Note 4 - Income Taxes

The components of federal and state income taxes included in the Consolidated Statements of Income are as follows (in thousands):


	Nine Months Ended
	June 30,
	2011			2010
Current Income Taxes
Federal	$	(1,825	)	$	42,323
State		2,703			9,914

Deferred Income Taxes
Federal		112,385			50,079
State		27,941			13,734

		141,204			116,050
Deferred Investment Tax Credit		(523	)		(523	)

Total Income Taxes	$	140,681		$	115,527

Presented as Follows:
Other Income	$	(523	)	$	(523	)
Income Tax Expense ' Continuing Operations		141,204			115,449
Income from Discontinued Operations		'			601

Total Income Taxes	$	140,681		$	115,527

Total income taxes as reported differ from the amounts that were computed by applying the federal income tax rate to income before income taxes. The following is a reconciliation of this difference (in thousands):


	Nine Months Ended
	June 30,
	2011			2010
U.S. Income Before Income Taxes	$	361,726		$	303,039

Income Tax Expense, Computed at Federal Statutory Rate of 35%	$	126,604		$	106,064

Increase (Reduction) in Taxes Resulting from:
State Income Taxes		19,919			15,371
Miscellaneous		(5,842	)		(5,908	)

Total Income Taxes	$	140,681		$	115,527

Significant components of the Company's deferred tax liabilities and assets are as follows (in thousands):


	At June 30, 2011			At September 30, 2010
Deferred Tax Liabilities:
Property, Plant and Equipment	$	1,035,695		$	849,869
Pension and Other Post-Retirement Benefit Costs		183,651			177,853
Other		38,958			63,671

Total Deferred Tax Liabilities		1,258,304			1,091,393

Deferred Tax Assets:
Pension and Other Post-Retirement Benefit Costs		(227,458	)		(223,588	)
Tax Loss Carryforwards		(54,472	)		(9,772	)
Other		(80,114	)		(81,751	)

Total Deferred Tax Assets		(362,044	)		(315,111	)

Total Net Deferred Income Taxes	$	896,260		$	776,282

Presented as Follows:
Net Deferred Tax Liability/(Asset) ' Current	$	(22,885	)	$	(24,476	)
Net Deferred Tax Liability ' Non-Current		919,145			800,758

Total Net Deferred Income Taxes	$	896,260		$	776,282

As a result of certain realization requirements of the authoritative guidance on stock-based compensation, the table of deferred tax liabilities and assets shown above does not include certain deferred tax assets at June 30, 2011 that arose directly from excess tax deductions related to stock-based compensation. A tax benefit of $18.1 million relating to the excess stock-based compensation deductions will be recorded in Paid in Capital in future years when such tax benefit is realized.

Regulatory liabilities representing the reduction of previously recorded deferred income taxes associated with rate-regulated activities that are expected to be refundable to customers amounted to $70.3 million and $69.6 million at June 30, 2011 and September 30, 2010, respectively. Also, regulatory assets representing future amounts collectible from customers, corresponding to additional deferred income taxes not previously recorded because of prior ratemaking practices, amounted to $151.1 million and $149.7 million at June 30, 2011 and September 30, 2010, respectively.

The Company files U.S. federal and various state income tax returns. The Internal Revenue Service (IRS) is currently conducting an examination of the Company for fiscal 2010 and 2011 in accordance with the Compliance Assurance Process ('CAP'). The CAP audit employs a real time review of the Company's books and tax records by the IRS that is intended to permit issue resolution prior to the filing of the tax return. While the federal statute of limitations remains open for fiscal 2008 and later years, IRS examinations for fiscal 2008 and prior years have been completed and the Company believes such years are effectively settled. During fiscal 2009, consent was received from the IRS National Office approving the Company's application to change its tax method of accounting for certain capitalized costs relating to its utility property. During fiscal 2010, local IRS examiners proposed to disallow most of the accounting method change recorded by the Company in fiscal 2009. The Company has filed a protest with the IRS Appeals Office disputing the local IRS findings.

The Company is also subject to various routine state income tax examinations. The Company's operating subsidiaries mainly operate in four states which have statutes of limitations that generally expire between three to four years from the date of filing of the income tax return.