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
Total deferred income tax assets	$	3.5	$	3.9

Deferred income tax liabilities
Plant-related	491.7		449.9
Employee benefits	81.0		54.9
Regulatory deferrals	44.4		26.2
Other	16.7		15.9
Total deferred income tax liabilities	$	633.8	$	546.9

Total net deferred income tax liabilities	$	630.3	$	543.0

Balance sheet presentation
Current deferred income tax liabilities – included in other current liabilities	$	10.8	$	4.0
Long-term deferred income tax liabilities	619.5		539.0

Total net deferred income tax liabilities	$	630.3	$	543.0

Deferred tax credit carryforwards at December 31, 2013, included $1.7 million of alternative minimum tax credits, which can be carried forward indefinitely. Other deferred tax credit carryforwards included $1.1 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.

Regulated utilities record certain adjustments related to deferred income taxes to regulatory assets and liabilities. As the related temporary differences reverse, we 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 assets for these and other regulatory tax effects totaled $25.9 million and $17.4 million at December 31, 2013, and 2012, respectively. See Note 6, Regulatory Assets and Liabilities, for more information.

Income Before Taxes

All income before taxes is domestic income for the years ended December 31, 2013, 2012, and 2011.

Provision for Income Tax Expense

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



(Millions)	2013			2012			2011
Current provision
Federal	$	(1.3	)	$	24.8		$	15.4
State	3.4			4.2			4.2
Total current provision	2.1			29.0			19.6

Deferred provision
Federal	71.5			27.8			46.1
State	8.3			5.9			7.9
Total deferred provision	79.8			33.7			54.0

Interest	0.3			0.1			—
Investment tax credits, net	(0.3		)	(0.2		)	(0.4		)
Total provision for income taxes	$	81.9		$	62.6		$	73.2

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	%	$	76.9		35.0	%	$	69.1		35.0	%	$	69.7
State income taxes, net	4.8		10.5			4.4		8.7			5.3		10.6
Benefits and compensation	(0.9	)	(1.9		)	(3.6	)	(7.2		)	0.4		0.8
Federal tax credits	—		—			(3.5	)	(7.0		)	(3.2	)	(6.4		)
Other differences, net	(1.6	)	(3.6		)	(0.6	)	(1.0		)	(0.7	)	(1.5		)
Effective income tax	37.3	%	$	81.9		31.7	%	$	62.6		36.8	%	$	73.2

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	$	0.3		$	0.5		$	4.8
Increase related to tax positions taken in prior years	0.7			—			0.4
Decrease related to tax positions taken in prior years	(0.4		)	—			(0.5		)
Decrease related to settlements	(0.6		)	—			(4.2		)
Decrease related to lapse of statutes	—			(0.2		)	—
Balance at December 31	$	—		$	0.3		$	0.5

We had no accrued interest and penalties related to unrecognized tax benefits at December 31, 2013. We had accrued interest of $0.1 million and no accrued penalties related to unrecognized tax benefits at December 31, 2012.

We do not expect any unrecognized tax benefits to affect our effective tax rate in periods after December 31, 2013.

We file income tax returns in the United States federal jurisdiction and in our major state operating jurisdictions on a stand-alone basis or as part of Integrys Energy Group filings.

With a few exceptions, we are no longer subject to federal income tax examinations by the IRS for years prior to 2011. In 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 and Michigan. 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 the Wisconsin taxing authority for tax years 2009 through 2012 and the Michigan taxing authority for tax years 2008 through 2012. During 2013, the Michigan taxing authority continued its examination of tax years 2008 through 2010, which began in 2012. During 2013, the Michigan taxing authority also commenced an examination of tax year 2011.

In the next 12 months, we do not expect to significantly change the amount of unrecognized tax benefits.