)
Deferred Tax Liabilities: |  |  |
Unrealized Hedging Gains | $ | 22,433 |  |  | $ | 3,385 |
Property, Plant and Equipment | 1,134,727 |  |  | 1,178,893 |
Pension and Other Post-Retirement Benefit Costs | 59,877 |  |  | 44,358 |
Other | 13,885 |  |  | 21,470 |
Total Deferred Tax Liabilities | 1,230,922 |  |  | 1,248,106 |
Deferred Tax Assets: |  |  |
Tax Loss and Credit Carryforwards | (31,111) |  |  | (33,744) |
Pension and Other Post-Retirement Benefit Costs | (49,622) |  |  | (41,843) |
Other | (39,024) |  |  | (48,349) |
Total Deferred Tax Assets | (119,757) |  |  | (123,936) |
Total Net Deferred Income Taxes | $ | 1,111,165 |  |  | $ | 1,124,170 |
The following is a summary of changes in valuation allowances for deferred tax assets:
| Year Ended September 30
| 2024 |  | 2023 |  | 2022
| (Thousands)
Balance at Beginning of Year | $ | — |  |  | $ | — |  |  | $ | 57,645 |
Additions | — |  |  | — |  |  | — |
Deductions | — |  |  | — |  |  | 57,645 |
Balance at End of Year | $ | — |  |  | $ | — |  |  | $ | — |
A valuation allowance for deferred tax assets, including net operating losses and tax credits, is recognized when it is more likely than not that some or all of the benefit from the deferred tax assets will not be realized. The Company, at each reporting date, assesses the realizability of its deferred tax assets, including factors such as future taxable income, reversal of existing temporary differences, and tax planning strategies. The Company considers both positive and negative evidence related to the likelihood of the realization of the deferred tax assets. On June 30, 2022, the Company completed the sale of Seneca’s California oil and gas assets to Sentinel Peak Resources California, LLC. As a result of the sale of the California oil and gas assets, the remaining deferred tax assets and valuation allowance of approximately $27.2 million related to the California net operating loss and tax credit carryforwards were written off, as the Company determined that there was a remote possibility for use as the Company no longer has California operations. During the quarter ended September 30, 2022, the valuation allowance was adjusted because of the Pennsylvania corporate income tax rate change remeasurement described above and for current activity, for a cumulative adjustment of $5.5 million. In addition, the Company determined there was sufficient positive evidence, despite a prior history of subsidiary tax losses, to conclude that it was more likely than not that the remaining state deferred tax assets would be realized. The conclusion was primarily related to the use of net operating losses in Pennsylvania in 2022 due to sustained strong operating results as well as the expectation for future forecasted earnings in Pennsylvania. The sale of California assets also resulted in higher apportionment of income to Pennsylvania on a prospective basis, which further supported realization of existing Pennsylvania net operating loss deferred tax assets. Accordingly, as of September 30, 2022, the Company reversed the remaining valuation allowance and recognized an income tax benefit of approximately $24.9 million. Regulatory liabilities representing the reduction of previously recorded deferred income taxes associated with rate-regulated activities that are expected to be refundable to customers amounted to $305.6 million and $268.6 million at September 30, 2024 and 2023, respectively. Also, regulatory assets representing future amounts collectible from customers, corresponding to additional deferred income taxes not previously recorded because of ratemaking practices, amounted to $80.1 million and $69.0 million at September 30, 2024 and 2023, respectively. The Company is in the Compliance Maintenance Phase of the IRS Compliance Assurance Process (“CAP”) for fiscal 2024. The CAP program is intended for taxpayers with a low risk of non-compliance who are cooperative and transparent with few, if any, material issues that require resolution. The federal statute of limitations remains open for fiscal 2021 and later years. The Company is also subject to various routine state income tax examinations. The Company’s principal subsidiaries have state statutes of limitations that generally expire between three to four years from the date of filing of the income tax return. Net operating losses being carried forward from prior years remain subject to examination on a future return until they are utilized, upon which time the statute of limitation begins. The Company has no unrecognized tax benefits as of September 30, 2024, 2023, or 2022. During fiscal 2009, preliminary consent was received from the IRS National Office approving the Company’s application to change its tax method of accounting for certain capitalized costs relating to its utility property, subject to final guidance. The IRS released guidance on April 14, 2023, providing a natural gas transmission and distribution property safe harbor method of accounting (“NGSH method”) that taxpayers may use to determine whether expenses to repair, maintain, replace, or improve natural gas transmission and distribution property must be capitalized or be allowable as deductions for repairs. The Company elected this change in tax accounting method for Distribution Corporation with its most recent consolidated tax return filing. The Company is planning to elect this same change in tax accounting method for Supply Corporation with its consolidated tax return filing in the upcoming year and has reflected an estimate in the September 30, 2024 financial statements of what is intended to be treated as a repair for tax purposes rather than being capitalized. That estimate has been recorded in Income Tax Expense.
Tax carryforwards available at September 30, 2024, were as follows:
Jurisdiction |  | Tax Attribute |  | Amount (Thousands) |  | Expires
Pennsylvania |  | Net Operating Loss |  | $ | 438,058 |  |  | 2031-2044

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