UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~Sept. 30, 2021~~March 31, 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 ~~Oct.~~April 28, ~~2021~~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	1615
Item 1A —	Risk Factors	1615
Item 6 —	Exhibits	16

SIGNATURES		17

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
~~ERCOT~~			~~Electric Reliability Council of Texas~~
FERC			Federal Energy Regulatory Commission
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
~~AFUDC~~BART			~~Allowance for funds used during construction~~
~~ASC~~			~~FASB Accounting Standards Codification~~
~~C&I~~			~~Commercial and Industrial~~Best available retrofit technology
CEO			Chief executive officer
CFO			Chief financial officer
COVID-19			Novel coronavirus
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
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 impact on our results of operations, financial condition and cash flows of resettlement calculations and credit losses relating to certain energy transactions, as well as assumptions and other statements are intended to be identified in this document by the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “objective,” “outlook,” “plan,” “project,” “possible,” “potential,” “should,” “will,” “would” and similar expressions. Actual results may vary materially. Forward-looking statements speak only as of the date they are made, and we expressly disclaim any obligation to update any forward-looking information. The following factors, in addition to those discussed in SPS’ Annual Report on Form 10-K for the fiscal year ended Dec. 31, ~~2020~~2021 and subsequent filings with the SEC, could cause actual results to differ materially from management expectations as suggested by such forward-looking information: uncertainty around the impacts and duration of the COVID-19 ~~pandemic;~~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 Code 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/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; 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 Sept. 30				Nine Months Ended Sept. 30					Three Months Ended March 31
		2021		2020		2021		2020			2022		2021
Operating revenues	Operating revenues	$	575	$	615	$	2,007	$	1,434	Operating revenues	$	477	$	934

Operating expenses	Operating expenses									Operating expenses
Electric fuel and purchased power	Electric fuel and purchased power	250		240		1,195		627		Electric fuel and purchased power	237		693
Operating and maintenance expenses	Operating and maintenance expenses	66		78		208		207		Operating and maintenance expenses	72		71
Demand side management expenses	Demand side management expenses	5		5		13		12		Demand side management expenses	5		4
Depreciation and amortization	Depreciation and amortization	71		100		227		223		Depreciation and amortization	78		78
Taxes (other than income taxes)	Taxes (other than income taxes)	20		29		59		68		Taxes (other than income taxes)	25		21
Total operating expenses	Total operating expenses	412		452		1,702		1,137		Total operating expenses	417		867

Operating income	Operating income	163		163		305		297		Operating income	60		67

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

Allowance for funds used during construction — equity	Allowance for funds used during construction — equity	1		10		3		24		Allowance for funds used during construction — equity	—		1

Interest charges and financing costs	Interest charges and financing costs									Interest charges and financing costs
Interest charges — includes other financing costs of $1, $1, $3 and $3, respectively		28		39		87		89
Allowance for funds used during construction — debt		—		(4)		(1)		(10)
Interest charges — includes other financing costs of $1 and $1, respectively										Interest charges — includes other financing costs of $1 and $1, respectively	29		30

Total interest charges and financing costs	Total interest charges and financing costs	28		35		86		79		Total interest charges and financing costs	29		30

Income before income taxes	Income before income taxes	136		138		223		240		Income before income taxes	31		39
Income tax expense (benefit)		2		11		(37)		(2)
Income tax benefit										Income tax benefit	(21)		(19)
Net income	Net income	$	134	$	127	$	260	$	242	Net income	$	52	$	58

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)


		Nine Months Ended Sept. 30					Three Months Ended March 31
		2021		2020			2022		2021
Operating activities	Operating activities					Operating activities
Net income	Net income	$	260	$	242	Net income	$	52	$	58
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	229		225		Depreciation and amortization	79		79
Deferred income taxes	Deferred income taxes	(31)		25		Deferred income taxes	(2)		(19)
Allowance for equity funds used during construction	Allowance for equity funds used during construction	(3)		(24)		Allowance for equity funds used during construction	—		(1)
Provision for bad debts	Provision for bad debts	6		5		Provision for bad debts	2		2
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(66)		(31)		Accounts receivable	(26)		(1)
Accrued unbilled revenues	Accrued unbilled revenues	(20)		(4)		Accrued unbilled revenues	—		3
Inventories	Inventories	(14)		(24)		Inventories	(6)		(17)
Prepayments and other	Prepayments and other	21		(14)		Prepayments and other	(8)		21
Accounts payable	Accounts payable	6		(3)		Accounts payable	—		56
Net regulatory assets and liabilities	Net regulatory assets and liabilities	(113)		(96)		Net regulatory assets and liabilities	3		(95)
Other current liabilities	Other current liabilities	19		15		Other current liabilities	(3)		(3)
Pension and other employee benefit obligations	Pension and other employee benefit obligations	(16)		(15)		Pension and other employee benefit obligations	1		(15)
Other, net	Other, net	(2)		3		Other, net	(3)		(2)
Net cash provided by operating activities	Net cash provided by operating activities	276		304		Net cash provided by operating activities	89		66

Investing activities	Investing activities					Investing activities
Utility capital/construction expenditures	Utility capital/construction expenditures	(446)		(845)		Utility capital/construction expenditures	(123)		(172)
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	(446)		(845)		Net cash used in investing activities	(123)		(172)

Financing activities	Financing activities					Financing activities
Repayments of short-term borrowings, net		(232)		—
Proceeds from (repayments of) short-term borrowings, net						Proceeds from (repayments of) short-term borrowings, net	75		(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	—		247
Borrowings under utility money pool arrangement	Borrowings under utility money pool arrangement	539		721		Borrowings under utility money pool arrangement	202		213
Repayments under utility money pool arrangement	Repayments under utility money pool arrangement	(439)		(711)		Repayments under utility money pool arrangement	(193)		(213)
Capital contributions from parent	Capital contributions from parent	304		435		Capital contributions from parent	8		304
Dividends paid to parent	Dividends paid to parent	(254)		(257)		Dividends paid to parent	(58)		(54)

Net cash provided by financing activities	Net cash provided by financing activities	165		531		Net cash provided by financing activities	34		247

Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	(5)		(10)		Net change in cash, cash equivalents and restricted cash	—		141
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	$	1	$	6	Cash, cash equivalents and restricted cash at end of period	$	1	$	147

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)	$	(75)	$	(69)	Cash paid for interest (net of amounts capitalized)	$	(21)	$	(19)
Cash received for income taxes, net	Cash received for income taxes, net	19		4		Cash received for income taxes, net	3		14

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	$	111	Accrued property, plant and equipment additions	$	38	$	54
Inventory transfers to property, plant and equipment	Inventory transfers to property, plant and equipment	6		22		Inventory transfers to property, plant and equipment	4		7

Allowance for equity funds used during construction	Allowance for equity funds used during construction	3		24		Allowance for equity funds used during construction	—		1

See Notes to Financial Statements

Table of Contents

SOUTHWESTERN PUBLIC SERVICE COMPANY

BALANCE SHEETS (UNAUDITED)

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


		Sept. 30, 2021		Dec. 31, 2020			March 31, 2022		Dec. 31, 2021
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	1	$	6	Cash and cash equivalents	$	1	$	1
Accounts receivable, net	Accounts receivable, net	149		94		Accounts receivable, net	137		115
Accounts receivable from affiliates	Accounts receivable from affiliates	12		9		Accounts receivable from affiliates	10		9
Accrued unbilled revenues	Accrued unbilled revenues	134		114		Accrued unbilled revenues	125		125
Inventories	Inventories	44		36		Inventories	53		51
Regulatory assets	Regulatory assets	173		76		Regulatory assets	130		193
Derivative instruments	Derivative instruments	40		10		Derivative instruments	30		30
Prepaid taxes	Prepaid taxes	3		18		Prepaid taxes	20		3
Prepayments and other	Prepayments and other	16		20		Prepayments and other	11		21
Total current assets	Total current assets	572		383		Total current assets	517		548

Property, plant and equipment, net	Property, plant and equipment, net	7,790		7,603		Property, plant and equipment, net	7,891		7,838

Other assets	Other assets					Other assets
Regulatory assets	Regulatory assets	394		357		Regulatory assets	447		380
Derivative instruments	Derivative instruments	7		9		Derivative instruments	10		6
Operating lease right-of-use assets	Operating lease right-of-use assets	471		492		Operating lease right-of-use assets	456		463
Other	Other	14		15		Other	28		27
Total other assets	Total other assets	886		873		Total other assets	941		876
Total assets	Total assets	$	9,248	$	8,859	Total assets	$	9,349	$	9,262

Liabilities and Equity	Liabilities and Equity					Liabilities and Equity
Current liabilities	Current liabilities					Current liabilities
Short-term debt	Short-term debt	$	18	$	250	Short-term debt	$	212	$	137
Borrowings under utility money pool arrangement	Borrowings under utility money pool arrangement	100		—		Borrowings under utility money pool arrangement	100		91
Accounts payable	Accounts payable	182		198		Accounts payable	172		172
Accounts payable to affiliates	Accounts payable to affiliates	14		17		Accounts payable to affiliates	18		16
Regulatory liabilities	Regulatory liabilities	84		57		Regulatory liabilities	52		54
Taxes accrued	Taxes accrued	59		54		Taxes accrued	33		47
Accrued interest	Accrued interest	38		29		Accrued interest	38		30
Dividends payable to parent	Dividends payable to parent	53		54		Dividends payable to parent	53		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	26		25		Other	27		24
Total current liabilities	Total current liabilities	607		716		Total current liabilities	739		663

Deferred credits and other liabilities	Deferred credits and other liabilities					Deferred credits and other liabilities
Deferred income taxes	Deferred income taxes	714		725		Deferred income taxes	703		702
Regulatory liabilities	Regulatory liabilities	712		718		Regulatory liabilities	721		709
Asset retirement obligations	Asset retirement obligations	115		112		Asset retirement obligations	117		116
Derivative instruments	Derivative instruments	7		9		Derivative instruments	5		6
Pension and employee benefit obligations	Pension and employee benefit obligations	26		42		Pension and employee benefit obligations	8		8
Operating lease liabilities	Operating lease liabilities	441		463		Operating lease liabilities	426		434
Other	Other	8		12		Other	7		8
Total deferred credits and other liabilities	Total deferred credits and other liabilities	2,023		2,081		Total deferred credits and other liabilities	1,987		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	3,013		3,013
Common stock — 200 shares authorized of $1.00 par value; 100 shares outstanding at Sept. 30, 2021 and Dec. 31, 2020, respectively		—		—
Common stock — 200 shares authorized of $1.00 par value; 100 shares outstanding at March 31, 2022 and Dec. 31, 2021, respectively						Common stock — 200 shares authorized of $1.00 par value; 100 shares outstanding at March 31, 2022 and Dec. 31, 2021, respectively	—		—
Additional paid in capital	Additional paid in capital	3,091		2,790		Additional paid in capital	3,099		3,091
Retained earnings	Retained earnings	516		509		Retained earnings	512		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	3,606		3,298		Total common stockholder's equity	3,610		3,603
Total liabilities and equity	Total liabilities and equity	$	9,248	$	8,859	Total liabilities and equity	$	9,349	$	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 Sept. 30, 2021 and 2020
Balance at June 30, 2020		100	$	—	$	2,787	$	519	$	(1)		$	3,305
Net income							127					127

Dividends declared to parent							(136)					(136)
Balance at Sept. 30, 2020		100	$	—	$	2,787	$	510	$	(1)		$	3,296

Balance at June 30, 2021		100	$	—	$	3,094	$	504	$	(1)		$	3,597
Net income							134					134

Dividends declared to parent							(122)					(122)
Contributions of capital by parent					(3)							(3)
Balance at Sept. 30, 2021		100	$	—	$	3,091	$	516	$	(1)		$	3,606

		Common Stock Issued					Retained Earnings		Accumulated Other Comprehensive Loss			Total Common Stockholder's Equity
		Shares	Par Value		Additional Paid In Capital
Nine Months Ended Sept. 30, 2021 and 2020
Balance at Dec. 31, 2019		100	$	—	$	2,351	$	535	$	(1)		$	2,885
Net income							242					242

Dividends declared to parent							(267)					(267)
Contributions of capital by parent					436							436
Balance at Sept. 30, 2020		100	$	—	$	2,787	$	510	$	(1)		$	3,296

Three Months Ended March 31, 2022 and 2021														Three Months Ended March 31, 2022 and 2021
Balance at Dec. 31, 2020	Balance at Dec. 31, 2020	100	$	—	$	2,790	$	509	$	(1)		$	3,298	Balance at Dec. 31, 2020	100		$	—	$	2,790	$	509	$	(1)	$	3,298
Net income	Net income						260					260		Net income							58				58

Dividends declared to parent	Dividends declared to parent						(253)					(253)		Dividends declared to parent							(52)				(52)
Contributions of capital by parent	Contributions of capital by parent				301							301		Contributions of capital by parent					304						304
Balance at March 31, 2021														Balance at March 31, 2021	100		$	—	$	3,094	$	515	$	(1)	$	3,608

Balance at Sept. 30, 2021		100	$	—	$	3,091	$	516	$	(1)		$	3,606
Balance at Dec. 31, 2021														Balance at Dec. 31, 2021	100		$	—	$	3,091	$	513	$	(1)	$	3,603
Net income														Net income							52				52

See Notes to Financial Statements
Dividends declared to parent														Dividends declared to parent							(53)				(53)
Contributions of capital by parent														Contributions of capital by parent					8						8
Balance at March 31, 2022														Balance at March 31, 2022	100		$	—	$	3,099	$	512	$	(1)	$	3,610

Table of Contents

SOUTHWESTERN PUBLIC SERVICE COMPANY

Notes to Financial Statements (UNAUDITED)

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

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 March 31, 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)	Sept. 30, 2021		Dec. 31, 2020		(Millions of Dollars)	March 31, 2022		Dec. 31, 2021
Accounts receivable, net	Accounts receivable, net					Accounts receivable, net
Accounts receivable	Accounts receivable	$	160	$	102	Accounts receivable	$	149	$	127
Less allowance for bad debts	Less allowance for bad debts	(11)		(8)		Less allowance for bad debts	(12)		(12)
Accounts receivable, net	Accounts receivable, net	$	149	$	94	Accounts receivable, net	$	137	$	115


(Millions of Dollars)	March 31, 2022		Dec. 31, 2021
Inventories
Materials and supplies	$	34	$	29
Fuel	19		22
Total inventories	$	53	$	51

(Millions of Dollars) Sept. 30, 2021 Dec. 31, 2020
Inventories
Materials and supplies $ 29 $ 27
Fuel 15 9
Total inventories $ 44 $ 36


(Millions of Dollars)	(Millions of Dollars)	Sept. 30, 2021		Dec. 31, 2020		(Millions of Dollars)	March 31, 2022		Dec. 31, 2021
Property, plant and equipment, net	Property, plant and equipment, net					Property, plant and equipment, net
Electric plant	Electric plant	$	9,439	$	9,229	Electric plant	$	9,734	$	9,639
Plant to be retired (a)	Plant to be retired (a)	303		316		Plant to be retired (a)	285		299
CWIP	CWIP	285		146		CWIP	195		171
Total property, plant and equipment	Total property, plant and equipment	10,027		9,691		Total property, plant and equipment	10,214		10,109
Less accumulated depreciation	Less accumulated depreciation	(2,237)		(2,088)		Less accumulated depreciation	(2,323)		(2,271)
Property, plant and equipment, net	Property, plant and equipment, net	$	7,790	$	7,603	Property, plant and equipment, net	$	7,891	$	7,838

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


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 Sept. 30, 2021			Year Ended Dec. 31, 2020			(Amounts in Millions, Except Interest Rates)	Three Months Ended March 31, 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	100			—			Amount outstanding at period end	100			91
Average amount outstanding	Average amount outstanding	78			43			Average amount outstanding	67			51
Maximum amount outstanding	Maximum amount outstanding	100			100			Maximum amount outstanding	100			100
Weighted average interest rate, computed on a daily basis	Weighted average interest rate, computed on a daily basis	0.05		%	0.54		%	Weighted average interest rate, computed on a daily basis	0.13		%	0.05		%
Weighted average interest rate at period end	Weighted average interest rate at period end	0.05			N/A			Weighted average interest rate at period end	0.19			0.05

Commercial Paper — Commercial paper outstanding for SPS:


(Amounts in Millions, Except Interest Rates)	(Amounts in Millions, Except Interest Rates)	Three Months Ended Sept. 30, 2021			Year Ended Dec. 31, 2020			(Amounts in Millions, Except Interest Rates)	Three Months Ended March 31, 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	18			250			Amount outstanding at period end	212			137
Average amount outstanding	Average amount outstanding	1			44			Average amount outstanding	233			63
Maximum amount outstanding	Maximum amount outstanding	18			250			Maximum amount outstanding	324			342
Weighted average interest rate, computed on a daily basis	Weighted average interest rate, computed on a daily basis	0.15		%	1.11		%	Weighted average interest rate, computed on a daily basis	0.39		%	0.21		%
Weighted average interest rate at period end	Weighted average interest rate at period end	0.13			0.29			Weighted average interest rate at period end	0.83			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 ~~Sept. 30, 2021~~March 31, 2022 and Dec. 31, ~~2020,~~2021, there were $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 ~~Sept. 30, 2021,~~March 31, 2022, SPS had the following committed revolving credit facility available (in millions of dollars):


Credit Facility (a)	Credit Facility (a)	Drawn (b)		Available		Credit Facility (a)	Drawn (b)		Available
$	500	$	20	$	480	500	$	214	$	286

(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 no direct advances on the credit facility outstanding as of ~~Sept. 30, 2021~~March 31, 2022 and Dec. 31, ~~2020.~~

~~Long-Term Borrowings~~

~~During the nine months ended Sept. 30, 2021,~~ ~~SPS issued $250 million of 3.15% first mortgage bonds due May 1, 2050.~~2021.


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 Sept. 30					Three Months Ended March 31
(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	$	126	$	121	Residential	$	97	$	91
C&I		241		219
Commercial and Industrial						Commercial and Industrial	222		189
Other	Other	11		13		Other	8		9
Total retail	Total retail	378		353		Total retail	327		289
Wholesale	Wholesale	109		109		Wholesale	69		558
Transmission	Transmission	75		74		Transmission	72		71
Other	Other	2		1		Other	3		2
Total revenue from contracts with customers	Total revenue from contracts with customers	564		537		Total revenue from contracts with customers	471		920
Alternative revenue and other	Alternative revenue and other	11		78		Alternative revenue and other	6		14
Total revenues	Total revenues	$	575	$	615	Total revenues	$	477	$	934

Nine Months Ended Sept. 30
(Millions of Dollars) 2021 2020
Major revenue types
Revenue from contracts with customers:
Residential $ 302 $ 278
C&I 631 552
Other 30 30
Total retail 963 860
Wholesale 785 264
Transmission 218 212
Other 6 3
Total revenue from contracts with customers 1,972 1,339
Alternative revenue and other 35 95
Total revenues $ 2,007 $ 1,434


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~~2021 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 between the statutory rate and ETR:


		Nine Months Ended Sept. 30					Three Months Ended March 31
		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)	2.5		2.4		State tax (net of federal tax effect)	2.5		2.6
Decreases in tax from:	Decreases in tax from:					Decreases in tax from:
Wind PTCs	Wind PTCs	(32.9)		(15.6)		Wind PTCs	(87.2)		(65.5)
Plant regulatory differences ~~(b)~~(a)	Plant regulatory differences ~~(b)~~(a)	(4.9)		(6.2)		Plant regulatory differences ~~(b)~~(a)	(4.0)		(4.7)

Amortization of excess nonplant deferred taxes	Amortization of excess nonplant deferred taxes	(1.1)		(0.8)		Amortization of excess nonplant deferred taxes	(1.1)		(1.2)
Other (net)	Other (net)	(1.2)		(1.6)		Other (net)	1.1		(0.9)
Effective income tax rate	Effective income tax rate	(16.6)	%	(0.8)	%	Effective income tax rate	(67.7)	%	(48.7)	%

(a)~~Prior periods have been restated to conform to current year presentation.~~

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

~~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~~						~~December 2022~~
~~2018~~						~~September 2022~~

Additionally, the statute of limitations related to certain federal tax credit carryforwards will remain open until those credits are utilized in subsequent returns. Further, 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 Sept. 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) Sept. 30, 2021 Dec. 31, 2020
Unrecognized tax benefit — Permanent tax positions $ 4 $ 3
Unrecognized tax benefit — Temporary tax positions 4 4
Total unrecognized tax benefit $ 8 $ 7

~~Table of Contents~~

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

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

As the Internal Revenue Service 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) Sept. 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 — (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 Sept. 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 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.

Electric commodity derivatives held by SPS include transmission congestion instruments, generally referred to as FTRs, purchased from SPP. 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 of an FTR is derived from and designed to offset, the cost of transmission congestion. In addition to overall transmission load, congestion is also influenced by the operating schedules of power plants and the consumption of electricity pertinent to a given transmission path. Unplanned plant outages, scheduled plant maintenance, changes in the relative costs of fuels used in generation, weather and overall changes in demand for electricity can each impact the operating schedules of the power plants on the transmission grid and the value of an FTR.

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If forecasted costs of electric transmission congestion increase or decrease for a given FTR path, the value of that particular FTR instrument will likewise increase or decrease. Given the limited observability of ~~certain~~important inputs to the value of FTRs between auction processes, including expected plant operating schedules and retail and wholesale demand, fair value measurements for FTRs have been assigned a Level 3. Non-trading monthly FTR settlements are expected to be recovered through fuel and purchased energy cost recovery mechanisms, and therefore changes in the fair value of the yet to be settled portions of ~~most~~ FTRs are deferred as a regulatory asset or liability. Given this regulatory treatment and the limited magnitude of FTRs relative to the electric utility operations of SPS, the numerous unobservable quantitative inputs pertinent to the value of FTRs are 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 ~~Sept. 30, 2021,~~March 31, 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 March 31, 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)

Sept. 30, 2021

Dec. 31, 2020

Amounts in Millions (a)

March 31, 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 ~~Sept. 30, 2021,~~March 31, 2022, 2 of the 8 most significant counterparties for these activities, comprising ~~$11~~$8 million, or ~~29%~~21%, 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 ~~$27~~$28 million, or ~~70%~~78%, 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 no gains or immaterial losses related to interest rate derivatives reclassified from accumulated other comprehensive loss into earnings for the three ~~and nine~~ months ended ~~Sept. 30, 2021~~March 31, 2022 and ~~2020.~~2021.

Changes in the fair value of FTRs resulting in pre-tax net gains of $5$1 million and ~~$15~~$2 million recognized for the three ~~and nine~~ months ended ~~Sept. 30,~~March 31, 2022 and 2021, respectively, which were reclassified as ~~regulatory assets or liabilities. There were $3 million and $5 million of pre-tax net losses recognized for the three and nine months ended Sept. 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 $4$12 million and gains of ~~$13~~$4 million were recognized for the three ~~and nine~~ months ended ~~Sept. 30,~~March 31, 2022, and 2021, respectively, and were recorded to electric fuel and purchased ~~power. Settlement gains of $2 million and $4 million were recognized for the three and nine months ended Sept. 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.

SPS had no derivative instruments designated as fair value hedges during the three ~~and nine~~ months ended ~~Sept. 30, 2021~~March 31, 2022 and ~~2020.~~2021.

Table of Contents

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

Sept. 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 $ — $ — $ 37 $ 37 $ — $ 37 $ — $ — $ 7 $ 7 $ — $ 7
Total current derivative assets $ — $ — $ 37 $ 37 $ — 37 $ — $ — $ 7 $ 7 $ — 7
PPAs (b)
3 3
Current derivative instruments $ 40 $ 10
Noncurrent derivative assets
PPAs (b)
7 9
Noncurrent derivative instruments $ 7 $ 9


		Sept. 30, 2021								Dec. 31, 2020																March 31, 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 assets														Current derivative assets
Other derivative instruments:														Other derivative instruments:
Electric commodity														Electric commodity				$	—				$	—			$	28		$	28	$	(1)		$	27		$	—			$	—		$	27	$	27	$	—		$	27
Total current derivative assets														Total current derivative assets				$	—				$	—			$	28		$	28	$	(1)		27			$	—			$	—		$	27	$	27	$	—		27
PPAs (b)														PPAs (b)																					3																	3
Current derivative instruments														Current derivative instruments																					$	30																$	30
Noncurrent derivative assets														Noncurrent derivative assets
Other derivative instruments:														Other derivative instruments:
Electric commodity														Electric commodity				$	—				$	—			$	5		$	5	$	—		$	5		$	—			$	—		$	—	$	—	$	—		$	—
Total noncurrent derivative assets														Total noncurrent derivative assets				$	—				$	—			$	5		$	5	$	—		5			$	—			$	—		$	—	$	—	$	—		—
PPAs (b)														PPAs (b)																					5																	6
Noncurrent derivative instruments														Noncurrent derivative instruments																					$	10																$	6
Current derivative liabilities	Current derivative liabilities																										Current derivative liabilities
Other derivative instruments:	Other derivative instruments:															Other derivative instruments:

Electric commodity														Electric commodity				$	—				$	—			$	1		$	1	$	(1)		$	—		$	—			$	—		$	—	$	—	$	—		$	—
Total current derivative liabilities														Total current derivative liabilities				$	—				$	—			$	1		$	1	$	(1)		—			$	—			$	—		$	—	$	—	$	—		—
PPAs (b)	PPAs (b)							$	4											$	4	PPAs (b)																		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)	PPAs (b)							$	7											$	9	PPAs (b)																		$	5														$	6
Noncurrent derivative instruments	Noncurrent derivative instruments							$	7											$	9	Noncurrent derivative instruments																		$	5														$	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 ~~Sept. 30, 2021~~March 31, 2022 and Dec. 31, ~~2020.~~2021. At ~~Sept. 30, 2021~~March 31, 2022 and Dec. 31, ~~2020,~~2021, derivative assets and liabilities include no obligations to return cash collateral or rights to reclaim cash collateral. The counterparty netting excludes settlement receivables and payables and non-derivative amounts that may be subject to the same master netting agreements.

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

~~Table of Contents~~

Changes in Level 3 commodity derivatives for the three ~~and nine~~ months ended ~~Sept. 30, 2021~~March 31, 2022 and ~~2020:~~2021:


		Three Months Ended Sept. 30					Three Months Ended March 31
(Millions of Dollars)	(Millions of Dollars)	2021		2020		(Millions of Dollars)	2022		2021
Balance at July 1		$	41	$	16
Balance at Jan 1						Balance at Jan 1	$	27	$	7
Purchases	Purchases	2		—		Purchases	4		—
Settlements	Settlements	(18)		(1)		Settlements	(33)		(9)
Net transactions recorded during the period:	Net transactions recorded during the period:					Net transactions recorded during the period:
Net gains (losses) recognized as regulatory assets and liabilities	Net gains (losses) recognized as regulatory assets and liabilities	12		(4)		Net gains (losses) recognized as regulatory assets and liabilities	34		14
Balance at Sept. 30		$	37	$	11
Balance at March 31						Balance at March 31	$	32	$	12

		Nine Months Ended Sept. 30
(Millions of Dollars)		2021		2020
Balance at Jan. 1		$	7	$	12
Purchases		11		21
Settlements		(39)		(18)
Net transactions recorded during the period:
Net gains (losses) recognized as regulatory assets and liabilities		58		(4)
Balance at Sept. 30		$	37	$	11

SPS recognizes transfers between levels as of the beginning of each period. There were no transfers of amounts between levels for derivative instruments for the three ~~and nine~~ months ended ~~Sept. 30, 2021~~March 31, 2022 and ~~2020.~~2021.

Fair Value of Long-Term Debt

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


		Sept. 30, 2021				Dec. 31, 2020					March 31, 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	$	3,478	$	2,764	$	3,381	Long-term debt	$	3,013	$	3,057	$	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 ~~Sept. 30, 2021~~March 31, 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 Sept. 30									Three Months Ended March 31
		2021		2020		2021		2020			2022		2021
(Millions of Dollars)	(Millions of Dollars)	Pension Benefits				Postretirement Health Care Benefits				(Millions of Dollars)	Pension Benefits
Service cost	Service cost	$	3	$	2	$	—	$	—	Service cost	$	2	$	2
Interest cost (a)	Interest cost (a)	3		5		—		—		Interest cost (a)	4		4
Expected return on plan assets (a)	Expected return on plan assets (a)	(7)		(7)		—		—		Expected return on plan assets (a)	(8)		(7)

Amortization of net loss (a)	Amortization of net loss (a)	4		3		—		—		Amortization of net loss (a)	3		4
Net periodic benefit cost	Net periodic benefit cost	$	3	$	3	$	—	$	—	Net periodic benefit cost	$	1	$	3
Effects of regulation	Effects of regulation	(1)		—		—		—		Effects of regulation	1		—
Net benefit cost recognized for financial reporting	Net benefit cost recognized for financial reporting	$	2	$	3	$	—	$	—	Net benefit cost recognized for financial reporting	$	2	$	3

Nine Months Ended Sept. 30
2021 2020 2021 2020
(Millions of Dollars) Pension Benefits Postretirement Health
Care Benefits
Service cost $ 8 $ 7 $ — $ —
Interest cost (a)
11 13 — 1
Expected return on plan assets (a)
(22) (22) (1) (1)
Amortization of net loss (a)
11 10 — —
Net periodic benefit cost (credit) $ 8 $ 8 $ (1) $ —
Effects of regulation — 2 — —
Net benefit cost (credit) recognized for financial reporting $ 8 $ 10 $ (1) $ —

(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, 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.

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. In August 2021, the D.C. Circuit issued a decision denying these appeals and upholding the 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. ~~FERC has asked that this appeal be stayed until early~~In February 2022, ~~in order to provide FERC with time to issue an order on SPS’ April 2018 rehearing request. The D.C. Circuit appeal may resume after that FERC order is issued.~~

~~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,~~ 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. SPS filed a brief on exceptions to this decision, asking FERC to discard the judge’s recommendation and deny the proposed GridLiance rate recovery. The matter is now pending with FERC, which will rule on the judge’s decision and either sustain it, overturn it, or order further proceedings.hearing. SPS has ~~incurred approximately $20 million in associated charges as of Sept. 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). 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 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, SPS would prospectively discontinue charging its current 50 basis point ROE incentive adders. Amounts related to a discontinuance of the adder would ultimately be offset by an increase in retail rates, subject to future rate cases.

Environmental

Manufactured Gas Plant, Landfill and Disposal Sites —

SPS is remediating a former disposal site. SPS has recognized its best estimate of costs/liabilities from final resolution of these issues, however, the outcome and timing isare unknown. In addition, there may be insurance recovery and/or recovery from other potentially responsible parties, offsetting a portion of costs incurred.

Environmental Requirements — 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. Investment costs associated with dry scrubbers could be $600 million. SPS appealed the EPA’s decision and obtained a stay of the final rule.

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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 Sept. 30					Three Months Ended March 31
(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	$	13	PPA capacity payments	$	13	$	13
Other operating leases (a)	Other operating leases (a)	—		1		Other operating leases (a)	2		1
Total operating lease expense (b)	Total operating lease expense (b)	$	13	$	14	Total operating lease expense (b)	$	15	$	14

(a)Includes immaterial 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 expense~~operating and ~~electric fuel and purchased power.~~

Nine Months Ended Sept. 30
(Millions of Dollars) 2021 2020
Operating leases
PPA capacity payments $ 40 $ 35
Other operating leases (a)
2 3
Total operating lease expense (b)
$ 42 $ 38

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

~~(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~~maintenance expense and electric fuel and purchased power.

Commitments under operating leases as of ~~Sept. 30, 2021:~~March 31, 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	$	555	$	56	$	611	Total minimum obligation	$	532	$	55	$	587
Interest component of obligation	Interest component of obligation	(125)		(16)		(141)		Interest component of obligation	(115)		(16)		(131)
Present value of minimum obligation	Present value of minimum obligation	$	430	$	40	470		Present value of minimum obligation	$	417	$	39	456
Less current portion	Less current portion					(29)		Less current portion					(30)
Noncurrent operating and finance lease liabilities	Noncurrent operating and finance lease liabilities					$	441	Noncurrent operating and finance lease liabilities					$	426

~~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 they purchase. These specific PPAs create a variable interest in the IPP.

SPS had approximately 1,197 MW of capacity under long-term PPAs at both ~~Sept. 30, 2021~~March 31, 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.

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

Discussion of financial condition and liquidity for 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 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 months ended March 31, 2022 and 2021, there were no such adjustments to GAAP earnings and therefore GAAP earnings equal ongoing earnings.


Results of Operations

SPS’ net income was approximately $52 million for the three months ended March 31, 2022 compared with approximately $58 million for the prior year. The decrease was primarily due to taxes (other than income taxes) and impacts associated with Winter Storm Uri, partially offset by favorable sales.

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 $260 million for the nine months ended Sept. 30, 2021 compared with approximately $242 million for the prior year, reflecting higher electric margin (capital investment recovery and regulatory outcomes), partially offset by decreased AFUDC.

~~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~~income taxes.

Electric Revenues, Fuel and ~~unit cost changes in fuel~~Purchased Power and purchased power. Changes in fuel or purchased power costs can impact earnings as the fuel and purchased power cost recovery mechanisms of the Texas and New Mexico jurisdictions may not allow for complete recovery of all expenses.Electric Margin

~~Electric revenues and margin:~~


		Nine Months Ended Sept. 30					Three Months Ended March 31
(Millions of Dollars)	(Millions of Dollars)	2021		2020		(Millions of Dollars)	2022		2021
Electric revenues (a)	Electric revenues (a)	$	2,007	$	1,434	Electric revenues (a)	$	477	$	934
Electric fuel and purchased power (a)	Electric fuel and purchased power (a)	(1,195)		(627)		Electric fuel and purchased power (a)	(237)		(693)
Electric margin	Electric margin	$	812	$	807	Electric margin	$	240	$	241

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

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Changes in electric margin:


(Millions of Dollars)	~~Nine~~Three Months Ended ~~Sept. 30,~~March 31, 2022 vs. 2021 ~~vs. 2020~~
Regulatory rate outcomes (Texas and New Mexico)	$	6312
Sales and demand	20
~~Wholesale transmission revenue (net)~~	11


~~Texas 2019 rate case surcharge~~ ~~(a)~~	~~(70)~~13
PTCs flowed back to customers (offset by lower ETR)	~~(34)~~(9)
Proprietary commodity trading, net of sharing (a)	(4)




Other (net)	15 (13)
Total ~~increase in electric margin~~decrease	$	5 (1)

(a)~~Impact to electric~~Includes $4 million of trading margin ~~is due to the Texas rate case outcome, which was~~ recognized in the ~~third~~first quarter of ~~2020 and was largely offset~~2021, driven by ~~recognition of previously deferred costs.~~market changes associated with Winter Storm Uri.

Non-Fuel Operating Expense and Other Items

~~AFUDC, Equity and Debt~~Taxes (other than income taxes) — ~~AFUDC decreased $30~~Taxes (other than income taxes) increased $4 million ~~year-to-date,~~for the first quarter, primarily ~~due to construction of the Sagamore wind farm.~~driven by an increase in property tax expense.

Income Taxes — Income tax benefit increased ~~$35~~$2 million for the first ~~nine months of 2021.~~quarter. The increase was primarily driven by lower pretax earnings in 2022 and an increase in wind PTCs. Wind PTCs are largely credited to customers (recorded as a reduction to revenue) and do not have a material impact on net income.

In April 2022, the Internal Revenue Service published inflation factors used to determine the PTC rate. As a result, the 2022 PTC rate on the sale of electricity produced from wind is 2.7 cents per kilowatt hour, compared to 2.5 cents for 2021.

See Note 6 to the financial statements for further information.


~~Other~~

~~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) in the first quarter.

~~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.

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~~Proceedings initiated:~~


~~Jurisdiction~~			~~Regulatory Status~~
~~Texas~~			As part of the Texas fuel surcharge filing, SPS filed for recovery of $76 million, over 24 months, in under-collected purchased power and fuel costs through March 2021, subject to revision due to re-settlements. Of this amount, $62 million was attributed to Winter Storm Uri. In the third quarter, SPS filed a supplemental application and testimony to recover an additional $26 million in under-collected purchased power and fuel costs through June 2021 resulting primarily from SPP resettlements and continued increases in natural gas prices. The proposed recovery remains over 24 months beginning in February 2022. In October 2021, intervenors proposed a $10 million disallowance of Winter Storm Uri off-system sales margin in addition to recommending an extended recovery period. A public hearing is scheduled to begin on Nov. 1, 2021, with a final PUCT decision expected in early 2022.
~~New Mexico~~			~~The NMPRC approved SPS' request to recover $26 million of fuel costs over 24 months with no financing charge, subject to 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. SPS 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 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~~ ~~Form 10-Q~~ ~~for the quarterly period ended March 31, 2021 and Quarterly Report on~~ ~~Form 10-Q~~ ~~for the quarterly period ended June 30,~~ 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~~

~~$62~~

~~June 2021~~

~~Pending~~

~~2021 Texas Electric Rate Case~~

~~$140~~

~~February 2021~~

~~Pending~~

~~Additional Information:~~

2021 New Mexico Electric Rate Case — In January 2021, SPS filed an electric rate case with the NMPRC with a current requested base rate increase of ~~approximately~~ $84 million.

~~The request was based on~~In February 2022, the NMPRC approved an uncontested stipulation without modification, which reflected a ~~historic test year ended Sept. 30, 2020, including expected capital additions through Feb. 28, 2021,~~$62 million rate increase, a ~~ROE~~change in the depreciation life of ~~10.35%,~~the Tolk coal plant to 2032, 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)~~reconciliation statements and determining the revenue requirements for the Sagamore and 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.~~

~~The stipulation is subject to NMPRC approval. A NMPRC decision and implementation of final~~projects. New rates ~~is anticipated in the fourth quarter of 2021.~~went into effect on Feb. 26, 2022.

2021 Texas Electric Rate Case — In ~~February~~ 2021, SPS filed an electric rate case with the PUCT and its ~~municipalities. The current request is~~municipalities seeking an increase in base rates of approximately $140 million. SPS’ net rate increase to Texas customers is expected to be approximately $71 million, or 9.2%, as a result of the offsetting $69 million in fuel cost reductions and PTCs from the Sagamore wind project.

The request iswas 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~~12-months 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).

In ~~October 2021, the scheduled hearings were abated to continue progress on a potential rate case settlement between~~January 2022, SPS and ~~various intervenors.~~intervenors filed a blackbox settlement. Key terms include:

~~Once final rates are approved, a surcharge will be requested from~~•Base rate increase of $89 million effective back to March 15, ~~2021 through~~2021.

•A 9.35% ROE and 7.01% weighted average cost of capital for allowance for funds used during construction purposes only.

•Depreciation lives for Tolk moved up to 2034 and Harrington coal assets moved up to 2024.

In February 2022, the Administrative Law Judge issued an order approving interim rates effective ~~date of new base rates.~~March 1, 2022. A PUCT decision is expected in the ~~first~~second quarter of 2022.

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

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. SPS currently has approval for recovery of Winter Storm Uri costs in New Mexico.

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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.

In January 2022, SPS and other parties filed a stipulation for interim rates. The filing covers all fuel under-collections occurring between January 2020 and August 2021, totaling $121 million. The settlement does not address the prudence of Winter Storm Uri costs nor the retention of $11 million related to market sales during the event. These items will be reviewed through the triennial Fuel Reconciliation proceeding and are subject to a final PUCT decision. Interim rates, designed to collect up to $110 million over a period of 30 months, began on Feb. 1, 2022.

Environmental

Affordable Clean Energy

In July 2019, the EPA adopted the Affordable Clean Energy rule, which requires states to develop plans by 2022 for greenhouse gas reductions from coal-fired power plants. In January 2021, the U.S. Court of Appeals for the D.C. Circuit issued a decision vacating and remanding the Affordable Clean Energy rule. That decision would allow the EPA to proceed with alternate regulation of coal-fired power plants. However, the Court of Appeals decision has been appealed to the U.S Supreme Court, where the Court heard argument in February and is expected to rule by June on the nature and extent of the EPA’s greenhouse gas regulatory authority. If ~~the~~any new rules require additional investment, SPS believes that the cost of these initiatives or replacement generation would be recoverable through rates based on prior state commission practices.

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~~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, 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 operations, financial condition or cash flows. SPS will continue to monitor these regulatory developments and their potential impact on its operations.


ITEM 4 — CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

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

As of ~~Sept. 30, 2021,~~March 31, 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.

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.

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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
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

~~October 28, 2021~~4/28/2022	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)