Income Taxes

The components of federal and state income taxes included in the Consolidated Statements of Income are as follows:



	Year Ended September 30
	2016			2015			2014
	(Thousands)
Current Income Taxes —
Federal	$	(6,658	)	$	25,064		$	34,579
State	20,903			13,387			12,620
Deferred Income Taxes —
Federal	(164,818		)	(244,336		)	116,143
State	(81,976		)	(113,251		)	26,272
	(232,549		)	(319,136		)	189,614
Deferred Investment Tax Credit	(348		)	(414		)	(434		)
Total Income Taxes	$	(232,897	)	$	(319,550	)	$	189,180
Presented as Follows:
Other Income	$	(348	)	$	(414	)	$	(434	)
Income Tax Expense (Benefit)	(232,549		)	(319,136		)	189,614
Total Income Taxes	$	(232,897	)	$	(319,550	)	$	189,180

Total income taxes as reported differ from the amounts that were computed by applying the federal income tax rate to income (loss) before income taxes. The following is a reconciliation of this difference:



	Year Ended September 30
	2016			2015			2014
	(Thousands)
U.S. Income (Loss) Before Income Taxes	$	(523,855	)	$	(698,977	)	$	488,593
Income Tax Expense (Benefit), Computed at U.S. Federal Statutory Rate of 35%	$	(183,349	)	$	(244,642	)	$	171,008
State Income Taxes (Benefit)	(39,697		)	(64,912		)	25,280
Miscellaneous	(9,851		)	(9,996		)	(7,108		)
Total Income Taxes	$	(232,897	)	$	(319,550	)	$	189,180

Significant components of the Company’s deferred tax liabilities and assets were as follows:



	At September 30
	2016			2015
	(Thousands)
Deferred Tax Liabilities:
Property, Plant and Equipment	$	1,049,100		$	1,291,718
Pension and Other Post-Retirement Benefit Costs	151,903			141,032
Unrealized Hedging Gains	50,179			118,522
Other	55,457			51,230
Total Deferred Tax Liabilities	1,306,639			1,602,502
Deferred Tax Assets:
Pension and Other Post-Retirement Benefit Costs	(195,829		)	(168,451		)
Tax Loss and Credit Carryforwards	(194,875		)	(185,681		)
Other	(92,140		)	(110,408		)
Total Deferred Tax Assets	(482,844		)	(464,540		)
Total Net Deferred Income Taxes	$	823,795		$	1,137,962

As a result of certain realization requirements of the authoritative guidance on stock-based compensation, the table of deferred tax liabilities and assets shown above does not include certain deferred tax assets that arose directly from excess tax deductions related to stock-based compensation. Tax benefits of $1.9 million, $9.1 million and $4.6 million relating to the excess stock-based compensation deductions were recorded in Paid in Capital during the years ended September 30, 2016, September 30, 2015 and September 30, 2014, respectively. Cumulative tax benefits of $32.6 million and $32.8 million remained as of September 30, 2016 and September 30, 2015, respectively, and will be recorded in Paid in Capital in future years when such tax benefits are realized or recorded to retained earnings when the Company adopts the authoritative guidance issued by the FASB in March 2016 that addresses several aspects of the accounting for stock-based compensation, whichever is earlier.

Regulatory liabilities representing the reduction of previously recorded deferred income taxes associated with rate-regulated activities that are expected to be refundable to customers amounted to $93.3 million and $89.4 million at September 30, 2016 and 2015, respectively. Also, regulatory assets representing future amounts collectible from customers, corresponding to additional deferred income taxes not previously recorded because of prior ratemaking practices, amounted to $177.3 million and $168.2 million at September 30, 2016 and 2015, respectively. Included in the above are regulatory liabilities and assets relating to the tax accounting method change noted below. The amounts are as follows: regulatory liabilities of $52.6 million as of September 30, 2016 and 2015 and regulatory assets of $94.2 million and $88.7 million as of September 30, 2016 and 2015, respectively.

The following is a reconciliation of the change in unrecognized tax benefits:



	Year Ended September 30
	2016			2015			2014
	(Thousands)
Balance at Beginning of Year	$	5,085		$	3,147		$	2,001
Additions for Tax Positions of Prior Years	396			2,504			2,447
Reductions for Tax Positions of Prior Years	(1,314		)	(566		)	(1,301		)
Reductions Related to Settlements with Taxing Authorities	(3,771		)	—			—
Balance at End of Year	$	396		$	5,085		$	3,147

As a result of certain examinations in progress (discussed below), the Company anticipates the balance of unrecognized tax benefits could be reduced during the next 12 months. As of September 30, 2016, the entire balance of unrecognized tax benefits would favorably impact the effective tax rate, if recognized.

The IRS is currently conducting examinations of the Company for fiscal 2016 and fiscal 2015 in accordance with the Compliance Assurance Process (“CAP”). The CAP audit employs a real time review of the Company’s books and tax records by the IRS that is intended to permit issue resolution prior to the filing of the tax return. The federal statute of limitations remains open for fiscal 2009 and later years. During fiscal 2009, consent was received from the IRS National Office approving the Company’s application to change its tax method of accounting for certain capitalized costs relating to its utility property. While local IRS examiners issued no-change reports for fiscal 2009 through 2014, the IRS has reserved the right to re-examine these years, pending the anticipated issuance of IRS guidance addressing the issue for natural gas utilities.

The Company is also subject to various routine state income tax examinations. The Company’s principal subsidiaries operate mainly in four states which have statutes of limitations that generally expire between three to four years from the date of filing of the income tax return.

As of September 30, 2016, the Company has a federal net operating loss (NOL) carryover of $379 million, which expires in varying amounts between 2026 and 2032. Approximately $4.5 million of the NOL carryforward is subject to certain annual limitations, and $85 million is attributable to excess tax deductions related to stock-based compensation as discussed above. In addition, the Company has research and development tax credit carryforwards of $5.1 million, which begin to expire in 2031 and a minimum tax credit carryforward of $49 million, which has no expiration date. The Company has state NOL carryovers in Pennsylvania, California and New York of $332 million, $184 million and $80 million, respectively, which generally begin to expire in varying amounts between 2029 and 2035.

During fiscal 2014, legislation was enacted reducing the corporate tax rate in New York from 7.1% to 6.5%, effective for tax years beginning after January 1, 2016. As a result, a deferred tax benefit of approximately $2.8 million was recorded in the fiscal 2014 financial statements.