In accordance with interim reporting requirements, the Company uses an estimated annual effective tax rate for computing its provisions for income taxes. An estimate of annual income tax expense (or benefit) is made each interim period using estimates for annual pre-tax income, income tax adjustments and tax credits. The estimated annual effective tax rates do not include discrete events such as tax law changes, examination settlements, accounting method changes or adjustments to tax expense or benefits attributable to prior years. Discrete events are recorded in the interim period in which they occur or become known. The estimated annual tax rate is applied to year-to-date pre-tax income to determine income tax expense (or benefit) for the interim period consistent with the annual estimate. In subsequent interim periods, income tax expense (or benefit) for the period is computed as the difference between the year-to-date amount reported for the previous interim period and the current period’s year-to-date amount.

The following table reconciles the difference between the Company's effective tax rate and the federal statutory rate on income from continuing operations, including equity method earnings (losses), for the three and six months ended June 30 (dollars in millions):


	Three months ended June 30,												Six months ended June 30,
	2026						2025						2026						2025
Income from continuing operations before income tax expense	$	41		N/A			$	15		N/A			$	146		N/A			$	106		N/A
U.S. federal statutory tax rate		9			21.0	%		3			21.0	%		31			21.0	%		22			21.0	%
State income taxes, net of federal income tax effect		—			—			—			—			1			0.7			1			0.9
Other adjustments:
Flow through related to deduction of meters and mixed service costs (1)		(1	)		(2.4	)		(1	)		(7.1	)		(4	)		(2.7	)		(4	)		(3.8	)
Excess deferred tax amortization		(1	)		(2.4	)		(1	)		(7.2	)		(5	)		(3.4	)		(5	)		(4.8	)
Other		(1	)		(1.9	)		—			—			(4	)		(2.6	)		(1	)		(1.0	)
Total other adjustments		(3	)		(6.7	)		(2	)		(14.3	)		(13	)		(8.7	)		(10	)		(9.6	)
Effective tax rate	$	6			14.3	%	$	1			6.7	%	$	19			13.0	%	$	13			12.3	%

(1)

The Company's general rate cases included approval of base rate increases, offset by tax customer credits. As the tax customer credits are returned to customers, this results in a decrease to income tax expense as a result of flowing through the benefits related to meters and mixed service costs.

In June 2026, the Company purchased $10 million of 2025 transferable tax credits from another taxable entity for $9 million. These tax credits are expected to be utilized in the Company's 2025 federal tax return, to be filed in the fall of 2026. There were no other federal taxes paid in the first half of 2026.