Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

7. INCOME TAXES

Judgment and the use of estimates are required in developing the provision for income taxes and reporting of tax-related assets and liabilities. The interpretation of tax laws involves uncertainty since tax authorities may interpret the laws differently. DESC is routinely audited by federal and state tax authorities. Ultimate resolution of income tax matters may result in favorable or unfavorable impacts to net income and cash flows, and adjustments to tax-related assets and liabilities could be material.

As indicated in Note 2, DESC’s operations, including accounting for income taxes, are subject to regulatory accounting treatment. See Note 3 for additional information and current year developments.

Details of income tax expense for continuing operations including noncontrolling interests were as follows:

Year Ended December 31,	2023			2022			2021
(millions)
Current:
Federal	$	91		$	(69	)	$	(52	)
State		(70	)		(3	)		(39	)
Total current expense (benefit)		21			(72	)		(91	)
Deferred:
Federal
Taxes before operating loss carryforwards and investment tax credits		(72	)		135			61
Tax utilization expense (benefit) of operating loss carryforwards		43			33			34
State		95			36			7
Total deferred expense		66			204			102
Investment tax credits		(2	)		(1	)		(2	)
Total income tax expense	$	85		$	131		$	9

Subsequent to the SCANA Combination, DESC’s annual utilization of its net operating losses are restricted by the tax law, however in certain circumstances the utilization may be increased if SCANA recognizes built-in gains on certain sales of assets.

For continuing operations including noncontrolling interests, the statutory U.S. federal income tax rate reconciles to DESC’s effective income tax rate as follows:

Year Ended December 31,	2023			2022			2021
U.S. statutory rate		21.0	%		21.0	%		21.0	%
Increases (reductions) resulting from:
State taxes, net of federal benefit		4.1			4.7			5.6
AFUDC - equity		—			—			(0.4	)
Amortization of federal investment tax credits		(0.3	)		(0.2	)		(0.6	)
Reversal of excess deferred income taxes		(4.7	)		(4.6	)		(8.1	)
Changes in unrecognized tax benefits		(2.2	)		—			(15.8	)
Prior period adjustments		—			—			1.6
Other		(0.2	)		(0.2	)		0.5
Effective tax rate		17.7	%		20.7	%		3.8	%

DESC’s 2023 effective tax rate reflects an income tax benefit of $11 million from the effective settlement of a position that management believed was reasonably possible to occur.

In December 2021, unrecognized tax benefits related to several state uncertain tax positions were effectively settled through negotiations with the taxing authority. Management believed it was reasonably possible these unrecognized tax benefits could decrease through settlement negotiations or payments during 2021, however no income tax benefits could be recognized unless or until the positions were effectively settled. Resolution of these uncertain tax positions decreased income tax expense by $38 million.

DESC’s deferred income taxes consist of the following:

At December 31,	2023			2022
(millions)
Deferred income taxes:
Total deferred income tax assets	$	728		$	892
Total deferred income tax liabilities		2,033			2,107
Total net deferred income tax liabilities	$	1,305		$	1,215
Total deferred income taxes:
Depreciation method and plant basis differences	$	1,203		$	1,164
Excess deferred income taxes		(212	)		(219	)
Unrecovered nuclear plant cost		450			479
DESC rate refund		(67	)		(89	)
Toshiba Settlement		(147	)		(162	)
Nuclear decommissioning		(51	)		(44	)
Deferred state income taxes		274			275
Federal benefit of deferred state income taxes		(60	)		(60	)
Deferred fuel, purchased energy and gas costs		32			107
Pension benefits		35			51
Other postretirement benefits		(17	)		(32	)
Loss and credit carryforwards		(185	)		(313	)
Other		50			58
Total net deferred income tax liabilities	$	1,305		$	1,215
Deferred investment tax credits		13			15
Total deferred taxes and deferred investment tax credits	$	1,318		$	1,230

At December 31, 2023, DESC had the following deductible loss and credit carryforwards:

(millions)	Deductible Amount		Deferred Tax Asset		Expiration Period
Federal losses	$	533	$	112	2037
Federal production and other credits		—		30	2041-2043
State losses		878		44	2037-2042
State investment and other credits		—		37	2026-2031
Total	$	1,411	$	223

A reconciliation of changes in DESC’s unrecognized tax benefits follows:

(millions)	2023			2022			2021
Balance at January 1,	$	68		$	62		$	138
Increases-prior period positions		5			6			6
Decreases-prior period positions		(11	)		(1	)		(57	)
Increases-current period positions		—			1			1
Settlements with tax authorities		—			—			(26	)
Balance at December 31,	$	62		$	68		$	62

Certain unrecognized tax benefits, or portions thereof, if recognized, would affect the effective tax rate. Changes in these unrecognized tax benefits may result from remeasurement of amounts expected to be realized, settlements with tax authorities and expiration of statutes of limitations. If recognized, all the unrecognized tax benefits would impact the effective tax rate.

The statute is closed for IRS examination of years prior to 2013. The IRS is currently examining DESC’s federal returns from 2013 through 2017. DESC is no longer subject to state and local income tax examinations by tax authorities for years prior to 2020.

It is reasonably possible that these unrecognized tax benefits may decrease by $27 million within the next twelve months. If such changes were to occur, other than revisions of the accrual for interest on tax underpayments and overpayments, earnings could increase by $14 million. Otherwise, with regard to 2023 and prior years, DESC cannot estimate the range of reasonably possible changes to unrecognized tax benefits that may occur in 2024.

DESC is also obligated to report adjustments resulting from IRS settlements to state tax authorities. In addition, if DESC utilizes operating losses or tax credits generated in years for which the statute of limitations has expired, such amounts are generally subject to examination.