Note 4 - Income Taxes

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


	Three Months Ended
	December 31,
	2011	2010
Current Income Taxes
Federal	$ (7)	$ -
State	1,334	1,452

Deferred Income Taxes
Federal	31,338	29,936
State	8,060	6,664
	40,725	38,052
Deferred Investment Tax Credit	(145)	(174)

Total Income Taxes	$40,580	$37,878

Presented as Follows:
Other Income	$ (145)	$ (174)
Income Tax Expense	40,725	38,052

Total Income Taxes	$40,580	$37,878

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):


	Three Months Ended
	December 31,
	2011	2010

U.S. Income Before Income Taxes	$101,279	$96,421

Income Tax Expense, Computed at U.S. Federal
Statutory Rate of 35%	$35,448	$33,747

Increase (Reduction) in Taxes Resulting from:
State Income Taxes	6,106	5,275
Miscellaneous	(974)	(1,144)

Total Income Taxes	$40,580	$37,878

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

	At December 31, 2011	At September 30, 2011
Deferred Tax Liabilities:
Property, Plant and Equipment	$1,116,690	$1,062,255
Pension and Other Post-Retirement Benefit Costs	213,170	217,302
Other	67,876	70,389
Total Deferred Tax Liabilities	1,397,736	1,349,946

Deferred Tax Assets:
Pension and Other Post-Retirement Benefit Costs	(262,571)	(263,606)
Tax Loss Carryforwards	(83,199)	(71,516)
Other	(75,082)	(74,863)
Total Deferred Tax Assets	(420,852)	(409,985)
Total Net Deferred Income Taxes	$976,884	$939,961

Presented as Follows:
Net Deferred Tax Liability/(Asset) – Current	$(14,921)	$ (15,423)
Net Deferred Tax Liability – Non-Current	991,805	955,384
Total Net Deferred Income Taxes	$976,884	$939,961

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 that arose directly from excess tax deductions related to stock-based compensation. Tax benefits of $14.2 million and $18.1 million for the periods ending December 31, 2011 and September 30, 2011, respectively, relating to the excess stock-based compensation deductions will be recorded in Paid in Capital in future years when such tax benefits are 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 $65.5 million at December 31, 2011 and September 30, 2011. 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 $145.5 million and $144.4 million at December 31, 2011 and September 30, 2011, 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 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. Local IRS examiners proposed to disallow most of the tax accounting method change recorded by the Company in fiscal 2009 and fiscal 2010. The Company has filed protests 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 principal subsidiaries operate mainly 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.