Xcel Energy 2003 Annual Report Download - page 53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
XCEL ENERGY 2003 ANNUAL REPORT 69
Benefit Costs The components of net periodic postretirement benefit cost are:
(Thousands of dollars) 2003 2002 2001
Service cost $ 5,893 $ 7,173 $ 6,160
Interest cost 52,426 50,135 46,579
Expected return on plan assets (22,185) (21,030) (18,920)
Curtailment (gain) loss (2,128) ––
Settlement (gain) loss (916) ––
Amortization of transition obligation 15,426 16,771 16,771
Amortization of prior service cost (credit) (1,533) (1,130) (1,235)
Amortization of net loss (gain) 15,409 5,380 1,457
Net periodic postretirement benefit cost (credit) under SFAS No. 106(a) 62,392 57,299 50,812
Additional cost recognized due to effects of regulation 3,883 4,043 3,738
Net cost recognized for financial reporting $66,275 $61,342 $54,550
Significant assumptions used to measure costs (income)
Discount rate 6.75% 7.25% 7.75%
Expected average long-term rate of return on assets (pretax) 8.0%–9.0% 9.0% 8.0%–9.5%
(a) Includes amounts related to discontinued operations of ($3.0) million of credit in 2003, $2.7 million of cost in 2002, and $2.0 million of cost in 2001.
Impact of 2003 Medicare Legislation On Dec. 8, 2003, President Bush signed into law the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Act). The Act expanded Medicare to include, for the first time, coverage for prescription drugs. This new coverage
is generally effective Jan. 1, 2006. Many of Xcel Energy’s retiree medical programs provide prescription drug coverage for retirees over age 65 with
coverage at least equivalent to the benefit to be provided under Medicare. While retirees remain in Xcel Energy’s postretirement health care plan
without participating in the new Medicare prescription drug coverage, Medicare will share the cost of Xcel Energy’s plan. This legislation has therefore
reduced Xcel Energy’s share of the obligation for future retiree medical benefits.
The postretirement health care benefit obligation shown in the chart previously is the actuarial present value, as of Dec. 31, 2003, of Xcel Energy’s share
of future retiree medical benefits attributable to service through the current year. This obligation has been reduced to reflect the effects of this legislation.
The FASB has not yet issued authoritative guidance on the method it prefers to reflect the Act in these calculations. In addition, regulations implementing
this legislation have not yet been issued by Medicare agencies. As a result, when guidance and regulations are issued, the estimates of future costs and
obligations could change and previously estimated information may require revision.
As of Dec. 31, 2003, Xcel Energy had reduced the postretirement health care benefit obligation by $64.6 million due to the expected sharing of the cost
of the program by Medicare under the new legislation. Also, beginning in 2004, it is expected that the annual net periodic postretirement benefit cost will
be reduced by approximately $10 million as a result of the expected sharing of the cost of the program by Medicare, with similar savings in subsequent
years. This reduction includes both the decrease in the cost of future benefits being earned during this year, and an amortization of the benefit obligation
reduction, previously noted, over approximately nine years. These estimated reductions do not reflect any changes that may result in future levels of
participation in the plan or the associated per capita claims cost due to the availability of prescription drug coverage for Medicare-eligible retirees.
Also, in reflecting this legislation, Medicare cost sharing for a plan has been assumed only if Xcel Energy’s projected contribution to the plan is expected
to be at least equal to the Medicare Part D basic benefit.
13. DETAIL OF INTEREST AND OTHER INCOME, NET OF NONOPERATING EXPENSES
Interest and other income, net of nonoperating expenses, for the years ended Dec. 31, comprises the following:
(Thousands of dollars) 2003 2002 2001
Interest income $16,589 $29,559 $21,589
Equity income in unconsolidated affiliates 5,628 1,835 7,029
Gain on disposal of assets 9,365 10,076 14,696
Allowance for funds used during construction 25,338 7,793 6,739
Other nonoperating income 3,169 13,937 817
Interest expense on corporate-owned life insurance (24,372) (18,523) (20,116)
Total interest and other income, net of nonoperating expenses $35,717 $44,677 $30,754
14. EXTRAORDINARY ITEMS
SPS In April 2003, New Mexico enacted legislation that repealed its Electric Utility Restructuring Act of 1999, as amended. The implementation of
restructuring had been delayed in 2001. The legislation provides that a public utility be entitled to an opportunity to recover its transition costs. Utilities,
including SPS, may retain the transition costs as a regulatory asset on their books pending recovery, which shall be completed by January 2010.