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Income Taxes:
 12 Months Ended
Dec. 31, 2015
Income Tax Disclosure [Abstract]  
Income Taxes
INCOME TAXES

Income tax expense (benefit) from continuing operations for the years ended December 31 was (in thousands):
 
2015
2014
2013
Current:
 
 
 
Federal
$
2,549

$
(2,319
)
$
(2,003
)
State
1,319

(1,288
)
(173
)
 
3,868

(3,607
)
(2,176
)
Deferred:
 
 
 
Federal
(23,592
)
64,780

58,288

State
(2,323
)
5,658

7,140

Tax credit amortization
(113
)
(206
)
(212
)
 
(26,028
)
70,232

65,216

 
 
 
 
 
$
(22,160
)
$
66,625

$
63,040



The temporary differences, which gave rise to the net deferred tax liability, for the years ended December 31 were as follows (in thousands):
 
2015
2014
Deferred tax assets:
 
 
Regulatory liabilities
$
43,586

$
49,243

Employee benefits
26,400

26,714

Federal net operating loss
217,922

213,466

Asset impairment(a)
181,731

93,663

Other deferred tax assets(b)
85,907

76,005

Less: Valuation allowance
(4,304
)
(5,017
)
Total deferred tax assets
551,242

454,074

 
 
 
Deferred tax liabilities:
 
 
Accelerated depreciation, amortization and other plant-related differences
(709,068
)
(695,280
)
Regulatory assets
(29,092
)
(25,340
)
Mining development and oil exploration
(183,956
)
(109,571
)
State deferred tax liability
(35,065
)
(36,579
)
Deferred costs
(26,121
)
(35,284
)
Other deferred tax liabilities
(18,519
)
(15,684
)
Total deferred tax liabilities
(1,001,821
)
(917,738
)
 
 
 
Net deferred tax liability
$
(450,579
)
$
(463,664
)
_______________
(a)
Majority of impairment deferred tax asset is related to oil and gas properties.
(b)
Other deferred tax assets consist primarily of state tax credits, state net operating loss, alternative minimum tax credit and federal research and development credits. No single item exceeds 5% of the total net deferred tax liability.

The effective tax rate differs from the federal statutory rate for the years ended December 31, as follows:
 
2015
2014
2013
Federal statutory rate
(35.0
)%
35.0
 %
35.0
 %
State income tax (net of federal tax effect)
(1.0
)
1.1

2.4

Amortization of excess deferred income taxes and investment tax credits
(0.2
)
(0.1
)
(0.1
)
Percentage depletion in excess of cost(a)
(3.5
)
(1.0
)
(0.9
)
Equity AFUDC
(0.3
)
(0.1
)
—

Tax credits
(0.5
)
(0.1
)
(0.5
)
Accounting for uncertain tax positions adjustment(b)
3.5

(0.1
)
0.7

Flow-through adjustments (c)
(3.8
)
(0.9
)
(0.9
)
Other tax differences
—

(0.1
)
(0.9
)
 
(40.8
)%
33.7
 %
34.8
 %
_________________________
(a)
The tax benefit has remained relatively the same for each period presented, but its impact on the effective tax rate is predicated on the level of pre-tax net income or loss as evidenced in 2015.
(b)
The tax expense recorded in 2015 included the re-measurement related to research and development credits and deductions, which increased tax expense. The combination of the re-measurement, continued accrual of after-tax interest expense associated with other uncertain tax positions primarily the like-kind exchange transaction, and pre-tax net loss resulted in a greater impact on the effective tax rate in 2015.
(c)
The flow-through adjustments relate primarily to an accounting method change for tax purposes that allows us to take a current tax deduction for repair costs that continue to be capitalized for book purposes. We recorded a deferred income tax liability in recognition of the temporary difference created between book and tax treatment and flowed the tax benefit through to our customers in the form of lower rates as a result of a rate case settlement that occurred in 2010. A regulatory asset was established to reflect the recovery of future increases in taxes payable from customers as the temporary differences reverse. As a result of this regulatory treatment, we continue to record a tax benefit consistent with the flow-through method. Such tax benefit has remained somewhat constant, but its impact on the effective tax rate is predicated on the level of pre-tax net income or loss as evidenced in 2015.

At December 31, 2015, we have federal and gross state NOL carryforwards that will expire at various dates as follows (in thousands):
 
 
Amounts
 
Expiration Dates
Federal Net Operating Loss Carryforward
 
$
624,218

 
2019
to
2035
 
 
 
 
 
 
 
State Net Operating Loss Carryforward
 
$
463,679

 
2015
to
2035


As of December 31, 2015, we had a $0.8 million valuation allowance against the state NOL carryforwards. Our 2015 analysis of the ability to utilize such NOLs resulted in a slight decrease of the valuation allowance of approximately $0.2 million, which resulted in a decrease to tax expense. The valuation allowance adjustment was primarily attributable to a projected increase in state taxable income for years beyond 2015. Such an increase impacted the utilization of NOL carryforward in those states where the carryforward period is significantly shorter than the federal carryforward period of 20 years. In certain states, the carryforward period is limited to 5 years. Ultimate usage of these NOLs depends upon our future tax filings. If the valuation allowance is adjusted due to higher or lower than anticipated utilization of the NOLs, the offsetting amount will affect tax expense.

The following table reconciles the total amounts of unrecognized tax benefits, without interest, at the beginning and end of the period included in Other deferred credits and other liabilities on the accompanying Consolidated Balance Sheets (in thousands):
 
Changes in Uncertain Tax Positions
Beginning balance at January 1, 2013
$
40,683

Additions for prior year tax positions
1,526

Reductions for prior year tax positions
(4,578
)
Additions for current year tax positions
—

Settlements
—

Ending balance at December 31, 2013
37,631

Additions for prior year tax positions
1,253

Reductions for prior year tax positions
(6,692
)
Additions for current year tax positions
—

Settlements
—

Ending balance at December 31, 2014
32,192

Additions for prior year tax positions
3,285

Reductions for prior year tax positions
(3,491
)
Additions for current year tax positions
—

Settlements
—

Ending balance at December 31, 2015
$
31,986



The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is approximately $2.6 million.

We recognized interest expense of $1.8 million, $1.6 million and $1.6 million for the years ended December 31, 2015, 2014 and 2013, respectively.

We had approximately $13.3 million and $11.5 million of accrued interest (before tax effect) associated with income taxes at December 31, 2015 and 2014, respectively.

We file income tax returns with the IRS and various state jurisdictions. We received a 30-day Letter along with a Revenue Agent’s Report from the IRS in regards to the audit of the 2007 to 2009 tax years. A protest was timely filed with IRS in August 2014 related to the like-kind exchange transaction described below and research and development credits and deductions claimed with respect to certain costs and projects. We are also currently under examination by the IRS for the 2010 to 2012 tax years.

We have deferred a substantial amount of tax payments through various tax planning strategies including the deferral of approximately $125 million in income taxes attributable to the like-kind exchange effectuated in connection with the IPP Transaction and Aquila Transaction that occurred in 2008. The IRS has challenged our position with respect to the like-kind exchange; however in February 2016, we reached an agreement in principle with IRS Appeals and expect a reduction of approximately $21 million with respect to our liability for unrecognized tax benefits on or before December 31, 2016.

Excess foreign tax credits have been generated and are available to offset United States federal income taxes. At December 31, 2015, we had foreign tax credit carryforwards of approximately $0.5 million, which expire between 2015 and 2017.

As of December 31, 2015, we had a $0.5 million valuation allowance against the foreign tax credit carryforwards. In addition, the carryforward balance reflects the expected utilization of approximately $1.8 million of foreign tax credits to be included as computational adjustments upon finalization of our current IRS examination covering tax years 2007 to 2009. Such foreign tax credits have been reflected as an offset to liabilities for unrecognized tax benefits in recognition of the estimated impact the resolution of material uncertain tax positions could have with respect to utilization.

State tax credits have been generated and are available to offset future state income taxes. At December 31, 2015, we had the following state tax credit carryforwards (in thousands):
State Tax Credit Carryforwards
Expiration Year
Investment tax credit
$
14,793

2023
to
2025
Research and development
$
155

No expiration


As of December 31, 2015, we had a $3.0 million valuation allowance against the state tax credit carryforwards. The re-evaluation of our ability to utilize such credits resulted in a decrease of the valuation allowance of approximately $0.5 million of which approximately $0.3 million resulted in a decrease to tax expense. The remaining $0.2 million decrease is attributable to our regulated business and is being accounted for under the deferral method whereby the credits are amortized to tax expense over the estimated useful life of the underlying asset that generated the credit. The valuation allowance adjustment was primarily attributable to the impact of greater projected apportionment factors resulting in increased state taxable income in years beyond 2015. Ultimate usage of these credits depends upon our future tax filings. If the valuation allowance is adjusted due to higher or lower than anticipated utilization of the state tax credit carryforwards, the offsetting amount will affect tax expense.