Income Taxes

12 Months Ended

Dec. 31, 2018

Income Taxes

The components of income before income taxes from continuing operations for each of the years ended December 31 were as follows:



	2018			2017			2016
	(In thousands)
United States	$	317,655		$	350,064		$	326,252
Foreign	(784		)	(37		)	(24		)
Income before income taxes from continuing operations	$	316,871		$	350,027		$	326,228

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



	2018			2017			2016
	(In thousands)
Current:
Federal	$	(15,901	)	$	74,272		$	81,989
State	3,651			16,192			13,190
Foreign	—			—			2
	(12,250		)	90,464			95,181
Deferred:
Income taxes:
Federal	50,755			(24,497		)	(2,102		)
State	7,206			(864		)	1,184
Investment tax credit - net	1,774			(62		)	(1,131		)
	59,735			(25,423		)	(2,049		)
Total income tax expense	$	47,485		$	65,041		$	93,132

In accordance with the accounting guidance on accounting for income taxes, the tax effects of the change in tax laws or rates are to be recorded in the period of enactment. The TCJA was enacted on December 22, 2017, as discussed in Note 1. Therefore, the reduction in the corporate tax rate from 35 percent to 21 percent required the Company to prepare a one-time revaluation of the Company's deferred tax assets and liabilities in the fourth quarter of 2017, the period of enactment. The deferred taxes were revalued at the new tax rate because deferred taxes should reflect what the Company expects to pay or receive in future periods under the applicable tax rate. As a result of the revaluation, the Company reduced the value of these assets and liabilities and recorded a tax benefit from continuing operations of $39.5 million on the Consolidated Statements of Income for the year ended December 31, 2017. Included in the tax benefit from continuing operations was income tax expense of $7.7 million related to amounts in accumulated other comprehensive loss and $1.0 million related to the Company's assets held for sale.

The Company's regulated operations prepared a one-time revaluation of the Company's regulatory deferred tax assets and liabilities in the fourth quarter of 2017 related to the enactment of the TCJA. The revaluation is being deferred under regulatory accounting as the Company works with the various regulators to plan for amounts expected to be returned to customers, as discussed in Notes 6 and 18. The revaluation of the deferred tax assets and liabilities resulted in a net decrease of $285.5 million in the fourth quarter of 2017. In the third quarter of 2018, the Company reversed a regulatory liability recorded in 2017 based on a FERC final accounting order being issued, which resulted in a $4.2 million tax benefit. These regulatory amounts will largely be refunded over the remaining life of the related assets.

The changes included in the TCJA were broad and complex. The SEC issued rules that allowed for a measurement period of up to one year after the enactment date of the TCJA to finalize the recording of the related tax impacts. The Company has reviewed the impacts of the TCJA and completed its assessment of the transitional impacts during the period ending December 31, 2018, of which there were no such material adjustments.

Components of deferred tax assets and deferred tax liabilities at December 31 were as follows:



	2018		2017
	(In thousands)
Deferred tax assets:
Postretirement	$	51,930	$	55,736
Compensation-related	29,885		16,298
Alternative minimum tax credit carryforward	13,404		37,683
Federal renewable energy credit	8,015		19,367
Customer advances	7,734		8,712
Asset retirement obligations	7,083		6,380
Legal and environmental contingencies	6,729		7,363
Other	37,347		35,738
Total deferred tax assets	162,127		187,277
Deferred tax liabilities:
Depreciation and basis differences on property, plant and equipment	476,832		429,577
Postretirement	44,432		43,505
Intangible asset amortization	17,752		16,979
Other	39,712		32,591
Total deferred tax liabilities	578,728		522,652
Valuation allowance	13,484		11,896
Net deferred income tax liability	$	430,085	$	347,271

As of December 31, 2018 and 2017, the Company had various state income tax net operating loss carryforwards of $153.2 million and $130.1 million, respectively, and federal and state income tax credit carryforwards, excluding alternative minimum tax credit carryforwards, of $43.5 million and $52.5 million, respectively. Included in the state credits are various regulatory investment tax credits of approximately $32.2 million and $28.0 million at December 31, 2018 and 2017, respectively. The federal income tax credit carryforwards expire in 2037 and 2038 if not utilized and state income tax credit carryforwards are due to expire between 2020 and 2046. Changes in tax regulations or assumptions regarding current and future taxable income could require additional valuation allowances in the future. The alternative minimum tax credit carryforwards are refundable. For information regarding net operating loss carryforwards and valuation allowances related to discontinued operations, see Note 4.

The following table reconciles the change in the net deferred income tax liability from December 31, 2017, to December 31, 2018, to deferred income tax expense:



	2018
(In thousands)
Change in net deferred income tax liability from the preceding table	$	82,814
Deferred taxes associated with other comprehensive income	(2,679		)
Deferred taxes associated with TCJA enactment for regulated activities	(13,776		)
Deferred taxes associated with acquisitions	(5,565		)
Other	(1,059		)
Deferred income tax expense for the period	$	59,735

Total income tax expense differs from the amount computed by applying the statutory federal income tax rate to income before taxes. The reasons for this difference were as follows:



Years ended December 31,	2018					2017					2016
	Amount			%		Amount			%		Amount			%
	(Dollars in thousands)
Computed tax at federal statutory rate	$	66,543		21.0		$	122,509		35.0		$	114,179		35.0
Increases (reductions) resulting from:
State income taxes, net of federal income tax	12,190			3.8		10,724			3.1		9,027			2.8
Federal renewable energy credit	(11,759		)	(3.7	)	(13,958		)	(4.0	)	(13,544		)	(4.2	)
Tax compliance and uncertain tax positions	(2,725		)	(.9	)	(643		)	(.2	)	(3,028		)	(.9	)
Domestic production deduction	—			—		(6,849		)	(2.0	)	(6,251		)	(1.9	)
Excess deferred income tax amortization	(9,319		)	(2.9	)	(397		)	—		(828		)	(.2	)
TCJA revaluation	(5,947		)	(1.9	)	(47,242		)	(13.5	)	—			—
TCJA revaluation related to accumulated other comprehensive loss balance	(42		)	—		7,735			2.2		—			—
Other	(1,456		)	(.4	)	(6,838		)	(2.0	)	(6,423		)	(2.1	)
Total income tax expense	$	47,485		15.0		$	65,041		18.6		$	93,132		28.5

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state, local and foreign jurisdictions. The Company is no longer subject to U.S. federal or non-U.S. income tax examinations by tax authorities for years ending prior to 2015. With few exceptions, as of December 31, 2018, the Company is no longer subject to state and local income tax examinations by tax authorities for years ending prior to 2014.

A reconciliation of unrecognized tax benefits (excluding interest) for the years ended December 31 was as follows:



	2018		2017		2016
	(In thousands)
Balance at beginning of year	$	—	$	—	$	—
Additions based on tax positions related to current year	120		—		—
Additions for tax positions of prior years	262		—		—
Balance at end of year	$	382	$	—	$	—

Included in income tax expense is interest on uncertain tax positions. For the years ended December 31, 2018, 2017 and 2016, the Company recognized approximately $31,000, $99,000 and $92,000, respectively, of interest income in income tax expense. At December 31, 2018, the Company had no accrued receivables for interest. At December 31, 2017, the Company had accrued receivables of approximately $46,000, for interest.