INCOME TAXES

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



	Years Ended December 31,
	2016		2015		2014
Current:
Federal	$	10	$	4	$	20
State and local	3		1		2
	13		5		22
Deferred:
Federal	23		26		26
State and local	14		14		13
	37		40		39
Income tax expense	$	50	$	45	$	61

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,
	2016		2015		2014
Federal statutory tax rate	35.0	%	35.0	%	35.0	%
Federal tax credits *	(18.2	)	(19.0	)	(11.4	)
State and local taxes, net of federal tax benefit	4.8		4.2		3.9
Flow through depreciation and cost basis differences	0.2		—		(2.3	)
Other	(1.2	)	0.5		0.8
Effective tax rate	20.6	%	20.7	%	26.0	%

Federal tax credits consist primarily of production tax credits (PTCs) earned from Company-owned wind-powered generating facilities. The federal PTCs are earned based on a per-kilowatt hour rate, and as a result, the annual amount of PTCs earned will vary based on weather conditions. The PTCs are generated for 10 years from the corresponding facility’s in service date. PGE’s PTCs end at various dates between 2017 and 2024.

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



	As of December 31,
	2016			2015
Deferred income tax assets:
Employee benefits	$	181		$	170
Price risk management	59			112
Regulatory liabilities	29			42
Tax credits	56			46
Other	5			—
Total deferred income tax assets	330			370
Deferred income tax liabilities:
Depreciation and amortization	829			781
Regulatory assets	170			220
Other	—			1
Total deferred income tax liabilities	999			1,002
Deferred income tax liability, net	$	(669	)	$	(632	)

As of December 31, 2016, PGE has federal credit carryforwards of $56 million, which will expire at various dates through 2036.

PGE believes that it is more likely than not that its deferred income tax assets as of December 31, 2016 and 2015 will be realized; accordingly, no valuation allowance has been recorded. As of December 31, 2016 and 2015, PGE had no unrecognized tax benefits.

PGE and its subsidiaries file a consolidated federal income tax return. The Company also files income tax returns in the states of Oregon, California, and Montana, and in 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.