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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Taxes | Note 9: Income Taxes Provisions for Federal and State Income Taxes reflected as operating expenses in the accompanying consolidated statements of earnings for the years ended December 31, 2018, 2017 and 2016 are shown in the table below:
|  | ($000’s) |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Current Income Tax Provision |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | — |  |  | $ | — |  |  | $ | — |
State |  |  | 355 |  |  |  | — |  |  |  | — |
Total Current Income Taxes |  | $ | 355 |  |  |  | — |  |  |  | — |
Deferred Income Provision |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 5,032 |  |  |  | 13,675 |  |  |  | 11,209 |
State |  |  | 3,006 |  |  |  | 3,862 |  |  |  | 4,145 |
Total Deferred Income Taxes |  |  | 8,038 |  |  |  | 17,537 |  |  |  | 15,354 |
Total Income Tax Expense |  | $ | 8,393 |  |  | $ | 17,537 |  |  | $ | 15,354 |
The differences between the Company’s provisions for Income Taxes and the provisions calculated at the statutory federal tax rate, expressed in percentages, are shown below:
|  | 2018 |  |  | 2017 |  |  | 2016 |
Statutory Federal Income Tax Rate |  |  | 21 | % |  |  | 34 | % |  |  | 34 | %
Income Tax Effects of: |  |  |  |  |  |  |  |  |  |  |  |
State Income Taxes, net |  |  | 6 |  |  |  | 6 |  |  |  | 4 |
Utility Plant Differences |  |  | (7 | ) |  |  | (1 | ) |  |  | (1 | )
Tax Credits and Other, net |  |  | — |  |  |  | (1 | ) |  |  | (1 | )
Effective Income Tax Rate |  |  | 20 | % |  |  | 38 | % |  |  | 36 | %
Temporary differences which gave rise to deferred tax assets and liabilities in 2018 and 2017 are shown below:
Temporary Differences (000’s) |  | 2018 |  |  | 2017 |
Deferred Tax Assets |  |  |  |  |  |  |  |
Retirement Benefit Obligations |  | $ | 32,249 |  |  | $ | 38,915 |
Net Operating Loss Carryforwards |  |  | 10,773 |  |  |  | 12,686 |
Tax Credit Carryforwards |  |  | 2,704 |  |  |  | 3,536 |
Other, net |  |  | 1,571 |  |  |  | 1,155 |
Total Deferred Tax Assets |  | $ | 47,297 |  |  | $ | 56,292 |
Deferred Tax Liabilities |  |  |  |  |  |  |  |
Utility Plant Differences |  | $ | 132,682 |  |  | $ | 127,932 |
Regulatory Assets & Liabilities |  |  | 6,429 |  |  |  | 9,323 |
Other, net |  |  | 5,964 |  |  |  | 1,894 |
Total Deferred Tax Liabilities |  |  | 145,075 |  |  |  | 139,149 |
Net Deferred Tax Liabilities |  | $ | 97,778 |  |  | $ | 82,857 |
The Company is subject to federal and state income taxes as well as various other business taxes. The Company accounts for income taxes in accordance with the FASB Codification guidance on Income Taxes which requires an asset and liability approach for the financial accounting and reporting of income taxes. As a regulated Public Utility Holding Company (PUHC) entity under the Energy Policy Act of 2005; the Company follows income tax accounting guidance and regulations promulgated by the FERC for regulated utility companies under its jurisdiction. Also, the MDPU, NHPUC and the MPUC have, from time to time, issued specific income tax accounting rules for regulated utility companies in their respective jurisdictions. Significant judgments and estimates are required in determining the current and deferred tax assets and liabilities. The Company’s deferred tax assets and liabilities reflect its best assessment of estimated future taxes to be paid. Periodically, the Company assesses the realization of its deferred tax assets and liabilities and adjusts the income tax provision, the current tax liability and deferred taxes in the period in which the facts and circumstances that gave rise to the revision become known. In December 2017, the Tax Cuts and Jobs Act (TCJA), which included a reduction to the corporate federal income tax rate to 21% effective January 1, 2018, was signed into law. In accordance with GAAP Accounting Standard 740, the Company revalued its Accumulated Deferred Income Taxes (ADIT) at the new 21% tax rate at which the ADIT will be reversed in future periods. The Company recorded a net Regulatory Liability in the amount of $48.9 million at December 31, 2017 as a result of the ADIT revaluation. On November 15, 2018 the FERC issued two pronouncements regarding the accounting for income taxes due to the TCJA; 1) Notice of Proposed Rulemaking Docket No. RM 19-5-000 and 2) Policy Statement PL 19-2-000 providing specific guidance on the flow back of excess ADIT created by the implementation of the TCJA. Final rules are expected to be issued in the first quarter of 2019. According to the FERC guidance; the amount of the reduction to ADIT that was previously collected from customers but is no longer payable to the IRS is excess ADIT and should be flowed back to ratepayers under general ratemaking principles. The MDPU issued a multi-utility Order D.P.U. 18-15-E (the “Order”) on December 21, 2018. The Order clarified the categories of Excess ADIT for Massachusetts ratemaking: 1) Excess protected ADIT directly related to utility plant fixed assets (rate base), 2) other non-plant excess ADIT amounts (unprotected), and 3) excess ADIT created through reconciling mechanisms. In the Order, all Massachusetts utilities were ordered to begin flow back of protected and unprotected excess ADIT on February 1, 2019 and to reconcile excess ADIT amounts previously collected from ratepayers through reconciliation mechanisms in the next filing of each of those individual reconciling mechanisms. Fitchburg was ordered to begin flowing back to customers excess ADIT of $10.1 million and $10.4 million to electric and gas ratepayers, respectively, over approximately fifteen years. Fitchburg filed its compliance filing under D.P.U.18-15-E on January 4, 2019 for rates effective February 1, 2019. The MDPU approved this filing on January 16, 2019. The filing will be updated and the balances of excess ADIT will be reconciled annually. Based on communications received by the Company from its state regulators in rate cases and other regulatory proceedings in the first quarter of 2018 and as prescribed in the TCJA, the recent FERC guidance noted above and IRS normalization rules; the benefit of these protected excess ADIT amounts will be subject to flow back to customers in future utility rates according to the Average Rate Assumption Method (ARAM). ARAM reconciles excess ADIT at the reversal rate of the underlying book/tax temporary timing differences. The Company estimates the ARAM flow back period to be between fifteen and twenty years. Subject to regulatory approval, the Company expects to flow back to customers a net $47.1 million of protected excess ADIT created as a result of the lowering of the statutory tax rate by the TCJA over periods estimated to be fifteen to twenty years. In addition to the protected excess $47.1 million ADIT amounts the Company expects to flow through to customers in utility rates, as noted above, there is approximately $1.8 million of excess ADIT created through reconciling mechanisms at December 31, 2017, related to the implementation of the new federal tax rate of the TCJA, which had not been previously collected from customers through utility rates. The Company will reconcile these excess ADIT amounts through the specific reconciliation mechanisms in the next filing of each of those individual reconciling mechanisms which will be subject to the review of state regulators. In addition to the $48.9 million of net excess ADIT noted above; there is $5.8 million of excess ADIT at December 31, 2017, created by the recognition of Net Operating Loss Carryforward assets (NOLC), discussed below, and related to the implementation of the new federal tax rate of the TCJA, which had not been previously included in utility rates. The Company is recognizing the benefit of this excess ADIT in accordance with the regulatory treatment of excess ADIT for each of jurisdiction. In 2018 the Company recognized $2.4 million of this tax benefit provision due to the turning of book/tax temporary differences associated with this excess ADIT. The Company expects to recognize the remaining $3.4 million of this excess ADIT in future periods in accordance with regulatory guidance as discussed above. The Company has not yet received regulatory orders in all of its jurisdictions regarding the flow-back of excess deferred taxes. The Company’s regulators are expected to issue additional ratemaking guidance in future periods that will determine the final disposition of the re-measurement of regulatory deferred tax balances. At this time, the Company has applied a reasonable interpretation of the TCJA and a reasonable estimate of the regulatory resolution. Future clarification of TCJA matters with the Company’s regulators may change the amounts estimated. Under the Company’s Tax Sharing Agreement (the “Agreement”) which was approved upon the formation of Unitil as a PUHC; the Company files consolidated Federal and State tax returns and Unitil Corporation and each of its utility operating subsidiaries recognize the results of their operations in its tax returns as if it were a stand-alone taxpayer. The Agreement provides that the Company will account for income taxes in compliance with U.S. GAAP and regulatory accounting principles. The Company filed its tax returns for the year ended December 31, 2017 with the Internal Revenue Service in September 2018 and generated additional federal NOLC assets of $3.7 million principally due to pension cost deductions, tax repair deductions, tax depreciation and research and development deductions. For the year ended December 31, 2018, the Company calculated federal current tax of $7.7 million and offset it with a decrease to the federal NOLC of $7.7 million, resulting in no federal current taxes payable for the period. As of December 31, 2018, the Company had recorded cumulative federal and state NOLC assets of $10.8 million to offset against taxes payable in future periods. If unused, the Company’s NOLC carryforward assets will begin to expire in 2029. In addition, at December 31, 2017, the Company had $3.5 million of cumulative alternative minimum tax credits, general business tax credit and other state tax credit carryforwards to offset future income taxes payable. In assessing the near-term use of NOLCs and tax credits, the Company evaluates the expected level of future taxable income, available tax planning strategies, reversals of existing taxable temporary differences and taxable income available in carryback years. Based on all available evidence, both positive and negative, and the weight of that evidence to the extent such evidence can be objectively verified, the Company expects to utilize all of its NOLCs by December 31, 2020 prior to their expiration in 2029. In March 2018, Unitil Corporation received notice that its Federal Income Tax return filings for the years ended December 31, 2015 and December 31, 2016 are under examination by the IRS. Currently, the Company believes that the ultimate resolution of this examination will not have a material impact on the Company’s financial statements. The Company remains subject to examination by New Hampshire tax authorities for the tax periods ended December 31, 2015; December 31, 2016; and December 31, 2017. Income tax filings for the year ended December 31, 2017 have been filed with the New Hampshire Department of Revenue Administration. The State of Maine has concluded its review of the Company’s tax returns for December 31, 2014, December 31, 2015, and December 31, 2016 which resulted in a small additional refund to the Company. The Company evaluated its tax positions at December 31, 2018 in accordance with the FASB Codification, and has concluded that no adjustment for recognition, de-recognition, settlement and foreseeable future events to any tax liabilities or assets as defined by the FASB Codification is required. The Company remains subject to examination by Federal, Maine, Massachusetts, and New Hampshire tax authorities for the tax periods ended December 31, 2015; December 31, 2016; and December 31, 2017.

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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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