Income Taxes

The items comprising income tax expense are as follows:



Year ended December 31 (In millions)	2013			2012			2011
Provision (Benefit) for Current Income Taxes
Federal	$	—		$	(9.1	)	$	(5.4	)
State	4.3			0.5			0.1
Total Provision (Benefit) for Current Income Taxes	4.3			(8.6		)	(5.3		)
Provision for Deferred Income Taxes, net
Federal	154.4			147.3			165.5
State	(26.4		)	(1.5		)	3.8
Total Provision for Deferred Income Taxes, net	128.0			145.8			169.3
Deferred Federal Investment Tax Credits, net	(2.0		)	(2.1		)	(3.3		)
Total Income Tax Expense	$	130.3		$	135.1		$	160.7

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 2010 or state and local tax examinations by tax authorities for years prior to 2009. 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 Enable 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	2013		2012		2011
Statutory Federal tax rate	35.0	%	35.0	%	35.0	%
Amortization of net unfunded deferred taxes	0.6		0.8		0.7
State income taxes, net of Federal income tax benefit	0.4		(0.1	)	0.6
Federal investment tax credits, net	(0.4	)	(0.4	)	(0.7	)
401(k) dividends	(0.5	)	(0.5	)	(0.5	)
Income attributable to noncontrolling interest	(0.3	)	(1.6	)	(1.3	)
Federal renewable energy credit (A)	(7.2	)	(7.2	)	(3.4	)
Uncertain tax positions	1.5		—		—
Remeasurement of state deferred tax liabilities	(4.1	)	—		—
Other	(0.1	)	—		0.3
Effective income tax rate	24.9	%	26.0	%	30.7	%


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

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, 2013 and 2012, respectively, were as follows:



December 31 (In millions)	2013			2012
Current Deferred Income Tax Assets
Net operating losses	$	180.1		$	152.4
Accrued liabilities	22.3			27.1
Federal tax credits	8.0			6.0
Accrued vacation	4.7			3.8
Uncollectible accounts	0.7			1.0
Total Current Deferred Income Tax Assets	215.8			190.3
Current Accrued Income Tax Liabilities
Derivative instruments	—			(2.6		)
Total Current Accrued Income Tax Liabilities	—			(2.6		)
Current Deferred Income Tax Assets, net	$	215.8		$	187.7

Non-Current Deferred Income Tax Liabilities
Accelerated depreciation and other property related differences	$	1,753.3		$	1,660.3
Investment in Enogex Holdings	—			638.0
Investment in Enable Midstream Partners	630.5			—
Company pension plan	55.1			52.4
Income taxes refundable to customers, net	21.9			21.2
Regulatory asset	26.1			18.8
Bond redemption-unamortized costs	3.6			4.0
Derivative instruments	1.6			1.5
Total Non-Current Deferred Income Tax Liabilities	2,492.1			2,396.2
Non-Current Deferred Income Tax Assets
Federal tax credits	(105.2		)	(69.6		)
State tax credits	(92.6		)	(83.7		)
Postretirement medical and life insurance benefits	(62.8		)	(57.6		)
Regulatory liabilities	(61.3		)	(71.4		)
Asset retirement obligations	(20.8		)	—
Net operating losses	(18.8		)	(159.1		)
Other	(4.6		)	(4.5		)
Deferred Federal investment tax credits	(0.7		)	(1.5		)
Total Non-Current Deferred Income Tax Assets	(366.8		)	(447.4		)
Non-Current Deferred Income Tax Liabilities, net	$	2,125.3		$	1,948.8

As of December 31, 2013, the Company has classified $7.8 million of unrecognized tax benefits as a reduction of deferred tax assets recorded. Management is currently unaware of any issues under review that could result in significant additional payments, accruals, or other material deviation from this amount.

Following is a reconciliation of the Company’s total gross unrecognized tax benefits as of the years ended December 31, 2013, 2012, and 2011.



(Millions)	2013		2012		2011
Balance at January 1	$	—	$	—	$	—
Tax positions related to current year:
Additions	2.7		—		—
Tax positions related to prior years:
Additions	5.1		—		—
Balance at December 31	$	7.8	$	—	$	—

Where applicable, the Company classifies income tax-related interest and penalties as interest expense and other operation and maintenance expense, respectively. During the year ended December 31, 2013, there were no income tax-related interest or penalties recorded with regard to uncertain tax positions. The total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, was $7.8 million as of December 31, 2013.

As previously reported, in January 2013, OG&E determined that a portion of certain Oklahoma investment tax credits previously recognized but not yet utilized may not be available for utilization in future years. During the first quarter of 2013, OG&E recorded a reserve of $7.8 million ($5.1 million after tax) related to a portion of the Oklahoma investment tax credits generated in years prior to 2013 but not yet utilized due to management's determination that it is more likely than not that it will be unable to utilize these credits. An additional reserve of $4.1 million ($2.7 million after tax) was established with regard to these credits generated in the current year.

Prior to 2013, 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. During 2013, the Company began to utilize these net operating losses.

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. The impact of the new law was 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 through 2012 caused primarily by bonus depreciation and other book verses tax temporary differences. As a result, the Company had accrued Federal and state income tax benefits carrying into 2013. As the Company can no longer carry these losses back to prior periods, these losses are being carried forward for utilization in future years. 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	$	893.6	$	32.8	2030
Federal operating loss	474.6		166.1		2030
Federal tax credits	113.2		113.2		2029
State tax credits
Oklahoma investment tax credits	106.1		69.0		N/A
Oklahoma capital investment board credits	7.3		7.3		N/A
Oklahoma zero emission tax credits	24.3		16.3		2020

Acquisition of the equity interest in Enable on May 1, 2013, is also expected to increase the Company's utilization of state net operating loss carryforwards. Under current tax law, the Company projects full utilization of all Federal operating losses in 2014 as well as partial utilization of State operating loss carryforwards. Accordingly, a current deferred tax asset of $180.1 million has been reflected on the balance sheet.

As a result of acquiring an equity interest in Enable, the Company has a lower effective tax rate in conjunction with the formation of Enable in states with lower state tax rates. Remeasurement of state deferred tax expense to reflect these lower rates reduced income tax expense for 2013 by $8.4 million. In addition, deferred tax adjustments related to the Company's deconsolidation of Enogex Holdings increased income tax expense for 2013 by $3.9 million.

During 2013, the Company recognized a $16.4 million reduction in deferred state income taxes, associated with a remeasurement of the accumulated deferred taxes related to the formation of an employment company within Enable.