Northern States Power 10-Q 2021 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2021

or

☐ 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

Minnesota

(Exact name of registrant as specified in its charter)

Minnesota	41-1967505
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

414 Nicollet Mall	Minneapolis	Minnesota	55401
(Address of 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)

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	N/A	N/A

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

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

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☐

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

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

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

Class	Outstanding at July 29, 2021
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	20
Item 4 —	Controls and Procedures	23
PART II	OTHER INFORMATION
Item 1 —	Legal Proceedings	23
Item 1A —	Risk Factors	23
Item 6 —	Exhibits	23
SIGNATURES		24

This Form 10-Q is filed by Northern States Power Company, a Minnesota corporation (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. 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-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
IRS	Internal Revenue Service
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	FASB Accounting Standards Codification
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
CFO	Chief financial officer
COVID-19	Novel coronavirus
ETR	Effective tax rate
FASB	Financial Accounting Standards Board
FTR	Financial transmission right
GAAP	United States generally accepted accounting principles
GE	General Electric Company
IPP	Independent power producing entity
MGP	Manufactured gas plant
MISO	Midcontinent Independent System Operator, Inc.
NAV	Net asset value
NOL	Net operating loss
NOPR	Notice of Proposed Rulemaking
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	Variable interest entity
Measurements
MW	Megawatts

Forward-Looking Statements

Except for the historical statements contained in this report, the matters discussed herein are forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements, including those relating to future sales, future expenses, future operating performance, estimated base capital expenditures and financing plans, projected capital additions and forecasted annual revenue requirements with respect to rider filings, expected rate increases to customers, expectations and intentions regarding regulatory proceedings, and expected impacts on our results of operations, financial condition and cash flows or resettlement calculations and credit losses relating to certain energy transactions, as well as assumptions and other statements are intended to be identified in this document by the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “objective,” “outlook,” “plan,” “project,” “possible,” “potential,” “should,” “will,” “would” and similar expressions. Actual results may vary materially. Forward-looking statements speak only as of the date they are made, and we expressly disclaim any obligation to update any forward-looking information. The following factors, in addition to those discussed elsewhere in this Quarterly Report on Form 10-Q and in other filings with the SEC (including NSP-Minnesota’s Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2020, and subsequent filings), 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; operational safety, including our nuclear generation facilities; 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; ability to recover costs; changes in regulation; reductions in our credit ratings and the cost of maintaining certain contractual relationships; general economic conditions, including inflation rates, monetary fluctuations and their impact on capital expenditures and 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.

PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

NSP-MINNESOTA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(amounts in millions)

	Three Months Ended June 30				Six Months Ended June 30
	2021		2020		2021		2020
Operating revenues
Electric, non-affiliates	$	1,095	$	990	$	2,119	$	1,915
Electric, affiliates	131		106		246		216
Natural gas	80		75		284		281
Other	9		9		18		18
Total operating revenues	1,315		1,180		2,667		2,430
Operating expenses
Electric fuel and purchased power	487		403		920		767
Cost of natural gas sold and transported	32		30		157		155
Cost of sales — other	6		6		11		11
Operating and maintenance expenses	313		290		611		586
Conservation program expenses	31		25		65		56
Depreciation and amortization	229		205		450		407
Taxes (other than income taxes)	66		63		135		132
Total operating expenses	1,164		1,022		2,349		2,114
Operating income	151		158		318		316
Other income (expense), net	2		3		4		(2)
Allowance for funds used during construction — equity	7		7		14		14
Interest charges and financing costs
Interest charges — includes other financing costs of $2, $2, $4 and $4, respectively	70		61		133		122
Allowance for funds used during construction — debt	(3)		(3)		(6)		(6)
Total interest charges and financing costs	67		58		127		116
Income before income taxes	93		110		209		212
Income tax benefit	(19)		(7)		(32)		(12)
Net income	$	112	$	117	$	241	$	224

See Notes to Consolidated Financial Statements

4

NSP-MINNESOTA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(amounts in millions)

	Three Months Ended June 30				Six Months Ended June 30
	2021		2020		2021		2020
Net income	$	112	$	117	$	241	$	224
Other comprehensive income
Derivative instruments:
Reclassification of losses to net income, net of tax of $0, $0, $0 and $0, respectively	0		0		1		1
Total other comprehensive income	0		0		1		1
Total comprehensive income	$	112	$	117	$	242	$	225

See Notes to Consolidated Financial Statements

5

NSP-MINNESOTA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in millions)

	Six Months Ended June 30
	2021		2020
Operating activities
Net income	$	241	$	224
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	453		411
Nuclear fuel amortization	56		65
Deferred income taxes	(30)		(39)
Allowance for equity funds used during construction	(14)		(14)
Provision for bad debts	12		9
Changes in operating assets and liabilities:
Accounts receivable	(62)		5
Accrued unbilled revenues	(22)		26
Inventories	16		9
Other current assets	10		(6)
Accounts payable	5		(19)
Net regulatory assets and liabilities	(105)		(9)
Other current liabilities	(45)		(92)
Pension and other employee benefit obligations	(35)		(47)
Other, net	(24)		14
Net cash provided by operating activities	456		537
Investing activities
Capital/construction expenditures	(842)		(541)
Purchase of investment securities	(628)		(1,160)
Proceeds from the sale of investment securities	410		1,150
Investments in utility money pool arrangement	(189)		(560)
Repayments from utility money pool arrangement	93		560
Other, net	(3)		0
Net cash used in investing activities	(1,159)		(551)
Financing activities
Repayments of short-term borrowings, net	(179)		(30)
Borrowings under utility money pool arrangement	434		118
Repayments under utility money pool arrangement	(434)		(118)
Proceeds from issuance of long-term debt	836		678
Capital contributions from parent	624		214
Dividends paid to parent	(216)		(194)
Other, net	2		4
Net cash provided by financing activities	1,067		672
Net change in cash, cash equivalents and restricted cash	364		658
Cash, cash equivalents and restricted cash at beginning of period	46		126
Cash, cash equivalents and restricted cash at end of period	$	410	$	784
Supplemental disclosure of cash flow information:
Cash paid for interest (net of amounts capitalized)	$	(116)	$	(111)
Cash received (paid) for income taxes, net	4		(23)
Supplemental disclosure of non-cash investing and financing transactions:
Accrued property, plant and equipment additions	$	305	$	298
Inventory transfers to property, plant and equipment	6		10
Allowance for equity funds used during construction	14		14

See Notes to Consolidated Financial Statements

6

NSP-MINNESOTA AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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

	June 30, 2021		Dec. 31, 2020
Assets
Current assets
Cash and cash equivalents	$	410	$	46
Accounts receivable, net	421		392
Accounts receivable from affiliates	28		32
Investments in money pool arrangements	96		0
Accrued unbilled revenues	271		248
Inventories	274		295
Regulatory assets	633		411
Derivative instruments	68		17
Prepayments and other	40		50
Total current assets	2,241		1,491
Property, plant and equipment, net	15,912		15,308
Other assets
Nuclear decommissioning fund and other investments	3,095		2,830
Regulatory assets	831		924
Derivative instruments	45		5
Operating lease right-of-use assets	26		488
Other	448		14
Total other assets	4,445		4,261
Total assets	$	22,598	$	21,060
Liabilities and Equity
Current liabilities
Short-term debt	$	0	$	179
Accounts payable	513		438
Accounts payable to affiliates	71		66
Regulatory liabilities	147		123
Taxes accrued	217		263
Accrued interest	78		72
Dividends payable to parent	107		106
Derivative instruments	26		22
Operating lease liabilities	92		85
Other	180		154
Total current liabilities	1,431		1,508
Deferred credits and other liabilities
Deferred income taxes	1,899		1,840
Deferred investment tax credits	18		18
Regulatory liabilities	1,903		1,896
Asset retirement obligations	2,514		2,350
Derivative instruments	93		71
Pension and employee benefit obligations	156		192
Operating lease liabilities	395		443
Other	52		69
Total deferred credits and other liabilities	7,030		6,879
Capitalization
Long-term debt	6,742		5,904
Common stock — 5,000,000 shares authorized of $0.01 par value; 1,000,000 shares outstanding at June 30, 2021 and Dec. 31, 2020, respectively	0		0
Additional paid in capital	5,185		4,585
Retained earnings	2,231		2,206
Accumulated other comprehensive loss	(21)		(22)
Total common stockholder's equity	7,395		6,769
Total liabilities and equity	$	22,598	$	21,060

See Notes to Consolidated Financial Statements

7

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
	Shares	Par Value		Additional Paid In Capital
Three Months Ended June 30, 2021 and 2020
Balance at March 31, 2020	1,000,000	$	0	$	4,148	$	2,043	$	(22)	$	6,169
Net income						117				117
Dividends declared to parent						(105)				(105)
Contribution of capital by parent				109						109
Balance at June 30, 2020	1,000,000	$	0	$	4,257	$	2,055	$	(22)	$	6,290
Balance at March 31, 2021	1,000,000	$	0	$	4,985	$	2,226	$	(21)	$	7,190
Net income						112				112
Dividends declared to parent						(107)				(107)
Contribution of capital by parent				200						200
Balance at June 30, 2021	1,000,000	$	0	$	5,185	$	2,231	$	(21)	$	7,395
	Common Stock Issued					Retained Earnings		Accumulated Other Comprehensive Loss		Total Common Stockholder's Equity
	Shares	Par Value		Additional Paid In Capital
Six Months Ended June 30, 2021 and 2020
Balance at Dec. 31, 2019	1,000,000	$	0	$	4,068	$	2,036	$	(23)	$	6,081
Net income						224				224
Other comprehensive income								1		1
Dividends declared to parent						(206)				(206)
Contribution of capital by parent				189						189
Adoption of ASC Topic 326						1				1
Balance at June 30, 2020	1,000,000	$	0	$	4,257	$	2,055	$	(22)	$	6,290
Balance at Dec. 31, 2020	1,000,000	$	0	$	4,585	$	2,206	$	(22)	$	6,769
Net income						241				241
Other comprehensive income								1		1
Dividends declared to parent						(216)				(216)
Contribution of capital by parent				600						600
Balance at June 30, 2021	1,000,000	$	0	$	5,185	$	2,231	$	(21)	$	7,395
See Notes to Consolidated Financial Statements

8

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 June 30, 2021 and Dec. 31, 2020; the results of operations, including the components of net income and comprehensive income, and changes in stockholder’s equity for the three and six months ended June 30, 2021 and 2020; and its cash flows for the six months ended June 30, 2021 and 2020.

All adjustments are of a normal, recurring nature, except as otherwise disclosed. Management has also evaluated the impact of events occurring after June 30, 2021 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 balance sheet information has been derived from the audited 2020 consolidated financial statements included in the NSP-Minnesota Annual Report on Form 10-K for the year ended Dec. 31, 2020.

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, filed with the SEC on Feb. 17, 2021. 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 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, 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 adoption of ASC Topic 326 did not have a significant impact on NSP-Minnesota’s consolidated financial statements.

3. Selected Balance Sheet Data

(Millions of Dollars)	June 30, 2021		Dec. 31, 2020
Accounts receivable, net
Accounts receivable	$	461	$	425
Less allowance for bad debts	(40)		(33)
Accounts receivable, net	$	421	$	392

(Millions of Dollars)	June 30, 2021		Dec. 31, 2020
Inventories
Materials and supplies	$	183	$	178
Fuel	76		90
Natural gas	15		27
Total inventories	$	274	$	295

(Millions of Dollars)	June 30, 2021		Dec. 31, 2020
Property, plant and equipment, net
Electric plant	$	20,188	$	18,948
Natural gas plant	1,739		1,707
Common and other property	960		955
Plant to be retired (a)	122		136
Construction work in progress	799		1,150
Total property, plant and equipment	23,808		22,896
Less accumulated depreciation	(8,238)		(7,898)
Nuclear fuel	3,057		2,970
Less accumulated amortization	(2,715)		(2,660)
Property, plant and equipment, net	$	15,912	$	15,308

(a)Includes regulator-approved retirements of Sherco Units 1 and 2.

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)	Three Months Ended June 30, 2021		Year Ended Dec. 31, 2020
Borrowing limit	$	250	$	250
Amount outstanding at period end	0		0
Average amount outstanding	0		3
Maximum amount outstanding	0		116
Weighted average interest rate, computed on a daily basis	N/A		1.53		%
Weighted average interest rate at period end	N/A		N/A

9

Commercial Paper — Commercial paper outstanding for NSP-Minnesota:

(Amounts in Millions, Except Interest Rates)	Three Months Ended June 30, 2021		Year Ended Dec. 31, 2020
Borrowing limit	$	500	$	500
Amount outstanding at period end	0		179
Average amount outstanding	0		10
Maximum amount outstanding	0		179
Weighted average interest rate, computed on a daily basis	N/A		1.25		%
Weighted average interest rate at period end	N/A		0.18

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 million and $10 million of letters of credit outstanding under the credit facility at June 30, 2021 and Dec. 31, 2020, respectively. Amounts approximate their fair value and are subject to fees.

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.

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

At June 30, 2021, NSP-Minnesota had the following committed revolving credit facility available (in millions of dollars):

Credit Facility (a)		Drawn (b)		Available
$	500	$	9	$	491

(a)Expires in June 2024.

(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 0 direct advances on the credit facility outstanding at June 30, 2021 and Dec. 31, 2020.

Bilateral Credit Agreement — In April 2021, the 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 June 30, 2021, NSP-Minnesota’s outstanding letters of credit under the bilateral credit agreement were as follows:

(Millions of Dollars)	Limit		Amount Outstanding		Available
NSP-Minnesota	$	75	$	75	$	0

Long-Term Borrowings

During the six months ended June 30, 2021, NSP-Minnesota issued $425 million of 2.25% first mortgage bonds due April 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 June 30, 2021
(Millions of Dollars)	Electric		Natural Gas		All Other		Total
Major revenue types
Revenue from contracts with customers:
Residential	$	334	$	38	$	7	$	379
C&I	547		29		0		576
Other	8		0		2		10
Total retail	889		67		9		965
Wholesale	69		0		0		69
Transmission	58		0		0		58
Interchange	131		0		0		131
Other	3		4		0		7
Total revenue from contracts with customers	1,150		71		9		1,230
Alternative revenue and other	76		9		0		85
Total revenues	$	1,226	$	80	$	9	$	1,315

	Three Months Ended June 30, 2020
(Millions of Dollars)	Electric		Natural Gas		All Other		Total
Major revenue types
Revenue from contracts with customers:
Residential	$	330	$	38	$	8	$	376
C&I	467		27		0		494
Other	8		0		1		9
Total retail	805		65		9		879
Wholesale	37		0		0		37
Transmission	64		0		0		64
Interchange	106		0		0		106
Other	6		2		0		8
Total revenue from contracts with customers	1,018		67		9		1,094
Alternative revenue and other	78		8		0		86
Total revenues	$	1,096	$	75	$	9	$	1,180

	Six Months Ended June 30, 2021
(Millions of Dollars)	Electric		Natural Gas		All Other		Total
Major revenue types
Revenue from contracts with customers:
Residential	$	660	$	152	$	14	$	826
C&I	964		108		0		1,072
Other	15		0		4		19
Total retail	1,639		260		18		1,917
Wholesale	167		0		0		167
Transmission	114		0		0		114
Interchange	246		0		0		246
Other	5		3		0		8
Total revenue from contracts with customers	2,171		263		18		2,452
Alternative revenue and other	194		21		0		215
Total revenues	$	2,365	$	284	$	18	$	2,667

10

	Six Months Ended June 30, 2020
(Millions of Dollars)	Electric		Natural Gas		All Other		Total
Major revenue types
Revenue from contracts with customers:
Residential	$	630	$	152	$	15	$	797
C&I	912		109		0		1,021
Other	16		0��		3		19
Total retail	1,558		261		18		1,837
Wholesale	83		0		0		83
Transmission	119		0		0		119
Interchange	216		0		0		216
Other	8		3		0		11
Total revenue from contracts with customers	1,984		264		18		2,266
Alternative revenue and other	147		17		0		164
Total revenues	$	2,131	$	281	$	18	$	2,430

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 between the statutory rate and ETR:

	Six Months Ended June 30
	2021		2020 (a)
Federal statutory rate	21.0	%	21.0	%
State tax (net of federal tax effect)	7.0		7.1
Increases (decreases) in tax from:
Wind PTCs	(34.8)		(25.8)
Plant regulatory differences (b)	(8.0)		(7.8)
Other tax credits, net NOL & tax credit allowances	(1.3)		(1.4)
Other (net)	0.8		1.2
Effective income tax rate	(15.3)	%	(5.7)	%

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

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

Federal Audits — 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	January 2022
2017	September 2021

Additionally, the statute of limitations related to a federal tax loss carryback claim filed in 2020 has been extended. Xcel Energy has recognized its best estimate of income tax expense that will result from a final resolution of this issue; however, the outcome and timing of a resolution is unknown.

State Audits — NSP-Minnesota is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of June 30, 2021, NSP-Minnesota’s earliest open tax year subject to examination by state taxing authorities under applicable statutes of limitations is 2013. In July 2020, Minnesota began a review of tax years 2015-2018. In February 2021, Minnesota concluded its review and commenced an audit of the same tax years. NaN material adjustments have been proposed.

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

Unrecognized tax benefits — permanent vs. temporary:

(Millions of Dollars)	June 30, 2021		Dec. 31, 2020
Unrecognized tax benefit — Permanent tax positions	$	22	$	21
Unrecognized tax benefit — Temporary tax positions	3		3
Total unrecognized tax benefit	$	25	$	24

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

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

As IRS audits resume and the state audit progresses, it is reasonably possible that the amount of unrecognized tax benefit could decrease up to approximately $15 million in the next 12 months.

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

Interest payable related to unrecognized tax benefits:

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

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

7.    Fair Value of Financial Assets and Liabilities

Fair Value Measurements

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

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

11

•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, 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 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 of an FTR is derived from, and designed to offset, the cost of transmission congestion. In addition to overall transmission load, congestion is also influenced by the operating schedules of power plants and the consumption of electricity pertinent to a given transmission path. Unplanned plant outages, scheduled plant maintenance, changes in the relative costs of fuels used in generation, weather and overall changes in demand for electricity can each impact the operating schedules of the power plants on the transmission grid and the value of an FTR.

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

Non-trading monthly FTR settlements are expected to be recovered through fuel and purchased energy cost recovery mechanisms, and therefore changes in the fair value of the yet to be settled portions of most FTRs are deferred as a regulatory asset or liability. Given this regulatory treatment and the limited magnitude of 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 billion and $981 million as of June 30, 2021 and Dec. 31, 2020, respectively, and unrealized losses were $3 million and $5 million as of June 30, 2021 and Dec. 31, 2020, respectively.

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

	June 30, 2021
			Fair Value
(Millions of Dollars)	Cost		Level 1		Level 2		Level 3		NAV		Total
Nuclear decommissioning fund (a)
Cash equivalents	$	30	$	30	$	0	$	0	$	0	$	30
Commingled funds	800		0		0		0		1,164		1,164
Debt securities	612		0		641		16		0		657
Equity securities	408		1,185		2		0		0		1,187
Total	$	1,850	$	1,215	$	643	$	16	$	1,164	$	3,038

(a)Reported in nuclear decommissioning fund and other investments on the consolidated balance sheets, which also includes $57 million of rabbi trust assets and other miscellaneous investments.

12

	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	$	0	$	0	$	0	$	40
Commingled funds	787		0		0		0		1,041		1,041
Debt securities	528		0		572		13		0		585
Equity securities	446		1,109		2		0		0		1,111
Total	$	1,801	$	1,149	$	574	$	13	$	1,041	$	2,777

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

For the three and six months ended June 30, 2021 and 2020, 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 June 30, 2021:

	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	$	210	$	292	$	657

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:

	June 30, 2021
			Fair Value
(Millions of Dollars)	Cost		Level 1		Level 2		Level 3		Total
Rabbi Trusts (a)
Cash equivalents	$	6	$	6	$	0	$	0	$	6
Mutual funds	10		12		0		0		12
Total	$	16	$	18	$	0	$	0	$	18

	Dec. 31, 2020
			Fair Value
(Millions of Dollars)	Cost		Level 1		Level 2		Level 3		Total
Rabbi Trusts (a)
Cash equivalents	$	1	$	1	$	0	$	0	$	1
Mutual funds	14		16		0		0		16
Total	$	15	$	17	$	0	$	0	$	17

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

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 June 30, 2021, accumulated other comprehensive loss related to settled 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 June 30, 2021, NSP-Minnesota had 0 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 June 30, 2021, NSP-Minnesota had 0 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 as a regulatory asset or liability, if applicable, is based on approved regulatory recovery mechanisms.

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.

Gross notional amounts of commodity forwards, options and FTRs:

(Amounts in Millions) (a)(b)	June 30, 2021	Dec. 31, 2020
Megawatt hours of electricity	85	65
Million British thermal units of natural gas	83	83

(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.

13

As of June 30, 2021, 5 of NSP-Minnesota’s 10 most significant counterparties for these activities, comprising $35 million, or 53%, of this credit exposure, had investment grade credit ratings from S&P Global Ratings, Moody’s Investor Services or Fitch Ratings. NaN of the 10 most significant counterparties, comprising $7 million, or 11%, 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 of these significant counterparties, comprising $23 million or 34% of this credit exposure, had credit quality less than investment grade, based on internal analysis. NaN 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 June 30, 2021
Other derivative instruments
Electric commodity	$	0	$	3
Natural gas commodity	0		1
Total	$	0	$	4
Six Months Ended June 30, 2021
Other derivative instruments
Electric commodity	$	0	$	3
Natural gas commodity	0		2
Total	$	0	$	5

Three Months Ended June 30, 2020
Other derivative instruments
Electric commodity	$	0	$	2
Total	$	0	$	2
Six Months Ended June 30, 2020
Other derivative instruments
Electric commodity	$	0	$	2
Total	$	0	$	2

	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 June 30, 2021
Other derivative instruments
Commodity trading	$	0		$	0		$	2	(b)
Electric commodity	0			(1)		(c)	0
Total	$	0		$	(1)		$	2
Six Months Ended June 30, 2021
Derivatives designated as cash flow hedges
Interest rate	$	1	(a)	$	0		$	0
Total	$	1		$	0		$	0
Other derivative instruments
Commodity trading	$	0		$	0		$	33	(b)
Electric commodity	0			(12)		(c)	0
Natural gas commodity	0			1		(d)	(3)		(d)
Total	$	0		$	(11)		$	30

	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 June 30, 2020
Other derivative instruments
Commodity trading	$	0		$	0		$	1	(b)
Electric Commodity	0			1		(c)	0
Total	$	0		$	1		$	1
Six Months Ended June 30, 2020
Derivatives designated as cash flow hedges
Interest rate	$	1	(a)	$	0		$	0
Total	$	1		$	0		$	0
Other derivative instruments
Commodity trading	$	0		$	0		$	1	(b)
Electric commodity	0			(2)		(c)	0
Natural gas commodity	0			1		(d)	(2)		(d)
Total	$	0		$	(1)		$	(1)

(a)Amounts are recorded to interest charges.

(b)Amounts are 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 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.

(d)Amounts are 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 cost-recovery mechanisms, and reclassified out of income as regulatory assets or liabilities, as appropriate.

NSP-Minnesota had 0 derivative instruments designated as fair value hedges during the three and six months ended June 30, 2021 and 2020.

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 June 30, 2021 and Dec. 31, 2020, there were $6 million and $4 million derivative liabilities with such underlying contract provisions, respectively. 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 June 30, 2021 and Dec. 31, 2020, there were approximately $49 million and $14 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 0 collateral posted related to adequate assurance clauses in derivative contracts as of June 30, 2021 and Dec. 31, 2020.

14

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

	June 30, 2021												Dec. 31, 2020
	Fair Value						Fair Value Total		Netting (a)		Total		Fair Value						Fair Value Total		Netting (a)		Total
(Millions of Dollars)	Level 1		Level 2		Level 3								Level 1		Level 2		Level 3
Current derivative assets
Other derivative instruments:
Commodity trading	$	6	$	33	$	10	$	49	$	(39)	$	10	$	1	$	26	$	0	$	27	$	(25)	$	2
Electric commodity	0		0		57		57		(1)		56		0		0		13		13		(1)		12
Natural gas commodity	0		2		0		2		0		2		0		3		0		3		0		3
Total current derivative assets	$	6	$	35	$	67	$	108	$	(40)	$	68	$	1	$	29	$	13	$	43	$	(26)	$	17
Noncurrent derivative assets
Other derivative instruments:
Commodity trading	$	5	$	37	$	53	$	95	$	(50)	$	45	$	7	$	39	$	0	$	46	$	(41)	$	5
Total noncurrent derivative assets	$	5	$	37	$	53	$	95	$	(50)	$	45	$	7	$	39	$	0	$	46	$	(41)	$	5

	June 30, 2021												Dec. 31, 2020
	Fair Value						Fair Value Total		Netting (a)		Total		Fair Value						Fair Value Total		Netting (a)		Total
(Millions of Dollars)	Level 1		Level 2		Level 3								Level 1		Level 2		Level 3
Current derivative liabilities
Other derivative instruments:
Commodity trading	$	13	$	40	$	1	$	54	$	(42)	$	12	$	3	$	18	$	10	$	31	$	(25)	$	6
Electric commodity	0		0		1		1		(1)		0		0		0		1		1		(1)		0
Natural gas commodity	0		0		0		0		0		0		0		2		0		2		0		2
Total current derivative liabilities	$	13	$	40	$	2	$	55	$	(43)	12		$	3	$	20	$	11	$	34	$	(26)	8
PPAs (b)											14												14
Current derivative instruments											$	26											$	22
Noncurrent derivative liabilities
Other derivative instruments:
Commodity trading	$	5	$	66	$	26	$	97	$	(46)	$	51	$	2	$	35	$	13	$	50	$	(27)	$	23
Total noncurrent derivative liabilities	$	5	$	66	$	26	$	97	$	(46)	51		$	2	$	35	$	13	$	50	$	(27)	23
PPAs (b)											42												48
Noncurrent derivative instruments											$	93											$	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 June 30, 2021 and Dec. 31, 2020. At both June 30, 2021 and Dec. 31, 2020, derivative assets and liabilities include $15 million of obligations to return cash collateral. At June 30, 2021 and Dec. 31, 2020 derivative assets and liabilities include rights to reclaim cash collateral of $13 million and $1 million, respectively. The counterparty netting excludes settlement receivables and payables and non-derivative amounts that may be subject to the same master netting agreements.

(b)During 2006, 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.

15

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

	Three Months Ended June 30
(Millions of Dollars)	2021		2020
Balance at April 1	$	12	$	3
Purchases	54		28
Settlements	(19)		(13)
Net transactions recorded during the period:
Gains recognized in earnings (a)	33		11
Net gains recognized as regulatory assets and liabilities	12		6
Balance at June 30	$	92	$	35
	Six Months Ended June 30
(Millions of Dollars)	2021		2020
Balance at Jan. 1	$	(11)	$	5
Purchases	54		28
Settlements	(26)		(24)
Net transactions recorded during the period:
Gains recognized in earnings (a)	63		17
Net gains recognized as regulatory assets and liabilities	12		9
Balance at June 30	$	92	$	35

(a)Presented amounts relate to instruments held at the end of the period. The consolidated income statement also includes gains and losses on Level 1 and 2 instruments, and Level 3 instruments settled during the period.

NSP-Minnesota recognizes transfers between levels as of the beginning of each period. There were 0 transfers of amounts between levels for derivative instruments for the three and six months ended June 30, 2021 and 2020.

Fair Value of Long-Term Debt

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

	June 30, 2021				Dec. 31, 2020
(Millions of Dollars)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, including current portion	$	6,742	$	7,861	$	5,904	$	7,391

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 June 30, 2021 and Dec. 31, 2020 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 June 30
	2021		2020		2021		2020
(Millions of Dollars)	Pension Benefits				Postretirement Health Care Benefits
Service cost	$	8	$	7	$	0	$	0
Interest cost (a)	6		8		0		1
Expected return on plan assets (a)	(13)		(14)		0		0
Amortization of prior service credit (a)	0		0		(1)		(1)
Amortization of net loss (a)	8		8		1		0
Net periodic benefit cost	9		9		0		0
Effects of regulation	(1)		(1)		0		0
Net benefit cost recognized for financial reporting	$	8	$	8	$	0	$	0
	Six Months Ended June 30
	2021		2020		2021		2020
(Millions of Dollars)	Pension Benefits				Postretirement Health Care Benefits
Service cost	$	15	$	14	$	0	$	0
Interest cost (a)	12		16		1		1
Expected return on plan assets (a)	(26)		(28)		0		0
Amortization of prior service credit (a)	0		0		(2)		(2)
Amortization of net loss (a)	17		16		1		1
Net periodic benefit cost	18		18		0		0
Effects of regulation	(2)		(3)		0		0
Net benefit cost recognized for financial reporting	$	16	$	15	$	0	$	0

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

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

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.

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.

16

Rate Matters and Other

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.

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. 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. A final decision by the MPUC is pending. A loss related to this matter is deemed remote.

Westmoreland Arbitration — In November 2014, insurers for 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. It is uncertain when a final resolution will occur, but it is unlikely an arbitration hearing will take place before the fourth quarter 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 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 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 the ROE effective Sept. 28, 2016, and for 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.

The MISO TOs and various parties have filed petitions for review of Opinion Nos. 569, 569-A and 569-B at the D.C. Circuit with initial briefs filed in March 2021 and final briefs expected in August 2021.

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, following a comment period expected to be complete by the end of 2021 or 2022, NSP-Minnesota would prospectively discontinue charging their current 0.5% ROE incentive adders. Amounts related to a discontinuance of the adder would ultimately be offset by an increase in retail rates, following future rate cases.

Environmental

MGP, Landfill and Disposal Sites

NSP-Minnesota is investigating, remediating or performing post-closure actions at 7 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 is 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 3 regulated ash units in operation.

17

NSP-Minnesota is conducting groundwater sampling and monitoring and implementing assessment of corrective measures at certain CCR landfills and surface impoundments. NaN results above the groundwater protection standards in the rule were identified.

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 June 30
(Millions of Dollars)	2021		2020
Operating leases
PPA capacity payments	$	17	$	22
Other operating leases (a)	3		3
Total operating lease expense (b)	$	20	$	25

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

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

	Six Months Ended June 30
(Millions of Dollars)	2021		2020
Operating leases
PPA capacity payments	$	36	$	43
Other operating leases (a)	5		5
Total operating lease expense (b)	$	41	$	48

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

(b)PPA capacity payments are included in electric fuel and purchased power on the 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 June 30, 2021:

(Millions of Dollars)	PPA Operating Leases		Other Operating Leases		Total Operating Leases
Total minimum obligation	$	461	$	77	$	538
Interest component of obligation	(39)		(12)		(51)
Present value of minimum obligation	$	422	$	65	487
Less current portion					(92)
Noncurrent operating lease liabilities					$	395

VIEs

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 it purchases. These specific PPAs create a variable interest in the IPP.

NSP-Minnesota had approximately 1,347 MW of capacity under long-term PPAs at both June 30, 2021 and Dec. 31, 2020 with entities that have been determined to be VIEs. 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 six months ended June 30, 2021 and 2020:

	Three Months Ended June 30, 2021						Three Months Ended June 30, 2020
(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 April 1	$	(18)	$	(3)	$	(21)	$	(19)	$	(3)	$	(22)
Losses reclassified from net accumulated other comprehensive loss:
Interest rate derivatives, net of taxes of $0, $0, $0, and $0, respectively (a)	0		0		0		0		0		0
Accumulated other comprehensive loss at June 30	$	(18)	$	(3)	$	(21)	$	(19)	$	(3)	$	(22)

	Six Months Ended June 30, 2021						Six Months Ended June 30, 2020
(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	$	(19)	$	(3)	$	(22)	$	(20)	$	(3)	$	(23)
Losses reclassified from net accumulated other comprehensive loss:
Interest rate derivatives, net of taxes of $0, $0, $0, and $0, respectively (a)	1		0		1		1		0		1
Accumulated other comprehensive loss at June 30	$	(18)	$	(3)	$	(21)	$	(19)	$	(3)	$	(22)

(a)Included in interest charges.

18

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 June 30
(Millions of Dollars)	2021		2020
Regulated Electric
Operating revenues (a)	$	1,226	$	1,096
Intersegment revenue	1		0
Total revenues	$	1,227	$	1,096
Net income	112		113
Regulated Natural Gas
Operating revenues (b)	$	80	$	75
Intersegment revenue	0		0
Total revenues	$	80	$	75
Net (loss) income	(1)		1
All Other
Total revenues	$	9	$	9
Net income	1		3
Consolidated Total
Operating revenues (a)(b)	$	1,316	$	1,180
Reconciling eliminations	(1)		0
Total revenues	$	1,315	$	1,180
Net income	112		117

(a)    Operating revenues include $131 million and $106 million of affiliate electric revenue for the three months ended June 30, 2021 and 2020.

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

	Six Months Ended June 30
(Millions of Dollars)	2021		2020
Regulated Electric
Operating revenues (a)	$	2,365	$	2,131
Intersegment revenue	1		0
Total revenues	$	2,366	$	2,131
Net income	219		199
Regulated Natural Gas
Operating revenues (b)	$	284	$	281
Intersegment revenue	1		0
Total revenues	$	285	$	281
Net income	19		24
All Other
Total operating revenues	$	18	$	18
Net income	3		1
Consolidated Total
Operating revenues (a)(b)	$	2,669	$	2,430
Reconciling eliminations	(2)		0
Total operating revenues	$	2,667	$	2,430
Net income	241		224

(a)    Operating revenues include $246 million and $216 million of affiliate electric revenue for the six months ended June 30, 2021 and 2020.

(b)    Operating revenues include an immaterial amount of affiliate gas revenue for the six months ended June 30, 2021 and 2020.

19

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 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.

Electric and Natural Gas Margins

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 $241 million for the six months ended June 30, 2021 compared with approximately $224 million for the prior year. The increase in year-to-date earnings reflects higher electric margin (primarily capital investment recovery), 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 have minimal impact on electric margin due to fuel recovery mechanisms that recover fuel expenses. In addition, electric customers receive a credit for PTCs that are generated in a particular period.

Electric revenues and margin:

	Six Months Ended June 30
(Millions of Dollars)	2021		2020
Electric revenues	$	2,365	$	2,131
Electric fuel and purchased power	(920)		(767)
Electric margin	$	1,445	$	1,364

Changes in electric margin:

(Millions of Dollars)	2021 vs. 2020
Non-fuel riders	$	72
Proprietary commodity trading, net of sharing - Winter Storm Uri	12
Interchange agreement billings with NSP-Wisconsin	11
Conservation program revenues (offset in expense)	10
PTCs flowed back to customers (offset by lower ETR)	(25)
Wholesale transmission revenue (net)	(14)
Other (net)	15
Total increase in electric margin	$	81

Natural Gas Margin

Total natural gas expense varies with changing sales requirements and the cost of natural gas. However, fluctuations in the cost of natural gas have minimal impact on natural gas margin due to natural gas cost recovery mechanisms.

Natural gas revenues and margin:

	Six Months Ended June 30
(Millions of Dollars)	2021		2020
Natural gas revenues	$	284	$	281
Cost of natural gas sold and transported	(157)		(155)
Natural gas margin	$	127	$	126

Changes in natural gas margin:

(Millions of Dollars)	2021 vs. 2020
Infrastructure and integrity riders	$	2
Retail sales decline (excluding weather impact)	(2)
Other (net)	1
Total increase in natural gas margin	$	1

Non-Fuel Operating Expenses and Other Items

Depreciation and Amortization — Depreciation and amortization expense increased $43 million, or 10.6% year-to-date. The increase was primarily driven by several wind farms going into service and normal system expansion.

Income Taxes — Income tax benefit increased $20 million for the first six months of 2021. The increase was primarily driven by increased wind PTCs. 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.

20

Other

Winter Storm Uri

In February 2021, the central portion of the United States experienced a major winter storm (Winter Storm Uri). Extreme cold temperatures impacted certain operational assets as well as the availability of renewable generation across the region. The cold weather also affected the country’s supply and demand for natural gas. These factors contributed to extremely high market prices for natural gas and electricity.

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. Certain energy transactions are subject to final/settlement calculation adjustments, including the impacts of credit losses shared among market participants. Such adjustments are not expected to be material to our results of operations, financial condition or cash flows.

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.

Proceedings initiated:

Jurisdiction	Regulatory Status
Minnesota	NSP-Minnesota filed with the MPUC seeking recovery of $179 million in incremental costs from natural gas customers over 27 months with no financing charge and an additional $36 million from natural gas customers through the standard 12 month true-up. Parties were generally supportive of the proposed recovery period commencing Sept. 1, 2021. The DOC recommended disallowances of $21 million; the OAG recommended disallowances of $34 million. A MPUC decision on the start of cost recovery is expected prior to Sept. 1, 2021. A proceeding related to the proposed disallowances is expected to continue into 2022.
South Dakota	In April, NSP-Minnesota filed a letter with the South Dakota Public Utilities Commission proposing no impact to the fuel clause as we were a net seller in the electric market. The South Dakota Public Utilities Commission has approved the proposal.
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

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

Public Utility Regulation

The FERC and 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 case filings 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, appropriately represent, in all material respects, the current status of public utility regulation and are incorporated herein by reference.

Pending and Recently Concluded Regulatory Proceedings

Proceeding	Amount (in millions)	Filing Date	Approval
2020 North Dakota Electric Rate Case	$19	November 2020	Pending
2020 TCR Electric Rider	82	November 2019	Pending
2021 GUIC Natural Gas Rider	27	October 2020	Pending
2020 RES Electric Rider	107	November 2019	Received
2021 RES Electric Rider	189	November 2020	Pending

Additional Information:

2020 North Dakota Electric Rate Case — In November 2020, NSP-Minnesota filed a rate case with the NDPSC. NSP-Minnesota requested an increase in annual retail electric revenues of approximately $19 million. The rate filing was based on a 2021 forecast test year, a ROE of 10.2%, an equity ratio of 52.5% and an electric rate base of approximately $677 million. Interim rates, subject to refund, of approximately $13 million are currently in effect.

In July 2021, NSP-Minnesota and various parties filed an uncontested settlement agreement, which includes:

•Base revenue increase of $7 million.

•ROE of 9.5%.

•Equity ratio of 52.5%.

•Deferral of advanced grid intelligence and security initiative capital and O&M expenses.

•An earnings cap mechanism, which would return to customers 100% of earnings equal to or in excess of 9.75% ROE, effective until the next rate case.

A NDPSC decision on the settlement and implementation is anticipated in the fourth quarter of 2021.

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.

21

2020 RES Electric Rider — In November 2019, NSP-Minnesota filed the RES Rider. In March 2021, the MPUC voted to approve revenue requirements of $41 million for 2019 and $66 million for 2020. The filing included a ROE of 9.06%. The new rate will be implemented after an MPUC order is issued.

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 Minnesota Electric Rate Case and Stay-Out Alternative — In November 2020, NSP-Minnesota filed an electric rate case seeking a $597 million revenue increase over three years with the MPUC. NSP-Minnesota also filed a stay-out alternative in which it would withdraw its rate case filing. In December 2020, the MPUC verbally approved the stay-out alternative petition.

In February 2021, NSP-Minnesota filed a letter highlighting a change in the calculation of its total deficiency and interim rates included in its November 2020 filing. This adjustment would have reduced the filed deficiency and interim rates by approximately $43 million should the rate case have proceeded, but has no impact on the stay-out alternative petition.

In April 2021, the MPUC issued an order approving NSP-Minnesota’s proposed changes and a requirement to withdraw NSP-Minnesota’s notice of change in rates, as well as establishing a comment period allowing parties to address the changes discussed in the February letter. In June 2021, the MPUC issued an order denying a request for reconsideration of the rate case stay-out approval.

Minnesota Resource Plan — In July 2019, NSP-Minnesota filed its Minnesota resource plan, which runs through 2034. The initial plan was expected to result in an 80% carbon reduction by 2030 (from 2005) and puts NSP-Minnesota on a path to achieving its vision of being 100% carbon-free by 2050. Parties submitted comments in February 2021 and there was significant opposition to the proposal to build a Sherco combined cycle natural gas plant and associated pipeline infrastructure.

In June 2021, NSP-Minnesota filed an alternative plan that would reduce carbon emissions 85% by 2030 and has a lower projected cost than either of the previously submitted plans. The alternative plan includes the following:

•Removing the planned Sherco combined cycle natural gas plant.

•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.

Supplemental comments are due Aug 13, 2021. The MPUC is anticipated to make a final decision in late 2021 or early 2022.

Minnesota Relief and Recovery — 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 and 20 MW of wind projects under PPAs. These projects are estimated to save customers approximately $160 million over the next 25 years.

•In April 2021, NSP-Minnesota proposed to add 460 MWs of solar facilities at the Sherco site with an incremental investment of approximately $575 million. A MPUC decision is expected in late 2021 or early 2022.

•In June 2021, the MPUC approved NSP-Minnesota’s proposal to acquire a 120 MW repowered wind farm from ALLETE for $210 million.

•The MPUC is also considering NSP-Minnesota’s proposal to provide $150 million of incremental electric vehicle rebates.

Nuclear Power Operations

NSP-Minnesota owns two nuclear generating plants: the Monticello plant and the Prairie Island plant. See Note 12 to the consolidated financial statements of NSP-Minnesota’s Annual Report on Form 10-K for the year ended Dec. 31, 2020, 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, appropriately represent, in all material respects, the current status of nuclear power operations, and are incorporated by reference.

Nuclear Fuel Supply — NSP-Minnesota has contracted 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 the supply of enriched nuclear material supplied from Russia. Long-term, through 2030, NSP-Minnesota is scheduled to take delivery of approximately 30% of its average enriched nuclear material requirements from these sources. NSP-Minnesota is able to manage nuclear fuel supply with alternate potential sources. NSP-Minnesota periodically assesses if further actions are required to assure a secure supply of enriched nuclear material.

Environmental

Affordable Clean Energy

In July 2019, the EPA adopted the Affordable Clean Energy rule, which requires states to develop plans by 2022 for greenhouse gas reductions from coal-fired power plants. In January 2021, the U.S. Court of Appeals for the D.C. Circuit issued a decision vacating and remanding the Affordable Clean Energy rule. That decision, if not successfully appealed or reconsidered, would allow the EPA to proceed with alternate regulation of coal-fired power plants. If the new rules require additional investment, NSP-Minnesota believes, based on prior state commission practices, that the cost of these initiatives or replacement generation would be recoverable through rates.

22

Emerging Regulation

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

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 June 30, 2021, 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

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. 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, which is incorporated herein by reference. There have been no material changes from the risk factors previously disclosed in the Form 10-K.

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
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)

23

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)
July 29, 2021	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
		(Principal Financial Officer)

24