10.	Commitments and Contingent Liabilities

Commitments

Capital Commitments - NSP-Wisconsin has made commitments in connection with a portion of its projected capital expenditures. NSP-Wisconsin's capital commitments primarily relate to one major project, CapX2020.

CapX2020 - CapX2020 is an alliance of electric cooperatives, municipals and investor-owned utilities in the upper Midwest, including Xcel Energy that have proposed several groups of transmission projects to be complete by 2020. Group 1 project investments consist of four transmission lines. Major construction began in 2010 on the Group 1 transmission lines with an expected completion date in 2015. NSP System's investment depends on the routes and configurations approved by affected state commissions. The remainder of the costs will be born by other utilities in the upper Midwest.

Fuel Contracts - NSP-Wisconsin has contracts providing for the purchase and delivery of a significant portion of its current coal and natural gas requirements. These contracts expire in various years between 2012 and 2029. In addition, NSP-Wisconsin is required to pay additional amounts depending on actual quantities shipped under these agreements. As NSP-Wisconsin does not have an automatic electric fuel adjustment clause for Wisconsin retail customers, NSP-Wisconsin may seek deferred accounting treatment and future rate recovery of increased costs due to an emergency event, if that event causes fuel costs to exceed the amount included in rates on an annual basis by more than 2 percent.

The estimated minimum purchases for NSP-Wisconsin under these contracts as of Dec. 31, 2011 are as follows:

(Millions of Dollars)	Dec. 31, 2011
Coal (a)	$	22
Nuclear fuel (a)		8
Natural gas storage and transportation (a)		86

(a)	Excludes additional amounts allocated to NSP-Wisconsin through intercompany charges.

Estimated coal requirements at Dec. 31, 2011 have been adjusted to account for Sherco Unit 3, which experienced a significant failure of its turbine, generator, and exciter systems. The facility was immediately shut down and isolated for investigation of the cause of the failure, which is still unknown. It is uncertain when Sherco Unit 3 will recommence operations. Replacement and repair of damaged systems, and other significant direct costs of the failure in excess of a $1.5 million deductible are expected to be recovered through NSP-Minnesota's insurance policies. Sherco Units 1 and 2, wholly-owned by NSP-Minnesota, continue to operate.

Variable Interest Entities - The accounting guidance for consolidation of variable interest entities requires enterprises to consider the activities that most significantly impact an entity's financial performance, and power to direct those activities, when determining whether an enterprise is a variable interest entity's primary beneficiary.

NSP-Wisconsin has entered into limited partnerships for the construction and operation of affordable rental housing developments which qualify for low-income housing tax credits. NSP-Wisconsin has determined the low-income housing limited partnerships to be variable interest entities primarily due to contractual arrangements within each limited partnership that establish sharing of ongoing voting control and profits and losses that does not consistently align with the partners' proportional equity ownership. These limited partnerships are designed to qualify for low-income housing tax credits, and NSP-Wisconsin generally receive a larger allocation of the tax credits than the general partners at inception of the arrangements. NSP-Wisconsin has determined that it has the power to direct the activities that most significantly impact these entities' economic performance, and therefore NSP-Wisconsin consolidates these limited partnerships in its consolidated financial statements.

Equity financing for these entities has been provided by NSP-Wisconsin and the general partner of each limited partnership, and NSP-Wisconsin's risk of loss is limited to its capital contributions, adjusted for any distributions and its share of undistributed profits and losses; no significant additional financial support has been, or is in the future, required to be provided to the limited partnerships by NSP-Wisconsin. Mortgage-backed debt typically comprises the majority of the financing at inception of each limited partnership and is paid over the life of the limited partnership arrangement. Obligations of the limited partnerships are generally secured by the housing properties of each limited partnership, and the creditors of each limited partnership have no significant recourse to NSP-Wisconsin or its subsidiaries. Likewise, the assets of the limited partnerships may only be used to settle obligations of the limited partnerships, and not those of NSP-Wisconsin or its subsidiaries.

Amounts reflected in NSP-Wisconsin's consolidated balance sheets for low-income housing limited partnerships include the following:

(Thousands of Dollars)	Dec. 31, 2011		Dec. 31, 2010
Current assets	$	270	$	228
Property, plant and equipment, net		2,727		2,891
Other noncurrent assets		102		89
Total assets	$	3,099	$	3,208

Current liabilities	$	1,389	$	1,612
Mortgages and other long-term debt payable		640		486
Other noncurrent liabilities		43		43
Total liabilities	$	2,072	$	2,141

Leases - NSP-Wisconsin leases a variety of equipment and facilities used in the normal course of business. These leases, primarily for office space, trucks, aircraft, cars and power-operated equipment, are accounted for as operating leases. Total expenses under operating lease obligations were approximately $1.4 million, $1.4 million and $1.9 million for 2011, 2010 and 2009, respectively.

Future commitments under operating leases are:

(Millions of Dollars)
2012	$	0.7
2013		0.7
2014		0.7
2015		0.6
2016		0.5
Thereafter		3.4
Total	$	6.6

Joint Operating System - The electric production and transmission system of NSP-Wisconsin is managed as an integrated system with that of NSP-Minnesota, jointly referred to as the NSP System. The electric production and transmission costs of the entire NSP system are shared by NSP-Minnesota and NSP-Wisconsin. A FERC approved agreement between the two companies, called the Interchange Agreement, provides for the sharing of all costs of generation and transmission facilities of the system, including capital costs. Such costs include current and potential obligations of NSP-Minnesota related to its nuclear generating facilities.

NSP-Minnesota's public liability for claims resulting from any nuclear incident is limited to $12.6 billion under the Price-Anderson amendment to the Atomic Energy Act. NSP-Minnesota has secured $375 million of coverage for its public liability exposure with a pool of insurance companies. The remaining $12.2 billion of exposure is funded by the Secondary Financial Protection Program, available from assessments by the federal government in case of a nuclear accident. NSP-Minnesota is subject to assessments of up to $117.5 million per reactor per accident for each of its three licensed reactors, to be applied for public liability arising from a nuclear incident at any licensed nuclear facility in the United States. The maximum funding requirement is $17.5 million per reactor during any one year. These maximum assessment amounts are both subject to inflation adjustment by the NRC and state premium taxes. The NRC's last adjustment was effective April 2010.

NSP-Minnesota purchases insurance for property damage and site decontamination cleanup costs from Nuclear Electric Insurance Ltd. (NEIL). The coverage limits are $2.25 billion for each of NSP-Minnesota's two nuclear plant sites. NEIL also provides business interruption insurance coverage, including the cost of replacement power obtained during certain prolonged accidental outages of nuclear generating units. Premiums are expensed over the policy term. All companies insured with NEIL are subject to retroactive premium adjustments if losses exceed accumulated reserve funds. Capital has been accumulated in the reserve funds of NEIL to the extent that NSP-Minnesota would have no exposure for retroactive premium assessments in case of a single incident under the business interruption and the property damage insurance coverage. However, in each calendar year, NSP-Minnesota could be subject to maximum assessments of approximately $15.7 million for business interruption insurance and $33.6 million for property damage insurance if losses exceed accumulated reserve funds.

Guarantees - 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 contains no recourse provisions and requires no collateral.

The following table presents guarantees issued and outstanding for NSP-Wisconsin:

(Millions of Dollars)		Guarantee Amount				Current Exposure			Term or Expiration Date		Triggering Event Requiring Performance
Guarantee of customer loans for the Farm Rewiring Program		$	1.0			$	0.5		Continuing		(a)

(a)	The debtor becomes the subject of bankruptcy or other insolvency proceedings.

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 PRPs and through the regulated rate process. New and changing federal and state environmental mandates can also create added financial liabilities for NSP-Wisconsin, which are normally recovered through the regulated rate 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- The Comprehensive Environmental Response, Compensation and Liability Act of 1980 and other comparable federal and state environmental laws impose liability, without regard to the legality of the original conduct, on certain classes of persons where hazardous substances or other regulated materials have been released to the environment. NSP-Wisconsin may sometimes 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 MGPs operated by NSP-Wisconsin, its predecessors, or other entities; and third-party sites, such as landfills, for which NSP-Wisconsin is alleged to be a PRP that sent hazardous materials and wastes to that site.

MGP Sites

Ashland MGP Site - NSP-Wisconsin has been named a PRP for contamination at a site in Ashland, Wis. The Ashland/Northern States Power Lakefront Superfund Site (the Ashland site) includes property owned by NSP-Wisconsin, which was a site previously operated by a predecessor company as a MGP facility (the Upper Bluff), and two other properties: an adjacent city lakeshore park area (Kreher Park), on which an unaffiliated third party previously operated a sawmill and conducted creosote treating operations; and an area of Lake Superior's Chequamegon Bay adjoining the park (the Sediments).

The EPA issued its Record of Decision (ROD) in September 2010, which documents the remedy that the EPA has selected for the cleanup of the Ashland site. In April 2011, the EPA issued special notice letters identifying several entities, including NSP-Wisconsin, as PRPs, for future cleanup at the site. The special notice letters requested that those PRPs participate in negotiations with the EPA regarding how the PRPs intend to conduct or pay for the cleanup. On June 30, 2011, NSP-Wisconsin submitted a settlement offer to the EPA related to the future cleanup of the Ashland site. On July 14, 2011, the EPA informed NSP-Wisconsin and the other PRPs that it was rejecting all of their individual offers and can now choose to initiate enforcement actions at any time. Despite this decision, the EPA also indicated a willingness to continue settlement negotiations with NSP-Wisconsin. Settlement negotiations are ongoing.

At Dec. 31, 2011 and Dec. 31, 2010, NSP-Wisconsin had recorded a liability of $104.3 million and $97.5 million, respectively, based upon potential remediation and design costs together with estimated outside legal and consultant costs; of which $26.6 million and $4.8 million, respectively, was considered a current liability. NSP-Wisconsin's potential liability, the actual cost of remediation and the time frame over which the amounts may be paid are subject to change until after negotiations or litigation with the EPA and other PRPs are fully resolved. NSP-Wisconsin also continues to work to identify and access state and federal funds to apply to the ultimate remediation cost of the entire site. Unresolved issues or factors that could result in higher or lower NSP-Wisconsin remediation costs for the Ashland site include, but are not limited to, the cleanup approach implemented, which party implements the cleanup, the timing of when the cleanup is implemented and the contributions, if any, by other PRPs.

NSP-Wisconsin has deferred, as a regulatory asset, the estimated site remediation expenses and spending to date less insurance and rate recoveries, 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 in NSP-Wisconsin rates recovery of all remediation costs incurred at the Ashland site, and has authorized recovery of MGP remediation costs by 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. Under an existing PSCW policy with respect to recovery of remediation costs for MGPs, utilities have recovered remediation costs in natural gas rates, amortized over a four- to six-year period. The PSCW has not allowed utilities to recover their carrying costs on unamortized regulatory assets for MGP remediation. In a recent rate case decision, the PSCW recognized the potential magnitude of the future liability for, and circumstances of, the cleanup at the Ashland site and indicated it may consider alternatives to its established MGP site cleanup cost accounting and cost recovery guidelines for the Ashland site in a future proceeding. NSP-Wisconsin is working with the PSCW Staff to develop alternatives for consideration by the PSCW.

Other MGP Sites- NSP-Wisconsin is currently involved in investigating and/or remediating several other MGP sites where hazardous or other regulated materials may have been deposited. NSP-Wisconsin has identified 3 sites, where former MGP activities have or may have resulted in actual site contamination and are under current investigation and/or remediation. At some or all of these MGP sites, there are other parties that may have responsibility for some portion of any ultimate remediation that may be conducted. NSP-Wisconsin anticipates that the majority of the remediation at these sites will continue through at least 2014. For these sites, NSP-Wisconsin had accrued $3.3 million and $2.4 million at Dec. 31, 2011 and Dec. 31, 2010, respectively. There may be insurance recovery and/or recovery from other PRPs that will offset any costs actually incurred at these sites. NSP-Wisconsin anticipates that any amounts actually spent will be fully recovered from customers.

Asbestos Removal - Some of NSP-Wisconsin's facilities contain asbestos. Most asbestos will remain undisturbed until the facilities that contain it are demolished or removed. NSP-Wisconsin has recorded an estimate for final removal of the asbestos as an ARO. See additional discussion of AROs below. 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 not expected to be material 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 GHG Regulation - In December 2009, the EPA issued its “endangerment” finding that GHG emissions pose a threat to public health and welfare. In January 2011, new EPA permitting requirements became effective for GHG emissions of new and modified large stationary sources, which are applicable to the construction of new power plants or power plant modifications that increase emissions above a certain threshold. NSP-Wisconsin is unable to determine what the cost of compliance with these new EPA requirements will be as it is not clear whether these requirements will apply to futures changes at NSP-Wisconsin's power plants.

GHG New Source Performance Standard Proposal - The EPA plans to propose GHG regulations applicable to emissions from new and existing power plants under the CAA. The EPA had planned to release its proposal in September 2011, but has delayed it without establishing a new proposal date.

CSAPR- In July 2011, the EPA issued its CSAPR to address long range transport of particulate matter and ozone by requiring reductions in SO2 and NOx from utilities located in the eastern half of the U.S., including Wisconsin. The CSAPR sets more stringent requirements than the proposed CATR. The rule also creates an emissions trading program. NSP-Wisconsin intends to comply by reducing emissions and/or purchasing allowances.

On Dec. 30, 2011, the U.S. Court of Appeals for the D.C. Circuit issued a stay of the CSAPR, pending completion of judicial review. The Court is expected to hear the case in April 2012. NSP-Wisconsin anticipates that the court may rule on the challenges to the CSAPR in the second half of 2012. It is not known at this time whether the CSAPR will be upheld, reversed, or will require modifications pursuant to a future Court decision.

If the CSAPR is upheld and unmodified, NSP-Wisconsin would likely make a combination of system operating changes and allowance purchases. NSP-Wisconsin estimates the cost of compliance would be $0.2 million, and expects the cost of any required capital investment will be recoverable from customers.

CAIR - In 2005, the EPA issued the CAIR to further regulate SO2 and NOx emissions. In granting the stay of the CSAPR, the Court specifically noted that the CAIR would remain in place during its pending review of the CSAPR.

Under the CAIR's cap and trade structure, companies can comply through capital investments in emission controls or purchase of emission allowances from other utilities making reductions on their systems. To comply with the CAIR in 2012, NSP-Wisconsin will likely make a combination of system operating changes and allowance purchases, if available. At Dec. 31, 2011, the estimated annual CAIR NOx allowance cost for NSP-Wisconsin will not have a material impact on the results of operations, financial position or cash flows.

Electric Generating Unit (EGU) Mercury and Air Toxics Standards (MATS) Rule - In December 2011, the EPA issued the final EGU MATS rule to replace the proposed EGU MACT rule. The EGU MATS rule sets emission limits for acid gases, mercury and other hazardous air pollutants and will require coal-fired utility facilities greater than 25 MW to demonstrate compliance within three to four years. NSP-Wisconsin believes these costs would be recoverable through regulatory mechanisms and it does not expect a material impact on its results of operations, financial position or cash flows.

Industrial Broiler (IB) MACT Rules - In March 2011, the EPA finalized IB MACT rules to regulate boilers and process heaters fueled with coal, biomass and liquid fuels, which would apply to NSP-Wisconsin's Bay Front units 1 and 2. On Dec. 23, 2011, the EPA proposed reconsideration of certain provisions of the final rule. The estimated capital cost of $9.0 million per unit, which is currently targeted for 2014, is dependent on the outcome of the reconsideration proceedings.

Federal Clean Water Act (CWA) Section 316 (b) - The federal CWA requires the EPA to regulate cooling water intake structures to assure that these structures reflect the best technology available for minimizing adverse environmental impacts to aquatic species. In April 2011, the EPA published the proposed rule that sets prescriptive standards for minimization of aquatic species impingement, but leaves entrainment reduction requirements at the discretion of the permit writer and the regional EPA office. NSP-Wisconsin provided comments to the proposed rule, which is expected to be finalized in late 2012. Due to the uncertainty of the final regulatory requirements, it is not possible to provide an accurate estimate of the overall cost of this rulemaking at this time.

Proposed Coal Ash Regulation - NSP-Wisconsin's operations generate hazardous wastes that are subject to the Federal Resource Recovery and Conservation Act and comparable state laws that impose detailed requirements for handling, storage, treatment and disposal of hazardous waste. In June 2010, the EPA published a proposed rule seeking comment on whether to regulate coal combustion byproducts (coal ash) as hazardous or nonhazardous waste. Coal ash is currently exempt from hazardous waste regulation. If the EPA ultimately issues a final rule under which coal ash is regulated as hazardous waste, NSP-Wisconsin's costs associated with the management and disposal of coal ash would significantly increase and the beneficial reuse of coal ash would be negatively impacted. The EPA has not announced a planned date for a final rule. The timing, scope and potential cost of any final rule that might be implemented are not determinable at this time.

Asset Retirement Obligations

Recorded AROs - NSP-Wisconsin has recorded AROs for the retirement costs of natural gas mains and for the removal of electric transmission and distribution equipment. The electric transmission and distribution ARO consists of many small potential obligations associated with PCBs, mineral oil, storage tanks, treated poles, lithium batteries, mercury and street lighting lamps. These electric and natural gas assets have many in-service dates for which it is difficult to assign the obligation to a particular year. Therefore, the obligation was measured using an average service life.

A reconciliation of the beginning and ending aggregate carrying amounts of NSP-Wisconsin's AROs is shown in the table below for the years ended Dec. 31, 2011 and Dec. 31, 2010, respectively:

	Beginning				Revisions			Ending
	Balance				to Prior			Balance
(Thousands of Dollars)	Jan. 1, 2011		Accretion		Estimates		Dec. 31, 2011 (a)
Electric plant
Electric transmission and distribution	$	67	$	3	$	287		$	357
Natural gas plant
Gas transmission and distribution		63		4		-			67
Total liability (b)	$	130	$	7	$	287		$	424

	Beginning					Revisions			Ending
	Balance					to Prior			Balance
(Thousands of Dollars)		Jan. 1, 2010		Accretion			Estimates			Dec. 31, 2010 (a)
Electric plant
Electric transmission and distribution		$	26	$	2		$	39		$	67
Natural gas plant
Gas transmission and distribution			60		3			-			63
Total liability (b)		$	86	$	5		$	39		$	130

(a)	There were no ARO liabilities recorded or liabilities settled during the 12 months ended Dec. 31, 2011 or Dec. 31, 2010.

(b)	Included in other liabilities balance of $7,024,000 and $8,142,000 at Dec. 31, 2011 and 2010, respectively, in the consolidated balance sheets.

In 2011 and 2010, NSP-Wisconsin revised electric transmission and distribution AROs due to revised estimates and end of life dates.

Removal Costs - NSP-Wisconsin records a regulatory liability for plant removal costs for generation, transmission and distribution facilities. Generally, the accrual of future non-ARO removal obligations is not required. However, long-standing ratemaking practices approved by applicable state and federal regulatory commissions have allowed provisions for such costs in historical depreciation rates. These removal costs have accumulated over a number of years based on varying rates as authorized by the appropriate regulatory entities. Given the long periods over which the amounts were accrued and the changing of rates through time, NSP-Wisconsin has estimated the amount of removal costs accumulated through historic depreciation expense based on current factors used in the existing depreciation rates. Accordingly, the recorded amounts of estimated future removal costs are considered regulatory liabilities. Removal costs as of Dec. 31, 2011 and Dec. 31, 2010 were $109 million and $107 million, respectively.

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. The ultimate outcome of these matters cannot presently be determined. Accordingly, the ultimate resolution of these matters could have a material effect on NSP-Wisconsin's financial position and results of operations.

Environmental Litigation

State of Connecticut vs. Xcel Energy Inc. et al. - 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 for the Southern District of New York against the following utilities, including Xcel Energy Inc., the parent company of NSP-Wisconsin, to force reductions in CO2 emissions: American Electric Power Co., Southern Co., Cinergy Corp. (merged into Duke Energy Corporation) and Tennessee Valley Authority. The lawsuits alleged that CO2 emitted by each company is a public nuisance and asked the court to order each utility to cap and reduce its CO2 emissions. The lawsuits did not demand monetary damages. In December 2011, the U.S. District Court entered an order dismissing this lawsuit, bringing a close to this litigation.

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 Inc., the parent company of NSP-Wisconsin, and 23 other utility, oil, gas and coal companies. Plaintiffs claim that defendants' emission of CO2 and other GHGs contribute to global warming, which is harming their village. Xcel Energy Inc. believes the claims asserted in this lawsuit are without merit and joined with other utility defendants in filing a motion to dismiss in June 2008. In October 2009, the U.S. District Court dismissed the lawsuit on constitutional grounds. In November 2009, plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Ninth Circuit. In November 2011, oral arguments were presented. It is unknown when the Ninth Circuit will render a final opinion. The amount of damages claimed by plaintiffs is unknown, but likely includes the cost of relocating the village of Kivalina. Plaintiffs' alleged relocation is estimated to cost between $95 million to $400 million. While Xcel Energy Inc. believes the likelihood of loss is remote, given the nature of this case and any surrounding uncertainty, it may have a material impact on NSP-Wisconsin's consolidated results of operations, cash flows or financial position. No accrual has been recorded for this matter.

Comer vs. Xcel Energy Inc. et al. - On May 27, 2011, less than a year after their initial lawsuit was dismissed, plaintiffs in this purported class action lawsuit filed a second lawsuit against more than 85 utility, oil, chemical and coal companies in U.S. District Court in Mississippi. The complaint alleges defendants' CO2 emissions intensified the strength of Hurricane Katrina and increased the damage plaintiffs purportedly sustained to their property. Plaintiffs base their claims on public and private nuisance, trespass and negligence. Among the defendants named in the complaint are Xcel Energy Inc., SPS, PSCo, NSP-Wisconsin and NSP-Minnesota. The amount of damages claimed by plaintiffs is unknown. The defendants, including Xcel Energy Inc., believe this lawsuit is without merit and have filed a motion to dismiss the lawsuit. It is uncertain when the court will rule on this motion. While Xcel Energy Inc. believes the likelihood of loss is remote, given the nature of this case and any surrounding uncertainty, it may have a material impact on NSP-Wisconsin's consolidated results of operations, cash flows or financial position. No accrual has been recorded for this matter.