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. As a result, a tax benefit of approximately $13 million was recognized in 2020.

Federal Audit — NSP-Minnesota 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	December 2022
2018	September 2022

Additionally, the statute of limitations related to the 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-Minnesota is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of Dec. 31, 2021, NSP-Minnesota’s earliest open tax year subject to examination by state taxing authorities under applicable statutes of limitations is 2014. In July 2020, Minnesota began an audit of tax years 2015 - 2018. As of Dec. 31, 2021, no material adjustments have been proposed.

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	$	23	$	21
Unrecognized tax benefit — Temporary tax positions	3		3
Total unrecognized tax benefit	$	26	$	24

Changes in unrecognized tax benefits:

(Millions of Dollars)	2021		2020		2019
Balance at Jan. 1	$	24	$	20	$	17
Additions based on tax positions related to the current year	2		2		3
Reductions based on tax positions related to the current year	—		—		(1)
Additions for tax positions of prior years	—		16		1
Reductions for tax positions of prior years	—		(14)		—
Balance at Dec. 31	$	26	$	24	$	20

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	$	(13)	$	(11)

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 $14 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	$	(2)	$	(2)	$	(1)
Interest expense related to unrecognized tax benefits	—		—		(1)
Payable for interest related to unrecognized tax benefits at Dec. 31	$	(2)	$	(2)	$	(2)

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	$	77	$	—
Federal tax credit carryforwards	704		543
State NOL carryforwards	344		151
Valuation allowances for state NOL carryforwards	(1)		(1)
State tax credit carryforwards, net of federal detriment (a)	78		71
Valuation allowances for state credit carryforwards, net of federal benefit (b)	(64)		(59)

(a)State tax credit carryforwards are net of federal detriment of $21 million and $19 million as of Dec. 31, 2021 and 2020, respectively.

(b)Valuation allowances for state tax credit carryforwards were net of federal benefit of $17 million and $16 million as of Dec. 31, 2021 and 2020, respectively.

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

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		2019
Federal statutory rate	21.0	%	21.0	%	21.0	%
State income tax on pretax income, net of federal tax effect	7.0		7.0		7.1
Increases (decreases) in tax from:
Wind PTCs	(27.8)		(19.3)		(11.8)
Plant regulatory differences (a)	(8.1)		(7.2)		(7.4)
Other tax credits, net NOL & tax credit allowances	(1.4)		(1.2)		(1.5)
Change in unrecognized tax benefits	0.5		1.0		0.5
NOL Carryback	—		(2.1)		—
Other, net	0.2		(0.2)		0.1
Effective income tax rate	(8.6)	%	(1.0)	%	8.0	%

(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.

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

(Millions of Dollars)	2021		2020		2019
Current federal tax (benefit) expense	$	(10)	$	41	$	80
Current state tax (benefit) expense	(1)		12		8
Current change in unrecognized tax expense (benefit)	1		9		(1)
Deferred federal tax benefit	(87)		(102)		(86)
Deferred state tax expense	49		38		43
Deferred change in unrecognized tax expense (benefit)	2		(3)		4
Deferred ITCs	(2)		(1)		(1)
Total income tax (benefit) expense	$	(48)	$	(6)	$	47

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

(Millions of Dollars)	2021		2020		2019
Deferred tax expense excluding items below	$	109	$	61	97
Amortization and adjustments to deferred income taxes on income tax regulatory assets and liabilities	(145)		(127)		(135)
Tax expense allocated to other comprehensive income, adoption of ASC Topic 326, and other	—		(1)		(1)
Deferred tax benefit	$	(36)	$	(67)	$	(39)

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	$	2,679	$	2,482
Regulatory assets	260		270
Operating lease assets	123		147
Deferred fuel costs	92		7
Pension expense	73		72
Other	13		7
Total deferred tax liabilities	$	3,240	$	2,985
Deferred tax assets:
Tax credit carryforward	$	782	$	614
Regulatory Liabilities	325		349
Operating lease liabilities	123		147
NOL and tax credit valuation allowances	(64)		(59)
Other employee benefits	32		38
NOL carryforward	43		12
Deferred ITCs	5		5
Other	45		39
Total deferred tax assets	$	1,291	$	1,145
Net deferred tax liability	$	1,949	$	1,840

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