Fair Value of Financial Assets and Liabilities

12 Months Ended

Dec. 31, 2023

Fair Value Disclosures [Abstract]

Fair Value of Financial Assets and Liabilities

Fair Value Measurements

Accounting guidance for fair value measurements and disclosures provides a hierarchical framework for disclosing the observability of the inputs utilized in measuring assets and liabilities at fair value. 

•Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. The types of assets and liabilities included in Level 1 are actively traded instruments with observable actual trading prices.

•Level 2 — Pricing inputs are other than actual trading 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 include those valued with models requiring significant judgment or estimation.

Specific valuation methods include:

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

Commodity derivatives — 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 classification. When contracts relate to inactive delivery locations or extend to periods beyond those readily observable on active exchanges, the significance of the use of less observable inputs on a valuation is evaluated and may result in Level 3 classification.

Derivative Activities and 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 and utility commodity prices.

Interest Rate Derivatives — PSCo enters into contracts that effectively fix the interest rate on a specified principal amount of a hypothetical future debt issuance. These financial swaps net settle based on changes in a specified benchmark interest rate, acting as a hedge of changes in market interest rates that will impact specified anticipated debt issuances. These derivative instruments are designated as cash flow hedges for accounting purposes, with changes in fair value prior to occurrence of the hedged transactions recorded as other comprehensive income.

As of Dec. 31, 2023, accumulated other comprehensive loss related to interest rate derivatives included $1 million of net losses expected to be reclassified into earnings during the next 12 months as the hedged transactions impact earnings. As of Dec. 31, 2023, PSCo had no unsettled interest rate derivatives.

Wholesale and Commodity Trading — PSCo conducts various wholesale and commodity trading activities, including the purchase and sale of electric capacity, energy, energy-related instruments and natural gas-related instruments, including derivatives. PSCo is allowed to conduct these activities within guidelines and limitations as approved by its risk management committee, comprised of management personnel not directly involved in the activities governed by this policy.

Derivative instruments entered into for trading purposes are presented in the consolidated statements of income as electric revenues, net of any sharing with customers. These activities are not intended to mitigate commodity price risk associated with regulated electric and natural gas operations. Sharing of these margins is determined through state regulatory proceedings as well as the operation of the FERC-approved joint operating agreement.

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. 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.

When PSCo enters into derivative instruments that mitigate commodity price risk on behalf of electric and natural gas customers, the instruments are not typically designated as qualifying hedging transactions. The classification of unrealized losses or gains on these instruments as a regulatory asset or liability, if applicable, is based on approved regulatory recovery mechanisms.

As of Dec. 31, 2023, PSCo had no commodity contracts designated as cash flow hedges.

Gross notional amounts of commodity forwards and options:

(Amounts in Millions) (a)(b)	Dec. 31, 2023	Dec. 31, 2022
MWh of electricity	2	8
MMBtu of natural gas	20	43

(a)Not reflective of net positions in the underlying commodities.

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

Consideration of Credit Risk and Concentrations — PSCo continuously monitors the creditworthiness of counterparties to its interest rate derivatives and commodity derivative contracts prior to settlement and assesses each counterparty’s ability to perform on the transactions set forth in the contracts. Impact of credit risk was immaterial to the fair value of unsettled commodity derivatives presented on the consolidated balance sheets.

PSCo’s most significant concentrations of credit risk with particular entities or industries are contracts with counterparties to its wholesale, trading and non-trading commodity activities. 

As of Dec. 31, 2023, four of PSCo’s ten most significant counterparties for these activities, comprising $30 million or 36% of this credit exposure, had investment grade credit ratings from S&P Global Ratings, Moody’s Investor Services or Fitch Ratings. 

Six of the ten most significant counterparties, comprising $40 million or 48% of this credit exposure, were not rated by these external ratings agencies, but based on PSCo’s internal analysis, had credit quality consistent with investment grade.

None of these significant counterparties had credit quality less than investment grade, based on internal analysis.

Eight of these significant counterparties are municipal, cooperative electric entities, RTOs or other utilities.

Credit Related Contingent Features — Contract provisions for derivative instruments that PSCo enters into, including those accounted for as normal purchase and normal sale contracts and therefore not reflected on the consolidated balance sheets, may require the posting of collateral or settlement of the contracts for various reasons, including if PSCo’s credit ratings are downgraded below its investment grade credit rating by any of the major credit rating agencies. As of Dec. 31, 2023 and 2022, there were no derivative liabilities position with such underlying contract provisions.

Also, certain contracts may contain cross default provisions that may require the posting of collateral or settlement of the contracts if there was a failure under other financing arrangements related to payment terms or other covenants. As of Dec. 31, 2023 there were approximately $8 million of derivative instruments in a liability position with such underlying contract provisions. As of Dec. 31, 2022, there were no derivative liabilities in a liability position with such underlying contract provisions.

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 Dec. 31, 2023 and 2022.

Recurring Derivative Fair Value Measurements

Impact of derivative activity:

	Pre-Tax Fair Value Gains (Losses) Recognized During the Period in:
(Millions of Dollars)	Accumulated Other Comprehensive Loss		Regulatory (Assets) and Liabilities
Year Ended Dec. 31, 2023
Other derivative instruments
Natural gas commodity	$	—	$	(13)
Total	$	—	$	(13)
Year Ended Dec. 31, 2022
Other derivative instruments
Natural gas commodity	$	—	$	(15)
Total	$	—	$	(15)
Year Ended Dec. 31, 2021
Other derivative instruments
Natural gas commodity	$	—	$	(1)
Total	$	—	$	(1)

	Pre-Tax (Gains) Losses Reclassified into Income During the Period from:						Pre-Tax Gains (Losses) Recognized During the Period in Income
(Millions of Dollars)	Accumulated Other Comprehensive Loss			Regulatory Assets and (Liabilities)
Year Ended Dec. 31, 2023
Derivatives designated as cash flow hedges
Interest rate	$	1	(a)	$	—		$	—
Total	$	1		$	—		$	—
Other derivative instruments
Commodity trading	$	—		$	—		$	(5)	(b)
Natural gas commodity	—			15		(c)	(16)		(c)(d)
Total	$	—		$	15		$	(21)
Year Ended Dec. 31, 2022
Derivatives designated as cash flow hedges
Interest rate	$	1	(a)	$	—		$	—
Total	$	1		$	—		$	—
Other derivative instruments
Commodity trading	$	—		$	—		$	7	(b)
Natural gas commodity	—			8		(c)	(17)		(c)(d)
Total	$	—		$	8		$	(10)
Year Ended Dec. 31, 2021
Derivatives designated as cash flow hedges
Interest rate	$	2	(a)	$	—		$	—
Total	$	2		$	—		$	—
Other derivative instruments
Commodity trading	$	—		$	—		$	12	(b)
Natural gas commodity	—			4		(c)	(15)		(c)(d)
Total	$	—		$	4		$	(3)

(a)Recorded to interest charges.

(b)Recorded to electric revenues. Presented amounts do not reflect non-derivative transactions or margin sharing with customers.

(c)Recorded to cost of natural gas sold and transported. These losses are subject to cost-recovery mechanisms and reclassified out of income to a regulatory asset, as appropriate.

(d)Relates primarily to option premium amortization.

PSCo had no derivative instruments designated as fair value hedges during the years ended Dec. 31, 2023, 2022 and 2021. 

Derivative assets and liabilities measured at fair value on a recurring basis were as follows:

	Dec. 31, 2023												Dec. 31, 2022
	Fair Value						Fair Value Total		Netting (a)		Total		Fair Value						Fair Value Total		Netting (a)		Total
(Millions of Dollars)	Level 1		Level 2		Level 3								Level 1		Level 2		Level 3
Current derivative assets
Other derivative instruments:
Commodity trading	$	1	$	19	$	—	$	20	$	(17)	$	3	$	16	$	220	$	1	$	237	$	(184)	$	53
Natural gas commodity	—		8		—		8		—		8		—		12		—		12		—		12
Total current derivative assets	$	1	$	27	$	—	$	28	$	(17)	$	11	$	16	$	232	$	1	$	249	$	(184)	$	65
Noncurrent derivative assets
Other derivative instruments:
Commodity trading	$	6	$	9	$	—	$	15	$	—	$	15	$	12	$	32	$	9	$	53	$	(31)	$	22
Total noncurrent derivative assets	$	6	$	9	$	—	$	15	$	—	$	15	$	12	$	32	$	9	$	53	$	(31)	$	22
Current derivative liabilities
Other derivative instruments:
Commodity trading	$	1	$	25	$	—	$	26	$	(17)	$	9	$	5	$	237	$	1	$	243	$	(223)	$	20
Natural gas commodity	—		8		—		8		—		8		—		10		—		10		—		10
Total current derivative liabilities	$	1	$	33	$	—	$	34	$	(17)	$	17	$	5	$	247	$	1	$	253	$	(223)	$	30
Noncurrent derivative liabilities
Other derivative instruments:
Commodity trading	$	2	$	1	$	—	$	3	$	(3)	$	—	$	7	$	40	$	—	$	47	$	(38)	$	9
Total noncurrent derivative liabilities	$	2	$	1	$	—	$	3	$	(3)	$	—	$	7	$	40	$	—	$	47	$	(38)	$	9

(a)PSCo nets derivative instruments and related collateral on its consolidated balance sheets when supported by a legally enforceable master netting agreement. At Dec. 31, 2023 and 2022, derivative assets and liabilities include no obligations to return cash collateral. At Dec. 31, 2023 and 2022, derivative assets and liabilities include rights to reclaim cash collateral of $4 million and $46 million, respectively. Counterparty netting amounts presented exclude settlement receivables and payables and non-derivative amounts that may be subject to the same master netting agreements.

Changes in Level 3 commodity derivatives:

	Year Ended Dec. 31
(Millions of Dollars)	2023		2022		2021
Balance at Jan. 1	$	9	$	(63)	$	(44)
Settlements (a)	—		12		4
Net transactions recorded during the period:
(Losses) gains recognized in earnings (a)	(9)		60		(23)
Balance at Dec. 31	$	—	$	9	$	(63)

(a)Relates to commodity trading and is subject to substantial offsetting losses and gains on derivative instruments categorized as levels 1 and 2 in the income statement. See above tables for the income statement impact of derivative activity, including commodity trading gains and losses.

Fair Value of Long-Term Debt

As of Dec. 31, other financial instruments for which the carrying amount did not equal fair value:

	2023				2022
(Millions of Dollars)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, including current portion	$	7,450	$	6,580	$	6,860	$	5,881

Fair value of PSCo’s long-term debt is estimated based on recent trades and observable spreads from benchmark interest rates for similar securities. Fair value estimates are based on information available to management as of Dec. 31, 2023 and 2022, and given the observability of the inputs, fair values presented for long-term debt were assigned as Level 2.