12. Regulatory Assets and Liabilities

SPS' financial statements are prepared in accordance with the applicable accounting guidance, as discussed in Note 1. Under this guidance, regulatory assets and liabilities are created for amounts that regulators may allow to be collected, or may require to be paid back to customers in future electric rates. If changes in the utility industry or the business of SPS no longer allow for the application of regulatory accounting guidance under GAAP, SPS would be required to recognize the write-off of regulatory assets and liabilities in net income or OCI.

The components of regulatory assets shown on the balance sheets of SPS at Dec. 31, 2012 and Dec. 31, 2011 are:

	See		Remaining
(Thousands of Dollars)	Note(s)		Amortization Period	Dec. 31, 2012				Dec. 31, 2011
Regulatory Assets				Current		Noncurrent		Current		Noncurrent
Pension and retiree medical obligations (a)		7	Various	$	15,038	$	238,398	$	14,879	$	214,111
Recoverable deferred taxes on AFUDC recorded in plant		1	Plant lives		-		27,591		-		25,053
Net AROs (b)		11	Plant lives		-		21,714		-		19,920
Conservation programs (c)		1	One to six years		1,735		9,095		1,834		10,786
Renewable resources and environmental initiatives		11	One to four years		4,094		15,101		1,458		10,795
Losses on reacquired debt		4	Term of related debt		1,225		4,922		1,228		6,146
Deferred income tax adjustment		1, 6	Typically plant lives		-		4,859		-		6,040
Recoverable electric energy costs		1	Less than one year		873		-		1,439		-
Other			Various		1,055		2,401		4,406		1,962
Total regulatory assets				$	24,020	$	324,081	$	25,244	$	294,813

(a)	Includes the non-qualified pension plan.

(b)	Includes amounts recorded for future recovery of AROs.

(c)	Includes costs for conservation programs, as well as incentives allowed in certain jurisdictions.

The components of regulatory liabilities shown on the balance sheets of SPS at Dec. 31, 2012 and Dec. 31, 2011 are:

	See		Remaining
(Thousands of Dollars)	Note(s)		Amortization Period	Dec. 31, 2012				Dec. 31, 2011
Regulatory Liabilities				Current		Noncurrent		Current		Noncurrent
Plant removal costs		11	Plant lives	$	-	$	66,575	$	-	$	74,402
Deferred electric energy costs		1	Less than one year		61,874		-		43,295		-
Contract valuation adjustments (a)		1, 9	Term of related contract		4,292		11,159		4,292		15,450
Gain from asset sales		16	Various		4,903		8,272		4,899		13,229
Conservation programs (b)		1	Less than one year		1,875		-		2,222		-
Other			Various		2,947		5,809		2,396		2,254
Total regulatory liabilities				$	75,891	$	91,815	$	57,104	$	105,335

(a)	Includes the fair value of certain long-term PPAs used to meet energy capacity requirements.

(b)	Includes costs for conservation programs as well as incentives allowed in certain jurisdictions.

At Dec. 31, 2012, approximately $25 million of SPS' regulatory assets represented past expenditures not currently earning a return. This amount primarily includes certain expenditures associated with renewable resources and environmental initiatives.