Income Taxes (Tables)

12 Months Ended

Dec. 31, 2019

The following table is a summary of income tax expense for the years ended December 31:



(in millions)	2019			2018			2017
Current tax expense (benefit)	$	(37.9	)	$	(127.5	)	$	111.8
Deferred income taxes, net	167.7			300.1			274.4
Investment tax credit, net	(4.8		)	(2.8		)	(2.7		)
Total income tax expense	$	125.0		$	169.8		$	383.5

Statutory rate reconciliation

The provision for income taxes for each of the years ended December 31 differs from the amount of income tax determined by applying the applicable United States statutory federal income tax rate to income before income taxes as a result of the following:



	2019					2018					2017 ⁽²⁾
				Effective					Effective					Effective
(in millions)	Amount			Tax Rate		Amount			Tax Rate		Amount			Tax Rate
Statutory federal income tax	$	264.4		21.0	%	$	258.1		21.0	%	$	555.5		35.0	%
State income taxes net of federal tax benefit	80.4			6.4	%	71.8			5.8	%	100.8			6.4	%
Tax repairs ⁽¹⁾	(122.8		)	(9.8	)%	(120.7		)	(9.8	)%	—			—	%
Federal excess deferred tax amortization	(34.9		)	(2.8	)%	(16.8		)	(1.4	)%	—			—	%
Wind production tax credits	(34.1		)	(2.7	)%	(12.1		)	(1.0	)%	(16.8		)	(1.1	)%
Excess tax benefits – stock options	(15.8		)	(1.3	)%	(5.9		)	(0.5	)%	(10.0		)	(0.6	)%
Investment tax credit restored	(4.8		)	(0.4	)%	(2.8		)	(0.2	)%	(2.7		)	(0.2	)%
AFUDC – Equity	(3.0		)	(0.2	)%	(3.2		)	(0.3	)%	(4.0		)	(0.3	)%
Federal tax reform	—			—	%	—			—	%	(226.9		)	(14.3	)%
Other, net	(4.4		)	(0.3	)%	1.4			0.2	%	(12.4		)	(0.8	)%
Total income tax expense	$	125.0		9.9	%	$	169.8		13.8	%	$	383.5		24.1	%

⁽¹⁾

In accordance with a settlement agreement with the PSCW, WE flowed through the tax benefit of its repair related deferred tax liabilities in 2018 and 2019, to maintain certain regulatory asset balances at their December 31, 2017 levels. The flow through treatment of the repair related deferred tax liabilities offsets the negative income statement impact of holding the regulatory assets level, resulting in no change to net income. See Note 25, Regulatory Environment, for more information about the impact of the Tax Legislation and the Wisconsin rate order.

⁽²⁾

In 2017, the net impact of tax reform in the amount of $206.7 million is represented in both the Federal tax reform and State income taxes net of federal tax benefit lines above.

Components of deferred income taxes classified as net current assets and net long-term liabilities

The components of deferred income taxes as of December 31 were as follows:



(in millions)	2019			2018
Deferred tax assets
Tax gross up – regulatory items	$	519.8		$	579.2
Deferred revenues	106.3			129.3
Future tax benefits	101.0			70.6
Other	159.8			194.4
Total deferred tax assets	886.9			973.5
Valuation allowance	(2.3		)	(11.4		)
Net deferred tax assets	$	884.6		$	962.1

Deferred tax liabilities
Property-related	$	3,609.0		$	3,436.9
Investment in affiliates	531.7			420.6
Deferred costs – Plant retirements	232.0			176.0
Employee benefits and compensation	131.4			121.2
Other	149.8			195.5
Total deferred tax liabilities	4,653.9			4,350.2
Deferred tax liability, net	$	3,769.3		$	3,388.1

Components of deferred tax assets associated with federal and state tax benefit carryforwards

The components of net deferred tax assets associated with federal and state tax benefit carryforwards as of December 31, 2019 and 2018 are summarized in the tables below:



2019 (in millions)	Gross Value		Deferred Tax Effect		Valuation Allowance			Earliest Year of Expiration
Future tax benefits as of December 31, 2019
Federal tax credit	$	—	$	75.4	$	—		2037
State net operating loss	287.1		17.6		(2.3		)	2023
Other state benefits	—		8.0		—			2019
Balance as of December 31, 2019	$	287.1	$	101.0	$	(2.3	)



2018 (in millions)	Gross Value		Deferred Tax Effect		Valuation Allowance			Earliest Year of Expiration
Future tax benefits as of December 31, 2018
Federal foreign tax credit	$	—	$	9.7	$	(9.7	)	2018
Other federal tax credit	—		39.3		(1.7		)	2038
State net operating loss	275.9		17.0		—			2023
Other state benefits	—		4.6		—			2018
Balance as of December 31, 2018	$	275.9	$	70.6	$	(11.4	)

Reconciliation of the beginning and ending amount of unrecognized tax benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



(in millions)	2019			2018
Balance as of January 1	$	20.0		$	17.3
Additions for tax positions of prior years	1.9			2.8
Additions based on tax positions related to the current year	0.2			0.1
Reductions for tax positions of prior years	(4.2		)	(0.2		)
Balance as of December 31	$	17.9		$	20.0

Summary of income tax examinations

As of December 31, 2019, with a few exceptions, we were subject to examination by federal and state or local tax authorities for the 2015 through 2019 tax years in our major operating jurisdictions as follows:



Jurisdiction		Years
Federal		2015–2019
Illinois		2015–2019
Michigan		2015–2019
Minnesota		2015–2019
Wisconsin		2015–2019