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. 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. The statute of limitations applicable to Xcel Energy’s consolidated federal 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 — SPS is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of Dec. 31, 2021, SPS’ earliest open tax year that is subject to examination by state taxing authorities under applicable statutes of limitations is 2016. In April 2021, Texas began an audit of tax years 2016 - 2019. 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	$	4	$	3
Unrecognized tax benefit — Temporary tax positions	4		4
Total unrecognized tax benefit	$	8	$	7

Changes in unrecognized tax benefits:

(Millions of Dollars)	2021		2020		2019
Balance at Jan. 1	$	7	$	5	$	5
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	$	8	$	7	$	5

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	$	(7)	$	(6)

As the IRS progresses its review of the tax loss carryback claim and as state audits progress, 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.

Interest payable related to unrecognized tax benefits:

(Millions of Dollars)	2021		2020		2019
(Payable) 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

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	$	336	$	—
Federal tax credit carryforwards	187		83
State NOL carryforwards	111		1

Federal carryforward periods expire between 2031 and 2041 and state carryforward periods expire starting 2034.

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 (a)		2019 (a)
Federal statutory rate	21.0	%	21.0	%	21.0	%
State income tax on pretax income, net of federal tax effect	2.5		2.3		2.2
Increases (decreases) in tax from:
Wind PTCs	(39.7)		(18.3)		(7.9)
Plant regulatory differences (b)	(4.8)		(6.4)		(5.0)
Amortization of excess nonplant deferred taxes	(1.1)		(0.8)		(0.9)
Change in unrecognized tax benefits	0.5		0.3		0.2
Other, net	(1.2)		(1.6)		(0.6)
Effective income tax rate	(22.8)	%	(3.5)	%	9.0	%

(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.

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

(Millions of Dollars)	2021		2020		2019
Current federal tax benefit	$	(11)	$	(31)	$	(4)
Current state tax (benefit) expense	(1)		(1)		1
Current change in unrecognized tax expense	—		—		—
Deferred federal tax (benefit) expense	(57)		13		22
Deferred state tax expense	9		8		6
Deferred change in unrecognized tax expense	1		1		1
Total income tax (benefit) expense	$	(59)	$	(10)	$	26

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

(Millions of Dollars)	2021		2020		2019
Deferred tax (benefit) expense excluding items below	$	(23)	$	53	$	53
Amortization and adjustments to deferred income taxes on income tax regulatory assets and liabilities	(24)		(31)		(24)
Deferred tax (benefit) expense	$	(47)	$	22	$	29

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	$	942	$	838
Operating lease assets	103		109
Regulatory assets	65		59
Deferred fuel costs	34		(9)
Pension expense	34		33
Other	2		2
Total deferred tax liabilities	$	1,180	$	1,032
Deferred tax assets:
Operating lease liabilities	$	103	$	109
Regulatory liabilities	98		104
Tax credit carryforward	187		83
NOL carryforward	76		—
Other employee benefits	7		7
Other	7		4
Total deferred tax assets	478		307
Net deferred tax liability	$	702	$	725

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