INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2019

Income tax expense differs from the amount of income tax determined by applying the United States statutory federal income tax rate

Income tax expense differs from the amount of income tax determined by applying the United States statutory federal income tax rate of 21% in 2019 and 2018 and 35% in 2017 to pre-tax income due to the following:



	Years Ended December 31,
(in millions)	2019			2018			2017
Federal Income Tax Expense at Statutory Rate	$	46		$	49		$	97
State Income Tax Expense, Net of Federal Deduction	9			9			9
Federal/State Tax Credits	(6		)	(10		)	(9		)
Allowance for Equity Funds Used During Construction	(3		)	(1		)	(2		)
Impact of Enactment, TCJA	—			—			7
Excess Deferred Income Taxes	(9		)	(6		)	—
Impact of AMT Sequestration	(2		)	2			—
Other	(1		)	—			(1		)
Total Federal and State Income Tax Expense	$	34		$	43		$	101

Schedule of income tax reconciliation

Income Tax Expense included on the Consolidated Statements of Income consists of the following:



	Years Ended December 31,
(in millions)	2019			2018			2017
Current Income Tax Expense
Federal	$	(8	)	$	(13	)	$	—
State	—			—			—
Total Current Income Tax Expense	(8		)	(13		)	—
Deferred Income Tax Expense
Federal	41			53			98
Federal Investment Tax Credits	(4		)	(6		)	(6		)
State	5			9			9
Total Deferred Income Tax Expense	42			56			101
Total Federal and State Income Tax Expense	$	34		$	43		$	101

Schedule of components of deferred income tax assets and liabilities

The significant components of deferred income tax assets and liabilities consist of the following:



	December 31,
(in millions)	2019			2018
Gross Deferred Income Tax Assets
Finance Lease Obligations	$	21		$	48
Operating Loss Carryforwards, Net	3			23
Customer Advances and Contributions in Aid of Construction	19			16
AMT Credit	7			13
Other Postretirement Benefits	15			15
Investment Tax Credit Carryforward	34			34
Income Taxes Recoverable Through Future Rates	81			87
Other	79			60
Total Gross Deferred Income Tax Assets	259			296
Deferred Tax Assets Valuation Allowance	—			—
Gross Deferred Income Tax Liabilities
Plant, Net	(602		)	(552		)
Plant Abandonments	(17		)	(18		)
Finance Lease Assets, Net	(18		)	(44		)
Pensions	(17		)	(19		)
Income Taxes Payable Through Future Rates	(9		)	(12		)
Other	(28		)	(21		)
Total Gross Deferred Income Tax Liabilities	(691		)	(666		)
Deferred Income Taxes, Net	$	(432	)	$	(370	)

TEP had the following carryforward amounts

As of December 31, 2019, TEP had the following carryforward amounts:



(in millions)	Amount		Expiring Year
Federal Net Operating Loss	$	17	2034 - 35
State Credits	9		2022 - 29
AMT Credit	7		None
Investment Tax Credits	34		2031 - 37

Summary of reconciliation of the beginning and ending balances of unrecognized tax benefits

A reconciliation of the beginning and ending balances of unrecognized tax benefits follows:



	December 31,
(in millions)	2019		2018
Beginning of Period	$	16	$	13
Additions Based on Tax Positions Taken in the Current Year	2		3
End of Period	$	18	$	16