Fair Value of Financial Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2015

Gross Notional Amounts of Commodity Forwards and Options

The following table details the gross notional amounts of commodity forwards and options at Sept. 30, 2015 and Dec. 31, 2014:


^(a)	Amounts are not reflective of net positions in the underlying commodities.


^(b)	Notional amounts for options are included on a gross basis, but are weighted for the probability of exercise.

Impact of Derivative Activity on Accumulated Other Comprehensive Loss, Regulatory Assets and Liabilities, and Income

The following tables detail the impact of derivative activity during the three and nine months ended Sept. 30, 2015 and 2014, on accumulated other comprehensive loss, regulatory assets and liabilities, and income:



	Three Months Ended Sept. 30, 2015
	Pre-Tax Fair Value Gains (Losses) Recognized During the Period in:						Pre-Tax (Gains) Losses Reclassified into Income During the Period from:
(Thousands of Dollars)	Accumulated Other Comprehensive Loss			Regulatory (Assets) and Liabilities			Accumulated Other Comprehensive Loss			Regulatory Assets and (Liabilities)		Pre-Tax Losses Recognized During the Period in Income
Derivatives designated as cash flow hedges
Interest rate	$	—		$	—		$	9	^(a)	$	—	$	—
Vehicle fuel and other commodity	(29		)	—			15		^(b)	—		—
Total	$	(29	)	$	—		$	24		$	—	$	—
Other derivative instruments
Natural gas commodity	$	—		$	(2,140	)	$	—		$	—	$	(405	)	^(d)
Total	$	—		$	(2,140	)	$	—		$	—	$	(405	)



	Nine Months Ended Sept. 30, 2015
	Pre-Tax Fair Value Gains (Losses) Recognized During the Period in:						Pre-Tax (Gains) Losses Reclassified into Income During the Period from:
(Thousands of Dollars)	Accumulated Other Comprehensive Loss			Regulatory (Assets) and Liabilities			Accumulated Other Comprehensive Loss				Regulatory Assets and (Liabilities)			Pre-Tax Gains Recognized During the Period in Income
Derivatives designated as cash flow hedges
Interest rate	$	—		$	—		$	(353	)	^(a)	$	—		$	—
Vehicle fuel and other commodity	(24		)	—			38			^(b)	—			—
Total	$	(24	)	$	—		$	(315	)		$	—		$	—
Other derivative instruments
Commodity trading	$	—		$	—		$	—			$	—		$	191		^(c)
Natural gas commodity	—			(2,496		)	—				5,460		^(d)	(5,925		)	^(d)
Total	$	—		$	(2,496	)	$	—			$	5,460		$	(5,734	)



	Three Months Ended Sept. 30, 2014
	Pre-Tax Fair Value Gains (Losses) Recognized During the Period in:						Pre-Tax (Gains) Losses Reclassified into Income During the Period from:
(Thousands of Dollars)	Accumulated Other Comprehensive Loss			Regulatory (Assets) and Liabilities			Accumulated Other Comprehensive Loss				Regulatory Assets and (Liabilities)		Pre-Tax Losses Recognized During the Period in Income
Derivatives designated as cash flow hedges
Interest rate	$	—		$	—		$	(184	)	^(a)	$	—	$	—
Vehicle fuel and other commodity	(27		)	—			(7		)	^(b)	—		—
Total	$	(27	)	$	—		$	(191	)		$	—	$	—
Other derivative instruments
Natural gas commodity	$	—		$	(2,126	)	$	—			$	—	$	(209	)	^(c)
Total	$	—		$	(2,126	)	$	—			$	—	$	(209	)



	Nine Months Ended Sept. 30, 2014
	Pre-Tax Fair Value Gains (Losses) Recognized During the Period in:					Pre-Tax (Gains) Losses Reclassified into Income During the Period from:
(Thousands of Dollars)	Accumulated Other Comprehensive Loss			Regulatory (Assets) and Liabilities		Accumulated Other Comprehensive Loss				Regulatory Assets and (Liabilities)				Pre-Tax Losses Recognized During the Period in Income
Derivatives designated as cash flow hedges
Interest rate	$	—		$	—	$	(546	)	^(a)	$	—			$	—
Vehicle fuel and other commodity	(24		)	—		(27		)	^(b)	—				—
Total	$	(24	)	$	—	$	(573	)		$	—			$	—
Other derivative instruments
Natural gas commodity	$	—		$	5,784	$	—			$	(8,579	)	^(d)	$	(4,589	)	^(d)
Total	$	—		$	5,784	$	—			$	(8,579	)		$	(4,589	)


^(a)	Recorded to interest charges.


^(b)	Recorded to O&M expenses.


^(c)	Amounts are recorded to electric fuel and purchased power.

^(d)

Amounts for the three and nine months ended Sept. 30, 2015 included $0.4 million and $0.5 million, respectively, of settlement losses on derivatives entered to mitigate natural gas price risk for electric generation, recorded to electric fuel and purchased power, subject to cost-recovery mechanisms and reclassified to a regulatory asset, as appropriate. Losses for the nine months ended Sept. 30, 2014 included immaterial settlement losses on derivatives entered to mitigate natural gas price risk for electric generation, recorded to electric fuel and purchased power, subject to cost-recovery mechanisms and reclassified to a regulatory asset, as appropriate. The remaining derivative settlement gains and losses for the three and nine months ended Sept. 30, 2015 and 2014 relate to natural gas operations and are recorded to cost of natural gas sold and transported. These gains and losses are subject to cost-recovery mechanisms and reclassified out of income to a regulatory asset or liability, as appropriate.

Derivative Assets and Liabilities Measured at Fair Value on a Recurring Basis by Hierarchy Level

Recurring Fair Value Measurements — The following table presents, for each of the fair value hierarchy levels, PSCo’s assets and liabilities measured at fair value on a recurring basis at Sept. 30, 2015:



	Sept. 30, 2015
	Fair Value						Fair Value Total		Counterparty Netting ^(b)
(Thousands of Dollars)	Level 1		Level 2		Level 3		Fair Value Total		Counterparty Netting ^(b)			Total
Current derivative assets
Other derivative instruments:
Natural gas commodity	$	—	$	1,668	$	—	$	1,668	$	(1,668	)	$	—
Total current derivative assets	$	—	$	1,668	$	—	$	1,668	$	(1,668	)	—
PPAs ^(a)												1,715
Current derivative instruments												$	1,715
Noncurrent derivative assets
PPAs ^(a)												$	3,890
Noncurrent derivative instruments												$	3,890
Current derivative liabilities
Derivatives designated as cash flow hedges:
Vehicle fuel and other commodity	$	—	$	70	$	—	$	70	$	—		$	70
Other derivative instruments:
Natural gas commodity	—		2,000		—		2,000		(1,668		)	332
Other commodity	—		844		—		844		—			844
Total current derivative liabilities	$	—	$	2,914	$	—	$	2,914	$	(1,668	)	1,246
PPAs ^(a)												5,191
Current derivative instruments												$	6,437
Noncurrent derivative liabilities
Derivatives designated as cash flow hedges:
Vehicle fuel and other commodity	$	—	$	16	$	—	$	16	$	—		$	16
Other derivative instruments:
Other commodity	—		18		—		18		—			18
Total noncurrent derivative liabilities	$	—	$	34	$	—	$	34	$	—		34
PPAs ^(a)												14,283
Noncurrent derivative instruments												$	14,317

^(a)

In 2003, as a result of implementing new guidance on the normal purchase exception for derivative accounting, PSCo began recording several long-term PPAs at fair value due to accounting requirements related to underlying price adjustments. As these purchases are recovered through normal regulatory recovery mechanisms, the changes in fair value for these contracts were offset by regulatory assets and liabilities. During 2006, PSCo qualified these contracts under the normal purchase exception. Based onthis qualification, the contracts are no longer adjusted to fair value and the previous carrying value of these contracts will be amortized over the remaining contract lives along with the offsetting regulatory assets and liabilities.

^(b)

PSCo nets derivative instruments and related collateral in its consolidated balance sheet when supported by a legally enforceable master netting agreement, and all derivative instruments and related collateral amounts were subject to master netting agreements at Sept. 30, 2015. At Sept. 30, 2015, derivative assets and liabilities include no obligations to return cash collateral or rights to reclaim cash collateral. The counterparty netting amounts presented exclude settlement receivables and payables and non-derivative amounts that may be subject to the same master netting agreements.

The following table presents, for each of the fair value hierarchy levels, PSCo’s assets and liabilities measured at fair value on a recurring basis at Dec. 31, 2014:



	Dec. 31, 2014
	Fair Value						Fair Value Total		Counterparty Netting ^(b)
(Thousands of Dollars)	Level 1		Level 2		Level 3		Fair Value Total		Counterparty Netting ^(b)			Total
Current derivative assets
Other derivative instruments:
Natural gas commodity	$	—	$	33	$	—	$	33	$	(18	)	$	15
Total current derivative assets	$	—	$	33	$	—	$	33	$	(18	)	15
PPAs ^(a)												1,716
Current derivative instruments												$	1,731
Noncurrent derivative assets
PPAs ^(a)												$	5,176
Noncurrent derivative instruments												$	5,176
Current derivative liabilities
Derivatives designated as cash flow hedges:
Vehicle fuel and other commodity	$	—	$	53	$	—	$	53	$	—		$	53
Other derivative instruments:
Natural gas commodity	—		548		—		548		(18		)	530
Total current derivative liabilities	$	—	$	601	$	—	$	601	$	(18	)	583
PPAs ^(a)												5,191
Current derivative instruments												$	5,774
Noncurrent derivative liabilities
Derivatives designated as cash flow hedges:
Vehicle fuel and other commodity	$	—	$	46	$	—	$	46	$	—		$	46
Other derivative instruments:
Natural gas commodity	—		35		—		35		—			35
Total noncurrent derivative liabilities	$	—	$	81	$	—	$	81	$	—		81
PPAs ^(a)												18,176
Noncurrent derivative instruments												$	18,257

^(a)

In 2003, as a result of implementing new guidance on the normal purchase exception for derivative accounting, PSCo began recording several long-term PPAs at fair value due to accounting requirements related to underlying price adjustments. As these purchases are recovered through normal regulatory recovery mechanisms, the changes in fair value for these contracts were offset by regulatory assets and liabilities. During 2006, PSCo qualified these contracts under the normal purchase exception. Based on this qualification, the contracts are no longer adjusted to fair value and the previous carrying value of these contracts will be amortized over the remaining contract lives along with the offsetting regulatory assets and liabilities.

^(b)

PSCo nets derivative instruments and related collateral in its consolidated balance sheet when supported by a legally enforceable master netting agreement, and all derivative instruments and related collateral amounts were subject to master netting agreements at Dec. 31, 2014. At Dec. 31, 2014, derivative assets and liabilities included no obligations to return cash collateral or rights to reclaim cash collateral. The counterparty netting amounts presented exclude settlement receivables and payables and non-derivative amounts that may be subject to the same master netting agreements.

Carrying Amount and Fair Value of Long-term Debt

As of Sept. 30, 2015 and Dec. 31, 2014, other financial instruments for which the carrying amount did not equal fair value were as follows:



	Sept. 30, 2015				Dec. 31, 2014
(Thousands of Dollars)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, including current portion	$	4,134,080	$	4,429,648	$	3,890,229	$	4,328,968

(Amounts in Thousands) ^(a)(b)

Sept. 30, 2015

Dec. 31, 2014

Million British thermal units of natural gas

Gallons of vehicle fuel