Income Taxes (LLC) (MidAmerican Funding, LLC and Subsidiaries [Domain])

12 Months Ended

Dec. 31, 2011

MidAmerican Funding, LLC and Subsidiaries [Domain]

Notes to Consolidated Financial Statements [Line Items]

Income Tax Disclosure [Text Block]

(13)Income Taxes

MidAmerican Funding's income tax (benefit) expense consists of the following for the years ended December 31 (in millions):

	2011			2010			2009
Current:
Federal	$	(480	)	$	(172	)	$	(217	)
State	(8		)	(31		)	(28		)
	(488		)	(203		)	(245		)
Deferred:
Federal	452			130			214
State	11			14			(10		)
	463			144			204
Investment tax credits	(1		)	(2		)	(2		)
Total	$	(26	)	$	(61	)	$	(43	)

A reconciliation of the federal statutory income tax rate to the effective income tax rate applicable to income before income tax expense is as follows for the years ended December 31:

	2011			2010			2009
Federal statutory income tax rate	35		%	35		%	35		%
Amortization of investment tax credit	(1	)		(1	)		(1	)
State income tax, net of federal income tax benefit	7			7			7
Renewable electricity production tax credits	(33	)		(29	)		(25	)
Income tax method changes	(13	)		(22	)		(20	)
Effects of ratemaking	(4	)		(11	)		(10	)
Resolution of potential tax matter	1			(1	)		(2	)
Other, net	(1	)		—			1
Effective federal and state income tax rate	(9	)	%	(22	)	%	(15	)	%

MidAmerican Energy's wind-powered generating facilities are eligible for federal renewable electricity production tax credits for 10 years from the date the facilities were placed in-service. A credit of $0.022 per kilowatt hour was applied to 2011 production.

In 2009 and 2010, MidAmerican Energy changed the methods by which it determines current income tax deductions for administrative and general costs ("A&G Deduction") and repair costs ("Repairs Deduction") related to certain of its regulated utility assets. These changes result in current deductibility for those costs, which are capitalized for book purposes. MidAmerican Energy was allowed to retroactively apply the method changes and deduct amounts related to prior years' costs on the tax return that includes the year of change. State utility rate regulation in Iowa requires that the tax effect of certain temporary differences be flowed through immediately to customers. Therefore, amounts that would otherwise have been recognized in income tax expense have been included as changes in regulatory assets. This treatment of such temporary differences impacts income tax expense and effective tax rates from year to year.

Accordingly, MidAmerican Energy's A&G Deduction computed for tax years prior to 2010 resulted in the recognition of $44 million of net tax benefits in earnings for the year ended December 31, 2010. Additionally, earnings for the year ended December 31, 2010, reflect $17 million of net tax benefits recognized in connection with the Repairs Deduction for tax years prior to 2010 related to MidAmerican Energy's regulated natural gas utility assets and jointly owned regulated electric utility assets. The Repairs Deduction for prior tax years related to the majority of MidAmerican Energy's regulated electric utility assets resulted in the recognition of $55 million of net tax benefits in earnings for the year ended December 31, 2009. Additionally, regulatory assets increased $88 million and $95 million for the 2010 and 2009 method changes, respectively, in recognition of MidAmerican Energy's ability to recover increased tax expense when such temporary differences reverse.

In 2011, MidAmerican Energy recognized $35 million of net tax benefits in conjunction with the partial resolution of certain tax issues related to tax positions taken for these income tax method changes. The ongoing impact of these method changes, along with other items recognized currently in income tax expense as the result of ratemaking, is reflected in the effects of ratemaking line above.

MidAmerican Funding's net deferred income tax liability consists of the following as of December 31 (in millions):

	2011			2010
Deferred income tax assets:
Regulatory liabilities	$	300		$	303
Employee benefits	96			73
Derivative contracts	48			24
Asset retirement obligations	122			91
Other	68			81
Total deferred income tax assets	634			572
Deferred income tax liabilities:
Depreciable property	(2,195		)	(1,690		)
Regulatory assets	(333		)	(234		)
Other	(19		)	(11		)
Total deferred income tax liabilities	(2,547		)	(1,935		)
Net deferred income tax liability	$	(1,913	)	$	(1,363	)
Reflected as:
Current assets - other	$	5		$	7
Deferred income taxes	(1,918		)	(1,370		)
	$	(1,913	)	$	(1,363	)

In December 2010, the President signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 into law, which provided for 100% bonus tax depreciation for qualifying property purchased and placed in service after September 8, 2010, and prior to January 1, 2012. Accordingly, depreciable property deferred income tax liabilities increased from bonus depreciation on qualifying assets placed in service, including the 594 megawatts of wind-powered generation assets placed in service during 2011.

As of December 31, 2011, MidAmerican Funding has available $4 million of state carryforwards, principally for net operating losses, that expire at various intervals between 2014 and 2030.

The United States Internal Revenue Service has closed examination of MEHC's income tax returns through February 2006, including components related to MidAmerican Funding. In addition, state jurisdictions have closed examination of income tax returns through at least 2003.

A reconciliation of the beginning and ending balances of MidAmerican Funding's net unrecognized tax benefits is as follows for the years ended December 31 (in millions):

	2011			2010
Beginning balance	$	80		$	44
Additions based on tax positions related to the current year	8			(2		)
Additions for tax positions of prior years	4			44
Reductions based on tax positions related to the current year	(2		)	—
Reductions for tax positions of prior years	(41		)	(2		)
Statute of limitations	(1		)	(6		)
Interest and penalties	(1		)	2
Ending balance	$	47		$	80

As of December 31, 2011 and 2010, substantially all of MidAmerican Funding's unrecognized tax benefits of $47 million and $80 million, respectively, if recognized, would have an impact on the effective tax rate. The unrecognized tax benefits relate to tax positions for which ultimate deductibility is highly certain but for which there is uncertainty as to the timing of such deductibility.