"On December 22, 2017, the tax legislation referred to as the “Tax Cuts and Jobs Act” (the 2017 Tax Reform Act) was enacted. The 2017 Tax Reform Act significantly changes the taxation of business entities and includes specific provisions related to rate regulated companies. The more significant changes that impact the Company are the reduction in the corporate federal income tax rate from 35% to a blended 24.5% for fiscal 2018 and 21% for fiscal 2019 and beyond. As a fiscal year taxpayer, the Company is required to use a blended tax rate for fiscal 2018. In addition, beginning in fiscal 2019, the corporate alternative minimum tax will be eliminated and there will be enhanced limitations on the deductibility of certain executive compensation. For the rate regulated subsidiaries, the 2017 Tax Reform Act also allows for the continued deductibility of interest expense, the elimination of full expensing for tax purposes of certain property acquired after September 27, 2017 and the continuation of certain rate normalization requirements for accelerated depreciation benefits. The non-rate regulated subsidiaries are allowed full expensing of certain property acquired after September 27, 2017 and have potential limitations on the deductibility of interest expense beginning in fiscal 2019.
The above changes had a material impact on the financial statements in the quarter ended December 31, 2017. Under GAAP, the tax effects of a change in tax law must be recognized in the period in which the law is enacted, or the quarter ending December 31, 2017 for the 2017 Tax Reform Act. GAAP also requires deferred income tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. The Company’s deferred income taxes were remeasured based upon the new tax rates. For the non-rate regulated activities, the change in deferred income taxes was $111.0 million and was recorded as a reduction to income tax expense. For the rate regulated activities, the reduction in deferred income taxes of $336.7 million was recorded as a decrease to Recoverable Future Taxes of $65.7 million and an increase to Taxes Refundable to Customers of $271.0 million. The 2017 Tax Reform Act includes provisions that stipulate how these excess deferred taxes are to be passed back to customers for certain accelerated tax depreciation benefits. Potential refunds of other deferred income taxes will be determined by the federal and state regulatory agencies. The Company is awaiting regulatory guidance in the jurisdictions in which it operates."
