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. PSCo is not expected to accrue any income tax expense related to this adjustment.

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


Tax Year(s)						Expiration
2014 - 2016						July 2021

Additionally, the statute of limitations related to the federal tax loss carryback claim referenced above 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.

In 2017, the IRS concluded the audit of tax years 2012 and 2013 and proposed an adjustment that would impact Xcel Energy’s NOL and ETR. Xcel Energy filed a protest with the IRS. In April 2020, Xcel Energy and Appeals reached an agreement and no material adjustments were required.

In 2018, the IRS began an audit of tax years 2014 - 2016. In July 2020, Xcel Energy and the IRS reached an agreement and the related benefit was recognized.

State Audits — PSCo is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of Dec. 31, 2020, PSCo’s earliest open tax year that is subject to examination by state taxing authorities under applicable statutes of limitations is 2009. There are currently no state income tax audits in progress.

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


(Millions of Dollars)	Dec. 31, 2020		Dec. 31, 2019
Unrecognized tax benefit — Permanent tax positions	$	7	$	7
Unrecognized tax benefit — Temporary tax positions	2		5
Total unrecognized tax benefit	$	9	$	12


(Millions of Dollars)	2020		2019		2018
Balance at Jan. 1	$	12	$	10	$	10
Additions based on tax positions related to the current year	2		1		1
Additions for tax positions of prior years	6		1		—
Reductions for tax positions of prior years	(11)		—		—
Settlements with taxing authorities	—		—		(1)
Balance at Dec. 31	$	9	$	12	$	10

Net deferred tax liability associated with the unrecognized tax benefit amounts and related NOLs and tax credits carryforwards were $6 million and $5 million for Dec. 31, 2020 and Dec. 31, 2019, respectively.

As the IRS and state audits resume, it is reasonably possible that the amount of unrecognized tax benefit could decrease up to approximately $3 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.


(Millions of Dollars)	2020		2019		2018
Payable for interest related to unrecognized tax benefits at Jan. 1	$	(1)	$	(1)	$	—
Interest income (expense) related to unrecognized tax benefits	1		—		(1)
Payable for interest related to unrecognized tax benefits at Dec. 31	$	—	$	(1)	$	(1)

Other Income Tax Matters — NOL amounts represent the tax loss that is carried forward and tax credits represent the deferred tax asset.


(Millions of Dollars)	2020		2019
Federal tax credit carryforwards	$	143	$	83
State NOL carryforwards	190		388
State tax credit carryforwards, net of federal detriment (a)	18		18
Valuation allowances for state credit carryforwards, net of federal benefit (b)	(8)		(8)

(b)Valuation allowances for state tax credit carryforwards were net of federal benefit of $2 million as of both Dec. 31, 2020 and 2019.

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:


	2020		2019		2018
Federal statutory rate	21.0	%	21.0	%	21.0	%
State income tax on pretax income, net of federal tax effect	3.6		3.6		3.7
Increases (decreases) in tax from:
Wind PTCs	(10.3)		(7.5)		(0.6)
Plant regulatory differences (a)	(5.0)		(3.3)		(4.5)
Other tax credits, net NOL & tax credit allowances	(1.1)		(1.3)		(0.6)
Amortization of excess nonplant deferred taxes	(0.2)		(0.2)		(1.4)
Change in unrecognized tax benefits	(0.2)		0.3		0.1
Other, net	(0.7)		(0.4)		(0.7)
Effective income tax rate	7.1	%	12.2	%	17.0	%

.(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 credits are offset by corresponding revenue reductions and additional prepaid pension asset amortization.


(Millions of Dollars)	2020		2019		2018
Current federal tax expense (benefit)	$	44	$	(9)	$	79
Current state tax expense (benefit)	4		(5)		14
Current change in unrecognized tax benefit	(3)		(1)		(1)
Deferred federal tax (benefit) expense	(26)		61		5
Deferred state tax expense	26		33		17
Deferred change in unrecognized tax expense	2		3		2
Deferred ITCs	(2)		(2)		(3)
Total income tax expense	$	45	$	80	$	113


(Millions of Dollars)	2020		2019		2018
Deferred tax expense excluding items below	$	46	$	132	$	75
Amortization and adjustments to deferred income taxes on income tax regulatory assets and liabilities	(43)		(35)		(51)
Tax expense allocated to other comprehensive income, adoption of ASC Topic 326, adoption of ASU No. 2018-02, and other	(1)		—		—
Deferred tax expense	$	2	$	97	$	24


(Millions of Dollars)	2020		2019 (a)
Deferred tax liabilities:
Differences between book and tax bases of property	$	2,132	$	2,039
Regulatory assets	257		253
Operating lease assets	129		148
Pension expense and other employee benefits	19		22
Other	6		7
Total deferred tax liabilities	$	2,543	$	2,469

Deferred tax assets:
Regulatory liabilities	$	319	$	327
Tax credit carryforward	161		101
Operating lease liabilities	129		148
Bad debts	8		5
NOL carryforward	7		14
Deferred ITCs	5		6
Tax credit valuation allowances	(8)		(8)
Other	25		25
Total deferred tax assets	$	646	$	618
Net deferred tax liability	$	1,897	$	1,851