INCOME TAXES (BENEFITS)

12 Months Ended

Dec. 31, 2011

Income Tax Disclosure [Abstract]

INCOME TAXES (BENEFITS)

NOTE 10.       INCOME TAXES (BENEFITS)

The following reflects the composition of taxes on income from continuing operations for the years ended December 31 (dollars in millions):

		2011						2010						2009
		NVE		NPC		SPPC		NVE		NPC		SPPC		NVE		NPC		SPPC
Current and other
	Federal	$	(1.3)	$	(1.1)	$	(0.1)	$	(15.4)	$	(0.9)	$	1.1	$	(34.1)	$	(34.3)	$	(0.5)
	State		0.1		-		0.1		1.0		-		0.9		-		-		0.0
Total current and other			(1.2)		(1.1)		-		(14.4)		(0.9)		2.0		(34.1)		(34.3)		(0.5)
Deferred
	Federal		91.7		73.4		33.2		132.7		93.6		42.0		114.1		97.9		34.3
	State		(0.1)		(0.3)		0.2		(0.1)		0.7		(0.9)		0.5		0.3		0.3
Total deferred			91.6		73.1		33.4		132.6		94.3		41.1		114.6		98.2		34.6
Amortization of excess deferred taxes			(0.4)		(0.1)		(0.3)		(1.1)		(0.2)		(0.8)		(1.7)		(0.9)		(0.8)
Investment tax credits			(3.1)		(1.2)		(1.9)		(3.3)		(1.4)		(1.9)		(3.3)		(1.3)		(2.1)
Total provision for income taxes		$	86.9	$	70.7	$	31.2	$	113.8	$	91.8	$	40.4	$	75.5	$	61.7	$	31.2

A reconciliation between income tax expense and the expected tax expense at the federal statutory rate for the years ended December 31 are as follows (dollars in millions):

	2011									2010									2009
	NVE			NPC			SPPC			NVE			NPC			SPPC			NVE			NPC			SPPC
Net income	$	163.4		$	132.6		$	59.9		$	227.0		$	185.9		$	72.4		$	182.9		$	134.3		$	73.1
Total income tax expense		86.9			70.7			31.2			113.8			91.8			40.4			75.5			61.7			31.2
Pretax income		250.3			203.3			91.1			340.8			277.7			112.8			258.4			196.0			104.3
Statutory tax rate		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%
Federal income tax expense		87.6			71.2			31.9			119.3			97.2			39.5			90.4			68.6			36.5
Depreciation		3.1			2.0			1.1			4.1			1.8			2.3			(2.1)			1.7			(3.8)
AFUDC - equity		(3.8)			(2.9)			(0.9)			(9.8)			(8.8)			(1.0)			(8.5)			(7.4)			(1.1)
Investment tax credit amortization		(3.1)			(1.2)			(1.9)			(3.3)			(1.4)			(1.9)			(3.4)			(1.3)			(2.1)
Regulatory asset for goodwill		2.7			1.7			1.0			2.7			1.7			1.0			2.7			1.7			1.0
Research and development credit		(0.2)			(0.1)			(0.1)			(1.0)			(0.8)			(0.2)			(1.1)			(1.0)			(0.2)
Other – net		0.6			0.0			0.1			1.8			2.1			0.7			(2.5)			(0.6)			0.9
Provision for income taxes	$	86.9		$	70.7		$	31.2		$	113.8		$	91.8		$	40.4		$	75.5		$	61.7		$	31.2
Effective tax rate		34.7	%		34.8	%		34.2	%		33.4	%		33.1	%		35.8	%		29.2	%		31.5	%		29.9	%

The net deferred income tax liability consists of deferred income tax liabilities less related deferred income tax assets as of December 31 (dollars in millions):

			2011						2010
		NVE		NPC		SPPC		NVE		NPC		SPPC
Deferred tax assets
	Net operating loss and credit carryovers	$	470.8	$	353.7	$	62.5	$	173.8	$	82.5	$	46.3
	Employee benefit plans		58.4		21.2		26.5		66.3		25.7		34.8
	Customer advances		17.6		10.5		7.1		25.2		12.3		12.9
	Gross-ups received on CIAC & customer advances		20.3		15.3		5.0		26.2		19.4		6.8
	Deferred revenues		18.5		15.1		3.4		8.0		3.5		4.5
	Deferred energy		49.9		20.0		29.9		70.5		18.8		51.7
	Reserves		13.4		9.6		2.5		11.3		9.9		1.4
	Other		17.5		10.5		6.3		27.9		19.3		7.9
Total deferred tax assets			666.4		455.9		143.2		409.2		191.4		166.3
Regulatory deferred tax assets
	Excess deferred income taxes		8.7		2.5		6.2		9.2		2.7		6.5
	Unamortized investment tax credit		8.7		3.3		5.4		10.3		3.9		6.5
Total regulatory deferred tax assets			17.4		5.8		11.6		19.5		6.6		13.0
Total deferred tax assets before valuation allowance			683.8		461.7		154.8		428.7		198.0		179.3
Valuation allowance			(1.2)		(1.2)		0.0		(1.5)		(1.5)		0.0
Total deferred tax assets after valuation allowance		$	682.6	$	460.5	$	154.8	$	427.2	$	196.5	$	179.3

			2011						2010
		NVE		NPC		SPPC		NVE		NPC		SPPC
Deferred tax liabilities
	Excess of tax over book depreciation	$	1,380.7	$	1,015.1	$	371.6	$	1,004.2	$	661.7	$	348.9
	Deferred Conservation Programs		83.2		63.0		20.2		78.8		58.6		20.1
	Regulatory assets		137.1		94.1		44.2		166.1		112.9		54.3
	Other		32.0		19.4		12.1		36.6		21.1		15.1
Total deferred tax liabilities			1,633.0		1,191.6		448.1		1,285.7		854.3		438.4
Regulatory deferred tax liabilities
	Tax benefits flowed through to customers - property		115.2		93.0		22.3		116.9		86.3		30.6
	Tax benefits flowed through to customers - goodwill		136.0		85.0		50.9		140.2		87.7		52.5
Total regulatory deferred tax liability			251.2		178.0		73.2		257.1		174.0		83.1
Total deferred tax liabilities, including
regulatory deferred tax liabilities		$	1,884.2	$	1,369.6	$	521.3	$	1,542.8	$	1,028.3	$	521.5
Net deferred income tax liability		$	967.8	$	736.9	$	304.9	$	878.0	$	664.3	$	272.1
Net regulatory deferred tax liability			233.8		172.2		61.6		237.6		167.5		70.1
Total net deferred tax liability		$	1,201.6	$	909.1	$	366.5	$	1,115.6	$	831.8	$	342.2

For balance sheet presentation, the regulatory tax asset is included in regulatory assets and the regulatory tax liability is included in regulatory liabilities.  The regulatory tax asset balance consists of future revenue to be received from customers due to flow-through of the tax benefits of temporary differences and goodwill recognized from the merger of NPC and NVE.  Offset against these amounts are future revenues to be refunded to customers (regulatory tax liabilities).  The regulatory tax liability balance consists of temporary differences for liberalized depreciation at rates in excess of current rates and unamortized investment tax credits.  The regulatory liability for temporary differences related to liberalized depreciation will continue to be amortized using the average rate assumption method required by the Tax Reform Act of 1986.  The regulatory liability for temporary differences caused by the investment tax credit will be amortized ratably similar to the accumulated deferred investment tax credit.

The following tables summarize as of December 31, 2011, the net operating loss and tax credit carryovers and associated carryover periods, and valuation allowance for amounts which NVE and the Utilities have determined that realization is uncertain (dollars in millions):

	Deferred		Valuation		Net Deferred		Expiration
	Tax Asset		Allowance		Tax Asset		Period
NVE
Federal net operating loss	$	456.5	$	-	$	456.5	2024-2031
Research and development credit		12.6		-		12.6	2024-2031
Arizona coal credits		1.7		1.2		0.5	2012-2016
Total net operating loss and tax credits	$	470.8	$	1.2	$	469.6

	Deferred		Valuation		Net Deferred		Expiration
	Tax Asset		Allowance		Tax Asset		Period
NPC
Federal net operating loss	$	343.7	$	-	$	343.7	2024-2031
Research and development credit		8.3		-		8.3	2024-2031
Arizona coal credits		1.7		1.2		0.5	2012-2016
Total net operating loss and tax credits	$	353.7	$	1.2	$	352.5

	Deferred		Valuation		Net Deferred			Expiration
	Tax Asset		Allowance		Tax Asset		Period
SPPC
Federal net operating loss	$	58.1	$	-	$	58.1		2024-2031
Research and development credit		4.4		-		4.4		2024-2031
Total net operating loss and tax credits	$	62.5	$	-	$	62.5

At December 31, 2011, NVE has a gross Federal NOL carryover of $1.3 billion, NPC of $982.0 million and SPPC of $166.0 million. The increase in NVE's NOL from the prior year is primarily attributable to the bonus depreciation deduction taken in 2011.

Considering all positive and negative evidence regarding the utilization of NVE's and the Utilities' deferred tax assets, it has been determined that NVE, NPC and SPPC are more-likely-than-not to realize all recorded deferred tax assets, except the Arizona coal credits on NVE and NPC.  As such, these Arizona coal credits represent the only valuation allowance that has been recorded as of December 31, 2011 on NVE and NPC.

Accounting for Uncertainty in Income Taxes

Under Accounting for Uncertainty in Income Taxes, as reflected in the FASC, uncertain tax liabilities are all long-term and are included in the “other deferred credits and liabilities” line item on the balance sheet.  

A summary of unrecognized tax benefits as of December 31 are as follows (dollars in millions):

		2011						2010						2009
		NVE		NPC		SPPC		NVE		NPC		SPPC		NVE		NPC		SPPC
Unrecognized tax benefits		$	34.1	$	24.3	$	9.8	$	35.7	$	25.5	$	10.2	$	38.2	$	26.6	$	10.5
Of the total, amounts related to tax
positions that, if recognized, in future years would:
	Increase the effective tax rate	$	5.6	$	3.8	$	1.8	$	4.8	$	3.2	$	1.6	$	4.5	$	3.1	$	1.4

A reconciliation of the beginning and ending amount of unrecognized tax benefits as of December 31 are as follows (dollars in millions):

	2011						2010						2009
	NVE		NPC		SPPC		NVE		NPC		SPPC		NVE		NPC		SPPC
Unrecognized tax benefit at January 1	$	35.7	$	25.5	$	10.2	$	38.2	$	26.6	$	10.5	$	93.9	$	48.5	$	40.1
Increase in current period tax positions		0.5		0.4		0.1		0.3		0.1		0.2		3.3		2.8		0.5
Increase in prior period tax positions		0.2		0.1		0.1		0.1		0.1		0.1		11.8		9.2		2.5
Decrease in prior period tax positions		(2.3)		(1.7)		(0.6)		(2.9)		(1.3)		(0.6)		(70.8)		(33.9)		(32.6)
Unrecognized tax benefit at December 31	$	34.1	$	24.3	$	9.8	$	35.7	$	25.5	$	10.2	$	38.2	$	26.6	$	10.5

In December 2007, NVE and the Utilities filed a Form 3115, Application for Change in Accounting Method (“Application”), with the IRS requesting a change in accounting for deducting repair expenditures. In April 2009, NVE and the Utilities received notice from the IRS approving the Application. Accordingly, during the second quarter of 2009, NVE, NPC and SPPC recorded reductions to their unrecognized tax benefits for the repair positions taken in the prior period of approximately $64.4 million, $32.0 million and $32.2 million, respectively. Neither NVE nor the Utilities anticipate additional material changes in their uncertain tax position reserves in the next twelve months.

NVE and the Utilities classify interest and penalties related to income taxes as interest and other expense, respectively.   NVE and the Utilities have not accrued interest or penalties as of December 31, 2011, December 31, 2010 and December 31, 2009.  NVE and the Utilities do not expect unrecognized tax benefits to change within the next twelve months.

NVE and its subsidiaries file a consolidated federal income tax return.  Current income taxes are allocated based on NVE's and each subsidiaries' respective taxable income or loss and tax credits as if each subsidiary filed a separate return. The U.S. federal jurisdiction is the only “significant” tax jurisdiction for NVE. The IRS is currently conducting a limited scope examination of NVE for the years 2005-2008. As of December 31, 2011, NVE is no longer subject to examinations by U.S. federal, state, or local tax authorities for years before 2005, with few exceptions.