Income Taxes

The items comprising income tax expense are as follows:



Year ended December 31 (In millions)	2014			2013			2012
Provision (Benefit) for Current Income Taxes
Federal	$	(43.4	)	$	(3.2	)	$	(9.0	)
State	(6.3		)	0.6			0.3
Total Provision (Benefit) for Current Income Taxes	(49.7		)	(2.6		)	(8.7		)
Provision for Deferred Income Taxes, net
Federal	146.8			106.4			111.4
State	15.4			11.7			(5.9		)
Total Provision for Deferred Income Taxes, net	162.2			118.1			105.5
Deferred Federal Investment Tax Credits, net	(0.9		)	(2.0		)	(2.2		)
Total Income Tax Expense	$	111.6		$	113.5		$	94.6

OG&E is a member of an affiliated group that files consolidated income tax returns in the U.S. Federal jurisdiction and various state jurisdictions. With few exceptions, OG&E is no longer subject to U.S. Federal tax examinations by tax authorities for years prior to 2011 or state and local tax examinations by tax authorities for years prior to 2010. Income taxes are generally allocated to each company in the affiliated group based on its stand-alone taxable income or loss. Federal investment tax credits previously claimed on electric utility property have been deferred and are being amortized to income over the life of the related property. OG&E earns both Federal and Oklahoma state tax credits associated with production from its wind farms and earns Oklahoma state tax credits associated with its investments in electric generating facilities which further reduce OG&E's effective tax rate.

The following schedule reconciles the statutory tax rates to the effective income tax rate:



Year ended December 31	2014		2013		2012
Statutory Federal tax rate	35.0	%	35.0	%	35.0	%
Amortization of net unfunded deferred taxes	0.8		0.8		1.0
Federal investment tax credits, net	(0.2	)	(0.5	)	(0.6	)
State income taxes, net of Federal income tax benefit	0.8		—		(0.7	)
Federal renewable energy credit (A)	(9.4	)	(9.2	)	(9.4	)
Uncertain tax positions	0.7		2.0		—
Other	—		(0.2	)	(0.1	)
Effective income tax rate	27.7	%	27.9	%	25.2	%


(A)	Represents credits associated with the production from OG&E's wind farms.

The deferred tax provisions are recognized as costs in the ratemaking process by the commissions having jurisdiction over the rates charged by OG&E. The components of Deferred Income Taxes at December 31, 2014 and 2013, respectively, were as follows:



December 31 (In millions)	2014			2013
Current Deferred Income Tax Assets
Net operating losses	$	153.2		$	168.7
Accrued liabilities	6.0			9.0
Federal tax credits	8.3			8.0
Accrued vacation	2.7			2.8
Uncollectible accounts	0.6			0.7
Total Current Deferred Income Tax Assets	$	170.8		$	189.2

Non-Current Deferred Income Tax Liabilities
Accelerated depreciation and other property related differences	$	1,931.4		$	1,747.0
OG&E pension plan	77.2			84.7
Regulatory asset	24.7			26.0
Income taxes refundable to customers, net	21.7			21.9
Bond redemption-unamortized costs	5.3			3.6
Total Non-Current Deferred Income Tax Liabilities	2,060.3			1,883.2
Non-Current Deferred Income Tax Assets
Federal tax credits	(137.4		)	(101.9		)
State tax credits	(91.6		)	(86.1		)
Regulatory liabilities	(58.0		)	(61.3		)
Postretirement medical and life insurance benefits	(40.6		)	(45.2		)
Asset retirement obligations	(21.4		)	(20.8		)
Net operating losses	(19.7		)	(17.6		)
Deferred Federal investment tax credits	(0.4		)	(0.7		)
Other	(4.6		)	(4.4		)
Total Non-Current Deferred Income Tax Assets	(373.7		)	(338.0		)
Non-Current Deferred Income Tax Liabilities, net	$	1,686.6		$	1,545.2

As of December 31, 2014, OG&E has classified $10.5 million of unrecognized tax benefits as a reduction of deferred tax assets recorded. Management is currently unaware of any issues under review that could result in significant additional payments, accruals, or other material deviation from this amount.

Following is a reconciliation of the OG&E’s total gross unrecognized tax benefits as of the years ended December 31, 2014, 2013, and 2012.



(Millions)	2014		2013		2012
Balance at January 1	$	7.8	$	—	$	—
Tax positions related to current year:
Additions	2.7		2.7		—
Tax positions related to prior years:
Additions	—		5.1		—
Balance at December 31	$	10.5	$	7.8	$	—

Where applicable, OG&E classifies income tax-related interest and penalties as interest expense and other operation and maintenance expense, respectively. During the year ended December 31, 2014, there were no income tax-related interest or penalties recorded with regard to uncertain tax positions. The total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, was $10.5 million as of December 31, 2014.

As previously reported, in January 2013, OG&E determined that a portion of certain Oklahoma investment tax credits previously recognized but not yet utilized may not be available for utilization in future years. During 2014, OG&E recorded an additional reserve for this item of $4.2 million ($2.7 million after the federal tax benefit) related to the same Oklahoma investment tax credits generated in the current year but not yet utilized due to management's determination that it is more likely than not that it will be unable to utilize these credits.

Other

OG&E sustained Federal and state tax operating losses through 2013 caused primarily by bonus depreciation and other book verses tax temporary differences. As a result, OG&E had accrued Federal and state income tax benefits carrying into 2014. As OG&E can no longer carry these losses back to prior periods, these losses are being carried forward for utilization in future years. In addition to the operating losses, OG&E was unable to utilize the various tax credits that were generating during these years. These tax losses and credits are being carried as deferred tax assets and will be utilized in future periods. Under current law, OG&E anticipates future taxable income will be sufficient to utilize all of the losses and credits before they begin to expire, accordingly no valuation allowance is considered necessary. The following table summarizes these carry forwards:



(In millions)	Carry Forward Amount		Deferred Tax Asset		Earliest Expiration Date
Net operating losses
State operating loss	$	729.0	$	26.9	2030
Federal operating loss	417.4		146.0		2030
Federal tax credits	145.7		145.7		2029
State tax credits
Oklahoma investment tax credits	104.7		68.1		N/A
Oklahoma capital investment board credits	7.3		7.3		N/A
Oklahoma zero emission tax credits	24.1		16.2		2020

OG&E projects full utilization of all Federal operating losses in 2015 as well as partial utilization of State operating loss carryforwards. Accordingly, a current deferred tax asset of $153.2 million has been reflected on the balance sheet.

Prior to 2014, OG&E had a Federal tax operating loss primarily caused by the accelerated tax "bonus" depreciation provision contained within the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 which allowed OG&E to record a current income tax deduction for 100 percent of the cost of certain property placed into service in 2011 and 50 percent for certain property placed into service in 2012. During 2013, OG&E began to utilize these net operating losses.

On December 19, 2014, the Tax Increase Prevention Act of 2014 was signed into law. Among other things, the law included an extension of bonus depreciation for one year for property generally placed in service before January 1, 2015. The impact of the new law was reflected in OG&E's 2014 Financial Statements as an increase in Deferred Tax Liabilities with a corresponding increase in Deferred Tax Assets related to the net operating loss. With this extension of bonus depreciation OG&E's utilization of net operating losses will continue into 2015.