INCOME TAXES

Income tax expense for interim periods is based on the estimated annual effective tax rate applied to the year-to-date, pre-tax income. The estimated annual effective tax rate includes regulatory flow-through adjustments, tax credits, and other items. The significant differences between the U.S. Federal statutory rate and PGE’s effective tax rate for financial reporting purposes are as follows:



	Three Months Ended March 31,
	2018		2017
Federal statutory tax rate	21.0	%	35.0	%
Federal tax credits^*	(18.0	)	(16.1	)
State and local taxes, net of federal tax benefit	6.5		5.0
Flow through depreciation and cost basis differences	1.0		1.0
Other	0.6		(0.9	)
Effective tax rate	11.1	%	24.0	%

* Federal tax credits consists of production tax credits (PTCs) earned from Company-owned wind-powered generating facilities. The federal PTCs are earned based on a per-kilowatt hour rate, and as a result, the annual amount of PTCs earned will vary based on weather conditions and availability of the facilities. The PTCs are generated for 10 years from the corresponding facilities’ in service dates. PGE’s PTC generation ends at various dates between 2017 and 2024.

On December 22, 2017, the TCJA was enacted and signed into law by the President of the United States which, among other provisions, reduced the federal corporate tax rate from 35% to 21%. The change in federal statutory tax rate is the primary driver of the change in effective tax rate from 2017 to 2018. As a result of the change in corporate tax rate, PGE is incurring lower income tax expense in 2018 than was estimated in setting customer prices in the Company’s 2018 General Rate Case (2018 GRC). In a deferral filing with the OPUC on December 29, 2017, PGE has proposed to defer and refund the 2018 expected net benefits of the TCJA. If approved as requested, any refund to customers of the net benefits associated with the TCJA in 2018 would be subject to an earnings test and limited by the Company’s currently authorized regulated return on equity. Under the proposed deferral filing, PGE has recorded a year-to-date net refund to customers of $15 million as of March 31, 2018, which was recorded as a reduction to Revenues, net on the condensed consolidated statements of income and comprehensive income and an increase to Regulatory liabilities on the condensed consolidated balance sheets.

In accordance with tax normalization rules, the benefits of the 2017 deferred tax remeasurement of plant-related deferred taxes will be passed on to customers through future prices over the remaining useful life of the underlying assets for which the deferred income taxes relate. PGE has commenced amortization using the average rate assumption method to account for the refund to customers; however, as customer prices are not anticipated to be adjusted until 2019, such amortization has been deferred in Income tax expense and recorded as a Regulatory liability. As of March 31, 2018, PGE has deferred $3 million in tax normalization refunds.

Carryforwards

Federal tax credit carryforwards as of March 31, 2018 and December 31, 2017 were $53 million and $50 million, respectively. These credits consist of PTCs, which will expire at various dates through 2038. PGE has analyzed the provisions of the TCJA and its effects on the Company’s deferred income tax assets, and PGE believes that it is more likely than not that its deferred income tax assets as of March 31, 2018 will be realized; accordingly, no valuation allowance has been recorded. As of March 31, 2018 and December 31, 2017, PGE had no unrecognized tax benefits.