v3.25.2
Fair Value of Financial Assets and Liabilities
 6 Months Ended
Jun. 30, 2025
Fair Value Disclosures [Abstract]  
Fair Value of Financial Assets and Liabilities
7.    Fair Value of Financial Assets and Liabilities
Fair Value Measurements
Accounting guidance for fair value measurements and disclosures provides a hierarchical framework for disclosing the observability of the inputs utilized in measuring assets and liabilities at fair value.
•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 actively traded instruments with observable actual trading prices.
•Level 2 — Pricing inputs are other than actual trading 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 include those valued with models requiring significant judgment or estimation.
Specific valuation methods include:
Investments in equity securities and other funds — Equity securities are valued using quoted prices in active markets. The fair values for commingled funds are measured using NAVs. The investments in commingled funds may be redeemed for NAV with proper notice. Private equity commingled funds require approval of the fund for any unscheduled redemption, and such redemptions may be approved or denied by the fund at its sole discretion. Unscheduled distributions from real estate commingled funds may be redeemed with proper notice, however, withdrawals may be delayed or discounted as a result of fund illiquidity.
Investments in debt securities — Fair values for debt securities are determined by a third party pricing service using recent trades and observable spreads from benchmark interest rates for similar securities.
Interest rate derivatives — Fair values of interest rate derivatives are based on broker quotes that utilize current market interest rate forecasts.
Commodity derivatives — 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 contracts relate to inactive delivery locations or extend to periods beyond those readily observable on active exchanges, the significance of the use of less observable inputs on a valuation is evaluated and may result in Level 3 classification.
Electric commodity derivatives held by NSP-Minnesota include transmission congestion instruments, generally referred to as FTRs. FTRs purchased from an RTO are financial instruments that entitle or obligate the holder to monthly revenues or charges based on transmission congestion across a given transmission path.
The values of these instruments are derived from, and designed to offset, the costs of transmission congestion. In addition to overall transmission load, congestion is also influenced by the operating schedules of power plants and the consumption of electricity pertinent to a given transmission path. Unplanned plant outages, scheduled plant maintenance, changes in the relative costs of fuels used in generation, weather and overall changes in demand for electricity can each impact the operating schedules of the power plants on the transmission grid and the value of these instruments.
FTRs are recognized at fair value and adjusted each period prior to settlement. Given the limited observability of certain variables underlying the reported auction values of FTRs, these fair value measurements have been assigned a Level 3 classification.
Net congestion costs, including the impact of FTR settlements are shared through fuel and purchased energy cost recovery mechanisms. As such, the fair value of the unsettled instruments (i.e., derivative asset or liability) is offset/deferred as a regulatory asset or liability.
Non-Derivative Fair Value Measurements
The Nuclear Regulatory Commission requires NSP-Minnesota to maintain a portfolio of investments to fund the costs of decommissioning its nuclear generating plants. Assets of the nuclear decommissioning fund are legally restricted for the purpose of decommissioning these facilities. The fund contains cash equivalents, debt securities, equity securities and other investments. NSP-Minnesota uses the MPUC approved asset allocation for the investment targets by asset class for the qualified trust.
NSP-Minnesota recognizes the costs of funding the decommissioning over the lives of the nuclear plants, assuming rate recovery of all costs. Realized and unrealized gains on fund investments over the life of the fund are deferred as an offset of NSP-Minnesota’s regulatory asset or as a regulatory liability (dependent on funding status) for nuclear decommissioning costs. Consequently, any realized and unrealized gains and losses on securities in the nuclear decommissioning fund are deferred as a component of the regulatory asset/liability.
Unrealized gains for the nuclear decommissioning fund were $1.6 billion and $1.4 billion as of June 30, 2025 and Dec. 31, 2024, respectively, and unrealized losses were $47 million and $49 million as of June 30, 2025 and Dec. 31, 2024, respectively.
Non-derivative instruments with recurring fair value measurements in the nuclear decommissioning fund:
June 30, 2025
Fair Value
(Millions of Dollars)CostLevel 1Level 2Level 3NAVTotal
Nuclear decommissioning fund (a)
Cash equivalents$56 $56 $— $— $— $56 
Commingled funds703 — — — 1,032 1,032 
Debt securities879 — 864 10 — 874 
Equity securities538 1,730 2 — — 1,732 
Total$2,176 $1,786 $866 $10 $1,032 $3,694 
(a)Reported in nuclear decommissioning fund and other investments on the consolidated balance sheets, which also includes $55 million of other investments, including the rabbi trust.
Dec. 31, 2024
Fair Value
(Millions of Dollars)CostLevel 1Level 2Level 3NAVTotal
Nuclear decommissioning fund (a)
Cash equivalents$39 $39 $— $— $— $39 
Commingled funds703 — — — 1,025 1,025 
Debt securities866 — 832 14 — 846 
Equity securities522 1,583 1 — — 1,584 
Total$2,130 $1,622 $833 $14 $1,025 $3,494 
(a)Reported in nuclear decommissioning fund and other investments on the consolidated balance sheets, which also includes $54 million of other investments, including the rabbi trust.
For the three and six months ended June 30, 2025 and 2024, there were no transfers of Level 3 investments between levels.
Contractual maturity dates of debt securities in the nuclear decommissioning fund as of June 30, 2025:
Final Contractual Maturity
(Millions of Dollars)Due in 1 Year or LessDue in 1 to 5 YearsDue in 5 to 10 YearsDue after 10 YearsTotal
Debt securities$14 $327 $258 $275 $874 
Derivative Activities and Fair Value Measurements
NSP-Minnesota 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-Minnesota enters into contracts that effectively fix the interest rate on a specified principal amount of a hypothetical future debt issuance. These financial swaps net settle based on changes in a specified benchmark interest rate, acting as a hedge of changes in market interest rates that will impact specified anticipated debt issuances. These derivative instruments are designated as cash flow hedges for accounting purposes, with changes in fair value prior to occurrence of the hedged transactions recorded as other comprehensive income.
As of June 30, 2025, accumulated other comprehensive loss related to interest rate derivatives included immaterial net losses expected to be reclassified into earnings during the next 12 months as the hedged transactions impact earnings. As of June 30, 2025, NSP-Minnesota had had no unsettled interest swaps outstanding.
See Note 10 for the financial impact of qualifying interest rate cash flow hedges on NSP-Minnesota’s accumulated other comprehensive loss included in the consolidated statements of common stockholder’s equity and in the consolidated statements of comprehensive income.
Wholesale and Commodity Trading — NSP-Minnesota conducts various wholesale and commodity trading activities, including the purchase and sale of electric capacity, energy, energy-related instruments and natural gas-related instruments, including derivatives. NSP-Minnesota is allowed to conduct these activities within guidelines and limitations as approved by its risk management committee, comprised of management personnel not directly involved in the activities governed by this policy.
Results of derivative instrument transactions entered into for trading purposes are presented in the consolidated statements of income as electric revenues, net of any sharing with customers. These activities are not intended to mitigate commodity price risk associated with regulated electric and natural gas operations. Sharing of these margins is determined through state regulatory proceedings as well as the operation of the FERC-approved joint operating agreement.
Commodity Derivatives — NSP-Minnesota enters into derivative instruments to manage variability of future cash flows from changes in commodity prices in its electric and natural gas operations. This could include the purchase or sale of energy or energy-related products, natural gas to generate electric energy, natural gas for resale and FTRs.
The most significant derivative positions outstanding at June 30, 2025 for this purpose relate to FTR instruments administered by MISO. These instruments are intended to offset the impacts of transmission system congestion.
When NSP-Minnesota enters into derivative instruments that mitigate commodity price risk on behalf of electric and natural gas customers, the instruments are not typically designated as qualifying hedging transactions. The classification of unrealized losses or gains on these instruments as a regulatory asset or liability, if applicable, is based on approved regulatory recovery mechanisms.
As of June 30, 2025, NSP-Minnesota had no commodity contracts designated as cash flow hedges.
Gross notional amounts of commodity forwards, options and FTRs:
(Amounts in Millions) (a)(b)
June 30, 2025Dec. 31, 2024
Megawatt hours of electricity47 31 
Million British thermal units of natural gas47 57 
(a)Not reflective of net positions in the underlying commodities.
(b)Notional amounts for options included on a gross basis but weighted for the probability of exercise.
Consideration of Credit Risk and Concentrations — NSP-Minnesota continuously monitors the creditworthiness of 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. Impact of credit risk was immaterial to the fair value of unsettled commodity derivatives presented on the consolidated balance sheets.
NSP-Minnesota’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.
As of June 30, 2025, three of NSP-Minnesota’s seven most significant counterparties for these activities, comprising $22 million, or 27%, of this credit exposure, had investment grade credit ratings from S&P Global Ratings, Moody’s Investor Services or Fitch Ratings.
Three of the seven most significant counterparties, comprising $29 million, or 34%, of this credit exposure, were not rated by these external ratings agencies, but based on NSP-Minnesota’s internal analysis, had credit quality consistent with investment grade.
One of these significant counterparties, comprising $31 million or 37% of this credit exposure, had credit quality less than investment grade, based on internal analysis.
Four of these significant counterparties are municipal or cooperative electric entities, RTOs or other utilities.
Credit Related Contingent Features — Contract provisions for derivative instruments that NSP-Minnesota enters into, including those accounted for as normal purchase and normal sale contracts and therefore not reflected on the consolidated balance sheets, may require the posting of collateral or settlement of the contracts for various reasons, including if the applicable utility subsidiary’s credit ratings are downgraded below its investment grade credit rating by any of the major credit rating agencies.
As of June 30, 2025 and Dec. 31, 2024, there were $9 million and $11 million of derivative liabilities with such underlying contract provisions.
Certain contracts also contain cross default provisions that may require the posting of collateral or settlement of the contracts if there was a failure under other financing arrangements related to payment terms or other covenants.
As of June 30, 2025 and Dec. 31, 2024, there were approximately $56 million and $63 million of derivative liabilities with such underlying contract provisions, respectively.
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 a given utility subsidiary’s ability to fulfill its contractual obligations is reasonably expected to be impaired.
NSP-Minnesota had no collateral posted related to adequate assurance clauses in derivative contracts as of June 30, 2025 and Dec. 31, 2024.
Recurring Derivative Fair Value Measurements
Impact of derivative activity:
Pre-Tax Fair Value Gains (Losses) Recognized During the Period in:
(Millions of Dollars)Accumulated Other Comprehensive LossRegulatory Assets and Liabilities
Three Months Ended June 30, 2025
Derivatives designated as cash flow hedges:
Interest rate$7 $— 
Total$7 $— 
Other derivative instruments:
Electric commodity$— $(2)
Total$— $(2)
Six Months Ended June 30, 2025
Derivatives designated as cash flow hedges:
Interest rate$5 $— 
Total$5 $— 
Other derivative instruments:
Electric commodity$— $(5)
Natural gas commodity— 1 
Total$— $(4)
Three Months Ended June 30, 2024
Other derivative instruments
Electric commodity$— $— 
Natural gas commodity— — 
Total$— $— 
Six Months Ended June 30, 2024
Derivatives designated as cash flow hedges:
Interest rate$16 $— 
Total$16 $— 
Other derivative instruments
Electric commodity$— $1 
Natural gas commodity$— $3 
Total$— $4 
.
(Millions of Dollars)Pre-Tax Losses Reclassified During the Period from Regulatory Assets and LiabilitiesPre-Tax Gains (Losses) Recognized During the Period in Income
Three Months Ended June 30, 2025
Other derivative instruments:
Commodity trading$— $4 
(a)
Electric commodity2 
(b)
— 
Total$2 $4 
Six Months Ended June 30, 2025
Other derivative instruments:
Commodity trading$— $(8)
(a)
Electric commodity8 
(b)
— 
Natural gas commodity— (4)
(c)(d)
Total$8 $(12)
Three Months Ended June 30, 2024
Other derivative instruments:
Commodity trading$— $(14)
(a)
Electric Commodity2 
(b)
— 
Total$2 $(14)
Six Months Ended June 30, 2024
Other derivative instruments:
Commodity trading$— $(13)
(a)
Electric commodity6 
(b)
— 
Natural gas commodity— (5)
(c)(d)
Total$6 $(18)
(a)Recorded to electric revenues. Presented amounts do not reflect non-derivative transactions or margin sharing with customers.
(b)Recorded to electric fuel and purchased power. These derivative settlement gains and losses are shared with electric customers through fuel and purchased energy cost-recovery mechanisms, and reclassified out of income as regulatory assets or liabilities, as appropriate. FTR settlements are shared with customers and do not have a material impact on net income. Presented amounts reflect changes in fair value between auction and settlement dates, but exclude the original auction fair value.
(c)Recorded to cost of natural gas sold and transported. These losses are subject to cost-recovery mechanisms and reclassified out of income to a regulatory asset, as appropriate.
(d)Relates primarily to option premium amortization.
NSP-Minnesota had no derivative instruments
Fair Value of Long-Term Debt
As of June 30, 2025, other financial instruments for which the carrying amount did not equal fair value:
June 30, 2025Dec. 31, 2024
(Millions of Dollars)Carrying AmountFair ValueCarrying AmountFair Value
Long-term debt, including current portion$8,815 $7,854 $7,857 $6,755 
Long-term debt - related parties294 182 166 99 
Fair value of NSP-Minnesota’s long-term debt is estimated based on recent trades and observable spreads from benchmark interest rates for similar securities. Fair value estimates are based on information available to management as of June 30, 2025 and Dec. 31, 2024, and given the observability of the inputs, fair values presented for long-term debt were assigned as Level 2.