Xcel Energy 2002 Annual Report Download - page 15

memorandum from the IRS national office, which communicated a position adverse to PSRI. Consequently, the IRS examination division
has disallowed the interest expense deductions for the tax years 1993 through 1997. After consultation with tax counsel, it is Xcel Energy’s
position that the tax law does not support the IRS determination. Although the ultimate resolution of this matter is uncertain,
management continues to believe it will successfully resolve this matter without a material adverse impact on Xcel Energy’s results of
operations. However, defense of PSCo’s position may require significant cash outlays on a temporary basis, if refund litigation is
pursued in U.S. District Court.
The total disallowance of interest expense deductions for the period of 1993 through 1997 is approximately $175 million. Additional
interest expense deductions for the period 1998 through 2002 are estimated to total approximately $317 million. Should the IRS
ultimately prevail on this issue, tax and interest payable through Dec. 31, 2002, would reduce earnings by an estimated $214 million,
after tax. If COLI interest expense deductions were no longer available, annual earnings for 2003 would be reduced by an estimated
$33 million, after tax, prospectively, which represents 8 cents per share using 2003 share levels.
Environmental Matters Our environmental costs include payments for nuclear plant decommissioning, storage and ultimate disposal of
spent nuclear fuel, disposal of hazardous materials and wastes, remediation of contaminated sites and monitoring of discharges to the
environment. A trend of greater environmental awareness and increasingly stringent regulation has caused, and may continue to cause,
slightly higher operating expenses and capital expenditures for environmental compliance.
In addition to nuclear decommissioning and spent nuclear fuel disposal expenses, costs charged to our operating expenses for environmental
monitoring and disposal of hazardous materials and wastes were approximately:
– $149 million in 2002
– $146 million in 2001
– $144 million in 2000
We expect to expense an average of approximately $177 million per year from 2003 through 2007 for similar costs. However, the precise
timing and amount of environmental costs, including those for site remediation and disposal of hazardous materials, are currently unknown.
Additionally, the extent to which environmental costs will be included in and recovered through rates is not certain.
Capital expenditures on environmental improvements at our regulated facilities, which include the cost of constructing spent nuclear fuel
storage casks, were approximately:
– $108 million in 2002
– $136 million in 2001
– $57 million in 2000
Our regulated utilities expect to incur approximately $44 million in capital expenditures for compliance with environmental regulations
in 2003 and approximately $948 million during the period from 2003 through 2007. Most of the costs are related to modifications to
reduce the emissions of NSP-Minnesota’s generating plants located in the Minneapolis-St. Paul metropolitan area. See Notes 18 and 19
to the Consolidated Financial Statements for further discussion of our environmental contingencies.
NRG expects to incur as much as $145 million in capital expenditures over the next five years to address conditions that existed when it
acquired facilities, and to comply with new regulations.
Impact of Other Nonregulated Investments Xcel Energy’s investments in nonregulated operations have had a significant impact on its
results of operations. Xcel Energy does not expect to continue investing in nonregulated domestic and international power production
projects through NRG, but may continue investing in natural gas marketing and trading through e prime and construction projects
through Utility Engineering. Xcel Energy’s nonregulated businesses may carry a higher level of risk than its traditional utility businesses
due to a number of factors, including:
– competition, operating risks, dependence on certain suppliers and customers, and domestic and foreign environmental and
energy regulations;
– partnership and government actions and foreign government, political, economic and currency risks; and
– development risks, including uncertainties prior to final legal closing.
Xcel Energy’s earnings from nonregulated subsidiaries, other than NRG, also include investments in international projects, primarily in
Argentina, through Xcel Energy International, and broadband communications systems through Seren. Management currently intends
to hold and operate these investments, but is evaluating their strategic fit in Xcel Energy’s business portfolio. As of Dec. 31, 2002, Xcel
Energy’s investment in Seren was approximately $255 million. Seren had capitalized $290 million for plant in service and had incurred
another $21 million for construction work in progress for these systems at Dec. 31, 2002. Xcel Energy International’s gross investment
in Argentina, excluding unrealized currency translation losses of approximately $62 million, was $112 million at Dec. 31, 2002. Given the
political and economic climate in Argentina, Xcel Energy continues to closely monitor the investment for asset impairment. Currently,
management believes that no impairment exists in addition to what was recognized in 2002, as previously discussed.
management’s discussion and analysis
xcel energy inc. and subsidiaries page 29