INCOME TAXES

The following table is a summary of income tax expense for each of the years ended December 31:



Income Taxes	2011			2010			2009
	(Millions of Dollars)

Current tax expense (benefit)	$	(166.7	)	$	144.9		$	28.1
Deferred income taxes, net	434.8			108.6			191.2
Investment tax credit, net	(4.2		)	(3.6		)	(3.8		)
Total Income Tax Expense	$	263.9		$	249.9		$	215.5

The provision for income taxes for each of the years ended December 31 differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to income before income taxes as a result of the following:



	2011					2010					2009
				Effective					Effective					Effective
Income Tax Expense	Amount			Tax Rate		Amount			Tax Rate		Amount			Tax Rate
	(Millions of Dollars)
Expected tax at statutory federal tax rates	$	271.8		35.0	%	$	246.5		35.0	%	$	206.9		35.0	%
State income taxes net of federal tax benefit	40.1			5.2	%	35.8			5.1	%	31.8			5.4	%
AFUDC - Equity	(20.8		)	(2.7	)%	(11.4		)	(1.6	)%	(5.6		)	(0.9	)%
Domestic production activities deduction	(12.6		)	(1.6	)%	(12.6		)	(1.8	)%	(8.3		)	(1.4	)%
Production tax credits - wind	(8.7		)	(1.1	)%	(7.2		)	(1.0	)%	(7.1		)	(1.2	)%
Investment tax credit restored	(4.2		)	(0.5	)%	(3.6		)	(0.5	)%	(3.8		)	(0.6	)%
Other, net	(1.7		)	(0.3	)%	2.4			0.3	%	1.6			0.2	%
Total Income Tax Expense	$	263.9		34.0	%	$	249.9		35.5	%	$	215.5		36.5	%

The components of deferred income taxes classified as net current assets and net long-term liabilities as of December 31 are as follows:



Deferred Tax Assets	2011		2010
	(Millions of Dollars)
Current
Employee benefits and compensation	$	14.6	$	14.3
Other	57.1		33.5
Total Current Deferred Tax Assets	71.7		47.8

Non-current
Future federal tax benefits	328.5		—
Deferred revenues	279.7		305.9
Employee benefits and compensation	103.6		110.2
Property-related	28.3		30.3
Construction advances	25.4		118.3
Emission allowances	1.0		2.6
Other	34.0		30.8
Total Non-Current Deferred Tax Assets	800.5		598.1
Total Deferred Tax Assets	$	872.2	$	645.9



Deferred Tax Liabilities	2011		2010
	(Millions of Dollars)
Current
Prepaid items	$	50.1	$	46.9
Total Current Deferred Tax Liabilities	50.1		46.9

Non-current
Property-related	2,020.7		1,346.8
Employee benefits and compensation	232.8		179.5
Investment in transmission affiliate	129.2		112.4
Deferred transmission costs	47.4		53.1
Other	66.5		61.1
Total Non-current Deferred Tax Liabilities	2,496.6		1,752.9
Total Deferred Tax Liabilities	$	2,546.7	$	1,799.8

Consolidated Balance Sheet Presentation	2011		2010
Current Deferred Tax Asset	$	21.6	$	0.9
Non-Current Deferred Tax Liability	$	1,696.1	$	1,154.8

Consistent with rate-making treatment, deferred taxes are offset in the above table for temporary differences which have related regulatory assets or liabilities.

As of December 31, 2011, we had approximately $867.1 million and $25.0 million of net operating loss and tax credit carryforwards, respectively. The net operating loss and tax credit carryforwards resulted in deferred tax assets of $303.5 million and $25.0 million, respectively, as of December 31, 2011. The tax credit and net operating loss carryforwards begin to expire in 2029 and 2030, respectively. We anticipate that we will have future taxable income sufficient to utilize these deferred tax assets.

On January 1, 2007, we adopted accounting guidance related to uncertainty in income taxes. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	2011			2010
	(Millions of Dollars)

Balance as of January 1	$	29.5		$	35.4
Additions based on tax positions related to the current year	—			0.8
Additions for tax positions of prior years	—			10.4
Reductions for tax positions of prior years	(13.9		)	(2.5		)
Reductions due to statute of limitations	(2.5		)	(0.3		)
Settlements during the period	(2.0		)	(14.3		)
Balance as of December 31	$	11.1		$	29.5

The amount of unrecognized tax benefits as of December 31, 2011 and 2010 excludes deferred tax assets related to uncertainty in income taxes of $11.0 million and $16.9 million, respectively. As of December 31, 2011 and 2010, the net amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate for continuing operations was approximately $0.1 million and $2.3 million, respectively.

We recognize interest and penalties accrued related to unrecognized tax benefits as a component of income tax expense. For the years ended December 31, 2011, 2010 and 2009, we recognized approximately $0.7 million, $4.1 million and $2.0 million, respectively, of accrued interest in the Consolidated Income Statements. For the year ended December 31, 2011, we recognized a benefit of $0.3 million in the Consolidated Income Statements related to a reduction of accrued penalties. For the years ended December 31, 2010 and 2009, we recognized no penalties in the Consolidated Income Statements. We had approximately $2.0 million and $8.2 million of interest accrued and zero and approximately $0.3 million of penalties accrued on the Consolidated Balance Sheets as of December 31, 2011 and 2010, respectively.

We do not anticipate any significant increases or decreases in the total amounts of unrecognized tax benefits within the next 12 months.

Our primary tax jurisdictions include Federal and the state of Wisconsin. Currently, the tax years of 2007 through 2011 are subject to Federal and Wisconsin examination.