Income Taxes Level 1 (Notes)

9 Months Ended

Sep. 30, 2025

Income Tax Disclosure [Abstract]

Income Tax Disclosure

Income Taxes

Income tax expense during interim periods is based on our estimated annual effective income tax rate plus any discrete items, which are recorded in the period in which they occur. Discrete items include, among others, events such as changes in estimates due to the finalization of tax returns, tax audit settlements, expiration of statutes of limitation, and increases or decreases in valuation allowances on deferred tax assets. Our effective tax rate was 26.9% and 21.1% for the three months ended September 30, 2025 and 2024, respectively. Our effective tax rate was 26.1% and 23.1% for the nine months ended September 30, 2025 and 2024, respectively. The effective tax rate was higher for the three and nine months ended September 30, 2025 primarily due to a change in estimate recorded in the current year related to the finalization of the 2024 tax return, as well as less excess tax benefit recognized upon the settlement of employee share-based awards. The effective tax rate for the three and nine months ended September 30, 2025 was higher than the federal statutory tax rate of 21.0% primarily due to state and foreign tax expense.

We actively participate in tax credit equity investments for projects eligible to receive renewable energy tax credits. These investments, accounted for under the equity method, are recorded in Deferred charges and other assets, net of reserves on our Consolidated Balance Sheet. Upon realization, tax credits associated with these investments are recognized as a reduction of tax expense. This reduction is offset by amortization of the investment in proportion to the tax benefits received during the period under the proportional amortization method. During 2025, we recognized investment tax credits and other tax benefits totaling $5.3 million and amortized the equity investment by $5.2 million to reflect the realization of these benefits. This amortization is reflected within the Provision for income taxes in the Consolidated Statement of Operations.

The federal statutes of limitations have expired for all tax years prior to 2021. Our 2022 federal income tax return is currently under audit by the IRS. Various state and foreign jurisdictions are auditing years 2020 through 2023. The outcome of each of these audits cannot be predicted at this time.