Fair Value of Financial Assets and Liabilities (Tables)

3 Months Ended

Mar. 31, 2016

Cost and Fair Value of Nuclear Decommissioning Fund Investments

The following tables present the cost and fair value of NSP-Minnesota’s non-derivative instruments with recurring fair value measurements in the nuclear decommissioning fund at March 31, 2016 and Dec. 31, 2015:



	March 31, 2016
			Fair Value
(Thousands of Dollars)	Cost		Level 1		Level 2		Level 3		Investments Measured at NAV ^(b)		Total
Nuclear decommissioning fund ^(a)
Cash equivalents	$	11,899	$	11,899	$	—	$	—	$	—	$	11,899
Commingled funds	390,345		—		—		—		395,709		395,709
International equity funds	264,340		—		—		—		242,312		242,312
Private equity investments	108,882		—		—		—		158,915		158,915
Real estate	73,577		—		—		—		100,576		100,576
Debt securities:
Government securities	24,320		—		23,213		—		—		23,213
U.S. corporate bonds	76,952		—		70,723		—		—		70,723
International corporate bonds	18,117		—		17,343		—		—		17,343
Municipal bonds	47,088		—		49,902		—		—		49,902
Asset-backed securities	2,841		—		2,836		—		—		2,836
Mortgage-backed securities	11,065		—		11,407		—		—		11,407
Equity securities:
Common stock	481,968		649,015		—		—		—		649,015
Total	$	1,511,394	$	660,914	$	175,424	$	—	$	897,512	$	1,733,850


^(a)	Reported in nuclear decommissioning fund and other investments on the consolidated balance sheet, which also includes $36.1 million of miscellaneous investments.


^(b)	Based on the requirements of ASU 2015-07, investments measured at fair value using a NAV methodology have not been classified in the fair value hierarchy. See Note 2 for further information on the adoption of ASU 2015-07.



	Dec. 31, 2015
			Fair Value
(Thousands of Dollars)	Cost		Level 1		Level 2		Level 3		Investments Measured at NAV ^(b)		Total
Nuclear decommissioning fund ^(a)
Cash equivalents	$	27,484	$	27,484	$	—	$	—	$	—	$	27,484
Commingled funds	392,838		—		—		—		410,634		410,634
International equity funds	259,114		—		—		—		231,122		231,122
Private equity investments	105,965		—		—		—		157,528		157,528
Real estate	61,816		—		—		—		84,750		84,750
Debt securities:
Government securities	24,444		—		21,356		—		—		21,356
U.S. corporate bonds	73,061		—		65,276		—		—		65,276
International corporate bonds	13,726		—		12,801		—		—		12,801
Municipal bonds	49,255		—		51,589		—		—		51,589
Asset-backed securities	2,837		—		2,830		—		—		2,830
Mortgage-backed securities	11,444		—		11,621		—		—		11,621
Equity securities:
Common stock	473,615		647,159		—		—		—		647,159
Total	$	1,495,599	$	674,643	$	165,473	$	—	$	884,034	$	1,724,150


^(a)	Reported in nuclear decommissioning fund and other investments on the consolidated balance sheet, which also includes $34.1 million of miscellaneous investments.


^(b)	Based on the requirements of ASU 2015-07, investments measured at fair value using a NAV methodology have not been classified in the fair value hierarchy. See Note 2 for further information on the adoption of ASU 2015-07.

Final Contractual Maturity Dates of Debt Securities in the Nuclear Decommissioning Fund by Asset Class

The following table summarizes the final contractual maturity dates of the debt securities in the nuclear decommissioning fund, by asset class, at March 31, 2016:



	Final Contractual Maturity
(Thousands 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
Government securities	$	—	$	—	$	3,144	$	20,069		$	23,213
U.S. corporate bonds	—		18,909		56,102		(4,288		)	70,723
International corporate bonds	—		2,795		11,505		3,043			17,343
Municipal bonds	151		266		16,323		33,162			49,902
Asset-backed securities	—		—		2,836		—			2,836
Mortgage-backed securities	—		—		—		11,407			11,407
Debt securities	$	151	$	21,970	$	89,910	$	63,393		$	175,424

Gross Notional Amounts of Commodity Forwards, Options, and FTRs

The following table details the gross notional amounts of commodity forwards, options and FTRs at March 31, 2016 and Dec. 31, 2015:


^(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.

Impact of Derivative Activity on Accumulated Other Comprehensive Loss, Regulatory Assets and Liabilities, and Income

The following tables detail the impact of derivative activity during the three months ended March 31, 2016 and 2015 on accumulated other comprehensive loss, regulatory assets and liabilities and income:




	Three Months Ended March 31, 2016
	Pre-Tax Fair Value Losses Recognized During the Period in:						Pre-Tax Losses Reclassified into Income During the Period from:						Pre-Tax Gains (Losses) Recognized During the Period in Income
(Thousands of Dollars)	Accumulated Other Comprehensive Loss			Regulatory (Assets) and Liabilities			Accumulated Other Comprehensive Loss			Regulatory Assets and (Liabilities)
Derivatives designated as cash flow hedges
Interest rate	$	—		$	—		$	346	^(a)	$	—		$	—
Vehicle fuel and other commodity	(2		)	—			31		^(b)	—			—
Total	$	(2	)	$	—		$	377		$	—		$	—
Other derivative instruments
Commodity trading	$	—		$	—		$	—		$	—		$	992		^(c)
Electric commodity	—			(1,558		)	—			10,712		^(d)	—
Natural gas commodity	—			(631		)	—			3,460		^(e)	(1,595		)	^(e)
Total	$	—		$	(2,189	)	$	—		$	14,172		$	(603	)




	Three Months Ended March 31, 2015
	Pre-Tax Fair Value Losses Recognized During the Period in:						Pre-Tax (Gains) Losses Reclassified into Income During the Period from:							Pre-Tax Gains Recognized During the Period in Income
(Thousands of Dollars)	Accumulated Other Comprehensive Loss			Regulatory (Assets) and Liabilities			Accumulated Other Comprehensive Loss			Regulatory Assets and(Liabilities)				Pre-Tax Gains Recognized During the Period in Income
Derivatives designated as cash flow hedges
Interest rate	$	—		$	—		$	337	^(a)	$	—			$	—
Vehicle fuel and other commodity	(10		)	—			14		^(b)	—				—
Total	$	(10	)	$	—		$	351		$	—			$	—
Other derivative instruments
Commodity trading	$	—		$	—		$	—		$	—			$	3,691	^(c)
Electric commodity	—			(8,706		)	—			(5,193		)	^(d)	—
Natural gas commodity	—			(38		)	—			(2,751		)	^(e)	3,008		^(e)
Total	$	—		$	(8,744	)	$	—		$	(7,944	)		$	6,699


^(a)	Amounts are recorded to interest charges.


^(b)	Amounts are recorded to operating and maintenance (O&M) expenses.


^(c)	Amounts are 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.


^(d)	Amounts are 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.


^(e)	Amounts are recorded to cost of natural gas sold and transported. These derivative settlement gains and losses are shared with natural gas customers through purchased natural gas cost-recovery mechanisms, and reclassified out of income as regulatory assets or liabilities, as appropriate.

Derivative Assets and Liabilities Measured at Fair Value on a Recurring Basis by Hierarchy Level

Recurring Fair Value Measurements — The following tables present for each of the fair value hierarchy levels, NSP-Minnesota’s derivative assets and liabilities measured at fair value on a recurring basis at March 31, 2016:



	March 31, 2016
	Fair Value						Fair Value Total		Counterparty Netting ^(b)
(Thousands of Dollars)	Level 1		Level 2		Level 3		Fair Value Total		Counterparty Netting ^(b)			Total
Current derivative assets
Other derivative instruments:
Commodity trading	$	162	$	14,775	$	453	$	15,390	$	(7,936	)	$	7,454
Electric commodity	—		—		4,761		4,761		(55		)	4,706
Total current derivative assets	$	162	$	14,775	$	5,214	$	20,151	$	(7,991	)	12,160
PPAs ^(a)												478
Current derivative instruments												$	12,638
Noncurrent derivative assets
Other derivative instruments:
Commodity trading	$	250	$	35,198	$	—	$	35,448	$	(8,893	)	$	26,555
Total noncurrent derivative assets	$	250	$	35,198	$	—	$	35,448	$	(8,893	)	26,555
PPAs ^(a)												1,483
Noncurrent derivative instruments												$	28,038



	March 31, 2016
	Fair Value						Fair Value Total		Counterparty Netting ^(b)
(Thousands of Dollars)	Level 1		Level 2		Level 3		Fair Value Total		Counterparty Netting ^(b)			Total
Current derivative liabilities
Derivatives designated as cash flow hedges:
Vehicle fuel and other commodity	$	—	$	84	$	—	$	84	$	—		$	84
Other derivative instruments:
Commodity trading	176		12,496		35		12,707		(8,665		)	4,042
Electric commodity	—		—		55		55		(55		)	—
Total current derivative liabilities	$	176	$	12,580	$	90	$	12,846	$	(8,720	)	4,126
PPAs ^(a)												14,113
Current derivative instruments												$	18,239
Noncurrent derivative liabilities
Other derivative instruments:
Commodity trading	$	215	$	27,000	$	—	$	27,215	$	(12,497	)	$	14,718
Total noncurrent derivative liabilities	$	215	$	27,000	$	—	$	27,215	$	(12,497	)	14,718
PPAs ^(a)												114,665
Noncurrent derivative instruments												$	129,383

^(a)

In 2003, as a result of implementing new guidance on the normal purchase exception for derivative accounting, NSP-Minnesota began recording several long-term PPAs at fair value due to accounting requirements related to underlying price adjustments. As these purchases are recovered through normal regulatory recovery mechanisms in the respective jurisdictions, the changes in fair value for these contracts were offset by regulatory assets and liabilities. During 2006, NSP-Minnesota qualified these contracts under the normal purchase exception. Based on this qualification, the contracts are no longer adjusted to fair value and the previous carrying value of these contracts will be amortized over the remaining contract lives along with the offsetting regulatory assets and liabilities.

^(b)

NSP-Minnesota nets derivative instruments and related collateral in its consolidated balance sheet when supported by a legally enforceable master netting agreement, and all derivative instruments and related collateral amounts were subject to master netting agreements at March 31, 2016. At March 31, 2016, derivative assets and liabilities include no obligations to return cash collateral and the rights to reclaim cash collateral of $4.3 million. The counterparty netting amounts presented exclude settlement receivables and payables and non-derivative amounts that may be subject to the same master netting agreements.

The following table presents for each of the fair value hierarchy levels, NSP-Minnesota’s derivative assets and liabilities measured at fair value on a recurring basis at Dec. 31, 2015:



	Dec. 31, 2015
	Fair Value						Fair Value Total		Counterparty Netting ^(b)
(Thousands of Dollars)	Level 1		Level 2		Level 3		Fair Value Total		Counterparty Netting ^(b)			Total
Current derivative assets
Other derivative instruments:
Commodity trading	$	88	$	10,269	$	1,250	$	11,607	$	(5,542	)	$	6,065
Electric commodity	—		—		12,441		12,441		(167		)	12,274
Natural gas commodity	—		128		—		128		(6		)	122
Total current derivative assets	$	88	$	10,397	$	13,691	$	24,176	$	(5,715	)	18,461
PPAs ^(a)												480
Current derivative instruments												$	18,941
Noncurrent derivative assets
Other derivative instruments:
Commodity trading	$	—	$	27,399	$	—	$	27,399	$	(6,555	)	$	20,844
Total noncurrent derivative assets	$	—	$	27,399	$	—	$	27,399	$	(6,555	)	20,844
PPAs ^(a)												1,490
Noncurrent derivative instruments												$	22,334



	Dec. 31, 2015
	Fair Value						Fair Value Total		Counterparty Netting ^(b)
(Thousands of Dollars)	Level 1		Level 2		Level 3		Fair Value Total		Counterparty Netting ^(b)			Total
Current derivative liabilities
Derivatives designated as cash flow hedges:
Vehicle fuel and other commodity	$	—	$	113	$	—	$	113	$	—		$	113
Other derivative instruments:
Commodity trading	118		7,541		554		8,213		(6,580		)	1,633
Electric commodity	—		—		167		167		(167		)	—
Natural gas commodity	—		1,362		—		1,362		(6		)	1,356
Total current derivative liabilities	$	118	$	9,016	$	721	$	9,855	$	(6,753	)	3,102
PPAs ^(a)												14,109
Current derivative instruments												$	17,211
Noncurrent derivative liabilities
Other derivative instruments:
Commodity trading	$	—	$	19,865	$	—	$	19,865	$	(9,780	)	$	10,085
Total noncurrent derivative liabilities	$	—	$	19,865	$	—	$	19,865	$	(9,780	)	10,085
PPAs ^(a)												118,128
Noncurrent derivative instruments												$	128,213

^(a)

^(b)

NSP-Minnesota nets derivative instruments and related collateral in its consolidated balance sheet when supported by a legally enforceable master netting agreement, and all derivative instruments and related collateral amounts were subject to master netting agreements at Dec. 31, 2015. At Dec. 31, 2015, derivative assets and liabilities include no obligations to return cash collateral and the rights to reclaim cash collateral of $4.3 million. The counterparty netting amounts presented exclude settlement receivables and payables and non-derivative amounts that may be subject to the same master netting agreements.

Changes in Level 3 Commodity Derivatives

The following table presents the changes in Level 3 commodity derivatives for the three months ended March 31, 2016 and 2015:



	Three Months Ended March 31
(Thousands of Dollars)	2016			2015
Balance at Jan. 1	$	12,970		$	40,271
Purchases	—			864
Settlements	(5,038		)	(11,552		)
Net transactions recorded during the period:
(Losses) gains recognized in earnings ^(a)	(24		)	60
Losses recognized as regulatory assets and liabilities	(2,784		)	(18,671		)
Balance at March 31	$	5,124		$	10,972


^(a)	These amounts relate to commodity derivatives held at the end of the period.

Carrying Amount and Fair Value of Long-term Debt

As of March 31, 2016 and Dec. 31, 2015, other financial instruments for which the carrying amount did not equal fair value were as follows:



	March 31, 2016				Dec. 31, 2015
(Thousands of Dollars)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, including current portion ^(a)	$	4,497,443	$	5,149,155	$	4,496,421	$	4,917,080


^(a)	Amounts reflect the classification of debt issuance costs as a deduction from the carrying amount of the related debt. See Note 2, Accounting Pronouncements for more information on the adoption of ASU 2015-03.

(Amounts in Thousands) ^(a)(b)

March 31, 2016

Dec. 31, 2015

Megawatt hours of electricity

Million British thermal units of natural gas

Gallons of vehicle fuel