Income Taxes

The items comprising income tax expense are as follows:



Year ended December 31 (In millions)	2016			2015			2014
Provision (Benefit) for Current Income Taxes
Federal	$	—		$	—		$	—
State	(5.7		)	(5.2		)	(4.5		)
Total Provision (Benefit) for Current Income Taxes	(5.7		)	(5.2		)	(4.5		)
Provision for Deferred Income Taxes, net
Federal	126.0			98.8			160.0
State	28.0			4.5			18.2
Total Provision for Deferred Income Taxes, net	154.0			103.3			178.2
Deferred Federal Investment Tax Credits, net	(0.2		)	(0.7		)	(0.9		)
Total Income Tax Expense	$	148.1		$	97.4		$	172.8

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 2013 or state and local tax examinations by tax authorities for years prior to 2012. 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 and earns Oklahoma state tax credits associated with its investments in electric generating facilities which reduce the Company's effective tax rate.

The following schedule reconciles the statutory tax rates to the effective income tax rate:



Year ended December 31	2016		2015		2014
Statutory Federal tax rate	35.0	%	35.0	%	35.0	%
Federal renewable energy credit (A)	(6.8	)	(8.9	)	(6.7	)
Remeasurement of state deferred tax liabilities	0.9		(0.8	)	0.4
401(k) dividends	(0.6	)	(0.7	)	(0.5	)
Federal investment tax credits, net	(0.8	)	(0.2	)	(0.2	)
State income taxes, net of Federal income tax benefit	1.9		0.1		1.2
Uncertain tax positions	0.1		0.7		0.5
Amortization of net unfunded deferred taxes	0.7		0.9		0.6
Other	0.1		0.3		0.1
Effective income tax rate	30.5	%	26.4	%	30.4	%


(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, 2016 and 2015, respectively, were as follows:



December 31 (In millions)	2016			2015
Non-Current Deferred Income Tax Liabilities, net
Accelerated depreciation and other property related differences	$	2,103.2		$	2,016.0
Investment in Enable Midstream Partners	657.3			623.4
Regulatory asset	34.4			32.7
Income taxes refundable to customers, net	24.1			22.0
Company Pension Plan	16.5			13.7
Bond redemption-unamortized costs	4.3			4.8
Derivative instruments	2.2			1.5
Federal tax credits	(220.6		)	(184.4		)
State tax credits	(112.2		)	(106.7		)
Postretirement medical and life insurance benefits	(48.9		)	(56.2		)
Regulatory liabilities	(34.6		)	(46.3		)
Net operating losses	(31.7		)	(94.6		)
Asset retirement obligations	(24.5		)	(22.5		)
Accrued liabilities	(16.1		)	(14.0		)
Other	(14.0		)	(6.6		)
Accrued vacation	(3.5		)	(3.2		)
Deferred Federal investment tax credits	(0.8		)	(0.9		)
Uncollectible accounts	(0.6		)	(0.5		)
Non-Current Deferred Income Tax Liabilities, net	$	2,334.5		$	2,178.2

As of December 31, 2016, the Company has classified $13.7 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, 2016, 2015, and 2014.



(In millions)	2016		2015		2014
Balance at January 1	$	20.2	$	16.1	$	12.0
Tax positions related to current year:
Additions	0.5		4.1		4.1
Balance at December 31	$	20.7	$	20.2	$	16.1

As of December 31, 2016, 2015 and 2014, there are $13.5 million, $13.2 million and $10.5 million of unrecognized tax benefits that if recognized would affect the annual effective tax rate.

OG&E has 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 2016, OG&E recorded an additional reserve for this item of $0.5 million ($0.3 million after the federal tax benefit) related to the same Oklahoma investment tax credits generated in the current year 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.

Where applicable, the Company classifies income tax-related interest and penalties as interest expense and other expense, respectively. During the year ended December 31, 2016, there were no income tax-related interest or penalties recorded with regard to uncertain tax positions.

Other

The Company sustained Federal and state tax operating losses through 2012 caused primarily by bonus depreciation and other book versus tax temporary differences. As a result, the Company had accrued Federal and state income tax benefits carrying into 2016. As the Company can no longer carry these losses back to prior periods, these losses are being carried forward for utilization in future years which began in 2013. In addition to the tax operating losses, the Company was unable to utilize the various tax credits that were generated 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 remaining credits before they begin to expire. The following table summarizes these carry forwards:



(In millions)	Carry Forward Amount		Deferred Tax Asset		Earliest Expiration Date
Net operating losses
State operating loss	$	554.7	$	20.4	2030
Federal operating loss	32.2		11.3		2030
Federal tax credits	220.6		220.6		2029
State tax credits
Oklahoma investment tax credits	135.7		88.2		N/A
Oklahoma capital investment board credits	7.3		7.3		N/A
Oklahoma zero emission tax credits	24.1		16.2		2020
Louisiana inventory credits	0.7		0.5		2019

The Company has generated excess tax benefits of $24.8 million related to its equity based compensation plan which have not been recognized during the time it has been in a net operating loss position. This balance is available to offset future taxable income in addition to the net operating loss balances presented above. The Company anticipates adoption of ASU 2016-09 during 2017 which will result in the value of these excess tax benefits being recorded as a deferred tax asset with an offset to retained earnings.