OG&E 2009 Annual Report Download - page 81

7. Income Taxes
The items comprising income tax expense are as follows:
Year ended December 31 (In millions) 2009 2008 2007
Provision (Benefit) for Current Income Taxes
Federal $ (109.9) $ (30.2) $ 68.3
State (3.9) (3.6) 0.6
Total Provision (Benefit) for Current Income Taxes (113.8) (33.8) 68.9
Provision for Deferred Income Taxes, net
Federal 193.1 92.1 6.9
State 3.3 (0.3) 1.5
Total Provision for Deferred Income Taxes, net 196.4 91.8 8.4
Deferred Federal Investment Tax Credits, net (4.2) (4.6) (4.8)
Income Taxes Relating to Other Income and Deductions 11.6 (1.0) 0.7
Total Income Tax Expense $ 90.0 $ 52.4 $ 73.2
The Company is a member of an affiliated group that files consolidated income tax returns in the U.S. Federal jurisdiction
and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. Federal tax examinations by tax
authorities for years prior to 2006 or state and local tax examinations by tax authorities for years prior to 2002. Income taxes are
generally allocated to each company in the affiliated group based on its stand-alone taxable income or loss. Federal investment tax
credits previously claimed on electric utility property have been deferred and are being amortized to income over the life of the related
property. The Company continues to amortize its Federal investment tax credits on a ratable basis throughout the year. The Company
earns both Federal and Oklahoma state tax credits associated with the production from its 120 MW wind farm in northwestern
Oklahoma (“Centennial”) and its 101 MW OU Spirit wind farm in western Oklahoma as well as earning Oklahoma state tax credits
associated with the Company’s investment in its electric generating facilities which further reduce the Company’s effective tax
rate. The following schedule reconciles the statutory Federal tax rate to the effective income tax rate:
Year ended December 31 2009 2008 2007
Statutory Federal tax rate 35.0 % 35.0 % 35.0 %
Amortization of net unfunded deferred taxes 1.0 1.3 1.3
State income taxes, net of Federal income tax benefit 0.2 (2.1) 1.2
Medicare Part D subsidy (1.2) (0.4) (0.3)
Federal investment tax credits, net (1.5) (2.4) (2.0)
Federal renewable energy credit (A) (2.8) (4.6) (3.0)
Other 0.3 --- (1.0)
Effective income tax rate as reported 31.0 % 26.8 % 31.2 %
(A) These are credits associated with the production from the Company’s wind farms.
The Company filed a request with the Internal Revenue Service (“IRS”) on December 29, 2008 for a change in its tax method
of accounting related to the capitalization of repair expenditures. The accounting method change is for income tax purposes only and
would allow the Company to record a cumulative tax deduction. For financial accounting purposes, the only change is recognition of
the impact of the cash flow generated by accelerating income tax deductions. On December 10, 2009, the Company received approval
from the IRS for the change in accounting method. In December 2009, a claim for refund was filed to carry back the 2008 tax loss
resulting in a tax refund of approximately $88.6 million, which the Company received in February 2010. The expected refund was
recorded as an intercompany receivable on the Balance Sheet at December 31, 2009.
At December 31, 2009 and 2008, the Company had no material unrecognized tax benefits related to uncertain tax
positions. The Company recognizes interest related to unrecognized tax benefits in interest expense and recognizes penalties in other
expense.
The deferred tax provisions, set forth above, are recognized as costs in the ratemaking process by the commissions having
jurisdiction over the rates charged by the Company. The components of Accumulated Deferred Taxes at December 31, 2009 and
2008, respectively, were as follows:
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