Xcel Energy 2002 Annual Report Download - page 49

veil, alter ego or related theories should an NRG bankruptcy proceeding commence, particularly in the absence of a prenegotiated plan
of reorganization, and Xcel Energy cannot be certain how a bankruptcy court would resolve these issues. One of the creditors of an
NRG project, as previously discussed, has already filed involuntary bankruptcy proceedings against that project and has included claims
against both NRG and Xcel Energy. If a bankruptcy court were to allow substantive consolidation of Xcel Energy and NRG, it would
have a material adverse effect on Xcel Energy.
The accompanying Consolidated Financial Statements do not reflect any conditions or matters that would arise if NRG were in bankruptcy.
If NRG were to file for bankruptcy, and the necessary actions were taken by Xcel Energy to fully relinquish its effective control over
NRG, Xcel Energy 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, under which Xcel Energy would continue to record its interest in NRG’s income or losses until Xcel
Energy’s investment in NRG (under the equity method) reached the level of obligations that Xcel Energy had either guaranteed on
behalf of NRG or was otherwise committed to in the form of financial assistance to NRG. Prior to completion of a bankruptcy
proceeding, a prenegotiated plan of reorganization or other settlement reached with NRG’s creditors would be the determining factors
in assessing whether a commitment to provide financial assistance to NRG existed at the time of de-consolidation.
At Dec. 31, 2002, Xcel Energy’s pro forma investment in NRG, calculated under the equity method if applied at that date, was a negative
$625 million. If the amount of guarantees or other financial assistance committed to NRG by Xcel Energy exceeded that level after
de-consolidation of NRG, then NRG’s losses would continue to be included in Xcel Energy’s results until the amount of negative
investment in NRG reaches the amount of guarantees and financial assistance committed to by Xcel Energy. As of Dec. 31, 2002,
the estimated guarantee exposure that Xcel Energy had related to NRG liabilities was $96 million, as discussed in Note 16, and
potential financial assistance was committed in the form of a support and capital subscription 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.
Xcel Energy believes that the ultimate resolutions 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.
notes to consolidated financial statements
xcel energy inc. and subsidiaries page 63