7.	Benefit Plans and Other Postretirement Benefits

Pension and other postretirement benefit disclosures below generally represent Xcel Energy consolidated information unless specifically identified as being attributable to SPS. Consistent with the process for rate recovery of pension and postretirement benefits for its employees, SPS accounts for its participation in, and related costs of, pension and other postretirement benefit plans sponsored by Xcel Energy Inc. as multiple employer plans. SPS is responsible for its share of cash contributions, plan costs and obligations and is entitled to its share of plan assets; accordingly, SPS accounts for its pro rata share of these plans, including pension expense and contributions, resulting in accounting consistent with that of a single employer plan exclusively for SPS employees.

Xcel Energy, which includes SPS, offers various benefit plans to its employees. Approximately 67 percent of employees that receive benefits are represented by several local labor unions under several collective-bargaining agreements. At Dec. 31, 2011, SPS had 804 bargaining employees covered under a collective-bargaining agreement, which expires in October 2014.

The plans invest in various instruments which are disclosed under the accounting guidance for fair value measurements which establishes a hierarchal framework for disclosing the observability of the inputs utilized in measuring fair value. The three levels in the hierarchy and examples of each level are as follows:

Level 1 - Quoted prices are available in active markets for identical assets as of the reporting date. The types of assets included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as common stocks listed by the New York Stock Exchange.

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 included in Level 2 are typically either comparable to actively traded securities or contracts or priced with models using highly observable inputs, such as corporate bonds with pricing based on market interest rate curves and recent trades of similarly rated securities.

Level 3 - Significant inputs to pricing have little or no observability as of the reporting date. The types of assets included in Level 3 are those with inputs requiring significant management judgment or estimation, such as private equity investments and real estate investments, for which the measurement of net asset value requires significant use of unobservable inputs when determining the fair value of the underlying fund investments, including equity in non-publicly traded entities and real estate properties.

Pension Benefits

Xcel Energy, which includes SPS, has several noncontributory, defined benefit pension plans that cover almost all employees. Benefits are based on a combination of years of service, the employee's average pay and social security benefits. Xcel Energy Inc.'s and SPS' policy is to fully fund into an external trust the actuarially determined pension costs recognized for ratemaking and financial reporting purposes, subject to the limitations of applicable employee benefit and tax laws.

Xcel Energy Inc. and SPS base the investment-return assumption on expected long-term performance for each of the investment types included in the pension asset portfolio and consider the actual historical returns achieved by the asset portfolio over the past 20-year or longer period, as well as the long-term return levels projected and recommended by investment experts. The pension cost determination assumes a forecasted mix of investment types over the long-term. Investment returns were above the assumed levels of 6.80 in 2011 and 2010 and 8.50 percent in 2009. Xcel Energy Inc. and SPS continually review pension assumptions. In 2012, SPS' estimated investment-return assumption is 6.68 percent.

The assets are invested in a portfolio according to Xcel Energy Inc.'s and SPS' return, liquidity and diversification objectives to provide a source of funding for plan obligations and minimize the necessity of contributions to the plan, within appropriate levels of risk. The principal mechanism for achieving these objectives is the projected allocation of assets to selected asset classes, given the long-term risk, return, and liquidity characteristics of each particular asset class. There were no significant concentrations of risk in any particular industry, index, or entity; however, as SPS has experienced in recent years, unusual market volatility can impact even well-diversified portfolios and significantly affect the return levels achieved by pension assets in any year.

The following table presents the target pension asset allocations for SPS:

	2011			2010
Domestic and international equity securities		20	%		15	%
Long-duration fixed income securities		50			61
Short-to-intermediate term fixed income securities		9			5
Alternative investments		18			11
Cash		3			8
Total		100	%		100	%

The ongoing investment strategy is based on plan-specific investment recommendations that seek to minimize potential investment and interest rate risk as a plan's funded status increases over time. The investment recommendations result in a greater percentage of long-duration fixed income securities being allocated to specific plans having relatively higher funded status ratios, and a greater percentage of growth assets being allocated to plans having relatively lower funded status ratios. The aggregate projected asset allocation presented in the table above for the master pension trust results from the plan-specific strategies.

Pension Plan Assets

The following tables present, for each of the fair value hierarchy levels, SPS' pension plan assets that are measured at fair value as of Dec. 31, 2011 and 2010:

	Dec. 31, 2011
(Thousands of Dollars)	Level 1		Level 2			Level 3		Total
Cash equivalents	$	13,539	$	-		$	-	$	13,539
Derivatives		-		1,600			-		1,600
Government securities		-		25,233			-		25,233
Corporate bonds		-		112,328			-		112,328
Asset-backed securities		-		-			4,018		4,018
Mortgage-backed securities		-		-			7,907		7,907
Common stock		6,770		-			-		6,770
Private equity investments		-		-			16,159		16,159
Commingled funds		-		165,495			-		165,495
Real estate		-		-			3,586		3,586
Securities lending collateral obligation and other		-		(6,581	)		-		(6,581	)
Total	$	20,309	$	298,075		$	31,670	$	350,054

	Dec. 31, 2010
(Thousands of Dollars)	Level 1		Level 2			Level 3		Total
Cash equivalents	$	48,854	$	-		$	-	$	48,854
Derivatives		-		610			-		610
Government securities		-		12,576			-		12,576
Corporate bonds		-		111,208			-		111,208
Asset-backed securities		-		-			3,450		3,450
Mortgage-backed securities		-		-			11,060		11,060
Common stock		5,574		-			-		5,574
Private equity investments		-		-			11,464		11,464
Commingled funds		-		130,341			-		130,341
Real estate		-		-			10,132		10,132
Securities lending collateral obligation and other		-		(7,848	)		-		(7,848	)
Total	$	54,428	$	246,887		$	36,106	$	337,421

The following tables present the changes in SPS' Level 3 pension plan assets for the years ended Dec. 31, 2011, 2010 and 2009:

									Purchases,
			Net Realized			Net Unrealized			Issuances, and
(Thousands of Dollars)	Jan. 1, 2011		Gains (Losses)			Gains (Losses)			Settlements, Net			Dec. 31, 2011
Asset-backed securities	$	3,450	$	328		$	(355	)	$	595		$	4,018
Mortgage-backed securities		11,060		170			(865	)		(2,458	)		7,907
Real estate		10,132		(61	)		3,131			(9,616	)		3,586
Private equity investments		11,464		401			1,300			2,994			16,159
Total	$	36,106	$	838		$	3,211		$	(8,485	)	$	31,670

									Purchases,
			Net Realized			Net Unrealized			Issuances, and
(Thousands of Dollars)	Jan. 1, 2010		Gains (Losses)			Gains (Losses)			Settlements, Net			Dec. 31, 2010
Asset-backed securities	$	6,563	$	466		$	(378	)	$	(3,201	)	$	3,450
Mortgage-backed securities		16,444		1,744			(1,732	)		(5,396	)		11,060
Real estate		9,183		(156	)		1,118			(13	)		10,132
Private equity investments		11,303		(95	)		9,703			(9,447	)		11,464
Total	$	43,493	$	1,959		$	8,711		$	(18,057	)	$	36,106

									Purchases,
			Net Realized			Net Unrealized			Issuances, and
(Thousands of Dollars)	Jan. 1, 2009		Gains (Losses)			Gains (Losses)			Settlements, Net			Dec. 31, 2009
Asset-backed securities	$	10,635	$	315		$	6,234		$	(10,621	)	$	6,563
Mortgage-backed securities		22,888		769			13,155			(20,368	)		16,444
Real estate		15,012		(78	)		(5,869	)		118			9,183
Private equity investments		11,131		-			(841	)		1,013			11,303
Total	$	59,666	$	1,006		$	12,679		$	(29,858	)	$	43,493

Benefit Obligations - A comparison of the actuarially computed pension benefit obligation and plan assets for SPS is presented in the following table:

(Thousands of Dollars)	2011			2010
Accumulated Benefit Obligation at Dec. 31	$	368,585		$	338,954

Change in Projected Benefit Obligation:
Obligation at Jan. 1	$	370,587		$	340,520
Service cost		7,690			7,008
Interest cost		20,036			19,997
Actuarial loss		27,512			23,086
Benefit payments		(22,458	)		(20,024	)
Obligation at Dec. 31	$	403,367		$	370,587

Change in Fair Value of Plan Assets:
Fair value of plan assets at Jan. 1	$	337,421		$	320,913
Actual return on plan assets		29,913			36,532
Employer contributions		5,178			-
Benefit payments		(22,458	)		(20,024	)
Fair value of plan assets at Dec. 31	$	350,054		$	337,421

Funded Status of Plans at Dec. 31:
Funded status (a)	$	(53,313	)	$	(33,166	)

SPS Amounts Not Yet Recognized as Components of Net Periodic Benefit Cost:
Net loss	$	222,849		$	207,981
Prior service cost		2,401			3,906
Total	$	225,250		$	211,887

Amounts Related to the Funded Status of the Plans Have Been Recorded as Follows Based Upon Expected Recovery in Rates:
Current regulatory assets	$	14,761		$	9,294
Noncurrent regulatory assets		210,489			202,593
Total	$	225,250		$	211,887
Measurement date		Dec. 31, 2011			Dec. 31, 2010

(a)	Amounts are recognized in noncurrent liabilities on SPS' balance sheet.

	2011			2010
Significant Assumptions Used to Measure Benefit Obligations:
Discount rate for year-end valuation		5.00	%		5.50	%
Expected average long-term increase in compensation level		4.00			4.00
Mortality table	RP 2000			RP 2000

Cash Flows - Cash funding requirements can be impacted by changes to actuarial assumptions, actual asset levels and other calculations prescribed by the funding requirements of income tax and other pension-related regulations. These regulations did not require cash funding for 2008 through 2010 for Xcel Energy's pension plans. Required contributions were made in 2011 and 2012 to meet minimum funding requirements.

The Pension Protection Act changed the minimum funding requirements for defined benefit pension plans beginning in 2008. The following are the pension funding contributions, both voluntary and required, made by Xcel Energy for 2010 through 2012:

·	In January 2012, contributions of $190.5 million were made across four of Xcel Energy's pension plans, of which $12.9 million was attributable to SPS;

·	In 2011, contributions of $137.3 million were made across three of Xcel Energy's pension plans, of which $5.2 million was attributable to SPS;

·	In 2010, contributions of $34 million were made to the Xcel Energy Pension Plan, of which none was attributable to SPS.

·	For future years, we anticipate contributions will be made as necessary.

Plan Amendments - No amendments occurred during 2011 to the Xcel Energy pension plans.

Benefit Costs - The components of SPS' net periodic pension cost were:

(Thousands of Dollars)	2011			2010			2009
Service cost	$	7,690		$	7,008		$	5,754
Interest cost		20,036			19,997			20,081
Expected return on plan assets		(26,316	)		(27,542	)		(35,338	)
Amortization of prior service cost		1,505			1,504			1,504
Amortization of net loss		9,046			4,826			1,355
Net periodic pension cost (credit)	$	11,961		$	5,793		$	(6,644	)
Costs not recognized due to effects of regulation		(2,300	)		-			-
Net benefit cost (credit) recognized for financial reporting	$	9,661		$	5,793		$	(6,644	)

Significant Assumptions Used to Measure Costs:
Discount rate		5.50	%		6.00	%		6.75	%
Expected average long-term increase in compensation level		4.00			4.00			4.00
Expected average long-term rate of return on assets		6.80			6.80			8.50

In addition to the benefit costs in the table above, for the pension plans sponsored by Xcel Energy Inc., costs are allocated to SPS based on Xcel Energy Services Inc. employees' labor costs. Pension costs include an expected return impact for the current year that may differ from actual investment performance in the plan. The return assumption used for 2012 pension cost calculations will be 6.68 percent. The cost calculation uses a market-related valuation of pension assets. Xcel Energy, including SPS, uses a calculated value method to determine the market-related value of the plan assets. The market-related value begins with the fair market value of assets as of the beginning of the year. The market-related value is determined by adjusting the fair market value of assets to reflect the investment gains and losses (the difference between the actual investment return and the expected investment return on the market-related value) during each of the previous five years at the rate of 20 percent per year. As these differences between actual investment returns and the expected investment returns are incorporated into the market-related value, the differences are recognized over the expected average remaining years of service for active employees.

Xcel Energy, which includes SPS, also maintains noncontributory, defined benefit supplemental retirement income plans for certain qualifying executive personnel. Benefits for these unfunded plans are paid out of operating cash flows.

Defined Contribution Plans

Xcel Energy, including SPS, maintains 401(k) and other defined contribution plans that cover substantially all employees. The contributions for SPS were approximately $2.0 million in 2011, $2.0 million in 2010 and $1.4 million in 2009.

Postretirement Health Care Benefits

Xcel Energy, which includes SPS, has a contributory health and welfare benefit plan that provides health care and death benefits to certain retirees. Xcel Energy discontinued contributing toward health care benefits for former NCE nonbargaining employees retiring after June 30, 2003. Employees of NCE who retired in 2002 continue to receive employer-subsidized health care benefits. Nonbargaining employees of the former NCE who retired after 1998, bargaining employees of the former NCE who retired after 1999 and nonbargaining employees of NCE who retired after June 30, 2003, are eligible to participate in the Xcel Energy health care program with no employer subsidy.

In 1993, Xcel Energy Inc. and SPS adopted accounting guidance regarding other non-pension postretirement benefits and elected to amortize the unrecognized APBO on a straight-line basis over 20 years.

Regulatory agencies for nearly all retail and wholesale utility customers have allowed rate recovery of accrued postretirement benefit costs under the new guidance.

Plan Assets - Certain state agencies that regulate Xcel Energy Inc.'s utility subsidiaries also have issued guidelines related to the funding of postretirement benefit costs. SPS is required to fund postretirement benefit costs for Texas and New Mexico jurisdictional amounts collected in rates. Also, a portion of the assets contributed on behalf of nonbargaining retirees has been funded into a sub-account of the Xcel Energy pension plans. These assets are invested in a manner consistent with the investment strategy for the pension plan.

Xcel Energy Inc. and SPS base investment-return assumption for the postretirement health care fund assets on expected long-term performance for each of the investment types included in the asset portfolio. The assets are invested in a portfolio according to Xcel Energy Inc.'s and SPS' return, liquidity and diversification objectives to provide a source of funding for plan obligations and minimize the necessity of contributions to the plan, within appropriate levels of risk. The principal mechanism for achieving these objectives is the projected allocation of assets to selected asset classes, given the long-term risk, return, correlation, and liquidity characteristics of each particular asset class. There were no significant concentrations of risk in any particular industry, index, or entity. Investment-return volatility is not considered to be a material factor in postretirement health care costs.

The following tables present, for each of the fair value hierarchy levels, SPS' postretirement benefit plan assets that are measured at fair value as of Dec. 31, 2011 and 2010:

	Dec. 31, 2011
(Thousands of Dollars)	Level 1		Level 2			Level 3		Total
Cash equivalents	$	5,387	$	-				$	5,387
Derivatives		-		1,238			-		1,238
Government securities		-		6,156			-		6,156
Corporate bonds		-		5,740			-		5,740
Asset-backed securities		-		-			730		730
Mortgage-backed securities		-		-			2,535		2,535
Preferred stock		-		40			-		40
Commingled funds		-		18,892			-		18,892
Securities lending collateral obligation and other		-		(1,039	)		-		(1,039	)
Total	$	5,387	$	31,027		$	3,265	$	39,679

	Dec. 31, 2010
(Thousands of Dollars)	Level 1		Level 2		Level 3		Total
Cash equivalents	$	14,108	$	-	$	-	$	14,108
Derivatives		-		1,291		-		1,291
Government securities		-		322		-		322
Corporate bonds		-		6,702		-		6,702
Asset-backed securities		-		-		245		245
Mortgage-backed securities		-		-		1,820		1,820
Preferred stock		-		48		-		48
Commingled funds		-		9,753		-		9,753
Securities lending collateral obligation and other		-		5,657		-		5,657
Total	$	14,108	$	23,773	$	2,065	$	39,946

The following tables present the changes in SPS' Level 3 postretirement benefit plan assets for the years ended Dec. 31, 2011, 2010 and 2009:

									Purchases,
			Net Realized			Net Unrealized			Issuances, and
(Thousands of Dollars)	Jan. 1, 2011		Gains (Losses)			Gains (Losses)			Settlements, Net		Dec. 31, 2011
Asset-backed securities	$	245	$	(2	)	$	(101	)	$	588	$	730
Mortgage-backed securities		1,820		(157	)		194			678		2,535

								Purchases,
			Net Realized			Net Unrealized		Issuances, and
(Thousands of Dollars)	Jan. 1, 2010		Gains (Losses)			Gains (Losses)		Settlements, Net			Dec. 31, 2010
Asset-backed securities	$	752	$	(25	)	$	75	$	(557	)	$	245
Mortgage-backed securities		4,266		(88	)		332		(2,690	)		1,820

							Purchases,
			Net Realized		Net Unrealized		Issuances, and
(Thousands of Dollars)	Jan. 1, 2009		Gains (Losses)		Gains (Losses)		Settlements, Net			Dec. 31, 2009
Asset-backed securities	$	791	$	-	$	105	$	(144	)	$	752
Mortgage-backed securities		6,362		66		209		(2,371	)		4,266

Benefit Obligations - A comparison of the actuarially computed benefit obligation and plan assets for SPS is presented in the following table:

(Thousands of Dollars)	2011			2010
Change in Projected Benefit Obligation:
Obligation at Jan. 1	$	50,582		$	49,453
Service cost		1,092			951
Interest cost		2,722			2,899
Medicare subsidy reimbursements		404			712
ERRP proceeds shared with retirees		260			-
Plan participants' contributions		2,315			2,259
Actuarial loss		4,065			584
Benefit payments		(6,275	)		(6,276	)
Obligation at Dec. 31	$	55,165		$	50,582

Change in Fair Value of Plan Assets:
Fair value of plan assets at Jan. 1	$	39,946		$	34,863
Actual return on plan assets		61			4,981
Plan participants' contributions		2,315			2,259
Employer contributions		3,632			4,119
Benefit payments		(6,275	)		(6,276	)
Fair value of plan assets at Dec. 31	$	39,679		$	39,946

Funded Status of Plans at Dec. 31:
Funded status (a)	$	(15,486	)	$	(10,636	)

(a)	Amounts are recognized in noncurrent liabilities on SPS' balance sheet.

(Thousands of Dollars)	2011			2010
SPS Amounts Not Yet Recognized as Components of Net Periodic Benefit Credit:
Net gain	$	(3,281	)	$	(9,455	)
Prior service credit		(131	)		(182	)
Transition obligations		1,545			3,214
Total	$	(1,867	)	$	(6,423	)

Amounts Related to the Funded Status of the Plans Have Been Recorded as Follows Based Upon Expected Recovery in Rates:
Current regulatory liabilities	$	(1,867	)	$	-
Noncurrent regulatory liabilities		-			(6,423	)
Total	$	(1,867	)	$	(6,423	)

Measurement date	Dec. 31, 2011			Dec. 31, 2010

Significant Assumptions Used to Measure Benefit Obligations:
Discount rate for year-end valuation		5.00	%		5.50	%
Mortality table	RP 2000			RP 2000
Health care costs trend rate - inital		6.31	%		6.50	%

Effective Dec. 31, 2011, the ultimate trend assumption remained unchanged at 5.0 percent. The period until the ultimate rate is reached remained unchanged at eight years. Xcel Energy and SPS base the medical trend assumption on the long-term cost inflation expected in the health care market, considering the levels projected and recommended by industry experts, as well as recent actual medical cost increases experienced by the retiree medical plan.

A 1-percent change in the assumed health care cost trend rate would have the following effects on SPS:

	One Percentage Point
(Thousands of Dollars)	Increase		Decrease
APBO	$	5,660	$	(4,630	)
Service and interest components		455		(362	)

Cash Flows - The postretirement health care plans have no funding requirements under income tax and other retirement-related regulations other than fulfilling benefit payment obligations, when claims are presented and approved under the plans. Additional cash funding requirements are prescribed by certain state and federal rate regulatory authorities, as discussed previously. Xcel Energy, which includes SPS, contributed $49.0 million and $48.4 million during 2011 and 2010, of which $3.6 million and $4.1 million were attributable to SPS. Xcel Energy expects to contribute approximately $39.1 million during 2012, of which $3.5 million is attributable to SPS.

Plan Amendments - No amendments affecting SPS occurred during 2011 to the Xcel Energy health and welfare benefit plan.

Benefit Costs - The components of SPS' net periodic postretirement benefit cost were:

(Thousands of Dollars)	2011			2010			2009
Service cost	$	1,092		$	951		$	792
Interest cost		2,722			2,899			3,369
Expected return on plan assets		(3,006	)		(2,639	)		(2,100	)
Amortization of transition obligation		1,669			1,669			1,669
Amortization of prior service cost		(51	)		(51	)		(7	)
Amortization of net loss		855			772			1,277
Net periodic postretirement benefit cost	$	3,281		$	3,601		$	5,000

Significant Assumptions Used to Measure Costs:
Discount rate		5.50	%		6.00	%		6.75	%
Expected average long-term rate of return on assets (before tax)		7.50			7.50			7.50

In addition to the benefit costs in the table above, for the postretirement health care plans sponsored by Xcel Energy Inc., costs are allocated to SPS based on Xcel Energy Services Inc. employees' labor costs.

Projected Benefit Payments - The following table lists SPS' projected benefit payments for the pension and postretirement benefit plans:

(Thousands of Dollars)	Projected Pension Benefit Payments		Gross Projected Postretirement Health Care Benefit Payments		Expected Medicare Part D Subsidies		Net Projected Postretirement Health Care Benefit Payments
2012	$	25,620	$	3,378	$	459	$	2,919
2013		24,352		3,485		485		3,000
2014		25,816		3,670		512		3,158
2015		26,518		3,916		542		3,374
2016		26,922		4,039		576		3,463
2017-2021		144,685		21,025		3,407		17,618