Xcel Energy 2002 Annual Report Download - page 27

agreement pursuant to which Xcel Energy agreed, under certain circumstances, to provide an additional $300 million contribution
to NRG if the financial restructuring plan discussed earlier is approved by NRG’s creditors. Additional commitments for financial
assistance to NRG could be created in 2003 as Xcel Energy, NRG and NRG’s creditors continue to negotiate terms of a possible
prenegotiated plan of reorganization to resolve NRG’s financial difficulties.
In addition to the effects of NRG’s losses, Xcel Energy’s operating results and retained earnings in 2003 could also be affected by the
tax effects of any guarantees or financial commitments to NRG, if such income tax benefits were considered likely of realization in the
foreseeable future. The income tax benefits recorded in 2002 related to Xcel Energy’s investment in NRG, as discussed in Note 11 to
the Consolidated Financial Statements, includes only the tax benefits related to cash and stock investments already made in NRG at
Dec. 31, 2002. Additional tax benefits could be recorded in 2003 at the time that such benefits are considered likely of realization, when
the payment of guarantees and other financial assistance to NRG become probable.
As noted previously, a bankruptcy filing by NRG would have several effects on Xcel Energy’s financial condition and results of operations.
If a bankruptcy filing and other necessary governance actions eliminate Xcel Energy’s control over NRG, then management anticipates that
NRG would no longer be included in Xcel Energy’s consolidated financial statements, prospectively from the date such actions were taken.
Such de-consolidation of NRG would encompass a change in Xcel Energy’s accounting for NRG to the equity method, thus all of NRG’s
assets and liabilities would be presented in a single line on Xcel Energy’s balance sheet at that point. This would reduce Xcel Energy’s debt
leverage ratios and increase its equity ratio as a percent of total capitalization to above 30 percent, thereby reinstating its financing authority
under PUHCA. In addition, the revenues and expenses of NRG would be reported on a net basis as equity income or losses. Losses would
be subject to certain limitations. Also, the operating, investing and financing cash flows of NRG would not be included in Xcel Energy’s
except to the extent cash flowed between Xcel Energy and NRG. Finally, there may be tax effects for guarantees or financial commitments
made by Xcel Energy to NRG related to the bankruptcy or other resolution of NRG’s financial difficulties. See Note 4 to the Consolidated
Financial Statements for further discussion of these possible effects of an NRG bankruptcy filing on Xcel Energy.
Xcel Energy believes that the ultimate resolution of NRG’s financial difficulties and going-concern uncertainty will not affect Xcel
Energy’s ability to continue as a going concern. Xcel Energy is not dependent on cash flows from NRG, nor is Xcel Energy contingently
liable to creditors of NRG in an amount material to Xcel Energy’s liquidity. Xcel Energy believes that its cash flows from regulated
utility operations and anticipated financing capabilities will be sufficient to fund its non-NRG-related operating, investing and financing
requirements. Beyond these sources of liquidity, Xcel Energy believes it will have adequate access to additional debt and equity
financing that is not conditioned upon the outcome of NRG’s financial restructuring plan.
management’s discussion and analysis
xcel energy inc. and subsidiaries page 41