Income Taxes

The items comprising income tax expense are as follows:



Year ended December 31 (In millions)	2012			2011			2010
Provision (Benefit) for Current Income Taxes
Federal	$	(9.1	)	$	(5.4	)	$	12.8
State	0.5			0.1			1.8
Total Provision (Benefit) for Current Income Taxes	(8.6		)	(5.3		)	14.6
Provision for Deferred Income Taxes, net
Federal	147.3			165.5			139.8
State	(1.5		)	3.8			10.3
Total Provision for Deferred Income Taxes, net	145.8			169.3			150.1
Deferred Federal Investment Tax Credits, net	(2.1		)	(3.3		)	(3.7		)
Total Income Tax Expense	$	135.1		$	160.7		$	161.0

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 2009 or state and local tax examinations by tax authorities for years prior to 2005. 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 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	2012		2011		2010
Statutory Federal tax rate	35.0	%	35.0	%	35.0	%
Amortization of net unfunded deferred taxes	0.8		0.7		0.7
Medicare Part D subsidy	—		0.2		2.6
Qualified production activities	—		—		(0.2	)
State income taxes, net of Federal income tax benefit	(0.1	)	0.6		1.7
Federal investment tax credits, net	(0.4	)	(0.7	)	(0.8	)
401(k) dividends	(0.5	)	(0.5	)	(0.6	)
Income attributable to noncontrolling interest	(1.6	)	(1.3	)	(0.4	)
Federal renewable energy credit (A)	(7.2	)	(3.4	)	(3.4	)
Other	—		0.1		0.3
Effective income tax rate	26.0	%	30.7	%	34.9	%


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

At December 31, 2012 and 2011, 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, 2012 and 2011, respectively, were as follows:



December 31 (In millions)	2012			2011
Current Deferred Income Tax Assets
Net operating losses	$	152.4		$	15.8
Accrued liabilities	27.1			13.2
Federal tax credits	6.0			—
Accrued vacation	3.8			4.2
Uncollectible accounts	1.0			1.4
Total Current Deferred Income Tax Assets	190.3			34.6
Current Accrued Income Tax Liabilities
Derivative instruments	(2.6		)	(2.5		)
Total Current Accrued Income Tax Liabilities	(2.6		)	(2.5		)
Current Deferred Income Tax Assets, net	$	187.7		$	32.1

Non-Current Deferred Income Tax Liabilities
Accelerated depreciation and other property related differences	$	1,660.3		$	1,437.5
Investment in Enogex Holdings	638.0			571.8
Company pension plan	52.4			67.5
Income taxes refundable to customers, net	21.2			28.0
Regulatory asset	18.8			21.2
Bond redemption-unamortized costs	4.0			4.4
Derivative instruments	1.5			—
Total Non-Current Deferred Income Tax Liabilities	2,396.2			2,130.4
Non-Current Deferred Income Tax Assets
Net operating losses	(159.1		)	(225.2		)
State tax credits	(83.7		)	(63.0		)
Regulatory liabilities	(71.4		)	(65.3		)
Federal tax credits	(69.6		)	(49.7		)
Postretirement medical and life insurance benefits	(57.6		)	(50.2		)
Derivative instruments	—			(12.1		)
Deferred Federal investment tax credits	(1.5		)	(2.3		)
Other	(4.5		)	(11.2		)
Total Non-Current Deferred Income Tax Assets	(447.4		)	(479.0		)
Non-Current Deferred Income Tax Liabilities, net	$	1,948.8		$	1,651.4

During 2012 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 allowed the Company to record a current income tax deduction for 100 percent of the cost of certain property placed into service in 2011 and 50 percent for certain property placed into service in 2012. For financial accounting purposes, the Company recorded an increase in its Non-Current Deferred Income Taxes Liability at December 31, 2012 and 2011 on the Company's Consolidated Balance Sheet to recognize the financial statement impact of this new law.

On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law. Among other things, the law included an extension of bonus depreciation for one year for property generally placed in service before January 1, 2014. Because this new law was enacted in 2013, GAAP requires the law to be considered retroactive legislation, the impact of which must be recorded in the period enacted. The impact of the new law will be reflected in the Company's 2013 Consolidated Financial Statements as an increase in Deferred Tax Liabilities with a corresponding increase in Deferred Tax Assets related to the net operating loss.

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 could 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 were deferred and will be utilized at a future date. For financial accounting purposes, the Company is receiving the benefits as most of these credits did not expire if they were not utilized in the period they were generated.

Other

The Company sustained Federal and state tax operating losses in 2012 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 2012 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. Under current law, 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	$	1,026.8	$	37.8	2030
Federal operating loss	781.9		273.7		2030
Federal tax credits	75.6		75.6		2029
State tax credits
Oklahoma investment tax credits	100.5		65.3		N/A
Oklahoma capital investment board credits	7.3		7.3		N/A
Oklahoma zero emission tax credits	16.2		11.1		2020

Under tax law in effect at December 31, 2012, the Company projected utilization of $711.0 million of tax loss carry forward in 2013 and recorded a current deferred tax asset of $152.4 million. The remaining 159.1 million was recorded as a non-current deferred tax asset for utilization in periods after 2013. With the passage of the American Taxpayer Relief Act of 2012 on January 2, 2013, the Company now expects much lower utilization will result in 2013. The impact of the new law will be reflected in the Company's 2013 Consolidated Financial Statements as a decrease in Current Deferred Tax Assets with a corresponding increase in Deferred Tax Liabilities related to the net operating loss.

In January 2013, OG&E learned that a portion of certain Oklahoma investment tax credits previously recognized but not yet utilized may not be available for utilization in future years. If management determines that it is more likely than not that it will be unable to utilize these credits, OG&E will be required to record a reserve of $7.8 million ($5.1 million after tax) at such time.