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INCOME TAXES | 12 Months Ended
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Sep. 30, 2018
Income Tax Disclosure [Abstract] |
INCOME TAXES | 12. INCOME TAXES The income tax (benefit) provision from operations for the fiscal years ended September 30, consists of the following:
(Thousands) | 2018 | 2017 | 2016
Current: |  |  |
Federal | $ | (2,848 | ) | $ | (16,023 | ) | $ | (23,597 | )
State | 4,563 |  | 2,470 |  | (2,209 | )
Deferred: |  |  |
Federal | (40,785 | ) | 54,965 |  | 70,386 |
State | 6,731 |  | 11,457 |  | 11,441 |
Investment/production tax credits | (21,446 | ) | (34,526 | ) | (32,491 | )
Income tax (benefit) provision | $ | (53,785 | ) | $ | 18,343 |  | $ | 23,530 |
As of September 30, the temporary differences, which give rise to deferred tax assets and (liabilities), consist of the following:
(Thousands) | 2018 |  | 2017
Deferred tax assets |  |  |
Investment tax credits (1) | $ | 123,258 |  |  | $ | 111,642 |
Deferred service contract revenue | — |  |  | 3,877 |
Incentive compensation | 4,646 |  |  | 6,260 |
Fair value of derivatives | 8,411 |  |  | 11,519 |
Federal net operating losses (2) | 24,500 |  |  | 28,487 |
State net operating losses | 34,754 |  |  | 23,597 |
Amortization of intangibles | 3,737 |  |  | 2,747 |
Conservation incentive plan | 1,955 |  |  | — |
Other | 8,213 |  |  | 11,098 |
Total deferred tax assets | $ | 209,474 |  |  | $ | 199,227 |
Deferred tax liabilities |  |  |
Property related items | $ | (392,886 | ) |  | $ | (620,850 | )
Remediation costs | (9,229 | ) |  | (11,625 | )
Equity investments | (31,956 | ) |  | (38,370 | )
Postemployment benefits | (353 | ) |  | (6,855 | )
Conservation incentive plan | — |  |  | (7,195 | )
Underrecovered gas costs | (1,156 | ) |  | (4,035 | )
Other | (7,826 | ) |  | (16,643 | )
Total deferred tax liabilities | $ | (443,406 | ) |  | $ | (705,573 | )
Total net deferred tax liabilities | $ | (233,932 | ) |  | $ | (506,346 | )
(1) | Includes $2.2 million and $2.3 million for NJNG for fiscal 2018 and 2017, respectively, which is being amortized over the life of the related assets, and$121.1 million and $109.3 million for Clean Energy Ventures for fiscal 2018 and 2017, respectively, which is ITC carryforward.
(2) | See discussion of federal net operating loss utilization in the Other Tax Items section of this note.
A reconciliation of the U.S. federal statutory rate to the effective rate from operations for the fiscal years ended September 30, is as follows:
(Thousands) | 2018 | 2017 | 2016
Statutory income tax expense | $ | 44,014 |  | $ | 52,643 |  | $ | 54,321 |
Change resulting from: |  |  |
Tax Act - nonutility excess deferred income taxes (1) | (59,627 | ) | — |  | — |
Tax Act - utility excess deferred income taxes refunded to customers (1) | (14,323 | ) | — |  | — |
Tax Act - utility excess deferred income taxes amortized (1) | (1,786 | ) | — |  | — |
State income taxes, net of federal benefit | 7,092 |  | 8,222 |  | 6,044 |
Cost of removal of assets placed in service prior to1981 | (5,829 | ) | (6,886 | ) | (5,738 | )
Investment/production tax credits | (21,446 | ) | (34,526 | ) | (32,491 | )
Basis adjustment of solar assets due to ITC | 1,080 |  | 4,256 |  | 4,453 |
AFUDC equity | (2,117 | ) | (2,624 | ) | (1,531 | )
Other | (843 | ) | (2,742 | ) | (1,528 | )
Income tax (benefit) provision | $ | (53,785 | ) | $ | 18,343 |  | $ | 23,530 |
Effective income tax rate (2) (3) | (29.9 | )% | 12.2 | % | 15.2 | %
(1) | For a more detailed description, see The Tax Act section of this note.
(2) | The U.S. federal statutory rate was 24.5 percent for fiscal 2018 and 35 percent for fiscal 2017 and 2016.
(3) | The effective tax rate without the impact of the Tax Act would have been 12.4 percent for fiscal 2018.
The Company and one or more of its subsidiaries files or expects to file income and/or franchise tax returns in the U.S. Federal jurisdiction and in the states of Colorado, Connecticut, Delaware, Iowa, Kansas, Louisiana, Maryland, Montana, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Texas, Utah, Virginia and the City of New York. The Company neither files in, nor believes it has a filing requirement in, any foreign jurisdictions other than Canada. Due to certain available tax treaty benefits, the Company incurs no tax liability in Canada. The Company’s federal income tax returns through fiscal 2014 have either been reviewed by the IRS, or the related statute of limitations has expired and all matters have been settled. Federal income tax returns for periods subsequent to fiscal 2014 are not currently under examination by the IRS. For all periods subsequent to those ended September 30, 2014, the Company’s state income tax returns are statutorily open to examination in all applicable states with the exception of Colorado, New Jersey and Texas. In Colorado, New Jersey and Texas, all periods subsequent to September 30, 2013 are statutorily open to examination. The State of New Jersey is currently conducting a sales and use tax examination for the period from July 1, 2011 through September 30, 2018. On March 7, 2018, the State of New Jersey notified the Company that it will conduct a general tax examination for fiscal years 2014 through 2017 related to NJRHS. The audit is currently in the information gathering stage. All periods subsequent to those ended September 30, 2013, are statutorily open to examination. The Company evaluates its tax positions to determine the appropriate accounting and recognition of potential future obligations associated with unrecognized tax benefits. As of September 30, 2018 and 2017, based on its analysis, the Company determined there was no need to recognize any liabilities associated with uncertain tax positions. The Tax Act On December 22, 2017, the President signed into law the Tax Act. The law made several changes to the Internal Revenue Code of 1986, as amended, the most impactful to the Company of which was a reduction in the federal corporate income tax rate from 35 percent to 21 percent that became effective January 1, 2018. Since the Company's fiscal year end is September 30, it is required by the Internal Revenue Code to calculate a statutory rate based upon the federal tax rates in effect before and after the effective date of the change in the taxable year that includes the effective date. Accordingly, the Company will use a federal statutory tax rate of 24.5 percent during fiscal 2018 and will use the enacted rate of 21 percent beginning in fiscal 2019. The SEC issued guidance in Staff Accounting Bulletin 118 to address the changes in estimates associated with impacts resulting from the Tax Act, which allows companies to record provisional amounts during a one-year measurement period. The Company calculated an original estimate for the measurement and accounting for certain effects of the Tax Act, including the remeasurement of deferred tax assets and liabilities to reflect the rates that will be in effect when the deferred tax assets and liabilities are expected to be realized or settled. The adjustments to deferred income taxes were based on assumptions the Company made with respect to its book versus tax differences and the timing of when those differences will reverse, including estimations associated with depreciation and the settlement of derivative unrealized amounts. Therefore, the revaluation of net deferred tax liabilities was subject to change as information and assumptions were updated each quarter for actual results. As a result of the changes associated with the Tax Act, NJNG recorded a decrease in its net deferred tax liability of $228.4 million, which included $164.3 million for the revaluation of its deferred income taxes and $64.1 million for the accounting of the income tax effects on the revaluation of those deferred income taxes. These amounts were recorded as a regulatory liability on the Consolidated Balance Sheets. On May 22, 2018, the BPU approved a refund of $31 million, which included approximately $20.1 million of the initial revaluation of excess deferred income taxes, $9 million for the overcollection of taxes from customers from January 1, 2018 through March 31, 2018, and interest on the overcollected taxes at the Company's short-term debt rate. These credits were returned to customer accounts in June 2018. During fiscal 2018, NJNG credited approximately $17 million to income tax (benefit) provision on the Consolidated Statements of Operations, which includes $14.3 million attributable to the remeasurement of deferred income taxes, $1.8 million for the amortization of excess deferred income taxes primarily related to timing differences associated with utility plant depreciation and $880,000 related to the revaluation of deferred income taxes not included in base rates. As of September 30, 2018, the regulatory liability included excess deferred income taxes of $205.4 million, which requires amortization over the remaining life of the utility plant consistent with IRS normalization principles. The (decrease) increase of the net deferred tax liability due to the impact of the Tax Act that was recognized on the Consolidated Statements of Operations for the remaining entities, was as follows:
(Thousands) | 2018
Income tax (benefit) provision |
Clean Energy Ventures | $ | (61,423 | )
Energy Services | 6,062 |
Midstream | (13,946 | )
Home Services and Other | 9,680 |
Total | $ | (59,627 | )
There was a $2.1 million change in the original estimate resulting from the use of actual results instead of estimated results through the Company’s fourth fiscal quarter. As of September 30, 2018, our accounting for the income tax effects of the Tax Act is considered complete. The Company does not expect to make any further adjustments to the amounts recorded as a result of the Tax Act. Other Tax Items As of September 30, 2018 and 2017, the Company has federal income tax net operating losses of approximately $136.8 million and $125.3 million, respectively. Federal net operating losses can generally can be carried back two years and forward 20 years and will begin to expire in fiscal 2036, with the remainder expiring by 2038. The Company expects to exercise its ability to carryback federal net operating losses to offset taxable income in prior periods. For the net operating losses it expects to carryback, the Company estimated the portion considered refundable and recorded receivables of approximately $23 million and $15.4 million as of September 30, 2018 and 2017, respectively, as a component of other noncurrent assets on the Consolidated Balance Sheets. Upon filing amended federal income tax returns to carryback its remaining federal net operating losses totaling $24.5 million, the Company will reduce its taxable income in those periods and recapture federal investment tax credits of the same amount that were previously utilized to offset taxable income. In addition, as of September 30, 2018 and 2017, the Company has an ITC/PTC carryforward of approximately $121.1 million and $109.3 million, respectively, which each have a life of 20 years. When the Company carries back the federal net operating losses noted above, it expects to recapture investment tax credits totaling $24.5 million. These recaptured tax credits are in addition to the $121.1 million and will be carried forward to offset future taxable income. The Company expects to utilize this entire carryforward, which would begin to expire in fiscal 2033. As of September 30, 2018 and 2017, the Company has state income tax net operating losses of approximately $578.8 million and $471.7 million, respectively. These state net operating losses have varying carry forward periods dictated by the state in which they were incurred; these state carry forward periods range from seven to 20 years and would begin to expire in fiscal 2021, with the majority expiring after 2035. In March 2018, Clean Energy Ventures committed to a plan to sell its wind assets and expects that the sale will be completed within the next 12 months. As a result of the planned sale, it is more likely than not that certain state net operating loss carryforwards will not be realizable prior to their expiration. As of September 30, 2018, the Company had a valuation allowance of $4 million related to state net operating loss carryforwards in Montana, Iowa, Kansas and Wyoming. As of September 30, 2017, the Company had a valuation allowance of $1 million related to state net operating loss carryforwards in Montana. This is included as a component of Other within the composition of deferred tax assets. The Consolidated Appropriations Act extended the 30 percent ITC for solar property that is under construction on or before December 31, 2019. The credit will decline to 26 percent for property under construction during 2020, and to 22 percent for property under construction during 2021. For any property that is under construction before 2022, but not placed in service before 2024, the ITC will be reduced to 10 percent. In addition, the Consolidated Appropriations Act retroactively extended the PTC for five years through December 31, 2019, with a gradual three-year phase-out for any project for which construction of the facility begins after December 31, 2016.

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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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