18. Asset Acquisition and Sale

Acquisition of Generation Assets - In December 2010, PSCo purchased Blue Spruce Energy Center and Rocky Mountain Energy Center from Calpine Development Holdings, Inc. and Riverside Energy Center LLC for $739.0 million plus an additional $3.0 million for working capital adjustments. The working capital adjustments consisted of the settlement of PSCo's most recent purchases of energy and capacity under the terminated purchased power agreements, adjusted for accrued operating liabilities of the acquired plants of $6.5 million.

The Blue Spruce Energy Center is a 310 MW simple cycle natural gas-fired power plant that began commercial operations in 2003. The Rocky Mountain Energy Center is a 652 MW combined-cycle natural gas-fired power plant that began commercial operations in 2004. Both power plants previously provided energy and capacity to PSCo under purchased power agreements, which were set to expire in 2013 and 2014, respectively. The acquisition developed out of PSCo's resource planning activities, in which customers' future energy needs are addressed in a formal planning process for meeting PSCo's generation obligations, considering various assumptions and objectives including prices, reliability, and emissions levels. The generation assets were offered to PSCo as a competitive bid in the resource planning process, and the offer was the least cost option for thermal generation resources.

The purchase price has been allocated as follows based on the estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition, including working capital adjustments of approximately $0.2 million recorded in 2011 which were identified through examination of the plants' books and records:

(Thousands of Dollars)
Assets acquired
Inventory	$	3,791
Property, plant and equipment		735,959
Total assets acquired		739,750

Liabilities assumed
Accrued expenses		7,437
Total liabilities assumed		7,437

Net assets acquired	$	732,313

Operating results for the plants subsequent to the date of acquisition are included in the consolidated statements of income for the years ended Dec. 31, 2010 and Dec. 31, 2011.

Sale of Lubbock Electric Distribution Assets - In November 2009, SPS entered into an asset purchase agreement with the city of Lubbock, Texas. This agreement had set forth that SPS would sell its electric distribution system assets within the city limits to Lubbock Power and Light (LP&L) for approximately $87 million. The sale and related transactions eliminate the inefficiencies of maintaining duplicate distribution systems, by both SPS and by the city-owned LP&L.

SPS served about 24,000 customers within Lubbock, representing about 25 percent of the total customers in the dually certified service area. As part of this transaction, SPS will continue to provide wholesale power to meet the electric load for these customers, initially by amending the current wholesale full-requirements contract with WTMPA, which provides service to LP&L through 2019 and then for an additional 25 years under a new contract directly with LP&L when the WTMPA contract terminates. Both of these wholesale power agreements provide for formula rates that change annually based on the actual cost of service. The formula rate with WTMPA reflects an initial 10.5 percent ROE. All or portions of this transaction were reviewed and approved by the PUCT, the NMPRC and the FERC.

Additionally, SPS and the city of Lubbock entered into an amended long-term treated sewage effluent water agreement under which SPS will continue to purchase waste water from the city for cooling SPS' Jones Station southeast of Lubbock.

In October 2010, the transaction closed resulting in a pre-tax gain of approximately $20 million that has been deferred as a regulatory liability and will be shared with retail customers in Texas over a four year period.