Fair Value of Financial Assets and Liabilities

Fair Value Measurements

The accounting guidance for fair value measurements and disclosures provides a single definition of fair value and requires certain 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. The three levels in the hierarchy are as follows:

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 the following:

Cash equivalents — The fair values of cash equivalents are generally based on cost plus accrued interest; money market funds are measured using quoted net asset values.

Investments in equity securities and other funds — Equity securities are valued using quoted prices in active markets. The fair values for commingled funds, international equity funds, private equity investments and real estate investments are measured using net asset values, which take into consideration the value of underlying fund investments, as well as the other accrued assets and liabilities of a fund, in order to determine a per-share market value. The investments in commingled funds and international equity funds may be redeemed for net asset value with proper notice. Proper notice varies by fund and can range from daily with one or two days notice to annually with 90 days notice. Private equity 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 investments may be redeemed with proper notice, which is typically quarterly with 45-90 days notice; however, withdrawals from real estate investments may be delayed or discounted as a result of fund illiquidity. Based on Xcel Energy’s evaluation of its redemption rights, fair value measurements for private equity and real estate investments have been assigned a Level 3.

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. When contractual settlements extend to periods beyond those readily observable on active exchanges or quoted by brokers, the significance of the use of less observable forecasts of long-term 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 purchased from Midcontinent Independent Transmission System Operator, Inc. (MISO), PJM Interconnection, LLC (PJM), Electric Reliability Council of Texas (ERCOT), Southwest Power Pool, Inc. (SPP) and New York Independent System Operator, generally referred to as financial transmission rights (FTRs). Electric commodity derivatives held by SPS include FTRs purchased from SPP. FTRs purchased from a regional transmission organization (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 energy congestion, which is caused by overall transmission load and other transmission constraints. 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. The valuation process for FTRs utilizes complex iterative modeling to predict the impacts of forecasted changes in these drivers of transmission system congestion on the historical pricing of FTR purchases.

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 management’s forecasts for several of the inputs to this complex valuation model – 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 the fuel and purchased energy cost recovery mechanisms as applicable in each jurisdiction, 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 FTRs relative to the electric utility operations of NSP-Minnesota and SPS, the numerous unobservable quantitative inputs to the complex model used for valuation of FTRs are insignificant to the consolidated financial statements of Xcel Energy.

Non-Derivative Instruments Fair Value Measurements

The NRC requires NSP-Minnesota to maintain a portfolio of investments to fund the costs of decommissioning its nuclear generating plants. Together with all accumulated earnings or losses, the assets of the nuclear decommissioning fund are legally restricted for the purpose of decommissioning the Monticello and Prairie Island nuclear generating plants. The fund contains cash equivalents, debt securities, equity securities and other investments – all classified as available-for-sale. NSP-Minnesota plans to reinvest matured securities until decommissioning begins. 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 of its nuclear generating plants over the lives of the plants, assuming rate recovery of all costs. Given the purpose and legal restrictions on the use of nuclear decommissioning fund assets, 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, including any other-than-temporary impairments, are deferred as a component of the regulatory asset for nuclear decommissioning.

Unrealized gains for the nuclear decommissioning fund were $258.6 million and $240.3 million at March 31, 2014 and Dec. 31, 2013, respectively, and unrealized losses and amounts recorded as other-than-temporary impairments were $45.8 million and $58.5 million at March 31, 2014 and Dec. 31, 2013, respectively.

The following tables present the cost and fair value of Xcel Energy’s non-derivative instruments with recurring fair value measurements in the nuclear decommissioning fund at March 31, 2014 and Dec. 31, 2013:



	March 31, 2014
			Fair Value
(Thousands of Dollars)	Cost		Level 1		Level 2		Level 3		Total
Nuclear decommissioning fund ^(a)
Cash equivalents	$	15,854	$	15,854	$	—	$	—	$	15,854
Commingled funds	476,011		—		483,409		—		483,409
International equity funds	78,812		—		82,710		—		82,710
Private equity investments	60,912		—		—		73,801		73,801
Real estate	49,224		—		—		62,954		62,954
Debt securities:
Government securities	34,176		—		28,822		—		28,822
U.S. corporate bonds	78,362		—		81,827		—		81,827
International corporate bonds	15,223		—		15,685		—		15,685
Municipal bonds	261,106		—		260,044		—		260,044
Equity securities:
Common stock	380,896		558,289		—		—		558,289
Total	$	1,450,576	$	574,143	$	952,497	$	136,755	$	1,663,395


^(a)	Reported in nuclear decommissioning fund and other investments on the consolidated balance sheet, which also includes $86.3 million of equity investments in unconsolidated subsidiaries and $43.4 million of miscellaneous investments.



	Dec. 31, 2013
			Fair Value
(Thousands of Dollars)	Cost		Level 1		Level 2		Level 3		Total
Nuclear decommissioning fund ^(a)
Cash equivalents	$	33,281	$	33,281	$	—	$	—	$	33,281
Commingled funds	457,986		—		452,227		—		452,227
International equity funds	78,812		—		81,671		—		81,671
Private equity investments	52,143		—		—		62,696		62,696
Real estate	45,564		—		—		57,368		57,368
Debt securities:
Government securities	34,304		—		27,628		—		27,628
U.S. corporate bonds	80,275		—		83,538		—		83,538
International corporate bonds	15,025		—		15,358		—		15,358
Municipal bonds	241,112		—		232,016		—		232,016
Equity securities:
Common stock	406,695		581,243		—		—		581,243
Total	$	1,445,197	$	614,524	$	892,438	$	120,064	$	1,627,026


^(a)	Reported in nuclear decommissioning fund and other investments on the consolidated balance sheet, which also includes $87.1 million of equity investments in unconsolidated subsidiaries and $41.9 million of miscellaneous investments.

The following tables present the changes in Level 3 nuclear decommissioning fund investments for the three months ended March 31, 2014 and 2013:



(Thousands of Dollars)	Jan. 1, 2014		Purchases		Settlements			Gains Recognized as Regulatory Assets		Transfers Out of Level 3			March 31, 2014
Private equity investments	$	62,696	$	8,769	$	—		$	2,336	$	—		$	73,801
Real estate	57,368		3,660		—			1,926		—			62,954
Total	$	120,064	$	12,429	$	—		$	4,262	$	—		$	136,755

(Thousands of Dollars)	Jan. 1, 2013		Purchases		Settlements			Gains Recognized as Regulatory Assets		Transfers Out of Level 3^(a)			March 31, 2013
Private equity investments	$	33,250	$	1,256	$	—		$	—	$	—		$	34,506
Real estate	39,074		4,786		(4,299		)	845		—			40,406
Asset-backed securities	2,067		—		—			—		(2,067		)	—
Mortgage-backed securities	30,209		—		—			—		(30,209		)	—
Total	$	104,600	$	6,042	$	(4,299	)	$	845	$	(32,276	)	$	74,912


^(a)	Transfers out of Level 3 into Level 2 were principally due to diminished use of unobservable inputs that were previously significant to these fair value measurements.

The following table summarizes the final contractual maturity dates of the debt securities in the nuclear decommissioning fund, by asset class, at March 31, 2014:



	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	$	—	$	—	$	—	$	28,822	$	28,822
U.S. corporate bonds	311		15,816		64,341		1,359		81,827
International corporate bonds	—		3,762		11,923		—		15,685
Municipal bonds	3,088		25,410		38,770		192,776		260,044
Debt securities	$	3,399	$	44,988	$	115,034	$	222,957	$	386,378

Derivative Instruments Fair Value Measurements

Xcel Energy 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 — Xcel Energy enters into various instruments that effectively fix the interest payments on certain floating rate debt obligations or 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.

At March 31, 2014, accumulated other comprehensive losses related to interest rate derivatives included $2.3 million of net losses expected to be reclassified into earnings during the next 12 months as the related hedged interest rate transactions impact earnings, including forecasted amounts for any unsettled hedges.

Wholesale and Commodity Trading Risk — Xcel Energy Inc.’s utility subsidiaries conduct various wholesale and commodity trading activities, including the purchase and sale of electric capacity, energy and energy-related instruments. Xcel Energy’s risk management policy allows management to conduct these activities within guidelines and limitations as approved by its risk management committee, which is made up of management personnel not directly involved in the activities governed by this policy.

Commodity Derivatives — Xcel Energy 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 and vehicle fuel.

At March 31, 2014, Xcel Energy had various vehicle fuel contracts designated as cash flow hedges extending through December 2016. Xcel Energy also enters into derivative instruments that mitigate commodity price risk on behalf of electric and natural gas customers but are not designated as qualifying hedging transactions. Changes in the fair value of non-trading commodity derivative instruments are recorded in other comprehensive income or deferred as a regulatory asset or liability. The classification as a regulatory asset or liability is based on commission approved regulatory recovery mechanisms. Xcel Energy recorded immaterial amounts to income related to the ineffectiveness of cash flow hedges for the three months ended March 31, 2014 and 2013.

At March 31, 2014, net gains related to commodity derivative cash flow hedges recorded as a component of accumulated other comprehensive losses included $0.1 million of net gains expected to be reclassified into earnings during the next 12 months as the hedged transactions occur.

Additionally, Xcel Energy 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.

The following table details the gross notional amounts of commodity forwards, options and FTRs at March 31, 2014 and Dec. 31, 2013:


^(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.

The following tables detail the impact of derivative activity during the three months ended March 31, 2014 and 2013, on accumulated other comprehensive loss, regulatory assets and liabilities, and income:



	Three Months Ended March 31, 2014
	Pre-Tax Fair Value Gains (Losses) Recognized During the Period in:					Pre-Tax (Gains) 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	$	—		$	—	$	946		^(a)	$	—			$	—
Vehicle fuel and other commodity	(12		)	—		(28		)	^(b)	—				—
Total	$	(12	)	$	—	$	918			$	—			$	—
Other derivative instruments
Commodity trading	$	—		$	—	$	—			$	—			$	(2,253	)	^(c)
Electric commodity	—			3,527		—				(20,696		)	^(d)	—
Natural gas commodity	—			18,506		—				(18,840		)	^(e)	(5,302		)	^(e)
Total	$	—		$	22,033	$	—			$	(39,536	)		$	(7,555	)



	Three Months Ended March 31, 2013
	Pre-Tax Fair Value Gains (Losses) Recognized During the Period in:				Pre-Tax (Gains) 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	$	—	$	—	$	1,150		^(a)	$	—			$	—
Vehicle fuel and other commodity	25		—		(26		)	^(b)	—				—
Total	$	25	$	—	$	1,124			$	—			$	—
Other derivative instruments
Commodity trading	$	—	$	—	$	—			$	—			$	2,776	^(c)
Electric commodity	—		6,419		—				(15,229		)	^(d)	—
Natural gas commodity	—		54		—				9			^(e)	16		^(e)
Total	$	—	$	6,473	$	—			$	(15,220	)		$	2,792


^(a)	Amounts are recorded to interest charges.


^(b)	Amounts are recorded to 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 gain and loss amounts 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 for the three months ended March 31, 2014 and 2013 included immaterial settlement losses on derivatives entered to mitigate natural gas price risk for electric generation, recorded to electric fuel and purchased power, subject to cost-recovery mechanisms and reclassified to a regulatory asset, as appropriate. The remaining derivative settlement gains and losses for the three months ended March 31, 2014 and 2013 relate to natural gas operations and are recorded to cost of natural gas sold and transported. These gains and losses are subject to cost-recovery mechanisms and reclassified out of income to a regulatory asset or liability, as appropriate.

Xcel Energy had no derivative instruments designated as fair value hedges during the three months ended March 31, 2014 and 2013. Therefore, no gains or losses from fair value hedges or related hedged transactions were recognized for these periods.

Consideration of Credit Risk and Concentrations — Xcel Energy continuously monitors the creditworthiness of the 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. Given this assessment, as well as an assessment of the impact of Xcel Energy’s own credit risk when determining the fair value of derivative liabilities, the impact of considering credit risk was immaterial to the fair value of unsettled commodity derivatives presented in the consolidated balance sheets.

Xcel Energy Inc. and its subsidiaries employ additional credit risk control mechanisms when appropriate, such as letters of credit, parental guarantees, standardized master netting agreements and termination provisions that allow for offsetting of positive and negative exposures. Credit exposure is monitored and, when necessary, the activity with a specific counterparty is limited until credit enhancement is provided.

Xcel Energy’s utility subsidiaries’ most significant concentrations of credit risk with particular entities or industries are contracts with counterparties to their wholesale, trading and non-trading commodity and transmission activities. At March 31, 2014, four of Xcel Energy’s 10 most significant counterparties for these activities, comprising $41.2 million or 15 percent of this credit exposure, had investment grade credit ratings from Standard & Poor’s Ratings Services, Moody’s Investor Services (Moody’s) or Fitch Ratings. The remaining six significant counterparties, comprising $79.2 million or 29 percent of this credit exposure, were not rated by these agencies, but based on Xcel Energy’s internal analysis, had credit quality consistent with investment grade. All 10 of these significant counterparties are RTOs, municipal or cooperative electric entities or other utilities.

Credit Related Contingent Features — Contract provisions for derivative instruments that the utility subsidiaries enter, including those recorded to the consolidated balance sheet at fair value, as well as those accounted for as normal purchase-normal sale (NPNS) contracts and therefore not reflected on the balance sheet, may require the posting of collateral or settlement of the contracts for various reasons, including if the applicable utility subsidiary is unable to maintain its credit ratings. If the credit ratings of Xcel Energy Inc.’s utility subsidiaries were downgraded below investment grade, derivative instruments reflected in a $1.1 million and $1.4 million gross liability position on the consolidated balance sheets at March 31, 2014 and Dec. 31, 2013, respectively, would have required Xcel Energy Inc.’s utility subsidiaries to post collateral or settle applicable outstanding contracts, including other contracts subject to master netting agreements, which would have resulted in payments of $1.1 million and $1.4 million at March 31, 2014 and Dec. 31, 2013, respectively. At March 31, 2014 and Dec. 31, 2013, there was no collateral posted on these specific contracts.

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 a given utility subsidiary’s ability to fulfill its contractual obligations is reasonably expected to be impaired. Xcel Energy had no collateral posted related to adequate assurance clauses in derivative contracts as of March 31, 2014 and Dec. 31, 2013.

Recurring Fair Value Measurements — The following table presents for each of the fair value hierarchy levels, Xcel Energy’s derivative assets and liabilities measured at fair value on a recurring basis at March 31, 2014:



	March 31, 2014
	Fair Value						Fair Value Total		Counterparty Netting ^(b)			Total
(Thousands of Dollars)	Level 1		Level 2		Level 3		Fair Value Total		Counterparty Netting ^(b)			Total
Current derivative assets
Derivatives designated as cash flow hedges:
Vehicle fuel and other commodity	$	—	$	58	$	—	$	58	$	—		$	58
Other derivative instruments:
Commodity trading	—		20,979		944		21,923		(6,467		)	15,456
Electric commodity	—		—		26,640		26,640		(4,907		)	21,733
Total current derivative assets	$	—	$	21,037	$	27,584	$	48,621	$	(11,374	)	37,247
PPAs ^(a)												33,028
Current derivative instruments												$	70,275
Noncurrent derivative assets
Derivatives designated as cash flow hedges:
Vehicle fuel and other commodity	$	—	$	18	$	—	$	18	$	—		$	18
Other derivative instruments:
Commodity trading	—		15,718		1,932		17,650		(407		)	17,243
Total noncurrent derivative assets	$	—	$	15,736	$	1,932	$	17,668	$	(407	)	17,261
PPAs ^(a)												50,252
Noncurrent derivative instruments												$	67,513
Current derivative liabilities
Other derivative instruments:
Commodity trading	$	—	$	11,946	$	392	$	12,338	$	(12,338	)	$	—
Electric commodity	—		—		4,907		4,907		(4,907		)	—
Total current derivative liabilities	$	—	$	11,946	$	5,299	$	17,245	$	(17,245	)	—
PPAs ^(a)												22,358
Current derivative instruments												$	22,358
Noncurrent derivative liabilities
Other derivative instruments:
Commodity trading	$	—	$	1,707	$	—	$	1,707	$	(1,015	)	$	692
Total noncurrent derivative liabilities	$	—	$	1,707	$	—	$	1,707	$	(1,015	)	692
PPAs ^(a)												198,886
Noncurrent derivative instruments												$	199,578

^(a)

In 2003, as a result of implementing new guidance on the normal purchase exception for derivative accounting, Xcel Energy 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, Xcel Energy 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)

Xcel Energy 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, 2014. At March 31, 2014, derivative assets and liabilities include obligations to return cash collateral of $0.1 million and rights to reclaim cash collateral of $6.5 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, Xcel Energy’s derivative assets and liabilities measured at fair value on a recurring basis at Dec. 31, 2013:



	Dec. 31, 2013
	Fair Value						Fair Value Total		Counterparty Netting ^(b)			Total
(Thousands of Dollars)	Level 1		Level 2		Level 3		Fair Value Total		Counterparty Netting ^(b)			Total
Current derivative assets
Derivatives designated as cash flow hedges:
Vehicle fuel and other commodity	$	—	$	88	$	—	$	88	$	—		$	88
Other derivative instruments:
Commodity trading	—		20,610		1,167		21,777		(7,994		)	13,783
Electric commodity	—		—		47,112		47,112		(8,210		)	38,902
Natural gas commodity	—		5,906		—		5,906		—			5,906
Total current derivative assets	$	—	$	26,604	$	48,279	$	74,883	$	(16,204	)	58,679
PPAs ^(a)												33,028
Current derivative instruments												$	91,707
Noncurrent derivative assets
Derivatives designated as cash flow hedges:
Vehicle fuel and other commodity	$	—	$	29	$	—	$	29	$	(16	)	$	13
Other derivative instruments:
Commodity trading	—		32,074		3,395		35,469		(9,071		)	26,398
Total noncurrent derivative assets	$	—	$	32,103	$	3,395	$	35,498	$	(9,087	)	26,411
PPAs ^(a)												58,431
Noncurrent derivative instruments												$	84,842
Current derivative liabilities
Other derivative instruments:
Commodity trading	$	—	$	10,546	$	1,804	$	12,350	$	(12,002	)	$	348
Electric commodity	—		—		8,210		8,210		(8,210		)	—
Total current derivative liabilities	$	—	$	10,546	$	10,014	$	20,560	$	(20,212	)	348
PPAs ^(a)												23,034
Current derivative instruments												$	23,382
Noncurrent derivative liabilities
Other derivative instruments:
Commodity trading	$	—	$	14,382	$	—	$	14,382	$	(9,087	)	$	5,295
Total noncurrent derivative liabilities	$	—	$	14,382	$	—	$	14,382	$	(9,087	)	5,295
PPAs ^(a)												203,929
Noncurrent derivative instruments												$	209,224

^(a)

^(b)

Xcel Energy 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, 2013. At Dec. 31, 2013, derivative assets and liabilities include obligations to return cash collateral of $0.2 million and rights to reclaim cash collateral of $4.2 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 the changes in Level 3 commodity derivatives for the three months ended March 31, 2014 and 2013:



	Three Months Ended March 31
(Thousands of Dollars)	2014			2013
Balance at Jan. 1	$	41,660		$	16,649
Purchases	1,056			—
Settlements	(53,809		)	(12,449		)
Net transactions recorded during the period:
Gains (losses) recognized in earnings ^(a)	999			(62		)
Gains recognized as regulatory assets and liabilities	34,311			3,504
Balance at March 31	$	24,217		$	7,642


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

Xcel Energy 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, 2014 and 2013.

Fair Value of Long-Term Debt

As of March 31, 2014 and Dec. 31, 2013, other financial instruments for which the carrying amount did not equal fair value were as follows:



	March 31, 2014				Dec. 31, 2013
(Thousands of Dollars)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, including current portion	$	11,487,452	$	12,511,410	$	11,191,517	$	11,878,643

The fair value of Xcel Energy’s long-term debt is estimated based on recent trades and observable spreads from benchmark interest rates for similar securities. The fair value estimates are based on information available to management as of March 31, 2014 and Dec. 31, 2013, and given the observability of the inputs to these estimates, the fair values presented for long-term debt have been assigned a Level 2.

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

March 31, 2014

Dec. 31, 2013

Megawatt hours of electricity

Million British thermal units of natural gas

Gallons of vehicle fuel