INCOME TAXES

Income tax expense differs from the amount of income tax determined by applying the statutory federal income tax rate of 21% in 2018 and 35% in 2017 to pre-tax income due to the following:



	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2018			2017			2018			2017
Federal Income Tax Expense at Statutory Rate	$	25		$	44		$	45		$	87
State Income Tax Expense, Net of Federal Deduction	4			4			8			8
Federal/State Tax Credits	(4		)	(4		)	(7		)	(8		)
Excess Deferred Income Taxes	(4		)	—			(8		)	—
Other	(2		)	(2		)	(2		)	(3		)
Total Federal and State Income Tax Expense	$	19		$	42		$	36		$	84

On December 22, 2017, the President of the United States of America signed into law the TCJA, which enacted significant changes to the Internal Revenue Code including a reduction in the federal corporate income tax rate from up to 35% to 21% effective for tax years beginning after 2017. In addition, the TCJA provided modifications to bonus depreciation rules and limitations on the deductibility of interest expense, both of which include carve-outs for regulated utilities.

As a result of the TCJA, the Company was required to revalue its deferred tax assets and liabilities at the new federal tax rate as of the date of enactment. This resulted in a net decrease to deferred income tax liabilities and the establishment of a regulatory liability related to EDIT. TEP is amortizing the EDIT balance in accordance with applicable federal income tax laws, which require the amortization of a majority of the balance over the remaining life of the related plant. In April 2018, the ACC Refund Order was approved requiring TEP to share EDIT amortization of the ACC-jurisdictional assets with customers. The EDIT balance related to the effects of the TCJA included in Regulatory Liabilities on the Condensed Consolidated Balance Sheets was $336 million as of September 30, 2018. See Note 2 for additional information regarding the ACC Refund Order and the FERC NOI.

Under the TCJA, Alternative Minimum Tax (AMT) credit carryforwards will be refunded if not used to offset federal income tax liabilities. As of September 30, 2018, TEP had a receivable balance of $13 million related to AMT credit carryforwards in Current Assets—Other on the Condensed Consolidated Balance Sheets.

In August 2018, the Internal Revenue Service proposed regulations on the bonus depreciation carve-out for regulated utilities. Based on the proposed regulation, the Company adjusted its estimated provision and the results did not have a material impact on TEP's financial position or results of operations. TEP's accounting for the income tax effects of the bonus depreciation provisions included in the TCJA has been completed as of September 30, 2018.