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

Federal Audit — SPS 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:

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 — SPS is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of Dec. 31, 2020, SPS’ earliest open tax year that is subject to examination by state taxing authorities under applicable statutes of limitations is 2012. 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.

Unrecognized tax benefits — permanent vs temporary:


(Millions of Dollars)	Dec. 31, 2020		Dec. 31, 2019
Unrecognized tax benefit — Permanent tax positions	$	3	$	3
Unrecognized tax benefit — Temporary tax positions	4		2
Total unrecognized tax benefit	$	7	$	5


(Millions of Dollars)	2020		2019		2018
Balance at Jan. 1	$	5	$	5	$	4
Additions based on tax positions related to the current year	1		—		1
Additions for tax positions of prior years	5		—		—
Reductions for tax positions of prior years	(4)		—		—
Balance at Dec. 31	$	7	$	5	$	5

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


(Millions of Dollars)	Dec. 31, 2020		Dec. 31, 2019
NOL and tax credit carryforwards	$	(6)	$	(4)

Net deferred tax liability associated with the unrecognized tax benefit amounts and related NOLs and tax credits carryforwards were $2 million and $1 million at 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 $5 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
Receivable for interest related to unrecognized tax benefits at Jan. 1	$	1	$	1	$	1
Interest expense related to unrecognized tax benefits	(2)		—		—
(Payable) receivable for interest related to unrecognized tax benefits at Dec. 31	$	(1)	$	1	$	1

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:

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	2.3		2.2		2.3
Increases (decreases) in tax from:
Wind PTCs	(18.3)		(7.9)		—
Plant regulatory differences (a)	(6.4)		(5.0)		(4.8)
Amortization of excess nonplant deferred taxes	(0.8)		(0.9)		(1.2)
Other tax credits, net NOL & tax credit allowances	(0.7)		(0.6)		(0.7)
Adjustments attributable to tax returns	(0.6)		(0.1)		(1.5)
Change in unrecognized tax benefits	0.3		0.2		0.1
Other, net	(0.3)		0.1		0.3
Effective income tax rate	(3.5)	%	9.0	%	15.5	%

(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.


(Millions of Dollars)	2020		2019		2018
Current federal tax (benefit) expense	$	(31)	$	(4)	$	12
Current state tax (benefit) expense	(1)		1		3
Current change in unrecognized tax expense	—		—		2
Deferred federal tax expense	13		22		20
Deferred state tax expense	8		6		4
Deferred change in unrecognized tax expense (benefit)	1		1		(2)
Total income tax (benefit) expense	$	(10)	$	26	$	39


(Millions of Dollars)	2020		2019		2018
Deferred tax expense excluding items below	$	53	$	53	$	44
Amortization and adjustments to deferred income taxes on income tax regulatory assets and liabilities	(31)		(24)		(22)
Deferred tax expense	$	22	$	29	$	22


(Millions of Dollars)	2020		2019 (a)
Deferred tax liabilities:
Differences between book and tax bases of property	$	838	$	759
Operating lease assets	109		116
Regulatory assets	59		50
Pension expense	33		33
Other	2		—
Total deferred tax liabilities	$	1,041	$	958

Deferred tax assets:
Operating lease liabilities	$	109	$	116
Regulatory liabilities	104		111
Tax credit carryforward	83		30
Deferred fuel costs	9		18
Other employee benefits	7		6
Other	4		5
Total deferred tax assets	316		286
Net deferred tax liability	$	725	$	672