Fair Value of Financial Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2017

Gross Notional Amounts of Commodity Forwards and Options

The following table details the gross notional amounts of commodity forwards and options at Sept. 30, 2017 and Dec. 31, 2016:


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


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

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

The following tables detail the impact of derivative activity during the three months ended Sept. 30, 2017 and 2016, on accumulated other comprehensive loss, regulatory assets and liabilities, and income:



	Three Months Ended Sept. 30, 2017
	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)	$	—	$	—
Total	$	—	$	—		$	407		$	—	$	—
Other derivative instruments
Commodity trading	$	—	$	—		$	—		$	—	$	(211	)	^(c)
Natural gas commodity	—		(1,635		)	—			—		—
Total	$	—	$	(1,635	)	$	—		$	—	$	(211	)




	Nine Months Ended Sept. 30, 2017
	Pre-Tax Fair Value Losses Recognized During the Period in:					Pre-Tax Losses Reclassified into Income During the Period from:						Pre-Tax 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)			Pre-Tax Losses Recognized During the Period in Income
Derivatives designated as cash flow hedges
Interest rate	$	—	$	—		$	1,208	^(a)	$	—		$	—
Total	$	—	$	—		$	1,208		$	—		$	—
Other derivative instruments
Commodity trading	$	—	$	—		$	—		$	—		$	(23	)	^(c)
Natural gas commodity	—		(8,643		)	—			282		^(d)	(2,990		)	^(d)
Total	$	—	$	(8,643	)	$	—		$	282		$	(3,013	)





	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 Gains Recognized During the Period in Income
Derivatives designated as cash flow hedges
Interest rate	$	—		$	—		$	407	^(a)	$	—	$	—
Vehicle fuel and other commodity	(2		)	—			21		^(b)	—		—
Total	$	(2	)	$	—		$	428		$	—	$	—
Other derivative instruments
Commodity trading	$	—		$	—		$	—		$	—	$	(28	)	^(c)
Natural gas commodity	—			(4,848		)	—			—		(6		)	^(d)
Total	$	—		$	(4,848	)	$	—		$	—	$	(34	)




	Nine Months Ended Sept. 30, 2016
	Pre-Tax Fair Value Gains (Losses) Recognized During the Period in:					Pre-Tax Losses Reclassified into Income During the Period from:
(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	$	—	$	—		$	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	)


^(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)

Certain derivatives are utilized to mitigate natural gas price risk for electric generation and are 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, 2017 included no settlement gains or losses and $0.9 million of settlement gains, respectively. Amounts for the three and nine months ended Sept. 30, 2016 included no settlement gains or losses. The remaining derivative settlement gains and losses for the nine months ended Sept. 30, 2017 and 2016 relate to natural gas operations and are recorded to cost of natural gas sold and transported. These gains and losses are subject to cost-recovery mechanisms and reclassified out of income to a regulatory asset or liability, as appropriate.

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

Recurring Fair Value Measurements — The following table presents, for each of the fair value hierarchy levels, PSCo’s assets and liabilities measured at fair value on a recurring basis at Sept. 30, 2017:



	Sept. 30, 2017
	Fair Value						Fair Value Total		Counterparty Netting ^(b)
(Thousands of Dollars)	Level 1		Level 2		Level 3		Fair Value Total		Counterparty Netting ^(b)			Total
Current derivative assets
Other derivative instruments:
Commodity trading	$	116	$	3,238	$	5	$	3,359	$	(2,652	)	$	707
Natural gas commodity	—		1,394		—		1,394		(135		)	1,259
Total current derivative assets	$	116	$	4,632	$	5	$	4,753	$	(2,787	)	1,966
PPAs ^(a)												1,715
Current derivative instruments												$	3,681
Noncurrent derivative assets
Other derivative instruments:
Commodity trading	$	—	$	511	$	—	$	511	$	(109	)	$	402
Total noncurrent derivative assets	$	—	$	511	$	—	$	511	$	(109	)	402
PPAs ^(a)												459
Noncurrent derivative instruments												$	861
Current derivative liabilities
Other derivative instruments:
Commodity trading	$	144	$	3,104	$	3	$	3,251	$	(3,188	)	$	63
Natural gas commodity	—		962		—		962		(135		)	827
Total current derivative liabilities	$	144	$	4,066	$	3	$	4,213	$	(3,323	)	890
PPAs ^(a)												5,159
Current derivative instruments												$	6,049
Noncurrent derivative liabilities
Other derivative instruments:
Commodity trading	$	—	$	406	$	—	$	406	$	(109	)	$	297
Total noncurrent derivative liabilities	$	—	$	406	$	—	$	406	$	(109	)	297
PPAs ^(a)												3,958
Noncurrent derivative instruments												$	4,255


^(a)	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, 2017. At Sept. 30, 2017, derivative assets and liabilities include no obligations to return cash collateral and rights to reclaim cash collateral of $0.5 million. The counterparty netting amounts presented exclude settlement receivables and payables and non-derivative amounts that may be subject to the same master netting agreements.

The following table presents, for each of the fair value hierarchy levels, PSCo’s assets and liabilities measured at fair value on a recurring basis at Dec. 31, 2016:



	Dec. 31, 2016
	Fair Value						Fair Value Total		Counterparty Netting ^(b)
(Thousands of Dollars)	Level 1		Level 2		Level 3		Fair Value Total		Counterparty Netting ^(b)			Total
Current derivative assets
Other derivative instruments:
Commodity trading	$	1,124	$	5,453	$	—	$	6,577	$	(5,137	)	$	1,440
Natural gas commodity	—		7,778		—		7,778		—			7,778
Total current derivative assets	$	1,124	$	13,231	$	—	$	14,355	$	(5,137	)	9,218
PPAs ^(a)												1,716
Current derivative instruments												$	10,934
Noncurrent derivative assets
Other derivative instruments:
Natural gas commodity	$	—	$	1,652	$	—	$	1,652	$	—		$	1,652
Total noncurrent derivative assets	$	—	$	1,652	$	—	$	1,652	$	—		1,652
PPAs ^(a)												1,746
Noncurrent derivative instruments												$	3,398
Current derivative liabilities
Other derivative instruments:
Commodity trading	$	1,386	$	5,357	$	22	$	6,765	$	(5,137	)	$	1,628
Total current derivative liabilities	$	1,386	$	5,357	$	22	$	6,765	$	(5,137	)	1,628
PPAs ^(a)												5,160
Current derivative instruments												$	6,788
Noncurrent derivative liabilities
PPAs ^(a)												$	7,828
Noncurrent derivative instruments												$	7,828


^(a)	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, 2016. At Dec. 31, 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.

Carrying Amount and Fair Value of Long-term Debt

As of Sept. 30, 2017 and Dec. 31, 2016, other financial instruments for which the carrying amount did not equal fair value were as follows:



	Sept. 30, 2017				Dec. 31, 2016
(Thousands of Dollars)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, including current portion	$	4,608,666	$	4,958,850	$	4,216,206	$	4,491,570

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

Sept. 30, 2017

Dec. 31, 2016

Megawatt hours of electricity

Million British thermal units of natural gas