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Accounting For Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Accounting for Income Taxes

NOTE 13. ACCOUNTING FOR INCOME TAXES

Income Tax Expense

Income tax expense consisted of the following for the years ended December 31 (dollars in thousands):

 

 

 

2022

 

 

2021

 

 

2020

 

Current income tax expense (benefit)

 

$

1,040

 

 

$

807

 

 

$

(37,913

)

Deferred income tax expense (benefit)

 

 

(18,231

)

 

 

11,224

 

 

 

44,964

 

Total income tax expense (benefit)

 

$

(17,191

)

 

$

12,031

 

 

$

7,051

 

 

State income taxes are not a significant portion of total income tax expense.

A reconciliation of federal income taxes derived from the statutory federal tax rate of 21 percent applied to income before income taxes is as follows for the years ended December 31 (dollars in thousands):

 

 

 

2022

 

 

2021

 

 

2020

 

Federal income taxes at statutory rates

 

$

28,977

 

 

 

21.0

%

 

$

33,467

 

 

 

21.0

%

 

$

28,673

 

 

 

21.0

%

Increase (decrease) in tax resulting from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax effect of regulatory treatment of utility
   plant differences (1)

 

 

(12,366

)

 

 

(9.0

)

 

 

(13,820

)

 

 

(8.7

)

 

 

(12,893

)

 

 

(9.4

)

State income tax expense

 

 

1,676

 

 

 

1.2

 

 

 

1,385

 

 

 

0.8

 

 

 

814

 

 

 

0.6

 

Flow through related to deduction of meters
    and mixed service costs (2)

 

 

(34,454

)

 

 

(25.0

)

 

 

(8,678

)

 

 

(5.4

)

 

 

—

 

 

 

—

 

Non-plant excess deferred turnaround (3)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(8,476

)

 

 

(6.2

)

Customer refunds related to prior years at 35 percent

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1,189

)

 

 

(0.9

)

Other

 

 

(1,024

)

 

 

(0.7

)

 

 

(323

)

 

 

(0.2

)

 

 

122

 

 

 

0.1

 

Total income tax expense (benefit)

 

$

(17,191

)

 

 

(12.5

)%

 

$

12,031

 

 

 

7.5

%

 

$

7,051

 

 

 

5.2

%
(1)
Prior to 2022, for the depreciation-related temporary differences under the normalization tax accounting method, the Company utilized the average rate assumption method to compute the amounts returned to customers. Beginning in 2022, the Company changed to the alternative method, to be in compliance with recently released revenue procedures and private letter rulings.
(2)
During 2021 and 2022, new rates from the Company's Idaho, Oregon and Washington general rate cases went into effect with base rate increases offset by customer tax credits. As the customer tax credits are returned to customers, this results in a decrease to income tax expense as a result of flowing through the benefits related to meters and mixed service costs. This decrease in income tax expense offsets the increases in base rate granted to the Company in these general rate cases.
(3)
As part of a settlement agreement in a Washington general rate case, the parties agreed to utilize $10.9 million ($8.4 million when tax-effected) of the electric benefits to offset costs associated with accelerating the depreciation of Colstrip, to reflect a remaining useful life through December 31, 2025.

Deferred Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and tax credit carryforwards. The total net deferred income tax liability consisted of the following as of December 31 (dollars in thousands):

 

 

 

2022

 

 

2021

 

Deferred income tax assets:

 

 

 

 

 

 

Regulatory liabilities

 

$

197,998

 

 

$

200,513

 

Tax credits and NOL carryforwards

 

 

74,782

 

 

 

64,994

 

Provisions for pensions

 

 

20,132

 

 

 

25,650

 

Other

 

 

54,903

 

 

 

38,181

 

Total gross deferred income tax assets

 

 

347,815

 

 

 

329,338

 

Valuation allowances for deferred tax assets

 

 

(3,874

)

 

 

(9,626

)

Total deferred income tax assets after valuation allowances

 

 

343,941

 

 

 

319,712

 

Deferred income tax liabilities:

 

 

 

 

 

 

Utility property, plant, and equipment

 

 

712,470

 

 

 

688,856

 

Regulatory assets

 

 

281,483

 

 

 

264,978

 

Other

 

 

24,983

 

 

 

8,587

 

Total deferred income tax liabilities

 

 

1,018,936

 

 

 

962,421

 

Net long-term deferred income tax liability

 

$

674,995

 

 

$

642,709

 

 

The realization of deferred income tax assets is dependent upon the ability to generate taxable income in future periods. The Company evaluated available evidence supporting the realization of its deferred income tax assets and determined it is more likely than not that deferred income tax assets will be realized.

As of December 31, 2022, the Company had $13.6 million of state tax credit carryforwards. Of the total amount, the Company believes that it is more likely than not that it will only be able to utilize $9.7 million of the state tax credits. As such, the

Company has recorded a valuation allowance of $3.9 million against the state tax credit carryforwards and reflected the net amount of $9.7 million as an asset as of December 31, 2022. State tax credits expire from 2023 to 2036.

Status of Internal Revenue Service (IRS) and State Examinations

The Company and its eligible subsidiaries file consolidated federal income tax returns. All tax years after 2018 are open for an IRS tax examination.

The Company also files state income tax returns in certain jurisdictions, including Idaho, Oregon, Montana and Alaska. Subsidiaries are charged or credited with the tax effects of their operations on a stand-alone basis.

All tax years after 2018 are open for examination in Idaho, Oregon, Montana and Alaska.

The Company believes that any open tax years for federal or state income taxes will not result in adjustments that would be significant to the consolidated financial statements.