Benefit Plans and Other Postretirement Benefits

Xcel Energy offers various benefit plans to its employees. Approximately 46 percent of employees that receive benefits are represented by several local labor unions under several collective-bargaining agreements. As of Dec. 31, 2017:


•	NSP-Minnesota had 1,858 and NSP-Wisconsin had 383 bargaining employees covered under a collective-bargaining agreement, which expires in December 2019. NSP-Minnesota also had an additional 248 nuclear operation bargaining employees covered under several collective-bargaining agreements. These agreements expire in 2018 and 2019.


•	PSCo had 1,835 bargaining employees covered under a collective-bargaining agreement, which expired in May 2017. While collective bargaining is ongoing, the terms and conditions of the agreement are automatically extended.


•	SPS had 791 bargaining employees covered under a collective-bargaining agreement, which expires in October 2019.

The plans invest in various instruments which are disclosed under the accounting guidance for fair value measurements which establishes a hierarchical 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.

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.

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.

Specific valuation methods include the following:

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

Insurance contracts — Insurance contract fair values take into consideration the value of the investments in separate accounts of the insurer, which are priced based on observable inputs.

Investments in commingled funds, equity securities and other funds — Equity securities are valued using quoted prices in active markets. The fair values for commingled funds are measured using NAVs, which take into consideration the value of underlying fund investments, as well as the other accrued assets and liabilities of a fund, in order to determine a per share market value. The investments in commingled funds may be redeemed for NAV with proper notice. Proper notice varies by fund and can range from daily with a few days’ notice to annually with 90 days’ notice. Private equity investments require approval of the fund for any unscheduled redemption, and such redemptions may be approved or denied by the fund at its sole discretion. Depending on the fund, unscheduled distributions from real estate investments may require approval of the fund or may be redeemed with proper notice, which is typically quarterly with 45-90 days’ notice; however, withdrawals from real estate investments may be delayed or discounted as a result of fund illiquidity.

Investments in debt securities — Fair values for debt securities are determined by a third party pricing service using recent trades and observable spreads from benchmark interest rates for similar securities.

Derivative Instruments — Fair values for foreign currency derivatives are determined using pricing models based on the prevailing forward exchange rate of the underlying currencies. The fair values of interest rate derivatives are based on broker quotes that utilize current market interest rate forecasts.

Pension Benefits

Xcel Energy has several noncontributory, defined benefit pension plans that cover almost all employees. Generally, benefits are based on a combination of years of service, the employee’s average pay and, in some cases, social security benefits. Xcel Energy’s 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.

In addition to the qualified pension plans, Xcel Energy maintains a supplemental executive retirement plan (SERP) and a nonqualified pension plan. The SERP is maintained for certain executives that were participants in the plan in 2008, when the SERP was closed to new participants. The nonqualified pension plan provides unfunded, nonqualified benefits for compensation that is in excess of the limits applicable to the qualified pension plans, with distributions funded by Xcel Energy’s consolidated operating cash flows. The total obligations of the SERP and nonqualified plan as of Dec. 31, 2017 and 2016 were $37 million and $44 million, respectively. In 2017 and 2016, Xcel Energy recognized net benefit cost for financial reporting for the SERP and nonqualified plans of $5 million and $8 million, respectively.

In 2016, Xcel Energy established rabbi trusts to provide partial funding for future distributions of the SERP and its deferred compensation plan, supplemented by Xcel Energy’s consolidated operating cash flows as determined necessary. For more information regarding the funding of rabbi trusts, see Note 11 to the consolidated financial statements. Also in 2016, Xcel Energy amended the deferred compensation plan to provide eligible participants the ability to diversify deferred settlements of equity awards, other than time-based equity awards, into various fund options.

Xcel Energy bases the investment-return assumption on expected long-term performance for each of the investment types included in its pension asset portfolio. Xcel Energy considers the historical returns achieved by its asset portfolio over the past 20-year or longer period, as well as the long-term return levels projected and recommended by investment experts. Xcel Energy continually reviews its pension assumptions. The pension cost determination assumes a forecasted mix of investment types over the long-term.


•	Investment returns in 2017 were above the assumed level of 6.87 percent;


•	Investment returns in 2016 were below the assumed level of 6.87 percent;


•	Investment returns in 2015 were below the assumed level of 7.09 percent; and


•	In 2018, Xcel Energy’s expected investment-return assumption is 6.87 percent.

The assets are invested in a portfolio according to Xcel Energy’s return, liquidity and diversification objectives to provide funding for plan obligations and minimize contributions to the plan, within appropriate levels of risk. The principal mechanism for achieving these objectives is the projected asset allocation 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. 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 Xcel Energy at Dec. 31 for the upcoming year:



	2017		2016
Domestic and international equity securities	36	%	38	%
Long-duration fixed income and interest rate swap securities	27		27
Short-to-intermediate fixed income securities	20		16
Alternative investments	15		17
Cash	2		2
Total	100	%	100	%

Xcel Energy’s 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, Xcel Energy’s pension plan assets that are measured at fair value as of Dec. 31, 2017 and 2016:



	Dec. 31, 2017
(Millions of Dollars)	Level 1			Level 2		Level 3		Investments Measured at NAV		Total
Cash equivalents	$	196		$	—	$	—	$	—	$	196
Commingled funds:
U.S. equity funds	513			—		—		—		513
Non U.S. equity funds	92			—		—		199		291
U.S. corporate bond funds	369			—		—		—		369
Emerging market equity funds	—			—		—		314		314
Emerging market debt funds	75			—		—		166		241
Private equity investments	—			—		—		84		84
Real estate	—			—		—		195		195
Other commingled funds	5			—		—		117		122
Debt securities:
Government securities	—			356		—		—		356
U.S. corporate bonds	—			272		—		—		272
Non U.S. corporate bonds	—			45		—		—		45
Equity securities:
U.S. equities	114			—		—		—		114
Other	(29		)	4		—		1		(24		)
Total	$	1,335		$	677	$	—	$	1,076	$	3,088



	Dec. 31, 2016
(Millions of Dollars)	Level 1		Level 2		Level 3		Investments Measured at NAV			Total
Cash equivalents	$	113	$	—	$	—	$	—		$	113
U.S. equity funds	491		—		—		—			491
Non U.S. equity funds	167		—		—		202			369
U.S. corporate bond funds	268		—		—		—			268
Emerging market equity funds	—		—		—		194			194
Emerging market debt funds	79		—		—		85			164
Commodity funds	—		—		—		21			21
Private equity investments	—		—		—		101			101
Real estate	—		—		—		184		—	184
Other commingled funds	—		—		—		210			210
Debt securities:
Government securities	—		364		—		—			364
U.S. corporate bonds	—		238		—		—			238
Non U.S. corporate bonds	—		38		—		—			38
Mortgage-backed securities	—		6		—		—			6
Asset-backed securities	—		3		—		—			3
Equity securities:
U.S. equities	89		—		—		—			89
Other	—		3		—		—			3
Total	$	1,207	$	652	$	—	$	997		$	2,856

There were no assets transferred in or out of Level 3 for the years ended Dec. 31, 2017, 2016 or 2015.

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



(Millions of Dollars)	2017			2016
Accumulated Benefit Obligation at Dec. 31	$	3,612		$	3,489
Change in Projected Benefit Obligation:
Obligation at Jan. 1	$	3,682		$	3,568
Service cost	94			92
Interest cost	147			160
Plan amendments	(13		)	2
Actuarial loss	259			186
Benefit payments ^(a)	(341		)	(326		)
Obligation at Dec. 31	$	3,828		$	3,682



(Millions of Dollars)	2017			2016
Change in Fair Value of Plan Assets:
Fair value of plan assets at Jan. 1	$	2,856		$	2,884
Actual return on plan assets	411			172
Employer contributions	162			125
Benefit payments ^(a)	(341		)	(325		)
Fair value of plan assets at Dec. 31	$	3,088		$	2,856



(Millions of Dollars)	2017			2016
Funded Status of Plans at Dec. 31:
Funded status^(b)	$	(740	)	$	(826	)


^(a)	2017 amount includes approximately $174 million of lump-sum benefit payments used in the determination of a settlement charge.


^(b)	Amounts are recognized in noncurrent liabilities on Xcel Energy’s consolidated balance sheets.



(Millions of Dollars)	2017			2016
Amounts Not Yet Recognized as Components of Net Periodic Benefit Cost:
Net loss	$	1,709		$	1,836
Prior service credit	(25		)	(5		)
Total	$	1,684		$	1,831



(Millions of Dollars)	2017		2016
Amounts Not Yet Recognized as Components of Net Periodic Benefit Cost Have Been Recorded as Follows Based Upon Expected Recovery in Rates:
Current regulatory assets	$	100	$	101
Noncurrent regulatory assets	1,511		1,650
Deferred income taxes	19		31
Net-of-tax accumulated OCI	54		49
Total	$	1,684	$	1,831



Measurement date	Dec. 31, 2017	Dec. 31, 2016



	2017		2016
Significant Assumptions Used to Measure Benefit Obligations:
Discount rate for year-end valuation	3.63	%	4.13	%
Expected average long-term increase in compensation level	3.75		3.75
Mortality table	RP-2014		RP-2014

Mortality — In 2014, the Society of Actuaries published a new mortality table (RP-2014) that increased the overall life expectancy of males and females. In 2014, Xcel Energy adopted this mortality table, with modifications, based on its population and specific experience. During 2017, a new projection table was released (MP-2017). Xcel Energy evaluated the updated projection table and concluded that the methodology currently in use and adopted in 2016 is consistent with the recently updated 2017 table and continues to be representative of Xcel Energy’s population.

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. Required contributions were made in 2015 through 2018 to meet minimum funding requirements.

Total voluntary and required pension funding contributions across all four of Xcel Energy’s pension plans were as follows:


•	$150 million in January 2018;


•	$162 million in 2017;


•	$125 million in 2016; and


•	$90 million in 2015.

For future years, Xcel Energy anticipates contributions will be made as necessary.

Plan Amendments — Xcel Energy amended the Xcel Energy Pension Plan and Xcel Energy Inc. Nonbargaining Pension Plan (South) in 2017 to reduce supplemental benefits for non-bargaining participants as well as to allow the transfer of a portion of non-qualified pension obligations into the qualified plans. In 2016, the Xcel Energy Pension Plan was amended to change the discount rate basis for lump-sum conversion to annuity participants and annuity conversion to lump-sum participants. Additionally in 2016, the annual credits contributed to the PSCo Bargaining Plan retirement spending account increased.

Benefit Costs — The components of Xcel Energy’s net periodic pension cost were:



(Millions of Dollars)	2017			2016			2015
Service cost	$	94		$	92		$	99
Interest cost	147			160			149
Expected return on plan assets	(209		)	(210		)	(214		)
Amortization of prior service credit	(2		)	(2		)	(2		)
Amortization of net loss	107			97			125
Settlement charge ^(a)	81			—			—
Net periodic pension cost	218			137			157
Costs not recognized due to effects of regulation	(79		)	(15		)	(29		)
Net benefit cost recognized for financial reporting	$	139		$	122		$	128

^(a)

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 fourth quarter of 2017 as a result of lump-sum distributions during the 2017 plan year, Xcel Energy recorded a total pension settlement charge of $81 million, the majority of which was not recognized due to the effects of regulation. A total of $8 million of that amount was recorded in O&M expenses in the fourth quarter of 2017.



	2017		2016		2015
Significant Assumptions Used to Measure Costs:
Discount rate	4.13	%	4.66	%	4.11	%
Expected average long-term increase in compensation level	3.75		4.00		3.75
Expected average long-term rate of return on assets	6.87		6.87		7.09

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 2018 pension cost calculations is 6.87 percent.

Defined Contribution Plans

Xcel Energy maintains 401(k) and other defined contribution plans that cover substantially all employees. Total expense to these plans was approximately $37 million in 2017, $36 million in 2016 and $34 million in 2015.

Postretirement Health Care Benefits

Xcel Energy has a contributory health and welfare benefit plan that provides health care and death benefits to certain Xcel Energy retirees.


•	NSP-Minnesota and NSP-Wisconsin discontinued contributing toward health care benefits for non-bargaining employees retiring after 1998 and for bargaining employees who retired after 1999.


•	Xcel Energy discontinued contributing toward health care benefits for nonbargaining employees of the former NCE who retired after June 30, 2003 and for PSCo bargaining employees hired on or after July 1, 2003.


•	Xcel Energy discontinued contributing toward health care benefits for SPS bargaining employees hired on or after Jan. 1, 2012.

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. PSCo is required to fund postretirement benefit costs in irrevocable external trusts that are dedicated to the payment of these postretirement benefits. These assets are invested in a manner consistent with the investment strategy for the pension plan.

The following table presents the target postretirement asset allocations for Xcel Energy at Dec. 31 for the upcoming year:



	2017		2016
Domestic and international equity securities	24	%	25	%
Short-to-intermediate fixed income securities	60		57
Alternative investments	9		13
Cash	7		5
Total	100	%	100	%

Xcel Energy bases its investment-return assumption for the postretirement health care fund assets on expected long-term performance for each of the investment types included in its asset portfolio. The assets are invested in a portfolio according to Xcel Energy’s return, liquidity and diversification objectives to provide a source of funding for plan obligations and minimize contributions to the plan, within appropriate levels of risk. The principal mechanism for achieving these objectives is the projected asset allocation 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. Market volatility can impact even well-diversified portfolios and significantly affect the return levels achieved by postretirement health care assets in any year.

The following tables present, for each of the fair value hierarchy levels, Xcel Energy’s postretirement benefit plan assets that are measured at fair value as of Dec. 31, 2017 and 2016:



	Dec. 31, 2017
(Millions of Dollars)	Level 1		Level 2		Level 3		Investments Measured at NAV		Total
Cash equivalents	$	29	$	—	$	—	$	—	$	29
Insurance contracts	—		50		—		—		50
Commingled funds:
U.S. equity funds	74		—		—		—		74
U.S fixed income funds	34		—		—		—		34
Emerging market debt funds	40		—		—		—		40
Debt securities:
Government securities	—		57		—		—		57
U.S. corporate bonds	—		63		—		—		63
Non U.S. corporate bonds	—		21		—		—		21
Asset-backed securities	—		23		—		—		23
Mortgage-backed securities	—		34		—		—		34
Equity securities:
Non U.S. equities	35		—		—		—		35
Other	—		1		—		—		1
Total	$	212	$	249	$	—	$	—	$	461



	Dec. 31, 2016
(Millions of Dollars)	Level 1		Level 2		Level 3		Investments Measured at NAV		Total
Cash equivalents	$	21	$	—	$	—	$	—	$	21
Insurance contracts	—		47		—		—		47
Commingled funds:
U.S. equity funds	54		—		—		—		54
U.S fixed income funds	27		—		—		—		27
Emerging market debt funds	30		—		—		—		30
Other commingled funds	—		—		—		55		55
Debt securities:
Government securities	—		38		—		—		38
U.S. corporate bonds	—		62		—		—		62
Non U.S. corporate bonds	—		17		—		—		17
Asset-backed securities	—		19		—		—		19
Mortgage-backed securities	—		29		—		—		29
Equity securities:
Non U.S. equities	41		—		—		—		41
Other	—		2		—		—		2
Total	$	173	$	214	$	—	$	55	$	442

There were no assets transferred in or out of Level 3 for the years ended Dec. 31, 2017, 2016 or 2015.

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



(Millions of Dollars)	2017			2016
Change in Projected Benefit Obligation:
Obligation at Jan. 1	$	603		$	584
Service cost	2			2
Interest cost	24			26
Medicare subsidy reimbursements	1			2
Plan participants’ contributions	8			7
Actuarial loss	33			33
Benefit payments	(50		)	(51		)
Obligation at Dec. 31	$	621		$	603



(Millions of Dollars)	2017			2016
Change in Fair Value of Plan Assets:
Fair value of plan assets at Jan. 1	$	442		$	448
Actual return on plan assets	41			20
Plan participants’ contributions	8			7
Employer contributions	20			18
Benefit payments	(50		)	(51		)
Fair value of plan assets at Dec. 31	$	461		$	442



(Millions of Dollars)	2017			2016
Funded Status of Plans at Dec. 31:
Funded status	$	(160	)	$	(161	)
Current liabilities	(3		)	(6		)
Noncurrent liabilities	(157		)	(155		)
Net postretirement amounts recognized on consolidated balance sheets	$	(160	)	$	(161	)



(Millions of Dollars)	2017			2016
Amounts Not Yet Recognized as Components of Net Periodic Benefit Cost:
Net loss	$	147		$	136
Prior service credit	(44		)	(54		)
Total	$	103		$	82



(Millions of Dollars)	2017			2016
Amounts Not Yet Recognized as Components of Net Periodic Benefit Cost Have Been Recorded as Follows Based Upon Expected Recovery in Rates:
Noncurrent regulatory assets	$	107		$	91
Current regulatory liabilities	(1		)	(1		)
Noncurrent regulatory liabilities	(10		)	(14		)
Deferred income taxes	2			2
Net-of-tax accumulated OCI	5			4
Total	$	103		$	82



Measurement date	Dec. 31, 2017	Dec. 31, 2016



	2017		2016
Significant Assumptions Used to Measure Benefit Obligations:
Discount rate for year-end valuation	3.62	%	4.13	%
Mortality table	RP 2014		RP 2014
Health care costs trend rate — initial: Pre-65	7.00	%	5.50	%
Health care costs trend rate — initial: Post-65	5.50	%	5.50	%

Beginning with the Dec. 31, 2017 measurement, Xcel Energy Inc. separated its initial medical trend assumption for pre-Medicare (Pre-65) and post-Medicare (Post-65) claims costs in order to reflect different short-term expectations based on recent experience differences. The Post-65 initial medical trend rate was set at 5.5 percent. The Pre-65 initial medical trend rate was set at 7.0 percent. The ultimate trend assumption remained at 4.5 percent for both groups. The period until the ultimate rate is reached is five years. Xcel Energy bases its 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 Xcel Energy’s retiree medical plan.

A one-percent change in the assumed health care cost trend rate would have the following effects on Xcel Energy:



	One-Percentage Point
(Millions of Dollars)	Increase		Decrease
APBO	$	60	$	(51	)
Service and interest components	3		(2		)

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. Xcel Energy contributed $20 million during 2017, $18 million during 2016, $18 million during 2015 and expects to contribute approximately $12 million during 2018.

Plan Amendments — In 2017 and 2016, there were no plan amendments made which affected the benefit obligation.

Benefit Costs — The components of Xcel Energy’s net periodic postretirement benefit costs were:



(Millions of Dollars)	2017			2016			2015
Service cost	$	2		$	2		$	2
Interest cost	24			26			25
Expected return on plan assets	(25		)	(25		)	(26		)
Amortization of prior service credit	(11		)	(11		)	(11		)
Amortization of net loss	7			4			6
Net periodic postretirement (credit) cost	$	(3	)	$	(4	)	$	(4	)



	2017		2016		2015
Significant Assumptions Used to Measure Costs:
Discount rate	4.13	%	4.65	%	4.08	%
Expected average long-term rate of return on assets	5.80		5.80		5.80

Projected Benefit Payments

The following table lists Xcel Energy’s projected benefit payments for the pension and postretirement benefit plans:



(Millions 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
2018	$	307	$	47	$	2	$	45
2019	262		47		2		45
2020	261		47		2		45
2021	261		47		3		44
2022	266		46		3		43
2023-2027	1,274		212		14		198

Multiemployer Plans

NSP-Minnesota and NSP-Wisconsin each contribute to several union multiemployer pension and other postretirement benefit plans, none of which are individually significant. These plans provide pension and postretirement health care benefits to certain union employees who may perform services for multiple employers and do not participate in the NSP-Minnesota and NSP-Wisconsin sponsored pension and postretirement health care plans. Contributing to these types of plans creates risk that differs from providing benefits under NSP-Minnesota and NSP-Wisconsin sponsored plans, in that if another participating employer ceases to contribute to a multiemployer plan, additional unfunded obligations may need to be funded over time by remaining participating employers.

Contributions to multiemployer plans were as follows for the years ended Dec. 31, 2017, 2016 and 2015. The average number of NSP-Minnesota union employees covered by the multiemployer pension plans decreased to approximately 576 in 2017 from 700 in 2016. There were no other significant changes to the nature or magnitude of the participation of NSP-Minnesota and NSP-Wisconsin in multiemployer plans for the years presented:



(Millions of Dollars)	2017		2016		2015
Multiemployer pension contributions:
NSP-Minnesota	$	12	$	14	$	17
NSP-Wisconsin	—		1		1
Total	$	12	$	15	$	18