Income Taxes

12 Months Ended

Dec. 31, 2017

Income Taxes

The components of income before income taxes from continuing operations for each of the years ended December 31 were as follows:



	2017			2016			2015
				(In thousands)
United States	$	350,064		$	326,252		$	248,379
Foreign	(37		)	(24		)	(1,326		)
Income before income taxes from continuing operations	$	350,027		$	326,228		$	247,053

Income tax expense from continuing operations for the years ended December 31 was as follows:



	2017			2016			2015
				(In thousands)
Current:
Federal	$	74,272		$	81,989		$	85,897
State	16,192			13,190			10,093
Foreign	—			2			30
	90,464			95,181			96,020
Deferred:
Income taxes:
Federal	(24,497		)	(2,102		)	(19,632		)
State	(864		)	1,184			(5,304		)
Investment tax credit - net	(62		)	(1,131		)	(420		)
	(25,423		)	(2,049		)	(25,356		)
Total income tax expense	$	65,041		$	93,132		$	70,664

In accordance with the accounting guidance on accounting for income taxes, the tax effects of the change in tax laws or rates are to be recorded in the period of enactment. The TCJA was enacted on December 22, 2017, as discussed in Note 1. Therefore, the reduction in the corporate tax rate from 35 percent to 21 percent required the Company to prepare a one-time revaluation of the Company's deferred tax assets and liabilities in the fourth quarter of 2017, the period of enactment. The deferred taxes were revalued at the new tax rate because deferred taxes should reflect what the Company expects to pay or receive in future periods under the applicable tax rate. As a result of the revaluation, the Company reduced the value of these assets and liabilities and recorded a tax benefit from continuing operations of $39.5 million on the Consolidated Statements of Income for the year ended December 31, 2017. Included in the tax benefit from continuing operations was income tax expense of $7.7 million related to amounts in accumulated other comprehensive loss and $1.0 million related to the Company's assets held for sale.

The Company's regulated operations prepared a one-time revaluation of the Company's regulatory deferred tax assets and liabilities in the fourth quarter of 2017 related to the enactment of the TCJA. The revaluation is being deferred under regulatory accounting as the Company works with the various regulators on a plan for amounts expected to be returned to customers, as discussed in Notes 4 and 16. The revaluation of the deferred tax assets and liabilities resulted in a net decrease of $285.5 million in the fourth quarter of 2017. These regulatory amounts are expected to generally be refunded over the remaining life of the related assets as prescribed in the TCJA. The approved regulatory treatment of the impacts of the TCJA by the various regulators may affect the analyses performed.

The changes included in the TCJA are broad and complex. While the Company was able to make reasonable estimates of the impact of the reduction in corporate tax rate on the Company's net deferred tax liabilities, it may be affected by other analyses related to the TCJA, including, but not limited to, the state tax effect of adjustments to federal temporary differences and the calculation of deemed repatriation of deferred foreign income. The final transition impacts of the TCJA may differ from amounts disclosed, possibly materially, due to, among other things, changes in interpretations, legislative action to address questions, changes in accounting standards for income taxes or related interpretations, or updates or changes to estimates the Company has utilized to calculate the transition impacts. The SEC has issued rules that would allow for a measurement period of up to one year after the enactment date of the TCJA to finalize the recording of the related tax impacts. The Company currently anticipates finalizing and recording any resulting adjustments by December 31, 2018, which will be included in income from continuing operations.

Components of deferred tax assets and deferred tax liabilities at December 31 were as follows:



	2017		2016
	(In thousands)
Deferred tax assets:
Postretirement	$	55,736	$	87,872
Compensation-related	16,298		44,995
Alternative minimum tax credit carryforward	37,683		29,338
Federal renewable energy credit	19,367		16,944
Customer advances	8,712		13,524
Legal and environmental contingencies	7,363		9,895
Asset retirement obligations	6,380		8,867
Other	35,738		46,957
Total deferred tax assets	187,277		258,392
Deferred tax liabilities:
Depreciation and basis differences on property, plant and equipment	429,577		774,838
Postretirement	43,505		70,670
Intangible asset amortization	16,979		26,413
Other	32,591		45,580
Total deferred tax liabilities	522,652		917,501
Valuation allowance	11,896		9,117
Net deferred income tax liability	$	347,271	$	668,226

As of December 31, 2017 and 2016, the Company had various state income tax net operating loss carryforwards of $130.1 million and $114.7 million, respectively, and federal and state income tax credit carryforwards, excluding alternative minimum tax credit carryforwards, of $52.5 million and $43.3 million, respectively. Included in the state credits are various regulatory investment tax credits of approximately $28.0 million and $20.7 million at December 31, 2017 and 2016, respectively. The federal income tax credit carryforwards expire in 2036 and 2037 if not utilized and state income tax credit carryforwards are due to expire between 2018 and 2045. It is likely that a portion of the benefit from the state carryforwards will not be realized; therefore, valuation allowances have been provided. Changes in tax regulations or assumptions regarding current and future taxable income could require additional valuation allowances in the future. The alternative minimum tax credit carryforwards are refundable. For information regarding net operating loss carryforwards and valuation allowances related to discontinued operations, see Note 2.

The following table reconciles the change in the net deferred income tax liability from December 31, 2016, to December 31, 2017, to deferred income tax benefit:



	2017
(In thousands)
Change in net deferred income tax liability from the preceding table	$	(320,955	)
Deferred taxes associated with other comprehensive loss	1,182
Deferred taxes associated with TCJA enactment for regulated activities	285,520
Other	8,830
Deferred income tax benefit for the period	$	(25,423	)

Total income tax expense differs from the amount computed by applying the statutory federal income tax rate to income before taxes. The reasons for this difference were as follows:



Years ended December 31,	2017					2016					2015
	Amount			%		Amount			%		Amount			%
	(Dollars in thousands)
Computed tax at federal statutory rate	$	122,509		35.0		$	114,179		35.0		$	86,468		35.0
Increases (reductions) resulting from:
State income taxes, net of federal income tax	10,724			3.1		9,027			2.8		8,208			3.3
Federal renewable energy credit	(13,958		)	(4.0	)	(13,544		)	(4.2	)	(3,400		)	(1.4	)
Tax compliance and uncertain tax positions	(643		)	(.2	)	(3,028		)	(.9	)	(2,607		)	(1.0	)
Domestic production deduction	(6,849		)	(2.0	)	(6,251		)	(1.9	)	(6,842		)	(2.8	)
TCJA revaluation	(47,242		)	(13.5	)	—			—		—			—
TCJA revaluation related to accumulated other comprehensive loss balance	7,735			2.2		—			—		—			—
Other	(7,235		)	(2.0	)	(7,251		)	(2.3	)	(11,163		)	(4.5	)
Total income tax expense	$	65,041		18.6		$	93,132		28.5		$	70,664		28.6

Included in the TCJA is the deemed repatriation transition tax which is a one-time transition tax on previously untaxed accumulated earnings and profits of certain foreign operations that is payable over 8 years. At December 31, 2017, the Company's liability for the deemed repatriation transition tax was $447,000. Historically, deferred income taxes were accrued with respect to the Company's foreign operations.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state, local and foreign jurisdictions. The Company is no longer subject to U.S. federal or non-U.S. income tax examinations by tax authorities for years ending prior to 2014. With few exceptions, as of December 31, 2017, the Company is no longer subject to state and local income tax examinations by tax authorities for years ending prior to 2013.

The Company had no unrecognized tax benefits (excluding interest) for the years ended December 31, 2017, 2016 and 2015.

Included in income tax expense is interest on uncertain tax positions. For the years ended December 31, 2017, 2016 and 2015, the Company recognized approximately $(99,000), $(92,000) and $122,000, respectively, of interest (income) expense in income tax expense. At December 31, 2017 and 2016, the Company had accrued receivables of approximately $46,000 and $54,000, respectively, for interest.