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, including a possible eventual loss. For current proceedings not specifically reported herein, management does not anticipate that the ultimate liabilities, if any, would have a material effect on PSCo’s consolidated financial statements. Legal fees are generally expensed as incurred.

Comanche Unit 3 Litigation — In September 2021, CORE filed a lawsuit in Denver County District Court. CORE alleges PSCo breached ownership agreement terms by failing to operate Comanche Unit 3 in accordance with prudent utility practices. In January 2022, the Court granted PSCo’s motion and dismissed CORE’s claims for unjust enrichment, declaratory judgment and damages for replacement power costs. In February 2022, CORE disclosed that it is claiming in excess of $125 million in total damages.

In April 2022, CORE filed a supplement to include the January 2022 outage. It claims additional undisclosed damages arising from this event.

PSCo is involved in various regulatory proceedings arising in the ordinary course of business. Until resolution, typically in the form of a rate order, uncertainties may exist regarding the ultimate rate treatment for certain activities and transactions. Amounts have been recognized for probable and reasonably estimable losses that may result. Unless otherwise disclosed, any reasonably possible range of loss in excess of any recognized amount is not expected to have a material effect on the financial statements.

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

PSCo has recognized its best estimate of costs/liabilities from final resolution of these issues, however, the outcome and timing are 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 five regulated ash units in operation.

In August 2020, the EPA published its final rule to implement closure by April 2021 for CCR impoundments. This final rule required PSCo to expedite closure plans for one impoundment.

PSCo built an alternative collection and treatment system to remove a bottom ash pond from service. The total cost of the treatment system is approximately $25 million. PSCo removed the pond from service in June 2021 and did not meet the April 2021 deadline. PSCo has negotiated a compliance order with the EPA addressing the closure deadline, which includes a penalty of less than $1 million paid by PSCo.

The EPA recently clarified its interpretation/guidance regarding CCR units with ash in place and contact with groundwater. This guidance affects two of PSCo’s facilities. PSCo is exploring an agreement with a company that would excavate and process the ash for beneficial use at a cost to PSCo of approximately $30 - $40 million. An estimated liability has been recorded within that range. PSCo anticipates these costs will be fully recoverable through regulatory mechanisms.

In addition, increased concentrations of certain chemicals were detected in groundwater at or near four PSCo locations. PSCo is evaluating options for corrective action at two locations. The total cost is uncertain, but could be up to $35 million. PSCo is continuing to assess the financial and regulatory impacts.

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.


	Three Months Ended June 30
(Millions of Dollars)	2022		2021
Operating leases
PPA capacity payments	$	23	$	26
Other operating leases (a)	4		3
Total operating lease expense (b)	$	27	$	29
Finance leases
Amortization of ROU assets	$	1	$	2
Interest expense on lease liability	4		4
Total finance lease expense	$	5	$	6

(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.


	Six Months Ended June 30
(Millions of Dollars)	2022		2021
Operating leases
PPA capacity payments	$	48	$	51
Other operating leases (a)	10		7
Total operating lease expense (b)	$	58	$	58
Finance leases
Amortization of ROU assets	$	2	$	4
Interest expense on lease liability	8		8
Total finance lease expense	$	10	$	12


(Millions of Dollars)	PPA Operating Leases		Other Operating Lease		Total Operating Leases		Finance Leases
Total minimum obligation	$	409	$	47	$	456	$	449
Interest component of obligation	(50)		(5)		(55)		(326)
Present value of minimum obligation	$	359	$	42	401		123
Less current portion					(79)		(5)
Noncurrent operating and finance lease liabilities					$	322	$	118

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 they purchase. These specific PPAs create a variable interest in the IPP.