Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

4. Income Taxes

Change in Florida Corporate Income Tax Rate

On September 14, 2021, the state of Florida issued a corporate tax rate reduction from 4.46% to 3.53% effective January 1, 2021 through December 31, 2021. In 2021, TEC recorded a $4 million regulatory liability in recognition of its obligation to pass the tax rate reduction expense benefit to customers per the 2017 settlement agreement. Effective January 1, 2022, the Florida corporate income tax rate is 5.5%.

Inflation Reduction Act

On August 16, 2022, the Inflation Reduction Act was signed into legislation and includes numerous tax incentives for clean energy, such as the extension and modification of existing investment and production tax credits for projects placed in service through 2024, the expansion of ITC for energy storage technology beginning 2023 and introduces new technology-neutral clean energy related credits beginning in 2025. TEC has determined that electing production tax credits for its solar plants placed in service in 2022 and 2023 will be more beneficial for customers compared to ITCs and has recorded a regulatory liability in recognition of its obligation to pass the tax benefits to customers of $23 million and $7 million as of December 31, 2023 and 2022, respectively.

Income Tax Expense

TEC is included in a consolidated U.S. federal income tax return with EUSHI and its subsidiaries. TEC’s income tax expense is based upon a separate return method, modified for the benefits-for-loss allocation in accordance with respective tax sharing agreements of TECO Energy and EUSHI. To the extent that TEC’s cash tax positions are settled differently than the amount reported as realized under the tax sharing agreement, the difference is accounted for as either a capital contribution or a distribution.

In 2023, 2022 and 2021, TEC recorded net tax provisions of $87 million, $121 million and $80 million, respectively.

Income tax expense consists of the following components:

Income Tax Expense (Benefit)

(millions)
For the year ended December 31,	2023			2022			2021
Current income taxes
Federal	$	84		$	(13	)	$	48
State		25			(3	)		4
Deferred income taxes
Federal		(19	)		105			24
State		5			38			13
Investment tax credits amortization		(8	)		(6	)		(9	)
Total income tax expense	$	87		$	121		$	80

During 2022, TEC increased its net operating loss carryforward. Total current income tax expense for the year ended December 31, 2022, was reduced by $59 million to reflect the benefits of operating loss carryforwards.

For the three years presented, the overall effective tax rate differs from the U.S. federal statutory rate as presented below:

Effective Income Tax Rate

(millions)
For the year ended December 31,	2023			2022			2021
Income before provision for income taxes	$	553		$	661		$	526
Federal statutory income tax rates		21	%		21	%		21	%
Income taxes, at statutory income tax rate		116			139			110
Increase (decrease) due to
State income tax, net of federal income tax		23			27			13
Excess deferred tax amortization		(25	)		(25	)		(26	)
ITC amortization		(8	)		(6	)		(9	)
AFUDC-equity		(4	)		(7	)		(9	)
Production Tax Credits		(15	)		(6	)		0
Other Tax credits		(4	)		(3	)		(3	)
Other		4			2			4
Total income tax expense on consolidated statements of income	$	87		$	121		$	80
Income tax expense as a percent of income before income taxes		15.7	%		18.3	%		15.2	%

Deferred Income Taxes

Deferred taxes result from temporary differences in the recognition of certain liabilities or assets for tax and financial reporting purposes. The principal components of TEC’s deferred tax assets and liabilities recognized in the balance sheet are as follows:

(millions)
As of December 31,	2023		2022
Deferred tax liabilities (1)
Property related	$	1,227	$	1,318
Deferred fuel		23		133
Pension and postretirement benefits		100		111
Insurance reserves		0		15
Total deferred tax liabilities		1,350		1,577
Deferred tax assets (1)
Loss and credit carryforwards (2)		383		408
Medical benefits		19		24
Insurance reserves		1		0
Pension and postretirement benefits		49		57
Capitalized energy conservation assistance costs		0		23
Other		18		20
Total deferred tax assets		470		532
Total deferred tax liability, net	$	880	$	1,045

(1)Certain property related assets and liabilities have been netted. At December 31, 2022, PGS total deferred tax liabilities and deferred tax assets were $213 million and $37 million, respectively, with the majority of the balances related to property and capitalized energy conservation assistance costs.

(2)Deferred tax assets for net operating loss and tax credit carryforwards have been reduced by unrecognized tax benefits of $10 million and $9 million at December 31, 2023 and 2022, respectively.

The expiration of TEC's tax credits and NOL carryforwards are as follows:

(millions)	December 31, 2023		Expiration Year
General business credits	$	324	2027-2043
Federal NOL carryforwards		135	2037
Federal NOL carryforwards (1)		199	indefinite
State NOL carryforwards (1)		305	indefinite
Total tax credits and NOL carryforwards	$	963

(1)Indefinite carryforward for Federal NOLs and NOLs for states that have adopted the U.S. Tax Cuts and Jobs Act of 2017 provisions, generated in tax years beginning after December 31, 2017.

TEC has unused general business credits of $324 million expiring between 2027 and 2043, of which $266 million relate to ITCs expiring between 2034 and 2043. As a result of TECO Energy's merger with Emera in 2016, TECs NOLs and credits will be utilized by EUSHI, in accordance with the benefits-for-loss allocation which provide that tax attributes are utilized by the consolidated tax return group of EUSHI.

Unrecognized Tax Benefits

TEC accounts for uncertain tax positions as required by U.S. GAAP. This guidance addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Authoritative guidance related to accounting for uncertainty in income taxes requires an enterprise to recognize in its financial statements the best estimate of the impact of a tax position by determining if the weight of the available evidence indicates that it is more likely than not, based solely on the technical merits, that the position will be sustained upon examination, including resolution of any related appeals and litigation processes.

The following table provides details of the change in unrecognized tax benefits as follows:

(millions)	2023		2022		2021
Balance at January 1,	$	9	$	6	$	9
Increases due to tax positions related to prior year	0		2		1
Increases due to tax positions related to current year	1		1		1
Decreases due to settlements with tax authorities	0		0			(5	)
Balance at December 31,	$	10	$	9	$	6

As of December 31, 2023 and 2022, TEC’s uncertain tax positions for federal R&D tax credits were $10 million and $9 million, respectively, all of which was recorded as a reduction of deferred income tax assets for tax credit carryforwards. TEC’s unrecognized federal tax benefits decreased in 2021 by approximately $5 million due to the resolution of its 2016 federal tax credits issue with IRS Appeals. The settlement of the federal R&D credits audit did not impact the effective tax rate during 2021. The unrecognized tax benefits, if recognized, would reduce TEC’s effective tax rate.

TEC recognizes interest accruals related to uncertain tax positions in “Other income” or “Interest expense”, as applicable, and penalties in “Operation and maintenance expense” in the Consolidated Statements of Income. In 2023, 2022 and 2021, TEC did not recognize any pre-tax charges (benefits) for interest. Additionally, TEC did not have any accrued interest or amounts recorded for penalties at December 31, 2023, 2022 and 2021.

The U.S. federal statute of limitations remains open for the year 2017 and forward. Florida’s statute of limitations is three years from the filing of an income tax return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. Years still open to examination by Florida’s tax authorities include 2005 and forward as a result of TECO Energy’s consolidated Florida net operating loss still being utilized.