Income Taxes

Deferred Income Tax Assets and Liabilities

The principal components of deferred income tax assets and liabilities recognized on the balance sheets as of December 31 are included in the table below. Certain temporary differences are netted in the table when the offsetting amount is recorded as a regulatory asset or liability. This is consistent with regulatory treatment.



(Millions)	2013			2012
Deferred income tax assets
Tax credit carryforwards	$	113.5		$	105.1
Price risk management	13.0			59.6
Other	98.5			76.5
Total deferred income tax assets	$	225.0		$	241.2
Valuation allowance	(8.2		)	(7.2		)
Net deferred income tax assets	$	216.8		$	234.0

Deferred income tax liabilities
Plant-related	$	1,373.8		$	1,215.7
Employee benefits	79.6			49.1
Regulatory deferrals	78.8			60.8
Other	43.5			47.9
Total deferred income tax liabilities	$	1,575.7		$	1,373.5

Total net deferred income tax liabilities	$	1,358.9		$	1,139.5

Balance sheet presentation
Current deferred income tax assets	$	31.4		$	64.3
Long-term deferred income tax liabilities	1,390.3			1,203.8
Net deferred income tax liabilities	$	1,358.9		$	1,139.5

Deferred tax credit carryforwards at December 31, 2013, included $73.9 million of alternative minimum tax credits, which can be carried forward indefinitely. Other deferred tax credit carryforwards included $20.9 million of general business credits, which have a carryback period of one year and a carryforward period of 20 years. The majority of the general business credit carryforwards will expire in 2032. Deferred tax credit carryforwards also included $15.2 million of foreign tax credits, which have a carryback period of one year and a carryforward period of 10 years. The majority of the foreign tax credit carryforwards will expire in 2020. We also had $3.5 million of deferred state tax credit carryforwards, which have a carryforward period of five years. The majority of the state tax credit carryforwards will expire in 2018.

At December 31, 2013, we had deferred income tax assets of $45.4 million reflecting federal operating loss carryforwards, which have a carryback period of two years and a carryforward period of 20 years. We also had deferred income tax assets of $16.4 million reflecting state operating loss carryforwards. The majority of the state operating loss carryforwards relate to Wisconsin and have a carryforward period of 20 years. Any deferred tax assets that are not used to offset future taxable income will expire between 2020 and 2032 as follows:


2020 through 2025	$6.3 million


2026 through 2031	$9.2 million


2032	$46.3 million

Valuation allowances are established for certain state operating losses and foreign tax credits based on our projected ability to realize these benefits by offsetting future taxable income. Realization is dependent on generating sufficient taxable income prior to expiration. As of December 31, 2013, the entire valuation allowance was related to noncurrent deferred income tax assets. There was no significant change in the valuation allowance during 2013.

Regulated utilities record certain adjustments related to deferred income taxes to regulatory assets and liabilities. As the related temporary differences reverse, the regulated utilities prospectively refund taxes to or collect taxes from customers for which deferred taxes were recorded in prior years at rates potentially different than current rates or upon enactment of changes in tax law. The net regulatory asset for these net recoveries and other regulatory tax effects totaled $51.6 million and $42.1 million at December 31, 2013, and 2012, respectively. See Note 7, Regulatory Assets and Liabilities, for more information.

Income Before Taxes

Income before taxes includes the following components of foreign and domestic income:



	For the Years Ended December 31
(Millions)	2013		2012			2011
Domestic	$	560.8	$	443.9		$	363.4
Foreign	—		(0.1		)	(0.1		)
Total income before taxes	$	560.8	$	443.8		$	363.3

Provision for Income Taxes

The components of the provision for income taxes were as follows:



(Millions)	2013			2012			2011
Current provision
Federal	$	7.8		$	3.5		$	(44.2	)
State	5.9			0.4			6.0
Foreign	0.1			(0.1		)	(0.2		)
Total current provision	13.8			3.8			(38.4		)

Deferred provision
Federal	174.8			128.3			158.7
State	14.9			20.1			14.6
Foreign	—			—			0.1
Total deferred provision	189.7			148.4			173.4

Investment tax credits, net	8.4			5.2			(1.1		)
Penalties	(0.1		)	(0.3		)	0.7
Unrecognized tax benefits	0.4			(3.0		)	0.9
Interest	(1.4		)	(4.3		)	(2.2		)
Total provision for income taxes related to continuing operations	210.8			149.8			133.3
Total provision for income taxes related to discontinued operations	(6.9		)	(9.3		)	1.1
Total	$	203.9		$	140.5		$	134.4

Statutory Rate Reconciliation

The following table presents a reconciliation of the difference between the effective tax rate and the amount computed by applying the statutory federal tax rate to income before taxes.



	2013					2012					2011
(Millions, except for percentages)	Rate		Amount			Rate		Amount			Rate		Amount
Statutory federal income tax	35.0	%	$	196.3		35.0	%	$	155.4		35.0	%	$	127.2
State income taxes, net	3.9		21.8			4.8		21.1			5.3		19.1
Federal tax credits	(0.1	)	(0.5		)	(1.7	)	(7.6		)	(2.0	)	(7.1		)
Benefits and compensation	(0.7	)	(4.2		)	(2.1	)	(9.4		)	(2.3	)	(8.4		)
Other differences, net	(0.5	)	(2.6		)	(2.2	)	(9.7		)	0.7		2.5
Effective income tax	37.6	%	$	210.8		33.8	%	$	149.8		36.7	%	$	133.3

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



(Millions)	2013			2012			2011
Balance at January 1	$	11.3		$	22.4		$	30.4
Increase related to tax positions taken in prior years	2.2			0.9			3.1
Decrease related to tax positions taken in prior years	(8.7		)	(6.7		)	(1.6		)
Increase related to tax positions taken in current year	0.3			0.6			0.9
Decrease related to settlements	(1.5		)	(5.7		)	(9.4		)
Decrease related to lapse of statutes	—			(0.2		)	(1.0		)
Balance at December 31	$	3.6		$	11.3		$	22.4

We had accrued interest of $0.8 million and accrued penalties of $0.4 million related to unrecognized tax benefits at December 31, 2013. We had accrued interest of $2.5 million and accrued penalties of $2.0 million related to unrecognized tax benefits at December 31, 2012.

Our effective tax rate could be affected by recognition of $1.9 million of unrecognized tax benefits related to continuing operations in periods after December 31, 2013. Also, our provision for income taxes could be affected by recognition of $0.5 million of unrecognized tax benefits related to discontinued operations in periods after December 31, 2013.

Our subsidiaries file income tax returns in the United States federal jurisdiction, in various state and local jurisdictions, and in Canada.

With a few exceptions, we are no longer subject to federal income tax examinations by the IRS for years prior to 2011. During 2013, the IRS completed its examinations of 2009 and 2010.

We file state tax returns based on income in our major state operating jurisdictions of Wisconsin, Illinois, Michigan, and Minnesota. We also file tax returns in other state and local jurisdictions with varying statutes of limitations. With a few exceptions, we are no longer subject to state and local tax examinations for years prior to 2008. As of December 31, 2013, we were subject to examination by state or local tax authorities for the 2008 through 2012 tax years in our major state operating jurisdictions as follows:



State		Year
Illinois		2008
Michigan		2008
Minnesota		2011
Wisconsin		2009

During 2013, the Minnesota taxing authority initiated and completed its examination of the 2005 through 2010 tax years, and the Michigan taxing authority initiated its examination of the 2008 through 2011 tax years. During 2013, the Illinois taxing authority completed its examination of the 2007 tax year, which resulted in an adjustment to the provision for income taxes, of which a large portion was reported as discontinued operations. This settlement, combined with other certain state income tax examinations and a remeasurement of uncertain tax positions, decreased our liability for unrecognized tax benefits by $6.5 million. We reduced the provision for income taxes related to these items, of which a large portion was reported as discontinued operations.

As of December 31, 2013, we were subject to examination by foreign income tax authorities for the 2008 through 2012 tax years. With a few exceptions, we are no longer subject to foreign income tax examinations by tax authorities for years prior to 2008.

In the next 12 months, it is also reasonably possible that we and our subsidiaries will settle open examinations in multiple taxing jurisdictions related to tax years prior to 2011, resulting in a further decrease in unrecognized tax benefits of as much as $0.9 million.