INCOME TAXES

Income Tax Summary

We are part of the consolidated federal income tax return of DTE Energy. The federal income tax expense for DTE Electric is determined on an individual company basis with no allocation of tax expenses or benefits from other affiliates of DTE Energy. We had an income tax receivable from DTE Energy of $29 million and $23 million at December 31, 2014 and 2013, respectively.

Total income tax expense varied from the statutory federal income tax rate for the following reasons:



	Year Ended December 31,
	2014			2013			2012
	(In millions)
Income before income taxes	$	830		$	741		$	768
Income tax expense at 35% statutory rate	$	291		$	260		$	269
Production tax credits	(22		)	(15		)	(5		)
Investment tax credits	(5		)	(5		)	(6		)
Depreciation	3			3			3
AFUDC - Equity	(7		)	(5		)	(4		)
Employee Stock Ownership Plan dividends	(3		)	(2		)	(3		)
Domestic production activities deduction	(2		)	(18		)	(16		)
State and other income taxes, net of federal benefit	43			41			40
Other, net	—			(5		)	4
Income tax expense	$	298		$	254		$	282
Effective income tax rate	35.9		%	34.3		%	36.7		%

Components of income tax expense were as follows:



	Year Ended December 31,
	2014			2013		2012
	(In millions)
Current income tax expense (benefit)
Federal	$	(19	)	$	123	$	267
State and other income tax	20			23		67
Total current income taxes	1			146		334
Deferred income tax expense (benefit)
Federal	251			68		(47		)
State and other income tax	46			40		(5		)
Total deferred income taxes	297			108		(52		)
Total	$	298		$	254	$	282

Deferred tax assets and liabilities are recognized for the estimated future tax effect of temporary differences between the tax basis of assets or liabilities and the reported amounts in the financial statements. Deferred tax assets and liabilities are classified as current or noncurrent according to the classification of the related assets or liabilities. Deferred tax assets and liabilities not related to assets or liabilities are classified according to the expected reversal date of the temporary differences. Consistent with rate making treatment, deferred taxes are offset in the table below for temporary differences which have related regulatory assets and liabilities.

Deferred tax assets (liabilities) were comprised of the following at December 31:



	2014			2013
	(In millions)
Property, plant and equipment	$	(3,152	)	$	(2,807	)
Securitized regulatory assets	(3		)	(130		)
Pension and benefits	(43		)	27
Other	12			12
	$	(3,186	)	$	(2,898	)

Current deferred income tax assets (liabilities)	$	2		$	(91	)
Long-term deferred income tax liabilities	(3,188		)	(2,807		)
	$	(3,186	)	$	(2,898	)

Deferred income tax assets	$	357		$	420
Deferred income tax liabilities	(3,543		)	(3,318		)
	$	(3,186	)	$	(2,898	)

The above table excludes unamortized investment tax credits that are shown separately on the Consolidated Statements of Financial Position. Investment tax credits are deferred and amortized to income over the average life of the related property.

Uncertain Tax Positions

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	2014		2013		2012
	(In millions)
Balance at January 1	$	4	$	4	$	59
Reductions for tax positions of prior years	—		—		(3		)
Settlements	—		—		(52		)
Balance at December 31	$	4	$	4	$	4

The Company had $2 million of unrecognized tax benefits at December 31, 2014 and 2013 that, if recognized, would favorably impact our effective tax rate. The Company does not anticipate any material decrease in unrecognized tax benefits in the next twelve months.

The Company recognizes interest and penalties pertaining to income taxes in Interest expense and Other expenses, respectively, on its Consolidated Statements of Operations. Accrued interest pertaining to income taxes totaled $1 million at December 31, 2014 and 2013, respectively. The Company had no accrued penalties pertaining to income taxes. The Company recognized a nominal amount of interest expense (income) related to income taxes in 2014 and 2013 and $(3) million in 2012.

In 2014, DTE Energy and its subsidiaries settled a federal tax audit for the 2012 tax year. DTE Energy's federal income tax returns for years 2013 and subsequent years remain subject to examination by the IRS. DTE Energy's MBT and MCIT returns for the year 2008 and subsequent years remain subject to examination by the State of Michigan. DTE Energy also files tax returns in numerous state and local jurisdictions with varying statutes of limitation.