Income Taxes

9 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 7. INCOME TAXES

In accordance with interim reporting requirements, the Company uses an estimated annual effective tax rate for computing its provisions for income taxes. An estimate of annual income tax expense (or benefit) is made each interim period using estimates for annual pre-tax income, income tax adjustments, and tax credits. The estimated annual effective tax rates do not include discrete events such as tax law changes, examination settlements, accounting method changes, or adjustments to tax expense or benefits attributable to prior years. Discrete events are recorded in the interim period in which they occur or become known. The estimated annual tax rate is applied to year-to-date pre-tax income to determine income tax expense (or benefit) for the interim period consistent with the annual estimate. In subsequent interim periods, income tax expense (or benefit) for the period is computed as the difference between the year-to-date amount reported for the previous interim period and the current period’s year-to-date amount.

The following table summarizes the significant factors impacting the difference between our effective tax rate and the federal statutory rate for the three and nine months ended September 30 (dollars in thousands):

	Three months ended September 30,										Nine months ended September 30,
	2022					2021					2022					2021
Federal income taxes at statutory rates	$	(1,185	)	21.0	%	$	1,876		21.0	%	$	13,764		21.0	%	$	22,173		21.0	%
Increase (decrease) in tax resulting from:
Flow through related to deduction of meters      and mixed service costs (1)		1,192		(21.1	)		(5,277	)	(59.1	)		(18,643	)	(28.4	)		(5,277	)	(5.0	)
Tax effect of regulatory treatment of utility       plant differences (2)		420		(7.5	)		(1,697	)	(19.0	)		(6,878	)	(10.5	)		(8,748	)	(8.3	)
State income tax expense		(45	)	0.8			166		1.9			856		1.3			885		0.8
Settlement of equity awards		—		—			—		—			(19	)	—			909		0.9
Settlement of prior year tax returns		(318	)	5.6			(400	)	(4.5	)		(318	)	(0.5	)		(400	)	(0.4	)
Other		93		(1.6	)		(100	)	(1.1	)		(440	)	(0.7	)		(412	)	(0.4	)
Total income tax expense (benefit)	$	157		(2.8	)%	$	(5,432	)	(60.8	)%	$	(11,678	)	(17.8	)%	$	9,130		8.6	%

(1)In September and October 2021, new rates from the Company's Idaho and Washington general rate cases went into effect. While there were base rate increases approved in each of the cases, these base rate increases were offset by tax customer credits which resulted in no increase in customer billing rates. As the tax customer credits are returned to customers, this results in a decrease to income tax expense as a result of flowing through the benefits related to meters and mixed service costs. This decrease in income tax expense represents the benefits to the Company as a result of these general rate cases.

(2)In 2017, the Tax Cuts and Jobs Act (TCJA) reduced the corporate income tax rate, which resulted in a reduction to deferred income tax assets and liabilities. Prior to 2022, for depreciation-related temporary differences that are returned to customers, the Company utilized the average rate assumption method to compute the amounts returned to customers. Beginning in 2022, the Company changed to the alternative method provided for in the TCJA, to be in compliance with recently released revenue procedures and private letter rulings.

Inflation Reduction Act

The Inflation Reduction Act of 2022 (IRA) was signed into law in August 2022. Among the provisions included in the IRA was the implementation of a new corporate alternative minimum tax, which is applicable to corporations with average adjusted financial statement income over a three-year period in excess of $1 billion. The corporate alternative minimum tax is not expected to impact the Company's financial results, and there are no immediate impacts of the IRA to the three and nine months ended September 30, 2022.