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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2020

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


(in millions)	2020		2019		2018
Current tax expense (benefit)	$	49.2	$	(37.9)	$	(127.5)
Deferred income taxes, net	182.2		167.7		300.1
ITC, net	(3.5)		(4.8)		(2.8)
Total income tax expense	$	227.9	$	125.0	$	169.8

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:


	2020				2019				2018
			Effective				Effective				Effective
(in millions)	Amount		Tax Rate		Amount		Tax Rate		Amount		Tax Rate
Statutory federal income tax	$	299.9	21.0	%	$	264.4	21.0	%	$	258.1	21.0	%
State income taxes net of federal tax benefit	90.5		6.3	%	80.4		6.4	%	71.8		5.8	%
Federal excess deferred tax amortization – Wisconsin unprotected (1)	(57.6)		(4.0)	%	—		—	%	—		—	%
Wind PTCs	(51.5)		(3.6)	%	(34.1)		(2.7)	%	(12.1)		(1.0)	%
Federal excess deferred tax amortization (2)	(36.7)		(2.6)	%	(34.9)		(2.8)	%	(16.8)		(1.4)	%
Excess tax benefits – stock options	(12.3)		(0.9)	%	(15.8)		(1.3)	%	(5.9)		(0.5)	%
AFUDC – Equity	(4.4)		(0.3)	%	(3.0)		(0.2)	%	(3.2)		(0.3)	%
ITC restored	(3.5)		(0.2)	%	(4.8)		(0.4)	%	(2.8)		(0.2)	%
Tax repairs (3)	3.3		0.2	%	(122.8)		(9.8)	%	(120.7)		(9.8)	%
Other, net	0.2		—	%	(4.4)		(0.3)	%	1.4		0.2	%
Total income tax expense	$	227.9	15.9	%	$	125.0	9.9	%	$	169.8	13.8	%

(1) In accordance with the rate order received from the PSCW in December 2019, our Wisconsin utilities are amortizing these unprotected deferred tax benefits over periods ranging from two years to four years, to reduce near-term rate impacts to their customers. The decrease in income tax expense related to the amortization of the deferred tax benefits is offset by a decrease in revenue as the benefits are returned to customers, resulting in no impact on net income.

(2) The Tax Legislation required our regulated utilities to remeasure their deferred income taxes and we began to amortize the resulting excess protected deferred income taxes beginning in 2018 in accordance with normalization requirements. The decrease in income tax expense related to the amortization of the deferred tax benefits is offset by a decrease in revenue as the benefits are returned to customers, resulting in no impact on net income.

(3) 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 offset the negative income statement impact of holding the regulatory assets level, resulting in no impact to net income. In 2020, in accordance with the settlement agreement, WE started collecting the payback of the tax repairs benefit that was flowed through to customers. Customers will pay back all of the benefits over the next fifty years.

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)	2020		2019
Deferred tax assets
Tax gross up – regulatory items	$	497.6	$	519.8
Deferred revenues	104.2		106.3
Future tax benefits	102.5		101.0




Other	197.2		159.8
Total deferred tax assets	901.5		886.9
Valuation allowance	(2.3)		(2.3)
Net deferred tax assets	$	899.2	$	884.6

Deferred tax liabilities
Property-related	$	3,721.0	$	3,609.0
Investment in affiliates	647.2		531.7
Deferred costs – Plant retirements	255.4		232.0
Employee benefits and compensation	148.2		131.4

Other	187.2		149.8
Total deferred tax liabilities	4,959.0		4,653.9
Deferred tax liability, net	$	4,059.8	$	3,769.3

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, 2020 and 2019 are summarized in the tables below:


2020 (in millions)	Gross Value		Deferred Tax Effect		Valuation Allowance		Earliest Year of Expiration
Future tax benefits as of December 31, 2020


Federal tax credit	$	—	$	89.1	$	—	2040
State net operating loss	88.8		5.5		(2.3)		2030
Other state benefits	—		7.9		—		2023
Balance as of December 31, 2020	$	88.8	$	102.5	$	(2.3)


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)

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)	2020		2019
Balance as of January 1	$	17.9	$	20.0
Additions for tax positions of prior years	1.6		1.9
Additions based on tax positions related to the current year	0.1		0.2
Reductions for tax positions of prior years	(7.7)		(4.2)



Balance as of December 31	$	11.9	$	17.9

Summary of income tax examinations

As of December 31, 2020, with a few exceptions, we were subject to examination by federal and state or local tax authorities for the 2015 through 2020 tax years in our major operating jurisdictions as follows:


Jurisdiction						Years
Federal						2017–2020
Illinois						2015–2020
Michigan						2015–2020
Minnesota						2016–2020
Wisconsin						2016–2020