UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~Sept. 30, 2022~~March 31, 2023


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

For the transition period from to

Commission File Number: 001-03789


Southwestern Public Service Company
(Exact Name of Registrant as Specified in its Charter)

New Mexico

75-0575400

(State or Other Jurisdiction of Incorporation or Organization)

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

790 South Buchanan Street

Amarillo

Texas

79101

(Address of Principal Executive Offices)

(Zip Code)


(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:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes ☐No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☐

Emerging growth company

☐

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

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

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


Class						Outstanding at ~~October~~April 27, ~~2022~~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


PART I	FINANCIAL INFORMATION
Item 1 —	Financial Statements (unaudited)	4
	Statements of Income	4
	Statements of Cash Flows	5
	Balance Sheets	6
	Statements of Common Stockholder’s Equity	7
	Notes to Financial Statements	8
Item 2 —	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 4 —	Controls and Procedures	15

PART II	OTHER INFORMATION
Item 1 —	Legal Proceedings	1615
Item 1A —	Risk Factors	1615
Item 6 —	Exhibits	16

SIGNATURES		17

This Form 10-Q is filed by 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.

Table of Contents

Definitions of Abbreviations


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

Federal and State Regulatory Agencies
D.C. Circuit			United States Court of Appeals for the District of Columbia Circuit
EPA			United States Environmental Protection Agency
FERC			Federal Energy Regulatory Commission
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

Other
ACE			Affordable Clean Energy
~~AMT~~AG			~~Alternative minimum tax~~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
~~IRA~~			~~Inflation Reduction Act~~
~~ITC~~			~~Investment tax credit~~
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.

Measurements
MW			Megawatts


Forward-Looking Statements

Except for the historical statements contained in this report, the matters discussed herein are forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements, including those relating to future sales, future expenses, future tax rates, future operating performance, estimated base capital expenditures and financing plans, projected capital additions and forecasted annual revenue requirements with respect to rider filings, expected rate increases to customers, expectations and intentions regarding regulatory proceedings, and expected impact on our results of operations, financial condition and cash flows of resettlement calculations and credit losses relating to certain energy transactions, as well as assumptions and other statements are intended to be identified in this document by the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “objective,” “outlook,” “plan,” “project,” “possible,” “potential,” “should,” “will,” “would” and similar expressions. Actual results may vary materially. Forward-looking statements speak only as of the date they are made, and we expressly disclaim any obligation to update any forward-looking information. The following factors, in addition to those discussed in SPS’ Annual Report on Form 10-K for the fiscal year ended Dec. 31, ~~2021~~2022, and subsequent filings with the SEC, could cause actual results to differ materially from management expectations as suggested by such forward-looking information: uncertainty around the impacts and duration of the COVID-19 pandemic, including potential workforce impacts resulting from vaccination requirements, quarantine policies or government restrictions, and sales volatility; operational safety; successful long-term operational planning; commodity risks associated with energy markets and production; rising energy prices and fuel costs; qualified employee work force and third-party contractor factors; violations of our Codes of Conduct; our ability to recover costs; changes in regulation; reductions in our credit ratings and the cost of maintaining certain contractual relationships; general economic conditions, including recessionary conditions, inflation rates, monetary fluctuations, supply chain constraints, and their impact on capital expenditures and/or the ability of 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~~changes; costs of potential regulatory penalties; regulatory changes and/or limitations related to the use of natural gas as an energy 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.

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

SOUTHWESTERN PUBLIC SERVICE COMPANY

STATEMENTS OF INCOME (UNAUDITED)

(amounts in millions)


		Three Months Ended Sept. 30				Nine Months Ended Sept. 30					Three Months Ended March 31
		2022		2021		2022		2021			2023		2022
Operating revenues	Operating revenues	$	741	$	575	$	1,876	$	2,007	Operating revenues	$	508	$	477

Operating expenses	Operating expenses									Operating expenses
Electric fuel and purchased power	Electric fuel and purchased power	362		250		881		1,195		Electric fuel and purchased power	245		237
Operating and maintenance expenses	Operating and maintenance expenses	79		66		238		208		Operating and maintenance expenses	80		72
Demand side management expenses	Demand side management expenses	7		5		18		13		Demand side management expenses	6		5
Depreciation and amortization	Depreciation and amortization	89		71		299		227		Depreciation and amortization	91		78
Taxes (other than income taxes)	Taxes (other than income taxes)	26		20		84		59		Taxes (other than income taxes)	25		25
Total operating expenses	Total operating expenses	563		412		1,520		1,702		Total operating expenses	447		417

Operating income	Operating income	178		163		356		305		Operating income	61		60

Other (expense) income, net		(3)		—		(2)		1

Allowance for funds used during construction — equity	Allowance for funds used during construction — equity	1		1		2		3		Allowance for funds used during construction — equity	1		—

Interest charges and financing costs	Interest charges and financing costs									Interest charges and financing costs
Interest charges — includes other financing costs of $1, $1, $3 and $3, respectively		33		28		108		87
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)		(1)		Allowance for funds used during construction — debt	(1)		—
Total interest charges and financing costs	Total interest charges and financing costs	33		28		107		86		Total interest charges and financing costs	33		29

Income before income taxes	Income before income taxes	143		136		249		223		Income before income taxes	29		31
Income tax expense (benefit)		5		2		(34)		(37)
Income tax benefit										Income tax benefit	(25)		(21)
Net income	Net income	$	138	$	134	$	283	$	260	Net income	$	54	$	52

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

Table of Contents

SOUTHWESTERN PUBLIC SERVICE COMPANY

STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in millions)


		Nine Months Ended Sept. 30					Three Months Ended March 31
		2022		2021			2023		2022
Operating activities	Operating activities					Operating activities
Net income	Net income	$	283	$	260	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	302		229		Depreciation and amortization	92		79
Deferred income taxes	Deferred income taxes	21		(31)		Deferred income taxes	(40)		(2)
Allowance for equity funds used during construction	Allowance for equity funds used during construction	(2)		(3)		Allowance for equity funds used during construction	(1)		—
Provision for bad debts	Provision for bad debts	6		6		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	(69)		(66)		Accounts receivable	23		(26)
Accrued unbilled revenues	Accrued unbilled revenues	(28)		(20)		Accrued unbilled revenues	(3)		—
Inventories	Inventories	(14)		(14)		Inventories	(14)		(6)
Prepayments and other	Prepayments and other	(5)		21		Prepayments and other	4		(8)
Accounts payable	Accounts payable	49		6		Accounts payable	(30)		—
Net regulatory assets and liabilities	Net regulatory assets and liabilities	(73)		(113)		Net regulatory assets and liabilities	108		3
Other current liabilities	Other current liabilities	30		19		Other current liabilities	(3)		(3)
Pension and other employee benefit obligations	Pension and other employee benefit obligations	1		(16)		Pension and other employee benefit obligations	(1)		1
Other, net	Other, net	(2)		(2)		Other, net	(3)		(3)
Net cash provided by operating activities	Net cash provided by operating activities	499		276		Net cash provided by operating activities	188		89

Investing activities	Investing activities					Investing activities
Utility capital/construction expenditures	Utility capital/construction expenditures	(405)		(446)		Utility capital/construction expenditures	(170)		(123)
Investments in utility money pool arrangement		(133)		(83)
Repayments from utility money pool arrangement		113		83

Net cash used in investing activities	Net cash used in investing activities	(425)		(446)		Net cash used in investing activities	(170)		(123)

Financing activities	Financing activities					Financing activities
Repayments of short-term borrowings, net	Repayments of short-term borrowings, net	(137)		(232)		Repayments of short-term borrowings, net	44		75
Proceeds from issuance of long-term debt, net		196		247

Borrowings under utility money pool arrangement	Borrowings under utility money pool arrangement	262		539		Borrowings under utility money pool arrangement	5		202
Repayments under utility money pool arrangement	Repayments under utility money pool arrangement	(353)		(439)		Repayments under utility money pool arrangement	—		(193)
Capital contributions from parent	Capital contributions from parent	210		304		Capital contributions from parent	—		8
Dividends paid to parent	Dividends paid to parent	(250)		(254)		Dividends paid to parent	(66)		(58)

Net cash (used in) provided by financing activities	Net cash (used in) provided by financing activities	(72)		165		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	2		(5)		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	$	3	$	1	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)	$	(94)	$	(75)	Cash paid for interest (net of amounts capitalized)	$	(22)	$	(21)
Cash received for income taxes, net		45		19
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	$	40	$	39	Accrued property, plant and equipment additions	$	46	$	38
Inventory transfers to property, plant and equipment	Inventory transfers to property, plant and equipment	8		6		Inventory transfers to property, plant and equipment	9		4

Allowance for equity funds used during construction	Allowance for equity funds used during construction	2		3		Allowance for equity funds used during construction	1		—

See Notes to Financial Statements

Table of Contents

SOUTHWESTERN PUBLIC SERVICE COMPANY

BALANCE SHEETS (UNAUDITED)

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


		Sept. 30, 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	$	3	$	1	Cash and cash equivalents	$	3	$	2
Accounts receivable, net	Accounts receivable, net	171		115		Accounts receivable, net	140		167
Accounts receivable from affiliates	Accounts receivable from affiliates	15		9		Accounts receivable from affiliates	15		15
Investments in money pool arrangements		20		—

Accrued unbilled revenues	Accrued unbilled revenues	153		125		Accrued unbilled revenues	143		140
Inventories	Inventories	58		51		Inventories	66		61
Regulatory assets	Regulatory assets	274		193		Regulatory assets	143		217
Derivative instruments	Derivative instruments	237		30		Derivative instruments	26		122
Prepaid taxes	Prepaid taxes	13		3		Prepaid taxes	4		5
Prepayments and other	Prepayments and other	67		21		Prepayments and other	65		68
Total current assets	Total current assets	1,011		548		Total current assets	605		797

Property, plant and equipment, net	Property, plant and equipment, net	8,006		7,838		Property, plant and equipment, net	8,210		8,129

Other assets	Other assets					Other assets
Regulatory assets	Regulatory assets	352		380		Regulatory assets	344		359
Derivative instruments	Derivative instruments	4		6		Derivative instruments	2		3
Operating lease right-of-use assets	Operating lease right-of-use assets	441		463		Operating lease right-of-use assets	426		434
Other	Other	31		27		Other	28		26
Total other assets	Total other assets	828		876		Total other assets	800		822
Total assets	Total assets	$	9,845	$	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	$	—	$	137	Short-term debt	$	78	$	34
Borrowings under utility money pool arrangement	Borrowings under utility money pool arrangement	—		91		Borrowings under utility money pool arrangement	5		—
Accounts payable	Accounts payable	216		172		Accounts payable	170		209
Accounts payable to affiliates	Accounts payable to affiliates	24		16		Accounts payable to affiliates	18		23

Regulatory liabilities	Regulatory liabilities	262		54		Regulatory liabilities	67		148
Taxes accrued	Taxes accrued	61		47		Taxes accrued	47		61
Accrued interest	Accrued interest	41		30		Accrued interest	42		31
Dividends payable to parent	Dividends payable to parent	69		58		Dividends payable to parent	61		61
Derivative instruments	Derivative instruments	4		4		Derivative instruments	4		4
Operating lease liabilities	Operating lease liabilities	31		30		Operating lease liabilities	31		31
Other	Other	81		24		Other	58		58
Total current liabilities	Total current liabilities	789		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	738		702		Deferred income taxes	702		739
Regulatory liabilities	Regulatory liabilities	723		709		Regulatory liabilities	720		715
Asset retirement obligations	Asset retirement obligations	120		116		Asset retirement obligations	148		147
Derivative instruments	Derivative instruments	3		6		Derivative instruments	1		2
Pension and employee benefit obligations	Pension and employee benefit obligations	7		8		Pension and employee benefit obligations	11		12
Operating lease liabilities	Operating lease liabilities	411		434		Operating lease liabilities	395		403
Other	Other	9		8		Other	8		9
Total deferred credits and other liabilities	Total deferred credits and other liabilities	2,011		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	3,210		3,013		Long-term debt	3,211		3,211
Common stock — 200 shares authorized of $1.00 par value; 100 shares outstanding at September 30, 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	3,301		3,091		Additional paid in capital	3,311		3,311
Retained earnings	Retained earnings	535		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	3,835		3,603		Total common stockholder's equity	3,838		3,850
Total liabilities and equity	Total liabilities and equity	$	9,845	$	9,262	Total liabilities and equity	$	9,615	$	9,748

See Notes to Financial Statements

Table of Contents

SOUTHWESTERN PUBLIC SERVICE COMPANY

STATEMENTS OF COMMON STOCKHOLDER’S EQUITY (UNAUDITED)

(amounts in millions, except share data)

Common Stock Issued Retained Earnings Accumulated Other Comprehensive Loss Total Common Stockholder's Equity
Shares Par Value Additional Paid
In Capital
Three Months Ended Sept. 30, 2022 and 2021
Balance at June 30, 2021 100 $ — $ 3,094 $ 504 $ (1) $ 3,597
Net income 134 134
Dividends declared to parent (122) (122)
Contributions of capital by parent (3) (3)
Balance at Sept. 30, 2021 100 $ — $ 3,091 $ 516 $ (1) $ 3,606
Balance at June 30, 2022 100 $ — $ 3,301 $ 547 $ (1) $ 3,847
Net income 138 138
Dividends declared to parent (150) (150)
Balance at Sept. 30, 2022 100 $ — $ 3,301 $ 535 $ (1) $ 3,835
Common Stock Issued Retained Earnings Accumulated Other Comprehensive Loss Total Common Stockholder's Equity
Shares Par Value Additional Paid
In Capital
Nine Months Ended Sept. 30, 2022 and 2021
Balance at Dec. 31, 2020 100 $ — $ 2,790 $ 509 $ (1) $ 3,298
Net income 260 260
Dividends declared to parent (253) (253)
Contributions of capital by parent 301 301
Balance at Sept. 30, 2021 100 $ — $ 3,091 $ 516 $ (1) $ 3,606
Balance at Dec. 31, 2021 100 $ — $ 3,091 $ 513 $ (1) $ 3,603
Net income 283 283
Dividends declared to parent (261) (261)
Contributions of capital by parent 210 210
Balance at Sept. 30, 2022 100 $ — $ 3,301 $ 535 $ (1) $ 3,835
See Notes to Financial Statements


	Common Stock Issued					Retained Earnings		Accumulated Other Comprehensive Loss		Total Common Stockholder's Equity
	Shares	Par Value		Additional Paid In Capital
Three Months Ended March 31, 2023 and 2022
Balance at Dec. 31, 2021	100	$	—	$	3,091	$	513	$	(1)	$	3,603
Net income						52				52

Common dividends declared to parent						(53)				(53)
Contributions of capital by parent				8						8
Balance at March 31, 2022	100	$	—	$	3,099	$	512	$	(1)	$	3,610

Balance at Dec. 31, 2022	100	$	—	$	3,311	$	540	$	(1)	$	3,850
Net income						54				54

Common dividends declared to parent						(66)				(66)

Balance at March 31, 2023	100	$	—	$	3,311	$	528	$	(1)	$	3,838



















See Notes to Financial Statements

Table of Contents

SOUTHWESTERN PUBLIC SERVICE COMPANY

Notes to Financial Statements (UNAUDITED)

In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly, in accordance with GAAP, the financial position of SPS as of ~~Sept. 30, 2022~~March 31, 2023 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 ~~and nine~~ months ended ~~Sept. 30, 2022~~March 31, 2023 and ~~2021;~~2022; and SPS’ cash flows for the ~~nine~~three months ended ~~Sept. 30, 2022~~March 31, 2023 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 ~~Sept. 30, 2022~~March 31, 2023 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, ~~2021~~2022 balance sheet information has been derived from the audited ~~2021~~2022 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.


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, ~~2021~~2022 appropriately represent, in all material respects, the current status of accounting policies and are incorporated herein by reference.


2. Accounting Pronouncements

As of ~~Sept. 30, 2022,~~March 31, 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.


3. Selected Balance Sheet Data


(Millions of Dollars)	(Millions of Dollars)	Sept. 30, 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	$	184	$	127	Accounts receivable	$	153	$	180
Less allowance for bad debts	Less allowance for bad debts	(13)		(12)		Less allowance for bad debts	(13)		(13)
Accounts receivable, net	Accounts receivable, net	$	171	$	115	Accounts receivable, net	$	140	$	167


(Millions of Dollars)	(Millions of Dollars)	Sept. 30, 2022		Dec. 31, 2021		(Millions of Dollars)	March 31, 2023		Dec. 31, 2022
Inventories	Inventories					Inventories
Materials and supplies	Materials and supplies	$	38	$	29	Materials and supplies	$	47	$	42
Fuel	Fuel	20		22		Fuel	19		19
Total inventories	Total inventories	$	58	$	51	Total inventories	$	66	$	61


(Millions of Dollars)	(Millions of Dollars)	Sept. 30, 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	$	9,947	$	9,639	Electric plant	$	10,254	$	10,182
Plant to be retired (a)	Plant to be retired (a)	270		299		Plant to be retired (a)	260		266
CWIP	CWIP	230		171		CWIP	239		167
Total property, plant and equipment	Total property, plant and equipment	10,447		10,109		Total property, plant and equipment	10,753		10,615
Less accumulated depreciation	Less accumulated depreciation	(2,441)		(2,271)		Less accumulated depreciation	(2,543)		(2,486)
Property, plant and equipment, net	Property, plant and equipment, net	$	8,006	$	7,838	Property, plant and equipment, net	$	8,210	$	8,129

(a)Amounts include Tolk and ~~conversion of~~coal generation assets at Harrington ~~to natural~~pending facility gas conversion and are reported net of accumulated depreciation.


4. Borrowings and Other Financing Instruments

Short-Term Borrowings

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

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

Money pool ~~borrowings for SPS:~~borrowings:


(Amounts in Millions, Except Interest Rates)	(Amounts in Millions, Except Interest Rates)	Three Months Ended Sept. 30, 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	—			91			Amount outstanding at period end	5			—
Average amount outstanding	Average amount outstanding	—			51			Average amount outstanding	—			35
Maximum amount outstanding	Maximum amount outstanding	4			100			Maximum amount outstanding	5			100
Weighted average interest rate, computed on a daily basis	Weighted average interest rate, computed on a daily basis	2.27		%	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	N/A			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 Sept. 30, 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	—		137			Amount outstanding at period end	78			34
Average amount outstanding	Average amount outstanding	—		63			Average amount outstanding	88			100
Maximum amount outstanding	Maximum amount outstanding	—		342			Maximum amount outstanding	118			324
Weighted average interest rate, computed on a daily basis	Weighted average interest rate, computed on a daily basis	N/A		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	N/A		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 ~~Sept. 30, 2022~~March 31, 2023 and Dec. 31, ~~2021,~~2022, there were $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.

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In September 2022, SPS entered into an amended five-year credit agreement with a syndicate of banks, with substantially the same terms and conditions as the prior credit agreements. The maturity was extended from June 2024 to September 2027.

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

As of ~~Sept. 30, 2022,~~March 31, 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	$	2	$	498	500	$	80	$	420

(a)Expires in 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 ~~Sept. 30, 2022~~March 31, 2023 and Dec. 31, ~~2021.~~2022.

~~Long-Term Borrowings~~

~~During the nine months ended Sept. 30, 2022, SPS issued $200 million of 5.15% first mortgage bonds due June 1, 2052.~~


5. Revenues

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


		Three Months Ended Sept. 30					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	$	159	$	126	Residential	$	101	$	97
Commercial and Industrial	Commercial and Industrial	325		241		Commercial and Industrial	267		222
Other	Other	17		11		Other	12		8
Total retail	Total retail	501		378		Total retail	380		327
Wholesale	Wholesale	149		109		Wholesale	45		69
Transmission	Transmission	80		75		Transmission	74		72
Other	Other	—		2		Other	—		3
Total revenue from contracts with customers	Total revenue from contracts with customers	730		564		Total revenue from contracts with customers	499		471
Alternative revenue and other	Alternative revenue and other	11		11		Alternative revenue and other	9		6
Total revenues	Total revenues	$	741	$	575	Total revenues	$	508	$	477

		Nine Months Ended Sept. 30
(Millions of Dollars)		2022		2021
Major revenue types
Revenue from contracts with customers:
Residential		$	356	$	302
Commercial and Industrial		811		631
Other		38		30
Total retail		1,205		963
Wholesale		327		785
Transmission		226		218
Other		6		6
Total revenue from contracts with customers		1,764		1,972
Alternative revenue and other		112		35
Total revenues		$	1,876	$	2,007


6. Income Taxes

Reconciliation between the statutory rate and ETR:


		Nine Months Ended Sept. 30					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)	2.3		2.5		State tax (net of federal tax effect)	2.3		2.5
Decreases:
Increases (decreases):						Increases (decreases):
Wind PTCs (a)	Wind PTCs (a)	(31.8)		(32.9)		Wind PTCs (a)	(105.5)		(87.2)
Plant regulatory differences (b)	Plant regulatory differences (b)	(3.7)		(4.9)		Plant regulatory differences (b)	(3.7)		(4.0)

Amortization of excess nonplant deferred taxes	Amortization of excess nonplant deferred taxes	(0.9)		(1.1)		Amortization of excess nonplant deferred taxes	0.3		(1.1)
Other (net)	Other (net)	(0.6)		(1.2)		Other (net)	(0.6)		1.1
Effective income tax rate	Effective income tax rate	(13.7)	%	(16.6)	%	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 taxes are offset by corresponding revenue reductions.


7. Fair Value of Financial Assets and Liabilities

Fair Value Measurements

Accounting guidance for fair value measurements and disclosures provides a ~~single definition of fair value and requires disclosures about assets and liabilities measured at fair value. A~~ hierarchical framework for disclosing the observability of the inputs utilized in measuring assets and liabilities at fair ~~value is established by this guidance.~~value.

•Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. The types of assets and liabilities included in Level 1 are ~~highly liquid and~~ actively traded instruments with ~~quoted~~observable actual trading prices.

•Level 2 — Pricing inputs are other than ~~quoted~~actual 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 ~~are~~include 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— Methods used to measure the fair value of commodity derivative forwards and options utilize forward prices and volatilities, as well as pricing adjustments for specific delivery locations, and are generally assigned a Level 2 classification. When ~~contractual settlements~~contracts 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.

~~Table of Contents~~

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

FTRs are recognized at fair value and adjusted each period prior to ~~settlement~~.settlement. Given the limited observability of certain variables underlying the reported auction, values of FTRs, these fair value measurements have been assigned a Level 3.3 classification.

~~If costs of electric transmission congestion increase or decrease for a given path, the value of that particular instrument will likewise increase or decrease.~~ Net congestion costs, including the impact of FTR settlements, are shared through fuel and purchased energy cost recovery mechanisms. As such, the fair value of the unsettled instruments (i.e., derivative asset or liability) is offset/deferred as a regulatory asset or liability.

Derivative ~~Instruments~~Activities 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.

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Interest Rate Derivatives — SPS ~~may enter~~enters into ~~various instruments~~contracts that effectively fix the interest ~~payments~~rate on ~~certain floating rate~~a specified principal amount of a hypothetical future debt ~~obligations or effectively fix the yield or price~~issuance. These financial swaps net settle based on changes in a specified benchmark interest rate, ~~for an~~acting 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 ~~Sept. 30, 2022,~~March 31, 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 ~~Sept. 30, 2022,~~March 31, 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 ~~any~~these margins is determined through state regulatory proceedings as well as the operation of the ~~FERC approved~~FERC-approved joint operating agreement.

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

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)

Sept. 30, 2022

Dec. 31, 2021

Amounts in Millions (a)

March 31, 2023

Dec. 31, 2022

Megawatt hours of electricity

(a)~~Amounts are not~~Not 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 ~~Sept. 30, 2022, two~~March 31, 2023, four of the ~~eight~~ten most significant counterparties for these activities, comprising $9$10 million, or ~~27%~~31%, of this credit exposure, had investment grade credit ratings from S&P Global Ratings, Moody’s Investor Services or Fitch Ratings.

Five of the ~~eight~~ten most significant counterparties, comprising ~~$25~~$23 million , or ~~72%~~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.

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 eight~~Nine of these significant counterparties are municipal or cooperative electric entities, RTOs or other utilities.

Recurring Derivative Fair Value Measurements

Impact of ~~Derivative Activities on~~derivative activity:


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)

Total	$	(75)

Three Months Ended March 31, 2022
Other derivative instruments
Electric commodity	$	1

Total	$	1

Pre-Tax Losses Reclassified into Income During the Period from:

(Millions of Dollars)

Regulatory Assets and Liabilities

Three Months Ended March 31, 2023

Other derivative instruments

Electric commodity

(a)

Total

Three Months Ended March 31, 2022

Other derivative instruments

Electric commodity

(a)

Total

(a)—Changes in the fair value of FTRs resulting in pre-tax net losses of $13 million and gains of $80 million for the three and nine months ended Sept. 30, 2022, respectively, were recognized as regulatory assets or liabilities. Changes in the fair value of FTRs resulting in pre-tax net gains of $5 million and $15 million for the three and nine months ended Sept. 30, 2021, respectively, were recognized 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 $8 million and gains of $26 million for the three and nine months ended Sept. 30, 2022, respectively, were recorded to electric fuel and purchased power. FTR settlement losses of $4 million and gains of $13 million for the three and nine months ended Sept. 30, 2021, respectively, 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.

~~All~~ FTR settlements are shared with customers and do not have a material impact on net income. Presented amounts reflect changes in fair value between auction and settlement dates, but exclude the original auction fair value.

SPS had ~~immaterial~~no derivative instruments designated as fair value hedges during the three ~~and nine~~ months ended ~~Sept. 30, 2022~~March 31, 2023 and ~~2021.~~2022.

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


		Sept. 30, 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 ~~(b)~~	Electric commodity ~~(b)~~	$	—	$	—	$	234	$	234	$	—		$	234	$	—	$	—	$	27	$	27			$	—		$	27	Electric commodity ~~(b)~~		$	—			$	—	$	23		$	23			$	—		$	23			$	—			$	—		$	119		$	119		$	—		$	119
Total current derivative assets	Total current derivative assets	$	—	$	—	$	234	$	234	$	—		234		$	—	$	—	$	27	$	27			$	—		27		Total current derivative assets		$	—			$	—	$	23	$	23			$	—		23				$	—			$	—		$	119		$	119		$	—		119
PPAs (c)													3															3
PPAs (b)																								PPAs (b)																		3																					3
Current derivative instruments	Current derivative instruments												$	237														$	30	Current derivative instruments																	$	26																			$	122
Noncurrent derivative assets	Noncurrent derivative assets																													Noncurrent derivative assets

PPAs (c)													$	4														$	6
PPAs (b)																								PPAs (b)																		2																					3
Noncurrent derivative instruments	Noncurrent derivative instruments												$	4														$	6	Noncurrent derivative instruments																	$	2																			$	3
Current derivative liabilities	Current derivative liabilities																													Current derivative liabilities

PPAs (c)													$	4														$	4
PPAs (b)																								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 (c)													$	3														$	6
PPAs (b)																								PPAs (b)																		1																					2
Noncurrent derivative instruments	Noncurrent derivative instruments												$	3														$	6	Noncurrent derivative instruments																	$	1																			$	2

(a)SPS nets derivative instruments and related collateral on its balance ~~sheets~~sheet when supported by a legally enforceable master netting agreement. At ~~Sept. 30, 2022~~March 31, 2023 and Dec. 31, ~~2021,~~2022, derivative assets and liabilities include no obligations to return cash collateral or rights to reclaim cash collateral. Counterparty netting ~~excludes~~amounts presented exclude settlement receivables and payables and non-derivative amounts that may be subject to the same master netting agreements.

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

~~(c)During 2006,~~ SPS ~~qualified these contracts under~~currently applies the normal purchase ~~exception. Based on this qualification, the~~exception to qualifying PPAs. Balance relates to specific contracts ~~are no longer adjusted to~~that were previously recognized at fair value prior to applying the normal purchase exception, and ~~the previous carrying value of these contracts will be~~are being amortized over the remaining contract lives along with the offsetting regulatory assets and liabilities.

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


		Three Months Ended Sept. 30
(Millions of Dollars)		2022		2021
Balance at July 1		$	284	$	41
Purchases/Issuances (a)		4		2
Settlements (a)		(22)		(18)
Net transactions recorded during the period:
Net (losses) gains recognized as regulatory assets and liabilities (a)		(32)		12
Balance at Sept. 30		$	234	$	37

		Nine Months Ended Sept. 30					Three Months Ended March 31
(Millions of Dollars)	(Millions of Dollars)	2022		2021		(Millions of Dollars)	2023		2022
Balance at Jan. 1	Balance at Jan. 1	$	27	$	7	Balance at Jan. 1	$	119	$	27
Purchases/Issuances (a)		241		11
Purchases (a)						Purchases (a)	6		4
Settlements (a)	Settlements (a)	(116)		(39)		Settlements (a)	(16)		(33)
Net transactions recorded during the period:	Net transactions recorded during the period:					Net transactions recorded during the period:
Net gains recognized as regulatory assets and liabilities (a)		82		58
Balance at Sept. 30		$	234	$	37
Net (losses) gains recognized as regulatory assets and liabilities (a)						Net (losses) gains recognized as regulatory assets and liabilities (a)	(86)		34
Balance at March 31						Balance at March 31	$	23	$	32

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

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

Fair Value of Long-Term Debt

~~Other~~As of March 31, 2023, other financial instruments for which the carrying amount did not equal fair value:


		Sept. 30, 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	$	3,210	$	2,656	$	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 ~~Sept. 30, 2022~~March 31, 2023 and Dec. 31, ~~2021~~2022, and given the observability of the inputs, fair values presented for long-term debt were assigned as Level 2.

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8. Benefit Plans and Other Postretirement Benefits

Components of Net Periodic Benefit Cost ~~(Credit)~~

Three Months Ended Sept. 30
2022 2021 2022 2021
(Millions of Dollars) Pension Benefits Postretirement Health
Care Benefits
Service cost $ 2 $ 3 $ — $ —
Interest cost (a)
4 3 — —
Expected return on plan assets (a)
(8) (7) — —
Amortization of net loss (gain) (a)
3 4 (1) —
Settlement charge (b)
2 — — —
Net periodic benefit cost $ 3 $ 3 $ (1) $ —
Effects of regulation (1) (1) — —
Net benefit cost recognized for financial reporting $ 2 $ 2 $ (1) $ —


		Nine Months Ended Sept. 30									Three Months Ended March 31
		2022		2021		2022		2021			2023		2022
(Millions of Dollars)	(Millions of Dollars)	Pension Benefits				Postretirement Health Care Benefits				(Millions of Dollars)	Pension Benefits
Service cost	Service cost	$	7	$	8	$	—	$	—	Service cost	$	2	$	2
Interest cost (a)	Interest cost (a)	12		11		1		—		Interest cost (a)	6		4
Expected return on plan assets (a)	Expected return on plan assets (a)	(23)		(22)		(1)		(1)		Expected return on plan assets (a)	(8)		(8)

Amortization of net loss (gain) (a)		8		11		(1)		—
Settlement charge (b)		2		—		—		—
Amortization of net loss (a)										Amortization of net loss (a)	—		3

Net periodic benefit cost	Net periodic benefit cost	$	6	$	8	$	(1)	$	(1)	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	$	5	$	8	$	(1)	$	(1)	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, net” in the statements of income or capitalized on the balance sheets as a regulatory asset.

~~(b)~~A settlement charge is required when the amount of all lump-sum distributions during the year is greater than the sum of the service and interest cost components of the annual net periodic pension cost. In the third quarter as a result of lump-sum distributions during the 2022 plan year, SPS recorded a pension settlement charge of $2 million, the majority of which was not recognized in earnings due to the effects of regulation.

In January ~~2022,~~2023, contributions oftotaling $50 million were made across ~~four 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 order~~orders 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.

~~Table of Contents~~

~~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 is subject to approval by the PUCT and FERC. Approval steps are in process, but approval timing from the PUCT is uncertain.

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 dioxide~~SO2 emission limitations which would require the installation of dry scrubbers on Tolk Units 1 and 2; compliance would have been required by February 2021. SPS appealed the EPA’s decision and obtained a stay of the final rule.

In 2017, the ~~Fifth Circuit remanded~~EPA 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 EPA~~and a proposal for reconsideration ~~(leaving~~is anticipated in the ~~stay in effect). In a future rulemaking, the EPA may address whether further sulfur dioxide emission reductions are necessary.~~second quarter of 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 Sept. 30					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)	1		—		Other operating leases (a)	1		2
Total operating lease expense (b)	Total operating lease expense (b)	$	14	$	13	Total operating lease expense (b)	$	14	$	15

(a)~~Include~~sIncludes immaterial ~~short-term~~short-term lease expense for ~~2022~~2023 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.

Nine Months Ended Sept. 30
(Millions of Dollars) 2022 2021
Operating leases
PPA capacity payments $ 39 $ 40
Other operating leases (a)
4 2
Total operating lease expense (b)
$ 43 $ 42

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

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

Commitments under operating leases as of ~~Sept. 30, 2022:~~March 31, 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	$	508	$	54	$	562	Total minimum obligation	$	485	$	52	$	537
Interest component of obligation	Interest component of obligation	(106)		(14)		(120)		Interest component of obligation	(98)		(13)		(111)
Present value of minimum obligation	Present value of minimum obligation	$	402	$	40	442		Present value of minimum obligation	$	387	$	39	426
Less current portion	Less current portion					(31)		Less current portion					(31)
Noncurrent operating lease liabilities	Noncurrent operating lease liabilities					$	411	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 1,197 MW of capacity under long-term PPAs at both ~~Sept. 30, 2022~~March 31, 2023 and Dec. 31, ~~2021~~2022 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.


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 ~~and nine~~ months ended ~~Sept. 30,~~March 31, 2023 and 2022, ~~and 2021,~~ there were no such adjustments to GAAP earnings and therefore GAAP earnings equal ongoing earnings.

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Results of Operations

SPS’ net income was approximately ~~$283~~$54 million for the ~~nine~~three months ended ~~Sept. 30, 2022~~March 31, 2023 compared with approximately ~~$260~~$52 million for the prior year. The increase largely reflects ~~regulatory rate outcomes,~~recovery of electric infrastructure investment and strong sales growth, ~~and favorable weather,~~ partially offset by higher depreciation and O&M ~~expenses and interest charges.~~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~~Revenues, Fuel and ~~purchased power~~Purchased Power and ~~electric margin and explanation of the changes are listed as follows:~~Electric Margin


		Nine Months Ended Sept. 30					Three Months Ended March 31
(Millions of Dollars)	(Millions of Dollars)	2022		2021		(Millions of Dollars)	2023		2022
Electric revenues ~~(a)~~	Electric revenues ~~(a)~~	$	1,876	$	2,007	Electric revenues ~~(a)~~	$	508	$	477
Electric fuel and purchased power ~~(a)~~	Electric fuel and purchased power ~~(a)~~	(881)		(1,195)		Electric fuel and purchased power ~~(a)~~	(245)		(237)
Electric margin	Electric margin	$	995	$	812	Electric margin	$	263	$	240

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


(Millions of Dollars)	~~Nine~~Three Months Ended ~~Sept. 30,~~March 31, 2023 vs. 2022 ~~vs. 2021~~
Regulatory rate outcomes (Texas and New Mexico)	$	~~100~~24
~~Revenue recognition for the Texas rate case surcharge~~ ~~(a)~~	85
Sales and demand	4111
~~Estimated impact of weather~~Wholesale transmission (net)	18
~~Proprietary commodity trading, net of sharing~~ ~~(b)~~	~~(5)~~6
PTCs flowed back to customers (offset by lower ETR)	~~(25)~~(8)
Estimated impact of weather	(4)
Other (net)	~~(31)~~(6)
Total increase	$	~~183~~23

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

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

Non-Fuel Operating Expense and Other Items

O&M Expenses — O&M expenses increased ~~$30~~$8 million ~~year-to-date.~~for the first quarter. The increase iswas primarily due to ~~recognition of~~ previously deferred amounts related to the 2021 Texas ~~Electric Rate Case, additional investments in technology~~rate case and ~~customer programs and inflation. These increases were partially offset by a reduction in employee benefits costs.~~inflationary impacts.

Depreciation and Amortization — Depreciation and amortization increased ~~$72~~$13 million ~~year-to-date.~~for the first quarter. The increase is primarily due to the ~~recognition of previously deferred amounts related to the~~2021 Texas ~~Electric~~ Rate Case ~~normal~~depreciation deferral, system expansion and the implementation of new depreciation ~~rates in Texas and New Mexico.~~

~~Taxes (Other than Income Taxes)~~ — Taxes (other than income taxes) increased $25 million year-to-date, largely due to an increase in property taxes and the recognition of previously deferred amounts related to the Texas Electric Rate Case.

~~Interest Charges —~~ Interest expenses increased $21 million year-to-date, largely due to the recognition of previously deferred amounts related to the Texas Electric Rate Case and increased long-term debt levels to fund capital investments.rates.


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.

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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.

~~Except~~See 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-K~~financial 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

~~2021 Texas~~2022 New Mexico Electric Rate Case— In ~~2021,~~November 2022, SPS filed an electric rate case with the ~~PUCT~~NMPRC seeking a revenue increase of $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 request reflects further acceleration of the Tolk coal plant depreciation life from 2032 to 2028. In March 2023, the NMPRC issued an 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 proposed revenue change.


(Millions of Dollars)	NMPRC Staff		OPL		AG		NMLCG		LES-FEA
SPS direct testimony	$	76	$	76	$	76	$	76	$	76

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)




Other, net	(14)		(1)		(19)		(13)		—
Total adjustments	(39)		(61)		(67)		(75)		(79)
Total proposed revenue change	$	37	$	15	$	9	$	1	$	(3)

(a)AG recommends a reduction of $37 million reflecting its ~~municipalities~~combined recommendation for ROE and capital structure.


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 February 2023, SPS filed an electric rate case with the Public Utility Commission of Texas (PUCT) seeking an increase in base ~~rates~~rate revenue of ~~approximately $140 million.~~$149 million (13%). In ~~May~~March 2023, SPS updated the filing based on a historical test year period ended Dec. 31, 2022, which increased the ~~PUCT approved~~rate revenue request to $158 million (14% impact to customer bills). The request is based on a ~~settlement between~~ROE of 10.65%, an equity ratio of 54.6% and retail rate base of $3.6 billion. Additionally, the request reflects further acceleration of the Tolk coal plant depreciation life from 2034 to 2028. SPS ~~and intervening parties, which reflects~~is requesting a surcharge from July 13, 2023 through the ~~following terms:~~effective date of new base rates.

the next steps in the procedural schedule are as follows:

•Intervenor direct testimony: August 4, 2023.

•~~Base rate increase of $89 million effective retroactively to March 15, 2021.~~Staff direct testimony: August 11, 2023.

•~~A 9.35% ROE and 7.01% weighted average cost of capital for AFUDC purposes only.~~Rebuttal testimony: August 25, 2023.

•~~Depreciation lives~~Hearings: Sept. 12-21, 2023.

•Proposed findings: Oct. 25, 2023.

A PUCT decision is expected in the first quarter of 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 ~~Tolk accelerated~~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 ~~2034~~947 MW of new or existing capacity resources to provide replacement capacity for retiring units and ~~Harrington coal assets accelerated to 2024.~~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 ~~July 2022,~~2021, SPS filed to ~~surcharge the final under-recovered amount, estimated to be approximately $85~~recover $88 million ~~substantially offset by the recognition~~ of ~~previously deferred costs. The impact~~Winter Storm Uri costs over 24 months, as part of the ~~retroactive amounts is as follows:~~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.


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

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.

~~Table of Contents~~

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. ~~For example, availability of certain types of transformers has been significantly impacted and in some cases may result in delays in new customer connections as we work to address the shortage.~~ These disruptions have been further exacerbated by inflationary pressures, labor shortages and the impact of international conflicts/issues. SPS continues to monitor the situation as it remains fluid and seeks to mitigate the impacts by securing alternative suppliers, modifying design standards, and adjusting the timing of work.

~~Inflation Reduction Act —~~ ~~In August 2022, the IRA was signed into law.~~Table of Contents

~~Key provisions impacting SPS include:~~

•~~Extends current PTC~~

Electric Meters and ~~ITC for renewable technologies (e.g., wind and solar).~~Transformers

•~~Restores full value of the PTC and ITC for qualifying facilities placed in-service after 2021.~~

•~~Creates a PTC for solar, clean hydrogen and nuclear.~~

•~~Establishes an ITC for energy storage, microgrids, interconnection facilities, etc.~~

•~~Allows companies to monetize or sell credits to unrelated parties.~~

SPS anticipates the IRA will drive significant customer savings for both new and existing Company owned renewable projects, assuming appropriate regulatory mechanisms and development of a market for the sale of tax credits. The IRA is expected to allow SPS to monetize tax credits more efficientlySupply chain issues associated with ~~the incremental benefits passed through to customers.~~

~~In addition, the IRA created a new corporate AMT. SPS does not anticipate AMT having a material cash impact based on current estimates and our interpretation of AMT application.~~

~~Winter Storm Uri~~

~~In February 2021, the United States experienced Winter Storm Uri. Extreme cold temperatures impacted certain operational assets as well as~~semi-conductors have delayed the availability of ~~renewable generation. The cold weather also affected~~advanced infrastructure meters. Full 2023 impacts and mitigation plans are currently being evaluated.

Additionally, the ~~country’s supply~~availability of certain transformers is an industry-wide issue that has significantly impacted and, ~~demand for natural gas. These factors contributed to extremely high market prices for natural gas~~in some cases, may result in delays in projects 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 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. The interim rate recovery does not address the prudence of costs nor the retention of $10 million~~new customer connections. Proposed governmental actions related to ~~market sales during the event. These items will be reviewed through the triennial Fuel Reconciliation proceeding and are subject to a final PUCT decision.~~

~~In July 2022, the intervenors filed recommendations~~transformer efficiency standards may compound these delays in the ~~Fuel Reconciliation proceeding. The Texas Industrial Energy Consumers~~future. SPS continues to seek alternative suppliers and ~~PUCT staff recommended disallowances~~prioritize work plans to mitigate impacts of approximately $10 million (off-system sales margins). The Office of Public Utility Counsel recommended disallowances of approximately $15 million (off-system sales margins and adjustment to energy loss factors). The Alliance of Xcel Municipalities recommended disallowances of approximately $100 million (natural gas storage, contracted capability and off-system sales margins).

~~A recommendation from the ALJ is expected in the fourth quarter of 2022 and a final decision is anticipated in the first quarter of 2023.~~supply constraints.

Environmental

Clean Air Act

NOx Allowance Allocations —In ~~April 2022~~March 2023, after disapproving state implementation plans, the EPA ~~proposed~~released a prepublication version of the final regulations under the "Good Neighbor" provisions of the Clean Air Act. The ~~proposed rules impose a Federal Implementation Plan that~~final rule applies to generation facilities in Texas as well as other states outside of our service territory. The rule establishes an allowance trading program for NOx ~~potentially impacting~~that will impact SPS fossil fuel-fired electric generating ~~facilities. Facilities without NOx controls~~facilities in the states within our service territory. Applicable facilities will have to secure additional allowances, install NOx controls and/or develop a strategy of operations that utilizes the existing allowance allocations. ~~The EPA has indicated that it intends~~Guidelines are also established for ~~the rule to be final by the end of 2022 with initial applicability for the 2023 ozone season.~~ allowance banking and emission limit backstops.

While the financial impacts of the ~~proposed regulation~~final rule are uncertain and dependent on market forces and anticipated generation, SPS anticipates ~~that~~the annual costs ~~will~~could be significant, but would be recoverable through regulatory mechanisms.

~~CERCLA~~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 limit 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 limit GHG emissions from existing fossil fuel-fired electric generating units in 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, specifically perfluorooctanoic acid and perfluorooctanesulfonic acid. This~~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 wherever PFAS are found~~cleanup. SPS is monitoring changes to ~~be present.~~state laws addressing PFAS. The impact ~~the~~of these proposed ~~regulation may have on electric and gas utilities~~regulations is ~~currently~~ uncertain.


ITEM 4 — CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

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

As of ~~Sept. 30, 2022,~~March 31, 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.

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PART II — OTHER INFORMATION


ITEM 1 — LEGAL PROCEEDINGS

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

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

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


ITEM 1A — RISK FACTORS

SPS’ risk factors are documented in Item 1A of Part I of its Annual Report on Form 10-K for the year ended Dec. 31, ~~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.

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ITEM 6 — EXHIBITS

* Indicates incorporation by reference


Exhibit Number	Description	Report or Registration Statement	Exhibit Reference
3.01*	Amended and Restated Articles of Incorporation, dated Sept. 30, 1997	SPS Form 10-Q for the quarter ended Sept. 30, 2017	3.01
3.02*	Amended and Restated Bylaws of SPS, dated Jan. 25, 2019	SPS Form 10-K for the year ended Dec. 31, 2018	3.02
~~10.~~01*	Fourth Amended and Restated Credit Agreement, dated as of September 19, 2022, among Southwestern Public Service Company, as Borrower, the several lenders from time to time parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A. and Barclays Bank PLC, as Syndication Agents, and Citibank, N.A., MUFG Bank, Ltd. and Wells Fargo Bank, National Association, as Documentation Agents	~~Xcel Energy Inc. Form 8-K dated September 19, 2022~~	~~99.04~~
31.01	Principal Executive Officer’s certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.02	Principal Financial Officer’s certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.01	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Schema
101.CAL	Inline XBRL Calculation
101.DEF	Inline XBRL Definition
101.LAB	Inline XBRL Label
101.PRE	Inline XBRL Presentation
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Table of Contents

SIGNATURES

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


		Southwestern Public Service Company

~~10/~~4/27/~~2022~~2023	By:	/s/ BRIAN J. VAN ABEL
		Brian J. Van Abel
		Executive Vice President, Chief Financial Officer
		(~~Duly Authorized~~Principal Accounting Officer and Principal Financial Officer)