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Income Taxes
 9 Months Ended
Sep. 30, 2025
Income Tax Disclosure [Abstract]  
Income Taxes
(11)
Income Taxes

 

Transfers of Production Tax Credits

 

In August 2022, President Biden signed H.R. 5376 into law, commonly known as the IRA of 2022, or IRA. The IRA contains a tax credit transferability provision that allows us to transfer (e.g. sell) PTCs produced after December 31, 2022, to third parties. In January 2025, under this transferability provision, we entered into an agreement with a third party to sell $17.0 million of our 2024 generated PTCs.

 

We expect to continue to explore the ability to efficiently monetize our tax credits through third party transferability agreements.

 

One Big Beautiful Bill Act

 

On July 4, 2025, President Trump signed H.R. 1, commonly referred to as the OBBBA, a legislative package designed to permanently extend certain expiring provisions of the TCJA and deliver additional tax relief for individuals and businesses. The OBBBA introduced changes to federal energy policies by rolling back several clean energy provisions and codified restrictions related to prohibited foreign entities, termination and restrictions on clean energy PTCs, and extension and modification of clean fuel production. The OBBBA does not repeal tax credit transferability provisions enacted under the IRA and continues to permit the execution of our transferability agreements as originally agreed upon, but restricts credit transfers to prohibited foreign entities.

 

Additionally, on August 15, 2025, the IRS issued Notice 2025-42, which provides guidance on the beginning of construction requirements for applicable wind and solar. These requirements are critical for determining eligibility for energy-related tax credits, particularly considering the OBBBA’s modifications to clean energy incentives. Projects must meet specific criteria—such as physical work of a significant nature—to be considered as having begun construction. This determination affects whether a project qualifies under pre-OBBBA or post-OBBBA credit regimes, which may differ in value, availability, or restrictions.

 

We do not anticipate material impacts to our pre-OBBBA in-service clean energy generation facilities as a result of the OBBBA. Further, we do not anticipate impacts to the execution of Colorado Electric’s Clean Energy Plan. However, we continue to monitor IRS guidance and legislative developments to ensure compliance and optimize the timing and structure of future clean energy investments.

 

Income Tax (Expense) and Effective Tax Rates

 

Three Months Ended September 30, 2025, Compared to the Three Months Ended September 30, 2024

 

Income tax (expense) for the three months ended September 30, 2025, was $(4.0) million compared to $(2.9) million reported for the same period in 2024. For the three months ended September 30, 2025, the effective tax rate was 13.5% compared to 10.0% for the same period in 2024. The higher effective tax rate was primarily driven by non-deductibility of certain NorthWestern merger-related costs. See Note 14 below for further discussion of the proposed merger with NorthWestern.

 

Nine Months Ended September 30, 2025, Compared to the Nine Months Ended September 30, 2024

 

Income tax (expense) for the nine months ended September 30, 2025, was $(26.5) million compared to $(23.6) million reported for the same period in 2024. For the nine months ended September 30, 2025, the effective tax rate was 12.2%, which was comparable to 11.4% for the same period in 2024.