Income Taxes

12 Months Ended

Dec. 31, 2019

Income Taxes

Income Tax Expense (Benefit)

The items comprising income tax expense (benefit) are as follows:


Year Ended December 31 (In millions)	2019		2018		2017
Provision (benefit) for current income taxes:
Federal	$	(6.4)	$	(1.9)	$	4.9
State	5.1		(4.4)		(4.2)
Total provision (benefit) for current income taxes	(1.3)		(6.3)		0.7
Provision (benefit) for deferred income taxes, net:
Federal	48.5		74.7		(75.9)
State	(17.4)		3.7		26.0
Total provision (benefit) for deferred income taxes, net	31.1		78.4		(49.9)
Deferred federal investment tax credits, net	—		0.1		(0.1)
Total income tax expense (benefit)	$	29.8	$	72.2	$	(49.3)

The Company files consolidated income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal tax or state and local examinations by tax authorities for years prior to 2016. Income taxes are generally allocated to each company in the affiliated group based on its stand-alone taxable income or loss. Federal investment tax credits previously claimed on electric utility property have been deferred and will be amortized to income over the life of the related property. Additionally, OG&E earns federal tax credits associated with production from its wind facilities. Oklahoma production and investment state tax credits are also earned on investments in electric and solar generating facilities which further reduce OG&E's effective tax rate.

The following schedule reconciles the statutory tax rates to the effective income tax rate:


Year Ended December 31	2019		2018		2017
Statutory federal tax rate	21.0	%	21.0	%	35.0	%
Executive compensation limitation	0.2		0.2		—
Federal renewable energy credit (A)	(6.0)		(5.1)		(4.8)
Amortization of net unfunded deferred taxes	(4.5)		(2.1)		0.7
State income taxes, net of federal income tax benefit	(1.2)		0.4		2.0
Stock-based compensation	(1.2)		—		—
Remeasurement of state deferred tax liabilities	(0.8)		(0.4)		0.4
Other	(0.7)		0.4		(0.1)
401(k) dividends	(0.4)		(0.3)		(0.5)
Federal deferred tax revaluation	—		0.4		(41.2)
Federal investment tax credits, net	—		—		(0.1)

Effective income tax rate	6.4	%	14.5	%	(8.6)	%

(A)Represents credits associated with the production from OG&E's wind farms.

The deferred tax provisions are recognized as costs in the ratemaking process by the commissions having jurisdiction over the rates charged by OG&E. The components of Deferred Income Taxes at December 31, 2019 and 2018 were as follows:
















December 31 (In millions)	2019		2018
Deferred income tax liabilities, net:
Accelerated depreciation and other property related differences	$	1,656.8	$	1,605.3

Investment in Enable	478.2		469.9
Regulatory assets	28.4		17.4
Company Pension Plan	4.1		7.6
Bond redemption-unamortized costs	2.2		2.4
Derivative instruments	1.6		1.7
Other	0.4		1.1


Federal tax credits	(238.0)		(237.8)
Income taxes recoverable from customers, net	(229.9)		(239.6)
State tax credits	(185.8)		(156.0)
Regulatory liabilities	(68.1)		(78.8)
Postretirement medical and life insurance benefits	(23.3)		(23.6)
Asset retirement obligations	(19.2)		(21.5)
Net operating losses	(16.6)		(20.2)
Accrued liabilities	(10.7)		(12.5)
Accrued vacation	(2.1)		(2.3)

Deferred federal investment tax credits	(1.8)		(1.8)
Uncollectible accounts	(0.4)		(0.4)

Total deferred income tax liabilities, net	$	1,375.8	$	1,310.9

As of December 31, 2019, the Company has classified $16.4 million of unrecognized tax benefits as a reduction of deferred tax assets recorded. Management is currently unaware of any issues under review that could result in significant additional payments, accruals or other material deviation from this amount.

Following is a reconciliation of the Company's total gross unrecognized tax benefits as of the years ended December 31, 2019, 2018 and 2017.


(In millions)	2019		2018		2017
Balance at January 1	$	20.7	$	20.7	$	20.7
Tax positions related to current year:
Additions	—		—		—


Balance at December 31	$	20.7	$	20.7	$	20.7

As of each of December 31, 2019, 2018 and 2017, there were $16.4 million of unrecognized tax benefits that, if recognized, would affect the annual effective tax rate.

Where applicable, the Company classifies income tax-related interest and penalties as interest expense and other expense, respectively. During the year ended December 31, 2019, there were no income tax-related interest or penalties recorded with regard to uncertain tax positions.

The Company sustained federal and state tax operating losses through 2012 caused primarily by bonus depreciation and other book versus tax temporary differences. As a result, the Company had accrued federal and state income tax benefits carrying into 2017, when the remaining federal net operating loss was utilized. State operating losses are being carried forward for utilization in future years. In addition to the tax operating losses, the Company was unable to utilize the various tax credits that were generated during these years. These tax losses and credits are being carried as deferred tax assets and will be utilized in future periods. Under current law, the Company anticipates future taxable income will be sufficient to utilize remaining losses and credits before they begin to expire after 2020. The following table summarizes these carry forwards:


(In millions)	Carry Forward Amount		Deferred Tax Asset		Earliest Expiration Date

State operating loss	$	371.6	$	16.6	2030
Federal tax credits	$	238.0	$	238.0	2032
State tax credits:
Oklahoma investment tax credits	$	183.9	$	145.3	N/A
Oklahoma capital investment board credits	$	12.4	$	12.4	N/A
Oklahoma zero emission tax credits	$	34.9	$	28.0	2020
Louisiana inventory credits	$	0.2	$	0.1	2020

N/A - not applicable