Income Taxes

The Company files income tax returns in the United States ("U.S.") federal jurisdiction and in the states of Texas, New Mexico and Arizona. The Company is no longer subject to tax examination by the taxing authorities in the federal jurisdiction for years prior to 2009 and in New Mexico for years prior to 2009. The Company is currently under audit in Texas for tax years 2007 through 2011. A deficiency notice relating to the Company’s 1998 through 2003 and 2006 and 2007 income tax returns in Arizona challenges a pollution control credit, a research and development credit and the payroll, sales and property apportionment factors. The Company is contesting these adjustments.

For the three months ended September 30, 2013 and 2012, the Company’s consolidated effective tax rate was 34.9% and 35.2%, respectively. For the nine months ended September 30, 2013 and 2012, the Company's consolidated effective tax rate was 34.6% and 34.5%, respectively. For the twelve months ended September 30, 2013 and 2012, the Company's consolidated effective tax rate was 34.2% and 33.8%, respectively. The Company's consolidated effective tax rate for the three, nine and twelve months ended September 30, 2013 and 2012 differs from the federal statutory tax rate of 35.0% primarily due to the allowance for equity funds used during construction and state income taxes.

FASB guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In the three months ended September 30, 2013, a $4.1 million decrease was made to the reserve related to units of property for capitalized assets. The decrease is primarily the result of progress on portions of IRS audits for tax years 2009 to 2012. Further changes to the unrecognized tax position may be recognized as the IRS releases additional guidance as it pertains to the repair allowance for generation assets. A reconciliation of the September 30, 2013 and 2012 amount of unrecognized tax benefits is as follows (in thousands):



	2013			2012
Balance at January 1	$	9,800		$	9,500
Additions based on tax positions related to the current year	—			400
Additions for tax positions of prior years	800			—
Reductions for tax positions of prior years	(4,100		)	(1,800		)
Balance at September 30	$	6,500		$	8,100