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 June 30, ~~2021~~2022


☐			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: 001-03789


Southwestern Public Service Company
(Exact ~~name~~Name of ~~registrant~~Registrant as ~~specified~~Specified in its ~~charter)~~Charter)

New Mexico

75-0575400

(State or ~~other jurisdiction~~Other Jurisdiction of ~~incorporation~~Incorporation or ~~organization)~~Organization)

(I.R.S. Employer Identification No.)

790 South Buchanan Street

Amarillo

Texas

79101

(Address of ~~principal executive offices)~~Principal Executive Offices)

(Zip Code)


(303)			571-7511
(Registrant’s telephone number, including area code)


~~N/A~~
~~(Former name, former address and former fiscal year, if changed since last report)~~

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

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.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class						Outstanding at July ~~29, 2021~~28, 2022
Common Stock, $1.00 par value						100 shares

Southwestern Public Service 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 I	FINANCIAL INFORMATION
Item 1 —	Financial Statements (unaudited)	4
	Statements of Income	4
	Statements of Cash Flows	5
	Balance Sheets	6
	Statements of Common Stockholder’s Equity	7
	Notes to Financial Statements	8
Item 2 —	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1413
Item 4 —	Controls and Procedures	1615

PART II	OTHER INFORMATION
Item 1 —	Legal Proceedings	16
Item 1A —	Risk Factors	16
Item 6 —	Exhibits	1716

SIGNATURES		1817

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

Table of Contents

Definitions of Abbreviations


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

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

~~Electric, Purchased Gas and Resource Adjustment Clauses~~
~~DSM~~			~~Demand side management~~

Other
~~ASC~~ACE			~~FASB Accounting Standards Codification~~Affordable Clean Energy
~~C&I~~BART			~~Commercial and Industrial~~Best available retrofit technology
CEO			Chief executive officer
CFO			Chief financial officer
COVID-19			Novel coronavirus
CPP			Clean Power Plan
ETR			Effective tax rate
~~FASB~~			~~Financial Accounting Standards Board~~
FTR			Financial transmission right
GAAP			United States generally accepted accounting principles
IPP			Independent power producing entity
~~IRP~~			~~Integrated Resource Plan~~
LP&L			Lubbock Power and Light
~~LLC~~			~~Limited liability company~~
~~NOL~~			~~Net operating loss~~
~~NOPR~~			~~Notice of Proposed Rulemaking~~
~~O&M~~			~~Operating and maintenance~~
OATT			Open access transmission tariff
~~PFAS~~			~~Per- and PolyFluoroAlkyl Substances~~
PPA			Power purchase agreement
PTC			Production tax credit
ROE			Return on equity
RTO			Regional Transmission Organization
SPP			Southwest Power Pool, Inc.
~~VIE~~			~~Variable interest entity~~

Measurements
MW			Megawatts


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 ~~impacts~~impact on our results of operations, financial condition and cash flows orof resettlement calculations and credit losses relating to certain energy transactions, as well as assumptions and other statements are intended to be identified in this document by the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “objective,” “outlook,” “plan,” “project,” “possible,” “potential,” “should,” “will,” “would” and similar expressions. Actual results may vary materially. Forward-looking statements speak only as of the date they are made, and we expressly disclaim any obligation to update any forward-looking information. The following factors, in addition to those discussed ~~elsewhere~~ in ~~this Quarterly Report on Form 10-Q and in other filings with the SEC (including~~ SPS’ Annual Report on Form 10-K for the fiscal year ended Dec. 31, ~~2020,~~2021 and subsequent ~~filings),~~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;~~pandemic, including potential 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; 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, supply chain constraints, and their impact on capital expenditures ~~and~~and/or the ability of SPS to obtain financing on favorable terms; availability or cost of capital; our customers’ and counterparties’ ability to pay their debts to us; assumptions and costs relating to funding our employee benefit plans and health care benefits; tax laws; effects of geopolitical events, including war and acts of terrorism; cyber security threats and data security breaches; seasonal weather patterns; changes in environmental laws and regulations; climate change and other weather; natural disaster and resource depletion, including compliance with any accompanying legislative and regulatory ~~changes;~~changes and costs of potential regulatory ~~penalties.~~penalties; and regulatory changes and/or limitations related to the use of natural gas as an energy source.

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

SOUTHWESTERN PUBLIC SERVICE COMPANY

STATEMENTS OF INCOME (UNAUDITED)

(amounts in millions)


		Three Months Ended June 30				Six Months Ended June 30					Three Months Ended June 30				Six Months Ended June 30
		2021		2020		2021		2020			2022		2021		2022		2021
Operating revenues	Operating revenues	$	498	$	423	$	1,432	$	818	Operating revenues	$	658	$	498	$	1,135	$	1,432

Operating expenses	Operating expenses									Operating expenses
Electric fuel and purchased power	Electric fuel and purchased power	252		199		945		386		Electric fuel and purchased power	282		252		519		945
Operating and maintenance expenses	Operating and maintenance expenses	71		58		142		128		Operating and maintenance expenses	87		71		159		142
Demand side management expenses	Demand side management expenses	4		4		8		8		Demand side management expenses	6		4		11		8
Depreciation and amortization	Depreciation and amortization	78		64		156		123		Depreciation and amortization	132		78		210		156
Taxes (other than income taxes)	Taxes (other than income taxes)	18		18		39		40		Taxes (other than income taxes)	33		18		58		39
Total operating expenses	Total operating expenses	423		343		1,290		685		Total operating expenses	540		423		957		1,290

Operating income	Operating income	75		80		142		133		Operating income	118		75		178		142

Other income (expense), net		0		0		1		(2)
Other income, net										Other income, net	1		—		1		1

Allowance for funds used during construction — equity	Allowance for funds used during construction — equity	1		8		2		14		Allowance for funds used during construction — equity	1		1		1		2

Interest charges and financing costs	Interest charges and financing costs									Interest charges and financing costs
Interest charges — includes other financing costs of $1 , $1, $2 and $2, respectively		29		25		59		50
Interest charges — includes other financing costs of $1, $1, $2 and $2, respectively										Interest charges — includes other financing costs of $1, $1, $2 and $2, respectively	46		29		75		59
Allowance for funds used during construction — debt	Allowance for funds used during construction — debt	(1)		(3)		(1)		(6)		Allowance for funds used during construction — debt	(1)		(1)		(1)		(1)
Total interest charges and financing costs	Total interest charges and financing costs	28		22		58		44		Total interest charges and financing costs	45		28		74		58

Income before income taxes	Income before income taxes	48		66		87		101		Income before income taxes	75		48		106		87
Income tax benefit	Income tax benefit	(20)		(6)		(39)		(13)		Income tax benefit	(18)		(20)		(39)		(39)
Net income	Net income	$	68	$	72	$	126	$	114	Net income	$	93	$	68	$	145	$	126

See Notes to Financial Statements	See Notes to Financial Statements									See Notes to Financial Statements

Table of Contents

SOUTHWESTERN PUBLIC SERVICE COMPANY

STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in millions)


		Six Months Ended June 30					Six Months Ended June 30
		2021		2020			2022		2021
Operating activities	Operating activities					Operating activities
Net income	Net income	$	126	$	114	Net income	$	145	$	126
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	158		124		Depreciation and amortization	211		158
Deferred income taxes	Deferred income taxes	(39)		11		Deferred income taxes	(19)		(39)
Allowance for equity funds used during construction	Allowance for equity funds used during construction	(2)		(14)		Allowance for equity funds used during construction	(1)		(2)
Provision for bad debts	Provision for bad debts	3		3		Provision for bad debts	4		3
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(28)		(6)		Accounts receivable	(56)		(28)
Accrued unbilled revenues	Accrued unbilled revenues	(20)		(4)		Accrued unbilled revenues	(27)		(20)
Inventories	Inventories	(16)		(16)		Inventories	(15)		(16)
Prepayments and other	Prepayments and other	21		(4)		Prepayments and other	11		21
Accounts payable	Accounts payable	6		4		Accounts payable	35		6
Net regulatory assets and liabilities	Net regulatory assets and liabilities	(96)		(32)		Net regulatory assets and liabilities	(30)		(96)
Other current liabilities	Other current liabilities	1		(8)		Other current liabilities	8		1
Pension and other employee benefit obligations	Pension and other employee benefit obligations	(16)		(15)		Pension and other employee benefit obligations	1		(16)
Other, net	Other, net	(2)		3		Other, net	(2)		(2)
Net cash provided by operating activities	Net cash provided by operating activities	96		160		Net cash provided by operating activities	265		96

Investing activities	Investing activities					Investing activities
Utility capital/construction expenditures	Utility capital/construction expenditures	(334)		(520)		Utility capital/construction expenditures	(260)		(334)
Investments in utility money pool arrangement	Investments in utility money pool arrangement	(83)		(4)		Investments in utility money pool arrangement	—		(83)
Repayments from utility money pool arrangement	Repayments from utility money pool arrangement	83		4		Repayments from utility money pool arrangement	—		83
Net cash used in investing activities	Net cash used in investing activities	(334)		(520)		Net cash used in investing activities	(260)		(334)

Financing activities	Financing activities					Financing activities
Repayments of short-term borrowings, net	Repayments of short-term borrowings, net	(250)		0		Repayments of short-term borrowings, net	(137)		(250)
Proceeds from issuance of long-term debt, net	Proceeds from issuance of long-term debt, net	247		343		Proceeds from issuance of long-term debt, net	196		247
Borrowings under utility money pool arrangement	Borrowings under utility money pool arrangement	324		711		Borrowings under utility money pool arrangement	258		324
Repayments under utility money pool arrangement	Repayments under utility money pool arrangement	(261)		(711)		Repayments under utility money pool arrangement	(349)		(261)
Capital contributions from parent	Capital contributions from parent	304		436		Capital contributions from parent	209		304
Dividends paid to parent	Dividends paid to parent	(130)		(129)		Dividends paid to parent	(110)		(130)

Net cash provided by financing activities	Net cash provided by financing activities	234		650		Net cash provided by financing activities	67		234

Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	(4)		290		Net change in cash, cash equivalents and restricted cash	72		(4)
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	6		16		Cash, cash equivalents and restricted cash at beginning of period	1		6
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	2	$	306	Cash, cash equivalents and restricted cash at end of period	$	73	$	2

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)	$	(54)	$	(40)	Cash paid for interest (net of amounts capitalized)	$	(71)	$	(54)
Cash received for income taxes, net	Cash received for income taxes, net	17		5		Cash received for income taxes, net	26		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	$	39	$	108	Accrued property, plant and equipment additions	$	36	$	39
Inventory transfers to property, plant and equipment	Inventory transfers to property, plant and equipment	6		14		Inventory transfers to property, plant and equipment	7		6

Allowance for equity funds used during construction	Allowance for equity funds used during construction	2		14		Allowance for equity funds used during construction	1		2

See Notes to Financial Statements

Table of Contents

SOUTHWESTERN PUBLIC SERVICE COMPANY

BALANCE SHEETS (UNAUDITED)

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


		June 30, 2021		Dec. 31, 2020			June 30, 2022		Dec. 31, 2021
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	2	$	6	Cash and cash equivalents	$	73	$	1
Accounts receivable, net	Accounts receivable, net	116		94		Accounts receivable, net	164		115
Accounts receivable from affiliates	Accounts receivable from affiliates	11		9		Accounts receivable from affiliates	12		9
Accrued unbilled revenues	Accrued unbilled revenues	135		114		Accrued unbilled revenues	152		125
Inventories	Inventories	46		36		Inventories	60		51
Regulatory assets	Regulatory assets	166		76		Regulatory assets	185		193
Derivative instruments	Derivative instruments	44		10		Derivative instruments	287		30
Prepaid taxes	Prepaid taxes	7		18		Prepaid taxes	3		3
Prepayments and other	Prepayments and other	10		20		Prepayments and other	61		21
Total current assets	Total current assets	537		383		Total current assets	997		548

Property, plant and equipment, net	Property, plant and equipment, net	7,756		7,603		Property, plant and equipment, net	7,938		7,838

Other assets	Other assets					Other assets
Regulatory assets	Regulatory assets	369		357		Regulatory assets	392		380
Derivative instruments	Derivative instruments	8		9		Derivative instruments	5		6
Operating lease right-of-use assets	Operating lease right-of-use assets	478		492		Operating lease right-of-use assets	449		463
Other	Other	16		15		Other	30		27
Total other assets	Total other assets	871		873		Total other assets	876		876
Total assets	Total assets	$	9,164	$	8,859	Total assets	$	9,811	$	9,262

Liabilities and Equity	Liabilities and Equity					Liabilities and Equity
Current liabilities	Current liabilities					Current liabilities
Short-term debt	Short-term debt	$	0	$	250	Short-term debt	$	—	$	137
Borrowings under utility money pool arrangement	Borrowings under utility money pool arrangement	63		0		Borrowings under utility money pool arrangement	—		91
Accounts payable	Accounts payable	176		198		Accounts payable	205		172
Accounts payable to affiliates	Accounts payable to affiliates	16		17		Accounts payable to affiliates	19		16
Regulatory liabilities	Regulatory liabilities	85		57		Regulatory liabilities	312		54
Taxes accrued	Taxes accrued	50		54		Taxes accrued	48		47
Accrued interest	Accrued interest	31		29		Accrued interest	31		30
Dividends payable to parent	Dividends payable to parent	55		54		Dividends payable to parent	59		58
Derivative instruments	Derivative instruments	4		4		Derivative instruments	4		4
Operating lease liabilities	Operating lease liabilities	29		28		Operating lease liabilities	30		30
Other	Other	25		25		Other	82		24
Total current liabilities	Total current liabilities	534		716		Total current liabilities	790		663

Deferred credits and other liabilities	Deferred credits and other liabilities					Deferred credits and other liabilities
Deferred income taxes	Deferred income taxes	697		725		Deferred income taxes	691		702
Regulatory liabilities	Regulatory liabilities	718		718		Regulatory liabilities	716		709
Asset retirement obligations	Asset retirement obligations	114		112		Asset retirement obligations	119		116
Derivative instruments	Derivative instruments	7		9		Derivative instruments	4		6
Pension and employee benefit obligations	Pension and employee benefit obligations	27		42		Pension and employee benefit obligations	7		8
Operating lease liabilities	Operating lease liabilities	449		463		Operating lease liabilities	419		434
Other	Other	9		12		Other	8		8
Total deferred credits and other liabilities	Total deferred credits and other liabilities	2,021		2,081		Total deferred credits and other liabilities	1,964		1,983

Commitments and contingencies	Commitments and contingencies					Commitments and contingencies
Capitalization	Capitalization					Capitalization
Long-term debt	Long-term debt	3,012		2,764		Long-term debt	3,210		3,013
Common stock — 200 shares authorized of $1.00 par value; 100 shares outstanding at June 30, 2021 and Dec. 31, 2020, respectively		0		0
Common stock — 200 shares authorized of $1.00 par value; 100 shares outstanding at June 30, 2022 and Dec. 31, 2021, respectively						Common stock — 200 shares authorized of $1.00 par value; 100 shares outstanding at June 30, 2022 and Dec. 31, 2021, respectively	—		—
Additional paid in capital	Additional paid in capital	3,094		2,790		Additional paid in capital	3,301		3,091
Retained earnings	Retained earnings	504		509		Retained earnings	547		513
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(1)		(1)		Accumulated other comprehensive loss	(1)		(1)
Total common stockholder's equity	Total common stockholder's equity	3,597		3,298		Total common stockholder's equity	3,847		3,603
Total liabilities and equity	Total liabilities and equity	$	9,164	$	8,859	Total liabilities and equity	$	9,811	$	9,262

See Notes to Financial Statements

Table of Contents

SOUTHWESTERN PUBLIC SERVICE COMPANY

STATEMENTS OF COMMON STOCKHOLDER’S EQUITY (UNAUDITED)

(amounts in millions, except share data)


		Common Stock Issued					Retained Earnings		Accumulated Other Comprehensive Loss			Total Common Stockholder's Equity			Common Stock Issued						Retained Earnings		Accumulated Other Comprehensive Loss		Total Common Stockholder's Equity
		Shares	Par Value		Additional Paid In Capital						Shares					Par Value		Additional Paid In Capital
Three Months Ended June 30, 2021 and 2020
Balance at March 31, 2020		100	$	0	$	2,383	$	502	$	(1)		$	2,884
Net income							72					72

Dividends declared to parent							(55)					(55)
Contributions of capital by parent					404							404
Balance at June 30, 2020		100	$	0	$	2,787	$	519	$	(1)		$	3,305

Three Months Ended June 30, 2022 and 2021														Three Months Ended June 30, 2022 and 2021
Balance at March 31, 2021	Balance at March 31, 2021	100	$	0	$	3,094	$	515	$	(1)		$	3,608	Balance at March 31, 2021	100		$	—	$	3,094	$	515	$	(1)	$	3,608
Net income	Net income						68					68		Net income							68				68

Dividends declared to parent	Dividends declared to parent						(79)					(79)		Dividends declared to parent							(79)				(79)

Balance at June 30, 2021	Balance at June 30, 2021	100	$	0	$	3,094	$	504	$	(1)		$	3,597	Balance at June 30, 2021	100		$	—	$	3,094	$	504	$	(1)	$	3,597

		Common Stock Issued					Retained Earnings		Accumulated Other Comprehensive Loss			Total Common Stockholder's Equity
		Shares	Par Value		Additional Paid In Capital
Six Months Ended June 30, 2021 and 2020
Balance at Dec. 31, 2019		100	$	0	$	2,351	$	535	$	(1)		$	2,885
Balance at March 31, 2022														Balance at March 31, 2022	100		$	—	$	3,099	$	512	$	(1)	$	3,610
Net income	Net income						114					114		Net income							93				93

Dividends declared to parent	Dividends declared to parent						(130)					(130)		Dividends declared to parent							(58)				(58)
Contributions of capital by parent	Contributions of capital by parent				436							436		Contributions of capital by parent					202						202
Balance at June 30, 2020		100	$	0	$	2,787	$	519	$	(1)		$	3,305
Balance at June 30, 2022														Balance at June 30, 2022	100		$	—	$	3,301	$	547	$	(1)	$	3,847

															Common Stock Issued						Retained Earnings		Accumulated Other Comprehensive Loss		Total Common Stockholder's Equity
															Shares		Par Value		Additional Paid In Capital
Six Months Ended June 30, 2022 and 2021														Six Months Ended June 30, 2022 and 2021
Balance at Dec. 31, 2020	Balance at Dec. 31, 2020	100	$	0	$	2,790	$	509	$	(1)		$	3,298	Balance at Dec. 31, 2020	100		$	—	$	2,790	$	509	$	(1)	$	3,298
Net income	Net income						126					126		Net income							126				126

Dividends declared to parent	Dividends declared to parent						(131)					(131)		Dividends declared to parent							(131)				(131)
Contributions of capital by parent	Contributions of capital by parent				304							304		Contributions of capital by parent					304						304

Balance at June 30, 2021	Balance at June 30, 2021	100	$	0	$	3,094	$	504	$	(1)		$	3,597	Balance at June 30, 2021	100		$	—	$	3,094	$	504	$	(1)	$	3,597

Balance at Dec. 31, 2021														Balance at Dec. 31, 2021	100		$	—	$	3,091	$	513	$	(1)	$	3,603
Net income														Net income							145				145

Dividends declared to parent														Dividends declared to parent							(111)				(111)
Contributions of capital by parent														Contributions of capital by parent					210						210

Balance at June 30, 2022														Balance at June 30, 2022	100		$	—	$	3,301	$	547	$	(1)	$	3,847

See Notes to Financial Statements	See Notes to Financial Statements													See Notes to Financial Statements

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SOUTHWESTERN PUBLIC SERVICE COMPANY

Notes to Financial Statements (UNAUDITED)

In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly, in accordance with GAAP, the financial position of SPS as of June 30, ~~2021~~2022 and Dec. 31, ~~2020;~~2021; the results of ~~its~~SPS’ operations, including the components of net income and changes in stockholder’s equity for the three and six months ended June 30, ~~2021~~2022 and ~~2020;~~2021; and ~~its~~SPS’ cash flows for the six months ended June 30, ~~2021~~2022 and ~~2020.~~2021.

All adjustments are of a normal, recurring nature, except as otherwise disclosed. Management has also evaluated the impact of events occurring after June 30, ~~2021~~2022 up to the date of issuance of these financial statements. These statements contain all necessary adjustments and disclosures resulting from that evaluation. The Dec. 31, ~~2020~~2021 balance sheet information has been derived from the audited ~~2020~~2021 financial statements included in the SPS Annual Report on Form 10-K for the year ended Dec. 31, ~~2020.~~2021.

~~These notes~~Notes to the financial statements have been prepared pursuant to the rules and regulations of the SEC for Quarterly Reports on Form 10-Q. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP on an annual basis have been condensed or omitted pursuant to such rules and regulations. For further information, refer to the financial statements and notes thereto included in the SPS Annual Report on Form 10-K for the year ended Dec. 31, ~~2020,~~2021, filed with the SEC on Feb. ~~17, 2021.~~ 23, 2022.

Due to the seasonality of SPS’ electric sales, interim results are not necessarily an appropriate base from which to project annual results.


1. Summary of Significant Accounting Policies

The significant accounting policies set forth in Note 1 to the financial statements in the SPS Annual Report on Form 10-K for the year ended Dec. 31, ~~2020~~2021 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,~~As of June 30, 2022, there was no material impact from the ~~FASB issued~~ ~~Financial Instruments - Credit Losses, Topic 326 (ASC Topic 326),~~ which changes how entities account for losses on receivables and certain other assets. The guidance requires use of a current expected credit loss model, which may result in earlier recognition of credit losses than under previous accounting standards.

~~SPS implemented the guidance using a modified-retrospective approach, recognizing an immaterial cumulative effect charge (after tax) to retained earnings on Jan. 1, 2020. The Jan. 1, 2020~~recent adoption of ~~ASC Topic 326 did not have a significant~~new accounting pronouncements, nor expected material impact from recently issued accounting pronouncements yet to be adopted, on SPS’ financial statements.


3. Selected Balance Sheet Data


(Millions of Dollars)	(Millions of Dollars)	June 30, 2021		Dec. 31, 2020		(Millions of Dollars)	June 30, 2022		Dec. 31, 2021
Accounts receivable, net	Accounts receivable, net					Accounts receivable, net
Accounts receivable	Accounts receivable	$	126	$	102	Accounts receivable	$	176	$	127
Less allowance for bad debts	Less allowance for bad debts	(10)		(8)		Less allowance for bad debts	(12)		(12)
Accounts receivable, net	Accounts receivable, net	$	116	$	94	Accounts receivable, net	$	164	$	115


(Millions of Dollars)	June 30, 2022		Dec. 31, 2021
Inventories
Materials and supplies	$	35	$	29
Fuel	25		22
Total inventories	$	60	$	51

(Millions of Dollars) June 30, 2021 Dec. 31, 2020
Inventories
Materials and supplies $ 28 $ 27
Fuel 18 9
Total inventories $ 46 $ 36


(Millions of Dollars)	(Millions of Dollars)	June 30, 2021		Dec. 31, 2020		(Millions of Dollars)	June 30, 2022		Dec. 31, 2021
Property, plant and equipment, net	Property, plant and equipment, net					Property, plant and equipment, net
Electric plant	Electric plant	$	9,418	$	9,229	Electric plant	$	9,892	$	9,639
Plant to be retired (a)	Plant to be retired (a)	308		316		Plant to be retired (a)	275		299
CWIP	CWIP	231		146		CWIP	164		171
Total property, plant and equipment	Total property, plant and equipment	9,957		9,691		Total property, plant and equipment	10,331		10,109
Less accumulated depreciation	Less accumulated depreciation	(2,201)		(2,088)		Less accumulated depreciation	(2,393)		(2,271)
Property, plant and equipment, net	Property, plant and equipment, net	$	7,756	$	7,603	Property, plant and equipment, net	$	7,938	$	7,838

(a)~~Includes expected retirement of~~Amounts includes Tolk and conversion of Harrington to natural ~~gas.~~gas and are reported net of accumulated depreciation.


4. Borrowings and Other Financing Instruments

Short-Term Borrowings

SPS meets its short-term liquidity requirements primarily through the issuance of commercial paper and borrowings under its credit facility and the money pool.

Money Pool — Xcel Energy Inc. and its utility subsidiaries have established a money pool arrangement that allows for short-term investments in and borrowings between the utility subsidiaries. Xcel Energy Inc. may make investments in the utility subsidiaries at market-based interest rates; however, the money pool arrangement does not allow the utility subsidiaries to make investments in Xcel Energy Inc.

Money pool borrowings for SPS:


(Amounts in Millions, Except Interest Rates)	(Amounts in Millions, Except Interest Rates)	Three Months Ended June 30, 2021			Year Ended Dec. 31, 2020			(Amounts in Millions, Except Interest Rates)	Three Months Ended June 30, 2022			Year Ended Dec. 31, 2021
Borrowing limit	Borrowing limit	$	100		$	100		Borrowing limit	$	100		$	100
Amount outstanding at period end	Amount outstanding at period end	63			0			Amount outstanding at period end	—			91
Average amount outstanding	Average amount outstanding	6			43			Average amount outstanding	65			51
Maximum amount outstanding	Maximum amount outstanding	94			100			Maximum amount outstanding	100			100
Weighted average interest rate, computed on a daily basis	Weighted average interest rate, computed on a daily basis	0.02		%	0.54		%	Weighted average interest rate, computed on a daily basis	0.44		%	0.05		%
Weighted average interest rate at period end	Weighted average interest rate at period end	0.02			N/A			Weighted average interest rate at period end	N/A			0.05

Commercial Paper — Commercial paper outstanding for SPS:


(Amounts in Millions, Except Interest Rates)	(Amounts in Millions, Except Interest Rates)	Three Months Ended June 30, 2021		Year Ended Dec. 31, 2020			(Amounts in Millions, Except Interest Rates)	Three Months Ended June 30, 2022			Year Ended Dec. 31, 2021
Borrowing limit	Borrowing limit	$	500	$	500		Borrowing limit	$	500		$	500
Amount outstanding at period end	Amount outstanding at period end	0		250			Amount outstanding at period end	—			137
Average amount outstanding	Average amount outstanding	0		44			Average amount outstanding	150			63
Maximum amount outstanding	Maximum amount outstanding	0		250			Maximum amount outstanding	264			342
Weighted average interest rate, computed on a daily basis	Weighted average interest rate, computed on a daily basis	N/A		1.11		%	Weighted average interest rate, computed on a daily basis	0.97		%	0.21		%
Weighted average interest rate at period end	Weighted average interest rate at period end	N/A		0.29			Weighted average interest rate at period end	N/A			0.26

Letters of Credit — SPS uses letters of credit, generally with terms of one year, to provide financial guarantees for certain obligations. At both June 30, ~~2021~~2022 and Dec. 31, ~~2020,~~2021, there ~~were~~w $2ere $2 million of letters of credit outstanding under the credit facility. Amounts approximate their fair value and are subject to fees.

~~Table of Contents~~

Revolving Credit Facility — In order to issue its commercial paper, SPS must have a revolving credit facility in place at least equal to the amount of its commercial paper borrowing limit and cannot issue commercial paper 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.

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SPS has the right to request an extension of the revolving credit facility termination date for 2 additional one-year periods. All extension requests are subject to majority bank group approval.

As of June 30, ~~2021,~~2022, SPS had the following committed revolving credit facility available (in millions of dollars):


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

(a)Expires in June 2024.

(b)Includes outstanding letters of credit.

All credit facility bank borrowings, outstanding letters of credit and outstanding commercial paper reduce the available capacity under the credit facility. SPS had 0 ~~direct~~no direct advances on the credit facility outstanding as of June 30, ~~2021~~2022 and Dec. 31, ~~2020.~~2021.

Long-Term Borrowings

During the six months ended June 30, ~~2021,~~ 2022, SPS issued ~~$250~~$200 million of ~~3.15%~~5.15% first mortgage bonds due ~~2050.~~June 1, 2052.


5. Revenues

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


		Three Months Ended June 30						Three Months Ended June 30
(Millions of Dollars)	(Millions of Dollars)	2021		2020			(Millions of Dollars)	2022		2021
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	$	85	$	85		Residential	$	100	$	85
C&I		201		164
Commercial and Industrial							Commercial and Industrial	264		201
Other	Other	10		8			Other	13		10
Total retail	Total retail	296		257			Total retail	377		296
Wholesale	Wholesale	118		82			Wholesale	109		118
Transmission	Transmission	72		76			Transmission	74		72
Other	Other	2		0			Other	3		2
Total revenue from contracts with customers	Total revenue from contracts with customers	488		415			Total revenue from contracts with customers	563		488
Alternative revenue and other	Alternative revenue and other	10		8			Alternative revenue and other	95		10
Total revenues	Total revenues	$	498	$	423		Total revenues	$	658	$	498

						Six Months Ended June 30

(Millions of Dollars)							(Millions of Dollars)	2022		2021
Major revenue types							Major revenue types
Revenue from contracts with customers:							Revenue from contracts with customers:
Residential							Residential	$	197	$	176
Commercial and Industrial							Commercial and Industrial	486		389
Other							Other	21		19
Total retail							Total retail	704		584
Wholesale							Wholesale	178		676
Transmission							Transmission	146		143
Other							Other	6		5
Total revenue from contracts with customers							Total revenue from contracts with customers	1,034		1,408
Alternative revenue and other							Alternative revenue and other	101		24
Total revenues							Total revenues	$	1,135	$	1,432

Six Months Ended June 30
(Millions of Dollars) 2021 2020
Major revenue types
Revenue from contracts with customers:
Residential $ 176 $ 158
C&I 389 333
Other 19 16
Total retail 584 507
Wholesale 676 155
Transmission 143 139
Other 5 1
Total revenue from contracts with customers 1,408 802
Alternative revenue and other 24 16
Total revenues $ 1,432 $ 818


6. Income Taxes

~~Note 7 to the financial statements included in SPS’ 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.~~

~~Difference~~Reconciliation between the statutory rate and ETR:


		Six Months Ended June 30					Six Months Ended June 30
		2021		2020 (a)			2022		2021
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)	2.6		2.3		State tax (net of federal tax effect)	2.5		2.6
Decreases in tax from:
Increases (decreases) in tax from:						Increases (decreases) in tax from:
Wind PTCs(a)	Wind PTCs(a)	(61.6)		(26.7)		Wind PTCs(a)	(55.8)		(61.6)
Plant regulatory differences (b)	Plant regulatory differences (b)	(5.0)		(6.4)		Plant regulatory differences (b)	(4.0)		(5.0)

Amortization of excess nonplant deferred taxes	Amortization of excess nonplant deferred taxes	(1.2)		(0.9)		Amortization of excess nonplant deferred taxes	(1.1)		(1.2)
Other (net)	Other (net)	(0.6)		(2.2)		Other (net)	0.6		(0.6)
Effective income tax rate	Effective income tax rate	(44.8)	%	(12.9)	%	Effective income tax rate	(36.8)	%	(44.8)	%

(a)~~Prior periods have been restated~~Wind PTCs are credited to ~~conform~~customers (reduction to ~~current year presentation.~~revenue) and do not materially impact net income.

(b)Regulatory differences for income tax primarily relate to the credit of excess deferred taxes to customers through the average rate assumption method. Income tax benefits associated with the credit of excess deferred ~~credits~~taxes are offset by corresponding revenue reductions.

~~Federal Audits~~ — SPS is a member of the Xcel Energy affiliated group that files a consolidated federal income tax return. Statute of limitations applicable to Xcel Energy’s consolidated federal income tax returns expire as follows:


~~Tax Years~~						~~Expiration~~
~~2014~~ — ~~2016~~						~~January 2022~~
~~2017~~						~~September 2021~~

Additionally, the statute of limitations related to a 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.

~~State Audits~~ — SPS is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of June 30, 2021, SPS’ earliest open tax year subject to examination by state taxing authorities under applicable statutes of limitations is 2012. In April 2021, Texas began an audit of tax years 2016 - 2019. NaN material adjustments have been proposed.

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

~~Unrecognized tax benefits — permanent vs temporary:~~

(Millions of Dollars) June 30, 2021 Dec. 31, 2020
Unrecognized tax benefit — Permanent tax positions $ 3 $ 3
Unrecognized tax benefit — Temporary tax positions 4 4
Total unrecognized tax benefit $ 7 $ 7

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

(Millions of Dollars) June 30, 2021 Dec. 31, 2020
NOL and tax credit carryforwards $ (7) $ (6)

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~~As the IRS audit resumes and state audit progresses, it is reasonably possible that the amount of unrecognized tax benefit could decrease up to approximately $5 million in the next 12 months.~~

~~Payable for interest related to unrecognized tax benefits is partially offset by the interest benefit associated with NOL and tax credit carryforwards~~.

~~Interest payable related to unrecognized tax benefits:~~

(Millions of Dollars) June 30, 2021 Dec. 31, 2020
(Payable) receivable for interest related to unrecognized tax benefits at beginning of period $ (1) $ 1
Interest expense related to unrecognized tax benefits 0 (2)
Payable for interest related to unrecognized tax benefits at end of period $ (1) $ (1)

~~NaN amounts were accrued for penalties related to unrecognized tax benefits as of June 30, 2021 or Dec. 31, 2020.~~


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~~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 inputs on a valuation is evaluated and may result in Level 3 classification.

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Electric commodity derivatives held by SPS include transmission congestion instruments, generally referred to as ~~FTRs, purchased from SPP.~~FTRs. FTRs purchased from a RTO are financial instruments that entitle or obligate the holder to monthly revenues or charges based on transmission congestion across a given transmission path.

The ~~value~~values of ~~an FTR is~~these instruments are derived from, and designed to offset, the ~~cost~~costs of transmission congestion. In addition to overall transmission load, congestion is also influenced by the operating schedules of power plants and the consumption of electricity pertinent to a given transmission path. Unplanned plant outages, scheduled plant maintenance, changes in the relative costs of fuels used in generation, weather and overall changes in demand for electricity can each impact the operating schedules of the power plants on the transmission grid and the value of ~~an FTR.~~these instruments. FTRs are recognized at estimated fair value and adjusted each period prior to settlement. Given the limited observability of certain variables underlying the reported auction values of FTRs, these fair value measurements have been assigned a Level 3.

If ~~forecasted~~ costs of electric transmission congestion increase or decrease for a given ~~FTR~~ path, the value of that particular ~~FTR~~ instrument will likewise increase or decrease. ~~Given~~Net congestion costs, including the ~~limited observability~~impact of certain inputs to the value of FTRs between auction processes, including expected plant operating schedules and retail and wholesale demand, fair value measurements for FTRs have been assigned a Level 3. Non-trading monthly FTR settlements, are ~~expected to be recovered~~shared through fuel and purchased energy cost recovery ~~mechanisms, and therefore changes in~~mechanisms. As such, the fair value of the ~~yet to be settled portions of most FTRs are~~ unsettled instruments (i.e., derivative asset or liability) is offset/deferred as a regulatory asset or liability. Given this regulatory treatment and the limited magnitude of FTRs relative to the electric utility operations of SPS, the numerous unobservable quantitative inputs pertinent to the value of FTRs are immaterial to the financial statements of SPS.

Derivative Instruments Fair Value Measurements

SPS enters into derivative instruments, including forward contracts, for trading purposes and to manage risk in connection with changes in interest rates and electric utility commodity prices.

Interest Rate Derivatives — SPS may enter into various instruments that effectively fix the interest payments on certain floating rate debt obligations or effectively fix the yield or price on a specified benchmark interest rate for an anticipated debt issuance for a specific period. These derivative instruments are generally designated as cash flow hedges for accounting purposes.

As of June 30, ~~2021,~~2022, accumulated other comprehensive loss related to interest rate derivatives included immaterial net losses expected to be reclassified into earnings during the next 12 months as the related hedged interest rate transactions impact ~~earnings, including forecasted amounts for~~earnings. As of June 30, 2022, SPS had no unsettled ~~hedges, as applicable.~~interest rate derivatives.

Wholesale and Commodity Trading Risk — SPS conducts various wholesale and commodity trading activities, including the purchase and sale of electric capacity, energy and energy-related instruments, including derivatives. SPS is allowed to conduct these activities within guidelines and limitations as approved by its risk management committee, comprised of management personnel not directly involved in the activities governed by this policy. Sharing of any margins is determined through state regulatory proceedings as well as the operation of the FERC approved joint operating agreement.

Commodity Derivatives — SPS enters into derivative instruments to manage variability of future cash flows from changes in commodity prices in its electric utility operations. This could include the purchase or sale of energy or energy-related products and FTRs.

Amounts in Millions (a)

June 30, 2021

Dec. 31, 2020

Amounts in Millions (a)

June 30, 2022

Dec. 31, 2021

Megawatt hours of electricity

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

~~Table of Contents~~

Consideration of Credit Risk and Concentrations — SPS continuously monitors the creditworthiness of counterparties to its interest rate derivatives and commodity derivative contracts, prior to settlement, and assesses each counterparty’s ability to perform on the transactions set forth in the contracts. Impact of credit risk was immaterial to the fair value of unsettled commodity derivatives presented onin the balance sheets.

SPS’ most significant concentrations of credit risk with particular entities or industries are contracts with counterparties to its wholesale, trading and non-trading commodity activities.

At June 30, ~~2021,~~2022, 2 of the 8 most significant counterparties for these activities, comprising ~~$13~~$10 million, or ~~36%~~26%, of this credit exposure, had investment grade credit ratings from S&P Global Ratings, Moody’s Investor Services or Fitch Ratings. NaN of the 8 most significant counterparties, comprising ~~$24~~$29 million, or ~~64%~~74%, of this credit exposure, were not rated by external ratings agencies, but based on SPS’ internal analysis, had credit quality consistent with investment grade. NaN of these significant counterparties, comprising an immaterial amount of this credit exposure, had credit quality less than investment grade, based on internal analysis. ~~NaN~~All 8 of these significant counterparties are municipal or cooperative electric entities, RTOs or other utilities.

Impact of Derivative Activities on Income and Accumulated Other Comprehensive Loss — There were 0immaterial losses related to interest rate derivatives reclassified from accumulated other comprehensive loss into earnings for the three and six months ended June 30, 2022, respectively. There were no gains or immaterial losses related to interest rate derivatives reclassified from accumulated other comprehensive loss into earnings for the three and six months ended June 30, 2021, ~~and 2020,~~ respectively.

Changes in the fair value of FTRs resulting in pre-tax net gains $92 million and gains of $93 million were recognized for the three and six months ended June 30, 2022, respectively, were reclassified as regulatory assets or liabilities. Changes in the fair value of FTRs resulting in pre-tax net gains of $8 million and $10 million recognized for the three and six months ended June 30, 2021, respectively, ~~which~~ were reclassified as ~~regulatory assets or liabilities. There were $3 million of pre-tax net losses recognized for the three and six months ended June 30, 2020, respectively, which were reclassified as a~~ regulatory assets or liabilities. The classification as a regulatory asset or liability is based on expected recovery of FTR settlements through fuel and purchased energy cost recovery mechanisms.

FTR settlement losses of $24 million and losses of $34 million were recognized for the three and six months ended June 30, 2022, respectively, and were recorded to electric fuel and purchased power. FTR settlement losses of $4 million and gains of $11 million were recognized for the three and six months ended June 30, 2021, respectively, and were recorded to electric fuel and purchased ~~power. Settlement gains of $2 million and $5 million were recognized for the three and six months ended June 30, 2020, respectively and were recorded to electric fuel and purchases~~ power. These derivative settlement gains and losses are shared with electric customers through fuel and purchased energy cost-recovery mechanisms and reclassified out of income as regulatory assets or liabilities, as appropriate. All FTR settlements are shared with customers and do not have a material impact on net income. Presented amounts reflect changes in fair value between auction and settlement dates, but exclude the original auction fair value.

SPS had 0immaterial derivative instruments designated as fair value hedges during the three and six months ended June 30, ~~2021~~2022 and ~~2020.~~2021.

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

June 30, 2021 Dec. 31, 2020
Fair Value Fair Value Total
Netting (a)
Total Fair Value Fair Value Total
Netting (a)
Total
(Millions of Dollars) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Current derivative assets
Other derivative instruments:
Electric commodity $ 0 $ 0 $ 41 $ 41 $ 0 $ 41 $ 0 $ 0 $ 7 $ 7 $ 0 $ 7
Total current derivative assets $ 0 $ 0 $ 41 $ 41 $ 0 41 $ 0 $ 0 $ 7 $ 7 $ 0 7
PPAs (b)
3 3
Current derivative instruments $ 44 $ 10
Noncurrent derivative assets
PPAs (b)
8 9
Noncurrent derivative instruments $ 8 $ 9


		June 30, 2021								Dec. 31, 2020																June 30, 2022																		Dec. 31, 2021
		Fair Value			Fair Value Total	Netting (a)		Total		Fair Value		Fair Value Total			Netting (a)					Total						Fair Value								Fair Value Total			Netting (a)			Total				Fair Value							Fair Value Total			Netting (a)	Total
(Millions of Dollars)	(Millions of Dollars)	Level 1	Level 2	Level 3			Level 1			Level 2	Level 3		(Millions of Dollars)				Level 1								Level 2				Level 3							Level 1							Level 2			Level 3
Current derivative liabilities
Current derivative assets														Current derivative assets
Other derivative instruments:	Other derivative instruments:															Other derivative instruments:
Electric commodity (b)														Electric commodity (b)				$	—				$	—			$	284		$	284	$	—		$	284		$	—			$	—		$	27	$	27	$	—		$	27
Total current derivative assets														Total current derivative assets				$	—				$	—			$	284		$	284	$	—		284			$	—			$	—		$	27	$	27	$	—		27
PPAs (c)														PPAs (c)																					3																	3
Current derivative instruments														Current derivative instruments																					$	287																$	30
Noncurrent derivative assets														Noncurrent derivative assets

PPAs (b)								$	4											$	4

PPAs (c)														PPAs (c)																					$	5																$	6
Noncurrent derivative instruments														Noncurrent derivative instruments																					$	5																$	6
Current derivative liabilities														Current derivative liabilities

PPAs (c)														PPAs (c)																					$	4																$	4
Current derivative instruments	Current derivative instruments							$	4											$	4	Current derivative instruments																		$	4														$	4
Noncurrent derivative liabilities	Noncurrent derivative liabilities																					Noncurrent derivative liabilities
PPAs (b)								$	7											$	9
PPAs (c)														PPAs (c)																					$	4																$	6
Noncurrent derivative instruments	Noncurrent derivative instruments							$	7											$	9	Noncurrent derivative instruments																		$	4														$	6

(a)SPS nets derivative instruments and related collateral on its balance sheets when supported by a legally enforceable master netting agreement, and all derivative instruments and related collateral amounts were subject to master netting agreements at June 30, ~~2021~~2022 and Dec. 31, ~~2020.~~2021. At June 30, ~~2021~~2022 and Dec. 31, ~~2020,~~2021, derivative assets and liabilities include 0no obligations to return cash collateral or rights to reclaim cash collateral. The counterparty netting excludes settlement receivables and payables and non-derivative amounts that may be subject to the same master netting agreements.

(b)Amounts relate to FTR instruments administered by SPP (annual auctions occurring in the second quarter). These instruments are utilized/intended to offset the impacts of transmission system congestion. Higher congestion costs have led to an increase in the fair value of FTRs. Due to regulatory recovery, changes in fair value are deferred as a regulatory asset or liability and do not have a material impact on net income.

(c)During 2006, SPS qualified these contracts under the normal purchase exception. Based on this qualification, the contracts are no longer adjusted to fair value and the previous carrying value of these contracts will be amortized over the remaining contract lives along with the offsetting regulatory assets and liabilities.

~~Table of Contents~~

Changes in Level 3 commodity derivatives for the three and six months ended June 30, ~~2021~~2022 and ~~2020:~~2021:


		Three Months Ended June 30					Three Months Ended June 30
(Millions of Dollars)	(Millions of Dollars)	2021		2020		(Millions of Dollars)	2022		2021
Balance at April 1	Balance at April 1	$	12	$	16	Balance at April 1	$	32	$	12
Purchases		9		9
Settlements		(12)		(12)
Purchases/Issuances (a)						Purchases/Issuances (a)	232		9
Settlements (a)						Settlements (a)	(85)		(12)
Net transactions recorded during the period:	Net transactions recorded during the period:					Net transactions recorded during the period:
Net gains recognized as regulatory assets and liabilities		32		3
Net gains recognized as regulatory assets and liabilities (a)						Net gains recognized as regulatory assets and liabilities (a)	105		32
Balance at June 30	Balance at June 30	$	41	$	16	Balance at June 30	$	284	$	41

		Six Months Ended June 30					Six Months Ended June 30
(Millions of Dollars)	(Millions of Dollars)	2021		2020		(Millions of Dollars)	2022		2021
Balance at Jan. 1	Balance at Jan. 1	$	7	$	12	Balance at Jan. 1	$	27	$	7
Purchases		9		21
Settlements		(21)		(17)
Purchases/Issuances (a)						Purchases/Issuances (a)	237		9
Settlements (a)						Settlements (a)	(94)		(21)
Net transactions recorded during the period:	Net transactions recorded during the period:					Net transactions recorded during the period:
Net gains recognized as regulatory assets and liabilities		46		0
Net gains recognized as regulatory assets and liabilities (a)						Net gains recognized as regulatory assets and liabilities (a)	114		46
Balance at June 30	Balance at June 30	$	41	$	16	Balance at June 30	$	284	$	41

(a)Relates primarily to FTR instruments administered by SPP (annual auctions occurring in the second quarter). These instruments are utilized/intended to offset the impacts of transmission system congestion. Higher congestion costs have led to an increase in the fair value of FTRs. Due to regulatory recovery, changes in fair value are deferred as a regulatory asset or liability and do not have a material impact on net income.

SPS recognizes transfers between levels as of the beginning of each period. There were 0no transfers of amounts between levels for derivative

instruments for the three and six months ended June 30, ~~2021~~2022 and ~~2020.~~2021.

Fair Value of Long-Term Debt

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


		June 30, 2021				Dec. 31, 2020					June 30, 2022				Dec. 31, 2021
(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	Long-term debt	$	3,012	$	3,482	$	2,764	$	3,381	Long-term debt	$	3,210	$	2,890	$	3,013	$	3,454

Fair value of SPS’ long-term debt is estimated based on recent trades and observable spreads from benchmark interest rates for similar securities. Fair value estimates are based on information available to management as of June 30, ~~2021~~2022 and Dec. 31, ~~2020~~2021 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 (Credit)


		Three Months Ended June 30									Three Months Ended June 30
		2021		2020		2021		2020			2022		2021		2022		2021
(Millions of Dollars)	(Millions of Dollars)	Pension Benefits				Postretirement Health Care Benefits				(Millions of Dollars)	Pension Benefits				Postretirement Health Care Benefits
Service cost	Service cost	$	3	$	2	$	0	$	0	Service cost	$	3	$	3	$	—	$	—
Interest cost (a)	Interest cost (a)	4		5		0		0		Interest cost (a)	4		4		1		—
Expected return on plan assets (a)	Expected return on plan assets (a)	(8)		(7)		(1)		0		Expected return on plan assets (a)	(7)		(8)		(1)		(1)

Amortization of net loss (a)	Amortization of net loss (a)	3		3		0		0		Amortization of net loss (a)	2		3		—		—
Net periodic benefit cost (credit)		$	2	$	3	$	(1)	$	0
Net periodic benefit cost										Net periodic benefit cost	$	2	$	2	$	—	$	(1)
Effects of regulation	Effects of regulation	1		0		0		0		Effects of regulation	(1)		1		—		—
Net benefit cost (credit) recognized for financial reporting		$	3	$	3	$	(1)	$	0
Net benefit cost recognized for financial reporting										Net benefit cost recognized for financial reporting	$	1	$	3	$	—	$	(1)


	Six Months Ended June 30
	2022		2021		2022		2021
(Millions of Dollars)	Pension Benefits				Postretirement Health Care Benefits
Service cost	$	5	$	5	$	—	$	—
Interest cost (a)	8		8		1		—
Expected return on plan assets (a)	(15)		(15)		(1)		(1)

Amortization of net loss (gain) (a)	5		7		—		—
Net periodic benefit cost	$	3	$	5	$	—	$	(1)
Effects of regulation	—		1		—		—
Net benefit cost recognized for financial reporting	$	3	$	6	$	—	$	(1)

Six Months Ended June 30
2021 2020 2021 2020
(Millions of Dollars) Pension Benefits Postretirement Health
Care Benefits
Service cost $ 5 $ 5 $ 0 $ 0
Interest cost (a)
8 9 0 1
Expected return on plan assets (a)
(15) (15) (1) (1)
Amortization of net loss (a)
7 7 0 0
Net periodic benefit cost (credit) $ 5 $ 6 $ (1) $ 0
Effects of regulation 1 1 0 0
Net benefit cost (credit) recognized for financial reporting $ 6 $ 7 $ (1) $ 0

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

In January ~~2021,~~2022, contributions of ~~$125~~$50 million were made across 4 of Xcel Energy’s pension plans, none of which ~~$14 million~~ was attributable to SPS. Xcel Energy does not expect additional pension contributions during ~~2021.~~2022.


9. Commitments and Contingencies

The following includes commitments, contingencies and unresolved contingencies that are material to SPS’ financial position.

Legal

SPS is involved in various litigation matters in the ordinary course of business. The assessment of whether a loss is probable or is a reasonable possibility, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. Management maintains accruals for losses probable of being incurred and subject to reasonable estimation. Management is sometimes unable to estimate an amount or range of a reasonably possible loss in certain situations, including but not limited to when (1) the damages sought are indeterminate, (2) the proceedings are in the early stages, or (3) the matters involve novel or unsettled legal theories.

In such cases, there is considerable uncertainty regarding the timing or ultimate resolution, ~~of such matters,~~ including a possible eventual loss. For current proceedings not specifically reported herein, management does not anticipate that the ultimate liabilities, if any, would have a material effect on SPS’ financial statements. Legal fees are generally expensed as incurred.

Other Litigation — In 2019, SPS and Xcel Energy Services, Inc. were served with a lawsuit related to a traffic accident that resulted in two fatalities in New Mexico. An estimate of a probable loss contingency of approximately $50 million was recorded as of June 30, 2022 within Other current liabilities. In July 2022, a confidential settlement was reached. No impact to earnings has or is expected to occur, as the amounts are expected to be reimbursed by SPS’ insurers. An offsetting asset has been recorded to reflect the reimbursement within Prepayments and other current assets.

Rate Matters and Other

SPS 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.

SPP OATT Upgrade Costs — Costs of transmission upgrades may be recovered from other SPP customers whose transmission service depends on capacity enabled by the upgrade under the SPP OATT. SPP had not been charging its customers for these upgrades, even though the SPP OATT had allowed SPP to do so since 2008. In 2016, the FERC granted SPP’s request to recover these previously unbilled charges and SPP subsequently billed SPS approximately $13 million.

In July 2018, SPS’ appeal to the D.C. Circuit over the FERC rulings granting SPP the right to recover previously unbilled charges was remanded to the FERC. In February 2019, the FERC reversed its 2016 decision and ordered SPP to refund charges retroactively collected from its transmission customers, including SPS, related to periods before September 2015.

In March 2020, SPP and Oklahoma Gas & Electric separately filed petitions for review of the FERC’s orders at the D.C. Circuit. ~~SPS has intervened in both~~In August 2021, the D.C. Circuit issued a decision denying these appeals ~~in support of~~and upholding the ~~FERC. Any refunds~~FERC’s orders. Refunds received by SPS are expected to be given back to SPS customers through future rates.

~~Table of Contents~~

In October 2017, SPS filed a separate related complaint asserting SPP assessed upgrade charges to SPS in violation of the SPP OATT. In March 2018, the FERC issued an order denying the SPS complaint. SPS filed a request for rehearing in April 2018. The FERC issued a tolling order granting a rehearing for further consideration in May 2018. If SPS’ complaint results in additional charges or refunds, SPS will seek to recover or refund the amount through future SPS customer ~~rates~~. rates. In October 2020, SPS filed a petition for review of the FERC’s March 2018 order and May 2018 tolling order at the D.C. Circuit. ~~This appeal is stayed pending the outcome of the separate appeal initiated in 2020 by Oklahoma Gas & Electric and SPP.~~

~~SPP Filing to Assign GridLiance Facilities to SPS Rate Zone~~ — In August 2018, SPP filed a request with the FERC to amend its OATT to include the costs of the GridLiance High Plains, LLC facilities in the SPS rate zone. In a previous filing, the FERC determined that some of these facilities did not qualify as transmission facilities under the SPP OATT. SPP’s proposed tariff changes resulted in an increase in the annual transmission revenue requirement of $10 million per year, with $6 million allocated to SPS’ retail customers. The remaining $4 million would be paid by other wholesale loads in the SPS rate zone. On March 16, 2020, GridLiance also filed additional rate increases for 2020 which would raise their annual revenue requirement to $14 million, with approximately $9 million allocated to SPS’ retail customers.

~~In August 2020,~~February 2022, FERC issued an order ~~on a question certified by the hearing judge for the FERC’s review, in which FERC made certain findings in~~rejecting SPS’ ~~favor regarding the legal standard that applies to the ongoing hearing proceeding. In November 2020, FERC denied GridLiance’s~~ request for ~~rehearing of the August 2020 order. In December 2020, GridLiance filed a petition for review at the D.C. Circuit of the August 2020 and November 2020 orders on the certified question.~~

The hearing portion of this proceeding was concluded in September 2020. The initial post-hearing brief was filed in October 2020. On June 3, 2021, the Administrative Law Judge issued a recommended decision, subject to FERC approval, that supports that the GridLiance facilities are transmission facilities and eligible for rate recovery under the SPP OATT. The FERC will then rule on the judge’s decision and either sustain it, overturn it, or order further proceedings.hearing. SPS has ~~incurred approximately $19 million in associated charges as of June 30, 2021.~~appealed that order. That appeal has been combined with SPS’ prior appeal.

Contract Termination — SPS and LP&L have a 25-year, 170 MW partial requirements contract. In May 2021, SPS and LP&L finalized a settlement which would terminate the contract upon LP&L’s move from the SPP to the ~~ERCOT~~Electric Reliability Council of Texas (expected in 2023) ~~or, absent a move by LP&L to ERCOT, upon LP&L’s election.~~. The settlement agreement requires LP&L to pay SPS $78 million, ~~(lump sum or annual installments),~~ to the benefit of SPS’ remaining customers. LP&L would remain obligated to pay for SPP transmission charges associated with LP&L’s load in SPP. The ~~settlement~~ agreement is subject to approval by the PUCT and FERC.

~~FERC NOPR on ROE Incentive Adders~~ ~~— In April 2021, the FERC issued a NOPR proposing to limit collection~~Table 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,~~ 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, following future rate cases.Contents

Environmental

Manufactured Gas Plant, Landfill and Disposal Sites —

SPS is remediating a former disposal site. SPS has recognized its best estimate of costs/liabilities ~~that will result~~ from final resolution of these issues, however, the outcome and timing 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 — Air

Reasonable Progress Rule: In 2016, the EPA adopted a final rule establishing a federal implementation plan for reasonable further progress under the regional haze program for the state of Texas. The rule imposes sulfur dioxide emission limitations that would require the installation of dry scrubbers on Tolk Units 1 and 2; compliance would have been required by February 2021. SPS appealed the EPA’s decision and obtained a stay of the final rule.

In March 2017, the Fifth Circuit remanded the rule to the EPA for reconsideration, leaving the stay in effect. In a future rulemaking, the EPA will address whether sulfur dioxide emission reductions beyond those required in the BART alternative rule referenced above are needed at Tolk under the “reasonable progress” requirements. As states are now proceeding with the second regional haze planning period, the EPA may choose not to act on the remanded rule, but could impose additional requirements as part of a BART reconsideration or as part of the second planning period.

Leases

SPS evaluates contracts that may contain leases, including PPAs and arrangements for the use of office space and other facilities, vehicles and equipment. A contract contains a lease if it conveys the exclusive right to control the use of a specific asset.

Components of lease expense:


		Three Months Ended June 30					Three Months Ended June 30
(Millions of Dollars)	(Millions of Dollars)	2021		2020		(Millions of Dollars)	2022		2021
Operating leases	Operating leases					Operating leases
PPA capacity payments	PPA capacity payments	$	13	$	12	PPA capacity payments	$	13	$	13
Other operating leases (a)	Other operating leases (a)	1		1		Other operating leases (a)	1		1
Total operating lease expense (b)	Total operating lease expense (b)	$	14	$	13	Total operating lease expense (b)	$	14	$	14

(a)~~Includes~~Includes immaterial ~~short-term~~short-term lease expense for ~~2021~~2022 and ~~2020.~~2021.

(b)PPA capacity payments are included in electric fuel and purchased power on the statements of income. Expense for other operating leases is included in ~~O&M~~operating and maintenance expense and electric fuel and purchased power.


		Six Months Ended June 30					Six Months Ended June 30
(Millions of Dollars)	(Millions of Dollars)	2021		2020		(Millions of Dollars)	2022		2021
Operating leases	Operating leases					Operating leases
PPA capacity payments	PPA capacity payments	$	26	$	23	PPA capacity payments	$	26	$	26
Other operating leases (a)	Other operating leases (a)	2		2		Other operating leases (a)	3		2
Total operating lease expense (b)	Total operating lease expense (b)	$	28	$	25	Total operating lease expense (b)	$	29	$	28

(a)~~Includes short-term~~Includes immaterial short-term lease expense ~~of $1 million~~ for ~~2021~~2022 and ~~2020, respectively.~~2021.

Commitments under operating leases as of June 30, ~~2021:~~2022:


(Millions of Dollars)	(Millions of Dollars)	PPA Operating Leases		Other Operating Leases		Total Operating Leases		(Millions of Dollars)	PPA Operating Leases		Other Operating Leases		Total Operating Leases
Total minimum obligation	Total minimum obligation	$	567	$	57	$	624	Total minimum obligation	$	520	$	55	$	575
Interest component of obligation	Interest component of obligation	(130)		(16)		(146)		Interest component of obligation	(111)		(15)		(126)
Present value of minimum obligation	Present value of minimum obligation	$	437	$	41	478		Present value of minimum obligation	$	409	$	40	449
Less current portion	Less current portion					(29)		Less current portion					(30)
Noncurrent operating and finance lease liabilities						$	449
Noncurrent operating lease liabilities								Noncurrent operating lease liabilities					$	419

~~VIEs~~Variable Interest Entities

Under certain PPAs, SPS purchases power from IPPs for which SPS is required to reimburse fuel costs, or to participate in tolling arrangements under which SPS procures the natural gas required to produce the energy that ~~it purchases.~~they purchase. These specific PPAs create a variable interest in the IPP.

SPS had ~~approximately~~approximately 1,197 MW of capacity under long-term PPAs at both June 30, ~~2021~~2022 and Dec. 31, ~~2020~~2021 with entities that have been determined to be ~~VIEs.~~variable interest entities. SPS concluded that these entities are not required to be consolidated in its financial statements because it does not have the power to direct the activities that most significantly impact the entities’ economic performance. The PPAs have expiration dates through 2041.

~~Table of Contents~~


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

Discussion of financial condition and liquidity for SPS is omitted per conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q for wholly owned subsidiaries. It is replaced with management’s narrative analysis of the results of operations set forth in General 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 ~~electric margin and~~ ongoing earnings.

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

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

Earnings Adjusted for Certain Items (Ongoing Earnings)

Ongoing earnings reflect adjustments to GAAP earnings (net income) for certain items. We use this non-GAAP financial measure to evaluate and provide details of SPS’ core earnings and underlying performance.

We believe this measurement is useful to investors to evaluate the actual and projected financial performance and contribution of SPS. For the three and six months ended June 30, 2022 and 2021, there were no such adjustments to GAAP earnings and therefore GAAP earnings equal ongoing earnings.

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Results of Operations

SPS’ net income was approximately $145 million for the six months ended June 30, 2022 compared with approximately $126 million for the prior year. The increase reflects the impact of regulatory outcomes, strong sales growth and favorable weather.

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.

~~Management believes electric margins provide the most meaningful basis for evaluating our operations because they exclude the revenue impact of fluctuations in these expenses.~~

These margins can be reconciled to operating income, a GAAP measure, by including other operating revenues, O&M expenses, DSM expenses, depreciation and amortization and taxes (other than income taxes).


~~Results of Operations~~

SPS’ net income was approximately $126 million for the six months ended June 30, 2021 compared with approximately $114 million for the prior year, reflecting higher electric margin (capital investment recovery and regulatory outcomes), partially offset by increased depreciation and O&M expenses.

~~Electric Margin~~

Electric revenues and fuel and purchased power expenses ~~tend~~are impacted by fluctuations in the price of natural gas and coal. However, these price fluctuations generally have minimal impact on earnings impact due to ~~vary with changing retail~~fuel recovery mechanisms. In addition, electric customers receive a credit for PTCs generated, which reduce electric revenue and ~~wholesale sales requirements and unit cost changes in fuel and purchased power. Changes in fuel or purchased power costs can impact earnings as the~~income taxes.

Electric revenues, fuel and purchased power ~~cost recovery mechanisms~~and electric margin and explanation of the ~~Texas and New Mexico jurisdictions may not allow for complete recovery of all expenses.~~

changes are listed as follows:

~~Electric revenues and margin:~~


		Six Months Ended June 30					Six Months Ended June 30
(Millions of Dollars)	(Millions of Dollars)	2021		2020		(Millions of Dollars)	2022		2021
Electric revenues (a)	Electric revenues (a)	$	1,432	$	818	Electric revenues (a)	$	1,135	$	1,432
Electric fuel and purchased power (a)	Electric fuel and purchased power (a)	(945)		(386)		Electric fuel and purchased power (a)	(519)		(945)
Electric margin	Electric margin	$	487	$	432	Electric margin	$	616	$	487

(a)The ~~increase~~decrease in revenue and electric fuel and purchased power is primarily due to Winter Storm Uri ~~resulting~~ in ~~higher~~2021 (higher fuel prices, as well as additional long-term energy sales/purchases market adjustments and SPP market ~~purchases.~~transactions).

~~Changes in electric margin:~~


(Millions of Dollars)		Six Months Ended June 30, ~~2021~~2022 vs. ~~2020~~2021
Revenue recognition for the Texas rate case surcharge (a)		$	85
Regulatory rate outcomes (Texas and New Mexico)		$		4550
Sales and demand		1033
~~Wholesale transmission revenue (net)~~Estimated impact of weather		9
~~Proprietary commodity trading, net of sharing - Winter Storm Uri~~		4
PTCs flowed back to customers (offset by lower ETR)		~~(27)~~(19)
Proprietary commodity trading, net of sharing (b)
	(5)

Other (net)		14 (24)
Total increase ~~in electric margin~~		$	55129

(a)Recognition of revenue from the Texas rate case outcome is largely offset by recognition of previously deferred costs, see Public Utility Regulation and Other for additional information.

(b)Includes $4 million of trading margin recognized in the first quarter of 2021, driven by market changes associated with Winter Storm Uri.

Non-Fuel Operating Expense and Other Items

O&M Expenses — O&M expenses increased $17 million year-to-date. The increase is primarily due to recognition of previously deferred amounts related to the Texas Electric Rate Case.

Depreciation and Amortization — Depreciation and amortization increased ~~$33~~$54 million ~~or 26.8%,~~ year-to-date. The increase ~~was~~is primarily due to the ~~Sagamore wind farm being placed in service in December 2020, in addition~~recognition of previously deferred amounts related to ~~system expansion. The increase is also due to new FERC transmission rates applied in March 2020~~the Texas Electric Rate Case and the implementation of new depreciation rates in ~~both New Mexico and Texas as part of regulatory outcomes in 2020.~~Texas.

~~O&M Expenses~~

Taxes (Other than Income Taxes) — ~~O&M expenses~~Taxes (other than income taxes) increased ~~$14~~$19 million ~~or 10.9%, year-to-date. The increase was primarily~~year-to-date, largely due to expenses related to new wind farms and software infrastructure & security costs, partially offset by continuous improvement initiatives. Timing impacts also occurred throughout 2020 due to cost control initiatives to mitigate the adverse impact of COVID-19 on sales.

~~AFUDC, Equity and Debt~~ ~~— AFUDC decreased $17 million for the first six months of 2021, primarily due to construction of the Sagamore wind farm and various transmission construction projects during 2020.~~

~~Income Taxes~~ ~~— Income tax benefit increased $26 million for the first six months of 2021. The increase was primarily driven by~~ an increase in ~~wind PTCs. Wind PTCs are largely credited to customers (recorded as a reduction to revenue)~~property taxes and ~~do not have a material impact on net income.~~

~~See Note 6~~the recognition of previously deferred amounts related to the ~~financial statements for further information.~~Texas Electric Rate Case.


~~Other~~

Interest Charges — Interest expenses increased $16 million year-to-date, largely due to the recognition of previously deferred amounts related to the Texas Electric Rate Case and increased long-term debt levels to fund capital investments and deferred balances related to Winter Storm ~~Uri~~

In 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.

~~Table of Contents~~Uri.

As a result of the extremely high market prices, SPS incurred net natural gas, fuel and purchased energy costs of approximately $100 million (largely deferred as regulatory assets) in the first quarter. Certain energy transactions are subject to final/settlement calculation adjustments, including the impacts of credit losses shared among market participants.

~~Regulatory Overview~~ — SPS has electric fuel and purchased energy mechanisms in each jurisdiction for recovering incurred costs. However, February cost increases were deferred for future recovery with recovery proposed over a period of up to two years to significantly mitigate the impact to customer bills.

~~The following proceedings have been initiated:~~


~~Jurisdiction~~			~~Regulatory Status~~
~~Texas~~			SPS filed for a surcharge in the second quarter to recover $62 million in fuel costs over 24 months, subject to revision due to re-settlements. Prudence of costs will be subject to review in SPS' upcoming fuel reconciliation case.
~~New Mexico~~			~~The NMPRC approved SPS' request to recover $26 million of fuel costs over 24 months with no financing charge, subject to revision due to re-settlements and NMPRC review.~~

~~Supply Chain and Capital Expenditures~~

SPS’ 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. Overall, as a result of COVID-19, manufacturing processes have experienced disruptions related to scarcity of raw materials and interruptions in production and shipping. These disruptions have been further exacerbated by inflationary pressures, storms and labor shortages. The Company continues to monitor the availability of materials and seek alternative suppliers as necessary.


Public Utility Regulation and Other

The FERC and state and local regulatory commissions regulate SPS. SPS is subject to rate regulation by state utility regulatory agencies, which have jurisdiction with respect to the rates of electric distribution companies in New Mexico and Texas.

Rates are designed to recover plant investment, operating costs and an allowed return on investment. SPS requests changes in utility rates through commission filings. Changes in operating costs can affect SPS’ financial results, depending on the timing of rate ~~case filings~~cases and implementation of final rates. Other factors affecting rate filings are new investments, sales, conservation and ~~DSM~~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 SPS’ results of operations.

Except to the extent noted below, the circumstances set forth in Public Utility Regulation included in Item 7 of SPS’ Annual Report on Form 10-K for the year ended Dec. 31, ~~2020 and in Item 2 of SPS’ Quarterly Report on~~ F o ~~rm 10-Q~~ ~~for the quarterly period ended March 31,~~ 2021 appropriately represent, in all material respects, the current status of public utility regulation and are incorporated herein by reference.

Pending and Recently Concluded Regulatory Proceedings

~~Proceeding~~

Amount
(in millions)

Filing
Date

~~Approval~~

~~2021 New Mexico Electric Rate Case~~

~~$88~~

~~January 2021~~

~~Pending~~

~~2021 Texas Electric Rate Case~~

~~$143~~

~~February 2021~~

~~Pending~~

~~Additional Information:~~

2021 New Mexico Electric Rate Case — In January 2021, SPS filed an electric rate case with the NMPRC seeking an increase in base rates of approximately $88 million. SPS' net rate increase to New Mexico customers is expected to be approximately $48 million, or 10%, as a result of the offsetting fuel cost reductions and PTCs from the Sagamore wind project. PTCs are credited to customers through the fuel clause. In June 2021, SPS revised its requested base rate increase to $84 million.

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

~~In June 2021, SPS and various parties filed an uncontested comprehensive stipulation, which includes:~~

•~~Base rate revenue increase of $62 million.~~

•~~ROE of 9.35% for purposes of filings related to (1) the Hale and Sagamore wind projects; and (2) reconciliation of the settlement revenue requirement.~~

•~~Equity ratio of 54.72%.~~

•~~Increase in depreciation expense of $6 million. This includes a change in the depreciable lives of the Tolk power plant to 2032 and coal handling assets at the Harrington facility to 2024.~~

~~A public hearing is scheduled for July 26 - Aug. 6, 2021. A NMPRC decision and implementation of final rates is anticipated in the fourth quarter of 2021.~~

2021 Texas Electric Rate Case — In ~~February~~ 2021, SPSfiled an electric rate case with the PUCT and its municipalities seeking an increase in base rates of approximately ~~$143~~$140 million. ~~SPS' net rate increase to Texas customers is expected to be approximately $74 million, or 9.2%, as~~In May 2022, the PUCT approved a ~~result of~~settlement between SPS and intervening parties, which reflects the ~~offsetting $69 million in fuel cost reductions and PTCs from the Sagamore wind project.~~

~~The request is based on a ROE of 10.35%, an equity ratio of 54.60%, a rate base of approximately $3.3 billion and a historic test year based on the 12-month period ended Dec. 31, 2020.~~

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

~~Procedural schedule expected to be as follows:~~

•~~Intervenor testimony — Aug. 13, 2021.~~following terms:

•~~Staff testimony — Aug. 20, 2021.~~

•~~Rebuttal testimony — Sept.~~Base rate increase of $89 million effective retroactively to March 15, 2021.

•~~Public hearing — Oct. 18 - Oct. 28, 2021.~~A 9.35% ROE and 7.01% weighted average cost of capital for AFUDC purposes only.

The PUCT set current rates as temporary as of March 15, 2021. Once final rates are approved, a surcharge will be requested from March 15, 2021 through the effective date of new base rates. A PUCT decision is expected in the first quarter of 2022.•Depreciation lives for Tolk accelerated to 2034 and Harrington coal assets accelerated to 2024.

~~New Mexico Integrated Resource Plan~~ —In July ~~2021,~~2022, SPS filed ~~an IRP with~~to surcharge the ~~NMPRC,~~final under-recovered amount, estimated to be approximately $85 million, substantially offset by the recognition of previously deferred costs. The impact of the retroactive amounts is as ~~required every three years. SPS is forecasting sufficient resources through 2025. A projected capacity deficit was identified totaling approximately 174 MW in 2031, increasing to 4,194 MW by 2041.~~follows:


(Millions of Dollars)	Six Months Ended June 30, 2022
Revenue surcharge accrual	$	85
Depreciation and amortization	(43)
O&M expenses	(16)
Interest expense	(12)
Taxes other than income taxes	(10)
Fuel and purchased power	(2)

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Other

Supply Chain

SPS’ 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. SPS continues to monitor the availability of materials and has sought to mitigate impacts by seeking alternative suppliers as necessary.

Winter Storm Uri

In February 2021, the United States experienced Winter Storm Uri. Extreme cold temperatures impacted certain operational assets as well as the availability of renewable generation. 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. As a result of the extremely high market prices, SPS incurred net natural gas, fuel and purchased energy costs of approximately $100 million (largely deferred as regulatory assets).

SPS has ~~provided a number of alternatives, including a proposed portfolio of resources incorporating the addition of wind generation, solar generation, firm and dispatchable peaking generation,~~electric fuel and purchased ~~power agreements.~~energy mechanisms in each jurisdiction for recovering incurred costs. However, February cost increases were deferred for future recovery proposed over a period of up to two years to significantly mitigate the impact to customer bills. SPS currently has approval for recovery of Winter Storm Uri costs in New Mexico.

Texas Regulatory Overview — In 2021, SPS filed to recover $88 million of Winter Storm Uri costs over 24 months, as part of the Texas fuel surcharge filing, with total under-recovered costs of $121 million.

In April 2022, interim rates designed to recover $121 million over 30 months were implemented. The interim rate recovery does not address the prudence of costs nor the retention of approximately $10 million related to market sales during the event. These items will ~~continue to evaluate other options including energy storage~~be reviewed through the triennial Fuel Reconciliation proceeding and ~~emerging technologies, taking into consideration cost-effectiveness. The IRP is~~are subject to ~~public comment~~a final PUCT decision.

In July 2022, the intervenors filed recommendations in the Fuel Reconciliation proceeding. The Texas Industrial Energy Consumers and ~~potential public hearings~~PUCT staff recommended disallowances of approximately $10 million (off-system sales margins). The Office of Public Utility Counsel recommended disallowances of approximately $15 million (off-system sales margins and ~~will ultimately be reviewed by~~adjustment to energy loss factors). The Alliance of Xcel Municipalities recommended disallowances of approximately $100 million (natural gas storage, contracted capability and off-system sales margins).

A hearing is scheduled to begin in August and a recommendation from the ~~NMPRC for approval.~~ALJ is expected in the fourth quarter of 2022.

Environmental

Affordable Clean Energy

In July 2019, the EPA adopted the ~~Affordable Clean Energy~~ACE 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~~ACE rule. That decision ~~if not successfully appealed or reconsidered,~~essentially held that EPA’s previous economy-wide regulatory approach taken in the 2015 CPP was consistent with the Clean Air Act. If upheld, that decision would ~~allow~~have allowed the EPA to proceed with alternate regulation of coal-fired power ~~plants.~~plants consistent with the CPP approach. However, the Court 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 approach is not consistent with the Clean Air Act. Thus, if EPA is to proceed with new rules, they must be consistent with this ruling and be more similar to the ACE rule “inside the fenceline” approach. If ~~the~~any new rules require additional investment, SPS believes ~~based on prior state commission practices,~~ that the cost of these initiatives or replacement generation would be recoverable through ~~rates.~~

~~Emerging Regulation~~

New regulations and legislation are being considered to regulate PFAS in drinking water, water discharges, commercial products, wastes, and other areas. PFAS are man-made chemicals found in many consumer products that can persist and accumulate in the environment. These chemicals have received heightened attention by environmental regulators. Increased regulation of PFAS and other emerging contaminants at the federal,rates based on prior state and local level could have a potential adverse effect on our operations but at this time, it is uncertain what impact, if any, there will be on our results of operations, financial condition or cash flows. SPS will continue to monitor these regulatory developments and their potential impact on its operationscommission practices.


ITEM 4 — CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

SPS maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms.

In addition, the disclosure controls and procedures ensure that information required to be disclosed is accumulated and communicated to management, including the CEO and CFO, allowing timely decisions regarding required disclosure.

As of June 30, ~~2021,~~2022, based on an evaluation carried out under the supervision and with the participation of SPS’ management, including the CEO and CFO, of the effectiveness of its disclosure controls and procedures, the CEO and CFO have concluded that SPS’ disclosure controls and procedures were effective.

Internal Control Over Financial Reporting

No changes in SPS’ internal control over financial reporting occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, SPS’ internal control over financial reporting.

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PART II — OTHER INFORMATION


ITEM 1 — LEGAL PROCEEDINGS

Management is sometimes unable to estimate an amount or range of a reasonably possible loss in certain situations, including but not limited to, when (1) the damages sought are indeterminate, (2) the proceedings are in the early stages or (3) the matters involve novel or unsettled legal theories. In such cases, there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including a possible eventual loss.

For current proceedings not specifically reported herein, management does not anticipate that the ultimate liabilities, if any, would have a material effect on SPS’ financial statements. Legal fees are generally expensed as incurred.

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


ITEM 1A — RISK FACTORS

SPS’ risk factors are documented in Item 1A of Part I of its Annual Report on Form 10-K for the year ended Dec. 31, ~~2020,~~2021, which is incorporated herein by reference. There have been no material changes from the risk factors previously disclosed in the Form 10-K.

~~Table of Contents~~


ITEM 6 — EXHIBITS

* Indicates incorporation by reference


Exhibit Number	Description	Report or Registration Statement	Exhibit Reference
3.01*	Amended and Restated Articles of Incorporation, dated Sept. 30, 1997	SPS Form 10-Q for the quarter ended Sept. 30, 2017	3.01
3.02*	Amended and Restated Bylaws of SPS, dated Jan. 25, 2019	SPS Form 10-K for the year ended Dec. 31, 2018	3.02
4.01*	Supplemental Indenture No. 9 dated as of May 1, 2022 between SPS and U.S. Bank Trust Company, National Association (as successor to U.S. Bank National Association), as trustee, creating $200 million principal amount of 5.15% First Mortgage Bonds, S eries No. 9 due 2052	SPS Form 8-K dated May 31, 2022	4.02
31.01	Principal Executive Officer’s certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.02	Principal Financial Officer’s certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.01	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Schema
101.CAL	Inline XBRL Calculation
101.DEF	Inline XBRL Definition
101.LAB	Inline XBRL Label
101.PRE	Inline XBRL Presentation
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		Southwestern Public Service Company

~~July 29, 2021~~7/28/2022	By:	~~/s/ JEFFREY S. SAVAGE~~
		~~Jeffrey S. Savage~~
		~~Senior Vice President, Controller~~
		~~(Principal Accounting Officer)~~

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

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