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. 30, 20192020 or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
001-303475-0575400Southwestern Public Service Company
(Commission File Number)(I.R.S. Employer Identification No.)Exact name of registrant as specified in its charter)
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, 201929, 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 —
2016
PART IIOTHER INFORMATION
Item 1 —
17
Item 1A —
17
Item 6 —
17
PART II — OTHER INFORMATIONSIGNATURES
Item 1     —
Legal Proceedings18
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.Securities and Exchange Commission. 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
EPAUnited States Environmental 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
Electric, Purchased Gas and Resource Adjustment Clauses
DSMDemand side management
FPPCACFuel and Purchased Power Cost Adjustment Clause
Other Terms and Abbreviations
ACEAFUDCAffordable Clean Energy
ADITAccumulated deferred income tax
AFUDCAllowance for funds used during construction
ALJASCAdministrative Law Judge
ASCFASB Accounting Standards Codification
ASUC&IFASB Accounting Standards Update
ATRRAnnual transmission revenue requirement
C&ICommercial and Industrial
CEOChief executive officer
CFOChief financial officer
ETRCOVID-19Novel coronavirus
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.
TCJAVIE2017 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
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 with the SEC (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;costs; 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 Sept. 30Nine Months Ended Sept. 30
2020201920202019
Operating revenues$615.3 $533.1 $1,433.7 $1,397.7 
Operating expenses  
Electric fuel and purchased power240.0 240.2 626.6 651.0 
Operating and maintenance expenses78.9 74.1 206.8 216.6 
Demand side management expenses4.6 4.5 12.2 12.9 
Depreciation and amortization100.2 61.3 223.3 172.3 
Taxes (other than income taxes)28.8 17.6 68.5 53.1 
Total operating expenses452.5 397.7 1,137.4 1,105.9 
Operating income162.8 135.4 296.3 291.8 
Other (expense) income, net(0.3)1.5 (2.2)2.4 
Allowance for funds used during construction — equity10.1 3.2 23.9 22.2 
Interest charges and financing costs
Interest charges — includes other financing costs of $1.0, $0.9, $2.8 and $2.5, respectively39.1 26.0 89.0 76.0 
Allowance for funds used during construction — debt(4.4)(1.5)(10.4)(10.2)
Total interest charges and financing costs34.7 24.5 78.6 65.8 
Income before income taxes137.9 115.6 239.4 250.6 
Income tax expense (benefit)10.8 10.5 (2.1)32.6 
Net income$127.1 $105.1 $241.5 $218.0 
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 Sept. 30Nine Months Ended Sept. 30
2020201920202019
Net income$127.1 $105.1 $241.5 $218.0 
Other comprehensive income
Pension and retiree medical benefits:
Reclassification of loss to net income, net of tax of $00 0 0.1 0.1 
Total other comprehensive income0 0 0.1 0.1 
Total comprehensive income$127.1 $105.1 $241.6 $218.1 
See Notes to Financial Statements


5
Table of Contents
SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in millions)
 Nine Months Ended Sept. 30
20202019
Operating activities  
Net income$241.5 $218.0 
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization225.2 174.0 
Deferred income taxes25.4 16.2 
Allowance for equity funds used during construction(23.9)(22.2)
Provision for bad debts4.7 4.0 
Changes in operating assets and liabilities:
Accounts receivable(30.5)(30.5)
Accrued unbilled revenues(3.5)(10.4)
Inventories(24.1)(16.3)
Prepayments and other(14.0)6.0 
Accounts payable(2.9)(15.1)
Net regulatory assets and liabilities(95.6)17.6 
Other current liabilities14.5 14.1 
Pension and other employee benefit obligations(15.2)(17.6)
Other, net3.7 2.0 
Net cash provided by operating activities305.3 339.8 
Investing activities
Utility capital/construction expenditures(845.4)(632.8)
Investments in utility money pool arrangement(4.0)(133.0)
Repayments from utility money pool arrangement4.0 133.0 
Net cash used in investing activities(845.4)(632.8)
Financing activities
Repayments of short-term borrowings, net0 (42.0)
Proceeds from issuance of long-term debt, net342.7 292.2 
Borrowings under utility money pool arrangement721.0 283.0 
Repayments under utility money pool arrangement(711.0)(283.0)
Capital contributions from parent435.4 400.8 
Dividends paid to parent(257.4)(255.0)
Other, net(0.3)0 
Net cash provided by financing activities530.4 396.0 
Net change in cash and cash equivalents(9.7)103.0 
Cash and cash equivalents at beginning of period16.2 44.0 
Cash and cash equivalents at end of period$6.5 $147.0 
Supplemental disclosure of cash flow information:
Cash paid for interest (net of amounts capitalized)$(69.1)$(60.3)
Cash received (paid) for income taxes, net4.0 (4.4)
Supplemental disclosure of non-cash investing and financing transactions:
Accrued property, plant and equipment additions$111.1 $67.5 
Inventory transfers to property, plant and equipment21.9 18.7 
Operating lease right-of-use assets0 548.3 
Allowance for equity funds used during construction23.9 22.2 
 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 Sept. 30, 2020Dec. 31, 2019
Assets   Assets  
Current assets   Current assets  
Cash and cash equivalents$147.0
 $44.0
Cash and cash equivalents$6.5 $16.2 
Accounts receivable, net113.9
 90.7
Accounts receivable, net110.8 92.7 
Accounts receivable from affiliates6.1
 10.5
Accounts receivable from affiliates11.1 4.2 
Accrued unbilled revenues124.9
 114.5
Accrued unbilled revenues118.3 115.1 
Inventories31.4
 33.9
Inventories33.2 31.0 
Regulatory assets20.8
 26.0
Regulatory assets75.4 20.0 
Derivative instruments20.4
 17.8
Derivative instruments14.3 15.0 
Prepaid taxes1.5
 14.2
Prepaid taxes17.5 0.8 
Prepayments and other17.6
 10.7
Prepayments and other19.9 21.4 
Total current assets483.6
 362.3
Total current assets407.0 316.4 
   
   
Property, plant and equipment, net6,441.9
 5,946.4
Property, plant and equipment, net7,368.56,631.6 
   
Other assets 
  
Other assets
Regulatory assets362.0
 366.2
Regulatory assets362.2 364.0 
Derivative instruments13.4
 15.8
Derivative instruments10.3 12.6 
Operating lease right-of-use assets529.0
 —
Operating lease right-of-use assets497.1 522.4 
Other4.4
 5.1
Other3.4 3.9 
Total other assets908.8
 387.1
Total other assets873.0 902.9 
Total assets$7,834.3
 $6,695.8
Total assets$8,648.5 $7,850.9 
   
Liabilities and Equity 
  
Liabilities and Equity
Current liabilities 
  
Current liabilities
Short-term debt$—
 $42.0
Borrowings under utility money pool arrangementBorrowings under utility money pool arrangement$10.0 $0 
Accounts payable168.3
 191.8
Accounts payable230.6 168.1 
Accounts payable to affiliates14.9
 19.9
Accounts payable to affiliates16.7 20.4 
Regulatory liabilities116.8
 85.8
Regulatory liabilities77.2 118.1 
Taxes accrued51.5
 41.6
Taxes accrued50.9 40.4 
Accrued interest29.1
 25.8
Accrued interest33.4 26.2 
Dividends payable to parent45.6
 45.2
Dividends payable to parent55.0 46.3 
Derivative instruments3.7
 3.6
Derivative instruments3.6 3.7 
Operating lease liabilitiesOperating lease liabilities27.8 26.9 
Other53.0
 28.3
Other25.2 30.7 
Total current liabilities482.9
 484.0
Total current liabilities530.4 480.8 
   
Deferred credits and other liabilities 
  
Deferred credits and other liabilities
Deferred income taxes653.4
 619.1
Deferred income taxes719.4671.8
Regulatory liabilities736.5
 780.9
Regulatory liabilities715.8 732.3 
Asset retirement obligations49.9
 32.4
Asset retirement obligations80.0 77.3 
Derivative instruments13.7
 16.4
Derivative instruments10.1 12.8 
Pension and employee benefit obligations75.2
 92.4
Pension and employee benefit obligations51.9 67.0 
Operating lease liabilities502.2
 —
Operating lease liabilities469.3 495.3 
Other9.0
 7.9
Other12.1 9.4 
Total deferred credits and other liabilities2,039.9
 1,549.1
Total deferred credits and other liabilities2,058.6 2,065.9 
   
Commitments and contingencies

 

Commitments and contingencies
Capitalization 
  
Capitalization
Long-term debt2,419.3
 2,126.1
Long-term debt2,763.72,419.7
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 Sept. 30, 2020 and Dec. 31, 2019, respectivelyCommon stock — 200 shares authorized of $1.00 par value; 100 shares outstanding at Sept. 30, 2020 and Dec. 31, 2019, respectively0 0 
Additional paid in capital2,325.3
 1,932.3
Additional paid in capital2,786.9 2,350.9 
Retained earnings568.2
 605.7
Retained earnings510.2 535.0 
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 equityTotal common stockholder's equity3,295.8 2,884.5 
Total liabilities and equity$7,834.3
 $6,695.8
Total liabilities and equity$8,648.5 $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 Sept. 30, 2020 and 2019
Balance at June 30, 2019100 $0 $2,307.3 $577.7 $(1.3)$2,883.7 
Net income105.1 105.1 
Dividends declared to parent(114.6)(114.6)
Contributions of capital by parent18.0 18.0 
Balance at Sept. 30, 2019100 $0 $2,325.3 $568.2 $(1.3)$2,892.2 
Balance at June 30, 2020100 $0 $2,786.9 $519.1 $(1.3)$3,304.7 
Net income127.1 127.1 
Dividends declared to parent(136.0)(136.0)
Balance at Sept. 30, 2020100 $0 $2,786.9 $510.2 $(1.3)$3,295.8 
Common Stock IssuedRetained EarningsAccumulated Other Comprehensive LossTotal Common Stockholder's Equity
SharesPar ValueAdditional Paid
In Capital
Nine Months Ended Sept. 30, 2020 and 2019
Balance at Dec. 31, 2018100 $0 $1,932.3 $605.7 $(1.4)$2,536.6 
Net income218.0 218.0 
Other comprehensive income0.1 0.1 
Dividends declared to parent(255.5)(255.5)
Contributions of capital by parent393.0 393.0 
Balance at Sept. 30, 2019100 $0 $2,325.3 $568.2 $(1.3)$2,892.2 
Balance at Dec. 31, 2019100 $0 $2,350.9 $535.0 $(1.4)$2,884.5 
Net income241.5 241.5 
Other comprehensive income0.1 0.1 
Dividends declared to parent(266.2)(266.2)
Contributions of capital by parent436.0 436.0 
Adoption of ASC Topic 326(0.1)(0.1)
Balance at Sept. 30, 2020100 $0 $2,786.9 $510.2 $(1.3)$3,295.8 
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. 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 nine months ended Sept. 30, 20192020 and 2018;2019; and its cash flows for the nine months ended Sept. 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. 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 bad debts 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)Sept. 30, 2020Dec. 31, 2019
Accounts receivable, net
Accounts receivable$117.9 $98.0 
Less allowance for bad debts(7.1)(5.3)
Accounts receivable, net$110.8 $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)Sept. 30, 2020Dec. 31, 2019
Inventories
Materials and supplies$26.2 $24.7 
Fuel7.0 6.3 
Total inventories$33.2 $31.0 

(Millions of Dollars)Sept. 30, 2020Dec. 31, 2019
Property, plant and equipment, net
Electric plant$8,751.8 $8,453.0 
Construction work in progress1,075.1 485.4 
Total property, plant and equipment9,826.9 8,938.4 
Less accumulated depreciation(2,458.4)(2,306.8)
Property, plant and equipment, net$7,368.5 $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 Sept. 30, 2020Year Ended Dec. 31, 2019
Borrowing limit$100 $100 
Amount outstanding at period end10 0 
Average amount outstanding0 8 
Maximum amount outstanding10 100 
Weighted average interest rate, computed on a daily basis0.09 %2.42 %
Weighted average interest rate at period end0.90 N/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 Sept. 30, 2020Year Ended Dec. 31, 2019
Borrowing limit$500 $500 
Amount outstanding at period end0 0 
Average amount outstanding0 72 
Maximum amount outstanding0 316 
Weighted average interest rate, computed on a daily basisN/A2.68 %
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 both Sept. 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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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. 30, 2019,2020, SPS had the following committed revolving credit facility available (in millions of dollars):
Credit Facility (a)
Drawn (b)
Available
$500 $2 $498 
Credit Facility (a)
 
Outstanding (b)
 Available
$500
 $2
 $498
(a)Expires in June 2024.
(b)Includes outstanding letters of credit.
(a)
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. 30, 20192020 and Dec. 31, 2018.2019.
Long-Term Borrowings
During the nine months ended Sept. 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 consistsconsisted of the following:
Three Months Ended Sept. 30
(Millions of Dollars)20202019
Major revenue types
Revenue from contracts with customers:
Residential$120.6 $119.3 
C&I219.5 222.4 
Other12.9 12.8 
Total retail353.0 354.5 
Wholesale109.4 106.6 
Transmission73.5 64.4 
Other1.4 0.6 
Total revenue from contracts with customers537.3 526.1 
Alternative revenue and other78.0 7.0 
Total revenues$615.3 $533.1 
Nine Months Ended Sept. 30
(Millions of Dollars)20202019
Major revenue types
Revenue from contracts with customers:
Residential$278.3 $277.8 
C&I552.3 619.6 
Other29.5 32.3 
Total retail860.1 929.7 
Wholesale264.2 263.4 
Transmission212.1 181.8 
Other2.6 2.0 
Total revenue from contracts with customers1,339.0 1,376.9 
Alternative revenue and other94.7 20.8 
Total revenues$1,433.7 $1,397.7 
  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:
Nine Months Ended Sept. 30
20202019
Federal statutory rate21.0 %21.0 %
State tax (net of federal tax effect)2.4 2.2 
Decreases in tax from:
Wind PTCs(15.6)(3.9)
Plant regulatory differences (a)
(6.2)(4.7)
Prior period adjustments(1.5)(0.5)
Other tax credits, net NOL & tax credit allowances(0.7)(0.6)
Other (net)(0.3)(0.5)
Effective income tax rate(0.9)%13.0 %
  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.
Federal Tax Loss Carryback Claims—In 2020, Xcel Energy identified certain expenses related to tax years 2009-2011 that qualify for an extended carryback claim. SPS is not expected to accrue any income tax expense related to this adjustment.

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 - 2013
2014 — 2016
June 2020
2014 - 2016September 2020July 2021

Additionally, the statute of limitations related to the federal tax loss carryback claim referenced above has been extended. Xcel Energy has recognized its best estimate of income tax expense that will result from a final resolution of this issue; however, the outcome and timing of a resolution is unknown.
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 In April 2020, Xcel Energy and Office of Appeals reached an agreement and Xcel Energy has recognized its best estimate of income tax expense that will result from a final resolution of this issue; however, the outcome and timing of a resolution is unknown.0 material adjustments were required.
In 2018, the IRS began an audit of tax years 2014 - 2016. As of Sept. 30, 2019 0 adjustments have been proposed.In July 2020, Xcel Energy and the IRS reached an agreement and the related benefit was recognized.
State Audits — SPS is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of Sept. 30, 2019,2020, SPS’ earliest open tax year subject to examination by state taxing authorities under applicable statutes of limitations is 2009. There2011. As of Sept. 30, 2020, there are currently no0 state income tax audits in progress.
Unrecognized Benefits — UnrecognizedThe 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.
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Unrecognized tax benefits — permanent vs temporary:
(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

(Millions of Dollars)Sept. 30, 2020Dec. 31, 2019
Unrecognized tax benefit — Permanent tax positions$2.9 $3.7 
Unrecognized tax benefit — Temporary tax positions0.1 1.5 
Total unrecognized tax benefit$3.0 $5.2 
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)Sept. 30, 2020Dec. 31, 2019
NOL and tax credit carryforwards$(2.2)$(4.4)
Net deferred tax liability associated with the unrecognized tax benefit amounts and related NOLs and tax creditscredit carryforwards were $1.4$2.1 million and $0.8$1.4 million at Sept. 30, 20192020 and Dec. 31, 2018,2019, respectively.
As the IRS Appeals 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$0.6 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. 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. 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.



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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)
Sept. 30, 2020Dec. 31, 2019
Megawatt hours of electricity8.3 6.4 
(Amounts in Millions) (a) 
 Sept. 30, 2019 Dec. 31, 2018
Mwh of electricity 9.4
 5.5
(a)(a)Amounts are not reflective of net positions in the underlying commodities.
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 inon 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. 30, 2019, 12020, 3 of the 610 most significant counterparties for these activities, comprising $14.2$17.9 million, or 31%41%, of this credit exposure, had
investment grade ratings from S&P Global Ratings, Moody’s Investor Services or Fitch Ratings. NaN of the 610 most significant counterparties, comprising $9.7$25.5 million, or 21%59%, 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 0.3% of this credit exposure, had credit quality less than investment grade, based on internal analysis. 10 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 0 gains or losses and immaterial losses related to interest rate derivatives reclassified from accumulated other comprehensive loss into earnings were immaterial for the three and nine months ended Sept. 30, 2020 and 2019, and 2018.respectively.
Changes in the fair value of FTRs resulting in immaterial pre-tax net gainslosses of $2.5 million and pre-tax net gains of $4.7$5.0 million were recognized for the three and nine months ended Sept. 30, 2019,2020, respectively, which were reclassified as regulatory assets and liabilities. ForThere were immaterial and $4.7 million of pre-tax net gains recognized for the three and nine months ended Sept. 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 $2.3 million and $3.6 million were recognized for the three and nine months ended Sept. 30, 2020, respectively and were recorded to electric fuel and purchased power. Settlement gains of $1.7 million and $1.5 million were recognized for the three and nine months ended Sept. 30, 2019, respectively, and were recorded to electric fuel and purchased power. There were immaterial FTR settlement losses and $3.4 million of FTR settlement gains recognized for the three and nine months ended Sept. 30, 2018, respectively, 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 nine months ended Sept. 30, 20192020 and 2018.2019.


Recurring Fair Value Measurements —— SPS’ derivative assets and liabilities measured at fair value on a recurring basis:
Sept. 30, 2020Dec. 31, 2019
Fair ValueFair Value Total
Netting (a)
TotalFair ValueFair Value Total
Netting (a)
Total
(Millions of Dollars)Level 1Level 2Level 3Level 1Level 2Level 3
Current derivative assets
Other derivative instruments:
Electric commodity$0 $0 $11.2 $11.2 $(0.1)$11.1 $0 $0 $11.8 $11.8 $0 $11.8 
Total current derivative assets$0 $0 $11.2 $11.2 $(0.1)11.1 $0 $0 $11.8 $11.8 $0 11.8 
PPAs (b)
3.2 3.2 
Current derivative instruments$14.3 $15.0 
Noncurrent derivative assets
PPAs (b)
$10.3 $12.6 
Noncurrent derivative instruments$10.3 $12.6 
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 Sept. 30, 2019 Dec. 31, 2018Sept. 30, 2020Dec. 31, 2019
 Fair Value       Fair Value      Fair ValueFair Value Total
Netting (a)
TotalFair ValueFair Value Total
Netting (a)
Total
(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(Millions of Dollars)Level 1Level 2Level 3Level 1Level 2Level 3
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                        Current derivative liabilities
Other derivative instruments:                        Other derivative instruments:
Electric commodity $—
 $—
 $0.2
 $0.2
 $—
 $0.2
 $—
 $—
 $0.2
 $0.2
 $(0.2) $—
Electric commodity$0 $0 $0.1 $0.1 $(0.1)$0 $0 $0 $0.1 $0.1 $0 $0.1 
Total current derivative liabilities $—
 $—
 $0.2
 $0.2
 $—
 0.2
 $—
 $—
 $0.2
 $0.2
 $(0.2) —
Total current derivative liabilities$0 $0 $0.1 $0.1 $(0.1)0 $0 $0 $0.1 $0.1 $0 0.1 
PPAs (b)
           3.5
       .
   3.6
PPAs (b)
3.6 3.6 
Current derivative instruments           $3.7
           $3.6
Current derivative instruments$3.6 $3.7 
Noncurrent derivative liabilities                        Noncurrent derivative liabilities
PPAs (b)
           13.7
           16.4
PPAs (b)
$10.1 $12.8 
Noncurrent derivative instruments           $13.7
           $16.4
Noncurrent derivative instruments$10.1 $12.8 
(a)
(a)SPS nets derivative instruments and related collateral on its balance sheets 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, 2020 and Dec. 31, 2019. At Sept. 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.
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 nine months ended Sept. 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 Sept. 30
(Millions of Dollars)20202019
Balance at July 1$15.7 $22.2 
Purchases0.3 4.4 
Settlements(1.3)(5.2)
Net transactions recorded during the period:
Net losses recognized as regulatory assets and liabilities(3.6)(4.3)
Balance at Sept. 30$11.1 $17.1 
Nine Months Ended Sept. 30
(Millions of Dollars)20202019
Balance at Jan. 1$11.7 $14.7 
Purchases21.1 25.5 
Settlements(18.2)(24.9)
Net transactions recorded during the period:
Net (losses) gains recognized as regulatory assets and liabilities(3.5)1.8 
Balance at Sept. 30$11.1 $17.1 
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 nine months ended Sept. 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

Sept. 30, 2020Dec. 31, 2019
(Millions of Dollars)Carrying AmountFair ValueCarrying AmountFair Value
Long-term debt$2,763.7 $3,314.4 $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. 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 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)

Three Months Ended Sept. 30
2020201920202019
(Millions of Dollars)Pension BenefitsPostretirement Health
Care Benefits
Service cost$2.4 $2.2 $0.3 $0.2 
Interest cost (a)
4.5 5.0 0.3 0.4 
Expected return on plan assets (a)
(7.4)(7.1)(0.5)(0.5)
Amortization of prior service credit (a)
0 0 (0.1)(0.1)
Amortization of net loss (gain) (a)
3.3 2.8 (0.1)(0.1)
Net periodic benefit cost (credit)2.8 2.9 (0.1)(0.1)
Effects of regulation0.5 0.5 0 0 
Net benefit cost (credit) recognized for financial reporting$3.3 $3.4 $(0.1)$(0.1)
 Nine Months Ended Sept. 30Nine Months Ended Sept. 30
 2019 2018 2019 20182020201920202019
(Millions of Dollars) Pension Benefits 
Postretirement Health
Care Benefits
(Millions of Dollars)Pension BenefitsPostretirement Health
Care Benefits
Service cost $6.6
 $7.3
 $0.7
 $0.8
Service cost$7.2 $6.6 $0.7 $0.7 
Interest cost (a)
 15.1
 13.8
 1.3
 1.2
Interest cost (a)
13.4 15.1 1.1 1.3 
Expected return on plan assets (a)
 (21.5) (21.2) (1.5) (1.8)
Expected return on plan assets (a)
(22.0)(21.5)(1.4)(1.5)
Amortization of prior service credit (a)
 (0.1) (0.1) (0.4) (0.3)
Amortization of prior service credit (a)
(0.1)(0.1)(0.3)(0.4)
Amortization of net loss (gain) (a)
 8.5
 10.5
 (0.3) (0.3)
Amortization of net loss (gain) (a)
9.9 8.5 (0.3)(0.3)
Net periodic benefit cost (credit) 8.6
 10.3
 (0.2) (0.4)Net periodic benefit cost (credit)8.4 8.6 (0.2)(0.2)
Credits not recognized due to the effects of regulation 1.3
 1.3
 —
 —
Effects of regulationEffects of regulation1.5 1.3 0 0 
Net benefit cost (credit) recognized for financial reporting $9.9
 $11.6
 $(0.2) $(0.4)Net benefit cost (credit) recognized for financial reporting$9.9 $9.9 $(0.2)$(0.2)
(a) The components of net periodic cost other than the service cost component are included in the line item “other expense,“Other (expense) income, net” in the statements of income statement or capitalized on the balance sheetsheets 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.
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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 and Other
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.
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, includingMarch 2020, SPP and Oklahoma Gas & Electric separately filed requestspetitions for rehearing. The timingreview of a FERC response toFERC’s orders at the rehearing requests is uncertain.D.C. Circuit. SPS has intervened in both appeals in support of FERC. 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, the FERC issued an order denying the SPS complaint in its entirety and found 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.
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 FERCzone.On March 16, 2020, GridLiance also filed additional rate increases for 2020 which would raise their annual revenue requirement 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 May 2020, with the ALJ’s initial decision expected in October 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” ADIT resulting from the TCJA and recover certain wholesale regulatory commission expenses.
The proposed changes would increase wholesale transmission revenues by approximately $9.4$13.6 million, with approximately $4.4$8.7 million allocated to SPS’ retail customers. The hearing portion of this proceeding was concluded on Sept. 11, 2020. The initial post-hearing brief was filed on Oct. 27, 2020 and the total being recoveredadministrative law judge’s decision on this case is expected on Feb. 3, 2021. The FERC will then rule on the judge’s decision and either sustain it, overturn it, or order further proceedings. SPS has incurred approximately $12.6 million 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 changesassociated charges as of Feb. 1, 2019, subjectSept. 30, 2020.
Contract Termination —SPS and Lubbock Power & Light are parties to refunda 25-year, 170 MW partial requirements contract. Lubbock Power & Light has initiated discussions with SPS concerning the interpretation of contractual terms related to early termination and settlement procedures. Settlement procedures started in February 2019, anddefault. If the parties are ongoing.unable to reach resolution, the contract calls for the matter to proceed to arbitration.

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 MWmegawatts of capacity under long-term PPAs as ofat Sept. 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 agreementsThe PPAs 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. 
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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 MarginsMargin
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.
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.
Results of Operations
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$241.5 million for the nine months ended Sept. 30, 20192020 compared with approximately $173.1$218.0 million for the prior year. The increase reflectsYear-to-date results reflect higher electric margin attributable(regulatory outcomes offset lower sales due to regulatory rate outcomesCOVID-19) and sales growth despite unfavorable weather. Higher electric margin and AFUDC associated with the Hale Wind farm werelower O&M expenses, partially offset by increased depreciation, O&Minterest expense and interest expenses.taxes (other than income taxes).
Electric Margin
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. 30
(Millions of Dollars)20202019
Electric revenues$1,433.7 $1,397.7 
Electric fuel and purchased power(626.6)(651.0)
Electric margin$807.1 $746.7 
  Nine Months Ended Sept. 30
(Millions of Dollars) 2019 2018
Electric revenues $1,397.7
 $1,468.6
Electric fuel and purchased power (651.0) (795.6)
Electric margin $746.7
 $673.0
Changes in electric margin:
(Millions of Dollars)2020 vs. 2019
Regulatory rate outcomes (Texas and New Mexico)(a)
$87.8 
Wholesale transmission revenue (net)19.7 
Purchased capacity costs9.3 
Estimated impact of weather7.5 
PTCs flowed back to customers (offset by lower ETR)(35.1)
Firm wholesale generation(10.5)
New Mexico tax reform related regulatory settlement (2019)(10.2)
Sales and demand(b)
(8.0)
Other (net)(0.1)
Total increase in electric margin$60.4 
(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)Includes approximately $70 million of revenue and margin due to the Texas rate case outcome, which is largely offset by recognition of previously deferred costs see Public Utility Regulation below for more information.
(b)Sales decline excludes weather impact.
Non-Fuel Operating Expense and Other Items
O&M Expenses— O&M expenses increased $12.9decreased $9.8 million, or 6.3%, for4.5% year-to-date. The decrease was due to plant outages in 2019, as well as management actions to reduce costs to offset the nine months ended Sept. 30, 2019 comparedimpact of lower sales from COVID-19, including allocation of workforce, material and supply management and timing of maintenance activities. The decrease was partially offset by an increase in wind related O&M expenses from our renewable expansion and recognition of previously deferred amounts related 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.Texas Electric Rate Case.
Depreciation and Amortization — Depreciation and amortization increased $22.1$51 million, or 14.7%29.6%, for the nine months ended Sept. 30, 2019 compared with the prior year.year-to-date. The increase was primarily due to increased capital investments as well as accelerated depreciation at Tolk generating facility for the Texas jurisdiction.
AFUDC, Equity and Debt — AFUDC increased $15.3 million, for the nine months ended Sept. 30,June 2019 compared with the prior year. The increase was primarily due to 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, changesFarm in-servicing, new FERC transmission rates implemented in short-term interestMarch 2020 and normal system expansion primarily in transmission and general. In addition, new depreciation rates were implemented in both New Mexico and implementationTexas as part of lease accounting standard (offsetregulatory outcomes in electric margin).2020.
Income Taxes — Income tax expense decreased $2.8$34.7 million for the nine months ended Sept. 30, 2019 compared with the prior year.year-to-date. The decrease was primarily driven by an increase in wind PTCs, and an increase in plant-relatedplant regulatory differences. This was partially offset by higherdifferences and lower 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%,(0.9)% for the nine months ended Sept. 30, 20192020 compared with 17.0%13.0% for the prior year,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.
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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 ReportReports on Form 10-Q for the quarterly periodsperiod ended March 31, 20192020 andForm 10-Q for the quarterly period ended June 30, 2019,2020, appropriately represent, in all material respects, the current status of public utility regulation and are incorporated herein by reference.
FERCPending 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 activities 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.
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.
PendingRecently Concluded Regulatory Proceedings
ProceedingAmount
(in millions)		Filing
Date		Approval
2019 Texas Electric Rate Case$88August 2019Received
2020 New Mexico Electric Rate CaseTBDJanuary 2021Pending Filing
2020 Texas Electric Rate CaseTBDFebruary 2021Pending Filing
Additional Information:
2019 Texas Electric Rate Case — In August 2019,2020, the PUCT approved a settlement between SPS filed anand intervening parties, which reflects the following terms, retroactive to Sept. 12, 2019:
•An electric rate case with the PUCT seeking an increase in retail electric base rates of approximately $141 million. The filing requests an $88 million;
•ROE of 10.35%, a 54.65%9.45% and 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.54.62% for AFUDC purposes;
•Acceleration of the depreciation life of the Tolk coal plant; and
•Ring-fencing measures, similar to other Texas utilities.
SPS expects to submit a filing in the fourth quarter of 2020 to surcharge the final under-recovered amount, which is estimated to be approximately $70 million, offset by the recognition of previously deferred costs. The following table summarizes SPS’ base rate increase request:
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 scheduleimpact of the retroactive amounts (related to period prior to Sept. 1, 2020) is as follows:
Intervenor testimony
(Millions of Dollars)Nine Months Ended Sept. 30, 2020
Revenue surcharge accrual$70 
Depreciation and amortization(37)
O&M expense(15)
Interest expense(11)
Taxes other than income taxes(7)
2020 Electric Rate Cases — 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 atIn 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 secondfirst quarter of 2020.



20192021, SPS intends to file electric rate cases for both the Texas and New Mexico Rate Case — In July 2019, SPS filed an electric rate case withjurisdictions due to 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 bysettlement reached for 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 Senatea ROFR 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 filed an application withAugust 2020, the PUCT approved SPS’ request to refund approximately $39 million to customers for reconciliation ofover-collected fuel costs for the period Jan. 1, 2016, through June 30, 2018, to determine whether all fuel costs incurred were eligible for recovery. On Oct. 17, 2019, the assigned Administrative Law Judges (ALJs) issued 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 Mexico and were previously approved 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.purchased power costs.

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 decision is pending.
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.
On Oct. 21, 2020, the Texas Commission on Environmental Quality approved the Harrington Station Power Plant agreement, which ensures SPS will cease coal-fired operations and convert the plant to natural gas by Jan. 1, 2025. This conversion is necessary to attain Federal Clean Air Act standards for emissions of sulfur dioxide.
Item
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. 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.

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Part
PART 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.
Although we do not expect the impact of COVID-19 to be material to the 2020 results, we cannot ultimately predict whether it will have a material impact on our future 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 impact on our financial condition, results of operations and cash flows.Form 10-K.

Item
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
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
Oct. 29, 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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