12. Commitments and Contingent Liabilities

Commitments

Capital Commitments - PSCo has made commitments in connection with a portion of its projected capital expenditures. PSCo's capital commitments primarily relate to one major project, the CACJA.

CACJA - The CACJA aims to reduce annual emissions of NOx by at least 70 to 80 percent or greater from 2008 levels by 2017 from the coal fired generation identified in the plan.

Fuel Contracts - PSCo has contracts providing for the purchase and delivery of a significant portion of its current coal and natural gas requirements. These contracts expire in various years between 2012 and 2060. In addition, PSCo is required to pay additional amounts depending on actual quantities shipped under these agreements. PSCo's risk of loss, in the form of increased costs from market price changes in fuel, is mitigated through the cost-rate adjustment mechanisms, which provide for pass-through of most fuel, storage and transportation costs to customers.

The estimated minimum purchases for PSCo under these contracts as of Dec. 31, 2011, were as follows:

(Millions of Dollars)	Dec. 31, 2011
Coal	$	1,458
Natural gas supply		1,067
Natural gas storage & transportation		1,594

Purchased Power Agreements - PSCo has entered into agreements with other utilities and energy suppliers for purchased power to meet system load and energy requirements, replace generation from company-owned units under maintenance or during outages, and meet operating reserve obligations.

PSCo has various pay-for-performance contracts with expiration dates through 2027. In general, these contracts provide for energy payments based on actual power taken under the contracts, as well as capacity payments. Capacity payments are typically contingent on the independent power producing entity meeting certain contract obligations, including plant availability requirements. Certain contractual payments are adjusted based on market indices; however, the effects of price adjustments are mitigated through purchased energy cost recovery mechanisms.

Included in electric fuel and purchased power expenses for purchased power agreements were payments for capacity of $178.8 million, $275.4 million and $307.7 million in 2011, 2010 and 2009, respectively. At Dec. 31, 2011, the estimated future payments for capacity that PSCo is obligated to purchase, subject to availability, were as follows:

(Millions of Dollars)
2012	$	132.0
2013		80.7
2014		75.7
2015		75.9
2016		51.3
2017 and thereafter		77.8
Total	$	493.4

Variable Interest Entities - The accounting guidance for consolidation of variable interest entities requires enterprises to consider the activities that most significantly impact an entity's financial performance, and power to direct those activities, when determining whether an enterprise is a variable interest entity's primary beneficiary.

Purchased Power Agreements - Under certain purchased power agreements, PSCo purchases power from independent power producing entities that own natural gas fueled power plants for which PSCo is required to reimburse natural gas fuel costs, or to participate in tolling arrangements under which PSCo procures the natural gas required to produce the energy that it purchases. These specific purchased power agreements create a variable interest in the associated independent power producing entity.

PSCo has determined that certain independent power producing entities are variable interest entities. PSCo is not subject to risk of loss from the operations of these entities, and no significant financial support has been, or is in the future required to be provided other than contractual payments for energy and capacity set forth in the purchased power agreements.

PSCo has evaluated each of these variable interest entities 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 has 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 1,882 MW and 2,010 MW of capacity under long-term purchased power agreements as of Dec. 31, 2011 and Dec. 31, 2010 with entities that have been determined to be variable interest entities. These agreements have expiration dates through the year 2028.

Leases - PSCo leases a variety of equipment and facilities used in the normal course of business. Three of these leases qualify as capital leases and are accounted for accordingly. The assets and liabilities at the inception of the capital leases are recorded at the lower of fair-market value or the present value of future lease payments and are amortized over their actual contract term.

WYCO was formed as a joint venture between Xcel Energy and CIG to develop and lease natural gas pipeline, storage, and compression facilities. Xcel Energy has a 50 percent ownership interest in WYCO. WYCO leases the facilities to CIG, and CIG operates the facilities, providing natural gas storage services to PSCo under a service arrangement.

PSCo accounts for its Totem natural gas storage service arrangement with CIG as a capital lease. As a result, PSCo had $152.7 million and $149.9 million of capital lease obligations recorded for the arrangement as of Dec. 31, 2011 and 2010, respectively.

PSCo records amortization for its capital leases as cost of natural gas sold and transported on the consolidated statements of income. Total amortization expenses under capital lease assets were approximately $3.2 million, $5.3 million, and $3.5 million for 2011, 2010 and 2009, respectively. Following is a summary of property held under capital leases:

(Millions of Dollars)	Dec. 31, 2011			Dec. 31, 2010
Storage, leaseholds and rights	$	200.5		$	196.1
Gas pipeline		20.7			20.7
Property held under capital lease		221.2			216.8
Accumulated depreciation		(29.8	)		(26.6	)
Total property held under capital leases, net	$	191.4		$	190.2

The remainder of the leases, primarily for office space, railcars, generating facilities, trucks, aircraft, cars and power-operated equipment are accounted for as operating leases. Total expenses under operating lease obligations were approximately $71.3 million, $70.5 million and $80.9 million for 2011, 2010 and 2009, respectively. These expenses include payments for capacity recorded to electric fuel and purchased power expenses for purchased power agreements accounted for as operating leases of $47.9 million, $53.8 million and $64.8 million in 2011, 2010 and 2009, respectively.

Included in the future commitments under operating leases are estimated future payments under purchased power agreements that have been accounted for as operating leases in accordance with the applicable accounting guidance. Future commitments under operating and capital leases are:

(Millions of Dollars)	Other Operating Leases		Purchased Power Agreement Operating Leases (a) (b)		Total Operating Leases		Capital Leases
2012	$	14.5	$	55.8	$	70.3	$	30.9
2013		14.1		73.2		87.3		30.8
2014		14.4		79.3		93.7		30.7
2015		14.1		79.8		93.9		30.7
2016		11.0		70.8		81.8		29.4
Thereafter		52.1		607.1		659.2		576.4
Total minimum obligation								728.9
Interest component of obligation								(537.5	)
Present value of minimum obligation							$	191.4

(a)	Amounts do not include purchased power agreements accounted for as other commitments, which are recorded to O&M as executed.

(b)	Purchased power agreement operating leases contractually expire through 2028.

Guarantees and Indemnifications

In connection with the acquisition of 900 MW of gas-fired generation from subsidiaries of Calpine Development Holdings Inc., PSCo agreed to indemnify the seller for losses arising out of a breach of certain representations and warranties. The aggregate liability for PSCo pursuant to these indemnities is not subject to a capped dollar amount. The indemnification obligation expires in December 2012. PSCo has not recorded a liability related to this indemnity and it has no assets held as collateral related to this agreement at Dec. 31, 2011.

Environmental Contingencies

PSCo has been or is currently involved with the cleanup of contamination from certain hazardous substances at several sites. In many situations, PSCo believes it will recover some portion of these costs through insurance claims. Additionally, where applicable, PSCo is pursuing, or intends to pursue, recovery from other PRPs and through the regulated rate process. New and changing federal and state environmental mandates can also create added financial liabilities for PSCo, which are normally recovered through the regulated rate process. To the extent any costs are not recovered through the options listed above, PSCo would be required to recognize an expense.

Site Remediation- The Comprehensive Environmental Response, Compensation and Liability Act of 1980 and other comparable federal and state environmental laws impose liability, without regard to the legality of the original conduct, on certain classes of persons 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 or other parties have caused environmental contamination. Environmental contingencies could arise from various situations, including sites of former MGPs operated by PSCo, its predecessors, or other entities; and third-party sites, such as landfills, for which PSCo is alleged to be a PRP that sent hazardous materials and wastes to that site.

MGP Sites- PSCo is currently involved in investigating and/or remediating several MGP sites where hazardous or other regulated materials may have been deposited. PSCo has identified 2 sites, where former MGP activities have or may have resulted in actual site contamination and are under current investigation and/or remediation. At some or all of these MGP sites, there are other parties that may have responsibility for some portion of any ultimate remediation that may be conducted. PSCo anticipates that the majority of the remediation at these sites will continue through at least 2014. For these sites, PSCo had accrued $0.5 million at Dec. 31, 2011 and Dec. 31, 2010, respectively. There may be insurance recovery and/or recovery from other PRPs that will offset any costs actually incurred at these sites. PSCo anticipates that any amounts actually spent will be fully recovered from customers.

Asbestos Removal - Some of PSCo's facilities contain asbestos. Most asbestos will remain undisturbed until the facilities that contain it are demolished or removed. PSCo has recorded an estimate for final removal of the asbestos as an ARO. See additional discussion of AROs below. It may be necessary to remove some asbestos to perform maintenance or make improvements to other equipment. The cost of removing asbestos as part of other work is not expected to be material and is recorded as incurred as operating expenses for maintenance projects, capital expenditures for construction projects or removal costs for demolition projects.

Other Environmental Requirements

EPA GHG Regulation - In December 2009, the EPA issued its “endangerment” finding that GHG emissions pose a threat to public health and welfare. In January 2011, new EPA permitting requirements became effective for GHG emissions of new and modified large stationary sources, which are applicable to the construction of new power plants or power plant modifications that increase emissions above a certain threshold. PSCo is unable to determine what the cost of compliance with these new EPA requirements will be as it is not clear whether these requirements will apply to futures changes at PSCo's power plants.

GHG New Source Performance Standard Proposal - The EPA plans to propose GHG regulations applicable to emissions from new and existing power plants under the CAA. The EPA had planned to release its proposal in September 2011, but has delayed it without establishing a new proposal date.

Electric Generating Unit (EGU) Mercury and Air Toxics Standards (MATS) Rule - In December 2011, the EPA issued the final EGU MATS rule to replace the proposed EGU MACT rule. The EGU MATS rule sets emission limits for acid gases, mercury and other hazardous air pollutants and will require coal-fired utility facilities greater than 25 MW to demonstrate compliance within three to four years. PSCo believes these costs would be recoverable through regulatory mechanisms and it does not expect a material impact on its results of operations, financial position or cash flows.

Colorado Mercury Regulation - Colorado's mercury regulations require mercury emission controls capable of achieving 80 percent capture to be installed at the Pawnee Generating Station by the end of 2011. The cost for the Pawnee Generating Station mercury controls was $1.1 million for capital costs with an annual estimate of $0.5 million for sorbent expense. PSCo has evaluated the Colorado mercury control requirements for its other units in Colorado and believes that, under the current regulations, no further controls will be required other than the planned controls at the Pawnee Generating Station, which are included in the CACJA compliance plan.

Colorado Proposed Surface Impoundment Regulations (Section 9) - In February 2012, the Colorado Department of Public Health and the Environment promulgated new solid waste regulations that establish new design and operating requirements for surface impoundments, including coal ash ponds and cooling tower ponds. The regulations provide a partial exemption on design upgrades for coal ash ponds pending a final Coal Combustion Residuals Rule from the EPA. The final rule also exempts PSCo's ponds that will be closed under the CACJA. The effective date will be March 30, 2012. Estimated costs for compliance are approximately $18 million in total through 2018.

Regional Haze Rules - In 2005, the EPA finalized amendments to its regional haze rules regarding provisions that require the installation and operation of emission controls, known as BART, for industrial facilities emitting air pollutants that reduce visibility in certain national parks and wilderness areas throughout the U.S. PSCo generating facilities will be subject to BART requirements. Individual states are required to identify the facilities located in their states that will have to reduce SO2, NOx and particulate matter emissions under BART and then set emissions limits for those facilities.

In 2006, the Colorado Air Quality Control Commission promulgated BART regulations requiring certain major stationary sources to evaluate, install, operate and maintain BART to make reasonable progress toward meeting the national visibility goal. In January 2011, the Colorado Air Quality Control Commission approved a revised Regional Haze BART SIP incorporating the Colorado CACJA emission reduction plan, which will satisfy regional haze requirements. The Colorado SIP is currently pending before the EPA. PSCo expects the cost of any required capital investment will be recoverable from customers through the CACJA plan recovery mechanisms or other regulatory mechanisms. Emissions controls are expected to be installed between 2012 and 2017. The costs associated with the CACJA plan are discussed in Capital Commitments.

In March 2010, two environmental groups petitioned the DOI to certify that 12 coal-fired boilers and one coal-fired cement kiln in Colorado are contributing to visibility problems in Rocky Mountain National Park. Four PSCo plants are named in the petition: Cherokee, Hayden, Pawnee and Valmont. The groups allege that the Colorado BART rule is inadequate to satisfy the CAA mandate of ensuring reasonable further progress towards restoring natural visibility conditions in the park. It is not known when the DOI will rule on the petition.

Federal Clean Water Act (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 adverse environmental impacts to aquatic species. In April 2011, the EPA published the proposed rule that sets prescriptive standards for minimization of aquatic species impingement, but leaves entrainment reduction requirements at the discretion of the permit writer and the regional EPA office. PSCo provided comments to the proposed rule, which is expected to be finalized in late 2012. Due to the uncertainty of the final regulatory requirements, it is not possible to provide an accurate estimate of the overall cost of this rulemaking at this time.

Proposed Coal Ash Regulation - PSCo's operations generate hazardous wastes that are subject to the Federal Resource Recovery and Conservation Act and comparable state laws that impose detailed requirements for handling, storage, treatment and disposal of hazardous waste. In June 2010, the EPA published a proposed rule seeking comment on whether to regulate coal combustion byproducts (coal ash) as hazardous or nonhazardous waste. Coal ash is currently exempt from hazardous waste regulation. If the EPA ultimately issues a final rule under which coal ash is regulated as hazardous waste, PSCo's costs associated with the management and disposal of coal ash would significantly increase and the beneficial reuse of coal ash would be negatively impacted. The EPA has not announced a planned date for a final rule. The timing, scope and potential cost of any final rule that might be implemented are not determinable at this time.

PSCo Notice Of Violation (NOV) - In 2002, PSCo received an NOV from the EPA alleging violations of the New Source Review (NSR) requirements of the CAA at the Comanche Station and Pawnee Generating Station in Colorado. The NOV specifically alleges that various maintenance, repair and replacement projects undertaken at the plants in the mid to late 1990s should have required a permit under the NSR process. PSCo believes it has acted in full compliance with the CAA and NSR process. PSCo also believes that the projects identified in the NOV fit within the routine maintenance, repair and replacement exemption contained within the NSR regulations or are otherwise not subject to the NSR requirements. PSCo disagrees with the assertions contained in the NOV and intends to vigorously defend its position. It is not known whether any costs would be incurred as a result of this NOV.

Asset Retirement Obligations

Recorded AROs - AROs have been recorded for steam production, electric transmission and distribution and natural gas distribution. The steam production obligation includes asbestos, ash-containment facilities and radiation sources. This asbestos abatement removal obligation originated in 1973 with the Clean Air Act, which applied to the demolition of buildings or removal of equipment containing asbestos that can become airborne on removal. The AROs recorded for PSCo steam production related to ash-containment facilities such as bottom ash ponds, evaporation ponds and solid waste landfills and the origination dates were the in-service date of the various facilities. Additional AROs have been recorded for steam production plant related to radiation sources in equipment used to monitor the flow of coal, lime and other materials through feeders.

PSCo recognized an ARO for the retirement costs of its natural gas mains and for the removal of electric, transmission and distribution equipment, which consists of many small potential obligations associated with PCBs, mineral oil, storage tanks, treated poles, lithium batteries, mercury and street lighting lamps. These electric and natural gas assets have many in-service dates for which it is difficult to assign the obligation to a particular year. Therefore, the obligation was measured using an average service life.

A reconciliation of the beginning and ending aggregate carrying amounts of PSCo's AROs is shown in the table below for the years ended Dec. 31, 2011 and 2010, respectively:

(Thousands of Dollars)	Beginning Balance Jan. 1, 2011		Liabilities Recognized		Accretion		Revisions to Prior Estimates			Ending Balance Dec. 31, 2011(a)
Electric plant
Steam production asbestos	$	63,631	$	-	$	4,163	$	(44,732	)	$	23,062
Steam production ash containment		6,528		-		390		2,531			9,449
Steam production radiation sources		127		-		9		(40	)		96
Electric transmission and distribution		1,746		-		85		7,072			8,903
Natural gas plant
Gas transmission and distribution		655		-		42		-			697
Total liability	$	72,687	$	-	$	4,689	$	(35,169	)	$	42,207

(Thousands of Dollars)	Beginning Balance Jan. 1, 2010		Liabilities Recognized		Accretion		Revisions to Prior Estimates		Ending Balance Dec. 31, 2010(a)
Electric plant
Steam production asbestos	$	59,724	$	-	$	3,907	$	-	$	63,631
Steam production ash containment		4,587		32		272		1,637		6,528
Steam production radiation sources		118		-		8		1		127
Electric transmission and distribution		115		-		7		1,624		1,746
Natural gas plant
Gas transmission and distribution		616		-		39		-		655
Total liability	$	65,160	$	32	$	4,233	$	3,262	$	72,687

(a)	There were no ARO liabilities settled during the 12 months ended Dec. 31, 2011 or Dec. 31, 2010.

In 2011 and 2010, PSCo revised asbestos, ash containment facilities, radiation sources and electric transmission and distribution AROs due to new estimates and end of life dates.

Indeterminate AROs -PSCo has underground natural gas storage facilities that have special closure requirements for which the final removal date cannot be determined, therefore an ARO has not been recorded.

Removal Costs - PSCo records a regulatory liability for the plant removal costs of generation, transmission and distribution facilities. Generally, the accrual of future non-ARO removal obligations is not required. However, long-standing ratemaking practices approved by applicable state and federal regulatory commissions have allowed provisions for such costs in historical depreciation rates. These removal costs have accumulated over a number of years based on varying rates as authorized by the appropriate regulatory entities. Given the long time periods over which the amounts were accrued and the changing of rates over time, PSCo has estimated the amount of removal costs accumulated through historic depreciation expense based on current factors used in the existing depreciation rates. Removal costs as of Dec. 31, 2011 and Dec. 31, 2010 were $380 million and $385 million, respectively.

Legal Contingencies

Lawsuits and claims arise in the normal course of business. Management, after consultation with legal counsel, has recorded an estimate of the probable cost of settlement or other disposition. The ultimate outcome of these matters cannot presently be determined. Accordingly, the ultimate resolution of these matters could have a material effect on PSCo's financial position and results of operations.

Environmental Litigation

State of Connecticut vs. Xcel Energy Inc. et al. - In July 2004, the attorneys general of eight states and New York City, as well as several environmental groups, filed lawsuits in U.S. District Court for the Southern District of New York against the following utilities, including Xcel Energy Inc., the parent company of PSCo, to force reductions in CO2 emissions: American Electric Power Co., Southern Co., Cinergy Corp. (merged into Duke Energy Corporation) and Tennessee Valley Authority. The lawsuits alleged that CO2 emitted by each company is a public nuisance and asked the court to order each utility to cap and reduce its CO2 emissions. The lawsuits did not demand monetary damages. In December 2011, the U.S. District Court entered an order dismissing this lawsuit, bringing a close to this litigation.

Native Village of Kivalina vs. Xcel Energy Inc. et al. - In February 2008, the City and Native Village of Kivalina, Alaska, filed a lawsuit in U.S. District Court for the Northern District of California against Xcel Energy Inc., the parent company of PSCo, and 23 other utility, oil, gas and coal companies. Plaintiffs claim that defendants' emission of CO2 and other GHGs contribute to global warming, which is harming their village. Xcel Energy Inc. believes the claims asserted in this lawsuit are without merit and joined with other utility defendants in filing a motion to dismiss in June 2008. In October 2009, the U.S. District Court dismissed the lawsuit on constitutional grounds. In November 2009, plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Ninth Circuit. In November 2011, oral arguments were presented. It is unknown when the Ninth Circuit will render a final opinion. The amount of damages claimed by plaintiffs is unknown, but likely includes the cost of relocating the village of Kivalina. Plaintiffs' alleged relocation is estimated to cost between $95 million to $400 million. While Xcel Energy Inc. believes the likelihood of loss is remote, given the nature of this case and any surrounding uncertainty, it may have a material impact on PSCo's consolidated results of operations, cash flows or financial position. No accrual has been recorded for this matter.

Comer vs. Xcel Energy Inc. et al. - On May 27, 2011, less than a year after their initial lawsuit was dismissed, plaintiffs in this purported class action lawsuit filed a second lawsuit against more than 85 utility, oil, chemical and coal companies in U.S. District Court in Mississippi. The complaint alleges defendants' CO2 emissions intensified the strength of Hurricane Katrina and increased the damage plaintiffs purportedly sustained to their property. Plaintiffs base their claims on public and private nuisance, trespass and negligence. Among the defendants named in the complaint are Xcel Energy Inc., SPS, PSCo, NSP-Wisconsin and NSP-Minnesota. The amount of damages claimed by plaintiffs is unknown. The defendants, including Xcel Energy Inc., believe this lawsuit is without merit and have filed a motion to dismiss the lawsuit. It is uncertain when the court will rule on this motion. While Xcel Energy Inc. believes the likelihood of loss is remote, given the nature of this case and any surrounding uncertainty, it may have a material impact on PSCo's consolidated results of operations, cash flows or financial position. No accrual has been recorded for this matter.

Employment, Tort and Commercial Litigation

Stone & Webster, Inc. vs. PSCo - In July 2009, Stone & Webster, Inc. (Shaw) filed a complaint against PSCo in State District Court in Denver, Colo. for damages allegedly arising out of its construction work on the Comanche Unit 3 coal-fired plant. Shaw, a contractor retained to perform certain engineering, procurement and construction work on Comanche Unit 3, alleged, among other things, that PSCo mismanaged the construction of Comanche Unit 3. Shaw further claimed that this alleged mismanagement caused delays and damages. The complaint also alleged that Xcel Energy Inc. and related entities guaranteed Shaw $10 million in future profits under the terms of a 2003 settlement agreement. In total, Shaw sought approximately $144 million in damages.

In August 2009, PSCo filed an answer and counterclaim denying the allegations in the complaint and alleging that Shaw failed to discharge its contractual obligations and caused delays, and that PSCo is entitled to liquidated damages and excess costs incurred of approximately $82 million.

Following a November 2010 jury trial and subsequent appeal, in November 2011, a confidential settlement was reached dismissing all actions. This settlement did not have a material effect on PSCo's consolidated results of operations, cash flows or financial position.

Connie DeWeese vs. PSCo - In November 2008, there was an explosion in Pueblo, Colo., which destroyed a tavern and a neighboring store. The explosion killed one person and injured seven people. The Pueblo Fire Department and the Federal Bureau of Alcohol, Tobacco and Firearms have determined a natural gas leak from a pipeline under the street led to the explosion. Beginning in February 2010, four lawsuits were filed in Colorado District Court in Pueblo, Colo. against, among others, PSCo for damages related to personal injuries, property damages and an alleged wrongful death. PSCo denied and continues to deny liability for this accident. All but one of the lawsuits have been settled. The remaining lawsuit, Vigil vs. Xcel Energy Inc., seeks damages for personal injuries and property loss. As the damages sought are indeterminate and given the uncertainty surrounding the circumstances of this case, PSCo is unable to estimate the range or amount of possible damages. This matter has been set for trial commencing Sept. 25, 2012. Neither the settlements nor the damages claimed in the Vigil lawsuit, if recovered, have had or are expected to have a material effect on PSCo's consolidated results of operations, cash flows or financial position. No accrual has been recorded for this matter.

Other Contingencies

See Note 11 for further discussion.