UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended Sept. 30, 2023

or

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

For the transition period from    to

Commission File Number: 001-03789

Southwestern Public Service Company

(Exact Name of Registrant as Specified in its Charter)

New Mexico			75-0575400
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)
790 South Buchanan Street	Amarillo	Texas	79101
(Address of Principal Executive Offices)			(Zip Code)

(303)	571-7511
(Registrant’s Telephone Number, Including Area Code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☒Yes  ☐No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  ☒ Yes  ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes   ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at October 27, 2023
Common Stock, $1.00 par value	100 shares

Southwestern Public Service Company meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format specified in General Instruction H(2) to such Form 10-Q.

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION
Item 1 —	Financial Statements (unaudited)	4
	Statements of Income	4
	Statements of Cash Flows	5
	Balance Sheets	6
	Statements of Common Stockholder’s Equity	7
	Notes to Financial Statements	8
Item 2 —	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 4 —	Controls and Procedures	16
PART II	OTHER INFORMATION
Item 1 —	Legal Proceedings	16
Item 1A —	Risk Factors	16
Item 5 —	Other Information	16
Item 6 —	Exhibits	17
SIGNATURES		18

This Form 10-Q is filed by SPS, a New Mexico corporation. SPS is a wholly owned subsidiary of Xcel Energy Inc. Additional information on Xcel Energy is available in various filings with the SEC. This report should be read in its entirety.

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
EPA	United States Environmental Protection Agency
FERC	Federal Energy Regulatory Commission
NMPRC	New Mexico Public Regulation Commission
PUCT	Public Utility Commission of Texas
SEC	Securities and Exchange Commission
Other
BART	Best available retrofit technology
CEO	Chief executive officer
CERCLA	Comprehensive Environmental Response, Compensation, and Liability Act
CFO	Chief financial officer
ETR	Effective tax rate
FTR	Financial transmission right
GAAP	United States generally accepted accounting principles
IPP	Independent power producing entity
IRP	Integrated Resource Plan
LP&L	Lubbock Power and Light
MGP	Manufactured Gas Plant
NOx	Nitrogen Oxides
O&M	Operating and maintenance
OATT	Open access transmission tariff
PFAS	Per- and Polyfluoroalkyl Substances
PPA	Power purchase agreement
PTC	Production tax credit
RFP	Request for proposal
ROE	Return on equity
RTO	Regional Transmission Organization
SPP	Southwest Power Pool, Inc.
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 SPS’ Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2022, and subsequent filings with the SEC, could cause actual results to differ materially from management expectations as suggested by such forward-looking information: operational safety; successful long-term operational planning; commodity risks associated with energy markets and production; rising energy prices and fuel costs; qualified employee workforce and third-party contractor factors; violations of our Codes of Conduct; our ability to recover costs; changes in regulation; reductions in our credit ratings and the cost of maintaining certain contractual relationships; general economic conditions, including recessionary conditions, inflation rates, monetary fluctuations, supply chain constraints and their impact on capital expenditures and/or the ability of SPS 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; uncertainty regarding epidemics, the duration and magnitude of business restrictions including shutdowns (domestically and globally), the potential impact on the workforce, including shortages of employees or third-party contractors due to quarantine policies, vaccination requirements or government restrictions, impacts on the transportation of goods and the generalized impact on the economy; effects of geopolitical events, including war and acts of terrorism; cybersecurity threats and data security breaches; seasonal weather patterns; changes in environmental laws and regulations; climate change and other weather events; natural disaster and resource depletion, including compliance with any accompanying legislative and regulatory changes; costs of potential regulatory penalties and wildfire damages in excess of liability insurance coverage; regulatory changes and/or limitations related to the use of natural gas as an energy source; challenging labor market conditions and our ability to attract and retain a qualified workforce; and our ability to execute on our strategies or achieve expectations related to environmental, social and governance matters including as a result of evolving legal, regulatory and other standards, processes, and assumptions, the pace of scientific and technological developments, increased costs, the availability of requisite financing, and changes in carbon markets.

PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

SOUTHWESTERN PUBLIC SERVICE COMPANY

STATEMENTS OF INCOME (UNAUDITED)

(amounts in millions)

	Three Months Ended Sept. 30				Nine Months Ended Sept. 30
	2023		2022		2023		2022
Operating revenues	$	677	$	741	$	1,681	$	1,876
Operating expenses
Electric fuel and purchased power	271		362		727		881
Operating and maintenance expenses	73		79		222		238
Demand side management expenses	6		7		16		18
Depreciation and amortization	90		89		273		299
Taxes (other than income taxes)	25		26		74		84
Total operating expenses	465		563		1,312		1,520
Operating income	212		178		369		356
Other expense, net	(1)		(3)		—		(2)
Allowance for funds used during construction — equity	2		1		5		2
Interest charges and financing costs
Interest charges and other financing costs	36		33		107		108
Allowance for funds used during construction — debt	(2)		—		(5)		(1)
Total interest charges and financing costs	34		33		102		107
Income before income taxes	179		143		272		249
Income tax expense (benefit)	12		5		(30)		(34)
Net income	$	167	$	138	$	302	$	283
See Notes to Financial Statements

4

SOUTHWESTERN PUBLIC SERVICE COMPANY

STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in millions)

	Nine Months Ended Sept. 30
	2023		2022
Operating activities
Net income	$	302	$	283
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	275		302
Deferred income taxes	(88)		21
Allowance for equity funds used during construction	(5)		(2)
Provision for bad debts	9		6
Changes in operating assets and liabilities:
Accounts receivable	(26)		(69)
Accrued unbilled revenues	(22)		(28)
Inventories	(16)		(14)
Prepayments and other	39		(5)
Accounts payable	(9)		49
Net regulatory assets and liabilities	223		(73)
Other current liabilities	35		30
Pension and other employee benefit obligations	(3)		1
Other, net	(4)		(2)
Net cash provided by operating activities	710		499
Investing activities
Utility capital/construction expenditures	(552)		(405)
Investments in utility money pool arrangement	—		(133)
Repayments from utility money pool arrangement	—		113
Net cash used in investing activities	(552)		(425)
Financing activities
Proceeds from (repayments of) short-term borrowings, net	(34)		(137)
Proceeds from issuance of long-term debt, net	98		196
Borrowings under utility money pool arrangement	266		262
Repayments under utility money pool arrangement	(266)		(353)
Capital contributions from parent	53		210
Dividends paid to parent	(229)		(250)
Net cash used in financing activities	(112)		(72)
Net change in cash, cash equivalents and restricted cash	46		2
Cash, cash equivalents and restricted cash at beginning of period	2		1
Cash, cash equivalents and restricted cash at end of period	$	48	$	3
Supplemental disclosure of cash flow information:
Cash paid for interest (net of amounts capitalized)	$	(86)	$	(94)
Cash (paid) received for income taxes, net	(50)		45
Supplemental disclosure of non-cash investing and financing transactions:
Accrued property, plant and equipment additions	$	45	$	40
Inventory transfers to property, plant and equipment	8		8
Allowance for equity funds used during construction	5		2

See Notes to Financial Statements

5

SOUTHWESTERN PUBLIC SERVICE COMPANY

BALANCE SHEETS (UNAUDITED)

(amounts in millions, except share and per share data)

	Sept. 30, 2023		Dec. 31, 2022
Assets
Current assets
Cash and cash equivalents	$	48	$	2
Accounts receivable, net	176		167
Accounts receivable from affiliates	15		15
Accrued unbilled revenues	162		140
Inventories	68		61
Regulatory assets	35		217
Derivative instruments	66		122
Prepaid taxes	2		5
Prepayments and other	32		68
Total current assets	604		797
Property, plant and equipment, net	8,425		8,129
Other assets
Regulatory assets	347		359
Derivative instruments	1		3
Operating lease right-of-use assets	411		434
Other	30		26
Total other assets	789		822
Total assets	$	9,818	$	9,748
Liabilities and Equity
Current liabilities
Current portion of long-term debt	$	350	$	—
Short-term debt	—		34
Accounts payable	191		209
Accounts payable to affiliates	18		23
Regulatory liabilities	100		148
Taxes accrued	84		61
Accrued interest	42		31
Dividends payable to parent	69		61
Derivative instruments	4		4
Operating lease liabilities	32		31
Other	57		58
Total current liabilities	947		660
Deferred credits and other liabilities
Deferred income taxes	663		739
Regulatory liabilities	738		715
Asset retirement obligations	152		147
Derivative instruments	—		2
Pension and employee benefit obligations	9		12
Operating lease liabilities	379		403
Other	8		9
Total deferred credits and other liabilities	1,949		2,027
Commitments and contingencies
Capitalization
Long-term debt	2,961		3,211
Common stock — 200 shares authorized of $1.00 par value; 100 shares outstanding at Sept. 30, 2023 and Dec. 31, 2022, respectively	—		—
Additional paid in capital	3,358		3,311
Retained earnings	604		540
Accumulated other comprehensive loss	(1)		(1)
Total common stockholder's equity	3,961		3,850
Total liabilities and equity	$	9,818	$	9,748

See Notes to Financial Statements

6

SOUTHWESTERN PUBLIC SERVICE COMPANY

STATEMENTS OF COMMON STOCKHOLDER’S EQUITY (UNAUDITED)

(amounts in millions, except share data)

	Common Stock Issued					Retained Earnings		Accumulated Other Comprehensive Loss		Total Common Stockholder's Equity
	Shares	Par Value		Additional Paid In Capital
Three Months Ended Sept. 30, 2023 and 2022
Balance at June 30, 2022	100	$	—	$	3,301	$	547	$	(1)	$	3,847
Net income						138				138
Common dividends declared to parent						(150)				(150)
Balance at Sept. 30, 2022	100	$	—	$	3,301	$	535	$	(1)	$	3,835
Balance at June 30, 2023	100	$	—	$	3,319	$	507	$	(1)	$	3,825
Net income						167				167
Common dividends declared to parent						(70)				(70)
Contributions of capital by parent				39						39
Balance at Sept. 30, 2023	100	$	—	$	3,358	$	604	$	(1)	$	3,961
	Common Stock Issued					Retained Earnings		Accumulated Other Comprehensive Loss		Total Common Stockholder's Equity
	Shares	Par Value		Additional Paid In Capital
Nine Months Ended Sept. 30, 2023 and 2022
Balance at Dec. 31, 2021	100	$	—	$	3,091	$	513	$	(1)	$	3,603
Net income						283				283
Dividends declared to parent						(261)				(261)
Contributions of capital by parent				210						210
Balance at Sept. 30, 2022	100	$	—	$	3,301	$	535	$	(1)	$	3,835
Balance at Dec. 31, 2022	100	$	—	$	3,311	$	540	$	(1)	$	3,850
Net income						302				302
Dividends declared to parent						(238)				(238)
Contributions of capital by parent				47						47
Balance at Sept. 30, 2023	100	$	—	$	3,358	$	604	$	(1)	$	3,961
See Notes to Financial Statements

7

SOUTHWESTERN PUBLIC SERVICE COMPANY

Notes to Financial Statements (UNAUDITED)

In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly, in accordance with GAAP, the financial position of SPS as of Sept. 30, 2023 and Dec. 31, 2022; the results of SPS’ operations, including the components of net income and changes in stockholder’s equity for the three and nine months ended Sept. 30, 2023 and 2022; and SPS’ cash flows for the nine months ended Sept. 30, 2023 and 2022.

All adjustments are of a normal, recurring nature, except as otherwise disclosed. Management has also evaluated the impact of events occurring after Sept. 30, 2023 up to the date of issuance of these financial statements. These statements contain all necessary adjustments and disclosures resulting from that evaluation. The Dec. 31, 2022 balance sheet information has been derived from the audited 2022 financial statements included in the SPS Annual Report on Form 10-K for the year ended Dec. 31, 2022.

Notes to the 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 financial statements and notes thereto included in the SPS Annual Report on Form 10-K for the year ended Dec. 31, 2022, filed with the SEC on Feb. 23, 2023.

Due to the seasonality of SPS’ electric 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 financial statements in the SPS Annual Report on Form 10-K for the year ended Dec. 31, 2022 appropriately represent, in all material respects, the current status of accounting policies and are incorporated herein by reference.

2. Accounting Pronouncements

As of Sept. 30, 2023, 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 SPS’s consolidated financial statements.

3. Selected Balance Sheet Data

(Millions of Dollars)	Sept. 30, 2023		Dec. 31, 2022
Accounts receivable, net
Accounts receivable	$	191	$	180
Less allowance for bad debts	(15)		(13)
Accounts receivable, net	$	176	$	167

(Millions of Dollars)	Sept. 30, 2023		Dec. 31, 2022
Inventories
Materials and supplies	$	55	$	42
Fuel	13		19
Total inventories	$	68	$	61

(Millions of Dollars)	Sept. 30, 2023		Dec. 31, 2022
Property, plant and equipment, net
Electric plant	$	10,555	$	10,182
Plant to be retired (a)	251		266
CWIP	293		167
Total property, plant and equipment	11,099		10,615
Less accumulated depreciation	(2,674)		(2,486)
Property, plant and equipment, net	$	8,425	$	8,129

(a)Amounts include Tolk and coal generation assets at Harrington pending facility gas conversion. Amounts are reported net of accumulated depreciation.

4. Borrowings and Other Financing Instruments

Short-Term Borrowings

SPS 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:

(Amounts in Millions, Except Interest Rates)	Three Months Ended Sept. 30, 2023			Year Ended Dec. 31, 2022
Borrowing limit	$	100		$	100
Amount outstanding at period end	—			—
Average amount outstanding	73			35
Maximum amount outstanding	100			100
Weighted average interest rate, computed on a daily basis	5.19		%	0.44		%
Weighted average interest rate at period end	N/A			N/A

Commercial Paper — Commercial paper outstanding:

(Amounts in Millions, Except Interest Rates)	Three Months Ended Sept. 30, 2023			Year Ended Dec. 31, 2022
Borrowing limit	$	500		$	500
Amount outstanding at period end	—			34
Average amount outstanding	47			100
Maximum amount outstanding	119			324
Weighted average interest rate, computed on a daily basis	5.35		%	0.79		%
Weighted average interest rate at period end	N/A			4.55

Letters of Credit — SPS uses letters of credit, generally with terms of one year, to provide financial guarantees for certain obligations. At both Sept. 30, 2023 and Dec. 31, 2022, there were $2 million of letters of credit outstanding under the credit facility. Amounts approximate their fair value and are subject to fees.

Revolving Credit Facility — In order to issue its commercial paper, SPS must have a revolving credit facility equal to or greater than the 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.

8

SPS 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.

As of Sept. 30, 2023, SPS had the following committed revolving credit facility available (in millions of dollars):

Credit Facility (a)		Drawn (b)		Available
$	500	$	2	$	498

(a)Expires in September 2027.

(b)Includes outstanding letters of credit.

All credit facility bank borrowings, outstanding letters of credit and outstanding commercial paper reduce the available capacity under the credit facility. SPS had no direct advances on the credit facility outstanding as of Sept. 30, 2023 and Dec. 31, 2022.

Long-Term Borrowings

During the nine months ended September 30, 2023, SPS issued $100 million of 6.00% first mortgage bonds due September 15, 2053.

5. Revenues

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

	Three Months Ended Sept. 30
(Millions of Dollars)	2023		2022
Major revenue types
Revenue from contracts with customers:
Residential	$	164	$	159
Commercial and Industrial	319		325
Other	18		17
Total retail	501		501
Wholesale	88		149
Transmission	81		80
Total revenue from contracts with customers	670		730
Alternative revenue and other	7		11
Total revenues	$	677	$	741
	Nine Months Ended Sept. 30
(Millions of Dollars)	2023		2022
Major revenue types
Revenue from contracts with customers:
Residential	$	356	$	356
Commercial and Industrial	843		811
Other	44		38
Total retail	1,243		1,205
Wholesale	184		327
Transmission	227		226
Other	2		6
Total revenue from contracts with customers	1,656		1,764
Alternative revenue and other	25		112
Total revenues	$	1,681	$	1,876

6. Income Taxes

Reconciliation between the statutory rate and ETR:

	Nine Months Ended Sept. 30
	2023		2022
Federal statutory rate	21.0	%	21.0	%
State tax (net of federal tax effect)	2.5		2.3
(Decreases) increases:
Wind PTCs (a)	(31.4)		(31.8)
Plant regulatory differences (b)	(3.4)		(3.7)
Amortization of excess nonplant deferred taxes	0.3		(0.9)
Other (net)	—		(0.6)
Effective income tax rate	(11.0)	%	(13.7)	%

(a)Wind PTCs are credited to customers (reduction to revenue) and do not materially impact net income.

(b)Plant regulatory differences primarily relate to the credit of excess deferred taxes to customers through the average rate assumption method. Income tax benefits associated with the credit 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 hierarchical framework for disclosing the observability of the inputs utilized in measuring assets and liabilities at fair value.

•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 actively traded instruments with observable actual trading prices.

•Level 2 — Pricing inputs are other than actual trading 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 include those valued with models requiring significant judgment or estimation.

Specific valuation methods include:

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

Commodity derivatives — 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 contracts relate to inactive delivery locations or extend to periods beyond those readily observable on active exchanges, 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 SPS include transmission congestion instruments, generally referred to as FTRs. FTRs purchased from an RTO are financial instruments that entitle or obligate the holder to monthly revenues or charges based on transmission congestion across a given transmission path.

9

The values of these instruments are derived from, and designed to offset, the costs 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 these instruments.

FTRs are recognized at fair value and adjusted each period prior to settlement. Given the limited observability of certain variables underlying the reported auction, values of FTRs, these fair value measurements have been assigned a Level 3 classification.

Net congestion costs, including the impact of FTR settlements, are shared through fuel and purchased energy cost recovery mechanisms. As such, the fair value of the unsettled instruments (i.e., derivative asset or liability) is offset/deferred as a regulatory asset or liability.

Derivative Activities and Fair Value Measurements

SPS enters into derivative instruments, including forward contracts, for trading purposes and to manage risk in connection with changes in interest rates and utility commodity prices.

Interest Rate Derivatives — SPS enters into contracts that effectively fix the interest rate on a specified principal amount of a hypothetical future debt issuance. These financial swaps net settle based on changes in a specified benchmark interest rate, acting as a hedge of changes in market interest rates that will impact specified anticipated debt issuances. These derivative instruments are designated as cash flow hedges for accounting purposes, with changes in fair value prior to occurrence of the hedged transactions recorded as other comprehensive income.

As of Sept. 30, 2023, accumulated other comprehensive loss related to interest rate derivatives included immaterial net losses expected to be reclassified into earnings during the next 12 months as the hedged transactions impact earnings. As of Sept. 30, 2023, SPS had no unsettled interest rate derivatives.

Wholesale and Commodity Trading — SPS conducts various wholesale and commodity trading activities, including the purchase and sale of electric capacity, energy and energy-related instruments, including derivatives. SPS 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.

Results of derivative instrument transactions entered into for trading purposes are presented in the statements of income as electric revenues, net of any sharing with customers. These activities are not intended to mitigate commodity price risk associated with regulated electric operations. Sharing of these margins is determined through state regulatory proceedings as well as the operation of the FERC-approved joint operating agreement.

Commodity Derivatives — SPS enters into derivative instruments to manage variability of future cash flows from changes in commodity prices in its electric utility operations. This could include the purchase or sale of energy or energy-related products and FTRs.

The most significant derivative positions outstanding at Sept. 30, 2023 for this purpose relate to FTR instruments administered by SPP. These instruments are intended to offset the impacts of transmission system congestion. Higher congestion costs in recent years have led to an increase in the fair value of FTRs. Settlements of FTRs are shared with electric customers through fuel and purchased energy cost-recovery mechanisms.

When SPS enters into derivative instruments that mitigate commodity price risk on behalf of electric customers, the instruments are not typically designated as qualifying hedging transactions. The classification of unrealized losses or gains on these instruments as a regulatory asset or liability, if applicable, is based on approved regulatory recovery mechanisms.

Gross notional amounts of FTRs:

Amounts in Millions (a)	Sept. 30, 2023	Dec. 31, 2022
Megawatt hours of electricity	11	8

(a)Not reflective of net positions in the underlying commodities.

Consideration of Credit Risk and Concentrations — SPS 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 balance sheets.

SPS’ 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 Sept. 30, 2023, four of the ten most significant counterparties for these activities, comprising $10 million, or 30%, of this credit exposure, had investment grade credit ratings from S&P Global Ratings, Moody’s Investor Services or Fitch Ratings.

Five of the ten most significant counterparties, comprising $23 million, or 69%, of this credit exposure, were not rated by external ratings agencies, but based on SPS’ internal analysis, had credit quality consistent with investment grade.

One of these counterparties, comprising an immaterial amount or less than 1% of this credit exposure, had credit quality less than investment grade, based on internal analysis. Nine of these counterparties are municipal or cooperative electric entities, RTOs or other utilities.

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Recurring Derivative Fair Value Measurements

Impact of derivative activity:

Pre-Tax Fair Value Gains (Losses) Recognized During the Period in:
(Millions of Dollars)	Regulatory Assets and Liabilities
Three Months Ended Sept. 30, 2023
Other derivative instruments
Electric commodity	$	(4)
Total	$	(4)
Nine Months Ended Sept. 30, 2023
Other derivative instruments
Electric commodity	$	(87)
Total	$	(87)
Three Months Ended Sept. 30, 2022
Other derivative instruments
Electric commodity	$	(13)
Total	$	(13)
Nine Months Ended Sept. 30, 2022
Other derivative instruments
Electric commodity	$	80
Total	$	80

Pre-Tax (Gains) Losses Reclassified into Income During the Period from:
(Millions of Dollars)	Regulatory Assets and Liabilities
Three Months Ended Sept. 30, 2023
Other derivative instruments
Electric commodity	6		(a)
Total	$	6
Nine Months Ended Sept. 30, 2023
Other derivative instruments
Electric commodity	78		(a)
Total	$	78
Three Months Ended Sept. 30, 2022
Other derivative instruments
Electric commodity	8		(a)
Total	$	8
Nine Months Ended Sept. 30, 2022
Other derivative instruments
Electric commodity	(26)		(a)
Total	$	(26)

(a)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. FTR settlements are shared with customers and do not have a material impact on net income. Presented amounts reflect changes in fair value between auction and settlement dates, but exclude the original auction fair value.

SPS had no derivative instruments designated as fair value hedges during the nine months ended Sept. 30, 2023 and immaterial derivative instruments designated as fair value hedges during the nine months ended Sept. 30, 2022.

Derivative assets and liabilities measured at fair value on a recurring basis were as follows:

	Sept. 30, 2023												Dec. 31, 2022
	Fair Value						Fair Value Total		Netting (a)		Total		Fair Value						Fair Value Total		Netting (a)		Total
(Millions of Dollars)	Level 1		Level 2		Level 3								Level 1		Level 2		Level 3
Current derivative assets
Other derivative instruments:
Electric commodity	$	—	$	—	$	63	$	63	$	—	$	63	$	—	$	—	$	119	$	119	$	—	$	119
Total current derivative assets	$	—	$	—	$	63	$	63	$	—	63		$	—	$	—	$	119	$	119	$	—	119
PPAs (b)											3												3
Current derivative instruments											$	66											$	122
Noncurrent derivative assets
PPAs (b)											1												3
Noncurrent derivative instruments											$	1											$	3
Current derivative liabilities
PPAs (b)											4												4
Current derivative instruments											$	4											$	4
Noncurrent derivative liabilities
PPAs (b)											—												2
Noncurrent derivative instruments											$	—											$	2

(a)SPS nets derivative instruments and related collateral on its balance sheet when supported by a legally enforceable master netting agreement. At Sept. 30, 2023 and Dec. 31, 2022, derivative assets and liabilities include no obligations to return cash collateral or rights to reclaim cash collateral.

(b)SPS currently applies the normal purchase exception to qualifying PPAs. Balance relates to specific contracts that were previously recognized at fair value prior to applying the normal purchase exception, and are being amortized over the remaining contract lives along with the offsetting regulatory assets and liabilities.

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Changes in Level 3 commodity derivatives:

	Three Months Ended Sept. 30
(Millions of Dollars)	2023		2022
Balance at July 1	$	83	$	284
Purchases (a)	1		4
Settlements (a)	(18)		(22)
Net transactions recorded during the period:
Net losses recognized as regulatory assets and liabilities (a)	(3)		(32)
Balance at Sept. 30	$	63	$	234
	Nine Months Ended Sept. 30
(Millions of Dollars)	2023		2022
Balance at Jan. 1	$	119	$	27
Purchases (a)	75		241
Settlements (a)	(66)		(116)
Net transactions recorded during the period:
Net (losses) gains recognized as regulatory assets and liabilities (a)	(65)		82
Balance at Sept. 30	$	63	$	234

(a)Relates primarily to FTR instruments administered by SPP.

Fair Value of Long-Term Debt

As of Sept. 30, 2023, other financial instruments for which the carrying amount did not equal fair value:

	Sept. 30, 2023				Dec. 31, 2022
(Millions of Dollars)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, including current portion	$	3,311	$	2,580	$	3,211	$	2,674

Fair value of SPS’ 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 Sept. 30, 2023 and Dec. 31, 2022, 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 Sept. 30
	2023		2022		2023		2022
(Millions of Dollars)	Pension Benefits				Postretirement Health Care Benefits
Service cost	$	2	$	2	$	—	$	—
Interest cost (a)	5		4		—		—
Expected return on plan assets (a)	(8)		(8)		—		—
Amortization of net loss (a)	—		3		—		(1)
Settlement charge (b)	—		2		—		—
Net periodic benefit (credit) cost	$	(1)	$	3	$	—	$	(1)
Effects of regulation	1		(1)		—		—
Net benefit cost recognized for financial reporting	$	—	$	2	$	—	$	(1)

	Nine Months Ended Sept. 30
	2023		2022		2023		2022
(Millions of Dollars)	Pension Benefits				Postretirement Health Care Benefits
Service cost	$	5	$	7	$	—	$	—
Interest cost (a)	17		12		1		1
Expected return on plan assets (a)	(24)		(23)		(1)		(1)
Amortization of net loss (gain) (a)	1		8		—		(1)
Settlement charge (b)	—		2		—		—
Net periodic (credit) benefit cost	$	(1)	$	6	$	—	$	(1)
Effects of regulation	3		(1)		—		—
Net benefit cost recognized for financial reporting	$	2	$	5	$	—	$	(1)

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

(b)A settlement charge is required when the amount of all lump-sum distributions during the year is greater than the sum of the service and interest cost components of the annual net periodic pension cost. In the third quarter of 2022, as a result of lump-sum distributions during the 2022 plan year, SPS recorded a pension settlement charge of $2 million, the majority of which was not recognized in earnings due to the effects of rate making.

In January 2023, contributions totaling $50 million were made across Xcel Energy’s pension plans, none of which was attributable to SPS. Xcel Energy does not expect additional pension contributions during 2023.

9. Commitments and Contingencies

Legal

SPS 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 SPS’ financial statements. Legal fees are generally expensed as incurred.

Rate Matters and Other

SPS 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.

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SPP OATT Upgrade Costs — Costs of transmission upgrades may be recovered from other SPP customers whose transmission service depends on capacity enabled by the upgrade under the SPP OATT. SPP had not been charging its customers for these upgrades, even though the SPP OATT had allowed SPP to do so since 2008. In 2016, the FERC granted SPP’s request to recover these previously unbilled charges and SPP subsequently billed SPS approximately $13 million.

In 2019, the FERC reversed its decision and ordered SPP to refund charges retroactively collected from its transmission customers, including SPS, related to periods before September 2015. Refunds received by SPS are expected to be given back to SPS customers through future rates. An appeal is now pending at the Eighth Circuit, in which a group of entities is challenging FERC’s decision to order refunds for these charges. SPS has intervened in that appellate proceeding in support of FERC.

In 2017, SPS filed a separate related complaint asserting SPP assessed upgrade charges to SPS in violation of the SPP OATT. In 2018, the FERC issued an order denying the SPS complaint. SPS filed a request for rehearing in 2018. The FERC subsequently issued a tolling order granting a rehearing for further consideration. If SPS’ complaint results in additional charges or refunds, SPS will seek to recover or refund the amount through future SPS customer rates. In 2020, SPS filed a petition for review of the FERC’s 2018 orders at the D.C. Circuit. In February 2022, FERC issued an order rejecting SPS’ request for hearing. In August 2023, the D.C. Circuit issued a decision upholding these decisions by FERC.

Environmental

MGP, Landfill and Disposal Sites

SPS is investigating, remediating or performing post-closure actions at two MGP, landfill or other disposal sites across its service territories, excluding sites that are being addressed under coal ash regulations.

SPS 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 — Air

Clean Air Act NOx Allowance Allocations — In June 2023, after disapproving state implementation plans, the EPA published final regulations under the "Good Neighbor" provisions of the Clean Air Act. The final rule applies to generation facilities in Texas, as well as other states outside of our service territory. The rule establishes an allowance trading program for NOx that will impact SPS’ fossil fuel-fired electric generating facilities. Applicable facilities will have to secure additional allowances, install NOx controls and/or develop a strategy of operations that utilizes the existing allowance allocations. Guidelines are also established for allowance banking and emission limit backstops.

While the financial impacts of the final rule are uncertain and dependent on market forces and anticipated generation, SPS anticipates the annual costs could be significant, but would be recoverable through regulatory mechanisms.

SPS has joined other impacted companies in litigation challenging the EPA’s disapproval of Texas’ state implementation plan. Currently, the regulation is under a judicial stay for Texas and not applicable to SPS until litigation concludes.

Regional Haze Rules — The EPA has proposed rules addressing Regional Haze compliance in Texas, which address requirements for reasonable progress at Tolk and BART at Harrington. As proposed, these rules would not require additional controls at either facility, in part due to the conversion of Harrington to gas in 2025 and the planned retirement of Tolk. These rules will be monitored until final versions are published.

Leases

SPS 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 Sept. 30
(Millions of Dollars)	2023		2022
Operating leases
PPA capacity payments	$	13	$	13
Other operating leases (a)	1		1
Total operating lease expense (b)	$	14	$	14

(a)Includes immaterial short-term lease expense for 2023 and 2022.

(b)PPA capacity payments are included in electric fuel and purchased power on the statements of income. Expense for other operating leases is included in operating and maintenance expense and electric fuel and purchased power.

	Nine Months Ended Sept. 30
(Millions of Dollars)	2023		2022
Operating leases
PPA capacity payments	$	40	$	39
Other operating leases (a)	3		4
Total operating lease expense (b)	$	43	$	43

(a)Includes immaterial short-term lease expense for both 2023 and 2022.

(b)PPA capacity payments are included in electric fuel and purchased power on the statements of income. Expense for other operating leases is included in operating and maintenance expense and electric fuel and purchased power.

Commitments under operating leases as of Sept. 30, 2023:

(Millions of Dollars)	PPA Operating Leases		Other Operating Leases		Total Operating Leases
Total minimum obligation	$	462	$	51	$	513
Interest component of obligation	(89)		(13)		(102)
Present value of minimum obligation	$	373	$	38	411
Less current portion					(32)
Noncurrent operating lease liabilities					$	379

Variable Interest Entities

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

In addition, certain solar PPAs provide an option to purchase emission allowances or sharing provisions related to production credits generated by the solar facility under contract. These specific PPAs create a variable interest in the IPP.

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SPS had approximately 1,197 MW of capacity under long-term PPAs at both Sept. 30, 2023 and Dec. 31, 2022 with entities that have been determined to be variable interest entities. SPS concluded that these entities are not required to be consolidated in its financial statements because it does not have the power to direct the activities that most significantly impact the entities’ economic performance. The PPAs have expiration dates through 2041.

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Discussion of financial condition and liquidity for SPS 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 adjusts measures calculated and presented in accordance with GAAP.

SPS’ 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 SPS’ core earnings and underlying performance.

We believe this measurement is useful to investors to evaluate the actual and projected financial performance and contribution of SPS. For the three and nine months ended Sept. 30, 2023 and 2022, there were no such adjustments to GAAP earnings and therefore GAAP earnings equal ongoing earnings.

Results of Operations

SPS’ net income was approximately $302 million for the nine months ended Sept. 30, 2023 compared with approximately $283 million for the prior year. The impact of regulatory rate outcomes and sales growth was partially offset by unfavorable weather, increased depreciation and interest 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 and coal. 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

	Nine Months Ended Sept. 30
(Millions of Dollars)	2023		2022
Electric revenues	$	1,681	$	1,876
Electric fuel and purchased power	(727)		(881)
Electric margin	$	954	$	995

Changes in Electric Margin

(Millions of Dollars)	Nine Months Ended Sept. 30, 2023 vs. 2022
Revenue recognition for the Texas rate case surcharge (a)	$	(85)
PTCs flowed back to customers (offset by a lower ETR)	(12)
Estimated impact of weather	(11)
Firm wholesale	(10)
Sales and demand	28
Regulatory rate outcomes (Texas and New Mexico)	24
Wholesale transmission (net)	20
Other (net)	5
Total decrease	$	(41)

(a)The decline in electric margin is due to the recognition of the Texas rate case outcome in the second quarter of 2022, which was largely offset by recognition of previously deferred costs.

Non-Fuel Operating Expense and Other Items

O&M Expenses — O&M expenses decreased $16 million year-to-date. The decrease was primarily due to change in deferred costs associated with the Texas rate cases (offset in electric revenues).

Depreciation and Amortization — Depreciation and amortization decreased $26 million year-to-date. The decrease is primarily due to the recognition of previously deferred depreciation costs associated with the Texas Electric Rate Case in 2022 (approximately $40 million), partially offset by system expansion.

Taxes (Other than Income Taxes) — Taxes (other than income taxes) decreased $10 million year-to-date, primarily due to the change in deferred costs associated with the Texas rate cases.

Interest Charges — Interest charges decreased $1 million year-to-date, primarily due to recognition of previously deferred costs associated with the Texas Electric Rate Case (offset in Electric revenues), offset by higher interest rates and increased long-term debt levels.

Public Utility Regulation and Other

The FERC and state and local regulatory commissions regulate SPS. SPS is subject to rate regulation by state utility regulatory agencies, which have jurisdiction with respect to the rates of electric distribution companies in New Mexico and Texas.

Rates are designed to recover plant investment, operating costs and an allowed return on investment. SPS requests changes in utility rates through commission filings. Changes in operating costs can affect SPS’ 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.

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

Except to the extent noted below, the circumstances set forth in Public Utility Regulation included in Item 7 of SPS’ Annual Report on Form 10-K for the year ended Dec. 31, 2022, appropriately represent, in all material respects, the current status of public utility regulation and are incorporated herein by reference.

Pending and Recently Concluded Regulatory Proceedings

2022 New Mexico Electric Rate Case — In November 2022, SPS filed a New Mexico electric rate case seeking a revenue increase of $78 million, or 10%. In May 2023, SPS revised its request to $75 million. The request is based on a ROE of 10.75%, an equity ratio of 54.7%, a future test year ending June 30, 2024, rate base of $2.4 billion and acceleration of the Tolk coal plant depreciation life from 2032 to 2028.

In October 2023, the NMPRC approved a settlement between SPS, NMPRC Staff, and various parties, which included the following terms:

•Base rate revenue increase of $33 million, based on the filed future test year.

•ROE of 9.5%.

•Equity ratio of 54.7%.

•Acceleration of Tolk coal plant depreciation life to 2028.

Rates went into effect in October 2023.

2023 Texas Electric Rate Case — In February 2023, SPS filed a Texas electric rate case seeking an increase in base rate revenue of $149 million. In March 2023, SPS updated the filing, which increased the rate revenue request to $158 million (14% impact to customer bills). The request is based on a ROE of 10.65%, an equity ratio of 54.6% and retail rate base of $3.6 billion. Additionally, the request reflects the acceleration of the Tolk coal plant depreciation life from 2034 to 2028. SPS is requesting a surcharge from July 13, 2023 through the effective date of new base rates.

In September 2023, SPS and various parties reached a settlement in principle regarding the overall revenue requirement and key terms. The parties are still completing cost allocation and rate design settlement details and will file the settlement assuming finalization of remaining issues.

A PUCT decision is expected in the first quarter of 2024.

SPS and LP&L Termination — SPS and LP&L have a 25-year, 170 MW partial requirements contract. In May 2021, SPS and LP&L finalized a settlement which would terminate the contract upon LP&L’s move from the SPP to the Electric Reliability Council of Texas (expected in 2023). The settlement agreement requires LP&L to pay SPS $78 million (to the benefit of SPS’ remaining customers). LP&L would remain obligated to pay for SPP transmission charges associated with LP&L’s load in SPP. The agreement has received PUCT approval. In September 2023, SPS received FERC approval.

2022 All-Source RFP — In July 2023, SPS filed a recommended portfolio, which includes 418 MW of self-build solar projects. A decision from PUCT and NMPRC is expected in mid-2024.

New Mexico Resource Plan — On Oct. 13, 2023, SPS filed its IRP with the NMPRC, which supports projected load growth and secures replacement energy and capacity for retiring resources. SPS presented three load forecasts ranging from a low load growth scenario to a stakeholder-driven high load growth forecast (the “Electrification Forecast”). Based on these forecast scenarios, SPS’ initial IRP modeling projects a total resource need ranging from approximately 5,300 MW to 10,200 MW by 2030. Upon acceptance of the IRP, SPS expects to issue an RFP for new generation in mid-2024. The RFP will be evaluated in the latter half of 2024 with project selection expected in early 2025.

Other

Supply Chain

SPS’ 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. SPS continues to monitor the situation as it remains fluid and seeks to mitigate the impacts by securing alternative suppliers, modifying design standards, and adjusting the timing of work.

Electric Meters and Transformers

Supply chain issues associated with semi-conductors have delayed the availability of advanced infrastructure meters. As a result of delays, SPS projects impacts to deployment schedules into 2025.

Additionally, the availability of certain transformers is an industry-wide issue that has significantly impacted and in some cases may result in delays in projects and new customer connections. Proposed governmental actions related to transformer efficiency standards may compound these delays in the future. SPS continues to seek alternative suppliers and prioritize work plans to mitigate impacts of supply constraints.

Solar Resources

In August 2023, the U.S. Department of Commerce completed its anti-circumvention investigation and concluded that CSPV solar panels and cells imported from Malaysia, Vietnam, Thailand, and Cambodia would be subject to incremental tariffs ranging from 50% to 250%. These countries account for more than 80% of CSPV panel imports.

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An interim stay on tariffs remains in effect until June 2024 and many significant solar projects have resumed with modified costs and projected in-service dates. Further policy action, a change in the interim stay of tariffs, or other restrictions on solar imports (e.g., as a result of implementation of the Uyghur Forced Labor Protection Act) or disruptions in solar imports from key suppliers could impact project timelines and costs.

Environmental

Clean Air Act

Power Plant Greenhouse Gas Regulations — In May 2023, the EPA published proposed rules addressing control of CO2 emissions from the power sector. The rule proposed regulations for new natural gas generating units under Clean Air Act Section 111(b) and emission guidelines for existing coal and certain natural gas generation under Clean Air Act Section 111(d). The proposed rules create subcategories of coal units based on planned retirement date and subcategories of natural gas combustion turbines and combined cycle units based on utilization. The CO2 control requirements vary by subcategory. Until final rules are issued, it is not certain what the impact will be on SPS. SPS believes that the cost of these initiatives or replacement generation would be recoverable through rates based on prior state commission practices.

Emerging Contaminants of Concern

PFAS are man-made chemicals that are widely used in consumer products and can persist and bio-accumulate in the environment. SPS does not manufacture PFAS but because PFAS are so ubiquitous in products and the environment, it may impact our operations.

In September 2022, the EPA proposed to designate two types of PFAS as “hazardous substances” under the CERCLA.

In March 2023, the EPA published a proposed rule that would establish enforceable drinking water standards for certain PFAS chemicals.

SPS provided comments related to both efforts described above through its regulatory coalitions. Final rules are expected in 2024. Costs are uncertain until a final rule is published.

The proposed rules could result in new obligations for investigation and cleanup. SPS is monitoring changes to state laws addressing PFAS. The impact of these proposed regulations is uncertain.

ITEM 4 — CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

SPS 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 Sept. 30, 2023, based on an evaluation carried out under the supervision and with the participation of SPS’ management, including the CEO and CFO, of the effectiveness of its disclosure controls and procedures, the CEO and CFO have concluded that SPS’ disclosure controls and procedures were effective.

Internal Control Over Financial Reporting

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

PART II — OTHER INFORMATION

ITEM 1 — LEGAL PROCEEDINGS

SPS is involved in various litigation matters in the ordinary course of business. The assessment of whether a loss is probable or is a reasonable possibility, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. Management maintains accruals for losses probable of being incurred and subject to reasonable estimation.

Management is sometimes unable to estimate an amount or range of a reasonably possible loss in certain situations, including but not limited to, when (1) the damages sought are indeterminate, (2) the proceedings are in the early stages or (3) the matters involve novel or unsettled legal theories. In such cases, there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including a possible eventual loss.

For current proceedings not specifically reported herein, management does not anticipate that the ultimate liabilities, if any, would have a material effect on SPS’ financial statements. Legal fees are generally expensed as incurred.

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

ITEM 1A — RISK FACTORS

SPS’ risk factors are documented in Item 1A of Part I of its Annual Report on Form 10-K for the year ended Dec. 31, 2022, which is incorporated herein by reference. There have been no material changes from the risk factors previously disclosed in the Form 10-K.

ITEM 5 — OTHER INFORMATION

None of the Company’s directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended Sept. 30, 2023.

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ITEM 6 — EXHIBITS

* Indicates incorporation by reference

Exhibit Number	Description	Report or Registration Statement	Exhibit Reference
3.01*	Amended and Restated Articles of Incorporation, dated Sept. 30, 1997	SPS Form 10-Q for the quarter ended Sept. 30, 2017	3.01
3.02*	Amended and Restated Bylaws of SPS, dated Jan. 25, 2019	SPS Form 10-K for the year ended Dec. 31, 2018	3.02
4.01*	Supplemental Indenture No. 10 dated as of August 21, 2023 between SPS and U.S. Bank Trust Company, National Association (as successor to U.S. Bank National Association), as Trustee, creating 6.00% First Mortgage Bonds, Series No. 10 due 2053.	SPS Form 8-K dated August 21, 2023	4.01
31.01	Principal Executive Officer’s certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02	Principal Financial Officer’s certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01	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)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Southwestern Public Service Company
10/27/23	By:	/s/ BRIAN J. VAN ABEL
		Brian J. Van Abel
		Executive Vice President, Chief Financial Officer
		(Principal Accounting Officer and Principal Financial Officer)

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