Income Taxes

The components of CenterPoint Houston’s income tax expense were as follows:



	Year Ended December 31,
	2014			2013			2012
	(in millions)
Current income tax expense:
Federal	$	136		$	201		$	160
State	19			20			22
Total current expense	155			221			182
Deferred income tax benefit:
Federal	(24		)	(75		)	(69		)
Total deferred benefit	(24		)	(75		)	(69		)
Total income tax expense	$	131		$	146		$	113

A reconciliation of income tax expense using the federal statutory income tax rate to the actual income tax expense and resulting effective income tax rate is as follows:



	Year Ended December 31,
	2014			2013			2012
	(in millions)
Income before income taxes	$	383		$	415		$	392
Federal statutory income tax rate	35.0		%	35.0		%	35.0		%
Expected federal income tax expense	134			145			137
Increase (decrease) in tax expense resulting from:
State income tax expense, net of federal income tax	12			13			14
Amortization of investment tax credit	—			—			(1		)
Decrease in settled and uncertain tax positions	—			(5		)	(26		)
Other, net	(15		)	(7		)	(11		)
Total	(3		)	1			(24		)
Total income tax expense	$	131		$	146		$	113
Effective tax rate	34.2		%	35.2		%	28.8		%

In 2014, CenterPoint Houston recognized a $6 million reversal of previously accrued taxes as a result of final positions taken in the 2013 income tax returns.

CenterPoint Houston recognized a tax benefit of $5 million and $26 million from favorable audit settlements for the years ended December 31, 2013 and 2012, respectively.

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities were as follows:



	December 31,
	2014		2013
	(in millions)
Deferred tax assets:
Current:
Allowance for doubtful accounts	$	1	$	1
Other	1		2
Total current deferred tax assets	2		3
Non-current:
Employee benefits	92		80
Other	19		17
Total non-current deferred tax assets	111		97
Total deferred tax assets	113		100

Deferred tax liabilities:
Non-current:
Depreciation (1)	1,284		1,163
Regulatory assets, net (1)	828		954
Total deferred tax liabilities (1)	2,112		2,117
Accumulated deferred income taxes, net (1)	$	1,999	$	2,017


(1)	For tax year ended December 31, 2013, the amounts are presented after the effect of the revisions to the prior period financial statement discussed in Note 2(n).

CenterPoint Houston is included in the consolidated income tax returns of CenterPoint Energy. CenterPoint Houston calculates its income tax provision on a separate return basis under a tax sharing agreement with CenterPoint Energy.

Uncertain Income Tax Positions. The following table reconciles the beginning and ending balance of CenterPoint Houston’s unrecognized tax benefits:



	December 31,
	2014		2013		2012
	(in millions)
Balance, beginning of year	$	—	$	—	$	44
Tax Positions related to prior years:
Reductions	—		—		(46		)
Tax Positions related to current year:
Settlements	—		—		2
Balance, end of year	$	—	$	—	$	—

CenterPoint Houston reported no uncertain tax liability as of December 31, 2014 and expects no significant change to the uncertain tax liability over the next twelve months ending December 31, 2015.

Tax Audits and Settlements. CenterPoint Energy’s tax years through 2011 have been audited and settled with the Internal Revenue Service (IRS). The consolidated federal income tax returns for the years 2012 and 2013 are currently under audit by the IRS. For 2014, CenterPoint Energy is a participant in the IRS’s Compliance Assurance Process. CenterPoint Energy has considered the effects of these examinations in its accrual for settled issues and liability for uncertain income tax positions as of December 31, 2014.