Accounting For Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Accounting for Income Taxes

NOTE 12. ACCOUNTING FOR INCOME TAXES

Income Tax Expense

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

	2021		2020			2019
Current income tax expense (benefit)	$	807	$	(37,913	)	$	16,276
Deferred income tax expense		11,224		44,964			15,098
Total income tax expense	$	12,031	$	7,051		$	31,374

State income taxes do not represent a significant portion of total income tax expense on the Consolidated Statements of Income for any periods presented.

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

	2021					2020					2019
Federal income taxes at statutory rates	$	33,467		21.0	%	$	28,673		21.0	%	$	47,909		21.0	%
Increase (decrease) in tax resulting from:
Tax effect of regulatory treatment of utility    plant differences		(13,820	)	(8.7	)		(12,893	)	(9.4	)		(9,967	)	(4.3	)
State income tax expense		1,385		0.8			814		0.6			1,465		0.6
Acquisition costs		—		—			—		—			(1,712	)	(0.7	)
Flow through related to deduction of meters     and mixed service costs (1)		(8,678	)	(5.4	)		—		—			—		—
Non-plant excess deferred turnaround (2)		—		—			(8,476	)	(6.2	)		(5,690	)	(2.5	)
Tax loss on sale of METALfx		—		—			—		—			(1,272	)	(0.6	)
Customer refunds related to prior years at 35 percent		—		—			(1,189	)	(0.9	)		—		—
Other		(323	)	(0.2	)		122		0.1			641		0.3
Total income tax expense	$	12,031		7.5	%	$	7,051		5.2	%	$	31,374		13.8	%

(1)With the approval of the Idaho and Washington general rate cases in 2021, a change in tax methodology resulted in recognizing a flow through benefit related to meters and mixed service costs.

(2)In March 2020, the WUTC approved an all-party settlement agreement related to electric tax benefits that were set aside for Colstrip in the 2020 general rate case order. In the approved settlement agreement, 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 Units, to reflect a remaining useful life through December 31, 2025. In the second quarter of 2020, the Company recorded a one-time increase to depreciation expense with an offsetting decrease to income tax expense.

In March 2019, the IPUC approved an all-party settlement agreement related to electric tax benefits that were set aside for Colstrip in the 2020 general rate case order. In the approved settlement agreement, the parties agreed to utilize $6.4 million ($5.1 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, 2027. In the second quarter of 2019, the Company recorded a one-time increase to depreciation expense with an offsetting decrease to income tax expense.

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):

	2021			2020
Deferred income tax assets:
Regulatory liabilities	$	200,513		$	179,871
Tax credits and NOL carryforwards		64,994			57,516
Provisions for pensions		25,650			37,501
Other		38,181			42,641
Total gross deferred income tax assets		329,338			317,529
Valuation allowances for deferred tax assets		(9,626	)		(10,021	)
Total deferred income tax assets after valuation allowances		319,712			307,508
Deferred income tax liabilities:
Utility property, plant, and equipment		688,856			666,639
Regulatory assets		264,978			232,697
Other		8,587			2,884
Total deferred income tax liabilities		962,421			902,220
Net long-term deferred income tax liability	$	642,709		$	594,712

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, 2021, the Company had $17.1 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 $7.5 million of the state tax credits. As such, the Company has recorded a valuation allowance of $9.6 million against the state tax credit carryforwards and reflected the net amount of $7.5 million as an asset as of December 31, 2021. State tax credits expire from 2022 to 2035.

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 2017 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.

The Idaho State Tax Commission is currently reviewing tax years 2014 through 2017. All tax years after 2017 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.