Income Tax Expense

9 Months Ended

Sep. 30, 2013

Income Tax Expense [Abstract]

Income Tax Expense [Text Block]

INCOME TAX EXPENSE

	Quarter Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
Millions
Current Tax Expense (Benefit)
Federal (a)	—			—			—			—
State (a)	$(0.1)			—			$(0.1)			—
Total Current Tax Expense (Benefit)	(0.1)			—			(0.1)			—
Deferred Tax Expense (Benefit)
Federal		$7.3			$10.1			$15.5			$23.3
State (b)	1.7			0.4			5.5			0.7
Investment Tax Credit Amortization	(0.2		)	(0.2		)	(0.6		)	(0.6		)
Total Deferred Tax Expense	8.8			10.3			20.4			23.4
Total Income Tax Expense		$8.7			$10.3			$20.3			$23.4

(a) We incurred net operating losses (NOLs) due to the bonus depreciation provisions of the American Taxpayer Relief Act of 2012 and the Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of 2010 for the quarter and nine months ended September 30, 2013 and 2012. The 2013 and 2012 federal and state NOLs will be carried forward to offset future taxable income.

(b) The quarter and nine months ended September 30, 2012 reflected increased state tax benefit from state renewable tax credits compared to the quarter and nine months ended September 30, 2013.

NOTE 10.  INCOME TAX EXPENSE (Continued)

For the nine months ended September 30, 2013, the effective tax rate was 22.1 percent (25.5 percent for the nine months ended September 30, 2012). The decrease from the effective tax rate for the nine months ended September 30, 2012, was primarily due to increased federal production tax credits. The effective tax rate deviated from the statutory rate of approximately 41 percent primarily due to deductions for AFUDC–Equity, investment tax credits, federal production tax credits, state income tax credits and depletion.

Uncertain Tax Positions. As of September 30, 2013, we had gross unrecognized tax benefits of $3.2 million ($2.7 million as of December 31, 2012). Of the total gross unrecognized tax benefits, $0.8 million represents the amount of unrecognized tax benefits included in the Consolidated Balance Sheet that, if recognized, would favorably impact the effective income tax rate.

ALLETE’s IRS exam for tax years 2005 through 2009 is currently under review at the IRS appeals office. We expect the IRS appeals process to be completed during the next twelve months, resulting in the reversal of a majority of the unrecognized tax benefits as of September 30, 2013. The unrecognized tax benefits are primarily due to tax positions which are timing in nature and therefore would have an immaterial impact on our effective tax rate if recognized.