Income Taxes Income Taxes

12 Months Ended

Dec. 31, 2023

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:

	2023		2022		2021
Federal statutory rate	21.0	%	21.0	%	21.0	%
State income tax on pretax income, net of federal tax effect	3.5		3.5		3.6
Increases (decreases) in tax from:
Wind PTCs (a)	(14.5)		(14.3)		(14.3)
Plant regulatory differences (b)	(5.5)		(4.5)		(4.6)
Other tax credits, net NOL & tax credit allowances	(1.1)		(1.1)		(1.0)
Other, net	0.6		0.2		0.1
Effective income tax rate	4.0	%	4.8	%	4.8	%

(a)Wind PTCs net of estimated transfer discount are credited to customers (reduction to revenue) and do not materially impact net income.

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

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

(Millions of Dollars)	2023		2022		2021
Current federal tax expense	$	182	$	39	$	16
Current state tax expense	28		11		—
Current change in unrecognized tax benefit	—		—		(1)
Deferred federal tax benefit	(181)		(32)		(13)
Deferred state tax expense	2		21		31
Deferred change in unrecognized tax expense	1		1		3
Deferred ITCs	(3)		(3)		(3)
Total income tax expense	$	29	$	37	$	33

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

(Millions of Dollars)	2023		2022		2021
Deferred tax (benefit) expense excluding items below	$	(89)	$	23	$	63
Amortization and adjustments to deferred income taxes on income tax regulatory assets and liabilities	(48)		(32)		(42)
Adjustments to deferred income taxes for wind production tax credit cash transfers (a)	(40)		—		—
Tax expense allocated to other comprehensive income and other	(1)		(1)		—
Deferred tax (benefit) expense	$	(178)	$	(10)	$	21

(a)Proceeds from tax credit transfers are included in cash received (paid) for income taxes in the consolidated statement of cash flows.

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

(Millions of Dollars)	2023		2022 (a)
Deferred tax liabilities:
Differences between book and tax bases of property	$	2,326	$	2,315
Regulatory assets	289		243
Operating lease assets	95		112
Deferred fuel costs	51		125
Pension expense and other employee benefits	22		27
Other	8		11
Total deferred tax liabilities	$	2,791	$	2,833
Deferred tax assets:
Tax credit carryforward	$	457	$	385
Regulatory liabilities	291		292
Operating lease liabilities	95		112
Bad debts	14		14
Deferred ITCs	10		7
Tax credit carryforward valuation allowances	(6)		(6)
Rate refund	4		21
NOL carryforward	—		9
Other	32		16
Total deferred tax assets	$	897	$	850
Net deferred tax liability	$	1,894	$	1,983

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

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)	2023		2022
Federal NOL carryforward	$	—	$	5
Federal tax credit carryforwards	444		368
Valuation allowances for federal credit carryforwards	(3)		—
State NOL carryforwards	—		223
State tax credit carryforwards, net of federal detriment (a)	13		16
Valuation allowances for state credit carryforwards, net of federal benefit (b)	(3)		(6)

(a)State tax credit carryforwards are net of federal detriment of $3 million and $4 million as of Dec. 31, 2023 and 2022, respectively.

(b)Valuation allowances for state tax credit carryforwards were net of federal benefit of $1 million and $2 million as of Dec. 31, 2023 and 2022, respectively.

Federal carryforward periods expire between 2038 and 2043 and state carryforward periods expire between 2024 and 2036.

Unrecognized Tax Benefits

Federal Audit — PSCo is a member of the 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	March 2025
2020	September 2024

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. As of Dec. 31, 2023 the IRS issued its Revenue Agent’s Report related to the federal tax loss carryback claim. The Company materially agrees with the report and re-recognized the related benefit in Dec. 2023.

State Audits — PSCo is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of Dec. 31, 2023, PSCo’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
Colorado	2014-2016	March 2026
Colorado	2019	October 2024

There are currently no state income tax audits in progress.

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, 2023		Dec. 31, 2022
Unrecognized tax benefit — Permanent tax positions	$	12	$	11
Unrecognized tax benefit — Temporary tax positions	—		2
Total unrecognized tax benefit	$	12	$	13

Changes in unrecognized tax benefits:

(Millions of Dollars)	2023		2022		2021
Balance at Jan. 1	$	13	$	11	$	9
Additions based on tax positions related to the current year	2		2		2
Reductions for tax positions of prior years	(3)		—		—
Balance at Dec. 31	$	12	$	13	$	11

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

(Millions of Dollars)	Dec. 31, 2023		Dec. 31, 2022
NOL and tax credit carryforwards	$	(11)	$	(12)

As IRS and state audits resume, it is reasonably possible that the amount of unrecognized tax benefit could decrease up to approximately $4 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, 2023, 2022 and 2021 were not material. No amounts were accrued for penalties related to unrecognized tax benefits as of Dec. 31, 2023, 2022 or 2021.