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EX-31.01 - EXHIBIT 31.01 - PUBLIC SERVICE CO OF COLORADOpsco-ex3101q12015.htm
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EX-32.01 - EXHIBIT 32.01 - PUBLIC SERVICE CO OF COLORADOpsco-ex3201q12015.htm
EX-99.01 - EXHIBIT 99.01 - PUBLIC SERVICE CO OF COLORADOpsco-ex9901q12015.htm

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-3280
Public Service Company of Colorado
(Exact name of registrant as specified in its charter)
Colorado
 
84-0296600
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
1800 Larimer, Suite 1100
 
 
Denver, Colorado
 
80202
(Address of principal executive offices)
 
(Zip Code)
(303) 571-7511
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 and Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
 
Accelerated filer ¨
 
 
 
Non-accelerated filer x
 
Smaller reporting company ¨
(Do not check if smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at May 1, 2015
Common Stock, $0.01 par value
 
100 shares

Public Service Company of Colorado meets the conditions set forth in General Instruction H (1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format specified in General Instruction H (2) to such Form 10-Q.
 
 
 
 
 




TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
 
 
 
 
Item l —

Item 2 —

Item 4 —

 
 
 
PART II — OTHER INFORMATION
 
 
 
 
Item 1 —

Item 1A —

Item 4 —

Item 5 —

Item 6 —

 
 
 

 
 
Certifications Pursuant to Section 302
1

Certifications Pursuant to Section 906
1

Statement Pursuant to Private Litigation
1


This Form 10-Q is filed by Public Service Company of Colorado, a Colorado corporation (PSCo). PSCo is a wholly owned subsidiary of Xcel Energy Inc. Xcel Energy Inc. wholly owns the following subsidiaries: Northern States Power Company, a Minnesota corporation (NSP-Minnesota); Northern States Power Company, a Wisconsin corporation (NSP-Wisconsin); PSCo; and Southwestern Public Service Company, a New Mexico corporation (SPS). NSP-Minnesota, NSP-Wisconsin, PSCo and SPS are also referred to collectively as utility subsidiaries. Additional information on Xcel Energy Inc. and its subsidiaries (collectively, Xcel Energy) is available on various filings with the Securities and Exchange Commission (SEC).

2


PART I — FINANCIAL INFORMATION

Item 1FINANCIAL STATEMENTS

PUBLIC SERVICE CO. OF COLORADO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(amounts in thousands)
 
Three Months Ended March 31
 
2015
 
2014
Operating revenues
 
 
 
Electric
$
749,461

 
$
734,264

Natural gas
373,203

 
456,337

Steam and other
12,786

 
12,942

Total operating revenues
1,135,450

 
1,203,543

 
 
 
 
Operating expenses
 
 
 
Electric fuel and purchased power
322,758

 
334,470

Cost of natural gas sold and transported
228,744

 
309,805

Cost of sales — steam and other
5,693

 
4,978

Operating and maintenance expenses
182,417

 
175,524

Demand side management program expenses
30,069

 
35,195

Depreciation and amortization
100,043

 
93,316

Taxes (other than income taxes)
50,326

 
41,818

Total operating expenses
920,050

 
995,106

 
 
 
 
Operating income
215,400

 
208,437

 
 
 
 
Other income, net
687

 
797

Allowance for funds used during construction — equity
2,806

 
11,430

 
 
 
 
Interest charges and financing costs
 
 
 
Interest charges — includes other financing costs of $1,505 and $1,720, respectively
43,090

 
43,972

Allowance for funds used during construction — debt
(1,098
)
 
(4,208
)
Total interest charges and financing costs
41,992

 
39,764

 
 
 
 
Income before income taxes
176,901

 
180,900

Income taxes
65,935

 
62,497

Net income
$
110,966

 
$
118,403

 
See Notes to Consolidated Financial Statements

3


PUBLIC SERVICE CO. OF COLORADO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(amounts in thousands)
 
 
Three Months Ended March 31
 
 
2015
 
2014
Net income
 
$
110,966

 
$
118,403

 
 
 
 
 
Other comprehensive loss
 
 

 
 

 
 
 
 
 
Derivative instruments:
 
 

 
 

Net fair value decrease, net of tax of $(3) and $(2), respectively
 
(5
)
 
(3
)
Reclassification of gains to net income, net of tax of $(64) and $(73), respectively
 
(105
)
 
(120
)
 
 
 
 
 
Other comprehensive loss
 
(110
)
 
(123
)
Comprehensive income
 
$
110,856

 
$
118,280


See Notes to Consolidated Financial Statements


4


PUBLIC SERVICE CO. OF COLORADO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
 
Three Months Ended March 31
 
2015
 
2014
Operating activities
 
 
 
Net income
$
110,966

 
$
118,403

Adjustments to reconcile net income to cash provided by operating activities:
 

 
 

Depreciation and amortization
101,172

 
94,654

Demand side management program amortization
1,022

 
1,144

Deferred income taxes
37,771

 
41,863

Amortization of investment tax credits
(733
)
 
(734
)
Allowance for equity funds used during construction
(2,806
)
 
(11,430
)
Net realized and unrealized hedging and derivative transactions
5,086

 
2,818

Changes in operating assets and liabilities:
 

 
 

Accounts receivable
35,312

 
410

Accrued unbilled revenues
89,193

 
63,760

Inventories
43,638

 
56,296

Prepayments and other
89,210

 
7,395

Accounts payable
(61,624
)
 
(29,270
)
Net regulatory assets and liabilities
73,340

 
10,199

Other current liabilities
43,420

 
38,157

Pension and other employee benefit obligations
(20,496
)
 
(35,614
)
Change in other noncurrent assets
903

 
4,616

Change in other noncurrent liabilities
(3,734
)
 
(891
)
Net cash provided by operating activities
541,640

 
361,776

 
 
 
 
Investing activities
 

 
 

Utility capital/construction expenditures
(241,194
)
 
(299,086
)
Allowance for equity funds used during construction
2,806

 
11,430

Investments in utility money pool arrangement
(57,000
)
 
(495,000
)
Repayments from utility money pool arrangement
73,000

 
317,000

Net cash used in investing activities
(222,388
)
 
(465,656
)
 
 
 
 
Financing activities
 

 
 

Repayments of short-term borrowings, net
(240,000
)
 

Borrowings under utility money pool arrangement
9,000

 
2,000

Repayments under utility money pool arrangement
(9,000
)
 
(2,000
)
Proceeds from issuance of long-term debt

 
296,045

Dividends paid to parent
(83,794
)
 
(195,134
)
Net cash (used in) provided by financing activities
(323,794
)
 
100,911

 
 
 
 
Net change in cash and cash equivalents
(4,542
)
 
(2,969
)
Cash and cash equivalents at beginning of period
7,635

 
21,089

Cash and cash equivalents at end of period
$
3,093

 
$
18,120

 
 
 
 
Supplemental disclosure of cash flow information:
 

 
 

Cash paid for interest (net of amounts capitalized)
$
(64,940
)
 
$
(55,003
)
Cash received for income taxes, net
87,443

 
4,902

Supplemental disclosure of non-cash investing transactions:
 

 
 

Property, plant and equipment additions in accounts payable
$
65,289

 
$
93,872


See Notes to Consolidated Financial Statements

5


PUBLIC SERVICE CO. OF COLORADO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(amounts in thousands, except share and per share data)
 
March 31, 2015
 
Dec. 31, 2014
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
3,093

 
$
7,635

Accounts receivable, net
315,467

 
322,885

Accounts receivable from affiliates
22,948

 
50,842

Investments in utility money pool arrangement

 
16,000

Accrued unbilled revenues
204,856

 
294,049

Inventories
195,341

 
238,979

Regulatory assets
97,865

 
120,120

Deferred income taxes
109,726

 
64,587

Derivative instruments
1,912

 
1,731

Prepaid taxes

 
90,365

Prepayments and other
25,134

 
23,979

Total current assets
976,342

 
1,231,172

 
 
 
 
Property, plant and equipment, net
11,695,876

 
11,626,956

 
 
 
 
Other assets
 

 
 

Regulatory assets
905,527

 
903,973

Derivative instruments
4,748

 
5,176

Other
48,248

 
48,506

Total other assets
958,523

 
957,655

Total assets
$
13,630,741

 
$
13,815,783

 
 
 
 
Liabilities and Equity
 

 
 

Current liabilities
 

 
 

Current portion of long-term debt
$
8,418

 
$
8,178

Short-term debt
142,000

 
382,000

Accounts payable
302,446

 
425,133

Accounts payable to affiliates
33,472

 
46,736

Regulatory liabilities
185,198

 
134,459

Taxes accrued
226,087

 
159,470

Accrued interest
24,238

 
48,409

Dividends payable to parent
80,650

 
83,652

Derivative instruments
5,784

 
5,774

Other
71,783

 
72,002

Total current liabilities
1,080,076

 
1,365,813

 
 
 
 
Deferred credits and other liabilities
 

 
 

Deferred income taxes
2,522,038

 
2,437,641

Deferred investment tax credits
35,539

 
36,273

Regulatory liabilities
476,431

 
464,421

Asset retirement obligations
227,635

 
225,296

Derivative instruments
16,967

 
18,257

Customer advances
226,415

 
229,990

Pension and employee benefit obligations
181,434

 
202,031

Other
68,238

 
68,171

Total deferred credits and other liabilities
3,754,697

 
3,682,080

 
 
 
 
Commitments and contingencies


 


Capitalization
 

 
 

Long-term debt
3,880,066

 
3,882,051

Common stock — 100 shares authorized at $0.01 par value; 100 shares
outstanding at March 31, 2015 and Dec. 31, 2014, respectively

 

Additional paid in capital
3,522,646

 
3,522,788

Retained earnings
1,417,244

 
1,386,929

Accumulated other comprehensive loss
(23,988
)
 
(23,878
)
Total common stockholder’s equity
4,915,902

 
4,885,839

Total liabilities and equity
$
13,630,741

 
$
13,815,783


See Notes to Consolidated Financial Statements

6


PUBLIC SERVICE CO. OF COLORADO AND SUBSIDIARIES
Notes to Consolidated Financial Statements (UNAUDITED)

In the opinion of management, the accompanying unaudited consolidated 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 PSCo and its subsidiaries as of March 31, 2015 and Dec. 31, 2014; the results of its operations, including the components of net income and comprehensive income, for the three months ended March 31, 2015 and 2014; and its cash flows for the three months ended March 31, 2015 and 2014. All adjustments are of a normal, recurring nature, except as otherwise disclosed. Management has also evaluated the impact of events occurring after March 31, 2015 up to the date of issuance of these consolidated financial statements. These statements contain all necessary adjustments and disclosures resulting from that evaluation. The Dec. 31, 2014 balance sheet information has been derived from the audited 2014 consolidated financial statements included in the PSCo Annual Report on Form 10-K for the year ended Dec. 31, 2014. These notes to the consolidated 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 on an annual basis have been condensed or omitted pursuant to such rules and regulations. For further information, refer to the consolidated financial statements and notes thereto, included in the PSCo Annual Report on Form 10-K for the year ended Dec. 31, 2014, filed with the SEC on Feb. 20, 2015. Due to the seasonality of PSCo’s electric and natural gas sales, interim results are not necessarily an appropriate base from which to project annual results.

1.
Summary of Significant Accounting Policies

The significant accounting policies set forth in Note 1 to the consolidated financial statements in the PSCo Annual Report on Form 10-K for the year ended Dec. 31, 2014, appropriately represent, in all material respects, the current status of accounting policies and are incorporated herein by reference.

2.
Accounting Pronouncements

Recently Issued

Revenue Recognition In May 2014, the Financial Accounting Standards Board (FASB) issued Revenue from Contracts with Customers, Topic 606 (Accounting Standards Update (ASU) No. 2014-09), which provides a framework for the recognition of revenue, with the objective that recognized revenues properly reflect amounts an entity is entitled to receive in exchange for goods and services. This guidance, which includes additional disclosure requirements regarding revenue, cash flows and obligations related to contracts with customers, is effective for interim and annual reporting periods beginning after Dec. 15, 2016. In April 2015, the FASB tentatively decided to defer the effective date by one year, making the guidance effective for interim and annual reporting periods beginning after Dec. 15, 2017. This tentative decision will be exposed for public input in an upcoming proposed ASU with a 30-day comment period. PSCo is currently evaluating the impact of adopting ASU 2014-09 on its consolidated financial statements.

Consolidation In February 2015, the FASB issued Amendments to the Consolidation Analysis, Topic 810 (ASU No. 2015-02), which reduces the number of consolidation models and amends certain consolidation principles related to variable interest entities. This guidance will be effective for interim and annual reporting periods beginning after Dec. 15. 2015, and early adoption is permitted. PSCo is currently evaluating the impact of adopting ASU 2015-02 on its consolidated financial statements.

Presentation of Debt Issuance Costs In April 2015, the FASB issued Simplifying the Presentation of Debt Issuance Costs, Subtopic 835-30 (ASU No. 2015-03), which amends existing guidance to require the presentation of debt issuance costs on the balance sheet as a deduction from the carrying amount of the related debt, instead of an asset. This guidance will be effective for interim and annual reporting periods beginning after Dec. 15, 2015, and early adoption is permitted. Other than the prescribed reclassification of assets to an offset of debt on the consolidated balance sheets, PSCo does not expect the implementation of ASU 2015-03 to have a material impact on its consolidated financial statements.




7


3.
Selected Balance Sheet Data
(Thousands of Dollars)
 
March 31, 2015
 
Dec. 31, 2014
Accounts receivable, net
 
 
 
 
Accounts receivable
 
$
338,093

 
$
346,007

Less allowance for bad debts
 
(22,626
)
 
(23,122
)
 
 
$
315,467

 
$
322,885

(Thousands of Dollars)
 
March 31, 2015
 
Dec. 31, 2014
Inventories
 
 
 
 
Materials and supplies
 
$
56,703

 
$
55,491

Fuel
 
78,109

 
80,963

Natural gas
 
60,529

 
102,525

 
 
$
195,341

 
$
238,979

(Thousands of Dollars)
 
March 31, 2015
 
Dec. 31, 2014
Property, plant and equipment, net
 
 
 
 
Electric plant
 
$
10,987,784

 
$
10,927,867

Natural gas plant
 
3,248,795

 
3,210,242

Common and other property
 
828,284

 
827,708

Plant to be retired (a)
 
64,130

 
71,534

Construction work in progress
 
873,437

 
828,620

Total property, plant and equipment
 
16,002,430

 
15,865,971

Less accumulated depreciation
 
(4,306,554
)
 
(4,239,015
)
 
 
$
11,695,876

 
$
11,626,956


(a) 
PSCo has received approval for early retirement of Cherokee Unit 3 and Valmont Unit 5 between 2015 and 2017. Amounts are presented net of accumulated depreciation.

4.
Income Taxes

Except to the extent noted below, Note 7 to the consolidated financial statements included in PSCo’s Annual Report on Form 10-K for the year ended Dec. 31, 2014 appropriately represents, in all material respects, the current status of other income tax matters, and are incorporated herein by reference.

Federal Audit  PSCo 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 2009 federal income tax return expires in March 2016. In the third quarter of 2012, the Internal Revenue Service (IRS) commenced an examination of tax years 2010 and 2011, including a 2009 carryback claim. As of March 31, 2015, the IRS had proposed an adjustment to several federal tax loss carryback claims that would result in $12 million of income tax expense for the 2009 through 2011 claims, the recently filed 2013 claim, and the anticipated claim for 2014. PSCo is not expected to accrue any income tax expense related to this adjustment. As of March 31, 2015, the IRS has begun the appeals process; however, the outcome and timing of a resolution is uncertain.

State Audits — PSCo is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of March 31, 2015, PSCo’s earliest open tax year that is subject to examination by state taxing authorities under applicable statutes of limitations is 2009. There are currently 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.


8


A reconciliation of the amount of unrecognized tax benefit is as follows:
(Millions of Dollars)
 
March 31, 2015
 
Dec. 31, 2014
Unrecognized tax benefit — Permanent tax positions
 
$
1.9

 
$
1.9

Unrecognized tax benefit — Temporary tax positions
 
11.2

 
10.0

Total unrecognized tax benefit
 
$
13.1

 
$
11.9


The unrecognized tax benefit amounts were reduced by the tax benefits associated with net operating loss (NOL) and tax credit carryforwards. The amounts of tax benefits associated with NOL and tax credit carryforwards are as follows:
(Millions of Dollars)
 
March 31, 2015
 
Dec. 31, 2014
NOL and tax credit carryforwards
 
$
(4.7
)
 
$
(3.9
)

It is reasonably possible that PSCo’s amount of unrecognized tax benefits could significantly change in the next 12 months as the IRS appeals process progresses and state audits resume. As the IRS examination moves closer to completion, it is reasonably possible that the amount of unrecognized tax benefit could decrease up to approximately $1 million.

The payable for interest related to unrecognized tax benefits is partially offset by the interest benefit associated with NOL and tax credit carryforwards. The payables for interest related to unrecognized tax benefits at March 31, 2015 and Dec. 31, 2014 were not material. No amounts were accrued for penalties related to unrecognized tax benefits as of March 31, 2015 or Dec. 31, 2014.

5.
Rate Matters

Except to the extent noted below, the circumstances set forth in Note 11 to the consolidated financial statements included in PSCo’s Annual Report on Form 10-K for the year ended Dec. 31, 2014 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 — Colorado Public Utilities Commission (CPUC)

Colorado 2014 Electric Rate Case In 2014, PSCo filed an electric rate case with the CPUC requesting an increase in annual revenue of approximately $136.0 million, or 4.83 percent. The requested 2015 rate increase reflected approximately $100.9 million (subsequently updated to $98.7 million) for recovery of costs associated with the Clean Air Clean Jobs Act (CACJA) project. The case also requested the initiation of a CACJA rider for 2016 and 2017, which was anticipated to increase revenue recovery by approximately $34.2 million in 2016 and then decline to approximately $29.9 million in 2017.

In December 2014, PSCo filed rebuttal testimony, revising its requested rate increase to $107.2 million, or 3.79 percent, reflecting an ROE of 10.25 percent and updated information for both the sales and property tax forecasts. PSCo also proposed to recover all costs associated with the CACJA project through the rider beginning in 2015.

In February 2015, the CPUC approved a settlement agreement with rates effective on Feb. 13, 2015. This agreement results in an overall 2015 revenue increase of approximately $53.3 million, or 1.87 percent. Key terms of the agreement include the following:

The settlement is based on a 2013 historic test year (HTY), an return on equity (ROE) of 9.83 percent and an equity ratio of 56 percent;
The implementation of a forward-looking CACJA rider of approximately $97.0 million for 2015 with step increases of $17.7 million and $14.5 million for 2016 and 2017, respectively, effective Jan. 1, 2015;
A forward-looking transmission cost adjustment (TCA) rider of approximately $15.6 million, effective Feb. 13, 2015;
Establishment of tracking mechanisms for pension expense and property taxes; and
An earnings test for 2015 through 2017, under which PSCo and customers would share in any earnings on a 50/50 basis if the ROE recognized falls between 9.84 percent and 10.48 percent.


9


The components of the overall 2015 revenue increase are as follows:
(Millions of Dollars)
 
Approved Settlement
Total base rate decrease
 
$
(39.4
)
CACJA rider mechanism
 
97.0

TCA rider mechanism
 
15.6

Transfer from TCA rider to base rates
 
(19.9
)
Total revenue increase
 
$
53.3


In addition to the revenue increase of $53.3 million, including the impact of the riders, PSCo estimates that it will defer approximately $3.1 million of additional expenses in 2015 as a result of the settlement.

Colorado 2015 Multi-Year Gas Rate Case — On March 3, 2015, PSCo filed a multi-year request with the CPUC to increase Colorado retail natural gas base rates by $40.5 million, or 3.5 percent, in 2015, with subsequent step increases of $7.6 million, or 0.7 percent, in 2016 and $18.1 million, or 1.5 percent, in 2017.

The request is based on a HTY ended June 30, 2014 adjusted for known and measurable expenses and capital additions for each of the subsequent periods in the multi-year plan and an equity ratio of 56 percent. The rate case requests a ROE of 10.1 percent for 2015 and 2016 and 10.3 percent for 2017, and a rate base of $1.26 billion for 2015, $1.31 billion for 2016 and $1.36 billion for 2017.

PSCo is also proposing a stay-out provision, in which PSCo would not request implementation of new rates prior to January 2018, and to implement an earnings test for 2016 through 2017. Under the earnings test, PSCo and customers would share in any earnings on a 50/50 basis if the ROE recognized falls between 10.2 percent and 10.6 percent in 2016, and between 10.4 percent and 10.8 percent in 2017.

In addition, PSCo requested an extension of its pipeline system integrity adjustment (PSIA) rider through 2020 to recover costs associated with its pipeline integrity efforts, including accelerated system renewal projects. If the PSIA rider is not extended by Dec. 31, 2015, such costs would be included in base rates. The request to extend and modify the PSIA rider has an expected negative revenue impact of approximately $0.1 million in 2015 and would provide incremental revenue of $21.7 million for 2016 and $21.2 million for 2017. If PSCo's proposal is accepted, PSIA revenue is projected to be $67.0 million in 2015, $88.7 million in 2016, and $109.9 million in 2017.

The following table summarizes the request:

(Millions of Dollars)
 
2015
 
2016 Step
 
2017 Step
Net plant and plant related expenses
 
$
24.4

 
$
12.4

 
$
12.0

Operating and maintenance expenses
 
23.9

 
(5.2
)
 
0.6

Property and payroll taxes
 
4.7

 
2.6

 
4.0

ROE
 
4.5

 

 
2.4

Capital structure
 
(1.0
)
 

 
0.1

Sales forecast
 
(17.1
)
 
(2.2
)
 
(1.0
)
Other, net
 
1.1

 

 

Total base rate increase
 
40.5

 
7.6

 
18.1

Incremental PSIA rider revenues
 
(0.1
)
 
21.7

 
21.2

Total revenue impact
 
$
40.4

 
$
29.3

 
$
39.3


In March 2015, the CPUC referred the proceeding to an administrative law judge (ALJ). A CPUC decision, as well as implementation of final rates, are anticipated in the fourth quarter of 2015.


10


Annual Electric Earnings Test — As part of an annual earnings test, PSCo must share with customers a portion of any annual earnings that exceed PSCo’s authorized ROE threshold of 10 percent for 2012 through 2014. On April 30, 2015, PSCo filed a tariff for the 2014 earnings test with the CPUC proposing a refund obligation of $66.5 million to electric customers.

In February 2015, in the Colorado 2014 Electric Rate Case, the CPUC approved an annual earnings test, in which PSCo shares with customers earnings that exceed the authorized ROE threshold of 9.83 percent for 2015 through 2017. The current estimate of the 2015 earnings test, based on annual forecasted information, did not result in the recognition of a liability as of March 31, 2015.

Electric, Purchased Gas and Resource Adjustment Clauses

Demand Side Management (DSM) and the Demand Side Management Cost Adjustment (DSMCA) — The CPUC approved higher savings goals and a lower financial incentive mechanism for PSCo’s electric DSM energy efficiency programs starting in 2015. Energy efficiency and DSM costs are recovered through a combination of the DSMCA riders and base rates. DSMCA riders are adjusted biannually to capture program costs, performance incentives, and any over- or under-recoveries are trued-up in the following year. Savings goals were 384 gigawatt hours (GWh) in 2014 and are 400 GWh in 2015 with incentives awarded in the year following plan achievements. PSCo is able to earn $5 million upon reaching its annual savings goal along with an incentive on five percent of net economic benefits up to a maximum annual incentive of $30 million.

In October 2014, PSCo filed its 2015-2016 DSM plan, which proposes a 2015 DSM electric budget of $81.6 million and a gas budget of $13.1 million and a 2016 DSM electric budget of $78.7 million and gas budget of $13.6 million. PSCo has reached an agreement with all parties resolving most of the contested issues in the proceeding. The remaining issues to be litigated primarily concern the avoided costs attributable to DSM measures. A decision by the ALJ is expected in the second quarter of 2015.

6.
Commitments and Contingencies

Except to the extent noted below and in Note 5, Notes 11 and 12 to the consolidated financial statements included in PSCo’s Annual Report on Form 10-K for the year ended Dec. 31, 2014, 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 PSCo’s financial position.

Purchased Power Agreements (PPAs)

Under certain PPAs, 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 PPAs create a variable interest in the associated independent power producing entity.

PSCo had approximately 1,802 megawatts (MW) of capacity under long-term PPAs as of March 31, 2015 and Dec. 31, 2014, with entities that have been determined to be variable interest entities. 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. These agreements have expiration dates through 2032.


11


Environmental Contingencies

Environmental Requirements

Water and Waste
Coal Ash Regulation PSCo’s operations are subject to federal and state laws that impose requirements for handling, storage, treatment, and disposal of solid waste.  On April 17, 2015, the U.S. Environmental Protection Agency (EPA) published a final rule regulating the management and disposal of coal combustion byproducts (coal ash) as a nonhazardous waste.  PSCo’s costs to manage and dispose of coal ash will not significantly increase under the new rule.

Air
Regional Haze Rules — The regional haze program is designed to address widespread haze that results from emissions from a multitude of sources. In 2005, the EPA amended the best available retrofit technology (BART) requirements of its regional haze rules, which require the installation and operation of emission controls for industrial facilities emitting air pollutants that reduce visibility in certain national parks and wilderness areas. In its first regional haze state implementation plan (SIP), Colorado identified the PSCo facilities that will have to reduce sulfur dioxide, nitrous oxide, and particulate matter emissions under BART and set emissions limits for those facilities.

In 2011, the Colorado Air Quality Control Commission approved a SIP that included the CACJA emission reduction plan as satisfying regional haze requirements for the facilities included in the CACJA plan. In addition, the SIP included a BART determination for Comanche Units 1 and 2. The EPA approved the SIP in 2012. Installation of the emission controls at Hayden Unit 1 is scheduled for 2015 and Hayden Unit 2 is scheduled for 2016 at an estimated combined cost of $82.4 million. PSCo anticipates these costs will be fully recoverable in rates.

In March 2013, WildEarth Guardians petitioned the U.S Court of Appeals for the 10th Circuit to review the EPA’s decision approving the SIP. WildEarth Guardians has challenged the BART determination made for Comanche Units 1 and 2. In comments before the EPA, WildEarth Guardians urged that current emission limitations be made more stringent or that selective catalytic reduction be added to the units. In September 2014, the EPA filed a request with the Court to remand the case to the EPA for additional explanation of the EPA’s decision approving the BART determination for Comanche Units 1 and 2. In October, 2014, the Court granted the EPA’s request and vacated the current briefing schedule. In its February 2015 status report to the Court the EPA estimated that it would submit a final rule for publication which is expected in 2015.

In 2010, two environmental groups petitioned the U.S. Department of the Interior (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. The following PSCo plants are named in the petition: Cherokee, Hayden, Pawnee and Valmont. The groups allege the Colorado BART rule is inadequate to satisfy the Clean Air Act 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.

Legal Contingencies

PSCo is involved in various litigation matters that are being defended and handled in the ordinary course of business. The assessment of whether a loss is probable or is a reasonable possibility, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. Management maintains accruals for such losses that are probable of being incurred and subject to reasonable estimation. Management is sometimes unable to estimate an amount or range of a reasonably possible loss in certain situations, including but not limited to when (1) the damages sought are indeterminate, (2) the proceedings are in the early stages, or (3) the matters involve novel or unsettled legal theories. In such cases, there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including a possible eventual loss. For current proceedings not specifically reported herein, management does not anticipate that the ultimate liabilities, if any, arising from such current proceedings would have a material effect on PSCo’s financial statements. Unless otherwise required by GAAP, legal fees are expensed as incurred.


12


Employment, Tort and Commercial Litigation

Pacific Northwest Federal Energy Regulatory Commission (FERC) Refund Proceeding — In July 2001, the FERC ordered a preliminary hearing to determine whether there were unjust and unreasonable charges for spot market bilateral sales in the Pacific Northwest for December 2000 through June 2001. PSCo supplied energy to the Pacific Northwest markets during this period and has been a participant in the hearings. In September 2001, the presiding ALJ concluded that prices in the Pacific Northwest during the referenced period were the result of a number of factors, including the shortage of supply, excess demand, drought and increased natural gas prices. Under these circumstances, the ALJ concluded that the prices in the Pacific Northwest markets were not unreasonable or unjust and no refunds should be ordered. Subsequent to the ruling, the FERC has allowed the parties to request additional evidence. Parties have claimed that the total amount of transactions with PSCo subject to refund is $34 million. In June 2003, the FERC issued an order terminating the proceeding without ordering further proceedings. Certain purchasers filed appeals of the FERC’s orders in this proceeding with the U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit).

In an order issued in August 2007, the Ninth Circuit remanded the proceeding back to the FERC and indicated that the FERC should consider other rulings addressing overcharges in the California organized markets. The Ninth Circuit denied a petition for rehearing in April 2009, and the mandate was issued.

The FERC issued an order on remand establishing principles for the review proceeding in October 2011. The City of Seattle filed a petition for review with the Court of Appeals for the Ninth Circuit seeking review of FERC’s order on remand.

Notwithstanding its petition for review, in September 2012, the City of Seattle filed its direct case against PSCo and other Pacific Northwest sellers claiming refunds for the period January 2000 through June 2001. The City of Seattle indicated that for the period June 2000 through June 2001 PSCo had sales to the City of Seattle of approximately $50 million. The City of Seattle did not identify specific instances of unlawful market activity by PSCo, but rather based its claim for refunds on market dysfunction in the Western markets. PSCo submitted its answering case in December 2012.

In April 2013, the FERC issued an order on rehearing. The FERC confirmed that the City of Seattle would be able to attempt to obtain refunds back from January 2000, but reaffirmed the transaction-specific standard that the City of Seattle and other complainants would have to comply with to obtain refunds. In addition, the FERC rejected the imposition of any market-wide remedies. Although the FERC order on rehearing established the period for which the City of Seattle could seek refunds as January 2000 through June 2001, it is unclear what claim the City of Seattle has against PSCo prior to June 2000. In the proceeding, the City of Seattle does not allege specific misconduct or tariff violations by PSCo but instead asserts generally that the rates charged by PSCo and other sellers were excessive.

A hearing in this case was held before a FERC ALJ and concluded in October 2013. On March 28, 2014, the FERC ALJ issued an initial decision which rejected all of the City of Seattle’s claims against PSCo and other respondents. With respect to the period Jan. 1, 2000 through Dec. 24, 2000, the FERC ALJ rejected the City of Seattle’s assertion that any of the sales made to the City of Seattle resulted in an excessive burden to the City of Seattle, the applicable legal standard for the City of Seattle’s challenges during this period. With respect to the period Dec. 25, 2000 through June 20, 2001, the FERC ALJ concluded that the City of Seattle had failed to establish a causal link between any contracts and any claimed unlawful market activity, the standard required by the FERC in its remand order. The City of Seattle contested the FERC ALJ’s initial decision by filing a brief on exceptions to the FERC. This matter is now pending a decision by the FERC.

In addition, on Feb. 17, 2015, the U.S. Court of Appeals of the Ninth Circuit directed parties to the pending FERC proceeding to submit briefs addressing, among other issues, the petition for review filed by the City of Seattle seeking review of FERC’s order on remand. Parties are directed to address whether FERC’s order properly established the scope for the hearing that concluded in October 2013. Respondent-intervenors, such as PSCo, are required to submit briefs on or before May 8, 2015. Oral argument is scheduled to commence in June 2015.


13


Preliminary calculations of the City of Seattle’s claim for refunds from PSCo are approximately $28 million excluding interest. PSCo has concluded that a loss is reasonably possible with respect to this matter; however, given the surrounding uncertainties, PSCo is currently unable to estimate the amount or range of reasonably possible loss in the event of an adverse outcome of this matter. In making this assessment, PSCo considered two factors. First, notwithstanding PSCo’s view that the City of Seattle has failed to apply the standard that the FERC has established in this proceeding, and the recognition that this case raises a novel issue and the FERC’s standard has been challenged on appeal to the Ninth Circuit, the outcome of such an appeal cannot be predicted with any certainty. Second, PSCo would expect to make equitable arguments against refunds even if the City of Seattle were to establish that it was overcharged for transactions. If a loss were sustained, PSCo would attempt to recover those losses from other potentially responsible parties. No accrual has been recorded for this matter.

7.
Borrowings and Other Financing Instruments

Short-Term Borrowings

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 money pool arrangement does not allow the utility subsidiaries to make investments in Xcel Energy Inc. Money pool borrowings for PSCo were as follows:
(Amounts in Millions, Except Interest Rates)
 
Three Months Ended March 31, 2015
 
Twelve Months Ended Dec. 31, 2014
Borrowing limit
 
$
250

 
$
250

Amount outstanding at period end
 

 

Average amount outstanding
 

 
4

Maximum amount outstanding
 
9

 
97

Weighted average interest rate, computed on a daily basis
 
N/A

 
0.25
%
Weighted average interest rate at period end
 
N/A

 
N/A


Commercial Paper — PSCo meets its short-term liquidity requirements primarily through the issuance of commercial paper and borrowings under its credit facility. Commercial paper outstanding for PSCo was as follows:
(Amounts in Millions, Except Interest Rates)
 
Three Months Ended March 31, 2015
 
Twelve Months Ended Dec. 31, 2014
Borrowing limit
 
$
700

 
$
700

Amount outstanding at period end
 
142

 
382

Average amount outstanding
 
288

 
167

Maximum amount outstanding
 
449

 
393

Weighted average interest rate, computed on a daily basis
 
0.51
%
 
0.31
%
Weighted average interest rate at period end
 
0.57

 
0.65


Letters of Credit PSCo uses letters of credit, generally with terms of one year, to provide financial guarantees for certain operating obligations. At March 31, 2015 and Dec. 31, 2014, there were $7 million and $6 million of letters of credit outstanding, respectively, under the credit facility. The contract amounts of these letters of credit approximate their fair value and are subject to fees.

Credit Facility — In order to use its commercial paper program to fulfill short-term funding needs, PSCo 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 this credit facility. 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.

At March 31, 2015, PSCo had the following committed credit facility available (in millions of dollars):
Credit Facility (a)
 
Drawn (b)
 
Available
$
700

 
$
149

 
$
551


(a)    This credit facility expires in October 2019.
(b)    Includes outstanding commercial paper and letters of credit.


14


All credit facility bank borrowings, outstanding letters of credit and outstanding commercial paper reduce the available capacity under the credit facility. PSCo had no direct advances on the credit facility outstanding at March 31, 2015 and Dec. 31, 2014.

8.
Fair Value of Financial Assets and Liabilities

Fair Value Measurements

The accounting guidance for fair value measurements and disclosures provides a single definition of fair value and requires certain disclosures about assets and liabilities measured at fair value. A hierarchical framework for disclosing the observability of the inputs utilized in measuring assets and liabilities at fair value is established by this guidance. The three levels in the hierarchy are as follows:

Level 1 Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices.

Level 2 Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reporting date. The types of assets and liabilities included in Level 2 are typically either comparable to actively traded securities or contracts, or priced with models using highly observable inputs.

Level 3 Significant inputs to pricing have little or no observability as of the reporting date. The types of assets and liabilities included in Level 3 are those valued with models requiring significant management judgment or estimation.

Specific valuation methods include the following:

Cash equivalents — The fair values of cash equivalents are generally based on cost plus accrued interest; money market funds are measured using quoted net asset values.

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

Commodity derivatives — The methods used to measure the fair value of commodity derivative forwards and options utilize forward prices and volatilities, as well as pricing adjustments for specific delivery locations, and are generally assigned a Level 2. When contractual settlements extend to periods beyond those readily observable on active exchanges or quoted by brokers, the significance of the use of less observable forecasts of long-term forward prices and volatilities on a valuation is evaluated, and may result in Level 3 classification.

Derivative Instruments Fair Value Measurements

PSCo enters into derivative instruments, including forward contracts, futures, swaps and options, for trading purposes and to manage risk in connection with changes in interest rates, utility commodity prices and vehicle fuel prices.

Interest Rate Derivatives — PSCo enters 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 March 31, 2015, accumulated other comprehensive losses related to interest rate derivatives included $0.4 million of net losses expected to be reclassified into earnings during the next 12 months as the related hedged interest rate transactions impact earnings, including forecasted amounts for any unsettled hedges, as applicable.

Wholesale and Commodity Trading Risk — PSCo conducts various wholesale and commodity trading activities, including the purchase and sale of electric capacity, energy and energy-related instruments. PSCo’s 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 this policy.

Commodity Derivatives — PSCo enters into derivative instruments to manage variability of future cash flows from changes in commodity prices in its electric and natural gas operations, as well as for trading purposes. This could include the purchase or sale of energy or energy-related products, natural gas to generate electric energy, natural gas for resale, and vehicle fuel.


15


At March 31, 2015, PSCo had various vehicle fuel contracts designated as cash flow hedges extending through December 2016. PSCo also enters into derivative instruments that mitigate commodity price risk on behalf of electric and natural gas customers but are not designated as qualifying hedging transactions. 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 commission approved regulatory recovery mechanisms. PSCo recorded immaterial amounts to income related to the ineffectiveness of cash flow hedges for the three months ended March 31, 2015 and 2014.

At March 31, 2015, net losses related to commodity derivative cash flow hedges recorded as a component of accumulated other comprehensive losses included $0.1 million of net losses expected to be reclassified into earnings during the next 12 months as the hedged transactions occur.

Additionally, PSCo enters into commodity derivative instruments for trading purposes not directly related to commodity price risks associated with serving its electric and natural gas customers. Changes in the fair value of these commodity derivatives are recorded in electric operating revenues, net of amounts credited to customers under margin-sharing mechanisms.

The following table details the gross notional amounts of commodity forwards and options at March 31, 2015 and Dec. 31, 2014:
(Amounts in Thousands) (a)(b)
 
March 31, 2015
 
Dec. 31, 2014
Megawatt hours of electricity
 
115

 

Million British thermal units of natural gas
 
465

 
735

Gallons of vehicle fuel
 
111

 
127


(a) 
Amounts are not reflective of net positions in the underlying commodities.
(b) 
Notional amounts for options are included on a gross basis, but are weighted for the probability of exercise.

The following tables detail the impact of derivative activity during the three months ended March 31, 2015 and 2014, on accumulated other comprehensive loss, regulatory assets and liabilities, and income:
 
 
Three Months Ended March 31, 2015
 
 
 
Pre-Tax Fair Value
Losses Recognized
During the Period in:
 
Pre-Tax (Gains) Losses
Reclassified into Income
During the Period from:
 
 
 
(Thousands of Dollars)
 
Accumulated
Other
Comprehensive
Loss
 
Regulatory
(Assets) and
Liabilities
 
Accumulated
Other
Comprehensive
Loss
 
Regulatory
Assets and
(Liabilities)
 
Pre-Tax Gains
Recognized
During the Period
in Income
 
Derivatives designated as cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
Interest rate
 
$

 
$

 
$
(180
)
(a) 
$

 
$

 
Vehicle fuel and other commodity
 
(8
)
 

 
11

(b) 

 

 
Total
 
$
(8
)
 
$

 
$
(169
)
 
$

 
$

 
Other derivative instruments
 
 
 
 
 
 
 
 
 
 
 
Commodity trading
 
$

 
$

 
$

 
$

 
$
189

(c) 
Natural gas commodity
 

 
(174
)
 

 
(5,605
)
(d) 
5,460

(d) 
Total
 
$

 
$
(174
)
 
$

 
$
(5,605
)
 
$
5,649

 

16


 
 
Three Months Ended March 31, 2014
 
 
 
Pre-Tax Fair Value
Gains Recognized
During the Period in:
 
Pre-Tax Gains
Reclassified into Income
During the Period from:
 
 
 
(Thousands of Dollars)
 
Accumulated
Other
Comprehensive
Loss
 
Regulatory
(Assets) and
Liabilities
 
Accumulated
Other
Comprehensive
Loss
 
Regulatory
Assets and
(Liabilities)
 
Pre-Tax Losses
Recognized
During the Period
in Income
 
Derivatives designated as cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
Interest rate
 
$

 
$

 
$
(180
)
(a) 
$

 
$

 
Vehicle fuel and other commodity
 
(5
)
 

 
(13
)
(b) 

 

 
Total
 
$
(5
)
 
$

 
$
(193
)
 
$

 
$

 
Other derivative instruments
 
 
 
 
 
 
 
 
 
 
 
Natural gas commodity
 
$

 
$
9,826

 
$

 
$
(8,579
)
(d) 
$
(4,316
)
(d) 
Total
 
$

 
$
9,826

 
$

 
$
(8,579
)
 
$
(4,316
)
 

(a) 
Recorded to interest charges.
(b) 
Recorded to operating and maintenance (O&M) expenses.
(c) 
Amounts are recorded to electric operating revenues. Portions of these gains and losses are subject to sharing with electric customers through margin-sharing mechanisms and deducted from gross revenue as appropriate.
(d) 
Amounts for the three months ended March 31, 2015 and 2014 included immaterial settlement losses on derivatives entered to mitigate natural gas price risk for electric generation, recorded to electric fuel and purchased power, subject to cost-recovery mechanisms and reclassified to a regulatory asset, as appropriate. The remaining derivative settlement gains and losses for the three months ended March 31, 2015 and 2014 relate to natural gas operations and are recorded to cost of natural gas sold and transported. These gains and losses are subject to cost-recovery mechanisms and reclassified out of income to a regulatory asset or liability, as appropriate.

PSCo had no derivative instruments designated as fair value hedges during the three months ended March 31, 2015 and 2014. Therefore, no gains or losses from fair value hedges or related hedged transactions were recognized for these periods.

Consideration of Credit Risk and Concentrations — PSCo continuously monitors the creditworthiness of the counterparties to its interest rate derivatives and commodity derivative contracts prior to settlement, and assesses each counterparty’s ability to perform on the transactions set forth in the contracts. Given this assessment, as well as an assessment of the impact of PSCo’s own credit risk when determining the fair value of derivative liabilities, the impact of considering credit risk was immaterial to the fair value of unsettled commodity derivatives presented in the consolidated balance sheets.

PSCo employs additional credit risk control mechanisms when appropriate, such as letters of credit, parental guarantees, standardized master netting agreements and termination provisions that allow for offsetting of positive and negative exposures. Credit exposure is monitored and, when necessary, the activity with a specific counterparty is limited until credit enhancement is provided.

PSCo’s most significant concentrations of credit risk with particular entities or industries are contracts with counterparties to its wholesale, trading and non-trading commodity activities. At March 31, 2015, seven of PSCo’s 10 most significant counterparties, comprising $24.9 million or 25 percent of this credit exposure, had investment grade credit ratings from Standard & Poor’s Ratings Services, Moody’s Investor Services or Fitch Ratings. The remaining three significant counterparties, comprising $33.4 million or 34 percent of this credit exposure, were not rated by these agencies, but based on PSCo’s internal analysis, had credit quality consistent with investment grade. All 10 of these significant counterparties are municipal or cooperative electric entities, or other utilities.

Credit Related Contingent Features  Contract provisions for derivative instruments that PSCo enters into, including those recorded to the consolidated balance sheet at fair value, as well as those accounted for as normal purchase-normal sale contracts and therefore not reflected on the balance sheet, may require the posting of collateral or settlement of the contracts for various reasons, including if PSCo is unable to maintain its credit ratings. At March 31, 2015 and Dec. 31, 2014, there were no derivative instruments with contract provisions that required the posting of collateral or settlement of the contracts.

Certain derivative instruments are also subject to contract provisions that contain adequate assurance clauses. These provisions allow counterparties to seek performance assurance, including cash collateral, in the event that PSCo’s ability to fulfill its contractual obligations is reasonably expected to be impaired. PSCo had no collateral posted related to adequate assurance clauses in derivative contracts as of March 31, 2015 and Dec. 31, 2014.


17


Recurring Fair Value Measurements  The following table presents, for each of the fair value hierarchy levels, PSCo’s assets and liabilities measured at fair value on a recurring basis at March 31, 2015:
 
 
March 31, 2015
 
 
Fair Value
 
Fair Value
Total
 
Counterparty
Netting (b)
 
 
(Thousands of Dollars)
 
Level 1
 
Level 2
 
Level 3
 
 
 
Total
Current derivative assets
 
 
 
 
 
 
 
 
 
 
 
 
Other derivative instruments:
 
 
 
 
 
 
 
 
 
 
 
 
Commodity trading
 
$

 
$
199

 
$

 
$
199

 
$
(2
)
 
$
197

Total current derivative assets
 
$

 
$
199

 
$

 
$
199

 
$
(2
)
 
197

PPAs (a)
 
 
 
 
 
 
 
 
 
 
 
1,715

Current derivative instruments
 
 
 
 
 
 
 
 
 
 
 
$
1,912

Noncurrent derivative assets
 
 
 
 
 
 
 
 
 
 
 
 
PPAs (a)
 
 
 
 
 
 
 
 
 
 
 
$
4,748

Noncurrent derivative instruments
 
 
 
 
 
 
 
 
 
 
 
$
4,748

Current derivative liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives designated as cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
Vehicle fuel and other commodity
 
$

 
$
57

 
$

 
$
57

 
$

 
$
57

Other derivative instruments:
 
 
 
 
 
 
 
 
 
 
 
 
Commodity trading
 

 
11

 

 
11

 
(2
)
 
9

Other commodity
 

 
527

 

 
527

 

 
527

Total current derivative liabilities
 
$

 
$
595

 
$

 
$
595

 
$
(2
)
 
593

PPAs (a)
 
 
 
 
 
 
 
 
 
 
 
5,191

Current derivative instruments
 
 
 
 
 
 
 
 
 
 
 
$
5,784

Noncurrent derivative liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives designated as cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
Vehicle fuel and other commodity
 
$

 
$
38

 
$

 
$
38

 
$

 
$
38

Other derivative instruments:
 
 
 
 
 
 
 
 
 
 
 
 
Other commodity
 

 
51

 

 
51

 

 
51

Total noncurrent derivative liabilities
 
$

 
$
89

 
$

 
$
89

 
$

 
89

PPAs (a)
 
 
 
 
 
 
 
 
 
 
 
16,878

Noncurrent derivative instruments
 
 
 
 
 
 
 
 
 
 
 
$
16,967


(a) 
In 2003, as a result of implementing new guidance on the normal purchase exception for derivative accounting, PSCo began recording several long-term PPAs at fair value due to accounting requirements related to underlying price adjustments. As these purchases are recovered through normal regulatory recovery mechanisms, the changes in fair value for these contracts were offset by regulatory assets and liabilities. During 2006, PSCo 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.
(b) 
PSCo nets derivative instruments and related collateral in its consolidated balance sheet when supported by a legally enforceable master netting agreement, and all derivative instruments and related collateral amounts were subject to master netting agreements at March 31, 2015. At March 31, 2015, derivative assets and liabilities include no obligations to return cash collateral or rights to reclaim cash collateral. The counterparty netting amounts presented exclude settlement receivables and payables and non-derivative amounts that may be subject to the same master netting agreements.


18


The following table presents, for each of the fair value hierarchy levels, PSCo’s assets and liabilities measured at fair value on a recurring basis at Dec. 31, 2014:
 
 
Dec. 31, 2014
 
 
Fair Value
 
Fair Value
Total
 
Counterparty
Netting (b)
 
 
(Thousands of Dollars)
 
Level 1
 
Level 2
 
Level 3
 
 
 
Total
Current derivative assets
 
 
 
 
 
 
 
 
 
 
 
 
Other derivative instruments:
 
 
 
 
 
 
 
 
 
 
 
 
Natural gas commodity
 
$

 
$
33

 
$

 
$
33

 
$
(18
)
 
$
15

Total current derivative assets
 
$

 
$
33

 
$

 
$
33

 
$
(18
)
 
15

PPAs (a)
 
 
 
 
 
 
 
 
 
 
 
1,716

Current derivative instruments
 
 
 
 
 
 
 
 
 
 
 
$
1,731

Noncurrent derivative assets
 
 
 
 
 
 
 
 
 
 
 
 
PPAs (a)
 
 
 
 
 
 
 
 
 
 
 
$
5,176

Noncurrent derivative instruments
 
 
 
 
 
 
 
 
 
 
 
$
5,176

Current derivative liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives designated as cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
Vehicle fuel and other commodity
 
$

 
$
53

 
$

 
$
53

 
$

 
$
53

Other derivative instruments:
 
 
 
 
 
 
 
 
 
 
 
 
Natural gas commodity
 

 
548

 

 
548

 
(18
)
 
530

Total current derivative liabilities
 
$

 
$
601

 
$

 
$
601

 
$
(18
)
 
583

PPAs (a)
 
 
 
 
 
 
 
 
 
 
 
5,191

Current derivative instruments
 
 
 
 
 
 
 
 
 
 
 
$
5,774

Noncurrent derivative liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives designated as cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
Vehicle fuel and other commodity
 
$

 
$
46

 
$

 
$
46

 
$

 
$
46

Other derivative instruments:
 
 

 
 

 
 

 
 

 
 

 
 

Natural gas commodity
 

 
35

 

 
35

 

 
35

Total noncurrent derivative liabilities
 
$

 
$
81

 
$

 
$
81

 
$

 
81

PPAs (a)
 
 
 
 
 
 
 
 
 
 
 
18,176

Noncurrent derivative instruments
 
 
 
 
 
 
 
 
 
 
 
$
18,257


(a) 
In 2003, as a result of implementing new guidance on the normal purchase exception for derivative accounting, PSCo began recording several long-term PPAs at fair value due to accounting requirements related to underlying price adjustments. As these purchases are recovered through normal regulatory recovery mechanisms, the changes in fair value for these contracts were offset by regulatory assets and liabilities. During 2006, PSCo 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.
(b) 
PSCo nets derivative instruments and related collateral in its consolidated balance sheet when supported by a legally enforceable master netting agreement, and all derivative instruments and related collateral amounts were subject to master netting agreements at Dec. 31, 2014. At Dec. 31, 2014, derivative assets and liabilities included no obligations to return cash collateral or rights to reclaim cash collateral. The counterparty netting amounts presented exclude settlement receivables and payables and non-derivative amounts that may be subject to the same master netting agreements.

There were no changes in Level 3 recurring fair value measurements for the three months ended March 31, 2015 and 2014.

PSCo recognizes transfers between levels as of the beginning of each period. There were no transfers of amounts between levels for derivative instruments for the three months ended March 31, 2015 and 2014.

Fair Value of Long-Term Debt

As of March 31, 2015 and Dec. 31, 2014, other financial instruments for which the carrying amount did not equal fair value were as follows:
 
 
March 31, 2015
 
Dec. 31, 2014
(Thousands of Dollars)
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Long-term debt, including current portion
 
$
3,888,484

 
$
4,424,922

 
$
3,890,229

 
$
4,328,968



19


The fair value of PSCo’s long-term debt is estimated based on recent trades and observable spreads from benchmark interest rates for similar securities. The fair value estimates are based on information available to management as of March 31, 2015 and Dec. 31, 2014, and given the observability of the inputs to these estimates, the fair values presented for long-term debt have been assigned a Level 2.

9.
Other Income, Net

Other income, net consisted of the following:
 
Three Months Ended March 31
(Thousands of Dollars)
2015
 
2014
Interest income
$
233

 
$
489

Other nonoperating income
777

 
685

Insurance policy expense
(323
)
 
(367
)
Other nonoperating expense

 
(10
)
Other income, net
$
687

 
$
797


10.
Segment Information

Operating results from the regulated electric utility and regulated natural gas utility are each separately and regularly reviewed by PSCo’s chief operating decision maker. PSCo evaluates performance based on profit or loss generated from the product or service provided. These segments are managed separately because the revenue streams are dependent upon regulated rate recovery, which is separately determined for each segment.

PSCo has the following reportable segments: regulated electric utility, regulated natural gas utility and all other.

PSCo’s regulated electric utility segment generates, transmits and distributes electricity primarily in portions of Colorado. In addition, this segment includes sales for resale and provides wholesale transmission service to various entities in the United States. Regulated electric utility also includes PSCo’s commodity trading operations.
PSCo’s regulated natural gas utility segment transports, stores and distributes natural gas primarily in portions of Colorado.
Revenues from operating segments not included above are below the necessary quantitative thresholds and are therefore included in the all other category. Those primarily include steam revenue, appliance repair services and nonutility real estate activities.

Asset and capital expenditure information is not provided for PSCo’s reportable segments because as an integrated electric and natural gas utility, PSCo operates significant assets that are not dedicated to a specific business segment, and reporting assets and capital expenditures by business segment would require arbitrary and potentially misleading allocations which may not necessarily reflect the assets that would be required for the operation of the business segments on a stand-alone basis.

To report income from operations for regulated electric and regulated natural gas utility segments, the majority of costs are directly assigned to each segment. However, some costs, such as common depreciation, common O&M expenses and interest expense are allocated based on cost causation allocators. A general allocator is used for certain general and administrative expenses, including office supplies, rent, property insurance and general advertising.
 
 
 
 
 
 
 
 
 
 
 

20


 
 
 
 
 
 
 
 
 
 
 
(Thousands of Dollars)
 
Regulated Electric
 
Regulated Natural Gas
 
All Other
 
Reconciling Eliminations
 
Consolidated Total
Three Months Ended March 31, 2015
 
 
 
 
 
 
 
 
 
 
Operating revenues (a)(b)
 
$
749,461

 
$
373,203

 
$
12,786

 
$

 
$
1,135,450

Intersegment revenues
 
88

 
41

 

 
(129
)
 

Total revenues
 
$
749,549

 
$
373,244

 
$
12,786

 
$
(129
)
 
$
1,135,450

Net income (loss)
 
$
74,669

 
$
36,623

 
$
(326
)
 
$

 
$
110,966

(Thousands of Dollars)
 
Regulated Electric
 
Regulated Natural Gas
 
All Other
 
Reconciling Eliminations
 
Consolidated Total
Three Months Ended March 31, 2014
 
 
 
 
 
 
 
 
 
 
Operating revenues (a)(b)
 
$
734,264

 
$
456,337

 
$
12,942

 
$

 
$
1,203,543

Intersegment revenues
 
97

 
59

 

 
(156
)
 

Total revenues
 
$
734,361

 
$
456,396

 
$
12,942

 
$
(156
)
 
$
1,203,543

Net income
 
$
73,968

 
$
38,149

 
$
6,286

 
$

 
$
118,403

(a)    Operating revenues include $2 million of affiliate electric revenue for the three months ended March 31, 2015 and 2014.
(b)    Operating revenues include $1 million of other affiliate revenue for the three months ended March 31, 2015 and 2014.

11.
Benefit Plans and Other Postretirement Benefits

Components of Net Periodic Benefit Cost (Credit)
 
 
Three Months Ended March 31
 
 
2015
 
2014
 
2015
 
2014
(Thousands of Dollars)
 
Pension Benefits
 
Postretirement Health
Care Benefits
Service cost
 
$
7,065

 
$
5,985

 
$
232

 
$
479

Interest cost
 
12,714

 
13,319

 
4,375

 
5,926

Expected return on plan assets
 
(18,148
)
 
(17,677
)
 
(5,951
)
 
(7,554
)
Amortization of prior service credit
 
(784
)
 
(773
)
 
(1,562
)
 
(1,562
)
Amortization of net loss
 
9,094

 
8,473

 
619

 
1,609

Net periodic benefit cost (credit)
 
9,941

 
9,327

 
(2,287
)
 
(1,102
)
Cost not recognized due to the effects of regulation
 
(366
)
 

 

 

Net benefit cost (credit) recognized for financial reporting
 
$
9,575

 
$
9,327

 
$
(2,287
)
 
$
(1,102
)
 
 
 
 
 
 
 
 
 
In January 2015, contributions of $90.0 million were made across four of Xcel Energy’s pension plans, of which $20.0 million was attributable to PSCo. Xcel Energy does not expect additional pension contributions during 2015.

12.
Other Comprehensive Income

Changes in accumulated other comprehensive loss, net of tax, for the three months ended March 31, 2015 and 2014 were as follows:
 
 
Gains and Losses on
Cash Flow Hedges
(Thousands of Dollars)
 
Three Months Ended March 31, 2015
 
Three Months Ended March 31, 2014
Accumulated other comprehensive loss at Jan. 1
 
$
(23,878
)
 
$
(23,338
)
Other comprehensive loss before reclassifications
 
(5
)
 
(3
)
Gains reclassified from net accumulated other comprehensive loss
 
(105
)
 
(120
)
Net current period other comprehensive loss
 
(110
)
 
(123
)
Accumulated other comprehensive loss at March 31
 
$
(23,988
)
 
$
(23,461
)

21


 
 
 
 
 
Reclassifications from accumulated other comprehensive loss for the three months ended March 31, 2015 and 2014 were as follows:
 
 
Amounts Reclassified from Accumulated
Other Comprehensive Loss
 
(Thousands of Dollars)
 
Three Months Ended March 31, 2015
 
Three Months Ended March 31, 2014
 
(Gains) losses on cash flow hedges:
 
 
 
 
 
Interest rate derivatives
 
$
(180
)
(a) 
$
(180
)
(a) 
Vehicle fuel derivatives
 
11

(b) 
(13
)
(b) 
Total, pre-tax
 
(169
)
 
(193
)
 
Tax expense
 
64

 
73

 
Total amounts reclassified, net of tax
 
$
(105
)
 
$
(120
)
 
 
 
 
 
 
 
(a) 
Included in interest charges.
(b) 
Included in O&M expenses.

Item 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Discussion of financial condition and liquidity for PSCo is omitted per conditions set forth in general instructions H (1) (a) and (b) of Form 10-Q for wholly owned subsidiaries. It is replaced with management’s narrative analysis of the results of operations set forth in general instructions H (2) (a) of Form 10-Q for wholly owned subsidiaries (reduced disclosure format).

Financial Review

The following discussion and analysis by management focuses on those factors that had a material effect on PSCo’s financial condition, results of operations and cash flows during the periods presented, or are expected to have a material impact in the future. It should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes to the consolidated financial statements. Due to the seasonality of PSCo’s electric and natural gas sales, such interim results are not necessarily an appropriate base from which to project annual results.

Forward-Looking Statements

Except for the historical statements contained in this report, the matters discussed in the following discussion and analysis are forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements are intended to be identified in this document by the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “objective,” “outlook,” “plan,” “project,” “possible,” “potential,” “should” and similar expressions. Actual results may vary materially. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them to reflect changes that occur after that date. Factors that could cause actual results to differ materially include, but are not limited to: general economic conditions, including inflation rates, monetary fluctuations and their impact on capital expenditures and the ability of PSCo and its subsidiaries to obtain financing on favorable terms; business conditions in the energy industry, including the risk of slowdown in the U.S. economy or delay in growth recovery; actions of credit rating agencies; trade, fiscal, taxation and environmental policies in areas where PSCo has a financial interest; customer business conditions; competitive factors, including the extent and timing of the entry of additional competition in the markets served by PSCo and its subsidiaries; unusual weather; effects of geopolitical events, including war and acts of terrorism; cyber security threats and data security breaches; state, federal and foreign legislative and regulatory initiatives that affect cost and investment recovery, have an impact on rates, or have an impact on asset operation or ownership or impose environmental compliance conditions; structures that affect the speed and degree to which competition enters the electric and natural gas markets; costs and other effects of legal and administrative proceedings, settlements, investigations and claims; financial or regulatory accounting policies imposed by regulatory bodies; availability or cost of capital; employee work force factors; and the other risk factors listed from time to time by PSCo in reports filed with the SEC, including “Risk Factors” in Item 1A of PSCo’s Form 10-K for the year ended Dec. 31, 2014, and Item 1A and Exhibit 99.01 to this Quarterly Report on Form 10-Q for the quarter ended March 31, 2015.


22


Results of Operations

PSCo’s net income was approximately $111.0 million for the three months ended March 31, 2015, compared with approximately $118.4 million for the same period in 2014. The positive impact of implementing the CACJA rider, effective Jan. 1, 2015, and the recognition of lower estimated electric earnings test refunds were offset by lower allowance for funds used during construction (AFUDC), higher property taxes, O&M expenses, depreciation and the unfavorable impact of weather.

Electric Revenues and Margin

Electric revenues and fuel and purchased power expenses are largely impacted by the fluctuation in the price of natural gas and coal used in the generation of electricity, but as a result of the design of fuel recovery mechanisms to recover current expenses, these price fluctuations have minimal impact on electric margin. The following table details the electric revenues and margin:
 
 
Three Months Ended March 31
(Millions of Dollars)
 
2015
 
2014
Electric revenues
 
$
749

 
$
734

Electric fuel and purchased power
 
(323
)
 
(334
)
Electric margin
 
$
426

 
$
400


The following tables summarize the components of the changes in electric revenues and electric margin for the three months ended March 31:

Electric Revenues
(Millions of Dollars)
 
2015 vs. 2014
Non-fuel riders (a)
 
$
24

Earnings test refund
 
11

Fuel and purchased power cost recovery
 
(7
)
Retail rate decrease
 
(5
)
Estimated impact of weather
 
(4
)
Other, net
 
(4
)
Total increase in electric revenues
 
$
15


Electric Margin
(Millions of Dollars)
 
2015 vs. 2014
Non-fuel riders (a)
 
$
24

Earnings test refund
 
11

Retail rate decrease

 
(5
)
Estimated impact of weather

 
(4
)
DSM program revenues (offset by expenses)
 
(2
)
Other, net
 
2

Total increase in electric margin
 
$
26


(a) Increase relates primarily to the new CACJA rider, effective Jan. 1, 2015. This amount positively impacted revenues and more than offset the base rate decrease. See Note 5 to the consolidated financial statements.


23


Natural Gas Revenues and Margin

Total natural gas expense tends to vary with changing sales requirements and the cost of natural gas purchases. However, due to the design of purchased natural gas cost recovery mechanisms to recover current expenses for sales to retail customers, fluctuations in the cost of natural gas have little effect on natural gas margin. The following table details natural gas revenues and margin:
 
 
Three Months Ended March 31
(Millions of Dollars)
 
2015
 
2014
Natural gas revenues
 
$
373

 
$
456

Cost of natural gas sold and transported
 
(229
)
 
(310
)
Natural gas margin
 
$
144

 
$
146


The following tables summarize the components of the changes in natural gas revenues and natural gas margin for the three months ended March 31:

Natural Gas Revenues
(Millions of Dollars)
 
2015 vs. 2014
Purchased natural gas adjustment clause recovery
 
$
(81
)
Estimated impact of weather
 
(6
)
DSM program revenues
 
(2
)
Integrity rider
 
4

Other, net
 
2

Total decrease in natural gas revenues
 
$
(83
)

Natural Gas Margin
(Millions of Dollars)
 
2015 vs. 2014
Estimated impact of weather
 
$
(6
)
DSM program revenues (offset by expenses)
 
(2
)
Integrity rider
 
4

Other, net
 
2

Total decrease in natural gas margin
 
$
(2
)

Non-Fuel Operating Expenses and Other Items

O&M Expenses O&M expenses increased $6.9 million, or 3.9 percent, for the three months ended March 31, 2015 compared with the same period in 2014. O&M expenses were higher for the quarter, primarily due to the timing of planned maintenance and overhauls at our generation facilities, as summarized in the table below:
(Millions of Dollars)
 
2015 vs. 2014
Plant generation costs
 
$
6

Transmission costs
 
1

Employee benefits
 
1

Other, net
 
(1
)
Total increase in O&M expenses
 
$
7


DSM Program Expenses DSM program expenses decreased $5.1 million, or 14.6 percent, for the three months ended March 31, 2015 compared with the same period in 2014. The decrease was primarily attributable to lower electric and gas recovery rates. Therefore, lower expenses are generally offset by lower revenues.

Depreciation and Amortization Depreciation and amortization expense increased $6.7 million, or 7.2 percent, for the three months ended March 31, 2015 compared with the same period for 2014. The increase is primarily attributable to normal system expansion.

Taxes (Other Than Income Taxes) Taxes (other than income taxes) increased $8.5 million, or 20.3 percent, for the three months ended March 31, 2015 compared with the same period in 2014. The increase is primarily due to higher property taxes.


24


AFUDC — AFUDC decreased $11.7 million for the three months ended March 31, 2015 compared with the same period in 2014. The decrease was primarily due to the implementation of the CACJA rider on Jan. 1, 2015, facilitating earlier and alternative recovery of construction costs.

Income Taxes — Income tax expense increased $3.4 million for the three months ended March 31, 2015 compared with the same period in 2014. The increase in income tax expense was primarily due to decreased permanent plant-related adjustments in 2015. The ETR was 37.3 percent for the three months ended March 31, 2015 compared with 34.5 percent for the same period in 2014. The lower ETR was primarily due to the same adjustments mentioned above.

Public Utility Regulation

Brush, Colo. to Castle Pines, Colo. 345 Kilovolt (KV) Transmission Line — In March 2014, PSCo filed with the CPUC for a certificate of public convenience and necessity (CPCN) to construct a new 345 KV transmission line originating from Pawnee Generating Station, near Brush, Colo. and terminating at the Daniels Park substation, near Castle Pines, Colo. The estimated cost of the project is $178 million. In November 2014, the ALJ issued a recommended decision approving the CPCN, but delaying construction until May 2020. The CPUC denied all exceptions to the ALJs recommended decision, clarifying that while construction may begin in May 2020, local permit applications and land acquisition may begin immediately.

Net Metering Standard — In a filing, PSCo proposed to track and quantify the system costs that are not avoided by distributed solar generation, which PSCo has defined as a “net metering incentive,” for purposes of equitably recovering costs between customers. The CPUC assigned the net metering issue to its own docket and is conducting a series of panel discussions to gain a better understanding of net metering issues. A CPUC decision is anticipated in the third quarter of 2015.

Boulder, Colo. Municipalization — PSCo’s franchise agreement with the City of Boulder (Boulder) expired in December 2010. In November 2011, a ballot measure was passed which authorized the formation and operation of a municipal utility and the issuance of enterprise revenue bonds, subject to certain restrictions, including the level of initial rates and debt service coverage. In May 2014, the Boulder City Council passed an ordinance to establish an electric utility.

In 2013, the CPUC ruled that it has jurisdiction under Colorado law to determine the utility that will serve customers outside Boulder’s city limits, and will determine certain system separation matters as well as what facilities need to be constructed to ensure reliable service. The CPUC has declared that it should make its determinations prior to any eminent domain actions. In January 2014, Boulder appealed this ruling to the Boulder District Court. In January 2015, the Boulder District Court affirmed the CPUC decision.

Boulder sent PSCo an offer of $128 million for certain portions of PSCo’s transmission and distribution business. PSCo has notified Boulder that its offer was deficient. Under Colorado law, a condemning entity must pay the owner fair market value for the taking of and damages to the remainder of the property.

In July 2014, Boulder filed a petition for condemnation in the Boulder District Court. PSCo filed a motion to dismiss the petition based upon the CPUC’s ruling that it must determine the appropriate system separations prior to Boulder filing its condemnation case. PSCo’s motion to dismiss was granted in February 2015. This decision does not prevent Boulder from filing another condemnation petition after it obtains CPUC approval of its separation plan, which is anticipated to be filed no earlier than the second quarter of 2015.

In August 2014, PSCo filed a petition with the FERC requesting an order requiring that Boulder’s attempt to acquire PSCo’s transmission and distribution facilities by condemnation requires prior FERC approval under the Federal Power Act. In December 2014, the FERC issued an order granting PSCo’s petition.

If Boulder proceeds with another condemnation petition and were to succeed in the eminent domain proceeding, PSCo would seek to obtain full compensation for the business and its associated property taken by Boulder, as well as for all damages resulting to PSCo and its system. PSCo would also seek appropriate compensation for stranded costs with the FERC.

On April 16, 2015, Boulder issued a request for proposal for a partial requirements wholesale electric power supply agreement. Boulder indicated that the request for proposal was designed to elicit a wholesale power supply arrangement for a five-year term commencing on Jan. 1, 2018. Boulder has requested that PSCo consider different pricing structures, and allow for Boulder to reduce demand over the term of the contract. Boulder requested a response by May 18, 2015.


25


Steam System Package Boilers and Regulatory Plan In December 2014, PSCo filed the results of a steam survey along with both a short-term plan and a long-term plan for the steam system consisting of a request for a conditional CPCN to construct either one or two boilers for its steam utility, dependent on the next two seasons of winter peaking capacity. On April 1, 2015, PSCo filed with the CPUC a settlement agreement among all parties resolving all issues. A CPUC decision is anticipated in the second quarter of 2015.

Cabin Creek Hydro Upgrade PSCo plans to file a CPCN with the CPUC in May 2015 to upgrade the Cabin Creek Hydro facility. The upgrade is estimated to cost $89.2 million and will extend the life of the facility by 40 years as well as increase the maximum output by 36 MW.

Summary of Recent Federal Regulatory Developments

The FERC has jurisdiction over rates for electric transmission service in interstate commerce and electricity sold at wholesale, hydro facility licensing, natural gas transportation, asset transactions and mergers, accounting practices and certain other activities of PSCo, including enforcement of North American Electric Reliability Corporation mandatory electric reliability standards. State and local agencies have jurisdiction over many of PSCo’s activities, including regulation of retail rates and environmental matters. See additional discussion in the summary of recent federal regulatory developments and public utility regulation sections of the PSCo Annual Report on Form 10-K for the year ended Dec. 31, 2014. In addition to the matters discussed below, see Note 5 to the consolidated financial statements for a discussion of other regulatory matters.

FERC Order, New ROE Policy — In June 2014, the FERC adopted a new two-step ROE methodology for electric utilities. In October 2014, the FERC upheld the determination of the long-term growth rate to be used in its new ROE methodology. In March 2015, the FERC issued an order on rehearing upholding use of the new ROE methodology.

Item 4 — CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

PSCo maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms. In addition, the disclosure controls and procedures ensure that information required to be disclosed is accumulated and communicated to management, including the chief executive officer (CEO) and chief financial officer (CFO), allowing timely decisions regarding required disclosure. As of March 31, 2015, based on an evaluation carried out under the supervision and with the participation of PSCo’s management, including the CEO and CFO, of the effectiveness of its disclosure controls and the procedures, the CEO and CFO have concluded that PSCo’s disclosure controls and procedures were effective.

Internal Control Over Financial Reporting

No change in PSCo’s internal control over financial reporting has occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, PSCo’s internal control over financial reporting.

Part II — OTHER INFORMATION

Item 1LEGAL PROCEEDINGS

PSCo is involved in various litigation matters that are being defended and handled in the ordinary course of business. The assessment of whether a loss is probable or is a reasonable possibility, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. Management maintains accruals for such losses that are probable of being incurred and subject to reasonable estimation. Management is sometimes unable to estimate an amount or range of a reasonably possible loss in certain situations, including but not limited to when (1) the damages sought are indeterminate, (2) the proceedings are in the early stages, or (3) the matters involve novel or unsettled legal theories. In such cases, there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including a possible eventual loss.

Additional Information

See Note 6 to the consolidated financial statements for further discussion of legal claims and environmental proceedings. See Note 5 to the consolidated financial statements for discussion of proceedings involving utility rates and other regulatory matters.


26


Item 1A — RISK FACTORS

PSCo’s risk factors are documented in Item 1A of Part I of its Annual Report on Form 10-K for the year ended Dec. 31, 2014, which is incorporated herein by reference. There have been no material changes from the risk factors previously disclosed in the Form 10-K.

Item 4MINE SAFETY DISCLOSURES

None.

Item 5OTHER INFORMATION

None.

Item 6 EXHIBITS
*
Indicates incorporation by reference
3.01*
Amended and Restated Articles of Incorporation dated July 15, 1998 (Form 10-K, Dec. 31, 1998, Exhibit 3(a)(1)).
3.02*
By-Laws of PSCo as Amended and Restated on Sept. 26, 2013. (Exhibit 3.02 to Form 10-Q/A for the quarter ended Sept. 30, 2013 (file no. 001-03280)).

Principal Executive Officer’s certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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
The following materials from PSCo’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 are formatted in XBRL (eXtensible Business Reporting Language):  (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Balance Sheets, (v) Notes to Consolidated Financial Statements, and (vi) document and entity information.


27


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 
Public Service Company of Colorado
 
 
 
May 1, 2015
By:
/s/ JEFFREY S. SAVAGE
 
 
Jeffrey S. Savage
 
 
Senior Vice President, Controller
 
 
(Principal Accounting Officer)
 
 
 
 
 
/s/ TERESA S. MADDEN
 
 
Teresa S. Madden
 
 
Executive Vice President, Chief Financial Officer and Director
 
 
(Principal Financial Officer)


28