Xcel Energy 2003 Annual Report Download - page 60

76 XCEL ENERGY 2003 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The remainder of the leases, primarily real estate leases and leases of coal-hauling railcars, trucks, cars and power-operated equipment are accounted
for as operating leases. Rental expense under operating lease obligations for continuing operations was approximately $66 million, $69 million and
$49 million for 2003, 2002 and 2001, respectively.
Future commitments under operating and capital leases for continuing operations are:
(Millions of dollars) Operating Leases Capital Leases
2004 $49 $ 7
2005 $49 $ 7
2006 $47 $ 7
2007 $42 $ 7
2008 $40 $ 6
Thereafter $46 $ 72
Total minimum obligation $106
Interest (58)
Present value of minimum obligation $ 48
Technology Agreement Xcel Energy has 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 2003, Xcel Energy paid
IBM $114.2 million under the contract and $19.4 million for other project business. The contract also has a committed minimum payment each
year from 2004 through 2011.
Fuel Contracts Xcel Energy and its subsidiaries have 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 2004 and 2025. In total, Xcel Energy is committed to the
minimum purchase of approximately $2.7 billion of coal, $93.3 million of nuclear fuel and $1.9 billion of natural gas, including $790.8 million
of natural gas storage and transportation, or to make payments in lieu thereof, under these contracts. Of these minimum purchase commitments,
approximately $2 billion are based on indexed prices. 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
use of natural gas and energy cost-adjustment mechanisms of the ratemaking process, which provide for pass-through of most fuel costs to customers.
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 2033. 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.
At Dec. 31, 2003, 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)
2004 $ 552,651
2005 554,603
2006 547,987
2007 562,917
2008 and thereafter 3,958,416
Total $6,176,574
Environmental Contingencies
Xcel Energy is 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. Compliance is continually assessed. Regulations, interpretations and enforcement policies can change, which may impact the cost of building
and operating facilities.
Site Remediation Xcel Energy 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, 2003, there were three categories of sites:
–third-party sites, such as landfills, to which Xcel Energy is 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.
Xcel Energy records a liability when enough information is obtained 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.