Income Taxes

9 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Income Taxes

We compute income tax expense for each quarter based on the estimated annual effective tax rate for the year, adjusted for certain discrete items. Our effective tax rate typically differs from the federal statutory tax rate due to the regulatory impact of flowing through the federal and state tax benefit of repairs deductions, state tax benefit of accelerated tax depreciation deductions (including bonus depreciation when applicable) and production tax credits. The regulatory accounting treatment of these deductions requires immediate income recognition for temporary tax differences of this type, which is referred to as the flow-through method. When the flow-through method of accounting for temporary differences is reflected in regulated revenues, we record deferred income taxes and establish related regulatory assets and liabilities.

The following table summarizes the differences between our effective tax rate and the federal statutory rate (in thousands):

	Three Months Ended September 30,
	2020				2019
Income Before Income Taxes	$	26,763			$	22,225
Income tax calculated at federal statutory rate	5,621		21.0	%	4,667		21.0	%
Permanent or flow-through adjustments:
State income tax, net of federal provisions	46		0.2		65		0.3
Flow-through repairs deductions	(4,213)		(15.7)		(2,606)		(11.7)
Production tax credits	(2,205)		(8.2)		(1,414)		(6.3)
Amortization of excess deferred income tax	(222)		(0.8)		(374)		(1.7)
Plant and depreciation of flow-through items	103		0.4		(263)		(1.2)
Prior year permanent return to accrual adjustments	(1,728)		(6.5)		559		2.5
Other, net	(105)		(0.5)		(79)		(0.4)
	(8,324)		(31.1)		(4,112)		(18.5)
Income tax (benefit) expense	$	(2,703)	(10.1)	%	$	555	2.5	%

	Nine Months Ended September 30,
	2020				2019
Income Before Income Taxes	$	96,437			$	122,040
Income tax calculated at federal statutory rate	20,252		21.0	%	25,628		21.0	%
Permanent or flow through adjustments:
State income, net of federal provisions	73		0.1		1,230		1.0
Flow-through repairs deductions	(14,859)		(15.4)		(12,694)		(10.4)
Production tax credits	(7,553)		(7.8)		(7,252)		(5.9)
Share-based compensation	(609)		(0.6)		186		0.2
Amortization of excess deferred income tax	(731)		(0.8)		(1,939)		(1.6)
Prior year permanent return to accrual adjustments	(1,728)		(1.8)		559		0.4
Plant and depreciation of flow through items	299		0.3		(2,449)		(2.0)
Recognition of unrecognized tax benefit	—		—		(22,825)		(18.7)
Other, net	(371)		(0.4)		(542)		(0.5)
	(25,479)		(26.4)		(45,726)		(37.5)
Income tax benefit	$	(5,227)	(5.4)	%	$	(20,098)	(16.5)	%

The income tax benefit for 2019 reflects the recognition of approximately $22.8 million of unrecognized tax benefits, including approximately $2.7 million of accrued interest and penalties, net of tax, due to the lapse of statutes of limitation in the second quarter of 2019.

Coronavirus Aid, Relief, and Economic Security Act (the CARES Act)

In response to the COVID-19 pandemic, on March 27, 2020, President Donald Trump signed into law the CARES Act. We evaluated the provisions of the CARES Act as of September 30, 2020, and determined it had no material effect on our Financial Statements. Certain tax provisions may result in immaterial cash refunds.

Uncertain Tax Positions

We recognize tax positions that meet the more-likely-than-not threshold as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. We have unrecognized tax benefits of approximately $33.9 million as of September 30, 2020, including approximately $28.0 million that, if recognized, would impact our effective tax rate. We do not anticipate that total unrecognized tax benefits will significantly change due to the settlement of audits or the expiration of statutes of limitation within the next twelve months.

Our policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. As of September 30, 2020, we do not have any amounts accrued for the payment of interest and penalties. As discussed above, during the nine months ended September 30, 2019, we released $2.7 million of accrued interest in the Condensed Consolidated Statements of Income.

Tax years 2016 and forward remain subject to examination by the Internal Revenue Service (IRS) and state taxing authorities. In addition, the available federal net operating loss carryforward may be reduced by the IRS for losses originating in certain tax years from 2002 forward.