INCOME TAXES (Income Tax Expense)

9 Months Ended

Sep. 30, 2014

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Income tax expense differs from the amount of income tax determined by applying the United States statutory federal income tax rate of 35% to pre-tax income due to the following:

	Three Months Ended September 30,
	2014			2013
	Millions of Dollars
Federal Income Tax Expense at Statutory Rate	$	22		$	36
State Income Tax Expense, Net of Federal Deduction	3			5
Federal/State Tax Credits	(2		)	(1		)
Other	1			(1		)
Total Federal and State Income Tax Expense	$	24		$	39

	Nine Months Ended September 30,
	2014			2013
	Millions of Dollars
Federal Income Tax Expense at Statutory Rate	$	49		$	48
State Income Tax Expense, Net of Federal Deduction	6			6
Federal/State Tax Credits	(4		)	(2		)
Investment Tax Credit Basis Adjustment - Creation of Regulatory Asset	—			(11		)
Other	1			1
Total Federal and State Income Tax Expense	$	52		$	42

Investment Tax Credit Basis Adjustment - Creation of Regulatory Asset

Renewable energy assets are eligible for investment tax credits. We reduce the income tax basis of those qualifying assets by half of the related investment tax credit. Historically, the difference between the income tax basis of the assets and the book basis under GAAP was recorded as a deferred tax liability with an offsetting charge to income tax expense in the year the qualifying asset was placed in service. In June 2013, we recorded a regulatory asset and corresponding reduction of income tax expense of $11 million to recover previously recorded income tax expense through future rates as a result of the 2013 TEP Rate Order. The regulatory asset will be amortized as income tax expense as the qualifying assets are depreciated.