Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

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:

	2022		2021 (c)		2020 (c)
Federal statutory rate	21.0	%	21.0	%	21.0	%
State income tax on pretax income, net of federal tax effect	2.3		2.5		2.3
Increases (decreases) in tax from:
Wind PTCs (a)	(35.9)		(39.7)		(18.3)
Plant regulatory differences (b)	(3.8)		(4.8)		(6.4)
Amortization of excess nonplant deferred taxes	(0.9)		(1.1)		(0.8)
Other, net	(0.6)		(0.7)		(1.3)
Effective income tax rate	(17.9)	%	(22.8)	%	(3.5)	%

(a)Wind PTCs are credited to customers (reduction to revenue) and do not materially impact net income.

(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 taxes are offset by corresponding revenue reductions.

(c)Prior period amounts have been restated to conform to current year presentation.

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

(Millions of Dollars)	2022		2021		2020
Current federal tax benefit	$	(65)	$	(11)	$	(31)
Current state tax benefit	(5)		(1)		(1)
Deferred federal tax expense (benefit)	3		(57)		13
Deferred state tax expense	13		9		8
Deferred change in unrecognized tax expense	1		1		1
Total income tax benefit	$	(53)	$	(59)	$	(10)

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

(Millions of Dollars)	2022		2021		2020
Deferred tax expense (benefit) excluding items below	$	37	$	(23)	$	53
Amortization and adjustments to deferred income taxes on income tax regulatory assets and liabilities	(20)		(24)		(31)
Deferred tax expense (benefit)	$	17	$	(47)	$	22

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

(Millions of Dollars)	2022		2021 (a)
Deferred tax liabilities:
Differences between book and tax bases of property	$	1,015	$	942
Operating lease assets	97		103
Regulatory assets	61		65
Deferred fuel costs	35		34
Pension expense	33		34
Other	1		1
Total deferred tax liabilities	$	1,242	$	1,179
Deferred tax assets:
Operating lease liabilities	$	97	$	103
Regulatory liabilities	98		98
Tax credit carryforward	294		187
NOL carryforward	2		76
Other employee benefits	6		7
Other	6		6
Total deferred tax assets	503		477
Net deferred tax liability	$	739	$	702

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

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)	2022		2021
Federal NOL carryforward	$	8	$	336
Federal tax credit carryforwards	294		187
State NOL carryforwards	4		111

Federal carryforward periods expire starting 2033 and state carryforward periods expire starting 2034.

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.

Unrecognized Tax Benefits

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	March 2024
2019	October 2023

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, 2022, SPS’ earliest open tax years that are subject to examination by state taxing authorities under applicable statutes of limitations are as follows:

State	Tax Year(s)	Expiration
Texas	2016	May 2023
Texas	2017	July 2025
Texas	2018	November 2023

In 2021, Texas began an audit of tax years 2016 - 2019. As of Dec. 31, 2022, no material adjustments have been proposed.

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, 2022		Dec. 31, 2021
Unrecognized tax benefit — Permanent tax positions	$	5	$	4
Unrecognized tax benefit — Temporary tax positions	4		4
Total unrecognized tax benefit	$	9	$	8

Changes in unrecognized tax benefits:

(Millions of Dollars)	2022		2021		2020
Balance at Jan. 1	$	8	$	7	$	5
Additions based on tax positions related to the current year	1		1		1
Additions for tax positions of prior years	—		—		5
Reductions for tax positions of prior years	—		—		(4)
Balance at Dec. 31	$	9	$	8	$	7

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

(Millions of Dollars)	Dec. 31, 2022		Dec. 31, 2021
NOL and tax credit carryforwards	$	(8)	$	(7)

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 $6 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)	2022		2021		2020
(Payable) receivable for interest related to unrecognized tax benefits at Jan. 1	$	(1)	$	(1)	$	1
Interest expense related to unrecognized tax benefits	1		—		(2)
(Payable) receivable for interest related to unrecognized tax benefits at Dec. 31	$	—	$	(1)	$	(1)

No amounts were accrued for penalties related to unrecognized tax benefits as of Dec. 31, 2022, 2021 or 2020.