Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Expense

The following table is a summary of income tax expense for each of the years ended December 31:



(in millions)	2019			2018			2017
Current tax expense (benefit)	$	73.4		$	(56.2	)	$	81.5
Deferred income tax expense (benefit), net	(128.9		)	0.1			110.6
Investment tax credit, net	(2.3		)	(0.8		)	(0.9		)
Total income tax expense (benefit)	$	(57.8	)	$	(56.9	)	$	191.2

Statutory Rate Reconciliation

The provision for income taxes for each of the years ended December 31 differs from the amount of income tax determined by applying the applicable United States statutory federal income tax rate to income before income taxes as a result of the following:



	2019					2018					2017
(in millions)	Amount			Effective Tax Rate		Amount			Effective Tax Rate		Amount			Effective Tax Rate
Statutory federal income tax	$	63.9		21.0	%	$	63.3		21.0	%	$	184.4		35.0	%
State income taxes net of federal tax benefit	20.2			6.6	%	19.6			6.5	%	27.9			5.3	%
Tax repairs *	(122.9		)	(40.1	)%	(120.7		)	(39.9	)%	—			—	%
Federal excess amortization	(16.1		)	(5.3	)%	(15.5		)	(5.1	)%	—			—	%
Wind production tax credits	(9.3		)	(3.0	)%	(9.4		)	(3.1	)%	(17.6		)	(3.3	)%
Investment tax credit restored	(2.3		)	(0.8	)%	(0.8		)	(0.3	)%	(0.9		)	(0.2	)%
AFUDC – Equity	(0.8		)	(0.3	)%	(0.8		)	(0.3	)%	(1.1		)	(0.2	)%
Domestic production activities deferral (deduction)	6.1			2.0	%	6.1			2.0	%	(7.8		)	(1.5	)%
Other, net	3.4			1.0	%	1.3			0.4	%	6.3			1.1	%
Total income tax expense (benefit)	$	(57.8	)	(18.9	)%	$	(56.9	)	(18.8	)%	$	191.2		36.2	%

In accordance with a 2017 settlement agreement with the PSCW, we flowed through the tax benefit of our repair related deferred tax liabilities in 2018 and 2019, to maintain certain regulatory asset balances at their December 31, 2017 levels. The flow through treatment of the repair related deferred tax liabilities offset the negative income statement impact of holding the regulatory assets level, resulting in no change to net income. See Note 21, Regulatory Environment, for more information about the impact of the Tax Legislation and the Wisconsin rate order.

Deferred Income Tax Assets and Liabilities

On December 22, 2017, the Tax Legislation was signed into law. For businesses, the Tax Legislation reduced the corporate federal tax rate from a maximum of 35% to a 21% rate effective January 1, 2018. In December 2017, we recorded a tax benefit related to the re-measurement of our deferred taxes in the amount of approximately $1,065 million. Accordingly, this amount was recorded as both an increase to regulatory liabilities as well as a decrease to certain existing regulatory assets as of December 31, 2017.

On December 22, 2017, the SEC staff issued guidance in SAB 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, which provided for a measurement period of up to one year from the enactment date to complete accounting under GAAP for the tax effects of the legislation. Due to the complex and comprehensive nature of the enacted tax law changes, and their application under GAAP, certain amounts related to bonus depreciation and future tax benefit utilization recorded in the financial statements as a result of the Tax Legislation were considered "provisional" and subject to revision at December 31, 2017, and through 2018, as discussed in SAB 118.

In 2018, we considered all available guidance from industry and income tax authorities related to these tax items, analyzed the impact on Alternative Minimum Tax Credit carryforwards, and revised our estimates for re-measurement of deferred income taxes related to guidance on bonus depreciation. See Note 21, Regulatory Environment, for more information on the re-measurement of deferred income taxes. At December 31, 2018, we no longer considered any amounts related to bonus depreciation and future tax benefit utilization "provisional," subject to any additional amendments or technical corrections to the Tax Legislation.

In 2019, we considered all available guidance from industry and income tax authorities related to these tax items and did not have any changes to our prior interpretations. Any further amendments or technical corrections to the Tax Legislation could subject these tax items to revision.

The components of deferred income taxes as of December 31 were as follows:



(in millions)	2019		2018
Deferred tax assets
Tax gross up – regulatory items	$	152.7	$	203.0
Deferred revenues	126.8		129.3
Future tax benefits	41.0		15.9
Regulatory deferrals	1.3		97.3
Other	63.2		59.3
Total deferred tax assets	$	385.0	$	504.8

Deferred tax liabilities
Property-related	$	1,368.9	$	1,365.9
Deferred costs – Plant retirements	215.5		176.0
Employee benefits and compensation	55.8		55.9
Deferred costs – SSR	51.1		110.7
Other	41.1		94.6
Total deferred tax liabilities	1,732.4		1,803.1
Deferred tax liability, net	$	1,347.4	$	1,298.3

Consistent with rate-making treatment, deferred taxes in the table above are offset for temporary differences that have related regulatory assets and liabilities.

The components of net deferred tax assets associated with federal and state tax benefit carryforwards as of December 31, 2019 and 2018 are summarized in the tables below:



2019 (in millions)	Gross Value		Deferred Tax Effect		Earliest Year of Expiration
Future tax benefits as of December 31, 2019
Federal tax credit	$	—	$	37.1	2037
State net operating loss	52.4		3.3		2035
Other state benefits	—		0.6		2019
Balance as of December 31, 2019	$	52.4	$	41.0



2018 (in millions)	Gross Value		Deferred Tax Effect		Earliest Year of Expiration
Future tax benefits as of December 31, 2018
Federal tax credit	$	—	$	11.6	2038
State net operating loss	68.7		4.3		2035
Balance as of December 31, 2018	$	68.7	$	15.9

Unrecognized Tax Benefits

We had no unrecognized tax benefits at December 31, 2019 and 2018.

We do not expect any unrecognized tax benefits to affect our effective tax rate in periods after December 31, 2019.

For the years ended December 31, 2019 and 2018, we recognized no interest expense related to unrecognized tax benefits in our income statements. For the year ended December 31, 2017, we recognized $0.7 million of interest income related to unrecognized tax benefits in our income statements. For the years ended December 31, 2019, 2018, and 2017, we recognized no penalties related to unrecognized tax benefits in our income statements. For the years ended December 31, 2019 and 2018, we had no interest accrued and no penalties accrued related to unrecognized tax benefits on our balance sheets.

We do not anticipate any significant increases in the total amount of unrecognized tax benefits within the next 12 months.

Our primary tax jurisdictions include federal and the state of Wisconsin. With a few exceptions we are no longer subject to federal income tax examinations by the IRS for years prior to 2015. As of December 31, 2019, we were subject to examination by the Wisconsin taxing authority for tax years 2015 through 2019.