Xcel Energy 2001 Annual Report Download - page 15

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13
Xcel Energy’s marketing and trading effort also is built on rigorous risk man-
agement capabilities. The company uses astute trading strategies to capitalize on
the volatility of the market, but doesn’t take undue risk. Traders work hard to
achieve the maximum return at the minimum risk. Those fundamentals will
guide the company going forward and contribute to its staying power.
A third earnings driver is Xcel Energy’s ability to capture savings generated by
its merger. The goal is to achieve $1.4 billion in total merger synergies by 2010.
In the first few years after a merger, most synergies are found in the ability to
eliminate duplicate functions and streamline operations by adopting standard-
ized systems and practices. Those savings ramp up quickly in the beginning and
then grow moderately.
Lower levels of capital expenditures and related cost of capital provide another
source of synergies. Those savings primarily result from developing common
standards across all the operating companies, resulting in efficiencies and
economies of scale.
Before the Xcel Energy merger was completed, for example, employees from its
predecessor companies formed a team to examine contracts for transformers. They
developed a bid package that standardized requirements and then demonstrated
to suppliers that there were opportunities available in providing larger quantities
of transformers across a broader geographical area. After much hard work, the
team achieved $3 million in savings.
Since the merger, Xcel Energy has chartered similar teams to look for savings in
purchasing gas meters, vehicle fuels, wire and cable, maintenance, repair and
operating supplies, office supplies, travel services and technology services and
equipment. In 2001, the company realized more than $50 million of synergies.
Finally, Xcel Energy relies on its subsidiaries as the fourth driver of earnings
growth. The company’s major nonregulated subsidiary is NRG Energy, Inc.,
which primarily develops, acquires and operates power generation facilities.
SINCE THE MERGER, XCEL ENERGY
HAS ACHIEVED SIGNIFICANT SAV-
INGS BY PURCHASING MATERIALS
SUCH AS TRANSFORMERS IN BULK.
THE MAPLE GROVE WAREHOUSING
FACILITY, WHICH DISTRIBUTES
MATERIALS TO COMPANY LOCA-
TIONS THROUGHOUT THE UPPER
MIDWEST, HANDLES HUNDREDS
OF TRANSFORMERS A YEAR. SOME OF
THEM WEIGH AS MUCH AS 115 TONS.