Company Quick10K Filing
Quick10K
Northern States Power
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2018-11-06 Other Events
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-04-26 Earnings, Exhibits
8-K 2018-02-07 Earnings, Exhibits
AON Aon 42,460
TDC Teradata 5,210
MNR Monmouth Real Estate Investment 1,230
ESTA Establishment Labs Holdings 455
KVHI KVH Industries De 174
DDMX Dynamex 71
TATT TAT Technologies 60
ZKIN ZK International Group 33
CUO Continental Materials 31
DVCR Diversicare Healthcare Services 25
NSPM 2018-12-31
Part I
Item 1A - Risk Factors
Item 1B - Unresolved Staff Comments
Item 2 - Properties
Item 3 - Legal Proceedings
Item 4 - Mine Safety Disclosures
Part II
Item 5 - Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6 - Selected Financial Data
Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A - Quantitative and Qualitative Disclosures About Market Risk
Item 8 - Financial Statements and Supplementary Data
Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A - Controls and Procedures
Item 9B - Other Information
Part III
Item 10 - Directors, Executive Officers and Corporate Governance
Item 11 - Executive Compensation
Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13 - Certain Relationships and Related Transactions, and Director Independence
Item 14 - Principal Accountant Fees and Services
Part IV
Item 15 - Exhibits, Financial Statement Schedules
Item 16 - Form 10-K Summary
EX-3.02 nspmbylaws-amended012519.htm
EX-23.01 nspmex2301q42018.htm
EX-31.01 nspmex3101q42018.htm
EX-31.02 nspmex3102q42018.htm
EX-32.01 nspmex3201q42018.htm

Northern States Power Earnings 2018-12-31

NSPM 10K Annual Report

Balance SheetIncome StatementCash Flow

10-K 1 nspm1231201810-k.htm 10-K Document
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
001-31387
 
41-1967505
(Commission File Number)
 
(I.R.S. Employer Identification No.)

(Registrant, State of Incorporation or Organization, Address of Principal Executive Officers and Telephone Number)
Northern States Power Company
(a Minnesota corporation)
414 Nicollet Mall
Minneapolis, MN 55401
612-330-5500

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x Yes ¨ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes x No
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 ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). x Yes ¨ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
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 x 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 Act). ¨ Yes x No
As of Feb. 22, 2019, 1,000,000 shares of common stock, par value $0.01 per share, were outstanding, all of which were held by Xcel Energy Inc., a Minnesota corporation.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Item 14 of Form 10-K is set forth under the heading “Independent Registered Public Accounting Firm – Audit and Non-Audit Fees” in Xcel Energy Inc.’s definitive Proxy Statement for the 2019 Annual Meeting of Stockholders which definitive Proxy Statement is expected to be filed with the SEC on or about April 1, 2019. Such information set forth under such heading is incorporated herein by this reference hereto.
Northern States Power Company meets the conditions set forth in General Instructions I(1)(a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format permitted by General Instruction I(2).


 



TABLE OF CONTENTS
Index
PART I
 
Item 1 — Business
Item 1A — Risk Factors
Item 2 — Properties
 
 
PART II
 
Item 9B — Other Information
 
 
PART III
 
 
 
PART IV
 
Item 16 — Form 10-K Summary
 
 

This Form 10-K is filed by NSP-Minnesota. NSP-Minnesota is a wholly owned subsidiary of Xcel Energy Inc. Additional information on Xcel Energy is available in various filings with the SEC. This report should be read in its entirety.

2


PART I
Item l — Business
ABBREVIATIONS AND INDUSTRY TERMS
Xcel Energy Inc.’s Subsidiaries and Affiliates (current and former)
NSPM
NSP-Minnesota
NSP-Minnesota
Northern States Power Company, a Minnesota corporation
NSP System
The electric production and transmission system of NSP-Minnesota and NSP-Wisconsin operated on an integrated basis and managed by NSP-Minnesota
NSP-Wisconsin
Northern States Power Company, a Wisconsin corporation
PSCo
Public Service Company of Colorado
SPS
Southwestern Public Service Company
Utility subsidiaries
NSP-Minnesota, NSP-Wisconsin, PSCo and SPS
Xcel Energy
Xcel Energy Inc. and its subsidiaries
 
 
Federal and State Regulatory Agencies
D.C. Circuit
United States Court of Appeals for the District of Columbia Circuit
DOC
Minnesota Department of Commerce
DOE
United States Department of Energy
DOT
United States Department of Transportation
EPA
United States Environmental Protection Agency
FERC
Federal Energy Regulatory Commission
IRS
Internal Revenue Service
MPUC
Minnesota Public Utilities Commission
NDPSC
North Dakota Public Service Commission
NERC
North American Electric Reliability Corporation
NRC
Nuclear Regulatory Commission
OAG
Minnesota Office of the Attorney General
PHMSA
Pipeline and Hazardous Materials Safety Administration
SDPUC
South Dakota Public Utilities Commission
SEC
Securities and Exchange Commission
 
 
Electric, Purchased Gas and Resource Adjustment Clauses
CIP
Conservation improvement program
EIR
Environmental improvement rider
FCA
Fuel clause adjustment
GUIC
Gas utility infrastructure cost rider
PGA
Purchased gas adjustment
RDF
Renewable development fund
RER
Renewable energy rider
RES
Renewable energy standard
SEP
State energy policy rider
TCR
Transmission cost recovery adjustment
 
 
Other
AFUDC
Allowance for funds used during construction
ALJ
Administrative law judge
ARAM
Average rate assumption method
ARO
Asset retirement obligation
ASC
FASB Accounting Standards Codification
ASU
FASB Accounting Standards Update
C&I
Commercial and Industrial
CAPM
Capital Asset Pricing Model
CapX2020
Alliance of electric cooperatives, municipals and investor-owned utilities in the upper Midwest involved in a joint transmission line planning and construction effort
CCR
Coal combustion residuals
CO2
Carbon dioxide
 
Corps
U.S. Army Corps of Engineers
CPP
Clean Power Plan
CWA
Clean Water Act
CWIP
Construction work in progress
DCF
Discounted Cash Flows
ELG
Effluent limitations guidelines
EMANI
European Mutual Association for Nuclear Insurance
ETR
Effective tax rate
FASB
Financial Accounting Standards Board
FTR
Financial transmission right
GAAP
Generally accepted accounting principles
GE
General Electric
GHG
Greenhouse gas
IPP
Independent power producing entity
IRP
Integrated Resource Plan
ISFSI
Independent spent fuel storage installation
ITC
Investment tax credit
LLW
Low-level radioactive waste
LNG
Liquefied natural gas
MGP
Manufactured gas plant
MISO
Midcontinent Independent System Operator, Inc.
Moody’s
Moody’s Investor Services
Native load
Customer demand of retail and wholesale customers that a utility has an obligation to serve under statute or long-term contract.
NAV
Net asset value
NEIL
Nuclear Electric Insurance Ltd.
NETO
New England Transmission Owners
NOL
Net operating loss
O&M
Operating and maintenance
Paris Agreement
Establishes a framework for GHG mitigation actions by all countries (“nationally determined contributions”)
PI
Prairie Island nuclear generating plant
Pipeline Safety Act
Pipeline Safety, Regulatory Certainty, and Job Creation Act
PPA
Purchased power agreement
PTC
Production tax credit
REC
Renewable energy credit
ROE
Return on equity
RTO
Regional Transmission Organization
SAB
Staff Accounting Bulletin
SAB 118
Income Tax Accounting Implications of the Tax Cuts and Jobs Act
SERP
Supplemental executive retirement plan
SMMPA
Southern Minnesota Municipal Power Agency
Standard & Poor’s
Standard & Poor’s Ratings Services
TCJA
2017 federal tax reform enacted as Public Law No: 115-97, commonly referred to as the Tax Cuts and Jobs Act
TO
Transmission owner
VaR
Value at Risk
VIE
Variable interest entity
Westinghouse
Westinghouse Electric Corporation
 
 
Measurements
Bcf
Billion cubic feet
KV
Kilovolts
KWh
Kilowatt hours
MMBtu
Million British thermal units
MW
Megawatts
MWh
Megawatt hours

3


Forward-Looking Statements
Except for the historical statements contained in this report, the matters discussed herein are forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements, assumptions and other statements are intended to be identified in this document by the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “objective,” “outlook,” “plan,” “project,” “possible,” “potential,” “should,” “will,” “would” and similar expressions. Actual results may vary materially. Forward-looking statements speak only as of the date they are made, and we expressly disclaim any obligation to update any forward-looking information. The following factors, in addition to those discussed elsewhere in this Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2018 (including risk factors listed from time to time by NSP-Minnesota in reports filed with the SEC, including “Risk Factors” in Item 1A of this Annual Report on Form 10-K hereto), could cause actual results to differ materially from management expectations as suggested by such forward-looking information: changes in environmental laws and regulations; climate change and other weather, natural disaster and resource depletion, including compliance with any accompanying legislative and regulatory changes; ability to recover costs from customers; reductions in our credit ratings and the cost of maintaining certain contractual relationships; general economic conditions, including inflation rates, monetary fluctuations and their impact on capital expenditures and the ability of NSP-Minnesota and its subsidiaries to obtain financing on favorable terms; availability or cost of capital; our customers’ and counterparties’ ability to pay their debts to us; assumptions and costs relating to funding our employee benefit plans and health care benefits; tax laws; operational safety, including our nuclear generation facilities; successful long-term operational planning; commodity risks associated with energy markets and production; rising energy prices; costs of potential regulatory penalties; effects of geopolitical events, including war and acts of terrorism; cyber security threats and data security breaches; fuel costs; and employee work force and third party contractor factors.
Where To Find More Information
NSP-Minnesota is a wholly owned subsidiary of Xcel Energy Inc., and Xcel Energy’s website address is www.xcelenergy.com. Xcel Energy makes available, free of charge through its website, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after the reports are electronically filed with or furnished to the SEC. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically at http://www.sec.gov.
COMPANY OVERVIEW
NSP-Minnesota was incorporated in 2000 under the laws of Minnesota. NSP-Minnesota conducts business in Minnesota, North Dakota and South Dakota and has electric operations in all three states including the generation, purchase, transmission, distribution and sale of electricity as managed on the NSP System. NSP-Minnesota also purchases, transports, distributes and sells natural gas to retail customers and transports customer-owned natural gas in Minnesota and North Dakota.
nspmstate.jpg
 
 
 
 
NSP-Minnesota
 
Electric customers
1.5 million
 
Natural gas customers
0.5 million
 
Consolidated earnings contribution
35% to 45%
 
Total assets
$18.5 billion
 
Electric generating capacity
7,530 MW
 
Gas storage capacity
14.7 Bcf
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

4


ELECTRIC UTILITY OPERATIONS
Electric Operating Statistics
 
Year Ended Dec. 31
 
2018
 
2017
 
2016
Electric sales (Millions of KWh)
 
 
 
 
 
Residential
10,476

 
9,900

 
10,107

Large C&I
8,877

 
8,829

 
8,890

Small C&I
15,323

 
15,104

 
15,377

Public authorities and other
224

 
225

 
248

Total retail
34,900

 
34,058

 
34,622

Sales for resale
6,736

 
5,739

 
5,333

Total energy sold
41,636

 
39,797

 
39,955

 
 
 
 
 
 
Number of customers at end of period
 
 
 
 
 
Residential
1,318,095

 
1,306,825

 
1,296,852

Large C&I
558

 
557

 
555

Small C&I
157,636

 
156,386

 
155,865

Public authorities and other
8,124

 
7,774

 
7,368

Total retail
1,484,413

 
1,471,542

 
1,460,640

Wholesale
11

 
8

 
10

Total customers
1,484,424

 
1,471,550

 
1,460,650

 
 
 
 
 
 
Electric revenues (Millions of Dollars)
 
 
 
 
 
Residential
$
1,364.9

 
$
1,320.5

 
$
1,310.3

Large C&I
682.2

 
690.2

 
686.2

Small C&I
1,500.6

 
1,560.3

 
1,513.0

Public authorities and other
35.4

 
35.5

 
35.4

Total retail
3,583.1

 
3,606.5

 
3,544.9

Wholesale
193.4

 
161.6

 
124.9

Interchange revenues from NSP-Wisconsin
473.7

 
490.2

 
475.5

Other electric revenues
257.8

 
283.4

 
259.3

Total electric revenues
$
4,508.0

 
$
4,541.7

 
$
4,404.6

 
 
 
 
 
 
KWh sales per retail customer
23,511

 
23,144

 
23,703

Revenue per retail customer
$
2,414

 
$
2,451

 
$
2,427

Residential revenue per KWh

13.03
¢
 

13.34
¢
 

12.96
¢
Large C&I revenue per KWh
7.69

 
7.82

 
7.72

Small C&I revenue per KWh
9.79

 
10.33

 
9.84

Total retail revenue per KWh
10.27

 
10.59

 
10.24

Wholesale revenue per KWh
2.87

 
2.82

 
2.34


5


Energy Sources 2018
 
chart-e1bc9d4d8128d6510a8.jpg
*Distributed generation from the Solar*Rewards® program is not included (approximately 32 million KWh for 2018).
 
Energy Source Statistics
In 2018, of the NSP System’s total energy generation, 77% was owned and 23% was purchased. In 2017, 75% was owned and 25% was purchased.
Renewable Sources
NSP-Minnesota’s renewable energy portfolio includes wind, hydroelectric, biomass and solar power from both owned generating facilities and PPAs. As of Dec. 31, 2018, NSP-Minnesota was in compliance with its applicable renewable portfolio standards. Renewable percentages will vary year over year based on local weather, system demand and transmission constraints.
NSP System
Renewable energy as a percentage of the NSP System’s total:
 
 
2018
 
2017
Wind
 
16.4
%
 
18.3
%
Hydroelectric
 
5.8

 
6.3

Biomass and solar
 
4.8

 
4.2

Renewable
 
27.0
%
 
28.8
%
Wind  The NSP System has more than 130 PPAs ranging from under one MW to more than 200 MW. The NSP System owns and operates five wind farms with 840 MW, net, of capacity.
The NSP System had approximately 2,550 MW and 2,600 MW of wind energy on its system at the end of 2018 and 2017, respectively.
Average cost per MWh of wind energy under existing PPAs was approximately $44 for 2018 and 2017.
Average cost per MWh of wind energy from owned generation was approximately $37 and $42 for 2018 and 2017, respectively.
 
Non-Renewable Sources
Delivered cost per MMBtu of each significant category of fuel consumed for owned electric generation and the percentage of total fuel requirements represented by each category of fuel:
 
 
Coal (a)
 
Nuclear
 
Natural Gas
 
 
Cost
 
Percent
 
Cost
 
Percent
 
Cost
 
Percent
2018
 
$
2.13

 
42
%
 
$
0.80

 
45
%
 
$
3.87

 
13
%
2017
 
2.08

 
45

 
0.78

 
45

 
4.10

 
10

(a) 
Includes refuse-derived fuel and wood.
Weighted average cost per MMBtu of all fuels for owned electric generation was $1.78 in 2018 and $1.72 in 2017.
See Items 1A and 7 for further information.
Coal — Inventory maintained (in days):
Normal
 
Dec. 31, 2018 Actual
 
Dec. 31, 2017 Actual (a)
35 - 50
 
47
 
53
(a) 
Milder weather, purchase commitments and low power and natural gas prices impacted coal inventory levels.
Coal requirements (in million tons) was 7.8 in 2018 and 8.0 in 2017. Coal supply as a percentage of requirements for 2019 is 8.4 million tons or 76% of contracted coal supply. The general coal purchasing objective is to contract for approximately 75% of year one requirements, 40% of year two requirements and 20% of year three requirements. Increase in estimated million tons was due to lower delivered coal prices at Sherco in January 2019, combined with higher future forecasted gas prices for 2019 (higher burn forecast).
Contracted coal transportation as a percentage of requirements in 2019 and 2020 is 100%.
Natural Gas — Natural gas supplies, transportation and storage services for power plants are procured to provide an adequate supply of fuel. Remaining requirements are procured through a liquid spot market. Generally, natural gas supply contracts have variable pricing that is tied to natural gas indices. Natural gas supply and transportation agreements include obligations for the purchase and/or delivery of specified volumes or payments in lieu of delivery.
Contracts and commitments at Dec. 31:
(Millions of Dollars)
 
Gas Supply
 
Gas Transportation and Storage (a)
2018
 
$

 
$
406

2017
 

 
398

Year of Expiration
 
N/A

 
 2020 - 2037

(a) 
For incremental supplies, there are limited on-site fuel storage facilities, with a primary reliance on the spot market.
Nuclear — NSP-Minnesota secures contracts for uranium concentrates, uranium conversion, uranium enrichment and fuel fabrication to operate its nuclear plants. The contract strategy involves a portfolio of spot purchases and medium and long-term contracts for uranium concentrates, conversion services and enrichment services with multiple producers and with a focus on diversification to minimize potential impacts caused by supply interruptions due to geographical and world political issues.
Current nuclear fuel supply contracts cover 100% of uranium concentrates requirements through 2021 and approximately 51% of the requirements for 2022 - 2033;

6


Current contracts for conversion services cover 100% of the requirements through 2021 and approximately 43% of the requirements for 2022 - 2033; and
Current enrichment service contracts cover 100% of the requirements through 2025 and approximately 19% of the requirements for 2026 - 2033.
Fabrication services for Monticello and PI are 100% committed through 2030 and 2027, respectively. 
NSP-Minnesota expects sufficient uranium concentrates, conversion services and enrichment services to be available for the requirements of its nuclear generating plants. Some exposure to market price volatility will remain due to index-based pricing structures contained in supply contracts.
See Item 7 for further information.
Capacity and Demand
Uninterrupted system peak demand for the NSP System’s electric utility for the last two years, is as follows:
System Peak Demand (in MW)
2018
 
2017
8,927

 
June 29
 
8,546

 
July 17
The peak demand typically occurs in the summer. The increase in peak load from 2017 to 2018 is partly due to warmer weather in 2018.
Public Utility Regulation
Summary of Regulatory Agencies and Areas of Jurisdiction — Retail rates, services and other aspects of NSP-Minnesota’s operations are regulated by the MPUC, the NDPSC and the SDPUC. The MPUC also has regulatory authority over security issuances, certain property transfers, mergers, dispositions of assets and transactions between NSP-Minnesota and its affiliates. In addition, the MPUC reviews and approves NSP-Minnesota’s IRPs for meeting future energy needs. In addition, MPUC certifies the need and siting for generating plants greater than 50 MW and transmission lines greater than 100 KV that will be located within the state. The NDPSC and SDPUC have regulatory authority over generation and transmission facilities, along with the siting and routing of new generation and transmission facilities in North Dakota and South Dakota, respectively.
NSP-Minnesota is subject to the jurisdiction of the FERC for its wholesale electric operations, hydroelectric licensing, accounting practices, wholesale sales for resale, transmission of electricity in interstate commerce, compliance with NERC electric reliability standards, asset transfers and mergers, and natural gas transactions in interstate commerce.
NSP-Minnesota is a transmission owning member of the MISO RTO and operates within the MISO RTO and MISO wholesale market. NSP-Minnesota makes wholesale sales in other RTO markets at market-based rates. NSP-Minnesota and NSP-Wisconsin also make wholesale electric sales at market-based prices to customers outside of their balancing authority as jointly authorized by the FERC.
Fuel, Purchased Energy and Conservation Cost-Recovery
Mechanisms
CIP rider — Recovers the costs of conservation and demand-side management programs.
EIR — Recovers the costs of environmental improvement projects.
RDF — Allocates money collected from retail customers to support emerging renewable energy projects and technologies.
 
RES — Recovers the cost of renewable generation in Minnesota.
RER — Recovers the cost of renewable generation in North Dakota.
SEP — Recovers costs related to various energy policies approved by the Minnesota legislature.
TCR — Recovers costs associated with investments in electric transmission and distribution grid modernization costs.
Infrastructure rider — Recovers costs for investments in generation and incremental property taxes in South Dakota.
NSP-Minnesota’s retail electric rates in Minnesota, North Dakota and South Dakota include a FCA for monthly billing adjustments to recover changes in prudently incurred costs of fuel related items and purchased energy. Capacity costs are recovered through base rates and are not recovered through the FCA. Costs associated with MISO are generally recovered through either the FCA or base rates.
In 2017, the MPUC voted to change the FCA process in Minnesota. Under the new process, each month utilities would collect amounts equal to the baseline cost of energy set at the start of the plan year (base would be reset annually). Monthly variations to the baseline costs would be tracked and netted over a 12-month period. Utilities would issue refunds above the baseline costs, and could seek recovery of any overage. Recently, the MPUC delayed implementation until 2020.
Minnesota state law requires NSP-Minnesota to invest 2% of its state electric revenues and 0.5% of its state gas revenues in CIP. These costs are recovered through an annual cost-recovery mechanism for electric conservation and energy management program expenditures.
Energy Sources and Transmission Service Provider
NSP-Minnesota expects to use power plants, power purchases, CIP/DSM options, new generation facilities and expansion of power plants to meet its system capacity requirements.
Purchased Power — NSP-Minnesota has contracts to purchase power from other utilities and IPPs. Long-term purchased power contracts for dispatchable resources typically require a capacity charge and an energy charge. NSP-Minnesota makes short-term purchases to meet system requirements, replace company owned generation, meet operating reserve obligations or obtain energy at a lower cost.
Purchased Transmission Services — NSP-Minnesota and NSP-Wisconsin have contracts with MISO and other regional transmission service providers to deliver power and energy to their customers.
Wind Development — In 2017, the MPUC approved NSP-Minnesota’s proposal to add 1,550 MW of new wind generation including ownership of 1,150 MW of wind generation.
In April 2018, the MPUC approved NSP-Minnesota’s petition to build and own the Dakota Range, a 300 MW wind project in South Dakota. NSP-Minnesota’s capital investment for the Dakota Range is expected to be approximately $350 million and placed in service in 2021.
In December 2018, the NDPSC approved a settlement agreement for these wind development projects.

7


PPA Terminations and Amendments — In June 2018, NSP-Minnesota terminated the Benson and Laurentian PPAs, and purchased the Benson biomass facility. As a result, a $103 million regulatory asset was recognized for the costs of the Benson transaction. For Laurentian, a regulatory asset of $109 million was recognized for annual payments/obligations. Regulatory approvals provide for recovery of the Benson regulatory asset over 10 years, and Laurentian termination payments as they occur (over six years). Termination of the PPAs is expected to save customers over $600 million over the next 10 years.
Jurisdictional Cost Recovery Allocation — In December 2016, NSP-Minnesota filed a resource treatment framework with the NDPSC and MPUC. The filing proposed a framework to allow NSP-Minnesota’s operations in North Dakota and Minnesota to gradually become more independent of one another with respect to future generation resource selection while also identifying a path for cost sharing of current resources. NSP-Minnesota’s filing identified two options: a legal separation, creating a separate North Dakota operating company; or a pseudo-separation, which maintains the current corporate structure but directly assigns the costs and benefits of each resource to the jurisdiction that supports it. Docket remains under consideration by the NDPSC.
Minnesota State ROFR Statute Complaint — In September 2017, LSP Transmission filed a complaint in the Minnesota District Court against the Minnesota Attorney General, the MPUC and the DOC. The complaint was in response to MISO assigning NSP-Minnesota and ITC Midwest, LLC to jointly own a new 345 KV transmission line from near Mankato, Minnesota to Winnebago, Minnesota. The project was estimated by MISO to cost $108 million. The project was assigned to NSP-Minnesota and ITC Midwest as the incumbent utilities, consistent with a Minnesota state ROFR statute. The complaint challenged the constitutionality of the state ROFR statute and is seeking declaratory judgment that the statute violates the Commerce Clause of the U.S. Constitution and should not be enforced. The Minnesota state agencies and NSP-Minnesota filed motions to dismiss. In June 2018, the Minnesota District Court granted the defendants’ motions to dismiss with prejudice. LSP Transmission filed an appeal in July 2018. It is uncertain when a decision will be rendered.
Nuclear Power Operations and Waste Disposal
NSP-Minnesota owns two nuclear generating plants: the Monticello plant and the PI plant. Nuclear power plant operations produce gaseous, liquid and solid radioactive wastes which are controlled by federal regulation. High-level radioactive wastes primarily include used nuclear fuel. LLW consists primarily of demineralizer resins, paper, protective clothing, rags, tools and equipment that have become contaminated through use in a plant.
NRC Regulation — The NRC regulates nuclear operations. The costs of complying with NRC requirements can affect both operating expenses and capital investments of the plants. NSP-Minnesota has obtained recovery of these compliance costs in customer rates, and expects future compliance costs will continue to be recoverable.
LLW Disposal — LLW from NSP-Minnesota’s Monticello and PI nuclear plants is currently disposed at the Clive facility located in Utah and the Waste Control Specialists facility located in Texas. If off-site LLW disposal facilities become unavailable, NSP-Minnesota has storage capacity available on-site at PI and Monticello which would allow both plants to continue to operate until the end of their current licensed lives.
 
High-Level Radioactive Waste Disposal — The federal government has responsibility to permanently dispose domestic spent nuclear fuel and other high-level radioactive wastes. The Nuclear Waste Policy Act requires the DOE to implement a program for nuclear high-level waste management. This includes the siting, licensing, construction and operation of a repository for spent nuclear fuel from civilian nuclear power reactors and other high-level radioactive wastes at a permanent federal storage or disposal facility.
The federal government has been evaluating a nuclear geologic repository at Yucca Mountain, Nevada for many years. At this time, there are no definitive plans for a permanent federal storage site at Yucca Mountain or any other site.
Review of PI Costs As part of NSP-Minnesota’s 2016 multi-year electric rate case and IRP, the MPUC ordered an investigation into NSP-Minnesota’s PI nuclear investments. The issue was resolved as part of the 2016 multi-year electric rate case settlement. In November 2018, the DOC issued a final report, in which no cost disallowances were recommended.
Nuclear Spent Fuel Storage NSP-Minnesota has interim on-site storage for spent nuclear fuel at its Monticello and PI nuclear generating plants. Authorized storage capacity is sufficient to allow NSP-Minnesota to operate until the end of the operating licenses in 2030 for Monticello, 2033 for PI Unit 1, and 2034 for PI Unit 2. Authorizations for additional spent fuel storage capacity may be required at each site to support either continued operation or decommissioning if the federal government does not commence storage operations.
In 2013, NSP-Minnesota’s Monticello nuclear generating plant loaded and placed five storage canisters (canisters #11-15) in the ISFSI and a sixth canister (canister #16) was loaded but remained in the plant pending resolution of weld inspection issues. Successful pressure and leak testing demonstrated the safety and integrity of all six canisters involved. NSP-Minnesota took several actions to assure compliance with the NRC’s regulations and Monticello’s storage license. The NRC has approved NSP-Minnesota’s compliance plan for all canisters.
NSP-Minnesota intends to seek recovery of these costs in a future regulatory proceeding. No public safety issues have been raised, or are believed to exist, in this matter.
See Note 10 to the consolidated financial statements for further information.
Wholesale and Commodity Marketing Operations
NSP-Minnesota conducts various wholesale marketing operations, including the purchase and sale of electric capacity, energy, ancillary services and energy-related products. NSP-Minnesota uses physical and financial instruments to minimize commodity price and credit risk and hedge sales and purchases. NSP-Minnesota also engages in trading activity unrelated to hedging and sharing of any margins is determined through state regulatory proceedings as well as the operation of the FERC approved joint operating agreement. NSP-Minnesota does not serve any wholesale requirements customers at cost-based regulated rates.


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NATURAL GAS UTILITY OPERATIONS
Natural Gas Operating Statistics
 
Year Ended Dec. 31
 
2018
 
2017
 
2016
Natural gas deliveries (Thousands of MMBtu)
 
 
 
 
 
Residential
43,876

 
38,365

 
35,592

C&I
45,909

 
41,047

 
37,824

Total retail
89,785

 
79,412

 
73,416

Transportation and other
13,101

 
13,109

 
11,189

Total deliveries
102,886

 
92,521

 
84,605

 
 
 
 
 
 
Number of customers at end of period
 
 
 
 
 
Residential
475,441

 
470,255

 
465,745

C&I
44,217

 
43,859

 
43,553

Total retail
519,658

 
514,114

 
509,298

Transportation and other
26

 
26

 
25

Total customers
519,684

 
514,140

 
509,323

 
 
 
 
 
 
Natural gas revenues (Millions of Dollars)
 
 
 
 
 
Residential
$
320.0

 
$
287.5

 
$
261.6

C&I
248.8

 
221.6

 
194.0

Total retail
568.8

 
509.1

 
455.6

Transportation and other
14.3

 
22.8

 
11.8

Total natural gas revenues
$
583.1

 
$
531.9

 
$
467.4

 
 
 
 
 
 
MMBtu sales per retail customer
172.78

 
154.46

 
144.15

Revenue per retail customer
$
1,095

 
$
990

 
$
895

Residential revenue per MMBtu
7.29

 
7.49

 
7.35

C&I revenue per MMBtu
5.42

 
5.40

 
5.13

Transportation and other revenue per MMBtu
1.09

 
1.74

 
1.05

Capability and Demand
Natural gas supply requirements are categorized as firm or interruptible (customers with an alternate energy supply).
Maximum daily send-out (firm and interruptible) and occurrence date:
2018
 
2017
MMBtu
 
Date
 
MMBtu
 
Date
786,751

(a) 
Jan. 12
 
893,062

 
Dec. 26
(a) 
Decrease in MMBtu output due to milder winter temperatures in 2018.
Natural gas is purchased from independent suppliers, generally based on market indices that reflect current prices. The natural gas is delivered under transportation agreements with interstate pipelines. These agreements provide for firm deliverable pipeline capacity of 645,171 MMBtu per day.
NSP-Minnesota contracts with providers of underground natural gas storage services. Agreements provided storage of winter natural gas requirements and peak day firm requirements of 24% and 29% in 2018, respectively.
Natural Gas Supply and Costs
NSP-Minnesota actively seeks natural gas supply, transportation and storage alternatives to yield a diversified portfolio which provides increased flexibility, decreased interruption and financial risk and economical rates. In addition, NSP-Minnesota conducts natural gas price hedging activities approved by their respective state commissions.
 
Average delivered cost per MMBtu of natural gas for regulated retail distribution was $4.03 and $3.89 in 2018 and 2017, respectively.
NSP-Minnesota has natural gas supply, transportation, and storage agreements that include obligations for purchase and/or delivery of specified volumes or to make payments in lieu of delivery. As of Dec. 31, 2018, NSP-Minnesota was committed to approximately $437 million of obligations under contracts, which expire in various years from 2019 - 2033.
Public Utility Regulation
Summary of Regulatory Agencies and Areas of Jurisdiction — Retail rates, services and other aspects of NSP-Minnesota’s retail natural gas operations are regulated by the MPUC and NDPSC. The MPUC has regulatory authority over security issuances, certain property transfers, mergers with other utilities and transactions between NSP-Minnesota and its affiliates. The MPUC reviews and approves NSP-Minnesota’s natural gas supply plans for meeting future energy needs. NSP-Minnesota is subject to the jurisdiction of the FERC with respect to certain natural gas transactions in interstate commerce. NSP-Minnesota is also subject to the DOT, Minnesota Office of Pipeline Safety, NDPSC and SDPUC for pipeline safety compliance.
Purchased Gas and Conservation Cost-Recovery Mechanisms — NSP-Minnesota’s retail natural gas rates for Minnesota and North Dakota include a PGA clause that provides for prospective monthly rate adjustments to reflect the forecasted cost of purchased natural gas, transportation and storage service. The annual difference between the natural gas cost revenues collected through PGA rates and the actual natural gas costs is collected or refunded over the subsequent 12-month period.

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NSP-Minnesota also recovers costs associated with transmission and distribution pipeline integrity management programs through its GUIC rider. Costs recoverable under the GUIC rider include funding for pipeline assessments as well as deferred costs from NSP-Minnesota’s existing sewer separation and pipeline integrity management programs.
GENERAL
Seasonality
Demand for electric power and natural gas is affected by seasonal differences in the weather. In general, peak sales of electricity occur in the summer months, and peak sales of natural gas occur in the winter months. As a result, the overall operating results may fluctuate substantially on a seasonal basis. Additionally, NSP-Minnesota’s operations have historically generated less revenues and income when weather conditions are milder in the winter and cooler in the summer.
See Item 7 for further information.
Competition
NSP-Minnesota is a vertically integrated utility, subject to traditional cost-of-service regulation by state public utilities commissions. NSP-Minnesota is subject to public policies that promote competition and development of energy markets. NSP-Minnesota’s industrial and large commercial customers have the ability to generate their own electricity. In addition, customers may have the option of substituting other fuels or relocating their facilities to a lower cost region.
Customers have the opportunity to supply their own power with distributed generation including, but not limited to, solar generation and in most jurisdictions can currently avoid paying for most of the fixed production, transmission and distribution costs incurred to serve them. Several states, including Minnesota, have policies designed to promote the development of solar and other distributed energy resources through incentive policies; with these incentives and federal tax subsidies, distributed generating resources are potential competitors to NSP-Minnesota’s electric service business.
The FERC has continued to promote competitive wholesale markets through open access transmission and other means. As a result, NSP-Minnesota and its wholesale customers can purchase generation resources from competing wholesale suppliers and use the transmission systems of Xcel Energy Inc.’s utility subsidiaries on a comparable basis to serve their native load.
FERC Order No. 1000 seeks to establish competition for construction and operation of certain new electric transmission facilities. State utilities commissions have also created resource planning programs that promote competition for electricity generation resources used to provide service to retail customers.
NSP-Minnesota has franchise agreements with cities subject to periodic renewal, however, a city could seek alternative means to access electric power or gas, such as municipalization.
While facing these challenges, NSP-Minnesota believes its rates and services are competitive with the alternatives currently available.
ENVIRONMENTAL MATTERS
NSP-Minnesota’s facilities are regulated by federal and state environmental agencies that have jurisdiction over air emissions, water quality, wastewater discharges, solid wastes and hazardous substances. Various company activities require registrations, permits, licenses, inspections and approvals from these agencies. NSP-Minnesota has received all necessary authorizations for the construction and continued operation of its generation, transmission and distribution systems.
 
NSP-Minnesota’s facilities have been designed and constructed to operate in compliance with applicable environmental standards and related monitoring and reporting requirements. However, it is not possible to determine when or to what extent additional facilities or modifications of existing or planned facilities will be required as a result of changes to environmental regulations, interpretations or enforcement policies or what effect future laws or regulations may have upon NSP-Minnesota’s operations. NSP-Minnesota will likely be required to incur capital expenditures in the future to comply with requirements for remediation of MGP and other legacy sites. The scope and timing of these expenditures cannot be determined until more information is obtained regarding the need for remediation at legacy sites.
NSP-Minnesota must comply with emission budgets that require the purchase of emission allowances from other utilities.
There are significant present and future environmental regulations to encourage use of clean energy technologies and regulate emissions of GHGs. NSP-Minnesota has undertaken numerous initiatives to meet current requirements and prepare for potential future regulations, reduce GHG emissions and respond to state renewable and energy efficiency goals. If future environmental regulations do not provide credit for the investments NSP-Minnesota has already made or if they require additional initiatives or emission reductions, substantial costs may be incurred.
The EPA , as an alternative to the CPP, has proposed a new regulation that, if adopted, would require implementation of heat rate improvement projects at our coal-fired power plants. It is not known what those costs might be until a final rule is adopted and state plans are developed to implement a final regulation. NSP-Minnesota believes, based on prior state commission practice, the cost of these initiatives or replacement generation would be recoverable through rates.
NSP-Minnesota is committed to addressing climate change and potential climate change regulation through efforts to reduce its GHG emissions in a balanced, cost-effective manner. Starting in 2011, NSP-Minnesota began reporting GHG emissions under the EPA’s mandatory GHG Reporting Program.
EMPLOYEES
As of Dec. 31, 2018, NSP-Minnesota had 3,271 full-time employees and seven part-time employees, of which 2,064 were covered under collective-bargaining agreements.
Item 1A — Risk Factors
Xcel Energy, which includes NSP-Minnesota, is subject to a variety of risks, many of which are beyond our control. Risks that may adversely affect the business, financial condition, results of operations or cash flows are described below. These risks should be carefully considered together with the other information set forth in this report and future reports that Xcel Energy files with the SEC.
Oversight of Risk and Related Processes
A key accountability of the Board of Directors is the oversight of material risk, and our Board of Directors employs an effective process for doing so. Management and the Board of Directors have responsibility for overseeing the identification and mitigation of key risks.
Management identifies and analyzes risks to determine materiality and other attributes such as timing, probability and controllability. Identification and analysis occurs formally through a key risk assessment conducted by senior management, the financial disclosure process, hazard risk management procedures and internal auditing and compliance with financial and operational controls.

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Management also identifies and analyzes risk through its business planning process and development of goals and key performance indicators, which include risk identification to determine barriers to implementing NSP-Minnesota’s strategy. The business planning process also identifies areas in which there is a potential for a business area to assume inappropriate risk to meet goals, and determines how to prevent inappropriate risk-taking.
At a threshold level, NSP-Minnesota has a robust compliance program and promotes a culture of compliance, including tone at the top. The process for risk mitigation includes adherence to our code of conduct and compliance policies, operation of formal risk management structures and overall business management to mitigate the risks inherent in the implementation of strategy. Building on this culture of compliance, management further mitigates risks through formal risk management structures, including management councils, risk committees and services of corporate areas such as internal audit, corporate controller and legal.
Management communicates regularly with the Board of Directors and key stakeholders regarding risk. Senior management presents and communicates a periodic risk assessment to the Board of Directors which provides information on the risks management believes are material, including the earnings impact, timing, likelihood and controllability. Oversight of cybersecurity risks by the Operations, Nuclear, Environmental and Safety Committee includes receiving independent outside assessments of cybersecurity maturity and assessment of plans.
Overall, the Board of Directors approaches oversight, management and mitigation of risk as an integral and continuous part of its governance of NSP-Minnesota. Processes are in place to ensure appropriate risk oversight, as well as identification and consideration of new risks. The Board of Directors regularly reviews management’s key risk assessment informed by these processes, and analyzes areas of existing and future risks and opportunities.
Risks Associated with Our Business
Operational Risks
Our natural gas and electric transmission and distribution operations involve numerous risks that may result in accidents and other operating risks and costs.
Our natural gas transmission and distribution activities include inherent hazards and operating risks, such as leaks, explosions, outages and mechanical problems.
Our electric transmission and distribution activities also include inherent hazards and operating risks such as contact, fire and outages which could cause substantial financial losses. These natural gas and electric risks could result in loss of life, significant property damage, environmental pollution, impairment of our operations and substantial losses. We maintain insurance against some, but not all, of these risks and losses. The occurrence of these events, if not fully covered by insurance, could have a material effect on our financial condition, results of operations and cash flows.
Additionally, for natural gas costs that may be required in order to comply with potential new regulations, including the Pipeline Safety Act, could be significant.
The Pipeline Safety Act requires verification of pipeline infrastructure records by pipeline owners and operators to confirm the maximum allowable operating pressure of lines located in high consequence areas or more-densely populated areas. We have programs in place to comply with the Pipeline Safety Act and for systematic infrastructure monitoring and renewal over time. A significant incident could increase regulatory scrutiny and result in penalties and higher costs of operations.
 
The PHMSA is responsible for administering the DOT’s national regulatory program to assure the safe transportation of natural gas, petroleum and other hazardous materials by pipelines. The PHMSA continues to develop regulations and other approaches to risk management to assure safety in design, construction, testing, operation, maintenance, and emergency response of natural gas pipeline infrastructure.
Our utility operations are subject to long-term planning risks.
Most electric utility investments are planned to be used for decades. Transmission and generation investments typically have long lead times and are planned well in advance of when they are brought in-service subject to long-term resource plans. These plans are based on numerous assumptions such as: sales growth, customer usage, commodity prices, economic activity, costs, regulatory mechanisms, customer behavior, available technology and public policy.
The electric utility sector is undergoing a period of significant change. For example, increases in appliance, lighting and energy efficiency, wider adoption and lower cost of renewable generation and distributed generation, shifts away from coal generation to decrease CO2 emissions and increasing use of natural gas in electric generation driven by lower natural gas prices. Customer adoption of these technologies and increased energy efficiency could result in excess transmission and generation resources as well as stranded costs if NSP-Minnesota is not able to fully recover the costs and investments. These changes also introduce additional uncertainty into long-term planning which gives rise to a risk that the magnitude and timing of resource additions and growth in customer demand may not coincide, and that the preference for the types of additions may change from planning to execution. In addition, we are subject to longer-term availability of the natural resource inputs such as coal, natural gas, uranium and water to cool our facilities. Lack of availability of these resources could jeopardize long-term operations of our facilities or make them uneconomic to operate.
Changing customer expectations and technologies are requiring significant investments in advanced grid infrastructure. This increases the exposure to potential outdating of technologies and resultant risks. The inability of coal mining companies to attract capital could disrupt longer-term supplies. Decreasing use per customer driven by appliance and lighting efficiency and the availability of cost-effective distributed generation places downward pressure on sales growth. This may lead to under recovery of costs, excess resources to meet customer demand and increases in electric rates. Finally, multiple states may not agree as to the appropriate resource mix and the differing views may lead to costs incurred to comply with one jurisdiction that are not recoverable across all of the jurisdictions served by the same assets.
We are subject to the risks of nuclear generation.
Our two nuclear stations, PI and Monticello, subject us to the risks of nuclear generation, which include:
Risks associated with use of radioactive material in the production of energy, the management, handling, storage and disposal of radioactive materials;
Limitations on insurance available to cover losses that might arise in connection with nuclear operations, as well as obligations to contribute to an insurance pool in the event of damages at a covered U.S. reactor; and,
Uncertainties with the technological and financial aspects of decommissioning nuclear plants. For example, assumptions regarding decommissioning costs may change based on economic conditions and changes in the expected life of the asset may cause our funding obligations to change.

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The NRC has authority to impose licensing and safety-related requirements for the operation of nuclear generation facilities. The NRC has the authority to impose fines and/or shut down a unit until compliance is achieved. Revised NRC safety requirements could necessitate substantial capital expenditures or an increase in operating expenses. In addition, the Institute for Nuclear Power Operations reviews our nuclear operations and nuclear generation facilities. Compliance with the Institute for Nuclear Power Operations’ recommendations could result in substantial capital expenditures or a substantial increase in operating expenses.
If an incident did occur, it could have a material effect on our results of operations, financial condition or cash flows. Furthermore, the non-compliance or the occurrence of a serious incident at other nuclear facilities could result in increased regulation of the industry, which may increase our compliance costs.
NSP-Wisconsin’s production and transmission system is operated on an integrated basis with our production and transmission system, and NSP-Wisconsin may be subject to risks associated with our nuclear generation.
We are subject to commodity risks and other risks associated with energy markets and energy production.
If fuel costs increase, customer demand could decline and bad debt expense may rise, which could have a material impact on our results of operations. While we have fuel clause recovery mechanisms, higher fuel costs could significantly impact our results of operations if costs are not recovered. Delays in the timing of the collection of fuel cost recoveries could impact our cash flows. Low fuel costs have a positive impact on sales, however low oil and natural gas prices could negatively impact oil and gas production activities and subsequently our sales volumes and revenue.
A significant disruption in supply could cause us to seek alternative supply services at potentially higher costs or suffer increased liability for unfulfilled contractual obligations. Significantly higher energy or fuel costs relative to sales commitments have a negative impact on our cash flows and potentially result in economic losses. Potential market supply shortages may not be fully resolved through alternative supply sources and could cause disruptions in our ability to provide electric and/or natural gas services to our customers. Failure to provide service due to disruptions may also result in fines, penalties or cost disallowances through the regulatory process.
We also engage in wholesale sales and purchases of electric capacity, energy and energy-related products as well as natural gas. In many markets, emission allowances and/or RECs are also needed to comply with various statutes and commission rulings. As a result we are subject to market supply and commodity price risk. Commodity price changes can affect the value of our commodity trading derivatives. We mark certain derivatives to estimated fair market value on a daily basis. Actual settlements can vary significantly from estimated fair values recorded and significant changes from the assumptions underlying our fair value estimates could cause earnings variability.
As we are a subsidiary of Xcel Energy Inc., we may be negatively affected by events impacting the credit or liquidity of Xcel Energy Inc. and its affiliates.
If Xcel Energy Inc. were to become obligated to make payments under various guarantees and bond indemnities or to fund its other contingent liabilities, or if either Standard & Poor’s or Moody’s were to downgrade Xcel Energy Inc.’s credit rating below investment grade, Xcel Energy Inc. may be required to provide credit enhancements in the form of cash collateral, letters of credit or other security to satisfy part or potentially all of these exposures.
 
If either Standard & Poor’s or Moody’s were to downgrade Xcel Energy Inc.’s debt securities below investment grade, it would increase Xcel Energy Inc.’s cost of capital and restrict its access to the capital markets. This could limit Xcel Energy Inc.’s ability to contribute equity or make loans to us, or may cause Xcel Energy Inc. to seek additional or accelerated funding from us in the form of dividends. If such event were to occur, we may need to seek alternative sources of funds to meet our cash needs.
As of Dec. 31, 2018, Xcel Energy Inc. and its utility subsidiaries had approximately $15.8 billion of long-term debt and $1.4 billion of short-term debt and current maturities. Xcel Energy Inc. provides various guarantees and bond indemnities supporting some of its subsidiaries by guaranteeing the payment or performance by these subsidiaries for specified agreements or transactions.
Xcel Energy also has other contingent liabilities resulting from various tax disputes and other matters. Xcel Energy Inc.’s exposure under the guarantees is based upon the net liability of the relevant subsidiary under the specified agreements or transactions. The majority of Xcel Energy Inc.’s guarantees limit its exposure to a maximum amount that is stated in the guarantees. As of Dec. 31, 2018, Xcel Energy had guarantees outstanding with a maximum stated amount of approximately $17.8 million and immaterial exposure. Xcel Energy also had additional guarantees of $51.1 million at Dec. 31, 2018 for performance and payment of surety bonds for the benefit of itself and its subsidiaries, with total exposure that cannot be estimated at this time. If Xcel Energy Inc. were to become obligated to make payments under these guarantees and bond indemnities or become obligated to fund other contingent liabilities, it could limit Xcel Energy Inc.’s ability to contribute equity or make loans to us, or may cause Xcel Energy Inc. to seek additional or accelerated funding from us in the form of dividends. If such event were to occur, we may need to seek alternative sources of funds to meet our cash needs.
We are a wholly owned subsidiary of Xcel Energy Inc. Xcel Energy Inc. can exercise substantial control over our dividend policy and business and operations and may exercise that control in a manner that may be perceived to be adverse to our interests.
All of the members of our Board of Directors, as well as many of our executive officers, are officers of Xcel Energy Inc. Our Board makes determinations with respect to a number of significant corporate events, including the payment of our dividends.
We have historically paid quarterly dividends to Xcel Energy Inc. In 2018, 2017 and 2016 we paid $456.3 million, $506.6 million and $395.9 million of dividends to Xcel Energy Inc., respectively. If Xcel Energy Inc.’s cash requirements increase, our Board of Directors could decide to increase the dividends we pay to Xcel Energy Inc. to help support Xcel Energy Inc.’s cash needs. This could adversely affect our liquidity. The most restrictive dividend limitation for NSP-Minnesota is imposed by our state regulatory commissions. State regulatory commissions indirectly limit the amount of dividends NSP-Minnesota can pay to Xcel Energy Inc., by requiring a minimum equity-to-total capitalization ratio. See Note 5 to the consolidated financial statements for further information.
Financial Risks
Our profitability depends on our ability to recover costs from our customers and changes in regulation may impair our ability to recover costs from our customers.
We are subject to comprehensive regulation by federal and state utility regulatory agencies, including siting and construction of facilities, customer service and the rates that we can charge customers.

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The profitability of our operations is dependent on our ability to recover the costs of providing energy and utility services and earn a return on our capital investment. Our rates are generally regulated and based on an analysis of our costs incurred in a test year. We are subject to both future and historical test years depending upon the regulatory jurisdiction. Thus, the rates we are allowed to charge may or may not match our costs at any given time. Rate regulation is premised on providing an opportunity to earn a reasonable rate of return on invested capital. In a continued low interest rate environment there has been pressure pushing down ROE. There can also be no assurance that our regulatory commissions will judge all of our costs to be prudent, which could result in disallowances, or that the regulatory process will always result in rates that will produce full recovery. Changes in the long-term cost-effectiveness or changes to the operating conditions of our assets may result in early retirements of utility facilities and while regulation typically provides relief for these types of changes, there is no assurance that regulators would allow full recovery of all remaining costs leaving all or a portion of these asset costs stranded. Higher than expected inflation or tariffs may increase costs of construction and operations. Rising fuel costs could increase the risk that we will not be able to fully recover our fuel costs from our customers. Furthermore, there could be changes in the regulatory environment that would impair our ability to recover costs historically collected from our customers, or these factors could cause us to exceed commitments made regarding cost caps and result in less than full recovery. Overall, management currently believes prudently incurred costs are recoverable given the existing regulatory mechanisms in place.
Adverse regulatory rulings or the imposition of additional regulations could have an adverse impact on our results of operations and materially affect our ability to meet our financial obligations, including debt payments.
Any reductions in our credit ratings could increase our financing costs and the cost of maintaining certain contractual relationships.
We cannot be assured that our current ratings will remain in effect, or that a rating will not be lowered or withdrawn by a rating agency. Significant events including a disallowance of costs, significantly lower returns on equity or equity ratios or impacts of tax policy changes may impact our cash flows and credit metrics, potentially resulting in a change in our credit ratings. In addition, our credit ratings may change as a result of the differing methodologies or change in the methodologies used by the various rating agencies. Any downgrade could lead to higher borrowing costs and could impact our ability to access capital markets.
Also, we may enter into contracts that require the posting of collateral or settlement of applicable contracts if credit ratings fall below investment grade.
We are subject to capital market and interest rate risks.
Utility operations require significant capital investment. As a result, we frequently need to access capital markets. Any disruption in capital markets could have a material impact on our ability to fund our operations. Capital markets are global and impacted by issues and events throughout the world. Capital market disruption events and financial market distress could prevent us from issuing short-term commercial paper, issuing new securities or cause us to issue securities with unfavorable terms and conditions, such as higher interest rates.
Higher interest rates on short-term borrowings with variable interest rates could also have an adverse effect on our operating results. Changes in interest rates may also impact the fair value of the debt securities in the nuclear decommissioning and/or pension funds, as well as our ability to earn a return on short-term investments of excess cash.
 
We are subject to credit risks.
Credit risk includes the risk that our customers will not pay their bills, which may lead to a reduction in liquidity and an increase in bad debt expense. Credit risk is comprised of numerous factors including the price of products and services provided, the overall economy and local economies in the geographic areas we serve, including local unemployment rates.
Credit risk also includes the risk that various counterparties that owe us money or product will become insolvent and/or breach their obligations. Should the counterparties fail to perform, we may be forced to enter into alternative arrangements. In that event, our financial results could be adversely affected and incur losses.
We may at times have direct credit exposure in our short-term wholesale and commodity trading activity to financial institutions trading for their own accounts or issuing collateral support on behalf of other counterparties. We may also have some indirect credit exposure due to participation in organized markets, such as Southwest Power Pool, Inc., PJM Interconnection, LLC, MISO and Electric Reliability Council of Texas, in which any credit losses are socialized to all market participants.
We have additional indirect credit exposures to financial institutions in the form of letters of credit provided as security by power suppliers under various purchased power contracts. If any of the credit ratings of the letter of credit issuers were to drop below investment grade, the supplier would need to replace that security with an acceptable substitute. If the security were not replaced, the party could be in default under the contract.
Increasing costs of our defined benefit retirement plans and employee benefits may adversely affect our results of operations, financial condition or cash flows.
We have defined benefit pension and postretirement plans that cover most of our employees. Assumptions related to future costs, return on investments, interest rates and other actuarial assumptions have a significant impact on our funding requirements related to these plans. Estimates and assumptions may change. In addition, the Pension Protection Act changed the minimum funding requirements for defined benefit pension plans. Therefore, our funding requirements and related contributions may change in the future.
Also, the payout of a significant percentage of pension plan liabilities in a single year due to high retirements or employees leaving NSP-Minnesota could trigger settlement accounting and could require NSP-Minnesota to recognize incremental pension expense related to unrecognized plan losses in the year liabilities are paid.
Increasing costs associated with health care plans may adversely affect our results of operations.
Our self-insured costs of health care benefits for eligible employees have increased in recent years. Increasing levels of large individual health care claims and overall health care claims could have an adverse impact on our operating results, financial condition and cash flows. Changes in industry standards utilized in key assumptions (e.g., mortality tables) could have a significant impact on future liabilities and benefit costs. Legislation related to health care could also significantly change our benefit programs and costs.
Federal tax law may significantly impact our business.
NSP-Minnesota collects through regulated rates estimated federal, state and local tax payments. Changes to federal tax law may benefit or adversely affect our earnings and customer costs. Changes to tax depreciable lives and the value of various tax credits may change the economics of resources and our resource selections.

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There could be timing delays before regulated rates provide for realization of the tax changes in revenues. In addition, certain IRS tax policies such as the requirement to utilize normalization may impact our ability to economically deliver certain types of resources relative to market prices.
Macroeconomic Risks
Economic conditions impact our business.
Our operations are affected by local, national and worldwide economic conditions. Growth in customers and sales are correlated with economic conditions.
Economic conditions may be impacted by insufficient financial sector liquidity leading to potential increased unemployment, which may impact customers’ ability to pay timely, increase customer bankruptcies, and may lead to additional bad debt expense.
Further, worldwide economic activity impacts the demand for basic commodities necessary for utility infrastructure, which may impact our ability to acquire sufficient supplies. We operate in a capital intensive industry and federal policy on trade could significantly impact the cost of materials we use. We could be at risk for higher costs for materials and our workforce. There may be delays before these additional costs can be recovered in rates.
Our operations could be impacted by war, acts of terrorism, and threats of terrorism or disruptions due to events.
Our generation plants, fuel storage facilities, transmission and distribution facilities and information and control systems may be targets of terrorist activities. Any disruption could impact operations or result in a decrease in revenues and additional costs to repair and insure our assets. These disruptions could have a material impact on our results of operations, financial condition or cash flows. The potential for terrorism has subjected our operations to increased risks and could have a material effect on our business. We have already incurred increased costs for security and capital expenditures in response to these risks.
The insurance industry has also been affected by these events and the availability of insurance may decrease. In addition, insurance may have higher deductibles, higher premiums and more restrictive policy terms.
A disruption of the regional electric transmission grid, interstate natural gas pipeline infrastructure or other fuel sources, could negatively impact our business, our brand and reputation.
Because our facilities are part of an interconnected system, we face the risk of possible loss of business due to a disruption caused by the actions of a neighboring utility or an event (e.g., severe storm, severe temperature extremes, wildfires, generator or transmission facility outage, pipeline rupture, railroad disruption, operator error, sudden and significant increase or decrease in wind generation or a disruption of work force) within our operating systems or on a neighboring system. Any such disruption could result in a significant decrease in revenues and significant additional costs to repair assets, which could have a material impact on our results of operations, financial condition or cash flows.
A cyber incident or security breach could have a material effect on our business.
We operate in an industry that requires the continued operation of sophisticated information technology, control systems and network infrastructure. In addition, we use our systems and infrastructure to create, collect, use, disclose, store, dispose of and otherwise process sensitive information, including company data, customer energy usage data, and personal information regarding customers, employees and their dependents, contractors and other individuals.
 
Our generation, transmission, distribution and fuel storage facilities, information technology systems and other infrastructure or physical assets, as well as information processed in our systems (e.g., information regarding our customers, employees, operations, infrastructure and assets) could be affected by cyber security incidents, including those caused by human error.
Our industry has begun to see an increased volume and sophistication of cyber security incidents from international activist organizations, Nation States and individuals. Cyber security incidents could harm our businesses by limiting our generating, transmitting and distributing capabilities, delaying our development and construction of new facilities or capital improvement projects to existing facilities, disrupting our customer operations or causing the release of customer information, all of which could expose us to liability.
Our generation, transmission systems and natural gas pipelines are part of an interconnected system. Therefore, a disruption caused by the impact of a cyber security incident of the regional electric transmission grid, natural gas pipeline infrastructure or other fuel sources of our third party service providers’ operations, could also negatively impact our business.
Our supply chain for procurement of digital equipment may expose software or hardware to these risks and could result in a breach or significant costs of remediation. In addition, such an event would likely receive federal and state regulatory scrutiny. We are unable to quantify the potential impact of cyber security threats or subsequent related actions. These potential cyber security incidents and regulatory action could result in a material decrease in revenues and may cause significant additional costs (e.g., penalties, third party claims, repairs, insurance or compliance) and potentially disrupt our supply and markets for natural gas, oil and other fuels.
We maintain security measures to protect our information technology and control systems, network infrastructure and other assets. However, these assets and the information they process may be vulnerable to cyber security incidents, including the resulting disability, or failures of assets or unauthorized access to assets or information. If our technology systems or those of our third-party service providers were to fail or be breached, we may be unable to fulfill critical business functions. We are unable to quantify the potential impact of cyber security incidents on our business, our brand, and our reputation. The cyber security threat is dynamic and evolves continually, and our efforts to prioritize network monitoring may not be effective given the constant changes to threat vulnerability.
Our operating results may fluctuate on a seasonal and quarterly basis and can be adversely affected by milder weather.
Our electric and natural gas utility businesses are seasonal, and weather patterns can have a material impact on our operating performance. Demand for electricity is often greater in the summer and winter months associated with cooling and heating. Because natural gas is heavily used for residential and commercial heating, the demand depends heavily upon weather patterns. A significant amount of natural gas revenues are recognized in the first and fourth quarters related to the heating season. Accordingly, our operations have historically generated less revenues and income when weather conditions are milder in the winter and cooler in the summer. Unusually mild winters and summers could have an adverse effect on our financial condition, results of operations, or cash flows.
Our operations use third party contractors in addition to employees to perform periodic and on-going work.
We rely on third party contractors to perform work for operations, maintenance and construction. We have contractual arrangements with these contractors which typically include performance standards, progress payments, insurance requirements and security for performance.

14


Cyber security breaches have at times exploited third party equipment or software in order to gain access. Poor vendor performance could impact on going operations, restoration operations, our reputation and could introduce financial risk or risks of fines.
Public Policy Risks
We may be subject to legislative and regulatory responses to climate change, with which compliance could be difficult and costly.
Legislative and regulatory responses related to climate change and new interpretations of existing laws create financial risk as our facilities may be subject to additional regulation at either the state or federal level in the future. Such regulations could impose substantial costs on our system.
We may be subject to climate change lawsuits. An adverse outcome could require substantial capital expenditures and could possibly require payment of substantial penalties or damages. Defense costs associated with such litigation can also be significant. Such payments or expenditures could affect results of operations, financial condition or cash flows if such costs are not recovered through regulated rates.
Although the United States has not adopted any international or federal GHG emission reduction targets, many states and localities may continue to pursue climate policies in the absence of federal mandates. All of the steps that NSP-Minnesota has taken to date to reduce GHG emissions, including energy efficiency measures, adding renewable generation or retiring or converting coal plants to natural gas, occurred under state-endorsed resource plans, renewable energy standards and other state policies. While those actions likely would have put NSP-Minnesota in a good position to meet federal or international standards being discussed, the lack of federal action does not adversely impact these state-endorsed actions and plans.
If our regulators do not allow us to recover all or a part of the cost of capital investment or the O&M costs incurred to comply with the mandates, it could have a material effect on our results of operations, financial condition or cash flows.
Increased risks of regulatory penalties could negatively impact our business.
The Energy Act increased civil penalty authority for violation of FERC statutes, rules and orders. The FERC can impose penalties of up to $1.3 million per violation per day, particularly as it relates to energy trading activities for both electricity and natural gas. In addition, NERC electric reliability standards and critical infrastructure protection requirements are mandatory and subject to potential financial penalties. Additionally, the PHMSA, Occupational Safety and Health Administration and other federal agencies have penalty authority. In the event of serious incidents, these agencies have become more active in pursuing penalties. Some states have the authority to impose substantial penalties. If a serious reliability or safety incident did occur, it could have a material effect on our results of operations, financial condition or cash flows.
Environmental Risks
We are subject to environmental laws and regulations, with which compliance could be difficult and costly.
We are subject to environmental laws and regulations that affect many aspects of our operations, including air emissions, water quality, wastewater discharges and the generation, transport and disposal of solid wastes and hazardous substances. Laws and regulations require us to obtain permits, licenses, and approvals and to comply with a variety of environmental requirements.
 
Environmental laws and regulations can also require us to restrict or limit the output of facilities or the use of certain fuels, shift generation to lower-emitting, install pollution control equipment, clean up spills and other contamination and correct environmental hazards. Environmental regulations may also lead to shutdown of existing facilities. Failure to meet requirements of environmental mandates may result in fines or penalties. We may be required to pay all or a portion of the cost to remediate (i.e., clean-up) sites where our past activities, or the activities of other parties, caused environmental contamination.
We are subject to mandates to provide customers with clean energy, renewable energy and energy conservation offerings. It could have a material effect on our results of operations, financial condition or cash flows. If our regulators do not allow us to recover the cost of capital investment or the O&M costs incurred to comply with the requirements.
In addition, existing environmental laws or regulations may be revised, and new laws or regulations may be adopted. We may also incur additional unanticipated obligations or liabilities under existing environmental laws and regulations.
We are subject to physical and financial risks associated with climate change and other weather, natural disaster and resource depletion impacts.
Climate change can create physical and financial risk. Physical risks include changes in weather conditions and extreme weather events.
Our customers’ energy needs vary with weather. To the extent weather conditions are affected by climate change, customers’ energy use could increase or decrease. Increased energy use due to weather changes may require us to invest in generating assets, transmission and infrastructure. Decreased energy use due to weather changes may result in decreased revenues. Extreme weather conditions in general require system backup, costs, and can contribute to increased system stress, including service interruptions. Extreme weather conditions creating high energy demand may raise electricity prices, increasing the cost of energy we provide to our customers.
Severe weather impacts our service territories, primarily when thunderstorms, flooding, tornadoes, wildfires and snow or ice storms occur. To the extent the frequency of extreme weather events increases, this could increase our cost of providing service. Periods of extreme temperatures could impact our ability to meet demand. Changes in precipitation resulting in droughts or water shortages could adversely affect our operations. Drought conditions also contribute to the increase in wildfire risk from our electric generation facilities. While we carry liability insurance, given an extreme event, if NSP-Minnesota was found to be liable for wildfire damages, amounts that potentially exceed our coverage could negatively impact our results of operations, financial condition or cash flows. Drought or water depletion could adversely impact our ability to provide electricity to customers and increase the price paid for energy. We may not recover all costs related to mitigating these physical and financial risks.
Climate change may impact a region’s economy, which could impact our sales and revenues. The price of energy has an impact on the economic health of our communities. The cost of additional regulatory requirements, such as regulation of GHG, could impact the availability of goods and prices charged by our suppliers which would normally be borne by consumers through higher prices for energy and purchased goods. To the extent financial markets view climate change and emissions of GHGs as a financial risk, this could negatively affect our ability to access capital markets or cause us to receive less than ideal terms and conditions.

15


Item 1B — Unresolved Staff Comments
None.
Item 2 — Properties
Virtually all of the utility plant property of NSP-Minnesota is subject to the lien of its first mortgage bond indenture.
NSP-Minnesota

Station, Location and Unit
 
Fuel
 
Installed
 
MW (a)
 
Steam:
 
 
 
 
 
 
 
A.S. King-Bayport, MN, 1 Unit
 
Coal
 
1968
 
511

 
Sherco-Becker, MN
 
 
 
 
 
 
 
Unit 1
 
Coal
 
1976
 
680

 
Unit 2
 
Coal
 
1977
 
682

 
Unit 3
 
Coal
 
1987
 
517

(b) 
Monticello MN, 1 Unit
 
Nuclear
 
1971
 
617

 
PI-Welch, MN
 
 
 
 
 
 
 
Unit 1
 
Nuclear
 
1973
 
521

 
Unit 2
 
Nuclear
 
1974
 
519

 
Various locations, 4 Units
 
Wood/Refuse
 
Various
 
36

(c) 
Combustion Turbine:
 
 
 
 
 
 
 
Angus Anson-Sioux Falls, SD, 3 Units
 
Natural Gas
 
1994 - 2005
 
327

 
Black Dog-Burnsville, MN, 3 Units
 
Natural Gas
 
1987 - 2002
 
494

(d) 
Blue Lake-Shakopee, MN, 6 Units
 
Natural Gas
 
1974 - 2005
 
453

 
High Bridge-St. Paul, MN, 3 Units
 
Natural Gas
 
2008
 
530

 
Inver Hills-Inver Grove Heights, MN, 6 Units
 
Natural Gas
 
1972
 
282

 
Riverside-Minneapolis, MN, 3 Units
 
Natural Gas
 
2009
 
454

 
Various locations, 14 Units
 
Natural Gas
 
Various
 
67

 
Wind:
 
 
 
 
 
 
 
Border-Rolette County, ND, 75 Units
 
Wind
 
2015
 
148

(e) 
Courtenay Wind, ND, 100 Units
 
Wind
 
2016
 
195

(e) 
Grand Meadow-Mower County, MN, 67 Units
 
Wind
 
2008
 
101

(e) 
Nobles-Nobles County, MN, 134 Units
 
Wind
 
2010
 
200

(e) 
Pleasant Valley-Mower County, MN, 100 Units
 
Wind
 
2015
 
196

(e) 
 
 
 
 
Total
 
7,530

 
(a) 
Summer 2018 net dependable capacity.
(b) 
Based on NSP-Minnesota’s ownership of 59%.
(c) 
Refuse-derived fuel is made from municipal solid waste.
(d) 
Black Dog Unit 6 was commissioned and placed into operation in the third quarter of 2018.
(e) 
The values disclosed are the maximum generation levels for these wind units. Capacity is attainable only when wind conditions are sufficiently available (on-demand net dependable capacity is zero).
Electric utility overhead and underground transmission and distribution lines (measured in conductor miles) at Dec. 31, 2018:
Conductor Miles
 
500 KV
2,917

345 KV
13,560

230 KV
2,202

161 KV
615

115 KV
7,372

Less than 115 KV
86,185

NSP-Minnesota had 348 electric utility transmission and distribution substations at Dec. 31, 2018.
 
Natural gas utility mains at Dec. 31, 2018:
Miles
 
Transmission
90

Distribution
10,437

Item 3 Legal Proceedings
NSP-Minnesota is involved in various litigation matters that are being defended and handled in the ordinary course of business. Assessment of whether a loss is probable or is a reasonable possibility, and whether a loss or a range of loss is estimable, often involves a series of complex judgments regarding future events. Management maintains accruals for losses that are probable of being incurred and subject to reasonable estimation. Management may be unable to estimate an amount or range of a reasonably possible loss in certain situations, including but not limited to when (1) damages sought are indeterminate, (2) proceedings are in the early stages or (3) 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.
See Note 10 to the consolidated financial statements, Item 1 and Item 7 for further information.
Item 4 Mine Safety Disclosures
None.
PART II
Item 5 — Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
NSP-Minnesota is a wholly owned subsidiary of Xcel Energy Inc. and there is no market for its common equity securities. See Note 5 to the consolidated financial statements for further information.
The dividends declared during 2018 and 2017 were as follows:
(Millions of Dollars)
 
2018
 
2017
First quarter
 
$
84.6

 
$
85.7

Second quarter
 
88.7

 
88.0

Third quarter
 
184.2

 
243.5

Fourth quarter
 
82.7

 
98.7

Item 6 — Selected Financial Data
This is omitted per conditions set forth in general instructions I(1)(a) and (b) of Form 10-K for wholly owned subsidiaries (reduced disclosure format).
Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
Discussion of financial condition and liquidity for NSP-Minnesota is omitted per conditions set forth in general instructions I(1)(a) and (b) of Form 10-K for wholly owned subsidiaries. It is replaced with management’s narrative analysis and the results of operations for the current year as set forth in general instructions I(2)(a) of Form 10-K for wholly owned subsidiaries (reduced disclosure format).

16


Non-GAAP Financial Measures
The following discussion includes financial information prepared in accordance with GAAP, as well as certain non-GAAP financial measures such as, electric margin, natural gas margin, and ongoing earnings. Generally, a non-GAAP financial measure is a measure of a company’s financial performance, financial position or cash flows that excludes (or includes) amounts that are adjusted from measures calculated and presented in accordance with GAAP. NSP-Minnesota’s management uses non-GAAP measures for financial planning and analysis, for reporting of results, in determining performance-based compensation, and communicating its earnings outlook to analysts and investors. Non-GAAP financial measures are intended to supplement investors’ understanding of our performance and should not be considered alternatives for financial measures presented in accordance with GAAP. These measures are discussed in more detail below and may not be comparable to other companies’ similarly titled non-GAAP financial measures.
Electric and Natural Gas Margins
Electric margin is presented as electric revenues less electric fuel and purchased power expenses. Natural gas margin is presented as natural gas revenues less the cost of natural gas sold and transported. Expenses incurred for electric fuel and purchased power and the cost of natural gas are generally recovered through various regulatory recovery mechanisms. As a result, changes in these expenses are generally offset in operating revenues.
Management believes electric and natural gas margins provide the most meaningful basis for evaluating our operations because they exclude the revenue impact of fluctuations in these expenses. These margins can be reconciled to operating income, a GAAP measure, by including other operating revenues, cost of sales-other, O&M expenses, conservation and state implementation plan expenses, depreciation and amortization and taxes (other than income taxes).
Earnings Adjusted for Certain Items (Ongoing Earnings)
Ongoing earnings reflect adjustments to GAAP earnings (net income) for certain items.
Management uses these non-GAAP financial measures to evaluate and provide details of NSP-Minnesota’s core earnings and underlying performance. Management believes these measurements are useful to investors to evaluate the actual and projected financial performance and contribution of NSP-Minnesota.
Results of Operations
NSP-Minnesota’s net income was approximately $492.3 million for 2018, compared with approximately $490.1 million for 2017. The increase in earnings, driven by higher electric margins (before the impact of the TCJA) and natural gas margins, was offset by higher depreciation expense and O&M expenses.
Electric Margin
Electric revenues and fuel and purchased power expenses are impacted by fluctuation in the price of natural gas, coal and uranium used in the generation of electricity. However, these price fluctuations have minimal impact on electric margin due to fuel recovery mechanisms that recover fuel expenses. In addition, electric customers receive a credit for PTCs that are generated in a particular period.
 
Electric revenues and margin before and after the impact of the TCJA:
(Millions of Dollars)
 
2018
 
2017
Electric revenues before TCJA impact
 
$
4,692.6

 
$
4,541.7

Electric fuel and purchased power before TCJA impact
 
(1,706.6
)
 
(1,626.9
)
Electric margin before TCJA impact
 
$
2,986.0

 
$
2,914.8

TCJA impact (offset as a reduction in income tax)
 
(179.1
)
 

Electric margin
 
$
2,806.9

 
$
2,914.8

Electric Margin
(Millions of Dollars)
 
2018 vs. 2017
Purchased capacity costs
 
$
31.7

Retail sales growth (including Minnesota decoupling and sales true-up)
 
23.5

Non-fuel riders
 
19.0

Estimated impact of weather (net of Minnesota decoupling)
 
17.4

Wholesale transmission margin
 
8.0

Interchange agreement billings with NSP-Wisconsin
 
(17.9
)
Conservation incentive
 
(8.9
)
Other (net)
 
(1.6
)
Total increase in electric margin before TCJA impact
 
$
71.2

TCJA impact (offset as a reduction in income tax)
 
(179.1
)
Total decrease in electric margin
 
$
(107.9
)
Natural Gas Margin
Total natural gas expense varies with changing sales and the cost of natural gas. However, fluctuations in the cost of natural gas have minimal impact on natural gas margin due to natural gas cost recovery mechanisms.
Natural gas revenues and margin before and after the impact of the TCJA:
(Millions of Dollars)
 
2018
 
2017
Natural gas revenues before TCJA impact
 
$
590.0

 
$
531.9

Cost of natural gas sold and transported
 
(345.1
)
 
(301.8
)
Natural gas margin before TCJA impact
 
$
244.9

 
$
230.1

TCJA impact (offset as a reduction in income tax)
 
(6.9
)
 

Natural gas margin
 
$
238.0

 
$
230.1

Natural Gas Margin
(Millions of Dollars)
 
2018 vs. 2017
Estimated impact of weather
 
$
11.8

Sales growth
 
2.6

Other (net)
 
0.4

Total increase in natural gas margin before TCJA impact
 
$
14.8

TCJA impact (offset as a reduction in income tax)
 
(6.9
)
Total increase in natural gas margin
 
$
7.9

Non-Fuel Operating Expenses and Other Items
O&M Expenses O&M expenses increased $25.0 million, or 2.1%, for 2018. Significant changes are summarized below:
(Millions of Dollars)
 
2018 vs. 2017
Business systems and contract labor
 
$
16.5

Plant generation costs
 
11.4

Distribution costs
 
5.4

Nuclear plant operations and amortization
 
(9.7
)
Other (net)
 
1.4

Total increase in O&M expenses
 
$
25.0


17


Business systems and contract labor costs increased due to growing network and storage needs, cybersecurity, initiatives to support our customer strategy, and initiatives to improve business processes;
Plant generation costs increased primarily due to the timing of planned maintenance and overhauls at certain generation facilities;
Distribution costs reflect higher maintenance expenses, including vegetation management; and
Nuclear plant operations and amortization are lower largely reflecting savings initiatives and reduced refueling outage costs.
Conservation Program Expenses — Conservation program expenses decreased $2.1 million, or 1.7%, for 2018. The decrease was due to lower recovery rates, partially offset by additional customer participation in electric conservation programs.
Conservation expenses are generally recovered concurrently through riders and base rates. Timing of recovery may not correspond to the period in which costs were incurred.
Depreciation and Amortization Depreciation and amortization expense increased $41.0 million, or 5.9%, for 2018. The increase was primarily driven by capital expenditures due to planned system investments and amortization of certain regulatory assets.
Income TaxesIncome tax expense decreased $172.5 million for 2018 compared with the same period in 2017. The decrease in income tax expense was primarily due to a lower federal tax rate due to the TCJA, lower pretax earnings, a one-time, non-cash, income tax expense related to the impacts of tax reform in 2017, and an increase in plant-related regulatory differences related to ARAM; partially offset by a net tax benefit related to the resolution of appeals/audits in 2017 and a decrease in wind production tax credits.
The ETR was 5.2% for 2018 compared with 29.0% for 2017. The lower ETR in 2018 was primarily due to the adjustments referenced above. The wind PTCs flow back to customers through NSP-Minnesota’s fuel clause and riders.
 
Regulation
FERC and State Regulation The FERC has jurisdiction over rates for electric transmission service in interstate commerce and electricity sold at wholesale, hydro facility licensing, natural gas transportation, asset transactions and mergers, accounting practices and certain other activities of NSP-Minnesota, including enforcement of NERC mandatory electric reliability standards. State and local agencies have jurisdiction over many of NSP-Minnesota’s activities, including regulation of retail rates and environmental matters.
Xcel Energy, which includes NSP-Minnesota, attempts to mitigate the risk of regulatory penalties through formal training on prohibited practices and a compliance function that reviews interaction with the markets under FERC and Commodity Futures Trading Commission jurisdictions. Public campaigns are conducted to raise awareness of the public safety issues of interacting with our electric systems. While programs to comply with regulatory requirements are in place, there is no guarantee the compliance programs or other measures will be sufficient to ensure against violations. Decisions by these regulators can significantly impact NSP-Minnesota’s results of operations.
Tax Reform Regulatory Proceedings
In December 2017, the TCJA was signed into law, enacting significant changes to the Internal Revenue Code, including a reduction of the corporate income tax rate from 35% to 21% and a resulting reduction in deferred tax assets and liabilities.
As a result of IRS requirements and past regulatory treatment of income taxes in the determination of regulated rates, the impacts of TCJA are primarily recognized as a regulatory liability. Treatment of these tax benefits, (e.g., degree to which benefits will be used to refund currently effective rates and/or used to mitigate other costs and potential future rate increases) is subject to regulatory approval.
Concluded and ongoing regulatory TCJA proceedings:
Utility Service
 
Approval Date
 
Additional Information
Electric and Natural Gas
 
August 2018
 
Minnesota — In 2018, the MPUC ordered NSP-Minnesota to refund the 2018 impacts of TCJA, including $135 million to electric customers and low income program funding, and $6 million to natural gas customers.
Electric
 
July 2018
 
South Dakota — In July 2018, the SDPUC approved a settlement providing a one-time customer refund of $11 million for the 2018 impact of the TCJA, while NSP-Minnesota would retain the TCJA benefits in 2019 and 2020 in exchange for a two-year rate case moratorium.
Natural Gas
 
November 2018
 
North Dakota — In November 2018, the NDPSC approved a TCJA settlement in which NSP-Minnesota will amortize $1 million annually of the regulatory asset for the remediation of the MGP site in Fargo, ND and retain the TCJA savings to offset the MGP amortization expense.
Electric
 
February 2019
 
North Dakota — In February 2019, the NDPSC approved a settlement including a one-time customer refund of $10 million for 2018, while NSP-Minnesota would retain the TCJA benefits in 2019 and 2020 in exchange for a two-year rate case moratorium.
See Note 7 to the consolidated financial statements for further information.

18


Pending and Recently Concluded Regulatory Proceedings
Mechanism
 
Utility Service
 
Amount Requested (in millions)
 
Filing
Date
 
Approval
 
Additional Information
NSP-Minnesota (MPUC)
TCR
 
Electric
 
$98
 
November
2017
 
Pending
 
Reflects the revenue requirements for 2018 and a true-up for 2017 and is based on a proposed ROE of 10%. MPUC decision is expected during the first quarter of 2019.
CIP Incentive
 
Electric & Natural Gas
 
$34
 
March 2018
 
Received
 
MPUC approved 2017 CIP electric and natural gas financial incentives, effective October 2018, of $30 million and $4 million, respectively.
CIP Rider
 
Electric & Natural Gas
 
$57
 
March 2018
 
Received
 
The MPUC approved the forecasted 2018 electric and natural gas CIP riders with estimated 2019 recovery of $48 million and $9 million of electric and natural gas CIP expenses, respectively.
2018 GUIC
 
Natural Gas
 
$23
 
November 2017
 
Pending
 
Proposed ROE of 10%. MPUC decision is expected during the first quarter of 2019.
2019 GUIC
 
Natural Gas
 
$29
 
November 2018
 
Pending
 
Proposed ROE of 10.25%. Timing of MPUC decision is uncertain.
RDF
 
Electric
 
$42
 
October 2018
 
Received
 
MPUC approved the 2019 RDF rate based on a net revenue requirement of $42 million, effective January 2019.
RES
 
Electric
 
$23
 
November 2017
 
Pending
 
Reflects the revenue requirements for 2018, 2017 true-up and a proposed ROE of 10%. MPUC decision is expected in the first quarter of 2019.
See Rate Matters within Note 10 to the consolidated financial statements for further information.
Mankato Energy Center Acquisition — In November 2018, NSP-Minnesota reached an agreement with Southern Power Company to purchase the 760 MW natural gas combined cycle Mankato Energy Center for approximately $650 million. NSP-Minnesota previously contracted to purchase the energy and capacity of this facility through a PPA. The asset acquisition is anticipated to close in mid-2019 and is subject to regulatory approvals from the MPUC, NDPSC, FERC, and the DOJ. The acquisition is projected to provide net customer savings of approximately $50 million to $150 million over the life of the plant.
Wind Repowering Acquisition — In December 2018, NSP-Minnesota filed with the MPUC to acquire the Jeffers and Community Wind North wind farms from Longroad Energy. The wind farms will have approximately 70 MW of capacity after being repowered. The repowering is expected to be completed by December 2020 to qualify for the 100% PTC benefit. The acquisition is projected to provide customer savings of approximately $7 million over the life of the wind farms. The cost of the acquisition is $135 million and is pending MPUC approval.
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Derivatives, Risk Management and Market Risk
NSP-Minnesota is exposed to a variety of market risks in the normal course of business. Market risk is the potential loss that may occur as a result of adverse changes in the market or fair value of a particular instrument or commodity. All financial and commodity-related instruments, including derivatives, are subject to market risk.
See Note 8 to the consolidated financial statements for further information.
NSP-Minnesota is exposed to the impact of adverse changes in price for energy and energy related products, which is partially mitigated by the use of commodity derivatives. In addition to ongoing monitoring and maintaining credit policies intended to minimize overall credit risk, management takes steps to mitigate changes in credit and concentration risks associated with its derivatives and other contracts, including parental guarantees and requests of collateral.
While NSP-Minnesota expects that the counterparties will perform under the contracts underlying its derivatives, the contracts expose NSP-Minnesota to some credit and non-performance risk.
Distress in the financial markets may impact counterparty risk, the fair value of the securities in the nuclear decommissioning fund and pension fund and NSP-Minnesota’s ability to earn a return on short-term investments.
Commodity Price Risk NSP-Minnesota is exposed to commodity price risk in its electric and natural gas operations. Commodity price risk is managed by entering into long- and short-term physical purchase and sales contracts for electric capacity, energy and energy-related products and fuels used in generation and distribution activities.
 
Commodity price risk is also managed through the use of financial derivative instruments. NSP-Minnesota’s risk management policy allows it to manage commodity price risk within each rate-regulated operation per commission approved hedge plans.
Wholesale and Commodity Trading Risk NSP-Minnesota conducts various wholesale and commodity trading activities, including the purchase and sale of electric capacity, energy. energy-related instruments and natural gas-related instruments, including derivatives. NSP-Minnesota’s risk management policy allows management to conduct these activities within guidelines and limitations as approved by its risk management committee.
At Dec. 31, 2018, fair values by source for net commodity trading contract assets were as follows:
 
 
Futures / Forwards
(Millions of Dollars)
 
Source of
Fair Value
 
Maturity
Less Than 1 Year
 
Maturity
1 to 3 Years
 
Maturity
4 to 5 Years
 
Maturity
Greater Than 5 Years
 
Total Futures/
Forwards
Fair Value
NSP-Minnesota
 
2

 
$
2.2

 
$
5.4

 
$
1.7

 
$
1.4

 
$
10.7

 
 
Options
(Millions of Dollars)
 
Source of
Fair Value
 
Maturity
Less Than 1 Year
 
Maturity
1 to 3 Years
 
Maturity
4 to 5 Years
 
Maturity
Greater Than 5 Years
 
Total Futures/
Forwards
Fair Value
NSP-Minnesota
 
2

 
$
0.3

 
$
4.2

 
$
0.8

 
$

 
$
5.3

2 — Prices based on models and other valuation methods.

19


Changes in the fair value of commodity trading contracts before the impacts of margin-sharing for the years ended Dec. 31, were as follows:
(Millions of Dollars)
 
2018
 
2017
Fair value of commodity trading net contract assets outstanding at Jan. 1
 
$
15.7

 
$
9.9

Contracts realized or settled during the period
 
(2.0
)
 
(3.7
)
Commodity trading contract additions and changes during the period
 
2.3

 
9.5

Fair value of commodity trading net contract assets outstanding at Dec. 31
 
$
16.0

 
$
15.7

At Dec. 31, 2018, a 10% increase in market prices for commodity trading contracts would increase pretax income by approximately $16.6 million, whereas a 10% decrease would decrease pretax income by approximately $16.5 million. At Dec. 31, 2017, a 10% increase in market prices for commodity trading contracts would decrease pretax income by approximately $0.2 million, whereas a 10% decrease would increase pretax income by approximately $0.2 million.
NSP-Minnesota’s wholesale and commodity trading operations measure the outstanding risk exposure to price changes on transactions, contracts and obligations using VaR. VaR expresses the potential change in fair value on the outstanding transactions, contracts and obligations over a particular period of time under normal market conditions.
VaRs for the NSP-Minnesota and PSCo commodity trading operations, calculated on a consolidated basis using a Monte Carlo simulation with a 95% confidence level and a one-day holding period:
(Millions of Dollars)
 
Year Ended Dec. 31
 
VaR Limit
 
Average
 
High
 
Low
2018
 
$
4.83

 
$
6.00

 
$
0.62

 
$
5.63

 
$
0.06

2017
 
0.18

 
3.00

 
0.21

 
0.66

 
0.04

In November 2018, management temporarily increased the VaR limit to accommodate a 10-year transaction. NSP-Minnesota has been systematically hedging the transaction and the consolidated VaR returned below $3 million in January 2019.
Nuclear Fuel Supply — NSP-Minnesota is scheduled to take delivery of approximately 24% of its 2019 and approximately 54% of its 2020 enriched nuclear material requirements from sources that could be impacted by events in Ukraine and extended sanctions against Russia. Long-term, through 2024, NSP-Minnesota is scheduled to take delivery of approximately 32% of its average enriched nuclear material requirements from these sources. Alternate potential sources provide the flexibility to manage NSP-Minnesota’s nuclear fuel supply. NSP-Minnesota periodically assesses if further actions are required to assure a secure supply of enriched nuclear material.
Disruptions in third party nuclear fuel supply contracts due to bankruptcies or change of contract assignments have not materially impacted NSP-Minnesota’s operational or financial performance.
Interest Rate Risk NSP-Minnesota is subject to interest rate risk. NSP-Minnesota’s risk management policy allows interest rate risk to be managed through the use of fixed rate debt, floating rate debt and interest rate derivatives such as swaps, caps, collars and put or call options.
A 100-basis-point change in the benchmark rate on NSP-Minnesota’s variable rate debt would impact annual pretax interest expense by approximately $1.5 million in 2018 and $1.1 million in 2017.
 
NSP-Minnesota maintains a nuclear decommissioning fund, as required by the NRC. The nuclear decommissioning fund is subject to interest rate risk and equity price risk. The fund is invested in a diversified portfolio of cash equivalents, debt securities, equity securities and other investments. These investments may be used only for the purpose of decommissioning NSP-Minnesota’s nuclear generating plants. Realized and unrealized gains on the decommissioning fund investments are deferred as an offset of NSP-Minnesota’s regulatory asset for nuclear decommissioning costs. Fluctuations in equity prices or interest rates affecting the nuclear decommissioning fund do not have a direct impact on earnings due to the application of regulatory accounting.
See Note 8 to the consolidated financial statements for further information.
Credit Risk  NSP-Minnesota is also exposed to credit risk. Credit risk relates to the risk of loss resulting from counterparties’ nonperformance on their contractual obligations. NSP-Minnesota maintains credit policies intended to minimize overall credit risk and actively monitor these policies to reflect changes and scope of operations.
At Dec. 31, 2018, a 10% increase in commodity prices would have resulted in an increase in credit exposure of $1.4 million, while a decrease in prices of 10% would have resulted in an increase in credit exposure of $12.5 million. At Dec. 31, 2017, a 10% increase in commodity prices would have resulted in an increase in credit exposure of $6.9 million, while a decrease in prices of 10% would have resulted in an increase in credit exposure of $2.6 million.
NSP-Minnesota conducts credit reviews for all counterparties. NSP-Minnesota employ credit risk controls, such as letters of credit, parental guarantees, master netting agreements and termination provisions. Credit exposure is monitored and, when necessary, the activity with a specific counterparty is limited until credit enhancement is provided. Distress in the financial markets could increase NSP-Minnesota’s credit risk.
Fair Value Measurements
NSP-Minnesota uses derivative contracts such as futures, forwards, interest rate swaps, options and FTRs to manage commodity price and interest rate risk. Derivative contracts, with the exception of those designated as normal purchase-normal sale contracts, are reported at fair value. NSP-Minnesota’s investments held in the nuclear decommissioning fund, rabbi trusts, pension and other postretirement funds are also subject to fair value accounting.
See Notes 8 and 9 to the consolidated financial statements for further information.
Commodity Derivatives — NSP-Minnesota continuously monitors the creditworthiness of the counterparties to its commodity derivative contracts and assesses each counterparty’s ability to perform on the transactions. Given the typically short duration of these contracts, the impact of discounting commodity derivative assets for counterparty credit risk was not material to the fair value of commodity derivative assets at Dec. 31, 2018.
Adjustments to fair value for credit risk of commodity trading instruments are recorded in electric revenues. Credit risk adjustments for other commodity derivative instruments are recorded as other comprehensive income or deferred as regulatory assets and liabilities. Classification as a regulatory asset or liability is based on commission approved regulatory recovery mechanisms. The impact of discounting commodity derivative liabilities for credit risk was immaterial at Dec. 31, 2018.
Item 8 Financial Statements and Supplementary Data
See Item 15-1 for an index of financial statements included herein.
See Note 14 to the consolidated financial statements for further information.

20


Management Report on Internal Controls Over Financial Reporting
The management of NSP-Minnesota is responsible for establishing and maintaining adequate internal control over financial reporting. NSP-Minnesota’s internal control system was designed to provide reasonable assurance to Xcel Energy Inc.’s and NSP-Minnesota’s management and board of directors regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
NSP-Minnesota management assessed the effectiveness of NSP-Minnesota’s internal control over financial reporting as of Dec. 31, 2018. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on our assessment, we believe that, as of Dec. 31, 2018, NSP-Minnesota’s internal control over financial reporting is effective at the reasonable assurance level based on those criteria.
/s/ BEN FOWKE
 
/s/ ROBERT C. FRENZEL
Ben Fowke
 
Robert C. Frenzel
Chairman and Chief Executive Officer
 
Executive Vice President, Chief Financial Officer
Feb. 22, 2019
 
Feb. 22, 2019


21


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholder of
Northern States Power Company, a Minnesota corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Northern States Power Company, a Minnesota corporation and subsidiaries (the "Company") as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, cash flows and, common stockholder’s equity for each of the three years in the period ended December 31, 2018, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
February 22, 2019
 
We have served as the Company’s auditor since 2002.


22


NSP-MINNESOTA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(amounts in millions)

 
Year Ended Dec. 31
 
2018
 
2017
 
2016
Operating revenues
 
 
 
 
 
Electric, non-affiliates
$
4,034.3

 
$
4,051.5

 
$
3,929.1

Electric, affiliates
473.7

 
490.2

 
475.5

Natural gas
583.1

 
531.9

 
467.4

Other
30.8

 
28.4

 
28.3

Total operating revenues
5,121.9

 
5,102.0

 
4,900.3

 
 
 
 
 
 
Operating expenses
 
 
 
 
 
Electric fuel and purchased power
1,701.1

 
1,626.9

 
1,542.6

Cost of natural gas sold and transported
345.1

 
301.8

 
252.8

Cost of sales — other
19.7

 
18.1

 
20.0

Operating and maintenance expenses
1,223.3

 
1,198.3

 
1,232.2

Conservation program expenses
118.0

 
120.1

 
97.9

Depreciation and amortization
741.6

 
700.6

 
596.7

Taxes (other than income taxes)
256.6

 
253.5

 
246.0

Total operating expenses
4,405.4

 
4,219.3

 
3,988.2

 
 
 
 
 
 
Operating income
716.5

 
882.7

 
912.1

 
 
 
 
 
 
Other expense, net
(6.5
)
 
(9.1
)
 
(12.6
)
Allowance for funds used during construction — equity
23.8

 
29.5

 
27.7

 
 
 
 
 
 
Interest charges and financing costs
 
 
 
 
 
Interest charges — includes other financing costs of
$7.4, $7.3 and $7.1 respectively
226.8

 
228.4

 
226.5

Allowance for funds used during construction — debt
(12.5
)
 
(15.1
)
 
(12.5
)
Total interest charges and financing costs
214.3

 
213.3

 
214.0

 
 
 
 
 
 
Income before income taxes
519.5

 
689.8

 
713.2

Income taxes
27.2

 
199.7

 
224.5

Net income
$
492.3

 
$
490.1

 
$
488.7

 
 
 
 
 
 
See Notes to Consolidated Financial Statements


23


NSP-MINNESOTA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(amounts in millions)

 
Year Ended Dec. 31
 
2018
 
2017
 
2016
Net income
$
492.3

 
$
490.1

 
$
488.7

 
 
 
 
 
 
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
Pension and retiree medical benefits:
 
 
 
 
 
Net pension and retiree medical benefits gains (losses) arising during the period,
net of tax of $0.3, $(0.4) and $(0.5), respectively
0.6

 
(0.5
)
 
(0.7
)
Amortization of losses included in net periodic benefit cost,
net of tax of $0.1, $0.1 and $0, respectively
0.2

 
0.1

 
0.1

 
0.8

 
(0.4
)
 
(0.6
)
Derivative instruments:
 
 
 
 
 
Net fair value increase, net of tax of $0, $0 and $0, respectively

 
0.1

 

Reclassification of losses to net income, net of tax of $0.3, $0.6 and $0.6, respectively
0.7

 
0.9

 
0.9

 
0.7

 
1.0

 
0.9

Marketable securities:
 
 
 
 
 
Net fair value decrease, net of tax of $0, $0 and $0, respectively
(0.1
)
 

 

 
 
 
 
 
 
Other comprehensive income
1.4

 
0.6

 
0.3

Comprehensive income
$
493.7

 
$
490.7

 
$
489.0

 
 
 
 
 
 
See Notes to Consolidated Financial Statements


24


NSP-MINNESOTA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in millions)

 
Year Ended Dec. 31
 
2018
 
2017
 
2016
Operating activities
 
 
 
 
 
Net income
$
492.3

 
$
490.1

 
$
488.7

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
748.1

 
707.0

 
602.9

Nuclear fuel amortization
121.9

 
114.4

 
117.0

Deferred income taxes
41.3

 
193.2

 
196.2

Allowance for equity funds used during construction
(23.8
)
 
(29.5
)
 
(27.7
)
Provision for bad debts
16.2

 
15.7

 
15.0

Net realized and unrealized hedging and derivative transactions
27.0

 
(2.8
)
 
3.7

Changes in operating assets and liabilities:
 
 
 
 
 
Accounts receivable
(42.7
)
 
(29.8
)
 
(53.1
)
Accrued unbilled revenues
7.4

 
(18.1
)
 
(32.5
)
Inventories
(21.4
)
 
7.6

 
(1.1
)
Other current assets
94.4

 
(25.3
)
 
(17.0
)
Accounts payable
10.5

 
46.5

 
24.1

Net regulatory assets and liabilities
182.3

 
(36.4
)
 
46.9

Other current liabilities
(64.0
)
 
(71.8
)
 
19.1

Pension and other employee benefit obligations
(75.8
)
 
(56.7
)
 
(42.3
)
Other, net
(31.5
)
 
(31.3
)
 
(35.0
)
Net cash provided by operating activities
1,482.2

 
1,272.8

 
1,304.9

 
 
 
 
 
 
Investing activities
 
 
 
 
 
Utility capital/construction expenditures
(1,149.7
)
 
(987.2
)
 
(1,176.8
)
Purchases of investment securities
(852.9
)
 
(1,690.5
)
 
(506.3
)
Proceeds from the sale of investment securities
832.6

 
1,668.9

 
478.9

Investments in utility money pool arrangement
(805.0
)
 
(122.0
)
 
(747.5
)
Repayments from utility money pool arrangement
805.0

 
122.0

 
747.5

Other, net
(3.5
)
 
(3.5
)
 
(1.0
)
Net cash used in investing activities
(1,173.5
)
 
(1,012.3
)
 
(1,205.2
)
 
 
 
 
 
 
Financing activities
 
 
 
 
 
Proceeds from (repayments of) short-term borrowings, net
130.0

 
(65.0
)
 
(138.0
)
Borrowings under utility money pool arrangement
479.0

 
838.0

 
424.0

Repayments under utility money pool arrangement
(564.0
)
 
(753.0
)
 
(424.0
)
Proceeds from issuance of long-term debt

 
585.2

 
342.5

Repayments of long-term debt, including reacquisition premiums

 
(507.9
)
 

Capital contributions from parent
108.8

 
145.0

 
96.7

Dividends paid to parent
(456.3
)
 
(506.6
)
 
(395.9
)
Net cash used in by financing activities
(302.5
)
 
(264.3
)
 
(94.7
)
 
 
 
 
 
 
Net change in cash and cash equivalents
6.2

 
(3.8
)
 
5.0

Cash and cash equivalents at beginning of period
43.8

 
47.6

 
42.6

Cash and cash equivalents at end of period
$
50.0

 
$
43.8

 
$
47.6

 
 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
 
Cash paid for interest (net of amounts capitalized)
$
(207.4
)
 
$
(214.2
)
 
$
(201.4
)
Cash received (paid) for income taxes, net
89.0

 
(70.9
)
 
(39.0
)
Supplemental disclosure of non-cash investing transactions:
 
 
 
 
 
Accrued property, plant and equipment additions
$
92.5

 
$
93.1

 
$
120.8

Inventory transfers to property, plant and equipment
60.8

 
17.3

 
35.1

Allowances for equity funds used during construction
23.8

 
29.5

 
27.7

 
 
 
 
 
 
See Notes to Consolidated Financial Statements

25


NSP-MINNESOTA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in millions, except share and per share data)

 
Dec. 31
 
2018
 
2017
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
50.0

 
$
43.8

Accounts receivable, net
380.9

 
345.1

Accounts receivable from affiliates
11.0

 
48.5

Accrued unbilled revenues
270.3

 
277.7

Inventories
299.4

 
337.7

Regulatory assets
280.3

 
276.4

Derivative instruments
25.8

 
25.2

Prepaid taxes

 
79.1

Prepayments and other
28.9

 
43.7

Total current assets
1,346.6

 
1,477.2

 
 
 
 
Property, plant and equipment
13,541.7

 
13,033.6

 
 
 
 
Other assets
 
 
 
Nuclear decommissioning fund and other investments
2,107.2

 
2,192.4

Regulatory assets
1,454.1

 
1,190.4

Derivative instruments
17.0

 
28.1

Other
3.3

 
4.1

Total other assets
3,581.6

 
3,415.0

Total assets
$
18,469.9

 
$
17,925.8

 
 
 
 
Liabilities and Equity
 
 
 
Current liabilities
 
 
 
Short-term debt
$
150.0

 
$
20.0

Borrowings under utility money pool arrangement

 
85.0

Accounts payable
393.6

 
368.3

Accounts payable to affiliates
109.7

 
80.1

Regulatory liabilities
262.4

 
83.4

Taxes accrued
230.1

 
229.3

Accrued interest
67.2

 
65.9

Dividends payable to parent
82.7

 
98.7

Derivative instruments
16.5

 
17.7

Customer deposits
53.7

 
95.4

Other
154.8

 
153.0

Total current liabilities
1,520.7

 
1,296.8

 
 
 
 
Deferred credits and other liabilities
 
 
 
Deferred income taxes
1,682.4

 
1,612.3

Deferred investment tax credits
21.1

 
22.5

Regulatory liabilities
1,984.7

 
1,978.5

Asset retirement obligations
2,177.9

 
2,083.9

Derivative instruments
112.2

 
102.7

Pension and employee benefit obligations
305.1

 
331.1

Other
155.5

 
89.4

Total deferred credits and other liabilities
6,438.9

 
6,220.4

 
 
 
 
Commitments and contingencies
 
 


Capitalization
 
 
 
Long-term debt
4,937.2

 
4,933.0

Common stock — 5,000,000 shares authorized of $0.01 par value; 1,000,000 shares
outstanding at Dec. 31, 2018 and 2017, respectively

 

Additional paid in capital
3,624.2

 
3,580.2

Retained earnings
1,972.0

 
1,919.9

Accumulated other comprehensive loss
(23.1
)
 
(24.5
)
Total common stockholder’s equity
5,573.1

 
5,475.6

Total liabilities and equity
$
18,469.9

 
$
17,925.8

 
 
 
 
See Notes to Consolidated Financial Statements

26


NSP-MINNESOTA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER’S EQUITY
(amounts in millions, except share data)
 
Common Stock
 
 
 
Accumulated Other
Comprehensive
Income (Loss)
 
Total Common
Stockholder’s
Equity
 
Shares
 
Par
Value
 
Additional
Paid In
Capital
 
Retained
Earnings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at Dec. 31, 2015
1,000,000

 
$

 
$
3,323.8

 
$
1,864.3

 
$
(21.1
)
 
$
5,167.0

 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
 
 
488.7

 
 
 
488.7

Other comprehensive income
 
 
 
 
 
 
 
 
0.3

 
0.3

Dividends declared on common stock
 
 
 
 
 
 
(411.7
)