XML 53 R17.htm IDEA: XBRL DOCUMENT v2.4.0.6
Income Tax Expense
 6 Months Ended
Jun. 30, 2012
Income Tax Expense [Abstract]  
Income Tax Expense [Text Block]
INCOME TAX EXPENSE
 
 
Quarter Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2012
 
2011
 
2012
 
2011
Millions
 
 
 
 
 
 
 
 
Current Tax Expense
 
 
 
 
 
 
 
 
Federal (a)
 
—

 
—

 
—

 
—

State (a)
 
—

 

$0.1

 
—

 

$0.2

Total Current Tax Expense
 
—

 
0.1

 
—

 
0.2

Deferred Tax Expense (Benefit)
 
 
 
 
 
 
 
 
Federal (b)
 

$5.0

 
4.0

 

$13.7

 
10.8

State (b)
 
(0.4
)
 
—

 
(1.2
)
 
1.5

Change in Valuation Allowance (c)
 
0.4

 
—

 
1.0

 
—

Investment Tax Credit Amortization
 
(0.2
)
 
(0.3
)
 
(0.4
)
 
(0.5
)
Total Deferred Tax Expense
 
4.8

 
3.7

 
13.1

 
11.8

Total Income Tax Expense
 

$4.8

 

$3.8

 

$13.1

 

$12.0

(a)
For the quarter and six months ended June 30, 2012, the federal and state current tax expense of zero and zero, respectively, ($0.1 million and $0.2 million for the quarter and six months ended June 30, 2011) is due to a net operating loss (NOL) which resulted primarily from the bonus depreciation provision of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The 2011 and 2012 federal and state NOLs will be carried forward to offset future taxable income.
(b)
For the quarter and six months ended June 30, 2012, the state deferred tax benefit of $0.4 million and $1.2 million, respectively, is due to state renewable tax credits earned which will be carried forward to offset future state tax. The quarter ended June 30, 2011, includes a $2.9 million income tax benefit related to the MPUC approval of our request to defer the retail portion of the tax charge taken in 2010 resulting from PPACA. The six months ended June 30, 2011, includes the second quarter item above and the reversal in the first quarter of a $6.2 million deferred tax liability related to a revenue receivable that Minnesota Power agreed to forgo as part of a stipulation and settlement agreement in its 2010 rate case.
(c)
The increase in valuation allowance in 2012 is due to state renewable tax credits earned in 2012 which are not expected to be utilized within their allowable tax carryforward period.

For the six months ended June 30, 2012, the effective tax rate was 25.2 percent (18.2 percent for the six months ended June 30, 2011; the effective tax rate for the six months ended June 30, 2011, was lowered by 4.4 percentage points due to the non-recurring income tax benefit related to the MPUC approval of our request to defer the retail portion of the tax charge taken in 2010 resulting from PPACA and by 9.4 percentage points due to the non-recurring reversal of the deferred tax liability related to a revenue receivable that Minnesota Power agreed to forgo as part of a stipulation and settlement agreement in its 2010 rate case). The increase in the effective tax rate from June 30, 2011, was primarily due to the 2011 non-recurring items above, partially offset by increased renewable tax credits in 2012. The effective tax rate deviated from the statutory rate of approximately 41 percent primarily due to deductions for AFUDC – Equity, investment tax credits, renewable tax credits and depletion, and in 2011, for the non-recurring items discussed above.
 
Uncertain Tax Positions. As of June 30, 2012, we had gross unrecognized tax benefits of $2.9 million ($11.4 million as of December 31, 2011). The $8.5 million decrease in the unrecognized tax benefits balance for the six months ended June 30, 2012, was due to the resolution of a federal audit matter for prior years’ activity. Of this total, $0.5 million represents the amount of unrecognized tax benefits included in the Consolidated Balance Sheet, that, if recognized, would favorably impact the effective income tax rate.

NOTE 10.  INCOME TAX EXPENSE (Continued)

ALLETE’s IRS exam for tax years 2005 through 2009 is currently awaiting review at the IRS appeals office. If the IRS appeals process is completed during the next twelve months, substantially all of the unrecognized tax benefits as of June 30, 2012, could be reversed. The unrecognized tax benefits are primarily due to tax positions which are timing in nature and therefore would have an immaterial impact on our effective tax rate if recognized.