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INCOME TAXES (Notes) | 12 Months Ended
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Dec. 31, 2018
Income tax [Line Items] |
INCOME TAXES |
13. | INCOME TAXES
In December 2017, the Tax Cuts and Jobs Act of 2017 was signed into law. Substantially all of the provisions of the new law are effective for taxable years beginning after December 31, 2017. The new law includes significant changes to the Code, including amendments which significantly change the taxation of business entities and includes specific provisions related to regulated public utilities. The more significant changes that impact us include reductions in the corporate federal statutory income tax rate to 21 percent from 35 percent, and several technical provisions including, among others, the elimination of full expensing for tax purposes of certain property acquired after December 31, 2017, the continuation of certain rate normalization requirements for accelerated depreciation benefits and the general allowance for the continued deductibility of interest expense. Additionally, the new law limits the utilization of NOLs arising after December 31, 2017, to 80 percent of taxable income with an indefinite carryforward. The staff of the SEC issued guidance in SAB 118 which clarifies accounting for income taxes under ASC 740 if information is not yet available or complete and provides for up to a one-year period in which to complete the required analyses and accounting. We have completed or made a reasonable estimate for the measurement and accounting of the effects of the Tax Cuts and Jobs Act of 2017, which were reflected in our December 31, 2017, consolidated financial statements. While we still expect additional guidance from the U.S. Department of the Treasury and the IRS, we have finalized our calculations using available guidance. Any additional issued guidance or future actions of our regulators could potentially affect the final determination of the accounting effects arising from the implementation of the Tax Cuts and Jobs Act of 2017. The following table sets forth our provision for income taxes for the periods indicated:
| Years Ended December 31,
| 2018 |  | 2017 |  | 2016
| (Thousands of dollars)
Current income tax provision |  |  |  |  |
Federal | $ | — |  |  | $ | — |  |  | $ | (2,016 | )
State | 289 |  |  | 750 |  |  | 471 |
Total current income tax provision | 289 |  |  | 750 |  |  | (1,545 | )
Deferred income tax provision |  |  |  |  |
Federal | 42,413 |  |  | 83,138 |  |  | 76,247 |
State | 10,829 |  |  | 9,255 |  |  | 10,541 |
Total deferred income tax provision | 53,242 |  |  | 92,393 |  |  | 86,788 |
Total provision for income taxes | $ | 53,531 |  |  | $ | 93,143 |  |  | $ | 85,243 |
The following table is a reconciliation of our income tax provision for the periods indicated:
| Years Ended December 31,
| 2018 |  | 2017 |  | 2016
| (Thousands of dollars)
Income before income taxes | $ | 225,765 |  |  | $ | 256,138 |  |  | $ | 225,338 |
Federal statutory income tax rate | 21 | % |  | 35 | % |  | 35 | %
Provision for federal income taxes | 47,411 |  |  | 89,648 |  |  | 78,868 |
State income taxes, net of federal tax benefit | 8,783 |  |  | 6,503 |  |  | 7,158 |
Nonregulated deferred tax rate decrease | 74 |  |  | 2,162 |  |  | — |
Tax benefit of employee share-based compensation | (2,770 | ) |  | (5,162 | ) |  | — |
Other, net | 33 |  |  | (8 | ) |  | (783 | )
Total provision for income taxes | $ | 53,531 |  |  | $ | 93,143 |  |  | $ | 85,243 |
The following table sets forth the tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities for the periods indicated:
| December 31,
| 2018 |  | 2017
| (Thousands of dollars)
Deferred tax assets |  |  |
Employee benefits and other accrued liabilities | $ | 48,243 |  |  | $ | 40,277 |
Regulatory adjustments for enacted tax rate changes | 129,201 |  |  | 129,421 |
Net operating loss | 2,778 |  |  | 24,712 |
Other | 34 |  |  | 2,984 |
Total deferred tax assets | 180,256 |  |  | 197,394 |
Deferred tax liabilities |  |  |
Excess of tax over book depreciation | 717,903 |  |  | 677,249 |
Purchased-gas cost adjustment | 8,981 |  |  | 13,805 |
Other regulatory assets and liabilities, net | 105,798 |  |  | 106,285 |
Total deferred tax liabilities | 832,682 |  |  | 797,339 |
Net deferred tax liabilities | $ | 652,426 |  |  | $ | 599,945 |
As a result of the enactment of the Tax Cuts and Jobs Act of 2017, we remeasured our ADIT. As a regulated entity, the change in ADIT was recorded as a regulatory liability and is subject to refund to our customers. The Tax Cuts and Jobs Act of 2017 retains the tax normalization provisions of the Code that stipulate how these excess deferred income taxes are to be refunded to customers for certain accelerated tax depreciation benefits. Our customers will receive refunds as determined by our regulators beginning in 2019. The effect on the net deferred income tax liability for the enacted decrease in the federal income tax rate was $518.7 million, of which $520.9 million was recorded as a reduction to the deferred income tax liabilities and deferred as a regulatory liability for ratemaking purposes, offset by $2.2 million recorded as an increase in deferred income tax expense in 2017 attributable to the remeasured deferred income taxes associated with certain expenses not recovered in our rates. These adjustments had no impact on our 2018 or 2017 cash flows. We are working with our regulators to address the impact of the Tax Cuts and Jobs Act of 2017 on our rates. In each state, we have received accounting orders requiring us to refund the reduction in ADIT due to the remeasurement and to establish a separate regulatory liability for the difference in taxes included in our rates that have been calculated based on a 35 percent federal statutory income tax rate and the new 21 percent federal statutory income tax rate effective in January 2018. In January 2019, the OCC issued an order in Oklahoma Natural Gas’ March 2018 PBRC filing requiring Oklahoma Natural Gas to credit customers for the reduction in ADIT based upon an amortization period in compliance with the tax normalization rules for the portions of excess ADIT stipulated by the Code and ten years for all other components of excess ADIT. In February 2019, the KCC issued an order adjusting base rates, which included an amortization credit associated with the refund of ADIT based on an amortization period in compliance with the tax normalization rules for the portion of excess ADIT stipulated by the Code and five years for all other components of excess ADIT. In Texas, we continue to work with our regulators to address the reduction in ADIT due to the remeasurement. The treatment of our excess ADIT and the degree to which it impacts us will not be known until we finalize our current regulatory filings and make future regulatory filings. In 2018, we accrued a separate regulatory liability associated with the change in tax rates collected in our rates resulting in a reduction to our revenues of $36.6 million for the year ended December 31, 2018. In January 2019, the OCC issued an order that resulted in the establishment of a $15.8 million liability, including interest, for the estimated impact on customer rates of earnings, including amounts attributable to tax savings, above the 9.5 percent approved ROE in the 2018 review period to be returned to customers within the 2019 PBRC filing. In March 2018, the KCC issued an order requiring Kansas Gas Service to accrue a regulatory liability for the portion of its revenue representing the difference between the 21 percent and 35 percent federal corporate tax rate totaling, $14.2 million, excluding interest in 2018. Still outstanding is whether Kansas Gas Service should be required to refund to customers the amount of the regulatory liability accrued. In accordance with Kansas law, the KCC has until February 25, 2019 to rule on the tax refund issue. In 2018, Texas Gas Service issued one-time refunds totaling $6.6 million for the reduction in the federal corporate income tax rate for the period between January 1, 2018, to the dates new rates were implemented. As of December 31, 2018, we have no federal income tax NOL carryforwards and state income tax NOL carryforwards of $50.2 million, which will expire at various dates from 2025 through 2037. We believe that it is more likely than not that the tax benefits of the NOL carryforwards will be utilized prior to their expirations; therefore, no valuation allowance is necessary. We have filed our consolidated federal and state income tax returns for years 2015, 2016 and 2017. We are no longer subject to income tax examination for years prior to 2015.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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