Xcel Energy 2004 Annual Report Download - page 71

NOTES to CONSOLIDATED FINANCIAL STATEMENTS
Xcel Energy Annual Report 2004
69
Projected Benefit Payments
The following table lists Xcel Energy’s projected benefit payments for the pension and postretirement benefit plans:
Gross Projected Expected Net Projected
Projected Postretirement Medicare Postretirement
Pension Health Care Part D Health Care
(Thousands of dollars) Benefit Payments Benefit Payments Subsidies Benefit Payments
2005 $ 199,117 $ 59,642 $ – $ 59,642
2006 $ 211,830 $ 61,652 $ 4,297 $ 57,355
2007 $ 217,582 $ 63,640 $ 4,591 $ 59,049
2008 $ 225,050 $ 65,393 $ 4,821 $ 60,572
2009 $ 231,704 $ 67,036 $ 5,008 $ 62,028
2010–2014 $1,202,161 $352,308 $27,192 $325,116
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) 2004 2003 2002
Interest income $22,688 $16,306 $29,237
Equity income in unconsolidated affiliates 7,956 5,628 1,835
Gain on disposal of assets 4,725 9,365 10,076
Other nonoperating income 4,048 3,160 14,170
Interest expense on corporate-owned life insurance
and other employee-related insurance policies (24,601) (21,320) (18,053)
Other nonoperating expense (8) (3,038) (462)
Total interest and other income, net of nonoperating expenses $14,808 $10,101 $36,803
14. DERIVATIVE INSTRUMENTS
In the normal course of business, Xcel Energy and its subsidiaries are exposed to a variety of market risks. Market risk is the potential loss that may occur
as a result of changes in the market or fair value of a particular instrument or commodity. Xcel Energy and its subsidiaries utilize, in accordance with
approved risk management policies, a variety of derivative instruments to mitigate market risk and to enhance our operations. The use of these derivative
instruments is discussed in further detail below.
Utility Commodity Price Risk Xcel Energy and its subsidiaries are exposed to commodity price risk in their generation and retail distribution operations.
Commodity price risk is managed by entering into both long- and short-term physical purchase and sales contracts for electric power, natural gas, coal
and fuel oil. Commodity risk also is managed through the use of financial derivative instruments. Xcel Energy and its utility subsidiaries utilize these
derivative instruments to reduce the volatility in the cost of commodities acquired on behalf of our retail customers even though regulatory jurisdiction
may provide for a dollar-for-dollar recovery of actual costs. In these instances, the use of derivative instruments is done consistently with the local
jurisdictional cost-recovery mechanism. Xcel Energy’s risk-management policy allows it to manage market price risk within each rate-regulated operation
to the extent such exposure exists.
Short-Term Wholesale and Commodity Trading Risk Xcel Energy’s subsidiaries conduct various marketing and commodity trading activities, including
the purchase and sale of electric capacity and energy and other energy-related instruments. These activities are primarily focused on specific regions
where market knowledge and experience have been obtained and are generally less than one year in length. Xcel Energy’s risk-management policy allows
management to conduct the marketing activity within approved guidelines and limitations as approved by our risk-management committee, which is
made up of management personnel not directly involved in the activities governed by this policy.
Interest Rate Risk Xcel Energy and its subsidiaries are subject to the risk of fluctuating interest rates in the normal course of business. Xcel Energy’s
risk-management policy allows interest rate risk to be managed through the use of fixed-rate debt, floating-rate debt and interest-rate derivatives
such as swaps, caps, collars and put or call options.
Foreign Currency Exchange Risk Due to the discontinuance of NRG and Xcel Energy International’s operations in 2003, as discussed in Notes 3 and
4 to the Consolidated Financial Statements, Xcel Energy no longer has material foreign currency exchange risk.
Types of and Accounting for Derivative Instruments
Xcel Energy uses a number of different derivative instruments in connection with its utility commodity price, interest rate, short-term wholesale and
commodity trading activities, including forward contracts, futures, swaps and options. All derivative instruments not qualifying for the normal purchases
and normal sales exception, as defined by SFAS No. 133, as amended, are recorded at fair value. The classification of the fair value for these derivative
instruments is dependent on the designation of a qualifying hedging relationship. The fair value of derivative instruments not designated in a qualifying
hedging relationship is reflected in current earnings. This includes certain instruments used to mitigate market risk for the utility operations and all
instruments related to the commodity trading operations. The designation of a cash flow hedge permits the classification of fair value to be recorded
within Other Comprehensive Income, to the extent effective. The designation of a fair value hedge permits a derivative instrument’s gains or losses
to offset the related results of the hedged item in the Consolidated Statements of Operations, to the extent effective.