Income Tax Expense

3 Months Ended

Mar. 31, 2016

INCOME TAX EXPENSE



	Three Months Ended
	March 31,
	2016			2015
Millions
Current Tax Expense (a)
Federal	—			—
State		$0.1		$0.1
Total Current Tax Expense		$0.1		$0.1
Deferred Tax Expense (Benefit)
Federal	$4.6				$4.8
State	4.8			1.5
Investment Tax Credit Amortization	(0.2		)	(0.2		)
Total Deferred Tax Expense	$9.2				$6.1
Total Income Tax Expense	$9.3				$6.2


(a)	For the three months ended March 31, 2016 and 2015, the federal and state current tax expense was minimal due to NOLs which resulted from the bonus depreciation provisions of the Protecting Americans from Tax Hikes Act of 2015, the Tax Increase Prevention Act of 2014 and the American Taxpayer Relief Act of 2012.

The Company's tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, the Company would make a cumulative adjustment in that quarter.

NOTE 9. INCOME TAX EXPENSE (Continued)



Reconciliation of Taxes from Federal Statutory
Rate to Total Income Tax Expense
Three Months Ended March 31	2016			2015
Millions
Income Before Non-Controlling Interest and Income Taxes		$55.7			$46.3
Statutory Federal Income Tax Rate	35		%	35		%
Income Taxes Computed at 35 percent Statutory Federal Rate	19.5			16.2
Increase (Decrease) in Tax Due to:
State Income Taxes – Net of Federal Income Tax Benefit	3.2			1.0
Production Tax Credits	(13.9		)	(12.8		)
Regulatory Differences for Utility Plant	(0.1		)	(0.4		)
Other	0.6			2.2
Total Income Tax Expense		$9.3			$6.2

For the three months ended March 31, 2016, the effective tax rate was 16.7 percent (13.4 percent for the three months ended March 31, 2015).

Uncertain Tax Positions. As of March 31, 2016, we had gross unrecognized tax benefits of $2.3 million ($2.4 million as of December 31, 2015). Of the total gross unrecognized tax benefits, $0.6 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. The unrecognized tax benefit amounts have been presented as reductions to the tax benefits associated with NOL and tax credit carryforwards on the Consolidated Balance Sheet.

ALLETE and its subsidiaries file a consolidated federal income tax return as well as combined and separate state income tax returns in various jurisdictions. ALLETE is no longer subject to federal or state examination for years before 2012.