Company Quick10K Filing
Quick10K
Southwestern Public Service
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
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 2019-07-01 Other Events
8-K 2019-06-18 Other Events, Exhibits
8-K 2019-02-15 Other Events
8-K 2018-11-05 Other Events, Exhibits
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-09-10 Other Events
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-07-03 Other Events
8-K 2018-05-04 Other Events
8-K 2018-04-26 Earnings, Exhibits
8-K 2018-02-07 Earnings, Exhibits
EEP Enbridge Energy Partners 3,569
DGL Invesco DB Gold Fund 165
WINT Windtree Therapeutics 128
RMHB Rocky Mountain High Brands 7
ITOX Iiot-Oxys 6
RSPI RespireRx Pharmaceuticals 5
CLCN Creative Learning 2
GRTD Gratitude Health 1
DD DuPont 0
PAOS Amerinac Holding 0
SPS 2019-06-30
Part 1 - Financial Information
Item 1 - Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 4 - Controls and Procedures
Part II - Other Information
Item 1 - Legal Proceedings
Item 1A - Risk Factors
Item 6 - Exhibits
EX-31.01 spsex3101q22019.htm
EX-31.02 spsex3102q22019.htm
EX-32.01 spsex3201q22019.htm

Southwestern Public Service Earnings 2019-06-30

SPS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
001-3034
 
75-0575400
(Commission File Number)
 
(I.R.S. Employer Identification No.)
(Registrant, State of Incorporation or Organization, Address of Principal Executive Officers and Telephone Number)
Southwestern Public Service Company
New Mexico
790 South Buchanan Street
Amarillo
Texas
79101
303
571-7511
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
N/A
 
N/A
 
N/A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 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).   Yes   No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
 
Accelerated Filer
 
Non-accelerated Filer
 
Smaller Reporting Company
 
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Aug. 1, 2019
Common Stock, $1.00 par value
 
100 shares
Southwestern Public Service Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format specified in General Instruction H(2) to such Form 10-Q.
 



TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
 
Item l     —
 
 
 
 
 
 
Item 2    —
Item 4    —
 
 
 
PART II — OTHER INFORMATION
 
Item 1     —
Item 1A  —
Item 6    —
 
 
 
 
 
Certifications Pursuant to Section 302
 
Certifications Pursuant to Section 906
 

This Form 10-Q is filed by Southwestern Public Service Company, a New Mexico corporation (SPS). SPS is a wholly owned subsidiary of Xcel Energy Inc.  Additional information on Xcel Energy is available in various filings with the SEC. This report should be read in its entirety.




ABBREVIATIONS AND INDUSTRY TERMS
Xcel Energy Inc.’s Subsidiaries and Affiliates (current and former)
NSP-Minnesota
Northern States Power Company, a Minnesota corporation
NSP-Wisconsin
Northern States Power Company, a Wisconsin corporation
PSCo
Public Service Company of Colorado
SPS
Southwestern Public Service Company
Utility subsidiaries
NSP-Minnesota, NSP-Wisconsin, PSCo and SPS
Xcel Energy
Xcel Energy Inc. and its subsidiaries
 
 
Federal and State Regulatory Agencies
D.C. Circuit
United States Court of Appeals for the District of Columbia Circuit
EPA
Environmental Protection Agency
FERC
Federal Energy Regulatory Commission
IRS
Internal Revenue Service
NERC
North American Electric Reliability Corporation
NMPRC
New Mexico Public Regulation Commission
NMSC
New Mexico Supreme Court
PUCT
Public Utility Commission of Texas
SEC
Securities and Exchange Commission
 
 
Electric and Resource Adjustment Clauses
DSM
Demand side management
TCRF
Transmission cost recovery factor (recovers transmission infrastructure improvement costs and changes in wholesale transmission charges)
 
 
Other Terms and Abbreviations
ACE
Affordable Clean Energy
ADIT
Accumulated deferred income tax
AFUDC
Allowance for funds used during construction
ALJ
Administrative Law Judge
ASC
FASB Accounting Standards Codification
ASU
FASB Accounting Standards Update
ATRR
Annual transmission revenue requirement
C&I
Commercial and Industrial
ETR
Effective tax rate
FASB
Financial Accounting Standards Board
FTR
Financial transmission right
GAAP
Generally accepted accounting principles
IPP
Independent power producers
NAV
Net asset value
NOL
Net operating loss
O&M
Operating and maintenance
OATT
Open access transmission tariff
PPA
Purchased power agreement
PTC
Production tax credit

 
ROE
Return on equity
ROU
Right-of-use
RTO
Regional Transmission Organization
SPP
Southwest Power Pool, Inc.
TCJA
2017 federal tax reform enacted as Public Law No: 115-97, commonly referred to as the Tax Cuts and Jobs Act
VIE
Variable interest entity
Measurements
MW
Megawatts
MWh
Megawatt hours



Table of Contents

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 identified in this document by the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “objective,” “outlook,” “plan,” “project,” “possible,” “potential,” “should,” “will,” “would” and similar expressions. Actual results may vary materially. Forward-looking statements speak only as of the date they are made, and we expressly disclaim any obligation to update any forward-looking information. The following factors, in addition to those discussed elsewhere in this Quarterly Report on Form 10-Q and in other securities filings (including SPS’ Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2018, and subsequent securities filings), 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 costs of maintaining certain contractual relationships; general economic conditions, including inflation rates, monetary fluctuations and their impact on capital expenditures and the ability of SPS to obtain financing on favorable terms; 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; 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.
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. Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, financial position or cash flows that excludes (or includes) amounts that are adjusted from the most directly comparable measure calculated and presented in accordance with GAAP.
SPS’ management uses non-GAAP measures internally for financial planning and analysis, for reporting of results to the Board of Directors, and when communicating its earnings outlook to analysts and investors. Non-GAAP financial measures are intended to supplement investors’ understanding of our operating 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 Margins
Electric margin is presented as electric revenues less electric fuel and purchased power expenses. Expenses incurred for electric fuel and purchased power are generally recovered through various recovery mechanisms, and as a result, changes in these expenses are offset in operating revenues. Management believes electric margin provides 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 operating and maintenance (O&M) expenses, demand side management (DSM) expenses, depreciation and amortization, and taxes (other than income taxes).

4

Table of Contents

PART 1FINANCIAL INFORMATION
Item 1FINANCIAL STATEMENTS

SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF INCOME (UNAUDITED)
(amounts in millions)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Operating revenues
$
410.5

 
$
481.3

 
$
864.6

 
$
928.6

 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
Electric fuel and purchased power
179.9

 
257.6

 
410.8

 
511.6

Operating and maintenance expenses
70.1

 
66.1

 
142.5

 
132.2

Demand side management expenses
3.8

 
4.8

 
8.4

 
8.9

Depreciation and amortization
57.8

 
49.6

 
111.0

 
98.0

Taxes (other than income taxes)
17.0

 
15.6

 
35.5

 
33.3

Total operating expenses
328.6

 
393.7

 
708.2

 
784.0

 
 
 
 
 
 
 
 
Operating income
81.9

 
87.6

 
156.4

 
144.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other income (expense), net
0.5

 
(0.8
)
 
0.9

 
(1.5
)
 
 
 
 
 
 
 
 
Allowance for funds used during construction — equity
8.7

 
3.2

 
19.0

 
6.6

 
 
 
 
 
 
 
 
Interest charges and financing costs
 
 
 
 
 
 
 
Interest charges — includes other financing costs of
$0.8, $0.7, $1.6 and $1.4 respectively
25.6

 
20.6

 
50.0

 
40.7

Allowance for funds used during construction — debt
(4.2
)
 
(1.5
)
 
(8.7
)
 
(3.3
)
Total interest charges and financing costs
21.4

 
19.1

 
41.3

 
37.4

 
 
 
 
 
 
 
 
Income before income taxes
69.7

 
70.9

 
135.0

 
112.3

Income taxes
10.9

 
12.4

 
22.1

 
20.7

   Net income
$
58.8

 
$
58.5

 
$
112.9

 
$
91.6


See Notes to Financial Statements

5

Table of Contents

SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(amounts in millions)
 
 
Three Months Ended June 30
 
Six Months Ended June 30
 
 
2019
 
2018
 
2019
 
2018
Net income
 
$
58.8

 
$
58.5

 
$
112.9

 
$
91.6

 
 
 
 
 
 
 
 
 
Other comprehensive income
 
 

 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
Derivative instruments:
 
 

 
 

 
 

 
 

Reclassification of losses to net income, net of tax of $0
 
0.1

 

 
0.1

 

 
 
 
 
 
 
 
 
 
Other comprehensive income
 
0.1

 

 
0.1

 

Comprehensive income
 
$
58.9

 
$
58.5

 
$
113.0

 
$
91.6


See Notes to Financial Statements


6

Table of Contents

SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in millions)
 
Six Months Ended June 30,
 
2019
 
2018
Operating activities
 
 
 

Net income
$
112.9

 
$
91.6

Adjustments to reconcile net income to cash provided by operating activities:
 

 
 

Depreciation and amortization
112.1

 
98.1

Demand side management program amortization

 
0.8

Deferred income taxes
3.3

 
(2.3
)
Allowance for equity funds used during construction
(19.0
)
 
(6.6
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(1.3
)
 
(25.3
)
Accrued unbilled revenues
(11.3
)
 
2.3

Inventories
(9.9
)
 
7.9

Prepayments and other
5.2

 
0.7

Accounts payable
(24.5
)
 
0.6

Net regulatory assets and liabilities
37.0

 
46.2

Other current liabilities
1.1

 
13.9

Pension and other employee benefit obligations
(16.3
)
 
(7.9
)
Other, net
0.5

 

Change in other noncurrent assets
(0.3
)
 
4.4

Change in other noncurrent liabilities
0.5

 
(0.5
)
Net cash provided by operating activities
190.0

 
223.9

 
 
 
 
Investing activities
 

 
 

Utility capital/construction expenditures
(364.2
)
 
(471.7
)
Investments in utility money pool arrangement
(100.0
)
 
(46.0
)
Repayments from utility money pool arrangement

 
111.0

Net cash used in investing activities
(464.2
)
 
(406.7
)
 
 
 
 
Financing activities
 

 
 

Proceeds from (repayments of) short-term borrowings, net
(42.0
)
 
132.0

Proceeds from (repayments of) from issuance of long-term debt, net
292.8

 

Borrowings under utility money pool arrangement
283.0

 
180.0

Repayments under utility money pool arrangement
(283.0
)
 
(80.0
)
Capital contributions from parent
378.8

 
0.4

Dividends paid to parent
(137.7
)
 
(60.1
)
Net cash provided by (used in) financing activities
491.9

 
172.3

 
 
 
 
Net change in cash and cash equivalents
217.7

 
(10.5
)
Cash and cash equivalents at beginning of period
44.0

 
10.9

Cash and cash equivalents at end of period
$
261.7

 
$
0.4

 
 
 
 
Supplemental disclosure of cash flow information:
 

 
 

Cash paid for interest (net of amounts capitalized)
$
(39.9
)
 
$
(36.7
)
Cash paid for income taxes, net

 
(7.6
)
Supplemental disclosure of non-cash investing and financing transactions:
 

 
 

Property, plant and equipment additions in accounts payable
$
68.6

 
$
43.3

Inventory transfer additions in PPE
12.6

 
11.2

Operating lease right-of-use assets
548.3

 

Allowance for equity funds used during construction
19.0

 
6.6


See Notes to Financial Statements

7

Table of Contents

SOUTHWESTERN PUBLIC SERVICE COMPANY
BALANCE SHEETS (UNAUDITED)
(amounts in millions, except share and per share data)
 
June 30, 2019
 
Dec. 31, 2018
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
261.7

 
$
44.0

Accounts receivable, net
93.3

 
90.7

Accounts receivable from affiliates
5.3

 
10.5

Investments in utility money pool arrangement
100.0

 

Accrued unbilled revenues
125.7

 
114.5

Inventories
31.2

 
33.9

Regulatory assets
23.8

 
26.0

Derivative instruments
25.5

 
17.8

Prepaid taxes

 
14.2

Prepayments and other
19.8

 
10.7

Total current assets
686.3

 
362.3

 
 
 
 
 
 
 
 
Property, plant and equipment, net
6,228.5

 
5,946.4

 
 
 
 
Other assets
 

 
 

Regulatory assets
361.3

 
366.2

Derivative instruments
14.2

 
15.8

Operating lease right-of-use assets
535.5

 

Other
5.0

 
5.1

Total other assets
916.0

 
387.1

Total assets
$
7,830.8

 
$
6,695.8

 
 
 
 
Liabilities and Equity
 

 
 

Current liabilities
 

 
 

Short-term debt
$

 
$
42.0

Accounts payable
160.4

 
191.8

Accounts payable to affiliates
15.9

 
19.9

Regulatory liabilities
136.9

 
85.8

Taxes accrued
44.6

 
41.6

Accrued interest
25.8

 
25.8

Dividends payable to parent
48.3

 
45.2

Derivative instruments
3.8

 
3.6

Other
50.8

 
28.3

Total current liabilities
486.5

 
484.0

 
 
 
 
Deferred credits and other liabilities
 

 
 

Deferred income taxes
634.5

 
619.1

Regulatory liabilities
749.2

 
780.9

Asset retirement obligations
49.3

 
32.4

Derivative instruments
14.6

 
16.4

Pension and employee benefit obligations
76.2

 
92.4

Operating lease liabilities
509.0

 

Other
8.3

 
7.9

Total deferred credits and other liabilities
2,041.1

 
1,549.1

 
 
 
 
Commitments and contingencies


 


Capitalization
 

 
 

Long-term debt
2,419.5

 
2,126.1

Common stock — 200 shares authorized of $1.00 par value; 100 shares outstanding at
June 30, 2019 and Dec. 31, 2018, respectively

 

Additional paid in capital
2,307.3

 
1,932.3

Retained earnings
577.7

 
605.7

Accumulated other comprehensive loss
(1.3
)
 
(1.4
)
Total common stockholder’s equity
2,883.7

 
2,536.6

Total liabilities and equity
$
7,830.8

 
$
6,695.8

See Notes to Financial Statements

8

Table of Contents


SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF COMMON STOCKHOLDER’S EQUITY (UNAUDITED)
(amounts in millions, except share data)

 
Common Stock Issued
 
Retained Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Common
Stockholders’
Equity
 
Shares
 
Par Value
 
Additional Paid In Capital
 
 
 
Three Months Ended June 30, 2019 and 2018
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2018
100

 
$

 
$
1,590.2

 
$
541.4

 
$
(1.5
)
 
$
2,130.1

Net income
 
 
 
 
 
 
58.5

 
 
 
58.5

Dividends declared to parent
 
 
 
 
 
 
(30.7
)
 
 
 
(30.7
)
Contributions of capital by parent
 
 
 
 
1.2

 
 
 
 
 
1.2

Balance at June 30, 2018
100

 
$


$
1,591.4


$
569.2


$
(1.5
)

$
2,159.1

 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2019
100

 
$


$
1,932.3

 
$
602.3

 
$
(1.4
)
 
$
2,533.2

Net income
 
 
 
 
 
 
58.8

 
 
 
58.8

Other comprehensive income
 
 
 
 
 
 
 
 
0.1

 
0.1

Dividends declared to parent
 
 
 
 
 
 
(83.4
)
 
 
 
(83.4
)
Contributions of capital by parent
 
 
 
 
375.0

 
 
 
 
 
375.0

Balance at June 30, 2019
100

 
$

 
$
2,307.3

 
$
577.7

 
$
(1.3
)
 
$
2,883.7

 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Financial Statements

9

Table of Contents


SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF COMMON STOCKHOLDER’S EQUITY (UNAUDITED)
(amounts in millions, except share data)

 
Common Stock Issued
 
Retained Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Common
Stockholders’
Equity
 
Shares
 
Par Value
 
Additional Paid In Capital
 
 
 
Six Months Ended June 30, 2019 and 2018
 
 
 
 
 
 
 
 
 
 
 
Balance at Dec. 31, 2017
100

 
$

 
$
1,590.2

 
$
541.6

 
$
(1.5
)
 
$
2,130.3

Net income
 
 
 
 
 
 
91.6

 
 
 
91.6

Dividends declared to parent
 
 
 
 
 
 
(64.0
)
 
 
 
(64.0
)
Contributions of capital by parent

 

 
1.2

 
 
 
 
 
1.2

Balance at June 30, 2018
100

 
$

 
$
1,591.4

 
$
569.2

 
$
(1.5
)
 
$
2,159.1

 
 
 
 
 
 
 
 
 
 
 
 
Balance at Dec. 31, 2018
100

 
$

 
$
1,932.3

 
$
605.7

 
$
(1.4
)
 
$
2,536.6

Net income
 
 
 
 
 
 
112.9

 
 
 
112.9

Other comprehensive income
 
 
 
 
 
 
 
 
0.1

 
0.1

Dividends declared to parent
 
 
 
 
 
 
(140.9
)
 
 
 
(140.9
)
Contributions of capital by parent
 
 
 
 
375.0

 
 
 
 
 
375.0

Balance at June 30, 2019
100

 
$

 
$
2,307.3

 
$
577.7

 
$
(1.3
)
 
$
2,883.7

 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Financial Statements



10

Table of Contents

SOUTHWESTERN PUBLIC SERVICE COMPANY
Notes to Financial Statements (UNAUDITED)
In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America (GAAP), the financial position of SPS as of June 30, 2019 and Dec. 31, 2018; the results of its operations, including the components of net income and comprehensive income, and change in stockholder’s equity for the three and six months ended June 30, 2019 and 2018; and its cash flows for the six months ended June 30, 2019 and 2018. All adjustments are of a normal, recurring nature, except as otherwise disclosed. Management has also evaluated the impact of events occurring after June 30, 2019 up to the date of issuance of these financial statements. These statements contain all necessary adjustments and disclosures resulting from that evaluation. The Dec. 31, 2018 balance sheet information has been derived from the audited 2018 financial statements included in the SPS Annual Report on Form 10-K for the year ended Dec. 31, 2018. These notes to the financial statements have been prepared pursuant to the rules and regulations of the SEC for Quarterly Reports on Form 10-Q. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP on an annual basis have been condensed or omitted pursuant to such rules and regulations. For further information, refer to the financial statements and notes thereto, included in the SPS Annual Report on Form 10-K for the year ended Dec. 31, 2018, filed with the SEC on Feb. 22, 2019. Due to the seasonality of SPS’ electric sales, interim results are not necessarily an appropriate base from which to project annual results.
1.
Summary of Significant Accounting Policies
The significant accounting policies set forth in Note 1 to the financial statements in the SPS Annual Report on Form 10-K for the year ended Dec. 31, 2018, appropriately represent, in all material respects, the current status of accounting policies and are incorporated herein by reference.
2.
Accounting Pronouncements
Recently Issued
Credit Losses In 2016, the FASB issued Financial Instruments - Credit Losses, Topic 326 (ASC Topic 326), which changes how entities account for losses on receivables and certain other assets. The guidance requires use of a current expected credit loss model, which may result in earlier recognition of credit losses than under previous accounting standards. ASC Topic 326 is effective for interim and annual periods beginning on or after Dec. 15, 2019, and will be applied on a modified-retrospective approach through a cumulative-effect adjustment to retained earnings as of Jan. 1, 2020. SPS is currently evaluating the impact of adoption of the new standard on its financial statements.
Recently Adopted
Leases In 2016, the FASB issued Leases, Topic 842 (ASC Topic 842), which provides new accounting and disclosure guidance for leasing activities, most significantly requiring that operating leases be recognized on the balance sheet. SPS adopted the guidance on Jan. 1, 2019 utilizing the package of transition practical expedients provided by the new standard, including carrying forward prior conclusions on whether agreements existing before the adoption date contain leases and whether existing leases are operating or finance leases; ASC Topic 842 refers to capital leases as finance leases.
 
Specifically for land easement contracts, SPS has elected the practical expedient provided by ASU No. 2018-01 Leases: Land Easement Practical Expedient for Transition to Topic 842, and as a result, only those easement contracts entered on or after Jan. 1, 2019 will be evaluated to determine if lease treatment is appropriate.
SPS also utilized the transition practical expedient offered by ASU No. 2018-11 Leases: Targeted Improvements to implement the standard on a prospective basis. As a result, reporting periods in the financial statements beginning Jan. 1, 2019 reflect the implementation of ASC Topic 842, while prior periods continue to be reported in accordance with Leases, Topic 840 (ASC Topic 840). Other than first-time recognition of operating leases on its balance sheet, the implementation of ASC Topic 842 did not have a significant impact on SPS’ financial statements. Adoption resulted in recognition of approximately $0.5 billion of operating lease ROU assets and current/noncurrent operating lease liabilities. See Note 9 for leasing disclosures.
3.
Selected Balance Sheet Data
(Millions of Dollars)
 
June 30, 2019
 
Dec. 31, 2018
Accounts receivable, net
 
 
 
 
Accounts receivable
 
$
98.6

 
$
96.3

Less allowance for bad debts
 
(5.3
)
 
(5.6
)
 
 
$
93.3

 
$
90.7


(Millions of Dollars)
 
June 30, 2019
 
Dec. 31, 2018
Inventories
 
 
 
 
Materials and supplies
 
$
24.3

 
$
25.7

Fuel
 
6.9

 
8.2

 
 
$
31.2

 
$
33.9


(Millions of Dollars)
 
June 30, 2019
 
Dec. 31, 2018
Property, plant and equipment, net
 
 
 
 
Electric plant
 
$
8,241.0

 
$
7,227.7

Construction work in progress
 
207.4

 
847.3

Total property, plant and equipment
 
8,448.4

 
8,075.0

Less accumulated depreciation
 
(2,219.9
)
 
(2,128.6
)
Total
 
$
6,228.5

 
$
5,946.4



4. Borrowings and Other Financing Instruments
Short-Term Borrowings
SPS meets its short-term liquidity requirements primarily through the issuance of commercial paper and borrowings under its credit facility and the money pool.
Money Pool — Xcel Energy Inc. and its utility subsidiaries have established a money pool arrangement that allows for short-term investments in and borrowings between the utility subsidiaries. Xcel Energy Inc. may make investments in the utility subsidiaries at market-based interest rates; however, the money pool arrangement does not allow the utility subsidiaries to make investments in Xcel Energy Inc. Money pool borrowings for SPS were as follows:

11

Table of Contents

(Amounts in Millions, Except Interest Rates)
 
Three Months Ended June 30, 2019
 
Year Ended Dec. 31, 2018
Borrowing limit
 
$
100

 
$
100

Amount outstanding at period end
 

 

Average amount outstanding
 
13

 
29

Maximum amount outstanding
 
89

 
100

Weighted average interest rate, computed on a daily basis
 
2.45
%
 
1.96
%
Weighted average interest rate at period end
 
N/A

 
N/A


Commercial Paper — Commercial paper outstanding for SPS was as follows:
(Amounts in Millions, Except Interest Rates)
 
Three Months Ended June 30, 2019
 
Year Ended Dec. 31, 2018
Borrowing limit
 
$
500

 
$
400

Amount outstanding at period end
 

 
42

Average amount outstanding
 
202

 
30

Maximum amount outstanding
 
316

 
144

Weighted average interest rate, computed on a daily basis
 
2.68
%
 
2.27
%
Weighted average interest rate at period end
 
N/A

 
2.80


Letters of Credit — SPS uses letters of credit, generally with terms of one year, to provide financial guarantees for certain operating obligations. At June 30, 2019 and Dec. 31, 2018, there were $2 million of letters of credit outstanding under the credit facility. The contract amounts of these letters of credit approximate their fair value and are subject to fees.
Credit Facility — In order to use its commercial paper program to fulfill short-term funding needs, SPS must have a revolving credit facility in place at least equal to the amount of its commercial paper borrowing limit and cannot issue commercial paper in an aggregate amount exceeding available capacity under this credit facility. The line of credit provides short-term financing in the form of notes payable to banks, letters of credit and back-up support for commercial paper borrowings.
As of June 30, 2019, SPS had the following committed credit facility available (in millions of dollars):
Credit Facility (a)
 
Outstanding (b)
 
Available
$
500

 
$
2

 
$
498

(a) 
This credit facility expires in June 2024.
(b) 
Includes outstanding letters of credit.
All credit facility bank borrowings, outstanding letters of credit and outstanding commercial paper reduce the available capacity under the credit facility. SPS had no direct advances on the credit facility outstanding as of June 30, 2019 and Dec. 31, 2018.
Long-Term Borrowings
During the six months ended June 30, 2019, SPS issued $300 million of 3.75% first mortgage bonds due June 15, 2049.
5. Revenues
Revenue is classified by the type of goods/services rendered and market/customer type. SPS’ operating revenues consists of the following:
 
 
 
Three Months Ended
(Millions of Dollars)
 
June 30, 2019
 
June 30, 2018
Major revenue types
 
 
 
 
Revenue from contracts with customers:
 
 
 
 
Residential
 
$
70.4

 
$
85.1

C&I
 
191.4

 
200.8

Other
 
9.9

 
11.3

Total retail
 
271.7

 
297.2

Wholesale
 
72.0

 
115.6

Transmission
 
60.0

 
59.0

Other
 
0.4

 
2.9

Total revenue from contracts with customers
 
404.1

 
474.7

Alternative revenue and other
 
6.4

 
6.6

Total revenues
 
$
410.5

 
$
481.3

 
 
Six Months Ended
(Millions of Dollars)
 
June 30, 2019
 
June 30, 2018
Major revenue types
 
 
 
 
Revenue from contracts with customers:
 
 
 
 
Residential
 
$
158.5

 
$
165.2

C&I
 
397.2

 
396.5

Other
 
19.5

 
21.0

Total retail
 
575.2

 
582.7

Wholesale
 
156.8

 
208.9

Transmission
 
117.4

 
114.6

Other
 
1.4

 
10.4

Total revenue from contracts with customers
 
850.8

 
916.6

Alternative revenue and other
 
13.8

 
12.0

Total revenues
 
$
864.6

 
$
928.6


6.
Income Taxes
Except to the extent noted below, Note 7 to the financial statements included in SPS’ Annual Report on Form 10-K for the year ended Dec. 31, 2018 represents, in all material respects, the current status of other income tax matters, and are incorporated herein by reference.
The following table reconciles the difference between the statutory rate and the ETR:
 
 
Six Months Ended June 30,
 
 
2019
 
2018
Federal statutory rate
 
21.0
 %
 
21.0
 %
State tax (net of federal tax effect)
 
2.1

 
2.4

Increases (decreases) in tax from:
 

 

Plant regulatory differences (a)
 
(4.8
)
 
(4.4
)
Prior period adjustments
 
(0.7
)
 
(0.2
)
Other tax credits (net)
 
(0.6
)
 
(0.8
)
Wind PTCs
 
(0.2
)
 

Other (net)
 
(0.4
)
 
0.4

Effective income tax rate
 
16.4
 %
 
18.4
 %
(a)
Regulatory differences for income tax primarily relate to the flow back of excess deferred taxes to customers through the average rate assumption method and the impact of AFUDC - Equity. Year-to-date variations primarily relates to the deferral of the flow back of excess deferred taxes in 2018, as a result of pending regulatory decisions. Treatment of most tax reform items was established prior to the first quarter of 2019, resulting in a reduction in deferred amounts. Income tax benefits associated with the flow back of excess deferred credits are offset by corresponding revenue reductions.

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Table of Contents

Federal Audits — SPS is a member of the Xcel Energy affiliated group that files a consolidated federal income tax return. Statute of limitations applicable to Xcel Energy’s federal income tax returns expire as follows:
Tax Year(s)
 
Expiration
2009 - 2013
 
June 2020
2014 - 2016
 
September 2020
2017
 
September 2021

In 2015, the IRS commenced an examination of tax years 2012 and 2013. In 2017, the IRS concluded the audit of tax years 2012 and 2013 and proposed an adjustment that would impact Xcel Energy’s NOL and ETR. Xcel Energy filed a protest with the IRS. As of June 30, 2019, the case has been forwarded to the Office of Appeals and Xcel Energy has recognized its best estimate of income tax expense that will result from a final resolution of this issue; however, the outcome and timing of a resolution is unknown.
In 2018, the IRS began an audit of tax years 2014 - 2016. As of June 30, 2019 no adjustments have been proposed.
State Audits — SPS is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of June 30, 2019, SPS’ earliest open tax year that is subject to examination by state taxing authorities under applicable statutes of limitations is 2009. There are currently no state income tax audits in progress.
Unrecognized Benefits — Unrecognized tax benefit balance includes permanent tax positions, which if recognized would affect the annual ETR. In addition, the unrecognized tax benefit balance includes temporary tax positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. A change in the period of deductibility would not affect the ETR but would accelerate the payment to the taxing authority to an earlier period.
Unrecognized tax benefits - permanent vs temporary:
(Millions of Dollars)
 
June 30, 2019
 
Dec. 31, 2018
Unrecognized tax benefit — Permanent tax positions
 
$
3.3

 
$
3.0

Unrecognized tax benefit — Temporary tax positions
 
1.5

 
1.5

Total unrecognized tax benefit
 
$
4.8

 
$
4.5


Unrecognized tax benefits were reduced by tax benefits associated with NOL and tax credit carryforwards:
(Millions of Dollars)
 
June 30, 2019
 
Dec. 31, 2018
NOL and tax credit carryforwards
 
$
(4.1
)
 
$
(3.8
)

Net deferred tax liability associated with the unrecognized tax benefit amounts and related NOLs and tax credits carryforwards were $1.1 million and $0.8 million at June 30, 2019 and Dec. 31, 2018, respectively.
As the IRS Appeals and federal audit progress, it is reasonably possible that the amount of unrecognized tax benefit could decrease up to approximately $3.6 million in the next 12 months.
Payables for interest related to unrecognized tax benefits were not material and no amounts were accrued for penalties related to unrecognized tax benefits as of June 30, 2019 or Dec. 31, 2018.
7.
Fair Value of Financial Assets and Liabilities
Fair Value Measurements
The accounting guidance for fair value measurements and disclosures provides a single definition of fair value, hierarchical framework for measuring assets and liabilities and requires disclosure about assets and liabilities
 
measured at fair value.
Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices.
Level 2 — Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reporting date. The types of assets and liabilities included in Level 2 are typically either comparable to actively traded securities or contracts, or priced with models using highly observable inputs.
Level 3 — Significant inputs to pricing have little or no observability as of the reporting date. The types of assets and liabilities included in Level 3 are those valued with models requiring significant management judgment or estimation.
Specific valuation methods include:
Cash equivalents — The fair values of cash equivalents are generally based on cost plus accrued interest; money market funds are measured using quoted NAVs.
Interest rate derivatives The fair values of interest rate derivatives are based on broker quotes that utilize current market interest rate forecasts.
Commodity derivatives The methods used to measure the fair value of commodity derivative forwards and options generally utilize observable forward prices and volatilities, as well as observable pricing adjustments for specific delivery locations, and are generally assigned a Level 2 classification. When contractual settlements relate to delivery locations for which pricing is relatively unobservable, or extend to periods beyond those readily observable on active exchanges or quoted by brokers, the significance of the use of less observable inputs on a valuation is evaluated, and may result in Level 3 classification.
Electric commodity derivatives held by SPS include transmission congestion instruments, generally referred to as FTRs, purchased from SPP. FTRs purchased from an RTO are financial instruments that entitle or obligate the holder to monthly revenues or charges based on transmission congestion across a given transmission path. The value of an FTR is derived from, and designed to offset, the cost of transmission congestion. In addition to overall transmission load, congestion is also influenced by the operating schedules of power plants and the consumption of electricity pertinent to a given transmission path. Unplanned plant outages, scheduled plant maintenance, changes in the relative costs of fuels used in generation, weather and overall changes in demand for electricity can each impact the operating schedules of the power plants on the transmission grid and the value of an FTR.
If forecasted costs of electric transmission congestion increase or decrease for a given FTR path, the value of that particular FTR instrument will likewise increase or decrease. Given the limited observability of important inputs to the value of FTRs between auction processes, including expected plant operating schedules and retail and wholesale demand, fair value measurements for FTRs have been assigned a Level 3. Non-trading monthly FTR settlements are expected to be recovered through fuel and purchased energy cost recovery mechanisms, and therefore changes in the fair value of the yet to be settled portions of FTRs are deferred as a regulatory asset or liability. Given this regulatory treatment and the limited magnitude of FTRs relative to the electric utility operations of SPS, the numerous unobservable quantitative inputs pertinent to the value of FTRs are insignificant to the financial statements of SPS.




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Table of Contents

Derivative Instruments Fair Value Measurements
SPS enters into derivative instruments, including forward contracts, for trading purposes and to manage risk in connection with changes in interest rates and electric utility commodity prices.
Interest Rate Derivatives — SPS may enter into various instruments that effectively fix the yield or price on a specified benchmark interest rate for an anticipated debt issuance for a specific period. These derivative instruments are generally designated as cash flow hedges for accounting purposes.
As of June 30, 2019, accumulated other comprehensive loss related to interest rate derivatives included $0.1 million net losses expected to be reclassified into earnings during the next 12 months as the related hedged interest rate transactions impact earnings, including forecasted amounts for unsettled hedges, as applicable.
Wholesale and Commodity Trading Risk — SPS conducts various wholesale and commodity trading activities, including the purchase and sale of electric capacity, energy and energy-related instruments, including derivatives. SPS is allowed to conduct these activities within guidelines and limitations as approved by its risk management committee, comprised of management personnel not directly involved in the activities governed by this policy.
Commodity Derivatives — SPS enters into derivative instruments to manage variability of future cash flows from changes in commodity prices in its electric utility operations. This could include the purchase or sale of energy or energy-related products and FTRs.
(Amounts in Millions) (a) 
 
June 30, 2019
 
Dec. 31, 2018
Mwh of electricity
 
15.5

 
5.5

(a) 
Amounts are not reflective of net positions in the underlying commodities.
Consideration of Credit Risk and Concentrations — SPS continuously monitors the creditworthiness of counterparties to its interest rate derivatives and commodity derivative contracts prior to settlement, and assesses each counterparty’s ability to perform on the transactions set forth in the contracts. Impact of credit risk was immaterial to the fair value of unsettled commodity derivatives presented in the balance sheets. SPS’ most significant concentrations of credit risk with particular entities or industries are contracts with counterparties to its wholesale, trading and non-trading commodity activities.

 
At June 30, 2019, one of the seven most significant counterparties for these activities, comprising $10.1 million or 25% of this credit exposure, had investment grade ratings from S&P Global Ratings, Moody’s Investor Services or Fitch Ratings. Five of the seven most significant counterparties, comprising $7.9 million or 20% of this credit exposure, were not rated by external rating agencies, but based on SPS’ internal analysis, had credit quality consistent with investment grade. One of these significant counterparties, comprising $0.3 million or 1% of this credit exposure, had credit quality less than investment grade, based on external analysis. Six of these significant counterparties are municipal or cooperative electric entities, or other utilities.
Impact of Derivative Activities on Income and Accumulated Other Comprehensive Loss — Pre-tax losses related to interest rate derivatives reclassified from accumulated other comprehensive loss into earnings were immaterial for the three and six months ended June 30, 2019 and 2018.
Changes in the fair value of FTRs resulting in pre-tax net gains of $9.9 million and $4.6 million were recognized for the three and six months ended June 30, 2019 , respectively, were reclassified as regulatory assets and liabilities. There were $13.0 million and $13.4 million of net gains for the three and six months ended June 30, 2018, respectively. The classification as a regulatory asset or liability is based on expected recovery of FTR settlements through fuel and purchased energy cost recovery mechanisms.
FTR settlement losses of $0.2 million were recognized for both the three and six months ended June 30, 2019 and were recorded to electric fuel and purchased power. There were $3.9 million and $3.4 million of FTR settlement gains for the three and six months ended June 30, 2018, respectively. These derivative settlement gains and losses are shared with electric customers through fuel and purchased energy cost-recovery mechanisms, and reclassified out of income as regulatory assets or liabilities, as appropriate.
SPS had no derivative instruments designated as fair value hedges during the six months ended June 30, 2019 and 2018.




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Table of Contents

Recurring Fair Value Measurements — SPS’ derivative assets and liabilities measured at fair value on a recurring basis:
 
 
June 30, 2019
 
Dec. 31, 2018
 
 
Fair Value
 
 
 
 
 
 
 
Fair Value
 
 
 
 
 
 
(Millions of Dollars)
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
Total
 

Netting (a)
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
Total
 

Netting (a)
 
Total
Current derivative assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other derivative instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electric commodity
 
$

 
$