Income Taxes

The items comprising income tax expense are as follows:



Year ended December 31 (In millions)	2015			2014			2013
Provision (Benefit) for Current Income Taxes
Federal	$	(17.5	)	$	(43.4	)	$	(3.2	)
State	(5.3		)	(6.3		)	0.6
Total Provision (Benefit) for Current Income Taxes	(22.8		)	(49.7		)	(2.6		)
Provision for Deferred Income Taxes, net
Federal	117.0			146.8			106.4
State	11.3			15.4			11.7
Total Provision for Deferred Income Taxes, net	128.3			162.2			118.1
Deferred Federal Investment Tax Credits, net	(0.7		)	(0.9		)	(2.0		)
Total Income Tax Expense	$	104.8		$	111.6		$	113.5

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 2012 or state and local tax examinations by tax authorities for years prior to 2011. 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	2015		2014		2013
Statutory Federal tax rate	35.0	%	35.0	%	35.0	%
Amortization of net unfunded deferred taxes	0.9		0.8		0.8
Federal investment tax credits, net	(0.2	)	(0.2	)	(0.5	)
State income taxes, net of Federal income tax benefit	0.5		0.8		—
Federal renewable energy credit (A)	(8.8	)	(9.4	)	(9.2	)
Uncertain tax positions	0.7		0.7		2.0
Other	(0.1	)	—		(0.2	)
Effective income tax rate	28.0	%	27.7	%	27.9	%


(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. As discussed in Note 2, OG&E early adopted for the year ended December 31, 2015, ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which requires all deferred tax liabilities and assets, and any related valuation allowance, to be classified as non-current on the balance sheet. OG&E's adoption was applied prospectively, and as such, the 2014 presentation of deferred taxes were not retroactively adjusted. The components of Deferred Income Taxes at December 31, 2015 and 2014, respectively, were as follows:



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

December 31 (In millions)	2015			2014
Non-Current Deferred Income Tax Liabilities, net
Accelerated depreciation and other property related differences	$	2,012.1		$	1,931.4
OG&E pension plan	55.1			77.2
Regulatory asset	32.7			24.7
Income taxes refundable to customers, net	22.0			21.7
Bond redemption-unamortized costs	4.8			5.3
Federal tax credits	(174.0		)	(137.4		)
State tax credits	(98.6		)	(91.6		)
Net operating losses	(89.7		)	(19.7		)
Regulatory liabilities	(46.3		)	(58.0		)
Postretirement medical and life insurance benefits	(40.8		)	(40.6		)
Asset retirement obligations	(22.5		)	(21.4		)
Other	(7.1		)	(4.6		)
Accrued liabilities	(5.9		)	—
Accrued vacation	(2.6		)	—
Deferred Federal investment tax credits	(0.9		)	(0.4		)
Uncollectible accounts	(0.5		)	—
Non-Current Deferred Income Tax Liabilities, net	$	1,637.8		$	1,686.6

As of December 31, 2015, OG&E has classified $13.2 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, 2015, 2014, and 2013.



(In millions)	2015		2014		2013
Balance at January 1	$	10.5	$	7.8	$	—
Tax positions related to current year:
Additions	2.7		2.7		2.7
Tax positions related to prior years:
Additions	—		—		5.1
Balance at December 31	$	13.2	$	10.5	$	7.8

Where applicable, OG&E classifies income tax-related interest and penalties as interest expense and other expense, respectively. During the year ended December 31, 2015, 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 $13.2 million as of December 31, 2015.

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 2015, 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 2015. 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 generated 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	$	562.6	$	20.7	2030
Federal operating loss	197.3		69.0		2030
Federal tax credits	174.0		174.0		2029
State tax credits
Oklahoma investment tax credits	115.6		75.1		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 has a Federal tax operating loss primarily caused by numerous extensions of accelerated tax bonus depreciation provision which allowed OG&E to record current income tax deductions for the cost of certain property placed into service. During 2013, OG&E began to utilize these net operating losses.

On December 18, 2015, the Protecting Americans from Tax Hikes Act was signed into law. Among other things, the law included an extension of bonus depreciation for 2015, 2016 and 2017 at a rate of 50 percent. The law reduces the bonus depreciation to 40 percent and 30 percent in 2018 and 2019, respectively. The impact of the new law was reflected in OG&E's 2015 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 2016.