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, 2024
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: 001-03789
| Southwestern Public Service Company | |||||||||||
| (Exact Name of Registrant as Specified in its Charter) | |||||||||||
| New Mexico | 75-0575400 | |||||||||||||||||||
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |||||||||||||||||||
| 790 South Buchanan Street | Amarillo | Texas | 79101 | |||||||||||||||||
| (Address of Principal Executive Offices) | (Zip Code) | |||||||||||||||||||
| (303) | 571-7511 | ||||
| (Registrant’s Telephone Number, Including Area Code) | |||||
| 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 August 1, 2024 | |||||||
| Common Stock, $1.00 par value | 100 shares | |||||||
Southwestern Public Service Company meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format specified in General Instruction H(2) to such Form 10-Q.
TABLE OF CONTENTS
PART I | FINANCIAL INFORMATION | |||||||
| Item 1 — | ||||||||
| Item 2 — | ||||||||
| Item 4 — | ||||||||
| PART II | OTHER INFORMATION | |||||||
| Item 1 — | ||||||||
| Item 1A — | ||||||||
| Item 5 — | ||||||||
| Item 6 — | ||||||||
This Form 10-Q is filed by SPS, a New Mexico corporation. SPS is a wholly owned subsidiary of Xcel Energy Inc. Additional information on Xcel Energy is available in various filings with the SEC. This report should be read in its entirety.
Definitions of Abbreviations
| Xcel Energy Inc.’s Subsidiaries and Affiliates (current and former) | |||||
| NSP-Minnesota | Northern States Power Company, a Minnesota corporation | ||||
| NSP-Wisconsin | Northern States Power Company, a Wisconsin corporation | ||||
| PSCo | Public Service Company of Colorado | ||||
| SPS | Southwestern Public Service Company | ||||
| Utility subsidiaries | NSP-Minnesota, NSP-Wisconsin, PSCo and SPS | ||||
| Xcel Energy | Xcel Energy Inc. and its subsidiaries | ||||
| Federal and State Regulatory Agencies | |||||
| D.C. Circuit | United States Court of Appeals for the District of Columbia Circuit | ||||
| EPA | United States Environmental Protection Agency | ||||
| FERC | Federal Energy Regulatory Commission | ||||
| NMPRC | New Mexico Public Regulation Commission | ||||
| PUCT | Public Utility Commission of Texas | ||||
| SEC | Securities and Exchange Commission | ||||
| Other | |||||
| CEO | Chief executive officer | ||||
| CERCLA | Comprehensive Environmental Response, Compensation, and Liability Act | ||||
| CFO | Chief financial officer | ||||
| CPCN | Certificate of Public Convenience and Necessity | ||||
| DCRF | Distribution Cost Recover Factor | ||||
| ETR | Effective tax rate | ||||
| FTR | Financial transmission right | ||||
| GAAP | United States generally accepted accounting principles | ||||
| IPP | Independent power producing entity | ||||
| IRP | Integrated Resource Plan | ||||
| MGP | Manufactured Gas Plant | ||||
| NOx | Nitrogen Oxides | ||||
| O&M | Operating and maintenance | ||||
| OATT | Open access transmission tariff | ||||
| PFAS | Per- and Polyfluoroalkyl Substances | ||||
| PPA | Power purchase agreement | ||||
| PTC | Production tax credit | ||||
| RFP | Request for proposal | ||||
| ROE | Return on equity | ||||
| RTO | Regional Transmission Organization | ||||
| SPP | Southwest Power Pool, Inc. | ||||
| Measurements | |||||
| MW | Megawatts | ||||
| Forward-Looking Statements | ||
Except for the historical statements contained in this report, the matters discussed herein are forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements, including those relating to future sales, future expenses, future tax rates, future operating performance, estimated base capital expenditures and financing plans, projected capital additions and forecasted annual revenue requirements with respect to rider filings, expected rate increases to customers, expectations and intentions regarding regulatory proceedings, expected pension contributions, and expected impact on our results of operations, financial condition and cash flows of legal proceeding outcomes, as well as assumptions and other statements are intended to be identified in this document by the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “objective,” “outlook,” “plan,” “project,” “possible,” “potential,” “should,” “will,” “would” and similar expressions. Actual results may vary materially. Forward-looking statements speak only as of the date they are made, and we expressly disclaim any obligation to update any forward-looking information. The following factors, in addition to those discussed in SPS’ Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2023 and subsequent filings with the SEC, could cause actual results to differ materially from management expectations as suggested by such forward-looking information: operational safety; successful long-term operational planning; commodity risks associated with energy markets and production; rising energy prices and fuel costs; qualified employee workforce and third-party contractor factors; violations of our Codes of Conduct; our ability to recover costs; changes in regulation; reductions in our credit ratings and the cost of maintaining certain contractual relationships; general economic conditions, including recessionary conditions, inflation rates, monetary fluctuations, supply chain constraints and their impact on capital expenditures and/or the ability of SPS to obtain financing on favorable terms; availability or cost of capital; our customers’ and counterparties’ ability to pay their debts to us; assumptions and costs relating to funding our employee benefit plans and health care benefits; tax laws; uncertainty regarding epidemics, the duration and magnitude of business restrictions including shutdowns (domestically and globally), the potential impact on the workforce, including shortages of employees or third-party contractors due to quarantine policies, vaccination requirements or government restrictions, impacts on the transportation of goods and the generalized impact on the economy; effects of geopolitical events, including war and acts of terrorism; cybersecurity threats and data security breaches; seasonal weather patterns; changes in environmental laws and regulations; climate change and other weather events; natural disaster and resource depletion, including compliance with any accompanying legislative and regulatory changes; costs of potential regulatory penalties and wildfire damages in excess of liability insurance coverage; regulatory changes and/or limitations related to the use of natural gas as an energy source; challenging labor market conditions and our ability to attract and retain a qualified workforce; and our ability to execute on our strategies or achieve expectations related to environmental, social and governance matters including as a result of evolving legal, regulatory and other standards, processes, and assumptions, the pace of scientific and technological developments, increased costs, the availability of requisite financing, and changes in carbon markets.
PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF INCOME (UNAUDITED)
(amounts in millions)
| Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Operating revenues | $ | 458 | $ | 496 | $ | 886 | $ | 1,004 | |||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Electric fuel and purchased power | 103 | 211 | 263 | 456 | |||||||||||||||||||
| Operating and maintenance expenses | 83 | 69 | 155 | 149 | |||||||||||||||||||
| Demand side management expenses | 5 | 4 | 11 | 10 | |||||||||||||||||||
| Depreciation and amortization | 136 | 92 | 235 | 183 | |||||||||||||||||||
| Taxes (other than income taxes) | 29 | 24 | 50 | 49 | |||||||||||||||||||
| Total operating expenses | 356 | 400 | 714 | 847 | |||||||||||||||||||
| Operating income | 102 | 96 | 172 | 157 | |||||||||||||||||||
| Other expense, net | 4 | 1 | 5 | 1 | |||||||||||||||||||
| Allowance for funds used during construction — equity | 4 | 2 | 6 | 3 | |||||||||||||||||||
| Interest charges and financing costs | |||||||||||||||||||||||
| Interest charges and other financing costs | 41 | 37 | 78 | 71 | |||||||||||||||||||
| Allowance for funds used during construction — debt | (2) | (2) | (4) | (3) | |||||||||||||||||||
| Total interest charges and financing costs | 39 | 35 | 74 | 68 | |||||||||||||||||||
| Income before income taxes | 71 | 64 | 109 | 93 | |||||||||||||||||||
| Income tax benefit | (18) | (17) | (37) | (42) | |||||||||||||||||||
| Net income | $ | 89 | $ | 81 | $ | 146 | $ | 135 | |||||||||||||||
| See Notes to Financial Statements | |||||||||||||||||||||||
4
SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in millions)
| Six Months Ended June 30 | |||||||||||
| 2024 | 2023 | ||||||||||
| Operating activities | |||||||||||
| Net income | $ | 146 | $ | 135 | |||||||
| Adjustments to reconcile net income to cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 237 | 184 | |||||||||
| Deferred income taxes | 94 | (77) | |||||||||
| Allowance for equity funds used during construction | (6) | (3) | |||||||||
| Provision for bad debts | 3 | 6 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | 66 | 3 | |||||||||
| Accrued unbilled revenues | (19) | (12) | |||||||||
| Inventories | (27) | (23) | |||||||||
| Prepayments and other | (4) | 7 | |||||||||
| Accounts payable | 20 | (21) | |||||||||
| Net regulatory assets and liabilities | 36 | 194 | |||||||||
| Other current liabilities | (25) | (10) | |||||||||
| Pension and other employee benefit obligations | (2) | — | |||||||||
| Other, net | (13) | (4) | |||||||||
| Net cash provided by operating activities | 506 | 379 | |||||||||
| Investing activities | |||||||||||
| Utility capital/construction expenditures | (428) | (351) | |||||||||
| Net cash used in investing activities | (428) | (351) | |||||||||
| Financing activities | |||||||||||
| (Repayments of) proceeds from short-term borrowings, net | (75) | 34 | |||||||||
| Proceeds from issuance of long-term debt, net | 588 | — | |||||||||
| Borrowings under utility money pool arrangement | 437 | 174 | |||||||||
| Repayments under utility money pool arrangement | (464) | (74) | |||||||||
| Capital contributions from parent | 272 | — | |||||||||
| Repayment of long-term debt | (350) | — | |||||||||
| Dividends paid to parent | (148) | (163) | |||||||||
| Net cash provided by (used in) financing activities | 260 | (29) | |||||||||
| Net change in cash, cash equivalents and restricted cash | 338 | (1) | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 3 | 2 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 341 | $ | 1 | |||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid for interest (net of amounts capitalized) | $ | (68) | $ | (65) | |||||||
| Cash received (paid) for income taxes, net; includes proceeds from tax credit transfers | 117 | (35) | |||||||||
| Supplemental disclosure of non-cash investing and financing transactions: | |||||||||||
| Accrued property, plant and equipment additions | $ | 57 | $ | 41 | |||||||
| Inventory transfers to property, plant and equipment | 26 | 17 | |||||||||
| Allowance for equity funds used during construction | 6 | 3 | |||||||||
See Notes to Financial Statements
5
SOUTHWESTERN PUBLIC SERVICE COMPANY
BALANCE SHEETS (UNAUDITED)
(amounts in millions, except share and per share data)
| June 30, 2024 | Dec. 31, 2023 | |||||||||||||
| Assets | ||||||||||||||
| Current assets | ||||||||||||||
| Cash and cash equivalents | $ | 341 | $ | 3 | ||||||||||
| Accounts receivable, net | 157 | 222 | ||||||||||||
| Accounts receivable from affiliates | 12 | 26 | ||||||||||||
| Accrued unbilled revenues | 159 | 139 | ||||||||||||
| Inventories | 70 | 69 | ||||||||||||
| Regulatory assets | 51 | 30 | ||||||||||||
| Derivative instruments | 148 | 42 | ||||||||||||
| Prepaid taxes | 2 | 2 | ||||||||||||
| Prepayments and other | 262 | 32 | ||||||||||||
| Total current assets | 1,202 | 565 | ||||||||||||
| Property, plant and equipment, net | 8,783 | 8,536 | ||||||||||||
| Other assets | ||||||||||||||
| Regulatory assets | 349 | 349 | ||||||||||||
| Operating lease right-of-use assets | 387 | 403 | ||||||||||||
| Other | 43 | 28 | ||||||||||||
| Total other assets | 779 | 780 | ||||||||||||
| Total assets | $ | 10,764 | $ | 9,881 | ||||||||||
| Liabilities and Equity | ||||||||||||||
| Current liabilities | ||||||||||||||
| Current portion of long-term debt | $ | — | $ | 350 | ||||||||||
| Short-term debt | — | 75 | ||||||||||||
| Borrowings under utility money pool arrangement | — | 27 | ||||||||||||
| Accounts payable | 191 | 188 | ||||||||||||
| Accounts payable to affiliates | 19 | 7 | ||||||||||||
| Regulatory liabilities | 289 | 116 | ||||||||||||
| Taxes accrued | 50 | 77 | ||||||||||||
| Accrued interest | 35 | 33 | ||||||||||||
| Dividends payable to parent | 46 | 59 | ||||||||||||
| Derivative instruments | — | 2 | ||||||||||||
| Operating lease liabilities | 33 | 32 | ||||||||||||
| Other | 266 | 42 | ||||||||||||
| Total current liabilities | 929 | 1,008 | ||||||||||||
| Deferred credits and other liabilities | ||||||||||||||
| Deferred income taxes | 726 | 622 | ||||||||||||
| Regulatory liabilities | 767 | 761 | ||||||||||||
| Asset retirement obligations | 160 | 153 | ||||||||||||
| Pension and employee benefit obligations | 9 | 12 | ||||||||||||
| Operating lease liabilities | 354 | 371 | ||||||||||||
| Other | 9 | 7 | ||||||||||||
| Total deferred credits and other liabilities | 2,025 | 1,926 | ||||||||||||
| Commitments and contingencies | ||||||||||||||
| Capitalization | ||||||||||||||
| Long-term debt | 3,550 | 2,961 | ||||||||||||
| Common stock — 200 shares authorized of $1.00 par value; 100 shares outstanding at June 30, 2024 and Dec. 31, 2023, respectively | — | — | ||||||||||||
| Additional paid in capital | 3,633 | 3,370 | ||||||||||||
| Retained earnings | 628 | 617 | ||||||||||||
| Accumulated other comprehensive loss | (1) | (1) | ||||||||||||
| Total common stockholder's equity | 4,260 | 3,986 | ||||||||||||
| Total liabilities and equity | $ | 10,764 | $ | 9,881 | ||||||||||
See Notes to Financial Statements
6
SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF COMMON STOCKHOLDER’S EQUITY (UNAUDITED)
(amounts in millions, except share data)
| Common Stock Issued | Retained Earnings | Accumulated Other Comprehensive Loss | Total Common Stockholder's Equity | ||||||||||||||||||||||||||||||||
| Shares | Par Value | Additional Paid In Capital | |||||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2024 and 2023 | |||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | 100 | $ | — | $ | 3,311 | $ | 528 | $ | (1) | $ | 3,838 | ||||||||||||||||||||||||
| Net income | 81 | 81 | |||||||||||||||||||||||||||||||||
| Common dividends declared to parent | (102) | (102) | |||||||||||||||||||||||||||||||||
| Contributions of capital by parent | 8 | 8 | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | 100 | $ | — | $ | 3,319 | $ | 507 | $ | (1) | $ | 3,825 | ||||||||||||||||||||||||
| Balance at March 31, 2024 | 100 | $ | — | $ | 3,370 | $ | 585 | $ | (1) | $ | 3,954 | ||||||||||||||||||||||||
| Net income | 89 | 89 | |||||||||||||||||||||||||||||||||
| Common dividends declared to parent | (46) | (46) | |||||||||||||||||||||||||||||||||
| Contributions of capital by parent | 263 | 263 | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | 100 | $ | — | $ | 3,633 | $ | 628 | $ | (1) | $ | 4,260 | ||||||||||||||||||||||||
| 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, 2024 and 2023 | |||||||||||||||||||||||||||||||||||
| Balance at Dec. 31, 2022 | 100 | $ | — | $ | 3,311 | $ | 540 | $ | (1) | $ | 3,850 | ||||||||||||||||||||||||
| Net income | 135 | 135 | |||||||||||||||||||||||||||||||||
| Dividends declared to parent | (168) | (168) | |||||||||||||||||||||||||||||||||
| Contributions of capital by parent | 8 | 8 | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | 100 | $ | — | $ | 3,319 | $ | 507 | $ | (1) | $ | 3,825 | ||||||||||||||||||||||||
| Balance at Dec. 31, 2023 | 100 | $ | — | $ | 3,370 | $ | 617 | $ | (1) | $ | 3,986 | ||||||||||||||||||||||||
| Net income | 146 | 146 | |||||||||||||||||||||||||||||||||
| Dividends declared to parent | (135) | (135) | |||||||||||||||||||||||||||||||||
| Contributions of capital by parent | 263 | 263 | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | 100 | $ | — | $ | 3,633 | $ | 628 | $ | (1) | $ | 4,260 | ||||||||||||||||||||||||
| See Notes to Financial Statements | |||||||||||||||||||||||||||||||||||
7
SOUTHWESTERN PUBLIC SERVICE COMPANY
Notes to Financial Statements (UNAUDITED)
In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly, in accordance with GAAP, the financial position of SPS as of June 30, 2024 and Dec. 31, 2023; the results of SPS’ operations, including the components of net income and changes in stockholder’s equity for the three and six months ended June 30, 2024 and 2023; and SPS’ cash flows for the six months ended June 30, 2024 and 2023.
All adjustments are of a normal, recurring nature, except as otherwise disclosed. Management has also evaluated the impact of events occurring after June 30, 2024 up to the date of issuance of these financial statements. These statements contain all necessary adjustments and disclosures resulting from that evaluation. The Dec. 31, 2023 balance sheet information has been derived from the audited 2023 financial statements included in the SPS Annual Report on Form 10-K for the year ended Dec. 31, 2023.
Notes to the financial statements have been prepared pursuant to the rules and regulations of the SEC for Quarterly Reports on Form 10-Q. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP on an annual basis have been condensed or omitted pursuant to such rules and regulations. For further information, refer to the financial statements and notes thereto included in the SPS Annual Report on Form 10-K for the year ended Dec. 31, 2023, filed with the SEC on Feb. 21, 2024.
Due to the seasonality of SPS’ electric sales, interim results are not necessarily an appropriate base from which to project annual results.
| 1. Summary of Significant Accounting Policies | ||
The significant accounting policies set forth in Note 1 to the financial statements in the SPS Annual Report on Form 10-K for the year ended Dec. 31, 2023 appropriately represent, in all material respects, the current status of accounting policies and are incorporated herein by reference.
| 2. Accounting Pronouncements | ||
Recently Issued
Segment Reporting — In November 2023, the FASB issued ASU 2023-07 – Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures, which extends the existing requirements for annual disclosures to quarterly periods, and requires that both annual and quarterly disclosures present segment expenses using line items consistent with information regularly provided to the chief operating decision maker. The ASU is effective for annual periods beginning after Dec. 15, 2023 and quarterly periods beginning after Dec. 15, 2024, and SPS does not expect implementation of the new disclosure guidance to have a material impact to its consolidated financial statements.
Income Taxes — In December 2023, the FASB issued ASU 2023-09 – Income Taxes (Topic 740) – Improvements to Income Tax Disclosures, with new disclosure requirements including presentation of prescribed line items in the effective tax rate reconciliation and disclosures regarding state and local tax payments. The ASU is effective for annual periods beginning after Dec. 15, 2024, and SPS does not expect implementation of the new disclosure guidance to have a material impact to its consolidated financial statements.
Climate-Related Disclosures — In March 2024, the SEC issued Final Rule 33-11275 – The Enhancement and Standardization of Climate-Related Disclosures for Investors. This rule requires registrants to provide standardized disclosures in Form 10-K related to climate-related risks, Scope 1 and 2 greenhouse gas emissions, as well as to include in a footnote to the consolidated financial statements the financial impact of severe weather events and other natural conditions. The rule requires implementation in phases between 2025 and 2033. In April 2024, the SEC announced that it would voluntarily stay its final climate disclosure rules pending judicial review. SPS does not expect implementation of the new guidance to have a material impact on the consolidated financial statements.
| 3. Selected Balance Sheet Data | ||
| (Millions of Dollars) | June 30, 2024 | Dec. 31, 2023 | ||||||||||||
| Accounts receivable, net | ||||||||||||||
| Accounts receivable | $ | 169 | $ | 237 | ||||||||||
| Less allowance for bad debts | (12) | (15) | ||||||||||||
| Accounts receivable, net | $ | 157 | $ | 222 | ||||||||||
| (Millions of Dollars) | June 30, 2024 | Dec. 31, 2023 | ||||||||||||
| Inventories | ||||||||||||||
| Materials and supplies | $ | 59 | $ | 56 | ||||||||||
| Fuel | 11 | 13 | ||||||||||||
| Total inventories | $ | 70 | $ | 69 | ||||||||||
| (Millions of Dollars) | June 30, 2024 | Dec. 31, 2023 | ||||||||||||
| Property, plant and equipment, net | ||||||||||||||
| Electric plant | $ | 11,005 | $ | 10,752 | ||||||||||
Plant to be retired (a) | 190 | 248 | ||||||||||||
| CWIP | 420 | 226 | ||||||||||||
| Total property, plant and equipment | 11,615 | 11,226 | ||||||||||||
| Less accumulated depreciation | (2,832) | (2,690) | ||||||||||||
| Property, plant and equipment, net | $ | 8,783 | $ | 8,536 | ||||||||||
(a)Amounts include Tolk and coal generation assets at Harrington pending facility gas conversion. Amounts are reported net of accumulated depreciation.
| 4. Borrowings and Other Financing Instruments | ||
Short-Term Borrowings
SPS meets its short-term liquidity requirements primarily through the issuance of commercial paper and borrowings under its credit facility and the money pool.
Money Pool — Xcel Energy 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.
8
Money pool borrowings:
| (Amounts in Millions, Except Interest Rates) | Three Months Ended June 30, 2024 | Year Ended Dec. 31, 2023 | ||||||||||||
| Borrowing limit | $ | 100 | $ | 100 | ||||||||||
| Amount outstanding at period end | — | 27 | ||||||||||||
| Average amount outstanding | 48 | 46 | ||||||||||||
| Maximum amount outstanding | 100 | 100 | ||||||||||||
| Weighted average interest rate, computed on a daily basis | 5.33 | % | 5.04 | % | ||||||||||
| Weighted average interest rate at period end | N/A | 5.34 | ||||||||||||
Commercial Paper — Commercial paper outstanding:
| (Amounts in Millions, Except Interest Rates) | Three Months Ended June 30, 2024 | Year Ended Dec. 31, 2023 | ||||||||||||
| Borrowing limit | $ | 500 | $ | 500 | ||||||||||
| Amount outstanding at period end | — | 75 | ||||||||||||
| Average amount outstanding | 51 | 50 | ||||||||||||
| Maximum amount outstanding | 160 | 119 | ||||||||||||
| Weighted average interest rate, computed on a daily basis | 5.59 | % | 5.12 | % | ||||||||||
| Weighted average interest rate at period end | N/A | 5.56 | ||||||||||||
Letters of Credit — SPS uses letters of credit, generally with terms of one year, to provide financial guarantees for certain obligations. At both June 30, 2024 and Dec. 31, 2023, there were no letters of credit outstanding under the credit facility. Amounts approximate their fair value and are subject to fees.
Revolving Credit Facility — In order to issue its commercial paper, SPS must have a revolving credit facility equal to or greater than the commercial paper borrowing limit and cannot issue commercial paper exceeding available capacity under this credit facility. The credit facility provides short-term financing in the form of notes payable to banks, letters of credit and back-up support for commercial paper borrowings.
SPS has the right to request an extension of the revolving credit facility termination date for two additional one-year periods. All extension requests are subject to majority bank group approval.
As of June 30, 2024, SPS had the following committed revolving credit facility available (in millions of dollars):
Credit Facility (a) | Drawn (b) | Available | ||||||||||||
| $ | 500 | $ | — | $ | 500 | |||||||||
(a)Expires in September 2027.
(b)Includes outstanding letters of credit.
All credit facility bank borrowings, outstanding letters of credit and outstanding commercial paper reduce the available capacity under the credit facility. SPS had no direct advances on the credit facility outstanding as of June 30, 2024 and Dec. 31, 2023.
Long-Term Borrowings
During the six months ended June 30, 2024 SPS issued $600 million of 6.00% First Mortgage Bonds due June 1, 2054.
| 5. Revenues | ||
Revenue is classified by the type of goods/services rendered and market/customer type. SPS’ operating revenues consisted of the following:
| Three Months Ended June 30 | ||||||||||||||
| (Millions of Dollars) | 2024 | 2023 | ||||||||||||
| Major revenue types | ||||||||||||||
| Revenue from contracts with customers: | ||||||||||||||
| Residential | $ | 83 | $ | 91 | ||||||||||
| Commercial and Industrial | 219 | 257 | ||||||||||||
| Other | 13 | 14 | ||||||||||||
| Total retail | 315 | 362 | ||||||||||||
| Wholesale | 30 | 51 | ||||||||||||
| Transmission | 70 | 72 | ||||||||||||
| Other | 1 | 2 | ||||||||||||
| Total revenue from contracts with customers | 416 | 487 | ||||||||||||
| Alternative revenue and other | 42 | 9 | ||||||||||||
| Total revenues | $ | 458 | $ | 496 | ||||||||||
| Six Months Ended June 30 | ||||||||||||||
| (Millions of Dollars) | 2024 | 2023 | ||||||||||||
| Major revenue types | ||||||||||||||
| Revenue from contracts with customers: | ||||||||||||||
| Residential | $ | 169 | $ | 192 | ||||||||||
Commercial and Industrial (a) | 436 | 524 | ||||||||||||
| Other | 22 | 26 | ||||||||||||
| Total retail | 627 | 742 | ||||||||||||
| Wholesale | 66 | 96 | ||||||||||||
| Transmission | 141 | 146 | ||||||||||||
| Other | 1 | 2 | ||||||||||||
| Total revenue from contracts with customers | 835 | 986 | ||||||||||||
| Alternative revenue and other | 51 | 18 | ||||||||||||
| Total revenues | $ | 886 | $ | 1,004 | ||||||||||
(a)For the six months ended June 30, 2024, revenues from one C&I customer represented approximately 10.2% of total revenues.
| 6. Income Taxes | ||
Reconciliation between the statutory rate and ETR:
| Six Months Ended June 30 | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Federal statutory rate | 21.0 | % | 21.0 | % | ||||||||||
| State tax (net of federal tax effect) | 2.5 | 2.2 | ||||||||||||
| (Decreases) increases: | ||||||||||||||
Wind PTCs (a) | (53.2) | (65.2) | ||||||||||||
Plant regulatory differences (b) | (4.6) | (3.5) | ||||||||||||
| Amortization of excess nonplant deferred taxes | 0.3 | 0.3 | ||||||||||||
| Other, net | 0.1 | — | ||||||||||||
| Effective income tax rate | (33.9) | % | (45.2) | % | ||||||||||
(a)Wind PTCs net of estimated transfer discounts. Gross wind PTCs are credited to customers (reduction to revenue) and do not materially impact net income.
(b)Plant regulatory differences primarily relate to the credit of excess deferred taxes to customers. Income tax benefits associated with the credit are offset by corresponding revenue reductions.
9
| 7. Fair Value of Financial Assets and Liabilities | ||
Fair Value Measurements
Accounting guidance for fair value measurements and disclosures provides a hierarchical framework for disclosing the observability of the inputs utilized in measuring assets and liabilities at fair value.
•Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. The types of assets and liabilities included in Level 1 are actively traded instruments with observable actual trading prices.
•Level 2 — Pricing inputs are other than actual trading prices in active markets but are either directly or indirectly observable as of the reporting date. The types of assets and liabilities included in Level 2 are typically either comparable to actively traded securities or contracts or priced with models using highly observable inputs.
•Level 3 — Significant inputs to pricing have little or no observability as of the reporting date. The types of assets and liabilities included in Level 3 include those valued with models requiring significant judgment or estimation.
Specific valuation methods include:
Interest rate derivatives — Fair values of interest rate derivatives are based on broker quotes that utilize current market interest rate forecasts.
Commodity derivatives — Methods used to measure the fair value of commodity derivative forwards and options utilize forward prices and volatilities, as well as pricing adjustments for specific delivery locations, and are generally assigned a Level 2 classification. When contracts relate to inactive delivery locations or extend to periods beyond those readily observable on active exchanges, the significance of the use of less observable inputs on a valuation is evaluated, and may result in Level 3 classification.
Electric commodity derivatives held by SPS include transmission congestion instruments, generally referred to as FTRs. FTRs purchased from an RTO are financial instruments that entitle or obligate the holder to monthly revenues or charges based on transmission congestion across a given transmission path.
The values of these instruments are derived from, and designed to offset, the costs of transmission congestion. In addition to overall transmission load, congestion is also influenced by the operating schedules of power plants and the consumption of electricity pertinent to a given transmission path. Unplanned plant outages, scheduled plant maintenance, changes in the relative costs of fuels used in generation, weather and overall changes in demand for electricity can each impact the operating schedules of the power plants on the transmission grid and the value of these instruments.
FTRs are recognized at fair value and adjusted each period prior to settlement. Given the limited observability of certain variables underlying the reported auction values of FTRs, these fair value measurements have been assigned a Level 3 classification.
Net congestion costs, including the impact of FTR settlements, are shared through fuel and purchased energy cost recovery mechanisms. As such, the fair value of the unsettled instruments (i.e., derivative asset or liability) is offset/deferred as a regulatory asset or liability.
Derivative Activities and Fair Value Measurements
SPS enters into derivative instruments, including forward contracts, for trading purposes and to manage risk in connection with changes in interest rates and utility commodity prices.
Interest Rate Derivatives — SPS enters into contracts that effectively fix the interest rate on a specified principal amount of a hypothetical future debt issuance. These financial swaps net settle based on changes in a specified benchmark interest rate, acting as a hedge of changes in market interest rates that will impact specified anticipated debt issuances. These derivative instruments are designated as cash flow hedges for accounting purposes, with changes in fair value prior to occurrence of the hedged transactions recorded as other comprehensive income.
As of June 30, 2024, accumulated other comprehensive loss related to interest rate derivatives included immaterial net losses expected to be reclassified into earnings during the next 12 months as the hedged transactions impact earnings. As of June 30, 2024, SPS had no unsettled interest rate derivatives.
Wholesale and Commodity Trading — SPS conducts various wholesale and commodity trading activities, including the purchase and sale of electric capacity, energy and energy-related instruments, including derivatives. SPS is allowed to conduct these activities within guidelines and limitations as approved by its risk management committee, comprised of management personnel not directly involved in the activities governed by this policy.
Results of derivative instrument transactions entered into for trading purposes are presented in the statements of income as electric revenues, net of any sharing with customers. These activities are not intended to mitigate commodity price risk associated with regulated electric operations. Sharing of these margins is determined through state regulatory proceedings as well as the operation of the FERC-approved joint operating agreement.
Commodity Derivatives — SPS enters into derivative instruments to manage variability of future cash flows from changes in commodity prices in its electric utility operations. This could include the purchase or sale of energy or energy-related products and FTRs.
The most significant derivative positions outstanding at June 30, 2024 for this purpose relate to FTR instruments administered by SPP. These instruments are intended to offset the impacts of transmission system congestion.
When SPS enters into derivative instruments that mitigate commodity price risk on behalf of electric customers, the instruments are not typically designated as qualifying hedging transactions. The classification of unrealized losses or gains on these instruments as a regulatory asset or liability, if applicable, is based on approved regulatory recovery mechanisms.
As of June 30, 2024, SPS had no commodity contracts designated as cash flow hedges.
Gross notional amounts of FTRs:
Amounts in Millions (a) | June 30, 2024 | Dec. 31, 2023 | ||||||||||||
| Megawatt hours of electricity | 16 | 8 | ||||||||||||
(a)Not reflective of net positions in the underlying commodities.
Consideration of Credit Risk and Concentrations — SPS continuously monitors the creditworthiness of counterparties to its interest rate derivatives and commodity derivative contracts prior to settlement, and assesses each counterparty’s ability to perform on the transactions set forth in the contracts. Impact of credit risk was immaterial to the fair value of unsettled commodity derivatives presented on the balance sheets.
SPS’ most significant concentrations of credit risk with particular entities or industries are contracts with counterparties to its wholesale, trading and non-trading commodity activities.
10
As of June 30, 2024, two of the ten most significant counterparties for these activities, comprising $6 million, or 20%, of this credit exposure, had investment grade credit ratings from S&P Global Ratings, Moody’s Investor Services or Fitch Ratings.
Five of the ten most significant counterparties, comprising $22 million, or 78%, of this credit exposure, were not rated by external ratings agencies, but based on SPS’ internal analysis, had credit quality consistent with investment grade.
Three of these counterparties, comprising an immaterial amount or less than 1% of this credit exposure, had credit quality less than investment grade, based on internal analysis. Seven of these counterparties are municipal or cooperative electric entities, RTOs or other utilities.
Recurring Derivative Fair Value Measurements
Impact of derivative activity:
| Pre-Tax Fair Value Gains (Losses) Recognized During the Period in: | ||||||||||||||
| (Millions of Dollars) | Regulatory Assets and Liabilities | |||||||||||||
| Three Months Ended June 30, 2024 | ||||||||||||||
| Other derivative instruments | ||||||||||||||
| Electric commodity | $ | 41 | ||||||||||||
| Total | $ | 41 | ||||||||||||
| Six Months Ended June 30, 2024 | ||||||||||||||
| Other derivative instruments | ||||||||||||||
| Electric commodity | $ | 40 | ||||||||||||
| Total | $ | 40 | ||||||||||||
| Three Months Ended June 30, 2023 | ||||||||||||||
| Other derivative instruments | ||||||||||||||
| Electric commodity | $ | (8) | ||||||||||||
| Total | $ | (8) | ||||||||||||
| Six Months Ended June 30, 2023 | ||||||||||||||
| Other derivative instruments | ||||||||||||||
| Electric commodity | $ | (83) | ||||||||||||
| Total | $ | (83) | ||||||||||||
| Pre-Tax Losses Reclassified into Income During the Period from: | |||||||||||||||||||||||
| (Millions of Dollars) | Regulatory Assets and Liabilities | ||||||||||||||||||||||
| Three Months Ended June 30, 2024 | |||||||||||||||||||||||
| Other derivative instruments | |||||||||||||||||||||||
| Electric commodity | $ | (16) | (a) | ||||||||||||||||||||
| Total | $ | (16) | |||||||||||||||||||||
| Six Months Ended June 30, 2024 | |||||||||||||||||||||||
| Other derivative instruments | |||||||||||||||||||||||
| Electric commodity | $ | (8) | (a) | ||||||||||||||||||||
| Total | $ | (8) | |||||||||||||||||||||
| Three Months Ended June 30, 2023 | |||||||||||||||||||||||
| Other derivative instruments | |||||||||||||||||||||||
| Electric commodity | $ | 4 | (a) | ||||||||||||||||||||
| Total | $ | 4 | |||||||||||||||||||||
| Six Months Ended June 30, 2023 | |||||||||||||||||||||||
| Other derivative instruments | |||||||||||||||||||||||
| Electric commodity | $ | 72 | (a) | ||||||||||||||||||||
| Total | $ | 72 | |||||||||||||||||||||
(a)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. FTR settlements are shared with customers and do not have a material impact on net income. Presented amounts reflect changes in fair value between auction and settlement dates, but exclude the original auction fair value.
SPS had no derivative instruments designated as fair value hedges during the six months ended June 30, 2024 and 2023.
Derivative assets and liabilities measured at fair value on a recurring basis were as follows:
| June 30, 2024 | Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Electric commodity | $ | — | $ | — | $ | 146 | $ | 146 | $ | — | $ | 146 | $ | — | $ | — | $ | 39 | $ | 39 | $ | — | $ | 39 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total current derivative assets | $ | — | $ | — | $ | 146 | $ | 146 | $ | — | 146 | $ | — | $ | — | $ | 39 | $ | 39 | $ | — | 39 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
PPAs (b) | 2 | 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current derivative instruments | $ | 148 | $ | 42 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current derivative liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PPAs (b) | — | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current derivative instruments | $ | — | $ | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(a)SPS nets derivative instruments and related collateral on its balance sheet when supported by a legally enforceable master netting agreement. At June 30, 2024 and Dec. 31, 2023, derivative assets and liabilities include no obligations to return cash collateral or rights to reclaim cash collateral.
(b)SPS currently applies the normal purchase exception to qualifying PPAs. Balance relates to specific contracts that were previously recognized at fair value prior to applying the normal purchase exception, and are being amortized over the remaining contract lives along with the offsetting regulatory assets and liabilities.
11
Changes in Level 3 commodity derivatives:
| Three Months Ended June 30 | ||||||||||||||
| (Millions of Dollars) | 2024 | 2023 | ||||||||||||
| Balance at April 1 | $ | 52 | $ | 23 | ||||||||||
Purchases (a) | 102 | 68 | ||||||||||||
Settlements (a) | (83) | (32) | ||||||||||||
| Net transactions recorded during the period: | ||||||||||||||
Net gains recognized as regulatory assets and liabilities (a) | 75 | 24 | ||||||||||||
| Balance at June 30 | $ | 146 | $ | 83 | ||||||||||
| Six Months Ended June 30 | ||||||||||||||
| (Millions of Dollars) | 2024 | 2023 | ||||||||||||
| Balance at Jan. 1 | $ | 39 | $ | 119 | ||||||||||
Purchases (a) | 105 | 74 | ||||||||||||
Settlements (a) | (119) | (48) | ||||||||||||
| Net transactions recorded during the period: | ||||||||||||||
Net gains (losses) recognized as regulatory assets and liabilities (a) | 121 | (62) | ||||||||||||
| Balance at June 30 | $ | 146 | $ | 83 | ||||||||||
(a)Relates primarily to FTR instruments administered by SPP.
Fair Value of Long-Term Debt
As of June 30, 2024, other financial instruments for which the carrying amount did not equal fair value:
| June 30, 2024 | Dec. 31, 2023 | |||||||||||||||||||||||||
| (Millions of Dollars) | Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||||
| Long-term debt, including current portion | $ | 3,550 | $ | 2,919 | $ | 3,311 | $ | 2,818 | ||||||||||||||||||
Fair value of SPS’ long-term debt is estimated based on recent trades and observable spreads from benchmark interest rates for similar securities. Fair value estimates are based on information available to management as of June 30, 2024 and Dec. 31, 2023, 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 | ||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| (Millions of Dollars) | Pension Benefits | Postretirement Health Care Benefits | ||||||||||||||||||||||||
| Service cost | $ | 2 | $ | 2 | $ | — | $ | — | ||||||||||||||||||
Interest cost (a) | 6 | 6 | 1 | — | ||||||||||||||||||||||
Expected return on plan assets (a) | (8) | (8) | (1) | — | ||||||||||||||||||||||
| Net periodic benefit (credit) cost | — | — | — | — | ||||||||||||||||||||||
| Effects of regulation | (2) | 1 | — | — | ||||||||||||||||||||||
| Net benefit (credit) cost recognized for financial reporting | $ | (2) | $ | 1 | $ | — | $ | — | ||||||||||||||||||
| Six Months Ended June 30 | ||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| (Millions of Dollars) | Pension Benefits | Postretirement Health Care Benefits | ||||||||||||||||||||||||
| Service cost | $ | 4 | $ | 3 | $ | — | $ | — | ||||||||||||||||||
Interest cost (a) | 11 | 12 | 1 | 1 | ||||||||||||||||||||||
Expected return on plan assets (a) | (16) | (16) | (1) | (1) | ||||||||||||||||||||||
Amortization of net loss (a) | 1 | 1 | — | — | ||||||||||||||||||||||
| Net periodic benefit cost | — | — | — | — | ||||||||||||||||||||||
| Effects of regulation | (1) | 2 | — | — | ||||||||||||||||||||||
| Net benefit (credit) cost recognized for financial reporting | $ | (1) | $ | 2 | $ | — | $ | — | ||||||||||||||||||
(a)The components of net periodic cost other than the service cost component are included in the line item “Other expense, net” in the statements of income or capitalized on the balance sheets as a regulatory asset.
In January 2024, contributions totaling $100 million were made across Xcel Energy’s pension plans, $3 million of which was attributable to SPS. Xcel Energy does not expect additional pension contributions during 2024.
| 9. Commitments and Contingencies | ||
Legal
SPS is involved in various litigation matters in the ordinary course of business. The assessment of whether a loss is probable or is a reasonable possibility, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. Management maintains accruals for losses probable of being incurred and subject to reasonable estimation. Management is sometimes unable to estimate an amount or range of a reasonably possible loss in certain situations, including but not limited to when (1) the damages sought are indeterminate, (2) the proceedings are in the early stages, or (3) the matters involve novel or unsettled legal theories.
In such cases, there is considerable uncertainty regarding the timing or ultimate resolution, including a possible eventual loss. For current proceedings not specifically reported herein, management does not anticipate that the ultimate liabilities, if any, would have a material effect on SPS’ financial statements. Legal fees are generally expensed as incurred.
2024 Smokehouse Creek Fire Complex
On February 26, 2024, multiple wildfires began in the Texas Panhandle, including the Smokehouse Creek Fire and the 687 Reamer Fire, which burned into the perimeter of the Smokehouse Creek Fire (together, referred to herein as the “Smokehouse Creek Fire Complex”). The Texas A&M Forest Service issued incident reports that determined that the Smokehouse Creek Fire and the 687 Reamer Fire were caused by power lines owned by SPS after wooden poles near each fire origin failed. According to the Texas A&M Forest Service’s Incident Viewer and news reports, the Smokehouse Creek Fire Complex burned approximately 1,055,000 acres.
12
SPS is aware of approximately 21 complaints, most of which have also named Xcel Energy Services Inc. as an additional defendant, relating to the Smokehouse Creek Fire Complex, including one putative class action on behalf of persons or entities who owned rangelands or pastures that were damaged by the fire. The complaints generally allege that SPS’s equipment ignited the Smokehouse Creek Fire Complex and seek compensation for losses resulting from the fire, asserting various causes of action under Texas law. In addition to seeking compensatory damages, certain of the complaints also seek exemplary damages. SPS has also received approximately 141 claims for losses related to the Smokehouse Creek Fire Complex through its claims process and has reached final settlements on 43 of those claims. In July 2024, SPS reached a settlement of a complaint related to one of the two fatalities believed to be associated with the Smokehouse Creek Fire Complex.
Texas law does not apply strict liability in determining an electric utility company’s liability for fire-related damages. For negligence claims under Texas law, a public utility has a duty to exercise ordinary and reasonable care.
Potential liabilities related to the Smokehouse Creek Fire Complex depend on various factors, including the cause of the equipment failure and the extent and magnitude of potential damages, including damages to residential and commercial structures, personal property, vegetation, livestock and livestock feed (including replacement feed), personal injuries and any other damages, penalties, fines or restitution that may be imposed by courts or other governmental entities if SPS is found to have been negligent.
Based on the current state of the law and the facts and circumstances available as of the date of this filing, Xcel Energy believes it is probable that it will incur a loss in connection with the Smokehouse Creek Fire Complex and accordingly has accrued a $215 million estimated loss for the matter (before available insurance), presented in other current liabilities as of June 30, 2024.
The aggregate liability of $215 million for claims in connection with the Smokehouse Creek Fire Complex (before available insurance) corresponds to the lower end of the range of Xcel Energy’s reasonably estimable range of losses, and is subject to change based on additional information. This $215 million estimate does not include, among other things, amounts for (i) potential penalties or fines that may be imposed by governmental entities on Xcel Energy, (ii) exemplary or punitive damages, (iii) compensation claims by federal, state, county and local government entities or agencies, (iv) compensation claims for damage to trees, railroad lines, or oil and gas equipment, or (v) other amounts that are not reasonably estimable.
Xcel Energy remains unable to reasonably estimate any additional loss or the upper end of the range because there are a number of unknown facts and legal considerations that may impact the amount of any potential liability. In the event that SPS or Xcel Energy Services Inc. was found liable related to the litigation related to the Smokehouse Creek Fire Complex and was required to pay damages, such amounts could exceed our insurance coverage of approximately $500 million for the annual policy period and could have a material adverse effect on our financial condition, results of operations or cash flows.
The process for estimating losses associated with potential claims related to the Smokehouse Creek Fire Complex requires management to exercise significant judgment based on a number of assumptions and subjective factors, including the factors identified above and estimates based on currently available information and prior experience with wildfires. As more information becomes available, management estimates and assumptions regarding the potential financial impact of the Smokehouse Creek Fire Complex may change.
SPS records insurance recoveries when it is deemed probable that recovery will occur, and SPS can reasonably estimate the amount or range. SPS has recorded an insurance receivable for $215 million, presented within prepayments and other current assets as of June 30, 2024. While SPS plans to seek recovery of all insured losses, it is unable to predict the ultimate amount and timing of such insurance recoveries.
Rate Matters and Other
SPS is involved in various regulatory proceedings arising in the ordinary course of business. Until resolution, typically in the form of a rate order, uncertainties may exist regarding the ultimate rate treatment for certain activities and transactions. Amounts have been recognized for probable and reasonably estimable losses that may result. Unless otherwise disclosed, any reasonably possible range of loss in excess of any recognized amount is not expected to have a material effect on the financial statements.
SPP OATT Upgrade Costs — Costs of transmission upgrades may be recovered from other SPP customers whose transmission service depends on capacity enabled by the upgrade under the SPP OATT. SPP had not been charging its customers for these upgrades, even though the SPP OATT had allowed SPP to do so since 2008. In 2016, the FERC granted SPP’s request to recover these previously unbilled charges and SPP subsequently billed SPS approximately $13 million.
In 2018, SPS’ appeal to the D.C. Circuit over the FERC rulings granting SPP the right to recover previously unbilled charges was remanded to the FERC. In 2019, the FERC reversed its 2016 decision and ordered SPP to refund charges retroactively collected from its transmission customers, including SPS, related to periods before September 2015. In 2020, SPP and Oklahoma Gas & Electric separately filed petitions for review of the FERC’s orders at the D.C. Circuit. In 2021, the D.C. Circuit issued a decision denying these appeals and upholding the FERC’s orders. Refunds received by SPS are expected to be given back to SPS customers through future rates.
Environmental
New and changing federal and state environmental mandates can create financial obligations for SPS, which are normally recovered through the regulated rate process.
Site Remediation
Various federal and state environmental laws impose liability where hazardous substances or other regulated materials have been released to the environment. SPS may sometimes pay all or a portion of the cost to remediate sites where past activities of their predecessors or other parties have caused environmental contamination.
Environmental contingencies could arise from various situations, including sites of former MGPs; and third-party sites, such as landfills, for which SPS is alleged to have sent wastes to that site.
13
MGP, Landfill and Disposal Sites
SPS is investigating, remediating or performing post-closure actions at three historical MGP, landfill or other disposal sites across its service territories, in addition to sites that are being addressed under current coal ash regulations (see below).
SPS has recognized its best estimate of costs/liabilities for resolution of these issues; however, the final outcomes and timing are unknown. In addition, there may be regulatory recovery, insurance recovery and/or recovery from other potentially responsible parties, offsetting a portion of costs incurred.
Water and Waste
Coal Ash Regulation — SPS is subject to the CCR Rule, which imposes requirements for handling, storage, treatment and disposal of coal ash and other solid waste.
In May 2024, final amendments to the CCR Rule were published. These include legacy CCR surface impoundments at inactive facilities and previously exempt areas where CCR was placed directly on land at CCR-regulated facilities, including areas of beneficial use.
As a specific requirement of the CCR Rule, utilities must complete facility evaluations and groundwater sampling around their subject landfills, surface impoundments and certain other areas where coal ash was placed on land, as well as perform corrective actions where offsite groundwater has been impacted.
If certain impacts to groundwater are detected, utilities may be required to perform additional groundwater investigations and/or perform corrective actions, typically beginning with an Assessment of Corrective Measures.
SPS expects to incur $4 million for investigations through 2028 to perform required reporting and assess whether corrective actions are necessary. Asset retirement obligations have been recorded for each of these activities, and amounts are expected to be recoverable through regulatory mechanisms.
SPS continues to evaluate the 2024 updates to the CCR rule, the interpretations of those updates and how they will apply to specific sites. Assessment of the recent updates to the CCR Rule and corresponding site investigation activities may result in updates to estimated costs as well as identification of additional required corrective actions.
Air
Clean Air Act NOx Allowance Allocations — In June 2023, the EPA published final regulations for ozone under the "Good Neighbor" provisions of the Clean Air Act. The final rule applies to generation facilities in Texas, as well as other states outside of our service territory. The rule establishes an allowance trading program for NOx that will impact SPS’ fossil fuel-fired electric generating facilities. Subject facilities will have to secure additional allowances, install NOx controls and/or develop a strategy of operations that utilizes the existing allowance allocations. Guidelines are also established for allowance banking and emission limit backstops.
While the financial impacts of the final rule are uncertain and dependent on market forces and anticipated generation, SPS anticipates the annual costs could be significant, but would be recoverable through regulatory mechanisms.
SPS has joined other companies in litigation challenging the EPA’s disapproval of Texas’ state implementation plan. Currently, the regulation is under a judicial stay for Texas. The regulation may become applicable in the future, depending on the outcome of the litigation.
In February 2024, the EPA proposed to partially disapprove New Mexico’s state implementation plan and bring New Mexico into the federal Good Neighbor Plan.
In June 2024, the U.S. Supreme Court issued an order granting a stay of the final rule. SPS continues to evaluate impacts to its generation units.
Leases
SPS evaluates contracts that may contain leases, including PPAs and arrangements for the use of office space and other facilities, vehicles and equipment. A contract contains a lease if it conveys the exclusive right to control the use of a specific asset.
Components of lease expense:
| Three Months Ended June 30 | ||||||||||||||
| (Millions of Dollars) | 2024 | 2023 | ||||||||||||
| Operating leases | ||||||||||||||
| PPA capacity payments | $ | 13 | $ | 14 | ||||||||||
Other operating leases (a) | 1 | 1 | ||||||||||||
Total operating lease expense (b) | $ | 14 | $ | 15 | ||||||||||
(a)Includes immaterial short-term lease expense for 2024 and 2023.
(b)PPA capacity payments are included in electric fuel and purchased power on the statements of income. Expense for other operating leases is included in operating and maintenance expense and electric fuel and purchased power.
| Six Months Ended June 30 | ||||||||||||||
| (Millions of Dollars) | 2024 | 2023 | ||||||||||||
| Operating leases | ||||||||||||||
| PPA capacity payments | $ | 26 | $ | 27 | ||||||||||
Other operating leases (a) | 2 | 2 | ||||||||||||
Total operating lease expense (b) | $ | 28 | $ | 29 | ||||||||||
(a)Includes immaterial short-term lease expense for 2024 and 2023.
(b)PPA capacity payments are included in electric fuel and purchased power on the statements of income. Expense for other operating leases is included in operating and maintenance expense and electric fuel and purchased power.
Commitments under operating leases as of June 30, 2024:
| (Millions of Dollars) | PPA Operating Leases | Other Operating Leases | Total Operating Leases | |||||||||||||||||
| Total minimum obligation | $ | 428 | $ | 48 | $ | 476 | ||||||||||||||
| Interest component of obligation | (77) | (12) | (89) | |||||||||||||||||
| Present value of minimum obligation | $ | 351 | $ | 36 | 387 | |||||||||||||||
| Less current portion | (33) | |||||||||||||||||||
| Noncurrent operating lease liabilities | $ | 354 | ||||||||||||||||||
Variable Interest Entities
Under certain PPAs, SPS purchases power from IPPs for which SPS is required to reimburse fuel costs, or to participate in tolling arrangements under which SPS procures the natural gas required to produce the energy that it purchases. SPS has determined that certain IPPs are VIEs. SPS is not subject to risk of loss from the operations of these entities, and no significant financial support is required other than contractual payments for energy and capacity.
In addition, certain solar PPAs provide an option to purchase emission allowances or sharing provisions related to production credits generated by the solar facility under contract. These specific PPAs create a variable interest in the IPP.
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SPS evaluated each of these VIEs for possible consolidation, including review of qualitative factors such as the length and terms of the contract, control over O&M, control over dispatch of electricity, historical and estimated future fuel and electricity prices, and financing activities. SPS concluded that these entities are not required to be consolidated in its financial statements because it does not have the power to direct the activities that most significantly impact the entities’ economic performance.
SPS had approximately 1,197 MW of capacity under long-term PPAs at both June 30, 2024 and Dec. 31, 2023 with entities that have been determined to be VIEs. These agreements have expiration dates through 2041.
| ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | ||
Discussion of financial condition and liquidity for SPS is omitted per conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q for wholly owned subsidiaries. It is replaced with management’s narrative analysis of the results of operations set forth in General Instruction H(2)(a) of Form 10-Q for wholly owned subsidiaries (reduced disclosure format).
Non-GAAP Financial Measures
The following discussion includes financial information prepared in accordance with GAAP, as well as certain non-GAAP financial measures such as ongoing earnings. Generally, a non-GAAP financial measure is a measure of a company’s financial performance, financial position or cash flows that adjusts measures calculated and presented in accordance with GAAP.
SPS’ management uses non-GAAP measures for financial planning and analysis, for reporting of results to the Board of Directors, in determining performance-based compensation, and communicating its earnings outlook to analysts and investors. Non-GAAP financial measures are intended to supplement investors’ understanding of our performance and should not be considered alternatives for financial measures presented in accordance with GAAP. These measures are discussed in more detail below and may not be comparable to other companies’ similarly titled non-GAAP financial measures.
Earnings Adjusted for Certain Items (Ongoing Earnings)
Ongoing earnings reflect adjustments to GAAP earnings (net income) for certain items. We use this non-GAAP financial measure to evaluate and provide details of SPS’ core earnings and underlying performance.
We believe this measurement is useful to investors to evaluate the actual and projected financial performance and contribution of SPS. For the three and six months ended June 30, 2024 and 2023, there were no such adjustments to GAAP earnings and therefore GAAP earnings equal ongoing earnings.
| Results of Operations | ||
SPS’ net income was $146 million for the six months ended June 30, 2024 compared with $135 million for the prior year. The year-to-date increase is due to regulatory rate outcomes and increased sales and demand, which were partially offset by increased depreciation.
Electric Revenue
Electric revenues are impacted by fluctuations in the price of natural gas and coal, regulatory outcomes, market prices and seasonality. In addition, electric customers receive a credit for PTCs generated, which reduce electric revenue and income taxes.
| (Millions of Dollars) | Six Months Ended June 30, 2024 vs. 2023 | |||||||
| Recovery of lower cost of electric fuel and purchased power | $ | (183) | ||||||
| Wholesale generation revenues | (25) | |||||||
| Regulatory rate outcomes | 43 | |||||||
| Revenue recognition for the Texas rate case surcharge | 37 | |||||||
| Sales and demand | 16 | |||||||
| Estimated impact of weather | 13 | |||||||
| Other, net | (19) | |||||||
| Total decrease in electric revenues | $ | (118) | ||||||
Electric Fuel and Purchased Power — Expenses incurred for electric fuel and purchased power are impacted by fluctuations in market prices of natural gas and coal, as well as seasonality. These incurred expenses are generally recovered through various regulatory recovery mechanisms. As a result, changes in these expenses are largely offset in operating revenues and have minimal earnings impact.
Electric fuel and purchased power expenses decreased $193 million year-to-date. The decrease is primarily due to timing of fuel recovery mechanisms and lower commodity prices.
Non-Fuel Operating Expense and Other Items
O&M Expenses — O&M expenses increased $6 million year-to-date. The increase was primarily due to recognition of previously deferred costs associated with the Texas Electric Rate Case in 2024, partially offset by decreased labor and benefit costs and lower bad debt expenses.
Depreciation and Amortization — Depreciation and amortization increased $52 million year-to-date. The year-to-date increase was largely the result of recognition of previously deferred costs and depreciation rate changes associated with the Texas Rate Case as well as system expansion.
| Public Utility Regulation and Other | ||
The FERC and state and local regulatory commissions regulate SPS. SPS is subject to rate regulation by state utility regulatory agencies, which have jurisdiction with respect to the rates of electric distribution companies in New Mexico and Texas.
Rates are designed to recover plant investment, operating costs and an allowed return on investment. SPS requests changes in utility rates through commission filings. Changes in operating costs can affect SPS’ financial results, depending on the timing of rate cases and implementation of final rates. Other factors affecting rate filings are new investments, sales, conservation and demand side management efforts, and the cost of capital.
In addition, the regulatory commissions authorize the ROE, capital structure and depreciation rates in rate proceedings. Decisions by these regulators can significantly impact SPS’ results of operations and credit quality.
Except to the extent noted below, the circumstances set forth in Public Utility Regulation included in Item 7 of SPS’ Annual Report on Form 10-K for the year ended Dec. 31, 2023, appropriately represent, in all material respects, the current status of public utility regulation and are incorporated herein by reference.
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Pending and Recently Concluded Regulatory Proceedings
2023 Texas Electric Rate Case — In 2023, SPS filed an electric rate case with the PUCT seeking an increase in base rate revenue of $158 million (14%). Interim rates went into effect on Feb. 1, 2024. In April 2024, the PUCT approved a black box settlement between SPS and intervening parties, which reflect the following terms:
•A base rate increase of $65 million effective back to July 13, 2023.
•A 9.55% ROE, a 54.51% equity ratio and a 7.11% WACC for purposes of calculating SPS’ allowance for funds used during construction and in other proceedings filed before the PUCT where a stated WACC is required.
•The reflection in rates of the retirement of Tolk Generation Station from 2034 to 2028.
•Establishment of a rate rider of approximately $18 million to be recovered over a three-year period for various deferred expenses.
In July 2024, SPS filed to surcharge the final under-recovered amount, estimated to be $37 million. This will be largely offset by previously deferred costs including depreciation, O&M, and taxes other than income tax.
2022 All-Source RFP — In July 2023, SPS filed for approval of a CPCN for a recommended generation portfolio, which includes 418 MW of self-build solar projects and a 36 MW battery. The NMPRC approved the projects in May 2024. In July 2024, the PUCT approved the solar projects and denied the battery project. The PUCT’s approval included minimum production and PTC guarantees.
The second portion of the portfolio includes a November 2023 filing for the approval of PPAs including 48 MW of battery energy storage and 230 MW of existing gas generation. The NMPRC approved the PPA agreements in June and a PUCT decision is expected in the fourth quarter of 2024.
New Mexico Resource Plan (IRP) — In October 2023, SPS filed its IRP with the NMPRC, which supports projected load growth and increasing reliability requirements, and secures replacement energy and capacity for retiring resources. SPS’ initial IRP modeling projected resource needs ranging from approximately 5,300 MW to 10,200 MW by 2030. In February 2024, the NMPRC accepted the IRP.
In July 2024, SPS issued a RFP, seeking approximately 3,000 MW of accredited generation capacity by 2030. The total capacity to be added to the system is expected to align with the approximate range identified in the SPS IRP, depending on the types of resources proposed in the RFP and their accredited capacity factors.
The RFP will be evaluated in the first quarter of 2025. SPS is expected to file for a certificate of need for the recommended portfolio in the summer of 2025. The Texas and New Mexico Commissions are expected to rule on the recommended portfolio in 2026.
Texas DCRF — In May 2024, SPS filed for a DCRF to recover $13 million through a rider for distribution capital investment placed in service for the year ended December 31, 2023. SPS’ requested DCRF rates went into effect in late July 2024.
Other
Supply Chain
SPS’ ability to meet customer energy requirements, execute our capital expenditure program and respond to storm-related disruptions are dependent on maintaining an efficient supply chain. Manufacturing processes have experienced disruptions related to scarcity of certain raw materials and interruptions in production and shipping. These disruptions have been further exacerbated by inflationary pressures, labor shortages and the impact of international conflicts/issues. SPS continues to monitor the situation as it remains fluid and seeks to mitigate the impacts by securing alternative suppliers, modifying design standards, and adjusting the timing of work.
Large global demand for energy-related infrastructure (renewables and gas generation, data centers, etc.) has stretched equipment supply chains, extended delivery dates and increased prices for items like combustion turbines, transformers and other large electrical equipment. The labor market for skilled engineering and construction resources to build renewables and gas generation has also been strained, impacting cost and availability.
Tariffs and Trade Complaints
In August 2023, the U.S. Department of Commerce completed its anti-circumvention investigation and concluded that CSPV solar panels and cells imported from Malaysia, Vietnam, Thailand, and Cambodia would be subject to incremental tariffs ranging from 50% to 250%. These countries account for more than 80% of CSPV panel imports.
An interim stay on tariffs remained in effect until June 2024 and many significant solar projects have resumed with modified costs and projected in-service dates
In April 2024, the American Alliance for Solar Manufacturing Trade Committee filed a petition related to new anti-dumping and countervailing duty cases targeting solar products from Cambodia, Malaysia, Thailand and Vietnam with the United States Department of Commerce and the United States International Trade Commission.
In May 2024, the U.S. Department of Commerce announced the initiation of anti-dumping and countervailing duty investigations of CSPV cells, whether or not assembled into modules. A preliminary decision related to this matter is anticipated in November 2024.
In June 2024, a previous tariff exclusion for bi-facial panels ended. Tariff rate is now 14.25% until February 2025 and 14% until February 2026 for imported panels.
In May 2024, the White House imposed a new 25% tariff on Lithium-Ion storage along with other trade measures. The tariff went into immediate effect for EV batteries but has a grace period until January 2026 for stationary energy storage applications.
SPS continues to assess the impacts of these tariffs and trade complaints on its business, including company-owned projects and PPAs. SPS may seek regulatory relief for tariffs, if required, in its jurisdictions.
Further policy actions or other restrictions on solar and storage imports, disruptions in imports from key suppliers, or any new trade complaint could impact project timelines and costs of various generation projects and PPAs.
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| Environmental Regulation | ||||||||||||||
Clean Air Act
Power Plant Greenhouse Gas Regulations — In April 2024, the EPA published final rules addressing control of CO2 emissions from the power sector. The rules regulate new natural gas generating units and emission guidelines for existing coal and certain natural gas generation. The rules create subcategories of coal units based on planned retirement date and subcategories of natural gas combustion turbines and combined cycle units based on utilization. The CO2 control requirements vary by subcategory. Based on current estimates and assumptions, SPS has determined that due to scheduled plant retirements, there is minimal financial or operational impact associated with these requirements and believes that the cost of these initiatives or replacement generation would be recoverable through rates based on prior state commission practices.
Emerging Contaminants of Concern
PFAS are man-made chemicals that are widely used in consumer products and can persist and bio-accumulate in the environment. SPS does not manufacture PFAS, but because PFAS are so ubiquitous in products and the environment, it may impact our operations.
In September 2022, the EPA proposed to designate two types of PFAS as “hazardous substances” under the CERCLA. In July 2024, the EPA’s final rule went into effect.
In March 2023, the EPA published a proposed rule that would establish enforceable drinking water standards for certain PFAS chemicals. In June 2024, the EPA’s final rule went into effect.
In February 2024, the EPA proposed to change the Resource Conservation and Recovery Act by adding nine PFAS to its list of hazardous constituents.
Potential costs are uncertain and will be determined on a site specific basis where applicable. If costs are incurred, SPS believes the costs will be recoverable through rates based on prior state commission practices.
ITEM 4 — CONTROLS AND PROCEDURES | ||
Disclosure Controls and Procedures
SPS maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms.
In addition, the disclosure controls and procedures ensure that information required to be disclosed is accumulated and communicated to management, including the CEO and CFO, allowing timely decisions regarding required disclosure.
As of June 30, 2024, based on an evaluation carried out under the supervision and with the participation of SPS’ management, including the CEO and CFO, of the effectiveness of its disclosure controls and procedures, the CEO and CFO have concluded that SPS’ disclosure controls and procedures were effective.
Internal Control Over Financial Reporting
No changes in SPS’ internal control over financial reporting occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, SPS’ internal control over financial reporting.
PART II — OTHER INFORMATION
| ITEM 1 — LEGAL PROCEEDINGS | ||
SPS is involved in various litigation matters in the ordinary course of business. The assessment of whether a loss is probable or is a reasonable possibility, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. Management maintains accruals for losses probable of being incurred and subject to reasonable estimation.
Management is sometimes unable to estimate an amount or range of a reasonably possible loss in certain situations, including but not limited to, when (1) the damages sought are indeterminate, (2) the proceedings are in the early stages or (3) the matters involve novel or unsettled legal theories. In such cases, there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including a possible eventual loss.
For current proceedings not specifically reported herein, management does not anticipate that the ultimate liabilities, if any, would have a material effect on SPS’ financial statements. Legal fees are generally expensed as incurred.
See Note 9 to the financial statements and Part I Item 2 for further information.
| ITEM 1A — RISK FACTORS | ||
SPS’ risk factors are documented in Item 1A of Part I of its Annual Report on Form 10-K for the year ended Dec. 31, 2023, which is incorporated herein by reference. There have been no material changes from the risk factors previously disclosed in the Form 10-K.
ITEM 5 — OTHER INFORMATION | ||
None of the Company’s directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended June 30, 2024.
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| ITEM 6 — EXHIBITS | ||
* Indicates incorporation by reference
| Exhibit Number | Description | Report or Registration Statement | Exhibit Reference | ||||||||
3.01* | SPS Form 10-Q for the quarter ended Sept. 30, 2017 | 3.01 | |||||||||
3.02* | SPS Form 10-K for the year ended Dec. 31, 2018 | 3.02 | |||||||||
| SPS Form 8-K dated June 6, 2024 | 4.02 | ||||||||||
| 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.
| Southwestern Public Service Company | ||||||||
| 8/1/2024 | By: | /s/ MELISSA L. OSTROM | ||||||
| Melissa L. Ostrom | ||||||||
| Vice President, Controller | ||||||||
| (Principal Accounting Officer) | ||||||||
| By: | /s/ BRIAN J. VAN ABEL | |||||||
| Brian J. Van Abel | ||||||||
| Executive Vice President, Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||
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