Income Taxes Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

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. The statute of limitations applicable to Xcel Energy’s consolidated federal tax returns expire as follows:

Tax Year(s)	Expiration
2014 - 2016	December 2022
2018	September 2022

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 — PSCo is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of Dec. 31, 2021, PSCo’s earliest open tax year that is subject to examination by state taxing authorities under applicable statutes of limitations is 2014. 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 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, 2021		Dec. 31, 2020
Unrecognized tax benefit — Permanent tax positions	$	9	$	7
Unrecognized tax benefit — Temporary tax positions	2		2
Total unrecognized tax benefit	$	11	$	9

Changes in unrecognized tax benefits:

(Millions of Dollars)	2021		2020		2019
Balance at Jan. 1	$	9	$	12	$	10
Additions based on tax positions related to the current year	2		2		1
Additions for tax positions of prior years	—		6		1
Reductions for tax positions of prior years	—		(11)		—
Balance at Dec. 31	$	11	$	9	$	12

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

(Millions of Dollars)	Dec. 31, 2021		Dec. 31, 2020
NOL and tax credit carryforwards	$	(11)	$	(8)

As the IRS progresses its review of the tax loss carryback claims and as state audits resume, 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.

Interest payable related to unrecognized tax benefits:

(Millions of Dollars)	2021		2020		2019
Payable for interest related to unrecognized tax benefits at Jan. 1	$	—	$	(1)	$	(1)
Interest income related to unrecognized tax benefits	—		1		—
Payable for interest related to unrecognized tax benefits at Dec. 31	$	—	$	—	$	(1)

No amounts were accrued for penalties related to unrecognized tax benefits as of Dec. 31, 2021, 2020 or 2019.

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)	2021		2020
Federal NOL carryforward	$	161	$	—
Federal tax credit carryforwards	259		143
State NOL carryforwards	342		190
State tax credit carryforwards, net of federal detriment (a)	17		18
Valuation allowances for state credit carryforwards, net of federal benefit (b)	(8)		(8)

(a)State tax credit carryforwards are net of federal detriment of $5 million as of Dec. 31, 2021 and 2020.

(b)Valuation allowances for state tax credit carryforwards were net of federal benefit of $2 million as of Dec. 31, 2021 and 2020.

Federal carryforward periods expire between 2031 and 2041 and state carryforward periods expire between 2022 and 2041.

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:

	2021		2020 (a)		2019 (a)
Federal statutory rate	21.0	%	21.0	%	21.0	%
State income tax on pretax income, net of federal tax effect	3.6		3.6		3.6
Increases (decreases) in tax from:
Wind PTCs	(14.3)		(10.3)		(7.5)
Plant regulatory differences (b)	(4.6)		(5.0)		(3.3)
Other tax credits, net NOL & tax credit allowances	(1.0)		(1.1)		(1.3)
Change in unrecognized tax benefits	0.3		(0.2)		0.3
Other, net	(0.2)		(0.9)		(0.6)
Effective income tax rate	4.8	%	7.1	%	12.2	%

(a)Prior periods have been reclassified to conform to current year presentation.

(b)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.

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

(Millions of Dollars)	2021		2020		2019
Current federal tax expense (benefit)	$	16	$	44	$	(9)
Current state tax expense (benefit)	—		4		(5)
Current change in unrecognized tax benefit	(1)		(3)		(1)
Deferred federal tax (benefit) expense	(13)		(26)		61
Deferred state tax expense	31		26		33
Deferred change in unrecognized tax expense	3		2		3
Deferred ITCs	(3)		(2)		(2)
Total income tax expense	$	33	$	45	$	80

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

(Millions of Dollars)	2021		2020		2019
Deferred tax expense excluding items below	$	63	$	46	$	132
Amortization and adjustments to deferred income taxes on income tax regulatory assets and liabilities	(42)		(43)		(35)
Tax expense allocated to other comprehensive income, adoption of ASC Topic 326, and other	—		(1)		—
Deferred tax expense	$	21	$	2	$	97

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

(Millions of Dollars)	2021		2020 (a)
Deferred tax liabilities:
Differences between book and tax bases of property	$	2,226	$	2,132
Regulatory assets	258		257
Deferred fuel costs	126		(3)
Operating lease assets	106		129
Pension expense and other employee benefits	23		19
Other	7		6
Total deferred tax liabilities	$	2,746	$	2,540
Deferred tax assets:
Regulatory liabilities	$	323	$	319
Tax credit carryforward	276		161
Operating lease liabilities	106		129
Bad debts	10		8
NOL carryforward	46		7
Deferred ITCs	8		5
Tax credit valuation allowances	(8)		(8)
Other	25		22
Total deferred tax assets	$	786	$	643
Net deferred tax liability	$	1,960	$	1,897

(a) Prior periods have been reclassified to conform to current year presentation.