Northern States Power 10-Q 2020 Q3 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 Sept. 30, 2020 or

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

Northern States Power Company

(Exact name of registrant as specified in its charter)

Wisconsin			001-03140	39-0508315
(State or other jurisdiction or incorporation or organization)			(Commission File Number)	(IRS Employer Identification No.)
1414 West Hamilton Avenue	Eau Claire	Wisconsin		54701
(Address of Principal Executive Offices)				(Zip Code)

715	839-2625
(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	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, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

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

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

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

Class	Outstanding at Oct. 29, 2020
Common Stock, $100 par value	933,000 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 Cash Flows	5
	Consolidated Balance Sheets	6
	Consolidated Statements of Common Stockholder's Equity	7
	Notes to Consolidated Financial Statements	8
Item 2 —	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 4 —	Controls and Procedures	15
PART II	OTHER INFORMATION
Item 1 —	Legal Proceedings	15
Item 1A —	Risk Factors	15
Item 6 —	Exhibits	16
SIGNATURES		17
	Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

This Form 10-Q is filed by Northern States Power Company, a Wisconsin corporation (NSP-Wisconsin). NSP-Wisconsin is a wholly owned subsidiary of Xcel Energy Inc. Additional information on Xcel Energy is available on 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)
e prime	e prime inc.
NSP-Minnesota	Northern States Power Company, a Minnesota corporation
NSP-Wisconsin	Northern States Power Company, a Wisconsin corporation
Xcel Energy	Xcel Energy Inc. and its subsidiaries

Federal and State Regulatory Agencies
EPA	United States Environmental Protection Agency
FERC	Federal Energy Regulatory Commission
IRS	Internal Revenue Service
PSCW	Public Service Commission of Wisconsin
SEC	Securities and Exchange Commission

Other
ADIT	Accumulated deferred income tax
ASC	FASB Accounting Standards Codification
C&I	Commercial and Industrial
CEO	Chief executive officer
CFO	Chief financial officer
COVID-19	Novel coronavirus
ETR	Effective tax rate
FASB	Financial Accounting Standards Board
GAAP	Generally accepted accounting principles
MDL	Multi-district litigation
MGP	Manufactured gas plant
MISO	Midcontinent Independent System Operator, Inc.
NOL	Net operating loss
O&M	Operating and maintenance
ROE	Return on equity
RTO	Regional Transmission Organization
TOs	Transmission owners

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, 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-Wisconsin's Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2019, 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 nuclear generation; 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-Wisconsin 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-WISCONSIN AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(amounts in millions)

	Three Months Ended Sept. 30				Nine Months Ended Sept. 30
	2020		2019		2020		2019
Operating revenues
Electric, non-affiliates	$	194.9	$	184.3	$	523.6	$	519.6
Electric, affiliates	41.0		44.7		123.5		132.3
Natural gas	14.5		14.6		78.7		96.6
Other	0.1		0.1		0.3		0.3
Total operating revenues	250.5		243.7		726.1		748.8
Operating expenses
Electric fuel and purchased power, non-affiliates	3.4		3.2		9.8		8.2
Purchased power, affiliates	99.5		94.9		285.0		298.3
Cost of natural gas sold and transported	5.5		5.4		33.5		45.9
Operating and maintenance expenses	47.0		47.5		140.5		150.8
Conservation program expenses	3.2		3.3		9.5		9.3
Depreciation and amortization	39.0		34.4		116.4		102.9
Taxes (other than income taxes)	6.9		7.3		21.0		22.0
Total operating expenses	204.5		196.0		615.7		637.4
Operating income	46.0		47.7		110.4		111.4
Other expense, net	(1.8)		(0.3)		(6.3)		(0.9)
Allowance for funds used during construction — equity	1.6		0.7		4.1		2.2
Interest charges and financing costs
Interest charges — includes other financing costs of $0.3, $0.3, $1.0 and $1.0, respectively	10.5		9.7		30.2		29.5
Allowance for funds used during construction — debt	(0.7)		(0.3)		(1.7)		(0.9)
Total interest charges and financing costs	9.8		9.4		28.5		28.6
Income before income taxes	36.0		38.7		79.7		84.1
Income tax (benefit) expense	(3.5)		9.3		(5.5)		22.2
Net income	$	39.5	$	29.4	$	85.2	$	61.9

See Notes to Consolidated Financial Statements

4

NSP-WISCONSIN AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in millions)

	Nine Months Ended Sept. 30
	2020		2019
Operating activities
Net income	$	85.2	$	61.9
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	117.2		103.6
Deferred income taxes	(28.7)		4.0
Allowance for equity funds used during construction	(4.1)		(2.2)
Provision for bad debts	4.0		4.7
Changes in operating assets and liabilities:
Accounts receivable	(1.2)		3.1
Accrued unbilled revenues	12.1		10.4
Inventories	(4.7)		(5.2)
Other current assets	4.2		10.2
Accounts payable	(4.2)		(9.1)
Net regulatory assets and liabilities	0.8		(0.8)
Other current liabilities	3.1		3.1
Pension and other employee benefit obligations	(6.7)		(7.1)
Other, net	(0.4)		1.8
Net cash provided by operating activities	176.6		178.4
Investing activities
Capital/construction expenditures	(185.2)		(145.0)
Other, net	(0.1)		(0.1)
Net cash used in investing activities	(185.3)		(145.1)
Financing activities
(Repayments of) proceeds from short-term borrowings, net	(65.0)		17.0
Proceeds from (repayments of) long-term debt	97.4		(0.1)
Capital contributions from parent	38.4		21.9
Dividends paid to parent	(51.8)		(72.6)
Other, net	(0.2)		0
Net cash provided by (used in) financing activities	18.8		(33.8)
Net change in cash, cash equivalents and restricted cash	10.1		(0.5)
Cash, cash equivalents and restricted cash at beginning of period	1.3		2.2
Cash, cash equivalents and restricted cash at end of period	$	11.4	$	1.7
Supplemental disclosure of cash flow information:
Cash paid for interest (net of amounts capitalized)	$	(28.0)	$	(28.7)
Cash paid for income taxes, net	(19.2)		(8.4)
Supplemental disclosure of non-cash investing and financing transactions:
Accrued property, plant and equipment additions	$	15.7	$	20.1
Inventory transfers to property, plant and equipment	4.1		4.3
Allowance for equity funds used during construction	4.1		2.2

See Notes to Consolidated Financial Statements

5

NSP-WISCONSIN AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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

	Sept. 30, 2020		Dec. 31, 2019
Assets
Current assets
Cash and cash equivalents	$	11.4	$	1.3
Accounts receivable, net	53.8		59.2
Accrued unbilled revenues	40.8		53.1
Inventories	16.6		16.0
Regulatory assets	29.1		71.9
Prepaid taxes	18.1		23.0
Prepayments and other	6.3		4.6
Total current assets	176.1		229.1
Property, plant and equipment, net	2,452.4		2,359.4
Other assets
Regulatory assets	216.8		224.4
Other	3.9		3.1
Total other assets	220.7		227.5
Total assets	$	2,849.2	$	2,816.0
Liabilities and Equity
Current liabilities
Short-term debt	$	0	$	65.0
Accounts payable	35.2		53.6
Accounts payable to affiliates	17.2		19.0
Dividends payable to parent	18.2		14.7
Regulatory liabilities	42.5		78.9
Taxes accrued	12.6		6.8
Environmental liabilities	3.9		5.7
Accrued interest	9.0		9.3
Other	16.0		20.7
Total current liabilities	154.6		273.7
Deferred credits and other liabilities
Deferred income taxes	303.9		298.1
Deferred investment tax credits	6.1		6.5
Regulatory liabilities	354.3		370.8
Environmental liabilities	16.6		17.8
Customer advances	20.5		18.5
Pension and employee benefit obligations	27.0		33.4
Other	23.2		22.6
Total deferred credits and other liabilities	751.6		767.7
Commitments and contingencies
Capitalization
Long-term debt	906.0		808.0
Common stock — 1,000,000 shares authorized of $100 par value; 933,000 shares      outstanding at Sept. 30, 2020 and Dec. 31, 2019, respectively	93.3		93.3
Additional paid in capital	577.8		537.3
Retained earnings	365.9		336.0
Total common stockholder's equity	1,037.0		966.6
Total liabilities and equity	$	2,849.2	$	2,816.0

See Notes to Consolidated Financial Statements

6

NSP-WISCONSIN AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY (UNAUDITED)

(amounts in millions, except share data; shares in thousands)

	Common Stock Issued					Retained Earnings		Total Common Stockholder's Equity
	Shares	Par Value		Additional Paid In Capital
Three Months Ended Sept. 30, 2020 and 2019
Balance at June 30, 2019	933.0	$	93.3	$	513.6	$	331.3	$	938.2
Net income						29.4		29.4
Common dividends declared to parent						(26.9)		(26.9)
Balance at Sept. 30, 2019	933.0	$	93.3	$	513.6	$	333.8	$	940.7
Balance at June 30, 2020	933.0	$	93.3	$	577.7	$	344.5	$	1,015.5
Net income						39.5		39.5
Common dividends declared to parent						(18.1)		(18.1)
Contribution of capital by parent				0.1				0.1
Balance at Sept. 30, 2020	933.0	$	93.3	$	577.8	$	365.9	$	1,037.0

	Common Stock Issued					Retained Earnings		Total Common Stockholder's Equity
	Shares	Par Value		Additional Paid In Capital
Nine Months Ended Sept. 30, 2020 and 2019
Balance at Dec. 31, 2018	933.0	$	93.3	$	510.1	$	339.0	$	942.4
Net income						61.9		61.9
Common dividends declared to parent						(67.1)		(67.1)
Contribution of capital by parent				3.5				3.5
Balance at Sept. 30, 2019	933.0	$	93.3	$	513.6	$	333.8	$	940.7
Balance at Dec. 31, 2019	933.0	$	93.3	$	537.3	$	336.0	$	966.6
Net income						85.2		85.2
Common dividends declared to parent						(55.2)		(55.2)
Contribution of capital by parent				40.5				40.5
Adoption of ASC Topic 326						(0.1)		(0.1)
Balance at Sept. 30, 2020	933.0	$	93.3	$	577.8	$	365.9	$	1,037.0
See Notes to Consolidated Financial Statements

7

NSP-WISCONSIN 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 U.S. GAAP, the financial position of NSP-Wisconsin and its subsidiaries as of Sept. 30, 2020 and Dec. 31, 2019; the results of operations, including the components of net income, changes in stockholder's equity and comprehensive income for the three and nine months ended Sept. 30, 2020 and 2019; and cash flows for the nine months ended Sept. 30, 2020 and 2019.

All adjustments are of a normal, recurring nature, except as otherwise disclosed. Management has also evaluated the impact of events occurring after Sept. 30, 2020 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, 2019 balance sheet information has been derived from the audited 2019 consolidated financial statements included in the NSP-Wisconsin Annual Report on Form 10-K for the year ended Dec. 31, 2019.

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-Wisconsin Annual Report on Form 10-K for the year ended Dec. 31, 2019, filed with the SEC on Feb. 21, 2020. Due to the seasonality of NSP-Wisconsin’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-Wisconsin Annual Report on Form 10-K for the year ended Dec. 31, 2019 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-Wisconsin implemented the guidance using a modified-retrospective approach, recognizing a cumulative effect charge of $0.1 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-Wisconsin’s consolidated financial statements.

3. Selected Balance Sheet Data

(Millions of dollars)	Sept. 30, 2020		Dec. 31, 2019
Accounts receivable, net
Accounts receivable	$	60.3	$	64.7
Less allowance for bad debts	(6.5)		(5.5)
Accounts receivable, net	$	53.8	$	59.2

(Millions of dollars)	Sept. 30, 2020		Dec. 31, 2019
Inventories
Materials and supplies	$	7.1	$	6.8
Fuel	4.2		4.0
Natural gas	5.3		5.2
Total inventories	$	16.6	$	16.0

(Millions of dollars)	Sept. 30, 2020		Dec. 31, 2019
Property, plant and equipment, net
Electric plant	$	3,104.3	$	3,024.6
Natural gas plant	383.1		365.5
Common and other property	204.9		201.5
Construction work in progress	136.8		82.8
Total property, plant and equipment	3,829.1		3,674.4
Less accumulated depreciation	(1,376.7)		(1,315.0)
Property, plant and equipment, net	$	2,452.4	$	2,359.4

4. Borrowings and Other Financing Instruments

Short-Term Borrowings

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

Commercial Paper — Commercial paper outstanding for NSP-Wisconsin was as follows:

(Amounts in Millions, Except Interest Rates)	Three Months Ended Sept. 30, 2020		Year Ended Dec. 31, 2019
Borrowing limit	$	150	$	150
Amount outstanding at period end	0		65
Average amount outstanding	0		51
Maximum amount outstanding	0		93
Weighted average interest rate, computed on a daily basis	N/A		2.38		%
Weighted average interest rate at period end	N/A		1.97

Letters of Credit — NSP-Wisconsin uses letters of credit, generally with terms of one year, to provide financial guarantees for certain operating obligations. At Sept. 30, 2020 and Dec. 31, 2019, there were 0 letters of credit outstanding.

Revolving Credit Facility — In order to use its commercial paper program to fulfill short-term funding needs, NSP-Wisconsin 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 in an aggregate amount exceeding available capacity under this credit facility. The line of credit provides short-term financing in the form of notes payable to banks, letters of credit and back-up support for commercial paper borrowings.

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

8

As of Sept. 30, 2020, NSP-Wisconsin had the following committed revolving credit facility available (in millions of dollars):

Credit Facility (a)		Outstanding (b)		Available
$	150	$	0	$	150

(a)Expires in June 2024.

(b)Includes outstanding commercial paper.

All credit facility bank borrowings, outstanding letters of credit and outstanding commercial paper reduce the available capacity under the credit facility. NSP-Wisconsin had 0 direct advances on the credit facility outstanding at Sept. 30, 2020 and Dec. 31, 2019.

Other Short-Term Borrowings — As of Sept. 30, 2020 and Dec. 31, 2019, Clearwater Investments, Inc., a NSP-Wisconsin subsidiary, had 0 notes payable to Xcel Energy Inc.

Long-Term Borrowings

During the nine months ended Sept. 30, 2020, NSP-Wisconsin issued $100 million of 3.05% first mortgage bonds due May 1, 2051.

5. Revenues

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

	Three Months Ended Sept. 30, 2020
(Millions of Dollars)	Electric		Natural Gas		All Other		Total
Major revenue types
Revenue from contracts with customers:
Residential	$	70.5	$	7.4	$	0	$	77.9
C&I	119.3		5.7		0		125.0
Other	1.0		0		0.1		1.1
Total retail	190.8		13.1		0.1		204.0
Interchange	41.0		0		0		41.0
Other	0.7		0.9		0		1.6
Total revenue from contracts with customers	232.5		14.0		0.1		246.6
Alternative revenue and other	3.4		0.5		0		3.9
Total revenues	$	235.9	$	14.5	$	0.1	$	250.5

	Three Months Ended Sept. 30, 2019
(Millions of Dollars)	Electric		Natural Gas		All Other		Total
Major revenue types
Revenue from contracts with customers:
Residential	$	63.6	$	6.9	$	0	$	70.5
C&I	116.6		6.1		0		122.7
Other	0.9		0		0.1		1.0
Total retail	181.1		13.0		0.1		194.2
Interchange	44.7		0		0		44.7
Other	0.3		1.0		0		1.3
Total revenue from contracts with customers	226.1		14.0		0.1		240.2
Alternative revenue and other	2.9		0.6		0		3.5
Total revenues	$	229.0	$	14.6	$	0.1	$	243.7

	Nine Months Ended Sept. 30, 2020
(Millions of Dollars)	Electric		Natural Gas		All Other		Total
Major revenue types
Revenue from contracts with customers:
Residential	$	195.1	$	42.5	$	0	$	237.6
C&I	312.9		32.0		0		344.9
Other	4.6		0		0.3		4.9
Total retail	512.6		74.5		0.3		587.4
Interchange	123.4		0		0		123.4
Other	1.3		2.8		0		4.1
Total revenue from contracts with customers	637.3		77.3		0.3		714.9
Alternative revenue and other	9.8		1.4		0		11.2
Total revenues	$	647.1	$	78.7	$	0.3	$	726.1

	Nine Months Ended Sept. 30, 2019
(Millions of Dollars)	Electric		Natural Gas		All Other		Total
Major revenue types
Revenue from contracts with customers:
Residential	$	185.1	$	51.3	$	0	$	236.4
C&I	320.2		40.5		0		360.7
Other	4.5		0		0.3		4.8
Total retail	509.8		91.8		0.3		601.9
Interchange	132.3		0		0		132.3
Other	0.9		3.0		0		3.9
Total revenue from contracts with customers	643.0		94.8		0.3		738.1
Alternative revenue and other	8.9		1.8		0		10.7
Total revenues	$	651.9	$	96.6	$	0.3	$	748.8

6. Income Taxes

Note 7 to the consolidated financial statements included in NSP-Wisconsin’s Annual Report on Form 10-K for the year ended Dec. 31, 2019 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.

The following table reconciles the difference between the statutory rate and the ETR:

	Nine Months Ended Sept. 30
	2020		2019
Federal statutory rate	21.0	%	21.0	%
State tax (net of federal tax effect)	6.2		6.2
Increases (decreases) in tax from:
Plant regulatory differences (a)	(19.6)		(0.4)
Nonplant ADIT amortization	(12.8)		0
Tax credits, net of NOL & tax credit allowances	(1.6)		(1.5)
Prior period adjustments	0.5		0.4
Other (net)	(0.6)		0.7
Effective income tax rate	(6.9)	%	26.4	%

(a)     Regulatory differences for income tax primarily relates 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.

9

Federal Audits — NSP-Wisconsin 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	July 2021

In 2017, the IRS concluded the audit of tax years 2012 and 2013 and proposed an adjustment that would impact Xcel Energy’s NOL and ETR. Xcel Energy filed a protest with the IRS. In April 2020, Xcel Energy and Office of Appeals reached an agreement and 0 material adjustments were required.

In 2018, the IRS began an audit of tax years 2014 - 2016. In July 2020, Xcel Energy and the IRS reached an agreement and the related benefit was recognized.

State Audits — NSP-Wisconsin is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of Sept. 30, 2020, NSP-Wisconsin’s earliest open tax year subject to examination by state taxing authorities under applicable statutes of limitations is 2014. In 2018, Wisconsin began an audit of tax years 2014 - 2016. As of Sept. 30, 2020, 0 material adjustments have been proposed.

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

Unrecognized tax benefits — permanent vs. temporary:

(Millions of Dollars)	Sept. 30, 2020		Dec. 31, 2019
Unrecognized tax benefit — Permanent tax positions	$	1.6	$	2.6
Unrecognized tax benefit — Temporary tax positions	0		0.8
Total unrecognized tax benefit	$	1.6	$	3.4

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

(Millions of Dollars)	Sept. 30, 2020		Dec. 31, 2019
NOL and tax credit carryforwards	$	(1.2)	$	(2.2)

Net deferred tax liability associated with the unrecognized tax benefit amounts and related NOLs and tax credit carryforwards were $1.2 million at Sept. 30, 2020 and Dec. 31, 2019, respectively.

As the IRS audits resume and state audits progress, it is reasonably possible that the amount of unrecognized tax benefit could decrease up to approximately $0.6 million in the next 12 months.

Payables for interest related to unrecognized tax benefits were not material and 0 amounts were accrued for penalties related to unrecognized tax benefits as of Sept. 30, 2020 and Dec. 31, 2019, respectively.

7. Fair Value of Financial Assets and Liabilities

Fair Value Measurements

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

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

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

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

Specific valuation methods include:

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

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

Commodity derivatives — The methods used to measure the fair value of commodity derivative forwards and options utilize forward prices and volatilities, as well as pricing adjustments for specific delivery locations, and are generally assigned a Level 2 classification.

When contractual settlements relate to inactive delivery locations or extend to periods beyond those readily observable on active exchanges or quoted by brokers, the significance of the use of less observable forecasts of forward prices and volatilities on a valuation is evaluated and may result in Level 3 classification.

Derivative Instruments Fair Value Measurements

NSP-Wisconsin 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 and utility commodity prices.

Interest Rate Derivatives — NSP-Wisconsin may enter 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. As of Sept. 30, 2020 and Dec. 31, 2019, there were 0 interest rate derivatives designated as cash flow hedges.

Commodity Derivatives — NSP-Wisconsin may enter 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 natural gas to generate electric energy and natural gas for resale.

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Gross notional amounts of commodity options:

(Amounts in Millions) (a)(b)	Sept. 30, 2020	Dec. 31, 2019
Million British thermal units of natural gas	1.0	0.1

(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-Wisconsin 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.

Impact of Derivative Activities on Income — Changes in the fair value of natural gas commodity derivatives resulted in $0.1 million of net gains for the three and nine months ended Sept. 30, 2020, respectively, which were recognized as regulatory assets and liabilities. There were $0.2 million in net losses for the three and nine months ended Sept. 30, 2019, respectively, which were recognized as regulatory assets and liabilities. The classification as a regulatory asset or liability is based on commission approved regulatory recovery mechanisms.

During both the three months ended Sept. 30, 2020 and 2019, there were 0 settlement gains or losses on natural gas commodity derivatives. During the nine months ended Sept. 30, 2020 and 2019, there were $0.9 million and $0.1 million of net settlement losses on natural gas commodity derivatives, respectively, recognized subject to purchased natural gas cost recovery mechanisms, which result in reclassifications of derivative settlement gains and losses out of income to a regulatory asset or liability, as appropriate.

NSP-Wisconsin had 0 derivative instruments designated as fair value hedges during the three and nine months ended Sept. 30, 2020 and 2019, respectively.

Recurring Fair Value Measurements — NSP-Wisconsin's derivative assets measured at fair value on a recurring basis were as follows:

	Sept. 30, 2020
	Fair Value						Fair Value Total		Netting (a)		Total (b)
(Millions of Dollars)	Level 1		Level 2		Level 3
Current derivative assets
Natural gas commodity	$	0	$	0.8	$	0	$	0.8	$	0	$	0.8

	Dec. 31, 2019
	Fair Value						Fair Value Total		Netting (a)		Total (b)
(Millions of Dollars)	Level 1		Level 2		Level 3
Current derivative assets
Natural gas commodity	$	0	$	0.5	$	0	$	0.5	$	0	$	0.5

(a)    NSP-Wisconsin 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 Sept. 30, 2020 and Dec. 31, 2019. The counterparty netting amounts presented exclude settlement receivables and payables and non-derivative amounts that may be subject to the same master netting agreements.

(b)    Included in prepayments and other current assets balance of $6.3 million at Sept. 30, 2020 and $4.6 million at Dec. 31, 2019 on the consolidated balance sheets.

Fair Value of Long-Term Debt

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

	Sept. 30, 2020				Dec. 31, 2019
(Millions of Dollars)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, including current portion	$	906.0	$	1,154.0	$	808.0	$	924.3

Fair value of NSP-Wisconsin’s long-term debt is estimated based on recent trades and observable spreads from benchmark interest rates for similar securities. Fair value estimates are based on information available to management as of Sept. 30, 2020 and Dec. 31, 2019 and given the observability of the inputs, fair values presented for long-term debt were assigned as Level 2.

8. Benefit Plans and Other Postretirement Benefits

Components of Net Periodic Benefit Cost

	Three Months Ended Sept. 30
	2020		2019		2020		2019
(Millions of Dollars)	Pension Benefits				Postretirement Health Care Benefits
Service cost	$	1.2	$	1.1	$	0	$	0
Interest cost (a)	1.2		1.4		0.1		0.1
Expected return on plan assets (a)	(2.1)		(2.0)		0		0
Amortization of prior service credit (a)	0		0		(0.1)		(0.1)
Amortization of net loss (a)	1.2		1.1		0.1		0.1
Net periodic benefit cost	$	1.5	$	1.6	$	0.1	$	0.1
Effects of regulation	1.8		0		0		0
Net benefit cost recognized for financial reporting	$	3.3	$	1.6	$	0.1	$	0.1

	Nine Months Ended Sept. 30
	2020		2019		2020		2019
(Millions of Dollars)	Pension Benefits				Postretirement Health Care Benefits
Service cost	$	3.5	$	3.3	$	0	$	0
Interest cost (a)	3.6		4.3		0.3		0.4
Expected return on plan assets (a)	(6.3)		(6.2)		0		0
Amortization of prior service credit (a)	0		0		(0.2)		(0.2)
Amortization of net loss (a)	3.6		3.3		0.2		0.2
Net periodic benefit cost	$	4.4	$	4.7	$	0.3	$	0.4
Effects of regulation	5.5		0.2		0		0
Net benefit cost recognized for financial reporting	$	9.9	$	4.9	$	0.3	$	0.4

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

In January 2020, contributions of $150.0 million were made across 4 of Xcel Energy’s pension plans, of which $6.7 million was attributable to NSP-Wisconsin. Xcel Energy does not expect additional pension contributions during 2020.

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9. Commitments and Contingencies

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

Legal

NSP-Wisconsin 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-Wisconsin’s financial statements. Unless otherwise required by GAAP, legal fees are expensed as incurred.

Gas Trading Litigation — e prime is a wholly owned subsidiary of Xcel Energy. e prime was in the business of natural gas trading and marketing but has not engaged in natural gas trading or marketing activities since 2003. Multiple lawsuits seeking monetary damages were commenced against e prime and its affiliates, including Xcel Energy Inc., between 2003 and 2009 alleging fraud and anticompetitive activities in conspiring to restrain the trade of natural gas and manipulate natural gas prices. Cases were all consolidated in the U.S. District Court in Nevada.

NaN cases remain active which include an MDL matter consisting of a Colorado purported class (Breckenridge) and a Wisconsin purported class (Arandell Corp.).

Breckenridge/Colorado — In February 2019, the MDL panel remanded Breckenridge back to the U.S. District Court in Colorado.

Arandell Corp. — In February 2019, the case was remanded back to the U.S. District Court in Wisconsin. Plaintiffs are seeking class certification. It is uncertain when the court will rule on this issue.

Xcel Energy has concluded that a loss is remote for both remaining lawsuits.

Rate Matters

MISO ROE Complaints —In November 2013 and February 2015, customers filed complaints against MISO TOs including NSP-Minnesota and NSP-Wisconsin.

The first complaint argued for a reduction in the base ROE in MISO transmission formula rates from 12.38% to 9.15%, and removal of ROE adders (including those for RTO membership). The second complaint sought to reduce base ROE from 12.38% to 8.67%. In September 2016, the FERC issued an order granting a 10.32% base ROE (10.82% with the RTO adder) effective for the first complaint period of Nov. 12, 2013 to Feb. 11, 2015 and subsequent to the date of the order. The United States Court of Appeals for the District of Columbia Circuit subsequently vacated and remanded FERC Opinion No. 531, which had established the ROE methodology on which the September 2016 FERC order was based.

In November 2019, the FERC issued an order adopting a new ROE methodology and settling the MISO base ROE at 9.88% (10.38% with the RTO adder), effective Sept. 28, 2016 and for the Nov. 12, 2013 to Feb. 11, 2015 refund period. The FERC also dismissed the second complaint. In December 2019, MISO TOs filed a request for rehearing. Customers also filed requests for rehearing claiming, among other points, that the FERC erred by dismissing the second complaint without refunds.

In March 2020, the FERC issued a Notice of Proposed Rulemaking regarding changes to its policies for transmission incentives, including a proposal to increase the RTO participation adder from 50 to 100 basis points and to make the adder available regardless of whether a utility’s ongoing participation in the RTO is voluntary or required by legislation or a regulator.

In May 2020, the FERC issued 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 refund period in the first complaint. The FERC also affirmed its decision in Opinion 569 to dismiss the second complaint.

The May 2020 FERC opinion remains subject to pending requests for rehearing, as well as the pending judicial review, NSP-Minnesota has recognized a liability for its best estimate of final refunds to customers.

Environmental

MGP, Landfill and Disposal Sites

Ashland MGP Site — NSP-Wisconsin was named a responsible party for contamination at the Ashland/Northern States Power Lakefront Superfund Site (the Site) in Ashland, Wisconsin. Remediation was completed in 2019 and restoration activities were completed in 2020. Groundwater treatment activities will continue for many years.

The cost estimate for remediation and restoration of the entire site is approximately $199.1 million. At Sept. 30, 2020 and Dec. 31, 2019, NSP-Wisconsin had a total liability of $20.2 million and $23.2 million, respectively, for the entire site.

NSP-Wisconsin has deferred the unrecovered portion of the estimated Site remediation and restoration costs as a regulatory asset. The PSCW has authorized NSP-Wisconsin rate recovery for all remediation and restoration costs incurred at the Site and application of a 3% carrying charge to the regulatory asset.

In addition to the Ashland Site, NSP-Wisconsin is currently investigating, remediating or performing post-closure actions at 2 other MGP, landfill or other disposal sites across its service territories.

NSP-Wisconsin has recognized its best estimate of costs/liabilities that will result 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.

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10. Segment Information

NSP-Wisconsin 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-Wisconsin has the following reportable segments:

•Regulated Electric — The regulated electric utility segment generates electricity, which is transmitted and distributed in Wisconsin and Michigan.

•Regulated Natural Gas — The regulated natural gas utility segment purchases, transports, stores and distributes natural gas in portions of Wisconsin and Michigan.

NSP-Wisconsin presents Other, which includes operating segments with revenues below the necessary quantitative thresholds. Those operating segments primarily include investments in rental housing projects that qualify for low-income housing tax credits.

Asset and capital expenditure information is not provided for NSP-Wisconsin's reportable segments. As an integrated electric and natural gas utility, NSP-Wisconsin 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 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-Wisconsin's segment information for the three and nine months ended Sept. 30:

	Three Months Ended Sept. 30
(Millions of Dollars)	2020		2019
Regulated Electric
Total operating revenue (a)	$	235.9	$	229.0
Net income	39.8		33.3
Regulated Natural Gas
Operating revenues	$	14.5	$	14.6
Intersegment revenue	0.1		0.1
Total revenues	$	14.6	$	14.7
Net loss	(2.4)		(4.1)
All Other
Total operating revenue	$	0.1	$	0.1
Net income	2.1		0.2
Consolidated Total
Operating revenues (a)	$	250.6	$	243.8
Reconciling eliminations	(0.1)		(0.1)
Total operating revenues	$	250.5	$	243.7
Net income	39.5		29.4

(a)    Operating revenues include $41.0 million and $44.7 million of affiliate electric revenue for the three months ended Sept. 30, 2020 and 2019, respectively.

	Nine Months Ended Sept. 30
(Millions of Dollars)	2020		2019
Regulated Electric
Operating revenues (a)	$	647.1	$	651.9
Intersegment revenue	0.2		0.2
Total revenues	$	647.3	$	652.1
Net income	80.8		57.4
Regulated Natural Gas
Operating revenues	$	78.7	$	96.6
Intersegment revenue	0.2		0.3
Total revenues	$	78.9	$	96.9
Net income	3.6		5.1
All Other
Operating revenues	$	0.3	$	0.3
Net income (loss)	0.8		(0.6)
Consolidated Total
Operating revenues (a)	$	726.5	$	749.3
Reconciling eliminations	(0.4)		(0.5)
Total operating revenues	$	726.1	$	748.8
Net income	85.2		61.9

(a)    Operating revenues include $123.5 million and $132.3 million of affiliate electric revenue for the nine months ended Sept. 30, 2020 and 2019, respectively.

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

Discussion of financial condition and liquidity for NSP-Wisconsin 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 instructions 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-Wisconsin’s management uses non-GAAP measures for financial planning and analysis, for reporting of results 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.

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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, O&M expenses, conservation, depreciation and amortization and taxes (other than income taxes).

Results of Operations

NSP-Wisconsin’s net income was approximately $85.2 million for the nine months ended Sept. 30, 2020 compared with approximately $61.9 million for the prior year. The increase was driven by higher electric margin (2020 Wisconsin Fuel Settlement offset lower sales due to COVID-19) and allowance for funds used during construction, as well as lower O&M expenses. These items were partially offset by increased depreciation and lower natural gas margin.

Electric Margin

Electric production expenses tend to vary with the quantity of electricity sold and changes in the unit costs of fuel and purchased power. The electric fuel and purchased power cost recovery mechanism of the Wisconsin jurisdiction may not allow for complete recovery of all expenses and, therefore, changes in fuel or purchased power costs can impact earnings.

Electric revenues and margin:

	Nine Months Ended Sept. 30
(Millions of Dollars)	2020		2019
Electric revenues	$	647.1	$	651.9
Electric fuel and purchased power	(294.8)		(306.5)
Electric margin	$	352.3	$	345.4

Changes in electric margin:

(Millions of Dollars)	2020 vs. 2019
Regulatory rate outcomes (Wisconsin)	$	21.3
Estimated impact of weather	1.5
Sales and demand (a)	(9.6)
Purchased capacity costs	(2.2)
Interchange agreement billings with NSP-Minnesota	(1.5)
Other (net)	(2.6)
Total increase in electric margin	$	6.9

(a) Sales decline excludes weather impact.

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 has minimal impact on natural gas margin due to natural gas cost recovery mechanisms.

Natural gas revenues and margin:

	Nine Months Ended Sept. 30
(Millions of Dollars)	2020		2019
Natural gas revenues	$	78.7	$	96.6
Cost of natural gas sold and transported	(33.5)		(45.9)
Natural gas margin	$	45.2	$	50.7

Changes in natural gas margin:

(Millions of Dollars)	2020 vs. 2019
Estimated impact of weather	$	(4.0)
Regulatory rate outcomes (Wisconsin)	(1.8)
Retail sales growth	1.0
Other (net)	(0.7)
Total decrease in natural gas margin	$	(5.5)

Non-Fuel Operating Expenses and Other Items

O&M Expenses — O&M expenses decreased $10.3 million, or 6.8%, year-to-date, largely reflecting management actions to reduce costs to offset the impact of lower sales from COVID-19. Management actions included allocation of workforce, material and supply management and timing of maintenance activities.

Depreciation and Amortization — Depreciation and amortization expense increased $13.5 million, or 13.1%, year-to-date. The increase was primarily due to increased MGP amortization, increases in electric distribution and electric transmission additions.

Income Taxes — Income tax expense decreased $27.7 million year-to-date. The decrease was primarily driven by an increase in plant regulatory differences and non-plant ADIT amortization. The ETR was (6.9%) year-to-date compared with 26.4% for 2019, largely due to the items referenced above.

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

Public Utility Regulation

The FERC and various state and local regulatory commissions regulate NSP-Wisconsin. The electric and natural gas rates charged to customers of NSP-Wisconsin are approved by the FERC or the regulatory commissions in the states in which it operates.

The rates are designed to recover plant investment, operating costs and an allowed return on investment. NSP-Wisconsin requests changes in rates for utility services through filings with governing commissions.

Changes in operating costs can affect NSP-Wisconsin’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-Wisconsin’s results of operations.

Except to the extent noted below, the circumstances set forth in Public Utility Regulation included in Item 7 of NSP-Wisconsin’s Annual Report on Form 10-K for the year ended Dec. 31, 2019 and in Item 2 of NSP-Wisconsin’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020 and Form 10-Q for the quarterly period ended June 30, 2020 appropriately represent, in all material respects, the current status of public utility regulation and are incorporated by reference.

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2019 Electric Fuel Cost Recovery — NSP-Wisconsin’s electric fuel costs for 2019 were lower than authorized in rates and outside the 2% annual tolerance band. Under the fuel cost recovery rules, NSP-Wisconsin may retain approximately $3.4 million of fuel costs and defer the amount of over-recovery in excess of the 2% annual tolerance band for future refund to customers. In August 2020, the PSCW approved NSP-Wisconsin’s request to refund over-collections of approximately $9.7 million to customers.

2021 Electric Fuel Cost Recovery — In June 2020, NSP-Wisconsin filed an application with the PSCW to update its 2021 fuel costs and return biomass fuel savings, which would decrease retail electric rates for 2021 by approximately $11.6 million. NSP-Wisconsin expects a PSCW decision on the application in the fourth quarter of 2020.

Request to Participate in Utility Money Pool — In October 2020, the PSCW approved NSP-Wisconsin’s application to participate in the Money Pool.

NSP-Wisconsin Solar Proposal — In October 2020, NSP-Wisconsin filed for a 74 megawatt solar facility build-own-transfer in Wisconsin for approximately $100 million. A PSCW decision is expected in the third quarter of 2021.

Environmental

Environmental Regulation

In July 2019, the EPA adopted the Affordable Clean Energy rule, which requires states to develop plans for greenhouse gas reductions from coal-fired power plants. The state plans, due to the EPA in July 2022, will evaluate and potentially require heat rate improvements at existing coal-fired plants. It is not yet known how these state plans will affect our existing coal plants, but they could require substantial additional investment, even in plants slated for retirement. NSP-Wisconsin believes, based on prior state commission practice, the cost of these initiatives or replacement generation would be recoverable through rates.

ITEM 4 — CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

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

As of Sept. 30, 2020, based on an evaluation carried out under the supervision and with the participation of NSP-Wisconsin’s management, including the CEO and CFO, of the effectiveness of its disclosure controls and the procedures, the CEO and CFO have concluded that NSP-Wisconsin’s disclosure controls and procedures were effective.

Internal Control Over Financial Reporting

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

PART II — OTHER INFORMATION

ITEM 1 — LEGAL PROCEEDINGS

NSP-Wisconsin 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-Wisconsin’s financial statements. Unless otherwise required by GAAP, legal fees are expensed as incurred.

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

ITEM 1A — RISK FACTORS

There have been no material changes from the risk factors disclosed in our Form 10-K for the year ended Dec. 31, 2019 except as follows:

We face risks related to health epidemics and other outbreaks, which may have a material effect on our financial condition, results of operations and cash flows.

The global outbreak of COVID-19 is currently impacting countries, communities, supply chains and markets. A high degree of uncertainty continues to exist regarding COVID-19, the duration and magnitude of business restrictions, re-shut downs, if any, and the level and pace of economic recovery. While we are implementing contingency plans, there are no guarantees these plans will be sufficient to offset the impact of COVID-19.

Although we do not expect the impact of COVID-19 to be material to the 2020 results, we cannot ultimately predict whether it will have a material impact on our future liquidity, financial condition, or results of operations. Nor can we predict the impact of the virus on the health of our employees, our supply chain or our ability to recover higher costs associated with managing through the pandemic.

NSP-Wisconsin'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, 2019, which is incorporated herein by reference, as well as other information set forth in this report, which could have a material impact on our financial condition, results of operations and cash flows.

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ITEM 6 — EXHIBITS

* Indicates incorporation by reference

Exhibit Number	Description	Report or Registration Statement	SEC File or Registration Number	Exhibit Reference
3.01*	Amended and Restated Articles of Incorporation of NSP-Wisconsin, dated May 28, 1998	NSP-Wisconsin Form S-4 dated Jan. 21, 2004	333-112033	3.01
3.02*	Amended and Restated Bylaws of NSP-Wisconsin, dated Jan. 25, 2019	NSP-Wisconsin Form 10-K for the year ended Dec. 31, 2018	001-03140	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	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Schema
101.CAL	Inline XBRL Calculation
101.DEF	Inline XBRL Definition
101.LAB	Inline XBRL Label
101.PRE	Inline XBRL Presentation
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

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

		Northern States Power Company (a Wisconsin corporation)
Oct. 29, 2020	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)

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