Income Taxes

12 Months Ended

Dec. 31, 2020

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 2015 are subject to examination. At December 31, 2020, the 2015 through 2019 federal income tax returns are under examination, and no report has been issued at this time.

We expect to have federal NOL totaling $6.3 million and $12.2 million in 2019 and 2018 respectively upon the settlement of the Internal Revenue Service examination described above. Under the CARES Act, discussed below, we elected to carry the losses back to 2015 and 2013. For state income tax purposes, we had NOL in various states of $40.0 million and $54.7 million as of December 31, 2020 and 2019, respectively, almost all of which will expire in 2039. Excluding NOL from discontinued operations, we have recorded deferred tax assets of $1.6 million and $5.5 million related to state NOL carry-forwards at December 31, 2020 and 2019, respectively. We have not recorded a valuation allowance to reduce the future benefit of the tax NOL because we believe they will be fully utilized.

Tax Law Changes

In March 2020, the CARES Act was signed into law and included several significant changes to the Internal Revenue Code. The CARES Act includes certain tax relief provisions including the ability to carryback five years net operating losses arising in a tax year beginning in 2018, 2019, or 2020. This provision allows a taxpayer to recover taxes previously paid at a 35 percent federal income tax rate during tax years prior to 2018. In addition, the CARES Act removed the taxable income limitation to allow a tax NOL to fully offset taxable income for tax years beginning before January 1, 2021. Our income tax expense for the year ended December 31, 2020 included a tax benefit of $1.8 million attributable to the tax NOL carryback provided under the CARES Act for losses generated in 2018 and 2019 and then applied back to our 2013 and 2015 tax years in which we paid federal income taxes at a 35 percent tax rate.

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.

The following tables provide: (a) the components of income tax expense in 2020, 2019, and 2018; (b) the reconciliation between the statutory federal income tax rate and the effective income tax rate for 2020, 2019, and 2018 from continuing operations; and (c) the components of accumulated deferred income tax assets and liabilities at December 31, 2020 and 2019.


	For the Year Ended December 31,
	2020		2019		2018
(in thousands)
Current Income Tax Expense
Federal	$	(2,777)	$	(2,252)	$	(361)
State	2,162		(491)		617
Other	(47)		(47)		(47)
Total current income tax expense (benefit)	(662)		(2,790)		209
Deferred Income Tax Expense (1)
Property, plant and equipment	23,224		25,907		19,178
Deferred gas costs	(714)		79		(1,435)
Pensions and other employee benefits	(75)		(454)		454
FPU merger-related premium cost and deferred gain	156		(278)		(528)
Net operating loss carryforwards	5,107		(3,772)		(250)
Other	(3,498)		2,422		3,495
Total deferred income tax expense	24,200		23,904		20,914
Income Tax Expense from Continuing Operations	23,538		21,114		21,123
Income Tax Expense (benefit) from Discontinued Operations	153		1,416		(129)
Total Income Tax	$	23,691	$	22,530	$	20,994

(1) Includes $4.9 million, $4.7 million, and $3.5 million of deferred state income taxes for the years 2020, 2019 and 2018, respectively.


	For the Year Ended December 31,
	2020			2019			2018
(in thousands)
Reconciliation of Effective Income Tax Rates for Continuing Operations
Federal income tax expense (1)	$	19,778		$	17,264		$	16,400
State income taxes, net of federal benefit	5,051			5,093			4,071
ESOP dividend deduction	(218)			(173)			(158)
CARES Act Tax Benefit	(1,841)			—			—
Other	768			(1,070)			810
Total Income Tax Expense for Continuing Operations	$	23,538		$	21,114		$	21,123
Effective Income Tax Rate for Continuing Operations	24.99		%	25.65		%	27.13		%

(1) Federal income taxes were calculated at 21 percent for 2020, 2019, and 2018.


	As of December 31,
	2020		2019
(in thousands)
Deferred Income Taxes
Deferred income tax liabilities:
Property, plant and equipment	$	199,287	$	173,466
Acquisition adjustment	6,618		6,969
Loss on reacquired debt	201		220
Deferred gas costs	509		1,223
Natural gas conversion costs	5,379		4,956
Storm reserve liability	7,073		10,316
Other	5,587		1,456
Total deferred income tax liabilities	224,654		198,606
Deferred income tax assets:
Pension and other employee benefits	4,636		3,818
Environmental costs	1,064		1,486
Net operating loss carryforwards	1,587		5,523
Self-insurance	—		146
Storm reserve liability	409		96
Accrued Expenses	6,153		2,064
Other	5,417		4,817
Total deferred income tax assets	19,266		17,950
Deferred Income Taxes Per Consolidated Balance Sheets	$	205,388	$	180,656

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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