Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Tax Disclosure

INCOME TAXES

Income Tax Expense

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

(in millions)	2021		2020		2019
Current tax expense (benefit)	$	93.9	$	49.2	$	(37.9)
Deferred income taxes, net	111.0		182.2		167.7
ITCs	(4.6)		(3.5)		(4.8)
Total income tax expense	$	200.3	$	227.9	$	125.0

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:

	2021				2020				2019
			Effective				Effective				Effective
(in millions)	Amount		Tax Rate		Amount		Tax Rate		Amount		Tax Rate
Statutory federal income tax	$	315.1	21.0	%	$	299.9	21.0	%	$	264.4	21.0	%
State income taxes net of federal tax benefit	96.1		6.4	%	90.5		6.3	%	80.4		6.4	%
Wind PTCs	(81.3)		(5.4)	%	(51.5)		(3.6)	%	(34.1)		(2.7)	%
Federal excess deferred tax amortization – Wisconsin unprotected (1)	(77.9)		(5.2)	%	(57.6)		(4.0)	%	—		—	%
Federal excess deferred tax amortization (2)	(37.3)		(2.5)	%	(36.7)		(2.6)	%	(34.9)		(2.8)	%
ITC restored	(4.6)		(0.3)	%	(3.5)		(0.2)	%	(4.8)		(0.4)	%
AFUDC – Equity	(3.8)		(0.3)	%	(4.4)		(0.3)	%	(3.0)		(0.2)	%
Excess tax benefits – stock options	(3.2)		(0.2)	%	(12.3)		(0.9)	%	(15.8)		(1.3)	%
Tax repairs (3)	4.0		0.3	%	3.3		0.2	%	(122.8)		(9.8)	%
Other, net	(6.8)		(0.4)	%	0.2		—	%	(4.4)		(0.3)	%
Total income tax expense	$	200.3	13.4	%	$	227.9	15.9	%	$	125.0	9.9	%

(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.

See Note 26, Regulatory Environment, for more information about the impact of the Tax Legislation and the Wisconsin rate orders.

Deferred Income Tax Assets and Liabilities

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

(in millions)	2021		2020
Deferred tax assets
Tax gross up – regulatory items	$	469.5	$	497.6
Future tax benefits	104.6		102.5
Deferred revenues	97.8		104.2
Other	205.9		197.2
Total deferred tax assets	877.8		901.5
Valuation allowance	(1.2)		(2.3)
Net deferred tax assets	$	876.6	$	899.2
Deferred tax liabilities
Property-related	$	3,909.0	$	3,721.0
Investment in affiliates	648.6		647.2
Deferred costs – plant retirements	223.9		255.4
Employee benefits and compensation	170.6		148.2
Other	233.0		187.2
Total deferred tax liabilities	5,185.1		4,959.0
Deferred tax liability, net	$	4,308.5	$	4,059.8

Consistent with rate-making treatment, deferred taxes related to our regulated utilities in the table above are offset for temporary differences that have related regulatory assets and liabilities.

The components of net deferred tax assets associated with federal and state tax benefit carryforwards as of December 31, 2021 and 2020 are summarized in the tables below:

2021 (in millions)	Gross Value		Deferred Tax Effect		Valuation Allowance		Earliest Year of Expiration
Future tax benefits as of December 31, 2021
Federal tax credit	$	—	$	91.5	$	—	2041
State net operating loss	72.0		4.4		(1.2)		2030
Other state benefits	—		8.7		—		2023
Balance as of December 31, 2021	$	72.0	$	104.6	$	(1.2)

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)

Unrecognized Tax Benefits

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

(in millions)	2021		2020		2019
Balance as of January 1	$	11.9	$	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	1.6		0.1		0.2
Reductions for tax positions of prior years	(6.7)		(7.7)		(4.2)
Balance as of December 31	$	6.8	$	11.9	$	17.9

The amount of unrecognized tax benefits as of December 31, 2021 and 2020, excludes deferred tax assets related to uncertainty in income taxes of $1.2 million and $1.9 million, respectively. As of December 31, 2021 and 2020, the net amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate for continuing operations was $5.7 million and $10.1 million, respectively.

Interest accrued related to unrecognized tax benefits is as follows:

(in millions)	2021		2020		2019
Balance as of January 1	$	0.5	$	0.8	$	0.7
Interest expense (income) related to unrecognized tax benefits	(0.4)		(0.3)		0.1
Balance as of December 31	$	0.1	$	0.5	$	0.8

For the years ended December 31, 2021, 2020, and 2019, we recognized no penalties related to unrecognized tax benefits in our consolidated income statements. At December 31, 2021 and 2020, we had no amounts accrued for penalties related to unrecognized tax benefits.

Although analysis of our unrecognized tax benefits is ongoing, the potential estimated decrease in the total amounts of unrecognized tax benefits within the next 12 months is approximately $2.1 million associated with statutes of limitations on certain tax years. We do not anticipate any significant increases in the total amounts of unrecognized tax benefits within the next 12 months.

We file income tax returns in the United States federal jurisdiction and state tax returns based on income in our major state operating jurisdictions of Wisconsin, Illinois, Michigan, and Minnesota. We also file tax returns in other state and local jurisdictions with varying statutes of limitations. As of December 31, 2021, with a few exceptions, we were subject to examination by federal and state or local tax authorities for the 2017 through 2021 tax years in our major operating jurisdictions as follows:

Jurisdiction	Years
Federal	2018–2021
Illinois	2017–2021
Michigan	2017–2021
Minnesota	2017–2021
Wisconsin	2017–2021