ACCOUNTING FOR INCOME TAXES

Income tax expense consisted of the following for the years ended December 31 (dollars in thousands):



	2015		2014			2013
Current income tax expense (benefit)	$	12,212	$	(67,059	)	$	37,743
Deferred income tax expense	55,237		139,299			20,271
Total income tax expense	$	67,449	$	72,240		$	58,014

State income taxes do not represent a significant portion of total income tax expense on the Consolidated Statements of Income for any periods presented.

A reconciliation of federal income taxes derived from statutory federal tax rates (35 percent in 2015, 2014 and 2013) applied to income before income taxes as set forth in the accompanying Consolidated Statements of Income is as follows for the years ended December 31 (dollars in thousands):



	2015					2014					2013
Federal income taxes at statutory rates	$	64,967		35.0	%	$	67,237		35.0	%	$	56,821		35.0	%
Increase (decrease) in tax resulting from:
Tax effect of regulatory treatment of utility plant differences	4,358			2.3		4,008			2.1		3,532			2.2
State income tax expense	1,012			0.5		506			0.2		1,553			1.0
Settlement of prior year tax returns and adjustment of tax reserves	(992		)	(0.5	)	1,104			0.6		(1,104		)	(0.7	)
Manufacturing deduction	(1,198		)	(0.6	)	(169		)	(0.1	)	(2,033		)	(1.3	)
Other	(698		)	(0.4	)	(446		)	(0.2	)	(755		)	(0.5	)
Total income tax expense	$	67,449		36.3	%	$	72,240		37.6	%	$	58,014		35.7	%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and tax credit carryforwards. The total net deferred income tax liability consisted of the following as of December 31 (dollars in thousands):



	2015			2014
Deferred income tax assets:
Unfunded benefit obligation	$	75,716		$	72,324
Derivatives	47,009			46,903
Tax credits	15,011			15,080
Power and natural gas deferrals	12,866			3,811
Deferred compensation	10,354			10,796
Other	29,471			20,583
Total gross deferred income tax assets	190,427			169,497
Valuation allowances for deferred tax assets	(2,862		)	(8,145		)
Total deferred income tax assets after valuation allowances	187,565			161,352
Deferred income tax liabilities:
Differences between book and tax basis of utility plant	723,661			654,321
Regulatory asset on utility, property plant and equipment	36,917			36,504
Regulatory asset for pensions and other postretirement benefits	82,253			82,515
Utility energy commodity derivatives	47,010			46,906
Long-term debt and borrowing costs	14,027			11,484
Settlement with Coeur d’Alene Tribe	12,084			12,458
Other regulatory assets	11,691			9,691
Other	7,399			3,021
Total deferred income tax liabilities	935,042			856,900
Net deferred income tax liability	$	747,477		$	695,548
Consolidated balance sheet classification of net deferred income taxes:
Current deferred income tax asset (1)	$	—		$	14,794
Long-term deferred income tax liability (1)	747,477			710,342
Net deferred income tax liability	$	747,477		$	695,548

(1)

Effective December 31, 2015, the Company adopted ASU 2015-17 “Income Taxes (Topic 740) - Balance Sheet Classification of Deferred Taxes,” which requires entities to present DTAs and DTLs as noncurrent in a classified balance sheet versus the previous accounting guidance which required separate presentation of current and noncurrent DTAs and DTLs. The Company has elected to adopt this standard on a prospective basis; therefore, the Consolidated Balance Sheet as of December 31, 2014 has not been adjusted to match the current period presentation. See "Note 2 of the Notes to Consolidated Financial Statements" for further discussion of this ASU.

The realization of deferred income tax assets is dependent upon the ability to generate taxable income in future periods. The Company evaluated available evidence supporting the realization of its deferred income tax assets and determined it is more likely than not that deferred income tax assets will be realized.

As of December 31, 2015, the Company had $15.3 million of state tax credit carryforwards of which it is expected $2.9 million will expire unused; the Company has reflected the net amount of $12.4 million as an asset at December 31, 2015. State tax credits expire from 2019 to 2028.

The Company and its eligible subsidiaries file consolidated federal income tax returns. The Company also files state income tax returns in certain jurisdictions, including Idaho, Oregon and Montana. Subsidiaries are charged or credited with the tax effects of their operations on a stand-alone basis. The Internal Revenue Service (IRS) has completed its examination of all tax years through 2011 and all issues were resolved related to these years. The IRS has not completed an examination of the Company’s 2012 and 2014 federal income tax returns. The Company believes that any open tax years for federal or state income taxes will not result in adjustments that would be significant to the consolidated financial statements.

The Company had net regulatory assets related to the probable recovery of certain deferred income tax liabilities from customers through future rates as of December 31 (dollars in thousands):



	2015		2014
Regulatory assets for deferred income taxes	$	101,240	$	100,412
Regulatory liabilities for deferred income taxes	17,609		14,534