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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes
(15)
INCOME TAXES

 

Winter Storm Uri

 

As discussed in Note 2 above, our Utilities received final commission approval for all of our Winter Storm Uri cost recovery applications, which will allow full recovery of our $546 million of incremental fuel, purchased power and natural gas costs. We will recover these costs from customers over several years, which will increase our taxable income on our tax returns by the amounts collected for each respective year. The incremental costs from Winter Storm Uri were deductible in our 2021 tax return and created a net deferred tax liability, which had balances as of December 31, 2022 and 2021 of $85 million and $124 million, respectively. The deferred tax liability is reversed with the same timing as the costs are recovered from our customers.

 

The income tax deduction recognized from Winter Storm Uri created a $509 million NOL in our 2021 federal income tax return and a $375 million NOL in our state income tax returns. Our federal NOL carryforwards related to Winter Storm Uri and other recent adjustments no longer expire due to the TCJA; however, our state NOL carryforwards expire at various dates from 2023 to 2041. We do not anticipate material changes to our valuation allowance against the state NOL carryforwards from Winter Storm Uri. Therefore, we did not record an additional valuation allowance against the state NOL carryforwards as of December 31, 2022 and 2021.

 

TCJA

 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the TCJA. The TCJA reduced the U.S. federal corporate tax rate from 35% to 21%. As such, the Company remeasured the deferred income taxes at the 21% federal tax rate as of December 31, 2017. The entities subject to regulatory construct have made their best estimate regarding the probability of settlements of net regulatory liabilities established pursuant to the TCJA. The amount of the settlements may change based on decisions and actions by the federal and state utility commissions, which could have a material impact on the Company’s future results of operations, cash flows or financial position. A majority of the excess deferred taxes are subject to the average rate assumption method, as prescribed by the IRS, and will generally be amortized as a reduction of customer rates over the remaining lives of the related assets. For the years ended December 31, 2022, 2021 and 2020, respectively, the Company has amortized, or provided bill credits for, $11 million, $23 million and $13 million of the regulatory liability. The portion that was eligible for amortization under the average rate assumption method in 2021 but is awaiting resolution of the treatment of these amounts in future regulatory proceedings has not been recognized and may be refunded in customer rates at any time in accordance with the resolution of pending or future regulatory proceedings.

 

Beginning in 2022, the TJCA modified IRC 174 which changes how taxpayers account for research and development costs. After the IRC 174 modification, taxpayers must amortize specified research and experimental expenditures performed in the United States ratably over five years instead of deducting research and experimental expenditures. This modification did not have a material impact for the year ended December 31, 2022.

 

Income Tax Expense (Benefit)

 

Income tax expense (benefit) from continuing operations for the years ended December 31 was (in thousands):

 

 

 

2022

 

 

2021

 

 

2020

 

Current:

 

 

 

 

 

 

 

 

 

Federal

 

$

(467

)

 

$

574

 

 

$

(6,020

)

State

 

 

80

 

 

 

(666

)

 

 

847

 

Current income tax (benefit)

 

 

(387

)

 

 

(92

)

 

 

(5,173

)

Deferred:

 

 

 

 

 

 

 

 

 

Federal

 

 

23,205

 

 

 

2,170

 

 

 

35,672

 

State

 

 

2,387

 

 

 

5,091

 

 

 

2,419

 

Deferred income tax expense

 

 

25,592

 

 

 

7,261

 

 

 

38,091

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

$

25,205

 

 

$

7,169

 

 

$

32,918

 

 

 

Effective Tax Rates

The effective tax rate differs from the federal statutory rate for the years ended December 31, as follows:

 

 

 

2022

 

 

2021

 

 

2020

 

Federal statutory rate

 

 

21.0

%

 

 

21.0

%

 

 

21.0

%

State income tax (net of federal tax effect) (a)

 

 

0.5

 

 

 

1.2

 

 

 

2.4

 

Non-controlling interest (b)

 

 

(0.9

)

 

 

(1.2

)

 

 

(1.2

)

Tax credits

 

 

(7.7

)

 

 

(8.4

)

 

 

(9.2

)

Flow-through adjustments (c)

 

 

(1.4

)

 

 

(3.2

)

 

 

(1.6

)

Uncertain Tax Benefits

 

 

—

 

 

 

0.3

 

 

 

1.5

 

Valuation Allowance

 

 

—

 

 

 

—

 

 

 

0.7

 

Other tax differences

 

 

(0.1

)

 

 

(0.2

)

 

 

0.6

 

Amortization of excess deferred income tax expense (d)

 

 

(2.5

)

 

 

(3.1

)

 

 

(2.3

)

TCJA bill credits (e)

 

 

(0.4

)

 

 

(3.6

)

 

 

—

 

Effective Tax Rate

 

 

8.5

%

 

 

2.8

%

 

 

11.9

%

 

(a)
The state effective tax rate contains the tax expense attributable to multiple statutory state rate reductions in the Company's state jurisdictions.
(b)
The effective tax rate reflects the income attributable to the non-controlling interest in Black Hills Colorado IPP for which a tax provision was not recorded.
(c)
Flow-through adjustments related primarily to accounting method changes for tax purposes that allow us to take a current tax deduction for repair costs, certain indirect costs and gain deferral. We recorded a deferred income tax liability in recognition of the temporary difference created between book and tax treatment and flowed the tax benefit through to tax expense. A regulatory asset was established to reflect the recovery of future increases in taxes payable from customers as the temporary differences reverse. As a result of this regulatory treatment, we continue to record tax benefits consistent with the flow-through method.
(d)
Primarily TCJA - see above.
(e)
Primarily related to one-time bill credits of TCJA benefits which were delivered to Colorado Electric and Nebraska Gas customers in 2021. These bill credits, which resulted in a reduction in revenue, were offset by a reduction in income tax expense and resulted in a minimal impact to Net income for the year ended December 31, 2021.

 

Deferred Tax Assets and Liabilities

 

The temporary differences, which gave rise to the net deferred tax liability, for the years ended December 31 were as follows (in thousands):

 

 

 

2022

 

 

2021

 

Deferred tax assets:

 

 

 

 

 

 

Regulatory liabilities

 

$

74,728

 

 

$

77,099

 

State tax credits

 

 

22,817

 

 

 

23,342

 

Federal NOL

 

 

191,992

 

 

 

227,535

 

State NOL

 

 

23,031

 

 

 

33,639

 

Partnership

 

 

12,755

 

 

 

13,395

 

Credit Carryovers

 

 

90,881

 

 

 

68,646

 

Other deferred tax assets

 

 

45,407

 

 

 

31,996

 

Less: Valuation allowance

 

 

(15,476

)

 

 

(14,719

)

Total deferred tax assets

 

 

446,135

 

 

 

460,933

 

 

 

 

 

 

 

 

Deferred tax liabilities:

 

 

 

 

 

 

Accelerated depreciation, amortization and other property-related differences

 

 

(645,762

)

 

 

(597,284

)

Regulatory assets

 

 

(94,433

)

 

 

(124,582

)

Goodwill

 

 

(57,884

)

 

 

(45,471

)

State deferred tax liability

 

 

(98,200

)

 

 

(109,136

)

Other deferred tax liabilities

 

 

(58,797

)

 

 

(49,848

)

Total deferred tax liabilities

 

 

(955,076

)

 

 

(926,321

)

 

 

 

 

 

 

 

Net deferred tax liability

 

$

(508,941

)

 

$

(465,388

)

 

Net Operating Loss and Tax Credit Carryforwards

 

At December 31, 2022, we have federal NOL and state NOL and tax credit carryforwards that will expire at various dates as follows (in thousands):

 

 

 

Amounts

 

 

Expiration Dates

Federal NOL Carryforward

 

$

330,085

 

 

2023 to 2037

Federal NOL Carryforward

 

$

584,161

 

 

No expiration

 

 

 

 

 

 

State NOL Carryforward (a)

 

$

408,269

 

 

2023 to 2041

State Tax Credit Carryforward

 

$

22,817

 

 

2023 to 2041

 

(a)
The carryforward balance is reflected on the basis of apportioned tax losses to jurisdictions imposing state income taxes.

 

As of December 31, 2022, we had a $1.1 million valuation allowance against the state NOL carryforwards. Our 2022 analysis of the ability to utilize such NOLs resulted in no increase in the valuation allowance. If the valuation allowance is adjusted due to higher or lower than anticipated utilization of the NOLs, the offsetting amount will affect tax expense.

 

As of December 31, 2022, we had a $14 million valuation allowance against the state ITC carryforwards. Our 2022 analysis of the ability to utilize such ITC resulted in a $0.8 million increase in the valuation allowance, which resulted in an increase to tax expense of $0.6 million. The remaining $0.2 million increase is attributable to our regulated business and is being accounted for under the deferral method whereby the credits are amortized to expense over the estimated useful life of the underlying asset that generated the credit. The valuation allowance adjustment was primarily attributable to expiring state ITC credits.

 

Unrecognized Tax Benefits

The following table reconciles the total amounts of unrecognized tax benefits, without interest, at the beginning and end of the period included in Other deferred credits and other liabilities on the accompanying Consolidated Balance Sheets (in thousands):

 

Changes in Uncertain Tax Positions:

 

2022

 

 

2021

 

 

2020

 

Beginning balance

 

$

10,554

 

 

$

8,383

 

 

$

4,165

 

Additions for prior year tax positions

 

 

7

 

 

 

448

 

 

 

3,788

 

Reductions for prior year tax positions

 

 

(773

)

 

 

(732

)

 

 

(1,313

)

Additions for current year tax positions

 

 

2,097

 

 

 

2,455

 

 

 

1,743

 

Ending balance

 

$

11,885

 

 

$

10,554

 

 

$

8,383

 

 

The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is approximately $5.7 million.

 

We recognized no interest expense associated with income taxes for the years ended December 31, 2022, 2021 and 2020. We had no accrued interest (before tax effect) associated with income taxes at December 31, 2022 and 2021.

 

The Company is subject to federal income tax as well as income tax in various state and local jurisdictions.

 

As of December 31, 2022, we do not have any tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease on or before December 31, 2023.