INCOME TAXES

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



	Years Ended December 31,
	2014		2013		2012
Current:
Federal	$	20	$	10	$	16
State and local	2		—		1
	22		10		17
Deferred:
Federal	26		4		30
State and local	13		7		17
	39		11		47
Income tax expense	$	61	$	21	$	64

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,
	2014		2013		2012
Federal statutory tax rate	35.0	%	35.0	%	35.0	%
Federal tax credits	(11.4	)	(21.8	)	(11.8	)
State and local taxes, net of federal tax benefit	3.9		3.4		3.5
Flow through depreciation and cost basis differences	(2.3	)	2.8		2.4
Adjustment to deferred taxes for change in blended composite state tax rate	—		—		2.6
Other	0.8		(2.6	)	(0.6	)
Effective tax rate	26.0	%	16.8	%	31.1	%

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



	As of December 31,
	2014			2013
Deferred income tax assets:
Employee benefits	$	161		$	122
Price risk management	88			71
Regulatory liabilities	48			33
Tax credits	13			51
Other	1			—
Total deferred income tax assets	311			277
Deferred income tax liabilities:
Depreciation and amortization	693			646
Regulatory assets	210			175
Total deferred income tax liabilities	903			821
Deferred income tax liability, net	$	(592	)	$	(544	)
Classification of net deferred income taxes:
Current deferred income tax asset *	$	33		$	42
Noncurrent deferred income tax liability	(625		)	(586		)
	$	(592	)	$	(544	)

* Included in Other current assets in the consolidated balance sheets.

To conform with the 2014 presentation, the Company reclassified $17 million to Regulatory liabilities from Other in the 2013 deferred income tax assets section of the preceding table.

As of December 31, 2014, PGE has federal and state tax credit carryforwards of $10 million and $3 million, respectively, which will expire at various dates from 2021 through 2036.

PGE believes that it is more likely than not that its deferred income tax assets as of December 31, 2014 and 2013 will be realized; accordingly, no valuation allowance has been recorded. As of December 31, 2014 and 2013, PGE had no unrecognized tax benefits.

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.

Further guidance was issued during 2014 that clarified final regulations issued on September 13, 2013, regarding the deduction and capitalization of expenditures related to tangible property. The final regulations under Internal Revenue Code Sections 162, 167 and 263(a) apply to amounts paid to acquire, produce, or improve tangible property, as well as dispositions of such property and have been adopted by PGE as of the January 1, 2014 effective date. The adoption of these regulations, including the consideration of subsequent guidance, did not have a material impact on the Company’s consolidated financial position, consolidated results of operations, or consolidated cash flows.

House of Representatives Bill 5771—The Tax Increase Prevention Act of 2014 was signed into law on December 19, 2014. PGE has examined the new law and while the Company intends to take advantage of some of the provisions, no provision will materially impact its consolidated financial position.