Fair Value of Financial Assets and Liabilities

Fair Value Measurements

The accounting guidance for fair value measurements and disclosures provides a single definition of fair value and requires certain disclosures about assets and liabilities measured at fair value. A hierarchical framework for disclosing the observability of the inputs utilized in measuring assets and liabilities at fair value is established by this guidance. The three levels in the hierarchy are as follows:

Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices.

Level 2 — Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reporting date. The types of assets and liabilities included in Level 2 are typically either comparable to actively traded securities or contracts, or priced with models using highly observable inputs.

Level 3 — Significant inputs to pricing have little or no observability as of the reporting date. The types of assets and liabilities included in Level 3 are those valued with models requiring significant management judgment or estimation.

Specific valuation methods include the following:

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

Investments in 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 one or two days notice to annually with 90 days notice. Private equity investments require approval of the fund for any unscheduled redemption, and such redemptions may be approved or denied by the fund at its sole discretion. Unscheduled distributions from real estate investments may be redeemed with proper notice, which is typically quarterly with 45-90 days notice; however, withdrawals from real estate investments may be delayed or discounted as a result of fund illiquidity.

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

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

Commodity derivatives — The methods used to measure the fair value of commodity derivative forwards and options utilize forward prices and volatilities, as well as pricing adjustments for specific delivery locations, and are generally assigned a Level 2 classification. When contractual settlements relate to inactive delivery locations or extend to periods beyond those readily observable on active exchanges or quoted by brokers, the significance of the use of less observable forecasts of forward prices and volatilities on a valuation is evaluated, and may result in Level 3 classification.

Electric commodity derivatives held by NSP-Minnesota and SPS include transmission congestion instruments, generally referred to as FTRs. FTRs purchased from a RTO are financial instruments that entitle or obligate the holder to monthly revenues or charges based on transmission congestion across a given transmission path. The value of an FTR is derived from, and designed to offset, the cost of 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 an FTR.

If forecasted costs of electric transmission congestion increase or decrease for a given FTR path, the value of that particular FTR instrument will likewise increase or decrease. Given the limited observability of important inputs to the value of FTRs between auction processes, including expected plant operating schedules and retail and wholesale demand, fair value measurements for FTRs have been assigned a Level 3. Non-trading monthly FTR settlements are included in fuel and purchased energy cost recovery mechanisms as applicable in each jurisdiction, and therefore changes in the fair value of the yet to be settled portions of most FTRs are deferred as a regulatory asset or liability. Given this regulatory treatment and the limited magnitude of FTRs relative to the electric utility operations of NSP-Minnesota and SPS, the numerous unobservable quantitative inputs pertinent to the value of FTRs are insignificant to the consolidated financial statements of Xcel Energy.

Non-Derivative Instruments Fair Value Measurements

The NRC requires NSP-Minnesota to maintain a portfolio of investments to fund the costs of decommissioning its nuclear generating plants. Together with all accumulated earnings or losses, the assets of the nuclear decommissioning fund are legally restricted for the purpose of decommissioning the Monticello and PI nuclear generating plants. The fund contains cash equivalents, debt securities, equity securities and other investments – all classified as available-for-sale. NSP-Minnesota plans to reinvest matured securities until decommissioning begins. NSP-Minnesota uses the MPUC approved asset allocation for the escrow and investment targets by asset class for both the escrow and qualified trust.

NSP-Minnesota recognizes the costs of funding the decommissioning of its nuclear generating plants over the lives of the plants, assuming rate recovery of all costs. Given the purpose and legal restrictions on the use of nuclear decommissioning fund assets, realized and unrealized gains on fund investments over the life of the fund are deferred as an offset of NSP-Minnesota’s regulatory asset for nuclear decommissioning costs. Consequently, any realized and unrealized gains and losses on securities in the nuclear decommissioning fund, including any other-than-temporary impairments, are deferred as a component of the regulatory asset for nuclear decommissioning.

Unrealized gains for the nuclear decommissioning fund were $560 million and $379 million as of Dec. 31, 2017 and 2016, respectively, and unrealized losses and amounts recorded as other-than-temporary impairments were $7 million and $47 million as of Dec. 31, 2017 and 2016, respectively.

The following tables present the cost and fair value of Xcel Energy’s non-derivative instruments with recurring fair value measurements in the nuclear decommissioning fund as of Dec. 31, 2017 and 2016:



	Dec. 31, 2017
			Fair Value
(Millions of Dollars)	Cost		Level 1		Level 2		Level 3		Investments Measured at NAV		Total
Nuclear decommissioning fund ^(a)
Cash equivalents	$	29	$	29	$	—	$	—	$	—	$	29
Commingled funds:
Non U.S. equities	264		217		—		—		90		307
Emerging market debt funds	156		—		—		—		166		166
Private equity investments	141		—		—		—		198		198
Real estate	131		—		—		—		202		202
Other commingled funds	9		6		—		—		3		9
Debt securities:
Government securities	68		—		69		—		—		69
U.S. corporate bonds	320		—		322		—		—		322
Non U.S. corporate bonds	50		—		50		—		—		50
Equity securities:
U.S. equities	271		557		—		—		—		557
Non U.S. equities	152		234		—		—		—		234
Total	$	1,591	$	1,043	$	441	$	—	$	659	$	2,143


^(a)	Reported in nuclear decommissioning fund and other investments on the consolidated balance sheet, which also includes $140 million of equity investments in unconsolidated subsidiaries and $114 million of rabbi trust assets and miscellaneous investments.



	Dec. 31, 2016
			Fair Value
(Millions of Dollars)	Cost		Level 1		Level 2		Level 3		Investments Measured at NAV		Total
Nuclear decommissioning fund ^(a)
Cash equivalents	$	20	$	20	$	—	$	—	$	—	$	20
Commingled funds:
Non U.S. equities	261		133		—		—		112		245
Emerging market debt funds	93		—		—		—		98		98
Commodity funds	106		—		—		—		92		92
Private equity investments	132		—		—		—		190		190
Real estate	129		—		—		—		188		188
Other commingled funds	151		—		—		—		160		160
Debt securities:
Government securities	33		—		32		—		—		32
U.S. corporate bonds	105		—		106		—		—		106
Non U.S. corporate bonds	22		—		21		—		—		21
Municipal bonds	14		—		14		—		—		14
Mortgage-backed securities	3		—		3		—		—		3
Equity securities:
U.S. equities	271		474		—		—		—		474
Non U.S. equities	189		218		—		—		—		218
Total	$	1,529	$	845	$	176	$	—	$	840	$	1,861


^(a)	Reported in nuclear decommissioning fund and other investments on the consolidated balance sheet, which also includes $133 million of equity investments in unconsolidated subsidiaries and $98 million of rabbi trust assets and miscellaneous investments.

For the years ended Dec. 31, 2017 and 2016 there were no Level 3 nuclear decommissioning fund investments and no transfers of amounts between levels.

The following table summarizes the final contractual maturity dates of the debt securities in the nuclear decommissioning fund, by asset class, as of Dec. 31, 2017:



	Final Contractual Maturity
(Millions of Dollars)	Due in 1 Year or Less		Due in 1 to 5 Years		Due in 5 to 10 Years		Due after 10 Years		Total
Government securities	$	—	$	2	$	—	$	67	$	69
U.S. corporate bonds	5		85		174		58		322
Non U.S. corporate bonds	—		15		31		4		50
Debt securities	$	5	$	102	$	205	$	129	$	441

Rabbi Trusts

In June 2016, Xcel Energy established rabbi trusts to provide partial funding for future distributions of its supplemental executive retirement plan and deferred compensation plan. The following table presents the cost and fair value of the assets held in rabbi trusts as of Dec. 31, 2017 and 2016:



	Dec. 31, 2017
			Fair Value
(Millions of Dollars)	Cost		Level 1		Level 2		Level 3		Total
Rabbi Trusts ^(a)
Cash equivalents	$	12	$	12	$	—	$	—	$	12
Mutual funds	47		50		—		—		50
Total	$	59	$	62	$	—	$	—	$	62



	Dec. 31, 2016
			Fair Value
(Millions of Dollars)	Cost		Level 1		Level 2		Level 3		Total
Rabbi Trusts ^(a)
Cash equivalents	$	48	$	48	$	—	$	—	$	48
Mutual funds	2		2		—		—		2
Total	$	50	$	50	$	—	$	—	$	50


^(a)	Reported in nuclear decommissioning fund and other investments on the consolidated balance sheet.

Derivative Instruments Fair Value Measurements

Xcel Energy enters into derivative instruments, including forward contracts, futures, swaps and options, for trading purposes and to manage risk in connection with changes in interest rates, utility commodity prices and vehicle fuel prices.

Interest Rate Derivatives — Xcel Energy enters into various instruments that effectively fix the interest payments on certain floating rate debt obligations or effectively fix the yield or price on a specified benchmark interest rate for an anticipated debt issuance for a specific period. These derivative instruments are generally designated as cash flow hedges for accounting purposes.

As of Dec. 31, 2017, accumulated other comprehensive losses related to interest rate derivatives included $3 million of net losses expected to be reclassified into earnings during the next 12 months as the related hedged interest rate transactions impact earnings, including forecasted amounts for unsettled hedges, as applicable.

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

Commodity Derivatives — Xcel Energy enters into derivative instruments to manage variability of future cash flows from changes in commodity prices in its electric and natural gas operations, as well as for trading purposes. This could include the purchase or sale of energy or energy-related products, natural gas to generate electric energy, natural gas for resale, FTRs, vehicle fuel and weather derivatives.

As of Dec. 31, 2017, Xcel Energy had various vehicle fuel contracts designated as cash flow hedges extending through December 2018. Xcel Energy enters into derivative instruments that mitigate commodity price risk on behalf of electric and natural gas customers, but may not be designated as qualifying hedging transactions. Changes in the fair value of non-trading commodity derivative instruments are recorded in OCI or deferred as a regulatory asset or liability. The classification as a regulatory asset or liability is based on commission approved regulatory recovery mechanisms. Xcel Energy recorded immaterial amounts to income related to the ineffectiveness of cash flow hedges for the years ended Dec. 31, 2017 and 2016.

As of Dec. 31, 2017, net gains related to commodity derivative cash flow hedges recorded as a component of accumulated other comprehensive losses included immaterial net gains expected to be reclassified into earnings during the next 12 months as the hedged transactions occur.

Additionally, Xcel Energy enters into commodity derivative instruments for trading purposes not directly related to commodity price risks associated with serving its electric and natural gas customers. Changes in the fair value of these commodity derivatives are recorded in electric operating revenues, net of amounts credited to customers under margin-sharing mechanisms.

The following table details the gross notional amounts of commodity forwards, options and FTRs as of Dec. 31:


^(a)	Amounts are not reflective of net positions in the underlying commodities.


^(b)	Notional amounts for options are included on a gross basis, but are weighted for the probability of exercise.

Consideration of Credit Risk and Concentrations — Xcel Energy continuously monitors the creditworthiness of the counterparties to its interest rate derivatives and commodity derivative contracts prior to settlement, and assesses each counterparty’s ability to perform on the transactions set forth in the contracts. Given this assessment, as well as an assessment of the impact of Xcel Energy’s own credit risk when determining the fair value of derivative liabilities, the impact of credit risk was immaterial to the fair value of unsettled commodity derivatives presented in the consolidated balance sheets.

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

Xcel Energy’s utility subsidiaries’ most significant concentrations of credit risk with particular entities or industries are contracts with counterparties to their wholesale, trading and non-trading commodity activities. As of Dec. 31, 2017, four of Xcel Energy’s 10 most significant counterparties for these activities, comprising $45 million or 29 percent of this credit exposure, had investment grade credit ratings from S&P’s, Moody’s or Fitch Ratings. Five of the 10 most significant counterparties, comprising $30 million or 19 percent of this credit exposure, were not rated by these external agencies, but based on Xcel Energy’s internal analysis, had credit quality consistent with investment grade. Another of these significant counterparties, comprising $7 million or 5 percent of this credit exposure, had credit quality less than investment grade, based on ratings from external analysis. Eight of these significant counterparties are municipal or cooperative electric entities or other utilities.

Financial Impact of Qualifying Cash Flow Hedges — The impact of qualifying interest rate and vehicle fuel cash flow hedges on Xcel Energy’s accumulated other comprehensive loss, included in the consolidated statements of common stockholders’ equity and in the consolidated statements of comprehensive income, is detailed in the following table:



(Millions of Dollars)	2017			2016			2015
Accumulated other comprehensive loss related to cash flow hedges at Jan. 1	$	(51	)	$	(55	)	$	(58	)
After-tax net realized losses on derivative transactions reclassified into earnings	3			4			3
Accumulated other comprehensive loss related to cash flow hedges at Dec. 31	$	(48	)	$	(51	)	$	(55	)

The following tables detail the impact of derivative activity during the years ended Dec. 31, 2017, 2016 and 2015, on accumulated other comprehensive loss, regulatory assets and liabilities, and income:



	Year Ended Dec. 31, 2017
	Pre-Tax Fair Value Gains (Losses) Recognized During the Period in:					Pre-Tax (Gains) Losses Reclassified into Income During the Period from:							Pre-Tax Gains (Losses) Recognized During the Period in Income
(Millions of Dollars)	Accumulated Other Comprehensive Loss		Regulatory (Assets) and Liabilities			Accumulated Other Comprehensive Loss			Regulatory Assets and (Liabilities)
Derivatives designated as cash flow hedges
Interest rate	$	—	$	—		$	5	^(a)	$	—			$	—
Total	$	—	$	—		$	5		$	—			$	—
Other derivative instruments
Commodity trading	$	—	$	—		$	—		$	—			$	10		^(b)
Electric commodity	—		10			—			(15		)	^(c)	—
Natural gas commodity	—		(13		)	—			3			^(d)	(6		)	^(d)
Total	$	—	$	(3	)	$	—		$	(12	)		$	4



	Year Ended Dec. 31, 2016
	Pre-Tax Fair Value Gains Recognized During the Period in:				Pre-Tax (Gains) Losses Reclassified into Income During the Period from:							Pre-Tax Gains (Losses) Recognized During the Period in Income
(Millions of Dollars)	Accumulated Other Comprehensive Loss		Regulatory (Assets) and Liabilities		Accumulated Other Comprehensive Loss			Regulatory Assets and (Liabilities)
Derivatives designated as cash flow hedges
Interest rate	$	—	$	—	$	6	^(a)	$	—			$	—
Total	$	—	$	—	$	6		$	—			$	—
Other derivative instruments
Commodity trading	$	—	$	—	$	—		$	—			$	2		^(b)
Electric commodity	—		17		—			(8		)	^(c)	—
Natural gas commodity	—		1		—			15			^(d)	(8		)	^(d)
Total	$	—	$	18	$	—		$	7			$	(6	)



	Year Ended Dec. 31, 2015
	Pre-Tax Fair Value Losses Recognized During the Period in:					Pre-Tax Losses Reclassified into Income During the Period from:						Pre-Tax Losses Recognized During the Period in Income
(Millions of Dollars)	Accumulated Other Comprehensive Loss		Regulatory (Assets) and Liabilities			Accumulated Other Comprehensive Loss			Regulatory Assets and (Liabilities)			Pre-Tax Losses Recognized During the Period in Income
Derivatives designated as cash flow hedges
Interest rate	$	—	$	—		$	5	^(a)	$	—		$	—
Total	$	—	$	—		$	5		$	—		$	—
Other derivative instruments
Commodity trading	$	—	$	—		$	—		$	—		$	(7	)	^(b)
Electric commodity	—		(19		)	—			16		^(c)	—
Natural gas commodity	—		(16		)	—			16		^(d)	(12		)	^(d)
Total	$	—	$	(35	)	$	—		$	32		$	(19	)


^(a)	Amounts are recorded to interest charges.


^(b)	Amounts are recorded to electric operating revenues. Portions of these gains and losses are subject to sharing with electric customers through margin-sharing mechanisms and deducted from gross revenue, as appropriate.


^(c)	Amounts are 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.

^(d)

Certain derivatives are utilized to mitigate natural gas price risk for electric generation and are recorded to electric fuel and purchased power, subject to cost-recovery mechanisms and reclassified to a regulatory asset, as appropriate. Amounts for the years ended Dec. 31, 2017 and Dec. 31, 2016 included immaterial settlement gains and losses. Amounts for the year ended Dec. 31, 2015 included $1 million of settlement losses. The remaining settlement losses for the years ended Dec. 31, 2017, 2016 and 2015 relate to natural gas operations and are recorded to cost of natural gas sold and transported. These losses are subject to cost-recovery mechanisms and reclassified out of income to a regulatory asset, as appropriate.

Xcel Energy had no derivative instruments designated as fair value hedges during the years ended Dec. 31, 2017, 2016 and 2015. Therefore, no gains or losses from fair value hedges or related hedged transactions were recognized for these periods.

Credit Related Contingent Features — Contract provisions for derivative instruments that the utility subsidiaries enter, including those accounted for as normal purchase-normal sale contracts and therefore not reflected on the consolidated balance sheets, may require the posting of collateral or settlement of the contracts for various reasons, including if the applicable utility subsidiary’s credit ratings are downgraded below its investment grade credit rating by any of the major credit rating agencies or for cross default contractual provisions that could result in the settlement of such contracts if there was a failure under other financing arrangements related to payment terms or other covenants. As of Dec. 31, 2017 and 2016, there were no derivative instruments in a material liability position with such underlying contract provisions.

Certain derivative instruments are also subject to contract provisions that contain adequate assurance clauses. These provisions allow counterparties to seek performance assurance, including cash collateral, in the event that a given utility subsidiary’s ability to fulfill its contractual obligations is reasonably expected to be impaired. Xcel Energy had no collateral posted related to adequate assurance clauses in derivative contracts as of Dec. 31, 2017 and 2016.

Recurring Fair Value Measurements — The following table presents for each of the fair value hierarchy levels, Xcel Energy’s derivative assets and liabilities measured at fair value on a recurring basis as of Dec. 31, 2017:



	Dec. 31, 2017
	Fair Value						Fair Value Total		Counterparty Netting ^(b)
(Millions of Dollars)	Level 1		Level 2		Level 3		Fair Value Total		Counterparty Netting ^(b)			Total
Current derivative assets
Commodity trading	$	2	$	22	$	—	$	24	$	(15	)	$	9
Electric commodity	—		—		32		32		(2		)	30
Total current derivative assets	$	2	$	22	$	32	$	56	$	(17	)	39
PPAs ^(a)												5
Current derivative instruments												$	44
Noncurrent derivative assets
Other derivative instruments:
Commodity trading	$	—	$	31	$	5	$	36	$	(7	)	$	29
Total noncurrent derivative assets	$	—	$	31	$	5	$	36	$	(7	)	29
PPAs ^(a)												19
Noncurrent derivative instruments												$	48



	Dec. 31, 2017
	Fair Value						Fair Value Total		Counterparty Netting ^(b)
(Millions of Dollars)	Level 1		Level 2		Level 3		Fair Value Total		Counterparty Netting ^(b)			Total
Current derivative liabilities
Other derivative instruments:
Commodity trading	$	2	$	18	$	—	$	20	$	(15	)	$	5
Electric commodity	—		—		2		2		(2		)	—
Natural gas commodity	—		1		—		1		—			1
Total current derivative liabilities	$	2	$	19	$	2	$	23	$	(17	)	6
PPAs ^(a)												23
Current derivative instruments												$	29
Noncurrent derivative liabilities
Other derivative instruments:
Commodity trading	$	—	$	24	$	—	$	24	$	(10	)	$	14
Total noncurrent derivative liabilities	$	—	$	24	$	—	$	24	$	(10	)	14
PPAs ^(a)												112
Noncurrent derivative instruments												$	126


^(a)	During 2006, Xcel Energy qualified these contracts under the normal purchase exception. Based on this qualification, the contracts are no longer adjusted to fair value and the previous carrying value of these contracts will be amortized over the remaining contract lives along with the offsetting regulatory assets and liabilities.

^(b)

Xcel Energy nets derivative instruments and related collateral in its consolidated balance sheet when supported by a legally enforceable master netting agreement, and all derivative instruments and related collateral amounts were subject to master netting agreements as of Dec. 31, 2017. At Dec. 31, 2017, derivative assets and liabilities include no obligations to return cash collateral and rights to reclaim cash collateral of $3 million. The counterparty netting amounts presented exclude settlement receivables and payables and non-derivative amounts that may be subject to the same master netting agreements.

The following table presents for each of the fair value hierarchy levels, Xcel Energy’s derivative assets and liabilities measured at fair value on a recurring basis as of Dec. 31, 2016:



	Dec. 31, 2016
	Fair Value						Fair Value Total		Counterparty Netting ^(b)
(Millions of Dollars)	Level 1		Level 2		Level 3		Fair Value Total		Counterparty Netting ^(b)			Total
Current derivative assets
Other derivative instruments:
Commodity trading	$	13	$	14	$	—	$	27	$	(20	)	$	7
Electric commodity	—		—		19		19		(2		)	17
Natural gas commodity	—		9		—		9		—			9
Total current derivative assets	$	13	$	23	$	19	$	55	$	(22	)	33
PPAs ^(a)												5
Current derivative instruments												$	38
Noncurrent derivative assets
Other derivative instruments:
Commodity trading	$	—	$	31	$	—	$	31	$	(7	)	$	24
Natural gas commodity	—		2		—		2		—			2
Total noncurrent derivative assets	$	—	$	33	$	—	$	33	$	(7	)	26
PPAs ^(a)												24
Noncurrent derivative instruments												$	50



	Dec. 31, 2016
	Fair Value						Fair Value Total		Counterparty Netting ^(b)
(Millions of Dollars)	Level 1		Level 2		Level 3		Fair Value Total		Counterparty Netting ^(b)			Total
Current derivative liabilities
Other derivative instruments:
Commodity trading	$	14	$	11	$	—	$	25	$	(21	)	$	4
Electric commodity	—		—		2		2		(2		)	—
Total current derivative liabilities	$	14	$	11	$	2	$	27	$	(23	)	4
PPAs ^(a)												23
Current derivative instruments												$	27
Noncurrent derivative liabilities
Other derivative instruments:
Commodity trading	$	—	$	24	$	—	$	24	$	(11	)	$	13
Total noncurrent derivative liabilities	$	—	$	24	$	—	$	24	$	(11	)	13
PPAs ^(a)												135
Noncurrent derivative instruments												$	148


^(a)	During 2006, Xcel Energy qualified these contracts under the normal purchase exception. Based on this qualification, the contracts are no longer adjusted to fair value and the previous carrying value of these contracts will be amortized over the remaining contract lives along with the offsetting regulatory assets and liabilities.

^(b)

Xcel Energy nets derivative instruments and related collateral in its consolidated balance sheet when supported by a legally enforceable master netting agreement, and all derivative instruments and related collateral amounts were subject to master netting agreements as of Dec. 31, 2016. At Dec. 31, 2016, derivative assets and liabilities include no obligations to return cash collateral and rights to reclaim cash collateral of $4 million. The counterparty netting amounts presented exclude settlement receivables and payables and non-derivative amounts that may be subject to the same master netting agreements.

The following table presents the changes in Level 3 commodity derivatives for the years ended Dec. 31, 2017, 2016 and 2015:



	Year Ended Dec. 31
(Millions of Dollars)	2017			2016			2015
Balance at Jan. 1	$	17		$	18		$	56
Purchases	82			35			64
Settlements	(97		)	(89		)	(70		)
Net transactions recorded during the period:
Gains recognized in earnings ^(a)	5			—			2
Net gains (losses) recognized as regulatory assets and liabilities	28			53			(34		)
Balance at Dec. 31	$	35		$	17		$	18


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

Xcel Energy recognizes transfers between levels as of the beginning of each period. There were no transfers of amounts between levels for derivative instruments for the years ended Dec. 31, 2017, 2016 and 2015.

Fair Value of Long-Term Debt

As of Dec. 31, 2017 and 2016, other financial instruments for which the carrying amount did not equal fair value were as follows:



	2017				2016
(Millions of Dollars)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, including current portion	$	14,976	$	16,531	$	14,450	$	15,513

The fair value of Xcel Energy’s long-term debt is estimated based on recent trades and observable spreads from benchmark interest rates for similar securities. The fair value estimates are based on information available to management as of Dec. 31, 2017 and 2016, and given the observability of the inputs to these estimates, the fair values presented for long-term debt have been assigned a Level 2.

(Amounts in Millions) ^(a)(b)

MWh of electricity

MMBtu of natural gas