INCOME TAX

An estimate of annual income tax expense is made each interim period using estimates for annual pre-tax income, regulatory flow-through adjustments, tax credits, and other items. The estimated annual effective tax rate is applied to year-to-date, pre-tax income to determine income tax expense for the interim period consistent with the annual estimate.

The effective income tax rate varied from the combined federal and state statutory tax rates due to the following:



	Three Months Ended June 30,						Six Months Ended June 30,
Dollars in thousands	2017			2016			2017			2016
Income taxes at statutory rates (federal and state)	$	1,725		$	1,351		$	28,325		$	25,959
Increase (decrease):
Differences required to be flowed-through by regulatory commissions	66			65			1,584			1,583
Other, net	(122		)	(34		)	(1,317		)	(774		)
Total provision for income taxes	$	1,669		$	1,382		$	28,592		$	26,768
Effective tax rate	37.9		%	40.6		%	39.9		%	40.9		%

The effective income tax rate for the three and six months ended June 30, 2017, compared to the same period in 2016, decreased primarily as a result of AFUDC equity income and increased stock-based compensation deductions in 2017. See Note 9 in the 2016 Form 10-K for more detail on income taxes and effective tax rates.

The IRS Compliance Assurance Process (CAP) examination of the 2015 tax year was completed during the first quarter of 2017. There were no material changes to the return as filed. The 2016 tax year is subject to examination under CAP and the 2017 tax year CAP application has been accepted by the IRS.