Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Expense (Benefit) [Abstract]

INCOME TAXES

 INCOME TAXES

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

Income Taxes	2012			2011			2010
	(Millions of Dollars)
Current tax expense (benefit)	$	(45.9	)	$	(166.7	)	$	144.9
Deferred income taxes, net	353.4			434.8			108.6
Investment tax credit, net	(1.2		)	(4.2		)	(3.6		)
Total Income Tax Expense	$	306.3		$	263.9		$	249.9

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:

	2012					2011					2010
				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	$	298.4		35.0	%	$	271.8		35.0	%	$	246.5		35.0	%
State income taxes net of federal tax benefit	43.3			5.1	%	40.1			5.2	%	35.8			5.1	%
Production tax credits	(15.9		)	(1.9	)%	(8.7		)	(1.1	)%	(7.2		)	(1.0	)%
Domestic production activities deduction	(12.6		)	(1.5	)%	(12.6		)	(1.6	)%	(12.6		)	(1.8	)%
AFUDC - Equity	(12.3		)	(1.4	)%	(20.8		)	(2.7	)%	(11.4		)	(1.6	)%
Investment tax credit restored	(1.2		)	(0.1	)%	(4.2		)	(0.5	)%	(3.6		)	(0.5	)%
Other, net	6.6			0.7	%	(1.7		)	(0.3	)%	2.4			0.3	%
Total Income Tax Expense	$	306.3		35.9	%	$	263.9		34.0	%	$	249.9		35.5	%

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	2012		2011
	(Millions of Dollars)
Current
Employee benefits and compensation	$	14.9	$	14.6
Other	81.1		57.1
Total Current Deferred Tax Assets	96.0		71.7
Non-current
Future federal tax benefits	334.7		328.5
Deferred revenues	250.0		279.7
Employee benefits and compensation	97.0		103.6
Property-related	28.3		28.3
Construction advances	22.2		25.4
Other	16.3		35.0
Total Non-Current Deferred Tax Assets	748.5		800.5
Total Deferred Tax Assets	$	844.5	$	872.2

Deferred Tax Liabilities	2012		2011
	(Millions of Dollars)
Current
Prepaid items	$	49.7	$	50.1
Total Current Deferred Tax Liabilities	49.7		50.1
Non-current
Property-related	2,339.4		2,020.7
Employee benefits and compensation	244.3		232.8
Investment in transmission affiliate	144.9		129.2
Deferred transmission costs	45.7		47.4
Other	91.2		66.5
Total Non-current Deferred Tax Liabilities	2,865.5		2,496.6
Total Deferred Tax Liabilities	$	2,915.2	$	2,546.7
Consolidated Balance Sheet Presentation	2012		2011
Current Deferred Tax Asset	$	46.3	$	21.6
Non-Current Deferred Tax Liability	$	2,117.0	$	1,696.1

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, 2012, we had approximately $838.5 million and $41.2 million of net operating loss and tax credit carryforwards resulting in deferred tax assets of $293.5 million and $41.2 million, respectively. As of December 31, 2011, we had approximately $867.1 million and $25.0 million of net operating loss and tax credit carryforwards resulting in deferred tax assets of $303.5 million and $25.0 million, respectively. The tax credit and net operating loss carryforwards begin to expire in 2029. We anticipate that we will have future taxable income sufficient to utilize these deferred tax assets.

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:

	2012			2011
	(Millions of Dollars)
Balance as of January 1	$	11.1		$	29.5
Additions for tax positions of prior years	10.8			—
Reductions for tax positions of prior years	(10.6		)	(13.9		)
Reductions due to statute of limitations	—			(2.5		)
Settlements during the period	—			(2.0		)
Balance as of December 31	$	11.3		$	11.1

The amount of unrecognized tax benefits as of December 31, 2012 and 2011 excludes deferred tax assets related to uncertainty in income taxes of $10.2 million and $11.0 million, respectively. As of December 31, 2012 and 2011, the net amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate for continuing operations was approximately $1.0 million and $0.1 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, 2012, 2011 and 2010, we recognized approximately $0.2 million, $0.7 million and $4.1 million, respectively, of accrued interest in the Consolidated Income Statements. For the years ended December 31, 2012 and 2010, we recognized no penalties 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. We had approximately $0.3 million and $2.0 million of interest accrued and no penalties accrued on the Consolidated Balance Sheets as of December 31, 2012 and 2011, respectively.

Within the next twelve months, it is reasonably possible that our unrecognized tax benefits may decrease by $1.4 million as a result of further IRS guidance relating to an uncertain tax position.

Our primary tax jurisdictions include Federal and the state of Wisconsin. Currently, the tax years of 2007 through 2012 are subject to Federal and Wisconsin examination.