INCOME TAXES

Income tax expense consists of the following (in millions):



	Years Ended December 31,
	2013		2012		2011
Current:
Federal	$	10	$	16	$	2
State and local	—		1		—
	10		17		2
Deferred:
Federal	4		30		43
State and local	7		17		13
	11		47		56
Income tax expense	$	21	$	64	$	58

The significant differences between the U.S. federal statutory rate and PGE’s effective tax rate for financial reporting purposes are as follows:



	Years Ended December 31,
	2013		2012		2011
Federal statutory tax rate	35.0	%	35.0	%	35.0	%
Federal tax credits	(21.8	)	(11.8	)	(12.7	)
State and local taxes, net of federal tax benefit	3.4		3.5		2.6
Adjustment to deferred taxes for change in blended composite state tax rate	—		2.6		—
Flow through depreciation and cost basis differences	2.8		2.4		2.1
Other	(2.6	)	(0.6	)	1.3
Effective tax rate	16.8	%	31.1	%	28.3	%

Deferred income tax assets and liabilities consist of the following (in millions):



	As of December 31,
	2013			2012
Deferred income tax assets:
Employee benefits	$	122		$	162
Price risk management	71			77
Tax credits	51			55
Regulatory liabilities	16			20
Other	17			—
Total deferred income tax assets	277			314
Deferred income tax liabilities:
Depreciation and amortization	646			623
Regulatory assets	175			224
Other	—			4
Total deferred income tax liabilities	821			851
Deferred income tax liability, net	$	(544	)	$	(537	)
Classification of net deferred income taxes:
Current deferred income tax asset ⁽¹⁾	$	42		$	51
Noncurrent deferred income tax liability	(586		)	(588		)
	$	(544	)	$	(537	)


(1)	Included in Other current assets in the consolidated balance sheets.

As of December 31, 2013, PGE has federal and state tax credit carryforwards of $40 million and $11 million, respectively, which will expire at various dates from 2016 through 2035.

PGE believes that it is more likely than not that its deferred income tax assets as of December 31, 2013 and 2012 will be realized; accordingly, no valuation allowance has been recorded. During the year ended December 31, 2011, the valuation allowance decreased $2 million as a result of the expiration of unused state credits.

As of December 31, 2013 and 2012, PGE had no unrecognized tax benefits. During 2011, an unrecognized tax benefit of $2 million was recognized as a result of filing for a federal tax accounting method change.

PGE and its subsidiaries file consolidated federal income tax returns. The Company also files state income tax returns in certain jurisdictions, including Oregon, California, Montana, and certain local jurisdictions. The Internal Revenue Service (IRS) has completed its examination of all tax years through 2010 and all issues were resolved related to those years. The Company does not believe that any open tax years for federal or state income taxes could result in any adjustments that would be significant to the consolidated financial statements.

On September 13, 2013, the U.S. Department of Treasury and the IRS issued final regulations regarding the deduction and capitalization of expenditures related to tangible property. The final regulations under Internal Revenue Code Section 162, 167 and 263(a) apply to amounts paid to acquire, produce, or improve tangible property, as well as dispositions of such property and are generally effective for tax years beginning on or after January 1, 2014. The Company has evaluated these regulations and has determined they will not have a material impact on its consolidated financial position, consolidated results of operations, or consolidated cash flows.