UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended Sept. 30, ~~2021~~2022


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

For the transition period from to

Commission File Number: 001-31387


Northern States Power Company
(Exact ~~name~~Name of ~~registrant~~Registrant as ~~specified~~Specified in its ~~charter)~~Charter)

Minnesota

41-1967505

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

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

414 Nicollet Mall

Minneapolis

Minnesota

55401

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

(Zip Code)


	(612)	330-5500
(Registrant’s ~~telephone number, including area code)~~


~~N/A~~
~~(Former name, former address and former fiscal year, if changed since last report)~~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 Oct. ~~28, 2021~~27, 2022
Common Stock, $0.01 par value						1,000,000 shares

Northern States Power Company meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format specified in General Instruction H(2) to such Form 10-Q.

TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION
Item 1 —	Financial Statements (Unaudited)	4
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Cash Flows	6
	Consolidated Balance Sheets	7
	Consolidated Statements of Common Stockholder’s Equity	8
	Notes to Consolidated Financial Statements	9
Item 2 —	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1918
Item 4 —	Controls and Procedures	2322

PART II	OTHER INFORMATION
Item 1 —	Legal Proceedings	2322
Item 1A —	Risk Factors	2322
Item 6 —	Exhibits	23

SIGNATURES		24

This Form 10-Q is filed by ~~Northern States Power Company, a Minnesota corporation (NSP-Minnesota).~~NSP-Minnesota. NSP-Minnesota is a wholly owned subsidiary of Xcel Energy Inc. Additional information on Xcel Energy is available in various filings with the ~~Securities and Exchange Commission.~~SEC. This report should be read in its entirety.

Definitions of Abbreviations


Xcel Energy Inc.’s Subsidiaries and Affiliates (current and former)
NSP-Minnesota			Northern States Power Company, a Minnesota corporation
NSP System			The electric production and transmission system of NSP-Minnesota and NSP-Wisconsin operated on an integrated basis and managed by NSP-Minnesota
NSP-Wisconsin			Northern States Power Company, a Wisconsin corporation
PSCo			Public Service Company of Colorado
SPS			Southwestern Public Service Company
Utility subsidiaries			NSP-Minnesota, NSP-Wisconsin, PSCo and SPS
Xcel Energy			Xcel Energy Inc. and its subsidiaries

Federal and State Regulatory Agencies
D.C. Circuit			United States Court of Appeals for the District of Columbia Circuit
DOC			Minnesota Department of Commerce
EPA			United States Environmental Protection Agency
FERC			Federal Energy Regulatory Commission
MPUC			Minnesota Public Utilities Commission
NDPSC			North Dakota Public Service Commission
OAG			Minnesota Office of Attorney General
SEC			Securities and Exchange Commission

Electric, Purchased Gas and Resource Adjustment Clauses
~~FCA~~			~~Fuel clause adjustment~~
GUIC			Gas utility infrastructure cost rider
RES			Renewable energy standard
TCR			Transmission cost recovery adjustment

Other
~~ASC~~ACE			~~FASB Accounting Standards Codification~~Affordable Clean Energy
ALJ			Administrative Law Judge
AMT			Alternative minimum tax
C&I			Commercial and Industrial
CCR			Coal combustion residuals
CCR Rule			Final rule (40 CFR 257.50 - 257.107) published by the EPA regulating the management, storage and disposal of CCRs as nonhazardous waste.
CEO			Chief executive officer
CERCLA			Comprehensive Environmental Response, Compensation, and Liability Act
CFO			Chief financial officer
~~COVID-19~~CSPV			~~Novel coronavirus~~Crystalline Silicon Photovoltaic
CUB			Citizens Utility Board
ETR			Effective tax rate
~~FASB~~			~~Financial Accounting Standards Board~~
FTR			Financial transmission right
GAAP			United States generally accepted accounting principles
GE			General Electric Company
IPP			Independent power producing entity
IRA			Inflation Reduction Act
ITC			Investment tax credit
JSC			Just Solar Coalition
MGP			Manufactured gas plant
MISO			Midcontinent Independent System Operator, Inc.
NAV			Net asset value
~~NOL~~NOx			~~Net operating loss~~
~~NOPR~~			~~Notice of Proposed Rulemaking~~Nitrogen Oxides
O&M			Operating and maintenance
PFAS			Per- and PolyFluoroAlkyl Substances
PPA			Power purchase agreement
PTC			Production tax credit
ROE			Return on equity
RTO			Regional Transmission Organization
SMMPA			Southern Minnesota Municipal Power Agency
TOs			Transmission owners
~~VIE~~XLI			~~Variable interest entity~~Xcel Large Industrial Customers

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 NSP-Minnesota’s Annual Report on Form 10-K for the fiscal year ended Dec. 31, ~~2020,~~2021, and subsequent filings with the SEC, could cause actual results to differ materially from management expectations as suggested by such forward-looking information: uncertainty around the impacts and duration of the COVID-19 ~~pandemic;~~pandemic, including potential workforce impacts resulting from vaccination requirements, quarantine policies or government restrictions, and sales volatility; operational safety, including our nuclear generation ~~facilities;~~facilities and other utility operations; successful long-term operational planning; commodity risks associated with energy markets and production; rising energy prices and fuel costs; qualified employee work force and third-party contractor factors; violations of our Codes of Conduct; ability to recover costs; changes in regulation; reductions in our credit ratings and the cost of maintaining certain contractual relationships; general economic conditions, including recessionary conditions, inflation rates, monetary fluctuations, supply chain constraints and their impact on capital expenditures and/or the ability of NSP-Minnesota and its subsidiaries to obtain financing on favorable terms; availability or cost of capital; our customers’ and counterparties’ ability to pay their debts to us; assumptions and costs relating to funding our employee benefit plans and health care benefits; tax laws; effects of geopolitical events, including war and acts of terrorism; cyber security threats and data security breaches; seasonal weather patterns; changes in environmental laws and regulations; climate change and other weather; natural disaster and resource depletion, including compliance with any accompanying legislative and regulatory changes; ~~and~~ costs of potential regulatory ~~penalties.~~penalties; regulatory changes and/or limitations related to the use of natural gas as an energy source; 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

NSP-MINNESOTA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(amounts in millions)


		Three Months Ended Sept. 30				Nine Months Ended Sept. 30					Three Months Ended Sept. 30				Nine Months Ended Sept. 30
		2021		2020		2021		2020			2022		2021		2022		2021
Operating revenues	Operating revenues									Operating revenues
Electric, non-affiliates	Electric, non-affiliates	$	1,350	$	1,216	$	3,469	$	3,131	Electric, non-affiliates	$	1,598	$	1,350	$	3,914	$	3,469
Electric, affiliates	Electric, affiliates	127		115		373		330		Electric, affiliates	132		127		394		373
Natural gas	Natural gas	70		48		353		329		Natural gas	102		70		703		353
Other	Other	10		9		29		28		Other	12		10		33		29
Total operating revenues	Total operating revenues	1,557		1,388		4,224		3,818		Total operating revenues	1,844		1,557		5,044		4,224

Operating expenses	Operating expenses									Operating expenses
Electric fuel and purchased power	Electric fuel and purchased power	574		458		1,494		1,225		Electric fuel and purchased power	750		574		1,857		1,494
Cost of natural gas sold and transported	Cost of natural gas sold and transported	30		14		187		170		Cost of natural gas sold and transported	65		30		510		187
Cost of sales — other	Cost of sales — other	6		7		16		18		Cost of sales — other	7		6		19		16
Operating and maintenance expenses		287		293		899		879
O&M expenses										O&M expenses	305		287		915		899
Conservation program expenses	Conservation program expenses	35		30		101		86		Conservation program expenses	45		35		135		101
Depreciation and amortization	Depreciation and amortization	239		208		689		615		Depreciation and amortization	256		239		759		689
Taxes (other than income taxes)	Taxes (other than income taxes)	65		64		200		195		Taxes (other than income taxes)	69		65		210		200
Total operating expenses	Total operating expenses	1,236		1,074		3,586		3,188		Total operating expenses	1,497		1,236		4,405		3,586

Operating income	Operating income	321		314		638		630		Operating income	347		321		639		638

Other income, net		—		4		4		2
Other (expense) income, net										Other (expense) income, net	(4)		—		(9)		4
Allowance for funds used during construction — equity	Allowance for funds used during construction — equity	8		5		23		19		Allowance for funds used during construction — equity	9		8		21		23

Interest charges and financing costs	Interest charges and financing costs									Interest charges and financing costs
Interest charges — includes other financing costs of $2, $2, $6 and $6, respectively	Interest charges — includes other financing costs of $2, $2, $6 and $6, respectively	69		64		202		186		Interest charges — includes other financing costs of $2, $2, $6 and $6, respectively	75		69		216		202
Allowance for funds used during construction — debt	Allowance for funds used during construction — debt	(3)		(2)		(9)		(8)		Allowance for funds used during construction — debt	(4)		(3)		(9)		(9)
Total interest charges and financing costs	Total interest charges and financing costs	66		62		193		178		Total interest charges and financing costs	71		66		207		193

Income before income taxes	Income before income taxes	263		261		472		473		Income before income taxes	281		263		444		472
Income tax expense (benefit)	Income tax expense (benefit)	15		15		(17)		2		Income tax expense (benefit)	12		15		(70)		(17)
Net income	Net income	$	248	$	246	$	489	$	471	Net income	$	269	$	248	$	514	$	489

See Notes to Consolidated Financial Statements

Table of Contents

NSP-MINNESOTA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(amounts in millions)


		Three Months Ended Sept. 30				Nine Months Ended Sept. 30					Three Months Ended Sept. 30				Nine Months Ended Sept. 30
		2021		2020		2021		2020			2022		2021		2022		2021
Net income	Net income	$	248	$	246	$	489	$	471	Net income	$	269	$	248	$	514	$	489
Other comprehensive income	Other comprehensive income									Other comprehensive income

Derivative instruments:	Derivative instruments:									Derivative instruments:
Reclassification of losses to net income, net of tax of $—, $—, $— and $—, respectively	Reclassification of losses to net income, net of tax of $—, $—, $— and $—, respectively	—		—		1		1		Reclassification of losses to net income, net of tax of $—, $—, $— and $—, respectively	—		—		—		1

Total other comprehensive income	Total other comprehensive income	—		—		1		1		Total other comprehensive income	—		—		—		1
Total comprehensive income	Total comprehensive income	$	248	$	246	$	490	$	472	Total comprehensive income	$	269	$	248	$	514	$	490

See Notes to Consolidated Financial Statements

Table of Contents

NSP-MINNESOTA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in millions)


		Nine Months Ended Sept. 30					Nine Months Ended Sept. 30
		2021		2020			2022		2021
Operating activities	Operating activities					Operating activities
Net income	Net income	$	489	$	471	Net income	$	514	$	489
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	694		621		Depreciation and amortization	765		694
Nuclear fuel amortization	Nuclear fuel amortization	86		94		Nuclear fuel amortization	91		86
Deferred income taxes	Deferred income taxes	(2)		(50)		Deferred income taxes	(167)		(2)

Allowance for equity funds used during construction	Allowance for equity funds used during construction	(23)		(19)		Allowance for equity funds used during construction	(21)		(23)
Provision for bad debts	Provision for bad debts	17		15		Provision for bad debts	10		17

Net realized and unrealized hedging and derivatives transactions						Net realized and unrealized hedging and derivatives transactions	23		(27)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(55)		(41)		Accounts receivable	(56)		(55)
Accrued unbilled revenues	Accrued unbilled revenues	21		44		Accrued unbilled revenues	40		21
Inventories	Inventories	(1)		2		Inventories	(107)		(1)
Other current assets	Other current assets	1		(5)		Other current assets	5		1
Accounts payable	Accounts payable	81		4		Accounts payable	57		81
Net regulatory assets and liabilities	Net regulatory assets and liabilities	(312)		(86)		Net regulatory assets and liabilities	325		(312)
Other current liabilities	Other current liabilities	15		(48)		Other current liabilities	88		15
Pension and other employee benefit obligations	Pension and other employee benefit obligations	(38)		(55)		Pension and other employee benefit obligations	(9)		(38)
Other, net	Other, net	(51)		14		Other, net	9		(24)
Net cash provided by operating activities	Net cash provided by operating activities	922		961		Net cash provided by operating activities	1,567		922

Investing activities	Investing activities					Investing activities
Capital/construction expenditures	Capital/construction expenditures	(1,368)		(936)		Capital/construction expenditures	(1,293)		(1,368)
Purchase of investment securities	Purchase of investment securities	(540)		(1,275)		Purchase of investment securities	(1,055)		(540)
Proceeds from the sale of investment securities	Proceeds from the sale of investment securities	531		1,260		Proceeds from the sale of investment securities	1,029		531
Investments in utility money pool arrangement	Investments in utility money pool arrangement	(464)		(641)		Investments in utility money pool arrangement	(1,426)		(464)
Repayments from utility money pool arrangement	Repayments from utility money pool arrangement	394		570		Repayments from utility money pool arrangement	1,408		394
Other, net	Other, net	3		4		Other, net	5		3
Net cash used in investing activities	Net cash used in investing activities	(1,444)		(1,018)		Net cash used in investing activities	(1,332)		(1,444)

Financing activities	Financing activities					Financing activities
Repayments of short-term borrowings, net	Repayments of short-term borrowings, net	(179)		(30)		Repayments of short-term borrowings, net	—		(179)
Borrowings under utility money pool arrangement	Borrowings under utility money pool arrangement	434		118		Borrowings under utility money pool arrangement	—		434
Repayments under utility money pool arrangement	Repayments under utility money pool arrangement	(434)		(118)		Repayments under utility money pool arrangement	—		(434)
Proceeds from issuance of long-term debt	Proceeds from issuance of long-term debt	836		677		Proceeds from issuance of long-term debt	489		836
Repayment of long-term debt	Repayment of long-term debt	—		(300)		Repayment of long-term debt	(300)		—
Capital contributions from parent	Capital contributions from parent	644		303		Capital contributions from parent	4		644
Dividends paid to parent	Dividends paid to parent	(322)		(299)		Dividends paid to parent	(442)		(322)
Other, net		—		3
Net cash provided by financing activities		979		354

Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(249)		979

Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	457		297		Net change in cash, cash equivalents and restricted cash	(14)		457
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	46		126		Cash, cash equivalents and restricted cash at beginning of period	73		46
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	503	$	423	Cash, cash equivalents and restricted cash at end of period	$	59	$	503

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)	$	(189)	$	(188)	Cash paid for interest (net of amounts capitalized)	$	(198)	$	(189)
Cash received (paid) for income taxes, net		9		(45)
Cash (paid) received for income taxes, net						Cash (paid) received for income taxes, net	(53)		9

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	$	233	$	635	Accrued property, plant and equipment additions	$	162	$	233
Inventory transfers to property, plant and equipment	Inventory transfers to property, plant and equipment	8		18		Inventory transfers to property, plant and equipment	9		8

Operating lease right-of-use assets						Operating lease right-of-use assets	1		—
Allowance for equity funds used during construction	Allowance for equity funds used during construction	23		19		Allowance for equity funds used during construction	21		23

See Notes to Consolidated Financial Statements

Table of Contents

NSP-MINNESOTA AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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


		Sept. 30, 2021		Dec. 31, 2020			Sept. 30, 2022		Dec. 31, 2021
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	503	$	46	Cash and cash equivalents	$	59	$	73
Accounts receivable, net	Accounts receivable, net	417		392		Accounts receivable, net	495		429
Accounts receivable from affiliates	Accounts receivable from affiliates	25		32		Accounts receivable from affiliates	16		29
Investments in money pool arrangements	Investments in money pool arrangements	70		—		Investments in money pool arrangements	109		91
Accrued unbilled revenues	Accrued unbilled revenues	227		248		Accrued unbilled revenues	279		319
Inventories	Inventories	289		295		Inventories	407		309
Regulatory assets	Regulatory assets	566		411		Regulatory assets	436		527
Derivative instruments	Derivative instruments	88		17		Derivative instruments	168		53

Prepayments and other	Prepayments and other	50		50		Prepayments and other	42		46
Total current assets	Total current assets	2,235		1,491		Total current assets	2,011		1,876

Property, plant and equipment, net	Property, plant and equipment, net	16,146		15,308		Property, plant and equipment, net	17,070		16,430

Other assets	Other assets					Other assets
Nuclear decommissioning fund and other investments	Nuclear decommissioning fund and other investments	3,136		2,830		Nuclear decommissioning fund and other investments	2,789		3,308
Regulatory assets	Regulatory assets	861		924		Regulatory assets	953		718
Derivative instruments	Derivative instruments	43		5		Derivative instruments	74		33
Operating lease right-of-use assets	Operating lease right-of-use assets	428		488		Operating lease right-of-use assets	346		408
Other	Other	31		14		Other	29		36
Total other assets	Total other assets	4,499		4,261		Total other assets	4,191		4,503
Total assets	Total assets	$	22,880	$	21,060	Total assets	$	23,272	$	22,809

Liabilities and Equity	Liabilities and Equity					Liabilities and Equity
Current liabilities	Current liabilities					Current liabilities
Current portion of long-term debt	Current portion of long-term debt	$	300	$	—	Current portion of long-term debt	$	400	$	300
Short-term debt		—		179

Accounts payable	Accounts payable	484		438		Accounts payable	586		522
Accounts payable to affiliates	Accounts payable to affiliates	109		66		Accounts payable to affiliates	89		63
Regulatory liabilities	Regulatory liabilities	142		123		Regulatory liabilities	250		117
Taxes accrued	Taxes accrued	279		263		Taxes accrued	311		260
Accrued interest	Accrued interest	71		72		Accrued interest	80		78
Dividends payable to parent	Dividends payable to parent	109		106		Dividends payable to parent	117		96
Derivative instruments	Derivative instruments	39		22		Derivative instruments	58		35

Operating lease liabilities	Operating lease liabilities	93		85		Operating lease liabilities	97		90
Other	Other	181		154		Other	233		166
Total current liabilities	Total current liabilities	1,807		1,508		Total current liabilities	2,221		1,727

Deferred credits and other liabilities	Deferred credits and other liabilities					Deferred credits and other liabilities
Deferred income taxes	Deferred income taxes	1,949		1,840		Deferred income taxes	1,667		1,949
Deferred investment tax credits	Deferred investment tax credits	17		18		Deferred investment tax credits	16		17
Regulatory liabilities	Regulatory liabilities	1,914		1,896		Regulatory liabilities	1,976		1,927
Asset retirement obligations	Asset retirement obligations	2,543		2,350		Asset retirement obligations	2,699		2,585
Derivative instruments	Derivative instruments	74		71		Derivative instruments	103		71
Pension and employee benefit obligations	Pension and employee benefit obligations	155		192		Pension and employee benefit obligations	105		112
Operating lease liabilities	Operating lease liabilities	372		443		Operating lease liabilities	280		353
Other	Other	48		69		Other	29		48
Total deferred credits and other liabilities	Total deferred credits and other liabilities	7,072		6,879		Total deferred credits and other liabilities	6,875		7,062

Commitments and contingencies						Commitments and contingencies
Capitalization	Capitalization					Capitalization
Long-term debt	Long-term debt	6,443		5,904		Long-term debt	6,541		6,447
Common stock — 5,000,000 shares authorized of $0.01 par value; 1,000,000 shares outstanding at Sept. 30, 2021 and Dec. 31, 2020, respectively		—		—
Common stock — 5,000,000 shares authorized of $0.01 par value; 1,000,000 shares outstanding at Sept. 30, 2022 and Dec. 31, 2021, respectively						Common stock — 5,000,000 shares authorized of $0.01 par value; 1,000,000 shares outstanding at Sept. 30, 2022 and Dec. 31, 2021, respectively	—		—
Additional paid in capital	Additional paid in capital	5,209		4,585		Additional paid in capital	5,213		5,202
Retained earnings	Retained earnings	2,370		2,206		Retained earnings	2,442		2,391
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(21)		(22)		Accumulated other comprehensive loss	(20)		(20)
Total common stockholder's equity	Total common stockholder's equity	7,558		6,769		Total common stockholder's equity	7,635		7,573
Total liabilities and equity	Total liabilities and equity	$	22,880	$	21,060	Total liabilities and equity	$	23,272	$	22,809

See Notes to Consolidated Financial Statements

Table of Contents

NSP-MINNESOTA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER’S EQUITY (UNAUDITED)

(amounts in millions, except share data)


		Common Stock Issued					Retained Earnings		Accumulated Other Comprehensive Loss			Total Common Stockholder's Equity			Common Stock Issued							Retained Earnings		Accumulated Other Comprehensive Loss			Total Common Stockholder's Equity
		Shares	Par Value		Additional Paid In Capital						Shares					Par Value		Additional Paid In Capital
Three Months Ended Sept. 30, 2021 and 2020
Balance at June 30, 2020		1,000,000	$	—	$	4,257	$	2,055	$	(22)		$	6,290
Net income							246					246

Dividends declared to parent							(109)					(109)
Contribution of capital by parent					79							79
Balance at Sept. 30, 2020		1,000,000	$	—	$	4,336	$	2,192	$	(22)		$	6,506

Three Months Ended Sept. 30, 2022 and 2021														Three Months Ended Sept. 30, 2022 and 2021
Balance at June 30, 2021	Balance at June 30, 2021	1,000,000	$	—	$	5,185	$	2,231	$	(21)		$	7,395	Balance at June 30, 2021	1,000,000		$	—	$	5,185		$	2,231	$	(21)		$	7,395
Net income	Net income						248					248		Net income								248					248

Dividends declared to parent	Dividends declared to parent						(109)					(109)		Dividends declared to parent								(109)					(109)
Contribution of capital by parent	Contribution of capital by parent				24							24		Contribution of capital by parent					24								24
Balance at Sept. 30, 2021	Balance at Sept. 30, 2021	1,000,000	$	—	$	5,209	$	2,370	$	(21)		$	7,558	Balance at Sept. 30, 2021	1,000,000		$	—	$	5,209		$	2,370	$	(21)		$	7,558

Balance June 30, 2022														Balance June 30, 2022	1,000,000		$	—	$	5,213		$	2,355	$	(20)		$	7,548
Net income														Net income								269					269

Dividends declared to parent														Dividends declared to parent								(182)					(182)

Balance at Sept. 30, 2022														Balance at Sept. 30, 2022	1,000,000		$	—	$	5,213		$	2,442	$	(20)		$	7,635
		Common Stock Issued					Retained Earnings		Accumulated Other Comprehensive Loss			Total Common Stockholder's Equity
		Shares	Par Value		Additional Paid In Capital						Common Stock Issued								Retained Earnings			Accumulated Other Comprehensive Loss		Total Common Stockholder's Equity
Nine Months Ended Sept. 30, 2021 and 2020
Balance at Dec. 31, 2019		1,000,000	$	—	$	4,068	$	2,036	$	(23)		$	6,081
Net income							471					471
Other comprehensive income									1			1
Dividends declared to parent							(314)					(314)
Contribution of capital by parent					268							268
Adoption of ASC Topic 326							(1)					(1)
Balance at Sept. 30, 2020		1,000,000	$	—	$	4,336	$	2,192	$	(22)		$	6,506
															Shares		Par Value				Additional Paid In Capital					Retained Earnings			Accumulated Other Comprehensive Loss	Total Common Stockholder's Equity
Nine Months Ended Sept. 30, 2022 and 2021														Nine Months Ended Sept. 30, 2022 and 2021
Balance at Dec. 31, 2020	Balance at Dec. 31, 2020	1,000,000	$	—	$	4,585	$	2,206	$	(22)		$	6,769	Balance at Dec. 31, 2020	1,000,000		$	—	$	4,585		$	2,206	$	(22)		$	6,769
Net income	Net income						489					489		Net income								489					489
Other comprehensive income	Other comprehensive income								1			1		Other comprehensive income										1			1
Dividends declared to parent	Dividends declared to parent						(325)					(325)		Dividends declared to parent								(325)					(325)
Contribution of capital by parent	Contribution of capital by parent				624							624		Contribution of capital by parent					624								624

Balance at Sept. 30, 2021	Balance at Sept. 30, 2021	1,000,000	$	—	$	5,209	$	2,370	$	(21)		$	7,558	Balance at Sept. 30, 2021	1,000,000		$	—	$	5,209		$	2,370	$	(21)		$	7,558

Balance at Dec. 31, 2021														Balance at Dec. 31, 2021	1,000,000		$	—	$	5,202		$	2,391	$	(20)		$	7,573
Net income														Net income								514					514

Dividends declared to parent														Dividends declared to parent								(463)					(463)
Contribution of capital by parent														Contribution of capital by parent					11								11
Balance at Sept. 30, 2022														Balance at Sept. 30, 2022	1,000,000		$	—	$	5,213		$	2,442	$	(20)		$	7,635

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

Table of Contents

NSP-MINNESOTA AND SUBSIDIARIES

Notes to Consolidated Financial Statements (UNAUDITED)

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

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

Notes to the consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC for Quarterly Reports on Form 10-Q. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP on an annual basis have been condensed or omitted pursuant to such rules and regulations. For further information, refer to the consolidated financial statements and notes thereto included in the NSP-Minnesota Annual Report on Form 10-K for the year ended Dec. 31, ~~2020,~~2021, filed with the SEC on Feb. ~~17, 2021.~~23, 2022. Due to the seasonality of NSP-Minnesota’s electric and natural gas sales, interim results are not necessarily an appropriate base from which to project annual results.


1. Summary of Significant Accounting Policies

The significant accounting policies set forth in Note 1 to the consolidated financial statements in the NSP-Minnesota Annual Report on Form 10-K for the year ended Dec. 31, ~~2020~~2021 appropriately represent, in all material respects, the current status of accounting policies and are incorporated herein by reference.


2. Accounting Pronouncements

~~Recently Adopted~~

~~Credit Losses~~— ~~In 2016,~~As of Sept. 30, 2022, there was no material impact from the ~~FASB issued~~ ~~Financial Instruments - Credit Losses, Topic 326 (ASC Topic 326),~~ which changes how entities account for losses on receivables and certain other assets. The guidance requires use of a current expected credit loss model, which may result in earlier recognition of credit losses than under previous accounting standards.

~~NSP-Minnesota implemented the guidance using a modified-retrospective approach, recognizing a cumulative effect charge of $1 million (after tax) to retained earnings on Jan. 1, 2020. Other than first-time recognition of an allowance for bad debts on accrued unbilled revenues, the Jan. 1, 2020~~recent adoption of ~~ASC Topic 326 did not have a significant~~new accounting pronouncements, nor expected material impact from recently issued accounting pronouncements yet to be adopted, on NSP-Minnesota’s consolidated financial statements.


3. Selected Balance Sheet Data


(Millions of Dollars)	(Millions of Dollars)	Sept. 30, 2021		Dec. 31, 2020		(Millions of Dollars)	Sept. 30, 2022		Dec. 31, 2021
Accounts receivable, net	Accounts receivable, net					Accounts receivable, net
Accounts receivable	Accounts receivable	$	459	$	425	Accounts receivable	$	538	$	474
Less allowance for bad debts	Less allowance for bad debts	(42)		(33)		Less allowance for bad debts	(43)		(45)
Accounts receivable, net	Accounts receivable, net	$	417	$	392	Accounts receivable, net	$	495	$	429


(Millions of Dollars)	(Millions of Dollars)	Sept. 30, 2021		Dec. 31, 2020		(Millions of Dollars)	Sept. 30, 2022		Dec. 31, 2021
Inventories	Inventories					Inventories
Materials and supplies	Materials and supplies	$	181	$	178	Materials and supplies	$	197	$	181
Fuel	Fuel	61		90		Fuel	117		81
Natural gas	Natural gas	47		27		Natural gas	93		47
Total inventories	Total inventories	$	289	$	295	Total inventories	$	407	$	309

(Millions of Dollars) Sept. 30, 2021 Dec. 31, 2020
Property, plant and equipment, net
Electric plant $ 20,307 $ 18,948
Natural gas plant 1,765 1,707
Common and other property 980 955
Plant to be retired (a)
114 136
Construction work in progress 1,058 1,150
Total property, plant and equipment 24,224 22,896
Less accumulated depreciation (8,398) (7,898)
Nuclear fuel 3,065 2,970
Less accumulated amortization (2,745) (2,660)
Property, plant and equipment, net $ 16,146 $ 15,308


(Millions of Dollars)	Sept. 30, 2022		Dec. 31, 2021
Property, plant and equipment, net
Electric plant	$	20,044	$	19,154
Natural gas plant	1,993		1,864
Common and other property	1,091		1,007
Plant to be retired (a)	682		719
Construction work in progress	1,102		984
Total property, plant and equipment	24,912		23,728
Less accumulated depreciation	(8,083)		(7,606)
Nuclear fuel	3,105		3,081
Less accumulated amortization	(2,864)		(2,773)
Property, plant and equipment, net	$	17,070	$	16,430

(a)~~Includes~~Amounts include regulator-approved retirements of Sherco Units 1, 2 and 2.3 and A.S. King and are reported net of accumulated depreciation.


4. Borrowings and Other Financing Instruments

Short-Term Borrowings

NSP-Minnesota 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 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 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.

Money pool borrowings for NSP-Minnesota:


(Amounts in Millions, Except Interest Rates)	(Amounts in Millions, Except Interest Rates)	Three Months Ended Sept. 30, 2021		Year Ended Dec. 31, 2020			(Amounts in Millions, Except Interest Rates)	Three Months Ended Sept. 30, 2022		Year Ended Dec. 31, 2021
Borrowing limit	Borrowing limit	$	250	$	250		Borrowing limit	$	250	$	250
Amount outstanding at period end	Amount outstanding at period end	—		—			Amount outstanding at period end	—		—
Average amount outstanding	Average amount outstanding	—		3			Average amount outstanding	—		6
Maximum amount outstanding	Maximum amount outstanding	—		116			Maximum amount outstanding	—		236
Weighted average interest rate, computed on a daily basis	Weighted average interest rate, computed on a daily basis	N/A		1.53		%	Weighted average interest rate, computed on a daily basis	N/A		0.07		%
Weighted average interest rate at period end	Weighted average interest rate at period end	N/A		N/A			Weighted average interest rate at period end	N/A		N/A

~~Table of Contents~~

Commercial Paper — Commercial paper outstanding for NSP-Minnesota:


(Amounts in Millions, Except Interest Rates)	(Amounts in Millions, Except Interest Rates)	Three Months Ended Sept. 30, 2021		Year Ended Dec. 31, 2020			(Amounts in Millions, Except Interest Rates)	Three Months Ended Sept. 30, 2022		Year Ended Dec. 31, 2021
Borrowing limit	Borrowing limit	$	500	$	500		Borrowing limit	$	700	$	500
Amount outstanding at period end	Amount outstanding at period end	—		179			Amount outstanding at period end	—		—
Average amount outstanding	Average amount outstanding	—		10			Average amount outstanding	—		26
Maximum amount outstanding	Maximum amount outstanding	—		179			Maximum amount outstanding	—		317
Weighted average interest rate, computed on a daily basis	Weighted average interest rate, computed on a daily basis	N/A		1.25		%	Weighted average interest rate, computed on a daily basis	N/A		0.18		%
Weighted average interest rate at period end	Weighted average interest rate at period end	N/A		0.18			Weighted average interest rate at period end	N/A		N/A

Letters of Credit — NSP-Minnesota uses letters of credit, generally with terms of one year, to provide financial guarantees for certain obligations. There were $9$11 million and ~~$10~~$9 million of letters of credit outstanding under the credit facility at Sept. 30, ~~2021~~2022 and Dec. 31, ~~2020,~~2021, respectively. Amounts approximate their fair value and are subject to fees.

Table of Contents

Revolving Credit Facility — In order to issue its commercial paper, NSP-Minnesota must have a revolving credit facility in place at least equal to the amount of its commercial paper borrowing limit and cannot issue commercial paper exceeding available capacity under this credit facility. The credit facility provides short-term financing in the form of notes payable to banks, letters of credit and back-up support for commercial paper borrowings.

In September 2022, NSP-Minnesota 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 borrowing limit for NSP-Minnesota was increased from $500 million to $700 million, and the maturity was extended from June 2024 to September 2027.

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

At Sept. 30, ~~2021,~~2022, NSP-Minnesota 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	$	9	$	491	700	$	11	$	689

(a)Expires in ~~June 2024.~~September 2027.

(b)Includes outstanding commercial paper and letters of credit.

All credit facility bank borrowings, outstanding letters of credit and outstanding commercial paper reduce the available capacity under the credit facility. NSP-Minnesota had no direct advances on the credit facility outstanding at Sept. 30, ~~2021~~2022 and Dec. 31, ~~2020.~~2021.

Bilateral Credit Agreement — In April ~~2021, NSP-Minnesota~~2022, NSP-Minnesota’s uncommitted bilateral credit agreement was renewed for an additional one-year term. The credit agreement is limited in use to support letters of credit.

As of Sept. 30, ~~2021, NSP-Minnesota’s~~2022, NSP-Minnesota had $50 million of outstanding letters of credit under the $75 million bilateral credit ~~agreement were as follows:~~

(Millions of Dollars) Limit Amount Outstanding Available
NSP-Minnesota $ 75 $ 41 $ 34
agreement.

Long-Term Borrowings

During the nine months ended ~~Sept.~~September 30, ~~2021,~~2022, NSP-Minnesota issued ~~$425~~$500 million of ~~2.25%~~4.50% first mortgage bonds due ~~April~~June 1, ~~2031 and $425 million of 3.20% first mortgage bonds due April 1,~~ 2052.


5. Revenues

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


	Three Months Ended Sept. 30, 2022
(Millions of Dollars)	Electric		Natural Gas		All Other		Total
Major revenue types
Revenue from contracts with customers:
Residential	$	441	$	37	$	10	$	488
C&I	714		43		—		757
Other	10		—		2		12
Total retail	1,165		80		12		1,257
Wholesale	242		—		—		242
Transmission	101		—		—		101
Interchange	132		—		—		132
Other	8		10		—		18
Total revenue from contracts with customers	1,648		90		12		1,750
Alternative revenue and other	82		12		—		94
Total revenues	$	1,730	$	102	$	12	$	1,844


	Three Months Ended Sept. 30, 2021
(Millions of Dollars)	Electric		Natural Gas		All Other		Total
Major revenue types
Revenue from contracts with customers:
Residential	$	414	$	27	$	9	$	450
C&I	638		26		—		664
Other	9		—		1		10
Total retail	1,061		53		10		1,124
Wholesale	120		—		—		120
Transmission	69		—		—		69
Interchange	127		—		—		127
Other	—		6		—		6
Total revenue from contracts with customers	1,377		59		10		1,446
Alternative revenue and other	100		11		—		111
Total revenues	$	1,477	$	70	$	10	$	1,557

Three Months Ended Sept. 30, 2020
(Millions of Dollars) Electric Natural Gas All Other Total
Major revenue types
Revenue from contracts with customers:
Residential $ 427 $ 22 $ 8 $ 457
C&I 571 17 — 588
Other 9 — 1 10
Total retail 1,007 39 9 1,055
Wholesale 56 — — 56
Transmission 66 — — 66
Interchange 115 — — 115
Other 2 3 — 5
Total revenue from contracts with customers 1,246 42 9 1,297
Alternative revenue and other 85 6 — 91
Total revenues $ 1,331 $ 48 $ 9 $ 1,388


	Nine Months Ended Sept. 30, 2022
(Millions of Dollars)	Electric		Natural Gas		All Other		Total
Major revenue types
Revenue from contracts with customers:
Residential	$	1,116	$	348	$	19	$	1,483
C&I	1,816		299		—		2,115
Other	29		—		14		43
Total retail	2,961		647		33		3,641
Wholesale	505		—		—		505
Transmission	225		—		—		225
Interchange	394		—		—		394
Other	9		15		—		24
Total revenue from contracts with customers	4,094		662		33		4,789
Alternative revenue and other	214		41		—		255
Total revenues	$	4,308	$	703	$	33	$	5,044


	Nine Months Ended Sept. 30, 2021
(Millions of Dollars)	Electric		Natural Gas		All Other		Total
Major revenue types
Revenue from contracts with customers:
Residential	$	1,074	$	179	$	24	$	1,277
C&I	1,601		134		—		1,735
Other	25		—		5		30
Total retail	2,700		313		29		3,042
Wholesale	287		—		—		287
Transmission	184		—		—		184
Interchange	373		—		—		373
Other	5		9		—		14
Total revenue from contracts with customers	3,549		322		29		3,900
Alternative revenue and other	293		31		—		324
Total revenues	$	3,842	$	353	$	29	$	4,224

Table of Contents

Nine Months Ended Sept. 30, 2020
(Millions of Dollars) Electric Natural Gas All Other Total
Major revenue types
Revenue from contracts with customers:
Residential $ 1,056 $ 174 $ 23 $ 1,253
C&I 1,482 126 — 1,608
Other 26 — 5 31
Total retail 2,564 300 28 2,892
Wholesale 139 — — 139
Transmission 185 — — 185
Interchange 331 — — 331
Other 10 6 — 16
Total revenue from contracts with customers 3,229 306 28 3,563
Alternative revenue and other 232 23 — 255
Total revenues $ 3,461 $ 329 $ 28 $ 3,818


6. Income Taxes

~~Note 7 to the consolidated financial statements included in NSP-Minnesota’s Annual Report on~~ ~~Form 10-K~~ ~~for the year ended Dec. 31, 2020 represents, in all material respects, the current status of other income tax matters except to the extent noted below, and are incorporated herein by reference.~~

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


		Nine Months Ended Sept. 30					Nine Months Ended Sept. 30
		2021		2020			2022		2021
Federal statutory rate	Federal statutory rate	21.0	%	21.0	%	Federal statutory rate	21.0	%	21.0	%
State tax (net of federal tax effect)	State tax (net of federal tax effect)	7.0		7.0		State tax (net of federal tax effect)	7.0		7.0
Increases (decreases) in tax from:
Increases (decreases):						Increases (decreases):
Wind PTCs(a)	Wind PTCs(a)	(22.8)		(16.7)		Wind PTCs(a)	(35.9)		(22.8)
Plant regulatory differences ~~(a)~~(b)	Plant regulatory differences ~~(a)~~(b)	(8.0)		(7.4)		Plant regulatory differences ~~(a)~~(b)	(7.0)		(8.0)
Other tax credits, net NOL & tax credit allowances		(1.2)		(1.2)
NOL carryback		—		(2.7)
Other tax credits, net operating loss & tax credit allowances						Other tax credits, net operating loss & tax credit allowances	(1.3)		(1.2)

Other (net)	Other (net)	0.4		0.4		Other (net)	0.4		0.4
Effective income tax rate	Effective income tax rate	(3.6)	%	0.4	%	Effective income tax rate	(15.8)	%	(3.6)	%

(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 ~~credits~~taxes are offset by corresponding revenue reductions.

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


~~Tax Years~~						~~Expiration~~
~~2014 - 2016~~						~~December 2022~~
~~2018~~						~~September 2022~~

Additionally, the statute of limitations related to certain federal tax credit carryforwards will remain open until those credits are utilized in subsequent returns. Further, the statute of limitations related to a federal tax loss carryback claim filed in 2020 has been extended. Xcel Energy has recognized its best estimate of income tax expense that will result from a final resolution of this issue; however, the outcome and timing of a resolution is unknown.

~~State Audits~~ — NSP-Minnesota is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of Sept. 30, 2021, NSP-Minnesota’s earliest open tax year subject to examination by state taxing authorities under applicable statutes of limitations is 2013. In February 2021, Minnesota concluded its review and commenced an audit of tax years 2015 - 2018. No material adjustments have been proposed.

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

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

(Millions of Dollars) Sept. 30, 2021 Dec. 31, 2020
Unrecognized tax benefit — Permanent tax positions $ 23 $ 21
Unrecognized tax benefit — Temporary tax positions 3 3
Total unrecognized tax benefit $ 26 $ 24

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

(Millions of Dollars) Sept. 30, 2021 Dec. 31, 2020
NOL and tax credit carryforwards $ (12) $ (11)

As Internal Revenue Service audits resume and the state audit progresses, it is reasonably possible that the amount of unrecognized tax benefit could decrease up to approximately $14 million in the next 12 months.

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

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

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

~~No amounts were accrued for penalties related to unrecognized tax benefits as of Sept. 30, 2021 or Dec. 31, 2020.~~

~~Table of Contents~~


7. Fair Value of Financial Assets and Liabilities

Fair Value Measurements

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

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

•Level 2 — Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reporting date. The types of assets and liabilities included in Level 2 are typically either comparable to actively traded securities or contracts, or priced with models using highly observable inputs.

•Level 3 — Significant inputs to pricing have little or no observability as of the reporting date. The types of assets and liabilities included in Level 3 are those valued with models requiring significant management judgment or estimation.

Specific valuation methods include:

Cash equivalents — The fair values of cash equivalents are generally based on cost plus accrued interest; money market funds are measured using quoted NAV.

Investments in equity securities and other funds — Equity securities are valued using quoted prices in active markets. The fair values for commingled funds are measured using NAVs. The investments in commingled funds may be redeemed for NAV with proper notice. Private equity commingled fund investments require approval of the fund for any unscheduled redemption, and such redemptions may be approved or denied by the fund at its sole discretion.

Unscheduled distributions from real estate commingled funds’ investments may be redeemed with proper notice, however, withdrawals may be delayed or discounted as a result of fund illiquidity.

Investments in debt securities — Fair values for debt securities are determined by a third-party pricing service using recent trades and observable spreads from benchmark interest rates for similar securities.

Interest rate derivatives — The fair values of interest rate derivatives are based on broker quotes that utilize current market interest rate forecasts.

Commodity derivatives — ~~The methods~~Methods used to measure the fair value of commodity derivative forwards and options utilize forward prices and volatilities, as well as pricing adjustments for specific delivery locations and are generally assigned a Level 2 classification. When contractual settlements relate to inactive delivery locations or extend to periods beyond those readily observable on active exchanges or quoted by brokers, the significance of the use of less observable inputs on a valuation is evaluated, and may result in Level 3 classification.

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

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

If ~~forecasted~~ costs of electric transmission congestion increase or decrease for a given ~~FTR~~ path, the value of that particular ~~FTR~~ instrument will likewise increase or decrease. ~~Given~~Net congestion costs, including the ~~limited observability~~impact of certain inputs to the value of FTRs between auction processes, including expected plant operating schedules and retail and wholesale demand, fair value measurements for FTRs have been assigned a Level 3.

~~Non-trading monthly~~ FTR settlements, are ~~expected to be recovered~~shared through fuel and purchased energy cost recovery ~~mechanisms, and therefore changes in~~mechanisms. As such, the fair value of the ~~yet to be settled portions of most FTRs are~~ unsettled instruments (i.e., derivative asset or liability) is offset/deferred as a regulatory asset or liability. Given this regulatory treatment and the limited magnitude of NSP-Minnesota’s FTRs relative to its electric utility operations, the numerous unobservable quantitative inputs pertinent to the value of FTRs are immaterial to the consolidated financial statements of NSP-Minnesota.

Non-Derivative Fair Value Measurements

The Nuclear Regulatory Commission requires NSP-Minnesota to maintain a portfolio of investments to fund the costs of decommissioning its nuclear generating plants. Assets of the nuclear decommissioning fund are legally restricted for the purpose of decommissioning these facilities. The fund contains cash equivalents, debt securities, equity securities and other investments. NSP-Minnesota uses the MPUC approved asset allocation for the ~~escrow and~~ investment targets by asset class for ~~both~~ the ~~escrow and~~ qualified trust.

NSP-Minnesota recognizes the costs of funding the decommissioning over the lives of the nuclear plants, assuming rate recovery of all costs. Realized and unrealized gains on fund investments over the life of the fund are deferred as an offset of NSP-Minnesota’s regulatory asset for nuclear decommissioning costs. Consequently, any realized and unrealized gains and losses on securities in the nuclear decommissioning fund are deferred as a component of the regulatory asset.

Unrealized gains for the nuclear decommissioning fund were ~~$1.2~~$900 million and $1.3 billion as of Sept. 30, 2022 and ~~$981~~Dec. 31, 2021, respectively, and unrealized losses were $133 million and $7 million as of Sept. 30, ~~2021~~2022 and Dec. 31, ~~2020, respectively, and unrealized losses were $5 million as of Sept. 30,~~ 2021, ~~and Dec. 31, 2020.~~respectively.

1211

Table of Contents

Non-derivative instruments with recurring fair value measurements in the nuclear decommissioning fund:


		Sept. 30, 2021													Sept. 30, 2022
				Fair Value													Fair Value
(Millions of Dollars)	(Millions of Dollars)	Cost		Level 1		Level 2		Level 3		NAV		Total		(Millions of Dollars)	Cost		Level 1		Level 2		Level 3		NAV		Total
Nuclear decommissioning fund (a)	Nuclear decommissioning fund (a)													Nuclear decommissioning fund (a)
Cash equivalents	Cash equivalents	$	38	$	38	$	—	$	—	$	—	$	38	Cash equivalents	$	37	$	37	$	—	$	—	$	—	$	37
Commingled funds	Commingled funds	821		—		—		—		1,208		1,208		Commingled funds	832		—		—		—		1,167		1,167
Debt securities	Debt securities	620		—		643		15		—		658		Debt securities	696		—		611		9		—		620
Equity securities	Equity securities	407		1,178		2		—		—		1,180		Equity securities	409		918		1		—		—		919
Total	Total	$	1,886	$	1,216	$	645	$	15	$	1,208	$	3,084	Total	$	1,974	$	955	$	612	$	9	$	1,167	$	2,743

(a)Reported in nuclear decommissioning fund and other investments on the consolidated balance sheets, which also includes $46 million of other investments, including the rabbi trust.


	Dec. 31, 2021
			Fair Value
(Millions of Dollars)	Cost		Level 1		Level 2		Level 3		NAV		Total
Nuclear decommissioning fund (a)
Cash equivalents	$	64	$	64	$	—	$	—	$	—	$	64
Commingled funds	856		—		—		—		1,294		1,294
Debt securities	631		—		666		9		—		675
Equity securities	411		1,222		1		—		—		1,223
Total	$	1,962	$	1,286	$	667	$	9	$	1,294	$	3,256

(a)Reported in nuclear decommissioning fund and other investments on the consolidated balance sheets, which also includes $52 million of ~~rabbi trust assets and other miscellaneous investments.~~

Dec. 31, 2020
Fair Value
(Millions of Dollars) Cost Level 1 Level 2 Level 3 NAV Total
Nuclear decommissioning fund (a)
Cash equivalents $ 40 $ 40 $ — $ — $ — $ 40
Commingled funds 787 — — — 1,041 1,041
Debt securities 528 — 572 13 — 585
Equity securities 446 1,109 2 — — 1,111
Total $ 1,801 $ 1,149 $ 574 $ 13 $ 1,041 $ 2,777

~~(a)Reported in nuclear decommissioning fund and~~ other investments, onincluding the ~~consolidated balance sheets, which also includes $53 million of~~ rabbi ~~trust assets and miscellaneous investments.~~trust.

For the three and nine months ended Sept. 30, ~~2021~~2022 and ~~2020,~~2021, there were immaterial Level 3 nuclear decommissioning fund investments or transfer of amounts between levels.

Contractual maturity dates of debt securities in the nuclear decommissioning fund as of Sept. 30, ~~2021:~~2022:

Final Contractual Maturity
(Millions of Dollars) Due in 1 year or Less Due in 1 to 5 Years Due in 5 to 10 Years Due after 10 Years Total
Debt securities $ 2 $ 153 $ 204 $ 299 $ 658

~~Rabbi Trusts~~

~~NSP-Minnesota has established a rabbi trust to provide partial funding for future deferred compensation plan distributions.~~

~~Cost and fair value of assets held in rabbi trusts:~~

Sept. 30, 2021
Fair Value
(Millions of Dollars) Cost Level 1 Level 2 Level 3 Total
Rabbi Trusts (a)
Mutual funds $ 10 $ 12 $ — $ — $ 12
Total $ 10 $ 12 $ — $ — $ 12

Dec. 31, 2020
Fair Value
(Millions of Dollars) Cost Level 1 Level 2 Level 3 Total
Rabbi Trusts (a)
Cash equivalents $ 1 $ 1 $ — $ — $ 1
Mutual funds 14 16 — — 16
Total $ 15 $ 17 $ — $ — $ 17

~~(a)~~ ~~Reported in nuclear decommissioning fund and other investments on the consolidated balance sheets.~~


	Final Contractual Maturity
(Millions of Dollars)	Due in 1 year or Less		Due in 1 to 5 Years		Due in 5 to 10 Years		Due after 10 Years		Total
Debt securities	$	5	$	190	$	227	$	198	$	620

Derivative Instruments Fair Value Measurements

NSP-Minnesota enters into derivative instruments, including forward contracts, futures, swaps and options, for trading purposes and to manage risk in connection with changes in interest rates, utility commodity prices and vehicle fuel prices.

Interest Rate Derivatives — NSP-Minnesota enters into various instruments that effectively fix the yield or price on a specified benchmark interest rate for an anticipated debt issuance for a specific period. These derivative instruments are generally designated as cash flow hedges for accounting purposes, with changes in fair value prior to settlement recorded as other comprehensive income.

At Sept. 30, ~~2021,~~2022, accumulated other comprehensive loss related to interest rate derivatives included $1 million of net losses expected to be reclassified into earnings during the next 12 months as the hedged interest rate transactions impact earnings. As of Sept. 30, ~~2021,~~2022, NSP-Minnesota had no unsettled interest rate derivatives.

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

Commodity Derivatives — NSP-Minnesota enters into derivative instruments to manage variability of future cash flows from changes in commodity prices in its electric and natural gas operations, as well as for trading purposes. This could include the purchase or sale of energy or energy-related products, natural gas to generate electric energy, natural gas for resale, FTRs, vehicle fuel, and weather derivatives.

~~At Sept. 30, 2021, NSP-Minnesota had no commodity contracts designated as cash flow hedges.~~ NSP-Minnesota may enter into derivative instruments that mitigate commodity price risk on behalf of electric and natural gas customers, but may not be designated as qualifying hedging transactions. The classification of gains or losses for these instruments as a regulatory asset or liability, if applicable, is based on approved regulatory recovery mechanisms. As of Sept. 30, 2022, NSP-Minnesota had no commodity contracts designated as cash flow hedges.

NSP-Minnesota also enters into commodity derivative instruments for trading purposes not directly related to commodity price risks associated with serving its electric and natural gas customers. Changes in the fair value of these commodity derivatives are recorded in electric operating revenues, net of amounts credited to customers under margin-sharing mechanisms.

~~Table of Contents~~

Gross notional amounts of commodity forwards, options and FTRs:

(Amounts in Millions) (a)(b)

Sept. 30, 2021

Dec. 31, 2020

(Amounts in Millions) (a)(b)

Sept. 30, 2022

Dec. 31, 2021

Megawatt hours of electricity

Million British thermal units of natural gas

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

(b)Notional amounts for options are included on a gross basis, but are weighted for the probability of exercise.

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

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

Table of Contents

As of Sept. 30, ~~2021, 7~~2022, eight of NSP-Minnesota’s 10ten most significant counterparties for these activities, comprising ~~$54~~$45 million, or ~~61%~~35%, of this credit exposure, had investment grade credit ratings from S&P Global Ratings, Moody’s Investor Services or Fitch Ratings. ~~NaN~~One of the 10ten most significant counterparties, comprising ~~$10~~$29 million, or ~~11%~~22%, of this credit exposure, were not rated by these external ratings agencies, but based on NSP-Minnesota’s internal analysis, had credit quality consistent with investment grade. ~~NaN~~One of these significant counterparties, comprising ~~$20~~$55 million or ~~23%~~42% of this credit exposure, had credit quality less than investment grade, based on internal analysis. ~~NaN~~Four of these significant counterparties are municipal or cooperative electric entities, RTOs or other utilities.

Impact of Derivative Activity —



	Pre-Tax Fair Value Gains (Losses) Recognized During the Period in:
(Millions of Dollars)	~~Accumulated Other Comprehensive Loss~~	Regulatory (Assets) and Liabilities
Three Months Ended Sept. 30, 2022
Other derivative instruments
Electric commodity		$	20
Natural gas commodity		$	(2)
Total		$	18
Nine Months Ended Sept. 30, 2022
Other derivative instruments
Electric commodity		$	26

Total		$	26


Three Months Ended Sept. 30, 2021
Other derivative instruments

Natural gas commodity	$		—		$	16
Total	$	—			$	16
Nine Months Ended Sept. 30, 2021
Other derivative instruments
Electric commodity	$		—		$	3
Natural gas commodity	—			18
Total	$	—			$	21


~~Three Months Ended Sept. 30, 2020~~
~~Other derivative instruments~~

~~Natural gas commodity~~	$	—	$	1
~~Total~~	$	—	$	1
~~Nine Months Ended Sept. 30, 2020~~
~~Other derivative instruments~~
~~Electric commodity~~	$	—	$	2
~~Natural gas commodity~~	—		1
~~Total~~	$	—	$	3


	Pre-Tax (Gains) Losses Reclassified into Income During the Period from:					Pre-Tax Gains (Losses) Recognized During the Period in Income
(Millions of Dollars)	Accumulated Other Comprehensive Loss		Regulatory Assets and (Liabilities)
Three Months Ended Sept. 30, 2022



Other derivative instruments
Commodity trading	$	—	$	—		$	11	(b)
Electric commodity	—		(2)		(c)	—

Total	$	—	$	(2)		$	11
Nine Months Ended Sept. 30, 2022



Other derivative instruments
Commodity trading	$	—	$	—		$	17	(b)
Electric commodity	—		(5)		(c)	—
Natural gas commodity	—		2		(d)	(5)		(d)(e)
Total	$	—	$	(3)		$	12

Pre-Tax (Gains) Losses Reclassified into Income During the Period from: Pre-Tax Gains (Losses) Recognized During the Period in Income
(Millions of Dollars) Accumulated Other Comprehensive Loss Regulatory Assets and (Liabilities)
Three Months Ended Sept. 30, 2021
Other derivative instruments
Commodity trading $ — $ — $ (10) (b)
Total $ — $ — $ (10)
Nine Months Ended Sept. 30, 2021
Derivatives designated as cash flow hedges
Interest rate $ 1 (a) $ — $ —
Total $ 1 $ — $ —
Other derivative instruments
Commodity trading $ — $ — $ 23 (b)
Electric commodity — (12) (c) —
Natural gas commodity — 1 (d) (3) (d)
Total $ — $ (11) $ 20


		Pre-Tax (Gains) Losses Reclassified into Income During the Period from:						Pre-Tax Gains (Losses) Recognized During the Period in Income					Pre-Tax (Gains) Losses Reclassified into Income During the Period from:						Pre-Tax Gains (Losses) Recognized During the Period in Income
(Millions of Dollars)	(Millions of Dollars)	Accumulated Other Comprehensive Loss			Regulatory Assets and (Liabilities)					(Millions of Dollars)	Accumulated Other Comprehensive Loss				Regulatory Assets and (Liabilities)
Three Months Ended Sept. 30, 2020
Three Months Ended Sept. 30, 2021												Three Months Ended Sept. 30, 2021

Other derivative instruments	Other derivative instruments											Other derivative instruments
Commodity trading	Commodity trading	$	—		$	—		$	(1)	(b)		Commodity trading	$	—		$	—		$	(10)	(b)
Electric Commodity		—			(1)		(c)	—

Total	Total	$	—		$	(1)		$	(1)			Total	$	—		$	—		$	(10)
Nine Months Ended Sept. 30, 2020
Nine Months Ended Sept. 30, 2021												Nine Months Ended Sept. 30, 2021
Derivatives designated as cash flow hedges	Derivatives designated as cash flow hedges											Derivatives designated as cash flow hedges
Interest rate	Interest rate	$	1	(a)	$	—		$	—			Interest rate	$	1	(a)	$	—		$	—
Total	Total	$	1		$	—		$	—			Total	$	1		$	—		$	—
Other derivative instruments	Other derivative instruments											Other derivative instruments
Commodity trading	Commodity trading	$	—		$	—		$	1	(b)		Commodity trading	$	—		$	—		$	23	(b)
Electric commodity	Electric commodity	—			(2)		(c)	—				Electric commodity	—			(12)		(c)	—
Natural gas commodity	Natural gas commodity	—			1		(d)	(2)		(d)		Natural gas commodity	—			1		(d)	(3)		(d)(e)
Total	Total	$	—		$	(1)		$	(1)			Total	$	—		$	(11)		$	20

(a)~~Amounts are recorded~~Recorded to interest charges.

(b)~~Amounts are recorded~~Recorded to electric operating revenues. Portions of these gains and losses are subject to sharing with electric customers through margin-sharing mechanisms and deducted from gross revenue, as appropriate.

(c)~~Amounts are recorded~~Recorded 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.

(d)~~Amounts are recorded~~Recorded to cost of natural gas sold and transported. These ~~derivative settlement gains and~~ losses are ~~shared with natural gas customers through purchased natural gas~~subject to cost-recovery mechanisms and reclassified out of income asto a regulatory ~~assets or liabilities,~~asset, as appropriate.

(e)Relates primarily to option premium amortization.

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

~~Table of Contents~~

Credit Related Contingent Features — Contract provisions for derivative instruments that NSP-Minnesota enters into, including those accounted for as normal purchase-normal sale contracts and therefore not reflected on the consolidated balance sheets, may require the posting of collateral or settlement of the contracts for various reasons, including if NSP-Minnesota’s credit ratings are downgraded below its investment grade credit rating by any of the major credit rating agencies.

As of Sept. 30, ~~2021~~2022 and Dec. 31, ~~2020,~~2021, there were $2$5 million and $4$3 million, respectively, of derivative liabilities with such underlying contract provisions. Certain contracts also contain cross default provisions that may require the posting of collateral or settlement of the contracts if there was a failure under the other financing arrangements related to payment terms or other covenants. As of Sept. 30, ~~2021~~2022 and Dec. 31, ~~2020,~~2021, there were approximately ~~$44~~$88 million and ~~$14~~$48 million, respectively, of derivative liabilities with such underlying contract provisions.

Certain derivative instruments are also subject to contract provisions that contain adequate assurance clauses. These provisions allow counterparties to seek performance assurance, including cash collateral, in the event that NSP-Minnesota’s ability to fulfill its contractual obligations is reasonably expected to be impaired. NSP-Minnesota had no collateral posted related to adequate assurance clauses in derivative contracts as of Sept. 30, ~~2021~~2022 and Dec. 31, ~~2020.~~2021.

Table of Contents

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


		Sept. 30, 2021													Dec. 31, 2020																Sept. 30, 2022																			Dec. 31, 2021
		Fair Value						Fair Value Total		Netting (a)			Total		Fair Value						Fair Value Total			Netting (a)			Total				Fair Value								Fair Value Total				Netting (a)			Total				Fair Value										Fair Value Total			Netting (a)			Total
(Millions of Dollars)	(Millions of Dollars)	Level 1		Level 2		Level 3						Level 1			Level 2		Level 3						(Millions of Dollars)			Level 1				Level 2				Level 3								Level 1							Level 2				Level 3
Current derivative assets	Current derivative assets																																Current derivative assets
Other derivative instruments:	Other derivative instruments:																								Other derivative instruments:
Commodity trading	Commodity trading	$	16	$	73	$	22	$	111	$	(91)		$	20	$	1	$	26	$	—	$	27		$	(25)		$	2	Commodity trading		$	25			$	68	$	47		$	140			$	(98)		$	42			$	9			$	40		$	22		$	71		$	(53)		$	18
Electric commodity(b)	Electric commodity(b)	—		—		47		47		(1)			46		—		—		13		13			(1)			12		Electric commodity(b)		—				—		124		124				(4)			120				—				—			30			30			(1)			29
Natural gas commodity	Natural gas commodity	—		22		—		22		—			22		—		3		—		3			—			3		Natural gas commodity		—				6		—		6				—			6				—				6			—			6			—			6
Total current derivative assets	Total current derivative assets	$	16	$	95	$	69	$	180	$	(92)		$	88	$	1	$	29	$	13	$	43		$	(26)		$	17	Total current derivative assets		$	25			$	74	$	171	$	270			$	(102)		$	168			$	9			$	46		$	52		$	107		$	(54)		$	53

Noncurrent derivative assets	Noncurrent derivative assets																												Noncurrent derivative assets
Other derivative instruments:	Other derivative instruments:																								Other derivative instruments:
Commodity trading	Commodity trading	$	9	$	36	$	52	$	97	$	(54)		$	43	$	7	$	39	$	—	$	46		$	(41)		$	5	Commodity trading		$	30			$	42	$	76	$	148			$	(74)		$	74			$	6			$	34		$	35		$	75		$	(42)		$	33
Total noncurrent derivative assets	Total noncurrent derivative assets	$	9	$	36	$	52	$	97	$	(54)		$	43	$	7	$	39	$	—	$	46		$	(41)		$	5	Total noncurrent derivative assets		$	30			$	42	$	76	$	148			$	(74)		$	74			$	6			$	34		$	35		$	75		$	(42)		$	33


		Sept. 30, 2021													Dec. 31, 2020																	Sept. 30, 2022																			Dec. 31, 2021
		Fair Value						Fair Value Total		Netting (a)			Total		Fair Value						Fair Value Total				Netting (a)			Total				Fair Value								Fair Value Total				Netting (a)			Total				Fair Value										Fair Value Total			Netting (a)			Total
(Millions of Dollars)	(Millions of Dollars)	Level 1		Level 2		Level 3						Level 1			Level 2		Level 3						(Millions of Dollars)				Level 1				Level 2				Level 3								Level 1							Level 2				Level 3
Current derivative liabilities	Current derivative liabilities																																	Current derivative liabilities
Other derivative instruments:	Other derivative instruments:																									Other derivative instruments:
Commodity trading	Commodity trading	$	23	$	88	$	5	$	116	$	(91)		$	25	$	3	$	18	$	10	$	31			$	(25)		$	6	Commodity trading		$	33			$	99	$	9		$	141			$	(100)		$	41			$	13			$	58		$	4		$	75		$	(58)		$	17
Electric commodity(b)	Electric commodity(b)	—		—		1		1		(1)			—		—		—		1		1				(1)			—		Electric commodity(b)		—				—		4		4				(4)			—				—				—			1			1			(1)			—
Natural gas commodity	Natural gas commodity	—		—		—		—		—			—		—		2		—		2				—			2		Natural gas commodity		—				3		—		3				—			3				—				4			—			4			—			4
Total current derivative liabilities	Total current derivative liabilities	$	23	$	88	$	6	$	117	$	(92)		25		$	3	$	20	$	11	$	34			$	(26)		8		Total current derivative liabilities		$	33			$	102	$	13	$	148			$	(104)		44				$	13			$	62		$	5		$	80		$	(59)		21
PPAs (b)													14															14
PPAs (c)																								PPAs (c)																		14																					14
Current derivative instruments	Current derivative instruments												$	39														$	22	Current derivative instruments																	$	58																			$	35
Noncurrent derivative liabilities	Noncurrent derivative liabilities																													Noncurrent derivative liabilities
Other derivative instruments:	Other derivative instruments:																									Other derivative instruments:
Commodity trading	Commodity trading	$	18	$	56	$	25	$	99	$	(63)		$	36	$	2	$	35	$	13	$	50			$	(27)		$	23	Commodity trading		$	50			$	61	$	42	$	153			$	(80)		$	73			$	15			$	48		$	26		$	89		$	(53)		$	36
Total noncurrent derivative liabilities	Total noncurrent derivative liabilities	$	18	$	56	$	25	$	99	$	(63)		36		$	2	$	35	$	13	$	50			$	(27)		23		Total noncurrent derivative liabilities		$	50			$	61	$	42	$	153			$	(80)		73				$	15			$	48		$	26		$	89		$	(53)		36
PPAs (b)													38															48
PPAs (c)																								PPAs (c)																		30																					35
Noncurrent derivative instruments	Noncurrent derivative instruments												$	74														$	71	Noncurrent derivative instruments																	$	103																			$	71

(a)NSP-Minnesota nets derivative instruments and related collateral on its consolidated balance sheets when supported by a legally enforceable master netting ~~agreement, and all derivative instruments and related collateral amounts were subject to master netting agreements at~~agreement. At Sept. 30, ~~2021~~2022 and Dec. 31, ~~2020. At both Sept. 30,~~ 2021, derivatives include $2 million and ~~Dec. 31, 2020, derivative assets and liabilities include $15 million of~~no obligations to return cash ~~collateral.~~collateral, respectively. At Sept. 30, ~~2021~~2022 and Dec. 31, ~~2020~~2021 derivative assets and liabilities include rights to reclaim cash collateral of ~~$24~~$9 million and $1$16 million, respectively. ~~The counterparty~~Counterparty netting excludes settlement receivables and payables and non-derivative amounts that may be subject to the same master netting agreements.

(b)Amounts relate to FTR instruments administered by MISO (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, Xcel Energy qualified these contracts under the normal purchase exception. Based on this qualification, the contracts are no longer adjusted to fair value and the previous carrying value of these contracts will be amortized over the remaining contract lives along with the offsetting regulatory assets and liabilities.

1514

Table of Contents

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


		Three Months Ended Sept. 30					Three Months Ended Sept. 30
(Millions of Dollars)	(Millions of Dollars)	2021		2020		(Millions of Dollars)	2022		2021
Balance at July 1	Balance at July 1	$	92	$	36	Balance at July 1	$	230	$	92

Settlements		(40)		(17)
Purchases/Issuances (a)						Purchases/Issuances (a)	—		—
Settlements (a)						Settlements (a)	(88)		(40)
Net transactions recorded during the period:	Net transactions recorded during the period:					Net transactions recorded during the period:
Gains (losses) recognized in earnings (a)		23		(4)
Net gains recognized as regulatory assets and liabilities		15		6
Gains recognized in earnings (b)						Gains recognized in earnings (b)	15		23
Net gains recognized as regulatory assets and liabilities (a)						Net gains recognized as regulatory assets and liabilities (a)	35		15
Balance at Sept. 30	Balance at Sept. 30	$	90	$	21	Balance at Sept. 30	$	192	$	90
		Nine Months Ended Sept. 30					Nine Months Ended Sept. 30
(Millions of Dollars)	(Millions of Dollars)	2021		2020		(Millions of Dollars)	2022		2021
Balance at Jan. 1	Balance at Jan. 1	$	(11)	$	5	Balance at Jan. 1	$	56	$	(11)
Purchases		54		28
Settlements		(66)		(41)
Purchases/Issuances (a)						Purchases/Issuances (a)	157		54
Settlements (a)						Settlements (a)	(180)		(66)
Net transactions recorded during the period:	Net transactions recorded during the period:					Net transactions recorded during the period:
Gains recognized in earnings ~~(a)~~(b)	Gains recognized in earnings ~~(a)~~(b)	86		14		Gains recognized in earnings ~~(a)~~(b)	106		86
Net gains recognized as regulatory assets and liabilities		27		15
Net gains recognized as regulatory assets and liabilities (a)						Net gains recognized as regulatory assets and liabilities (a)	53		27
Balance at Sept. 30	Balance at Sept. 30	$	90	$	21	Balance at Sept. 30	$	192	$	90

(a)~~Presented amounts relate~~Relates primarily to FTR instruments ~~held at~~administered by MISO (annual auctions occurring in the ~~end~~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 ~~period. The consolidated income statement also includes gains~~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.

(b)Relates to commodity trading and is subject to offsetting losses ~~on Level~~of derivative instruments categorized as levels 1 and 2 ~~instruments, and Level 3 instruments settled during~~in the ~~period.~~consolidated income statement.

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

Fair Value of Long-Term Debt

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


		Sept. 30, 2021				Dec. 31, 2020					Sept. 30, 2022				Dec. 31, 2021
(Millions of Dollars)	(Millions of Dollars)	Carrying Amount		Fair Value		Carrying Amount		Fair Value		(Millions of Dollars)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, including current portion	Long-term debt, including current portion	$	6,743	$	7,801	$	5,904	$	7,391	Long-term debt, including current portion	$	6,941	$	5,881	$	6,747	$	7,761

Fair value of NSP-Minnesota’s long-term debt is estimated based on recent trades and observable spreads from benchmark interest rates for similar securities. Fair value estimates are based on information available to management as of Sept. 30, ~~2021~~2022 and Dec. 31, ~~2020~~2021 and given the observability of the inputs, fair values presented for long-term debt were assigned as Level 2.


8. Benefit Plans and Other Postretirement Benefits

Components of Net Periodic Benefit Cost


		Three Months Ended Sept. 30									Three Months Ended Sept. 30
		2021		2020		2021		2020			2022		2021		2022		2021
(Millions of Dollars)	(Millions of Dollars)	Pension Benefits				Postretirement Health Care Benefits				(Millions of Dollars)	Pension Benefits				Postretirement Health Care Benefits
Service cost	Service cost	$	7	$	7	$	—	$	—	Service cost	$	6	$	7	$	—	$	—
Interest cost (a)	Interest cost (a)	7		8		0		1		Interest cost (a)	7		7		—		—
Expected return on plan assets (a)	Expected return on plan assets (a)	(13)		(14)		—		—		Expected return on plan assets (a)	(12)		(13)		—		—
Amortization of prior service credit (a)	Amortization of prior service credit (a)	—		—		—		(1)		Amortization of prior service credit (a)	—		—		(1)		—
Amortization of net loss (a)	Amortization of net loss (a)	9		8		—		—		Amortization of net loss (a)	6		9		1		—
Settlement charge (b)	Settlement charge (b)	23		—		—		—		Settlement charge (b)	29		23		—		—
Net periodic benefit cost	Net periodic benefit cost	33		9		—		—		Net periodic benefit cost	36		33		—		—
Effects of regulation	Effects of regulation	(28)		(1)		—		—		Effects of regulation	(32)		(28)		—		—
Net benefit cost recognized for financial reporting	Net benefit cost recognized for financial reporting	$	5	$	8	$	—	$	—	Net benefit cost recognized for financial reporting	$	4	$	5	$	—	$	—

		Nine Months Ended Sept. 30									Nine Months Ended Sept. 30
		2021		2020		2021		2020			2022		2021		2022		2021
(Millions of Dollars)	(Millions of Dollars)	Pension Benefits				Postretirement Health Care Benefits				(Millions of Dollars)	Pension Benefits				Postretirement Health Care Benefits
Service cost	Service cost	$	22	$	20	$	—	$	—	Service cost	$	20	$	22	$	—	$	—
Interest cost (a)	Interest cost (a)	19		23		1		2		Interest cost (a)	19		19		1		1
Expected return on plan assets (a)	Expected return on plan assets (a)	(39)		(41)		—		—		Expected return on plan assets (a)	(36)		(39)		—		—
Amortization of prior service credit (a)	Amortization of prior service credit (a)	—		—		(2)		(2)		Amortization of prior service credit (a)	—		—		(2)		(2)
Amortization of net loss (a)	Amortization of net loss (a)	26		25		1		1		Amortization of net loss (a)	18		26		1		1
Settlement charge (b)	Settlement charge (b)	23		—		—		—		Settlement charge (b)	28		23		—		—
Net periodic benefit cost	Net periodic benefit cost	51		27		—		1		Net periodic benefit cost	49		51		—		—
Effects of regulation	Effects of regulation	(30)		(4)		—		—		Effects of regulation	(31)		(30)		—		—
Net benefit cost recognized for financial reporting	Net benefit cost recognized for financial reporting	$	21	$	23	$	—	$	1	Net benefit cost recognized for financial reporting	$	18	$	21	$	—	$	—

(a)The components of net periodic cost other than the service cost component are included in the line item “Other income, net” in the consolidated statements of income or capitalized on the consolidated 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 of 2022 and 2021 as a result of lump-sum distributions during the 2022 and 2021 plan ~~year,~~years, NSP-Minnesota recorded ~~a total~~ pension settlement ~~charge~~charges of $29 million and $23 million, respectively, which ~~was~~were not recognized in earnings due to the effects of ~~regulation.~~rate making.

In January ~~2021,~~2022, contributions of ~~$125~~$50 million were made across 4four of Xcel Energy’s pension plans, of which ~~$33~~$5 million was attributable to NSP-Minnesota. Xcel Energy does not expect additional pension contributions during ~~2021.~~2022.

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9. Commitments and Contingencies

The following includes commitments, contingencies and unresolved contingencies that are material to NSP-Minnesota’s financial position.

Legal

NSP-Minnesota 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.

~~Table of Contents~~

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

Rate Matters and Other

NSP-Minnesota 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 consolidated financial statements.

Sherco — In 2018, NSP-Minnesota and SMMPA (Co-owner of Sherco Unit 3) reached a settlement with GE related to a 2011 incident, which damaged the turbine at Sherco Unit 3 and resulted in an extended outage for repair. NSP-Minnesota notified the MPUC of its proposal to refund settlement proceeds to customers through the ~~FCA.~~fuel clause adjustment.

In March 2019, the MPUC approved NSP-Minnesota’s settlement refund proposal. Additionally, the MPUC decided to withhold any decision as to NSP-Minnesota’s prudence in connection with the incident at Sherco Unit 3 until after conclusion of an appeal pending between GE and NSP-Minnesota’s insurers. In February 2020, the Minnesota Court of Appeals affirmed the district court’s judgment in favor of GE. In March 2020, NSP-Minnesota’s insurers filed a petition seeking additional review by the Minnesota Supreme Court.

In April 2020, the Minnesota Supreme Court denied the insurers’ petition for further review, ending the litigation.

In January 2021, the OAG and DOC recommended that NSP-Minnesota refund approximately $17 million of replacement power costs previously recovered through the ~~FCA.~~fuel clause adjustment. NSP-Minnesota subsequently filed its response, asserting that it acted prudently in connection with the Sherco Unit 3 outage, the MPUC has previously disallowed $22 million of related costs and no additional refund or disallowance is appropriate.

In July 2022, the MPUC referred the matter to the Office of Administrative Hearings to conduct a contested case on the prudence of the replacement power costs incurred by NSP-Minnesota. A final decision by the MPUC is ~~pending.~~expected in mid-2023. A loss related to this matter is deemed remote.

~~Westmoreland Arbitration~~ —In November 2014, insurers of the Westmoreland Coal Company filed an arbitration demand against NSP-Minnesota, SMMPA and Western Fuels Association, seeking recovery of alleged $36 million of business losses due to a turbine failure at Sherco Unit 3. The Westmoreland insurers claim NSP-Minnesota’s invocation of the force majeure clause to stop the supply of coal was improper because the incident was allegedly caused by NSP-Minnesota’s failure to conform to industry maintenance standards.

~~NSP-Minnesota denies the claims asserted by the Westmoreland insurers and believes it properly stopped the supply of coal based upon the force majeure provision~~. A final hearing has been scheduled for October 2022. The parties are also required to participate in mediation, which has been scheduled for Nov. 15, 2021. At this stage of the proceeding, a reasonable estimate of damages or range of damages cannot be determined.

MISO ROE Complaints — In November 2013 and February 2015, customer groups filed two ROE complaints against MISO TOs, which includes NSP-Minnesota and NSP-Wisconsin. The first complaint requested a reduction in base ROE transmission formula rates from 12.38% to 9.15% for the time period of Nov. 12, 2013 to Feb. 11, 2015, and removal of ROE adders (including those for RTO membership). The second complaint requested, for a subsequent time period, a base ROE reduction from 12.38% to 8.67%.

In September 2016, the FERC issued an order (Opinion No. 551) granting a 10.32% base ROE effective for the first complaint period of Nov. 12, 2013 to Feb. 11, 2015 and subsequent to the date of the order. The D.C Circuit subsequently vacated and remanded Opinion No. 551.

~~In November 2019, the FERC issued an order (Opinion No. 569), which set the MISO base ROE at 9.88%, effective Sept. 28, 2016 and for the first complaint period.~~ The FERC ~~also dismissed the second complaint. In December 2019, MISO TOs filed a request~~subsequently issued various related orders (including Opinion Nos. 569, 569A and 569B) related to ROE methodology/calculations and timing. NSP-Minnesota has processed refunds to customers for ~~rehearing regarding the new ROE methodology announced in Opinion No. 569. Customers also filed requests for rehearing claiming, among other points, that the FERC erred by dismissing the second~~applicable complaint ~~without refunds.~~

In May 2020, the FERC issued an order (Opinion No. 569-A) which granted rehearing in part to Opinion 569 and further refined the FERC’s ROE methodology, most significantly to incorporate the risk premium model (in addition to the discounted cash flow and capital asset pricing models), resulting in a new base ROE of 10.02%, effective Sept. 28, 2016 and for the first complaint period. The FERC also affirmed its decision in Opinion No. 569 to dismiss the second complaint.

~~In November 2020, the FERC issued an order (Opinion No. 569-B) in response to rehearing requests. The FERC corrected certain inputs to its ROE calculation model, did not change~~periods based on the ROE ~~effective Sept. 28, 2016, and for~~in the ~~first MISO complaint period and upheld its decision to deny refunds for the second complaint period.~~ ~~NSP-Minnesota~~ has recognized a liability for its best estimate of final refunds to customers. Each 10 basis point reduction in ROE for the first complaint period, second complaint period, and subsequent period relative to amounts accrued would reduce Xcel Energy’s net income by $1 million, $1 million, and $2 million, respectively.most recent applicable opinions.

The MISO TOs and various other parties have filed petitions for review of ~~Opinion Nos. 569, 569-A and 569-B~~the FERC’s most recent applicable opinions at the D.C. Circuit. ~~A hearing is expected in~~In August 2022, the ~~fourth quarter of 2021 with a decision anticipated in~~D.C. Circuit ruled that FERC had not adequately supported its conclusions, vacated FERC’s related orders, and remanded the ~~first half of 2022.~~

issue back to FERC ~~NOPR on ROE Incentive Adders~~ ~~— In April 2021, the FERC issued a NOPR proposing to limit collection of ROE incentive adders~~ for RTO membership to the first three years after an entity begins participation in an RTO. If adopted as a final rule, NSP-Minnesota would prospectively discontinue charging their current 50 basis point ROE incentive adders. Amounts related to a discontinuance of the adder would ultimately be offset by an increase in retail rates, subject to future rate cases.further proceedings, which remain pending.

Environmental

MGP, Landfill and Disposal Sites

NSP-Minnesota is investigating, remediating or performing post-closure actions at 7seven MGP, landfill or other disposal sites across its service territories.

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

Environmental Requirements — Water and Waste

Coal Ash Regulation — NSP-Minnesota’s operations are subject to federal and state regulations that impose requirements for handling, storage, treatment and disposal of solid waste. Under the CCR Rule, utilities are required to complete groundwater sampling around their CCR landfills and surface impoundments. Currently, NSP-Minnesota has 3three regulated ash units in operation.

NSP-Minnesota is conducting groundwater sampling and monitoring and implementing assessment of corrective measures at certain CCR landfills and surface impoundments. No results above the groundwater protection standards in the rule were identified.

FederalClean Water ActSection 316(b) — The Federal Clean Water Act requires the EPA to regulate cooling water intake structures to assure they reflect the best technology available for minimizing impingement and entrainment of aquatic species. NSP-Minnesota estimates capital expenditures of approximately $36 million may be required to comply with the requirements. NSP-Minnesota anticipates these costs will be recoverable through regulatory mechanisms.

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In August 2020, the EPA published its final rule to implement closure by April 2021 for all CCR impoundments affected by the August 2018 D.C. Circuit ruling. This final rule required Xcel Energy to expedite closure plans for 1 impoundment.

In October 2020, NSP-Minnesota completed construction and placed in service a new impoundment to replace the clay lined impoundment at a cost of $9 million. With the new ash pond in service, NSP-Minnesota has initiated closure activities for the existing ash pond at an estimated cost of $4 million. NSP-Minnesota has five years to complete closure activities.

~~Closure costs for existing impoundments are included in the calculation of the asset retirement obligation.~~

Leases

NSP-Minnesota 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 Sept. 30
(Millions of Dollars)	(Millions of Dollars)	2021		2020		(Millions of Dollars)	2022		2021
Operating leases	Operating leases					Operating leases
PPA capacity payments	PPA capacity payments	$	17	$	20	PPA capacity payments	$	25	$	17
Other operating leases (a)	Other operating leases (a)	1		2		Other operating leases (a)	2		1
Total operating lease expense (b)	Total operating lease expense (b)	$	18	$	22	Total operating lease expense (b)	$	27	$	18

(a)Includes $1 million and $0 million of short-term lease expense for 2022 and 2021, respectively.

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


	Nine Months Ended Sept. 30
(Millions of Dollars)	2022		2021
Operating leases
PPA capacity payments	$	74	$	53
Other operating leases (a)	6		6
Total operating lease expense (b)	$	80	$	59

(a)Includes ~~immaterial~~ short-term lease ~~expense~~expense of $2 million for ~~2021~~2022 and ~~2020.~~$1 million for 2021.

Nine Months Ended Sept. 30
(Millions of Dollars) 2021 2020
Operating leases
PPA capacity payments $ 53 $ 63
Other operating leases (a)
6 7
Total operating lease expense (b)
$ 59 $ 70

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

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

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


(Millions of Dollars)	(Millions of Dollars)	PPA Operating Leases		Other Operating Leases		Total Operating Leases		(Millions of Dollars)	PPA Operating Leases		Other Operating Leases		Total Operating Leases
Total minimum obligation	Total minimum obligation	$	437	$	75	$	512	Total minimum obligation	$	342	$	67	$	409
Interest component of obligation	Interest component of obligation	(35)		(12)		(47)		Interest component of obligation	(22)		(10)		(32)
Present value of minimum obligation	Present value of minimum obligation	$	402	$	63	465		Present value of minimum obligation	$	320	$	57	377
Less current portion	Less current portion					(93)		Less current portion					(97)
Noncurrent operating lease liabilities	Noncurrent operating lease liabilities					$	372	Noncurrent operating lease liabilities					$	280

~~VIEs~~Variable Interest Entities

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

NSP-Minnesota had approximately 1,322 MW and 1,347 MW of capacity under long-term PPAs at ~~both~~ Sept. 30, ~~2021~~2022 and Dec. 31, ~~2020~~2021, respectively, with entities that have been determined to be ~~VIEs.~~variable interest entities. NSP-Minnesota 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 2039.


10. Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss), net of tax, for the three and nine months ended Sept. 30, ~~2021~~2022 and ~~2020:~~2021:


		Three Months Ended Sept. 30, 2021						Three Months Ended Sept. 30, 2020							Three Months Ended Sept. 30, 2022						Three Months Ended Sept. 30, 2021
(Millions of Dollars)	(Millions of Dollars)	Gains and Losses on Cash Flow Hedges		Defined Benefit Pension and Postretirement Items		Total		Gains and Losses on Cash Flow Hedges		Defined Benefit Pension and Postretirement Items		Total		(Millions of Dollars)	Gains and Losses on Cash Flow Hedges		Defined Benefit Pension and Postretirement Items		Total		Gains and Losses on Cash Flow Hedges		Defined Benefit Pension and Postretirement Items		Total
Accumulated other comprehensive loss at July 1	Accumulated other comprehensive loss at July 1	$	(18)	$	(3)	$	(21)	$	(19)	$	(3)	$	(22)	Accumulated other comprehensive loss at July 1	$	(17)	$	(3)	$	(20)	$	(18)	$	(3)	$	(21)
Losses reclassified from net accumulated other comprehensive loss:	Losses reclassified from net accumulated other comprehensive loss:													Losses reclassified from net accumulated other comprehensive loss:
Interest rate derivatives, net of taxes of $—, $—, $— and $—, respectively (a)		—		—		—		—		—		—
Interest rate derivatives (a)														Interest rate derivatives (a)	—		—		—		—		—		—

Accumulated other comprehensive loss at Sept. 30	Accumulated other comprehensive loss at Sept. 30	$	(18)	$	(3)	$	(21)	$	(19)	$	(3)	$	(22)	Accumulated other comprehensive loss at Sept. 30	$	(17)	$	(3)	$	(20)	$	(18)	$	(3)	$	(21)


		Nine Months Ended Sept. 30, 2021						Nine Months Ended Sept. 30, 2020							Nine Months Ended Sept. 30, 2022						Nine Months Ended Sept. 30, 2021
(Millions of Dollars)	(Millions of Dollars)	Gains and Losses on Cash Flow Hedges		Defined Benefit Pension and Postretirement Items		Total		Gains and Losses on Cash Flow Hedges		Defined Benefit Pension and Postretirement Items		Total		(Millions of Dollars)	Gains and Losses on Cash Flow Hedges		Defined Benefit Pension and Postretirement Items		Total		Gains and Losses on Cash Flow Hedges		Defined Benefit Pension and Postretirement Items		Total
Accumulated other comprehensive loss at Jan. 1	Accumulated other comprehensive loss at Jan. 1	$	(19)	$	(3)	$	(22)	$	(20)	$	(3)	$	(23)	Accumulated other comprehensive loss at Jan. 1	$	(17)	$	(3)	$	(20)	$	(19)	$	(3)	$	(22)
Losses reclassified from net accumulated other comprehensive loss:	Losses reclassified from net accumulated other comprehensive loss:													Losses reclassified from net accumulated other comprehensive loss:
Interest rate derivatives, net of taxes of $—, $—, $— and $—, respectively (a)		1		—		1		1		—		1
Interest rate derivatives (a)														Interest rate derivatives (a)	—		—		—		1		—		1

Accumulated other comprehensive loss at Sept. 30	Accumulated other comprehensive loss at Sept. 30	$	(18)	$	(3)	$	(21)	$	(19)	$	(3)	$	(22)	Accumulated other comprehensive loss at Sept. 30	$	(17)	$	(3)	$	(20)	$	(18)	$	(3)	$	(21)

(a)Included in interest charges.

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11. Segment Information

NSP-Minnesota evaluates performance based on profit or loss generated from the product or service provided. These segments are managed separately because the revenue streams are dependent upon regulated rate recovery, which is separately determined for each segment.

NSP-Minnesota has the following reportable segments:

•Regulated Electric — The regulated electric utility segment generates electricity which is transmitted and distributed in Minnesota, North Dakota and South Dakota. In addition, this segment includes sales for resale and provides wholesale transmission service to various entities in the United States. The regulated electric utility segment also includes NSP-Minnesota’s wholesale commodity and trading operations.

•Regulated Natural Gas — The regulated natural gas utility segment transports, stores and distributes natural gas in portions of Minnesota and North Dakota.

NSP-Minnesota also presents All Other, which includes operating segments with revenues below the necessary quantitative thresholds. Those operating segments primarily include appliance repair services, non-utility real estate activities and revenues associated with processing solid waste into refuse-derived fuel.

Asset and capital expenditure information is not provided for NSP-Minnesota’s reportable segments. As an integrated electric and natural gas utility, NSP-Minnesota operates significant assets that are not dedicated to a specific business segment. Reporting assets and capital expenditures by business segment would require arbitrary and potentially misleading allocations, which may not necessarily reflect the assets that would be required for the operation of the business segments on a stand-alone basis.

Certain costs, such as common depreciation, common O&M expenses and interest expense are allocated based on cost causation allocators across each segment. In addition, a general allocator is used for certain general and administrative expenses, including office supplies, rent, property insurance and general advertising.

NSP-Minnesota’s segment information:


		Three Months Ended Sept. 30					Three Months Ended Sept. 30
(Millions of Dollars)	(Millions of Dollars)	2021		2020		(Millions of Dollars)	2022		2021
Regulated Electric	Regulated Electric					Regulated Electric

Total revenues (a)	Total revenues (a)	$	1,477	$	1,331	Total revenues (a)	$	1,730	$	1,477
Net income	Net income	245		250		Net income	275		245
Regulated Natural Gas	Regulated Natural Gas					Regulated Natural Gas
Operating revenues — external (b)		$	70	$	48
Operating revenues (b)						Operating revenues (b)	$	102	$	70
Intersegment revenue	Intersegment revenue	1		—		Intersegment revenue	—		1
Total revenues	Total revenues	$	71	$	48	Total revenues	$	102	$	71
Net loss	Net loss	(2)		(9)		Net loss	(12)		(2)
All Other	All Other					All Other
Total revenues	Total revenues	$	10	$	9	Total revenues	$	12	$	10
Net income	Net income	5		5		Net income	6		5
Consolidated Total	Consolidated Total					Consolidated Total
Total revenues (a)(b)		$	1,558	$	1,388
Operating revenues (a)(b)						Operating revenues (a)(b)	$	1,844	$	1,558
Reconciling eliminations	Reconciling eliminations	(1)		—		Reconciling eliminations	—		(1)
Total operating revenues		$	1,557	$	1,388
Total revenues						Total revenues	$	1,844	$	1,557
Net income	Net income	248		246		Net income	269		248

(a) Operating revenues include ~~$127~~$132 million and ~~$115~~$127 million of affiliate electric revenue for the three months ended Sept. 30, ~~2021~~2022 and ~~2020.~~2021.

(b) Operating revenues include an immaterial amount of affiliate gas revenue for the three months ended Sept. 30, ~~2021~~2022 and ~~2020.~~2021.


		Nine Months Ended Sept. 30					Nine Months Ended Sept. 30
(Millions of Dollars)	(Millions of Dollars)	2021		2020		(Millions of Dollars)	2022		2021
Regulated Electric	Regulated Electric					Regulated Electric
Operating revenues — external (a)		$	3,842	$	3,461
Intersegment revenue		—		1

Total revenues(a)	Total revenues(a)	$	3,842	$	3,462	Total revenues(a)	$	4,308	$	3,842
Net income	Net income	464		450		Net income	486		464
Regulated Natural Gas	Regulated Natural Gas					Regulated Natural Gas
Operating revenues — external (b)		$	353	$	329
Operating revenues (b)						Operating revenues (b)	$	703	$	353
Intersegment revenue	Intersegment revenue	1		—		Intersegment revenue	1		1
Total revenues	Total revenues	$	354	$	329	Total revenues	$	704	$	354
Net income	Net income	18		14		Net income	21		18
All Other	All Other					All Other
Total operating revenues	Total operating revenues	$	29	$	28	Total operating revenues	$	33	$	29
Net income	Net income	7		7		Net income	7		7
Consolidated Total	Consolidated Total					Consolidated Total
Total revenues (a)(b)		$	4,225	$	3,819
Operating revenues (a)(b)						Operating revenues (a)(b)	$	5,045	$	4,225
Reconciling eliminations	Reconciling eliminations	(1)		(1)		Reconciling eliminations	(1)		(1)
Total operating revenues	Total operating revenues	$	4,224	$	3,818	Total operating revenues	$	5,044	$	4,224
Net income	Net income	489		471		Net income	514		489

(a) Operating revenues include ~~$373~~$394 million and ~~$330~~$373 million of affiliate electric revenue for the nine months ended Sept. 30, ~~2021~~2022 and ~~2020.~~2021.

(b) Operating revenues include an immaterial amount of affiliate gas revenue for the nine months ended Sept. 30, ~~2021~~2022 and ~~2020.~~2021.

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

Discussion of financial condition and liquidity for NSP-Minnesota is omitted per conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q for wholly owned subsidiaries. It is replaced with management’s narrative analysis of the results of operations set forth in General Instruction H(2)(a) of Form 10-Q for wholly owned subsidiaries (reduced disclosure format).

Non-GAAP Financial Measures

The following discussion includes financial information prepared in accordance with GAAP, as well as certain non-GAAP financial measures such as ~~electric margin, natural gas margin and~~ ongoing earnings.

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

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

Earnings Adjusted for Certain Items (Ongoing Earnings)

Ongoing earnings reflect adjustments to GAAP earnings (net income) for certain items.

We use this non-GAAP financial measure to evaluate and provide details of NSP-Minnesota’s core earnings and underlying performance. We believe this measurement is useful to investors to evaluate the actual and projected financial performance and contribution of NSP-Minnesota. For the three and nine months ended Sept. 30, 2022 and 2021, there were no such adjustments to GAAP earnings and therefore GAAP earnings equal ongoing earnings.

1918

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Results of Operations

NSP-Minnesota’s net income was approximately $514 million for the nine months ended Sept. 30, 2022 compared with approximately $489 million for the prior year. The increase is primarily due to regulatory rate outcomes, partially offset by increased depreciation, O&M expenses and a Winter Storm Uri cost disallowance.

Electric ~~and Natural Gas Margins~~Margin

Electric margin is presented as electric revenues less electric fuel and purchased power expenses. ~~Natural gas margin is presented as natural gas revenues less the cost of natural gas sold and transported.~~ Expenses incurred for electric fuel and purchased power ~~and the cost of natural gas~~ are generally recovered through various regulatory recovery mechanisms. As a result, changes in these expenses are generally offset in operating revenues. Management believes electric and natural gas margins provide the most meaningful basis for evaluating our operations because they exclude the revenue impact of fluctuations in these expenses. These margins can be reconciled to operating income, a GAAP measure, by including other operating revenues, cost of sales-other, O&M expenses, conservation and state implementation plan expenses, depreciation and amortization and taxes (other than income taxes).


~~Results of Operations~~

NSP-Minnesota’s net income was approximately $489 million for the nine months ended Sept. 30, 2021 compared with approximately $471 million for the prior year. The increase in year-to-date earnings reflects higher electric margin (regulatory outcomes to primarily recover capital investments), partially offset by increased depreciation and O&M expenses.

~~Electric Margin~~

Electric revenues and fuel and purchased power expenses are impacted by fluctuations in the price of natural gas, coal and uranium. However, these price fluctuations generally have minimal impact on ~~electric margin~~earnings due to fuel recovery ~~mechanisms that recover fuel expenses.~~mechanisms. In addition, electric customers receive a credit for PTCs ~~that are~~ generated, ~~in a particular period.~~which reduce electric revenue and income taxes.

Electric revenues, fuel and ~~margin:~~purchased power and electric margin and explanation of the changes are listed as follows:

Nine Months Ended Sept. 30
(Millions of Dollars) 2021 2020
Electric revenues $ 3,842 $ 3,461
Electric fuel and purchased power (1,494) (1,225)
Electric margin $ 2,348 $ 2,236

~~Changes in electric margin:~~


	Nine Months Ended Sept. 30
(Millions of Dollars)	2022		2021
Electric revenues	$	4,308	$	3,842
Electric fuel and purchased power	(1,857)		(1,494)
Electric margin	$	2,451	$	2,348


(Millions of Dollars)	Nine Months Ended Sept. 30, ~~2021~~2022 vs. ~~2020~~2021
Regulatory rate outcome (Minnesota)	$	125
Non-fuel riders	$27		~~104~~

Conservation ~~program~~and demand side revenues (offset in expense)	1527
~~Interchange agreement billings with NSP-Wisconsin~~Wholesale transmission (net)	1523
~~Proprietary commodity trading, net of sharing~~ ~~(a)~~	24


PTCs flowed back to customers (offset by lower ETR)	~~(40)~~(82)
Proprietary commodity trading, net of sharing(a)	(16)
Other (net)	~~(6)~~(1)
Total increase ~~in electric margin~~	$	~~112~~103

(a)Includes $12 million of ~~net gains previously~~trading margin recognized in the first quarter of 2021, driven by market changes associated with Winter Storm Uri. ~~Additional amounts are primarily related to long-term physical generation contracts, which have increased in value as a result of higher energy prices.~~

Natural Gas Margin

~~Total~~Natural gas margin is presented as natural gas ~~expense varies with changing sales requirements and the cost of natural gas. However, fluctuations in~~revenues less the cost of natural gas ~~generally have minimal impact on~~sold and transported. Expenses incurred for the cost of natural gas ~~margin due to natural gas cost~~sold are generally recovered through various regulatory recovery mechanisms. As a result, changes in these expenses are generally offset in operating revenues.

Natural gas revenues, ~~and margin:~~

Nine Months Ended Sept. 30
(Millions of Dollars) 2021 2020
Natural gas revenues $ 353 $ 329
Cost of natural gas sold and transported (187) (170)
Natural gas margin $ 166 $ 159

~~Changes in~~cost of natural gas ~~margin:~~sold and transported and margin and explanation of the changes are listed as follows:


	Nine Months Ended Sept. 30
(Millions of Dollars)	2022		2021
Natural gas revenues	$	703	$	353
Cost of natural gas sold and transported	(510)		(187)
Natural gas margin	$	193	$	166


(Millions of Dollars)		Nine Months Ended Sept. 30, ~~2021~~2022 vs. ~~2020~~2021
Regulatory rate outcomes (Minnesota, North Dakota)		$	19
Estimated impact of weather		9
Conservation revenue (offset by expenses)		8
Infrastructure and integrity riders		$		46
Winter Storm Uri disallowance

	(16)
Other (net)		31
Total increase ~~in natural gas margin~~		$	727

Non-Fuel Operating Expenses and Other Items

O&M Expenses — O&M expenses increased $16 million year-to-date. The increase is due to additional investments in technology and customer programs, higher costs for vegetation management, storms and inflation. These increases were partially offset by a reduction in employee benefit costs.

Depreciation and Amortization — Depreciation and amortization expense increased ~~$74~~$70 million ~~or 12.0%~~ year-to-date. The increase was primarily driven by several wind farms going into service ~~as well as~~and normal system expansion.

Other (Expense) Income— Other (expense) income decreased $13 million year-to-date, largely related to rabbi trust performance, which is primarily offset in O&M expenses (employee benefit costs).

Interest Charges — Interest charges increased $14 million year-to-date, largely due to higher interest rates and increased long-term debt levels to fund capital investments.

Income Taxes — Income tax benefit increased ~~$19~~$53 million year-to-date. The increase was primarily driven by increased wind PTCs ~~partially offset by a carryback tax benefit in 2020.~~due to several new wind farms going into service and greater production at existing wind farms. Wind PTCs are credited to customers (recorded as a reduction to revenue) and do not have a material impact on net income.

See Note 6 to the consolidated financial statements for further information.


~~Other~~

~~Winter Storm Uri~~

In February 2021, the United States experienced Winter Storm Uri. Extreme cold temperatures impacted certain operational assets as well as the availability of renewable generation. The cold weather also affected the country’s supply and demand for natural gas. These factors contributed to extremely high market prices for natural gas and electricity. As a result of the extremely high market prices, NSP-Minnesota incurred net natural gas, fuel and purchased energy costs of approximately $230 million (largely deferred as regulatory assets) in the first quarter.

~~Regulatory Overview~~ — NSP-Minnesota has natural gas, fuel and purchased energy mechanisms in each jurisdiction for recovering incurred costs. However, February cost increases were deferred for future recovery with recovery proposed over a period of up to 27 months to mitigate the impact to customer bills. Additionally, NSP-Minnesota is not requesting recovery of financing costs in order to further limit the impact to our customers.

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~~Proceedings initiated:~~


~~Jurisdiction~~			~~Regulatory Status~~
~~Minnesota~~			NSP-Minnesota filed with the MPUC seeking recovery of $215 million in incremental costs from natural gas customers. The DOC recommended disallowances of $21 million related to the utilization of natural gas storage. The OAG recommended disallowances of $34 million based on: (1) utilization of natural gas storage; (2) failure to enter fixed-price contracts; (3) failure to maximize curtailments to interruptible customers; and (4) inadequate conservation efforts to reduce demand. In addition, intervenors raised questions about peaking plant availability. In August 2021, the MPUC allowed the utilities to start recovery of all Uri storm costs starting in September 2021 over 27 months (no financing charge). The cost recovery will be subject to refund pending the outcome of a contested case before an ALJ that will consider the DOC/OAG recommendations and issues related to the peaking plants. A decision is expected in the summer of 2022.
~~South Dakota~~			~~Winter Storm Uri had no impact on South Dakota electric costs as NSP-Minnesota was a net seller in the electric market.~~
~~North Dakota~~			~~In June, the NDPSC approved recovery of $32 million in natural gas costs over 15 months (starting July 2021) with no financing charge.~~

~~Supply Chain and Capital Expenditures~~

Public Utility Regulation and Other

The FERC and various state and local regulatory commissions regulate NSP-Minnesota. NSP-Minnesota is subject to rate regulation by state utility regulatory agencies, which have jurisdiction with respect to the rates of electric and natural gas distribution companies in Minnesota, North Dakota and South Dakota.

Rates are designed to recover plant investment, operating costs and an allowed return on investment. NSP-Minnesota requests changes in utility rates through commission filings. Changes in operating costs can affect NSP-Minnesota’s 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 NSP-Minnesota’s results of operations.

Except to the extent noted below, the circumstances set forth in Public Utility Regulation included in Item 7 of NSP-Minnesota’s Annual Report on Form 10-K for the year ended Dec. 31, ~~2020 and in Item 2 of NSP-Minnesota’s Quarterly Report on~~ ~~Form 10-Q~~ ~~for the quarterly period ended March 31, 2021 and Quarterly Report on~~ ~~Form 10-Q~~ ~~for the quarterly period ended June 30,~~ 2021 appropriately represent, in all material respects, the current status of public utility regulation and are incorporated herein by reference.

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Pending and Recently Concluded Regulatory Proceedings

~~Proceeding~~

Amount
(in millions)

Filing
Date

~~Approval~~

~~2020 TCR Electric Rider~~

~~$82~~

~~November 2019~~

~~Pending~~

~~2021 GUIC Natural Gas Rider~~

~~October 2020~~

~~Pending~~

~~2021 RES Electric Rider~~

~~189~~

~~November 2020~~

~~Pending~~

~~2020 North Dakota Electric Rate Case~~

~~November 2020~~

~~Received~~

~~2021 North Dakota Natural Gas Rate Case~~

~~September 2021~~

~~Pending~~

2022 Minnesota ~~Electric Rate Case~~

~~677~~

~~October 2021~~

~~Pending~~

~~2022 Minnesota Natural Gas Rate Case~~

~~TBD~~

~~November 2021~~

~~Pending~~

~~Additional Information:~~

~~2020 TCR Electric Rider —~~ ~~In November 2019, NSP-Minnesota filed the TCR Rider based on a ROE of 9.06%. An MPUC decision is pending.~~

~~2021 GUIC Natural Gas Rider —~~ ~~In October 2020, NSP-Minnesota filed the GUIC Rider based on a ROE of 9.04%. An MPUC decision is pending.~~

~~2021 RES Electric Rider —~~ In November 2020, NSP-Minnesota filed the RES Rider. The requested amount includes a true-up (2019 and 2020 riders) of $96 million and the 2021 requested amount of $93 million. The filing included a ROE of 9.06%. An MPUC decision is pending.

~~2020 North Dakota~~ Electric Rate Case —~~In November 2020,~~ In October 2021, NSP-Minnesota filed a three-year electric rate case with the ~~NDPSC seeking~~MPUC. The rate case is based on a requested ROE of 10.2%, a 52.5% equity ratio and forward test years.

The request is detailed as follows:


(Amounts in Millions, Except Percentages)	2022			2023			2024			Total
Annual rate increase requested	$	396		$	150		$	131		$	677
Increase percentage	12.2		%	4.8		%	4.2		%	21.2		%
Rate base	$	10,931		$	11,446		$	11,918		N/A

In December 2021, the MPUC approved interim rates, subject to refund, of $247 million, effective Jan. 1, 2022. On Sept. 30, 2022, NSP-Minnesota requested an incremental increase to interim rates of $122 million, effective Jan. 1, 2023. On Oct. 21, 2022, intervening parties to the rate case filed comments recommending the MPUC deny NSP-Minnesota’s request. A MPUC decision is expected in late 2022.

In October 2022, nine parties filed testimony. The DOC, OAG, XLI, CUB and JSC were the only parties to quantify recommended financial adjustments. XLI recommended $112 million in proposed adjustments, based on reducing ROE, reducing recovery of incentive compensation and not including the prepaid pension asset in rate base. CUB recommended adjustments based on reducing ROE. Other parties provided specific issue recommendations.

Proposed DOC modifications to NSP-Minnesota’s request:


(Millions of Dollars)	2022		2023		2024
NSP-Minnesota’s filed base revenue request	$	396	$	546	$	677

Recommended adjustments:
Rate base and rate of return (a)	(71)		(58)		(57)
MISO capacity credits	(55)		(94)		(94)
Monticello and wind farm life extension	(21)		(54)		(51)
PTC and ND ITC forecast	(28)		(40)		(43)
Property tax	(14)		(22)		(32)
Prepaid pension asset and liability	(13)		(21)		(32)
O&M expenses	(18)		(26)		(29)
Other, net	(48)		(57)		(65)

Total adjustments	(268)		(372)		(403)
Total proposed revenue change	$	128	$	174	$	274

(a)Included in the rate base and rate of return adjustments is an annual proposed increase in the cost of debt.

Positions on NSP-Minnesota’s filed rate request:


Recommended Position	DOC		XLI		CUB	JSC
ROE	9.25	%	9.17	%	8.80-9.00 %	9.06	%
Equity	52.5	%	N/A		N/A	N/A

Next steps in the procedural schedule are expected to be as follows:

•Rebuttal testimony: Nov. 8, 2022.

•Hearing: Dec. 13-16, 2022.

•ALJ Report: March 31, 2023.

•MPUC Order: June 30, 2023.

2022 Minnesota Natural Gas Rate Case—In November 2021, NSP-Minnesota filed a request with the MPUC for an annual natural gas rate increase of ~~$19~~$36 million, or 6.6%. The filing is based on a 2022 forecast test year and includes a requested ROE of ~~10.2%~~10.5%, an equity ratio of 52.5% and a rate base of ~~$677~~$934 million. In December 2021, the MPUC approved an interim rate increase of $25 million, subject to refund, effective Jan. 1, 2022.

In ~~August 2021, the NDPSC approved a settlement between~~October 2022, NSP-Minnesota and various parties filed an uncontested settlement, which includes the following ~~effective Jan. 1, 2021:~~key terms:

•Base rate revenue increase of ~~$7 million.~~$21 million, with a true up to weather normalized actual sales for 2022.

•Revenue decoupling mechanism.

•Symmetrical property tax true-up.

•ROE of ~~9.5%~~9.57%.

•Equity ratio of 52.5%.

•~~Deferral~~A hearing is scheduled for the fourth quarter of ~~advanced grid intelligence~~2022 and ~~security initiative capital and O&M expenses.~~

•~~An earnings cap mechanism, which would return to customers 100%~~a MPUC order is expected in the first half of ~~earnings equal to or in excess of 9.75% ROE, effective until the next rate case.~~2023.

2021 North Dakota Natural Gas Rate Case — In September 2021, NSP-Minnesota filed a request with the NDPSC for a natural gas rate increase of $7 million, or ~~10.49%~~10.5%. The filing is based on a requested ROE of 10.5%, an equity ratio of 52.54%, a 2022 forecast test year and a rate base of ~~approximately $140~~$124 million. ~~NSP-Minnesota requested interim~~Interim rates of $7 million, subject to refund, ~~of $7 million to be~~were implemented on Nov. 1, 2021.

In May 2022, NSP-Minnesota and NDPSC Staff reached a natural gas settlement, which reflects a rate increase of $5 million, based on a 9.8% ROE and 52.54% equity ratio. A NDPSC decision is pending.

2022 ~~Minnesota~~South Dakota Electric Rate Case — On Oct. 25, 2021, NSP-Minnesota filed a three-year electric rate case with the MPUC. The request is driven by ongoing investments in carbon free electrical generation, distribution and transmission infrastructure. The rate case is based on a requested ROE of 10.2% and a 52.50% equity ratio.

~~Table of Contents~~

~~The request is detailed as follows:~~

(Amounts in Millions, Except Percentages) 2022 2023 2024 Total
Rate request $ 396 $ 150 $ 131 $ 677
Increase percentage 12.2 % 4.8 % 4.2 % 21.2 %
Rate base $ 10,931 $ 11,446 $ 11,918 N/A

In addition, NSP-Minnesota requested interim rates, subject to refund, of $288 million to be implemented in January 2022 and an incremental $135 million to be implemented in January 2023. To mitigate the interim increase, NSP-Minnesota also proposed to continue a sales true-up for all customer classes in both 2022 and 2023. This would result in interim rates, subject to refund, of $190 million to be implemented in January 2022 and an incremental $116 million to be implemented in January 2023. A final MPUC decision on the rate case is anticipated in the second quarter of 2023.

~~2022 Minnesota Natural Gas Rate Case~~—NSP-Minnesota plans to file a request with the MPUC for an annual natural gas rate case in November 2021. As part of the request, NSP-Minnesota plans to file an option for a one-year stay-out alternative.

~~Minnesota Resource Plan~~ — In ~~July 2019,~~June 2022, NSP-Minnesota filed ~~its Minnesota resource plan, which runs through 2034.~~

~~In June~~a South Dakota electric rate case (first since 2014) seeking a revenue increase of approximately $44 million. The filing is based on a 2021 ~~NSP-Minnesota filed~~historic test year adjusted for certain known and measurable changes for 2022 and 2023, a requested ROE of 10.75%, rate base of approximately $947 million and an ~~alternative plan that would be~~equity ratio of 53%. Final rates are expected to ~~reduce carbon emissions 85% by 2030 and has a lower projected cost than either~~be effective in the first quarter of ~~the previously submitted plans. The alternative plan includes the following:~~

•~~Removing the planned Sherco combined cycle natural gas plant.~~2023.

•Retiring all coal generation by 2030 with reduced operations at some units prior to retirement, including early retirement of the A.S. King coal plant (511 MW) in 2028 and Sherco 3 coal plant (517 MW) in 2030.

•~~Extending the life of the Monticello nuclear plant from 2030 to 2040.~~

•~~Continuing to run the Prairie Island nuclear generating plant at least through current end of life (2033 and 2034).~~

•~~Adding 3,150 MW of universal solar, 2,650 MW of wind and 250 MW of storage.~~

•~~Adding 800 MW of new hydrogen-ready combustion-turbines and repowering 300 MW of blackstart combustion-turbines.~~

•~~Adding 1,900 MW of other firm dispatchable resources.~~

•~~Constructing 155 miles of transmission lines.~~

•~~Achieving 780 gigawatt hours in energy efficiency savings annually through 2034.~~

•~~Adding 400 MW of incremental demand response by 2023 and a total of 1,500 MW of demand response by 2034.~~

~~The MPUC is anticipated to make a final decision in late 2021 or early 2022.~~

~~Minnesota Relief and Recovery~~Wind Repowering — In 2020, the MPUC opened a docket and invited utilities in the state to submit potential projects that would create jobs and help jump start the economy to offset the impacts of COVID-19. The status of the various proposals is listed below:

•In January 2021, the MPUC approved NSP-Minnesota’s request for the repowering of 651 MW of owned wind projects. Two of the four repowering projects, where construction has not yet begun (in-service dates in 2025), now expect costs in excess of the original approval. While the capital costs have increased, the passage of the IRA and ~~20 MW~~other changes result in a levelized cost of ~~wind projects under PPAs. These projects are estimated to save customers~~energy that is approximately ~~$160 million over~~30% lower than the ~~next 25 years.~~original approval. In October 2022, NSP-Minnesota filed a request with the MPUC seeking approval of the higher capital costs for these repowering projects.

•Wind PPA Buyout — In ~~April 2021,~~July 2022, NSP-Minnesota ~~proposed~~requested approval from the MPUC for updated agreements with ALLETE Clean Energy to purchase the repowered 100 MW Northern Wind Facility and 22 MW Rock Aetna Facility. In October 2022, the MPUC approved NSP-Minnesota’s updated acquisition agreements, which included an increase in the purchase price. The price increase is more than offset by the passage of the IRA, resulting in greater savings for customers than the original approval.

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2022 Minnesota Electric Vehicle Proposal — In August 2022, NSP-Minnesota filed a request with the MPUC for approval of approximately $320 million of capital investments (2022 through 2026) to support a public charging network, electric school bus pilot, and other expansions and modifications to its residential and commercial electric vehicle programs. A MPUC decision is expected in 2023.

Sherco Solar Proposal — In September 2022, the MPUC approved NSP-Minnesota’s proposal to add 460 ~~MWs~~MW of solar facilities at the Sherco ~~site with~~site. The project is expected to cost approximately $690 million (two phases to be completed in 2024 and 2025). As a result of the IRA, the levelized cost of the project is expected to be approximately 30% lower than previously estimated.

2022 RES Electric Rider — In November 2021, NSP-Minnesota filed the RES Rider. In September 2022, the MPUC approved the requested amount of $264 million, which includes a true-up (2020 and 2021 riders) of $154 million and the 2022 requested amount of $110 million.

2022 GUIC Natural Gas Rider — In October 2021, NSP-Minnesota filed the GUIC Rider for an ~~incremental investment~~amount of ~~approximately $575~~$27 million. A MPUC decision is ~~expected in early 2022.~~pending.

•2021 GUIC Natural Gas Rider — In ~~June 2021,~~October 2020, NSP-Minnesota filed the GUIC Rider for an amount of $27 million. A MPUC ~~approved NSP-Minnesota’s proposal to acquire a 120 MW repowered wind farm from ALLETE for $210 million.~~decision is pending.

•2022 TCR Electric Rider — ~~The~~In November 2021, NSP-Minnesota filed the TCR Rider for an amount of $105 million. A MPUC decision is ~~also considering NSP-Minnesota’s revised proposal to provide $40 million of incremental electric vehicle rebates.~~pending.

Nuclear Power Operations

NSP-Minnesota owns two nuclear generating plants: the Monticello plant and the Prairie Island plant. See Note 10 to the consolidated financial statements of NSP-Minnesota’s Annual Report on Form 10-K for the year ended Dec. 31, ~~2020~~2021 for further information. The circumstances set forth in Nuclear Power Operations included in Item 7 of NSP-Minnesota’s Annual Report on Form 10-K for the year ended Dec. 31, ~~2020,~~2021, appropriately represent, in all material respects, the current status of nuclear power operations, and are incorporated by reference.

Other

Supply Chain

NSP-Minnesota’s ability to meet customer energy requirements, respond to storm-related disruptions and execute our capital expenditure program are dependent on maintaining an efficient supply chain. Manufacturing processes have experienced disruptions related to scarcity of certain raw materials and interruptions in production and shipping. 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. NSP-Minnesota 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.

Advanced Metering Infrastructure Implementation

Supply chain issues associated with semi-conductors have delayed the availability of advanced infrastructure electric meters, which has led to a reduced number of meters deployed in 2022. Impacts to the 2023 deployment schedule are currently being evaluated.

Solar Resources

In April 2022, the U.S. Department of Commerce initiated an anti-circumvention investigation that would subject CSPV solar panels and cells imported from Malaysia, Vietnam, Thailand, and Cambodia with potential incremental tariffs ranging from 50% to 250%. These countries account for more than 80% of CSPV panel imports.

Since that time, an interim stay on tariffs has been issued and many significant solar projects have resumed with modified costs and projected in-service dates, including the Sherco Solar facility in Minnesota which was recently approved by the MPUC.

~~Nuclear Fuel Supply~~MISO Capacity Credits ~~— NSP-Minnesota has contracted~~

The NSP System offered 1,500 MW of excess capacity into the MISO planning resource auction for ~~approximately 23% of its 2021 enriched nuclear material requirements from sources that could be impacted by sanctions against entities doing business with Iran. Those sanctions may impact~~June 2022 through May 2023. Due to a projected overall capacity shortfall in the ~~supply of enriched nuclear material supplied from Russia. Long-term, through 2030, NSP-Minnesota~~MISO region, the 1,500 MWs offered cleared the auction at maximum pricing and is ~~scheduled~~expected to ~~take delivery~~generate revenues of approximately ~~30%~~$90 million in 2022 and approximately $60 million in 2023. During the three and nine months ended Sept. 30, 2022, the NSP System received approximately $40 million and $50 million, respectively, of ~~its average enriched~~capacity credits. These amounts will primarily be used to mitigate customer rate increases or returned through earnings sharing or other mechanisms.

Inflation Reduction Act — In August 2022, the IRA was signed into law.

Key provisions impacting NSP-Minnesota include:

•Extends current PTC and ITC for renewable technologies (e.g., wind and solar).

•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.

NSP-Minnesota 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 NSP-Minnesota to monetize tax credits more efficiently with the incremental benefits passed through to customers.

The IRA creates a nuclear PTC beginning in 2024 that may also provide additional savings to NSP System customers, depending on locational marginal pricing, as well as constructive U.S. Treasury guidance regarding computation of the credits.

In addition, the IRA created a new corporate AMT. NSP-Minnesota does not anticipate AMT having a material ~~requirements from these sources.~~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 the availability of renewable generation. The cold weather also affected the country’s supply and demand for natural gas. These factors contributed to extremely high market prices for natural gas and electricity. As a result of the extremely high market prices, NSP-Minnesota ~~is able to manage nuclear~~incurred net natural gas, fuel ~~supply~~and purchased energy costs of approximately $230 million (largely deferred as regulatory assets).

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In 2021, the MPUC allowed recovery of $179 million of costs (with no financing charge) starting in September 2021, pending a prudency review. The C&I class ($82 million) will be recovered over 27 months and the residential class ($97 million) will be recovered over a 63-month recovery period.

In May 2022, the ALJs found the Winter Storm Uri fuel costs were prudently incurred and recommended no disallowances. In August 2022, the MPUC approved recovery of Uri storm costs with ~~alternate potential sources. NSP-Minnesota periodically assesses if further actions are required to assure~~ a ~~secure supply of enriched nuclear material.~~$19 million disallowance.

Environmental

~~Affordable~~ Clean ~~Energy~~Air Act

In ~~July 2019,~~April 2022 the EPA ~~adopted~~proposed regulations under the ~~Affordable~~"Good Neighbor" provisions of the Clean ~~Energy rule, which requires states~~Air Act. The proposed rules impose a Federal Implementation Plan that establishes an allowance trading program for NOx, potentially impacting NSP-Minnesota generating facilities. Facilities without NOx controls will have to secure additional allowances, install NOx controls, or develop ~~plans by 2022 for greenhouse gas reductions from coal-fired power~~ ~~plants. In January 2021,~~a strategy of operations that utilizes the ~~U.S. Court of Appeals~~existing allowance allocations. The EPA has indicated that it intends for the ~~D.C. Circuit issued a decision vacating and remanding~~rule to be final by the ~~Affordable Clean Energy rule. That decision would allow~~end of 2022 with initial applicability for the ~~EPA to proceed with alternate~~2023 ozone season. While the financial impacts of the proposed regulation ~~of coal-fired power plants. If the new rules require additional investment,~~are uncertain, NSP-Minnesota ~~believes~~anticipates that ~~the cost of these initiatives or replacement generation would~~costs will be recoverable through ~~rates based on prior state commission practices.~~

regulatory mechanisms.

~~Table of Contents~~

CERCLA

~~Emerging Regulation~~

~~New regulations and legislation are being considered to regulate PFAS in drinking water, water discharges, commercial products, wastes, and other areas.~~ PFAS are man-made chemicals ~~found~~that are widely used in ~~many~~ consumer products ~~that~~and can persist and ~~accumulate~~bio-accumulate in the environment. ~~These chemicals have received heightened attention by environmental regulators. Increased regulation~~NSP-Minnesota 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 ~~other emerging contaminants at~~perfluorooctanesulfonic acid. This proposed rule could result in new obligations for investigation and cleanup wherever PFAS are found to be present. The impact the ~~federal, state,~~proposed regulation may have on electric and ~~local level could have a potential adverse effect on our operations but at this time, it~~gas utilities is ~~uncertain what impact, if any, there will be on our operations, financial condition or cash flows.~~ currently uncertain.

Nuclear Fuel Supply

NSP-Minnesota has contracted for and has its 2022 and 2023 enriched nuclear material requirements in various stages of processing in Canada, Europe and the United States. We will continue to monitor ~~these regulatory developments~~the evolving situation in Ukraine and ~~their potential impact on~~ its ~~operations.~~global impacts and will take necessary actions to ensure a secure supply of enriched nuclear material. NSP-Minnesota is scheduled to take delivery of approximately 30% of its average enriched nuclear material requirements from Russia through 2030.


ITEM 4 — CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

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

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

Internal Control Over Financial Reporting

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

PART II — OTHER INFORMATION


ITEM 1 — LEGAL PROCEEDINGS

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

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

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


ITEM 1A — RISK FACTORS

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

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ITEM 6 — EXHIBITS

* Indicates incorporation by reference


Exhibit Number	Description	Report or Registration Statement	Exhibit Reference
3.01*	Articles of Incorporation and Amendments of Northern Power Corp. (renamed NSP-Minnesota on Aug. 21, 2000)	NSP-Minnesota Form 10-12G dated Oct. 5, 2000	3.01
3.02*	Amended and Restated Bylaws of NSP-Minnesota, dated Jan. 25, 2019	NSP-Minnesota 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 Northern States Power Company, a Minnesota corporation, 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	99.02
31.01	Principal Executive Officer’s certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.02	Principal Financial Officer’s certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.01	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Schema
101.CAL	Inline XBRL Calculation
101.DEF	Inline XBRL Definition
101.LAB	Inline XBRL Label
101.PRE	Inline XBRL Presentation
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

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


		Northern States Power Company (a Minnesota corporation)

~~October 28, 2021~~10/27/2022	By:	~~/s/ JEFFREY S. SAVAGE~~
		~~Jeffrey S. Savage~~
		~~Senior Vice President, Controller~~
		~~(Principal Accounting Officer)~~

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


(Millions of Dollars)	Limit		Amount Outstanding		Available
NSP-Minnesota	$	75	$	41	$	34