Fair Value of Financial Assets and Liabilities

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value of Financial Assets and Liabilities

Fair Value Measurements

Accounting guidance for fair value measurements and disclosures provides a single definition of fair value and requires 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.

•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; and

•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:

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. The investments in commingled funds may be redeemed for NAV with proper notice. Private equity commingled fund 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 commingled funds investments may be redeemed with proper notice, however, withdrawals 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 — 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 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 certain 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.

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 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, with changes in fair value prior to settlement recorded as other comprehensive income.

As of Sept. 30, 2020, accumulated other comprehensive loss related to settled interest rate derivatives included $6 million of net losses expected to be reclassified into earnings during the next 12 months as the hedged transactions impact earnings. As of Sept. 30, 2020. Xcel Energy had no unsettled interest rate derivatives.

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 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 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.

Xcel Energy may enter 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. The classification as a regulatory asset or liability, if applicable, is based on approved regulatory recovery mechanisms.

As of Sept. 30, 2020, Xcel Energy had no commodity contracts designated as cash flow hedges.

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.

Gross notional amounts of commodity forwards, options and FTRs:

(Amounts in Millions) (a)(b)	Sept. 30, 2020	Dec. 31, 2019
Megawatt hours of electricity	107	95
Million British thermal units of natural gas	177	110

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

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

Consideration of Credit Risk and Concentrations — Xcel Energy 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 in the consolidated balance sheets. 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 Sept. 30, 2020, six of Xcel Energy’s 10 most significant counterparties for these activities, comprising $147 million, or 57%, of this credit exposure, had investment grade credit ratings from S&P Global Ratings, Moody’s Investor Services or Fitch Ratings. Three of the 10 most significant counterparties, comprising $38 million, or 15%, 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. One of these significant counterparties, comprising $9 million or 4% of this credit exposure, had credit quality less than investment grade, based on internal analysis. Eight of these significant counterparties are municipal or cooperative electric entities, RTOs or other utilities.

Impact of derivative activity:

	Pre-Tax Fair Value Gains (Losses) Recognized During the Period in:
(Millions of Dollars)	Accumulated Other Comprehensive Loss		Regulatory (Assets) and Liabilities
Three Months Ended Sept. 30, 2020
Other derivative instruments
Electric commodity	$	—	$	(3)
Natural gas commodity	—		2
Total	$	—	$	(1)
Nine Months Ended Sept. 30, 2020
Derivatives designated as cash flow hedges
Interest rate	$	(13)	$	—
Total	$	(13)	$	—
Other derivative instruments
Electric commodity	$	—	$	(3)
Natural gas commodity	—		(1)
Total	$	—	$	(4)
Three Months Ended Sept. 30, 2019
Derivatives designated as cash flow hedges
Interest rate	$	(12)	$	—
Total	$	(12)	$	—
Other derivative instruments
Natural gas commodity	$	—	$	(3)
Total	$	—	$	(3)
Nine Months Ended Sept. 30, 2019
Derivatives designated as cash flow hedges
Interest rate	$	(33)	$	—
Total	$	(33)	$	—
Other derivative instruments
Electric commodity	$	—	$	4
Natural gas commodity	—		(5)
Total	$	—	$	(1)

	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)
Three Months Ended Sept. 30, 2020
Derivatives designated as cash flow hedges
Interest rate	$	1	(a)	$	—		$	—
Total	$	1		$	—		$	—
Other derivative instruments
Commodity trading	$	—		$	—		$	2	(b)
Electric commodity	—			(3)		(c)	—
Total	$	—		$	(3)		$	2
Nine Months Ended Sept. 30, 2020
Derivatives designated as cash flow hedges
Interest rate	$	5	(a)	$	—		$	—
Total	$	5		$	—		$	—
Other derivative instruments
Commodity trading	$	—		$	—		$	(1)	(b)
Electric commodity	—			(6)		(c)	—
Natural gas commodity	—			5		(d)	(6)		(d)
Total	$	—		$	(1)		$	(7)
Three Months Ended Sept. 30, 2019
Derivatives designated as cash flow hedges
Interest rate	$	1	(a)	$	—		$	—
Total	$	1		$	—		$	—
Other derivative instruments
Commodity trading	$	—		$	—		$	1	(b)
Electric commodity	—			(1)		(c)	—
Total	$	—		$	(1)		$	1
Nine Months Ended Sept. 30, 2019
Derivatives designated as cash flow hedges
Interest rate	$	3	(a)	$	—		$	—
Total	$	3		$	—		$	—
Other derivative instruments
Commodity trading	$	—		$	—		$	5	(b)
Natural gas commodity	—			(1)		(d)	(4)		(d)
Total	$	—		$	(1)		$	1

(a)Recorded to interest charges.

(b)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)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)Amounts for both the three and nine months ended Sept. 30, 2020 and 2019 included no settlement gains or losses on derivatives entered to mitigate natural gas price risk for electric generation recorded to electric fuel and purchased power, subject to cost-recovery mechanisms and reclassified to a regulatory asset, as appropriate. Remaining settlement losses for both the three and nine months ended Sept. 30, 2020 and 2019 related to natural gas operations and were recorded to cost of natural gas sold and transported. These gains and losses are subject to cost-recovery mechanisms and reclassified out of income to a regulatory asset or liability, as appropriate.

Xcel Energy had no derivative instruments designated as fair value hedges during the three and nine months ended Sept. 30, 2020 and 2019.

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 if there was a failure under other financing arrangements related to payment terms or other covenants.

As of Sept. 30, 2020 and Dec. 31, 2019, there were $4 million and $7 million derivative instruments in a liability position with such underlying contract provisions, respectively. Certain derivative instruments are also subject to contract provisions that contain adequate assurance clauses. 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 Sept. 30, 2020 and Dec. 31, 2019.

Recurring Fair Value Measurements — Derivative assets and liabilities measured at fair value on a recurring basis:

	Sept. 30, 2020												Dec. 31, 2019
	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:
Commodity trading	$	10	$	51	$	7	$	68	$	(49)	$	19	$	3	$	51	$	24	$	78	$	(52)	$	26
Electric commodity	—		—		32		32		(1)		31		—		—		21		21		(1)		20
Natural gas commodity	—		16		—		16		—		16		—		6		—		6		—		6
Total current derivative assets	$	10	$	67	$	39	$	116	$	(50)	66		$	3	$	57	$	45	$	105	$	(53)	52
PPAs (b)											3												3
Current derivative instruments											$	69											$	55
Noncurrent derivative assets
Other derivative instruments:
Commodity trading	$	10	$	36	$	21	$	67	$	(46)	$	21	$	9	$	38	$	7	$	54	$	(45)	$	9
Total noncurrent derivative assets	$	10	$	36	$	21	$	67	$	(46)	21		$	9	$	38	$	7	$	54	$	(45)	9
PPAs (b)											10												13
Noncurrent derivative instruments											$	31											$	22

	Sept. 30, 2020												Dec. 31, 2019
	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 liabilities
Other derivative instruments:
Commodity trading	$	13	$	52	$	12	$	77	$	(49)	$	28	$	4	$	59	$	15	$	78	$	(63)	$	15
Electric commodity	—		—		1		1		(1)		—		—		—		1		1		(1)		—
Natural gas commodity	—		3		—		3		—		3		—		5		—		5		—		5
Total current derivative liabilities	$	13	$	55	$	13	$	81	$	(50)	31		$	4	$	64	$	16	$	84	$	(64)	20
PPAs (b)											17												18
Current derivative instruments											$	48											$	38
Noncurrent derivative liabilities
Other derivative instruments:
Commodity trading	$	5	$	58	$	53	$	116	$	(20)	$	96	$	2	$	79	$	32	$	113	$	(13)	$	100
Total noncurrent derivative liabilities	$	5	$	58	$	53	$	116	$	(20)	96		$	2	$	79	$	32	$	113	$	(13)	100
PPAs (b)											62												75
Noncurrent derivative instruments											$	158											$	175

(a)Xcel Energy nets derivative instruments and related collateral on its consolidated balance sheets when supported by a legally enforceable master netting agreement, and all derivative instruments and related collateral amounts were subject to master netting agreements at Sept. 30, 2020 and Dec. 31, 2019. At Sept. 30, 2020 and Dec. 31, 2019, derivative assets and liabilities include $32 million of obligations to return cash collateral and rights to reclaim cash collateral of $6 million and $11 million, respectively. Counterparty netting amounts presented exclude settlement receivables and payables and non-derivative amounts that may be subject to the same master netting agreements.

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

Changes in Level 3 commodity derivatives:

	Three Months Ended Sept. 30
(Millions of Dollars)	2020		2019
Balance at July 1	$	34	$	28
Purchases	—		5
Settlements	(17)		(21)
Net transactions recorded during the period:
(Losses) gains recognized in earnings (a)	(25)		1
Net gains recognized as regulatory assets and liabilities	2		2
Balance at Sept. 30	$	(6)	$	15
	Nine Months Ended Sept. 30
(Millions of Dollars)	2020		2019
Balance at Jan. 1	$	4	$	29
Purchases	49		42
Settlements	(59)		(48)
Net transactions recorded during the period:
Losses recognized in earnings (a)	(11)		(9)
Net gains recognized as regulatory assets and liabilities	11		1
Balance at Sept. 30	$	(6)	$	15

(a)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 three and nine months ended Sept. 30, 2020 and 2019.

Fair Value of Long-Term Debt

Other financial instruments which the carrying amount did not equal fair value:

	Sept. 30, 2020				Dec. 31, 2019
(Millions of Dollars)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, including current portion	$	20,361	$	24,396	$	18,109	$	20,227

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. Fair value estimates are based on information available to management as of Sept. 30, 2020 and Dec. 31, 2019 and given the observability of the inputs, fair values presented for long-term debt were assigned as Level 2.