7.	Benefit Plans and Other Postretirement Benefits

Consistent with the process for rate recovery of pension and postretirement benefits for its employees, NSP-Wisconsin accounts for its participation in, and related costs of, pension and other postretirement benefit plans sponsored by Xcel Energy Inc. as multiple employer plans. NSP-Wisconsin is responsible for its share of cash contributions, plan costs and obligations and is entitled to its share of plan assets; accordingly, NSP-Wisconsin accounts for its pro rata share of these plans, including pension expense and contributions, resulting in accounting consistent with that of a single employer plan exclusively for NSP-Wisconsin employees.

Xcel Energy, which includes NSP-Wisconsin, offers various benefit plans to its employees. Approximately 70 percent of employees that receive benefits are represented by several local labor unions under several collective-bargaining agreements. At Dec. 31, 2012, NSP-Wisconsin had 405 bargaining employees covered under a collective-bargaining agreement, which expires at the end of 2013.

The plans invest in various instruments which are disclosed under the accounting guidance for fair value measurements which establishes a hierarchical framework for disclosing the observability of the inputs utilized in measuring fair value. 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 as of the reporting date. The types of assets included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as common stocks listed by the New York Stock Exchange.

Level 2 — Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reporting date. The types of assets included in Level 2 are typically either comparable to actively traded securities or contracts, or priced with models using highly observable inputs, such as corporate bonds with pricing based on market interest rate curves and recent trades of similarly rated securities.

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

Pension Benefits

Xcel Energy, which includes NSP-Wisconsin, has several noncontributory, defined benefit pension plans that cover almost all employees. Benefits are based on a combination of years of service, the employee's average pay and social security benefits. Xcel Energy Inc.'s and NSP-Wisconsin's policy is to fully fund into an external trust the actuarially determined pension costs recognized for ratemaking and financial reporting purposes, subject to the limitations of applicable employee benefit and tax laws.

In addition to the qualified pension plans, Xcel Energy maintains a supplemental executive retirement plan (SERP) and a nonqualified pension plan. The SERP is maintained for certain executives that were participants in the plan in 2008, when the SERP was closed to new participants. The nonqualified pension plan provides unfunded, nonqualified benefits for compensation that is in excess of the limits applicable to the qualified pension plans. The total obligations of the SERP and nonqualified plan as of Dec. 31, 2012 and 2011 were $39.4 million and $54.8 million, respectively, of which $0.6 million in each year was attributable to NSP-Wisconsin. In 2012 and 2011, Xcel Energy recognized net benefit cost for financial reporting for the SERP and nonqualified plans of $15.6 million and $5.7 million, respectively, of which amounts attributable to NSP-Wisconsin were immaterial. Benefits for these unfunded plans are paid out of Xcel Energy's consolidated operating cash flows.

Xcel Energy Inc. and NSP-Wisconsin base the investment-return assumption on expected long-term performance for each of the investment types included in the pension asset portfolio and consider the historical returns achieved by the asset portfolio over the past 20-year or longer period, as well as the long-term return levels projected and recommended by investment experts. The pension cost determination assumes a forecasted mix of investment types over the long term. Investment returns in 2012 were above the assumed level of 7.50 percent. Investment returns in 2011 were below the assumed level of 8.00 percent while returns in 2010 were above the assumed level of 8.00 percent. Xcel Energy Inc. and NSP-Wisconsin continually review the pension assumptions. In 2013, NSP-Wisconsin's expected investment-return assumption is 7.25 percent.

The assets are invested in a portfolio according to Xcel Energy Inc.'s and NSP-Wisconsin's return, liquidity and diversification objectives to provide a source of funding for plan obligations and minimize the necessity of contributions to the plan, within appropriate levels of risk. The principal mechanism for achieving these objectives is the projected allocation of assets to selected asset classes, given the long-term risk, return, and liquidity characteristics of each particular asset class. There were no significant concentrations of risk in any particular industry, index, or entity. Market volatility can impact even well-diversified portfolios and significantly affect the return levels achieved by pension assets in any year.

The following table presents the target pension asset allocations for NSP-Wisconsin:

	2012			2011
Domestic and international equity securities		29	%		31	%
Long-duration fixed income securities		30			26
Short-to-intermediate term fixed income securities		12			14
Alternative investments		27			26
Cash		2			3
Total		100	%		100	%

The ongoing investment strategy is based on plan-specific investment recommendations that seek to minimize potential investment and interest rate risk as a plan's funded status increases over time. The investment recommendations result in a greater percentage of long-duration fixed income securities being allocated to specific plans having relatively higher funded status ratios, and a greater percentage of growth assets being allocated to plans having relatively lower funded status ratios. The aggregate projected asset allocation presented in the table above for the master pension trust results from the plan-specific strategies.

Pension Plan Assets

The following tables present, for each of the fair value hierarchy levels, NSP-Wisconsin's pension plan assets that are measured at fair value as of Dec. 31, 2012 and 2011:

	Dec. 31, 2012
(Thousands of Dollars)	Level 1		Level 2			Level 3		Total
Cash equivalents	$	7,956	$	-		$	-	$	7,956
Derivatives		-		390			-		390
Government securities		-		9,406			-		9,406
Corporate bonds		-		25,046			-		25,046
Asset-backed securities		-		-			749		749
Mortgage-backed securities		-		-			2,128		2,128
Common stock		3,977		-			-		3,977
Private equity investments		-		-			8,545		8,545
Commingled funds		-		76,398			-		76,398
Real estate		-		-			3,472		3,472
Securities lending collateral obligation and other		-		(1,521	)		-		(1,521	)
Total	$	11,933	$	109,719		$	14,894	$	136,546

	Dec. 31, 2011
(Thousands of Dollars)	Level 1		Level 2			Level 3		Total
Cash equivalents.	$	6,604	$	-		$	-	$	6,604
Derivatives		-		296			-		296
Government securities		-		7,578			-		7,578
Corporate bonds		-		25,454			-		25,454
Asset-backed securities		-		-			1,578		1,578
Mortgage-backed securities		-		-			3,781		3,781
Common stock		3,693		-			-		3,693
Private equity investments		-		-			8,440		8,440
Commingled funds		-		64,520			-		64,520
Real estate		-		-			2,008		2,008
Securities lending collateral obligation and other		-		(2,604	)		-		(2,604	)
Total	$	10,297	$	95,244		$	15,807	$	121,348

The following tables present the changes in NSP-Wisconsin's Level 3 pension plan assets for the years ended Dec. 31, 2012, 2011 and 2010:

								Purchases,
			Net Realized		Net Unrealized			Issuances, and
(Thousands of Dollars)	Jan. 1, 2012		Gains (Losses)		Gains (Losses)			Settlements, Net			Dec. 31, 2012
Asset-backed securities	$	1,578	$	197	$	(273	)	$	(753	)	$	749
Mortgage-backed securities		3,781		93		(112	)		(1,634	)		2,128
Private equity investments		8,440		945		(1,197	)		357			8,545
Real estate		2,008		1		328			1,135			3,472
Total	$	15,807	$	1,236	$	(1,254	)	$	(895	)	$	14,894

									Purchases,
			Net Realized			Net Unrealized			Issuances, and
(Thousands of Dollars)	Jan. 1, 2011		Gains (Losses)			Gains (Losses)			Settlements, Net			Dec. 31, 2011
Asset-backed securities	$	1,367	$	121		$	(125	)	$	215		$	1,578
Mortgage-backed securities		5,984		55			(295	)		(1,963	)		3,781
Private equity investments		6,704		210			648			878			8,440
Real estate		3,746		(34	)		1,002			(2,706	)		2,008
Total	$	17,801	$	352		$	1,230		$	(3,576	)	$	15,807

									Purchases,
			Net Realized			Net Unrealized			Issuances, and
(Thousands of Dollars)	Jan. 1, 2010		Gains (Losses)			Gains (Losses)			Settlements, Net			Dec. 31, 2010
Asset-backed securities	$	2,357	$	173		$	(140	)	$	(1,023	)	$	1,367
Mortgage-backed securities		7,280		707			(717	)		(1,286	)		5,984
Private equity investments		4,053		(55	)		809			1,897			6,704
Real estate		3,294		(2	)		288			166			3,746
Total	$	16,984	$	823		$	240		$	(246	)	$	17,801

Benefit Obligations — A comparison of the actuarially computed pension benefit obligation and plan assets for NSP-Wisconsin is presented in the following table:

(Thousands of Dollars)	2012			2011
Accumulated Benefit Obligation at Dec. 31	$	169,939		$	150,405

Change in Projected Benefit Obligation:
Obligation at Jan. 1	$	159,766		$	154,147
Service cost		4,568			4,271
Interest cost		7,765			8,031
Plan amendments		216			-
Actuarial loss		21,083			7,430
Benefit payments		(13,403	)		(14,113	)
Obligation at Dec. 31	$	179,995		$	159,766

(Thousands of Dollars)	2012			2011
Change in Fair Value of Plan Assets:
Fair value of plan assets at Jan. 1	$	121,348		$	123,541
Actual return on plan assets		16,079			5,474
Employer contributions		12,522			6,446
Benefit payments		(13,403	)		(14,113	)
Fair value of plan assets at Dec. 31	$	136,546		$	121,348

Funded Status of Plans at Dec. 31:		2012				2011
Funded status (a)		$	(43,449	)		$	(38,418	)

(a)	Amounts are recognized in noncurrent liabilities on NSP-Wisconsin's consolidated balance sheets.

(Thousands of Dollars)	2012		2011
NSP-Wisconsin Amounts Not Yet Recognized as Components of Net
Periodic Benefit Cost:
Net loss	$	99,338	$	89,730
Prior service cost		2,290		4,061
Total	$	101,628	$	93,791

(Thousands of Dollars)	2012		2011
Amounts Related to the Funded Status of the Plans Have Been
Recorded as Follows Based Upon Expected Recovery in Rates:
Current regulatory assets	$	6,895	$	7,530
Noncurrent regulatory assets		94,733		86,261
Total	$	101,628	$	93,791

Measurement Date	Dec. 31, 2012			Dec. 31, 2011
	2012			2011
Significant Assumptions Used to Measure Benefit Obligations:
Discount rate for year-end valuation		4.00	%		5.00	%
Expected average long-term increase in compensation level		3.75			4.00
Mortality table	RP 2000			RP 2000

Cash Flows — Cash funding requirements can be impacted by changes to actuarial assumptions, actual asset levels and other calculations prescribed by the funding requirements of income tax and other pension-related regulations. These regulations did not require cash funding for 2008 through 2010 for Xcel Energy's pension plans. Required contributions were made in 2011 and 2012 to meet minimum funding requirements.

The Pension Protection Act changed the minimum funding requirements for defined benefit pension plans beginning in 2008. The following are the pension funding contributions, both voluntary and required, made by Xcel Energy for 2011 through January 2013:

•

In January 2013, contributions of $191.5 million were made across four of Xcel Energy's pension plans, of which $11.3 million was attributable to NSP-Wisconsin;

•

In 2012, contributions of $198.1 million were made across four of Xcel Energy's pension plans, of which $12.5 million was attributable to NSP-Wisconsin;

•

In 2011, contributions of $137.3 million were made across three of Xcel Energy's pension plans, of which $6.4 million was attributable to NSP-Wisconsin;

•

For future years, Xcel Energy and NSP-Wisconsin anticipate contributions will be made as necessary.

Plan Amendments — Xcel Energy, which includes NSP-Wisconsin, amended the plan in 2012 to allow a one time transfer of a portion of qualifying obligations from the nonqualified pension plan into the qualified pension plans. Xcel Energy and NSP-Wisconsin also modified the benefit formula for nonbargaining new hires beginning in 2012 to a reduced benefit level.

Benefit Costs — The components of NSP-Wisconsin's net periodic pension cost were:

(Thousands of Dollars)	2012			2011			2010
Service cost	$	4,568		$	4,271		$	4,260
Interest cost		7,765			8,031			8,311
Expected return on plan assets		(10,489	)		(11,484	)		(11,800	)
Amortization of prior service cost		1,771			1,895			1,629
Amortization of net loss		6,004			4,070			2,463
Net periodic pension cost	$	9,619		$	6,783		$	4,863

Significant Assumptions Used to Measure Costs:	2012			2011			2010
Discount rate		5.00	%		5.50	%		6.00	%
Expected average long-term increase in compensation level		4.00			4.00			4.00
Expected average long-term rate of return on assets		7.50			8.00			8.00

In addition to the benefit costs in the table above, for the pension plans sponsored by Xcel Energy, Inc., costs are allocated to NSP-Wisconsin based on Xcel Energy Services Inc. employees' labor costs. Amounts allocated to NSP-Wisconsin were $1.8 million, $1.3 million and $1.0 million in 2012, 2011 and 2010, respectively. Pension costs include an expected return impact for the current year that may differ from actual investment performance in the plan. The return assumption used for 2013 pension cost calculations is 7.25 percent. The cost calculation uses a market-related valuation of pension assets. Xcel Energy, including NSP-Wisconsin, uses a calculated value method to determine the market-related value of the plan assets. The market-related value begins with the fair market value of assets as of the beginning of the year. The market-related value is determined by adjusting the fair market value of assets to reflect the investment gains and losses (the difference between the actual investment return and the expected investment return on the market-related value) during each of the previous five years at the rate of 20 percent per year. As these differences between actual investment returns and the expected investment returns are incorporated into the market-related value, the differences are recognized over the expected average remaining years of service for active employees.

Defined Contribution Plans

Xcel Energy, which includes NSP-Wisconsin, maintains 401(k) and other defined contribution plans that cover substantially all employees. The contributions to these plans for NSP-Wisconsin were approximately $1.2 million in 2012, $1.1 million in 2011 and $1.0 million in 2010.

Postretirement Health Care Benefits

Xcel Energy, which includes NSP-Wisconsin, has a contributory health and welfare benefit plan that provides health care and death benefits to certain Xcel Energy retirees. The former NSP, which includes NSP-Wisconsin, discontinued contributing toward health care benefits for nonbargaining employees retiring after 1998 and for bargaining employees of NSP-Minnesota and NSP-Wisconsin who retired after 1999.

In 1993, Xcel Energy Inc. and NSP-Wisconsin adopted accounting guidance regarding other non-pension postretirement benefits and elected to amortize the unrecognized APBO on a straight-line basis over 20 years.

Regulatory agencies for nearly all retail and wholesale utility customers have allowed rate recovery of accrued postretirement benefit costs.

Plan Assets — Certain state agencies that regulate Xcel Energy Inc.'s utility subsidiaries also have issued guidelines related to the funding of postretirement benefit costs. Also, a portion of the assets contributed on behalf of nonbargaining retirees has been funded into a sub-account of the Xcel Energy pension plans. These assets are invested in a manner consistent with the investment strategy for the pension plan.

Xcel Energy Inc. and NSP-Wisconsin base investment-return assumptions for the postretirement health care fund assets on expected long-term performance for each of the investment types included in the asset portfolio. The assets are invested in a portfolio according to Xcel Energy Inc.'s and NSP-Wisconsin's return, liquidity and diversification objectives to provide a source of funding for plan obligations and minimize the necessity of contributions to the plan, within appropriate levels of risk. The principal mechanism for achieving these objectives is the projected allocation of assets to selected asset classes, given the long-term risk, return, correlation and liquidity characteristics of each particular asset class. There were no significant concentrations of risk in any particular industry, index, or entity. Investment-return volatility is not considered to be a material factor in postretirement health care costs.

The following tables present, for each of the fair value hierarchy levels, NSP-Wisconsin's postretirement benefit plan assets that are measured at fair value as of Dec. 31, 2012 and 2011:

	Dec. 31, 2012
(Thousands of Dollars)	Level 1		Level 2			Level 3		Total
Cash equivalents	$	123	$	-		$	-	$	123
Government securities		-		99			-		99
Insurance contracts		-		67			-		67
Corporate bonds		-		59			-		59
Asset-backed securities		-		-			1		1
Mortgage-backed securities		-		-			54		54
Commingled funds		-		307			-		307
Other		-		(63	)		-		(63	)
Total	$	123	$	469		$	55	$	647

	Dec. 31, 2011
(Thousands of Dollars)	Level 1		Level 2			Level 3		Total
Cash equivalents	$	101	$	-		$	-	$	101
Derivatives		-		23			-		23
Government securities		-		116			-		116
Corporate bonds		-		108			-		108
Asset-backed securities		-		-			14		14
Mortgage-backed securities		-		-			48		48
Preferred stock		-		1			-		1
Commingled funds		-		355			-		355
Securities lending collateral obligation and other		-		(20	)		-		(20	)
Total	$	101	$	583		$	62	$	746

The following tables present the changes in NSP-Wisconsin's Level 3 postretirement benefit plan assets for the years ended Dec. 31, 2012, 2011 and 2010:

								Purchases,
			Net Realized			Net Unrealized		Issuances, and
(Thousands of Dollars)	Jan. 1, 2012		Gains (Losses)			Gains (Losses)		Settlements, Net			Dec. 31, 2012
Asset-backed securities	$	14	$	-		$	3	$	(16	)	$	1
Mortgage-backed securities		48		(1	)		6		1			54
Total	$	62	$	(1	)	$	9	$	(15	)	$	55

									Purchases,
			Net Realized			Net Unrealized			Issuances, and
(Thousands of Dollars)	Jan. 1, 2011		Gains (Losses)			Gains (Losses)			Settlements, Net		Dec. 31, 2011
Asset-backed securities	$	6	$	-		$	(2	)	$	10	$	14
Mortgage-backed securities		45		(3	)		6			-		48
Total	$	51	$	(3	)	$	4		$	10	$	62

								Purchases,
			Net Realized			Net Unrealized		Issuances, and
(Thousands of Dollars)	Jan. 1, 2010		Gains (Losses)			Gains (Losses)		Settlements, Net			Dec. 31, 2010
Asset-backed securities	$	30	$	(1	)	$	4	$	(27	)	$	6
Mortgage-backed securities		168		(2	)		16		(137	)		45
Total	$	198	$	(3	)	$	20	$	(164	)	$	51

Benefit Obligations — A comparison of the actuarially computed benefit obligation and plan assets for NSP-Wisconsin is presented in the following table:

(Thousands of Dollars)	2012			2011
Change in Projected Benefit Obligation:
Obligation at Jan. 1	$	22,127		$	20,753
Service cost		20			17
Interest cost		1,075			1,144
Medicare subsidy reimbursements		189			180
Early Retiree Reinsurance Program proceeds shared with retirees		-			298
Plan amendments		(3,440	)		-
Plan participants' contributions		893			1,059
Actuarial loss		1,486			2,425
Benefit payments		(2,918	)		(3,749	)
Obligation at Dec. 31	$	19,432		$	22,127

(Thousands of Dollars)	2012			2011
Change in Fair Value of Plan Assets:
Fair value of plan assets at Jan. 1	$	746		$	992
Actual return (loss) on plan assets		3			(1	)
Plan participants' contributions		893			1,059
Employer contributions		1,923			2,445
Benefit payments		(2,918	)		(3,749	)
Fair value of plan assets at Dec. 31	$	647		$	746

(Thousands of Dollars)	2012			2011
Funded Status of Plans at Dec. 31:
Funded status	$	(18,785	)	$	(21,381	)
Current liabilities		(943	)		(1,281	)
Noncurrent liabilities		(17,842	)		(20,100	)
Net postretirement amounts recognized on consolidated balance sheets	$	(18,785	)	$	(21,381	)

(Thousands of Dollars)	2012			2011
NSP-Wisconsin Amounts Not Yet Recognized as Components of Net Periodic Cost:
Net loss	$	13,730		$	12,683
Prior service credit		(3,538	)		(112	)
Transition obligation		1			172
Total	$	10,193		$	12,743

(Thousands of Dollars)	2012		2011
Amounts Related to the Funded Status of the Plans Have Been Recorded as
Follows Based Upon Expected Recovery in Rates:
Current regulatory assets	$	433	$	697
Noncurrent regulatory assets		9,760		12,046
Total	$	10,193	$	12,743

Measurement Date	Dec. 31, 2012			Dec. 31, 2011
	2012			2011
Significant Assumptions Used to Measure Benefit Obligations:
Discount rate for year-end valuation		4.10	%		5.00	%
Mortality table	RP 2000			RP 2000
Health care costs trend rate - initial		7.50	%		6.31	%

Effective Dec. 31, 2012, the initial medical trend rate was increased from 6.3 percent to 7.5 percent. The ultimate trend assumption was reduced from 5.0 percent to 4.5 percent. The period until the ultimate rate is reached is seven years. Xcel Energy Inc. and NSP-Wisconsin base the medical trend assumption on the long-term cost inflation expected in the health care market, considering the levels projected and recommended by industry experts, as well as recent actual medical cost increases experienced by the retiree medical plan.

A 1-percent change in the assumed health care cost trend rate would have the following effects on NSP-Wisconsin:

	One Percentage Point
(Thousands of Dollars)	Increase		Decrease
APBO	$	1,712	$	(1,376	)
Service and interest components		126		(102	)

Cash Flows — The postretirement health care plans have no funding requirements under income tax and other retirement-related regulations other than fulfilling benefit payment obligations, when claims are presented and approved under the plans. Additional cash funding requirements are prescribed by certain state and federal rate regulatory authorities, as discussed previously. Xcel Energy, which includes NSP-Wisconsin, contributed $47.1 million and $49.0 million during 2012 and 2011, of which $1.9 million and $2.4 million were attributable to NSP-Wisconsin. Xcel Energy expects to contribute approximately $21.8 million during 2013, of which $1.6 million is attributable to NSP-Wisconsin.

Plan Amendments — The 2012 decrease of the projected Xcel Energy and NSP-Wisconsin postretirement health and welfare benefit obligation for plan amendments is due to the expected transition of certain participant groups to an external plan administrator.

Benefit Costs — The components of NSP-Wisconsin's net periodic postretirement benefit cost were:

(Thousands of Dollars)	2012			2011			2010
Service cost	$	20		$	17		$	15
Interest cost		1,075			1,144			1,234
Expected return on plan assets		(50	)		(74	)		(103	)
Amortization of transition obligation		171			171			171
Amortization of prior service cost		(14	)		(14	)		(14	)
Amortization of net loss		486			366			342
Net periodic postretirement benefit cost	$	1,688		$	1,610		$	1,645

Significant Assumptions Used to Measure Costs:	2012			2011			2010
Discount rate		5.00	%		5.50	%		6.00	%
Expected average long-term rate of return on assets		6.75			7.50			7.50

In addition to the benefit costs in the table above, for the postretirement health care plans sponsored by Xcel Energy, Inc., costs are allocated to NSP-Wisconsin based on Xcel Energy Services Inc. employees' labor costs.

Projected Benefit Payments

The following table lists NSP-Wisconsin's projected benefit payments for the pension and postretirement benefit plans:

(Thousands of Dollars)	Projected Pension Benefit Payments		Gross Projected Postretirement Health Care Benefit Payments		Expected Medicare Part D Subsidies		Net Projected Postretirement Health Care Benefit Payments
2013	$	16,388	$	1,598	$	8	$	1,590
2014		15,152		1,468		11		1,457
2015		16,117		1,459		9		1,450
2016		14,986		1,433		8		1,425
2017		14,664		1,365		3		1,362
2018-2022		69,528		6,286		16		6,270

Multiemployer Plans

NSP-Wisconsin contributes to several union multiemployer pension plans, none of which are individually significant. These plans provide pension benefits to certain union employees, including electrical workers and other construction and facilities workers who may perform services for more than one employer during a given period and do not participate in the NSP-Wisconsin sponsored pension plans. Contributing to these types of plans creates risk that differs from providing benefits under NSP-Wisconsin sponsored plans, in that if another participating employer ceases to contribute to a multiemployer plan, additional unfunded obligations may need to be funded over time by remaining participating employers.

Contributions to multiemployer plans were as follows for the years ended Dec. 31, 2012, 2011 and 2010. There were no significant changes to the nature or magnitude of the participation of NSP-Wisconsin in multiemployer plans for the years presented:


(Thousands of Dollars)	2012		2011		2010
Multiemployer plan contributions:
Pension	$	163	$	169	$	170
Total	$	163	$	169	$	170