Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

10.   Income Taxes

A reconciliation of the federal statutory rate to the effective income tax rate follows:

	Year Ended December 31,
	2011		2010		2009
Statutory rate:	35.0	%	35.0	%	35.0	%
State & local taxes-net of federal benefit	4.2		3.8		2.3
Amortization of investment tax credit	(0.3	)	(0.4	)	(0.5	)
Depletion	(1.9	)	(2.0	)	(2.0	)
Other tax credits	(0.2	)	(0.2	)	(0.2	)
Adjustment of income tax accruals and all other-net	1.1		(0.4	)	(2.1	)
Effective tax rate	37.9	%	35.8	%	32.5	%

Significant components of the net deferred tax liability follow:

	At December 31,
(In millions)	2011			2010
Noncurrent deferred tax liabilities (assets):
Depreciation & cost recovery timing differences	$	625.5		$	565.7
Leveraged leases		13.8			14.2
Regulatory assets recoverable through future rates		25.1			20.1
Other comprehensive income		(10.2	)		(4.2	)
Alternative minimum tax carryforward		(35.1	)		(48.6	)
Employee benefit obligations		(9.4	)		(18.9	)
Net operating loss & other carryforwards		(6.7	)		(3.8	)
Regulatory liabilities to be settled through future rates		(17.2	)		(4.8	)
Impairments		(11.4	)		(4.4	)
Other - net		1.3			-
Net noncurrent deferred tax liability		575.7			515.3
Current deferred tax (assets)/liabilities:
Deferred fuel costs-net		6.0			2.4
Demand side management programs		0.7			2.5
Alternative minimum tax carryforward		(15.6	)		(0.8	)
Other - net		(7.1	)		(7.9	)
Net current deferred tax asset		(16.0	)		(3.8	)
Net deferred tax liability	$	559.7		$	511.5

At December 31, 2011 and 2010, investment tax credits totaling $4.3 million and $5.0 million, respectively, are included in Deferred credits & other liabilities.  At December 31, 2011, the Company has alternative minimum tax carryforwards which do not expire.  In addition, the Company has $6.7 million in net operating loss and general business credit carryforwards, which will expire in 5 to 20 years.

The components of income tax expense and utilization of investment tax credits follow:

	Year Ended December 31,
(In millions)	2011			2010			2009
Current:
Federal	$	4.4		$	(0.8	)	$	(21.4	)
State		10.3			6.2			0.6
Total current taxes		14.7			5.4			(20.8	)
Deferred:
Federal		66.0			65.6			78.7
State		6.4			4.5			7.3
Total deferred taxes		72.4			70.1			86.0
Amortization of investment tax credits		(0.7	)		(0.8	)		(1.1	)
Total income tax expense	$	86.4		$	74.7		$	64.1

Uncertain Tax Positions

Following is a roll forward of unrecognized tax benefits for the three years ended December 31, 2011:

(In millions)	2011			2010			2009
Unrecognized tax benefits at January 1	$	13.3		$	11.5		$	2.2
Gross increases - tax positions in prior periods		3.3			1.6			1.1
Gross decreases - tax positions in prior periods		(4.5	)		(0.3	)		(1.8	)
Gross increases - current period tax positions		0.6			1.0			9.0
Settlements		(0.3	)		-			(0.1	)
Lapse of statute of limitations		-			(0.5	)		1.1
Unrecognized tax benefits at December 31	$	12.4		$	13.3		$	11.5

Of the change in unrecognized tax benefits during 2011, 2010, and 2009, almost none impacted the effective rate.  The amount of unrecognized tax benefits, which if recognized, that would impact the effective tax rate was $0.7 million at December 31, 2011, $0.7 million at December 31, 2010 and $0.5 million at December 31, 2009.  As of December 31, 2011, the unrecognized tax benefit relates to tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.  Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority. Thus, it is not expected that any changes to these tax positions would have a significant impact on earnings.

The Company recognized expense related to interest and penalties totaling approximately $0.4 million in 2011, $0.3 million in 2010, and $0.2 million in 2009.  The Company had approximately $1.3 million and $0.9 million for the payment of interest and penalties accrued as of December 31, 2011 and 2010, respectively.

The net liability on the Consolidated Balance Sheet for unrecognized tax benefits inclusive of interest, penalties and net of secondary impacts which are a component of the Deferred income taxes and are benefits, totaled $10.1 million and $9.8 million, respectively, at December 31, 2011 and 2010.

The Company and/or certain of its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states.  The Internal Revenue Service (IRS) has concluded examinations of the Company's U.S. federal income tax returns for tax years through December 31, 2005.  Tax years 2006 and 2008 are currently under IRS examination.  The primary focus of the IRS examination is certain repairs and maintenance deductions, an area of particular focus by the IRS throughout the utility industry.  The Company received Notices of Assessment from the IRS related to these deductions.  The Company responded to the assessments in January 2012 and continues to follow industry activities in this area.  However, in the event the IRS assessments related to these deductions are upheld, any impact is not expected to be material to the Company's results of operations or financial condition.  Further, the Company does not expect any changes to this liability for unrecognized income tax benefits within the next 12 months that would significantly impact the Company's results of operations or financial condition.  The State of Indiana, the Company's primary state tax jurisdiction, has conducted examinations of state income tax returns for tax years through December 31, 2007.  The statutes of limitations for assessment of federal income tax have expired with respect to tax years through 2005 and through 2007 for Indiana income tax.