Income Taxes

12 Months Ended

Dec. 31, 2019

INCOME TAXES

We file a consolidated federal income tax return. Income tax expense allocated to our subsidiaries is based upon their respective taxable incomes and tax credits. State income tax returns are filed on a separate company basis in most states where we have operations and/or are required to file. Our state returns for tax years after 2014 are subject to examination. At December 31, 2019, the 2015 through 2018 federal income tax returns are under examination, and no report has been issued at this time.

We had a net operating loss for federal income tax purposes as of December 31, 2019 totaling $3.0 million. We will have a federal net operating loss totaling $12.2 million for 2018 upon the settlement of the Internal Revenue Service audit described above. We did not have a federal net operating loss for tax year 2017. For state income tax purposes, we had net operating losses in various

states of $54.7 million and $60.1 million as of December 31, 2019 and 2018, respectively, almost all of which will expire in 2038. Excluding net operating losses from discontinued operations we have recorded deferred tax assets of $5.5 million and $2.0 million related to state net operating loss carry-forwards at December 31, 2019 and 2018, respectively, but we have not recorded a valuation allowance to reduce the future benefit of the tax net operating losses because we believe they will be fully utilized.

Federal Tax Reform

On December 22, 2017, President Trump signed into law the TCJA. Substantially all of the provisions of the TCJA were effective for taxable years beginning on or after January 1, 2018. The provisions that significantly impacted us include the reduction of the corporate federal income tax rate from 35 percent to 21 percent. Our federal income tax expense for periods beginning on January 1, 2018 are based on the new federal corporate income tax rate. The TCJA included changes to the Internal Revenue Code, which materially impacted our 2017 financial statements. ASC 740, Income Taxes, requires recognition of the effects of changes in tax laws in the period in which the law is enacted. ASC 740 requires deferred tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. During 2018, we completed the assessment of the impact of accounting for certain effects of the TCJA. At the date of enactment in 2017, we re-measured deferred income taxes based upon the new corporate tax rate. See Note 19, Rates and Other Regulatory Activities, for further discussion of the TCJA's impact on our regulated businesses.

In 2018, we elected early adoption of ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. Accordingly, we reclassified stranded tax effects resulting from the TCJA from accumulated other comprehensive loss to retained earnings, related to our employee benefit plans and commodity contracts cash flow hedges.

The following tables provide: (a) the components of income tax expense in 2019, 2018, and 2017; (b) the reconciliation between the statutory federal income tax rate and the effective income tax rate for 2019, 2018, and 2017 from continuing operations; and (c) the components of accumulated deferred income tax assets and liabilities at December 31, 2019 and 2018.



	For the Year Ended December 31,
	2019			2018			2017
(in thousands)
Current Income Tax Expense
Federal	$	(2,271	)	$	48		$	2,046
State	(492		)	581			610
Other	(47		)	(47		)	(71		)
Total current income tax expense (benefit)	(2,810		)	582			2,585
Deferred Income Tax Expense ⁽¹⁾
Property, plant and equipment	25,910			19,189			8,181
Deferred gas costs	79			(1,435		)	2,002
Pensions and other employee benefits	(454		)	446			180
FPU merger-related premium cost and deferred gain	(278		)	(528		)	(1,148		)
Net operating loss carryforwards	(3,776		)	(183		)	193
Other	2,420			3,161			2,677
Total deferred income tax expense	23,901			20,650			12,085
Income Tax Expense from Continuing Operations	21,091			21,232			14,670
Income Tax Expense (benefit) from Discontinued Operations	1,439			(238		)	(361		)
Total Income Tax	$	22,530		$	20,994		$	14,309

⁽¹⁾Includes $4.7 million, $3.5 million, and $0.9 million of deferred state income taxes for the years 2019, 2018 and 2017, respectively.



	For the Year Ended December 31,
	2019			2018			2017
(in thousands)
Reconciliation of Effective Income Tax Rates for Continuing Operations
Federal income tax expense ⁽¹⁾	$	17,246		$	16,491		$	26,249
State income taxes, net of federal benefit	5,088			4,057			2,000
ESOP dividend deduction	(173		)	(158		)	(257		)
Revaluation of deferred tax assets and liabilities	—			—			(14,299		)
Other	(1,070		)	842			977
Total Income Tax Expense for Continuing Operations	$	21,091		$	21,232		$	14,670
Effective Income Tax Rate for Continuing Operations ⁽²⁾	25.65		%	27.19		%	19.56		%

⁽¹⁾ Federal income taxes were calculated at 21 percent for 2019 and 2018 and 35 percent for 2017.

⁽²⁾The effective tax rate for 2017 includes the impact of the revaluation of deferred tax assets and liabilities for our unregulated businesses due to implementation of the TCJA.



	As of December 31,
	2019		2018
(in thousands)
Deferred Income Taxes
Deferred income tax liabilities:
Property, plant and equipment	$	173,466	$	153,423
Acquisition adjustment	6,969		8,896
Loss on reacquired debt	220		32
Deferred gas costs	1,223		1,139
Natural gas conversion costs	4,956		3,987
Storm reserve liability	10,316		97
Other	1,456		2,544
Total deferred income tax liabilities	198,606		170,118
Deferred income tax assets:
Pension and other employee benefits	3,818		3,711
Environmental costs	1,486		1,710
Net operating loss carryforwards	5,523		2,010
Self-insurance	146		151
Storm reserve liability	96		—
Other	6,881		5,716
Total deferred income tax assets	17,950		13,298
Deferred Income Taxes Per Consolidated Balance Sheets	$	180,656	$	156,820