8. Benefit Plans and Other Postretirement Benefits

Consistent with the process for rate recovery of pension and postretirement benefits for its employees, PSCo accounts for its participation in, and related costs of, pension and other postretirement benefit plans sponsored by Xcel Energy Inc. as multiple employer plans. PSCo is responsible for its share of cash contributions, plan costs and obligations and is entitled to its share of plan assets; accordingly, PSCo accounts for its pro rata share of these plans, including pension expense and contributions, resulting in accounting consistent with that of a single employer plan exclusively for PSCo employees.

Xcel Energy, which includes PSCo, offers various benefit plans to its employees. Approximately 76 percent of employees that receive benefits are represented by several local labor unions under several collective-bargaining agreements. At Dec. 31, 2011, PSCo had 2,122 bargaining employees covered under a collective-bargaining agreement, which expires in May 2014.

The plans invest in various instruments which are disclosed under the accounting guidance for fair value measurements which establishes a hierarchal framework for disclosing the observability of the inputs utilized in measuring fair value. The three levels in the hierarchy and examples of each level are as follows:

Level 1 - Quoted prices are available in active markets for identical assets as of the reporting date. The types of assets included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as common stocks listed by the New York Stock Exchange.

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 included in Level 2 are typically either comparable to actively traded securities or contracts or priced with models using highly observable inputs, such as corporate bonds with pricing based on market interest rate curves and recent trades of similarly rated securities.

Level 3 - Significant inputs to pricing have little or no observability as of the reporting date. The types of assets included in Level 3 are those with inputs requiring significant management judgment or estimation, such as private equity investments and real estate investments, for which the measurement of net asset value requires significant use of unobservable inputs when determining the fair value of the underlying fund investments, including equity in non-publicly traded entities and real estate properties.

Pension Benefits

Xcel Energy, which includes PSCo, has several noncontributory, defined benefit pension plans that cover almost all employees. Benefits are based on a combination of years of service, the employee's average pay and Social Security benefits. Xcel Energy Inc.'s and PSCo's policy is to fully fund into an external trust the actuarially determined pension costs recognized for ratemaking and financial reporting purposes, subject to the limitations of applicable employee benefit and tax laws.

Xcel Energy Inc. and PSCo base the investment-return assumption on expected long-term performance for each of the investment types included in the pension asset portfolio and consider the actual historical returns achieved by its asset portfolio over the past 20-year or longer period, as well as the long-term return levels projected and recommended by investment experts. The pension cost determination assumes a forecasted mix of investment types over the long term. Investment returns were above the assumed levels of 7.00, 7.84 and 8.50 percent in 2011, 2010 and 2009, respectively. Xcel Energy Inc. and PSCo continually review the pension assumptions. In 2012, PSCo's estimated investment-return assumption is 6.65 percent.

The assets are invested in a portfolio according to Xcel Energy Inc.'s and PSCo's return, liquidity and diversification objectives to provide a source of funding for plan obligations and minimize the necessity of contributions to the plan, within appropriate levels of risk. The principal mechanism for achieving these objectives is the projected allocation of assets to selected asset classes, given the long term risk, return, and liquidity characteristics of each particular asset class. There were no significant concentrations of risk in any particular industry, index, or entity; however, as PSCo has experienced in recent years, unusual market volatility can impact even well-diversified portfolios and significantly affect the return levels achieved by pension assets in any year.

The following table presents the target pension asset allocations for PSCo:

	2011			2010
Domestic and international equity securities		23	%		19	%
Long-duration fixed income securities		31			54
Short-to-intermediate term fixed income securities		10			8
Alternative investments		33			13
Cash		3			6
Total		100	%		100	%

The ongoing investment strategy is based on plan-specific investment recommendations that seek to minimize potential investment and interest rate risk as a plan's funded status increases over time. The investment recommendations result in a greater percentage of long-duration fixed income securities being allocated to specific plans having relatively higher funded status ratios, and a greater percentage of growth assets being allocated to plans having relatively lower funded status ratios. The aggregate projected asset allocation presented in the table above for the master pension trust results from the plan-specific strategies.

Pension Plan Assets

The following tables present, for each of the fair value hierarchy levels, PSCo's pension plan assets that are measured at fair value as of Dec. 31, 2011 and 2010:

	Dec. 31, 2011
(Thousands of Dollars)	Level 1		Level 2			Level 3		Total
Cash equivalents	$	60,405	$	-		$	-	$	60,405
Derivatives		-		3,101			-		3,101
Government securities		-		190,555			-		190,555
Corporate bonds		-		210,182			-		210,182
Asset-backed securities		-		-			9,824		9,824
Mortgage-backed securities		-		-			23,614		23,614
Common stock		20,793		-			-		20,793
Private equity investments		-		-			49,489		49,489
Commingled funds		-		410,243			-		410,243
Real estate		-		-			11,230		11,230
Securities lending collateral obligation and other		-		(20,229	)		-		(20,229	)
Total	$	81,198	$	793,852		$	94,157	$	969,207

	Dec. 31, 2010
(Thousands of Dollars)	Level 1		Level 2			Level 3		Total
Cash equivalents	$	81,485	$	-		$	-	$	81,485
Derivatives		-		2,821			-		2,821
Government securities		-		44,883			-		44,883
Corporate bonds		-		222,531			-		222,531
Asset-backed securities		-		-			8,399		8,399
Mortgage-backed securities		-		-			36,134		36,134
Common stock		35,960		-			-		35,960
Private equity investments		-		-			36,420		36,420
Commingled funds		-		384,910			-		384,910
Real estate		-		-			21,962		21,962
Securities lending collateral obligation and other		-		(26,036	)		-		(26,036	)
Total	$	117,445	$	629,109		$	102,915	$	849,469

The following tables present the changes in PSCo's Level 3 pension plan assets for the years ended Dec. 31, 2011, 2010 and 2009:

(Thousands of Dollars)	Jan. 1, 2011		Net Realized Gains (Losses)			Net Unrealized Gains (Losses)			Purchases, Issuances, and Settlements, Net			Dec. 31, 2011
Asset-backed securities	$	8,399	$	713		$	(744	)	$	1,456		$	9,824
Mortgage-backed securities		36,134		320			(1,774	)		(11,066	)		23,614
Real estate		21,962		(190	)		6,000			(16,542	)		11,230
Private equity investments		36,420		1,229			3,925			7,915			49,489
Total	$	102,915	$	2,072		$	7,407		$	(18,237	)	$	94,157

(Thousands of Dollars)	Jan. 1, 2010		Net Realized Gains (Losses)			Net Unrealized Gains (Losses)			Purchases, Issuances, and Settlements, Net			Dec. 31, 2010
Asset-backed securities	$	14,333	$	1,014		$	(782	)	$	(6,166	)	$	8,399
Mortgage-backed securities		44,296		4,127			(4,201	)		(8,088	)		36,134
Real estate		19,838		(338	)		2,375			87			21,962
Private equity investments		24,415		(300	)		4,696			7,609			36,420
Total	$	102,882	$	4,503		$	2,088		$	(6,558	)	$	102,915

(Thousands of Dollars)	Jan. 1, 2009		Net Realized Gains (Losses)			Net Unrealized Gains (Losses)			Purchases, Issuances, and Settlements, Net			Dec. 31, 2009
Asset-backed securities	$	20,499	$	708		$	11,990		$	(18,864	)	$	14,333
Mortgage-backed securities		44,115		1,642			5,193			(6,654	)		44,296
Real estate		28,934		(169	)		(12,522	)		3,595			19,838
Private equity investments		21,453		-			(2,879	)		5,841			24,415
Total	$	115,001	$	2,181		$	1,782		$	(16,082	)	$	102,882

Benefit Obligations - A comparison of the actuarially computed pension benefit obligation and plan assets for PSCo is presented in the following table:

(Thousands of Dollars)	2011			2010
Accumulated Benefit Obligation at Dec. 31	$	1,036,749		$	955,109

Change in Projected Benefit Obligation:
Obligation at Jan. 1	$	971,805		$	897,707
Service cost		17,726			16,142
Interest cost		52,234			52,639
Plan amendments		-			11
Actuarial loss		66,766			61,776
Benefit payments		(61,158	)		(56,470	)
Obligation at Dec. 31	$	1,047,373		$	971,805

Change in Fair Value of Plan Assets:
Fair value of plan assets at Jan. 1	$	849,469		$	806,809
Actual return on plan assets		120,325			99,130
Employer contributions		60,571			-
Benefit payments		(61,158	)		(56,470	)
Fair value of plan assets at Dec. 31	$	969,207		$	849,469

Funded Status of Plans at Dec. 31:
Funded status (a)	$	(78,166	)	$	(122,336	)

(a)	Amounts are recognized in noncurrent liabilities on PSCo's consolidated balance sheet.

(Thousands of Dollars)	2011			2010
PSCo Amounts Not Yet Recognized as Components of Net Periodic Benefit Cost:
Net loss	$	450,405		$	464,143
Prior service credit		(22,636	)		(22,414	)
Total	$	427,769		$	441,729

Amounts Related to the Funded Status of the Plans Have Been Recorded as Follows Based Upon Expected Recovery in Rates:
Current regulatory assets	$	36,052		$	27,216
Noncurrent regulatory assets		391,717			414,513
Total	$	427,769		$	441,729

Measurement Date	Dec. 31, 2011			Dec. 31, 2010

Significant Assumptions Used to Measure Benefit Obligations:
Discount rate for year-end valuation		5.00	%		5.50	%
Expected average long-term increase in compensation level		4.00			4.00
Mortality table	RP 2000			RP 2000

Cash Flows - Cash funding requirements can be impacted by changes to actuarial assumptions, actual asset levels and other calculations prescribed by the funding requirements of income tax and other pension-related regulations. These regulations did not require cash funding for 2008 through 2010 for Xcel Energy's pension plans. Required contributions were made in 2011 and 2012 to meet minimum funding requirements.

The Pension Protection Act changed the minimum funding requirements for defined benefit pension plans beginning in 2008. The following are the pension funding contributions, both voluntary and required, made by Xcel Energy for 2010 through 2012:

In January 2012, contributions of $190.5 million were made across four of Xcel Energy's pension plans, of which $41.0 million was attributable to PSCo;

In 2011, contributions of $137.3 million were made across three of Xcel Energy's pension plans, of which $60.5 million was attributable to PSCo;

In 2010, contributions of $34 million were made to the Xcel Energy Pension Plan, of which none was attributable to PSCo.

For future years, we anticipate contributions will be made as necessary.

Plan Amendments - No amendments occurred during 2011 to the Xcel Energy pension plans.

Benefit Costs - The components of PSCo's net periodic pension cost were:

(Thousands of Dollars)	2011			2010			2009
Service cost	$	17,726		$	16,142		$	15,557
Interest cost		52,234			52,639			54,745
Expected return on plan assets		(67,946	)		(73,609	)		(71,435	)
Amortization of prior service cost		222			204			4,167
Amortization of net loss		28,126			19,927			10,813
Net periodic pension cost	$	30,362		$	15,303		$	13,847

Significant Assumptions Used to Measure Costs:
Discount rate		5.50	%		6.00	%		6.75	%
Expected average long-term increase in compensation level		4.00			4.00			4.00
Expected average long-term rate of return on assets		7.00			7.84			8.50

In addition to the benefit costs in the table above, for the pension plans sponsored by Xcel Energy Inc., costs are allocated to PSCo based on Xcel Energy Services Inc. employees' labor costs. Pension costs include an expected return impact for the current year that may differ from actual investment performance in the plan. The return assumption used for 2012 pension cost calculations will be 6.65 percent. The cost calculation uses a market-related valuation of pension assets. Xcel Energy, including PSCo, uses a calculated value method to determine the market-related value of the plan assets. The market-related value begins with the fair market value of assets as of the beginning of the year. The market-related value is determined by adjusting the fair market value of assets to reflect the investment gains and losses (the difference between the actual investment return and the expected investment return on the market-related value) during each of the previous five years at the rate of 20 percent per year. As these differences between actual investment returns and the expected investment returns are incorporated into the market-related value, the differences are recognized over the expected average remaining years of service for active employees.

Xcel Energy, which includes PSCo, also maintains noncontributory, defined benefit supplemental retirement income plans for certain qualifying executive personnel. Benefits for these unfunded plans are paid out of operating cash flows.

Defined Contribution Plans

Xcel Energy, which includes PSCo, maintains 401(k) and other defined contribution plans that cover substantially all employees. The contributions for PSCo were approximately $8.5 million in 2011, $8.4 million in 2010 and $6.4 million in 2009.

Postretirement Health Care Benefits

Xcel Energy, which includes PSCo, has a contributory health and welfare benefit plan that provides health care and death benefits to certain retirees. Xcel Energy discontinued contributing toward health care benefits for former NCE nonbargaining employees retiring after June 30, 2003. Employees of NCE who retired in 2002 continue to receive employer-subsidized health care benefits. Nonbargaining employees of the former NCE who retired after 1998, bargaining employees of the former NCE who retired after 1999 and nonbargaining employees of NCE who retired after June 30, 2003, are eligible to participate in the Xcel Energy health care program with no employer subsidy.

In 1993, Xcel Energy Inc. and PSCo adopted accounting guidance regarding other non-pension postretirement benefits and elected to amortize the unrecognized APBO on a straight-line basis over 20 years.

Regulatory agencies for nearly all retail and wholesale utility customers have allowed rate recovery of accrued postretirement benefit costs. PSCo transitioned to full accrual accounting for postretirement benefit costs between 1993 and 1997, consistent with the accounting requirements for rate-regulated enterprises. The Colorado jurisdictional postretirement benefit costs deferred during the transition period are being amortized to expense on a straight-line basis over the 15-year period from 1998 to 2012. PSCo transitioned to full accrual accounting for postretirement benefit costs between 1993 and 1997.

Plan Assets - Certain state agencies that regulate Xcel Energy Inc.'s utility subsidiaries also have issued guidelines related to the funding of postretirement benefit costs. PSCo is required to fund postretirement benefit costs in irrevocable external trusts that are dedicated to the payment of these postretirement benefits. Also, a portion of the assets contributed on behalf of nonbargaining retirees has been funded into a sub-account of the Xcel Energy pension plans. These assets are invested in a manner consistent with the investment strategy for the pension plan.

Xcel Energy Inc. and PSCo base the investment-return assumption for the postretirement health care fund assets on expected long-term performance for each of the investment types included in the asset portfolio. The assets are invested in a portfolio according to Xcel Energy Inc.'s and PSCo's return, liquidity and diversification objectives to provide a source of funding for plan obligations and minimize the necessity of contributions to the plan, within appropriate levels of risk. The principal mechanism for achieving these objectives is the projected allocation of assets to selected asset classes, given the long-term risk, return, correlation, and liquidity characteristics of each particular asset class. There were no significant concentrations of risk in any particular industry, index, or entity. Investment-return volatility is not considered to be a material factor in postretirement health care costs.

The following tables present, for each of the fair value hierarchy levels, PSCo's postretirement benefit plan assets that are measured at fair value as of Dec. 31, 2011 and 2010:

	Dec. 31, 2011
(Thousands of Dollars)	Level 1		Level 2			Level 3		Total
Cash equivalents	$	51,203	$	-		$	-	$	51,203
Derivatives		-		11,608			-		11,608
Government securities		-		57,937			-		57,937
Corporate bonds		-		54,244			-		54,244
Asset-backed securities		-		-			6,941		6,941
Mortgage-backed securities		-		-			24,038		24,038
Preferred stock		-		373			-		373
Common stock		351		-			-		351
Private equity investments		-		-			479		479
Commingled funds		-		178,951			-		178,951
Real estate		-		-			144		144
Securities lending collateral obligation and other		-		(9,761	)		-		(9,761	)
Total	$	51,554	$	293,352		$	31,602	$	376,508

	Dec. 31, 2010
(Thousands of Dollars)	Level 1		Level 2		Level 3		Total
Cash equivalents	$	131,220	$	-	$	-	$	131,220
Derivatives		-		11,922		-		11,922
Government securities		-		3,681		-		3,681
Corporate bonds		-		62,822		-		62,822
Asset-backed securities		-		-		2,427		2,427
Mortgage-backed securities		-		-		17,461		17,461
Preferred stock		-		441		-		441
Common stock		1,022		-		-		1,022
Private equity investments		-		-		1,018		1,018
Commingled funds		-		93,333		-		93,333
Real estate		-		-		614		614
Securities lending collateral obligation and other		-		51,870		-		51,870
Total	$	132,242	$	224,069	$	21,520	$	377,831

The following tables present the changes in PSCo's Level 3 postretirement benefit plan assets for the years ended Dec. 31, 2011, 2010 and 2009:

(Thousands of Dollars)	Jan. 1, 2011		Net Realized Gains (Losses)			Net Unrealized Gains (Losses)			Purchases, Issuances, and Settlements, Net			Dec. 31, 2011
Asset-backed securities	$	2,427	$	(8	)	$	(979	)	$	5,501		$	6,941
Mortgage-backed securities		17,461		(1,469	)		1,714			6,332			24,038
Real estate		614		(2	)		206			(674	)		144
Private equity investments		1,018		12			9			(560	)		479
Total	$	21,520	$	(1,467	)	$	950		$	10,599		$	31,602

(Thousands of Dollars)	Jan. 1, 2010		Net Realized (Losses)			Net Unrealized (Losses)		Purchases, Issuances, and Settlements, Net			Dec. 31, 2010
Asset-backed securities	$	7,491	$	(198	)	$	680	$	(5,546	)	$	2,427
Mortgage-backed securities		41,594		(698	)		3,092		(26,527	)		17,461
Real estate		556		(9	)		67		-			614
Private equity investments		684		(8	)		131		211			1,018
Total	$	50,325	$	(913	)	$	3,970	$	(31,862	)	$	21,520

(Thousands of Dollars)	Jan. 1, 2009		Net Realized Gains (Losses)			Net Unrealized Gains (Losses)			Purchases, Issuances, and Settlements, net			Dec. 31, 2009
Asset-backed securities	$	7,950	$	23		$	1,434		$	(1,916	)	$	7,491
Mortgage-backed securities		60,332		676			2,634			(22,048	)		41,594
Real estate		911		(5	)		(355	)		5			556
Private equity investments		676		-			(45	)		53			684
Total	$	69,869	$	694		$	3,668		$	(23,906	)	$	50,325

Benefit Obligations - A comparison of the actuarially computed benefit obligation and plan assets for PSCo is presented in the following table:

(Thousands of Dollars)	2011			2010
Change in Projected Benefit Obligation:
Obligation at Jan. 1	$	543,484		$	478,325
Service cost		3,625			2,965
Interest cost		28,391			28,139
Medicare subsidy reimbursements		1,977			2,769
ERRP proceeds shared with retirees		371			-
Amendments		(23,704	)		-
Plan participants' contributions		3,667			3,268
Actuarial (gain) loss		(15,784	)		61,045
Benefit payments		(34,293	)		(33,027	)
Obligation at Dec. 31	$	507,734		$	543,484

Change in Fair Value of Plan Assets:
Fair value of plan assets at Jan. 1	$	377,831		$	330,303
Actual return on plan assets		545			46,764
Plan participants' contributions		3,667			3,268
Employer contributions		28,758			30,523
Benefit payments		(34,293	)		(33,027	)
Fair value of plan assets at Dec. 31	$	376,508		$	377,831

Funded Status at Dec. 31:
Funded status (a)	$	(131,226	)	$	(165,653	)

PSCo Amounts Not Yet Recognized as Components of Net Periodic Cost:
Net loss	$	142,631		$	141,944
Prior service credit		(43,140	)		(22,349	)
Transition obligation		11,789			22,793
Total	$	111,280		$	142,388

Amounts Related to the Funded Status of the Plans Have Been Recorded as Follows Based Upon Expected Recovery in Rates:
Current regulatory assets	$	21,623		$	17,231
Noncurrent regulatory assets		89,657			125,157
Total	$	111,280		$	142,388

Measurement Date	Dec. 31, 2011			Dec. 31, 2010

Significant Assumptions Used to Measure Benefit Obligations:
Discount rate for year-end valuation		5.00	%		5.50	%
Mortality table	RP 2000			RP 2000
Health care costs trend rate - initial		6.31	%		6.50	%

(a)	Amounts are recognized in noncurrent liabilities on PSCo's consolidated balance sheet.

Effective Dec. 31, 2011, the ultimate trend assumption remained unchanged at 5.0 percent. The period until the ultimate rate is reached remained unchanged at eight years. Xcel Energy and PSCo base the medical trend assumption on the long-term cost inflation expected in the health care market, considering the levels projected and recommended by industry experts, as well as recent actual medical cost increases experienced by the retiree medical plan.

A 1-percent change in the assumed health care cost trend rate would have the following effects on PSCo:

	One Percentage Point
(Thousands of Dollars)		Increase		Decrease
APBO		$	52,098	$	(42,610	)
Service and interest components			3,821		(3,042	)

Cash Flows - The postretirement health care plans have no funding requirements under income tax and other retirement-related regulations other than fulfilling benefit payment obligations, when claims are presented and approved under the plans. Additional cash funding requirements are prescribed by certain state and federal rate regulatory authorities, as discussed previously. Xcel Energy, which includes PSCo, contributed $49.0 million and $48.4 million during 2011 and 2010, of which $28.8 million and $30.5 million were attributable to PSCo. Xcel Energy expects to contribute approximately $39.1 million during 2012, of which $20.2 million is attributable to PSCo.

Plan Amendments - The 2011 decrease of the projected Xcel Energy postretirement health and welfare benefit obligation for plan amendments is due to changes in the participant co-pay structure for certain retiree groups and the elimination of dental and vision benefits for some non-bargaining retirees.

Benefit Costs - The components of PSCo's net periodic postretirement benefit cost were:

(Thousands of Dollars)	2011			2010			2009
Service cost	$	3,625		$	2,965		$	3,628
Interest cost		28,391			28,139			33,380
Expected return on plan assets		(27,961	)		(24,518	)		(19,369	)
Amortization of transition obligation		11,004			11,004			11,004
Amortization of prior service cost		(2,913	)		(2,913	)		(1,100	)
Amortization of net loss		8,942			7,629			12,734
Net periodic postretirement benefit cost		21,088			22,306			40,277
Additional cost recognized due to effects of regulation		3,891			3,891			3,891
Net benefit cost recognized for financial reporting	$	24,979		$	26,197		$	44,168

Significant Assumptions Used to Measure Costs:
Discount rate		5.50	%		6.00	%		6.75	%
Expected average long-term rate of return on assets (before tax)		7.50			7.50			7.50

In addition to the benefit costs in the table above, for the postretirement health care plans sponsored by Xcel Energy Inc., costs are allocated to PSCo based on Xcel Energy Services Inc. employees' labor costs.

Projected Benefit Payments

The following table lists PSCo's projected benefit payments for the pension and postretirement benefit plans:

(Thousands of Dollars)	Projected Pension Benefit Payments		Gross Projected Postretirement Health Care Benefit Payments		Expected Medicare Part D Subsidies		Net Projected Postretirement Health Care Benefit Payments
2012	$	71,063	$	35,147	$	2,350	$	32,797
2013		69,194		35,380		2,532		32,848
2014		72,259		36,485		2,691		33,794
2015		74,138		37,710		2,844		34,866
2016		76,973		39,109		2,988		36,121
2017-2021		401,334		207,802		17,379		190,423