NORTHERN STATES POWER CO /WI/ - FORM 10-Q

NORTHERN STATES POWER CO /WI/ - FORM 10-Q - October 27, 2017

Attached files

Attached files

NORTHERN STATES POWER CO /WI/ Reports

file	filename
EX-99.01 - EXHIBIT 99.01 - NORTHERN STATES POWER CO /WI/	nspwex9901q32017.htm
EX-32.01 - EXHIBIT 32.01 - NORTHERN STATES POWER CO /WI/	nspwex3201q32017.htm
EX-31.02 - EXHIBIT 31.02 - NORTHERN STATES POWER CO /WI/	nspwex3102q32017.htm
EX-31.01 - EXHIBIT 31.01 - NORTHERN STATES POWER CO /WI/	nspwex3101q32017.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 Sept. 30, 2017



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-03140

Northern States Power Company

(Exact name of registrant as specified in its charter)



Wisconsin		39-0508315
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1414 West Hamilton Avenue
Eau Claire, Wisconsin		54701
(Address of principal executive offices)		(Zip Code)

(715) 737-2625

(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, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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)		Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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 Oct. 27, 2017
Common Stock, $100 par value		933,000 shares

Northern States Power Company (a Wisconsin corporation) 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 —	Financial Statements (Unaudited)	3
Item 2 —	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 4 —	Controls and Procedures	22

PART II — OTHER INFORMATION

Item 1 —	Legal Proceedings	23
Item 1A —	Risk Factors	23
Item 6 —	Exhibits	23

SIGNATURES		24



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 Northern States Power Company, a Wisconsin corporation (NSP-Wisconsin). NSP-Wisconsin 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); Southwestern Public Service Company, a New Mexico corporation (SPS); Public Service Company of Colorado, a Colorado corporation (PSCo); and NSP-Wisconsin. NSP-Minnesota, NSP-Wisconsin, PSCo and SPS are also referred to collectively as utility subsidiaries. The electric production and transmission system of NSP-Minnesota and NSP-Wisconsin, which is operated on an integrated basis and is managed by NSP-Minnesota, is referred to collectively as the NSP System. Additional information on Xcel Energy Inc. and its subsidiaries (collectively, Xcel Energy) is available on various filings with the Securities and Exchange Commission (SEC).

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PART I — FINANCIAL INFORMATION

Item 1 — FINANCIAL STATEMENTS

NSP-WISCONSIN AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(amounts in thousands)



	Three Months Ended Sept. 30						Nine Months Ended Sept. 30
	2017			2016			2017			2016
Operating revenues
Electric	$	232,802		$	232,216		$	659,853		$	646,619
Natural gas	14,394			13,646			81,768			72,671
Other	315			282			847			877
Total operating revenues	247,511			246,144			742,468			720,167

Operating expenses
Electric fuel and purchased power, non-affiliates	6,181			4,238			12,637			11,870
Purchased power, affiliates	106,697			105,734			314,948			311,301
Cost of natural gas sold and transported	6,032			6,081			40,582			35,964
Operating and maintenance expenses	51,808			49,235			150,880			148,370
Conservation expenses	3,298			3,308			9,529			9,468
Depreciation and amortization	27,979			24,700			82,656			72,869
Taxes (other than income taxes)	7,124			6,506			21,002			20,757
Total operating expenses	209,119			199,802			632,234			610,599

Operating income	38,392			46,342			110,234			109,568

Other income (expense), net	95			(102		)	424			424
Allowance for funds used during construction — equity	1,705			1,241			4,743			2,969

Interest charges and financing costs
Interest charges — includes other financing costs of $465, $465, $1,382 and $1,388, respectively	8,647			8,613			25,985			25,800
Allowance for funds used during construction — debt	(726		)	(525		)	(2,025		)	(1,264		)
Total interest charges and financing costs	7,921			8,088			23,960			24,536

Income before income taxes	32,271			39,393			91,441			88,425
Income taxes	9,946			15,172			32,456			33,948
Net income	$	22,325		$	24,221		$	58,985		$	54,477

See Notes to Consolidated Financial Statements

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NSP-WISCONSIN AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(amounts in thousands)



	Three Months Ended Sept. 30				Nine Months Ended Sept. 30
	2017		2016		2017		2016
Net income	$	22,325	$	24,221	$	58,985	$	54,477
Other comprehensive income
Derivative instruments:
Reclassification of losses to net income, net of tax of $13, $13, $37 and $38, respectively	19		19		57		57
Other comprehensive income	19		19		57		57
Comprehensive income	$	22,344	$	24,240	$	59,042	$	54,534

See Notes to Consolidated Financial Statements

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NSP-WISCONSIN AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)



	Nine Months Ended Sept. 30
	2017			2016
Operating activities
Net income	$	58,985		$	54,477
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	83,797			74,014
Deferred income taxes	37,226			27,769
Amortization of investment tax credits	(392		)	(396		)
Allowance for equity funds used during construction	(4,743		)	(2,969		)
Net derivative losses	82			112
Other, net	(1,503		)	—
Changes in operating assets and liabilities:
Accounts receivable	3,512			9,394
Accrued unbilled revenues	9,414			8,203
Inventories	(1,798		)	1,290
Other current assets	4,990			7,791
Accounts payable	1,031			11,946
Net regulatory assets and liabilities	(19,309		)	(10,256		)
Other current liabilities	(9,700		)	1,523
Pension and other employee benefit obligations	(8,189		)	(6,256		)
Change in other noncurrent assets	(362		)	(402		)
Change in other noncurrent liabilities	(4,165		)	1,918
Net cash provided by operating activities	148,876			178,158

Investing activities
Utility capital/construction expenditures	(145,440		)	(138,616		)
Allowance for equity funds used during construction	4,743			2,969
Other, net	(10		)	781
Net cash used in investing activities	(140,707		)	(134,866		)

Financing activities
Proceeds from (repayments of) short-term borrowings, net	32,000			(6,000		)
Repayments of long-term debt	(71		)	(44		)
Capital contributions from parent	12,297			1,108
Dividends paid to parent	(52,640		)	(38,414		)
Other, net	(70		)	—
Net cash used in financing activities	(8,484		)	(43,350		)

Net change in cash and cash equivalents	(315		)	(58		)
Cash and cash equivalents at beginning of period	1,546			1,079
Cash and cash equivalents at end of period	$	1,231		$	1,021

Supplemental disclosure of cash flow information:
Cash paid for interest (net of amounts capitalized)	$	(21,496	)	$	(21,692	)
Cash paid for income taxes, net	(9,339		)	(2,298		)
Supplemental disclosure of non-cash investing transactions:
Property, plant and equipment additions in accounts payable	$	25,796		$	16,011

See Notes to Consolidated Financial Statements

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NSP-WISCONSIN AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(amounts in thousands, except share and per share data)



	Sept. 30, 2017			Dec. 31, 2016
Assets
Current assets
Cash and cash equivalents	$	1,231		$	1,546
Accounts receivable, net	51,214			54,031
Accrued unbilled revenues	44,224			53,638
Inventories	20,107			18,309
Regulatory assets	18,165			18,162
Prepaid taxes	19,505			25,915
Prepayments and other	18,637			3,785
Total current assets	173,083			175,386

Property, plant and equipment, net	2,032,528			1,947,637

Other assets
Regulatory assets	276,009			286,188
Other investments	2,853			2,844
Other	1,147			785
Total other assets	280,009			289,817
Total assets	$	2,485,620		$	2,412,840

Liabilities and Equity
Current liabilities
Current portion of long-term debt	$	1,086		$	1,123
Short-term debt	92,000			60,000
Notes payable to affiliates	500			500
Accounts payable	51,387			41,068
Accounts payable to affiliates	26,655			29,037
Dividends payable to parent	11,397			10,729
Regulatory liabilities	26,025			17,428
Environmental liabilities	18,348			41,438
Accrued interest	9,503			8,012
Other	26,861			26,484
Total current liabilities	263,762			235,819

Deferred credits and other liabilities
Deferred income taxes	471,892			430,593
Deferred investment tax credits	7,645			8,037
Regulatory liabilities	152,665			148,189
Environmental liabilities	12,888			23,003
Customer advances	18,015			19,425
Pension and employee benefit obligations	46,827			55,164
Other	16,177			18,814
Total deferred credits and other liabilities	726,109			703,225

Commitments and contingencies
Capitalization
Long-term debt	662,455			661,946
Common stock — 1,000,000 shares authorized of $100 par value; 933,000 shares outstanding at Sept. 30, 2017 and Dec. 31, 2016, respectively	93,300			93,300
Additional paid in capital	411,025			395,315
Retained earnings	329,045			323,368
Accumulated other comprehensive loss	(76		)	(133		)
Total common stockholder’s equity	833,294			811,850
Total liabilities and equity	$	2,485,620		$	2,412,840

See Notes to Consolidated Financial Statements

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NSP-WISCONSIN 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 NSP-Wisconsin and its subsidiaries as of Sept. 30, 2017 and Dec. 31, 2016; the results of its operations, including the components of net income and comprehensive income, for the three and nine months ended Sept. 30, 2017 and 2016; and its cash flows for the nine months ended Sept. 30, 2017 and 2016. All adjustments are of a normal, recurring nature, except as otherwise disclosed. Management has also evaluated the impact of events occurring after Sept. 30, 2017 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, 2016 balance sheet information has been derived from the audited 2016 consolidated financial statements included in the NSP-Wisconsin Annual Report on Form 10-K for the year ended Dec. 31, 2016. 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 NSP-Wisconsin Annual Report on Form 10-K for the year ended Dec. 31, 2016, filed with the SEC on Feb. 24, 2017. Due to the seasonality of NSP-Wisconsin’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 NSP-Wisconsin Annual Report on Form 10-K for the year ended Dec. 31, 2016, 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 new framework for the recognition of revenue. NSP-Wisconsin expects its adoption will primarily result in increased disclosures regarding revenue related to arrangements with customers, as well as separate presentation of alternative revenue programs. NSP-Wisconsin currently expects to implement the standard on a modified retrospective basis, which requires application to contracts with customers effective Jan. 1, 2018, with the cumulative impact on contracts not yet completed as of Dec. 31, 2017 recognized as an adjustment to the opening balance of retained earnings.

Classification and Measurement of Financial Instruments — In January 2016, the FASB issued Recognition and Measurement of Financial Assets and Financial Liabilities, Subtopic 825-10 (ASU No. 2016-01), which eliminates the available-for-sale classification for marketable equity securities and also replaces the cost method of accounting for non-marketable equity securities with a model for recognizing impairments and observable price changes. Under the new standard, other than when the consolidation or equity method of accounting is utilized, changes in the fair value of equity securities are to be recognized in earnings. This guidance will be effective for interim and annual reporting periods beginning after Dec. 15, 2017. NSP-Wisconsin expects that the overall impacts of the Jan. 1, 2018 adoption will not be material.

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Leases — In February 2016, the FASB issued Leases, Topic 842 (ASU No. 2016-02), which for lessees requires balance sheet recognition of right-of-use assets and lease liabilities for most leases. This guidance will be effective for interim and annual reporting periods beginning after Dec. 15, 2018. NSP-Wisconsin has not yet fully determined the impacts of implementation. However, adoption is expected to occur on Jan. 1, 2019 utilizing the practical expedients provided by the standard. As such, agreements entered prior to Jan. 1, 2017 that are currently considered leases are expected to be recognized on the consolidated balance sheet, including contracts for use of office space, equipment and natural gas storage assets, as well as certain purchased power agreements (PPAs) for natural gas-fueled generating facilities. NSP-Wisconsin expects that similar agreements entered after Dec. 31, 2016 will generally qualify as leases under the new standard, but has not yet completed its evaluation of certain other contracts, including arrangements for the secondary use of assets, such as land easements.

Presentation of Net Periodic Benefit Cost — In March 2017, the FASB issued Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, Topic 715 (ASU No. 2017-07), which establishes that only the service cost element of pension cost may be presented as a component of operating income in the income statement. Also under the guidance, only the service cost component of pension cost is eligible for capitalization. NSP-Wisconsin expects that as a result of application of accounting principles for rate regulated entities, a similar amount of pension cost, including non-service components, will be recognized consistent with the current ratemaking treatment and that the impacts of adoption will be limited to changes in classification of non-service costs in the consolidated statement of income. This guidance will be effective for interim and annual reporting periods beginning after Dec. 15, 2017.


3.	Selected Balance Sheet Data



(Thousands of Dollars)	Sept. 30, 2017			Dec. 31, 2016
Accounts receivable, net ^(a)
Accounts receivable	$	55,619		$	58,896
Less allowance for bad debts	(4,405		)	(4,865		)
	$	51,214		$	54,031


^(a)	Accounts receivable, net includes an immaterial amount due from affiliates as of Sept. 30, 2017 and Dec. 31, 2016, respectively.



(Thousands of Dollars)	Sept. 30, 2017		Dec. 31, 2016
Inventories
Materials and supplies	$	7,417	$	6,582
Fuel	3,898		4,743
Natural gas	8,792		6,984
	$	20,107	$	18,309



(Thousands of Dollars)	Sept. 30, 2017			Dec. 31, 2016
Property, plant and equipment, net
Electric plant	$	2,553,562		$	2,499,401
Natural gas plant	317,902			294,986
Common and other property	185,612			156,316
Construction work in progress	151,299			118,822
Total property, plant and equipment	3,208,375			3,069,525
Less accumulated depreciation	(1,175,847		)	(1,121,888		)
	$	2,032,528		$	1,947,637


4.	Income Taxes

Except to the extent noted below, Note 6 to the consolidated financial statements included in NSP-Wisconsin’s Annual Report on Form 10-K for the year ended Dec. 31, 2016 appropriately represents, in all material respects, the current status of other income tax matters, and are incorporated herein by reference.

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Federal Audits — NSP-Wisconsin 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 through 2011 and 2012 through 2013 federal income tax returns, following extensions, expires in June 2018 and October 2018, respectively.

In 2012, the Internal Revenue Service (IRS) commenced an examination of tax years 2010 and 2011, including a 2009 carryback claim. The IRS proposed an adjustment to the federal tax loss carryback claims that would result in $14 million of income tax expense for the 2009 through 2011 claims, and the 2013 through 2015 claims. In the fourth quarter of 2015, the IRS forwarded the issue to the Office of Appeals (Appeals). In the third quarter of 2017, Xcel Energy and Appeals reached an agreement and the benefit related to the agreed upon portions was recognized. NSP-Wisconsin did not accrue any income tax benefit related to this adjustment.

In the third quarter of 2015, the IRS commenced an examination of tax years 2012 and 2013. In the third quarter of 2017, the IRS concluded the audit of tax years 2012 and 2013 and proposed an adjustment that would impact Xcel Energy’s net operating loss (NOL) and effective tax rate (ETR). After evaluating the proposed adjustment Xcel Energy filed a protest with the IRS. Xcel Energy anticipates the issue will be forwarded to Appeals. As of Sept. 30, 2017, Xcel Energy has recognized its best estimate of income tax expense that will result from a final resolution of this issue; however, the outcome and timing of a resolution is unknown.

State Audits — NSP-Wisconsin is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of Sept. 30, 2017, NSP-Wisconsin’s earliest open tax year that is subject to examination by state taxing authorities under applicable statutes of limitations is 2012. In 2016, Wisconsin began an audit of years 2012 and 2013. As of Sept. 30, 2017, Wisconsin had not proposed any material adjustments, and there were no other state income tax audits in progress.

Unrecognized Benefits — The unrecognized tax benefit balance includes permanent tax positions, which if recognized would affect the annual 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:



(Millions of Dollars)	Sept. 30, 2017		Dec. 31, 2016
Unrecognized tax benefit — Permanent tax positions	$	1.4	$	0.4
Unrecognized tax benefit — Temporary tax positions	1.0		4.9
Total unrecognized tax benefit	$	2.4	$	5.3

The unrecognized tax benefit amounts were reduced by the tax benefits associated with NOL and tax credit carryforwards. The amounts of tax benefits associated with NOL and tax credit carryforwards are as follows:



(Millions of Dollars)	Sept. 30, 2017			Dec. 31, 2016
NOL and tax credit carryforwards	$	(1.9	)	$	(1.2	)

It is reasonably possible that NSP-Wisconsin’s amount of unrecognized tax benefits could significantly change in the next 12 months as the IRS Appeals progresses and audit resumes, the Wisconsin audit progresses, and other state audits resume. As the IRS Appeals and Wisconsin audits progress, 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 Sept. 30, 2017 and Dec. 31, 2016 were not material. No amounts were accrued for penalties related to unrecognized tax benefits as of Sept. 30, 2017 or Dec. 31, 2016.

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5.	Rate Matters

Except to the extent noted below, the circumstances set forth in Note 10 to the consolidated financial statements included in NSP-Wisconsin’s Annual Report on Form 10-K for the year ended Dec. 31, 2016 and in Note 5 to NSP-Wisconsin’s Quarterly Report on Form 10-Q for the quarterly periods ended March 31, 2017 and June 30, 2017, appropriately represent, in all material respects, the current status of other rate matters, and are incorporated herein by reference.

Pending Regulatory Proceeding — Public Service Commission of Wisconsin (PSCW)

Wisconsin 2018 Electric and Natural Gas Rate Case — In May 2017, NSP-Wisconsin filed a request with the PSCW to increase electric rates by $24.7 million, or 3.6 percent, and natural gas rates by $12.0 million, or 10.1 percent, effective Jan. 1, 2018. The rate filing is based on a 2018 forecast test year, a return on equity (ROE) of 10.0 percent, an equity ratio of 52.53 percent and a forecasted rate base of approximately $1.2 billion for the electric utility and $138.4 million for the natural gas utility.

In September 2017, the PSCW Staff and the intervenors filed testimony. The PSCW Staff recommended an electric rate increase of $10.9 million, or 1.6 percent, and a natural gas rate increase of $9.9 million, or 8.3 percent, based on a ROE of 9.8 percent and an equity ratio of 51.45 percent.

A PSCW decision is anticipated in December 2017 with new rates effective in January 2018.

Pending Regulatory Proceeding — Federal Energy Regulatory Commission (FERC)

Midcontinent Independent System Operator, Inc. (MISO) ROE Complaints — In November 2013, a group of customers filed a complaint at the FERC against MISO transmission owners (TOs), including NSP-Minnesota and NSP-Wisconsin. The complaint argued for a reduction in the ROE in transmission formula rates in the MISO region from 12.38 percent to 9.15 percent, and the removal of ROE adders (including those for Regional Transmission Organization (RTO) membership), effective Nov. 12, 2013.

In December 2015, an administrative law judge (ALJ) recommended the FERC approve a base ROE of 10.32 percent for the MISO TOs. The ALJ found the existing 12.38 percent ROE to be unjust and unreasonable. The recommended 10.32 percent ROE applied a FERC ROE policy adopted in a June 2014 order (Opinion 531). The FERC approved the ALJ recommended 10.32 percent base ROE in an order issued in September 2016. This ROE would be applicable for the 15 month refund period from Nov. 12, 2013 to Feb. 11, 2015, and prospectively from the date of the FERC order. The total prospective ROE would be 10.82 percent, including a 50 basis point adder for RTO membership. Various parties requested rehearing of the September 2016 order. The requests are pending FERC action.

In February 2015, a second complaint seeking to reduce the MISO ROE from 12.38 percent to 8.67 percent prior to any adder was filed with the FERC, resulting in a second period of potential refund from Feb. 12, 2015 to May 11, 2016. In June 2016, the ALJ recommended a ROE of 9.7 percent, applying the methodology adopted by the FERC in Opinion 531. A final FERC decision on the second ROE complaint was expected later in 2017, but in April 2017, the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) by opinion, vacated and remanded Opinion 531. It is unclear how the D.C. Circuit’s opinion to vacate and remand Opinion 531 will affect the September 2016 FERC order or the timing and outcome of the second ROE complaint. The MISO TOs are evaluating the impact of the D.C. Circuit ruling on the November 2013 and February 2015 ROE complaints. In September 2017, certain MISO TOs (not including NSP-Minnesota and NSP-Wisconsin) filed a motion to dismiss the second ROE complaint. The motion to dismiss is pending FERC action.

As of Sept. 30, 2017, NSP-Minnesota has processed the refunds for the Nov. 12, 2013 to Feb. 11, 2015 complaint period based on the 10.32 percent ROE provided in the September 2016 FERC order. NSP-Minnesota has also recognized a current refund liability consistent with the best estimate of the final ROE for the Feb. 12, 2015 to May 11, 2016 complaint period.


6.	Commitments and Contingencies

Except to the extent noted below and in Note 5 above, the circumstances set forth in Notes 10 and 11 to the consolidated financial statements included in NSP-Wisconsin’s Annual Report on Form 10-K for the year ended Dec. 31, 2016 and in Notes 5 and 6 the consolidated financial statements included in NSP-Wisconsin’s Quarterly Report on Form 10-Q for the quarterly periods ended March 31, 2017 and June 30, 2017, 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 NSP-Wisconsin’s financial position.

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Guarantees

NSP-Wisconsin provides a guarantee for payment of customer loans related to NSP-Wisconsin’s farm rewiring program. NSP-Wisconsin’s exposure under the guarantee is based upon the net liability under the agreement. The guarantee issued by NSP-Wisconsin has a stated maximum amount. The guarantee contains no recourse provisions and requires no collateral. These agreements have expiration dates through 2020.

The following table presents the guarantee issued and outstanding for NSP-Wisconsin:



(Millions of Dollars)	Sept. 30, 2017		Dec. 31, 2016
Guarantee issued and outstanding	$	1.0	$	1.0
Current exposure under this guarantee	—		0.1

Environmental Contingencies

Ashland Manufactured Gas Plant (MGP) Site — NSP-Wisconsin was named a potentially responsible party (PRP) for contamination at a site in Ashland, Wis. The Ashland/Northern States Power Lakefront Superfund Site (the Site) includes NSP-Wisconsin property, previously operated as a MGP facility (the Upper Bluff), and two other properties: an adjacent city lakeshore park area (Kreher Park); and an area of Lake Superior’s Chequamegon Bay adjoining the park.

In 2012, NSP-Wisconsin agreed to remediate the Phase I Project Area (which includes the Upper Bluff and Kreher Park areas of the Site), under a settlement agreement with the United States Environmental Protection Agency (EPA). In January 2017, NSP-Wisconsin agreed to remediate the Phase II Project Area (the Sediments), under a settlement agreement with the EPA. The settlement was approved by the U.S. District Court for the Western District of Wisconsin. NSP-Wisconsin initiated field activities to perform a full scale wet dredge remedy of the Sediments in 2017 and anticipates completion of restoration activities in 2018.

The current remediation cost estimate for the entire site (both the Phase I Project Area and the Sediments) is approximately $162.9 million, of which approximately $131.8 million has been spent. As of Sept. 30, 2017 and Dec. 31, 2016, NSP-Wisconsin had recorded a total liability of $31.1 million and $64.3 million, respectively, for the entire site.

NSP-Wisconsin has deferred the unrecovered portion of the estimated Site remediation costs as a regulatory asset. The PSCW has authorized NSP-Wisconsin rate recovery for all remediation costs incurred at the Site. In 2012, the PSCW agreed to allow NSP-Wisconsin to pre-collect certain costs, to amortize costs over a ten-year period and to apply a three percent carrying cost to the unamortized regulatory asset. In May 2017, NSP-Wisconsin filed a natural gas rate case which included recovery of additional expenses associated with remediating the Site. If approved, the annual recovery of MGP clean-up costs would increase from $12.4 million in 2017 to $18.1 million in 2018.

Other MGP Sites — In addition to the site in Ashland, Wis., NSP-Wisconsin has identified one site where former MGP disposal activities may have resulted in site contamination and is under current investigation. There are other parties that may have responsibility for some portion of any remediation. NSP-Wisconsin anticipates that the majority of the investigation or remediation at this site will continue through at least 2018.

NSP-Wisconsin had accrued $0.1 million for this site as of Sept. 30, 2017 and Dec. 31, 2016. There may be insurance recovery and/or recovery from other PRPs to offset any costs incurred. NSP-Wisconsin anticipates that any significant amounts incurred will be recovered from customers.

Environmental Requirements

Water and Waste

Federal Clean Water Act (CWA) Waters of the United States Rule — In 2015, the EPA and the U.S. Army Corps of Engineers (Corps) published a final rule that significantly expanded the types of water bodies regulated under the CWA and broadened the scope of waters subject to federal jurisdiction. In October 2015, the U.S. Court of Appeals for the Sixth Circuit issued a nationwide stay of the final rule and subsequently ruled that it, rather than the federal district courts, had jurisdiction over challenges to the rule. In January 2017, the U.S. Supreme Court agreed to resolve the dispute as to which court should hear challenges to the rule. A ruling is expected in the first quarter of 2018.

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In February 2017, President Trump issued an executive order requiring the EPA and the Corps to review and revise the final rule. On June 27, 2017, the agencies issued a proposed rule that rescinds the 2015 final rule and reinstates the prior 1986 definition of “Water of the U.S.” The agencies are also undertaking a rulemaking to develop a new definition of "Waters of the U.S."

Federal CWA Effluent Limitations Guidelines (ELG) — In 2015, the EPA issued a final ELG rule for power plants that use coal, natural gas, oil or nuclear materials as fuel and discharge treated effluent to surface waters as well as utility-owned landfills that receive coal combustion residuals. In September 2017, the EPA delayed the compliance date for flue gas desulfurization wastewater and bottom ash transport water until November 2020 while the agency conducts a rulemaking process to potentially revise the effluent limitations and pretreatment standards for these waste streams.

Air

Greenhouse Gas (GHG) Emission Standard for Existing Sources (Clean Power Plan or CPP) — In 2015, the EPA issued its final rule for existing power plants. Among other things, the rule requires that state plans include enforceable measures to ensure emissions from existing power plants achieve the EPA’s state-specific interim (2022-2029) and final (2030 and thereafter) emission performance targets.

The CPP was challenged by multiple parties in the D.C. Circuit Court. In February 2016, the U.S. Supreme Court issued an order staying the final CPP rule. In September 2016, the D.C. Circuit Court heard oral arguments in the consolidated challenges to the CPP. The stay will remain in effect until the D.C. Circuit Court reaches its decision and the U.S. Supreme Court either declines to review the lower court’s decision or reaches a decision of its own.

In March 2017, President Trump signed an executive order requiring the EPA Administrator to review the CPP rule and if appropriate, publish proposed rules suspending, revising or rescinding it. Accordingly, the EPA has requested that the D.C. Circuit Court hold the litigation in abeyance until the EPA completes its work under the executive order. The D.C. Circuit granted the EPA’s request and is holding the litigation in abeyance, while considering briefs by the parties on whether the court should remand the challenges to the EPA rather than holding them in abeyance, determining whether and how the court continues or ends the stay that currently applies to the CPP.

In October 2017, the EPA published a proposed rule to repeal the CPP, based on an analysis that the CPP exceeds the EPA’s statutory authority under the Clean Air Act (CAA). The EPA will take public comment on the proposal for 60 days. The EPA stated it has not yet determined whether it will promulgate a new rule to regulate GHG emissions from existing electric generating units.

Legal Contingencies

NSP-Wisconsin 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 NSP-Wisconsin’s financial statements. Unless otherwise required by GAAP, legal fees are expensed as incurred.

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Employment, Tort and Commercial Litigation

Gas Trading Litigation — e prime, inc. (e prime) is a wholly owned subsidiary of Xcel Energy. e prime was in the business of natural gas trading and marketing but has not engaged in natural gas trading or marketing activities since 2003. Thirteen lawsuits were commenced against e prime and Xcel Energy (and NSP-Wisconsin, in two instances) between 2003 and 2009 alleging fraud and anticompetitive activities in conspiring to restrain the trade of natural gas and manipulate natural gas prices.

e prime, Xcel Energy and its other affiliates were sued along with several other gas marketing companies. The cases were consolidated in the U.S. District Court in Nevada. Six of the cases remain active, which includes one multi-district litigation (MDL) matter consisting of a Colorado class (Breckenridge), a Wisconsin class (Arandell Corp.), a Missouri class, a Kansas class, and two other cases identified as “Sinclair Oil” and “Farmland.” A motion for class certification was denied and plaintiffs have appealed the ruling to the U.S. Court of Appeals for the Ninth Circuit. Motions for summary judgment were granted by the MDL judge in favor of e prime and Xcel Energy in Sinclair Oil and Farmland. Plaintiffs in both cases appealed this decision to the Ninth Circuit. Motions for summary judgment were also filed by defendants, including e prime, in all of the remaining lawsuits. These motions were denied and e prime subsequently filed an appeal in September 2017. Dates for all matters pending before the Ninth Circuit have not been scheduled. Xcel Energy, NSP-Wisconsin and e prime have concluded that a loss is remote.


7.	Borrowings and Other Financing Instruments

Commercial Paper — NSP-Wisconsin meets its short-term liquidity requirements primarily through the issuance of commercial paper and borrowings under its credit facility. Commercial paper outstanding for NSP-Wisconsin was as follows:



(Amounts in Millions, Except Interest Rates)	Three Months Ended Sept. 30, 2017			Year Ended Dec. 31, 2016
Borrowing limit	$	150		$	150
Amount outstanding at period end	92			60
Average amount outstanding	60			15
Maximum amount outstanding	93			64
Weighted average interest rate, computed on a daily basis	1.36		%	0.69		%
Weighted average interest rate at period end	1.37			0.95

Letters of Credit — NSP-Wisconsin uses letters of credit, generally with terms of one year, to provide financial guarantees for certain operating obligations. At Sept. 30, 2017 and Dec. 31, 2016, there were no letters of credit outstanding.

Credit Facility — In order to use its commercial paper program to fulfill short-term funding needs, NSP-Wisconsin 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 Sept. 30, 2017, NSP-Wisconsin had the following committed credit facility available (in millions of dollars):



Credit Facility ^(a)		Drawn ^(b)		Available
$	150	$	92	$	58


^(a)	This credit facility expires in June 2021.


^(b)	Includes outstanding commercial paper.

All credit facility bank borrowings, outstanding letters of credit and outstanding commercial paper reduce the available capacity under the credit facility. NSP-Wisconsin had no direct advances on the credit facility outstanding at Sept. 30, 2017 and Dec. 31, 2016.

Other Short-Term Borrowings — The following table presents the notes payable of Clearwater Investments, Inc., a NSP-Wisconsin subsidiary, to Xcel Energy Inc.:



(Amounts in Millions, Except Interest Rates)	Sept. 30, 2017			Dec. 31, 2016
Notes payable to affiliates	$	0.5		$	0.5
Weighted average interest rate at period end	1.57		%	0.95		%

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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 classification. 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

NSP-Wisconsin 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 and utility commodity prices.

Interest Rate Derivatives — NSP-Wisconsin 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 Sept. 30, 2017, accumulated other comprehensive loss related to interest rate derivatives included $0.1 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 unsettled hedges, as applicable.

Commodity Derivatives — NSP-Wisconsin may enter 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 natural gas to generate electric energy and natural gas for resale.

The following table details the gross notional amounts of commodity options at Sept. 30, 2017 and Dec. 31, 2016:


^(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.

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Impact of Derivative Activities on Income and Accumulated Other Comprehensive Loss — There were immaterial pre-tax losses related to interest rate derivatives reclassified from accumulated other comprehensive loss into earnings during the three months ended Sept. 30, 2017 and 2016, and $0.1 million of net losses reclassified from accumulated other comprehensive loss into earnings during the nine months ended Sept. 30, 2017 and 2016.

During the three and nine months ended Sept. 30, 2017, changes in the fair value of natural gas commodity derivatives resulted in $0.1 million and $0.2 million of net losses recognized as regulatory assets and liabilities, respectively. For the three and nine months ended Sept. 30, 2016, changes in the fair value of natural gas commodity derivatives resulted in $0.1 million and $0.2 million of net losses recognized as regulatory assets and liabilities, respectively. The classification as a regulatory asset or liability is based on commission approved regulatory recovery mechanisms.

Natural gas commodity derivatives settlement losses of $0.2 million and $0.6 million were recognized for the nine months ended Sept. 30, 2017 and 2016, respectively, and were subject to purchased natural gas cost recovery mechanisms, which result in reclassifications of derivative settlement gains and losses out of income to a regulatory asset or liability, as appropriate. There were no natural gas commodity derivatives settlement gains or losses recognized during the three months ended Sept. 30, 2017 and 2016, respectively.

NSP-Wisconsin had no derivative instruments designated as fair value hedges during the three and nine months ended Sept. 30, 2017 and 2016. Therefore, no gains or losses from fair value hedges or related hedged transactions were recognized for these periods.

Consideration of Credit Risk and Concentrations — NSP-Wisconsin 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 NSP-Wisconsin’s own credit risk when determining the fair value of derivative liabilities, the impact of credit risk was immaterial to the fair value of unsettled commodity derivatives presented in the consolidated balance sheets.

NSP-Wisconsin 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.

Recurring Fair Value Measurements — The following table presents for each of the fair value hierarchy levels, NSP-Wisconsin’s derivative assets and liabilities measured at fair value on a recurring basis:




	Sept. 30, 2017
	Fair Value						Fair Value Total		Counterparty Netting ^(a)		Total ^(b)
(Thousands of Dollars)	Level 1		Level 2		Level 3		Fair Value Total		Counterparty Netting ^(a)		Total ^(b)
Current derivative assets
Natural gas commodity	$	—	$	78	$	—	$	78	$	—	$	78



	Dec. 31, 2016
	Fair Value						Fair Value Total		Counterparty Netting ^(a)		Total ^(b)
(Thousands of Dollars)	Level 1		Level 2		Level 3		Fair Value Total		Counterparty Netting ^(a)		Total ^(b)
Current derivative assets
Natural gas commodity	$	—	$	149	$	—	$	149	$	—	$	149

^(a)

NSP-Wisconsin 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 Sept. 30, 2017 and Dec. 31, 2016. The counterparty netting amounts presented exclude settlement receivables and payables and non-derivative amounts that may be subject to the same master netting agreements.


^(b)	Included in prepayments and other current assets balance of $18.6 million and $3.8 million at Sept. 30, 2017 and Dec. 31, 2016, respectively, in the consolidated balance sheets.

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Fair Value of Long-Term Debt

As of Sept. 30, 2017 and Dec. 31, 2016, other financial instruments for which the carrying amount did not equal fair value were as follows:



	Sept. 30, 2017				Dec. 31, 2016
(Thousands of Dollars)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, including current portion	$	663,541	$	741,450	$	663,069	$	730,284

The fair value of NSP-Wisconsin’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 Sept. 30, 2017 and Dec. 31, 2016, 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 (Expense), Net

Other income (expense), net consisted of the following:



	Three Months Ended Sept. 30						Nine Months Ended Sept. 30
(Thousands of Dollars)	2017			2016			2017			2016
Interest income (expense)	$	138		$	(73	)	$	342		$	65
Other nonoperating income	8			33			238			299
Insurance policy (expense) income	(48		)	(58		)	(146		)	70
Other nonoperating expense	(3		)	(4		)	(10		)	(10		)
Other income (expense), net	$	95		$	(102	)	$	424		$	424


10.	Segment Information

Operating results from the regulated electric utility and regulated natural gas utility are each separately and regularly reviewed by NSP-Wisconsin’s chief operating decision maker. NSP-Wisconsin 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.

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


•	NSP-Wisconsin’s regulated electric utility segment generates, transmits and distributes electricity primarily in portions of Wisconsin and Michigan.


•	NSP-Wisconsin’s regulated natural gas utility segment purchases, transports, stores and distributes natural gas primarily in portions of Wisconsin and Michigan.


•	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 investments in rental housing projects that qualify for low-income housing tax credits.

Asset and capital expenditure information is not provided for NSP-Wisconsin’s reportable segments because as an integrated electric and natural gas utility, NSP-Wisconsin 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 operating and maintenance 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.

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(Thousands of Dollars)	Regulated Electric		Regulated Natural Gas			All Other			Reconciling Eliminations			Consolidated Total
Three Months Ended Sept. 30, 2017
Operating revenues ^(a)	$	232,802	$	14,394		$	315		$	—		$	247,511
Intersegment revenues	144		56			—			(200		)	—
Total revenues	$	232,946	$	14,450		$	315		$	(200	)	$	247,511
Net income (loss)	$	24,594	$	(2,184	)	$	(85	)	$	—		$	22,325



(Thousands of Dollars)	Regulated Electric		Regulated Natural Gas			All Other			Reconciling Eliminations			Consolidated Total
Three Months Ended Sept. 30, 2016
Operating revenues ^(a)	$	232,216	$	13,646		$	282		$	—		$	246,144
Intersegment revenues	110		97			—			(207		)	—
Total revenues	$	232,326	$	13,743		$	282		$	(207	)	$	246,144
Net income (loss)	$	25,459	$	(1,201	)	$	(37	)	$	—		$	24,221


^(a)	Operating revenues include $46 million and $44 million of affiliate electric revenue for the three months ended Sept. 30, 2017 and 2016, respectively.



(Thousands of Dollars)	Regulated Electric		Regulated Natural Gas		All Other		Reconciling Eliminations			Consolidated Total
Nine Months Ended Sept. 30, 2017
Operating revenues ^(a)	$	659,853	$	81,768	$	847	$	—		$	742,468
Intersegment revenues	363		238		—		(601		)	—
Total revenues	$	660,216	$	82,006	$	847	$	(601	)	$	742,468
Net income	$	54,580	$	3,388	$	1,017	$	—		$	58,985



(Thousands of Dollars)	Regulated Electric		Regulated Natural Gas		All Other			Reconciling Eliminations			Consolidated Total
Nine Months Ended Sept. 30, 2016
Operating revenues ^(a)	$	646,619	$	72,671	$	877		$	—		$	720,167
Intersegment revenues	317		299		—			(616		)	—
Total revenues	$	646,936	$	72,970	$	877		$	(616	)	$	720,167
Net income	$	52,058	$	2,426	$	(7	)	$	—		$	54,477


^(a)	Operating revenues include $131 million and $127 million of affiliate electric revenue for the nine months ended Sept. 30, 2017 and 2016, respectively.


11.	Benefit Plans and Other Postretirement Benefits

Components of Net Periodic Benefit Cost




	Three Months Ended Sept. 30
	2017			2016			2017			2016
(Thousands of Dollars)	Pension Benefits						Postretirement Health Care Benefits
Service cost	$	1,154		$	1,104		$	7		$	6
Interest cost	1,554			1,704			147			163
Expected return on plan assets	(2,295		)	(2,289		)	(7		)	(6		)
Amortization of prior service cost (credit)	35			28			(88		)	(88		)
Amortization of net loss	1,462			1,348			109			83
Net benefit cost recognized for financial reporting	$	1,910		$	1,895		$	168		$	158

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	Nine Months Ended Sept. 30
	2017			2016			2017			2016
(Thousands of Dollars)	Pension Benefits						Postretirement Health Care Benefits
Service cost	$	3,463		$	3,312		$	21		$	18
Interest cost	4,663			5,112			443			489
Expected return on plan assets	(6,885		)	(6,867		)	(23		)	(18		)
Amortization of prior service cost (credit)	104			84			(264		)	(264		)
Amortization of net loss	4,385			4,044			327			249
Net benefit cost recognized for financial reporting	$	5,730		$	5,685		$	504		$	474

In January 2017, contributions of $150.0 million were made across four of Xcel Energy’s pension plans, of which $9.0 million was attributable to NSP-Wisconsin. Xcel Energy does not expect additional pension contributions during 2017.


12.	Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive loss, net of tax, for the three and nine months ended Sept. 30, 2017 and 2016 were as follows:




	Gains and Losses on Cash Flow Hedges
(Thousands of Dollars)	Three Months Ended Sept. 30, 2017			Three Months Ended Sept. 30, 2016
Accumulated other comprehensive loss at June 30	$	(95	)	$	(171	)
Losses reclassified from net accumulated other comprehensive loss	19			19
Net current period other comprehensive income	19			19
Accumulated other comprehensive loss at Sept. 30	$	(76	)	$	(152	)



	Gains and Losses on Cash Flow Hedges
(Thousands of Dollars)	Nine Months Ended Sept. 30, 2017			Nine Months Ended Sept. 30, 2016
Accumulated other comprehensive loss at Jan. 1	$	(133	)	$	(209	)
Losses reclassified from net accumulated other comprehensive loss	57			57
Net current period other comprehensive income	57			57
Accumulated other comprehensive loss at Sept. 30	$	(76	)	$	(152	)

Reclassifications from accumulated other comprehensive loss for the three and nine months ended Sept. 30, 2017 and 2016 were as follows:




	Amounts Reclassified from Accumulated Other Comprehensive Loss
(Thousands of Dollars)	Three Months Ended Sept. 30, 2017				Three Months Ended Sept. 30, 2016
Losses on cash flow hedges:
Interest rate derivatives	$	32		^(a)	$	32		^(a)
Total, pre-tax	32				32
Tax benefit	(13		)		(13		)
Total amounts reclassified, net of tax	$	19			$	19

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	Amounts Reclassified from Accumulated Other Comprehensive Loss
(Thousands of Dollars)	Nine Months Ended Sept. 30, 2017				Nine Months Ended Sept. 30, 2016
Losses on cash flow hedges:
Interest rate derivatives	$	94		^(a)	$	95		^(a)
Total, pre-tax	94				95
Tax benefit	(37		)		(38		)
Total amounts reclassified, net of tax	$	57			$	57


^(a)	Included in interest charges.

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

Discussion of financial condition and liquidity for NSP-Wisconsin 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 NSP-Wisconsin’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 NSP-Wisconsin’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 herein, 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 expressly disclaim any obligation to update any forward-looking information. The following factors, in addition to those discussed elsewhere in this Quarterly Report on Form 10-Q and in other securities filings (including NSP-Wisconsin’s Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2016 and subsequent securities filings), could cause actual results to differ materially from management expectations as suggested by such forward-looking information: general economic conditions, including inflation rates, monetary fluctuations and their impact on capital expenditures and the ability of NSP-Wisconsin and its subsidiaries to obtain financing on favorable terms; business conditions in the energy industry; including the risk of a slow down in the U.S. economy or delay in growth, recovery, trade, fiscal, taxation and environmental policies in areas where NSP-Wisconsin has a financial interest; customer business conditions; actions of credit rating agencies; competitive factors including the extent and timing of the entry of additional competition in the markets served by NSP-Wisconsin 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; outcomes of regulatory proceedings; availability or cost of capital; and employee work force factors.

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Results of Operations

NSP-Wisconsin’s net income was approximately $59.0 million for 2017 year-to-date compared with approximately $54.5 million for the same period of 2016. The increase is driven by electric and natural gas rates, partially offset by additional depreciation expense and the impact of unfavorable weather.

Electric Revenues and Margin

Electric production expenses tend to vary with the quantity of electricity sold and changes in the unit costs of fuel and purchased power. The electric fuel and purchased power cost recovery mechanism of the Wisconsin jurisdiction may not allow for complete recovery of all expenses and, therefore, changes in fuel or purchased power costs can impact earnings. The following table details the electric revenues and margin:



	Nine Months Ended Sept. 30
(Millions of Dollars)	2017			2016
Electric revenues	$	660		$	647
Electric fuel and purchased power	(328		)	(323		)
Electric margin	$	332		$	324

The following tables summarize the components of the changes in electric revenues and electric margin for the nine months ended

Sept. 30, 2017:

Electric Revenues



(Millions of Dollars)	2017 vs. 2016
Retail rate increase	$	10
Interchange agreement billings with NSP-Minnesota	4
Timing of fuel recovery	3
Retail sales growth	3
Estimated impact of weather	(6		)
Other, net	(1		)
Total increase in electric revenues	$	13

Electric Margin



(Millions of Dollars)	2017 vs. 2016
Retail rate increase	$	10
Interchange agreement billings with NSP-Minnesota	4
Retail sales growth	3
Estimated impact of weather	(6		)
Other, net	(3		)
Total increase in electric margin	$	8

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 the natural gas revenues and margin:



	Nine Months Ended Sept. 30
(Millions of Dollars)	2017			2016
Natural gas revenues	$	82		$	73
Cost of natural gas sold and transported	(41		)	(36		)
Natural gas margin	$	41		$	37

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The following tables summarize the components of the changes in natural gas revenues and natural gas margin for the nine months ended Sept. 30, 2017:

Natural Gas Revenues



(Millions of Dollars)	2017 vs. 2016
Purchased natural gas adjustment clause recovery	$	4
Retail rate increase	3
Other, net	2
Total increase in natural gas revenues	$	9

Natural Gas Margin



(Millions of Dollars)	2017 vs. 2016
Retail rate increase	$	3
Other, net	1
Total increase in natural gas margin	$	4

Non-Fuel Operating Expenses and Other Items

Depreciation and Amortization — Depreciation and amortization increased $9.8 million, or 13.4 percent, for 2017 year-to-date. The increase was primarily attributable to capital investments for system expansion mostly due to electric transmission and distribution assets.

Income Taxes — Income tax expense decreased $1.5 million for 2017 year-to-date. The decrease in income tax expense was primarily due to a tax benefit for adjustments attributable to the 2016 tax return filed in the third quarter, partially offset by higher pretax earnings. The ETR was 35.5 percent for 2017 year-to-date, compared with 38.4 percent for the same period in 2016. The lower ETR in 2017 was primarily due to the adjustment referenced above.

Public Utility Regulation

Except to the extent noted below, the circumstances set forth in Public Utility Regulation included in Item 1 of NSP-Wisconsin’s Annual Report on Form 10-K for the year ended Dec. 31, 2016 and Public Utility Regulation included in Item 2 of NSP-Wisconsin’s

Quarterly Report on Form 10-Q for the quarterly periods ended March 31, 2017 and June 30, 2017, appropriately represent, in all material respects, the current status of public utility regulation and are incorporated herein by reference.

2017 Electric Fuel Cost Recovery — NSP-Wisconsin’s electric fuel costs for the nine months ended Sept. 30, 2017 were lower than authorized in rates and outside the two percent annual tolerance band established in the Wisconsin fuel cost recovery rules, primarily due to lower sales volume and lower purchased power costs coupled with moderate weather and generation sales into the MISO market. Under the fuel cost recovery rules, NSP-Wisconsin may retain the amount of over-recovery up to two percent of authorized annual fuel costs, or approximately $3.7 million. However, NSP-Wisconsin must defer the amount of over-recovery in excess of the two percent annual tolerance band for future refund to customers. Accordingly, NSP-Wisconsin recorded a deferral of approximately $10.5 million through Sept. 30, 2017. The amount of the deferral could increase or decrease based on actual fuel costs incurred for the remainder of the year. In the first quarter of 2018, NSP-Wisconsin will file a reconciliation of 2017 fuel costs with the PSCW. The amount of any potential refund is subject to review and approval by the PSCW, which is not expected until mid-2018.

Summary of Recent Federal Regulatory Developments

FERC

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 NSP-Wisconsin, including enforcement of North American Electric Reliability Corporation mandatory electric reliability standards. State and local agencies have jurisdiction over many of NSP-Wisconsin’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 NSP-Wisconsin Annual Report on Form 10-K for the year ended Dec. 31, 2016 and Quarterly Report on Form 10-Q for the quarterly periods ended March 31, 2017 and June 30, 2017. In addition to the matters discussed below, see Note 5 to the consolidated financial statements for a discussion of other regulatory matters.

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FERC ROE Policy — In June 2014, the FERC adopted a two-step ROE methodology for electric utilities in an order issued in a complaint proceeding involving New England Transmission Owners (NETOs). The issue of how to apply the FERC ROE methodology has been contested in various complaint proceedings, including two ROE complaints involving the MISO TOs, which includes NSP-Minnesota and NSP-Wisconsin. In April 2017, the D.C. Circuit vacated and remanded the June 2014 ROE order. The D.C. Circuit found that the FERC had not properly determined that the ROE authorized for the NETOs prior to June 2014 was unjust and unreasonable. The D.C. Circuit also found that the FERC failed to justify the new ROE methodology. The FERC has yet to act on the D.C. Circuit’s decision. See Note 5 to the consolidated financial statements for discussion of the D.C. Circuit’s decision and the impact on the MISO ROE Complaints.

Department of Energy (DOE) Grid Resiliency Notice of Proposed Rule (NOPR) — In September 2017, the DOE requested the FERC consider and adopt a Grid Resiliency and Pricing Rule to address threats to the U.S. electrical grid. The proposed DOE rule expands upon an August 2017 DOE grid study on the resiliency of the grid. Under the proposed rule, coal and nuclear generation facilities would qualify for full recovery of their costs, which includes a fair rate of return, if they meet the following criteria:


•	Are located within a FERC-approved organized wholesale market operated by an RTO or Independent System Operator;


•	Have 90 days of on-site fuel storage;


•	Provide essential energy and ancillary reliability services to the grid;


•	Are in compliance with all environmental mandates; and


•	Are not subject to cost-of-service regulation by any state or local authority.

If implemented as written, the coal and nuclear generation owned by NSP-Minnesota and NSP-Wisconsin are not expected to be eligible for wholesale cost recovery from MISO because the generation is subject to state cost-of-service regulation. This rule could impact utilities in MISO subject to cost-of-service regulation if they have to compensate other generation facilities who qualify for full recovery of their costs under the rule. Xcel Energy is evaluating the DOE proposal and plans to engage in the FERC stakeholder process. The FERC has indicated that they plan to take action within 60 days, as requested by the DOE. It is unclear how the FERC will respond to the DOE’s NOPR.

North American Electric Reliability Corporation (NERC) Supply Chain Standards — In September 2017, NERC filed supply chain cyber security reliability standards with the FERC. These standards consider the FERC’s directives to address supply chain cyber security risk management for industrial control system hardware, software, computing and network services associated with electric grid operations. The proposed reliability standards focus on security objectives including software integrity and authenticity, vendor remote access protections, information system planning and vendor risk management. It is uncertain when the FERC will take action to approve or remand the proposed reliability standards. If approved by the FERC, the proposed reliability standards will become effective on the first calendar quarter that is 18 months after the effective date of the approval. NSP-Wisconsin is in the process of developing plans in accordance with the requirements of the standards. The additional cost for compliance is anticipated to be recoverable through wholesale and retail rates.

Item 4 — CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

NSP-Wisconsin maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed in 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 Sept. 30, 2017, based on an evaluation carried out under the supervision and with the participation of NSP-Wisconsin’s management, including the CEO and CFO, of the effectiveness of its disclosure controls and the procedures, the CEO and CFO have concluded that NSP-Wisconsin’s disclosure controls and procedures were effective.

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Internal Control Over Financial Reporting

In 2016, NSP-Wisconsin implemented the general ledger modules, as well as initiated deployment of work management systems modules, of a new enterprise resource planning system to improve certain financial and related transaction processes. NSP-Wisconsin is continuing to implement additional modules including the conversion of existing work management systems to this same system during 2017. In connection with this ongoing implementation, NSP-Wisconsin is updating its internal control over financial reporting, as necessary, to accommodate modifications to its business processes and accounting systems. NSP-Wisconsin does not believe that this implementation will have an adverse effect on its internal control over financial reporting.

No changes in NSP-Wisconsin’s internal control over financial reporting occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, NSP-Wisconsin’s internal control over financial reporting.

Part II — OTHER INFORMATION

Item 1 — LEGAL PROCEEDINGS

Additional Information

See Note 6 to the consolidated financial statements for further discussion of legal claims and environmental proceedings. See Part I Item 2 and Note 5 to the consolidated financial statements for a discussion of proceedings involving utility rates and other regulatory matters.

Item 1A — RISK FACTORS

NSP-Wisconsin’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, 2016, which is incorporated herein by reference. There have been no material changes from the risk factors previously disclosed in the Form 10-K.

Item 6 — EXHIBITS



*	Indicates incorporation by reference
+	Executive Compensation Arrangements and Benefit Plans Covering Executive Officers and Directors



3.01*	Amended and Restated Articles of Incorporation of NSP-Wisconsin (Exhibit 3.01 to Form S-4 (file no. 333-112033) dated Jan. 21, 2004).
3.02*	By-Laws of Northern States Power Co. (a Wisconsin corporation) 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. 001-03140)).
10.1*+	Fourth Amendment to the Xcel Energy Inc. Nonqualified Deferred Compensation Plan (2009 Restatement) (Exhibit 10.1 to Form 10-Q of Xcel Energy for the quarter ended Sept. 30, 2017 (file no. 001-03034)).
31.01	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.
31.02	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.
32.01	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.01	Statement pursuant to Private Securities Litigation Reform Act of 1995.
101	The following materials from NSP-Wisconsin’s Quarterly Report on Form 10-Q for the quarter ended Sept. 30, 2017 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.

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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.



		Northern States Power Company (a Wisconsin corporation)

Oct. 27, 2017	By:	/s/ JEFFREY S. SAVAGE
		Jeffrey S. Savage
		Senior Vice President, Controller
		(Principal Accounting Officer)

		/s/ ROBERT C. FRENZEL
		Robert C. Frenzel
		Executive Vice President, Chief Financial Officer and Director
		(Principal Financial Officer)

(Amounts in Thousands) ^(a)(b)

Sept. 30, 2017

Dec. 31, 2016

Million British thermal units of natural gas