Southwestern Public Service 10-Q 2012 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2012

or

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

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.)
Tyler at Sixth
Amarillo, Texas	79101
(Address of principal executive offices)	(Zip Code)

(303) 571-7511

 (Registrant’s telephone number, including area code)

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.   x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 and 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 and post such files).  x Yes o No

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x	Smaller reporting company o
(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   o Yes x 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, 2012
Common Stock, $1 par value	100 shares

Southwestern Public Service Company meets the conditions set forth in General Instruction 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 l     —	Financial Statements (Unaudited)	3
Item 2    —	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 4    —	Controls and Procedures	18
PART II — OTHER INFORMATION
Item 1     —	Legal Proceedings	18
Item 1A  —	Risk Factors	18
Item 4    —	Mine Safety Disclosures	18
Item 5    —	Other Information	18
Item 6    —	Exhibits	19
SIGNATURES		20
Certifications Pursuant to Section 302		1
Certifications Pursuant to Section 906		1
Statement Pursuant to Private Litigation		1

This Form 10-Q is filed by Southwestern Public Service Company, a New Mexico corporation (SPS). SPS is a wholly owned subsidiary of Xcel Energy Inc.  Xcel Energy Inc. wholly owns the following subsidiaries: Northern States Power Company, a Minnesota corporation (NSP-Minnesota); Northern States Power Company, a Wisconsin corporation (NSP-Wisconsin); Public Service Company of Colorado, a Colorado corporation (PSCo); and SPS.  NSP-Minnesota, NSP-Wisconsin, PSCo and SPS are also referred to collectively as utility subsidiaries.  Additional information on Xcel Energy Inc. and its subsidiaries (collectively, Xcel Energy) is available on various filings with the Securities and Exchange Commission (SEC).

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PART 1 — FINANCIAL INFORMATION

Item 1 — FINANCIAL STATEMENTS

SOUTHWESTERN PUBLIC SERVICE COMPANY

STATEMENTS OF INCOME (UNAUDITED)

(amounts in thousands)

	Three Months Ended Sept. 30						Nine Months Ended Sept. 30
	2012			2011			2012			2011
Operating revenues	$	471,889		$	522,921		$	1,192,578		$	1,337,419
Operating expenses
Electric fuel and purchased power		259,783			325,930			676,079			850,583
Operating and maintenance expenses		60,676			61,651			185,961			187,136
Demand side management program expenses		3,129			4,658			9,366			12,469
Depreciation and amortization		28,690			27,067			84,785			79,589
Taxes (other than income taxes)		12,102			10,730			35,142			31,825
Total operating expenses		364,380			430,036			991,333			1,161,602
Operating income		107,509			92,885			201,245			175,817
Other (expense) income, net		(73	)		286			(53	)		432
Allowance for funds used during construction – equity		1,670			894			5,062			4,178
Interest charges and financing costs
Interest charges – includes other financing costs of
$721, $763, $2,243 and $2,188, respectively		17,649			16,456			51,290			48,322
Allowance for funds used during construction – debt		(1,052	)		(655	)		(3,208	)		(3,022	)
Total interest charges and financing costs		16,597			15,801			48,082			45,300
Income before income taxes		92,509			78,264			158,172			135,127
Income taxes		34,262			29,683			58,271			51,636
Net income	$	58,247		$	48,581		$	99,901		$	83,491

See Notes to Financial Statements

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SOUTHWESTERN PUBLIC SERVICE COMPANY

STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(amounts in thousands)

	Three Months Ended Sept. 30				Nine Months Ended Sept. 30
	2012		2011		2012		2011
Net income	$	58,247	$	48,581	$	99,901	$	83,491
Other comprehensive income
Derivative instruments:								��
Reclassification of losses to net income, net of tax of $24,
$24, $72, and $72, respectively		43		42		129		128
Other comprehensive income		43		42		129		128
Comprehensive income	$	58,290	$	48,623	$	100,030	$	83,619

See Notes to Financial Statements

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SOUTHWESTERN PUBLIC SERVICE COMPANY

STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)

	Nine Months Ended Sept. 30
	2012			2011
Operating activities
Net income	$	99,901		$	83,491
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		86,426			81,253
Demand side management program amortization		1,358			1,358
Deferred income taxes		36,600			56,476
Amortization of investment tax credits		(206	)		(255	)
Allowance for equity funds used during construction		(5,062	)		(4,178	)
Net derivative losses		201			201
Changes in operating assets and liabilities:
Accounts receivable		(21,406	)		(37,089	)
Accrued unbilled revenues		(8,593	)		(3,013	)
Inventories		3,601			(4,732	)
Prepayments and other		1,204			(1,655	)
Accounts payable		(21,834	)		(6,129	)
Net regulatory assets and liabilities		44,031			7,327
Other current liabilities		25,664			17,530
Pension and other employee benefit obligations		(10,527	)		(5,634	)
Change in other noncurrent assets		(1,577	)		1,101
Change in other noncurrent liabilities		(656	)		(5,589	)
Net cash provided by operating activities		229,125			180,463
Investing activities
Utility capital/construction expenditures		(275,253	)		(224,864	)
Allowance for equity funds used during construction		5,062			4,178
Investments in utility money pool arrangement		(134,000	)		-
Repayments from utility money pool arrangement		134,000			-
Other, net		-			221
Net cash used in investing activities		(270,191	)		(220,465	)
Financing activities
Repayment of short-term borrowings, net		-			(49,000	)
Proceeds from issuance of long-term debt		108,691			193,149
Repayment of long-term debt		-			(101,800	)
Borrowings under utility money pool arrangement		240,000			283,500
Repayments under utility money pool arrangement		(245,000	)		(283,500	)
Capital contributions from parent		3,811			90,000
Dividends paid to parent		(50,089	)		(64,401	)
Net cash provided by financing activities		57,413			67,948
Net change in cash and cash equivalents		16,347			27,946
Cash and cash equivalents at beginning of period		650			1,778
Cash and cash equivalents at end of period	$	16,997		$	29,724
Supplemental disclosure of cash flow information:
Cash paid for interest (net of amounts capitalized)	$	(35,345	)	$	(30,927	)
Cash paid for income taxes, net		(14,391	)		(192	)
Supplemental disclosure of non-cash investing transactions:
Property, plant and equipment additions in accounts payable	$	28,886		$	7,012

See Notes to Financial Statements

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SOUTHWESTERN PUBLIC SERVICE COMPANY

BALANCE SHEETS (UNAUDITED)

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

	Sept. 30, 2012			Dec. 31, 2011
Assets
Current assets
Cash and cash equivalents	$	16,997		$	650
Accounts receivable, net		84,071			65,030
Accounts receivable from affiliates		3,679			1,314
Accrued unbilled revenues		112,735			104,142
Inventories		31,974			35,575
Regulatory assets		22,462			25,244
Derivative instruments		7,892			7,892
Deferred income taxes		36,367			18,247
Prepayments and other		6,282			7,486
Total current assets		322,459			265,580
Property, plant and equipment, net		2,785,404			2,594,732
Other assets
Regulatory assets		291,999			294,813
Derivative instruments		50,922			56,841
Other		15,089			11,883
Total other assets		358,010			363,537
Total assets	$	3,465,873		$	3,223,849
Liabilities and Equity
Current liabilities
Borrowings under utility money pool arrangement	$	-		$	5,000
Accounts payable		124,868			140,412
Accounts payable to affiliates		10,852			11,828
Regulatory liabilities		96,341			57,104
Taxes accrued		33,124			19,910
Accrued interest		25,218			13,842
Dividends payable		16,521			16,913
Derivative instruments		3,601			3,601
Other		30,182			29,841
Total current liabilities		340,707			298,451
Deferred credits and other liabilities
Deferred income taxes		653,612			596,581
Regulatory liabilities		96,582			105,335
Asset retirement obligations		28,513			27,266
Derivative instruments		38,690			41,391
Pension and employee benefit obligations		65,666			76,307
Other		7,474			8,345
Total deferred credits and other liabilities		890,537			855,225
Commitments and contingencies
Capitalization
Long-term debt		1,103,625			993,314
Common stock – 200 shares authorized of $1.00 par value; 100 shares outstanding at
Sept. 30, 2012 and Dec. 31, 2011, respectively		-			-
Additional paid in capital		786,973			783,162
Retained earnings		345,406			295,201
Accumulated other comprehensive loss		(1,375	)		(1,504	)
Total common stockholder’s equity		1,131,004			1,076,859
Total liabilities and equity	$	3,465,873		$	3,223,849

See Notes to Financial Statements

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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 accounting principles generally accepted in the United States of America (GAAP), the financial position of SPS as of Sept. 30, 2012, and Dec. 31, 2011; the results of its operations, including the components of net income and comprehensive income, for the three and nine months ended Sept. 30, 2012 and 2011; and its cash flows for the nine months ended Sept. 30, 2012 and 2011.  All adjustments are of a normal, recurring nature, except as otherwise disclosed.  Management has also evaluated the impact of events occurring after Sept. 30, 2012 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, 2011 balance sheet information has been derived from the audited 2011 financial statements included in the SPS Annual Report on Form 10-K for the year ended Dec. 31, 2011.  These 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, 2011, filed with the SEC on Feb. 27, 2012.  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, 2011, appropriately represent, in all material respects, the current status of accounting policies and are incorporated herein by reference.

2. Accounting Pronouncements

Recently Adopted

Fair Value Measurement — In May 2011, the Financial Accounting Standards Board (FASB) issued Fair Value Measurement (Topic 820) — Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (Accounting Standards Update (ASU) No. 2011-04), which provides clarifications regarding existing fair value measurement principles and disclosure requirements, and also specific new guidance for items such as measurement of instruments classified within stockholders’ equity.  These requirements were effective for interim and annual periods beginning after Dec. 15, 2011.  SPS implemented the accounting and disclosure guidance effective Jan. 1, 2012, and the implementation did not have a material impact on its financial statements.  For required fair value measurement disclosures, see Note 8.

Comprehensive Income — In June 2011, the FASB issued Comprehensive Income (Topic 220) — Presentation of Comprehensive Income (ASU No. 2011-05), which requires the presentation of the components of net income, the components of other comprehensive income (OCI) and total comprehensive income in either a single continuous financial statement of comprehensive income or in two separate, but consecutive financial statements of net income and comprehensive income.  These updates do not affect the items reported in OCI or the guidance for reclassifying such items to net income.  These requirements were effective for interim and annual periods beginning after Dec. 15, 2011.  SPS implemented the financial statement presentation guidance effective Jan. 1, 2012.

Recently Issued

Balance Sheet Offsetting — In December 2011, the FASB issued Balance Sheet (Topic 210) — Disclosures about Offsetting Assets and Liabilities (ASU No. 2011-11), which requires disclosures regarding netting arrangements in agreements underlying derivatives, certain financial instruments and related collateral amounts, and the extent to which an entity’s financial statement presentation policies related to netting arrangements impact amounts recorded to the financial statements.  These disclosure requirements do not affect the presentation of amounts in the balance sheets, and are effective for annual reporting periods beginning on or after Jan. 1, 2013, and interim periods within those annual reporting periods.  SPS does not expect the implementation of this disclosure guidance to have a material impact on its financial statements.

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3. Selected Balance Sheet Data

(Thousands of Dollars)	Sept. 30, 2012			Dec. 31, 2011
Accounts receivable, net
Accounts receivable	$	89,009		$	70,410
Less allowance for bad debts		(4,938	)		(5,380	)
	$	84,071		$	65,030

(Thousands of Dollars)	Sept. 30, 2012		Dec. 31, 2011
Inventories
Materials and supplies	$	19,022	$	17,472
Fuel		12,952		18,103
	$	31,974	$	35,575

(Thousands of Dollars)	Sept. 30, 2012			Dec. 31, 2011
Property, plant and equipment, net
Electric plant	$	4,344,849		$	4,142,389
Construction work in progress		199,459			153,672
Total property, plant and equipment		4,544,308			4,296,061
Less accumulated depreciation		(1,758,904	)		(1,701,329	)
	$	2,785,404		$	2,594,732

4. Income Taxes

Except to the extent noted below, the circumstances set forth in Note 6 to the financial statements included in SPS’ Annual Report on Form 10-K for the year ended Dec. 31, 2011 appropriately represent, in all material respects, the current status of other income tax matters, and are incorporated herein by reference.

Federal Audit — SPS is a member of the Xcel Energy affiliated group that files a consolidated federal income tax return.  The statute of limitations applicable to Xcel Energy’s 2008 federal income tax return expired in September 2012.  The statute of limitations applicable to Xcel Energy’s 2009 federal income tax return expires in September 2013.  In the third quarter of 2012, the Internal Revenue Service (IRS) commenced an examination of tax years 2010 and 2011.

State Audits — SPS is a member of the Xcel Energy affiliated group that files consolidated state income tax returns.  As of Sept. 30, 2012, SPS’ earliest open tax year that is subject to examination by state taxing authorities under applicable statutes of limitations is 2007.  As of Sept. 30, 2012, there were no state income tax audits in progress.

Unrecognized Tax Benefits — The unrecognized tax benefit balance includes permanent tax positions, which if recognized would affect the annual effective tax rate (ETR). In addition, the unrecognized tax benefit balance includes temporary tax positions for which the 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 of cash to the taxing authority to an earlier period.

A reconciliation of the amount of unrecognized tax benefit is as follows:

(Millions of Dollars)	Sept. 30, 2012		Dec. 31, 2011
Unrecognized tax benefit — Permanent tax positions	$	0.2	$	0.2
Unrecognized tax benefit — Temporary tax positions		4.8		4.6
Total unrecognized tax benefit	$	5.0	$	4.8

The unrecognized tax benefit amounts were reduced by the tax benefits associated with net operating loss (NOL) and tax credit carryforwards.  The amounts of tax benefits associated with NOL and tax credit carryforwards are as follows:

(Millions of Dollars)	Sept. 30, 2012			Dec. 31, 2011
NOL and tax credit carryforwards	$	(2.1	)	$	(2.0	)

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It is reasonably possible that SPS’ amount of unrecognized tax benefits could significantly change in the next 12 months as the IRS audit progresses and state audits resume.  At this time, due to the uncertain nature of the audit process, an overall range of possible change cannot be reasonably estimated.

The payable for interest related to unrecognized tax benefits is partially offset by the interest benefit associated with NOL and tax credit carryforwards.  The payables for interest related to unrecognized tax benefits at Sept. 30, 2012 and Dec. 31, 2011 were not material.  No amounts were accrued for penalties related to unrecognized tax benefits as of Sept. 30, 2012 or Dec. 31, 2011.

5. Rate Matters

Except to the extent noted below, the circumstances set forth in Note 10 to the financial statements included in SPS’ Annual Report on Form 10-K for the year ended Dec. 31, 2011 appropriately represent, in all material respects, the current status of other rate matters, and are incorporated herein by reference.

Pending Regulatory Proceedings — Federal Energy Regulatory Commission (FERC)

Wholesale Rate Complaint — In April 2012, Golden Spread Electric Cooperative, Inc. (Golden Spread) filed a rate complaint with the FERC alleging that SPS’ rates for wholesale service were excessive.  Golden Spread alleges that the base return on equity (ROE) currently charged to them through the SPS production formula rate, of 10.25 percent, and the SPS transmission base formula rate, ROE of 10.77 percent, is unjust and unreasonable.  Golden Spread alleges that the appropriate base ROE is 9.15 percent, or an annual difference of approximately $3.3 million.  An additional 50 basis point incentive is added to the base ROE for the transmission formula rate for SPS’ participation in the Southwest Power Pool, Inc. (SPP) Regional Transmission Organization.  Golden Spread is not contesting this transmission incentive.  The FERC has taken no action on this complaint.

6. Commitments and Contingencies

Except to the extent noted below, the circumstances set forth in Notes 10 and 11 to the financial statements in SPS’ Annual Report on Form 10-K for the year ended Dec. 31, 2011, appropriately represent, in all material respects, the current status of commitments and contingent liabilities and are incorporated herein by reference.  The following include commitments, contingencies and unresolved contingencies that are material to SPS’ financial position.

Purchased Power Agreements

Under certain purchased power agreements, SPS purchases power from independent power producing entities for which SPS is required to reimburse natural gas fuel costs, or to participate in tolling arrangements under which SPS procures the natural gas required to produce the energy that it purchases.  These specific purchased power agreements create a variable interest in the associated independent power producing entity.

SPS had approximately 827 megawatts (MW) of capacity under long-term purchased power agreements as of Sept. 30, 2012 and Dec. 31, 2011 with entities that have been determined to be variable interest entities.  SPS has 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.  These agreements have expiration dates through the year 2033.

Environmental Contingencies

Environmental Requirements

Greenhouse Gas (GHG) New Source Performance Standard Proposal (NSPS) and Emission Guideline for Existing Sources — In April 2012, the U.S. Environmental Protection Agency (EPA) proposed a GHG NSPS for newly constructed power plants.  The proposal requires that carbon dioxide (CO2) emission rates be equal to those achieved by a natural gas combined-cycle plant, even if the plant is coal-fired.  The EPA also proposed that NSPS not apply to modified or reconstructed existing power plants and that installation of control equipment on existing plants would not constitute a “modification” to those plants under the NSPS program.  Xcel Energy submitted comments on the proposed GHG NSPS in June 2012.  It is not possible to evaluate the impact of this regulation until its final requirements are known.

The EPA also plans to propose GHG regulations applicable to emissions from existing power plants under the Clean Air Act (CAA).  It is not known when the EPA will propose new standards for existing sources.

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New Mexico GHG Regulations — In 2010, the New Mexico Environmental Improvement Board (EIB) adopted two regulations to limit GHG emissions, including CO2 emissions from power plants and other industrial sources.  The EIB repealed both regulations in the first quarter of 2012.  Western Resource Advocates and New Energy Economy, Inc. have since filed appeals with the New Mexico Court of Appeals to challenge each of the EIB’s decisions to repeal the two GHG rules.

Cross-State Air Pollution Rule (CSAPR) — In July 2011, the EPA issued the CSAPR intended to address long range transport of particulate matter (PM) and ozone by requiring reductions in sulfur dioxide (SO2) and nitrogen oxide (NOx) from utilities located in the eastern half of the United States, including Texas.  The CSAPR would have set more stringent requirements than the proposed Clean Air Transport Rule and specifically would have required plants in Texas to reduce their SO2 and annual NOx emissions.  The rule also would have created an emissions trading program.

In August 2012, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) vacated the CSAPR and remanded it back to the EPA.  The D.C. Circuit also stated that the EPA must continue administering the Clean Air Interstate Rule (CAIR) pending adoption of a valid replacement.  In October 2012, the EPA, as well as state and local governments and environmental advocates, petitioned the D.C. Circuit to rehear the CSAPR appeal.  It is not yet known whether the court will grant rehearing of the case, or how the EPA might approach a replacement rule.  Therefore, it is not known what requirements may be imposed in the future.

If the EPA continues administering the CAIR while the CSAPR is pending, SPS expects to comply with the CAIR primarily through the purchase of emissions allowances.  Based on current CAIR allowance prices, the cost of CAIR compliance is not expected to have a material impact on results of operations, financial position or cash flows.

Electric Generating Unit (EGU) Mercury and Air Toxics Standards (MATS) Rule — The final EGU MATS rule became effective April 2012.  The EGU MATS rule sets emission limits for acid gases, mercury and other hazardous air pollutants and requires coal-fired utility facilities greater than 25 MW to demonstrate compliance within three to four years of the effective date.  SPS expects to comply with the EGU MATS rule through a combination of mercury and other emission control projects.  SPS believes these costs will be recoverable through regulatory mechanisms and does not expect a material impact on results of operations, financial position or cash flows.

Regional Haze Rules — In 2005, the EPA finalized amendments to its regional haze rules regarding provisions that require the installation and operation of emission controls, known as best available retrofit technology (BART), for industrial facilities emitting air pollutants that reduce visibility in certain national parks and wilderness areas throughout the United States.  SPS’ generating facilities are subject to BART requirements.  Individual states were required to identify the facilities located in their states that will have to reduce SO2, NOx and PM emissions under BART and then set emissions limits for those facilities.

Harrington Units 1 and 2 are potentially subject to BART.  Texas has developed a regional haze state implementation plan (SIP) that finds the Clean Air Interstate Rule (CAIR) equal to BART for EGUs, and as a result, no additional controls for these units beyond CAIR compliance would be required.  In May 2012, the EPA deferred its review of the Texas SIP in its final rule allowing states to find that CSAPR compliance meets BART requirements for EGUs.  It is not yet known how the D.C. Circuit’s reversal of the CSAPR may impact the EPA’s approval of Texas’ regional haze SIP.

Revisions to National Ambient Air Quality Standards (NAAQS) for PM — In June 2012, the EPA proposed to lower the primary (health-based) NAAQS for annual average fine PM and to retain the current daily standard for fine PM.  In areas in which SPS operates power plants, current monitored air concentrations are below the range of the proposed annual primary standard.  The EPA also proposed to add a secondary (welfare-based) NAAQS to improve visibility, primarily in urban areas.  SPS expects the proposed visibility standard would likely be met where SPS operates power plants based on currently available information.  A final rule is expected in December 2012 and the EPA is expected to designate non-compliant locations by December 2014.  If such areas are identified, states would then study the sources of the nonattainment and make emission reduction plans to attain the standards.  It is not possible to evaluate the impact of this regulation further until its final requirements are known.

10

Legal Contingencies

SPS is involved in various litigation matters that are being defended and handled in the ordinary course of business.  The assessment of whether a loss is probable or 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 such losses that are 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 where (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, arising from such current proceedings would have a material effect on SPS’ financial statements.

Environmental Litigation

Native Village of Kivalina vs. Xcel Energy Inc. et al. — In February 2008, the City and Native Village of Kivalina, Alaska, filed a lawsuit in the U.S. District Court for the Northern District of California against Xcel Energy Inc., the parent company of SPS, and 23 other utility, oil, gas and coal companies.  Plaintiffs claim that defendants’ emission of CO2 and other GHGs contribute to global warming, which is harming their village.  Xcel Energy Inc. believes the claims asserted in this lawsuit are without merit and joined with other utility defendants in filing a motion to dismiss in June 2008.  In October 2009, the U.S. District Court dismissed the lawsuit on constitutional grounds.  In November 2009, plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit).  In October 2012 the Ninth Circuit affirmed the U.S. District Court’s dismissal.  On Oct.14, 2012, plaintiffs filed a petition for rehearing en banc.  It is uncertain when the Ninth Circuit will respond to this petition.  The amount of damages claimed by plaintiffs is unknown, but likely includes the cost of relocating the village of Kivalina.  Plaintiffs’ alleged relocation is estimated to cost between $95 million to $400 million.  Although Xcel Energy Inc. believes the likelihood of loss is remote based primarily on existing case law, it is not possible to estimate the amount or range of reasonably possible loss in the event of an adverse outcome of this matter.  No accrual has been recorded for this matter.

Comer vs. Xcel Energy Inc. et al. — In May 2011, less than a year after their initial lawsuit was dismissed, plaintiffs in this purported class action lawsuit filed a second lawsuit against more than 85 utility, oil, chemical and coal companies in the U.S. District Court in Mississippi.  The complaint alleges defendants’ CO2 emissions intensified the strength of Hurricane Katrina and increased the damage plaintiffs purportedly sustained to their property.  Plaintiffs base their claims on public and private nuisance, trespass and negligence.  Among the defendants named in the complaint are Xcel Energy Inc. and SPS.  The amount of damages claimed by plaintiffs is unknown.  The defendants, including Xcel Energy Inc., believe this lawsuit is without merit and filed a motion to dismiss the lawsuit.  In March 2012, the U.S. District Court granted this motion for dismissal.  In April 2012, plaintiffs appealed this decision to the U.S. Court of Appeals for the Fifth Circuit.  Although Xcel Energy Inc. believes the likelihood of loss is remote based primarily on existing case law, it is not possible to estimate the amount or range of reasonably possible loss in the event of an adverse outcome of this matter.  No accrual has been recorded for this matter.

Employment, Tort and Commercial Litigation

Exelon Wind (formerly John Deere Wind (JD Wind)) Complaint—Several lawsuits in Texas state and federal courts and regulatory proceedings have arisen out of a dispute concerning SPS’ payments for energy produced from the Exelon Wind subsidiaries’ projects.  There are two main areas of dispute.  First, Exelon Wind claims that it established legally enforceable obligations (LEOs) for each of its 12 wind facilities in 2005 through 2008 that require SPS to buy power based on SPS’ forecasted avoided cost as determined in 2005 through 2007.  Although SPS has refused to accept Exelon Wind’s LEOs, SPS has paid Exelon Wind for energy under SPS’ Public Utility Commission of Texas (PUCT) Qualifying Facilities (QF) Tariff.  Second, Exelon Wind has raised various challenges to SPS’ PUCT QF Tariff, which became effective in August 2010. The state and federal lawsuits are in various stages of litigation.  SPS believes the likelihood of loss in these lawsuits is remote based primarily on existing case law and while it is not possible to estimate the amount or range of reasonably possible loss in the event of an adverse outcome, SPS believes such loss would not be material based upon its belief that it would be permitted to recover such costs, if needed, through its various fuel clause mechanisms.  No accrual has been recorded for this matter.

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7. Borrowings and Other Financing Instruments

Commercial Paper — SPS meets its short-term liquidity requirements primarily through the issuance of commercial paper and borrowings under its credit facility.  The following table presents commercial paper outstanding for SPS:

(Amounts in Millions, Except Interest Rates)	Three Months Ended Sept. 30, 2012			Twelve Months Ended Dec. 31, 2011
Borrowing limit	$	300		$	300
Amount outstandingat period end		-			-
Average amount outstanding		-			54
Maximum amount outstanding		16			161
Weighted average interest rate, computed on a daily basis		0.33	%		0.37	%
Weighted average interest rate at period end		N/A			N/A

Letters of Credit — SPS uses letters of credit, generally with terms of one-year, to provide financial guarantees for certain operating obligations.  At Sept. 30, 2012 and Dec. 31, 2011, there were no letters of credit outstanding.

Credit Facility — In order to use its commercial paper program to fulfill short-term funding needs, SPS 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.

At Sept. 30, 2012, SPS had the following committed credit facility available (in millions of dollars):

Credit Facility		Drawn		Available
$	300.0	$	-	$	300.0

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 at Sept. 30, 2012 and Dec. 31, 2011.

Amended Credit Agreement — In July 2012, SPS entered into an amended five-year credit agreement with a syndicate of banks, replacing the previous four-year credit agreement.  The amended credit agreement has substantially the same terms and conditions as the prior credit agreement with an improvement in pricing and an extension of maturity from March 2015 to July 2017.  The Eurodollar borrowing margin on the line of credit was reduced from a range of 100 to 200 basis points per year, to a range of 87.5 to 175 basis points per year based on applicable long-term credit ratings.  The commitment fees, calculated on the unused portion of the line of credit, were reduced from a range of 10 to 35 basis points per year, to a range of 7.5 to 27.5 basis points per year, also based on applicable long-term credit ratings.

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

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

(Amounts in Millions, Except Interest Rates)	Three Months Ended Sept. 30, 2012			Twelve Months Ended Dec. 31, 2011
Borrowing limit	$	100		$	100
Amount outstandingat period end		-			5
Average amount outstanding		-			12
Maximum amount outstanding		9			71
Weighted average interest rate, computed on a daily basis		0.33	%		0.35	%
Weighted average interest rate at period end		N/A			0.35

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Long-Term Borrowings

In June 2012, SPS issued an additional $100 million of its 4.50 percent first mortgage bonds due Aug. 15, 2041.  Including the $200 million of this series previously issued in August 2011, total principal outstanding for this series is $300 million.

8. Fair Value of Financial Assets and Liabilities

Fair Value Measurements

The accounting guidance for fair value measurements and disclosures provides a single definition of fair value and requires certain disclosures about assets and liabilities measured at fair value.  SPS had no assets or liabilities measured at fair value on a recurring basis as of Sept. 30, 2012 and Dec. 31, 2011.

Derivative Instruments

SPS may enter into derivative instruments, including forward contracts, futures, swaps and options, to reduce risk in connection with changes in interest rates and electric utility commodity prices.

Interest Rate Derivatives — SPS may enter into various instruments that effectively fix the interest payments on certain floating rate debt obligations or 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.

At Sept. 30, 2012, accumulated other comprehensive losses related to interest rate derivatives included $0.2 million of net losses expected to be reclassified into earnings during the next 12 months as the related hedged interest rate transactions impact earnings.

Pre-tax losses related to interest rate derivatives reclassified from accumulated other comprehensive loss into earnings during the three months ended Sept. 30, 2012 and 2011 were $0.1 million.   Pre-tax losses related to interest rate derivatives reclassified from accumulated other comprehensive loss into earnings during the nine months ended Sept. 30, 2012 and 2011 were $0.2 million.

Wholesale and Commodity Trading Risk — SPS conducts an immaterial amount of wholesale and commodity trading activities, including the purchase and sale of electric capacity, energy and energy-related products.  SPS’ risk management policy allows management to conduct these activities within guidelines and limitations as approved by its risk management committee, which is made up of management personnel not directly involved in the activities governed by this policy.

Commodity Derivatives — SPS may enter 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.  At Sept. 30, 2012 and Dec. 31, 2011, SPS held no commodity derivatives.  Changes in the fair value of non-trading commodity derivative instruments are recorded in OCI or deferred as a regulatory asset or liability.  The classification as a regulatory asset or liability is based on commission approved regulatory recovery mechanisms.

At Sept. 30, 2012 and Dec. 31, 2011, derivative instruments presented on SPS’ balance sheets consist of amounts related to long-term purchased power agreements.  In 2003, as a result of implementing new guidance on the normal purchase exception for derivative accounting, SPS began recording several long-term purchased power agreements at fair value due to accounting requirements related to underlying price adjustments.  As these purchases are recovered through normal regulatory recovery mechanisms in the respective jurisdictions, the changes in fair value for these contracts were offset by regulatory assets and liabilities.  During 2006, SPS qualified these contracts under the normal purchase exception.  Based on this qualification, the contracts are no longer adjusted to fair value and the previous carrying value of these contracts will be amortized over the remaining contract lives along with the offsetting regulatory assets and liabilities.

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Financial Impact of Qualifying Cash Flow Hedges — The impact of qualifying interest rate cash flow hedges on SPS’ accumulated other comprehensive loss, included as a component of common stockholder’s equity and in the statement of comprehensive income, is detailed in the following table:

	Three Months Ended Sept. 30
(Thousands of Dollars)	2012				2011
Accumulated other comprehensive loss related to cash flow hedges at July 1		$	(1,418	)		$	(1,589	)
After-tax net realized losses on derivative transactions reclassified into earnings			43				42
Accumulated other comprehensive loss related to cash flow hedges at Sept. 30		$	(1,375	)		$	(1,547	)

	Nine Months Ended Sept. 30
(Thousands of Dollars)	2012				2011
Accumulated other comprehensive loss related to cash flow hedges at Jan. 1		$	(1,504	)		$	(1,675	)
After-tax net realized losses on derivative transactions reclassified into earnings			129				128
Accumulated other comprehensive loss related to cash flow hedges at Sept. 30		$	(1,375	)		$	(1,547	)

Fair Value of Long-Term Debt

As of Sept. 30, 2012 and Dec. 31, 2011, other financial instruments for which the carrying amount did not equal fair value were as follows:

	Sept. 30, 2012				Dec. 31, 2011
	Carrying				Carrying
(Thousands of Dollars)	Amount		Fair Value		Amount		Fair Value
Long-term debt, including current portion	$	1,103,625	$	1,341,654	$	993,314	$	1,176,020

The fair value of SPS’ long-term debt is estimated based on recent trades and observable spreads from benchmark interest rates for similar securities.  The fair value estimates are based on information available to management as of Sept. 30, 2012 and Dec. 31, 2011, and given the observability of the inputs to these estimates, the fair values presented for long-term debt have been assigned a Level 2.  These fair value estimates have not been comprehensively revalued for purposes of these financial statements since those dates and current estimates of fair values may differ significantly.

9. Other (Expense) Income, net

Other (expense) income, net consisted of the following:

	Three Months Ended Sept. 30					Nine Months Ended Sept. 30
(Thousands of Dollars)	2012			2011		2012			2011
Interest income	$	51		$	140	$	233		$	374
Other nonoperating income		3			4		34			7
Insurance policy (expense) income		(127	)		142		(320	)		51
Other (expense) income, net	$	(73	)	$	286	$	(53	)	$	432

10. Segment Information

SPS has only one reportable segment as a regulated electric utility providing wholesale and retail electric service in the states of Texas and New Mexico.  Operating results from the regulated electric utility segment serve as the primary basis for the chief operating decision maker to evaluate the performance of SPS.

· Revenues from external customers were $471.9 million and $522.9 million for the three months ended Sept. 30, 2012 and 2011, respectively, and $1,192.6 million and $1,337.4 million for the nine months ended Sept. 30, 2012 and 2011, respectively.

· Net income was $58.2 million and $48.6 million for the three months ended Sept. 30, 2012 and 2011, respectively, and $99.9 million and $83.5 million for the nine months ended Sept. 30, 2012 and 2011, respectively.

· Capital expenditures during the nine months ended Sept. 30, 2012 and Sept. 30, 2011 were $280.6 million and $222.3 million, respectively.

· As of Sept. 30, 2012 and Dec. 31, 2011, SPS’ total assets were $3.5 billion and $3.2 billion, respectively.

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11.    Benefit Plans and Other Postretirement Benefits

SPS calculates base pension expense in accordance with accounting guidance for retirement benefits.  In 2011, the Texas retail electric jurisdiction began to allow the deferral of allocated pension costs to the extent that those costs exceed test year pension expenses included in rates, within prescribed limits.  Differences between regulatory-based pension expense for the Texas retail electric jurisdiction and expense as calculated under applicable accounting guidance are deferred as a regulatory asset or liability.

Components of Net Periodic Benefit Cost

	Three Months Ended Sept. 30
	2012			2011			2012			2011
							Postretirement Health
(Thousands of Dollars)	Pension Benefits						Care Benefits
Service cost	$	2,130		$	1,923		$	314		$	273
Interest cost		4,900			5,008			707			681
Expected return on plan assets		(6,232	)		(6,579	)		(675	)		(752	)
Amortization of transition obligation		-			-			386			417
Amortization of prior service cost (credit)		360			376			(37	)		(12	)
Amortization of net loss		3,203			2,262			314			213
Net periodic benefit cost		4,361			2,990			1,009			820
Cost not recognized due to the effects of regulation		(1,076	)		(575	)		-			-
Net benefit cost recognized for financial reporting	$	3,285		$	2,415		$	1,009		$	820

	Nine Months Ended Sept. 30
	2012			2011			2012			2011
							Postretirement Health
(Thousands of Dollars)	Pension Benefits						Care Benefits
Service cost	$	6,390		$	5,768		$	944		$	819
Interest cost		14,700			15,026			2,123			2,042
Expected return on plan assets		(18,696	)		(19,737	)		(2,026	)		(2,255	)
Amortization of transition obligation		-			-			1,159			1,252
Amortization of prior service cost (credit)		1,079			1,129			(111	)		(38	)
Amortization of net loss		9,610			6,785			942			641
Net periodic benefit cost		13,083			8,971			3,031			2,461
Cost not recognized due to the effects of regulation		(3,226	)		(1,725	)		-			-
Net benefit cost recognized for financial reporting	$	9,857		$	7,246		$	3,031		$	2,461

In January 2012, contributions of $190.5 million were made across four of Xcel Energy’s pension plans, of which $12.9 million was attributable to SPS.  Xcel Energy does not expect additional pension contributions during 2012.

In June 2012, to manage volatility in equity pricing within the pension master trust, Xcel Energy entered into equity collar contracts with a net-zero cost at initiation on a portion of the equity securities.  The equity collar strategy is designed to reduce potential equity losses while limiting gains, resulting in lower equity volatility for the pension plans.  At Sept. 30, 2012, the mark-to-market value of these arrangements was not material to the value of the pension trust assets or SPS’ results of operations, cash flows, or financial position.  These arrangements will expire in December 2012.

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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 instructions H (2) (a) of Form 10-Q for wholly owned subsidiaries (reduced disclosure format).

Financial Review

The following discussion and analysis by management focuses on those factors that had a material effect on SPS’ financial condition, results of operations, and cash flows during the periods presented, or are expected to have a material impact in the future. It should be read in conjunction with the accompanying unaudited financial statements and the related notes to the financial statements.  Due to the seasonality of SPS’ electric sales, such interim results are not necessarily an appropriate base from which to project annual results.

Forward-Looking Statements

Except for the historical statements contained in this report, the matters discussed in the following discussion and analysis are forward-looking statements that are subject to certain risks, uncertainties, and assumptions.  Such forward-looking statements are intended to be identified in this document by the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “objective,” “outlook,” “plan,” “project,” “possible,” “potential,” “should” and similar expressions. Actual results may vary materially. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them to reflect changes that occur after that date. Factors that could cause actual results to differ materially include, but are not limited to: general economic conditions, including inflation rates, monetary fluctuations and their impact on capital expenditures and the ability of SPS to obtain financing on favorable terms; business conditions in the energy industry, including the risk of a slow down in the U.S. economy or delay in growth recovery; trade, fiscal, taxation and environmental policies in areas where SPS has a financial interest; customer business conditions; actions of credit rating agencies; competitive factors, including the extent and timing of the entry of additional competition in the markets served by SPS; unusual weather; effects of geopolitical events, including war and acts of terrorism; state, federal and foreign legislative and regulatory initiatives that affect cost and investment recovery, have an impact on rates or have an impact on asset operation or ownership or impose environmental compliance conditions; structures that affect the speed and degree to which competition enters the electric market; costs and other effects of legal and administrative proceedings, settlements, investigations and claims; financial or regulatory accounting policies imposed by regulatory bodies; availability or cost of capital; employee work force factors; the items described under Factors Affecting Results of Operations; and the other risk factors listed from time to time by SPS in reports filed with the SEC, including “Risk Factors” in Item 1A of SPS’ Form 10-K for the year ended Dec. 31, 2011, and Item 1A and Exhibit 99.01 to this Quarterly Report on Form 10-Q for the quarter ended Sept. 30, 2012.

Results of Operations

SPS’ net income was approximately $99.9 million for the nine months ended Sept. 30, 2012, compared with net income of approximately $83.5 million for the same period in 2011.  The increase is the result of rate increases in New Mexico and Texas, effective January 2012, partially offset by the impact of milder weather during the third quarter, higher depreciation expense, and higher property taxes.

Electric Revenues and Margin

Electric fuel and purchased power expenses tend to vary with changing retail and wholesale sales requirements and unit cost changes in fuel and purchased power.  The design of fuel and purchased power cost recovery mechanisms of the Texas and New Mexico jurisdictions may not allow for complete recovery of all expenses and, therefore, changes in fuel or purchased power costs can impact earnings.  The following tables detail the electric revenues and margin:

	Nine Months Ended Sept. 30
(Millions of Dollars)	2012				2011
Electric revenues		$	1,193			$	1,337
Electric fuel and purchased power			(676	)			(851	)
Electric margin		$	517			$	486

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The following tables summarize the components of the changes in electric revenues and electric margin:

Electric Revenues

(Millions of Dollars)	2012 vs. 2011
Fuel and purchased power cost recovery	$	(188)
Firm wholesale		(6)
Estimated impact of weather		(6)
Demand side management revenue (offset by expense)		(3)
Demand side management incentive		(2)
Transmission revenue		26
Retail rate increase (Texas and New Mexico)		25
Demand revenue		6
Other, net		4
Total decrease in electric revenues	$	(144)

Electric Margin

(Millions of Dollars)	2012 vs. 2011
Retail rate increase (Texas and New Mexico)	$	25
Transmission revenue, net of costs		14
Demand revenue		6
Estimated impact of weather		(6	)
Firm wholesale		(5	)
Demand side management revenue (offset by expense)		(3	)
Demand side management incentive		(2	)
Other, net		2
Total increase in electric margin	$	31

Non-Fuel Operating Expense and Other Items

Demand Side Management (DSM) Program Expenses — DSM program expenses decreased by approximately $3.1 million, or 24.9 percent for the first nine months of 2012 compared with the same period in 2011.  The decrease is primarily attributable to a decrease in the rider rates used to recover the program expenses.  DSM program expenses are generally recovered in SPS’ major jurisdictions concurrently through riders and base rates.

Depreciation and Amortization — Depreciation and amortization expenses increased $5.2 million, or 6.5 percent for the nine months ended Sept. 30, 2012 compared with the same period in 2011.  The increase is primarily due to Jones Unit 3 going into service in June 2011 and normal system expansion.

Taxes (Other Than Income Taxes) — Taxes (other than income taxes) increased $3.3 million, or 10.4 percent for the nine months ended Sept. 30, 2012 compared with the same period in 2011.  The increase is primarily due to an increase in property taxes in Texas.

Interest Charges — Interest charges increased $3.0 million, or 6.1 percent, for the nine months ended Sept. 30, 2012 compared with the same period in 2011.  The increase is primarily due to higher long-term debt levels, partially offset by lower interest rates.

Income Taxes — Income tax expense increased $6.6 million for the first nine months of 2012 compared with the same period in 2011. The increase in income tax expense was primarily due to higher pretax earnings in 2012.  The effective tax rate was 36.8 percent for the first nine months of 2012, compared with 38.2 percent for the same period in 2011.  The lower effective tax rate for the first nine months of 2012 was primarily due to a lower forecasted annual effective tax rate in 2012, largely due to decreased state income taxes and increased permanent plant-related deductions.

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Factors Affecting Results of Operations

Summary of Recent Federal Regulatory Developments

The FERC has jurisdiction over rates for electric transmission service in interstate commerce and electricity sold at wholesale, accounting practices and certain other activities of SPS, including enforcement of North American Electric Reliability Corporation mandatory electric reliability standards.  State and local agencies have jurisdiction over many of SPS’ activities, including regulation of retail rates and environmental matters.  See additional discussion in the summary of recent federal regulatory developments and public utility regulation sections of the SPS Annual Report on Form 10-K for the year ended Dec. 31, 2011.  In addition to the matters discussed below, see Note 5 to the financial statements for a discussion of other regulatory matters.

FERC Order 1000, Transmission Planning and Cost Allocation (Order 1000) —The FERC issued Orders 1000, 1000-A, and 1000-B adopting new requirements for transmission planning, cost allocation, and development to be effective prospectively.  SPS expects the requirements for transmission planning and cost allocation will be addressed by revisions to SPP Tariff.

SPS believes that statutes in Texas also protect the right of incumbent utilities to construct and own transmission interconnected to their systems, so SPS does not expect that this aspect of Order 1000 will impact the portion of SPS in Texas.  However, the portion of SPS in New Mexico may be impacted by the provisions of Order 1000 that impact an incumbent’s right to build transmission because New Mexico does not have legislation protecting the rights of utilities to develop transmission projects in their service areas.

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 the 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 chief executive officer (CEO) and chief financial officer (CFO), allowing timely decisions regarding required disclosure. As of Sept. 30, 2012, 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 the procedures, the CEO and CFO have concluded that SPS’ disclosure controls and procedures were effective.

Internal Control Over Financial Reporting

No change in SPS’ internal control over financial reporting has occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, SPS’ internal control over financial reporting.

Part II — OTHER INFORMATION

Item 1 — LEGAL PROCEEDINGS

In the normal course of business, various lawsuits and claims have arisen against SPS.  SPS has recorded an estimate of the probable cost of settlement or other disposition for such matters.

Additional Information

See Note 6 to the financial statements for further discussion of legal claims and environmental proceedings.

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, 2011, which is incorporated herein by reference.

Item 4 — MINE SAFETY DISCLOSURES

None.

Item 5 — OTHER INFORMATION

None.

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Item 6 — EXHIBITS

*    Indicates incorporation by reference

t Furnished, herewith, not filed.  Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are     deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

3.01*	Amended and Restated Articles of Incorporation of SPS dated Sept. 30, 1997 (Exhibit 3(a)(2) to Form 10-K (file no. 001-03789) dated March 3, 1998).
3.02*	By-Laws of SPS dated Sept. 29, 1997 (Exhibit 3(b)(2) to Form 10-K (file no. 001-03789) dated March 3, 1998).
10.01*	Amended and Restated Credit Agreement, dated as of July 27, 2012 among SPS, as Borrower, the several lenders from time to time parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., and Barclays Bank Plc, as Syndication Agents, and Wells Fargo Bank, National Association, as Documentation Agent (Incorporated by reference to Exhibit 99.04 to Xcel Energy Inc.’s Form 8-K, dated July 27, 2012 (file no. 001-03034)).
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.
99.01	Statement pursuant to Private Securities Litigation Reform Act of 1995.
101 t	The following materials from SPS’ Quarterly Report on Form 10-Q for the quarter ended Sept. 30, 2012 are formatted in XBRL (eXtensible Business Reporting Language):  (i) the Statements of Income, (ii) the Statements of Comprehensive Income (iii) the Statements of Cash Flows, (iv) the Balance Sheets, (v) Notes to Condensed Financial Statements, and (vi) document and entity information.

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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
Oct. 29, 2012
	By:	/s/ JEFFREY S. SAVAGE
		Jeffrey S. Savage
		Vice President and Controller
		/s/ TERESA S. MADDEN
		Teresa S. Madden
		Senior Vice President, Chief Financial Officer and Director

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