XML 114 R17.htm IDEA: XBRL DOCUMENT

Income Taxes

12 Months Ended

Dec. 31, 2019

Federal Tax Reform — In 2017, the TCJA was signed into law. The key provisions impacting Xcel Energy, generally beginning in 2018, included:


•	Corporate federal tax rate reduction from 35% to 21%;


•	Normalization of resulting plant-related excess deferred taxes;


•	Elimination of the corporate alternative minimum tax;


•	Continued interest expense deductibility and discontinued bonus depreciation for regulated public utilities;


•	Limitations on certain executive compensation deductions;


•	Limitations on certain deductions for NOLs arising after Dec. 31, 2017 (limited to 80% of taxable income);


•	Repeal of the section 199 manufacturing deduction; and


•	Reduced deductions for meals and entertainment as well as state and local lobbying.

Reductions in deferred tax assets and liabilities due to a decrease in corporate federal tax rates typically result in a net tax benefit. However, the impacts are primarily recognized as regulatory liabilities refundable to utility customers as a result of IRS requirements and past regulatory treatment.

Estimated impacts of the new tax law in December 2017 included:


•	$2.7 billion ($3.8 billion grossed-up for tax) of reclassifications of plant-related excess deferred taxes to regulatory liabilities upon valuation at the new 21% federal rate. The regulatory liabilities will be amortized consistent with IRS normalization requirements, resulting in customer refunds over an estimated weighted average period of approximately 30 years;


•	$254 million and $174 million of reclassifications (grossed-up for tax) of excess deferred taxes for non-plant related deferred tax assets and liabilities, respectively, to regulatory assets and liabilities; and


•	$23 million of total estimated income tax expense related to the tax rate change on certain non-plant deferred taxes and all other 2017 income statement impacts of the federal tax reform.

Xcel Energy accounted for the state tax impacts of federal tax reform based on enacted state tax laws. Any future state tax law changes related to the TCJA will be accounted for in the periods state laws are enacted.

Federal Audit — Statute of limitations applicable to Xcel Energy’s consolidated federal income tax returns:



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

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 Dec. 31, 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 Dec. 31, 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 Dec. 31, 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 Dec. 31, 2019, no material adjustments have been proposed.


•	Xcel Energy had no other state income tax audits in progress for its major operating jurisdictions as of Dec. 31, 2019.

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, 2019		Dec. 31, 2018
Unrecognized tax benefit — Permanent tax positions	$	35	$	28
Unrecognized tax benefit — Temporary tax positions	9		9
Total unrecognized tax benefit	$	44	$	37

Changes in unrecognized tax benefits:



(Millions of Dollars)	2019			2018			2017
Balance at Jan. 1	$	37		$	39		$	134
Additions based on tax positions related to the current year	10			9			6
Reductions based on tax positions related to the current year	(4		)	(4		)	(4		)
Additions for tax positions of prior years	1			2			15
Reductions for tax positions of prior years	—			(4		)	(105		)
Settlements with taxing authorities	—			(5		)	(7		)
Balance at Dec. 31	$	44		$	37		$	39

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



(Millions of Dollars)	Dec. 31, 2019			Dec. 31, 2018
NOL and tax credit carryforwards	$	(40	)	$	(35	)

Net deferred tax liability associated with the unrecognized tax benefit amounts and related NOLs and tax credits carryforwards were $29 million and $24 million at Dec. 31, 2019 and Dec. 31, 2018, respectively.

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

No amounts were payable for interest related to unrecognized tax benefits as of Dec. 31, 2019, 2018 or 2017. No interest income related to unrecognized tax benefits was recorded in 2019 or 2018, and $3 million was recorded in 2017.

No amounts were accrued for penalties related to unrecognized tax benefits as of Dec. 31, 2019, 2018 or 2017.

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:



(Millions of Dollars)	2019			2018
Federal tax credit carryforwards	$	639		$	553
Valuation allowances for federal credit carryforwards	—			(5		)
State NOL carryforwards	937			1,104
Valuation allowances for state NOL carryforwards	(19		)	(50		)
State tax credit carryforwards, net of federal detriment ^(a)	89			89
Valuation allowances for state credit carryforwards, net of federal benefit ^(b)	(66		)	(69		)


^(a)	State tax credit carryforwards are net of federal detriment of $24 million as of Dec. 31, 2019 and 2018.


^(b)	Valuation allowances for state tax credit carryforwards were net of federal benefit of $17 million and $18 million as of Dec. 31, 2019 and 2018, respectively.

Federal carryforward periods expire between 2023 and 2039 and state carryforward periods expire between 2020 and 2036.

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:



	2019		2018 ^(a)		2017 ^(a)
Federal statutory rate	21.0	%	21.0	%	35.0	%
State income tax on pretax income, net of federal tax effect	4.9		5.0		4.1
Increases (decreases) in tax from:
Wind PTCs	(9.4	)	(5.2	)	(4.7	)
Plant regulatory differences ^(b)	(5.8	)	(6.2	)	(0.8	)
Other tax credits, net of NOL & tax credit allowances	(1.7	)	(1.7	)	(1.0	)
Change in unrecognized tax benefits	0.5		0.4		(0.6	)
Tax reform	—		—		1.4
Other, net	(1.0	)	(0.7	)	(1.3	)
Effective income tax rate	8.5	%	12.6	%	32.1	%


^(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 years ended Dec. 31:



(Millions of Dollars)	2019			2018			2017
Current federal tax (benefit) expense	$	(16	)	$	(34	)	$	1
Current state tax expense (benefit)	4			8			(11		)
Current change in unrecognized tax expense (benefit)	2			(6		)	(83		)
Deferred federal tax expense	55			122			460
Deferred state tax expense	83			85			107
Deferred change in unrecognized tax expense	5			11			73
Deferred ITCs	(5		)	(5		)	(5		)
Total income tax expense	$	128		$	181		$	542

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



(Millions of Dollars)	2019			2018			2017
Deferred tax expense (benefit) excluding items below	$	344		$	320		$	(2,939	)
Amortization and adjustments to deferred income taxes on income tax regulatory assets and liabilities	(206		)	(102		)	3,583
Tax benefit (expense) allocated to other comprehensive income, net of adoption of ASU No. 2018-02, and other	5			—			(4		)
Deferred tax expense	$	143		$	218		$	640

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



(Millions of Dollars)	2019			2018 ^(a)
Deferred tax liabilities:
Differences between book and tax bases of property	$	5,474		$	5,082
Operating lease assets	449			—
Regulatory assets	598			599
Pension expense	173			178
Other	70			60
Total deferred tax liabilities	$	6,764		$	5,919

Deferred tax assets:
Regulatory liabilities	$	847		$	879
Operating lease liabilities	449			—
Tax credit carryforward	727			642
NOL carryforward	38			51
NOL and tax credit valuation allowances	(67		)	(79		)
Other employee benefits	128			124
Deferred ITCs	14			16
Rate refund	26			60
Other	93			61
Total deferred tax assets	$	2,255		$	1,754
Net deferred tax liability	$	4,509		$	4,165

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