Xcel Energy 2002 Annual Report Download - page 71

Technology Agreement We have a contract that extends through 2011 with International Business Machines Corp. (IBM) for information
technology services. The contract is cancelable at our option, although there are financial penalties for early termination. In 2002, we paid
IBM $131.9 million under the contract and $26 million for other project business. The contract also commits us to pay a minimum
amount each year from 2002 through 2011.
Fuel Contracts Xcel Energy has contracts providing for the purchase and delivery of a significant portion of its current coal, nuclear fuel
and natural gas requirements. These contracts expire in various years between 2003 and 2025. In total, Xcel Energy is committed to the
minimum purchase of approximately $2.3 billion of coal, $122.2 million of nuclear fuel and $1.6 billion of natural gas, including $1.2 billion
of natural gas storage and transportation, or to make payments in lieu thereof, under these contracts. In addition, Xcel Energy is required
to pay additional amounts depending on actual quantities shipped under these agreements. Xcel Energy’s risk of loss, in the form of
increased costs, from market price changes in fuel is mitigated through the cost-of-energy adjustment provision of the ratemaking
process, which provides for recovery of most fuel costs.
Purchased Power Agreements The utility and nonregulated subsidiaries of Xcel Energy have entered into agreements with utilities and
other energy suppliers for purchased power to meet system load and energy requirements, replace generation from company-owned units
under maintenance and during outages, and meet operating reserve obligations. NSP-Minnesota, PSCo, SPS and certain nonregulated
subsidiaries have various pay-for-performance contracts with expiration dates through the year 2050. In general, these contracts provide
for capacity payments, subject to meeting certain contract obligations, and energy payments based on actual power taken under the
contracts. Most of the capacity and energy costs are recovered through base rates and other cost-recovery mechanisms.
NSP-Minnesota has a 500-megawatt participation power purchase commitment with Manitoba Hydro, which expires in 2005. The
cost of this agreement is based on 80 percent of the costs of owning and operating NSP-Minnesota’s Sherco 3 generating plant,
adjusted to 1993 dollars. This agreement was extended through a new agreement during 2002 to include the period starting May 2005
through April 2015. The cost of the agreement for this extended period is based on a base price, which was established from May 2001
through April 2002 and will be escalated by the change in the United States gross national product to reflect the current year. In
addition, NSP-Minnesota and Manitoba Hydro have seasonal diversity exchange agreements, and there are no capacity payments for the
diversity exchanges. These commitments represent about 17 percent of Manitoba Hydro’s system capacity and account for approximately
9 percent of NSP-Minnesota’s 2002 electric system capability. The risk of loss from nonperformance by Manitoba Hydro is not considered
significant, and the risk of loss from market price changes is mitigated through cost-of-energy rate adjustments.
At Dec. 31, 2002, the estimated future payments for capacity that the utility and nonregulated subsidiaries of Xcel Energy are obligated
to purchase, subject to availability, are as follows:
(Thousands of dollars) Total
2003 $ 528,978
2004 548,173
2005 549,261
2006 540,245
2007 and thereafter 5,067,551
Total $7,234,208
environmental contingencies
We are subject to regulations covering air and water quality, land use, the storage of natural gas and the storage and disposal of hazardous
or toxic wastes. We continuously assess our compliance. Regulations, interpretations and enforcement policies can change, which may
impact the cost of building and operating our facilities. This includes NRG, which is subject to regional, federal and international
environmental regulation.
Site Remediation We must pay all or a portion of the cost to remediate sites where past activities of our subsidiaries and some other
parties have caused environmental contamination. At Dec. 31, 2002, there were three categories of sites:
– third-party sites, such as landfills, to which we are alleged to be a potentially responsible party (PRP) that sent hazardous materials
and wastes;
– the site of a former federal uranium enrichment facility; and
– sites of former manufactured gas plants (MGPs) operated by our subsidiaries or predecessors.
We record a liability when we have enough information to develop an estimate of the cost of environmental remediation and revise the
estimate as information is received. The estimated remediation cost may vary materially.
To estimate the cost to remediate these sites, we may have to make assumptions when facts are not fully known. For instance, we might
make assumptions about the nature and extent of site contamination, the extent of required cleanup efforts, costs of alternative cleanup
methods and pollution-control technologies, the period over which remediation will be performed and paid for, changes in environmental
remediation and pollution-control requirements, the potential effect of technological improvements, the number and financial strength
of other PRPs and the identification of new environmental cleanup sites.
notes to consolidated financial statements
xcel energy inc. and subsidiaries page 85