Benefit Plans and Other Postretirement Benefits

12 Months Ended

Dec. 31, 2022

Retirement Benefits [Abstract]

Benefit Plans and Other Postretirement Benefits

9. Benefit Plans and Other Postretirement Benefits

Pension and Postretirement Health Care Benefits

Xcel Energy, which includes NSP-Wisconsin, has several noncontributory, qualified, defined benefit pension plans that cover almost all employees. All newly hired or rehired employees participate under the Cash Balance formula, which is based on pay credits using a percentage of annual eligible pay and annual interest credits. The average annual interest crediting rates for these plans was 4.86, 1.96 and 1.78 percent in 2022, 2021, and 2020, respectively. Some employees may participate under legacy formulas such as the traditional final average pay or pension equity. Xcel Energy’s policy is to fully fund into an external trust the actuarially determined pension costs subject to the limitations of applicable employee benefit and tax laws.

In addition to the qualified pension plans, Xcel Energy maintains a SERP and a nonqualified pension plan. The SERP is maintained for certain executives who participated in the plan in 2008, when the SERP was closed to new participants. The nonqualified pension plan provides 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. Obligations of the SERP and nonqualified plan as of Dec. 31, 2022 and 2021 were $11 million and $43 million, respectively, of which the amounts attributable to NSP-Wisconsin were immaterial in both years. Xcel Energy recognized net benefit cost for the SERP and nonqualified plans of $17 million and $4 million in 2022 and 2021, respectively, of which amounts attributable to NSP-Wisconsin were immaterial.

Investment-return assumption considers the expected long-term performance for each of the asset classes in its pension and postretirement health care portfolio. Xcel Energy considers the historical returns achieved by its asset portfolios over long time periods, as well as the long-term projected return levels from investment experts.

Pension cost determination assumes a forecasted mix of investment types over the long-term.

•Investment returns in 2022 were below the assumed level of 6.60%.

•Investment returns in 2021 were above the assumed level of 6.60%.

•Investment returns in 2020 were above the assumed level of 7.10%.

•In 2023, NSP-Wisconsin’s expected investment-return assumption is 7.25%.

Pension plan and postretirement benefit 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 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 industry, index, or entity. Market volatility can impact even well-diversified portfolios and significantly affect the return levels achieved by the assets in any year.

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 consider many factors and generally 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.

Plan Assets

For each of the fair value hierarchy levels, NSP-Wisconsin’s pension plan assets measured at fair value:

	Dec. 31, 2022 (a)										Dec. 31, 2021 (a)
(Millions of Dollars)	Level 1		Level 2		Level 3		Measured at NAV		Total		Level 1		Level 2		Level 3		Measured at NAV		Total
Cash equivalents	$	4	$	—	$	—	$	—	$	4	$	5	$	—	$	—	$	—	$	5
Commingled funds	35		—		—		34		69		49		—		—		44		93
Debt securities	—		22		—		—		22		—		36		—		—		36
Equity securities	2		—		—		—		2		3		—		—		—		3
Total	$	41	$	22	$	—	$	34	$	97	$	57	$	36	$	—	$	44	$	137

(a)See Note 8 for further information on fair value measurement inputs and methods.

NSP-Wisconsin has immaterial postretirement benefit plan assets that were measured at fair value at Dec. 31, 2022 and 2021.

No assets were transferred in or out of Level 3 for 2022 or 2021.

Funded Status — Benefit obligations for both pension and postretirement plans decreased from Dec. 31, 2021 to Dec. 31, 2022, due primarily to benefit payments and increases in discount rates used in actuarial valuations. Comparisons of the actuarially computed benefit obligation, changes in plan assets and funded status of the pension and postretirement health care plans for NSP-Wisconsin are as follows:

	Pension Benefits				Postretirement Benefits
(Millions of Dollars)	2022		2021		2022		2021
Change in Benefit Obligation:
Obligation at Jan. 1	$	141	$	154	$	11	$	13
Service cost	5		5		—		—
Interest cost	4		4		1		1
Actuarial gain	(21)		(4)		(3)		(1)
Benefit payments	(17)		(18)		(1)		(2)
Obligation at Dec. 31	$	112	$	141	$	8	$	11
Change in Fair Value of Plan Assets:
Fair value of plan assets at Jan. 1	$	137	$	140	$	—	$	—
Actual return on plan assets	(24)		10		—		—
Employer contributions	1		5		1		1
Benefit payments	(17)		(18)		(1)		(1)
Fair value of plan assets at Dec. 31	$	97	$	137	$	—	$	—
Funded status of plans at Dec. 31	$	(15)	$	(4)	$	(8)	$	(11)
Amounts recognized in the Consolidated Balance Sheet at Dec. 31:
Current liabilities	$	—	$	—	$	—	$	(1)
Noncurrent liabilities	(15)		(4)		(8)		(10)
Net amounts recognized	$	(15)	$	(4)	$	(8)	$	(11)

	Pension Benefits				Postretirement Benefits
Significant Assumptions Used to Measure Benefit Obligations:	2022		2021		2022		2021
Discount rate for year-end valuation	5.80	%	3.08	%	5.80	%	3.09	%
Expected average long-term increase in compensation level	4.25	%	3.75	%	N/A		N/A
Mortality table	Pri-2012		Pri-2012		Pri-2012		Pri-2012
Health care costs trend rate — initial: Pre-65	N/A		N/A		6.50	%	5.30	%
Health care costs trend rate — initial: Post-65	N/A		N/A		5.50	%	4.90	%
Ultimate trend assumption — initial: Pre-65	N/A		N/A		4.50	%	4.50	%
Ultimate trend assumption — initial: Post-65	N/A		N/A		4.50	%	4.50	%
Years until ultimate trend is reached	N/A		N/A		7		4

Accumulated benefit obligation for the pension plan was $101 million and $129 million as of Dec. 31, 2022 and 2021, respectively.

Net Periodic Benefit Cost (Credit) — Net periodic benefit cost (credit), other than the service cost component, is included in other expense in the consolidated statements of income.

Components of net periodic benefit cost (credit) and amounts recognized in other comprehensive income and regulatory assets and liabilities:

	Pension Benefits									Postretirement Benefits
(Millions of Dollars)	2022			2021			2020			2022			2021			2020
Service cost	$	5		$	5		$	4		$	—		$	—		$	—
Interest cost	4			4			5			1			1			1
Expected return on plan assets	(8)			(8)			(8)			—			—			—
Amortization of net loss	3			5			5			—			—			—
Settlement charge (a)	6			5			—			—			—			—
Net periodic pension cost	$	10		$	11		$	6		$	1		$	1		$	1
Effects of regulation	(2)			(3)			7			—						—
Net benefit cost recognized for financial reporting	$	8		$	8		$	13		$	1		$	1		$	1
Significant Assumptions Used to Measure Costs:
Discount rate	3.08		%	2.71		%	3.49		%	3.09		%	2.65		%	3.47		%
Expected average long-term increase in compensation level	3.75			3.75			3.75			—			—			—
Expected average long-term rate of return on assets	6.60			6.60			7.10			4.10			4.10			4.50

(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 2022 and 2021, as a result of lump-sum distributions during the plan years, NSP-Wisconsin recorded a total pension settlement charge of $6 million and $5 million, respectively, a total of $1 million of that amount was recorded in the income statement in both years. There were no settlement charges recorded to the qualified pension plans in 2020.

	Pension Benefits				Postretirement Benefits
(Millions of Dollars)	2022		2021		2022		2021
Amounts Not Yet Recognized as Components of Net Periodic Benefit Cost:
Net loss	$	45	$	44	$	4	$	6
Prior service credit	—		—		—		—
Total	$	45	$	44	$	4	$	6
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	$	1	$	4	$	—	$	—
Noncurrent regulatory assets	44		40		4		6
Total	$	45	$	44	$	4	$	6

Measurement date Dec. 31, 2022 Dec. 31, 2021 Dec. 31, 2022 Dec. 31, 2021

Cash Flows — Funding requirements can be impacted by changes to actuarial assumptions, actual asset levels and other calculations prescribed by the requirements of income tax and other pension-related regulations. Required contributions were made in 2020-2023 to meet minimum funding requirements.

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

•$50 million in January 2023, of which $4 million was attributable to NSP-Wisconsin.

•$50 million in 2022, of which $1 million was attributable to NSP-Wisconsin.

•$131 million in 2021, of which $5 million was attributable to NSP-Wisconsin.

•$150 million in 2020, of which $7 million was attributable to NSP-Wisconsin.

The postretirement health care plans have no funding requirements other than fulfilling benefit payment obligations when claims are presented and approved. Additional cash funding requirements are prescribed by certain state and federal rate regulatory authorities.

Xcel Energy’s voluntary postretirement funding contributions were as follows:

•$12 million expected in 2023, of which $1 million is attributable to NSP-Wisconsin.

•$13 million during 2022, of which $1 million was attributable to NSP-Wisconsin.

•$15 million during 2021, of which $2 million was attributable to NSP-Wisconsin.

•$11 million during 2020, of which $1 million was attributable to NSP-Wisconsin.

Target asset allocations:

	Pension Benefits				Postretirement Benefits
	2022		2021		2022		2021
Domestic and international equity securities	33	%	33	%	16	%	15	%
Long-duration fixed income and interest rate swap securities	38		37		—		—
Short-to-intermediate fixed income securities	9		11		71		71
Alternative investments	18		17		12		8
Cash	2		2		1		6
Total	100	%	100	%	100	%	100	%

The asset allocations above reflect target allocations approved in the calendar year to take effect in the subsequent year.

Plan Amendments — In 2022 and 2020, there were no significant plan amendments made which affected the postretirement benefit obligation.

In 2021, Xcel Energy amended the Xcel Energy Pension Plan and Xcel Energy Inc. Nonbargaining Pension Plan (South) 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.

Projected Benefit Payments

NSP-Wisconsin’s projected benefit payments:

(Millions of Dollars)	Projected Pension Benefit Payments		Gross Projected Postretirement Health Care Benefit Payments (a)
2023	$	11	$	1
2024	10		1
2025	11		1
2026	10		1
2027	10		1
2028-2032	54		3

(a)Amount is reported net of expected Medicare Part D subsidies, which are immaterial.

Defined Contribution Plans

Xcel Energy, which includes NSP-Wisconsin, maintains 401(k) and other defined contribution plans that cover most employees. The expense to these plans for NSP-Wisconsin was approximately $2 million in 2022, 2021 and 2020.

Multiemployer Plans

NSP-Wisconsin contributes to several union multiemployer pension plans, none of which are individually significant. These plans provide pension benefits to certain union employees who may perform services for multiple employers and do not participate in the NSP-Wisconsin sponsored pension plans. Contributing to these types of plans creates risk that differs from providing benefits under 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.