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Income Taxes
 12 Months Ended
Dec. 31, 2011
Income Taxes Disclosure [Line Items]  
Income Taxes

15.       INCOME TAXES

We provide deferred income taxes for temporary differences between book and tax carrying amounts of assets and liabilities. Investment tax credits related to regulated operations have been deferred and are being amortized over the estimated service life of the related properties. To the extent that the establishment of deferred income taxes is different from the recovery of taxes by the Utilities through the ratemaking process, the differences are deferred pursuant to GAAP for regulated operations. A regulatory asset or liability has been recognized for the impact of tax expenses or benefits that are recovered or refunded in different periods by the Utilities pursuant to rate orders. We accrue for uncertain tax positions when it is determined that it is more likely than not that the benefit will not be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. If the recognition threshold is met, the tax benefit recognized is measured at the largest amount that, in our judgment, is greater than 50 percent likely to be realized.

PROGRESS ENERGY

Accumulated deferred income tax assets (liabilities) at December 31 were:

(in millions)2011 2010
Deferred income tax assets     
 Derivative instruments$309 $204
 Income taxes refundable through future rates 375  271
 Pension and other postretirement benefits 591  447
 Other 522  501
 Tax credit carry forwards 872  839
 Net operating loss carry forwards 291  105
 Valuation allowance (71)  (60)
  Total deferred income tax assets 2,889  2,307
Deferred income tax liabilities     
 Accumulated depreciation and property cost differences (3,098)  (2,439)
 Income taxes recoverable through future rates (1,271)  (875)
 Other (303)  (386)
  Total deferred income tax liabilities (4,672)  (3,700)
  Total net deferred income tax liabilities$(1,783) $(1,393)
        

The above amounts were classified on the Consolidated Balance Sheets as follows:

(in millions)2011 2010
Current deferred income tax assets, included in deferred tax assets$371 $156
Noncurrent deferred income tax assets, included in other assets and deferred debits 27  34
Noncurrent deferred income tax liabilities, included in noncurrent income tax liabilities (2,181)  (1,583)
 Total net deferred income tax liabilities$(1,783) $(1,393)
       

At December 31, 2011, we had the following tax credit and net operating loss carry forwards:

 

  • $868 million of federal alternative minimum tax credits that do not expire.
  • $4 million of federal general business credits that will expire during the period 2028 through 2031.
  • $623 million of gross federal net operating loss carry forwards that will expire during 2031. $14 million of the gross federal net operating loss carry forward is related to excess tax deductions resulting from stock-based compensation plans. The tax benefit from the utilization of this portion of the federal net operating loss carry forward will be recorded as a credit to common stock when realized.
  • $1.9 billion of gross state net operating loss carry forwards that will expire during the period 2012 through 2031.

Valuation allowances have been established due to the uncertainty of realizing certain future state tax benefits. We had a net increase of $11 million in our deferred income tax assets and valuation allowances during 2011 related to prior year state net operating loss carry forwards at Progress Fuels Corporation.

We believe it is more likely than not that the results of future operations will generate sufficient taxable income to allow for the utilization of the remaining deferred tax assets.

Certain substantial changes in ownership of Progress Energy, including the proposed merger between Progress Energy and Duke Energy (See Note 2), can impact the timing of the utilization of tax credit carry forwards and net operating loss carry forwards.

Reconciliations of our effective income tax rate to the statutory federal income tax rate for the years ended December 31 follow:

 2011  2010  2009 
Effective income tax rate 35.6% 38.3% 32.1%
State income taxes, net of federal benefit (4.3)  (4.3)  (3.7) 
Investment tax credit amortization 0.8  0.5  0.8 
Employee stock ownership plan dividends 1.4  0.9  1.0 
Domestic manufacturing deduction 0.0  0.0  0.8 
AFUDC equity 2.6  1.4  2.2 
Other differences, net (1.1)  (1.8)  1.8 
 Statutory federal income tax rate 35.0% 35.0% 35.0%
           

Income tax expense applicable to continuing operations for the years ended December 31 was comprised of:

           
(in millions)2011 2010 2009
Current        
 Federal$(91) $(46) $227
 State 29  (13)  41
  Total current income tax expense (benefit) (62)  (59)  268
Deferred        
 Federal 578  542  114
 State 27  100  25
  Total deferred income tax expense 605  642  139
 Investment tax credit (7)  (7)  (10)
 Net operating loss carry forward (213)  (37)  0
  Total income tax expense$323 $539 $397
           

Total income tax expense applicable to continuing operations excluded the following:

  • Taxes related to discontinued operations recorded net of tax for 2011, 2010 and 2009, which are presented separately in Note 4A.
  • Taxes related to other comprehensive income recorded net of tax for 2011, 2010 and 2009, which are presented separately on the Consolidated Statements of Comprehensive Income.
  • An immaterial amount of current tax benefit, which was recorded in common stock during 2010, related to excess tax deductions resulting from vesting of restricted stock awards, vesting of RSUs, vesting of stock-settled PSSP awards and exercises of nonqualified stock options pursuant to the terms of our EIP. No net current tax benefit was recorded in common stock during 2011 and 2009.

At December 31, 2011, 2010 and 2009, our liability for unrecognized tax benefits was $173 million, $176 million and $160 million, respectively. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate for income from continuing operations was $6 million, $8 million and $9 million at December 31, 2011, 2010 and 2009, respectively. The following table presents the changes to unrecognized tax benefits during the years ended December 31:

         
(in millions)2011 2010 2009
Unrecognized tax benefits at beginning of period$176 $160 $104
Gross amounts of increases as a result of tax positions taken in a prior period 88  10  11
Gross amounts of decreases as a result of tax positions taken in a prior period (24)  (4)  (3)
Gross amounts of increases as a result of tax positions taken in the current period 9  14  52
Gross amounts of decreases as a result of tax positions taken in the current period (8)  (4)  (4)
Amounts of net decreases relating to settlements with taxing authorities (68)  0  0
Unrecognized tax benefits at end of period$173 $176 $160
         

We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. Our federal tax years are open for examination from 2007 forward, and our open state tax years in our major jurisdictions generally are from 2003 forward. In 2011, the IRS completed its examination of the 2004 and 2005 tax years. It is reasonably possible that unrecognized tax benefits will decrease by approximately $25 million during the 12-month period ending December 31, 2012, due to IRS review of open tax years. Any potential decrease will not have a material impact on our results of operations.

We include interest expense related to unrecognized tax benefits in net interest charges and we include penalties in other, net on the Consolidated Statements of Income. During 2011, 2010 and 2009, the net interest (benefit) expense related to unrecognized tax benefits was $(24) million, $9 million and $9 million, respectively, of which a respective $(22) million, $5 million and $5 million (benefit) expense component was deferred as a regulatory asset by PEF, which is amortized as a charge to interest expense over a three-year period or less. During 2011, PEF charged the unamortized balance of the regulatory asset to interest expense. During 2011, 2010 and 2009, there were no penalties related to unrecognized tax benefits. At December 31, 2011, 2010 and 2009, we accrued $21 million, $45 million and $36 million, respectively, for interest and penalties, which were included in interest accrued and other liabilities and deferred credits on the Consolidated Balance Sheets.

PEC

Accumulated deferred income tax assets (liabilities) at December 31 were:

        
(in millions)2011 2010
Deferred income tax assets     
 ARO liability$101 $103
 Derivative instruments 96  49
 Income taxes refundable through future rates 142  142
 Pension and other postretirement benefits 244  180
 Other 168  158
 Tax credit carry forwards 3  0
 Net operating loss carry forwards 54  0
  Total deferred income tax assets 808  632
Deferred income tax liabilities     
 Accumulated depreciation and property cost differences (1,908)  (1,552)
 Income taxes recoverable through future rates (541)  (421)
 Investments (103)  (104)
 Other (17)  (35)
  Total deferred income tax liabilities (2,569)  (2,112)
  Total net deferred income tax liabilities$(1,761) $(1,480)
        

The above amounts were classified on the Consolidated Balance Sheets as follows:

       
(in millions)2011 2010
Current deferred income tax assets, included in deferred tax assets$142 $65
Noncurrent deferred income tax liabilities, included in noncurrent income tax liabilities (1,903)  (1,545)
 Total net deferred income tax liabilities$(1,761) $(1,480)
       

At December 31, 2011, PEC had the following tax credit and net operating loss carry forwards:

  • $3 million of federal general business credits that will expire during the period 2028 through 2031.
  • $161 million of gross federal net operating loss carry forwards that will expire during 2031. $6 million of the gross federal net operating loss carry forward is related to excess tax deductions resulting from stock-based compensation plans. The tax benefit from the utilization of this portion of the federal net operating loss carry forward will be recorded as a credit to common stock when realized.
  • $1 million of gross state net operating loss carry forwards that will expire during the period 2012 through 2030.

Reconciliations of PEC's effective income tax rate to the statutory federal income tax rate for the years ended December 31 follow:

 2011  2010  2009 
Effective income tax rate 33.2% 36.8% 35.0%
State income taxes, net of federal benefit (2.3)  (3.2)  (2.8) 
Investment tax credit amortization 0.7  0.6  0.7 
Domestic manufacturing deduction 0.0  0.4  0.9 
AFUDC equity 2.2  1.5  0.6 
Other differences, net 1.2  (1.1)  0.6 
 Statutory federal income tax rate 35.0% 35.0% 35.0%
           

Income tax expense for the years ended December 31 was comprised of:

           
(in millions)2011 2010 2009
Current        
 Federal$(27) $73 $192
 State 21  (8)  21
  Total current income tax expense (benefit) (6)  65  213
Deferred        
 Federal 316  238  57
 State 6  53  13
  Total deferred income tax expense 322  291  70
 Investment tax credit (6)  (6)  (6)
 Net operating loss carry forward (54)  0  0
  Total income tax expense$256 $350 $277

Total income tax expense excluded taxes related to other comprehensive income recorded net of tax for 2011, 2010 and 2009, which are presented separately on the Consolidated Statements of Comprehensive Income.

PEC and each of its wholly owned subsidiaries have entered into the Tax Agreement with the Parent (See Note 1D). PEC's intercompany tax receivable was approximately $4 million and $78 million at December 31, 2011 and 2010, respectively.

At December 31, 2011, 2010 and 2009, PEC's liability for unrecognized tax benefits was $73 million, $74 million and $59 million, respectively. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate for income from continuing operations was $1 million, $4 million and $5 million at December 31, 2011, 2010 and 2009, respectively. The following table presents the changes to unrecognized tax benefits during the years ended December 31:

         
(in millions)2011 2010 2009
Unrecognized tax benefits at beginning of period$74 $59 $38
Gross amounts of increases as a result of tax positions taken in a prior period 19  8  6
Gross amounts of decreases as a result of tax positions taken in a prior period (14)  (2)  (2)
Gross amounts of increases as a result of tax positions taken in the current period 8  10  17
Gross amounts of decreases as a result of tax positions taken in the current period (4)  (1)  0
Amounts of net decreases relating to settlements with taxing authorities (10)  0  0
Unrecognized tax benefits at end of period$73 $74 $59
         

We file consolidated federal and state income tax returns that include PEC. In addition, PEC files stand-alone tax returns in various state jurisdictions. PEC's open federal tax years are from 2007 forward, and PEC's open state tax years in our major jurisdictions generally are from 2003 forward. In 2011, the IRS completed its examination of the 2004 and 2005 tax years. PEC is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease during the 12-month period ending December 31, 2012.

 

PEC includes interest expense related to unrecognized tax benefits in net interest charges and we include penalties in other, net on the Consolidated Statements of Income. During 2011, 2010 and 2009, the interest (benefit) expense recorded related to unrecognized tax benefits was $(6) million, $4 million and $3 million, respectively. During 2011, 2010 and 2009, there were no penalties related to unrecognized tax benefits. At December 31, 2011, 2010 and 2009, we accrued $8 million, $14 million and $10 million, respectively, for interest and penalties, which were included in interest accrued and other liabilities and deferred credits on the Consolidated Balance Sheets.

PEF

Accumulated deferred income tax assets (liabilities) at December 31 were:

(in millions)2011 2010
Deferred income tax assets     
 Derivative instruments$198 $145
 Income taxes refundable through future rates 198  93
 Pension and other postretirement benefits 224  170
 Reserve for storm damage 52  52
 Unbilled revenue 39  61
 Other 101  82
 Tax credit carry forwards 1  3
 Net operating loss carry forwards 41  9
  Total deferred income tax assets 854  615
Deferred income tax liabilities     
 Accumulated depreciation and property cost differences (1,180)  (874)
 Deferred fuel recovery (40)  (65)
 Deferred nuclear cost recovery (68)  (94)
 Income taxes recoverable through future rates (685)  (454)
 Investments (56)  (60)
 Other (12)  (18)
  Total deferred income tax liabilities (2,041)  (1,565)
  Total net deferred income tax liabilities$(1,187) $(950)
        

The above amounts were classified on the Balance Sheets as follows:

       
(in millions)2011 2010
Current deferred income tax assets, included in deferred tax assets$138 $77
Noncurrent deferred income tax liabilities, included in noncurrent income tax liabilities (1,325)  (1,027)
 Total net deferred income tax liabilities$(1,187) $(950)
       

At December 31, 2011, PEF had the following tax credit and net operating loss carry forwards:

  • $1 million of federal general business credits that will expire during the period 2029 through 2031.

  • $120 million of gross federal net operating loss carry forwards that will expire during 2031. $3 million of the gross federal net operating loss carry forward is related to excess tax deductions resulting from stock-based compensation plans. The tax benefit from the utilization of this portion of the federal net operating loss carry forward will be recorded as a credit to common stock when realized.

Reconciliations of PEF's effective income tax rate to the statutory federal income tax rate for the years ended December 31 follow:

           
 2011  2010  2009 
Effective income tax rate 36.3% 37.9% 31.1%
State income taxes, net of federal benefit (3.5)  (3.2)  (3.0) 
Investment tax credit amortization 0.3  0.2  0.7 
Domestic manufacturing deduction 0.0  0.0  0.8 
AFUDC equity 1.4  0.8  3.4 
Other differences, net 0.5  (0.7)  2.0 
 Statutory federal income tax rate 35.0% 35.0% 35.0%
           

Income tax expense for the years ended December 31 was comprised of:

           
(in millions)2011 2010 2009
Current        
 Federal$(60) $(44) $125
 State 5  (4)  20
  Total current income tax expense (benefit) (55)  (48)  145
Deferred        
 Federal 255  293  57
 State 22  41  11
  Total deferred income tax expense 277  334  68
 Investment tax credit (1)  (1)  (4)
 Net operating loss carry forward (41)  (9)  0
  Total income tax expense$180 $276 $209
           

Total income tax expense excluded the following:

  • Taxes related to other comprehensive income recorded net of tax for 2011, 2010 and 2009, which are presented separately on the Statements of Comprehensive Income.
  • An immaterial amount of current tax benefit, which was recorded in common stock during 2010, related to excess tax deductions resulting from vesting of restricted stock awards, vesting of RSUs, vesting of stock-settled PSSP awards and exercises of nonqualified stock options pursuant to the terms of our EIP. No net current tax benefit was recorded in common stock during 2011 and 2009.

 

PEF has entered into the Tax Agreement with the Parent (See Note 1D). PEF's intercompany tax receivable was approximately $23 million and $71 million at December 31, 2011 and 2010, respectively.

At December 31, 2011, 2010 and 2009, PEF's liability for unrecognized tax benefits was $80 million, $99 million and $98 million, respectively. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate for income from continuing operations was $1 million, $2 million and $3 million at December 31, 2011, 2010 and 2009, respectively. The following table presents the changes to unrecognized tax benefits during the years ended December 31:

         
(in millions)2011 2010 2009
Unrecognized tax benefits at beginning of period$99 $98 $62
Gross amounts of increases as a result of tax positions taken in a prior period 66  2  5
Gross amounts of decreases as a result of tax positions taken in a prior period (21)  (1)  (1)
Gross amounts of increases as a result of tax positions taken in the current period 1  3  35
Gross amounts of decreases as a result of tax positions taken in the current period (4)  (3)  (3)
Amounts of net decreases relating to settlements with taxing authorities (61)  0  0
Unrecognized tax benefits at end of period$80 $99 $98
         

We file consolidated federal and state income tax returns that include PEF. PEF's open federal tax years are from 2007 forward, and PEF's open state tax years generally are from 2003 forward. In 2011, the IRS completed its examination of the 2004 and 2005 tax years. It is reasonably possible that unrecognized tax benefits will decrease by approximately $20 million during the 12-month period ending December 31, 2012, due to IRS review of open tax years. Any potential decrease will not have a material impact on our results of operations.

 

Pursuant to a regulatory order, PEF records interest expense related to unrecognized tax benefits as a regulatory asset, which is amortized over a three-year period or less, with the amortization included in net interest charges on the Statements of Income. Penalties are included in other, net on the Statements of Income. During 2011, 2010 and 2009, interest (benefit) expense recorded as a regulatory asset was $(22) million, $5 million and $5 million, respectively, and there were no penalties recorded related to unrecognized tax benefits. During 2011, PEF charged the unamortized balance of the regulatory asset to interest expense. At December 31, 2011, 2010 and 2009, PEF accrued $7 million, $29 million and $24 million, respectively, for interest and penalties, which were included in prepayments and other current assets and other liabilities and deferred credits on the Balance Sheets.
PEC
  
Income Taxes Disclosure [Line Items]  
Income Taxes

15.       INCOME TAXES

We provide deferred income taxes for temporary differences between book and tax carrying amounts of assets and liabilities. Investment tax credits related to regulated operations have been deferred and are being amortized over the estimated service life of the related properties. To the extent that the establishment of deferred income taxes is different from the recovery of taxes by the Utilities through the ratemaking process, the differences are deferred pursuant to GAAP for regulated operations. A regulatory asset or liability has been recognized for the impact of tax expenses or benefits that are recovered or refunded in different periods by the Utilities pursuant to rate orders. We accrue for uncertain tax positions when it is determined that it is more likely than not that the benefit will not be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. If the recognition threshold is met, the tax benefit recognized is measured at the largest amount that, in our judgment, is greater than 50 percent likely to be realized.

PEC

Accumulated deferred income tax assets (liabilities) at December 31 were:

        
(in millions)2011 2010
Deferred income tax assets     
 ARO liability$101 $103
 Derivative instruments 96  49
 Income taxes refundable through future rates 142  142
 Pension and other postretirement benefits 244  180
 Other 168  158
 Tax credit carry forwards 3  0
 Net operating loss carry forwards 54  0
  Total deferred income tax assets 808  632
Deferred income tax liabilities     
 Accumulated depreciation and property cost differences (1,908)  (1,552)
 Income taxes recoverable through future rates (541)  (421)
 Investments (103)  (104)
 Other (17)  (35)
  Total deferred income tax liabilities (2,569)  (2,112)
  Total net deferred income tax liabilities$(1,761) $(1,480)
        

The above amounts were classified on the Consolidated Balance Sheets as follows:

       
(in millions)2011 2010
Current deferred income tax assets, included in deferred tax assets$142 $65
Noncurrent deferred income tax liabilities, included in noncurrent income tax liabilities (1,903)  (1,545)
 Total net deferred income tax liabilities$(1,761) $(1,480)
       

At December 31, 2011, PEC had the following tax credit and net operating loss carry forwards:

  • $3 million of federal general business credits that will expire during the period 2028 through 2031.
  • $161 million of gross federal net operating loss carry forwards that will expire during 2031. $6 million of the gross federal net operating loss carry forward is related to excess tax deductions resulting from stock-based compensation plans. The tax benefit from the utilization of this portion of the federal net operating loss carry forward will be recorded as a credit to common stock when realized.
  • $1 million of gross state net operating loss carry forwards that will expire during the period 2012 through 2030.

Reconciliations of PEC's effective income tax rate to the statutory federal income tax rate for the years ended December 31 follow:

 2011  2010  2009 
Effective income tax rate 33.2% 36.8% 35.0%
State income taxes, net of federal benefit (2.3)  (3.2)  (2.8) 
Investment tax credit amortization 0.7  0.6  0.7 
Domestic manufacturing deduction 0.0  0.4  0.9 
AFUDC equity 2.2  1.5  0.6 
Other differences, net 1.2  (1.1)  0.6 
 Statutory federal income tax rate 35.0% 35.0% 35.0%
           

Income tax expense for the years ended December 31 was comprised of:

           
(in millions)2011 2010 2009
Current        
 Federal$(27) $73 $192
 State 21  (8)  21
  Total current income tax expense (benefit) (6)  65  213
Deferred        
 Federal 316  238  57
 State 6  53  13
  Total deferred income tax expense 322  291  70
 Investment tax credit (6)  (6)  (6)
 Net operating loss carry forward (54)  0  0
  Total income tax expense$256 $350 $277

Total income tax expense excluded taxes related to other comprehensive income recorded net of tax for 2011, 2010 and 2009, which are presented separately on the Consolidated Statements of Comprehensive Income.

PEC and each of its wholly owned subsidiaries have entered into the Tax Agreement with the Parent (See Note 1D). PEC's intercompany tax receivable was approximately $4 million and $78 million at December 31, 2011 and 2010, respectively.

At December 31, 2011, 2010 and 2009, PEC's liability for unrecognized tax benefits was $73 million, $74 million and $59 million, respectively. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate for income from continuing operations was $1 million, $4 million and $5 million at December 31, 2011, 2010 and 2009, respectively. The following table presents the changes to unrecognized tax benefits during the years ended December 31:

         
(in millions)2011 2010 2009
Unrecognized tax benefits at beginning of period$74 $59 $38
Gross amounts of increases as a result of tax positions taken in a prior period 19  8  6
Gross amounts of decreases as a result of tax positions taken in a prior period (14)  (2)  (2)
Gross amounts of increases as a result of tax positions taken in the current period 8  10  17
Gross amounts of decreases as a result of tax positions taken in the current period (4)  (1)  0
Amounts of net decreases relating to settlements with taxing authorities (10)  0  0
Unrecognized tax benefits at end of period$73 $74 $59
         

We file consolidated federal and state income tax returns that include PEC. In addition, PEC files stand-alone tax returns in various state jurisdictions. PEC's open federal tax years are from 2007 forward, and PEC's open state tax years in our major jurisdictions generally are from 2003 forward. In 2011, the IRS completed its examination of the 2004 and 2005 tax years. PEC is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease during the 12-month period ending December 31, 2012.

 

PEC includes interest expense related to unrecognized tax benefits in net interest charges and we include penalties in other, net on the Consolidated Statements of Income. During 2011, 2010 and 2009, the interest (benefit) expense recorded related to unrecognized tax benefits was $(6) million, $4 million and $3 million, respectively. During 2011, 2010 and 2009, there were no penalties related to unrecognized tax benefits. At December 31, 2011, 2010 and 2009, we accrued $8 million, $14 million and $10 million, respectively, for interest and penalties, which were included in interest accrued and other liabilities and deferred credits on the Consolidated Balance Sheets.
PEF
  
Income Taxes Disclosure [Line Items]  
Income Taxes

15.       INCOME TAXES

We provide deferred income taxes for temporary differences between book and tax carrying amounts of assets and liabilities. Investment tax credits related to regulated operations have been deferred and are being amortized over the estimated service life of the related properties. To the extent that the establishment of deferred income taxes is different from the recovery of taxes by the Utilities through the ratemaking process, the differences are deferred pursuant to GAAP for regulated operations. A regulatory asset or liability has been recognized for the impact of tax expenses or benefits that are recovered or refunded in different periods by the Utilities pursuant to rate orders. We accrue for uncertain tax positions when it is determined that it is more likely than not that the benefit will not be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. If the recognition threshold is met, the tax benefit recognized is measured at the largest amount that, in our judgment, is greater than 50 percent likely to be realized.

PEF

Accumulated deferred income tax assets (liabilities) at December 31 were:

(in millions)2011 2010
Deferred income tax assets     
 Derivative instruments$198 $145
 Income taxes refundable through future rates 198  93
 Pension and other postretirement benefits 224  170
 Reserve for storm damage 52  52
 Unbilled revenue 39  61
 Other 101  82
 Tax credit carry forwards 1  3
 Net operating loss carry forwards 41  9
  Total deferred income tax assets 854  615
Deferred income tax liabilities     
 Accumulated depreciation and property cost differences (1,180)  (874)
 Deferred fuel recovery (40)  (65)
 Deferred nuclear cost recovery (68)  (94)
 Income taxes recoverable through future rates (685)  (454)
 Investments (56)  (60)
 Other (12)  (18)
  Total deferred income tax liabilities (2,041)  (1,565)
  Total net deferred income tax liabilities$(1,187) $(950)
        

The above amounts were classified on the Balance Sheets as follows:

       
(in millions)2011 2010
Current deferred income tax assets, included in deferred tax assets$138 $77
Noncurrent deferred income tax liabilities, included in noncurrent income tax liabilities (1,325)  (1,027)
 Total net deferred income tax liabilities$(1,187) $(950)
       

At December 31, 2011, PEF had the following tax credit and net operating loss carry forwards:

  • $1 million of federal general business credits that will expire during the period 2029 through 2031.

  • $120 million of gross federal net operating loss carry forwards that will expire during 2031. $3 million of the gross federal net operating loss carry forward is related to excess tax deductions resulting from stock-based compensation plans. The tax benefit from the utilization of this portion of the federal net operating loss carry forward will be recorded as a credit to common stock when realized.

Reconciliations of PEF's effective income tax rate to the statutory federal income tax rate for the years ended December 31 follow:

           
 2011  2010  2009 
Effective income tax rate 36.3% 37.9% 31.1%
State income taxes, net of federal benefit (3.5)  (3.2)  (3.0) 
Investment tax credit amortization 0.3  0.2  0.7 
Domestic manufacturing deduction 0.0  0.0  0.8 
AFUDC equity 1.4  0.8  3.4 
Other differences, net 0.5  (0.7)  2.0 
 Statutory federal income tax rate 35.0% 35.0% 35.0%
           

Income tax expense for the years ended December 31 was comprised of:

           
(in millions)2011 2010 2009
Current        
 Federal$(60) $(44) $125
 State 5  (4)  20
  Total current income tax expense (benefit) (55)  (48)  145
Deferred        
 Federal 255  293  57
 State 22  41  11
  Total deferred income tax expense 277  334  68
 Investment tax credit (1)  (1)  (4)
 Net operating loss carry forward (41)  (9)  0
  Total income tax expense$180 $276 $209
           

Total income tax expense excluded the following:

  • Taxes related to other comprehensive income recorded net of tax for 2011, 2010 and 2009, which are presented separately on the Statements of Comprehensive Income.
  • An immaterial amount of current tax benefit, which was recorded in common stock during 2010, related to excess tax deductions resulting from vesting of restricted stock awards, vesting of RSUs, vesting of stock-settled PSSP awards and exercises of nonqualified stock options pursuant to the terms of our EIP. No net current tax benefit was recorded in common stock during 2011 and 2009.

 

PEF has entered into the Tax Agreement with the Parent (See Note 1D). PEF's intercompany tax receivable was approximately $23 million and $71 million at December 31, 2011 and 2010, respectively.

At December 31, 2011, 2010 and 2009, PEF's liability for unrecognized tax benefits was $80 million, $99 million and $98 million, respectively. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate for income from continuing operations was $1 million, $2 million and $3 million at December 31, 2011, 2010 and 2009, respectively. The following table presents the changes to unrecognized tax benefits during the years ended December 31:

         
(in millions)2011 2010 2009
Unrecognized tax benefits at beginning of period$99 $98 $62
Gross amounts of increases as a result of tax positions taken in a prior period 66  2  5
Gross amounts of decreases as a result of tax positions taken in a prior period (21)  (1)  (1)
Gross amounts of increases as a result of tax positions taken in the current period 1  3  35
Gross amounts of decreases as a result of tax positions taken in the current period (4)  (3)  (3)
Amounts of net decreases relating to settlements with taxing authorities (61)  0  0
Unrecognized tax benefits at end of period$80 $99 $98
         

We file consolidated federal and state income tax returns that include PEF. PEF's open federal tax years are from 2007 forward, and PEF's open state tax years generally are from 2003 forward. In 2011, the IRS completed its examination of the 2004 and 2005 tax years. It is reasonably possible that unrecognized tax benefits will decrease by approximately $20 million during the 12-month period ending December 31, 2012, due to IRS review of open tax years. Any potential decrease will not have a material impact on our results of operations.

 

Pursuant to a regulatory order, PEF records interest expense related to unrecognized tax benefits as a regulatory asset, which is amortized over a three-year period or less, with the amortization included in net interest charges on the Statements of Income. Penalties are included in other, net on the Statements of Income. During 2011, 2010 and 2009, interest (benefit) expense recorded as a regulatory asset was $(22) million, $5 million and $5 million, respectively, and there were no penalties recorded related to unrecognized tax benefits. During 2011, PEF charged the unamortized balance of the regulatory asset to interest expense. At December 31, 2011, 2010 and 2009, PEF accrued $7 million, $29 million and $24 million, respectively, for interest and penalties, which were included in prepayments and other current assets and other liabilities and deferred credits on the Balance Sheets.