Note 12— Income Taxes

The following table shows our provision for income taxes (in millions) and our consolidated effective federal and state income tax rates for the applicable periods ended March 31,:

	Three Months Ended						Twelve Months Ended
	2016			2015			2016			2015
Consolidated provision for income taxes	$	8.6		$	8.8		$	33.7		$	35.9
Consolidated effective federal and state income tax rates	38.1		%	37.5		%	37.6		%	37.1		%

The effective income tax rate for the three and twelve month periods ended March 31, 2016 is higher than comparable periods in 2015 primarily due to lower equity AFUDC income in 2016 compared to 2015.

We do not have any unrecognized tax benefits as of March 31, 2016. We did not recognize any significant interest or penalties in any of the periods presented. We do not expect any significant changes to our unrecognized tax benefits over the next twelve months.

The “Protecting Americans from Tax Hikes” Act (the “Act”) was signed into law on December 18, 2015. The Act restored several expired business tax provisions, including bonus depreciation for 2015. Because of the reinstatement of bonus depreciation, we anticipate making no material income tax payments in 2016.

We generated $74.1 million of tax NOLs during 2014, mainly due to bonus depreciation. We intend to carry forward these tax NOLs, which, if unused, will expire in 2034. We estimate that we will utilize approximately $38.0 million of the 2014 tax NOLs on our 2015 return when filed. As of March 31, 2016, we estimate there is $13.5 million of deferred tax assets remaining to be utilized related to the tax NOLs.

In 2010, we received $17.7 million of investment tax credits based on our investment in Iatan 2, which, if unused, will expire in 2030. We utilized $9.0 million of these credits on our 2013 tax return. Due to the passage of the Act, we estimate we will not be able to use the remaining credits on our 2015 tax return, but expect to use them to offset future income tax liabilities. The tax credits will have no significant income statement impact because they will flow to our customers as we amortize the tax credits over the life of the plant.

On September 13, 2013, the IRS and the Treasury Department released final regulations under Sections 162(a) and 263(a) on the deduction and capitalization of expenditures related to tangible property. These regulations applied to tax years beginning on or after January 1, 2014, and we filed a Form 3115 with the IRS to change our tax accounting method to comply with the regulations. As a result, we deducted approximately $29 million on our 2014 income tax return under IRS Code Section 481(a) as an adjustment required by the change in tax accounting method.

Our 2014 income tax return included another tax accounting method change regarding the deductibility of the Voluntary Employee Benefit Association (VEBA) plan activity. As a result, we deducted approximately $14 million as an adjustment required by the change in tax method of accounting. These changes did not have a material impact on the effective tax rate.