Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Total income tax expense from operations differs from the amount computed by applying the statutory federal income tax rate to income before income tax expense.

Effective income tax rate for years ended Dec. 31:

	2022		2021 (b)		2020 (b)
Federal statutory rate	21.0	%	21.0	%	21.0	%
State income tax on pretax income, net of federal tax effect	6.2		6.2		6.2
Increases (decreases) in tax from:
Plant regulatory differences (a)	(3.8)		(4.1)		(19.3)
Other tax credits, net NOL & tax credit allowances	(0.8)		(1.0)		(1.5)
Amortization of excess nonplant deferred taxes	—		—		(12.6)
Other, net	(0.7)		(0.4)		(0.8)
Effective income tax rate	21.9	%	21.7	%	(7.0)	%

(a)Regulatory differences for income tax primarily relate to the credit of excess deferred taxes to customers through the average rate assumption method. Income tax benefits associated with the credit of excess deferred taxes are offset by corresponding revenue reductions.

(b)Prior period amounts have been restated to conform with current year presentation.

Components of income tax expense for years ended Dec. 31:

(Millions of Dollars)	2022		2021		2020
Current federal tax expense	$	28	$	17	$	25
Current state tax expense	9		4		6
Current change in unrecognized tax benefit	—		—		(1)
Deferred federal tax (benefit) expense	(5)		3		(37)
Deferred state tax expense	3		6		1
Deferred ITCs	—		—		(1)
Total income tax expense (benefit)	$	35	$	30	$	(7)

Components of deferred income tax expense as of Dec. 31:

(Millions of Dollars)	2022		2021		2020
Deferred tax expense excluding items below	$	8	$	18	$	9
Amortization and adjustments to deferred income taxes on income tax regulatory assets and liabilities	(10)		(10)		(45)
Other	—		1		—
Deferred tax (benefit) expense	$	(2)	$	9	$	(36)

Components of the net deferred tax liability as of Dec. 31:

(Millions of Dollars)	2022		2021
Deferred tax liabilities:
Difference between book and tax bases of property	$	343	$	331
Regulatory assets	25		29
Pension expense	10		11
Deferred fuel costs	6		8
Other	8		7
Total deferred tax liabilities	$	392	$	386
Deferred tax assets:
Regulatory liabilities	$	36	$	38
Tax credit carryforward	7		8
Environmental remediation	4		5
Other employee benefits	3		4
Rate refund	3		—
Deferred ITCs	2		2
Other	4		4
Total deferred tax assets	$	59	$	61
Net deferred tax liability	$	333	$	325

Other Income Tax Matters — NOL amounts represent the tax loss that is carried forward and tax credits represent the deferred tax asset. NOL and tax credit carryforwards as of Dec. 31 were as follows:

(Millions of Dollars)	2022		2021
Federal tax credit carryforwards	$	7	$	8
State NOL carryforward	2		2

Federal carryforward periods expire between 2032 and 2042 and state carryforward periods expire between 2031 and 2036.

Federal Tax Loss Carryback Claims — In 2020, Xcel Energy identified certain expenses related to tax years 2009 - 2011 that qualify for an extended carryback claim. NSP-Wisconsin is not expected to accrue any income tax expense related to this adjustment.

Unrecognized Tax Benefits

Federal Audit — NSP-Wisconsin is a member of the Xcel Energy affiliated group that files a consolidated federal income tax return. Statute of limitations applicable to Xcel Energy’s consolidated federal income tax returns expire as follows:

Tax Year(s)	Expiration
2014 - 2016	March 2024
2019	October 2023

Additionally, the statute of limitations related to certain federal tax credit carryforwards will remain open until those credits are utilized in subsequent returns. Further, the statute of limitations related to the additional federal tax loss carryback claim filed in 2020 has been extended. Xcel Energy has recognized its best estimate of income tax expense that will result from a final resolution of this issue; however, the outcome and timing of a resolution is unknown.

State Audits — NSP-Wisconsin is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of Dec. 31, 2022, NSP-Wisconsin’s earliest open tax years that are subject to examination by state taxing authorities under applicable statutes of limitations are as follows:

State	Tax Year(s)	Expiration
Wisconsin	2016-2017	April 2023
Wisconsin	2018	October 2023

In 2021, Wisconsin began an audit of tax years 2016-2019. As of Dec. 31, 2022 no material adjustments have been proposed.

Unrecognized tax benefit balance includes permanent tax positions, which if recognized would affect the ETR. In addition, the unrecognized tax benefit balance includes temporary tax positions for which deductibility is highly certain, but for which there is uncertainty about the timing. A change in the timing of deductibility would not affect the ETR but would accelerate the payment to the taxing authority.

Unrecognized tax benefits — permanent vs. temporary:

(Millions of Dollars)	Dec. 31, 2022		Dec. 31, 2021
Unrecognized tax benefit — Permanent tax positions	$	2	$	2
Unrecognized tax benefit — Temporary tax positions	1		1
Total unrecognized tax benefit	$	3	$	3

Changes in unrecognized tax benefits:

(Millions of Dollars)	2022		2021		2020
Balance at Jan. 1	$	3	$	2	$	3
Additions for tax positions of prior years	—		1		1
Reductions for tax positions of prior years	—		—		(2)
Balance at Dec. 31	$	3	$	3	$	2

Unrecognized tax benefits were reduced by tax benefits associated with NOL and tax credit carryforwards:

(Millions of Dollars)	Dec. 31, 2022		Dec. 31, 2021
NOL and tax credit carryforwards	$	(2)	$	(2)

As the IRS progresses its review of the tax loss carryback claims and as state audits progress, it is reasonably possible that the amount of unrecognized tax benefit could decrease up to approximately $2 million in the next 12 months.

Payable for interest related to unrecognized tax benefits is partially offset by the interest benefit associated with NOL and tax credit carryforwards. Payables for interest related to unrecognized tax benefits at Dec. 31, 2022, 2021 and 2020 were not material. No amounts were accrued for penalties related to unrecognized tax benefits as of Dec. 31, 2022, 2021 or 2020.