(10) INCOME TAXES

The provision (benefit) for income taxes included the following components:


		2013		2012		2011
	(in thousands)
Current:
Federal	$	(12,151)	$	15,500	$	3,378
State		1,080		3,189		820
		(11,071)		18,689		4,198

Deferred:
Federal		409,359		(388,209)		345,922
State		87,823		(71,582)		60,941
Foreign		763		(2,037)		2,160

		497,945		(461,828)		409,023
Provision (benefit) for income taxes	$	486,874	$	(443,139)	$	413,221

The provision for income taxes was an effective rate of 40.9% in 2013, 38.5% in 2012 and 39.3% 2011. The following reconciles the provision for income taxes included in the consolidated statements of operations with the provision which would result from application of the statutory federal tax rate to pre-tax financial income:


		2013		2012		2011
	(in thousands)

Expected provision (benefit) at federal statutory rate	$	416,632	$	(402,571)	$	367,854
Increase (decrease) resulting from:
State income taxes, net of federal income tax effect		53,130		(44,454)		40,145
Nondeductible expenses		3,404		2,100		1,244
Other		13,708		1,786		3,978

Provision (benefit) for income taxes	$	486,874	$	(443,139)	$	413,221

The components of the Company’s net deferred tax liability as of December 31, 2013 and 2012 were as follows:


		2013		2012
	(in thousands)
Deferred tax liabilities:
Differences between book and tax basis of property	$	2,114,685	$	1,441,149
Cash flow hedges		13,171		112,625
Other		10,715		4,460
		2,138,571		1,558,234

Deferred tax assets:
Accrued compensation		15,718		16,387
Alternative minimum tax credit carryforward		76,864		89,016
Stored natural gas		9,272		7,812
Accrued pension costs		1,821		7,686
Asset retirement obligations		53,419		39,249
Net operating loss carryforward		411,994		217,276
Differences between book and tax basis of property - state		11,045		16,872
Other		7,405		12,354
		587,538		406,652
Net deferred tax liability	$	1,551,033	$	1,151,582

The net deferred tax liability as of December 31, 2013 was comprised of net long-term deferred income tax liabilities of $1,526.7 million in addition to a net current deferred income tax liability of $24.3 million. The net deferred tax liability at December 31, 2012 was comprised of net long-term deferred income tax liabilities of $1,045.5 million, in addition to a net current deferred income tax liability of $106.1 million. In 2013, the Company paid $3.3 million in state income taxes and paid $15.5 million in federal income taxes. In 2012, the Company paid $0.8 million in state income taxes and did not pay any alternative minimum taxes. The Company’s net operating loss carryforward as of December 31, 2013 was $1,174.7 million and $878.0 million for federal and state reporting purposes, respectively, the majority of which will expire between 2028 and 2032. In 2013 the Company recorded a $2.9 million valuation allowance against our deferred tax asset for various state net operating losses. The Company also had an alternative minimum tax credit carryforward of $76.9 million and a statutory depletion carryforward of $12.9 million as of December 31, 2013.

Our effective tax rate increased in 2013 as compared with 2012. This was primarily due to a redetermination of the deferred state tax liability to reflect updated state apportionment factors in certain higher-rate states and the recording of a valuation allowance against a portion of our deferred tax asset for state net operating losses.

Deferred tax assets relating to tax benefits of employee stock option grants have been reduced to reflect exercises in 2012. Some exercises resulted in tax deductions in excess of previously recorded benefits based on the option value at the time of the grant (“windfalls”). Although these additional tax benefits or “windfalls” are reflected in net operating loss carryforwards, pursuant to GAAP, the additional tax benefit associated with the windfall is not recognized until the deduction reduces taxes payable. Accordingly, since the tax benefit does not reduce our current taxes payable in 2013 due to net operating loss carryforwards, these “windfall” tax benefits are not reflected in our net operating losses in deferred tax assets for 2013. Windfalls included in net operating loss carryforwards but not reflected in deferred tax assets for 2013 were $131.3 million.

As of December 31, 2013, the Company has no unrecognized tax benefits. The income tax years 2010 to 2013 remain open to examination by the major taxing jurisdictions to which the Company is subject.

The Company has an income tax net operating loss carryforward related to its Canadian operations of $22.3 million, and has expiration dates of 2030 through 2033. The Company assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax asset associated with the Canadian net operating loss. Based on this assessment, the Company did not record a valuation allowance as of December 31, 2013.