INCOME TAXES

The net provisions for income taxes charged during the fiscal years ended September 30, 2013, 2012, and 2011 are as follows:



(Thousands)	2013			2012			2011
Included in Statements of Consolidated Income:
Federal
Current	$	(4,173	)	$	(3,835	)	$	4,724
Deferred	19,925			26,365			20,602
Investment tax credits	(213		)	(213		)	(213		)
State and local
Current	(301		)	(430		)	573
Deferred	2,340			4,402			3,496
Total Income Tax Expense	$	17,578		$	26,289		$	29,182

The effective income tax rate varied from the federal statutory income tax rate for each year due to the following:



	2013		2012		2011
Federal income tax statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal income tax benefits	3.5		2.9		2.8
Certain expenses capitalized on books and deducted on tax return	(9.7	)	(6.9	)	(5.0	)
Taxes related to prior years	(1.6	)	(0.8	)	(0.7	)
Other items – net	(2.2	)	(0.6	)	(0.7	)
Effective income tax rate	25.0	%	29.6	%	31.4	%

The significant items comprising the net deferred tax liability recognized in the Consolidated Balance Sheets as of September 30 are as follows:



(Thousands)	2013			2012
Deferred tax assets:
Reserves not currently deductible	$	13,933		$	16,400
Pension and other postretirement benefits	71,367			73,480
Unamortized investment tax credits	1,799			1,955
Other*	12,522			18,224
Total deferred tax assets	99,621			110,059
Deferred tax liabilities:
Relating to property	341,975			303,474
Regulatory pension and other postretirement benefits	124,871			121,554
Deferred gas costs	7,112			20,652
Other	5,789			26,563
Total deferred tax liabilities	479,747			472,243
Net deferred tax liability	380,126			362,184
Net deferred tax liability – current*	(1,012		)	(6,675		)
Net deferred tax liability – non-current*	$	379,114		$	355,509

* The Company periodically invests in tax credits. As of September 30, 2013, $7.1 million of state tax credits are included in Other and Net deferred tax liability. $4.7 million of state tax credits were classified as current. $2.4 million of state tax credits were classified as non-current.

Pursuant to GAAP, the Company may recognize the tax benefit from a tax position only if it is at least more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company records potential interest and penalties related to its uncertain tax positions as interest expense and other income deductions, respectively. Unrecognized tax benefits, accrued interest payable, and accrued penalties payable are included in the Other line of the Deferred Credits and Other Liabilities section of the Consolidated Balance Sheets.

The following table presents a reconciliation of the beginning and ending balances of unrecognized tax benefits at September 30 as reported in the Consolidated Balance Sheets:



(Thousands)	2013			2012
Unrecognized tax benefits, beginning of year	$	5,810		$	5,596
Increases related to prior year tax positions	145			78
Increases related to tax positions taken in current year	1,450			547
Reductions due to lapse of applicable statute of limitations	(5,018		)	(411		)
Unrecognized tax benefits, end of year	$	2,387		$	5,810

The amount of unrecognized tax benefits which, if recognized, would affect the Company’s effective tax rate were $1.9 million and $1.4 million as of September 30, 2013 and 2012, respectively. It is reasonably possible that events will occur in the next 12 months that could increase or decrease the amount of the Company’s unrecognized tax benefits. The Company does not expect that any such change will be significant to the Consolidated Balance Sheets.

Interest accrued associated with the Company’s uncertain tax positions as of September 30, 2013 and 2012 were $0.1 million and $0.6 million, respectively, and an immaterial amount of penalties were accrued as of September 30, 2013. Interest expense accrued during fiscal year 2013 was $0.1 million, $0.2 million for fiscal year 2012, and $0.2 million for fiscal year 2011. During fiscal year 2013, the Company reversed $0.6 million of accrued interest expense in the Consolidated Statements of Income.

The Company is subject to U.S. federal income tax as well as income tax of state and local jurisdictions. The Company is no longer subject to examination for fiscal years prior to 2010.

In September 2013, the Internal Revenue Service and U.S. Treasury Department released final regulations on the deduction and capitalization of expenditures related to tangible property. The regulations do not address the tax treatment for network assets such as natural gas pipelines. These regulations apply to tax years beginning on or after January 1, 2014. Laclede is evaluating the effects of the regulations, but does not believe that they will have a significant impact on its consolidated financial statements.