Income Taxes

The components of income tax expense from continuing operations for 2017, 2016 and 2015 were as follows:



	2017		2016			2015
	(In thousands)
Current
Federal	$	—	$	—		$	—
State	9,022		5,667			6,513
Deferred
Federal	197,013		178,630			170,649
State	15,348		12,350			12,393
Investment tax credits	—		(5		)	(6		)
	$	221,383	$	196,642		$	189,549

Reconciliations of the provision for income taxes computed at the statutory rate to the reported provisions for income taxes from continuing operations for 2017, 2016 and 2015 are set forth below:



	2017			2016			2015
	(In thousands)
Tax at statutory rate of 35%	$	211,433		$	189,764		$	173,310
Common stock dividends deductible for tax reporting	(2,584		)	(2,570		)	(2,413		)
State taxes (net of federal benefit)	16,100			11,133			12,289
Change in valuation allowance	—			1,324			4,998
Other, net	(3,566		)	(3,009		)	1,365
Income tax expense	$	221,383		$	196,642		$	189,549

Deferred income taxes reflect the tax effect of differences between the basis of assets and liabilities for book and tax purposes. The tax effect of temporary differences that gave rise to significant components of the deferred tax liabilities and deferred tax assets at September 30, 2017 and 2016 are presented below:



	2017			2016
	(In thousands)
Deferred tax assets:
Employee benefit plans	$	121,288		$	122,682
Interest rate agreements	65,171			107,782
Net operating loss carryforwards	555,043			514,391
Charitable and other credit carryforwards	18,873			22,273
Other	10,218			23,648
Total deferred tax assets	770,593			790,776
Valuation allowance	(5,403		)	(10,481		)
Net deferred tax assets	765,190			780,295
Deferred tax liabilities:
Difference in net book value and net tax value of assets	(2,528,485		)	(2,259,278		)
Pension funding	(13,101		)	(30,652		)
Gas cost adjustments	(60,376		)	(54,725		)
Other	(41,927		)	(38,696		)
Total deferred tax liabilities	(2,643,889		)	(2,383,351		)
Net deferred tax liabilities	$	(1,878,699	)	$	(1,603,056	)
Deferred credits for rate regulated entities	$	985		$	861

At September 30, 2017, we had $532.9 million of federal net operating loss carryforwards. The federal net operating loss carryforwards are available to offset taxable income and will begin to expire in 2029. The Company also has $10.1 million of federal alternative minimum tax credit carryforwards, which do not expire. In addition, the Company has $7.6 million in charitable contribution carryforwards to offset taxable income. The Company’s charitable contribution carryforwards expire in 2018 - 2022.

For state taxable income, the Company has $22.1 million of state net operating loss carryforwards (net of $11.9 million of federal effects) and $1.2 million of state tax credits carryforwards (net of federal effects). Depending on the jurisdiction in which the state net operating loss was generated, the carryforwards will begin to expire between 2018 and 2032.

We believe it is more likely than not that the benefit from certain charitable contribution carryforwards, state net operating loss carryforwards and state credit carryforwards will not be realized. Due to the uncertainty of realizing a benefit from the deferred tax asset recorded for the carryforwards, a valuation allowance of $1.1 million was established for the year ended September 30, 2016. No additional valuation allowance was recorded for the year ended September 30, 2017. However, at September 30, 2017, $5.1 million of deferred tax assets expired for which a valuation allowance had previously been recorded.

At September 30, 2017, we had recorded liabilities associated with unrecognized tax benefits totaling $23.7 million. The following table reconciles the beginning and ending balance of our unrecognized tax benefits:



	2017			2016			2015
	(In thousands)
Unrecognized tax benefits - beginning balance	$	20,298		$	17,069		$	12,629
Increase (decrease) resulting from prior period tax positions	(366		)	(290		)	1,009
Increase resulting from current period tax positions	3,787			3,519			3,431
Unrecognized tax benefits - ending balance	23,719			20,298			17,069
Less: deferred federal and state income tax benefits	(8,302		)	(7,104		)	(5,974		)
Total unrecognized tax benefits that, if recognized, would impact the effective income tax rate as of the end of the year	$	15,417		$	13,194		$	11,095

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expense. During the years ended September 30, 2017, 2016 and 2015, the Company recognized approximately $1.1 million, $2.5 million and $0.5 million in interest and penalties. The Company had approximately $4.5 million, $3.3 million and $0.8 million for the payment of interest and penalties accrued at September 30, 2017, 2016 and 2015.

We file income tax returns in the U.S. federal jurisdiction as well as in various states where we have operations. We have concluded substantially all U.S. federal income tax matters through fiscal year 2009 and concluded substantially all Texas income tax matters through fiscal year 2010.