Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of income tax expense (benefit) are as follows:

	Years Ended December 31,
	2021		2020		2019
	(millions)
Federal:
Current	$	1	$	5	$	—
Deferred	32		(21)		(20)
Total federal	33		(16)		(20)
State:
Current	1		2		—
Deferred	14		(5)		(6)
Total state	15		(3)		(6)
Total income tax expense (benefit)	$	48	$	(19)	$	(26)

A reconciliation of U.S. federal income tax at the statutory rate to the actual income taxes is as follows:

	Years Ended December 31,
	2021		2020		2019
	(millions)
Income tax expense (benefit) at U.S. statutory rate of 21%	$	99	$	(54)	$	(90)
Increases (reductions) resulting from:
Taxes attributable to noncontrolling interests	(59)		41		70
State income taxes, net of federal tax benefit	12		(3)		(5)
Tax credits	(2)		(3)		(2)
Other	(2)		—		1
Income tax expense (benefit)	$	48	$	(19)	$	(26)

The effective tax rate was approximately 10%, 7% and 6% for the years ended December 31, 2021, 2020 and 2019, respectively.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. These items are stated at the enacted tax rates that are expected to be in effect when taxes are actually paid or recovered. NEP believes that it is more likely than not that the deferred tax assets at December 31, 2021 shown in the table below, net of the valuation allowances, will be realized due to sufficient future income.

The income tax effects of temporary differences giving rise to NEP's deferred income tax liabilities and assets are as follows:

	December 31,
	2021		2020
	(millions)
Deferred tax liabilities:
Investment in partnership(a)	$	—	$	(20)
Total deferred tax liabilities	—		(20)
Deferred tax assets:
Net operating loss carryforwards	284		255
Investment in partnership(a)	23		—
Tax credit carryforwards	13		10
Capital loss carryforward	—		3
Valuation allowance	(4)		(4)
Total deferred tax assets	316		264
Net deferred income taxes	$	316	$	244

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(a)    At December 31, 2021 and 2020, includes a deferred tax asset of approximately $4 million and $6 million, respectively, of interest limitation carryforward with an indefinite expiration period.

Deferred tax assets and liabilities included on NEP's consolidated balance sheets are as follows:

	December 31,
	2021		2020
	(millions)
Deferred income taxes – noncurrent assets	$	322	$	249
Noncurrent other liabilities	(6)		(5)
Net deferred income taxes	$	316	$	244

The components of deferred tax assets, before valuation allowance, relating to net operating loss carryforwards and tax credit carryforwards at December 31, 2021 are as follows:

	Amount			Expiration Dates
	(millions)
Net operating loss carryforwards:
Federal	$	256		2034 – 2037
State	28			2028 – 2041
Total net operating loss carryforwards	$	284	(a)
Tax credit carryforwards	$	13		2022 – 2041

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(a)    Includes approximately $111 million and $3 million of federal and state, respectively, net operating loss carryforwards with an indefinite expiration period.

During 2021 and 2020, NEP recorded state tax liabilities of approximately $1 million and $3 million (net of federal tax benefit), respectively, related to unrecognized tax benefits of prior year state tax filing positions. The total amount of unrecognized tax benefit that, if recognized, would affect the effective tax rate is approximately $4 million (net of federal tax benefit). The open tax years in all jurisdictions are 2014 through 2020.