Xcel Energy 2001 Annual Report Download - page 13

To contribute to earnings growth, Xcel Energy introduced a number of new
revenue-generating products in 2001 that help customers conserve energy and
manage their energy use. For example, InfoWise products and services allow
customers to use the Internet to obtain real-time information to track and analyze
their energy use. The overall objective is to build long-term relationships with
customers in which they turn to Xcel Energy not only for natural gas and electricity,
but for other energy-related products and services.
With a solid commitment to customers, a sizeable asset base, a balanced
portfolio of energy sources and a strong geographic position, Xcel Energy’s
regulated business provides a stable foundation for earnings growth.
Similar attributes are responsible for the company’s success in buying and selling
electricity and natural gas on the wholesale market, a second earnings driver. In
2001, Xcel Energy achieved gross margins of $264 million from trading and
short-term wholesale energy sales, compared with $133 million in 2000.
High market prices for electricity in early 2001, primarily on the West Coast,
are partly responsible for those results. Since then, electricity prices have dropped
significantly due to a slowing economy, increased conservation, new power plants
and milder weather. Xcel Energy’s ongoing goal is to increase marketing and
trading’s annual contribution to earnings by 15 percent, using 1999 results as
the starting point. The company’s e prime group, which trades natural gas, will
be a strong contributor to that growth. In 2001, e prime increased volumes
traded from 1 billion cubic feet of gas a day to 4 billion, achieving $8.5 million
in net income, which contributed 2 cents to Xcel Energy earnings per share.
As part of its marketing and trading effort, Xcel Energy also works to maximize
the value of its generating plants, an asset base that forms the foundation of the
entire operation. The company’s ability to acquire low-cost fuel and to keep the
plants operating during peak market times is vital to its success.
Equally important is the ability to negotiate favorable long- and short-term
power purchase agreements and to leverage the intellectual capital of its traders.
Trading is a knowledge-based business, and Xcel Energy traders have a thorough
understanding of the region in which the company operates and the systems
available to generate and move energy.
11
XCEL ENERGY’S COMMODITY TRADING
AND SHORT-TERM WHOLESALE MARGINS REFLECT
THE VOLATILITY OF THE WHOLESALE MARKET
DURING THE FIRST HALF OF 2001.
COMMODITY TRADING AND
SHORT-TERM WHOLESALE MARGINS
dollars in millions
30
60
120
90
150
0Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2000 2001
21 36 44 32 135 68 33 28