8. INCOME TAX

An estimate of annual income tax expense 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 rate is applied to year-to-date, pre-tax income to determine income tax expense 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 September 30,						Nine Months Ended September 30,
Dollars in thousands	2015			2014			2015			2014
Income tax at statutory rates (federal and state)	$	(4,473	)	$	(6,161	)	$	15,848		$	20,288
Increase (decrease):
Differences required to be flowed-through by regulatory commissions	(378		)	(310		)	1,036			1,184
Other, net	298			(271		)	(940		)	(449		)
Income tax expense (benefit)	$	(4,553	)	$	(6,742	)	$	15,944		$	21,023
Effective income tax rate	40.5		%	43.6		%	39.9		%	41.0		%

Increases or decreases in income tax expense are correlated with changes in pre-tax income. The effective tax rate for the three and nine months ended September 30, 2015, compared to the same periods in 2014, decreased primarily as a result of depletion deductions from gas reserves activity. Additionally, there was a comparative decrease due to a $0.6 million income tax charge in the first quarter of 2014 due to the revaluation of deferred tax balances related to a higher effective tax rate in Oregon. See Note 9 in the 2014 Form 10-K for more detail on income taxes and effective tax rates.

Our examination under the Internal Revenue Service (IRS) Compliance Assurance Process for the 2013 tax year was completed during the first quarter of 2015. The examination did not result in a material change to the return as originally filed.