PSCo is involved in various litigation matters 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 losses 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, management does not anticipate that the ultimate liabilities, if any, would have a material effect on PSCo’s financial statements. Unless otherwise required by GAAP, legal fees are expensed as incurred.

New and changing federal and state environmental mandates can create financial liabilities for PSCo, which are normally recovered through the regulated rate process.

Various federal and state environmental laws impose liability where hazardous substances or other regulated materials have been released to the environment. PSCo may sometimes pay all or a portion of the cost to remediate sites where past activities of PSCo’s predecessors or other parties have caused environmental contamination. Environmental contingencies could arise from various situations, including sites of former MGPs; and third-party sites, such as landfills, for which PSCo is alleged to have sent wastes to that site.

PSCo is currently investigating, remediating or performing post-closure actions at three MGP, landfill or other disposal sites across its service territory.

PSCo has recognized its best estimate of costs/liabilities that will result from final resolution of these issues, however, the outcome and timing is unknown. In addition, there may be insurance recovery and/or recovery from other potentially responsible parties, offsetting a portion of costs incurred.

Coal Ash Regulation — PSCo’s operations are subject to federal and state regulations that impose requirements for handling, storage, treatment and disposal of solid waste. Under the CCR Rule, utilities are required to complete groundwater sampling around their CCR landfills and surface impoundments. Currently, PSCo has six regulated ash units in operation.

PSCo is conducting groundwater sampling and monitoring and implementing assessment of corrective measures at certain CCR landfills and surface impoundments. Increases above background concentrations were detected at four locations.

Subsequently, assessment monitoring samples were collected at these locations. As a result, PSCo is evaluating options for corrective action at two locations, one of which indicates potential offsite impacts to groundwater. Until PSCo completes its assessments, it is uncertain what impact, if any, there will be on the operations, financial condition or cash flows.

In August 2020, the EPA published its final rule to implement a cease receipt and initiate a closure date of April 2021 for all CCR impoundments affected by the August 2018 D.C. Circuit ruling. The D.C. Circuit concluded that the EPA cannot allow utilities to continue to use unlined impoundments (including clay lined impoundments) for the storage or disposal of coal ash. This final rule required Xcel Energy to expedite closure plans for one impoundment.

PSCo is pursuing options to build an alternative bottom ash collection system that will be constructed and in service in advance of the April 11, 2021 deadline. Once the alternative bottom ash system is operational, the existing impoundment will initiate closure per the CCR Rule.

Federal CWA WOTUS Rule — In April 2020, the EPA and U.S. Army Corps of Engineers (“Agencies”) replaced the 2015 WOTUS rule and narrowed the definition of WOTUS (“2020 WOTUS Rule”). The new definition simplifies the process whether waters are subject to CWA jurisdiction and streamlines the permitting process.

In June 2020, the U.S. District Court for the District of Colorado stayed the effective date of the 2020 WOTUS Rule in Colorado, where the pre-2015 definition of WOTUS is now in effect. Regardless of which definition is applicable in the states in which we operate, PSCo does not anticipate that compliance costs will be material.

Federal CWA ELG — In 2015, the EPA issued a final ELG rule for power plants that discharge treated effluent to surface waters as well as utility-owned landfills that receive CCRs. In October 2020, the EPA published a final rule revising the regulations.

The retirement of units affected by the final ELG rule is subject to regulatory approval. The exact total cost of ELG compliance is therefore uncertain but PSCo does not anticipate that compliance costs will be material.

Federal CWA Section 316(b) — The federal CWA requires the EPA to regulate cooling water intake structures to assure that these structures reflect the best technology available for minimizing impingement and entrainment of aquatic species. PSCo estimates the likely cost for complying with impingement and entrainment requirements is immaterial. PSCo anticipates these costs will be fully recoverable through regulatory mechanisms.

Regional Haze Rules — The regional haze program requires sulfur dioxide, nitrogen oxide and particulate matter emission controls at power plants to reduce visibility impairment in national parks and wilderness areas. The program includes best available retrofit technology and reasonable further progress. The regional haze first planning period requirements were approved by the EPA and implemented by 2016.

All states are now subject to a second round of regional haze planning/rulemaking, focusing on additional reductions to meet reasonable progress requirements. Any additional impacts to PSCo facilities are expected to be minimal.


	2020
(Millions of Dollars)	Jan. 1, 2020		Amounts Incurred (a)		Amounts Settled (b)		Accretion		Cash Flow Revisions (c)		Dec. 31, 2020
Electric
Steam, hydro and other production	$	100	$	—	$	—	$	4	$	33	$	137
Wind	16		26		(3)		1		—		40
Distribution	14		—		—		1		—		15
Natural gas
Transmission and distribution	190		—		—		8		5		203
Miscellaneous	3		—		—		—		—		3
Common
Miscellaneous	1		—		—		—		—		1
Total liability	$	324	$	26	$	(3)	$	14	$	38	$	399

(c)In 2020, AROs were revised for changes in timing and estimates of cash flows. Revisions in steam, hydro, and other production AROs primarily related to changes in cost estimates for remediation ash containment facilities.


	2019
(Millions of Dollars)	Jan. 1, 2019		Accretion		Cash Flow Revisions (a)		Dec. 31, 2019 (b)
Electric
Steam, hydro and other production	$	102	$	5	$	(7)	$	100
Wind	14		1		1		16
Distribution	13		1		—		14
Miscellaneous	3		—		(3)		—
Natural gas
Transmission and distribution	201		9		(20)		190
Miscellaneous	4		—		(1)		3
Common
Miscellaneous	1		—		—		1
Total liability	$	338	$	16	$	(30)	$	324

(a)In 2019, AROs were revised for changes in timing and estimates of cash flows. Changes in gas transmission and distribution AROs were primarily related to increased gas line mileage and number of services, which were more than offset by decreased inflation rates. Revisions in steam, hydro, and other production AROs primarily related to changes in cost estimates for pond remediation.

Indeterminate AROs — Outside of the recorded asbestos AROs, other plants or buildings may contain asbestos due to the age of many of PSCo’s facilities, but no confirmation or measurement of the cost of removal could be determined as of Dec. 31, 2020. Therefore, an ARO has not been recorded for these facilities.

PSCo evaluates contracts that may contain leases, including PPAs and arrangements for the use of office space and other facilities, vehicles and equipment. A contract contains a lease if it conveys the exclusive right to control the use of a specific asset. A contract determined to contain a lease is evaluated further to determine if the arrangement is a finance lease.

ROU assets represent PSCo's rights to use leased assets. The present value of future operating lease payments is recognized in current and noncurrent operating lease liabilities. These amounts, adjusted for any prepayments or incentives, are recognized as operating lease ROU assets.

Most of PSCo’s leases do not contain a readily determinable discount rate. Therefore, the present value of future lease payments is generally calculated using the estimated incremental borrowing rate (weighted-average of 3.9%). PSCo has elected to utilize the practical expedient under which non-lease components, such as asset maintenance costs included in payments, are not deducted from minimum lease payments for the purposes of lease accounting and disclosure.


(Millions of Dollars)	Dec. 31, 2020		Dec. 31, 2019
PPAs	$	591	$	585
Other	68		69
Gross operating lease ROU assets	659		654
Accumulated amortization	(159)		(80)
Net operating lease ROU assets	$	500	$	574

ROU assets for finance leases are included in other noncurrent assets, and the present value of future finance lease payments is included in other current liabilities and other noncurrent liabilities.

PSCo’s most significant finance lease activities are related to WYCO, a joint venture with CIG, to develop and lease natural gas pipeline, storage and compression facilities. Xcel Energy Inc. has a 50% ownership interest in WYCO. WYCO leases its facilities to CIG, and CIG operates the facilities, providing natural gas storage and transportation services to PSCo under separate service agreements.


(Millions of Dollars)	Dec. 31, 2020		Dec. 31, 2019
Gas storage facilities	$	201	$	200
Gas pipeline	21		21
Gross finance lease ROU assets	222		221
Accumulated amortization	(90)		(82)
Net finance lease ROU assets	$	132	$	139


(Millions of Dollars)	2020		2019		2018
Operating leases
PPA capacity payments	$	100	$	98	$	97
Other operating leases (a)	13		14		14
Total operating lease expense (b)	$	113	$	112	$	111
Finance leases
Amortization of ROU assets	$	7	$	6	$	6
Interest expense on lease liability	18		19		19
Total finance lease expense	$	25	$	25	$	25

(b)PPA capacity payments are included in electric fuel and purchased power on the consolidated statements of income. Expense for other operating leases is included in O&M expense and electric fuel and purchased power.


(Millions of Dollars)	PPA (a) (b) Operating Leases		Other Operating Leases		Total Operating Leases		Finance Leases
2021	$	101	$	15	$	116	$	24
2022	84		15		99		21
2023	70		10		80		20
2024	63		10		73		20
2025	63		5		68		19
Thereafter	163		12		175		381
Total minimum obligation	544		67		611		485
Interest component of obligation	(74)		(8)		(82)		(352)
Present value of minimum obligation	$	470	$	59	529		133
Less current portion					(97)		(7)
Noncurrent operating and finance lease liabilities					$	432	$	126

Weighted-average remaining lease term in years					7.1		38.0

Non-Lease PPAs — PSCo has entered into PPAs with other utilities and energy suppliers with various expiration dates through 2033 for purchased power to meet system load and energy requirements and operating reserve obligations. In general, these agreements provide for energy payments, based on actual energy delivered and capacity payments. Certain PPAs accounted for as executory contracts contain minimum energy purchase commitments.

Included in electric fuel and purchased power expenses for PPAs accounted for as executory contracts were payments for capacity of $10 million, $12 million and $21 million in 2020, 2019 and 2018, respectively.

Capacity and energy payments are contingent on the IPP meeting contract obligations, including plant availability requirements. Certain contractual payments are adjusted based on market indices. The effects of price adjustments on financial results are mitigated through purchased energy cost recovery mechanisms.

At Dec. 31, 2020, the estimated future payments for capacity that PSCo is obligated to purchase pursuant to these executory contracts, subject to availability, were as follows:

Fuel Contracts — PSCo has entered into various long-term commitments for the purchase and delivery of a significant portion of its coal and natural gas requirements. These contracts expire between 2021 and 2060. PSCo is required to pay additional amounts depending on actual quantities shipped under these agreements.


(Millions of Dollars)	Coal		Natural gas supply		Natural gas storage and transportation
2021	$	132	$	354	$	116
2022	61		119		115
2023	22		54		67
2024	22		3		37
2025	23		—		36
Thereafter	47		—		475
Total	$	307	$	530	$	846

Under certain PPAs, PSCo purchases power from IPPs for which PSCo is required to reimburse fuel costs, or to participate in tolling arrangements under which PSCo procures the natural gas required to produce the energy that it purchases. PSCo has determined that certain IPPs are VIEs. PSCo is not subject to risk of loss from the operations of these entities, and no significant financial support is required other than contractual payments for energy and capacity.

PSCo evaluated each of these VIEs for possible consolidation, including review of qualitative factors such as the length and terms of the contract, control over O&M, control over dispatch of electricity, historical and estimated future fuel and electricity prices, and financing activities. PSCo 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. PSCo had approximately 1,518 MW and 1,442 MW of capacity under long-term PPAs at Dec. 31, 2020 and 2019, respectively, with entities that have been determined to be VIEs. These agreements have expiration dates through 2032.