INCOME TAXES

Income tax expense (benefit) from continuing operations for the years ended December 31 was (in thousands):



	2012			2011			2010
Current	$	(10,319	)	$	14,921		$	(14,885	)
Deferred	24,628			(2,931		)	25,626
Total income tax expense	$	14,309		$	11,990		$	10,741

The temporary differences which gave rise to the net deferred tax liability, for the years ended December 31 were as follows (in thousands):



	2012			2011
Deferred tax assets:
Employee benefits	$	5,094		$	5,008
Net operating loss	10,441			28,072
Regulatory liabilities	13,433			14,644
Other	2,381			3,049
Valuation allowance	—			—
Total deferred tax assets	31,349			50,773

Deferred tax liabilities:
Accelerated depreciation and other plant related differences	(154,989		)	(148,254		)
AFUDC	(5,499		)	(5,559		)
Regulatory assets	(5,767		)	(5,019		)
Employee benefits	(3,610		)	(2,356		)
Other	(3,771		)	(3,753		)
Total deferred tax liabilities	(173,636		)	(164,941		)

Net deferred tax assets (liabilities)	$	(142,287	)	$	(114,168	)

The effective tax rate differs from the federal statutory rate for the years ended December 31, as follows:



	2012		2011		2010
Federal statutory rate	35.0	%	35.0	%	35.0	%
Amortization of excess deferred and investment tax credits	(0.3	)	(0.4	)	(0.6	)
Equity AFUDC	(0.1	)	(0.6	)	(2.0	)
Flow through adjustments *	(3.5	)	(3.4	)	(7.4	)
Prior year deferred adjustment	3.6		—		—
Other	(0.1	)	0.1		0.6
	34.6	%	30.7	%	25.6	%

_________________________

The flow-through adjustments relate primarily to an accounting method change for tax purposes that was filed with the 2008 tax return and for which consent was received from the IRS in September 2009. The effect of the change allows us to take a current tax deduction for repair costs that were previously capitalized for tax purposes. These costs will 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 we flowed the tax benefit through to our customers in the form of lower rates as a result of a rate case settlement that occurred during 2010. A regulatory asset was established to reflect the recovery of future increases in taxes payable from customers as the temporary differences reverse. Due to this regulatory treatment, we recorded an income tax benefit in 2010 that was attributable to the 2008 through 2010 tax years. We continue to record a tax benefit consistent with the flow through method in accordance with such regulatory treatment.

The following table reconciles the total amounts of unrecognized tax benefits at the beginning and end of the period (in thousands):



	2012			2011
Unrecognized tax benefits at January 1	$	3,595		$	3,094
Additions for prior year tax positions	—			795
Reductions for prior year tax positions	(1,586		)	(294		)
Additions for current year tax positions	69			—
Unrecognized tax benefits at December 31	$	2,078		$	3,595

The reductions for prior year tax positions relate to the reversal attributable to otherwise allowed tax depreciation. The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is approximately $0.7 million. The unrecognized tax benefit is classified in Other, non-current liabilities on the accompanying Balance Sheets.

During the year ended December 31, 2012 and 2011, the interest expense recognized related to income tax matters was not material to our financial results.

We do not anticipate that total unrecognized tax benefits will significantly change due to the settlement of any audits or the expiration of statutes of limitations prior to December 31, 2013.

At December 31, 2012, we have federal NOL carry forward of $30.5 million, expiring in 2031. Ultimate usage of this NOL depends upon our ability to generate future taxable income, which is expected to occur within the prescribed carryforward period.