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, 2016

or

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

Commission File Number: 001-3280

Public Service Company of Colorado

(Exact name of registrant as specified in its charter)

Colorado	84-0296600
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1800 Larimer, Suite 1100
Denver, Colorado	80202
(Address of principal executive offices)	(Zip Code)

(303) 571-7511

(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 requirements for the past 90 days. x Yes ¨ 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). x Yes ¨ 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 ¨	Accelerated filer ¨
Non-accelerated filer x	Smaller reporting company ¨
(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). ¨ 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 Oct. 31, 2016
Common Stock, $0.01 par value	100 shares

Public Service Company of Colorado 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.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item l —	Financial Statements (Unaudited)	3
Item 2 —	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 4 —	Controls and Procedures	28
PART II — OTHER INFORMATION
Item 1 —	Legal Proceedings	29
Item 1A —	Risk Factors	29
Item 4 —	Mine Safety Disclosures	29
Item 5 —	Other Information	29
Item 6 —	Exhibits	29
SIGNATURES		30
Certifications Pursuant to Section 302		1
Certifications Pursuant to Section 906		1
Statement Pursuant to Private Litigation		1

This Form 10-Q is filed by Public Service Company of Colorado, a Colorado corporation (PSCo). PSCo is a wholly owned subsidiary of Xcel Energy Inc. Xcel Energy Inc. wholly owns the following subsidiaries: Northern States Power Company, a Minnesota corporation (NSP-Minnesota); Northern States Power Company, a Wisconsin corporation (NSP-Wisconsin); PSCo; and Southwestern Public Service Company, a New Mexico corporation (SPS). NSP-Minnesota, NSP-Wisconsin, PSCo and SPS are also referred to collectively as utility subsidiaries. Additional information on Xcel Energy Inc. and its subsidiaries (collectively, Xcel Energy) is available on various filings with the Securities and Exchange Commission (SEC).

PART I — FINANCIAL INFORMATION

Item 1 — FINANCIAL STATEMENTS

PUBLIC SERVICE CO. OF COLORADO AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(amounts in thousands)

	Three Months Ended Sept. 30						Nine Months Ended Sept. 30
	2016			2015			2016			2015
Operating revenues
Electric	$	897,516		$	884,305		$	2,337,547		$	2,385,297
Natural gas	152,763			151,553			659,738			716,731
Steam and other	8,898			8,846			29,585			30,647
Total operating revenues	1,059,177			1,044,704			3,026,870			3,132,675
Operating expenses
Electric fuel and purchased power	318,624			311,347			890,509			930,107
Cost of natural gas sold and transported	42,379			44,953			270,182			354,825
Cost of sales — steam and other	3,664			3,596			10,874			12,938
Operating and maintenance expenses	191,011			186,379			570,343			560,021
Demand side management program expenses	31,015			33,040			88,094			96,622
Depreciation and amortization	111,803			104,228			330,593			305,517
Taxes (other than income taxes)	45,076			45,987			146,851			146,895
Total operating expenses	743,572			729,530			2,307,446			2,406,925
Operating income	315,605			315,174			719,424			725,750
Other income, net	544			1,222			1,837			2,674
Allowance for funds used during construction — equity	5,343			3,958			13,714			10,155
Interest charges and financing costs
Interest charges — includes other financing costs of $1,271, $1,611, $4,735 and $4,671, respectively	46,664			44,875			138,982			131,859
Allowance for funds used during construction — debt	(1,995		)	(1,467		)	(5,222		)	(3,890		)
Total interest charges and financing costs	44,669			43,408			133,760			127,969
Income before income taxes	276,823			276,946			601,215			610,610
Income taxes	103,216			103,865			224,390			228,063
Net income	$	173,607		$	173,081		$	376,825		$	382,547

See Notes to Consolidated Financial Statements

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PUBLIC SERVICE CO. OF COLORADO AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(amounts in thousands)

	Three Months Ended Sept. 30						Nine Months Ended Sept. 30
	2016			2015			2016			2015
Net income	$	173,607		$	173,081		$	376,825		$	382,547
Other comprehensive income (loss)
Pension and retiree medical benefits:
Amortization of gains included in net periodic benefit cost,    net of tax of $0, $0, $(134) and $0, respectively	—			—			(217		)	—
Derivative instruments:
Net fair value increase, net of tax of $(1), $(10), $1, and $(10), respectively	(1		)	(17		)	1			(14		)
Reclassification of losses (gains) to net income, net of tax of $162, $5, $486 and $(123), respectively	266			19			792			(192		)
Other comprehensive income (loss)	265			2			576			(206		)
Comprehensive income	$	173,872		$	173,083		$	377,401		$	382,341

See Notes to Consolidated Financial Statements

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PUBLIC SERVICE CO. OF COLORADO AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)

	Nine Months Ended Sept. 30
	2016			2015
Operating activities
Net income	$	376,825		$	382,547
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	332,383			309,048
Demand side management program amortization	1,802			2,776
Deferred income taxes	202,599			185,212
Amortization of investment tax credits	(2,104		)	(2,200		)
Allowance for equity funds used during construction	(13,714		)	(10,155		)
Net realized and unrealized hedging and derivative transactions	(1,801		)	3,255
Other	(388		)	—
Changes in operating assets and liabilities:
Accounts receivable	27,080			61,044
Accrued unbilled revenues	70,498			92,819
Inventories	(11,712		)	1,215
Prepayments and other	52,526			75,488
Accounts payable	(20,164		)	(78,610		)
Net regulatory assets and liabilities	(31,152		)	43,125
Other current liabilities	(59,596		)	(36,587		)
Pension and other employee benefit obligations	(13,080		)	(22,653		)
Change in other noncurrent assets	(1,422		)	2,273
Change in other noncurrent liabilities	(15,433		)	(30,667		)
Net cash provided by operating activities	893,147			977,930
Investing activities
Utility capital/construction expenditures	(802,051		)	(668,381		)
Proceeds from insurance recoveries	608			—
Allowance for equity funds used during construction	13,714			10,155
Investments in utility money pool arrangement	(437,000		)	(150,300		)
Repayments from utility money pool arrangement	437,000			166,300
Other	(1,460		)	—
Net cash used in investing activities	(789,189		)	(642,226		)
Financing activities
Repayments of short-term borrowings, net	(14,000		)	(382,000		)
Borrowings under utility money pool arrangement	357,000			67,000
Repayments under utility money pool arrangement	(306,000		)	(67,000		)
Proceeds from issuance of long-term debt	244,527			246,826
Repayments of long-term debt	(129,500		)	—
Capital contributions from parent	1,571			73,718
Dividends paid to parent	(253,796		)	(247,174		)
Net cash used in financing activities	(100,198		)	(308,630		)
Net change in cash and cash equivalents	3,760			27,074
Cash and cash equivalents at beginning of period	3,585			7,635
Cash and cash equivalents at end of period	$	7,345		$	34,709
Supplemental disclosure of cash flow information:
Cash paid for interest (net of amounts capitalized)	$	(149,786	)	$	(145,569	)
Cash received for income taxes, net	32,388			38,349
Supplemental disclosure of non-cash investing transactions:
Property, plant and equipment additions in accounts payable	$	84,417		$	104,965

See Notes to Consolidated Financial Statements

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PUBLIC SERVICE CO. OF COLORADO AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(amounts in thousands, except share and per share data)

	Sept. 30, 2016			Dec. 31, 2015
Assets
Current assets
Cash and cash equivalents	$	7,345		$	3,585
Accounts receivable, net	270,112			300,882
Accounts receivable from affiliates	11,735			4,909
Accrued unbilled revenues	205,714			276,212
Inventories	217,274			205,562
Regulatory assets	83,278			92,072
Derivative instruments	7,357			1,945
Deferred income taxes	42,037			62,662
Prepaid taxes	30,633			81,162
Prepayments and other	20,093			22,698
Total current assets	895,578			1,051,689
Property, plant and equipment, net	12,628,372			12,172,211
Other assets
Regulatory assets	875,952			906,275
Derivative instruments	2,870			3,478
Other	22,790			18,224
Total other assets	901,612			927,977
Total assets	$	14,425,562		$	14,151,877
Liabilities and Equity
Current liabilities
Current portion of long-term debt	$	5,277		$	8,103
Short-term debt	—			14,000
Borrowings under utility money pool arrangement	51,000			—
Accounts payable	312,998			352,701
Accounts payable to affiliates	38,632			76,643
Regulatory liabilities	74,661			152,823
Taxes accrued	132,230			166,660
Accrued interest	29,716			49,698
Dividends payable to parent	82,785			83,374
Derivative instruments	5,324			8,881
Other	72,029			78,910
Total current liabilities	804,652			991,793
Deferred credits and other liabilities
Deferred income taxes	2,907,922			2,720,860
Deferred investment tax credits	31,362			33,466
Regulatory liabilities	498,206			471,421
Asset retirement obligations	247,990			240,508
Derivative instruments	9,130			13,020
Customer advances	184,475			198,526
Pension and employee benefit obligations	188,695			200,774
Other	62,471			63,864
Total deferred credits and other liabilities	4,130,251			3,942,439
Commitments and contingencies
Capitalization
Long-term debt	4,211,396			4,097,493
Common stock — 100 shares authorized at $0.01 par value; 100 shares outstanding at Sept. 30, 2016 and Dec. 31, 2015, respectively	—			—
Additional paid in capital	3,655,741			3,620,824
Retained earnings	1,646,782			1,523,164
Accumulated other comprehensive loss	(23,260		)	(23,836		)
Total common stockholders’ equity	5,279,263			5,120,152
Total liabilities and equity	$	14,425,562		$	14,151,877

See Notes to Consolidated Financial Statements

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PUBLIC SERVICE CO. OF COLORADO 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 PSCo and its subsidiaries as of Sept. 30, 2016 and Dec. 31, 2015; the results of its operations, including the components of net income and comprehensive income, for the three and nine months ended Sept. 30, 2016 and 2015; and its cash flows for the nine months endedSept. 30, 2016 and 2015. All adjustments are of a normal, recurring nature, except as otherwise disclosed. Management has also evaluated the impact of events occurring after Sept. 30, 2016 up to the date of issuance of these consolidated financial statements. These statements contain all necessary adjustments and disclosures resulting from that evaluation. The Dec. 31, 2015 balance sheet information has been derived from the audited 2015 consolidated financial statements included in the PSCo Annual Report on Form 10-K for the year ended Dec. 31, 2015. 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 on an annual basis 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 PSCo Annual Report on Form 10-K for the year ended Dec. 31, 2015, filed with the SEC on Feb. 22, 2016. Due to the seasonality of PSCo’s electric and natural gas sales, 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 the PSCo Annual Report on Form 10-K for the year ended Dec. 31, 2015, appropriately represent, in all material respects, the current status of accounting policies and are incorporated herein by reference.

2. Accounting Pronouncements

Recently Issued

Revenue Recognition— In May 2014, the Financial Accounting Standards Board (FASB) issued Revenue from Contracts with Customers, Topic 606 (Accounting Standards Update (ASU) No. 2014-09), which provides a framework for the recognition of revenue, with the objective that recognized revenues properly reflect amounts an entity is entitled to receive in exchange for goods and services. The new guidance also includes additional disclosure requirements regarding revenue, cash flows and obligations related to contracts with customers. The guidance is effective for interim and annual reporting periods beginning after Dec. 15, 2017. PSCo is currently evaluating the impact of adopting ASU 2014-09 on its consolidated financial statements.

Presentation of Deferred Taxes — In November 2015, the FASB issued Balance Sheet Classification of Deferred Taxes, Topic 740 (ASU No 2015-17), which eliminates the requirement to present deferred tax assets and liabilities as current and noncurrent on the balance sheet based on the classification of the related asset or liability, and instead requires classification of all deferred tax assets and liabilities as noncurrent. This guidance will be effective for interim and annual reporting periods beginning after Dec. 15, 2016, and early adoption is permitted. Other than the prescribed classification of all deferred tax assets and liabilities as noncurrent, PSCo does not expect the implementation of ASU 2015-17 to have a material impact on its consolidated financial statements.

Classification and Measurement of Financial Instruments — In January 2016, the FASB issued Recognition and Measurement of Financial Assets and Financial Liabilities, Subtopic 825-10 (ASU No. 2016-01), which among other changes in accounting and disclosure requirements, replaces the cost method of accounting for non-marketable equity securities with a model for recognizing impairments and observable price changes, and also eliminates the available-for-sale classification for marketable equity securities. Under the new guidance, other than when the consolidation or equity method of accounting is utilized, changes in the fair value of equity securities are to be recognized in earnings. This guidance will be effective for interim and annual reporting periods beginning after Dec. 15, 2017. PSCo is currently evaluating the impact of adopting ASU 2016-01 on its consolidated financial statements.

Leases — In February 2016, the FASB issued Leases, Topic 842 (ASU No. 2016-02), which, for lessees, requires balance sheet recognition of right-of-use assets and lease liabilities for all leases. Additionally, for leases that qualify as finance leases, the guidance requires expense recognition consisting of amortization of the right-of-use asset as well as interest on the related lease liability using the effective interest method. This guidance will be effective for interim and annual reporting periods beginning after Dec. 15, 2018, and early adoption is permitted. PSCo is currently evaluating the impact of adopting ASU 2016-02 on its consolidated financial statements.

7

Stock Compensation — In March 2016, the FASB issued Improvements to Employee Share-Based Payment Accounting, Topic 718 (ASU 2016-09), which amends existing guidance to simplify several aspects of accounting and presentation for share-based payment transactions, including the accounting for income taxes and forfeitures, as well as presentation in the statement of cash flows. This guidance will be effective for interim and annual reporting periods beginning after Dec. 15, 2016, and early adoption is permitted. PSCo does not expect the implementation of ASU 2016-09 to have a material impact on its consolidated financial statements.

Recently Adopted

Consolidation— In February 2015, the FASB issued Amendments to the Consolidation Analysis, Topic 810 (ASU No. 2015-02), which reduces the number of consolidation models and amends certain consolidation principles related to variable interest entities. PSCo implemented the guidance on Jan. 1, 2016, and the implementation did not have a significant impact on its consolidated financial statements.

Presentation of Debt Issuance Costs— In April 2015, the FASB issued Simplifying the Presentation of Debt Issuance Costs, Subtopic 835-30 (ASU No. 2015-03), which requires the presentation of debt issuance costs on the balance sheet as a deduction from the carrying amount of the related debt, instead of presentation as an asset. PSCo implemented the new guidance as required on Jan. 1, 2016, and as a result, $26.0 million of deferred debt issuance costs were presented as a deduction from the carrying amount of long-term debt on the consolidated balance sheet as of March 31, 2016, and $26.6 million of such deferred costs were retrospectively reclassified from other non-current assets to long-term debt on the consolidated balance sheet as of Dec. 31, 2015.

Fair Value Measurement— In May 2015, the FASB issued Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent), Topic 820 (ASU No. 2015-07), which eliminates the requirement to categorize fair value measurements using a net asset value methodology in the fair value hierarchy. PSCo implemented the guidance on Jan. 1, 2016, and the implementation did not have a material impact on its consolidated financial statements.

3. Selected Balance Sheet Data

(Thousands of Dollars)	Sept. 30, 2016			Dec. 31, 2015
Accounts receivable, net
Accounts receivable	$	289,135		$	321,004
Less allowance for bad debts	(19,023		)	(20,122		)
	$	270,112		$	300,882

(Thousands of Dollars)	Sept. 30, 2016		Dec. 31, 2015
Inventories
Materials and supplies	$	58,949	$	58,128
Fuel	78,246		78,586
Natural gas	80,079		68,848
	$	217,274	$	205,562

(Thousands of Dollars)	Sept. 30, 2016			Dec. 31, 2015
Property, plant and equipment, net
Electric plant	$	12,136,597		$	11,856,126
Natural gas plant	3,590,746			3,420,249
Common and other property	867,340			862,840
Plant to be retired (a)	36,852			38,249
Construction work in progress	559,808			408,963
Total property, plant and equipment	17,191,343			16,586,427
Less accumulated depreciation	(4,562,971		)	(4,414,216		)
	$	12,628,372		$	12,172,211

^(a)  In 2017, PSCo expects to both early retire Valmont Unit 5 and convert Cherokee Unit 4 from a coal-fueled generating facility to natural gas. PSCo also expects Craig Unit 1 to be early retired in approximately 2025.  Amounts are presented net of accumulated depreciation.

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4. Income Taxes

Except to the extent noted below, Note 7 to the consolidated financial statements included in PSCo’s Annual Report on Form 10-K for the year ended Dec. 31, 2015 appropriately represents, in all material respects, the current status of other income tax matters, and are incorporated herein by reference.

Federal Audit— PSCo is a member of the Xcel Energy affiliated group that files a consolidated federal income tax return. In 2012, the Internal Revenue Service (IRS) commenced an examination of tax years 2010 and 2011, including a 2009 carryback claim. As of Sept. 30, 2016, the IRS had proposed an adjustment to the federal tax loss carryback claims that would result in $14 million of income tax expense for the 2009 through 2011 claims, the 2013 through 2014 claims, and the anticipated claim for 2015. In the fourth quarter of 2015, the IRS forwarded the issue to the Office of Appeals (Appeals). In 2016 the IRS audit team and Xcel Energy presented their case to Appeals; however, the outcome and timing of a resolution is uncertain. The statute of limitations applicable to Xcel Energy’s 2009 through 2011 federal income tax returns, following extensions, expires in June 2017. Xcel Energy has recognized its best estimate of income tax expense that will result from a final resolution of the IRS’s proposed adjustment of the carryback claims. PSCo is not expected to accrue any income tax expense related to this adjustment. In the third quarter of 2015, the IRS commenced an examination of tax years 2012 and 2013. As of Sept. 30, 2016, the IRS had not proposed any material adjustments to tax years 2012 and 2013.

State Audits — PSCo is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of Sept. 30, 2016, PSCo’s earliest open tax year that is subject to examination by state taxing authorities under applicable statutes of limitations is 2009. There are currently no state income tax audits in progress.

Unrecognized Tax Benefits— The unrecognized tax benefit balance includes permanent tax positions, which if recognized would affect the annual effective tax rate (ETR). In addition, the unrecognized tax benefit balance includes temporary tax positions 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 ETR but would accelerate the payment of cash to the taxing authority to an earlier period.

A reconciliation of the amount of unrecognized tax benefit is as follows:

(Millions of Dollars)	Sept. 30, 2016		Dec. 31, 2015
Unrecognized tax benefit — Permanent tax positions	$	2.7	$	2.4
Unrecognized tax benefit — Temporary tax positions	16.2		15.0
Total unrecognized tax benefit	$	18.9	$	17.4

The unrecognized tax benefit amounts were reduced by the tax benefits associated with net operating loss (NOL) and tax credit carryforwards. The amounts of tax benefits associated with NOL and tax credit carryforwards are as follows:

(Millions of Dollars)	Sept. 30, 2016			Dec. 31, 2015
NOL and tax credit carryforwards	$	(5.4	)	$	(4.3	)

It is reasonably possible that PSCo’s amount of unrecognized tax benefits could significantly change in the next 12 months as the IRS Appeals and audit progress and state audits resume. As the IRS Appeals and audit progress, it is reasonably possible that the amount of unrecognized tax benefit could decrease up to approximately $11 million.

The payable for interest related to unrecognized tax benefits is partially offset by the interest benefit associated with NOL and tax credit carryforwards. The payables for interest related to unrecognized tax benefits at Sept. 30, 2016 and Dec. 31, 2015 were not material. No amounts were accrued for penalties related to unrecognized tax benefits as of Sept. 30, 2016 or Dec. 31, 2015.

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5. Rate Matters

Except to the extent noted below, the circumstances set forth in Note 11 to the consolidated financial statements included in PSCo’s Annual Report on Form 10-K for the year ended Dec. 31, 2015 and in Note 5 to PSCo’s Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2016 and June 30, 2016, appropriately represent, in all material respects, the current status of other rate matters, and are incorporated herein by reference.

Pending Regulatory Proceeding — Colorado Public Utilities Commission (CPUC)

Annual Electric Earnings Test — As part of an annual earnings test, PSCo must share with customers earnings that exceed the authorized return on equity (ROE) threshold of 9.83 percent for 2015 through 2017. The current estimate of the 2016 earnings test, based on annual forecasted information, did not result in the recognition of a liability as of Sept. 30, 2016.

6. Commitments and Contingencies

Except to the extent noted below and in Note 5 above, the circumstances set forth in Notes 11 and 12 to the consolidated financial statements included in PSCo’s Annual Report on Form 10-K for the year ended Dec. 31, 2015, and in Note 6 to PSCo’s Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2016 and June 30, 2016, appropriately represent, in all material respects, the current status of commitments and contingent liabilities, and are incorporated herein by reference. The following include commitments, contingencies and unresolved contingencies that are material to PSCo’s financial position.

Purchased Power Agreements (PPAs)

Under certain PPAs, PSCo purchases power from independent power producing entities that own natural gas fueled power plants for which PSCo is required to reimburse natural gas fuel costs, or to participate in tolling arrangements under which PSCo procures the natural gas required to produce the energy that it purchases. These specific PPAs create a variable interest in the associated independent power producing entity.

PSCo had approximately 1,571 megawatts (MW) and 1,802 MW of capacity under long-term PPAs as of Sept. 30, 2016 and Dec. 31, 2015, with entities that have been determined to be variable interest entities. PSCo has concluded that these entities are not required to be consolidated in its consolidated financial statements because it does not have the power to direct the activities that most significantly impact the entities’ economic performance. These agreements have expiration dates through 2032.

Environmental Contingencies

Environmental Requirements

Water and Waste

Coal Ash Regulation — PSCo’s operations are subject to federal and state laws that impose requirements for handling, storage, treatment and disposal of solid waste. In April 2015, the United States Environmental Protection Agency (EPA) published a final rule regulating the management and disposal of coal combustion byproducts (coal ash) as a nonhazardous waste. Under the final rule, PSCo’s costs to manage and dispose of coal ash has not significantly increased.

In 2015, industry and environmental non-governmental organizations sought judicial review of the final rule. In June 2016, the United States Court of Appeals for the District of Columbia Circuit issued an order remanding and vacating certain elements of the rule as a result of partial settlements with these parties. Oral arguments are expected to be heard in early 2017 and a final decision is anticipated in the first half of 2017. Until a final decision is reached in the case, it is uncertain whether the litigation or partial settlements will have any significant impact on results of operations, financial position or cash flows on PSCo.

Air

Implementation of the National Ambient Air Quality Standard (NAAQS) for Sulfur Dioxide (SO₂) — The EPA adopted a more stringent NAAQS for SO₂ in 2010. The EPA is requiring states to evaluate areas in three phases. The first phase includes areas near PSCo’s Pawnee plant. The Pawnee plant recently installed an SO₂ scrubber to reduce SO₂ emissions. In June 2016, the EPA issued final designations which found the area near the Pawnee plant is “unclassifiable.” It is anticipated that the area near the Pawnee plant will be able to show compliance with the NAAQS through air dispersion modeling performed by the Colorado Department of Public Health and Environment.

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If an area is designated nonattainment in 2020, the states will need to evaluate all SO₂ sources in the area. The state would then submit an implementation plan, which would be due by 2022, designed to achieve the NAAQS by 2025. The areas near the remaining power plants, Comanche and Hayden, will be evaluated in the next designation phase, ending December 2017. Comanche and Hayden plants already utilize scrubbers to control SO₂ emissions. PSCo cannot evaluate the impacts until the designation of nonattainment areas is made, and any required state plan has been developed. PSCo believes that should SO₂ control systems be required for a plant, compliance costs or the costs of alternative cost-effective generation will be recoverable through regulatory mechanisms and therefore does not expect a material impact on results of operations, financial position or cash flows.

Legal Contingencies

PSCo is involved in various litigation matters that are being defended and handled in the ordinary course of business. The assessment of whether a loss is probable or is a reasonable possibility, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. Management maintains accruals for such losses that are probable of being incurred and subject to reasonable estimation. Management is sometimes unable to estimate an amount or range of a reasonably possible loss in certain situations, including but not limited to when (1) the damages sought are indeterminate, (2) the proceedings are in the early stages, or (3) the matters involve novel or unsettled legal theories. In such cases, there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including a possible eventual loss. For current proceedings not specifically reported herein, management does not anticipate that the ultimate liabilities, if any, arising from such current proceedings would have a material effect on PSCo’s financial statements. Unless otherwise required by GAAP, legal fees are expensed as incurred.

Employment, Tort and Commercial Litigation

Pacific Northwest Federal Energy Regulatory Commission (FERC) Refund Proceeding — A complaint with the FERC posed that sales made in the Pacific Northwest in 2000 and 2001 through bilateral contracts were unjust and unreasonable under the Federal Power Act. The City of Seattle (the City) alleges between $34 million to $50 million in sales with PSCo is subject to refund. In 2003, the FERC terminated the proceeding, although it was later remanded back to the FERC in 2007 by the U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit).

In May 2015, the FERC issued an order rejecting the City’s claim that any of the sales made resulted in an excessive burden and concluded that the City failed to establish a causal link between any contracts and any claimed unlawful market activity. In February 2016, the City appealed this decision to the Ninth Circuit. This appeal is pending review by the Ninth Circuit.

In December 2015, the Ninth Circuit held that the standard of review applied by the FERC to the contracts which the City was challenging is appropriate. The Ninth Circuit dismissed questions concerning whether the FERC properly established the scope of the hearing, and determined that the challenged orders are preliminary and that the Ninth Circuit lacks jurisdiction to review evidentiary decisions until after the FERC’s proceedings are final. The City joined the State of California in its request seeking rehearing of this order, which the Ninth Circuit denied. The FERC proceedings are now final with respect to the City’s claims and are subject to review in the pending Ninth Circuit appeal.

In October 2016, a settlement was reached that resolves all outstanding claims between and among the City and the respondents, including PSCo. Settlement terms required PSCo to pay the City $15,000 and the City to withdraw its pending appeal with the Ninth Circuit. This brings this matter to a close.

Line Extension Disputes — In December 2015, Development Recovery Company (DRC) filed a lawsuit in Denver State Court, stating PSCo failed to award proper allowances and refunds for line extensions to new developments pursuant to the terms of electric service agreements entered into by PSCo and various developers. The dispute involves assigned interests in those claims by over fifty developers. In May 2016, the district court granted PSCo’s motion to dismiss the lawsuit, concluding that jurisdiction over this dispute resides with the CPUC. In June 2016, DRC filed a notice of appeal. DRC filed its opening brief on Oct. 20, 2016 and PSCo’s answer brief is due in Nov. 24, 2016. DRC also brought a proceeding before the CPUC as assignee on behalf of two developers, Ryland Homes and Richmond Homes of Colorado. In March 2016, the Administrative Law Judge (ALJ) issued an order rejecting DRC’s claims for additional allowances and refunds. In June 2016, the ALJ’s determination was approved by the CPUC. DRC did not file a request for reconsideration before the CPUC contesting the decision, but filed an appeal in Denver District Court in August 2016.

PSCo has concluded that a loss is remote with respect to this matter as the service agreements were developed to implement CPUC approved tariffs and PSCo has complied with the tariff provisions. Also, if a loss were sustained, PSCo believes it would be allowed to recover these costs through traditional regulatory mechanisms. The amount or range in dispute is presently unknown and no accrual has been recorded for this matter.

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7. Borrowings and Other Financing Instruments

Short-Term Borrowings

Money Pool — Xcel Energy Inc. and its utility subsidiaries have established a money pool arrangement that allows for short-term investments in and borrowings between the utility subsidiaries. Xcel Energy Inc. may make investments in the utility subsidiaries at market-based interest rates; however, the money pool arrangement does not allow the utility subsidiaries to make investments in Xcel Energy Inc. Money pool borrowings for PSCo were as follows:

(Amounts in Millions, Except Interest Rates)	Three Months Ended Sept. 30, 2016			Year Ended Dec. 31, 2015
Borrowing limit	$	250		$	250
Amount outstanding at period end	51			—
Average amount outstanding	18			1
Maximum amount outstanding	52			34
Weighted average interest rate, computed on a daily basis	0.61		%	0.41		%
Weighted average interest rate at period end	0.66			N/A

Commercial Paper — PSCo meets its short-term liquidity requirements primarily through the issuance of commercial paper and borrowings under its credit facility. Commercial paper outstanding for PSCo was as follows:

(Amounts in Millions, Except Interest Rates)	Three Months Ended Sept. 30, 2016			Year Ended Dec. 31, 2015
Borrowing limit	$	700		$	700
Amount outstanding at period end	—			14
Average amount outstanding	14			95
Maximum amount outstanding	95			449
Weighted average interest rate, computed on a daily basis	0.65		%	0.51		%
Weighted average interest rate at period end	N/A			0.60

Letters of Credit— PSCo uses letters of credit, generally with terms of one year, to provide financial guarantees for certain operating obligations. At Sept. 30, 2016 and Dec. 31, 2015, there were $3 million and $4 million, respectively, of letters of credit outstanding under the credit facility. The contract amounts of these letters of credit approximate their fair value and are subject to fees.

Credit Facility — In order to use its commercial paper program, PSCo must have a credit facility in place at least equal to the amount of its commercial paper borrowing limit and cannot issue commercial paper in an aggregate amount exceeding available credit facility capacity. The line of credit provides short-term financing in the form of notes payable to banks, letters of credit and back-up support for commercial paper borrowings.

At Sept. 30, 2016, PSCo had the following committed credit facility available (in millions of dollars):

Credit Facility (a)		Drawn(b)		Available
$	700	$	3	$	697

^(a)    This credit facility expires in June 2021.

^(b)    Includes outstanding letters of credit.

All credit facility bank borrowings, outstanding letters of credit and outstanding commercial paper reduce the available capacity under the credit facility. PSCo had no direct advances on the credit facility outstanding at Sept. 30, 2016 and Dec. 31, 2015.

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Amended Credit Agreements - In June 2016, PSCo entered into an amended five-year credit agreement with a syndicate of banks. The total borrowing limit under the amended credit agreement remained at $700 million. The amended credit agreement has substantially the same terms and conditions as the prior credit agreement with the following exceptions:

• The maturity extended from October 2019 to June 2021.

• The Eurodollar borrowing margins on these lines of credit were reduced to a range of 75 to 150 basis points per year, from a range of 87.5 to 175 basis points per year, based upon applicable long-term credit ratings.

• The commitment fees, calculated on the unused portion of the lines of credit, were reduced to a range of 6 to 22.5 basis points per year, from a range of 7.5 to 27.5 basis points per year, also based on applicable long-term credit ratings.

PSCo has the right to request an extension of the revolving credit facility termination date for two additional one-year periods, subject to majority bank group approval.

Long-Term Borrowings

In June 2016, PSCo issued $250 million of 3.55 percent first mortgage bonds due June 15, 2046.

8. Fair Value of Financial Assets and Liabilities

Fair Value Measurements

The accounting guidance for fair value measurements and disclosures provides a single definition of fair value and requires certain disclosures about assets and liabilities measured at fair value. A hierarchical framework for disclosing the observability of the inputs utilized in measuring assets and liabilities at fair value is established by this guidance. The three levels in the hierarchy are as follows:

Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the measurement 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 reporting 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 valued with models requiring significant management judgment or estimation.

Specific valuation methods include the following:

Cash equivalents — The fair values of cash equivalents are generally based on cost plus accrued interest; money market funds are measured using quoted prices.

Interest rate derivatives— The fair values of interest rate derivatives are based on broker quotes that utilize current market interest rate forecasts.

Commodity derivatives— The methods used to measure the fair value of commodity derivative forwards and options utilize forward prices and volatilities, as well as pricing adjustments for specific delivery locations, and are generally assigned a Level 2. When contractual settlements extend to periods beyond those readily observable on active exchanges or quoted by brokers, the significance of the use of less observable forecasts of long-term forward prices and volatilities on a valuation is evaluated, and may result in Level 3 classification.

Derivative Instruments Fair Value Measurements

PSCo enters into derivative instruments, including forward contracts, futures, swaps and options, for trading purposes and to manage risk in connection with changes in interest rates, utility commodity prices and vehicle fuel prices.

Interest Rate Derivatives — PSCo 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 an anticipated debt issuance for a specific period. These derivative instruments are generally designated as cash flow hedges for accounting purposes.

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At Sept. 30, 2016, accumulated other comprehensive losses related to interest rate derivatives included $1.0 million of net losses expected to be reclassified into earnings during the next 12 months as the related hedged interest rate transactions impact earnings, including forecasted amounts for any unsettled hedges, as applicable.

Wholesale and Commodity Trading Risk — PSCo conducts various wholesale and commodity trading activities, including the purchase and sale of electric capacity, energy and energy-related instruments. PSCo’s risk management policy allows management to conduct these activities within guidelines and limitations as approved by its risk management committee.

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

At Sept. 30, 2016, PSCo had various vehicle fuel contracts designated as cash flow hedges extending through December 2016. PSCo also enters into derivative instruments that mitigate commodity price risk on behalf of electric and natural gas customers but are not designated as qualifying hedging transactions. Changes in the fair value of non-trading commodity derivative instruments are recorded in other comprehensive income or deferred as a regulatory asset or liability. The classification as a regulatory asset or liability is based on commission approved regulatory recovery mechanisms. PSCo recorded immaterial amounts to income related to the ineffectiveness of cash flow hedges for the three and nine months ended Sept. 30, 2016 and 2015.

At Sept. 30, 2016, net losses related to commodity derivative cash flow hedges recorded as a component of accumulated other comprehensive losses included immaterial net losses expected to be reclassified into earnings during the next 12 months as the hedged transactions occur.

Additionally, PSCo enters into commodity derivative instruments for trading purposes not directly related to commodity price risks associated with serving its electric and natural gas customers. Changes in the fair value of these commodity derivatives are recorded in electric operating revenues, net of amounts credited to customers under margin-sharing mechanisms.

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

(Amounts in Thousands)(a)(b)	Sept. 30, 2016	Dec. 31, 2015
Megawatt hours of electricity	6,184	684
Million British thermal units of natural gas	42,207	12,515
Gallons of vehicle fuel	16	63

^(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.

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	)

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	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	)

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	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 endedSept. 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 endedSept. 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.

PSCo had no derivative instruments designated as fair value hedges during the three and nine months ended Sept. 30, 2016 and 2015. Therefore, no gains or losses from fair value hedges or related hedged transactions were recognized for these periods.

Consideration of Credit Risk and Concentrations — PSCo monitors the creditworthiness of the counterparties to its interest rate derivatives and commodity derivative contracts prior to settlement, and assesses each counterparty’s ability to perform on the transactions. Given this assessment, as well as an assessment of the impact of PSCo’s own credit risk when determining the fair value of derivative liabilities, the impact of considering credit risk was immaterial to the fair value of unsettled commodity derivatives presented in the consolidated balance sheets.

PSCo employs additional credit risk control mechanisms, such as letters of credit, parental guarantees, standardized master netting agreements and termination provisions that allow for offsetting of positive and negative exposures. Credit exposure is monitored and, when necessary, the activity with a specific counterparty is limited until credit enhancement is provided.

PSCo’s most significant concentrations of credit risk are contracts with counterparties to its wholesale, trading and non-trading commodity activities. At Sept. 30, 2016, five of PSCo’s 10 most significant counterparties, comprising $5.1 million or 9 percent of this credit exposure, had investment grade credit ratings from Standard & Poor’s Ratings Services, Moody’s Investor Services or Fitch Ratings. Four of the 10 most significant counterparties, comprising $27.2 million or 51 percent of this credit exposure, were not rated by these agencies, but based on PSCo’s internal analysis, had credit quality consistent with investment grade. Another of these significant counterparties, comprising $3.0 million or 6 percent of this credit exposure, had credit quality less than investment grade, based on ratings from external analysis. Seven of these significant counterparties are municipal or cooperative electric entities, or other utilities.

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Credit Related Contingent Features—Contract provisions for derivative instruments that PSCo enters into, including those recorded to the consolidated balance sheet at fair value, as well as those accounted for as normal purchase-normal sale contracts and therefore not reflected on the balance sheet, may require the posting of collateral or settlement of the contracts for various reasons, including if PSCo is unable to maintain its credit ratings. At Sept. 30, 2016 and Dec. 31, 2015, no derivative instruments in a liability position would have required the posting of collateral or settlement of outstanding contracts if the credit ratings of PSCo were downgraded below investment grade.

Certain derivative instruments are also subject to contract provisions that contain adequate assurance clauses. These provisions allow counterparties to seek performance assurance, including cash collateral, in the event that PSCo’s ability to fulfill its contractual obligations is reasonably expected to be impaired. PSCo had no collateral posted related to adequate assurance clauses in derivative contracts as of Sept. 30, 2016 and Dec. 31, 2015.

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							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.

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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							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.

There were immaterial gains and losses recognized in earnings for level 3 commodity trading derivatives recognized in the three and nine months ended Sept. 30, 2016, respectively. There were no changes in Level 3 recurring fair value measurements for the three and nine months ended Sept. 30, 2015.

PSCo recognizes transfers between levels as of the beginning of each period. There were no transfers of amounts between levels for derivative instruments for the three and nine months ended Sept. 30, 2016 and 2015.

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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.

The fair value of PSCo’s long-term debt is estimated based on recent trades and observable spreads from benchmark interest rates for similar securities. The fair value estimates are based on information available to management as of Sept. 30, 2016 and Dec. 31, 2015, and given the observability of the inputs to these estimates, the fair values presented for long-term debt have been assigned a Level 2.

9. Other Income, Net

Other income, net consisted of the following:

	Three Months Ended Sept. 30					Nine Months Ended Sept. 30
(Thousands of Dollars)	2016			2015		2016			2015
Interest income	$	162		$	162	$	451		$	537
Other nonoperating income	511			607		1,594			1,904
Insurance policy (expense) income	(129		)	453		(205		)	233
Other nonoperating expense	—			—		(3		)	—
Other income, net	$	544		$	1,222	$	1,837		$	2,674

10. Segment Information

Operating results from the regulated electric utility and regulated natural gas utility are each separately and regularly reviewed by PSCo’s chief operating decision maker. PSCo evaluates performance based on profit or loss generated from the product or service provided. These segments are managed separately because the revenue streams are dependent upon regulated rate recovery, which is separately determined for each segment.

PSCo has the following reportable segments: regulated electric utility, regulated natural gas utility and all other.

• PSCo’s regulated electric utility segment generates, transmits and distributes electricity primarily in portions of Colorado. In addition, this segment includes sales for resale and provides wholesale transmission service to various entities in the United States. Regulated electric utility also includes PSCo’s commodity trading operations.

• PSCo’s regulated natural gas utility segment transports, stores and distributes natural gas primarily in portions of Colorado.

• Revenues from operating segments not included above are below the necessary quantitative thresholds and are therefore included in the all other category. Those primarily include steam revenue, appliance repair services and nonutility real estate activities.

Asset and capital expenditure information is not provided for PSCo’s reportable segments because as an integrated electric and natural gas utility, PSCo operates significant assets that are not dedicated to a specific business segment, and reporting assets and capital expenditures by business segment would require arbitrary and potentially misleading allocations which may not necessarily reflect the assets that would be required for the operation of the business segments on a stand-alone basis.

To report income from operations for regulated electric and regulated natural gas utility segments, the majority of costs are directly assigned to each segment. However, some costs, such as common depreciation, common O&M expenses and interest expense are allocated based on cost causation allocators. A general allocator is used for certain general and administrative expenses, including office supplies, rent, property insurance and general advertising.

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(Thousands of Dollars)	Regulated Electric		Regulated Natural Gas		All Other		Reconciling Eliminations			Consolidated Total
Three Months Ended Sept. 30, 2016
Operating revenues (a)(b)	$	897,516	$	152,763	$	8,898	$	—		$	1,059,177
Intersegment revenues	54		6		—		(60		)	—
Total revenues	$	897,570	$	152,769	$	8,898	$	(60	)	$	1,059,177
Net income (loss)	$	168,328	$	4,918	$	361	$	—		$	173,607

(Thousands of Dollars)	Regulated Electric		Regulated Natural Gas		All Other		Reconciling Eliminations			Consolidated Total
Three Months Ended Sept. 30, 2015
Operating revenues (a)(b)	$	884,305	$	151,553	$	8,846	$	—		$	1,044,704
Intersegment revenues	65		9		—		(74		)	—
Total revenues	$	884,370	$	151,562	$	8,846	$	(74	)	$	1,044,704
Net income	$	167,931	$	4,548	$	602	$	—		$	173,081

^(a)    Operating revenues include $2 million of affiliate electric revenue for the three months ended Sept. 30, 2016 and 2015.

^(b)    Operating revenues include $1 million and $2 million of other affiliate revenue for the three months ended Sept. 30, 2016 and 2015, respectively.

(Thousands of Dollars)	Regulated Electric		Regulated Natural Gas		All Other		Reconciling Eliminations			Consolidated Total
Nine Months Ended Sept. 30, 2016
Operating revenues (a)(b)	$	2,337,547	$	659,738	$	29,585	$	—		$	3,026,870
Intersegment revenues	196		84		—		(280		)	—
Total revenues	$	2,337,743	$	659,822	$	29,585	$	(280	)	$	3,026,870
Net income	$	320,192	$	53,883	$	2,750	$	—		$	376,825

(Thousands of Dollars)	Regulated Electric		Regulated Natural Gas		All Other		Reconciling Eliminations			Consolidated Total
Nine Months Ended Sept. 30, 2015
Operating revenues (a)(b)	$	2,385,297	$	716,731	$	30,647	$	—		$	3,132,675
Intersegment revenues	222		43		—		(265		)	—
Total revenues	$	2,385,519	$	716,774	$	30,647	$	(265	)	$	3,132,675
Net income (loss)	$	330,276	$	51,784	$	487	$	—		$	382,547

^(a)    Operating revenues include $7 million and $6 million of affiliate electric revenue for the nine months ended Sept. 30, 2016 and 2015, respectively.

^(b)    Operating revenues include $3 million of other affiliate revenue for the nine months ended Sept. 30, 2016 and 2015.

11. Benefit Plans and Other Postretirement Benefits

Components of Net Periodic Benefit Cost (Credit)

	Three Months Ended Sept. 30
	2016			2015			2016			2015
(Thousands of Dollars)	Pension Benefits						Postretirement Health Care Benefits
Service cost	$	6,487		$	7,065		$	192		$	232
Interest cost	13,852			12,714			4,518			4,375
Expected return on plan assets	(17,692		)	(18,147		)	(5,575		)	(5,951		)
Amortization of prior service credit	(801		)	(784		)	(1,562		)	(1,562		)
Amortization of net loss	6,692			9,094			483			618
Net periodic benefit cost (credit)	8,538			9,942			(1,944		)	(2,288		)
Credits (costs) not recognized due to the effects of regulation	682			(366		)	—			—
Net benefit cost (credit) recognized for financial reporting	$	9,220		$	9,576		$	(1,944	)	$	(2,288	)

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	Nine Months Ended Sept. 30
	2016			2015			2016			2015
(Thousands of Dollars)	Pension Benefits						Postretirement Health Care Benefits
Service cost	$	19,445		$	21,195		$	576		$	696
Interest cost	41,554			38,142			13,554			13,124
Expected return on plan assets	(53,076		)	(54,442		)	(16,725		)	(17,852		)
Amortization of prior service credit	(2,408		)	(2,352		)	(4,686		)	(4,686		)
Amortization of net loss	20,078			27,282			1,449			1,856
Net periodic benefit cost (credit)	25,593			29,825			(5,832		)	(6,862		)
Credits (cost) not recognized due to the effects of regulation	1,947			(1,098		)	—			—
Net benefit cost (credit) recognized for financial reporting	$	27,540		$	28,727		$	(5,832	)	$	(6,862	)

In January 2016, contributions of $125.0 million were made across four of Xcel Energy’s pension plans, of which $16.8 million was attributable to PSCo. Xcel Energy does not expect additional pension contributions during 2016.

12. Other Comprehensive Income

Changes in accumulated other comprehensive loss, net of tax, for the three and nine months ended Sept. 30, 2016 and 2015 were as follows:

	Three Months Ended Sept. 30, 2016
(Thousands of Dollars)	Gains and Losses on Cash Flow Hedges			Defined Benefit and Postretirement Items			Total
Accumulated other comprehensive loss at July 1	$	(23,308	)	$	(217	)	$	(23,525	)
Other comprehensive loss before reclassifications	(1		)	—			(1		)
Losses reclassified from net accumulated other comprehensive loss	266			—			266
Net current period other comprehensive income	265			—			265
Accumulated other comprehensive loss at Sept. 30	$	(23,043	)	$	(217	)	$	(23,260	)

	Three Months Ended Sept. 30, 2015
(Thousands of Dollars)	Gains and Losses on Cash Flow Hedges
Accumulated other comprehensive loss at July 1	$	(24,086	)
Other comprehensive loss before reclassifications	(17		)
Losses reclassified from net accumulated other comprehensive loss	19
Net current period other comprehensive income	2
Accumulated other comprehensive loss at Sept. 30	$	(24,084	)

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	Nine Months Ended Sept. 30, 2016
(Thousands of Dollars)	Gains and Losses on Cash Flow Hedges			Defined Benefit and Postretirement Items			Total
Accumulated other comprehensive loss at Jan. 1	$	(23,836	)	$	—		$	(23,836	)
Other comprehensive income (loss) before reclassifications	1			(219		)	(218		)
Losses reclassified from net accumulated other comprehensive loss	792			2			794
Net current period other comprehensive income (loss)	793			(217		)	576
Accumulated other comprehensive loss at Sept. 30	$	(23,043	)	$	(217	)	$	(23,260	)

	Nine Months Ended Sept. 30, 2015
(Thousands of Dollars)	Gains and Losses on Cash Flow Hedges
Accumulated other comprehensive loss at Jan. 1	$	(23,878	)
Other comprehensive loss before reclassifications	(14		)
Gains reclassified from net accumulated other comprehensive loss	(192		)
Net current period other comprehensive loss	(206		)
Accumulated other comprehensive loss at Sept. 30	$	(24,084	)

Reclassifications from accumulated other comprehensive loss for the three and nine months ended Sept. 30, 2016 and 2015 were as follows:

	Amounts Reclassified from Accumulated Other Comprehensive Loss
(Thousands of Dollars)	Three Months Ended Sept. 30, 2016				Three Months Ended Sept. 30, 2015
Losses (gains) on cash flow hedges:
Interest rate derivatives	$	407		(a)	$	9		(a)
Vehicle fuel derivatives	21			(b)	15			(b)
Total, pre-tax	428				24
Tax benefit	(162		)		(5		)
Total amounts reclassified, net of tax	$	266			$	19

	Amounts Reclassified from Accumulated Other Comprehensive Loss
(Thousands of Dollars)	Nine Months Ended Sept. 30, 2016				Nine Months Ended Sept. 30, 2015
Losses (gains) on cash flow hedges:
Interest rate derivatives	$	1,211		(a)	$	(353	)	(a)
Vehicle fuel derivatives	67			(b)	38			(b)
Total, pre-tax	1,278				(315		)
Tax (benefit) expense	(486		)		123
Total amounts reclassified, net of tax	$	792			$	(192	)

^(a)  Included in interest charges.

^(b)  Included in O&M expenses.

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Item 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Discussion of financial condition and liquidity for PSCo 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).

Financial Review

The following discussion and analysis by management focuses on those factors that had a material effect on PSCo’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 related notes to the consolidated financial statements. Due to the seasonality of PSCo’s electric and natural gas sales, such interim results are not necessarily an appropriate base from which to project annual results.

Forward-Looking Statements

Except for the historical statements contained in this report, the matters discussed herein, 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 expressly disclaim any obligation to update any forward-looking information. The following factors, in addition to those discussed elsewhere in this Quarterly Report on Form 10-Q and in other securities filings (including PSCo’s Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2015 and Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, 2016), could cause actual results to differ materially from management expectations as suggested by such forward-looking information: general economic conditions, including inflation rates, monetary fluctuations and their impact on capital expenditures and the ability of PSCo and its subsidiaries to obtain financing on favorable terms; business conditions in the energy industry; including the risk of a slow down in the U.S. economy or delay in growth, recovery, trade, fiscal, taxation and environmental policies in areas where PSCo has a financial interest; customer business conditions; actions of credit rating agencies; competitive factors including the extent and timing of the entry of additional competition in the markets served by PSCo and its subsidiaries; unusual weather; effects of geopolitical events, including war and acts of terrorism; cyber security threats and data security breaches; 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; financial or regulatory accounting policies imposed by regulatory bodies; outcomes of regulatory proceedings; availability of cost of capital; and employee work force factors.

Results of Operations

PSCo’s net income was approximately $376.8 million for the nine months ended Sept. 30, 2016, compared with approximately $382.5 million for the same period in 2015. Higher natural gas margins primarily due to rate increases and higher allowance for funds used during construction were offset by higher depreciation, O&M expenses and interest charges.

Electric Revenues and Margin

Electric revenues and fuel and purchased power expenses are largely impacted by the fluctuation in the price of natural gas and coal used in the generation of electricity, but as a result of the design of fuel recovery mechanisms to recover current expenses, these price fluctuations have minimal impact on electric margin. The following table details the electric revenues and margin:

	Nine Months Ended Sept. 30
(Millions of Dollars)	2016			2015
Electric revenues	$	2,338		$	2,385
Electric fuel and purchased power	(891		)	(930		)
Electric margin	$	1,447		$	1,455

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

Electric Revenues

(Millions of Dollars)	2016 vs. 2015
Fuel and purchased power cost recovery	$	(29	)
Demand side management (DSM) program revenues (offset by expenses)	(11		)
Firm wholesale	(10		)
Non-fuel riders	(9		)
Trading	(5		)
Sales growth (excluding impact of weather)	17
Total decrease in electric revenues	$	(47	)

Electric Margin

(Millions of Dollars)	2016 vs. 2015
DSM program revenues (offset by expenses)	$	(11	)
Firm wholesale	(10		)
Non-fuel riders	(9		)
Sales growth (excluding impact of weather)	17
Estimated impact of weather	4
Other, net	1
Total decrease in electric margin	$	(8	)

Natural Gas Revenues and Margin

Total natural gas expense tends to vary with changing sales requirements and the cost of natural gas purchases. However, due to the design of purchased natural gas cost recovery mechanisms to recover current expenses for sales to retail customers, fluctuations in the cost of natural gas have little effect on natural gas margin. The following table details natural gas revenues and margin:

	Nine Months Ended Sept. 30
(Millions of Dollars)	2016			2015
Natural gas revenues	$	660		$	717
Cost of natural gas sold and transported	(270		)	(355		)
Natural gas margin	$	390		$	362

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

Natural Gas Revenues

(Millions of Dollars)	2016 vs. 2015
Purchased natural gas adjustment clause recovery	$	(86	)
Retail rate increase	30
Other, net	(1		)
Total decrease in natural gas revenues	$	(57	)

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Natural Gas Margin

(Millions of Dollars)	2016 vs. 2015
Retail rate increase	$	30
Estimated impact of weather	2
Non-fuel riders, partially offset by expenses	(8		)
Other, net	4
Total increase in natural gas margin	$	28

Non-Fuel Operating Expenses and Other Items

O&M Expenses— O&M expenses increased $10.3 million, or 1.8 percent, for the nine months ended Sept. 30, 2016 compared with the same period in 2015. The increase was mainly due to additional maintenance activities and storm related costs, partially offset by a reduction in the timing and scope of plant outages and discovery work.

DSM Program Expenses— DSM program expenses decreased $8.5 million, or 8.8 percent, for the nine months ended Sept. 30, 2016 compared with the same period in 2015. The decrease was primarily attributable to lower electric recovery rates.

Depreciation and Amortization— Depreciation and amortization expense increased $25.1 million, or 8.2 percent, for the nine months ended Sept. 30, 2016 compared with the same period in 2015. The increase was primarily attributable to capital investments.

Interest Charges— Interest charges increased by $7.1 million, or 5.4 percent, for the nine months ended Sept. 30, 2016 compared with the same period in 2015. The increase was primarily due to higher long-term debt levels to fund capital investments..

Income Taxes — Income tax expense decreased $3.7 million for the nine months ended Sept. 30, 2016 compared with the same period in 2015. The decrease in income tax expense was primarily due to lower pretax earnings in 2016. The ETR was 37.3 percent for the nine months ended Sept. 30, 2016 compared with 37.4 percent for the same period in 2015.

Public Utility Regulation

Except to the extent noted below, the circumstances set forth in Public Utility Regulation included in Item 1 of PSCo’s Annual Report on Form 10-K for the year ended Dec. 31, 2015 and Public Utility Regulation included in Item 2 of PSCo’s Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2016 and June 30, 2016, appropriately represent, in all material respects, the current status of public utility regulation, and are incorporated herein by reference.

Colorado 2016 Electric Resource Plan — In May 2016, PSCo filed its 2016 Electric Resource Plan which identified approximately 600 MW of additional resources need by the summer of 2023. The CPUC is expected to consider the resource plan in two phases. In the first phase, the CPUC will examine the resource need to address peak demand periods, establish the resource acquisition period and determine modeling parameters used in resource selection for the second phase. The second phase would include solicitation of new resources. PSCo’s base plan, filed in Phase I, addressed various resources including 410 MW of combined cycle generation, 700 MW of combustion turbine generation and approximately 600 MW of customer sited solar generation. Additional scenarios to the plan include adding 600 MW of the Rush Creek Wind Project or 400 MW of wind or utility solar generation.

The key dates in the procedural schedule for the first phase of the Electric Resource Plan are as follows:

• Answer testimony — Dec. 9, 2016;

• Rebuttal testimony — Jan. 17, 2017;

• Hearings — Feb. 1-8, 2017; and

• Statements of position — Feb. 17, 2017.

The second phase of the Electric Resource Plan is anticipated to begin shortly after the conclusion of the first phase.

Rush Creek Wind Ownership Proposal — In May 2016, PSCo filed an application to build, own and operate a 600 MW wind generation facility at Rush Creek for a cost of approximately $1 billion, including transmission investment.

In September 2016, the CPUC approved a settlement between PSCo, the CPUC Staff, the Colorado Office of Consumer Counsel, the Colorado Energy Office and various other parties. This will allow PSCo to commence the project on a timely basis and capture the full production tax credit benefit for customers.

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Key terms of the settlement are listed below:

• The Rush Creek project satisfies the reasonable cost standard and is in the public interest;

• The project should be placed in service by Oct. 31, 2018;

• The useful life of the project should be set at 25 years;

• A hard cost-cap on the $1.096 billion investment (which includes the capital investment and allowance for funds used during construction); 

• A capital cost sharing mechanism for every $10 million below the cost-cap, with 82.5 percent retained by customers and 17.5 percent retained by PSCo on a net present value basis over the life of the project;

• Amounts retained by PSCo under the capital cost sharing mechanism as well as overall facility revenue requirements may each be reduced for lower than projected long term generating output (i.e., higher degradation); and

• The Pawnee-Daniels transmission line (estimated project cost of $178 million) should be accelerated and operations are expected to begin by October 2019.

PSCo Global Settlement Agreement — In August 2016, PSCo and various intervenors, including small and large customers, state representatives, environmental advocates and solar and energy groups, entered into a global settlement agreement regarding three pending filings with the CPUC, including the Phase II electric rate case (which is related to the rate design portion of the 2015 Electric Rate Case), the Renewable*Connect proposal (formally known as Solar*Connect) and the 2017 Renewable Energy Plan. Key terms of the agreement include that participating customers in the proposed Renewable*Connect program would pay ordinary tariff electric rates in addition to a voluntary tariff solar charge, and receive bill credits related to avoided cost savings for a new 50 MW solar resource. It was also agreed that PSCo’s 2017 Renewable Energy Plan would include 2017 to 2019 acquisition of a total of 225 MW of renewable energy from sources including rooftop solar, solar gardens and recycled energy.

A CPUC decision is expected by December 2016, which would allow PSCo to issue a request for proposal for the new Renewable*Connect solar facility and implement the 2017 Renewable Energy Plan and the rate design changes of the Phase II electric rate case beginning January 2017.

Joint Dispatch Agreement (JDA) — In February 2016, the FERC approved a JDA between PSCo, Black Hills Colorado Electric Utility Company, LP and Platte River Power Authority. Through the JDA, energy is dispatched to economically serve the combined electric customer loads of the three systems. In circumstances where PSCo is the lowest cost producer, it will sell its excess generation to other JDA counterparties. PSCo proposed with the CPUC that margins on these sales be shared among PSCo and its customers, of which 10 percent would be retained by PSCo. A decision by the CPUC is anticipated in the fourth quarter of 2016. The JDA parties estimate the combined net benefits of the agreement would be approximately $4.5 million, annually. The agreement results in a reduction in total energy costs for the parties, of which approximately $1.4 million would be allocated to PSCo’s customers. As part of the agreement, PSCo will earn a management fee to administer the JDA. We expect operations under the JDA to begin in the fourth quarter of 2016.

Advanced Grid Intelligence and Security —In August 2016, PSCo filed a request with the CPUC to approve a certificate of public convenience and necessity for implementation of its advanced grid initiative. The project incorporates installing advanced meters, implementing a combination of hardware and software applications to allow the distribution system to operate at a lower voltage (integrated volt-var optimization) and installing necessary communications infrastructure to implement this hardware. These major projects are expected to improve customer experience, enhance grid reliability and enable the implementation of new and innovative programs and rate structures. The estimated capital investment for the project is approximately $500 million. PSCo anticipates a CPUC decision by the third quarter of 2017. If approval is received, the project is expected to be completed by 2021.

Decoupling Filing — In July 2016, PSCo filed a request with the CPUC to approve a partial decoupling mechanism for a five year period, effective on Jan. 1, 2017.  The proposed decoupling adjustment would allow PSCo to adjust annual revenues based on changes in weather normalized average use per customer for the residential and small commercial and industrial classes.  The proposed mechanism is intended to improve PSCo’s ability to collect base rate revenues in the event that average use per customer declines as a result of DSM, distributed generation and other energy saving programs. The proposed decoupling mechanism is symmetric and may result in potential refunds to customers if there were an increase in average use per customer. PSCo did not request that revenue be adjusted as a result of weather related sales fluctuations.

In August 2016, a majority of the parties to the PSCo Global Settlement Agreement agreed to limit any future opposition to PSCo’s decoupling proposal to the specifics of design and implementation.

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The key dates in the procedural schedule are as follows:

• Direct testimony — Dec. 14, 2016;

• Answer testimony — Jan. 16, 2017;

• Rebuttal and cross answer testimony — Feb. 10, 2017; and

• Hearings — Feb. 21-24, 2017.

A decision is anticipated in the first quarter of 2017.

Boulder, Colo. Municipalization — In November 2011, a ballot measure was passed which authorized the formation and operation of a municipal utility and the issuance of enterprise revenue bonds, subject to certain restrictions, including the level of initial rates and debt service coverage. In May 2014, the City of Boulder (Boulder) City Council passed an ordinance to establish an electric utility. PSCo challenged the formation of this utility as premature because costs and system separation plans were not final, but the case was dismissed. PSCo appealed this decision and in September 2016, the Colorado Court of Appeals preserved PSCo’s ability to challenge the utility while vacating the lower court’s decision.

In 2013, the CPUC ruled that Boulder may not be the retail service provider to any PSCo customers located outside Boulder city limits unless Boulder can establish that PSCo is unwilling or unable to serve those customers. The CPUC also ruled that it has jurisdiction over the transfer of any facilities to Boulder that currently serve any customers located outside Boulder city limits and will determine separation matters. The CPUC has declared that Boulder must receive CPUC transfer approval prior to any eminent domain actions. Boulder appealed this ruling to the Boulder District Court. In January 2015, the Boulder District Court affirmed the CPUC decision. The Boulder District Court also dismissed a condemnation action that Boulder had filed. The CPUC must complete the separation plan proceeding before Boulder may refile a condemnation proceeding.

In July 2015, Boulder filed an application with the CPUC requesting approval of its proposed separation plan. In August 2015, PSCo filed a motion to dismiss Boulder’s separation proposal, arguing Boulder’s request was not permissible under Colorado law. In December 2015, the CPUC granted the motion to dismiss the application in part, holding that Boulder had no right to acquire PSCo facilities used exclusively to serve customers located outside Boulder city limits. Other portions of Boulder’s application were not dismissed, but were stayed until Boulder supplemented its application. Boulder filed its amended application in September 2016, and in the application, Boulder estimates it would incur approximately $53 million of costs to separate from the PSCo system.

Summary of Recent Federal Regulatory Developments

The Pipeline and Hazardous Materials Safety Administration

Pipeline Safety Act — The Pipeline Safety, Regulatory Certainty, and Job Creation Act (Pipeline Safety Act) requires additional verification of pipeline infrastructure records by pipeline owners and operators to confirm the maximum allowable operating pressure of lines located in high consequence areas or more-densely populated areas.  In April 2016, the United States Department of Transportation Pipeline and Hazardous Materials Safety Administration (PHMSA) released proposed rules that address this verification requirement along with a number of other significant changes to gas transmission regulations.  These changes include requirements around use of automatic or remote-controlled shut-off valves; testing of certain previously untested transmission lines; and expanding integrity management requirements. The Pipeline Safety Act also includes a maximum penalty for violating pipeline safety rules of $2 million per day for related violations. 

PSCo continues to analyze the proposed rule changes as they relate to costs, current operations and financial results.  PHMSA has indicated that they intend for the rules to go into effect in late 2017 or early 2018. 

PSCo has been taking actions that were intended to comply with the Pipeline Safety Act and any related PHMSA regulations as they become effective.  PSCo can generally recover costs to comply with the transmission and distribution integrity management programs through the pipeline system integrity adjustment rider.

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FERC

The FERC has jurisdiction over rates for electric transmission service in interstate commerce and electricity sold at wholesale, hydro facility licensing, natural gas transportation, asset transactions and mergers, accounting practices and certain other activities of PSCo, including enforcement of North American Electric Reliability Corporation mandatory electric reliability standards. State and local agencies have jurisdiction over many of PSCo’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 PSCo Annual Report on Form 10-K for the year ended Dec. 31, 2015 and Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2016 and June 30, 2016. In addition to the matters discussed below, see Note 5 to the consolidated financial statements for a discussion of other regulatory matters.

FERC Order, New ROE Policy — The FERC has adopted a new two-step ROE methodology for electric utilities. The issue of how to apply the new FERC ROE methodology is being contested in various complaint proceedings. FERC issued an order in the first litigated Midcontinent Independent Transmission System Operator, Inc. (MISO) ROE complaint in September 2016 and is not expected to issue an order in the remaining litigated MISO ROE complaint proceeding until 2017.

Formula Rate Treatment of Accumulated Deferred Income Taxes (ADIT) — In 2015, PSCo filed changes to its transmission formula rate and production formula rate to comply with IRS guidance regarding how ADIT must be reflected in formula rates using future test years and a true-up. The filings were intended to ensure that PSCo is in compliance with IRS rules and may continue to use accelerated tax depreciation. In April 2016, FERC accepted the PSCo formula rate changes, subject to a compliance filing. PSCo submitted the compliance filing in May 2016. In August 2016, FERC approved the PSCo compliance filing.

Item 4 — CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

PSCo 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 is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms. In addition, the disclosure controls and procedures ensure that information required to be disclosed 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 Sept. 30, 2016, based on an evaluation carried out under the supervision and with the participation of PSCo’s management, including the CEO and CFO, of the effectiveness of its disclosure controls and the procedures, the CEO and CFO have concluded that PSCo’s disclosure controls and procedures were effective.

Internal Control Over Financial Reporting

Effective January 2016, PSCo implemented the general ledger modules of a new enterprise resource planning (ERP) system to improve certain financial and related transaction processes. During 2016 and 2017, PSCo will continue implementing additional modules and expects to begin conversion of existing work management systems to this new ERP system. In connection with this ongoing implementation, PSCo has updated and will continue updating its internal control over financial reporting, as necessary, to accommodate modifications to its business processes and accounting procedures. PSCo does not expect the implementation of the additional modules to materially affect its internal control over financial reporting.

No changes in PSCo’s internal control over financial reporting occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, PSCo’s internal control over financial reporting.

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Part II — OTHER INFORMATION

Item 1 — LEGAL PROCEEDINGS

PSCo is involved in various litigation matters that are being defended and handled in the ordinary course of business. The assessment of whether a loss is probable or is a reasonable possibility, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. Management maintains accruals for such losses that are probable of being incurred and subject to reasonable estimation. Management is sometimes unable to estimate an amount or range of a reasonably possible loss in certain situations, including but not limited to when (1) the damages sought are indeterminate, (2) the proceedings are in the early stages, or (3) the matters involve novel or unsettled legal theories. In such cases, there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including a possible eventual loss.

Additional Information

See Note 6 to the consolidated financial statements for further discussion of legal claims and environmental proceedings. See Note 5 to the consolidated financial statements for a discussion of proceedings involving utility rates and other regulatory matters.

Item 1A — RISK FACTORS

PSCo’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, 2015, which is incorporated herein by reference. There have been no material changes from the risk factors previously disclosed in the Form 10-K.

Item 4 — MINE SAFETY DISCLOSURES

None.

Item 5 — OTHER INFORMATION

None.

Item 6 — EXHIBITS

*	Indicates incorporation by reference
+	Executive Compensation Arrangements and Benefit Plans Covering Executive Officers and Directors

3.01*	Amended and Restated Articles of Incorporation dated July 15, 1998 (Form 10-K, Dec. 31, 1998, Exhibit 3(a)(1)).
3.02*	By-Laws of PSCo as Amended and Restated on Sept. 26, 2013. (Exhibit 3.02 to Form 10-Q/A for the quarter ended Sept. 30, 2013 (file no. 001-03280)).
10.01*+	Third Amendment dated Sept. 30, 2016 to the Xcel Energy Inc. Nonqualified Deferred Compensation Plan (2009 Restatement) (Exhibit 10.01 to Form 10-Q of Xcel Energy dated Oct. 28, 2016 (file no. 001-03034)).
31.01	Principal Executive Officer’s certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.02	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.
101	The following materials from PSCo’s Quarterly Report on Form 10-Q for the quarter ended Sept. 30, 2016 are formatted in XBRL (eXtensible Business Reporting Language):  (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Balance Sheets, (v) Notes to Consolidated Financial Statements, and (vi) document and entity information.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Public Service Company of Colorado
Oct. 31, 2016	By:	/s/ JEFFREY S. SAVAGE
		Jeffrey S. Savage
		Senior Vice President, Controller
		(Principal Accounting Officer)
		/s/ ROBERT C. FRENZEL
		Robert C. Frenzel
		Executive Vice President, Chief Financial Officer and Director
		(Principal Financial Officer)

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