(9) INCOME TAXES

The provision (benefit) for income taxes included the following components:


		2012		2011		2010
	(in thousands)
Current:
Federal	$	15,500	$	3,378	$	10,421
State		3,189		820		1,518
		18,689		4,198		11,939

Deferred:
Federal		(388,209)		345,922		319,279
State		(71,582)		60,941		59,982
Foreign		(2,037)		2,160		459

		(461,828)		409,023		379,720
Provision (benefit) for income taxes	$	(443,139)	$	413,221	$	391,659

The provision for income taxes was an effective rate of 38.5% in 2012, 39.3% in 2011 and 2010, respectively. The following reconciles the provision for income taxes included in the consolidated statements of operations with the provision which would result from application of the statutory federal tax rate to pre-tax financial income:


		2012			2011		2010
	(in thousands)

Expected provision (benefit) at federal statutory rate	$		(402,571)	$	367,854	$		348,632
Increase (decrease) resulting from:
State income taxes, net of federal income tax effect			(44,454)		40,145			39,975
Nondeductible expenses			2,100		1,244			660
Other			1,786		3,978			2,392

Provision (benefit) for income taxes	$		(443,139)	$	413,221	$		391,659

The components of the Company’s net deferred tax liability as of December 31, 2012 and 2011 were as follows:


		2012		2011
	(in thousands)
Deferred tax liabilities:
Differences between book and tax basis of property	$	1,441,149	$	1,916,619
Cash flow hedges		112,625		276,063
Other		4,460		15,755
		1,558,234		2,208,437

Deferred tax assets:
Accrued compensation		16,387		30,316
Alternative minimum tax credit carryforward		89,016		73,516
Stored natural gas		7,812		9,053
Accrued pension costs		7,686		3,982
Asset retirement obligations		39,249		13,188
Net operating loss carryforward		217,276		287,830
Differences between book and tax basis of property - state		16,872		–
Other		12,354		9,591
		406,652		427,476
Net deferred tax liability	$	1,151,582	$	1,780,961

The net deferred tax liability as of December 31, 2012 was comprised of net long-term deferred income tax liabilities of $1,045.5 million in addition to a net current deferred income tax liability of $106.1 million. The net deferred tax liability at December 31, 2011 was comprised of net long-term deferred income tax liabilities of $1,586.8 million, in addition to a net current deferred income tax liability of $194.2 million. In 2012, the Company paid $0.8 million in state income taxes and did not pay any alternative minimum taxes. In 2011, the Company paid $0.8 million in state income taxes and paid $3.4 million in alternative minimum taxes. The Company’s operating loss carryforward as of December 31, 2012 was $701.4 million and has expiration dates of 2027 through 2032. The Company also had an alternative minimum tax credit carryforward of $89.0 million and a statutory depletion carryforward of $13.6 million as of December 31, 2012.

Deferred tax assets relating to tax benefits of employee stock option grants have been reduced to reflect exercises in 2012. Some exercises resulted in tax deductions in excess of previously recorded benefits based on the option value at the time of the grant (“windfalls”). Although these additional tax benefits or “windfalls” are reflected in net operating loss carryforwards, pursuant to GAAP, the additional tax benefit associated with the windfall is not recognized until the deduction reduces taxes payable. Accordingly, since the tax benefit does not reduce our current taxes payable in 2012 due to net operating loss carryforwards, these “windfall” tax benefits are not reflected in our net operating losses in deferred tax assets for 2012. Windfalls included in net operating loss carryforwards but not reflected in deferred tax assets for 2012 were $128.3 million.

As of December 31, 2012, the Company has no unrecognized tax benefits. The income tax years 2010 to 2012 remain open to examination by the major taxing jurisdictions to which the Company is subject.

The Company has an income tax net operating loss carryforward related to its Canadian operations of $15.9 million, and has expiration dates of 2030 through 2032. The Company assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax asset associated with the Canadian net operating loss. Based on this assessment, the Company did not record a valuation allowance as of December 31, 2012. The Company recorded a valuation allowance of $2.0 million in 2011, to reflect that it is more likely than not that the deferred tax asset will not be recognized. The amount of the deferred tax asset considered realizable could be adjusted if estimates of future taxable income during the carryforward period are increased.