ThZeal - The Zeal

Definitions of Abbreviations


Xcel Energy Inc.’s Subsidiaries and Affiliates (current and former)
NSP-Minnesota			Northern States Power Company, a Minnesota corporation
NSP-Wisconsin			Northern States Power Company, a Wisconsin corporation
PSCo			Public Service Company of Colorado
SPS			Southwestern Public Service Company
Utility subsidiaries			NSP-Minnesota, NSP-Wisconsin, PSCo and SPS
Xcel Energy			Xcel Energy Inc. and its subsidiaries

Federal and State Regulatory Agencies
D.C. Circuit			United States Court of Appeals for the District of Columbia Circuit
DOC			Minnesota Department of Commerce
EPA			United States Environmental Protection Agency
FERC			Federal Energy Regulatory Commission
MPUC			Minnesota Public Utilities Commission
NDPSC			North Dakota Public Service Commission
OAG			Minnesota Office of Attorney General
SEC			Securities and Exchange Commission

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

Other
ALJ			Administrative Law Judge
C&I			Commercial and Industrial
CCR			Coal combustion residuals
CCR Rule			Final rule (40 CFR 257.50 - 257.107) published by the EPA regulating the management, storage and disposal of CCRs as nonhazardous waste.
CEO			Chief executive officer
CFO			Chief financial officer
COVID-19			Novel coronavirus
CSPV			Crystalline Silicon Photovoltaic
CUB			Citizens Utility Board
ETR			Effective tax rate
FTR			Financial transmission right
GAAP			United States generally accepted accounting principles
GE			General Electric Company
IPP			Independent power producing entity
MGP			Manufactured gas plant
MISO			Midcontinent Independent System Operator, Inc.
NAV			Net asset value
O&M			Operating and maintenance
PPA			Power purchase agreement
PTC			Production tax credit
ROE			Return on equity
RTO			Regional Transmission Organization
SMMPA			Southern Minnesota Municipal Power Agency
TOs			Transmission owners

Measurements
MW			Megawatts


Forward-Looking Statements

Except for the historical statements contained in this report, the matters discussed herein are forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements, including those relating to future sales, future expenses, future tax rates, future operating performance, estimated base capital expenditures and financing plans, projected capital additions and forecasted annual revenue requirements with respect to rider filings, expected rate increases to customers, expectations and intentions regarding regulatory proceedings, and expected impact on our results of operations, financial condition and cash flows of 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 in NSP-Minnesota’s Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2021, and subsequent filings with the SEC, 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, including potential workforce impacts resulting from vaccination requirements, quarantine policies or government restrictions, and sales volatility; operational safety, including our nuclear generation facilities and other utility operations; 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; violations of our Code of Conduct; 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, supply chain constraints and their impact on capital expenditures and/or 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; costs of potential regulatory penalties; and regulatory changes and/or limitations related to the use of natural gas as an energy source.


	Three Months Ended March 31
	2022		2021
Operating activities
Net income	$	127	$	128
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	252		223
Nuclear fuel amortization	30		30
Deferred income taxes	(76)		(8)

Allowance for equity funds used during construction	(6)		(7)
Provision for bad debts	7		6
Net realized and unrealized hedging and derivatives transactions	(6)		(6)
Changes in operating assets and liabilities:
Accounts receivable	(67)		(12)
Accrued unbilled revenues	64		43
Inventories	53		38
Accounts payable	(25)		(38)
Net regulatory assets and liabilities	168		(268)
Other current liabilities	65		26
Pension and other employee benefit obligations	(6)		(36)
Other, net	(6)		(2)
Net cash provided by operating activities	574		117

Investing activities
Capital/construction expenditures	(341)		(474)
Purchase of investment securities	(156)		(199)
Proceeds from the sale of investment securities	147		194
Investments in utility money pool arrangement	(538)		—
Repayments from utility money pool arrangement	443		—
Other, net	(1)		(2)
Net cash used in investing activities	(446)		(481)

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

Capital contributions (to) from parent	(7)		424
Dividends paid to parent	(146)		(106)

Net cash (used in) provided by financing activities	(153)		975

Net change in cash, cash equivalents and restricted cash	(25)		611
Cash, cash equivalents and restricted cash at beginning of period	73		46
Cash, cash equivalents and restricted cash at end of period	$	48	$	657

Supplemental disclosure of cash flow information:
Cash paid for interest (net of amounts capitalized)	$	(73)	$	(72)
Cash (paid) received for income taxes, net	(6)		1

Supplemental disclosure of non-cash investing and financing transactions:
Accrued property, plant and equipment additions	$	97	$	222
Inventory transfers to property, plant and equipment	6		5

Allowance for equity funds used during construction	6		7


	March 31, 2022		Dec. 31, 2021
Assets
Current assets
Cash and cash equivalents	$	48	$	73
Accounts receivable, net	497		429
Accounts receivable from affiliates	29		29
Investments in money pool arrangements	186		91
Accrued unbilled revenues	256		319
Inventories	250		309
Regulatory assets	491		527
Derivative instruments	53		53

Prepayments and other	52		46
Total current assets	1,862		1,876

Property, plant and equipment, net	16,521		16,430

Other assets
Nuclear decommissioning fund and other investments	3,167		3,308
Regulatory assets	764		718
Derivative instruments	60		33
Operating lease right-of-use assets	387		408
Other	35		36
Total other assets	4,413		4,503
Total assets	$	22,796	$	22,809

Liabilities and Equity
Current liabilities
Current portion of long-term debt	$	300	$	300

Accounts payable	440		522
Accounts payable to affiliates	54		63
Regulatory liabilities	161		117
Taxes accrued	346		260
Accrued interest	70		78
Dividends payable to parent	117		96
Derivative instruments	57		35
Operating lease liabilities	95		90
Other	185		166
Total current liabilities	1,825		1,727

Deferred credits and other liabilities
Deferred income taxes	1,837		1,949
Deferred investment tax credits	16		17
Regulatory liabilities	1,939		1,927
Asset retirement obligations	2,638		2,585
Derivative instruments	81		71
Pension and employee benefit obligations	105		112
Operating lease liabilities	326		353
Other	47		48
Total deferred credits and other liabilities	6,989		7,062

Capitalization
Long-term debt	6,449		6,447
Common stock — 5,000,000 shares authorized of $0.01 par value; 1,000,000 shares outstanding at March 31, 2022 and Dec. 31, 2021, respectively	—		—
Additional paid in capital	5,202		5,202
Retained earnings	2,351		2,391
Accumulated other comprehensive loss	(20)		(20)
Total common stockholder's equity	7,533		7,573
Total liabilities and equity	$	22,796	$	22,809

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, 2022 and Dec. 31, 2021; the results of NSP-Minnesota’s operations, including the components of net income and comprehensive income, and changes in stockholder’s equity for the three months ended March 31, 2022 and 2021; and NSP-Minnesota’s cash flows for the three months ended March 31, 2022 and 2021.

All adjustments are of a normal, recurring nature, except as otherwise disclosed. Management has also evaluated the impact of events occurring after March 31, 2022 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, 2021 balance sheet information has been derived from the audited 2021 consolidated financial statements included in the NSP-Minnesota Annual Report on Form 10-K for the year ended Dec. 31, 2021.

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, 2021, filed with the SEC on Feb. 23, 2022. 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, 2021 appropriately represent, in all material respects, the current status of accounting policies and are incorporated herein by reference.


2. Accounting Pronouncements

As of March 31, 2022, there was no material impact from the recent adoption of new accounting pronouncements, nor expected material impact from recently issued accounting pronouncements yet to be adopted, on NSP-Minnesota’s financial statements.


3. Selected Balance Sheet Data


(Millions of Dollars)	March 31, 2022		Dec. 31, 2021
Accounts receivable, net
Accounts receivable	$	546	$	474
Less allowance for bad debts	(49)		(45)
Accounts receivable, net	$	497	$	429


(Millions of Dollars)	March 31, 2022		Dec. 31, 2021
Inventories
Materials and supplies	$	184	$	181
Fuel	58		81
Natural gas	8		47
Total inventories	$	250	$	309


(Millions of Dollars)	March 31, 2022		Dec. 31, 2021
Property, plant and equipment, net
Electric plant	$	19,676	$	19,154
Natural gas plant	1,917		1,864
Common and other property	1,056		1,007
Plant to be retired (a)	700		719
Construction work in progress	658		984
Total property, plant and equipment	24,007		23,728
Less accumulated depreciation	(7,768)		(7,606)
Nuclear fuel	3,085		3,081
Less accumulated amortization	(2,803)		(2,773)
Property, plant and equipment, net	$	16,521	$	16,430

(a)Includes regulator-approved retirements of Sherco Units 1, 2 and 3 and A.S. King.


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 and its utility subsidiaries have established a money pool arrangement that allows for short-term investments in and borrowings between the utility subsidiaries. Xcel Energy may make investments in the utility subsidiaries at market-based interest rates; however, the money pool arrangement does not allow the utility subsidiaries to make investments in Xcel Energy.

Money pool borrowings for NSP-Minnesota:


(Amounts in Millions, Except Interest Rates)	Three Months Ended March 31, 2022		Year Ended Dec. 31, 2021
Borrowing limit	$	250	$	250
Amount outstanding at period end	—		—
Average amount outstanding	—		6
Maximum amount outstanding	—		236
Weighted average interest rate, computed on a daily basis	N/A		0.07		%
Weighted average interest rate at period end	N/A		N/A

Commercial Paper — Commercial paper outstanding for NSP-Minnesota:


(Amounts in Millions, Except Interest Rates)	Three Months Ended March 31, 2022			Year Ended Dec. 31, 2021
Borrowing limit	$	500		$	500
Amount outstanding at period end	—			—
Average amount outstanding	4			26
Maximum amount outstanding	50			317
Weighted average interest rate, computed on a daily basis	0.15		%	0.18		%
Weighted average interest rate at period end	N/A			N/A

Letters of Credit — NSP-Minnesota uses letters of credit, generally with terms of one year, to provide financial guarantees for certain obligations. There were $11 million and $9 million of letters of credit outstanding under the credit facility at March 31, 2022 and Dec. 31, 2021, respectively. 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 credit facility provides short-term financing in the form of notes payable to banks, letters of credit and back-up support for commercial paper borrowings.

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, 2022, NSP-Minnesota had the following committed revolving credit facility available (in millions of dollars):


Credit Facility (a)		Drawn (b)		Available
$	500	$	11	$	489

(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, 2022 and Dec. 31, 2021.

Bilateral Credit Agreement — In April 2022, NSP-Minnesota’s 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, 2022, 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	$	45	$	30


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, 2022
(Millions of Dollars)	Electric		Natural Gas		All Other		Total
Major revenue types
Revenue from contracts with customers:
Residential	$	337	$	235	$	6	$	578
C&I	514		180		—		694
Other	9		—		4		13
Total retail	860		415		10		1,285
Wholesale	124		—		—		124
Transmission	61		—		—		61
Interchange	129		—		—		129
Other	6		2		—		8
Total revenue from contracts with customers	1,180		417		10		1,607
Alternative revenue and other	74		17		—		91
Total revenues	$	1,254	$	434	$	10	$	1,698


	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


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, 2021 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.

Difference between the statutory rate and ETR:


	Three Months Ended March 31
	2022		2021
Federal statutory rate	21.0	%	21.0	%
State tax (net of federal tax effect)	7.0		7.0
Increases (decreases) in tax from:
Wind PTCs	(68.6)		(30.4)
Plant regulatory differences (a)	(5.7)		(7.8)
Other tax credits, net operating loss & tax credit allowances	(1.4)		(1.3)

Other (net)	1.7		1.2
Effective income tax rate	(46.0)	%	(10.3)	%

(a)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 reductions.


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, withdrawals 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 inputs 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 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 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 investment targets by asset class for the 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 $1.2 billion and $1.3 billion as of March 31, 2022 and Dec. 31, 2021, respectively, and unrealized losses were $37 million and $7 million as of March 31, 2022 and Dec. 31, 2021, respectively.

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


	March 31, 2022
			Fair Value
(Millions of Dollars)	Cost		Level 1		Level 2		Level 3		NAV		Total
Nuclear decommissioning fund (a)
Cash equivalents	$	80	$	80	$	—	$	—	$	—	$	80
Commingled funds	871		—		—		—		1,258		1,258
Debt securities	626		—		606		10		—		616
Equity securities	409		1,159		1		—		—		1,160
Total	$	1,986	$	1,239	$	607	$	10	$	1,258	$	3,114

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


	Dec. 31, 2021
			Fair Value
(Millions of Dollars)	Cost		Level 1		Level 2		Level 3		NAV		Total
Nuclear decommissioning fund (a)
Cash equivalents	$	64	$	64	$	—	$	—	$	—	$	64
Commingled funds	856		—		—		—		1,294		1,294
Debt securities	631		—		666		9		—		675
Equity securities	411		1,222		1		—		—		1,223
Total	$	1,962	$	1,286	$	667	$	9	$	1,294	$	3,256

(a)Reported in nuclear decommissioning fund and other investments on the consolidated balance sheets, which also includes $52 million of rabbi trust assets and miscellaneous investments.

For the three months ended March 31, 2022 and 2021, 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, 2022:


	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	$	2	$	142	$	193	$	279	$	616

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, 2022
			Fair Value
(Millions of Dollars)	Cost		Level 1		Level 2		Level 3		Total
Rabbi Trusts (a)

Mutual funds	$	10	$	12	$	—	$	—	$	12
Total	$	10	$	12	$	—	$	—	$	12


	Dec. 31, 2021
			Fair Value
(Millions of Dollars)	Cost		Level 1		Level 2		Level 3		Total
Rabbi Trusts (a)
Mutual funds	$	10	$	13	$	—	$	—	$	13
Total	$	10	$	13	$	—	$	—	$	13

(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, 2022, accumulated other comprehensive loss related to 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, 2022, 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 the 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, 2022, 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 of gains or losses for these instruments 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, 2022	Dec. 31, 2021
Megawatt hours of electricity	40	57
Million British thermal units of natural gas	86	85

(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, 2022, seven of NSP-Minnesota’s ten most significant counterparties for these activities, comprising $46 million, or 48%, of this credit exposure, had investment grade credit ratings from S&P Global Ratings, Moody’s Investor Services or Fitch Ratings. One of the ten most significant counterparties, comprising $21 million, or 22%, of this credit exposure, were not rated by these external ratings agencies, but based on NSP-Minnesota’s internal analysis, had credit quality consistent with investment grade. Two of these significant counterparties, comprising $27 million or 28% of this credit exposure, had credit quality less than investment grade, based on internal analysis. Four of these significant counterparties are municipal or cooperative electric entities, RTOs or other utilities.

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, 2022
Other derivative instruments

Natural gas commodity	$	—	$	2
Total	$	—	$	2


Three Months Ended March 31, 2021
Other derivative instruments

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


	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, 2022



Other derivative instruments
Commodity trading	$	—	$	—		$	1	(a)
Electric commodity	—		(1)		(b)	—
Natural gas commodity	—		1		(c)	(5)		(c)(d)
Total	$	—	$	—		$	(4)


	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)(d)
Total	$	—	$	—		$	28

(a)Recorded to electric operating revenues. Portions of these gains and losses are subject to sharing with electric customers through margin-sharing mechanisms and deducted from gross revenue, as appropriate.

(b)Recorded to electric fuel and purchased power. These derivative settlement gains and losses are shared with electric customers through fuel and purchased energy cost-recovery mechanisms, and reclassified out of income as regulatory assets or liabilities, as appropriate.

(c)Settlement losses related to natural gas operations are recorded to cost of natural gas sold and transported. These losses are subject to cost-recovery mechanisms and reclassified out of income to a regulatory asset, as appropriate.

(d)Relates primarily to option premium amortization.

NSP-Minnesota had no derivative instruments designated as fair value hedges during the three months ended March 31, 2022 and 2021.

Credit Related Contingent Features — Contract provisions for derivative instruments that NSP-Minnesota enters into, including those accounted for as normal purchase-normal sale contracts and therefore not reflected on the consolidated balance sheets, may require the posting of collateral or settlement of the contracts for various reasons, including if NSP-Minnesota’s credit ratings are downgraded below its investment grade credit rating by any of the major credit rating agencies. As of March 31, 2022 and Dec. 31, 2021, there were $4 million and $3 million, respectively, of derivative liabilities with such underlying contract provisions. Certain contracts also contain cross default provisions that may require the posting of collateral or settlement of the contracts if there was a failure under the other financing arrangements related to payment terms or other covenants. As of March 31, 2022 and Dec. 31, 2021, there were approximately $83 million and $48 million, respectively, of derivative liabilities with such underlying contract provisions.

Certain derivative instruments are also subject to contract provisions that contain adequate assurance clauses. These provisions allow counterparties to seek performance assurance, including cash collateral, in the event that NSP-Minnesota’s ability to fulfill its contractual obligations is reasonably expected to be impaired. NSP-Minnesota had no collateral posted related to adequate assurance clauses in derivative contracts as of March 31, 2022 and Dec. 31, 2021.

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, 2022 and Dec. 31, 2021 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
	2022		2021		2022		2021
(Millions of Dollars)	Pension Benefits				Postretirement Health Care Benefits
Service cost	$	7	$	7	$	—	$	—
Interest cost (a)	6		6		1		1
Expected return on plan assets (a)	(12)		(13)		—		—
Amortization of prior service credit (a)	—		—		(1)		(1)
Amortization of net loss (a)	6		9		—		—
Settlement charge (b)	(1)		—		—		—
Net periodic benefit cost	6		9		—		—
Effects of regulation	1		(1)		—		—
Net benefit cost recognized for financial reporting	$	7	$	8	$	—	$	—

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

(b) In the first quarter of 2022, NSP-Minnesota recognized $1 million in settlement charge true-ups related to fourth quarter 2021.

In January 2022, contributions of $50 million were made across four of Xcel Energy’s pension plans, of which $5 million was attributable to NSP-Minnesota. Xcel Energy does not expect additional pension contributions during 2022.


9. Commitments and Contingencies

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

Legal

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, 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. Legal fees are generally expensed as incurred.

Rate Matters and Other

NSP-Minnesota is involved in various regulatory proceedings arising in the ordinary course of business. Until resolution, typically in the form of a rate order, uncertainties may exist regarding the ultimate rate treatment for certain activities and transactions. Amounts have been recognized for probable and reasonably estimable losses that may result. Unless otherwise disclosed, any reasonably possible range of loss in excess of any recognized amount is not expected to have a material effect on the financial statements.

Minnesota Winter Storm Uri Costs — In Minnesota, NSP-Minnesota is participating in a contested case regarding the prudency of incremental natural gas costs incurred during Winter Storm Uri. Other parties to the case have recommended significant cost disallowances, and while ultimate resolution of the matter is uncertain, it is reasonably possible that the MPUC could disallow certain deferred costs, resulting in earnings losses.

NSP-Minnesota strongly disagrees with the recommendations of the DOC, OAG and CUB, and believes that it acted prudently and according to MPUC approved procedures for the best interest of its customers and stakeholders.

NSP-Minnesota filed rebuttal testimony in January 2022 detailing its position that the disallowances recommended by other parties lack any merit in the prudency review given the pertinent facts regarding NSP-Minnesota’s actions before, during and after the storm event. In March 2022, following February 2022 ALJ hearings, the Company and intervenors subsequently submitted initial and reply briefs to the ALJ. The OAG modified its position, recommending disallowances of up to $148 million, the largest recommendation among the intervenor positions. An ALJ decision is expected in late May and an MPUC decision is expected in Q3 of 2022.

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 fuel clause adjustment.

In March 2019, the MPUC approved NSP-Minnesota’s settlement 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 January 2021, the OAG and DOC recommended that NSP-Minnesota refund approximately $17 million of replacement power costs previously recovered through the fuel clause adjustment. NSP-Minnesota subsequently 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 of the Westmoreland Coal Company filed an arbitration demand against NSP-Minnesota, SMMPA and Western Fuels Association, seeking recovery of alleged $36 million of business losses due to a turbine failure at Sherco Unit 3. Westmoreland’s insurers have recently clarified that they will seek to recover $19 million in damages, plus prejudgment interest. 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.

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. Parties participated in mediation in the second quarter of 2022. A final hearing has been scheduled for October 2022. 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%.

The FERC has subsequently issued various related orders (including Opinion Nos. 569, 569A and 569B) related to ROE methodology/calculations and timing. NSP-Minnesota has recognized a liability for its best estimate of final refunds to customers for applicable complaint periods.

The MISO TOs and various other parties have filed petitions for review of the FERC’s most recent applicable opinions at the D.C. Circuit. Oral arguments were held in late 2021 and a decision is expected by the end of the third quarter of 2022.

Environmental

MGP, Landfill and Disposal Sites

NSP-Minnesota is 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 from final resolution of these issues, however, the outcome and timing are 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.

In August 2020, the EPA published its final rule to implement closure by April 2021 for all CCR impoundments affected by the August 2018 D.C. Circuit ruling. 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. 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.

Federal Clean Water Act Section 316(b) — The federal Clean Water Act requires the EPA to regulate cooling water intake structures to assure that these structures reflect the best technology available for minimizing impingement and entrainment of aquatic species. NSP-Minnesota estimates the likely future cost for complying with impingement and entrainment requirements is approximately $36 million, to be incurred between 2022 and 2028. NSP-Minnesota believes six plants could be required to make improvements to reduce impingement and entrainment. The exact total cost of the impingement and entrainment improvements is uncertain, but could be up to $188 million. NSP-Minnesota anticipates these costs will be fully recoverable through regulatory mechanisms.

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)	2022		2021
Operating leases
PPA capacity payments	$	24	$	19
Other operating leases (a)	3		2
Total operating lease expense (b)	$	27	$	21

(a)Includes immaterial short-term lease expense for 2022 and 2021.

(b)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, 2022:


(Millions of Dollars)	PPA Operating Leases		Other Operating Leases		Total Operating Leases
Total minimum obligation	$	390	$	71	$	461
Interest component of obligation	(28)		(12)		(40)
Present value of minimum obligation	$	362	$	59	421
Less current portion					(95)
Noncurrent operating lease liabilities					$	326


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)	2022		2021
Regulated Electric


Total revenues (a)	$	1,254	$	1,139
Net income	98		107
Regulated Natural Gas


Total revenues(b)	$	434	$	204
Net income	29		20
All Other
Total revenues	$	10	$	9
Net income	—		1
Consolidated Total
Total revenues (a)(b)	$	1,698	$	1,352


Net income	127		128

(a) Operating revenues include $129 million and $115 million of affiliate electric revenue for the three months ended March 31, 2022 and 2021.

(b) Operating revenues include an immaterial amount of affiliate gas revenue for the three months ended March 31, 2022 and 2021.

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

Non-GAAP Financial Measures

The following discussion includes financial information prepared in accordance with GAAP, as well as certain non-GAAP financial measures such as ongoing earnings. Generally, a non-GAAP financial measure is a measure of a company’s financial performance, financial position or cash flows that 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 to the Board of Directors, in determining performance-based compensation and communicating its earnings outlook to analysts and investors. Non-GAAP financial measures are intended to supplement investors’ understanding of our performance and should not be considered alternatives for financial measures presented in accordance with GAAP. These measures are discussed in more detail below and may not be comparable to other companies’ similarly titled non-GAAP financial measures.

Earnings Adjusted for Certain Items (Ongoing Earnings)

Ongoing earnings reflect adjustments to GAAP earnings (net income) for certain items.

We use this non-GAAP financial measure to evaluate and provide details of NSP-Minnesota’s core earnings and underlying performance. We believe this measurement is useful to investors to evaluate the actual and projected financial performance and contribution of NSP-Minnesota. For the three months ended March 31, 2022 and 2021, there were no such adjustments to GAAP earnings and therefore GAAP earnings equal ongoing earnings.


Results of Operations

NSP-Minnesota’s net income was approximately $127 million for the three months ended March 31, 2022 compared with approximately $128 million for the prior year, as regulatory recovery of capital investment was offset by increased depreciation and O&M expenses.

Electric Margin

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 regulatory recovery mechanisms. As a result, changes in these expenses are generally offset in operating revenues.

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 generally have minimal impact on earnings impact due to fuel recovery mechanisms. In addition, electric customers receive a credit for PTCs generated, which reduce electric revenue and income taxes.

Electric Revenues, Fuel and Purchased Power and Electric Margin


	Three Months Ended March 31
(Millions of Dollars)	2022		2021
Electric revenues	$	1,254	$	1,139
Electric fuel and purchased power	(529)		(433)
Electric margin	$	725	$	706

Changes:


(Millions of Dollars)	Three Months Ended March 31, 2022 vs. 2021
Regulatory rate outcome (Minnesota)	$	29
Non-fuel riders	26
Conservation and demand side revenues (offset in expense)	10



PTCs flowed back to customers (offset by lower ETR)	(39)

Other (net)	(7)
Total increase	$	19

Natural Gas Margin

Natural gas margin is presented as natural gas revenues less the cost of natural gas sold and transported. Expenses incurred for the cost of natural gas sold are generally recovered through various regulatory recovery mechanisms. As a result, changes in these expenses are generally offset in operating revenues.

Natural gas expense varies with changing sales and the cost of natural gas. However, fluctuations in the cost of natural gas generally have minimal earnings impact due to cost recovery mechanisms.

Natural Gas Revenues, Cost of Natural Gas Sold and Transported and Natural Gas Margin


	Three Months Ended March 31
(Millions of Dollars)	2022		2021
Natural gas revenues	$	434	$	204
Cost of natural gas sold and transported	(336)		(125)
Natural gas margin	$	98	$	79

Changes:


(Millions of Dollars)	Three Months Ended March 2022 vs. 2021
Regulatory rate outcomes (Minnesota, North Dakota)	$	11
Estimated impact of weather	7

Gas sales and transport increase (excluding weather impact)	3
Other (net)	(2)
Total increase	$	19

Non-Fuel Operating Expenses and Other Items

O&M Expenses — O&M expenses increased $8 million due to timing of distribution maintenance and additional investments in technology and customer programs, partially offset by a reduction in benefit costs.

Depreciation and Amortization — Depreciation and amortization expense increased $31 million year-to-date. The increase was primarily driven by several wind farms going into service and normal system expansion.

Income Taxes — Income tax benefit increased $28 million for the first quarter. The increase was primarily driven by increased wind PTCs and lower pretax earnings in 2022. Wind PTCs are credited to customers (recorded as a reduction to revenue) and do not have a material impact on net income. These were partially offset by lower plant regulatory differences.

In April 2022, the Internal Revenue Service published inflation factors used to determine the PTC rate. As a result, the 2022 PTC rate on the sale of electricity produced from wind is 2.7 cents per kilowatt hour, compared to 2.5 cents for 2021.

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

Public Utility Regulation and Other

The FERC and various 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 cases and implementation of final rates. Other factors affecting rate filings are new investments, sales, conservation and demand side management efforts, and the cost of capital.

In addition, the regulatory commissions authorize the ROE, capital structure and depreciation rates in rate proceedings. Decisions by these regulators can significantly impact 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, 2021 appropriately represent, in all material respects, the current status of public utility regulation and are incorporated herein by reference.

2022 Minnesota Electric Rate Case — In October 2021, NSP-Minnesota filed a three-year electric rate case with the MPUC. The rate case is based on a requested ROE of 10.2%, a 52.50% equity ratio and forward test years.

The request is detailed as follows:


(Amounts in Millions, Except Percentages)	2022			2023			2024			Total
Rate request	$	396		$	150		$	131		$	677
Increase percentage	12.2		%	4.8		%	4.2		%	21.2		%
Rate base	$	10,931		$	11,446		$	11,918		N/A

In December 2021, the MPUC approved interim rates, subject to refund, of $247 million, effective Jan. 1, 2022.

Next steps in the procedural schedule are expected to be as follows:

•Intervenor testimony: Oct. 3, 2022.

•Rebuttal testimony: Nov. 8, 2022.

•Hearing: Dec. 13-16, 2022.

•ALJ Report: March 31, 2023.

•MPUC Order: June 30, 2023.

2022 Minnesota Natural Gas Rate Case — In November 2021, NSP-Minnesota filed a request with the MPUC for an annual natural gas rate increase of $36 million, or 6.6%. The filing is based on a 2022 forecast test year and includes a requested ROE of 10.5%, an equity ratio of 52.5% and a rate base of $934 million.

In December 2021, the MPUC approved interim rates of $25 million, subject to refund, effective Jan. 1, 2022.

Next steps in the procedural schedule are expected to be as follows:

•Intervenor testimony: Aug. 30, 2022.

•Rebuttal testimony: Oct. 4, 2022.

•Hearing: Nov. 1-4, 2022.

•ALJ Report: Feb. 6, 2023.

•MPUC Order: April 26, 2023.

2021 North Dakota Natural Gas Rate Case — In September 2021, NSP-Minnesota filed a request with the NDPSC for a natural gas rate increase of $7 million, or 10.5%. The filing is based on a requested ROE of 10.5%, an equity ratio of 52.54%, a 2022 forecast test year and a rate base of $124 million. Interim rates of $7 million, subject to refund, were implemented on Nov. 1, 2021.

In April 2022, NDPSC Staff recommended a $4 million increase, based on an ROE of 9.5% and an equity ratio of 52.0%. In April 2022, NSP-Minnesota updated its request to $6 million, or 8.8% based on a requested ROE of 10.5%, an equity ratio of 52.54% and an updated rate base of $115 million. Hearings are expected June 1-3, 2022. An NDPSC decision is expected in the third quarter of 2022.

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.

The status of the various proposals is listed below:

•In April 2021, NSP-Minnesota proposed to add 460 MW of solar facilities at the Sherco site with an incremental investment of approximately $575 million. See further discussion within Sherco Solar Project below.

•In March 2022, the MPUC approved the public charging proposal for 21 sites and asked NSP-Minnesota to develop a proposal for additional investments in public charging infrastructure, but denied NSP-Minnesota’s proposal to provide $40 million of electric vehicle rebates due to concerns regarding legal authority.

Minnesota Resource Plan Settlement — In July 2019, NSP-Minnesota filed its Minnesota (Upper Midwest) resource plan, which runs through 2034.

In February 2022, the MPUC approved the following:

•10-year extension for the Monticello nuclear facility.

•Retirement of the A.S. King plant in 2028 and Sherco 3 in 2030.

•NSP-Minnesota ownership of Sherco and A.S. King gen-tie lines plus additional renewable resources on the lines up to its current interconnection rights (2,000 MW for Sherco and 600 MW for A.S. King).

•The need for 2,150 MW of new wind and 2,500 MW of new solar by 2032, as well as additional renewable generation of 1,100 MW beyond 2032.

•Recognition of the need for 800 MW of additional firm dispatchable resources between 2027 and 2029. The dispatchable generation will require an approval through a certificate of need process.

2022 RES Electric Rider — In November 2021, NSP-Minnesota filed the RES Rider. The requested amount of $264 million includes a true-up (2020 and 2021 riders) of $154 million and the 2022 requested amount of $110 million. The filing included an ROE of 9.06%. An MPUC decision is pending.

2021 RES Electric Rider — In November 2020, NSP-Minnesota filed the RES Rider. The amount of $189 million included a true-up (2019 and 2020 riders) of $96 million and a 2021 amount of $93 million. The filing was based on an ROE of 9.06%. The rider was approved by the MPUC in March 2022.

2022 GUIC Natural Gas Rider — In October 2021, NSP-Minnesota filed the GUIC Rider for an amount of $27 million based on an ROE of 9.04%. An MPUC decision is pending.

2021 GUIC Natural Gas Rider — In October 2020, NSP-Minnesota filed the GUIC Rider for an amount of $27 million based on an ROE of 9.04%. An MPUC decision is pending.

2022 TCR Electric Rider — In November 2021, NSP-Minnesota filed the TCR Rider for an amount of $105 million based on an ROE of 9.06%. An MPUC decision is pending.

Nuclear Power Operations

NSP-Minnesota owns two nuclear generating plants: the Monticello plant and the Prairie Island plant. See Note 10 to the consolidated financial statements of NSP-Minnesota’s Annual Report on Form 10-K for the year ended Dec. 31, 2021 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, 2021, appropriately represent, in all material respects, the current status of nuclear power operations, and are incorporated by reference.

Other

Supply Chain

NSP-Minnesota’s ability to meet customer energy requirements, respond to storm-related disruptions and execute our capital expenditure program are dependent on maintaining an efficient supply chain. Manufacturing processes have experienced disruptions related to scarcity of certain raw materials and interruptions in production and shipping. These disruptions have been further exacerbated by inflationary pressures, labor shortages and the impact of international conflicts/issues. NSP-Minnesota continues to monitor the availability of materials and has sought to mitigate impacts by seeking alternative suppliers as necessary.

Solar Resources

In April 2022, the U.S. Department of Commerce initiated an anti-circumvention investigation that would subject CSPV solar panels and cells imported from Malaysia, Vietnam, Thailand, and Cambodia with potential incremental tariffs ranging from 50% to 250%. These countries account for more than 80% of CSPV panel imports.

The uncertainty of the investigation and the adverse impact on potential tariffs has resulted in the cancellation or delay of certain domestic solar projects.

In April 2021, NSP-Minnesota proposed to add 460 MW of solar facilities at the Sherco site with an initial estimated investment of approximately $575 million. NSP-Minnesota requested a delay in the procedural schedule due to recent solar supply chain disruptions and potential impact on pricing. We now anticipate a MPUC decision in Q4 2022 or Q1 2023. The proposed facilities are still expected to be in-service by the end of 2025.

Winter Storm Uri

In February 2021, the United States experienced Winter Storm Uri. Extreme cold temperatures impacted certain operational assets as well as the availability of renewable generation. 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. 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 has natural gas, fuel and purchased energy mechanisms in each jurisdiction for recovering incurred costs. However, February cost increases were deferred for future recovery with recovery proposed over a period of up to 63 months to mitigate the impact to customer bills. Additionally, NSP-Minnesota did not request recovery of financing costs in order to further limit the impact to our customers. NSP-Minnesota currently has approval for recovery of Winter Storm Uri costs in North Dakota. There were no material costs for South Dakota.

Regulatory Overview — In 2021, the MPUC allowed recovery of $179 million of costs (with no financing charge) starting in September 2021. The C&I class ($82 million) will be recovered over 27 months and the residential class ($97 million) will be recovered over a 63-month recovery period. The $179 million in extraordinary cost recovery is subject to refund pending the outcome of a contested case before an ALJ.

In December 2021, direct testimony was received from intervenors. A hearing before the ALJs took place in February 2022. The Company and intervenors subsequently submitted briefs. The DOC recommended that NSP-Minnesota be disallowed $122 million in costs. The OAG modified its position, recommending disallowances of $110 million to $148 million, and the CUB continues to recommend a $69 million disallowance.

Xcel Energy strongly disagrees with the recommendations of the DOC, OAG and CUB and believes that it acted prudently and according to MPUC approved procedures for the best interest of its customers and stakeholders. An ALJ decision is expected in late May and an MPUC decision is expected in Q3 of 2022.

Environmental

Affordable Clean Energy

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 would allow the EPA to proceed with alternate regulation of coal-fired power plants. However, the Court of Appeals decision has been appealed to the U.S Supreme Court, where the Court heard argument in February and is expected to rule by June on the nature and extent of the EPA’s greenhouse gas regulatory authority. If any new rules require additional investment, NSP-Minnesota believes that the cost of these initiatives or replacement generation would be recoverable through rates based on prior state commission practices.

Nuclear Fuel Supply

NSP-Minnesota has contracted for and has its 2022 and 2023 enriched nuclear material requirements in various stages of processing in Canada, Europe and the United States. We will continue to monitor the evolving situation in Ukraine and its global impacts to assess if further actions are required to assure a secure supply of enriched nuclear material. NSP-Minnesota is scheduled to take delivery of approximately 30% of its average enriched nuclear material requirements from Russia through 2030.


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, 2022, 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

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. Legal fees are generally 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, 2021, 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 28, 2022
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	17
Item 4 —	Controls and Procedures	20

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

SIGNATURES		22


	Common Stock Issued					Retained Earnings		Accumulated Other Comprehensive Loss		Total Common Stockholder's Equity
	Shares	Par Value		Additional Paid In Capital
Three Months Ended March 31, 2022 and 2021
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

Balance at Dec. 31, 2021	1,000,000	$	—	$	5,202	$	2,391	$	(20)	$	7,573
Net income						127				127

Dividends declared to parent						(167)				(167)

Balance at March 31, 2022	1,000,000	$	—	$	5,202	$	2,351	$	(20)	$	7,533



















See Notes to Consolidated Financial Statements


	March 31, 2022				Dec. 31, 2021
(Millions of Dollars)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, including current portion	$	6,749	$	6,984	$	6,747	$	7,761


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
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	Certifications 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)


☒			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
(Exact Name of Registrant as Specified in its Charter)


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


		Northern States Power Company (a Minnesota corporation)

4/28/2022	By:	/s/ BRIAN J. VAN ABEL
		Brian J. Van Abel
		Executive Vice President, Chief Financial Officer
		(Duly Authorized Officer and Principal Financial Officer)