Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

4. Income Taxes

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, and new technology-neutral clean energy provisions related credits beginning in 2025. The Inflation Reduction Act also expanded the ITC for energy storage technology, including an election that permits these ITCs to be amortized over a period that is shorter than the life of the asset. During 2024, TEC placed in service its first standalone energy storage project eligible for the ITC and in accordance with the FPSC decision rendered on December 3, 2024, is amortizing this project over a five-year period.

TEC has determined that electing production tax credits for its solar plants placed in service through 2024 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 $57 million and $23 million as of December 31, 2024 and 2023, respectively. In accordance with the FPSC decision rendered on December 3, 2024, the regulatory liability will be refunded to customers over a three-year period. See Note 3.

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 standalone return method, modified for the benefits-for-loss allocation in accordance with EUSHI's tax sharing agreement. 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.

Income tax expense consists of the following components:

Income Tax Expense (Benefit)

(millions)
For the year ended December 31,	2024			2023			2022
Current income taxes
Federal	$	2		$	84		$	(13	)
State		0			25			(3	)
Deferred income taxes
Federal		36			(19	)		105
State		34			5			38
Investment tax credits amortization		(4	)		(8	)		(6	)
Total income tax expense	$	68		$	87		$	121

During 2024 and 2022, TEC increased its net operating loss carryforward. Total current income tax expense for the years ending December 31, 2024 and December 31, 2022 were reduced by $13 million and $59 million, respectively, 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,	2024			2023			2022
Income before provision for income taxes	$	536		$	553		$	661
Federal statutory income tax rates		21	%		21	%		21	%
Income taxes, at statutory income tax rate		113			116			139
Increase (decrease) due to
State income tax, net of federal income tax		23			23			27
Excess deferred tax amortization		(25	)		(25	)		(25	)
ITC amortization		(4	)		(8	)		(6	)
AFUDC-equity		(3	)		(4	)		(7	)
Production tax credits		(30	)		(15	)		(6	)
Other tax credits		(7	)		(4	)		(3	)
Other		1			4			2
Total income tax expense on consolidated statements of income	$	68		$	87		$	121
Income tax expense as a percent of income before income taxes		12.7	%		15.7	%		18.3	%

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,	2024		2023
Deferred tax liabilities (1)
Property related	$	1,314	$	1,227
Deferred fuel		5		23
Pension and postretirement benefits		123		100
Storm reserve		95		2
Total deferred tax liabilities		1,537		1,352
Deferred tax assets (1)
Loss and credit carryforwards (2)		438		383
Medical benefits		22		19
Insurance reserves		2		3
Pension and postretirement benefits		62		49
Other		37		18
Total deferred tax assets		561		472
Total deferred tax liability, net	$	976	$	880

(1)Certain property related assets and liabilities have been netted.

(2)Deferred tax assets for net operating loss and tax credit carryforwards have been reduced by unrecognized tax benefits of $10 million and $10 million at December 31, 2024 and 2023, respectively.

The expiration of TEC's tax credits and net operating loss (NOL) carryforwards are as follows:

(millions)	December 31, 2024		Expiration Year
General business credits	$	361	2027-2044
Federal NOL carryforwards		135	2037
Federal NOL carryforwards (1)		248	indefinite
State NOL carryforwards (1)		359	indefinite
Total tax credits and NOL carryforwards	$	1,103

(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 $361 million expiring between 2027 and 2044, of which $270 million relate to ITCs expiring between 2034 and 2044. 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. The following table provides details of the change in unrecognized tax benefits as follows:

(millions)	2024		2023		2022
Balance at January 1,	$	10	$	9	$	6
Increases due to tax positions related to prior year	0		0		2
Increases due to tax positions related to current year	0		1		1
Balance at December 31,	$	10	$	10	$	9

As of December 31, 2024 and 2023, TEC’s uncertain tax positions for federal research and development tax credits were $10 million and $10 million, respectively, all of which was recorded as a reduction of deferred income tax assets for tax credit carryforwards. 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 2024, 2023 and 2022, TEC did not recognize any pre-tax charges for interest or penalties.

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 2013 and forward as a result of EUSHI’s consolidated Florida net operating loss still being utilized.