OREANDA-NEWS. Fitch Ratings has affirmed the Issuer Default Rating (IDR) for Xcel Energy Inc. (Xcel) at 'BBB+'. In addition, Fitch has affirmed the 'A-' IDRs for Northern States Power Company-Minnesota (NSP-Minnesota), Northern States Power Company-Wisconsin (NSP-Wisconsin), and Public Service Company of Colorado (PSCo), and the 'BBB' IDR on Southwestern Public Service Company (SPS). The debt instrument ratings have also been affirmed and are listed at the end of this release.

The Rating Outlook for Xcel and each of its subsidiaries is Stable.

KEY RATING DRIVERS FOR XCEL

Conservative Business Model: Xcel's ratings largely reflect the relatively stable earnings and cash flows of its four regulated utility subsidiaries: NSP-Minnesota, NSP-Wisconsin, PSCo, and SPS. Xcel's strategy remains focused on its regulated utility businesses and securing timely recovery of their capital investments.

Mostly Constructive Regulatory Environment: Xcel benefits from exposure to regulatory environments that have been mostly constructive. PSCo and NSP-Wisconsin have received balanced treatment in their recent rate cases in Colorado and Wisconsin, respectively, and are allowed the use of riders that provide timely recovery of capital investments. NSP-Minnesota has also received balanced regulatory treatment, excluding the recent disallowment of a return on $333 million of cost overruns associated with the Monticello nuclear plant uprate and life extension project. However, SPS operates in a challenging regulatory environment in New Mexico and Texas.

Solid Financial Metrics: For the latest-12-month (LTM) ended Sept. 30, 2015, Funds flow from Operations (FFO) fixed-charge coverage was 5.7x, FFO-adjusted leverage was 3.7x, and adjusted debt to EBITDAR was 4.3x. Fitch forecasts credit metrics to remain supportive of credit quality, with FFO fixed-charge coverage averaging 5.5x, FFO lease-adjusted leverage averaging 4.3x, and adjusted debt/EBITDAR averaging 4.2x over 2016 - 2018. FFO metrics are bolstered by tax benefits stemming from the utilization of net operating losses at Xcel.

Elevated Capex: Consolidated capex remains elevated over the forecast period. Capex over 2016 - 2019 is projected to total approximately $11.6 billion. Management expects about two-thirds to be allocated to NSP-Minnesota and PSCo, with transmission and generation representing 31% and 23% of consolidated capex, respectively.

The utilities benefit from nonfuel rate riders that facilitate timely recovery of capital investment costs and support utility credit quality. Fitch anticipates Xcel will support the sizeable capital spending levels across the utility subsidiaries through equity infusions. In turn, Fitch expects Xcel to meet group funding needs through a balanced mix of external debt and equity financing.

Standard Notching: There is a moderate to strong linkage between the IDRs of Xcel and each of its subsidiaries. The linkages originate primarily from strategic drivers. Each subsidiary is important to Xcel, and the parent financially supports its subsidiaries when warranted via equity infusions and funding the intercompany money pool. Fitch considers a one- to two-notch differential between the IDRs of Xcel and its subsidiaries to be appropriate.

KEY RATING DRIVERS FOR NSP-MINNESOTA

Balanced Regulation: NSP-Minnesota's ratings reflect a relatively balanced and stable regulatory environment across three states, and Fitch expects reasonable outcomes to future rate case filings. Supportive regulatory mechanisms include fuel cost and purchased power adjustments and capital investment riders for environmental improvement, renewable generation, and electric transmission.

Minnesota Electric Rate Order: Fitch considers the Minnesota Public Utilities Commission's (MPUC) rate order earlier this year to have been slightly punitive with respect to the low authorized return on equity (ROE) of 9.72% and the Monticello nuclear plant uprate and life extension project ruling. The MPUC disallowed a return on $333 million of cost overruns and delayed the project's used-and-useful status until it was approved by the Nuclear Regulatory Commission.

The electric rate order will somewhat weaken NSP-Minnesota's credit metrics over the near term. However, Fitch considers the overall regulatory environment in Minnesota to remain supportive of credit quality, as evidenced by a balanced rate increase, the authorized 52.5% equity capital structure, and the implementation of a revenue decoupling pilot program.

Capex Peaking in 2015: NSP-Minnesota is nearing the end of a large, multi-year capex program, having spent an average of $1.25 billion per year over 2011 - 2014. The utility is expected to spend $1.625 billion in 2015, not including an additional $300 million over 2015 - 2016 on the 200-MW Courtenay wind project that is pending regulatory approvals. In 2016, capex is expected to return to more modest levels, averaging $950 million per year over 2016 - 2019, excluding potential costs in 2016 related to the Courtenay wind project.

Robust Credit Metrics: For the LTM ended Sept. 30, 2015, FFO fixed-charge coverage stood at 6.7x, FFO-adjusted leverage at 3.2x, and adjusted debt/EBITDAR at 4.1x. Fitch forecasts FFO fixed-charge coverage to average 7.0x, FFO-adjusted leverage 3.4x, and adjusted debt/EBITDAR 3.5x over 2016-2018.

KEY RATING DRIVERS FOR NSP-WISCONSIN

Supportive Regulatory Environment: NSP-Wisconsin's ratings reflect the constructive regulatory framework in Wisconsin. The utility benefits from a regulatory environment that is supportive of credit quality, with an above-average authorized ROE, a forward-looking test year, a purchased gas adjustment clause, and annual filings for fuel and purchased energy adjustments.

NSP-Wisconsin filed a request with the Public Service Commission of Wisconsin (PSCW) in May 2015 to increase electric rates $27.4 million, or 3.9%, and natural gas rates $5.9 million, or 5.0%. The rate filing is based on a 2016 forecast test year and an authorized ROE of 10.2%. A PSCW decision is expected in December 2015, with new rates effective on or about Jan. 1, 2016. NSP-Wisconsin's last electric rate order resulted in a base rate increase of $14.2 million (69% of the utility's initial request), effective January 2015 and based on a 10.2% authorized ROE.

Elevated Capex: Fitch's main rating concern relates to the relatively sizable capital spending program over the forecast period. NSP-Wisconsin plans to spend $1.44 billion in capex over 2015 - 2019, significantly higher than historical norms. Capex is primarily earmarked for transmission spending, including NSP-Wisconsin's share of the CapX2020 transmission project.

Fitch expects NSP-Wisconsin to fund capex in a manner that is consistent with its authorized regulatory capital structure, from a mix of internally generated funds, long-term debt issuances, and equity infusions from Xcel.

Weakening of Credit Metrics: For the LTM ended Sept. 30, 2015, FFO fixed-charge coverage stood at 7.3x, FFO-adjusted leverage at 2.8x, and adjusted debt/EBITDAR at 2.9x. Fitch forecasts FFO fixed-charge coverage to average 6.3x, FFO-adjusted leverage to average 4.1x, and adjusted debt/EBITDAR to average 3.5x over 2016-2018. The forecasted metrics are expected to weaken through the forecast period, primarily due to the larger capex program.

KEY RATING DRIVERS FOR PSCO

Balanced Regulation: The ratings on PSCo reflect a relatively balanced and stable regulatory environment in Colorado. Supportive regulatory mechanisms include adjustment clauses for fuel costs and purchased power, trackers for pension expense and property taxes, and riders for electric and natural gas transmission investments and cost compliance related to renewable energy and the Clean Air Clean Jobs Act (CACJA).

Constructive Electric Rate Order: The Colorado Public Utilities Commission (CPUC) issued its electric rate order in February 2015, approving a multi-year settlement agreement, which provides regulatory predictability through 2017. The order was based on a 9.83% ROE, which is slightly below the nationwide average ROE and a decrease from the 10.0% ROE PSCo was authorized in its 2011 electric rate case. However, the CPUC maintained the utility's strong 56% authorized equity capital ratio and remains supportive of PSCo's credit quality.

Pending Gas Rate Case: PSCo filed a revised multi-year rate request in July 2015 to increase base rates by $40.5 million, or 3.5%, in 2015, and self-implemented the rate increase effective Oct. 1, 2015. The revised rate request includes step-up increases of $14.6 million in 2016 and $16.8 million in 2017. The request is based on an authorized ROE of 10.1% for 2015 and 2016, and 10.3% for 2017.

As part of the filing, PSCo also requested an extension of its pipeline system integrity adjustment (PSIA) rider through 2020, with incremental PSIA rider revenues of $14.7 million in 2016 and $21.7 million in 2017. A final CPUC decision of the multi-year rate request is expected no later than Jan. 20, 2016.

Elevated Capex: Capex peaked in 2014 at $1.1 billion, yet Fitch expects capex to remain elevated through 2019, averaging around $900 million per year, which is higher than historical norms. Key drivers of capex include investments associated with the CACJA, projects related to gas pipeline integrity, and distribution system enhancement. Fitch expects PSCo to finance capex in a manner consistent with its currently authorized capital structure.

Strong Credit Metrics: For the LTM ended Sept. 30, 2015, FFO fixed-charge coverage stood at 7.3x, FFO-adjusted leverage at 3.1x, and adjusted debt/EBITDAR at 3.2x. Fitch forecasts FFO fixed-charge coverage to average 6.4x, FFO-adjusted leverage 3.8x, and adjusted debt/EBITDAR 3.4x over 2016-2018.

KEY RATING DRIVERS FOR SPS

Challenging Regulatory Environment: SPS operates in Texas and New Mexico, under the jurisdiction of the Public Utility Commission of Texas (PUCT) and the New Mexico Public Regulation Commission (NMPRC). Fitch considers these regulatory regimes to be challenging from a bondholder perspective, primarily due to low authorized ROEs and other factors in the rate-setting process that make it difficult for utilities to earn their authorized ROEs.

Despite the challenging regulatory environment, SPS has done relatively well in recent rate cases, with balanced outcomes in Texas and New Mexico. Supportive rate design mechanisms in both states include fuel and purchased power recovery mechanisms and riders for energy efficiency program costs. SPS also has riders for distribution costs and transmission infrastructure improvement in Texas and for renewable energy program costs in New Mexico.

Pending Texas 2015 Electric Rate Case: In June 2015, SPS revised its retail electric, non-fuel rate case filing in Texas, seeking an overall increase in annual revenue of $42.1 million, or 4.4%. The filing was based on a historic test year ending June 2014, adjusted for known and measurable changes, and an authorized ROE of 10.2%. As part of the request, SPS is seeking a waiver to allow for inclusion of $392 million in additional capital investment for the second half of 2014.

A PUCT decision is expected in December 2015, with rates effective June 11, 2015. A balanced decision is important to maintain SPS's credit quality, due to the significant amount of regulatory lag and the fact that 72% of SPS' retail electric operating revenues are derived from Texas.

Elevated Capex: SPS has a relatively large capital spending program. Fitch expects capex to total $570 million in 2015, roughly stable since 2013, after having increased significantly from an annual average of $330 million in 2010 - 2012. Capex is expected to peak at an annual average of $725 million over 2016 - 2017, and then decline to an average of $585 million per year over 2018 - 2019. The bulk of capex is for transmission investments in New Mexico.

Modest Weakening of Credit Metrics: For the LTM ended Sept. 30, 2015, FFO fixed-charge coverage stood at 5.5x, FFO-adjusted leverage at 3.4x, and adjusted debt/EBITDAR at 3.9x. Fitch forecasts FFO fixed-charge coverage to average 5.4x, FFO-adjusted leverage 4.2x, and adjusted debt/EBITDAR 3.9x over 2016-2018. The metrics are expected to weaken throughout the forecast period, but remain adequate for existing ratings.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for Xcel include:
--Electric sales growth averaging 1.0 - 1.5% per year for
2016 - 2019;
--O&M expense growing at ~2% per year for 2016 - 2019;
--Capex of ~$11.6 billion over 2016 - 2019;
--Rate case outcomes consistent with historical rate orders.

Fitch's key assumptions within the rating case for NSP-Minnesota include:
--EBITDA growth averaging 4.5% per year over 2016 - 2019;
--Capex of ~$4.3 billion over 2016 - 2019;
--Rate case outcomes consistent with historical rate orders.

Fitch's key assumptions within the rating case for NSP-Wisconsin include:
--EBITDA growth averaging 8.0% per year over 2016 - 2019;
--Capex of ~$1.1 billion over 2016 - 2019;
--Rate case outcomes consistent with historical rate orders.

Fitch's key assumptions within the rating case for PSCo include:
--EBITDA growth averaging 3.5% per year over 2016 - 2019;
--Capex of ~$3.6 billion over 2016 - 2019;
--Rate case outcomes consistent with historical rate orders.

Fitch's key assumptions within the rating case for SPS include:
--EBITDA growth averaging 7.0% per year over 2016 - 2019;
--Capex of ~$2.6 billion over 2016 - 2019;
--Rate case outcomes consistent with historical rate orders.

RATING SENSITIVITIES

XCEL
Positive Rating Action: The negative impacts from the recent Minnesota rate order and disallowance of costs at the Monticello plant, and funding of a large multiyear capital investment plan at the utilities limit the prospects for a positive rating action in the near term.

Negative Rating Action: Developments that may lead to a negative rating action include a material deterioration of the overall regulatory environment that results in an inability to adequately recover large capital investments; adjusted debt/EBITDAR weakening to 4.6x on a sustained basis; or a reduction in the level of parent support Xcel provides to its utilities.

NSP-MINNESOTA

Positive Rating Action: Given the disallowance of certain returns on the Monticello plant, a positive rating action is unlikely in the near term, but could occur if adjusted debt/EBITDAR were to improve to 3.0x and FFO-adjusted leverage to 3.2x on a sustained basis.

Negative Rating Action: Future developments that may, individually or collectively, lead to a negative rating action include a material deterioration of the regulatory environment in Minnesota; adjusted debt/EBITDAR weakening to 4.0x on a sustained basis; and a shift in management strategy that results in weaker financial support from Xcel.

NSP-WISCONSIN

Positive Rating Action: Given the already strong rating and elevated capex program, a positive rating action is unlikely in the near term.

Negative Rating Action: Future developments that may, individually or collectively, lead to a negative rating action include: a deterioration of the Wisconsin regulatory environment; adjusted debt/EBITDAR weakening to 4.0x on a sustained basis; and a shift in management strategy that results in weaker financial support from Xcel.

PSCO

Positive Rating Action: Given the sizeable capex program, a positive rating action is unlikely in the near term, but could occur if adjusted debt/EBITDAR and FFO-adjusted leverage were to improve to 3.0x and 3.2x, respectively, on a sustained basis.
Negative Rating Action: Future developments that may, individually or collectively, lead to a negative rating action include a material deterioration of the Colorado regulatory environment; adjusted debt/EBITDAR weakening to 4.0x on a sustained basis; and a shift in management strategy that results in weaker financial support from Xcel.

SPS

Positive Rating Action: Given SPS's large capex program, a positive rating action is unlikely, but could occur if regulatory lag were to improve materially and if FFO-adjusted leverage and adjusted debt/EBITDAR both were to remain less than 3.5x on a sustained basis.

Negative Rating Action: Future developments that may lead to a negative rating action include unfavorable regulatory developments that impede SPS from earning a timely return on its investments; adjusted debt/EBITDAR deteriorating to greater than 4.5x on a sustained basis; and a shift in management strategy that results in weaker financial support from Xcel.

LIQUIDITY

Fitch considers Xcel's liquidity to be adequate. Xcel and its utility subsidiaries primarily meet their short-term liquidity needs through the issuance of commercial paper (CP) under an aggregate $2.75 billion revolving credit facility that expires in October 2019. Xcel and its utility subsidiaries had $64 million of CP issued and $39 million of letters of credit drawn at Sept. 30, 2015, leaving an aggregate of $2.647 billion of availability under this five-year unsecured facility. Xcel's utilities require modest cash on hand, and Xcel had $404 million as of Sept. 30, 2015, all of which was unrestricted.

Liquidity is also available to Xcel's utility subsidiaries through participation in a money pool. Xcel may make investments in the utility subsidiaries at market-based interest rates, but the utilities are not permitted to lend to Xcel under the money pool arrangement.

Xcel's holding company-level long-term debt maturities are manageable. Xcel has $450 million of 0.75% unsecured senior notes due in May 2016 and $254 million of 5.613% unsecured senior notes due April 2017. The next long-term debt maturity is in May 2020, when $550 million of 4.7% unsecured senior notes comes due. Xcel's utility subsidiaries also have a manageable long-term debt maturity schedule.

Fitch expects Xcel and its utility subsidiaries to maintain ready access to the debt capital markets to fund capex and refinance maturing long-term debt.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings:

Xcel
--Long-Term IDR at 'BBB+';
--Senior unsecured debt at 'BBB+';
--Short-Term IDR and commercial paper (CP) at 'F2'.

NSP-Minnesota
--Long-Term IDR at 'A-';
--Senior secured debt at 'A+';
--Short-Term IDR and CP at 'F2'.

NSP-Wisconsin
--Long-Term IDR at 'A-';
--Senior secured debt at 'A+';
--Senior unsecured debt at 'A';
--Short-Term IDR and CP at 'F2'.

La Crosse (WI) (NSP-Wisconsin)
--Unsecured resource recovery refunding revenue bonds at 'A'.

PSCo
--Long-Term IDR at 'A-';
--Senior secured debt at 'A+';
--Short-Term IDR and CP at 'F2'.

SPS
--Long-Term IDR at 'BBB';
--Senior secured debt at 'A-';
--Senior unsecured debt at 'BBB+';
--Short-Term IDR and CP at 'F2'.

The Rating Outlook is Stable.