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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Federal Tax Reform — In 2017, the TCJA was signed into law. The key provisions impacting Xcel Energy, generally beginning in 2018, include:
• | 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.
Xcel Energy estimated the effects of the TCJA, which have been reflected in the consolidated financial statements. 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 Tax Loss Carryback Claims — In 2012 - 2015, Xcel Energy identified certain expenses related to 2009, 2010, 2011, 2013, 2014 and 2015 that qualify for an extended carryback beyond the typical two-year carryback period. As a result of a higher tax rate in prior years, Xcel Energy recognized a tax benefit of approximately $5 million in 2015, $17 million in 2014, $12 million in 2013 and $15 million in 2012. Federal Audit — Statute of limitations applicable to Xcel Energy’s consolidated federal income tax returns expire as follows:
Tax Year(s) |  | Expiration
2009 - 2014 |  | October 2019
2015 |  | September 2019
2016 |  | September 2020
2017 |  | September 2021
In 2012, the IRS commenced an examination of tax years 2010 and 2011, including the 2009 carryback claim. In 2017, Xcel Energy and the Office of Appeals reached an agreement and the benefit related to the agreed upon portions was recognized. In the second quarter of 2018, the Joint Committee on Taxation completed its review and took no exception to the agreement. As a result, the remaining unrecognized tax benefit was released and recorded as a payable to the IRS. In the third quarter of 2015, the IRS commenced an examination of tax years 2012 and 2013. In the third quarter of 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, 2018, 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 the fourth quarter of 2018, the IRS began an audit of tax years 2014 - 2016, however 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, 2018, 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 |  | 2010
Wisconsin |  | 2014
• | In the fourth quarter of 2018, the Minnesota audit of tax years 2010 - 2014 concluded with no material adjustments.
• | In the third quarter of 2018, the Wisconsin audit of tax years 2012 - 2013 concluded with no material adjustments. In the fourth quarter of 2018, Wisconsin began an audit of tax years 2014 - 2016. No material adjustments have been proposed.
• | No other state income tax audits were in progress as of Dec. 31, 2018.
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, 2018 |  | Dec. 31, 2017
Unrecognized tax benefit — Permanent tax positions |  | $ | 28 |  |  | $ | 20 |
Unrecognized tax benefit — Temporary tax positions |  | 9 |  |  | 19 |
Total unrecognized tax benefit |  | $ | 37 |  |  | $ | 39 |
Changes in unrecognized tax benefits:
(Millions of Dollars) |  | 2018 |  | 2017 |  | 2016
Balance at Jan. 1 |  | $ | 39 |  |  | $ | 134 |  |  | $ | 121 |
Additions based on tax positions related to the current year |  | 9 |  |  | 6 |  |  | 8 |
Reductions based on tax positions related to the current year |  | (4 | ) |  | (4 | ) |  | — |
Additions for tax positions of prior years |  | 2 |  |  | 15 |  |  | 10 |
Reductions for tax positions of prior years |  | (4 | ) |  | (105 | ) |  | (5 | )
Settlements with taxing authorities |  | (5 | ) |  | (7 | ) |  | — |
Balance at Dec. 31 |  | $ | 37 |  |  | $ | 39 |  |  | $ | 134 |
Unrecognized tax benefits were reduced by tax benefits associated with NOL and tax credit carryforwards:
(Millions of Dollars) |  | Dec. 31, 2018 |  | Dec. 31, 2017
NOL and tax credit carryforwards |  | $ | (35 | ) |  | $ | (31 | )
Net deferred tax liability associated with the unrecognized tax benefit amounts and related NOLs and tax credits carryforwards were $24 million and $13 million at Dec. 31, 2018 and Dec 31, 2017, 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. Interest payable related to unrecognized tax benefits:
(Millions of Dollars) |  | 2018 |  | 2017 |  | 2016
Payable for interest related to unrecognized tax benefits at Jan. 1 |  | $ | — |  |  | $ | (3 | ) |  | $ | — |
Interest income (expense) related to unrecognized tax benefits |  | — |  |  | 3 |  |  | (3 | )
Payable for interest related to unrecognized tax benefits at Dec. 31 |  | $ | — |  |  | $ | — |  |  | $ | (3 | )
No amounts were accrued for penalties related to unrecognized tax benefits as of Dec. 31, 2018, 2017 or 2016. 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) |  | 2018 |  | 2017
Federal NOL carryforward |  | $ | — |  |  | $ | 1,072 |
Federal tax credit carryforwards |  | 553 |  |  | 517 |
Valuation allowances for federal credit carryforwards |  | (5 | ) |  | (5 | )
State NOL carryforwards |  | 1,104 |  |  | 1,592 |
Valuation allowances for state NOL carryforwards |  | (50 | ) |  | (55 | )
State tax credit carryforwards, net of federal detriment (a) |  | 89 |  |  | 90 |
Valuation allowances for state credit carryforwards, net of federal benefit (b) |  | (69 | ) |  | (68 | )
(a) | State tax credit carryforwards are net of federal detriment of $24 million as of Dec. 31, 2018 and 2017.
(b) | Valuation allowances for state tax credit carryforwards were net of federal benefit of $18 million as of Dec. 31, 2018 and 2017.
Federal carryforward periods expire between 2021 and 2038 and state carryforward periods expire between 2019 and 2037. 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:
| 2018 |  | 2017 (a) |  | 2016 (a)
Federal statutory rate | 21.0 | % |  | 35.0 | % |  | 35.0 | %
State income tax on pretax income, net of federal tax effect | 5.0 |  |  | 4.1 |  |  | 4.1 |
Increases (decreases) in tax from: |  |  |  |  |
Regulatory differences - ARAM (b) | (5.8 | ) |  | (0.1 | ) |  | (0.1 | )
Wind production tax credits recognized | (5.2 | ) |  | (4.7 | ) |  | (3.4 | )
Other tax credits recognized, net of federal income tax expense | (2.0 | ) |  | (1.0 | ) |  | (0.8 | )
Regulatory differences - other utility plant items | (1.0 | ) |  | (0.7 | ) |  | (0.5 | )
Regulatory differences - Deferral of ARAM (c) | 0.6 |  |  | — |  |  | — |
Change in unrecognized tax benefits | 0.4 |  |  | (0.6 | ) |  | 0.2 |
Tax reform | — |  |  | 1.4 |  |  | — |
Other, net | (0.4 | ) |  | (1.3 | ) |  | (0.4 | )
Effective income tax rate | 12.6 | % |  | 32.1 | % |  | 34.1 | %
(a) | Prior periods have been reclassified to conform to current year presentation.
(b) | ARAM is a method to flow back excess deferred taxes to customers.
(c) | ARAM has been deferred when regulatory treatment has not been established. As Xcel Energy received direction from its regulatory commissions regarding the return of excess deferred taxes to customers, the ARAM deferral was reversed. This resulted in a reduction to tax expense with a corresponding reduction to revenue.
Components of income tax expense for years ended Dec. 31:
(Millions of Dollars) |  | 2018 |  | 2017 |  | 2016
Current federal tax (benefit) expense |  | $ | (34 | ) |  | $ | 1 |  |  | $ | (3 | )
Current state tax expense (benefit) |  | 8 |  |  | (11 | ) |  | (4 | )
Current change in unrecognized tax (benefit) expense |  | (6 | ) |  | (83 | ) |  | 6 |
Deferred federal tax expense |  | 122 |  |  | 460 |  |  | 477 |
Deferred state tax expense |  | 85 |  |  | 107 |  |  | 112 |
Deferred change in unrecognized tax expense (benefit) |  | 11 |  |  | 73 |  |  | (2 | )
Deferred investment tax credits |  | (5 | ) |  | (5 | ) |  | (5 | )
Total income tax expense |  | $ | 181 |  |  | $ | 542 |  |  | $ | 581 |
Components of deferred income tax expense as of Dec. 31:
(Millions of Dollars) |  | 2018 |  | 2017 |  | 2016
Deferred tax expense (benefit) excluding items below |  | $ | 320 |  |  | $ | (2,939 | ) |  | $ | 631 |
Amortization and adjustments to deferred income taxes on income tax regulatory assets and liabilities |  | (102 | ) |  | 3,583 |  |  | (45 | )
Tax (expense) benefit allocated to other comprehensive income, net of adoption of ASU No. 2018-02, and other |  | — |  |  | (4 | ) |  | 1 |
Deferred tax expense |  | $ | 218 |  |  | $ | 640 |  |  | $ | 587 |
Components of net deferred tax liability as of Dec. 31:
(Millions of Dollars) |  | 2018 |  | 2017
Deferred tax liabilities: |  |  |  |  |  |
Differences between book and tax bases of property |  | $ | 5,082 |  |  | $ | 4,960 |
Regulatory assets |  | 599 |  |  | 565 |
Pension expense |  | 178 |  |  | 199 |
Other |  | 64 |  |  | 57 |
Total deferred tax liabilities |  | $ | 5,923 |  |  | $ | 5,781 |
Deferred tax assets: |  |  |  |  |  |
Regulatory liabilities |  | $ | 879 |  |  | $ | 886 |
Tax credit carryforward |  | 642 |  |  | 607 |
NOL carryforward |  | 51 |  |  | 293 |
NOL and tax credit valuation allowances |  | (79 | ) |  | (77 | )
Other employee benefits |  | 124 |  |  | 132 |
Deferred ITCs |  | 16 |  |  | 17 |
Rate refund |  | 60 |  |  | 10 |
Other |  | 65 |  |  | 68 |
Total deferred tax assets |  | $ | 1,758 |  |  | $ | 1,936 |
Net deferred tax liability |  | $ | 4,165 |  |  | $ | 3,845 |

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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