Income Taxes

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2015 and 2014 are presented below (in thousands):



	December 31,
	2015			2014
Deferred tax assets:
Benefit of tax loss carryforwards	$	35,153		$	—
Alternative minimum tax credit carryforward	16,620			17,701
Pensions and benefits	61,673			64,407
Asset retirement obligation	28,042			25,725
Deferred fuel	1,488			—
Other	15,421			15,768
Total gross deferred tax assets	158,397			123,601
Deferred tax liabilities:
Plant, principally due to depreciation and basis differences	(608,738		)	(536,264		)
Decommissioning	(41,100		)	(40,373		)
Deferred fuel	—			(3,531		)
Other	(3,796		)	(3,630		)
Total gross deferred tax liabilities	(653,634		)	(583,798		)
Net accumulated deferred income taxes	$	(495,237	)	$	(460,197	)

Based on the average annual book income before taxes for the prior three years, excluding the effects of unusual or infrequent items, the Company believes that the deferred tax assets will be fully realized at current levels of book and taxable income.

The Company recognized income tax expense for 2015, 2014 and 2013 as follows (in thousands):



	Years Ended December 31,
	2015			2014			2013
Income tax expense:
Federal:
Current	$	2,319		$	(1,250	)	$	(2,877	)
Deferred	32,819			38,810			45,024
Total federal income tax	35,138			37,560			42,147
State:
Current	1,730			3,209			1,854
Deferred	(1,650		)	641			(414		)
Total state income tax	80			3,850			1,440
Generation (amortization) of accumulated investment tax credits	(323		)	(322		)	68
Total income tax expense	$	34,895		$	41,088		$	43,655

As of December 31, 2015, the Company had $16.6 million of AMT credit carryforwards that have an unlimited life. As of December 31, 2015, the Company had $34.1 million of federal and $1.1 million of state tax loss carryforwards. If unused, both the federal and state tax loss carryforwards have lives of 20 years and 5 years respectively.

Income tax provisions differ from amounts computed by applying the statutory federal income tax rate of 35% to book income before federal income tax as follows (in thousands):



	Years Ended December 31,
	2015			2014			2013
Federal income tax expense computed on income at statutory rate	$	40,885		$	46,381		$	46,283
Difference due to:
State taxes, net of federal benefit	52			1,902			936
AEFUDC	(2,345		)	(3,757		)	(2,149		)
Permanent tax differences	(2,898		)	(2,921		)	(1,153		)
Other	(799		)	(517		)	(262		)
Total income tax expense	$	34,895		$	41,088		$	43,655
Effective income tax rate	29.9		%	31.0		%	33.0		%

The Company files income tax returns in the United States 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 and New Mexico jurisdictions for years prior to 2011. The Company is currently under audit in Texas for tax years 2007 through 2011 and in Arizona for tax years 2009 through 2012.

On December 18, 2015, the President signed the Protecting Americans from Tax Hikes Act of 2015. This act included the extension of bonus depreciation and certain credits which impacted the Company. The Company recorded the impacts of the law change in December 2015, which did not have a material impact on the financial position of the Company.

The 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 January 2010, the Company filed for a change of accounting method with the Internal Revenue Service ("IRS") related to the way in which units of property are determined for purposes of determining capitalized tax assets. The change was included in the 2009 federal income tax return, with additional amounts included in the 2010 to 2013 federal income tax returns. In 2013, a $4.5 million decrease was made to the reserve related to the change in accounting method. The decrease was primarily the result of the completion of IRS audits for tax years 2009 to 2012. In September 2014, the Company received an Issue Resolution Agreement ("IRA") from 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. As a result of the IRA, in 2014 the Company recorded a $2.8 million decrease to eliminate the balance of the reserve related to the change in accounting method. The Company recorded an unrecognized tax position of $0.8 million, $2.1 million, and $0.5 million in 2015, 2014, and 2013, respectively, related to depreciation and other amounts deducted in current and prior year Texas franchise tax returns. The Company recorded a decrease of $1.3 million (net of an increase of $0.4 million) in 2014 and an increase of $1.3 million (net of a decrease of $0.4 million) in 2013 related to tax credits taken in prior year Arizona income tax returns, which have been settled through audit. A reconciliation of the December 31, 2015, 2014 and 2013 amounts of unrecognized tax benefits are as follows (in thousands):



	2015		2014			2013
Balance at January 1	$	5,200	$	7,200		$	9,800
Additions for tax positions related to the current year	500		300			600
Reductions for tax positions related to the current year	—		—			—
Additions for tax positions of prior years	300		2,200			1,700
Reductions for tax positions of prior years	—		(4,500		)	(4,900		)
Balance at December 31	$	6,000	$	5,200		$	7,200

If recognized, $3.6 million of the unrecognized tax position at December 31, 2015, would affect the effective tax rate. The Company recognized income tax expense for an unrecognized tax position of $0.8 million for the year ended December 31, 2015.

The Company recognizes in tax expense interest and penalties related to tax benefits that have not been recognized. For the years ended December 31, 2015, 2014, and 2013 the Company recognized interest expense of $0.2 million, $0.1 million, and $0.2 million, respectively. The Company had approximately $0.7 million and $0.5 million accrued for the payment of interest and penalties at December 31, 2015 and 2014, respectively.