UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Sept.June 30, 20192020 or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
001-3034Southwestern Public Service Company75-0575400
(Commission File Number)Exact name of registrant as specified in its charter)(I.R.S. Employer Identification No.)
New Mexico001-303475-0575400
(State or Other Jurisdiction of Incorporation or Organization)(Commission File Number)(IRS Employer Identification No.)
790 South Buchanan StreetAmarilloTexas79101
(Registrant, State of Incorporation or Organization, Address of Principal Executive Officers and Telephone Number)Offices)
Southwestern Public Service Company
New Mexico(Zip Code)
790 South Buchanan Street303571-7511
(Registrant’s Telephone Number, Including Area Code)
AmarilloN/A
Texas79101(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
303571-7511

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
N/AN/AN/A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☒Yes  ☐No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  ☒ Yes  ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer☐Accelerated Filer☐
Non-accelerated Filer☒Smaller Reporting Company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes   ☒ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
ClassOct. 25, 2019July 31, 2020
Common Stock, $1.00 par value100 shares
Southwestern Public Service Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format specified in General Instruction H(2) to such Form 10-Q.



TABLE OF CONTENTS

PART I —
FINANCIAL INFORMATION
Item l1 —
54
Statements of IncomeSTATEMENTS OF INCOME
54
65
76
87
98
119
Item 2 —
1714
Item 4 —
2017
PART IIOTHER INFORMATION
Item 1 —
17
Item 1A —
17
Item 6 —
18
PART II — OTHER INFORMATIONSIGNATURES
Item 1     —
Legal Proceedings19
20
Item 1A  —
Risk Factors
20
Item 6    —
Exhibits
21
SIGNATURES
22
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

This Form 10-Q is filed by Southwestern Public Service Company, a New Mexico corporation (SPS). SPS is a wholly owned subsidiary of Xcel Energy Inc. Additional information on Xcel Energy is available in various filings with the SEC. This report should be read in its entirety.



ABBREVIATIONS AND INDUSTRY TERMS
Table of Contents
Definitions of Abbreviations
Xcel Energy Inc.’s Subsidiaries and Affiliates (current and former)
NSP-MinnesotaNorthern States Power Company, a Minnesota corporation
NSP-WisconsinNorthern States Power Company, a Wisconsin corporation
PSCoPublic Service Company of Colorado
SPSSouthwestern Public Service Company
Utility subsidiariesNSP-Minnesota, NSP-Wisconsin, PSCo and SPS
Xcel EnergyXcel Energy Inc. and its subsidiaries
Federal and State Regulatory Agencies
D.C. CircuitUnited States Court of Appeals for the District of Columbia Circuit
EPAEnvironmental Protection Agency
FERCFederal Energy Regulatory Commission
IRSInternal Revenue Service
NERCNMPRCNorth American Electric Reliability Corporation
NMPRCNew Mexico Public Regulation Commission
PUCTPublic Utility Commission of Texas
SECSecurities and Exchange Commission
ElectricOther Terms and Resource Adjustment ClausesAbbreviations
DSMALJAdministrative Law Judge
ASCFASB Accounting Standards Codification
C&ICommercial and Industrial
CEOChief executive officer
CFOChief financial officer
COVID-19Novel coronavirus
DSMDemand side management
FPPCACETREffective tax rate
FASBFinancial Accounting Standards Board
FPPCACFuel and Purchased Power Cost Adjustment Clause
FTR
Other Terms and Abbreviations
ACEAffordable Clean Energy
ADITAccumulated deferred income tax
AFUDCAllowance for funds used during construction
ALJAdministrative Law Judge
ASCFASB Accounting Standards Codification
ASUFASB Accounting Standards Update
ATRRAnnual transmission revenue requirement
C&ICommercial and Industrial
CEOChief executive officer
CFOChief financial officer
ETREffective tax rate
FASBFinancial Accounting Standards Board
FTRFinancial transmission right
GAAPGenerally accepted accounting principles
IPPIndependent power producers
NAVLLCNet asset valueLimited liability company
NOLNet operating loss
O&MOperating and maintenance
OATTOpen access transmission tariff
PPAPower purchase agreement
PTCProduction tax credit
ROEReturn on equity
ROUROFRRight-of-useRight of first refusal
RTORegional Transmission Organization
SPPSouthwest Power Pool, Inc.
TCJA2017 federal tax reform enacted as Public Law No: 115-97, commonly referred to as the Tax Cuts and Jobs Act
VIEVariable interest entity
Measurements
MWMegawatts
MWhMegawatt hours




Forward-Looking Statements



Forward-Looking Statements
Except for the historical statements contained in this report, the matters discussed herein are forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements, assumptions and other statements are intended to be identified in this document by the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “objective,” “outlook,” “plan,” “project,” “possible,” “potential,” “should,” “will,” “would” and similar expressions. Actual results may vary materially. Forward-looking statements speak only as of the date they are made, and we expressly disclaim any obligation to update any forward-looking information. The following factors, in addition to those discussed elsewhere in this Quarterly Report on Form 10-Q and in other securities filings (including SPS’ Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2018,2019, and subsequent securities filings), could cause actual results to differ materially from management expectations as suggested by such forward-looking information: changes in environmental lawsuncertainty around the impacts and regulations; climate changeduration of the COVID-19 pandemic; operational safety; successful long-term operational planning; commodity risks associated with energy markets and other weather, natural disasterproduction; rising energy prices and resource depletion, including compliance with any accompanying legislativefuel costs; qualified employee work force and regulatory changes;third-party contractor factors; ability to recover costs, from customers;changes in regulation; reductions in our credit ratings and the costscost of maintaining certain contractual relationships; general economic conditions, including inflation rates, monetary fluctuations and their impact on capital expenditures and the ability of SPS to obtain financing on favorable terms; availability or cost of capital; our customers’ and counterparties’ ability to pay their debts to us; assumptions and costs relating to funding our employee benefit plans and health care benefits; tax laws; operational safety; successful long-term operational planning; commodity risks associated with energy markets and production; rising energy prices; costs of potential regulatory penalties; effects of geopolitical events, including war and acts of terrorism; cyber security threats and data security breaches; fuel costs;seasonal weather patterns; changes in environmental laws and employee work forceregulations; climate change and third party contractor factors.other weather; natural disaster and resource depletion, including compliance with any accompanying legislative and regulatory changes; and costs of potential regulatory penalties.



Table of Contents
PART 1I — FINANCIAL INFORMATION
ItemITEM 1 — FINANCIAL STATEMENTS

SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF INCOME (UNAUDITED)
(amounts in millions)
Three Months Ended June 30Six Months Ended June 30
2020201920202019
Operating revenues$423.4  $410.5  $818.4  $864.6  
Operating expenses
Electric fuel and purchased power198.8  179.9  386.6  410.8  
Operating and maintenance expenses58.3  70.1  127.9  142.5  
Demand side management expenses3.7  3.8  7.6  8.4  
Depreciation and amortization64.0  57.8  123.1  111.0  
Taxes (other than income taxes)18.3  17.0  39.7  35.5  
Total operating expenses343.1  328.6  684.9  708.2  
Operating income80.3  81.9  133.5  156.4  
Other income (expense), net0.1  0.5  (1.9) 0.9  
Allowance for funds used during construction — equity7.8  8.7  13.8  19.0  
Interest charges and financing costs
Interest charges — includes other financing costs of $0.9, $0.8, $1.8 and $1.6, respectively25.7  25.6  49.9  50.0  
Allowance for funds used during construction — debt(3.4) (4.2) (6.0) (8.7) 
Total interest charges and financing costs22.3  21.4  43.9  41.3  
Income before income taxes65.9  69.7  101.5  135.0  
Income tax (benefit) expense(5.8) 10.9  (12.9) 22.1  
   Net income$71.7  $58.8  $114.4  $112.9  
See Notes to Financial Statements


4
 Three Months Ended Sept. 30 Nine Months Ended Sept. 30
 2019 2018 2019 2018
Operating revenues$533.1
 $540.1
 $1,397.7
 $1,468.6
        
Operating expenses       
Electric fuel and purchased power240.2
 284.0
 651.0
 795.6
Operating and maintenance expenses74.1
 71.5
 216.6
 203.7
Demand side management expenses4.5
 4.6
 12.9
 13.5
Depreciation and amortization61.3
 52.2
 172.3
 150.2
Taxes (other than income taxes)17.6
 16.8
 53.1
 50.0
Total operating expenses397.7
 429.1
 1,105.9
 1,213.0
        
Operating income135.4
 111.0
 291.8
 255.6
        
        
Other income (expense), net1.5
 (1.0) 2.4
 (2.4)
        
Allowance for funds used during construction — equity3.2
 5.0
 22.2
 11.6
        
Interest charges and financing costs       
Interest charges — includes other financing costs of
$0.9, $0.7, $2.5 and $2.1, respectively
26.0
 21.0
 76.0
 61.8
Allowance for funds used during construction — debt(1.5) (2.2) (10.2) (5.5)
Total interest charges and financing costs24.5
 18.8
 65.8
 56.3
        
Income before income taxes115.6
 96.2
 250.6
 208.5
Income taxes10.5
 14.7
 32.6
 35.4
   Net income$105.1
 $81.5
 $218.0
 $173.1

Table of Contents
See Notes to Financial Statements

SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(amounts in millions)
  Three Months Ended Sept. 30 Nine Months Ended Sept. 30
  2019 2018 2019 2018
Net income $105.1
 $81.5
 $218.0
 $173.1
         
Other comprehensive income  
    
  
         
Pension and retiree medical benefits:        
Amortization of losses included in net periodic benefit cost, net of tax of $0 —
 0.1
 0.1
 0.1
         
Other comprehensive income —
 0.1
 0.1
 0.1
Comprehensive income $105.1
 $81.6
 $218.1
 $173.2

Three Months Ended June 30Six Months Ended June 30
2020201920202019
Net income$71.7  $58.8  $114.4  $112.9  
Other comprehensive income
Pension and retiree medical benefits:
Reclassification of loss to net income, net of tax of $—0.1  —  0.1  —  
Derivative instruments:
Reclassification of loss to net income, net of tax of $——  0.1  —  0.1  
Total other comprehensive income0.1  0.1  0.1  0.1  
Total comprehensive income$71.8  $58.9  $114.5  $113.0  
See Notes to Financial Statements


5
Table of Contents
SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in millions)
 Six Months Ended June 30
20202019
Operating activities  
Net income$114.4  $112.9  
Adjustments to reconcile net income to cash provided by operating activities:  
Depreciation and amortization124.3  112.1  
Deferred income taxes11.3  3.3  
Allowance for equity funds used during construction(13.8) (19.0) 
Provision for bad debts3.1  2.1  
Changes in operating assets and liabilities:
Accounts receivable(5.8) (3.4) 
Accrued unbilled revenues(4.3) (11.3) 
Inventories(16.2) (9.9) 
Prepayments and other(3.9) 5.2  
Accounts payable4.2  (24.5) 
Net regulatory assets and liabilities(32.2) 37.0  
Other current liabilities(7.7) 1.1  
Pension and other employee benefit obligations(14.9) (16.3) 
Other, net1.9  0.7  
Net cash provided by operating activities160.4  190.0  
Investing activities  
Utility capital/construction expenditures(520.4) (364.2) 
Investments in utility money pool arrangement(4.0) (100.0) 
Repayments from utility money pool arrangement4.0  —  
Net cash used in investing activities(520.4) (464.2) 
Financing activities  
Repayments of short-term borrowings, net—  (42.0) 
Proceeds from issuance of long-term debt, net343.3  292.8  
Borrowings under utility money pool arrangement711.0  283.0  
Repayments under utility money pool arrangement(711.0) (283.0) 
Capital contributions from parent436.0  378.8  
Dividends paid to parent(128.9) (137.7) 
   Other, net(0.3) —  
Net cash provided by financing activities650.1  491.9  
Net change in cash, cash equivalents and restricted cash290.1  217.7  
Cash, cash equivalents and restricted cash at beginning of period16.2  44.0  
Cash, cash equivalents and restricted cash at end of period$306.3  $261.7  
Supplemental disclosure of cash flow information:  
Cash paid for interest (net of amounts capitalized)$(40.4) $(39.9) 
Cash received for income taxes, net4.6  —  
Supplemental disclosure of non-cash investing and financing transactions:  
Property, plant and equipment additions in accounts payable$108.4  $68.6  
Inventory transfers to property, plant and equipment13.7  12.6  
Operating lease right-of-use assets—  548.3  
Allowance for equity funds used during construction13.8  19.0  
 Nine Months Ended Sept. 30,
 2019 2018
Operating activities   
Net income$218.0
 $173.1
Adjustments to reconcile net income to cash provided by operating activities: 
  
Depreciation and amortization174.0
 150.4
Demand side management program amortization—
 1.3
Deferred income taxes16.2
 14.4
Allowance for equity funds used during construction(22.2) (11.6)
Changes in operating assets and liabilities:   
Accounts receivable(26.5) (25.1)
Accrued unbilled revenues(10.4) 9.6
Inventories(16.3) 7.0
Prepayments and other6.0
 0.6
Accounts payable(15.1) (0.9)
Net regulatory assets and liabilities17.6
 58.8
Other current liabilities14.1
 13.0
Pension and other employee benefit obligations(17.6) (7.9)
Change in other noncurrent assets0.7
 3.5
Change in other noncurrent liabilities1.3
 (0.2)
Net cash provided by operating activities339.8
 386.0
    
Investing activities 
  
Utility capital/construction expenditures(632.8) (610.0)
Investments in utility money pool arrangement(133.0) (46.0)
Repayments from utility money pool arrangement133.0
 111.0
Net cash used in investing activities(632.8) (545.0)
    
Financing activities 
  
(Repayments of) Proceeds from short-term borrowings, net(42.0) 35.0
Proceeds from issuance of long-term debt, net292.2
 —
Borrowings under utility money pool arrangement283.0
 446.0
Repayments under utility money pool arrangement(283.0) (423.0)
Capital contributions from parent400.8
 181.4
Dividends paid to parent(255.0) (90.7)
Net cash provided by financing activities396.0
 148.7
    
Net change in cash and cash equivalents103.0
 (10.3)
Cash and cash equivalents at beginning of period44.0
 10.9
Cash and cash equivalents at end of period$147.0
 $0.6
    
Supplemental disclosure of cash flow information: 
  
Cash paid for interest (net of amounts capitalized)$(60.3) $(57.9)
Cash paid for income taxes, net(4.4) (15.3)
Supplemental disclosure of non-cash investing and financing transactions: 
  
Property, plant and equipment additions in accounts payable$67.5
 $54.6
Inventory transfer additions in PPE18.7
 17.0
Operating lease right-of-use assets548.3
 —
Allowance for equity funds used during construction22.2
 11.6

See Notes to Financial Statements

6
Table of Contents
SOUTHWESTERN PUBLIC SERVICE COMPANY
BALANCE SHEETS (UNAUDITED)
(amounts in millions, except share and per share data)
Sept. 30, 2019 Dec. 31, 2018 June 30, 2020Dec. 31, 2019
Assets   Assets  
Current assets   Current assets  
Cash and cash equivalents$147.0
 $44.0
Cash and cash equivalents$306.3  $16.2  
Accounts receivable, net113.9
 90.7
Accounts receivable, net90.1  92.7  
Accounts receivable from affiliates6.1
 10.5
Accounts receivable from affiliates7.3  4.2  
Accrued unbilled revenues124.9
 114.5
Accrued unbilled revenues119.2  115.1  
Inventories31.4
 33.9
Inventories33.5  31.0  
Regulatory assets20.8
 26.0
Regulatory assets21.9  20.0  
Derivative instruments20.4
 17.8
Derivative instruments18.8  15.0  
Prepaid taxes1.5
 14.2
Prepaid taxes12.3  0.8  
Prepayments and other17.6
 10.7
Prepayments and other14.1  21.4  
Total current assets483.6
 362.3
Total current assets623.5  316.4  
   
   
Property, plant and equipment, net6,441.9
 5,946.4
Property, plant and equipment, net7,105.4  6,631.6  
   
Other assets 
  
Other assets  
Regulatory assets362.0
 366.2
Regulatory assets392.2  364.0  
Derivative instruments13.4
 15.8
Derivative instruments11.1  12.6  
Operating lease right-of-use assets529.0
 —
Operating lease right-of-use assets503.8  522.4  
Other4.4
 5.1
Other3.6  3.9  
Total other assets908.8
 387.1
Total other assets910.7  902.9  
Total assets$7,834.3
 $6,695.8
Total assets$8,639.6  $7,850.9  
   
Liabilities and Equity 
  
Liabilities and Equity  
Current liabilities 
  
Current liabilities  
Short-term debt$—
 $42.0
Accounts payable168.3
 191.8
Accounts payable$235.9  $168.1  
Accounts payable to affiliates14.9
 19.9
Accounts payable to affiliates16.5  20.4  
Regulatory liabilities116.8
 85.8
Regulatory liabilities98.9  118.1  
Taxes accrued51.5
 41.6
Taxes accrued32.8  40.4  
Accrued interest29.1
 25.8
Accrued interest27.7  26.2  
Dividends payable to parent45.6
 45.2
Dividends payable to parent47.6  46.3  
Derivative instruments3.7
 3.6
Derivative instruments3.6  3.7  
Current obligation under operating leaseCurrent obligation under operating lease27.5  26.9  
Other53.0
 28.3
Other26.6  30.7  
Total current liabilities482.9
 484.0
Total current liabilities517.1  480.8  
   
Deferred credits and other liabilities 
  
Deferred credits and other liabilities  
Deferred income taxes653.4
 619.1
Deferred income taxes695.9  671.8  
Regulatory liabilities736.5
 780.9
Regulatory liabilities729.0  732.3  
Asset retirement obligations49.9
 32.4
Asset retirement obligations79.1  77.3  
Derivative instruments13.7
 16.4
Derivative instruments11.0  12.8  
Pension and employee benefit obligations75.2
 92.4
Pension and employee benefit obligations52.1  67.0  
Operating lease liabilities502.2
 —
Operating lease liabilities476.4  495.3  
Other9.0
 7.9
Other10.5  9.4  
Total deferred credits and other liabilities2,039.9
 1,549.1
Total deferred credits and other liabilities2,054.0  2,065.9  
   
Commitments and contingencies

 

Commitments and contingencies
Capitalization 
  
Capitalization  
Long-term debt2,419.3
 2,126.1
Long-term debt2,763.8  2,419.7  
Common stock — 200 shares authorized of $1.00 par value; 100 shares outstanding at
Sept. 30, 2019 and Dec. 31, 2018, respectively
—
 —
Common stock — 200 shares authorized of $1.00 par value; 100 shares outstanding at June 30, 2020 and Dec. 31, 2019, respectivelyCommon stock — 200 shares authorized of $1.00 par value; 100 shares outstanding at June 30, 2020 and Dec. 31, 2019, respectively—  —  
Additional paid in capital2,325.3
 1,932.3
Additional paid in capital2,786.9  2,350.9  
Retained earnings568.2
 605.7
Retained earnings519.1  535.0  
Accumulated other comprehensive loss(1.3) (1.4)Accumulated other comprehensive loss(1.3) (1.4) 
Total common stockholder’s equity2,892.2
 2,536.6
Total common stockholder’s equity3,304.7  2,884.5  
Total liabilities and equity$7,834.3
 $6,695.8
Total liabilities and equity$8,639.6  $7,850.9  
See Notes to Financial Statements

7
Table of Contents
SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF COMMON STOCKHOLDER’S EQUITY (UNAUDITED)
(amounts in millions, except share data)
Common Stock IssuedRetained EarningsAccumulated
Other
Comprehensive
Loss		Total
Common
Stockholder’s
Equity
SharesPar ValueAdditional Paid In Capital
Three Months Ended June 30, 2020 and 2019
Balance at March 31, 2019100  $—  $1,932.3  $602.3  $(1.4) $2,533.2  
Net income58.8  58.8  
Other comprehensive income0.1  0.1  
Dividends declared to parent(83.4) (83.4) 
Contributions of capital by parent375.0  375.0  
Balance at June 30, 2019100  $—  $2,307.3  $577.7  $(1.3) $2,883.7  
Balance at March 31, 2020100  $—  $2,382.9  $502.0  $(1.4) $2,883.5  
Net income71.7  71.7  
Other comprehensive income0.1  0.1  
Dividends declared to parent(54.6) (54.6) 
Contributions of capital by parent404.0  404.0  
Balance at June 30, 2020100  $—  $2,786.9  $519.1  $(1.3) $3,304.7  
Common Stock IssuedRetained EarningsAccumulated
Other
Comprehensive
Loss		Total
Common
Stockholder’s
Equity
SharesPar ValueAdditional Paid In Capital
Six Months Ended June 30, 2020 and 2019
Balance at Dec. 31, 2018100  $—  $1,932.3  $605.7  $(1.4) $2,536.6  
Net income112.9  112.9  
Other comprehensive income0.1  0.1  
Dividends declared to parent(140.9) (140.9) 
Contributions of capital by parent375.0  375.0  
Balance at June 30, 2019100  $—  $2,307.3  $577.7  $(1.3) $2,883.7  
Balance at Dec. 31, 2019100  $—  $2,350.9  $535.0  $(1.4) $2,884.5  
Net income114.4  114.4  
Other comprehensive income0.1  0.1  
Dividends declared to parent(130.2) (130.2) 
Contributions of capital by parent436.0  436.0  
Adoption of ASC Topic 326(0.1) (0.1) 
Balance at June 30, 2020100  $—  $2,786.9  $519.1  $(1.3) $3,304.7  
See Notes to Financial Statements


8
SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF COMMON STOCKHOLDER’S EQUITY (UNAUDITED)
(amounts in millions, except share data)

 Common Stock Issued Retained Earnings Accumulated
Other
Comprehensive
Loss		 Total
Common
Stockholders’
Equity
 Shares Par Value Additional Paid In Capital   
Three Months Ended Sept. 30, 2019 and 2018           
Balance at June 30, 2018100
 $—
 $1,591.4
 $569.2
 $(1.5) $2,159.1
Net income      81.5
   81.5
Other comprehensive income        0.1
 0.1
Dividends declared to parent      (40.0)   (40.0)
Contributions of capital by parent    180.0
     180.0
Balance at Sept. 30, 2018100
 $—
 $1,771.4
 $610.7
 $(1.4) $2,380.7
            
Balance at June 30, 2019100
 $—
 $2,307.3
 $577.7
 $(1.3) $2,883.7
Net income      105.1
   105.1
Dividends declared to parent      (114.6)   (114.6)
Contributions of capital by parent    18.0
     18.0
Balance at Sept. 30, 2019100
 $—
 $2,325.3
 $568.2
 $(1.3) $2,892.2
            
See Notes to Financial Statements

Table of Contents
SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF COMMON STOCKHOLDER’S EQUITY (UNAUDITED)
(amounts in millions, except share data)

 Common Stock Issued Retained Earnings Accumulated
Other
Comprehensive
Loss		 Total
Common
Stockholders’
Equity
 Shares Par Value Additional Paid In Capital   
Nine Months Ended Sept. 30, 2019 and 2018           
Balance at Dec. 31, 2017100
 $—
 $1,590.2
 $541.6
 $(1.5) $2,130.3
Net income      173.1
   173.1
Other comprehensive income        0.1
 0.1
Dividends declared to parent      (104.0)   (104.0)
Contributions of capital by parent—
 —
 181.2
     181.2
Balance at Sept. 30, 2018100
 $—
 $1,771.4
 $610.7
 $(1.4) $2,380.7
            
Balance at Dec. 31, 2018100
 $—
 $1,932.3
 $605.7
 $(1.4) $2,536.6
Net income      218.0
   218.0
Other comprehensive income        0.1
 0.1
Dividends declared to parent      (255.5)   (255.5)
Contributions of capital by parent    393.0
     393.0
Balance at Sept. 30, 2019100
 $—
 $2,325.3
 $568.2
 $(1.3) $2,892.2
            
See Notes to Financial Statements



SOUTHWESTERN PUBLIC SERVICE COMPANY
Notes to Financial Statements (UNAUDITED)
In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly, in accordance with U.S. GAAP, the financial position of SPS as of Sept.June 30, 20192020 and Dec. 31, 2018;2019; the results of its operations, including the components of net income and comprehensive income, and changechanges in stockholder’s equity for the three and ninesix months ended Sept.June 30, 20192020 and 2018;2019; and its cash flows for the ninesix months ended Sept.June 30, 20192020 and 2018.2019. All adjustments are of a normal, recurring nature, except as otherwise disclosed. Management has also evaluated the impact of events occurring after Sept.June 30, 20192020 up to the date of issuance of these financial statements. These statements contain all necessary adjustments and disclosures resulting from that evaluation. The Dec. 31, 20182019 balance sheet information has been derived from the audited 20182019 financial statements included in the SPS Annual Report on Form 10-K for the year ended Dec. 31, 2018.2019. These notes to the financial statements have been prepared pursuant to the rules and regulations of the SEC for Quarterly Reports on Form 10-Q. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP on an annual basis have been condensed or omitted pursuant to such rules and regulations. For further information, refer to the financial statements and notes thereto, included in the SPS Annual Report on Form 10-K for the year ended Dec. 31, 2018,2019, filed with the SEC on Feb. 22, 2019.21, 2020. Due to the seasonality of SPS’ electric sales, interim results are not necessarily an appropriate base from which to project annual results.
1.Summary of Significant Accounting Policies
The significant accounting policies set forth in Note 1 to the financial statements in the SPS Annual Report on Form 10-K for the year ended Dec. 31, 2018,2019, appropriately represent, in all material respects, the current status of accounting policies and are incorporated herein by reference.
2.Accounting Pronouncements
Recently Issued
Credit Losses— In 2016, the FASB issued Financial Instruments - Credit Losses, Topic 326 (ASC Topic 326), which changes how entities account for losses on receivables and certain other assets. The guidance requires use of a current expected credit loss model, which may result in earlier recognition of credit losses than under previous accounting standards. ASC Topic 326 is effective for interim and annual periods beginning on or after Dec. 15, 2019, and will be applied on a modified-retrospective approach through a cumulative-effect adjustment to retained earnings as of Jan. 1, 2020. SPS expects the impact of adoption of the new standard to include first-time recognition of expected credit losses (i.e., bad debt expense) on unbilled revenues, with the initial allowance established at Jan. 1, 2020 charged to retained earnings.
Recently Adopted
LeasesCredit Losses —In 2016, the FASB issued LeasesFinancial Instruments - Credit Losses, Topic 326 (ASC Topic 326), Topic 842(ASC Topic 842), which provides newchanges how entities account for losses on receivables and certain other assets. The guidance requires use of a current expected credit loss model, which may result in earlier recognition of credit losses than under previous accounting and disclosure guidance for leasing activities, most significantly requiring that operating leases be recognized on the balance sheet. standards.
SPS adoptedimplemented the guidance using a modified-retrospective approach, recognizing a cumulative effect charge of $0.1 million (after tax) to retained earnings on Jan. 1, 2019 utilizing the package of transition practical expedients provided by the new standard, including carrying forward prior conclusions on whether agreements existing before the adoption date contain leases and whether existing leases are operating or finance leases; ASC Topic 842 refers to capital leases as finance leases.
Specifically for land easement contracts, SPS has elected the practical expedient provided by ASU No. 2018-01 Leases: Land Easement Practical Expedient for Transition to Topic 842, and as a result, only those easement contracts entered on or after Jan. 1, 2019 will be evaluated to determine if lease treatment is appropriate.
SPS also utilized the transition practical expedient offered by ASU No. 2018-11 Leases: Targeted Improvements to implement the standard on a prospective basis. As a result, reporting periods in the financial statements beginning Jan. 1, 2019 reflect the implementation of ASC Topic 842, while prior periods continue to be reported in accordance with Leases, Topic 840 (ASC Topic 840).2020. Other than first-time recognition of operating leasesan allowance for doubtful accounts on its balance sheet,accrued unbilled revenues, the implementationJan. 1, 2020 adoption of ASC Topic 842326 did not have a significant impact on SPS’ financial statements. Adoption resulted in recognition of approximately $0.5 billion of operating lease ROU assets and current/noncurrent operating lease liabilities. See Note 9 to the financial statements for leasing disclosures.
3.Selected Balance Sheet Data
(Millions of Dollars)June 30, 2020Dec. 31, 2019
Accounts receivable, net
Accounts receivable$96.6  $98.0  
Less allowance for bad debts(6.5) (5.3) 
Accounts receivable, net$90.1  $92.7  
(Millions of Dollars) Sept. 30, 2019 Dec. 31, 2018
Accounts receivable, net    
Accounts receivable $119.5
 $96.3
Less allowance for bad debts (5.6) (5.6)
Accounts receivable, net $113.9
 $90.7
(Millions of Dollars)June 30, 2020Dec. 31, 2019
Inventories
Materials and supplies$26.8  $24.7  
Fuel6.7  6.3  
Total inventories$33.5  $31.0  
(Millions of Dollars)June 30, 2020Dec. 31, 2019
Property, plant and equipment, net
Electric plant$8,690.9  $8,453.0  
Construction work in progress802.4  485.4  
Total property, plant and equipment9,493.3  8,938.4  
Less accumulated depreciation(2,387.9) (2,306.8) 
Property, plant and equipment, net$7,105.4  $6,631.6  

(Millions of Dollars) Sept. 30, 2019 Dec. 31, 2018
Inventories    
Materials and supplies $24.8
 $25.7
Fuel 6.6
 8.2
Total inventories $31.4
 $33.9

(Millions of Dollars) Sept. 30, 2019 Dec. 31, 2018
Property, plant and equipment, net    
Electric plant $8,296.6
 $7,227.7
Construction work in progress 419.2
 847.3
Total property, plant and equipment 8,715.8
 8,075.0
Less accumulated depreciation (2,273.9) (2,128.6)
Property, plant and equipment, net $6,441.9
 $5,946.4


4. Borrowings and Other Financing Instruments
Short-Term Borrowings
SPS meets its short-term liquidity requirements primarily through the issuance of commercial paper and borrowings under its credit facility and the money pool.
Money Pool — Xcel Energy Inc. and its utility subsidiaries have established a money pool arrangement that allows for short-term investments in and borrowings between the utility subsidiaries. Xcel Energy Inc. may make investments in the utility subsidiaries at market-based interest rates; however, the money pool arrangement does not allow the utility subsidiaries to make investments in Xcel Energy Inc.







Money pool borrowings for SPS were as follows:
(Amounts in Millions, Except Interest Rates) Three Months Ended Sept. 30, 2019 Year Ended Dec. 31, 2018
Borrowing limit $100
 $100
Amount outstanding at period end —
 —
Average amount outstanding —
 29
Maximum amount outstanding —
 100
Weighted average interest rate, computed on a daily basis N/A
 1.96%
Weighted average interest rate at period end N/A
 N/A

(Amounts in Millions, Except Interest Rates)Three Months Ended June 30, 2020Year Ended Dec. 31, 2019
Borrowing limit$100  $100  
Amount outstanding at period end—  —  
Average amount outstanding62  8  
Maximum amount outstanding100  100  
Weighted average interest rate, computed on a daily basis0.83 %2.42 %
Weighted average interest rate at period endN/AN/A
Commercial Paper —— Commercial paper outstanding for SPS was as follows:
(Amounts in Millions, Except Interest Rates) Three Months Ended Sept. 30, 2019 Year Ended Dec. 31, 2018
Borrowing limit $500
 $400
Amount outstanding at period end —
 42
Average amount outstanding —
 30
Maximum amount outstanding —
 144
Weighted average interest rate, computed on a daily basis N/A
 2.27%
Weighted average interest rate at period end N/A
 2.80

(Amounts in Millions, Except Interest Rates)Three Months Ended June 30, 2020Year Ended Dec. 31, 2019
Borrowing limit$500  $500  
Amount outstanding at period end—  —  
Average amount outstanding53  72  
Maximum amount outstanding138  316  
Weighted average interest rate, computed on a daily basis1.09 %2.68 %
Weighted average interest rate at period endN/AN/A
Letters of Credit — SPS uses letters of credit, generally with terms of one year, to provide financial guarantees for certain operating obligations. At Sept.both June 30, 20192020 and Dec. 31, 2018,2019, there were $2 million of letters of credit outstanding under the credit facility. The contract amounts of these letters of credit approximate their fair value and are subject to fees.
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Table of Contents
Revolving Credit Facility — In order to use its commercial paper program to fulfill short-term funding needs, SPS must have a revolving credit facility in place at least equal to the amount of its commercial paper borrowing limit and cannot issue commercial paper in an aggregate amount exceeding available capacity under this credit facility. The line of credit provides short-term financing in the form of notes payable to banks, letters of credit and back-up support for commercial paper borrowings.
Amended Credit Agreement —In June 2019, SPS entered into an amended five-year credit agreement with a syndicate of banks. The amended credit agreements have substantially the same terms and conditions as the prior credit agreements with the exception of the following:
Maturity extended from June 2021 to June 2024.
•
Borrowing limit increased from $400 million to $500 million
SPS has the right to request an extension of the revolving credit facility termination date for 2two additional one year,one-year periods. All extension requests are subject to majority bank group approval.
As of Sept.June 30, 2019,2020, SPS had the following committed revolving credit facility available (in millions of dollars):
Credit Facility (a)
Outstanding (b)
Available
$500  $2  $498  
Credit Facility (a)
 
Outstanding (b)
 Available
$500
 $2
 $498
(a)This credit facility expires in June 2024.
(a)
(b)Includes outstanding letters of credit.
This credit facility expires in June 2024.
(b)
Includes outstanding letters of credit.
All credit facility bank borrowings, outstanding letters of credit and outstanding commercial paper reduce the available capacity under the credit facility. SPS had 0 direct advances on the credit facility outstanding as of Sept.June 30, 20192020 and Dec. 31, 2018.2019.
Long-Term Borrowings
During the ninesix months ended Sept.June 30, 2019,2020, SPS issued $300$350 million of 3.75%3.15% first mortgage bonds due June 15, 2049.May 1, 2050.
5. Revenues
Revenue is classified by the type of goods/services rendered and market/customer type. SPS’ operating revenues consists of the following:
Three Months Ended
(Millions of Dollars)June 30, 2020June 30, 2019
Major revenue types
Revenue from contracts with customers:
Residential$84.8  $70.4  
C&I163.7  191.4  
Other8.7  9.9  
Total retail257.2  271.7  
Wholesale81.6  72.0  
Transmission76.0  60.0  
Other0.6  0.4  
Total revenue from contracts with customers415.4  404.1  
Alternative revenue and other8.0  6.4  
Total revenues$423.4  $410.5  
Six Months Ended
(Millions of Dollars)June 30, 2020June 30, 2019
Major revenue types
Revenue from contracts with customers:
Residential$157.7  $158.5  
C&I332.8  397.2  
Other16.6  19.5  
Total retail507.1  575.2  
Wholesale154.8  156.8  
Transmission138.6  117.4  
Other1.2  1.4  
Total revenue from contracts with customers801.7  850.8  
Alternative revenue and other16.7  13.8  
Total revenues$818.4  $864.6  
  Three Months Ended
(Millions of Dollars) Sept. 30, 2019 Sept. 30, 2018
Major revenue types    
Revenue from contracts with customers:    
Residential $119.3
 $114.4
C&I 222.4
 229.4
Other 12.8
 13.0
Total retail 354.5
 356.8
Wholesale 106.6
 118.0
Transmission 64.4
 60.7
Other 0.6
 1.8
Total revenue from contracts with customers 526.1
 537.3
Alternative revenue and other 7.0
 2.8
Total revenues $533.1
 $540.1
  Nine Months Ended
(Millions of Dollars) Sept. 30, 2019 Sept. 30, 2018
Major revenue types    
Revenue from contracts with customers:    
Residential $277.8
 $279.5
C&I 619.6
 626.0
Other 32.3
 34.0
Total retail 929.7
 939.5
Wholesale 263.4
 326.8
Transmission 181.8
 175.4
Other 2.0
 12.2
Total revenue from contracts with customers 1,376.9
 1,453.9
Alternative revenue and other 20.8
 14.7
Total revenues $1,397.7
 $1,468.6


6.Income Taxes
Note 7 to the financial statements included in SPS’ Annual Report on Form 10-K for the year ended Dec. 31, 20182019 represents, in all material respects, the current status of other income tax matters except to the extent noted below, and are incorporated herein by reference.
The following table reconciles the difference between the statutory rate and the ETR:
Six Months Ended June 30,
20202019
Federal statutory rate21.0 %21.0 %
State tax (net of federal tax effect)2.3  2.1  
Decreases in tax from:
Wind PTCs(26.7) (0.2) 
Plant regulatory differences (a)
(6.4) (4.8) 
Prior period adjustments(2.0) (0.7) 
Other tax credits, net of NOL & tax credit allowances(0.7) (0.6) 
Other (net)(0.2) (0.4) 
Effective income tax rate(12.7)%16.4 %
  Nine Months Ended Sept. 30,
  2019 2018
Federal statutory rate 21.0 % 21.0 %
State tax (net of federal tax effect) 2.2
 2.3
Decreases in tax from: 
 
Plant regulatory differences (a)
 (4.7) (3.8)
Wind PTCs (3.9) —
Other tax credits and tax credit and NOL allowances (net) (0.6) (0.7)
Prior period adjustments (0.5) (1.8)
Other (net) (0.5) —
Effective income tax rate 13.0 % 17.0 %
(a)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.
Regulatory differences for income tax primarily relate to the credit of excess deferred taxes to customers through the average rate assumption method and the timing of regulatory decisions regarding the return of excess deferred taxes. Income tax benefits associated with the credit of excess deferred credits are offset by corresponding revenue reductions.
Federal Audits — SPS is a member of the Xcel Energy affiliated group that files a consolidated federal income tax return. Statute of limitations applicable to Xcel Energy’s federal income tax returns expire as follows:
Tax Year(s)YearsExpiration
2009 - 2013JuneSeptember 2020
2014 - 2016September 2020June 2021

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 Sept. 30, 2019, the case has been forwarded to the Office of Appeals and In April 2020, 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.Appeals reached an agreement and no material adjustments were required.
In 2018, the IRS began an audit of tax years 2014 - 2016. As of Sept.June 30, 20192020, 0 adjustments have been proposed.
State Audits — SPS is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of Sept.June 30, 2019,2020, SPS’ earliest open tax year subject to examination by state taxing authorities under applicable statutes of limitations is 2009. There are currently no state income tax audits in progress.
Unrecognized 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 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)June 30, 2020Dec. 31, 2019
Unrecognized tax benefit — Permanent tax positions$3.6  $3.7  
Unrecognized tax benefit — Temporary tax positions1.5  1.5  
Total unrecognized tax benefit$5.1  $5.2  
(Millions of Dollars) Sept. 30, 2019 Dec. 31, 2018
Unrecognized tax benefit — Permanent tax positions $3.5
 $3.0
Unrecognized tax benefit — Temporary tax positions 1.5
 1.5
Total unrecognized tax benefit $5.0
 $4.5



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Unrecognized tax benefits were reduced by tax benefits associated with NOL and tax credit carryforwards:
(Millions of Dollars) Sept. 30, 2019 Dec. 31, 2018
NOL and tax credit carryforwards $(4.4) $(3.8)

(Millions of Dollars)June 30, 2020Dec. 31, 2019
NOL and tax credit carryforwards$(4.5) $(4.4) 
Net deferred tax liability associated with the unrecognized tax benefit amounts and related NOLs and tax credits carryforwards were $1.8 million and $1.4 million and $0.8 million at Sept.June 30, 20192020 and Dec. 31, 2018,2019, respectively.
As the IRS Appealsaudit progresses and federal audit progresses,state audits resume, it is reasonably possible that the amount of unrecognized tax benefit could decrease up to approximately $3.7$2.9 million in the next 12 months.
Payables for interest related to unrecognized tax benefits were not material and 0 amounts were accrued for penalties related to unrecognized tax benefits as of Sept.June 30, 2019 or2020 and Dec. 31, 2018.2019, respectively.
7.Fair Value of Financial Assets and Liabilities
Fair Value Measurements
The accountingAccounting guidance for fair value measurements and disclosures provides a single definition of fair value hierarchical framework for measuring assets and liabilities and requires disclosuredisclosures about assets and liabilities measured at fair value. A hierarchical framework for disclosing the observability of the inputs utilized in measuring assets and liabilities at fair value is established by this guidance.
•Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices.prices;
•Level 2 — Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reporting date. The types of assets and liabilities included in Level 2 are typically either comparable to actively traded securities or contracts, or priced with models using highly observable inputs.inputs; and
•Level 3 — Significant inputs to pricing have little or no observability as of the reporting date. The types of assets and liabilities included in Level 3 are those valued with models requiring significant management judgment or estimation.
Specific valuation methods include:
Cash equivalents — The fair values of cash equivalents are generally based on cost plus accrued interest; money market funds are measured using quoted NAVs.net asset value.
Interest rate derivatives — The fair values of interest rate derivatives are based on broker quotes that utilize current market interest rate forecasts.
Commodity derivatives — The methods used to measure the fair value of commodity derivative forwards and options generally utilize observable forward prices and volatilities, as well as observable pricing adjustments for specific delivery locations and are generally assigned a Level 2 classification. When contractual settlements relate to inactive delivery locations for which pricing is relatively unobservable, or extend to periods beyond those readily observable on active exchanges or quoted by brokers, the significance of the use of less observable inputsforecasts of forward prices and volatilities on a valuation is evaluated, and may result in Level 3 classification.

Electric commodity derivatives held by SPS include transmission congestion instruments, generally referred to as FTRs, purchased from SPP. FTRs purchased from an RTO are financial instruments that entitle or obligate the holder to monthly revenues or charges based on transmission congestion across a given transmission path. The value of an FTR is derived from and designed to offset, the cost of transmission congestion. In addition to overall transmission load, congestion is also influenced by the operating schedules of power plants and the consumption of electricity pertinent to a given transmission path. Unplanned plant outages, scheduled plant maintenance, changes in the relative costs of fuels used in generation, weather and overall changes in demand for electricity can each impact the operating schedules of the power plants on the transmission grid and the value of an FTR.
If forecasted costs of electric transmission congestion increase or decrease for a given FTR path, the value of that particular FTR instrument will likewise increase or decrease. Given the limited observability of important inputs to the value of FTRs between auction processes, including expected plant operating schedules and retail and wholesale demand, fair value measurements for FTRs have been assigned a Level 3. Non-trading monthly FTR settlements are expected to be recovered through fuel and purchased energy cost recovery mechanisms, and therefore changes in the fair value of the yet to be settled portions of FTRs are deferred as a regulatory asset or liability. Given this regulatory treatment and the limited magnitude of FTRs relative to the electric utility operations of SPS, the numerous unobservable quantitative inputs pertinent to the value of FTRs are insignificant to the financial statements of SPS.
Derivative Instruments Fair Value Measurements
SPS enters into derivative instruments, including forward contracts, for trading purposes and to manage risk in connection with changes in interest rates and electric utility commodity prices.
Interest Rate Derivatives — SPS may enter into various instruments that effectively fix the interest payments on certain floating rate debt obligations or effectively fix the yield or price on a specified benchmark interest rate for an anticipated debt issuance for a specific period. These derivative instruments are generally designated as cash flow hedges for accounting purposes.
As of Sept.June 30, 2019,2020, accumulated other comprehensive loss related to interest rate derivatives included $0.1 million of net losses expected to be reclassified into earnings during the next 12 months as the related hedged interest rate transactions impact earnings, including forecasted amounts for unsettled hedges, as applicable.
Wholesale and Commodity Trading Risk — SPS conducts various wholesale and commodity trading activities, including the purchase and sale of electric capacity, energy and energy-related instruments, including derivatives. SPS is allowed to conduct these activities within guidelines and limitations as approved by its risk management committee, comprised of management personnel not directly involved in the activities governed by this policy.



Commodity Derivatives —— SPS enters into derivative instruments to manage variability of future cash flows from changes in commodity prices in its electric utility operations. This could include the purchase or sale of energy or energy-related products and FTRs.
(Amounts in Millions) (a)
June 30, 2020Dec. 31, 2019
MWh of electricity11.9  6.4  
(a)Amounts are not reflective of net positions in the underlying commodities.
(Amounts in Millions) (a) 
 Sept. 30, 2019 Dec. 31, 2018
Mwh of electricity 9.4
 5.5
11
(a)
Amounts are not reflective of net positions in the underlying commodities.
Consideration of Credit Risk and Concentrations —— SPS continuously monitors the creditworthiness of counterparties to its interest rate derivatives and commodity derivative contracts prior to settlement, and assesses each counterparty’s ability to perform on the transactions set forth in the contracts. Impact of credit risk was immaterial to the fair value of unsettled commodity derivatives presented in the balance sheets.
SPS’ most significant concentrations of credit risk with particular entities or industries are contracts with counterparties to its wholesale, trading and non-trading commodity activities. At Sept.June 30, 2019, 12020, 2 of the 69 most significant counterparties for these activities, comprising $14.2$14.8 million, or 31%36%, of this credit exposure, had
investment grade ratings from S&P Global Ratings, Moody’s Investor Services or Fitch Ratings. NaN of the 69 most significant counterparties, comprising $9.7$26.0 million, or 21%64%, of this credit exposure, were not rated by external rating agencies, but based on SPS’ internal analysis, had credit quality consistent with investment grade. NaN of these significant counterparties, comprising $0.1 million or 0.2% of this credit exposure, had credit quality less than investment grade, based on external analysis. NaN of these significant counterparties are municipal or cooperative electric entities, RTOs or other utilities.
Impact of Derivative Activities on Income and Accumulated Other Comprehensive Loss — Pre-tax—There were immaterial pre-tax losses related to interest rate derivatives reclassified from accumulated other comprehensive loss into earnings were immaterial for the three and ninesix months ended Sept.June 30, 20192020 and 2018.2019.
Changes in the fair value of FTRs resulting in immaterial pre-tax net gainslosses of $2.6 million and pre-tax net gains of $4.7$2.5 million were recognized for the three and ninesix months ended Sept.June 30, 2019,2020, respectively, which were reclassified as regulatory assets and liabilities. ForThere were $9.9 million and $4.6 million of pre-tax net gains recognized for the three and ninesix months ended Sept.June 30, 2018, changes in the fair value of FTRs resulted in pre-tax net losses of $3.3 million and pre-tax net gains of $10.1 million,2019, respectively, andwhich were recognizedreclassified as regulatory assets and liabilities. The classification as a regulatory asset or liability is based on expected recovery of FTR settlements through fuel and purchased energy cost recovery mechanisms.
FTR settlement gains of $1.7$2.3 million and $1.5$5.1 million were recognized for the three and ninesix months ended Sept.June 30, 2019,2020, respectively and were recorded to electric fuel and purchased power. ThereSettlement losses of $0.2 million were immaterial FTR settlement losses and $3.4 million of FTR settlement gains recognized for both the three and ninesix months ended Sept.June 30, 2018, respectively,2019 and were recorded to electric fuel and purchased power. These derivative settlement gains and losses are shared with electric customers through fuel and purchased energy cost-recovery mechanisms, and reclassified out of income as regulatory assets or liabilities, as appropriate.
SPS had 0 derivative instruments designated as fair value hedges during the three and ninesix months ended Sept.June 30, 20192020 and 2018.2019.

Recurring Fair Value Measurements —— SPS’ derivative assets and liabilities measured at fair value on a recurring basis:
June 30, 2020Dec. 31, 2019
Fair ValueFair Value
(Millions of Dollars)Level 1Level 2Level 3Fair Value
Total

Netting (a)
TotalLevel 1Level 2Level 3Fair Value
Total

Netting (a)
Total
Current derivative assets
Other derivative instruments:
Electric commodity$—  $—  $15.9  $15.9  $(0.2) $15.7  $—  $—  $11.8  $11.8  $—  $11.8  
Total current derivative assets$—  $—  $15.9  $15.9  $(0.2) 15.7  $—  $—  $11.8  $11.8  $—  11.8  
PPAs (b)
3.1  3.2  
Current derivative instruments$18.8  $15.0  
Noncurrent derivative assets
PPAs (b)
$11.1  $12.6  
Noncurrent derivative instruments$11.1  $12.6  
June 30, 2020Dec. 31, 2019
Fair ValueFair Value
(Millions of Dollars)Level 1Level 2Level 3Fair Value
Total
Netting (a)
TotalLevel 1Level 2Level 3Fair Value
Total
Netting (a)
Total
Current derivative liabilities
Other derivative instruments:
Electric commodity$—  $—  $0.2  $0.2  $(0.2) $—  $—  $—  $0.1  $0.1  $—  $0.1  
Total current derivative liabilities$—  $—  $0.2  $0.2  $(0.2) —  $—  $—  $0.1  $0.1  $—  0.1  
PPAs (b)
3.6  .3.6  
Current derivative instruments$3.6  $3.7  
Noncurrent derivative liabilities
PPAs (b)
$11.0  $12.8  
Noncurrent derivative instruments$11.0  $12.8  
(a)SPS nets derivative instruments and related collateral in its balance sheet when supported by a legally enforceable master netting agreement, and all derivative instruments and related collateral amounts were subject to master netting agreements at June 30, 2020 and Dec. 31, 2019. At both June 30, 2020 and Dec. 31, 2019, derivative assets and liabilities include 0 obligations to return cash collateral or rights to reclaim cash collateral. The counterparty netting excludes settlement receivables and payables and non-derivative amounts that may be subject to the same master netting agreements.
(b)During 2006, SPS qualified these contracts under the normal purchase exception. Based on this qualification, the contracts are no longer adjusted to fair value and the previous carrying value of these contracts will be amortized over the remaining contract lives along with the offsetting regulatory assets and liabilities.
  Sept. 30, 2019 Dec. 31, 2018
  Fair Value       Fair Value      
(Millions of Dollars) Level 1 Level 2 Level 3 
Fair Value
Total
 

Netting (a)
 Total Level 1 Level 2 Level 3 
Fair Value
Total
 

Netting (a)
 Total
Current derivative assets                        
Other derivative instruments:                        
Electric commodity $—
 $—
 $17.3
 $17.3
 $—
 $17.3
 $—
 $—
 $14.9
 $14.9
 $(0.2) $14.7
Total current derivative assets $—
 $—
 $17.3
 $17.3
 $—
 17.3
 $—
 $—
 $14.9
 $14.9
 $(0.2) 14.7
PPAs (b)
           3.1
           3.1
Current derivative instruments           $20.4
           $17.8
Noncurrent derivative assets                        
PPAs (b)
           13.4
           15.8
Noncurrent derivative instruments           $13.4
           $15.8
Current derivative liabilities                        
Other derivative instruments:                        
Electric commodity $—
 $—
 $0.2
 $0.2
 $—
 $0.2
 $—
 $—
 $0.2
 $0.2
 $(0.2) $—
Total current derivative liabilities $—
 $—
 $0.2
 $0.2
 $—
 0.2
 $—
 $—
 $0.2
 $0.2
 $(0.2) —
PPAs (b)
           3.5
       .
   3.6
Current derivative instruments           $3.7
           $3.6
Noncurrent derivative liabilities                        
PPAs (b)
           13.7
           16.4
Noncurrent derivative instruments           $13.7
           $16.4
12
(a)
SPS nets derivative instruments and related collateral in its balance sheet when supported by a legally enforceable master netting agreement, and all derivative instruments and related collateral amounts were subject to master netting agreements at Sept. 30, 2019 and Dec. 31, 2018. At both Sept. 30, 2019 and Dec. 31, 2018, derivative assets and liabilities include 0 obligations to return cash collateral or rights to reclaim cash collateral. The counterparty netting excludes settlement receivables and payables and non-derivative amounts that may be subject to the same master netting agreements.
(b)
During 2006, SPS qualified these contracts under the normal purchase exception. Based on this qualification, the contracts are no longer adjusted to fair value and the previous carrying value of these contracts will be amortized over the remaining contract lives along with the offsetting regulatory assets and liabilities.
Changes in Level 3 commodity derivatives for the three and ninesix months ended Sept.June 30, 20192020 and 2018:2019:
  Three Months Ended Sept. 30,
(Millions of Dollars) 2019 2018
Balance at July 1 $22.2
 $35.4
Purchases 4.4
 3.2
Settlements (5.2) (10.1)
Net transactions recorded during the period:    
Net losses recognized as regulatory assets and liabilities (4.3) (3.2)
Balance at Sept. 30 $17.1
 $25.3

  Nine Months Ended Sept. 30,
(Millions of Dollars) 2019 2018
Balance at Jan. 1 $14.7
 $12.7
Purchases 25.5
 22.5
Settlements (24.9) (35.3)
Net transactions recorded during the period:    
Net gains recognized as regulatory assets and liabilities 1.8
 25.4
Balance at Sept. 30 $17.1
 $25.3

Three Months Ended June 30
(Millions of Dollars)20202019
Balance at April 1$16.3  $3.1  
Purchases9.0  17.1  
Settlements(11.9) (13.1) 
Net transactions recorded during the period:
Net gains recognized as regulatory assets and liabilities2.3  15.1  
Balance at June 30$15.7  $22.2  
Six Months Ended June 30
(Millions of Dollars)20202019
Balance at Jan. 1$11.7  $14.7  
Purchases20.8  21.0  
Settlements(16.8) (19.7) 
Net transactions recorded during the period:
Net gains recognized as regulatory assets and liabilities—  6.2  
Balance at June 30$15.7  $22.2  
SPS recognizes transfers between fair value hierarchy levels as of the beginning of each period. There were 0 transfers of amounts between levels for derivative instruments for the three and ninesix months ended Sept.June 30, 20192020 and 2018.
2019.
Fair Value of Long-Term Debt
Other financial instruments for which the carrying amount did not equal fair value:
  Sept. 30, 2019 Dec. 31, 2018
(Millions of Dollars) 
Carrying
Amount
 Fair Value 
Carrying
Amount
 Fair Value
Long-term debt $2,419.3
 $2,763.2
 $2,126.1
 $2,139.8

June 30, 2020Dec. 31, 2019
(Millions of Dollars)Carrying
Amount		Fair ValueCarrying
Amount		Fair Value
Long-term debt$2,763.8  $3,249.4  $2,419.7  $2,706.1  
Fair value of SPS’ long-term debt is estimated based on recent trades and observable spreads from benchmark interest rates for similar securities. Fair value estimates are based on information available to management as of Sept.June 30, 20192020 and Dec. 31, 2018,2019, and given the observability of the inputs, fair values presented for long-term debt were assigned as Level 2.

8.Benefit Plans and Other Postretirement Benefits
Components of Net Periodic Benefit Cost (Credit)
Three Months Ended June 30
2020201920202019
(Millions of Dollars)Pension BenefitsPostretirement Health
Care Benefits
Service cost$2.4  $2.2  $0.2  $0.2  
Interest cost (a)
4.5  5.0  0.4  0.4  
Expected return on plan assets (a)
(7.4) (7.2) (0.5) (0.5) 
Amortization of prior service credit (a)
—  —  (0.1) (0.1) 
Amortization of net loss (gain) (a)
3.3  2.9  (0.1) (0.1) 
Net periodic benefit cost (credit)2.8  2.9  (0.1) (0.1) 
Credits not recognized due to effects
of regulation		0.5  0.4  —  —  
Net benefit cost (credit) recognized for financial reporting$3.3  $3.3  $(0.1) $(0.1) 
  Three Months Ended Sept. 30
  2019 2018 2019 2018
(Millions of Dollars) Pension Benefits 
Postretirement Health
Care Benefits
Service cost $2.2
 $2.4
 $0.2
 $0.3
Interest cost (a)
 5.0
 4.6
 0.4
 0.4
Expected return on plan assets (a)
 (7.1) (7.1) (0.5) (0.6)
Amortization of prior service credit (a)
 —
 —
 (0.1) (0.1)
Amortization of net loss (gain) (a)
 2.8
 3.5
 (0.1) (0.1)
Net periodic benefit cost (credit) 2.9
 3.4
 (0.1) (0.1)
Credits (costs) not recognized due to the effects of regulation 0.5
 (0.4) —
 —
Net benefit cost (credit) recognized for financial reporting $3.4
 $3.0
 $(0.1) $(0.1)

Six Months Ended June 30
2020201920202019
(Millions of Dollars)Pension BenefitsPostretirement Health
Care Benefits
Service cost$4.8  $4.4  $0.5  $0.4  
Interest cost (a)
9.0  10.1  0.7  0.9  
Expected return on plan assets (a)
(14.7) (14.3) (0.9) (1.0) 
Amortization of prior service credit (a)
(0.1) (0.1) (0.2) (0.3) 
Amortization of net loss (gain) (a)
6.6  5.7  (0.2) (0.2) 
Net periodic benefit cost (credit)5.6  5.8  (0.1) (0.2) 
Credits not recognized due to effects
of regulation		1.0  0.8  —  —  
Net benefit cost (credit) recognized for financial reporting$6.6  $6.6  $(0.1) $(0.2) 
  Nine Months Ended Sept. 30
  2019 2018 2019 2018
(Millions of Dollars) Pension Benefits 
Postretirement Health
Care Benefits
Service cost $6.6
 $7.3
 $0.7
 $0.8
Interest cost (a)
 15.1
 13.8
 1.3
 1.2
Expected return on plan assets (a)
 (21.5) (21.2) (1.5) (1.8)
Amortization of prior service credit (a)
 (0.1) (0.1) (0.4) (0.3)
Amortization of net loss (gain) (a)
 8.5
 10.5
 (0.3) (0.3)
Net periodic benefit cost (credit) 8.6
 10.3
 (0.2) (0.4)
Credits not recognized due to the effects of regulation 1.3
 1.3
 —
 —
Net benefit cost (credit) recognized for financial reporting $9.9
 $11.6
 $(0.2) $(0.4)
(a) The components of net periodic cost other than the service cost component are included in the line item “other expense,income (expense), net” in the income statement or capitalized on the balance sheet as a regulatory asset.
In January 2019,2020, contributions of $150.0 million were made across 4 of Xcel Energy’s pension plans, of which $16.5 million was attributable to SPS. In July 2019, Xcel Energy made a $4.0 million contribution to the Xcel Energy Inc. Non-Bargaining Pension Plan (South), of which $1.2$14.4 million was attributable to SPS. Xcel Energy does not expect additional pension contributions during 2019.2020.
9.Commitments and Contingencies
The following include commitments, contingencies and unresolved contingencies that are material to SPS’ financial position.
Legal
SPS is involved in various litigation matters in the ordinary course of business. The assessment of whether a loss is probable or is a reasonable possibility, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. Management maintains accruals for losses probable of being incurred and subject to reasonable estimation. Management is sometimes unable to estimate an amount or range of a reasonably possible loss in certain situations, including but not limited to, when (1) the damages sought are indeterminate, (2) the proceedings are in the early stages or (3) the matters involve novel or unsettled legal theories. In such cases, there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including a possible eventual loss.

For current proceedings not specifically reported herein, management does not anticipate that the ultimate liabilities, if any, would have a material effect on SPS’ financial statements. Unless otherwise required by GAAP, legal fees are expensed as incurred.
Rate Matters
SPP OATT Upgrade Costs — Under the SPP OATT, costs of transmission upgrades may be recovered from other SPP customers whose transmission service depends on capacity enabled by the upgrade. SPP had not been charging its customers for these upgrades, even though the SPP OATT had allowed SPP to do so since 2008. In 2016, the FERC granted SPP’s request to recover these previously unbilled charges and SPP subsequently billed SPS approximately $13 million.
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In July 2018, SPS’ appeal to the D.C. Circuit over the FERC rulings granting SPP the right to recover these previously unbilled charges was remanded to the FERC. In February 2019, the FERC reversed its 2016 decision and ordered SPP to refund the charges retroactively collected from its transmission customers, including SPS, related to periods before September 2015. In April 2019, several parties, including SPP, filed requests for a rehearing. In February 2020, FERC issued an order rejecting all rehearing requests and providing certain clarifications. In March 2020, SPP and Oklahoma Gas & Electric separately filed petitions for review of FERC’s orders at the D.C. Circuit. SPS has intervened in both appeals in support of FERC. The timing of a FERC response to the rehearing requestsan appeals decision is uncertain. Any refunds received by SPS are expected to be given back to SPS customers through future rates.
In October 2017, SPS filed a separate related complaint against SPP asserting that SPP has assessed upgrade charges to SPS in violation of the SPP OATT. In March 2018, FERC issued an order denying the SPS complaint in its entirety, and finding SPP’s calculations to be consistent with the SPP Tariff. SPS filed a request for rehearing in April 2018. The FERC grantedissued a tolling order granting a rehearing for further consideration in May 2018. The timing of FERC action on the SPS rehearing is uncertain. If SPS’ complaint results in additional charges or refunds, SPS will seek to recover or refund the amounts through future SPS customer rates.rates.
In June 2020, the D.C. Circuit issued a decision in an unrelated proceeding (Allegheny Defense Project v. FERC), which held that FERC’s longstanding use of tolling orders to extend FERC’s deadline to act on the merits of requests for rehearing is improper. The effect on this decision on tolling orders previously issued by FERC is unclear.
SPP Filing to Assign GridLiance Facilities to SPS Rate Zone — In August 2018, SPP filed a request with the FERC to amend its OATT to include the costs of the GridLiance High Plains, LLC.LLC facilities in the SPS rate zone. In a previous filing, the FERC determined that some of these facilities did not qualify as transmission facilities under the SPP OATT. SPP’s proposed tariff changes resulted in an increase in the ATRRannual transmission revenue requirement of $9.5 million per year, with $6 million allocated to SPS’ retail customers. The remaining $3.5 million would be paid by other wholesale loads in the SPS rate zone.
In September 2018, SPS protested the proposed SPP tariff charges, and asked the FERC to reject the SPP filing. On Oct. 31, 2018, the FERC issued an order accepting the proposed charges, subject to refund, as of Nov. 1, 2018, and set the case for settlement hearing procedures. Hearings are scheduled for Mayto begin in August 2020, withand the ALJ’s initial decision is expected in OctoberFebruary 2021. In addition, the chief ALJ has appointed a new settlement judge who has ordered additional settlement discussions prior to the scheduled hearing date. SPS has incurred approximately $10.2 million in associated charges as of June 30, 2020.
SPS Filing to Modify Wholesale Transmission Rates — In 2018, SPS filed revisions to its wholesale transmission formula rate. The proposal includes an update to the depreciation rates for transmission plant. The new formula rate would also provide a credit to customers of “excess” ADITaccumulated deferred income tax resulting from the TCJA and recover certain wholesale regulatory commission expenses.
The proposed changes would increase wholesale transmission revenues by approximately $9.4 million, with approximately $4.4 million of the total being recovered in SPP regional transmission rates. SPS proposed that the formula rate changes be effective Feb. 1, 2019.
In January 2019, the FERC issued an order accepting the proposed rate changes as of Feb. 1, 2019, subject to refund and settlement procedures. On Dec. 23, 2019, SPS filed a Stipulation and Agreement of Settlement, procedures startedwhich was approved by the FERC in February 2019, and are ongoing.April 2020.

Environmental
MGP,Manufactured Gas Plant, Landfill orand Disposal Sites — SPS is currently remediating the site of a former facility.
disposal site. SPS has recognized its best estimate of costs/liabilities that will result from final resolution of these issues, however, the outcome and timing is unknown. In addition, there may be insurance recovery and/or recovery from other potentially responsible parties, offsetting a portion of the costs incurred.
Leases
SPS evaluates contracts that may contain leases, including PPAs and arrangements for the use of office space and other facilities, vehicles and equipment. Under ASC Topic 842, adopted by SPS on Jan. 1, 2019, a contract contains a lease if it conveys the exclusive right to control the use of a specific asset. A contract determined to contain a lease is evaluated further to determine if the arrangement is a finance lease.
ROU assets represent SPS’ rights to use leased assets. Starting in 2019, the present value of future operating lease payments are recognized in other current liabilities and noncurrent operating lease liabilities. These amounts, adjusted for any prepayments or incentives, are recognized as operating lease ROU assets.
Most of SPS’ leases do not contain a readily determinable discount rate. Therefore, the present value of future lease payments is calculated using the estimated incremental borrowing rate (weighted-average of 4.4%). SPS has elected the practical expedient under which non-lease components, such as asset maintenance costs included in payments, are not deducted from minimum lease payments for the purposes of lease accounting and disclosure. Leases with an initial term of 12 months or less are classified as short-term leases and are not recognized on the balance sheet.
Operating lease ROU assets:
(Millions of Dollars) Sept. 30, 2019
PPAs $500.3
Other 48.0
Gross operating lease ROU assets 548.3
Accumulated amortization (19.3)
Net operating lease ROU assets $529.0

Components of lease expense:
(Millions of Dollars) Three Months Ended Sept. 30, 2019 Nine Months Ended Sept. 30, 2019
Operating leases    
PPA capacity payments $11.4
 $36.8
Other operating leases (a)
 1.2
 3.7
Total operating lease expense (b)
 $12.6
 $40.5
(a)
Includes short-term lease expense of $0.3 million for the three months ended Sept. 30, 2019 and $1.2 million for the nine months ended Sept. 30, 2019.
(b)
PPA capacity payments are included in electric fuel and purchased power on the statements of income. Expense for other operating leases is included in O&M expense.
Future commitments under operating leases as of Sept. 30, 2019:
(Millions of Dollars) 
PPA (a) (b)
Operating
Leases
 
Other Operating
Leases
 
Total
Operating
Leases
2019 $11.6
 $0.8
 $12.4
2020 46.2
 3.4
 49.6
2021 46.2
 3.3
 49.5
2022 46.2
 3.4
 49.6
2023 46.2
 3.4
 49.6
Thereafter 450.8
 54.8
 505.6
Total minimum obligation 647.2
 69.1
 716.3
Interest component of obligation (165.3) (22.0) (187.3)
Present value of minimum obligation 481.9
 47.1
 529.0
Less current portion     (26.8)
Noncurrent operating lease liabilities     $502.2
       
Weighted-average remaining lease term in years     14.3
(a)
Amounts do not include PPAs accounted for as executory contracts and/or contingent payments, such as energy payments on renewable PPAs.
(b)
PPA operating leases contractually expire at various dates through 2033.
Future commitments under operating leases as of Dec. 31, 2018:
(Millions of Dollars) 
PPA (a) (b)
Operating
Leases
 
Other Operating
Leases
 
Total
Operating
Leases
2019 $46.7
 $5.2
 $51.9
2020 46.2
 5.2
 51.4
2021 46.2
 5.1
 51.3
2022 46.2
 5.1
 51.3
2023 46.2
 5.1
 51.3
Thereafter 450.8
 56.3
 507.1
(a)
Amounts do not include PPAs accounted for as executory contracts and/or contingent payments, such as energy payments on renewable PPAs.
(b)
PPA operating leases contractually expire at various dates through 2033.
Variable Interest EntitiesVIEs
Under certain PPAs, SPS purchases power from IPPs andfor which SPS is required to reimburse the IPPs for fuel costs, or to participate in tolling arrangements under which SPS procures the natural gas required to produce the energy that it purchases. These specific PPAs create a variable interest in the associated IPP.
SPS had approximately 1,197 MW of capacity under long-term PPAs as of Sept.at June 30, 20192020 and Dec. 31, 2018,2019 with entities that have been determined to be VIEs. SPS concluded that these entities are not required to be consolidated in its financial statements because it does not have the power to direct the activities that most significantly impact the entities’ economic performance. These agreementsAgreements have expiration dates through 2041.
Item
ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Discussion of financial condition and liquidity for SPS is omitted per conditions set forth in general instructions H(1)(a) and (b) of Form 10-Q for wholly owned subsidiaries. It is replaced with management’s narrative analysis of the results of operations set forth in general instructions H(2)(a) of Form 10-Q for wholly owned subsidiaries (reduced disclosure format).

Non-GAAP Financial Measures
The following discussion includes financial information prepared in accordance with GAAP, as well as certain non-GAAP financial measures such as, electric margin and ongoing earnings. 
Generally, a non-GAAP financial measure is a measure of a company’s financial performance, financial position or cash flows that excludes (or includes) amounts that are adjusted from measures calculated and presented in accordance with GAAP. SPS’s
SPS’ management uses non-GAAP measures for financial planning and analysis, for reporting of results to the Board of Directors, in determining performance-based compensation, and communicating its earnings outlook to analysts and investors. Non-GAAP financial measures are intended to supplement investors’ understanding of our performance and should not be considered alternatives for financial measures presented in accordance with GAAP. These measures are discussed in more detail below and may not be comparable to other companies’ similarly titled non-GAAP financial measures.
Electric Margins
Electric margin is presented as electric revenues less electric fuel and purchased power expenses. Expenses incurred for electric fuel and purchased power are generally recovered through various regulatory recovery mechanisms. As a result, changes in these expenses are generally offset in operating revenues.
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Management believes electric margins provide the most meaningful basis for evaluating our operations because they exclude the revenue impact of fluctuations in these expenses.
These margins can be reconciled to operating income, a GAAP measure, by including other operating revenues, O&M expenses, DSM expenses, depreciation and amortization and taxes (other than income taxes).
Earnings Adjusted for Certain Items (Ongoing Earnings)
Ongoing earnings reflect adjustments to GAAP earnings (net income) for certain items. Management uses these non-GAAP financial measures to evaluate and provide details of SPS’ core earnings and underlying performance.
For the three and nine months ended Sept. 30, 2019 and 2018, there were no such adjustments to GAAP earnings and therefore GAAP earnings equal ongoing earnings for these periods.
Results of Operations
SPS’ net income was approximately $218.0$114.4 million for the ninesix months ended Sept.June 30, 20192020 compared with approximately $173.1$112.9 million for the prior year. The increase reflects higher electric margin attributable to regulatory rate outcomesYear-to-date earnings were driven by lower O&M and sales growth despite unfavorable weather. Higherincome taxes, offset by lower electric margin and AFUDC associated with the Hale Wind farmincreased depreciation. Lower electric margins were attributable to lower sales from COVID-19, increased PTCs flowed back to customers (offset in income tax) and a 2019 NMPRC revised order eliminating a $10.2 million retroactive refund of tax reform benefits, partially offset by increased depreciation, O&M and interest expenses.
Electric Marginan increase in wholesale transmission revenue.
Electric revenues and fuel and purchased power expenses tend to vary with changing retail and wholesale sales requirements and unit cost changes in fuel and purchased power.
Changes in fuel or purchased power costs can impact earnings as the fuel and purchased power cost recovery mechanisms of the Texas and New Mexico jurisdictions may not allow for complete recovery of all expenses.
Electric revenues and margin:
 Nine Months Ended Sept. 30Six Months Ended June 30
(Millions of Dollars) 2019 2018(Millions of Dollars)20202019
Electric revenues $1,397.7
 $1,468.6
Electric revenues$818.4  $864.6  
Electric fuel and purchased power (651.0) (795.6)Electric fuel and purchased power(386.6) (410.8) 
Electric margin $746.7
 $673.0
Electric margin$431.8  $453.8  
Changes in electric margin:
(Millions of Dollars)2020 vs 2019
PTCs flowed back to customers (offset by a lower ETR)$(26.4)
Firm wholesale generation(10.7)
New Mexico tax reform related regulatory settlement (2019)(10.2)
Sales and demand (a)
(5.8)
Wholesale transmission revenue (net)13.8 
Purchased capacity costs10.5 
Estimated impact of weather6.4 
Regulatory rate outcomes (New Mexico)4.1 
Other (net)(3.7)
Total decrease in electric margin$(22.0)
(Millions of Dollars) 2019 vs 2018
Purchased capacity costs $31.9
Regulatory rate outcomes 23.7
Demand revenue 19.2
Wholesale transmission, net 14.5
Non-fuel riders 9.8
Retail sales growth 3.4
Firm wholesale (16.9)
PTC sharing (4.4)
Estimated weather impact (4.2)
Other, net (3.3)
Total increase in electric margin $73.7
(a)Sales decline excludes weather impact.
Non-Fuel Operating Expense and Other Items
O&M Expenses — O&M expenses increased $12.9 million, or 6.3%, for the nine months ended Sept. 30, 2019 compared with the prior year. The increase was primarily driven by plant generation, distribution and business system expenses. Plant generation expenses increased due to timing of planned maintenance and overhauls. Distribution expenses increased as a result of additional pole inspections. Business system costs increased due to additional consulting fees.
Depreciation and Amortization — Depreciation and amortization increased $22.1$12.1 million, or 14.7%10.9%, for the ninesix months ended Sept.June 30, 20192020 compared with the prior year. The increase was primarily due to increased capital investmentsthe Hale Wind Farm in-servicing in June 2019, new FERC transmission rates implemented in March 2020, and normal system expansion primarily in transmission and general. These increases are offset by the Hale depreciation deferral as well as accelerated depreciation at Tolk generating facilitya result of the 2019 Texas electric rate case.
O&M Expenses — O&M expenses decreased $14.6 million, or (10.2)% for the Texas jurisdiction.
AFUDC, Equity and Debt — AFUDC increased $15.3 million, for the ninesix months ended Sept.June 30, 20192020 compared with the prior year. The increasedecrease was primarily due to deferred amounts associated with the Texas 2019 electric rate case and cost mitigation efforts to offset the negative impacts of COVID-19, offset by an increase in wind construction projects, primarily the Hale Wind farm.
Interest Charges — Interest charges increased $14.2 million, or 23.0%, for the nine months ended Sept. 30, 2019 compared with the prior year. The increase was related to higher debt levels to fund capital investments, changes in short-term interest rates and implementation of lease accounting standard (offset in electric margin).amounts.
Income Taxes — Income tax expense decreased $2.8$35.0 million for the ninesix months ended Sept.June 30, 20192020 compared with the prior year.same period in 2019. The decrease was primarily driven by an increase in wind PTCs and an increase in plant-related regulatory differences. This was partially offset by higherlower pretax earnings. Wind PTCs are largely credited to customers (recorded as a reduction to revenue) and do not have a material impact on net income. The ETR was 13.0%(12.7)%, for the ninesix months ended Sept.June 30, 20192020 compared with 17.0%16.4% for the prior year,same period in 2019, largely due to the items referenced above.
See Note 6 to the financial statements.
statements for further information.

Public Utility Regulation

The FERC and various state and local regulatory commissions regulate SPS. The electric rates charged to customers of SPS are approved by the FERC or the regulatory commissions in the states in which it operates.
The rates are designed to recover plant investment, operating costs and an allowed return on investment. SPS requests changes in rates for utility services through filings with governing commissions.
Changes in operating costs can affect SPS’ financial results, depending on the timing of rate case filings and implementation of final rates. Other factors affecting rate filings are new investments, sales, conservation and DSM efforts, and the cost of capital. In addition, the regulatory commissions authorize the ROE, capital structure and depreciation rates in rate proceedings. Decisions by these regulators can significantly impact SPS’ results of operations.
Except to the extent noted below, the circumstances set forth in Public Utility Regulation included in Item 17 of SPS’ Annual Report on Form 10‑K10-K for the year ended Dec. 31, 20182019 and in Item 2 of SPS’ Quarterly Report on Form 10-Q for the quarterly periodsperiod ended March 31, 2019 and June 30, 2019,2020, appropriately represent, in all material respects, the current status of public utility regulation and are incorporated herein by reference.
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FERC and State Regulation — The FERC has jurisdiction over rates for electric transmission service in interstate commerce and electricity sold at wholesale, asset transactions and mergers, accounting practices and certain other activitiesTable of SPS, including enforcement of NERC mandatory electric reliability standards. State and local agencies have jurisdiction over many of SPS’ activities, including regulation of retail rates and environmental matters.Contents
Xcel Energy, which includes SPS, attempts to mitigate the risk of regulatory penalties through formal training on prohibited practices and a compliance function that reviews interaction with the markets under FERC and Commodity Futures Trading Commission jurisdictions.
Public campaigns are conducted to raise awareness of public safety issues of interacting with our electric systems.
While programs to comply with regulatory requirements are in place, there is no guarantee compliance programs or other measures will be sufficient to ensure against violations. Decisions by these regulators can significantly impact SPS’ results of operations.
Pending and Recently Concluded Regulatory Proceedings
2019 Texas Rate Case — In August 2019, SPS filed an electric rate case with the PUCT seeking an increase in retail electric base rates of approximately $141 million. The filing requests an ROE of 10.35%, a 54.65% equity ratio, a rate base of approximately $2.6 billion and is built on a 12 month period that ended June 30, 2019. In September 2019, SPS filed an update to the electric rate case and revised its requested increase to approximately $136 million.
The following table summarizes SPS’ base rate increase request:
MechanismUtility ServiceAmount Requested (in millions)Filing DateApprovalAdditional Information
NMPRC
Rate CaseElectric$31July 2019ReceivedIn July 2019, SPS filed an electric rate case with the NMPRC seeking an increase in retail electric base rates of approximately $51 million. The rate request was based on an ROE of 10.35%, an equity ratio of 54.77%, a rate base of approximately $1.3 billion and a historic test year with rate base additions through Aug. 31, 2019. In December 2019, SPS revised its base rate increase request to approximately $47 million, based on a ROE of 10.10% and updated information. The request also included an increase of $14.6 million for accelerated depreciation including the early retirement of the Tolk coal plant in 2032.
On Jan. 13, 2020, SPS and various parties filed an uncontested comprehensive stipulation. The stipulation includes a base rate revenue increase of $31 million, based on an ROE of 9.45% and an equity ratio of 54.77%. The stipulation also includes an acceleration of depreciation on the Tolk coal plant to reflect early retirement in 2037, which results in a total increase in depreciation expense of $8 million. The parties to the stipulation agreed not to oppose the full application of depreciation rates associated with the 2032 retirement date in SPS’ next base rate case. On May 11, 2020, the Hearing Examiner issued a Certification of Stipulation recommending approval of the uncontested comprehensive stipulation without modification. On May 20, 2020, the NMPRC approved the stipulation without modification. New rates and tariffs were effective beginning May 28, 2020.
PUCT
Rate CaseElectric$141August 2019Pending
In August 2019, SPS filed an electric rate case with the PUCT seeking an increase in retail electric base rates of approximately $141 million. The filing requests an ROE of 10.35%, a 54.65% equity ratio, rate base of approximately $2.6 billion and utilizes a historic 12 month period that ended June 30, 2019. SPS’ request was subsequently revised in March 2020 to approximately $130 million, based on a requested ROE of 10.1%, a 54.62% equity ratio, rate base of approximately $2.6 billion and historic test year ended June 30, 2019.

On May 20, 2020, SPS, the PUCT Staff and various intervenors reached an uncontested settlement, which includes:
•An electric rate increase of $88 million and a reset of the Transmission Cost Recovery Factor to zero;
•ROE of 9.45% and equity ratio of 54.62% for allowance for funds used during construction purposes;
•Depreciation rates:
◦Tolk - 2037 end-of-life date;
◦Hale - 25-year end-of-life date;
◦All other generating units - end-of-life dates as proposed by SPS; and
◦Transmission - 35% of the incremental change between existing depreciation rates and rates proposed by SPS.
•Ring-fencing measures like those in other recent PUCT settlements, including:
◦Credit agreements and indentures (e.g., no cross-default provisions);
◦Financial covenants;
◦Restrictions on pledging of assets and securing debt;
◦Maintaining stand-alone credit facility and ratings; and
◦Affiliate and non-affiliate limitations.

Final rates are expected to be retroactively applied as of Sept. 12, 2019. A decision from the PUCT is anticipated in the third quarter of 2020.
Revenue Request (Millions of Dollars)  
Hale Wind Farm $62
Capital investments 47
Depreciation rate change (including Tolk) 34
Cost of capital 10
Expiring purchased power contracts (28)
Other, net 11
New revenue request $136
The procedural schedule is as follows:
Intervenor testimony — Feb. 10, 2020
Staff testimony — Feb. 18, 2020
Rebuttal testimony — March 11, 2020
Public hearing begins — March 30, 2020
Final order deadline — Sept. 7, 2020
The final rates established at the end of the rate case are expected to be made effective relating back to Sept. 12, 2019. SPS expects a decision from the PUCT in the second quarter of 2020.



2019 New Mexico Rate Case — In July 2019, SPS filed an electric rate case with the NMPRC seeking an increase in retail electric base rates of approximately $51 million. The rate request is based on a ROE of 10.35%, a 54.77% equity ratio, a rate base of approximately $1.3 billion and a historic test year with rate base additions through Aug. 31, 2019. SPS anticipates final rates will go into effect in the second or third quarter of 2020.
SPS' proposed increase in base rates would be partially mitigated by savings to New Mexico customers achieved through fuel cost reductions and PTCs attributable to wind energy provided by the Hale Wind Farm. SPS’ $51 million requested increase in base rates would be offset by approximately $25 million of savings resulting in a net revenue increase of approximately $26 million, or 5.7%.
The following table summarizes SPS’ base rate increase request:
Revenue Request (Millions of Dollars)  
Hale Wind Farm $28
Other plant investment 22
Wholesale sales reduction 17
Allocator changes due to load growth 15
Depreciation rate change (including Tolk) 15
Base rate sales growth (41)
Other, net (5)
New revenue request $51
The procedural schedule is as follows:
Filing of stipulation, if any — Nov. 15, 2019
Staff and intervenor testimony or testimony in support of a stipulation — Nov. 22, 2019
Testimony in opposition to a stipulation, if any — Dec. 6, 2019
Rebuttal testimony — Dec. 20, 2019
Public hearing begins — Jan. 7, 2020
End of 9-month suspension — April 30, 2020
Wind Development — In 2018, the NMPRC and PUCT approved SPS’ proposal to add 1,230 MW of new wind generation, including construction and ownership of the 478 MW Hale and 522 MW Sagamore wind farms. The Hale wind farm was placed into commercial operation in June 2019. Sagamore is expected to go into service in 2020 and cost approximately $900 million.
Texas State Right of First Refusal (ROFR)ROFR Litigation — In May 2019, the Governor signed into law Senate Bill 1938, which grants incumbent utilities a ROFR to build transmission infrastructure when it directly interconnects to the utility’s existing facility. In June 2019, a complaint was filed in the United States District Court for the Western District of Texas claiming the new ROFR law to be unconstitutional. In February 2020, the federal court complaint was dismissed by the district court. In March 2020, the district court ruling was appealed to the United States Court of Appeals for the Fifth Circuit. The parties are awaiting a decision.
Texas Fuel Reconciliation —Refund — Fuel and purchased power costs are recoverable in Texas through a fixed fuel factor, which is part of SPS’ rates. The PUCT rule requires refunding or surcharging of under and over-recovered amounts, including interest, when they exceed 4% of the utility’s annual fuel costs.In December 2018,
SPS’ 2019 total fuel and purchased power costs were over-collected by approximately $39 million. As a result, SPS filed an applicationa request with the PUCT for reconciliation of fuel costs forto refund the period Jan. 1, 2016, through June 30, 2018,amount to determine whether all fuel costs incurredcustomers. In April 2020, interim rates were eligible for recovery. On Oct. 17, 2019, the assigned Administrative Law Judges (ALJs) issuedgranted by a Proposal for Decision recommending the PUCT disallow approximately $3 million of costs related to the reconciliation period, based on the ALJs’ determination that entering into two specific solar PPAs was imprudent. The related solar facilities are located in New MexicoTexas ALJ. This case is pending final review and were previously approvedapproval by the NMPRC as reasonable, necessary and economic. SPS plans to file exceptions regarding the proposed disallowance and assert, among other points, that the ALJs erred in failing to account for the capacity value of the solar projects.PUCT. 


New Mexico FuelFPPCAC Continuation— — In October 2019, SPS filed an application to the NMPRC to approve SPS’ continued use of its FPPCAC and for reconciliation of fuel costs for the period Sept. 1, 2015, through June 30, 2019, which will determine whether all fuel costs incurred are eligible for recovery. No procedural schedule has yet been established for this matter.SPS also proposed that it annually review its average New Mexico Deferred Fuel and Purchased Power balance and requests the NMPRC approve an Annual Deferred Fuel Balance True-Up. The proposed true-up is designed to maintain the Deferred Fuel and Purchased Power balance within a bandwidth of plus or minus 5% of annual New Mexico fuel and purchased power costs. A public hearing is scheduled to begin on Aug. 20, 2020.
Environmental
Environmental MattersRegulation
In JuneJuly 2019, the EPA issuedadopted the final ACEAffordable Clean Energy rule, which requires states to replacedevelop plans for greenhouse gas reductions from coal-fired power plants. The state plans, due to the Obama-era Clean Power Plan. The final ACE rule mayEPA in July 2022, will evaluate and potentially require implementation of heat rate improvement projectsimprovements at some of ourexisting coal-fired power plants. It is not yet known what the costs associated with the final rule might be untilhow these state plans are developed to implement the final regulation.will affect our existing coal plants, but they could require substantial additional investment, even in plants slated for retirement. SPS believes, the costs would be recoverable through rates based on prior state commission practice.practice, the cost of these initiatives or replacement generation would be recoverable through rates.
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ItemTable of Contents
ITEM 4 — CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
SPS maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms. 
In addition, the disclosure controls and procedures ensure that information required to be disclosed is accumulated and communicated to management, including the CEO and CFO, allowing timely decisions regarding required disclosure.
As of Sept.June 30, 2019,2020, based on an evaluation carried out under the supervision and with the participation of SPS’ management, including the CEO and CFO, of the effectiveness of its disclosure controls and the procedures, the CEO and CFO have concluded that SPS’ disclosure controls and procedures were effective.
Internal Control Over Financial Reporting
No changes in SPS’ internal control over financial reporting occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, SPS’ internal control over financial reporting.

PartPART II — OTHER INFORMATION
ITEM 1 — LEGAL PROCEEDINGS
Item 1—Legal Proceedings
SPS is involved in various litigation matters in the ordinary course of business. The assessment of whether a loss is probable or is a reasonable possibility, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. Management maintains accruals for losses probable of being incurred and subject to reasonable estimation. Management is sometimes unable to estimate an amount or range of a reasonably possible loss in certain situations, including but not limited to, when (1) the damages sought are indeterminate, (2) the proceedings are in the early stages or (3) the matters involve novel or unsettled legal theories. In such cases, there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including a possible eventual loss.
For current proceedings not specifically reported herein, management does not anticipate that the ultimate liabilities, if any, would have a material effect on SPS’ financial statements. Unless otherwise required by GAAP, legal fees are expensed as incurred.
See Note 9 to the financial statements and Part I Item 2 for further information.
Item
ITEM 1A — RISK FACTORS

There have been no material changes from the risk factors disclosed in our Form 10-K for the year ended Dec. 31, 2019 except as follows:
We face risks related to health epidemics and other outbreaks, which may have a material effect on our financial condition, results of operations and cash flows.
The global outbreak of COVID-19 is currently impacting countries, communities, supply chains and markets. A high degree of uncertainty continues to exist regarding COVID-19, the duration and magnitude of business restrictions, re-shut downs, if any, and the level and pace of economic recovery. While we are implementing contingency plans, there are no guarantees these plans will be sufficient to offset the impact of COVID-19.
We cannot ultimately predict whether it will have a material impact on our liquidity, financial condition, or results of operations. Nor can we predict the impact of the virus on the health of our employees, our supply chain or our ability to recover higher costs associated with managing through the pandemic.
SPS’ risk factors are documented in Item 1A of Part I of its Annual Report on Form 10-K for the year ended Dec. 31, 2018,2019, which is incorporated herein by reference. Therereference as well as other information set forth in this report, which could have been noa material changes from the risk factors previously disclosed in the Form 10-K.impact on our financial condition, results of operations and cash flows.

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Item
Table of Contents
ITEM 6 — EXHIBITS
* Indicates incorporation by reference
+ Executive Compensation Arrangements and Benefit Plans Covering Executive Officers and Directors
Exhibit NumberDescriptionReport or Registration StatementSEC File or Registration NumberExhibit Reference
SPS Form 10-Q for the quarter ended Sept. 30, 2017001-037893.01
SPS Form 10-K for the year ended Dec. 31, 2018001-037893.02
4.0131.01*
SPS Form 8-K dated May 18, 2020001-037894.02
101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Schema
101.CALInline XBRL Calculation
101.DEFInline XBRL Definition
101.LABInline XBRL Label
101.PREInline XBRL Presentation
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Southwestern Public Service Company
July 31, 2020By:Southwestern Public Service Company
Oct. 25, 2019By:/s/ JEFFREY S. SAVAGE
Jeffrey S. Savage
Senior Vice President, Controller
(Principal Accounting Officer)
/s/ ROBERT C. FRENZELBRIAN J. VAN ABEL
Robert C. FrenzelBrian J. Van Abel
Executive Vice President, Chief Financial Officer and Director
(Principal Financial Officer)

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