Xcel Energy 2004 Annual Report Download - page 31

MANAGEMENT’S DISCUSSION and ANALYSIS
Xcel Energy Annual Report 2004
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The regulated utilities expect to incur approximately $221 million in capital expenditures for compliance with environmental regulations and environmental
improvements in 2005 and approximately $980 million of related expenditures during the period from 2006 through 2009. Approximately $171 million
and $787 million of these expenditures, respectively, are related to modifications to reduce the emissions of NSP-Minnesota’s generating plants located in
the Minneapolis-St. Paul metropolitan area pursuant to the metropolitan emissions reduction project, which are recoverable from customers through cost-
recovery mechanisms. See Notes 16 and 17 to the Consolidated Financial Statements for further discussion of Xcel Energy’s environmental contingencies.
Impact of Nonregulated Investments
In the past, Xcel Energy’s investments in nonregulated operations have had a significant impact on its results of operations. As a result of the divestiture
of NRG and other nonregulated operations, Xcel Energy does not expect that its investments in nonregulated operations will continue to have such a
significant impact on its results. Xcel Energy does not expect to make any material investments in nonregulated projects. Xcel Energy’s remaining
nonregulated businesses may carry a higher level of risk than its traditional utility businesses.
Inflation
Inflation at its current level is not expected to materially affect Xcel Energy’s prices or returns to shareholders.
Critical Accounting Policies and Estimates
Preparation of the Consolidated Financial Statements and related disclosures in compliance with GAAP requires the application of appropriate technical
accounting rules and guidance, as well as the use of estimates. The application of these policies necessarily involves judgments regarding future events,
including the likelihood of success of particular projects, legal and regulatory challenges and anticipated recovery of costs. These judgments, in and of
themselves, could materially impact the Consolidated Financial Statements and disclosures based on varying assumptions, which may be appropriate to
use. In addition, the financial and operating environment also may have a significant effect, not only on the operation of the business, but on the results
reported through the application of accounting measures used in preparing the Consolidated Financial Statements and related disclosures, even if the
nature of the accounting policies applied have not changed. The following is a list of accounting policies that are most significant to the portrayal of
Xcel Energy’s financial condition and results, and that require management’s most difficult, subjective or complex judgments. Each of these has a higher
potential likelihood of resulting in materially different reported amounts under different conditions or using different assumptions. Each critical
accounting policy has been discussed with the audit committee of the Xcel Energy board of directors.
Accounting Policy Judgments/Uncertainties Affecting Application See Additional Discussion At
Regulatory Mechanisms – External regulatory decisions, requirements Management’s Discussion and Analysis:
and Cost Recovery and regulatory environment Factors Affecting Results of Continuing Operations
– Anticipated future regulatory decisions and Regulation
their impact Notes to Consolidated Financial Statements
– Impact of deregulation and competition on Notes 1, 16 and 18
ratemaking process and ability to recover costs
Nuclear Plant – Costs of future decommissioning Notes to Consolidated Financial Statements
Decommissioning – Availability of facilities for waste disposal Notes 1, 16 and 17
and Cost Recovery – Approved methods for waste disposal
– Useful lives of nuclear power plants
– Future recovery of plant investment and
decommissioning costs
Income Tax Accruals – Application of tax statutes and regulations Management’s Discussion and Analysis:
to transactions Factors Affecting Results of Continuing Operations
– Anticipated future decisions of tax authorities Tax Matters
– Ability of tax authority decisions/positions to Notes to Consolidated Financial Statements
withstand legal challenges and appeals Notes 1, 10 and 16
– Ability to realize tax benefits through carry backs
to prior periods or carry overs to future periods
Benefit Plan Accounting – Future rate of return on pension and other plan assets, Management’s Discussion and Analysis:
including impacts of any changes to investment Factors Affecting Results of Continuing Operations
portfolio composition Pension Plan Costs and Assumptions
– Discount rates used in valuing benefit obligation Notes to Consolidated Financial Statements
– Actuarial period selected to recognize deferred Notes 1 and 12
investment gains and losses
Asset Valuation – Regional economic conditions affecting asset operation, Management’s Discussion and Analysis:
market prices and related cash flows Results of Operations
– Regulatory and political environments and requirements Statement of Operations Analysis–
– Levels of future market penetration and customer growth Discontinued Operations
Factors Affecting Results of Continuing Operations
Impact of Nonregulated Investments
Notes to Consolidated Financial Statements
Note 3