Income Taxes

6 Months Ended

Jun. 30, 2019

Except to the extent noted below, Note 7 to the consolidated financial statements included in Xcel Energy’s Annual Report on Form 10-K for the year ended Dec. 31, 2018 represents, in all material respects, the current status of other income tax matters, and are incorporated herein by reference.

The following table reconciles the difference between the statutory rate and the ETR:



	Three Months Ended June 30				Six Months Ended June 30
	2019		2018		2019		2018
Federal statutory rate	21.0	%	21.0	%	21.0	%	21.0	%
State tax (net of federal tax effect)	5.0		5.1		5.0		5.0
(Decreases) increases:
Wind PTCs	(11.9	)	(5.4	)	(10.0	)	(5.8	)
Plant regulatory differences ^(a)	(5.5	)	(2.4	)	(5.6	)	(1.8	)
Other tax credits and allowances (net)	(0.6	)	(1.1	)	(1.8	)	(1.2	)
Other (net)	1.2		(0.3	)	(0.5	)	(0.2	)
Effective income tax rate	9.2	%	16.9	%	8.1	%	17.0	%

^(a)

Regulatory differences for income tax primarily relate to the flow back of excess deferred taxes to customers through the average rate assumption method and the impact of AFUDC - Equity. Quarterly variations primarily relates to the deferral of the flow back of excess deferred taxes in 2018, as a result of pending regulatory decisions. Treatment of most tax reform items was established prior to the first quarter of 2019, resulting in a reduction in deferred amounts. Income tax benefits associated with the flow back of excess deferred credits are offset by corresponding revenue reductions and additional prepaid pension asset amortization.

Federal Audits — Statute of limitations applicable to Xcel Energy’s consolidated federal income tax returns expire as follows:



Tax Year(s)		Expiration
2009 - 2013		June 2020
2014 - 2016		September 2020
2017		September 2021

In 2015, the IRS commenced an examination of tax years 2012 and 2013. 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. As of June 30, 2019, the case has been forwarded to the Office of Appeals and 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 2018, the IRS began an audit of tax years 2014 - 2016. As of June 30, 2019, no adjustments have been proposed.

State Audits — Xcel Energy files consolidated state tax returns based on income in its major operating jurisdictions and various other state income-based tax returns.

As of June 30, 2019, Xcel Energy’s earliest open tax years (subject to examination by state taxing authorities in its major operating jurisdictions) were as follows:



State		Year
Colorado		2009
Minnesota		2009
Texas		2009
Wisconsin		2014


•	In 2018, Wisconsin began an audit of tax years 2014 - 2016. As of June 30, 2019, no material adjustments have been proposed.


•	No other state income tax audits were in progress as of June 30, 2019.

Unrecognized 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)	June 30, 2019		Dec. 31, 2018
Unrecognized tax benefit — Permanent tax positions	$	30	$	28
Unrecognized tax benefit — Temporary tax positions	10		9
Total unrecognized tax benefit	$	40	$	37

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



(Millions of Dollars)	June 30, 2019			Dec. 31, 2018
NOL and tax credit carryforwards	$	(36	)	$	(35	)

Net deferred tax liability associated with the unrecognized tax benefit amounts and related NOLs and tax credits carryforwards were $25 million at June 30, 2019 and $24 million at Dec. 31, 2018.

As the IRS Appeals and federal and state audits progress, it is reasonably possible that the amount of unrecognized tax benefit could decrease up to approximately $28 million in the next 12 months.

Payables for interest related to unrecognized tax benefits were not material and no amounts were accrued for penalties related to unrecognized tax benefits as of June 30, 2019 or Dec. 31, 2018.