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TAXES
 6 Months Ended
Jun. 30, 2020
Income Tax Disclosure [Abstract]  
TAXES TAXES
Components of income tax expense are detailed in the following tables.
Evergy
 
 
 
Three Months Ended
June 30
Year to Date
June 30

2020
 
2019
2020
 
2019
Current income taxes
(millions)
Federal
$
(21.0
)
 
$
8.7

$
(18.6
)
 
$
20.6

State
(6.9
)
 
(0.2
)
(7.3
)
 
(0.8
)
Total
(27.9
)
 
8.5

(25.9
)
 
19.8

Deferred income taxes
 
 
 
 

 
 

Federal
30.8

 
9.8

36.8

 
2.5

State
33.4

 
7.2

36.2

 
13.5

Total
64.2

 
17.0

73.0

 
16.0

Investment tax credit amortization
(2.6
)
 
(1.1
)
(3.3
)
 
(2.1
)
Income tax expense
$
33.7

 
$
24.4

$
43.8

 
$
33.7

Evergy Kansas Central
 
 
 
 
 
 
 
Three Months Ended
June 30
Year to Date
June 30

2020
 
2019
2020
 
2019
Current income taxes
(millions)
Federal
$
(12.1
)
 
$
17.5

$
12.1

 
$
27.9

State
(6.5
)
 
(1.6
)
(6.9
)
 
(1.2
)
Total
(18.6
)
 
15.9

5.2

 
26.7

Deferred income taxes
 
 
 
 

 
 

Federal
(10.4
)
 
(10.7
)
(28.6
)
 
(13.9
)
State
150.2

 
5.5

152.8

 
9.1

Total
139.8

 
(5.2
)
124.2

 
(4.8
)
Investment tax credit amortization
(2.3
)
 
(0.8
)
(2.7
)
 
(1.5
)
Income tax expense
$
118.9

 
$
9.9

$
126.7

 
$
20.4

Evergy Metro
 
 
 
Three Months Ended
June 30
Year to Date
June 30

2020
 
2019
2020
 
2019
Current income taxes
(millions)
Federal
$
(11.1
)
 
$
26.4

$
0.5

 
$
34.3

State
(0.2
)
 
4.6

1.0

 
5.4

Total
(11.3
)
 
31.0

1.5

 
39.7

Deferred income taxes
 

 
 

 

 
 

Federal
26.2

 
(19.7
)
16.7

 
(24.9
)
State
(37.3
)
 
(3.0
)
(37.7
)
 
(2.6
)
Total
(11.1
)
 
(22.7
)
(21.0
)
 
(27.5
)
Investment tax credit amortization
(0.2
)
 
(0.3
)
(0.5
)
 
(0.5
)
Income tax expense (benefit)
$
(22.6
)
 
$
8.0

$
(20.0
)
 
$
11.7


Effective Income Tax Rates
Effective income tax rates reflected in the financial statements and the reasons for their differences from the statutory federal rates are detailed in the following tables.
Evergy
 
 
 
 
 
 
 
Three Months Ended
June 30
Year to Date
June 30

2020
 
2019
2020
 
2019
Federal statutory income tax rate
21.0
 %
 
21.0
 %
21.0
 %
 
21.0
 %
Effect of:
 
 
 
 
 
 
COLI policies
(1.6
)
 
(1.8
)
(1.6
)
 
(1.8
)
State income taxes
3.6

 
2.9

3.2

 
3.6

Flow through depreciation for plant-related differences
(5.0
)
 
(2.7
)
(4.7
)
 
(3.4
)
Federal tax credits
(4.6
)
 
(4.0
)
(4.6
)
 
(3.9
)
Non-controlling interest
(0.3
)
 
(0.5
)
(0.3
)
 
(0.4
)
AFUDC equity
(0.7
)
 
(0.1
)
(0.6
)
 
—

Amortization of federal investment tax credits
(0.5
)
 
(0.5
)
(0.5
)
 
(0.5
)
State tax rate change
8.1

 
—

5.5

 
—

Valuation allowance
—

 
—

—

 
(2.8
)
Stock compensation
(0.4
)
 
(0.3
)
(0.2
)
 
(0.1
)
Officer compensation limitation
0.2

 
0.1

0.2

 
0.1

Other
—

 
0.4

—

 
0.2

Effective income tax rate
19.8
 %
 
14.5
 %
17.4
 %
 
12.0
 %

Evergy Kansas Central
 
 
 
 
 
 
 
Three Months Ended
June 30
Year to Date
June 30

2020
 
2019
2020
 
2019
Federal statutory income tax rate
21.0
 %
 
21.0
 %
21.0
 %
 
21.0
 %
Effect of:
 
 
 
 
 
 
COLI policies
(3.0
)
 
(3.3
)
(3.0
)
 
(3.3
)
State income taxes
4.4

 
3.0

3.6

 
4.0

Flow through depreciation for plant-related differences
0.1

 
0.3

—

 
0.1

Federal tax credits
(6.9
)
 
(6.1
)
(6.8
)
 
(6.1
)
Non-controlling interest
(0.6
)
 
(1.0
)
(0.6
)
 
(0.8
)
AFUDC equity
(1.6
)
 
(0.1
)
(1.1
)
 
(0.1
)
Amortization of federal investment tax credits
(0.7
)
 
(0.7
)
(0.7
)
 
(0.7
)
State tax rate change
134.0

 
—

75.6

 
—

Valuation allowance
—

 
—

—

 
(1.0
)
Stock compensation
(0.5
)
 
(0.5
)
(0.3
)
 
(0.3
)
Other
—

 
0.3

0.1

 
0.3

Effective income tax rate
146.2
 %
 
12.9
 %
87.8
 %
 
13.1
 %

Evergy Metro
 
 
 
 
 
 
 
Three Months Ended
June 30
Year to Date
June 30

2020
 
2019
2020
 
2019
Federal statutory income tax rate
21.0
 %
 
21.0
 %
21.0
 %
 
21.0
 %
Effect of:
 
 
 
 
 
 
COLI policies
(0.3
)
 
(0.1
)
(0.2
)
 
(0.1
)
State income taxes
3.3

 
1.8

3.0

 
2.5

Flow through depreciation for plant-related differences
(9.5
)
 
(5.7
)
(9.0
)
 
(6.0
)
Federal tax credits
(2.4
)
 
(1.5
)
(2.4
)
 
(1.5
)
AFUDC equity
0.1

 
—

—

 
—

Amortization of federal investment tax credits
(0.4
)
 
(0.3
)
(0.4
)
 
(0.3
)
State tax rate change
(40.1
)
 
—

(29.7
)
 
—

Stock compensation
(0.3
)
 
(0.2
)
(1.1
)
 
0.1

Officer compensation limitation
0.6

 
0.3

0.4

 
0.3

Other
(0.1
)
 
(3.3
)
—

 
(2.5
)
Effective income tax rate
(28.1
)%
 
12.0
 %
(18.4
)%
 
13.5
 %

Tax Reform
In May 2020, the Kansas Legislature passed and Governor Laura Kelly signed House Bill 2585 (HB 2585), which exempts certain public utilities, including Evergy Kansas Central and Evergy Metro, from Kansas corporate income tax beginning in 2021 and allows the KCC to approve changes in rates related to increases or decreases in federal or state income tax rates.
As a result of the exemption from Kansas corporate income tax, the Evergy Companies revalued their deferred income tax assets and liabilities in May 2020. Evergy decreased its net deferred income tax liabilities by $233.8 million, primarily consisting of a $400.4 million adjustment for the revaluation of deferred income tax assets and liabilities included in rate base and a $31.7 million tax gross-up adjustment on this amount for ratemaking purposes and $13.8 million of income tax expense primarily related to the revaluation of deferred income taxes that will not be recovered from customers in future rates; partially offset by a decrease to unamortized investment tax credits of $183.6 million due to the revaluation of certain Kansas income tax credits and a $16.9 million tax gross-up adjustment on this amount for ratemaking purposes.
Evergy Kansas Central decreased its net deferred income tax liabilities by $17.6 million, primarily consisting of a $293.7 million adjustment for the revaluation of deferred income tax assets and liabilities included in rate base and a $17.3 million tax gross-up adjustment on this amount for ratemaking purposes; partially offset by a decrease to unamortized investment tax credits of $183.6 million due to the revaluation of certain Kansas income tax credits and a $16.9 million tax gross-up adjustment on this amount for ratemaking purposes and $109.0 million of income tax expense primarily related to the revaluation of deferred income taxes that will not be recovered from customers in future rates.
Evergy Metro decreased its net deferred income tax liabilities by $152.9 million, primarily consisting of a $106.7 million adjustment for the revaluation of deferred income tax assets and liabilities included in rate base and a $14.4 million tax gross-up adjustment on this amount for ratemaking purposes and $32.2 million of income tax benefit primarily related to the revaluation of deferred income taxes that will not be refunded to customers in future rates.
The changes to the Evergy Companies' net deferred income tax liabilities included in rate base were offset by corresponding changes in regulatory liabilities. The net regulatory liabilities will be refunded to customers in future rates by amortizing the amounts related to plant assets over the remaining useful life of the assets, and amortizing the amounts related to other items over a period to be determined in a future rate case. The changes to the Evergy Companies' unamortized investment tax credits were related to the portion of certain Kansas income tax credits that are not expected to be used after December 31, 2020. The amounts of income tax expense (benefit) recognized by
the Evergy Companies related to the revaluation of deferred income taxes that will not be recovered from or refunded to customers in future rates primarily pertain to deferred tax adjustments related to the difference between Evergy's consolidated tax rate and the statutory tax rates used for setting rates at Evergy Kansas Central, Evergy Metro and Evergy Missouri West as well as deferred income tax adjustments related to non-regulated operations.
Evergy Kansas Central and Evergy Metro currently recover the cost of Kansas corporate income taxes in rates from their customers at the statutory rate of 7% that will be effective until 2021, when the income tax exemption established by HB 2585 takes effect. In accordance with the provisions of HB 2585, Evergy Metro and Evergy Kansas Central filed a joint application with the KCC in July 2020 to reduce their retail rates to reflect their exemption from Kansas corporate income taxes. In the joint application, Evergy Metro requested to implement its rate reduction in one phase, effective January 1, 2021, and Evergy Kansas Central requested to implement its rate reduction in three phases, effective January 1 in each of 2021, 2022 and 2023. A decision on the joint application from the KCC is expected in the fourth quarter of 2020.