Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

2. Income Taxes

Components of Income Tax Expense. The following table reflects the components of income tax expense included in net income for each of the three years ended December 31:

	2011		2010		2009
	(In millions)
Current
Federal	$	19	$	19	$	72
State		2		2		10
		21		21		82
Deferred
Federal		19		26		(3	)
State		2		—		—
		21		26		(3	)
Total income tax expense	$	42	$	47	$	79

Effective Tax Rate Reconciliation. Our income tax expense differs from the amount computed by applying the statutory federal income tax rate of 35 percent for the following reasons for each of the three years ended December 31:

	2011			2010			2009
	(In millions, except for rates)
Income tax expense at the statutory federal rate of 35%	$	39		$	46		$	72
State income taxes, net of federal income tax effect		3			1			7
Income tax expense	$	42		$	47		$	79
Effective tax rate		38	%		36	%		38	%

Deferred Tax Assets and Liabilities. The following are the components of our net deferred tax liability at December 31:

	2011		2010
	(In millions)
Deferred tax liabilities
Property, plant and equipment	$	512	$	483
Regulatory and other assets		34		29
Total deferred tax liability		546		512
Deferred tax assets
U.S. net operating loss and tax credit carryovers		77		77
Regulatory and other liabilities		42		36
Total deferred tax asset		119		113
Net deferred tax liability	$	427	$	399

We believe it is more likely than not that we will realize the benefit of our deferred tax assets due to expected future taxable income, including the effect of future reversals of existing taxable temporary differences primarily related to depreciation.

Tax Credits and Carryovers. As of December 31, 2011, we had approximately $19 million of alternative minimum tax credits that carryover indefinitely. We also have approximately $167 million of net operating loss carryovers that expire between 2019 and 2028. Usage of our carryovers is subject to the limitations provided under Sections 382 and 383 of the Internal Revenue Code as well as the separate return limitation year rules of Internal Revenue Service regulations.

Unrecognized Tax Benefits. El Paso files consolidated U.S. federal and certain state tax returns which include our taxable income. In certain states, we file and pay taxes directly to the state taxing authorities. With a few exceptions, we and El Paso are no longer subject to state and local income tax examinations by tax authorities for years prior to 2001 and U.S. income tax examinations for years prior to 2007. For our open tax years, we have no unrecognized tax benefits.