UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20222023
or
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-03789
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Southwestern Public Service Company |
(Exact Name of Registrant as Specified in its Charter) |
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New Mexico | | | | 75-0575400 |
(State or Other Jurisdiction of Incorporation or Organization) | | | | (I.R.S. Employer Identification No.) |
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790 South Buchanan Street | Amarillo | Texas | | | | 79101 |
(Address of Principal Executive Offices) | | | | (Zip Code) |
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(303) | 571-7511 |
(Registrant’s telephone number, including area code)Telephone Number, Including Area Code) |
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
N/A | | N/A | | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes ☐No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☐ | | Accelerated filer | ☐ | |
Non-accelerated filer | ☒ | | Smaller reporting company | ☐ | |
| | | Emerging growth company | ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Class | | Outstanding at April 28, 202227, 2023 |
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
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PART I | FINANCIAL INFORMATION | |
Item 1 — | | |
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Item 2 — | | |
Item 4 — | | |
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PART II | OTHER INFORMATION | |
Item 1 — | | |
Item 1A — | | |
Item 6 — | | |
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This Form 10-Q is filed by SPS, a New Mexico corporation. SPS is a wholly owned subsidiary of Xcel Energy Inc. Additional information on Xcel Energy is available in various filings with the SEC. This report should be read in its entirety.
Definitions of Abbreviations
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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 |
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Federal and State Regulatory Agencies |
D.C. Circuit | United States Court of Appeals for the District of Columbia Circuit |
EPA | United States Environmental Protection Agency |
FERC | Federal Energy Regulatory Commission |
LES-FEA | Louisiana Energy Services & Federal Executive Agencies |
NMPRC | New Mexico Public Regulation Commission |
PUCT | Public Utility Commission of Texas |
SEC | Securities and Exchange Commission |
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Other |
BARTACE | Best available retrofit technologyAffordable Clean Energy |
AG | New Mexico Attorney General |
ALJ | Administrative Law Judge |
CEO | Chief executive officer |
CERCLA | Comprehensive Environmental Response, Compensation, and Liability Act |
CFO | Chief financial officer |
COVID-19 | Novel coronavirus |
ETR | Effective tax rate |
FTR | Financial transmission right |
FTY | Future test year |
GAAP | United States generally accepted accounting principles |
IPP | Independent power producing entity |
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LP&L | Lubbock Power and Light |
MGP | Manufactured Gas Plant |
NMLCG | New Mexico Large Customer Group |
NOx | Nitrogen Oxides |
O&M | Operating and maintenance |
OATT | Open access transmission tariff |
OPL | Occidental Permian Ltd. |
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. |
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Measurements |
MW | Megawatts |
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Forward-Looking Statements |
Except for the historical statements contained in this report, the matters discussed herein are forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements, including those relating to future sales, future expenses, future tax rates, future operating performance, estimated base capital expenditures and financing plans, projected capital additions and forecasted annual revenue requirements with respect to rider filings, expected rate increases to customers, expectations and intentions regarding regulatory proceedings, and expected impact on our results of operations, financial condition and cash flows of resettlement calculations and credit losses relating to certain energy transactions, as well as assumptions and other statements are intended to be identified in this document by the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “objective,” “outlook,” “plan,” “project,” “possible,” “potential,” “should,” “will,” “would” and similar expressions. Actual results may vary materially. Forward-looking statements speak only as of the date they are made, and we expressly disclaim any obligation to update any forward-looking information. The following factors, in addition to those discussed in SPS’ Annual Report on Form 10-K for the fiscal year ended Dec. 31, 20212022, and subsequent filings with the SEC, could cause actual results to differ materially from management expectations as suggested by such forward-looking information: uncertainty around the impacts and duration of the COVID-19 pandemic, including potential 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 CodeCodes of Conduct; our ability to recover costs; changes in regulation; reductions in our credit ratings and the cost of maintaining certain contractual relationships; general economic conditions, including recessionary conditions, inflation rates, monetary fluctuations, supply chain constraints, and their impact on capital expenditures and/or the ability of 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; uncertainty regarding epidemics, the duration and magnitude of business restrictions including shutdowns (domestically and globally), the potential impact on the workforce, including shortages of employees or third-party contractors due to quarantine policies, vaccination requirements or government restrictions, impacts on the transportation of goods and the generalized impact on the economy; effects of geopolitical events, including war and acts of terrorism; cyber security threats and data security breaches; seasonal weather patterns; changes in environmental laws and regulations; climate change and other weather;weather events; natural disaster and resource depletion, including compliance with any accompanying legislative and regulatory changes; and costs of potential regulatory penalties; and regulatory changes and/or limitations related to the use of natural gas as an energy source.
source; challenging labor market conditions and our ability to attract and retain a qualified workforce; and our ability to execute on our strategies or achieve expectations related to environmental, social and governance matters including as a result of evolving legal, regulatory and other standards, processes, and assumptions, the pace of scientific and technological developments, increased costs, the availability of requisite financing, and changes in carbon markets.
PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF INCOME (UNAUDITED)
(amounts in millions)
| | | Three Months Ended March 31 | | | Three Months Ended March 31 | |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
Operating revenues | Operating revenues | $ | 477 | | | $ | 934 | | | Operating revenues | $ | 508 | | | $ | 477 | | |
| Operating expenses | Operating expenses | | | | | Operating expenses | | | | |
Electric fuel and purchased power | Electric fuel and purchased power | 237 | | | 693 | | | Electric fuel and purchased power | 245 | | | 237 | | |
Operating and maintenance expenses | Operating and maintenance expenses | 72 | | | 71 | | | Operating and maintenance expenses | 80 | | | 72 | | |
Demand side management expenses | Demand side management expenses | 5 | | | 4 | | | Demand side management expenses | 6 | | | 5 | | |
Depreciation and amortization | Depreciation and amortization | 78 | | | 78 | | | Depreciation and amortization | 91 | | | 78 | | |
Taxes (other than income taxes) | Taxes (other than income taxes) | 25 | | | 21 | | | Taxes (other than income taxes) | 25 | | | 25 | | |
Total operating expenses | Total operating expenses | 417 | | | 867 | | | Total operating expenses | 447 | | | 417 | | |
| Operating income | Operating income | 60 | | | 67 | | | Operating income | 61 | | | 60 | | |
| | Other income, net | — | | | 1 | | | |
| | Allowance for funds used during construction — equity | Allowance for funds used during construction — equity | — | | | 1 | | | 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 and $1, respectively | 29 | | | 30 | | | |
| Interest charges — includes other financing costs of $1 | | Interest charges — includes other financing costs of $1 | 34 | | | 29 | | |
Allowance for funds used during construction — debt | | Allowance for funds used during construction — debt | (1) | | | — | | |
Total interest charges and financing costs | Total interest charges and financing costs | 29 | | | 30 | | | Total interest charges and financing costs | 33 | | | 29 | | |
| Income before income taxes | Income before income taxes | 31 | | | 39 | | | Income before income taxes | 29 | | | 31 | | |
Income tax benefit | Income tax benefit | (21) | | | (19) | | | Income tax benefit | (25) | | | (21) | | |
Net income | Net income | $ | 52 | | | $ | 58 | | | Net income | $ | 54 | | | $ | 52 | | |
| See Notes to Financial Statements | See Notes to Financial Statements | See Notes to Financial Statements |
SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in millions)
| | | Three Months Ended March 31 | | Three Months Ended March 31 |
| | 2022 | | 2021 | | 2023 | | 2022 |
Operating activities | Operating activities | | | | Operating activities | | | |
Net income | Net income | $ | 52 | | | $ | 58 | | Net income | $ | 54 | | | $ | 52 | |
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 | 79 | | | 79 | | Depreciation and amortization | 92 | | | 79 | |
Deferred income taxes | Deferred income taxes | (2) | | | (19) | | Deferred income taxes | (40) | | | (2) | |
Allowance for equity funds used during construction | Allowance for equity funds used during construction | — | | | (1) | | Allowance for equity funds used during construction | (1) | | | — | |
Provision for bad debts | Provision for bad debts | 2 | | | 2 | | Provision for bad debts | 2 | | | 2 | |
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
Accounts receivable | Accounts receivable | (26) | | | (1) | | Accounts receivable | 23 | | | (26) | |
Accrued unbilled revenues | Accrued unbilled revenues | — | | | 3 | | Accrued unbilled revenues | (3) | | | — | |
Inventories | Inventories | (6) | | | (17) | | Inventories | (14) | | | (6) | |
Prepayments and other | Prepayments and other | (8) | | | 21 | | Prepayments and other | 4 | | | (8) | |
Accounts payable | Accounts payable | — | | | 56 | | Accounts payable | (30) | | | — | |
Net regulatory assets and liabilities | Net regulatory assets and liabilities | 3 | | | (95) | | Net regulatory assets and liabilities | 108 | | | 3 | |
Other current liabilities | Other current liabilities | (3) | | | (3) | | Other current liabilities | (3) | | | (3) | |
Pension and other employee benefit obligations | Pension and other employee benefit obligations | 1 | | | (15) | | Pension and other employee benefit obligations | (1) | | | 1 | |
Other, net | Other, net | (3) | | | (2) | | Other, net | (3) | | | (3) | |
Net cash provided by operating activities | Net cash provided by operating activities | 89 | | | 66 | | Net cash provided by operating activities | 188 | | | 89 | |
| Investing activities | Investing activities | | Investing activities | |
Utility capital/construction expenditures | Utility capital/construction expenditures | (123) | | | (172) | | Utility capital/construction expenditures | (170) | | | (123) | |
Investments in utility money pool arrangement | — | | | (83) | | |
Repayments from utility money pool arrangement | — | | | 83 | | |
| Net cash used in investing activities | Net cash used in investing activities | (123) | | | (172) | | Net cash used in investing activities | (170) | | | (123) | |
| Financing activities | Financing activities | | Financing activities | |
Proceeds from (repayments of) short-term borrowings, net | 75 | | | (250) | | |
Proceeds from issuance of long-term debt, net | — | | | 247 | | |
Repayments of short-term borrowings, net | | Repayments of short-term borrowings, net | 44 | | | 75 | |
| Borrowings under utility money pool arrangement | Borrowings under utility money pool arrangement | 202 | | | 213 | | Borrowings under utility money pool arrangement | 5 | | | 202 | |
Repayments under utility money pool arrangement | Repayments under utility money pool arrangement | (193) | | | (213) | | Repayments under utility money pool arrangement | — | | | (193) | |
Capital contributions from parent | Capital contributions from parent | 8 | | | 304 | | Capital contributions from parent | — | | | 8 | |
Dividends paid to parent | Dividends paid to parent | (58) | | | (54) | | Dividends paid to parent | (66) | | | (58) | |
| Net cash provided by financing activities | 34 | | | 247 | | |
Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | (17) | | | 34 | |
| Net change in cash, cash equivalents and restricted cash | Net change in cash, cash equivalents and restricted cash | — | | | 141 | | Net change in cash, cash equivalents and restricted cash | 1 | | | — | |
Cash, cash equivalents and restricted cash at beginning of period | Cash, cash equivalents and restricted cash at beginning of period | 1 | | | 6 | | Cash, cash equivalents and restricted cash at beginning of period | 2 | | | 1 | |
Cash, cash equivalents and restricted cash at end of period | Cash, cash equivalents and restricted cash at end of period | $ | 1 | | | $ | 147 | | Cash, cash equivalents and restricted cash at end of period | $ | 3 | | | $ | 1 | |
| Supplemental disclosure of cash flow information: | Supplemental disclosure of cash flow information: | | Supplemental disclosure of cash flow information: | |
Cash paid for interest (net of amounts capitalized) | Cash paid for interest (net of amounts capitalized) | $ | (21) | | | $ | (19) | | Cash paid for interest (net of amounts capitalized) | $ | (22) | | | $ | (21) | |
Cash received for income taxes, net | 3 | | | 14 | | |
Cash (paid) received for income taxes, net | | Cash (paid) received for income taxes, net | (11) | | | 3 | |
| 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 | $ | 38 | | | $ | 54 | | Accrued property, plant and equipment additions | $ | 46 | | | $ | 38 | |
Inventory transfers to property, plant and equipment | Inventory transfers to property, plant and equipment | 4 | | | 7 | | Inventory transfers to property, plant and equipment | 9 | | | 4 | |
| Allowance for equity funds used during construction | Allowance for equity funds used during construction | — | | | 1 | | Allowance for equity funds used during construction | 1 | | | — | |
See Notes to Financial Statements
SOUTHWESTERN PUBLIC SERVICE COMPANY
BALANCE SHEETS (UNAUDITED)
(amounts in millions, except share and per share data)
| | | March 31, 2022 | | Dec. 31, 2021 | | | March 31, 2023 | | Dec. 31, 2022 |
Assets | Assets | | | | Assets | | | | |
Current assets | Current assets | | | | Current assets | | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 1 | | | $ | 1 | | Cash and cash equivalents | | $ | 3 | | | $ | 2 | |
Accounts receivable, net | Accounts receivable, net | 137 | | | 115 | | Accounts receivable, net | | 140 | | | 167 | |
Accounts receivable from affiliates | Accounts receivable from affiliates | 10 | | | 9 | | Accounts receivable from affiliates | | 15 | | | 15 | |
| Accrued unbilled revenues | Accrued unbilled revenues | 125 | | | 125 | | Accrued unbilled revenues | | 143 | | | 140 | |
Inventories | Inventories | 53 | | | 51 | | Inventories | | 66 | | | 61 | |
Regulatory assets | Regulatory assets | 130 | | | 193 | | Regulatory assets | | 143 | | | 217 | |
Derivative instruments | Derivative instruments | 30 | | | 30 | | Derivative instruments | | 26 | | | 122 | |
Prepaid taxes | Prepaid taxes | 20 | | | 3 | | Prepaid taxes | | 4 | | | 5 | |
Prepayments and other | Prepayments and other | 11 | | | 21 | | Prepayments and other | | 65 | | | 68 | |
Total current assets | Total current assets | 517 | | | 548 | | Total current assets | | 605 | | | 797 | |
| Property, plant and equipment, net | Property, plant and equipment, net | 7,891 | | 7,838 | | Property, plant and equipment, net | | 8,210 | | 8,129 | |
| Other assets | Other assets | | Other assets | |
Regulatory assets | Regulatory assets | 447 | | | 380 | | Regulatory assets | | 344 | | | 359 | |
Derivative instruments | Derivative instruments | 10 | | | 6 | | Derivative instruments | | 2 | | | 3 | |
Operating lease right-of-use assets | Operating lease right-of-use assets | 456 | | | 463 | | Operating lease right-of-use assets | | 426 | | | 434 | |
Other | Other | 28 | | | 27 | | Other | | 28 | | | 26 | |
Total other assets | Total other assets | 941 | | | 876 | | Total other assets | | 800 | | | 822 | |
Total assets | Total assets | $ | 9,349 | | | $ | 9,262 | | Total assets | | $ | 9,615 | | | $ | 9,748 | |
| Liabilities and Equity | Liabilities and Equity | | Liabilities and Equity | |
Current liabilities | Current liabilities | | Current liabilities | |
Short-term debt | Short-term debt | $ | 212 | | | $ | 137 | | Short-term debt | | $ | 78 | | | $ | 34 | |
Borrowings under utility money pool arrangement | Borrowings under utility money pool arrangement | 100 | | | 91 | | Borrowings under utility money pool arrangement | | 5 | | | — | |
Accounts payable | Accounts payable | 172 | | | 172 | | Accounts payable | | 170 | | | 209 | |
Accounts payable to affiliates | Accounts payable to affiliates | 18 | | | 16 | | Accounts payable to affiliates | | 18 | | | 23 | |
| Regulatory liabilities | Regulatory liabilities | 52 | | | 54 | | Regulatory liabilities | | 67 | | | 148 | |
Taxes accrued | Taxes accrued | 33 | | | 47 | | Taxes accrued | | 47 | | | 61 | |
Accrued interest | Accrued interest | 38 | | | 30 | | Accrued interest | | 42 | | | 31 | |
Dividends payable to parent | Dividends payable to parent | 53 | | | 58 | | Dividends payable to parent | | 61 | | | 61 | |
Derivative instruments | Derivative instruments | 4 | | | 4 | | Derivative instruments | | 4 | | | 4 | |
Operating lease liabilities | Operating lease liabilities | 30 | | | 30 | | Operating lease liabilities | | 31 | | | 31 | |
Other | Other | 27 | | | 24 | | Other | | 58 | | | 58 | |
Total current liabilities | Total current liabilities | 739 | | | 663 | | Total current liabilities | | 581 | | | 660 | |
| Deferred credits and other liabilities | Deferred credits and other liabilities | | Deferred credits and other liabilities | |
Deferred income taxes | Deferred income taxes | 703 | | | 702 | | Deferred income taxes | | 702 | | | 739 | |
Regulatory liabilities | Regulatory liabilities | 721 | | | 709 | | Regulatory liabilities | | 720 | | | 715 | |
Asset retirement obligations | Asset retirement obligations | 117 | | | 116 | | Asset retirement obligations | | 148 | | | 147 | |
Derivative instruments | Derivative instruments | 5 | | | 6 | | Derivative instruments | | 1 | | | 2 | |
Pension and employee benefit obligations | Pension and employee benefit obligations | 8 | | | 8 | | Pension and employee benefit obligations | | 11 | | | 12 | |
Operating lease liabilities | Operating lease liabilities | 426 | | | 434 | | Operating lease liabilities | | 395 | | | 403 | |
Other | Other | 7 | | | 8 | | Other | | 8 | | | 9 | |
Total deferred credits and other liabilities | Total deferred credits and other liabilities | 1,987 | | | 1,983 | | Total deferred credits and other liabilities | | 1,985 | | | 2,027 | |
| Commitments and contingencies | Commitments and contingencies | | Commitments and contingencies | |
Capitalization | Capitalization | | Capitalization | |
Long-term debt | Long-term debt | 3,013 | | | 3,013 | | Long-term debt | | 3,211 | | | 3,211 | |
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, 2023 and Dec. 31, 2022, respectively | | Common stock — 200 shares authorized of $1.00 par value; 100 shares outstanding at March 31, 2023 and Dec. 31, 2022, respectively | | — | | | — | |
Additional paid in capital | Additional paid in capital | 3,099 | | | 3,091 | | Additional paid in capital | | 3,311 | | | 3,311 | |
Retained earnings | Retained earnings | 512 | | | 513 | | Retained earnings | | 528 | | | 540 | |
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 | 3,610 | | | 3,603 | | Total common stockholder's equity | | 3,838 | | | 3,850 | |
Total liabilities and equity | Total liabilities and equity | $ | 9,349 | | | $ | 9,262 | | Total liabilities and equity | | $ | 9,615 | | | $ | 9,748 | |
See Notes to Financial Statements
SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF COMMON STOCKHOLDER’S EQUITY (UNAUDITED)
(amounts in millions, except share data)
| | | Common Stock Issued | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Common 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 March 31, 2022 and 2021 | | | | | | | | | | | | |
Balance at Dec. 31, 2020 | 100 | | | $ | — | | | $ | 2,790 | | | $ | 509 | | | $ | (1) | | | $ | 3,298 | | |
Net income | | 58 | | | 58 | | |
| Dividends declared to parent | | (52) | | | (52) | | |
Contributions of capital by parent | | 304 | | | 304 | | |
Balance at March 31, 2021 | 100 | | | $ | — | | | $ | 3,094 | | | $ | 515 | | | $ | (1) | | | $ | 3,608 | | |
| Three Months Ended March 31, 2023 and 2022 | | Three Months Ended March 31, 2023 and 2022 | | | | | | | | | | | |
Balance at Dec. 31, 2021 | Balance at Dec. 31, 2021 | 100 | | | $ | — | | | $ | 3,091 | | | $ | 513 | | | $ | (1) | | | $ | 3,603 | | Balance at Dec. 31, 2021 | 100 | | | $ | — | | | $ | 3,091 | | | $ | 513 | | | $ | (1) | | | $ | 3,603 | |
Net income | Net income | | 52 | | | 52 | | Net income | | 52 | | | 52 | |
| Dividends declared to parent | | (53) | | | (53) | | |
Common dividends declared to parent | | Common dividends declared to parent | | (53) | | | (53) | |
Contributions of capital by parent | Contributions of capital by parent | | 8 | | | 8 | | Contributions of capital by parent | | 8 | | | 8 | |
Balance at March 31, 2022 | Balance at March 31, 2022 | 100 | | | $ | — | | | $ | 3,099 | | | $ | 512 | | | $ | (1) | | | $ | 3,610 | | Balance at March 31, 2022 | 100 | | | $ | — | | | $ | 3,099 | | | $ | 512 | | | $ | (1) | | | $ | 3,610 | |
| Balance at Dec. 31, 2022 | | Balance at Dec. 31, 2022 | 100 | | | $ | — | | | $ | 3,311 | | | $ | 540 | | | $ | (1) | | | $ | 3,850 | |
Net income | | Net income | | 54 | | | 54 | |
| Common dividends declared to parent | | Common dividends declared to parent | | (66) | | | (66) | |
| Balance at March 31, 2023 | | Balance at March 31, 2023 | 100 | | | $ | — | | | $ | 3,311 | | | $ | 528 | | | $ | (1) | | | $ | 3,838 | |
| | | | | See Notes to Financial Statements | | See Notes to Financial Statements |
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 March 31, 20222023 and Dec. 31, 2021;2022; the results of SPS’ operations, including the components of net income and changes in stockholder’s equity for the three months ended March 31, 20222023 and 2021;2022; and SPS’ cash flows for the three months ended March 31, 20222023 and 2021.2022.
All adjustments are of a normal, recurring nature, except as otherwise disclosed. Management has also evaluated the impact of events occurring after March 31, 20222023 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, 20212022 balance sheet information has been derived from the audited 20212022 financial statements included in the SPS Annual Report on Form 10-K for the year ended Dec. 31, 2021.2022. 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, 2021,2022, filed with the SEC on Feb. 23, 2022. Due to the seasonality of SPS’ electric sales, interim results are not necessarily an appropriate base from which to project annual results.
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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, 20212022 appropriately represent, in all material respects, the current status of accounting policies and are incorporated herein by reference. | | |
2. Accounting Pronouncements |
As of March 31, 2022,2023, there was no material impact from the recent adoption of new accounting pronouncements, nor expected material impact from recently issued accounting pronouncements yet to be adopted, on SPS’ financial statements.
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3. Selected Balance Sheet Data |
| (Millions of Dollars) | (Millions of Dollars) | | March 31, 2022 | | Dec. 31, 2021 | (Millions of Dollars) | | March 31, 2023 | | Dec. 31, 2022 |
Accounts receivable, net | Accounts receivable, net | | | | | Accounts receivable, net | | | | |
Accounts receivable | Accounts receivable | | $ | 149 | | | $ | 127 | | Accounts receivable | | $ | 153 | | | $ | 180 | |
Less allowance for bad debts | Less allowance for bad debts | | (12) | | | (12) | | Less allowance for bad debts | | (13) | | | (13) | |
Accounts receivable, net | Accounts receivable, net | | $ | 137 | | | $ | 115 | | Accounts receivable, net | | $ | 140 | | | $ | 167 | |
| (Millions of Dollars) | (Millions of Dollars) | | March 31, 2022 | | Dec. 31, 2021 | (Millions of Dollars) | | March 31, 2023 | | Dec. 31, 2022 |
Inventories | Inventories | | | | | Inventories | | | | |
Materials and supplies | Materials and supplies | | $ | 34 | | | $ | 29 | | Materials and supplies | | $ | 47 | | | $ | 42 | |
Fuel | Fuel | | 19 | | | 22 | | Fuel | | 19 | | | 19 | |
Total inventories | Total inventories | | $ | 53 | | | $ | 51 | | Total inventories | | $ | 66 | | | $ | 61 | |
| (Millions of Dollars) | (Millions of Dollars) | | March 31, 2022 | | Dec. 31, 2021 | (Millions of Dollars) | | March 31, 2023 | | Dec. 31, 2022 |
Property, plant and equipment, net | Property, plant and equipment, net | | | | | Property, plant and equipment, net | | | | |
Electric plant | Electric plant | | $ | 9,734 | | | $ | 9,639 | | Electric plant | | $ | 10,254 | | | $ | 10,182 | |
Plant to be retired (a) | Plant to be retired (a) | | 285 | | | 299 | | Plant to be retired (a) | | 260 | | | 266 | |
CWIP | CWIP | | 195 | | | 171 | | CWIP | | 239 | | | 167 | |
Total property, plant and equipment | Total property, plant and equipment | | 10,214 | | | 10,109 | | Total property, plant and equipment | | 10,753 | | | 10,615 | |
Less accumulated depreciation | Less accumulated depreciation | | (2,323) | | | (2,271) | | Less accumulated depreciation | | (2,543) | | | (2,486) | |
Property, plant and equipment, net | Property, plant and equipment, net | | $ | 7,891 | | | $ | 7,838 | | Property, plant and equipment, net | | $ | 8,210 | | | $ | 8,129 | |
(a)Includes expected retirement ofAmounts include Tolk and coal generation assets at Harrington pending facility gas conversion and are reported net of Harrington to natural gas.accumulated depreciation.
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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.Energy.
Money pool borrowings for SPS:borrowings:
| (Amounts in Millions, Except Interest Rates) | (Amounts in Millions, Except Interest Rates) | | Three Months Ended March 31, 2022 | | Year Ended Dec. 31, 2021 | (Amounts in Millions, Except Interest Rates) | | Three Months Ended March 31, 2023 | | Year Ended Dec. 31, 2022 |
Borrowing limit | Borrowing limit | | $ | 100 | | | $ | 100 | | Borrowing limit | | $ | 100 | | | $ | 100 | |
Amount outstanding at period end | Amount outstanding at period end | | 100 | | | 91 | | Amount outstanding at period end | | 5 | | | — | |
Average amount outstanding | Average amount outstanding | | 67 | | | 51 | | Average amount outstanding | | — | | | 35 | |
Maximum amount outstanding | Maximum amount outstanding | | 100 | | | 100 | | Maximum amount outstanding | | 5 | | | 100 | |
Weighted average interest rate, computed on a daily basis | Weighted average interest rate, computed on a daily basis | | 0.13 | % | | 0.05 | % | Weighted average interest rate, computed on a daily basis | | 4.59 | % | | 0.44 | % |
Weighted average interest rate at period end | Weighted average interest rate at period end | | 0.19 | | | 0.05 | | Weighted average interest rate at period end | | 4.59 | | | N/A |
Commercial Paper — Commercial paper outstanding for SPS:outstanding:
| (Amounts in Millions, Except Interest Rates) | (Amounts in Millions, Except Interest Rates) | | Three Months Ended March 31, 2022 | | Year Ended Dec. 31, 2021 | (Amounts in Millions, Except Interest Rates) | | Three Months Ended March 31, 2023 | | Year Ended Dec. 31, 2022 |
Borrowing limit | Borrowing limit | | $ | 500 | | | $ | 500 | | Borrowing limit | | $ | 500 | | | $ | 500 | |
Amount outstanding at period end | Amount outstanding at period end | | 212 | | | 137 | | Amount outstanding at period end | | 78 | | | 34 | |
Average amount outstanding | Average amount outstanding | | 233 | | | 63 | | Average amount outstanding | | 88 | | | 100 | |
Maximum amount outstanding | Maximum amount outstanding | | 324 | | | 342 | | Maximum amount outstanding | | 118 | | | 324 | |
Weighted average interest rate, computed on a daily basis | Weighted average interest rate, computed on a daily basis | | 0.39 | % | | 0.21 | % | Weighted average interest rate, computed on a daily basis | | 4.86 | % | | 0.79 | % |
Weighted average interest rate at period end | Weighted average interest rate at period end | | 0.83 | | | 0.26 | | Weighted average interest rate at period end | | 5.58 | | | 4.55 | |
Letters of Credit — SPS uses letters of credit, generally with terms of one year, to provide financial guarantees for certain obligations. At both March 31, 20222023 and Dec. 31, 2021,2022, there were $2$2 million of letters of credit outstanding under the credit facility. Amounts approximate their fair value and are subject to fees.
Revolving Credit Facility — In order to issue its commercial paper, SPS must have a revolving credit facility in place at least equal toor greater than the amount of its commercial paper borrowing limit and cannot issue commercial paper exceeding available capacity under this credit facility. The credit facility provides short-term financing in the form of notes payable to banks, letters of credit and back-up support for commercial paper borrowings.
SPS has the right to request an extension of the revolving credit facility termination date for 2two additional one-year periods. All extension requests are subject to majority bank group approval.
As of March 31, 2022,2023, 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 | | | $ | 214 | | | $ | 286 | | 500 | | | $ | 80 | | | $ | 420 | |
(a)Expires in June 2024.September 2027.
(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 March 31, 20222023 and Dec. 31, 2021.2022.
Revenue is classified by the type of goods/services rendered and market/customer type. SPS’ operating revenues consisted of the following:
| | | Three Months Ended March 31 | | Three Months Ended March 31 |
(Millions of Dollars) | (Millions of Dollars) | | 2022 | | 2021 | (Millions of Dollars) | | 2023 | | 2022 |
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 | | $ | 97 | | | $ | 91 | | Residential | | $ | 101 | | | $ | 97 | |
Commercial and Industrial | Commercial and Industrial | | 222 | | | 189 | | Commercial and Industrial | | 267 | | | 222 | |
Other | Other | | 8 | | | 9 | | Other | | 12 | | | 8 | |
Total retail | Total retail | | 327 | | | 289 | | Total retail | | 380 | | | 327 | |
Wholesale | Wholesale | | 69 | | | 558 | | Wholesale | | 45 | | | 69 | |
Transmission | Transmission | | 72 | | | 71 | | Transmission | | 74 | | | 72 | |
Other | Other | | 3 | | | 2 | | Other | | — | | | 3 | |
Total revenue from contracts with customers | Total revenue from contracts with customers | | 471 | | | 920 | | Total revenue from contracts with customers | | 499 | | | 471 | |
Alternative revenue and other | Alternative revenue and other | | 6 | | | 14 | | Alternative revenue and other | | 9 | | | 6 | |
Total revenues | Total revenues | | $ | 477 | | | $ | 934 | | Total revenues | | $ | 508 | | | $ | 477 | |
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Note 7 to the financial statements included in SPS’ Annual Report on Form 10-K for the year ended Dec. 31, 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.DifferenceReconciliation between the statutory rate and ETR:
| | | Three Months Ended March 31 | | Three Months Ended March 31 |
| | 2022 | | 2021 | | 2023 | | 2022 |
Federal statutory rate | Federal statutory rate | | 21.0 | % | | 21.0 | % | Federal statutory rate | | 21.0 | % | | 21.0 | % |
State tax (net of federal tax effect) | State tax (net of federal tax effect) | | 2.5 | | | 2.6 | | State tax (net of federal tax effect) | | 2.3 | | | 2.5 | |
Decreases in tax from: | | |
Increases (decreases): | | Increases (decreases): | |
Wind PTCs(a) | Wind PTCs(a) | | (87.2) | | | (65.5) | | Wind PTCs(a) | | (105.5) | | | (87.2) | |
Plant regulatory differences (a)(b) | Plant regulatory differences (a)(b) | | (4.0) | | | (4.7) | | Plant regulatory differences (a)(b) | | (3.7) | | | (4.0) | |
| Amortization of excess nonplant deferred taxes | Amortization of excess nonplant deferred taxes | | (1.1) | | | (1.2) | | Amortization of excess nonplant deferred taxes | | 0.3 | | | (1.1) | |
Other (net) | Other (net) | | 1.1 | | | (0.9) | | Other (net) | | (0.6) | | | 1.1 | |
Effective income tax rate | Effective income tax rate | | (67.7) | % | | (48.7) | % | Effective income tax rate | | (86.2) | % | | (67.7) | % |
(a)Wind PTCs are credited to customers (reduction to revenue) and do not materially impact net income.
(b)Regulatory differences for income tax primarily relate to the credit of excess deferred taxes to customers through the average rate assumption method. Income tax benefits associated with the credit of excess deferred creditstaxes are offset by corresponding revenue reductions.
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7. Fair Value of Financial Assets and Liabilities |
Fair Value Measurements
Accounting guidance for fair value measurements and disclosures provides a single definition of fair value and requires disclosures about assets and liabilities measured at fair value. A hierarchical framework for disclosing the observability of the inputs utilized in measuring assets and liabilities at fair value is established by this guidance.value.
•Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quotedobservable actual trading prices.
•Level 2 — Pricing inputs are other than quotedactual trading prices in active markets but are either directly or indirectly observable as of the reporting date. The types of assets and liabilities included in Level 2 are typically either comparable to actively traded securities or contracts or priced with models using highly observable inputs.
•Level 3 — Significant inputs to pricing have little or no observability as of the reporting date. The types of assets and liabilities included in Level 3 areinclude those valued with models requiring significant management judgment or estimation.
Specific valuation methods include:
Cash equivalents— The fair values of cash equivalents are generally based on cost plus accrued interest; money market funds are measured using quoted net asset value.
Interest rate derivatives— The fair Fair values of interest rate derivatives are based on broker quotes that utilize current market interest rate forecasts.
Commodity derivatives— The methods Methods used to measure the fair value of commodity derivative forwards and options utilize forward prices and volatilities, as well as pricing adjustments for specific delivery locations, and are generally assigned a Level 2 classification. When contractual settlementscontracts relate to inactive delivery locations or extend to periods beyond those readily observable on active exchanges, or quoted by brokers, the significance of the use of less observable inputs on a valuation is evaluated, and may result in Level 3 classification.
Electric commodity derivatives held by SPS include transmission congestion instruments, generally referred to as FTRs. FTRs purchased from SPP. FTRs purchased from aan 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 valuevalues of an FTR isthese instruments are derived from, and designed to offset, the costcosts of transmission congestion. In addition to overall transmission load, congestion is also influenced by the operating schedules of power plants and the consumption of electricity pertinent to a given transmission path. Unplanned plant outages, scheduled plant maintenance, changes in the relative costs of fuels used in generation, weather and overall changes in demand for electricity can each impact the operating schedules of the power plants on the transmission grid and the value of an FTR.
these instruments.
If forecasted costs of electric transmission congestion increase or decrease for a given FTR path, theFTRs are recognized at fair value of that particular FTR instrument will likewise increase or decrease.and adjusted each period prior to settlement. Given the limited observability of important inputs tocertain variables underlying the valuereported auction, values of FTRs, between auction processes, including expected plant operating schedules and retail and wholesale demand,these fair value measurements for FTRs have been assigned a Level 3. Non-trading monthly3 classification.
Net congestion costs, including the impact of FTR settlements, are expected to be recoveredshared through fuel and purchased energy cost recovery mechanisms, and therefore changes inmechanisms. As such, the fair value of the yet to be settled portions of FTRs are unsettled instruments (i.e., derivative asset or liability) is offset/deferred as a regulatory asset or liability. Given this regulatory treatment and the limited magnitude of FTRs relative to the electric utility operations of SPS, the numerous unobservable quantitative inputs pertinent to the value of FTRs are immaterial to the financial statements of SPS.
Derivative InstrumentsActivities and 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 enterenters into various instrumentscontracts that effectively fix the interest paymentsrate on certain floating ratea specified principal amount of a hypothetical future debt obligations or effectively fix the yield or priceissuance. These financial swaps net settle based on changes in a specified benchmark interest rate, for anacting as a hedge of changes in market interest rates that will impact specified anticipated debt issuance for a specific period.issuances. These derivative instruments are generally designated as cash flow hedges for accounting purposes.purposes, with changes in fair value prior to occurrence of the hedged transactions recorded as other comprehensive loss.
As of March 31, 2022,2023, 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. As of March 31, 2022,2023, SPS had no unsettled 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.
Results of derivative instrument transactions entered into for trading purposes are presented in the statements of income as electric revenues, net of any sharing with customers. These activities are not intended to mitigate commodity price risk associated with regulated electric operations. Sharing of anythese margins is determined through state regulatory proceedings as well as the operation of the FERC approvedFERC-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.
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Amounts in Millions (a) | | March 31, 2022 | | Dec. 31, 2021 |
Megawatt hours of electricity | | 10 | | | 8 | |
The most significant derivative positions outstanding at March 31, 2023 for this purpose relate to FTR instruments administered by SPP. These instruments are intended to offset the impacts of transmission system congestion. Higher congestion costs in recent years have led to an increase in the fair value of FTRs. Settlements of FTRs are shared with electric customers through fuel and purchased energy cost-recovery mechanisms.When SPS enters into derivative instruments that mitigate commodity price risk on behalf of electric customers, the instruments are not typically designated as qualifying hedging transactions. The classification of unrealized losses or gains on these instruments as a regulatory asset or liability, if applicable, is based on approved regulatory recovery mechanisms.
Gross notional amounts of FTRs:
| | | | | | | | | | | | | | |
Amounts in Millions (a) | | March 31, 2023 | | Dec. 31, 2022 |
Megawatt hours of electricity | | 3 | | | 8 | |
(a)Amounts are notNot reflective of net positions in the underlying commodities.
Consideration of Credit Risk and Concentrations — SPS continuously monitors the creditworthiness of counterparties to its interest rate derivatives and commodity derivative contracts prior to settlement, and assesses each counterparty’s ability to perform on the transactions set forth in the contracts. Impact of credit risk was immaterial to the fair value of unsettled commodity derivatives presented inon the balance sheets.
SPS’ most significant concentrations of credit risk with particular entities or industries are contracts with counterparties to its wholesale, trading and non-trading commodity activities.
At March 31, 2022, 22023, four of the 8ten most significant counterparties for these activities, comprising $8$10 million, or 21%31%, of this credit exposure, had investment grade credit ratings from S&P Global Ratings, Moody’s Investor Services or Fitch Ratings. NaN
Five of the 8ten most significant counterparties, comprising $28$23 million , or 78%69%, 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
One of these significant counterparties, comprising an immaterial amount or less than 1% of this credit exposure, had credit quality less than investment grade, based on internal analysis. All 8Nine of these significant counterparties are municipal or cooperative electric entities, RTOs or other utilities.
Recurring Derivative Fair Value Measurements
Impact of Derivative Activities on Income and Accumulated Other Comprehensive Loss derivative activity:
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Pre-Tax Fair Value (Losses) Recognized During the Period in: |
(Millions of Dollars) | | | | Regulatory Assets and Liabilities |
Three Months Ended March 31, 2023 |
Other derivative instruments |
Electric commodity | | | | $ | (75) | |
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Total | | | | $ | (75) | |
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Three Months Ended March 31, 2022 |
Other derivative instruments |
Electric commodity | | | | $ | 1 | |
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Total | | | | $ | 1 | |
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Pre-Tax Losses Reclassified into Income During the Period from: | | | |
(Millions of Dollars) | | | | Regulatory Assets and Liabilities | | |
Three Months Ended March 31, 2023 |
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Other derivative instruments | |
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Electric commodity | | | | 68 | | (a) | | |
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Total | | | | $ | 68 | | | | |
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Three Months Ended March 31, 2022 | | | |
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Other derivative instruments | | | |
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Electric commodity | | | | 12 | | (a) | | |
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Total | | | | $ | 12 | | | | |
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(a)—There were no gains or immaterial losses related to interest rate derivatives reclassified from accumulated other comprehensive loss into earnings for the three months ended March 31, 2022 and 2021.
Changes in the fair value of FTRs resulting in pre-tax net gains of $1 million and $2 million recognized for the three months ended March 31, 2022 and 2021, respectively, which were reclassified as 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 $12 million and gains of $4 million were recognized for the three months ended March 31, 2022, and 2021, respectively, and were recordedRecorded to electric fuel and purchased power. These derivative settlement gains and losses are shared with electric customers through fuel and purchased energy cost-recovery mechanisms, and reclassified out of income as regulatory assets or liabilities, as appropriate. FTR settlements are shared with customers and do not have a material impact on net income. Presented amounts reflect changes in fair value between auction and settlement dates, but exclude the original auction fair value.
SPS had no derivative instruments designated as fair value hedges during the three months ended March 31, 20222023 and 2021.2022.
Recurring Fair Value Measurements — SPS’ derivativeDerivative assets and liabilities measured at fair value on a recurring basis were as follows:
| | | March 31, 2022 | | Dec. 31, 2021 | | March 31, 2023 | | Dec. 31, 2022 |
| | 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 | | | | | | | | | | | | | | | | | | | | | | | | | Current derivative assets | | | | | | | | | | | | | | | | | | | | | | | | |
Other derivative instruments: | Other derivative instruments: | | Other derivative instruments: | |
Electric commodity | Electric commodity | | $ | — | | | $ | — | | | $ | 28 | | | $ | 28 | | | $ | (1) | | | $ | 27 | | | $ | — | | | $ | — | | | $ | 27 | | | $ | 27 | | | $ | — | | | $ | 27 | | Electric commodity | | $ | — | | | $ | — | | | $ | 23 | | | $ | 23 | | | $ | — | | | $ | 23 | | | $ | — | | | $ | — | | | $ | 119 | | | $ | 119 | | | $ | — | | | $ | 119 | |
Total current derivative assets | Total current derivative assets | | $ | — | | | $ | — | | | $ | 28 | | | $ | 28 | | | $ | (1) | | | 27 | | | $ | — | | | $ | — | | | $ | 27 | | | $ | 27 | | | $ | — | | | 27 | | Total current derivative assets | | $ | — | | | $ | — | | | $ | 23 | | | $ | 23 | | | $ | — | | | 23 | | | $ | — | | | $ | — | | | $ | 119 | | | $ | 119 | | | $ | — | | | 119 | |
PPAs (b) | PPAs (b) | | | | | | | | | | | | 3 | | | | | | | | | | | | | 3 | | PPAs (b) | | | | | | | | | | | | 3 | | | | | | | | | | | | | 3 | |
Current derivative instruments | Current derivative instruments | | $ | 30 | | | $ | 30 | | Current derivative instruments | | $ | 26 | | | $ | 122 | |
Noncurrent derivative assets | Noncurrent derivative assets | | | | | Noncurrent derivative assets | | | | |
Other derivative instruments: | | |
Electric commodity | | $ | — | | | $ | — | | | $ | 5 | | | $ | 5 | | | $ | — | | | $ | 5 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | |
Total noncurrent derivative assets | | $ | — | | | $ | — | | | $ | 5 | | | $ | 5 | | | $ | — | | | 5 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | — | | |
| PPAs (b) | PPAs (b) | | | | | | | | | | | | 5 | | | | | | | | | | | | | 6 | | PPAs (b) | | 2 | | | 3 | |
Noncurrent derivative instruments | Noncurrent derivative instruments | | $ | 10 | | | $ | 6 | | Noncurrent derivative instruments | | $ | 2 | | | $ | 3 | |
Current derivative liabilities | Current derivative liabilities | | | | | Current derivative liabilities | | | | |
Other derivative instruments: | | |
Electric commodity | | $ | — | | | $ | — | | | $ | 1 | | | $ | 1 | | | $ | (1) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | |
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) | | $ | 5 | | | $ | 6 | | PPAs (b) | | 1 | | | 2 | |
Noncurrent derivative instruments | Noncurrent derivative instruments | | $ | 5 | | | $ | 6 | | Noncurrent derivative instruments | | $ | 1 | | | $ | 2 | |
(a)SPS nets derivative instruments and related collateral on its balance sheetssheet when supported by a legally enforceable master netting agreement, and all derivative instruments and related collateral amounts were subject to master netting agreements atagreement. At March 31, 20222023 and Dec. 31, 2021. At March 31, 2022, and Dec. 31, 2021, derivative assets and liabilities include no obligations to return cash collateral or rights to reclaim cash collateral. The counterpartyCounterparty netting excludesamounts presented exclude 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 undercurrently applies the normal purchase exception. Based on this qualification, theexception to qualifying PPAs. Balance relates to specific contracts are no longer adjusted tothat were previously recognized at fair value prior to applying the normal purchase exception, and the previous carrying value of these contracts will beare being amortized over the remaining contract lives along with the offsetting regulatory assets and liabilities.
Changes in Level 3 commodity derivatives for the three months ended March 31, 2022 and 2021:derivatives:
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| | Three Months Ended March 31 |
(Millions of Dollars) | | 2022 | | 2021 |
Balance at Jan 1 | | $ | 27 | | | $ | 7 | |
Purchases | | 4 | | | — | |
Settlements | | (33) | | | (9) | |
Net transactions recorded during the period: | | | | |
Net gains (losses) recognized as regulatory assets and liabilities | | 34 | | | 14 | |
Balance at March 31 | | $ | 32 | | | $ | 12 | |
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(Millions of Dollars) | | 2023 | | 2022 |
Balance at Jan. 1 | | $ | 119 | | | $ | 27 | |
Purchases (a) | | 6 | | | 4 | |
Settlements (a) | | (16) | | | (33) | |
Net transactions recorded during the period: | | | | |
Net (losses) gains recognized as regulatory assets and liabilities (a) | | (86) | | | 34 | |
Balance at March 31 | | $ | 23 | | | $ | 32 | |
SPS recognizes transfers between levels as of the beginning of each period. There were no transfers of amounts between levels for derivative(a)Relates primarily to FTR instruments for the three months ended March 31, 2022 and 2021.administered by SPP.
Fair Value of Long-Term Debt
OtherAs of March 31, 2023, other financial instruments for which the carrying amount did not equal fair value:
| | | March 31, 2022 | | Dec. 31, 2021 | | March 31, 2023 | | Dec. 31, 2022 |
(Millions of Dollars) | (Millions of Dollars) | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | (Millions of Dollars) | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Long-term debt | Long-term debt | | $ | 3,013 | | | $ | 3,057 | | | $ | 3,013 | | | $ | 3,454 | | Long-term debt | | $ | 3,211 | | | $ | 2,770 | | | $ | 3,211 | | | $ | 2,674 | |
Fair value of SPS’ long-term debt is estimated based on recent trades and observable spreads from benchmark interest rates for similar securities. Fair value estimates are based on information available to management as of March 31, 20222023 and Dec. 31, 20212022, and given the observability of the inputs, fair values presented for long-term debt were assigned as Level 2.
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8. Benefit Plans and Other Postretirement Benefits |
Components of Net Periodic Benefit Cost (Credit)
| | | Three Months Ended March 31 | | Three Months Ended March 31 |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
(Millions of Dollars) | (Millions of Dollars) | | Pension Benefits | | (Millions of Dollars) | | Pension Benefits | |
Service cost | Service cost | | $ | 2 | | | $ | 2 | | | Service cost | | $ | 2 | | | $ | 2 | | |
Interest cost (a) | Interest cost (a) | | 4 | | | 4 | | | Interest cost (a) | | 6 | | | 4 | | |
Expected return on plan assets (a) | Expected return on plan assets (a) | | (8) | | | (7) | | | Expected return on plan assets (a) | | (8) | | | (8) | | |
| Amortization of net loss (a) | Amortization of net loss (a) | | 3 | | | 4 | | | Amortization of net loss (a) | | — | | | 3 | | |
| Net periodic benefit cost | Net periodic benefit cost | | $ | 1 | | | $ | 3 | | | Net periodic benefit cost | | $ | — | | | $ | 1 | | |
Effects of regulation | Effects of regulation | | 1 | | | — | | | Effects of regulation | | 1 | | | 1 | | |
Net benefit cost recognized for financial reporting | Net benefit cost recognized for financial reporting | | $ | 2 | | | $ | 3 | | | Net benefit cost recognized for financial reporting | | $ | 1 | | | $ | 2 | | |
(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 2022,2023, contributions oftotaling $50 million were made across 4 of Xcel Energy’s pension plans, none of which was attributable to SPS. Xcel Energy does not expect additional pension contributions during 2022.2023.
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9. Commitments and Contingencies |
The following includes commitments, contingencies and unresolved contingencies that are material to 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.
Other Litigation — In 2019, SPS and Xcel Energy Services, Inc. were served with a lawsuit related to a traffic accident that resulted in two fatalities in New Mexico. A loss contingency of approximately $50 million was recorded as of Sept. 30, 2022 within Other current liabilities. In July 2022, a confidential settlement was reached. No impact to earnings has or is expected to occur, as the amounts are expected to be reimbursed by SPS’ insurers. An offsetting asset has been recorded to reflect the reimbursement within Prepayments and other current assets.
Rate Matters and Other
SPS is involved in various regulatory proceedings arising in the ordinary course of business. Until resolution, typically in the form of a rate order, uncertainties may exist regarding the ultimate rate treatment for certain activities and transactions. Amounts have been recognized for probable and reasonably estimable losses that may result. Unless otherwise disclosed, any reasonably possible range of loss in excess of any recognized amount is not expected to have a material effect on the financial statements.
SPP OATT Upgrade Costs — Costs of transmission upgrades may be recovered from other SPP customers whose transmission service depends on capacity enabled by the upgrade under the SPP OATT. SPP had not been charging its customers for these upgrades, even though the SPP OATT had allowed SPP to do so since 2008. In 2016, the FERC granted SPP’s request to recover these previously unbilled charges and SPP subsequently billed SPS approximately $13 million.
In July 2018, SPS’ appeal to the D.C. Circuit over the FERC rulings granting SPP the right to recover previously unbilled charges was remanded to the FERC. In February 2019, the FERC reversed its 2016 decision and ordered SPP to refund charges retroactively collected from its transmission customers, including SPS, related to periods before September 2015. In March 2020, SPP and Oklahoma Gas & Electric separately filed petitions for review of the FERC’s orders at the D.C. Circuit. 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.
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 subsequently issued a tolling order granting a rehearing for further consideration in May 2018.consideration. If SPS’ complaint results in additional charges or refunds, SPS will seek to recover or refund the amount through future SPS customer rates. In October 2020, SPS filed a petition for review of the FERC’s March 2018 order and May 2018 tolling orderorders at the D.C. Circuit. In February 2022, FERC issued an order rejecting SPS’ request for hearing. SPS has 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 Electric Reliability Council of Texas (expected in 2023). The settlement agreement requires LP&L to pay SPS $78 million, 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.
Environmental
Manufactured Gas Plant,MGP, Landfill and Disposal Sites
SPS is remediating aone former disposal site. SPS has recognized its best estimate of costs/liabilities from final resolution of these issues, however, the outcome and timing are 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:Regional Haze Rules — 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 dioxideSO2 emission limitations thatwhich 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.
In March 2017, the Fifth Circuit remandedEPA adopted a final BART rule for Texas. Under that rule, Harrington Units 1, 2, and 3 and Tolk Units 1 and 2 participate in intrastate SO2 budget and trading program. The rule also implemented participation in a federal ozone season NOx budget and trading program, named the Cross State Air Pollution Rule. The EPA is reconsidering this rule to the EPAand a proposal for reconsideration leaving the stay in effect. In a future rulemaking, the EPA will address whether sulfur dioxide emission reductions beyond those requiredis anticipated 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 partquarter of a BART reconsideration or as part of the second planning period.2023.
Leases
SPS evaluates contracts that may contain leases, including PPAs and arrangements for the use of office space and other facilities, vehicles and equipment. A contract contains a lease if it conveys the exclusive right to control the use of a specific asset.
Components of lease expense:
| | | Three Months Ended March 31 | | Three Months Ended March 31 |
(Millions of Dollars) | (Millions of Dollars) | | 2022 | | 2021 | (Millions of Dollars) | | 2023 | | 2022 |
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) | | 2 | | | 1 | | Other operating leases (a) | | 1 | | | 2 | |
Total operating lease expense (b) | Total operating lease expense (b) | | $ | 15 | | | $ | 14 | | Total operating lease expense (b) | | $ | 14 | | | $ | 15 | |
(a)Includes immaterial short-term lease expense for 20222023 and 2021.2022.
(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 operating and maintenance expense and electric fuel and purchased power.
Commitments under operating leases as of March 31, 2022:2023:
| (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 | | $ | 532 | | | $ | 55 | | | $ | 587 | | Total minimum obligation | | $ | 485 | | | $ | 52 | | | $ | 537 | |
Interest component of obligation | Interest component of obligation | | (115) | | | (16) | | | (131) | | Interest component of obligation | | (98) | | | (13) | | | (111) | |
Present value of minimum obligation | Present value of minimum obligation | | $ | 417 | | | $ | 39 | | | 456 | | Present value of minimum obligation | | $ | 387 | | | $ | 39 | | | 426 | |
Less current portion | Less current portion | | (30) | | Less current portion | | (31) | |
Noncurrent operating and finance lease liabilities | | $ | 426 | | |
Noncurrent operating lease liabilities | | Noncurrent operating lease liabilities | | $ | 395 | |
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.
In addition, certain solar PPAs provide an option to purchase emission allowances or sharing provisions related to production credits generated by the solar facility under contract. These specific PPAs create a variable interest in the IPP.
SPS had approximately approximately 1,197 MW of capacity under long-term PPAs at both March 31, 20222023 and Dec. 31, 20212022 with entities that have been determined to be 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 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, 20222023 and 2021,2022, there were no such adjustments to GAAP earnings and therefore GAAP earnings equal ongoing earnings.
SPS’ net income was approximately $52$54 million for the three months ended March 31, 20222023 compared with approximately $58$52 million for the prior year. The decrease was primarily due to taxes (other than income taxes)increase largely reflects recovery of electric infrastructure investment and impacts associated with Winter Storm Uri,strong sales growth, partially offset by favorable sales.higher depreciation and O&M expenses.
Electric Margin
Electric margin is presented as electric revenues less electric fuel and purchased power expenses. Expenses incurred for electric fuel and purchased power are generally recovered through various regulatory recovery mechanisms. As a result, changes in these expenses are generally offset in operating revenues.
Electric revenues and fuel and purchased power expenses are impacted by fluctuations in the price of natural gas and coal. However, these price fluctuations generally have minimal impact on earnings impact due to fuel recovery mechanisms. In addition, electric customers receive a credit for PTCs generated, which reduce electric revenue and income taxes.
Electric Revenues, Fuel and Purchased Power and Electric Margin
| | | Three Months Ended March 31 | | Three Months Ended March 31 |
(Millions of Dollars) | (Millions of Dollars) | | 2022 | | 2021 | (Millions of Dollars) | | 2023 | | 2022 |
Electric revenues (a) | Electric revenues (a) | | $ | 477 | | | $ | 934 | | Electric revenues (a) | | $ | 508 | | | $ | 477 | |
Electric fuel and purchased power (a) | Electric fuel and purchased power (a) | | (237) | | | (693) | | Electric fuel and purchased power (a) | | (245) | | | (237) | |
Electric margin | Electric margin | | $ | 240 | | | $ | 241 | | Electric margin | | $ | 263 | | | $ | 240 | |
(a)The 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.
Changes in electric margin:Electric Margin
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(Millions of Dollars) | | Three Months Ended March 31, 20222023 vs. 20212022 |
Regulatory rate outcomes (Texas and New Mexico) | | $ | 1224 | |
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Sales and demand | | 1311 | |
Wholesale transmission (net) | | 6 | |
PTCs flowed back to customers (offset by lower ETR) | | (9)(8) | |
Proprietary commodity trading, netEstimated impact of sharing weather(a)
| | (4) | |
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Other (net) | | (13)(6) | |
Total decreaseincrease | | $ | (1)23 | |
(a)Includes $4 million of trading margin recognized in the first quarter of 2021, driven by market changes associated with Winter Storm Uri.
Non-Fuel Operating Expense and Other Items
Taxes (other than income taxes) — Taxes (other than income taxes) increased $4 million for the first quarter, primarily driven by an increase in property tax expense.
Income TaxesO&M Expenses — Income tax benefitO&M expenses increased $2$8 million for the first quarter. The increase was primarily driven by lower pretax earnings in 2022 and an increase in wind PTCs. Wind PTCs are largely crediteddue 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 6previously deferred amounts related to the financial statements2021 Texas rate case and inflationary impacts.
Depreciation and Amortization — Depreciation and amortization increased $13 million for further information.the first quarter. The increase is primarily due to the 2021 Texas Rate Case depreciation deferral, system expansion and the implementation of new depreciation rates.
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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 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.operations and credit quality.
ExceptSee Rate Matters within Note 10 to the extent noted below, the circumstances set forth in Public Utility Regulation included in Item 7 of SPS’ Annual Report on Form 10-Kfinancial statements for the year ended Dec. 31, 2021 appropriately represent, in all material respects, the current status of public utility regulation and are incorporated herein by reference.further information.Pending and Recently Concluded Regulatory Proceedings
20212022 New Mexico Electric Rate Case — In January 2021,November 2022, SPS filed an electric rate case with the NMPRC withseeking a current requested base raterevenue increase of $84 million.
In February 2022,$78 million, or 10%. The request is based on a FTY ending June 30, 2024, a ROE of 10.75%, an equity ratio of 54.7% and rate base of $2.4 billion. Additionally, the NMPRC approved an uncontested stipulation without modification, which reflected a $62 million rate increase, a change in the depreciation liferequest reflects further acceleration of the Tolk coal plant depreciation life from 2032 to 2032,2028. In March 2023, the NMPRC issued an equity ratio of 54.72%Order extending the suspension period by one month. Additionally, SPS filed a supplemental filing, which decreased the requested increase to $76 million.
On April 21, 2023, the following parties filed testimony: NMPRC staff, OPL, AG, NMLCG, LES-FEA and Walmart, with all except Walmart providing a ROE of 9.35% for reconciliation statements and determining theproposed revenue requirements for the Sagamore and Hale wind projects. New rates went into effect on Feb. 26, 2022.change.
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(Millions of Dollars) | | NMPRC Staff | | OPL | | AG | | NMLCG | | LES-FEA |
SPS direct testimony | | $ | 76 | | | $ | 76 | | | $ | 76 | | | $ | 76 | | | $ | 76 | |
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Recommended base rate adjustments: |
Test year present revenues and allocators | | (1) | | | 2 | | | (1) | | | 1 | | | (47) | |
ROE (a) | | (24) | | | (29) | | | (37) | | | (29) | | | (21) | |
Capital structure | | — | | | (22) | | | — | | | (22) | | | — | |
Adjustment to FTY plant additions/rate base items | | — | | | (4) | | | (10) | | | (5) | | | — | |
Tolk Generating Station depreciation expense | | — | | | (7) | | | — | | | (7) | | | (11) | |
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Other, net | | (14) | | | (1) | | | (19) | | | (13) | | | — | |
Total adjustments | | (39) | | | (61) | | | (67) | | | (75) | | | (79) | |
Total proposed revenue change | | $ | 37 | | | $ | 15 | | | $ | 9 | | | $ | 1 | | | $ | (3) | |
2021(a)AG recommends a reduction of $37 million reflecting its combined recommendation for ROE and capital structure.
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Recommended Position | | NMPRC Staff | | OPL | | AG | | NMLCG | | LES-FEA | | Walmart |
ROE | | 9.35 | % | | 8.70 | % | | 9.00 | % | | 8.70 | % | | 9.40 | % | | 9.61 | % |
Equity Ratio | | 54.70 | | | 45.00 | | | 50.57 | | | 45.00 | | | 54.70 | | | N/A |
Next steps in the revised procedural schedule are as follows:
•Rebuttal testimony: May 10, 2023.
•Stipulation: May 17, 2023.
•Hearing: June 20, 2023.
•End of rate suspension: Oct. 19, 2023.
2023 Texas Electric Rate Case — In 2021,February 2023, SPS filed an electric rate case with the PUCT and its municipalitiesPublic Utility Commission of Texas (PUCT) seeking an increase in base ratesrate revenue of approximately $140 million.$149 million (13%). In March 2023, SPS updated the filing based on a historical test year period ended Dec. 31, 2022, which increased the rate revenue request to $158 million (14% impact to customer bills). The request wasis based on a ROE of 10.35%10.65%, an equity ratio of 54.60%, a54.6% and retail rate base of approximately $3.3 billion and$3.6 billion. Additionally, the request reflects further acceleration of the Tolk coal plant depreciation life from 2034 to 2028. SPS is requesting a historic test year based onsurcharge from July 13, 2023 through the 12-months ended Dec. 31, 2020.effective date of new base rates.
In January 2022, SPS and intervenors filed a blackbox settlement. Key terms include:the next steps in the procedural schedule are as follows:
•Base rate increase of $89 million effective back to March 15, 2021.Intervenor direct testimony: August 4, 2023.
•A 9.35% ROE and 7.01% weighted average cost of capital for allowance for funds used during construction purposes only.Staff direct testimony: August 11, 2023.
•Depreciation lives for Tolk moved up to 2034 and Harrington coal assets moved up to 2024.Rebuttal testimony: August 25, 2023.
In February 2022, the Administrative Law Judge issued an order approving interim rates effective March 1, 2022. •Hearings: Sept. 12-21, 2023.
•Proposed findings: Oct. 25, 2023.
A PUCT decision is expected in the secondfirst quarter of 2022.2024.
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 Electric Reliability Council of Texas (expected in 2023). The settlement agreement requires LP&L to pay SPS $78 million (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 agreement has received PUCT approval and is pending FERC approval.
2022 All-Source RFP — In 2022, SPS issued an RFP, which seeks up to 947 MW of new or existing capacity resources to provide replacement capacity for retiring units and meet SPS’ growing capacity needs through 2027. SPS has received bids and is currently reviewing the proposals. SPS will file for the approval of successful proposals in the third quarter of 2023.
Texas Fuel Reconciliation— In 2021, SPS filed to recover $88 million of Winter Storm Uri costs over 24 months, as part of the Texas fuel surcharge filing, with total under-recovered costs of $121 million. In April 2022, interim rates designed to recover $121 million over 30 months were approved, subject to PUCT approval through the triennial Fuel Reconciliation proceeding.
In November 2022, the ALJs found that costs were prudently incurred and recommended no disallowances. In March 2023, the PUCT issued a Final Order which fully adopted the recommended decision with no disallowances of costs.
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 materialssituation as it remains fluid and has soughtseeks to mitigate the impacts by seekingsecuring alternative suppliers, as necessary.
Winter Storm Uri
In February 2021,modifying design standards, and adjusting the United States experienced Winter Storm Uri. Extreme cold temperatures impacted certain operational assets as well as the availabilitytiming 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.
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.work.
Regulatory Overview — In 2021, SPS filed to recover $88 millionElectric Meters and Transformers
Supply chain issues associated with semi-conductors have delayed the availability of Winter Storm Uri costs over 24 months, as partadvanced infrastructure meters. Full 2023 impacts and mitigation plans are currently being evaluated.
Additionally, the availability of the Texas fuel surcharge filing.
In January 2022, SPScertain transformers is an industry-wide issue that has significantly impacted and, other parties filed a stipulation for interim rates. The filing covers all fuel under-collections occurring between January 2020in some cases, may result in delays in projects and August 2021, totaling $121 million. The settlement does not address the prudence of Winter Storm Uri costs nor the retention of $11 millionnew customer connections. Proposed governmental actions related to market sales duringtransformer efficiency standards may compound these delays in the event. These items will be reviewed through the triennial Fuel Reconciliation proceedingfuture. SPS continues to seek alternative suppliers and are subjectprioritize work plans to a final PUCT decision. Interim rates, designed to collect up to $110 million over a periodmitigate impacts of 30 months, began on Feb. 1, 2022.supply constraints.
Affordable Clean EnergyAir Act
NOx Allowance Allocations —In July 2019,March 2023, after disapproving state implementation plans, the EPA adoptedreleased a prepublication version of the Affordablefinal regulations under the "Good Neighbor" provisions of the Clean EnergyAir Act. The final rule which requiresapplies to generation facilities in Texas as well as other states outside of our service territory. The rule establishes an allowance trading program for NOx that will impact SPS fossil fuel-fired electric generating facilities in the states within our service territory. Applicable facilities will have to secure additional allowances, install NOx controls and/or develop plans by 2022a strategy of operations that utilizes the existing allowance allocations. Guidelines are also established for greenhouse gas reductions from coal-fired power plants. In January 2021,allowance banking and emission limit backstops.
While the U.S. Courtfinancial impacts of Appeals for the D.C. Circuit issued a decision vacatingfinal rule are uncertain and remandingdependent on market forces and anticipated generation, SPS anticipates the Affordable Clean Energy rule. That decisionannual costs could be significant, but would allowbe recoverable through regulatory mechanisms.
SPS has joined other impacted companies in litigation challenging the EPA’ disapproval of Texas’ state implementation plans.
GHG Emissions Limits — It is anticipated the EPA will propose rules to proceed with alternate regulation of coal-fired power plants. However, the Court of Appeals decision has been appealedlimit GHG emissions from new fossil fuel-fired electric generating units and natural gas-fired stationary combustion units under Clean Air Act Section 111(b) as well as emission guidelines under Clean Air Act Section 111(d) to the U.S Supreme Court, where the Court heard argumentlimit GHG emissions from existing fossil fuel-fired electric generating units in February and is expected to rule by June on the nature and extent of the EPA’s greenhouse gas regulatory authority. 2023.
If 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.
Coal Ash Regulation
In February 2023, the EPA entered into a Consent Decree committing the agency to either issue new proposed rules by May 5, 2023, to regulate inactive CCR landfills under the CCR Rule for the first time or to determine no such rules are necessary by that date.
If proposed rules are issued, the EPA has committed to a May 2024 effective date for those new rules. It is also anticipated that the EPA may issue other CCR proposed rules in 2023 that further expand the scope of the CCR Rule. Until proposed rules are issued, it is not certain what the impact will be on SPS.
Emerging Contaminants of Concern
PFAS are man-made chemicals that are widely used in consumer products and can persist and bio-accumulate in the environment. SPS does not manufacture PFAS but because PFAS are so ubiquitous in products and the environment, it may impact our operations.
In September 2022, the EPA proposed to designate two types of PFAS as “hazardous substances” under the CERCLA.
In March 2023, the EPA published a proposed rule that would establish enforceable drinking water standards for certain PFAS chemicals.
The proposed rules could result in new obligations for investigation and cleanup. SPS is monitoring changes to state laws addressing PFAS. The impact of these proposed regulations is uncertain.
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ITEM 4 — CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
SPS maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms.
In addition, the disclosure controls and procedures ensure that information required to be disclosed is accumulated and communicated to management, including the CEO and CFO, allowing timely decisions regarding required disclosure.
As of March 31, 2022,2023, 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
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ITEM 1 — LEGAL PROCEEDINGS |
SPS is involved in various litigation matters in the ordinary course of business. The assessment of whether a loss is probable or is a reasonable possibility, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. Management maintains accruals for losses probable of being incurred and subject to reasonable estimation.
Management is sometimes unable to estimate an amount or range of a reasonably possible loss in certain situations, including but not limited to, when (1) the damages sought are indeterminate, (2) the proceedings are in the early stages or (3) the matters involve novel or unsettled legal theories. In such cases, there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including a possible eventual loss.
For current proceedings not specifically reported herein, management does not anticipate that the ultimate liabilities, if any, would have a material effect on SPS’ financial statements. Legal fees are generally expensed as incurred.
See Note 9 to the financial statements and Part I Item 2 for further information.
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, 2021,2022, which is incorporated herein by reference. There have been no material changes from the risk factors previously disclosed in the Form 10-K.
* Indicates incorporation by reference
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Exhibit Number | Description | Report or Registration Statement | Exhibit Reference |
| | SPS Form 10-Q for the quarter ended Sept. 30, 2017 | 3.01 |
| | SPS Form 10-K for the year ended Dec. 31, 2018 | 3.02 |
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101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | |
101.SCH | Inline XBRL Schema |
101.CAL | Inline XBRL Calculation |
101.DEF | Inline XBRL Definition |
101.LAB | Inline XBRL Label |
101.PRE | Inline XBRL Presentation |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | Southwestern Public Service Company |
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4/28/202227/2023 | By: | /s/ BRIAN J. VAN ABEL |
| | Brian J. Van Abel |
| | Executive Vice President, Chief Financial Officer |
| | (Duly AuthorizedPrincipal Accounting Officer and Principal Financial Officer) |