8. INCOME TAX

An estimate of annual income tax expense (or benefit) is made each interim period using estimates for annual pre-tax income, regulatory flow-through adjustments, tax credits and other items. The estimated annual effective tax rates do not include discrete events, such as tax law changes, which are recorded in the interim period in which they occur. The estimated annual effective tax rate is applied to year-to-date, pre-tax income to determine income tax expense (or benefit) for the interim period consistent with the annual estimate.

The effective income tax rate varied from the combined federal and state statutory tax rates due to the following:



	Three Months Ended March 31,
Dollars in thousands	2014			2013
Income tax at statutory rates (federal and state)	$	25,721		$	25,239
Increase (decrease):
Differences required to be flowed-through by regulatory commissions	1,433			1,512
Other, net	(169		)	(791		)
Income tax expense	$	26,985		$	25,960
Effective income tax rate	41.6		%	40.8		%

The change in income tax expense for the three months ended March 31, 2014, compared to the same period in 2013, is primarily due to an increase in pre-tax earnings in 2014 and a $0.6 million income tax charge related to a higher effective tax rate in Oregon, which required the revaluation of deferred tax balances. See Note 9 in the 2013 Form 10-K for more detail on income taxes and effective tax rates.

The Company’s examination by the Internal Revenue Service (IRS) for tax years 2009 through 2011 was completed during the three months ended March 31, 2014. The examination did not result in a material change to the returns as originally filed or previously adjusted for net operating loss carrybacks. The 2012 tax year is subject to examination and the 2013 and 2014 tax years are subject to review under the Compliance Assurance Process (CAP) with the IRS.