UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended Sept. 30, 2006

or

o        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                        to

Commission File Number: 001-03140

Northern States Power Company

(Exact name of registrant as specified in its charter)

Wisconsin	39-0508315
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1414 W. Hamilton Avenue,
Eau Claire, Wisconsin	54701
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (715) 839-2625

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

Large Accelerated Filer o                  Accelerated Filer o                             Non-Accelerated Filer ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes ý No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at Oct. 30, 2006
Common Stock, $100 par value	933,000 shares

Northern States Power Co. (a Wisconsin corporation) meets the conditions set forth in General Instruction H (1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format specified in General Instruction H (2) to such Form 10-Q.

Table of Contents

	PART I - FINANCIAL INFORMATION
Item l.	Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 4.	Controls and Procedures
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings
Item 1A.	Risk Factors
Item 6.	Exhibits

This Form 10-Q is filed by Northern States Power Co., a Wisconsin corporation (NSP-Wisconsin).  NSP-Wisconsin is a wholly owned subsidiary of Xcel Energy Inc. (Xcel Energy).  Additional information on Xcel Energy is available on various filings with the Securities and Exchange Commission (SEC).

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PART I. FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

NSP-WISCONSIN AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Thousands of Dollars)

	Three Months Ended Sept. 30,						Nine Months Ended Sept. 30,
	2006			2005			2006			2005
Operating revenues
Electric utility	$	165,902		$	138,692		$	440,378		$	391,533
Natural gas utility	13,134			11,457			105,310			93,771
Other	218			172			577			515
Total operating revenues	179,254			150,321			546,265			485,819
Operating expenses
Electric fuel and purchased power	90,984			83,009			234,108			226,770
Cost of natural gas sold and transported	8,035			7,681			82,015			71,920
Other operating and maintenance expenses	33,372			30,185			100,177			92,376
Depreciation and amortization	12,946			12,913			38,648			38,213
Taxes (other than income taxes)	4,691			4,229			14,034			12,688
Total operating expenses	150,028			138,017			468,982			441,967
Operating income	29,226			12,304			77,283			43,852
Interest and other income — net (see Note 5)	234			(136		)	581			3
Allowance for funds used during construction — equity	259			200			526			421
Interest charges and financing costs
Interest charges — includes financing costs of $308, $308, $914 and $913, respectively	5,583			6,011			17,163			17,196
Allowance for funds used during construction — debt	(356		)	(94		)	(908		)	(27		)
Total interest charges and financing costs	5,227			5,917			16,255			17,169
Income before income taxes	24,492			6,451			62,135			27,107
Income tax	7,842			2,307			22,047			10,160
Net income	$	16,650		$	4,144		$	40,088		$	16,947

See Notes to Consolidated Financial Statements

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NSP-WISCONSIN AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)

	Nine Months Ended Sept. 30,
	2006			2005
Operating activities
Net income	$	40,088		$	16,947
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	40,165			39,253
Deferred income taxes	(4,949		)	2,761
Amortization of investment tax credits	(571		)	(589		)
Allowance for equity funds used during construction	(526		)	(421		)
Change in accounts receivable	20,594			2,613
Change in inventories	(3,931		)	(7,508		)
Change in other current assets	27,121			10,509
Change in accounts payable	(11,567		)	4,926
Change in other current liabilities	11,442			762
Change in other assets	(9,871		)	(9,217		)
Change in other liabilities	14,494			2,806
Net cash provided by operating activities	122,489			62,842
Investing activities
Capital/construction expenditures	(50,112		)	(40,305		)
Allowance for equity funds used during construction	526			421
Other investments — net	(89		)	429
Net cash used in investing activities	(49,675		)	(39,455		)
Financing activities
Short-term borrowings from affiliate — net	(59,700		)	(7,700		)
Capital contributions from parent	18,523			19,185
Proceeds from issuance of long-term debt	233			—
Dividends paid to parent	(31,883		)	(34,987		)
Net cash used in financing activities	(72,827		)	(23,502		)
Net decrease in cash and cash equivalents	(13		)	(115		)
Net increase in cash and cash equivalents — consolidation of subsidiaries	—			510
Cash and cash equivalents at beginning of year	681			231
Cash and cash equivalents at end of quarter	$	668		$	626
Supplemental disclosure of cash flow information:
Cash paid for interest (net of amounts capitalized)	$	10,774		$	10,972
Cash paid for income taxes (net of refunds received)	$	30,532		$	14,366
Supplemental disclosure of non-cash investing transactions:
Property, plant and equipment additions in accounts payable	$	642		$	647

See Notes to Consolidated Financial Statements

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NSP-WISCONSIN AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Thousands of Dollars)

	Sept. 30, 2006			Dec. 31, 2005
ASSETS
Current assets:
Cash and cash equivalents	$	668		$	681
Accounts receivable — net of allowance for bad debts: $1,184 and $1,461, respectively	51,496			62,155
Accounts receivable from affiliates	196			10,131
Accrued unbilled revenues	19,612			39,925
Material and supplies inventories — at average cost	5,260			4,977
Fuel inventory — at average cost	9,564			8,597
Natural gas inventory — at average cost	17,200			14,520
Current deferred income taxes	8,590			3,406
Prepaid taxes	11,367			14,033
Derivative instruments valuation	2,234			3,798
Prepayments and other	1,261			2,471
Total current assets	127,448			164,694
Property, plant and equipment, at cost:
Electric utility plant	1,278,980			1,268,623
Natural gas utility plant	158,655			155,628
Common utility and other property	115,161			113,542
Construction work in progress	41,069			10,447
Total property, plant and equipment	1,593,865			1,548,240
Less accumulated depreciation	(642,795		)	(612,205		)
Net property, plant and equipment	951,070			936,035
Other assets:
Prepaid pension asset	55,712			54,767
Regulatory assets	67,579			61,582
Other investments	6,409			6,320
Other	6,671			7,291
Total other assets	136,371			129,960
Total assets	$	1,214,889		$	1,230,689
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	34		$	34
Notes payable to affiliate	5,050			64,750
Accounts payable	23,244			39,660
Accounts payable to affiliates	20,842			16,308
Accrued interest	9,119			4,100
Accrued payroll and benefits	4,564			5,493
Dividends payable to parent	10,518			10,597
Derivative instruments valuation	2,550			718
Taxes accrued	1,901			3,375
Other	11,387			6,123
Total current liabilities	89,209			151,158
Deferred credits and other liabilities:
Deferred income taxes	168,161			171,083
Deferred investment tax credits	11,880			12,451
Regulatory liabilities	104,376			95,751
Customer advances for construction	16,659			17,734
Asset retirement obligations	3,038			2,936
Benefit obligations and other	41,193			26,339
Total deferred credits and other liabilities	345,307			326,294
Minority interest in subsidiaries	383			383
Commitments and contingencies (see Note 3)
Capitalization:
Long-term debt	315,653			315,371
Common stock — authorized 1,000,000 shares of $100 par value; outstanding 933,000 shares	93,300			93,300
Additional paid in capital	106,330			87,806
Retained earnings	265,631			257,346
Accumulated other comprehensive loss	(924		)	(969		)
Total common stockholder’s equity	464,337			437,483
Total liabilities and equity	$	1,214,889		$	1,230,689

See Notes to Consolidated Financial Statements

5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of NSP-Wisconsin and its subsidiaries as of Sept. 30, 2006, and Dec. 31, 2005; the results of operations for the three and nine months ended Sept. 30, 2006 and 2005; and cash flows for the nine months ended Sept. 30, 2006 and 2005. Due to the seasonality of electric and natural gas sales of NSP-Wisconsin, quarterly results are not necessarily an appropriate base from which to project annual results.

Except to the extent updated or described below, the footnotes set forth in the consolidated financial statements in NSP-Wisconsin’s Annual Report on Form 10-K for the year ended Dec. 31, 2005 appropriately represent, in all material respects, the current status of the footnotes and are incorporated herein by reference.

1.Significant Accounting Policies

FASB Interpretation No. 48 (FIN 48) — In July 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes —an interpretation of FASB Statement No. 109”.  FIN 48 prescribes a comprehensive financial statement model of how a company should recognize, measure, present, and disclose uncertain tax positions that the company has taken or expects to take in its income tax returns.  FIN 48 requires that only income tax benefits that meet the “more likely than not” recognition threshold be recognized or continue to be recognized on the effective date.  Initial derecognition amounts would be reported as a cumulative effect of a change in accounting principle.

FIN 48 is effective for fiscal years beginning after Dec. 15, 2006.  NSP-Wisconsin is assessing the impact of the new guidance on all of its open tax positions.

Statement of Financial Accounting Standards No. 157 — “Fair Value Measurements” (SFAS No. 157) — In September 2006, the FASB issued SFAS No. 157, which enhances existing guidance for measuring assets and liabilities using fair value. SFAS No. 157 provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. SFAS No. 157 also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted prices in active markets. Under SFAS No. 157, fair value measurements are disclosed by level within that hierarchy.  SFAS No. 157 is effective for financial statements issued for fiscal years beginning after Nov. 15, 2007.  NSP-Wisconsin is evaluating the impact of SFAS No. 157 on its financial condition and results of operations.

Statement of Financial Accounting Standards No. 158 — “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (SFAS No. 158) — In September 2006, the FASB issued SFAS No. 158, which requires companies to fully recognize the funded status of each pension and other postretirement benefit plan as a liability or asset on their balance sheets with all unrecognized amounts to be recorded in other comprehensive income.  Although NSP-Wisconsin continues to evaluate the impact of the new pronouncement, preliminary estimates indicate that assets could be increased by approximately $21 million and liabilities could be increased by approximately $21 million.   NSP-Wisconsin is evaluating regulatory accounting treatment, which would allow recognition of this item as a regulatory asset rather than as a charge to other comprehensive income.  These estimates reflect the expected deferral of these amounts as regulatory assets or liabilities.  The actual impact of the adoption of SFAS No. 158 could differ significantly from this estimate due to plan asset performance for the year and the discount rate in effect at the end of the year when the plans’ liabilities are measured.  The implementation of SFAS No.158 will have no impact on net income.  SFAS No. 158 is effective as of the end of the fiscal year ending after Dec. 15, 2006.

2.Rates and Regulation

Midwest Independent Transmission System Operator, Inc. (MISO) Operations —NSP-Wisconsin and Northern States Power Company, a Minnesota corporation (NSP-Minnesota), an affiliate of NSP-Wisconsin, are members of the MISO. The MISO is a regional transmission organization (RTO) that provides transmission tariff administration services for electric transmission systems, including those of NSP-Minnesota and NSP-Wisconsin.  In 2002, NSP-Minnesota and NSP-Wisconsin received all required regulatory approvals to transfer functional control of their high voltage (100 kilovolts and greater) transmission systems to the MISO. The MISO exercises functional control over the operations of these facilities and the facilities of certain neighboring electric utilities. On April 1, 2005, MISO initiated a regional Day 2 wholesale energy market pursuant to its transmission and energy markets tariff.

6

MISO Cost Recovery

While the Day 2 market is designed to provide efficiencies through region-wide generation dispatch and increased reliability, there are costs associated with the Day 2 market.  NSP-Wisconsin has requested recovery of these costs within their respective jurisdictions as outlined below.

On June 16, 2006, the Public Service Commission of Wisconsin (PSCW) issued its written order regarding the joint request for escrow accounting treatment of MISO Day 2 costs made by NSP-Wisconsin and other Wisconsin utilities.  The order confirms continued deferred accounting treatment for congestion costs, net line losses, and costs of acquiring FTRs not received in the MISO allocation process, as previously authorized by the PSCW.  The order also clarifies that deferral is authorized for several additional MISO Day 2 cost and revenue types not explicitly addressed in the original PSCW order issued March 29, 2005.  While deferral for most of the additional cost and revenue types was granted retroactive to April 1, 2005, a few types are deferrable beginning June 8, 2006.

On June 29, 2006, the PSCW opened a proceeding to address the proper amount of MISO Day 2 deferrals that the state’s utilities should be allowed to recover and the proper method of rate recovery.  At the July 13, 2006 pre-hearing conference, the administrative law judge (ALJ) narrowed the scope of the issues to the following:

·The proper methodology for determining the recoverability of MISO Day 2 costs that have been deferred;

·The amounts that have been deferred as of June 30, 2006, by each utility; and

·The appropriateness of methods followed by the utilities.

NSP-Wisconsin filed initial testimony and exhibits in this proceeding on Sept. 1, 2006.  In that testimony, NSP-Wisconsin detailed its calculation methodology and reported that, as of June 30, 2006, it had deferred approximately $6.2 million.  The procedural schedule in the case requires PSCW staff and intervenor testimony to be filed by Dec. 8, 2006, and sets these issues for hearing on Jan. 31, 2007.  NSP-Wisconsin currently anticipates that the ultimate decision on the amount of costs to be recovered in rates could be delayed until its 2008 general rate case.

As of Sept. 30, 2006 NSP-Wisconsin has deferred a total of approximately $7.0 million of MISO Day 2 costs.

Ancillary Service Markets

MISO and its stakeholders are developing proposals to establish ancillary service markets within MISO’s footprint. The proposals would increase market efficiency by providing a reduced allocation of generation contingency reserves for market participants and by creating economic market opportunities to obtain alternative sources of generating reserves. The proposed implementation of these market design improvements is scheduled for phase-in over the course of 2007, subject to project actions by MISO. In July 2006, the Midwest contingency reserve sharing group agreement (CRSGA) was executed by numerous parties.   NSP-Minnesota and NSP-Wisconsin will participate through a collective of participants in the existing Mid-Continent Area Power Pool (MAPP) generation reserve sharing pool agreement, which would eventually be replaced by the MISO arrangement for contingency reserves.  MISO filed the CRSGA for FERC approval in Aug. 2006, to be effective Jan. 1, 2007.  FERC approval is pending. 

In addition, MISO expects to file in late Nov. 2006 for FERC approval to establish wholesale markets for contingency reserves and regulation services to be effective in October 2007.  The ancillary services markets would be coordinated with the MISO Day 2 energy markets.  MISO’s costs to administer these markets would be collected through an increase in the Schedule 17 charge.

MISO Market Operations in Summer 2006

During July 2006, the MISO footprint experienced extremely hot weather, reaching a peak demand of more than 116,000 megawatts on July 31, 2006, after reaching a new peak of more than 113,000 megawatts on July 17, 2006.  The 116,000 megawatts demand was within 600 megawatts of net generation available within the MISO region (not including reserve margins).  The MISO Day 2 market generally functioned well, and no significant outages occurred, but the peak demand was approximately equal to the peak demand MISO previously predicted for 2009, and locational marginal prices for energy reflected constrained regions that limited regional efficiency during some hours.  The peak demands and regional constraints that cause congestion are expected to cause market participants and state regulatory commissions to review the need for additional generation and demand response programs.

2006 Fuel Cost Recovery — Fuel costs for the Wisconsin retail jurisdiction through Sept. 30, 2006 were $2.8 million, or 2.3 percent lower than authorized in the 2006 rate case.  Although the forecast shows higher costs for the remaining months of the year, NSP-Wisconsin anticipates fuel costs being outside the authorized range at year-end.  Accordingly, NSP-Wisconsin established a $1.9 million fuel refund provision in the third quarter.  The PSCW’s investigation is ongoing.  NSP-Wisconsin anticipates the PSCW will complete their investigation and issue an order early next year.

7

2007 Fuel Cost Recovery —The PSCW order in NSP-Wisconsin’s 2006 general rate case included a provision that allows NSP-Wisconsin to file an application to reopen the rate case for the limited purpose of  re-pricing the fuel-related component of base electric rates for 2007.  On Aug. 4, 2006, NSP-Wisconsin filed an application to reset the 2007 fuel base and monitoring range, and to increase electric base rates for 2007 by $22.6 million, or 5.0 percent, on an annual basis.  The requested increase was driven primarily by higher renewable energy purchases and increases in coal commodity and transportation costs.  On Sept. 1, 2006, the PSCW issued an order to reopen the case and, on Sept. 14, 2006, held a pre-hearing conference to identify the issues and set a procedural schedule for the case.  On Oct. 16, 2006, the PSCW staff recommended adjustments to reduce NSP-Wisconsin’s forecast fuel cost increase to $13.7 million, primarily based on decreases in natural gas and purchased power prices since the original filing on Aug. 4.  NSP-Wisconsin will be allowed to make one final update to forecast prices in mid November so the PSCW’s decision will be based on the most recent market price data.  A hearing has been set for Nov. 7, 2006.  In its application, NSP-Wisconsin requested a PSCW order before the end of 2006, with new rates to become effective Jan. 1, 2007.

Fuel Cost Recovery Rulemaking — On June 22, 2006, the PSCW opened a rulemaking docket to address potential revisions to the electric fuel cost recovery rules.  Wisconsin statutes prohibit the use of automatic adjustment clauses by large investor-owned electric public utilities.  Instead, the statutes authorize the PSCW to approve, after a hearing, a rate increase for these utilities to allow for the recovery of costs caused by an emergency or extraordinary increase in the cost of fuel.  In opening this rulemaking, the PSCW recognized the increased volatility of fuel costs, citing events such as the implementation of the MISO Day 2 Market, increased demand on some fuels, increased transportation costs of some fuels, and the effects of hurricanes on the availability of some fuels.  On Sept. 7, 2006, Wisconsin’s large investor owned utilities, including NSP-Wisconsin, jointly filed proposed revisions to the rules.  The utilities’ proposal incorporates a plan year forecast and an after-the-fact reconciliation to eliminate regulatory lag, and ensure recovery of prudently incurred costs.  The PSCW has set a deadline of Oct. 30, 2006 for other parties, primarily customer and intervenor groups  to submit a counter proposal.  At this time it is not certain what, if any, changes to the existing rules will be recommended by the PSCW.

Wholesale Rate Case Application — On July 31, 2006, NSP-Wisconsin filed a section 205 rate case at the FERC requesting a base rate increase of approximately $4 million, or 15 percent, for its ten wholesale municipal electric sales customers.  The last rate increase for these customers was in 1993. NSP-Wisconsin’s wholesale customers are currently served under a bundled full requirements tariff, with rates based on embedded costs, and a monthly fuel cost adjustment clause (FCAC).  NSP-Wisconsin proposes to unbundle transmission service and revise the FCAC to reflect current FERC regulatory policies, the advent of MISO operations and the MISO Day 2 energy market.  In August 2006, the ten customers filed a joint protest of the rate case, requesting the increase be suspended for the maximum five-month period (until Mar. 1, 2007) and set for litigated hearings.  The customers noted a question about the predicted 2006 sales forecast and requested that the FERC consider rejecting the filing entirely.  NSP-Wisconsin filed an answer to the protest on Sept. 5, 2006, arguing the issues raised by the intervenors are appropriate for settlement or hearings.  On Sept. 28, 2006, the FERC issued an order accepting the filing, suspending the effective date of the rates to Mar. 1, 2007, and setting the filing for hearing and settlement judge procedures.

3.Commitments and Contingent Liabilities

Environmental Contingencies

NSP-Wisconsin has been, or is, currently involved with the cleanup of contamination from certain hazardous substances at several sites. In many situations, NSP-Wisconsin is pursuing or intends to pursue insurance claims and believes it will recover some portion of these costs through such claims. Additionally, where applicable, NSP-Wisconsin is pursuing, or intends to pursue, recovery from other potentially responsible parties and through the rate regulatory process.  New and changing federal and state environmental mandates can also create added financial liabilities for NSP-Wisconsin, which are normally recovered through the rate regulatory process.   To the extent any costs are not recovered through the options listed above, NSP-Wisconsin would be required to recognize an expense for such unrecoverable amounts in its Consolidated Financial Statements.

Manufactured Gas Plant Sites

Ashland Manufactured Gas Plant Site — NSP-Wisconsin was named a potentially responsible party (PRP) for creosote and coal tar contamination at a site in Ashland, Wis. The Ashland site includes property owned by NSP-Wisconsin, which was previously a manufactured gas plant (MGP) facility, and two other properties: an adjacent city lakeshore park area, on which an unaffiliated third party previously operated a sawmill, and an area of Lake Superior’s Chequemegon Bay adjoining the park. The U. S. Environmental Protection Agency (EPA) and Wisconsin Department of Natural Resources (WDNR) have not yet selected the method of remediation to use at the site.  Until the EPA and the WDNR select a remediation strategy for the entire site and determine NSP-Wisconsin’s level of responsibility, NSP-Wisconsin’s liability for the cost of remediating the Ashland site is not determinable.  NSP-Wisconsin has recorded a liability of $25.0 million for its potential liability for remediating the Ashland site and for external legal and consultant costs.  Since NSP-Wisconsin cannot currently estimate the cost of remediating the Ashland site, that portion of the recorded liability related to remediation is based upon the minimum of the estimated range of remediation costs using information available to date and reasonably effective remedial methods.

8

Chippewa Falls Manufactured Gas Plant Site—The WDNR issued an order requiring that NSP-Wisconsin conduct a supplemental site investigation of property owned by NSP-Wisconsin in Chippewa Falls, Wis., which was previously an MGP facility.  A supplemental investigation was conducted in order to determine if additional remediation is required to meet Wisconsin soil and groundwater standards.  Based on the results of the supplemental site investigation that was completed during November 2005, the estimated cost to remediate the site is $5.0 million.  Once the remediation is completed, which is anticipated in 2007, it is expected that the WDNR will require long-term annual groundwater monitoring for at least five years.  NSP-Wisconsin recorded a liability of $5.0 million for the cost of remediating this site.  Costs accrued for the site were deferred as a regulatory asset based on the expectation that the Public Service Commission of Wisconsin (PSCW) will continue to allow NSP-Wisconsin to recover payments for environmental remediation from its customers.

Clean Air Mercury Rule — In March 2005, the United States EPA issued the Clean Air Mercury Rule (CAMR), which regulates mercury emissions from power plants for the first time. NSP-Wisconsin continues to evaluate the strategy for complying with CAMR.   Recent testing indicates that the NSP-Wisconsin facilities will be low mass mercury emitters; therefore, compliance with CAMR is not expected to require mercury controls or purchase of allowances.

Legal Contingencies

Lawsuits and claims arise in the normal course of business.  Management, after consultation with legal counsel, has recorded an estimate of the probable cost of settlement or other disposition of them. The ultimate outcome of these matters cannot presently be determined. Accordingly, the ultimate resolution of these matters could have a material adverse effect on NSP-Wisconsin’s financial position and results of operations.

Comer vs. Xcel Energy Inc. et al. — On April 25, 2006, Xcel Energy received notice of a purported class action lawsuit filed in U.S. District Court for the Southern District of Mississippi.  Although NSP-Wisconsin is not named as a party to this litigation, if the litigation ultimately results in an unfavorable outcome for Xcel Energy, it could have a material adverse effect on NSP-Wisconsin.  The lawsuit names more than 45 oil, chemical and utility companies, including Xcel Energy, as defendants and alleges that defendants’ carbon dioxide emissions “were a proximate and direct cause of the increase in the destructive capacity of Hurricane Katrina.”  Plaintiffs allege in support of their claim, several legal theories, including negligence, and public and private nuisance and seek damages related to the loss resulting from the hurricane.  Xcel Energy believes this lawsuit is without merit and intends to vigorously defend itself against these claims.  On July 19, 2006, Xcel Energy filed a motion to dismiss the lawsuit in its entirety.

Carbon Dioxide Emissions Lawsuit — On July 21, 2004, the attorneys general of eight states and New York City, as well as several environmental groups, filed lawsuits in U.S. District Court for the Southern District of New York against five utilities, including Xcel Energy, to force reductions in carbon dioxide (CO2) emissions.  Although NSP-Wisconsin is not named as a party to this litigation, the requested relief that Xcel Energy cap and reduce its CO2 emissions could have a material adverse effect on NSP-Wisconsin.  The other utilities include American Electric Power Co., Southern Co., Cinergy Corp. and Tennessee Valley Authority.  CO2 is emitted whenever fossil fuel is combusted, such as in automobiles, industrial operations and coal- or gas-fired power plants.  The lawsuits allege that CO2 emitted by each company is a public nuisance as defined under state and federal common law because it has contributed to global warming.  The lawsuits do not demand monetary damages.  Instead, the lawsuits ask the court to order each utility to cap and reduce its CO2 emissions.  In October 2004, Xcel Energy and four other utility companies filed a motion to dismiss the lawsuit, contending, among other reasons, that the lawsuit is an attempt to usurp the policy-setting role of the U.S. Congress and the president.  On Sept. 19, 2005, the judge granted the defendants’ motion to dismiss on constitutional grounds.  Plaintiffs filed an appeal to the Second Circuit Court of Appeals. Oral arguments were presented on June 7, 2006 and a decision on the appeal is pending.

Other Contingencies

The circumstances in Note 8 and 9 to the financial statements in NSP-Wisconsin’s Annual Report on Form 10-K for the year ended Dec. 31, 2005 and Notes 2 and 3 to the financial statements in this Quarterly Report on Form 10-Q appropriately represent, in all material respects, the current status of commitments and contingent liabilities and are incorporated herein by reference.

9

4.Derivative Valuation and Financial Impacts

NSP-Wisconsin uses a number of different derivative instruments in connection with its utility operations, including forward contracts, futures, swaps and options.  These derivatives instruments are utilized in connection with  various commodity prices, certain energy related products and interest rates.  All derivative instruments not qualifying for the normal purchases and normal sales exception, as defined by SFAS No. 133-”Accounting for Derivative Instruments and Hedging Activities,” as amended (SFAS No. 133), are recorded at fair value. The presentation of these derivative instruments is dependent on the designation of a qualifying hedging relationship.  The adjustment to fair value of derivative instruments not designated in a qualifying hedging relationship is reflected in current earnings or as a regulatory balance.  This classification is dependent on the applicability of specific regulation. This includes certain instruments used to mitigate market risk for NSP-Wisconsin.  The designation of a cash flow hedge permits the classification of fair value to be recorded within Other Comprehensive Income, to the extent effective.  The designation of a fair value hedge permits a derivative instrument’s gains or losses to offset the related results of the hedged item in the Consolidated Statements of Income.

NSP-Wisconsin records the fair value of its derivative instruments in its Consolidated Balance Sheet as separate line items identified as Derivative Instruments Valuation in both current and noncurrent assets and liabilities.

The fair value of all interest rate swaps is determined through counterparty valuations, internal valuations and broker quotes. There have been no material changes in the techniques or models used in the valuation of interest rate swaps during the periods presented.

Qualifying hedging relationships are designated as either a hedge of a forecasted transaction or future cash flow (cash flow hedge), or a hedge of a recognized asset, liability or firm commitment (fair value hedge).  The types of qualifying hedging transactions in which NSP-Wisconsin is currently engaged in are discussed below.

Cash Flow Hedges

NSP-Wisconsin enters into derivative instruments to manage variability of future cash flows from changes in commodity prices and interest rates. These derivative instruments are designated as cash flow hedges for accounting purposes, and the changes in the fair value of these instruments are recorded as a component of Other Comprehensive Income or deferred as a regulatory asset or liability.

At Sept. 30, 2006, NSP-Wisconsin had various commodity-related contracts designated as cash flow hedges extending through March 2007.  The fair value of these cash flow hedges is recorded in either Other Comprehensive Income or deferred as a regulatory asset or liability. This classification is based on the regulatory recovery mechanisms in place. Amounts deferred in these accounts are recorded in earnings as the hedged purchase or sales transaction is settled. This could include the purchase or sale of energy or energy-related products, the use of natural gas to generate electric energy or gas purchased for resale. As of Sept. 30, 2006, NSP-Wisconsin had no amounts in Accumulated Other Comprehensive Loss related to commodity cash flow hedge contracts that are expected to be recognized in earnings during the next 12 months as the hedged transactions settle.

NSP-Wisconsin 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 a specific period.  These derivative instruments are designated as cash flow hedges for accounting purposes and the change in the fair value of these instruments is recorded as a component of Other Comprehensive Income. As of Sept. 30, 2006, NSP-Wisconsin had net losses of $0.1 million in Accumulated Other Comprehensive Loss related to interest rate cash flow hedge contracts that are expected to be recognized in earnings during the next 12 months.

Gains or losses on hedging transactions for the sales of energy or energy-related products are primarily recorded as a component of revenue, hedging transactions for fuel used in energy generation are recorded as a component of fuel costs, hedging transactions for gas purchased for resale are recorded as a component of gas costs and interest rate hedging transactions are recorded as a component of interest expense. NSP-Wisconsin is allowed to recover in natural gas rates the costs of certain financial instruments acquired to reduce commodity cost volatility. There was no hedge ineffectiveness in the third quarter of 2006.

The impact of qualifying cash flow hedges on NSP-Wisconsin’s Accumulated Other Comprehensive Loss, included as a component of stockholder’s equity, are detailed in the following table:

	Nine months ended
(Millions of dollars)	Sept. 30, 2006			Sept. 30, 2005
Accumulated other comprehensive loss related to cash flow hedges at Dec. 31	$	(1.0	)	$	(1.0	)
After-tax net unrealized gains related to derivatives accounted for as hedges	—			—
After-tax net realized losses on derivative transactions reclassified into earnings	0.1			—
Accumulated other comprehensive loss related to cash flow hedges at Sept. 30	$	(0.9	)	$	(1.0	)

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Fair Value Hedges

The effective portion of the change in the fair value of a derivative instrument qualifying as a fair value hedge is offset against the change in the fair value of the underlying asset, liability or firm commitment being hedged. That is, fair value hedge accounting allows the gains or losses of the derivative instrument to offset, in the same period, the gains and losses of the hedged item.

Normal Purchases or Normal Sales Contracts

NSP-Wisconsin enters into contracts for the purchase and sale of various commodities for use in its business operations.  SFAS No. 133 requires a company to evaluate these contracts to determine whether the contracts are derivatives.  Certain contracts that literally meet the definition of a derivative may be exempted from SFAS No. 133 as normal purchases or normal sales.  Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business.  In addition, normal purchases and normal sales contracts must have a price based on an underlying that is clearly and closely related to the asset being purchased or sold.  An underlying is a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, or other variable, including the occurrence or nonoccurrence of a specified event, such as a scheduled payment under a contract.

NSP-Wisconsin evaluates all of its contracts when such contracts are entered to determine if they are derivatives and, if so, if they qualify to meet the normal designation requirements under SFAS No. 133.

Normal purchases and normal sales contracts are accounted for as executory contracts as required under other generally accepted accounting principles.

5.Detail of Interest and Other Income — Net

Interest and other income, net of nonoperating expenses, for the three and nine months ended Sept. 30 consisted of the following:

	Three months ended Sept. 30,						Nine months ended Sept. 30,
(Thousands of dollars)	2006			2005			2006			2005
Interest income	$	261		$	103		$	768		$	312
Other nonoperating income	62			5			117			37
Employee-related insurance policy expenses	(89		)	(244		)	(304		)	(346		)
Total interest and other income - net	$	234		$	(136	)	$	581		$	3

6.Segment Information

NSP-Wisconsin has two reportable segments, Regulated Electric Utility and Regulated Natural Gas Utility.

(Thousands of dollars)	Regulated Electric Utility		Regulated Natural Gas Utility			All Other			Reconciling Eliminations			Consolidated Total
Three months ended Sept. 30, 2006
Revenues from:
External customers	$	165,902	$	13,134		$	218		$	—		$	179,254
Internal customers	30		864			—			(894		)	—
Total revenue	$	165,932	$	13,998		$	218		$	(894	)	$	179,254
Segment net income (loss)	$	17,849	$	(1,204	)	$	5		$	—		$	16,650
Three months ended Sept. 30, 2005
Revenues from:
External customers	$	138,692	$	11,457		$	172		$	—		$	150,321
Internal customers	—		838			—			(838		)	—
Total revenue	$	138,692	$	12,295		$	172		$	(838	)	$	150,321
Segment net income (loss)	$	5,909	$	(1,406	)	$	(359	)	$	—		$	4,144

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(Thousands of dollars)	Regulated Electric Utility		Regulated Natural Gas Utility		All Other			Reconciling Eliminations			Consolidated Total
Nine months ended Sept. 30, 2006
Revenues from:
External customers	$	440,378	$	105,310	$	577		$	—		$	546,265
Internal customers	91		3,023		—			(3,114		)	—
Total revenue	$	440,469	$	108,333	$	577		$	(3,114	)	$	546,265
Segment net income (loss)	$	39,217	$	1,330	$	(459	)	$	—		$	40,088
Nine months ended Sept. 30, 2005
Revenues from:
External customers	$	391,533	$	93,771	$	515		$	—		$	485,819
Internal customers	21		1,383		—			(1,404		)	—
Total revenue	$	391,554	$	95,154	$	515		$	(1,404	)	$	485,819
Segment net income (loss)	$	16,261	$	1,375	$	(689	)	$	—		$	16,947

7.Comprehensive Income (Loss)

The components of total comprehensive income (loss) are shown below:

	Three months ended Sept. 30,				Nine months ended Sept. 30,
(Millions of dollars)	2006		2005		2006		2005
Net income	$	16.7	$	4.1	$	40.1	$	16.9
Other comprehensive income (loss):
After-tax net unrealized gains related to derivatives accounted for as hedges (see Note 4)	—		—		—		—
After-tax net realized losses (gains) related to derivatives accounted for as hedges (see Note 4)	0.1		—		0.1		(0.1		)
Other comprehensive income (loss)	0.1		—		0.1		(0.1		)
Comprehensive income	$	16.8	$	4.1	$	40.2	$	16.8

The accumulated other comprehensive loss in stockholder’s equity at Sept. 30, 2006 and Dec. 31, 2005, relates to valuation adjustments on NSP-Wisconsin’s derivative financial instruments and hedging activities.

8.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 NSP-Wisconsin.

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Components of Net Periodic Benefit Cost

	Three months ended Sept. 30,
	2006			2005			2006			2005
(Thousands of dollars)	Pension Benefits						Postretirement Health Care Benefits
Xcel Energy Inc.
Service cost	$	15,406		$	15,115		$	1,659		$	1,671
Interest cost	38,854			40,246			13,234			13,765
Expected return on plan assets	(67,017		)	(70,290		)	(6,690		)	(6,425		)
Amortization of transition obligation	—			—			3,611			3,645
Amortization of prior service cost (credit)	7,424			7,509			(544		)	(545		)
Amortization of net loss	4,339			1,705			6,200			6,562
Net periodic benefit cost (credit)	(994		)	(5,715		)	17,470			18,673
Credits not recognized due to the effects of regulation	3,159			4,842			—			—
Additional cost recognized due to the effects of regulation	—			—			972			972
Net benefit cost (credit) recognized for financial reporting	$	2,165		$	(873	)	$	18,442		$	19,645
NSP-Wisconsin
Net benefit cost (credit) recognized for financial reporting	$	(315	)	$	(624	)	$	660		$	686

	Nine months ended Sept. 30,
	2006			2005			2006			2005
(Thousands of dollars)	Pension Benefits						Postretirement Health Care Benefits
Xcel Energy Inc.
Service cost	$	46,220		$	45,345		$	4,975		$	5,013
Interest cost	116,560			120,738			39,704			41,295
Expected return on plan assets	(201,049		)	(210,048		)	(20,068		)	(19,275		)
Amortization of transition obligation	—			—			10,833			10,934
Amortization of prior service cost (credit)	22,272			22,527			(1,634		)	(1,634		)
Amortization of net loss	13,015			5,115			18,598			19,685
Net periodic benefit cost (credit)	(2,982		)	(16,323		)	52,408			56,018
Credits not recognized due to the effects of regulation	9,477			14,526			—			—
Additional cost recognized due to the effects of regulation	—			—			2,918			2,918
Net benefit cost (credit) recognized for financial reporting	$	6,495		$	(1,797	)	$	55,326		$	58,936
NSP-Wisconsin
Net benefit cost (credit) recognized for financial reporting	$	(945	)	$	(1,871	)	$	1,979		$	2,059

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Discussion of financial condition and liquidity for NSP-Wisconsin is omitted per conditions set forth in general instructions H (1) (a) and (b) of Form 10-Q for wholly owned subsidiaries. It is replaced with management’s narrative analysis of the results of operations set forth in general instructions H (2) (a) of Form 10-Q for wholly owned subsidiaries (reduced disclosure format).

Forward-Looking Information

The following discussion and analysis by management focuses on those factors that had a material effect on the financial condition and results of operations of NSP-Wisconsin during the periods presented, or are expected to have a material impact in the future. It should be read in conjunction with the accompanying unaudited financial statements and notes.

Except for the historical statements contained in this report, the matters discussed in the following discussion and analysis are forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements are intended to be identified in this document by the words “anticipate,” “estimate,” “expect,” “objective,” “outlook,” “possible,” “potential” and similar expressions. Actual results may vary materially. Factors that could cause actual results to differ materially include, but are not limited to:

·Economic conditions, including their impact on capital expenditures and the ability of NSP-Wisconsin to obtain financing on favorable terms, inflation rates and monetary fluctuations;

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·Business conditions in the energy business;

·Trade, monetary, fiscal, taxation and environmental policies of governments, agencies and similar organizations in geographic areas where NSP-Wisconsin has a financial interest;

·Customer business conditions, including demand for their products or services and supply of labor and materials used in creating their products and services;

·Financial or regulatory accounting principles or policies imposed by the Financial Accounting Standards Board, the Securities and Exchange Commission, the Federal Energy Regulatory Commission and similar entities with regulatory oversight;

·Availability or cost of capital such as changes in: interest rates; market perceptions of the utility industry, Xcel Energy or NSP-Wisconsin; or security ratings;

·Factors affecting utility operations such as unusual weather conditions; catastrophic weather-related damage; unscheduled generation outages, maintenance or repairs; unanticipated changes to fossil fuel, nuclear fuel or natural gas supply costs or availability due to higher demand, shortages, transportation problems or other developments; nuclear or environmental incidents; or electric transmission or gas pipeline constraints;

·Employee workforce factors, including loss or retirement of key executives, collective bargaining agreements with union employees, or work stoppages;

·Increased competition in the utility industry;

·State and federal legislative and regulatory initiatives that affect cost and investment recovery, have an impact on rate structures and affect the speed and degree to which competition enters the electric and gas markets; industry restructuring initiatives; transmission system operation and/or administration initiatives; recovery of investments made under traditional regulation; nature of competitors entering the industry; retail wheeling; a new pricing structure; and former customers entering the generation market;

·Rate-setting policies or procedures of regulatory entities, including environmental externalities, which are values established by regulators assigning environmental costs to each method of electricity generation when evaluating generation resource options;

·Nuclear regulatory policies and procedures, including operating regulations and spent nuclear fuel storage;

·Social attitudes regarding the utility and power industries;

·Cost and other effects of legal and administrative proceedings, settlements, investigations and claims;

·Technological developments that result in competitive disadvantages and create the potential for impairment of existing assets;

·Significant slowdown in growth or decline in the U.S. economy, delay in growth or recovery of the U.S. economy or increased cost for insurance premiums, security and other items;

·Risks associated with implementation of new technologies; and

·Other business or investment considerations that may be disclosed from time to time in NSP-Wisconsin’s SEC filings, including “Risk Factors” in Item A of NSP-Wisconsin’s Annual Report on Form 10-K for the year ended Dec. 31, 2005 and Exhibit 99.01 to this report on Form 10-Q for the quarter ended Sept. 30, 2006.

Market Risks

NSP-Wisconsin is exposed to market risks, including changes in commodity prices and interest rates, as disclosed in Item 7A — Quantitative and Qualitative Disclosures About Market Risk in its annual report on Form 10-K for the year ended Dec. 31, 2005. Commodity price and interest rate risks for NSP-Wisconsin are mitigated in most jurisdictions due to cost-based rate regulation. At Sept. 30, 2006, there were no material changes to the financial market risks that affect the quantitative and qualitative disclosures presented as of Dec. 31, 2005.

RESULTS OF OPERATIONS

NSP-Wisconsin’s net income was $40.1 million for the first nine months of 2006, compared with $16.9 million for the first nine months of 2005.

Electric Utility Margins

The following table details the change in electric revenue and margin.  Electric production expenses tend to vary with the quantity of electricity sold and changes in the unit costs of fuel and purchased power.  The fuel and purchased power cost recovery mechanism of

the Wisconsin jurisdiction may not allow for complete recovery of all expenses and, therefore, dramatic changes in costs or periods of extreme temperatures can impact earnings.

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	Nine months ended
	Sept. 30,
(Millions of dollars)	2006			2005
Total electric utility revenue	$	440		$	392
Electric fuel and purchased power	(234		)	(227		)
Total electric utility margin	$	206		$	165
Margin as a percentage of revenue	46.8		%	42.1		%

The following summarizes the components of the changes in base electric revenue and base electric margin for the nine months ended Sept. 30:

Base Electric Revenue

(Millions of dollars)	2006 vs. 2005
Fuel and purchased power cost recovery	$	27
Non-fuel rate case	22
Sales growth (excluding impact of weather)	4
Estimated impact of weather	(2		)
Other	(3		)
Total base electric revenue increase	$	48

Base Electric Margin

(Millions of dollars)	2006 vs. 2005
Non-fuel rate case	$	22
Fuel and purchased power cost recovery	17
Interchange agreement billing with NSP-Minnesota (net of deferrals)	(6		)
Interchange agreement billing obligation load true-up	5
Sales growth (excluding impact of weather)	2
Interchange agreement billing fixed charge adjustment	1
Estimated impact of weather	(1		)
Other	1
Total base electric margin increase	$	41

Natural Gas Utility Margins

The following table details the change in natural gas revenue and margin. The cost of natural gas tends to vary with changing sales requirements and unit cost of natural gas purchases. However, due to purchased natural gas cost recovery mechanisms for retail customers, fluctuations in the cost of natural gas have little effect on natural gas margin.

	Nine months ended Sept. 30,
(Millions of dollars)	2006			2005
Natural gas revenue	$	105		$	94
Cost of natural gas purchased and transported	(82		)	(72		)
Natural gas margin	$	23		$	22

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The following summarizes the components of the changes in natural gas revenue and margin for the nine months ended Sept. 30:

Natural Gas Revenue

(Millions of dollars)	2006 vs. 2005
Purchased gas adjustment clause recovery	$	10
Base rate increase	4
Estimated impact of weather	(1		)
Sales mix	(1		)
Other	(1		)
Total natural gas revenue increase	$	11

Natural Gas Margin

(Millions of dollars)	2006 vs. 2005
Base rate increase	$	4
Estimated impact of weather	(1		)
Sales mix	(1		)
Other	(1		)
Total natural gas margin increase	$	1

Non-Fuel Operating Expense and Other Items

The following summarizes the components of the changes in other utility operating and maintenance expense for the nine months ended Sept. 30:

(Millions of dollars)	2006 vs. 2005
Higher uncollectible receivable costs	$	3
Higher transmission interchange expense	2
Higher employee benefit costs	2
Higher plant overhaul costs	1
Higher vegetation management line clearance costs	1
Other	(1		)
Total operating and maintenance expense increase	$	8

Income tax expense increased by approximately $ 11.9 million for the first nine months of 2006 compared with the first nine months of 2005. The increase in tax expense was primarily due to an increase in pretax income. The effective tax rate was 35.5 percent for the first nine months of 2006, compared with 37.5 percent for the same period in 2005.  The decrease in the effective tax rate for the first nine months of 2006 compared with the same period in 2005 was primarily due to additional tax benefits of $1.2 million.

Smart Papers files for Bankruptcy - Smart Papers, one of NSP-Wisconsin’s largest electric and gas customers, filed for Chapter 11 bankruptcy in late March 2006 and had shut down its paper mill in Park Falls, Wisconsin.  NSP-Wisconsin’s 2005 revenues included approximately $5 million in sales to this customer.  NSP-Wisconsin has reserved for Smart Papers’ accounts receivable balance.  In August 2006, the Park Falls mill was sold by the bankruptcy court to a group of investors and the mill is back in production as Flambeau River Paper, LLC.

Item 4. CONTROLS AND PROCEDURES

Disclosure Controls

NSP-Wisconsin maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.  In addition, the disclosure controls and procedures ensure that information required to be disclosed is accumulated and communicated to management, including the chief executive officer (CEO) and chief financial officer (CFO), allowing timely decisions regarding required disclosure.  As of the end of the period covered by this report, based on an evaluation carried out under the supervision and with the participation of NSP-Wisconsin’s management, including the CEO and CFO, of the effectiveness of our disclosure controls and procedures, the CEO and CFO have concluded that NSP-Wisconsin’s disclosure controls and procedures are effective.

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Internal Control Over Financial Reporting

No change in NSP-Wisconsin’s internal control over financial reporting has occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

In the normal course of business, various lawsuits and claims have arisen against NSP-Wisconsin.  After consultation with legal counsel, NSP-Wisconsin has recorded an estimate of the probable cost of settlement or other disposition for such matters.  See Notes 2 and 3 of the Financial Statements in this Quarterly Report on Form 10-Q for further discussion of legal proceedings, including Regulatory Matters and Commitments and Contingent Liabilities, which are hereby incorporated by reference. Reference also is made to Item 3 and Note 9 of NSP-Wisconsin’s Annual Report on Form 10-K for the year ended Dec. 31, 2005 for a description of certain legal proceedings presently pending.  Except as discussed herein, there are no new significant cases to report against NSP-Wisconsin and there have been no notable changes in the previously reported proceedings.

Stray Voltage

On Nov. 13, 2001, Ralph and Karline Schmidt filed a complaint in Clark County, Wisconsin against NSP-Wisconsin. Plaintiffs allege that electricity provided by NSP-Wisconsin harmed their dairy herd resulting in decreased milk production, lost profits and income, property damage and seek compensatory, punitive and treble damages. Plaintiffs allege compensatory damages of $1.0 million and pre-verdict interest of $1.2 million.  In addition, plaintiffs allege an unspecified amount of damages related to nuisance.  The trial court’s grant of summary judgment to NSP-Wisconsin on the bases of the statute of limitations and the filed doctrine was reversed by the Court of Appeals, District IV, on Sept. 28, 2006.  NSP-Wisconsin has 30 days within which to file a petition for review with the Wisconsin Supreme Court.

On Nov. 13, 2001, August C. Heeg Jr. and Joanne Heeg filed a complaint in Clark County, Wisconsin against NSP-Wisconsin. Plaintiffs allege that electricity provided by NSP-Wisconsin harmed their dairy herd resulting in decreased milk production, lost profits and income, property damage and seek compensatory, punitive and treble damages. Plaintiffs allege compensatory damages of $1.9 million and pre-verdict interest of $6.1 million.  In addition, plaintiffs allege an unspecified amount of damages related to nuisance.  The trial court’s grant of summary judgment to NSP-Wisconsin on the bases of the statute of limitations and the filed doctrine was reversed by the Court of Appeals, District IV, on Sept. 28, 2006.  NSP-Wisconsin has 30 days within which to file a petition for review with the Wisconsin Supreme Court.

On March 1, 2002, NSP-Wisconsin was served with a lawsuit commenced by James and Grace Gumz and Michael and Susan Gumz in Marathon County Circuit Court, Wisconsin, alleging that electricity supplied by NSP-Wisconsin harmed their dairy herd and caused them personal injury.  The case was tried to a jury in Wausau, Wisconsin commencing in February 2005, on theories of negligence and nuisance.   On March 4, 2005, a verdict in the amount of approximately $0.5 million was returned against NSP-Wisconsin.  On May 3, 2005, judgment in the amount of $0.6 million was entered against NSP-Wisconsin.  NSP-Wisconsin subsequently filed an appeal in District III, Court of Appeals.  Plaintiffs filed a cross appeal with respect to the trial court’s dismissal of the treble damages claim.  On July 18, 2006, the Court of Appeals affirmed the judgment entered against NSP-Wisconsin.  The Court also affirmed the trial court’s dismissal of the plaintiffs’ treble damages claim.  NSP-Wisconsin has filed a petition for review with the Wisconsin Supreme Court.

Manufactured Gas Plant Insurance Coverage Litigation (NSP-Wisconsin)

In October 2003, NSP-Wisconsin initiated discussions with its insurers regarding the availability of insurance coverage for costs associated with the remediation of four former MGP sites located in Ashland, Chippewa Falls, Eau Claire, and LaCrosse, Wis. In lieu of participating in discussions, on Oct. 28, 2003, two of NSP-Wisconsin’s insurers, St. Paul Fire & Marine Insurance Co. and St. Paul Mercury Insurance Co., commenced litigation against NSP-Wisconsin in Minnesota state district court. On Nov. 12, 2003, NSP-Wisconsin commenced suit in Wisconsin state circuit court against St. Paul Fire & Marine Insurance Co. and its other insurers. Subsequently, the Minnesota court enjoined NSP-Wisconsin from pursuing the Wisconsin litigation.  Although the Wisconsin action has not been dismissed, the January 2007 trial date has been adjourned and has not been rescheduled.

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NSP-Wisconsin has entered into confidential settlements with St. Paul Mercury Insurance Company, St. Paul Fire and Marine Insurance Company and the Phoenix Insurance Company (“St. Paul Companies”), Associated Electric & Gas Insurance Services Limited, Fireman’s Fund Insurance Company, and INSCO, Ltd. (on its own behalf and on behalf of the insurance companies subscribing per Britamco, Ltd.) and these insurers have been dismissed from the Minnesota and Wisconsin actions.  These settlements will not have a material effect on Xcel Energy’s financial results.

NSP-Wisconsin has reached settlements in principle with Admiral Insurance Company; Allstate Insurance Co.; Compagnie Europeene D’Assurances Industrielles S.A.; certain underwriters at Lloyd’s, London and certain London Market Insurance Companies (“London Market Insurers”), General Reinsurance Corporation and First State and Twin City Fire Insurance Companies.  These settlements are not expected to have a material effect on NSP-Wisconsin’s financial results.

On Oct. 6, 2006, the trial court issued a memorandum and order on various summary judgment motions.  The court ruled that Minnesota law on allocation applies and ordered dismissal, without prejudice, of 15 carriers whose coverage would not be triggered under such an allocation method.  The court denied the insurers’ motions for summary judgment on the sudden and accidental and absolute pollution exclusions; late notice; legal expenses and costs; certain specific lost policies; and miscellaneous coverage issues under several individual policies.  The court granted the motions of Fidelity and Casualty Insurance Company and Continental Insurance Company related to certain specific lost policies.  On Oct. 13, 2006, the trial court denied NSP-Wisconsin’s request for leave to file a motion for reconsideration of the court’s allocation decision.  The Nov. 6, 2006 trial date was also adjourned to allow for additional discovery and potential motions in light of the Minnesota Supreme Court’s recent allocation decision in Wooddale Builders, Inc. v. Maryland Casualty Company, 2006 Minn. LEXIS 679 (Oct. 5, 2006).  On October 25, 2006, the court indicated that trial would be scheduled in July 2007.

The PSCW has established a deferral process whereby clean-up costs associated with the remediation of former MGP sites are deferred and, if approved by the PSCW, recovered from ratepayers. Carrying charges associated with these clean-up costs are not subject to the deferral process and are not recoverable from ratepayers. Any insurance proceeds received by NSP-Wisconsin will operate as a credit to ratepayers, therefore, these lawsuits should not have a material effect on NSP-Wisconsin’s financial results.

Item 1A. RISK FACTORS

NSP-Wisconsin’s risk factors are documented in Item 1A of Part I of its 2005 Annual Report on Form 10-K, which is incorporated herein by reference.  There have been no material changes to the risk factors.

Item 6. EXHIBITS

The following Exhibits are filed with this report:

31.01	Principal Executive Officer’s and Principal Financial Officer’s certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.01	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.01	Statement pursuant to Private Securities Litigation Reform Act of 1995.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on Oct. 30, 2006.

Northern States Power Co. (a Wisconsin corporation)

(Registrant)

/s/ TERESA S. MADDEN

Teresa S. Madden

Vice President and Controller

/s/ BENJAMIN G.S. FOWKE III

Benjamin G.S. Fowke III

Vice President and Chief Financial Officer

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