Income Taxes

The items comprising income tax expense are as follows:



Year ended December 31 (In millions)	2011			2010			2009
Provision (Benefit) for Current Income Taxes
Federal	$	(6.4	)	$	15.8		$	(145.3	)
State	—			2.3			(4.8		)
Total Provision (Benefit) for Current Income Taxes	(6.4		)	18.1			(150.1		)
Provision for Deferred Income Taxes, net
Federal	160.3			134.5			256.7
State	2.9			9.3			8.1
Total Provision for Deferred Income Taxes, net	163.2			143.8			264.8
Deferred Federal Investment Tax Credits, net	(3.3		)	(3.7		)	(4.2		)
Income Taxes Relating to Other Income and Deductions	7.2			2.8			10.6
Total Income Tax Expense	$	160.7		$	161.0		$	121.1

The Company files consolidated income tax returns in the U.S. Federal jurisdiction and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. Federal tax examinations by tax authorities for years prior to 2007 or state and local tax examinations by tax authorities for years prior to 2002. Income taxes are generally allocated to each company in the affiliated group based on its stand-alone taxable income or loss. Federal investment tax credits previously claimed on electric utility property have been deferred and are being amortized to income over the life of the related property. OG&E earns both Federal and Oklahoma state tax credits associated with the production from its wind farms. In addition, OG&E and Enogex earn Oklahoma state tax credits associated with their investments in electric generating and natural gas processing facilities which further reduce the Company's effective tax rate. The following schedule reconciles the statutory Federal tax rate to the effective income tax rate:



Year ended December 31	2011		2010		2009
Statutory Federal tax rate	35.0	%	35.0	%	35.0	%
Amortization of net unfunded deferred taxes	0.7		0.7		0.7
State income taxes, net of Federal income tax benefit	0.6		1.7		1.0
Medicare Part D subsidy	0.2		2.6		(1.1	)
Qualified production activities	—		(0.2	)	—
401(k) dividends	(0.5	)	(0.6	)	(0.7	)
Federal investment tax credits, net	(0.7	)	(0.8	)	(1.1	)
Income attributable to noncontrolling interest	(1.3	)	(0.4	)	—
Federal renewable energy credit (A)	(3.4	)	(3.4	)	(2.2	)
Other	0.1		0.3		0.1
Effective income tax rate	30.7	%	34.9	%	31.7	%

(A) These are credits associated with the production from OG&E's wind farms.

At December 31, 2011 and 2010, the Company had no material unrecognized tax benefits related to uncertain tax positions.

The deferred tax provisions are recognized as costs in the ratemaking process by the commissions having jurisdiction over the rates charged by OG&E. The components of Deferred Income Taxes at December 31, 2011 and 2010, respectively, were as follows:



December 31 (In millions)	2011			2010
Current Deferred Income Tax Assets
Net operating losses	$	15.8		$	—
Accrued liabilities	13.2			8.2
Accrued vacation	4.2			6.1
Uncollectible accounts	1.4			0.6
Other	—			2.8
Total Current Deferred Income Tax Assets	34.6			17.7
Current Accrued Income Tax Liabilities
Derivative instruments	(2.5		)	1.0
Total Current Accrued Income Tax Liabilities	(2.5		)	1.0
Current Deferred Income Tax Assets, net	$	32.1		$	18.7

Non-Current Deferred Income Tax Liabilities
Accelerated depreciation and other property related differences	$	1,449.6		$	1,071.4
Investment in Enogex Holdings	571.8			376.1
Company pension plan	67.5			71.4
Regulatory asset	21.2			17.2
Income taxes refundable to customers, net	15.9			16.8
Bond redemption-unamortized costs	4.4			4.8
Derivative instruments	—			22.4
Total Non-Current Deferred Income Tax Liabilities	2,130.4			1,580.1
Non-Current Deferred Income Tax Assets
Net operating losses	(225.2		)	—
Regulatory liabilities	(65.3		)	(43.7		)
State tax credits	(63.0		)	(35.5		)
Postretirement medical and life insurance benefits	(50.2		)	(39.0		)
Federal tax credits	(49.7		)	(21.5		)
Derivative instruments	(12.8		)	—
Deferred Federal investment tax credits	(2.3		)	(3.6		)
Other	(10.5		)	(2.0		)
Total Non-Current Deferred Income Tax Assets	(479.0		)	(145.3		)
Non-Current Deferred Income Tax Liabilities, net	$	1,651.4		$	1,434.8

During 2010 and 2011, the Company had a Federal tax operating loss primarily caused by the accelerated tax "bonus" depreciation provision contained within the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 which allows the Company to record a current income tax deduction for 100 percent of the cost of certain property placed into service from September 8, 2010 to December 31, 2011. In addition, the new law also allows the Company to record a current income tax deduction for 50 percent of the cost of certain property placed into service from January 1, 2012 to December 31, 2012. For financial accounting purposes, the Company recorded an increase in its Non-Current Deferred Income Taxes Liability at December 31, 2011 and 2010 on the Company's Consolidated Balance Sheet to recognize the financial statement impact of this new law.

In June 2010, new legislation was passed in Oklahoma that created a moratorium, from July 1, 2010 through June 30, 2012, on 30 income tax credits. For income tax purposes, credits affected by the moratorium may not be claimed for any event, transaction, investment, expenditure or other act for which the credits would otherwise be allowable. During this two-year period, affected credits generated by the Company are being deferred and will be utilized at a time after the moratorium expires. For financial accounting purposes, the Company will receive the benefits in the future as most of these credits do not expire if they are not utilized in the period they are generated.

Medicare Part D Subsidy

On March 23, 2010, the Patient Protection and Affordable Care Act of 2009 was signed into law, and, on March 30, 2010, the Health Care and Education Reconciliation Act of 2010, which makes various amendments to certain aspects of the Patient Protection and Affordable Care Act of 2009, was signed into law. These Acts effectively change the tax treatment of Federal subsidies paid to sponsors of retiree health benefit plans that provide prescription drug benefits that are at least actuarially equivalent to the corresponding benefits provided under Medicare Part D.

The Federal subsidy paid to employers was introduced as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. The Company has been recognizing the Federal subsidy since 2005 related to certain retiree prescription drug plans that were determined to be actuarially equivalent to the benefit provided under Medicare Part D. Under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, the Federal subsidy does not reduce an employer's income tax deduction for the costs of providing such prescription drug plans nor is it subject to income tax individually.

During 2011, the Company modified its retiree health benefit plan in such a manner that it is no longer actuarially equivalent to the corresponding benefits provided under Medicare Part D. As a result, the Company is no longer eligible to receive Medicare Part D reimbursements. See Note 14 for a further discussion.

Other

The Company sustained Federal and state tax operating losses in 2010 and 2011 caused primarily by bonus depreciation and other book verses tax temporary differences. As a result, the Company accrued Federal and state income tax benefits in 2010 and 2011. The Company can no longer carry these losses back to prior periods, therefore, these losses are being carried forward. In addition to the operating losses, the Company was unable to utilize the various tax credits that were generating during these years. These tax losses and credits are being carried as deferred tax assets and will be utilized in future periods. The Company anticipates future taxable income will be sufficient to utilize all of the losses and credits before they begin to expire, accordingly no valuation allowance is considered necessary. The following table summarizes these carry forwards:



(In millions)	Carry Forward Amount		Deferred Tax Asset		Earliest Expiration Date
Net operating losses
State operating loss	$	772.9	$	28.4	2030
Federal operating loss	607.2		212.6		2030
Federal tax credits	49.7		49.7		2029
State tax credits
Oklahoma investment tax credits	76.3		49.7		N/A
Oklahoma capital investment board credits (A)	7.3		7.3		2015
Oklahoma zero emission tax credits	8.4		6.0		2020

(A) Oklahoma capital investment board credits may not be exercisable after July 1, 2015. The Company anticipates the credits will be monetized or the expiration date of these credits will be extended.

The Company expects that $45.0 million of the tax loss carry forward will be utilized in 2012 and, as a result, a current deferred tax asset of $15.8 million was recorded at December 31, 2011. The remaining $225.2 million was recorded as a non-current deferred tax asset and is expected to be realized in periods after 2012.