INCOME TAXES

Significant components of our deferred tax assets and liabilities as of December 31, 2013 and 2012 are as follows:



	As of December 31,
	2013			2012

	(In thousands)
Deferred tax assets:
Property, plant and equipment	$	209,134		$	483,771
Net operating loss carry-forwards	183,982			109,100
Investment in Fortune Creek	3,763			3,763
AMT tax credit	47,883			55,814
Settlements of interest rate swaps	1,681			5,876
Deferred compensation expense	11,711			11,141
State	3,680			—
Other	791			2,710
Deferred tax assets	462,625			672,175
Deferred tax liabilities:
Net derivative gains	(44,039		)	(73,195		)
Other	(991		)	—
Deferred tax liabilities	(45,030		)	(73,195		)
Net deferred tax asset (liability)	417,595			598,980
Valuation allowance	(417,595		)	(598,980		)
Total deferred tax asset (liability)	$	—		$	—
Reflected in the consolidated balance sheets as:
Current deferred income tax liability	$	—		$	—
Non-current deferred income tax liability	—			—
	$	—		$	—

The components of net income (loss) before income tax for 2013, 2012 and 2011 are as follows:



	2013			2012			2011
				(In thousands)
U.S.	$	184,034		$	(2,142,730	)	$	146,090
Canada	(7,866		)	(505,446		)	1,819
Total	$	176,168		$	(2,648,176	)	$	147,909

No rate changes occurred in any taxing jurisdiction for 2011 or 2012. For 2013 and beyond, we have utilized a rate of 25.2% in Canada and a federal rate of 35% and a state rate of 1% in the U.S. to value our deferred tax positions, with the U.S. federal and state future rates mirroring existing applicable rates.

The components of income tax expense for 2013, 2012 and 2011 are as follows:



	2013			2012			2011
				(In thousands)
Current state income tax expense (benefit)	$	900		$	1,752		$	(1,706	)
Current U.S. federal income tax expense (benefit)	(7,931		)	—			(5,565		)
Current Canadian income tax expense	—			—			642
Total current income tax expense (benefit)	(7,031		)	1,752			(6,629		)
Deferred U.S. federal income tax expense (benefit)	205,820			(763,639		)	58,890
U.S. federal valuation allowance expense	(186,713		)	533,974			—
Deferred state income tax expense (benefit)	(3,680		)	—			1,980
State valuation allowance expense	3,680			—			—
Deferred Canadian income tax expense (benefit)	827			(128,982		)	3,622
Canadian valuation allowance expense	1,647			61,325			—
Total deferred income tax expense (benefit)	21,581			(297,322		)	64,492
Total income tax expense (benefit)	$	14,550		$	(295,570	)	$	57,863

The following table reconciles the statutory federal income tax rate to the effective tax rate for 2013, 2012 and 2011:



	2013		2012		2011
U.S. federal statutory tax rate	35.00	%	35.00	%	35.00	%
Permanent differences	4.80	%	(0.06	)%	1.51	%
State income taxes net of federal deduction	0.31	%	(0.04	)%	0.12	%
Canadian income taxes	(0.26	)%	(1.93	)%	2.41	%
Other	(0.15	)%	0.67	%	0.08	%
Derivatives deferred in OCI	12.43	%	—	%	—	%
Valuation allowance	(43.87	)%	(22.48	)%	—	%
Effective income tax rate	8.26	%	11.16	%	39.12	%

As of December 31, 2012, we had net operating tax loss carry-forwards for federal tax purposes of $340 million. During the year ended December 31, 2013, we generated additional net operating losses of $185 million. The total $525 million is included in deferred tax assets, and will expire between 2029 and 2033. The net operating loss carry-forwards can be used to offset future taxable income. As of December 31, 2013, we have $48 million of alternative minimum tax credit carry-forwards to offset any future alternative minimum tax payments, which have no expiration.

The deferred tax expense in 2013 is principally composed of the reversal in 2013 of deferred tax liabilities related to hedging in other comprehensive income that had previously reduced the valuation allowance necessary. During 2013, we reduced the U.S. federal deferred tax asset and corresponding valuation allowance by $187 million primarily due to the recognition of a deferred tax liability related to the Tokyo Gas Transaction. We also established a U.S. state valuation allowance of $3.7 million. The Canadian valuation allowance increased by $1.6 million primarily due to permanent items related to nondeductible expenses. Additionally, our basis in the Fortune Creek Partnership exceeds book basis by $29 million. We expect to realize the deferred tax asset related to this balance only through the partnership’s sale at which time the transaction will be treated as a capital transaction under Canadian tax law, taxed at the Canadian statutory rate of 12.5% for capital gains. We believe that it is more likely than not that we will be unable to realize the benefit of this deferred tax asset. Accordingly in 2011, we recorded a full valuation allowance of $3.7 million for this item.

We file or have filed income tax returns in U.S. federal, state and foreign jurisdictions and are subject to examinations by the IRS and other taxing authorities. We currently have no open audits. Tax years after December 31, 2009 remain subject to audit by the IRS.

The following schedule reconciles the total amounts of unrecognized tax benefits for 2012:



	As of December 31,
	2013		2012

	(In thousands)
Beginning unrecognized tax benefits	$	—	$	9,219
Changes	—		(9,219		)
Ending unrecognized tax benefits	$	—	$	—

Tax benefits of $9.2 million were recognized during the quarter ended September 30, 2012 as the statute of limitations related to uncertain tax positions expired.