Xcel Energy 2003 Annual Report Download - page 39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
XCEL ENERGY 2003 ANNUAL REPORT 55
NRG’s continuing operations incurred $3.5 billion of asset impairments and estimated disposal losses related to projects and equity investments, respectively,
with lower expected cash flows or fair values. These charges recorded by NRG in the third and fourth quarters of 2002 included write-downs of $2.3 billion
and $983 million for projects in development and operating projects, respectively, and $196 million for impairment charges and disposal losses related
to equity investments.
Approximately $2.5 billion of these NRG impairment charges in 2002 related to NRG assets considered held for use under SFAS No. 144 as of Dec. 31, 2002.
For fair values determined by similar asset prices, the fair value represented NRG’s estimate of recoverability at that time, if the project assets were to be
sold. For fair values determined by estimated market price, the fair value represented a market bid or appraisal received by NRG that NRG believed was
best reflective of fair value at that time. For fair values determined by projected cash flows, the fair value represents a discounted cash flow amount over
the remaining life of each project that reflected project-specific assumptions for long-term power pool prices, escalated future project operating costs and
expected plant operation given assumed market conditions at that time.
NRG continued to incur asset impairments and related charges in 2003. Prior to its bankruptcy filing in May 2003, NRG recorded more than $500 million
in impairment and related charges resulting from planned disposals of an international project and several projects in the United States, and to regulatory
developments and changing circumstances throughout the second quarter that adversely affected NRG’s ability to recover the carrying value of certain
merchant generation units in the Northeastern United States.
Nonregulated Subsidiaries – All Other Segment
Xcel Energy International and e prime In December 2003, the board of directors of Xcel Energy approved management’s plan to exit the businesses
conducted by its nonregulated subsidiaries Xcel Energy International and e prime. Xcel Energy is in the process of marketing the remaining assets and
operations of these businesses to prospective buyers and expects to exit the businesses during 2004.
Results of discontinued nonregulated operations in 2003, other than NRG, include an after-tax loss expected on the disposal of all Xcel Energy
International assets of $59 million, based on the estimated fair value of such assets. The fair value represents a market bid or appraisal received that
is believed to best reflect the assets’ fair value at Dec. 31, 2003. Xcel Energy’s remaining investment in Xcel Energy International at Dec. 31, 2003,
was approximately $39 million. Losses from discontinued nonregulated operations in 2003 also include a charge of $16 million for costs of settling
a Commodity Futures Trading Commission trading investigation of e prime.
Results of discontinued nonregulated operations in 2002 were reduced by impairment losses recorded by Xcel Energy International for certain Argentina
assets. In 2002, Xcel Energy International decided it would no longer fund one of its power projects in Argentina. This decision resulted in the shutdown
of the Argentina plant facility, pending financing of a necessary maintenance outage. Updated cash flow projections for the plant were insufficient to provide
recovery of Xcel Energy International’s investment. The project was written down to estimated fair value, based on an appraisal received that is believed to best
reflect the assets’ fair value at Dec. 31, 2002. The write-down for this Argentina facility was approximately $13 million.
Results of discontinued nonregulated operations in 2002 also were reduced by a loss on disposal of Xcel Energy International’s remaining investment in
Yorkshire Power Group Limited.
Tax Benefits Related to Investment in NRG With NRG’s emergence from bankruptcy in December 2003, Xcel Energy has divested its ownership
interest in NRG and plans to take a tax deduction in 2003. These benefits are reported as discontinued operations. During 2002, Xcel Energy recognized
tax benefits of $706 million. This benefit was based on the estimated tax basis of Xcel Energy’s cash and stock investments already made in NRG, and
their deductibility for federal income tax purposes.
Based on the results of a 2003 study, Xcel Energy recorded $105 million of additional tax benefits in 2003, reflecting an updated estimate of the tax basis of
Xcel Energy’s investments in NRG and state tax deductibility. Upon NRG’s emergence from bankruptcy in December 2003, an additional $288 million of
tax benefit was recorded to reflect the deductibility of the settlement payment of $752 million, uncollectible receivables from NRG, other state tax benefits and
further adjustments to the estimated tax basis in NRG. Another $11 million of state tax benefits were accrued earlier in 2003 based on projected impacts.