INCOME TAXES

12 Months Ended

Dec. 31, 2021

INCOME TAXES [Abstract]

INCOME TAXES

NOTE 5

INCOME TAXES

Deferred income taxes reflect temporary differences between the valuation of assets and liabilities for financial and tax reporting.  Pursuant to the enactment of the Tax Cuts and Jobs Act, or TCJA, in 2017, the Company adjusted its existing deferred income tax balances to reflect the decrease in the corporate income tax rate from 34% to 21% resulting in a decrease in the net deferred income tax liability of approximately $24.3 million, of which $22.8 million was reclassified to a regulatory liability. The regulatory liability amount is subject to certain Internal Revenue Service normalization rules that require the benefits to customers be spread over the remaining useful life of the underlying assets giving rise to the associated deferred income taxes. On January 31, 2019, the DEPSC approved the amortization of the regulatory liability amount of $22.2 million over a period of 49.5 years beginning February 1, 2018, subject to audit at a later date. This audit is currently underway by the DEPSC, but no final ruling has been made.  The MDPSC has not issued a final order on the regulatory liability amount of $0.6 million regarding the effects of the TCJA on Maryland customers.

As of December 31, 2021, the Company fully utilized all of its federal net operating loss carrybacks and carry-forwards.  As of December 31, 2021, the Company has separate company state net operating loss carry-forwards aggregating approximately $11.9 million. Most of these net operating loss carry-forwards will expire if unused between 2022 and 2042. The Company has recorded a valuation allowance to reflect the estimated amount of deferred tax assets that may not be realized due to the expiration of the state net operating loss carry-forwards. The valuation allowance increased to approximately $546,000 in 2021 from approximately $493,000 in 2020. Management believes that it is more likely than not that the Company will realize the benefit of these deferred tax assets, net of the valuation allowance.

Components of Income Tax Expense
In thousands	For the Year Ended December 31,
State income taxes	2021		2020			2019
Current	$	1,216	$	2,348		$	2,405
Deferred		776		(279	)		(610	)
Total state income tax expense	$	1,992	$	2,069		$	1,795

	For the Year Ended December 31,
Federal income taxes	2021		2020			2019
Current	$	2,144	$	5,725		$	6,015
Deferred		1,601		(2,110	)		(2,629	)
Total federal income tax expense	$	3,745	$	3,615		$	3,386

Reconciliation of effective tax rate:
	For the Year Ended December 31,
In thousands	2021			2021			2020			2020			2019			2019
	Amount			Percent			Amount			Percent			Amount			Percent
Reconciliation of effective tax rate
Income before federal and state income taxes	$	22,564			100.0	%	$	22,501			100.0	%	$	20,106			100.0	%
Amount computed at statutory rate		4,738			21.0	%		4,725			21.0	%		4,222			21.0	%
Reconciling items
State income tax-net of federal tax benefit		1,600			7.1	%		1,704			7.6	%		1,414			7.0	%
Regulatory liability adjustment		(451	)		(2.0	)%		(451	)		(2.0	)%		(451	)		(2.2	)%
Other		(150	)		(0.7	)%		(294	)		(1.3	)%		(4	)		0.0	%
Total income tax expense and effective rate	$	5,737			25.4	%	$	5,684			25.3	%	$	5,181			25.8	%

Deferred income taxes at December 31, 2021 and 2020 were comprised of the following:

	For the Year Ended December 31,
In thousands	2021			2020
Deferred tax assets related to:
Federal and state operating loss carry-forwards	$	793		$	629
Less: valuation allowance		(546	)		(493	)
Bad debt allowance		120			240
Stock options		122			148
Other		(10	)		75
Total deferred tax assets	$	479		$	599
Deferred tax liabilities related to:
Property plant and equipment basis differences	$	(51,102	)	$	(48,536	)
Bond retirement costs		(1,134	)		(1,210	)
Property taxes		(593	)		(481	)
Other		(783	)		(685	)
Total deferred tax liabilities	$	(53,612	)	$	(50,912	)
Net deferred tax liability	$	(53,133	)	$	(50,313	)

Schedule of Valuation Allowance
	Balance at Beginning of Period			Additions Charged to Costs and Expenses			Deductions			Balance at End of Period
In thousands
Classification
For the Year Ended December 31, 2021 Valuation allowance for deferred tax assets		$	493		$	53		—			$	546
For the Year Ended December 31, 2020 Valuation allowance for deferred tax assets		$	335		$	158		—			$	493
For the Year Ended December 31, 2019 Valuation allowance for deferred tax assets		$	396		$	41		(102	)		$	335

Under FASB ASC Topic 740, the Company establishes reserves for uncertain tax positions based upon management’s judgment as to the sustainability of these positions.  The Company reserved a liability related to the difference in the tax depreciation utilizing the half-year convention rather than the mid-quarter convention for 2018.

The following table provides the changes in the Company's uncertain tax position:

	For the years ended December 31,
In thousands	2021			2020
Balance at beginning of year	$	209		$	271
Additions based on tax positions related to the current year		—			—
Additions based on tax positions related to prior years		19			21
Reductions for tax positions of prior years		—			(83	)
Lapses in statutes of limitations		(26	)		—
Balance at end of year	$	202		$	209