12. Income Taxes

12 Months Ended

Sep. 30, 2011

The components of income tax expense from continuing operations for 2011, 2010 and 2009 were as follows:

			2011		2010		2009
		(In thousands)
Current
	Federal	$	(11,204)	$	(72,234)	$	(37,141)
	State		6,533		6,179		8,720
Deferred
	Federal		112,612		179,271		134,912
	State		5,920		11,429		(8,739)
Investment tax credits			(172)		(283)		(390)
		$	113,689	$	124,362	$	97,362

Reconciliations of the provision for income taxes computed at the statutory rate to the reported provisions for income taxes from continuing operations for 2011, 2010 and 2009 are set forth below:

			2011		2010		2009
			(In thousands)

Tax at statutory rate of 35%		$	109,401	$	112,922	$	98,231
Common stock dividends deductible
	for tax reporting		(1,930)		(1,785)		(1,591)
Penalties			2,294		107		72
Settlement of uncertain tax positions			(4,950)		-		-
State taxes (net of federal benefit)			8,184		11,445		(13)
Other, net			690		1,673		663
Income tax expense		$	113,689	$	124,362	$	97,362

Deferred income taxes reflect the tax effect of differences between the basis of assets and liabilities for book and tax purposes. The tax effect of temporary differences that gave rise to significant components of the deferred tax liabilities and deferred tax assets at September 30, 2011 and 2010 are presented below:

				2011		2010
				(In thousands)
Deferred tax assets:
	Accruals not currently deductible for tax purposes		$	10,327	$	9,182
	Customer advances			5,271		5,723
	Nonqualified benefit plans			43,924		43,427
	Postretirement benefits			62,274		57,386
	Treasury lock agreements			20,060		3,211
	Unamortized investment tax credit			120		183
	Tax net operating loss and credit carryforwards			95,293		63,621
	Difference between book and tax on mark to market
		accounting		8,039		2,159
	Other, net			3,529		4,559
		Total deferred tax assets		248,837		189,451

Deferred tax liabilities:
	Difference in net book value and net tax value
		of assets		(1,108,063)		(940,914)
	Pension funding			(7,533)		(14,936)
	Gas cost adjustments			(13,570)		(6,473)
	Cost expensed for tax purposes and capitalized for book
		purposes		(3,039)		(2,330)
		Total deferred tax liabilities		(1,132,205)		(964,653)
Net deferred tax liabilities			$	(883,368)	$	(775,202)
Deferred credits for rate regulated entities			$	325	$	587

At September 30, 2011, we had $10.1 million of federal alternative minimum tax credit carryforwards, $75.2 million of federal net operating loss carryforwards and $9.9 million of state net operating loss carryforwards. The alternative minimum tax credit carryforwards do not expire. The federal net operating loss carryforwards are available to offset taxable income and will begin to expire in 2029. Depending on the jurisdiction in which the state net operating loss was generated, the state net operating loss carryforwards will begin to expire between 2016 and 2029.

At September 30, 2010, we had accrued liabilities associated with uncertain tax positions totaling $6.7 million. During the fiscal year ended September 30, 2011, the IRS completed its audit of fiscal years 2005-2007. All uncertain tax positions were effectively settled upon completion of the audit. As a result of the settlement, we reduced our unrecognized tax benefits by $6.7 million in the second quarter of fiscal 2011. Income tax expense was reduced by $5.0 million in the second quarter due to the realization of the tax positions which were previously uncertain. As of September 30, 2011, we had no liabilities associated with uncertain tax positions.

We recognize accrued interest related to unrecognized tax benefits as a component of interest expense. We recognize penalties related to unrecognized tax benefits as a component of miscellaneous income (expense) in accordance with regulatory requirements. We recognized a tax expense of $0.01 million, $0.5 million and $0.1 million related to penalty and interest expenses during the fiscal years ended September 30, 2011, 2010 and 2009.

We file income tax returns in the U.S. federal jurisdiction as well as in various states where we have operations. We have concluded substantially all U.S. federal income tax matters through fiscal year 2007.