Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

(12)          Income Taxes

Income tax (benefit) expense is comprised of the following (in thousands):

	Year Ended December 31,
	2022		2021		2020
Federal
Current	$	5,024	$	722	$	(3,396)
Deferred	(5,993)		2,626		(4,006)
Investment tax credits	(130)		(130)		(3)
State
Current	3,363		2,172		3
Deferred	(2,869)		(1,971)		(3,568)
Income Tax (Benefit) Expense	$	(605)	$	3,419	$	(10,970)

Our effective tax rate typically differs from the federal statutory tax rate primarily due to production tax credits and the regulatory impact of flowing through the federal and state tax benefit of repairs deductions and state tax benefit of accelerated tax depreciation deductions (including bonus depreciation when applicable). 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 reconciles our effective income tax rate to the federal statutory rate:

	Year Ended December 31,
	2022		2021		2020
Federal statutory rate	21.0	%	21.0	%	21.0	%
State income tax, net of federal provisions	0.3		0.1		(1.1)
Flow-through repairs deductions	(12.4)		(11.5)		(16.5)
Production tax credits	(7.2)		(6.1)		(9.1)
Amortization of excess deferred income taxes	(0.9)		(0.3)		(0.7)
Prior year permanent return to accrual adjustments	(0.8)		—		(1.2)
Plant and depreciation of flow through items	(0.1)		(0.6)		0.1
Other, net	(0.2)		(0.8)		(0.1)
Effective tax rate	(0.3)	%	1.8	%	(7.6)	%

The table below summarizes the significant differences in income tax expense (benefit) based on the differences between our effective tax rate and the federal statutory rate (in thousands).

	Year Ended December 31,
	2022		2021		2020
Income Before Income Taxes	$	182,403	$	190,259	$	144,245
Income tax calculated at federal statutory rate	38,304		39,954		30,292
Permanent or flow through adjustments:
State income, net of federal provisions	562		354		(1,477)
Flow-through repairs deductions	(22,665)		(21,888)		(23,828)
Production tax credits	(13,166)		(11,532)		(13,103)
Amortization of excess deferred income taxes	(1,657)		(635)		(968)
Prior year permanent return to accrual adjustments	(1,397)		(12)		(1,728)
Plant and depreciation of flow through items	(222)		(941)		121
Other, net	(364)		(1,881)		(279)
	(38,909)		(36,535)		(41,262)
Income Tax (Benefit) Expense	$	(605)	$	3,419	$	(10,970)

The components of the net deferred income tax liability recognized in our Consolidated Balance Sheets are related to the following temporary differences (in thousands):

	December 31,
	2022		2021
Production tax credit	$	80,097	$	75,092
Customer advances	25,119		21,271
Pension / postretirement benefits	19,291		21,435
Compensation accruals	10,306		10,612
Unbilled revenue	9,440		10,704
Environmental liability	6,009		5,704
Reserves and accruals	4,016		5,106
Interest rate hedges	3,372		3,158
Other, net	2,595		1,738
Deferred Tax Asset	160,245		154,820
Excess tax depreciation	(449,724)		(425,202)
Flow through depreciation	(106,623)		(94,616)
Goodwill amortization	(86,874)		(85,425)
Regulatory assets and other	(56,007)		(49,211)
Deferred Tax Liability	(699,228)		(654,454)
Deferred Tax Liability, net	$	(538,983)	$	(499,634)

At December 31, 2022, our total production tax credit carryforward was approximately $80.1 million. If unused, our production tax credit carryforwards will expire as follows: $8.9 million in 2036, $11.0 million in 2037, $10.9 million in 2038, $11.5 million in 2039, $13.1 million in 2040, $11.5 million in 2041, and $13.2 million in 2042. We believe it is more likely than not that sufficient taxable income will be generated to utilize these production tax credit carryforwards.

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. The change in unrecognized tax benefits is as follows (in thousands):

	2022		2021		2020
Unrecognized Tax Benefits at January 1	$	32,049	$	33,491	$	35,085
Gross increases - tax positions in prior period	—		293		120
Gross increases - tax positions in current period	—		—		—
Gross decreases - tax positions in current period	(1,719)		(1,735)		(1,714)
Lapse of statute of limitations	—		—		—
Unrecognized Tax Benefits at December 31	$	30,330	$	32,049	$	33,491

Our unrecognized tax benefits include approximately $27.9 million and $28.1 million related to tax positions as of December 31, 2022 and 2021, that if recognized, would impact our annual 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 December 31, 2022, we have accrued $1.4 million for the payment of interest and penalties in the Consolidated Balance Sheets. As of December 31, 2021, we had $0.5 million accrued for the payment of interest and penalties.

Tax years 2019 and forward remain subject to examination by the Internal Revenue Service (IRS) and state taxing authorities. During the first quarter of 2023 the IRS commenced a limited scope examination of the Company's 2019 amended federal income tax return.