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Northern States Power

Filed: 29 Apr 21, 2:00pm

                            

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-03140
Northern States Power Company
(Exact name of registrant as specified in its charter)
Wisconsin39-0508315
(State or other jurisdiction or incorporation or organization)(IRS Employer Identification No.)
1414 West Hamilton AvenueEau ClaireWisconsin54701
(Address of Principal Executive Offices)(Zip Code)
715839-2625
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
N/AN/AN/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 filerAccelerated filer
Non-accelerated filerSmaller 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.
ClassOutstanding at April 29, 2021
Common Stock, $100 par value933,000 shares
Northern States Power Company meets the conditions set forth in General Instructions 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 IFINANCIAL INFORMATION
Item 1 —
Item 2 —
Item 4 —
   
PART IIOTHER INFORMATION 
Item 1 —
Item 1A —
Item 6 —
   
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 Northern States Power Company, a Wisconsin corporation (NSP-Wisconsin). NSP-Wisconsin is a wholly owned subsidiary of Xcel Energy Inc. Additional information on Xcel Energy is available on various filings with the Securities and Exchange Commission. This report should be read in its entirety.



Definitions of Abbreviations
Xcel Energy Inc.’s Subsidiaries and Affiliates (current and former)
e primee prime inc.
NSP-MinnesotaNorthern States Power Company, a Minnesota corporation
NSP-WisconsinNorthern States Power Company, a Wisconsin corporation
PSCoPublic Service Company of Colorado
SPSSouthwestern Public Service Co.
Utility subsidiariesNSP-Minnesota, NSP-Wisconsin, PSCo and SPS
Xcel EnergyXcel Energy Inc. and its subsidiaries
Federal and State Regulatory Agencies
D.C. CircuitUnited States Court of Appeals for the District of Columbia Circuit
EPAUnited States Environmental Protection Agency
FERCFederal Energy Regulatory Commission
IRSInternal Revenue Service
PSCWPublic Service Commission of Wisconsin
SECSecurities and Exchange Commission
Other
ASCFASB Accounting Standards Codification
C&ICommercial and Industrial
CEOChief executive officer
CFOChief financial officer
COVID-19Novel coronavirus
ETREffective tax rate
FASBFinancial Accounting Standards Board
GAAPUnited States generally accepted accounting principles
MDLMulti-district litigation
MGPManufactured gas plant
MISOMidcontinent Independent System Operator, Inc.
NOLNet operating loss
NOPRNotice of Proposed Rulemaking
O&MOperating and maintenance
ROEReturn on equity
RTORegional Transmission Organization
TOsTransmission owners
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 related 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 filings with the SEC (including NSP-Wisconsin's Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2020, and subsequent 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; 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 NSP-Wisconsin and its subsidiaries 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.


PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
NSP-WISCONSIN AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(amounts in millions)
 Three Months Ended March 31
 20212020
Operating revenues  
Electric, non-affiliates$178 $171 
Electric, affiliates46 41 
Natural gas57 45 
Total operating revenues281 257 
Operating expenses 
Electric fuel and purchased power, non-affiliates
Purchased power, affiliates100 94 
Cost of natural gas sold and transported31 21 
Operating and maintenance expenses49 49 
Conservation program expenses
Depreciation and amortization37 39 
Taxes (other than income taxes)
Total operating expenses232 216 
Operating income49 41 
Other expense, net(2)
Allowance for funds used during construction — equity
Interest charges and financing costs
Interest charges10 
Allowance for funds used during construction — debt(1)
Total interest charges and financing costs
Income before income taxes41 31 
Income tax expense (benefit)(3)
Net income$32 $34 

See Notes to Consolidated Financial Statements

4

NSP-WISCONSIN AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in millions)
 Three Months Ended March 31
 20212020
Operating activities  
Net income$32 $34 
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization37 39 
Deferred income taxes(10)
Allowance for equity funds used during construction(1)(1)
Changes in operating assets and liabilities:
Accounts receivable(7)
Accrued unbilled revenues10 11 
Inventories
Other current assets
Accounts payable(9)(13)
Net regulatory assets and liabilities(47)
Other current liabilities(3)(3)
Pension and other employee benefit obligations(5)(7)
Other, net
Net cash provided by operating activities36 56 
Investing activities
Capital/construction expenditures(51)(63)
Net cash used in investing activities(51)(63)
Financing activities
Proceeds from short-term borrowings, net11 
Borrowings under utility money pool arrangement(56)
Repayments under utility money pool arrangement43 
Capital contributions from parent39 12 
Dividends paid to parent(20)(15)
Other, net
Net cash provided by financing activities15 
Net change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period$$
Supplemental disclosure of cash flow information:
Cash paid for interest (net of amounts capitalized)$(10)$(11)
Cash paid for income taxes, net(1)(2)
Supplemental disclosure of non-cash investing and financing transactions:
Accrued property, plant and equipment additions$14 $16 
Inventory transfers to property, plant and equipment
Allowance for equity funds used during construction11

See Notes to Consolidated Financial Statements
5

NSP-WISCONSIN AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(amounts in millions, except share and per share data)
 March 31, 2021Dec. 31, 2020
Assets  
Current assets  
Cash and cash equivalents$$
Accounts receivable, net66 70 
Accrued unbilled revenues43 53 
Other Receivables
Inventories13 15 
Regulatory assets59 19 
Prepaid taxes18 24 
Prepayments and other
Total current assets207 191 
Property, plant and equipment, net2,505 2,484 
Other assets
Regulatory assets210 215 
Other Investments
Other
Total other assets215 219 
Total assets$2,927 $2,894 
Liabilities and Equity
Current liabilities
Current portion of long-term debt$19 $19 
Short-term debt13 19 
Accounts payable33 41 
Accounts payable to affiliates20 15 
Dividends payable to parent19 19 
Regulatory liabilities23 31 
Taxes accrued11 12 
Environmental liabilities
Accrued interest10 
Other13 15 
Total current liabilities165 185 
Deferred credits and other liabilities
Deferred income taxes318 307 
Regulatory liabilities354 350��
Environmental liabilities16 16 
Customer advances21 20 
Pension and employee benefit obligations23 28 
Other32 33 
Total deferred credits and other liabilities764 754 
Commitments and contingencies00
Capitalization
Long-term debt888 887 
Common stock — 1,000,000 shares authorized of $100 par value; 933,000 shares
     outstanding at March 31, 2021 and Dec. 31, 2020, respectively
93 93 
Additional paid in capital635 605 
Retained earnings382 370 
Total common stockholder's equity1,110 1,068 
Total liabilities and equity$2,927 $2,894 

See Notes to Consolidated Financial Statements
6

NSP-WISCONSIN AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY (UNAUDITED)
(amounts in millions, except share data; shares in thousands)
Common Stock IssuedRetained Earnings Total Common Stockholder's Equity
SharesPar ValueAdditional Paid
In Capital
Three Months Ended March 31, 2021 and 2020
Balance at Dec. 31, 2019933 $93 $537 $337 $967 
Net income34 34 
Common dividends declared to parent(18)(18)
Contribution of capital by parent10 10 
Balance at March 31, 2020933 $93 $547 $353 $993 
Balance at Dec. 31, 2020933 $93 $605 $370 $1,068 
Net income3232
Common dividends declared to parent(20)(20)
Contribution of capital by parent30 30 
Balance at March 31, 2021933 $93 $635 $382 $1,110 
See Notes to Consolidated Financial Statements





7

NSP-WISCONSIN AND SUBSIDIARIES
Notes to Consolidated Financial Statements (UNAUDITED)
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly, in accordance with GAAP, the financial position of NSP-Wisconsin and its subsidiaries as of March 31, 2021 and Dec. 31, 2020; the results of operations, including the components of net income, cash flows, changes in stockholder's equity and comprehensive income for the three months ended March 31, 2021 and 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, 2021 up to the date of issuance of these consolidated financial statements. These statements contain all necessary adjustments and disclosures resulting from that evaluation. The Dec. 31, 2020 balance sheet information has been derived from the audited 2020 consolidated financial statements included in the NSP-Wisconsin Annual Report on Form 10-K for the year ended Dec. 31, 2020.
Notes to the consolidated 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 consolidated financial statements and notes thereto, included in the NSP-Wisconsin Annual Report on Form 10-K for the year ended Dec. 31, 2020, filed with the SEC on Feb. 17, 2021. Due to the seasonality of NSP-Wisconsin’s electric and natural gas 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 consolidated financial statements in the NSP-Wisconsin Annual Report on Form 10-K for the year ended Dec. 31, 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.
NSP-Wisconsin implemented the guidance using a modified-retrospective approach, recognizing an immaterial cumulative effect charge (after tax) to retained earnings on Jan 1. 2020. The Jan. 1, 2020 adoption of ASC Topic 326 did not have a significant impact on NSP-Wisconsin’s consolidated financial statements.
3. Selected Balance Sheet Data
(Millions of dollars)March 31, 2021Dec. 31, 2020
Accounts receivable, net
Accounts receivable$75 $78 
Less allowance for bad debts(9)(8)
Accounts receivable, net$66 $70 

(Millions of dollars)March 31, 2021Dec. 31, 2020
Inventories
Materials and supplies$$
Fuel
Natural gas
Total inventories$13 $15 

(Millions of dollars)March 31, 2021Dec. 31, 2020
Property, plant and equipment, net
Electric plant$3,221 $3,197 
Natural gas plant394 391 
Common and other property224 221 
Construction work in progress83 71 
Total property, plant and equipment3,922 3,880 
Less accumulated depreciation(1,417)(1,396)
Property, plant and equipment, net$2,505 $2,484 
4. Borrowings and Other Financing Instruments
Short-Term Borrowings
NSP-Wisconsin meets its short-term liquidity requirements primarily through the issuance of commercial paper and borrowings under its credit facility.
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 NSP-Wisconsin were as follows:
(Amounts in Millions, Except Interest Rates)Three Months Ended March 31, 2021Year Ended Dec. 31, 2020
Borrowing limit$150 $
Amount outstanding at period end13 
Average amount outstanding
Maximum amount outstanding22 
Weighted average interest rate, computed on a daily basis0.06 %N/A
Weighted average interest rate at period end0.06 N/A
Commercial Paper Commercial paper outstanding for NSP-Wisconsin was as follows:
(Amounts in Millions, Except Interest Rates)Three Months Ended March 31, 2021Year Ended Dec. 31, 2020
Borrowing limit$150 $150 
Amount outstanding at period end19 
Average amount outstanding30 
Maximum amount outstanding33 95 
Weighted average interest rate, computed on a daily basis0.17 %1.59 %
Weighted average interest rate at period endN/A0.17 
Letters of Credit — NSP-Wisconsin uses letters of credit, generally with terms of one year, to provide financial guarantees for certain obligations. At March 31, 2021 and Dec. 31, 2020, there were 0 letters of credit outstanding.
8

Revolving Credit Facility In order to issue its commercial paper, NSP-Wisconsin 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 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.
NSP-Wisconsin has the right to request an extension of the revolving credit facility termination date for an additional one-year period. All extension requests are subject to majority bank group approval.
As of March 31, 2021, NSP-Wisconsin had the following committed revolving credit facility available (in millions of dollars):
Credit Facility (a)
Outstanding (b)
Available
$150 $$150 
(a)Expires in June 2024.
(b)Includes outstanding commercial paper.
All credit facility bank borrowings, outstanding letters of credit and outstanding commercial paper reduce the available capacity under the credit facility. NSP-Wisconsin had 0 direct advances on the credit facility outstanding at March 31, 2021 and Dec. 31, 2020.
Other Short-Term Borrowings As of March 31, 2021 and Dec. 31, 2020, Clearwater Investments, Inc., a NSP-Wisconsin subsidiary, had 0 notes payable to Xcel Energy Inc.
5. Revenues
Revenue is classified by the type of goods/services rendered and market/customer type. NSP-Wisconsin’s operating revenues consisted of the following:
Three Months Ended
March 31, 2021
(Millions of Dollars)ElectricNatural GasTotal
Major revenue types
Revenue from contracts with customers:
Residential$71 $31 $102 
C&I102 24 126 
Other
Total retail175 55 230 
Interchange46 46 
Other
Total revenue from contracts with customers221 56 277 
Alternative revenue and other
Total revenues$224 $57 $281 
Three Months Ended
March 31, 2020
(Millions of Dollars)ElectricNatural GasTotal
Major revenue types
Revenue from contracts with customers:
Residential$65 $25 $90 
C&I100 19 119 
Other
Total retail167 44 211 
Interchange41 41 
Other
Total revenue from contracts with customers208 45 253 
Alternative revenue and other
Total revenues$212 $45 $257 
6. Income Taxes
Note 7 to the consolidated financial statements included in NSP-Wisconsin’s Annual Report on Form 10-K for the year ended Dec. 31, 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 rate21.0 %21.0 %
State tax (net of federal tax effect)6.2 6.2 
Increases (decreases) in tax from:
Plant regulatory differences (b)
(5.1)(22.0)
Amortization of excess nonplant deferred taxes(14.7)
Tax credits, net of NOL & tax credit allowances(1.1)(1.7)
Other (net)1.0 1.5 
Effective income tax rate22.0 %(9.7)%
(a)     Prior periods have been restated to conform to current year presentation.
(b) Regulatory differences for income tax primarily relates 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 — NSP-Wisconsin 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 consolidated federal income tax returns expire as follows:
Tax YearsExpiration
2014 - 2016January 2022
2017September 2021
Additionally, the statute of limitations related to the federal tax loss carryback claim filed in 2020 has been extended. Xcel Energy has recognized its best estimate of income tax expense that will result from a final resolution of this issue; however, the outcome and timing of a resolution is unknown.
9

State Audits — NSP-Wisconsin is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of March 31, 2021, NSP-Wisconsin’s earliest open tax year subject to examination by state taxing authorities under applicable statutes of limitations is 2016. In January 2021, Wisconsin concluded its' audit of tax years 2014 - 2016 with 0 material adjustments. In March 2021, Wisconsin began an audit of tax years 2016 - 2019. As of March 31, 2021, 0 material adjustments have been proposed.
Unrecognized Benefits — 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, 2021Dec. 31, 2020
Unrecognized tax benefit — Permanent tax positions$$
Unrecognized tax benefit — Temporary tax positions
Total unrecognized tax benefit$$
Unrecognized tax benefits were reduced by tax benefits associated with NOL and tax credit carryforwards:
(Millions of Dollars)March 31, 2021Dec. 31, 2020
NOL and tax credit carryforwards$(2)$(2)
As IRS audits resume and the state audit progresses, it is reasonably possible that the amount of unrecognized tax benefit could decrease up to approximately $1 million in the next 12 months.
Payables for interest related to unrecognized tax benefits were not material and 0 amounts were accrued for penalties related to unrecognized tax benefits as of March 31, 2021 and Dec. 31, 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.
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.
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 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.
Derivative Instruments Fair Value Measurements
NSP-Wisconsin enters into derivative instruments, including forward contracts, futures, swaps and options, for trading purposes and to manage risk in connection with changes in interest rates and utility commodity prices.
Interest Rate Derivatives NSP-Wisconsin may enter into various instruments that 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, 2021 and Dec. 31, 2020, there were 0 interest rate derivatives designated as cash flow hedges.
Commodity Derivatives NSP-Wisconsin may enter into derivative instruments to manage variability of future cash flows from changes in commodity prices in its electric and natural gas operations, as well as for trading purposes. This could include the purchase or sale of natural gas to generate electric energy and natural gas for resale.
Consideration of Credit Risk and Concentrations — NSP-Wisconsin 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 on the consolidated balance sheets.
Impact of Derivative Activities on IncomeChanges in the fair value of natural gas commodity derivatives resulted in immaterial net gains for both the three months ended March 31, 2021 and 2020, which were recognized as regulatory assets and liabilities. The classification as a regulatory asset or liability is based on commission approved regulatory recovery mechanisms.
During the three months ended March 31, 2021 and 2020, there were $1 million and immaterial settlement losses, respectively, on natural gas commodity derivatives recognized subject to purchased natural gas cost recovery mechanisms, which result in reclassifications of derivative settlement gains and losses out of income to a regulatory asset or liability, as appropriate.
NSP-Wisconsin had 0 derivative instruments designated as fair value hedges during the three months ended March 31, 2021 and 2020, respectively.
10

Recurring Fair Value Measurements — As of March 31, 2021, there were 0 derivative assets measured at fair value on a recurring basis. At Dec. 31, 2020, NSP-Wisconsin's derivative assets measured at fair value on a recurring basis were as follows:
Dec. 31, 2020
Fair ValueFair Value Total
Netting (a)
Total (b)
(Millions of Dollars)Level 1Level 2Level 3
Current derivative assets
Natural gas commodity$$$$$$
(a)    NSP-Wisconsin nets derivative instruments and related collateral on its consolidated balance sheets when supported by a legally enforceable master netting agreement, and all derivative instruments and related collateral amounts were subject to master netting agreements at March 31, 2021 and Dec. 31, 2020. The counterparty netting amounts presented exclude settlement receivables and payables and non-derivative amounts that may be subject to the same master netting agreements.
(b)    Included in prepayments and other current assets balance of $5 million at March 31, 2021 and $7 million at Dec. 31, 2020 on the consolidated balance sheets.
Fair Value of Long-Term Debt
Other financial instruments for which the carrying amount did not equal fair value:
March 31, 2021Dec. 31, 2020
(Millions of Dollars)Carrying AmountFair ValueCarrying AmountFair Value
Long-term debt, including current portion$907 $1,042 $906 $1,124 
Fair value of NSP-Wisconsin’s long-term debt is estimated based on recent trades and observable spreads from benchmark interest rates for similar securities. Fair value estimates are based on information available to management as of March 31, 2021 and Dec. 31, 2020 and given the observability of the inputs, fair values presented for long-term debt were assigned as Level 2.
8. Benefit Plans and Other Postretirement Benefits
Components of Net Periodic Benefit Cost (Credit)
Three Months Ended March 31
20212020
(Millions of Dollars)Pension Benefits
Service cost$$
Interest cost (a)
Expected return on plan assets (a)
(2)(2)
Amortization of net loss (a)
Net periodic benefit cost$$
Effects of regulation
Net benefit cost recognized for financial reporting$$
(a)     The components of net periodic cost other than the service cost component are included in the line item “Other expense, net” in the consolidated statements of income or capitalized on the consolidated balance sheets as a regulatory asset.
In January 2021, contributions of $125 million were made across 4 of Xcel Energy’s pension plans, of which $5 million was attributable to NSP-Wisconsin. Xcel Energy does not expect additional pension contributions during 2021.
9. Commitments and Contingencies
The following includes commitments, contingencies and unresolved contingencies that are material to NSP-Wisconsin’s financial position.
Legal
NSP-Wisconsin 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, management does not anticipate that the ultimate liabilities, if any, would have a material effect on NSP-Wisconsin’s consolidated financial statements. Unless otherwise required by GAAP, legal fees are expensed as incurred.
Gas Trading Litigation e prime is a wholly owned subsidiary of Xcel Energy. e prime was in the business of natural gas trading and marketing but has not engaged in natural gas trading or marketing activities since 2003. Multiple lawsuits involving multiple plaintiffs seeking monetary damages were commenced against e prime and its affiliates, including Xcel Energy, between 2003 and 2009 alleging fraud and anticompetitive activities in conspiring to restrain the trade of natural gas and manipulate natural gas prices. Cases were all consolidated in the U.S. District Court in Nevada.
Two cases remain active which include an MDL matter consisting of a Colorado purported class (Breckenridge) and a Wisconsin purported class (Arandell Corp.).
Breckenridge/Colorado — In February 2019, the MDL panel remanded Breckenridge back to the U.S. District Court in Colorado. Settlement of approximately $3 million was reached in February 2021. The parties have sought and are awaiting court approval of the settlement.
Arandell Corp. — The trial has been vacated and will be rescheduled after the court rules on the pending motions for reconsideration and for class certification. Xcel Energy has concluded that a loss is remote for the remaining lawsuit.
Rate Matters
MISO ROE Complaints — In November 2013 and February 2015, customer groups filed two ROE complaints against MISO TOs, which includes NSP-Minnesota and NSP-Wisconsin. The first complaint requested a reduction in base ROE transmission formula rates from 12.38% to 9.15% for the time period of Nov. 12, 2013 to Feb. 11, 2015, and removal of ROE adders (including those for RTO membership). The second complaint requested, for a subsequent time period, a base ROE reduction from 12.38% to 8.67%.
In September 2016, the FERC issued an order (Opinion No. 551) granting a 10.32% base ROE effective for the first complaint period of Nov. 12, 2013 to Feb. 11, 2015 and subsequent to the date of the order. The D.C Circuit subsequently vacated and remanded Opinion No. 551.
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In November 2019, the FERC issued an order (Opinion No. 569), which set the MISO base ROE at 9.88%, effective Sept. 28, 2016 and for the first complaint period. The FERC also dismissed the second complaint. In December 2019, MISO TOs filed a request for rehearing regarding the new ROE methodology announced in Opinion No. 569. Customers also filed requests for rehearing claiming, among other points, that the FERC erred by dismissing the second complaint without refunds.
In May 2020, the FERC issued an order (Opinion No. 569-A) which granted rehearing in part to Opinion 569 and further refined the FERC’s ROE methodology, most significantly to incorporate the risk premium model (in addition to the discounted cash flow and capital asset pricing models), resulting in a new base ROE of 10.02%, effective Sept. 28, 2016 and for the first complaint period. The FERC also affirmed its decision in Opinion No. 569 to dismiss the second complaint.
In November 2020, the FERC issued an order (Opinion No. 569-B) in response to rehearing requests. The FERC corrected certain inputs to its ROE calculation model, did not change the ROE effective Sept. 28, 2016, and for the first MISO complaint period and upheld its decision to deny refunds for the second complaint period. NSP-Minnesota has recognized a liability for its best estimate of final refunds to customers. Each 10 basis point reduction in ROE for the first complaint period, second complaint period, and subsequent period relative to amounts accrued would reduce Xcel Energy’s net income by $1 million, $1 million, and $2 million, respectively.
The MISO TOs and various parties have filed petitions for review of Opinion Nos. 569, 569-A and 569-B at the D.C. Circuit with initial briefs filed in March 2021.
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 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 prospectively discontinue charging their current 0.5% ROE incentive adders. Amounts related to a discontinuance of the adder would ultimately be offset by an increase in retail rates.
Environmental
MGP, Landfill and Disposal Sites
NSP-Wisconsin is currently investigating, remediating or performing post-closure actions at 2 MGP, landfill or other disposal sites across its service territories.
NSP-Wisconsin 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.
10. Segment Information
NSP-Wisconsin evaluates performance based on profit or loss generated from the product or service provided. These segments are managed separately because the revenue streams are dependent upon regulated rate recovery, which is separately determined for each segment.
NSP-Wisconsin has the following reportable segments:
Regulated Electric — The regulated electric utility segment generates electricity, which is transmitted and distributed in Wisconsin and Michigan.
Regulated Natural Gas — The regulated natural gas utility segment purchases, transports, stores and distributes natural gas in portions of Wisconsin and Michigan.
Asset and capital expenditure information is not provided for NSP-Wisconsin's reportable segments. As an integrated electric and natural gas utility, NSP-Wisconsin operates significant assets that are not dedicated to a specific business segment. Reporting assets and capital expenditures by business segment would require arbitrary and potentially misleading allocations, which may not necessarily reflect the assets required for the operation of the business segments on a stand-alone basis.
Certain costs, such as common depreciation, common O&M expenses and interest expense are allocated based on cost causation allocators across each segment. In addition, a general allocator is used for certain general and administrative expenses, including office supplies, rent, property insurance and general advertising.
NSP-Wisconsin's segment information:
Three Months Ended March 31
(Millions of Dollars)20212020
Regulated Electric
Total revenues (a)
$224 $212 
Net income24 25 
Regulated Natural Gas
Total revenues$57 $45 
Net income
Consolidated Total
Total revenues (a)
$281 $257 
Net income32 34 
(a)    Operating revenues include $46 million and $41 million of affiliate electric revenue for the three months ended March 31, 2021 and 2020, respectively.
ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Discussion of financial condition and liquidity for NSP-Wisconsin 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 natural gas margin. 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.
NSP-Wisconsin’s management uses non-GAAP measures for financial planning and analysis, for reporting of results 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.
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Electric and Natural Gas Margins
Electric margin is presented as electric revenues less electric fuel and purchased power expenses. Natural gas margin is presented as natural gas revenues less the cost of natural gas sold and transported. Expenses incurred for electric fuel and purchased power and the cost of natural gas are generally recovered through various regulatory recovery mechanisms. As a result, changes in these expenses are generally offset in operating revenues.
Management believes electric and natural gas 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, conservation, depreciation and amortization and taxes (other than income taxes).
Results of Operations
NSP-Wisconsin’s net income was slightly lower for the three months ended March 31, 2021 compared with the same period in 2020 ($32 million and $34 million, respectively).
Electric Margin
Electric production expenses tend to vary with the quantity of electricity sold and changes in the unit costs of fuel and purchased power. The electric fuel and purchased power cost recovery mechanism of the Wisconsin jurisdiction may not allow for complete recovery of all expenses and, therefore, changes in fuel or purchased power costs can impact earnings.
Electric revenues and margin:
Three Months Ended March 31
(Millions of Dollars)20212020
Electric revenues$224 $212 
Electric fuel and purchased power(105)(97)
Electric margin$119 $115 
Changes in electric margin:
(Millions of Dollars)Three Months Ended March 31, 2021 vs. 2020
Regulatory rate outcomes$
Other (net)(2)
Total increase in electric margin$
(a) Sales decline excludes weather impact.
Natural Gas Margin
Total natural gas expense varies with changing sales requirements and the cost of natural gas. However, fluctuations in the cost of natural gas has minimal impact on natural gas margin due to natural gas cost recovery mechanisms.
Natural gas revenues and margin:
Three Months Ended March 31
(Millions of Dollars)20212020
Natural gas revenues$57 $45 
Cost of natural gas sold and transported(31)(21)
Natural gas margin$26 $24 
Changes in natural gas margin:
(Millions of Dollars)Three Months Ended March 31, 2021 vs. 2020
Estimated impact of weather$
Other (net)
Total increase in natural gas margin$
Non-Fuel Operating Expenses and Other Items
Depreciation and Amortization — Depreciation and amortization expense decreased $2 million, or 5%, year-to-date. The decrease is due to lower amortization of environmental regulatory assets, partially offset by normal system expansion and deferred tax liability amortization.
Income Taxes Income tax expense increased $12 million for the first quarter of 2021. The increase was primarily driven by a decrease in plant regulatory differences, lower non-plant accumulated deferred income tax amortization and higher pretax earnings in 2021.
See Note 6 to the consolidated 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, NSP-Wisconsin’s 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, NSP-Wisconsin incurred net natural gas, fuel and purchased energy costs of approximately $45 million (largely 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 — NSP-Wisconsin has natural gas, 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 nine months in order to significantly mitigate the impact to customer bills. Additionally, NSP-Wisconsin is not requesting recovery of associated financing costs in order to further limit the impact to our customers.
Public Utility Regulation
The FERC and various state and local regulatory commissions regulate NSP-Wisconsin. The electric and natural gas rates charged to customers of NSP-Wisconsin are approved by the FERC or the regulatory commissions in the states in which it operates.
The rates are designed to recover plant investment, operating costs and an allowed return on investment. NSP-Wisconsin requests changes in utility rates through commission filings.
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Changes in operating costs can affect NSP-Wisconsin’s 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 demand side management 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 NSP-Wisconsin’s results of operations.
Except to the extent noted below, the circumstances set forth in Public Utility Regulation included in Item 7 of NSP-Wisconsin’s Annual Report on Form 10-K for the year ended Dec. 31, 2020 appropriately represent, in all material respects, the current status of public utility regulation and are incorporated by reference.
NSP-Wisconsin Solar Proposal — In October 2020, NSP-Wisconsin filed for a 74 megawatt solar facility build-own-transfer in Wisconsin for approximately $100 million. A PSCW decision is expected in the third quarter of 2021.
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. 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 to proceed with alternate regulation of coal-fired power plants. If the new rules require additional investment, NSP-Wisconsin believes, based on prior state commission practices, that the cost of these initiatives or replacement generation would be recoverable through rates.
ITEM 4 — CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
NSP-Wisconsin 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, 2021, based on an evaluation carried out under the supervision and with the participation of NSP-Wisconsin’s management, including the CEO and CFO, of the effectiveness of its disclosure controls and procedures, the CEO and CFO have concluded that NSP-Wisconsin’s disclosure controls and procedures were effective.
Internal Control Over Financial Reporting
No changes in NSP-Wisconsin’s internal control over financial reporting occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, NSP-Wisconsin’s internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1 — LEGAL PROCEEDINGS
NSP-Wisconsin 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 NSP-Wisconsin’s financial statements. Unless otherwise required by GAAP, legal fees are expensed as incurred.
See Note 9 to the consolidated financial statements and Part I Item 2 for further information.
ITEM 1A — RISK FACTORS
NSP-Wisconsin's risk factors are documented in Item 1A of Part I of its Annual Report on Form 10-K for the year ended Dec. 31, 2020, which is incorporated herein by reference. There have been no material changes from the risk factors previously disclosed in the Form 10-K.
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ITEM 6 — EXHIBITS
* Indicates incorporation by reference
Exhibit NumberDescriptionReport or Registration StatementExhibit Reference
NSP-Wisconsin Form S-4 dated Jan. 21, 20043.01
NSP-Wisconsin Form 10-K for the year ended Dec. 31, 20183.02
101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Schema
101.CALInline XBRL Calculation
101.DEFInline XBRL Definition
101.LABInline XBRL Label
101.PREInline XBRL Presentation
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Northern States Power Company (a Wisconsin corporation)
April 29, 2021By:/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)
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