Fair Value of Financial Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2016

Gross Notional Amounts of Commodity Forwards and Options

The following table details the gross notional amounts of commodity forwards and options at Sept. 30, 2016 and Dec. 31, 2015:


^(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, 2016 and 2015, on accumulated other comprehensive loss, regulatory assets and liabilities, and income:



	Three Months Ended Sept. 30, 2016
	Pre-Tax Fair Value Losses Recognized During the Period in:						Pre-Tax 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	$	—		$	—		$	407	^(a)	$	—	$	—
Vehicle fuel and other commodity	(2		)	—			21		^(b)	—		—
Total	$	(2	)	$	—		$	428		$	—	$	—
Other derivative instruments
Commodity trading	$	—		$	—		$	—		$	—	$	(28	)	^(c)
Natural gas commodity	—			(4,848		)	—			—		(6		)	^(d)
Total	$	—		$	(4,848	)	$	—		$	—	$	(34	)




	Nine Months Ended Sept. 30, 2016
	Pre-Tax Fair Value (Gains) Losses Recognized During the Period in:					Pre-Tax Losses Reclassified into Income During the Period from:						Pre-Tax Gains (Losses) Recognized During the Period in Income
(Thousands of Dollars)	Accumulated Other Comprehensive Loss		Regulatory (Assets) and Liabilities			Accumulated Other Comprehensive Loss			Regulatory Assets and (Liabilities)
Derivatives designated as cash flow hedges
Interest rate	$	—	$	—		$	1,211	^(a)	$	—		$	—
Vehicle fuel and other commodity	2		—			67		^(b)	—			—
Total	$	2	$	—		$	1,278		$	—		$	—
Other derivative instruments
Commodity trading	$	—	$	—		$	—		$	—		$	200		^(c)
Natural gas commodity	—		(1,172		)	—			7,736		^(d)	(3,242		)	^(d)
Total	$	—	$	(1,172	)	$	—		$	7,736		$	(3,042	)



	Three Months Ended Sept. 30, 2015
	Pre-Tax Fair Value Losses Recognized During the Period in:						Pre-Tax 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 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 (Losses) 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	)


^(a)	Recorded to interest charges.


^(b)	Recorded to operating and maintenance (O&M) expenses.


^(c)	Amounts are recorded to electric operating revenues. Portions of these gains and losses are subject to sharing with electric customers through margin-sharing mechanisms and deducted from gross revenue as appropriate.

^(d)

Amounts for the three and nine months ended Sept. 30, 2016 included no settlement gains or 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. 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. The remaining derivative settlement gains and losses for the three and nine months ended Sept. 30, 2016 and 2015 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, 2016:



	Sept. 30, 2016
	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:
Commodity trading	$	1,232	$	3,056	$	—	$	4,288	$	(3,687	)	$	601
Natural gas commodity	—		5,056		—		5,056		(15		)	5,041
Total current derivative assets	$	1,232	$	8,112	$	—	$	9,344	$	(3,702	)	5,642
PPAs ^(a)												1,715
Current derivative instruments												$	7,357
Noncurrent derivative assets
Other derivative instruments:
Commodity trading	$	—	$	14	$	—	$	14	$	—		$	14
Natural gas commodity	—		681		—		681		—			681
Total noncurrent derivative assets	$	—	$	695	$	—	$	695	$	—		695
PPAs ^(a)												$	2,175
Noncurrent derivative instruments												$	2,870
Current derivative liabilities
Derivatives designated as cash flow hedges:
Vehicle fuel and other commodity	$	—	$	18	$	—	$	18	$	—		$	18
Other derivative instruments:
Commodity trading	1,359		2,468		—		3,827		(3,687		)	140
Natural gas commodity	—		15		—		15		(15		)	—
Total current derivative liabilities	$	1,359	$	2,501	$	—	$	3,860	$	(3,702	)	158
PPAs ^(a)												5,166
Current derivative instruments												$	5,324
Noncurrent derivative liabilities
Other derivative instruments:
Commodity trading	$	—	$	12	$	—	$	12	$	—		$	12
Total noncurrent derivative liabilities	$	—	$	12	$	—	$	12	$	—		12
PPAs ^(a)												$	9,118
Noncurrent derivative instruments												$	9,130

^(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, 2016. At Sept. 30, 2016, 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, 2015:



	Dec. 31, 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:
Commodity trading	$	137	$	351	$	—	$	488	$	(324	)	$	164
Natural gas commodity	—		352		—		352		(286		)	66
Total current derivative assets	$	137	$	703	$	—	$	840	$	(610	)	230
PPAs ^(a)												1,715
Current derivative instruments												$	1,945
Noncurrent derivative assets
Other derivative instruments:
Commodity trading	$	—	$	16	$	—	$	16	$	—		$	16
Total noncurrent derivative assets	$	—	$	16	$	—	$	16	$	—		16
PPAs ^(a)												$	3,462
Noncurrent derivative instruments												$	3,478
Current derivative liabilities
Derivatives designated as cash flow hedges:
Vehicle fuel and other commodity	$	—	$	92	$	—	$	92	$	—		$	92
Other derivative instruments:
Commodity trading	34		325		—		359		(324		)	35
Natural gas commodity	—		3,850		—		3,850		(286		)	3,564
Total current derivative liabilities	$	34	$	4,267	$	—	$	4,301	$	(610	)	3,691
PPAs ^(a)												5,190
Current derivative instruments												$	8,881
Noncurrent derivative liabilities
Other derivative instruments:
Commodity trading	$	—	$	33	$	—	$	33	$	—		$	33
Total noncurrent derivative liabilities	$	—	$	33	$	—	$	33	$	—		33
PPAs ^(a)												12,987
Noncurrent derivative instruments												$	13,020

^(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, 2015. At Dec. 31, 2015, 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, 2016 and Dec. 31, 2015, other financial instruments for which the carrying amount did not equal fair value were as follows:



	Sept. 30, 2016				Dec. 31, 2015
(Thousands of Dollars)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, including current portion ^(a)	$	4,216,673	$	4,772,639	$	4,105,596	$	4,376,875


^(a)	Amounts reflect the classification of debt issuance costs as a deduction from the carrying amount of the related debt. See Note 2, Accounting Pronouncements for more information on the adoption of ASU 2015-03.

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

Sept. 30, 2016

Dec. 31, 2015

Megawatt hours of electricity

Million British thermal units of natural gas

Gallons of vehicle fuel