Income Tax Expense

3 Months Ended

Mar. 31, 2013

Income Tax Expense [Abstract]

Income Tax Expense [Text Block]

INCOME TAX EXPENSE

	Quarter Ended
	March 31,
	2013			2012
Millions
Current Tax Expense
Federal (a)		$0.2		—
State (a)	—			—
Total Current Tax Expense	0.2			—
Deferred Tax Expense (Benefit)
Federal	5.8				$8.7
State (b)	(0.5		)	(0.8		)
Change in Valuation Allowance (c)	2.2			0.6
Investment Tax Credit Amortization	(0.2		)	(0.2		)
Total Deferred Tax Expense	7.3			8.3
Total Income Tax Expense		$7.5			$8.3

(a) For the quarter ended March 31, 2013, the federal and state current tax expense of $0.2 million and zero, respectively, (zero and zero for the quarter ended March 31, 2012) is due to net operating losses (NOLs) which resulted primarily from the bonus depreciation provision of the American Taxpayer Relief Act of 2012 and the Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of 2010. The 2013 and 2012 federal and state NOLs will be carried forward to offset future taxable income.

(b) For the quarters ended March 31, 2013 and 2012, the state deferred tax benefits of $0.5 million and $0.8 million, respectively, are primarily due to state renewable tax credits earned which will be carried forward to offset future state tax expense.

(c) For the quarters ended March 31, 2013 and 2012, the change in the valuation allowance is due to state renewable tax credits earned in 2013 and 2012 which are not expected to be utilized within their allowable tax carryforward period.

For the quarter ended March 31, 2013, the effective tax rate was 18.8 percent (25.4 percent for the quarter ended March 31, 2012). The decrease from the effective tax rate for the quarter ended March 31, 2012, was primarily due to increased federal production tax credits. The effective tax rate deviated from the statutory rate of approximately 41 percent primarily due to deductions for AFUDC ‑ Equity, investment tax credits, federal production tax credits, state income tax credits and depletion.

Uncertain Tax Positions. As of March 31, 2013, we had gross unrecognized tax benefits of $2.6 million ($2.7 million as of December 31, 2012). Of the total gross unrecognized tax benefits, $0.7 million represents the amount of unrecognized tax benefits included in the Consolidated Balance Sheet, that, if recognized, would favorably impact the effective income tax rate.

ALLETE’s IRS exam for tax years 2005 through 2009 is currently under review at the IRS appeals office. We expect the IRS appeals process to be completed during the next twelve months, resulting in the reversal of substantially all of the unrecognized tax benefits as of March 31, 2013. The unrecognized tax benefits are primarily due to tax positions which are timing in nature and therefore would have an immaterial impact on our effective tax rate if recognized.