8. INCOME TAX

An estimate of annual income tax expense is made each interim period using estimates for annual pre-tax income, regulatory flow-through adjustments, tax credits, and other items. The estimated annual effective tax rate is applied to year-to-date, pre-tax income to determine income tax expense for the interim period consistent with the annual estimate.

The effective income tax rate varied from the combined federal and state statutory tax rates due to the following:



	Three Months Ended September 30,						Nine Months Ended September 30,
Dollars in thousands	2014			2013			2014			2013
Income tax at statutory rates (federal and state)	$	(6,161	)	$	(5,489	)	$	20,288		$	21,080
Increase (decrease):
Differences required to be flowed-through by regulatory commissions	(310		)	(393		)	1,184			1,171
Other, net	(271		)	281			(449		)	(554		)
Income tax expense (benefit)	$	(6,742	)	$	(5,601	)	$	21,023		$	21,697
Effective income tax rate	43.6		%	40.5		%	41.0		%	40.8		%

The increase in the income tax benefit amount and the effective income tax rate for the three months ended September 30, 2014 compared to the same period in 2013 was primarily due to a higher pre-tax loss and the result of estimating a lower annual effective tax rate. The decrease for the nine months ended September 30, 2014 compared to the same periods in 2013 was primarily due to lower pre-tax income and a lower estimated annual effective tax rate. Partially offsetting this was a $0.6 million income tax charge related to a higher effective tax rate in Oregon, which required the revaluation of deferred tax balances in the first quarter of 2014. See Note 9 in the 2013 Form 10-K for more detail on income taxes and effective tax rates.

The Company’s examination by the Internal Revenue Service (IRS) for tax years 2009 through 2011 was completed during the first quarter of 2014. The examination did not result in a material change to the returns as originally filed or previously adjusted for net operating loss carrybacks. The 2012 and 2013 tax year are open and subject to examination, while the 2014 tax year is subject to review under the IRS Compliance Assurance Process.