ThZeal - The Zeal


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
DOC			Minnesota Department of Commerce
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
SEC			Securities and Exchange Commission

Electric, Purchased Gas and Resource Adjustment Clauses
FCA			Fuel clause adjustment
GUIC			Gas utility infrastructure cost rider
RES			Renewable energy standard
TCR			Transmission cost recovery adjustment

Other
ASC			FASB Accounting Standards Codification
C&I			Commercial and Industrial
CCR			Coal combustion residuals
CCR Rule			Final rule (40 CFR 257.50 - 257.107) published by the United States EPA regulating the management, storage and disposal of CCRs as nonhazardous waste
CEO			Chief executive officer
CFO			Chief financial officer
COVID-19			Novel coronavirus
ETR			Effective tax rate
FASB			Financial Accounting Standards Board
FTR			Financial transmission right
GAAP			United States generally accepted accounting principles
GE			General Electric Company
IPP			Independent power producing entity
LLC			Limited liability company
MGP			Manufactured gas plant
MISO			Midcontinent Independent System Operator, Inc.
NAV			Net asset value
NOL			Net operating loss
NOPR			Notice of Proposed Rulemaking
O&M			Operating and maintenance
PPA			Power purchase agreement
PTC			Production tax credit
ROE			Return on equity
ROFR			Right-of-first-refusal
RTO			Regional Transmission Organization
SMMPA			Southern Minnesota Municipal Power Agency
TOs			Transmission owners
VIE			Variable interest entity

Measurements
MW			Megawatts


Forward-Looking Statements

Except for the historical statements contained in this report, the matters discussed herein are forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements, including those relating to future sales, future expenses, future operating performance, estimated base capital expenditures and financing plans, projected capital additions and forecasted annual revenue requirements with respect to rider filings, expected rate increases to customers, expectations and intentions regarding regulatory proceedings, and expected impacts on our results of operations, financial condition and cash flows or resettlement calculations and credit losses relating to certain energy transactions, as well as assumptions and other statements are intended to be identified in this document by the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “objective,” “outlook,” “plan,” “project,” “possible,” “potential,” “should,” “will,” “would” and similar expressions. Actual results may vary materially. Forward-looking statements speak only as of the date they are made, and we expressly disclaim any obligation to update any forward-looking information. The following factors, in addition to those discussed elsewhere in this Quarterly Report on Form 10-Q and in other filings with the SEC (including NSP-Minnesota’s Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2020, and subsequent filings), could cause actual results to differ materially from management expectations as suggested by such forward-looking information: uncertainty around the impacts and duration of the COVID-19 pandemic; operational safety, including our nuclear generation facilities; successful long-term operational planning; commodity risks associated with energy markets and production; rising energy prices and fuel costs; qualified employee work force and third-party contractor factors; ability to recover costs; changes in regulation; reductions in our credit ratings and the cost of maintaining certain contractual relationships; general economic conditions, including inflation rates, monetary fluctuations and their impact on capital expenditures and the ability of NSP-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; effects of geopolitical events, including war and acts of terrorism; cyber security threats and data security breaches; seasonal weather patterns; changes in environmental laws and regulations; climate change and other weather; natural disaster and resource depletion, including compliance with any accompanying legislative and regulatory changes; and costs of potential regulatory penalties.


	Three Months Ended March 31
	2021		2020
Operating activities
Net income	$	128	$	107
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	223		204
Nuclear fuel amortization	30		33
Deferred income taxes	(8)		(15)

Allowance for equity funds used during construction	(7)		(7)
Provision for bad debts	6		5
Net realized and unrealized hedging and derivatives transactions	(6)		9
Changes in operating assets and liabilities:
Accounts receivable	(12)		3
Accrued unbilled revenues	43		52
Inventories	38		20

Accounts payable	(38)		(43)
Net regulatory assets and liabilities	(268)		33
Other current liabilities	26		(4)
Pension and other employee benefit obligations	(36)		(48)
Other, net	(2)		(8)
Net cash provided by operating activities	117		341

Investing activities
Capital/construction expenditures	(474)		(274)
Purchase of investment securities	(199)		(835)
Proceeds from the sale of investment securities	194		830
Investments in utility money pool arrangement	—		(305)
Repayments from utility money pool arrangement	—		257
Other, net	(2)		1
Net cash used in investing activities	(481)		(326)

Financing activities
Repayments of short-term borrowings, net	(179)		(30)
Borrowings under utility money pool arrangement	434		118
Repayments under utility money pool arrangement	(434)		(118)
Proceeds from issuance of long-term debt	836		—

Capital contributions from parent	424		114
Dividends paid to parent	(106)		(94)
Other, net	—		(4)
Net cash provided by (used in) financing activities	975		(14)

Net change in cash, cash equivalents and restricted cash	611		1
Cash, cash equivalents and restricted cash at beginning of period	46		126
Cash, cash equivalents and restricted cash at end of period	$	657	$	127

Supplemental disclosure of cash flow information:
Cash paid for interest (net of amounts capitalized)	$	(72)	$	(75)
Cash received (paid) for income taxes, net	1		(6)

Supplemental disclosure of non-cash investing and financing transactions:
Accrued property, plant and equipment additions	$	222	$	67
Inventory transfers to property, plant and equipment	5		4

Allowance for equity funds used during construction	7		7


	March 31, 2021		Dec. 31, 2020
Assets
Current assets
Cash and cash equivalents	$	657	$	46
Accounts receivable, net	385		392
Accounts receivable from affiliates	20		32

Accrued unbilled revenues	205		248
Inventories	253		295
Regulatory assets	554		411
Derivative instruments	8		17

Prepayments and other	47		50
Total current assets	2,129		1,491

Property, plant and equipment, net	15,679		15,308

Other assets
Nuclear decommissioning fund and other investments	2,881		2,830
Regulatory assets	1,047		924
Derivative instruments	26		5
Operating lease right-of-use assets	469		488
Other	19		14
Total other assets	4,442		4,261
Total assets	$	22,250	$	21,060

Liabilities and Equity
Current liabilities

Short-term debt	$	—	$	179
Accounts payable	461		438
Accounts payable to affiliates	43		66
Regulatory liabilities	115		123
Taxes accrued	314		263
Accrued interest	58		72
Dividends payable to parent	108		106
Derivative instruments	15		22

Operating lease liabilities	91		85
Other	177		154
Total current liabilities	1,382		1,508

Deferred credits and other liabilities
Deferred income taxes	1,854		1,840
Deferred investment tax credits	18		18
Regulatory liabilities	1,899		1,896
Asset retirement obligations	2,440		2,350
Derivative instruments	84		71
Pension and employee benefit obligations	155		192
Operating lease liabilities	416		443
Other	71		69
Total deferred credits and other liabilities	6,937		6,879

Capitalization
Long-term debt	6,741		5,904
Common stock — 5,000,000 shares authorized of $0.01 par value; 1,000,000 shares outstanding at March 31, 2021 and Dec. 31, 2020, respectively	—		—
Additional paid in capital	4,985		4,585
Retained earnings	2,226		2,206
Accumulated other comprehensive loss	(21)		(22)
Total common stockholder's equity	7,190		6,769
Total liabilities and equity	$	22,250	$	21,060

NSP-MINNESOTA AND SUBSIDIARIES

Notes to Consolidated Financial Statements (UNAUDITED)

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly, in accordance with GAAP, the financial position of NSP-Minnesota and its subsidiaries as of March 31, 2021 and Dec. 31, 2020; the results of operations, including the components of net income, comprehensive income, cash flows and changes in stockholder’s equity for the three months ended March 31, 2021 and 2020.

All adjustments are of a normal, recurring nature, except as otherwise disclosed. Management has also evaluated the impact of events occurring after March 31, 2021 up to the date of issuance of these consolidated financial statements. These statements contain all necessary adjustments and disclosures resulting from that evaluation. The Dec. 31, 2020 balance sheet information has been derived from the audited 2020 consolidated financial statements included in the NSP-Minnesota Annual Report on Form 10-K for the year ended Dec. 31, 2020.

These notes to the consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC for Quarterly Reports on Form 10-Q. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP on an annual basis have been condensed or omitted pursuant to such rules and regulations. For further information, refer to the consolidated financial statements and notes thereto, included in the NSP-Minnesota Annual Report on Form 10-K for the year ended Dec. 31, 2020, filed with the SEC on Feb. 17, 2021. Due to the seasonality of NSP-Minnesota’s electric and natural gas sales, interim results are not necessarily an appropriate base from which to project annual results.


1. Summary of Significant Accounting Policies

The significant accounting policies set forth in Note 1 to the consolidated financial statements in the NSP-Minnesota Annual Report on Form 10-K for the year ended Dec. 31, 2020, appropriately represent, in all material respects, the current status of accounting policies and are incorporated herein by reference.


2. Accounting Pronouncements

Recently Adopted

Credit Losses — In 2016, the FASB issued Financial Instruments - Credit Losses, Topic 326 (ASC Topic 326), which changes how entities account for losses on receivables and certain other assets. The guidance requires use of a current expected credit loss model, which may result in earlier recognition of credit losses than under previous accounting standards.

NSP-Minnesota implemented the guidance using a modified-retrospective approach, recognizing a cumulative effect charge of $1 million (after tax) to retained earnings on Jan. 1, 2020. Other than first-time recognition of an allowance for bad debts on accrued unbilled revenues, the Jan. 1, 2020 adoption of ASC Topic 326 did not have a significant impact on NSP-Minnesota’s consolidated financial statements.


3. Selected Balance Sheet Data


(Millions of Dollars)	March 31, 2021		Dec. 31, 2020
Accounts receivable, net
Accounts receivable	$	422	$	425
Less allowance for bad debts	(37)		(33)
Accounts receivable, net	$	385	$	392


(Millions of Dollars)	March 31, 2021		Dec. 31, 2020
Inventories
Materials and supplies	$	181	$	178
Fuel	66		90
Natural gas	6		27
Total inventories	$	253	$	295


(Millions of Dollars)	March 31, 2021		Dec. 31, 2020
Property, plant and equipment, net
Electric plant	$	19,647	$	18,948
Natural gas plant	1,720		1,707
Common and other property	969		955
Plant to be retired (a)	127		136
Construction work in progress	965		1,150
Total property, plant and equipment	23,428		22,896
Less accumulated depreciation	(8,106)		(7,898)
Nuclear fuel	3,047		2,970
Less accumulated amortization	(2,690)		(2,660)
Property, plant and equipment, net	$	15,679	$	15,308

(a)Includes regulator-approved retirements of Sherco Units 1 and 2.


4. Borrowings and Other Financing Instruments

Short-Term Borrowings

NSP-Minnesota 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 NSP-Minnesota were as follows:


(Amounts in Millions, Except Interest Rates)	Three Months Ended March 31, 2021			Year Ended Dec. 31, 2020
Borrowing limit	$	250		$	250
Amount outstanding at period end	—			—
Average amount outstanding	24			3
Maximum amount outstanding	236			116
Weighted average interest rate, computed on a daily basis	0.07		%	1.53		%
Weighted average interest rate at period end	N/A			N/A

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


(Amounts in Millions, Except Interest Rates)	Three Months Ended March 31, 2021			Year Ended Dec. 31, 2020
Borrowing limit	$	500		$	500
Amount outstanding at period end	—			179
Average amount outstanding	104			10
Maximum amount outstanding	317			179
Weighted average interest rate, computed on a daily basis	0.18		%	1.25		%
Weighted average interest rate at period end	N/A			0.18

Letters of Credit — NSP-Minnesota uses letters of credit, generally with terms of one year, to provide financial guarantees for certain obligations. At March 31, 2021 and Dec. 31, 2020, there were $10 million of letters of credit outstanding under the credit facility. Amounts approximate their fair value and are subject to fees.

Revolving Credit Facility — In order to issue its commercial paper, NSP-Minnesota 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 exceeding available capacity under this credit facility. The line of credit provides short-term financing in the form of notes payable to banks, letters of credit and back-up support for commercial paper borrowings.

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

At March 31, 2021, NSP-Minnesota had the following committed revolving credit facility available (in millions of dollars):


Credit Facility (a)		Drawn (b)		Available
$	500	$	10	$	490

(a)Expires in June 2024.

(b)Includes outstanding commercial paper and letters of credit.

All credit facility bank borrowings, outstanding letters of credit and outstanding commercial paper reduce the available capacity under the credit facility. NSP-Minnesota had no direct advances on the credit facility outstanding at March 31, 2021 and Dec. 31, 2020.

Bilateral Credit Agreement — In April 2021, the uncommitted bilateral credit agreement was renewed for an additional one-year term. The credit agreement is limited in use to support letters of credit.

As of March 31, 2021, NSP-Minnesota’s outstanding letters of credit under the Bilateral Credit Agreement were as follows:


(Millions of Dollars)	Limit		Amount Outstanding		Available
NSP-Minnesota	$	75	$	49	$	26

Long-Term Borrowings

During the three months ended March 31, 2021, NSP-Minnesota issued $425 million of 2.25% first mortgage bonds due April 1, 2031 and $425 million of 3.20% first mortgage bonds due April 1, 2052.


5. Revenues

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


	Three Months Ended March 31, 2021
(Millions of Dollars)	Electric		Natural Gas		All Other		Total
Major revenue types
Revenue from contracts with customers:
Residential	$	326	$	114	$	7	$	447
C&I	416		79		—		495
Other	8		—		2		10
Total retail	750		193		9		952
Wholesale	98		—		—		98
Transmission	57		—		—		57
Interchange	115		—		—		115
Other	2		—		—		2
Total revenue from contracts with customers	1,022		193		9		1,224
Alternative revenue and other	117		11		—		128
Total revenues	$	1,139	$	204	$	9	$	1,352


	Three Months Ended March 31, 2020
(Millions of Dollars)	Electric		Natural Gas		All Other		Total
Major revenue types
Revenue from contracts with customers:
Residential	$	300	$	114	$	7	$	421
C&I	445		82		—		527
Other	7		—		2		9
Total retail	752		196		9		957
Wholesale	45		—		—		45
Transmission	56		—		—		56
Interchange	110		—		—		110
Other	2		1		—		3
Total revenue from contracts with customers	965		197		9		1,171
Alternative revenue and other	70		9		—		79
Total revenues	$	1,035	$	206	$	9	$	1,250


6. Income Taxes

Note 7 to the consolidated financial statements included in NSP-Minnesota’s Annual Report on Form 10-K for the year ended Dec. 31, 2020 represents, in all material respects, the current status of other income tax matters except to the extent noted below, and are incorporated herein by reference.

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


	Three Months Ended March 31
	2021		2020 (a)
Federal statutory rate	21.0	%	21.0	%
State tax (net of federal tax effect)	7.0		7.1
Increases (decreases) in tax from:
Wind PTCs	(30.4)		(24.8)
Plant regulatory differences (b)	(7.8)		(8.3)
Other tax credits, net NOL & tax credit allowances	(1.3)		(1.5)
Other (net)	1.2		0.6
Effective income tax rate	(10.3)	%	(5.9)	%

(a) Prior periods have been restated to conform to current year presentation.

(b) Regulatory differences for income tax primarily relate to the credit of excess deferred taxes to customers through the average rate assumption method. Income tax benefits associated with the credit of excess deferred credits are offset by corresponding revenue reduction.

Federal Audits — NSP-Minnesota 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 Years						Expiration
2014 - 2016						January 2022
2017						September 2021

Additionally, the statute of limitations related to a federal tax loss carryback claim filed in 2020 has been extended. 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.

State Audits — NSP-Minnesota is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of March 31, 2021, NSP-Minnesota’s earliest open tax year subject to examination by state taxing authorities under applicable statutes of limitations is 2013. In July 2020, Minnesota began a review of tax years 2015-2018. In February 2021, Minnesota concluded its review and commenced an audit of the same tax years. As of March 31, 2021, no material adjustments have been proposed.

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

Unrecognized tax benefits — permanent vs. temporary:


(Millions of Dollars)	March 31, 2021		Dec. 31, 2020
Unrecognized tax benefit — Permanent tax positions	$	21	$	21
Unrecognized tax benefit — Temporary tax positions	3		3
Total unrecognized tax benefit	$	24	$	24

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


(Millions of Dollars)	March 31, 2021		Dec. 31, 2020
NOL and tax credit carryforwards	$	(11)	$	(11)

As IRS audits resume and the state audit progresses, it is reasonably possible that the amount of unrecognized tax benefit could decrease up to approximately $15 million in the next 12 months.

Payable for interest related to unrecognized tax benefits is partially offset by the interest benefit associated with NOL and tax credit carryforwards.

Interest payable related to unrecognized tax benefits:


(Millions of Dollars)	March 31, 2021		Dec. 31, 2020
Payable for interest related to unrecognized tax benefits at beginning of period	$	(2)	$	(2)
Interest expense related to unrecognized tax benefits	—		—
Payable for interest related to unrecognized tax benefits at end of period	$	(2)	$	(2)

No amounts were accrued for penalties related to unrecognized tax benefits as of March 31, 2021 or Dec. 31, 2020.


7. Fair Value of Financial Assets and Liabilities

Fair Value Measurements

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

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

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

•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 NAV.

Investments in equity securities and other funds — Equity securities are valued using quoted prices in active markets. The fair values for commingled funds are measured using NAVs. The investments in commingled funds may be redeemed for NAV with proper notice. Private equity commingled fund investments require approval of the fund for any unscheduled redemption, and such redemptions may be approved or denied by the fund at its sole discretion.

Unscheduled distributions from real estate commingled funds’ investments may be redeemed with proper notice, however, may be delayed or discounted as a result of fund illiquidity.

Investments in debt securities — Fair values for debt securities are determined by a third-party pricing service using recent trades and observable spreads from benchmark interest rates for similar securities.

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

Commodity derivatives — The methods used to measure the fair value of commodity derivative forwards and options utilize forward prices and volatilities, as well as pricing adjustments for specific delivery locations and are generally assigned a Level 2 classification. When contractual settlements relate to inactive delivery locations or extend to periods beyond those readily observable on active exchanges or quoted by brokers, the significance of the use of less observable forecasts of forward prices and volatilities on a valuation is evaluated, and may result in Level 3 classification.

Electric commodity derivatives held by NSP-Minnesota include transmission congestion instruments, generally referred to as FTRs. FTRs purchased from a 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 certain 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 included in fuel and purchased energy cost recovery mechanisms, and therefore changes in the fair value of the yet to be settled portions of most FTRs are deferred as a regulatory asset or liability. Given this regulatory treatment and the limited magnitude of NSP-Minnesota’s FTRs relative to its electric utility operations, the numerous unobservable quantitative inputs pertinent to the value of FTRs are immaterial to the consolidated financial statements of NSP-Minnesota.

Non-Derivative Fair Value Measurements

The Nuclear Regulatory Commission requires NSP-Minnesota to maintain a portfolio of investments to fund the costs of decommissioning its nuclear generating plants. Assets of the nuclear decommissioning fund are legally restricted for the purpose of decommissioning these facilities. The fund contains cash equivalents, debt securities, equity securities and other investments. NSP-Minnesota uses the MPUC approved asset allocation for the escrow and investment targets by asset class for both the escrow and qualified trust.

NSP-Minnesota recognizes the costs of funding the decommissioning over the lives of the nuclear plants, assuming rate recovery of all costs. Realized and unrealized gains on fund investments over the life of the fund are deferred as an offset of NSP-Minnesota’s regulatory asset for nuclear decommissioning costs. Consequently, any realized and unrealized gains and losses on securities in the nuclear decommissioning fund are deferred as a component of the regulatory asset.

Unrealized gains for the nuclear decommissioning fund were $1 billion and $981 million as of March 31, 2021 and Dec. 31, 2020, respectively, and unrealized losses were $8 million and $5 million as of March 31, 2021 and Dec. 31, 2020, respectively.

Non-derivative instruments with recurring fair value measurements in the nuclear decommissioning fund:


	March 31, 2021
			Fair Value
(Millions of Dollars)	Cost		Level 1		Level 2		Level 3		NAV		Total
Nuclear decommissioning fund (a)
Cash equivalents	$	32	$	32	$	—	$	—	$	—	$	32
Commingled funds	795		—		—		—		1,052		1,052
Debt securities	562		—		573		13		—		586
Equity securities	444		1,153		2		—		—		1,155
Total	$	1,833	$	1,185	$	575	$	13	$	1,052	$	2,825

(a)Reported in nuclear decommissioning fund and other investments on the consolidated balance sheets, which also includes $56 million of rabbi trust assets and miscellaneous investments.


	Dec. 31, 2020
			Fair Value
(Millions of Dollars)	Cost		Level 1		Level 2		Level 3		NAV		Total
Nuclear decommissioning fund (a)
Cash equivalents	$	40	$	40	$	—	$	—	$	—	$	40
Commingled funds	787		—		—		—		1,041		1,041
Debt securities	528		—		572		13		—		585
Equity securities	446		1,109		2		—		—		1,111
Total	$	1,801	$	1,149	$	574	$	13	$	1,041	$	2,777

(a)Reported in nuclear decommissioning fund and other investments on the consolidated balance sheets, which also includes $53 million of rabbi trust assets and miscellaneous investments.

For the three months ended March 31, 2021 and 2020, there were immaterial Level 3 nuclear decommissioning fund investments or transfer of amounts between levels.

Contractual maturity dates of debt securities in the nuclear decommissioning fund as of March 31, 2021:


	Final Contractual Maturity
(Millions of Dollars)	Due in 1 year or Less		Due in 1 to 5 Years		Due in 5 to 10 Years		Due after 10 Years		Total
Debt securities	$	3	$	133	$	202	$	248	$	586

Rabbi Trusts

NSP-Minnesota has established a rabbi trust to provide partial funding for future deferred compensation plan distributions.

Cost and fair value of assets held in rabbi trusts:


	March 31, 2021
			Fair Value
(Millions of Dollars)	Cost		Level 1		Level 2		Level 3		Total
Rabbi Trusts (a)
Cash equivalents	$	6	$	6	$	—	$	—	$	6
Mutual funds	10		12		—		—		12
Total	$	16	$	18	$	—	$	—	$	18


	Dec. 31, 2020
			Fair Value
(Millions of Dollars)	Cost		Level 1		Level 2		Level 3		Total
Rabbi Trusts (a)
Cash equivalents	$	1	$	1	$	—	$	—	$	1
Mutual funds	14		16		—		—		16
Total	$	15	$	17	$	—	$	—	$	17

(a) Reported in nuclear decommissioning fund and other investments on the consolidated balance sheets.

Derivative Instruments Fair Value Measurements

NSP-Minnesota enters into derivative instruments, including forward contracts, futures, swaps and options, for trading purposes and to manage risk in connection with changes in interest rates, utility commodity prices and vehicle fuel prices.

Interest Rate Derivatives — NSP-Minnesota enters 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, with changes in fair value prior to settlement recorded as other comprehensive income.

At March 31, 2021, accumulated other comprehensive loss related to settled interest rate derivatives included $1 million of net losses expected to be reclassified into earnings during the next 12 months as the hedged interest rate transactions impact earnings. As of March 31, 2021, NSP-Minnesota had no unsettled interest rate derivatives.

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 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 activities governed by this policy. Sharing of any margins is determined through state regulatory proceedings as well as the operation of the FERC approved joint operating agreement.

Commodity Derivatives — NSP-Minnesota enters into derivative instruments to manage variability of future cash flows from changes in commodity prices in its electric and natural gas operations, as well as for trading purposes. This could include the purchase or sale of energy or energy-related products, natural gas to generate electric energy, natural gas for resale, FTRs, vehicle fuel, and weather derivatives.

At March 31, 2021, NSP-Minnesota had no commodity contracts designated as cash flow hedges. NSP-Minnesota may enter into derivative instruments that mitigate commodity price risk on behalf of electric and natural gas customers, but may not be designated as qualifying hedging transactions. The classification as a regulatory asset or liability, if applicable, is based on approved regulatory recovery mechanisms.

NSP-Minnesota also enters into commodity derivative instruments for trading purposes not directly related to commodity price risks associated with serving its electric and natural gas customers. Changes in the fair value of these commodity derivatives are recorded in electric operating revenues, net of amounts credited to customers under margin-sharing mechanisms.

Gross notional amounts of commodity forwards, options and FTRs:


(Amounts in Millions) (a)(b)	March 31, 2021	Dec. 31, 2020
Megawatt hours of electricity	49	65
Million British thermal units of natural gas	77	83

(a)Amounts are not reflective of net positions in the underlying commodities.

(b)Notional amounts for options are included on a gross basis, but are weighted for the probability of exercise.

Consideration of Credit Risk and Concentrations — NSP-Minnesota continuously monitors the creditworthiness of counterparties to its interest rate derivatives and commodity derivative contracts prior to settlement, and assesses each counterparty’s ability to perform on the transactions set forth in the contracts. Impact of credit risk was immaterial to the fair value of unsettled commodity derivatives presented on the consolidated balance sheets.

NSP-Minnesota’s most significant concentrations of credit risk with particular entities or industries are contracts with counterparties to its wholesale, trading and non-trading commodity activities.

As of March 31, 2021, six of NSP-Minnesota’s ten most significant counterparties for these activities, comprising $26 million, or 52%, of this credit exposure, had investment grade credit ratings from S&P Global Ratings, Moody’s Investor Services or Fitch Ratings. Three of the ten most significant counterparties, comprising $10 million, or 20%, of this credit exposure, were not rated by these external agencies, but based on NSP-Minnesota’s internal analysis, had credit quality consistent with investment grade. One of these significant counterparties, comprising $8 million or 16% of this credit exposure, had credit quality less than investment grade, based on internal analysis. Eight of these significant counterparties are municipal or cooperative electric entities, RTOs or other utilities.

The impact of derivative activity:


	Pre-Tax Fair Value Gains (Losses) Recognized During the Period in:
(Millions of Dollars)	Accumulated Other Comprehensive Loss		Regulatory (Assets) and Liabilities





Three Months Ended March 31, 2021
Other derivative instruments

Natural gas commodity	$	—	$	1
Total	$	—	$	1

As of March 31, 2020, NSP-Minnesota had no activity for electric and natural gas commodity derivatives that were recognized in regulatory (assets) and liabilities.

Changes in Level 3 commodity derivatives for the three months ended March 31, 2021 and 2020:


	Three Months Ended March 31
(Millions of Dollars)	2021		2020
Balance at Jan. 1	$	(11)	$	5

Settlements	(7)		(12)
Net transactions recorded during the period:
Gains recognized in earnings (a)	30		6
Net gains recognized as regulatory assets and liabilities	—		3
Balance at March 31	$	12	$	2

(a)Level 3 gains recognized in earnings are subject to offsetting losses of derivative instruments categorized as levels 1 and 2 in the income statement.

NSP-Minnesota recognizes transfers between levels as of the beginning of each period. There were no transfers of amounts between levels for derivative instruments for the three months ended March 31, 2021 and 2020.

Fair Value of Long-Term Debt

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


	March 31, 2021				Dec. 31, 2020
(Millions of Dollars)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, including current portion	$	6,741	$	7,491	$	5,904	$	7,391

Fair value of NSP-Minnesota’s long-term debt is estimated based on recent trades and observable spreads from benchmark interest rates for similar securities. Fair value estimates are based on information available to management as of March 31, 2021 and Dec. 31, 2020 and given the observability of the inputs, fair values presented for long-term debt were assigned as Level 2.


8. Benefit Plans and Other Postretirement Benefits

Components of Net Periodic Benefit Cost


	Three Months Ended March 31
	2021		2020		2021		2020
(Millions of Dollars)	Pension Benefits				Postretirement Health Care Benefits
Service cost	$	7	$	7	$	—	$	—
Interest cost (a)	6		8		1		1
Expected return on plan assets (a)	(13)		(14)		—		—
Amortization of prior service credit (a)	—		—		(1)		(1)
Amortization of net loss (a)	9		8		—		—
Net periodic benefit cost	9		9		—		—
Effects of regulation	(1)		(1)		—		—
Net benefit cost recognized for financial reporting	$	8	$	8	$	—	$	—

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

In January 2021, contributions of $125 million were made across four of Xcel Energy’s pension plans, of which $33 was attributable to NSP-Minnesota. Xcel Energy does not expect additional pension contributions during 2021.


9. Commitments and Contingencies

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

Legal

In such cases, there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including a possible eventual loss. For current proceedings not specifically reported, management does not anticipate that the ultimate liabilities, if any, would have a material effect on NSP-Minnesota’s consolidated financial statements. Unless otherwise required by GAAP, legal fees are expensed as incurred.

Rate Matters and Other

Sherco — In 2018, NSP-Minnesota and SMMPA (Co-owner of Sherco Unit 3) reached a settlement with GE related to a 2011 incident, which damaged the turbine at Sherco Unit 3 and resulted in an extended outage for repair. NSP-Minnesota notified the MPUC of its proposal to refund settlement proceeds to customers through the FCA.

In March 2019, the MPUC approved NSP-Minnesota’s refund proposal. Additionally, the MPUC decided to withhold any decision as to NSP-Minnesota’s prudence in connection with the incident at Sherco Unit 3 until after conclusion of an appeal pending between GE and NSP-Minnesota’s insurers. In February 2020, the Minnesota Court of Appeals affirmed the district court’s judgment in favor of GE. In March 2020, NSP-Minnesota’s insurers filed a petition seeking additional review by the Minnesota Supreme Court.

In April 2020, the Minnesota Supreme Court denied the insurers’ petition for further review, ending the litigation. In accordance with a prior MPUC order, NSP-Minnesota made a compliance filing in August 2020 detailing all costs that resulted from the outage and all insurance recoveries received by NSP-Minnesota in connection with the outage.

In January 2021, the Minnesota Office of the Attorney General and DOC filed comments recommending that NSP-Minnesota refund approximately $17 million of replacement power costs previously recovered through the FCA. On Jan. 27, 2021, NSP-Minnesota filed its response, asserting that it acted prudently in connection with the Sherco Unit 3 outage, the MPUC has previously disallowed $22 million of related costs and no additional refund or disallowance is appropriate. A final decision by the MPUC is pending. A loss related to this matter is deemed remote.

Westmoreland Arbitration — In November 2014, insurers for Westmoreland Coal Company filed an arbitration demand against NSP-Minnesota, SMMPA and Western Fuels Association, seeking recovery of alleged business losses due to a turbine failure at Sherco Unit 3. The Westmoreland insurers claim NSP-Minnesota’s invocation of the force majeure clause to stop the supply of coal was improper because the incident was allegedly caused by NSP-Minnesota’s failure to conform to industry maintenance standards. Westmoreland’s insurers quantified their losses as approximately $36 million.

Arbitration was delayed pending resolution of a separate lawsuit brought by NSP-Minnesota, SMMPA, and their insurers against various GE entities based on the inspection and maintenance advice GE provided for Sherco Unit 3. In July 2020, following the conclusion of the appeal that fully resolved the GE litigation, Westmoreland’s insurers served notice, which triggered the arbitration to resume.

NSP-Minnesota denies the claims asserted by the Westmoreland insurers and believes it properly stopped the supply of coal based upon the force majeure provision. It is uncertain when a final resolution will occur, but it is unlikely an arbitration hearing will take place before the fourth quarter 2021. At this stage of the proceeding, a reasonable estimate of damages or range of damages cannot be determined.

MISO ROE Complaints — In November 2013 and February 2015, customer groups filed two ROE complaints against MISO TOs, which includes NSP-Minnesota and NSP-Wisconsin. The first complaint requested a reduction in base ROE transmission formula rates from 12.38% to 9.15% for the time period of Nov. 12, 2013 to Feb. 11, 2015, and removal of ROE adders (including those for RTO membership). The second complaint requested, for a subsequent time period, a base ROE reduction from 12.38% to 8.67%.

In September 2016, the FERC issued an order (Opinion No. 551) granting a 10.32% base ROE effective for the first complaint period of Nov. 12, 2013 to Feb. 11, 2015 and subsequent to the date of the order. The D.C Circuit subsequently vacated and remanded Opinion No. 551.

In November 2019, the FERC issued an order (Opinion No. 569), which set the MISO base ROE at 9.88%, effective Sept. 28, 2016 and for the first complaint period. The FERC also dismissed the second complaint. In December 2019, MISO TOs filed a request for rehearing regarding the new ROE methodology announced in Opinion No. 569. Customers also filed requests for rehearing claiming, among other points, that the FERC erred by dismissing the second complaint without refunds.

In May 2020, the FERC issued an order (Opinion No. 569-A) which granted rehearing in part to Opinion 569 and further refined the FERC’s ROE methodology, most significantly to incorporate the risk premium model (in addition to the discounted cash flow and capital asset pricing models), resulting in a new base ROE of 10.02%, effective Sept. 28, 2016 and for the first complaint period. The FERC also affirmed its decision in Opinion No. 569 to dismiss the second complaint.

In November 2020, the FERC issued an order (Opinion No. 569-B) in response to rehearing requests. The FERC corrected certain inputs to its ROE calculation model, did not change the ROE effective Sept. 28, 2016, and for the first MISO complaint period and upheld its decision to deny refunds for the second complaint period. NSP-Minnesota has recognized a liability for its best estimate of final refunds to customers. Each 10 basis point reduction in ROE for the first complaint period, second complaint period, and subsequent period relative to amounts accrued would reduce Xcel Energy’s net income by $1 million, $1 million, and $2 million, respectively.

The MISO TOs and various parties have filed petitions for review of Opinion Nos. 569, 569-A and 569-B at the D.C. Circuit with initial briefs filed in March 2021.

FERC NOPR on ROE Incentive Adders — In April 2021, the FERC issued a NOPR proposing to limit collection of ROE incentive adders for RTO membership to the first three years after an entity begins participation in an RTO. If adopted as a final rule, following a comment period expected to be complete by the end of 2021 or 2022, NSP-Minnesota, NSP-Wisconsin and SPS would prospectively discontinue charging their current 0.5% ROE incentive adders. Amounts related to a discontinuance of the adder would ultimately be offset by an increase in retail rates.

Environmental

MGP, Landfill and Disposal Sites

NSP-Minnesota is currently investigating, remediating or performing post-closure actions at seven MGP, landfill or other disposal sites across its service territories.

NSP-Minnesota has recognized its best estimate of costs/liabilities that will result from final resolution of these issues, however, the outcome and timing is unknown. In addition, there may be insurance recovery and/or recovery from other potentially responsible parties, offsetting a portion of costs incurred.

Environmental Requirements — Water and Waste

Coal Ash Regulation — NSP-Minnesota’s operations are subject to federal and state regulations that impose requirements for handling, storage, treatment and disposal of solid waste. Under the CCR Rule, utilities are required to complete groundwater sampling around their CCR landfills and surface impoundments. Currently, NSP-Minnesota has three regulated ash units in operation.

NSP-Minnesota is conducting groundwater sampling and monitoring and implementing assessment of corrective measures at certain CCR landfills and surface impoundments. No results above the groundwater protection standards in the rule were identified. Until NSP-Minnesota completes its assessment, it is uncertain what impact, if any, there will be on the operations, financial condition or cash flows.

In August 2020, the EPA published its final rule to implement a cease receipt and initiate a closure date of April 2021 for all CCR impoundments affected by the August 2018 D.C. Circuit ruling. The D.C. Circuit concluded that the EPA cannot allow utilities to continue to use unlined impoundments (including clay lined impoundments) for the storage or disposal of coal ash. This final rule required Xcel Energy to expedite closure plans for one impoundment.

In October 2020, NSP-Minnesota completed construction and placed in service a new impoundment to replace the clay lined impoundment at a cost of $9 million. With the new ash pond in service, NSP-Minnesota has initiated closure activities for the existing ash pond at an estimated cost of $4 million. NSP-Minnesota has five years to complete closure activities.

Closure costs for existing impoundments are included in the calculation of the asset retirement obligation.

Leases

NSP-Minnesota evaluates contracts that may contain leases, including PPAs and arrangements for the use of office space and other facilities, vehicles and equipment. A contract contains a lease if it conveys the exclusive right to control the use of a specific asset.

Components of lease expense:


	Three Months Ended March 31
(Millions of Dollars)	2021		2020
Operating leases
PPA capacity payments	$	19	$	21
Other operating leases (a)	2		2
Total operating lease expense (b)	$	21	$	23

(a)Includes immaterial short-term lease expense for 2021 and 2020, respectively.

(a)PPA capacity payments are included in electric fuel and purchased power on the consolidated statements of income. Expense for other operating leases is included in O&M expense and electric fuel and purchased power.

Commitments under operating leases as of March 31, 2021:


(Millions of Dollars)	PPA Operating Leases		Other Operating Leases		Total Operating Leases
Total minimum obligation	$	485	$	79	$	564
Interest component of obligation	(43)		(14)		(57)
Present value of minimum obligation	$	442	$	65	507
Less current portion					(91)
Noncurrent operating lease liabilities					$	416

VIEs

Under certain PPAs, NSP-Minnesota purchases power from IPPs for which NSP-Minnesota is required to reimburse fuel costs, or to participate in tolling arrangements under which NSP-Minnesota procures the natural gas required to produce the energy that it purchases. These specific PPAs create a variable interest in the IPP.

NSP-Minnesota had approximately 1,347 MW of capacity under long-term PPAs at both March 31, 2021 and Dec. 31, 2020 with entities that have been determined to be VIEs. NSP-Minnesota concluded that these entities are not required to be consolidated in its consolidated financial statements because it does not have the power to direct the activities that most significantly impact the entities’ economic performance. The PPAs have expiration dates through 2039.


11. Segment Information

NSP-Minnesota evaluates performance based on profit or loss generated from the product or service provided. These segments are managed separately because the revenue streams are dependent upon regulated rate recovery, which is separately determined for each segment.

NSP-Minnesota has the following reportable segments:

•Regulated Electric — The regulated electric utility segment generates electricity which is transmitted and distributed in Minnesota, North Dakota and South Dakota. In addition, this segment includes sales for resale and provides wholesale transmission service to various entities in the United States. The regulated electric utility segment also includes NSP-Minnesota’s wholesale commodity and trading operations.

•Regulated Natural Gas — The regulated natural gas utility segment transports, stores and distributes natural gas in portions of Minnesota and North Dakota.

NSP-Minnesota also presents All Other, which includes operating segments with revenues below the necessary quantitative thresholds. Those operating segments primarily include appliance repair services, non-utility real estate activities and revenues associated with processing solid waste into refuse-derived fuel.

Asset and capital expenditure information is not provided for NSP-Minnesota’s reportable segments. As an integrated electric and natural gas utility, NSP-Minnesota operates significant assets that are not dedicated to a specific business segment. Reporting assets and capital expenditures by business segment would require arbitrary and potentially misleading allocations, which may not necessarily reflect the assets that would be required for the operation of the business segments on a stand-alone basis.

Certain costs, such as common depreciation, common O&M expenses and interest expense are allocated based on cost causation allocators across each segment. In addition, a general allocator is used for certain general and administrative expenses, including office supplies, rent, property insurance and general advertising.

NSP-Minnesota’s segment information:


	Three Months Ended March 31
(Millions of Dollars)	2021		2020
Regulated Electric
Total revenues (a)	$	1,139	$	1,035


Net income	107		86
Regulated Natural Gas
Total revenues (b)	$	204	$	206


Net income	20		23
All Other
Total revenues	$	9	$	9
Net income (loss)	1		(2)
Consolidated Total
Total revenues (a)(b)	$	1,352	$	1,250


Net income	128		107

(a) Total revenues include $115 million and $110 million of affiliate electric revenue for the three months ended March 31, 2021 and 2020.

(b) Total revenues include an immaterial amount of affiliate gas revenue for the three months ended March 31, 2021 and 2020.

ITEM 2 — 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 H(1)(a) and (b) of Form 10-Q for wholly owned subsidiaries. It is replaced with management’s narrative analysis of the results of operations set forth in general instructions H(2)(a) of Form 10-Q for wholly owned subsidiaries (reduced disclosure format).

Non-GAAP Financial Measures

The following discussion includes financial information prepared in accordance with GAAP, as well as certain non-GAAP financial measures such as electric margin, natural gas margin and ongoing earnings.

Generally, a non-GAAP financial measure is a measure of a company’s financial performance, financial position or cash flows that excludes (or includes) amounts that are adjusted from measures calculated and presented in accordance with GAAP. NSP-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).


Results of Operations

NSP-Minnesota’s net income was approximately $128 million for the three months ended March 31, 2021 compared with approximately $107 million for the prior year. The increase reflects higher electric margin (primarily capital investment recovery), partially offset by increased depreciation.

Electric Margin

Electric revenues and fuel and purchased power expenses are impacted by fluctuations in the price of natural gas, coal and uranium. 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:


	Three Months Ended March 31
(Millions of Dollars)	2021		2020
Electric revenues	$	1,139	$	1,035
Electric fuel and purchased power	(433)		(364)
Electric margin	$	706	$	671

Changes in electric margin:


(Millions of Dollars)	Three Months Ended March 31, 2021 vs. 2020
Non-fuel riders	$	24
Proprietary commodity trading, net of sharing	12
Regulatory rate outcome (ND interim rate increase)	3
PTCs flowed back to customers (offset by lower ETR)	(12)
Other (net)	8
Total increase in electric margin	$	35

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:


	Three Months Ended March 31
(Millions of Dollars)	2021		2020
Natural gas revenues	$	204	$	206
Cost of natural gas sold and transported	(125)		(125)
Natural gas margin	$	79	$	81

Changes in natural gas margin:


(Millions of Dollars)	Three Months Ended March 31, 2021 vs. 2020
Retail sales decline (excluding weather impact)	$	(1)
Estimated impact of weather	1


Other (net)	(2)
Total decrease in natural gas margin	$	(2)

Non-Fuel Operating Expenses and Other Items

Depreciation and Amortization — Depreciation and amortization expense increased $19 million, or 9.4% for the first quarter of 2021. The increase was primarily driven by several wind farms going into service and normal system expansion, which is partially offset by lower non-fuel rider amortization.

Income Taxes — Income tax benefit increased $6 million for the first quarter of 2021. The increase was primarily driven by increased wind PTCs. Wind PTCs are credited to customers (recorded as a reduction to revenue) and do not have a material impact on net income. This was partially offset by higher pretax earnings in 2021.

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


Other

Winter Storm Uri

In mid-February 2021, the central portion of the United States experienced a major winter storm (Winter Storm Uri). Extreme cold temperatures impacted certain operational assets as well as the availability of renewable generation across the region. The cold weather also affected the country’s supply and demand for natural gas. These factors contributed to extremely high market prices for natural gas and electricity. In addition, NSP-Minnesota’s three peak shaving plants, which are used to ensure system reliability under Design Day conditions, have been unavailable since early 2021 due to required repairs to address safety concerns with the units. Despite the extreme conditions, NSP-Minnesota’s customers experienced minimal disruptions as a result of preemptive infrastructure investments and the response of our employees.

As a result of the extremely high market prices, NSP-Minnesota incurred net natural gas, fuel and purchased energy costs of approximately $230 million (largely deferred as regulatory assets). NSP-Minnesota partially mitigated the customer impact by approximately $40 million primarily through sales of excess generation.

Certain energy transactions are subject to final Independent System Operator re-settlement calculations and the impacts of credit losses shared among market participants. Such adjustments are not expected to be material to our results of operations, financial condition or cash flows.

Regulatory Overview — NSP-Minnesota has natural gas, fuel and purchased energy mechanisms in each jurisdiction for the purpose of recovering incurred costs. However, February cost increases were deferred for future recovery and recovery proposed over a period of up to two years in order to significantly mitigate the impact to customer bills. Additionally, NSP-Minnesota is not requesting recovery of associated financing costs in order to further limit the impact to our customers.

The following proceedings have been initiated:


Jurisdiction			Regulatory Status
Minnesota			NSP-Minnesota has filed its report with the MPUC detailing its preparedness and actions during the storm and proposing recovery of incremental costs from natural gas customers over 24 months with no financing charge. Comments are due in May 2021.
South Dakota			In April, NSP-Minnesota filed a letter with the South Dakota Public Utilities Commission noting that we were a net seller in the market, resulting in lower fuel clause costs.
North Dakota			NSP-Minnesota has filed its report with the North Dakota Public Service Commission detailing its preparedness and actions during the storm and proposing recovery of incremental costs from natural gas customers over 24 months with no financing charge.

Public Utility Regulation

The FERC and state and local regulatory commissions regulate NSP-Minnesota. NSP-Minnesota is subject to rate regulation by state utility regulatory agencies, which have jurisdiction with respect to the rates of electric and natural gas distribution companies in Minnesota, North Dakota and South Dakota.

Rates are designed to recover plant investment, operating costs and an allowed return on investment. NSP-Minnesota requests changes in utility rates through commission filings. Changes in operating costs can affect NSP-Minnesota’s financial results, depending on the timing of rate case filings and implementation of final rates. Other factors affecting rate filings are new investments, sales, conservation and demand side management efforts, and the cost of capital.

In addition, the regulatory commissions authorize the ROE, capital structure and depreciation rates in rate proceedings. Decisions by these regulators can significantly impact NSP-Minnesota’s results of operations.

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

Pending and Recently Concluded Regulatory Proceedings

Proceeding

Amount
(in millions)

Filing
Date

Approval

2020 North Dakota Electric Rate Case

$19

November 2020

Pending

2020 TCR Electric Rider

November 2019

Pending

2020 GUIC Natural Gas Rider

November 2019

Received

2021 GUIC Natural Gas Rider

October 2020

Pending

2020 RES Electric Rider

107

November 2019

Received

2021 RES Electric Rider

189

November 2020

Pending

Additional Information:

2020 Minnesota Electric Rate Case and Stay-Out Alternative — In November 2020, NSP-Minnesota filed an electric rate case seeking a $597 million revenue increase over three years with the MPUC. NSP-Minnesota also filed a stay-out alternative in which it would withdraw its rate case filing.

In December 2020, the MPUC verbally approved the stay-out alternative petition, which includes the extension of the sales, capital and property tax true-up mechanisms and delays any increase to the Nuclear Decommissioning Trust annual accrual until Jan. 1, 2022.

Additionally, NSP-Minnesota agreed to not seek recovery of incremental COVID-19 related expenses, including bad debt expense, and committed to fund $18 million in a Residential Payment Plan Credit Program or other similar customer relief programs, as directed by the MPUC. NSP-Minnesota also agreed to an earnings test in which all earnings above an ROE of 9.06% in 2021 would be refunded to customers.

In February 2021, NSP-Minnesota filed a letter highlighting an error in its calculation of its total deficiency and interim rates included in its November 2020 filing. This error would have reduced the filed deficiency and interim rates by approximately $43 million, should the rate case have proceeded, but has no impact on the stay-out alternative petition.

In April 2021, the MPUC issued an order approving NSP-Minnesota’s proposed true-ups and a requirement to withdraw NSP-Minnesota’s notice of change in rates, as well as establishing a comment period allowing parties to address the true-up discussed in the February letter.

2020 North Dakota Electric Rate Case — In November 2020 and revised in March 2021, NSP-Minnesota filed a rate case with the North Dakota Public Service Commission. NSP-Minnesota is requesting an increase in annual retail electric revenues of approximately $19 million. The rate filing is based on a 2021 forecast test year, a requested ROE of 10.2%, an equity ratio of 52.5% and an electric rate base of approximately $677 million. Interim rates, subject to refund, of approximately $16 million were implemented in January 2021 and subsequently revised to $13 million, effective April 1, 2021.

2020 TCR Electric Rider — In November 2019, NSP-Minnesota filed the TCR Rider based on an ROE of 9.06%. An MPUC decision is pending.

2020 GUIC Natural Gas Rider — In April 2021, the MPUC approved the 2020 GUIC Rider, based on an ROE of 9.04%.

2021 GUIC Natural Gas Rider — In October 2020, NSP-Minnesota filed the GUIC Rider based on an ROE of 9.04%. An MPUC decision is pending.

2020 RES Electric Rider — In November 2019, NSP-Minnesota filed the RES Rider. In March 2021, the MPUC voted to approve revenue requirements of $41 million for 2019 and $66 million for 2020. The filing included an ROE of 9.06%. The new rate will be implemented after the Commission Order is issued.

2021 RES Electric Rider — In November 2020, NSP-Minnesota filed the RES Rider. The requested amount includes a true-up for the 2019 and 2020 rider of $96 million and the 2021 requested amount of $93 million. The filing included an ROE of 9.06%. An MPUC decision is pending.

Minnesota Resource Plan — In July 2019, NSP-Minnesota filed its Minnesota resource plan, which runs through 2034. The plan is expected to result in an 80% carbon reduction by 2030 (from 2005) and puts NSP-Minnesota on a path to achieving its vision of being 100% carbon-free by 2050.

In June 2020, NSP-Minnesota filed a supplement to its resource plan. The updated preferred resource plan reflects the following:

•Retirement of all coal generation by 2030 with reduced operations at some units prior to retirement, including early retirement of the A.S. King coal plant (511 MW) in 2028 and the Sherco 3 coal plant (517 MW) in 2030.

•Extending the life of the Monticello nuclear plant from 2030 to 2040.

•Continuing to run the Prairie Island nuclear generating plant through current end of life (2033 and 2034).

•Construction of the Sherco combined cycle natural gas plant.

•The addition of 3,500 MW of solar.

•The addition of 2,250 MW of wind.

•2,600 MW of firm peaking (combustion turbine, pumped hydro, battery storage, demand response, etc.).

•Achieving 780 gigawatt hours in energy efficiency savings annually through 2034.

•Adding 400 MW of incremental demand response by 2023, and a total of 1,500 MW of demand response by 2034.

Initial comments were submitted Feb. 11, 2021 and reply comments are due June 25, 2021. The MPUC is anticipated to make a final decision during 2021.

Minnesota Relief and Recovery — In 2020, the MPUC opened a docket and invited utilities in the state to submit potential projects that would create jobs and help jump start the economy to offset the impacts of COVID-19.

In January 2021, the MPUC approved the repowering of 651 MW of owned wind projects and 20 MW of wind projects under PPAs. These projects are estimated to save customers approximately $160 million over the next 25 years.

NSP-Minnesota’s remaining proposal (revised in April 2021) included the following:

•Acquire 120 MW repowered wind farm and buy-out of the remaining PPA from ALLETE for $210 million. An MPUC decision was requested by July 29, 2021.

•Add solar facilities of 460 MW with an incremental investment of $575 million.

•Provide $150 million of incremental electric vehicle rebates.

The MPUC is expected to address the solar facility, ALLETE repower acquisition and the electric vehicle proposal in the second half of 2021.

Minnesota State ROFR Statute Complaint — In September 2017, LSP Transmission filed a complaint in the Minnesota District Court against the Minnesota Attorney General, MPUC and DOC. The complaint was in response to MISO assigning a transmission project to NSP-Minnesota and ITC Midwest, LLC as the incumbent utilities, consistent with a Minnesota state ROFR statute.

The complaint challenged the constitutionality of the statute and is seeking declaratory judgment that the statute violates the Commerce Clause of the U.S. Constitution and should not be enforced. In June 2018, the Minnesota District Court granted Minnesota state agencies and NSP-Minnesota’s motions to dismiss with prejudice. In February 2020, the Eighth Circuit Court of Appeals upheld the Minnesota District Court decision to dismiss. In June 2020, the Eighth Circuit denied LSP Transmission’s petition for rehearing. On March 1, 2021, the Supreme Court denied review and the appeals process has ended.

Nuclear Power Operations

NSP-Minnesota owns two nuclear generating plants: the Monticello plant and the Prairie Island plant. See Note 12 to the consolidated financial statements of NSP-Minnesota’s Annual Report on Form 10-K for the year ended Dec. 31, 2020, for further information. The circumstances set forth in Nuclear Power Operations included in Item 7 of NSP-Minnesota’s Annual Report on Form 10-K for the year ended Dec. 31, 2020, appropriately represent, in all material respects, the current status of nuclear power operations, and are incorporated by reference.

Environmental

Environmental Regulation

In July 2019, the EPA adopted the Affordable Clean Energy rule, which requires states to develop plans by 2022 for greenhouse gas reductions from coal-fired power plants. In January 2021, the U.S. Court of Appeals for the D.C. Circuit issued a decision vacating and remanding the Affordable Clean Energy rule. That decision, if not successfully appealed or reconsidered, would allow the EPA to proceed with alternate regulation of coal-fired power plants. If the new rules require additional investment, NSP-Minnesota believes, based on prior state commission practices, that the cost of these initiatives or replacement generation would be recoverable through rates.


ITEM 4 — CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

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

As of March 31, 2021, based on an evaluation carried out under the supervision and with the participation of NSP-Minnesota’s management, including the CEO and CFO, of the effectiveness of its disclosure controls and procedures, the CEO and CFO have concluded that NSP-Minnesota’s disclosure controls and procedures were effective.

Internal Control Over Financial Reporting

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

Part II — OTHER INFORMATION


ITEM 1 — LEGAL PROCEEDINGS

NSP-Minnesota is involved in various litigation matters in the ordinary course of business. The assessment of whether a loss is probable or is a reasonable possibility, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. Management maintains accruals for losses probable of being incurred and subject to reasonable estimation. Management is sometimes unable to estimate an amount or range of a reasonably possible loss in certain situations, including but not limited to, when (1) the damages sought are indeterminate, (2) the proceedings are in the early stages, or (3) the matters involve novel or unsettled legal theories. In such cases, there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including a possible eventual loss. For current proceedings not specifically reported herein, management does not anticipate that the ultimate liabilities, if any, would have a material effect on NSP-Minnesota’s consolidated financial statements. Unless otherwise required by GAAP, legal fees are expensed as incurred.

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


ITEM 1A — RISK FACTORS

NSP-Minnesota’s risk factors are documented in Item 1A of Part I of its Annual Report on Form 10-K for the year ended Dec. 31, 2020, which is incorporated herein by reference. There have been no material changes from the risk factors previously disclosed in the Form 10-K.


Class						Outstanding at April 29, 2021
Common Stock, $0.01 par value						1,000,000 shares


PART I	FINANCIAL INFORMATION
Item 1 —	Financial Statements (Unaudited)	4
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Cash Flows	6
	Consolidated Balance Sheets	7
	Consolidated Statements of Common Stockholder’s Equity	8
	Notes to Consolidated Financial Statements	9
Item 2 —	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 4 —	Controls and Procedures	21

PART II	OTHER INFORMATION
Item 1 —	Legal Proceedings	21
Item 1A —	Risk Factors	21
Item 6 —	Exhibits	22

SIGNATURES		23

Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


Exhibit Number	Description	Report or Registration Statement	Exhibit Reference
3.01*	Articles of Incorporation and Amendments of Northern Power Corp. (renamed NSP-Minnesota on Aug. 21, 2000)	NSP-Minnesota Form 10-12G dated Oct. 5, 2000	3.01
3.02*	Amended and Restated Bylaws of NSP-Minnesota, dated Jan. 25, 2019	NSP-Minnesota Form 10-K for the year ended Dec. 31, 2018	3.02
4.01	Supplemental Trust Indenture dated as of March 1, 2021 between Northern States Power Company and The Bank of New York Mellon Trust Company, N.A., as successor Trustee, creating $425,000,000 aggregate principal amount of 2.25% First Mortgage Bonds, Series due April 1, 2031 and $425,000,000 aggregate principal amount of 3.20% First Mortgage Bonds, Series due April 1, 2052.	NSP-Minnesota 8-K dated March 30, 2021	4.01
31.01	Principal Executive Officer’s certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.02	Principal Financial Officer’s certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.01	Certification s pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Schema
101.CAL	Inline XBRL Calculation
101.DEF	Inline XBRL Definition
101.LAB	Inline XBRL Label
101.PRE	Inline XBRL Presentation
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


		Northern States Power Company (a Minnesota corporation)

April 29, 2021	By:	/s/ JEFFREY S. SAVAGE
		Jeffrey S. Savage
		Senior Vice President, Controller
		(Principal Accounting Officer)

		/s/ BRIAN J. VAN ABEL
		Brian J. Van Abel
		Executive Vice President, Chief Financial Officer and Director
		(Principal Financial Officer)


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


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


Northern States Power Company
Minnesota
(Exact name of registrant as specified in its charter)


	612	330-5500
(Registrant’s telephone Number, Including Area Code)


N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)


	Common Stock Issued					Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Common Stockholder's Equity
	Shares	Par Value		Additional Paid In Capital
Three Months Ended March 31, 2021 and 2020
Balance at Dec. 31, 2019	1,000,000	$	—	$	4,068	$	2,036	$	(22)	$	6,082
Net income						107				107

Dividends declared to parent						(100)				(100)
Contribution of capital by parent				80						80
Balance at March 31, 2020	1,000,000	$	—	$	4,148	$	2,043	$	(22)	$	6,169

Balance at Dec. 31, 2020	1,000,000	$	—	$	4,585	$	2,206	$	(22)	$	6,769
Net income						128				128
Other comprehensive income								1		1
Dividends declared to parent						(108)				(108)
Contribution of capital by parent				400						400
Balance at March 31, 2021	1,000,000	$	—	$	4,985	$	2,226	$	(21)	$	7,190



















See Notes to Consolidated Financial Statements


	Pre-Tax (Gains) Losses Reclassified into Income During the Period from:					Pre-Tax Gains (Losses) Recognized During the Period in Income
(Millions of Dollars)	Accumulated Other Comprehensive Loss		Regulatory Assets and (Liabilities)








Three Months Ended March 31, 2021



Other derivative instruments
Commodity trading	$	—	$	—		$	31	(a)
Electric commodity	—		(1)		(b)	—
Natural gas commodity	—		1		(c)	(3)		(c)
Total	$	—	$	—		$	28


	Pre-Tax (Gains) Losses Reclassified into Income During the Period from:					Pre-Tax Gains (Losses) Recognized During the Period in Income
(Millions of Dollars)	Accumulated Other Comprehensive Loss		Regulatory Assets and (Liabilities)








Three Months Ended March 31, 2020



Other derivative instruments
Commodity trading	$	—	$	—		$	4	(a)
Electric commodity	—		(1)		(b)	—
Natural gas commodity	—		1		(c)	(2)		(c)
Total	$	—	$	—		$	2