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T
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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New Mexico
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75-0575400
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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Tyler at Sixth
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Amarillo, Texas
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79101
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer T
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Smaller reporting company o
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(Do not check if smaller reporting company)
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Class
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Outstanding at Aug. 1, 2011
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Common Stock, $1 par value
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100 shares
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PART I - FINANCIAL INFORMATION
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Item l.
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3
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Item 2.
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16
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Item 4.
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19
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PART II - OTHER INFORMATION
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||
Item 1.
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19
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Item 1A.
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19
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Item 6.
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21
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22
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Certifications Pursuant to Section 302
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1
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Certifications Pursuant to Section 906
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1
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Statement Pursuant to Private Litigation
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1
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Three Months Ended June 30,
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Six Months Ended June 30,
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|||||||||||||||
2011
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2010
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2011
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2010
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|||||||||||||
Operating revenues
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$ | 433,289 | $ | 398,449 | $ | 814,498 | $ | 779,931 | ||||||||
Operating expenses
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||||||||||||||||
Electric fuel and purchased power
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275,403 | 243,509 | 524,653 | 499,703 | ||||||||||||
Other operating and maintenance expenses
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62,732 | 62,282 | 125,485 | 118,987 | ||||||||||||
Demand side management program expenses
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4,382 | 3,047 | 7,811 | 4,993 | ||||||||||||
Depreciation and amortization
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26,364 | 25,654 | 52,522 | 51,308 | ||||||||||||
Taxes (other than income taxes)
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10,975 | 9,906 | 21,095 | 20,061 | ||||||||||||
Total operating expenses
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379,856 | 344,398 | 731,566 | 695,052 | ||||||||||||
Operating income
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53,433 | 54,051 | 82,932 | 84,879 | ||||||||||||
Other income, net
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84 | 119 | 146 | 113 | ||||||||||||
Allowance for funds used during construction – equity
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1,358 | 1,011 | 3,284 | 1,444 | ||||||||||||
Interest charges and financing costs
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||||||||||||||||
Interest charges – includes other financing costs of $765, $659, $1,425 and $1,309, respectively
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16,068 | 15,736 | 31,866 | 31,882 | ||||||||||||
Allowance for funds used during construction – debt
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(1,018 | ) | (714 | ) | (2,367 | ) | (1,260 | ) | ||||||||
Total interest charges and financing costs
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15,050 | 15,022 | 29,499 | 30,622 | ||||||||||||
Income before income taxes
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39,825 | 40,159 | 56,863 | 55,814 | ||||||||||||
Income taxes
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15,153 | 15,763 | 21,953 | 23,719 | ||||||||||||
Net income
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$ | 24,672 | $ | 24,396 | $ | 34,910 | $ | 32,095 |
Six Months Ended June 30,
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||||||||
2011
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2010
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|||||||
Operating activities
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||||||||
Net income
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$ | 34,910 | $ | 32,095 | ||||
Adjustments to reconcile net income to cash provided by operating activities:
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||||||||
Depreciation and amortization
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53,634 | 52,437 | ||||||
Demand side management program amortization
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905 | 951 | ||||||
Deferred income taxes
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19,709 | 17,929 | ||||||
Amortization of investment tax credits
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(170 | ) | (149 | ) | ||||
Allowance for equity funds used during construction
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(3,284 | ) | (1,444 | ) | ||||
Net realized and unrealized hedging and derivative transactions
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133 | 133 | ||||||
Changes in operating assets and liabilities:
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||||||||
Accounts receivable
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(22,037 | ) | (16,464 | ) | ||||
Accrued unbilled revenues
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(26,881 | ) | (15,831 | ) | ||||
Inventories
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3,174 | 3,106 | ||||||
Prepayments and other
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(741 | ) | (1,832 | ) | ||||
Accounts payable
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17,332 | (3,697 | ) | |||||
Net regulatory assets and liabilities
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(6,100 | ) | (26,814 | ) | ||||
Other current liabilities
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1,614 | (3,897 | ) | |||||
Change in other noncurrent assets
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(835 | ) | (1,579 | ) | ||||
Change in other noncurrent liabilities
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(8,994 | ) | (1,811 | ) | ||||
Net cash provided by operating activities
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62,369 | 33,133 | ||||||
Investing activities
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||||||||
Utility capital/construction expenditures
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(162,990 | ) | (111,327 | ) | ||||
Allowance for equity funds used during construction
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3,284 | 1,444 | ||||||
Investments in utility money pool arrangement
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- | (204,200 | ) | |||||
Repayments from utility money pool arrangement
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- | 281,200 | ||||||
Other investments
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221 | - | ||||||
Net cash used in investing activities
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(159,485 | ) | (32,883 | ) | ||||
Financing activities
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||||||||
Proceeds from short-term borrowings, net
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82,000 | 24,000 | ||||||
Borrowings under utility money pool arrangement
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258,500 | 19,000 | ||||||
Repayments under utility money pool arrangement
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(258,500 | ) | - | |||||
Repayment of long-term debt
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- | (25,000 | ) | |||||
Capital contributions from parent
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50,000 | 8,802 | ||||||
Dividends paid to parent
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(32,218 | ) | (34,136 | ) | ||||
Net cash provided by (used in) financing activities
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99,782 | (7,334 | ) | |||||
Net increase (decrease) in cash and cash equivalents
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2,666 | (7,084 | ) | |||||
Cash and cash equivalents at beginning of period
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1,778 | 7,363 | ||||||
Cash and cash equivalents at end of period
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$ | 4,444 | $ | 279 | ||||
Supplemental disclosure of cash flow information:
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||||||||
Cash paid for interest (net of amounts capitalized)
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$ | (28,279 | ) | $ | (41,180 | ) | ||
Cash paid for income taxes, net
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(4,954 | ) | (9,885 | ) | ||||
Supplemental disclosure of non-cash investing transactions:
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||||||||
Property, plant and equipment additions in accounts payable
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$ | 5,205 | $ | 9,587 |
June 30, 2011
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Dec. 31, 2010
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|||||||
Assets
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||||||||
Current assets
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||||||||
Cash and cash equivalents
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$ | 4,444 | $ | 1,778 | ||||
Accounts receivable, net
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64,543 | 44,871 | ||||||
Accounts receivable from affiliates
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3,975 | 1,610 | ||||||
Accrued unbilled revenues
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137,065 | 110,184 | ||||||
Inventories
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26,675 | 29,849 | ||||||
Regulatory assets
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27,156 | 21,547 | ||||||
Derivative instruments
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7,892 | 7,892 | ||||||
Deferred income taxes
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15,978 | 19,051 | ||||||
Prepayments and other
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5,746 | 5,006 | ||||||
Total current assets
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293,474 | 241,788 | ||||||
Property, plant and equipment, net
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2,498,706 | 2,401,266 | ||||||
Other assets
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||||||||
Regulatory assets
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277,655 | 283,207 | ||||||
Derivative instruments
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60,787 | 64,734 | ||||||
Other
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10,965 | 10,668 | ||||||
Total other assets
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349,407 | 358,609 | ||||||
Total assets
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$ | 3,141,587 | $ | 3,001,663 | ||||
Liabilities and Equity
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||||||||
Current liabilities
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||||||||
Current portion of long-term debt
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$ | 44,500 | $ | 44,500 | ||||
Short-term debt
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131,000 | 49,000 | ||||||
Accounts payable
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162,033 | 134,322 | ||||||
Accounts payable to affiliates
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9,813 | 24,525 | ||||||
Regulatory liabilities
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52,245 | 53,197 | ||||||
Taxes accrued
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19,505 | 19,867 | ||||||
Accrued interest
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12,567 | 12,128 | ||||||
Dividends payable
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16,040 | 16,358 | ||||||
Derivative instruments
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3,601 | 3,601 | ||||||
Other
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22,170 | 21,349 | ||||||
Total current liabilities
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473,474 | 378,847 | ||||||
Deferred credits and other liabilities
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||||||||
Deferred income taxes
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558,721 | 541,204 | ||||||
Deferred investment tax credits
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1,881 | 2,051 | ||||||
Regulatory liabilities
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119,845 | 134,952 | ||||||
Asset retirement obligations
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21,834 | 21,131 | ||||||
Derivative instruments
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43,191 | 44,991 | ||||||
Pension and employee benefit obligations
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48,260 | 52,280 | ||||||
Other
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5,747 | 10,827 | ||||||
Total deferred credits and other liabilities
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799,479 | 807,436 | ||||||
Commitments and contingent liabilities
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||||||||
Capitalization
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||||||||
Long-term debt
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853,427 | 853,267 | ||||||
Common stock – authorized 200 shares of $1.00 par value; outstanding 100 shares
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- | - | ||||||
Additional paid in capital
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743,531 | 693,531 | ||||||
Retained earnings
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273,265 | 270,257 | ||||||
Accumulated other comprehensive loss
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(1,589 | ) | (1,675 | ) | ||||
Total common stockholder's equity
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1,015,207 | 962,113 | ||||||
Total liabilities and equity
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$ | 3,141,587 | $ | 3,001,663 |
1.
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Summary of Significant Accounting Policies
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2.
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Accounting Pronouncements
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3.
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Selected Balance Sheet Data
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(Thousands of Dollars)
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June 30, 2011
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Dec. 31, 2010
|
||||||
Accounts receivable, net
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||||||||
Accounts receivable
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$ | 69,182 | $ | 49,966 | ||||
Less allowance for bad debts
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(4,639 | ) | (5,095 | ) | ||||
$ | 64,543 | $ | 44,871 | |||||
Inventories
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||||||||
Materials and supplies
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$ | 18,415 | $ | 15,093 | ||||
Fuel
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8,260 | 14,756 | ||||||
$ | 26,675 | $ | 29,849 | |||||
Property, plant and equipment, net
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||||||||
Electric plant
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$ | 4,028,073 | $ | 3,826,202 | ||||
Construction work in progress
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143,371 | 221,025 | ||||||
Total property, plant and equipment
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4,171,444 | 4,047,227 | ||||||
Less accumulated depreciation
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(1,672,738 | ) | (1,645,961 | ) | ||||
$ | 2,498,706 | $ | 2,401,266 |
4.
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Income Taxes
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(Millions of Dollars)
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June 30, 2011
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Dec. 31, 2010
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||||||
Unrecognized tax benefit - Permanent tax positions
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$ | 0.2 | $ | 0.2 | ||||
Unrecognized tax benefit - Temporary tax positions
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4.1 | 4.1 | ||||||
Unrecognized tax benefit balance
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$ | 4.3 | $ | 4.3 |
5.
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Rate Matters
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6.
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Commitments and Contingent Liabilities
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(Millions of Dollars)
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June 30, 2011
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Dec. 31, 2010
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||||||
Guarantees issued and outstanding (a)
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$ | 87.0 | $ | 87.0 |
(a)
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SPS has provided indemnification to Lubbock for losses arising out of any breach of the representations, warranties and covenants under the related asset purchase agreement and for losses arising out of certain other matters, including pre-closing unknown liabilities. The indemnification provisions are capped at the purchase price, $87 million, in the aggregate. As of June 30, 2011 and Dec. 31, 2010, no claims have been made. The indemnification provisions for most representations and warranties expire 12 months after the closing date. Certain representations and warranties, including those having to do with transaction authorization survive indefinitely. The indemnification for covenants survives until the applicable covenant is performed.
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7.
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Borrowings and Other Financing Instruments
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(Millions of Dollars)
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Three Months Ended
June 30, 2011
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Twelve Months Ended
Dec. 31, 2010
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||||||
Borrowing limit
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$ | 300 | $ | 248 | ||||
Amount outstanding at period end
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131 | 49 | ||||||
Average amount outstanding
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92 | 8 | ||||||
Maximum amount outstanding
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138 | 65 | ||||||
Weighted average interest rate, computed on a daily basis
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0.37 | % | 0.37 | % | ||||
Weighted average interest rate at end of period
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0.36 | 0.37 |
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·
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The credit facility may be increased by up to $50 million.
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·
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The credit facility has a financial covenant requiring that SPS’ debt-to-total capitalization ratio be less than or equal to 65 percent. SPS was in compliance as its debt-to-total capitalization ratio was 50 percent at June 30, 2011 and Dec. 31, 2010. If SPS does not comply with the covenant, an event of default may be declared, and if not remedied, any outstanding amounts due under the facility can be declared due by the lender.
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·
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The credit facility has a cross-default provision that provides SPS will be in default on its borrowings under the facility if Xcel Energy Inc. or any of its subsidiaries, comprising 15 percent or more of the consolidated assets, defaults on any indebtedness in an aggregate principal amount exceeding $75 million.
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·
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The interest rates under the line of credit are based on the Eurodollar rate, plus a borrowing margin based on the applicable credit ratings of 100 to 200 basis points per year.
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·
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The commitment fees, also based on applicable long-term credit ratings, are calculated on the unused portion of the line of credit at a range of 10 to 35 basis points per year.
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Credit Facility
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Drawn (a)
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Available
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||||||||
$ | 300.0 | $ | 131.0 | $ | 169.0 |
(a)
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Includes outstanding commercial paper and letters of credit.
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(Millions of Dollars)
|
Three Months Ended
June 30, 2011
|
Twelve Months Ended
Dec. 31, 2010
|
||||||
Borrowing limit
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$ | 100 | $ | 100 | ||||
Amount outstanding at period end
|
- | - | ||||||
Average amount outstanding
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19 | 16 | ||||||
Maximum amount outstanding
|
71 | 77 | ||||||
Weighted average interest rate, computed on a daily basis
|
0.34 | % | 0.37 | % | ||||
Weighted average interest rate at end of period
|
N/A | N/A |
8.
|
Fair Value of Financial Assets and Liabilities
|
Three Months Ended June 30,
|
|||||||||
(Thousands of Dollars)
|
2011 | 2010 | |||||||
Accumulated other comprehensive loss related to cash flow hedges at April 1
|
$ | (1,632 | ) | $ | (1,804 | ) | |||
After-tax net realized losses on derivative transactions reclassified into earnings
|
43 | 42 | |||||||
Accumulated other comprehensive loss related to cash flow hedges at June 30
|
$ | (1,589 | ) | $ | (1,762 | ) |
Six Months Ended June 30, | |||||||||
(Thousands of Dollars) | 2011 | 2010 | |||||||
Accumulated other comprehensive loss related to cash flow hedges at Jan. 1
|
$ | (1,675 | ) | $ | (1,847 | ) | |||
After-tax net realized losses on derivative transactions reclassified into earnings
|
86 | 85 | |||||||
Accumulated other comprehensive loss related to cash flow hedges at June 30
|
$ | (1,589 | ) | $ | (1,762 | ) |
June 30, 2011
|
Dec. 31, 2010
|
|||||||||||||||
(Thousands of Dollars)
|
Historical Cost
|
Fair Value
|
Historical Cost
|
Fair Value
|
||||||||||||
Long-term debt, including current portion
|
$ | 897,927 | $ | 1,012,646 | $ | 897,767 | $ | 989,789 |
9.
|
Other Income, Net
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
(Thousands of Dollars)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Interest income
|
$ | 90 | $ | 34 | $ | 234 | $ | 97 | ||||||||
Other nonoperating income
|
1 | 10 | 3 | 11 | ||||||||||||
Insurance policy (expense) income
|
(7 | ) | 75 | (91 | ) | 5 | ||||||||||
Other income, net
|
$ | 84 | $ | 119 | 146 | $ | 113 |
10.
|
Segment Information
|
11.
|
Comprehensive Income
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
(Thousands of Dollars)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Net income
|
$ | 24,672 | $ | 24,396 | $ | 34,910 | $ | 32,095 | ||||||||
Other comprehensive income:
|
||||||||||||||||
After-tax net realized losses on derivative transactions reclassified into earnings
|
43 | 42 | 86 | 85 | ||||||||||||
Comprehensive income
|
$ | 24,715 | $ | 24,438 | $ | 34,996 | $ | 32,180 |
12.
|
Benefit Plans and Other Postretirement Benefits
|
Three Months Ended June 30,
|
||||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(Thousands of Dollars)
|
Pension Benefits
|
Postretirement Health Care Benefits
|
||||||||||||||
Xcel Energy
|
||||||||||||||||
Service cost
|
$ | 20,548 | $ | 18,956 | $ | 1,097 | $ | 965 | ||||||||
Interest cost
|
40,791 | 41,853 | 10,492 | 10,861 | ||||||||||||
Expected return on plan assets
|
(55,514 | ) | (58,035 | ) | (8,013 | ) | (7,131 | ) | ||||||||
Amortization of transition obligation
|
- | - | 3,611 | 3,611 | ||||||||||||
Amortization of prior service cost (credit)
|
5,633 | 5,164 | (1,233 | ) | (1,233 | ) | ||||||||||
Amortization of net loss
|
20,527 | 13,134 | 3,304 | 3,113 | ||||||||||||
Net periodic benefit cost
|
31,985 | 21,072 | 9,258 | 10,186 | ||||||||||||
Costs not recognized and additional cost recognized due to the effects of regulation
|
(10,715 | ) | (6,314 | ) | 973 | 973 | ||||||||||
Net benefit cost recognized for financial reporting
|
$ | 21,270 | $ | 14,758 | $ | 10,231 | $ | 11,159 | ||||||||
SPS
|
||||||||||||||||
Net periodic benefit cost
|
$ | 3,377 | $ | 1,709 | $ | 805 | $ | 972 | ||||||||
Costs not recognized due to the effects of regulation
|
(575 | ) | - | - | - | |||||||||||
Net benefit cost recognized for financial reporting
|
$ | 2,802 | $ | 1,709 | $ | 805 | $ | 972 |
Six Months Ended June 30,
|
||||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(Thousands of Dollars)
|
Pension Benefits
|
Postretirement Health Care Benefits
|
||||||||||||||
Xcel Energy
|
||||||||||||||||
Service cost
|
$ | 38,660 | $ | 36,574 | $ | 2,412 | $ | 2,003 | ||||||||
Interest cost
|
80,706 | 82,505 | 21,043 | 21,390 | ||||||||||||
Expected return on plan assets
|
(110,800 | ) | (116,159 | ) | (15,981 | ) | (14,265 | ) | ||||||||
Amortization of transition obligation
|
- | - | 7,222 | 7,222 | ||||||||||||
Amortization of prior service cost (credit)
|
11,266 | 10,328 | (2,466 | ) | (2,466 | ) | ||||||||||
Amortization of net loss
|
39,256 | 24,158 | 6,647 | 5,822 | ||||||||||||
Net periodic benefit cost
|
59,088 | 37,406 | 18,877 | 19,706 | ||||||||||||
Costs not recognized and additional cost recognized due to the effects of regulation
|
(18,600 | ) | (13,640 | ) | 1,946 | 1,946 | ||||||||||
Net benefit cost recognized for financial reporting
|
$ | 40,488 | $ | 23,766 | $ | 20,823 | $ | 21,652 | ||||||||
SPS
|
||||||||||||||||
Net periodic benefit cost
|
$ | 5,981 | $ | 2,897 | $ | 1,641 | $ | 1,801 | ||||||||
Costs not recognized due to the effects of regulation
|
(1,150 | ) | - | - | - | |||||||||||
Net benefit cost recognized for financial reporting
|
$ | 4,831 | $ | 2,897 | $ | 1,641 | $ | 1,801 |
Six Months Ended June 30, | ||||||||
(Millions of Dollars) | 2011 | 2010 | ||||||
Electric revenues
|
$ | 814 | $ | 780 | ||||
Electric fuel and purchased power
|
(525 | ) | (500 | ) | ||||
Electric margin
|
$ | 289 | $ | 280 |
(Millions of Dollars)
|
2011 vs. 2010
|
|||
Transmission revenue
|
$ | 14 | ||
Firm wholesale
|
12 | |||
Fuel and purchased power cost recovery
|
12 | |||
Retail rate increase (Texas)
|
6 | |||
Trading
|
5 | |||
Demand side management (DSM) revenue, (offset by expenses)
|
2 | |||
DSM incentive
|
2 | |||
SPS fuel cost allocation regulatory accruals (a)
|
(11 | ) | ||
Retail sales decrease (excluding weather impact)
|
(5 | ) | ||
Other, net
|
(3 | ) | ||
Total increase in electric revenues
|
$ | 34 |
(a)
|
During the second quarter of 2010, SPS resolved certain fuel cost allocation issues allowing for the release of previously established reserves of approximately $11 million.
|
(Millions of Dollars)
|
2011 vs. 2010
|
|||
Firm wholesale
|
$ | 11 | ||
Transmission revenue, net of costs
|
7 | |||
Retail rate increase (Texas)
|
6 | |||
DSM revenue, (offset by expenses)
|
2 | |||
DSM incentive
|
2 | |||
SPS fuel cost allocation regulatory accruals (a)
|
(11 | ) | ||
Retail sales decrease (excluding weather impact)
|
(5 | ) | ||
Other, net
|
(3 | ) | ||
Total increase in electric margin
|
$ | 9 |
(a)
|
During the second quarter of 2010, SPS resolved certain fuel cost allocation issues allowing for the release of previously established reserves of approximately $11 million.
|
(Millions of Dollars)
|
2011 vs. 2010
|
|||
Higher plant generation costs
|
$ | 3 | ||
Higher labor and contract labor costs
|
3 | |||
Higher employee benefit costs
|
1 | |||
Total increase in other operating and maintenance expenses
|
$ | 7 |
*
|
Indicates incorporation by reference
|
t
|
Furnished, herewith, not filed. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
|
3.01*
|
Amended and Restated Articles of Incorporation dated Sept. 30, 1997 (Exhibit 3(a)(2) to Form 10-K for the year ended Dec. 31, 1997 (file no. 001-03789) dated March 3, 1998).
|
3.02*
|
By-laws dated Sept. 29, 1997 (Exhibit 3(b)(2) to Form 10-K for the year ended Dec. 31, 1997 (file no. 001-03789) dated March 3, 1998).
|
Principal Executive Officer’s and Principal Financial Officer’s certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
Statement pursuant to Private Securities Litigation Reform Act of 1995.
|
101 t
|
The following materials from SPS’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 are formatted in XBRL (eXtensible Business Reporting Language): (i) the Statements of Income, (ii) the Statements of Cash Flow, (iii) the Balance Sheets, (iv) Notes to Condensed Financial Statements, and (v) document and entity information.
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Southwestern Public Service Company
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Aug. 1, 2011
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By:
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/s/ TERESA S. MADDEN
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Teresa S. Madden
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Vice President and Controller
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/s/ DAVID M. SPARBY
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David M. Sparby
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Vice President and Chief Financial Officer
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1.
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I have reviewed this report on Form 10-Q of Southwestern Public Service Company;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
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d)
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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/s/ C. RILEY HILL
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C. Riley Hill
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President and Chief Executive Officer
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1.
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I have reviewed this report on Form 10-Q of Southwestern Public Service Company;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
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d)
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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/s/ DAVID M. SPARBY
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David M. Sparby
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Vice President and Chief Financial Officer
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(1)
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The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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(2)
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The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of SPS as of the dates and for the periods expressed in the Form 10-Q.
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/s/ C. RILEY HILL
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C. Riley Hill
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President and Chief Executive Officer
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/s/ DAVID M. SPARBY
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David M. Sparby
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Vice President and Chief Financial Officer
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·
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Economic conditions, including inflation rates, monetary fluctuations and their impact on capital expenditures;
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The risk of a significant slowdown in growth or decline in the U.S. economy, the risk of delay in growth recovery in the U.S. economy or the risk of increased cost for insurance premiums, security and other items as a consequence of past or future terrorist attacks;
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Trade, monetary, fiscal, taxation and environmental policies of governments, agencies and similar organizations in geographic areas where SPS has a financial interest;
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Customer business conditions, including demand for their products or services and supply of labor and materials used in creating their products and services;
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Financial or regulatory accounting principles or policies imposed by the FASB, the SEC, the FERC and similar entities with regulatory oversight;
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Availability or cost of capital such as changes in: interest rates; market perceptions of the utility industry, SPS, Xcel Energy Inc. or any of its other subsidiaries; or security ratings;
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Factors affecting utility operations such as unusual weather conditions; catastrophic weather-related damage; unscheduled generation outages, maintenance or repairs; unanticipated changes to fossil fuel or natural gas supply costs or availability due to higher demand, shortages, transportation problems or other developments; environmental incidents; or electric transmission or natural gas pipeline constraints;
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Employee workforce factors, including loss or retirement of key executives, collective bargaining agreements with union employees, or work stoppages;
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Increased competition in the utility industry or additional competition in the markets served by SPS, Xcel Energy Inc. and its other subsidiaries;
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State and federal legislative and regulatory initiatives that affect cost and investment recovery, have an impact on rate structures and affect the speed and degree to which competition enters the electric market; industry restructuring initiatives; transmission system operation and/or administration initiatives; recovery of investments made under traditional regulation; nature of competitors entering the industry; retail wheeling; a new pricing structure; and former customers entering the generation market;
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Environmental laws and regulations, including legislation and regulations relating to climate change, and the associated cost of compliance;
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Rate-setting policies or procedures of regulatory entities, including environmental externalities, which are values established by regulators assigning environmental costs to each method of electricity generation when evaluating generation resource options;
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Social attitudes regarding the utility and power industries;
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Cost and other effects of legal and administrative proceedings, settlements, investigations and claims;
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Technological developments that result in competitive disadvantages and create the potential for impairment of existing assets;
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Risks associated with implementation of new technologies; and
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Other business or investment considerations that may be disclosed from time to time in SPS’ SEC filings or in other publicly disseminated written documents.
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STATEMENTS OF INCOME (UNAUDITED) (Parenthetical) (USD $)
In Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
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Jun. 30, 2010
|
Jun. 30, 2011
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Jun. 30, 2010
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Interest charges and financing costs | Â | Â | Â | Â |
Other financing costs | $ 765 | $ 659 | $ 1,425 | $ 1,309 |
Document And Entity Information
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6 Months Ended | |
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Jun. 30, 2011
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Aug. 01, 2011
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Entity Registrant Name | SOUTHWESTERN PUBLIC SERVICE CO | Â |
Entity Central Index Key | 0000092521 | Â |
Current Fiscal Year End Date | --12-31 | Â |
Entity Well-known Seasoned Issuer | Yes | Â |
Entity Voluntary Filers | No | Â |
Entity Current Reporting Status | Yes | Â |
Entity Filer Category | Non-accelerated Filer | Â |
Entity Common Stock, Shares Outstanding | Â | 100 |
Document Fiscal Year Focus | 2011 | Â |
Document Fiscal Period Focus | Q2 | Â |
Document Type | 10-Q | Â |
Amendment Flag | false | Â |
Document Period End Date | Jun. 30, 2011 |
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Rate Matters
|
6 Months Ended | ||
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Jun. 30, 2011
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Rate Matters [Abstract] | Â | ||
Rate Matters |
Except to the extent noted below, the circumstances set forth in Note 11 to the financial statements included in SPS' Annual Report on Form 10-K for the year ended Dec. 31, 2010 appropriately represent, in all material respects, the current status of other rate matters, and are incorporated herein by reference. Pending and Recently Concluded Regulatory Proceedings - New Mexico Public Regulation Commission (NMPRC) SPS New Mexico Electric Rate Case - In February 2011, SPS filed a request in New Mexico with the NMPRC seeking to increase New Mexico electric rates approximately $19.9 million. The rate filing is based on a 2011 test year adjusted for known and measurable changes for 2012, a requested return on equity (ROE) of 11.25 percent, an electric rate base of $390.3 million and an equity ratio of 51.11 percent. Rates are expected to go into effect during the first quarter of 2012. The New Mexico Attorney General (NMAG) has filed a motion to dismiss the rate case or to toll the suspension period of rates, and the NMPRC Staff has also filed a motion to reject the filing and for SPS to file additional information on the grounds that SPS' information supporting its 2011 test year is incomplete. SPS has filed a response asserting that SPS' filing is complete and requesting the NMPRC to deny the NMAG's motion. The NMPRC has not yet acted on the motion. The date for SPS to respond to the Staff's motion has not yet been established. |
Segment Information
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6 Months Ended | ||
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Jun. 30, 2011
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Segment Information [Abstract] | Â | ||
Segment Information |
SPS has only one reportable segment. SPS is a wholly owned subsidiary of Xcel Energy Inc. and operates in the regulated electric utility industry providing wholesale and retail electric service in the states of Texas and New Mexico. Revenues from external customers were $433.3 million and $398.4 million for the three months ended June 30, 2011 and 2010, respectively and $814.5 million and $779.9 million for the six months ended June 30, 2011 and 2010, respectively. Operating results from the regulated electric utility segment serve as the primary basis for the chief operating decision maker to evaluate the performance of SPS. |
Summary of Significant Accounting Policies
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6 Months Ended | ||
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Jun. 30, 2011
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Summary of Significant Accounting Policies [Abstract] | Â | ||
Summary of Significant Accounting Policies |
The significant accounting policies set forth in Note 1 to the financial statements in the SPS Annual Report on Form 10-K for the year ended Dec. 31, 2010, appropriately represent, in all material respects, the current status of accounting policies and are incorporated herein by reference. |
Borrowings and Other Financing Instruments
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6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Borrowings and Other Financing Instruments [Abstract] | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Borrowings and Other Financing Instruments |
Commercial Paper - SPS meets its short-term liquidity requirements primarily through the issuance of commercial paper and borrowings under its credit facility. The following table presents commercial paper outstanding for SPS:
Credit Facilities - In order to use its commercial paper program to fulfill short-term funding needs, SPS must have a revolving credit facility in place at least equal to the amount of its commercial paper borrowing limit and cannot issue commercial paper in an aggregate amount exceeding available capacity under the credit agreement. During March 2011, SPS executed a new 4-year credit agreement. The total size of the credit facility is $300 million and terminates in March 2015. SPS has the right to request an extension of the revolving termination date for two additional one year periods, subject to majority bank group approval. The line of credit provides short-term financing in the form of notes payable to banks, letters of credit and back-up support for commercial paper borrowings. Other features of SPS' credit facility include:
At June 30, 2011, SPS had the following committed credit facility available (in millions of dollars):
All credit facility bank borrowings, outstanding letters of credit and outstanding commercial paper reduce the available capacity under the credit facility. SPS had no direct advances on the credit facility outstanding at June 30, 2011 and Dec. 31, 2010. Letters of Credit - SPS uses letters of credit, generally with terms of one year, to provide financial guarantees for certain operating obligations. At June 30, 2011 and Dec. 31, 2010 there were no letters of credit outstanding. Money Pool - Xcel Energy Inc. and its utility subsidiaries have established a money pool arrangement that allows for short-term investments in and borrowings between the utility subsidiaries. Xcel Energy Inc. may make investments in the utility subsidiaries at market-based interest rates; however, the utility money pool arrangement does not allow the utility subsidiaries to make investments in Xcel Energy Inc. The following table presents the money pool borrowings for SPS:
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Benefit Plans and Other Postretirement Benefits
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Benefit Plans and Other Postretirement Benefits [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Benefit Plans and Other Postretirement Benefits |
Pension and other postretirement benefit disclosures below generally represent Xcel Energy information unless specifically identified as being attributable to SPS. SPS calculates base pension expense in accordance with accounting guidance for retirement benefits. In 2011, the Texas retail electric jurisdiction began to allow the deferral of allocated pension costs to the extent that those costs exceed test year pension expenses included in rates, within prescribed limits. Differences between regulatory-based pension expense for the Texas retail electric jurisdiction and expense as calculated under applicable accounting guidance are deferred as a regulatory asset or liability. Components of Net Periodic Benefit Cost
Voluntary contributions of $134 million were made to three of Xcel Energy's pension plans in January 2011, including $4.2 million related to SPS. Based on updated valuation results received in March 2011 for the NCE Non-Bargaining Pension Plan, Xcel Energy made a required contribution of $3.3 million to the NCE Non-Bargaining Pension Plan in July 2011. |
Fair Value of Financial Assets and Liabilities
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6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Fair Value of Financial Assets and Liabilities [Abstract] | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Assets and Liabilities |
Fair Value Measurements SPS had no assets or liabilities measured at fair value on a recurring basis as of June 30, 2011 and Dec. 31, 2010. Derivative Instruments SPS may enter into derivative instruments, including forward contracts, futures, swaps and options, to reduce risk in connection with changes in interest rates and electric utility commodity prices. Interest Rate Derivatives - SPS may enter into various instruments that effectively fix the interest payments on certain floating rate debt obligations or effectively fix the yield or price on a specified benchmark interest rate for an anticipated debt issuance for a specific period. These derivative instruments are generally designated as cash flow hedges for accounting purposes. At June 30, 2011, accumulated other comprehensive losses related to interest rate derivatives included $0.2 million of net losses expected to be reclassified into earnings during the next 12 months as the related hedged interest rate transactions impact earnings. Accumulated other comprehensive losses related to interest rate derivatives reclassified into earnings during each of the three months ended June 30, 2011 and June 30, 2010 were $0.1 million. Accumulated other comprehensive losses related to interest rate derivatives reclassified into earnings during each of the six months ended June 30, 2011 and June 30, 2010 were $0.1 million. Short-Term Wholesale and Commodity Trading Risk - SPS conducts an immaterial amount of short-term wholesale and commodity trading activities, including the purchase and sale of electric capacity, energy and energy-related products. SPS' risk management policy allows management to conduct these activities within guidelines and limitations as approved by its risk management committee, which is made up of management personnel not directly involved in the activities governed by the policy. Commodity Derivatives - SPS may enter into derivative instruments to manage variability of future cash flows from changes in commodity prices in its electric utility operations. This could include the purchase or sale of energy or energy-related products. At June 30, 2011 and Dec. 31, 2010, SPS held no commodity derivatives. Changes in the fair value of non-trading commodity derivative instruments are recorded in other comprehensive income or deferred as a regulatory asset or liability. The classification as a regulatory asset or liability is based on the commission approved regulatory recovery mechanisms. At June 30, 2011 and Dec. 31, 2010, derivative instruments presented on SPS' balance sheets consists of amounts related to long-term purchased power agreements. In 2003, as a result of implementing new guidance on the normal purchase exception for derivative accounting, SPS began recording several long-term purchased power agreements at fair value due to accounting requirements related to underlying price adjustments. As these purchases are recovered through normal regulatory recovery mechanisms in the respective jurisdictions, the changes in fair value for these contracts were offset by regulatory assets and liabilities. During 2006, SPS qualified these contracts under the normal purchase exception. Based on this qualification, the contracts are no longer adjusted to fair value and the previous carrying value of these contracts will be amortized over the remaining contract lives along with the offsetting regulatory assets and liabilities. Financial Impact of Qualifying Cash Flow Hedges - The impact of qualifying interest rate cash flow hedges on SPS' accumulated other comprehensive income, included as a component of common stockholder's equity, is detailed in the following table:
Fair Value of Long-Term Debt The historical cost and fair value of SPS' long-term debt are as follows:
The fair value of SPS' long-term debt is estimated based on the quoted market prices for the same or similar issues or the current rates for debt of the same remaining maturities and credit quality. The fair value estimates presented are based on information available to management as of June 30, 2011 and Dec. 31, 2010. These fair value estimates have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly. As of June 30, 2011 and Dec. 31, 2010, the historical cost of cash and cash equivalents, notes and accounts receivable and notes and accounts payable are representative of fair value because of the short-term nature of these instruments. |
Commitments and Contingent Liabilities
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Commitments and Contingent Liabilities [Abstract] | Â | ||||||||||||||||||||||
Commitments and Contingent Liabilities |
Except to the extent noted below and in Note 5 to the financial statements in this Quarterly Report on Form 10-Q, the circumstances set forth in Notes 11 and 12 to the financial statements in SPS' Annual Report on Form 10-K for the year ended Dec. 31, 2010, appropriately represent, in all material respects, the current status of commitments and contingent liabilities and are incorporated herein by reference. The following include commitments, contingencies and unresolved contingencies that are material to SPS' financial position. Commitments 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, SPS purchases power from independent power producing entities that own natural gas fueled power plants for which SPS is required to reimburse natural gas fuel costs, or to participate in tolling arrangements under which SPS procures the natural gas required to produce the energy that it purchases. SPS 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 operating and maintenance (O&M) costs, historical and estimated future fuel and electricity prices, and financing activities. SPS has concluded that these entities are not required to be consolidated in its financial statements because it does not have the power to direct the activities that most significantly impact the entities' economic performance. SPS had approximately 1,027 megawatts (MW) of capacity under long-term purchased power agreements as of June 30, 2011 and Dec. 31, 2010 with entities that have been determined to be variable interest entities. These agreements have expiration dates through the year 2033. Guarantees - In connection with its Lubbock sale agreement in 2010, SPS provides for indemnification to the counterparty for liabilities incurred as a result of a breach of a representation or warranty by the indemnifying party. These indemnification obligations generally have a discrete term and are intended to protect the parties against risks that are difficult to predict or impossible to quantify at the time of the consummation of a particular transaction. The following table presents guarantees issued and outstanding for SPS:
Environmental Contingencies SPS has been, or is currently, involved with the cleanup of contamination from certain hazardous substances at several sites. In many situations, SPS believes it will recover some portion of these costs through insurance claims. Additionally, where applicable, SPS is pursuing, or intends to pursue, recovery from other potentially responsible parties (PRPs) and through the rate regulatory process. New and changing federal and state environmental mandates can also create added financial liabilities for SPS, which are normally recovered through the rate regulatory process. To the extent any costs are not recovered through the options listed above, SPS would be required to recognize an expense. Site Remediation - The Comprehensive Environmental Response, Compensation and Liability Act of 1980 and comparable state laws impose liability, without regarding the legality of the original conduct, on certain classes of persons responsible for the release of hazardous substances to the environment. SPS must pay all or a portion of the cost to remediate sites where past activities of SPS or other parties have caused environmental contamination. Environmental contingencies could arise from various situations, including third party sites, for which SPS is alleged to be a PRP that sent hazardous materials and wastes. At June 30, 2011 and Dec. 31, 2010, the liability for the cost of remediating these sites was estimated to be $0.1 million. Asbestos Removal - Some of SPS' facilities contain asbestos. Most asbestos will remain undisturbed until the facilities that contain it are demolished or removed. SPS has recorded an estimate for final removal of the asbestos as an asset retirement obligation. See additional discussion of asset retirement obligations in Note 12 of the SPS Annual Report on Form 10-K for the year ended Dec. 31, 2010. 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 Environmental Protection Agency (EPA) Greenhouse Gas (GHG) Rulemaking - In December 2009, the EPA issued its “endangerment” finding that GHG emissions endanger 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. The EPA plans to propose GHG regulations applicable to emissions from existing power plants under the Clean Air Act (CAA). In June 2011, the EPA announced that they have delayed the proposal date to September 2011, but still plan on issuing final rules in May 2012. Cross State Air Pollution Rule (CSAPR)- On July 7, 2011, the EPA issued its CSAPR. The rule, previously called the Transport Rule, addresses long range transport of particulate matter and ozone by requiring reductions in sulfur dioxide (SO2) and nitrogen oxide (NOx) from utilities located in the eastern half of the United States (U.S.). The CSAPR sets more stringent requirements than the proposed Transport Rule and, in contrast to that proposal, specifically requires plants in Texas to reduce their SO2 and annual NOx emissions. The rule creates an emissions trading program, although interstate trading under the rule will be significantly restricted. SPS may comply by either reducing emissions, purchasing allowances, or a combination of the two. The CSAPR is a final rule and requires compliance beginning in 2012. SPS is still evaluating compliance options. At this time, SPS believes that the CSAPR will likely require the installation of additional emission controls on some of SPS' coal-fired electric generating units. Because the CSAPR requires compliance in 2012, SPS may be required to take additional short-term action (including redispatching its system to reduce coal plant operating hours) in order to decrease emissions from its facilities prior to the installation of emission controls. SPS is still evaluating a short-term compliance strategy. SPS believes the cost of any required capital investment, allowance purchases or redispatch costs will be recoverable from customers. Clean Air Interstate Rule (CAIR) - In 2005, the EPA issued the CAIR to further regulate SO2 and NOx emissions. In 2008, the U.S. Court of Appeals for the District of Columbia vacated and remanded the CAIR, but subsequently allowed the CAIR to continue into effect pending the EPA's adoption of a new rule that addressed the deficiencies found by the court. CSAPR replaces the CAIR, and will be applicable to SPS' plants beginning in 2012. Under the CAIR's cap and trade structure, companies can comply through capital investments in emission controls or purchase of emission allowances from other utilities making reductions on their systems. The remaining scheduled capital investments for NOx controls in the SPS region are estimated at $16.4 million. These capital investments should assist SPS in complying with the CSAPR once it becomes effective in 2012. At June 30, 2011, the estimated annual CAIR NOx allowance cost for SPS was $0.3 million. The CSAPR will establish a new emissions market for SO2 and NOx, and SPS does not yet have enough information to estimate the cost of future CSAPR allowance purchases. SPS believes the cost of any required capital investment or allowance purchases will be recoverable from customers. Electric Generating Unit (EGU) Maximum Achievable Control Technology (MACT) Rule - In 2005, the EPA issued the Clean Air Mercury Rule (CAMR), which regulated mercury emissions from power plants. In February 2008, the U.S. Court of Appeals for the District of Columbia vacated the CAMR, which impacted federal CAMR requirements, but not necessarily state-only mercury legislation and rules. In March 2011, the EPA issued the proposed EGU MACT designed to address emissions of mercury and other hazardous air pollutants for coal-fired utility units greater than 25 MW. The EPA intends to issue the final rule by November 2011. SPS anticipates that the EPA will require affected facilities to demonstrate compliance within three to four years. Regional Haze Rules - In 2005, the EPA finalized amendments to its regional haze rules. These amendments apply to the provisions of the regional haze rule that require emission controls, known as best available retrofit technology (BART), for industrial facilities emitting air pollutants that reduce visibility by causing or contributing to regional haze. Some of SPS' generating facilities will be subject to BART requirements. Some of these facilities are located in regions where CAIR is effective. The Texas Commission on Environmental Quality had determined that facilities may use CAIR as a substitute for BART for NOx and SO2. Proposed Coal Ash Regulation - SPS' 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 (often referred to as 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, SPS' 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. Cunningham Compliance Order - In February 2010, SPS received a draft compliance order from the New Mexico Environment Department (NMED) for Cunningham Station. In the draft order, NMED alleges that Cunningham exceeded its permit limits for NOx and failed to report these exceedances as required by its permit. Prior to the formal administrative hearings, SPS negotiated a penalty of $0.8 million. The final agreement is currently being completed by both parties. 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 adverse effect on SPS' financial position and results of operations. Environmental Litigation State of Connecticut vs. Xcel Energy Inc. et al. - In 2004, the attorneys general of eight states and New York City, as well as several environmental groups, filed lawsuits in U.S. District Court in the Southern District of New York against the following utilities, including Xcel Energy Inc., the parent company of SPS, to force reductions in carbon dioxide (CO2) emissions: American Electric Power Co., Southern Co., Cinergy Corp. (merged into Duke Energy Corporation) and Tennessee Valley Authority. The lawsuits allege that CO2 emitted by each company is a public nuisance. The lawsuits do not demand monetary damages. Instead, the lawsuits ask the court to order each utility to cap and reduce its CO2 emissions. In September 2005, the court granted plaintiffs' motion to dismiss on constitutional grounds. In August 2010, this decision was reversed by the Second Circuit and was appealed to the U.S. Supreme Court. On June 20, 2011, the Supreme Court issued a ruling reversing the Second Circuit's decision, thereby dismissing plaintiffs' federal claims and remanding the case for further proceedings regarding the state law claims. Native Village of Kivalina vs. Xcel Energy Inc. et al. - In 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 SPS, 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. and SPS believe 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. 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. No accrual has been recorded for this matter. Comer vs. Xcel Energy Inc. et al. - On May 27, 2011, less than one 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. It is believed that this lawsuit is without merit. No accrual has been recorded for this matter. Employment, Tort and Commercial Litigation John Deere Wind Complaint - Three lawsuits have been filed by John Deere Wind Energy subsidiaries (JD Wind) arising out of a dispute concerning SPS' payments for energy produced from JD Wind projects. The first lawsuit was filed in June 2009 in Texas State District Court against the Public Utility Commission of Texas (PUCT). In this lawsuit, JD Wind filed a petition seeking review of a May 2009 PUCT order denying JD Wind's request for relief against SPS. The PUCT has denied all allegations contained in this petition. On April 21, 2011, JD Wind filed a non-suit of this case dropping the state appeal of the PUCT order so it could pursue its U.S. District Court action. A second lawsuit was filed in December 2009 by JD Wind against the PUCT in U.S. District Court. This lawsuit was filed shortly after a declaratory order issued by the Federal Energy Regulatory Commission (FERC) stated that the PUCT's May 2009 order (approving SPS' payments to JD Wind) is not consistent with the FERC's regulations. In this lawsuit, JD Wind seeks declaratory and injunctive relief against the PUCT. The U.S. District Court issued an order preventing this lawsuit from proceeding pending the outcome of the state court proceeding against the PUCT. As a result of the non-suit of the state court proceeding, this case will now move forward. In January 2010, a third lawsuit was filed by JD Wind against SPS in Texas State District Court related to payments made by SPS for energy produced from the JD Wind projects. This lawsuit seeks unspecified damages against SPS. It is uncertain when this lawsuit will conclude. No accrual has been recorded for this lawsuit nor is it expected that this proceeding will have a material adverse effect upon SPS' results of operations, cash flows or financial position. On Dec. 9, 2010, all the JD Wind entities were purchased by Exelon Generation Company, LLC and the names of each of the JD Wind entities has been changed to Exelon Wind. The captions in the U.S. District Court case and the Texas State District Court case have been changed to reflect the change in the names and ownership. |
BALANCE SHEETS (UNAUDITED) (Parenthetical) (USD $)
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Jun. 30, 2011
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Dec. 31, 2010
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Capitalization | Â | Â |
Common stock, shares authorized (in shares) | 200 | 200 |
Common stock, par value (in dollars per share) | $ 1.00 | $ 1.00 |
Common stock, shares outstanding (in shares) | 100 | 100 |
Accounting Pronouncements
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Accounting Pronouncements [Abstract] | Â | ||
Accounting Pronouncements |
Recently Issued Fair Value Measurement - In May 2011, the Financial Accounting Standards Board (FASB) issued Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (Accounting Standards Update (ASU) No. 2011-04), which provides additional guidance for fair value measurements. These updates to the FASB Accounting Standards Codification (Codification) include clarifications regarding existing fair value measurement principles and disclosure requirements, and also specific new guidance for items such as measurement of instruments classified within stockholders' equity and disclosures regarding the sensitivity of Level 3 measurements to changes in valuation model inputs. These updates to the Codification are effective for interim and annual periods beginning after Dec. 15, 2011. SPS does not expect the implementation of this guidance to have a material impact on its financial statements. Comprehensive Income - In June 2011, the FASB issued Comprehensive Income (Topic 220) - Presentation of Comprehensive Income (ASU No. 2011-05), which updates the Codification to require the presentation of the components of net income, the components of other comprehensive income and total comprehensive income in either a single continuous statement of comprehensive income or in two separate, but consecutive statements of net income and comprehensive income. These updates do not affect the items reported in other comprehensive income or the guidance for reclassifying such items to net income. These updates to the Codification are effective for interim and annual periods beginning after Dec. 15, 2011. SPS does not expect the implementation of this guidance to have a material impact on its financial statements. |
Selected Balance Sheet Data
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Selected Balance Sheet Data [Abstract] | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Selected Balance Sheet Data |
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Comprehensive Income
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Comprehensive Income [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive Income |
The components of total comprehensive income are shown below:
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Income Taxes
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Income Taxes [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||
Income Taxes |
Except to the extent noted below, the circumstances set forth in Note 6 to the financial statements included in SPS' Annual Report on Form 10-K for the year ended Dec. 31, 2010 appropriately represent, in all material respects, the current status of other income tax matters, and are incorporated herein by reference. Federal Audit - SPS is a member of the Xcel Energy affiliated group that files a consolidated federal income tax return. The statute of limitations applicable to Xcel Energy's 2006 federal income tax return expired in August 2010. The statute of limitations applicable to Xcel Energy's 2007 federal income tax return expires in September 2011. The Internal Revenue Service (IRS) commenced an examination of tax years 2008 and 2009 in the third quarter of 2010. As of June 30, 2011, the IRS had not proposed any material adjustments to tax years 2008 and 2009. State Audits - SPS is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of June 30, 2011, SPS' earliest open tax year that is subject to examination by state taxing authorities under applicable statutes of limitations is 2006. As of June 30, 2011, there were no state income tax audits in progress. Unrecognized Tax Benefits - The unrecognized tax benefit balance includes permanent tax positions, which if recognized would affect the annual effective tax rate (ETR). In addition, the unrecognized tax benefit balance includes temporary tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. A change in the period of deductibility would not affect the ETR but would accelerate the payment of cash to the taxing authority to an earlier period. A reconciliation of the amount of unrecognized tax benefit is as follows:
SPS' amount of unrecognized tax benefits could significantly change in the next 12 months as the IRS audit progresses and state audits resume. As the IRS examination moves closer to completion, it is reasonably possible that the amount of unrecognized tax benefits could decrease up to approximately $3 million. The payable for interest related to unrecognized tax benefits is partially offset by the interest benefit associated with net operating loss and tax credit carryforwards. The payables for interest related to unrecognized tax benefits at June 30, 2011 and Dec. 31, 2010 were not material. No amounts were accrued for penalties related to unrecognized tax benefits as of June 30, 2011 or Dec. 31, 2010. |
Management's Opinion
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Management's Opinion [Abstract] | Â |
Management's Opinion | In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America (GAAP), the financial position of SPS as of June 30, 2011, and Dec. 31, 2010; the results of its operations for the three and six months ended June 30, 2011 and 2010; and its cash flows for the six months ended June 30, 2011 and 2010. All adjustments are of a normal, recurring nature, except as otherwise disclosed. Management has also evaluated the impact of events occurring after June 30, 2011 up to the date of issuance of these financial statements. These statements contain all necessary adjustments and disclosures resulting from that evaluation. The Dec. 31, 2010 balance sheet information has been derived from the audited 2010 financial statements included in the SPS Annual Report on Form 10-K for the year ended Dec. 31, 2010. These notes to the financial statements have been prepared pursuant to the rules and regulations of the SEC for Quarterly Reports on Form 10-Q. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. For further information, refer to the financial statements and notes thereto included in the SPS Annual Report on Form 10-K for the year ended Dec. 31, 2010, filed with the SEC on Feb. 28, 2011. Due to the seasonality of SPS' electric sales, interim results are not necessarily an appropriate base from which to project annual results. |
Other Income, Net
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Other Income, Net [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Income, Net |
Other income (expense), net consisted of the following:
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STATEMENTS OF INCOME (UNAUDITED) (USD $)
In Thousands |
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Jun. 30, 2011
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Jun. 30, 2010
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Jun. 30, 2011
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Jun. 30, 2010
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STATEMENTS OF INCOME (UNAUDITED) | Â | Â | Â | Â |
Operating revenues | $ 433,289 | $ 398,449 | $ 814,498 | $ 779,931 |
Operating expenses | Â | Â | Â | Â |
Electric fuel and purchased power | 275,403 | 243,509 | 524,653 | 499,703 |
Other operating and maintenance expenses | 62,732 | 62,282 | 125,485 | 118,987 |
Demand side management program expenses | 4,382 | 3,047 | 7,811 | 4,993 |
Depreciation and amortization | 26,364 | 25,654 | 52,522 | 51,308 |
Taxes (other than income taxes) | 10,975 | 9,906 | 21,095 | 20,061 |
Total operating expenses | 379,856 | 344,398 | 731,566 | 695,052 |
Operating income | 53,433 | 54,051 | 82,932 | 84,879 |
Other income, net | 84 | 119 | 146 | 113 |
Allowance for funds used during construction - equity | 1,358 | 1,011 | 3,284 | 1,444 |
Interest charges and financing costs | Â | Â | Â | Â |
Interest charges - includes other financing costs of $765, $659, $1,425 and $1,309, respectively | 16,068 | 15,736 | 31,866 | 31,882 |
Allowance for funds used during construction - debt | (1,018) | (714) | (2,367) | (1,260) |
Total interest charges and financing costs | 15,050 | 15,022 | 29,499 | 30,622 |
Income before income taxes | 39,825 | 40,159 | 56,863 | 55,814 |
Income taxes | 15,153 | 15,763 | 21,953 | 23,719 |
Net income | $ 24,672 | $ 24,396 | $ 34,910 | $ 32,095 |