INCOME TAXES

The components of the Company’s income taxes consisted of the following:



	Nine Months ended		Calender Year Ended December 31,
($ Millions)	September 30, 2014		2013		2012
Taxes estimated to be payable currently:
Federal	$	14.1	$	17.5	$	18.3
State	1.8		2.2		0.7
Total current	$	15.9	$	19.7	$	19.0
Taxes deferred:
Federal	$	3.5	$	13.3	$	9.1
State	0.5		1.7		2.2
Total deferred	$	4.0	$	15.0	$	11.3
Total income tax expense	$	19.9	$	34.7	$	30.3

Total income tax expense for the Company differed from the amount that would have been provided by applying the statutory federal income tax rate of 35% to earnings before taxes as illustrated below:



	Nine Months Ended			Calendar Year Ended December 31,
($ Millions)	September 30, 2014			2013			2012
Income tax expense at statutory federal income tax rate	$	18.5		$	32.2		$	27.9
Increase (decrease) resulting from:
State income taxes, net of federal income tax benefit	1.5			2.6			2.3
Other, net	(0.1		)	(0.1		)	0.1
Total income tax expense	$	19.9		$	34.7		$	30.3
Effective income tax rate (%)	37.6		%	37.7		%	38.0		%

Temporary differences and carryforwards which gave rise to the Company’s deferred tax assets and liabilities were as follows:



($ Millions)	September 30, 2014				December 31, 2013
	Current		Noncurrent		Current		Noncurrent
Deferred tax assets:
Unbilled and deferred revenue	$	2.5	$	—	$	12.5	$	—
Allowance for doubtful accounts	—		—		1.8		—
Insurance accruals	—		—		1.8		—
Compensation accruals	—		—		2.5		—
Inventories	—		—		1.3		—
Gas supply adjustment related accruals	—		—		0.7		—
Pension and other costs	—		10.6		—		—
Goodwill	—		266.1		—		—
Net operating loss	—		5.1		—		—
Other	0.2		—		1.0		—
Total deferred tax assets	$	2.7	$	281.8	$	21.6	$	—
Deferred tax liabilities:
Depreciation and basis differences	$	—	$	4.0	$	—	$	186.6
Pension and other costs	—		—		—		19.0
Other	0.4		—		1.6		—
Total deferred tax liabilities	0.4		4.0		1.6		205.6
Net deferred tax assets (liabilities)	$	2.3	$	277.8	$	20.0	$	(205.6	)

No valuation allowance with respect to deferred taxes is deemed necessary as the Company anticipates generating adequate future taxable income to realize the benefits of all deferred tax assets.

The Company is part of a consolidated federal income tax return with Laclede Group, from September 2 through September 30, 2014. Prior to September 2, 2014, the Company was part of a consolidated federal and state income tax return with our former parent, Energen. Income taxes are allocated to the Company as if it were a separate taxpayer. Pursuant to GAAP, the Company may recognize the tax benefit from a tax position only if it is at least more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company records potential interest and penalties related to its uncertain tax positions as income tax expense. Unrecognized tax benefits, accrued interest payable, and accrued penalties payable are included in the Other line of the Deferred Credits and Other Liabilities section of the Balance Sheets. None of the Company’s unrecognized tax benefits at September 30, 2014 would impact the Company’s effective tax rate, if recognized.

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



($ Millions)
Balance as of December 31, 2011	$	0.1
Additions based on tax positions related to the current year	0.1
Additions for tax positions of prior years	0.2
Reductions for tax positions of prior years (lapse of statute of limitations)	(0.1		)
Balance as of December 31, 2012	0.3
Reductions for tax positions of prior years (lapse of statute of limitations)	—
Balance as of December 31, 2013	0.3
Reductions for transfer of balances to Energen	(0.3		)
Balance as of September 30, 2014	$	—

The Company’s tax returns for the calendar years 2010-2013 remain open and subject to examination by the IRS and major state taxing jurisdictions. These returns cover periods during which the Company was owned by Energen. As such, the impact of any adjustments made by the relevant taxing authorities would be addressed by Energen.

In September 2013, the Internal Revenue Service and US Treasury Department released final regulations on the deduction and capitalization of expenditures related to tangible property. The regulations do not address the tax treatment for network

assets such as natural gas pipelines. These regulations apply to tax years beginning on or after January 1, 2014. The Company is evaluating the effects of the regulations, but does not believe that they will have a significant impact on its financial statements.