Southwestern Public Service Co.

10/29/2026 | Press release | Distributed by Public on 10/29/2026 13:34

Quarterly Report for Quarter Ending Sept. 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Discussion of financial condition and liquidity for SPS 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 Instruction H(2)(a) of Form 10-Q for wholly owned subsidiaries (reduced disclosure format).
Non-GAAP Financial Measures
The following discussion includes financial information prepared in accordance with GAAP, as well as certain non-GAAP financial measures such as ongoing earnings. Generally, a non-GAAP financial measure is a measure of a company's financial performance, financial position or cash flows that adjusts measures calculated and presented in accordance with GAAP.
SPS' management uses non-GAAP measures for financial planning and analysis, for reporting of results to the Board of Directors, in determining performance-based compensation, and communicating its earnings outlook to analysts and investors. Non-GAAP financial measures are intended to supplement investors' understanding of our performance and should not be considered alternatives for financial measures presented in accordance with GAAP. These measures are discussed in more detail below and may not be comparable to other companies' similarly titled non-GAAP financial measures.
Earnings Adjusted for Certain Items (Ongoing Earnings)
Ongoing earnings reflect adjustments to GAAP earnings (net income) for certain items. We use this non-GAAP financial measure to evaluate and provide details of SPS' core earnings and underlying performance.
We believe this measurement is useful to investors to evaluate the actual and projected financial performance and contribution of SPS. For the three and nine months ended Sept. 30, 2026 and 2025, there were no such adjustments to GAAP earnings and therefore GAAP earnings equal ongoing earnings.
Results of Operations
SPS' net income was $423 million for the nine months ended Sept. 30, 2026 compared with $320 million for the prior year. The change was driven by sales growth, weather, and higher recovery of electric infrastructure investments, partially offset by increased depreciation expense and interest charges.
Electric Revenue
Electric revenues are impacted by fluctuations in the price of natural gas and coal, regulatory outcomes, market prices and seasonality. In addition, electric customers receive a credit for PTCs generated, which reduce electric revenue and income taxes.
(Millions of Dollars) Nine Months Ended
Sept. 30, 2026 vs. 2025
Recovery of lower cost of electric fuel and purchased power $ (157)
PTCs flowed back to customers (offset by lower ETR) (19)
Sales and demand 54
Non-fuel riders 41
Estimated impact of weather 29
Wholesale transmission 25
Total decrease $ (27)
Electric Fuel and Purchased Power - Expenses incurred for electric fuel and purchased power are impacted by fluctuations in market prices of natural gas and coal, as well as seasonality. These incurred expenses are generally recovered through various regulatory recovery mechanisms. As a result, changes in these expenses are largely offset in operating revenues and have minimal earnings impact.
Electric fuel and purchased power expenses decreased $150 million year-to-date. The decrease is primarily due to decreased regional commodity prices.
Non-Fuel Operating Expense and Other Items
Depreciation and Amortization - Depreciation and amortization increased $27 million year-to-date, largely due to system investment.
Interest Charges - Interest charges increased $25 million year-to-date, largely due to higher debt levels.
AFUDC, Equity and Debt - AFUDC increased $34 million year-to-date, largely due to system investment.
Public Utility Regulation and Other
The FERC and state and local regulatory commissions regulate SPS. SPS is subject to rate regulation by state utility regulatory agencies, which have jurisdiction with respect to the rates of electric distribution companies in New Mexico and Texas.
Rates are designed to recover plant investment, operating costs and an allowed return on investment. SPS requests changes in utility rates through commission filings. Changes in operating costs can affect SPS' financial results, depending on the timing of rate cases and implementation of final rates. Other factors affecting rate filings are new investments, sales, conservation and demand side management efforts and the cost of capital.
In addition, the regulatory commissions authorize the ROE, capital structure and depreciation rates in rate proceedings. Decisions by these regulators can significantly impact SPS' results of operations and credit quality.
Except to the extent noted below, the circumstances set forth in Public Utility Regulation included in Item 7 of SPS' Annual Report on Form 10-K for the year ended Dec. 31, 2025, appropriately represent, in all material respects, the current status of public utility regulation and are incorporated herein by reference.
Pending and Recently Concluded Regulatory Proceedings
2025 New Mexico Electric Rate Case - In November 2025, SPS filed an electric rate case with the NMPRC. As updated in March 2026, SPS requested a revenue increase of $168 million (16.0%). The request was based on a future test year period ending Nov. 30, 2027, a ROE of 10.5%, an equity ratio of 56% and retail rate base of $3.9 billion.
In June 2026, SPS, New Mexico Department of Justice, New Mexico Large Customer Group and various other parties filed a comprehensive non-unanimous stipulation. NMPRC Staff opposes certain components of the stipulation.
Terms of the stipulation include:
•Base rate revenue increase of $90 million (7.7% total, or an annual average of 2.4% since the last rate case), based on the filed future test year.
•ROE of 9.5%.
•Equity ratio of 54.70%.
A hearing on the non-unanimous stipulation took place in July 2026. On Oct. 23, 2026, SPS received the Hearing Examiners' Report, which recommended NMPRC approval with certain minor modifications. Any exceptions are required to be filed by Nov. 2, 2026. An NMPRC decision is anticipated in the fourth quarter of 2026, with implementation of rates expected in December 2026.
SPS 2023 Integrated Resource Plan - In October 2023, SPS filed its IRP with the NMPRC, which supports projected load growth and increasing reliability requirements, and secures replacement energy and capacity for retiring resources.
In July 2024, SPS issued a RFP, seeking approximately 3,200 MW of accredited capacity by 2030. In July 2025, the portfolio selection report was publicly filed with the NMPRC. SPS filed for approval of approximately 2,800 MW of accredited resources, including approximately 4,000 MW of nameplate capacity company owned resources and approximately 500 MW of nameplate capacity PPAs. SPS has received NMPRC approval of the CCN filings for the assets. In October 2026, the PUCT approved the self build portfolio with the exception of the Plant X battery storage project. The approval includes performance and cost cap guarantees. SPS will be seeking rehearing on this decision.
In October 2025, SPS issued a RFP to solicit 870 MW of accredited capacity through 2032 (approximately 1,500 MW to 3,000 MW nameplate capacity, or more depending on resource mix), with additional resources to be evaluated to meet the New Mexico RPS compliance need. The portfolio selection report was publicly filed with the NMPRC in July 2026, with a preferred portfolio that contains approximately 2,600 MW of nameplate capacity company owned resources and approximately 1,300 MW of nameplate capacity PPAs. Project CCNs are expected to be filed in early 2027.
SPS 2026 IRP - In October 2026, SPS filed its 2026 IRP with the NMPRC, which demonstrates projected load growth and shows energy and capacity resource portfolio needs under three different load forecast scenarios. Based on these forecast scenarios and the progress of existing resource acquisition processes, SPS' initial IRP modeling identified resource needs of approximately 2,000 MW of incremental accredited capacity by 2034. Following NMPRC action on the IRP, SPS expects to issue a competitive all-source solicitation for new generation in mid-2027 with project selection expected in early 2028.
Other
Tariffs, Trade Complaints and Federal Actions
Several trade cases related to anti-dumping and countervailing duty investigations are ongoing and we continue to monitor the potential impacts of these cases.
Executive orders have been issued imposing new global and country-specific tariffs on many imports, which may impact our procurement and development activities. Additionally, executive orders and actions from government agencies may impact the permitting of wind and solar facilities and the retirement of coal facilities.
SPS continues to assess the impacts of these tariffs, executive orders, trade complaints and federal policies on its business, including company owned projects and PPAs. SPS may seek regulatory relief, if required, in its jurisdictions.
Continued and/or further policy actions or other restrictions, disruptions in imports from key suppliers, or any new trade complaint could impact viability, timelines and costs of various projects and PPAs.
Large Load/Data Center Tariffs - In the third quarter of 2026, SPS filed proposed tariff modifications in Texas to address new and certain existing loads over 75 MW. The proposed tariff includes a minimum initial term of 15 years, minimum bill provisions, termination and exit fees, and credit requirements. SPS expects to propose an incremental cost test applicable to this tariff in its next rate case. A decision is expected in 2027.
SPS expects to file similar tariff modifications in New Mexico in the fourth quarter of 2026.
Environmental Regulation
Throughout 2025 and 2026, the EPA has announced various regulatory actions addressing a wide range of environmental regulations. SPS will continue to monitor proposed rules as they move toward final action. Additionally, any other amendments and changes to rules will be evaluated as proposed by the EPA.
Clean Air Act
Power Plant Greenhouse Gas Regulations - In April 2024, the EPA published final rules addressing greenhouse gas emissions from the power sector. The rules establish requirements for new natural gas-fired generating units and emission guidelines for existing coal and certain natural gas generation. In September 2026, the EPA issued a final rule repealing portions of the 2024 rules, including carbon capture and storage (CCS) standards. The EPA simultaneously proposed to rescind the remaining power plant GHG regulations.
Endangerment Finding - In February 2026, the EPA issued a final rule repealing the 2009 Endangerment Finding and associated regulations addressing GHG emissions from new motor vehicles and engines under the Clean Air Act. SPS will monitor any additional actions and evaluate the impacts.
Emerging Contaminants of Concern
PFAS are man-made chemicals that are widely used in consumer products and can persist and bio-accumulate in the environment. SPS does not manufacture PFAS, but because PFAS are so ubiquitous in products and the environment, it may impact our operations.
In June 2024, the EPA finalized a rule that designated certain PFAS as hazardous substances under CERCLA. In July 2024, the EPA finalized another rule that set enforceable drinking water standards for certain PFAS.
Potential costs for these rules and any additional proposed regulations related to PFAS are uncertain and will be determined on a site specific basis where applicable. If costs are incurred, SPS believes the costs would be recoverable through rates based on prior state commission practices.
Southwestern Public Service Co. published this content on October 29, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on October 29, 2026 at 19:34 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]