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, Arizona and New Mexico jurisdictions for years prior to 2009. The Company is currently under audit in Texas for tax years 2007 through 2011. The Company reached a settlement with the Arizona Department of Revenue ("ADOR") in March 2014 in their audit of income tax returns for the years 1998 through 2007 which did not have a material effect on income tax expense. Additionally, the Company reached a settlement with the ADOR in September 2014 in their audit of income tax returns for 2008 which did not have a material effect on income tax expense.

For the three months ended September 30, 2014 and 2013, the Company’s effective tax rate was 30.2% and 34.9%, respectively. For the nine months ended September 30, 2014 and 2013, the Company's effective tax rate was 30.9% and 34.6%, respectively. For the twelve months ended September 30, 2014 and 2013, the Company's effective tax rate was 29.1% and 34.2%, respectively. The Company's effective tax rate for all time periods presented differs from the federal statutory tax rate of 35.0% primarily due to the allowance for equity funds used during construction, a domestic production activities deduction earned in 2014 and state income taxes. The Company's effective tax rate for the nine months ended September 30, 2014 also differs from the federal statutory tax rate of 35.0% due to capital gains in the qualified decommissioning trusts realized in the first quarter of 2014, which are taxed at a federal rate of 20.0%.

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, 2014, a $2.8 million decrease was made to the reserve related to units of property for capitalized assets. In September 2014, the Company received an Issue Resolution Agreement ("IRA") from the Internal Revenue Service ("IRS") regarding the generation repairs deduction for all years. In the IRA, the IRS declared that the method used by the Company to calculate the generation repair deduction was substantially the same as the method outlined in the Revenue Procedure and declared that therefore no adjustment to the deduction taken in previous tax returns by the Company was required. A reconciliation of the September 30, 2014 and 2013 amount of unrecognized tax benefit is as follows (in thousands):



	2014			2013
Balance at January 1	$	7,200		$	9,800
Additions for tax positions of prior years	300			800
Reductions for tax positions of prior years	(2,800		)	(4,100		)
Balance at September 30	$	4,700		$	6,500