UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20222023
or
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☐ | 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
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Northern States Power Company |
(Exact Name of Registrant as Specified in its Charter) |
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Wisconsin | | | | 39-0508315 |
(State or Other Jurisdiction of Incorporation or Organization) | | | | (I.R.S Employer Identification No.) |
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1414 West Hamilton Avenue | Eau Claire | Wisconsin | | | | 54701 |
(Address of Principal Executive Offices) | | | | (Zip Code) |
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(715) | 737-2625 |
(Registrant’s Telephone Number, Including Area Code) |
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
N/A | | N/A | | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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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.
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Class | | Outstanding at July 28, 202227, 2023 |
Common Stock, $100 par value | | 933,000 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.
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PART I | FINANCIAL INFORMATION | |
Item 1 — | | |
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Item 2 — | | |
Item 4 — | | |
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PART II | OTHER INFORMATION | | |
Item 1 — | | |
Item 1A — | | |
Item 5 — | | |
Item 6 — | | |
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This Form 10-Q is filed by NSP-Wisconsin. NSP-Wisconsin is a wholly owned subsidiary of Xcel Energy Inc. Additional information on Xcel Energy is available in various filings with the SEC. This report should be read in its entirety.
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Definitions of Abbreviations |
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Xcel Energy Inc.’s Subsidiaries and Affiliates (current and former) |
e prime | e prime inc. |
NSP-Minnesota | Northern States Power Company, a Minnesota corporation |
NSP System | The electric production and transmission system of NSP-Minnesota and NSP-Wisconsin operated on an integrated basis and managed by NSP-Minnesota |
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 |
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Federal and State Regulatory Agencies |
D.C. Circuit | United States Court of Appeals for the District of Columbia Circuit |
EPA | United States Environmental Protection Agency |
FERC | Federal Energy Regulatory Commission |
PSCW | Public Service Commission of Wisconsin |
SEC | Securities and Exchange Commission |
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Other |
ACE | Affordable Clean Energy |
C&I | Commercial and Industrial |
CEO | Chief executive officer |
CERCLA | Comprehensive Environmental Response, Compensation, and Liability Act |
CFO | Chief financial officer |
CPP | Clean Power Plan |
CSPV | Crystalline Silicon Photovoltaic |
GAAP | United States generally accepted accounting principles |
MGP | Manufactured gas plant |
MISO | Midcontinent Independent System Operator, Inc. |
NOx | Nitrogen Oxides |
PFAS | Per- and Polyfluoroalkyl Substances |
O&M | Operating and maintenance |
ROE | Return on equity |
TOs | Transmission owners |
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Measurements |
MW | Megawatts |
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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 tax rates, 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 impact on our results of operations, financial condition and cash flows of 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 in NSP-Wisconsin's Annual Report on Form 10-K for the fiscal year ended Dec. 31, 20212022, and subsequent filings with the SEC, 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, including potential workforce impacts resulting from vaccination requirements, quarantine policies or government restrictions, and sales volatility; 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; violations of our Codes of Conduct; our ability to recover costs; changes in regulation; reductions in our credit ratings and the cost of maintaining certain contractual relationships; general economic conditions, including recessionary conditions, inflation rates, monetary fluctuations, supply chain constraints and their impact on capital expenditures and/or 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; uncertainty regarding epidemics, the duration and magnitude of business restrictions including shutdowns (domestically and globally), the potential impact on the workforce, including shortages of employees or third-party contractors due to quarantine policies, vaccination requirements or government restrictions, impacts on the transportation of goods and the generalized impact on the economy; 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;weather events; natural disaster and resource depletion, including compliance with any accompanying legislative and regulatory changes andchanges; costs of potential regulatory penalties;penalties and wildfire damages in excess of liability insurance coverage; regulatory changes and/or limitations related to the use of natural gas as an energy source.source; challenging labor market conditions and our ability to attract and retain a qualified workforce; and our ability to execute on our strategies or achieve expectations related to environmental, social and governance matters including as a result of evolving legal, regulatory and other standards, processes, and assumptions, the pace of scientific and technological developments, increased costs, the availability of requisite financing, and changes in carbon markets.
PART I — FINANCIAL INFORMATION
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ITEM 1 — FINANCIAL STATEMENTS |
NSP-WISCONSIN AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(amounts in millions)
| | | Three Months Ended June 30 | | Six Months Ended June 30 | | Three Months Ended June 30 | | Six Months Ended June 30 |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Operating revenues | Operating revenues | | | | | | | | Operating revenues | | | | | | | |
Electric, non-affiliates | Electric, non-affiliates | $ | 191 | | | $ | 178 | | | $ | 394 | | | $ | 356 | | Electric, non-affiliates | $ | 185 | | | $ | 191 | | | $ | 389 | | | $ | 394 | |
Electric, affiliates | Electric, affiliates | 52 | | | 46 | | | 99 | | | 92 | | Electric, affiliates | 51 | | | 52 | | | 101 | | | 99 | |
Natural gas | Natural gas | 35 | | | 31 | | | 113 | | | 88 | | Natural gas | 24 | | | 35 | | | 101 | | | 113 | |
| Total operating revenues | Total operating revenues | 278 | | | 255 | | | 606 | | | 536 | | Total operating revenues | 260 | | | 278 | | | 591 | | | 606 | |
| Operating expenses | Operating expenses | | | | Operating expenses | | | |
Electric fuel and purchased power, non-affiliates | Electric fuel and purchased power, non-affiliates | 4 | | | 5 | | | 8 | | | 10 | | Electric fuel and purchased power, non-affiliates | 3 | | | 4 | | | 7 | | | 8 | |
Purchased power, affiliates | Purchased power, affiliates | 120 | | | 106 | | | 228 | | | 206 | | Purchased power, affiliates | 93 | | | 120 | | | 196 | | | 228 | |
Cost of natural gas sold and transported | Cost of natural gas sold and transported | 20 | | | 20 | | | 65 | | | 51 | | Cost of natural gas sold and transported | 9 | | | 20 | | | 55 | | | 65 | |
O&M expenses | 54 | | | 50 | | | 107 | | | 99 | | |
Operating and maintenance expenses | | Operating and maintenance expenses | 57 | | | 54 | | | 115 | | | 107 | |
Conservation program expenses | Conservation program expenses | 3 | | | 3 | | | 6 | | | 6 | | Conservation program expenses | 4 | | | 3 | | | 7 | | | 6 | |
Depreciation and amortization | Depreciation and amortization | 40 | | | 36 | | | 78 | | | 73 | | Depreciation and amortization | 42 | | | 40 | | | 83 | | | 78 | |
Taxes (other than income taxes) | Taxes (other than income taxes) | 7 | | | 8 | | | 15 | | | 15 | | Taxes (other than income taxes) | 9 | | | 7 | | | 17 | | | 15 | |
Total operating expenses | Total operating expenses | 248 | | | 228 | | | 507 | | | 460 | | Total operating expenses | 217 | | | 248 | | | 480 | | | 507 | |
| Operating income | Operating income | 30 | | | 27 | | | 99 | | | 76 | | Operating income | 43 | | | 30 | | | 111 | | | 99 | |
| Other expense, net | (1) | | | — | | | (1) | | | — | | |
Other income (expense), net | | Other income (expense), net | 1 | | | (1) | | | 1 | | | (1) | |
Allowance for funds used during construction — equity | Allowance for funds used during construction — equity | 1 | | | 1 | | | 3 | | | 2 | | Allowance for funds used during construction — equity | 2 | | | 1 | | | 4 | | | 3 | |
| Interest charges and financing costs | Interest charges and financing costs | | Interest charges and financing costs | |
Interest charges, includes other financing costs of $1, $—, $1 and $—, respectively | 11 | | | 12 | | | 22 | | | 21 | | |
Interest charges and other financing costs | | Interest charges and other financing costs | 13 | | | 11 | | | 26 | | | 22 | |
Allowance for funds used during construction — debt | Allowance for funds used during construction — debt | — | | | (1) | | | (1) | | | (1) | | Allowance for funds used during construction — debt | (1) | | | — | | | (2) | | | (1) | |
Total interest charges and financing costs | Total interest charges and financing costs | 11 | | | 11 | | | 21 | | | 20 | | Total interest charges and financing costs | 12 | | | 11 | | | 24 | | | 21 | |
| Income before income taxes | Income before income taxes | 19 | | | 17 | | | 80 | | | 58 | | Income before income taxes | 34 | | | 19 | | | 92 | | | 80 | |
Income tax expense | Income tax expense | 4 | | | 3 | | | 18 | | | 12 | | Income tax expense | 8 | | | 4 | | | 21 | | | 18 | |
Net income | Net income | $ | 15 | | | $ | 14 | | | $ | 62 | | | $ | 46 | | Net income | $ | 26 | | | $ | 15 | | | $ | 71 | | | $ | 62 | |
See Notes to Consolidated Financial Statements
NSP-WISCONSIN AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in millions)
| | | Six Months Ended June 30 | | | Six Months Ended June 30 | |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
Operating activities | Operating activities | | | | | Operating activities | | | | |
Net income | Net income | $ | 62 | | | $ | 46 | | | Net income | $ | 71 | | | $ | 62 | | |
Adjustments to reconcile net income to cash provided by operating activities: | Adjustments to reconcile net income to cash provided by operating activities: | | | Adjustments to reconcile net income to cash provided by operating activities: | | |
Depreciation and amortization | Depreciation and amortization | 78 | | | 73 | | | Depreciation and amortization | 84 | | | 78 | | |
Deferred income taxes | Deferred income taxes | (1) | | | 10 | | | Deferred income taxes | (6) | | | (1) | | |
Allowance for equity funds used during construction | Allowance for equity funds used during construction | (3) | | | (2) | | | Allowance for equity funds used during construction | (4) | | | (3) | | |
Provision for bad debts | Provision for bad debts | 2 | | | 2 | | | Provision for bad debts | 2 | | | 2 | | |
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | | Changes in operating assets and liabilities: | | |
Accounts receivable | Accounts receivable | 5 | | | 10 | | | Accounts receivable | 1 | | | 5 | | |
Accrued unbilled revenues | Accrued unbilled revenues | 18 | | | 5 | | | Accrued unbilled revenues | 24 | | | 18 | | |
Inventories | Inventories | (4) | | | (1) | | | Inventories | 10 | | | (4) | | |
Other current assets | Other current assets | (8) | | | (6) | | | Other current assets | 9 | | | (8) | | |
Accounts payable | Accounts payable | 2 | | | 9 | | | Accounts payable | (17) | | | 2 | | |
Net regulatory assets and liabilities | Net regulatory assets and liabilities | 4 | | | (47) | | | Net regulatory assets and liabilities | 38 | | | 4 | | |
Other current liabilities | Other current liabilities | 6 | | | (2) | | | Other current liabilities | (2) | | | 6 | | |
Pension and other employee benefit obligations | Pension and other employee benefit obligations | (1) | | | (5) | | | Pension and other employee benefit obligations | (2) | | | (1) | | |
Other, net | Other, net | (2) | | | 2 | | | Other, net | 4 | | | (2) | | |
Net cash provided by operating activities | Net cash provided by operating activities | 158 | | | 94 | | | Net cash provided by operating activities | 212 | | | 158 | | |
| Investing activities | Investing activities | | | Investing activities | | |
Capital/construction expenditures | Capital/construction expenditures | (155) | | | (111) | | | Capital/construction expenditures | (209) | | | (155) | | |
| Net cash used in investing activities | Net cash used in investing activities | (155) | | | (111) | | | Net cash used in investing activities | (209) | | | (155) | | |
| Financing activities | Financing activities | | | Financing activities | | |
| (Repayments of) proceeds from short-term borrowings, net | (83) | | | (19) | | | |
Repayments of short-term borrowings, net | | Repayments of short-term borrowings, net | (47) | | | (83) | | |
Borrowings under utility money pool arrangement | Borrowings under utility money pool arrangement | 471 | | | 186 | | | Borrowings under utility money pool arrangement | 73 | | | 471 | | |
Repayments under utility money pool arrangement | Repayments under utility money pool arrangement | (404) | | | (153) | | | Repayments under utility money pool arrangement | (73) | | | (404) | | |
| Proceeds from long-term debt | | Proceeds from long-term debt | 124 | | | — | | |
Capital contributions from parent | Capital contributions from parent | 51 | | | 40 | | | Capital contributions from parent | 46 | | | 51 | | |
Dividends paid to parent | Dividends paid to parent | (48) | | | (38) | | | Dividends paid to parent | (47) | | | (48) | | |
Other, net | — | | | 1 | | | |
Net cash (used in) provided by financing activities | (13) | | | 17 | | | |
| Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | 76 | | | (13) | | |
| Net change in cash, cash equivalents and restricted cash | Net change in cash, cash equivalents and restricted cash | (10) | | | — | | | Net change in cash, cash equivalents and restricted cash | 79 | | | (10) | | |
Cash, cash equivalents and restricted cash at beginning of period | Cash, cash equivalents and restricted cash at beginning of period | 11 | | | 2 | | | Cash, cash equivalents and restricted cash at beginning of period | 2 | | | 11 | | |
Cash, cash equivalents and restricted cash at end of period | Cash, cash equivalents and restricted cash at end of period | $ | 1 | | | $ | 2 | | | Cash, cash equivalents and restricted cash at end of period | $ | 81 | | | $ | 1 | | |
| Supplemental disclosure of cash flow information: | Supplemental disclosure of cash flow information: | | | Supplemental disclosure of cash flow information: | | |
Cash paid for interest (net of amounts capitalized) | Cash paid for interest (net of amounts capitalized) | $ | (20) | | | $ | (19) | | | Cash paid for interest (net of amounts capitalized) | $ | (22) | | | $ | (20) | | |
Cash paid for income taxes, net | Cash paid for income taxes, net | (17) | | | (13) | | | Cash paid for income taxes, net | (22) | | | (17) | | |
| Supplemental disclosure of non-cash investing and financing transactions: | Supplemental disclosure of non-cash investing and financing transactions: | | | Supplemental disclosure of non-cash investing and financing transactions: | | |
Accrued property, plant and equipment additions | Accrued property, plant and equipment additions | $ | 23 | | | $ | 19 | | | Accrued property, plant and equipment additions | $ | 35 | | | $ | 23 | | |
Inventory transfers to property, plant and equipment | Inventory transfers to property, plant and equipment | 2 | | | 2 | | | Inventory transfers to property, plant and equipment | 5 | | | 2 | | |
Allowance for equity funds used during construction | Allowance for equity funds used during construction | 3 | | 2 | | Allowance for equity funds used during construction | 4 | | 3 | |
See Notes to Consolidated Financial Statements
NSP-WISCONSIN AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(amounts in millions, except share and per share data)
| | | June 30, 2022 | | Dec. 31, 2021 | | | June 30, 2023 | | Dec. 31, 2022 | |
Assets | Assets | | | | | Assets | | | | |
Current assets | Current assets | | | | | Current assets | | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 1 | | | $ | 11 | | | Cash and cash equivalents | $ | 81 | | | $ | 2 | | |
Accounts receivable, net | Accounts receivable, net | 73 | | | 71 | | | Accounts receivable, net | 80 | | | 84 | | |
| Accrued unbilled revenues | Accrued unbilled revenues | 50 | | | 69 | | | Accrued unbilled revenues | 50 | | | 74 | | |
Other receivables | Other receivables | 12 | | | 3 | | | Other receivables | 12 | | | 19 | | |
Inventories | Inventories | 28 | | | 27 | | | Inventories | 24 | | | 39 | | |
Regulatory assets | Regulatory assets | 46 | | | 21 | | | Regulatory assets | 32 | | | 44 | | |
Prepaid taxes | Prepaid taxes | 26 | | | 25 | | | Prepaid taxes | 28 | | | 27 | | |
Prepayments and other | Prepayments and other | 5 | | | 7 | | | Prepayments and other | 5 | | | 11 | | |
Total current assets | Total current assets | 241 | | | 234 | | | Total current assets | 312 | | | 300 | | |
| Property, plant and equipment, net | Property, plant and equipment, net | 2,752 | | | 2,660 | | | Property, plant and equipment, net | 3,055 | | | 2,914 | | |
| Other assets | Other assets | | | Other assets | | |
Regulatory assets | Regulatory assets | 196 | | | 225 | | | Regulatory assets | 187 | | | 193 | | |
| Other | Other | 5 | | | 4 | | | Other | 3 | | | 3 | | |
Total other assets | Total other assets | 201 | | | 229 | | | Total other assets | 190 | | | 196 | | |
Total assets | Total assets | $ | 3,194 | | | $ | 3,123 | | | Total assets | $ | 3,557 | | | $ | 3,410 | | |
| Liabilities and Equity | Liabilities and Equity | | | Liabilities and Equity | | |
Current liabilities | Current liabilities | | | Current liabilities | | |
Current portion of long-term debt | | Current portion of long-term debt | $ | 200 | | | $ | — | | |
Short-term debt | | Short-term debt | — | | | 47 | | |
| Short-term debt | — | | | 83 | | | |
Borrowings under utility money pool arrangement | 67 | | | — | | | |
Accounts payable | Accounts payable | 62 | | | 69 | | | Accounts payable | 58 | | | 92 | | |
Accounts payable to affiliates | Accounts payable to affiliates | 19 | | | 23 | | | Accounts payable to affiliates | 21 | | | 19 | | |
Dividends payable to parent | Dividends payable to parent | 19 | | | 26 | | | Dividends payable to parent | 25 | | | 23 | | |
Regulatory liabilities | Regulatory liabilities | 15 | | | 4 | | | Regulatory liabilities | 28 | | | 21 | | |
Taxes accrued | Taxes accrued | 13 | | | 10 | | | Taxes accrued | 17 | | | 13 | | |
| Accrued interest | Accrued interest | 10 | | | 10 | | | Accrued interest | 12 | | | 12 | | |
Other | Other | 23 | | | 21 | | | Other | 20 | | | 28 | | |
Total current liabilities | Total current liabilities | 228 | | | 246 | | | Total current liabilities | 381 | | | 255 | | |
| Deferred credits and other liabilities | Deferred credits and other liabilities | | | Deferred credits and other liabilities | | |
Deferred income taxes | Deferred income taxes | 329 | | | 325 | | | Deferred income taxes | 331 | | | 333 | | |
Deferred investment tax credits | Deferred investment tax credits | 5 | | | 5 | | | Deferred investment tax credits | 5 | | | 5 | | |
Regulatory liabilities | Regulatory liabilities | 380 | | | 372 | | | Regulatory liabilities | 415 | | | 383 | | |
| Customer advances | Customer advances | 22 | | | 23 | | | Customer advances | 24 | | | 23 | | |
Pension and employee benefit obligations | Pension and employee benefit obligations | 14 | | | 16 | | | Pension and employee benefit obligations | 21 | | | 23 | | |
Other | Other | 45 | | | 46 | | | Other | 43 | | | 43 | | |
Total deferred credits and other liabilities | Total deferred credits and other liabilities | 795 | | | 787 | | | Total deferred credits and other liabilities | 839 | | | 810 | | |
| Commitments and contingencies | Commitments and contingencies | 0 | | 0 | | Commitments and contingencies | | |
Capitalization | Capitalization | | | Capitalization | | |
Long-term debt | Long-term debt | 987 | | | 987 | | | Long-term debt | 1,011 | | | 1,086 | | |
Common stock — 1,000,000 shares authorized of $100 par value; 933,000 shares outstanding at June 30, 2022 and Dec. 31, 2021, respectively | 93 | | | 93 | | | |
Common stock — 1,000,000 shares authorized of $100 par value; 933,000 shares outstanding at June 30, 2023 and Dec. 31, 2022, respectively | | Common stock — 1,000,000 shares authorized of $100 par value; 933,000 shares outstanding at June 30, 2023 and Dec. 31, 2022, respectively | 93 | | | 93 | | |
Additional paid in capital | Additional paid in capital | 702 | | | 642 | | | Additional paid in capital | 806 | | | 761 | | |
Retained earnings | Retained earnings | 389 | | | 368 | | | Retained earnings | 427 | | | 405 | | |
Total common stockholder's equity | Total common stockholder's equity | 1,184 | | | 1,103 | | | Total common stockholder's equity | 1,326 | | | 1,259 | | |
Total liabilities and equity | Total liabilities and equity | $ | 3,194 | | | $ | 3,123 | | | Total liabilities and equity | $ | 3,557 | | | $ | 3,410 | | |
See Notes to Consolidated Financial Statements
NSP-WISCONSIN AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY (UNAUDITED)
(amounts in millions, except share data; shares in thousands)data)
| | | Common Stock Issued | | Retained Earnings | | Total Common Stockholder's Equity | | Common Stock Issued | | Retained Earnings | | Total Common Stockholder's Equity |
| | Shares | | Par Value | | Additional Paid In Capital | | | Shares | | Par Value | | Additional Paid In Capital | |
Three Months Ended June 30, 2022 and 2021 | | | | | | | | | | |
Balance at March 31, 2021 | 933 | | | $ | 93 | | | $ | 635 | | | $ | 382 | | | $ | 1,110 | | |
Net income | | 14 | | | 14 | | |
Common dividends declared to parent | | (14) | | | (14) | | |
Contribution of capital by parent | | 3 | | | 3 | | |
Balance at June 30, 2021 | 933 | | | $ | 93 | | | $ | 638 | | | $ | 382 | | | $ | 1,113 | | |
| Three Months Ended June 30, 2023 and 2022 | | Three Months Ended June 30, 2023 and 2022 | | | | | | | | | |
Balance at March 31, 2022 | Balance at March 31, 2022 | 933 | | | $ | 93 | | | $ | 672 | | | $ | 393 | | | $ | 1,158 | | Balance at March 31, 2022 | 933,000 | | | $ | 93 | | | $ | 672 | | | $ | 393 | | | $ | 1,158 | |
Net income | Net income | | 15 | | 15 | Net income | | 15 | | | 15 | |
Common dividends declared to parent | Common dividends declared to parent | | (19) | | | (19) | | Common dividends declared to parent | | (19) | | | (19) | |
Contribution of capital by parent | Contribution of capital by parent | | 30 | | | 30 | | Contribution of capital by parent | | 30 | | | 30 | |
Balance at June 30, 2022 | Balance at June 30, 2022 | 933 | | | $ | 93 | | | $ | 702 | | | $ | 389 | | | $ | 1,184 | | Balance at June 30, 2022 | 933,000 | | | $ | 93 | | | $ | 702 | | | $ | 389 | | | $ | 1,184 | |
| Balance at March 31, 2023 | | Balance at March 31, 2023 | 933,000 | | | $ | 93 | | | $ | 791 | | | $ | 426 | | | $ | 1,310 | |
Net income | | Net income | | 26 | | 26 |
Common dividends declared to parent | | Common dividends declared to parent | | (25) | | | (25) | |
Contribution of capital by parent | | Contribution of capital by parent | | 15 | | | 15 | |
Balance at June 30, 2023 | | Balance at June 30, 2023 | 933,000 | | | $ | 93 | | | $ | 806 | | | $ | 427 | | | $ | 1,326 | |
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| | | Total Common Stockholder's Equity | | Total Common Stockholder's Equity |
| | Common Stock Issued | | Retained Earnings | | | Common Stock Issued | | Retained Earnings | |
| | Shares | | Par Value | | Additional Paid In Capital | | | Shares | | Par Value | | Additional Paid In Capital | |
Six Months Ended June 30, 2022 and 2021 | | | | | | | | | | |
Balance at Dec. 31, 2020 | 933 | | | $ | 93 | | | $ | 605 | | | $ | 370 | | | $ | 1,068 | | |
Net income | | 46 | | | 46 | | |
Common dividends declared to parent | | (34) | | | (34) | | |
Contribution of capital by parent | | 33 | | | 33 | | |
Balance at June 30, 2021 | 933 | | | $ | 93 | | | $ | 638 | | | $ | 382 | | | $ | 1,113 | | |
| Six Months Ended June 30, 2023 and 2022 | | Six Months Ended June 30, 2023 and 2022 | | | | | | | | | |
Balance at Dec. 31, 2021 | Balance at Dec. 31, 2021 | 933 | | | $ | 93 | | | $ | 642 | | | $ | 368 | | | $ | 1,103 | | Balance at Dec. 31, 2021 | 933,000 | | | $ | 93 | | | $ | 642 | | | $ | 368 | | | $ | 1,103 | |
Net income | Net income | | 62 | | 62 | Net income | | 62 | | | 62 | |
Common dividends declared to parent | Common dividends declared to parent | | (41) | | | (41) | | Common dividends declared to parent | | (41) | | | (41) | |
Contribution of capital by parent | Contribution of capital by parent | | 60 | | | 60 | | Contribution of capital by parent | | 60 | | | 60 | |
Balance at June 30, 2022 | Balance at June 30, 2022 | 933 | | | $ | 93 | | | $ | 702 | | | $ | 389 | | | $ | 1,184 | | Balance at June 30, 2022 | 933,000 | | | $ | 93 | | | $ | 702 | | | $ | 389 | | | $ | 1,184 | |
| Balance at Dec. 31, 2022 | | Balance at Dec. 31, 2022 | 933,000 | | | $ | 93 | | | $ | 761 | | | $ | 405 | | | $ | 1,259 | |
Net income | | Net income | | 71 | | 71 |
Common dividends declared to parent | | Common dividends declared to parent | | (49) | | | (49) | |
Contribution of capital by parent | | Contribution of capital by parent | | 45 | | | 45 | |
Balance at June 30, 2023 | | Balance at June 30, 2023 | 933,000 | | | $ | 93 | | | $ | 806 | | | $ | 427 | | | $ | 1,326 | |
| See Notes to Consolidated Financial Statements | See Notes to Consolidated Financial Statements | See Notes to Consolidated Financial Statements |
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 June 30, 20222023 and Dec. 31, 2021;2022; the results of NSP-Wisconsin's operations, including the components of net income, changes in stockholder's equity and comprehensive income for the three and six months ended June 30, 20222023 and 2021;2022; and NSP-Wisconsin's cash flows for the six months ended June 30, 20222023 and 2021.2022.
All adjustments are of a normal, recurring nature, except as otherwise disclosed. Management has also evaluated the impact of events occurring after June 30, 20222023 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, 20212022 balance sheet information has been derived from the audited 20212022 consolidated financial statements included in the NSP-Wisconsin Annual Report on Form 10-K for the year ended Dec. 31, 2021.2022. 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, 2021,2022, filed with the SEC on Feb. 23, 2022.2023. 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, 20212022 appropriately represent, in all material respects, the current status of accounting policies and are incorporated herein by reference. | | |
2. Accounting Pronouncements |
As of June 30, 2022,2023, there was no material impact from the recent adoption of new accounting pronouncements, nor expected material impact from recently issued accounting pronouncements yet to be adopted, on NSP-Wisconsin's consolidated financial statements.
| | | | | | | | | | | | | | |
3. Selected Balance Sheet Data |
| (Millions of dollars) | (Millions of dollars) | | June 30, 2022 | | Dec. 31, 2021 | (Millions of dollars) | | June 30, 2023 | | Dec. 31, 2022 |
Accounts receivable, net | Accounts receivable, net | | | | | Accounts receivable, net | | | | |
Accounts receivable | Accounts receivable | | $ | 81 | | | $ | 79 | | Accounts receivable | | $ | 88 | | | $ | 93 | |
Less allowance for bad debts | Less allowance for bad debts | | (8) | | | (8) | | Less allowance for bad debts | | (8) | | | (9) | |
Accounts receivable, net | Accounts receivable, net | | $ | 73 | | | $ | 71 | | Accounts receivable, net | | $ | 80 | | | $ | 84 | |
| | | | | | | | | | | | | | |
(Millions of dollars) | | June 30, 2022 | | Dec. 31, 2021 |
Inventories | | | | |
Materials and supplies | | $ | 8 | | | $ | 8 | |
Fuel | | 12 | | | 9 | |
Natural gas | | 8 | | | 10 | |
Total inventories | | $ | 28 | | | $ | 27 | |
| | | | | | | | | | | | | | |
(Millions of dollars) | | June 30, 2023 | | Dec. 31, 2022 |
Inventories | | | | |
Materials and supplies | | $ | 10 | | | $ | 8 | |
Fuel | | 11 | | | 11 | |
Natural gas | | 3 | | | 20 | |
Total inventories | | $ | 24 | | | $ | 39 | |
| | | | | | | | | | | | | | |
(Millions of dollars) | | June 30, 2022 | | Dec. 31, 2021 |
Property, plant and equipment, net | | | | |
Electric plant | | $ | 3,459 | | | $ | 3,348 | |
Natural gas plant | | 434 | | | 423 | |
Common and other property | | 247 | | | 233 | |
Construction work in progress | | 136 | | | 134 | |
Total property, plant and equipment | | 4,276 | | | 4,138 | |
Less accumulated depreciation | | (1,524) | | | (1,478) | |
Property, plant and equipment, net | | $ | 2,752 | | | $ | 2,660 | |
| | | | | | | | | | | | | | |
(Millions of dollars) | | June 30, 2023 | | Dec. 31, 2022 |
Property, plant and equipment, net | | | | |
Electric plant | | $ | 3,708 | | | $ | 3,579 | |
Natural gas plant | | 478 | | | 465 | |
Common and other property | | 270 | | | 260 | |
Construction work in progress | | 210 | | | 174 | |
Total property, plant and equipment | | 4,666 | | | 4,478 | |
Less accumulated depreciation | | (1,611) | | | (1,564) | |
Property, plant and equipment, net | | $ | 3,055 | | | $ | 2,914 | |
| | |
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 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 NSP-Wisconsin:borrowings:
| (Amounts in Millions, Except Interest Rates) | (Amounts in Millions, Except Interest Rates) | | Three Months Ended June 30, 2022 | | Year Ended Dec. 31, 2021 | (Amounts in Millions, Except Interest Rates) | | Three Months Ended June 30, 2023 | | Year Ended Dec. 31, 2022 |
Borrowing limit | Borrowing limit | | $ | 150 | | | $ | 150 | | Borrowing limit | | $ | 150 | | | $ | 150 | |
Amount outstanding at period end | Amount outstanding at period end | | 67 | | | — | | Amount outstanding at period end | | — | | | — | |
Average amount outstanding | Average amount outstanding | | 48 | | | 16 | | Average amount outstanding | | 18 | | | 25 | |
Maximum amount outstanding | Maximum amount outstanding | | 77 | | | 78 | | Maximum amount outstanding | | 43 | | | 81 | |
Weighted average interest rate, computed on a daily basis | Weighted average interest rate, computed on a daily basis | | 0.82 | % | | 0.05 | % | Weighted average interest rate, computed on a daily basis | | 4.84 | % | | 1.10 | % |
Weighted average interest rate at period end | Weighted average interest rate at period end | | 1.40 | | | N/A | Weighted average interest rate at period end | | N/A | | N/A |
Commercial Paper — Commercial paper outstanding for NSP-Wisconsin:outstanding:
| (Amounts in Millions, Except Interest Rates) | (Amounts in Millions, Except Interest Rates) | | Three Months Ended June 30, 2022 | | Year Ended Dec. 31, 2021 | (Amounts in Millions, Except Interest Rates) | | Three Months Ended June 30, 2023 | | Year Ended Dec. 31, 2022 |
Borrowing limit | Borrowing limit | | $ | 150 | | | $ | 150 | | Borrowing limit | | $ | 150 | | | $ | 150 | |
Amount outstanding at period end | Amount outstanding at period end | | — | | | 83 | | Amount outstanding at period end | | — | | | 47 | |
Average amount outstanding | Average amount outstanding | | 6 | | | 3 | | Average amount outstanding | | 4 | | | 18 | |
Maximum amount outstanding | Maximum amount outstanding | | 50 | | | 83 | | Maximum amount outstanding | | 30 | | | 123 | |
Weighted average interest rate, computed on a daily basis | Weighted average interest rate, computed on a daily basis | | 0.60 | % | | 0.18 | % | Weighted average interest rate, computed on a daily basis | | 5.01 | % | | 1.03 | % |
Weighted average interest rate at period end | Weighted average interest rate at period end | | N/A | | 0.21 | | Weighted average interest rate at period end | | N/A | | 4.55 | |
Letters of Credit — NSP-Wisconsin uses letters of credit, generally with terms of one year, to provide financial guarantees for certain obligations. At both June 30, 20222023 and Dec. 31, 2021,2022, there were no letters of credit outstanding under the credit facility.
Revolving Credit Facility — In order to issue its commercial paper, NSP-Wisconsin must have a revolving credit facility in place at least equal to or greater than the amount of its commercial paper borrowing limit and cannot issue commercial paper exceeding available capacity under this credit facility. The credit facility 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 June 30, 2022,2023, 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.September 2027.
(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 no directno direct advances on the credit facility outstanding at June 30, 20222023 and Dec. 31, 2021.2022.
Other Short-Term Borrowings — Clearwater Investments, Inc., a NSP-Wisconsin subsidiary, had an immaterial note payable to Xcel Energy Inc. as of June 30, 20222023 and Dec. 31, 2021,2022, respectively.
Long-Term Borrowings and Other Financing Instruments
On July 15, 2022, subsequent toDuring the end of the quarter,six months ended June 30, 2023, NSP-Wisconsin priced a private placement of $100issued $125 million of 4.86%5.30% private placement first mortgage bonds due SeptemberJune 15, 2052. The closing of the sale of the bonds is expected to occur on Sept. 12, 2022.2053.
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 June 30, 2022 | | Three Months Ended June 30, 2023 |
(Millions of Dollars) | (Millions of Dollars) | | Electric | | Natural Gas | | | Total | (Millions of Dollars) | | Electric | | Natural Gas | | | Total |
Major revenue types | Major revenue types | | | | | | | | Major revenue types | | | | | | | |
Revenue from contracts with customers: | Revenue from contracts with customers: | | | | Revenue from contracts with customers: | | | |
Residential | Residential | | $ | 67 | | | $ | 18 | | | | $ | 85 | | Residential | | $ | 68 | | | $ | 13 | | | | $ | 81 | |
C&I | C&I | | 119 | | | 15 | | | | 134 | | C&I | | 122 | | | 9 | | | | 131 | |
Other | Other | | 2 | | | — | | | | 2 | | Other | | 2 | | | — | | | | 2 | |
Total retail | Total retail | | 188 | | | 33 | | | | 221 | | Total retail | | 192 | | | 22 | | | | 214 | |
Interchange | | 52 | | | — | | | | 52 | | |
Other | | 1 | | | 1 | | | | 2 | | |
Interchange and other | | Interchange and other | | 41 | | | — | | | | 41 | |
| Total revenue from contracts with customers | Total revenue from contracts with customers | | 241 | | | 34 | | | | 275 | | Total revenue from contracts with customers | | 233 | | | 22 | | | | 255 | |
Alternative revenue and other | Alternative revenue and other | | 2 | | | 1 | | | | 3 | | Alternative revenue and other | | 3 | | | 2 | | | | 5 | |
Total revenues | Total revenues | | $ | 243 | | | $ | 35 | | | | $ | 278 | | Total revenues | | $ | 236 | | | $ | 24 | | | | $ | 260 | |
| | | Three Months Ended June 30, 2021 | | Three Months Ended June 30, 2022 |
(Millions of Dollars) | (Millions of Dollars) | | Electric | | Natural Gas | | | Total | (Millions of Dollars) | | Electric | | Natural Gas | | | Total |
Major revenue types | Major revenue types | | | | | | | | Major revenue types | | | | | | | |
Revenue from contracts with customers: | Revenue from contracts with customers: | | | | Revenue from contracts with customers: | | | |
Residential | Residential | | $ | 64 | | | $ | 15 | | | | $ | 79 | | Residential | | $ | 67 | | | $ | 18 | | | | $ | 85 | |
C&I | C&I | | 108 | | | 15 | | | | 123 | | C&I | | 119 | | | 15 | | | | 134 | |
Other | Other | | 2 | | | — | | | | 2 | | Other | | 2 | | | — | | | | 2 | |
Total retail | Total retail | | 174 | | | 30 | | | | 204 | | Total retail | | 188 | | | 33 | | | | 221 | |
Interchange | | 46 | | | — | | | | 46 | | |
Other | | 1 | | | 1 | | | | 2 | | |
Interchange and other | | Interchange and other | | 53 | | | 1 | | | | 54 | |
| Total revenue from contracts with customers | Total revenue from contracts with customers | | 221 | | | 31 | | | | 252 | | Total revenue from contracts with customers | | 241 | | | 34 | | | | 275 | |
Alternative revenue and other | Alternative revenue and other | | 3 | | | — | | | | 3 | | Alternative revenue and other | | 2 | | | 1 | | | | 3 | |
Total revenues | Total revenues | | $ | 224 | | | $ | 31 | | | | $ | 255 | | Total revenues | | $ | 243 | | | $ | 35 | | | | $ | 278 | |
| | | Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2023 |
(Millions of Dollars) | (Millions of Dollars) | | Electric | | Natural Gas | | | Total | (Millions of Dollars) | | Electric | | Natural Gas | | | Total |
Major revenue types | Major revenue types | | | | | | | | Major revenue types | | | | | | | |
Revenue from contracts with customers: | Revenue from contracts with customers: | | | | Revenue from contracts with customers: | | | |
Residential | Residential | | $ | 148 | | | $ | 60 | | | | $ | 208 | | Residential | | $ | 150 | | | $ | 54 | | | | $ | 204 | |
C&I | C&I | | 235 | | | 49 | | | | 284 | | C&I | | 242 | | | 43 | | | | 285 | |
Other | Other | | 4 | | | — | | | | 4 | | Other | | 4 | | | — | | | | 4 | |
Total retail | Total retail | | 387 | | | 109 | | | | 496 | | Total retail | | 396 | | | 97 | | | | 493 | |
Interchange | | 99 | | | — | | | | 99 | | |
Other | | 2 | | | 2 | | | | 4 | | |
Interchange and other | | Interchange and other | | 88 | | | 1 | | | | 89 | |
| Total revenue from contracts with customers | Total revenue from contracts with customers | | 488 | | | 111 | | | | 599 | | Total revenue from contracts with customers | | 484 | | | 98 | | | | 582 | |
Alternative revenue and other | Alternative revenue and other | | 5 | | | 2 | | | | 7 | | Alternative revenue and other | | 6 | | | 3 | | | | 9 | |
Total revenues | Total revenues | | $ | 493 | | | $ | 113 | | | | $ | 606 | | Total revenues | | $ | 490 | | | $ | 101 | | | | $ | 591 | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2021 |
(Millions of Dollars) | | Electric | | Natural Gas | | | | Total |
Major revenue types | | | | | | | | |
Revenue from contracts with customers: | | | | | | | | |
Residential | | $ | 135 | | | $ | 46 | | | | | $ | 181 | |
C&I | | 211 | | | 39 | | | | | 250 | |
Other | | 3 | | | — | | | | | 3 | |
Total retail | | 349 | | | 85 | | | | | 434 | |
Interchange | | 92 | | | — | | | | | 92 | |
Other | | 1 | | | 2 | | | | | 3 | |
Total revenue from contracts with customers | | 442 | | | 87 | | | | | 529 | |
Alternative revenue and other | | 6 | | | 1 | | | | | 7 | |
Total revenues | | $ | 448 | | | $ | 88 | | | | | $ | 536 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2022 |
(Millions of Dollars) | | Electric | | Natural Gas | | | | Total |
Major revenue types | | | | | | | | |
Revenue from contracts with customers: | | | | | | | | |
Residential | | $ | 148 | | | $ | 60 | | | | | $ | 208 | |
C&I | | 235 | | | 49 | | | | | 284 | |
Other | | 4 | | | — | | | | | 4 | |
Total retail | | 387 | | | 109 | | | | | 496 | |
Interchange and other | | 101 | | | 2 | | | | | 103 | |
| | | | | | | | |
Total revenue from contracts with customers | | 488 | | | 111 | | | | | 599 | |
Alternative revenue and other | | 5 | | | 2 | | | | | 7 | |
Total revenues | | $ | 493 | | | $ | 113 | | | | | $ | 606 | |
| | | | | | | | |
Reconciliation between the statutory rate and effective tax rate:
| | | Six Months Ended June 30 | | Six Months Ended June 30 |
| | 2022 | | 2021 | | 2023 | | 2022 |
Federal statutory rate | Federal statutory rate | | 21.0 | % | | 21.0 | % | Federal statutory rate | | 21.0 | % | | 21.0 | % |
State tax (net of federal tax effect) | State tax (net of federal tax effect) | | 6.2 | | | 6.2 | | State tax (net of federal tax effect) | | 6.2 | | | 6.2 | |
Increases (decreases) in tax from: | | |
Decreases: | | Decreases: | |
Plant regulatory differences (a) | Plant regulatory differences (a) | | (4.0) | | | (5.4) | | Plant regulatory differences (a) | | (3.5) | | | (4.0) | |
Tax credits | | (0.8) | | | (1.3) | | |
| Other (net) | Other (net) | | 0.1 | | | 0.2 | | Other (net) | | (0.9) | | | (0.7) | |
Effective income tax rate | Effective income tax rate | | 22.5 | % | | 20.7 | % | Effective income tax rate | | 22.8 | % | | 22.5 | % |
(a)RegulatoryPlant 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 taxes are offset by corresponding revenue reductions.
| | |
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.value.
•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 quotedobservable actual trading prices.
•Level 2 — Pricing inputs are other than quotedactual trading 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 areinclude 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 derivativesCommodity Derivatives — The fair values of interest rate derivatives are based on broker quotes that utilize current market interest rate forecasts.
Commodity derivatives—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 settlementscontracts 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 inputs on a valuation is evaluated, and may result in Level 3 classification.
Derivative InstrumentsActivities and 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 June 30, 2022 and Dec. 31, 2021, NSP-Wisconsin had no unsettled interest rate derivatives.
Commodity Derivatives — NSP-Wisconsin may enterenters 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.operations. This could include the purchase or sale of natural gas to generate electric energy and natural gas for resale. At
As of June 30, 2022 and Dec. 31, 2021,2023, NSP-Wisconsin had no gross notional amounts of commodity options.contracts designated as cash flow hedges.
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.
Recurring Derivative Fair Value Measurements
Impact of Derivative Activities on Income — derivative activity:
Changes in the fair value of natural gas commodity derivatives resulted in immaterial net losses and immaterial gains for the three and six months ended June 30, 2022, respectively. Changes in the fair value of natural gas commodity derivatives resulted in no gains or losses2023 and $1 million in losses for the three and six months ended June 30, 2021, respectively,2022, 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 June 30, 2022 and 2021, there were no settlement gains or losses on natural gas commodity derivatives. During the six months ended June 30, 2022 and 2021, there were $1 million of settlement losses, respectively, which were 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 no derivative instruments designated as fair value hedges during the three and six months ended June 30, 2023 and 2022, there were immaterial natural gas commodity derivatives settlement losses and 2021.
gains.
Table of ContentsDuring the three and six months ended June 30, 2023 and 2022, immaterial pre-tax losses were recognized during the period in income related to option premium amortization.
Recurring Fair Value Measurements— DerivativeNSP-Wisconsin had immaterial outstanding derivative assets andor liabilities measured at fair value on a recurring basis were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| | Fair Value | | Fair Value Total | | Netting (a) | | Total (b) |
(Millions of Dollars) | | Level 1 | | Level 2 | | Level 3 | | | |
Current derivative assets | | | | | | | | | | | | |
Natural gas commodity | | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| | Fair Value | | Fair Value Total | | Netting (a) | | Total (c) |
(Millions of Dollars) | | Level 1 | | Level 2 | | Level 3 | | | |
Current derivative liabilities | | | | | | | | | | | | |
Natural gas commodity | | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Dec. 31, 2021 |
| | Fair Value | | Fair Value Total | | Netting (a) | | Total (b) |
(Millions of Dollars) | | Level 1 | | Level 2 | | Level 3 | | | |
Current derivative assets | | | | | | | | | | | | |
Natural gas commodity | | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Dec. 31, 2021 |
| | Fair Value | | Fair Value Total | | Netting (a) | | Total (c) |
(Millions of Dollars) | | Level 1 | | Level 2 | | Level 3 | | | |
Current derivative liabilities | | | | | | | | | | | | |
Natural gas commodity | | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | |
(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 atof June 30, 20222023 and Dec. 31, 2021. The counterparty netting amounts presented exclude settlement receivables and payables and non-derivative amounts that may be subject to the same master netting agreements.2022.
(b) Included in prepayments and other current assets at June 30, 2022 and Dec. 31, 2021 on the consolidated balance sheets.(c) Included in other current liabilities at June 30, 2022 and Dec. 31, 2021 on the consolidated balance sheets.
Fair Value of Long-Term Debt
OtherAs of June 30, 2023, other financial instruments for which the carrying amount did not equal fair value:
| | | June 30, 2022 | | Dec. 31, 2021 | | June 30, 2023 | | Dec. 31, 2022 |
(Millions of Dollars) | (Millions of Dollars) | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | (Millions of Dollars) | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Long-term debt, including current portion | Long-term debt, including current portion | | $ | 987 | | | $ | 949 | | | $ | 987 | | | $ | 1,143 | | Long-term debt, including current portion | | $ | 1,211 | | | $ | 1,107 | | | $ | 1,086 | | | $ | 980 | |
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 June 30, 20222023 and Dec. 31, 20212022, and given the observability of the inputs, fair values presented for long-term debt were assigned as Level 2.
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8. Benefit Plans and Other Postretirement Benefits |
Components of Net Periodic Benefit Cost
| | | Three Months Ended June 30 | | Three Months Ended June 30 |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
(Millions of Dollars) | (Millions of Dollars) | | Pension Benefits | | (Millions of Dollars) | | Pension Benefits | |
Service cost | Service cost | | $ | 1 | | | $ | 1 | | | Service cost | | $ | 1 | | | $ | 1 | | |
Interest cost (a) | Interest cost (a) | | 1 | | | 1 | | | Interest cost (a) | | 2 | | | 1 | | |
Expected return on plan assets (a) | Expected return on plan assets (a) | | (2) | | | (2) | | | Expected return on plan assets (a) | | (2) | | | (2) | | |
| Amortization of net loss (a) | Amortization of net loss (a) | | 1 | | | 1 | | | Amortization of net loss (a) | | — | | | 1 | | |
| Net periodic benefit cost | | $ | 1 | | | $ | 1 | | | |
| Net benefit cost recognized for financial reporting | | Net benefit cost recognized for financial reporting | | $ | 1 | | | $ | 1 | | |
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| | Six Months Ended June 30 |
| | 2022 | | 2021 | | | | |
(Millions of Dollars) | | Pension Benefits | | |
Service cost | | $ | 2 | | | $ | 3 | | | | | |
Interest cost (a) | | 2 | | | 2 | | | | | |
Expected return on plan assets (a) | | (4) | | | (4) | | | | | |
| | | | | | | | |
Amortization of net loss (a) | | 2 | | | 2 | | | | | |
| | | | | | | | |
Net periodic benefit cost | | $ | 2 | | | $ | 3 | | | | | |
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| | Six Months Ended June 30 |
| | 2023 | | 2022 | | | | |
(Millions of Dollars) | | Pension Benefits | | |
Service cost | | $ | 2 | | | $ | 2 | | | | | |
Interest cost (a) | | 3 | | | 2 | | | | | |
Expected return on plan assets (a) | | (4) | | | (4) | | | | | |
| | | | | | | | |
Amortization of net loss (a) | | 1 | | | 2 | | | | | |
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Net benefit cost recognized for financial reporting | | $ | 2 | | | $ | 2 | | | | | |
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(a)The components of net periodic cost other than the service cost component are included in the line item “Other expense,income, net” in the consolidated statements of income or capitalized on the consolidated balance sheets as a regulatory asset.
In January 2022,2023, contributions oftotaling $50 million were made across 4 of Xcel Energy’s pension plans, of which $1$4 million was attributable to NSP-Wisconsin. Xcel Energy does not expect additional pension contributions during 2022.2023.
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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, 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 consolidated financial statements. Legal fees are generally 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.
NaNOne case remains active which includes a multi-district litigation matter consisting of a Wisconsin purported class (Arandell Corp.). The Court issued a ruling onin June 30, 2022 granting plaintiffs’ class certification. Defendants will work together to prepare and file a petition appealing the class certification ruling toIn April 2023, the Seventh Circuit.Circuit Court of Appeals heard the defendants’ appeal challenging whether the district court properly assessed class certification. A decision relating to class certification is expected later this year. Xcel Energy has concluded that aconsiders the reasonably possible loss is remote for the remaining lawsuit.associated with this litigation to be immaterial.
Rate Matters
NSP-Wisconsin is involved in various regulatory proceedings arising in the ordinary course of business. Until resolution, typically in the form of a rate order, uncertainties may exist regarding the ultimate rate treatment for certain activities and transactions. Amounts have been recognized for probable and reasonably estimable losses that may result. Unless otherwise disclosed, any reasonably possible range of loss in excess of any recognized amount is not expected to have a material effect on the financial statements.
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 Regional Transmission OrganizationRTO membership). The second complaint requested, for a subsequent time period, a base ROE reduction from 12.38% to 8.67%.
The FERC has subsequently issued various related orders (including Opinion Nos. 569, 569A and 569B) related to ROE methodology/calculations and timing. NSP-Minnesota has recognized a liability for its best estimate of finalprocessed refunds to customers for applicable complaint periods based on the ROE in the most recent applicable opinions on behalf of the NSP System.
The MISO TOs and various other parties have filed petitions for review of the FERC’s most recent applicable opinions at the D.C. Circuit. A decisionIn August 2022, the D.C. Circuit ruled that FERC had not adequately supported its conclusions, vacated FERC’s related orders, and remanded the issue back to FERC for further proceedings, which remain pending. Additional exposure, if any, related to this matter is expected by the end of the third quarter of 2022.to be immaterial.
Environmental
MGP, Landfill and Disposal Sites
NSP-Wisconsin is investigating, remediating or performing post-closure actions at 4one MGP, landfill or other disposal sites across its service territories.
NSP-Wisconsin has recognized its best estimate of costs/liabilities from final resolution of these issues, however, the outcome and timing isare unknown. In addition, there may be insurance recovery and/or recovery from other potentially responsible parties, offsetting a portion of costs incurred.
Environmental Requirements — Water and Waste
Federal Clean Water Act Section 316(b) — The federalFederal Clean Water Act requires the EPA to regulate cooling water intake structures to assure that these structuresthey reflect the best technology available for minimizing impingement and entrainment of aquatic species. NSP-Wisconsin estimates capital expenditures of approximately $4$5 million may be required to comply with impingement and entrainmentthe requirements. NSP-Wisconsin believes 2two plants could be required to make improvements to reduce impingement and entrainment. NSP-Wisconsin anticipates these costs will be recoverable through regulatory mechanisms.
Environmental Requirements — Air
Clean Air Act NOx Allowance Allocations —In June 2023, after disapproving state implementation plans, the EPA published final regulations under the "Good Neighbor" provisions of the Clean Air Act. The final rule applies to generation facilities in Wisconsin, as well as other states outside of our service territory. The rule establishes an allowance trading program for NOx that will impact NSP-Wisconsin’s fossil fuel-fired electric generating facilities. Applicable facilities will have to secure additional allowances, install NOx controls and/or develop a strategy of operations that utilizes the existing allowance allocations. Guidelines are also established for allowance banking and emission limit backstops.
While the financial impacts of the final rule are uncertain and dependent on market forces and anticipated generation, NSP-Wisconsin anticipates the costs would be recoverable through regulatory mechanisms.
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 that would be 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 June 30 | | Three Months Ended June 30 |
(Millions of Dollars) | (Millions of Dollars) | | 2022 | | 2021 | (Millions of Dollars) | | 2023 | | 2022 |
Regulated Electric | Regulated Electric | | | | | Regulated Electric | | | | |
| Total revenues (a) | Total revenues (a) | | $ | 243 | | | $ | 224 | | Total revenues (a) | | $ | 236 | | | $ | 243 | |
Net income | Net income | | 15 | | | 16 | | Net income | | 30 | | | 15 | |
Regulated Natural Gas | Regulated Natural Gas | | Regulated Natural Gas | |
| Total revenues | Total revenues | | $ | 35 | | | $ | 31 | | Total revenues | | $ | 24 | | | $ | 35 | |
Net income | | (1) | | | (2) | | |
Net loss | | Net loss | | (3) | | | (1) | |
All Other | All Other | | All Other | |
| Net income | | $ | 1 | | | $ | — | | |
Net (loss) income | | Net (loss) income | | $ | (1) | | | $ | 1 | |
Consolidated Total | Consolidated Total | | Consolidated Total | |
Total revenues (a) | | $ | 278 | | | $ | 255 | | |
| Total operating revenues | | Total operating revenues | | $ | 260 | | | $ | 278 | |
Net income | Net income | | 15 | | | 14 | | Net income | | 26 | | | 15 | |
(a)Total revenues include $52$51 million and $46$52 million of affiliate electric revenue for the three months ended June 30, 20222023 and 2021,2022, respectively.
| | | Six Months Ended June 30 | | Six Months Ended June 30 |
(Millions of Dollars) | (Millions of Dollars) | | 2022 | | 2021 | (Millions of Dollars) | | 2023 | | 2022 |
Regulated Electric | Regulated Electric | | | | | Regulated Electric | | | | |
| Total revenues (a) | Total revenues (a) | | $ | 493 | | | $ | 448 | | Total revenues (a) | | $ | 490 | | | $ | 493 | |
Net income | Net income | | 47 | | | 40 | | Net income | | 63 | | | 47 | |
Regulated Natural Gas | Regulated Natural Gas | | Regulated Natural Gas | |
Operating revenues | | Operating revenues | | $ | 101 | | | $ | 113 | |
Intersegment revenue | | Intersegment revenue | | 1 | | | — | |
Total revenues | Total revenues | | $ | 113 | | | $ | 88 | | Total revenues | | $ | 102 | | | $ | 113 | |
| Net income | Net income | | 14 | | | 6 | | Net income | | 8 | | | 14 | |
All Other | All Other | | All Other | |
| Net income | Net income | | $ | 1 | | | $ | — | | Net income | | $ | — | | | $ | 1 | |
Consolidated Total | Consolidated Total | | Consolidated Total | |
Total revenues (a) | | $ | 606 | | | $ | 536 | | |
Operating revenues (a) | | Operating revenues (a) | | $ | 592 | | | $ | 606 | |
Reconciling eliminations | | Reconciling eliminations | | (1) | | | — | |
Total operating revenues | | Total operating revenues | | $ | 591 | | | $ | 606 | |
Net income | | Net income | | 71 | | | 62 | |
| Net income | | 62 | | | 46 | | |
(a)Total revenues include $99$101 million and $92$99 million of affiliate electric revenue for the six months ended June 30, 20222023 and 2021,2022, respectively.
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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 Instruction 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 ongoing earnings. Generally, a non-GAAP financial measure is a measure of a company’s financial performance, financial position or cash flows that adjusts 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 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.
Earnings Adjusted for Certain Items (Ongoing Earnings)
Ongoing earnings reflect adjustments to GAAP earnings (net income) for certain itemsitems.
We use this non-GAAP financial measure to evaluate and provide details of NSP-Wisconsin’s core earnings and underlying performance. We believe this measurement is useful to investors to evaluate the actual and projected financial performance and contribution of NSP-Wisconsin. For the three and six months ended June 30, 20222023 and 2021,2022, there were no such adjustments to GAAP earnings and therefore GAAP earnings equal ongoing earnings.
NSP-Wisconsin's net income was $62$71 million for the six months ended June 30, 2022,2023, compared to $46$62 million for the prior year. The increase reflects the impact of regulatory rate outcomes, sales growthAdditional electric and favorable weather,natural gas infrastructure investment recoveries were partially offset by unfavorable weather, higher depreciation and O&M expenses.
Electric 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.
Electric revenues and fuel and purchased power expenses are impacted by fluctuations in the price of natural gas, coal and uranium. However, these price fluctuations generally have minimal impact on earnings impact due to fuel recovery mechanisms. In addition, electric customers receive a credit for production tax credits generated, which reduce electric revenue and income taxes.
Electric revenues, fuel and purchased power and electric margin and explanation of the changes are listed as follows:margin:
| | | Six Months Ended June 30 | | Six Months Ended June 30 |
(Millions of Dollars) | (Millions of Dollars) | | 2022 | | 2021 | (Millions of Dollars) | | 2023 | | 2022 |
Electric revenues | Electric revenues | | $ | 493 | | | $ | 448 | | Electric revenues | | $ | 490 | | | $ | 493 | |
Electric fuel and purchased power | Electric fuel and purchased power | | (236) | | | (216) | | Electric fuel and purchased power | | (203) | | | (236) | |
Electric margin | Electric margin | | $ | 257 | | | $ | 232 | | Electric margin | | $ | 287 | | | $ | 257 | |
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(Millions of Dollars) | | Six Months Ended June 30, 20222023 vs. 20212022 |
Regulatory rate outcomes | | $ | 1716 | |
Sales and demandInterchange agreement billings with NSP-Minnesota(a)
| | 715 | |
| | |
Estimated impact of weather | | (4) | |
Other (net) | | 13 | |
Total increase | | $ | 2530 | |
Natural Gas Margin
Natural gas margin is presented as natural gas revenues less the cost of natural gas sold and transported. Expenses incurred for the cost of natural gas sold are generally recovered through various regulatory recovery mechanisms. As a result, changes in these expenses are generally offset in operating revenues.
Natural gas expense varies with changing sales and the cost of natural gas. However, fluctuations in the cost of natural gas generally have minimal earnings impact due to cost recovery mechanisms.
Natural gas revenues, cost of natural gas sold and transported and natural gas margin and explanation of the changes are listed as follows:margin:
| | | Six Months Ended June 30 | | Six Months Ended June 30 |
(Millions of Dollars) | (Millions of Dollars) | | 2022 | | 2021 | (Millions of Dollars) | | 2023 | | 2022 |
Natural gas revenues | Natural gas revenues | | $ | 113 | | | $ | 88 | | Natural gas revenues | | $ | 101 | | | $ | 113 | |
Cost of natural gas sold and transported | Cost of natural gas sold and transported | | (65) | | | (51) | | Cost of natural gas sold and transported | | (55) | | | (65) | |
Natural gas margin | Natural gas margin | | $ | 48 | | | $ | 37 | | Natural gas margin | | $ | 46 | | | $ | 48 | |
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(Millions of Dollars) | | Six Months Ended June 30, 20222023 vs. 20212022 |
Regulatory rate outcomes (Wisconsin) | | $ | 72 | |
Estimated impact of weather | | 4 (4) | |
Natural gas sales and transport (excluding weather impact) | | 1 | |
Other (net) | | (1) | |
Total increasedecrease | | $ | 11 (2) | |
Non-Fuel Operating Expenses and Other Items
O&M Expenses — O&M costs increased $8 million year-to-date,year to date. Increase was primarily due to higher costscost for storms and vegetation management, additional investments in technologyinflationary pressures including labor increases and customer programs and interchange expenses, partially offset by a reduction in benefit costs.supply chain challenges.
Depreciation and Amortization — Depreciation and amortization increased $5 million year-to-date,year to date, primarily due to normal system expansion.
Income Taxes —Income tax expense increased $6 million for the first six months of 2022. The increase was primarily driven by higher pretax earnings in 2022.
See Note 6 to the consolidated financial statements for further information.
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Public Utility Regulation and Other |
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.
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.
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, 20212022 appropriately represent, in all material respects, the current status of public utility regulation and are incorporated herein by reference. Pending Regulatory ProceedingProceedings
Michigan Natural GasWisconsin Rate Case — — In July 2022,April 2023, NSP-Wisconsin filed a Wisconsin rate case seeking an application with the Public Service Commissionelectric increase of Michigan seeking$40 million (rate increase of 4.8%) and a revenue increase in base natural gas ratesincrease of $1$9 million for(rate increase of 5.3%). The rate request is based on a ROE of 10.25%, a 52.5% equity ratio and 2024 forward-looking test year. A final decision by the periodPSCW is expected in late fourth quarter of 2023-2025.2023.
Other
Supply Chain
Xcel Energy’sNSP-Wisconsin’s ability to meet customer energy requirements, respond to storm-related disruptions and execute our capital expenditure program are dependent on maintaining an efficient supply chain. Manufacturing processes have experienced disruptions related to scarcity of certain raw materials and interruptions in production and shipping. These disruptions have been further exacerbated by inflationary pressures, labor shortages and the impact of international conflicts/issues. Xcel EnergyNSP-Wisconsin continues to monitor the situation as it remains fluid and seeks to mitigate the impacts by securing alternative suppliers, modifying design standards, and adjusting the timing of work.
Electric Meters and Transformers
Supply chain issues associated with semi-conductors have delayed the availability of materials and has sought to mitigate impacts by seeking alternative suppliers as necessary.
Solar Resources
In April 2022, the U.S. Department of Commerce initiated an anti-circumvention investigation that would subject CSPV solar panels and cells imported from Malaysia, Vietnam, Thailand, and Cambodia with potential incremental tariffs ranging from 50% to 250%. These countries account for more than 80% of CSPV panel imports.
The uncertainty of the investigation and the adverse impact on potential tariffs has resulted in the cancellation or delay of certain domestic solar projects.
In June 2021, the PSCW approved NSP-Wisconsin’s Western Mustang solar project, a 74 megawatt facility that would be built by a developer for approximately $100 million. The project was originally scheduled to go into service in 2022.advanced infrastructure meters. As a result of delays, NSP-Wisconsin projects impacts to deployment schedules into 2025.
Additionally, the disruptionavailability of the solar supply chain, the developercertain transformers is an industry-wide issue that has indicated difficulty delivering the project at the contract pricesignificantly impacted and scheduled in-service date. Negotiations on a potential solution are on-going.
MISO Capacity Credits
The NSP System offered 1,500 MW of excess capacity into the MISO planning resource auction for June 2022 through May 2023. Duein some cases may result in delays in projects and new customer connections. Proposed governmental actions related to a projected overall capacity shortfalltransformer efficiency standards may compound these delays in the MISO region, the 1,500 MWs offered cleared the auction at maximum pricingfuture. NSP-Wisconsin continues to seek alternative suppliers and is expectedprioritize work plans to generate revenues to the NSP Systemmitigate impacts of approximately $89 million in 2022 and approximately $64 million in 2023. During the second quartersupply constraints.
NSP-Wisconsin's share of the 2022 capacity revenues is expected to be approximately $14 million. These revenues will offset fuel costs through existing fuel recovery mechanisms.
Affordable Clean EnergyAir Act
Power Plant Greenhouse Gas Regulations—In July 2019,May 2023, the EPA adoptedpublished proposed rules addressing control of CO2 emissions from the ACEpower sector. The rule which requires states to develop plans by 2022proposed regulations for greenhousenew natural 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 ACE rule. That decision essentially held that EPA’s previous economy-wide regulatory approach taken in the 2015 CPP was consistent with thegenerating units under Clean Air Act. If upheld, that decision would have allowed the EPA to proceed with alternate regulationAct Section 111(b) and emission guidelines for existing coal and certain natural gas generation under Clean Air Action Section 111(d). The proposed rules create subcategories of coal-fired power plants consistent with the CPP approach. However, the Courtcoal units based on planned retirement date and subcategories of Appeals decision was appealed to the U.S Supreme Court. In a June 30, 2022, ruling, the Supreme Court held that a CPP economy-wide approachnatural gas combustion turbines and combined cycle units based on utilization. The CO2 control requirements vary by subcategory. Until final rules are issued, it is not consistent withcertain what the Clean Air Act. Thus, if EPA is to proceed with new rules, they mustimpact will be consistent with this ruling and be more similar to the ACE rule “inside the fenceline” approach. If any new rules require additional investment,on NSP-Wisconsin. NSP-Wisconsin believes that the cost of these initiatives or replacement generation would be recoverable through rates based on prior state commission practices.
Emerging Contaminants of Concern
PFAS are man-made chemicals that are widely used in consumer products and can persist and bio-accumulate in the environment. NSP-Wisconsin does not manufacture PFAS but because PFAS are so ubiquitous in products and the environment, it may impact our operations.
In September 2022, the EPA proposed to designate two types of PFAS as “hazardous substances” under the CERCLA.
In March 2023, the EPA published a proposed rule that would establish enforceable drinking water standards for certain PFAS chemicals.
NSP-Wisconsin provided comments related to both efforts described above through its regulatory coalitions. Final rules are expected in 2024. Costs are uncertain until a final rule is published.
The proposed rules could result in new obligations for investigation and cleanup. NSP-Wisconsin is monitoring changes to state laws addressing PFAS. The impact of these proposed regulations is uncertain.
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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 June 30, 2022,2023, 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
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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 consolidated financial statements. Legal fees are generally expensed as incurred.
See Note 9 to the consolidated financial statements and Part I Item 2 for further information.
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, 2021,2022, which is incorporated herein by reference. There have been no material changes from the risk factors previously disclosed in the Form 10-K. | | |
ITEM 5 — OTHER INFORMATION |
None of the Company’s directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended June 30, 2023.
* Indicates incorporation by reference
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Exhibit Number | Description | Report or Registration Statement | Exhibit Reference |
| | NSP-Wisconsin Form S-4 dated Jan. 21, 2004 | 3.01 |
| | NSP-Wisconsin Form 10-K for the year ended Dec. 31, 2018 | 3.02 |
| | NSP-Wisconsin Form 8-K dated May 10, 2023 | 4.01 |
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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) |
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.
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| | Northern States Power Company (a Wisconsin corporation) |
| | |
7/28/202227/2023 | By: | /s/ BRIAN J. VAN ABEL |
| | Brian J. Van Abel |
| | Executive Vice President, Chief Financial Officer |
| | (Duly AuthorizedPrincipal Accounting Officer and Principal Financial Officer) |