

Southwestern Public Service Company
(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:

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.



Class						~~May 7, 2020~~April 29, 2021
Common Stock, $1.00 par value						100 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 —			Financial Statements ~~(Unaudited)~~(unaudited)	4
			Statements of Income	4
			Statements of Cash Flows	5
			Balance Sheets	6
			Statements of Common Stockholder’s Equity	7
			Notes to Financial Statements	8
Item 2 —			Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 4 —			Controls and Procedures	15

PART II			OTHER INFORMATION
Item 1 —			Legal Proceedings	16
Item 1A —			Risk Factors	16
Item 6 —			Exhibits	16

~~PART II~~ — ~~OTHER INFORMATION~~SIGNATURES
~~Item 1 —~~	~~Legal Proceedings~~17	15
~~Item 1A —~~				~~Risk Factors~~	16
~~Item 6 —~~			~~Exhibits~~	16

~~SIGNATURES~~		17

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.

Table of Contents

Definitions of Abbreviations



Xcel Energy Inc.’s Subsidiaries and Affiliates (current and former)
NSP-Minnesota		Northern States Power Company, a Minnesota corporation
NSP-Wisconsin		Northern States Power Company, a Wisconsin corporation
PSCo		Public Service Company of Colorado
SPS		Southwestern Public Service Company
Utility subsidiaries		NSP-Minnesota, NSP-Wisconsin, PSCo and SPS
Xcel Energy		Xcel Energy Inc. and its subsidiaries

Federal and State Regulatory Agencies
D.C. Circuit		United States Court of Appeals for the District of Columbia Circuit
~~DOE~~EPA		~~Department of Energy~~
~~EPA~~	United States Environmental Protection Agency
FERC		Federal Energy Regulatory Commission
IRS		Internal Revenue Service
NMPRC		New Mexico Public Regulation Commission
PUCT		Public Utility Commission of Texas
SEC		Securities and Exchange Commission

~~Other Terms~~Electric, Purchased Gas and ~~Abbreviations~~Resource Adjustment Clauses
~~ADIT~~DSM		~~Accumulated deferred income tax~~Demand side management
~~AFUDC~~FPPCAC		~~Allowance for funds used during construction~~Fuel and Purchased Power Cost Adjustment Clause
~~ALJ~~		~~Administrative Law Judge~~
Other
ASC		FASB Accounting Standards Codification
~~ATRR~~C&I		~~Annual transmission revenue requirement~~
~~AXM~~	~~Alliance of Xcel Municipalities~~
~~C&I~~	Commercial and Industrial
CEO		Chief executive officer
CFO		Chief financial officer
COVID-19		Novel coronavirus
~~DSM~~ETR		~~Demand side management~~
~~ETR~~	Effective tax rate
FASB		Financial Accounting Standards Board
FTR		Financial transmission right
GAAP		~~Generally~~United States generally accepted accounting principles
IPP		Independent power ~~producers~~producing entity
~~NAV~~LLC		~~Net asset value~~Limited liability company
NOL		Net operating loss
NOPR		Notice of Proposed Rulemaking
O&M		Operating and maintenance
OATT		Open access transmission tariff
~~OPUC~~PPA		~~Office of Public Utility Counsel~~
~~PPA~~	Power purchase agreement
PTC		Production tax credit
ROE		Return on equity
ROFR		~~Right of first refusal~~Right-of-first-refusal
RTO		Regional Transmission Organization
SPP		Southwest Power Pool, Inc.
~~TIEC~~VIE		~~Texas Industrial Energy Consumers~~
~~TCJA~~	~~2017 federal tax reform enacted as Public Law No: 115-97, commonly referred to as the Tax Cuts and Jobs Act~~
~~VIE~~	Variable interest entity

Measurements
MW		Megawatts
~~MWh~~	~~Megawatt 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, including those relating to future sales, future expenses, future operating performance, estimated base capital expenditures and financing plans, projected capital additions and forecasted annual revenue requirements with respect to rider filings, expected rate increases to customers, expectations and intentions regarding regulatory proceedings, and expected impacts on our results of operations, financial condition and cash flows or resettlement calculations and credit losses relating to certain energy transactions, as well as 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, ~~2019,~~2020, and subsequent ~~securities~~ filings), could cause actual results to differ materially from management expectations as suggested by such forward-looking information: uncertainty around the impacts and duration of the COVID-19 pandemic; operational safety; successful long-term operational planning; commodity risks associated with energy markets and production; rising energy prices and fuel costs; qualified employee work force and third-party contractor factors; ability to recover ~~costs,~~costs; changes in regulation; reductions in our credit ratings and the cost 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; effects of geopolitical events, including war and acts of terrorism; cyber security threats and data security breaches; seasonal weather patterns; changes in environmental laws and regulations; climate change and 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 I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

SOUTHWESTERN PUBLIC SERVICE COMPANY

STATEMENTS OF INCOME (UNAUDITED)

(amounts in millions)


	Three Months Ended March 31
	2021		2020
Operating revenues	$	934	$	395

Operating expenses
Electric fuel and purchased power	693		188
Operating and maintenance expenses	71		70
Demand side management expenses	4		4
Depreciation and amortization	78		59
Taxes (other than income taxes)	21		21
Total operating expenses	867		342

Operating income	67		53


Other income (expense), net	1		(2)

Allowance for funds used during construction — equity	1		6

Interest charges and financing costs
Interest charges — includes other financing costs of $1 and $1, respectively	30		24
Allowance for funds used during construction — debt	0		(3)
Total interest charges and financing costs	30		21

Income before income taxes	39		36
Income tax benefit	(19)		(7)
Net income	$	58	$	43

See Notes to Financial Statements

Three Months Ended March 31
2020 2019
Operating revenues $ 395.0
$ 454.1

Operating expenses
Electric fuel and purchased power 187.8
230.9
Operating and maintenance expenses 69.6
72.4
Demand side management expenses 3.9
4.6
Depreciation and amortization 59.1
53.2
Taxes (other than income taxes) 21.3
18.5
Total operating expenses 341.7
379.6

Operating income 53.3
74.5

Other (expense) income, net (2.0 ) 0.4

Allowance for funds used during construction — equity 5.9
10.3

Interest charges and financing costs
Interest charges — includes other financing costs of
$0.9 and $0.8, respectively
24.2
24.4
Allowance for funds used during construction — debt (2.6 ) (4.5 )
Total interest charges and financing costs 21.6
19.9

Income before income taxes 35.6
65.3
Income tax (benefit) expense (7.1 ) 11.2
Net income $ 42.7
$ 54.1

See Notes to Financial Statements

Table of Contents

SOUTHWESTERN PUBLIC SERVICE COMPANY

STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in millions)


	Three Months Ended March 31
	2021		2020
Operating activities
Net income	$	58	$	43
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	79		60
Deferred income taxes	(19)		1
Allowance for equity funds used during construction	(1)		(6)
Provision for bad debts	2		1
Changes in operating assets and liabilities:
Accounts receivable	(1)		(3)
Accrued unbilled revenues	3		12
Inventories	(17)		(7)
Prepayments and other	21		(5)
Accounts payable	56		(2)
Net regulatory assets and liabilities	(95)		18
Other current liabilities	(3)		(15)
Pension and other employee benefit obligations	(15)		(15)
Other, net	(2)		0
Net cash provided by operating activities	66		82

Investing activities
Utility capital/construction expenditures	(172)		(193)
Investments in utility money pool arrangement	(83)		(4)
Repayments from utility money pool arrangement	83		4
Net cash used in investing activities	(172)		(193)

Financing activities
Repayments of short-term borrowings, net	(250)		40
Proceeds from issuance of long-term debt, net	247		0
Borrowings under utility money pool arrangement	213		239
Repayments under utility money pool arrangement	(213)		(139)
Capital contributions from parent	304		31
Dividends paid to parent	(54)		(74)

Net cash provided by financing activities	247		97

Net change in cash, cash equivalents and restricted cash	141		(14)
Cash, cash equivalents and restricted cash at beginning of period	6		16
Cash, cash equivalents and restricted cash at end of period	$	147	$	2

Supplemental disclosure of cash flow information:
Cash paid for interest (net of amounts capitalized)	$	(19)	$	(18)
Cash received (paid) for income taxes, net	14		(2)

Supplemental disclosure of non-cash investing and financing transactions:
Accrued property, plant and equipment additions	$	54	$	57
Inventory transfers to property, plant and equipment	7		6

Allowance for equity funds used during construction	1		6

Three Months Ended March 31,
2020 2019
Operating activities
Net income $ 42.7
$ 54.1
Adjustments to reconcile net income to cash provided by operating activities:

Depreciation and amortization 59.7
53.8
Deferred income taxes 0.5
11.0
Allowance for equity funds used during construction (5.9 ) (10.3 )
Net derivative losses (1.4 ) —
Changes in operating assets and liabilities:
Accounts receivable (2.4 ) (1.3 )
Accrued unbilled revenues 11.7
0.2
Inventories (6.6 ) (6.8 )
Prepayments and other (5.1 ) (5.4 )
Accounts payable (1.4 ) (9.3 )
Net regulatory assets and liabilities 18.2
(1.2 )
Other current liabilities (14.9 ) (16.7 )
Pension and other employee benefit obligations (15.0 ) (15.9 )
Other, net 1.1
0.3
Net cash provided by operating activities 81.2
52.5

Investing activities

Utility capital/construction expenditures (192.5 ) (179.6 )
Investments in utility money pool arrangement (4.0 ) —
Repayments from utility money pool arrangement 4.0
—
Net cash used in investing activities (192.5 ) (179.6 )

Financing activities

Proceeds from short-term borrowings, net 40.0
95.0
Borrowings under utility money pool arrangement 239.0
100.0
Repayments under utility money pool arrangement (139.0 ) (62.0 )
Capital contributions from parent 31.4
5.8
Dividends paid to parent (74.3 ) (55.1 )
Other, net (0.4 ) (0.1 )
Net cash provided by financing activities 96.7
83.6

Net change in cash, cash equivalents and restricted cash (14.6 ) (43.5 )
Cash, cash equivalents and restricted cash at beginning of period 16.2
44.0
Cash, cash equivalents and restricted cash at end of period $ 1.6
$ 0.5

Supplemental disclosure of cash flow information:

Cash paid for interest (net of amounts capitalized) $ (17.5 ) $ (18.9 )
Cash paid for income taxes, net (2.1 ) (4.9 )
Supplemental disclosure of non-cash investing and financing transactions:

Property, plant and equipment additions in accounts payable $ 56.5
$ 68.5
Inventory transfer additions in PPE 5.7
6.4
Operating lease right-of-use assets —
548.3
Allowance for equity funds used during construction 5.9
10.3

See Notes to Financial Statements

Table of Contents

SOUTHWESTERN PUBLIC SERVICE COMPANY

BALANCE SHEETS (UNAUDITED)

(amounts in millions, except share and per share data)


	March 31, 2020			Dec. 31, 2019				March 31, 2021		Dec. 31, 2020
Assets							Assets
Current assets							Current assets
Cash and cash equivalents	$	1.6		$	16.2		Cash and cash equivalents	$	147	$	6
Accounts receivable, net	86.5			92.7			Accounts receivable, net	101		94
Accounts receivable from affiliates	13.5			4.2			Accounts receivable from affiliates	2		9
Accrued unbilled revenues	103.1			115.1			Accrued unbilled revenues	112		114
Inventories	31.9			31.0			Inventories	45		36
Regulatory assets	21.0			20.0			Regulatory assets	157		76
Derivative instruments	18.1			15.0			Derivative instruments	13		10
Prepaid taxes	3.5			0.8

Prepayments and other	23.6			21.4			Prepayments and other	17		38
Total current assets	302.8			316.4			Total current assets	594		383


Property, plant and equipment, net	6,774.8			6,631.6			Property, plant and equipment, net	7,697		7,603

Other assets							Other assets
Regulatory assets	371.8			364.0			Regulatory assets	346		357
Derivative instruments	13.3			12.6			Derivative instruments	11		9
Operating lease right-of-use assets	515.8			522.4			Operating lease right-of-use assets	485		492
Other	3.3			3.9			Other	14		15
Total other assets	904.2			902.9			Total other assets	856		873
Total assets	$	7,981.8		$	7,850.9		Total assets	$	9,147	$	8,859

Liabilities and Equity							Liabilities and Equity
Current liabilities							Current liabilities
Short-term debt	$	40.0		$	—		Short-term debt	$	0	$	250
Borrowings under utility money pool arrangement	100.0			—
Accounts payable	167.6			168.1			Accounts payable	224		198
Accounts payable to affiliates	27.2			20.4			Accounts payable to affiliates	33		17
Regulatory liabilities	139.5			118.1			Regulatory liabilities	32		57
Taxes accrued	20.3			40.4			Taxes accrued	43		54
Accrued interest	29.3			26.2			Accrued interest	38		29
Dividends payable to parent	47.6			46.3			Dividends payable to parent	52		54
Derivative instruments	3.6			3.7			Derivative instruments	4		4
Current obligation under operating lease	27.4			26.9
Operating lease liabilities							Operating lease liabilities	28		28
Other	31.3			30.7			Other	23		25
Total current liabilities	633.8			480.8			Total current liabilities	477		716

Deferred credits and other liabilities							Deferred credits and other liabilities
Deferred income taxes	677.7			671.8			Deferred income taxes	712		725
Regulatory liabilities	726.5			732.3			Regulatory liabilities	723		718
Asset retirement obligations	78.2			77.3			Asset retirement obligations	113		112
Derivative instruments	11.9			12.8			Derivative instruments	8		9
Pension and employee benefit obligations	51.9			67.0			Pension and employee benefit obligations	27		42
Operating lease liabilities	488.4			495.3			Operating lease liabilities	457		463
Other	9.8			9.4			Other	11		12
Total deferred credits and other liabilities	2,044.4			2,065.9			Total deferred credits and other liabilities	2,051		2,081

Commitments and contingencies							Commitments and contingencies
Capitalization							Capitalization
Long-term debt	2,420.1			2,419.7			Long-term debt	3,011		2,764
Common stock — 200 shares authorized of $1.00 par value; 100 shares outstanding at March 31, 2020 and Dec. 31, 2019, respectively	—			—
Common stock — 200 shares authorized of $1.00 par value; 100 shares outstanding at March 31, 2021 and Dec. 31, 2020, respectively							Common stock — 200 shares authorized of $1.00 par value; 100 shares outstanding at March 31, 2021 and Dec. 31, 2020, respectively	0		0
Additional paid in capital	2,382.9			2,350.9			Additional paid in capital	3,094		2,790
Retained earnings	502.0			535.0			Retained earnings	515		509
Accumulated other comprehensive loss	(1.4		)	(1.4		)	Accumulated other comprehensive loss	(1)		(1)
Total common stockholder’s equity	2,883.5			2,884.5
Total common stockholder's equity							Total common stockholder's equity	3,608		3,298
Total liabilities and equity	$	7,981.8		$	7,850.9		Total liabilities and equity	$	9,147	$	8,859

See Notes to Financial Statements

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 March 31, 2020 and 2019
Balance at Dec. 31, 2018 100
$ —
$ 1,932.3
$ 605.7
$ (1.4 ) $ 2,536.6
Net income 54.1
54.1
Dividends declared to parent (57.5 ) (57.5 )
Balance at March 31, 2019 100
$ —
$ 1,932.3
$ 602.3
$ (1.4 ) $ 2,533.2

Balance at Dec. 31, 2019 100
$ —
$ 2,350.9
$ 535.0
$ (1.4 ) $ 2,884.5
Net income 42.7
42.7
Dividends declared to parent (75.6 ) (75.6 )
Contributions of capital by parent 32.0
32.0
Adoption of ASC Topic 326
(0.1 ) (0.1 )
Balance at March 31, 2020 100
$ —
$ 2,382.9
$ 502.0
$ (1.4 ) $ 2,883.5

See Notes to Financial Statements

Table of Contents

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 March 31, ~~2020~~2021 and Dec. 31, ~~2019;~~2020; the results of its operations, including the components of net income, ~~and~~ comprehensive income, cash flows and changes in stockholder’s equity for the three months ended March 31, ~~2020~~2021 and ~~2019; and its cash flows for the three months ended March 31, 2020 and 2019.~~ 2020.

All adjustments are of a normal, recurring nature, except as otherwise disclosed. Management has also evaluated the impact of events occurring after March 31, ~~2020~~2021 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, ~~2019~~2020 balance sheet information has been derived from the audited ~~2019~~2020 financial statements included in the SPS Annual Report on Form 10-K for the year ended Dec. 31, ~~2019.~~ 2020.

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, ~~2019,~~2020, filed with the SEC on Feb. ~~21, 2020.~~17, 2021. 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, ~~2019,~~2020 appropriately represent, in all material respects, the current status of accounting policies and are incorporated herein by reference.



2. Accounting Pronouncements

Recently Adopted

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.

SPS implemented the guidance using a modified-retrospective approach, recognizing aan immaterial cumulative effect charge ~~of $0.1 million~~ (after tax) to retained ~~earnings. Other than first-time recognition of an allowance for doubtful accounts~~earnings on ~~accrued unbilled revenues, the~~Jan. 1, 2020. The Jan. 1, 2020 adoption of ASC Topic 326 did not have a significant impact on SPS’ financial statements.



3. Selected Balance Sheet Data


(Millions of Dollars)	March 31, 2021		Dec. 31, 2020
Accounts receivable, net
Accounts receivable	$	110	$	102
Less allowance for bad debts	(9)		(8)
Accounts receivable, net	$	101	$	94


(Millions of Dollars)	March 31, 2021		Dec. 31, 2020
Inventories
Materials and supplies	$	27	$	27
Fuel	18		9
Total inventories	$	45	$	36


(Millions of Dollars)	March 31, 2021		Dec. 31, 2020
Property, plant and equipment, net
Electric plant	$	9,293	$	9,229
Plant to be retired (a)	313		316
CWIP	235		146
Total property, plant and equipment	9,841		9,691
Less accumulated depreciation	(2,144)		(2,088)
Property, plant and equipment, net	$	7,697	$	7,603

(Millions of Dollars) March 31, 2020 Dec. 31, 2019
Accounts receivable, net
Accounts receivable $ 92.4
$ 98.0
Less allowance for bad debts (5.9 ) (5.3 )
Accounts receivable, net $ 86.5
$ 92.7

(a)Includes expected retirement of Tolk and conversion of Harrington to natural gas.

(Millions of Dollars) March 31, 2020 Dec. 31, 2019
Inventories
Materials and supplies $ 26.2
$ 24.7
Fuel 5.7
6.3
Total inventories $ 31.9
$ 31.0

(Millions of Dollars) March 31, 2020 Dec. 31, 2019
Property, plant and equipment, net
Electric plant $ 8,502.1
$ 8,453.0
Construction work in progress 616.9
485.4
Total property, plant and equipment 9,119.0
8,938.4
Less accumulated depreciation (2,344.2 ) (2,306.8 )
Property, plant and equipment, net $ 6,774.8
$ 6,631.6



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 March 31, 2020 Year Ended Dec. 31, 2019
Borrowing limit $ 100
$ 100
Amount outstanding at period end 100
—
Average amount outstanding 28
8
Maximum amount outstanding 100
100
Weighted average interest rate, computed on a daily basis 1.21 % 2.42 %
Weighted average interest rate at period end 1.15
N/A


(Amounts in Millions, Except Interest Rates)	Three Months Ended March 31, 2021			Year Ended Dec. 31, 2020
Borrowing limit	$	100		$	100
Amount outstanding at period end	0			0
Average amount outstanding	17			43
Maximum amount outstanding	100			100
Weighted average interest rate, computed on a daily basis	0.07		%	0.54		%
Weighted average interest rate at period end	N/A			N/A

Commercial Paper —— Commercial paper outstanding for SPS was as follows:

(Amounts in Millions, Except Interest Rates) Three Months Ended March 31, 2020 Year Ended Dec. 31, 2019
Borrowing limit $ 500
$ 500
Amount outstanding at period end 40
—
Average amount outstanding 64
72
Maximum amount outstanding 146
316
Weighted average interest rate, computed on a daily basis 1.94 % 2.68 %
Weighted average interest rate at period end 2.20
N/A


(Amounts in Millions, Except Interest Rates)	Three Months Ended March 31, 2021			Year Ended Dec. 31, 2020
Borrowing limit	$	500		$	500
Amount outstanding at period end	0			250
Average amount outstanding	184			44
Maximum amount outstanding	342			250
Weighted average interest rate, computed on a daily basis	0.22		%	1.11		%
Weighted average interest rate at period end	N/A			0.29

Letters of Credit — SPS uses letters of credit, generally with terms of one year, to provide financial guarantees for certain ~~operating~~ obligations. At both March 31, ~~2020~~2021 and Dec. 31, ~~2019,~~2020, there were $2 million of letters of credit outstanding under the credit facility. ~~The contract amounts of these letters of credit~~Amounts approximate their fair value and are subject to fees.

Table of Contents

Revolving Credit Facility — In order to ~~use~~issue 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.

~~As of March 31, 2020, SPS had the following committed revolving credit facility available (in millions of dollars):~~

Credit Facility ^(a)

Outstanding ^(b)
Available
$ 500
$ 42
$ 458


^(a)	~~This credit facility expires in June 2024.~~


^(b)	~~Includes outstanding letters of credit.~~

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 March 31, 2021, SPS had the following committed revolving credit facility available (in millions of dollars):


Credit Facility (a)		Drawn (b)		Available
$	500	$	2	$	498

(a)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 March 31, ~~2020~~2021 and Dec. 31, ~~2019.~~2020.

Long-Term Borrowings

During the three months ended March 31, 2021, SPS issued $250 million of 3.15% first mortgage bonds due 2050.



5. Revenues

Revenue is classified by the type of goods/services rendered and market/customer type. SPS’ operating revenues ~~consists~~consisted of the following:

Three Months Ended
(Millions of Dollars) March 31, 2020 March 31, 2019
Major revenue types
Revenue from contracts with customers:
Residential $ 72.9
$ 88.1
C&I 169.1
205.8
Other 7.9
9.6
Total retail 249.9
303.5
Wholesale 73.2
84.8
Transmission 62.6
57.4
Other 0.6
1.0
Total revenue from contracts with customers 386.3
446.7
Alternative revenue and other 8.7
7.4
Total revenues $ 395.0
$ 454.1


	Three Months Ended March 31
(Millions of Dollars)	2021		2020
Major revenue types
Revenue from contracts with customers:
Residential	$	91	$	73
C&I	189		169
Other	9		8
Total retail	289		250
Wholesale	558		73
Transmission	71		63
Other	2		0
Total revenue from contracts with customers	920		386
Alternative revenue and other	14		9
Total revenues	$	934	$	395



6. Income Taxes

Note 7 to the financial statements included in SPS’ Annual Report on Form 10-K for the year ended Dec. 31, ~~2019~~2020 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:


	Three Months Ended March 31
	2021		2020 (a)
Federal statutory rate	21.0	%	21.0	%
State tax (net of federal tax effect)	2.6		2.4
Decreases in tax from:
Wind PTCs	(65.5)		(35.7)
Plant regulatory differences (b)	(4.7)		(6.1)
Amortization of excess nonplant deferred taxes	(1.2)		(1.1)
Other (net)	(0.9)		0.1
Effective income tax rate	(48.7)	%	(19.4)	%

Three Months Ended March 31,
2020 2019
Federal statutory rate 21.0 % 21.0 %
State tax (net of federal tax effect) 2.3
2.1
Decreases in tax from:

Wind PTCs (35.7 ) —
Plant regulatory differences ^(a)
(6.1 ) (4.6 )
Other tax credits, net of NOL & tax credit allowances (0.7 ) (0.6 )
Other (net) (0.7 ) (0.7 )
Effective income tax rate (19.9 )% 17.2 %


^(a)Prior periods have been restated to conform to current year presentation. (b)Regulatory differences for income tax primarily relate to the credit of excess deferred taxes to customers through the average rate assumption method. Income tax benefits associated with the credit of excess deferred credits are offset by corresponding revenue reductions.	Regulatory differences for income tax primarily relate to the credit of excess deferred taxes to customers through the average rate assumption method. 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 Years						Expiration
~~2009 - 2013~~ 2014 — 2016						~~September 2020~~January 2022
~~2014 - 2016~~2017						~~June~~September 2021

~~In 2015,~~Additionally, the ~~IRS commenced an examination~~statute of limitations related to the federal 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~~loss carryback claim filed ~~a protest with the IRS. As of March 31,~~in 2020 ~~the case~~ has been ~~forwarded to the Office of Appeals and~~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 2018, the IRS began an audit of tax years 2014 - 2016. As of March 31, 2020 0 adjustments have been proposed.~~unknown.

State Audits — SPS is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of March 31, ~~2020,~~2021, SPS’ earliest open tax year subject to examination by state taxing authorities under applicable statutes of limitations is ~~2009. There~~2012. As of March 31, 2021, there are ~~currently no~~0 state income tax audits in progress.

Unrecognized Benefits — ~~Unrecognized~~The unrecognized tax benefit balance includes permanent tax positions, which if recognized would affect the annual ETR. In addition, the unrecognized tax benefit balance includes temporary tax positions for which ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. A change in the period of deductibility would not affect the ETR but would accelerate the payment to the taxing authority to an earlier period.

Unrecognized tax benefits — permanent vs temporary:

(Millions of Dollars) March 31, 2020 Dec. 31, 2019
Unrecognized tax benefit — Permanent tax positions $ 3.8
$ 3.7
Unrecognized tax benefit — Temporary tax positions 1.5
1.5
Total unrecognized tax benefit $ 5.3
$ 5.2


(Millions of Dollars)	March 31, 2021		Dec. 31, 2020
Unrecognized tax benefit — Permanent tax positions	$	3	$	3
Unrecognized tax benefit — Temporary tax positions	4		4
Total unrecognized tax benefit	$	7	$	7

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

(Millions of Dollars) March 31, 2020 Dec. 31, 2019
NOL and tax credit carryforwards $ (4.6 ) $ (4.4 )

Net deferred tax liability associated with the unrecognized tax benefit amounts and related NOLs and tax credits carryforwards were $1.6 million and $1.4 million at March 31, 2020 and Dec. 31, 2019, respectively.


(Millions of Dollars)	March 31, 2021		Dec. 31, 2020
NOL and tax credit carryforwards	$	(7)	$	(6)

As the IRS ~~Appeals and federal audit progress~~ and state audits resume, it is reasonably possible that the amount of unrecognized tax benefit could decrease up to approximately ~~$3.7~~$5 million in the next 12 months.

~~Payables~~Payable for interest related to unrecognized tax benefits ~~were not material~~is partially offset by the interest benefit associated with NOL and 0tax credit carryforwards.

Table of Contents

Interest payable related to unrecognized tax benefits:


(Millions of Dollars)	March 31, 2021		Dec. 31, 2020
(Payable) receivable for interest related to unrecognized tax benefits at beginning of period	$	(1)	$	1
Interest expense related to unrecognized tax benefits	0		(2)
Payable for interest related to unrecognized tax benefits at end of period	$	(1)	$	(1)

NaN amounts were accrued for penalties related to unrecognized tax benefits as of March 31, ~~2020 or~~2021 and Dec. 31, ~~2019.~~2020, respectively.



7. Fair Value of Financial Assets and Liabilities

Fair Value Measurements

Accounting guidance for fair value measurements and disclosures provides a single definition of fair value and requires disclosures 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; and~~inputs.

•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 ~~NAV.~~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 utilize forward prices and volatilities, as well as pricing adjustments for specific delivery locations and are generally assigned a Level 2 classification. When contractual settlements relate to inactive delivery locations or extend to periods beyond those readily observable on active exchanges or quoted by brokers, the significance of the use of less observable forecasts 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 March 31, ~~2020,~~2021, accumulated other comprehensive loss related to interest rate derivatives included ~~$0.1 million of~~immaterial 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. Sharing of any margins is determined through state regulatory proceedings as well as the operation of the FERC approved joint operating agreement.

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)

March 31, 2021

Dec. 31, 2020

Megawatt hours of electricity

(a)Amounts are not reflective of net positions in the underlying commodities.

(Amounts in Millions) ^(a)
March 31, 2020 Dec. 31, 2019
MWh of electricity 8.1
6.4


^(a) Table of Contents	~~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 March 31, ~~2020,~~2021, 2 of the 108 most significant counterparties for these activities, comprising ~~$11.5~~$17 million, or ~~32%~~38%, of this credit exposure, had investment grade ratings from S&P Global Ratings, Moody’s Investor Services or Fitch Ratings. NaN of the 108 most significant counterparties, comprising ~~$23.3~~$27 million, or ~~65%~~61%, 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 ~~$0.6 million or 2%~~an immaterial amount of this credit exposure, had credit quality less than investment grade, based on ~~external~~internal analysis. NaN of these significant counterparties are municipal or cooperative electric entities, RTOs or other utilities.

Impact of Derivative Activities on Income and Accumulated Other Comprehensive Loss — There were 0 ~~and immaterial pre-tax~~ gains or losses related to interest rate derivatives reclassified from accumulated other comprehensive loss into earnings for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

Changes in the fair value of FTRs resulting in pre-tax net gains of ~~$0.1~~$2 million and ~~$6.3 million were~~immaterial gains recognized for the three months ended March 31, ~~2020~~2021, and ~~2019,~~2020, respectively, which were reclassified 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 losses of $4 million and gains of ~~$2.8~~$3 million ~~and immaterial gains~~ were recognized for the three months ended March 31, ~~2020~~2021, and ~~2019,~~2020, 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 months ended March 31, ~~2020~~2021 and ~~2019.~~2020.

Recurring Fair Value Measurements —— SPS’ derivative assets and liabilities measured at fair value on a recurring basis:


	March 31, 2021												Dec. 31, 2020
	Fair Value						Fair Value Total		Netting (a)		Total		Fair Value						Fair Value Total		Netting (a)		Total
(Millions of Dollars)	Level 1		Level 2		Level 3								Level 1		Level 2		Level 3
Current derivative assets
Other derivative instruments:
Electric commodity	$	0	$	0	$	10	$	10	$	0	$	10	$	0	$	0	$	7	$	7	$	0	$	7
Total current derivative assets	$	0	$	0	$	10	$	10	$	0	10		$	0	$	0	$	7	$	7	$	0	7
PPAs (b)											3												3
Current derivative instruments											$	13											$	10
Noncurrent derivative assets
Electric commodity	$	0	$	0	$	2	$	2	$	0	$	2	$	0	$	0	$	0	$	0	$	0	$	0
PPAs (b)											9												9
Noncurrent derivative instruments											$	11											$	9


	March 31, 2021							Dec. 31, 2020
	Fair Value			Fair Value Total	Netting (a)	Total		Fair Value			Fair Value Total	Netting (a)	Total
(Millions of Dollars)	Level 1	Level 2	Level 3					Level 1	Level 2	Level 3
Current derivative liabilities



PPAs (b)						$	4						$	4
Current derivative instruments						$	4						$	4
Noncurrent derivative liabilities
PPAs (b)						$	8						$	9
Noncurrent derivative instruments						$	8						$	9

(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 March 31, 2021 and Dec. 31, 2020. At March 31, 2021 and Dec. 31, 2020, 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.

March 31, 2020 Dec. 31, 2019
Fair Value Fair Value
(Millions of Dollars) Level 1 Level 2 Level 3
Fair Value
Total

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

Netting ^(a)
Total
Current derivative assets
Other derivative instruments:
Electric commodity $ —
$ —
$ 14.9
$ 14.9
$ —
$ 14.9
$ —
$ —
$ 11.8
$ 11.8
$ —
$ 11.8
Total current derivative assets $ —
$ —
$ 14.9
$ 14.9
$ —
14.9
$ —
$ —
$ 11.8
$ 11.8
$ —
11.8
PPAs ^(b)
3.2
3.2
Current derivative instruments $ 18.1
$ 15.0
Noncurrent derivative assets
Electric commodity $ —
$ —
$ 1.4
$ 1.4
$ —
$ 1.4
$ —
$ —
$ —
$ —
$ —
$ —
Total noncurrent derivative assets $ —
$ —
$ 1.4
$ 1.4
$ —
1.4
$ —
$ —
$ —
$ —
$ —
—
PPAs ^(b)
11.9
12.6
Noncurrent derivative instruments $ 13.3
$ 12.6

March 31, 2020 Dec. 31, 2019
Fair Value Fair Value
(Millions of Dollars) Level 1 Level 2 Level 3
Fair Value
Total

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

Netting ^(a)
Total
Current derivative liabilities
Other derivative instruments:
Electric commodity $ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ 0.1
$ 0.1
$ —
$ 0.1
Total current derivative liabilities $ —
$ —
$ —
$ —
$ —
—
$ —
$ —
$ 0.1
$ 0.1
$ —
0.1
PPAs ^(b)
3.6
.
3.6
Current derivative instruments $ 3.6
$ 3.7
Noncurrent derivative liabilities
PPAs ^(b)
11.9
12.8
Noncurrent derivative instruments $ 11.9
$ 12.8

Changes in Level 3 commodity derivatives for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:

Three Months Ended March 31,
(Millions of Dollars) 2020 2019
Balance at Jan. 1 $ 11.7
$ 14.7
Purchases 11.7
3.9
Settlements (4.9 ) (6.5 )
Net transactions recorded during the period:
Net losses recognized as regulatory assets and liabilities (2.2 ) (9.0 )
Balance at March 31 $ 16.3
$ 3.1


	Three Months Ended March 31
(Millions of Dollars)	2021		2020
Balance at Jan. 1	$	7	$	12
Purchases	0		12
Settlements	(9)		(5)
Net transactions recorded during the period:
Net gains (losses) recognized as regulatory assets and liabilities	14		(2)
Balance at March 31	$	12	$	17

SPS recognizes transfers between levels as of the beginning of each period. There were 0 transfers of amounts between levels for derivative instruments for the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020.

Fair Value of Long-Term Debt

Other financial instruments for which the carrying amount did not equal fair value:

March 31, 2020 Dec. 31, 2019
(Millions of Dollars)
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
Long-term debt $ 2,420.1
$ 2,676.6
$ 2,419.7
$ 2,706.1


	March 31, 2021				Dec. 31, 2020
(Millions of Dollars)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt	$	3,011	$	3,286	$	2,764	$	3,381

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 March 31, ~~2020~~2021 and Dec. 31, ~~2019,~~2020 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 March 31
2020 2019 2020 2019
(Millions of Dollars) Pension Benefits
Postretirement Health
Care Benefits
Service cost $ 2.4
$ 2.2
$ 0.2
$ 0.2
Interest cost ^(a)
4.5
5.0
0.4
0.4
Expected return on plan assets ^(a)
(7.4 ) (7.2 ) (0.5 ) (0.5 )
Amortization of prior service credit ^(a)
—
—
(0.1 ) (0.1 )
Amortization of net loss (gain) ^(a)
3.3
2.8
(0.1 ) (0.1 )
Net periodic benefit cost (credit) 2.8
2.8
(0.1 ) (0.1 )
Credits not recognized due to effects of regulation 0.5
0.4
—
—
Net benefit cost (credit) recognized for financial reporting $ 3.3
$ 3.2
$ (0.1 ) $ (0.1 )


	Three Months Ended March 31
	2021		2020
(Millions of Dollars)	Pension Benefits
Service cost	$	2	$	2
Interest cost (a)	4		5
Expected return on plan assets (a)	(7)		(7)

Amortization of net loss (a)	4		3
Net benefit cost recognized for financial reporting	$	3	$	3

^(a)The components of net periodic cost other than the service cost component are included in the line item ~~“other~~“Other income (expense) ~~income,~~, net” in the statements of income ~~statement~~ or capitalized on the balance ~~sheet~~sheets as a regulatory asset.

In January ~~2020,~~2021, contributions of ~~$150.0~~$125 million were made across 4 of Xcel Energy’s pension plans, of which ~~$14.4~~$14 million was attributable to SPS. Xcel Energy does not expect additional pension contributions during ~~2020.~~2021.



9. Commitments and Contingencies

The following ~~include~~includes commitments, contingencies and unresolved contingencies that are material to ~~SPS’~~SPS’s 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~~Costs of transmission upgrades may be recovered from other SPP customers whose transmission service depends on capacity enabled by the ~~upgrade.~~upgrade under the SPP OATT. 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, including SPP, filed requests for a rehearing. In February 2020, FERC issued an order rejecting all rehearing requests and providing certain clarifications.~~

In March 2020, SPP and Oklahoma Gas & Electric separately filed petitions for review of the FERC’s orders at the D.C. Circuit. SPS has intervened in both appeals in support of the FERC. ~~The timing of an appeals decision is uncertain.~~ Any refunds received by SPS are expected to be given back to SPS customers through future rates.

In October 2017, SPS filed a separate related complaint ~~against~~asserting 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. SPS filed a request for rehearing in April 2018. The FERC ~~granted~~issued 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~~amount through future SPS customer ~~rates.~~rates. In October 2020, SPS filed a petition for review of the FERC’s March 2018 order and May 2018 tolling order at the D.C. Circuit. This appeal is stayed pending the outcome of the separate appeal initiated in 2020 by Oklahoma Gas & Electric and SPP.

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 ~~ATRR~~annual transmission revenue requirement of ~~$9.5~~$10 million per year, with $6 million allocated to SPS’ retail customers. The remaining ~~$3.5~~$4 million would be paid by other wholesale loads in the SPS rate zone. On March 16, 2020, GridLiance also filed additional rate increases for 2020 which would raise their annual revenue requirement to $14 million, with approximately $9 million allocated to SPS’ retail customers. The hearing portion of this proceeding was concluded on Sept. 11, 2020.

~~In September 2018, SPS protested the proposed SPP tariff charges, and asked the FERC to reject the SPP filing. On~~The initial post-hearing brief was filed 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 to begin in August~~27, 2020 and the ~~ALJ’s initial~~Administrative Law Judge’s decision on this case is expected ~~in February~~on May 3, 2021. ~~In addition,~~The FERC will then rule on the ~~chief administrative law judge has appointed a new settlement judge who has ordered additional settlement discussions prior to the scheduled hearing date.~~judge’s decision and either sustain it, overturn it, or order further proceedings. SPS has incurred approximately ~~$8.3~~$17 million in associated charges as of March 31, ~~2020.~~

~~SPS Filing to Modify Wholesale Transmission Rates~~ —2021. 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 million, with approximately $4.4 million of the total being recovered in SPP regional transmission rates. SPS proposed that the formula rate changes be effective Feb. 1, 2019.

~~In January 2019, the~~August 2020, FERC issued an order ~~accepting~~on a question certified by the ~~proposed rate changes as~~hearing judge for the FERC’s review, in which FERC made certain findings in SPS’ favor regarding the legal standard that applies to the ongoing hearing proceeding. In November 2020, FERC denied GridLiance’s request for rehearing of ~~Feb. 1, 2019, subject to refund and settlement procedures. On Dec. 23, 2019, SPS~~the August 2020 order. In December 2020, GridLiance filed a ~~Stipulation~~petition for review at the D.C. Circuit of the August 2020 and ~~Agreement~~November 2020 orders on the certified question.

Contract Termination —SPS and Lubbock Power & Light are parties to a 25-year, 170 MW partial requirements contract. In October 2020, Lubbock Power & Light initiated discussions with SPS concerning the interpretation of ~~Settlement.~~contractual terms related to early termination and default. If ~~approved by~~the parties are unable to reach resolution, the contract calls for the matter to proceed to arbitration. The amount of any damages depends on multiple factors and is currently unknown.

FERC NOPR on ROE Incentive Adders — In April 2021, the FERC issued a NOPR proposing to limit collection of ROE incentive adders for RTO membership to the ~~settlement~~first three years after an entity begins participation in an RTO. If adopted as a final rule, following a comment period expected to be complete by the end of 2021 or 2022, NSP-Minnesota, NSP-Wisconsin and SPS would ~~implement~~prospectively discontinue charging their current 0.5% ROE incentive adders. Amounts related to a discontinuance of the ~~requested depreciation and TCJA related changes, but~~adder would ~~not modify current treatment of wholesale regulatory commission expenses.~~ultimately be offset by an increase in retail rates.

Environmental

~~MGP,~~Manufactured Gas Plant, Landfill and Disposal Sites — SPS is currently remediating a former 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 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. A contract contains a lease if it conveys the exclusive right to control the use of a specific asset.

Components of lease expense:


	Three Months Ended March 31
(Millions of Dollars)	2021		2020
Operating leases
PPA capacity payments	$	13	$	11
Other operating leases (a)	1		1
Total operating lease expense (b)	$	14	$	12

(a)Includes immaterial short-term lease expense for 2021 and 2020.

(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 and electric fuel and purchased power.

Commitments under operating leases as of March 31, 2021:


(Millions of Dollars)	PPA Operating Leases		Other Operating Leases		Total Operating Leases
Total minimum obligation	$	578	$	58	$	636
Interest component of obligation	(134)		(17)		(151)
Present value of minimum obligation	$	444	$	41	485
Less current portion					(28)
Noncurrent operating and finance lease liabilities					$	457

VIEs

Under certain PPAs, SPS purchases power from IPPs for which SPS is required to reimburse 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 IPP.

SPS had approximately 1,197 MW of capacity under long-term PPAs at both March 31, ~~2020~~2021 and Dec. 31, ~~2019~~2020 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. ~~Agreements~~The PPAs have expiration dates through 2041.



ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Discussion of financial condition and liquidity for SPS is omitted per conditions set forth in general instructions H(1)(a) and (b) of Form 10-Q for wholly owned subsidiaries. It is replaced with management’s narrative analysis of the results of operations set forth in general instructions H(2)(a) of Form 10-Q for wholly owned subsidiaries (reduced disclosure format).

Non-GAAP Financial Measures

The following discussion includes financial information prepared in accordance with GAAP, as well as certain non-GAAP financial measures such as, electric margin and ongoing earnings.

Generally, a non-GAAP financial measure is a measure of a company’s financial performance, financial position or cash flows that excludes (or includes) amounts that are adjusted from measures calculated and presented in accordance with GAAP.

SPS’ management uses non-GAAP measures for financial planning and analysis, for reporting of results to the Board of Directors, in determining performance-based compensation, and communicating its earnings outlook to analysts and investors. Non-GAAP financial measures are intended to supplement investors’ understanding of our performance and should not be considered alternatives for financial measures presented in accordance with GAAP. These measures are discussed in more detail below and may not be comparable to other companies’ similarly titled non-GAAP financial measures.

Electric ~~Margins~~Margin

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).



Results of Operations

SPS’ net income was approximately ~~$42.7~~$58 million for the three months ended March 31, ~~2020~~2021 compared with approximately ~~$54.1~~$43 million for the prior ~~year. The decrease is primarily due to a 2019 NMPRC revised order eliminating a $10 million retroactive refund of tax reform benefits. SPS also recognized additional depreciation~~year, reflecting higher electric margin (regulatory outcomes in Texas and ~~less AFUDC,~~New Mexico), partially offset by ~~lower income taxes.~~increased depreciation.

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:


	Three Months Ended March 31
(Millions of Dollars)	2021		2020
Electric revenues (a)	$	934	$	395
Electric fuel and purchased power (a)	(693)		(188)
Electric margin	$	241	$	207

Three Months Ended March 31
(Millions of Dollars) 2020 2019
Electric revenues $ 395.0
$ 454.1
Electric fuel and purchased power (187.8 ) (230.9 )
Electric margin $ 207.2
$ 223.2
(a)The increase in revenue and electric fuel and purchased power is primarily due to Winter Storm Uri, resulting in higher fuel prices, as well as additional long-term energy and SPP market purchases.

Changes in electric margin:

(Millions of Dollars) 2020 vs 2019
PTCs flowed back to customers (offset by a lower ETR) $ (11.1 )
New Mexico TCJA related regulatory settlement (2019) (10.2 )
Firm wholesale generation (6.5 )
Purchased capacity costs 6.1
Demand revenue 3.7
Wholesale transmission revenue, net 2.2
Other, net (0.2 )
Total decrease in electric margin $ (16.0 )


(Millions of Dollars)	Three Months Ended March 31, 2021 vs. 2020
Regulatory rate outcomes (Texas and New Mexico)	$	21
Wholesale transmission revenue (net)	9
Proprietary commodity trading, net of sharing	4
Estimated impact of weather	4
PTCs flowed back to customers (offset by lower ETR)	(11)



Other (net)	7
Total increase in electric margin	$	34

Non-Fuel Operating Expense and Other Items

Depreciation and Amortization — Depreciation and amortization increased ~~$5.9~~$19 million, or ~~11.1%~~32.2%, ~~for the three months ended March 31, 2020 compared with the prior year.~~year-to-date. The increase was primarily due to the ~~Hale Wind Farm in-servicing~~Sagamore wind farm being placed in ~~June 2019~~service in December 2020, in addition to ~~increased distribution,~~system expansion. The increase is also due to new FERC transmission rates applied in March 2020 and ~~general plant.~~implementation of new depreciation rates in both New Mexico and Texas as part of regulatory outcomes in 2020.

AFUDC, Equity and Debt— AFUDC decreased ~~$6.3~~$8 million for the first quarter of ~~2020 when compared with the same period in 2019. The decrease was~~2021, primarily due to ~~a decrease in~~construction of the Sagamore wind ~~construction projects, primarily the Hale Wind Farm.~~farm during 2020.

Income Taxes — Income tax ~~expense decreased $18.3~~benefit increased $12 million for the ~~three months ended March 31, 2020 compared with the same period in 2019.~~first quarter of 2021. The ~~decrease~~increase was primarily driven by an increase in wind ~~PTCs and lower pretax earnings.~~PTCs. Wind PTCs are largely credited to customers (recorded as a reduction to revenue) and do not have a material impact on net income. ~~ETR was (19.9)%, for the three months ended March 31, 2020 compared with 17.2% for the prior year, largely due to the items referenced above.~~

See Note 6 to the financial statements for further information.


Other

Winter Storm Uri

In mid-February 2021, the central portion of the United States experienced a major winter storm (Winter Storm Uri). Extreme cold temperatures impacted certain operational assets as well as the availability of renewable generation across the region. The cold weather also affected the country’s supply and demand for natural gas. These factors contributed to extremely high market prices for natural gas and electricity. Despite the extreme conditions, SPS’ customers experienced minimal disruptions as a result of preemptive infrastructure investments and the response of our employees.

As a result of the extremely high market prices, SPS’ electric fuel and purchased energy costs, including additional long-term energy and SPP market purchases, increased significantly. SPS mitigated the customer impact by approximately $135 million primarily through sales of excess generation. Approximately $80 million of related costs were deferred as regulatory assets.

Certain energy transactions are subject to final Independent System Operator re-settlement calculations and the impacts of credit losses shared among market participants. Such adjustments are not expected to be material to our results of operations, financial condition or cash flows.

Regulatory Overview — SPS has electric fuel and purchased energy mechanisms in each jurisdiction for the purpose of recovering incurred costs. However, February cost increases were deferred for future recovery and recovery proposed over a period of up to two years in order to significantly mitigate the impact to customer bills. Additionally, SPS is not requesting recovery of associated financing costs in order to further limit the impact to our customers.

The following proceedings have been initiated:


Jurisdiction			Regulatory Status
Texas			SPS intends to file for a surcharge in the second quarter to recover fuel costs over 24 months with no financing charge. Prudence of fuel costs will be subject to review in SPS' upcoming fuel reconciliation case.
New Mexico			The NMPRC approved SPS' requested fuel mechanism variance to permit recovery over 24 months with no financing charge (subject to NMPRC review).


Public Utility Regulation

The FERC and ~~various~~ state and local regulatory commissions regulate SPS. ~~The~~SPS is subject to rate regulation by state utility regulatory agencies, which have jurisdiction with respect to the rates of electric ~~rates charged to customers of SPS are approved by the FERC or the regulatory commissions~~distribution companies in ~~the states in which it operates.~~New Mexico and Texas.

~~The rates~~Rates are designed to recover plant investment, operating costs and an allowed return on investment. SPS requests changes in utility rates ~~for utility services~~ through ~~filings with governing commissions.~~

commission filings. 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 7 of SPS’ Annual Report on Form ~~10‑K~~10-K for the year ended Dec. 31, ~~2019~~2020 appropriately represent, in all material respects, the current status of public utility regulation and are incorporated herein by reference.

Pending and Recently Concluded Regulatory Proceedings

~~Mechanism~~Proceeding

~~Utility Service~~Amount
(in millions)

~~Amount Requested (in millions)~~Filing
Date

~~Filing Date~~

Approval

~~Additional Information~~

~~NMPRC~~2021 New Mexico Electric Rate Case

$88

January 2021

Pending

2021 Texas Electric Rate Case

~~Electric~~$143

~~$51~~February 2021

~~July 2019~~

Pending

In July 2019, SPS filed an electric rate case with the NMPRC seeking an increase in retail electric base rates of approximately $51 million. The rate request is based on an ROE of 10.35%, an equity ratio of 54.77%, a rate base of approximately $1.3 billion and a historic test year with rate base additions through Aug. 31, 2019. In December 2019, SPS revised its base rate increase request to approximately $47 million, based on a ROE of 10.10% and updated information. The request also included an increase of $14.6 million for accelerated depreciation including the early retirement of the Tolk coal plant in 2032.
On Jan. 13, 2020, SPS and various parties filed an uncontested comprehensive stipulation. The stipulation includes a base rate revenue increase of $31 million, based on an ROE of 9.45% and an equity ratio of 54.77%. The stipulation also includes an acceleration of depreciation on the Tolk coal plant to reflect early retirement in 2037, which results in a total increase in depreciation expense of $8 million. The parties to the stipulation agreed not to oppose the full application of depreciation rates associated with the 2032 retirement date in SPS’ next base rate case. A NMPRC decision is expected later in the year. SPS anticipates final rates will go into effect in the second or third quarter of 2020.

Additional Information:

~~Texas 2019~~2021 New Mexico Electric Rate Case— In ~~August 2019,~~January 2021, SPS filed an electric rate case with the ~~PUCT~~NMPRC seeking an increase in ~~retail electric~~ base rates of approximately ~~$141~~$88 million. SPS' net rate increase to New Mexico customers is expected to be approximately $48 million, or 10%, as a result of offsetting fuel cost reductions and PTCs from the Sagamore wind project. PTCs are being credited to customers through the fuel clause.

The ~~filing requests~~request is based on a historic test year ended Sept. 30, 2020, including expected capital additions through Feb. 28, 2021, a ROE of 10.35%, an equity ratio of 54.72% and retail rate base of approximately $1.9 billion.

The request includes the effect of approximately 400 MW of reduced peak load in 2021 from a wholesale transmission customer and changes to depreciation lives of SPS’ Tolk coal-fired power plant (from 2037 to 2032) and the coal handling assets at the Harrington facility (to 2024).

The procedural schedule is expected to be as follows:

•Staff and intervenor testimony — May 17, 2021.

•Rebuttal testimony — June 9, 2021.

•Deadline to file stipulation — June 23, 2021.

•Public hearing or hearing on stipulation — July 26 - Aug. 6, 2021.

•End of nine month suspension — Nov. 3, 2021.

A NMPRC decision and implementation of final rates is anticipated in the fourth quarter of 2021.

2021 Texas Electric Rate Case— In February 2021, SPSfiled an electric rate case with the PUCT and its municipalities with original rate jurisdiction seeking an increase in base rates of approximately $143 million. SPS' net rate increase to Texas customers is expected to be approximately $74 million, or 9.2%, as a result of offsetting $69 million in fuel cost reductions and PTCs from the Sagamore wind project.

The request is based on an ROE of 10.35%, ~~a 54.65%~~an equity ratio of 54.60% (based on actual capital structure), a Texas retail rate base of approximately ~~$2.6~~$3.3 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 $137 million.~~

On Feb. 10, 2020, the AXM, TIEC, OPUC and DOE filed testimony along with several other parties. On Feb. 18, 2020, the PUCT Staff filed testimony that included certain adjustments and various ring-fencing measures.

~~Proposed modifications to SPS’ request:~~

(Millions of Dollars) Staff AXM OPUC TIEC DOE
SPS Direct Testimony $ 137
$ 137
$ 137
$ 137
$ 137

Recommended base rate adjustments:
ROE (22 ) (24 ) (15 ) (21 ) (24 )
Capital structure (7 ) (10 ) —
(7 ) (3 )
Tolk/Harrington O&M disallowance —
(7 ) —
—
—
Distribution and Transmission Capital Disallowances ^(a)
(7 ) —
—
—
—
Depreciation expense (8 ) (15 ) (8 ) (20 ) —
Excess ADIT unprotected plant —
—
(7 ) —
—
Income Tax Expense Differences (12 ) —
—
—
—
Other, net (6 ) (6 ) (1 ) (1 ) —
Total Adjustments (62 ) (62 ) (31 ) (49 ) (27 )
Total proposed revenue change $ 75
$ 75
$ 106
$ 88
$ 110

Recommended Position Staff AXM
OPUC ^(b)
TIEC DOE
ROE 9.1 % 9.0 % — % 9.2 % 9.0 %
Equity Ratio 51.00 % 50.00 % — % 51.00 % 53.00 %


^(a)	Staff recommends exclusion of approximately $134 million in transmission, distribution, and general plant in service in this rate case resulting in an approximate $7 million decrease to the revenue requirement.


^(b)	~~OPUC did not provide a recommendation for an ROE or equity ratio. For illustrative purposes an ROE of 9.5% was used.~~

In March 2020, SPS filed an update to the electric rate case and revised its requested increase to approximately $130 million, based on a requested ROE of 10.1%, a 54.65% equity ratio, rate base of approximately $2.6 billion and historic test year based on the 12-month period ended ~~June 30, 2019.~~Dec. 31, 2020.

Revenue Request (Millions of Dollars)
Hale Wind Farm $ 61
Capital investments 47
Depreciation rate change (including Tolk) 34
Cost of capital 8
Expiring purchased power contracts (28 )
Other, net 8
New revenue request $ 130

~~In May 2020, SPS~~The request includes the effect of losing approximately 400 MW from a wholesale transmission customer and changes to depreciation lives of SPS’ Tolk power plant (from 2037 to 2032) and the ~~intervening parties announced they have reached a constructive, unopposed settlement agreement in principle. We are working with intervening parties to document and file~~coal handling assets of the ~~settlement, which we expect to occur in the second quarter.~~Harrington facility (to 2024).

~~Final rates are~~The procedural schedule is expected to be ~~retroactively applied~~ as follows:

•Intervenor testimony — Aug. 13, 2021.

•Staff testimony — Aug. 20, 2021.

•Rebuttal testimony — Sept. 15, 2021.

•Public hearing — Oct. 18 - Oct. 28, 2021.

Once final rates are approved, a surcharge will be requested from March 15, 2021 through the effective date of ~~Sept. 12, 2019.~~new base rates. A PUCT decision ~~from the PUCT~~ is ~~anticipated~~expected in the ~~third~~first quarter of ~~2020.~~2022.

Texas State ROFR Litigation — — In May 2019, the Governor signed a ROFR bill into law, ~~Senate Bill 1938,~~ which grants incumbent utilities a ROFR to build transmission infrastructure when it directly interconnects to the utility’s existing facility. In June 2019, a complaint was filed in the United States District Court for the Western District of Texas claiming the new ROFR law to be unconstitutional. ~~The Texas Attorney General has made a motion to dismiss the federal court complaint.~~ In February 2020, the federal court complaint was ~~dismissed.~~dismissed by the district court. In March 2020, the district court ruling was ~~appealed.~~appealed to the Fifth Circuit. A decision is pending.

~~Texas~~New Mexico FPPCAC Continuation — In December 2020, the Hearing Examiner recommended the NMPRC approve SPS’ request for the continued use of the FPPCAC and the reconciliation of its fuel costs for the reporting period (September 2015 through June 2019). Additionally, the Hearing Examiner recommended the NMPRC deny the proposed Annual Deferred Fuel ~~Refund~~ —Balance True-Up. The proposed true-up is designed to maintain the Deferred Fuel and ~~purchased power costs are recoverable in Texas through~~Purchased Power balance within a ~~fixed fuel factor, which is part~~bandwidth of ~~SPS’ rates. The PUCT rule requires refunding~~plus or ~~surcharging~~minus 5% of ~~under and over-recovered amounts, including interest, when they exceed 4% of the utility’s~~ annual ~~fuel costs on a rolling 12-month basis, as allowed by the PUCT, if this condition is expected to continue. Under the fuel cost recovery rules, SPS’ 2019 total~~New Mexico fuel and purchased power ~~costs were over-collected by approximately $39 million, including interest.~~costs. In February ~~2020, SPS filed an application with~~2021, the PUCT requesting to provide a net refund of $39 million to customers to be issued beginning May 2020. In April 2020, interim rates were granted by a Texas administrative law judge. This case is pending final review and approval byNMPRC approved the ~~PUCT.~~ Hearing Examiner’s recommended decision without modification.

Environmental

Environmental Regulation

In July 2019, the EPA adopted the Affordable Clean Energy rule, which requires states to develop plans by 2022 for greenhouse gas reductions from coal-fired power plants. ~~The state plans, due to~~In January 2021, the U.S. Court of Appeals for the D.C. Circuit issued a decision vacating and remanding the Affordable Clean Energy rule. That decision, if not successfully appealed or reconsidered, would allow the EPA ~~in July 2022, will evaluate and potentially~~to proceed with alternate regulation of coal-fired power plants. If the new rules require ~~heat rate improvements at existing coal-fired plants. It is not yet known how these state plans will affect our existing coal plants, but they could require substantial~~ additional investment, ~~even in plants slated for retirement.~~ SPS believes, based on prior state commission ~~practice,~~practices, that the cost of these initiatives or replacement generation would be recoverable through rates.



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 March 31, ~~2020,~~2021, 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.

PART II — OTHER INFORMATION



ITEM 1 — LEGAL PROCEEDINGS

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.

See Note 9 to the financial statements and Part I Item 2 for further information.

~~There have been no material changes from the risk factors disclosed in the 2019Form 10-K~~ ~~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. COVID-19 has not had a material impact on our first quarter results; however, we did experience a substantive drop in our sales in April. The severity of the outbreak is uncertain and we cannot ultimately predict whether it will have a material impact on our liquidity, financial condition, or results of operations. Nor can we predict the impact of the virus on the health of our employees, our supply chain or our ability to recover higher costs associated with managing through the pandemic.

SPS’ risk factors are documented in Item 1A of Part I of its Annual Report on Form 10-K for the year ended Dec. 31, ~~2019,~~2020, which is incorporated herein by ~~reference as well as other information set forth~~reference. There have been no material changes from the risk factors previously disclosed in ~~this report, which could have a material impact on our financial condition, results of operations and cash flows.~~theForm 10-K.

* Indicates incorporation by reference

Exhibit Number

Description

Report or Registration Statement

~~SEC File or Registration Number~~

Exhibit Reference

3.01*

Amended and Restated Articles of Incorporation, dated Sept. 30, 1997

SPS Form 10-Q for the quarter ended Sept. 30, 2017

~~001-03789~~

3.01

3.02*

~~By-Laws of SPS as~~ Amended and Restated onBylaws of SPS, dated Jan. 25, 2019

SPS Form 10-K for the year ended Dec. 31, 2018

~~001-03789~~

3.02

31.01

Principal Executive Officer’s certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.02

Principal Financial Officer’s certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.01

Certification s pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

Inline 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.SCH

Inline XBRL Schema

101.CAL

Inline XBRL Calculation

101.DEF

Inline XBRL Definition

101.LAB

Inline XBRL Label

101.PRE

Inline XBRL Presentation

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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

April 29, 2021			By:	~~Southwestern Public Service Company~~

~~May 7, 2020~~	~~By:~~	/s/ JEFFREY S. SAVAGE
				Jeffrey S. Savage
				Senior Vice President, Controller
				(Principal Accounting Officer)

				/s/ BRIAN J. VAN ABEL
				Brian J. Van Abel
				Executive Vice President, Chief Financial Officer and Director
				(Principal Financial Officer)



☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



303			571-7511
(Registrant’s Telephone Number, Including Area Code)



N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)



	Three Months Ended March 31
	2020			2019
Operating revenues	$	395.0		$	454.1

Operating expenses
Electric fuel and purchased power	187.8			230.9
Operating and maintenance expenses	69.6			72.4
Demand side management expenses	3.9			4.6
Depreciation and amortization	59.1			53.2
Taxes (other than income taxes)	21.3			18.5
Total operating expenses	341.7			379.6

Operating income	53.3			74.5


Other (expense) income, net	(2.0		)	0.4

Allowance for funds used during construction — equity	5.9			10.3

Interest charges and financing costs
Interest charges — includes other financing costs of $0.9 and $0.8, respectively	24.2			24.4
Allowance for funds used during construction — debt	(2.6		)	(4.5		)
Total interest charges and financing costs	21.6			19.9

Income before income taxes	35.6			65.3
Income tax (benefit) expense	(7.1		)	11.2
Net income	$	42.7		$	54.1

See Notes to Financial Statements



	Three Months Ended March 31,
	2020			2019
Operating activities
Net income	$	42.7		$	54.1
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	59.7			53.8
Deferred income taxes	0.5			11.0
Allowance for equity funds used during construction	(5.9		)	(10.3		)
Net derivative losses	(1.4		)	—
Changes in operating assets and liabilities:
Accounts receivable	(2.4		)	(1.3		)
Accrued unbilled revenues	11.7			0.2
Inventories	(6.6		)	(6.8		)
Prepayments and other	(5.1		)	(5.4		)
Accounts payable	(1.4		)	(9.3		)
Net regulatory assets and liabilities	18.2			(1.2		)
Other current liabilities	(14.9		)	(16.7		)
Pension and other employee benefit obligations	(15.0		)	(15.9		)
Other, net	1.1			0.3
Net cash provided by operating activities	81.2			52.5

Investing activities
Utility capital/construction expenditures	(192.5		)	(179.6		)
Investments in utility money pool arrangement	(4.0		)	—
Repayments from utility money pool arrangement	4.0			—
Net cash used in investing activities	(192.5		)	(179.6		)

Financing activities
Proceeds from short-term borrowings, net	40.0			95.0
Borrowings under utility money pool arrangement	239.0			100.0
Repayments under utility money pool arrangement	(139.0		)	(62.0		)
Capital contributions from parent	31.4			5.8
Dividends paid to parent	(74.3		)	(55.1		)
Other, net	(0.4		)	(0.1		)
Net cash provided by financing activities	96.7			83.6

Net change in cash, cash equivalents and restricted cash	(14.6		)	(43.5		)
Cash, cash equivalents and restricted cash at beginning of period	16.2			44.0
Cash, cash equivalents and restricted cash at end of period	$	1.6		$	0.5

Supplemental disclosure of cash flow information:
Cash paid for interest (net of amounts capitalized)	$	(17.5	)	$	(18.9	)
Cash paid for income taxes, net	(2.1		)	(4.9		)
Supplemental disclosure of non-cash investing and financing transactions:
Property, plant and equipment additions in accounts payable	$	56.5		$	68.5
Inventory transfer additions in PPE	5.7			6.4
Operating lease right-of-use assets	—			548.3
Allowance for equity funds used during construction	5.9			10.3


	Common Stock Issued					Retained Earnings		Accumulated Other Comprehensive Loss		Total Common Stockholder's Equity
	Shares	Par Value		Additional Paid In Capital
Three Months Ended March 31, 2021 and 2020
Balance at Dec. 31, 2019	100	$	0	$	2,351	$	535	$	(1)	$	2,885
Net income						43				43

Dividends declared to parent						(76)				(76)
Contributions of capital by parent				32						32
Balance at March 31, 2020	100	$	0	$	2,383	$	502	$	(1)	$	2,884

Balance at Dec. 31, 2020	100	$	0	$	2,790	$	509	$	(1)	$	3,298
Net income						58				58

Dividends declared to parent						(52)				(52)
Contributions of capital by parent				304						304
Balance at March 31, 2021	100	$	0	$	3,094	$	515	$	(1)	$	3,608



	Common Stock Issued					Retained Earnings			Accumulated Other Comprehensive Loss			Total Common Stockholders’ Equity
	Shares	Par Value		Additional Paid In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total Common Stockholders’ Equity
Three Months Ended March 31, 2020 and 2019
Balance at Dec. 31, 2018	100	$	—	$	1,932.3	$	605.7		$	(1.4	)	$	2,536.6
Net income						54.1						54.1
Dividends declared to parent						(57.5		)				(57.5		)
Balance at March 31, 2019	100	$	—	$	1,932.3	$	602.3		$	(1.4	)	$	2,533.2

Balance at Dec. 31, 2019	100	$	—	$	2,350.9	$	535.0		$	(1.4	)	$	2,884.5
Net income						42.7						42.7
Dividends declared to parent						(75.6		)				(75.6		)
Contributions of capital by parent				32.0								32.0
Adoption of ASC Topic 326						(0.1		)				(0.1		)
Balance at March 31, 2020	100	$	—	$	2,382.9	$	502.0		$	(1.4	)	$	2,883.5

See Notes to Financial Statements



(Amounts in Millions, Except Interest Rates)	Three Months Ended March 31, 2020			Year Ended Dec. 31, 2019
Borrowing limit	$	100		$	100
Amount outstanding at period end	100			—
Average amount outstanding	28			8
Maximum amount outstanding	100			100
Weighted average interest rate, computed on a daily basis	1.21		%	2.42		%
Weighted average interest rate at period end	1.15			N/A



	Three Months Ended
(Millions of Dollars)	March 31, 2020		March 31, 2019
Major revenue types
Revenue from contracts with customers:
Residential	$	72.9	$	88.1
C&I	169.1		205.8
Other	7.9		9.6
Total retail	249.9		303.5
Wholesale	73.2		84.8
Transmission	62.6		57.4
Other	0.6		1.0
Total revenue from contracts with customers	386.3		446.7
Alternative revenue and other	8.7		7.4
Total revenues	$	395.0	$	454.1


^(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.



(Millions of Dollars)	2020 vs 2019
PTCs flowed back to customers (offset by a lower ETR)	$	(11.1	)
New Mexico TCJA related regulatory settlement (2019)	(10.2		)
Firm wholesale generation	(6.5		)
Purchased capacity costs	6.1
Demand revenue	3.7
Wholesale transmission revenue, net	2.2
Other, net	(0.2		)
Total decrease in electric margin	$	(16.0	)



(Millions of Dollars)	Staff			AXM			OPUC			TIEC			DOE
SPS Direct Testimony	$	137		$	137		$	137		$	137		$	137

Recommended base rate adjustments:
ROE	(22		)	(24		)	(15		)	(21		)	(24		)
Capital structure	(7		)	(10		)	—			(7		)	(3		)
Tolk/Harrington O&M disallowance	—			(7		)	—			—			—
Distribution and Transmission Capital Disallowances ^(a)	(7		)	—			—			—			—
Depreciation expense	(8		)	(15		)	(8		)	(20		)	—
Excess ADIT unprotected plant	—			—			(7		)	—			—
Income Tax Expense Differences	(12		)	—			—			—			—
Other, net	(6		)	(6		)	(1		)	(1		)	—
Total Adjustments	(62		)	(62		)	(31		)	(49		)	(27		)
Total proposed revenue change	$	75		$	75		$	106		$	88		$	110



Recommended Position	Staff		AXM		OPUC ^(b)		TIEC		DOE
ROE	9.1	%	9.0	%	—	%	9.2	%	9.0	%
Equity Ratio	51.00	%	50.00	%	—	%	51.00	%	53.00	%



Revenue Request (Millions of Dollars)
Hale Wind Farm	$	61
Capital investments	47
Depreciation rate change (including Tolk)	34
Cost of capital	8
Expiring purchased power contracts	(28		)
Other, net	8
New revenue request	$	130

(Amounts in Millions) ^(a)

March 31, 2020

Dec. 31, 2019

MWh of electricity