UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended Sept. 30, 2009

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

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 West Hamilton Avenue
Eau Claire, Wisconsin		54701
(Address of principal executive offices)		(Zip Code)

(715) 839-2625

(Registrant’s telephone number, including area code)

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 requirement for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 and Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o

Non-accelerated filer x		Smaller Reporting company o
(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x 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 Nov. 2, 2009
Common Stock, $100 par value		933,000 shares

Northern States Power Company (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.

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PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

NSP-WISCONSIN AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(amounts in thousands of dollars)

	Three Months Ended Sept. 30,						Nine Months Ended Sept. 30,
	2009			2008			2009			2008
Operating revenues
Electric	$	170,063		$	173,312		$	507,450		$	495,159
Natural gas	11,983			18,459			94,200			128,549
Other	219			234			655			675
Total operating revenues	182,265			192,005			602,305			624,383

Operating expenses
Electric fuel and purchased power	91,582			98,322			282,609			289,749
Cost of natural gas sold and transported	6,174			12,851			64,798			98,550
Other operating and maintenance expenses	34,874			33,161			105,581			103,374
Conservation program expenses	2,541			2,542			8,136			7,627
Depreciation and amortization	15,426			14,687			46,062			43,246
Taxes (other than income taxes)	5,714			5,189			17,393			15,970
Total operating expenses	156,311			166,752			524,579			558,516

Operating income	25,954			25,253			77,726			65,867

Other income (expense), net	67			(732		)	406			(58		)
Allowance for funds used during construction — equity	459			248			1,122			621

Interest charges and financing costs
Interest charges — includes other financing costs of $356, $338, $1,047 and $984, respectively	6,224			6,619			18,858			18,202
Allowance for funds used during construction — debt	(209		)	(219		)	(556		)	(824		)
Total interest charges and financing costs	6,015			6,400			18,302			17,378

Income before income taxes	20,465			18,369			60,952			49,052
Income taxes	6,842			7,278			22,132			18,830
Net income	$	13,623		$	11,091		$	38,820		$	30,222

See Notes to Consolidated Financial Statements

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NSP-WISCONSIN AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands of dollars)

	Nine Months Ended Sept. 30,
	2009			2008

Operating activities
Net income	$	38,820		$	30,222
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	47,039			45,334
Deferred income taxes	2,312			3,450
Amortization of investment tax credits	(470		)	(510		)
Allowance for equity funds used during construction	(1,122		)	(621		)
Net realized and unrealized hedging and derivative transactions	1,112			(383		)
Changes in operating assets and liabilities:
Accounts receivable	14,119			18,117
Accrued unbilled revenues	9,662			20,549
Inventories	12,731			(12,711		)
Other current assets	3,184			4,050
Accounts payable	(9,357		)	(14,928		)
Net regulatory assets and liabilities	17,840			3,273
Other current liabilities	(1,342		)	11,108
Change in other noncurrent assets	353			335
Change in other noncurrent liabilities	(1,803		)	(630		)
Net cash provided by operating activities	133,078			106,655

Investing activities
Utility capital/construction expenditures	(69,961		)	(63,758		)
Allowance for equity funds used during construction	1,122			621
Other investments	4,596			(28,632		)
Net cash used in investing activities	(64,243		)	(91,769		)

Financing activities
Proceeds from notes payable to affiliate	33,400			337,600
Repayment of notes payable to affiliate	(33,400		)	(396,200		)
Proceeds from the issuance of long-term debt	—			196,641
Repayment of long-term debt, including reacquisition premiums	(66,844		)	(58		)
Capital contributions from parent	1,321			8,188
Dividends paid to parent	(25,748		)	(53,216		)
Net cash (used in) provided by financing activities	(91,271		)	92,955

Net (decrease) increase in cash and cash equivalents	(22,436		)	107,841
Cash and cash equivalents at beginning of period	31,611			751
Cash and cash equivalents at end of period	$	9,175		$	108,592
Supplemental disclosure of cash flow information:
Cash paid for interest (net of amounts capitalized)	$	(18,144	)	$	(10,486	)
Cash paid for income taxes, net	(19,477		)	(9,522		)
Supplemental disclosure of non-cash investing transactions:
Property, plant and equipment additions in accounts payable	$	1,748		$	1,708

See Notes to Consolidated Financial Statements

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NSP-WISCONSIN AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(amounts in thousands of dollars)

	Sept. 30, 2009			Dec. 31, 2008
Assets
Current assets
Cash and cash equivalents	$	9,175		$	31,611
Accounts receivable, net	42,998			56,518
Accounts receivable from affiliates	—			599
Accrued unbilled revenues	32,977			42,639
Inventories	26,745			39,476
Prepaid taxes	14,767			18,377
Deferred income taxes	6,366			3,389
Prepayments and other	7,033			10,401
Total current assets	140,061			203,010

Property, plant and equipment, net	1,038,300			1,010,683

Other assets
Regulatory assets	214,220			189,753
Other investments	4,050			4,196
Other	5,581			6,031
Total other assets	223,851			199,980
Total assets	$	1,402,212		$	1,413,673

Liabilities and Equity
Current liabilities
Current portion of long-term debt	$	34		$	250
Notes payable to affiliates	650			650
Accounts payable	33,646			44,555
Accounts payable to affiliates	18,883			17,600
Dividends payable	8,511			8,583
Taxes accrued	9,058			7,996
Accrued interest	5,694			6,513
Derivative instruments valuation	512			1,869
Other	17,482			15,089
Total current liabilities	94,470			103,105

Deferred credits and other liabilities
Deferred income taxes	180,111			174,969
Deferred investment tax credits	9,896			10,366
Regulatory liabilities	122,727			105,298
Environmental liabilities	95,089			68,018
Pension and employee benefit obligations	39,229			40,383
Customer advances	17,563			17,624
Other	1,241			1,969
Total deferred credits and other liabilities	465,856			418,627

Commitments and contingent liabilities
Capitalization
Long-term debt	369,328			433,905
Common stockholder’s equity – authorized 1,000,000 shares of $100 par value; outstanding 933,000 shares	93,300			93,300
Additional paid in capital	126,028			124,708
Retained earnings	253,915			240,770
Accumulated other comprehensive loss	(685		)	(742		)
Total common stockholder’s equity	472,558			458,036
Total liabilities and equity	$	1,402,212		$	1,413,673

See Notes to Consolidated Financial Statements

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NSP-WISCONSIN AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America (GAAP), the financial position of NSP-Wisconsin and its subsidiaries as of Sept. 30, 2009 and Dec. 31, 2008; the results of operations for the three and nine months ended Sept. 30, 2009 and 2008; and its cash flows for the nine months ended Sept. 30, 2009 and 2008. All adjustments are of a normal, recurring nature, except as otherwise disclosed. Management has also evaluated the impact of events occurring after Sept. 30, 2009 up to Nov. 2, 2009, which is the date of issuance of these consolidated financial statements. These statements contain all necessary adjustments and disclosures resulting from that evaluation. The Dec. 31, 2008 balance sheet information has been derived from the audited 2008 financial statements. These notes to the consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC for Quarterly Reports on Form 10-Q. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. For further information, refer to the consolidated financial statements and notes thereto, included in the NSP-Wisconsin Annual Report on Form 10-K for the year ended Dec. 31, 2008, filed with the SEC on Feb. 27, 2009. Due to the seasonality of electric and natural gas sales of NSP-Wisconsin, interim results are not necessarily an appropriate base from which to project annual results.

1. Summary of Significant Accounting Policies

The significant accounting policies set forth in Note 1 to the consolidated financial statements in NSP-Wisconsin’s Annual Report on Form 10-K for the year ended Dec. 31, 2008, appropriately represent, in all material respects, the current status of accounting policies and are incorporated herein by reference.

2. Accounting Pronouncements

Recently Adopted

Business Combinations — In December 2007, the Financial Accounting Standards Board (FASB) issued new guidance on business combinations which establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This new guidance is to be applied prospectively to business combinations for which the acquisition date is on or after the beginning of an entity’s fiscal year that begins on or after Dec. 15, 2008. NSP-Wisconsin implemented the guidance on Jan. 1, 2009, and the implementation did not have a material impact on its consolidated financial statements.

Noncontrolling Interests — Also in December 2007, the FASB issued new guidance on noncontrolling interests in consolidated financial statements which establishes accounting and reporting standards that require the ownership interest in subsidiaries held by parties other than the parent be clearly identified and presented in the consolidated balance sheets within equity, but separate from the parent’s equity; the amount of consolidated net income attributable to the parent and the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of earnings; and changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently as equity transactions. This new guidance was effective for fiscal years beginning on or after Dec. 15, 2008. NSP-Wisconsin implemented the guidance on Jan. 1, 2009, and the implementation did not have a material impact on its consolidated financial statements.

Derivatives and Hedging Disclosures — In March 2008, the FASB issued new guidance on disclosures about derivative instruments and hedging activities which is intended to enhance disclosures to help users of the financial statements better understand how derivative instruments and hedging activities affect an entity’s financial position, financial performance and cash flows. The guidance amends and expands previous disclosure requirements for derivative instruments and hedging activities, including disclosures of objectives and strategies for using derivatives, gains and losses on derivative instruments, and credit-risk-related contingent features in derivative contracts. This new guidance was effective for fiscal years and interim periods beginning after Nov. 15, 2008. NSP-Wisconsin implemented the guidance on Jan. 1, 2009, and the implementation did not have a material impact on its consolidated financial statements. For further discussion and the required disclosures, see Note 9 to the consolidated financial statements.

Interim Fair Value Disclosures — In April 2009, the FASB issued new guidance on interim disclosures about fair value of financial instruments which requires that disclosures regarding the fair value of financial instruments be included in interim financial statements. This new guidance was effective for interim periods ending after June 15, 2009. NSP-Wisconsin implemented the guidance on April 1, 2009, and the implementation did not have a material impact on its consolidated financial statements. For further discussion and the required disclosures, see Note 10 to the consolidated financial statements.

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Fair Value in Inactive Markets — Also in April 2009, the FASB issued new guidance for identifying market transactions that are not orderly and determining fair value when market trading activity has decreased significantly. The new guidance emphasizes that even if there has been a significant decrease in the volume and level of market activity for an asset or liability, fair value still represents the exit price in an orderly transaction between market participants. This new guidance was effective for interim and annual periods ending after June 15, 2009. NSP-Wisconsin implemented the guidance on April 1, 2009, and the implementation did not have a material impact on its consolidated financial statements.

Other-Than-Temporary Impairments — Additionally in April 2009, the FASB issued new guidance on recognition and presentation of other-than-temporary impairments which changes the method for determining whether an other-than-temporary impairment exists for debt securities, and also requires additional disclosures regarding other-than-temporary impairments. This new guidance was effective for interim and annual periods ending after June 15, 2009. NSP-Wisconsin implemented the guidance on April 1, 2009, and the implementation did not have a material impact on its consolidated financial statements.

Subsequent Events — In May 2009, the FASB issued new guidance on subsequent events which establishes general standards of accounting and disclosure for events that occur after the balance sheet date but before financial statements are issued. The guidance is consistent with the auditing literature historically used for accounting and disclosure of subsequent events, however, it requires an entity to disclose the date through which subsequent events have been evaluated. This new guidance was effective for interim and annual periods ending after June 15, 2009. NSP-Wisconsin implemented the guidance on April 1, 2009, and the implementation did not have a material impact on its consolidated financial statements.

Accounting Standards Codification — In June 2009, the FASB issued Topic 105 — Generally Accepted Accounting Principles Amendments Based on Statement of Financial Accounting Standards No. 168 — The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (Accounting Standards Update (ASU) No. 2009-01), which updates the FASB Accounting Standards Codification (ASC or Codification) to state that the Codification is to be the single source of authoritative GAAP, other than the guidance put forth by the SEC. All other accounting literature not included in the Codification is to be considered non-authoritative. The updates to the Codification contained in ASU No. 2009-01 were effective for interim and annual periods ending after Sept. 15, 2009. NSP-Wisconsin implemented the guidance set forth by ASU No. 2009-01, recognizing the Codification as the single source of authoritative GAAP, other than the guidance put forth by the SEC, on July 1, 2009. The implementation did not have a material impact on NSP-Wisconsin’s consolidated financial statements.

Recently Issued

Postretirement Benefit Plans — In December 2008, the FASB issued new guidance on employers’ disclosures about postretirement benefit plan assets. The guidance will amend and expand previous disclosure requirements for plan assets of a defined benefit pension or other postretirement plan to include investment policies and strategies, major categories of plan assets, information regarding fair value measurements, and significant concentrations of credit risk. This new guidance is effective for disclosures for fiscal years ending after Dec. 15, 2009. NSP-Wisconsin does not expect the implementation of the guidance to have a material impact on its consolidated financial statements.

Consolidation of Variable Interest Entities — In June 2009, the FASB issued new guidance on consolidation of variable interest entities. The guidance will significantly affect various elements of consolidation under existing accounting standards, including the determination of whether an entity is a variable interest entity and whether an enterprise is a variable interest entity’s primary beneficiary. This new guidance is effective for fiscal years beginning after Nov. 15, 2009. NSP-Wisconsin is currently evaluating the impact of this guidance on its consolidated financial statements.

Fair Value of Liabilities — In August 2009, the FASB issued Fair Value Measurements and Disclosures (Topic 820) — Measuring Liabilities at Fair Value (ASU No. 2009-05), which will update the Codification with clarifications for measuring the fair value of liabilities. The liability-specific guidance includes clarifications and guidelines for using, when available, the most observable prices in active markets for identical liabilities or similar liabilities, or the prices of identical liabilities or similar liabilities traded as assets, rather than more complex and less observable valuation techniques and inputs such as those used in a present value model. The updates to the Codification contained in ASU No. 2009-05 are effective for interim and annual periods beginning after its August, 2009 issuance. NSP-Wisconsin does not expect the implementation of these changes in the Codification to have a material impact on its consolidated financial statements.

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3. Selected Balance Sheet Data

(Thousands of Dollars)	Sept. 30, 2009			Dec. 31, 2008
Accounts receivable, net
Accounts receivable	$	47,589		$	61,176
Less allowance for bad debts	(4,591		)	(4,658		)
	$	42,998		$	56,518
Inventories
Materials and supplies	$	4,900		$	4,592
Fuel	11,502			13,156
Natural gas	10,343			21,728
	$	26,745		$	39,476
Property, plant and equipment, net
Electric plant	$	1,475,385		$	1,434,233
Natural gas plant	185,053			172,131
Common and other property	112,360			111,133
Construction work in progress	39,892			30,494
Total property, plant and equipment	1,812,690			1,747,991
Less accumulated depreciation	(774,390		)	(737,308		)
	$	1,038,300		$	1,010,683

4. Income Taxes

NSP-Wisconsin is a member of the Xcel Energy affiliated group that files consolidated income tax returns.

Federal Audit — In the first quarter of 2008, the Internal Revenue Service (IRS) completed an examination of Xcel Energy’s federal income tax returns for 2004 and 2005 (and research credits for 2003). The IRS did not propose any material adjustments for those tax years. Tax year 2004 is the earliest open year and the statute of limitations applicable to Xcel Energy’s 2004 federal income tax return remains open until Dec. 31, 2009. The IRS commenced an examination of tax years 2006 and 2007 in the third quarter of 2008, and this audit is expected to be completed in the first quarter of 2010. As of Sept. 30, 2009, the IRS had not proposed any material adjustments to tax years 2006 and 2007.

State Audits — As of Sept. 30, 2009, NSP-Wisconsin’s earliest open tax year that is subject to examination by state taxing authorities under applicable statutes of limitations is 2004. There currently are no state income tax audits in progress.

Unrecognized Tax Benefits — The amount of unrecognized tax benefits was $2.0 million and $1.5 million on Sept. 30, 2009 and Dec. 31, 2008, respectively. The tax benefits associated with net operating loss (NOL) and tax credit carryovers were not material as of Sept. 30, 2009 and Dec. 31, 2008.

The unrecognized tax benefit balance included $0.3 million and $0.2 million of tax positions on Sept. 30, 2009 and Dec. 31, 2008, respectively, which if recognized would affect the annual effective tax rate. In addition, the unrecognized tax benefit balance included $1.7 million and $1.3 million of tax positions on Sept. 30, 2009 and Dec. 31, 2008, respectively, for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. A change in the period of deductibility would not affect the effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.

The increase in the unrecognized tax benefit balance of $0.3 million from June 30, 2009 to Sept. 30, 2009, was due to the addition of similar uncertain tax positions related to ongoing activity. NSP-Wisconsin’s amount of unrecognized tax benefits could significantly change in the next 12 months as the IRS audit progresses and when state audits resume. As the IRS examination moves closer to completion, it is reasonably possible that the amount of unrecognized tax benefits could decrease up to approximately $1 million.

The amount of interest expense related to unrecognized tax benefits reported within interest charges in the third quarter of 2009 and 2008 was not material. The liability for interest related to unrecognized tax benefits was $0.2 million and $0.1 million on Sept. 30, 2009 and Dec. 31, 2008, respectively.

No amounts were accrued for penalties as of Sept. 30, 2009 or Dec. 31, 2008.

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5. Rate Matters

Except to the extent noted below, the circumstances set forth in Note 12 to the consolidated financial statements included in NSP-Wisconsin’s Annual Report on Form 10-K for the year ended Dec. 31, 2008 appropriately represent, in all material respects, the current status of other rate matters, and are incorporated herein by reference. The following disclosure includes unresolved proceedings that are material to NSP-Wisconsin’s financial position.

Pending and Recently Concluded Regulatory Proceedings — Public Service Commission of Wisconsin (PSCW)

Base Rate

2008 Electric Rate Case — Nuclear Decommissioning Expenses — In January 2008, the PSCW issued the final order in NSP-Wisconsin’s 2008 test year rate case. The PSCW’s final order included recovery of $8.7 million of annual nuclear decommissioning expenses, subject to refund, in anticipation of potential decreases in NSP-Minnesota’s decommissioning expenses. NSP-Wisconsin and NSP-Minnesota share all NSP System generation and transmission costs, including nuclear decommissioning costs, by means of a Federal Energy Regulatory Commission (FERC)-approved tariff commonly referred to as the Interchange Agreement.

In June 2009, the MPUC issued the final order in its review of NSP-Minnesota’s 2009 nuclear plant decommissioning accrual, and as a result of that order, the Wisconsin retail jurisdiction’s share of annual nuclear decommissioning expenses decreased to approximately $1.4 million, effective January 2009. In accordance with the PSCW’s final order, NSP-Wisconsin has established a refund liability of $5.5 million through September 2009.

The MPUC order also directed NSP-Minnesota to proceed with a filing to propose a method to return to customers their contributions made to the external escrow decommissioning fund for the Monticello nuclear plant. Once that plan is approved, NSP-Wisconsin will determine what steps are necessary to initiate a refund for its customers’ proportionate share of these funds. NSP-Wisconsin’s share of these funds is approximately $5.8 million as of Sept. 30, 2009.

2010 Electric and Natural Gas Rate Case — In June 2009, NSP-Wisconsin filed an electric and gas rate case in Wisconsin seeking an increase in retail electric rates of $30.4 million, or 5.7 percent, and proposed no change in natural gas rates. The request is based on a return on equity (ROE) of 10.75 percent, an equity ratio of 53.12 percent, an electric rate base of $644 million, a gas rate base of $81 million and a 2010 forecasted test year. The request is comprised of a traditional base rate increase of $45.1 million offset by projected fuel decreases of $14.7 million.

On Oct. 21, 2009, PSCW staff and intervenors filed testimony. The PSCW staff recommended an increase of $14.5 million for 2010 based on a 10.75 percent ROE and a 51.63 percent equity ratio. The PSCW staff has proposed to apply the 2009 fuel over recovery discussed in 2009 Electric Fuel Cost Recovery below against the increase such that there would be no change in rates for 2010. A summary of the proposed adjustments is listed below:

Millions of Dollars	Request			PSCW Adjusted Request
Base non-fuel	$	45.1		$	36.8
Fuel	(14.7		)	(15.8		)
Prairie Island decommissioning	—			(6.5		)
Rate increase	$	30.4		$	14.5

The base non-fuel adjustments include: (1) an adjustment to the equity ratio from 53.12 percent to 51.63 percent on a regulatory basis; (2) a reduction to the rate base to account for appropriated retained earnings associated with certain hydro licenses; (3) reduced interchange agreement fixed charge billings and (4) a disallowance of certain employee compensation expenses. In addition, the PSCW staff adjustments to the proposed increase include a $6.5 million reduction for Prairie Island nuclear plant decommissioning expense as a result of the 10-year life extension approved by the MPUC.

The Wisconsin Industrial Energy Group (WIEG) filed direct testimony objecting to NSP-Wisconsin’s class cost of service study and proposed rate design and recommended changes that would benefit its members.

A decision is expected by the end of 2009 with new rates in effect in January 2010. The procedural schedule is as follows:

· NSP-Wisconsin rebuttal testimony on Nov. 6, 2009;

· Surrebuttal testimony on Nov. 10, 2009; and

· Technical and public hearing on Nov. 11, 2009.

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Other

2009 Electric Fuel Cost Recovery — NSP-Wisconsin’s fuel and purchased power costs for February 2009 were lower than authorized and outside the variance ranges for monitored fuel costs established by the PSCW. In April 2009, the PSCW opened a proceeding to determine if a rate reduction, or fuel credit factor, should be ordered. The PSCW set NSP-Wisconsin’s electric rates subject to refund with interest at 10.75 percent, pending a full review of 2009 fuel costs.

NSP-Wisconsin’s actual fuel costs through September 2009 were approximately $19.1 million less than authorized, primarily due to lower load and lower market prices for fuel and purchased power. As noted above, the PSCW staff recommended that a portion of this amount be used to offset the 2010 rate increase. The PSCW has not yet completed its review of NSP-Wisconsin’s 2009 fuel costs. However, based on actual fuel costs to date, NSP-Wisconsin has established a liability of $13.3 million for such amounts subject to refund collected through Sept. 30, 2009.

6. Commitments and Contingent Liabilities

Except as noted below, the circumstances set forth in Notes 12 and 13 to the consolidated financial statements in NSP-Wisconsin’s Annual Report on Form 10-K for the year ended Dec. 31, 2008 and Note 5 to the consolidated 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. The following include unresolved contingencies that are material to NSP-Wisconsin’s financial position.

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 believes it will recover some portion of these costs through insurance claims. Additionally, where applicable, NSP-Wisconsin is pursuing, or intends to pursue, recovery from other potentially responsible parties (PRPs) 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.

Site Remediation — NSP-Wisconsin must pay all or a portion of the cost to remediate sites where past activities of NSP-Wisconsin or other parties have caused environmental contamination. Environmental contingencies could arise from various situations including sites of former manufactured gas plants (MGPs) operated by NSP-Wisconsin, its predecessors, or other entities; and third party sites, such as landfills, to which NSP-Wisconsin is alleged to be a PRP that sent hazardous materials and wastes. At Sept. 30, 2009, the liability for the cost of remediating these sites was estimated to be $100.8 million, of which $5.7 million was considered to be a current liability.

Manufactured Gas Plant Sites

Ashland Manufactured Gas Plant Site — NSP-Wisconsin has been named a PRP for creosote and coal tar contamination at a site in Ashland, Wis. The Ashland/Northern States Power Lakefront Superfund Site (Ashland site) includes property owned by NSP-Wisconsin, which was previously an 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 Chequamegon Bay adjoining the park.

In September 2002, the Ashland site was placed on the National Priorities List. A final determination of the scope and cost of the remediation of the Ashland site is not currently expected until late 2009 or 2010. In October 2004, the state of Wisconsin filed a lawsuit in Wisconsin state court for reimbursement of past oversight costs incurred at the Ashland site between 1994 and March 2003 in the approximate amount of $1.4 million. The state also alleges a claim for forfeitures and interest. This litigation was resolved in the first quarter of 2009, and all costs paid to the state are expected to be recoverable in rates.

In November 2005, the Environmental Protection Agency (EPA) Superfund Innovative Technology Evaluation Program (SITE) accepted the Ashland site into its program. As part of the SITE program, NSP-Wisconsin proposed and the EPA accepted a site demonstration of an in situ, chemical oxidation technique to treat upland ground water and contaminated soil. The fieldwork for the demonstration study was completed in February 2007. In June 2007, the EPA modified its remedial investigation report to establish final remedial action objectives (RAOs) and preliminary remediation goals (PRGs) for the Ashland site. In October 2007, the EPA approved the series of reports included in the remedial investigation report. The RAOs and PRGs could potentially impact the development and evaluation of remedial options for ultimate site cleanup.

In 2008, NSP-Wisconsin spent $0.8 million in the development of the work plan, the operation of the existing interim response action and other matters related to the site. In December 2008, the EPA approved the final feasibility study submitted by NSP-Wisconsin. The final feasibility study sets forth a range of remedial options under consideration by the EPA for the site but does not select a

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remedy. In 2009, the EPA issued its proposed remedial action plan (PRAP). It is expected that the EPA will select a remedial action plan sometime in late 2009. The estimated remediation costs for the cleanup proposed by the EPA in the PRAP range between $94.4 million and $112.8 million.

In July 2009, NSP-Wisconsin advised the EPA and the Wisconsin Department of Natural Resources (WDNR) that it would not implement the hybrid “dry dredging” alternative proposed in the PRAP. NSP-Wisconsin stated that the EPA’s hybrid alternative is 1) unsafe, 2) would cost at least $37 million more than conventional, wet dredging, and 3) would provide no environmental benefits over conventional dredging.

In addition to potential liability for remediation, NSP-Wisconsin may also have liability for natural resource damages at the Ashland site. NSP-Wisconsin has recorded an estimate of its potential liability based upon its best estimate of potential exposure.

NSP-Wisconsin’s liability for the actual cost of remediating the Ashland site and the time frame over which the amounts may be paid out are not determinable, until the EPA and the WDNR select a remediation strategy for the entire site and determine NSP-Wisconsin’s level of responsibility. NSP-Wisconsin continues to work with the WDNR to access state and federal funds to apply to the ultimate remediation cost of the entire site. NSP-Wisconsin has recorded a liability of $97.5 million based upon the minimum of the range of remediation costs established by the PRAP, together with estimated outside legal, consultant and remedial design costs. NSP-Wisconsin has deferred, as a regulatory asset, the costs accrued for the Ashland site based on an expectation that the PSCW will continue to allow NSP-Wisconsin to recover payments for environmental remediation from its customers. The PSCW has consistently authorized recovery in NSP-Wisconsin rates of all remediation costs incurred at the Ashland site and has authorized recovery of similar remediation costs for other Wisconsin utilities. External MGP remediation costs are subject to deferral in the Wisconsin retail jurisdiction and are reviewed for prudence as part of the Wisconsin biennial retail rate case process.

In addition, in 2003, the Wisconsin Supreme Court rendered a ruling that reopens the possibility that NSP-Wisconsin may be able to recover a portion of the remediation costs from its insurance carriers. Any insurance proceeds received by NSP-Wisconsin will be credited to ratepayers.

Third Party and Other Environmental Site Remediation

Asbestos Removal — Some of NSP-Wisconsin’s facilities contain asbestos. Most asbestos will remain undisturbed until the facilities that contain it are demolished or renovated. NSP-Wisconsin’s removal costs for asbestos are expected to be immaterial; therefore, no asset retirement obligation was recorded. See additional discussion of asset retirement obligations in Note 13 of the NSP-Wisconsin Annual Report on Form 10-K for the year ended Dec. 31, 2008. It may be necessary to remove some asbestos to perform maintenance or make improvements to other equipment. The cost of removing asbestos as part of other work is immaterial and is recorded as incurred as operating expenses for maintenance projects, capital expenditures for construction projects or removal costs for demolition projects.

Other Environmental Requirements

EPA Proposed Greenhouse Gas (GHG) Endangerment Finding — On April 17, 2009, the EPA issued a proposed finding that GHGs threaten public health and welfare. This finding was in response to the U.S. Supreme Court’s decision in Massachusetts v. EPA, 549 U.S. 497 (2007), which held that GHGs are pollutants covered by the Clean Air Act (CAA) and required the EPA to determine whether emissions of GHGs from motor vehicles endanger public health or welfare. The EPA’s proposed endangerment finding applies to the CAA’s mobile source program, and does not automatically trigger regulation under other provisions of the CAA that are applicable to stationary sources, such as power plants. As such, the proposed endangerment finding, in and of itself, does not impact NSP-Wisconsin.

Clean Air Interstate Rule (CAIR) — In March 2005, the EPA issued the CAIR to further regulate sulfur dioxide (SO2) and nitrogen oxide (NOx) emissions. The objective of CAIR was to cap emissions of SO2 and NOx in the eastern United States, including Wisconsin. In July 2008, the D.C. Circuit Court of Appeals vacated CAIR and remanded the rule to EPA. On Dec. 23, 2008, the court reinstated CAIR while the EPA develops new regulations in accordance with the court’s July opinion. The EPA has indicated that a CAIR replacement rule will be proposed in early 2010 with finalization planned for early 2011.

As currently written, CAIR has a two-phase compliance schedule, beginning in 2009 for NOx and 2010 for SO2, with a final compliance deadline in 2015 for both emissions. Under CAIR, each affected state will be allocated an emissions budget for SO2 and NOx that will result in significant emission reductions. It will be based on stringent emission controls and forms the basis for a cap-and-trade program. State emission budgets or caps decline over time. States can choose to implement an emissions reduction program based on the EPA’s proposed model program, or they can propose another method, which the EPA would need to approve.

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For 2009, the estimated NOx allowance costs for NSP-Wisconsin are $0.3 million. Allowance cost estimates for NSP-Wisconsin are based on fuel quality and current market data. NSP-Wisconsin believes the cost of any required capital investment or allowance purchases will be recoverable from customers in rates.

Clean Air Mercury Rule (CAMR) — In March 2005, the EPA issued the CAMR, which regulated mercury emissions from power plants. In February 2008, the D. C. Circuit Court of Appeals vacated CAMR, which impacts federal CAMR requirements but not necessarily state-only rules. The EPA is in the process of developing a Maximum Achievable Control Technology (MACT) rule to replace CAMR. The EPA is expected to propose the new MACT rule for electric generating units in 2010.

Wisconsin Mercury Rule — On Dec. 1, 2008, the Wisconsin mercury reduction rule took effect, which impacts NSP-Wisconsin’s Bay Front plant. The rule applies to coal-fired utility boilers and requires that small coal-fired utility boilers, which include all three boilers at the Bay Front plant, must perform a top-down best available control technology (BACT) analysis for mercury by June 30, 2011, and limit mercury emissions to a level that is determined by the WDNR to be BACT by Jan. 1, 2015.

NSP-Wisconsin has proposed a gasifier project for boiler 5. If the gasifier project is implemented prior to 2015, that boiler will no longer be subject to this rule as long as the modification does not increase mercury emissions, and the boiler no longer burns coal. At that point, it will likely be subject to revised commercial and industrial boiler Maximum Achievable Control Technology (Boiler MACT) requirements. In addition, if the Boiler MACT is revised prior to 2015, boilers 1 and 2 will no longer be subject to this rule, and will need to comply with the Boiler MACT. As such, any cost estimates to comply with the Wisconsin mercury reduction rule are premature at this time.

Federal Clean Water Act — The federal Clean Water Act requires the EPA to regulate cooling water intake structures to assure that these structures reflect the best technology available (BTA) for minimizing adverse environmental impacts. In July 2004, the EPA published phase II of the rule, which applies to existing cooling water intakes at steam-electric power plants. Several lawsuits were filed against the EPA in the United States Court of Appeals for the Second Circuit (Court of Appeals) challenging the phase II rulemaking. In January 2007, the Court of Appeals issued its decision and remanded the rule to the EPA for reconsideration. In June 2007, the EPA suspended the deadlines and referred any implementation to each state’s best professional judgment until the EPA is able to fully respond to the remand. In April 2008, the U.S. Supreme Court granted limited review of the Court of Appeals’ opinion to determine whether the EPA has the authority to consider costs and benefits in assessing BTA. On April 1, 2009, the U.S. Supreme Court issued a decision in Entergy Corp. v. Riverkeeper, Inc., concluding that the EPA can consider a cost benefit analysis when establishing BTA. The decision overturned only one aspect of the Court of Appeals’ earlier opinion, and gives the EPA the discretion to consider costs and benefits when it reconsiders its phase II rules. Until the EPA fully responds to the Court of Appeals’ decision, the rule’s compliance requirements and associated deadlines will remain unknown. As such, it is not possible to provide an accurate estimate of the overall cost of this rulemaking at this time.

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.

Gas Trading Litigation

Arandell vs. e prime, Xcel Energy, NSP-Wisconsin et al. — e prime was a subsidiary of Xcel Energy Markets Holdings Inc., which is a wholly owned subsidiary of Xcel Energy. Among other things, e prime was in the business of natural gas trading and marketing. e prime has not engaged in natural gas trading or marketing activities since 2003. In February 2007, a complaint was filed alleging that NSP-Wisconsin, Xcel Energy and e prime, among others, engaged in fraud and anticompetitive activities in conspiring to restrain the trade of natural gas and manipulate natural gas prices. The plaintiffs seek a declaration that contracts for natural gas entered into between Jan. 1, 2000 and Oct. 31, 2002 are void, that they are entitled to repayment for amounts paid for natural gas during that time period, and that treble damages are appropriate. The case was filed in the Wisconsin State Court (Dane County), and then removed to U.S. District Court for the Western District of Wisconsin. In June 2007, the plaintiffs filed a motion to remand the matter to state court, which was denied, and the matter was transferred by the Multi-District Litigation panel to Federal District Court Judge Pro in Nevada, who is the judge assigned to the Western Area Wholesale Natural Gas Antitrust Litigation. In July 2007, plaintiffs filed an amended complaint in Federal District Court in Nevada, which includes allegations against NRG, a former Xcel Energy subsidiary. This gas-trading lawsuit is in the early procedural stages of litigation. In February 2008, the court denied the defendants’ motions for summary judgment, granted plaintiffs’ motion to conduct limited discovery, and stated that defendants may renew their summary judgment motions upon completion of discovery.

In late March 2009, Newpage Wisconsin System Inc. commenced a lawsuit in state court in Wood County, Wis. The allegations are substantially similar to Arandell and name several defendants, including Xcel Energy, e prime and NSP-Wisconsin. In September

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2009, Plaintiffs moved to consolidate the Newpage and Arandell matters. Defendants have filed motions to dismiss and, as with Arandell, Xcel Energy, e prime and NSP-Wisconsin believe the allegations asserted against them are without merit and they intend to vigorously defend against the asserted claims.

Environmental Litigation

Carbon Dioxide (CO2) Emissions Lawsuit — In July 2004, the attorneys general of eight states and New York City, as well as several environmental groups, filed lawsuits in U.S. District Court in the Southern District of New York against five utilities, including Xcel Energy, the parent company of NSP-Wisconsin, to force reductions in CO2 emissions. The other utilities include American Electric Power Co., Southern Co., Cinergy Corp. and Tennessee Valley Authority. 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 the other defendants filed a motion to dismiss the lawsuit. On Sept. 19, 2005, the court granted the motion to dismiss on constitutional grounds. Plaintiffs filed an appeal to the U.S. Court of Appeals for the Second Circuit. In June 2007, the Court of Appeals issued an order requesting the parties to file a letter brief regarding the impact of the United States Supreme Court’s decision in Massachusetts v. EPA, 127 S.Ct. 1438 (April 2, 2007) on the issues raised by the parties on appeal. Among other things, in its decision in Massachusetts v. EPA, the United States Supreme Court held that CO2 emissions are a “pollutant” subject to regulation by the EPA under the CAA. In July 2007, in response to the request of the Court of Appeals, the defendant utilities filed a letter brief stating the position that the United States Supreme Court’s decision supports the arguments raised by the utilities on appeal. On Sept. 21, 2009, the Court of Appeals issued an opinion reversing the lower court decision. Xcel Energy intends to file a petition for rehearing or rehearing en banc on or before Nov. 5, 2009.

Comer vs. Xcel Energy Inc. et al. — In April 2006, Xcel Energy, the parent company of NSP-Wisconsin, received notice of a purported class action lawsuit filed in U.S. District Court in the Southern District of Mississippi. The lawsuit names more than 45 oil, chemical and utility companies, including Xcel Energy, as defendants and alleges that defendants’ CO2 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. In August 2007, the court dismissed the lawsuit in its entirety against all defendants on constitutional grounds. In September 2007, plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Fifth Circuit. Oral arguments were presented to the Court of Appeals on Aug. 6, 2008. Pursuant to the court’s order of Sept. 26, 2008, re-argument was held on Nov. 3, 2008. On Oct. 16, 2009, the U.S. Court of Appeals for the Fifth Circuit reversed the district court decision, in part, concluding that the plaintiffs pleaded sufficient facts to overcome the constitutional challenges that formed the basis for dismissal by the district court. It is anticipated that Xcel Energy will file a petition for rehearing or rehearing en banc.

Native Village of Kivalina vs. Xcel Energy Inc. et al. — In February 2008, the City and Native Village of Kivalina, Alaska, filed a lawsuit in U.S. District Court for the Northern District of California against Xcel Energy, the parent company of NSP-Wisconsin, and 23 other utilities, oil, gas and coal companies. The suit was brought on behalf of approximately 400 native Alaskans, the Inupiat Eskimo, who claim that defendants’ emission of CO2 and other GHGs contribute to global warming, which is harming their village. Plaintiffs claim that as a consequence, the entire village must be relocated at a cost of between $95 million and $400 million. Plaintiffs assert a nuisance claim under federal and state common law, as well as a claim asserting “concert of action” in which defendants are alleged to have engaged in tortious acts in concert with each other. Xcel Energy was not named in the civil conspiracy claim. Xcel Energy believes the claims asserted in this lawsuit are without merit and joined with other utility defendants in filing a motion to dismiss on June 30, 2008. On Oct. 15, 2009, the U.S. District Court dismissed the lawsuit on constitutional grounds. It is unknown whether plaintiffs intend to appeal this decision.

Employment, Tort and Commercial Litigation

MGP Insurance Coverage Litigation — 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, in October 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. In November 2003, NSP-Wisconsin commenced suit in Wisconsin state court against St. Paul Fire & Marine Insurance Co. and its other insurers. Subsequently, the Minnesota court enjoined NSP-Wisconsin from pursuing the Wisconsin litigation. The Wisconsin action remains in abeyance.

NSP-Wisconsin has reached settlements with 22 insurers, and these insurers have been dismissed from both the Minnesota and Wisconsin actions. NSP-Wisconsin has also reached settlements in principle with Ranger Insurance Company (Ranger), TIG Insurance Company (TIG), Royal Indemnity Company and Globe Indemnity Company.

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In July 2007, the Minnesota state court issued a decision on allocation, reaffirming its prior rulings that Minnesota law on allocation should apply and ordering the dismissal, without prejudice, of 11 insurers whose coverage would not be triggered under such an allocation method. In September 2007, NSP-Wisconsin commenced an appeal in the Minnesota Court of Appeals challenging the dismissal of these carriers.

On Aug. 25, 2009, the Minnesota Court of Appeals affirmed the district court decision. NSP-Wisconsin subsequently filed a petition for review of this decision with the Minnesota Supreme Court. It is uncertain when the Minnesota Supreme Court will rule on whether to grant review pursuant to the petition.

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 be credited to ratepayers. None of the aforementioned lawsuit settlements are expected to have a material effect on NSP-Wisconsin’s consolidated financial statements.

7. Short-Term Borrowings

NSP-Wisconsin has an intercompany borrowing arrangement with NSP-Minnesota, with interest charged at NSP-Minnesota’s short-term borrowing rate. NSP-Wisconsin has approval to borrow up to $100 million under the arrangement. At Sept. 30, 2009 and Dec. 31, 2008, NSP-Wisconsin had no short-term borrowings under this intercompany arrangement.

Clearwater Investments Inc., an NSP-Wisconsin subsidiary, also had notes payable outstanding as of Sept. 30, 2009 and Dec. 31, 2008, to Xcel Energy, in the amount of $0.7 million. The weighted average interest rates at Sept. 30, 2009 and Dec. 31, 2008, were 0.48 percent and 3.34 percent, respectively.

8. Long-Term Borrowings and Other Financing Instruments

On March 1, 2009, NSP-Wisconsin redeemed its 7.375 percent $65.0 million first mortgage bonds due Dec. 1, 2026. In addition to repayment of all principal amounts, NSP-Wisconsin paid accrued interest and a redemption premium totaling approximately $3.0 million.

9. Derivative Instruments

Effective Jan. 1, 2009, NSP-Wisconsin adopted new guidance on disclosures about derivative instruments and hedging activities contained in ASC 815 Derivatives and Hedging, which requires additional disclosures regarding why an entity uses derivative instruments, the volume of an entity’s derivative activities, the fair value amounts recorded to the consolidated balance sheet for derivatives, the gains and losses on derivative instruments included in the consolidated statement of income or deferred, and information regarding certain credit-risk-related contingent features in derivative contracts.

NSP-Wisconsin enters into derivative instruments, including forward contracts, futures, swaps and options, to reduce risk in connection with changes in interest rates and utility commodity prices. See additional information pertaining to the valuation of derivative instruments in Note 11 to the consolidated financial statements.

Interest Rate Derivatives — 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.

At Sept. 30, 2009, accumulated other comprehensive income related to interest rate derivatives included $0.1 million of net losses expected to be reclassified into earnings during the next 12 months as the related hedged interest rate transactions impact earnings. An immaterial amount of accumulated other comprehensive losses related to interest rate derivatives were reclassified into earnings during the three and nine months ended Sept. 30, 2009.

Commodity Derivatives — NSP-Wisconsin enters into derivative instruments to manage variability of future cash flows from changes in commodity prices in its electric and natural gas operations. This could include the purchase or sale of energy or energy-related products, natural gas to generate electric energy and gas for resale.

At Sept. 30, 2009, NSP-Wisconsin had no commodity derivative contracts designated as cash flow hedges. However, as of Sept. 30, 2009, NPS-Wisconsin has entered into derivative instruments that mitigate commodity price risk on behalf of electric and natural gas customers but are not designated as qualifying hedging instruments. Changes in the fair value of these commodity derivative instruments are deferred as a regulatory asset or liability based on the commission approved regulatory recovery mechanisms.

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During the three and nine months ended Sept. 30, 2009, changes in the fair value of natural gas commodity derivatives resulted in net gains of $0.4 and $0.1 million, respectively, recognized as regulatory assets and liabilities. Natural gas commodity derivatives settlement losses of $4.3 million were incurred during the nine months ended Sept. 30, 2009, subject to purchased natural gas cost recovery mechanisms, which reclassify derivative settlement gains and losses out of income as regulatory assets and liabilities, as appropriate. There were no material settlement losses or gains on commodity derivatives for the three months ended Sept. 30, 2009.

NSP-Wisconsin had no derivative instruments designated as fair value hedges during the three and nine months ended Sept. 30, 2009, and as such, had no gains or losses from fair value hedges or related hedged transactions for the period.

The following table shows the commodity derivatives recorded to derivative instruments valuation in the consolidated balance sheets:

Sept. 30, 2009

Dec. 31, 2008

Derivative

Instruments

Valuation -

(Thousands of Dollars)

Assets(a)

Liabilities

Assets(a)

Liabilities

Commodity derivatives

983

512

1,869

(a) Amounts included in prepayments and other in the consolidated balance sheets.

Financial Impact of Qualifying Cash Flow Hedges — The impact of qualifying interest rate cash flow hedges on NSP-Wisconsin’s accumulated other comprehensive income, included as a component of common stockholder’s equity, is detailed in the following tables:

	Three Months Ended Sept. 30,
(Thousands of Dollars)	2009			2008
Accumulated other comprehensive loss related to cash flow hedges at July 1	$	(704	)	$	(780	)
After-tax net realized losses on derivative transactions reclassified into earnings	19			19
Accumulated other comprehensive loss related to cash flow hedges at Sept. 30	$	(685	)	$	(761	)

	Nine Months Ended Sept. 30,
(Thousands of Dollars)	2009			2008
Accumulated other comprehensive loss related to cash flow hedges at Jan. 1	$	(742	)	$	(820	)
After-tax net realized losses on derivative transactions reclassified into earnings	57			59
Accumulated other comprehensive loss related to cash flow hedges at Sept. 30	$	(685	)	$	(761	)

At Sept. 30, 2009, commodity derivatives recorded to derivative instruments valuation included derivative contracts with gross notional amounts of approximately 2,827,000 MMBtu of natural gas. These amounts reflect the gross notional amounts of futures and forwards and are not reflective of net positions in the underlying commodities. Notional amounts for options are also included on a gross basis, but are weighted for the probability of exercise.

Credit Related Contingent Features — Contract provisions of the derivative instruments that NSP-Wisconsin enters into may require the posting of collateral or settlement of the contracts for various reasons, including if NSP-Wisconsin is unable to maintain its credit rating. At Sept. 30, 2009, if the credit rating of NSP-Wisconsin were downgraded below investment grade, no contracts underlying NSP-Wisconsin’s derivative liabilities would require the posting of collateral or contract settlement upon the downgrade.

Certain of NSP-Wisconsin’s derivative instruments are subject to contract provisions that contain adequate assurance clauses. These provisions allow counterparties to seek performance assurance, including cash collateral, in the event that NSP-Wisconsin’s ability to fulfill its contractual obligations is reasonably expected to be impaired. As of Sept. 30, 2009, NSP-Wisconsin had no collateral posted related to adequate assurance clauses in derivative contracts.

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10. Financial Instruments

The estimated fair values of NSP-Wisconsin’s recorded financial instruments are as follows:

	Sept. 30, 2009				Dec. 31, 2008
(Thousands of Dollars)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Other investments	$	134	$	134	$	160	$	160
Long-term debt, including current portion	369,362		417,334		434,155		438,050

The fair value of cash and cash equivalents, notes and accounts receivable and notes and accounts payable are not materially different from their carrying amounts. The fair value of NSP-Wisconsin’s long-term debt is estimated based on the quoted market prices for the same or similar issues or the current rates for debt of the same remaining maturities and credit quality.

The fair value estimates presented are based on information available to management as of Sept. 30, 2009 and Dec. 31, 2008. These fair value estimates have not been comprehensively revalued for purposes of these consolidated financial statements since that date and current estimates of fair values may differ significantly.

NSP-Wisconsin provides a guarantee for payment or performance under a specified agreement. As a result, NSP-Wisconsin’s exposure under the guarantee is based upon the net liability under the specified agreement. The guarantee issued by NSP-Wisconsin limits the exposure of NSP-Wisconsin to a maximum amount stated in the guarantee. The guarantee requires no liability to be recorded, contains no recourse provisions and requires no collateral. On Sept. 30, 2009, NSP-Wisconsin had issued guarantees of up to $1.0 million with $0.4 million of known exposure under these guarantees. On Dec. 31, 2008, NSP-Wisconsin had issued guarantees of up to $1.0 million with $0.3 million of known exposure under these guarantees.

Letters of Credit — NSP-Wisconsin may use letters of credit, generally with terms of one year, to provide financial guarantees for certain operating obligations. At Sept. 30, 2009 and Dec. 31, 2008, there were no letters of credit outstanding.

11. Fair Value Measurements

Effective Jan. 1, 2008, NSP-Wisconsin adopted new guidance for recurring fair value measurements contained in ASC 820 Fair Value Measurements and Disclosures which provides a single definition of fair value and requires enhanced disclosures about assets and liabilities measured at fair value. A hierarchal framework for disclosing the observability of the inputs utilized in measuring assets and liabilities at fair value was established by this guidance. The three levels in the hierarchy and examples of each level are as follows:

Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reported 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 reported date. The types of assets and liabilities included in Level 2 are typically either comparable to actively traded securities or contracts or priced with models using highly observable inputs.

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

Fair value for commodity derivatives is determined based on observable prices for identical or similar forward contracts, or internally prepared option valuation models using observable forward curves and volatilities. NSP-Wisconsin continuously monitors the creditworthiness of the counterparties to its commodity derivative contracts and assesses each counterparty’s ability to perform on the transactions set forth in the contracts. Given this assessment, as well an assessment of the impact of NSP-Wisconsin’s own credit risk when determining the fair value of commodity derivative liabilities, the impact of considering credit risk was immaterial to the fair value of commodity derivative assets and liabilities presented in the consolidated balance sheets.

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The following tables present, for each of these hierarchy levels, NSP-Wisconsin’s assets and liabilities that are measured at fair value on a recurring basis:

	Sept. 30, 2009
							Counterparty
(Thousands of Dollars)	Level 1		Level 2		Level 3		Netting (b)		Net Balance
Commodity derivative assets(a)	$	—	$	930	$	—	$	53	$	983
Commodity derivative liabilities	—		459		—		53		512

	Dec. 31, 2008
							Counterparty
(Thousands of Dollars)	Level 1		Level 2		Level 3		Netting (b)		Net Balance
Commodity derivative assets(a)	$	—	$	2	$	—	$	—	$	2
Commodity derivative liabilities	600		1,269		—		—		1,869

(a)

Amounts included in prepayments and other in the consolidated balance sheets.

(b)

ASC 815 Derivatives and Hedging permits the netting of receivables and payables for derivatives and related collateral amounts when a legally enforceable master netting agreement exists between NSP-Wisconsin and a counterparty. A master netting agreement is an agreement between two parties who have multiple contracts with each other that provides for the net settlement of all contracts in the event of default on or termination of any one contract.

12. Other Income (Expense), Net

Other income (expense), net, consisted of the following:

	Three Months Ended Sept. 30,						Nine Months Ended Sept. 30,
(Thousands of Dollars)	2009			2008			2009			2008
Interest income (expense)	$	260		$	(741	)	$	791		$	(11	)
Other nonoperating income	18			88			63			144
Insurance policy expenses	(211		)	(79		)	(448		)	(191		)
Other income (expense), net	$	67		$	(732	)	$	406		$	(58	)

13. Segment Information

NSP-Wisconsin has two reportable segments, regulated electric and regulated natural gas.

	Regulated		Regulated			All			Reconciling			Consolidated
(Thousands of Dollars)	Electric		Natural Gas			Other			Eliminations			Total
Three Months Ended Sept. 30, 2009
Revenues from:
External customers	$	170,063	$	11,983		$	219		$	—		$	182,265
Internal customers	25		224			—			(249		)	—
Total revenues	$	170,088	$	12,207		$	219		$	(249	)	$	182,265
Segment net income (loss)	$	13,379	$	(1,437	)	$	1,681		$	—		$	13,623

Three Months Ended Sept. 30, 2008
Revenues from:
External customers	$	173,312	$	18,459		$	234		$	—		$	192,005
Internal customers	24		606			—			(630		)	—
Total revenues	$	173,336	$	19,065		$	234		$	(630	)	$	192,005
Segment net income (loss)	$	12,754	$	(1,497	)	$	(166	)	$	—		$	11,091

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	Regulated		Regulated		All			Reconciling			Consolidated
(Thousands of Dollars)	Electric		Natural Gas		Other			Eliminations			Total
Nine Months Ended Sept. 30, 2009
Revenues from:
External customers	$	507,450	$	94,200	$	655		$	—		$	602,305
Internal customers	105		983		—			(1,088		)	—
Total revenues	$	507,555	$	95,183	$	655		$	(1,088	)	$	602,305
Segment net income	$	34,250	$	2,599	$	1,971		$	—		$	38,820

Nine Months Ended Sept. 30, 2008
Revenues from:
External customers	$	495,159	$	128,549	$	675		$	—		$	624,383
Internal customers	147		1,406		—			(1,553		)	—
Total revenues	$	495,306	$	129,955	$	675		$	(1,553	)	$	624,383
Segment net income (loss)	$	26,436	$	3,879	$	(93	)	$	—		$	30,222

14. Comprehensive Income

The components of total comprehensive income are shown below:

	Three Months Ended Sept. 30,				Nine Months Ended Sept. 30,
(Thousands of Dollars)	2009		2008		2009		2008
Net income	$	13,623	$	11,091	$	38,820	$	30,222
Other comprehensive income:
After-tax net realized losses on derivatives transactions reclassified into earnings	19		19		57		59
Other comprehensive income	19		19		57		59
Comprehensive income	$	13,642	$	11,110	$	38,877	$	30,281

15. 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.

Components of Net Periodic Benefit Cost (Credit)

	Three Months Ended Sept. 30,
	2009			2008			2009			2008
							Postretirement Health
(Thousands of Dollars)	Pension Benefits						Care Benefits
Xcel Energy Inc.
Service cost	$	16,365		$	15,851		$	1,166		$	1,338
Interest cost	42,448			42,630			12,603			12,720
Expected return on plan assets	(64,135		)	(68,584		)	(5,694		)	(7,963		)
Amortization of transition obligation	—			—			3,611			3,644
Amortization of prior service cost (credit)	6,155			5,166			(681		)	(544		)
Amortization of net loss	3,114			3,185			4,832			2,875
Net periodic benefit cost (credit)	3,947			(1,752		)	15,837			12,070
(Cost) credits not recognized and additional cost recognized due to the effects of regulation	(723		)	2,258			972			972
Net benefit cost recognized for financial reporting	$	3,224		$	506		$	16,809		$	13,042

NSP-Wisconsin
Net benefit cost (credit) recognized for financial reporting	$	140		$	(277	)	$	532		$	502

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	Nine Months Ended Sept. 30,
	2009			2008			2009			2008
							Postretirement Health
(Thousands of Dollars)	Pension Benefits						Care Benefits
Xcel Energy Inc.
Service cost	$	49,095		$	47,553		$	3,499		$	4,013
Interest cost	127,343			127,890			37,809			38,160
Expected return on plan assets	(192,404		)	(205,753		)	(17,082		)	(23,888		)
Amortization of transition obligation	—			—			10,833			10,932
Amortization of prior service cost (credit)	18,464			15,498			(2,044		)	(1,632		)
Amortization of net loss	9,342			9,555			14,497			8,624
Net periodic benefit cost (credit)	11,840			(5,257		)	47,512			36,209
(Cost) credits not recognized and additional cost recognized due to the effects of regulation	(2,169		)	6,775			2,918			2,918
Net benefit cost recognized for financial reporting	$	9,671		$	1,518		$	50,430		$	39,127

NSP-Wisconsin
Net benefit cost (credit) recognized for financial reporting	$	420		$	(832	)	$	1,595		$	1,508

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 NSP-Wisconsin’s financial condition, results of operations, and cash flows 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 consolidated financial statements and the related notes to the consolidated financial statements. Due to the seasonality of NSP-Wisconsin’s electric and natural gas sales, such interim results are not necessarily an appropriate base from which to project annual results.

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,” “believe,” “estimate,” “expect,” “intend,” “may,” “objective,” “outlook,” “plan,” “project,” “possible,” “potential,” “should” and similar expressions. Actual results may vary materially. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them to reflect changes that occur after that date. Factors that could cause actual results to differ materially include, but are not limited to: general economic conditions, including the availability of credit and its impact on capital expenditures and the ability of Xcel Energy and its subsidiaries to obtain financing on favorable terms; business conditions in the energy industry; actions of credit rating agencies; competitive factors, including the extent and timing of the entry of additional competition in the markets served by NSP-Wisconsin; unusual weather; effects of geopolitical events, including war and acts of terrorism; state, federal and foreign legislative and regulatory initiatives that affect cost and investment recovery, have an impact on rates or have an impact on asset operation or ownership or impose environmental compliance conditions; structures that affect the speed and degree to which competition enters the electric and natural gas markets; costs and other effects of legal and administrative proceedings, settlements, investigations and claims; environmental laws and regulations; actions of accounting regulatory bodies; the items described under Factors Affecting Results of Continuing Operations; and the other risk factors listed from time to time by NSP-Wisconsin in reports filed with the SEC, including “Risk Factors” in Item 1A of NSP-Wisconsin’s Form 10-K for the year ended Dec. 31, 2008, and Item 1A and Exhibit 99.01 to this report on Form 10-Q for the quarter ended Sept. 30, 2009.

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, 2008. Commodity price and interest rate risks for NSP-Wisconsin are mitigated in most jurisdictions due to cost-based rate regulation.

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Continued distress in the financial markets may also impact the fair value of the debt and equity securities in pension and postretirement health care plan trusts, as well as NSP-Wisconsin’s ability to earn a return on short-term investments of excess cash. As of Sept. 30, 2009, there have been no material changes to market risks from that set forth in NSP-Wisconsin’s Annual Report on Form 10-K for the year ended Dec. 31, 2008.

Results of Operations

NSP-Wisconsin’s net income was $38.8 million for the first nine months of 2009, compared with $30.2 million for the first nine months of 2008.

Electric Revenues 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 electric 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.

Electric — The following tables detail the change in electric revenues and margin:

	Nine Months Ended Sept. 30,
(Millions of Dollars)	2009			2008
Electric revenues	$	507		$	495
Electric fuel and purchased power	(283		)	(290		)
Electric margin	$	224		$	205

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

Electric Revenues

(Millions of Dollars)	2009 vs. 2008
Retail rate increases, net of provision for refund	$	15
Interchange agreement billing with NSP-Minnesota	5
Estimated impact of weather	1
Retail sales decline (excluding weather impact)	(3		)
Fuel and purchased power recovery	(9		)
Other, net	3
Total increase in electric revenue	$	12

Electric Margin

(Millions of Dollars)	2009 vs. 2008
Retail rate increases, net of provision for refund	$	15
Fuel and purchased power cost recovery	10
Estimated impact of weather	1
Interchange agreement billing with NSP-Minnesota (net of deferrals)	(8		)
Retail sales decline (excluding weather impact)	(3		)
Other, net	4
Total increase in electric margin	$	19

Natural Gas Revenues 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.

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Natural Gas — The following table details the change in natural gas revenues and margin:

	Nine Months Ended Sept. 30,
(Millions of Dollars)	2009			2008
Natural gas revenues	$	94		$	129
Cost of natural gas sold and transported	(65		)	(99		)
Natural gas margin	$	29		$	30

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

Natural Gas Revenues

(Millions of Dollars)	2009 vs. 2008
Purchased natural gas adjustment clause recovery	$	(33	)
Estimated impact of weather	(1		)
Other, net	(1		)
Total decrease in natural gas revenues	$	(35	)

Natural Gas Margin

(Millions of Dollars)	2009 vs. 2008
Estimated impact of weather	$	(1	)
Total decrease in natural gas margin	$	(1	)

Non-Fuel Operating Expense and Other Items

Other Operating and Maintenance Expenses — Other operating and maintenance expenses for the first nine months of 2009 increased $2.2 million, or 2.1 percent, compared with 2008. The following summarizes the components of the changes in other operating and maintenance expense for the nine months ended Sept. 30:

(Millions of Dollars)	2009 vs. 2008
Higher employee benefit costs	$	3
Lower consulting costs	(1		)
Total increase in other operating and maintenance expenses	$	2

Depreciation and Amortization — Depreciation and amortization expense increased by approximately $2.8 million, or 6.5 percent, for the first nine months of 2009, compared with the first nine months of 2008. The increase was primarily due to normal system expansion.

Income Taxes — Income tax expense increased by $3.3 million for the first nine months of 2009, compared with the first nine months of 2008. The increase in income tax expense was primarily due to an increase in pretax income. The effective tax rate was 36.3 percent for the first nine months of 2009, compared with 38.4 percent for the same period in 2008. The lower effective tax rate for the first nine months of 2009 was primarily due to a lower forecasted annual effective tax rate for 2009 resulting largely from a lower level of state tax expense.

Factors Affecting Results of Continuing Operations

Public Utility Regulation

Bay Front Biomass Gasification — In February 2009, NSP-Wisconsin filed an application with the PSCW for a certificate of authority (CA) to install biomass gasification technology at the Bay Front Power Plant in Ashland, Wis. Currently, two of the three boilers at Bay Front use biomass as their primary fuel to generate electricity. The proposed project will convert the third boiler to biomass gasification technology allowing the plant to use 100 percent biomass in all three boilers. The project, estimated to cost $58 million, will require additional biomass receiving and handling facilities at the plant, an external gasifier, minor modifications to the plant’s remaining coal-fired boiler and an enhanced air quality control system. The total generation output of the plant is not expected to change significantly as a result of the project. However, the project will improve the environmental performance of the plant and contribute towards state RES in the region. Following all state regulatory approvals, engineering and design work is expected to begin in 2010, and the unit could be operational by late 2012. Intervenors have filed testimony both supporting and opposing the project. The request is pending a decision by the PSCW.

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NSP-Minnesota also made filings in North Dakota and Minnesota to help ensure future rate recovery of the portion of the project costs that will be billed to NSP-Minnesota through the Interchange Agreement. Decisions on those filings are currently pending regulatory action before the NDPSC and the MPUC respectively.

Summary of Recent Federal Regulatory Developments

The FERC has jurisdiction over rates for electric transmission service in interstate commerce and electricity sold at wholesale, hydro facility licensing, natural gas transportation, accounting practices and certain other activities of NSP-Wisconsin, including enforcement of North American Electric Reliability Corporation (NERC) mandatory electric reliability standards. State and local agencies have jurisdiction over many of NSP-Wisconsin’s activities, including regulation of retail rates and environmental matters. See additional discussion in the summary of recent federal regulatory developments and public utility regulation sections of the NSP-Wisconsin Annual Report on Form 10-K for the year ended Dec. 31, 2008. In addition to the matters discussed below, see Note 5 to the consolidated financial statements for a discussion of other regulatory matters.

Electric Reliability Standards Compliance

Compliance Audits

The electric production and transmission system of NSP-Minnesota is managed as an integrated system with that of NSP-Wisconsin, jointly referred to as the NSP System. The NSP System was subject to an electric reliability standards compliance audit in the first quarter of 2008. The Midwest Reliability Organization (MRO) found the NSP System in compliance with all NERC standards audited. In 2008, the NSP System filed self-reports with the MRO relating to failure to complete certain generation station battery tests, relay maintenance intervals and certain critical infrastructure protection standards. In August and September of 2009, the NSP System reached agreement with the MRO that would resolve all open audit findings and self reports by payment of a non-material penalty. Xcel Energy is in the process of developing a definitive settlement agreement. The settlement agreement will be subject to NERC and FERC approval.

MRO/NERC Compliance Investigation

On Sept. 18, 2007, portions of the NSP System and transmission systems west and north of the NSP System briefly islanded from the rest of the Eastern Interconnection, as a result of a series of transmission line outages. The initial transmission line outage appears to have occurred on the NSP System. In March 2008, Xcel Energy received notice that the MRO was commencing a compliance investigation of the September 2007 event. Because the event affected more than one region, the NERC took over the investigation. The final outcome of the NERC compliance investigation is unknown at this time. Given the ongoing investigation, NSP-Wisconsin is unable to determine if the outcome of this matter will result in any finding of standards violations, and if so, whether any associated penalties will have a material adverse impact on operations, cash flows or financial condition.

MISO Generation Interconnection Cost Allocation Tariff — In July 2009, MISO and its transmission owners (including NSP-Minnesota and NSP-Wisconsin) filed to change the cost allocation procedures in the MISO tariff associated with interconnection of new generation. The current rule requires the interconnecting generator to fund 50 percent of the network upgrades associated with the interconnection, with 50 percent funded by the affected transmission owners. The proposed change would require the interconnecting generator to fund 90 percent of the costs on an interim basis until MISO and its stakeholders can develop a replacement tariff in 2010. Approximately 40 parties, including Xcel Energy, filed interventions or protests with extensive objections filed by several wind generation developers. Xcel Energy urged the FERC to require MISO and its stakeholders to develop and file a replacement tariff by April 1, 2010, so the tariff could be in effect by July 2010. Xcel Energy indicated uncertainly regarding cost allocation and cost recovery could affect pending transmission projects. The tariff change is pending FERC action.

FERC Audit of Wholesale FCA — In October 2009, the FERC notified NSP-Minnesota and NSP-Wisconsin that the FERC audit division began an audit of compliance with the FERC’s accounting and reporting regulations related to the calculation of the NSP-Minnesota and NSP-Wisconsin wholesale FCA for the period commencing Jan. 1, 2008. The audit is a periodic financial audit and does not imply any non-compliance has occurred.

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Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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 (Exchange Act) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. In addition, the disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports under the Exchange Act 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 were effective.

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, NSP-Wisconsin’s 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.

Additional Information

See Notes 5 and 6 of the consolidated 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 Notes 12 and 13 of NSP-Wisconsin’s consolidated financial statements in its Annual Report on Form 10-K for the year ended Dec. 31, 2008 for a description of certain legal proceedings presently pending.

Item 1A. RISK FACTORS

Except to the extent updated or described below, NSP-Wisconsin’s risk factors are documented in Item 1A of Part I of its Annual Report on Form 10-K for the year ended Dec. 31, 2008, which is incorporated herein by reference.

We are subject to credit risks.

Credit risk includes the risk that our retail customers will not pay their bills, which may lead to a reduction in liquidity and an eventual increase in bad debt expense. Retail credit risk is comprised of numerous factors including the overall economy and the price of products and services provided.

Credit risk also includes the risk that various counterparties that owe us money or product will breach their obligations. Should the counterparties to these arrangements fail to perform, we may be forced to enter into alternative arrangements. In that event, our financial results could be adversely affected and we could incur losses.

One alternative available to address counterparty credit risk is to transact on liquid commodity exchanges. The credit risk is then socialized through the exchange central clearinghouse function. While exchanges do remove counterparty credit risk, all participants are subject to margin requirements, which creates an additional need for liquidity to post margin as exchange positions change value daily. Additional margin requirements could impact our liquidity.

NSP-Wisconsin may at times have direct credit exposure as part of its local gas distribution company supply activity to various financial institutions trading for their own accounts or issuing collateral support on behalf of other counterparties. NSP-Wisconsin may also have some indirect credit exposure due to participation in organized markets such as the PJM Interconnection and Midwest Independent Transmission System Operator, Inc. (MISO) in which any credit losses are socialized to all market participants.

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We may be subject to litigation, legislative and regulatory responses to climate change, with which compliance could be difficult and costly.

Legislative and regulatory responses related to climate change and new interpretations of existing laws through climate change litigation create financial risk. Increased public awareness and concern may result in more regional and/or federal requirements to reduce or mitigate the effects of GHGs. Numerous states have announced or adopted programs to stabilize and reduce GHG and federal legislation has been introduced in both houses of Congress. Likewise, the EPA has drafted regulations pursuant to which GHGs from certain stationary sources would be regulated under the Clean Air Act by March 2010. NSP-Wisconsin electric generating facilities are likely to be subject to regulation under climate change laws introduced at either the state or federal level within the next few years. Xcel Energy, the parent company of NSP-Wisconsin, is also currently a party to climate change lawsuits and may be subject to additional climate change lawsuits, including lawsuits similar to those described in the Note 6, Commitments and Contingent Liabilities, in our Notes to our Consolidated Financial Statements. While Xcel Energy believes such lawsuits are without merit, an adverse outcome in any of these cases could require substantial capital expenditures that cannot be determined at this time and could possibly require payment of substantial penalties or damages. Defense costs associated with such litigation can also be significant. Such payments or expenditures could affect results of operations, cash flows, and financial condition if such costs are not recovered through regulated rates.

Many of the federal and state climate change legislative proposals, such as ACES, use a “cap and trade” policy structure, in which GHG emissions from a broad cross-section of the economy would be subject to an overall cap. Under the proposals, the cap becomes more stringent with the passage of time. The proposals establish mechanisms for GHG sources, such as power plants, to obtain “allowances” or permits to emit GHGs during the course of a year. The sources may use the allowances to cover their own emissions or sell them to other sources that do not hold enough emissions allowances for their own operations. Proponents of the cap and trade policy believe it will result in the most cost effective, flexible emission reductions. The impact of legislation and regulations, including a “cap and trade” structure, on NSP-Wisconsin and its customers will depend on a number of factors, including whether GHG sources in multiple sectors of the economy are regulated, the overall GHG emissions cap level, the degree to which GHG offsets are allowed, the allocation of emission allowances to specific sources and the indirect impact of carbon regulation on natural gas and coal prices. Another important factor is NSP-Wisconsin’s ability to recover the costs incurred to comply with any regulatory requirements that are ultimately imposed. We may not recover all costs related to complying with regulatory requirements imposed on NSP-Wisconsin. If our regulators do not allow us to recover all or a part of the cost of capital investment or the operating and maintenance costs incurred to comply with the mandates, it could have a material adverse effect on our results of operations.

For further discussion see Note 6 to the consolidated financial statements.

Item 6. EXHIBITS

*Indicates incorporation by reference

3.01*		Amended and Restated Articles of Incorporation (Exhibit 3.01 to Form S-4 (file no. 333-112033) Jan. 21, 2004).
3.02*		By-Laws as amended Dec. 6, 2001 and June 3, 2008 (Exhibit 3.02 to Form 10Q (file no. 001-03140) Aug. 4, 2008).
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.

	/s/ TERESA S. MADDEN
	Teresa S. Madden
	Vice President and Controller

	/s/ DAVID M. SPARBY
	David M. Sparby
	Vice President and Chief Financial Officer

PART I - FINANCIAL INFORMATION

Item l.	Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 4.	Controls and Procedures	23

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 6.	Exhibits	24

SIGNATURES		25

Certifications Pursuant to Section 302
Certifications Pursuant to Section 906
Statement Pursuant to Private Litigation